1968 BUDGET PRESENTATION

Chairman RUSSELL. We recognize you, Mr. Secretary, to present the budget for 1968.

Secretary MCNAMARA. I would like to present this statement on the fiscal year 1968 budget in two sections. The first would deal with the general background of the budget, certain of the factors affecting our position and our commitments around the world, and in particular the strategic offensive and defensive forces. That covers the first 84 pages of the classified version of this statement. I think I could do it in an hour and a quarter, and then I could take your questions on that section. Then I would take about an hour and a half to present the rest of the statement, and then take questions on that, if I might.

Chairman RUSSELL. All right, sir. That will be agreeable with me. I assume most of the questions would be on the first portion of it.

Secretary MCNAMARA. I think so. There are a few fundamental principles that affect the rest of our forces that I want to emphasize when I come to the second portion, but I believe that your interest, as it should be, will be primarily in the first part, and I would like to try to cover that this afternoon. If you wish, the full text of my statement could be placed in the record at this point.

Chairman RUSSELL. Very well, sir.

(The statement follows:)

Mr. Chairman and Members of the Committee:

I have already presented to this Committee the Supplemental financial requirements for the balance of the current fiscal year, 1967. Now I should like to review our Defense Program for the next five fiscal years and our budget requirements for the coming fiscal year, 1968. As has been my practice in the past, I will attempt to call your attention to the more important changes in the Defense Program which have occurred since last year, particularly those relating to our effort in Southeast Asia. Other Defense Department witnesses will present the details of our financial requirements for FY 1968 later in these hearings.

A.

APPROACH TO THE FY 1968-72 PROGRAM AND THE FY 1967-68 BUDGETS

Last year when I appeared before this Committee in support of the FY 1967-71 program and the FY 1967 Budget I said:

"With regard to the preparation of the FY 1967-71 program and the FY 1966 Supplemental and the FY 1967 Budget, we have had to make a somewhat arbitrary assumption regarding the duration of the conflict in Southeast Asia. Since we have no way of knowing how long it will actually last, or how it will evolve, we have budgeted for combat operations through the end of June 1967. This means that if it later appears that the conflict will continue beyond that date, or if it should expand beyond the level assumed in our present plans, we will come back to the Congress with an additional FY 1967 request."

Throughout the spring and summer of last year in my appearances before various Congressional Committees, I reiterated the fact that the FY 1967 Budget was based on the arbitrary assumption that the conflict would end by June, 1967, and that additional funds would be required if the conflict continued. I also repeatedly stated, both

before the Congressional Committees and in public statements, that defense spending would rise above the budget level if we had to take actions to provide for the continuation of the conflict beyond June 30, 1967.

For example, on February 25, 1966, I explained to the Senate Armed Services Committee and the Subcommittee on Department of Defense Appropriations:

"If it later appears that they .e., combat operations in Vietnam will extend beyond that date, it will be necessary to supplement the fiscal year 1967 budget.

"The reason why that planning assumption [i.e., that the conflict would end June 30, 19677 causes the 1967 total obligation authority to drop below 1966 is that there are long lead items that may have to be used in combat, let's say in the period January-June 1967, which can't be financed in the fiscal year 1967 Budget and be delivered in time. Therefore they must be financed in the fiscal year 1966 Budget, if we are to have them on hand when we need them. That is why the total obligational authority for 1966 is higher than 1967.

"Now, if later this year it appears that combat will extend beyond June of 1967, at high levels, then in the case of similar long lead times it will be necessary for us to come back to the Congress and ask for additional appropriations."

I said a little later:

"...I think it would be irresponsible for us to come forward, now, today, with a higher figure, because it is extremely difficult to estimate the level of combat operations 18 months in advance, and very wasteful if we are to estimate on the high side, and quite unnecessary because the lead times don't require financing now.

On August 1, 1966, when I appeared before the Senate Subcommittee on Defense Appropriations in support of our appeals on the House action on the FY 1967 Appropriation Bill, I noted again that the FY 1967 Budget was based on the arbitrary assumption that combat operations would terminate June 30, 1967. I went on to say:

"As we get closer and closer to that date, it becomes more and more necessary to plan on the possibility of that not happening. We are considering that possibility. We, at present, however, do have sufficient funds to carry us on for several additional months.

"At the moment I would not recommend a supplemental, although I think one some time during 1967 is very likely. The reason I would not recommend it today...is that there are still many uncertainties not only as to the duration of the conflict, but also with respect to the level of operations that needs to be financed."

I pointed out that we had just completea a review of our air ordnance production programs and were reviewing our production plans for ground ordnance and aircraft. I concluded by saying:

"...To the extent that we can finance our operations with the presently requested funds and push the timing of the submission of a supplemental into the future, I think we will be able to come forward with a more precise estimate of our total requirements...'

With regard to the additional $569 million added by the House for active duty military personnel, I pointed out that our military personnel strength estimates were still fluctuating widely. I suggested that rather than coming forward with one personnel estimate today and a different one tomorrow, and constantly changing our funding requirement, we would be better advised to use the special authority we have in the Appropriation Bill to expend whatever funds are necessary for military personnel. I pointed out:

"...that almost surely we will expend the additional $569 million that the House inserted in the bill."

And I added later:

"More likely it will be higher than that level rather than

lower."

What we were trying to do was to avoid the overfunding which occurred during the Korean War when the Defense Department requested far more funds than were actually needed. For example, the Defense Department requested a total of about $164 billion for the three fiscal years 1951-53; the Congress appropriated a total of $156 billion; the amount actually expended was $102 billion; and the unexpended balances rose from $10.7 billion at the end of FY 1950 to $62 billion by the end of FY 1953. It took about five years to work the unexpended balance down to about $32 billion; and we were able to support a Defense program of about $50 billion a year during FY 1962-64 with about $30 billion of unexpended balances.