5
Annual Budget Message to the Congress-Fiscal Year 1959.
January 13, 1958

To the Congress of the United States:

The budget for the fiscal year 1959 which I am transmitting with this message reflects the swiftly moving character of the time in which we live. It is clearly a time of growing opportunity as technology and science almost daily open wholly new vistas to all mankind. Yet it is also a time of growing danger. The progress of the Soviets in long-range missiles and other offensive weapons, together with their continuing rejection of a workable disarmament, compels us to increase certain of our defense activities which we have only recently expanded many fold.

We know that we are sturdy today in the many strengths that keep the peace. This budget reflects our determination to remain so in the future.

This budget reflects another determination—that of adhering to those principles of governmental and fiscal soundness that have always guided this administration—economy in expenditures, efficiency in operations, promotion of growth and stability in a free-enterprise economy, a vigorous Federal-State system, concern for human well-being, priority of national security over lesser needs, revenues adequate to cover expenditures and permit debt reduction during periods of high business activity, and revision and reduction of taxes when possible.

To meet the responsibilities imposed on us by world conditions and by the fiscal principles to which we adhere, the budget for 1959 contains recommendations to provide:

I. An immediate increase for 1958 of $1.3 billion in spending authorityfor the Department of Defense, and a further increase of $2.5 billion in 1959 over 1958, to be applied principally to accelerate missile procurement, to strengthen our nuclear retaliatory power, and to spur military research and development programs;

2. A resulting increase of $2.8 billion in estimated 1959 expenditures over 1957 for missiles, nuclear armed or powered ships, atomic energy, research and development, science and education, plus a further provision of $0.5 billion for defense purposes, if needed; in addition, authority to transfer up to $2 billion between military appropriations, in order to take prompt advantage of new developments;

3. A decrease of $1.5 billion in 1959 expenditures below 1957 for other military arms and equipment and aircraft of declining importance, in favor of the newer weapons;

4. Curtailments, revisions, or eliminations of certain present civil programs, and deferments of previously recommended new programs, in order to restrain nonmilitary spending in 1959 and to provide the basis for budgetary savings of several billion dollars annually within a few years;

5. Continuation of present tax rates to help achieve a balanced budget in 1959

I believe that this budget adequately provides for our Federal responsibilities in the year ahead.

The estimated budget totals for the current fiscal year and for the fiscal year 1959 are compared with actual results of earlier years in the following table:

1956 actual 1957 actual 1958 estimate 1959 estimate

Budget receipts $68. ¹ $71. 0 $72. 4 $74. 4
Budget expenditures 66. 5 69. 4 72. 8 73.9
Budget surplus (+) or
deficit (-) + 1.6 + 1. 6 -.4 +.5

New obligational authority 63. 2 70. 2 74. 4 72. 5

¹ Includes $6.6 billion of anticipated supplemental requests.

DEFENSE, SCIENCE, AND THE BUDGET.—Americans are determined to maintain our ability to deter war and to repel and decisively counter any possible attack. Today we possess military superiority over anypotential aggressor or aggressors. Every American should clearly understand that the vast defense programs undertaken during the past several years have greatly advanced our military preparedness and developed and harnessed impressive new scientific achievements. We have sharply increased the numbers of scientists and engineers assigned to top priority defense programs. We have expanded many fold the expenditures for the development of missiles, both defensive and counteroffensive. We have accelerated development of advanced guidance systems, new fuels, and heat-resistant materials. We have greatly enlarged our network of warning devices and communications.

Our longer-range ballistic missile development, in particular, has long had the highest national priority. The result is striking. Whereas in 1953 we spent only $ 1 million on these programs, we spent $ 1 billion in 1957 and will spend more in 1958 and still more in 1959.

Our defenses are strong today, both as a deterrent to war and for use as a crushing response to any attack. Now our concern is for the future. Certain elements of our defense program have reached the point where they can be further accelerated. I will transmit to the Congress, immediately, a supplemental appropriation request of $1.3 billion for the Department of Defense for the fiscal year 1958. Further increases in new obligational authority are requested for the fiscal year 1959. The recommended authority for the military functions of the Department of Defense is $39.1 billion, which is $0.6 billion more than was requested in last year’s budget for 1958 and $3.8 billion more than the amount the Congress has thus far enacted for 1958. Spending for military functions of the Department of Defense in 1959 is estimated to total $39.8 billion.

The development of longer-range ballistic missiles, construction of missile sites and detection systems, and other missile programs including guided missile ships will be substantially augmented. The total expenditures for missile research, development and procurement, for guided missile ships, and for missile-related construction will be $4.3 billion in 1958 and $5.3 billion in 1959, compared with $3 billion spent in 1957, $1.7 billion in 1956, and $1.9 billion in 1955. Commencing in 1958, we will procure a number of new missiles which have been recently developed and have now become operational.

As an indispensable part of our efforts to maintain an adequate defense, the budget recommendations for 1959 call for continued contributions to the efforts of free world nations to promote the collective defenseand economic growth. The Soviet threat to freedom is far more than military power alone. Poverty and ignorance, and the despair, fear, and unrest that flow from them, have always been enemies to liberty. The Communists well know this and unceasingly exploit these factors to extend their influence and control. This Soviet economic assault on freedom is rapidly growing. Conquest by this route is no less menacing to us and other free nations than conquest by military force. We must, accordingly, vigorously advance our programs to assist other peoples in their efforts to remove poverty and ignorance. As we succeed in these military and economic efforts, our own freedom and security are strengthened, and the prospects for peace are improved.

Scientific and research efforts throughout the Nation must be expanded. This is a task not only for the Government but also for private industry, foundations, and educational institutions. The Government, on its part, will increase its efforts in this area. Supplemental appropriations for 1958 will be requested for the National Advisory Committee for Aeronautics and the National Science Foundation, as well as the Department of Defense. For 1959, new programs to promote education in science are being recommended and basic research activities are being generally expanded.

CHANGES IN EMPHASIS.—total Government expenditures (1) for all procurement to equip our forces and those of our allies with weapons, ships, planes, and missiles, (2) for atomic energy, and (3) for all scientific research and education will be approximately $21.1 billion in 1958 and $21.6 billion in 1959, compared with $20.5 billion in 1957.

Within these totals for procurement and science, we have gradually but substantially changed our emphasis. This administration’s continuing attention in recent years to new concepts of defense is shown by the fact that more than 75% of the total funds for procurement in the 1959 budget and 1958 supplemental requests is programmed for new types of equipment which had not been developed in the fiscal year 1955 or were not being bought in production quantities in that year—the first full year following the Korean conflict. In 1953, missiles alone took less than 2 cents of each dollar spent for major procurement; in 1957, missiles took about 15 cents of every procurement dollar; and in 1959 will take about 24 cents.

The greatly increased firepower of modern weapons and the continuing increase in efficiency permit a further reduction in the numbers of militarypersonnel. Procurement of older types of weapons and equipment is also being reduced. Other defense expenditures will be reduced by closing installations that are outmoded or are of limited use, and by tightening maintenance standards, procurement practices, and supply management.

BUDGET AUTHORIZATIONS AND EXPENDITURES.—As a result of the increases in our key protection programs recommended in this budget for the current fiscal year and the coming fiscal year, total new obligational authority and budget expenditures for each of these years will be larger than in 1957—even though it is recommended that certain other programs, both defense and civil, be retarded or reduced.

Total appropriations and other forms of new obligational authority recommended for the fiscal year 1959 amount to $72.5 billion. This is $4.7 billion more than has been enacted for 1958 and $2.3 billion more than for 1957. In addition, $6.6 billion of supplemental authorizations are estimated for the current year, 1958, for the Department of Defense, Commodity Credit Corporation, Export-Import Bank, and other agencies.

Budget expenditures in the fiscal year 1959 are estimated to be $73.9 billion. This is $1.1 billion more than now estimated for 1958 and $4.5 billion more than in 1957.

Not all of the obligational authority enacted for a fiscal year is spent in the same year. Amounts of authority enacted in prior years but which have not yet been spent and are carried forward from one fiscal year to the next are called unexpended balances. These balances are not cash on hand, but represent authority to draw on future receipts of the Treasury in order to pay bills.

The total balances of appropriations to be carried forward at the end of the fiscal year 1959 are estimated to be $39.9 billion. Of this amount 78% will have been obligated; that is, already committed.

The largest part of the unexpended balances of appropriations is in the Department of Defense, reflecting the long time which necessarily elapses between the placing of orders for complex military equipment and delivery and final payment. It is estimated that $32.1 billion will be carried forward by that Department at the end of 1959, of which $24.4 billion will have been obligated.

BUDGET RECEIPTS.—although higher than in previous years, the current estimate of receipts for the fiscal year 1958 is somewhat smallerthan earlier expectations, reflecting readjustments currently taking place in our economy following the rapid growth of the past several years. It now appears that 1958 budget receipts will not exceed $72.4 billion, although they will be well above 1957 receipts of $71 billion. A combination of increased defense expenditures and decreased receipts in the revised estimates for the current fiscal year results in an estimated budget deficit of $0.4 billion.

There are strong grounds to support my confidence that the expansion of our economy will soon be resumed, bringing higher levels of receipts with present tax rates. The acceleration of defense efforts already under way, the increasing pace of activity in a number of programs involving State and local as well as Federal expenditures, the rapid pace of technological advance and its application by American industry, the expanding needs and desires of our growing population, and Government policies designed to facilitate the resumption of growth are among the major factors that justify this confidence. While there are many uncertainties in forecasting results 18 months in advance, our best estimate at this time of budget receipts for 1959 is $74.4 billion. This would produce a balanced budget with a surplus of $0.5 billion in 1959.

[Editorial note: At this point in the budget message appears a diagram entitled "Source of Budget Receipts—Fiscal Year 1959 Estimate (Net of Refunds)." The diagram shows the expected yield of various taxes as follows

Percent of
Tax total

Individual income 52
Corporation income 27
Excise 13
Other 8

100]

With relatively minor exceptions, present tax rates have not been changed since 1954 when a program of tax reduction and reform was enacted, saving taxpayers nearly $7.5 billion annually. If the Congress follows my recommendations, I believe that we shall be able to do what is required for our defense efforts and meet the basic needs of our domestic programs without an increase in tax rates. To maintain present rates, I recommend that tax rates on corporation income and certain excises, which under existing law are scheduled for reduction next July 1, be extended for another year.

We shall continue our efforts to assure that no one can avoid payinghis fair share of the country’s total high tax burden. Pending legislation (H. R. 8381), which was developed jointly by the Treasury Department and the House Committee on Ways and Means to remove unintended tax benefits and hardships, should be enacted with a few modifications. The Treasury Department will continue to review the operation of the tax laws and make recommendations for such additional changes as are needed to close loopholes.

There are certain technical tax revisions which will give substantial benefits to small business, with a minimum loss of revenue and with no changes in tax rates. These revisions will be set forth in the Economic Report. They are based on the work of the Cabinet Committee on Small Business.

DEBT LIMIT.—A debt limitation serves as a proper reminder of the importance of operating economically in discharging the responsibilities placed by the Constitution and the statutes on the executive branch. However, the present limit of $275 billion is too restrictive in view of rising defense expenditures and of the need for more flexibility to permit efficient and economical debt management.

Therefore, I will recommend that the present limit be revised upward temporarily through the fiscal year 1959. There should be an adequate margin to take care of any unexpected developments and to give the Treasury some much-needed flexibility in conducting its financing during this coming period.

TRUST FUNDS.—The total budget expenditures and receipts discussed thus far exclude funds held in trust by the Government. Budget totals are important indicators of fiscal policy and are a major determinant of changes in the public debt. However, to measure more fully the scope of all Federal Government activities and their impact on the national economy it is necessary to consider the trust funds as well as the budget funds.

In the fiscal year 1959, the expenditures of the trust funds will rise by an estimated $1.2 billion, compared with an increase of only $0.2 billion in their receipts. Payments for the highway program are estimated to increase $0.6 billion to $2.5 billion and benefits under the old-age and survivors insurance program will also increase $0.6 billion to $8.7 billion. These payments will help contribute to economic stability during the coming period and will also aid in the long-run growth of the economy.

1957 actual 1958 estimate 1959 estimate

Trust receipts $14. 4 $16. 4 $16.6
Trust expenditures 13.0 15.2 16.4

Trust accumulations 1.4 1.2 0.3

RECEIPTS FROM AND PAYMENTS TO THE PUBLIC.—A consolidation of budget and trust funds which eliminates interfund payments and noncash transactions shows that the total Federal payments to the public in the fiscal year 1959 will be $1.8 billion more than in 1958. Payments to the public in 1959 will be $0.6 billion less than receipts from the public.

1957 actual 1958 estimate 1959 estimate

Receipts from the public $82.1 $85.1 $87.3
Payments to the public 80.0 84.9 86.7

Excess of receipts over payments 2.1 0.2 0.6

For purposes of summarization and discussion, budget expenditures are grouped into the categories of protection, civil benefits, interest and general government.

Expenditures for major national security and for international affairs and finance, which together make up the category of "protection," will require 64% of estimated total 1959 budget expenditures. The $47.1 billion estimated to be spent on protection in the fiscal year 1959 is more than in any year since 1955.

An estimated 22% of budget expenditures in 1959 will be for civil benefit programs. These programs are grouped under the headings: Labor and welfare; commerce and housing; veterans services and benefits; agriculture and agricultural resources; and natural resources. The estimated $16.4 billion to be spent on civil benefits in 1959 is $0.6 billion less than the comparable amount for the current year.

The estimate of 1959 expenditures for interest is $7.9 billion, the sameas in 1958. Expenditures for general government will require an estimated $1.4 billion in 1959, also about the same as in 1958.

Budget Expenditures Recommended
_________________________ new obliga-
1957 1958 1959 tional authori-
Purpose actual estimate estimate ity for 1959

Protection 45.2 $46.3 $47.1 $45.9
Civil benefits 15.1 17.0 16.4 16.0
Interest 7.3 7.9 7.9 7.9
General government 1.8 1.4 1.4 1.4
Allowance for proposed legisla-
tion and contingencies ........ 0.2 1.1 1.3

Total 69.4 72.8 73.9 ¹72.5

¹ Compares with new obligational authority of $70.2 billion for 1957 and $74.4 billion for 1958.

The budget also includes estimated expenditures of $ 1.1 billion for the fiscal year 1959 as an allowance for proposed legislation and contingencies not included in the categories above. Within this allowance $500 million is estimated specifically for defense contingencies, $339 million is estimated for proposed pay adjustments for postal and other civilian employees not in the Department of Defense, and $300 million is for other contingencies. The cost of proposed pay adjustments for military and civilian personnel of the Department of Defense is included in the estimates for that Department.

Our security is an integral part of the security of the entire free world. In addition to strengthening our own defenses, we must improve the effectiveness of our partnership with our allies. This requires a greater pooling of scientific resources, a freer exchange of technological information, and closer military cooperation. Preliminary steps to accomplish these objectives were taken at the recent Paris meeting of the North Atlantic Treaty Organization.

This budget reflects coordinated plans for strengthening our own and allied defenses. The composition of free world forces, and the equipment with which they are provided, must be designed for the needs of an eraof increasingly destructive weapons with far-reaching range. Our Government’s research and development will be generally expanded with particular emphasis on developing and improving missiles both for defensive and for counteroffensive purposes.

An effective system of military security requires closer economic cooperation through trade, investment, loans, and technical assistance with nations throughout the free world so that they can develop their resources and raise their living standards. To the degree that this economic cooperation strengthens the internal stability and ability of those nations to preserve their independence, the cause of a just and lasting peace will be advanced.

Budget Expenditures Recommended
_________________________ new obliga-
1957 1958 1959 tional authori-
Function actual estimate estimate ity for 1959

Major national security programs $44.4 $44.9 $45.8 $44.3
International affairs and finance 0.8 1.5 1.3 1.6

Total 45.2 46.3 47.1 45.9

New obligational authority recommended for major national security programs for 1959 is $44.3 billion, compared to $41.0 billion estimated for 1958 and $41.3 billion enacted for 1957.

Expenditures for these programs are estimated to be $45.8 billion in the fiscal year 1959, $1 billion more than in 1958 and $1.4 billion more than in 1957• Increases are anticipated for the military functions of the Department of Defense and for atomic energy development. Expenditures for military assistance and defense support will be about the same as in the current year, but appropriations will increase to finance the lead-time for newer-type weapons. Expenditures for the stockpiling of strategic and critical materials and for the defense production expansion program will decline.

DEPARTMENT OF DEFENSE, MILITARY FUNCTIONS.—To accelerate the adaptation of our defenses to changing conditions, a request for supplemental appropriations of $1.3 billion for the Department of Defense inthe fiscal year 1958 is being transmitted to the Congress. The result will be to increase total new obligational authority for 1958 for the military functions of the Department of Defense to $36.6 billion. A further increase of $2.5 billion is recommended for the fiscal year 1959, bringing the total for that year to $39.1 billion.

It is essential that we be able promptly to modify and accelerate programs when and as important discoveries or technological developments in weapons indicate such action to be desirable. To accomplish this end, the budget includes a contingency reserve of $500 million for defense purposes only. It also proposes that the Congress authorize the President to transfer up to $2 billion between appropriations available for military functions of the Department of Defense. This transfer authority is important and I will not hesitate to use it.

I have already discussed the urgent problem of reorganization of the Department of Defense in the State of the Union message. In the interest of the taxpayer, improved operating and fiscal controls must accompany larger appropriations.

Expenditures in 1958 are now estimated to be $38.9 billion compared with the original 1958 budget estimate of $38 billion. Estimated expenditures for 1959 are $39.8 billion, an increase of $0.9 billion over the current estimate for 1958, $1.3 billion higher than in 1957, and $4 billion more than in 1956.

These increased appropriations and expenditures are necessary for a speedup in the adjustment of military strategy, forces, techniques, and organization to keep pace with the rapid strides in science and technology. Since the end of the Korean conflict, new weapons systems of vastly increased combat effectiveness have been provided for our military forces, while numbers of military units and personnel have been gradually reduced. We can expect new developments at an everincreasing pace.

New obligational authority Budget expenditures
_______________________ ______________________
1957 1958 1959 1957 1958 1959
Program or agency actual estimate estimate actual estimate estimate

DEPARTMENT OF DEFENSE
MILITARY FUNCTIONS

Direction and coordination
of defense $15 $26 $356 $14 $21 $215

Army:
Present programs 7,672 7,694 8,532 9,063 9,043 8,663
Proposed legislation:
Military pay adjustment ........ ........ 184 ........ ........ 182
Military construction ........ ........ 320 ........ ........ 35
Navy:
Present programs 10,000 10,469 10,284 10,398 10,640 10,724
Proposed legislation:
Military pay adjust-
ment ........ ........ 146 ........ ........ 142
Military construction ........ ........ 290 ........ ........ 47
Air Force:
Present programs 17,697 17,219 16,891 18,363 18,388 18,008
Proposed legislation:
Military pay adjustment ........ ........ 188 ......... ........ 184
Military construction ...... 520 965 ......... 53 544
Other central defense
activities:
Present programs 651 675 784 602 716 810
Proposed legislation (mili-
tary construction) ........ ........ ........ ........ ........ 20
Proposed civilian pay ad-
justment ........ ........ 205 ........ ........ 205

Subtotal: 36,255 ¹36,605 ²39,145 38,439 38,86 ²39,779

ATOMIC ENERGY

Present programs 1,962 2,362 2,298 1,990 2,300 2,530
Proposed legislation
(plant acquisition
and construction) ........ ........ 120 ........ ........ 20

Subtotal 1,962 2,362 2,418 1,990 2,300 2,550

STOCKPILING AND
EXPANSION OF DEFENSE
PRODUCTION ........ ........ 70 490 565 422

MUTUAL SECURITY,
MILITARY
Military assistance:
Present program 2,018 1,340 ........ 2,352 2,200 1, 846
Proposed legislation ........ ........ 1,800 ........ ........ 354
Defense support:
Present program 1,110 689 ........ 1,143 945 575
Proposed legislation ........ ........ 865 ......... ....... 310

Subtotal 3,127 2,029 2,665 3,495 3,145 3,085

Total 41,344 40,995 44,298 44,414 44,871 45,836

¹ Includes $1,270 million of anticipated supplemental requests.
² Does not include $500 million for defense purposes shown in the budget under allowance for proposed legislation and contingencies.

The rapidly changing character of the military program is strikingly evident when the weapons and equipment we propose to buy in 1959 are compared with those bought as recently as 1955—the first full fiscal year after the Korean conflict.

There is hardly a production model aircraft on the Air Force’s proposed list for procurement with 1959 funds that was included in its 1955 program. All the fighters and bombers proposed for procurement with 1959 appropriations will be capable of supersonic speeds and of using guided missiles and nuclear weapons. Of the $1.5 billion of aircraft, engines, and aeronautical equipment proposed to be bought by the Navy in 1959, about 80% will be for models which had not reached the point of being bought in production quantities in 1955.

Even in the new field of missile technology, there will be a very marked shift of emphasis from the earlier, initial weapons systems to the much more advanced systems of the future. The longer range ballistic missiles-Arias, Titan, Thor, Jupiter, Polaris—only one of which was beyond the technical study stage 2½ years ago, will account for nearly half of the missile program for 1959. For the total missile program, about 90% of the dollars planned for procurement in 1959 are for weapons which were not in production in operational quantities in 1955.

Most of the ships in the proposed 1959 construction program are entirely new types not to be found in the 1955 shipbuilding list. These include guided missile destroyers and the first nuclear-powered frigate. The first three ballistic missile submarines for the fleet are included in the 1958 supplemental request.

Fully half of the proposed 1959 program of military construction is for facilities for the Strategic Air Command and for weapons systems and equipment which will have been brought into operational use since 1955.

Research and the operation of facilities for research, development, and testing of missiles will take a much greater proportion of the research and development budget in 1959 than in 1955. In the 4 fiscal years 1956-59, roughly $20 billion of research and development, procurement, military personnel, and construction funds will have been programmed for the research, development, test, and evaluation of new weapons systems to bring them to operational status.

Programs requiring greater emphasis.—The budget provides funds for a still greater expansion of the swiftly progressing intercontinental and intermediate range ballistic missile programs. The Jupiter and Thorintermediate range ballistic missiles are being placed in production. Work on the Atlas intercontinental ballistic missile will be accelerated.

Funds are also provided to speed up the operational availability of the Polaris intermediate range ballistic missile and the first three submarines designed to employ this weapon.

Expansion and further improvement of the continental defense early warning network will be undertaken and construction of a new .ballistic missile detection system started, including the necessary facilities for communication with the North American Defense Command and the Strategic Air Command.

This budget includes funds for accelerating the dispersal of Strategic Air Command aircraft to additional bases and for the construction of "alert" facilities. The readiness of these retaliatory forces must be measured in minutes. Not only must planes be kept constantly in the air, but also additional combat air crews must be able to take off almost instantly upon receipt of warning of an impending enemy attack. Takeoff time will be appreciably shortened by constructing additional runways, luring stations, and quarters for the crews at the runway. Within the total appropriations for the fiscal years 1958 and 1959, about $0.5 billion is provided for the dispersal and increased readiness of the Strategic Air Command.

Funds are provided for an expanded research and development effort on military satellites and other outer space vehicles, and on antimissile missile systems, to be carried out directly under the Secretary of Defense. An increase is also included for basic and applied research in other areas.

Antisubmarine warfare capabilities will be increased to counter potential enemy submarine threats.

While greater attention is given in this budget to the foregoing areas, conventional warfare capabilities of all the military services are also being improved. For example, funds are provided to initiate production of new models of small arms and ammunition, standardized for use by all members of the North Atlantic Treaty Organization.

Military and civilian pay.—With the development of new weapons systems, the technical proficiency demanded of military personnel has increased tremendously. Personnel trained at great expense in the operation and maintenance of these modern weapons must have greater incentives to remain in service. For present and long-range efficiency and for greater equity, the military pay system must be recast.Minimizing the present large turnover in military personnel will reduce the percentage of men in training and add to the percentage of men assigned to combat missions.

The funds provided in this budget for military personnel are based on achieving these objectives and on making the changes in pay rates effective on July 1, 1958. The funds for the Department of Defense also include an allowance to cover its share of the cost of the revision in the pay structure for classified civilian employees recommended in the general government section of this message.

The revisions proposed are an adaptation of the principles recommended by the Advisory Committee on Professional and Technical Compensation in its report of May 8, 1957. The principles for military pay call for rewarding proficiency and merit and for stimulating career motivation. Attainment of these desirable goals requires elimination of the current longevity system in which a man of lower rank can receive more pay than one of higher rank, and the substitution of a system which would: ( 1 ) add two pay grades for both officers and enlisted personnel; (2) widen the pay differentials between grades by means of substantial increases for the senior officer and senior enlisted grades; and (3) establish uniform entering pay rates for each grade.

Actions for economies.—The programs and pay adjustments described above will be costly. Beyond the reduction of $ 1.5 billion for procurement of aircraft and conventional weapons from 1957 to 1959, it is necessary that every possible economy be effected in other defense activities to help offset the increased costs of the high priority programs. This means, among other things, that we must eliminate programs and facilities no longer needed and make sure that we have no needless duplication.

All forces, units, and activities are being reexamined to determine whether or not they will still be needed as modern weapons, improved techniques, and new organizations come into being. Any activity of the services not making an essential contribution to a military mission must be eliminated.

As with our active-duty forces, the size, mission, and organizational structure of our reserve components must be shaped to meet the requirements of modern warfare. They must be designed to augment the active-duty forces quickly and efficiently. Our reserve personnel programs will give greater emphasis to quality and readiness than to quantity.

The Department of Defense is now operating a very large number of installations and bases in the continental United States and overseas. Some of these installations involve use of costly or extensive facilities for activities that could be performed more economically at other locations. As the Department of Defense continues to adopt modern weapons and revised organizations, some of these stations will become unnecessary. On the other hand, dispersal of the retaliatory forces will require some additional bases and increased costs. Closing down and disposing of installations not definitely required for the combat forces or for their supply and distribution systems will help make funds available to support the new stations. Keeping nonessential installations in operation, thereby diverting personnel and funds from our true defense requirements at the expense of our combat capabilities, poorly serves our defenses and the general public.

All facilities and activities which are retained will be continually evaluated to prevent extravagance and wastefulness in operation and maintenance. The Department of Defense, in collaboration with the Treasury, Bureau of the Budget, and General Accounting Office, is also engaged in improving financial management in the operation and maintenance activities and other areas.

The supply and distribution activities of the armed services must also be further streamlined. The Department of Defense is now making a comprehensive review of procurement practices and inventory management. Emphasis is being placed upon techniques for coordinating defense supply systems so that they will be oriented to support adequately the increasing numbers of new weapons and avoid oversupply for older weapons.

In the interest of holding procurement costs to a minimum, I recommend that the Renegotiation Act be extended.

DEVELOPMENT AND CONTROL OF ATOMIC ENERGY.—Expenditures by the Atomic Energy Commission in the fiscal year 1959 will increase to $2,550 million, $250 million more than estimated for 1958, which in turn was $319 million over 1957. These increases reflect our determination both to increase the tempo of progress in achieving a greater nuclear military capability and to press ahead in our successful development of the peaceful applications of atomic energy.

From year to year we have hoped that success would finally crown our efforts to reach an international agreement which would permit, ifnot general disarmament, at least some reduction in the production of nuclear armaments. Again we find ourselves in a situation that leaves us no choice but to test and produce further quantities of such armaments for the defense of the free world. The substantial increase in the availability of uranium concentrates and the expanded capacity of the Atomic Energy Commission’s production plants will result in greater production and larger operating expenditures in 1959.

During the last several years, the Atomic Energy Commission’s research and development in both peaceful and military applications of atomic energy have grown rapidly to the highest levels ever attained. Continuing emphasis will be given to basic research, and construction will continue on four additional high-energy particle accelerators in the multibillion electron-volt range.

Applied research and development activities will be increased in 1959 and concentrated on those aspects which appear most likely to result in reaching technical goals. In particular, there will be continuing emphasis on naval and other military nuclear propulsion reactors, and on the more promising approaches to development of reactors to produce safe and economic electrical energy for civilian use.

STOCKPILING AND DEFENSE PRODUCTION EXPANSION.—Expenditures for stockpiling and expansion of defense production are estimated to be $565 million in 1958 and $412 million in 1959. The stockpile objectives on all but a few scarce materials will be substantially completed under contracts now in force. In October 1957, an advisory committee was established to work with the Office of Defense Mobilization on a study of stockpiling policies and programs in the light of current concepts of war and defense.

The Defense Production Act of 1950 has provided much of the basic authority required to bring about needed expansion of production capacity, to provide controls over the use of scarce materials, and to initiate other measures essential to enhance our military strength. It should be extended another 2 years beyond its present expiration date of June 30, 1958. I do not now anticipate any specific new programs which will require financial assistance under this legislation, but accelerated research and development in certain military programs may require further expansion of production potentials for key materials. The authority to set priorities and allocate materials, currently being used for critical materials for direct military and atomic energy procurement, will continue to be needed.

MUTUAL SECURITY PROGRAM.—Soviet ambition poses a threat to the free countries that takes several forms: open armed attack, internal subversion, and economic domination. Mutual security helps to meet all forms of this threat. For the fiscal year 1959, I am recommending new obligational authority of $3,940 million for the mutual security program. Expenditures are estimated to be $3,868 million.

Two portions of the mutual security program—military assistance and defense support—are primarily related to our military defense effort and, therefore, are discussed in this section of the message. The other portions of the mutual security program, while they contribute to security and defensive strength, are primarily designed to promote the economic development and political stability of less developed countries. They are discussed in the international affairs and finance section of this message. The two parts of the mutual security program are combined in the following table:

Budget Expenditures Recommended
_________________________ new obliga-
1957 1958 1959 tional authori-
Function and Program actual estimate estimate ity for 1959

MAJOR NATIONAL SECURITY

Military assistance:
Present program $2,352 $2,200 $1,846 ........
Proposed legislation .......... .......... 354 $1,800
Defense support:
Present program 1,143 945 575 ........
Proposed legislation ......... ......... 310 865

Subtotal 3,495 3,145 3,085 2,665

INTERNATIONAL AFFAIRS AND FINANCE

Development loan fund ......... 20 174 625
Technical cooperation:
Present program 114 136 103 .........
Proposed legislation ........ ......... 47 164
Special and other assistance:
Present program 341 448 266 ........
Proposed legislation ........ ........ 193 486

Subtotal 455 604 783 1,275

Total, mutual security 3,950 3,749 3,868 ¹3,940

¹ Compares with new obligational authority of $3,807 million for 1957 and $2,764 million for 1958.

Mutual security, military assistance.—The nature of military assistance varies by country and area, taking into account military need, technological abilities, and division of defense responsibility among the United States and other countries. Countries which have received military assistance maintain for the common defense of the free world the equivalent of 200 army divisions, and some 23,000 aircraft and 2,300 naval vessels. From 1950 through 1957 our assistance has augmented by about 17% the total defense expenditures of these countries.

In Europe, this assistance is programmed according to the defensive strategy for the whole North Atlantic Treaty Organization.

Military assistance for certain other countries, particularly in the Middle East and Asia, will continue to give special emphasis to the threat of internal subversion while also contributing to the deterrence of foreign attack.

In addition to missiles and other advanced weapons, the military assistance program provides for necessary conventional equipment, supplies, construction, and training for ground, sea, and air defense of friendly countries.

Continuing efforts are being made to maintain the forces needed for international defense purposes at the lowest possible cost. The strength of forces in assisted countries has been and will continue to be reviewed to insure that our support is related to current military requirements and technology. We are financing military equipment wherever possible on a basis of sales for cash and credit rather than by grants.

Recommended new obligational authority for military assistance in the fiscal year 1959 is $1,800 million. To fulfill probable needs growing out of agreements at the recent NATO meetings, an additional amount of up to $200 million for procurement of more missiles and other new equipment is covered by the allowance for proposed legislation and contingencies for the fiscal year 1958. Expenditures for military assistance in 1959, which will be made primarily from obligational authority enacted in previous years, are estimated to be $2,200 million, the same amount estimated for 1958.

I firmly believe that the current United States outlay for protection would have to be substantially larger were it not for the military assistance program which enables other countries to contribute more to collective defense. Without our military assistance program the same degree of protection might not be obtainable at any cost.

Mutual security, defense support.—Our military assistance is extended to many countries that are maintaining collective defense forces beyond their economic means. Therefore, we supply economic assistance under the appropriations for defense support so that these countries can provide for their defense forces and at the same time maintain economic and political stability.

New obligational authority of $865 million is requested for defense support. Expenditures in 1959 are estimated at $885 million or $60 million below the estimate for 1958.

In determining these amounts, account has been taken of the most effective use of local currencies obtained as counterpart for assistance dollars and from sales of surplus United States farm products. The local currencies, which are in addition to dollar grants, are used to help channel the countries’ own economic resources to the most desirable objectives. However, these currencies cannot replace the dollars needed for materials and equipment that must be imported, mainly from the United States.

The major objective of our international economic policies and programs is to help build the free world’s economic strength in the interest of mutual well-being and the maintenance of peace. Expanded production, improved efficiency, and greater economic progress for ourselves and other peoples of the free world will depend to a considerable extent on an increase in the flow of international trade and investment. To aid in this worldwide objective and at the same time to expand our markets abroad and thus create new jobs at home, I am recommending the extension with broadened authority of the Reciprocal Trade Agreements program. I am also recommending an expansion of the lending authority of the Export-Import Bank, an increase in new obligational authority for developmental and technical assistance under the mutual security program, and the authorization of funds to assist in the completion of the Inter-American Highway.

International affairs and finance are estimated to require $1.3 billion of expenditures in the fiscal year 1959, $156 million less than in 1958. The decline reflects primarily the fact that in 1958 the Export-Import Bank has made a substantial disbursement under a previously authorized loan to the United Kingdom.

Budget Expenditures Recommended
_________________________ new obliga-
1957 1958 1959 tional authori-
Program or agency actual estimate estimate ity for 1959

ECONOMIC AND TECHNICAL
DEVELOPMENT

Export-Import Bank — $100 $393 $51 .........
Nonmilitary mutual security program:
Development loan fund ............ 20 174 $625
Technical cooperation:
Present program 114 136 103 .........
Proposed legislation ........... ........... 47 164
Special and other assistance:
Present program 341 448 266 .........
Proposed legislation ........... ........... 193 486
Other:
Present programs
(primarily reimbursement
to Department of Agriculture
for commodities shipped abroad) 187 136 139 9
Proposed legislation (Inter-
American Highway) ........... .......... ........... 10


FOREIGN INFORMATION AND
EXCHANGE ACTIVITIES

United States Information Agency 108 100 108 110
Department of State, exchange of persons 18 26 21 21
President’s special international program 7 15 11 8


CONDUCT OF FOREIGN AFFAIRS

Department of State 155 192 199 181
Other 2 2 2 2

Total 832 1,468 1,312 ¹1,615

¹ Compares with new obligational authority of $1,131 million for 1957 and $3,292 million (including $2 billion of anticipated supplemental authorizations for Export-Import Bank) for 1958.

Reciprocal trade.—In order to pay for imports of goods and services from the United States other countries must be able to export to us. Progress for them and for us will receive its greatest impetus by development of the most favorable fields of production coupled with a gradual but steady reduction of unjustifiable trade barriers. We welcome the proposed European common market and free trade area as steps toward these broad goals.

We live in a world of economic, no less than political, interdependence. As the greatest producer, consumer, and exporter in the world, theUnited States must be a dependable market for foreign goods if mutually beneficial trade is to grow and prosper. The Reciprocal Trade Agreements Act should be extended for 5 years beyond its expiration date of June 30, 1958, with certain new authority for the President to negotiate gradual and selective tariff reductions. Legislation should also be enacted to authorize United States membership in the Organization for Trade Cooperation to improve the administrative efficiency of our trade agreements with other countries. To provide coordinated Cabinet level direction of this program at home, I have recently established the Trade Policy Committee under the chairmanship of the Secretary of Commerce.

In addition, I recommend that the Congress delete a rider which in past years has been attached to the Defense Appropriation Act and which virtually prohibits normal competitive bidding by other countries on many defense contracts. The rider is clearly inconsistent with policies designed to expand international trade and makes our heavy defense costs even more burdensome.

Export-Import Bank.—The Export-Import Bank has had a steadily increasing role in promoting United States exports and imports and in financing economic development projects abroad through loans to United States and foreign firms and to foreign countries. Since the Bank requires repayment in dollars, its loans for economic development are made for projects that will earn or save dollars for the borrowing country, or for projects in countries with adequate prospects of earning dollars from other sources. It is now estimated that the lending authority provided the Bank in 1955 will be entirely committed sometime during 1959. To assure continuity in the Bank’s operation and to provide for possible emergencies, I am requesting $2 billion in new obligational authority to expand the Bank’s lending capacity. This new authorization should be made available before the end of the current fiscal year.

Nonmilitary mutual security.—While strengthened trade legislation and additional lending authority for the Export-Import Bank will help substantially in promoting world commerce and economic development, these actions are insufficient in themselves to accomplish our international objectives.

Few national desires are stronger today than the wish of the peoples of less developed countries to improve their living standards. It is our national policy to encourage and assist this aspiration. As a countryblessed with great natural resources, modern industry, and high productivity, we recognize the compelling humanitarian reasons for helping less fortunate people abroad as we help them at home.

The progress of some less developed countries will be dangerously slow without outside help, despite their best efforts. The people of these countries are conscious of the technological advances made and the levels of living enjoyed beyond their borders, and are understandably impatient for similar achievements. If Western help is unavailable or inadequate, these countries may become dependent upon the Communist bloc. We are concerned that they strengthen their independence and find prospects for improved living standards within a free society. It is my earnest hope that other free governments will also enlarge their efforts in advancing the development, trade, and well-being of less developed countries.

In addition, without economic progress, military security may prove illusory. People who see tittle improvement in their economic conditions may question the value of the freedom that our mutual defense efforts are intended to preserve. The events of the cold war reemphasize the importance of our helping to insure that peoples of less developed countries have faith in their future.

For these various reasons, it is critically necessary to carry forward our development loans, technical assistance, and other special types of assistance under the mutual security program.

Mutual security, development loan fund.—In many cases, urgent needs for economic development in less developed countries cannot be financed by the Export-Import Bank or by other sources such as the International Bank for Reconstruction and Development or private institutions. To meet such needs for financing economically and technically sound projects, the development loan fund was authorized in the Mutual Security Act of 1957. Loans from this fund may be made on less stringent terms than Export-Import Bank or other such loans, with repayments in local currencies as well as dollars.

Projects are now being considered and negotiations are being started with a number of countries which will result in the commitment of an appreciable volume of loans by the end of the fiscal year 1958. To make possible the continuation and expansion of such development loans, I am requesting provision of $625 million in new obligational authority for 1959, as authorized by the Congress in basic legislation last year.

Mutual security, technical cooperation.—Because of technical assistance extended under the mutual security program, millions of people today are better off than before and productivity has been significantly increased. For example, disease has been lessened in many countries as people have been taught water purification techniques. Illiteracy has been greatly reduced. Farmers in many countries have learned how to diversify crops and improve livestock strains.

This budget requests $164 million of new obligational authority in 1959 to carry forward the United States program of technical assistance and also to provide for our joining with other nations to increase the financial resources of the United Nations program of technical assistance. This increase will help to broaden the scope of multilateral cooperation through a new program for regional surveys of resources and for regional training institutes approved last December by the United Nations General Assembly. I am convinced of the need for our own technical assistance program and I am equally convinced of the need for multilateral technical assistance programs, in which our contribution is multiplied by the funds and experts of many nations.

Mutual security, special and other assistance.—The budget for the mutual security program provides for certain additional special activities, such as support vital to the stability of a number of friendly countries not covered by other categories of aid, our contributions to the United Nations International Children’s Fund, and our refugee programs.

It is obviously impossible to predict today all of the problems which the free world will face during 1959. In order to help meet the emergencies that experience shows inevitably arise, I believe it necessary that a special contingency fund again be provided in the mutual security appropriation. For this purpose, $200 million is recommended for 1959.

Diplomacy, informational and cultural programs, and exchange of persons.—Greater understanding among nations, on a people-to-people as well as a government-to-government basis, is a necessary part of our efforts to remove the misunderstandings that hinder disarmament, the building of a safeguarded peace, and the strengthening of freedom. It is especially important that Americans and peoples who have recently gained, or are approaching, independence come to appreciate each other’s problems and aspirations. It is similarly important that Americansand Eastern Europeans renew the contacts that once were an important strand in friendly international relations.

The budget recommends $183 million in new obligational authority in 1959 for the conduct of foreign affairs, primarily for the operation of the Department of State. This amount includes provision for additional foreign service posts in Africa and for the strengthening of consular, economic, and political work in the Middle East and the Far East. New obligational authority requested for the United States Information Agency, and for exchange of persons, cultural presentations, and international trade fairs amounts to $ 139 million; within this total, there is provision for more exchanges of leaders, scientists, and students with Eastern Europe and other areas.

I wish here to call attention specifically to the need for a supplemental appropriation for the Brussels Fair. Congressional action on this important activity last year left United States participation badly hampered in comparison with programs of other nations, especially the Soviet Union. I consider this item of particular importance to our country and urge the Congress to expedite its approval.

The bulk of the Federal Government’s budget expenditures for domestic programs is classified under five broad categories—labor and welfare, commerce and housing, veterans services and benefits, agriculture and agricultural resources, and natural resources. These benefits take various forms, such as grants to State and local governments, direct benefit payments to individuals, loans, public works, research, and other public services.

Expenditures Recommended
_________________________ new obliga-
1957 1958 1959 tional authori-
Function actual estimate estimate ity for 1959

Labor and welfare $3.0 $3.4 $3.6 $3.6
Commerce and housing 1.5 2.1 1.6 2.1
Veterans services and benefits 4.8 5.0 5.0 5.0
Agriculture and agricultural resources 4.6 4.9 4.6 3.8
Natural resources 1.3 1.5 1.5 1.4

Total 15.1 17.0 16.4 ¹ 16.0

¹ Compares with new obligational authority of $18.6 billion for 1957 and $20.4 billion for 1958.

Total expenditures for civil benefits in the fiscal year 1959 are estimated to be $16.4 billion. New obligational authority is reduced from an estimated amount of $20.4 billion in 1958 to $16 billion in 1959.

Under present conditions, I am not recommending enactment at this time of certain legislation now pending in the Congress for new programs which I have previously advocated. For example, instead of general aid for construction of schoolrooms, I am now recommending a broad temporary program of aid to education which is largely science-oriented. I am also deferring proposals for some other grant programs and for certain new public works projects.

I am also making recommendations to reduce some programs, to curtail expansion in others, and to transfer greater responsibility from the Federal Government to State and local governments or to private individuals or enterprises. All of these recommendations, in addition to being required by sound public policy, will help to hold expenditures in future years to prudent levels.

Some of the changes in legislation which I am recommending apply to three general types of activities—grants-in-aid, credit, and special services for which charges should be made.

Grants-in-aid.—In the past 25 years, the number of grant-in-aid programs conducted by the Federal Government has increased many fold. Federal expenditures and the amount of taxes levied at the national level have correspondingly increased.

As I have repeatedly emphasized, the continued vitality of our Federal form of government requires that, to the maximum extent possible, primary responsibility for public programs be shouldered by that level of government most familiar with local problems and most responsive to them. We must exercise the utmost restraint in assigning new programs and responsibilities to the Federal Government, and we should continuously search out those programs and activities now carried on at the national level that can and should be handled by the States or localities.

Prudent limitation of Federal activities cannot alone meet the whole problem of overcentralization. The continued strength of our Federal system also depends upon reinforcing the administrative and fiscal ability of the States to carry out their responsibilities. Accordingly, I suggested at the Governors’ Conference at Williamsburg, Va., in June of 1957, that an action group be established to make recommendations on thisand other aspects of the problem. A Joint Federal-State Action Committee consisting of 10 governors and of representatives of the executive branch of the Federal Government was subsequently created.

The initial progress report of this Committee, made last month, recommends complete transfer of two programs to the States together with the simultaneous relinquishment of a portion of the local telephone service tax which the Federal Government now collects. These programs are vocational education and the construction of waste treatment facilities. Legislative proposals to carry out these and future recommendations of the Committee will be transmitted to the Congress. An orderly readjustment requires time for action by both the Congress and the State legislatures. Consequently, the effect of the proposed transfers on expenditures and revenues of the Federal Government will occur beginning in 1960. The report also recommends increasing the degree of State responsibility in three other programs: urban renewal planning; natural disaster relief; and regulating and promoting peaceful uses of atomic energy, particularly for health and safety.

Cooperation of this nature is a highly desirable and, in my judgment, a long overdue experiment in public administration and finance. The success of the venture depends upon further cooperation among the executive branch, the Congress, the governors, the legislative bodies of the States, and the local governments involved. As for this administration, I can say that the executive branch is eager, as well as willing, to do its part to insure that success.

Federal credit programs.—From a few small beginnings, Federal programs for making direct loans, purchasing mortgages, and insuring or guaranteeing private loans have multiplied greatly over the past quarter century. As shown in special analysis E in this budget document, new commitments for a great variety of specific credit requirements in the fiscal year 1959 are estimated at $ 16.5 billion, predominantly for housing and agricultural programs. About three-quarters of these commitments are for guaranties and insurance of private loans, which usually do not require significant budget expenditures. However, net budget expenditures for direct loans and mortgage purchases will amount to an estimated $1.4 billion in 1959.

On June 30, 1957, the total amount of outstanding private loans guaranteed or insured in whole or in part by the Federal Government amounted to $55.9 billion. This is expected to increase to $65.9 billionby the end of the fiscal year 1959. In addition to these privately financed loans, the amount of direct loans outstanding on June 30, 1957, was $17.5 billion, compared to $20.3 billion expected as of June 30, 1959.

In order that Government credit programs will make a maximum contribution to economic growth and stability, this administration has placed special emphasis upon achieving a more consistent policy among them. For this purpose, it is necessary that such programs: (1) charge adequate interest rates on all new loans; (2) substitute private financing for Government loans and mortgage purchases wherever possible; and (3) be subject to effective budgetary control.

In many cases, present legislation sets maximum interest rates that do not permit the Treasury or the lending agencies to cover present costs. At my request, legislation has been submitted to the Congress requiting that, insofar as consistent with the purposes of each program, all costs of future loans be paid by the borrowers who benefit from the loans. Such legislation, by removing or reducing hidden subsidies, would make a significant contribution toward better budgeting.

Loam or mortgage purchases by the Federal Government should be available only if private financing cannot be obtained on reasonable terms. In several important areas Federal guaranties or insurance have encouraged greater participation by private lenders and reduced reliance on direct Government loans. Legislation should be enacted to authorize other Federal lending programs to substitute guaranties or insurance of private loam to the maximum feasible extent. Moreover, for all loan guaranty programs, the Government should be authorized to permit interest rates high enough to attract private lenders. I suggest that all limitations or ceilings placed on interest rates be reviewed, and that authority be provided to vary the rates for guaranteed or insured loans in line with market conditions and under proper safeguards.

A few Federal credit programs and a few other enterprise activities, as well, are not now subject to budgetary review and audit control. I again recommend that the Government Corporation Control Act be amended to provide for such review and control over all Government corporations authorized to use Federal funds.

Charges for special services.—When the Government provides a service conferring a special quasi-commercial benefit on identifiable individuals or groups above and beyond the benefits to the public generally, I believeit should charge the beneficiaries for the special service, rather than place the full burden of cost on the general taxpayer.

This principle has been put into practice in the financing of the new highway program through the payment of excise taxes by highway users into a highway trust fund. The forest and public lands highway programs of the Department of Commerce, however, are still financed from general revenues. Since most of these highways are on one of the Federal-aid systems, I recommend that their financing be transferred to the trust fund. Legislation will also be recommended to provide for payment from the trust fund of the expenses incurred by the Treasury in collecting taxes going into the trust fund, similar to the present practice of paying for the costs incurred by the Department of Labor in determining wage standards for highway contracts.

In the field of aviation, the Federal Government provides a wide range of special services benefiting private users of the airspace. As I have previously pointed out, it is increasingly appropriate that these users pay their fair share of the costs. As first steps toward this end, this budget proposes that a tax of 3½ cents a gallon be levied on jet fuels and that taxes on aviation gasoline be increased to 3½ cents a gallon from the present 2 cents, with increases of 3/4 cent per year for 4 years in both taxes up to 6½ cents a gallon. The receipts from taxes on aviation gasoline, which now go into the highway trust fund, should be kept in the general revenues to help finance the operations of the airways.

Legislation should also be enacted to raise patent fees, and to charge employers of longshoremen for the costs of administering disability compensation. Recommendations elsewhere in this message to adjust postal rates and authorize more adequate interest rates on Government loans also will serve to reduce unnecessary subsidies to special groups.

In addition to the above specific recommendations, all Government agencies have recently been instructed at my direction to prepare legislative proposals generally designed to remove present restrictions or limitations on their authority (1) to recover full cost to the Government of services that provide special benefits to individuals or groups and (2) to obtain a fair market value for the use or sale of federally owned resources or property.

By enactment of the legislation proposed in this budget and of other proposals which I shall make from time to time, we can move closer tothe ultimate goal of an equitable system of fees and charges throughout the Government.

Expenditures for labor and welfare, including the education and basic research programs classified under this heading, are estimated to be $3.6 billion in the fiscal year 1959, $200 million more than for the current year. The increase is primarily for scientific research and education programs. Previous recommendations for new programs, such as general aid for school construction, are being deferred.

A large portion of the expenditures for labor and welfare programs consists of grants-in-aid to States and local governments, and cannot be reduced without changes in basic authorizing legislation. At this time, I am proposing revisions in the legislation governing five of these grant programs which will lead to some small reductions in the Federal budget for the fiscal year 1959, and to some larger reductions in later years. Under these proposals, the proportion or amount of Federal participation would be reduced for schools in federally affected areas, for hospital construction, and for public assistance. I am also recommending action on legislation relating to revenues so the States can assume responsibility beginning in 1960, and Federal aid can cease, for vocational education and waste treatment plant construction. Continuing work by the Joint Federal-State Action Committee, as well as thoroughgoing reappraisals by Federal agencies on their own initiative, should lead to further recommendations for reducing grant-in-aid programs in future years, with the States assuming more of the responsibility for these activities and themselves collecting more tax revenues to finance them.

Science, research, and education.—In the face of Soviet challenges, the security and continued well-being of the United States depend, as never before, on the extension of scientific knowledge. Our technological progress requires a higher level of support for basic scientific research from both private and public sources. It also demands a growing supply of highly trained manpower—scientists, engineers, teachers, and technicians.

To this end, I am recommending an expanded program for the National Science Foundation and a new program for the Department of Health, Education, and Welfare. These programs will be closely coordinated. The Foundation is promoting science education and training primarily through grants to universities or fellowships to individuals.

Budget Expenditures Recommended
______________________ new obliga-
1957 1958 1959 tional authori-
Program or agency actual estimate estimate ity for 1959

PROMOTION OF SCIENCE, RESEARCH,
LIBRARIES, AND MUSEUMS

National Science Foundation:
Basic research $32 $38 $55 $58
Other 39 42 64 58

PROMOTION OF EDUCATION

National Science Foundation:
Science education 14 17 53 82
Department of Health, Education,
and Welfare:
Science and general education
programs (proposed legislation) ........ ........ 75 146
Assistance for schools in federally
affected areas:
Present program 174 223 122 1
Proposed legislation ....... ....... 90 130
Vocational education and other 54 60 60 58
Department of the Interior 48 53 60 57
LABOR AND MANPOWER 400 411 420 432


PROMOTION OF PUBLIC HEALTH

National Institutes of Health 165 202 203 211
Hospital construction grants 73 97 112 75
Grants for construction of waste
treatment facilities 1 31 51 45
Other 230 251 267 252
PUBLIC ASSISTANCE 1,558 1,822 1,809 1,809
CORRECTIONAL AND PENAL
INSTITUTIONS 32 34 36 37
OTHER WELFARE SERVICES 1478 162 167 165

Total 2,966 3,443 3,643 ¹3,616

¹ Compares with new obligational authority of $3,189 million for 1957 and $3,571 million for 1958.

The program for the Department of Health, Education, and Welfare will strengthen our general educational base, complement the activities of the National Science Foundation, and be channeled mainly through grants to States.

This budget proposes appropriations of $140 million for the National Science Foundation in 1959, more than three times the amount currently authorized. To permit immediate action in stepping up the Foundation’s activities, the budget also includes a supplemental appropriation of $10 million for 1958.

These recommendations will enable the National Science Foundation to proceed vigorously in expanding support for basic research. Of the 1959 appropriation, $58 million, double the 1958 amount, is provided for research grants, for research facilities and equipment, and for related activities.

Assistance to basic research is provided also in physical sciences by the Bureau of Standards and in life sciences by the National Institutes of Health. Expenditures included in other parts of the budget for basic research by the Atomic Energy Commission, the National Advisory Committee for Aeronautics, and the Department of Defense will be higher than in the current year. Most of the expenditures will be for research projects carried on by university scientists and, as a byproduct, will contribute importantly to the education of graduate students.

The second major part of the National Science Foundation program is to help meet the need for improving and extending science education. The 1959 budget for the Foundation provides $82 million, including $3 million of administrative expenses, for this purpose, or about five times the present amount. Most of this is for expansion of programs which have proved their worth in improving high school and college science education. These programs include (1) action to interest able students in science careers, (2) measures to improve the methods of teaching and the content of courses in mathematics and science and to give supplementary training to college and high-school teachers, and (3) provision for fellowships to highly qualified college graduates and scientists for advanced study in science and mathematics.

I am recommending that legislation be enacted to authorize a temporary program for the Department of Health, Education, and Welfare to provide grants to help stimulate the State, local, and private action necessary to meet certain critical educational needs. The major objective of this new program will be to provide matching grants to strengthen State departments of education and local school systems, particularly in the administration and teaching of science and mathematics. The new grant program will also foster improvement of general educationthrough grants to States or educational institutions to extend testing and counseling services for young people, provide college scholarships for outstanding high-school graduates, strengthen graduate schools, expand the teaching of foreign languages, and improve the adequacy and reliability of educational statistics.

These recommendations for the National Science Foundation and the Department of Health, Education, and Welfare are designed to meet our most urgent needs for support of science, to aid in the identification and encouragement of talent, and to strengthen our teaching staffs. In planning these programs, account has been taken of several important considerations.

First, more effective utilization of available scientists and engineers is the most immediately productive attack on existing shortages in these fields. Action to achieve this is a responsibility of private employers and organizations as well as governmental agencies.

Second, the basic responsibility for science education and training as well as for conduct of research in our country depends primarily on non-Federal support, and requires a thorough understanding of the problem by all our citizens and their wholehearted support. Therefore, I strongly recommend that this Federal participation in the Nation’s educational processes be limited to 4 years (allowing additionally for the completion of scholarships granted within these 4 years), and be considered as an emergency stimulant to encourage the States and local communities to bring their educational systems up to date in the light of our modern scientific age. The proposed Federal assistance is carefully designed to insure against any possible domination by the Federal Government of our educational system, which must continue to be locally controlled and operated in accordance with our American tradition.

Third, we must accept the fact that scientists are not trained overnight and science students do not become skilled scientists in a year. New programs in these fields must continue in most instances for a number of years to achieve concrete results. With full awareness of our tradition of not involving the Federal Government in the Nation’s public educational processes, this stimulation I have proposed must not be so overemphasized that the programs cannot be later carried on by those who must continue to carry the responsibility—the local school districts, universities, and industry.

Fourth, the needs of our free society cannot be met by improvingscience and technology alone. The national needs require the development through a strong general educational system of a vast number of aptitudes and skills. Every community in our country should do its level best and if possible more than is now being done to provide better education for the growing number of students. A good deal of improvement in our teaching methods and standards and greater use of our present facilities can be achieved by acquainting the boards of education, superintendents, teachers, parents, and pupils with the needs the country faces.

Fifth, specialized programs must not be allowed to upset the important balance needed in a well-rounded educational program which must insure progress in the teaching of all areas of learning.

Schools in federally affected areas.—The Federal Government has a responsibility for aiding school districts when it creates serious financial problems for them. It has recognized this responsibility in the past by providing grants to help build and operate schools in districts where enrollment is swelled by Federal activities. Experience with these programs, however, suggests that they should be modified; many of the communities for which grants have been made no longer have problems as acute as those suddenly generated by the migration of workers and families to them during the Korean crisis.

In view of the continued maintenance of a substantial defense establishment with shifting locations, authority for grants for construction and operation of schools should be extended, but the assistance should be restricted to instances where the Federal personnel both live and work on Federal property. However, grants for operation of schools on behalf of people living on taxable property should be gradually reduced during an adjustment period, and then terminated.

Labor and manpower.—Rapid technological developments and constant changes within the economy create complex manpower problems. This budget provides increased grants to the States to handle unemployment compensation claims promptly and to maintain an effective employment service system. The budget also recommends funds for the Department of Labor to carry forward its efforts to help labor and management meet the demand for technicians and skilled workers which accompanies the demand for scientists and engineers.

I again recommend the enactment of legislation to improve the welfare of working men and women. In this field, recommendations are already before the Congress for legislation to assure equal pay for equal work, torevise the laws governing hours of work on Federal construction projects, to extend the coverage of the minimum wage, and to improve the coverage of unemployment compensation. I will make proposals in a special message to the Congress concerning amendments to the legislation on labor-management relations and the registration and safeguarding of union as well as welfare and pension funds.

Health and hospital programs.—Expenditures for health programs have increased sharply since 1955. In 1959 the increase will be largely for construction programs already underway. New obligational authority for health activities is being reduced, principally with respect to construction of hospitals. This will not materially affect the planned level of obligations and expenditures for hospital grants in the fiscal year 1959, because prior-year appropriations are available and will be used. New obligational authority of $75 million is recommended for the fiscal year 1959.

The authorizing legislation for hospital construction grants will expire on June 30, 1959. In view of the progress already made toward meeting community hospital requirements for general beds, the Federal program should be modified to meet only the most urgent needs, with emphasis on specialized needs.

The Congress should take action on legislation under which the Federal Government can help the medical and dental schools to build teaching, as well as research, facilities to help meet medical and dental manpower needs.

Social and economic security programs.—Nine out of ten workers are covered under the old-age, survivors, and disability insurance programs, and three out of five are insured against unemployment. These benefits are financed through trust funds supported by special employment taxes. Retirement and survivors insurance is provided as well through trust funds covering railroad workers, Federal civil service employees, and veterans. Many individuals are also eligible under prescribed conditions for public assistance, veterans pensions, military retirement, or other benefits financed from general appropriations in the Federal budget. Of the estimated $22 billion in total expenditures from budget and trust funds for labor and welfare programs and for veterans services and benefits, an estimated $10 billion will be for old-age benefits.

The rapid growth of Federal programs for maintaining individual or family incomes, and the numerous piecemeal liberalizations in the applicablelaws, suggest the need for appraising these activities as a whole. The Advisory Council on Social Security Financing is studying some of the problems of retirement and disability insurance financing, and this budget includes funds for other basic studies. In the meantime, technical provisions of the old-age, survivors, and disability insurance legislation should be simplified and the paperwork burden on employers should be lessened by enactment of consolidated annual wage reporting for both income tax and social security payroll tax purposes.

Although Federal old-age, survivors, and disability insurance provides an increasing share of economic security for the aged, the dependent, and the disabled, the Federal Government’s expenditures for public assistance continue to mount because of the successive amendments increasing the Federal matching share. These programs are now well established and the individual States have gained experience as to appropriate levels of assistance. In line with my belief that the States should have greater responsibility for programs of this nature, proposals will be sent to the Congress for modernizing the formulas for public assistance with a view to gradually reducing Federal participation in its financing. This legislation should be made effective starting in 1960 to assure that the States will have adequate opportunity to adjust their finances and their programs, thus preventing an adverse impact on needy recipients.

The railroad retirement system is a self-financed retirement and social insurance program operated by the Government for the convenience of the railroad workers and industry. The financing of this system is far from sound on an actuarial basis. I reiterate my earlier recommendations that the Congress take steps to increase employer and employee contribution rates sufficiently to correct this inadequate long-term financing.

Legislative action is also needed to place on a sound basis the financing of Federal contributions to the railroad retirement account for time which railroad workers have spent in military service. The Comptroller General has reported that under existing law the Federal Government has appropriated to this fund over $300 million more than the probable actual cost of benefits which will ultimately be paid, based on credits for time spent in military service. The Government should be charged only for the actual cost of benefits as they are paid. At the same time that the Government has been making overpayments to the railroadretirement account, it has been incurring a liability to the old-age and survivors insurance trust fund for similar military service credits. In equity to all concerned, I recommend that overpayments to the railroad retirement account be recovered and applied to meet general budget liabilities to the old-age and survivors insurance trust fund for military service benefits.

Net expenditures for commerce and housing programs, in the aggregate, are expected to decline from $2.1 billion in the fiscal year 1958 to $1.6 billion in 1959. The principal reductions arise from proposed legislation to provide more adequate postal rates and from termination under existing law of the authority of the Veterans Administration to make direct loans for housing. Some other expenditures will increase substantially as the result of authorizations made in prior years. The major increases are in the Housing and Home Finance Agency for mortgage purchases and college housing loans, and in the Department of Commerce for improvement of the Federal airways.

I repeat my recommendation of last year for the prompt enactment of appropriate authority under which communities with basic problems of persistent unemployment can be assisted in their solution. Extension of the Export Control Act is recommended. Prompt enactment of legislation to control advertising on the interstate highway system is also recommended.

Postal service.—In every year since the close of World War II, the postal service has incurred large deficits. These deficits have placed heavy and unfair burdens on the taxpayers, to the special advantage of large users of the mails. Even with the improvements in efficiency in the last few years, expenditures needed in 1959 to provide the minimum requirements for postal service under present legislation will exceed receipts by an estimated $684 million.

The reasons for these chronic deficits are clear. In the quarter century since 1932, postal costs have more than doubled. On the other hand, postage rates for letters and publications are almost identical today with those 25 years ago, and rates for advertising matter have been increased by only 38%. Only parcel post, which is required by law to pay its way, has had rate increases commensurate with cost increases. Meanwhile postal volume has almost tripled. Everyexpansion in volume at today’s postal rates tends to add to the deficit passed on to the general taxpayers

Budget Expenditures Recommended
______________________ new obliga-
1957 1958 1959 tional authori-
Program or agency actual estimate estimate ity for 1959

POSTAL SERVICE

Present program $518 $686 $684 $701
Proposed legislation ...... ...... ¹— 700 ¹ — 700

COMMUNITY DEVELOPMENT AND FACILITIES
Urban Renewal Administration:
Present program 39 61 56 4
Proposed legislation ...... ...... ...... 200
Other 10 28 39 12

PUBLIC HOUSING PROGRAM 60 71 79 126

OTHER AIDS TO HOUSING
Federal Housing Administration —39 —53 —80 ......
Federal National Mortgage Association:
Present program — 188 —61 139 .......
Proposed legislation ...... ...... ...... 90
College housing:
Present program 97 162 219 .......
Proposed legislation ...... ...... ...... 200
Veterans Administration 77 145 —5 .......
Other —6 —1 —23 10

PROMOTION OF WATER TRANSPORTATION 365 397 407 544
PROVISION OF HIGHWAYS 40 38 7 .......
PROMOTION OF AVIATION 295 413 573 654

OTHER AIDS TO BUSINESS
Small Business Administration:
Present program . 69 84 —27 ......
Proposed legislation (business loans) ..................... 84 39
Other — 10 35 34 47

REGULATION OF COMMERCE AND FINANCE
Department of Commerce:
Present program 7 8 6 6
Proposed legislation (export-control extension) ...... ...... 3 3
Other 37 41 43 43

DISASTER INSURANCE, LOANS AND RELIEF
Small Business Administration:
Present program 5 8 —3 .......
Proposed legislation (disaster loans) ...... ...... 9 14
Other 15 18 18 .......

CIVIL DEFENSE
Federal Civil Defense Administration:
Present program 63 67 44 42
Proposed legislation ...... ...... 20 26
Other — 1 (*) (*) ......

Total 1,453 2,146 1,627 32,061

¹ Does not include $160 million for pay adjustments shown in the budget under allowance for proposed legislation and contingencies.
³ Compares with new obligational authority of $3,852 million for 1957 and $4,026 million for 1958.
*Less than $500,000.

In meeting this problem the Post Office Department has made effective use in recent years of the management practices successfully developed by private industry. The organization and methods of the Department have been modernized and its administration decentralized in order to meet local needs more promptly and efficiently. Obsolete postal buildings are being replaced or renovated. An aggressive research program has been initiated. Specialized motor vehicles, mail-sorting machines, and other new equipment are being developed and installed. These will provide better service to the public at lower operating cost.

On the other hand, further increases in certain costs in 1959 and later years are expected. An amount of $25 million has been included in the Post Office Department budget to provide for recent and pending increases in charges by railways for transportation of mail. The general allowance for proposed legislation and contingencies also includes $160 million to cover the estimated costs of postal pay increases recommended to become effective July 1, 1958, as part of the general policy on employee pay.

In view of present and prospective postal deficits, legislation to authorize adequate postal rates has become one of the most urgent items of unfinished business before the Congress. The House of Representatives has already approved changes in rates for letters, publications, and advertising mail which would add materially to present revenues, but still leave a large deficit. To provide revenues which will more adequately meet present needs, the pending legislation should be amended, primarily by establishing a 5-cent letter rate on all except local letters. This is more than the 4-cent rate I recommended last year for both local and other letters, but it is needed to take account of the pay increase and other higher costs. The recommendations I am making should result in a net increase in postal revenues of about $700 million in the fiscal year 1959. With the postal pay adjustments which are being recommended, the postal deficit will still be substantial.

Legislation now before the Congress should be enacted to authorize the liquidation of the Postal Savings System. In view of the growth of federally insured private savings institutions and the availability of U. S. savings bonds, this system has become unnecessary. Its use hasbeen declining and its termination will free Post Office staff for other duties.

Housing and community development.—Last year our population increased by 3 million people; before another decade passes it will exceed 200 million. Almost 60% of our people work and live in the 174 metropolitan areas and within these areas most of the growth has been in the suburbs. The rapid growth of our population and its increasing concentration in urban and suburban areas have created unprecedented problems for both industry and government in helping achieve the goal of a decent home and a suitable living environment for every American family.

Private industry and State and local governments have the basic responsibility for helping families meet this goal. The Federal Government can help best by guaranteeing loans, encouraging the private market for housing obligations, and by making limited grants to State and local public agencies. We must avoid unnecessary reliance on direct Federal financing. Such financing not only burdens the taxpayer but, more important, by discouraging private financing, limits the total amount of housing activity. To increase the effectiveness of Federal aids, important revisions are proposed in this budget.

Under the Housing Acts of 1949 and 1954, the Urban Renewal Administration makes loans and grants to help remove or prevent the slums: which obstruct the orderly development of our cities. In July 1957," 178 federally supported urban renewal projects in 122 cities were actually in process of clearance and redevelopment, and plans were underway for 254 more projects in these and 142 other cities. By the end of the first decade of the program in 1959, over 600 projects will be either completed or in the planning or development stages.

Now that this important program is well underway throughout the Nation and the gains to participating communities have become well recognized, I believe the time has come when States and local communities should assume a share of the administrative responsibilities and financial costs more nearly commensurate with the benefits which their citizens receive. To this end I am recommending a fivefold program.

First, in the future the local communities should share in the costs of planning from the start. In the past, in most instances, the Federal Government advanced all the money required for planning projects, and the local share was paid only if and when projects based upon theseplans went forward. The substitution of this cost-sharing formula for the previous advances will encourage more careful programing of individual projects and will mean fewer cases in which projects are abandoned after significant Federal outlays.

Second, I strongly support the recommendation of the Joint Federal-State Action Committee that each State establish a special agency for urban development, housing, and metropolitan planning to assume, as soon as possible, the financial responsibility for local planning of urban renewal projects. Adoption of this recommendation will be a constructive first step toward increasing the role of the States in this program and should ultimately permit the Federal Government to withdraw from supervision and review of planning.

Third, on all projects initiated in 1960 and later years, the States and localities should be required to provide an increasing share of the cost of buying and clearing the land and other net project costs. The present formula under which the local agency pays for one-third and Federal capital grants pay for the remaining two-thirds of the net project cost should be changed by providing for annual reductions, so that by the fiscal year 1962 the Federal Government would contribute not more than 50% of the cost of local projects. In the interim, the State legislatures will have an opportunity to decide the extent of their future participation and the local communities can likewise adjust their own financial planning.

Fourth, the Federal Government should give positive assurance concerning this program to the States and the cities by authorizing funds now for 1959 and each of the 5 succeeding years. Specifically an additional $900 million for capital grants should be provided in the fiscal year 1959. Since over $50 million in unused authority for capital grants will remain at the beginning of 1959, more than $250 million will be available for grants in that year. For 1960, $250 million should be authorized with a Federal participation of 60% of net project costs. For 1961, the amount should also be $250 million but the Federal share should be 55%. For 1962-64, the amount should be $200 million annually with the Federal share 50%. With the change in the statutory formula, the reduced Federal grants will support a generally larger urban renewal program.

Fifth, consideration should be given to authorizing the Urban Renewal Administration to help local public agencies finance nonresidential urban renewal projects which do not require Federal capital grants by guaranteeingobligations issued to finance such projects. In many communities, the increased property taxes obtainable from this type of redevelopment are so substantial that private financing should be obtained without ultimate net cost to the Federal Government.

Capital grants are only part of the present and prospective requirements for Federal support for the urban renewal program. It is estimated that in 1959 the Federal National Mortgage Association will make commitments of $250 million for the purchase of federally insured mortgages on housing in urban renewal areas and on housing for families displaced by this and other government programs. The amount of these mortgage purchase commitments arises partly from the statutory requirement that all purchases by the Association be made at par—considerably above the prices which private lenders would be willing to pay. As I have previously urged, this requirement should be repealed. With more realistic mortgage prices, it should be possible to restore the incentive for private financing originally intended under the Housing Act of 1954 and thus avoid the necessity for additional large amounts of new obligational authority to finance purchases of mortgages under this program and under programs for armed services and cooperative housing. Even without par purchases, however, the Association will require $90 million of new obligational authority in 1959 to purchase mortgages which are not currently acceptable to private lenders. As urban renewal receives greater local support, these mortgages should become increasingly attractive for private financing, and hence the present special assistance program for them should be looked upon as a temporary stimulant only.

An estimated 81,000 families will be displaced from their homes in 1959 by urban renewal projects, highway construction, and other governmental (primarily State and local) action. Most of these families can afford standard housing available in the private market, and, if necessary, they can obtain insured mortgages which are eligible for purchase by the Federal National Mortgage Association. To make this program effective in high cost areas, the maximum amount of a mortgage that can be insured should be increased from $10,000 to $12,000 for single-family homes. The Public Housing Administration has authority to meet anticipated requests from local public agencies for loans and contributions to support the needed housing for families of lower income. To assure orderly provision of such units, the time limits governing this authority need to be extended beyond present expiration dates.

With the expiration in July 1958 of the special loan guaranty benefits for veterans of World War II and of the direct housing loan program for all veterans, the Federal Housing Administration again becomes the only Federal agency providing comprehensive insurance or guaranties of private housing credit. At my request, the Congress last year liberalized the terms under which Federal Housing Administration mortgages were insured, making broader benefits available for the general public, including veterans. To strengthen further the mortgage insurance and guaranty programs, I shall recommend legislation to revise ceilings on interest rates and to remove discount controls which now discourage private financing of military housing and certain other FHA-insured mortgages and which prevent many veterans of the Korean conflict from using their continuing loan guaranty benefits. To make the liberal terms of insured mortgages available for larger and better houses, the maximum mortgage amount on owner-occupied housing should be increased to $30,000. To provide more effective financing aids for housing built for the elderly, the special provisions in existing programs should be liberalized and consolidated into a separate rental housing program for elderly persons. Finally, to give continuing assurance to home buyers, builders, and lenders of the availability of mortgage insurance, an additional $3 billion per year should be authorized in the maximum permissible dollar amount of outstanding FHA-insured mortgages during each of the next 5 fiscal years.

To meet the increased needs for college housing arising from soaring enrollments, Federal loans to colleges should be entirely for essential dormitories and faculty housing, and should no longer be made for student unions and other less essential facilities. Private financing should be encouraged by (1) replacing the subsidized interest rates required by the present statute with rates in no event less than the Government’s costs, (2) authorizing Federal guaranties of college housing obligations which do not have Federal tax exemption, and (3) prohibiting direct loans where private funds are available on reasonable terms. In addition, new obligational authority of $200 million is needed for the fiscal year 1959.

Water transportation.—Our maritime legislation, originally enacted in 1936, is being reviewed with the aim of reducing future Government subsidies to the minimum amount consistent with the national interest. For example, it appears that the replacement period for ships receivingoperating subsidies might well be extended from the present 20-year period to 25 or more years. This review will include the laws governing both construction and operating subsidies to determine what changes, if any, are needed. To the extent that changes are desirable, appropriate recommendations will be made.

Promotion of aviation.—New obligational authority and expenditures for promotion of aviation will again increase substantially under the 1959 budget, primarily to expand the capacity of the Federal airways to accommodate the rapid growth of air traffic and the new types of high-speed aircraft soon to be in operation. The Civil Aeronautics Administration will require $230 million to operate and maintain the airways system and to enforce air safety regulations and $175 million for procurement of new airways facilities. The amounts for facilities in 1959 and later years will be less than would otherwise be needed because of the recently completed arrangements for sharing facilities and data with the Department of Defense. New obligational authority of $35 million is requested for the Airways Modernization Board, recently established to undertake needed research and development on improvement of air traffic control and navigation facilities. At the same time supplemental appropriations of $12 million are requested for the fiscal year 1958 and new obligational authority of $107 million for 1959 to permit the National Advisory Committee for Aeronautics to expand its research and development activities dealing with basic problems involved in the flight of aircraft, ballistic and guided missiles, and space vehicles.

To pay a substantial part of the cost of operating the airways system, I am recommending increased taxes on aviation fuels. I also think we should redouble our efforts to find ways and means to reduce and ultimately eliminate all subsidies for airlines.

Small business. The Small Business Administration has been providing extensive financial and technical assistance to small businesses, as well as disaster loans to businesses and homeowners, under temporary authority expiring July 31, 1958. The experience of its first 4½ years has demonstrated the importance of these programs. Accordingly, I recommend that the limitation on the life of the Administration be removed and that new obligational authority of $53 million be provided. Including the proceeds from the increasing repayments on earlier loans, this will provide $161 million for new direct loans, participating loans, and other aids to small business during the fiscal year 1959. Asmentioned earlier, certain tax revisions to aid small business should be enacted.

Civil defense.—Our civilian defenses must be further strengthened through joint Federal-State action. To carry out this purpose, recommendations were transmitted to the last session of the Congress to provide for greater Federal sharing with the States of costs of civil defense personnel and administration and for placing added responsibility on the Federal Government for civil defense. New obligational authority of $26 million is provided in the budget for the first-year cost of this legislation, which has been approved by the House of Representatives and is pending in the Senate.

Expenditures for activities designed to promote the defense of the civilian population against nuclear attack are estimated to be about the same in the fiscal year 1959 as in the current year. The question of a shelter program is under consideration and tests of various types of shelters are continuing. The budget provides for extending and improving the attack warning system, and for expanding research and training in civil defense problems. These increases will be offset by a temporary suspension of procurement of medical supplies.

The structure of Federal organization for the planning, coordination, and conduct of our nonmilitary defense programs has been reviewed, and I have concluded that the existing statutes assigning responsibilities for the central coordination and direction of these programs are out of date. The rapid technical advances of military science have led to a serious overlap among agencies carrying on these leadership and planning functions. Because the situation will continue to change and because these functions transcend the responsibility of any single department or agency, I have concluded that they should be vested in no one short of the President. I will make recommendations to the Congress on this subject.

Expenditures for Federal services and benefits to veterans in the fiscal year 1959 are estimated to be $5 billion. This amount is $210 million greater than expenditures in 1957, but $22 million lower than the estimate for the current year. The expenditures estimated for 1959 reflect the cost of increases in disability compensation rates enacted in the past session of Congress and a steady growth in non-service-connected pension caseloads. On the other hand, reductions which exceed the increases in compensationand pensions will result from a decline in the readjustment needs of veterans of the Korean conflict and from economies in operations.

Budget Expenditures Recommended
____________________ new obliga-
1957 1958 1959 tional authori-
Program or agency actual estimate estimate ity for 1959

Readjustment benefits:
Education and training $774 $729 $626 $625
Loan guaranty and other benefits 73 93 93 93
Unemployment compensation 53 44 18 19
Compensation and pensions 2,870 3,107 3, 232 3, 232
Hospital and medical care 765 80 804 806
Hospital construction 36 39 36 9
Insurance and servicemen’s indemnities 47 4 40 52
Other services and administration (Veterans Ad-
ministration and others) 175 171 162 160

Total 4,793 5,034 5, 012 ¹4, 996
¹ Compares with new obligational authority of $4,870 million for 1957 and $5,013 million for 1958.

In addition to these programs financed from regular appropriations, large veterans insurance operations are carried on through the trust funds reported in part III of the budget. Payments and dividends of $682 million are expected to be disbursed to veterans and their survivors from these insurance funds in the fiscal year 1959.

Under existing laws, our country is faced in the long run with large and increasing expenditures for veterans programs. While a further decline in readjustment benefits may be expected during the next several years, costs for pensions for needy veterans will increase sharply. These pensions meet needs not related to the veteran’s period of service, but rather to the hazards to health and income that generally grow with increasing age. Fundamental changes have taken place in our society in the last several decades which require us to reconsider the laws providing veterans benefits and services which now overlap other growing public benefit and welfare programs. As I indicated last summer, a message on veterans affairs will be sent to the Congress at an early date. In that message there will be set forth for the consideration of the Congress recommendations for specific adjustments and improvements in the compensation,pension, and related programs which will enable us to discharge our national responsibilities to veterans with the greatest possible equity to all concerned.

The budget makes provision for new obligations of $50 million during 1959 for construction, modernization, and repair of hospital and domiciliary facilities. However, substantial unobligated balances of prior year appropriations reduce the need for new appropriations for construction purposes to $9 million. The general operating expenses of the Veterans Administration will be reduced more than 5% in the coming year because of numerous administrative improvements and declining workloads in the readjustment benefits programs.

Expenditures for agriculture and agricultural resources have amounted to over 30% of the Federal expenditures for civil benefits in the fiscal years 1956 and 1957 and are estimated to take almost as large a proportion in 1958. This compares with a little over 20% in 1953 and 1954. In this budget, I am recommending important revisions in our price support, conservation, and rural credit programs to place them on a sounder long-term basis with less reliance on the Federal Treasury. These revisions will result in only moderate reductions in budget expenditures in the fiscal year 1959, but should result in more significant reductions in, 1960 and later years.

Estimated expenditures in 1959 are $4.6 billion, the same as in 1957, but $0.3 billion less than in the current year. The anticipated decline is primarily in the operations of the Commodity Credit Corporation. Total new authority to incur obligations requested for agriculture and agricultural resources in 1959 is $3.8 billion. This amount includes $1.8 billion to restore the capital of the Corporation for price support losses realized in the fiscal year 1957; those losses were reflected in budget expenditures in 1957 and prior years.

Price supports and related programs.—Expenditures for price supports and other programs to stabilize farm prices and farm income have averaged more than $3.5 billion per year during the last 3 fiscal years. Under present farm laws these expenditures are likely to continue at high levels. Our system of price supports has tended to price key farm commodities as if they were scarce, stimulating continued production in excess of the quantities that existing markets can take at these prices.

Budget Expenditures Recommended
____________________ new obliga-
1957 1958 1959 tional authori-
Program or agency actual estimate estimate ity for 1959

STABILIZATION OF FARM PRICES AND
FARM INCOME
Commodity Credit Corporation:
Commodity loans and purchases:
Present program $3,352 $3,081 $2,506
Proposed legislation (extension of title I of
Public Law 480) ........ 28 95
Payments to producers and purchasers:
Present programs 118 135 34
Proposed legislation (special milk programs) ........ ........ 75
Carrying charges and operating expenses 1,006 1,166 1,234
Receipts (sales for dollars and other adjust
ments) —1,793 —1,666 —1,564

All of the above 1,790

Subtotal, Commodity Credit Corporation 2,684 2,745 2,380 1,790

Soil bank (excluding conservation practice pay-
ments) 535 620 604 529
Removal of surplus agricultural commodities 171 150 150 228
Sugar Act, acreage allotments, and other:
Present programs 121 113 122 122
Proposed legislation (acreage allotments) ...... ...... —2 —2

Total, stabilization of farm prices and farm
income 3,511 3,628 3,253 2,667

CONSERVATION OF AGRICULTURAL LAND AND
WATER RESOURCES
Agricultural conservation program 249 251 227 235
Soil bank (conservation practice payments) 13 86 152 151
Soil Conservation Service, watershed protection,
Great Plains, and other 89 105 112 110

FINANCING RURAL ELECTRIFICATION AND RURAL
TELEPHONES 267 339 376 215

FINANCING FARM OWNERSHIP AND OPERATION
Farmers’ Home Administration 245 270 208 208
Disaster loans 10 —8 —2 .......
Farm Credit Administration —28 —5 —4 2

RESEARCH AND OTHER AGRICULTURAL
SERVICES 227 259 279 261

Total, agriculture and agricultural re-
sources 4,582 4,924 4,601 ¹3,849

¹ Compares with new obligational authority of $5,298 million for 1957 and $6,393 million (including $2,187 million of anticipated supplemental authorizations) for 1958

Controls have not been effective in reducing overall agricultural production, despite the severe restrictions they impose on farmers’ freedom to produce and market. As a result, the Government has become the market for huge quantities of agricultural commodities, and our surplus disposal operations have been greatly expanded both at home and abroad. present agricultural policy, therefore, places a heavy burden on taxpayers and complicates our foreign-trade relations.

A technological explosion is occurring on American farms as can be seen from the fact that production per farm worker has doubled in the last 15 years. A new dimension in farm policy has been created which makes it virtually impossible to curtail agricultural output with the type of controls acceptable in our society. Under these circumstances, farm products are likely to continue to be abundant, and we cannot successfully continue with present obsolete legal formulas governing acreage allotments and price supports.

I shall send to the Congress shortly a special message recommending certain changes in existing legislation that will permit the Secretary of Agriculture to establish price supports for basic crops consistent with the increased productive capacity of our agriculture. These measures could not begin to have a significant effect in freeing the farm economy from Government controls before 1960 under a program of gradual adjustment of production to normal market demands.

Titles I and II of the Agricultural Trade Development and Assistance Act of 1954 expire on June 30, 1958. Although sales of surplus agricultural commodities for foreign currencies under title I of this act do not provide a solution to the basic problem of adjusting agricultural production, they have proved to be an important temporary method of coping with problems arising out of the longtime accumulation of surplus agricultural commodities. This budget proposes extension of titles I and II of this act for 1 additional year, with an increase from the present $4 billion to $5.5 billion in the authorization for the Commodity Credit Corporation to incur costs and losses under title I. Such an authorization does not constitute new obligational authority, but the resulting costs and losses necessitate new obligational authority in future years to reimburse the Corporation. The budget includes, therefore, an anticipated 1958 supplemental appropriation of $ 1.3 billion to reimburse the Corporation for the 1957 program. The operations of title I of this act andthe uses of the foreign currencies are summarized in the Department of Agriculture chapter of part II of the budget.

Both the acreage reserve and the conservation reserve programs of the soil bank have been helpful in diverting cropland from the production of agricultural commodities that are in excess supply. After careful consideration, however, I believe that more material and lasting benefits per dollar spent, both in reducing production of surplus crops and in obtaining enduring conservation of the Nation’s agricultural resources, will be achieved under the conservation reserve program. This budget, therefore, proposes termination of the acreage reserve program at the end of the 1958 crop year, and recommends a conservation reserve program of $450 million for the 1959 calendar year, an increase of $125 million above the program for 1958.

I also recommend that the special school milk program be extended after its present expiration date of June 30, 1958, that the National Wool Act be extended, and that legislation be enacted to require a greater sharing by the States in the costs of disaster relief assistance to farmers.

Agricultural conservation program.—The budget includes $235 million in new obligational authority to finance cost-sharing payments to farmers in the fiscal year 1959 for conservation practices performed during the 1958 crop year. These payments were authorized by the 1958 agricultural appropriation act. I am recommending that a program level of $125 million be authorized for the 1959 crop year. This amount, together with other public efforts in support of soil and water conservation, will permit cost-sharing payments for the more permanent soil and water conservation practices that are needed to maintain an adequate agricultural resource base. Those practices which are a part of usual and required annual farming methods or which return immediate benefits to the farm are properly the responsibility of the farmer, rather than of the Government. Thus, the appropriation required for the fiscal year 1960 can be reduced to approximately $125 million.

Agricultural credit programs.—The budget includes a new authorization of $206 million for loans to electrification and telephone borrowers. Over the years the Rural Electrification Administration programs have done much to enrich the lives of our rural families, and have contributed greatly to the advance of rural America and our country’s economy generally. The increased used of power requires additional generating capacity and heavier transmission and distribution facilities to meet thegrowing needs for electricity in rural areas. Approximately one-half of REA electric power now goes to rural industrial and nonfarm residential consumers, and in the future these nonfarm users will account for a larger share of the increasing demands. This situation, together with the present state of development of rural electric cooperatives, clearly indicates that it would be in the public interest to broaden the sources of capital from which the REA system may obtain the financing necessary for continued growth and adequate service to consumers. Therefore, legislation will be proposed (1) to assist both electric and telephone borrowers to obtain financing from private sources where the security is adequate and the loans can be repaid within a reasonable time, and (2) as previously mentioned in this message, to adjust interest rates on future loans for all loan programs to meet the Government’s costs.

Disbursements for direct loans under the loan programs of the Farmers’ Home Administration, exclusive of farm housing loans, are expected to amount to $231 million in the current fiscal year. This budget recommends a reduction of the authorization for these direct loans to $175 million for 1959. The Farmers’ Home Administration will continue to assist farmers in arranging operating loans from other sources. Also, legislation will be proposed to encourage private investors to make more insured real estate loans.

Utilization research.—During the past year, the Commission on Increased Industrial Use of Agricultural Products made a report to me and to the Congress which emphasizes the importance of research on utilization of farm products. Our present research on industrial uses of farm products is, therefore, being expanded as a step in carrying out some of the Commission’s recommendations. Appropriations recommended for 1959 provide $19 million for domestic utilization research, and, to the extent feasible, steps will be taken to make available to the Department in the fiscal year 1959 up to an additional $5 million of foreign currencies, obtained from the sale of surplus agricultural commodities, to contract for utilization research abroad. The research financed by foreign currencies will be directed toward increasing acceptance and use of our farm commodities and their products in foreign markets. Together with the amounts provided for the Forest Service (classified under natural resources) $26 million is estimated to be available for utilization research.

The Department will continue to review its research activities, particularly in farm production, with the objective of placing increasedemphasis on utilization research wherever this is feasible. Studies are proceeding to determine the most effective organizational arrangements for conducting this research within the Department.

The 1959 budget recommendations for natural resource programs contemplate the greatest possible economy in the use of Federal dollars, with due regard to the effectiveness of these programs in contributing to national security and long-term economic growth.

This budget contemplates curtailing some programs and stretching out construct]on on certain public works projects where this can be done without impairing the value of investments previously made. At the same time, there will be necessary increases in expenditures for public works, because of the many commitments made for projects started in previous years. Total Federal expenditures for natural resources will increase $35 million over the current year. These expenditures are estimated to be $1.5 billion in the fiscal year 1959, of which about $1 billion will be for the development of water resources.

There should be increased financial participation by State and local agencies and private interests in conservation and development programs. Such participation multiplies the effectiveness of Federal Government expenditures for these programs. In particular, there should be a uniform and consistent basis of local sharing of the costs on all projects involving flood control which produce identifiable benefits to local groups.

Many of the resource programs yield financial receipts, most of which come from sale of power and timber and from mineral leases on the public lands and the Outer Continental Shelf. These receipts are estimated to be $859 million in the fiscal year 1959. The estimated expenditures for 1959 include shared-revenue payments of $78 million of these receipts to States and counties.

Water resources.—The construction activities of the Corps of Engineers and the Bureau of Reclamation for flood control, navigation, irrigation, water supply, and power projects will be limited in 1959 to orderly continuation of work started in prior years. For the fiscal years 1956, 1957, and 1958, a total of $210 million was provided as the first-year appropriations for starting 407 new projects having an estimated total cost of $4.5 billion. As a result, expenditures for these two agencies in 1959 will be higher than in any of the 5 preceding yearsand will increase further in 1960. We should not at this time add to this extremely high level of commitments by starting any new projects in 1959.

Budget Expenditures Recommended
____________________ new obliga-
1957 1958 1959 tional authori-
Program or agency actual estimate estimate ity for 1959

LAND AND WATER RESOURCES

Corps of Engineers, civil functions $610 $630 $665 $628
Department of the Interior:
Bureau of Reclamation 171 199 216 202
Power marketing agencies 42 41 38 36
Indian lands resources 39 42 50 35
Public domain lands and other 24 28 29 28
Saint Lawrence Seaway Development
Corporation 37 44 19 .........
Tennessee Valley Authority:
Present program —7 41 47 17
Proposed legislation ........ ........ 13 125
Department of State 3 6 5 4
Federal Power Commission 5 6 6 6

FOREST RESOURCES 162 171 169 170
FISH AND WILDLIFE RESOURCES 51 65 58 58
RECREATIONAL RESOURCES 59 78 73 40
MINERAL RESOURCES 62 63 56 51
GENERAL RESOURCE SURVEYS AND OTHER 38 43 47 46

Total 1,296 1,457 1,492 ¹1,446

¹ Compares with new obligational authority of $1,355 million for 1957 and $1,439 million for 1958.

Construction on 309 water resources projects which these agencies will have underway in 1958 will go forward in 1959 as economically as possible. Expenditures for maintenance and operation of present facilities in 1959 will be at levels which will provide reasonable protection of the Federal investment.

In the interest of sound and efficient water resources programs in coming years, funds have been provided to continue investigations and advance planning and to assemble basic data for future projects.

In accordance with my earlier recommendations, both Houses of the Congress have had under consideration legislation which would authorizethe sale of revenue bonds by the Tennessee Valley Authority. I hope that action on appropriate legislation will be speedily concluded in order that the Tennessee Valley Authority may be in a position to meet approved needs for new generating facilities, with the Congress still retaining budgetary control of the program. This budget includes, under proposed revenue-bond legislation, $125 million to finance the construction of additional power generating units.

Interest expenditures of $7.9 billion, predominantly on the public debt, will account for 11% of budget expenditures in the fiscal year 1959.

Expenditures for general government, primarily for central administrative costs not classified among the other major activities, will be held to about the 1958 level despite increases in workload accompanying the normal growth of population. The estimated total expenditures in 1959 of $ 1.4 billion are less than 2% of the total budget.

The estimated interest payments in 1959 will be about the same as in 1958. During the past several years, market rates of interest have been steadily increasing until recent months, reflecting the heavy competition for savings to finance record levels of capital investment. These higher rates have meant corresponding increases in the budget cost of refinancing the large volume of maturing Government obligations. With recent changes in interest rates, however, no further increase in payments for 1959 is now estimated.

Budget Expenditures Recommended
____________________ new obliga-
1957 1958 1959 tional authori-
Item actual estimate estimate ity for 1959

Interest on the public debt $7,244 $7,800 $7,800 $7,800
Interest on refunds of receipts 57 61 62 62
Interest on uninvested funds 6 6 7 7

Total 7,308 7,867 7,869 7,869

Apart from fluctuations in rates, the level of interest payments is determined by the size and composition of the public debt. The only sound long-run method of reducing this cost is to balance the budget,economic conditions permitting, and apply the surplus revenues to reducing the debt.

If we are to retain in Government service the highly skilled and able civilian employees who contribute so much to the Nation’s strength, it is dear that certain revisions are needed in the statutory pay structures for these employees, as well as for military personnel. My proposals for such revisions, to be effective July 1, 1958, and for other civilian personnel legislation, will be submitted to the Congress at an early date.

This budget includes in the 1959 allowance for proposed legislation and contingencies $ 160 million to meet the cost of pay revisions for postal employees and $179 million for employees in all other agencies except the Department of Defense. The budget for the Department of Defense, the Government’s largest employer, makes allowance for its share of the additional cost.

While the adjustments which will be proposed under the Classification Act will affect rates of pay at all levels, they will have as a primary objective more adequate compensation for those whose present salary is substantially less than their responsibilities. Salary rates for junior and intermediate scientific and managerial grades should be more nearly competitive with non-Federal rates. Pay relationships in the middle and upper grades should be revised to provide greater incentive for those who assume increased responsibilities and demonstrate their proficiency in discharging them. Statutory limitations on the number of positions in the highest pay grades should be removed altogether, to permit more reasonable salaries for scientists and executives carrying heavy burdens of leadership and decision. Structural revision of the postal pay system has already been substantially accomplished but a general pay increase under that system is now appropriate.

Last year I recommended a program of hospitalization and medical insurance for Government employees. In view of the priority given to recommended pay adjustments, I propose that this health insurance program be postponed.

To carry out the recommendations of the Hoover Commission for improving career opportunities and effectiveness in the civil service, legislation should be enacted to authorize the training of Government employees outside as well as within the agencies in which they are employed.Legislation should also be enacted to provide for each employing agency to bear its share of the cost of accident compensation benefits.

Budget Expenditures Recommended
____________________ new obliga-
1957 1958 1959 tional authori-
Program or agency actual estimate estimate ity for 1959

Legislative functions $90 $101 $112 $82
Judicial functions 40 44 46 46
Executive direction 12 14 14 14
Federal financial management 476 508 507 508
General property and records management 194 255 275 266
Central personnel management and employment
costs ¹ 627 124 108 108
Civilian weather services 38 39 41 40
Protective services and alien contro 187 193 197 198
Territories and possessions and the District of
Columbia:
Present program 74 81 91 90
Proposed legislation (land acquisition,
National Capital Planning Commission) ...... (*) 4 1
Other general government 51 17 8 9

Total 1,789 1,377 1,403 ² 1,362

¹ Includes Government payment to the civil service retirement and disability fund. Starting in 1958, this payment was allocated among all employing agencies.
² Compares with new obligational authority of $1,833 million for 1957 and $1,368
million for 1958-
*Less than $500,000.

In order to meet the most pressing needs for new Federal buildings, the authority of the General Services Administration and the Post Office Department to enter into lease-purchase contracts should be extended.

I have been advised by the Attorney General that section 601 of Public Law 155, 82d Congress, concerning certain real estate transactions, reflects the exercise of legislative authority not warranted by the Constitution and that it is therefore unconstitutional. I recommend immediate repeal of this provision.

In furtherance of the invitation extended by the United States to hold the Eighth Olympic Winter Games in this country in 1960, I recommend that the Congress authorize the expenditure of not more than $4 millionto assist in the construction of adequate facilities for the games and to defray the costs of providing assistance to the games by elements of our Armed Forces.

Legislation now pending before the Congress to place Government appropriation requests on an accrued expenditure basis should be enacted, in accordance with the recommendations of the Hoover Commission. This is a businesslike approach and it is hoped that the opposition that developed in the past will be withdrawn as a result of further study and modifications in the way the procedure is to be applied. Likewise, efforts to achieve economy in Government would be greatly helped by legislation authorizing an item veto. This legislation would change the present situation under which every appropriation bill must be approved or disapproved as a whole, regardless of the merits or demerits of its individual items.

Last year, the Congress enacted legislation to cover some of my most urgent proposals for amending the immigration laws. I urge that legislation on my remaining proposals be promptly enacted.

I recommend again that the Congress enact suitable legislation providing for home rule in the District of Columbia. Under any such system the citizens of the District should be authorized to elect local officials, to vote in Federal elections, and to have a delegate in the House of Representatives.

I also recommend that the Congress complete action on appropriate legislation admitting Hawaii and Alaska into the Union as States.

Americans have a tradition of uniting in action when their freedoms and welfare are threatened. We do not shirk our clear responsibilities when new challenges arise.

I feel confident that this budget expresses the way in which the American people will want to respond to the promises and dangers of the dawning age of space conquest. New dimensions must be added to our defenses, and outmoded activities must be discarded. Closer international cooperation is vital in a world where great distances are losing their meaning. As we devote more of our efforts and resources to these compelling tasks, we will have to limit our demands for less essential services and benefits provided by the Federal Government.

Our response must rise above personal selfishness, above sectional interests, above political partisanship. The goal of lasting peace with justice, difficult though it may be to achieve, is worth all of our efforts. We must make the necessary sacrifices to attain it. Our own people demand it and the nations of the world look to us for leadership.
DWIGHT D. EISENHOWER

NOTE: As printed above, the following have been deleted: (1) illustrative diagrams; (2) references to tables, special analyses, and other matters appearing in the budget document.