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Well, I can get it elsewhere.

Senator ERVIN. The theory on which the highway funds were established is that to make an estimate of how much revenue would be for use by the highway taxes and for a certain period in the future, for a year, and then that that money would be used for no purpose except roads.

Mr. AIRIS. That is as I understand it.

Senator ERVIN. And nowadays where there are deficits, where the estimate falls short, it is a self-supporting fund and operates on a pay-as-you-go basis substantially?

Mr. AIRIS. Yes, sir.

Senator ERVIN. My information is that the executive branch has impounded $5.7 billion of highway funds, which have been collected, and refuses to spend them, or permit them to be spent.

Mr. STAFSETH. Well, the surpluses in the fund varies through the year, and I think the time that your figures were probably taken is correct. I think now it is closer to about $2 billion. It is down a little bit lower. But that has been up higher than what you stated and now it is lower.

Mr. AIRIS. That is as I understand it.

Senator ERVIN. Since several years ago the executive branch of the Government abandoned the two-budget system, that is, one budget for operative funds and another budget for trust funds, and adopted what they called the unified budget by which it may pretend that the deficit, the operating deficit to run the money that they borrow by deficit financing and spend, is less than the amount that is actually spent. Isn't it out of operating expenses?

Mr. AIRIS. If I follow you, Senator-I think I do-affirmative. Senator ERVIN. In other words, if you refuse to spend $2 billion you have in the highway fund, and you add the receipts for the operating expenses and receipts for the trust funds and then add the expenditures from the operating funds and the trust funds, it would appear that the Government has failed to spend the amount that has been impounded.

Mr. AIRIS. Well, I think I understand what you are driving at, and as I said, I think our position would be affirmative. Now, I should probably add this: That the operating and maintenance funds come out-of-State funds. None of it comes out of Federal.

Senator ERVIN. I am not talking about operation of funds. I am talking about the expenses used and the funds used and the deficits used to operate the Federal Government. So when you have a surplus in the highway funds and a deficit in the operating funds of Government and you put them both in the same pot, it looks like your deficit of operating funds is less by the amount of trust funds that you impound, which is some bookkeeping legerdemain.

I think we can agree that the question of whether highway funds can be used for other purposes is a legislative and not executive matter. Senator MUSKIE. I differ with you on that.

Senator CHILES. We thank you very much for your testimony here. Our next witness will be Mr. Roy Ash, the Director-designate of the Office of Management and Budget.

Senator ERVIN. I would just like to announce that the committee has extended an invitation to the Secretary of Agriculture, and the administration called EPA, and the committee has been assured by

the executive branch of the Government that if at all possible, without canceling other engagements that day, Mr. Butz and Mr. Ruckleshaus will appear before the committee on Wednesday of next week, and if not then, then some other day.

Senator CHILES. The committee is delighted to receive that information.

Mr. Ash, we appreciate your taking your time to appear before us today.

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STATEMENT OF ROY L. ASH, DIRECTOR-DESIGNATE, OFFICE OF MANAGEMENT AND BUDGET, EXECUTIVE OFFICE OF THE PRESIDENT; ACCOMPANIED BY SAMUEL M. COHN, ASSISTANT DIRECTOR, OMB; AND JAMES BRADLEY, ACTING GENERAL COUNSEL, OMB

Mr. Asн. I would first like to introduce those that I have with me. here.

Mr. Sam Cohn, Assistant Director, Office of Management and Budget and Mr. Bradley to my right, who is Acting General Counsel of the Office of Management and Budget.

I can't think of a more appropriate subject or a more appropriate committee to appear before as my first opportunity to testify on behalf of the Office of Management and Budget. I hope there will be many more such opportunities.

Senator CHILES. Thank you, sir.

Mr. ASH. Mr. Chairman, members of the committee, your letters, one of January 17 and one of January 24, requested that Director Weinberger or I appear before this committee and comment on the subject of impounding or reserving appropriated funds, and I am, of course, very pleased to do so.

Before going directly into that specific subject, let me say that much of the present difficulty results from the lack of a congressional mechanism to review and act upon the overall government fiscal situation in advance of taking appropriation and other legislative action, such as authorizations to obligate the Government in advance of appropriations.. We know that the Congress itself recognizes this deficiency, and last October established, by Public Law 92-599, a joint committee to review the procedures which it should adopt to improve congressional control of the budgetary totals, including a coordinated overall view of each year's budgetary outlays and anticipated revenues. As you may know, the President has pledged the full cooperation of the administration in working with that committee. We repeat this offer of cooperation now.

The need for such a mechanism was pointed out by the President in the budget message that was sent to the Congress earlier this week. He said:

Because of modifications made to reflect the desires of more than 300 congressional committees and subcommittees that influence it, the (budget) process has become more complicated and less comprehensible.

The fragmented nature of congressional action results in a still more serious problem. Rarely does the Congress concern itself with the budget totals or with the effect of its individual actions on those totals. Appropriations are enacted in

1 See also Mr. Ash's statement on Wednesday, Feb. 7, 1973, p. 481.

at least 15 separate bills. In addition, "backdoor financing" in other bills provides permanent appropriations, authority to contract in advance of appropriations, authority to borrow and spend without an appropriation, and program authorizations that require mandatory spending whether or not it is desirable in the light of current priorities.

At the same time, a momentum of extravagance is speeded by requirements created initially by legislative committees sympathetic to particular and narrow causes. These committees are encouraged by special interest groups and by some executive branch officials who are more concerned with expansion of their own programs than with total federal spending and the taxes required to support that spending. Since most programs have some attractive features, it is easy for the committees and the Congress itself to authorize large sums for them. These authorizations, however, create pressure on the appropriations committees to appropriate higher amounts than the nation's fiscal situation permits.

To this statement of the President, let me add one further point. Even if the Congress did succeed in establishing a mechanism relating specific items of spending each fiscal year to total spending, total revenues, and permissible borrowing, the Congress still cannot perform the job of spending money. The detailed administration of projects, the negotiating and letting of contracts, the identification of payees and determination of their eligibility for payment, and the essential exercise of judgment in the normal conduct of Government operations all of these, by their very nature, are clearly executive functions. These functions are undeniably within the executive authority. Indeed, he has an absolute responsibility to carry out these functions.

To get down to specifics, and by way of background, let us review the overall budgetary and fiscal situation in which we find ourselves in the fiscal year 1973. The act of October 27, 1972-Public Law 92-599-temporarily increased the permanent statutory public debt limit by $65 billion for the period ending on June 30, 1973. As a result, the total debt limitation through June 30, 1973, is $465 billion. The House and Senate committee reports on H.R. 16810-which became Public Law 92-599-make it quite clear that the $465 billion limit would be "wholly inadequate" if the expenditure level for this fiscal year exceeded $250 billion. The President has determined to adhere to this spending level not only to stay within the congressionally established debt limit, but also to avoid higher taxes, higher interest rates, renewed inflation, or all three. The previous witness offered an excellent analogy. That is the proposition of stopping a huge freight train. But in this case it is a head-on collision with another freight train. That has some problems, too, and that is the analogy we have before us now.

A review of the fiscal year 1973 budget was undertaken in the early fall of 1972 to update earlier estimates of spending on the basis of the latest available information. This review showed that, unconstrained, the 1973 outlay total would approximate $261 billion. This was $11 billion in excess of the resources expected to be available from revenues, miscellaneous receipts, and borrowing, under present laws. When we realize that we can spend only money that is in the Treasury-and this is explicity stated in each appropriation act-and that money gets into the Treasury only through taxation or through borrowing within the statutory debt limit, the compelling necessity to control the incurrence of financial obligations and the resulting expenditures of funds is apparent. The required expenditure adjustments for the fiscal year 1973 are explained in detail in the section cap

tioned "Program Reductions and Terminations" in the President's 1974 budget-beginning on page 47. Through a number of management actions that improve cash flow without affecting program operating levels, it is estimated that $6.5 billion in program reductions and terminations are needed to attain the spending level of $250 billion in this fiscal year. This reduction includes $2.3 billion already approved by the Congress in the limitation it placed on grants for social services under public assistance programs in the act of October 20, 1972-Public Law 92-512-General Revenue Sharing Act.

It is against this background that we will be reporting in a few days the information on "impoundments" called for by the Federal Impoundment and Information Act-title IV of Public Law 92-599. To the extent that items within the $6.5 billion of reductions previously referred to are reserved or "impounded," they will be included in the forthcoming report. This report will be submitted on or before February 10, the date established in House Joint Resolution 1. The compilation of the report-as well as the legally required preparation of the budget for next year, which has now just been sent to you-is a complex and time-consuming task, and our objective is to present a full and fair disclosure of the actions we have taken in the way of reserving funds.

You will find that many of the reserves to be reported are for purposes of routine financial management, such as those established pending the development of an organization to administer a new activity, or pending the development of plans, designs, and specifications for construction or procurement purposes. These cases simply involve an executive function of determining how the statutes may be most efficiently, economically, and effectively carried out. Other reserves are explicitly required by statute, such as Agriculture funds for fire ant control which are reserved for matching purposes for States which may come into the program.

All of the reserves which will be reported are reflected in the system of apportionments established in compliance with the so-called Antideficiency Act (31 U.S.C. 655). Some have been established under the explicit authority of that act: viz, "to provide for contingencies, or to effect savings whenever savings are made possible by or through changes in requirements, greater efficiency of operations, or other developments subsequent to the date on which such appropriation was made available." Reserves which may be required or authorized by other statutes will also be reflected in that apportionment system and reported accordingly.

Although "impoundment" or reserving of funds has been a practice. which began at least as early as the administration of President Thomas Jefferson, it is subject to much misunderstanding. The authority for some reserves or "impoundments" in the past has been derived from the President's constitutional authority in the area of foreign affairs. his role as Commander in Chief, and his constitutional duty to "take care that the laws be faithfully executed." The position of the executive branch is that upon consideration of all the applicable historical precedents, facts, and statutes-including appropriation acts, past statutory spending ceilings, the limit on the public debt, and the Antideficiency Act-action in reserving funds from time to time is fully consistent with the President's constitutional duties.

The total of all funds held in reserve at the end of last June was $10.6 billion. This is exactly the same as the total at the end of June 1967. But the 1967 figure was 6.7 percent of all budgetary outlays in that year, while the 1972 reserves were only 4.6 percent of 1972 outlays. In fact, the June 1972 percentage was the smallest in 8 years. Over most of the last decade, a range in the neighborhood of 6 percent has been normal.

We also appreciate the opportunity to express our views on S. 373, a bill "to insure the separation of Federal powers and to protect the legislative function by requiring the President to notify the Congress whenever he impounds funds, or authorizes the impounding of funds, and to provide a procedure under which the Senate and House of Representatives may approve the President's action or require the President to cease such action." All of the information on impoundments which section 1 of S. 373 requires to be reported by special message from the President to the Senate and House of Representatives is already required to be reported to the Congress by the Federal Impoundment and Information Act-Public Law 92-599. This statute also requires the reports to be made to the Comptroller General and to be published in the Federal Register, as would be provided by S. 373. Apart from this unnecessary duplication of the reporting requirements of present law, S. 373 would fundamentally alter the longestablished relationships between the legislative and executive branches of the Government, and would constitute a serious infringement upon the executive's responsibility to "execute" the laws enacted by the Congress. The establishment of reserves, within appropriations, and their release, is an action of an executive nature, fully consistent with the President's constitutional duty to "take care that the laws be faithfully executed."

As we see it, the procedures prescribed by S. 373 would substitute financial chaos for financial management. Considerable effort has been expended by the Congress and the executive branch for over a century to develop effective financial management in the government. The Antideficiency Act is an important product of this effort. Yet the definition of "impoundment" in section 3, along with the other provisions of S. 373, are so broad that the bill would render that act meaningless and would destroy the progress made over the years in financial management and control. The practical effect of this bill would be to free all appropriated funds for immediate spending without regard to considerations of commonsense efficiency, economy, and effectiveness.

Thank you, Mr. Chairman.

Senator CHILES. Senator Percy. I recognize you.

Senator PERCY. I want to thank my colleagues. I am going to the Foreign Relations Committee with my colleagues, to greet Mr. Heath from Great Britain, and I will be very brief.

Mr. Ash, I hope you always will look forward to testifying in the Congress and I assure you that this committee will always provide you with a courteous reception, but also we have many areas in this twilight zone that we need help and clarification on.

I was very much interested when the housing funds were impounded and called immediately the chairman and the ranking minority member of the Banking, Housing and Urban Affairs Committee.

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