governments may experience difficulty or delay in obtaining funds required for matching purposes, provision is made for loan funds. The availability of these loan funds should increase the speed with which localities in need of capital improvements are able to begin work under the program. Finally, the unassigned reserve of $250 million will permit flexibility in distributing funds among authorized uses to meet needs and opportunities as they may occur at the time. Eligible projects The projects designated for support are ones which can be initiated quickly and completed promptly. They are projects which are fully justifiable on their merits, not simply to make work. Direct Federal expenditures are limited to programs previously authorized by Congress. These would include, for example, resource conservation projects and the construction, repair, and modernization of public buildings. State and local governments could request grants for a wide variety of purposes, including the construction, improvement or repair of hospitals, airports, water treatment facilities, streets, sewer systems and public buildings-subject to the proviso that they represent a net addition to existing State and local expenditures. At the same time, a specific requirement for eligibility for projects undertaken under this legislation is that they must contribute significantly to the reduction of unemployment. Moreover, the program is limited to new projects, or parts of ongoing projects, which can be started promptly and completed within 12 months. New long-term projects are excluded. These requirements are designed to insure that the impact of the capital improvements program will be felt in prompt reduction of unemployment and unused capacity, not in delayed pressure on the price levels and resources of a fully employed economy. The usefulness of public works in combating recession has sometimes been questioned on the ground that public works projects start too slowly and last too long. To be sure, many worthwhile projects are not useful for countercyclical spending because they involve largescale and long-term construction and require long periods of preparation and execution. The proposed legislation is explicitly focused on shorter run projects which are suitable for countering recession. As subsequent witnesses will show, ample projects can be "at the ready” to fulfill the requirements of prompt action under the President's program. The unemployment "trigger" The proposed authority will become available to the President when a specified increase in unemployment has occurred. The purpose of this "trigger" is to enable the President to act promptly, before the recession can gain momentum. The President would have authority to declare a "capital acceleration period" within 60 days after there is clear statistical evidence that recession has raised the seasonally adjusted unemployment rate by at least 1 percentage point during a specified number of month. Before invoking this authority, the President would have to make a finding that current and prospective economic developments require such action to achieve the objectives of the Employment Act. The "capital acceleration period" would terminate automatically at the end of 12 months, unless extended by Congress, and could be terminated earlier by the President. No additional funds could be obligated after the end of the period, and no new period could be proclaimed for 6 months after the termination of the previous period. The trigger mechanism insures that action can be taken promptly as recession is developing. The 12-month limit, which may be shortened by presidential decision, assures that the program will not become an engine of inflation once recovery has been achieved. These provisions establish a mechanism which is both responsive and flexible. IMPACT OF PROGRAM Although it is not possible to give precise measures of the jobcreating and income-generating impact of the proposed program, reasonable approximations can be made, as follows: If all of the Federal funds were used and the average grant to States and localities required 50-percent matching, the minimum increases in expenditures by all levels of government would be $2.25 billion if all unassigned funds went into loans to States and local units. If the unassigned funds were used for Federal projects, the total would be at least $2.5 billion. If they were used entirely for matched grants, the total would be at least $2.75 billion. These figures include only direct expenditures. To these should be added the secondary expenditures, those made by recipients of the direct outlays for materials, equipment, and consumer goods. A conservative estimate would place these secondary expenditures for final goods at 114 times the direct expenditures. Thus, the total expenditures arising under a full-scale program might be estimated as $2.5 billion of Government spending, plus something over $3 billion of secondary spending, or a total addition to gross national product of over $5.5 billion. Actual expenditures might be expected to vary from this figure depending upon the amount of funds made available, the composition of projects, and the secondary spending effects. Given a total addition to gross national product of $5.5 billion, the job-creating impact is estimated to range from 420,000 to 520,000 man-years. Roughly, then, a full-scale program under the standby authority would create a half million full-time jobs for 1 year. It is important to emphasize that we would not expect all of the spending or employment to occur instantaneously, nor all of the secondary effects to work themselves out immediately. Yet, these figures strikingly bear out the statement of the President in the Economic Report: With the indicated safeguards, this program would make a major contribution to business activity, consumer purchasing power, and employment in a recession by utilizing for sound public investment resources that would otherwise have gone to waste. That is the end of my statement. I have already covered the President's immediate proposal. Mr. FALLON. Thank you, Dr. Heller. Are there any questions from the members, or do you want to wait to hear from the other witnesses? Mr. BALDWIN. Mr. Chairman, when you say, "wait until we hear the other witnesses," do you mean these witnesses now before us, or the list of witnesses today? Mr. FALLON. I would certainly like to have the other members of the group that are sitting with Dr. Heller at the witness table. Would you present the gentlemen to the members, Dr. Heller? Dr. HELLER. Yes. At my left is Director David Bell of the Bureau of the Budget. At my right is Mr. Kermit Gordon of the Council of Economic Advisers, and next to Mr. Bell is Robert Turner, Assistant Director of the Bureau of the Budget. Mr. Bell, as you know, also has a statement to present. Mr. FALLON. Yes. I was wondering if it might be possible to hear from them because in the statements of the two witnesses one might answer some of the questions you might ask Dr. Heller and so possibly we could hear them and then you could direct your questions to either or both. Mr. BLATNIK. Mr. Chairman, just one short statement. I commend the distinguished Chairman of the Council of Economic Advisers not only for a cogent and concise presentation, but for an obviously very well thought out and well-reasoned, factual, and sound statement. It gives us the economic background to which we shall relate this particular grouping of capital improvements. I congratulate the Chairman for a very effective statement and one which, I am confident, will be very helpful in considering all of the aspects and impacts of the proposed public works capital improvements legislation before this committee. Dr. HELLER. Thank you, Mr. Blatnik. Mr. FALLON. Our next witness will be Mr. David E. Bell, Director of the Bureau of the Budget. Mr. BELL. Thank you, Mr. Chairman and members of the committee. I am happy to have the opportunity to testify in support of the President's proposals regarding accelerated capital improvements. Chairman Heller has discussed the principal policy issues concerned. I propose to discuss three matters relating to how the proposals would work in practice: First, how they would be financed; second, how they would be administered; third, the availability of eligible projects. My comments will be directed not only to the standby capital improvements legislation previously proposed by the President, but also to his new proposal for a more limited and selective immediate acceleration of capital improvements programs. 1. FINANCING The President's proposal for an immediate capital improvements program, if enacted, would go into effect at once. Accordingly, we propose that it be financed by a direct appropriation of $600 million. The Congress will be in session and normal financing methods should prove fully satisfactory. The President's proposal for standby authority to accelerate capital improvements presents, however, a different problem. We assume that it would not go into effect immediately on enactment but instead at some later time. There is no basis, therefore, for an appropriation request at the time the authorizing legislation is enacted, since both the timing and the level of programs is contingent on future events. Moreover, at the time when the standby legislation does go into effect. the Congress may not be in session to vote funds. Mr. SCHERER. May I interrupt? Mr. BELL. Yes, sir. Mr. SCHERER. Do I understand you to say that if we pass this legislation there would be then no need for future appropriations by the Congress of any part of the $2 billion? Mr. BELL. Not at all, sir. The point is covered in my next two paragraphs. To meet the special problem of financing this program, therefore, the President's standby bill would provide an interim financing source by authorizing the President Mr. SCHERER. I didn't understand your answer. You said, "Not at all." Mr. BELL. It would be necessary for the Congress to make appropriations at future times. There are provisions for an interim financing system to work as follows: At the time when the President declared the capital improvements acceleration period, the act as drafted would give him authority to transfer, as an interim financing method, unobligated balances of appropriations and other types of obligational authority up to an aggregate total of $2 billion. Mr. FALLON. Mr. Bell, are you reading from your statement? Mr. BELL. Nor sir. I am paraphrasing, because the gentleman evidently wanted me to answer it. Mr. FALLON. Do you have the answer in your statement? Mr. FALLON. I think if it is not sufficiently clear for you, Mr. Mr. FALLON. Will you proceed, sir? Mr. BELL. Yes, sir. To meet the special problem of financing this program, therefore, the President's standby bill would provide an interim financing source by authorizing the President, during any capital improvements acceleration period, to transfer unobligated balances of appropriations and other types of obligational authority up to an aggregate total of $2 billion. The amounts of unobligated balances available for transfer differ according to the time within the fiscal year, but in all cases they far exceed $2 billion. In the fiscal year 1961, for example, the unobligated balances were reported at about $80 billion in December, almost $57 billion in March, and a little over $40 billion at the end of the year in June 1961. Not all of these amounts are equally appropriate for transfer, and the President would have to determine, when the occasion arose, exactly which accounts would be used for the interim financing. He would, of course, transfer funds from those accounts least likely to have any immediate need for them. The administration bill also authorizes appropriations to replace the balances which are used for the accelerated program. The replacement could take either of two forms, depending upon the action of Congress in the appropriation act. Appropriations might be made to enable the President or the delegate agencies to pay back from their own accounts the interim transfers previously made. This would appear to be the preferable method of reimbursement. Alternatively, the Congress could appropriate money directly to the accounts which financed the transfers in order to restore the amounts which had been previously transferred out. In either event, the Congress would re 83015 62—3 view the need for such restorations, and if the accounts giving up the money did not require restoration it could be denied. The financing provisions of H.R. 10318, in our opinion, are preferable to those in H.R. 10113. Section 10 of the latter bill provides a contract authorization which would permit starting the program to the extent of letting contracts. But once the contracts or other obligations have been incurred, there is no way to make payments on those obligations until Congress meets and appropriates the money to liquidate them. Not all of the contractors would be able to wait for the customary progress payments. Not all of the States or cities would be able to finance the projects temporarily while waiting for the Government to make good on the grants or loans. And even on direct Federal public works, some additional direct Federal employment would probably be necessary, and for that too, a contract authorization only would be insufficient without authority to make expenditures. For these reasons, it would be preferable in our view to provide for interim financing through transfers of obligational authority as would be provided by H.R. 10318. The principle of interim financing through transfers is already in effect for several other types of contingent needs. For example, the Secretary of Defense is authorized to transfer substantial funds from any Defense appropriations when advantageous to the national defense, for such purposes as acceleration of missile programs and improvement of the readiness of the Armed Forces. The Forest Service of the Department of Agriculture may temporarily borrow from other appropriations when necessary to augment the funds available for forest fire fighting. Similarly, the Secretary of the Interior may transfer funds for the suppression or emergency prevention of forest or range fires. Such authorities provide ample precedent for the transfer authority proposed in H.R. 10318. 2. ADMINISTRATION The legislation proposed by the President is intended for the most part to accelerate existing programs. Whether they be programs of direct Federal work or programs of grants to States and localities, such programs are now underway, with staffs and procedures in being. In such cases it is obviously appropriate to rely on the existing agencies to plan and carry out the accelerated capital improvements that would be authorized. One new element would be added by the proposed legislation. A number of types of State and local public works for which no Federal grant funds are now available would be made eligible for assistance under section 6 of H.R. 10318. In view of the similarity_of_this authority to others now administered by the Housing and Home Finance Agency, it is proposed that it be administered by that Agency. Apart from this, it would be our expectation that the proposed capital improvements acceleration could be carried out with a minimum of new administrative machinery. We would anticipate that: The Council of Economic Advisers, in line with its regular duties, would: (a) Keep the President informed on the unemployment situation: |