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COMMITTEE ON APPROPRIATIONS

CLARENCE CANNON, Missouri, Chairman

GEORGE H. MAHON, Texas
HARRY R. SHEPPARD, California
ALBERT THOMAS, Texas
MICHAEL J. KIRWAN, Ohio
W. F. NORRELL, Arkansas
JAMIE L. WHITTEN, Mississippi
GEORGE W. ANDREWS, Alabama
JOHN J. ROONEY, New York
J. VAUGHAN GARY, Virginia
JOHN E. FOGARTY, Rhode Island
ROBERT L. F. SIKES, Florida
PRINCE H. PRESTON, Georgia
OTTO E. PASSMAN, Louisiana
LOUIS C. RABACT, Michigan
SIDNEY R. YATES, Illinois
FRED MARSHALL, Minnesota
JOHN J. RILEY, South Carolina
JOE L. EVINS, Tennessee
JOHN F. SHELLEY, California
EDWARD P. BOLAND, Massachusetts
DON MAGNUSON, Washington
WILLIAM H. NATCHER, Kentucky
DANIEL J. FLOOD, Pennsylvania
WINFIELD K. DENTON, Indiana
TOM STEED, Oklahoma
HUGH Q. ALEXANDER, North Carolina
CHARLES A. BOYLE, Illinois

ALFRED E. SANTANGELO, New York
JOSEPH M. MONTOYA, New Mexico

JOHN TABER, New York
BEN F. JENSEN, Iowa

H. CARL ANDERSEN, Minnesota
WALT HORAN, Washington
GORDON CANFIELD, New Jersey
IVOR D. FENTON, Pennsylvania
GERALD R. FORD, JR., Michigan
HAROLD C. OSTERTAG, New York
FRANK T. BOW, Ohio

CHARLES RAPER JONAS, North Carolina

MELVIN R. LAIRD, Wisconsin

ELFORD A. CEDERBERG, Michigan
GLENARD P. LIPSCOMB, California
JOHN J. RHODES, Arizona
JOHN R. PILLION, New York
PHIL WEAVER, Nebraska
WILLIAM E. MINSHALL, Ohio
KEITH THOMSON, Wyoming
ROBERT H. MICHEL, Illinois
SILVIO O. CONTE, Massachusetts

KENNETH SPRANKLE, Clerk and Staff Director

DEPOSITED THE INTED STATES OF AMERICA

DEPARTMENT OF DEFENSE APPROPRIATIONS FOR 1960

THURSDAY, FEBRUARY 19, 1959.

FINANCIAL PLAN FOR THE FISCAL YEAR 1960

WITNESSES

W. J. MCNEIL, ASSISTANT SECRETARY OF DEFENSE (COMPTROLLER) H. R. LOGAN, ASSISTANT DIRECTOR OF BUDGET, OFFICE OF THE

ASSISTANT SECRETARY OF DEFENSE (COMPTROLLER)

MAJ. GEN. DAVID W. TRAUB, DIRECTOR OF BUDGET, OFFICE OF

THE COMPTROLLER, DEPARTMENT OF THE ARMY

REAR ADM. G. F. BEARDSLEY, DEPUTY COMPTROLLER, DEPART

MENT OF THE NAVY

REAR ADM. LOT ENSEY, ASSISTANT COMPTROLLER, DIRECTOR OF BUDGET AND REPORTS, DEPARTMENT OF THE NAVY

LYLE S. GARLOCK, ASSISTANT SECRETARY OF THE AIR FORCE (FM) BRIG. GEN. R. J. FRIEDMAN, DIRECTOR OF BUDGET, COMPTROLLER OF THE AIR FORCE

Mr. MAHON. The committee will come to order.

We will now hear the Assistant Secretary of Defense, Mr. McNeil, who has an extraordinary grasp of the operations of the Department of Defense in all of its aspects.

Mr. McNeil, you have been appearing before the Appropriations Committee for a long, long time, and you have seen a lot of programs come and go. We have had some overall policy hearings which you have, of course, attended in part. You were here with Secretary McElroy and testified some at that time.

We are interested in policy, but we have to come down ultimately to the matter of dollars and cents and the actual writing of the appropriation bill.

I see here you have a prepared statement, and we will be pleased to listen to it. I have not had an opportunity to read it, but I do not have any doubt but that it is well-documented statement which will be most helpful to the committee. I wish that you would just proceed in your own way and we will not interrupt you until you have completed your presentation.

Mr. MCNEIL. Thank you, Mr. Chairman. I might say that I have seldom appeared before your committee with such a wealth of talent as is sitting around me at the moment.

Mr. MAHON. We have observed the talent. You are very fortunate to be so well fortified, or monitored, I do not know which.

STATEMENT OF ASSISTANT SECRETARY OF DEFENSE W. J. MCNEIL

Mr. MCNEIL. Mr. Chairman and members of the committee, before presenting the usual résumé of the fiscal aspects of the 1960 Defense budget, it is believed a discussion of certain special areas may be helpful to the committee.

DEVELOPMENT OF THE FISCAL YEAR 1960 DEFENSE BUDGET

First, it may be useful to round out previous discussions before this committee on the manner in which the 1960 Defense budget was developed. It has long been recognized in the Defense Department that no one annual budget can be intelligently developed without reference to the past and current level of defense expenditures. This is one of the important considerations in determining the general order of magnitude of the budget for planning purposes because each annual budget, essentially, is just one increment of a sustained, longrange defense program.

Serious discussion of the general order of magnitude of the 1960 Defense budget started last summer. It was thought, then, that in view of the upward drift of prices and wages experienced in the previous 2 or 3 years, and the increasing cost and complexity of each new generation of weapons, the initial budget planning target for 1960 should be a little higher than the estimated 1959 expenditure level. This took into account the many other factors affecting the size and character of the defense program, which were discussed before this committee by Secretary McElroy and General Twining such as the strength and weaknesses of possible enemies, now and in the future; the strength and weaknesses of our major allies around the world; the international situation as a whole; and the present and prospective state of military technology. It also took into account the general economic and fiscal situation in our own country.

Considering all the various factors affecting the defense programs, it was tentatively concluded that a figure of $41% billion in expenditures-about a billion dollars more than the amount estimated for 1959-would provide a reasonably good starting point for the development of the 1960 budget.

In subsequent discussions between the Secretary of Defense and the service Secretaries it was decided, as a first approach, to allocate $41 billion in expenditures among the Army, Navy, Air Force, and Office of the Secretary of Defense as the initial planning objectives for basic budget submissions. As a logical point of departure these allocations were based on the proportion each service's expenditures bore to the total expenditure estimate for fiscal year 1959. At the same time it was agreed that the services could recommend additional programs for consideration within the remaining $500 million of the tentative expenditure target. It was expected that the total new obligational authority requested would approximate these expenditure objectives.

This approach was adopted by the Joint Secretaries in an effort to encourage all the services to include in their basic budget submissions the programs which they considered to be of the highest priority. It was expected that any additional programs proposed by each service would be of lesser priority and would be considered in relation to additional programs proposed by the other services.

Early in October the services and the components of the Office of the Secretary of Defense submitted their initial budget requests. The aggregate of their basic budgets totaled about $41.6 billion in expenditures compared with the $41 billion basic budget target. In addition, programs, involving another $1.6 billion of expenditures, were also submitted as compared with the $500 million set aside for such additional programs for all services combined. As a practical matter each service considered its own programs of such importance as to warrant the allocation of all or most of the $500 million. Thus the budgets submitted by the services totaled an estimated $43.2 billion in expenditures as compared with the $41% billion initial planning figure.

Associated with this $43.2 billion of expenditures, however, was a total of about $481⁄2 billion in new obligational authority, $422 billion in the basic budgets and about $6 billion for the additional programs. These totals include amounts for certain programs such as NikeZeus omitted by the services from both their basic and "add-on" budgets. The reason for the wide disparity between expenditures and new obligational authority arises from the character of the additional programs proposed. Most of the additional programs were in the procurement area, involving long-lead-time items for which expenditures in the first year would be very small compared to the total new obligational authority involved. By the same token, of course, the $482 billion of new obligational authority would have resulted in a much higher level of expenditures in succeeding years.

The point that I would like to make there is that the type and nature of the new programs, additional programs proposed, were such that they took a considerable amount of new obligational authority in 1960, but would result in only a limited amount of expenditures in the first year.

Early in the review of the services' budget requests it became apparent that the basic budgets included some programs of lower priority than those included in the add-on or augmentation requests. Accordingly, it was necessary to consider the budget requests in total instead of dealing with the basic and additional requests separately.

Throughout October and November and the early part of December there were numerous program presentations by the services to the Secretary of Defense, the Deputy Secretary of Defense and their principal military and civilian advisors, followed by lengthy discussions among all the parties concerned. In the later stages of this process the major elements of the program and budget were presented to and discussed with the President and his advisors.

An example of the things that I have in mind of that nature is the NIKE-ZEUS, which was submitted for about $875 million in the first submission of the Army. Later, after some work was done, recommendations were made that the level be about $700 million and that it go into production. This was followed by more study which indicated it would not be ready for production, but every reasonable effort should be made to speed the development and that would take about $300 million, which is the amount in the budget today.

It was through that kind of a process and discussion that the figure we submitted came into being.

In this manner there evolved a fiscal year 1960 budget calling for new obligational authority of $41.190 billion including $340 million

to be derived by transfers from the revolving funds of the Department of Defense; direct obligations of $42.707 billion; and net expenditures of $40.945 billion.

We have prepared for the use of the committee a table (attachment A) showing amounts, by service, for the initial targets, the basic budget submissions, the add-on programs, and the final budgetin terms of new obligational authority and expenditures. There is also available for use by the committee a summary of adjustments made to the total initial budget requests of the services-by major program element, by appropriation, and by service.

FISCAL YEAR 1959 SUPPLEMENTAL

It may be useful in rounding out the financial picture of the Defense program to cover briefly the principal elements of the fiscal year 1959 supplemental request for $294.1 million, being transmitted to the Congress by the President. The total cost in fiscal year 1959 of the classified civilian pay increases authorized by Public Law 85-462, and for which funds were not appropriated last year, is estimated at $273 million. About $112 million of this amount is being absorbed within appropriations available to the Department of Defense-including the application of $76 million of the funds appropriated by the Congress in excess of the President's fiscal year 1959 budget request. The remainder, about $161 million, is included in the supplemental budget request. (While not related to the statutory pay increases for classified employees, the committee might be interested in knowing that approximately $164 million of wage board increases will also be absorbed this year by the Department.)

The delay in phasing down military personnel to the strength goals proposed by the President for the current fiscal year resulted in a requirement for an additional $38.6 million to pay for a higher average military man-year strength for the Navy and Air Force than had originally been funded.

The Lebanon and Taiwan situations added to the Department's operation and maintenance costs during the current fiscal year. The Department will absorb much of these extra costs but an additional $40.3 million will be required for this purpose and has been included in the 1959 supplemental.

Also included in the supplemental is about $54 million for other increased costs-retired pay; medical care, Navy; increased Government social security contributions applicable to military personnel; and military permanent change of station travel about which the Chief of Naval Personnel has informed this committee.

During Secretary McElroy's appearance before the committee there was some discussion about the utilization of the fiscal year 1959 funds appropriated by the Congress for certain programs in excess of the President's budget request. The record of your hearings indicates that this subject has been explored with each of the service Secretaries and Chiefs, but of necessity on a piecemeal basis. For this reason we have prepared a table (attachment B) showing the details of such transactions for all elements of the Department of Defense.

ARRANGEMENT OF THE FISCAL YEAR 1960 BUDGET

Before presenting the financial plan for 1960 it may be helpful to the committee if there was a brief discussion of the arrangement of

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