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THE SECRETARY OF DEFENSE,

Washington, May 5, 1949. Hon. MILLARD E. TYDINGS, Chairman, Committee on Armed Services,

United States Senate. MY DEAR MR. CHAIRMAN: I have read with interest the proposed amendments to S. 1269 involving budgetary and fiscal procedures in the National Military Establishment and have discussed them informally with Mr. Ferdinand Eberstadt. Copies of the amendments have also been referred to the military departments and their comments have been received and studied.

The budgetary and fiscal procedures and organizations proposed in these amendments have my wholehearted approval and may be considered as entirely consistent with National Military Establishment policy. You may, however, wish to give consideration to the advisability of either authorizing or requiring the departmental comptrollers to report to their respective Chiefs of Staff-a point that has been raised by the Departments of the Army and Air Force. It has also been suggested that the requirements of a civilian deputy comptroller to serve under a military comptroller is unnecessary. I hold no pronounced views on these proposals, and referring them to your committee merely for its consideration.

In addition, it seems to me advisable that the language of the proposed legislation, with respect to the duties of the Comptroller, be amended to conform to the language of S. 1269 with respect to the duties of the Munitions Board, the Research and Development Board, and the Joint Chiefs of Staff. In other words, it is my view that the Comptroller's duties should be worded in a flexible manner, just as the duties of the other components parts of the Department of Defense will be worded in a flexible manner under S. 1269.

In view of the shortness of time that we have had to study the amendments, the Military Establishment may wish to recommend technical changes at a later time, but in general the document appears to be in excellent form. With kindest personal regards, I am, Sincerely yours,

LOUIS Johnson.

EXECUTIVE OFFICE OF THE PRESIDENT,

BUREAU OF THE BUDGET,

Washington, D. C., May 5, 1949. Hon. MILLARD TYDINGS, Chairman, Senate Committee on Armed Services,

United States Senate, Washington, D. C. MY DEAR SENATOR Tydings: I am happy to give you the views of the Bureau of the Budget on the draft of a proposed title IV to S. 1269, which was prepared under the direction of Mr. Ferdinand Eberstadt at the request of your committee. The Bureau of the Budget subscribes to the general objectives of this proposed title. In several sections of the draft, however, Mr. Eberstadt has proposed language with which we are not in accord.

In his March 9, 1949, message to the Congress recommending improvements in the National Security Act the President cited as one of the major flaws in the act the assignment by statute of many of the key responsibilities of the Secretary of Defense, not to the Secretary, but to boards, agencies, or other subordinate units in his office. The President recommended that the duties now placed by statute in the Munitions Board and the Research and Development Board should be recognized as responsibilities of the Secretary of Defense. He recommended that the act be amended to make possible the flexible use of both of those agencies and of the Joint (hiefs of Staff, as staff units for the Secretary of Defense.

In its Report on General Management of the Executive Branch, the Commission on Organization of the Executive Branch of the Government, under the heading of "What is wrong with the executive departments and agencies,” noted that the line of authority from department heads through subordinates is often abridged by individual authorities granted to bureau or division heads and that department heads in many cases lacked sufficient authority to assign within their departments such responsibility as would promote economy and efficiency. The Commission also criticized many statutes and departmental regulations on the basis that they set up rigid and unduly complicated patterns for the control of the departments' procedures. The Commission recommended that, under the President, the heads

of departments be made fully responsible for the conduct of their departments, and urged that each department head should receive from the Congress adminisistrative authority to organize his department and to place him in control of its administration.

A number of the provisions of sections 401 and 402 of the May 3, 1949, draft of a proposed amendment to S. 1269, are inconsistent with the recommendations of the President for amendments to the Security Act and with the findings and recommendations of the Commission on Organization of the Executive Branch with respect to departmental management generally.

Section 401 (a) would establish by statute in the Office of the Serretary of Defense an office to be known as the Office of the Comptroller. I recommend that, in lieu of establishing this office by statute, language be used which will authorize the Secretary of Defense to appoint a comptroller. The creation of an "Office of the Comptroller" or other suitable internal organizational arrangements could then be accomplished by administrative action.

Section 401 (b) would place statutory duties upon the Comptroller of the Department of Defense. We recommend that the bill be worded in such a way as clearly to place those duties in the Secretary of Defense and authorize him, in his discretion, to have the Comptroller advise and assist him in carrying out those duties. Suitable language to accomplish that purpose would be language parallel to that which now appears in S. 1269, which describes the relationship between the Secretary of Defense and the Munitions Board, the Research and Development Board, and the Joint Chiefs of Staff.

Section 402 (a) would require that budgeting, accounting, and related activities in the military departments be organized and conducted in a manner consistent with the operation of the Office of the Comptroller of the Department of Defense. I recommend that reference to "the Office of the Comptroller” be deleted and that “Office of the Secretary of Defense” be substituted.

Section 402 (b) contains provisions with respect to the organization for budgeting, accounting, and related activities in the military departments which are even more detailed and restrictive than is section 401 with respect to the Office of the Secretary of Defense. This section would establish by statute an Office of Comptroller in each military department. It would place authority and responsibility for all budgeting, accounting, and related activities in the departmental comptrollers. It would require that the comptroller of each military department report directly to either the Secretary, the Under Secretary or an assistant secretary of that department. I recommend that section 402 (b) be rewritten to authorize the secretary of each military department to appoint a comptroller ; to place authority and responsibility for budgeting, accounting, and related matters in each departmental secretary who, in his discretion, could have the comptroller advise and assist him in performing those duties; and, finally, to include no provision which would prevent the Secretaries of the military departments, subject to appropriate direction by the Secretary of Defense, from organizing their staffs in a manner which, in their judgment, will best equip them to discharge their responsibilities.

Section 409 (b) would authorize the Secretary of Defense, with the approval of the Director of the Bureau of the Budget, to adjust the civilian personnel strengths of the three military departments when functions or activities are transferred among them. At the present time there is a fixed statutory ceiling upon civilian employment in the Navy Department and a similar ceiling covering both the Army and Air Force Departments. It is not clear whether the effect of section 409 (b) would be to supersede the existing law fixing the numerical ceilings for personnel referred to above or whether adjustments would have to be made within those ceilings. I believe this point should be clarified and would have no objection to the elimination of this statutory personnel limitation. Another alternative would be the establishment of one ceiling for the entire Department of Defense.

Section 412 would authorize the Secretary of Defense to cause property records to be maintained in the three military departments,” so far as practicable on both .a quantitative and monetary basis," under regulations which he would prescribe. It is not known at the present time the extent to which quantitative and monetary data should be maintained covering the property of the Department of Defense. I would suggest, therefore, that the phrase "so far as practicable on both a quantitative and monetary basis” be deleted from this section.

It is my understanding that the proviso in section 413 is intended to insure that the provisions of this title in no way infringe upon the Government-wide hudgetary, accounting, reporting and related responsibilities of the President, the Bureau of the Budget, the Treasury Department or the Comptroller General. While this title makes certain provisions for the handling of budgetary and fiscal matters for the Department of Defense, it does not affect budget and accounting affairs which are the responsibility of any officer or agency not a part of the Department of Defense.

I appreciate the opportunity to comment upon these proposed amendments to S. 1269. Sincerely yours,

F. J. LAWTON, Acting Director. Mr. EBERSTADT. It is particularly pleasing to be able to advise the committee that ex-President Hoover and Mr. Bernard M. Baruch have been so kind as to review these proposals. I am authorized to state that Mr. Hoover endorses them and recommends their favorable consideration. Mr. Baruch has permitted me to state that he regards them as constructive and as promising to improve the means of determining the needs and expenditures of the military.

Secretary of Defense Johnson has given his approval to our efforts but without commitment to the exact wording of the present draft. Our drafts were transmitted to the three military departments who, while generally favorable, raised certain points which I am sure your committee will wish to consider carefully before reaching your final conclusions.

And so while some differences of view as to form and language have been expressed, we met with an extraordinary unanimity of purpose and all along the line received encouraging constructive assistance and support.

Thus we can lay before you today a draft of the proposed new title IV which, generally speaking, represents the composite views and combined efforts of a broad group. It is not presented in any dogmatic spirit as the last word on this important and complicated subject. We offer it simply as a fair starting point for your committee's deliberations.

For your convenience, we accompany the draft with an explanatory statement and some charts. The statement reviews the various provisions of the proposed new title IV, section by section, setting forth the reasons for each provision, and, generally, their operation and effect.

Since those who have been working on the preparation of the proposed new title IV have not been officially advised as to the action taken by your committee on section 3 of S. 1269, which proposes to convert the National Military Establishment into a single Department of Defense, the draft of title IV submitted herewith, as well as the supporting statement, are presented in the alternative. The provisions of the proposed new title are equally essential and applicable whether the National Military Establishment remains in the form of three Executive Departments, as it now is, or is converted into a single Department of Defense.

The immediate purposes of the proposed new title IV are twofold: (1) to provide for the presentation of the budget estimates and authorizéd programs in readily understandable form so as to afford the Secretary of Defense, the President, the Congress, and the people, a convenient means of grasping clearly the purposes for which funds are being requested and the various amounts which are to be devoted to these specific purposes, and (2) to put at the disposal of the Secretary of Defense and the Secretaries of the three military departments, the assistance and technical advice, the organizational mechanisms, and the forms and procedures essential to effective implementation of their budgetary and fiscal responsibilities.

Its broad aim and purpose are to promote efficiency and economy throughout the Military Establishment.

Enactment into law of this proposed new title IV will result in furnishing, in concise and intelligible form, the information essential to clear understanding and firm control of our very substantial military needs and expenditures by the Secretary of Defense, the Bureau of the Budget, the President, the Congress, and the people. Especially, it promises to be of aid to the Secretary of Defense in carrying his heavy responsibilities. By setting up sound budgetary forms, organizations, and procedures, you will give all of those responsible for the formulation and execution of our defense policies up-to-date tools adapted to their present needs.

There will undoubtedly be some suggestions for improvement in the form and language of the proposed title IV and also some objections to certain of the provisions. For example, the point was raised that authority already exists, or at least would exist under the language of S. 1269, for appointment of comptrollers in the Department of Defense and in the military departments, and that the Secretaries could now assign to comptrollers such powers and duties as they deemed proper, including those prescribed under the proposed new title IV. This may or may not be so, but the fact remains that this authority has existed in certain departments for years without the accomplishment of the steps that we recommend. Furthermore, legislation has been enacted from time to time in the past diffusing some of these duties among different bureaus and technical services. There has not as yet, however, been any provision for a consolidated approach to these problems. One way to make absolutely sure that this is done promptly and in a manner acceptable to the Congress is to enact title IV into law. Therefore, I recommend that congressional intention in this matter be clearly set forth by statute.

Another question relates to the placing of the military comptrollers directly under their respective civilian Secretaries, Under Secretaries, or Assistant Secretaries rather than under Departmental Chiefs of Staff. The budget is one of the most effective, it not the strongest, implement of civilian control over the Military Establishment. This would seem to support the proposition that the comptrollers would report directly to the civilian heads of the Military Establishment. Nor would this arrangement interrupt or hamper the chain of military command. It exists in the office of the Secretary of Defense today and has to advantage been in effect in one of the military departments for years without in any way prejudicing military command or operations.

The question of the desirability of specifying the qualifications of the principal and departmental comptrollers has also been raised.

This is a point of substance, but there are difficulties in expressing the necessary qualifications in statutory language. Obviously, unless the several comptrollers are properly qualified for the performance of their respective tasks, the system will break down. The fact that a man is a professional accountant would supply one—but by no means al]—of the qualifications essential for these important posts. Experience and demonstrated capacities in this field are essential criteria. I invite your further consideration of this important point in the hope that you can find statutory language to meet this need which would be neither purely pro forma nor exclude well qualified people from appointment to these posts.

In order to put into proper perspective the purpose and effect of the measures that are now proposed to you, and to identify their position in the budgetary process, I take the liberty of outlining briefly the basic steps involved in formulation and execution of the military budget.

The Security Act of 1947 sets up a sound and, subject to certain improvements, adequate framework for the conception, development, and execution of the military budget. The process starts with the National Security Council upon which the statute lays the obligation of striking a balance between our foreign risks and commitments and the size of our armed forces, so that our military establishment shall be neither too large nor too small, weighed in the light of our national security needs and resources. The importance of sound conclusions at this early stage of the budgetary process is sometimes overlooked but it vitally affects the size of our military budget.

In order that its recommendations to the President shall be valid, the National Security Council must obviously be fully and correctly informed as to potential enemies' intentions and resources. For this purpose, the Council has the benefit of the views of the Central Intelligence Agency which the National Security Act soundly placed directly under the National Security Council. The act also wisely included the Chairman of the National Securities Resources Board among the membership of the National Security Council, so that our domestic economic capabilities should receive due consideration in determining the size of our military and other defense measures.

Possessed of the views of the National Security Council and of such other advice as he desires, it is contemplated that the President should lay down, in general outline, the initial dimensions of the military budget, which then passes through the Secretary of Defense to the Joint Chiefs of Staff. Their functions in this connection are threefold: (1). To prepare strategic plans, (2) to'assign logistic responsibilities in accordance with such strategic plans to the three military services which thereupon translate their military responsibilities into terms of personnel and material; and finally (3) to review the major material and personnel requirements of the military forces in accordance with such strategic plans and logistic assignments.

At this point strategic plans, translated into personnel and end-item requirements, are in turn converted into monetary terms grouped under the individual programs and objectives which we call the performance budget. Here is a particularly favorable opportunity to spot and to eradicate excessive duplications and expenditures.

Here, too, occurs the preliminary pricing of these detailed plans in order to reflect the dollar cost of the proposed military programs. If this cost is in excess of the amount deemed by the President to be necessary or available for military defense, the Joint Chiefs of Staff must develop alternative and less expensive programs.

The budget staffs of the Secretary of Defense and of the three military departments should participate actively with their counter numbers in the Joint Chiefs of Staff in the planning and the scheduling of this work, developing criteria as well as carrying on continuous analy

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