(a) War expenditures.
The fiscal year 1947 will see a continuance of war liquidation and
occupation. During this period we shall also lay the foundation for our
peacetime system of national defense.
In the fiscal year that ended on June 30, 1945, almost wholly a period of
global warfare, war expenditures amounted to 90.5 billion dollars. For the
fiscal year 1946 war expenditures were originally estimated at 70 billion
dollars. That estimate was made a year ago while we were still engaged in
global warfare. After victory over Japan this estimate was revised to 50.5
billion dollars. Further cut-backs and accelerated demobilization have made
possible an additional reduction in the rate of war spending. During the
first 6 months 32.9 billion dollars were spent. It is now estimated that
16.1 billion dollars will be spent during the second 6 months, or a total
of 49 billion dollars during the whole fiscal year.
For the fiscal year 1947 it is estimated, tentatively, that expenditures
for war liquidation, for occupation, and for national defense will be
reduced to 15 billion dollars. The War and Navy Departments are expected to
spend 13 billion dollars; expenditures of other agencies, such as the
United States Maritime Commission, the War Shipping Administration, and the
Office of Price Administration, and payments to the United Nations Relief
and Rehabilitation Administration are estimated at 3 billion dollars.
Allowing for estimated net receipts of 1 billion dollars arising from war
activities of the Reconstruction finance Corporation, the estimated total
of war expenditures is 15 billion dollars. At this time only a tentative
break-down of the total estimate for war and defense activities can be
indicated.
An expenditure of 15 billion dollars for war liquidation, occupation, and
national defense is a large sum for a year which begins 10 months after
fighting has ended. It is 10 times our expenditures for defense before the
war; it amounts to about 10 percent of our expected national income. This
estimate reflects the immense job that is involved in winding up a global
war effort and stresses the great responsibility that victory has placed
upon this country. The large expenditures needed for our national defense
emphasize the great scope for effective organization in furthering economy
and efficiency. To this end I have recently recommended to the Congress
adoption of legislation combining the War and Navy Departments into a
single Department of National Defense.
A large part of these expenditures is still to be attributed to the costs
of the war. Assuming, somewhat arbitrarily, that about one-half of the
15-billion-dollar outlay for the fiscal year 1947 is for war liquidation,
aggregate expenditures by this Government for the second World War are now
estimated at 347 billion dollars through June 30, 1947. Of this, about 9
billion dollars will have been recovered through renegotiation and sale of
surplus property by June 30, 1947; this has been reflected in the estimates
of receipts.
Demobilization and strength of armed forces.--Demobilization of our armed
forces is proceeding rapidly. At the time of victory in Europe, about 12.3
million men and women were in the armed forces; 7.6 million were overseas.
By the end of December 1945 our armed forces had been reduced to below 7
million. By June 30, 1946, they will number about 2.9 million, of whom 1.8
million will be individuals enlisted and inducted after VE-day.
Mustering-out pay is a large item of our war liquidation expense; it will
total 2.5 billion dollars in the fiscal year 1946, and about 500 million
dollars in the fiscal year 1947.
In the fiscal year 1947 the strength of our armed forces will still be
above the ultimate peacetime level. As I have said, War and Navy Department
requirements indicate a strength of about 2 million in the armed forces a
year from now. This is necessary to enable us to do our share in the
occupation of enemy territories and in the preservation of peace in a
troubled world. Expenditures for pay, subsistence, travel, and
miscellaneous expenses of the armed forces, excluding mustering-out pay,
are estimated at 5 billion dollars.
Contract settlement and surplus property disposal.--The winding up of war
procurement is the second most important liquidation job. By the end of
November a total of 301,000 prime contracts involving commitments of 64
billion dollars had been terminated. Of this total, 67,000 contracts with
commitments of 35 billion dollars remained to be settled. Termination
payments on these contracts are estimated at about 3.5 billion dollars. It
is expected that more than half of these terminated contracts will be
settled during the current fiscal year, leaving payments of about 1.5
billion dollars for the fiscal year 1947.
Another important aspect of war supply liquidation is the disposal of
surplus property. Munitions, ships, plants, installations, and supplies,
originally costing 50 billion dollars or more, will ultimately be declared
surplus. The sale value of this property will be far less than original
cost and disposal expenses are estimated at 10 to 15 cents on each dollar
realized. Disposal units within existing agencies have been organized to
liquidate surplus property under the direction of the Surplus Property
Administration. Overseas disposal activities have been centralized in the
State Department to permit this program to be carried on in line with
over-all foreign policy. Thus far only about 13 billion dollars of the
ultimate surplus, including 5 billion dollars of unsalable aircraft, has
been declared. Of this amount, 2.3 billion dollars have been disposed of,
in sales yielding 600 million dollars. The tremendous job of handling
surplus stocks will continue to affect Federal expenditures and receipts
for several years. The speed and effectiveness of surplus disposal
operations will be of great importance for the domestic economy as well as
for foreign economic policies.
War supplies, maintenance, and relief.-Adequate provision for the national
defense requires that we keep abreast of scientific and technical advances.
The tentative estimates for the fiscal year 1947 make allowance for
military research, limited procurement of weapons in the developmental
state, and some regular procurement of munitions which were developed but
not mass-produced when the war ended. Expenditures for procurement and
construction will constitute one-third or less of total defense outlays,
compared to a ratio of two-thirds during the war years.
The estimates also provide for the maintenance of our war-expanded naval
and merchant fleets, military installations, and stocks of military
equipment and supplies. Our naval combatant fleet is three times its
pre-Pearl Harbor tonnage. Our Merchant Marine is five times its prewar
size. The War Department has billions of dollars worth of equipment and
supplies. Considerable maintenance and repair expense is necessary for the
equipment which we desire to retain in active status or in war reserve.
Expenses will be incurred for winnowing the stocks of surpluses, for
preparing lay-up facilities for the reserve fleets, and for storage of
reserve equipment and supplies.
Military expenditures .in the current fiscal year include 650 million
dollars for civilian supplies for the prevention of starvation and disease
in occupied areas. Expenditures on this account will continue in the fiscal
year 1947. The war expenditures also cover the expenses of civilian
administration in occupied areas.
During the war, 15 cents of each dollar of our war expenditures was for
lend-lease aid. With lend-lease terminated, I expect the direct operations
under this program to be substantially completed in the current fiscal
year. The expenditures estimated for the fiscal year 1947 under this
program are mainly interagency reimbursements for past transactions.
Relief and rehabilitation expenditures are increasing. It is imperative
that we give all necessary aid within our means to the people who have
borne the ravages of war. I estimate that in the fiscal year 1946
expenditures for the United Nations Relief and Rehabilitation
Administration will total 1.3 billion dollars and in the following year 1.2
billion dollars. Insofar as possible, procurement for this purpose will be
from war surpluses.
(b) Authorizations for war and national defense.
During the war, authorizations and appropriations had to be enacted well in
advance of obligation and spending to afford ample time for planning of
production by the procurement services and by industry. Thus our cumulative
war program authorized in the period between July 1, 1940, and July 1,
1945, was 431 billion dollars, including net war commitments of Government
corporations. Expenditures against those authorizations totaled 290 billion
dollars. This left 141 billion dollars in unobligated authorizations and
unliquidated obligations.
With the end of fighting, it became necessary to adjust war authorizations
to the requirements of war liquidation and continuing national defense.
Intensive review of the war authorizations by both the executive and the
legislative branches has been continued since VJ-day. As a result, the
authorized war program is being brought more nearly into line with
expenditures.
Recisions and authorizations through the fiscal year 1946.--Readjusting the
war program, as the Congress well knows, is not an easy task.
Authorizations must not be too tight, lest we hamper necessary operations;
they must not be too ample, lest we lose control of spending. Last
September, I transmitted to the Congress recommendations on the basis of
which the Congress voted H.R. 4407 to repeal 50.3 billion dollars of
appropriations and authorizations. I found it necessary to veto this bill
because it was used as a vehicle for legislation that would impair the
reemployment program. However, in order to preserve the fine work of the
Congress on the recisions, I asked the Director of the Bureau of the Budget
to place the exact amounts indicated for repeal in a nonexpendable reserve,
and to advise the departments and agencies accordingly. This has been
done.
In accord with Public Law 132 of the Seventy-ninth Congress, I have
transmitted recommendations for additional rescissions for the current
fiscal year of appropriations amounting to 5.8 billion dollars and of
contract authorizations totaling 420 million dollars. The net reduction in
authority to obligate will be 5.0 billion dollars, because, of the
appropriations, 1.2 billion dollars will have to be restored in subsequent
years to liquidate contract authorizations still on the books.
The appropriations recommended for repeal include 2,827 million dollars for
the Navy Department, 1,421 million dollars for the War Department, 850
million dollars for lend-lease, 384 million dollars for the War Shipping
Administration, and 260 million dollars for the United States Maritime
Commission. The contract authorizations proposed for repeal are for the
Maritime Commission.
In addition, there are unused tonnage authorizations for construction of
naval vessels now valued at 5.4 billion dollars. In September 1945, I
suggested that this authority be reviewed by the appropriate committees of
the Congress, and the Congress has moved to bar construction under these
authorizations during the remainder of the fiscal year 1946. I propose to
continue this prohibition in the Navy budget estimates for the fiscal year
1947 and now renew my recommendation that legislation be enacted at the
earliest time to dear the statute books of these authorizations.
The amounts indicated for repeal in H.R. 4407 and the further rescissions
which I have recommended, excluding duplications and deferred cash payments
on existing authorizations, represent a cut in the authorized war program
of 60.8 billion dollars. The war authorizations will also be reduced 3'7
billion dollars by carrying receipts of revolving accounts to surplus, by
lapses, and by cancellation and repayment of commitments of the Government
war corporations.
On the other hand, supplemental appropriations of 600 million dollars will
be required for the United Nations Relief and Rehabilitation
Administration.
In the net, it is estimated that the cumulative authorized war and national
defense program will amount to 368 billion dollars on June 30, 1946.
Expenditures of 49 billion dollars during the fiscal year 1946 will have
pushed cumulative expenditures to 339 billion dollars. The unexpended
balances will be down to 28 billion dollars on June 30, 1946.
New authorizations for national defense and war liquidation in the fiscal
year 1947.-The expenditures of 15 billion dollars for national defense and
war liquidation in the fiscal year 1947 will be partly for payment of
contractual obligations incurred in the past, and partly for the payment of
new obligations. The unexpended balances on June 30, 1946, will be
scattered among hundreds of separate appropriations. Thus, while some
appropriation accounts will have unused balances, others will require
additional appropriations.
It is estimated that authorizations to incur new obligations of 11,772
million dollars will be needed during the fiscal year 1947, mainly for the
War and Navy Departments. Of the required authorizations, 11,365 million
dollars will be in new appropriations, 400 million dollars in new contract
authority, and 7 million dollars in reappropriations of unobligated
balances. In addition, appropriations of 825 million dollars will be needed
to liquidate obligations under existing contract authorizations.
Taking into account the tentative authorizations and expenditures estimated
for the fiscal year 1947, and offsets of 3 billion dollars in war
commitments of Government corporations, the cumulative authorized war and
national defense program on June 30, 1947, will be 376 billion dollars;
total expenditures, 354 billion dollars; and unexpended balances, 22
billion dollars.
The 22 billion dollars of unexpended balances tentatively indicated as of
June 30, 1947, comprise both unobligated authorizations and unliquidated
obligations. Most of the unliquidated obligations result from transactions
booked during the war years. A large part of the 22 billion dollars would
never be spent even if not repealed, for the appropriations will lapse in
due course. For example, several billion dollars of these unliquidated
obligations represent unsettled inter- and intra-departmental agency
accounts for war procurement. Legislation is being requested to facilitate
the adjustment of some of these inter-agency accounts. Another 6 billion
dollars is set aside for contract termination payments. If contract
settlement costs continue in line with recent experience, it is likely that
part of the 6 billion dollars will remain unspent.
On the other hand, some of the 22 billion dollars would be available for
obligation and expenditure unless impounded. In certain appropriations,
such as those for long-cycle procurement, considerable carry-over of
unliquidated obligations into future years is to be expected and is
necessary. However, substantial further rescissions can and should be made
when the war liquidation program tapers off and budgetary requirements for
national defense are clarified. As I have said, I shall continue to review
the war authorizations and from time to time recommend excess balances for
repeal.
As in recent years, detailed recommendations concerning most appropriations
for the national defense program are postponed until the spring. In
connection with the war activities of the United States Maritime Commission
and certain other agencies, however, I now make specific recommendations
for the fiscal year 1947. No additional authorizations or appropriations
will be necessary for the Maritime Commission since sufficient balances
will be left after the above-mentioned rescissions to carry out the program
now contemplated for the fiscal year 1947.