As you mentioned, the reason for the saving was the inability of the recipient countries to provide enough English-speaking students within the year to take the course in flight training that was planned for, plus a recalculation of the cost of flight training itself, which was actually conducted, the lowering of the price which the Navy was asking as reimbursement for the training at Pensacola and the other training stations.

The second item is $4.9 million not required for training other than flight training. The same set of circumstances, but a different type of training. $200,000 saved on the development cost of a particular engine.

That, incidentally, is the only item of saving on material, end items, due to a price change.

The last item, 2.6, was savings on accessorial costs.

Mr. Halaby, I think that has been explained that that was due to less movement of materiel due to slow shipments than were anticipated. when the program was made up.

The total was 15.7.

Mr. HALABY. What will happen to that 15.7? Is that going to get obligated and spent, or is it going to be against these present programs, or is it going to be applied against next year's programs?

Lieutenant Commander SCHMEDER. We hope it will be carried over to apply against next year's programs.

Mr. HALABY. We can go through it with the Army and the Air Force.

Chairman CHIPERFIELD. I think that covers the situation.

Mr. HALABY. If I may very briefly go over the expenditure picture, I would like to do so.

(The information referred to is as follows:)

Mr. HALABY. Of the total of $152 billion earmarked for the Department of Defense, we have funds to be available on April 30 of about $15.2 billion. Of those funds we had expended on April 30, $6,195,000,000. We estimated we would expend during May and June somewhat less than $900 million. That left an estimated unexpended balance against these approved programs of about $8.1 billion. As I told you a few minutes ago, there was an Army program pending approval of 126, and that makes the unexpended balance tbout $8.2 billion as estimated by the services.

Chairman CHIPERFIELD. Would that not allow $5 billion for the next year and $3 billion for the following year?

Mr. HALABY. That could be. You may get a net unexpended balance on June 30, 1953, of around $8 billion. We will have spent during fiscal 1953 approximately $4 billion. Somewhat less, in all probability, when the final figures are in, in July. We are estimating that we would spend in 1954 for deliveries-that is, we will get goods and services-in the neighborhood of $5 billion. We can break this figure down by service as we have done here, and we can break it several different ways to show you where the money is that has not been expended.

We have tables 19, 20, and 21, for the Air Force, the Army and Navy, to show you just where the money is at work. These are just estimates; they were prepared in the last few weeks by the services. They will explain them if you wish.

Unexpended balance has been obligated or committed except the amounts I have just explained to you. The question constantly comes to mind why if you have that much overhang do you need any new funds in fiscal year 1954. In an attempt to analyze that for you, I had this chart made.

(The information referred to is as follows:)

DEPARTMENT OF DEFENSE

MDAP Status of expenditures

[Billions of dollars]

Funds estimated to be available for military assistance June 30, 1953---- $15.5

Estimated unexpended balance June 30, 1953, against fiscal year
1950-53 requirements.

8.0

Training, administration, accessorial charges, and infrastructure___

3

Analysis of June 30, 1953 unexpended balance-Continued

Estimated unexpended balance June 30, 1953 for United States Procure

Mr. HALABY. Chart 22 shows that of the 152 billion available, we had spent up to June 30 of last year 3.2 billion. sure, with why those expenditures were so low. the needs of the Korean war.

You are familiar, I am
The major reason was

The second reason was lead time. There are no off-the-shelf items in this program, to speak of. There had been production delays, design changes, and production difficulties, strikes, and so on. The money was at work, but wasn't producing goods at a very rapid rate up to a year ago. During the last year we have spent, up to April 30, almost as much in 9 months of this year as we had in the previous 3 years of the program.

This would leave, after subtracting all expended funds up to April 30, 9.3 billion. The services estimate expenditures between April 30 and June 30 of about 900 million, which would leave an estimated unexpended balance on June 30, 1953, of 8.4 billion. You subtract the savings and you get as shown on the previous chart slightly more than 8 billion unexpended.

Now, where is that money at work? How do you break that down and really get at what it represents? The first is this reserve for training, administration, accessorial charges, and infrastructure of $300 million. The accessorial charges have to be held against a continuing pipeline of delivery.

In every delivery there is some sort of packing, handling, and crating charge. This is a much more modest figure than we have estimated in the past, and we believe it is realistic in the light of experience. Mr. PROUTY. Mr. Chairman, may I interrupt you there?

You would call that a fixed charge against present appropriation? Mr. HALABY. A clear charge. It is kind of like an account payable, an estimated account payable in a bookkeeping sense; unpaid bills for services or goods in the process of performance and delivery. You know that you are going to have to pay so much for your gasoline for your car in the coming year, so much to train the children, so much for school expenses, so much for the administration of the household, and

so on.

The next subtraction we would make would be the whole offshore procurement program which I testified a couple of weeks ago would be cumulatively about $2 billion by June 30, 1953.

Why should that be subtracted out here? First, because everything on that program is hardware, long lead time stuff.

Second, the program was only started 15 months ago and the major contracts were only let 3 to 12 months ago. The bulk of this year's contracts, as I pointed out a couple of weeks ago, will have been let in the last 6 months. So we are getting very few deliveries and very few expenditures here and these expenditures for a variety of reasons will extend all the way into 3 years from now. That offshore procurement program is at work. It is buying end items. It is building up a mobilization base in Europe, and it is providing a lot of incidental and secondary economic benefits.

If you net that out, you are left with about 5.7 billion that is at work for goods and services in the United States.

Chairman CHIPERFIELD. Where is the defense support in there?
Mr. HALABY. I am just talking about the end item money here.
Chairman CHIPERFIELD. I misunderstood you.

Mr. FULTON. Could I give you a comparison on something at that point? Actually, on the history of your expenditures you have shown a saving in unexpended carryover money that you would like carried into fiscal 1954 of $378 million on an expenditure of probably $4 billion. Mr. HALABY. No, that is against an obligation. You have to apply those savings against the obligations, which would be a total of 15%2 billion.

Mr. BURLESON. Mr. Halaby, you do not show an unobligated balance of any sort, do you?

Mr. HALABY. I am just talking about expenditures.

Mr. BURLESON. I want an unobligated figure.

Mr. VORYS. Your unobligated is going to be that $1.6 billion under the new rules.

Mr. PROUTY. Let me see if I am correct about this.

These so-called fixed charges that you have just explained, if that were added to that

Mr. HALABY. Those are all obligated, you know.

Mr. BURLESON. Let us consider for a minute that they are not, in the sense that you go out and buy a package of something you carry away. That is not exactly true in this sense. If that were added to the 1 billion plus, that would come out to about 42 billion, would it not?

Mr. HALABY. You can't add that to it. Of this total up here, 15%, all but about a billion and a half or a billion six, as Mr. Vorys puts it, is obligated under the new rules. Under the new rules, all but about 1.6 billion of it will have been committed under contract out of service stocks. Now we are talking about what portion of that is being expended at what rate. To get at Mr. Fulton's question' on that, I wanted to give you, by service and I can give it to you by categorywhat the current rate of expenditures is, because that is the real test of whether you need this money in this period.

Mr. FULTON. Following it up, I had understood you to say that on your expenditures, it runs $4 billion for the fiscal year 1953.

Mr. HALABY. Or slightly less, yes, sir.

Mr. FULTON. Slightly less than 4 billion.

Then, on expenditures for the fiscal year 1953 you came up with what you call a savings of $378 million.

Mr. HALABY. No, sir; that is out of 4 years. That is 1950-53. That is a net accumulated savings over 4 years.

Mr. FULTON. Then what percentage of your total expenditures is generally your net accumulative saving? Then I would take that same percentage off the $8,400,000,000 that is to be spent yet. I would get the history of what you saved over your past expenditures, and to me it is about 10 percent, and then I would say, "Well, you have probably in there a leeway of saving of about 10 percent of the eight billion four." Mr. Woop. Mr. Fulton, you are a good statistician. I would like to ask you as a good statistician to take the various variables that are in this particular statistical exercise and give proper weight to them— variables such as the fact that when this program was started we had to start a lot of new production. You know that new production and new facilities involve costs which are very much higher than those incurred after a program has gotten going.

I can give you a lot of other variables with which I will not take the time of the committee now. I would rely on your statistical ability to disprove your proposition there if you really went into it.

Mr. FULTON. Knowing these Department from several years at this table, I know that they as a custom never underestimate their requirements. So the question is what savings you legitimately can make within a framework of a balanced program. I think if I look at your previous history and find a percentage of savings, that logically we can say, using the same brains and the same application again, that you might have another saving.

Mr. HALABY. If you wanted to say that out of $152 billion made available to us we would save $4 million and that proved that you should cut us another $400 million. I don't believe that would hold up. It proves that we are trying to save as much as we can out of the program and aren't just a bunch of crazy men bent on spending money. We have come up with this amount so as to reduce the amount requested.

Just as this defense shield in Europe is a thin plateglass shield, as General Ridgway pointed out, the deficiencies are not getting filled. If you want to cut the program and take the responsibility for the reduced thickness of that shield out on the frontiers, that is the responsibility of the Congress.

But the President has requested for this program about $4 billion. He said, "I am going to shake all the odds and ends out of this if I can, if there are any." We have been shaking for 6 weeks. We have come up with $400 million of what we call savings. That, it seems to me, is proof that we are trying to make these dollars work. We are trying to get everything we can out of them. We have never told you we were going to program all the military deficiencies by any means.

Mr. FULTON. I will compliment you on your savings. I am not criticizing you. If it has been possible in a few years to make such savings, maybe we had better put the pressure on you to make some more. There is nothing wrong with that.

Mr. HALABY. That goes back to how we arrived at the request for this year. I haven't been here, but I am sure General Stewart has been through it many times. We could give you a whole hour on that.

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