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STATEMENT OF HAROLD D. SMITH, DIRECTOR OF THE BUREAU

OF THE BUDGET

PROCEDURE IN PREPARATION OF THE ESTIMATES

Mr. Smith. Mr. Chairman, in developing this estimate, the Bureau of the Budget was confronted with a special situation. The needs to be met by this estimate are not those of Federal departments and agencies operating in the regular framework. Normally, a department or agency would present its requests and justify them in considerable detail. But this estimate deals with the needs of other countries whose defense is vital to our own. Obviously, it could not conform to the traditional pattern of budgetary procedure.

We started with a general outline of the requirements of the British Government. These requirements were segregated and distributed to appropriate Federal departments and agencies for study and processing. The main problem was to relate them to plans for the production of our own defense articles. For example, where the requirements concerned the Departments of War and Navy they were analyzed by those Departments with the aid of the Office of Production Management. Where raw materials were involved, it was ascertained through the Office of Production Management whether or not these raw materials were available for disposition to other countries. We also discussed with that Office the requirements for machine tools, steel, and iron. The requirements for food and other agricultural products were discussed with the Secretary of Agriculture. The amounts set forth in the estimate represent the considered judgment of the various agencies and of the Bureau of the Budget. In short, we have a program that is closely related to our own needs and effectively responsive to the needs of the other democracies.

FORM OF THE ESTIMATE

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In setting these estimates into a framework of appropriation language we have not been able to use the traditional form. We are providing defense articles for countries at war, and a considerable degree of flexibility is necessary. New emergencies arise, conditions of warfare change, and a weapon that is in use today may be obsolete tomorrow. In this estimate we are attempting to forecast the needs of other nations for their war efforts in the months to come. We have endeavored, therefore, not only to identify as clearly as possible the broad categories of aid to be furnished, but to provide at the same time a reasonable degree of flexibility in meeting the need for such aid.

Flexibility in the administration of an appropriation of this character is also a primary necessity. It was believed that maximum flexibility in administration could be attained by making the appropriation to the President for allocation to the several departments and agencies. For obvious reasons it would be difficult if not impracticable to catalog the separate requirements of the individual agencies with respect to a program of this nature, or determine in advance which agency at a given time might be best equipped to handle a particular item. In the form adopted the agency best fitted to do a particular job can be given the money with which to do it, and effective over-all direction of the program will be facilitated.

In item (a) funds have been requested to carry out the purpose of section 3 (a) (1) of the bill, which provides for the manufacture and procurement of defense articles, including facilities for production and manufacture. These funds have been classified according to major categories of expenditure, and the classifications used will facilitate procurement and accounting in the departments. From a budgetary point of view, adequate control is achieved without unduly restricting freedom of operation.

In item (b) provision is made for the testing, repairing, and reconditioning of defense articles as contemplated by section 3 (a) (3) of the act.

With respect to the articles provided for in items (a) and (b) it is realized that any estimate of future need is subject to almost constant change. Under categories as specific as those set forth in the above items, the determination of requirements can only be approximate. An emergent situation might develop with respect to any one of these categories. We have, therefore, provided for interchangeability between the various items included in (a) and (b) by adding a proviso for that purpose.

With this proviso, it would be possible either to take an amount from a single appropriation item under which the need might not be so great as originally estimated, or to take smaller amounts from several appropriation items. In no case can a single appropriation be reduced by more than 20 percent, nor can any single appropriation be increased by more than 30 percent. It is believed that the percentages suggested will provide sufficient flexibility to meet any emergencies. Should any further shifting between categories be necessary, we can come back to the committee for necessary adjustments.

A question was raised as to the right of this Government to use articles procured under the authority of section 3 (a) (1) of the act. To remove any doubt on this point, a further proviso has been added under which the President would be clearly authorized to allocate any such articles to the appropriate department or agency of this Government.

In items (c) and (d) provision is made for administrative expenses and for any other necessary services and expenses not previously specified. Item (c) is also available for unforeseen contingencies and to carry out other provisions of the act to which items (a) and (b) do not apply.

Instead of providing under each category for the necessary administrative expenses incident thereto, it was believed that these expenses could be better controlled if there were a definite limitation as to the total amount and the several departments and agencies were required to justify their requests to the Bureau of the Budget.

In the final paragraph, there is a proviso authorizing reimbursement to agencies and departments which dispose of defense articles under section 3 (a) (2) of the act. This proviso will permit immediate replacement of defense articles which were originally procured for our own Government but subsequently transferred to another government. For example, it would permit the President to transfer to the Army's current ordnance appropriation an amount equal to the value of Army ordnance matériel which might be disposed of to a foreign government. In this way we shall not only have a clearer

picture of the cost of this program, but the program of ordnance procurement for our own Army can be kept intact. Of course this might be done by making subsequent appropriations, but that would mean either changing our procurement schedules because of the intervening time until a new appropriation was made, or the continuous submission of piecemeal requests for appropriations for necessary replacements. The reimbursable feature is not limited to appropriations heretofore made, but will be also available for reimbursement, if necessary, of regular appropriations subsequently authorized to be used for the purposes of this act.

We have in mind that requests for allocation of funds from these appropriations will be made by the departments and agencies to the President through the Bureau of the Budget. The Bureau will process these requests and prepare them for review and approval by the President. After his approval, the appropriate departments and agencies will undertake to procure the defense articles through their regular channels.

This whole process of review and approval of allocation of funds will, of course, operate within a broad framework of policy determined upon by the President. We plan to keep a careful record of the allocations for procurement and for reimbursement. This information will, of course, be available to this committee. In brief, it is felt that the enactment of the appropriation in this form will permit the most effective utilization of the departments and agencies in carrying out this program, and will retain in the President the necessary fiscal control.

Mr. WOODRUM. Thank you, Mr. Smith. You will please remain, because the members of the committee may wish to ask you some questions.

QUESTIONS PROPOUNDED BY MEMBERS OF THE SUBCOMMITTEE TO

SECRETARY HULL, SECRETARY STIMSON, AND SECRETARY KNOX

At this time, I will request the members of the subcommittee, in their order, to ask such questions as they may desire of Secretary Hull, Secretary Stimson, and Secretary Knox. Unless there is some other suggestion, we will proceed in that order.

COUNTRIES TO BE AIDED

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Mr. CANNON. Mr. Secretary, you referred to "other countries” it was proposed to assist. What are those other countries?

Secretary Hull. If you will keep in mind that, according to all appearances, the world is faced with a movement of invasion and conquest through force without limit as to area, and our assistance would contemplate any country that is carrying forward a movement of resistance against the three invading forces, which, under the tripartite agreement, are rather closely interrelated countries. Our assistance would be to countries whose defense would be essential to ours, as was stated here. You will find that that will be determined by day-to-day developments. This situation is moving so rapidly that nobody knows from one week to another or from one day to another what nations may be swallowed up or what nations may resist. It would be any country that would thus get into that picture.

Mr. CANNON. Would it include Asiatic countries?

Secretary Hull. We have been dealing with a world-wide situation. We have been cooperating with China to quite a little extent, that country coming within that same category.

REALLOCATION OF DEFENSE ARTICLES BY ONE AIDED COUNTRY TO ANOTHER

Mr. LUDLOW. Mr. Secretary, is it your construction of the lendlease bill that we can furnish materials to Britain to be re-allocated by Britain to the other democracies, or must our furnishing of materials to those other democracies be direct?

Secretary HULL. These gentlemen would tell you perhaps more accurately on the technical side; but I think you will find that this means that any of those things would be done consent of each country concerned-ours, Britain, Greece, or whatever the other country may be. It might be much more convenient, for example, for some express agreement to be entered into which would facilitaté transportation. Sometimes we are in a very difficult position with regard to transportation, whereas Great Britain might not be. Such considerations might arise.

Mr. Ludlow. I take it that the disposal of this vast store of material would be on a program that would be sanctioned by Britain throughout.

Secretary HULL. We would keep our hands on this thing when it comes to going to third countries until we were satisfied, and each country, by mutual agreement, worked out.

Mr. WOODRUM. Mr. Secretary, under section 4 of the act it is specifically provided that if any of these materials are given to any country they cannot be transferred to anyone else without the specific consent of America.

Secretary Hull. As I say, we will keep our hands on it. You understand that I followed my friend Ludlow when I was in Congress, and we still agree on most things, though not quite all. So I made it clear when I came over here that I would endeavor to supply any information possible with respect to the foreign-relations side, the diplomatic side, of the conditions under which this state of danger developed. The technical side, the production and distribution side, I would leave to these other Departments.

Mr. WOODRUM. Thank you, Mr. Secretary.

LIST OF BRITISH REQUIREMENTS

Mr. Ludlow. Mr. Chairman, I have one or two questions that I would like to ask of Secretary Stimson.

Mr. Secretary, you stated that the British furnished a list of British requirements, which was considered by your Department. As of what date was that list furnished?

Secretary STIMSON. About a month ago, as I recall it, sir.

Mr. Ludlow. Is that list presumably the list of British requirements at this time?

Secretary STIMSON. I understand it was altered.

Mr. Ludlow. I mean, if they were submitting another list, would they submit substantially that list?

Secretary STIMSON. I do not think so; because, as I told you, the mere comparison of those lists with the lists of what we were doing in many other ways served to change what they had brought out.

AMERICAN MANPOWER

Mr. Ludlow. Mr. Secretary, you stated that the aid to the democracies that is contemplated by this bill is hard to visualize now, but mainly takes the form of equipment. You used the word "mainly." You do not see anything in the picture now to indicate that the British will require our manpower?

Secretary STIMSON. No, sir; there is nothing in this that refers to manpower

PROPORTION OF MATERIAL TO BE ACQUIRED THAT WILL BE USABLE BY

UNITED STATES

(See p. 20) Mr. SNYDER. Mr. Secretary, I was very much impressed with your statement that 95 percent or more of the equipment, material, and articles that we are building and will build for the aid of Britain could in an emergency be used in our set-up here at home. Is that right?

Secretary STIMSON. That is true; and that did not happen by accident. That happened as a result of the efforts of the agents of the War Department to accomplish that, and the consent of the British to do so.

Mr. SNYDER. I commend the Secretary of War and his staff for bringing that about. I think it is an excellent procedure.

AGRICULTURAL PRODUCTS

(See pp. 20, 32, 35, 39, 51) Mr. O'NEAL. Mr. Chairman, I have a couple of questions that I would like to ask both the Secretary of War and the Secretary of the Navy, for the reason that I am uncertain to whether the subjects I have in mind have been covered in drafting the bill.

The bill attempts to set out the categories under which this money shall be spent, and I wondered if that might be interpreted as exclusive of any category not mentioned in the bill. For instance, is there some saving clause which would entitle you or enable you to spend money for foodstuffs, which are a very vital defense item, in my opinion? I see no category that might include food.

Mr. SMITH. Agricultural commodities.
Secretary Stimson. There is a category there, is there not?

Mr. O'NEAL. I just called that to your attention because I do not see it offhand.

Mr. Smith. It very clearly mentions agricultural commodities.
Mr. O'NEAL. Thank you. If it does, I had not noticed it.

Another category would be services. I can see very well where services might be very much needed. Also chemicals; I do not see any chemical warfare, unless it may come under some other defense item.

Secretary Stimson. Under miscellaneous military equipment. The chemicals would certainly come under that.

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