Subsection 103 (c)

1. ADDITIONAL BORROWING AUTHORITY

Subsection (c) of section 103 of the bill would provide for the borrowing, in addition to the $600,000,000 already authorized, of such further amounts as might be fixed from time to time in appropriation acts.

The presently designated subsection (b) of section 304 of the Defense Production Act of 1950 authorizes any agency of the Government, with the approval of the President, to borrow from the Treasury such sums as may be necessary to carry out its functions with respect to expansion of productive capacity and supply under sections 302 and 303 of the act. Subsection 304 (b) further provides that the total amount borrowed shall not exceed an aggregate of $600,000,000 outstanding at any one time.

The provision for further borrowing contemplates no limitation in the basic legislation on the amount which could be borrowed. However, the fact that any additional borrowing must be authorized in appropriation acts would insure control of the use of the borrowing authority through the usual appropriation process, so that only such amounts could be borrowed from the Treasury as might be justified to the Appropriations Committees and specifically authorized by the Congress from time to time.

The proposal that additional borrowing authority be provided without specific limitation in advance, but with the usual current control through the appropriation process, results from the following considerations:

(a) It has been found impossible to make accurate estimates of the many requirements for expanding productive capacity and supply under sections 302 and 303. The needs are constantly developing and changing as defense production progresses, and to establish a definite ceiling in advance may impede quick action where it is necessary and appropriate.

(b) Many of the programs conducted under sections 302 and 303 result in contingent liabilities which may never be realized. For example, where the Government enters into firm commitments to purchase large amounts of a particular material, it is necessary that agencies be authorized to draw upon funds in an amount sufficient to cover the full liability involved in such commitments. If, however, the proceeds from sales equal or exceed the commitments, it may develop that only a small amount of the authorization will actually be borrowed from the Treasury. Since the net position of the borrowing agencies is constantly changing, advance estimates are difficult to compile.

(c) The use of borrowing authority within limitations fixed in basic legislation has generally been considered to be more suitable in the early stages of administering new legislation, since it provides a vehicle for immediate operation which is quicker than the normal appropriation process. However, the presentation of specific programs to the Appropriations Committees, as needs develop, is considered a more appropriate method of financing a program which is well under way.

Subsection 103 (d)

Subsection (d) of section 103 of the bill would strike the presently designated subsection (c) as unnecessary. The presently designated subsection (c) of section 304 of the Defense Production Act of 1950 authorized, in addition to the sums authorized to be borrowed under subsection (b), an appropriation not in excess of $1,400,000,000 for the purposes of expanding productive capacity and supply under sections 302 and 303.

It is contemplated that all requirements under sections 302 and 303 would be met from the borrowing authority discussed above. The borrowing authority is considered more desirable than direct cash appropriations for the following

reasons:

(a) Amounts authorized to be borrowed under the act are placed in a revolving fund which is credited with receipts from transactions entered into under sections 302 and 303 of the act, and which is charged with all administrative expenses (including interest on amounts borrowed) in connection with such transactions. This is a business-type operation which is far more suitable for the commercial transactions involved in the administration of sections 302 and 303 than cash appropriations which are customarily used for the normal type of Government operation.

(b) The programs which have been started under sections 302 and 303 of the act have been financed from the borrowing authority provided in the existing law. To combine direct cash appropriations with this borrowing authority

would result in certain administrative and accounting difficulties which can be avoided if the entire program is financed by a single method.

In this connection, it should be noted that there is now pending before the Congress the third supplemental appropriation bill (H. R. 3587) which would increase by $1,000,000,000 the borrowing authority authorized in the existing legislation. The additional borrowing authority was requested, in lieu of a portion of the direct appropriation authorized in the existing law, for the reasons mentioned above. Since this proposal has been accepted by both the House and the Senate it is consistent with action already taken by the Congress.

2. ESTABLISHMENT OF CORPORATIONS

Subsections (b) and (d) of section 103 of the bill would amend section 304 (a) of the Defense Production Act, so as to authorize the establishment of corporations for the purposes of sections 302 and 303 of the act.

Any corporation established pursuant to the authority contained in the proposed amendment would

(a) Be subject to the Corporation Control Act of 1945 rather than the Budget and Accounting Act. It would submit a business-type budget annually to the President and to the Congress, maintain its accounts on a commercial basis, and be audited annually by the General Accounting Office in accordance with principles and procedures applicable to commercial enterprises. Agencies are generally not subject to a commercial audit by the General Accounting Office.

(b) Be subject to suit and could sue. Government agencies are ordinarily not subject to suit without the Government's consent. It is believed that the usual Government immunity should be waived when the Government engages in commercial transactions. Otherwise private firms would be at a considerable disadvantage in doing business with the Government. A corporation could also settle claims more expeditiously than a regular agency whose accounts must be "settled in the General Accounting Office.

While the present act authorizes, for the purposes of sections 302 and 303 of the act, the utilization of existing departments and agencies including corporations, the act excludes corporations from the "new agencies" which may be created to carry out the act.

The act, however, authorizes the Government to undertake certain programs which are essentially of a business nature; such, for example, as the making of loans, the buying and selling of commodities, and the operation of defense plants. It appears pertinent to note that during World War II it was necessary in the interests of efficient and economical conduct of a number of phases of the war effort to use the corporate type of agency for such purpose. Some examples are the Defense Supplies Corporation, the Defense Plants Corporation, the War Damage Corporation, the Rubber Development Corporation, and the U. S. Commercial Company.

Within recent years it has been increasingly recognized that procedures and controls which geenrally apply to Government-type programs cannot satisfactorily be employed in the case of programs of a business nature. This is reflected by the enactment in 1945 of the Government Corporation Control Act which provides for different types of controls, notably the business-type budget and commercial-type audit, specially designed to meet the needs of programs of a business character. This fact was also recognized by the Commission on Organization of the Executive Branch of the Government when it recommended in its report on Federal business enterprises (p. 14) that "straight-line business activities be incorporated so as to secure greater flexibility in management and simpler accounting, budgeting, and audit methods."

Accordingly the removal of the present exclusion of corporations from the agencies which can be created for carrying out sections 302 and 303 would permit the application of the more appropriate type of organization and controls to those business-type activities.

3. SALARY OF ONE OFFICIAL AT RATE OF PAY OF HEADS OF EXECUTIVE DEPARTMENTS Subsection (a) of section 703 of the Defense Production Act of 1950 authorizes the President to appoint heads and assistant heads of new agencies created under the act and to fix their compensation at rates comparable to the compensation paid to the heads and assistant heads of independent agencies of the Government.

Subsection (a) of section 108 of S. 1397 would retain this provision but would amend it to permit the head of one such agency to be paid at a rate comparable to the compensation paid to the heads of executive departments of the Government. The purpose of this amendment is to permit the President to continue the compensation of the Director of Defense Mobilization at the presently established rate of $22,500, which is the rate fixed by the act of October 15, 1949, for the heads of the executive departments.

The $22,500 rate presently is being paid to the Director under the provisions of the appropriation made to the President for emergencies (national defense), and its inclusion in the basic law is necessary in order to continue the Director at his present rate of compensation if and when the Office of Defense Mobilization is financed from direct appropriations rather than from emergency funds available to the President.

It should be noted that the Director of Defense Mobilization acts on behalf of the President to direct, control, and coordinate all mobilization activities of the executive branch of the Government, including those performed by the various executive departments, and that all agencies and departments are required to execute such directives as he may issue to carry out programs developed, policies established, and decisions made by him. Like the heads of executive departments, the Director is required to be appointed by the President and confirmed by the Senate.

In view of the nature of his duties and responsibilities, and of his relationship to the heads of executive departments, it seems obvious that the rate of compensation for the position of Director of Defense Mobilization should not be lower than the rate established for the heads of executive departments.

4. OBTAINING ADDITIONAL INFORMATION

The proposed new section 705 (d), contained in section 108 (b) of the bill, would help to assure that the President will have adequate information for determining the need for any additional legislation or administrative measure for the national defense. Having adequate information upon which to base decisions of such far-reaching import is, of course, of the greatest importance. The exist ing section 705 of the Defense Production Act gives to the President authority to obtain, with penalties for willful failure to comply, "such information from any person as may be necessary or appropriate, in his discretion, to the enforcement or the administration of this act The language of the comparable authority in effect during World War II, contained in the Second War Powers Act, section 1401, related to any information needed “in connection with the conduct of the war." The act, if amended as contemplated by the bill under consideration, although it would not be as broad as the World War II language, would assure that the defense program is not handicappel because of inadequate authority to obtain data essential to the direction of the program. Any surveys made under the new section 705 (d) would be subject to approval of the Bureau of the Budget under the Federal Reports Act of 1942, which would insure that any agency exercising the authority of section 705 (d) would do it sparingly, and, wherever feasible, with selected-coverage methods, in con'trast to the method of getting data from all firms or persons in a given group.

5. DISCONTINUANCE OF EXISTING STATISTICAL WORK

The proposed new section 705 (e), contained in section 108 (b) of the bill, would make clear that the President may, in the interest of national defense, dispense with any of the usual statistical work carried on by the Government. Economic controls necessarily involve demands from the Government upon the public for information to guide the use of those controls. It is important that these new needs for information, together with present needs, should impose the least possible burden upon the funds, the skilled employees, and the facilities of both the reporting public and the Government. This proposed provision is intended to assist in furthering this aim.

Much of the statistical work of the Government is expressly required by law. Under the Federal Reports Act of 1942, the Budget and Accounting Procedures Act of 1950, and the Budget and Accounting Act, 1921, the Budget Director already has ample authority to suspend statistical work which is merely authorized by law. However, in the instances that a statute directs that a specific statistical job be done, it is desirable that the President have authority to set aside any such requirement. The new section 705 (e) would assure that such

a suspension could be made in any instance where the President deems this to be in the interest of the national defense.

Under the authority of a similar provision in section 1401 of the Second War Powers Act, the President dispensed entirely with the censuses of manufactures which prewar legislation had directed to be taken in 1942 and 1944 (i. e., every second year). That action under section 1401 gave substantial relief to manufacturers who were, of course, during that period supplying data for use in connection with such defense measures as the priorities system.

6. PRINTING AND DISTRIBUTION OF REPORTS

Subsection (e) of section 108 of the bill would add to section 710 of the Defense Production Act of 1950 a new subsection (f). The new subsection would authorize the President to provide for the printing and distribution of reports, in such number and in such manner as he deemed appropriate, concerning the actions taken to carry out the objectives of the act.

The new subsection would specifically authorize the printing and distribution of reports which would keep the public informed with respect to progress under the act. It is contemplated that the reports will be issued quarterly and that between fifty and seventy-five thousand copies of each quarterly report will be issued to various informational mediums, trade associations, business executives, mayors, governors, educators, and others whose normal activities provide a means for disseminating information to the public.

Under present law (sec. 89 of the act of January 12, 1895, 28 Stat. 622, as amended, 44 U. S. C. 213), not to exceed 5,000 copies of the annual report of the head of an executive department may be printed in any one fiscal year. While it is not clear that this restriction would apply to reports issued by the Office of Defense Mobilization, it is considered desirable that any doubt in that regard be resolved by the provision of specific authority for the President to take the necessary action to furnish to the public the information to which it is entitled, and which will materially aid them in carrying on their part of the defense effort.

Sincerely yours,

F. J. LAWTON, Director.