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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

the fiscal year 1960 budget. First, the budget format and changes in appropriation structure proposed for 1960 are intended to facilitate presentation and consideration of the Department of Defense budget on a functional and more uniform basis than in past years. These changes do not give the Secretary of Defense any greater or lesser authority over the utilization of appropriations for military functions administered by the Department of Defense than he now has.

ESTIMATES, 1960, SHOWING CONVERSION FROM 1959 PATTERN For the purpose of showing the relationships between the 1960 and the 1959 budget arrangements we have prepared a conversion table, copies of which have been furnished to the committee. The 1959 budget arrangement is shown along the left-hand margin of the table. The individual appropriations are grouped by organizational component, that is, Department of the Army, Department of the Navy, Department of the Air Force, Office of the Secretary of Defense and Interservice Activities.

(The table may be found backing this page.) The 1960 arrangement is shown across the top of the table. Here, all the appropriations of the Department of Defense are grouped under five main functional headings: "Military Personnel"; "Operation and Maintenance”; “Procurement”; “Research”; “Development, Test and Evaluation"; and "Military Construction.”' There is also a sixth grouping covering the revolving and management funds of the Department of Defense.

The new groupings emphasize the functional rather than the organizational aspects of the Department of Defense budget, while at the same time maintaining the separate appropriations for each of the organizational components of the Defense of Defense. The summary tables which appear as the first few pages of the subcommittee print of the Department of Defense appropriation bill, 1960, follow this arrangement.

There are, however, some changes in the content of individual appropriations:

First, one of the improvements urged by the committee has been adopted—namely, to differentiate more clearly between procurement on the one hand and research, development, test and evaluation on the other. For the most part the changes of accomplish this result represent decreases in the estimates for the procurement type appropriations and corresponding increases in the estimates for the more comprehensive research, development, test and evaluation appropriations. To the extent that amounts associated with development, test and evaluation remain in the procurement appropriations they are to be identified as separate budget activities.

Second, another important change is the consolidation of 10 Navy operation and maintenance appropriations into a single new appropriation. This change will place the operation and maintenance appropriations of the Navy on the same basis--and give the Navy the same flexibility—that the Army and Air Force have had for the past several years.

Third, as a logical result of the functional approach, separate appropriations for the civilian components, consistent with the new arrangements, are proposed.

COMMITTEE ON APPROPRIATIONS

CLARENCE CANNON, Missouri, Chairman GEORGE H. MAHON, Texas

JOHN TABER, New York HARRY R. SHEPPARD, California

BEN F. JENSEN, Iowa ALBERT THOMAS, Texas

H. CARL ANDERSEN, Minnesota MICHAEL J. KIRWAN, Ohio

WALT HORAN, Washington W. F. NORRELL, Arkansas

GORDON CANFIELD, New Jersey JAMIE L. WHITTEN, Mississippi

IVOR D. FENTON, Pennsylvania GEORGE W. ANDREWS, Alabama

GERALD R. FORD, JR., Michigan JOHN J. ROONEY, New York

HAROLD C. OSTERTAG, New York J. VAUGHAN GARY, Virginia

FRANK T, BOW, Ohio JOHN E. FOGARTY, Rhode Island

CHARLES RAPER JONAS, North Carolina ROBERT L. F. SIKES, Florida

MELVIN R. LAIRD, Wisconsin PRINCE H. PRESTON, Georgia

ELFORD A. CEDERBERG, Michigan OTTO E. PASSMAN, Lorisiana

GLENARD P. LIPSCOMB, California LOUIS C. RABACT, Michigan

JOHN J. RHODES, Arizona SIDNEY R. YATES, Illinois

JOHN R. PILLION, New York FRED MARSHALL, Minnesota

PHIL WEAVER, Nebraska JOHN J. RILEY, South Carolina

WILLIAM E. MINSHALL, Ohio JOE L. EVINS, Tennessee

KEITH THOMSON, Wyoming
JOHN F. SHELLEY, California

ROBERT H. MICHEL, Illinois
EDWARD P. BOLAND, Massachusetts SILVIO 0, CONTE, Massachusetts
DON MAGNUSON, Washington
WILLIAM H. NATCHER, Kentucky
DANIEL J. FLOOD, Pennsylvania
WINFIELD K, DENTON, Indiana
TOM STEED, Oklahoma
HIGH Q. ALEXANDER, North Carolina
CHARLES A. BOYLE, Illinois
ALFRED E. SANTANGELO, New York
JOSEPH M. MONTOYA, New Mexico

KENNETH SPRANKLE, Clerk and Staf Diredor

(II)

DEPOSTED THE WTED 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.

1 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 a 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.

Fourth, is the establishment of three procurement appropriations in the Air Force--"Aircraft procurement," "Missile procurement," and “Other procurement”-in place of the existing two. The principal result achieved by this change is to include in any one of these appropriation accounts the funds for all major hardware related to any specific weapon system. For example, funds for launchers and ground handling equipment for missiles will be in the same appropriation as the missiles themselves.

Fifth, inasmuch as the Office of Public Affairs is an integral part of the Office of the Secretary of Defense, it is proposed that the separate account for this Office be discontinued and the activities previously financed thereunder be merged with the appropriation "Salaries and expenses, Secretary of Defense."

The language changes which are recommended in the President's budget for these appropriations are for the purpose of accommodating the changes in budget structure and providing greater uniformity. They are not intended to enlarge any of the authority of the existing language.

OBLIGATION PLAN FOR GENERAL AND SPECIAL FUND APPROPRIATION

Mr. Chairman, I would like to place in the record at this point the Department of Defense financial plan for fiscal year 1960.

Mr. Mahon. Without objection it will be placed in the record at this point.

(The table referred to may be found on facing page.)

It may be useful to the committee to restate the purpose of the financial plan and to explain the general arrangement of the columns. The Department of Defense financial plan brings together in one table a presentation of all the financial resources available to the Department of Defense for obligation and commitment, and the planned application of these resources.

If the obligational program for fiscal year 1959 is carried out as projected, we would expect to enter fiscal year 1960 with a total unobligated balance of $6,567 million (col. 5).

Column 6 shows the new obligational authority in the bill currently being considered by the committee, and in the case of military construction the amounts proposed for later transmission. Column ? shows the amount_$340 million-recommended in the President's budget to be provided by transfer from the stock funds of the Department of Defense in lieu of new appropriations. Other amounts shown in this column represent transfers among appropriations relating to changes in appropriation structure and, accordingly, are "wash" transactions which have no effect on the total.

Mr. Ford. Could you give a very simple example to illustrate?

Mr. McNEIL. The $340 million, the net amount in column 7, is wholly derived from transfers from the stock funds and is all applied to the military personnel accounts. They are the first four entries in that_column-military personnel, Army, Navy, Marine Corps, and Air Force.

Now, down under “Procurement”—and that is the third bracket down-you will find "Procurement of equipment and missiles, Armyminus $10 million”. Under the fourth bracket down “Research, development, test, and evaluation," you will find "Research, development, test, and evaluation, Army--plus $10 million." This trans

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