of Government outlays. If business and labor are expected to exercise economic restraint, and if they are to have confidence in the economy needed to make long-term commitments essential to a sound and growing economy, the Federal Government must set an example of restraint. People are not governed by laws alone; they are governed by the example of their leaders and by the public confidence in the judgment of those leaders.

My point in mentioning all of this is not to defend the President's overall economic policy, since this is not my area of expertise and responsibility. I would simply like to point out that there are strong pressures to reduce spending, and that the Department of Agriculture intends to do its part to assist in the President's efforts.

The main programs selected for withholding were the rural environmental assistance program; the 2 percent loan funds in the Rural Electrification Administration; and the emergency loans of the Farmers Home Administration.

I will mention them only briefly so that you may assess the administration's judgment in selecting these programs for withholding rather than other programs in the Department of Agriculture.

REAP

The rural environmental assistance program (REAP) began in the 1930's to provide a payment incentive to farmers to more readily discover the benefits of conservation. Farmers have learned that well. Conservation practices are an accepted part of sound, efficient farm operations. These practices pay for themselves. Never have farmers done such an outstanding job of conservation farming as now. Yet, only about 20 percent of the farms now participate in REAP programs in any one year, and the average payment is only $239 per participating farm. Also, local public conservation participation could be funded through revenue-sharing funds where desired by the local people who determine priorities on spending. Where there is a strong need for public conservation assistance, as evaluated by local citizens and local government, this is possible through a program that is more responsive to local people than the REAP program.

REA

The Rural Electrification Administration 2 percent direct loans were converted to insured and guaranteed loan programs at interest rates ranging from 5 percent to approximately market levels on December 29, 1972. An additional $200 million was made available. Loan authority for fiscal year 1973 is $170 million more than has ever been provided in a single year.

Here, the question is one of structure of the loans. The 5 percent interest is still a subsidized rate and a direct aid to the borrowing rural electric and telephone cooperatives.

Again, the 2 percent direct loans were started years ago when only 11 percent of the farms were electrified and 2 percent loans were above the Government cost of money. This program served well. Now more than 98 percent of the farms are electrified; the 5 percent money is still less than the current Government cost of money; and the new rural electric lines financed by REA are running 14 meters to the mile.

90-538-73- -35

FHA

In December, applications under the Emergency loans program of the Farmers Home Administration were given a cutoff date. The liberal benefit features of these emergency loans established by Public Law 92-385 on August 16, 1972, were causing a run on the Federal Treasury. A person in a designated disaster area could obtain a loan regardless of his financial condition and whether or not he could get credit elsewhere; he could be excused from repaying up to $5,000 to cover actual losses; and he would need to pay only 1 percent interest on the balance over the next 40 years. It is understandable that applications were pouring in. The cost of this program in fiscal year 1973. if unchanged, was estimated to run $1 billion or more.

When action was taken to establish a cutoff date, additional farm operating loans were made available at 5% percent. We shall make every effort to see that farmers who need it will have ample credit for their 1973 operations. In addition, the administration supports enactment of H.R. 1975, which would provide emergency loans on an interim basis for those who failed to submit applications before the cutoff date in their counties. A permanent solution on Federal disaster aid will shortly be proposed to the Congress in the form of a comprehensive disaster relief proposal which will encompass a broad range of Federal disaster relief programs.

These were the programs chosen to be curtailed for the administration to stay within the legal debt limit of $465 billion and to meet the question of prudent judgment on the part of the executive branch in meeting that requirement.

Now may we address ourselves to the question of the legality of withholding soine funds from fiscal year 1973 Department of Agriculture

programs.

In late calendar 1972, it was apparent that if all appropriated Federal moneys were spent in fiscal year 1973, that outlays would exceed the debt limit of $465 billion. This would be both illegal and imprudent. The administration chose to restrict outlays to stay within the legal debt ceiling. This was also wise in order to stem the tide of inflation and to avoid a further tax burden on our citizens. This appeared to be wise judgment considering both the public mind and the fact that earlier each House of Congress acting individually had by a majority indicated that it agreed that spending should be restricted to $250 billion in fiscal year 1973.

The administration, then, being in the position of needing to withhold funds to stay within the legal debt limits, and in order to be responsive to the desires of the people, went over existing programs carefully to curtail those that are least essential. In the Department of Agriculture, the decision was made in light of the continuing aim of this administration to increase farmers' income from the marketplace.

May I emphasize that our continuing goal is to increase farmers' income from the marketplace. We have made substantial progress, and I am confident that the cutbacks which have been made will not detract from our effort to pursue this goal.

Mr. Chairman, this concludes the formal statement I wish to make. Senator CHILES. Thank you, Mr. Secretary.

I think for this afternoon to start with again we will honor the 10minute rule, so we will have a chance to go around.

Senator Muskie.

Senator MUSKIE. Mr. Secretary, with respect to the first two pages of your testimony it appears to be a repetition to the same argument of every administration witness, so I see no point in delaying it now. I am intrigued by your political analysis to justify not only the objective but the means used by the President in these cuts. Based upon the margin in the election last year, it puts me in something of a dilemma, because I intend to focus understandably upon the extent to which we defeated the President's party in the congressional races last year. Now, what mandate do we read out of that to balance the mandate. that you read out of the President's fund?

Secretary BUTZ. I think you have to answer that question in terms of whether you are talking about the Senate or the House of Representatives. The House of Representatives voted with the President, and in the proper direction, Senator.

Senator MUSKIE. Well, if you take comfort from that much I hope we don't need to give you more comfort in the next off year elections. Let me speak from the Senate. As I read this mandate and try to give a balanced view, both of these coequal branches of the Government were endorsed by the vote. I think that mandate suggests that the people want a strong Congress as well as endorsing the President's programs in accordance with whatever they had in mind.

So what is at issue here is whether or not the Congress meekly submits to your interpretation of your mandate or whether the Congress asserts its mandate and its constitutional responsibilities.

Now, I put that in the record at this point and I will put this hearing in proper perspective, because I must say to you, Mr. Secretary, that I heard from the Director of the Office of Management and Budget, which to me is the most dangerous constitutional philosophy relative to the separation of powers in connection with appropriations I have ever heard, and I hope it is not shared throughout the executive branch. I suggest that you read it.

But now let's get back to the President's mandate. Now, you read into that mandate an endorsement of prudent spending. Let me say, to add to your mandate, that I endorse the notion of prudent spending. Did the President in his campaign last fall, which is not always as visible as I would have liked, did he in his campaign last fall tell the people of the country that he was going to take the actions that you have described with respect to the rural environmental assistance program, 2 percent loan funds in the Rural Electrification Administration and the emergency loans of the Farmers Home Administration? Did he in that campaign announce that that was his intention? Secretary BUTZ. At that time, Senator, he didn't spell out specifically the individual programs that would be subject to economy moves. He had very strong motives to avoid further increases in taxes and inflation and I think he campaigned very vigorously on those points, as did his surrogate speakers. Time and again I stress the need for fiscal responsibility for controlling inflation and for programs that would avoid increase in taxation and so did the President. Senator MUSKIE. And the President didn't think the people ought to be bothered with the details any more than the Congress.

Secretary BUTZ. At that time the details had not been worked out. Senator MUSKIE. No, that is very convenient, it is very convenient for a President who is subject to the election process only once every 4 years to give the people only generalities with respect to his intentions.

With respect to these programs, is it your view that the Congress should have no inputs into the decision as to whether or not these or other programs ought to be eliminated?

Secretary BUTZ. It seems to me, Senator, the Congress has had an input. They have made the appropriations. Let me go back a moment in history.

This is an old program. In the Truman administration an attempt was made to reduce and virtually eliminate what was in the agricultural conservation program. An attempt was made to reduce and eliminate it. The same was true during the Eisenhower administration, Kennedy administration, Johnson administration, and during the Nixon administration. So that this has been a low priority item for many, many years.

Senator MUSKIE. I apologize for interrupting. I want to get this question.

That is your view of this program. If the Congress should disagree, how does the Congress get into the business of resolving the disagreement? When the President uses veto power to assert his disagreement with the Congress, we get a chance to get back at him. With respect to these kind of actions, how do we get back and make our input, or do you not think we have a constitutional responsibility to do so?

Secretary BUTZ. Well, you are asking a constitutional question. Last week over on the Senate side I was asked a question whether the President could withhold funds for the operation of the Congress or the judiciary and, not being a lawyer myself, I said presumably he could, but it would be very unwise to do so; whereupon, Senator Curtis made a comment in a casual way, he says the Secretary has demonstrated he is not an attorney. I do not want to demonstrate that again.

But let me point out that withholding funds that the Congress has appropriated is nothing new for this administration. As a matter of fact, this administration has withheld less than previous administrations at the end of the year.

Senator MUSKIE. Mr. Secretary, may I say to you, what we are concerned with

Secretary BUTZ. If we are suddenly precipitating a constitutional crisis, it is not new, this has been taking place for years and years. I think the chief difference at this time is, we have singled out some specific programs that have political overtones to them.

Senator MUSKIE. Mr. Secretary, what I am trying to get at is, this administration's definition of what it regards the precedents as supporting.

I said yesterday that I thought you were using very tiny precedents to build very large structures. I know you are no attorney. I understand you have your general counsel with you and he does not have to sit silent if he thinks his advice would be useful to the committee. Let me ask you this: The Senate last year proposed to the admin

istration that it would be willing, or at least some senators were willing to accept the ceiling provided the administration were willing to accept the idea of an across-the-board cut that would impact on all programs to insure that the President would not use the authority to zero in on those programs he wanted to execute, to use Senator Ervin's phrase yesterday, to execute.

In other words, we wanted to be sure the President was not going to use this authority as an item veto.

Now, everything you have said this afternoon suggests that the policy is to use this impoundment policy to kill those programs that the administration in its judgment feels have outworn their value without submitting, subjecting their judgment to the test of the Congress.

Secretary Burz. Senator, when you use the word "kill" the program, I think you are being unfair.

In the case of REA-we have substantially reduced it. There are still some authorities available for REA-type practices under other authorities. We have some $10 million still available. I know that is not a great deal.

In the case of REA, there is no attempt to kill the REA program. We have simply shifted the source of funds and made $200 million additional money available. By the same token, in eliminating the disaster loans, we have made sure that adequate credit will be available under the regular terms of our Farmers Home Administration for any farmer that cannot get credit elsewhere, just as we have some $350 million available now for that purpose, and I have everybody's assurance from OMB that, should that run out before June, additional will be made available.

This, however, is money we get by insuring notes in the money market and not direct outlet.

Senator MUSKIE. The question still is when you use this power to treat programs unequally, you are getting involved in policy judg ments that the Congress has a right to test and disagree with. When you use the impoundment approach, there is no such chance.

It is interesting, for example, that with respect to fiscal 1972, impoundment as a percentage of agency outlays varies so widely.

Defense, for example, is 2 percent. Agriculture is 5.4 percent. HUD is 18.4 percent. Transportation is 27.5 percent.

Now what we have here is something different than simply withholding government spending across the board and keep the total outlays within your notion of what is responsible spending. You have exercised it in a selective way which gives you a chance to impose your judgements upon the merit of individual programs independent of any possible congressional review.

You say that reducing programs is not the same as killing them. Well, it can be.

Secretary BUTZ. Senator

Senator MUSKIE. It can be and you know that.

Secretary BUTZ. Senator, the alternative, as you suggested, was to make an across-the-board cut, which is the easy way, it is the cowardly way if you want to make cuts.

Senator MUSKIE. I do not regard it cowardly to recognize the prerogatives of the Congress of the United States.