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TREASURY DEPARTMENT THE ADMINISTRATIVE ASSISTANT TO THE SECRETARY WASHINGTON December 13, 1938• Dear Uarriner: I am sending you herewith copy of a memorandum relating to proposed changes in the Budget preparedfeyDan Bell and approved "by "both the Secretary and the President. The Secretary has asked me to furnish this copy for your information* The memorandum should, of course, "be considered confidential for the present* Sincerely Wnu H* McBeynolds Hon. Uarriner S. Secies9 Chairmanf Board of Governors, Federal Reserve System, Washington, D. C. l-i.jir.jt9 FOR SECRETARY MQRGENTHAU: Objectives: I. Business mai^s "budget: (a) To provide a business man's "budget by excluding from the budget capital outlays for loans and stock investments. (b) To make an annual a-ooraisal of assets and liabilities of all governmental corporations and lending agencies, (c) To appropriate annually for impairment of capital. (d) To include in the annual budget losses causing impairment of capital. II. Administrative expenses of corporations: (a) To require Budget Bureau approval of all estimates for administrative expenses of all corporations, (b) To include them in annual budget for consideration of Congress, (c) To set authorized amounts up on books of Treasury a6 appropriation accounts, subject to audit and settlement of General Accounting Office in accordance with rules and regulations applicable to appropriations of executive departments and establishments. III. Civil service: (a) To cover employees of governmental corporations into the United States civil service, (b) To make future appointments in accordance with civil service laws, rules, and regulations. Explanation: I. BUSINESS MAN'S BUDGET. On July 1, 1938, the Treasury took the first steps to provide a business man's budget. It went as far as it could in that direction under existing law. At the coming session of Congress it is proposed to ask for the necessary legislative authority to enable it to complete the Job. The proposition involves — (a) Exclusion from budget of capital outlays for loans and stock Investments; and (b) Inclusion in budget of losses, if any, arising from such loans and investments. - 2 There are two classes of funds from which loans are made (a) Corporate money* — These were removed from the "budget on July lf 1938, as already indicated. They include RFC, CCC, Export-Import Bank, and other loans from RFC money. (b) Appropriated money. REA, and Maritime Commission. This includes PWA, FSA, FGAf It also includes the Farm Tenant Actf and loans by Housing- Authority from old "balances. The total amount involved is about 233 millions for 1939, and about 214 millions for 1940. Total budget expenditures for these two years would be reduced accordingly. A draft of legislation for the purposes indicated is now being prepared. Self-liquidating projects. Consideration is also being given to the proper treatment of expenditures and recoveries in connection with self-liquidating projects, such as the Boulder Dam, and other reclamation projects. This involves a much more difficult problem than the handling of loan transactions since the Treasury would have to rely for information on other departments. The Treasury does not have authority either to prescribe or supervise accounting procedures In the several departments. It would be unable to exercise accurate account- ing control on the basis of its own records which must be kept strictly according to appropriations. - 3 II. ADMINISTRATIVE EXPENSES OF CORPORATIONS. The Budget Bureau now reviews the estimates for administrative expenses of all governmental corporations for inclusion in the annual budget. The First Deficiency Act of 1936 provided, with respect to the various governmental corporations, that they could not incur obligations for administrative expenses except pursuant to annual appropriations. However, in the annual appropriation act8 for 1939, instead of providing annual appropriations from the Treasury, Congress merely placed limitations on the amounts which the corporations may expend for administrative expenses from their own fundsf as follows: Reconstruction Finance Corporation • •.. $ 9,350,000 Home Owners1 Loan Corporation 26,500,000 Federal Housing Administration 8,500,000 Federal Farm Mortgage Corporation 10,000,000 Export-Import Bank of Washington • 50,000 Electric Home and Farm Authority 400,000 Commodity Credit Corporation 520,288 Federal Savings and Loan Insurance Corporation 277,000 Congress also provided, except as to RFC, that the amounts so authorised were to be set up on the books of the Treasury as appropriation accounts» Accordingly, except as to RFC, administrative expenses of corporations are now handled by Treasury and audited by the General Accounting Office the same as appropriations of executive departments and establish- - 4 merits. There appears to "be no good reason why RFC adminis- trative expenses should be excepted from the usual accounting requirements.
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