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ANNUAL
REPORT
of the Secretary of the Treasury
on the State of the Finances

F m THE FISCAL YEMK EmED MME 30, W B







ANNUAL
REPORT
of tbe Seeretary cif the Treasury
on the State of the FinanGes

r..

FOR THE HSCAL YEAR ENDED JUNE 30, 1973

V




DEPARTMENT OF THE TREASURY
D O C U M E N T N O . 3260
Secretary

U.S. GOVERNMENT PRINTING OFFICE, WASHINGTON : 1973

For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402 - Price $3.80 (paper)
Stock Number 4804-00681







fir
/D

/f73'
DEPARTMENT OF THE TREASURY,

Washington, October 26,1973,
SIRS:

I have the honor to transmit herewith the annual report on the state
of the finances of the United States Government for the fiscal year
encled June 30, 1973. This submission is in accordance with 31 U.S.C.
1027.
GEORGE P. SHULTZ,

Secretary of the ITreasury,
T O THE PRESIDENT OF THE SENATE, PRO TEMPORE.
To THE SPEAKER OF THE HOUSE OF REPRESENTATIVES.







The statistical tables to this Annual Report will be published in a
separate S T A T I S T I C A L A P P E N D I X .

CONTENTS
Page

Introduction

xix

REVIEW OF TREASURY OPERATIONS
Financial Operations
Summary
Receipts
Outlays
Cash and monetary assets
Corporations and other business-type activities of the Federal Government
„__
Government-wide financial management
Domestic Economic Policy
Federal Debt Management
Enforcement, Tariff and Trade Affairs, and Operations
Taxation Developments
International Financial Affairs

3
3
4
5
6
7
8
9
11
24
33
14

ADMINISTRATIVE REPORTS
Administrative Management
Alcohol, Tobacco and Firearms, Bureau of
Comptroller of the Currency, Office of the
Consolidated Federal Law Enforcement Training Center
Director of Practice, Office of
Domestic Gold and Silver Operations, Office of
Engraving and Printing, Bureau of
Equal Opportunity Program, Office of
Fiscal Service:
Accounts, Bureau of
Public Debt, Bureau of the
Treasurer of the United States, Office of the
Foreign Assets Control, Office of
Internal Revenue Service
Mint, Bureau of the
Revenue Sharing, Office of
United States Customs Service
United States Savings Bonds Division
United States Secret Service

71
78
88
93
96
97
99
104
108
115
118
125
127
139
144
145
157
163

;.

EXHIBITS
Public Debt Operations, Regulations, and Legislation
1. Treasury notes
2. Treasury bonds
3. Treasury biUs_-

175
182
189

REGULATIONS

4. Department Circular No. 653, December 12, 1969, Eighth Revision,
Supplement No. 3, offering of United States savings bonds. Series E...
5. Department Circular No. 905, December 12, 1969, Fifth Revision,
Supplement No. 2, offering of United States savings bonds, Series H._




V

196
202

VI

CONTENTS

6. Department Circular, Public Debt Series No. 3-67, June 19, 1968, Page
Revised, Supplement No. 2, offering of United States savings notes___
204
7. Department Circular, Public Debt Series No. 3-72, November 21, 1972,
Revised, regulations governing United States Treasury certificates of
indebtedness—State and local government series, United States
Treasury notes^State and local government series, and United
States Treasury bonds—^State and local government series
^
204:
: 8. Department Circular, Pubhc Debt Series No. 3-72, November 21, 1972,
Revised, Amendment No. 1, regulations governing United States
Treasury certificates of indebtedness—State and local government
series, TJnited States Treasury notes—State and local government
series. United States Treasury bonds-^State and local government
series
207
9. Department Circular No. 653, December 12, 1969, Eighth Revision,
Supplement No. 4, offering of United States savings bonds. Series £l- _ 208
10. Department Circular No. 300, March 9, 1973, Fourth Revision, general
regulations with respect to United States securities
214
11. Department Circular No. 853, April 11, 1973, Second Revision, restrictive endorsements of United States bearer securities __-__
.
246
12. Department Circular No. 905, December 12, 1969, Fifth Revision,
Supplement No. 3, offering of United States savings bonds, Series Hl_
249
LEGISLATION

13. An act to provide for a 4-month extension of the present temporary
level in the public debt limitation
.
14. An act to provide for a temporary increase in the public debt limit__ __ _
Economic and Financial Policy
15. Statement by Secretary Shultz, July 25, 1972, before the Joint Economic Committee
16. Excerpts from address by General Counsel Pierce, October 12, 1972,
before the 45th annual convention of the National Bankers Association Convention, Houston, Tex., on the minority bank deposit
program_
.
17. Remarks of Assistant Secretary Fiedler, November 15, 1972, before
the National Economists Club Seminar, Washington, D.C, on ''The
ImppuCt of Controls"
•..
:
18. Remarks of Assistant Secretary Fiedler, November 30, 1972, before
the National Association of Regulatory Utility Commissioners, New
Orleans, La., on ''Economic Directions for Regulated Industry" _ . 1 . .
19. Excerpt from remarks by General Counsel Pierce, March 22,. 1973, at
the New Orleans Cost of Living Council Regional Conference on
Phase III, New Orleans, La_
____:_
20. Article by Assistant Secretary Fiedler, printed in The Wall Street
Journal, April 19, 1973, entitled "The Case Against Rigid Controls" _
21. Excerpts from remarks by Assistant Secretary Fiedler, April 25, 1973,
before the Tri-State Conference conducted by the Cost of Living
Council, St. Louis, Mo
__•__'
22. Statement by Deputy Under Secretary Bennett, May 2, 1973, before
the Subcommittee on Production and Stabilization of the Senate
Banking, Housing, and Urban Affairs Committee
..
23. A description of the depositary system of the U.S. Government,
June 1973
24. Other Treasury testimony published in hearings before congressional
committees, July 1, 1972-June 30, 1973__,
.
Energy Policy
25. Statement by Deputy Secretary Simon, April 18, 1973, on the oil
import program
26. Statement by Deputy Secretary Simon, May 10, 1973, befpre the
Senate.Banking, Housing, and Urban Affairs Committee on possible
shortages of gasoline and other petroleum products _




250
250
,
'251
•

253

-258
266
'
272
275
277
•
278
282
285

285
292

CONTENTS

VII

Federal Debt Management
27. Statement by Secretary Shultz, October 11, 1972, before the. Senate
Finance Committee on the public debt limit
.....
28. Statement by Under Secretary for Mpnetary Affairs Volcker, March 1,
1973, before the House Ways and Means Committee on the proposed Federal financing bank
...
29. Statement by Secretary Shultz, June 4, 1973, before the House Ways
and Means Committee on the public debt limit
30. Other Treasury testimony in hearings before congressional committees _
Law Enforcement Developments
31. Statement by Assistant Secretary Rossides, September 6, 1972,
before the New York County Lawyers Association, New York,:
on the administration's antinarcotics program
: :__
32. Remarks of Assistant Secretary Rossides, September 13, 1972, before
the Federal Bar Association and other sponsors of the Symposium
on International Trade, Washington, D . C , on "Antidumping and
Countervailing Duty Laws: Instruments for Freer Trade, and the
Development of a Doctrine of Fairness in International Trade" . . . . .
33. Excerpt from remarks by Assistant Secretary Rossides, September
24, 1972, before the National Officer Installation Dinner of Bnai
Zion, New York, N.Y
34. Excerpts from remarks of Assistant Secretary Rossides, October 17,
1972, before the 79th annual conference bf the International
Association of Chiefs of Police, Inc., Salt Lake City, Utah_ _ _ _.
;,
35. Press release, November 17, 1972, announcing exemptions and interpretations relating to the regulations issued under Public Law 9 1 508, the Currency and Foreign Transactions Reporting Act.
36.. Amendments, effective January 17, 1973, to the regulations on
financial recordkeeping and reporting of currency and foreign
transactions
L
-i
^i-37. Excerpt from remarks by Assistant Secretary Morgan, May 21, 1973,
before the Los Angeles Air Cargo Association, Los Angeles,.Calif.,
on "International Trade in the Years Ahead"_^
.......-.,.!
38.
39.

40.
41.
42.
43.
44.
45.
46.

Taxation Developments
Statement by Under Secretary Cohen, July 21, 1972, before the Joint
Economic Committee.Statement by Secretary Shultz, August 14, 1972, before the House
Ways and Means Committee on title II of H.R. 16141, allowing a
tax credit for parents of students in nonpublic elementary and
secondary schools
;
_Remarks of General Counsel Pierce, Diecember 1, 1972, before the
13th Southwestern Ohio Tax Institute Seminar, Cincinnatij Ohio,
on tax shelters
^
-_.____
Statement by Under Secretary for Monetary Atfairs Volcker, January 30, 1973, before the House Ways and Means Committee on the
extension of the interest equalization tax
....
Statement by Under Secretary for Monetary Affairs Volcker, March 7,
1973, before the Senate Committee on Finance on the extension of the
interest equahzation tax
Statement by Secretary Shultz, April 30, 1973, before the House Ways
and Means Committee on the administration's tax proposals
Statement by Assistant Secretary Hickman, May 10, 1973, before the
House Ways and Means Committee
..
Remarks by Deputy Secretary Simon, May 19, 1973, before the Section of Taxation,. American Bar Association, Washington, D.C, on
tax reform
Statement of Deputy Assistant Secretary Hall, June 13, 1973, before
the General Subcommittee on Labor of the House Committee on
Education and.Labor, on proposals for a Government-sponsored
system of insuring pension plan benefits against, losses on plan
termination. _ _ _ _;
__
.




Page
300
306
309
314

314

318
322
325
327
33 2
336

338

353
354
357
360
366
380
386

391

vni

CONTENTS
International Financial and Monetary Developments

47. Address by President Nixon, September 25, 1972, at the joint annual
meetings of the Boards of Governors of the International Monetary
Fund and the International Bank for Reconstruction and Development and its affiliates
48. Statement by Secretary Shultz as Governor for the United States, September 26, 1972, at the joint annual meetings of the Boards of Governors of the International Monetary Fund and the International
Bank for Reconstruction and Development and its affiliates
49. Statement by Secretary Shultz, December 21, 1972, on meat import
policy for 1973
50. Excerpt from statement by Secretary Shultz, February 7, 1973, before
the Joint Economic Committee
51. Statement by Secretary Shultz, February 12, 1973, on foreign economic
policy
^
'52. Letter of transmittal from Secretary Shultz to the Speaker of the
House, February 19, 1973, proposing legislation to devalue the
dollar by 10 percent by amending the Par Value Modification Act
of 1972. (A similar letter was transmitted to the President of the
Senate.)
.
53. Background material on proposed modification of par value of the
dollar
54. Statement by Secretary Shultz as Governor for the United States,
May 8, 1973, at the I4th annual meeting of the Board of Governors
of the Inter-American Development Bank, Kingston, Jamaica
55. Statement by Secretary Shultz, May 9, 1973, before the House Ways
and Means Committee
56. Statement by Secretary Shultz, June 6, 1973, at the American Bankers
Association International Monetary Conference, Paris, France
57. Statement by Secretary Shultz, June 6, 1973, at the annual meeting
of the Council at Ministerial Level of the Organization for Economic
Cooperation and Development, Paris, France
58. Statement by Under Secretary for Monetary Affairs Volcker, September 11, 1972, before the Subcommittee on International Exchange
and Payments of the Joint Economic Committee
59. Remarks of Under Secretary for Monetary Affairs Volcker, October 27, 1972, at the annual meeting of the Minnesota Economic
Association at the College of St. Thomas, St. Paul, Minn., on
"International Monetary Reform: A Discussion of the Recent
U.S. Proposals"
60. Remarks of Under Secretary for Monetary Affairs Volcker, November 13, 1972, at the International Finance and Monetary Reform
Session of the 59th National Foreigii Trade Convention sponsored
by the National Foreign Trade Council, Inc. at the Waldorf-Astoria Hotel, New York, N.Y
61. Statement by Under Secretary for Monetary Affairs Volcker, February 27, 1973j before the Senate Banking, Housing, and Urban
Affairs Committee
.
L
62. Statement by Under Secretary for Monetary Affairs Volcker, February 28, 1973, before the House Foreign Affairs Committee
on recent international monetary developments and their foreign
policy implications
63. Statement by Under Secretary for Monetary Affairs Volcker, March 6,
1973, before the Subcommittee on International Finance of the
House Banking and Currency Committee
64. Statement by Under Secretary for Monetary Affairs Volcker, March 19,
1973, before the Senate Committee on Appropriations
65. Statement by Under Secretary for Monetary Affairs Volcker, March 21,
1973, before the Subcommittee on International Finance of the
House Banking and Currency Committee
66. Statement by Under Secretary for Monetary Affairs Volcker as
Temporary Alternate Governor for; the United States, April 26,
1973, before the sixth annual meeting of the Board of Governors
of the Asian Development Bank, Manila, Philippines




Page
397

400
404
405
406

409
414
437
440.
445
449
454

456

461
465

470
472
474
478

481

CONTENfTS

IX

67. Statement by Under Secretary for Monetary Affairs Volcker, May 11,
1973, before the Foreign Operations Subcommittee of the Senate
Appropriations Committee on fiscal year 1974 appropriations for Page
international financial institutions
485
68. Resume of remarks by Under Secretary for Monetary Affairs Volcker,
June 7, 1973, at a session on "Issues of International Monetary
Reform" at the 1973 International Monetary Conference of the
American Bankers Association, Paris, France
489
69. Statement by Under Secretary for Monetary Affairs Volcker, June 26,
1973, before the Subcommittee on International Economics of the
Joint Economic Committee
492
70. Statement by Deputy Under Secretary Bennett, June 5, 1973, before
the Subcommittee on International Finance and Resources, Senate
Committee on Finance
496
71. Statement by Assistant Secretary Hennessy, September 21, 1972,
before the Latin American Subcommittee of the House Foreign
Affairs Committee
_ 502
72. Statement of Assistant Secretary Hennessy, October 10, 1972, before
the Foreign Operations and Government Information Subcommittee
of the House Committee on Government Operations
505
73. Statement by Assistant Secretary Hennessy, March 1, 1973, before
the Foreign Operations and Government Information Subcommittee
of the House Committee on Government Operations
507
74. Statement by Assistant Secretary Hennessy, March 28, 1973, before
the Subcommittee on Multinational Corporations of the Senate
Foreign Relations Committee
510
75. Statement by Assistant Secretary Hennessy, April 5, 1973, before
the Foreign Operations Subcommittee of the House Appropriations
Committee
..
512
76. Remarks by Assistant Secretary Hennessy, May 15, 1973, before the
Propeller Club of Port of Charleston, Charleston, S.C
517
77. Communique of the Ministerial Meeting of the Committee of Twenty,
March 26-27, 1973, Washington, D.C
521
78. Press release, April 25, 1973, announcing joint letter from Secretary of
the Treasury Shultz and Secretary of Commerce Dent to presidents
of firms in the United States which file regular statistical reports to
one or both Departments
522
79. U.S. paper entitled "Quantitative Indicators from the Point of View
of the Overall Operation of the System" made available to the
Deputies of the Committee of Twenty at their meeting in Washington, D . C , in May 1973
524
80. Remarks by General Counsel Pierce, September 28, 1972, at the
sixth annual meeting of the International Centre for Settlement of
Investment Disputes, Washington, D.C
527
Organization and Procedure
81. Secretaries, Deputy Secretary, Under Secretaries, General Counsels,
Assistant Secretaries and Deputy Under Secretaries for Monetary
Affairs serving in the Treasury Department from September 11,
1789, to January 20, 1973, and the Presidents under whom they
served
82. Treasury Department orders relating to organization and procedure __

528
538

Advisory Committees
83. Advisory committees utilized by the Department of the Treasury

545

INDEX

563

-

STATISTICAL APPENDIX
The tables io this Annual Report will be published in the separate Statistical
Appendix.
NOTE.—Details of figures may not add to totals because of rounding.







Secretary, Deputy Secretary, Under Secretaries, General Counsels, Assistant
Secretaries and Deputy Under Secretary for Monetary Affairs, serving in the
Department of the Treasury from January 21, 1973, through June 30, 1973 ^
Term of service
From

Officials

To

June 12, 1972

___^

Jan. 22,1973
Jan. 27, 1969
June 12, 1972
July
June
Apr.
Dec.
June
Aug.
Jan.

Mar. 17, 1973

1, 1970 June
2, 1973
1, 1969
12,1971
12, 1972
18, 1972
22,1973

Sept. 23, 1971
June 15, 1962

1, 1973

Jan. 21, 1973
.__

_
^

Apr. 11,1972

Secretary of the Treasury:
George P. Shultz, New York.
Deputy Secretary:
WilUam E. Simon, New Jersey.
Under Secretary for Monetary Affairs:
Paul A. Volcker, New Jersey.
Under Secretary (Counselor):
Edwin S. Cohen, Virginia.
General Counsels:
Samuel R. Pierce, Jr., New York.
Edward C Schmults, New York.
Assistant Secretaries:
Eugene T. Rossides, New York.
Edgar R. Fiedler, Maryland.
John M. Hennessy, Massachusetts.
Frederic W. Hickman, Illinois.
Edward L. Morgan, Arizona.
Deputy Under Secretary for Monetary Affairs:
Jack F. Bennett, Connecticut.
Fiscal Assistant Secretary:
John K. Carlock, Arizona.
Assistant Secretary for Administration:
Warren F. Brecht, Michigan.

' For officials from September 11, 1789, to January 20,1973, see exhibit 81.




PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS OF THE
DEPARTMENT OF THE TREASURY AS OF JUNE 30, 1973
Secretary of the Treasury
Deputy Secretary of the Treasury
Under Secretary for Monetary Affairs
Under Secretary
General Counsel
Office, Secretary of the Treasury:
Executive Assistant to the Secretary
Director, Executive Secretariat
_
Confidential Assistant to the Secretary
Office, Deputy Secretary of the Treasury:
Executive Assistant to the Deputy Secretary
Special Assistant to the Deputy Secretary

.__

Special Assistant to the Deputy Secretary
Deputy Under Secretary
Energy Advisor to the Deputy Secretary
Director, Office of Revenue Sharing
Office, General Counsel:
Deputy General Counsel
Assistant General Counsel and Chief Counsel,
IRS
:
Assistant General Counsel

.

Assistant General Counsel
,
Assistant General Counsel
Assistant General Counsel
Special Assistant to the General Counsel
Director of Practice
Director, Office of Equal Opportunity Program.
Assistant Secretary (Tax Policy)
:
.
Deputy Assistant Secretary (Tax Legislation)
Deputy Assistant Secretary (Tax Analysis) and
Director, Office of Tax Analysis
Associate Director, Offi'ce of Tax Analysis
Deputy to the Assistant Secretary (International
Tax Policy)
.
Tax Legislative Counsel
Deputy Tax Legislative Counsel
Associate Tax Legislative Counsel____
International Tax Counsel
'.
Deputy International Tax Counsel.
XII




George P. Shultz
William E. Simon
Paul A. Volcker
(Vacancy)
Edward C. Schmults
Ronald B. Brooks
Gina Price (acting)
Barbara M. Otis
Gerald L. Parsky
Wm. Howard Beasley
III
R. David Ranson
James E. Smith
William A. Johnson
Graham W. Watt
Donald L. E. Ritger
(acting)
Lawrence B. Gibbs
(acting)
Charlotte Tuttle
Lloyd
Michael Bradfield
Hugo A. Ranta
Donald L. B. Ritger
Elting Arnold
Leslie S. Shapiro
David A. Sawyer
Frederic W. Hickman
John H. Hall
Martin J. Bailey
Emil M. Sunley, Jr.
(acting)
Nathan N. Gordon
Ernest S. Christian,
Jr.
(Vacancy)
Dale S. Collinson
(acting)
Robert J. Patrick, Jr.
(Vacancy)

PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS
Assistant Secretary (Enforcement, Tariff and Trade
Affairs, and Operations)
Deputy Assistant Secretary
Director, Office of Operations
Deputy Assistant Secretary (Enforcement) and
Director, Office of Law Enforcement—
^_
Chief Interpol (National Central Bureau)—
Deputy to the Assistant Secretary (Tariff and Trade
Affairs) and Director, Office of Tariff and Trade
Affairs
Special Assistant to the Assistant Secretary
(Gustoms Cooperation Council)
Special Assistant to the Secretary
(Secret
Service)
Director, Office of Foreign Assets Control
Assistant Secretary for Administration
_
Deputy Assistant Secretary and Director, Office of
Management and Organization
Deputy to the Assistant Secretary
Director, Office of Administrative Programs
Director, Office of Audit
Director, Office of Budget and Finance
Director, Office of Personnel
Director, Office of Automatic Data Processing Management and Operations

XIII

Edward L. Morgan
James B. Clawson
William F. Hausman
Brent F. Moody
Kenneth S. Giannoules
Matthew J. Marks
Robert V. Mclntyre
Kenneth E. Balge
Stanley L. Sommerfield (acting)
Warren F. Brecht
J, Elton Greenlee
John C. Gartland
Robert R. Fredlund
Wilbur R. DeZerne
Edward J. Widmayer
(Vacancy)

Bruce R. Riggs
(acting)
Special Assistant to the Secretary (National Security). John L. Hart
Deputy Special Assistant to the Secretary
Gerald W. Nensel
Special Consultant to the Secretary for Public
Affairs
Joseph A. Loftus
Special Assistant to the Secretary (Public Affairs)
(Vacancy)
Deputy Special Assistant to the Secretary
Alan B. Wade
Assistant to the Secretary for Legislative Affairs
William L. Gifford
Deputy Assistant to the Secretary
James H. Hogue
Senior Consultant
Henry C. Wallich
Office, Under Secretary for Monetary Affairs:
Deputy Under Secretary for Monetary Affairs
Jack F. Bennett
Special Assistant to the Secretary (Debt Management)
^
Edward M. Roob
Director, Office of Debt Analysis
Edward P. Snyder
Assistant to the Under Secretary
Oscar M. Mackour
Fiscal Assistant Secretary
John K. Carlock
Deputy Fiscal Assistant Secretary
David Mosso
Assistant Fiscal Assistant Secretary
Sidney Gox
Director, Operations Planning and Research
Lester W. Plumly
Assistant Secretary (International Affairs)
John M. Hennessy
Deputy Assistant Secretary for International Monetary and Investment Affairs
Sam Y. Cross
Deputy Assistant Secretary for Developing Nations
Finance
Richard E. Larsen
Deputy Assistant Secretary for Trade
Howard L. Worthington
Deputy Assistant Secretary for Research and Balance of Payments Analysis
Thomas D. Willett
Deputy to the Assistant Secretary for International
Monetary Affairs
George H. Willis
Inspector General for International Finance
Ralph Hirschtritt
Director, NAC Secretariat
Frederick L. Springborn




XIV

PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS

Assistant Secretary (Economic Policy)
'-—
Deputy to the Assistant Secretary
_:
.L_.
Director, Office of Domestic Gold and Silver Operations
:
Director, Office of Financial Analysis
.-.-

Edgar R. Fiedler
Jay N. Woodworth
Thomas W. Wolfe
John H. Auten

BUREAU OF ACCOUNTS

Commissioner
-.
!._- David Mosso
Comptroller
'.
L— Steve L. Comings
Chief Disbursing Officer
-.
_.H James C. Abbott
Director, Division of Government Financial Operations. Gerald Murphy
Director, Division of Cash Management
.
1
Sebastian Fama
BUREAU OF ALCOHOL, TOBACCO AND F I R E A R M S

Director
Deputy Director
Assistant Director (Administration)
Assistant Director (Criminal Enforcement)

.,._
...
i..

Assistant Director (Inspections)
1..
Assistant Director (Regulatory Enforcement).
_._
Assistant Director (Technical and Scientific Services)..
CMef Counsel
^...
^.-.

Rex D. Davis
John L. West
William J. Rhodes
William N. Griffin
(acting)
William R. Thompson
Lawrence Carlson
A. Atley Peterson
Matthew J. Werneth

BUREAU OF ENGRAVING AND P R I N T I N G

Director
.
Deputy Director

;
.

^._
±

James A. Conlon
Donald C. Tolson

Director
.
Deputy Director
Assistant Director (Administration)

...
...
.

Assistant Director (Public Services)
Assistant Director (Production)
Assistant Director (Technology)

...
^
1__

Mrs. Mary T. Brooks
Frank H. MacDonald
Francis B. Frere
(acting)
Roy C. Gaboon
George G. Ambrose
Alan J. Goldman

BUREAU OF T H E M I N T

.

BUREAU OF T H E P U B L I C DEBT

Commissioner
Deputy Commissioner
Assistant Commissioner
Chief Counsel

.

.
.

...
.
4.-

H. J. Hintgen
J. J. Lubeley
M. E. McGeoghegan
Thomas J. Winston,
Jr.

CONSOLIDATED FEDERAL L A W E N F O R C E M E N T T R A I N I N G

Director
Deputy Director

.

:
.

4..
^_.

CENTER

William B. Butler
Robert G. Efteland

I N T E R N A L REVENUE SERVICE;

Commissioner
.
Deputy Commissioner
Assistant Commissioner (Administration)

:__
...
[..

Assistant Commissioner (Inspection)
Assistant Commissioner (Compliance)
:
Assistant Commissioner (Accounts, Collection,
Taxpayer Service)
•.
.
Assistant Commissioner (Stabilization)
Assistant Commissioner (Planning and Research)

...
i..
and
. . . Dean J. Barron
:
Edward F. Preston
•.— Lancelot W. Armstrong (acting)
i— Peter P. Weidenbruch,
Jr.
.— Lawrence B. Gibbs
(acting)

Assistant Commissioner (Technical)
Chief Counsel



Donald C. Alexander
Raymond F. Harless
Joseph T. Davis
(acting)
Francis I. Geibel
John F. Planlon

PRINCIPAL ADMINISTRATIVE AND STAFF OFFICERS

XV

OFFICE OF T H E COMPTROLLER OF T H E CURRENCY

Comptroller of the Currency
First Deputy Comptroller
Deputy Comptroller
Deputy Comptroller
.___.
Deputy Comptroller;
:
Deputy Gomptroller (Economics)
Chief National Bank Examiner
:
Deputy Comptroller (Mergers and Branches)
Deputy Comptroller (Trusts)
Deputy Oomptroller (FDIO Affairs)
Deputy Comptroller (International Division)
Chief Counsel

'.

Justin T. Watson
(acting)
Justin T. Watson
W. A. Howland, Jr.
Thomas G. DeShazo
John D. Gwin
.— David C. Motter
Kenneth W. Leaf
R. J. Blanchard
.— Dean E. Miller
Albert J. Faulstich
Robert A. Mullin
Robert Bloom

OFFICE OF T H E TREASURER OF T H E U N I T E D

Treasurer of the United States

Mrs. Romana Acosta
Banuelos
Dario A. Pagliai (acting)

Deputy Treasurer
U N I T E D STATES C U S T O M S

STATES

SERVICE

Commissioner of Customs
Deputy Commissioner of Customs
Assistant Commissioner, Office of Administration
Assistant Oommissioner, Office of Investigations
Assistant Commissioner, Office of Operations
Assistant Commissioner, Office of Regulation and
Rulings
Assistant Commissioner, Office of Security and Audit
Chief Counsel

Vernon D. Acree
Edwin F . Rains
John A. Hurley
Harold F. Smith
Glenn R. Dickerson
Leonard Lehman
William A. Magee, Jr.
Saul Slomiak

U N I T E D STATES SAVINGS BONDS DIVISION

National Director
Deputy National Director
Director of Sales
Director of Advertising and Promotion

_ . Jesse L. Adams, Jr.
(acting)
Jesse L. Adams, Jr.
Walter P. Johnson
.
Edmund J. Linehan

UNITED STATES SECRET SERVICE

Director
Deputy Director
Assistant Director
Assistant Director
Assistant Director
Assistant Director
Assistant Director

(Administration)
(Inspection)
(Investigations)
(Protective Forces)
(Protective Intelligence)




James J. Rowley
Lilburn E. Boggs
H. Stuart Knight
Jackson N. Krill
Burrill A. Peterson
Clinton J. Hill
Thomas J. Kelley







ORGANIZATION OF THE DEPARTIVIENT OF THE TREASURY
DEPUTY

SECRETARY

Assistants to the Deputy Secretaiy
UNDER SECRETARY

MONETARY AFFAIRS

UNDER SECRETARY
GENERAL COUNSEL

Deputy Under S e c r e t a r y

Deputy Under Secretaty
legal Division
OHice of Energy Advisoi
Special

Oiiice ol Equal Opportunity

Legislative

Assistant

Secretary

Management)

Oflice ol Debt Analysis
e ol Revenue Shaiing

Assistant Secretary
(Enloicement. Taiill and
Tiade Allaits. and Opeialions)

OHice o l Law Enloic ement
oiiice ol Tax Analysis

Secretary

(Debt

Affairs

(Tax Policy)

Assistant

t o ttie

Special Assts. to the Secretary
N a t i o n a l Security
Public A f f a i r s

OHice ol Operations

Assistant
for

Secretary

Fiscal A s s i s t a n t Secretary

Administration

Assistant

Secretary

Assistant Secretary
I Economic Policy)

(Inleinalional Allalis)

OHice oi

Bureau ol Accounts

Administiallve Piogiar

Deputy Assislam Secreiary

oi

Indusliial Naiions Finance

OHice ol Tarili and Tiade
Allaiis
OHice ol

foieignAs

els

Oepuly Assislam Secieiaiy Ioi

Conliol

M

Buieau of the Public Debt

Developmeni Finance

Oepuly Assislam Secretaiy Ioi

OHice o l Budget & Finance
ol Ihe Uniied Slates

Tiade and Investmenl

Buieau ol Customs
Oepuly Assislam Scciciaiy

OHice ol Management &

Research

U.S. Savings Bonds Olvisii

Compliollei o l the Cuiiency

oi




INTRODUCTION
This brief introduction reviews the major eeonomic developments,
both domestic and international, which affected Treasury areas of
interest and responsibility during the course of fiscal 1973. More detailed information on the operating and administrative activities of
the Department of the Treasury is provided in the main text of the report and its supporting exhibits. Further information is contained in a
separate Statistical Appendix.
Domestic Economic Expansion
Fiscal 1973 was a year of strong domestic economic expansion. Impressive gains were scored in production, employment^ and real income.
By the end of the year, more Americans were employed at higher levels
of income than at any time in the past. The Federal budget moved
closer to balance, and ample supplies of private credit were available
throughout the year at relatively stable long-term rates of interest.
Unfortunately, the rate of inflation, which had subsided by the close
of calendar 1972, rose explosively after January 1973, primarily because of rising food prices. As the price upsurge continued in the
spring of 1973, it became increasingly apparent that further policy actions were required to contain inflation. On June 13, President Nixon
announced the reimposition of a temporary price freeze of up to 60
days' duration while a new Phase IV set of controls was being
developed.
In terms of the broadest statistical measure of economic activity—
gross national product at current prices—fiscal 1973 was a year of
very strong expansion. GNP rose by more than 11 percent compared
with about 9 percent in fiscal 1972. Real growth was substantial,
averaging more than 6 percent for the year, about the same as the
1972 pace. On the other hand, price performance was irregular—
relatively good in the first half of the fiscal year, but bad thereafter.
For example, the comprehensive GNP deflator rose at about a 3percent annual rate in the first half of the fiscal year and at more
than a 6i^-percent annual rate in the second half. For the year as a
whole, the GNP price deflator was up 4.8 percent in contrast to 2.8
percent in fiscal 1972. Because special factors were largely responsible for the resurgence of inflation, the continuation of appropriate
fiscal and monetary policies coupled with the new Phase IV program
was expected to lead, in,time, to much better price performance.




XX

1973 REPORT OF THE SECRETARY OF THE TREASURY

During the fisoal year, total employment rose by 2.9 million, the
civilian labor force increased by 2.3 million, and unemployment fell
by nearly 600,000. As a consequence, the unemployment rate averaged
a shade below 5 percent in the closing months of the fiscal year in
contrast to the 5.7-percent rate averaged in the final quarter of fiscal
1972. During the period of approximately 2 years from the initiation of the President's new economic program in August 1971 to the
end of fiscal 1973, more than five million new civilian jobs were
created—the largest such increase in our history.
The strong rise in production and employment during the fiscal
year was associated with sizable gains in real income, despite the inroads made by inflation. Income per person, after taxes and adjustment for inflation, rose on the average by 5 percent between the second
quarters of 1972 and 1973. Wiiile the rise was accentuated by a change
in the pattern of income tax refunds, it basically reflected the underlying strength of the economic expansion. i
It was clear, however, that growth in real output could not be
expected to continue indefinitely at the high rates that were characteristic of much of fiscal 1973. During the fourth quarter of calendar
1972 and the first quarter of calendar 1973, GNP at constant prices
was expanding at an 8-percent annual rate^ and the remaining margins of unutilized capacity were narrowing rapidly. Inevitably the
real growth rate would have to come down iio something closer to the
longrun potential of 4 percent or so.
The question was whether the continued! application of fiscal and
monetary restraint would ac'Meve a "soft landing" or whether a more
abrupt adjustment was in prospect. By the close of the fiscal year,
with real growth continuing at a reduced but substantial rate, and
with most forward indicators of economic at^tivity showing considerable strength, the odds appeared strongly in favor of a gradual
rather than an abrupt adj ustment.
Inflation and the June 13 Measures
By January 1973, the annual rate of increase in consumer prices
had been reduced to the neighborhood of 3 percent. For the entire
period of Phases I and I I (from August 1971 to January 1973), the
rate of inflation had averaged 3.3 percent, down from 6 percent in
1969 and 51/^ percent in 1970. Against this background of fairly
steady progress in reducing the rate of inflation, some modest relaxation of the wage-price control program was a natural step to take.
After an extensive consultation process and a review of experience under Phases I and II, Phase I I I of the stabilization program
was announced on January 11, 1973. The objective was to achieve a




INTRODUCTION

XXI

continuing contribution to the anti-inflation effoit with less danger
of injury to the economy. A major feature of Phase I I I was its
greater reliance on self-administration within the standards set by
the Government. Special programs were maintained for food, health
service, construction, and interest and dividends.
I t had been recognized at an early stage of the planning for Phaise
I I I that the behavior of food prices would be an important factor
determining the success or failure of the program. During 1972, due to
bad harvests around the world, food prices had risen much more
rapidly than other prices, and by the end of the year adverse weather
had begun to affect crop prospects in 1973. Therefore, a number of
important steps were taken in 1972 and 1973 to increase domestic agricultural supplies and hold down food prices. The steps taken included
removal of meat import quotas, release of up to 50 million acres of
farmland for grain production, and sale of Government-owned grain
stocks. While these and related steps would eventually lead to an
increase in agricultural supplies, it was understood that they could
only be expected to yield their results after some lag in time.
Meanwhile, adverse weather conditions combined with rising domestic and foreign demand to drive food prices sharply higher at both
wholesale and retail levels. Between January and June 1973, wholesale
prices of farm products, processed foods, and feeds rose at nearly a
50-percent annual rate. The wholesale prices of consumer foods rose
at about a 25-percent annual rate and retail food prices at a 22-percent
annual rate. I n response, the Consumer Price Index for all items rose
at an 8-percent annual rate between January and June 1973 in contrast
to the 3-percent rates characteristic of immediately preceding months.
The resurgence of inflation was not confined exclusively to food and
raw material prices, although that was the main problem area. I n addition, retail prices of consumer goods, excluding foods, rose at about
a 12-percent annual rate during Phase I I I . Increases on such a scale
were to be expected for a month or two in the normal process of moving
to the self-administered standards of Phase I I I , but the continuation
of rapid increases beyond that point was particularly disturbing since
it suggested that some prices were being raised in anticipation of a
return to a tighter control program. This was, to some degree, a selffulfilling prophecy.
Wage pressures were far from intense at the time. Indeed, the
annual rate of increase in current-dollar earnings of nonf arm production workers averaged close to 6 percent during Phase I I I in contrast
to roughly 7 percent during Phase I I . But the indefinite continuation of high rates of increase in consumer prices would inevitably begin
to undercut the prospects for continued wage restraint.




XXII

19 7 3 REPORT OF T H E .SECRETARY OF T H E

TREASURY

On June 13, 1973, President Nixon announced an immediate freeze
on prices to last for a maximum of 60 da^s. H e pointed out that the
greatest part of the unacceptably high rate of inflation was due to
rising food prices. This, in turn, was "caused in large measure by increased demand at home and abroad, by crop failures abroad, and by
some of the worst weather for crops and livestock here in America
that we have ever experienced."
I t was clearly the case that Phase I I I had been bedeviled by difAcuities which lay beyond the scope of the program, or for that matter,
beyond the scope of the Phase I I program from which it had evolved.
The fact remained that Phase I I I had been a disappointment. I n the
situation that developed by June 1973, a price freeze had the very great
advantage of breaking the inflationary momentum and gaining the
time during which an effective Phase I V program could be developed
and installed. On the other hand, continuation of a freeze for more
than a relatively brief period of time could create problems and distortions of its own. By the close of fiscal 1973, planning for Phase I V
was well underway.
Budget and Fiscal Developments
There was a significant shift toward fiscal restraint during 1973 and
progressive improvement in the Federal budgetary position. I n the
January 1973 budget message. President Nixon presented a detailed
plan for expenditure reductions and program terminations which
would hold fiscal 1973 Federal spending to $250 billion and fiscal 1974
spending to $269 billion. As a result, it was estimated that the fullernployment budget on the unified basis would be in deficit by only
$2.3 biliiQn in fiscal 1973 and in approximate balance in fiscal 1974.
Actual, budget deficits were projected to be'$24.8 billion in fiscal 1973
and $12.7 billion in fiscal 1974.
;
Late in the fiscal year, anticipated tax receipts, were running appreciably above the January estimates. Accordingly, the 1973 deficit
was reestimated at $17.8 billion and the 1974 deficit at $2.7 billion,
with the clear possibility that the 1974 budget might be in balance.
The actual budget deficit in fiscal 1973 turned out t o b e $14.3 billion
and there was a small surplus on the full-employment basis.
There was still a need for close restraint over Federal expenditures
despite the improving budgetary situation. P a r t of the rise in receipts
simply reflected the excessive pace of inflation in the economy. The
fiscal restraint being applied was essential if additional inflation were
to be avoided. Monetary restraint had also been applied during the
fiscal year and there were signs.that the economic expansion, while
still rapid, was beginning to slow down to a safer and more sustain-




INTRODUCTION

XXIII

able pace. From all indications, however, a combination of fiscal and
monetary restraint would be necessary into fiscal 1974.
Domestic Finances
A large volume of funds—some $190 billion—was raised in private
money and capital markets during the fiscal year. Credit demands were
concentrated in the short-term area and there was a marked rise in
short-term interest rates—normal for a period of cyclical.expansion.
I n the long-term area, there was a large increase in mortgage credit,
reflecting the housing boom, but corporations and State and local governments borrowed at a reduced pace. Long-term interest rates remained relatively stable despite rising short-term rates.
Federal Reserve policy moved in a restraining direction during the
course of the year. The money supply (currency and demand deposits)
rose by about 71^ percent, and there was a sizable expansion of banl^
credit. However, by the end of the fiscal year, money market rates were
well above the levels of a year earlier, the Federal Reserve had taken
a number of restraining actions, and somewhat slower growth of the
monetary aggregates seemed a likely prospect.
Federal financing requirements during the fiscal year were reduced
by the improving budgetary situation. Total borrowing from the
public totaled $19.3 billion for the fiscal year, down slightly from $19.4
billion in fiscal 1972. More than $17 billion of this borrowing took
place in the first half of fiscal 1973. After that point, the rise in tax
receipts, both seasonal and because of economic expansion, reduced
the Treasury's need to borrow despite large income tax refunds due
to overwithholding in the previous year. The reduced Treasury demands on the market were largely offset by the increased credit needs
of Government-sponsored enterprises and Government-guaranteed
borrowers.
Borrowing from the public includes sales of public debt to foreigii
as well as domestic purchasers. I n recent years, foreign monetary authorities have acquired dollars, on balance, in their foreign exchange
operations and have, in turn, invested in U.S. Treasury securities. In
both fiscal years 1971 and 1972, this borrowing from abroad was so
sizable that domestic private holdings of public debt actually declined
despite sizable budget deficits. During fiscal 1973, borrowing from
abroad was again important but did not reach the 1971-72 scale, and
net borrowing from the domestic public increased as would normally
be expected with a budget deficit.
Treasury debt management operations, which include large refunding operations as well as any net borrowing requirements, proceeded
routinely during the fiscal year. The bulk of the market financing was




XXIV

19 73 REPORT OF THE SECRETARY ; OF THE TREASURY

done at short and medium term, but significant use was made of the
authority granted by the Congress to issue up to $10 billion of bonds
with interest coupons in excess of 4 ^ percent. I n August 1972, a $2.4
billion, 12-year bond issue was sold at par with a 6%-percent coupon.
I n January and May 1973, 20- and 25-year feonds were sold by use of
the uniform-price technique whereby all accepted bids are awarded
at the lowest accepted price. The total amount raised in these two
auctions was $1.3 billion, not a particularly large sum by Federal
financing standards.
At the close of fiscal 1973, the total interest-bearing public debt
amounted to $456.4 billion, an increase of $31.0 billion during the year.
The computed annual interest rate at the clbse of the year was 5.872
percent, up from 5.093 percent at the end of fiscal 1972. The average
length of the privately held marketable interest-bearing public debt
shortened to 3 years 1 month from 3 years 3 months at the close of
fiscal 1972.
'
Proposals for T a x Change
On April 30, 1973, Secretary Shultz presented to the House Committee on Ways and Means a further set of tax change recommendations building on the work accomplished by the legislation of 1969 and
1971. The Secretary's statenient ^ to the committee expressed three
basic goals toward which the recommendations were directed:
Tax equity. The need for a system which most of the public
accepts as fair.
Simplification, Further streamlining of the inordinately complicated provisions of tax law that affect large numbers of individual taxp>ayers.
Economic growth, Preservatioii of certain features of the tax
law which stimulate economic growth.
i
The proposals include:
Measures to remove the spectacle of high-income individuals who
pay little or no tax by parlaying tax deductions and exclusions or
by using tax preferences to "shelter" their regular income from tax.
A new, more comprehensible tax returnl"form 1040-S" designed
for the average taxpayer who cannot use the "short" form 1040-A,
possibly because he owns his own home and itemizes his deductions.
An investment credit for exploratory oil and gas drilling to help
meet the national energy needs.
'
A refundable property tax credit to provide major tax relief for
elderly homeowners.
1 See exhibit 43.




INTRODUCTION

XXV

A refundable income tax credit for nonpublic elementary and
secondary school tuition to help preserve the vital nonpublic school
system.
An interest subsidy on State and local authority bonds on which
the issuer has elected to pay federally taxable interest, to enable
State and local governments to compete for funds more effectively
when market interest rates are high.
Amendments in law to tax U.S. shareholders on the earnings
(prior to repatriation) from new investments in countries which
offer "holidays" from local taxes or other inducements to attract
investment.
Reform of Financial Institutions
Events during the latter part of the 1960's showed that U.S. financial markets are ill-equipped to deal with periods of credit restraint.
As interest rates rose, thrift institutions faced a severe liquidity crisis
and a profit squeeze which threatened both the solvency of the institutions and the availability of funds for housing.
Attempts to alleviate the crisis by regulation (mainly the imposition
of ceilings on the amounts financial institutions could pay for funds)
limited competition for funds among institutions but failed to keep
funds flowing into the institutions at previous levels. Interest ceilings
adversely affected the public directly and indirectly. I n their role
as savers, for whom the thrift institution was a major place at which
to save, consumers were denied a market rate of return on their mpney.
Moreover, financial institutions reduced in a disproportionate manner
the availability of fimds to consumers and small business firms.
Less direct, but equally costly to the public, deposit interest ceilings,
which caused a reduction in deposits at thrift institutions, contributed
to severe setbacks in efforts to meet our housing objectives, and helped
make the Federal Reserve's attempt to combat inflation with monetary
policy needlessly costly and complicated.
On August 2, 1973, the President presented to the Congress legislative proposals that had been developed during fiscal 1973 by a Treasury-led team of administration officials. The proposals were designed
essentially to correct these defects in U.S. financial markets. As the
Treasury report^ pointed out, current efforts to fight inflation and
preserve the value of the dollar a t home and abroad require strong
financial institutions. Without them, there is every reason to believe
that the burdens of credit restraint will be even greater than before.
Under the administration's reform plans, financial institutions are
to be strengthened by eliminating regulation Q after a 5-year period.
a Recommendations for Change in the U.S. Financial System, Department of the Treasury,
August 3,1973, from which these paragraphs are adapted.




XXVI

19 73 REPORT OF THE SECRETARY OF THE TREASURY

permitting all federally chartered banks and thrift institutions to
offer a full range of checking and savings accounts, and permitting
federally chartered. thrift institutions to offer consumer and real
estate related loans in competition with banks. Housing finance will
be further strengthened by the elimination of Federal Plousing Administration and Veterans Administration interest ceilings and b}^ a
tax credit to all taxpayers investing in residential mortgages which
will make possible greater participation by commercial banks in the
mortgage market.
.The dual banking system will be preserved and strengthened. Federal Reserve requirements on checking accounts will apply only to
members of the Federal Reserve and Federal Home Loan Bank Systems. Federal charters will be available for stock thrift institutions
and for savings banks. Credit unions are to be strengthened by broadened asset and liability powers and by access to a new source of
liquidity administered by the National Credit Union Administration.
Revenue S h a r i n g
The State and Local Fiscal Assistance Act (Public Law 92-512),
establishing general revenue sharing, was signed into law by President Nixon on October 20, 1972. Within 2 months, a very small staff
had assembled data, prepared the necessary computer programs, and
allocated more than $2 billion to approximately 38,000 States, counties,
cities, towns, townships, Indian tribes, and Alaskan native villages.
By the end of the fiscal year, $6.6 billion had been distributed, data
collection and verification processes developed, and a recipient liaison
program begun. A competent staff of about 40 professional and clerical
personnel is administering general revenue sharing.
E n e r g y Policy
Executive Order No. 11703 of February 7, 1973, designated the
Deputy Secretary of the Treasury as the Chairman of the Oil Policy
Committee. To support the Deputy Secretary in this capacity, the
Secretary created the Office of the Energy Advisor. The Office is
headed by an Energy Advisor who reports directly to the Deputy
Secretary.
Following the appointment of Deputy Secretary Simon as Chairman of the Oil Policy Comniittee, inajor changes in U.S. oil policy
were initiated. One major policy change involved a complete revision
of the mandatory oil import prograni, which had remained substantial!}'^ unchanged for 13 years."^ This action followed an intensive
study of the Nation's oil import policies relative to current domestic
3 See exhibit 25.




INTRODUCTION

XXVH

supplies of crude oil and petroleum refinery capacity, and the national
security interest of the Nation. The study, conducted by an interagency
task force under the direction of the Chairman of the Oil Policy
Committee, found that the mandatory oil import prograni no longer
provided the proper climate to support a vigorous domestic petroleum'
industry. I t found that the program was neither adequate to alleviate'
the threat of near-term crude oil and product shortages, nor adequate
to provide longer term incentives for increased investment in domestic
exploration and production, and new refinery construction and
expansion.
Beginning May 1,1973, all volumetric controls on oil imports were
terniinated and a license fee systeni was instituted in place of existing
duties on crude oil and refinery products. I n order to provide an
equitable transition from tKe current program to the new license fee
system, certain crude oil and product iniports were exempted from
license fees for a limited period after May 1, 1973. These exemptions
will be phased out over a 7-year period.
Another initiative taken involved the allocation of petroleum and
petroleum products.* The Economic Stabilization Act Amendments
of 1973 provided the authority to set priorities for use and allocation
of petroleum products. Pursuant to this authority, a voluntary allocation program was announced on May 10,1973, calling for suppliers to
make available to their customers the same percentage of products
that they supplied in the corresponding quarter of the base period
(October 1971 to September 1972). I t also provided that suppliers of
priority customers who could not obtain needed supplies under their
prograni allocation could apply to the Interior Department's Office of
Oil and Gas for help in securing additional crude oil.
Public hearings were held on the voluntary fuel allocation program
June 11-14. These hearings were designed to provide industry and
other public reaction to the voluntary program and to determine
whether a mandatory fuel allocation program was needed. Drawing
heavily on the public hearings of June 11-14, a proposed draft of a
mandatory allocation program was published by the Energy Policy
Office for public review. The Office of the Energy Advisor played a
prominent role in all stages of the design, implementation, and review
of the voluntary fuel allocation prograni.
The Office has, in addition, engaged in a wide variety of projects
designed to assess the domestic energy situation and to offer appropriate policy recommendations. Studies pertaining to domestic energy
supplies include analyses of oil shale, propane, naphtha-based syngas
plants, emergency capacity (storage), next winter's fuel supplies and
* See exhibit 26.




XXVIII 1973 REPORT OF THE SECRETARY OF THE TREASURY
possible relaxation of air quality standards to enable use of highsulfur fuel oil, the refinery siting problem (survey to determine those
refineries not built because of local or environmental objections), and
crude requirements of deleaded gasoline. Other studies examine the
effects of Government controls on domestic energy supplies including
a gasoline tax and an investigation of the Federal Trade Commission
study of possible divestiture of the major oil companies. Another important area of inquiry concerns energy conservation.
Law Enforcement Operations
I n fiscal 1973, Treasury strengthened its enforcement activities on
many fronts.
Treasury's campaign against drug abuse was carried forward by
the U.S. Customs Service, which established new records in seizures
of illicit drugs and arrests of drug smugglers, and by the Internal
Revenue Service, which targeted over 800 drug traffickers and financiers for tax investigations, indicted 102, and convicted 45, with many
investigations still pending. I n the I R S program, $95 million in taxes
and penalties were assessed and $14 million in cash and property
were seized.
Enforcement emphasis in another area was increased by the formation on July 1,1972, of the Bureau of Alcohol, Tobacco and Firearms
from a division with the same name in the Internal Revenue Service
and by placing it under the supervision of the Assistant Secretary for
Enforcement, Tariff and Trade Affairs, and Operations. The Assistant
Secretary coordinated the Bureau's enforcement of the Gun Control
Act of 1968 so as to direct it against targets in the narcotics trafficker
program.
The Secret Service removed from circulation or seized prior to circulation greater quantities of counterfeit currency than ever before. Demands on the Secret Service for Presidential, candidate, and foreign
dignitary protection were the highest, in the history of the Service, due
to the Presidential nominating conventions and election campaign and
the rise in terrorist attacks against U.S. and foreign dignitaries.
Cases and (messages processed by the Washington National Central
Bureau of Interpol rose dramatically, with growing use of the Bureau's facilities by law enforcement authorities at Federal, State, and
local levels.
The "sky marshal" program, under which Customs Service had
provided as many as 1,270 uniformed customs security officers (CSO's)
at the Nation's major airports to screen embarking passengers and
arrest persons threatening the safety of commercial air flights, was
being phased out as the Federal Aviation Administration required




INTRODUCTION

XXIX

airlines and airports to perform these functions. Down to 487 by the
end of the year, the CSO force, over its 2i/^-year existence, had seized
2,523 dangerous weapons, made 770 arrests of persons threatening air
safety, and prevented the skyjacking of any aircraft screened by it.
In other operational areas, the Customs Service intensified its program to improve the security of international cargo at ports and terminals ; the Bureau of the Mint moved toward construction of a new
mint in Denver, Colo., by 1978; and Treasury studied potential sites
for construction of a new facility for the Bureau of Engraving and
Printing.
Tariff and Trade Affairs
During fiscal 1973, Treasury gave increased attention to measures
to prevent unfair price discrimination, subsidies, and other practices
affecting importations into the United States.
By accelerating the processing of complaints under the antidumping
statute. Treasury made this law a more effective instrument in defending the United States against unfair competition. In fiscal 1973, the
average time needed to complete antidumping investigations was reduced by more than one-half since 1968. During 1973, the average completion time was 270 days while the average time in 1968 was 560 days.
Activity under the act continued at a high level with an increase of 17
percent in the number of final decisions published by Treiasury.
New antidumping regulations became effective in January 1973
which clarify and further tighten the procedures of the Antidumping
Act.
Considerable emphasis has also been focused on problems involving
countervailing duty, classification, value and marking determinations, quota administration, and coastwise trade exemptions.
International Affairs
The fiscal year ending in June 1973 was characterized by extraordinary developments affecting the international monetary system and
the exchange markets. The process of correcting the structural imbalances in world payments that had accumulated over 20 years, a
process begun in August 1971, continued during the year.
The longer term project of revising the principles and practices of
the international monetary system was also actively pursued in the
Committee of the Board of Governors of the IMF on Reform of the
International Monetary System and Related Issues (Committee of
Twenty).
In the sphere of international trade policy, the enlargement of the
European Communities and their special arrangements with non-




XXX

19 73 REPORT OF THE SECRETARY OF THE TREASURY

member countries led to negotiations to protect our own trading ppsi
tion. Preparations were going forward for the longer term multilateral trade negotiations in the G A T T , while the administration'^
trade bill was taken up in the Congress.
Initial steps in the normalization of U.S. economic and trade rela
tions with the Soviet Union resulted in a grains ag:reement anc
separate agreements on trade, maritime relations, and repayment oJ
the Soviet lend-lease debt. The Soviet Union and Poland also became
eligible for credits and financial guarantees extended by the ExportImport Bank.
Along with the multilateral work underway in the monetary anc
trade areas, discussions were initiated in the Organization for Eco
nomic Cooperation and Development (OECD) on a broad range oi
international issues associated with investment. These discussions wil
be continuing with the objective of seeking to formulate proposals foi
possible international understandings among O E C D members on matters affecting investment.
Exchange markets.—H\)j^ pattern of exchange rates established, al
the Smithsonian Institution in December 1971 came under speculative
pressure in January 1973, after surviving a brief but heavy run or
sterling in June 1972 which caused the British authorities to allow the
pound sterling to float. A long period of capital outflow from Italy
associated with the internal political and economic situation, tooi
place late in the year 1972 and early 1973, despite a very strong current account surplus. This led the Italian authorities to establish s
separate financial market for the lira in January 1973. The Swiss
authorities, to avoid accumulating more reserves, soon suspended official purchases of foreign exchange. Following this action, massive
amounts of mobile capital moved out of dollars, particularly into yer
and deutsche marks. Urgent international negotiations, in whicl:
Under Secretary Volcker took a leading role, resulted in a second
multilateral realignment of currencies on February 13. At that time
the United States announced its intention to devalue the dollar by IC
percent.
However, powerful upward pressure on the deutsche mark reappeared late in February, and official.intervention was suspended from
March 2 through March 19 in most leading exchange markets. Wher
the European authorities returned,to the market, they did not resume
pegging their currencies to the dollar, but introduced a joint float
of seven continental countries, with margins among this,group oJ
countries being maintained by official intervention. The Italian, Japanese, Canadian, and United Kingdom currencies also floated against the
dollar with varying degrees of official intervention. As the fiscal yeai




INTRODUCTION

XXXI

neared its close, the deutsche mark was revalued again, making a
cumulative revaluation against the dollar of nearly 75 percent, including the first revaluation in 1961. At the end of the fiscal year, the
average value of the dollar in terms of other major currencies,
weighted by our trading pattern, stood at about 83 percent of the
April 1971 level, as compared with 91 percent on June 30, 1972.
U,S, balance of payments,—The underlying competitive position of
the United States, as measured by the balance on current account
(excluding Government grants and loans), in calendar year 1972
showed a deficit at over $6 billion, dominated by a trade deficit of $7
billion. However, the current account deficit peaked in the quarter
ending June 30, 1972, and fell toward the $5 billion annual level in
the first two quarters of this fiscal year. I n January-June 1973, there
was an unexpectedly large further drop i n t h e deficit to an approximate
balance. Unusual trade developments, especially an extremely steep
rise in the volume and value of net agricultural exports (mainly grain
and soybeans) brought this sharp improvement. However, there were
also indications that the long upward trend in U.S. net imports of
manufactured consumer goods was leveling off. The outlook for the
future was, therefore, promising though new uncertainties for our
trade had arisen from domestic ancl worldwide shortages of food and
petroleum products.
Private long-term capital movements in calendar year 1972 and the
first quarter of 1973 were roughly in balance, with a deficit at an annual
rate of about $1 billion in J a n u a r y - J u n e 1973. Government grants and
capital continued at the rate of about $3.5 billion a year.
Under the conditions of inconvertibility prevailing in the final
quarter of this fiscal year, the net outflow of dollars on official reserve
transactions was halted, as any tendency toward outflow of dollars
quickly caused the rates of floating foreign currencies to rise. This
was a marked change from the January-March quarter, when successive waves of mobile funds had moved out of the United States,
creating an overall deficit in official reserve transactions of over $10
billion. This figure had raised the cumulative deficit since the end of
1969 to about $50 billion, illustrating the massive strain on the international nionetary system of this period of long-delayed adjustment.
International financial developments,—These large outpourings of
dollars into foreign reserves, together with some growth of foreign
reserves held outside the United States, had caused global reserves to
rise from $78 billion at the end of 1969 to $175 billion at the end of
March 1973. Because of the two devaluations of the dollar, in 1971
and 1973, the rise in reserves in terms of special drawing rights
(SDR's) in the I M F was considerably less, at $67 billion.




XXXII

19 73 REPORT OF THE ,SECRETARY OF THE TREASURY

The value of world trade continued to rise faster than the advance
of most national economies despite the nionetary and exchange adjustments taking place. I t appears to be determined essentially by the rate
of growth in the major national economies. I n calendar year 1972,
the rise in terms of constant prices was estimated at about 7-8 percent,
as compared with 5-6 percent in calendar year 1971. Despite the very
large additions to world reserves in recent years, the ratio of global
reserves to the value of world imports in the fourth quarter of 1972,
at 37.5 percent, was about the same as the corresponding figure for
the full year 1966.
During the year there was growing concern throughout the world
regarding persistent and accelerating inflationary pressures. I n nearly
all indsutrial countries the rate of increase in consumer prices during
the preceding 12 months was higher in June 1973 than in June 1972.
A t 5.9 percent, the U.S. figure was still well below that of other industrial countries, though it it had risen from 2.9 percent in June 1972.
International monetary reform,—^At the annual meeting of the
International Monetary Fund in Septeniber 1972, the reform of the
international monetary systeni received new impetus. Secretary Shultz,
on behalf of the United States, put forward "certain specific and interrelated ideas" looking toward a workable international agreement.
Recognizing that most countries prefer to have a "central" or "par"
value as a fixed point of reference, it was suggested that provision also
needed to be made for countries which decide to float their currencies.
A modified SDR could replace gold as the formal "numeraire" of the
system, and the monetary role of gold would diminish. A more effective
and more symmetrical adjustment process would be established, based
in part upon disproportionate movements in reserves as an indicator
The prospect was held out that, after a transitional period, the United
States would be prepared to undertake an obligation to convert official
foreign dollar holdings into other reserve assets as a part of a satisfactory system assuring effective and equitable operation of the adjustment process. The United States would, however, have to reach a
demonstrated capacity to meet the obligation of convertibility in terms
of its reserve and balance of payments position.
This U.S. initiative was well received, and a number of other Governors also expressed their views on the desiderata to be pursued in
monetary reform, generally in less specific terms. At the annual meeting, the Committee of Twenty held its first organizing meeting under
the chairmanship of the Governor for Indonesia, Mr. Aii Wardhana.
The Deputies of the Committee held four meetings during the fiscal
year in Paris and Washington, and the Ministers met once in Washington at the end of March. The United States set forth its proposals




INTRODUCTION

XXXIII

in more detailed form, and explained the reasons for them, in a memorandum for the Deputies which was subsequently published as a supplement to chapter 5 of the Annual Report of the Council of Economic
Advisers to the President.^
So far, essential clarification of views has takeii place, and a number of important issues have been brought to light and examined. I t has
beconie clear to all that on some questions there are quite strong differences of emphasis. The United States has continued to urge that it is
essential to have a much stronger and more effective adjustment
process, applicable to both deficit and surplus countries. This is
essential to make it practical and sensible to reestablish a form of convertibility into a revised SDR as the new international reserve asset.
Others look toward reserve asset settlement systems of various types
which focus the adjustment pressures more sharply on deficit countries.
Other aspects of the system are being examined, such as defining the
value and specifying the characteristics of the new SDR, the role of
gold and reserve currencies in the future, the treatment of existing
balances of reserve currencies, the desire of developing countries for
special treatment in SDR allocations, the handling of massive mobile
capital flows, the exchange rate policies and practices in the future,
and any changes in the structure and role of the International Monetary Fund. All this will require time and patience to sort out. Each
part of the system is interrelated with others. Participants do not generally feel able to negotiate on parts of the overall picture in isolation
from the whole. Progress is being made, however, as mutual understanding of major issues and points of view is spreading among the
individual members of the Committee.
Growing world energy requirements,—ThQ> transportation and industrial output needs of the world cannot be supported without large
inputs of energy. Under current technology, the bulk of such energy
must be met by the fossil fuels, particularly petroleum and natural gas.
For the foreseeable future, these resources will have to be furnished by
a relatively few energy-exporting countries. As a consequence of these
rapidly growing needs for energy and expected increases in revenues
per barrel of oil, the gross income of petroleum-producing countries
will be vast.
Some energy-producing countries have large unmet needs for manufactured consumer and oapital goods. Some feel they must obtaiii additional equipment for their defense. Countries such as Venezuela, Iran,
Algeria, Nigeria, and Indonesia have traditionally used increases in
oil revenues for immediate expenditure and investment to improve the
living standards of their people. The monies those nations earn can be
e See exhibit 79.
506-171—73

3




XXXIV

1973 REPORT OF THE SECRETARY OF THE TREASURY

expected to continue to be spent in the industrial nations. I n eff'ect, oil
will be exchanged for goods which will benefit those in the producing
lands.
Another group of producers, primarily those of the Arabian peninsula plus Libya, have small pox^ulations, less developed social infrastructures, and liniited short-term potential industrial development
outside the oil sector. Their combined imports were about $3 billion in
1972, and are expected to reach $6 billion at most by 1975 and perhaps
$10 billion in 1980.
Accumulated official reserves of this latter group of countries reportedly reac^hed about $8.5 billion by the end of 1972. They may
be receiving oil revenues of $10 billion amiually by 1975 and up to
$20 billion or more annually b}^ 1980. As expenditures for investment and consumption are not expected to keep pace with their oil
earnings, official reserves and foreign investments should mount
rapidly, reaching perhaps more than $75 billion by 1980.
As their earnings increase, the problem of what to do with oil profits will grow. Countries will require stable, secure, and profitable
investment opportunities over an extended number of years. Some
investnients will be in the form of new plants in their own countries,
but they will also be looking to investnients in the world financial
markets. They will in effect be looking to protect future income by
transforming a natural depletable asset into a permanent source of
income.
I n developing its proposals for international nionetary reform, the
United States has introduced special provisions to allow for the large
accumulations of foreign currencies which some oil-producing countries will have available for investment and which differ from normal
reserve accumulations in other countries in important respects.
Trade negotiations and legislation.-—Work also proceeded during
fiscal 1973 on reform of the world trading system. A t the 28th session
of the G A T T contracting paities (CP's) in November 1972, tha
United States, the European Community, and Japan were joined by
the other CP's in a statement of intent to undertake comprehensive
multilateral trade negotiations beginning in September 1973. The
CP's also set up a preparatory committee to meet periodically to prepare for a Ministerial meeting in September 1973. I n addition, the
normal work programs of the G A T T and the O E C D in the trade area
were geared during fiscal 1973 to lay the groundwork for the
negotiations.
Prior to participation in these multilateral trade negotiations, the
administration subniitted to Congress on April 10, 1973, the proposed Trade Reform Act of 1973. The bill would provide the neces-




INTRODUCTION

XXXV

sary authorit}^ for the United States to join in negotiating a more
open and equitable world trading systeni. I t contains provisions to
allow the President to raise and lower tariffs and to negotiate on nontariff barriers; to deal effectively with rapid increases of imports that
disrupt domestic markets and displace American workers; to
strengthen our ability to meet unfair competitive practices; to manage our trade policy more effectively; to take extraordinary trade
measures to deal with domestic inflation or balance of payments problems ; to normalize our relations with the nonmarket econoniy countries by permitting the President to grant them most-favored-nation
status; and to assist developing countries by implementing a generalized systeni of preferences.
Finally, in order to start the negotiations with all of the developed
countries on a more or less equal footing and to safeguard U.S. trade
interests, we have continued to hold Article X X I V talks in the G A T T
with the Europeans. I n February 1973, the United States initiated
consultations in the G A T T on the E C - E F T A arrangements, and in
Jklarch we agreed tp put aside our ongoing discussions with the Europeans on the consistency of the enlarged E C with the G A T T in
order to begin item-by-item renegotiations ( G A T T Article X X I V : 6 )
on the many bound itenis in the tariff schedules of the acceding countries which have increased or will increase as a result of enlargement.
The United States has made clear to the parties concerned in both
cases that we expect these negotiations to be completed before the
commencement of the multilateral trade negotiations and that, if we
do not receive satisfaction in the G A T T discussions, we will reserve
our rights to offset damage to our trade.
The President's visits to the Soviet Union, Poland, and the People's
Republic of China in early 1972 opened the way for the improvement
of our economic and trade relations with nonmarket econoniy countries during fiscal 1973. Initial steps toward this normalization featured major trade negotiations with the Soviet Union resulting in the
successful conclusion of a grains agreement in July and, in October,
agreements on trade, maritime shipping, and repayment of the Soviet
lend-lease debt. The Soviet Union also becanie eligible for. ExportImport Bank credits and financial guarantees in October, and Poland
in November 1972. Trade with the Soviet Union, the Eastern European
countries, and the People's Republic of China improved markedly
during fiscal 1973. Total U.S. exports to these countries were $1.7
billion for the fiscal year, compared with $455 million in fiscal 1972,
U.S. imports from these countries rose moderately to $455 million,
for a trade surplus in this area of approximately $1.3 billion.
International investm^ent.—During fiscal 1973 there were a number
of developments which have had and will continue to have considerable



XXXVI

19 73 REPORT OF THE SECRETARY OF THE TREASURY

impact on the nature, direction, and magnitude of capital flows and
international investment.
Secretary Shultz in his September 1972 address at the annual meeting of the International Monetary Fund and later at the June 1973
meeting of the OECD Ministers pointed out the need to supplement
negotiations in the monetary and trade areas with international discussions on policies and practices affecting investment. These discussions have been initiated in the OECD and are mainly centered in the
OECD's new Executive Committee in special session, which held its
first meeting in December 1972. The OECD's work program on investment issues has the objective of seeking to develop new understandings and procedures for reducing actual and potential conflicts among
developed countries arising from policies affecting investment.
I n February 1973, Secretary Shultz, in announcing changes in the
exchange rate relationships, stated that the current U.S. restraints
on outward capital flows would be phased out by the end of 1974. The
phaseout is appropriate in the light of the administration's broad
objective of reducing governmental control over private investment
and is based on the confidence that the termination will coincide with
a noticeable iniprovement in our balance of payments position.
International financial institutions,—An important part of our foreign economic policy concerns our relations with the developing countries and in particular the programs of the international financial
institutions, which are of vital importance to these countries.
During fiscal 1973, substantial but belated U.S. contributions were
made to two of the institutions of which the United States is a member—$320 million to the International Development Association
( I D A ) and $418.4 million to the Inter-American Development Bank
( I D B ) . These efforts covered the first installment of the U.S. contribution to the third replenishment of I D A , originally scheduled
for fiscal 1972, and increases in the Ordinary Capital and the Fund
for Special Operations of the I D B . The I D B contributions only covered half of the amounts requested in the fiscal 1973 budget.
Discussions also began in fiscal 1973 on a fourth replenishment of
the I D A. and a new unified Special F u n d for the Asian Development
Bank ( A D B ) . As of J u n e 30, no agreement had yet been reached on
levels of funding for either institution, but contributions from all
donors of $4.5 billion to I D A and $525 million to the A D B Special
Fund for a 3-year commitment period were being discussed.
Conclusion
A strong domestic economic expansion continued during fiscal 1973.
Gains in employment and real income were sizable and welcome. The
Federal budget moved closer to balance and ample supplies of private



INTRODUCTION

XXXVII

credit were available throughout the year. Unfortunately, there was
a temporary setback in the effort to bring inflation under better control. Special factors led to a sharp and unexpected rise in food and
raw material prices. By the end of the fiscal year, planning for a
new, strengthened stabilization effort was well underway, and the
outlook for better price performance had improved.
I n the sphere of international finance, a second multilateral exchange rate adjustment took place in February, involving a 10-percent
depreciation of the U.S. dollar. Since March, however, mobile capital
flows and unsettled exchange market conditions have led most major
industrial countries to permit their currencies to float in terms of the
dollar, with discretionary official intervention. The United States
contributed specific suggestions for long-range monetary reform to
the Committee of Twenty, emphasizing a symmetrical adjustment
process for both surplus and deficit countries. Meanwhile, the administration is also going forward with preparations for longer term
multilateral trade negotiations in the GATT.
Discussions on international investment issues have been initiated
within the O E C D as the United States strives in cooperation with
our major trading partners to design equitable and broadly supported
understandings on investment policies.
During the fiscal year there was a major expansion in U.S. trade
with the Soviet Union, Eastern Europe, and the People's Republic of
China. Increasing attention was also devoted to the current and the
longer term problems resulting from the rapid expansion in world
demand for energy, particularly in the form of petroleum.







R E V I E W OF T R E A S U R Y




OPERATIONS




Financial Operations
Summary

On the unified budget basis the deficit for fiscal 1973 was $14.3 billion. Net receipts for fiscal 1973 amounted to $232.2 billion ($23.6
billion over 1972) and outlays totaled $246.5 billion ($14.7 billion over
1972).
Borrowing from the public amounted to $19.3 billion as a result
of (1) the $14.3 billion deficit, (2) a $0.8 billion decrease in cash and
monetary assets, (3) a $3.1 billion decrease in deposit fund and other
liabilities, and (4) a net $1.1 billion decrease in all other financing.
As of June 30, 1973, Federal securities outstanding totaled $469
billion, comprised of $458 billion in public debt securities and $11
billion in agency securities. Of the $469 billion, $343 billion represented borrowing from the public. The Government's fiscal operations
in fiscal years 1972-73 are summarized as follows:
[In billions of dollars]

1972

208. 6
231. 9

Budget deficit ( - )
Means of financing:
Borrowing from the public—increase, or decrease ( —)
Reduction of cash and monetary assets—increase ( —),
or decrease
Other means
Total budget

financing




,

232. 2
246. 5

-23. 2

Budget receipts and outlays:
Receipts
Outlays

1973

-14. 3

19. 4

19. 3

—2.5
6. 3

—0.8
— 4. 1

23. 2

14. 3

4

19 7 3 REPORT OF T H E iSECRETARY OF T H E

TREASURY

THE BUDGET

)m

fm^ %m

i$?i

nn

wz

Receipts

Total budget receipts amounted to $232.2 billion in fiscal 1973, $23.6
billion, or approximately 11 percent, above the fiscal 1972 figure of
$208.6 billion. Although receipts from estate and gift taxes and customs duties were somewhat less than in fiscal 1972, receipts from all
other categories were sharply increased, primarily reflecting expanding
incomes and profits.
A comparison of net budget receipts by major sources for fiscal years
1972 and 1973 is shown in the table below.
[In inillions of dollars]
Source of receipts

Individual income taxes
Corporation income taxes.
_
Employment taxes and contributions
Unemployment insurance
Contributions for other insurance and retirementExcise taxes
Estate and gift taxes.
Customs duties
Miscellaneous receipts.Total budget receipts

1972

:...

_._

.

....

1973

Increase, or
decrease (—)

94,737
32,166
46,120
4,357
3,437
15,477
5,436
3,287
3,633

103,246
36,153
54,876
6,051
3,614
16,260
4,917
3,188
3,921

8,509
3,987
8,757
1,695
177
783
-519
-99
288

208,649

232,225

23,577

Projected estimates of receipts to future years, required of the Secretary of the Treasury, are shown and explained in the President's
budget.
Individual income taxes.—Individual income taxes equaled $103.2
billion in fiscal 1973, $8.5 billion more than in fiscal 1972. The increase
reflected a sharp rise in incomes and would have been even larger if not




REVIEV^ OF TREASURY OPEiRATIONS

5

for tax reduction legislation enacted in 1969 and 1971. Also, refunds
paid in the first half of calendar year 1973 were uncommonly large
as a result of taxpayers' failure to adjust to the new withholding
system in calendar year 1972. This added to the dampening effect of
tax legislation.
Corporation income taxes.—Fiscal 1973 corporate income tax receipts rose to $36.2 billion, $4.0 billion, or better than 12 percent, above
the corresponding fiscal 1972 amount. The increase reflected rising
profits offset to some degree by liberalized depreciation guidelines and
by the 1971 legislation permitting a new investnient credit.
Employment taxes,—Employment taxes amounted to $54.9 billion
in fiscal 1973, $8.8 billion above such receipts in fiscal 1972. The 19percent rise is attributable to expanding payrolls and number of
people employed, as well as to the effects of increases in the social
security taxable earnings base and tax rate, both effective January 1,
1973. Also, the full effect of the January 1, 1972, base increase was not
realized until fiscal 1973.
Unemployment insurance,—These receipts totaled $6.1 billion in fiscal 1973, $1.7 billion, or 39 percent, above the 1972 figure. The increase
resulted from changes in employment experience within States and,
to a lesser degree, from higher unemployment tax rates.
Contributions for other insurance and retirement.—Such contributions amounted to $3.6 billion in fiscal 1973, $0.2 billion more than
in 1972.
Excise taxes.—Excise taxes increased from $15.5 billion in fiscal
1972 to $16.3 billion in fiscal 1973. The growth in excises was dampened
by the year-to-year reduction in the general telephone tax rate.
Estate and gift taxes.—Estate and gift tax receipts amounted to
$4.9 billion in fiscal 1973, less than in 1972. Fiscal 1972 receipts were
abnormally large due to an acceleration of tax paynients in that year.
Customs duties.—Cnstoms duties decreased by $0.1 billion in fiscal
1973, totaling $3.2 billion. The fiscal 1972 figure was unusually large
because of the temporary import surcharge, which was not continued
into fiscal 1973.
Miscellaneous receipts.—^Miscellaneous receipts grew to $3.9 billion
in fiscal 1973, rising $0.3 billion. The increase was primarily due to
larger deposits of earnings by the Federal Reserve Systeni.
Outlays
Total outlays in fiscal 1973 were $246.5 billion (compared with
$231.9 billion for 1972). Outlays for fiscal 1973, by major agency, are
compared to those of 1972 in the following table. For details see the
Statistical Appendix.




1973 REPORT OF THE SECRETARY OF THE TREASURY
[In millions of dollars]
1972
Funds appropriated to the President
,
Agriculture Department
Defense Department
Health, Education, and Welfare Department
Housing and Urban Development Department..
Labor Department
Transportation Department
Treasury Department
Atomic Energy Commission
_
National Aeronautics and Space Administration.,
Veterans Administration
Other
Undistributed intrabudgetary transactions

1973

Increase, or
decrease (—)

3,733
10,028
75, 000
82,042 .
3,592
. 8,639
8,183
30,983
2,393
3,311
11,968
16, 031
-8,378

231,876

Total outlays.

4,269
10,943
76,679
71,779 .
3,642
10,033
7,531
22,124
2,392
3,422
10, 710
16,208
-7,858

246,526

-536
-914
-1,679
10,263

-50
. -1,395

652
8,859

1
-111
1,258
-1,177
-521

14, 650

Cash and monetary assets
On J u n e 30, 1973, cash and monetary assets amounted to $18,392
million, an increase of $846 million over fiscal 1972. The balance consisted of $13,854 million in the general account of the Treasurer of
the United States (this balance was $2,068 million more than J u n e 30,
1972, and included $112 million net transactions in transit as of
J u n e 3 0 ) ; $3,973 million with other Governnient officers ..(^l?^'^^
million less than 1972); and $566 million with the International Monetary F u n d ($50 million more than 1972). F o r a discussion of the assets
and liabilities of the Treasurer's account see page 120. The transactions
affecting the account in fiscal 1973 follow:
Transactions affecting the account of ihe Treasurer of the United Staies, fiscal 1973
[In millions of dollars]

Balance June 30, 1972
Less: In transit at June 30, 1972
Excess of deposits, or withdrawals ( — ); budget, trust, and
other accounts:
Deposits
Withdrawals ( - )
:__
.....^
Excess of deposits, or withdrawals ( —), public debt accounts:
Increase in gross public debt
Deduct:
Excess of Government agencies' investments in public debt issues
12,460
Accruals on savings and retirement plan
'
securities and Treasury bills (included in increase in gross public
debt above).
8,236
Certain public debt redemptions (included above in withdrawals, budget,
trust, and other accounts)
—5,694
Net deductions
__^_

11,785
476
253,207
276,736
-23,529
30,881

15,002

Excess of sales of Government agencies' securities in the market.
Net transactions in clearing accounts (documents not. received or
classified by the Office of the Treasurer)
Net transactions in transit
Balance June 30, 1973




15,879
7,717
2,365
112
13,854

REVIEW OF TREASURY OPERATIONS

7

Corporations and other business-type activities of the Federal Government

The business-type programs which Governnient corporations and
agencies administer are financed by various means: Appropriations
(made available directly or in exchange for capital stock), borrowings
from either the U.S. Treasury or the public, or by revenues derived
from their own operations.
Corporations or agencies having legislative authority to borrow
from the Treasury issue their formal securities to the Secretary of
the Treasury. Aniounts so borrowed are reported as liabilities in the
periodic financial statements of the Government corporations and
agencies. I n fiscal 1973, borrowings from the Treasury, exclusive of
refinancing transactions, totaled $10,711 million, repayments were
$10,412 million, and outstanding loans on June 30,1973, totaled $34,237
million.
Those agencies having legislative authority to borrow from the
public must either consult with the Secretary of the Treasury regarding the proposed offering, or have the terms of the securities to be
offered approved by the Secretary.
During fiscal 1973, Congress granted new authority to borrow from
the Treasury in the total amount of $1,883 million, and reduced existing authority by $47 million, a net increase of $1,836 million. The
status of borrowing authority and the amount of corporation and
agency securities outstanding as of June 30, 1973, are ^hown in the
Statistical Appendix.
Unless otherwise specifically fixed by law, the Treasury determines
interest rates on its loans to agencies by considering the Government's
cost for its borrowings in the current market, as reflected by prevailing
market yields on Government securities which have maturities comparable with the Treasury loans to the agencies. A description of the
Federal agency securities held by the Treasury on June 30, 1973, is
shown in the Statistical Appendix.
During fiscal 1973, the Treasury received from agencies a total,of
$1,337 million in interest, dividends, and similar payments. (See the
Statistical Appendix.)
As required by Circular No. 966, revised in fiscal 1973, semiannual
statements of financial condition, and income and retained earnings
are submitted to the Treasury by Government corporations and
business-type agencies (all other activities report on an annual basis).
Annual statements of commitments 'and contingencies are also submitted. These statements serve as the basis for the combined financial
statements compiled by the Treasury which, together with the individual statements, are published periodically in the Treasury Bulletin.
Summary statements of the financial condition°of Government corporations and other business-type activities, as of June 30, 1973, are
shown in the Statistical Appendix.



8

19 73 REPORT OF THE SECRETARY OF THE TREASURY

Government-wide financial management

Accrual reporting concepts.—During the year, the central financial
agencies stressed the use of accnial accounting and productivity measures in agency management. Treasury staff' continued its efforts to compile reliable Government-wide financial information on the accrual
basis. The General Accounting Office revised its accounting principles
and standards during the year, and at yearend revised regulations on
reporting accrued expenditures to Treasury were being readied for
publication.
Legislative Reorganization Act of 1970,—^The Legislative Reorganization Act of 1970 (Public Law 91-510) deals primarily with operations of the legislative branch of the Federal Governnient but also
places several new requirements upon the executive branch. Title I I
of the act directs the Secretary of the Treasury and the Director of the
Office of Management and Budget ( 0 M B ) , in cooperation with the
Comptroller General, t o : (1) Develop a standardized information and
data processing systeni for budgetary and fiscal data; (2) develop a
standardized classificatioii structure for programs, activities, receipts,
and expenditures of Federal agencies; and (3) determine the location,
nature, and availability to Congress of budgetary, fiscal, and related
data in the various Federal agencies.
A second annual progress report was submitted to the Congress
August 31, 1972. Based on the congressional information needs set
forth in GAO reports of February 17,1972, and November 10,1972, it
is apparent that the scope of the systeni as envisaged by the Congress
is substantially larger, and the level of information much more detailed, than that initially perceived by 0 M B and Treasury.
During the year. Treasury was active on three broad fronts. First, an
in-house group was established to develop methodologies for fund
structure and organization structure codes. The emphasis here was on
providing for suitable interfacing with the presently established Government-wide Treasury/OMB financial accounting and reporting network. Second, an advisory group of officials from the central agencies
( 0 M B , Treasury, and GAO) was established to provide direction and
top-level guidance to the joint efforts. Third, Treasury assigned two
senior professionals on a full-time basis to a six-man task group established June 1, 1973. This group, chaired by 0 M B , will identify shortrange improvement opportmiities and develop recommended plans for
their implementation as well as longer range system improvements.
The task group will work closely with the GAO and the Congress as
necessary to gain a full miderstanding of specific information needs.
Joint Financial Management Improvement Program,—^With the
transfer of a number of financial management functions from 0 M B




REVIEW OF TREASURY OPERATIONS

9

to the General Services Adniinistration ( G S A ) , the J F M I P principals have invited the Administrator of GSA to beconie a principal of
the Joint Prograni. Plans are underway to hire a full-time executive
director, in addition to the executive secretary who was hired in September 1969, to increase the effectiveness of the Joint Prograni. Additional full-time staff committed by central agencies and other
changes in structure and operations of the Joint Prograni are being
considered.
The second annual Financial Management Conference was held on
January 31,1973. Its theme was "Productivity in the Federal Sector."
Admiral Hyman Rickover was the luncheon speaker. The Financial
Management Achievement Awards were,presented to Robert C. Moot,
Comptroller of the Department of Defense, and Richard Miller, Associate Assistant Secretary for Administration, Departnient of Labor.
Seminars on different aspects of productivity were held in the afternoon.
The J F M I P , implementing a suggestion by the Internal Revenue
Service, developed and published a directory of agencies' financial
management personnel. The directory shows the names, titles, addresses, and telephone numbers of the heads of each financial management organization by agency.
A model financial management intern prograni was developed by a
J F M I P team under the leadership of the Civil Service Commission.
This model training program may be used by agencies in forming their.
OAvn individual programs to develop future financial managers.
On May 31,1973, the General Accounting Office held a 1-day seminar
on establishing closer working relationships between program managers and financial managers in the Governnient.
Domestic Economic Policy
The Secretary of the Treasury is the chief Government adviser to
the President on fiscal and financial affairs and thus plays a key role
in the formulation and execution of domestic economic policy. I n discharging these responsibilities, the Secretary obtains primary assistance from the Assistant Secretary for Economic Policy.
The Assistant Secretary for Economic Policy informs the Secretary and other top policy officials of current and prospective economic
developments and assists in determination of appropriate economic
policies. I n addition to his own immediate staff, the Assistant Secretary calls on the services of several Treasury offices including the
Office of Financial Analysis and the Office of Domestic Gold and Silver
Operations, w^hicli are under his direct supervision, as well as the Offices of Debt Analysis and Tax Analysis.




10

19 73 REPORT OF THE SECRETARY OF THE TREASURY

The Assistant Secretary for Economic Policy participates with the
Secretary in the "Troika" which develops the official economic projections and advises the President on alternative courses of action. Other
Troika members are the Council of Economic Advisers and the Office
of Management and Budget. Within Treasury, the staff support for
Troika activities in the general economic area is provided by the Office
of Financial Analysis and in the tax area by the Office of Tax Analysis.
The economic projection for calendar 1973 developed within the
Troika and described in the January 1973 Economic Report of the
President called for an increase in the aggregate demand for goods
and services of about 10 percent from 1972 levels. Of this increase,
roughly 6% percent was expected to be a rise in the physical value
of economic activity and 3 percent to be inflation. By the closing
months of fiscal 1973, it became apparent that the original projection
was too low, primarily because of more inflation than had been anticipated. I n early June, the projected increase in calendar year GNP
was raised from 10 percent to some II14 percent, and tax receipts were
reestimated by the Treasury on the new basis for use in the midsession
review of the 1974 budget and to support a request that the Congress
increase the temporary debt limit.
Aside from a more rapid rate of inflation than had been anticipated
in January 1973, economic developments conformed fairly close to
expectation. Real growth averaged about a 5i/^-percent annual rate
in the la.st half of fiscal 1973, down from an 8-percent 'annual rate in
the first half. This reduction in real growth toward a sustainable longrun path was highly desirable and had been a primary goal of fiscal
and monetary policy.
Progress toward the goal of reasonably stable prices was unsatisfactory. During the first half of fiscal 1973, it appeared that a smooth
transition to lower rates of inflation might be achieved while the
comprehensive controls over prices and wages were gradually relaxed.
The Phase I I I program, announced on January 11, placed more
reliance on self-administered standards while retaining some mandatory elements. But very soon the new program was faced with an
inflationary upsurge with which it—or for that matter the Phase I I
program—was incapable of dealing. The prices of farm commodities
and a wide range of industrial raw materials rose sharply in both
domestic and world markets because of rising world demand, crop
failures, and special factors. On June 13, President Nixon announced
the reimposition of a temporary freeze on prices, and intensive planning began for a Phase I V effort to help regain control over the price
level.
The Secretary of the Treasury serves as Chairman of the Cost of
Living Council, which has primary responsibility for administering



REVIEW OF TREASURY OPERATIONS

11

the economic stabilization program. The Assistant Secretary for Economic Policy has participated in the determination of Cost of Living
Council policies through its Senior Review Group and other committees formed to consider stabilization program issues. Also, the Internal
Revenue Service has been the primary operational unit of the Cost
of Living Council in carrying out information and enforcement activities through the I R S field offices.
The Assistant Secretary for Economic Policy, or his delegate^
regularly represents the Treasury on a variety of interagency groups
and occasionally at meetings of the Organization for Economic Cooperation and Development in Paris, supervises the analysis within
Treasury of economic and financial trends, and participates in the
decisionmaking process on Treasury debt management operations.
There are two offices under the direct supervision pf the Assistant
Secretary for Economic Policy. The Office of Financial Analysis is
responsible for the review and analysis of current and prospective
developments in the economy and financial markets and undertakes a
range of special projects. The Office of Domestic Gold and Silver
Operations participates in the formulation, execution, and coordination of policies and programs relating to gold and silver in both their
monetary and commercial aspects.
F e d e r a l Debt Management
Federal debt management policies in fiscal 1973 supported the general efforts of the administration to reduce the stiniulative impact of
the Federal sector as the economy expanded, the rate of unemployment declined, and price pressures remained persistent and troublesome. At the beginning of the fiscal year, the adniinistration stressed
the need to limit Government expenditures to $250 billion. This limitation was desired both to avoid an inflationary stimulus from the Federal sector and to encourage the Congress and the administration to
look carefully at Federal expenditures and to avoid the waste and
excesses which often occurred in the past.
The Treasury's net cash financing requirements were reduced during
the fiscal year by rising tax revenues generated by economic expansion
and inflation. The actual budget deficit for the fiscal year was $14.3
billion, compared with the estimate in the 1974 budget of just under
$25 billion and a May 1 estimate of nearly $20 billion.
Market financing requirements were further reduced by a large inflow of funds to the Treasury from foreign central banks which invested the dollars acquired in foreign exchange market interventions
in special nonmarketable Treasury securities.
As in fiscal 1972, the Treasury continued to rely primarily on auction sales of coupon securities. I n January, the Treasury introduced
506-171—73

4




12

19 7 3 REPORT OF T H E iSECRETARY OF T H E TREASURY

use of the uniform-price auction, in whiph all successful bidders are
awarded securities at the lowest accepted price. This type of auction
was introduced primarily for selling long-term securities to investors
who may be less willing to bid competitively in an ordinary auction
in which awards are made at tender prices. In January, a 25-year,
6%-percent bond was sold in this type of auction; and in May a 25year, 7-perceiit bond, callable in 20 years, was auctioned in the same
way.
I n September 1972, the Treasury instituted two other financing
changes. The first was the conversion of the end-of-month 1-year cycle
bills to a 52-week bill cycle with offerings to be made every 4 weeks.
This was coupled with the phasing-out ofthe 9-month bill cycle which
had not been an important market instrument. Both changes were made
to make it possible to increase the amomit of larger bills outstanding
without increasing the size of the individual offerings.
The second new financing operation instituted in the fall was the auction in October of the fir^t of an anticipated regular cycle of 2-year
notes. The second of these notes was auctioned at the end of December 1972. Because of the substantial Treasury cash position in the second half of the fiscal year due largely to foreigii purchases of special
nonmarketable issues, no other 2-year notes were sold in fiscal 1973.
Over the year as a whole, $5.4 billion of new cash was raised through
the bill market; an additional $356 million was raised through couponbearing issues; and another $9.5 billion from the sale of special nonmarketable issues to foreign central banks. The savings bonds program
continued to grow with net sales over the fiscal year totaling $3.5
billion.

m m m j yiELos AT COKSTARIT wATUBmES' m m m z




REVIEW OF TREASURY OPERATIONS

13

Changes in Federal securities

The term "Federal securities" includes the obligations issued by Federal Government agencies which are part of the unified budget totals
and in which there is an element of Federal ownership, along with the
marketable and nonmarketable obligations of the Department of the
Treasury. Federal agency securities include the participation certificates of the Government National Mortgage Association, the debt issues of the Export-Import Bank and the Tennessee Valley Authority,
Postal Service bonds. Defense family housing mortgages, and the various guaranteed issues of the Federal Housing Administration. At the
end of fiscal 1973, outstanding public debt securities totaled $458.1 billion, an increase of $30.9 billion from the end of fiscal 1972. Federal
agency securities showed an increase of $200 million over the year compared with a decline of $1.3 billion during fiscal 1972. Federal agency
securities outstanding totaled $11.1 billion on June 30,1973. All Federal securities outstanding totaled $469.3 billion at the end of fiscal
1973, $31.1 billion above the fiscal 1972 level of $438.2 billion.
Federal debt and Government-sponsored agency debt
[In billions of dollavsl
Class of debt

June 30, June 30, June 30, Increase, or
1971
1972
1973 decrease ( - )

Public debt securities:
Marketable public issues by maturity class:
Within 1 year..
lto5years
6to20years
Over20years

Nonmarketable public issues:
Series E and H savings bonds
U.S. savings notesi...
Investment series bonds
Foreign series securities
Foreign currency securities..
Treasury certificates, Eurodollar series 2
Other nonmarketable debt

122.8
88.2
45.6
6.4

0.9
-.8
9.4
-3.7

257.2

263.0

5.8

53.0
55.9
.6
.6
2.3
2.3
7.6
16.9
1.7
2.1
2.0 .__
_
.8
.8

:

89.6

101.7

12.1

1.9

1.8

—.1

427.3

468.1

30.9

4.9
1.8
1.9
1.6
.8

4.5
2.2
2.3
1.5
.7

—.4
.4
.4
—.1

10.9

11.1

.2

410.3

Total Federal debt

82.8

12.2

Total Federal agency debt

13.1

6.0
2.6
1.4
1.7
.5

Federal agency securities:
Government National Mortgage Association
Export-Import Bank
Tennessee Valley Authority..
Defense family housing..
Other

.1

91.6

398.1

Total gross public debt

.9

78.6

1.8

Specialissues to Government accounts (nonmarketable)..
Non-interest-bearing debt

69.4
.5
2.3
26.8
1.7

68.0

Total nonmarketable public issues

Government-sponsored agency securities:
Federal home loan banks
Federal National Mortgage Association
Federal land banks
Federal intermediate credit banks
Banks for cooperatives
Goverimient-sponsored agency debt

121.9
89.0
36.2
10.1

245.5

...

Total marketable issues...

112.8
89.1
33.0
10.7

438.2

469.3

31.1

7.7
15.0
6.8
5.7
1.8
36.9

7.8
18.6
7.5
6.1
1.8
41.9

12.1
20.4
9.1
6.7
2.3
50.6

4.3
1.8
1.5
.5
.5
8.7

(*)
(*)

(*)

3.5
9.9
—.3

1 U.S. savings notes first offered in May 1967; sales discontinued after June 30,1970.
2 Treasury certificates, Eurodollar series, first ofiered to foreign branches of American commercial banks
in April 1971.
*Less than $50 million.




14

19 73 REPORT OF THE' SECRETARY OF THE TREASURY

Total marketable public debt securities outstanding on June 30,1973,
amounted to $263.0 billion. The marketable public debt rose by $5.8
billion in fiscal 1973 compared with an increase of $11.7 billion in the
previous fiscal year. Of the new cash borrowing, $5.4 billion represented additions to the volume of outstanding Treasury bills. The ,remaining increase in marketable issues was a $356 million increase i n
Treasury notes and bonds. The Treasury also refunded $6.9 billion of
maturing securities into issues with maturities over 5 years. However,
the average maturity of the interest-bearing public debt declined by
1 month over the year and on June 30, 1973, was at 3 years 2 months.
~ Of the increase in public d^bt securities in fiscal 1973, $13.1 billion
was due to the sale of nonmarketable issues; $9.5 billion represented
sales of special nonmarketable securities to foreigii investors. The remainder was produced by a $3.5 billion! increase in outstanding U.S.
savings bonds over the year. The Treasury also issues special nonmarketable securities to Governmeht accounts, which are made up of a
variety of trust funds, the largest of which are the social security trust
funds. Goyernment account holdings of special issues increased approximately $12 billion.
Government-sponsored agencies are excluded from the Federal budget totals and their obligations are not part of the Federal debt. However, these privately owned and managed institutions are subject to
some form of Federal supervision. Government-sponsored debt increased $8.7 billion to $50.6 billion at the end of fiscal 1973.

nrmmmmiM fmmm. $Emmim

mmw

FEDERAL AGENCY SECURITIES

j ^

im

j «

1870

1971 1S72
fkta\ YsafS

im nn im

Ownership

Of the total Federal debt issues outstanding at the end of fiscal
1973, $268.7 billion, or 57.3 percent, of the total was held by private



REVIEW OF TREASURY OPERATIONS

15

investors. The Federal Reserve System and Government accounts held
$200.6 billion. Federally sponsored agency securities held by private
investors totaled $49.4 billion, while $1.2 billion was held by the Federal Reserve and Government accounts.
Borrowing from the public, including the Federal Reserve System
and foreign investors, in fiscal 1973 was $19.3 billion, about the same
as in fiscal years 1971 and 1972. The Federal Reserve acquired $3.8 billion of these obligations. Private investors increased their holdings by
$15.5 billion—$10.3 billion by foreign investors and $5.2 billion by
domestic investors.
Private holdings of Government-sponsored agency securities increased $8.5 billion in fiscal 1973.
Individuals,—During fiscal 1973, individuals increased their holdings of U.S. savings bonds by $3.5 billion, but decreased their holdings
of other public debt securities by $1.6 billion. On June 30, 1973, individual holdings of marketable public debt issues totaled $16.4 billion
compared with $18.0 billion in fiscal 1972. Combined holdings of series
E and H savings bonds and U.S. savings notes totaled $59.5 billion at
the end of the fiscal year. Individuals held $75.9 billion of public debt
securities on June 30, 1973, representing an increase of $1.8 billion
during the year.
Insurance com^pan^es,—Insurance companies decreased their holdings of public debt securities by $0.5 billion to $5.7 billion. Insurance
company holdings of Federal agency securities also declined slightly
during the year. On June 30, 1973, insurance companies held approximately $0.4 billion of aigency securities.
Savings institutions,—Savings and loan associations decreased theirholdings of public debt obligations by $36 million, while increasing
their holdings of Government agency securities. At the end of fiscal
1973, savings and loans held $5.7 billion of public debt securities and
$0.5 billion of Federal agency obligations.
On June 30, 1973, mutual savings banks held $2.4 billion of public
debt securities, a decline of $300 million from the previous year. Their
holdings of Federal agency securities increased, however, by $137
million to a level of $675 million.
State and local governments,—StSitQ and local governments held
public debt securities, totaling $28.3 billion at the end of the fiscal
year. This amounted to an increase of $2.4 billion, an increase substantially above the previous fiscal year's increase of $400 million.
State and local governments also increased their holdings of Federal
agency securities during the year to $3.3 billion.
Foreign and international,—Of total private investors, foreign investors were the largest purchasers of public debt securities during the
fiscal year, holding $60.2 billion of Treasury securities, an increase



16

19 73 REPORT OF THE SECRETARY OF THE TREASURY

Estimated ownersMp of public debt securities on selected dates 1963-73
[Dollar a m o u n t s in billions]
Change
during
fiscal
1973

June 30, June 30, June 30, June 30,
1963
1971
1972
1973
Estimated ownership by:
Private nonbank investors:
Individuals: 1
Series E and H savings bonds
U.S. savings notes 2
Other securities

46.0
20.1

62.5
.6
23.0

55.4
.6
18.0

68.9
.5
16.4

Total individuals

66.1

76.2

74.0

75.9

1.8

Insurance companies..
Mutual savings banks
Savings and loan associations
State and local governments
Foreign and international..
Corporations
Miscellaneous investors 3

10.9
6.0
6.1
21.4
15.8
18. 7.
8.9

6.6
2.9
6.4
25.5
32.7
10.1
8.4

8.2
2.7
5.7
25.9
60.0
10.3
'9.1

5.7
2.4
5.7
28.3
60.2
12.0
11.7

-.5
-.3

163.9

168.7

> 183.9
•

201. 8

17.9

64.3
32.0
55. 6

61.0
65.5
102.9

^60.5
71.4
111.5

57.9
76.0
123.4

-2.6
3.7
11.9

305.9

398.1

427.3

458.1

30.9

Total private nonbank investors
Commercial banks
Federal Reserve banks
Government accounts.
Total gross debt outstanding

(*)

(*) 2.4
10.3
1. 7
2.5

Percent
Percent owned by:
Individuals
Other private nonbank investors
Commercial banks
Federal Reserve banks
Government accounts
Total gross debt outstanding.

_

22
28
21
11
18

20
23
15
16
26

17
26
14
17
26

17
27
13
16
27

.
.
.
.
.

100

100

100

100.

' Revised.
1 Including partnerships and personal trust accounts.
2 U.S. savings notes first offered in May 1967; sales discontinued after June 30,1970.
3 Includes nonprofit institutions, corporate pension trust funds, nonbank Government security dealers
and Federal-oriented agencies not included in Goverimient accounts.
* Less than $50 million.

of more than $10 billion. The largest increase in foreign holdings came
in the area of special nonmarketaible issues, which increased $9.5
billion. Foreign holdings of marketable public debt securities increased
by $.7 billion. Their holdings of Treasury notes and bonds increased
$3.6 billion, while holdings of bills declined by nearly $3 billion.
Foreign holdings of Government agency securities decreased by $25
million to $465 million at yearend.
Nonfinancial corporations,—Corporations added to their holdings
of both public debt and agency securities. Corporate holdings of public
debt securities increased by $1.7 billion over the fiscal year to $12.0
billion. Holdings of agency issues increased by $0.1 billion to $0.2
billion.
Other private nonbank investors,—Holdings of public debt securities by private nonbank investors increased by $2.5 billion during fiscal
1973, compared with an increase of $.7 billion in the previous year.
Those investors, including nonprofit associations, corporate pension



REVIEW OF TREASURY OPERATIONS

17

funds, and dealers and brokers, held $11.7 billion of Treasury securities
on June 30,1973.
Commercial banks,—Commercial bank holdings of Treasury securities declined for the second year. Commercial bank holdings
amounted to $57.9 billion, a decline of $2.6 billion. A t the end of the
year, banks held agency securities totaling $1.7 billion.
Federal Reserve System,—The Federal Reserve System acquired
$3.7 billion of public debt securities during the year increasing their
total holdings to $75 billion. Federal Reserve holdings of Government
agency securities also increased. At yearend, the Systeni held $160
million of agency securities, an increase of $90 million.
Government accounts,—Government accounts increased their holdings of public debt securities by almost $12 billion. The majority of
the increase was in their holdings of special nonmarketables which
increased by $11.7 billion. Government account holdings of marketable
public debt securities increased by slightly more than $200 million.
Government accounts decreased their holdings of agency securities
by $104 million. At the fiscal yearend they held almost $2 billion of
agency issues.

owKeisHi? O immki mmmn, mm m \%n
F
Total

Av
m

Accounts

300
Private
Nonbank Investors

20Q

Banks
Individuals

Savings
Instit.
^
Corps.

Financing operations

Although nearly $51/^ billion of marketable debt was retired between mid-May and June 30, the Treasury ended fiscal 1972 with .an
operating balance of $10.1 billion. Despite the size of the cash balance,
however, niarket participants anticipated heavy Treasury demands
on security markets during the first half of the fiscal year.




18

1973 REPORT OF THE SECRETARY OF THE TREASURY

As the summer progressed, the Treasury's operating balance continued to benefit from larger-than-expected tax receipts and the success of the adniinistration in holding expenditures to target levels.
Renewed disturbances in foreign exchange markets in the summer
resulted in the issuance of nearly $4.5 billion of Treasury nonmarketable issues to foreign central banks. I n addition, $200 million of new
cash was raised each week through the weekly bill auctions from midJuly through mid-August when the cycle was completed.
With the Treasury's operating balance remaining strong and interest
rates tending to move lower, by mid-July security market participants
had begun to anticipate the possibility of an advance refunding in
connection with the Treasury's August refinancing operation.
On July 26, the Treasury amiounced an extensive refunding operation, which included the prerefunding of issues maturing during the
remainder of 1972 as well as the advance refunding of the note and the
bond due on November 15, 1974, and the two notes maturing on February 15, 1975. I n total, nine outstanding issues, for which public
holdings totaled $19.7 billion, were involved in the exchange. Holders
of the five issues of notes and bonds maturing in 1972 were offered
the option of exchanging into a 5%-percent note due February 1976,
priced to yield 5.96 percent; a 6i/^-percent, 7-year note priced at p a r ;
or a 6%-percent, 12-year bond priced to yield 6.45 percent. Holders
of the November 1974 and February 1975 issues were offered the option
of exchanging into either of the two longer securities. The 12-year
bond was also offered to individuals for cash in amounts not to exceed
$10,000. Subscription books closed on August 2.
I n announcing the terms of the August refunding, the Treasury
said that it would not undertake any cash financing immediately
following the exchange and that a cash financing would be unlikely
until early September. The absence of a very short option in the financing and the postponement of any cash financing until later in the fall
elicited a strong response to financing. Approximately 42 percent of
the issues eligible for exchange by the public were exchanged for new
issues. Of the $2.3 billion privately held securities maturing on August
15,1972, all but $600 million was exchanged.
To meet September cash needs, the Treasury announced, after the
August refunding, plans to restructure the monthly bills. I t said it
would increase the monthly bill auctions at the end of August, September, and October by $600 million each. At the same time, it would shift
the annual bill cycle to a 52-week cycle ahd discontinue sale of 9-month
bills after October. Markets reacted defensively to this announcement
and long-term bill rates as well as yields on shorter maturity Treasury
notes and bonds moved higher. The impetus to higher rates for short-




REVIEW OF TREASURY OPERATIONS

19

term instruments was strengthened by further increases in the commercial bank prime lending rate which had moved steadily higher
from the 514-percent level of early summer to 5% percent at some
banks in early September.
As the fall progressed, market interest rates responded to the ebb
and flow of Vietnam peace rumors and to fluctuating movements in
general economic indicators. By early October, however, the market
focused on the possibility of the Treasury's satisfying its October cash
needs through the auction of a 2-year note instead of through further
cash financing in the bill market. These expectations were confirmed
when on October 5 the Treasury announced that it would auction $2
billion of 6-percent notes on October 11. These notes would mature on
September 30,1974. I n its announcement, the Treasury also said that it
contemplated issuing additional 2-year notes at quarterly intervals
as a part of its overall program for raising cash during the fiscal year
and indicated that a further issue was planned for December or early
January. A total of $4.8 billion of tenders were received in the auction.
The average price for accepted tenders was 100.25 for an approximate
yield of 5.86 percent. A total of $300 million of noncompetitive tenders were accepted at the average price. Commercial banks were allowed full tax and loan account credit in payment of their
subscriptions.
Commercial banks took the larger portion of the new note in the
first instance. Other investor demand subsequently proved disappointing, and the market turned cautious. Bank selling of the new notes was
not heavy, however, and dealers were generally willing to absorb the
supply as it came into the market.
As the month proceeded, peace rumors once again dominated the
market. As a result, yields stabilized and even tended to recede somewhat for longer maturities. I n this atmosphere, the Treasury announced on October 24 that it would meet a portion of its forthcoming
cash needs through additions of $100 million to each of the 13- and 26week bill auctions beginning with the auction on October 30. The
market received this news routinely, and there was little upward rate
adjustment to the anticipated additional supply of bills.
On October 25, the Treasury announced that it would sell at auction
an additional $3 billion of 614-percent notes to mature on November
15,1976. These notes would be used to pay off the $1.3 billion of notes
maturing November 15 and to raise an additional amount of new cash.
At the same time, the Treasury indicated', including the amounts
needed to pay off the November maturities and $1.4 billion of bonds
maturing Deceniber 15, that borrowing in the neighborhood of $12
billion might be needed through the latter weeks of 1972 and the early




20

197 3 REPORT OF THE SECRETARY OF THE TREASURY

weeks of 1973. The $3 billion of new 614-perceiit notes would provide
a part of that amount.
The 4-year notes were auctioned on November 1 at an average price
of 100.18, equivalent to a yield of 6.20 percent. Banks were allowed
to make payment for up to 75 percent of their own and their customers' accepted tenders by credit to Treasury tax and loan accounts.
Noncompetitive tenders of up to $400,000 were accepted at the average
price. A total of $7.1 billion of tenders were received, including $500
million of noncompetitive tenders.
In line with the earlier statenient that a sizable portion of its financing in the remainder of the year would be in the bill area, the Treasury
announced on Noveniber 10 the sale of $4.5 billion of tax anticipation
bills—$2 billion of April bills to be auctioned on November 17 and
$2.5 billion of Jmie bills for auction on Noveniber 29. Both issues
could be paid for by banks through credit to tax and loan accounts.
The Treasury's announcement strengthened the intermediate- and
long-term coupon markets and by the November 15 payment date
for the November refunding, the 6i/4-percent notes had risen by
about one-half point over their auction price. The auction of the
April tax bills elicited about $6.4 billion of bids including $339 million
of noncompetitive bids. The average price of 98.072 was equivalent
to a discount rate of 4.722 percent per annum. Distribution of the bills
was accomplished fairly routinely, although pressure from foreign
sales of bills and the further upward adjustment of the commercial
bank prime rate led to some increases in bill rates. The $2.5 billion of
June tax bills were auctioned at an average price of 97.187, a rate of
discount of 5.089 percent per annum. Approximately $5 billion of bids
for this issue were received, including $377 million noncompetitive
tenders which were accepted in full at the average price. Following
the sale of the June tax anticipation bills, the increased supply of bills
in an atmosphere of only moderate investor demand pushed rates on
the bill market steadily higher.
On December 14, the Treasury announced the auction on December 20 of $2 billion of 5%-percent notes to mature December 31,
1974. This was the second in the Treasury's program for establishing
a 2-year note cycle which was announced in mid-October. Full pa}^ment for awards to comniercial banks for their own and customer
accounts could be made through credit to tax and loan accounts. Noncompetitive tenders, to be awarded in full at the average price, were
accepted in amounts not to exceed $200,000. There was considerable
interest in the new notes, in part because of their end-of-year maturity date, and accepted tenders were in a relatively narrow range
around the average price of 100.09, equivalent to a 5.83-perceiit 3;ield.




REVIEW OF TREASURY OPERATIONS

21

On December 27, the Treasury announced the details of the longterm bond which it had earlier announced would be sold in early
Januar}^ A total of $625 million of 6%-percent, 20-year bonds were
to be auctioned on January 4, 1973. These bonds were the longest
securities to be offered by the Treasury since 1965 and formed part of
the Treasury's continuing effort to improve the maturity structure of
the debt reestablish a viable market for long-term Treasury obligations, and finance Treasury's cash requirements in a manner supportive of the administration's economic policies.
The procedure under which awards were made in this auction differed from that customarily used in auctions for shorter term securities. All accepted tenders were awarded at the price of the lowest
accepted tender. As in the usual auctions, the Treasury accepted bids
staiting with the highest price bid and ranging downward to the bid
which provided a total of $625 million. (The Secretary of the Treasury
reserved the right, of course, to accept less than $625 million of tenders.) This procedure provided investors an incentive to bid at prices
sufficiently high to be sure of an award, while also assuring each
bidder that, if he bid at a price within the range of accepted prices, he
would be awarded bonds at the same price as every other bidder.
The sale of longer term bonds at auction ^yith the uniform-price
method of niaking awards continued the Treasury's search for more
efficient means of marketing various categories of Federal securities.
I n the bond auction, a total of $1.7 billion of bids were received, and
awards were made at a price of 99.50, to yield 6.79 percent. Noncompetitive awards, which were accepted in aniounts up to $250,000,
totaled $81 million.
At the beginning of calendar 1973 the Treasury's operating cash
balance stood at $11.1 billion. Interest rates were rising slowly, but
much of the movement resulted from anticipation of tighter credit
conditions in the near future, despite action taken by the Federal
Reserve to ease monetary strains.
Despite the high end-December operations balance, revenue-sharing
paynients and normal seasonal outflows rapidly drained cash. There
was also concern that larger-than-usual tax refunds from earlier
overwithholding would put additional strains on the Treasury's
cash position.
To supplement its cash balance, therefore, the Treasury announced
at the beginning of January, in addition to the $627 million raised
by the long-term bond sale and the continuing $100 million additions
to the year bills, that it would increase each of the 13- and 26-week
bill auctions in January by $100 million, raising a total of $800
million in new cash.




22

1973 REPORT OF THE SECRETARY OF THE TREASURY

On January 11, Phase I I I of the new economic program was
announced, and on the 12tli the discount rate was raised from 4i/^
to 5 percent, as monetary policy joined actively in the fight to halt
the inflation. By the time of the regular February financing announcement, a pattern of sharply rising short-term yields accompanied by some moderate long-term increases was already evident.
The February financing, announced on January 31, consisted of
an exchange offering of 6%-percent notes maturing August 13, 1976,
priced at 99.70, to yield 6.60 percent, for the $4.7 billion publicly held
Treasury notes maturing February 15 and $1.0 billion of 6%-percent
notes maturing November 15, 1979, offered in a cash auction
February 7.
I n the exchange, 52 percent, or $2.5 billion, of the maturing 4%-percent and 6i/^-percent notes were exchanged for the new 6i/2-percent
securities. Tenders in the auction totaled $1.7 billion, of which $1.0
billion was accepted at an average price of 99.40, to yield 6.74 percent.
Noncompetitive tenders of $400,000 or less were accepted in full and
totaled $88 million.
Beginning in late January, massive speculation against the U.S.
dollar erupted in foreign exchange markets. This continued with
increasing intensity until a second devaluation of the U.S. dollar, by
10 percent, on February 12. As a result of this speculation, foreign
central banks acquired very large amounts of U.S. dollars in defending existing exchange rates and, to invest these dollars, bought
both marketable and special nonmarketable Treasury securities. I n
February, outstanding nonmarketable special issues increased by $5
billion and a further rise of nearly $3 billion of such issues was realized in March.
These sales of special nonmarketable issues increased the Treasury
balance and alleviated other cash-raising operations in the spring
months. Thus, sale of the third note in the 2-year note cycle, which
would have probably taken place in late March, was postponed. At
the end of March, the Treasury's operating balance stood at nearly
$13 billion and the Treasury was able to meet its early April cash demands and to pay off the $2 billion of maturing tax bills with no difficulty. Throughout this period, $100 million was added monthly to the
Treasury's cash position as $1.7 billion of annual bills matured and
$1.8 billion of new bills in the 52-week cycle were sold.
The Treasury's operating balance continued to improve through
the month of April as revenues increased from the high level of economic activity and overwithholding of personal income taxes continued. There were also large receipts from proprietary asset sales. As




23

REVIEW OF TREASURY OPEEATIONS

Offerings of marketable Treasury securities excluding refunding of regular bills,
fiscal 191S
[In millions of dollars]
Cash ofierings
Date

1972
Apr. 1.
Aug. 15
Aug. 15
Aug. 16
Oct. 1.
Oct. 19
Nov. 15
Dec. 28
1973
Jan. 10
Feb. 15
Feb. 1 5 . _ . . .
Apr. 1
May 15
May 15

Description

For new For remoney funding

Exchange ofierings
For
maturing
issues

In
advance
refunding

Total

NOTES AND BONDS

iM-percent note, Apr. 1, 1977 i_.
5>g-percent note, Feb. 16, 1976...
6j^-percent note, Aug. 16, 1979..
6H-percent bond, Aug. 16, 1984..
13^-percent note, Oct. 1,19771...
6-percent note, Sept. 30,1974 2_..
6>i-percent note, Nov. 15, 1976 3.
5J^-percent note, Dec. 31,1974 *..
6^-percent bond, Feb. 16,1993 «.
6Ji-percent note, Aug. 15, 1976 e.
65^-percent note, Nov. 15,1979 ' .
IH-percent note, Apr. 1,19781. _
63^-percent note. May 16, 1980 8..
7-percent bond. May 15, 1993-98 »
Total notes and bonds.

2 ,
2,413
735
268
17 .

2,632
3,824
2,044

2,060 .
1,715
2,102 .

627
3,883
1,604
15
7,265
692

627 .

3,883
595
15
6,221
40

1,009
2,044 .
652 .
10,260

1,326

13.189

2
4,945
4,569
2,353
17
2,060
3,041
2,102

.
.
.
.
.
8,400

33,165

BILLS (MATURITY VALUE)

1972
197S

Increase in ofierings of regular bills:
July-September
October-December
January-March
April-June
Total increase in regular bills..

1972
Nov. 24..
Dec. 6.

Tax anticipation bill offerings:
4.721 percent, 147-day, maturing Apr. 20,
1973.
5.089 percent, 199-day, maturing June 22,
1973.
Total tax anticipation offerings
Total offerings

1,715
2,985
1,121
-408

.
.
.
.

1,715
2,985
1,121
-408

5,413

5,413

2,012 .

2,012

2,510 .

2,510

4,522

4,622

20,185

1,326

13,189

8,400

43,100

1 Issued in exchange for 2^-percent Treasury bonds, investment series B - 1975-80;
2 Auctioned at an average yield of 5.88 percent.
3 Auctioned at an average yield of 6.20 percent.
4 Auctionisd at an average yield of 6.83 percent.
5 All accepted bids awarded at a yield of 6.79 percent.
6 $1,392 million was allotted to the Federal Reserve System and Government accounts.
' Auctioned at an average yield of 6.74 percent. $595 million was allotted to the Federal Reserve System
and Goverimient accounts at the average price in exchange for maturing notes.
8 Auctioned at an average yield of 7.01 percent, $5,275 million was allotted to the Federal Reserve System
and to Govemment accounts.
•All accepted bids awarded at a yield of 7.11 percent. The Federal Reserve System and Govemment
accounts were allotted $140 million of the bonds at a yield of 7.11 percent. .

a result, the Treasury ended April with an operating cash balance of
$14.2 billion.
In these conditions, the Treasury announced on April 25 that it
would sell to the public at auction up to $2 billion of 6%-pGrcent notes
to mature in May 1980 and up to $650 million of 7-percent Treasury
bonds maturing in May 1998 but callable after May 15, 1993. These
new issues were intended to refund partially the $4.3 billion of Treasury notes maturing on May 15; the balance of maturing issues, $1.7
biUion, was to be retired out of available cash balances.



24

19 73 REPORT OF THE iSECRETARY OF THE TREASURY

Disposition of marketable Treasury securities excluding regular bills, fiscal 1973
[In millions of dollars]

Date of re*
funding or
retirement

1972

Aug. 15
Aug. 15
Aug. 15
Aug. 15
Aug. 15
Aug. 15
Aug. 15
Aug. 15
Aug. 15
Sept. 15
Oct. 1
Nov. 15
Dec. 15

Securities
Description and maturing date

Issue date

Redeemed Exchanged for new
for cash
issue
or canied
Total
to matured
At
In addebt
niaturity vance refunding

NOTES AND BONDS

5-percent note, Aug. 15, 1972
4-percent bond, Aug. 15, 1972
2i.i-percent bond, Sept. 15, 1972
6-percent note, NOV. 15,1972
2>^-percent bond, Dec. 15,1972
5H-percent note, NOV. 15, 1974
33^-pcrcent bond, Nov. 15, 1974
534-percent note, Dec. 15,1974
53^-percent note, Feb. 15, 1975
2>^2-percent bond Sept. 15, 1972
13^-percent note, Oct. 1,1972
6-percent note, Nov. 16, 1972
2i.i-percent bond, Dec. 15, 1972

May 15,1971
Sept. 15,1962
Oct. 20,1941
June 29,1971
Nov. .15,1945
Nov. 15,1967
Dec. 2,1957
Feb. 15,1968
Oct. 22,1971
Oct. 20,1941
Oct. 1,1967
. . . . June 29,1971
Nov. 15,1945

232
379

2,342
1,074

i 1,499
i960
i 1,193
i 1,770
i 1,021
1 1,134
1 823

.
:

..

454
33
1,326
1,354

,

2,574
1,453
1,499
960
1,193
1,770
1,021
1,134
823
454
33
1,326
1,354

1973
Feb. 15
6y2-percent note, Feb. 15,1973
Feb. 15 . . . 43^-percent note, Feb. 15, 1973
A p r . l . . . l>^-percent note, Apr. 1,1973
May 15'
. 73/i-percent note. May 15, 1973
Mavis
4.M-percent note. May 15, 1973

Aug.
Nov.
Apr.
Oct.
May

Total coupon securities
1973

A.pr. 20 .
June22

16,1971
15,1971
1,1968
1,1969
15,1972

. . . 2,663
. . . 2,598

10,491

.

1,089
1,215
-.34
3,181
1,194

. . . 1,425
. . . 3,053

13,155

2,514
4,268
34
5,844
3,792
8,400

32,046

TAX ANTICIPATION BILLS 2

. 4.721-percent (tax anticipation)
5.089-percent (tax anticipation)
Total tax anticipation bills.-Total securities

Nov. 24,1972

2,012

2,012

Dec.

2,510

2,510

5,1972

.....1

4,522
...

15,013

..
13,155

4,522

8,400

36,568

1 Included in August 1972 refunding.
2 Including tax anticipation issues redeemed for taxes in the amounts of $912 million in April 1973 and
$1,687 million in Jmie 1973.

Tenders for the 67/8-percent note totaled $3.2 billion, of which $2
billion were accepted at an average price of 99.29, equivalent to a ^deld
of 7.01 percent. Noncompetitive tenders were accepted at the average
price up to an amount of $400,000 and totaled $325 million.
The 7-percent bond, which was sold with the uniform-price auction
technique, elicited $1.2 billion of tenders. Awards totaling $652 million were made at a price of 98.75 (7.11 percent) and included $23
million of noncompetitive tenders.
Despite the repayment of debt in the May financing, the Treasury's
cash balance remained high and the Treasury reduced its offerings of
weekly bills by $100 million from mid-May through the end of the
fiscal year. I n June, the $2.5 billion of maturing tax bills were repaid
out of existing cash holdings, and the Treasury ended the fiscal year
with an operating cash balance of $11.1 billion.
Enforcementj Tariff and Trade, Affairs, and Operations
The programs and operations of six bureaus of the Department of
the Treasury are grouped under one Assistant Secretary who utilizes



REVIEW OF TREASURY OPERATIONS

25

three deputies and three staff offices (Offices of Law Enforcement,
Tariff and Trade Affairs, and Operations) to supervise them. The
bureaus are Custonis Service, Engraving and Printing, Mint, Secret
Service, Consolidated Federal Law Enforcement Training Center,
and Alcohol, Tobacco and Firearms. Enforcement aspects of the responsibilities of the Internal Eevenue Service also receive the Assistant Secretary's coordinating supervision. During fiscal 1973, activities
in these areas continued to increase.
LAW ENFORCEMENT AND OPERATIONS

The Deputy Assistant Secretary for Enforcement and Director,
Office of Law Enforcement, developed and reviewed the policy and
strategy of Treasury law enforcement activities, with particular attention to application of new concepts, technology, and tactics; coordination between bureaus; coordination of Treasury's contributions
to interdepartmental law enforcement efforts; interaction of strategy
with other departments, agencies, and governments; and impact on
public affairs. He had primary cognizance over the Secret Service,
the Bureau of Alcohol, Tobacco and Firearms, the Consolidated
Federal Law Enforcement Training Center, the antinarcotics traffic
programs of I R S and Customs Service, the Office of Foreign Assets
Control, and the Interpol National Central Bureau.
The Director, Office of Operations, under the supervision of the
principal Deputy Assistant Secretary, maintained oversight of bureau
activities for effective design and execution of programs, efficiency of
management and organization, and econoniy of operations, with particular attention to coordination of personnel and logistics aspects of
ongoing programs withiii Treasury and with other departments, review of senior personnel appointments, development and review of
management information reports and budget proposals, and, for nonenforcement activities, adequacy of long-range planning. The Deputy
Assistant Secretary had primary cognizance over Customs, Mint, and
Engraving and Printing.
Antinarcotics program
During fiscal 1973, Treasury maintained the momentum of President Nixon's high-priority prograni to combat illegal drug trafficking.^
A supplemental appropriation of $4.5 million permitted Treasury
to increase its efforts in the I R S narcotics trafficker program, which
expanded to 82 cities in 46 States and the District of Columbia.
IRS's systematic, nationally coordinated program subjects middle
and upper echelon distributors and financiers in the illicit drugtraffic to intensive tax investigations. The objective is to disrupt the
narcotics distribution system by prosecuting those guilty of criminal
1 See exhibit 31.



26

1 9 7 3 REPORT OF T H E iSECRETARY OF T H E

TREASURY

violations and by siphoning off' working capital and drastically
reducing profits. Targeting for this program involved the Custonis
Service and the Justice Department's narcotics agencies, with other
Federal, State, and local enforcement agencies also cooperating in
investigations and in seizures of funds.
During fiscal 1973, the second year of operation, 829 additional
major narcotics traffickers, smugglers, and financiers were identified
for intensive tax investigation; another 1,700 lesser traffickers were
under tax scrutiny. As a result, $94.5 million in proposed taxes and
penalties was assessed during fiscal 1973, with $11 million being
collected. An additional $14.2 million in cash and valued property
was seized. During the fiscal year, 102 major narcotics traffickers
Avere indicted on criminal tax and related charges and 45 were convicted. Criminal tax investigations were completed with respect to
another 83 major drug distributors. I n each of these cases prosecution was recommended.
I t is anticipated that during fiscal 1974 this ongoing program will
subject an additional 650 significant narcotics traffickers to full-scale
I R S investigation.
A budget increase of $8 million in fiscal 1973 enabled Customs also
to increase its forces interdicting illicit drug importations at ports
and borders. New records for numbers,of arrests and seizures directly
by U.S. Customs were established, and amounts of illicit drugs
seized substantially exceeded those of the previous year in most categories although amounts of heroin seized declined sharply.
Customs role in combating the illicit narcotics traffic was greatly
curtailed at the end of the year with the transfer of all its antinarcotics investigative and intelligence functions, personnel, and funding to the newly formed Drug Enforcement Administration under
President Nixon's Reorganization Plan No. 2.
Treasury continued its participation in activities of the Cabinet
Committee on International Narcotics Control, helping to update
narcotics control action plans in 58 countries and to develop for those
countries customs-to-customs programs for advising and training
foreign customs border control officials.
Organized crime

Treasury agencies continued to contribute manpower and resources
directly to the joint strike force program operating against organized
crime in 18 major cities throughout the country. Treasury established
the Treasury Organized Crime Council to provide policy oversight
and interagency coordination for this program led by the Depart-




REVIEW OF TREASURY OPERATIONS

27

ment of Justice. I n addition. Treasury's own programs supported the
organized crime drive through:
(1). The narcotics programs of I R S and Customs;
(2) Action against major counterfeiting and bond forgery operations by the Secret Service;
(3) The cargo security program of Customs; and
(4) The attack on illicit liquor traffic and the suppression of
illegal use of firearms and explosives by the Bureau of Alcohol,
Tobacco and Firearms.
Air security program

Under the program to provide security for commercial air flights
which is managed by the Federar Aviation Administration, customs
security officers (CSO's) continued to provide all uniformed Federal
law enforcement support at the Nation's major airports. Beginning
in February 1973, F A A regulations required airlines to inspect embarking passengers and airports td furnish enforcement support. This
effectively eliminated the need for CSO's except for 110 on duty at the
two Federal airports, Dulles International and Washington National,
and several hundred continuing tb servfe on a reimbursable basis at
nine other airports which could npt immediately obtain the required
local enforcement personnel.
By the fiscal yearend, the CSO force had declined from a high of
1,270 to 487. There had still been no skyjacking of any aircraft for
which CSO's provided preembarkation screening.
From the beginning of the program in January 1971 to the end of
fiscal 1973, CSO's had made 48 arrests aboard aircraft, 722 on the
ground for possession of weapons or niaking threats, and 1,423 for
possession of drugs, with an additional 1,401 apprehended as illegal
aliens. Weapons seized totaled 2,523 plus 66,434 detained and returned
after flight.
Counterfeiting
I n fiscal 1973, counterfeiters continued to produce large volumes of
counterfeit currency, but with less, success in introducing it into circulation. The Secret Service found that $3.3 million had been entered
into circulation and seized an additional $22 million prior to circulation. Loss to the public was reduced over $1.5 million, or 31 percent,
from the comparable period last year. Throughout fiscal 1973 there
was a continuing do wii ward trend in the amount of counterfeit currency passed.
"
Presidential, candidate, and foreign dignitary protection

Demands on the Secret Service for protective efforts continued to
increase in fiscal 1973. Permanent details were maintained with the
506-171—73

6




28

19 73 REPORT OF THE SECRETARY OF THE TREASURY

President, First Family, Vice President, former Presidents, Kennedy
children, and Mrs. Mamie Eisenhower. After former Presidents Truman and Johnson died, protection to their widows continued.
Protective problems were increased by activities of the President,
members of his immediate family, and the Vice President during the
1972 election campaign.
During the campaign, a total of 13 pandidates/nominees from the
Democratic, American Independent, and Peoples Parties were protected. Extraordinary manpower, logistical, and other problems confronted the Service in providing protectioii during the two major
nominating conventions in Miami Beach, Fla. Security measures for
the 1973 Inauguration required maximum utilization not only of
Secret Service personnel but also of Treasury agents in other bureaus.
I n fiscal 1973, protection was provided for over 40 heads of state or
govermnent and over 70 other foreign dignitaries. The latter category
grew by 300 percent over fiscal 1972 when only 17 dignitaries of this
type were protected. I n addition, 33 official representatives of the
United States performing special missions abroad were protected at
the direction of the President.
;
Treasury enforcement communication system (TECS)

I n December 1972, T E C S was established to provide a computerized
network of communication links among law enforcement personnel of
the Custonis Service, the Bureau of Alcohol, Tobacco and Firearms,
and the Intelligence and Security Divisions of the Internal Revenue
Service, both in the field and at national headquarters. The systein
permits all participants access to commonly indexed Treasury law enforcement information as well as to F B I National Crime Information Center (NCIC) data.
The backbone of the system is the computer facility of the former
custonis automated intelligence network ( C A D P I N ) , which was
phased out in March 1973. T E C S will operate about 500 terminals
(compared with 320 initially authorized for the C A D P I N system) at
major airports, seaports, and border stations and at regional and
district offices of the member bureaus.
Anti-terrorism

Treasury, as a member of the Cabinet Committee to Combat Terrorism, contributed to the development of President Nixon's program
to thwart international terrorism and tb establish emergency plans for
coping with terrorist incidents.^ The Office of the Secretary, the U.S.
Secret Service, the U.S. Customs Service, and the Bureau of Alcohol,
1 See exhibit 33.




REVIEW OF TREASURY OPERATIONS

29

Tobacco and Firearms joined to intensify both intelligence and security measures aimed at preventing terrorist incidents.
Interpol

I n fiscal 1973, the U.S. National Central Bureau of the International
Criminal Police Organization processed a total of 3,912 cases, representing a 69-percent increase over fiscal 1972 and a threefold increase since fiscal 1969. Of these cases, 1,098 were referrals for foreign
investigation on behalf of U.S. enforcement agencies. I n contact with
^39 other countries, Interpol Washington transmitted 3,390 messages
and received 3,428.
I n September 1972, Treasury led the U.S. delegation to the 40tli
Interpol General Assembly in Frankfurt, Germany, which adopted
substantive resolutions and proposals concerning Interpol's participation in antiterrorist activities and in curbing drug abuse.
Illustrating police cooperation through Interpol was a request from
the Santa Clara County, Calif., district attorney's office for assistance
in locating a suspect indicted on 12 counts of grand theft. Queries to
Interpol bureaus in Australia, New Zealand, Hong Kong, and Singapore produced information from Interpol Melbourne in February 1973
which enabled the California authorities to extradite the subject from
Mexico.
Also, in March of 1972, Interpol Caracas advised Interpol Washington that a Cuban citizen, arrested in Caracas, had implicated himself
in the killing of a Colombian citizen in Miami, Fla., in 1969. Subsequent assistance by Interpol Washington resulted in Dade County,
Fla., Department of Public Safety officers being dispatched to return
from Caracas with the subject on August 16,1972.
Financial recordkeeping
The Financial Recordkeeping and Reporting Regulations (part 103,
title 31 C F R ) , which were issued by Treasury to implement Public
Law 91-508 and became effective July 1,1972, were primarily designed
to ensure that financial institutions maintain certain records that have
been determined to be highly useful in the investigation of tax, regulatory, and criminal matters.^ The regulations also required reports of
unusual currency transactions, the international transportation of
monetary instruments, and interests in foreign financial accounts, with
the objective of deterring the use of foreign bank accounts by U.S.
persons for illegal purposes.
Responsibility for ensuring compliance was delegated to the bank
supervisory agencies, the Securities and Exchange Commission, the
1 See exhibits 35 and 36.




30

1973 REPORT OF THE SECRETARY OF THE TREASURY

U.S. Customs Service, and the Internal Revenue Service, with the
Assistant Secretary of the Treasury ( E T T O ) having overall responsibility for coordinating the procedures and efforts of those agencies.
The regulations and the underlying law were challenged in U.S.
District Court of the Northern District of California by the California
Bankers Association and Mr. Fortney H. Stark, J r . The matter is now
pending before the U.S. Supreme Court, I n the meantime, the Treasury
is restrained from enforcing those provisions of the regulations that
require reports of unusual currency transactions.
International financial crimes and frauds

The United States and Switzerland signed a Treaty on Mutual Assistance in Criminal Matters on May 25,, 1973, representing the first
such major agreement for the United States. The treaty culminated
negotiations over a period of 4 years in which Treasury played a
leading role.
,
.:
. The treaty provides for broad assistance between the two countries
and special assistance where organized, crime is involved, and overcomes the Swiss concept of bank.secrecy in specifically delineated
cases. Tax crimes are excluded from the treaty.
.
Gun and explosives control program

As a part of the oversight of the Bureau of Alcohol, Tobacco and
Firearms, t h e Office of Law Enforcement coordinated A T F ' s support
of the narcotics trafficker program through enforcement of the criminal sanctions of the Gun Control Act of 1968 against targets in the
antidrug program. The Office of Law Enforcement also assisted in
negotiating guidelines agreed upon by Treasury for A T F , the Department of Justice for the F B I , and the Postal Service for the Postal
Inspection Service with respect to investigative jurisdiction over
crimes involving the use of explosives or bombs as set forth in title X I
of the Organized Crime Control Act of 1970.
Cargo security program

The Office of Operations continued Treasury's cooperation with the
Department of Transportation and other departnients and agencies
in President Nixon's program to suppress theft of cargo.
The Customs Service, as the unique agency with Federal officials
physically present at all ports of entry and border crossings where
international cargo arrives and at terminals where international cargo
is cleared, extended and intensified its cargo security program during
the year. Additional field personnel were given technical training in
security standards and procedures, more detailed surveys of deficient




REVIEW OF TREASURY OPERATIONS

31

piers and terminals were made, and additional Customs patrol officers
Avere assigned to ports of entry.
Treasury-sponsored legislation to fill out Custonis authority in this
field (the Custonis Port Security Act) passed both Houses of Congress but failed in conference because of a controversial rider.
Automated merchandise processing system (AMPS)

Customs A M P S program to automate the examination, classification, appraisal, and liquidation of entries of imported merchandise
was given new direction and fresh impetus through an early implementation orientation. The Seattle field test, which was to lead to a
completely integrated systems design by 1975, was cancelled in favor
of a program that would give actual operating assistance in selected
functions to hard-pressed customs officials at ports and border crossings in 1974.
Management information system

The system of monthly and quarterly management reports initiated
by the Office of Operations in the previous year was in full operation
for all bureaus in fiscal 1973. Converting of tabular information into
graphic displays and equipping of a management briefing room were
begun.
Engraving and printing

Three important contract studies affecting future developments for
the Bureau of Engraving and Printing were completed and reviewed
by the Office of Operations: (1) A study of potential sites in the
interior of the United States for construction of an additional facility
by 1980; (2) a study of the Bureau's system of charges to customers
for its products and of methods to generate funds for acquisition of
new production equipment; and (3) a study of recruiting and career
planning for management personnel to ensure the availability of qualified candidates for top management in the 1970's and 1980's.
Additional mint capacity

Steadily increasing requirements for coinage dictate construction
of a new mint by 1978. A site in downtown Denver was selected and,
in December 1972, the City of Denver informed the Treasury that
the city council had taken all steps necessary to make the site available
on terms stipulated by the Federal Govemment.
TARIFF AND TRADE AFFAIRS

The Office of Tariff and Trade Affairs was established in 1971 to
provide policy direction and review of actions and recommendations




32

19 7 3 REPORT OF T H E iSECRETARY OF T H E

TREASURY

by the Customs Service on administration of the Antidumping Act and
the countervailing duty law. These statutes represent the sword-point
in the administration's efforts to combat unfair trade practices by
foreign companies and governments.^ The office is also responsible for
policy review in other actions under the tariff laws, including classification, value, marking, and quota regulations.
Amended Antidumping Regulations, effective in January 1973,
contained new provisions to promote improved administration of the
Antidumping Act. Detailed reporting requirements were established
in discontinued investigations so that prices of the foreigii merchandise in question can be properly monitored to ensure adherence to
price assurances. I n addition, if the price assurances are violated, new
procedures permit a reopening of the investigation with an immediate
withholding of appraisement. Other new provisions in the Regulations
concern time limits for processing antidumping cases, the investigation of merchandise sold in a condition different from that in which it
was imported, and revisions to the teclniical adjustments in the comparison of home market and export prices.
Increased emphasis on the administration of the Antidumping
Act yielded substantial results. The revisions in the Regulations and
expansion of professional staff assigned to investigations helped
reduce the time to process antidumping cases. The average number of
days to complete an investigation in 1968 was 560, with some cases
taking 2 years or longer. During 1973, however, the average completion
time was reduced to 270 days. This expeditious processing of cases
is advantageous to all persons concerned. The doniestic industry is
ensured of quick defense against the possibility of an injurious price
discrimination, and the importer and foreign interests are relieved
of the burden of uncertainty during lengthy investigations.
Activity under the act continued at a high level in fiscal 1973 with
an increase of 17 percent in the nuniber of final decisions published
by Treasury. Due to a decline in the number of complaints received,
however, the number of cases initiated dropped from 39 to 27. The
42 final actions taken by Treasury in 1973 niarked the highest number
of such decisions made in the last 7 years.
The countervailing duty law is designed to offset the harmful effects
of subsidies by foreign governments for products entering the United
States. If the subsidy is found to be a "bounty or grant" within the
meaning of the statute, an additional duty equivalent to the amount
of the subsidy is assessed on the imported merchandise. After years
of inactivity under this law (no actions betweeii 1959 and 1967),
1 See exhibit 32.




REVIEW OF TREASURY OPERATIONS

33

Treasury has countervailed 13 times since 1968. There were two such
actions in fiscal 1973.
Subsidies paid by foreign governments to encourage expansion of
productivity and export sales are becoming an increasing problem in
the maintenance of a fair trading s^^stem. The countervailing duty
law will be utilized more frequently as harmful subsidy practices that
permit unfair competition in U.S. markets are uncovered.
The Trade Analysis Section has done research regarding foreign
price discrimination and dumping, foreign subsidies on exports, and
countervailing duty policy, as well as balance of trade implications
of 1971 currency revaluations. Quantitative research has involved
survey design and multivariate analysis of surve}^ data, with application of time-series econometric techniques.
Special efforts were focused on the defining of trade data requirements for Treasury as a whole and on securing special trade data tapes
from the Bureau of the Census.
Classification and value cases before the Customs Service, countryof-origin marking cases, and the administration of mandatory quota
restraints were reviewed for overall trade impact. Studies of the system
of Brussels Tariff Nomenclature for classification of imported merchandise, of the Brussels Definition of Value, and of techniques for
reporting trade statistics on n c.i.f. (cost, insurance, and freight) basis
continued.
Taxation Developments
I n his budget message on January 29, 1973, the President urged
the Congress to avoid further inflation and higher taxes by holding
down Federal spending. I n his state of the Union message of February 22, 1973, the President reemphasized the point that controlling
Federal spending would avoid tax increases. The President also
urged prompt congressional action on his tax recommendations,
including alleviation of property tax burdens for older Americans,
provision of an income tax credit for tuition paid to nonpublic elementary^ and secondary schools, and improvement of the private pension
system. I n addition, the President urged prompt action on his economic programs.
Tax reform

On April 30, 1973, Secretary Shultz presented the administration's
proposals for tax changes in testimony before the House Committee
on Wavs and Means.^ The proposals were intended to provide greater
tax equitv, to simplify the tax structure, and to improve economic
growth. The Secretary stated that the recommendations were essen' See exhibit 43.




34

19 7 3 REPORT OF T H E iSECRETARY OF T H E

TREASURY

tially neutral in their budgetary effect. No specific recommendations
were made on the taxation of political contributions and activities or
on the taxation of estates and gifts. The Secretary urged the committee to consider the important question of the taxation of political
contributions and activities and expressed the Treasury's willingness
to work with the committee on matters relating to estate and gift
taxation.
The major recommendations of the administration's tax program
are as follows: ^
(1) To achieve a more equitable and efficient tax system, a new
minimum taxable income concept and a limitation on artificial accounting losses were proposed. These proposals would apply to individuals. The existing minimum tax on individuals would be repealed.
(2) To simplify the task of taxpayers in preparing their tax returns, a new simplified individual income tax form was proposed
along with recommended revisions to achieve further simplification of
the tax law pertaining to the child care expense allowance, the retirement income credit, the medical expense and casualty loss deduction,
the deduction of miscellaneous employee expenses, etc., the dividend
exclusion, the sick pay exclusion, and the tax tables.
(3) To provide property tax relief for low- and middle-income
elderly homeowners, a refundable property tax credit under the income tax was proposed. An equivalent credit was proposed for the
low- and middle-income elderly who rent their homes.
(4) To help preserve the national benefits of the nonpublic school
system and to provide needed tax relief for low- and middle-income
families who bear a large part of the cost, a refundable income tax
credit for tuition paid for nonpublic elementary and secondary school
education was proposed.^
(•5) To help meet the national energy needs, a new investment tax
credit for domestic exploratory drilling of oil and gas was proposed.
(6) To increase the financing capabilities of State and local governments and to reduce the amount of tax-exempt interest, a Federal
interest subsidy was recomniended for State and local obligations to
be issued on a taxable basis at the option of those governments.
(7) To prevent windfall profits from arbitrage activities in the
advance refunding of tax-exempt State and local obligations, certain
restrictions were proposed.
(8) To provide for greater responsibility by tax return preparers
for the returns they prepare, provisions relating to liability and control were proposed.
1 See exhibit 45.
a See exhibit 39.




REVIEW OF TREASURY OPERATIONS

35

(9) Revisions in the taxation of foreigii source income were proposed to neutralize the impact of foreigii income tax incentives to
attract U.S. investment.
The House Ways and Means Comniittee began hearings on tax
reform on February 5, 1973. Subsequent to Secretary Shultz' testimony on April 30,1973, the committee considered trade legislation for
the remainder of the fiscal year.
Environmental taxation

I n accordance with the President's state of the Union message of
February 15, 1973, there was transmitted to the Congress on February 19, 1973, a draft bill designed to encourage the restoration of
historic buildings and the rehabilitation of older buildings, to preserve
coastal wetlands, and to encourage gifts of land to be used for conservation purposes. Tax measures incorporated in the draft bill are:
Accelerated depreciation methods for the building restoration proposals ; reduction of tax benefits related to investments and improvements in coastal wetlands; and treatment as a charitable contribution
of certaiii gifts of partial interests in land to be used for conservation
purposes. H.R. 5584, introduced on March 14,1973, included the provisions of the draft bill.
Federal collection of State income taxes

Title I I of Public Law 92-512, approved on October 20,1972, is cited
as the Federal-State Tax Collection Act of 1972. The act authorizes the
Department of the Treasury to enter into agreements with States for
Federal collection of State income taxes on individuals, estates, and
trusts. I t excludes Federal collection of State corporate income taxes.This voluntary program is popularly referred to as the "piggyback"
system, and its objective is to obtain more efficiency in tax administration -and reduce the costs of taxpayer compliance. To make Federal
administration feasible, the act requires existing procedural and administrative provisions of the Internal Revenue Code generally to be applied to Federal collection of State taxes in the same manner as if such
taxes were imposed by the Federal Government.
Pension reform^

The President's pension ref orm message of April 11,1973, called for
enactment of 'his recommendations to strengthen the private piension
system. The major recommendations included: (1) A minimum vesting standard for preserving the retirement rights of employees who
leave their jobs before retirement; (2) a minimum funding standard
~ 1 See exhibit 46.




36

1973 REPORT OF THE SECRETARY OF THE TREASURY

for vested benefits under employer-financed defined benefit pension
plans; (3) a deduction on individual income tax returns of aniounts set
aside by employees for their retirement if not covered by an employer
plan and by covered employees in employer plans with inadequate benefits ; (4) a larger tax deduction for self-employed persons who invest in
pension plans for themselves and for their employees; and (5) tax
deferment until retirement on lump-sum payments from pension plans
received by workers who leave a job before retirement if he reinvests
the funds in a qualified individual retirement account. S. 1631 was
introduced which incorporated these recomniendations. On May 22,
1973, Secretary Shultz testified before the Senate Finance Committee
on the President's pension proposals.
Social security

Public Law 92-336, approved July 1,1972, an act to provide for an
extension of the temporary level in the public debt limitation, included
several amendments to the Social Security Act. The legislation authorized a 20-percent increase in cash retirement and disability benefits,
effective Septeniber 1972. The benefit increase is financed by an increase
in the limit on the taxable earnings base from $9,000 to $10,800, effective January 1,1973, and a further increase to $12,000, effective January 1,1974. The employee and employer social security taxes are each
increased from 5.2 percent to 5.5 percent, effective January 1, 1973The law also provided for automatic increases in benefits and the taxable earnings base. Benefits would be automatically increased if the
Consumer Price Index increased by at least 3 percent during a year
and no benefit increases had been enacted or become effective in the previous year. I n any year in which an automatic benefit increase becomes
effective, the taxable earnings base would be automatically increased
according to the rise in the average wages covered under social security.
Automatic increases are effective only after 1974.
Public Law 92-603, approved October 30, 1972, revised the benefits
structure, including, for example, higher benefits for aged widows and
widowers, higher minimum benefits for low earners, and liberalization
of the retirement test by raising the anhual amount of exempt earnings from $1,680 to $2,100 with future automatic adjustments to keep
pace with increases in earnings levels.
The increased costs of the cash benefits and hospital insurance
programs are financed by higher social security taxes. For 1973, the
employee and employer tax rate is increased from the previously
scheduled 5.5 percent each to 5.85 percent each. The maximum earnings
base enacted under Public Law 92-336 was retained.
At the close of the fiscal year^ amendments affecting social security
had been added to the Renegotiation Act Extension (H.R. 7445). Included was an across-the-board benefit increase of 5.6 percent, effective



REVIEW OF TREASURY OPERATIONS

37

in June 1974. The raise was regarded as an acceleration of the automatic cost-of-living adjustments first scheduled to become effective
under Public Law 92-336. The benefit increase was based on the cost-ofliving increase betweeii June 1972 and June 1973. I n addition, the retirement test would be liberalized. The annual earnings limitation
would be increased from $2,100 to $2,400, effective January 1974. For
earnings in excess of this amount, benefits would be reduced by $1 for
every $2 of earnings. The maximum earnings base would be increased
to $12,600 in 1974, rather than the $12,000 scheduled under Public Law
92-336.
Unemployment insurance

On April 12, 1973, the President sent a message to the Congress
proposing reform of the unemployment insurance system. The President requested establishment of minimum benefit standards for the
States, providing at least 50 percent of a covered worker's average
weekly wage, up to a State maximum of at least two-thirds of the
average wage for covered workers in the State. Also requested were
the extension of unemployment insurance coverage to farm employees
and the prohibition of the payment of benefits to strikers or denial of
benefits to nonstrikers.
These recommendations, plus an increase in the net Federal unemployment tax, were incorporated in a draft bill sent to the Congress
on May 7, 1973, by the Secretary of Labor. Public Law 92-329, approved June 30, 1972, had provided a temporary increase in the net
Federal unemployment tax from 0.5 percent to 0.58 percent for calendar year 1973 only. The draft legislation would extend the 0.58-percent
increase for 1973 to 1974 and 1975.
Federal tax expenditures

Estimates of Federal tax expenditures for tax years 1967 through
1972 were prepared by the Treasury staff in cooperation with the staff
of the J o m t Committee on Internal Revenue Taxation. The House
Committee on Ways and Means made these estimates available to
the public on June 1,1973.
International tax matters

Legislation^ regulations^ and administrative procedures,—In his
April 10, 1973, trade message, the President urged enactment of his
recommendations on taxation of foreign source income.^ These proposals, which were submitted to the House Committee on Ways and
Means on April 30,1973, provided t h a t :
(1) U.S. shareholders would be taxed currently on future earnings,
whether or not distributed, of a controlled foreign corporation engaged
1 See exhibit 44.



38

1973 REPORT OF THE SECRETARY OF THE TREASURY

in manufacturing or processing activities where the corporation makes
new or additional investment and is allowed a foreign "tax holiday" or
similar tax incentive with respect to such investment; (2) U.S. shareholders would be taxed on the future earnings, whether or not distributed, of a controlled foreign corporation where the corporation
makes new or additional foreign investment in manufacturing or processing of products exported to the U.S. market, if the income from
such investment is subject to foreigii corporate tax significantly lower
than in the United States; and (3) where a U.S. taxpayer has deducted
foreign losses against U.S. income, such losses would be taken into
account to reduce the amount of foreign tax credit claimed by such
taxpayer on foreign earnings in later years.
The Treasury issued on June 11, 1973, more details of the April 30,
1973, proposals related to foreigii tax haven manufacturing corporations. The proposals deal with tax inducements of foreign countries
Avliich attract American capital abroad. Major tax inducements include
income tax exemptions of manufacturing and processing income for a
number of years, partial exemption or lower rates under a corporate
income tax, and grants of cash or property which could be treated as a
cost recovery benefit, depreciation investment allowances, and investments credits which used singly or in combination provide a substantially greater cost recovery than obtained under U.S. tax law.
Pursuant to a Treasury request,^ the interest equalization tax was
extended by the Congress, with a numberof minor amendments, beyond
its expiration date of March 31,1973, until June 30,1974.
Prior to the end of 1972, issuance of proposed regulations was completed with respect to the D I S C legislation enacted as part of the
Revenue Act of 1971. This legislation permits deferral of income taxation on a portion of the income of domestic corporations engaged in
exporting. Public hearings on the proposed regulations were held in
March 1973. By the end of June 1973, more than 4,000 D I S C elections
had been filed with the Internal Revenue Service.
The Treasury developed a number of regulations under previously
enacted laws, including revised regulations for allocation of income
and deductions for the determination of foreign and domestic source
income, the definition of the Continental Shelf, and the application of
estate and gift tax rules to nonresident aliens.
Ta^ treaties,—A new income tax treaty with Norway, to replace the
1949 treaty, was approved by the U.S. Senate on August 11,1972, and
instruments of ratification were excliang:ed on September 29.
Negotiations with the Soviet Union were beguii during the year and
concluded with the signing of an income tax treaty on June 20, 1973.
1 See exhibits 41 and 42.




REVIEW OF TREASURY OPERATIONS

39

The new income tax treaty with Belgium was brought into force by
the exchange of instruments of ratification on September 13,1972. The
provisions of the new treaty have effect as of January 1, 1971.
During the fiscal year, draft treaties were initiated with the Governments of Morocco (November 4, 1972), Korea (March 28, 1973),
Iceland (May 18, 1973), and Kenya (June 18, 1973). Negotiations
continued with Jamaica, Indonesia, and the Republic of China for new
income tax treaties, and preliminary negotiations were held with the
Governments of Poland and Romania. Discussions were also held with
the Netherlands for revision of the present income tax treaty. In
response to changes in the internal tax laws of the United Kingdom
and Canada, negotiations were begun with those countries for revision
of the respective treaties.
International organiBations.—Treasury representatives participated
in the work of the Committee on Fiscal Affairs of the Organization for
Economic Cooperation and Development ( O E C D ) . Treasury representatives were members of a number of working parties of the Committee. A Treasury representative was chairman of the Committee.
Treasury representatives also participated in a meeting of the
United Nations Group of Experts on Tax Treaties between developed
and developing countries which continue to work on designing appropriate provisions for treaties between developed and developing
countries.
Administration, interpretation, and clarification of tax laws

The Department of the Treasury, during fiscal 1973, issued 77 final
regulations, 8 temporary regulations, and 52 notices of proposed rule
making relating to matters other than alcohol, tobacco, and firearms
taxes. Of the above, 36 of the final regulations and 10 notices of proposed rule niaking covered projects under the Tax Reform Act of
1969. Eleven final regulations, 18 notices of proposed rule making,
and 2 temporary regulations covered projects under the Revenue Act
of 1971. I n addition to the above, there were four final regulations and
seven notices of proposed rule making relating to alcohol, tobacco,
and firearms taxes.
Among the subjects dealt with in Treasury decisions and notices of
proposed rule making published during the fiscal year were the treatment of corporations qualified as Domestic International Sales Corporations ( D I S C ) , estate and gift taxation of nonresident aliens,
charitable remainder trusts, charitable contributions, private foundations, arbitrage bonds, advance payments, long-term contracts, inventory costs, real estate investment trusts, depreciation, accumulation
trusts, and political contributions.




40

1973 REPORT OF THE SECRETARY OF THE TREASURY

Other tax developments

Public Law 92-336, approved July 1, 1972, an act to increase the
temporary debt ceiling, included a provision that allows losses attributable to a disaster that occurs during the first 6 months after a
taxable year to be claimed as a casualty loss deduction in the preceding
taxable year. The amendment applies to disasters occurring after
December 31, 1971.
Public Law 92-418, approved August 29, 1972, places veterans organizations in a special category of exempt organizations and allows
losses attributable to a disaster after December 31, 1971, to be claimed
as a casualty loss in the preceding taxable year.
Public Law 92-512, approved October 20, 1972, increases the jurisdictional amount for the Small Claims Division of the U.S. Tax Court
from $1,000 to $1,500, effective January 1,1974.
Public Law 92-558, approved October 25, 1972, imposes an 11-percent excise tax on manufacturers and importers of bows and arrows
and related equipment, eff'ective July 1,1974.
Public Law 92-580, approved October 27, 1972, permits American
Samoans to qualify for more than one personal exemption; provides
an exclusion from the gross estate for estate tax purposes of any interest in certain types of employee plans or contracts held at the death
of a nonemployee spouse in a community property State; and provides
that where the rate of a State or local sales tax on motor vehicles is
higher than the general sales tax rate, that part of the tax paid which
is equal to a tax imposed at the general sales tax rate will be deductible.
Public Law 92-606, approved October 31, 1972, coordinates the
individual income taxes of the United States and Guam.
Proposed legislative programs

The sulphur oxides emissions charge, which would be a special
financial charge by the Federal Government on those who produce
sulphur oxide emissions, was proposed to the 91st Congress in February 1972 and was recommended by the President in his state of the
Union message on February 15,1973.
P O W - M I A legislation was sent to Congress by Secretary Shultz
on February 21,1973. The proposal would resolve income tax problems
faced by returning prisoners of war and the families of some men who
have been listed as missing in action.
Treasury proposed amendments to the military pension system,
which were incorporated in H.R. 4200, passed by the House of. Representatives on June 22, 1973. The technical amendments continued
favorable tax treatment for survivor benefits.




REVIEW OF TREASURY OPERATIONS

41

I n t e r n a t i o n a l Financial Affairs
International monetary reform

As discussed in the following sectioii on foreign exchange developments and operations, fiscal year 1973, particularly the latter half,
was a period of major exchange rate developments and much activity
in the foreign exchange markets. The year also witnessed the launching .
of formal negotiations on fundamental reform of the international
monetary system. This section discusses the scope and purpose of
those negotiations, the U.S. approach to reform, and the status and
outlook for the reform discussions at the end of the fiscal year.
The membership of the International Monetary Fund voted in
July 1972 to establish a Governors Committee on Reform of the
International Monetary System and Related Issues. With the strong
support of the United States, the Committee was given broad terms of
reference: To "advise and report to the Board of Governors with
respect to all aspects of reform of the international monetary system"
and, in considering and reporting on those matters, to "give full attention to the interrelation between these matters and existing or prospective arrangements among countries, including those that involve
international trade, the flow of capital, investment, or development
assistance, that would affect attainment of the purposes of the Fund
under the present or amended Articles."
This broad mandate for the Committee, encompassing not only
monetary but closely related areas of trade and investment as well,
recognizes that a comprehensive approach to reform is needed in
order to assure development of a viable and equitable economic system
in the future; that, as stated by President Nixon in an address before
the I M F annual meetings in September 1972, monetary reform is but
"one vital part of a total reform of international economic affairs,
encompassing trade and investment opportunity as well." I n some
instances, the relationships are so close that they must be dealt with
on a highly integrated basis—for example, questions relating to the
use of trade or capital restrictive measures for balance of payments
purposes. I n other instances, negotiations should be separate in order
to make progress. For example, negotiations on liberalization of
specific trade restraints, or on specific capital restrictions need not
wait on monetary reform, nor should comprehensive reform await
those more liniited negotiations. I t is essential, however, that the negotiations in the various spheres be conducted from a common view
and with a common approach; and that the results of the various
negotiations stand up to the tests of consistency, and to the extent
possible, be mutually reinforcing.




42

1973 REPORT OF THE SECRETARY OF THE TREASURY

At the annual meeting of the International Monetary Fund in
Washington in Septeniber 1972, Secretary Shultz outlined comprehensive U.S. proposals for reform of the international monetary system.^ The U.S. proposals were subsequently elaborated further in a
series of papers submitted to the C-20. (Two of these papers have
been published, as exhibit 79 of this report, and as a supplement to
chapter V of the 1973 report of the President's Council of Economic
Advisers.)
The fundamental objective of long-range monetary reform is to
develop the agreed codes of conduct that are necessary for governing
behavior in an interdependent world. Each nation naturally likes to
retain for itself as much freedom of action as possible. But where a
country's actions impinge on others, it is essential to assure that those
actions are consistent with the requirements of the system as a whole.
The ultimate failure of the Bretton Woods system was that while
its sustainability depended on a broad measure of international
financial and economic equilibrium, it was not able to assure that
needed equilibrium. I n the U.S. view, the main practical objective of
reform should be to develop a system which can assure balance and
avoid the disruptive disequilibria of the past. The process of balance
of payments adjustment must be made more efficient; and the pattern
of disciplines, rights, and obligations relating to adjustment must be
made more symmetrical and equitable. The system should be as free as
possible from reliance on controls, should support progress toward a
more liberal trade and payments order, and should afford governments the maximum freedom of choice and action consistent with the
needs of the system as a whole.
Guidelines for balance of payments adjustment.—ThM^ the establishment of clear, agreed adjustment rules and criteria is central to the
U.S. reform proposals. Without such rules, there is a danger that adjustment decisions by individual countries will be delayed too long,
that adjustment burdens will not fall symmetrically on deficit and surplus countries alike, and that the international community will fail
either to note the emergence of significant disequilibria or to bring to
bear appropriate disciplines and pressures on countries to take corrective action when it is needed.
The United States has proposed specifically that disproportionate
movements in a nation's reserves, as the most comprehensive and readily available indicator of balance of paynients disequilibria, be used as
an objective criterion to point to a need to adjust and to create a presumption that corrective action would be taken. Adjustment, of whatever form, would not automatically follow the indicator's movement;
1 See exhibit 4,'8.




REVIEW OF TREASURY OPERATIONS

43

the international community would have authority to "override" the
indicator if it were judged to be wrong. But the system would establish
a bias toward equilibrium and more efficient payments adjustment, to
replace the bias toward disequilibrium of the past. I n addition, it
would provide a needed assurance that pressures to adjust will apply
more evenhandedly as between countries in surplus and those in deficit.
I n developing its proposals, the United States assumed that most
countries would want to maintain established values for their currencies—par values or central riates—supported by convertibility of currencies into primary reserve assets (SDR's, reserve positions in the
I M F , and gold). I n a convertibility system, there is a danger that
such pressures to adjust as do exist will fall asymmetrically on countries in deficit: Deficit countriies are ultimately forced to take action as
. their stocks of reserves are depleted, whereas there are no equivalent
limitations on the ability of countries in surplus to accuinulate reserves. Thus, in accepting a system of convertibility for the future, the
United States has proposed use of a reserve indicator as a symmetrical
extension of the convertibility mechanism—disproportionate reserve
accumulations would create pressures for surplus countries to adjust,
just as in a convertibility system reserve losses naturally create pressures for adjustment by deficit countries.
The U.S. proposal for a reserve indicator provides a rigorous framework for assuring that the system's tolerance for payments imbalance—and a reasonable degree of tolerance for imbalance is needed—
is consistent with the supply of international reserves available to
.finance such imbalances. If countries generally wish to have, substantial freedom to run imbalances before having to adjust, this will
become clear in decisions on the placement of the reserve indicator
points. They must then be willing to create international reserves on a
scale consistent with the desired scope for imbalance. Too few reserves would invite a destabilizing and ultimately fruitless competition for scarce reserves. Too many reserA^es could unduly relax the system's disciplines and proniote inflationary tendencies.
As part of a more effective and equitable structure of adjustment
rules, the United States has also proposed that the international community be afforded the means to induce countries in deficit or surplus
to undertake adjustment Avlien that was needed. Such inducements
might take the form, for example, of a loss of scheduled SDR allocations, a refusal to provide credit, or, as has also been suggested, a
penalty rate of interest on excessive reserve accumulations. Also, the
United States has proposed that in extreme cases, countries should be
able to protect their interests against the behavior of a chronic surplus
506-171—'73

6




44

1973 REPORT OF THE SECRETARY OF THE TREASURY

country that did not adjust in accordance with agreed rules, by imposing a surcharge on imports from that country.
The expectation, of course, is that in practice such pressures would
rarely if ever need to be used. Once the system were agreed upon,
countries would be expected to operate their policies in accordance
with the basic principle of payments equilibrium—too frequent a use
of severe international pressures would indicate a failure of the system. Nonetheless, the system should be capable ultimately of applying
such pressures, both to make the operating rules more forceful and
meaningful and to safeguard against refusal of a country to live by
the agreed "rules of the game."
Adjustment policies.—It is clear that no international economic
system can function smoothly in the absence of basic stability in the
domestic economies that comprise it. Sound domestic management is
an essential ingredient of a sound international economy, and countries should be expected to follow responsible domestic policies. At the
same time, countries must be allowed the freedom to pursue their
legitimate domestic objectives, having concern for the international
repercussions of the domestic policies they undertake. Nations should
not be expected to undertake policies inappropriate to their domestic
needs—such as, policies to exacerbate a recession or an inflation—in
lieu of alternative adjustment measures.
Within the general framework of freedom of policy choice, howover, the United States has also proposed that use of certain measures
should be made more acceptable than in the past, and that use of others
should be more circumscribed in the new rules.
First, the exchange rate imedhanism must be made more flexible and
accessible as an instrument of adjustment than it was in the Bretton
Woods systeni up to 1971. I t is widely agreed that undue exchange rate
rigidity was a major contributor to the accumulation of huge imbalances in the past. The excessive rigidity of the past is reflected in
the need for two major and unprecedented multilateral realignments
of exchange rates in 1971 and 1973, to provide a rate structure consistent with economic realities and to create a reasonable prospect for
international payments equilibrium. Thus, while the system would be
centered on par values—which themselves should be adjusted promptly
if they became no longer appropriate^—countries should also be allowed to float their currencies in accordance with appropriate standards and under international surveillance, if that were best suited to
t.lieir needs. The United States also proposes that wider margins for
exchange rate fluctuation above and below established par values—on
the order of the margiiis agreed provisionally at the Smithsonian
Institution in 1971—be made a permanent feature of the system, and




REVIEW OF TREASURY OPERATIONS

45

that intervention arrangements be modified to afford the exchange rate
of the U.S. dollar the same ability to fluctuate within the margins that
other currencies enjoy.
Second, the United States believes that the system should be strongly
oriented toward maximum freedom from governmental restraint or
inducement for international trade and investnient. Thus adjustment
in a liberalizing direction, e.g., unilateral reduction of trade restraints
by surplus countries, would be welcomed. And there should be a presumption against use of artificial barriers as a means of payments
adjustment. An equilibrium based on restraints is not really an equilibrium at all. We have proposed specifically that countries should not
be expected to impose controls in lieu of other, more basic, adjustment
measures, and that they should not impose or maintain controls in
order to preserve an inappropriate exchange rate.
Reserve assets.—^The United States has proposed that special drawing rights (SDR's) assume a greatly enhanced role in the future;
specifically that instrument would take on the roles of numeraire (or
unit of account) and central reserve asset in the new system. We have
proposed a number of modifications to the present rules relating to
the SDR to make it a more "streamlined," usable, and attractive asset.
The United States also proposes that the diminishing trend in the
official monetary role of gold be continued, and approaches toward
that end have been discussed. The U.S. position is based on the view
that the liinited supply of gold and competing private demand result
in an availability of gold for official reserves which is wholly unrelated to the system's needs, and that provision of liquidity by means of
official price changes would be inherently destabilizing and would
provide disproportionate benefits to a few without consideration of
the overall needs of the system. The speculative pressures and recent
price gyrations in private markets are further evidence that gold, or
any other commodity, cannot provide a satisfactory and stable basis
for the monetary system.
Finally, the United States envisages a continuing, but diminished
role for currencies in the system. The U.S. plans seek no privileged
or special role for the dollar, and our proposals as a whole would mean
full acceptance by the United States and by all countries of identical
rights and identical obligations. Intervention, and foreign exchange
accruals, might no longer be centered on the dollar and one or two
other currencies, but spread more evenly across a range of currencies.
And the U.S. proposals recognize that possible arrangements to deal
with large existing balances of dollars in foreign official reserves are a
legitiniate subject for the reform discussions.
Nevertheless, provision of some continued scope for currencies in
the systeni would be desirable for two reasons. First, there is no need



46

19 73 REPORT OF THE SECRETARY OF THE TREASURY

for the system to try to eliminate all freedom of reserve portfolio management. Second, allowance for some currency holdings in reserves
can provide elasticity in global and individual countries' reserves,
which may be needed to help cope with large movements of volatile
capital. Without such elasticity of currency holdings, and in the absence of exceptionally large availabilities of "primary" reserves, the
system might easily break again under the strain of speculative disturbances or large movements attributable to other causes.
Institutional arrangements.—While' the United States has as yet not
put forward detailed suggestions for institutional {Change, we have expressed the views that the structure of the International Monetary
Fund should be modified, and that the relations betweeii the Fund and
other organizations with international economic responsibilities should
be closer, more consistent, and better coordinated.
With the considerably stronger international disciplines for adjustment we have, proposed, the Fund—and the international rules
that embody its Articles of Agreement-r-would take on a more influential role. Balance of payments adjustment, through whatever nieans, is
a difficult and politically sensitive matter. I t is the U.S. view that the
activities of the Fund in this critical area, if they are .to be effective,
must involve participation by politically responsive and responsible
officials from the Fund's inember governments. Suggestions for ways
of moving in this direction have been put forward.
Similarly, and in accord with its view of the need for a comprehensive reform of the international econoniy, the United States believes provision must be made for closer ties and better coordination
between the Fund and the institutions having primary responsibility
for the developnient and administration of rules regarding trade and
investment—the General Agreenient on Tariffs and Trade (GATT)
and the Organization for Economic Cooperation and Development
( O E C D ) . Again, the United States has not made,specific proposals for
changes in institutional arrangements, and the questions in this area
have not yet received a great deal of international attention or discussion. This is natural, for the basic issues of substance—^tlie new
codes of behavior—must be decided before institutional questions
relating to the administration of those codes are decided. But it is clear
that the various institutions need to be; brought into closer harmony
if the reformed system is to be coherent and sustainable. . ^
Negotiations on reform—status and outlook.—The proposals put
forward by Secretary Shultz last September and elaiborated subsequently in the Committee of Twenty, prpvided a major focus for the
C-20's work. During the course of the period under review, the Committee met at the Ministerial level twice, and at the level of Deputies
to Ministers on five occasions.



REVIEW OF TREASURY OPERATIONS!

47

The earlier meetings of Deputies were devoted to organization of
their work and identification and clarification of key issues-—^^a process
that at times seems tedious and yields few visible results. Yet the
process is an inevitable and necessary part of the reform effort, for the
issues at stake affect the basic national interests of all countries
involved.
At a meeting in late March, the C)-20 Ministers released a press
communique noting their discussion of some of the broad principles
of a reformed system, pointing to certain areas deserving priority
study and endorsing a more intensive work program by their Deputies.^
Specifically, there was .a broad consensus on the followmg:
(1) The need for a more effective adjustment process with adequate methods to ensure timely and effective adjustment by both surplus and deficit countries (this process to be assisted by improved
consultation in the Fund including the use. of objective indicators) ;
(2) An exchange rate regime based on. stable but„ adjustable par
values, with recognition that floating rates ban provide a useful technique in particular situations;
(3) The need for better management of global liquidity, with the
role of currencies being reduced and the SDR beconiing the principal
reserve asset of the ref ormed system;
(4) The desirability of a strong presumption against the use of
trade controls for balance of payments purposes.
Important as these broad principles are, considerable work remained to define them with precision and make them operative. Following ithis March meeting, the Deputies established several technical
groups to study indicators in the adjustment process, disequilibrating
capital flows, and proposals for creation of a link between the SDR and
development finance. The Deputies met intensively for 5 da^ys, in late
May and again shortly after the end of the fiscal year, in preparation
for a further meeting of Ministers in late July.,
At the close of the fiscal year, many issues of principle, and a number of technical questions of detail having major implications for the
operations of the system, had been defined and expressed, by the Deputies with sufficient precision and clarity that they could be put forward for Ministerial consideration. Following the Ministers meeting
at the end of July, prospects appeared to be good that the Committee
could reach agreement on some of the main principles oi reform at
the September 1973 annual meetings of the I M F in Nairobi. I t is
recognized on all sides, however, that a completed agreement could
not be negotiated until some time beyond the Nairobi meetings and
that, in any event, a considerable further period would be needed to
1 See exhibit 77.




48

1973 REPORT OF THE SECRETARY OF THE TREASURY

work out details of implementation and to obtain necessary legislative
ratification in the member countries.
Foreign exchange developments and operations

The withdrawal by the British of sterling from the Smithsonian exchange rate realignment agreement and the decision by the authorities
to allow sterling to float in late June of 1972 raised questions as to
whether other countries might also decide to cease support for their
currencies at the agreed level. As this fiscal year began, there was considerable speculation that the other E E C countries might allow their
currencies to float separately or as a bloc. In view of the continuing
adverse balance of payments position of the United States, such a move
would have resulted in most cases in an appreciation of these currencies
against the dollar.
As a result, the dollar came under heavy speculative pressure in the
first 2 weeks of July, with over $6 billion being absorbed by various
foreign central banks, primarily the Gerinan, Swiss, Japanese, Dutch,
and French. By mid-month the crisis abated as the market became
convinced that these monetary authorities were prepared to support
the Smithsonian rate structure.
The U.S. authorities decided that the turn in the niarket would be
given a firmer base and enhanced if the United States also demonstrated a willingness to intervene in support of the dollar. I t was announced that the United States was willing to intervene in the exchange
markets upon occasion when it feels it desirable to help deal with speculative forces and reiterated its view that the speculative pressures
growing out of the British decision to float sterling need not affect the
basic exchange rate structure. I t was also noted that use might be made
of the swap facilities, which had been suspended since August 15,1971,
if needed in connection with U.S. exchange niarket operations.
The first such operation, on July 19, was undertaken in deutsche
marks with offerings being made by the Federal Reserve Bank of New
York over a period of a few days. I n August, operations were also
undertaken in Belgian francs. All sales of foreign currencies, either
from preexisting U.S. holdings or frpm small swap drawings, were
soon fully covered by market purchases as the dollar strengthened on
the exchanges.
The total sales in both currencies amounted to $31.5 million, although offerings to the market were larger.
Following the disturbance at the beginning of the year the exchange
markets settled down and the following 6 months were uneventful.
During the period the dollar tended stronger. The proposals for monetary reform made by the United States at the annual meeting of the
I M F and I B R D at the end of September were well received.




REVIEW OF TREASURY OPERATIONS

49

The U.S. balance of payments and trade balance remained in substantial deficit. Even though it was generally well recognized that exchange rate adjustments take a considerable time to make themselves
apparent in balance of payments changes, there was growing concern
that the rate realignment agreed u^Don at the Smithsonian in Deceniber
1971 was not working sufficiently or with sufficient speed. I n this climate, a relatively unimportant event set in motion a chain of events
leading to a new crisis and ultimately to a transitionar regime of essentially fioating exchange rates.
I n January, Italy, with growing downward pressure on the lira,
decided to split its exchange niarket into two tiers, one for capital transactions, which would float, and the other primarily for trade. There
had been a persistent, and at times large, capital outflow from Italy
that stemmed primarily from political uncertainties rather than basic
balance of payments trends. I n this situation, a two-tier systeni similar
to those the French and Belgians had adopted much earlier was considered by the Italian authorities to be desirable. The institution of
this system and the depreciating trend of the financial lira served,
however, to direct some additional capital outflow to Switzerland.
The Swiss franc was already strong and could have been expected
to strengthen further as domestic liquidity was tightened to combat
inflationary trends. These developments moved the Swiss franc to its
ceiling level and generated speculation from other sources and required
the Swiss National Bank to intervene and purchase several hundred
million dollars. I n the face of this influx, the Swiss decided to float the
franc, which promptly appreciated by several percentage points.
The floating and appreciation of the Swiss franc again called into
question the will of the other monetary authorities to maintaiii the
Smithsonian parities and the soundness of these parities. Pressures
grew and in the period of February 1 through 9 over $9 billion was
acquired in support operations by various central banks, of which the
Germans alone absorbed about $6 billion. The United States also intervened in the market by selling $315 million of DM obtained from
Treasury and Federal Reserve balances and by a $105 million drawing
by the Federal Reserve oil its swap line.
Discussions between the United States, Japan, and several European
countries resulted in the closing of markets on February 12 and 13
and announcement by the United States on the evening of Februaiy 12
that a further devaluation of the dollar, amounting to 10 percent,
was proposed and had been agreed. The Japanese yen was to be allowed
to float, as would both tiers of the Italian lira, and the Swiss franc and
British pound would continue their floats. The other major European
countries promptly adjusted their niarket intervention rates to reflect
this proposed devaluation of the dollar.




50

1973 REPORT OF THE SECRETARY OF THE TREASURY

The second devaluation of the dollar in only slightly over 1 year's
time came as a consideraible shock to the market. The credibility of
fixed parities and the will of nionetary authorities to support them
was severely questioned. Although there was general belief that this
further realignment of exchange rates should in time amply restore
the U.S. balance of payments position, there were strong doubts as t o
the maintenance of parities in the face of pressure. After a $1 billion,
reflow out of Germany, the mark climbed to its new ceiling, and there,
was extremely heavy intervention on March 1 by Germany and to a.
lesser extent by other European countries. Markets were again closed;
that is, the central banks withdrew and the currencies were effectively
lefttofloat.
.I
. ,
, .
I n the ensuing weeks the E E C countries of Belgium, ,D!enmark,
France, Germany, and the Netherlands, joined by Norway ..and Sweden,,
agreed that they would resume maintenance of their central rates in
relationship to each other in the 214 band and float jointly against the
dollar and other currencies. Germany had revalued the mark a, further
3 percent and Sweden had devalued by 5 percent in addition to the.
adjustmentsmadeby the proposed dollar devaluation.
.,
The joint float began on March 19, and the dollar strengthened
against other currencies so that until mid-May they traded within the
same range as that which would have been required had the agreed
central rates or parities been maintained. The DM was frequently a t
the bottom of the joint float band and below its now notional central
rate level with the dollar.
^
The relationship between the dollar and the currencies of its two
largest trading partners, Canada and Japan, remained quite stable
throughout the remainder of the fiscal year. I n fact, the yen tended to
weaken and was supported by the Bank of Japan through considerable
dollar sales at the level it had quickly reached when allowed to floatsome 16 percent above its Smithsonian parity. Sterling, which had
depreciated sharply following its flotation the previous year, returned
to trade close to its Smithsonian parity, as did the Italian lira, which
continued to be subjected to speculative outflows.
The European joint floaters began, however, to show an appreciation
of their currencies around mid-May, and by the end of the fiscal year
and after some erratic adjustments, were trading about 10 percent
above the central or parity levels agreed earlier in the year, or well
over 20 percent above the Smithsonian rates.
Strong anti-inflationary measures in Germany caused the DM in
particular to show strength, and by late June it traded at the top
of the joint float band requiring considerable intervention to maintain
the joint float relationship and pulling other currencies in the joint
float upward against the dollar. T h e intervention was undertaken in




REVIEW OF TREASURY OPERATIONS!

51

the currencies of the countries concerned and not in dollars. To alleviate the strain on the joint float and also abate the inflow of funds
to Germany, which ran counter to their monetary policy, Germany,
on June 29, revalued the DM by 5.5 percent.
The price of gold in the private markets had reached around $65
per ounce at the beginning of the fiscal year, climbed to $70 in early
August and returned to $65 at the end of December, after falling at
times to $60. Not much change was evident in January, but beginning
in February the price began to move upward, reaching a high at the
London fixing of $89 late in the month. Prices of around $90 continued
to be maintained until the second week of May, when there was another
sharp advance. A high of $127 was reached on May 5, after which the
price subsided somewhat to finish the year around $123 per ounce, an
increase of $62, nearly double the price of a year earlier.
To a large extent the movement in the gold price paralleled activity
in the exchange markets. The general uncertainties concerning the
future exchange rates of all currencies encouraged speculation and investment in gold, as did the tight exchange controls imposed by many
countries designed to inhibit inflows and which made speculation in
those currencies more difficult. The rise in the gold price and the appreciation of some European currencies against the dollar had a
ratcheting effect on each other, tending to move both aJbove levels they
would probably otherwise have attained.
International Monetary Fund^

Fiscal 1973 was a period of relatively little activity in the IMF's
financial accounts. With the continuation of strong reserve and balance
of paynients positions in most major countries, and the introduction of
floating exchange rates by a number of countries in March 1973,
most of the industrial nations did not require recourse to I M F credit
duringtheyear.
Purchases of currency (drawings) by I M F members totaled the
equivalent of $1.4 billion, somewhat below the level of the preceding
year. A large drawing was made by the United Kingdom in July 1972,
amounting to the equivalent of $704 million or half of total drawings
from the Fund during the entire year. Principal currencies drawn
were the German mark (in the equivalent of $370.6 million) ; the
French franc ($181.4 million) ; and the Japanese yen ($140.9 million).
Special drawing rights were drawn in the amount of $365 million
equivalent. The U.S. balance of payments was in deficit throughout
much of the period, and no drawings were made in U.S. dollars.
1 Legislation to devalue the dollar (exhibit 52) was pending at the end of the fiscal year.
The figures used in this section are reported in dollars having the new par value which will
result from this legislation.




52

19 73 REPORT OF THE SECRETARY OF THE TREASURY

Currency repurchases (repayments) totaled the equivalent of $597.0
million, well below the large repayments recorded in fiscal 1972.
Repurchases were concentrated in the currencies of Germany, France,
and Belgium, and in SDR's. I M F holdings of dollars exceeded 75
percent of the U.S. quota in the I M F throughout the period, and,
consequently, dollars were not eligible for use in repurchases.
As of June 30, 1973, cumulative drawings from the beginning of
I M F operations amounted to the equivalent of $31.1 billion, of which
$9.5 billion was in U.S. dollars; cumulative repurchases amounted to
the equivalent of $18.9 billion, of which $5.6 billion was in U.S.
dollars.
No transactions were conducted under the General Arrangements to
Borrow (GAB) during the year. As of June 30, 1973, amounts available under the GAB totaled the equivalent of $7.1 billion.
As a result of various minor transactions, the U.S. reserve position
in the I M F increased by a sniall amount during the period. As of
June 30, 1973, the U.S. reserve position amounted to $522 million,
consisting of the balance of the U.S. gold tranche position.
Organization for Economic Cooperation and Development

Secretary Shultz led the U.S. delegation to the 12th Ministerial
Council meeting of the O E C D in Paris June 6-8, 1973.' With inflation widespread throughout the world economy, a primary focus
of the meeting was on action nations could take to reinforce their
efforts to reduce price pressures. The Ministers also reaffirmed the appropriateness of the exchange rate structure negotiated earlier in the
year while pointing to their intention to maintain orderly exchange
markets in the transition period leading to a reformed monetary
system. The OECD's role in reform of the international economic
system was reviewed, and the Executive Committee of the Organization was instructed to press forward with its work on international
investment. Ministers also considered cooperative measures that niight
be undertaken to respond to the long-term energy problem and to
assure adequate energy supplies.
During the 3^ear, the O E C D was intensively involved in efforts to
reform the international economie systeni. Recognizing the significant impact of international investment on trade and monetary relations, the Executive Committee meeting in special sessioii developed
a work j)rogram for examining the issues related to international investment including the operations of multinational companies. The
role of trade safeguards and problems associated with agriculture will
also be considered by the Executive Committee as part of the reform
1 See exhibit 57.




REVIEW OF • TREASURY OPERATIONS

53

effort. Deputy Under Secretary Bennett represented the De]3artment
of the Treasury on the U.S. delegation to the Executive Committee
special sessions.
During fiscal 1973, the O E C D Council agreed to terminate the European Monetary Agreement ( E M A ) , effective December 31, 1972, in
recognition of the fact that its main purpose—to facilitate the return
to external convertibility in Western Europe—^had been achieved. As
a result, assets totaling $355.5 million were returned to the United
States, representing the U.S. contribution to the EMiA of $271.6
million, plus $84 million in earnings on our contribution. Of the total
returned, $118 million was in the form of liquid assets, $123.5 million
involved the cancellation of an undrawn E M A account with the U.S.
Government, and $114 million took the form of a long-term claim on
Turkey which had been consolidated by the O E C D prior to transfer
to the United States. Arrangements between European members of
the E M A for guaranteeing the exchange value of foreign exchange
working balances were continued, and a new O E C D Conimittee for
Monetary and Foreign Exchange Matters was established to replace
consultative arrangements provided for in the EMA.
The Economic Policy Committee's working party on balance of
paynients matters ( W P - 3 ) met periodically during the year to consider problems of the transition to, and prospects for, a more balanced
world payments position resulting from the Smithsonian and February 1973 exchange rate realignments. The decisions in March by major
industrial countries to float their currencies (either individually or
jointly) raised new issues for the working party's consideration. The
Treasury, represented by Deputy Under Secretary Bennett, continued
to lead the U.S. delegation, as well as serve on the U.S. delegation to
the Economic Policy Committee itself. Treasury officials played leading roles in the work of the Economic Policy Committee's Working
Group on Short-Term Economic Prospects and in an experts group
established by W P - 3 to consider problems of adjusting balance of
payments figures to take into account cyclical developments.
Treasury involvement in O E C D affairs remained at a high level in
fiscal 1973. I n addition to the activities alread}^ mentioned, a Treasury
official continued as chairman of the Committee on Fiscal Affairs as
it undertook a broad work prograni in the tax area, covering the impact of depreciation rules, taxation of multinational corporations and
a revised model tax convention. Treasury also headed the U.S. delegation to the Group on Export Credit and Credit Guarantees in which
attention was focused on export financing terras for commercial aircraft, nuclear power stations, and ground satellite facilities. The Committee on Financial Markets, with Treasury participation, continued




54

1973 REPORT OF THE SECRETARY OF THE TREASURY

its review of problems and trends in international financial, including
Euro-, markets. As part of its task of iniproving caj)ital markets, it is
engaged in examining disclosure requirements for securities, national
policies regarding housing finance, and the adequacy of financial statistics. A Treasury official served as a member of the Committee for
Invisible Transactions. A major restructuring of the Economic Policy
Committee's Working P a r t y 2 on Economic Growth occurred in fiscal
1973, with greater emphasis being placed on resource allocation among
competing economic objectives. Treasury officials are participating in
efforts to develop common international expenditures, statistics as a
first step in the new work program contemplated for the working
party.
Treasury, officials are continuing to work closely with other agencies
in the work of the OECD Trade Committee and the Development Assistance Committee. Much of the work of the Trade Committee in the
past year was related to trade issues raised in the Executive Committee
in special session. The Trade Committee has discussed internal measures that affect trade, outlines of an international safegnards system,
and problems of international trade in agriculture. I n addition, the
Trade Committee Working Party on Government Procurement developed draft guidelines which were sent to the Trade Committee for
its consideration. The Development Assistance Committee devoted a
considerable amount of its attention during the fiscal year to the problems posed for the developing countries,by their external indebtedness.
U.S. balance of payments

All of the commonly used measures of the U.S. payments balance
for fiscal 1973 showed improvement over their fiscal 1972 levels. The
improvement actually shown in the balances with broadest coverage—
the official settlements and liquidity balances—amounted to $6.0 billion and $2.4 billipn, respectively. However, these balances were
strongly affected by speculative capital flows which obscured the underlying developments. The annual balances also obscure the differences of the trends in the more basic categories of transactions
which indicate a considerable strengthening in the U.S. payments
position between the first and second halves of fiscal 1973.
During the first half of the fiscal year, both the trade balance and
the various measures of overall balance were in substantial deficit,
though somewhat improved from their levels during the latter half of
fiscal 1972. There were several significant sources of improvement during the period, including substantial increases in agricultural exports.
The improvement in the trade balance on nonagricultural foods, however, may have been retarded somewhat by the fact that our major
trading partners, though embarked oh a cyclical expansion, had not




REVIEW OF TREASURY OPEiRATIONS

55

yet approached peak levels of demand, while the United States was
well along in its strong domestic expansion.
Other sources of' improvement during the first half of the fiscal
year included a substantial increase in foreign purchases of U.S. securities, especially stocks, and a large increase in U.S. receipts of income from foreign diriect investments. The rise in foreigii purchases
of U.S. stocks was in part related to recovery in the New York Stock
. Exchange. The growth in investnient income receipts came largely in
the October-December quarter, and relate in part to the rapid rise in
earnings from foreign investments reported by U.S. oil companies. A
negative factor during the October-December quarter was a substantial increase in U.S. bank loans to foreigners, which was repeated in
the following quarter.
The drastic deterioration in the liquidity and official reserve transactions balances during the third (January-March) quarter of fiscal
1973 was largely due to capital flows in conjunction with the February
1973 exchange crisis. Thus $10 billion of the year's $16 billion official
transactions deficit came in this quarter. The causes for the February
crisis are, of course, complex. I t appears that it was started by
developments abroad which were not related to_the.U.S. balance of
payments, but the slow recovery in the U.S. payments position in the
second half of last year relative to observers' hopes or expectations
probably contributed to the intensity of the crisis, which was fed by a
large outflow of U.S. funds and of foreign funds previously, invested
in liquid assets in the United States. Notwithstanding these large outflows of capital, the favorable trends in exports (especially agricultural products) and in investment incomes continued. Foreign purchases of investment securities, which were still very high i n January,
declined in the following months.
The period after March, when the requirement to maintain the exchange rate of the dollar with major currencies ..within specified margins was suspended, saw substantial continued iniprovement in the
U.S. trade and other transactions. The trade account continued to
strengthen during the April-June quarter, with further increases in
exports coming not only in the agricultural sector but also in industrial products and finished manufactures. I n addition, U.S. import
growth slackened somewhat. These developments were undoubtedly
stimulated by cyclically strong demand conditions in the economies
of our major trading partners. The changes in the exchange rate of the
dollar also contributed to the improvement in the trade balance although these changes are not likely to have shown.their full effect because, for the first time in the post-World W a r I I period, simultaneous
high levels of capacity utilization in all major industrial countries may




56

19 73 REPORT OF THE SECRETARY OF THE TREASURY

have limited opportunities or incentives for suppliers to compete with
each other.
Investment income receipts also continued at high levels during the
last 3 months of the fiscal year. I n addition, there were substantial reflows of liquid funds back to the United States, presumably in part reflecting an unwinding of earlier outflows in conjunction with the February exchange crisis. Also benefiting the capital account was a decline
in direct investment outflows.
Significant negative elements during the fourth quarter of the fiscal
year included a decline in foreign purchases of U.S. securities, and
a high level of capital outflows in the form of bank loans. Such loans
peaked in the January-March quarter, but remained very large during
the April-June period.
As a net result of these developments during the fiscal year, the
two balances perhaps the most frequently watched as indicators of the
underlying strength of the dollar^—the trade balance and the balance
on current and long-term capital account—showed substantial improvement over the course of the fiscal year.
Treasury foreign exchange reporting system

The international monetary disturbances that occurred during the
early part of calendar 1973 were accompanied by large movements
of funds out of the United States and from the dollar into foreign currencies. A large part of these movements appeared likely to escape
the established statistical reporting systems for the balance of payments. I n view of the need for an adequate explanation of these
events, the Departments of the Treasury and Commerce took steps to
ensure that the capital movements statistics for the first quarter of
1973 would be as complete and accurate as possible, and to obtain a
more complete understanding of the nature of these movements of
funds.
On April 23, 1973, Secretary Shultz and Secretary of Commerce
Dent sent a joint letter to the presidents of business firms in the United
States which file regular statistical reports on their international
capital transactions with either or both of the Departments for use
in the U.S. balance of payments statistics.^ The letter requested that
the companies undertake a policy level review of the statistical data
reported on the Treasury and Commerce forms for the first quarter
of 1973, to ensure their completeness, consistency, and accuracy.
Toward the end of the fiscal year, a second letter was sent by Secretary Shultz and Secretary Dent to a sniall nuniber of representative
companies, proposing joint meetings between senior experts of the
1 See exhibit 78.




REVIEW OF TREASURY OPERATIONS
''••

57

U.S. Mlance of payments, fiscal years 1972-73'^[In millions of dollars]

Fiscall972 Fiscall973

Trade (balanceof payments basis)!
Exports
Imports

_

2d half

-5,504

-

-_-

Travel...---.

-

-4,508

-3,318

44,299

57,642

25,575

32,067

-49,803 ' -62,150

---:

-1,190"

-28,893

-33,257
-1,064

-1,945

Payments...
Dividends, interest and branch profits

-2,476

-2,671

-3,262

-1,710

-1,552

1,524

.

1,607

-5,147

1,349

549

-4,905

Receipts

' 1,382

-3,381

Military

-1,094

2,989

-4,549

Payments

-2,158

2,604

Receipts

-4,611

-2,259

-2,352
3,137

5,484

Payments
-

--.

Balance on goods and services "
^
Private remittances, Government pensions, and other
transfers
-U.S. Government economic g r a n t s . . - - . .
.--.
Balance on current account
U.S. Government capital, net3
..U.S. direct investment abroad-—-.
Purchases and sales of foreign securi ties-U.S. long-term bank and nonbank claims.
Total transactions in long-term U.S. capital invested abroad
Total long-term foreign capital invested in the
United States 4
Balance on current account and long-term capital
Nonliciuid short-term capitals
SD R allocation
Errors and omissions
.Net liquidity balance ^
.
Change in net hquid liabilities to private foreigners
Balance on official reserve transactions...
Changes in reserve asset s (-|-=decrease):
Gold
-—
..SDR's
Convertible cmTcncies
=---;3-IMF gold tranche position
_
Changes in U.S. habihties to foreign official agencies (+ =
increase)
-

3,014

13,173

6,100

-5,409

.-

6,151

10,893

Receipts....

Other services

Fiscal 1973
1st half

-7,022

800

7,073

-3,086

-3,936
1,435

2,266

2,734

1,299

-3,080

—1,043

—1,809

-1,580
-2,263
—6,923
-1,182
-3,830
—1,017
-1,222

-1,580
-1,927
—4,550
-2,053
-5,102
92
-1,646

-802
-1,033
—3,644
-1,136
-1,919
169
-859 .

-778
-894
—906
-917
-3,183
—77
-787

-7,251

-8,709

-3,745

-4,964

3,369
—10,805
-1,563
714
-7,440
-19,094
—3,015
-22,109

7,322
—5,937
-4,259
354
-6,808
-16,650
519
-16,131

3,181
—4,208
-1,412
354
-3,116
-8,382
2,374
-6,008

4,141
—1,729
-2,847
-3,692
-8,268
—1,855
-10,123

845
-560
-107
1,027

3
-345
449
-36

.3
-354
216
-31

9
233
-5

20,904

16,060

6,174

9,886

766

* All data are based on seasonally adjusted quarterly data.
1 Differences between these figm-es and those published by the Bureau of the Census are due to adjustments for valuations, timing, coverage, and to the exclusion of DOD miUtary export sales and military
import purchases.
2 Equal to net exports of goods and services in national income and product accounts of the United States.
3 Includes nonscheduled debt repayments to the United States.
4 Includes U.S. Govermnent nonliquid habihties to other than foreign official reserve agencies.
5 Includes certain U.S. short-term bank and nonbank claims and all short-term habilities of nonbanks.
6 Differs from old liquidity basis by treating some short-term bank and nonbank claims and "nonliquid"
Uabilities to foreign official reserve agencies as below the line items.
Sou;rce: Department of Commerce, "The U.S. Balance of Payments: Revised Presentation," Survey of
Cm-rent Business, June and September 1973.




58

1973 REPORT OF THE SECRETARY OF THE TREASURY

Departments of the Treasury and Commerce and the Federal Eeser^^s*^
System, and representatives of the companies, to discuss the reporting
of international capital transactions in greater depth and detail and to
explore ways in which the statistical systems niight be improved.
Trade policy

Fiscal 1973 has been marked by a number of significant events in
the trade policy area. A variety of new issues demanded attention—
the entry into force of the treaties implementing the enlarged European Communities and the E C - E F T A arrangements, the movement
in the G A T T to prepare for a new round of trade negotiations, and
presentation to Congress by the administration of a major new trade
bill. I n addition, work has continued in a number of areas discussed
in this report last year, notably in East-West trade and in discussions
Avith the Japanese concerning liberalization of their trading systeni.
Much attention has been focused on the enlargement of the E C from
six to nine members on January 1, 1973, and the entry into force of
the EC-EFTA-nonapplicant arrangement on April 1, 1973,* because
it is feared tlita these events will have a negative effect on our trade
balance and, more broadly, on the optimal distribution of the world's
resources. Consequently, in February 1973 the United States initiated
consultations in the G A T T on the E C - E F T A arrangements, and in
March we agreed to put aside our ongoing discussions with the Europeans on the consistency of the enlarged E C with the G A T T in order
to begin item-by-item renegotiations ( G A T T Article 23:6) on. the
many bound items in the tariff schedules of the acceding countries
which have increased or will increase as a result of enlargement. The
United States has made clear to the parties concerned in both cases
that if we do not receive satisfaction in the G A T T discussions, we will
reserve our rights to offset damage to our trade.
Fiscal 1973 also saw the continuation of the series of bilateral consultations begun in 1971 to encourage the Japanese to remove the
structural impediments to foreign participation in the Japanese trading system and to liberalize Japanese import restrictions and internal
barriers to imported products. Although much progress remains to
be made, the Japanese did unilaterally lower the bulk of their tariffs,
set schedules for lowering and/or phasing out most of their industrial import quotas, and undertake a broad capital liberalization
program.
The United States has also continued to work for increased trade
with the nonmarket economy countries in the belief that the normalization of these relations is essential in our increasingly interdependent
•This includes all of the EFTA members which did not join the EC with the exception of
Norway, scheduled to join on July 1, 1973, and Finland, which has initialed but not signed
an agreement.




REVIEW OF TREASURY OPERATIONS

59

world. The most notable of our actions takeii in this field in fiscal
1973 was the conclusion of a trade agreement in October 1972 between
the United States and the U.S.S.R. The agreement includes provisions
for most-favored-nation treatment and a tripling of our bilateral trade
over fhe next 3 years. Congress must, however, enact legislation giving
the President authority to extend niost-favored-nation status before
this trade agreement can enter into force. Such enabling authority
is included in the administration's Trade Reform Act of 1973. I n
addition, in June 1973, additional ]3rotocols were signed with the
U.S.S.R. concerning agricultural cooperation and the promotion of
commercial relations between the two countries.
All of these actions are expected to lead to the more efficient and
equitable operation of the world trading systeni. I n the longer term,
however, ref orm of the trading system must parallel changes in the
nionetary area. Fiscal 1973 saw substantial, progress in preparing for
the new round of trade negotiations intended to achieve these broader
reforms. A t the 28th session of the G A T T contracting parties in November 1972 the United States, the E C , and J a p a n were joined by the
other contracting parties in a statement of intent to undertake such
negotiations beginning in September 1973. They also set up a preparatory comniittee which met periodically to prepare for a Ministerial
meeting in September. The negotiations, to begin formally at the
September meeting, are expected to result not only in further tariff
reductipns but also in progress toward liberalizing nontariff barriers
to trade in both the industrial and agricultural sectors. Finally, the
negotiations are to examine the adequacy of the rules of the current
trading systeni. All of these subjects, particularly nontariff barriers,
were the focus of the G A T T work program in fiscal 1973.
I n order for the United States to participate in the negotiations, the
administration submitted to Congress on April 10, 1973, the Trade
Reform Act of 1973. The bill would provide,the necessary authority
to allow the United States to join in negotiating a more open and
equitable world trading system. I t contains provisions to allow the
President to raise ahd lower tariffs and to negotiate nontariff barriers;
to deal effectively with rapid increases of imports that disrupt domestic
markets and displacfe; American workers; to strengthen our ability to
meet mifair competitive practices; to manage our trade policy more
effectively; t o take extraordinary trade measures to deal with domestic
inflation or balance of payments problems; to normalize our relations
with the nonmarket econoniy countries by permitting the President
to grant them most-favored-nation status; and to assist developing
countries by implementing a generalized system of preferences.^
1 See exhibit 55(.
506-171—73-




60

19 73 REPORT OF THE SECRETARY OF THE TREASURY

Fiscal 1973 was, thus, a very active year in the trade field. There was
also evidence during this period of a reversal in the negative trend in
our trade account. The last 6 months of fiscal 1973 saw a trade deficit
of $810 million as compared with $5.5 billion of the same period of
fiscal 1972. Although much of this improvement came from the increased value of agricultural commodities which comprised an increasingly large proportion of our exports, we hope that the figures also
reflect the increased competitiveness of U.S. goods as the result of the
exchange rate changes of the past 2 years.
International investment and capital flows

I n fiscal 1973 there were, several notable developments which have
had and will continue to have considerable impact on the nature, direction, and magnitude of capital flows and international investment.
International examination of investment issues,—In his September 1972 address at the annual meeting of the International Monetary
Fund, Secretary Shultz emphasized the interrelation between monetary, trade, and investment aspects of efforts to reform the international monetary system.^
The President, in his April 10,1973, message to Congress proposing
the Trade Ref orm Act of 1973, voiced the U.S. position on international investment by encouraging an open system, "one which eliminates artificial incentives or impediments here and abroad." The President further urged that Congress refrain from enacting broad changes
in U.S. laws governing direct foreign investment until it is clear what
agreements emerge from multilateral discussions.
Following on this theme. Secretary Shultz at the June 1973 meeting
of the O E C D Ministers reiterated the need to supplement negotiations
in the monetary and trade areas with international discussions on policies and practices w:hich affect international investments.^ H e emphasized in his address t h a t :
We need new principles, new mechanisms, new information
systems, in short, international guidelines for investment which
will alert us to conflicts of dnterpst among government policies
affecting investment, iand which will provide standards by which
these policies can be assessed and conflicts reduced.
This has become increasingly necessary due to the actual and potential
spreading of investment policies, such as, incentives and subsidy programs, which may distort the patterns of international trade, production, and hivestment. I n the absence of appropriate international understandings and cooperation, their continued use and expansion could
lead to conflicts among the economic policies of many countries.
1 See exhibit 48.
a See exhibit 57.




REVIEW OF TREASURY OPERATIONS

61

'The O E C D Ministers at their meeting in June 1973 instructed the
OECD's Executive Committee in special session to press forward with
its work on international investment, including the multinational corporations. The United States strongly supports this examination of
investment policies as an integral part of a broad effort to improve the
international economic system as a whole.
The phaseout of U,S, capital control programs,—Perhaps the most
important operative policy decision during the past year regarding
capital flows was the decision to phase out U.S. programs that restrain
the outflow of capital. I n Secretary Shultz' statement on foreign economic policy on February 12, 1973,^ which announced changes in the
dollar exchange rate relationship, the Secretary stated t h a t :
. . . in coordination with the Secretary of Commerce, we shall
phase out the interest equalization tax and the controls of the Office
of Foreign Direct Investment. Both controls will be terminated
at the latest by December 31,1974.
I am advised that the Federal Reserve Board will consider
comparable steps for their voluntary foreign credit restraint
program.
The phasing-out of the restraints on capital flows is appropriate in the
light of the administration's broad objective of reducing governmental control over private investment and is based on the confidence
that the eventual termination will coincide with a noticeable improvement in our balance of payments position.
The Secretary's announcement was further amplified in the communique of the Ministerial meeting of the Group of Ten and the European Economic Community released in Paris on March 16, 1973,^
which stated t h a t : "The United States authorities emphasized that the
phasing out of their controls of longer-term capital outflows by the
end of 1974: was intended to coincide with strong improvement in the
United States balance of payments position. Any step taken during the
interim period toward the elimination of these controls would take due
account of exchange-market conditions and the balance of paynients
trends." Additionally, the communique noted that ". . . United States
authorities are also reviewing actions that may be appropriate to remove inhibitions on the inflow of capital into the United States."
The interest equalization tax {lET),—Although the administration
had announced that it would phase out the capital control programs by
the end of 1974, the specific steps for implementing this action were
not immediately formulated. I n fact, faced with the impending expiration of the l E T legislation on March 31,1973, Under Secretary Volc1 See exhibit 51.
« See exhibit 65.




62

1973 REPORT OF THE SECRETARY OF THE TREASURY

ker appeared before the Senate Committee oh Finance on March 7
to propose the extension of the l E T for 2 years. He had earlier testified
before the House Ways and Means Committee in support of the same
proposal.^
Mr. Volcker emphasized that the Gbvernment is pursuing policies
at home and internationally to bring an end to the balance of payments
deficit and that the two exchange rate realignments had produced a
realistic base for repairing the trade and payments position, which,
however, would take time. As the beneficial effects of the exchange
rate realignments worked themselves out and as the administration
took other steps such as trade negotiations and domestic economic
action to restore our basic balance of payments position and to maintain our competitive edge, it was iinportant that these objectives not
be hampered by a precipitous dismantling of the l E T and the other
capital restraint programs. I t was for this reason that the administration asked for an extension of the l E T even though its ultimate
phaseout had already been announced.
Congress approved the extension until June 30, 1974. The l E T Extension Act, which was signed on April 10,1973, included several new
amendments, the most im^Dortant of which are: (1) Elimination of
U.S. estate tax on debt obligations sold to foreigners by U.S. corporations that elect to have such issues subject to l E T when sold to Americans; (2) exemption from l E T (under certain conditions) of stocks
or bonds issued by foreigners for the purpose of providing a portion
of financing for foreign direct investment into the United States;
and (3) elimination from the less developed countries' exemption from
the l E T of obligations issued by shipping companies located in the
less developed countries.
International development banks

During fiscal 1973, substantial but belated U.S. contributions were
made to two of the institutions of which the United States is a member—$320 million to the International Development Association
(IDA) and $418.4 million to the Inter-American Development Bank
( I D B ) . These efforts covered the first installment of the U.S. contribution to the third replenishment of IDA, originally scheduled for
fiscal 1972, and increases in the Ordinary Capital and the Fund for
Special Operations (FSO) of the I D B . The I D B contributions, however, only covered half of the amounts requested in the fiscal 1973
budget. As a result of this and previous failures to appropriate requested contributions to the several international development institutions, the United States was behind schedule on such contributions
at the end of fiscal 1973 by close to $1.5 billion.
1 See exhibits 41 and 42.




REVIEW OF TREASURY OPERATIONS

63

Lending activity by the several institutions continued to expand
during fiscal 1973—from $3.9 billion in 1972 to $4.6 billion. The largest
increases were on the part of the I D A and the IDB's F S O .
The World Bank group

The I B R D and its affiliates, the I D A and the I F C , committed a total
of $3.6 billion during the fiscal year—15 percent more than in fiscal
1972—for financing economic development projects in the member
countries. The I B R D made new loans to its members totaling $2,051
million, $85 million more than in the previous fiscal year. While the
bulk of its lending operations continued to be for physical infrastructure and industry, there was a sharp increase in loans for agriculture
and education. I D A credits increased sharply from $1 billion in 1972
to $1.36 billion, with agriculture and transportatioii the major lending
sectors. I F C investnients in equity and loans, to the private sector
without government guarantee, totaled $147 million, largely for manufacturing.
The loan operations pf the World Bank are financed by paid-in
capital subscriptions, funds borrowed in capital markets, sales of
participations, principal repayments on loans, aiid earnings on loans
and investments; but borrowed funds are now by far the most important source. During the year the Bank's outstanding funded debt
increased by $1,931 million, of which $1,005 million reflected the results of exchange realignments, to the equivalent of $8,882 million. The
d^bt is denominated chiefly in U.S. dollars ($3,481.9 million), deutsche
marks ($2,590.8 million equivalent), Japanese yen ($1,769.3 million
equivalent), and Swiss francs ($586.0 million equivalent).
The World Bank's borrowings during the year totaled $1,723 million
equivalent, compared with $1,744 million in 1972 and $1,368 million in
1971. J a p a n was the largest source, providing the equivalent of $605
million. Borrowings in Germany amounted to the equivalent of $371
million and borrowings in Kuwait to $122 million equivalent. There
were no borrowings in the United States.
The $1,723 million borrowed by the World Bank in fiscal 1973
included $1,208 million equivalent sold to raise new funds and $518
million equivalent of refundings. I n addition, the Bank signed a loan
agreement with the Bank of J a p a n to borrow up to Y135,000 million
over the period from February 1973 to February 1974, but had borrowed only Y40,000 million ($144.4 million equivalent), of this as of
June 30,1973.
The Bank's obligations are marketed widely, as is indicated by the
estimated division of holdings by investors as of June 30,1973—about
27 percent in the United States, 29 percent in Germany, 16 percent in
Japan, 5 percent in Switzerland, and 4 percent in Kuwait. The remain-




64

19 73 REPORT OF THE SECRETARY OF THE TREASURY

ing 19 j)erceiit is held largely by central banks and other governmental
accounts.
During the fiscal year, subscriptions to the Bank's capital stock increased by the equivalent of $691.1 million in 1944 dollars. Of this,
$383.9 million represented further special increases under a resolution
passed by the Bank's Board of Governors in fiscal 1971. If fully subscribed, the selective increases would raise the subscribed capital of
the Bank by the equivalent of $2,222 million in 1944 dollars to about
$25.8 billion (in current dollars, about $31.1 billion). The U.S. share
of the increase, $246.1 million, was authorized by Congress in fiscal
1971 but only half was ap^oropriated. The U.S. payment of this portioii
as well as a payment for maintenance of value was made early in fiscal
1973.
I D A credits are funded largely by member subscriptions and contributions and grants from the net earnings of the World Bank. IDA's
usable resources, cumulative to June 30, 1973, amounted to $7,133
million of which part I (developed) countries had contributed $6,133
million and I B R D grants supplied $702 million. Earnings and repayments on outstanding credits, together with contributions of part I I
(developing) and nonmember countries and exchange profits, made
u]3 the balance. As of June 30, 1973, $6,167 million of these resources
had been committed, leaving a balance of approximately $966 million
available for lending. These resources are expected to be fully committed by June 30,1974.
The third replenishment of IDA's resources, approved by the Board
of Governors on February 17, 1971, to cover the 3-year period beginning with fiscal 1972, becanie effective on September 22, 1972, when
the United States formally notified the Association that it would participate. Legislation to authorize the U.S. contribution of $960 million
had been subniitted to Congress in May 1971 and approved in March
1972, but payment of the first installment was not authorized until
September 1972.
As of June 30,1973, a fourth replenishiment was under discussion but
there had been no agreement on the level of replenishment or the U.S.
share.
Inter-American Development Bank

During fiscal 1973, the I D B committed a total of $730.9 million
from its two windows, almost $200 million more than during the previous fiscal year. Of this, $285.8 million was loaned on hard terms from
Ordinary Capital resources and $445.1 million on soft terms from the
Fund for Special Operations. I n addition, the I D B committed $7
million in administered funds.




REVIEW OF TREASURY OPERATIONS

65

As of June 30, 1973, cumulative lending by the I D B from its own
resources totaled $5.1 billion. Of this, $2.3 billion had been loaned from
the Ordinary Capital and $2.8 billion from the Fund for Special
Operations. I n addition, the I D B had lent $591 million from funds it
was administering. These loans served to mobilize resources from local
contributions in member countries a;lmost two times greater than their
own level.
During fiscal 1973, three sectors—transportation, iiower, and agriculture—received most of the funds committed. About 26 percent,
$191.0 million, went to power. The agriculture and transportatioii
sectors received $141.5 million and $105.0 million, respectively. On a
cumulative basis, agriculture has received the largest amount of funds,
$1,230.3 million (24 percent) ; power is second, with $947.1 million
(18 percent).
The subscribed capital of the I D B totaled $5,139.3 million equivalent
on June 30, 1973, of which $4,300.9 million was callable capital. The
resources of the Bank's Fund for Special Operations totaled $4,096.7
million equivalent on June 30,1973.
I n fiscal 1973, the I D B borrowed $119 million net, with new resources obtained from Europe, Latin America, and Japan. This compares with $97 million in the preceding fiscal year. Borrowings (gross)
included $41.7 million from Germany, $27.9 million from Switzerland, $24.4 million from France, $13.8 million from Spain, and $11.3
million from Japan. Additionally, $53.4 million of 2-year bonds was
sold to Latin American countries. The IDB's funded debt on June 30,
1973, amounted to the equivalent of $1,287 million.
At the l l t h amiual meeting (April 1970) in Punta del Este, Uruguay, the Governors had agreed to intensify their efforts to bring other
developed countries into a closer relationship with the Bank. A number
of developed countries are expected to join as nonregional members.
During the fiscal year, Congress authorized payment of half the
amounts requested in the budget, or $193 million for Ordinary Capital
and $225 million for the Fund for Special Operations.
The 14th annual meeting was held in Kingston, Jamaica, May 7 10, 1973. The U.S. delegation was headed by Secretary Shultz.^
The Asian Development Bank

During fiscal 1973, the A D B committed a total of $357.3 million,
$235.9 million from Ordinary Capital and $121.4 million from Special
Funds. This brought the Bank's cumulative total of loans to $1,045.0
million—$799.0 million from Ordinary Capital and $246.0 million
from Special Funds. As of June 30, 1973, the Bank had also undertaken 105 technical assistance projects.
1 See exhibit 54.




66

19 73 REPORT OF THE SECRETARY OF THE TREASURY

111 the last quarter of calendar 1972,, an increase became effective in
the capital stock of the Bank by 150 percent to nearly $3 billion (current dollars). Authorization for a U.S. contribution to this increase
of $363 million is being requested, and the first of three annual installments of $121 million is included in the fiscal 1974 budget.
With the accession to membership bf Bangladesh, Burma, and the
British Solomon Islands, the Bank's membership reached 4 0 ^ 2 6
regional and 14 nonregional—with subscriptions totaling the equivalent of $2,324 million.^ Of this, 32 percent was paid-in capital.
During fiscal 1973, the Bank did not enter the U.S. capital market
but borrowed $42.0 million outside the United States. Total funded
debt at the end of the fiscal year was $209.1 million.
As of March 31,1973, 9 countries have contributed $250.6 million to
the Bank's Special Funds (apart from technical assistance) ; in addition, $29.6 million has been set aside from Ordinary Capital resources for such lending.
On January 26, 1971, President Mxon forwarded a message to the
Congress urging authorization of a $100 million U.S. contribution to
the Bank's Special Funds. This contribution was authorized on March
10,1972, but appropriations are still pending before the Congress.
At the end of the fiscal year, the A D B was in the process of refining
a proposal for a new unified Special; Fund. Under this proposal, a
fund of $525 million would be established for a 3-year commitment
period with contributions on the basis of an agreed formula. The
suggested U.S. share would be $150 million;.the already authprized
$100 million voluntary contribution would be accepted toward this
share.
I
The sixth annual meeting of the Bank's Board of Governors was
held in Manila, Philippines, April 26-28, 1973. Under Secretary
Volcker headed the U.S. delegation.^
Debt rescheduling

The Department of the Treasury has recently taken an increasingly
active role in shaping and presenting the U.S. position in bilateral and
multilateral debt reschedulings. At the direction of the President,
Treasury headed the U.S. delegations to discussions on Chile debt rescheduling in fiscal years 1972 and 1973.
I n fiscal 1973, there were multilateral debt discussions on the Chile,
Ghana, India, and Pakistan/Bangladesh debt situations. N'o debt
agreements were signed.
1 As of J u n e 30. 1972, subscriptions had not been adjusted to reflect the exchange realignments under the Smithsonian agreement.
2,See exhibit 66.




REVIEW OF TREASURY OPERATIONS

67

Investment security

President Nixon's policy statement on expropriation of January 19,
1972, and the Gonzalez amendment to authorizmg legislation for the
multilateral developnient banks, adopted in March 1972, which defined
U.S. Governnient responses in investment security situations, served
in fiscal 1973 as the basis for U.S. positions taken in the I F I ' s on loans
to countries which have expropriated or unfairly treated U.S.-owned
interests without providing for prompt, adequate, and effective compensation. An Interagency Committee, on Expropriation, whose
membership includes the Departnients of State, Treasury, and Commerce, was established under the Council on International Economic
Policy to implement these new policies. This Committee has continuously monitored investment security situations and met five times
in.fiscal 1973 to consider actual and potential investment problems.
Assistant Secretary for International Affairs Hennessy represented
the Department of the Treasury on this Committee during fiscal 1973.
Expropriations involving significant U.S. interests, most notably
in Chile,.Peru, Iraq, Lebanon, and Syria, required extensive Treasury
analysis during the past fiscal year.^
Bilateral assistance

The Department of the Treasury participates in the U.S. Government development finance program through its menibership in the
National Advisory Council on International Monetary and Financial
Policies, on the Overseas Private Investment Corporation ( O P I C )
Board of Directors, and on the interagency committees designed to
coordinate economic assistance programs. Treasury's principal con^cern is to relate the various foreign economic assistance programs to
overall U.S. balance of paynients and international development
objectives.
The. three principal institutions responsible for U.S. bilateral assistance programs are the Agency for International Development
( A I D ) ; the Department of Agriculture, which administers the Public
Law 480 food-f or-peace program; and O P I C .
.
, The loan and guaranty activity of these three institutions is summarized below.
U.S. Mlateral assistance of selected institutipns
[In milhons of dollars]
;

.

.

;Institutipn/Program

AID/Development loans
.Agriculture/PubUc Law 480, food-for-peace
OPIC/Insurance, issued
OPIC/Guarantees and direct lending...
1 See exhibit 74.




'
.__

_

_

Fiscal 1972
604.1
790.0
636.0
23.9

Fiscal 1973
600.0
753.3
649.3
17.7

68

19 73 REPORT OF THE SECRETARY OF THE TREASURY

Agency for International Development,—As a member of the Development Loan Conimittee of A I D , Treasury i^rimarily focuses on
the balance of payments impact of A I D developnient lending and on
the financial characteristics of each developnient loan.
During fiscal 1973, A I D authorized new development loans totaling
$600.0 million—$219.0 million were program loans, $288.3 million were
in the form of project loans, and $92.7 million were sector loans.
Public Law ^80,—^Treasury is represented on the Interagency Staff
Comniittee, which reviews all Public Law 480 proposals, and is mainly
concerned with the U.S. balance of payments returns associated with
the program. During fiscal 1973, Title I sales agreements and amendments were signed with participating governments and private trade
entities for a total export market value of $753.3 million. This was a
slight reduction from fiscal 1972 levels of approximately $790 million.
The terms of Public Law 480 credits have gradually hardened in recent
years Avitli a favorable effect on the balance of payments.
The Overseas Private Investment Corporation,—JJnder Secretary
for Monetary Affairs Volcker represented the Department of the Treasury on OPIC's 11-man public/private Board of Directors during fiscal
1973. O P I C administers two main incentive programs to encourage
U.S. investment in the developing countries: Investment insurance
against the political risks of expropriation, inconvertibility, and war,
revolution, and insurrection; and investment finance which provides
both direct loans and commercial risk guarantees.
O P I C issued $649 million in investnient insurance in fiscal 1973, a
slight rise from the $636 million issued in fiscal 1972. The financing
program guaranteed $5 million of new investnient in the developing
countries and extended $12.7 million in direct lending during fiscal
1973. I n fiscal 1972, $20 million guarantees and $3.9 million in direct
loans were signed.
Local currency management,—^The Secretary made the annual determination of the foreign currencies in the possession of the United
States which are in excess of normal requirements for fiscal 1974 and
1975. They were the currencies of Burma, Egypt, Guinea, India, Pakistan, Poland, Tunisia, and Yugoslavia (through December 31, 1973).
Treasury's primary objective in the management of these currencies
is to maximize the balance of payments benefits accruing to the United
States from their use. I n fiscal 1972, the latest data available, the U.S.
Government reduced the balance of paynients effect of its operations
abroad by $280 million through the use of local currencies held in
Treasury accounts.




ADMINISTRATIVE




REPORTS




ADMINISTRATIVE MANAGEMENT
Management by objectives

The Department has takeii the initial steps in adopting management by objectives as the framework for assuring accomplishment of
its basic missions, identifying program priorities, achieving specific
improvement objectives, and providing selective program or project
emphasis. Work, has been started on identifying a limited number of
significant policy and operational objectives of potential Presidential
interest for possible tracking by the Office of Management and Budget.
Similarly, Treasury bureaus and Office of the Secretary officials have
commenced identifying key objectives for the special attention of the
Secretary and his principal assistants. Through this approach, thd
Department will seek to provide positive direction for the key elements
of its overall mission and keep track of progress and performance.
Special studies, projects, and programs

The management and planning staffs of the Office of the Assistant
Secretary fot Administratipn completed numerous studies and projects
and initiated new programs a t the departmental level to strengthen
analytic capability and administrative control, to improve the operation of Treasury activities, and to respond to new responsibilities.
Office of the Assistant Secretary for Administration,—^The Office of
the Assistant Secretary for Adniinistration was reorganized to provide
a more effective and efficient organization in support of the Office of
the Secretary.
The Office of Automatic Data Processing Management and Operations was established. Fmictions of the new office, which will be implemented on a time-phased basis, include development and operation of
a departmental computer center, development of specialized software
and common data bases, and coordination of Treasury A D P activities.
The Office pf Central Services was disestablished, and responsibilities for the adniinistrative and support functions for the Office of the
Secretary (except personnel management and fiscal accounting) were
reassigned to the Office of Administrative Programs. The Personnel
Operations Division was retitled "Office of the Secretary Personnel
Division" and reassigned to the Deputy Assistant Secretary for Administration, and a complete staffing, organization, and program analysis of this division led to new program emphases in personnel management and more effective management control and employee utilization.
The accounting responsibilities for the Office of the Secretary appropriated funds, the working capital fund, the trust account for revenue
sharing, and the Economic Stabilization Act appropriated funds were
reassigned into a newly created Financial Management Division reporting to the Deputy Assistant Secretary for Administration. The
functions of the Office of the Secretary Financial Manager were also




71

72

1973 REPORT OF THE' SECRETARY OF THE TREASURY

incorporated into the Financial Management Division, as well as
budget and accounting functions for the Exchange Stabilization Fund.
The Administrative Office of the Assistant Secretary (International
Affairs) was disestablished and its functions distributed to the appropriate organizational elements under the Assistant Secretary for
Administration, thereby centralizing in the Office of the Assistant
Secretary for Administration administrative support for all components of the Office of the Secretary.
Office of the Secretary,—The Office of Eevenue Sharing was organized to administer the State and Local Fiscal Assistance Act of
1972, and the Office of Energy Advisor was established to support the
Deputy Secretary in his capacity as Chairman of the Oil Policy Committee. Supervision of the functions of the Office of Industrial Economics was transferred from the Commissioner of Internal Eevenue
to the Assistant Secretary (Tax Policy), providing a more effective
organizational arrangement for departmental tax analysis functions;
and a manpower survey and organizational review of the components
of the Office of the Assistant Secretary (Tax Policy) resulted in internal organizational changes and management improvements, to the
general benefit of the policymaking process.
An analysis of Office of the Secretary positions was made to determine those performing functions appropriate for funding by the Exchange Stabilization Fund, and a study was made of Office of the
Secretary procedures for handling incoming classified information
of international economic import.
Departmental.—Improvements were made in the long-range planning system of the Department to integrate it more closely into the
established management processes; to improve the usability of the
system's information outputs; and to better relate projected resource
requirements for each operating program of the Department. Fifteen
low-priority departmental programs were identified for potential reduction or abolishment.
I n addition, management staff led or participated in a study of the
production of clad strip by the Bureau of the Mint, which affirmed
that ill-house strip manufacture is economically preferable to outside
production; an Internal Eevenue Service review of administrative
functions; and a study evaluating alternative sites for expansion of
Bureau of Engraving and Printing production facilities.
« Advisory committee management,—^As a result of the enactment of
Public Law 92-463, Federal Advisory Committee Act, effective January 5, 1973, new requirements and procedures were established for
controlling the establishment and operation of advisory committees
within the Department, under the direction of the Assistant Secretary
for Administration.
Environmental quality program,—During fiscal 1973, the Assistant
Secretary for Administration was designated as the Departmental
Environmental Quality Officer with overall responsibility for Treasury's environmental quality program. Under his direction the existing
program was strengthened by development of day-to-day working relationships with the Council on Environmental Quality, the Environmental Protectioii Agency, and other agencies. Work was also begun




ADMINISTRATIVE REPORTS

73

on a new version of the departmental procedures for environmental
impact statements.
Technical assistance to foreign governments and officials,—Treasury
continues to participate extensively in the technical cooperation programs of the Agency for International Development. Currently, teams
of customs and tax advisors are at work in 14 developing nations
throughout the world. I n addition, during fiscal 1973 more than 100
man-days of orientation and training programs were arranged for
foreign visitors coming to Treasury under the auspices of A I D and
other agencies.
Emergency preparedness

As a result of a new continuity of Government concept directed by
the Office of Emergency Preparedness, the emergency assignments of
key personnel and headquarters plans were completely revised. Under
the new concept three executive teams have been established to function at three separate locations in the event of an emergency. Coincidental with the revision of emergency plans, a review and determination was made of the essential functions to be performed by
Treasury bureaus and the Office of the Secretary during an emergency.
To overcome problems resulting from the classification of defense
conditioii notifications, a new internal alerting system was developed
in accordance with guidelines provided by O E P . The system will alert
key personnel of an impending emergency without violating security
restrictions.
An in-house review was made of Treasury'^s plan for war-loss sharing. A proposed new concept was developed and circulated for consideration by the staff offices concerned.
Internal auditing

As a result of a review of intemal auditing activities at the Bureau
of Customs, proposals were made to accompany recent improvements
in the audit scope and approach with a centrally coordinated longrange audit planning system and strengthening of the audit staff.
Proposals were also made on the scope, staffing, organization, and intemal review of a new audit organization responsible for regulatory
audits of customhouse brokers and other third parties. I n addition,
the Bureau of the Mint accepted a recommendation to relocate members of its internal audit staff to major field installations.
The Office of Audit provided audit coverage of the administrative
activities of the Cost of Living Council and conducted audits of Office
of the Secretary activities, a survey of operating and administrative
functions of the Office of Eevenue Sharing, and examinations of process accounting procedures for coinage metals at Mint facilities in
Denver and San Francisco. A member of the staff chaired the committee auditing the Exchange Stabilization Fund, and the onsite portion of an audit at the Consolidated Federal Law lEnforcement Training Center was completed. A review of internal auditing activities in
the Bureau of Accounts was also completed.
Supplementing programmed and more formal work, the Office of
Audit helped Treasury bureaus locate a number of highly qualified
auditors and provided advisory assistance on a variety of financial and
audit matters. The staff participated, for example, in meetings on



74

1973 REPORT OF THE SECRETARY OF THE TREASURY

revenue sharing and assisted in several pilot surveys at nearby local
governments receiving entitlement funds.
Substantial benefits were realized as a result of audits at two Government contractors, and costs were questioned on a third contract.
Treasury bureaus were encouraged through an administrative bulletin
and other means to utilize audit services more fully in the administration of negotiated, cost reimbursable, aiid other contracts.
ADP management

The Department used 109 computer systems, 24,600 man-years, and
$297 million in its automatic data processing operations during fiscal
1973. These resources continue to provide such benefits as support for
implementation of general revenue sharing, improving tax administration, and support of debt management and payinent systems.
Financial management

Budgeting.—Budget staff continued to develop policies and procedures and to direct and coordinate the formulation, justification, and
presentation of appropriations for budget estimates which totaled over
$34 billion in fiscal 1973. The amount includes $1.7 billion for operating
appropriations, over $24 billion for public debt and other interest accounts, and $8.3 billion for general revenue sharing.
During fiscal 1973, the budget staff:
(1) Established and maintained controls on expenditures, number
of personnel on the roll, and motor vehicle fleet to comply with limitations and directives prescribed by the Office of Management and
Budget.
(2) Gave special budgetar}^ consideration and emphasis—including
the preparation of requests for budget amendments,. supplemental
appropriations, reprogramming actions or reimbursements—;to pro,^Tams and items of special concern tp the administration and the
Department. These included \he reprogramming of funds appropriated to Customs to facilitate that bureau's occupancy of the World
Trade Center in N'ew York, establishment and transfer of the Treasury
computer center from the Bureau of the Public Debt to the Office of
the Secretary, and the transfer of the drug investigation functions
from Treasury to Justice as proposed in the President's Eeorganization Plan No. 2.
/
,
(3) Participated in meetings with representatives of Office of Management and Budget and Office of Emergency Preparedness ctilminating in the orderly transfer of funds and positions from the Office
of Emergency Preparedness to Treasury to support the Deputy Secretary of the Treasury as Chairman of the Oil Policy Committee.
(4) Prepared the budget justification niaterial leading to the establishment of the Environmental Financing Authority. The purpose
of this new authority is to assure that the national program for the
construction of essential municipal waste treatment facilities will not
be interrupted due to lack of funds. '
(5) Held the supplemental appropriation request for the cost of pay
increases taking effect under Public Law 91-656, Public Law 92-410,
wage board actions and administrative actions to $1.75 million,/although the costs totaled $39.3 million. A total of $37.5 million of. the




ADMINISTRATIVE REPORTS

75

increased costs was absorbed by application of management savings,
reimbursements, use of budgetary reserves, curtailment of selected operations, and transfers between appropriations.
(6) Assisted in the preparation and presentation of budget requests
for funds totaling over $3.4 billion to be appropriated to the President
for the U.S. share of contributions to the international financial institutions of which the Secretary of the Treasury serves as a Governor.
Of this total, $2.25 billion represented a request for an additional appropriation necessary for maintaining the value of the holdings of
U.S. dollars by these institutions under the proposed 1973 revaluation
of the dollar.
AccoumMng systems.—Efforts to maintain and strengthen the administrative accounting systems of the Department were continued,
primarily by assisting the several relatively new bureaus on problems
relating to accounting organizations, accounting system design, and
coordination with General Accounting Office s^^stems review activities.
During the year, administrative accounting systems for the Internal
Eevenue Service and the Bureau of Custonis were approved. The administrative accounting system for the Consolidated Federal Law Enforcement Training Center was approved by the Comptroller General
on June 29,1973, with two other systems (the working capital fund—
Office of the Secretary, and Bureau of Alcohol, Tobacco and Firearms)
actually under design and being documented for submission to GAO
early in fiscal 1974.
Personnel management

The Secretary issued a statement expressing his personal interest
in the labor relations program as well as his concern that the Department's managers give labor relations a high priority. I n accordance
with the wishes of the President, the Department issued detailed
guidelines for managing and organizin.ir the Deiiartment's responsibilities under the Federal labor management relations program. Also,
a Personnel Manual chapter was issued to gaiide bureaus in establishing effective systems for intr am anagement communication.
Emphasis during the year continued to be given to average grade
control and effective position management in line with Presidential
policy. At yearend, the Treasury had substantially achieved its 0 M B established goals.
Implementation of the central personnel data file received special
emphasis. The file, installed at the Civil Service Commission, was
established to provide a data base capable of satisfying minimum
essential statistical data needs for central management agencies and
the public. I t covers most Federal emplo3^ees and is based on personnel actions submitted directly to CSC by agency personnel processing
offices. When fully operational, it will not be necessary for departments and agencies to submit most of the personnel reports now required. Statistics necessary for personnel management planning, management decisions, and persomiel operations will be available to all
departments.
A comprehensive executive and management developnient program
was launched, providing for the identification of midlevel managers
with high potential and the preparation of annual individual de506-171—73

8




76

1973 REPORT OF THE SECRETARY OF THE TREASURY

velopment programs for these managers and all other personnel at the
supergrade level.
An extensive supergrade management system was developed and instituted to assure the most effective utilization of supergrade positions
on a Department-wide basis.
The new Federal Wage System was implemented throughout the
Department except for the Bureau of Engraving and Printing. The
.Federal Wage System legislation (Public Law 92-392) exempts Engraving and Printing from Federal Wage System coverage. The new
system differs from the superseded Coordinated Federal Wage System insofar as Treasury is concerned in two major respects: (1) Night
differential pay practices, and (2) increase in the number of wi thingrade steps for nonsupervisory, regular pay schedules from three to
five.
Treasury Department winners of major awards during fisoal 1973
Avere: Mrs. Charlotte Tuttle Lloyd, Assistant General Counsel—the
National Civil Service League's Career Service Award for Sustained
Excellence; Edward F . Preston, Assistant Commissioner (Stabilization) , IES—the National Civil Ser\n*ce League's Career Service Award
for Special Achievement; Vernon D. Acree, Commissioner of Customs—^a Eockefeller Public Service Award; Glenn E. Dickerson, Assistant Commissioner of Customs for Administration, and Fred E.
Boyett, Eegional Commissioner of Customs, New York, N.Y.—Presidential Management Improvement Awards for accomplishments in
reorganizing Customs Eegion I I .
Procurement

The negotiation of 44 blanket purchase agreements for office machines and miscellaneous supplies for use by all Treasury bureaus
provided a savings in excess of $162,000. The consolidation of Treasury
requirements for 623 undercover law enforcement vehicles, procured
through the General Services Administration, resulted in an improved
quality of vehicle, while the average price per vehicle remained below
the $3,000 cost limit authorized by Congress.
Property management

Treasury's personal property program was given special emphasis
in fiscal 1973, and transactions during the year included the reassignment within Treasury of property valued at $487,950; transfer of personal property valued at $989,368 to other Federal agencies for their
use; and the donation of personal property valued at $656,371 no
longer needed by the Federal Government for use by State organizations and nonprofit groups. Treasury also obtained, without reimbursement, personal property valued at over $1.6 million from other Federal
agencies.
Printing
During fiscal 1973, the Bureau of the Public Debt, Bureau of Accounts, and the Office of the Treasurer, U.S., consolidated their printing
plants and relocated in the Treasury Annex basement. The new facility was established to accommodate all of the printing needs for the




ADMINISTRATIVE REPORTS

77

three Fiscal Service bureaus and to conform with the Joint Committee on Printing regulations on centralizing facilities.
The Bureau of Accounts was assisted in obtaining authorization
from the Joint Committee on Printing to purchase 13 check-wrapping,
envelope-printing, die-cutting, inserting and collating systeins for a
total cost of $1,560,000. Following installation of these systems, beginning with fiscal 1977, it is estimated that savings will be in excess
of $1 million annually.
Paperwork management

Late in the year, the Department launched a new, broader paperwork management program designed to obtaiii full compliance with
all statutory and regulatory standards within the next 2 fiscal years
and full use of paperwork management in a total systems approach
to improving Department operations and generating savings for use
in higher priority activities.
The annual summary of the Department's records holdings for
the year showed a total of 889,596 cubic feet in office space, an increase
of 39,297 over the previous year. Seventy-seven percent of the Department's holdings are now in records centers, as compared with
the Government-wide goal of 50 percent.
Telecommunications

Telecommunications fmictions at the departmental level have been
consolidated and a Treasury Advisory Council for Telecommunications (TACT) has been established with two working groups which
are developing recommendations on how to reduce Treasury F T S costs
and how Centrex can be integrated into the Treasury telecommunications system. I t is anticipated that these efforts will result in better
programming with emphasis on total system planning.
National Security Agency (NSA) has agreed to set aside almost $2
million in research and development money for a communications
security device which will satisfy Treasury's requirement to protect its
law enforcement radio systems.
The Treasury telecommunications staff coordinated the expansion
of the customs automated data processing intelligence network
( C A D P I N ) system into the Treasury enforcement communication
system ( T E C S ) working closely with the Office of Law Enforcement
and the bureaus involved. T E C S provides an immediate response to
law enforcement inquiries from the I E S Intelligence Division, I E S
Inspection Division, Bureau of Alcohol, Tobacco and Firearms,
U.S. Customs Service, and the U.S. Secret Service terminals.
The Main Treasury Telecommunications Center (MTTC) has expanded so that it is now able to handle additional information from
NSA and C I A of particular interest to the Secretary and his top advisors. Also, a classified line to the U.S. Secret Service was established.
Safety
Treasury continued to maintain a low disabling injury frequency
rate during 1972. The Department's rate, based upon intemal reports,
was 2.3 injuries per million man-hours worked. This compared favorably with the all-Federal rate of 6.0.



78

1973 REPORT OF THE SECRETARY OF THE TREASURY

Physical security

Pursuant to Executive Order 11652 and the National Security
Council directive of May 17, 1972, Treasury Orders dealing with
"National Security Information" and "Safeguarding Officially
Limited Information" were distributed throughout the Department.
A booklet entitled "Security Do's and Don'ts in the Department of
the Treasury" was prepared and disseminated throughout the
Department.
Space

The Department has been successful in acquiring a major-size office
building, the U.S. Postal Service headquarters, in downtown Washington, D.C. This centrally located 510,000-square foot instaUation,
after a planned renovation and when fully occupied, is expected to
resolve certain critical space shortages, allow for the consolidation
of organizational elements from 12 locations, and release 6 leased
buildings.
Efforts to consolidate Public Debt's Chicago and Parkersburg activities nioved closer with the groundbreaking for a 240,000-square
foot, multistory office complex. The facility will be located in the Parkersburg, W. Va., urban renewal area, and is expected to be completed
by November 1974. An award has been made for construction of a
25,000-square foot microfilm depository in Eavenswood, W. Va. This
facility will replace the present depository in Wisconsin and serve the
new consolidated Public Debt operations.
Efforts to acquire a site for construction of the new Denver Mint
were consummated when the mayor of Denver signed the letter of
agreement conveying approximately 38 acres on the west bank of the
South Platte Eiver to the Government.

BUREAU OF ALCOHOL, TOBACCO
AND FIREARMS
The Bureau of Alcohol, Tobacco and Firearms completed its first
year as a separate bureau withiii the Department of the Treasury. I n
addition to its law enforcement responsibilities, A T F is concerned
with Federal regulation of the legal alcohol, tobacco, firearms, and
explosives industries, and is charged with protection of both consumers
and the environment with respect to these regulated industries. Also,
during the past fiscal year, A T F collected over $7.2 billion in excise
taxes on alcohol and tobacco products.
On the law enforcement side, A T F enforces the Federal laws relating to firearms, explosives, and illicit liquor. Of the nearly 4,000
employees in the Bureau, approximately 1,600 are special agents, with
investigative and arrest authority, stationed at 240 posts throughout
the United States and Puerto Eico.




ADMINISTRATIVE REPORTS

79

The law enforcement and revenue protection authority currently
exercised by the Bureau originated in 1863, when the first Commissioner of Internal Eevenue appointed two detectives to ferret out those
persons making whiskey without paying the Federal excise tax. The
first hundred years were devoted mainly to suppressing the illicit liquor
traffic which defrauded the Government of millions of tax dollars each
year. At the same time, procedures for regulating the legitimate alcoholic beverage industry were developed.
The first Federal gun law was enacted in 1934 when Congress employed a manufacturing and transfer tax system to control the machine
guns, sawed-off shotguns, and short-barreled rifles frequently used by
gangsters. I t was not until 1942, however, that A T F was given investigatory responsibility for the National Firearms Act of 1934 and the
Federal Firearms Act of 1938. I n 1951, A T F assumed the regulatory
responsibility for these acts.
Because of this experience A T F , functioning as a division of the
Internal Eevenue Service, was charged with enforcing and administering the Gun Control Act of 1968, which amended the National
Firearms Act and expanded the other Federal firearms laws. Sole
responsibility for regulating the legitimate explosives industry and
joint jurisdiction with the Federal Bureau of Investigation for investigating the misuse of explosive materials were assigned to A T F
with the passage of the Organized Crime Control Act of 1970.
On July 1, 1972, the new Bureau was formed, and these functions
were transferred to it from the Internal Eevenue Service.
Plistorically, A T F has a long tradition of close cooperation with
other law enforcement agencies. Under the laws enacted in the past 3
or 4 years on firearms and explosive materials, the Bureau has deepened its commitment to assisting law enforcement officials at all levels.
Criminal enforcement

The A T F criminal enforcement activity has four principal areas of
responsibility: (1) Investigation and apprehension of violators of the
Federal firearms statutes, (2) investigation of bombings and explosions and apprehension of violators of the Federal explosive materials
laws, (3) enforcement of the Federal laws relating to the production
and sale of illicit distilled spirits, and (4) providing assistance to
State and local officers in their fight against crime through the sharing of manpower and facilities where there are joint interests.
Firearms programs.—The Gun Control Act of 1968 caused A T F to
direct a large part of its investigative manpower to the task of licensing the approximately 155,000 firearms dealers and collectors. While
this briefly limited the perfecting of criminal cases for gun violations,
it accomplished two important steps toward keeping guns out of the
hands of criminals ensuring (1) that only legitimate and responsible
dealers were licensed, and (2) that those dealers would keep complete
and accurate records.
A T F special agents and inspectors made approximately 25,000
dealer compliance investigations last year in order to ensure that
dealers understand the law and are complying with it. The bulk of this
work is now being shifted from investigative personnel to those who
work in regulatory enforcement, thus freeing special agents for more




80

1973 REPORT OF THE SECRETARY OF THE TREASURY

direct work on criminals. While less than one-tenth of 1 percent of the
licensed dealers checked were found to be in such serious violation of
the law as to warrant prosecution, the value of such investigations is
illustrated by five cases made in the last 3 years in South Carolina
against licensed dealers involving the illegal sale of nearly 40,000
small, cheap handguns. The dealers were falsifying their sales records, selling the guns in bulk lots to unlicensed individuals who sold
the guns on the streets of cities in New York and New Jersey. I n the
latest case, the dealer disposed of about 3,600 handguns, 122 of which
were seized by New York City police in connection with crimes of
murder, armed robbery, and assault.
Accurate dealer records are important for A T F gun-tracing activities, which increased dramatically over the last 2 years. Eequests for
firearms tracing now number over 1,000 per month and are increasing
by 10 percent per month.
The majority of these requests stemmed from the recovery of a firearm at the crime scene by local law enforcement agencies. Tracings
were over 63 percent successful, some of them beins: completed within
hours of the commission of a crime and receipt of the trace renuest.
Eirfit hundred local and 15 Federal law enforcement agencies utilized
A T F ' s service, which significantly aided crime solving. This success
was made possible by the full cooperation of the firearms industrv; at
their reouest, the Bureau moved toward the goal of performing all gun
tracing in order to reduce expense to the industry from time wasted
because of incomplete descriptions of the guns by police officers who
are not totally knowledgeable in gun-tracins: techniques.
One gun trace durin;or the year involved the Euger .44 caliber rifle
found on the roof of the HowR.rd Johnson's Motel in New Orleans
beside a dead man who had held the New Orleans police; at bay after
killinfif several persons. A T F received the request to trace the firearm
at 6:30 p.m. and 27 minutes later had traced the gun from the factory
to a man who lived in Emporia. Kans. His mother in Emporia told
A T F a<?ents that her son was living in N'ew Orleans with another individual. NTew Orleans police were furnished this information and
the address of the apartment.
During: fiscal 1973, A T F special agents investigated over 67,000 individual purchases of firearms where there was reason to suspect that
the person purchasing the gun was a felon or had used false identification in m akin.Qf the purchase.
Complete firearms cases referred to the appropriate U.S. attorney
with a recommendation for prosecution totaled 2,840 in 1973, and onthe-spot arrests of 2,258 persons were made for these violations. Additional arrests will be made as the result of grand jury consideration
of the cases. The present A T F statistical reporting system does not
permit it to record the total number of investigations made during the
course of the vear. Prosecutions for firearms violations are 78 percent
successful, with the majority of defendants enterins: pleas of guilty.
Illustrative of the tvpes of cases bein^r made bv the Bureau are:
On Aus*ust 3, 1972, in E l Paso, Tex., A T F special assents arrested 2
men and seized 15 machine guns, 49 handguns, and 4 shotguns. The
firearms had been shipped from California to the E l Paso area where
they were to be smuggled into Mexico.




ADMINISTRATIVE REPORTS

81

On December 7,1972, in Gary, Ind., A T F special agents, assisted by
Office of Drug Abuse Law Enforcement ( D A L E ) agents, executed
a Federal search warrant on the premises of a convicted felon suspected of possessing an M-1 carbine in violation of the Gun Control
Act. During the search the agents found and seized over 600 packages
of heroin along with the carbine. Four persons were arrested.
On October 20, 1972, A T F special agents arrested three men from
Baltimore for violation of the Gun Control Act and seized 98 handguns. Working on information supplied by a licensed dealer that the
three men were involved in a gmi-rumiing scheme, the agents placed
them under surveillance. After weeks of work, it was determined they
were obtaining firearms from a dealer and transporting them to New
York City to sell on the streets at a much higher price. One of these
men was an alien who was in the country illegally.
The number of murders committed in 1971 involving guns was 66
percent of total murders committed. Armed robberies increased 175
percent from 1966 through 1971. Special surveys indicate that approximately 63 percent of all armed robberies are committed with a firearm.
Thus, considerable A T F investigative manpower, equipment, and materials will continue to be required to assist State and local law enf orcement agencies in combating crime.
Explosives program.—^^Since 1934, Federal law has required that
machine guns, sawed-off shotguns, short-barreled rifles, and silencers
be registered with the Federal Government, and has vested responsibility for maintaining the National Firearms Eegistry in the Bureau.
The Gun Control Act added "destructive devices," including bombs of
all types, to the registration requirements. Although A T F has over
182,000 gangster-type weapons and destructive devices registered in
its files, there is no record of any incendiary, or criminal-type, bomb
having been registered; therefore, possession of such a bomb is a violation of the National Firearms Act.
Since December 1968, when the Bureau began investigating bombings, A T F has developed an expertise in making such investigations
while, at the same time, working alongside State and local officials.
The headquarters laboratory in Washington has built one of the
world's finest libraries on explosive materials and has developed techniques for examining minute particles of explosion scene debris to
identify the type of explosive.
I n fiscal 1973 A T F arrested 282 persons for explosives violations as
compared with 280 for the previous year.
The enactment of title X I , Eegulation of Explosives, for the Safe
Streets Act of 1970, placed primary responsibility for control of explosive materials in interstate and foreign commerce on A T F and
provided, in six subsections of the statute, for joint investigative
authority between the Secretary of the Treasury and the Attorney
General. A working agreement between A T F and the F B I on each
Bureau's responsibility under those six subsections has reduced duplication of effort and helped State and local officers understand which
Federal agency they should turn to for help in a given situation.
The increasing frequency of bombings led A T F to develop a national incident-reporting systeni to supply intelligence to field personnel and permit analysis of trends in this type of criminal activity.




82

19 73 REPORT OF THE SECRETARY OF THE TREASURY

"Campus" bombings declined and the bulk of A T F bomb investigations during the last 6 months was in the labor field.
A T F special agents investigated several bombings where the targets
were State or Federal witnesses to a crime. The most significant of
these caused the death of a school teacher in Oklahoma when a bomb
exploded in a pickup truck she started. The truck was usually used by
her husband, who was a prosecution witness in a pending case against
a well-known Oklahoma gangster. After extensive investigation, the
gangster was convicted in State court for the teacher's murder and
sentenced to life imprisonment. Six months later a second man was
arrested for helping set the bomb. Pie was convicted on Federal charges
and sentenced to 10 years in prison.
I n New Mexico, two men attempted to induce an A T F undercover
agent to kill a local truck driver with homemade bombs. The two
men were convicted in August 1972 for unlawful possession of the
bombs and received maximum 10-year prison sentences.
Many A T F investigations of bombings result in charges being filed
in State court. I n Carteret County, N.C., eight persons were charged
under State laws in the bombing of the county high school and several
other buildings. A T F special agents, working with State and local
officers, spearheaded the investigation, which resulted in the conviction
of the ringleader and his sentencing to 20 years in State prison.
The enactment of title X I of the Safe Streets Act of 1970, which required the licensing of dealers in explosives and placed restrictions on
the sale of explosive materials, has forced those who would misuse the
most common of explosives—dynamite—to resort to theft to acquire a
supply. I n Sacramento, Calif., A T F special agents watched as three
men associated with the Hell's Angels motorcycle gang burglarized an
explosives storage bunker. The men, all heavily armed, were arrested
by A T F special agents in a safe area after they had left the storage
bunker. At the time of arrest, they had 5 tons of dynamite, 17 cases of
detonating cord, and over 100 electric blasting caps.
Illicit liquor,—In fiscal 1973, A T F special agents participated in
the seizure of 1,693 illicit distilleries, approximately 95 percent of these
in the seven Southern States and the fringe areas of Virginia,
Kentucky, Arkansas, eastern Oklahoma, and northeastern Texas.
Many other distilleries were seized by State and local officers.
Distilleries seized had an average lifespan of 30 days and during
that time produced 1,682,458 proof gallons of illicit liquor. This represents a Federal tax loss of $17.7 million, plus an accompanying loss
in State taxes. Had these distilleries been allowed to go undetected, the
yearly Federal tax loss would have approached a quarter of a billion
dollars.
During the 1960's, A T F conducted a program called "Operation
D r y - U p " in South Carolina, Georgia, and Alabama. Basically, it increased investigative personnel in the States and mounted an all-put
public information campaign to overcome the apathy of the law-abiding citizen toward "moonshining," since these people made up the juries which tried the moonshiner. I n those three States, the legal liquor
industry documented the success of the program by increased sales of
taxpaid distilled spirits in direct correlation with the enforcement




ADMINISTRATIVE REPORTS

83

effort. Over $100 million in additional revenue has accrued to the
Federal Government since the inception of the program.
While there was a definite decrease in the illicit production of
whiskey as compared with 15 or 20 j^^ears ago, the problem still requires
Federal attention. The Southern bootlegger no longer confines his
illegal activities to moonshine whiskey, but has branched into counterfeiting and narcotics. On January 16, 1973, a large-scale liquor law
violator in the Atlanta area who entered a plea of guilty to Federal
charges of'possessing and selling nontaxpaid whiskey was sentenced
to 2 years in prison to be served concurrently with a 6-year sentence
for possession and sale of heroin. Another major liquor violator from
the Gainesville, Ga., area received an 8-year State prison sentence on
drug charges. Local officers have long found the sale of illegal whiskey
to be contributory to crime in the community.
Assistance to local authorities,—ATF assistance to State and local
agencies, in addition to actual joint criminal investigations, included
2-week training courses and shorter schooling on bombs and bomb
investigations. Training is conducted at sites selected by the requesting
agency and sometimes includes police officers from several small departments who have joined together for the instruction. During fiscal
1973, A T F provided training for over 45,000 police officers. Some funds
for these A T F courses were provided by the Law Enforcement Assistance Administration.
The Bureau assists State and local officers but does not take over
their investigations. Many joint investigations were prosecuted in
State courts when the State laws paralleled the Federal firearms
statutes. Typical of A T F assistance was an incident in Champaign,
111., where police requested help in the apprehension of a convicted
felon who was the major suspect in a series of armed robberies in two
of which the victims were shot. A T F special agents arrested the man
on charges of possessing a firearm in violation of Federal laws and the
robberies in the Champaign area stopped.
I n another case in Michigan, the State police asked A T F help in an
° investigation relating to stolen property, including firearms. An A T F
agent in an undercover role bought six guns from the suspect. The joint
investigation resulted in the officers obtaining State search warrants
for several locations in the Detroit area and recovering stolen property
estimated at $300,000 in value.
I n Salon, Ohio, local police officers asked A T F for assistance in the
investigation of a bombing that occurred on a golf course. Three individuals arrested for the bombing admitted committing 30 burglaries,
with stolen nierchandise valued at approximately $250,000. They also
admitted having committed three arson violations.
Other enforcement activities.—Nineteen A T F special agents were
attached to organized crime strike forces established by the Department of Justice in 17 major cities. The Department of Justice selected
A T F to coordinate the intelligence on organized crime gathered by all
Federal agencies participating in the strike force program. A group
of experienced A T F agents provided much of the in-house instruction
and training necessary for this coordination.
A T F strike force agents also investigated the activities of mobsters,
racketeers, and underworld hirelings for violations ofthe Federal laws




84

19 73 REPORT OF THE' SECRETARY OF THE TREASURY

relating to firearms, liquor, and explosives. Since the inception of the
strike force program, the Bureau has developed cases which led to the
indictment of 398 members of organized crime.
One such case saw A T F assisting the Cook Countyj 111., State's
attorney's office in an investigation resulting in murder indictments
against three organized crime figures. One of those indicted ranks high
in Chicago organized crime lists, and a firearm seized from his home on
Federal gun charges is to be used as evidence.
I n another case, when the reputed boss of the Eochester, N.Y.,
organized crime syndicate traveled to Arizona, A T F gathered evidence
for a Federal indictment for unlawful interstate transportation of
firearms. Also, in Newark, N.J., an A T F special agent, acting in an
undercover capacity, bought guns from a man who was a known
fence for firearms and ammunition being hijacked by a New York
organized crime family. Agents arrested him and seized 60 guns, including automatic weapons.
I n fiscal 1973, A T F participated in the Federal drive against drug
abuse by assigning 41 agents in 33 cities to full-time duty with the
D A L E project under the directioii of the Department of Justice.
Within its own jurisdiction, A T F applied its knowledge of the
close correlation between firearms and narcotics violations to a pilot
project to combat drug traffickers in Miami, Fla. Working closely with
the Bureau of Narcotics and Dangerous Drugs, the IJ.S. Customs
Service, D A L E officials, the Intelligence Division of the Intemal
Eevenue Service, and local officials, A T F placed several agents in
undercover roles. Equipped with a target list of over a hundred persons known to be involved in the narcotics traffic, they sought to link
those persons with gun violations. Eesults were excellent. Not only
were violations of ATF-controlled laws uncovered, but intelligence on
straight narcotics activity was gathered and forwarded to the appropriate agency.
I n addition, over 100 A T F special agents assisted the Secret Service
in maintaining security at each of the national political conventions
this past year and in protecting Government dignitaries and visiting
foreign officials at the United Nations.
Regulatory enforcement

I n fiscal 1973, the Bureau collected $71^ billion from commodit}^
taxes on distilled spirits, beer, wine, and tobacco products at a cost of
approximately $17.6 million, or only $2.32 for each $1,000 collected.
Over 1.1 billion tax gallons of spirits with a potential tax revenue of
$11.6 billion were stored in bonded warehouses at the close of fiscal
1973.
Eegulatory enforcement consists of two basic programs—revenue
protection and consumer protection—which occupy over 900 inspectors
in the field. These inspectors spent 71 percent of their time on revenue
protection, through revenue audits and compliance inspections, and
29 percent on consumer protection, ensuring that products were properly labeled and represented and that fair trade practices were
employed.
At latest count, there were over one-half million establishments
(permittee or licensed premises) in the United States under Bureau




ADMINISTRATIVE REPORTS

85

regulation. Of this number, about 405,000 are engaged in the production, distribution, storage, or use of alcohol, wine, and beer. The remainder are in the tobacco, firearms, and explosives industries. Eegulation of the latter two is being shifted to the Office of Eegulatory
Enforcement as soon as resources permit.
Trade practice enforcement,—Congress, in passing the Federal Alcohol Administration Act of 1935, stated that its purpose was to curtail
the corruption which existed in the liquor industry under prohibition.
But even after the repeal of prohibition, the criminal element continued to engage in the illicit production and distribution of alcohol.
Therefore, Bureau inspectors subject each individual desiring to enter
the liquor industry, from the producer down through the wholesaler,
to an intensive background investigation, and thoroughly investigate
each application for a permit to do business in the liquor industry.
A report on organized crime filed by the President's Commission on
Law Enforcement and Administration of Justice stated that "law
enforcement is not the only weapon that governments have to control
organized crime. Eegulatory activity can have a great effect." The
report also said, "Governinent at various levels has not explored the
regulatory devices available to thwart the activities of criminal groups,
especially in the area of infiltration of legitimate business. These techniques are especially valuable because they require a less rigid standard of proof of violation than the guilt-beyond-a-reasonable-doubt requirement of criminal law." The Bureau used this approach in its strike
force activity during fiscal 1973 in Baltimore, New Orleans, Chicago,
Pittsburgh, and Atlantic City, where retail liquor outlets with suspected organized crime ownership were inspected by teams of Bureau
inspectors and special agents. Hidden ownership of the premises by
(U'ganized crime figures was uncovered in many instances and appropriate action under Federal or local statutes was taken.
A T F increased its attention to unfair trade practices from about 5
man-years to 20 man-years during 1973. I n a case in an eastern State
where 12 firms were found in violation, offers in compromise totaling
$365,000 were submitted by these firms in lieu of criminal and civil
action.
Consumer protection,—This program ranged from checking a formula on a new perfume or the label on a new product to ensuring that
a fiftii of whiskey, when filled, contained a full fifth. I t also included
a check of the actual beverage being sold in a bar, because it is not uncommon to .find a retail outlet engaged in a "refill violation," substituting a cheap whiskey for a more expensive brand.
To guard against consumer deception, every label for an alcoholic
beverage, including imported beverages, must have A T F approval.
A T F had pending several cases of varietal wine mislabeling wherein
the bottled wine was not that stated on the label. Because of increased
demands by consuniers to know the ingredients of the products they
use, A T F , at the end of the fiscal year, was drafting proposed regulations requiring all labels of alcoholic beverages to show a complete listing of components.
I n fiscal 1973, distributors of malt liquors engaged in an advertising
campaign touting the alcoholic strength of malt liquor. The law prohibits implications of alcoholic strength in malt liquor advertising




86

1973 REPORT OF THE SECRETARY OF THE TREASURY

since it is held under the statute to be a drink of moderation and not
to be sold on the basis of alcoholic content. A T F required such advertising to be reinoved from the niarket.
Each doniestic formula for wine and beer is compared by A T F with
Food and Drug Adniinistration requirements to ensure there are no
ingredients which might be harmful. Last year, after A T F inspectors
found traces of asbestos in an alcoholic beverage being distributed in
the Midwest, the Bureau required that every bottle be recalled and
taken off the market.
A T F officers also frequently inspected bars and retail outlets for unfair competitive practices to ensure that the consumer was given a full
choice of products.
Environmental protection.—^Under the Federal Water Pollution
Control Act, the Bureau must ensure that each of its regulated industries which, in its production processes, discharges waste into navigable
waters has a certificate of compliance issued by the proper State authorities before A T F issues or renews a license or permit. Under the
National Environmental Policy Act of 1969, the Bureau must also give
appropriate consideration to all environmental aspects of any proposed
action or decision.
Tobacco products,—Taxes paid on tobacco products, amounting to
$2,207,273 during' fiscal 1973, came from the industry through a selfassessment system, with periodic on-premises checks by A T F
inspectoi'S.
The classification for tax purposes of "little cigars" provoked considerable public controversy during the year. A T F continued to tax
some of these as cigars, but warned manufacturers to conform packaging and marketing of the product, as well as its advertising, to standards consistent with that tax category. Liaison in this matter was maintained with the Department of Justice, Federal Trade Commission, and
Federal Communications Commission because of their interrelated
statutory responsibilities.
Technical and scientific services

ScientifiG services.—Bureau laboratories provided support to the
Bureau's activities as well as those of State and local law enforcement
agencies.
A T F laboratory personnel pioneered the use of neutron activation
analysis in law enforcement work. The first acceptance of the technique
in Federal court was in New York City where it was used to prove
that a truckload of moonshine whiskey seized in New York had originated on the farm of a bootlegger in Georgia. Neutron activation analysis today is the most sensitive and specific method known for detecting
gunshot residue and this, too, is a technique developed in the A T F lab,
which processed 1,200 cases of this type in 1973 for local law enforcement agencies. Laboratories are located at headquarters, Philadelphia,
Atlanta, and Cincinnati.
The A T F laboratory also performed over 1,000 bomb debris examinations during the year.
A complete A T F ink library of approximately 2,500 domestic and
European ink standards helped identify inks on questioned docunients
involved in investigations conducted by A T F and other Federal agencies, including I E S , the Securities and Exchange Commission, and the
Department of Justice. A large percentage of the approximately 150



ADMINISTRATIVE REPORTS

87

analyses involved tax fraud and organized crime drive cases. The
International Association of Identification, one of the world's largest
professional forensic organizations, presented its Dondaro Award to
an A T F forensic chemist for his outstanding contribution to the field
of ink identification.
A T F firearms and toolmark examiners completed over 250 cases
coming from all over the country. One A T F examiner testified in
California State court in the Juan Corona case, identifying tire tracks
at the gravesite as the same type tire as was on Corona's vehicle. This
same examiner also testified for the State of California as an expert
witness in the mass murder case involving members of the Charles
Manson family.
A T F laboratories also offered a wide range of document examination services, such as handwriting and typewriting identification,
watermark examination, and deciphering of obliterated writing. During 1973 A T F examined over 10,000 documents. One A T F expert testified that the list of victims written in a ledger book found in Juan
Corona's belongings was in the handwriting of Corona.
Alcoholic beverages were checked for fill of containers, additives,
and harmful ingredients, such as lead in canned cocktails, asbestos
fibers, and antifermentation chemicals in wines. Imported wines were
examined to ensure that overcarbonated wines were taxed at the
champagne rate. Coloring in alcoholic beverages was analyzed for
conformity to Food and Drug Administration standards, and contents
of alcoholic beverages, including artificial flavoring, for conformity
with labels.
A T F also ensured that denatured alcohol articles (toilet preparations and industrial alcoholic products) were properly labeled as
to place of origin (French perfumes) and contained sufficient additional ingredients to prevent recovery of beverage alcohol.
Tobacco was tested to assist in distinguishing between cigars and
cigarettes for tax purposes and to protect consumers. Lubricants, filled
cheeses, and other articles subject to tax were examined for tax
classification.
I n addition to the above programs, A T F laboratories were active in
fingerprint examination and photography and are developing a voiceprint identification capability.
The laboratories also assisted regulatory enforcement activities in
protecting the revenue, the consumer, and the environment through
sample analysis and technical advice.
Total regulatory enforcement samples received for analysis in fiscal
1973 exceeded 16,000. The headquarters laboratory received more than
4,850 formulas for nonbeverage drawback products (internal medicinal products, fiavors, and alcoholic foods); 4,195 formulas for specially denatured alcohol products (toiletries, etc.); and 7,893 labels
for toilet preparations.
A D P functions,—^The Bureau utilized little automated data processing. Functions which could be computerized, such as licensing, permitting, criminal case recordkeeping, criminal intelligence, firearms tracing, and personnel recordkeeping, were performed manually in the
seven regions and at headquarters. However, the Bureau readied a 5year plan for installing a national A T F computer center to handle
these functions.



88

1973 REPORT OF THE- SECRETARY OF THE TREASURY

Technical services,—^Under the Mutual Security Act of 1954, A T F
registered importers and controlled importations of all implements of
war, ranging from battleships to nerve gas. The Bureau also acted on
applications to import fireairms and ammunition under the Gun Control Act of 1968. Since 1968, over 95,000 import permits covering 4 million firearms have been approved, with disapproval of approximately
4,000 applications covering 640,000 firearms valued in excess of $9
million.
A T F also examined a wide range of professional and industrial
devices utilizing explosives and/or projectiles, such as rivet guns used
in construction and tranquilizer hypodermic guns used in veterinary
work, for classification as firearms under the 1968 act.
A firearms reference collection of over 1,600 different models of
firearms was used by the Bureau and other Federal agencies for research purposes. For example, the Federal Aviation Administration
utilized this collection for testing proposed metal-detection devices in
its antiskyjacking program.
A T F exercised control over the manufacture and transfer between
owners of all firearms defined by the National Firearms Act, including
sawed-off shotguns, machine guns, short-barreled rifles, bombs, and
grenades, maintaining a national firearms registration and transfer
record of all such weapons.
The Bureau also maintained "The Explosives List," published annually and used principally by the chemical and explosives industries.
A T F provided scientific and technical information r d a t i n g to safety
to Government agencies engaged in the transportation and use of explosives. Eesearch and development in the explosives industry was
monitored and evaluated to help industry comply with the laws without retarding technological progress. A T F personnel performed practical demonstrations and conducted seminars on explosives throughout the United States for local law enforcement agencies.
Bureau support services

Steady progress was made in 1973 in establishing self-supporting
administrative operations covering personnel, procurement, budgeting, accounting, training, and related functions.
I n addition, an Office of Inspection was created to assist in maintaining the integrity of the Bureau and in evaluating the Bureau's
enforcement and regulatory programs.

OFFICE OF THE COMPTROLLER OF
THE CURRENCY
The Comptroller of the Currency, as the Administrator of the
National Banking System, is charged with the responsibility of maintaining the public's confidence in the Systeni by sustaining the banks'
solvency and liquidity. An equally important public objective is to



ADMESriSTRATIVE REPORTS

89

fashion the controls over banking so that banks may have the discretionary power to adapt their operations sensitively and efficiently to
the needs of a growing econoniy.
Office operations

During fiscal 1973, a continuing overview of adniinistrative procedures provided opportunities for improvements in regional and headquarters staff operations. Eefinement of procedures and scheduling
was achieved, resulting in more efficient examinatioii of national banks.
Continued review of space management resulted in the opening of
two subregional offices and relocation of four others. Additionally, a
new subregional office was established in London because of the growth
in foreign branch banks opened in Europe. Tliis office, the first of the
Comptroller's offices located overseas, was established September 1,
1972. A considerable reduction in foreign expenditures is being experienced as a result, and better, more efficient service is being provided to the banking community.
To consolidate different organizational units under a single roof,
a new building has been selected and approved which will house the
entire Office. A move in the spring of 1974 is planned. Consolidated
operations should provide many opportunities to refine administrative
procedures and achieve a more effective organization.
Personnel

Personnel administration placed emphasis on two major hiring programs which increased the size of the examiner force by more than 15
percent since May 1972. There are now over 150 employees in the
work-study financial intern program. Increased hiring has been necessary to keep pace with the rise in the number of national banks and
branches. Additionally, over 85 summer college and disadvantaged
youths were hired.
The equal employment opportunity objective of a 10-percent increase
in both the number of minority and women professional employees
was surpassed. Progress has been made in filling supervisory positions
with minority group employees and women, including two positions
in the Washington office.
The Office exceeded its established goal of a reduction of one-tenth
of 1 percent in the average grade for fiscal 1973, largely by hiring at
trainee rather than j ourneyman levels.
Uniform and more equitable programs were developed for appointing, testing, and promoting examiners and interns. An extensive review
of inprocessing forms resulted in a new and more efficient preappointment package..
Eenewed emphasis was applied to the training and development of
examiners during the year because of the increased level of hiring.
Courses in electronic data processing, trust schools, and national bank
examiner schools, and correspondence courses were offered. A supervisory handbook, developed during the last fiscal year, was used in
seyeral courses.
The personnel management evaluation program provided opportunities for trained personnel specialists from the Washington office
to visit regional offices and discuss firsthand personnel programs in



90

1973 REPORT OF THE SECRETARY OF THE TREASURY

the region. These visits also gave i-egional staff involved in personnel
administration professional assistance in policy matters and specific
operational problems. This program has fostered an improved working relationdiip betweeii headquarters and regional personnel staffs.
Fiscal management

Fiscal 1973 proved to be exceptionally challenging to the Fiscal
Management Division in view of the general economic environment.
The cost of operating the Office continued to be a matter of concern
to management, causing increased emphasis to be placed on cost control and assessment procedures. As a result, expenses for calendar year
1972 rose only 6.65 percent over 1971, significantly below the previous
year-to-year increases of 11.03 percent and 18.84 percent.
The innovative change in the method of investing assessment funds,
first used in fiscal 1972, produced additional interest income of
$108,000.
Automation of the fixed asset record and the record of total branches
by bank enabled the Fiscal Management Division to provide more
comprehensive, accurate data than was possible when using manual
records.
Through a reorganization at the beginning of the fiscal year, the
travel expense voucher payment and audit functions were combined
to provide more efficient and expeditious processing of travel claims.
Information services program

The purpose of this continuing prograni is to make the policies and
procedures of the Office of the Comptroller of the Currency better
known and to facilitate communications among the Office, the banking
industry, and the general public.
Basic publications available to employees, banks, and other interested
paities are: Comptroller's Manual for National Banks, Comptroller's
Manual for Eepresentatives in Trusts, and the monthly Summary of
Actions. The Directory also is published and contains the address, and
telephone number of every decisionmaking official in the Office together
with his picture and a biographical sketch. The Annual Eeport of the
Comptroller of the Currency is available to interested parties and
contains a general statement of policy, descriptions of the state of,the
National Banking System, of OfBce operations, and reprints of selected
Office documents relating to crucial public issues in banking.
Status of national banks
The total assets of the 4,631 national banks increased by $57.7 billion,
or 14.7 percent, during fiscal 1973, reaching $449.9 billion at June 30,
1973. This compared with the 11.1-percent increase during fiscari972.
Total loans of national banks stood at $254.2 billion at the end of fiscal
1973, an increase during the fiscal year pf $46.8 billion, or 22.0 percent.
The spurt in loans contrasted sharply with the relatively small increase
in. total securities holdings of $2.9 billion, or about 3 percent. I n both
fiscal 1972 and fiscal 1973, the increase in time and savings deposits
was about triple the increase in demand deposits of national banks.
I n 1973, the respective figures were $31.8 billion and $10.1 billion.




ADMINISTRATIVE REPORTS

91

Numher of national hanks and hanking offices, hy States, June SO, 1973
National banks

state

Unit

Total

United States

With
branches

Nuniber of 1
branches
oflaces

4,631

2,843

1,788

14,157

18 788

90
5
3
71
56

41
0
1
29
6

49
5
2
42
50

234
58
244
103

324
63
247
174

2,561

2,617

126
24
5
11
254

110
6
3
0
264

15
18
2
11
0

16
237
4
76
0

140
261
9
87
254

61
2
6
416
122

19
1
2
333
43

42
1
4
83
79

261
10
118
83
394

322
12
124
499
516

100
171
80
60
19

67
138
31
11
3

43
33
49
39
16

66
33
166
207
114

166
204
246
267
133

39
80
106
200
39

10
16
26
194
6

29
64
80
6
34

290
461
634
10
164

329
641
740
210
203

104
64
122
4
48

66
51
95
1
20

39

41
3
28
67
68

145
57
150
71
116

122
33
163
26
43

19
5
52
6
31

103
28
111
20
12

216
193
8
270
6

60
144
1
111
0

156
49
7
159
6

19
32
73
646
10

4
22

15
10

13
546
6

60
0
6

23
98
23
93
127

10
17
6
91
88

Wyoming
Virgin Islands
Puerto Rico

42
1
1

District of Columbia (all)

14

Alabania—
Alaska
Arizona
Arkansas.
California

--

---

Colorado
Connecticut
Delaware.—
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana

-

-

-

Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi

--

Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota

--

Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island

-

South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin

-

-

•

3
27
3
28

829
91

951
124

1,438

1,601

699
12

724
55

839
49
277

1,064

1,169

1,429

112

117

273
66

317
0
82

292
97
390
646
92

13
81
17
2
39

41
558
481
2
75

64
666
604
96
202

42
0
1

0
1
0

0
8
0

42
9
1

0

14

113

127

242
285

1 Includes national and nonnational banks in the District of Columbia, all of which are supervised by the
Comptroller of the Currency.

506-lTl—73

9




92

19 73 REPORT OF THE SECRETARY OF THE TREASURY
Assets, liahilities, and capiial of naiional hanks, selected dates
[In millions of dollars ]
June 30, 1972
(4,607 banks)

Dec. 31, 1972
(4,614 banks)

June 30, 1973
(4,631 banks)

Cash, balances with other banks, and cash items in process
of collection..

60,197

67,401

61,356

U.S. Goverimient securities '
Obligations of States and political subdivisions ^
Other securities 1

42,893
61,033
2,884

47,866
52,717
3,154

43,428
63,277
2,995

96, 810

103,737

99,700

12, 756
207,414
6,975
2,080
4,959

16,672
1,073
230,456
7,333
2,007
6,268

16,072
1,330
254,211
7,668
2,730
6,857

392,163

434,947

449,924

111,974

130,376

121,004

147,298
6,025
30,445

157,663
7,062
33,445

171, 523
6,681
35,143

3,658
16,737
6,248

4,362
20, 526
5,993

5,514
18,731
6,640

ASSETS

Total securities i
Federal funds sold and securities purchased under agreements to resell
Direct lease financing
Loans and discounts '
Fixed assets
.-.
Customers' liability on acceptances outstanding
Other assets
Total assets

972

LIABILITIES

Deniand deposits of individuals, partnerships, and corporations
Time and savings deposits of individuals, partnersliips, and
corporations
Deposits of U.S. Government
Deposits of States and political subdivisions.
Deposits of foreign governments and official institutions,
central banks, and international institutions
Deposits of commercial banks
Certified and oflficers' checks, etc
Total deposits

.. .

Demand deposits
Time and savings deposits.
Federal funds purchased and securities sold under agreements to repurchase
Liabilities for borrowed nioney
Acceptances executed by or for account of reporting banks
and outstanding
.
Other liabilities

, 322,385

359,427

364, 236

21,541
1,288

24,349
2,370

30,643
3,191

2,149
12,118

2,063
12,207

2,834
12,846

369,481

400,416

413,750

4,101

4,221

83

78

76

3,962

4,179

4,297

1,902

..-

172,565.
186,862

3,879

Total liabilities

149, 877
172, 608

2,129

2,093

43

42

38

7,153
12,171
6,989

7,458
12,717
7,524

7,668
13,161
8,434

159,959
204,277

RESERVES ON LOANS AND SECURITIES

Reserves on loans
Reserves on secmities.
Total reserves on loans and securities
CAPITAL ACCOUNTS

Capital notes and debentures
Preferred stock
Common stock
Surplus
Undivided profits
Reserves.
.-.
Total capital accounts
Total IiabiUties and capital accounts
1 Gross, reserves not deducted.




462

482

483

28,720

30,352

31,877

392,163

434,947

449,924

ADMINISTRATIVE REPORTS

93

CONSOLIDATED FEDERAL LAW ENFORCEMENT
TRAINING CENTER
The Consolidated Federal Law Enforcement Training Center
( C F L E T C ) was formally established July 1,1970, as an entity within
the Departnient of the Treasury, to function as an interagency training facility under the supervision of the Assistant Secretary (Enforcement, Tariff and Tracie Affairs, and Operations).
The Department of the Treasury is the lead agency for operating
the Center and serves as the point of authority for implementation of
Federal regulations and policies having Govemment-wide application.
The Center's Board of Directors is comprised of representatives at the
Assistant Secretary level from the major executive departments which
have paiticipating agencies and from the Office of Management and
Budget and the Civil Service Commission. The Board has final
authority over training policy, programs, criteria, and standards of
the Center and for resolving conflicting training requirements.
The C F L E T C provides necessary facilities, ec^uipment, and support
services for conducting recruit, advanced, specialized, and refresher
law enforcement training for personnel of participating Federal agencies. Training is restricted to police officers and criminal investigators
who carry firearms, have explicit arrest authority as Federal officers,
and are primarily concerned with the prevention of crime and with
criminal investigations. At present, 22 Federal agencies from 9 executive departments and independent agencies participate in the Center's
program. I n fiscal 1973, the Department of Agriculture (U.S. Forest
Service rangers and investigators) and the General Services Administration (Federal Protective Service investigators) were added as
participating agencies.
The Center also provides support, administrative, and educational
personnel for common training courses to (1) consolidate requirements of participating agencies and develop proposed curricula, (2)
develop content and teaching techniques for courses, and (3) instruct
and evaluate students. These functions. are administered through the
Police School and the Criminal Investigator School.
Criminal Investigator School

I n fiscal 1973 the Criminal Investigator School trained 839 agents
in 22 classes in its basic criminal investigation course, including 87
students from non-Treasury agencies. I n addition, 49 students were
graduated from the Center's Advanced Law Enforcement Photography School. The reduction in number of persons trained as opposed
to the preceding year was due mainly to budget restrictions placed on
all Federal agencies in fiscal 1973. I t is expected that the number of
graduates will increase substantially in fiscal 1974, but the reduced
student load has permitted more individualized training and allowed
participation in the Center by additional Federal agencies.
Police School

On July 10,1972, the Police School began full operation, thereby expanding the concept of the C F L E T C . The school provicies basic re-




94

19 73 REPORT OF THE SECRETARY OF THE TREASURY

cruit training for uniformed officers and has ensured quality training
for the Federal police officers of participating agencies. The largest
contingents have been sent by the National Park Service of the Department of the Interior and the U.S. Marshals Service of the Department
of Justice, thus strengthening the consolidated and interagency aspects of the Center.
I n its first year of operation the Police School graduated 397 officers from eight agencies, seven of which were non-Treasury. This
total also was below that originally projected due to severe budget
restrictions on the agencies. Addition of more participating agencies
and revised estimates of workload indicate a heavy schedule for training in the Police School for fiscal 1974.
Due to lack of legislative authority by the Center to pay personnel
on the police schedules, instructors for the Police School during this
first year were provided on detail by agencies participating in the
program, on both reimbursable and npnreimbursable bases. By the
end of the year, however, four permanent supervisory instructors
were employed on the Police School staff. At the close of the year, the
entire problem of instructor staffing was being studied by the C F L E T C
Interagency Working Group.
Staff reorganization

A major staff reorganization was implemented to improve operational effectiveness as the Center expanded. An Office of Administration and an Office of Educational Support were created out of existing units of the staff, and the Basic Police School and the Treasury
Law Enforcement School were, respectively, renamed Police School
and Criminal Investigator School.
Personnel management, financial management, and administrative
services were placed under an Assistant Director (Administration),
while curriculum development and learning resources were placed
under an Assistant Director (Educational Support). Heads of the
two schools were designated Assistant Director (Police Training)
and Assistant Director (Investigator Training). These changes have
improved management of the Center as the staff has increased from 54
to 76.
Physical facilities

I n fiscal 1973 the Center expanded its facilities at 1310 L Street,
NlV., Washington, D . C , by over 22,000 square feet. Three 45-man,
seven 15-man, and three 8-man classrooms were constructed, and 6,200
square feet was utilized for additional office space.
Tentative drawings fpr both the centra!structure and the accessory
structures of the permanent plant at Beltsville, Md., were approved by
the National Capital Planning Commission on January 4, 1973. The
architects were then directed to prepare the final working drawings
which Avere presented to the Center on May 28. These drawings excluded only audiovisual and telecommunications capabilities, furniture, and casework and equipment for the P X , snack bar, mailroom,
and related facilities. I n addition, an architect's scale model of the
proposed new facility was constructed and placed in the lobby of the
west entrance of the Main Treasury Building for public viewing.



ADMINISTRATIVE REPORTS

95

Architect's model of the Consolidated Federal Law Enforcement Training Center.

A court action brought by the Maryland-National Capital P a r k
and Planning Commission and the Prince George's County Council,
based on provisions of the National Environmental Policy Act, had
effectively halted construction at the Beltsville site. I n response to this
action, a draft environmental impact statement was filed August 1,
1972, with the Council on Environmental Quality (CEQ) for the
express purpose of soliciting comments from the Environmental Protection Agency and other interested Federal, State, and local agencies
and private parties. A final impact statement, incorporating submitted
comments, was filed with the C E Q on November 24,1972, along with
a recommendation from the Director of the Center that the proposed
new facility be constructed at the Beltsville site. On January 4, 1973,
the Board of Directors of the C F L E T C concurred in the recommendation and on January 5, the Assistant Secretary (Enforcement, Tariff
and Trade Affairs, and Operations), having considered both the environmental and nonenvironmental factors pertinent to the question
of locating the Center a t Beltsville, issued a decisional memorandum
instructing the Center Director to proceed with the project.
I n light of this decision, the Center filed a motion for summary
judgment for dismissal of the lawsuit on grounds that it had conformed to the provisions of the National Environmental Policy Act.
That motion was granted by the U.S. District Court for the District
of Columbia on May 11, 1973, and the Center proceeded immediately
thereafter to award the first contract on the construction schedule.
On June 8, notice of appeal of the District Court's decision was filed
by the plaintiffs in the suit, but at the close of the fiscal year no injunction or restraining order pending appeal had been sought; so, on




96

1973 REPORT OF THE SECRETARY OF THE TREASURY

June 18, construction was resumed with clearing and grubbing of the
site for the central structure.
A second factor delaying construction was the lack of sewage facilities for the new Center. The Washington Suburban Sanitary Commission had previously denied a C F L E T C request to connect to its
sewage facilities, and the Office of Management and Budget rejected
approval for apportionment of construction funds until adequate facilities cpuld be secured. Subsequent to a directive from the Potomac
River Enforcement Conference to the Department of Agriculture to
improve and expand the tertiai^y plant at the Agricultural Research
Center, the C F L E T C offered to contribute $106,000 to the planning
and construction of that plant if allowed to tie in to it. The Department of Agriculture accepted the Center's offer and 0 M B later
approved a request for funds to let the first contract.
E n d of year estimates on expected occupancy of the new facility
at Beltsville centered on the latter part of fiscal 1977.

OFFICE OF DIRECTOR^ OF PRACTICE
The Office of Director of Practice is part of the Office of the Secretary of the Treasury and is under the immediate supervision of the
General Counsel. Pursuant to the provisions of 31 CFR, part 10
(Treasury Department Circular No. 230), the Director of Practice institutes and provides for the conduct of disciplinary proceedings
against attorneys, certified public accountants," and enrolled agents who
are alleged to have violated the rules and regulations governing practice before the Internal Revenue Service. He also acts on appeals from
decisions of the Commissioner of Internal Revenue denying applications for enrollment to practice before the Internal Revenue Service
made under 31 CFR, section 10.4.
On July 1, 1972, there were 104 derogatory information cases pending in the Office under active review and evaluation, 3 of which were
awaiting presentation to or decision by an administrative law judge.
During the fiscal year, 145 cases were added to the case inventory of the
Office. Disciplinary action was taken in 74 cases by the Office or by order of an administrative law judge. Those actions were comprised of
1 order of disbarment, 42 suspensions (either by order of an administrative law judge or by consent of the practitioner), 26 reprimands,
and 5 resignations. The actions affected 17 attorneys, 25 certified public
accountants, and 32 enrolled agents. Eighty-one cases were removed
from the Office case inventory during fiscal 1973 after review and evaluation showed that the allegations of misconduct did not state sufficient grounds to maintain disciplinary proceedings under 31 CFR,
part 10. As of June 30, 1973, there were 94 derogatory inforniation
cases under consideratioii in the Office.
During the fiscal year, three certified public accountants petitioned
the Director of Practice for reinstatement of their eligibility to practice before the Internal Revenue Service. Favorable consideration was
given to each petition and reinstatement was granted. I n addition,
there was one decision on an appeal from a denial by the Commis


ADMINISTRATIVE REPORTS

97

sioner of Internal Revenue of an application for enrollment to practice before the Internal Revenue Service. The decision affirmed the
denial.
Ten administrative proceedings for disbarment or suspension were
initiated against practitioners before the Internal Revenue Service
during fiscal 1973. Together with the 3 cases remaining on the administrative law judge docket on July 1, 1972, 13 cases were before an administrative law judge during the year. One of those cases resulted in
the acceptance of an ofl-er of consent to voluntary suspension pursuant
to 31 CFR, section 10.55 (b) prior to reaching hearing. Initial decisions
imposing disciplinary actions were rendered in six of the cases. In one
case, the initial decision of the administrative law judge was that the
respondent be disbarred from further practice before the Internal
Revenue Service. Suspensions from practice before the Internal Revenue Service, were invoked in the remaining five cases. On June 30,
1973, six cases were pending on the docket awaiting presentation to
or decision by an administrative law judge.
Under authority of 31 CFR, section 10.71, one case resulted in an appeal to the Secretary from the initial decision for suspension rendered
by the administrative law judge. The decision on appeal was an affirmation of the suspension. Such suspension subsequently was nullified by operation of the terms of the decision on appeal. I n addition,
two decisions Avere issued by the Secretary on appeals from initial
decisions by a hearing examiner (now administrative law judge)
pending on July 1,1972. I n both appeals, the terms of suspension from
practice before the Internal Revenue Service ordered by the hearingexaminer were increased.

OFFICE OF DOMESTIC GOLD AND SILVER .
OPERATIONS
The Office of Domestic Gold and Silver Operations, in the Office of
the Under Secretary for Monetary Affairs, assists the Under Secretary
and the Assistant Secretary (Economic Policy) in the formulation,
execution, and coordination of policies and programs relating to gold
and silver in both their monetary and commercial aspects. The Office
administers the Department of the Treasury gold regulations relating
to the purchase, sale, and control of industrial gold and gold coin; issues licenses and other authorization for the use, import, and export
of gold and for the importation and exportation of gold coin; receives
and examines reports of operations; and investigates and supervises
the activities of users of gold. Investigations into possible violations
of the gold regulations are coordinated with the U.S. Secret Service,
the U.S. Customs Service, and other enforcement agencies.
Use of gold for industrial purposes

Estimated net industrial use of gold in the United States during
the calendar year 1972 was 7,285,000 ounces as compared with 6,933,000
ounces in 1971, an increase of 5 percent. The 1972 increase in purchases was due mainly to increased production of gold products. Gold



98

1973 REPORT OF THE SECRETARY OF THE TREASURY

inventories increased only slightly, under 1 percent. The estimated
total purchases of gold and allocation of purchases by industry group
for the years 1967-1972 are shown in table 1.
TABLE 1.—Estimated industrial use of gold in the Uniied States, calendar years
1967-72
[Thousands of fine troy ounces]
1967
Estimated total purchases of gold by U.S.
.
industry
Converted into fabricated products

_.

Increase in inventories
Allocation of purchases by industry group
Jewelry and arts
_
Dental
_
Industrial, including space and defense _ _.

1968

1969

1970

1971

1972

6,294

6,604

,^7,109

5,973

6,933

7,285

5,942
352

6,073
531

6/568
541

6,148
-175

6,542
391

7,253
32

6,294

6,604

3,840
566
1,888

3,908
771
1,925

7,109

5,973

6,933

7,285

3,839

3,340

4,299

4,344

710

658

2,560

1,975

750

1,884

750
2,191

Sources of gold

Sales of gold by the Treasury for industrial use and purchases from
the private market were terminated on March 18,1968. Since that date,
gold used in industry, profession, and art in the United States has
come from new domestic production and from imports. Of the
7,285,000 fine troy ounces used in 1972,1,603,000 ounces came from U.S.
mine production and 5,682,000 ounces were imported. Countries from
which the gold was imported are shown in table 2.
TABLE 2.—Exports and imports of gold into the United States for industrial use,
calendar year 1972
[Thousands of fine troy ounces]
Country
Belgium
Canada
_
Switzerland
United Eangdom.West Germany
Other countries
Austria 1
Philippines 2. __
South Africa 3
Total
Net imports of gold

Exports
-

Iinports

77
105
231
74
14

2,991
2,901
18

i3
32

83
145

_
-

501

6,183

5,682

1 Purchased from the account ofthe Austrian National Bank at the Federal Reserve Bank of New York.
2 Recovered from base bullion imported from the Philippines.
3 Purchased from the account of the South African Reserve Bank at the Federal Reserve Bank of New
York.
NOTE.—Imports are shown from country of final export as reported by Department of the Treasury gold
licensees and do not indicate prior shipment from country in which the gold was produced.

Trading in gold on exchanges

On July 24,1971, the regulations were amended to prohibit the trading of gold in any form on commodity exchanges and the acquisition
of American or foreign gold coins of any description for speculative
purposes. The purpose of the amendment was to clarify the intent of
the gold regulations that gold coins may be held only for numismatic
purposes.



.ADMINISTRATIVE REPORTS

99

Gold coins

Licenses are required to import gold coins minted during or after
1934. Licenses are issued only for coins of recognized special value to
collectors of rare and unusual coin. Gold coins minted after January 1,
1960, may not be imported unless the particular coin had been licensed
for importation prior to April 30,1969.
Licensing of gold dealers

The Office continued licensing banks and commodity firms to acquire
and import gold for sale to domestic industrial users with 10 such
licenses outstanding at the end of the fiscal year.

BUREAU OF ENGRAVING AND PRINTING
The Bureau of Engraving and Printing is responsible for manufacturing U.S. paper currency, various public debt instruments, and most
other evidences of a financial character issued by the Government;
sudh as, postage and internal revenue stamps and food coupons. I n
addition, the Bureau prints commissions, certificates of award, permits,
and a variety of miscellaneous items. The Bureau also executes certain
printings for territories administered by the United States.
The Bureau conducts extensive research and development programs
for improving the quality of its products, reducing manufacturing
costs, and strengthening deterrents to the counterfeiting of Government securities. I t manufactures ink and gum used for its products;
purchases materials, supplies, and equipment; provides maintenance
services for its buildings, plants, machinery, and equipment; and
stores and delivers its products in accordance with requirements of
customer agencies.
Finances

The Bureau was granted $3 million of the $6 million appropriation
requested for fiscal 1973 to carry out phase I I of its 3-year modernization program (1972-1974). I n reporting out the 1973 Treasury, Postal
Service, and General Government appropriation bill, the House Subcommittee on Appropriations directed the Bureau and the Department to review the pricing policies for services with the objective of
establishing prices which would, at least over the relatively long range,
generate sufficient funds to cover direct and indirect costs of operations
as well as accumulate an adequate reserve for replacement of capital
equipment.
To attain this objective, the Bureau is proposing to include in the
price of its products a surcharge for financing future capital improvements. Its specific amount would be calculated annually after computing the amount of cash to be generated internally by normal depreciation of equipment already on hand in the Bureau. The additional funds
required in each program category (currency, postage stamps, and "all
other" which covers the manufacture of Treasury bonds, revenue
stamps, and various other items) would be divided by the projected
production costs of each program to arrive at the percentage rate of
the surcharge to be assessed to each product within a given program.



100

19 73 REPORT OF THE SECRETARY OF THE TREASURY

Meanwhile, in order to obtaiii maximum benefit from the $3 million
appropriated for fiscal 1973, there is currently in process a Bureau
proposal to enter into lease-purchase contracts to obtaiii as much productivity-enhancing equipment as it can at the earliest possible time.
Congress is being asked to permit the Bureau to (a) use as much of
the appropriated funds as is necessary for a reserve to support any
liquidated damages clause which may be invoked by a lessor as a guarantee for payment of damages resulting either from termination or
nonexercise of any renewal option, and (b) as an interim measure,
to utilize any part of the appropriation not needed as contingency
funds for the purchase of equipment to augment the working capital.
Comparative financial statements for fiscal years 1972 and 1973 appear
in the Statistical Appendix.
Currency program

Delivered in fiscal 1973 were 3.1 billion currency notes, the same
quantity as in the previous fiscal year.
The Bureau program for modernization of its currency manufacturing operations has particularly focused on (a) the replacement of
those presses installed in 1957 which are fully depreciated and technologically obsolete, and (b) the acquisition of production models of
the currency overprinting and processing equipment which are
designed to mechanize certain of the finishing operations.
Currently, the Bureau's working capital is insufficient for direct
purchase of this equipment. Therefore, the Bureau is investigating
the feasibility of acquiring it under monthly lease-purchase agreements. Any contract for a lease with option tp purchase would contain the usual clause reserving the right of the Government to terminate the contract at any time.
With such a termination clause on equipment which is custom
designed, lessors might well insist on guarantees for payment of liquidated damages resulting either from the termination or nonexercise of
any renewal option. This would require that sufficient funds be available and earmarked. However, the Director of the Bureau, in informal
discussions with the suppliers of this specialized equipment, is attempting to eliminate the liquidated damages clause from any contract
since the equipment acquired represents the latest in the state of the
art and would not be replaced during the period of the contract inasmuch as to do so would cancel the substantial savings in manpower and
production costs associated with its installation.
At the end of the fiscal year, plans Avere underway to issue invitations to bid to prospective suppliers for the lease-purchase of currency
presses, and to conduct negotiations with the existing contractor of the
currency overprinting and processing equipment for the acquisition of
production models of that machine.
During fiscal 1972, the Bureau contracted with a private concern
to determine the feasibility of equipment which would automatically
examine plate-printed currency sheets (prior to overprinting) and
identify any note which might be defective. Phase I of this study concluded that such equipment was within the state of the art. This conclusion was not verified by phase I I of the study .which disclosed that
certain technical problems required further study. Three alternative
approaches are being considered prior to attempting to build a model




ADMINISTRATIVE REPORTS

101

machine. Other proposals developed by interested parties from private
industry are also being studied.
Food coupon program

Approximately 1.9 billion coupons were delivered during fiscal 1973,
the same quantity as in the previous fiscal year. To relieve existing
equipment and space constraints as well as to reduce abnormal overtime work, the Bureau continued contracting with a private banknote
company for the $2 and $3 value booklets and late in the year added
$10 booklets to the contract. By the close of fiscal 1974, to further ease
staff and space requirements, the remaining food coupons will be contracted out to the private sector.
Postage stamp program

Deliveries of U.S. postage stamps were 26.6 billion pieces in fiscal
1973 compared with 26.7 billion in 1972.
To meet the U.S. Postal Service's increasing requirement for complex multicolor stamps, a contract was awarded "in November 1971 for
a combined rotogi*avure line-intaglio web press at a cost of approximately $2 million. This press, in transit at the end of this year and due
to be installed in fiscal 1974, will, after extensive evaluation, be used
to print postage stamps in multicolor sheet form. A second press for
printing multicolor coil stamps by the intaglio process, costing $1
million, was installed late in fiscal 1973 and will be placed in production by January 1974. The need for these two presses was the basis for
the $3 million appropriation by the Congress for fiscal 1972.
Procurement of necessary engraving equipment associated with the
rotogravure press will be spread over 4 years; commercial services will
be utilized in the interim. Chrome-plating equipment for the rotogravure cylinders 'was ordered in fiscal 1972. Orders for photographic
and auxiliary equipment to make the negative and positive film required for the etching of cylinders were placed in fiscal 1973. Cylindermaking equipment will be ordered in fiscal 1975. These acquisitions
will enable the Bureau to perform in-house the necessary preparatory
work and the finishing of engraved cylinders.
New issues of postage stamps delivered in fiscal 1973 are. shown in
the Statistical Appendix.
Improved service to the public

Throughout the year, the Bureau conducted an active program designed to improve communications with, and services to, the public
and, at the same time, to advance the Bureau's goal for increased public
awareness of the security characteristics of genuine currency. The
Bureau furnished exhibit materials for 32 numismatic or philatelic
events. I n some instances. Bureau participation included live demonstrations of the techniques of the intaglio process used in the production of currency, postage stamps, and other securities. Public response
has been most enthusiastic.
I n addition, the Bureau produced five distinctive souvenir cards
for the following major philatelic and nuniismatic exhibitions: The
Associated Stamp Clubs and Society of Philatelic Americans Exhibition in Philadelphia; the National Postage Stamp Show in New York
City; the International Postage Stamp Exposition in San Francisco;
the 15tli International Stamp iSxhibition in New York City;"and the



102

19 73 REPORT OF THE SECRETARY OF THE TREASURY

Combined Philatelic Exhibition of Chicagoland in Chicago. Sales of
these souvenir items not only responded to longstanding recommendations of philatelists and numismatists, but also defrayed the cost of
Bureau participation in such exhibits.
During fiscal 1973,794,221 visitors took the self-guided tour through
the Bureau. Other tours, geared to technical needs and particular interests, were conducted on an individual basis for special visitors, such
as agents of the U.S. Secret Service, representatives of foreign governments, domestic and foreign firms in the printing industry, and news
media personnel.
Internal audit

The Bureau continued to conduct intensive scheduled and unscheduled audits, both fiscal and operational. Forty-one reports of audit,
containing 180 recommendations for improvements, were released for
management consideration and action.
Training program

During fiscal 1973, 687 employees completed Bureau and departmental training courses; 164 completed interagency training courses;
and 79 attended specialized seminars, training classes, conferences,
and exhibits sponsored by non-Govemment organizations. A general
education development (GED) program was announced and 204
employees have registered to participate. Over 100 employees are
presently active in the program; half < of these are in self-study
(programmed instruction) classes while the other half are involved in
remedial reading, English, and arithmetic classes.
Training has been supplied at all levels, 'with special emphasis on
supervisory and executive development. An 80-hour supervisory program is offered on a continuous basis. Immediately upon promotion
to a supervisory position, an employee is scheduled to attend a 56hour basic program, covering supervisory responsibilities, communication skills,, human relations, and job instruction. Later each new
supervisor attends a 24-hour program covering techniques of supervising lower level employees. Additional courses include on-the-job
and refresher training for current needs, developmental training in
anticipation of future needs, training to develop unavailable skills, and
training to develop underutilized and disadvantaged employees.
Labor-management relations

^ I t has been a longstanding policy of the Bureau to foster constructive and harmonious relationships with its employees and labor organizations representing them. Special emphasis and attention have been
directed foward the conduct of all labor-management dealings within
the spirit and intent of Executive Order 11491 as amended by Executive Order 11616 of August 26, 1971. A t the close of the fiscal year,
there existed within the Bureau grants of exclusive recognition to
16 A F L - C I O affiliate unions covering 25 craft units, 1 noncraft unit,
and 1 guard unit. Further, there are 11 approved substantive labormanagement agreements. The unions function as a dynamic part of the
Bureau and are a major factor in management considerations.
Safety program

Employee safety, because of the industrial character of the Bureau's
operations, continues to be of vital management concern. Employee



ADMINISTRATIVE REPORTS

103

safety and health standards, as prescribed in the Occupational Safety
and Health Act, are receiving increased emphasis in their application
to conditions and activities within the Bureau. The issue and use of
protective clothing and equipment, such as protective headgear, noise
suppressors, respirators, gloves, and safety shoes are carefully monitored. The responsibilities of Bureau safety committees are being reemphasized through meetings, publication of safety circulars, and
other activities. I n addition, increased emphasis has been placed on
housekeeping throughout the Bureau to minimize unsafe conditions
and potential fire hazards.
Equal employment opportunity program

The equal employment opportunity program continued to show
steady progress in the advancement of minorities and females. Formal complaints of discrimination increased this year; however, this
probably was the result of a new Civil Service Commission regulation
which affords probationary employees, terminated for any reason, the
right to file E E O complaints. I n addition, further contacts were made
to improve employment opportunities in the Bureau for Spanishspeaking citizens.
Employee committees for E E O continue to function as a viable
communications link between management and employees at the working level. Monthly meetings provide a forum for the discussion of E E O
and any other matters affecting the employment, treatment, and advancement of employees. Members of the E E O and Personnel Staffs
were actively involved in community action programs that affect employment and employability. This included extensive work with the
District of Columbia Public Schools, the Washington Urban League,
Spanish-speaking Advisory Committee, and others. A member of the
E E O Staff received an award from the Washington Urban League for
participation in one of its programs resulting in the hiring of over 90
high school graduates in fiscal 1972 and 1973.
A review of minority statistics shows steady progress in the advancement of minorities and females in apprentice, journeyman, and
higher General Schedule positions. Improvement in the economic
status of minorities and females was noted, and 36 of them in supervisory positions now earn annual salaries over $10,000. Seventy-nine
percent of the superior work performance and other awards were to
minority and female employees.
I n summary, the equal opportunity program at the Bureau continues
to establish a climate of credibility among the work force by involving
the rank-and-file employees in all management actions that affect the
well-being and careers of all employees.
Awards program
During fiscal 1973, 771 employees received special achievement
awards and 48 received high-quality pay increases.
Nonrecurring savings of $164,370 were realized in fiscal 1973 from
the superior work performance phase of the incentive awards program. Under the employee suggestions phase of the program, 195 suggestions were received and 94 adopted, from which the Bureau will
realize estimated annual recurring savings of $17,854. Of the suggestions processed during this fiscal year, 48 percent were adopted.



104

19 73 REPORT OF THE SECRETARY OF THE TREASURY

OFFICE OF EQUAL OPPORTUNITY PROGRAM
The Office of Equal Opportunity Program operates within the Office
of the Secretary and is under the immediate supervision of the General
Counsel. I t assists the Secretary and General Counsel in the formulation, execution, and coordination of policies related to equal opportunity for Treasury employees (implementing the Equal Employment Opportunity Act of 1972 governing equal employment in the
Federal Government) and to employment policies and programs of
banks, savings and loan associations, savings banks, and other financial
institutions that are Federal depositaries or issuing and paying agents
of U.S. savings bonds and savings notes (implementing Executive
Order 11246 and Treasury Regulations governing equal employment
for Government contractors).
Federal emplojment

The Office guides and oversees the implementation of the Department's equal employment program and action plans of all of the
bureaus, provides consultative services on equal opportunity inatters,
and reviews and approves action plans promulgated in each bureau.
I t reviews and adjudicates all investigations of complaints alleging
discrimination because of race, color, religion, sex, or national origin.
The Office provides guidance to Treasury officials and all its field activities through its equal employment management review evaluations
(onsite reviews began in summer of 1972) concerning the employment and utilization of minority group persons and women in each
bureau.
I n fiscal 1973, Treasury's E E O complaint processing system was
completely revised to comply with the provisions of the Equal Employment Opportunity Act of 1972. New guidance was issued for all
bureaus as an additional effort to assure the timely and expeditious
processing and resolution of all complaints coming to their attention.
The operation of the system has been greatly enhanced by greater
decentralized operating authority. Although investigative and other
program administration resources are still limited, a greater quality
of work has been achieved in both the processing and resolutionadjustment phases of this system.
Progress in the administration of the Treasury's equal employment
opportunity program during fiscal 1973 was marked mainly by increased Department emphasis on the upward mobility program. Federal women's program, and the President's 16-point program for
Spanish-surnamed Americans, and the inclusion of these programs in
all of Treasurer's affirmative action plans.
Treasury's new affirmative action program and plan systeni was
completed in November 1972 and now comprises 134 separate affirmative action plans designed to give greater decentralized direction to
the total program and greater benefits to employees located in the
United States and overseas. To implement the plans, the Department
issued guidance on how to complete skills inventories and utilization
analysis, whereby female and minority grOup goals and timetables can
be established where deficient areas are identified. To assist the bureaus in their utilization analysis, a Department-wide and centralized




105

ADMESnSTRATrVE REPORTS

automated system for reporting of employment statistics in Treasury
( E E S T ) was implemented in fiscal 1973 from which data can be
produced on the distribution of employment by minority group designation, sex, series, grade, and geographical location in various
formats. Such information is now being used by the Department and
the bureaus in developing the fiscal 1974 national, regional, district and
facility affirmative action plans.
There is every indication that the centralized automated system
in conjunction with the multiaffirmative action plan system has enabled managers to assess employment and training needs in a manner
that has been beneficial and gives evidence of an increase in the rate
of hiring and upgrading of minorities as indicated by the following
charted employment statistics from 1968 through November 1972.
Department of the Treasury full-time employment hy minority group status
1968

Comparison
1971-1972

1971

1969

No.

No.

Percent

8,256

1.73

20,658

25.2

11,777 12,251 13,234 13,954
1,052
1,116
1,489
1,754
79
85
104
107
482
505
596
687
68,765 71,678 72,928 78,055

15,619 1,665
2,24:7
493
21
128
126
813
84, 006 5, 951

11.93
28.10
19.62
18.34
7.62

3,842
1,195
49
331
15, 241

32.6
113.6
62.0
68.7
22.2

19,120

T o t a l employees*.

82,155

Negro...
Spanish-American
American Indian
Oriental
Other
G S 1-4:
Total
Negro...
Spanish-American..
American Indian. Oriental
Other
G S 5-8:
Total

Percent

Comparison
1968-1972

88,351

94,557 102,813

18,867

19,493

24,126

4,633

23.77

5,006

26.2

4,947
4,948
5,156
255
300
398
25
26
33
80
87
96
13,813 14,318 13,184

4,993
502
36
125
13,837

5,904
791
45
159
17,227

911
289
9
34
3,390

18.25
57.56
25.00,
27.20
24.49

957
536
20
79
3,414

19.4
210.2
80.0
98.8
24.7

19,480

.-

19,679

27,601

1,107

4.17

8,121

41.7

4,290
551
35
249
22,476

434
104
4
60
505

11.25
23.26
12.90
31.74
2.29

1,582
287
9 '
108
6,135

68.4
108.7
34.6
76.6
37.5

28,893

G S 9-12:
Total

26,494

2,708 3,077
3,467
3,856
264
281
422
447
26
24
30
31
141
139
183
189
16,341 18,082 19,724 21,971

:.

Negro.
Span ish-Ameri can
American Indian
OrientalOther

Negro
Spanish-American
American I n d i a n . . .
Oriental
Other

85,635

21,603

23,826

28,960

30,436

32,321

1,8

1,144
1,257
1,283
...
332
316
389
21
27
30
186
179
203
27,210 26,958 27,055

1,457
450
30
213
28,286

1,587
519
34
222
29,959

130
69
4
9
1,673

.
"
11,642

12,037

.395

G S 13-18:
Total.......
Negro...
Spanish-American
American I n d i a n . _
Oriental..
Other

28,737

9,491

9,839

10,665

151
35
3
55
9,247

167
218
38.
54
4
5
70
67
9,560 10,321

271
72
5
77
11,217

307
88.
8
90
11,544

36
16
3
13
327

6.19 • 3,428
8.92
15.33
13.33
4.22
5.91

443
18713
36
2,749

3.39

11.9
38.7
56.3
61.9
19.3
10.1

2,546

13.28
; 22.22
60.00
16.88
2.92

156
53
5
35
2,297

103.3
151.4
166.7
63.6
24.8

* T h e totals i n c l u d e wage b o a r d personnel. G r a d e comparisons are for G S series only.

The U.S. Civil Service Comniission gave final fiscal 1973 affirmative
action plan approval to Treasury and five other agencies of Government (Tennessee Valley Authority, Civil Service Commission, Department of Transportation, Department of Labor, and the National



106

1973 REPORT OF THE SECRETARY OF THE TREASURY

Aeronautics and Space Administration). This is a notable achievement
in view of the fact t h a t few agency plans fully met the particular
requirements of the Equal Employment Opportunity Act of 1972.
With the hiring of a full-time coordinator for the 16-point program
for the Spanish-surnamed and a coordinator for the Federal women's
program, greater progress in fiscal 1974 should be evidenced in the
employment and upgrading of women and Spanish-surnamed Americans. Fiscal 1974 will also be marked by increased equal employment
opportunity program operation emphasis, with particular attention
being given to implementing the goals and procedures of the Equal
Opportunity Operations Manual (FPM-713) to achieve a more effective program administration in all Treasury bureaus and field facilities
and at all equal employment opportunity operating levels.
Financial institutions

Approximately 500 onsite compliance reviews were conducted at
banks this year with an additional 300 offsite reviews at headquarters.
(Offsite reviews are explained in detail below.) A compliance review
is an examination of a bank's personnel policies and programs and entails the negotiation of agreements for aiffirmative action programs,
providing technical assistance to assure compliance with Treasury
requirements, and the conciliation of grievances, misunderstandings,
and allegations concerning discrimination often made by individuals,
civil rights organizations, and other government agencies. The number
of compliance reviews conducted during the year fell below the anticipated projection of approximately 1,000 in an effort to conserve
restricted travel funds.
The Department's guidelines on affirmative action are continually
reviewed and revised and have been reissued to financial institutions
to assure accurate understanding of Treasury's expectations and to
assist in gaining compliance with the various equal employment regulations of. the Department, Office of Federal Contract Compliance,
Department of Labor, and various State and local equal opportunity
commissions and guidelines of the Equal Employment Opportunity
Commission, which administers Title V I I of the Civil Eights Act of
1964. These guidelines have helped financial institutions achieve
meaningful, result-getting equal employment and upward mobility
programs. These guidelines continue to be widely distributed and commented upon and supported by the various trade associations (American Bankers Association, United States Savings and Loan League,
National Association of Mutual Savings Banks and various State trade
associations of the industry), and continue to be reported upon, highly
commended, and used as reference materials in issuances by numerous
trade and management publications such as Prentice-Hall Eeports,
Bank Wage and Hour Eeports, U.S. Savings and Loan News, and
Banking Magazine.
During the past year, full staffing has been completed for all authorized positions at the four regional offices in Houston, Atlanta, Los
Angeles, and Chicago. These offices have each been assigned a geographical area for compliance surveillance activities and for continuity, follow-up, and providing technical assistance. I t is anticipated
that, with these offices now operational and in closer proximity to



ADMINISTRATIVE REPORTS

107

financial institutions under their jurisdiction, more significant employment gains and upward mobility opportunities will be attained by
minorities and women in the employment at these institutions.
The Department had greater impact in its contract compliance activities during the last quarter of this year through a system of offsite compJiance reviews as it implemented the revised Order No. 14 of the Office
of Federal Contract Compliance, Department of Labor. Under this
S3^stem, a two-phase program was initiated; namely, the offsite review
followed by an onsite compliance review where deemed necessary.
Financial institutions, on a priority scheduling basis, are requested
to forward their equal employment affirmative action programs and
various support data for departmental offsite review and evaluation,
after which a determination is made in a more effective and specific
maimer as to whether banks require onsite reviews and where as a result
the greatest impact for minority employment gains and female upward
mobility can be made. This system has permitted the Department to
review the equal employment programs of a significant number of
financial institutions with less manpower and a reduced per unit expenditure and in many instances has obviated an onsite review. It is
anticipated that using this system approximately 2,500 offsite and 1,000
onsite reviews will be accomplished during this next year.
The Department continues to be impressed with the exceptional
cooperation and eagerness of the banking and savings industries and
their leadership in complying with Treasury regulations and the national policy and laws governing equal employment and also by their
cooperation and desire to effect meaningful equal employment opportunity programs. A recent Department study of employment in approximately 2,400 banks, whose total employment is approximately
650,000, disclosed that minority employment has continued to increase
significantly. In a comparison for the 61/^ years, mid-1966 through
1972, Negro employment increased from 22,581 to 68,000; Spanishsurnamed from 12,587 to 29,000; Oriental from 4,892 to 11,000; and
American Indian from 433 to 1,100. These data disclose increases from
40,493 minorities in 1966 to 88,085 in 1970 and 109,100 in 1972 and
demonstrate an increase of 250 percent in minority utilization and
employment by these banks during this cited period.
Studies by the Office of Federal Contract Compliance, Department
of Labor, in both 1971 and 1972 indicate the largest gains made by any
industry in the country in the hiring and utilization of minorities has
been by banking. Of the many industries studied, banking shows the
greatest progress and penetration of minorities in the important
endeavor to achieve compliance with the national policy and laws
governing equal employment opportunity. These studies have predicted
parity in the hiring and utilization of minorities by the banking industry before the end of this decade. This prediction is regarded as a
pace setter for other industries studied and as a signal tribute attesting
the value of the Department's program. These significant data have
disclosed the need by banks for renewed emphasis on increasing opportunities for minorities and women in terms of upward mobility
programs and efforts leading to management-type positions. The Department anticipates that affirmative action promotion by both the
Government and the industries involved and the programs of Depart506-171-^73

^10




108

1973 REPORT OF THE SECRETARY OF THE TREASURY

ment surveillance and technical assistance during this next year will
result in numerical increases (industrywide) for minorities and
women in the significant white collar, managerial, and technical job
categories.
I n a continuing effort to assure that banks are complying with technical requirements, the Departnient receives from bank examiners of
the Comptroller of the Currency, Federal Deposit Insurance Corporation, and Federal Eeserve banks reports of deficiencies found in their
examinations with regard to the filing of Federal equal employment
opportunity reports and the availability of a written affirmative action
program. Negative reports filed with Treasury are handled in a
manner that assures the compliance of these two aspects usually within
a 30-day period without travel, special reviews, etc. This cooperative
endeavor with these bank examiners has obviated considerable expense
and requirements for additional staffing.

FISCAL SERVICE
Effective July 1, 1972, a planning organization was established in
the Fiscal Service entitled ^'Operations Planning and Eesearch Staff."
The staff provides a vital service to the entire Fiscal Service in its many
technical roles and missions which have interbureau. Department-wide,
and Government-wide implications. The new staff provides leadership
on technological research of all kinds having potential effect on one
or more major organizational units of the Fiscal Service.
B u r e a u of Accounts
The functions of the Bureau are Gpvernment-wide in scope. They
include central accounting and financial reporting relating to the Government as a whole; disbursing for virtually all civilian agencies;
supervising the Government's depositary system and agency cash
management practices; determining qualifications of insurance companies to do surety business with Government agencies; a variety of
fiscal activities, such as investment of trust funds, agency borrowings
from the Treasury, international claims and indebtedness, and liquidation of the Postal Savings Systeni; and Treasury staff representation in the Joint Financial Management Improvement Program.
Personnel

Despite Bureau-wide restraints on appointments and promotions
during this year, the Bureau carried out its college recruitment efforts
in six Eastern colleges. Fifteen accounting trainees, five of whom are
females, were recruited for the Bureau's career development program.
Additionally, 20 professional management and computer systems analysts were added to the headquarters rolls, the majority of whom were
initially assigned to the Operations Planning and Eesearch Staff.



ADMINISTRATIVE REPORTS

109

Youth.—During the summer, 34 summer aide, 11 sunimer employment exam student, 6 vocational office trainee, and 2 Federal junior
fellowship appointments were effected. These statistics reflect 19 student appointments in excess of the assigned quota of 34.
Veterans,—A total of 81 veterans preference eligibles were appointed during the year, 70 of whom are Vietnam-era veterans. This
is approximately 5.5 percent above the Government's average.
Women,—Significant achievements in support of the advancement
of women within the Bureau were witnessed during the year when
women advanced to such responsible positions as Special Assistant to
the Comnlissioner, Deputy Chief Disbursing Officer, Assistant Personnel Officer, Assistant Director/Division of Cash Management, Bureau Classification Specialist, and Assistant Chief/Financial Services
Branch. Approximately 45 women were promoted or assigned to professional, technical, supervisory, and staff positions at or above the
grade GS-7 level.
Upward mobility,—^The Bureau conducted its annua!program for
progress, reviewing and evaluating each employee's past and recent
experience and education in order to identify present skills, to develop
full potential, and to recommend supervisory and occupational skills
training.
Spanish surnamed,—^As in past years, the Bureau effected an increase in the total number of Spanish-surnamed employees, the majority of whom are employed in Austin and San Francisco, cities with
concentrated Spanish populations. Between 1968 and the present, the
Bureau has employed, respectively, 8, 22, 25, 27, and 47 Spanishsurnamed persons. Continued and more concerted efforts on behalf of
this program will result in a more representative number of Spanishsurnamed employees on the rolls.
Labor-management relations,—Three disbursing centers continued
as the only Bureau segments with exclusive recognition granted to
local union chapters, one of which (Austin) remains without a negotiated contract. Additional union activity is anticipated during the
next year at the Philadelphia Disbursing Center.
Systems improvement

The U.S. Civil Service Commission became interested in billing
under the simplified intragovernmental billing and collection system
due to an increasing workload involving collection of training and
investigative fees from other Government agencies. Procedures have
been developed by Bureau staff, and it is anticipated that the system,
with the CSC as the billing agency, will be implemented in fiscal 1974.
Efforts are continuing to expand the system by adding new billing
agencies; e.g.. General Services Administration (billings to civilian
agencies), U.S. Postal Service, and the Government Printing Office.
During fiscal 1973, the Departments of Agriculture and Treasury
established a joint task force to study and improve procedures for
depositing and reporting proceeds from the sale of food stamps. The
proposed system utilizes a standard 80-coluinn data card that readily
lends itself to automated systems. Federal Eeserve banks would consolidate the card forms iiito a single certificate of deposit. The original
certificate of deposit would flow to Treasury through normal channels




110

1973 REPORT OF THE SECRETARY OF THE TREASURY

and a copy, along with supporting card forms, would be furnished to
the Department of Agriculture, Food and Nutrition Service. The system is presently being tested by the Federal Eeserve Bank of Eichmond and is expected to be implemented nationwide in fiscal 1974.
Procedural requirements were prescribed for Government agencies
concerning: (1) Eeporting foreign grants, loans, and credits;» (2)
composite check procedures; (3) State tax agreements; (4) agency
operations under continuing resolutions; (5) EAM- or computergenerated monthly statements of transactions; (6) business-type financial statements; (7) reporting fidelity losses sustained by the United
States; (8) requirements for social security account numbers on savings bonds; (9) disbursing; (10) agreements of indemnity in connection with the replacement of checks; (11) regulations for the experimental withholding of city income taxes for three cities; and (12)
other fiscal matters including revised regulations for letters of credit.
Central accounting and reporting

Bureau staff continued efforts toward the implementation of accrual
basis financial reporting from agencies. Treasury reporting instructions will be revised to coordinate with principles and standards recently issued by the General Accounting Office. An analytic survey will
be made in fiscal 1974 of agency accounting systems capability.regarding grant accruals and constructive delivery accruals. Upon completion of the survey. Government-wide accrual data will be published in
the Treasury Bulletin.
Departnient Circular No. 966, concerning preparation of businesstype financial statements, was revised on December 20, 1972. The circular and procedural instructions issued in the Treasury Fiscal Eequirements Manual cover all assets (except cash of accountable officers), liabilities, and equities relating to all programs and activities
under an agency's control. The new reports stress bureauwide reporting for management purposes in addition to fund-type reporting.
Agencies began reporting under the new instructions for the period
ending December 31,1972.
The fiscal 1972 Combined Statement of Eeceipts, Expenditures, and
Balances of the U.S. Government was released in January under a new
format. Major changes for the expenditure chapters included use of a
one-column vertical balance sheet format to replace a five-colunm ending balance analysis, and presentation of ending balances of fund resources and equities previously shown only for the beginning balances.
Publication dates were accelerated for major Government-wide
financial reports including the Monthly Treasury Statement, the Combined Statement, the Annual Eeport of the Secretary of the Treasury
on the State of the Finances, the Statistical Appendix to the Annual
Eeport, and the Federal Aid to States report. Eelease dates for the
latter two reports were the earliest in history and the Secretary's
Annual Eeport was published earlier than it has been in over 20 years.
Auditing
During fiscal 1973, the Audit Staff conducted 21 financial and operational audits (17 in central office and 4 in regional offices). An evaluation of a middle management training program was also performed.




ADMINISTRATIVE REPORTS

111

Additionally, management surveys and operational reviews were performed in four regional offices.
The annual examination of the financial statements and supporting
data of surety companies holding certificates of authority as acceptable sureties on bonds running in favor of the United States (6 U.S.C.
8) was performed. Certificates are renewable each July 1, and a list of
approved companies (Department Circular 570, Eevised) is published
annually in the Federal Eegister for the information of Federal bondapproving officers and persons required to give bonds to the United
States. As of June 30,1973, a total of 275 companies held certificates.
Disbursing operations

The 11 disbursing offices of the Division of Disbursement produced
a total of 538.3 million checks and savings bonds during fiscal 1973 at
an average unit cost of $0.0294, in payment of Government obligations
for over 1,300 civilian offices. Almost 98 percent of these payments were
produced by computers. I n addition, more than 95 million computergenerated Federal tax deposit forms were produced.
Performance of the diversified activities of Treasury's centralized
disbursing system by computerized methods continued to result.in
increased productivity and afforded the Division of Disbursement with
the means to provide services which benefited Government agencies and
the general public. As in past years, a number of small Government
agency offices received automated payroll accounting services provided
by disbursing centers.
Significant achievements realized during fiscal 1973 are as follows:
1. The prototype check-wrapping system designed for use in enclosing checks in envelopes was installed in the Philadelphia Disbursing Center during the week of February 26, 1973. Acceptance testing
of the prototype model during Mav 1973 resulted in enclosing an
average of 28,000 checks per hour, with minimal check spoilage. Orders
will provide for delivery of 13 production models in Philadelphia and
other disbursing centers through fiscal 1976. Delivery of the first production model system in Philadelphia is planned for December 1974.
Projected annual savings upon installation of all systems is estimated
at more than $1 million.
2. An optical character recognition (OCE) system was installed in
the Washington Disbursing Center on June 1, 1973. The equipment,
which reads data appearing on voucher schedules for issuance of onetime payments, will lead to estimated savings of $160,000 in that office,
when the system is fully operational by July 1,1974.
3. Based on the success obtained from the semiautomation of Social
Security Administration claims in the Chicago Disbursing Center,
plans have been made to extend the procedure to all recurring benefits
and tax refunds in fiscal 1974, with annual recurring savings projected
at $50,000.
4. To assist victims of flood disasters inflicted by Hurricane Agnes,
emergency branch disbursing offices were established in July 1972 in
Eichmond, Va., Elmira, N.Y., and Harrisburg, Pa., near each of three
major disaster sites, to make emergency payments for the Small Business Administration and the Department of Housing and Urban Development. The offices were discontinued in the spring of 1973 by which



112

1973 REPORT OF THE SECRETARY OF THE TREASURY

time 180,252 emergency payments, totaling $896,601,807, had been
issued. Special payment operations continued for these emergency
programs at the regular disbursing centers.
5. Various agencies automated their-accounts payable which allows
the use of magnetic tape for check issuance of vendor and miscellaneous
payments. As a facet of this payment system, notice-to-recipient cards
are mailed with related checks to identify the purpose of the check
and provide a permanent payment record for the payee.
6. Approval was obtained for acquisition and installation by October 1973 of third-generation computer equipment for the Chicago,
Birminghani, and San Francisco Disbursing Centers. Additional computer equipment for other disbursing centers will be acquired under
a formal 5-year schedule.
7. The Departnient of Agriculture has requested assistance in printing and mailing approximately 600,000 food coupon remittance cards
to 6,000 distribution points each year. This activity was previously
coordinated by the Office of the Treasurer, U.S. The initial full mailing of the cards is scheduled for August 1973.
8. A new building for the Birmingham Disbursing Center was dedicated on July 10, 1972. The Kansas City Disbursing Center will also
occupy a new building by November 1^ 1973, which will be similar to
those presently housing the Austin and Birmingham centers.
9. The supplemental security insurance (SSI) program, which provides for the federalization of welfare payments to the aged, blind,
and disabled, will be initiated in January 1974. The program will have
a major impact on manpower and equipment needs in disbursing
centers due to an increased yearly workload of an estimated 90 million
checks.
The table shown below is a comparison of the workloads for fiscal
years 1972 and 1973.
i:
Volume

Classification
1972
Operations financed by appropriated funds:
Checks:
Social security benefitsVeterans benefits
Income tax refunds
-^
Veterans national service life insiuance dividends program
Other.
Savings bonds
J
Adjustments and transfers....
:

1973

Operations financed by reimbursements:
Railroad Retirement Board
Bureau of the Public Debt (General Electric Co. bond prograni).....
Total workload—reimbm'sable i t e m s . . .
Total .workload

309,679,143
78,393,185
63,410,762
1,742,327
62,084,181
7,558,533
299,109

499,770,797

...'

294,664,438
76,912,925
55,517,958
5,185,754
59,715,385
7,473,003
301,334

523,167, 230

14,586,411999,822

14,085,444
1,070,522

15,586,233

15,155,966

515,357,030

538,323,196

Federal depositary system^

The types of depositary services provided and the number of depositaries for each of the authorized services as of June 30, 1072 and
i973, are shown in the following table:
1 See exhibit 23.




. '

ADMINISTRATIVE REPORTS

113

Type of service provided by depositaries
Receive deposits from taxpayers and purchasers of public debt securities for
credit in Treasm'y tax and loan accounts.
Receive deposits from Government officers for credit in Treasurer's general
accounts
Maintain checking accoimts for Governnient disbursing officers and for quasipublic funds
Furnish bank drafts to Government officers in exchange for collections
Maintain State unemployment compensation benefit payment and clearing
accounts
Operate hmited banking facihties:
I n t h e United States and its outlying areas
In foreign areas

1972

1973

13,049

13,283

1,153
.

1,158

7,566
1,213

7,561
908

54

48

209
249

210
231

Investments

The Secretary of the Treasury, under specific provisions of law, is
responsible for investing various Government trust funds. The Department also furnishes investment services for other funds of Government agencies. A t the end of fiscal 1973, Governinent trust funds and
accounts held public debt securities (including special securities issued
for purchase by the major trust funds as authorized by law), Government agency securities, and securities of privately owned Governmentsponsored enterprises. See the Statistical Appendix for table showingthe investment holdings by Government agencies and accounts.
Loans by the Treasury

The Bureau administers loan agreements with those corporations
and agencies that have authority to borrow from the Treasury. See the
Statistical Appendix for tables showing the status of Treasury loans
to Government corporations and agencies as of June 30, 1973.
Foreign indebtedness

World War I,—^The Governments of Finland and Greece made payments during fiscal 1973 of $352,705 and $328,898.02, respectively. For
status of World W a r I indebtedness to the United States, see the Statistical Appendix.
Credit to the Vnited Kingdom,—The Government of the United
Kingdom made a principal payment of $67.2 million and an interest
payment of $63.1 million on December 31, 1972, under the Financial
Aid Agreement of December 6, 1945, as amended March 6, 1957. The
interest payment included $10.9 million representing interest on principal and interest installments previously deferred. Through June 30,
1973, cumulative payments totaled $2,181.4 million, of which $1,198.9
million was interest. A principal balance of $2,767.5 million remains
outstanding; interest installments of $319.9 million which have been
deferred by agreement also were outstanding at the fiscal yearend.
Japan,, postwar economic assistance,—The Government of Japan
made final payment in fiscal 1973 of $152.8 million in principal including a credit of $6.9 million and $3.9 million in interest on its indebtedness arising from postwar economic assistance. Cumulative payments
through June 30,1973, totaled $490 million principal and $83.8 million
interest which liquidated the account in full.
Indonesia., consolidation of debts.—The Government of the Eepublic
of Indonesia made payments in fiscal 1973 of $3,048, 680.10 in principal
and $335,020.67 in interest on deferred principal installments in ac-




114

19 73 REPORT OF THE SECRETARY OF THE TREASURY

cordance with the Indonesian Bilateral Agreement of March 16,1971.
The normal payment of interest on principal is not due until June 11,
1985.
Payment of claims against foreigri governments

The 13th installment of $2 millipri was received from the Polish
Government under the agreement of July 16, 1960, and pro rata payments on each unpaid award were authorized.
A claims agreement between Hungary and the United States was
concluded on March 6,1973. Under the agreement, Hungary will make
20 annual installments of $945,000. The initial installment of $945,000
has been received by the Department of the Treasury. Before any payment can be made on the Hungarian awards, the Foreign Claims Settlement Commission will have to adjudicate and certify new awards.
The agreement also released the blocking controls over all Hungarian
accounts, and the accounts which were divested and held in blocked
accounts by the Department of the Treasury are being released to the
persons entitled.
See Statistical Appendix for more details.
Defense lending

Defense Production Act,—Loans outstanding were reduced from
$5.6 to $2.9 million during fiscal 1973. Further transfers of $3.6 million were made to the account of the General Services Administration
from the net earnings accumulated since inception of the program,
bringing the total of these transfers to $32.8 million.
Liquidation of Reconstruction Finance Corporation assets,—The
Secretary of the Treasury's responsibilities in the liquidation of EFC
assets relate to completing the liquidation of business loans and securities with individual balances of $250,000 or more as of June 30, 1957,
and securities of and loans to railroads and financial institutions. Net
income and proceeds of liquidation amounting to $56.5 million have
been paid into Treasury as miscellaneous receipts since July 1,1957.
Total unliquidated assets as of June 30, 1973, had a gross book value
of $6.5 million.
Liquidation of Postal Savings System

Effective July 1, 1967, pursuant to, the act of March 28, 1966, the
unpaid deposits of the Postal Savings System were required to be transferred to the Secretary of the Treasury for liquidation purposes. As of
June 30, 1970, a total amount of $65,139,269.29 representing principal
and accrued interest on deposits had been transferred for payment of
depositor accounts. All deposits are held in trust by the Secretary pending proper application for payment. Through fiscal 1973, payments
totaling $56,762,139.47 had been made including $737,470.41 during
fiscal 1973.
Public Law 92-117, approved August 13,1971, provided for the periodic pro rata distribution among the 50 States, the District of Columbia, Puerto Eico, the Virgin Islands, and Guam of the available
amounts of unclaimed Postal Savings deposits. A distribution of $1,000,230 was made to the States and the other jurisdictions during fiscal
1973.




ADMINISTRATIVE REPORTS

115

Federal tax deposits

The Federal tax deposit system is used for the collection of individual and corporate income tax, social security tax, railroad retirement
tax, unemployment tax, and Federal excise tax. The Bureau of Accounts prepares and mails Federal tax deposit forms quarterly to private enterprises. During fiscal 1973, the disbursing centers issued more
than 95 million forms. The following table shows the volume of deposits processed by Federal Eeserve banks for fiscal years 1960-73.
Fiscal year

1960
1961
1962
1963
1964
1965.__.
1966
1967
1968
1969
1970
1971
1972
1973

Individual
income and
social security
taxes

Railroad
retirement
taxes

9,469,057
9,908,068
10,477,119
11,161,897
11,729,243
12,012,385
12,518,436
15,007,304
17,412,921
23,939,080
26,612,484
28,714,587
32,336,751
34,606,495

10,625
10,724
10,262
9,937
9,911
9,859
9,986
10,551
14,596
12,479
11,622
12,367
15,080
11,202

Federal
excise
taxes

598,881 .
618,971 .
610,026 .
619,519 _
633,437 .
644, 753 .
259,952 .
236,538
233,083
272,048
296,487
323, 730
364,556
398,624

Corporate
income
taxes

22,783 .
394,792 .
1,297,052 .
1,235,452
1,249,034
1,309,668
1,495,260

Unemployment taxes

192,905
956,201
1,409,527
1,978,266

Total

10,078,563
10,537,763
11,097,407
11,791,353
12,372,591
12,666,997
12,788,374
15,277,176
18,055,392
25,520,659
28,348,950
31,255,919
35,435,582
38,489,847

NOTE.—Comparable data for 1944-59 will be found in the 1962 Annual Report, p. 141.

Government losses in shipment

Claims totaling $294,152.91 were paid from the fund established by
the Govemment Losses in Shipment Act, as amended. Details of operations under this act are shown in the Statistical Appendix.
Donations and contributions

During the year, the Bureau of Accounts received "conscience fund"
contributions totaling $51,894.68 and other unconditional donations
totaling $343,088.32. Other Government agencies received conscience
fund contributions and unconditional donations amounting to
$7,841.59 and $42,801, respectively. Conditional gifts to further the
defense effort amounted to $241. Gifts of money and the proceeds of
real or personal property donated in fiscal 1973 for reducing the public
debt amounted to $11,505.43.
B u r e a u of t h e Public Debt
The Bureau of the Public Debt, in support of the management of
the public debt, prepares Department of the Treasury circulars offering public debt securities; directs the handling of subscriptions and
making of allotments; formulates instructions and regulations pertaining to security issues; and conducts or directs the conduct of transactions in outstanding securities. The Bureau performs the final audit
of retired securities and interest coupons; maintains accounting control over public debt receipts and expenditures, securities, and interest
costs; keeps individual accounts of owners of registered securities and
authorizes the issue of checks in paynient of interest thereon; and ad-




116

1973 REPORT OF THE SECRETARY OF THE TREASURY

judicates claims on account of lost, stolen, destroyed, or mutilated
securities.
The Bureau's principal office and headquarters is in Washington,
D.C. Offices also are maintained in Chicago, 111., and Parkersburg,
W.Va., whei-e most Bureau operations related to U.S. savings bonds
and U.S. savings notes are handled. Under Bureau supervision many
transactions in public debt securities are conducted by the Federal
Eeserve banks and their branches as fiscal agents of the United States.
Approximately 18,600 private financial institutions, industrial organizations, selected post offices, and others cooperate in the issuance of
savings bonds, and approximately 17,100 financial institutions act as
paying agents for savings bonds.
Management improvement

The Division of A D P Services planned for and directed construction
of a new data processing center in the Washington office to house a
large-scale Univac 1108 computer S3^stem, and supervised the installation of the equipment in Februaiy 1973. Management of the center will
be turned over to the Office of the Secretary during the first half of
fiscal 1974. I n addition to servicing the Bureau of the Public Debt, the
center will provide data processing services to several other Treasury
organizations. The Division of A D P Services also completed a major
undertaking by converting all 15 computer applications for the Washington office from the Honeywell 200 systeni to the Univac 1108 system.
A major project was initiated in fiscal 1972 to develop an automated
system for maintaining the accounts of owners of registered Treasury
and agency securities and for preparing check issue data. A full master
record is now maintained on magnetic tape for each registered security
from initial printing, through inscription and issuance, to eventual
retirement. I n addition, the necessary information as to registered interest is maintained for each registered owner, and regular interest
payment authorizations are being generated from the computerized
system. Conversion to the automated system was completed in October
1972. Parallel operations of the old semiautomated system and the new
fully automated system began m July 1972 and will be completed
early in fiscal 1974. The first interest checks under the automated
systeni were issued in July 1973. The systeni will reduce operating
costs, decrease processing time, improve the accuracy of the records,
and generally enhance the efficiency of operations.
I n its continuing efforts to furnish mvestigative agencies with information concerning missing securities, the Bureau has completed
arrangements for the entry of data pertaining to bearer Treasury securities into the National Crime Information Center computer system
maintained by the Federal Bureau of Investigation. The data, which
includes a complete description of each security reported lost, stolen,
or destroyed, will be updated on a daily basis. I t is planned to enter
information relating to registered securities during fiscal 1974.
The Bureau petitioned the National Archives and Eecords Service
for authorit}?- to destroy accumulated retired registered securities, some
of which were issued as long ago as 1836. Authority was granted for
the destructioii of such securities 6 years after the maturity date or




ADMINISTRATIVE REPORTS

117

date of call for redemption, or 6 years after receipt in the Department,
whichever is later. Destruction of the securities was begun, and eventually approximately 6,000 square feet of floor-space used for storage
of securities will be freed for other uses.
I n the Washington office, the Division of Management Services was
established by consolidating the Office Facilities Branch, Printing and
Procurement Branch, Directives Branch, Management Analysis Office,
and the Destruction Conimittee under central direction. The new division has the responsibility for planning, coordinating, and directing
administrative and management improvement programs in the Bureau
and providing related services in the Washington office.
The word processing center in the Correspondence and Clainis
Branch of the Division of Securities Operations successfully began
operation. The facility utilizes a central dictation system and automatic typewriters to link more than 20 correspondents and supervisors
at individual dictating stations to a series of endless loop recorders.
The system, with its capability for simultaneous recording and transcribing, is yielding a reduction of approximately two-thirds in the
time required for the preparation of correspondence.
Treasury will require that the social security nuniber of the owner
or first-named co owner be included in the inscription on all series E
savings bonds with issue dates of October 1, 1973, or later. This will
enable the Bureau to establish a system of ownership records based
on account numbers, which will be more efficient and permit more
timely and accurate servicing of inquiries and claims than the present
system which is based on name and address information. Similarity of
names and multiple changes of address often hamper the identification of bond holdings and the expeditious processing of requests for
information or claims for the replacement of lost, stolen, or destroyed
bonds. The Bureau has developed plans for installing the new system
for bonds issued after the requirement becomes effective.
The program to have large-volume bond issuing agents report series E savings bond sales on magnetic tape in lieu of registration stubs
was further expanded to include one Defense Department installation
and four private companies. Additionally, the number of payrolls
serviced was expanded at one Defense Department installation and
three Federal Eeserve banks. There are now 29 issuing agents participating in the issues-on-tape program.
The move to consolidate all savings bond functions of the Chicago
and Parkersburg offices into one office in Parkersburg is continuing in
an orderly manner. Ground was broken in Parkersburg on June 9,
1973, for a new building expected to be completed in fiscal 1975.
Bureau operations

During the year, 36,301 individual accounts covering publicly held
registered securities other than savings bonds, savings notes, and retirement plan bonds were opened and 48,937 were closed. This decreased the number of open accounts to 257,315 covering registered
securities in the principal amount of $9,396 million. There were 434,020
interest checks with a value of $365 million issued during the year.




118

19 73 REPORT OF THE SECRETARY OF THE TREASURY

Eedeemed and canceled securities other than savings bonds, savings
notes, and retirement plan bonds received for audit included 4,709,976
bearer securities and 327,911 registered securities. Coupons totaling
14,477,717 were received.
,
During the year, 31,842 registration stubs of retirement plan bonds
and 11,110 retirement plan bonds were received for audit.
A summary of public debt operations handled by the Bureau appears on pages 17-24 of this report and in the Statistical Appendix.
U,S, savings bonds,—The issuance and retirement of savings bonds
result in a heavy administrative burden for the Bureau of the Public
Debt, including auditing and classifying all sales and redemptions;
establishing and maintaining registration and status records for.all
bonds; servicing requests from bond owners and others for information; and adjudicating claims for lost, stolen, and destroyed bonds.
Detailed information on sales, accrued discount, and redemptions of
savings bonds will be found in the Statistical Appendix.
There were 143 million stubs or records on magnetic tape and microfilm representing the issuance of series E savings bonds received for
registration, niaking a grand total of 3,646 million, including reissues,
received through June 30,1973. All registration stubs of series E bonds
and all retired series E bonds are microfilmed, audited, and destroyed,
after required permanent record data are prepared by an E D P system
in the Parkersburg office.
Of the 109.6 million series A - E savings bonds and savings notes redeemed and charged to the Bureau during the year, 106.8 million (97
percent) were redeemed by authorized paying agents. For these redemptions the agents were reimbursed quarterly at the rate of 15 cents
each for the first 1,000 bonds and notes paid and 10 cents each for all
over the first 1,000 for a total of $13,907,450 and an average of 13.02
cents per bond and note.
Interest checks issued on current income-type savings bonds (series
H ) during the year totaled 4,208,504 with a value of $398 million. New
accounts established for series H bonds totaled 138,112 while accounts
closed totaled 115,106, an increase of 23,006 accounts.
Applications received during the year for the issue of duplicates of
savings bonds and savings notes lost, stolen, or destroyed after receipt
by the registered owner or his agent totaled 51,386. I n 31,050 of such
cases the issuance of duplicate bonds was authorized. I n addition,
11,482 applications for relief were received in cases where the original
bonds were reported as not being received after having been mailed to
the registered owner or his agent.
Office of t h e T r e a s u r e r of t h e United S t a t e s
The Office of the Treasurer of the United States was created by the
act of September 2, 1789 (1 Stat. 65; 31 U.S.C. 141), for the purpose
of receiving, holding, and paying out the public moneys for the Federal Governnient. The Office maintains accounts of the source, location, and disposition of these funds.
The Treasury checks issued to pay virtually all of the Federal Gov-




ADMINISTRATIVE REPORTS

119

eriiment's obligations are drawn on the Treasurer, and upon their
presentment for payment are examined by the Treasurer's Office and
reconciled against the records of the issuing officers. I n fiscal 1973,
almost 651 million checks were issued from 1,838 disbursing stations.
Clainis for checks that are lost in the mails, or which bear forged
endorsements, are paid by the Treasurer by issuing or authorizing the
issuance of new checks. The Treasurer also handles claims for partially destroyed paper currency.
Most of the Federal Government's operating cash is held in accounts of the Treasurer maintained in the 36 Federal Eeserve banks
and branches. These banks have been designated, pursuant to law, ias
fiscal agents of the United States. Tax and customs receipts, public
debt borrowings, and other incoming moneys are credited to those accounts, and checks drawn on the Treasurer are charged to those accounts after they have been endorsed by the payees and enter the
banking system for payment by the Treasurer. The Federal Eeserve
banks make daily reports of these transactions to the Treasurer, who
keeps cash accounts of the Federal Government's receipts and disbursements and publishes daily financiaLl reports.
Eepresentatives of the Treasurer make regular inspections of the
procedures employed by Federal Eeserve banks in verifying and destroying paper currency of the United States which has become worn
out and will be replaced. Unfit currency in the Washington, D . C , area
is verified and destroyed by the Treasury.
The Treasurer is vault custodian of a quantity of securities iand
other valuables deposited with the Treasury by many Government
agencies.
I n the Washington, D . C , area, the Treasurer supplies coin and currency to local banks, cashes checks drawn on the Treasurer, and issues
and redeems Government bonds and other securities. I n other parts
of the country, these functions are performed by Federal Eeserve
banks and branches.
Management improvements

A D P management,—^During fiscal 1973, work performed for other
agencies by the Treasurer's Office required the services of A D P personnel valued at $318,248. A total of $4,418 was deposited in the general fund of the Treasury on account of reimbursements for computer
usage.
Automation,—The major nianagement improvement project is in
the area of automating check claims operations on third-generation
computers. This involves improving certain clerical processes as well
as accelerating the production of reports, such as check payment and
reconciliation reports, directly related to claims operations. Definitive
progress in this area is expected to be reported next year.
Survey in mutilated check area,—An extensive review of checks
classified as mutilated and forwarded to the Office of the Treasurer,
U.S., by the Federal Eeserve banks was conducted. The survey proved
that a large percentage of checks are not in that classification but are
actually fit for processing. The banks were asked to make a more care-




120

19 73 REPORT OF THE SECRETARY OF THE TREASURY

ful analysis of checks to determine those to be processed as mutilated.
The result has been a significant decrease in the number of such checks
being forwarded to the Treasurer's Office to be reconstructed.
Review of check reconciliation operations,—During fiscal 1973,
Governnient check reconciliation operations were reviewed at all levels
to find and eliminate reasons for the increasing backlog of unbalanced blocks of checks. Several methods of improvement were suggested to disbursing officers, prmcipally by providing them with a list
of deficiencies in their check issue reports. These actions have resulted
in iniproving the quality of the work received from the disbursing
officers iand reducing the reconciliation backlog in the bureau.
Destruction of unfit paper currency.—During fiscal 1973, the Treasurer's Office conducted five more tests of different kinds of pulverizing
equipment to see whether they would satisfactorily destroy currency
unfit for circulation. The objectives are to reduce the use of incineration, the predominant method now used to destroy unfit currency, and
to recycle the high-quality currency paper. As of June 30,1973, seven
Federal Eeserve banks and branches had been authorized to obtain
pulverizing equipment previously approved by the Fiscal Assistant
Secretary, and four of them have installed and are using the equipment.
Internal auditing,-—Audits of the various activities in the Office of
the Treasurer provide the surveillance necessary to assure management that established policies and procedures are being followed and
that assets are propeiiy accounted for. Unannounced audits made of
cash, negotiable securities, bond stock, and check stock are a deterrent to misappropriation of funds. Visits were made to 33 Federal
Eeserve banks and branches to review operations pertaining to canceling, verifying, and destroying unfit paper currency.
As a result of fiscal 1973 audits, internal controls were strengthened
in the processing and recordkeeping of currency, coin, and Government securities. Internal audit work also assisted management in developing more efficient, effective, and econoniical operating niethods.
The audit staff was strengthened by the addition of four auditors
to help meet expanding audit requirements. Professional development
of the staff included attendance by various members at 15 daytime
seminars ranging in length from 2 to 5 days, and completion of 16
semester-length evening courses at local universities. The subject matter ranged from operational auditing, financial management, labor
relations, nianagement and organization, C P A coaching, and fiscal
policy.
Training.—During fiscal 1973 the Treasurer's Office Training
Branch set a record for the bureau. I t not only participated in a far
wider range of programs than ever before, but spent over $34,000
in the process, resulting in marked improvement in both efficiency and
production.
Assets and liabilities in the Treasurer's account

A statement of the assets and liabilities in the Treasurer's account
at the close of the fiscal years 1972 and 1973 appears in the Statistical
Appendix. Balances shown in that statement, which is on a final ac-




ADMINISTRATIVE REPORTS

121

counting basis, may differ somewhat from balances mentioned herein
on'the daily Treasury statement basis. The assets of the Treasurer
consist of gold bullion, coin, coinage nietal, paper currency, deposits
in Federal Eeserve banks, and deposits in comniercial banks designated as Government depositaries.
Gold,—There were only minor changes in the Treasurer's gold stock
during fiscal 1973. The beginning balance of $10,410.1 million was increased by purchases of $0.4 million and reduced by sales of $0.3 million, leaving a balance of $10,410.2 million at yearend. These values
are stated at $38 per fine troy ounce in accordance with the P a r Value
Modification Act approved March 31,1972. Following the further devaluation of the dollar in February 1973 the Treasury proposed legislation which would revalue the gold stock at $42.22 + per ounce, but
this had not been enacted as the year ended.^
Coinage metal,—Stocks of coinage metal stood at $216.8 million
at the beginning of fiscal 1973 and at $320.9 million as the year ended.
Such stocks include silver, copper, nickel, zinc, and alloys of these
metals which are not yet in the form of finished coins.
Balances with depositaries,—The number of depositaries of each
type and the balances on June 30, 1973, on the daily Treasury statement basis, are showii in the following table:
Deposits to the
credit of the
Treasurer of the
United States
Jmie 30, 1973

Number of
accounts \vlth
depositaries ^
Federal Reserve banks and branches
Other depositaries reporting directly to the Treasurer:
Special demand accounts
Other:
Domestic
Foreign 3
Depositaries reporting through Federal Reserve banks:
General depositaries, etc
Special depositaries, Treasury tax and loan accounts.
Total

36

2 $4, 281,154,438

8

16,925,077
24, 245,424

1,989
13,283
.

105,515,000

20
48

74,464, 006
8,432, 667, 281

15,384

12,934,971,226

1 Includes only depositaries having balances with the Treasurer of the United States on June 30, 1973.
Excludes depositaries designated to fm^nish official checking account facihties or other services to Government officers, but which are not authorized to maintain accounts with the Treasurer. Banking institutions
designated as general depositaries are frequently also designated as special depositaries, hence the total number of accounts exceeds the number of institutions involved.
2 Includes checks for $243,385,713 in process of coUection.
8 Principally branches of U.S. banks and of the American Express International Banking Corp.

Bureau operations

Receiving and disbursing public moneys,—Government officers deposit moneys which they have collected to the credit of the Treasurer
of the United States. Such deposits may be made with the Treasurer
in Washington, D . C , or at Federal Eeserve banks, or at designated
Government depositaries, domestic or foreign. Certain taxes are also
deposited directly by the employers or manufacturers who withhold
or pay them. All payments are withdrawn from the Treasurer's account. Moneys deposited and withdrawn in the fiscal years 1972 and
1 See exhibit 52.




122

19 73 REPORT OF THE SECRETARY OF THE TREASURY

1973, exclusive of certain intragovernmental transactions, are shown
in the following table on the daily Treasury statement basis:
Deposits, withdrawals, and balances in the Treasurer's account
Balance at beginning of fiscal year

_

1972

1973

.—

Total withdrawals

$11,309,647,071

228,285,455,364
466,356,112,806

253,206,887,142
497,556,268,758

6,660,949,840
117,118,702,447
25,964,803,130

8,236,440,346
137,503,631,324
28,057,892,802
633,080,977,032

244,879,617,807
437,225,396,321

276,735,923,600
466,675,124,386

5,462,501,032
108,133,198,963
21,286,237,625

5,693,504,307
125,044,047,256
20,341,007,521

589,795,551,759

Total deposits

Cash withdrawals:
Budget and trust accounts, etc
Public debt redemptions 1
—_—
Less:
Redemptions included in budget and trust accounts
Redemptions by Goverrunent agencies 2
Redemptions of securities of Government agencies in market 2

$9,910,720,039

596,826,719,012

Cash deposits:
Internal revenue, customs, trust fund, and other collections
Public debt receipts i_-_
_.._
Less:
Accruals on savings bonds and notes, retirement plan
bonds and Treasm-y biUs
Purchases by Government agencies 2
____
3 of securities of Government agencies in market 2

633,014,503,944

Change in clearing accounts (checks outstanding, deposits in transit,
imclassified transactions, etc.), net deposits, or withdrawals (—)—

—5,632,240,221

2,365,186,714

Balance at close of fiscal year

11,309,647,071

13,741,306,873

_

__

^ For details see Statistical Appendix.
2 "Government agencies," as here used, includes certain enterprises which have been converted to private
ownership.

Issuing and redeeming paper currency,—^The Treasury is required
by law (31 U.S.C. 404) to issue U.S. notes in amounts equal to those
redeemed. To comply with this requirement in the most economical
manner, U.S. notes are issued only in the $100 denomination in the
Washington, D . C , area. I n the course of trade, they also appear in
other areas of the country. U.S. notes represent only a very small
percentage of the paper currency in circulation.
Federal Eeserve notes constitute nearly 99 percent of the total
amount of currency. The Bureau of Engraving and Printing prints
these notes, holds them in a reserve vault for the account of the Comptroller of the Currenc}^, and ships them to Federal Eeserve banks as
needed. To obtain notes for issuance to the commercial banking system, the Federal Eeserve banks must first deposit equivalent amounts
of collateral with their respective Federal Eeserve agents.
As the notes become unfit for further circulation, they are retired
under procedures prescribed by the Fiscal Assistant Secretary. Approximately 97 percent of the notes retired are verified and destroyed
at the Federal Eeserve banks. The remainder are verified and destroyed
at the Treasury in Washington, D.C.
The Treasurer's Office accounts for Federal Eeserve notes from the
time that they are delivered by the Bureau of Engraving and Printing
until redeemed and destroyed. The accounts show the amounts for each
bank of issue and each denomination of notes held in the reserve vault,
held by each Federal Eeserve agent, or issued and outstanding.
The Treasurer's Office retires unfit paper currency of all types received locally in Washington and from the Government officers abroad.




ADMINISTRATIVE REPORTS

123

and handles all claims involving burned or mutilated currency. During fiscal 1973, paynients totaling $5.7 million were made to 51,273
such claimants.
A comparison of the amounts of paper currency of all classes, issued,
redeemed, and outstanding during fiscal years 1972 and 1973 follows:
Fiscal year 1972
Pieces
Outstanding July 1
Issues during year
Redemptions dui-mg year
Outstanding June 30

_._-.

5,613,768,498
2,715,007,699
2,330,529,038
5,998,247,159

Amount
$55,114,602,017.
16,841,876,620
13,054,507,197
58,901,971,440

Fiscal year 1973
Pieces
5,998,247,159
2,868,515,604
2,608,389,304
6,258,373,459

Amomit
$58,901,971,440
19,307,752,400
13,942,985,697
64,266,738,143

Details of the issues and redemptions for fiscal year 1973 and of the
amounts outstanding at the end of the year are given by class of currency and by denomination in a table in the Statistical Appendix.
Other tables in that volume give further information on the stock and
circulation of money in the United States.
Processing Federal tax deposits,—Under provisions of Treasury
Department Circular No. 1079, tax withholders and certain taxpayers
are supplied with partially punched cards which they forward to their
banks with their tax pa37ments. The cards are then routed to Federal
Eeserve banks which complete the punching and forward them to the
Treasurer's Office in Washington. The Treasurer's Office enters the
data from the cards on magnetic tapes which are furnished to the
Internal Eevenue Service for reconciliation with taxpayers' returns.
This procedure obviates any handling of tax remittances in the Department and expedites the crediting of tax payments in the
Treasurer's account.
The types of tax payments which are collected in this manner include withheld individual income and social security taxes, corporation income taxes, certain excise taxes, railroad retirement taxes, and
Federal unemployment taxes. Collections received under this procedure in fiscal 1973 totaled $184,041 million and required the
processing of 38.6 million cards, compared with $159,889 million collected and 32.4 million cards processed in the previous year.
Paying grants through letters of credit,—^Treasury Department
Circular No. 1075, dated May 28,1964, established a procedure to preclude withdrawals from the Treasury any sooner than necessary in
cases where Federal programs are financed by grants or other paynients
to State or local governments or to educational or other institutions.
Under this procedure. Government departments and agencies issue
letters of credit which permit grantees to make withdrawals from the
account of the Treasurer of the United States as they need funds to
accomplish the object for which a grant has been awarded.
By the close of fiscal 1973, 84 Government agency accounting stations were making disbursements through letters of credit. During the
year the Treasurer's Office processed 83,953 withdrawal transactions,
aggregating $35,802 million, compared with 76,569 transactions, totaling $34,658.2 million, in fiscal 1972.
Checking accounts of disbursing officers and agencies,—As of
June 30,1973, the Treasurer maintained 1,838 checking accounts, com506-171—73

11




124

19 73 REPORT OF THE SECRETARY OF THE TREASURY

pared with 1,808 the year before. The nuniber of checks paid by categories of disbursing officers during fiscal 1972 and 1973 follow:
N u m b e r of checks paid
1972
Treasury
Air Force
Army
Navy
..
Other

1973

517,684,629
30,403,130
36,516,872
36,332,907
33,587,763

. .
-

-

-

--.

Total

520,053,169
28,404,826
36,665,847
35,767,193
29,887,097

654,525,301

.

650, 778,132

Settling check claims,—During fiscal 1973, the Treasurer processed
781,000 requests to stop payment on Govemment checks and 50,000
requests for removal of stoppage of payments. This resulted in 511,000
paid check claims acted upon during the year, including 48,000 referred to the U.S. Secret Service for investigation because of forgery,
alteration, counterfeiting, or fraudulent issuance and negotiation.
Eeclamation was requested from those having liability to the United
States on 75,000 claims with a value of $12.9 million. During the ye:ar
51,000 paid check clainis totaling $20.7 million were settled. I n addition, claims by payees and others involving 182,000 outstanding
checks were acted upon. Of these, 170,000 were certified for issuance
of substitute checks valued at $91.3 million to. replace checks that
were not received or were lost, stolen, or destroyed.
The Treasurer treated as canceled and transferred to accounts of
agencies concerned the proceeds of 30,000 unavailable outstanding
checks, totaling $15.9 million.
Collecting checks deposited,—Government offices during the year
deposited 7.8 million commercial checks, drafts, money orders, etc.,
with the Treasurer's Cash Division in Washington for collection.
Custody of securities,—The face value of securities held in the
custody of the Treasurer as of June 30, 1972, and June 30, 1973, is
shown below.
June 3

Purpose for which held

1973
As collateral:
To secure deposits of public moneys in depositary banks.
In heu of sureties
In custody for governmient officers and others:
For the Secretary of the Treasury 1
. For the Comptroller of the Currency
For the Federal Deposit Insurance Corporation
..:
For the Rm^al Electrification Administration
.
Forthe District of Columbia
_._._
:.....•.
Forthe Commissioner of Indian Affairs
Foreign obhgations 2.._
....
Others
.
For government secui'ity transactions:
Unissued bearer securities.
Total

:

$33,626,100 ,
6,855,950
'

•
_

38,896,504,840
11,493,000
245,000,000
183,314,400
500,800,202
1,746,125
12,024,056,451
117,852,334

. $25,119,000
5,422,750
45,530,896,365
11,741,000
245, 000, 000
207,081,400
592,037, 596
952,325
12,019, 828,451
140,617,334

1,611,914,150

1, 634,618,500

53,633,163,552

60,413,314,721

1 Includes those securities hsted in table 107 in the Statistical Appendix as in custody of the Treasury.
2 Issued by foreign governments to the United States for indebtedness aiising from World War I.
3 Licludes U.S. savings bonds in safekeeping for individuals.




ADMINISTRATH^E REPORTS

125

Servicing securities for Federal agencies and Government-sponsored
enterprises.—In accordance with agreements between the Secretary
of the Treasury and the enterprises listed below, the Treasurer of the
United States acts as special agent for the payment of principal and
interest on their securities. A comparison of these payments during
the fiscal years 1972 and 1973, on the daily Treasury statement basis,
is as follows:
Payment made for
Principal
redeemed
Banks for cooperatives
District of Columbia Armory Board
Export-Import Bankof the United states.
Federal home loan banks
.
Federal Home Loan Mortgage Corp
Federal Housing Administration.
Federal intermediate credit banks.
Federal land banks
Federal National Mortgage Associations...
Government National Mortgage Association
..-.:
Tennessee Valley Authority
^
U.S. Postal Service
Washington MetropoUtan Area Transit
Authority
Others
Total

Interest
paid

$3,452,060,000
:
0)
2,355,760,000
. i})
54,127,500
6,486,720,000
1,989,039,700
3,653,214,000
0)
0)

128,425
17,991,049,625

Principal
redeemed

$93,423,813 $3,708,695,000
1,112,622
(i)
402,158,721
566,423,590 2,111,331,000
(i)
175,825,000
20,084,087
86,426,000
313,430,614 6,520, 995,000
455,650,761 2,373,510,500
1,038,847,492 2,945,583,000
.

(1)

$95,898,133
770,259
77,875,366
493,303,838
66,052,353
20,752, 285
311,597,393
504,705,990
1,086,926,620

143,300

112,932,962
.......
8,522,601
,• '
4,098,950
12,351

2,488,991,166 19,639,532,521

2,783,449,100

0)
18,189

374,865,000
940,000,000.

Interest
paid

1 Prior to Nov. 17,1972, payments of principal and interest on these securities were accomplished through
special arrangements with certain Federal Reserve banks.
2 Until Nov. 17, 1972, payments include only the Association's secondary market debentures; thereafter
they also include its capital debentures and mortgage-backed bonds.

OFFICE OF FOREIGN ASSETS CONTROL
The Office of Foreign Assets Control administers the Department of
the Treasury's freezing controls. The Foreign Assets Control Eegulations and the Cuban Assets Control Eegulations prohibit, unless licensed, trade and financial transactions with North Korea, North
Vietnam, Cuba, and their nationals, and block assets in the United
States of such countries and their nationals. Under general licenses,
all transactions with the People's Eepublic of China are authorized
with the exception of transactions abroad by foreigii firms owned or
controlled by Americans involving shipment to the People's Eepublic
of China of • internationally controlled merchandise, imless licensed
under the Transaction Control Eegulations (see below), and with the
exceptions of transactions in Chinese assets blocked in the United
States as of May 6,1971.
The Office of Foreign Assets Control also administers the Transaction Control Eegulations which supplement the export controls exercised by the Department of Commerce over direct exports from the
United States to Eastern Europe and the U.S.S.E. These regulations




126

1973 REPORT OF THE SECRETARY OF THE TREASURY

prohibit, unless licensed, the purchase or sale or the arranging of the
purchase or sale of strategic merchandise located outside the United
States for ultimate delivery to Communist countries of Eastern Europe, the U.S.S.E., Mainland China, North Korea, and North Vietnam. The prohibitions apply not only to domestic American companies
but also to foreign firms owned or controlled by persons within the
United States. A general license permits sales of these commodities to
countries other than North Korea and North Vietnam, providing
shipment is made from and licensed by a COCOM member country.
(COCOM is a NATO entity.)
The Cuban Assets Control Eegulations were administered without
change.
The administration of assets remaining blocked under the World
W a r I I Foreign Funds Control Eegulations was continued. The regulations were amended on March 27,1973, to remove the remaining controls on Hungarian property. This action was taken in connection with
the Settlement of Claims Agreement between the United States and
Hungary signed March 6,1973. These regulations continue to apply to
assets blocked under Executive Order 8389, as amended, of Czechoslovakia, Estonia, Latvia, Lithuania, East Germany, and nationals thereof
who were, on December 7,1945, in Czechoslovalda, Latvia, Lithuania,
or Estonia, or on December 31,1946, in East Germany.
The Office continued administration of the Ehodesian Sanctions
Eegulations. By means of these regulations, the Department of the
Treasury performs its functions and responsibilities under the Executive orders which implement the United Nations Eesolutions calling
upon meiriber countries to impose mandatory sanctions on Southern Ehodesia. An exception to the prohibition against imports of
merchandise of Southern Ehodesian origin is authorized by general
license for certain strategic and critical materials, pursuant to section
503 of the Military Procurement Act of 1971.^
Under the Foreign Assets Control Eegulations and the Transaction Control Eegulations the number of specific license applications
received during fiscal 1973 (including applications reopened) was 144.
During that period 144 applications were acted on.
Applications for licenses and requests for reconsideration under the
Cuban Assets Control Eegulations totaled 361 during fiscal 1973; 367
applications were acted on.
During the same period, 278 applications (including applications
reopened) were received under the Ehodesian Sanctions Eegulations.
A total of 275 applications were acted on.
Comparable figures under the Foreign Funds Control Eegulations
were 146 applications (including reopened) received, and 149 acted on.
Certain broad categories of transactions are authorized by general
licenses set forth in the regulations, and such transactions may be
engaged in by interested parties without the need for securing specific
licenses.
During fiscal 1973, criminal case actions by the Department of Justice involving violations of the regulations administered by this Office
resulted in convictions in two cases and (a) criminal court fines total1 See exhibit 24.




ADMINISTRATIVE REPORTS

127

ing $700, (b) forfeiture of merchandise valued at $537,568, and (c)
civil penalties of $146, 191. The total of criminal fines, civil penalties
and merchandise forfeited amounted to $684,459. The total value of
merchandise under seizures at the end of the fiscal year amounted to
$2,265,100.

INTERNAL REf^^ENUE SERVICE'
The Internal Eevenue Service administers the internal revenue laws
embodied in the Internal Eevenue Code (title 26 U . S . C ) and. certain
other statutes, including the Economic Stabilization Act of 1970, as
amended (Public Law 92-210,85 Stat. 743).
Receipts, refunds, and returns filed

I n 1973, gross collections expanded at a rapid pace, rising to a record $238.1 billion. The increase over last year of $28.3 billion was the
second largest in history. A strong upward trend in personal income
and corporate profits, and excess withholding, were factors influencing this year's revenue picture.
Individual income tax receipts of $125.1 billion showed a $16.2
billion (14.9 percent) increase over last year.
Corporate income tax collections of $39.1 billion, up $14.1 billion
(11.8 percent), reflected higher corporate profits generated by economic expansion which began in calendar year 1971.
Employment tax collections amounted to $52.5 billion, an increase
of more than 20 percent over 1972. The growth of salaries and wages,
higher rates, and increases in the taxable wage base were major factors,
in increased collections. Effective January 1, 1973, the combined employer-employee social security ( F I C A ) rate increased from 10.4 to
11.7 percent, the self-employment (SECA) rate from 7.5 to 8.0 percent, and the railroad retirement rate from 19.9 to 21.2 percent. The
taxable earnings base went up from $9,000 to $10,800 on January
1, 1973.
More than 63 million Americans received refunds in 1973. The 25.8
billion refunded was a record high.
More than 116 million returns of all types were filed in 1973. Individuals filed 79 million returns with 22 million (28 percent) using
the simplified form 1040-A.
Informing and assisting taxpayers

The Service recognizes its obligation to help taxpayers in reporting and computing their tax liabilities. Taxpayer assistance teams in
each district office answered questions and provided tax materials to
taxpayers. Service personnel issued regulations, rulings, simplified tax
1 Additional information will be found in the separate Annual Report of the Commissioner
of Internal Revenue.




128

19 73 REPORT OF THE' SECRETARY OF THE TREASURY

guides, and forms to increase public knowledge and understanding of
tax laws and procedural requirements.
Last year, millions of Americans found answers to many of their
tax questions through weekly question-and-answer columns prepared
by the I E S and published in thousands of daily and weekly newspapers across the Nation. I E S spot announcements were carried by
more than 4,800 radio stations, and over 800 television stations broadcast film spots for taxpayers. Broadcasters aired the spot announcements free of charge, as a public service. They also assisted area I E S
offices by presenting tax inforination programs tailored to local interests and needs. Eesidents of rural areas learned about farmers' tax
problems, while urban area dwellers saw tax presentations for wage
earners and small businesses.
.: Field offices issued nearly 8,000 information releases to the media.
Tliey also answered more than 2,400 inquiries from local newspapers
and broadcasters.
The Service responded to more than 54 million inquiries for assistance with tax matters in 1973, some 12 million more than in 1972. Over
36 million persons telephoned; about 18 million visited Service offices
where approximately 3.8 million returns were prepared; and more
than 250,000 wrote.
Throughout the filing season, the Service extended office hours, pre^
pared individual returns on request, offered toll-free telephone service
in 30 districts, established satellite offices, used "taxmobiles" and information, centers to reach senior citizens and low-income groups, expended cooperative efforts with military installations, and arranged
visits in some areas to nursing homes, hospitals, and other institutions.
Over 9,000. returns were prepared by minicomputers at four test
sites during the 1973 filing period. While the taxpayer waited. Service
employees put basic data into computers which then calculated the tax
liability and printed out a completed 1040-A ready for signature.
Taxpayer reaction Avas very favorable.
;
.
The Service continued the program^ of providing tax information
in Spanish. Districts with a high concentration of Spanish-speaking
taxpayers employed Spanish-speaking taxpayer service representatives
at 77 posts of duty. News releases and information publications printed
in Spanish received wide distribution.
Again this year the Service offered various taxpayer education
I)rograms.
Seven hundred thousand taxpayers received.free assistance through
the volunteer income tax assistance ( V I T A ) program. The program
is designed to train volunteers from civic, community, church, senior
citizens', and students' groups to help lower income and disadvantaged
citizens by providing better understanding of the income tax laws,
enabling them to prepare their own returns, or providing assistance
in the actual preparation of returns. With the increased involvement
of various retirement organizations, particularly the Institute of Lifetime Learning, over 175,000 elderly and retired taxpayers were assisted, more than triple that of last year. Junior chambers of commerce
cooperated to sponsor V I T A nationwide.
Service personnel conducted 850 V I T A classes, training 22,500 vol-




ADMINISTRATIVE REPORTS

129

unteer assistants. Many colleges placed the program in their curricula,
offering students academic credit for their volunteer work.
The Service provided tax material to over 23,000 high schools,
teaching approximately 4,300,000 students to prepare their own returns. I n addition, over 50,000 taxpayers in adult education classes
benefited from a program on how to prepare their own returns.
More than 67,000 tax practitioners attended training programs on
filing requirements and changes in the law.
An estimated 3,300,000 taxpayers viewed or listened to educational
T V and radio programs mostly emphasizing the new short form
1040-A.
Several new programs were added, including a volunteer assistance
program for Spanish-speaking taxpayers, and a fundamentals of tax
preparation course for colleges and universities. More than 600 schools
offered this course to about 41,000 enrollees.
Training personnel developed a new curriculum for newly hired
taxpayer service representatives featuring 6 weeks of classroom training. The Service also developed new courses for all temporary taxpayer service representatives as well as for employees detailed from
other I E S functions during the filing period. A 2-week advanced
tax law course was offered to all incumbent taxpayer service
representatives.
The Service provides many booklets and pamphlets explaining the
tax laws in nontechnical language.
•
Special publications help taxpayers faced with uncommon problems.
For example, when Congress enacted new tax relief provisions in the
wake of Hurricane Agnes, the Service produced a special edition of
Publication 547, "Tax Information on Disasters and Casualty Losses
and Thefts." On announcement of the Vietnam cease-fire, the Service
issued Publication 815, "Tax Inforniation for Returning P O W ' s " and
Publication 816, "Tax Information for Families and Executors of,
Missing Servicemen."
Other new tax guides released in 1973 were Publication 581, "Questions and Answers Eegarding Original Issue Discount on Savings
Deposit Arrangements," and Publication 583, "Federal Use Tax on
Civil Aircraft."
Enforcement activities

The Service carries out enforcement activities to encourage and
achieve maximum compliance, the heart of the Ainerican system of
self-assessment. Through the examination program, the Service seeks
to assure correctness in reporting income and claiming deductions.
This, in turn, builds public confidence that taxpayers are treated alike,
which generates voluntary compliance.
Investigation of return preparers.-—Disclosure of a high percentage
of incorrect and fraudulent returns prepared by incompetent and unscrupulous commercial return preparers resulted in a nationwide coordinated return preparer compliance program in 1972. This program
continued in 1973. Following development of more sophisticated methods of identifying suspect preparer returns, the number of audit
examinations and intelligence investigations of fraudulent return preparers increased.




130 ° 1973 REPORT OF THE SECRETARY OF THE TREASURY
During the 1973 filing period, the Service issued press releases
cautioning taxpayers to choose their tax return preparer carefully.
I n addition, it announced that agents would anonymously visit hundreds of return preparers with income and deduction data and withholding forms to have returns prepared. A total of 4,977 tax returns
were prepared for Service employees posing as clients, and 1,112, or
22 percent, of these returns appear fraudulent. From January 1972
through June 1973, the Intelligence Division arrested or obtained indictments against 420 tax return preparers. So far, 209 have been convicted or have pleaded guilty.
As of June 30, 1973, the Audit Division had examined 234,938 returns under the program resulting in additional tax and penalties' of
more than $43.8 million for an average of $187 per return examined.
Approximately 4,200 preparers of these returns were identified during
the 1973 program.
Courts are dealing more severely with convicted return preparers.
More than 53 percent have received prison terms. During March 1973,
five of six return preparers sentenced receiyed prison terms varying
from 3 months to 3 years.
The following are examples of 1973 convictions:
A self-proclaimed tax expert was sentenced to 3 years in prison
after being convicted of preparing fraudulent tax returns. His fradulent claims included a gasoline tax deduction for a person unable to
drive, and business telephone expenses for a person who did not have
a phone.
A man was indicted on 22 counts of aiding and assisting in preparing false income tax returns. His clients testified at the trial that he
had, without their knowledge or consent, falsely claimed itemized
deductions, personal exemptions, and employee business expenses on
their returns. Many of his clients could neither read nor write English,
and he frequently diverted to his own use nioney intended to pay his
clients' tax liabilities. He was comdcted on all counts and sentenced
to 9 years in prison, with 6 years' probation to follow imprisonment.
Another was found guilty of 18 counts of preparin.cr false returns
and sentenced to 3 years in prison. A total of 271 clients had been
misled.
Computer selection of returns and assistance in aduits.—^The Service uses computers programmed with mathematical formulas to identify returns having the highest probability of tax error. Through the
system, the Service has reduced the number of taxuavers contacted
whose audit would result in no tax change, and identified returns most
in need of examination. This year corporation returns with assets
under $1 million Avere added to the computerized systeni for selecting
returns for audit.
Machine-sensible records are becoming available in more audits
where accounting records are processed through automatic data processing: systems. The Service has evaluated several thousand A D P
installations and advised taxpayers concerning the records they should
retain for audit purposes. These machine-sensible records permit rapid
retrieval, analysis, and calculation of data. Another advantage is that
the computer checks great masses of data that would be impractical
to do manually and prints only data of audit interest. The technique



ADMINISTRATIVE REPORTS

131

results in substantial savings in manpower and nioney for the Service
and the taxpayer.
Results of audit activity,—The Service examined 1,770,971 returns
in 1973. Additional tax and penalties recommended amounted to $5.1
billion—^^an alltime high, and an increase of $1.7 billion over 1972.
Three of every four examinations involved individual income tax
returns. These returns accounted for $1.1 billion in tax deficiency
recommendations. Corporate returns, representing 6.9 percent of total
examinations produced recommendations for assessment of an additional $3.1 billion.
Not all examinations resulted in an increase in tax liability. I n
1973, Service examinations disclosed overassessments on many returns, resulting in refmids of $275.7 million.
Administrative appeals system,—Historically, the Service has encouraged resolving tax disputes through the administrative appeals
system rather than through litigation. The Service provides the taxpayer who disagrees with a proposed adjustment to his tax liability
with an opportunity for an early, independent review of his case at
one of the 58 district offices or 40 regional appellate offices throughout
the country. As need arises, the Service also provides conferences at
other locations where it is not feasible to maintain a full-time conference staff. A t both district and regional appellate offices, a conference is offered soon after the case is received, to the extent possible
at a date, time, and place convenient to the taxpayer.
Informal proceedings prevail. Taxpayers may represent themselves
or be represented by counsel. I n either case, they are given every
opportunity to present their views. If the case is not settled, the taxpayer is informed of his further appeal rights and options available
to him. I n a large majority of cases, taxpayers and Eevenue Service
conferees at district or regional level reach a mutually acceptable
basis for resolving disputes. The result is that relatively few cases
actually go to trial.
I n 1973, the appeals function disposed of 54,351 cases by agreement;
the Tax Court decided 1,293 cases and the U.S. district courts and
Court of Claims decided 445 cases. •
Tax fraud investigation^,—The Intelligence Division enforces the
criminal tax statutes by investigating instances of tax fraud including suspected income and excise tax evasion, failure to file returns,
false withholding exemption statements ( W - 4 ) , false claims for refunds, false estimated tax credits, perjury, failure to remit trust funds
collected, and evasion of wagering taxes.
Improved techniques helped produce a record number of prosecution
recommendations this year. The Intelligence Division completed 8,601
investigations and reconimended prosecution in 2,555 cases. Grand
juries indicted 1,186 taxpayers. Prosecution was successfully completed in 1,104 cases. Of these, 914 taxpayers entered guilty pleas and
190 were convicted after trial. Acquittals and dismissals totaled 55
and 112, respectively.
Tax fraud is not confined to any occupational or social group. This
year, the Service recommended prosecution of taxpayers engaged in
250 different industries and occupations. The following cases illustrate
the Service's efforts to maintain balanced coverage. •




132

1973 REPORT OF THE^ SECRETARY OF THE TREASURY

A nationally knowii businessman and financier Avas indicted for
failing to report more than $6 million in income from stock transactions. An investigation disclosed that he evaded $1,443,231 in taxes.
This is one of the largest individual tax cases in I E S history.
The owner of a large court-reporting service in the Midwest was
found guilty of failing to file income tax returns for 1965, 1966, and
1967. He was sentenced to serve 1 year in prison and fined $10,000,
in addition to taxes and penalties assessed. The judge, upon learning
that he had failed to file returns for the years 1955 through 1967,
declared that his was "the most flagrant case of Avillful failure to file
that I have been able to find in the lawbooks."
A world-renowned surgeon was indicted on five counts of willfully
attempting to evade his income tax. Investigation of his tax returns
disclosed that he failed to report a substantial part of his fees and
income from other sources, and that he claimed personal expenditures
as professional expenditures. He was convicted on all counts and received a 6-month suspended sentence (upon the condition that he work
free of charge in an Army hospital), 5 years' probation, and fined the
maximum amount of $50,000. The remaining civil settlement involves
approximately $500,000 in taxes and penalties.
A gambler was convicted on each count of a 15-count indictment
charging him with willfully attempting to evade payment of Federal
excise tax on wagers. He receiA-ed a 5-year prison term on each count,
to be served concurrently. Betting records seized by the local fire department during a fire at his handbook premises led to his conviction.
A tile setter pleaded guilty to three counts of preparing and presenting fraudulent claims against the Government for the years 1967,
1968, and 1969. H e used A^arious schemes including filing a joint return
when he was not married, claiming credit for income taxes withheld
when none were, and failure to report income received. H e was sentenced to 1 year in prison and placed on 2i/^ years' probation.
Delinquency investigations.—Although most taxpayers comply with
filing requirements, the SerAdce has a continuing program to ensure
that those taxpayers who do not fulfill their obligation are identified
and appropriately assessed. Stepped-up enforcement efforts in 1973
produced 873,000 delinquent returns, an increase of 116,000 over the
preceding year. Assessed tax penalties and interest on these delinquent
returns totaled $453,000, some $72 million more than last 3^ear. Service
enforcement personnel also collected $2.4 billion in delinquent accounts, $115 million above last year.
Organized crime and strike forces,—The Internal Eevenue Service
joined the Federal coordinated drive on organized crime in 1966 and
has since expanded its efforts to 18 key locations throughout the United
States. Each strike force is organized by the Department of Justice
,with Federal investigative agencies participating under the leadership of a strike force attorney-in-charge. The Service has been the
maj or contributor of investigative manpower.
Since inception of the strike force concept, 238 organized crime
members and their associates have been convicted or have pleaded
guilty to various tax charges. More than $500 million in additional
taxes and penalties have been proposed for assessment.
The following are examples of strike force activities.




ADMINISTRATH^E REPORTS

133

Approximately 100 Service agents swept the Boston area in a drive
to collect an estimated $3.5 million in unpaid excise taxes from 62
bookies. Eevenue officers seized bank accounts, autos, and other personal effects.
The Service filed tax liens totaling $1.8 million on the personal
property of five Hartford, Conn., men who allegedly ran an $18 niillion-a-year bookmaking operation.
A Miami strike force investigation resulted in a conviction Avith a
15-year prison sentence and $60,000 fine. The investigation disclosed
extortion and interference with interstate commerce. An associate
Avas sentenced to 10 years' imprisonment and fined $5,000.
A New York crime figure was sentenced to 5 years in prison and
fined $15,000 for income tax evasion. He is reputed to be the heir-apparent to organized crime's "boss of bosses." While the trial was in
progress, there were attempts to intimidate Avitnesses, and one key
witness was relocated because of possible retaliation.
I n Las Vegas, tAvo pleaded guilty to charges of conspiring to evade
the income taxes of the Flamingo Hotel and for conspiring to violate
the interstate gambling statutes. Both were sentenced to 1 year in
prison and fined $20,000.
International IRS activity

The SerAdce has a broad overseas program consisting of three functions : Administration of tax laws as they apply to U.S. citizens living abroad, nonresident aliens, and foreigii corporations; assistance to
developing countries in improving their systems of tax administration;
and participation in the negotiation of tax conventions or treaties with
foreign countries to prcA^ent double taxation.
Tax administration abroad.—The Service operates 10 foreign posts
to provide a link between U:S. citizens and businesses abroad aiid the
domestic tax program. The posts are located in Bonn, London, Manila,
Mexico City, Ottawa, Paris, Eome, Saigon, Sao Paulo, and Tokyo.
Heading each post is a Eevenue Service representative responsible for
carrying out Service compliance actiAdties Avithin a designated geographical area. In addition, he handles requests for information from
foreign tax authorities in resolAdng double taxation cases or other inequities originating under tax treaties and furnishes information and
assistance to U.S. citizens having tax problems.
This year, the SerAdce again expanded its overseas enforcement
efforts by detailing teams of revenue agents and tax auditors to foreign
posts. Each agent-auditor team is stationed abroad for 6 months and
is replaced by another team to ensure year-round compliance coverage.
The agents and auditors travel throughout the post territory examining returns and performing related work at the post headquarters.
Also, 20 specially trained Service personnel, including three taxpa3^er
service representatives, visited 102 cities in 60 countries where they
assisted 36,371 persons in filing their U.S. tax returns.
Tax seminars held in 57 foreign cities broadened the base of the overseas tax assistance program. The seminars are group oriented and
structured to allow time for a discussion of tax rules, questions and
answers, and preparation of returns.




134

1973 REPORT OF THE SECRETARY OF THE TREASURY

Approximately 900 military personnel received classroom income
tax instruction at 31 military bases overseas, after which they assisted
numerous other members of the military community. For the first time
women made up part of the I E S instructor team.
Technical assistance in tax administration.—The Tax Administration Advisory Staff provides technical assistance in tax administration
to foreign governments. State governments, and international organizations. Assistance is provided in the following ways: (1) Assigning
full-time resident advisors for long terms; (2) assigning short-term
advisors for specific purposes; (3) developing and presenting training
programs in specific areas of tax administration; (4) arranging discussions and visits to I E S facilities; and (5) coordinating and supporting other international tax administration organizations.
The I E S international advisory program began in 1963 under an
agreement with the Agency for International Development, with five
advisors assigned to three countries. By 1967, the number of advisors
had increased to 82 men in 21 countries. A t the close of 1972, 24 advisors remained on assignment in Bolivia, Colombia, E l Salvador,
Guatemala, Guyana, Jamaica, Paraguay, Trinidad-Tobago, Uruguay,
and Vietnam.
I n fiscal 1973, advisory services included audit, collection, data processing, and public information. Internal support areas, such as, organization and methods studies, training, long-range planning, and
budgeting also received attention.
Furnishing technical aid and locating retired I E S employees to
serve as consultants are among the ways the advisory staff assists a
number of international organizations that provide assistance in tax
administration. Eetirees serve in Botswana, Africa, under an Agency
for International DcA^elopment contract; in Panama, with the InterAmerican Center for Tax Administration; in Malaysia, with the
International Executive SerAdce Corps; in Lebanon, with the Ford
Foundation; and in Ethiopia, with the International Monetary Fund.
Under the Intergovernmental Personnel Act, I E S advisors now provide teclinical assistance to State administration agencies. These assignments range from a few weeks to several months, and contribute to
increased cooperation between I E S and the State tax authority. The
I E S also furnished technical assistance to Guam and Puerto Eico.
Tax treaties.—Tax treaty programs include exchange of information to eliminate tax avoidance and periodic meetings between competent authorities to develop new avenues of cooperation, to eliminate
double taxation, and to clarify application and interpretation of treaties. During the past year Treasury renegotiated tax treaties with Belgium, Japan, and Norway. I n addition, an income tax treaty with the
Soviet Union was signed and aAvaits Senate ratification.
Planning activities

Eecent legislation on revenue sharing and Federal collection of State
income tax played a key role in the Service's planning activities in
1973. Service planners also assisted the Office of the Secretary in several legislative proposals, the most important relating to measures to
curb abuses among tax return preparers, and to reforms in estate and
gift taxes, employment taxes, and employee benefits (pension plans).



ADMINISTRATIVE REPORTS

135

The Service also submitted recommendations to alleviate administrative problems encountered in enforcement of existing laws.
I n the second session. Congress enacted nine bills with varying
degrees of impact on the Internal Eevenue Code. Among these were
Public Law 92-512, which included the State and Local Fiscal Assistance Act of 1972 establisliing the general revenue-sharing program;
and the Federal-State Tax Collection Act of 1972, which authorized
Federal collection of State individual income taxes.
The State and Local Fiscal Assistance Act of 1972 authorizes the
inclusion of information about place of residence on individual returns.
The Service has provided certain tax return information, coded by taxpayer place of residence, to the Bureau of the Census for estimating
population and per capita income for all governmental units eligible
for revenue sharing.
The Federal-State Tax Collection Act of 1972 authorizes the SerAdce
to enter into agreements with States to collect State individual income
taxes. Under the law, a State would have to conform its individual income tax law closely to Federal tax law. The procedures would also
require redesign of some I E S systems, modification of tax returns and
instructions, and changes in regulations and master file systems. Federal collection of State individual income taxes can go into effect only
after two or more States (representing 5 percent or more of the Federal
individual income tax returns) request the Federal Government to collect their income taxes. No requests had been made by the end of the
fiscal year.
Taxpayer compliance measurement program,—The taxpayer compliance measurenient program (TCMP) uses statistical techniques to
determine how well taxpayers comply with tax laws. T C M P provides
data that enables the Service to allocate audit resources most efficiently
among classes of taxpayers and to develop the most effective delinquent accounts and returns program. T C M P information is also used
to develop formulas for computer selection of returns with the highest
probability of tax change for audit. The SerAdce updates formulas
based on the most recent T C M P survey results. During 1973, new
formulas, based on a T C M P survey of corporations with assets of less
than $1 million, were used in screening small corporate income tax
returns for audit.
Tax forms activity

During fiscal 1973, the Service took a number of steps to simplify its
forms and form letters. Most notable was the reintroduction of the
short form individual return, form 1040-A, after an absence of 3 years.
Several recent changes in law, such as the increase in the standard
deduction and an increase in the ceiling of the optional tax tables to
$10,000, made it feasible to bring back the short form. Over 22 million
of the country's 78 million filers used this abbreviated return.
The Service also developed form 4875, used by more than 2,420,000
individual tax filers to designate $1 to the Presidential election campaign fund. This form was designed as a separate attachnient to protect
the taxpayer's privacy with respect to his designation of political
affiliation.
Other significant forms developed during the year to comply with




136

19 73 REPORT OF THE SECRETARY OF THE TREASURY

the Eevenue Act of 1971 Avere form i r 2 0 - D I S C , a return for Doinestic
International Sales Corporations, and form 4874, which taxpayers use
to compute the tax credits available to employers who hire under the
work incentive ( W I N ) prograni.
Inspection programs

Through internal audit and internal security programs. Service
managers are assisted in maintaining high standards of integrity and
operational effectiveness.
The Internal Audit Division reviews Service operations to be sure
they are carried out properly and efficiently.
. The Internal Security Division conducts background investigations
on applicants and investigates complaints of misconduct or irregularities concerning Service employees. The Division also investigates persons outside the Service who attempt to corrupt Service employees
through bribery or other means.
The Internal Security Division assumed jurisdiction over assaults
and threats against I E S employees in March 1972. During the fiscal
year employees reported 488 assaults or threat complaints, resulting
in 53 prosecution actions and 17 convictions.
Actions by management on problem areas detected during internal
audits result in increased operating efficiency, strengthened internal
controls, and improved taxpayer service, and generally foster a climate
of integrity and responsibility within the Service. Many improvements
and long-term benefits cannot be measured monetarily. I n areas that
can be measured, savings and additional revenue, averaging over $30
million per year in recent years, exceeded $40 million in fiscal 1973.
Participation in the economic stabilization program

The Internal Eevenue Service has played a key role in administering
the economic stabilization program since its inception in August 1971.
During the 90-day freeze (August 15 through November 13,1971) the
Service operated local information and compliance centers under the
direction of the Office of Emergency Preparedness.
On November 14, 1971, Phase I I began, featuring a set of controls
on prices, wages, and rents designed to hold the yearly rise in prices
to 2.5 percent, and wage increases to 5.5 percent. The Service also took
over responsibility for directing adniinistrative activities. Policy direction was received from three bodies—the Cost of Living Council,
the Price Commission, and the P a y Board.
While Phase I I I , which began January 11, 1973, placed mandatory
controls on about 850 of the Nation's largest firms and on certain problem industries, its primar}^ emphasis wks on voluntary adherence to
price and wage guidelines. The Cost of Living Council became the sole
policymaking body, and the Pay Board and Price Comniission were
abolished.
.The Service's role in the economic stabilization program has varied
with the changes in emphasis. During Phase I, I E S used most of its
3,000-man stabilization work force to ansAver questions posed by the
public and to investigate complaints. During Phase I I , I E S was the
principal contact point with the public on stabilization matters and
was charged with three major functions: (1) Providing the public




ADMINISTRATIVE REPORTS

137

with information needed to comply with regulations, (2) serving as
the initial contact on citizens' requests for exceptions or exemptions
and handling appeals from judgments or interpretations, and (3)
investigating complaints of alleged violations.
I n Phase I I I , I E S responsibilities were: (1) Providing investigative support to the Cost of Living Council, (2]) monitoring the economic activity of selected industries, (3) answering inquiries and providing information to the public, and (4) acting on exception requests,
and hearing appeals from health and food processing industries.
With Phase I I I wage and price guidelines operating mainly on a
A^oluntary basis, compliance and enforcement assumed a different perspective. The Cost of Living Council was responsible for determining
if violations had occurred and ordering rollbacks and refunds. The
Service's function becanie mainly that of a factfinder for the Cost of
LiAdng Council.
The Service established a nationwide industry monitoring system
to proAdde information about pricing trends in selected industries, to
identify apparent violations of Phase I I I guidelines, and to create a
nationwide compliance presence.
The Service's primary mission in the price area has been to investigate the pricing practices of the approximately 850 firms with sales
of $50 million to $250 million.
A special 3-month survey was conducted of 450 of the Nation's
larger firms designed to remind the business community of its obligation to maintain certain records and to voluntarily support Phase I I I .
Service personnel contacted 27,000 retailers, wholesalers, and
packers to assure compliance with pricing and posting requirements.
On June 13,1973, President Nixon ordered a 60-day freeze on most
prices. The Cost of Living Council and Internal Eevenue SerAdce were
given the responsibility for enforcing the freeze regulations, answering inquiries, and processing requests for exceptions. I E S field offices
were fully prepared for freeze operations by June 15. I n some areas
office hours were extended to better serve the public.
Major management improvements

The Service has given renewed emphasis to Government-wide efforts
to reduce costs. I n the first year of a 2-year program, average GS grade
was reduced from 7.8 to 7.5 for a savings of approximately $11 million
in payroll costs.
The grade deescalation program has encouraged I E S managers to
seek new methods to accomplish savings in their personnel resources.
For example, I E S executives have taken advantage of the favorable
labor market by recruiting college graduates at lower grades where
possible; have increased use of paraprofessionals; have established
firmer controls over the filling of vacancies; and have revised work
methods and assignments to assure concentration of work at existing
grade levels.
Management careers programs.—A new servicewide management
careers program covers National Office, regional, and district managerial positions within Accounts, Collection and Taxpayer SerAdce
( A C T S ) , Compliance, and Administration. The major aspects of this
program include: (1) Eequired training for first-line supervisors se-




138

1973 REPORT OF THE SECRETARY OF THE TREASURY

lected under the program, before they take over their supervisory
positions; and (2) district, regional, and National Office boards to
oversee the development and advancement of employees. I n conjunction with this program, the SerAdce set up an ongoing supervisory
assessment center which appraised approximately 800 applicants for
first-line superAdsory j obs.
The Service is launching a new career program to fill lower level
management positions in service centers and the Detroit Data Center.
Major features include: Establishment of a career board, thereby
placing reliance on collective judgment; a comprehensive selection
and development process; national guidelines with provision for local
flexibility; option to select in advance of vacancies, with opportunity
for training before assuming new duties; and continued emphasis on
career development and training of those new in management jobs.
The Service continued its executive selection and development program and selected 31 persons for the 1974 class.
Multiumt agreement xoith NAIRE,—A second multiunit agreement
with the National Association of Internal Eevenue Employees
( N A I E E ) was signed on April 13,1973. This agreement covers about
26,000 employees of nine service centers, the National Computer Center, and the I E S Data Center. Important provisions of the agreement
deal with promotions, performance evaluations, grieA^ances and disciplinaiy proceedings, layoff and recall of seasonal employees, and
written agreenient that the union will take action to prevent strikes.
Because of the expansion in union activity, the Service has increased contract administration and labor relations training for managers, supervisors, and personnel officers;
Recruitment efforts,—In July 1972, the Civil Service Commission
took away the special salary rates for intemal revenue agents and
special agents Avhich had been in effect for several years. I n spite of
this, the Service was successful in meeting its fiscal 1973 recruitment
goals. Service offices hired some 1,200 internal revenue agents, 890
revenue officers, 500 tax auditors, 350 special agents, and 160 estate
tax attorneys. Late in the fiscal year, after revicAV of labor market and
economic conditions aff'ecting the supply of accountants, the Civil
Service Comniission reestablished special higher salary rates for entrance-level accountants and internal revenue agents. The rate changes
came in time to aid spring recruiting for fiscal 1974 advance attrition
hiring.
Realistic performance evaluation,—The N A I E E / I E S Multi-District Contract requires a series of task forces to develop new job-related
performance evaluation criteria for five major occupational areas:
Eevenue agent, revenue officer, estate tax attorney, clerk, and secretary.
The Service established new performance evaluation procedures
providing for better communication between an employee and his
supervisor.
Egual employment opportunity {EEO) activities,—The Equal Employment Opportunity Act of 1972 reinforced the Federal Government's responsibility to assure equal employment opportunity.for all
Federal employees and applicants for employment. The law requires
Federal agencies to prepare E E O affiririative action plans on a national
and local basis for Civil Service Commission approval. Eegional of


ADMINISTRATIVE REPORTS

139

fices, districts, and service centers prepared plans under the new regulations for the first time this fiscal year. The scope and format required for the plans were so radically different from those of the past
that many initial difficulties occurred in trying to meet the requirements of the new law and gain approval by the Commission. However,
at the end of the fiscal year, virtually all affirmative action plans were
approved and in operation across the country.
Protection of facilities.—The Service continued to strengthen the
physical security of its data processing activities to ensure uninterrupted operation of the revenue collection function. Intimidations
against Service operations were handled without major incident.
While the number of bomb warnings did not change from the previous year, the number of man-hours lost by building evacuation did
increase significantly due largely to a mass evacuation at one facility.
Data Center moved to new location,—The I E S Data Center moved
to a new building in downtown Detroit. The building was especially
constructed to meet the Center's needs and provides about 200,000
square feet of space. This move gives the Data Center excellent office
space for a 20-year lease period and a degree of permanence the employees had not previously enjoyed.
The George S, Boutwell Auditorium dedicated,—^Witli the assistance
of the General Services Administration, the Service completed a muchneeded auditorium on the seventh floor of the National Office Building.
Named after the first Commissioner, the facility seats 204 people and
affords improved conference and hearing accommodations for large
groups of employees and officials from Government and private
industry.

BUREAU OF THE MINT^
The Mint became an operating bureau of the Department of the
Treasury in 1873, pursuant to 31 U.S.C. 251. All U.S. coins are manufactured at U.S. Mint institutions. The Bureau of the Mint distributes
coins to the Federal Eeserve banks and branches, which in turn release
them, as required, to commercial banks. In addition, the Mint maintains phj^sical custody qf Treasury monetary stocks of gold and silver;
refines and processes silver bullion; handles various deposit transactions including intermint transfers of bullion; and moves, places into
storage, and releases values from its custody for such purposes as
authorized.
Functions performed by the Mint on a reimbursable basis in fiscal
1973 included: The manufacture and sale of numismatic Eisenhower
dollars; the production and sale of proof coin sets and uncirculated coin
sets; the manufacture and sale of medals of a national character; and,
as scheduling permitted, the manufacture of foreign coins.
1 Additional information is contained in the separate Annual Report of the Director of
the Mint.
506-171—73
^12



140

1973 REPORT OF THE SECRETARY OF THE TREASURY

The Bureau of the Mint headquarters is located in Washington,
D.C. Operations of the Mint are performed at six field facilities. Mints
are located in Philadelphia, Pa., and in DeuA^er, Colo.; assay offices
are in New York, N.Y., and San Francisco, Calif.; ^ bullion depositories are situated at Fort Knox, Ky. (for gold) and at West Point,
N.Y. (for silver). The West Point Depository is an adjunct of the New
York Assay Office.
The Mint reorganization implemented during the prcAdous fiscal
year was further refined by the appointment of an Assistant Director
for West Coast Operations early in fiscal 1973. During the year that
office assumed supervision of the Data Center Division and the West
Coast Special Coinage and Medals Division, Avliile actively participating in restoration of the Old San Francisco Mint, where the Office
of West Coast Operations is physically situated.
The Mint's Internal Audit Staff conducted audits of selected financial, operational, and protection areas where potential for improvement seemed to exist. Late in the fiscai year it Avas determined that the
audit function would be more effective if the staff were decentralized.
Accordingly, plans were initiated to place resident auditore in the
field to permit more onsite audit time at Mint institutions outside of
Washington. This will result in a reduction in travel costs as Avell as a
reduction in the persoimel strength of the headquarter's audit staff.
The Bureau of the Mint deposited $446,613,699 into the general fund
of the Treasury during fiscal 1973. Seigniorage on U.S. coins accounted
for $395,132,528 of the deposit.
Bureau of the Mint operations, fiscal years 1972 and 1973
Fiscal year

Selected items

1973
Newly minted U.S. C3ins issued: 1
1 dollar
50 cents—
25cents.__10"cents
L.
_
5 cents
Icent

60,060,027
228,029,973
498,060,832
814,244,006
582,808,890
6,523,487,520

7,737,660,235

8,706,681,248

740,343,393

588,151,751

._._.
_

Total...
Inventories of coins in Mints, June 30.
Electrolytic refinery production:
Gold—fine ounces
Silver—fine ounces
Balances in Mint, Jmie 30:
Gold bullion—fine ounces
Silver bullion—fine ounces
A^isitors touring mint exhibit areas.-..

1.

206,144,905
320,858,262
356,575,753
460,775,885
464,548,068
5,928,757,362

_.__

__„

.

.

..

.
i

4,576,251.270

_..
,

./

5,029,331.790

267,007,869
47,416,220
796,682

" 267,011,102
45,791,428
801,901

1 For general circulation only.

Domestic coinage

During fiscal 1973, U.S. mints produced cuxoronickel-clad dollars,
half dollars, quarters, and dimes; cupronickel 5-cent pieces; and 1-cent
pieces composed of 95 percent copper, 5 percent zinc for general circulation. The Philadelphia Mint manufactured 4,409,751,056 coins
AAdth a face value of $251,536,356; the Denver Mint produced
2 The San Francisco facility also operates as a mint.




ADMINISTRATIVE REPORTS

141

3,865,662,294 coins Avith a face value of $215,821,958; and the San Francisco Assay Office made 277,795,008 1-ceiit pieces with a face value of
$2,777,950.08. Thus, a total pf 8,553,208,358 coins were manufactured
for general circulation, an increase of approximately 306 million coins
from fiscal 1972.
The Bureau of the Mint delivered 8,706,681,248 coins to the Federal
Eeserve banks and branches and the Offic.e of the Treasurer of the
United States during the fiscal year. Total shipments exceeded total
production, reducing Mint inventories to approximately 588 million
coins at the fiscal year's end.
U.S. coins manufactured, fiscal year 1978
General circulation
Denomination

1 dollar:
Cupronickel
Silver-clad
50 cents
25 cents
10 cents
5 cents
Icent
Total

Nimiber of
pieces

Face value

55,551,342 $55,551,342.00
215,687,700 107,843,850.00
556,264,608 139,066,152.00
740,993,700 74,099,370.00
593,211,000 29,660,550.00
6,391,500,008 63,915,000.08

Numismatic ^ "

Total coinage

Number of
Number of
pieces
Face value
pieces.

Face value

814,677 $814,677.00
56,366,019 56,366,019.00
2 4,004,151 4,004,151.00
4,004,151
4,004,151.00
3,018,002 1,509,001.00
218,705,702 109,352,851.00
3,018,002
754,500.50
559,282,610 139,820,652.50
3,018,002
301,800.20
744,011,702 74,401,170.20
3,018,002
150,900.10
596,229,002 29,811,450.10
3,018,002
30,180.02 6,394,518,010 63,945,180.10

8,553,208,358 470,136,264.08 19,908,838 7,565,209.82 8,573,117,196 477,701,473.90

1 All numismatic coins were manufactured in the U.S. Assay Oflice at San Francisco and include 2,203,325
proof sets dated 1972 and 814,677 sets dated 1973. The 1973 sets contain six coins (a cupronickel dollar was
added).
2 Consists of 2,193,056 silver-clad Eisenhower dollars of the uncirculated variety (bearing the date 1972)
and 1,811,095 proof dollars, all of which were sold to the public at premium prices.
NOTE.—All dollars, half dollai'S, quarters, and dimes for general circulation are three-layer composite
coins—outer cladding 75 percent copper, 25 percent nickel, bonded to a core of pure copper. The proof coins,
except for the silver-clad numismatic Eisenhower doUars, are of the same metallic composition as those for
general issue. The numismatic silver-clad doUars are three-layer composite coins with an outer cladding 800
parts silver, 200 parts copper, bonded to a core of approximately 215 parts silver and 785 parts copper.

Foreign coinage

The Mint is authorized to produce coinage for foreign countries on a
reimbursable basis provided it does not interfere Avith production of
U.S. coinage. During fiscal 1973, the Denver Mint manufactured
297,218,500 coins for the Philippines and 5,000,000 pieces for Honduras. The Mint facility at San Francisco made 90 million coins for
the Philippines, 37 million for E l Salvador, and 2,100,000 for Haiti,
all for general circulation. San Francisco also produced proof and
uncirculated coinage for Panania (170,073 pieces), Liberia (29,196
pieces), and Nepal (27,601 pieces). A total of 431,545,370 foreign coins
Avere struck during the period.
Technology
The scope and effectiveness of quality control operations Avere increased at all Mint manufacturing facilities. Die inspection standards
and procedures Avere greatly improved. The first automated coin inspector was placed in operation at the Philadelphia Mint.
To upgrade the Mint's production capabilities and coinage quality,
several new four-strike presses and proof coin presses were installed.
Treasury, through the Bureau of the Mint's Laboratory in Washington, D . C , acts as technical authority on the authenticity of U.S. coins.




142

1973 REPORT OF THE SECRETARY OF THE TREASURY

The Laboratory examined 8,092 questioned coins relative to 129 cases
submitted by the U.S. Secret Service. A member of the Mint Technical
Staff testified in six court cases pertaining to the authenticity of U.S.
coinage. In addition, the Laboratory continued to verify coins for the
Office of Domestic Gold and Silver Operations, U.S. Customs SerAdce,
and the Federal Bureau of Investigation. The Laboratory also performed quality assurance studies on foreigii coins produced by U.S.
Mints, subjecting them, for the first time in recent years, to the same
rigorous tests that are applied to U.S. coinage.
Production

During fiscal 1973, coinage strip was produced at the Philadelphia
Mint for 49 percent of the institution's coin production, the highest
amount of coinage strip produced in-house in the history of the Mint.
The metal yielded 1.7 billion cents, 169 million nickels, and 295 million
dimes and quarters.
The Denver Mint fabricated bronze strip in-house for the production of 503 million 1-cent coins. In addition, strip was produced at
Denver for coins struck there for the Philippines.
On a Mint-wide basis, 31 percent of the domestic coins produced
during the fiscal year were derived from in-house strip.
Old San Francisco Mint

Eestoration work on the famous granite structure of the Old San
Francisco Mint, begun just as fiscal 1972 ended, continued throughout
fiscal 1973.
The first-floor rooms in the front of the Old Mint have been authentically restored to their original appearance. Other historical and educational exhibits have been installed in the museum area, which is
being expanded to include exhibits relating to the settlement and
growth of California and the West and the Mint's role in the development of the region.
The Mint data center began active operation of the new IBM
370-155 computer system in April. The 3-million-data-base numismatic coin operations system (NUCOS) for mail order special coins
and sets was transferred to the Mint data center. GAO auditors reviewed operations of the system in June.
The Old Mint was reopened to the public by the Director of the
Mint, Mrs. Mary Brooks, on Jmie 16, 1973. The reopening makes this
the first building in the country to comply with Public Law 92-362,
enacted August 4,1972, providing for the adaptive use of surplus historic structures.
Public services

Liaison with Federal Reserve,—Treasury, through the Mint, continued to work closely with the Federal Eeserve in determining coin
requirements. The demand for coins increased to approximately 8.7
billion pieces during the fiscal year. More than 75 percent of the demand was for pennies.
Special coins and medals,—^The Eisenhower dollar program, the
manufacture and sale of silver-clad proof and uncirculated dollar coins
to the public at premium prices, was continued during fiscal 1973. A




ADMINISTRATIVE REPORTS

•:; ^i^s^

^'.^^....^^^^
Old San Francisco Mint at the turn of the century.

total of 4,004,151 of these special coins were manuf actured—2,193,056
of the uncirculated variety and 1,811,095 of the proofs.
The Mint again offered sets of proof coins for sale to the public
during fiscal 1973. These sets, through calendar 1972, consisted of one
each of the five denominations of fractional coins; 2,203,325 of these
proof sets 'bearing the date 1972 were made during the fiscal year. The
proof sets for 1973 were enlarged to include one proof cupronickel
Eisenhower dollar coin, with the cost increased to $7 to cover that
coin and the attractive, newly designed self-standing package. Approximately 815,000 were manufactured before the fiscal yearend. All
proof coins and the uncirculated silver-clad Eisenhower dollars were
manufactured at the San Francisco Assay Office.
The first of the medals commemorating the American Eevolutionary
Bicentennial, as authorized by Public Law 92-228, February 15,1972,
was released on July 4, 1972. These medals were part of a Philatelic
Numismatic Combination (PNC) package (consisting of the AEBC
medal and a commemorative postage stamp, postmarked on July 4,
1972, at Williamsburg, Va.). Approximately 790,700 were sold to the
public. In addition, 666,897 of the "unique" packages (a similar medal
dated 1972, in an individual, attractive, self-standing case) were sold
to the public during the fiscal year. Both of these medals were struck,
packaged, and mailed by the Philadelphia Mint.
Public Law 92-384, enacted August 14, 1972, authorized the Secretary of the Treasury to strike and deliver not more than 100,000 medals
commemorating the 175th anniversary of the launching of the U.S.
frigate Constellation, These medals were sold by the Constellation
Committee of the Star Spangled Banner Flag House Association, Inc.,
at premium prices, to raise funds for the restoration of the Constella


144

1973 REPORT OF THE SECRETARY OF THE TREASURY

tion. Approximately 12,000 medals had been manufactured by fiscal
year's end.
Public Law 93-33, enacted on May 14, 1973, authorized the manufacture of one gold and not more than 200,000 duplicate medals in
commemoration of Eoberto Walker Clemente. The Engraving Department of the Philadelphia Mint and the Office of Technology Avere
developing the design of the medal at the end of the fiscal year.
Eight new national medals were produced and offered for sale to
the public. Small medals were made of: the Treasury Building; the
New York Assay Office; the U.S. Bullion Depository, West Point,
N.Y.; the U.S. Bullion Depository, Fort Knox, Ky.; the Old San
Francisco Mint; the New Orleans Mint; and President Nixon's second
term. A regular 3-iiicli bronze medal was also struck to commemorate
the President's second term as well as one of the same size honoring
Secretary Shultz.
The Mint continued to manufacture national "List" medals, in both
the traditional 3-inch size and the "mini" medals of l^/^Q-inoh diameter. These were available to the public at the Exhibit Eoom in the
Main Treasury Building in Washington and in the sales areas of
the Denver and Philadelphia Mints and in San Francisco.

OFFICE OF REVENUE SHARING
Title I of the State and Local Fiscal Assistance Act of 1972 (Public
Law 92-512) establishes general revenue sharing. Signed by President
Nixon in Philadelphia on October 20, 1972, the act authorizes the
Secretary of the Treasury to administer the return of $30.2 billion to
State and local jurisdictions over a 5-year period.
As of June 30, 1973, more than $6.6 billion had been returned to
States, cities, counties, towns, townships, Indian tribes, and Alaskan
native villages.
.. The Office of Eevenue Sharing was created within the Office of the
Secretary to administer the revenue-sharing program. Staff, now numbering 41, has been assembled; and the Office is located at 1900 Pennsylvania Avenue, Washington, D.C.
I n closest cooperation with the Bureau of the Census, more than
250,000 elements of data on population, income, and tax effort have
been compiled and recorded on computer tapes for use in allocating
entitlement payments to the more than 38,000 units of general purpose government qualified to receive general revenue-sharing funds.
The Office of Eevenue Sharing and the Bureau of the Census are
working continually to verify and update these data.
Staff haA^e participated in hundreds of meetings and workshops held
all over the country to familiarize State and local officials with the detp.ils of the general revenue-sharing program. Literally thousands of
mail and telephone inquiries have been processed, and the workload
in this area continues to be high.



ADMINISTRATIVE REPORTS

145

Interim regulations, final regulations, and amendments to the final
regulations have been published after consultation with representatives of associations of State, county, and municipal officials, civil
rights groups, the Advisory Conimission on Intergovernmental Relations, the Office of Management and Budget, and the General Accounting Office. Copies of these regulations have been sent tb all of the
recipients of shared revenues.
All jurisdictions have been advised individually of the data elements used by the Office of Eevenue Sharing to compute their entitlements. Approximately 3,500 requests for changes Avere made in response to a request for comments. About 1,300 of these resulted in
data changes, 2,050 were advised by the Office of Eevenue Sharing that
no change was warranted, and 130 are still under review..Of 600 appeals for further review, 250 have been rejected and 350 referred to
the Bureau of the Census.
Each recipient has provided Treasury with assurance, in writing,
that it will comply with the requirements of the State and Local Fiscal
Assistance Act. These requirements include, for example, the provision
that no general revenue-sharing funds be used in any discriminatory
manner or project; a prohibition against using shared revenues to
match other Federal funds; and a provision requiring payment of
federally established minimum wage rates on construction projects
funded largely with revenue-sharing money.
The Office is developing the compliance system needed to carry out
the audit and CA^aluation responsibilities established by the Congress.
An Audit Guide has been prepared to be distributed to all recipients.
One hundred and three of the jurisdictions receiving the largest
amounts of revenue-sharing funds have been visited, personally, by
members of the staff to revieAV audit and compliance procedures.
Management information systems to produce data needed to assess
the quality of the program are being initiated.
The effort to improve information flow to and from, the recipient
governments is continuous. Efforts to broaden general knowledge of
the general revenue-sharing program's purposes and philosophy are
made as well.
I n the first 8 months of the program's existence, an inordinate
amount of work Avas accomplished by a very small staff. The work has
been characterized by a very high quality. The establishment of the
program has been accomplished and its administration is proceeding
efficiently and effectively.

UNITED STATES CUSTOMS SERVICE'
The U.S. Customs Service, established by the First Congress on
July 31,1789, is one of the oldest agencies of the Federal Governnient,
IThe Bureau of Customs was designated "United States Customs Service" by Treasury
Department Order No. 165-23, AprU 4, 1973. See exhibit 82.




146

1973 REPORT OF THE SECRETARY OF THE TREASURY

antedating the Department of the Treasury of which it is a part. During its first century, revenue collected by Custonis was virtually the
only source of funds for the operation of the Government. Down
through the years the functions and responsibilities assigned to Customs have steadily increased.
The mission of the Customs Service is to collect the revenue from
imports and enforce custonis and related laws. Customs administers
the Tariff Act of 1930, as amended, and other laws. Among the responsibilities with which Customs is specifically charged are: Properly
assessing and collecting customs duties, excise taxes, fees, and penalties
due on imported merchandise; interdicting and seizing contraband,
including narcotics and illegal drugs; processing persons, baggage,
cargo, and mail; administering certain navigation laws; detecting and
apprehending persons engaged in fraudulent practices designed to
circumvent customs and related laws; protecting American business
and labor by enforcing statutes and regulations such as the Antidumping Act, countervailing duty law, copyright, patent, and trademark
provisions, quotas, marking requirements for imported merchandise,
etc.; protecting the general welfare and security of the United States
by enforcing import and export restrictions and prohibitions; cooperating with, and enforcing regulations of, numerous other Government agencies relating to international trade; and collecting import
and export data for compilation of international trade statistics.
The U.S. Customs Service achieved record levels of activity during
fiscal 1973. Nearly 252 million persons were cleared by Customs;
almost $4.1 billion in revenue was collected on $61 billion of imported
merchandise; and illicit drugs valued at over $432 million were confiscated in more than 21,000 seizures by customs officers.
There was a rise of 6.3 percent in the number of people crossing U.S.
borders during the year. This total exceeded the population of the
United States by 42 million.
The total value of all goods processed by Customs rose by nearly 22
percent, from $50 billion to $61 billion. This involved the processing
of over 19 million transactions during the year, up 6 percent.
More than 73 million carriers—ships, aircraft, autos, trucks—used
in bringing people and goods to the United States were cleared by
Custonis, an increase of 4.3 percent over last year's total.
Total revenue collected was slightly below fiscal 1972. However, last
year's total reflected the 10-percent import surcharge imposed by President Nixon from August 15 to December 20, 1971. (The surcharge
accounted for more than two-thirds of the increased revenues reported
in fiscal 1972.) Additionally, tariff negotiations provided for declining
rates of duty on most imports in fiscal 1973. Excluding the surcharge
from the year-to-year comparison, fiscal 1973 collections actually rose
more than 10 percent over the previous year.
Drug seizures climbed by more than 8,500 to a total of 21,964 for the
year, a jump of 64 percent over 1972. The estimated street value of
the seized drugs was up $25 million over last year to a total of $432.3
million. Arrests for narcotic violations climbed from 7,860 to 9,555,
up 22 percent, while convictions for Federal narcotic offenses went
from 2,202 to 3,846, a rise of 75 percent.




ADMESriSTRATIVE REPORTS

147

111 still another area of Customs antinarcotic interdiction activity,
the Service's 60 specially trained drug detector dogs participated in
1,450 productive "hits," or drug seizures, up from a total of 1,198 last
year.
The Customs cargo security program, which aims at curbing the
theft and pilferage of international cargo from the Nation's 300 ports
of entry, resulted in 496 arrests and apprehensions, approximately
the same number as in 1972.
I n the area of commercial fraud investigations, 3,752 cases were
closed during the year, an increase of 26 percent oA^^er the 1972 total of
2,964. At the same time, another 2,769 cases were carried over into the
new fiscal year, up from 1,951 cases last year at the same point.
Customs security officers, more familiarly known as "sky marshals,"
seized or detained 68,946 weapons and other dangerous articles from
commercial airline passengers during the period from January 1971
to the end of fiscal 1973.
Merchandise and passenger processing

Antidumping and cou/ntervailing duty.—^Amendments to the regulations relating to antidumping which became effective January 8,
1973, impose time limits on the conduct of an antidumping investigation. Generally, antidumping proceeding notices must now be published in the Federal Eegister 30 days after receipt of a complaint
in proper form. A tentative determination (withholding of appraisement notice, notice of tentative negative determination, or notice of
tentative discontinuance of antidumping investigation) must generally
be published in the Federal Eegister within 6 months or, in more complicated investigations, within 9 months. New procedures instituted by
the Customs Service are accomplishing initiation and completion of
most cases within the prescribed limits.
Three countervailing duty cases were closed, two proceeding notices
were published, and three countervailing duty orders were published
during fiscal 1973.
Twenty-seven dumping cases were initiated in fiscal 1973 and 42 cases
were closed. Twenty-four cases were referred to the Tariff Commission. Nine findings of dumping were issued during the year. At yearend, 23 cases remained on hand.
Automated merchandise processing system (AMPS),—As the result
of a progress evaluation study, emphasis in the A M P S program to
automate merchandise processing was shifted from an extended planning stage with long-range implementation to earlier implementation
of priority modules of the full-scale system. This promises to produce
the benefits of automation in critical areas of paperwork processing
without delaying implementation of the overall system.
Carriers and persons entering,—A total of 251,653,170 persons entered the United States in fiscal 1973—an increase of 6.3 percent over
the prcAdous year. Customs processed 73,838,532 aircraft, ground vehicles, and vessels, an increase of 4.3 percent over fiscal 1972. A detailed
breakout of arrivals is found in the Statistical Appendix.
Collections.—Eevenue collected by Customs during fiscal 1973 totaled almost $4.1 billion, as compared with $4.2 billion last year. However, fiscal 1972's collections included almost a half billion dollars




148

19 73 REPORT OF THEr SECRETARY OF THE TREASURY

collected under the now-discontinued 10-percent import surcharge program. Excluding the surcharge collections, fiscal 1973 collections
actually increased about 10 percent over fiscal 1972. Collections and
payments by Customs regions and districts, as well as the major classes
of all collections made by Customs, are contained in the Statistical
Appendix. The cost of collecting $100 was $5.32.
Drawback,—Two major improvements in the drawback system were
implemented during fiscal 1973. The first of these, announced in Treasury Decision 72-310, changed the method of establishing proof of
export for drawback by allowing the claimant to furnish documentary
evidence such as the bill of lading or airway bill. The second, announced in the Federal Eegister on December 22, 1972, as Treasury
Decision 73-3, provided for accelerated payment of drawback claims
The total drawback allowance paid during fiscal 1973 was
$48,176,168. Drawback allowance on the exportation of merchandise
manufactured from imported materials amounts to 99 percent of the
customs duties paid at the time the goods are imported.
Entrance and clearance of vessels,—^The following table compares
entrances and clearances of vessels for fiscal years 1972 and 1973.
A'^essel movements ^

1972

Entrances:
Direct from foreign ports.
Via other domestic ports.

1973

Percentage
increase

9.7
16.9

. ;

78,037

87,881

12.6

. I

-

Clearances:
Direct to foreign ports _ -.
Via other domestic ports.

50,926
36,955

45,679
30,676

53,076
36,872

16.2
20.2

76,355

Total-

46,421
31,616

89,948

17.8

Total
1 Excluding Puerto Rico and Virgin Islands.

Entries of merchandise,—There were 3,239,813 formal entries of
merchandise in fiscal 1973—an increase of 13.1 percent over fiscal 1972.
A breakout of entries by type appears in the Statistical Appendix.
Foreign trade zones,—Customs duties and internal revenue taxes
collected during fiscal 1973 from the eight zones in operation amounted
to $7,368,517. The following table summarizes foreign trade zone
operations during fiscal 1973.

Trade zone

Number
of
entries

New Orleans
San Francisco...
San Francisco (subzone)
Seattle
Mavac uez
Toledo
Honolulu
Honolulu (subzonc).-.
Total




Received in zone '
Long tons

A-alue

Delivered from zone
Long tons

A-alue

Duties and
internal
taxes
coUected

3,777
902

31,347
4,826

$44,476,231
6,493,903

33,048
3,202

$47,173,979
4,246,547

$2,087,766
358,329

106
200
1,658
84
8,671
256

11
567
3,093
40,434
5,070
1,392

103,257
2,814,363
6,732,703
28,395,i976
11,712,801
30,462,289

14
1,363
3,283.
42,233
4,314
1,509

121,693
4,264,880
11,001,082
26,987,535
9,775,118
45,445,150

23,937
461,671
429,829
1,606,825
2,323,877
77,294

15, 654

86,740

130,190, 523

88,956

149,015,984

7.368. 517

ADMINISTRATIVE REPORTS

149

Laboratory operatio'}%s,—Samples tested in Custonis laboratories
during fiscal 1973 totaled 169,792.
Advances in technology have resulted in the development of more
sophisticated merchandise entering the United States. The entry of
complex merchandise requires an ever greater degree of sophistication
for the analysis of samples submitted. During the past year, major
purchases of laboratory equipment included an automatic sampling
systeni for gas chromatographj^, a disc mill, and an atomic absorption
spectrophotometer.
Although the laboratory system must devote a major part of its
time to the solution of problems that arise in actual tariff classification
or enforcement cases, these solutions are frequently of value to scientists outside Customs as they advance the state of the art in analytical
methodology. Customs has encouraged the publication of scientific
communications whenever feasible to enhance both the professional
standing of Customs laboratory personnel and the Customs image.
During the past year seveii scientific papers were published or accepted
for publication in scientific journals.
. Mail operations.—Approximately 100 million pieces of foreign mail
Avere diverted from postal channels for custonis examination, principally at the Port of NCAV York, N.Y. Approximately 30,000 pieces
contained lottery materials redelivered to postal authorities for disposition, approximately 20,000 pieces contained obscene niatter, and
approximately 5,000 pieces contained narcotics.
Eevenue collected from mail operations during fiscal 1973 was
$22,487,857, an increase of 2.5 percent over fiscal 1972, Avith a gross rcA^enue of $21,928,483. With the ncAv dual-processing program and mechanization of entry production scheduled for fiscal 1974, a substantial
increase in revenue collections from the mail operations can be
expected.
All surface mail operations at New York will be consolidated in the
huge, new, highly automated postal facility at Secaucus, N.J., scheduled to open in September 1973. New York Customs will then be able
to process all incoming foreigii surface mail, destined for delivery to
the 50 States, at the point of its initial arrival in the United States.
This will eliminate duplicate handling of mail by Customs and the
Postal Service, reduce transportation costs, conserve critically needed
manpoAver, and accelerate delivery of mail to its final destination.
During the last half of fiscal 1973, two additional X-ray machines
were installed in the mail units at New York and Los Angeles. Accelerated development of a profile for suspect parcels led to more
than 5,500 seizures of narcotics and other contraband during fiscal
1973. Three additional X-ray machines are scheduled for fiscal 1974.
Quota operations,—During fiscal 1973, Customs administered 153
tariff-rate and absolute quotas imposed under proclamations, legislation, and agreements.
I n addition, 115 directiA^es from the Committee for the Implementation of Textiles Agreements resulted in the administration of 471
quotas on cotton, wool, and manmade fiber textile products and 8 prohibitions involving 27 foreign countries.
Visa requirements for textile products from Hong Kong were canceled while those on wool and manmade fiber textile products were




150

1973 REPORT OF THE SECRETARY OF THE TREASURY

extended to Taiwan. Visa requirements are now being enforced on
textiles produced in 10 foreign countries.
Regulations,—As part of the general revision of Customs Eegulations, an additional 16 parts were adopted during fiscal 1973, and 19
parts are in various stages of preparation.
I n addition, 17 Treasury Decisions were prepared during fiscal 1973.
These amendments dealt with ports of entry, pollution of coastal
and navigable waters, duty-free fuel for aircraft, revocation of international airport status, restrictions on the domestic use of foreign
railroad cars, customhouse brokers signing petitions for relief, and
import quotas. Two amendments were incorporated in the Customs
Manual. TAventy-three other amendments are in preparation.
Tariff classification.—Classification guidelines were established on
nontextile ornamentation of textile fabrics and articles. These were
published as Treasury Decision 73-71 and will help to eliminate problems in the interpretation of the definition of "ornamentation" in the
Tariff Schedules of the United States.
Trademarks^ copyrights., and patents,—^A total of 249 trademarks,
serAdce marks, renewals, assignments and name changes, and 110 copyrights were recorded. Ten patent surveys or renewals were lapproved.
A grand total of $54,400 in recordation and related fees was collected
for these services.
Enforcement

Seizures of narcotics,—Customs oontinued to place emphasis on the
interdiction of illicit narcotics and dangerous drugs entering the
United States. The following table shows in detail the amount of narcotics and dangerous drugs seized in fiscal 1973, as compared with
those seized in fiscal 1972.
Fiscal years

Narcotics and dangerous dmgs

1972
Heroin:
Pounds
Number of seizures
Opium:
Pounds
Number of seizures
Cocaine:
Pounds
Number of seizures
Other narcotics:
Pounds
Number of seizures
Hashish:
Pounds
_
Number of seizures
Marijuana:
Pounds
Number of seizures
Dangerous drugs:
5-grain units
Number of seizures

1973

Percentage
increase, or
decrease (—)

634.81
611

-60.1
-5.2

50.59
121

135.65
119

168.1
-1.7

-_._

378.58
405

733.84
929

93.8
129.4

__

__

253.09
579

240.80
264

45.31
281

-81.2
6.4

9,456.29
2,519

9,072.65
3,700

-4.2
46.9

291,887.40
7,889

508,062.30
14,137

74.1
79.2

16,240,449
1,615

15,802,258
2,219

-2.7
37.4

._..

_
_

_

Arrests,—There were 9,555 narcotics arrests during fiscal 1973, as
compared with 7,860 in fiscal 1972. These arrests resulted in 3,846
convictions under U.S. statutes compared with 2,202 in the prcAdous
year, an increase of 74.7 percent.




ADMINISTRATIVE REPORTS

Activity

Arrests (narcotics)..
_
Nolle prosequi ^
Convictions under U.S. statutes
r)iSTnissa,ls a,nd acquittals
Cases closed

151
Percentage

Fiscal years
1972
7,860
2,961
2,202
711
39,392

1973
9,555
3,046
3,846
1,171
40,276

decrease (—)
21.6
2.9
74.7
64.7
2.2

1 Includes declinations and not indicted.

Detector dog program,—Detector dogs continue to b e a n effective enforcement tool at international mailrooms, cargo docks and terminals,
and ports of entry along the Mexican and Canadian borders. At yearend, there were 38 handlers and 60 dogs permanently assigned to field
operations. Thirty-eight of these dogs are trained in detection of
heroin and cocaine as well as marijuana. I n fiscal 1973, dogs accounted
for 1,450 seizures. Fiscal 1974 plans call for a significant expansion
of the program.
Military predeparture inspection program.—^The military overseas
predeparture inspection program was expanded to include the entire
Pacific Command, where three customs adAdsors provide training and
advisory assistance to military enforcement officials in seven commands. A fourth advisor worked with the European Command to establish an improved program there. As a result, seizures of narcotics
from military transportation and postal channels remained at a low
level.
Treasury enforcement corrmiunication system {TECS),—TECS was
established to proAdde the U.S. Customs SerAdce, the Bureau of Alcohol,
Tobacco and Firearms, and the Internal Eevenue Service with the
following capabilities: (1) A central index for records of common interest to the participating Treasury enforcement agencies, (2) an administrative message-switching capability between the participating
agencies, and (3) access to the F B I ' s National Crime Information
Center ( N C I C ) .
T E C S provides customs enforcement officers with the most effective arsenal of enforcement tools available through modern computer/communications technology. I t replaced the customs automated
data processing intelligence network ( C A D P I N ) .
The Customs Service has approximately 450 terminals located at
ports of entry in the United States. Customs inspectors are the primary users of the system, with 350 terminals assigned to the Inspection and Control Division. F o r fiscal 1973, this equipment provided the
information which resulted in 722 seizures and/or arrests.
Through T E C S , the Customs Service now has access to five million
NCIC records. NCIC is a computerized index of criminal information on wanted felons, firearms, and stolen vehicles, license plates,
boats, securities, etc. Based on the results obtained from a test conducted at four major ports of entry during a 60-day period, mid-January to mid-March 1973, a decision was made to expand this equipment
to other major ports of entry. Customs officers at 48 ports of entry
have now been trained and are using NCIC. During the first 6 months
of 1973, including the test period when only four ports had NCIC




152

19 73 REPORT OF THE SEORETARY OF THE TREASURY

capability, 133 "hits" were made, resulting in 117 arrests for such
crimes as murder, armed robbery, and auto theft.
T E C S terminals to assist in passenger processing at airports were
first placed in operation on January 15, 1973, at Miami Airport and
were then expanded to six additional major airports. The recording
of queries also develops statistics on peak passenger traffic periods
for more effective manpower utilization.
Air security.—FolloAving the changes in Federal Aviation Administration regulations at mid-year. Customs provided laAv enforcement
support at selected airports while airline personnel engaged in physically searching hand-carried baggage and screening passengers.
Of major concern to Customs was the outplacement of customs security officers (CSO's) into other positions within the Customs Service
or elsewhere within the Federal Government. At the end of the fiscal
year, 624 CSO's had been transferred to other Customs positions and
107 to other Federal agencies. CSO's at phased-out airports were used
to bring air security personnel at operational airports up to necessary
strength through temporary duty assignments. When not employed
on air security work, CSO's augmented the Customs patrol officer force
to increase vessel searches, 24-hour patrols, vessel and aircraft surveillances, and cargo security.
During fiscal 1973, the Customs air security program was responsible for 1,325 weapon seizures, 113 hard narcotic seizures, and 1,075
marijuana and dangerous drug seizures. Some 17,815 weapons and/or
dangerous articles were temporarily detained from boarding passengers ; arrests totaled 2,180.
Custonis can again be proud that, as of the end of fiscal 1973, there
were no incidents of aircraft hijacking where passengers had received
predeparture checks by CSO's.
. Cargo security and quantity control programs,—A comprehensive
training seminar for Customs personnel on the cargo security and
quantity control programs Avas conducted in eight of the nine regions.
These gave field personnel increased technical knowledge in the field
of cargo security and enabled them t o prepare more meaningful
surveys for Customs and industry.
Fraud.—During fiscal 1973, 699 cases of fraud were investigated
and processed, 26 of which resulted in criminal prosecutions. Merchandise valued at $489,415,273 was seized or forfeited, with a potential loss of revenue of $7.4 million.
Neutrality violations.—In fiscal 1973, 202 cases were investigated,
resulting in 8 arrests and 5 convictions.
One such case involving a conspiracy to export 13,500 pounds of
C-4 plastic explosives resulted in the arrest of seven persons in Louisiana and Texas. The explosives, along with 2,600 electric blasting caps
and 25 electric detonators, valued at $430,000, were seized aboard an
aircraft prior to its scheduled departure for Mexico. The individuals
involved were indicted for conspiracy and violation of the Munitions
Control Act.
Penalties.—During fiscal 1973, headquarters received, reviewed, and
prepared legal decisions concerning violations of custonis and related
laAvs, and clainis for liquidated damages assessed under customs bonds.
Although there was a slight decrease from fiscal 1972 iii the number



ADMINISTRATIVE REPORTS

153

of penalty cases and the full statutory liability of violators in these
cases, the net liability imposed by penalty decisions in fiscal 1973
increased by more than 40 percent from that of fiscal 1972.
Penalty cases, fiscal 1973
Type of case

Penalty and forfeiture
Liquidated damages
Total —---

Full statutory
liability of
violators

Number

_ ..
-.--

..

976
217

$204,163,640
4,759,913

--

1,193

208,923,553

Net liahility imposed hy penalty decisions. 1972 and 1973
Type of case

1972

Penalty and forfeiture
Liquidated damages
Total

1973

$4, 291,098
358,186
-

$6,337,024
310,184

4,649, 284

6,647, 208

Restricted merchandise,—^Headquarters, with Department of Justice participation, reviewed under the obscenity provisions of section
1305, title 19, U . S . C , seven seized commercial feature-length films,
•three of which Avere referred to the U.S. attorney for judicial forfeiture
proceedings.
On Noveniber 7, 1972, the U.S. Supreme Court heard rearguments
in the Customs obscenity litigation. United States v. 12 200-Foot Reels
of Super-Eight Millimeter Film., involving a Customs seizure at the
Port of Los Angeles from baggage clainied to be solely for the private
personal use of the declarant. This litigation was originally docketed
in the Court in the October term 1971. Conclusion of this litigation
Avill haA^^e direct bearing on the continuation or noncontinuation of
t h e Customs obscenity prograni under 19 U . S . C 1305 with respect
to importation of obscene matter for or to individuals for strictly
noncommercial private use. The Court decided this case on June 21,
1973, upholding the position of the Government.
Administration and organization

- Accounting.—The General Accounting Office approved the Customs
accounting system in November 1972, culminating several years of
close collaboration between Customs and representatives of the GAO.
Delinquent accounts receivable were reduced to an acceptable level
by increasing the control by each financial management office, primarily through (1) centralizing the payment of Customs bills at
regional financial management offices, and (2) placing delinquent
debtors on a cash basis for reimbursable services.
Equal opportu/nity,—In special-emphasis areas under the equal
opportunity program, coordinators were appointed for the Federal
women's program and the 16-point program for Spanish-surnamed
persons.




154

19 73 REPORT OF THE SECRETARY OF THE TREASURY

During fiscal 1973, 30 cases involAdng complaints of discrimination
were closed. Several of these required corrective action.
A full-time equal opportunity officer was appointed for Customs
headquarters. Full-time equal opportunity officers are planned for all
regions.
Employment,—The following table shoAvs man-years employment
data in fiscal years 1972 and 1973.
Man-years
Operation

.

1972
Regular c u s t o m s operations:
Nonreimbursable
Reimbursable ^

Total employment

1973

decrease (—)

11,116
427

.

11,756
494

11,543

T o t a l regular c u s t o m s e m p l o y m e n t
Export control-.A d d i t i o n a l inspection for D e p a r t m e n t of Agriculture
Air security p r o g r a m

Percentage

.

5.8
15.7

12,250

6.1

132
241
1,310

52
242
1,083

-60.6
0.1
-17.3

13,226

13,627

3.0

1 Salai'ies reimbm'sed to the Government by the private firms who received the exclusive services of these
employees.

Facilities management,—^The first automobile exhaust pollution
control system at a U.S. Customs border station was installed at
Laredo, Tex., and operated satisfactorily. Design was completed for a
similar system in E l Paso, with the contract awarded to a minorityowned firm.
Collocation of Customs regional offices to promote improved communications and greater adherence to the management team concept
was accomplished in Chicago and in Houston. Collocation of Eegion
I I , New York offices, into the World Trade Center is planned for early
fiscal 1974.
Labor-management relations,—In compliance with the President's
instructions to make la;bor relations programs more effective, Custonis
increased utilization of the bilateral relationship with unions to facilitate management policy and program implementation.
During fiscal 1973, two customs regions granted exclusive recognition to a union for the first time. Employees in all nine customs regions
are now represented by a Federal union.
Management analysis,—^A servicewide files and records management
system Avas established to give better control over the daily use, storage, and destruction of files and records.
During fiscal 1973, Customs emphasized management rcAdews of
problem areas and concentrated improvement efforts on priority issues.
Central coordination and reference for all management reviews was
established.
The Office of Planning and Eesearch was abolished, with responsibility for the development of new and expanded systems and for
special studies being transferred to each principal headquarters office.
The Office of the Assistant to the Conimissioner (Equal Employment Opportunity) and Assistant to the Commissioner (Public I n formation) were transferred to the Office of Administration and estab-




ADMINISTRATIVE REPORTS

155

lished as divisions. The Office of the Assistant to the Commissioner
(International Aff'airs) was established as a division in the Office of
Operations. The Office of the Assistant to the Commissioner (Priority
Correspondence) was abolished, its functions being assumed by the
Office of the Conimissioner.
The field structure of the Office of Investigations was realigned so
that the boundaries of the Investigations district offices conform to
the boundaries of custonis regions. This realignment reduced the number of field managers in each customs region Avho must coordinate Avitli
one another.
Personnel management.—Selection authority for positions through
grade GS-14 was delegated to Eegional Commissioners and Assistant
Eegional Conimissioners, Avith eff'orts continuing to redelegate selection authority to lower supervisory levels.
Eegional personnel management evaluations were conducted in the
Baltimore region in February, the Boston region in May, and the
Houston region in June.
A customs supervisory inspector course, aimed at first-line supervisors, updated supervisors on the present programs offered at the
National Training Center, presented refresher material in technical
areas, analyzed management principles and techniques through use of
pertinent case studies, and established a forum for discussion and
resolution of topical issues.
Public information,—Major information programs covered Customs
efforts against the smuggling of illicit narcotics; Bicentennial activities; advice to international travelers and commercial importers of
changing rules and regulations; production of films for training purposes and for distribution to ncAvs media; cargo security; and a series
of field operations along the Mexican border to foster better relations
between Customs employees, travelers, and residents and to improve
employee morale.
,
'
Public service announcements were recorded and distributed to approximately 5,500 radio and 800 television stations to inform the
traveling public of Customs drive to combat drug smuggling and of
regulations that affect international travelers. Twelve celebrities joined
Avith Commissioner Acree to record the spot announcements.
A total of 294 news releases, speech texts, factsheets, testimonies,
etc., were distributed during the year; major articles appeared in 55
publications. Customs officials made some 20 speeches and presentations and were involved in 14 interviews, briefing sessions, and press
conferences.
Security and audit.—Offices of security and audit were established
in four additional regions during fiscal 1973—at Boston, Baltimore,
New Orleans, and Los Angeles.
The program to computerize all security clearances Avas fully implemented in fiscal 1973 and has resulted in substantial savings. This
is the only such system in use in the Department and has been examined with interest by other agencies.
Customs processed 869 full field investigations, substantially less
than during the preceding year. The reduced number in 1973 more
clearly reflects the normal workload.
506-171—'73

13




156

1973 REPORT OF THE SEORETARY OF THE TREASURY

Significant progress Avas made in the long-range program to expand audit activities from compliance verification to a management
or operational-type audit.
International operations

Customs participation in international conferences increased duringfiscal 1973, the greater percentage of meetings being those sponsored by
the Customs Cooperation Council. Included among them were the sessions of the Permanent Technical Committee, the study group to develop a harmonized commodity description and coding system, the
29th sessioii of the Nomenclature Committee, and the Working Party
on the Origin of Goods.
Customs representatives were among the delegates to the Facilitation Committee of the Intergovernmental Maritime Consultative Organization (IMCO) which held its seventh session in London during
the second week of April 1973. I n March, Customs participated in
the eighth session of the Facilitation Division of the International
Civil Aviation Organization ( I C A O ) , held in Dubrovnik, Yugoslavia.
At the May sessions of the Customs Cooperation Council held in
Kyoto, the Council gave formal approval to development of a harmonized commodity description and coding system for use in international trade. Customs is expected to play a key role in the projects as
the agency responsible for coordinating U.S. interests at the Federal
level through the Interagency Advisory Conimittee on Customs Cooperation Council matters.
I n June, U.S. Customs Service representatives met in Bonn with
German officials and concluded a draft agreement on mutual administrative assistance with the Federal Eepublic of Germany. The final
signing of the agreement is expected to take part in Washington in
the near future.
Uiider the auspices of the Cabinet Committee on International
Narcotics Control (CCINC), the U.S. Customs Service conducted
training both overseas and in the United States for a nmnber of officers
of foreign customs and related agencies. The overseas classes of 2
weeks' duration were given to groups of approximately 25 students
per class. The training, designed to improve basic customs enforcement operations with the goal of narcotics smuggling interdiction, was
conducted i n : Panama (two classes), Argentina (two), Venezuela,
Brazil (four), Chile (two), Barbados, Bulgaria (two), Greece (two),
Iran (two), and Pakistan (two).
' Two classes were conducted in the United States for midmanagenient personnel of foreign custonis. The course consisted of 3 weeks
of classroom training in Washington, and 2 weeks of observational
training at selected ports of entry. The first class was composed of
25 officers from 5 Latin American countries, and the second of a similar
number from the Southeast Asia area.
I n addition to the CCINC-sponsored courses, a general customs
course of 8 weeks' duration was giA^^en to 20 participants from 6 of the
developing countries. The course coA^ered all substantive areas of customs operations and administration.
The U.S. Customs Advisory Team completed its seventh year in the
Eepublic of Vietnam under A I D auspices. During the year, the team




ADMINISTRATIVE REPORTS

157

organized a training course for custonis operations officers, a new concept for Vietnam; developed a management inipro Atement system for
custonis supervisors; organized a program for Customs control of
newl}^ created postwar export processing zones; assisted in the revision
of the Vietnam Customs Code; and helped to test and verify large
quantities of seized opium and heroin designated for public burning.
I n Laos, a six-man team completed its first year of operation, having
assisted the Eoyal Laotian Customs Service in seizing more than 500
pounds of opium and heroin, increasing penalties from seizures by
more than 70 percent, and almost doubling the custonis revenue
collections.
A survey Avas made of the enforcement capabilities of the Customs
Service of Thailand, and an advisory project is underAvay for that
country beginning in fiscal 1974.
ElseAvhere, a two-man adAdsory effort continued in Ethiopia to improve customs management practices, institute a uniform entry
processing system, and improve document controls over iniported
merchandise.
The senior custonis advisor in Afghanistan assisted in the preparation of a neAV customs code and regulations, the adaptation of the
Afghan tariff to the Brussels Tariff Nomenclature, the developnient
of an enforcement unit to audit customs operations, and the adoption
of a decree to place all customhouses under the direct control of the
Customs Director.
Surveys were made of the customs enforcement capabilities of
Uruguay, Bolivia, Ecuador, Turkey, Hungary, Yugoslavia, and Bulgaria. An adAdsory project is planned for Ecuador during fiscal 1974.
Custonis also participated with A I D and the B N D D in narcotics enforcement surveys in various other Latin Americaii and Middle
Eastern countries.
Top-lcA^el custonis and border patrol officials from Afghanistan,
Italy, Hong Kong, Turkey, Hungary, Jamaica, and the Eepublic of
China were given obserAration training in U.S. customs ports, ranging
from 1 week to 1 month. A cross-training program was initiated with
Mexico, beginning with the exchange for a period of 45 days of two
iiiiddle-leA^el customs supervisors.

UNITED STATES SAVINGS BONDS DIVISION
The U.S. Savings Bonds Division promotes the sale and retention
of U.S. savings bonds. This medium of savings makes possible the
widespread distribution of the national debt through its ownership by
a substantial part of the Nation's citizenry; it proAddes a stabilizing
influence on the economy insofar as the average life of the E and H
bonds is over 7 years, and therefore constitutes a long-term underwriting of the Treasury's debt structure.




158

1973 REPORT OF THE SECRETARY OF THE TREASURY

The program is carried out by a comparatiA^ely small staff assisted
by thousands of dedicated A-olunteers in financial, media, business,
labor, and agricultural institutions and civic-minded groups of all
kinds. Their volunteer services assist in the promotion and sale of savings bonds through banks, savings and loan associations, credit unions,
some few post offices, and over 40,000 business establishments and other
employers cooperating in the operation of the payroll savings plan
and OA-er-the-counter sales.
Sales of series E and H savings bonds totaled $6,512 million in fiscal
1973. Participants in the payroll savings plan as of June 30, ,1973,
totaled about 9i/^ million. There Avere $59.9 billion savings bonds and
savings notes held at the close of fiscal 1973, 22 percent of the privately
held portion of the public debt. U.S. savings notes were AvithdraAAm
from sale on June 30, 1970, but the aniount outstanding is included in
the total. During fiscal 1973, holders of these savings vehicles receiA-ed
over $3 billion in interest.
Promotional activities

During fiscal 1973, the payroll savings plan again received major
program emphasis and was promoted among employees in private industry ; Federal, State, and local governments; as well as the military
services.
The leader of the 1973 natiouAvide payroll savings campaign in industry is William M. Batten, chairman of the board, J. C. Penny Co.,
Inc., and chairman of the U.S. Industrial Payroll Savings Comniittee.
The 1973 campaign Avas launched in Washington, D . C , on January
11, 1973, Avith the annual meeting of the Committee. Serving on the
Committee Avith Mr. Batten are 10 foriner chairmen and 49 top executives of the Nation's major corporations. Mr. Batten's immediate predecessors as chairmen were Donald S. MacNaughton, chairman and
chief executive officer, The Prudential Insurance Co. of America, the
1972 chairman, and B. E. Dorsey, chairman of the board. Gulf Oil
Corp., the 1971 chairman. Mr. Batten has traveled around the entire
country to spur on the campaign and addressed 18 meetings of business
leaders to help Committee members get campaigns underway in their
areas and industries. Mr. Batten won the support of the members of
the Business Council when he addressed that group of prominent business leaders in Washington on February 15,1973, to urge them to conduct campaigns in their respective companies. On April 2, 1973, Mr.
Batten appeared on NBC's national television network "Today"
sliOAv. Eighty-three NBC stations also presented their local volunteer
campaign leaders to further publicize the campaign. Mr. Batten provided a number of sales tools for the volunteer and staff workers in the
campaign, among them a brochure for top executives and a sound motion picture in color entitled "Take Stock in America."
The Comniittee has been the principal force in raising the sale of
E bonds in the $25 to $200 denominations to more than $1.5 billion a
year-higher than they were before the; Committee was organized in
early 1963. This is dramatically portrayed by the accompanying chart
shoAving the series E bond sales of $25,to $200 denoniinations (those
sales influenced principally by payroll savings) since 1957.




ADMINISTRATIVE

REPORTS

SERIES E BOND SALES $25 TO $200 DO
(Sales influenced principally by Payroll Savings)
Since organization of U.S.
Pre-U.S. Industrial

Industrial Payroll Savings

Payroll Savings Committee

Committee, January 16, 1963

BILLIONS)




159

160

1973 REPORT OF THE SECRETARY OF THE TREASURY

On January 2,1973, the U.S. Industrial Payroll Savings Committee
was given a charter in recognition of its service to the Nation and the
Treasury in providing "the most effective continuing framework for
involving industrial top management in the U.S. savings bonds payroll savings program." The charter calls upon the Committee to continue to implement "suitable approaches toward expanding the payroll
savings plan with their industrial peers." This the Committee members
are doing by conducting top management meetings, urging the chief
executives in their areas and industries to conduct payroll savings
drives, and setting strong examples by the campaigns they conduct in
their own companies. At the end of June, with half of the 1973 campaign over, 14 Committee members had completed their company campaigns and had enrolled nearly 330,000 employees either as ncAv savers
or for increased allotments.
Agriculture Secretary Earl L. Butz again served as chairman of the
Inter-departmental Savings Bonds Comniittee. The Federal kickoff
rally took place at the Departmental Auditorium in Washington, D . C ,
on April 12, 1973, with Elmer B. Staats, Comptroller General of the
United States, as the principal speaker. The Federal savings bonds program represents over 25 percent of the total payroll savings sales. As
in previous years. Federal agencies conducted an intensive campaign
during May and June to sign up new payroll savers among Federal
personnel worldAvide. The total civilian and military participation in
the program amounted to 2.5 million for fiscal 1973.
Chairmen of State saAdngs bonds committees and members of the
American Bankers Association savings bonds committee met with
Treasury officials during their amiual conference in Washington, D . C ,
on March 8 and 9. Sessions Avere presided over by North Carolina chairman Bland Worley and A B A chairman Douglas E. Smith of Washington, D.C. Featured topics on the agenda included the findings of a
recent survey by the University of Michigaii Survey Eesearch Center
oh "Attitudes Towards U.S. Savings Bonds," results achieved and
promotional methods used in Take-Stock-in-America campaigns in
some 80 cities, and exchange df ideas on fhe leadership.role of National,
State, and local volunteers. Banking discussions centered on the enthusiastic response of bank personnel to the bond teller training
seminars inaugurated in 1972; ways of implementing a future I'equirement for including social security numbers in the registration of savings bonds; and the broad topic "What more banks can do to assist
the Treasury in the promotion of savings bonds."
A highlight of the annual conference was a ceremony at Avhich
Vice President Agnew presented special 30-year citations to eight
distinguished volunteers on behalf of Secretary Shultz.
During the fiscal year, eight new State chainnen were appointed
for 2-year terms, six were reappointed, and one was named Chairman
Emeritus'.
All newly elected State Governors accepted appointment as honorary chairmen of the State savings bonds committees, and incumbents
continued to serve in that capacity.. .
,
.
The national organizations program was revamped Avitli the development of a five-point program for the executive offices of national
organizations and a seven-point program for their local units. The




ADMINISTRATIVE REPORTS

161

program at both levels was tailored to give greater flexibility in terms
of the extent and tliinst of the effort on behalf of the bond program.
More than 27,336 individual pieces of promotional material were
requested from local units, a strong indication of interest in the program. National and State publications of the organizations published
advertisements, articles, cartoons, and testimonials. Special presentations were made by the Division to the American Hospital Association,
Optimist International, the General Federation of Women's Clubs,
and the American Legion Auxiliary for their promotion of the bond
prograni. The National Organizations Committee continued under
the chairmanship of Hugh Cranford, executive secretary of Optimist
International.
Once again, the Savings Bonds Division hosted a representative
from Girls Nation (sponsored by the American Legion Auxiliary) as
counterpart to the National Director. She Was Cynthia Hawkins from
Kentucky, who was named "Miss Savings Bonds" for that State.
Organized labor continued its strong sanction of the program under
the direction of George Meany, President of the A F L - C I O , acting in
the volunteer capacity of National Labor Chairman. Active labor
backing also included resolutions of support adopted by conventions
of statewide labor bodies, and statements of support by National and
State labor officials. Much of this Avas communicated to the membership by the labor press through its use of literally hundreds of savings
bonds ads and editorials.
The advertising industry, under the leadership of the Advertising
Council and with the cooperation of media, advertisers, and agencies,
continued to give outstanding support to the bond campaign. The
A-alue of its contribution is estimated at $60 million annually. McCannErickson, Inc., the volunteer task force for radio and television, retired
from the campaign in June 1973 after 20 years of outstanding service.
Its assignment has been assumed by the Leo Burnett Co., which has
handled all other phases of the consumer advertising campaign since
1958. A new weekly radio series, "The Grammy Treasure Chest," produced in cooperation with the National Academy of Eecording Arts
and Sciences and the American Federation of Musicians, was introduced in January and has thus far built a request list of nearly 1,200
stations.
A new training film for payroll savings canvassers, titled "The AllStar Spangled Mission," was produced by Paramount Pictures and
has been widely shown in industry and government during the 1973
campaign. I t features Sandy Duncan and includes the stars of five
leading T V series.
The stars of the "Bridget Loves Bernie" T V series, Meredith Baxter
and David Birney, were featured at the kickoff rally for the 1973 payroll savings campaign in the Federal Government, and were named
honorary cochairmen of the drive. They also appeared in a film trailer
sponsored by the motion picture industry and widely shown in theaters
during the campaign period.
The Office of Public Affairs developed and distributed a series of
packages for use by A-arious segments of the media. They included
copy starters for news media, distributed in March; speech sampler
for suggested use by volunteers; speech sampler for government




162

1973 REPORT OF THE SECRETARY OF THE TREASURY

speaker use; editorial extracts, a weekly press copy pack; copy themes
for associations and societies; press association pack for suggested
relay by heads of State press associations to their member-newspapers,
distributed in April; copy briefs for business and financial writers,
distributed in May. The Office of Public Affairs updated and revised
two publications, "Legal Aspects" and "U.S. Savings Bonds—A QuickEeference Guide."
•Continued collaboration Avitli the staffs of U.S. NCAVS & World Eeport, Changing Times, and other spejsial-interest publications, and
Avith syndicated financial columnists—including Sylvia Porter, Martha
Patton, Sam Shulsky, Donald G. Campbell, and Merle Dowd—led to
significant coverage in magazines and ncAvspapers. During the last
quarter of fiscal 1973, the Office of Public Affairs responded to approximately 4,000 inquiries stimulated by Sam Shulsky articles, published in April.
Management improvement

In fiscal 1973, the Division cpntinued the redeployment of positions
to. areas needing better manpoAver coverage and the reduction of coverage in such geographic areas that did not merit it by reason of poor
sales potential. A study was undertaken to streamline both field and
headquarters operations and results will be implemented in 1974.
The Division made a study of its accounting machine procedures
and equipnient and purchased replacement machinery for delivery late
in the fiscal year. Installation will be completed and the machines will
be made fully operative for fiscal 1974. The new equipnient will permit budgetary and financial reporting in full accord with all accrual
accounting principles Avhich could not have been as readily performed
with the old equipment. Furthermore, this equipment makes possible
more effective coordination with the financial recording and reporting
of the Bureau of the Public Debt than otherwise could have been
achieved.
Internal aiidit program

During fiscal 1973, operational surveys were made in two States,
New York and Pennsylvania. Under its arrangement with the Bureau
of the Public Debt, the Bureau's audit staff made a comprehensive
audit of the administrative accounts fdr fiscal years 1970, 1971, and
1972.
Program planning

At yearend, the number of reporting units (companies that operate
the payroll savings plan) on the E D P tapes was 39,189, which represents 21,165 interstate units (including"branches of companies) and
18,024 intrastate companies. Total employment in these companies is
shown as 26,063,484. Number of employees signed up to buy savings
bonds in these companies is 6,593,444, or 25.3 percent.
In addition to the report on on-plan companies, the Office of Program Planning updated its list of no-plan (prospect) companies (of
250 employees or more). The list comprises 3,410 units (673 interstate
companies and branches and 2,737 intrastate companies). This compares Avitli 3,778 units a year ago, a reduction of 368.




ADMINISTRATIVE REPORTS

163

The Office of Program Planning continued its program of E D P
seminars for both clerical ahd promotional personnel by conducting
comprehensive 1-day seminars in Detroit and Dallas.
Staff development

The Division is in the second year of a 3-year program to recruit and
move young persons up through the ranks. Through an Anierican
Management Association prepared course, ^'Principles of Professional
Salesmanship," and on-the-job training assignments, young college
graduates are trained for key sales promotion, managerial, and administrative positions. An intensive 2-week indoctrination seminar was
held for new promotional staff members in June 1973. A line management training program entitled "How to Improve Individual Management Performance," prepared by the American Management Association, Avas continued in fiscal 1973.
'.

UNITED STATES SECRET SERVICE
The major responsibilities of the U.S. Secret Service are defined in
section 3056, title 18, United States Code. The protective responsibilities are to protect the President of the United States; the members of
his immediate family; the President-elect; the Vice President or other
officer next in order of succession to the office of the President; the Vice
President-elect; the person of a former President and his wife during
his lifetime; the person of the widow of a former President until her
death or remarriage; minor children of a former President until they
reach 16 years of age, unless such protectioii is declined; persons who
are determined. from time to time by the Secretary of the Treasury,
after consultation with the advisory conimittee, as being major Presidential and Vice Presidential candidates, unless such protection is
declined; the person of a visiting head of a foreign state or foreign
governnient and, at the direction of the President, other distinguished
foreign visitors to the United States and official representatives of the
United States performing special missions abroad.
'
'
The investigative responsibilities are to detect and arrest persons
committing any offense against the laws of the United States relating
to coins, obligations, and securities of the United States and of foreign
governments; and to detect and arrest persons violating certain laws
relating to the Federal Deposit Insurance Corporation, Federal land
banks, and Federal land bank associations.
Protective responsibilities

I n fiscal 1973, in addition to the permanent protective requirements
that again increased in terms of man-hours expended, several major
special protective efforts were generated.
Extraordinary manpower, logistical, and other problems were encountered in planning and executing protection during the two Presi-




164

1973 REPORT OF THE SECRETARY OF THE TREASURY

dential nominating conventions in Miami Beach, Fla. Protection Avas
authorized and extended to Presidential and Vice Presidential candidates and nominees of the Democratic, American Independent^ and
Peoples Parties. A total of 13 candidates/nominees Avere protected by
the Secret Service.
The protection of foreign dignitaries increased dramatically in fiscal
1973, with protection provided for over 40 heads of state or gOA-ernment and 70 other foreign dignitaries^ in contrast to over 17 dignitaries in the latter category in fiscal 1972. This increase is largely
attributable to terrorism and general Avorldwide security problems. In
addition, 33 official representatives of this country performing special
missions abroad Avere protected by the Secret Service at the direction of
the President.
The 1973 PresidiBntial Inauguration demanded extensive protective
preparations and required employment of virtually the entire field
force of the Secret Service in addition to support by other agencies.
The Executive Protective Service provides protectioii for the White
House, buildings housing Presidential offices, and foreign diplomatic
missions located in the metropolitan area of the District of Columbia.
I n addition, protection is offered at the direction of the President on a
case-by-case basis for foreign diplomatic missions located in other areas
of the United States, its territories, and possessions.
Protective intelligence

A large new computer was installed in fiscal 1973 to meet expanding
protective support requirements for online access to intelligence files.
Since it is compatible Avith a previously; installed computer, except for
memory capacity, immediate emergency backup capability is achieved,
plus allowing one system to be dedicated to protective support operations while the other is utilized for expanding administrative and law
enforcement applications.
During fiscal 1973, the Technical Security Division assumed responsibility for installation and maintenance of the new low-light-level television system within the White House complex. The White House
alarm system was also updated to operate with a computer storage
capability.
Information about bomb incidents and explosive devices was entered
into the Secret Service computer, which provides the protective advance agent with a current readout on bomb incidents in any area of
the United States.
I n the area of communications, a new minicomputer teletype message switcher^ interconnecting each field and protective office with headquarters and Avith the National Crime Inforniation Center, provides
automated message switching.
Investigative responsibilities

Total production of counterfeit currency during fiscal 1973 reached
$25.3 million, a decrease of only 9 percent from fiscal 1972. Almost $22
million, or 87 percent, of this was seized before it could be placed into
circulation, with 72 plant sources responsible for producing $18 million
put out of operation. Losses to the public, the real measure of the Service's success or failure, were reduced to $3.3 million, a significant
decrease of 31 percent from the past fiscal year.



ADMINISTRATIVE REPORTS

165

Arrests for counterfeiting violations totaled 1,557, a decrease of 33
percent from the past fiscal year. HoAvever, since many of the arrests
were effected at the plant source or distributor level, the flow of notes
Avas stopped before they reached the level of the passer where the
highest volume of arrests usually occurs. I n effect, while the quantity
of arrests decreased, the quality increased.
During January of 1973, Secret Service agents effected the largest
single seizure in the Service's history, over $6.2 million in counterfeit
$20 Federal Eeserve notes. I n this case, seven conspirators first formulated their plans in the fall of 1972 and leased printing equipment
from several supply houses in Florida. During late November, the
equipment was installed at the residence of one of the conspirators outsi de Kannapolis, N . C , where the first attempt to produce suitable
photographic negatives failed. On December 1, one of the conspirators
placed an order for 50,000 sheets of high-grade paper with a Charlotte supply house. The local Secret Service office was notified, and one
of the principals was identified through the license number of the A-ehicle used to make the paper pickup. Efforts to locate the suspect in
the Kannapolis area were unsuccessful; the conspirators had immediately moved their operation to Soddy, Tenn. On^December 18, the
Nashville office received a report of a suspicious purchase from a local
supply house. The license number on the vehicle involved was registered to the same suspect involved in the paper purchase at Charlotte.
Efforts to locate the suspect in the Nashville area were intensified but
again proved fruitless.
On December 22, the first specimens of a ncAv issue of counterfeit $20
Federal Eeserve notes were passed in Atlanta. On Christmas Day, the
. Cincinnati office received a report from local authorities near Crittendon, Ky., that the prime suspect and another conspirator had been
questioned and later released following the pass of one of the Atlanta
notes at a local truckstop. The vehicle involved was the same one used
in the supply house purchases. Finally, on January 3,1973, the second
partner involved in the Crittendon incident was apprehended at Mankato, Minn. A telephone number found in his possession Avas traced to
a residence at Soddy, Tenn., where agents located the vehicle belonging to the prime suspect. Search and arrest warrants Avere obtained
and the premises were raided on the night of January 4. The prime
suspect and four other conspirators were arrested at the plant site.
The last remaining conspirator Avas arrested in Florida several days
later. The seven defendants have since received sentences ranging from
2 years' probation to 8 years' imprisonment. Of the $6.2 million in
counterfeit currenc}- produced by this group, only $160 was successfully placed into circulation.
During March of 1973, the owner of a North Little Eock, Ark., printing firm was arrested while in the act of delivering $200,000 in counterfeit notes. Thirty-four other individuals were arrested for passing
counterfeits stemming from this operation. A total of $1.25 million of
counterfeit currency was seized before it could be placed into circulation Avhile only $30,000 was successfully passed on the public.
During May of 1972, a new counterfeit $10 Federal Eeserve note
was passed for the fii-st time at four retail stores in Conway, Ark.
None of the victims could provide a description of the passer and no




166

1973 REPORT OF THE SECRETARY OF THE TREASURY

additional notes of that type were passed during the following 6
nionths. Then, in mid-November, workers engaged in underwater construction near the Bear Creek Bridge at Dundalk, Md., (approximately 1,100 miles from Conway) recovered several plastic bags containing over $300,000 in the Conway notes. Two weeks later in Denver, ^
Colo., three persons were arrested for passing the Conway notes at a
local nightclub. Within a week an undercover agent was negotiating
for a purchase from the individual who had supplied the trio's notes.
The suspect Avas arrested on December 14 as he was delivering over
$430,000 in counterfeits to the undercover agent. H e and a fellow conspirator had produced the initial counterfeit plates at two Denver
printing shops where they ran off a small quantity of notes. After the
passes in Conway, the prime conspirator had journeyed tp Baltimore
where he had produced over $800,000 in counterfeits using a stolen
press installed at his sister's reside ace in Dundalk. Dissatisfied with
the quality of the notes, he had thrown a quantity into Bear Creek.
Both defendants are aAvaiting judicial action. Total seizures in this
case amounted to nearly $830,000. Only 12 notes Avere placed into
circulation.
Check forgery

During fiscal 1973, 59,004 checks were received by the Secret Service
for investigation, a decrease of 16 percent over fiscal 1972. With the
Department of the Treasury having issued 650.7 million checks during
fiscal 1973, only 1 check required investigation for every 11,076 checks
paid.
An increase in the manpower available for this investigative activity
reduced the backlog of pending check cases to 30,7()0 from a high of
43,600 in May 1971, and raised the solved cases rate to 52 percent in
fiscal 1973 as compared with 40 percent for fiscal 1972. Check forgery
arrests increased to 4,591 in fiscal 1973 from 3,751 in fiscal 1972.
The improvement in forgery statistics can also be attributed t o the
continuation of the forgery squad system in the major offices and
priority emphasis on investigation of those who forge and negotiate
two or more checks. Early identification and arrest of multiple forgers
is significant regarding volume in view of their potential if not apprehended.
The volume of cases is expected to increase in the upcoming fiscal
year as federalization of certain welfare payments begins in January
1974. Approximately 7 million checks per nionth Avill be issued in those
areas of the program scheduled to begin at that time. The Forgery
Division is instituting a revised original check custody and control
system to provide more ready availability of the original checks for
laboratory examination, judicial proceedings, and general investigative needs. This innovation was arranged through the cooperation of
the Office of thje Treasurer.
Check cases

• The following check forgery investigations are representative.
On February 22, 1972, the Washington field office received an. inquiry from the McLachlen National Bank, Washington, D . C , regarding a U.S. Treasury check payable to the Mansimni Co., Washington,




ADMINISTRATIVE REPORTS

167

D . C , in the aniount of $202,601.26. Although the company had an open
account, bank officials suspected the check might be counterfeit. Investigation initiated on the same date determined that a Federal agency
had authorized issuance of the check. Bank records disclosed that the
Mansimni Co.'s account had two earlier large deposits in the form of
Treasury checks, one in excess of $18,000 and the other in excess of
$86,000. Further, a check for $4,500 had been draAvn on the account payable to the White Oak Aero Club for the purchase of a private airplane, and the bank had recently learned from an investment
company that the depositor was seeking to purchase $100,000 in Puerto
Eican municipal bonds.
Agents soon determined that the Mansimm Co. had never performed
any serA-ices fdr the authorizing Government agency but that the depositor of the check was employed at the Government agency as a
supervisor and financial accountant. I n that position, he was an authorized certifying officer, which enabled him to approve payment
schedules resulting in the issuance of Treasury checks by the Department of the Treasury. H e was not at work on February 22 and had
submitted his resignation, effective in March, after being advised that
an audit had been scheduled because of discrepancies in his records.
Investigating agents found the suspect was not residing at his official
residence address in Silver Spring, Md., but at the check address iii
Washington, D . C , where from time to time he placed the Mansimni
Co.'s name over his name on the mailbox. On the evening of JFebruary 22, the same day the investigation Avas initiated, he Avas arrested
at his estranged wife's residence in Sih-er Spring. At his apartment,
$5,400 in cash, check blanks and account books associated with the
Mansimm Co., firearms, and a quantity of marijuana were seized.
I n his position as a certifying officer, he had caused three Treasury
checks to be issued to the spurious Mansimm Co.—one for $18,417.89,
another for $86,571.28, and a third for $202,601.26—totaling $307,590.43. On October 19, 1972, the defendant, who graduated from the
University of Maryiand with a B.S. degree in accounting and who was
a second-year law student at Georgetown University, Avas sentenced
to 1 year and 1 day imprisonment and fined $5,000.
A trusted deputy comptroller employed by a large corporation obtained possession of the corporation's tax refund check in the amount
of $191,044.60. Through his knowledge of the vulnerability of the corporation's accounting system, he was able to take possession of the
check without question arising as to its apparent nonreceipt. H e then
deposited the check into a fictitious corporation account in a small
bank in another State, Avhich he drew down to a balance of $1,000 before the account became inactiA-e.
Nearly a year later, the corporation subinitted a claim to the Treasury Department alleging nonreceipt and forgery of their tax refund
check. The complex investigation Avliich identified the forger also disclosed this same defendant had embezzled approximately $500,000
by his manipulation of the corporation's legitim.ate bank accounts.
Following a plea of guilty, he was sentenced April 6,1973, in Federal
court to 8 years' imprisonment.
I n October 1972, a man and a woman with extensive narcotic
violation records, who had been operating as a check forgery team



168

1973 REPORT OF THE SECRETARY OF THE TREASURY

for approximately 2 years, Avere arrested at Houston, Tex. Approximately 150 Treasury checks, amounting to $18,000, were identified as
forged and cashed by them. The majority of their check violations
occurred initially in the Los Angeles area and later in the Houston
area. Most of the checks, which they usually stole from post office
boxes, were forged and cashed at markets while purchasing groceries.
On January 16, 1973, after having entered guilty pleas, both defendants were sentenced in Federal court to serve 5 years for their
multiple offenses.
Bond forgery

Bond forgery investigations decreased for the second consecutive
year, from 22,991 in fiscal 1971 and 16,559 in fiscal 1972 to 13,849 in the
current year.
U.S. savings bonds are stolen through various means, including bank
burglary and robbery, house burglary, mail theft, and purse snatching. Many of the stolen bonds pass through the hands of fences and
forgers, primarily in New York City, Philadelphia, Boston, NcAvark,
Chicago, Los Angeles, San Francisco, and Detroit.
Factors contributing to the decrease in bond forgery include the
identification and arrest of key multiple forgers and knoAA-n fences of
bonds throughout the country; the seizure of a record number of stolen
U.S. savings bonds prior to redeniption by forgers; an increasing
awareness by forgers that bonds are being entered into the National
Crime Information Center (NCIC) by the Service when reported
stolen; and an increasing utilization of the NCIC systeni by banks
(paying agents) when confronted by questionable redemptions.
During fiscal 1973, the Secret Service entered the records of 540,000
stolen savings bonds into N C I C At the end of the year there were approximately 550,000 stolen savings bonds in the NCIC, each a potential
loss to the Government if presented for redemption. During the year,,
11,027 stolen U.S. savings bonds having a face value of $1,178,950
were recovered through field investigations prior to redemption. This
represents an increase of 45 percent in recoveries over fiscal 1972, the
previous high year. One hundred eighty-seven persons Avere arrested
for bond forgery.
Bond forgery investigations

A major case prosecuted in fiscal 1973 involved bonds stolen from
the office of the Public Administrator of Denver, Colo. The office vault
had been opened in a highly professional manner, with the holes that
had been drilled to open the vault refilled and painted to delay detection of the burglary. Stolen were 236 savings bonds, with a redemption
value in excess of $63,600, belonging to 10 registered owners. Over a
year later a forger redeemed 14 of the stolen bonds—redemption value
$23,530—depositing $18,000 into a newly opened bank account i n
Phoenix, Ariz. Within 3 days he attempted to Avithdraw the $1'8,000,
causing the bank to become suspicious and contact the Treasury. The
suspect, arrested in the bank by an agent from the Phoenix office, Avas
later determined to have redeemed an additional 14 bonds in the Los
Angeles and Denver areas.
Meanwhile, an informant advised the Denver office that attempts



ADMINISTRATIVE REPORTS

169

Avere being made by three suspects in the burglary to redeem the rest
of the bonds in the Colorado Springs, Denver, and Boulder, Colo.,
areas by establishing fraudulent accounts at local banks. When the
banks in these areas Avere canvassed, it AA-as determined that numerous
bonds had already been redeemed. Descriptions of the forgers, a man
and a woman, matched one of the male suspects and the wife of another
suspect. Subsequently, a bank in Boulder notified the Denver office
when a suspicious account was opened with what appeared to be a
counterfeit driver's license by a woman matching the description of the
female suspect. The name on the account was one of the registered
owners' names on the stolen bonds. Later, the female suspect, accompanied by the three male suspects, returned to the Boulder bank and
presented two $1,000 bonds, with a redemption value of $2,831.60. Acting as if the transaction were acceptable, the bank paid the money
and alloAved her to return to the parking lot, where she was arrested
with the other suspects. The money paid by the bank was recovered
along with six additional $1,000 savings bonds. On August 28, 1972,
the four suspects arrested in Denver were convicted in a jury trial for
forgery and conspiracy to forge and Avere sentenced 2 to 3 years and 2
to 4 years in prison. The suspect arrested in Phoenix was placed on 5
years' probation and ordered to make full restitution to the Government for the bonds he redeemed.
I n December 1971, 36 bonds with a face value of $25,650 were stolen
in a house burglary in St. Paul, Minn. Shortly, bonds from this burglary were presented for redemption in Minneapolis, Los Angeles, and
Chicago. One forger was identified through a handwriting comparison as the same person that was arrested a month earlier in Pipestone,
Minn., and released on bond pending court appearances. Two associates
who resided in Florida were arrested within the year. The latter led
investigators to two well-known fences in Minneapolis who were placed
under arrest for conspiracy to forge and utter U.S. savings bonds.
Seventeen bonds with a face A-alue of $6,650 Avere recoA-ered. Three of
the defendants entered guilt}- pleas and were placed on probation. Both
fences pleaded guilty; one died before sentencing and the other was
sentenced to 3 years in prison to be served after serving 740 days for
parole violation on a narcotics charge.
I n February 1972, three $1,000 savings bonds were presented for
redemption at a bank in Orange, Calif. The teller became suspicious
because the driver's license the suspect used appeared counterfeit.
The suspect fled before the police arrived, leaving the bonds and the
license, which contained his photograph, in the bank. Identified as a
well-known forger and securities dealer, the suspect was spotted by
an agent in a parking lot and placed under arrest. The bonds recovered were part of a group of 25 $1,000 bonds stolen in December of
1970 in Omaha, Nebr., during a house burglary. SeA-en of the bonds had
been recoyered by the F B I and the Service during a joint investigation
resulting in the search of a well-known fence's house in Salt Lake City,
Utah, in June of 1971. While released on bail, the defendant attempted
to sell the remaining bonds to an undercover agent posing as a dishonest bank employee. The bonds Avere delivered by a third suspect
from Salt Lake City to the Los Angeles area, where a fourth person
assisted in the delivery of the bonds to the undercover agent. All were




170

1973 REPORT OF THE ^SECRETARY OF THE TREASURY

arrested and charged with conspiracy to forge, interstate transportation of stolen securities, receipt of stolen property transported interstate, aiding and abetting, and false impersonation of a Federal creditor. Sentences ranged from 6 months' to 7 years' imprisonment. .
Treasury Security Force

The Treasury Security Force, a specially trained, uniformed division of the U.S. Secret Service responsible for protecting the Main
Treasury Building and Treasury Annex, continued an intensive inservice training program of over 3,000 man-hours during fiscal 1973.
Training was conducted at the Consolidated Federal Law Enforcement
Training Ceinter, U.S. Secret Service Training Division, and the F B I
National Academy.
Forty-nine felony arrests were made by Treasury Security Force
officers at the Main Treasury Building. Most of these occurred ih the
main cash room as individuals attempted to cash forged checks valued
at nearly $12,000.
Identification Branch

The Identification Branch of the Special Investigations and Security Division provided increased scientific and technical assistance in
criminal investigations to Secret Service field offices. Its Questioned
Document and Fingerprint Sections, augmented by a complete Forensic Photography Unit, provided investigative support through examinations of handwriting, handprinting, fingerprints, palmprints,
typewriting, striations, photographs, and other forensic analyses.
These examinations related to both the protective and investigative
responsibilities of the Secret Service. Violations of laws affecting
these responsibilities often include the writing, manufacture, or al^
teration of docunients, and solutions to such problems often hinge
on examinations conducted by the Identification Branch.
During the 12 months ending May 31, 1973, the Fingerprint and
Questioned Document Sections closed 4,699 criminal cases. This was
an increase of 1,293 cases over fiscal 1972. A total of 633,246 exhibits
were examined, resulting in 1,722 identifications of individuals. Identification Branch personnel appeared in courts throughout the Nation
on .227 occasions to furnish testimony in support of their findings.
Organized crime

The Secret Service participates in the organized crime strike force
effort of the Department of Justice. Eighteen special agents are assigned to operating strike forces throughout the country and one intelligence analyst coordinates and disseminates intelligence from
Washington, D . C I n conjunction Avith the Department of Justice^
this iritelligence analyst controls the "racketeer profile" submitted by
Secret Service agents.
These agents are currently involved in 76 separate organized crime
cases. During fiscal 1973, Secret Service personnel expended more than
106,000 man-hours, or approximately 51 man-years in this category.
Training

There were 119,033 man-hours of training conducted by the Secret
Service Office of Training for personnel engaged in investigative,




ADMINISTRATIVE REPORTS

171

protective, and administrative functions. I n addition, 56,972 manhours of interbureau training, 9,980 man-hours of interagency training,
and 6,730 man-hours of nongoA-ernme^ntal training were completed.
A total of 192,715 man-hours Avere completed by. Service, personnel
during fiscal 1973.
The Office of Training provided firearms training to students of
the Consolidated Federal LaAv Enforcement Training Center (788
from the Criminal Investigator School and 341 from the Police
School). I n addition, firearms training was provided to 134 special
agents of the Bureau of Alcohol, Tobacco and Firearms; 92 Customs
patrol officers; 40 U.S. P a r k rangers; 3 special agents f rom^ the Department of Commerce; 3 special agents from the U.S. Information
Agency; 391 U.S. P a r k Police officers; and enforcement personnel of
the Secret Service.
There were 177 participants from State, local, and other Federal
agencies who attended Secret Service briefings on protection operations. Fifty-two participants from State and local police agencies attended the questioned document course.
Inservice courses were established for agents assigned to protective
details as Avell as agents assigned to field offices. Supervisory seminars were also conducted for all field offices and protective detail
supervisors.
Keeping abreast Avith technological adA-ahcements, the Office of
Training installed a group student response system and is developing
a student learning center. The former allows for more individual
student participation than do traditional training methods. The student learning center will contain carrels, which will enable students to
Avork independently at their own pace. I t will be used for employee
self-development and will support formal classroom instruction conducted at the Office of Training.
Administration

I n fiscal 1973, special attention was given to position description
management. A study of the special officer position, unique to the
Secret Service, clearly identified positions, distinct functions, and appropriate grade structures and career ladder assignments.
A comprehensive, automated financial accounting system Avas completed and readied for implementation in fiscal 1973. Capacity for
improved financial analysis and more timely and effective accounting
reports are features of the new system. This improvement will greatly
facilitate budget formulation and execution processes. The need for
manually kept records and files in support of the budget will be significantly reduced. Special studies and analyses, previously requiring
tedious work and the diversion of manpower resources, will be possible through rapid review and sampling of computer-based data. Accurate measurement of the consumption of financial resources by major
programs Avill alloAv a better correlation of costs to the consumption
of manpower resources and to performance areas.
An extensive on-the-job training prograni and selective recruiting
of new personnel upgraded technical capabilities Avithin the financial
management and rexDorting system.
506-171—73

^14




172

1973 REPORT OF THE SECRETARY OF THE TREASURY

I n the area of administrative operations, substantial dollar savings
were achieved by establishing more sources for procurement. This
increase in conipetition was made possible through the addition of
procurement personnel and acceleration of formal training for the
employees.
During fiscal 1973, major steps were taken to automate the nonexpendable property system, saving many man-hours and ensuring
more effective and efficient management of Secret Service property.
Also during fiscal 1973, the concept of "office excellence," a system
of eliminating costly ceiling-high partitions and substituting movable
panels, was introduced in the Louisville field office. This concept will
be extended to other offices.
Directives management and records disposition planning Avere also
improved. A more formal systeni of directives management is ready
for adoption at the beginning of calendar 1974. I n addition, a major
updating of the records disposal program and refinements to forms
and reports management will be completed by the end of calendar
1974.
Inspection and internal audit

Developmental supervisory training for the position of assistant
inspector, created during the year, significantly expedited inspections. Also, the internal audit staff Avas enlarged to increase the frequency of audits.
During fiscal 1973, inspectors represented the Director in many
high-level policy projects ahd surveys. /







EXHIBITS




Public Debt O.perations, Regulations, and Legislation
During fiscal year 1973 there were no offerings of. marketable
certificates of indebtedness. .

Treasury

E x h i b i t 1.—Treasury notes
Two Treasury circulars—one containing an excliange offering and. one covering
an a u c t i o n . f o r cash with prices established through competitive bidding—are
reproduced in this exhibit. Circulars pertaining t o t h e other note offerings during
fiscal 1973 a r e similar in form and therefore a r e not reproduced in this report.
However, essential details for each offering a r e summarized in the table in tliis
exhibit, and allotment d a t a for the note's will be shown in table 37 in the Statistical Appendix.
., '
.. ;
.
,
,.
DEPARTMENT

CIRCULAR

NO. 8-72. P U B L I C

DEBT

DEPARTMENT OF T H E TREASURY,

Washington, J u l y 27, 1972.
I . OFFERING OF NOTES

1.; The Secretary of the Treasury, p u r s u a n t to tlie authority of t h e Second
Liberty Bond Act, as amended, offers notes of the United States, designated
61/4 percent Treasury Notes of Series A-1979, a t par, in exchange for the following securities, singly or in combinations aggregating $1,000 or multiples thereof:
(1) - 5 percent Treasury Notes of Series E-1972, dated May 15, 1971, due
•
August 15, 1972;
•
•
^
' • ••
(2) 4 percent Treasury Bonds of 1972, dated September 15, 1962,: due
• August 15, 1972;
•
.
(3) 23/2 percent Treasury Bonds of 1967-72, dated October 20, 1941, due
•• September 15, 1972, with a cash payment of $1.12220 per $1,000 to the
• ' • United S t a t e s ;
•
•
• (4) 6 percent Treasury Notes of Series F-1972, dated J u n e 29, 1971, due
November 15, 1972, with a cash payment of $4.20838 per $1,000 to
' subscribers;
(5) 2 % percent Treasury Bonds of 1967-72, dated November 15, 1945, due
December 15, 1972, with a cash payment of $6.00915 per $1,000 to the
United S t a t e s ;
'
•^
, .
(6) 5 % percent Treasury Notes of Series A-1974, dated November 15, 1967,
due November 15, 1974, with a cash.payment of $6.10880 per $1,000 to
subscribers;
.
.
"(7) 3 % p e r c e n t - T r e a s u r y Bonds of 1974, dated December 2, 1957, due
November; 15, 1974,,with a cash payment of $30.23856 per $i;000 to the
;; Ilnited S t a t e s ;
"
"
'
. ( 8 ) • 5% "percent T r e a s u r y Notes of Series A-1975, dated F e b r u a r y 15, 1968,
due F e b r u a r y 15, 1975, with a cash payment of $3.06136 per $1,000 to
, .
subscribers ; or :
,
(9) , 5 % percent T r e a s u r y Notes of Series E - i 9 7 5 , dated October 22, 1971,
. .due F e b r u a r y 15, 1975, with a c a s h . p a y m e n t of $5.^1659 per $.1,000 to
' subscribers.
.
I n t e r e s t will be adjusted a s of August 15,..1972, on the securities due subsequent
to t h a t date. P a y m e n t s on account of accrued interest a n d cash adjustments will
be m a d e as set forth in Section IV hereof. The amount of this offering will be
limited to the amount of eligible securities tendered in exchange. The books will
be open until 5 :00 p.m., local time, August 2,1972, for the receipt of subscriptions,
except t h a t individuals exchanging registered securities will be permitted to
submit subscriptions until 5:00 p.m., local tiine, August 4,1972.
'"'' '
' '
'
'
'
• 175'




176

19 73 REPORT OF THE SECRETARY OF THE TREASURY

2. In addition,
(a) holders of all of the securities enumerated in Paragraph 1 of this
section are offered the privilege of exchanging all or any part of them
for 6% percent Treasury Bonds of 1984, which offering is set forth in
Department Circular, Public Debt Series—-No. 9-72, and
(b) holders of the securities maturing in 1972, are offered the privilege of
exchanging all or any part of them for 5% percent Treasury Notes of
Series F-1976, which offering is set forth in Department Circular,
PubUc Debt Series—No. 7-72.
These two circulars are being issued simultaneously with this circular.
3. Optional ^recognition of gain or loss for Federal income tax purposes on
securities due in 1974 and 1975.—Pursuant to the provisions of section 1037(a)
of the Internal Revenue Code of 1954, the Secretary of the Treasury hereby
declares that gain or loss for Federal income tax purposes upon the exchange with
the United States of the securities due in 1974 and 1975 enumerated in Paragraph 1 of this section solely for the 6 ^ percent Treasury Notes of Series A-1979
may he recognized either—
(1) in the taxable year of the exchange, or
(2) in the taxable year of disposition or redemption of the new obligations.
In the case of either option, any gain realized on the exchange to the extent that
money (other than as an interest adjustment) is received by the security holder
in connection with the exchange must be recognized as gain for the taxable year
of the exchange.
II, DESCRIPTION OF NOTES

1. The notes Avill be dated August 15, 1972, and will bear interest from that
date at the rate of 6^4 percent per annum, payable semiannually on February 15
and August 15 in each year until the principal amount becomes payable. They
will mature August 15, 1979, and Avill not be. subject to call for redemption prior
to maturity.
2. The income derived from the notes is subject to all taxes imposed under the
Internal Revenue Code of 1954. The notes; are subject to estate, inheritance,
gift or other excise taxes, whether Federal or State, but are exempt from all taxation now or hereafter imposed on the principal or interest thereof by any State,
or any of the possessions of the United States, or by any local taxing authority.
3. The notes will be acceptable to secure deposits of public moneys. They Avill
not be acceptable in payment of taxes.
4. Bearer notes with interest coupons attached, and notes registered as to
principal and interest, will be issued in denominations of $1,000, $5,000, $10,000,
$100,000 and $1,000,000. Provision wiU be made for the interchange of notes of
different denominations and of coupon and registered notes, and for the transfer
of registered notes, under rules and regulations prescribed by the Secretary of
the Treasury.
5. The notes will he subject to the general regulations of the Department of
the Treasury, now or hereafter prescribed, governing United States notes.
III.

SUBSCRIPTION AND ALLOTMENT

1. Subscriptions accepting the offer made \ by this circular will be received
at the Federal iReserve Banks and Branches and at the Office of the Treasurer
of the United States, Washington, D.C. 20222. Banking institutions generally
may submit subscriptions for account of customers, but only the Federal Reserve
Banks and the Department of the Treasury are authorized to act as official
agencies.
2. Under the Second Liberty Bond Act, as amended, the Secretary of the
Treasury has the authority to reject or reduce any subscription, and to allot less
than the amount of notes applied for when he deems it to be in the public interest ; and any action he may take in these respects shall be final. Subject to the
exercise of that authority, all subscriptions will be allotted in full.
IV. PAYMENT

1. Payment for the face amount of notes allotted hereunder must be made on
or before August 15, 1972, or on later allotment, and may be made only in a like
face amount of securities of the issues enumerated in Paragraph 1 of Section
I hereof, which should accompany the subscription. Payment will not be deemed




E.XHIBITS

177

to have been completed where registered notes are requested if the appropriate
identifying number as required on tax returns and other documents submitted to
the Internal Revenue Service (an individual's social security number or an
employer identification number) is not furnished. Payments due to subscribers
(paragraphs 3, 4, 6, 8 and 9 below) will be made by check or by credit in any
account maintained by a banking institution with the Federal Reserve Bank
of its District, following acceptance of the securities surrendered. In the case of
registered securities, the payment will be made in accordance with the assignments thereon. Payments due from subscribers (paragraphs 5 and 7 below)
should accompany the subscription.
2. 5 peixent notes of Series E-1972 and 4 percent honds of 1972.—When payment is made with securities in bearer form, coupons dated August 15, 1972,
should be detached and cashed wheh due.^
3. 2^2 percent honds of Septemher 15, 1967-72.—When payment is made with
bonds in bearer form, coupons dated September 15, 1972, must be attached to the
bonds when surrendered. Accrued interest from March 15 to August 15, 1972
($10.39402 per $1,000) will be credited, the payment due the United States
($1.12220 per $1,000) wiU be charged, and the difference ($9.27182 per $1,000)
will be paid to subscribers.
4. 6 percent notes of Series F-1972.—When payment is made with notes in
bearer form, coupons dated November 15, 1972, must be attached to the notes
when surrendered. Accrued interest from May 15 to August 15, 1972 ($15.00000
per $1,000) plus the cash payment ($4.20838 per $1,000), a total of $19.20838
per $1,000, willbe paid to subscribers.
5. 2y2 percent honds of Decemher 15, 1967-72.—W^hen payment is made with
bonds in bearer form, coupons dated December 15, 1972, must be attached to the
bonds when surrendered. Accrued interest from June 15 to August 15, 1972
($4.16667 per $1,000) will be credited, the payment due the United States
($6.00915 per $1,000) will be charged, and the difference ($1.84248 per $1,000)
must he paid to the United States.
6. 5% percent notes of Series A-1974.—When payment is made with notes in
bearer form, coupons dated November 15, 1972, and all subsequent coupons, must
be attached to the notes when surrendered. Accrued interest from May 15 to
August 15, 1972 ($14.37500 per $1,000) plus the cash payment ($6.10880 per
$1,000), a total of $20.48380 per $1,000, wUl be paid to subscribers.
7. S% percent honds of 1974-—When payment is made with bonds in bearer
form, coupons dated November 15, 1972, and all subsequent coupons, must be
attached to the bonds when surrendered. Accrued interest from May 15 to August 15, 1972 ($9.68750 per $1,000) wiU be credited, the payment due the United
States ($30.23856 per $1,000) wiU be charged, and the difference ($20.55106 per
$1,000) must be paid to the United States.
8. 5% pe7'cent notes of Series A-1975.—When payment is made with notes in
bearer form, coupons dated February 15, 1973, and all subsequent coupons, must
be attached (August 15,1972, coupons should be detached ^) to the notes when surrendered. A cash payment of $3.06136 per $1,000 will be paid to subscribers.
9. 5% percent notes of Series E-1975.—When payment is made with notes in
bearer form, coupons dated February 15, 1973, and all subsequent coupons, must
be attached (August 15, 1972, coupons should be detached^) to the notes when
surrendered. A cash payment of $5.81659 per $1,000 will be paid to subscribers.
V. ASSIGNMENT OF REGISTERED SECURITIES

1. Registered securities tendered in payment for notes offered hereunder should
be assigned by the registered payees or assignees thereof, in accordance with
the general regulations of The Department of the Treasury governing assignments for transfer or exchange, in one of the forms hereafter set forth, and
thereafter should be surrendered with the subscription to a Federal Reserve
Bank or Branch or to the Office of the Treasurer of the United States, Washington, D.C. 20220. The securities must be delivered at the expense and risk of the
1 I n t e r e s t due on August 15, 1972, on registered securities will be paid by issue of
interest cheeks in regular course to holders of record on J u l y 14, 1972, the date the
transfer books closed.




178

1973 REPORT OF THE

OF THE TREASURY

SE€RET!ARY

holder. If the notes are desired registered in the same name as the securities
surrendered, the assignment should be to ''The Secretary of the Treasury for exchange for 61^ percent Treasury Notes of Series A-1979" ; if the notes are desired
registered in another name; the assignment should be to "The Secretary of the
Treasury for exchange for 6% percent Treasury Notes of Series A-1979 in.the
name Of
: :_____
^__
______:.__--_
^_____: _--__;" ;
if notes in coupon form are desired, the assignment should be to "The Secretary
of the Treasury for exchange for 6% percent Treasury Notes of Series A-1979
in coupon form to be delivered to_ — !
il
L___>i:_ ::.«_i.___
".
VI. GENERAL PROVISIONS'

-

1. As fiscal agents of the United States, Federal Reserve Banks are authorized
and requested to receive subscriptions, to make such allotments as may be prescribed by the Secretary of the Treasury, to issue such notices as may be necessary, to receive payment for and make deliyery of.notes on full-paid subscriptions allotted, and they may issue interini receipts pending delivery of the
definitive notes.
i,
.. ,
'
2. The Secretary of the Treasury may at any time,, or from time to time,
prescribe supplemental or amendatory rules and regulations governing .the offering, which will be communicated promptly to; the Federal Reserve; Ba.nks.
•

GEORGE P.

.

SHULTZ, .

Secretary of the Treasury.

DEPARTMENT CIRCULAR NO. 2-73. PUBLIC DEBT
.

•

D E P A R T M E N T . OF ' TiiE

'

TREASURY,

Washington, Fehruary 1\ 1973.

I. OFFERING OF N O T E S

1. The Secretary of the Treasury, pursuant to the authority of = the Second
Liberty Bond Act, as amended, invites tenders at a price not less than. 98.51 percent of their face A-alue for $1,000,000,000, or thereabouts, of notes of the United
States, designated 6% percent Treasury Notes of Series B-1979. An additional
amount of the notes will be allotted by the Secretary of the Treasury to Government accounts and Federal Reserve Banks at the average price of accepted
tenders in exchange for Treasury notes maturing February 15, 1973. Tenders
will be received up to 1:30 p.m.. Eastern Standard time, Wednesday, February 7,
1973, under competitive and noncompetitive bidding, as set forth in.Section III
hereof. The 6 ^ percent Treasury Notes of Series C-1973 and 4% percent Treasury Notes of Series D-1973, maturing February 15, 1973, will be accepted at-par.
in payment, in whole or in part, to the extent tenders are allotted by the Treasury.
II. DESCRIPTION OF NOTES

1. The notes will be dated February 15, 1973, and will bear interest from that
date at the rate of 6% percent per annum^ payable on a semiannual basis on
May 15 and November 15, 1973, and thereafter on May 15 and November 15 in
each year until the principal amount becomes payable. They will mature November 15, 1979, and will not be subject to call for redemptiori prior to maturity.
2. The income derived from the notes is subject to all taxes imposed under
the Intemal Revenue Code of 1954. The notes are subject to estate, inheritance,
gift or other excise taxes, whether Federal or State, but are exempt from, all
taxation now or hereafter imposed on the principal or interest thereof by any
State, or any of the possessions of the United States, or by any local taxing
authority.
•
; .
3. The notes will be acceptable to secure deposits of public moneys. They will
not be acceptable in payment of taxes.
^
4. Bearer notes with interest coupons attached, and notes registered as to
principal and interest, will be issued in denominations of $1,000, $5,000, $10,000,
$100,000 and $1,000,000. Provision will be made for the interchange of notes of
different denominations and of coupon and registered notes, and for the transfer




EXHIBITS

179

of registered notes, under rules and regulations prescribed by the Secretary of
the Treasury.
5. The notes will be subject to the general regulations of The Department of
the Treasury, now or hereafter prescribed, governing United States notes.
IIL TENDERS AND ALLOTMENTS

1. Tenders will be received at Federal Reserve Banks and Branches and at
the Office of, the Treasurer of the United States, Washington, D.C. 20220, up to
the closing hour, 1:30 p.m.. Eastern Standard time, Wednesday, February 7,1973.
Each tender must state the face amount of notes bid for, which must be $1,000
or a multiple thereof, and the price offered, except that in the case of noncompetitive tenders the term "noncompetitive" should be used in lieu of a price. In
the case of competitive tenders, the price must be expressed on the basis of 100,
Avith two decimals, e.g., 100.00. Tenders at a price less than 98.51 will not be accepted. Fractions may not be used. Noncompetitive tenders from any one bidder
may not exceed $400,000.
2. Commercial banks, which for this purpose are defined as banks accepting
demand deposits, may submit tenders for account of customers provided the
names of the customers are set forth in such tenders. Others than commercial
banks will not be permitted to submit tenders except for their own account.
Tenders will be received without deposit from banking institutions for their own
account. Federally-insured savings and loan associations. States, political subdivisions or instrumentalities thereof, public pension and retirement and other
public funds, international organizations in which the United States holds membership, foreign central banks arid foreign States, dealers who make primary
markets in Government securities and report daily to the Federal Reserve Bank
of New York their positions with respect to Government securities and borrowings thereon, and Government accounts. Tenders from others must be accompanied by payment (in cash or the securities referred to in Section I which will be
accepted at par) of 5 percent of the face amount of notes applied for.
3. Immediately after the closing hour tenders will be opened, following which
public announcement will be made by the Department of the Treasury of the
amount and price range of accepted iDids. Those submitting tenders will be advised of the acceptance or rejection thereof. In considering the acceptance of tenders, those at the highest prices will be accepted to the extent required to attain
the amount offered. Tenders at the lowest accepted price will be prorated if
necessary. The Secretary of the Treasury expressly reserves the right to accept
or reject any or all tenders, in whole or in part, and his action in any such respect shall be final. Subject to these reservations, noncompetitive tenders for
$400,000 or less without stated price from any one bidder will be accepted in full
at the average price* (in two decimals) of accepted competitive tenders.
4. All bidders are required to agree not to purchase or to sell, or to make any
agreements with respect to the purchase or sale or other disposition of any notes
of this issue at a specific rate or price, until after 1:30 p.m.. Eastern Standard
time, Wednesday, February 7,1973.
5. Commercial banks in submitting tenders will be required to certify that they
have no beneficial interest in any of the tenders they enter for the account of their
customers, and that their customers have no beneficial interest in the banks'
tenders for their own account.
IV. PAYMENT

1. Settlement for accepted tenders in accordance with the bids must be made
or completed on or before February 15, 1973, at the Federal Reserve Bank or
Branch or at the Office of the Treasurer of the United States, Washington, D.C.
20222, in cash, securities referred to in Section I (interest coupons dated February 15,1973, should be detached) or other funds immediately available by that
date. Payment will not be deemed to have been completed where registered notes
are requested if the appropriate identifying number as required on tax returns
and other documents submitted to the Internal Revenue Service (an individual's
social security number or an employer identification number) is not furnished.
In every case where full payment is not completed, the payment with the tender
up to 5 percent of the amount of notes allotted shall, upon declaration made by
•Average price may be at, or more or less than 100.00.




180

1973 REPORT OF THE SECRETARY OF THE TREASURY

the Secretary of the Treasury in his discretion, be forfeited to the United States.
When payment is made with securities, a cash adjustment will be made to or required of the bidder for any difference between the face amount of securities
submitted and the amount payable on the notes allotted.
v. A S S I G N M E N T O F REGISTlilRED SECURITIES

1. Registered securities tendered as deposits and in payment for notes allotted
hereunder should be assigned by the registei'ed payees or assignees thereof, in
accordance with the general regulations of the Department of the Treasury, in
one of the forms hereafter set forth. Securities tendered in payment should be
surrendered at the Federal Reserve Bank or Branch or at the Office of the Treasurer of the United States, Washington, D.C. 20222. The securities must be delivered at the expense and risk of the holder. If the notes are desired registered
in the same name as the securities surrendered, the assignment should be to "The
Secretary of the Treasury for 6% percent Treasury Notes of Series B-1979";
if the notes are desired registered in another name, the assignment should be to
"The Secretary of the Treasury for 6% percent Treasury Notes of Series B-1979
in the name of
"; if notes in coupon form are desired, the
assignment should be to "The Secretary of the Treasury for 6% percent Treasury Notes of Series B-1979 in coupon form to be delivered to
".
VI. GENERAL PROVISIONS

1. As fiscal agents of the United States, Federal Reserve Banks are authorized
and requested to receive tenders, to make such allotments as may be prescribed
by the Secretary of the Treasury, to issue such notices as may be necessary, to
receive payment for and make delivery of notes on full-paid tenders allotted,
and they may issue interim receipts pending delivery of the definitive notes.
2. The Secretary of the Treasury may at any time, or from time to time, prescribe supplemental or amendatory rules and regulations governing the offering,
which will be communicated promptly to the Federal Reserve Banks.




GEORGE P. SHULTZ,

Secretary of the Treasury.

Date of
prehni- Department
inary
circular
announce- No.
Date
ment

1972
July 26

Concurrent
offering
circular
No.

Date of
issue

Treasury notes issued for exchange or for cash

8-72,9-72 bVs percent Series F-1976 at 99.75 in exchange for....
•
5 percent Series E-1972 notes maturing August 15,1972
4 percent bonds maturing August 15, 1972
23^ percent bonds maturing September 15,1972 2
6 percent Series F-1972 notes maturing November 15, 1972 3
23^ percent bonds maturing December 15,1972 *
July 26 8-72 July 27 7-72,9-72 6M percent Series A-1979 at par in exchange for *.._
5 percent Series E-1972.notes maturing August 15, 1972
4 percent bonds maturing August 15,1972
2 ^ percent bonds maturing September 15,1972
6 percent Series F-1972 notes maturing November 15,1972
21^ percent bonds maturing December 15,1972
5% percent Series A-1974 notes maturing November 15, 1974
ZJ4 percent bonds maturing November 15,1974
5 ^ percent Series A-1975 notes maturing February 15,1975
5>g percent Series E-1975 notes maturing February 15,1975
6 percent Series E-1974 at 100.25 (average) for cash s 7
Oct. 5 10-72 Oct., 6 .

Dec. 14 12-72 Dec. 15
1973
1973
Jan. 31 1-73 Feb. 1
Jan. 31
Apr. 25

2-73 Feb. 1
3-73 Apr. 26

M
Oct. 19 •Sept.
1971
Sept. S^o Nov.
1972
.— Dec. 28 Dec.
1973
Feb. 15 Aug.

5J^ percent Series F-1974 at 100.09 (average) for cash 6 n
2-73

1 Individuals exchanging registered securities were permitted to submit subscriptions
until Aug. 4.
2 Subscribers exchanging these bonds were credited with accrued interest on the bonds
from-Mar. 15 to Aug. 15, 1972 ($10.39402 per $1,000) plus the discount ($2.50 per $1,000)
on the notes, and charged $1.2220 per $1,000 to adjust for the market value of the bonds.
3 Subscribers exchanging these notes were paid accrued interest on the notes from May
15, to Aug. 15,1972 ($15.00 per $1,000), the discount of $2.50 per $1,000, and $21.70838 per
$1,000 to adjust for the market value of the 6 percent notes.
4 Subscribers exchanging these bonds were credited with accrued interest on the bonds
from June 15 to Aug. 15, 1972 ($4.16667 per $1,000) plus the discount ($2.50 per $1,000)
on the notes, and charged $6.00915 per $1,000 to adjust for the market value of the bonds.
5 See Department Circular No. 8-72 in this exhibit for provisions regarding payment
and optional recognition of gain or loss for Federal income tax purposes.
6 Noncompetitive tenders for $200,000 or less were accepted in full at the average price




Aug. 16 Aug. 15,1979 Aug. 21 Aug. 15

&H percent Series D-1976 at 10018 (average) for cash « K...

6K percent'Series G-1976 at 99.70 in exchange for
&}4 percent Series C-1973 notes maturing February 15,1973
43^ percent Series D-1973 notes maturing February 15, 1973
1-73 6H percent Series B-1979 at 99.40 (average) for cash i2i3__
4r-73 63^ percent Series A-1980 at 99.29 (average) for cash 1214

AUotment
payment
date on
or before (or
on later
allotment)

1972
1972
1972
Aug. 15 Feb. 15,1976 Aug. 21 Aug. 15

1972
7-72 July 27

Oct. 25 11-72 Oct. 26

Date of
matmity

Date
subscription
books
closed
or tenders received

_

___

30,1974 Oct. 11 Oct.

w

19

W

15,1976 Nov. 1 Nov. 15
31,1974 Dec. 20 Dec. 28
1973
1973
15,1976 Feb. 7 Feb. 15

Feb. 15 Nov. 15,1979 Feb. 7 Feb.
May 15 May 15,1980 May 1 May

,

15
15

of accepted competitive tenders. Qualifled depositaries were permitted to make settlement by credit in their Treasm-y tax and loan account.
^ These notes were sold at auction at prices ranging from 100.41 to 100.20.
8 Noncompetitive tenders for $400,000 or less were accepted in full at the average price
of accepted competitive tenders. Qualifled depositaries were permitted to make settlement for 75 percent of the notes allotted by credit in their Treasury tax and loan account.
9 These notes were sold at auction at prices ranging from 100.31 to 100.14.
10 Interest was payable from Nov. 15,1972.
11 These notes were sold at auction at prices ranging from 100.29 to 100.05.
12 Noncompetitive tenders for $400,000 or less were accepted in full at the average
price of accepted tenders. Payment could riot be made through Treasury tax and loan
accounts.
13 These notes were sold at auction atprices ranging from 99.88 to 99.21.
1 These notes were sold at auction at'prices ranging from 100.10 to 99.05.
4

(X)

182

19 73 REPORT OF THE SECRETARY OF THE TREASURY
Exhibit 2.—Treasury bonds

Two Treasury circulars—one containing an exchange offering and one covering
an auction for cash with the piice established through competitive bidding—
are reproduced in this exhibit. Another circular pertaining to an auction is
similar in form and therefore is not reproduced in this report. However, essential details for each offering are summarized in the table in this exhibit, and
allotment data for the bonds will be shown in table 38 in the Statistical Appendix.
DEPARTMENT CIRCULAR NO, 9-72. PUBLIC DEBT
•

DEPARTMENT OF THE TREASURY,

Washington, July 27,1972.
I. OFFERING OF BONDS

1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, as amended, offers bonds of the United States, designated
6% percent Treasury Bonds of 1984, at 99.40 percent of their face value, in excliange for the following securities, singly or in combinations aggregating $1,000
or multiples thereof:
(1) 5 percent Treasury Notes of Series E-1972, dated May 15, 1971, due
August 15, 1972;
(2) 4 percent Treasury Bonds of 1972, dated September 15, 1962, due August 15,1972;
(3) 21/2 percent Treasury Bonds of 1967-72, dated October 20, 1941, due
September 15, 1972, with a cash payment of $1.12220 per $1,000 to the
United States;
(4) 6 percent Treasury Notes of Series F-1972, dated June 29, 1971, due
November 15, 1972, with a cash payment of $4.20838 per $1,000 to
subscribers;
(5) 2^!, percent Treasury Bonds of 1967-72, dated November 15, 1945, due
December 15, 1972, with a cash payment of $6.00915 per $1,000 to the
United States;
(6) 5% percent Treasury Notes of Series A-1974, dated November 15, 1967,
due Noveniber 15, 1974, with a cash payment of $6.10880 per $1,000
to subscribers;
;
'.
(7) 3ys percent Treasury Bonds of. 1974, dated December 2, 1957, due
November 15, 1974, with a cash payment of $30.23856 per $1,000 to the
United States;
(8) 5% percent Treasury Notes of Series A-1975, dated February 15, 1968,
due February 15, 1975, with a cash payment of $3.06136 per $1,000 to
subscribers; or
(9) 5ys percent Treasury Notes of Series E-1975, dated October 22, 1971,
due February 15, 1975, with a cash payment of $5.81659 per $1,000 to
subscribers.
Interest will be adjusted as of August 15, 1972, on the securities due subsequent
to that date. Payments on account of accrued interest and cash adjustments will
be made as set forth in Section IV hereof. In addition, the Secretary of the Treasury offers the bonds to natural persons in their own right for cash, not to exceed $10,000 to any one person. The books will be open until 5 :00 p.m., local time,
August 2, 1972, for the receipt of subscriptions, except that individuals subscribing for cash, or exchanging registered securities, will be permitted to submit subscriptions until 5:00 p.m., local time, August 4, 1972.
In addition,
(a) holders of all of the securities enumerated in Paragraph 1 of this section are offered the privilege of exchanging all or any part of them for
6% percent Treasury Notes of Series A-1979, which offering is set
forth in Department Circular, Public Debt Series—No. 8-72, and
(b) holders of the securities maturing iri 1972, are offered the privilege of
exchanging all or any part of them for 5% percent Treasury Notes of
Series F-1976, which offering is set forth in Department Circular,
PubUc Debt Series—No. 7-72.
These circulars are being issued simultaneously with this circular.
3. Optional recognition of gain or loss for Federal income tax purposes on securities due in 1974 (^'^d 1975.—Pursuant to the provisions of section 1037(a) of



. EXHIBITS

183

the Internal Revenue Code of 1954, the Secretary of the Treasury hereby declares
that gain or loss for Federal income tax purposes upon the exchange with the
United States of the securities due in 1974 and 1975 enumerated in Paragraph 1
of this section solely for the 6% percent Treasury Bonds of 1984 may be recognized either—
(1) in the taxable year of the exchange, or
(2) in the taxable year of disposition or redemption of the new obligations.
In the case of either option, any gain realized on the exchange to the extent
that nioney (other than as an interest adjustment) is received by the security
holder in connection with the exchange must be recognized as gain for the taxable
year of the exchange.
I I . DESCRIPTION OF BONDS

1. The bonds will be dated August 15,1972, and will bear interest from that date
at the rate of 6% percent per annum, payable semiannually on February 15 and
August 15 in each year until the principal amount becomes payable. They will
mature August 15, 1984, and will not be subject to call for redemption prior to
maturity.
2. The income derived from the bonds is subject to all taxes imposed under the
Internal Revenue Code of 1954. The bonds are subject to estate, inheritance,
gift or other excise taxes, whether Federal or State, but are exenipt from all taxation now or hereafter imposed on the principal or interest thereof by any State,
or any of the possessions of the United States, or by any local taxing authority.
3. The bonds will be acceptable to secure deposits of public moneys. They will
not be acceptable in payment of taxes.
4. Bearer bonds with interest coupons attached, and bonds registered as to
principal and interest, will be issued in denominations of $1,000, $5,000, $10,000,
$100,000 and $1,000,000. Provision wiU be made for the interchange of bonds of
diff'erent denominations and of coupon and registered bonds, and for the transfer
of registered bonds, under rules and regulations prescribed by the Secretary of
the Treasury.
5. The bonds will be subject to the general regulations of the Department of
the Treasury, now or hereafter prescribed, governing United States bonds.
I I I . SUBSCRIPTION AND A L L O T M E N T

1. Subscriptions accepting the off'er made by this circular will be received at
the Federal Reserve Banks and Branches and at the Office of the Treasurer of
the United States, Washington, D.C. 20222. Only the Federal Reserve Banks and
the Department of the Treasury are authorized to act as official agencies. Banking institutions generally may submit subscriptions for account of customers,
provided the names of customers subscribing for cash are set forth in such subscriiDtions. Others than banking institutions will not be permitted to enter cash
subscriptions except for their own account.
2. Cash subscriptions, which may not exceed $10,000 from any one person, must
be accompanied by payment of 10 percent of the face amount of bonds applied for.
3. Banking institutions in submitting cash subscriptions for customers Avill be
required to certify that they have no beneficial interest in any such subscriptions.
4. Under the Second Liberty Bond Act, as amended, the Secretary of the Treasury has the authority to reject or reduce any subscription, and to allot less than
the amount of bonds applied for when he deems it to be in the public interest;
and any action he may take in these respects shall be final. Subject to the exercise of that authority, all subscriptions will be allotted in full.
IV.

PAYMENT

1. Payment for the face aniount of bonds allotted hereunder in exchange for
securities of the issues enumerated in Paragraph 1 of Section I hereof, must be
made on or before August 15, 1972, or on later allotment, and may be made only
in a like face amount of such securities, which should accompany the subscription. On cash subscriptions payment at 99.40 percent of their face value and
accrued interest, if any, for bonds allotted hereunder, must be completed on or
before August 15, 1972, in cash or other funds fully collectible by that date. In




184

1 9 3 REPORT OF THE SECRETARY OF THE TREASURY
-7

every case where full payment is not completed, the payment with the application up to 10 percent of the amount of bonds allotted shall, upon declaration
made by the Secretary of the Treasury in his discretion, be forfeited to the United
States. Paynient will not be deemed to have been completed where registered
bonds are requested if the appropriate identifying number as required on tax
returns and other docunients submitted to the Internal Revenue Service (an individual's social security number or an employer identification number) is not
furnished. Payments due to subscribers (paragraphs 2, 3, 4, 5, 6, 8 and 9 below)
will be made by check or by credit in any account maintained by a banking institution with the Federal Reserve Bank of its District, following acceptance of
the securities surrendered. In the case of registered securities, the payment will
be made in accordance with the assignments thereon. Payments due from subscribers (paragraph 7 below) should accompany the subscription.
2. 5 percent notes of Series E-1972 and 4 P^'^cent honds of 1972.—When payment is made with securities in bearer form, coupons dated August 15, 1972,
should be detached and cashed when due.^ A cash payment of'$6.00 per $1,000 on
account of the issue price of the new bonds will be made to subscribers.
3. 2^2 percent honds of Septemher 15, 1967-72.—When payment is made with
bonds in bearer form, coupons dated Septeinber 15, 1972, must be attached to
the bonds when surrendered. Accrued interest from March 15 to August 15, 1972
($10.39402 per $1,000) plus the payment on account of the issue price of the new
bonds ($6.00 per $1,000) wiU be credited, the payment ($1.12220 per $1,000) due
the United States wiU be charged, and the difference ($15.27182 per $1,000) wiU
be'iDaid to subscribers.
4. 6 percent notes of Series F-1972.—When payment is made with notes in
bearer form, coupons dated November 15, 1972, must be attached to the notes
when surrendered. Accrued interest from May 15 to August 15, 1972 ($15.00000
per $1,000), the payment on account of the issue price of the new bonds ($6.00
per $1,000) and the cash payment ($4.20838 per $1,000), a total of $25.20838 per
$1,000, will be paid to subscribers.
5. 2y2 percent honds of Decemher 15, 1967-72.—When payment is made with
bonds in bearer form, coupons dated December 15, 1972, must be attached to the
bonds when surrendered. Accrued interest from June 15 to August 15, 1972
($4.16667 per $1,000) plus the payment on account of the issue price of the new
bonds ($6.00 per $1,000) will be credited, the payment due the United States
($6.00915 per $1,000) will be charged, and the difference ($4.15752 per $1,000)
will be paid to subscribers.
6. 5% percent notes of Series A-1974.—When payment is made with notes in
bearer form, coupons dated Noveniber 15, 1972, and all subsequent coupons, must
be attached to the notes when surrendered. Accrued interest from May 15 to
August 15, 1972 ($14.37500 per $1,000), the paynient on account of the issue
price of the new bonds ($6.00 per $1,000) and the cash payment ($6.10880 per
$1,000), a total of $26.48380 per $1,000, wiU be paid to subscribers.
7. 5% percent honds of 1974.—When payment is made with bonds in bearer
form, coupons dated November 15, 1972, and all subsequent coupons, must be
attached to the bonds when surrendered. Accrued interest from May 15, to
August 15, 1972 ($9.68750 per $1,000) plus the payment on account of the is.sue
price of the new bonds ($6.00 per $1,000) wiU be credited, the payment ($30.23856
per $1,000) due the United States wiU be charged, and the difference ($14.55106
per $1,000) must be paid by subscribers.
8. 5% percent notes of Series A-1975.—When payment is made with notes in
bearer form, coupons dated February 15, 1973, and all subsequent coupons, must
be attached (August 15,1972, coupons should be detached ^) to the notes when surrendered. The payment on account of the issue price of the new bonds ($6.00 per
$1,000) plus the casii payment ($3.06136 per $1,000), a total of $9.06136 per
$1,000, will be paid to subscribers.
9. 5% percent notes of Series E-1975.—When payment is made with notes in
bearer form, coupons dated February 15, 1973, and all subsequent coupons, must
be attached (August 15, 1972, coupons should be detached^) to the notes when
surrendered. The payment on account of the issue price of the new bonds ($6.00
1 I n t e r e s t due on August 15, 1972, on registered securities will be paid by Issue of
interest checks In regular course to holders of record on July 14, 1972, the date the
transfer books closed.




EXHIBITS

185

per $1,000) plus the cash payment ($5.81659 per $1,000), a total of $11.81659 per
$1,000, will be paid to subscribers.
v.

A S S I G N M E N T OF REGISTERED S E C U R I T I E S

1. Registered securities tendered in payment for bonds offered hereunder
should be assigned by the registered payees or assignees thereof, in accordance
v^^ith the general regulations of T h e Department of the Treasury governing assignments for transfer or exchange, in one of the forms hereafter set forth, and
thereafter should be surrendered with the subscription to a Federal Reserve
Bank or Branch or to the Office of the T r e a s u r e r of the United States, Washington, D.C. 20222. The securities must be delivered a t the expense and risk of the
holder. If the bonds a r e desired registered in the same name as the securities
surrendered, the assignment should be to "The Secretary of t h e Treasury for
exchange for 6% percent T r e a s u r y Bonds of 1984"; if t h e bonds a r e desired
registered in another name, the assignment should be to "The Secretary of the
Treasury for exchange for 6% percent Treasury Bonds of 1984 in t h e name of
^
" ; if bonds in coupon form a r e desired, the
assignment should be to ''The Secretary of t h e Treasury for exchange for 6%
percent Treasury Bonds of 1984 in coupon form to be delivered to
VI.

GENERAL PROVISIONS

1. As fiscal agents of t h e United States, Federal Reserve Banks a r e authorized
and requested to receive subscriptions, to m a k e such allotments as may be prescribed by the Secretary of the Treasury, to issue such notices as may be necessary, to receive payment for and m a k e delivery of bonds on full-paid subscriptions allotted, a n d they may issue interim receipts pending delivery of the
definitive bonds.
2. The Secretary of the T r e a s u r y may a t any time, or from time to time, prescribe supplemental or amendatory rules and regulations governing the offering,
which will be communicated promptly to the Federal Reserve Banks.
GEORGE P.

SHULTZ,

Secretary of the Treasury.
D E P A R T M E N T CIRCULAR NO. 4-73. P U B L I C D E B T
DEPARTMENT OF T H E

TREASURY,

Washington, April 26,1973.
I.

OFFERING OF

BONDS

1. The Secretary of the Treasury, p u r s u a n t to the authority of t h e Second
Liberty Bond Act, as amended, invites tenders for $650,000,000, or thereabouts, of
bonds of the United States, designated 7 percent Treasury Bonds of 1993-98. An
additional amount of t h e bonds may be allotted by the Secretary of t h e Treasury
to Government accounts and Federal Reserve Banks in exchange for Treasury
notes m a t u r i n g May 15, 1973. Tenders on a competitive or noncompetitive basis
will be received up to 1:30 p.m.. E a s t e r n Daylight Saving time, Wednesday,
May 2, 1973. T h e price for the bonds will be established as set forth in Section I I I
hereof. T h e 7% percent Treasury Notes of Series A-1973 and 4 % percent Treasury Notes of Series E-1973, m a t u r i n g May 15, 1973, will be accepted a t p a r in
payment, in whole or in part, to the extent tenders are allotted by the Treasury.
II.

DESCRIPTION OF BONDS

1. The bonds will be dated May 15, 1973, and will bear interest from t h a t date
at t h e r a t e of 7 percent per annum, payable semiannually on November 15, 1973,
and thereafter on May 15 and November 15 in each year until the principal
amount becomes payable. They will m a t u r e May 15, 1998, but may be redeemed
a t t h e option of the United States on and after May 15,1993, in whole or in part,
a t p a r and accrued interest, on any interest day or days, on 4 months' notice of
redemption given in such m a n n e r as the Secretary of the T r e a s u r y shall prescribe. I n case of p a r t i a l redemption, the bonds to be redeemed will be determined




186

1973 REPORT OF THE SECRETARY OF THE TREASURY

by such method as may be prescribed by the Secretary of the Treasury. From
the date of redemption designated in any such notice, interest on the bonds called
for redemption shall cease.
2. The income derived from the bonds is subject to all taxes imposed under the
Internal Revenue Code of 1954. The bonds are subject to estate, inheritance, gift
or other excise taxes, whether Federal or State, but are exempt from all taxation
now or hereafter imposed on the principal or interest thereof by any State, or
any of the possessions of the United States, or by any local taxing authority.
3. The bonds will be acceptable to secure deposits of public moneys. They will
not be acceptable in payment of taxes.
.
4. Bearer bonds with interest coupons attached, and bonds registered as to
principal and interest, will be issued in denoniinations of $1,000, $5,000, $10,000,
$100,000 and $1,000,000. Provision wiU be made for the interchange of bonds of
different denominations and of coupon and registered bonds, and for the transfer
of registered bonds, under rules and iregulations prescribed by the Secretary of
theTreasury.
5. The bonds will be subject to the general regulations of the Department of
the Treasury, now or hereafter prescribed, governing United. States bonds.
III.

TENDERS AND

ALLOTMENTS

1. Tenders will be received at Federal Reserve Banks and Branches and at the
Office of the Treasurer of the United States, Washington, D.C. 20222, up to the
closing hour, 1:30 p.m., Eastern Daylight Saving time, Wednesday, May 2, 1973.
Each tender must state the face amount of bonds bid for, which must be $1,000
or a multiple thereof, and the price offered except that in the case of noncompetitive tenders the term "noncompetitive" should be used in lieu of a price. In the
case of competitive tenders, the price must be expressed on the basis of 100,
with two decimals in a multiple of .05, e.g., 100.10, 100.05, 100.00, 99.95, etc. Fractions may not be used. It is urged that tenders be made on the printed forms and
forwarded in the special envelopes marked ''Tender for Treasury Bonds", which
will be supplied by Federal Reserve Banks on application therefor.
2. Commerical banks, which for this purpose are defined as banks accepting
demand deposits, may submit tenders for account of customers provided the
names of the custohaers are set forth in such tenders. Others than commercial
banks will not be permitted to submit tenders except for their own account.
Tenders will be received without deposit from banking institutions for their
own account, Federally-insured savings and loan associations, States, political
subdivisions or instrumentalities thereof, public pension and retirement and other
public funds, international organizations in :which the United States holds membership, foreign central banks and foreign States, dealers who make primary
markets in Government securities and report daily to the Federal Reserve Bank
of New York their positions with respect to Government securities and borrowings thereon, and Government accounts. Tenders from others must be accompanied by payment (in cash or the securities referred to in Section I which will be
accepted at par) of 5 percent of the face amount of bonds applied for.
3. In considering the acceptance of tenders, those at the highest prices will be
accepted in full to the extent required to attain the amount offered; provided,
however, that tenders a t the lowest of such accepted prices will be prorated if
necessary. All tenders so accepted will be allotted at the price of the lowest accepted tender. Those submitting tenders will be advised of the acceptance, and
awarded price, or the rejection of their bids. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all tenders, in whole or in
part, including the right to accept less than $650 million of tenders, and his action
in any such respect shall be final. Subject to these reservations noncompetitive
tenders for $250,000 or less will be accepted in full at the same price as accepted
competitive tenders. The price may be 100.00, or more or less than 100.00.
4. All bidders are required to agree not to purchase or to sell, or to make
any agreements with respect to the purchase or sale or other disposition of any
bonds of this issue at a specific rate or price, until after 1:30 p.m.. Eastern Daylight Saving time, Wednesday, May 2,1973.
5. Commercial banks in submitting tenders will be required to certify that
they have no beneficial interest in any of the tenders they enter for the account of
their customers, and that their customers have no beneficial interest in the banks'
tenders for their own account.




EXHIBITS

187

IV. P A Y M E N T

1. Payment for accepted tenders must be made or completed on or before
May 15, 1973, at the Federal Reserve Bank or Branch or at the Office of the
Treasurer of the United States, Washington, D.C. 20222, in cash, securities referred to in Section. I (interest coupons dated May 15, 1973, should be detached)
or other funds immediately available by that date. Paynient will not be deemed to
have been completed where registered bonds are requested if the appropriate
identifying number as required on tax returns and other documents submitted
to the Internal Revenue Service (an individual's social security number or an
employer identification number) is not furnished. In every case where full payment is not completed, the payment with the tender up to 5 percent of the
amount of bonds allotted shall, upon declaration made by the Secretary of the
Treasury in his discretion, be forfeited to the United States. When paynient is
made with securities, a cash adjustment will be made to or required of the bidder
for any diff'erence between the face amount of securities submitted and the
amount payable on the bonds allotted,
v . A S S I G N M E N T OF REGISTERED

SECURITIES

1. Registered securities tendered as deposits and in payment for bonds allotted
hereunder are not required to be assigned if the bonds are to be registered in the
same names and forms as appear in the registrations or assignments of the securities surrendered. Specific instructions for the issuance and delivery of the
bonds, signed by the owner or his authorized representative, must accompany the
securities presented. Otherwise, the securities should be assigned by the registered payees or assignees thereof in accordance with the general regulations
governing United States securities, as hereinafter set forth. Bonds to be registered in names and forms different from those in the inscriptions or assignments
of the securities presented should be assigned to "The Secretary of the Treasury
for 7 percent Treasury Bonds of 1993-98 in the name of (name and taxpayer
identifying number)." If bonds in coupon form are desired, the assignment should
be to "The Secretary of the Treasury for 7 percent coupon Treasury Bonds of
1993-98 to be delivered to
" Securities tendered in payment should be surrendered to the Federal Reserve Bank or Branch or to the
Office of the Treasurer of the United States, Securities Division, Washington,
D.C. 20222. The securities must be delivered at. the expense and risk of the holder.
VI. GENERAL PROVISIONS

1. As fiscal agents of the United States, Federal Reserve Banks are authorized
and requested to receive tenders, to make such allotments as may be prescribed by
the Secretary of the Treasury, to issue such notices as may be necessary, to receive payment for and make delivery of bonds on full-paid tenders allotted, and
they may issue interim receipts pending delivery of the definitive bonds.
2. The Secretary of the Treasury may at any time, or from time to time, prescribe supplemental or. amendatory rules and regulations governing the offering,
which will be communicated promptly to the Federal Reserve Banks.
GEORGE P. SHULTZ,

Secretary of the Treasury.

506-171—73

15




00
GO

Summary of inforination pertaining io Treasury honds issued during fiscal year 1973
Date of
preliminary
announcement

July 26

Concurrent
offering
- circular
No.
Date

Department
circular

9-72 July 27

Dec. 28 13-72 Dec. 29 .
1973
Apr. 25

1973
4-73 Apr. 26

Treasury bonds issued for exchange or for cash

7-72,8-72 63^ percent of 1984 at 99.40 for cash i and in exchange for 2...
5 percent Series E-1972 notes matming Aug. 15,1972
4 percent bonds maturing Aug. 15,1972
2K percent bonds matming Sept. 15,1972
6 percent Series F-1972 notes maturing Nov. 15,1972
2}^ percent bonds matming Dec. 15,1972
b% percent Series A-1974 notes matming Nov. 15,1974
3J>^ percent bonds maturing Nov. 15,1974
~
5M percent Series A-1975 notes matming.Feb. 15,1975
bVs percent Series E-1975 notes matming Feb. 15,1975
&% percent of 1993 at 99.50 for cash ^..
3-73 7 percent of 1993-98. at 98.75 for cash s.

1 Cash subscriptions for $10,000 or less were accepted only from natural persons in
their own right.
2 See Department Circular No. 9-72 in this exhibit for provisions regarding payment
and optional recognition of gain or loss for Federal income tax pm-poses.
3 Individuals exchanging registered securities were permitted tosubmit subscriptions
until Aug. 4.




Date of
issue

Date of
matmity

Date
subscription
books
closed
or tenders received

Allotment
payment
date on
or before (or
on later
allotraient)

O

•o

1972
1972
1972
Aug. 15 Aug. 15,1984 Aug. 23 Aug. 15

tn.
a,
o
> •

1973.
1973
1973
. Jan. 10' Feb. 15,1993 Jan. 4 Jan. 10
May 15 May 15,19986 May" 2 May

o

15

4 Provisions for tenders, allotments, pricing and pajmient were similar to Department Circular No. 4-73 reproduced in this exhibit.
5 See Department Circular No, 4-73 in this exhibit for provisions regarding tenders,
allotments, pricing and payment.
6 Callable on and after May 16,1993.

(72

i

EXHIBITS

189

ExMbit 3.—Treasury bills
During the fiscal year there were 52 weekly issues of 13-week and 26-week bills
(the 13-week bills represent additional amounts of bills with an original maturity of 26 weeks), 11 monthly issues with maturities from 341 to 365 days, and
four 9-nionth issues (the 9-niontli bills represent additional amounts of bills with
a n original niaturity of 1 y e a r ) , a n d two issues of t a x anticipation series. A press
release inviting tenders is reproduced in this exhibit and is representative of all
such releases. Also reproduced is a press release which is representative of
releases announcing the results of offerings. Following the press releases is a
table of d a t a for each issue during the fiscal year.
P R E S S R E L E A S E OF J U N E 5, 1973
The Treasury Department, by this public notice, invites tenders for two series
of Treasury bills to the aggregate amount of $4,200,000,000, or thereabouts, fo^*
cash a n d in exchange for Treasury bills m a t u r i n g J u n e 14, 1973, in the amount
of $4,302,365,000 as follows :
91-day bills (to niaturity d a t e ) to be issued J u n e 14, 1973, in the amount,
of $2,500,000,000, or thereabouts, representing an additional aniount of bills
dated March 15,1973, and to m a t u r e Septeniber 13,1973 (CUSIP No. 912793 RIJ2)
originally issued in the amount of $1,801,040,000, the additional and original
bills to be freely interchangeable.
182-day biUs, for $1,700,000,000, or thereabouts, to be dated J u n e 14, 1973and to m a t u r e December 13,1973 ( C U S I P No. 912793 S H O ) .
The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding a s hereinafter provided, and at niaturity their face
amount will be payable without interest. They will be issued in bearer form only,
a n d in denoniinations of $10,000, $15,000, $50,000, $100,000, $500,000 and $1,000,000
(niaturity v a l u e ) .
Tenders will be received a t F e d e r a l Reserve Banks and Branches up to the closing hour, one-thirty p.m., E a s t e r n Daylight Saving time, Monday, J u n e 11, 1973.
Tenders will not be received a t the Treasury Department, Washington. Each tender must be for a minimum of $10,000. Tenders over $10,000 must be in multiples
of $5,000. I n the case of competitive tenders the price offered must be expressed
on the basis of 100, with not more than three decimals, e.g., 99.925. Fractions
may not be used. I t is urged t h a t tenders be made on the printed forms and forwarded in the special envelopes which will be supplied by Federal Reserve Banks
or Branches on application therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders. Others than
banking institutions will not be permitted to submit tenders except for their (iwn
account. Tenders will be received without deposit from incorporated banks and
t r u s t companies and from responsible and recognized dealers in investment
securities. Tenders from others must be accompanied by paynient of 2 percent
of the face amount of Treasury bills applied for, unless the tenders a r e accompanied by an express g u a r a n t y of payment by an incorporated bank, or trust
company.
Immediately after the closing hour, tenders will be opened a t the Federal
Reserve Banks and Branches, following which public announcement will be made
by the Treasury D e p a r t m e n t of the aniount and price range of accepted bids.
Only those submitting competitive tenders will be advised of the acceptance or
rejection thereof. The Secretary of the Treasury expressly reserves the right to
accept or reject any or all tenders, in whole or in part, and his action in any
such respect shall be final. Subject to these reservations, noncompetitive tenders
for each issue for $200,000 or less without stat.ed price from any one bidder will
be accepted in full a t the average price (in three decimals) of accepted competitive bids for the respective issues. Settlement for accepted tenders in accordance with the bids must be made or completed at the Federal Reserve Bank on
J u n e 14, 1973, in cash or other immediately available funds or in a like face
amount of Treasury bills m a t u r i n g J u n e 14, 1973. Cash and exchange tenders will
receive equal treatment. Cash adjustments will be made for differences between
the p a r value of m a t u r i n g bills accepted in exchange and the issue price of the
new bills.
Under Sections 454(b) and 1221(5) of the I n t e r n a l Revenue Code of 1954
the amount of discount a t which bills issued hereunder are sold is considered to




190

1973 REPORT OF THE SECRETARY OF THE TREASURY

accrue when the bills are sold, redeemed or otherwise disposed of, and the bills
are excluded from consideration as capital assets. Accordingly, the owner of
Treasury bills (other- than life insurance companies) issued hereunder must
include in his income tax return, as ordinary gain or loss, the difference between
the price paid for the bills, whether on original issue or on subsequent purchase,
and the amount actually received either upon sale or redemption at maturity
during the taxable year for which the return is made.
Treasury Departnient Circular No. 418 (current revision) and this notice,
prescribe the terms of the Treasury bills and govern the conditions of their
issue. Copies of the circular may be obtained from any Reserve Bank or Branch.
PRESS RELEASE OF JUNE 11,1973
The Treasury Departnient announced that the tenders for two series of Treasury bills, one series to be an additional issue of the bills dated March 15, 1973,
and the other series^ to be dated June 14, 1973, which were invited on June 5,1973,
were opened at the Federal Reserve Banks today. Tenders were invited for
$2,500,000,000, or thereabouts, of 91-day bills and for $1,700,000,000, or thereabouts, of 182-day bills. The details of the two series are as follows :
91-day T r e a s u r y bills
m a t m i n g Sept. 13, 1973

182-day T r e a s u r y bills
m a t u r i n g D e c . 13, 1973

R a n g e of accepted c o m p e t i t i v e b i d s
Approximate •
equivalent
anjiual r a t e

Price

High
Low
Average

-.-.
.

.....

•

..

1 98.213
98.186
3 gg. 198

Percent
7.069
7.176
4 7.129

Price

Approximate
equivalent
amiual r a t e
Percent
' 7.137
7.184
4 7.172

2 96. 392
96. 368
5 96. 374

1 E x c e p t one t e n d e r of $1,320,000.
2 E x c e p t one t e n d e r of $200,000.
3 37 percent of t h e a m o u n t of 91-day bills bid for at t h e low price w a s accepted.
4 T h e s e rates are on a b a n k discount basis. T h e e q u i v a l e n t coupon yields are 7.36 percent for t h e 91-day
bills, a n d 7.55 percent for t h e lS2-day bills.
s 67 percent of t h e a m o u n t of 182-day bills bid for a t t h e low price w a s accepted.

Total tenders applied for and accepted hy Federal Reserve districts
District
l:Joston
NewYork
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. L o u i s . . .
Minneapolis.
.Kansas C i t y
Dallas
San Francisco

A p p l i e d for

....
;..

Total-.

$32,460,000
2,927,170,000
42,260,000
31,320,000
28,715,000
24,655,000
213,370,000
39,085,000
13,465,000
55,925,000
38,805,000
130,890,000
3,578,100,000

Accepted

Applied for

$22,460,000
2,038, 740, 000
27,260,000
31,320,000
' 15,455,000
24,655,000
156,905,'000
31,565,000
11,465,000
43,925,000
18,730,000
78.390,000

$15, 050, 000
2,618, 860, 000
26,315, 000
49,110, 000
16,795; 000
15,515,000
205,325,000
67,015,000
13,810,000
32,100,000
31,155,000
122,890,000

I 2,500,870, 000

3,213, 940, 000

1 I n c l u d e s $281,150,000 n o n c o m p e t i t i v e tenders accepted a t t h e average price of 98.198.
2 I n c l u d e s $150,315,000 n o n c o m p e t i t i v e tenders accepted a t t h e average price of 96.374.




Accepted
$5,045,000
1,484,840,000
6,315, 000
29,110, 000
9,395,000
14, 715, 000
59,565,000
21,515,000
8,950,000
19,525,000
12,830,000
28, 550,000
2 1,700,355,000

Summary of information pertaining to Treasury hills issued during ihe fiscal year 1973
[Dollar amounts in thousands]
Maturity value
Date of
issue

Date of
matmity

Days
to
maturity 1

Prices and rates

Tenders accepted
Total
appUed for

Total
accepted

On
competitive
basis

Total bids accepted
On noncompetitive
basis

Average
price
per
hundred

Equivalent
average
rate
(percent)

Competitive bids accepted
High
Price per
hundred

Low

Equivalent rate
(percent)

Price per
hundred
(percent)

Equivalent rate
(percent)

Amount
maturing
on issue
date of
new
offering

REGULAR W E E K L Y

1972
6 Oct. 5, 1972
91
6 Jan. 4, 1973
182
13 Oct. 12, 1972
91
13 Jan. 11, 1973
182
20 Oct. 19, 1972
91
20 Jan. 18, 1973
182
27 Oct. 26, 1972
91
27 Jan. 25, 1973
182
Aug. 3 Nov. 2, 1972
91
3 Feb. 1, 1973
182
10 Nov. 9, 1972
91
10 Feb. 8, 1973
182
17 Nov. 16, 1972
91
17 Feb. 15, 1973
182
24 Nov. 24, 1972
92
24 Feb. 22, 1973
182
31 Nov. 30, 1972
91
31 Mar. 1, 1973
182
Sept. 7 Dec. 7, 1972
91
7 Mar. 8, 1973
182
14 Dec. 14, 1972
91
14 Mar. 15, 1973
182
21 Dec. 21, 1972
91
21 Mar. 22, 1973
182
28 Dec. 28, 1972
91
28 Mar. 29, 1973
182
See footnotes at end of table.
July




$3,774,430
3,316,355
3, 523, 685
3,040, 265
3,844, 525
3,049, 705
3, 722,880
3, 707,480
3, 617,995
3,159,860
3, 741, 855
3,070,810
3,891, 280
3,201, 605
3, 660,975
3,337, 740
3, 751, 615
3,484, 300
3, 657, 770
3, 682,865
4,391,480
3,391,875
4,113,940
3, 659,415
4, 246, 980
3, 551, 750

$2, 297,430
1, 799,115
2,300,876
1,801,425
2,300,550
1, 799,955
2,301,210
1,800,400
2,301,125
1,800,035
2.299, 060
1, 800,830
2,301,145
1,800,285
2,301, 775
1.800, 540
2.301, 295
1.801, 810
2,422, 520
1,801,200
2.302, 200
1,800,810
2,300,860
1,801,825
2.300, 670
1,800, 615

12,140, 645
1, 716,440
2,120, 615
1, 703, 715
2,116, 620
1, 718,120
2,132, 720
1,710,005
2,141, 280
1, 716, 095
2,136,320
1, 726,440
2,129, 060
1, 728,660
2,137, 780
1, 735, 655
2,136,890
1, 728,860
2, 270,355
1, 732,945
2,097,860
1, 714, 725
2, 098, 210
1, 701, 220
2,112,405
1, 711, 720

$156, 785
82,675
180,260
97, 710
183, 930
81,835
168,490
90,395
159,845
83,940
162, 740
74,390
172,085
71,625
163,995
64,875
164,405
72,950
162,165
68,255
204,340
86,085
202,640
100,605
188,165
88.895

98. 954
97. 630
98. 963
97. 672
99. 002
97. 748
98. 977
97. 682
99. 041
97. 827
99. 007
97. 760
99.000
97. 743
98. 963
97. 663
98. 905
97. 564
98. 845
97. 504
98. 797
97.435
98. 829
97.423
98. 826
97.353

4.139
4.689
4.103
4.605
3. 949
4.455
4.046
4.586
3.795
4. 298
3.928
4.431
3.955
4.465
4.056
4.624
4.331
4.819
4.567
4. 937
4.759
6. 074
4.632
5.098
4.644
5.236

2 98. 971
97. 716
98. 974
97. 699
2 99. 015
2 97. 774
98. 990
97. 688
99. 053
97. 848
99. 026
2 97. 782
99. 010
2 97. 754
98. 983
2 97. 693
2 89. 918
97. 584
2 98. 856
97. 513
2 98.805
97.449
98. 847
97.460
98.831
97. 370

4.071
4.518
4.059
4.551
3.897
4.403
3.996
4.573
3.746
4.257
3.853
4.387
3.916
4.443
3.980
4.563
4.280
4.779
4.526
4.919
4.724
5.046
4.561
5.024
4.625
5.202

98. 943
97. 612
98. 954
97. 654
98. 996
97. 730
98. 973
97. 673
99.032
97. 810
99. 001
97. 748
98. 994
97. 725
98. 953
97. 646
98.894
97. 546
98.832
97. 486
98. 794
97. 421
98. 824
97. 415
98. 820
97.345

4.182
4.724
4.138
4.640
3. 972
4.490
4.063
4.603
3.829
4.332
3.952
4.455
3. 980
4.500
4.097
4.656
4.375
4.854
4.621
4.973
4. 771
5.101
4.652
5.113
4.668
5.252

3 $2, 301, 380
1, 601, 305
2,301, 305
1,600,200
2,301,100
1, 600,815
2,300,102
1, 603,210
2,301, 260
1, 600,025
2, 300, 750
1, 600,175
2, 300, 596
1, 800,540
2, 299,670
1, 802, 700
2,301, 555
1, 796,105
2,301,440
1, 800,315
2, 300, 540
1, 800,670
2, 300, 725
1,800,975
2,300,415
1, 804,906
CO

CO

to

Summary of information pertaining to Treasury hills issued during the fiscal year 1973—Continued
[Dollar amounts in thousands]
Maturity value
Date of
issue

Date of
maturity

Days
to
maturity 1

Prices and rates

Tenders accepted
Total
applied for

Total
accepted

On
competitive
basis

Total bids accepted
On noncompetitive
basis

Average
price
per
hundred

Equivalent
average
rate
(percent)

Amount
maturing

Competitive bids accepted
High
Price per
hundred

Low

Equivalent rate
(percent)

Price per
hundred

Equivalent rate
(percent)

date of
new
offering

o
o

REGULAR WEEKLY

Oct. 5
5
12
12
19
19
26
26
Nov. 2
2
9
9
16
16
24
24
30
30
Dec. 7
7
14
- 14
21
21
28
28

1973Jan.
Apr.
Jan.
Apr.
Jan.
Apr.
Jan.
Apr.
Feb.
May
Feb.
May
Feb.
May
Feb.
May
Mar.
May
Mar.
Jrnie
Mar.
June
Mar.
June
Mar.
June

in
4
5
11
12 .
18
19
25
26
1
3
8
10
15
17
22
24
1
31
8
7
15
15
22
21
29
28




91
182
91
182
91
182
91
182
91
182
91
182
91
182
90
181
91
182
91
182
91
182
91
182
91
182

$3, 638,330
3,682,200
3, 804,250
4, 070,176
4,111,070
3,762,905
3, 741,595
3, 653, 055
4,036, 260
3,863, 605
3,885, 615
3, 875, 695
3,926,025
3, 906, 720
3, 671, 610
3,806, 620
4,261,230
3,510,850
3, 686,365
3,362,960
4,470,185
3, 251,900
3, 700,560
3, 623,830
3, 702,175
3, 546,130

$2,300,265
1,800,476
2,301,905
1,802,170
2,280, 635
1,800,300
2,300,800
1,800, 705
2,400, 740
1,901,176
2,400,715
1,901,370
2,402,290
1,901, 200
2, 401,660
1,900,550
2,399,875
1,902,736
2,404,31,5
1,896,515
2,402,045
1,901,63;o
2,405,4i0
1,906,870
2,404,505
1,903,160

$2,122,250
1, 699, 230
2,139,016
1, 712,955
2,087,250
1, 687, 675
2,131,015
1, 712, 645
2,223,345
1,810,215
2,232,490
1,814,326
2,232, 200
1,808,700
2, 241,020
1,811,595
2, 243, 790
1,802,400
2,226,670
1^, 798, 586
2,2111, 630
1, 782,410
2,239, 690
1, 797,985
2, 222, 785
1, 798, 560

$178,015
101, 245
162, 890
89, 215
193,385
112, 626
169, 785
88, 060
177, 395
90, 980
168, 225
87, 045
170, 090
92, 500
160,530
88,955
166, 085
100,335
177,645
- 97,930
190,415
119, 220
165,720
107,885
181, 720
104,600

98.837
97.431
98.801
97. 392
98.782
97.408
98.809
97. 419
98. 795
97. 401
98.820
97. 494
98. 793
97. 437
98.803
97. 461
98. 766
97.382
98. 750
97. 356
98. 711
97.316
98. 714
97.322
98. 708
97.314

4. 599
6.081
4.743
5.159
4.817
5.128
4.712
5.106
4.766
6.141
4.670
4.958
4. 774
6.070
4.775
5.060
4. 885
5.179
4.944
5.229
5.100
5.309
5.089
5.298
5.111
5.312

98.852
97. 434
2 98. 819
97. 406
98.790
97.418
98.819
2 97. 428
98. 802
2 97. 410
98. 832
2 97. 509
98. 802
97. 450
98.817
97. 482
98. 776
2 97. 390
98. 762
97.378
98. 713
2 97.326
98. 723
97.346
98. 712
2 97. 332

4.542
5.076
4.672
5.131
4.787
5.107
4.672
5.087
4. 739
5.123
4.621
4.927
4. 739
5. 044
4.732
5.008
4.842
5.163
4.898
5.186
5.091
5.289
5.062
6.250
5. 095
5.277

98.831
97.420
98. 797
97. 388
98. 777
97.397
98.803
97.412
98. 789
97. 393
98. 814
97. 482
98. 789
97. 431
98. 801
97. 453
98. 760
97. 372
98. 743
97. 349
98. 707
97. 304
98. 709
97. 316
98. 701
97.309

4.625
5.103
4.769
6.167
4.838
5.149
4.735
5.119
4.791
6.157
4. 692
4.981
4.791
5.082
4.793
5.068
4. 905
5.198
4.973
6.244
5.115
5.333
6.107
6.309
5.139
5. 323

$2,297,430
1,800,340
2,300,875
1, 800, 826
2,300,550
1,800,855
2,301, 210
1,800, 500
2,301,125
1,800,630
2, 299,080
1, 800, 365
2,301,145
1,800,580
2,30.1,775
1,800,905
2,301,296
1,801,496
'2,422, 520
1,800,205
2,302,200
1,801, 695
2,300,855
1,802,075
2,300, 570
1. 799, 460

o

>
o

>
d

Jan.

4
4
11
11
18
18
25
25
Feb. 1
1

Mar.

16
15
22
22
29
29
Apr. 5
5
12
12
19
19
26
26
May 3
3
10
10
17
17
24
24
31
31

Apr.
July
Apr.
July
Apr.
July
Apr.
July
May
Aug.
May
Aug.
May
Aug.
May
Aug.
May
Aug.
June
Sept.
June
Sept.
June
Sept.
June
Sept.
July
Oct.
July
Oct.
July
Oct.
July
Oct.
Aug.
Nov.
Aug.
Nov.
Aug.
Nov.
Aug.
Nov.
Aug.
Nov.

5
5
12
12
19
19
26
26
3
2
10
9
17
16
24
23
31
30
7
6
14
13
21
20
28
27
5
4
12
11
19
18
26
26
2
1
9
8
16
16
23
23
30
29

91
182
91
182
91
182
91
182
91
182
91
182
91
182
91
182
91
182
91
182
91
182
91
182
91
182
91
182
91
182
91
182
91
182
91
182
91
182
91
182
91.
182
91
182

2,402,315
3,639,375
3,248, 515
1,901,105
3, 762,440
2,402,790
3,581,855
1,901, 780
3,512,325,
2,401,150
3,674,820
1,902,100
3,961,550
2,400,125
3,953,265
1,901,115
2,401,976
3, 778,090
4, 645,525
1,800,886
3,822,895
2,401,900
3, 516, 790
1,800,965
3,513, 695
2,403,135
3,167,170
1,802,910
3,268,770
2,400,690
2, 799. 225
1,801,175
3,471, 725
2,401,115
3,086, 985
1,800,425
3, 610,375
2,390,855
3,255, 296
1,800,490
3,416, 675
2,400, 736
2,802, 560
1,801, 040
3,467,400
2,400,445
4, 686, 605 . 1,801,355
3, 657, 630
2,401,830
4, 624,340
1,806, 600
3,891,420
2,401,420
4, 239,430
1,800,975
4,099,440
2,400,800
3,431,386
1,800,695
4,172,125
2,402,215
3,760,020
1,800,340
3,471, 670
2,398,610
3,839,075
1,799,345
3,862,100
2,501,000
3,615,790
1,800,645
4,375,950
2,504,460
3, 619,070
1,801,695
3,788,720
2,500,660
3, 552, 260
1, 692,666
3,454,085
2,501,105
3,262,990
1,700,965
3, 452,155
2, 501,980
3, 564,460
1,702,030

2,234,620
1,819,190
2, 217,935
1, 799,880
2, 209,180
1, 795, 700
2, 204,970
1, 796, 205
2,206,335
1, 702,205
2, 202,950
1, 712,980
2, 236,080
1,729,620
2,228,520
1, 733, 715
2,217, 570
1, 707, 780
2,191,770
1, 707,976
2,184,005
1, 688,430
2,184, 230
1, 684, 885
2,179,120
1, 683, 265
2,171,320
1,664,015
2,168,455
1,639,180
2,178,125
1,678,840
2,188,140
1,691,700
2, 276,930
1,687,720
2, 280, 235
1,696,120
2,300,680^
1, 586,836
2, 279,855
1,603,036
2, 294,935
1, 590,625

167,695
81,915
184,855
101,900
191,970
106,400
196,155
104,910
195,640
98,680
198,950
87,986
167,055
73, 290
172,170
67,460
183,545
92,645
199,085
92,515
216, 730
112, 610
216,215
116,470
222, 710
123,335
230,100
146,960
232,345
161,615
224,090
121, 500
210,470
107,646
224,070
112,925
224, 225
106, 675
199,980
106,830
221, 250
97,920
207,046
111,405

98. 695
97. 272
98.697
97. 264
98. 665
97.199
98. 576
97.088
98.662,
97.032
98.568
97.043
98. 629
97.167
98. 621
97.142
98.631
96. 944
98. 514
96. 829
98. 484
96. 744
98. 399
96.583
98. 420
96.647
98. 349
96.555
98. 436
96.831
98.436
96.770
98. 420
96.648
98. 413
96. 676
98.449
96. 749
98.438
96. 736
98.369
96. 570
98.308
96. 530

5.164
6.397
6.154
5.413
6. 277
5.541
6.634
6. 759
6.688
5.870
5.665
6.849
5.423
5.623
6.457
5.654
6.812
6.044
5.879
6.272
5.998
6.441
6. 333
6.760
6. 252
6.633
6.630
6.815
6.187
6.269
6.187
6.388
6.250
6.631
6.277
6.574
6.136
6.431
6.180
6.457
6.453
6.747
6.693
6.864

98. 703
97. 294
98. 705
97. 274
98. 678
97. 206
98. 589
2 97. 094
2 98.668
97.038
98. 678
97.058
98. 647
2 97.182
98. 640
97.170
2 98. 546
2 96.970
98. 534
2 96. 872
98. 609
2 96. 778
2 98. 414
96.690
98.430
96. 657
98. 367
96.585
98. 452
96.854
98.443
2 96. 778
98. 435
2 96. 664
98.433
96. 700
98.455
96. 758
98. 462
2 96.761
2 98. 395
2 96. 602
98. 332
2 96. 654

5.119
5.353
5.123
6.392
5.230
5.527
5.582
5.748
5.665
5.869
5.625
5. 819
6.363
5.574
5.380
5.598
5.766
5.993
6.800
6.187
6.893
6.373
6.274
6.745
6.211
6.613
6.460
6.755
6.124
6.223
6.160
6.373
6.191
6.599
6.199
6. 527
6.112
6.413
6.124
6.407
6.349
6. 685
6.599
6.816

98. 687
97. 260
98. 693
97.253
98.656
97.182
98.572
97.081
98.558
97. 030
98. 561
97. 030
98. 617
97.140
98. 697
97. 098
98. 522
96. 927
98. 495
96.807
98. 468
96. 715
98. 388
96. 679
98.410
96. 644
98. 341
96.548
98. 430
96. 816
98.432
96.765
98.408
96.639
98. 406
96.670
98.448
96.741
98.433
96.730
98. 368
96. 558
98. 289
96. 518

5.194
5.420
5.171
5.434
5.321
6.574
5.649
5.774
5.706
5.875
5.693
5.876
5. 471
5.667
5.550
6.740
5.847
6.078
6.964
6.316
6.061
6.498
6.377
6.787
6.290
6.638
6.563
6.828
6.211
6.298
6.203
6. 399
6. 298
6.648
6.306
6.587
6.140
6.446
" 6.199
6.468
6.496
6.771
6. 769
6.887

2,300,266
1,799,116
2,301,905
1,801,425
2,280, 636
1, 799,955
2,300,800
. 1,800,400
2,400, 740
1,800,035
2,400, 715
1,800,830.
2,402,290
1,800, 285.
2,401, 550
1,800,540
2,399,875
1, 801, 810
2, 404,316
1,801, 200
2,402,045
1, 800,810
2, 405, 410
1, 801, 825
2,404, 505
1,800, 615
2,402,316
1,800,475
2,402,790
1,802,170
2,401,150
1,800,300
2,400,125
1,800,706
2,401,975
1,901,175
2,401,900
1,901,370
. 2,403,135
1,901,200
2,400,690
1,900,560
2,401,116
1,902,735

H

O
Q

See footnotes a t end of table.




CD
CO

CO

Summary of information pertaining to Treasury hills issued during the fiscal year 1973—Continued

O

[Dollar a m o u n t s irI thousands]

W
H

Maturity value
D a t e of
issue

D a t e of
maturity

Days
to
• maturity .

Prices a n d r a t e s
T o t a l bids accepted

T e n d e r s accepted
Total
applied for

Total
accepted

On
competitive
basis

O n noncompetitive
basis

Average
price
per
hundred

Equivalent
average
rate
(percent)

C o m p e t i t i v e bids accepted
High
Price per
hundred

Low

Equivalent rate
(percent)

P r i c e per
hundred

Equivalent rate
(percent)

Amount
maturing
on issue
d a t e of
new
offering

2

w
H

i

Q
S3

REGULAR W E E K L Y

>
1973
J u n e 7 Sept.
7 Dec.
14 Sept.
14 D e c .
21 Sept.
21 D e c .
28 Sept.
28 D e c .

6
6
13
13
20
20
27
27

91
182
91
182
91
182
91
182

$3,423,545
3,398,700
3,579,595
3, 214,425
4,165,340
3,773,900
4,022,145
3,776,320

$2,501,005
1,707,440
2,602,366
1,700,840
2,501,065
1,700,870
2,503,195
1,701,130

$2,250,805
1,580,090
2, 219,720
1,660,040
2, 227,185
1, 567,795
2, 230,615
1, 556,690

$260, 200
127,360
282,646
150,800
273,880
133,075
272,580
144,440

98.197
96. 355
98.198
96.374
98.164
96. 332
98.173
96. 310

7.132
7.211
7.127
7.172
7.265
7.255
7.229
7.299

2 98. 229
2 96.386
2 98. 213
2 96. 392
2 98.177
2 96. 362
98.182
2 96. 320

7.006
7.149
7.069
7.137
7.212
7.216
7.192
7. 279

98.185
96. 350
98.186
96. 368
98.160
96.328
98.167
96. 304

7.180
7.220
7.176
7.184
7.279
7.263
7.251
7.311

$2,390,855
1,896,515
2,400,735
1,901,630
2,400,445
1,906,870
2,401,830
1,903,160

O

^
H.

^
W
fel

R E G U L A R MONTHLY

1972
J u l y 31
31
A u g . 31
31

1973
A p r . 30
J u l y 31
M a y 31
A u g . 28




273
366
273
362

$1, 525, 670
2,849,760
1,888,895
4,913, 625

$500,180
1, 200,980
600,950
1,803,370

$484,115
1,169,830
484, 275
1,770. 540

$16, 065
31,150
16, 675
32,830

96. 412
95. 014
96.178
94. 793

4. 731
4.918
5.040
5.178

96. 428
95. 043
96. 210
2 94. 831

4. 710
4. 889
4.998
5.140

96.392
95. 003
96.174
94. 771

4.758
4.929
5. 046
.5.200

$500,190
1,202,455
600, 275
1,199,890

>
w
d
^

Oct.

2 J u n e 30
2 Sept. 25
31 J u l y 31
31 Oct. 23
N o v . 30 N o v . 20

271
360
273
357
355

1,547,446
4,144, 670
1,811,040
3,342,525
3,801,035

499,895
1,800, 510
500,540
1,802,480
1,802,060

486,020
1,748,430
487,785
1,773, 295
1,772,625

13,875
52,080
12,755
29,185
29,425

95. 976
94.471
96. 039
94.726
94.847

5.346
5.529
5.223
5.318
5.226

1973
Jan.
2 Dec.

352

3,176,750

1,800,470

1,770,005

30,465

94. 782

349
349
346
344
341

3,072, 225
3, 264,740
3,011,350
3,353,400
3,936, 560

2
F e b . 28
Apr. 2
30
M a y 31

Jan.
Feb.
Mar.
Apr.
May

18

95.964
94. 450
96. 023
94. 695
94. 8'24

5.361
5.550
5.244
5.350
5.249

501,300
1, 200,730
499,905
1, 200, 265
1,700,735

96. 997
94. 523
96. 068
94.744
94. 872

5.318
5.477
5.185
6.300
5. 200

5.337

2 94.794

5.324

94.735

5.385

1,701,030

5.986
6.050
6.616
6.598
6.818

2 94. 261
94.203
93. 741
2 93. 765
93. 687

5.920
5.980
6.512
6.535
6.770

94.144
94.107
93. 606
93. 674
93. 512

6.041
6.079
6.653
6.620
6.850

1,700,320
1,700,665
1,701,930
1,700,030
1,701,130

4.721
5.089

2 98. 085
97. 236

4.690
5.000

98. 062
97.167

4.746
5.125

T/y/

15
12
12
9
7

1,803,975
1,801,085
1,790, 265
1,801,775'
1,800,435

1,760,075'
1,773,000
1,745,710
1,760,010
1,764,000

43,900
28,085
44,655
41,765
36,435

94.197
94.134
93. 642
93. 695
93.542

TAX ANTICIPATION

1972
1973
N o v . 24 A p r . 20
D e c . 5 J u n e 22

147
199

$6,366,696
5,079,135

$2,012,465
2,509,836

$1,659, 540
2,124, 250

$352,925
386,585

1 The 13-week bills are additional issues of bills with an original maturity of 26 weeks
except that when the date of matuiity of either a 13-week or a 26-week issue is on the last
day of a month, the bills are additional issues of bills with an original maturity of 1 year.
The 9-month bills are additional issues of bills with an original maturity of 1 year.
2 Relatively small amounts of bids were accepted at a price or prices somewhat above
the high shown. However, the higher price or prices are not shown in order to prevent an
appreciable discontinuity in the range (covered by the high to the low prices shown)
which would make it misrepresentative.
3 In addition $204,310,000 of a strip of bills issued Mar. 6,1972, matured.
NOTE.—The usual timing with respect to weekly issues of Treasury bills is: Press
release inviting tenders, 9 days before date ofissue; and closing date for the receipt of
tenders and press release announcing results of auction, 3 days before date ofissue.




98. 072
97.187

Figures are final and may differ from those shown in the press release announcing preliminary results.
For each issue of regular weekly and monthly bills noncompetitive tenders for $200,000
or less from an y one bidder were accepted in full at the average price of accepted competitive bids. For tax anticipation bills the maximum amount for noncompetitive tenders
was $300,000 for the issue of Nov. 24 and $400,000 for the issue of Dec. 6.
All equivalent rates of discount are on a bank discount basis.
Qualified depositaries were permitted to make payment by credit in Treasury tax and
loan accounts for both issues of tax anticipation bills. Payment by such credit was not
permitted for regular weekly and regular monthly issues.

W

CO

196

19 73 REPORT OF THE SECRETARY OF THE TREASURY
Regulations

Exhibit 4.—Department Circular No. 653, December 12, 1969, Eighth Revision,
Supplement No. 3, offering of United States savings bonds. Series E
DEPARTMENT OF TECE TREASURY,

Washington, July 19,1972.
The tables to Department Circular No. 653, Eighth Revision, dated December 12, 1969, as amended (31 CFR Part 316), are hereby supplemented by the
addition of Tables 7-A, 30-A, 31-A, 75-A and 77-x\, as set forth below.




JOHN K . CARLOCK,

Fiscal Assistant Secretary.

TABLE 7—A
B O N D S B E A R I N G I S S U E D A T E S F R O M D E C E M B E R 1, 1942, T H R O U G H M A Y 1. 1943 i
I s s u e price
Denomination..

$18.75
25.00

$37.50
50.00

$75.00
100.00

$375.00
500.00

$750.00
1,000.00

(1) R e d e m p t i o n values during each half-year period
(values increase on first d a y of period shown)
Period after second extended m a t u r i t y
(beginning 30 years after issue date)
THIRD

. First ^ y e a r . ,
2 (12/1/72)
Mto lyear
•.
(6/1/73)
I t o 13^ years
(12/1/73)
lHto2years
....(6/1/74)
2 to 2M years
(12/1/74)
2 H to 3 years
(6/1/75)
3 to 3M years
..(12/1/76)
3Hto4years
(6/1/76)
4to4Myears
(12/1/76)
4 H t o 5years
....(6/1/77)
5 t o 53^ years
(12/1/77)
5Hto6years
...(6/1/78)
6to6Myears
(12/1/78)
6>4to7years
(6/1/79)
7 to 73^ years
(12/1/79)
7M to 8 years
(6/1/80)
8 to 8 H years
...-.
(12/1/80)
83^to 9years
(6/1/81)
9 to 9M years
(12/1/81)
9 M t o 10 years
(6/1/82)
T H I R D E X T E N D E D M A T U R I T Y V A L U E (40
yearsfrom issue d a t e ) . . .
......(12/1/82)

EXTENDED

MATURITY

(2) F r o m beginning
of t h i r d extended
- m a t u r i t y period to
beginning of
each half-year
period

(3) F r o m beginning of each
half-year period
to t:'eginning of
next hall-year
period

(4) F r o m beginning of each
half-year period
to t h i r d
extended
maturity

Percent
0.00
5.49
5.51
5.50
5.50
5.50
5.50
5.60
5.50
5.50
5.50
5.50
5.50
5.60
5.60
5.50
5.50
5.50
5.50
5.50

Percent
5.49
5.52
5.48
5.61
5.60
5.48
5.50
5.51
5.51
5.48
5.51
5.50
5.49
5.50
5.51
5.49
5.49
5.51
5.50
5.49

Percent
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50 •
5.50
5.60
• 5.50
5.50
5.50
5.50
5.50
5.50
5.49

$52.86
54.31
56.81
57.34
68.92
60.64
62.20
63.91
65.67
67.48
69.33
71.24
73.20
76.21
77.28
79.41
81.59
83.83
86.14
88.51

$105.72
108.62
111.62
114.68
117.84
121.08
124.40
127.82
131.34
134.96
138.66
142.48
146.40
150.42
15^1.56
158.82
163.18
167.66
172.28
177.02

$211.44
217. 24
223. 24
229. 36
235. 68
242.16
248. 80
266. 64
262. 68
269. 92
277. 32
284.96
292. 80
300. 84
309.12
317. 61
326. 36
335. 32
344.56
354. 04

$1, 057. 20
1,086. 20
1,116.20
1,146.80
1,178. 40
1, 210. 8b
1, 244. 00
1, 278. 20
1,313.40
1,349. 60
1,386. 60
1,424.80
1, 464. 00
1, 504. 20
1, 546. 60
1, 588. 20
1,631.80
1,676.60
1, 722. 80
1, 770. 20

$2,114.40
2,172. 40
2, 232. 40
2, 293. 60
2,356. 80
2,421. 60
2,488. 00
2, 556. 40
2, 626. 80
2, 699. 20
2, 773. 20
2,849. 60
2, 928. 00
3, 008. 40
3,091. 20
3. 176. 40
3, 263. 60
3,363. 20
3, 446. 60
3, 540. 40

90.94

181.88

363.76

1,818.80

3.637.60

1 T h i s table does not a p p l y if t h e prevailing rate for Series E b o n d s being issued a t
t h e t i m e t h e t h i r d extension begins is different from 6.60 percent.
2 M o n t h , d a y , a n d year on which issues of Dec. 1, 1942, enter each period. F o r
s u b s e q u e n t issue m o n t h s a d d t h e a p p r o p r i a t e n u m b e r of m o n t h s .




PERIOD

A p p r o x i m a t e i n v e s t m e n t yield
(annual percentage rate)

X

35.50 .

3 Yield on p u r c h a s e price from issue d a t e t o t h i r d extended m a t u r i t y d a t e is 3.99
percent.
. .

CO

CD
00

TABLE 30—A
B O N D S B E A R I N G I S S U E D A T E S F R O M D E C E M B E R 1, 1952. T H R O U G H M A R C H 1. 1953'
I s s u e price
Denomination

,

S18.75
25.00

$37.50
50.00

$75.00
100.00

$150.00
200.00

$375.00
500.00

$750. 00
1,000.00

(1) R e d e m p t i o n values during each half-year period
(values increase on first d a y of period shown)
P e r i o d after first extended m a t u r i t y (beginn i n g 19 years 8 m o n t h s after issue date)

SECOND E X T E N D E D MATURITY

PERIOD

S7,500
10,000

A p p r o x i m a t e i n v e s t m e n t yield
(annual percentage rate)
(2) F r o m beginning
of second extended
- m a t u r i t y period to
beginning of
each half-year
period

(3) F r o m beginning of each
half-year period
to beginning of
next half-year
period

Percent
0.00
5.48
5.51
5.60
6.50
5.50
5.50
5.50
5.60
5.50
5.50
5.50
. 5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50

Percent
5.48
5.54
5.49
5.48
6.52
5.51
5.49
5.47
- 5. 50 5:51
6.52
5. 49
5.49
5.53
5.48
5.51
5.50
5.61
5.49
6.50

(4) F r o m beginning ofeach
half-year period
to second
extended
maturity

o
o

"^
F i r s t 3^ y e a r
....2(8/1/72)
3^ to l y e a r - . . . .
(2/1/73)
•1 to I H years
-(8/1/73)
I M to 2 years
(2/1/74)
2 to 2M years
(8/1/74)
2M to 3 years
...(2/1/75)
3 to 3M y e a r s . (8/1/76)
3M to 4 years
(2/1/76)
4 to 4M y e a r s . - - . . . . - - . . . . = . . - . . . . . ( 8 / 1 / 7 6 )
4 H to 6 years
(2/1/77)
5 to 5M years
(8/1/77)
5M to 6 years
(2/1/78)
6 to 6M y e a r s (8/1/78)
6M to 7 y e a r s (2/1/79)
7 to 7M years
-.
(8/1/79)
7M to 8 years
.
(2/1/80)
8 to 8M years
(8/1/80)
8Mto9years-i
(2/1/81)
9 to 9 H years
(8/1/81)
9 H to 10 years
(2/1/82)
SECOND
EXTENDED
MATURITY
V A L U E (29 years a n d 8 m o n t h s from i s s u e
date)
(8/1/82)

$38. 67
39.73
40.83
41.95
43.10
44.29
45.51
46.76
48.04
49.36
60.72
52.12
53.55
55.02
56.54
58.09
59.69
61.33
63.02
64.75

$77.34
79.46
81.66
83.90
86.20
88.58
91.02
93.52
96.08
98. 72
101. 44
104. 24
107. 10
110.04
113. 08
116.18
119. 38
122. 66
126.04
129. 50

$154.68
158. 92
163. 32
167. 80
172. 40
177.16
182.04
187.04
192.16
197. 44
202. 88
208. 48
214. 20
220. 08
226.16
232.36
238. 76
245. 32
262. 08
259. 00

$309.36
317.84
326.64
335. 60
344. 80
354. 32
364.08
374. 08
384.32
394. 88
406. 76
416. 96
428. 40
440.16
452. 32
464. 72
477. 52
490.64
504.16
518. 00

$773. 40
794. 60
816. 60
839. 00
862. 00
885. 80
910. 20
935. 20
- 960. 80
987. 20
1, 014. 40
1,042. 40
1, 071.
1,100.
1,130.
1,161.
1,193.
1, 226.
1, 260.
1, 295.

$1, 546. 80
1, 589. 20
1, 633. 20
1, 678. 00
1, 724. 00
1, 771. 60
1, 820. 40
1, 870. 40
1, 921. 60
1, 974. 40
2, 028. 80
2, 084. 80
142. 00
200. 80
261. 60
323. 60
387. 60
453. 20
520. 80
590. 00

$15, 468
15,892
16, 332
16, 780
17, 240
17, 716
18,204
18,704
19,216
19,744
20, 288
20, 848
21,420
22,008
22, 616
23, 236
23, 876
24, 532
25, 208
25, 900

66.53

133.06

266.12

532.24

1,330.60

2,661.20

26,612

1 T h i s table does not a p p l y if t h e prevailing rate for Series E b o n d s being Issued
a t t h e t i m e t h e second extension begins is different from 6.50 percent.
2 M o n t h , d a y , and year on which issues of Dec. 1, 1952, enter each period. F o r
s u b s e q u e n t issue m o n t h s a d d t h e a p p r o p r i a t e n u m b e r of m o n t h s .




Percent
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.49
5.50

3 5.50 .

3 Y^ield on p u r c h a s e price from issue d a t e to second extended m a t u r i t y d a t e is 4.31
percent.

H
HH

CO
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O

TABLE 31~-A
B O N D S B E A R I N G I S S U E D A T E S F R O M A P R I L 1, T H R O U G H M A Y 1. 1953 i
I s s u e price
Denomination

$18.75
25.00

$37.50
50.00

$75.00
100.00

$150.00
200.00

$375.00
500.00

$750.00
1,000.00

(1) R e d e m p t i o n values d u r i n g each half-year period
(values increase on first day of period shown)
P e r i o d after first extended m a t u r i t y ( b e g i n n i n g 19 years 8 m o n t h s after issue date)

F i r s t H year
H to l y e a r
1 t o IM years
I M t o 2 years
2 to 2M years
2M to 3 years
3 t o 3M years
3M t o 4 y e a r s
4 to 4M years
4M to 5 years
6 to 5M years
5M to 6 years
6 t o 6M years
6M to 7 years
7 to 7M years
7M to 8 years
8 to 8M years
8M t o 9 y e a r s . . . . .
9 to 9M years
9M to 10 years

SECOND E X T E N D E D MATURITY

2 (12/1/72)
(6/1/73)
(12/1/73)
(6/1/74)
(12/1/74)
(6/1/75)
(12/1/76)
(6/1/76)
(12/1/76)
(6/1/77)
(12/1/77)
(6/1/78)
(12/1/78)
(6/1/79)
(12/1/79)
(6/1/80)
(12/1/80)
(6/1/81)
(12/1/81)
(6/1/82)

$38. 96
40.03
41.13
42.26
43.43
44.62
45.85
47.11
48.40
49.73
61.10
52.51
53.95
65.43
56.96
58.53
60.14
61.79
63.49
65.23

$77. 92
80.06
82.26
84.52
86.86
89.24
91.70
94.22
96.80
99.46
102. 20
105. 02
107.90
l i e . 86
113. J l
117. 06
120.28
123. 58
126. 98
130. 46

$165.84
160.12
164.62
169. 04
173. 72
178. 48
183.40
188.44
193.60
198. 92
204.40
210. 04
215. 80
221.72
227.84
234.12
240. 56
247.16
263. 96
260. 92

$311. 68
320.24
329. 04
338. 08
347.44
366. 96
366. 80
376.88
387. 20
397. 84
408.80
420. 08
431. 60
443. 44
456.68
468.24
481.12
494.32
507. 92
521. 84

SECOND
EXTENDED
MATURITY
V A L U E (29 years a n d 8 m o n t h s from
issue date)
(12/1/82)

67.03

134.06

268.12

536.24

:

i T h i s table does n o t a p p l y if t h e prevailing rate for Series E b o n d s being issued a t
t h e t i m e t h e second extension begins is different from 5,60 percent.
2 M o n t h , d a y , a n d year on w h i c h issues of A p r . 1, 1963, enter each period. F o r
s u b s e q u e n t issue m o n t h s a d d t h e a p p r o p r i a t e n u m b e r of m o n t h s .




PERIOD

$779. 20 $1, 558.40
800.60 1,601. 20
822.60 1,645. 20
845. 20 . 1,690.40
868.60 1, 737. 20
892. 40 1,784. 80
917. 00 1,834. 00
942. 20 1,884.40
968.00 1,936. 00
994.60 1, 989. 20
1,022.00 2,044.00
1,050. 20 2,100. 40
1,079. 00 2,158. 00
1,108. 60 2,217. 20
1,139. 20 2,278. 40
1,170. 60 2,341. 20
1, 202. 80 2,406. 60
1, 235. 80 2,471. 60
1,269. 80 2, 539. 60
1,304. 60 2,609.20

1,340.60

2.681.20

A p p r o x i m a t e i n v e s t m e n t yield
(armual percentage rate)

$7,500
10,000

(2) F r o m beginning
of second e x t e n d e d
- m a t u r i t y period to
b e g i n i n n g of
each half-year
period

$15, 684
16, 012
16,452
16,904
17,372
17,848
18,340
18,844
19,360
19,892
20,440
21,004
21,580
22,172
22,784
23,412
24,066
24,716
26,398
26,092

26.812

(3) F r o m beginning of each
half-year period
to b e g i n n i n g of
next half-year
period
Percent
5.49
5.50
5.49
5.54
5.48
5.51
5.50
5.48
5.50
5.61
5.52
5.48
6.49
5.62
5.61
5.50
5.49
5.50
5.48
5.52

Percent
0.00
6.49
5.49
5.49
5.51
5.50
5.50
5.50
5.50
5.5a
5.50
5.50
5.50
5.50
\50
5.50
5.50
5.50
5.50
5.50

(4) F r o m b e g i n ning of each
half-year p e r i o d
to second
extended
maturity
Percent
5.50
5.50
5.50
5.50
5.50
6.50
6.50
5.50
5.60
5.50
5.50
5.60
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.62

02

35.50 .

3 Yield on p u r c h a s e price from issue d a t e to second extended m a t u r i t y d a t e is 4.34
percent.
CO
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o

TABLE 75—A
B O N D S B E A R I N G I S S U E D A T E S F R O M D E C E M B E R 1. 1964, T H R O U G H M A Y 1, 1965 i
I s s u e price
Denomination. _

$18.75
25.50

$37.50
50.00

$56.25.
75.00

$75.00
100.00

$150.00
200.00

$375.00
500.00

$750.00
1,000.00

(2) F r o m beginning of e x t e n d e d
- m a t u r i t y period to
beginning of
each half-year
period

EXTENDED MATURITY

$26. 25
26.97
27.71
28.48
29.26
30.06
30.89
31. 74
32.61
33.61
34. 43
36.38
36.35
37.35
38.38
39.43
40.52
41.63
42.78
43.95

$52. 50
53.94
56.42
56.96
58.62
60.12
61.78
63.48
65.22
67. 02
68.86
70.76
72.70
74.70
76.76
78.86
81.04
83.26
86.66
87.90

45.16

90.32

$78. 75 $105. 00 $210. 00
107. 88
215. 76
80.91
221. 68
83.13
110. 84
86.44
113. 92
227. 84
234. 08
117.04
87.78
120. 24
240. 48
90.18
247.12
92.67
123. 56
96.22
126. 96
263. 92
130. 44
260. 88
97.83
134. .4
100.53
268. 08
137. 72
275. 44
103. 29
283.04
106.14
141. 52
109. 05
145. 40
290. 80
112. 05
298. 80
149.40
115.14
163. 52
307. 04
157.-72
315. 44
118. 29
121. 66
162. 08
324.16
333. 04
124. 89
166. 52
342. 24
171.12
128.34
131. 85
361. 60
175.80
135.48

180.64

361.28

1 T h i s table does n o t a p p l y if t h e prevailing rate for Series E b o n d s being issued a t
t h e t i m e t h e extension begins is different from 6.60 percent.
2 M o n t h , d a y a n d year on w h i c h issues of Dec. 1, 1964, enter each period. F o r s u b s e q u e n t issue m o n t h s a d d t h e a p p r o p r i a t e n u m b e r of m o n t h s .




PERIOD

$625. 00 $1, 050. 00
639. 40 1, 078. 80
564. 20 1,108. 40
569. 60 1,139. 20
585. 20 1,170. 40
601. 20 1,202. 40
617. 80 1,235. 60
634. 80 1,269. 60
652. 20 1,304. 40
670.20 1,340.40
688. 60 1,377. 20
707. 60 1,415. 20
727. 00 1,454. 00
747. 00 1,494.00
767. 60 1,535. 20
788. 60 1,577. 20
810. 40 1,620.80
832. 60 1,665.20
855. 60 1,711.20
879. 00 1,758.00
903.20

1,806.40

(3) F r o m beginn i n g of each halfy e a r period to
beginning of
n e x t half-year
period

(4) F r o m beginning ofeach halfyear period t o
extended m a t u r i t y

Percent

(1) R e d e m p t i o n values d u r i n g each half-year period
(values increase on first d a y of period shown)
P e r i o d after original m a t u r i t y
(beginning 7 years 9 m o n t h s
after issue date)

F i r s t i-^year
2(9/1/72)
^^ to l y e a r
(3/1/73)
1 to m years
(9/1/73)
1'^ to 2 years
(3/1/74)
2 to 21,^ years
(9/1/74)
2^^ to 3 y e a r s (3/1/76)
3 to 31,^ years
(9/1/75)
3ir^ to 4 y e a r s
(3/1/76)
4 to 41,^ y e a r s (9/1/76)
4yi to 5 years
(3/1/77)
5 t o 5 H years (9/1/77)
5]r^ to 6 years
(3/1/78)
6 to 6^^ years
(9/1/78)
61.^ t o 7 y e a r s - (3/1/79)
7 to 7}-^ years
(9/1/79)
71.^ to 8 years
(3/1/80)
8 to S H years
(9/1/80)
8}^i to 9 y e a r s (3/1/81)
9 to 91.^ years
(9/1/81)
9}.^ to 10 years
(3/1/82)
EXTENDED MATURITY
V A L U E (17 years a n d 9 m o n t h s
from i s s u e d a t e )
(9/1/82)

A p p r o x i m a t e i n v e s t m e n t yield
(annual percentage rate)

$7,500
10,000

Percent
5.49
5.49
5.56
5.48
5.47
5.62
5.60
5.48
5.62
.5.49 •
5.52
5.48
5.60
5.62
5.47
5.53
5.48
5.52
5.47
5.51

Percent
5.60
5.50
5.50
5.50
5.60
5.50
5.50
6.50
5.50
5. 50
5.50
5.50
5.60
5.60
5.50
5.50
5.49
5.50
5.49
5.51

510, 500
10, 788
11,084
11,392
11,704
12,024
12,366
12,696
13,044
13,404
13,772
14,152
14,540
14,940
15,352
15,772
16,208
16,652
17,112
17,580
18,064

0.00
5.49
5.49
6.61
5.60
5.60
5.60
5.60
5.60
5.50
5.60
5.60
5.50
5.50
5.50
5.60
5.50
5.60
5.50
5.50

O
O

35.50

3 Yield on p u r c h a s e price from issue d a t e t o e x t e n d e d raaturity d a t e is 5.01 p e r c e n t .

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TABLE 77—A
BONDS BEARING ISSUE DATES FROM DECEMBER 1, 1965 THROUGH MAY 1, 1966 i
Issue price
Denomination _ -

$18.75
25.00

$37.50
50.00

$56.25
75.00

$75.00
100.00

$150.00
200.00

$375.00 $750.00
500.00 1,000.00

$7,500
10,000

(2) From beginning of extended
- maturity period to
beginning of
each half-year
period

(1) Redemption values during each half-year period
(values increase on first day of period shown)

Period after original maturity (beginning 7 years after issue date)

E X T E N D E D MATURITY P E R I O D

First M year
2 (12/1/72)
M to 1 year
....(6/1/73)
1 to IM years
(12/1/73)
IM to 2 years
(6/1/74)
2 to 2M years
(12/1/74)
2M to 3 years
(6/1/76)
3 to 3M years
(12/1/76)
3,H to 4 years
(6/1/76)
4 to 4M years
(12/1/76)
4M to 5 years
(6/1/77)
5 to 5M years
(12/1/77)
5M to 6 years
-(6/1/78)
6 to 6M years
(12/1/78)
6M to 7 vears
(6/1/79)
7 to 7M years
(12/1/79)
7M to 8 years
(6/1/80)
8 to 8M years
(12/1/80)
8M to 9 years
(6/1/81)
9 to 9M years
(12/1/81)
9Mto 10 years.
(6/1/82)
EXTENDED MATURITY
VALUE (17 years from
issue date)

(12/1/82)

$25. 78
26.49
27.22
27.97
28.73
29.63
30.34
31.17
32.03
32.91
33.81
34.74
35.70
36.68
37.69
38.73
39.79
40.89
42.01
43.17
44.35

$51. 66
$77.34
62.98
79.47
54.44
81.66
66. 94 • 83.91
57.46
86.19
59.06
88.59
60.68
91.02
62.34
93. 51
64.06
96.09
66.82
98.73
67.62
101. 43
69.48
104. 22
71.40
107.10
73.36
110.04
75.38
113. 07
77.46
116.19
79.68
119. 37
81.78
122. 67
84.02
126. 03
86.34
129. 51

8.70

133.05

$103.12
106. 96
108. 88
111.88
114. 92
118.12
121. 36
124.68
128.12
131. 64
136. 24
138. 96
142. 80
146. 72
150. 76
154. 92
169.16
163. 66
168. 04
172. 68

177.40

$206. 24
211. 92
217. 76
223. 76
229.84
236. 24
242. 72
249.36
266. 24
263. 28
270. 48
277. 92
285. 60
293. 44
301. 52
309. 84
318. 32
327.12
336. 08
346. 36

354.80

1 This table does not apply if the prevailing rate for Series E bonds being issued at
the time the extension begins is different from 5.60 percent.
2 Month, day, and year on which issues of Dec. 1. 1965, enter each period. For
subsequent issue months add the appropriate number of months.




Approximate investment yield
(annual percentage rate)
(3) From beginning of each halfyear period to
beginning of
next half-year
period

(4) From beginning of each halfyear period to
extended maturity

Percent
0.00
6.61
5.51
5.51
6.49
5.51
5.50
5.50
6.60
5.60
5.60
5.60
5.50
5.60
5.50
5.50
5.60
6.60
5.50
5.50

Percent
5.51
5.51
5.51
5.43
5.57
5.49
5.47
5.52
5.49
5.47
5.50
5.53
5.49
5.51
5.52
5.47
5.53
5.48
5.52
5,47

Percent
5.60
6.50
5.60
5.50
5.50
5.50
5.50
5.50
5.50
6.60
5.50
5.50
5.50
5.60
5.50
5.49
6.50
5.49
5.49
5.47

$515. 60 $1,031. 20 $10, 312
529. 80 1,059.60
10, 596
644. 40 1,088. 80
10,888
559. 40 1,118. 80
11,188
574. 60 1,149. 20
11, 492
590. 60 1,181. 20
11,812
606. 80 1,213. 60
12,136
623. 40 1, 246. 80 12,468
640. 60 1, 281. 20 12,812
658. 20 1,316. 40
13,164
676. 20 1,352. 40
13, 624
694. 80 1,389. 60
13,896
714.00 1,428.00
14,280
733. 60 1,467. 20
14,672
763. 80 1, 607. 60 16,076
774. 60 1, 549. 20 15,492
795. 80 1, 591. 60 16, 916
817. 80 1, 636. 60 16, 356
840. 20 1, 680.40
16,804
863. 40 1, 726. 80 17, 268

887.00 1,774.00

17,740

H-l

?/2

35.50

3 Yield on purchase price from issue date to extended maturity date is 5.13 percent.

to

o

202

1973 REPORT OF THE SECRETARY OF THE TREASURY

E x h i b i t 5.—Department C i r c u l a r No. 905, D e c e m b e r 12, 1969, Fifth Revision,
S u p p l e m e n t No. 2, offering of U n i t e d S t a t e s savings bonds, Series H
DEPARTMENT OF T H E TREASURY,
Washington, J u l y 19,1972.
T h e tables to D e p a r t m e n t Circular No. 905, F i f t h Revision, d a t e d December 12,
1969, a s amended (31 C F R P a r t 332), a r e hereby supplemented by t h e addition
of Tables 4-A a n d 25-A, as set forth below.
J O H N K . CARLOCK,
F i s c a l A s s i s t a n t Secretary.

TABLE

4-A

BONDS BEARING ISSUE DATES FROM APRIL 1 THROUGH SEPTEMBER 1,1953 i
[Issue price
Face value< Redemption and ma[ turity value.

$500
500

$1,000
1,000

$5,000 $10,000
5,000 10,000

(1) Amounts of interest checks for
each denomination
Period of time bond is held after •
extended maturity date

Myear
2(6/1/73)
lyear
(12/1/73)
IM years
(6/1/74)
2 years
..-(12/1/74)
2M years
--..(6/1/75)
3 years..
(12/1/76)
3M years..-...(6/1/76)
4 years.
(12/1/76)
4M years...
(6/1/77)
6 years.
(12/1/77)
5M years
(6/1/78)
6 years
-(12/1/78)
6M years
(6/1/79)
7 years—
(12/1/79)
7M years
(6/1/80)
8 years
(12/1/80)
8M years..
(6/1/81)
9 years
(12/1/81)
9M years
(6/1/82)
10 years (second extended
maturity) 3
(12/1/82)

SECOND E X T E N D E D
MATURITY P E R I O D

$13. 76
13.75
13.75
13.76
13.75
13.75
13.75
13.75
13.75
13.75
13.75
13.75
13.76
13.76
13.75
13.75
13.75
13.75
13.75
13.75

$27. 60 $137. 50 $275. 00
27.50 137. 50. 276. 00
27.50 137.50' 275.00
27.50 137. 60 276.00
27.60 137. 60 275. 00
27.50 137. 60 275.00
27.50 137. 50 275. 00
27. 50 137. 50 275. 00
27.50 137. 50 . 276. 00
27.60 137. 50 275. 00
27.60 137. 60 275. 00
27. 60 137. 60 275. 00
27.50 137. 60 276. 00
27.50 137.50 276. 00
27.60 137. 50 276. 00
27.50 137. 50, 276. 00
27.50 137. 60 276.00
27.50 137. 60 276.00
27.50 137.60 276. 00
27.50

137.50

275.00

Approximate investment yield
(annual percentage rate)

(2) From
(4) From
beginning (3) For
of second half-year each interest payperiod
extended
maturity preceding ment date
to second
period to
interest
each in- payment extended
maturity
terest paydate
ment date
Percent
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.60
5.60
5.60
5.50
5.50
5.50
5.50
5.60
5.50
5.50
5.60
6.50

Percent
5.60
5.60
5.60
5.50
5.50
5.50
5.60
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50

<5.50

Percent
5.60
5.50
5.50
5.50
5.50
5.50
5.60
5.50
5.50
5.50
5.50
5.50
• 5.50
5.50
5.50
5.50
5.50
5.50
5.50

5.50

I This table does not apply if the prevailing rate for I ^ies H bonds behig issued at the time second
extension begins is different from 6.60 percent.
^•'^
ntfi
2 Month, day, and year on which interest check is payable on issues of Apr. 1,1953. For subsequent issue
months add the appropriate number of months.
3 29 years and 8 months after issue date.
4 Yield on purchase price from issue date to second extended matmity date on bonds dated: Apr
May 1,1953 is 4.02 percent; June 1 through Sept. 1,1963 is 4.03 percent.




203

EXHIBITS
TABLE 25-A

BONDS BEARING ISSUE DATES FROM DECEMBER 1, 1962 THROUGH MAY 1, 19631
Issue price
Redemption and maturity value.

(

$500
500

$1,000
1,000

$5,000 $10,000 Approximate investment yield
5,000 10,000
(annual percentage rate)

(2) F r o m
beginning
(4) F r o m
(3) F o r
of e x t e n d e d half-year each i n t e r (1) A m o u n t s of i n t e r e s t checks for m a t u r i t y
period
est p a y Period of time bond is held after
each d e n o m i n a t i o n
period t o preceding m e n t d a t e
each
interest to extended
maturity date
E X T E N D E D MATURITY P E R I O D
maturity
payment
interest
payment
date
date

Myear-—.....
lyear
IM years..-.
2 years
2M years...3 years..
3M years
4 years
4M years
5 years
5M years
6 years
6M years.
7 years
7M years
8 years
8M years
9 years
9M years...
10 years (extended
maturity) 3

2(6/1/73) $13. 75
.-(12/1/73)
13.75
.-(6/1/74)
13.75
(12/1/74)
13.76
...-(6/1/75)
13.76
(12/1/75)
13.75
...(6/1/76)
13.75
(12/1/76) -, 13. 76
.-(6/1/77)
13.75
...(12/1/77)
13.76
(6/1/78)
13.76
...(12/1/78)
13.75
.-(6/1/79)
13.75
.(12/1/79)
13.75
(6/1/80)
13.75
(12/1/80)
13.75
(6/1/81)
13.75
(12/1/81)
13.75
(6/1/82)
13.75
(12/1/82)

13.75

$27. 50 $137. 50 $275. 00
27.50 137. 50 275. 00
27.50 137. 60 275. 00
27.50
137. 50 275. 00
27.50
137. 50 275. 00
27.50 137. 50 275. 00
27.50 137. 50 276. 00
27.50 137. 50 276. 00
27.50 137. 50 275. 00
27.50
137. 50 276. 00
27. 60 137. 60 276. 00
27.60 137. 50 276. 00
27.60
137. 50 275. 00
27.60
137. 50 275. 00
27.50
137. 50 275. 00
27.50
137. 60 275. 00
27.50
137. 60 276. 00
27.50
137. 60 276. 00
27.60
137. 50 276. 00
27.50

137.50

275.00

Percent
5.50
5.50
5.60
5.50
5.50
6.60
5.60
5.60
5.60
5.50
5.60
5.50
5.50
5.60
5.60
5.60
5.50
5.50
5.60

Percent
5.50
5.50
5.60
6.60
5.50
5.50
5.50
5.50
5.60
6.50
5.50
6.50
5.60
5.60
6.60
5.50
5.50
5.60
5.50

4 5.50

Percent
5.50
5.60
6.60
5.50
5.60
6.50
5.50
6.50
6.50
5.50
5.50
6.50
5.60
5.60
5.60
5.60
6.50
6.50
5.50

5.50

1 This table does not apply if the prevailing rate for Series H bonds being issued at the time the extension
begins is different from 5.50 percent.
2 Month, day, and year on which interest check is payable on issues of Dec. 1,1962. For subsequent issue
months add the appropriate number of months.
3 20 years after issue date.
4 Y'ield on purchase price from issue date to extended maturity is 4.71 percent.
506-171—73-

-16




204

19 73 REPORT OF THE SECRETARY OF THE TREASURY

Exhibit 6.—Department Circular, Public Debt Series No. 3-67, June 19, 1968,
Revised, Supplement No. 2, offering of United States savings notes
DEPARTMENT OF THE TREASURY,

;
Washington, July 19,1972.
Table 1, of Department Circular No. 3-67, Revised, dated June 19, 1968, as
amended (31 CFR Part 342), is hereby supplemented by the addition of Table
1-A, as set forth below.
JOHN K . CARLOCK,

Fiscal Assistant Secretary.
TABLE 1-A
NOTES BEARING ISSUE DATES FROM JUNE 1, 1968 THROUGH JUNE 1, 1970 i
Denomination
Issue price
.-

Period after original maturity
(beginning 4 years 6 months
after issue date)

$25.00' $50.00
20.25
40.50

$75.00 $100.00
60.75 81.00

Approximate investment yield
(aimual percentage rate)

(2) F r o m
beginning
(1) R e d e m p t i o n values d u r i n g each of extended
half-year period (values ncrease m a t u r i t y
on first d a y of period shown)
period t o
beginning
E X T E N D E D MATURITY PERIOD
of each
half-year
period

First M year
2(12/1/72)
Mto lyear
(6/1/73)
1 to IM years-. - (12/1/73)
IM to 2 years--(6/1/74)
2-to-2Myears..-.:(12/1/74)
2M to 3 years- u - - . . . - -. (6/1/75)
3 to 3M years
(12/1/75)
3M to 4 years
- 1 . . - (6/1/76)
4 to 4M years
(12/1/76)
4M to 6 years-—
- (6/1/77)
5 to 5M years
(12/1/77)
5M to 6 years
(6/1/78)
6 to 6M years
(12/1/78)
6M to 7 years (6/1/79)
7 to 7M years
(12/1/79)
7M to 8 years
(6/1/80)
8 to 8M years-(12/1/80)
8M to 9 years- (6/1/81)
9 to 9M years
(12/1/81)
M to 10 years
- . - (6/1/82)

$25. 29
25.99
26. 70
27.43
28.19
28.96
29.76
30.58
31.42
32.28
33.17
34.08
35. 02
35.98
36.97
37.99
39.04
40.11
41.21
42.36

$50.58
51.98
63.40
64.86
56.38
57.92
69.52
61.16
62.84
64.56
66.34
68.16
70.04
71.96
73.94
75.98
78.08
80.22
82.42
84.70

EXTENDED
MATURITY
VALUE (14 years and 6 months
from issue date)
(12/1/82)

43.51

87.02

$76.87: $101.16
77.97
103. 96
80.10
106.80
82.29
109. 72
84.57
112. 76
86.88- 115.84
89.28
119. 04
91.74
122.32
94.26
125. 68
96.84
129.12
99.61
132. 68
102. 24 136.32
105. 06 140. 08
107. 94 143. 92
110. 91 147.88
113. 97 151. 96
117 12 156.16
120. 33 160.44
164.84
123.63
127. 05 169. 40

130.53

174.04

(3) F r o m
beginning
of each
half-year
period t o
begiiming
of next
half-year
period

Percent
.00
6.54
5.60 .
5.49
5.60
5.49.
5.50
5.50
5.60
5.50
5.60
5.60
5.60
5.50
5.50
5.50
5.50
5.50
5.60
5.50

(4) F r o m
begiiming
of each
half-year
period to
extended
maturity

Percent
- 6.54
6.46
.6.47
5.64
5.46
5.52
5.51
5.49
5.47
5.51
5.49
5.52
5.48
5.50
5.52
5.53
5.48
6.48
5.53
5.48

Percent
5.50
5.50
5.50
5.60
5.60
.6.50
5.50
5.50
6.60
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.49
5.50
5.61
5.48

3 5.50 .

1 This table does not apply if the prevailing rate for Scries E bonds being issued at the tmie the extension
begins is different from 5.60 percent.
2 Month, day, and year on which issues of June 1, 1968, enter each period. For subsequent issue months
add the appropriate number of months.
3 Y^ield on purchase price from issue date to extended maturit^'^ date is 5.34 percent.

Exhibit 7.—Department Circular, Public Debt Series No. 3-72, November 21,
1972, Revised, regulations governing United States Treasury certificates of
indebtedness—State and local government series. United States Treasury
notes—State and local government series^ and United States Treasury bonds—
State and local government series
DEPARTMENT OF THE TREASURY,

Washington, Novemher 21,1972.
The regulations in Department of the Treasury Circular, Public Debt Series
No. 3-72, as amended (31 CFR Part 344), have been retitled and further amended,
as set forth below. The changes were effected under the authority of 26 U.S.C.




EXHIBITS

205.

103(d), 83 Stat. 656; 31 U.S.C. 753, 754, 754b, and 5 U.S.C. 301. Notice and
public procedures thereon are unnecessary as they relate to the fiscal policy of
the United States.
JOHN K . CARLOCK,

Fiscal Assistant Secretary.
Department of the Treasury Circular, Public Debt Series No. 3-72, dated
May 22, 1972, as amended (31 CFR Part 344), is hereby further amended and
issued as Department of the Treasury Circular, Public Debt Series No. 3-72,
Revised.
Sec.
344.0 Offering of securities.
344.1 Description of securities.
344.2 Subscription for purchase.
344.3 Issue date and payment.
344.4 Redemption.
344.5 General provisions.
SEC. 344.0 Offering of securities.—In order to provide States, municipalities
and other government bodies described in section 103(a) (1) of the Internal
Revenue Code of 1954 and the regulations thereunder with investments tailored
to their needs under those provisions, the Secretary of the Treasury offers, under the authority of the Second Liberty Bond Act, as amended—
(1) United States Treasury Certificates of Indebtedness—State and Local
Government Series,
(2) United States Treasury Notes—State and Local Government Series,
and
(3) United States Treasury Bonds—State and Local Government Series,
for sale to those entities. The term "government body" as used herein refers to
any one of these entities. The term "securities" herein refers jointly to the
certificates, notes, and bonds. This offering will continue until terminated by the
Secretary of the Treasury.
'
.
SEC. 344.1 Description of securities.
(a) General. The securities will be issued in book-entry form on the books of
the Department of the Treasury, Bureau of the Public Debt, Washington, D.C.
20226. They may not be transferred by sale, exchange, assignment or pledge, or
otherwise.
{h) 2'erms and rates of interest.
(1) Certificates of indehtedness.—^The certificates will be issued in multiples of
$5,000 with periods of maturity fixed, at the option of the government body, for
(i) 3 months, (ii) 6 months, (iii) 9 months, or (iv) 1 year. Each certificate will
bear such rate of interest as the government body may designate, provided that
it shall not be more than the current Treasury rate on a comparable maturity,
reduced by one-eighth of 1 percent, on the date the subscription is submitted.
The applicable Treasury rates will be determined by the Treasury not less often
than monthly, and will be available at Federal Reserve Banks and Branches.
Interest on the certificates will be computed on an annual basis and will be payable at maturity VTith the principal amount.
(2) Notes.—The notes will be issued in multiples of $5,000 with periods of
maturity fixed, at the option of the governmeht body, from 1 year.6 months up
to and including 7 years, or for any intervening half-yearly period. Each note
will bear such rate of interest as the government body may designate, provided
that it shall not be more than the current Treasury rate on a comparable maturity, reduced by one-eighth of 1 percent, on the date the. subscription is submitted. The applicable Treasury rates will be determined by the Treasury not less
often than monthly, and will be available at Federal Reserve Banks and Branches.
Interest on the notes will be payable on a semiannual basis by Treasury check
on June 1 and December 1, and at maturity if other than June 1 or December 1.
Final interest will be paid with the principal.
(3) Bonds.—The bonds will be issued in multiples of $5,000 with periods of
maturitj^ fixed, at the option of the government body, from .7 years 6 months
UJ) to and including 10 years, or for any intervening half-yearly period. Each
bond will bear such rate of interest as the government body may designate, provided that it shall not be more than the current Treasury rate on a comparable
maturity, reduced by one-eighth of 1 percent, on the date the subscription is




206

19 73 REPORT OF THE SECRETARY OF THE TREASURY

submitted. The applicable Treasury rates will be determined by the Treasury
not less often than monthly, and will be available at Federal Reserve Banks
and Branches. Interest on the bonds will be payable on a semiannual basis
by Treasury check on June 1 and December 1, and at maturity if other than
June 1 or December 1. Final interest will be paid with the principal.
SEC. 344.2 Suhscription for purchase.—A government body may purchase a
security under this offering by submitting a subscription and making payment
to a Federal Reserve Bank or Branch. The subscription, dated and signed by
an ofiicial authorized to make the purchase, must state the amount, issue date,
maturity and interest rate of the security desired, and must give the title of the
designated oflacial authorized to redeem it. Separate subscriptions must be
submitted for certificates, notes, and bonds, and for securities of each maturity
and each interest rate. A commercial bank may act on behalf of a government
body in submitting subscriptions.
SEC. 344.3 Issue date and payment.—The issue date of a security will be the
date requested by the subscriber, provided that date is not more than three weeks
after the date of the subscription, and provided funds in full payment are available on that date at the Federal Reserve Bank or Branch to which the subscription was submitted.
SEC 344.4 Redemption.
(SL) At maturity. A security may not be called for redemption by the Secretary of the Treasury prior to maturity. Upon the maturity of a security, the
Treasury will make payment of the principal amount and interest to the owner
thereof by Treasury check, or in accordance with other prior arrangements made
by the government body with the Bureau of the Public Debt.
(b) Prior to maturity. Securities may be redeemed at the owner's option on
two days' notice after one month from the issue date in the case of certificates,
and after one year from the issue date in the case of notes and bonds. Where
redemption prior to maturity occurs, the interest for the entire period the security
was outstanding shall be calculated on the basis of the lesser of (i) the original
interest rate at which the security was issued, or (ii) an adjusted interest rate
reflecting both the shorter period during which the security was actually outstanding and a penalty. The adjusted interest rate is the Treasury rate which
would have been in effect on the date of issuance for a marketable Treasury
certificate, note, or bond maturing on the quarterly maturity date prior to redemption (in the case of certificates), or on the semiannual maturity period prior
to redemption (in the case of notes and bonds), reduced in either case by a
penalty which shall be the lesser of (i) one-eighth of 1 percent times the number
of months from the date of issuance to original maturity, divided by the number of
full months elapsed from^ the date of issue to redemption, or (ii) one-fourth of 1
percent. There shall be deducted from the redemption proceeds, if necessary, any
overpayment of interest resulting from previous payments made at a higher rate
based on the original longer period to maturity. A schedule showing the adjusted
interest rates that apply to securities redeemed prior to their maturity dates will
be available at the time of issuance of the securities. A notice to redeem a security
prior to the maturity date must be given by the oflficial authorized to redeem it, as
shown in the subscription for purchase, to the Bureau of the Public Debt, Division of Securities Operations, Washington, D.C. 20226, by letter, wire, or telex, or
by telephone confirmed by wire or telex. The telephone number is 202-964-7(107,
and the telex number is 892428.
SEC 344.5 General provisions.
(a) Regulations. United States Treasury Certificates of Indebtedness—State
and Local Government Series, and United States Treasury Notes—State and
Local Government Series, and United States Treasury Bonds—State and
Local Government Series, shall be subject to the general regulations with respect to United States securities, which are set forth in the Department of the
Treasury Circular No. 300, current revision (31 CFR Part 306), to the extent
applicable. Copies of the circular may be obtained from the Bureau of the Public
Debt, Division of Securities Operations, Washington, D.C. 20226, or a Federal
Reserve Bank or Branch.
(b) Fiscal agents. Federal Reserve Banks and Branches, as fiscal agents of
the United States, are authorized to perform such services as may be requested of
them by the Secretary of the Treasury in connection with the purchase of, and
transactions in, the securities.




EXHIBITS

207

(c) Reservations. The Secretary of the Treasury reserves the right to reject any application for the purchase of securities hereunder, in whole or in
part, and to refuse to issue or permit to be issued any such securities in any
case or any class or classes of cases if he deems such action to be in the public interest, and his action in any such respect shall be final. The Secretary of the
Treasury may also at any time, or from time to time, supplement or amend the
terms of these regulations, or of any amendments or supplements thereto.
Exhibit 8.—-Department Circular, Public Debt Series No. 3-72, November 21,
1972, Revised, Amendment No. 1, regulations governing United States Treasury
certificates of indebtedness—State and local government series, United States
Treasury notes—State and local government series, and United States
Treasury borids—State and local government series
DEPARTMENT OF THE TREASURY,

Washington, January 12,1973.
DESCRIPTION AND SUBSCRIPTION

Sections 344.1(b) (2) and (3) and 344.2 of Department of the Treasury Circular, Public Debt Series No. 3-72, Revised, dated November 21, 1972 (31 CFR
Part 344), have been amended and revised to read as follows :
§ 344.1 Description of securities.
^::

.i«

ff

i}i

lii

i'f

sjc

(b) Terms and rates of interest. * * *
(2) Notes. The notes will be issued in multiples of $5,000 with periods of maturity fixed, at the option of the government body, from 1 year 6 months up to and
including 7 years, or for any intervening half-yearly period. Each note will bear
such rate of interest as the government body may designate: Provided, That it
shall not be more than the current Treasury rate on a comparable maturity, reduced by one-eighth of 1 percent on the date the subscription is submitted. The
applicable Treasury rates will be determined by the Treasury not less often than
monthly, and will be available at Federal Reserve Banks and Branches. Interest
on the notes during the term to maturity will be payable on a semiannual basis
on interest payment dates requested in the subscription form. Final interest will
be paid with the principal.
(3) Bonds. The bonds will be issued in multiples of $5,000 with periods of
maturity fixed, at the option of the government body, from 7 years 6 months up
to and including 10 years, or for any intervening half-yearly period. Each bond
will bear such rate of interest as the government body may designate: Provided,
That it shall not be more than the current Treasury rate on a comparable maturity, reduced by one-eighth of 1 percent, on the date the subscription is submitted. The applicable Treasury rates will be determined by the Treasury not
less often than monthly, and will be available at Federal Reserve Banks and
Branches. Interest on the bonds will be paid beginning on any interest payment
date requested in the subscription form, and on a semiannual basis thereafter to
maturity. Final interest will be paid with the principal.
§ 344.2 Subscription for purchase.
A government body may purchase a security under this offering by submitting
a subscription and making payment to a Federal Reserve Bank or Branch. The
subscription, dated and signed by an ofl&cial authorized to make the purchase,
must state the amount, issue date, maturity and interest rate of the security
desired, the semiannual interest payment dates (in the case of notes and bonds),
and the title of the designated official authorized to redeem it. Separate sul3scriptions must be submitted for certificates, notes, and bonds, and for securities
of each maturity and each interest rate. A commercial bank may act on behalf
of a government body in submitting subscriptions.
The foregoing amendments were effected under authority of 26 U.S.C. 103(d)
83 Stat. 656; 31 U.S.C. 752, 753, 754, 754b, and 5 U.S.C. 301. Notice and public
procedures thereon are unnecessary as they relate to the fiscal policy of the
United States.




JOHN K . CARLOCK,

Fiscal Assistant Secreta/ry,

208

19 73 REPORT OF THE SECRETARY OF THE TREASURY

Exhibit 9.—Department Circular No. 653, December 12, 1969, Eighth Revision,
Supplement No. 4, offering of United States savings bonds. Series E
DEPARTMENT OF THE TREASURY,

Washington, Jamiary 18, 1973.
The purpose of this supplement is to show the redemption values and investment yields for the next extended maturity period for U.S. Savings Bonds of
Series E bearing issue dates of June 1 through November 1, 1943, June 1 through
September 1, 1953, October 1 through November 1, 1953, June 1 through November 1, 1965, and June 1 through November 1, 1966. Accordingly, the tables
to Department Circular No. 653, Eighth Revision, dated December 12, 1969, as
amended (31 CFR Part 316), are hereby supplemented by the addition of Tables
8-A, 32-A,. 33-A, 76-A, and 78-A, as set forth below.




JOHN K . CARLOCK,

Fiscal Assistant Secretary.

TABLE 8 A
BONDS BEARING ISSUE DATES FROM JUNE 1 THROUGH NOVEMBER 1, 1943 i
Issue price
Denomination

- -

...

'

Period after second extended niaturity
(beginning 30 years after issue date)

First Myear
2 (6/1/73)
3r^ to l y e a r
1
(12/1/73)
I t o IM years
_•.
:
(6/1/74)
IM to 2 years
(12/1/74)
2 to 2M years
(6/1/75)
2M to 3 years
...(12/1/75)
3 t o 3 M years
.:
(6/1/76)
3Mto4years——--.....:.:......:
(12/1/76)
4 t o 4 M years
V..".:....
(6/1/77)
4M to 5 years
-(12/1/77)
5 to 5M years
(6/1/78)
5M to 6 years
(12/1/78)
6 to 6M years
(6/1/79)
6M to 7 years
(12/1/79)
7 to 7M years
......-:.
(6/1/80)
7M to 8 years
(12/1/80)
8 to 8M years
_...(6/1/81)
8M to 9 years
(12/1/81)
9 to 9M years
(6/1/82)
9M to 10 years
..•.
(12/1/82)
THIRD EXTENDED MATURITY VALUE (40 yeiars from issue
date).:..---.:
:
(6/1/83)

. $18.75
25.00

$75.00 "
•
100.00

$375.00
500.00

$750.00
1,000.00

Approximate investment yield
(annual percentage rate)

(2) From
(3) From
beginning of
beginning of
(4) From
(1) Redemption values during each half-year period third extended each half-year beginning of
(values increase on first day of period shown)
maturity
period to
each half-year
—'•
period to
beginning of
period to
beginning of next half-year third extended
T H I R D E X T E N D E D M A T U R I T Y P E R I O D each half-year
period
maturity
period
$53.42 $106.84
109. 78
54.89
112.80
56.40
115.90
57.95
119.08
59.54
122. 36
61.18
62.86 ' 125.72
129.18
64.59
132.74
66.37
136.38
68.19
140.14
70.07
144.00
72.00
147.96
73.98
152.02
76.01
156.20
78.10
160.50
80.25
164.90
82.45
169.44
84.72
174.10
87.05
178.90
89.45
91.91

1 This table does not apply if the prevaiUng rate for Series E bonds being issued at
the time the second extension begins is different from 5.50 percent.
2 Month, day, and year on which issues of June 1, 1943, enter each period. For
subsequent issue months add the appropriate number of months.




$37.50.
50.00

183.82

$213.68
219.56
225. 60
231.80
238.16
244.72
251.44
258.36
265. 48
272.76
280.28
288.00
295.92
304. 04
312.40
321.00
329. 80
338.88
348.20
357.80

$1068. 40
1097. 80
1128. 00
1159.00
1190.80
1223. 60
1257. 20
1291.80
1327.40
1363.80
1401.40
1440.00
1479.60
1520.20
1562.00
1605.00
1649.00
1694.40
1741.00
1789.00

$2136. 80
2195. 60
2256.00
2318.00
2381. 60
2447. 20
2514.40
2583. 60
2654. 80
2727. 60
2802. 80
2880.00
2959.20
3040.40
3124.00
3210.00
3298.00
3388. 80
3482.00
3578.00

367.64

1838.20

3676.40

Percent
0.00
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50 •
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50

Percent
5.50
5.50
5.50
5.49
5.51
5.49
5.50
5.51
5.48
5.51
5.51
5.50
5.49
5.50
5.51
5.48
5.51
5.50
5.51
5.50

Percent
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50 •
5.50 •
5.50
5.50
5.51
5.50
5.51
5.50

w
t—i
cr2

35.50

3 Yield on purchase price from issue date to third extended maturity date is 4.01
percent.

to
O
CO

o
TABLE 32 A
BONDS BEARING ISSUE DATES FROM JUNE 1 THROUGH SEPTEMBER 1, 1953 •
Issue price
Denomination-

-.
-

$18.75
25.00

$37.50
50.00

$75.00
100.00

$150.00
200.00

$375.00
500.00

SECOND E X T E N D E D MATURITY

$39.05
$78.10
40.12
80.24
41.23
82.46
42.36
84.72
43.53
87.06
44.72 • 89.44
45.95
91.90
.47.2294.44
48.51
97.02
49.85
99.70
51.22
102.44
52.63
105.26
54.08
108.16
55.56
111.12
57.09
114.18
58.66
117.32
60.27
120.54
61.93
123.86
63.63
127.26
65.38
130.76
67.18

134.36

Approximate investment yield
(annual percentage rate)
(2) F r o m
(3) F r o m
beginning of
beginning of
second
each halfextended
year period
m a t u r i t y period to beginning
to beginning
of next
of each halfhalf-year
year period
period

PERIOD

$156.20
160.48
164.92
169.44
174.12
178.88
183.80
188.88
194.04
199.40
204.88
210.52
216.32
222.24
228.36
234.64
241.08
247.72
254.52
261.52

$312.40
320. 96
329. 84
338. 88
348. 24
357. 76
367. 60
377.76
388.08
398. 80
409. 76
421. 04
432. 64
444. 48
456. 72
469. 28
482.16
495. 44
509. 04
523. 04

$781. 00
802. 40
824. 60
847. 20
• 870. 60
894. 40
919. 00
944.40
970.20
997. 00
1024. 40
1052. 60
1081. 60
1111.20
1141. 80
1173. 20
1205. 40
1238. 60
1272. 60
1307. 60

$1562. 00
1604. 80
1649. 20
1694. 40
1741. 20
1788. 80
1838. 00
4888. 80
1940. 40
1994. 00
2048. 80
2105. 20
2163. 20
2222. 40
2283. 60
2346. 40
2410. 80
2477. 20
2545. 20
2615. 20

.19404
19940
20488
21052
21632
22224
22836
. 23464
24108
24772
25452
26152

268.72

537.44

1343.60

2687.20

26872

1 T h i s t a b l e does n o t a p p l y if t h e prevailing r a t e for Series E b o n d s being issued
a t t h e t i m e t h e second extension begins is different from 5.50 percent.
2 M o n t h , d a y , a n d year on w h i c h issues of J u n e 1, 1953, enter each period. F o r




$7,500
10,000

(1) R e d e m p t i o n values d u r i n g each half-year period
(values increase on first d a y of period shown)

P e r i o d after extended m a t u r i t y (beginning 19 years
8 m o n t h s after issue date)

FirstMyear
2(2/1/73)
Mto lyear
(8/1/73)
1 to I M years
(2/1/74)
i M to 2 years
(8/1/74)
2 to 2M years
.
.'.(2/1/75)
2M t o 3 years
(8/1/75)
3 to 3M years
(2/1/76)
3Mto:4 y e a r s . . . . : . . . . .
.......(8/1/76)
4 to 4M years
...'.
1
(2/1/77)
4M to 5 years
(8/1/77)
5 to 5M years
(2/1/78)
5M to 6 y e a r s . .
(8/1/78)
6 to 6M years
(2/1/79)
6M to 7 years
-(8/1/79)
7 to 7M years
(2/1/80)
7M to 8 years
.....(8/1/80)
8 to 8M years
(2/1/81)
8M to 9 years
(8/1/81)
9 to 9M years
(2/1/82)
9M to 10 y e a r s . .
...•
..._(8/l/82)
SECOND
EXTENDED
MATURITY
VALUE
(29 years a n d 8 m o n t h s from i s s u e d a t e )
(2/1/83)

. $750.00
1,000.00

$15620
16048
16492
16944
17412
17888
.18380

Percent
0.00
5.48
5.51
5.50
5.50
5.50
5.50
5.50 •
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50

Percent
5.48
5.53
5.48
5.52
5.47
5.50
5. 53
5.46 .
5.52
5.50
5.51
5.51
5.47
5.51
5.50
5.49
5.51
5.49
5.50
5.51

(4) F r o m
b e g i n n i n g of
each halfyear period
to second
extended
maturity
Percent
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5. 50, .
5.50
5.50
5.50
5.50
5.50
5.50
5.5)
5.50
5.50
5.50
5.50
5.51

35.50

O

o

a

i
>
o

>
U2

s u b s e q u e n t issue m o n t h a d d t h e a p p r o p r i a t e n u m b e r of m o n t h s .
3 Yield on p u r c h a s e price from issue d a t e to second extended m a t u r i t y d a t e is
4.35 p e r c e n t .

TABLE 33 A
BONDS BEARING ISSUE DATES FROM OCTOBER 1 THROUGH NOVEMBER 1, 1953 1
Issue price
Denomination.

$18.75
25.00

$37.50
50.00

$75.OO- $150.00
IOO. 00
200.00

$375.00
500.00

$750.00
1,000.00

(1) Redemption values during each half-year period
(values increase on first day of period shown)

Period after extended maturity
(beginning 19 years 8 months after issue date)

SECOND E X T E N D E D M A T U R I T Y P E R I O D

First Myear
...2(6/1/73)
3^ to lyear
(12/1/73)
1 to IM years
....(6/1/74)
lMto2years
(12/1/74)
2 to 2M years
(6/1/75)
2M to 3 years....
(12/1/75)
3 to 3M years
(6/1/76)
3M to 4 years
(12/1/76)
4 to 4M years
....(6/1/77)
4M to 5 years
(12/1/77)
5 to 5M years
(6/1/78)
5M to 6 years
..(12/1/78)
0 to 6M years
.....(6/1/79)
6M to 7 years
(12/1/79)
7 to 7M years
-(6/1/80)
7M to 8 years.....
.(12/1/80)
8 to 8M years
(6/1/81)
8M to 9 years
..(12/1/81)
9.to9M years
--(6/1/82)
9M to 10 years
1
(12/1/82)
SECOND EXTENDED MATURITY VALUE (29
years and 8 months from issue date)
(6/1/83)

Approximate investment yield
(annual percentage rate)
• (2) From begin- (3) From begin- (4) From beginning of second ning of each
ning df each
extended
half-year period half-year period
maturity period to beginning of
to second
to beginning of next half-year
extended
each half-year
period
jnaturity
period
Percent

$39.35
40. 43
41.54
42.69
43.86
45.07
46.31
47.58
48.89
50.23
51.61
53.03
54.49
55.99
57. 53
59.11
60.74
62. 41
64.12
65.89

$78. 70
80.86
.S3. 08
85. 38
87.72
90.14
92. 62
95.16
97. 78
100. 46
103. 22
106.06
108. 98
111.98
115.06
118. 22
121.48
124. 82
128. 24
131.78

$157. 40
161.72
166.16
170. 76
175. 44
180. 28
185. 24
190.32
195.56
200. 92
206. 44
212.12
217. 96
223. 96
230.12
236. 44
242. 96
249. 64
256. 48
263. 56

$314. 80
323. 44
332. 32
341. 52
350. 88
360. 56
370. 48
380. 64
391.12
401. 84
412. 88
424. 24
435. 92
447. 92
460. 24
472. 88
485. 92
499. 28
512. 96
527.12

$787. 00
808. 60
830. 80
853. 80
877.20
901.40
926. 20
951. 60
977. 80
1004. 60
1032. 20
1060. 60
1089. 80
1119. 80
1150. 60
1182. 20
1214. 80
1248. 20
1282.40
1317. 80

$1574. 00
1617. 20
1661. 60
1707. 60
1754. 40
1802. 80
1852. 40
1903. 20
1955. 60
2009. 20
2064. 40
2121. 20
2179. 60
2239. 60
2301. 20
2364. 40
2429. 60
2496. 40
2564. 80
2635. 60

67.70

135.40

270.80

541.€0

1354.00

2708.00

1 This table does not apply if the prevaihng rate for Series E bonds being issued
at the time the second extension begins is different from 5.50 percent. •
2 Month, day, and year on which issues of Oct. 1, 1953, enter each period. For
subsequent issue months add the appropriate number of months.




$7,500
10,000

$15740
16172
16616
17076
17544
18028
18524
19032
19556
20092
20644
21212
21796
22396
23012
23644
24296
24964
25648
26356
27080

0.00
5.49
5.49
5.51
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50

Percent
5.49
5:49
5.54
5:48
5.52
5.50"
5.48
5.51
5.48
.5.49
5.50
5.51
5.51
5. 50
5.49
5. 52 •
5.50
•5.48
5.52
5.49

Percent
5.50
5:50
5.50'
5.50
5.50
5.50
5.50
5.50
5:50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.51
5.49

X
s
w

9
1^

w

3 5.50

3 Yield on purchase price from issue date to second extended maturity date is 4.37
percent.
bO

to

TABLE 76 A
BONDS BEARING ISSUE DATES FROM JUNE 1 THROUGH NOVEMBER 1. 1965 i
Issue price
Denomination

-

$18.75
25.00

$37.50
50.00

$56.25
75.00

$75.00
100.00

$150.00
200.00

$375.00
500.00

$750.00
1,000.00

$7,500
10,000

(1) R e d e m p t i o n values dlu i n g each half-year p e r i o d
(values increase on first d a y of period shown)

(2) F r o m b e ginning of
extended m a t u r i t y period
to beginning
of each halfyear period

Period after original maturity (beginning
7 years 9 months after issue date)
EXTENDED MATURITY

Tirst Myear
...-..2 (3/1/73) $26.40
.Mto l y e a r
...(9/1/73)
27.13
27. 87
1 to IM years..... -".•'--.. -"(37l/74y
28.64
•IM to 2 years
(9/1/74)
29.43
2 to 2M years.
,(3/1/75)
30.24
2M to 3 years.(9/1/75)
31.07
3 to 3M years
-.
(3/1/76)
3M to -4 years.. --..,......... -...-.(9/1/76), 31.92
32.80
4 to 4M years
'
".
(3/1/77)
33.70
4M to 5 years
(9/1/77)
34.63
5 to 5M years..
(3/1/78)
35.58
6M to 6 years
(9/1/78)
36.56
6 to 6M years
....(3/1/79)
37.56
6M to 7 years...-(9/1/79)
38.60
7 to 7M years
-(3/1/80)
39,66
7M to 8 years
J
(9/1/80)
40.75
8 to 8M years
-..
(3/1/81)
41.87
8M to 9 years
(9/1/81)
43.02
9 to 9M years
(3/1/82)
44.20
9M to 10 years
(9/1/82)

EXTENDED MATURITY VALUE ( 7
1

years and 9 months from issue date)
(3/1/83)

45.42

$52.80
54.26
55.74
57.28
58. 86
60.48
62.14
,63.84
' 65. 60
67.40
69.26
71.16
73.12
75.12
77.20
79.32
8L50
83.74
86.04
88.40
90.84

$79. 20
81.39
83.61
85.92
88.29
90.72
93.21
95.76
98.40 -^
101.10
103. 89
106.74
109. 68
112.68
115. 80
118.98
122. 25
125. 61
129.06'
132. 60
136.26

PERIOD

(3) F r o m b e g i n n i n g of
each half-year
period to beg i n n i n g of
next half-year
period

(4) F r o m b e ginning of
each half-year
period t o
extended
maturity

Percent
5.53
5.46
5.53
5.52
5.60
6.49
6.47
6.51
5.49
6.62
5.49
5.61
5.47
5.54
5.49
5.60
5.60
5.49
5.49
6.52

Percent
5.50
5.50
5.50
5.50
5.50
6.50
5.50
6.50
5.60
5.50
5.50
5.50
5.60
5.50
5.60
6.60
5.60
6.60
6.50

$105. 60
108.52
111.48
114.56
117.72
120. 96
124. 28
127. 68
131. 20
134. 80
138. 52
142.32
146. 24
150. 24
154.40
158.64
163.00
167.48
172. 08
176.80

$2n.20
217.04
222.96
229.12
235. 44
241. 92
248. 56
255.36
262.40
269. 60
277. 04
284.64
292.48
300.48
308. 80
317. 28
326.00
334. 96
344.16
353. 60

$528.00
542.60
557.40
572. 80
588.60
604.80
621. 40
638.40
656. 00
674. 00
692. 60
711. 60
731. 20
751. 20
772.00
793. 20
815.00
837.40
860.40
884.00

$1056.00
1085. 20
1114.80
1145. 60
1177. 20
1209. 60
1242. 80
1276.80
1312.00
1348. 00
1385. 20
1423. 20
1462.40
1502.40
1544.00
1586.40
1630. 00
1674. 80
1720. 80
1768. 00

$10560
10852
11148
11456
11772
12096
12428
12768
13120
13480
13852
14232
14624
15024
15440
15864
16300
16748
17208
17680

Percent
0.00
•5.53
5.49
5.50
5.51
5.51
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
6.50
5.50
5.50
5.50
5.60

181.68

363.36

908.40

1816.80

18168

3 5.50

1 This table does not apply if the prevailing rate for Series E bonds being issued at
the time the extension begins is different from 6.50 percent.
3 Month, day, and year on which issues of June 1,1965, enter each period. For sub-




Approximate investment yield
(annual percentage rate)

6.62

sequent issue months add the appropriate number of months.
3 Yield on purchase price from issue date to extended maturity date is 5.05 percent.

*n

O
SI
O

*^
W
W

o
>
o

SI

>

TABLE 78 A
BOND BEARING ISSUE DATES FROM JUNE 1 THROUGH NOVEMBER 1, 1966 1
Issue priceDenomination

$18.75
25.00

-

$37.50
50.00

$56.25
75.00

$75.00
100.00

$150.00
200.00

$375.00
500.00

$750.00
1,000.00

$7,500
10,000

(1) Redemption values during each half-year period
(values increase on first day of period shown)
Period after original maturity (beginning
7 years after issue date)

First Myear
2(6/1/73)
Mto lyear
(12/1/73)
I t o IM years.(6/1/74)
IM to 2 years.(12/1/74)
2 to 2M years
(6/1/75)
2M to 3 years
(12/1/75)
3 to 3M years
(6/1/76)
3M to 4 years
(12/1/76)
4 to 4M years
(6/1/77)
4M to 5 years
(12/1/77)
5 to 5M years
(6/1/78)
5M to 6 years. - . . . (12/1/78)
6to6M years
--(6/1/79)
6Mto7 years
(12/1/79)
7 to 7M years..
(6/1/80)
7M to 8 years
:
(12/1/80)
8 to 8M years
--(6/1/81)
8M to 9 years
(12/1/81)
9 to 9M years
(6/1/82)
9M to 10 years...
(12/1/82)
EXTENDED MATURITY VALUE (17
years from issue date)....

(6/1/83)

$51. 84
53.26
54.74
56. 24
57.78
59.38
61.00
62.68
64.40
66.18
68.00
69.86
71.78
73.76
75.78
77.88
80.02
82. 22
84.48
86. 80

$77. 76
79.89
82.11
84.36
86.67
89.07
91.50
94.02
96.60
99.27
102. 00
104.79
107. 67
110. 64
113. 67
116. 82
120.03
123. 33
126. 72
130. 20

44.59

89.18

133.77

$103. 68 $207.36
213.04
106. 52
218. 96
109.48
224. 96
112.48
231.12
115.56
237. 52
118. 76
244. 00
122.00
250. 72
125. 36
257. 60
128. 80
264. 72
132. 36
272. 00
136.00
279.44
139.72
287.12
143.56
295.04
147. 52
303.12
151.56
311.52
155. 76
320. 08
160.04
328. 88
164.44
337. 92
168. 96
347. 20
173.60
178.36

1 This table does not apply if the prevailing rate for Series E bonds being issued at
the time the extension begins is different from 5.50 percent.
2 Month, day, and year on which issues of June 1, 1966, enter each period. For
subsequent issue months add the appropriate number of months.




(4) From
(2) From
(3) From
beginning of
beginning of
beginning of
extended
each half-year each half-year
period to
maturity
period to
period to
extended
beginning of
beginning of next half-year
maturity
each half-year
period
period

EXTENDED MATURITY PERIOD

$25.92
26.63
27.37
28.12
28.89
29.69 ,
30.50
31.34
32.20
33.09
34.00
34.93
35.89
36.88
37.89
38. 94
40.01
41.11
42.24
43.40

356.72

Approximate investment yield
(annual percentage rate)

$518.40
532. 60
547. 40
562. 40
677. 80
593. 80
610.00
626. 80
644.00
661. 80
680. 00
698. 60
717. 80
737. 60
757.80
778. 80
800.20
822.20
844.80
868. 00

$1036.80
1065. 20
1094. 80
1124.80
1155.60
1187. 60
1220.00
1253. 60
1288. 00
132^. 60
1360. 00
1397. 20
1435. 60
1475. 20
1515. 60
1557. 60
1600.40
1644.40
1689. 60
1736. 00

$10368
10652
10948
11248
11556
11876
12200
12536
12880
13236
13600
13972
14356
14752
15156
15576
16004
16444
16896
17360

Percent
0.00
5.48
5.52
5.51
5.50
5.51
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50

891.80

1783.60

17836

35.53

Percent
5.48
5.56
5.48
. 5.48
5.54
5.46
5.51
5.49
5.53
5.50
5.4.7
5.50
. 5.52
5.48
5.54
5.50
5.50
5.50
5.49
5.48

Percent
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.49
5.49
5.49
5.49
5.48

^

3 Yield on purchase price from issue date to extended maturity date is 5.16 percent.

to
CO

214

1973 REPORT OF THE SECRETARY" OF THE TREASURY

Exhibit 10.—Department Circular No. 300, M a r c h 9, 1973, F o u r t h Revision,
general regulations with respect to United S t a t e s securities
DEPARTMENT OF T H E TREASURY,

Washi7igton, March 9, 1973.
' Department of t h e Treasury Circular No. 300, T h i r d Revision, d a t e d December 23, 1964 (31 C F R P a r t 300), as amended, is hereby further amended and
issued a s the F o u r t h Revision.
AUTHORITY: R.S. 3706; 40 Stat. 288, 502, 844, 1309; 42 Stat. 3 2 1 ; 46 Stat. 2 0 ;
48 Stat. 343;; 49 Stat. 2 0 ; 50 Stat. 4 8 1 ; 52 Stat. 477; 53 Stat. 1359; 56 Stat. 189;
73 Stat. 622; and 85 Stat. 5, 74 (31 U.S.C. 738a, 739, 752, 752a, 753, 754, 754a, and
754b) ; 5 U.S.C. 301.
SUBPART A

GENERAL INFORMATION

§ 306.0 Applicability of regulations.
These regulations apply t o all U.S. transferable a n d nontransferable securities,^ other t h a n U.S. Savings Bonds' a h d U.S. Savings Notes, to the extent specified in these regulations, the offering circulars or special regulations governing
such securities.
§306.1 Official agencies.
( a ) Suhscriptions—tenders—hids. Securities subject to these regulations a r e
issued from time to time p u r s u a n t to public offerings by t h e Secretary of the
Treasury, through the Federal Reserve banks, fiscal agents of the United States,
and t h e T r e a s u r e r of t h e United States. Only t h e Federal Reserve banks and
branches and t h e D e p a r t m e n t of t h e Treasury a r e authorized to a c t a s official
agencies, a n d subscriptions or tenders for Treasury securities, a n d bids, t o t h e
extent provided in t h e regulations governing t h e sale of Treasury securities
through competitive bidding, may be made direct to them. Hov^ever, tenders for
Treasury bills a r e not received a t the Department.
(b) Transactions after issue. T h e B u r e a u of the Public Debt of the Department of the Treasury is charged with m a t t e r s relating to transactions in securities. Correspondence concerning transactions in securities and requests for appropriate foi-ms m a y be addressed to (1) t h e Federal Reserve bank or branch
of the district in which the correspondent is located, or (2) the B u r e a u of the
Public Debt, Division of Securities Operations, Washington, D.C. 20226, or (3)
the Office of the T r e a s u r e r of the United States, Securities Division, Washington,
D.C. 20222, except where specific instructions a r e otherwise given in these regulations. The addresses of the Federal Reserve banks and branches a r e :
Federal Reserve B a n k of Boston, Boston, Mass. 02106.
Federal Reserve B a n k of New York,
New York, N.Y. 10045.
Buffalo Branch, Buffalo, N.Y.
14240.
Federal Reserve Bank of Philadelphia,
Philadelphia, P a . 19101.
Federal Reserve B a n k of Cleveland,
Cleveland, Ohio 44101.
Cincinnati Branch, Cincinnati,
Ohio 45201.
Pittsburgh Branch, Pittsburgh,
Pa. 15230.
Federal Reserve B a n k of Richmond,
Richmond, Va. 23261.
Baltimore Branch, Baltimore, Md.
21203.
Charlotte Branch, Charlotte, N.C.
28201.
Federal Reserve B a n k of Atlanta, Atlanta, Ga. 30303.

Birmingham Branch, Birmingham, Ala. 25202.
Jacksonville Branch, Jacksonville,
Fla. 32203.
Nashville
Branch,
Nashville,
Tenn. 37203.
New Orleans Branch, New Orleans, La. 70160.
Miami Office, Miami, Fla. 33152.
Federal Reserve Bank of Chicago, Chicago, III. 60609.
; Detroit Branch, Detroit, Mich.
48231.
Federal Reserve B a n k of St. Louis, St.
Louis, Mo. 63166.
Little Rock Branch, Little Rock,
Ark. 72203.
Louisville Branch, Louisville, Ky.
40201.
Memphis Branch, Memphis, Tenn.
38101.
.

1 These regulations may also be applied to securities issued by certain agencies of the
United States and certain Government and Government-sponsored corporations.




EXHIBITS

215

F e d e r a l Reserve Bank of Minneapolis,
Houston Branch, Houston, Tex.
Minneapolis, Minn. 55480.
. 77001.
Helena Branch, Helena, Mont.
San Antonio Branch, San ALutonio,
59601.
Tex. 7.8295.
Federal Reserve B a n k of K a n s a s City,
Federal Reserve B a n k of San FranIvansas City, Mo. 64198.
cisco, San iTrancisco, Calif. 94120.
Denver Branch, Denver, Colo.
Los Angeles Branch, Los Angeles,
80217.
Calif. 90051,
Oklahoma City Branch, Oklahoma
P o r t l a n d Branch, iPortland, Oreg.
City, Okla. 73125..
97208.
Omaha Branch, Omaha, Nebr.
Salt Lake City Branch, Salt Lake
68102.
City, U t a h 84110.
F e d e r a l Reserve B a n k of Dallas, DalSeattle Branch, Seattle, Wash.
. las, Tex. 75222.
'
98124.
El P a s o Branch, E l Paso, Tex.
79999.
§ 306.2 Definitions of words and terms as used in these regulations.
( a ) "Advance refunding offer" is an offer to a holder of a security, usually a
year or more in advance of its call or m a t u r i t y date, to exchange i t for another
security.
(b) .A "bearer" security is payable on its face a t m a t u r i t y or call for redemption before m a t u r i t y in accordance with i t s terms to "bearer." T h e ownership is
aot recorded. Title to such a security may pass by. delivery without endorsement a n d without notice. A "coupon" security is a bearer, security w i t h interest
coupons attached.
(c) " B u r e a u " refers to t h e B u r e a u of t h e Public Debt, Division df Securities
Operations, Washington, D.C, 20226.
(d) "Call d a t e " or "date of call" is the date fixed iil the officialnotice of call
published in t h e F e d e r a l Register as the date on which, t h e obligor will make payment of the security before m a t u r i t y in accordance with its terms. .
(e) "Court" means one which h a s jurisdiction over t h e parties and t h e subject m a t t e r .
...
. ( f ) " D e p a r t m e n t " refers to t h e D e p a r t m e n t of t h e Treasury.
(g) " F a c e m a t u r i t y d a t e " is t h e payment date specified in t h e t e x t of a
security.
(h) "Incompetent" refers to a. person under any legal disability except
minority.
.
.
(i) "Joint owner" a n d "joint ownership" refer to any permitted form of ownership by two or more persons* .
(j) "Nontransferable securities" a r e those issued only in registered form
which according to their t e r m s a r e payable only to t h e registered owners or
•recognized successors in title, to t h e extent a n d in t h e m a n n e r provided in the
offering circulars or special applicable regulations.
(k) " P a y m e n t " a n d "redemption," unless otherwise indicated by the context,
are used interchangeably for payment a t niaturity or payment before m a t u r i t y
p u r s u a n t to a call for redemption in accordance with t h e terms of the secui:ities.
(I) "Prerefunding Offer" is an. offer to a holder of a security, usually within
the year preceding its call or m a t u r i t y date, to exchange i t for another security.
(m) "Redemption-exchange" is any authorized redemption of securities for
the. purpose of applying t h e proceeds in paynient for other securities offered in
exchange.
(n) A "registered" security refers to a security t h e ownership of which is
registered on the books of t h e Department. I t is payable a t m a t u r i t y or call for
redemption before m a t u r i t y in accordance with its terms to the person i n whose
name it is inscribed, or his assignee.
(o) "Securities assigned in .blank" pr "securities so assigned as to become in
effect payable to bearer" refers to registered securities which a r e assigned by
the owner or his authorized representative without designating t h e assignee.
Registered. securities assigned simply to "The Secretary of t h e T r e a s u r y " or in
the case of Treasury Bonds, Investment Series B-1975-80, to "The Secretary of
the Treasury for exchange for t h e current Series E A or EO Treasury notes" a r e
considered to be. so assigned as to become in effect payable to bearer.
(p) " T a x p a y e r identifying-number" means t h e appropriate identifying number a s required on t a x r e t u r n s and other documents submitted to the I n t e r n a l




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19 73 REPORT OF THE SECRETARY OF THE TREASURY

Revehue Service, i.e., an individual's social security account nuinber or an employer identification nuniber. A social security account number is composed
of nine digits separated by two hyphens, for example, 123-45-6789; an employer
identification number is coinposed of nine digits separated by one hyphen, for
example, 12-3456789. The hyphens are an essential part of the numbers and
must be included.
(q) "Transferable securities," which may be in either registered or bearer
form, refers to securities which may be sold on the market and transfer of title
accomplished by assignment and delivery if in registered form, or by delivery
only if in bearer form.
(r) "Treasurer's Office" refers to the Office of the Treasurer of the United
States, Securities Division, Washington, D.C. 20222.
(s) "Treasury securities," "Treasury bonds," "Treasury notes," "Treasury certificates of indebtedness," and "Treasury bills," or simply "securities," "bonds,"
"notes," certificates," and "bills," unless otherwise indicated by the context,
refer only to transferable securities.
§ 306.3 Transportation charges and risks in the shipment of securities.
The following rules will govern transportation to, from, and between the Department and the Federal Reserve banks and branches of securities issued on
or presented for authorized transactions :
(a) The securities may be presented or received by the owners or their agents
in person.
(b) Securities issued on original issue, unless delivered in person, will be de' livered by registered mail or by other means at the risk' and expense of the
United States.
(c) The United States will assume the risk and expense of any transportation
of securities which may be necessary between the Federal Reserve banks and
branches and the Treasury.
(d) Securities submitted for any transaction after original issue, if not
presented in person, must be forwarded at the owner's risk and expense.
(e) Bearer securities issued on transactions other than original issue will be
delivered by registered mail, covered by insurance, at the owner's risk and expense, unless called for in person by the owner or his agent. Registered securities issued on such transactions will be delivered by registered mail af the risk
of, but without expense to, the registered owner. Should delivery by other means
be desired, advance arrangements should be made with the official agency to
which the original securities were presented.
SUBPART B—REGISTRATION

§306.10 General.
The registration used must express the actual ownership of a security and
may not include any restriction on the authority of the owner to dispose of it
in any manner, except as otherwise specifically provided in these regulations.
The Treasury Department reserves the right to treat the registration as conclusive of ownership. Requests for registration should be clear, accurate, and
complete, conform with one of the forms set forth in this subpart, and include
appropriate taxpayer identifying numbers.^ The registration of all bonds owned
by the same person, organization, or fiduciary should be uniform with respect
to the name of the owner and, in the case of a fiduciary, the description of the
fiduciary capacity. Individual owners should be designated by the names by
which they are ordinarily known or under which they do business, preferably
including at least one full given name. The name of an individual may be preceded by any applicable title, as, for example, "Mrs.," "Miss," "Ms.," "Dr.," "Rev.,"
or followed by a designation such as "M.D.," "D.D.," "Sr." or ".Jr." Any other
similar suffix should be included when ordinarily used or when necessary
to distinguish the owner from a member of his family. A married woman's own
given name, not that of her husband, miist be used, for example, "Mrs. Mary A.
Jones," not "Mrs. Frank B. Jones." The address should include, where appropriate, the number and street, route, or any other local feature and the Zip Code.
2 Taxpayer identifying numbers are not required for foreign governments, nonresident
aliens not engaged in t r a d e or business witliin the United States, international organizations
and foreign corporations not engaged in trade or business and not having an office or place
of business or a financial or paying agent within t h e United States, and other persons or
organizations as may be exempted from furnishing such numbers under regulations of the
I n t e r n a l Revenue Service.




EiXHIBITS

217

§ 306.11 Forms of registration for transferable securities.
The forms of registration described below are authorized for- transferable
securities:
(a) Natural persons in their own right. In the names of natural persons who
are not under any legal disability, in their own right, substantially as follows:
(1) One person. In the name of one individual. Examples:
John A. Doe (123-45-6789).
Mrs. Mary C. Doe (123-45-6789).
Miss Elizabeth Jane Doe (123-45-6789).
An individual who is sole proprietor of a business conducted under a trade
name may include a reference to the trade name. Examples :
John A. Doe, doing business as Doe's Home Appliance Store (12-3456789).
or
John A. Doe (123^5-6789), doing business as Doe's Home Appliance Store.
(2) T'wo or more persons—general. Securities will not be registered in the
name of one person payable on death to another, or in any form which purports to
authorize transfer by less than all the persons named in the registration (or
all the survivors).^ Securities will not be registered in the forms "John A. Doe
and Mrs. Mary C. Doe, or either of them" or "William C. Doe or Henry J. Doe,
or either of them" and securities so assigned will be treated as though the
words "or either of them" do not appear in the assignments. The taxpayer
identifying number of any of the joint owners may be shown on securities registered in joint ownership form.
(i) With right of survivorship. In the names of two or more individuals
with right of survivorship. Examples :
John A. Doe (123-45-6789) or Mrs. Mary C. Doe or the survivor.
John A. Doe (123-45-6789) or Mrs. Mary C. Doe or Miss Mary Ann Doe or
the survivors or survivor.
John A. Doe (123-45-6789) or Mrs. Mary C. Doe.
John A. Doe (123-45-6789) and Mrs. Mary C. Doe.
John A. Doe (123-45-6789) and Mrs. Mary C. Doe as joint tenants with right
of survivorship and not as tenants in common.
Limited to husband and wife:
John A. Doe (123-45-6789) and Mrs. Mary C. Doe, as tenants by the
entireties,
(ii) Without right of survivorship. In the names of two or more individuals
in such manner as to preclude the right of survivorship. Examples:
John A. Doe (123-4t5-6789) and William B. Doe as tenants in common.
John A. Jones as natural guardian of Henry B. Jones, a minor, and Robert C.
Jones (123-45-6789), without right of survivorship.
Limited to husband and wife:
Chaiies H. Brown (123-45-6789) and Ann R. Brown, as partners in
community.
(b) Minors and incompetents—(1) Natural guardians of minors. A security
may be registered in the name of a natural guardian of a minor for whose estate
no legal guardian or similar representative has legally qualified. Example:
John R. Jones as natural guardian of Henry M. Jones, a minor (123-456789).
Either parent with whom the minor resides, or if he does not reside with either
parent, the person who furnishes his chief support, will be recognized as his
natural guardian and will be considered a fiduciary. Registration in the name
of a minor in his own right as owner or as joint owner is not authorized. Securities so registered, upon qualification of the natural guardian, will be treated
as though registered in the name of the natural guardian in that capacity.
(2) Custodian under statute authorizing gifts to minors. A security may be
purchased as a gift to a minor under a gifts to minors statute in effect in the
State in which either the donor or the minor resides. The security should be
3 'Warning. Difference Between Transferable Treasury Securities Registered in the Names
of Two or More Persons a n d United S t a t e s Savings Bonds in Coownership Form. The eflfect
of registering Treasury securities to which these regulations apply in the names of two or
more persons differs decidedly from regisitration of savings bonds in coownership form.
Savings bonds are virtually redeemable on demand a t the option of either coowner on his
signature alone. Transferable Treasury securities,are redeemable only a t m a t u r i t y or upon
prior call by the Secretary of the Treasury.




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19 73 REPORT OF THE SECRETARY OF THE TREASURY

registered as provided in the statute,, with an identifying reference to .the statute
if the registration does not clearly identify it. Examples :
William C. Jones, as custodian for John A. Smith, a minor (123-45-6789),
under the California Uniform Gifts to Minors Act.
Robert C. Smith, as custodian for Henry L.. Brown, a minor (123^5-6789),
under the laws of Georgia ;.Ch. 48-3, Code.of Ga. Anno.
(3) Incompetents not under guardianship.'B:egistration in the form. "John A.
Brown, an incompetent (123-45-6789), under voluntary guardianship," is permitted only on reissue after a voluntary guardian has qualified for the purpose of
collecting interest. (S.ee §§ 306.37(c) (2) and 306,57(c) (2).) Otherwise, registration in the name of an incompetent not under legal guardianship is hot
authorized.
(c) Executors, administrators, guardians, and similar representatives or fiduciaries. A security may be registered in the names of legally qualified executors,
administrators, guardians, conservators, or similar representatives or fiduciaries
of a single estate. The names and capacities of alLthe representatives or fiduciaries, as shown in their letters of appointment; must be included in the registration and must be followed by an adequate identifying reference to the estate.
Example:
John Smith,'executor of will (or administrator of estate) of Henry J. Jones,
deceased (12-3456789).
William (?. Jones, guardian' (or conservator, etc.) of estate of James D.
Brown, a minor (or an incompetent) (123-45-6789).
(d) Life tenant under will. A security may be registered in the name of a life
tenant followed by an adequate identifying reference to the will. Example:
' Anne B. Smith, life tenant under the will'of Adam A. Smith, deceased (123456789).
...i.
The life tenant will be considered a'fiduciary. . '
(e) Private trust estates. A.secuvity may be registered in the name and title
of the trustee or trustees of a single duly constituted private tru.st, followed by
an adequate identifying reference to the authority governing the ; trust.
Examples:
•«
-: •). ^' ".'•
John Jones and'Blank Trust Co., Albany,/N.Y., trustees under will of Sarah
Jones, deceased (12-3456789).
"
John Doe and Richard Roe, trustees under agreement' with Henry Jones
dated February 9,1970 •.(.12-3456789.).
. ^
The names of all trustees, in the form used in the trust instrument, must be included in the registration, except as follows: ^ =
(1) If there are several trustees designated as a board or authorized to act
as a unit, their names should be omitted and the; words "Board of Trustees" substituted for the word "trustees." •.Example:.
; ..'
Board of Trustees of Blank Co. Retirement Fund, under collective bargaining agreement dated June 30,1970 (12-3456789). . . - ••
.
(2) If the trustees do not constitute-a board or otherwise act as a unit, and
are either too numerous to be designated in the inscription by names; and title,
or serve for limited terms, some or all of the. names may be omitted. . Examples :
John Smith, Henry Jones' et al., trustees under .will of Henry J. Smith, deceased (12-3456789).
•• . .
<.
.
:
Trustees under will of Henry J. Smith, deceased (12-3456789).
Trustees of Retirement Fund of Industrial Manufacturing Co., under directors'resolution of June 30,1950 (12-3456789).
.
(f) Private organizations (corporations, unincorporated associations and partnerships). A security may be registered in the name Of any priviate Corporation,
unincorporated associatio.n,.Or partnership,, including a nominee, which for purposes of these. i:egulations is treated as the owner. The full legal name of the organization, as set forth in its charter, articles of iricprporation, constitution, partnership agreement, or other authority .from,^hichats powers are derived, must
be included in the registration and may be.followed, if desired, b y a reference to
a particular account or fund, other than a trust fund, in accordance with the
rules and examples given below:
- ...
.
.
{!) A corporatioii. The name of a business, fraternal, religious, or other
private corporation must be followed by descriptive words, indicating the corporate status unless the term "corporation" dr the abbreviation "Inc." is part of
the name or the name is that of a corporation or ^association organized under




EXPIIBITS

219

Federal law, such as a national bank or Federal savings and loan association.
Examples:
Smith Manufacturing Co., a corporation (12-3456789).
The Standard Manufacturing Corp. (12-3456789).
Jones & Brown, Inc.—Depreciation Acct. (12-3456789).
First National Bank of Albemarle (12-3456789).
Abco & Co., Inc., a nominee corporation (12-3456789).
(2) An unincorporated association. The name of a lodge, club, labor union, veterans' organization, religious society, dr similar self-governing organization
which is not incorporated (whether or not it is chartered by or affiliated with a
parent organization which is incorporated) must be followed by the words "an
unincorporated association." Examples:
American Legion Post No.
, Department of the D.C, an unincorporated
association (12-3456789).
Local Union No. 100, Brotherhood of Locomotive Engineers, an unincorporated association (12-3456789).
Securities should not be registered in the name of an unincorporated association
if the legal title to its property in general, or the legal title to the funds with
which the securities are to be purchased, is held by trustees. In such a case the
securities should be registered in the title of the trustees in accordance with paragraph (e) of this section. The tei-m "unincorporated association" should not be
used to describe a trust fund, a partnership or a business conducted under a trade
name.
(3) A partnership. The name of a partnership must be followed by the words
"a partnership." Examples:
Smith & Brown, a partnership (12-3456789).
Acme Novelty Co., a limited partnership (12-3456789).
Abco & Co., a nominee partnership (12-3456789).
(g) States, puhlic hodies, and corporations and puhlic officers. A security may
be registered in the name of a State or county, city, town, village, school district,
or other political entity, public body or corporation established by law (including
a board, commission, administration, authority or agency) which is the owner
or official custodian of public funds, other than trust funds, or in the full legal
title of the public officer having custody. Examples :
State of Maine.
Town of Rye, N.Y.
Maryland State Highway Administration.
Treasurer, City of Springfield, 111.
Treasurer of Rhode Island—State Forestry Fund,
(h) States, puhlic officers, corporations or hodies as trustees. A security may
be registered in the title of a public officer or in the name of a State or county
or a public corporation or public body acting as trustee under express authority
of law. An appropriate reference to the statute creating the trust may be included in the registration. Examples :
Insurance Commissioner of Pennsylvania, trustee for benefit of policyholders
, of Blank Insurance Co. (12-3456789), under Sec.
, Pa. Stats.
Rhode Island Investment Commission, trustee of General Sinking Fund
under Ch. 35, Gen. Laws of R.I.
State of Colorado in trust for Colorado Surplus Property Agency.
§ 306.12 Errors in registration.
If an erroneously inscribed security is received, it should not be altered in any
respect, but the Bureau, a Federal Reserve bank or branch, or the Treasurer's
Office should be furnished full particulars concerning the error and asked to furnish instructions.
§ 306.13 Nontransferable securities.
Upon authorized reissue. Treasury Bonds, Investment Series B—1975-80,
may be registered in the forms set forth in § 306.11.
SUBPART

C—TRANSFERS,

EXCHANGES

AND

REISSUES

§ 306.15 Transfers and exchanges of securities—closed periods.
(a) General. The transfer of registered securities should be made by assignment in accordance with Subpart F of this part. Transferable registered secu506-171—73

17




•

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1973 REPORT OF THE SECRETARY OF THE TREASURY

rities are eligible for denominational exchange and exchange for bearer securities. Bearer securities are eligible for denominational exchange, and when so
provided in the offering circular, are eligible for exchange for registered securities. Specific instructions for issuance and delivery of the new securities, signed
by the owner or his authorized representative, mu,st accompany the securities
presented. (Form PD 3905 or PD 1827, as appropriate, may be used.) Denominational exchanges, exchanges of Treasury Bonds, Investment Series B—197580, for the current series of EA or EO 1^/^ percent 5-year Treasury notes, and
optional redemption of bonds at par as provided in § 306.28 may be made at any
time. Securities presented for transfer or for exchange for bearer securities of
the same issue must be received by the Bureau not less than 1 full month before
the date on which the securities mature or become redeemable pursuant to a call
for redemption before maturity. Any security so presented which is received too
late to comply with this provision will be accepted for payment only.
(b) Closing of transfer hooks. The transfer books are closed for 1 full month
preceding interest payment dates and call or maturity dates. If the date set for
closing of the transfer books falls on Saturday, Sunday, or a legal holiday, the
books will be closed as of the close of business on the last business day preceding that date. The books are reopened on the first business day following the
date on which interest falls due. Registered seciirities which have not matured
or been called, submitted for transfer, reissue, or exchange for coupon securities,
and coupon securities which have not matured or been called, submitted for exchange for registered securities, which are received during the period the books
for that loan are closed, will be processed on or after the date such books are
reopened. If registered securities are received for transfer or exchange for bearer
securities, or coupon securities are received for exchange for registered securities,
during the time the books are closed for payment of final interest at maturity or
call, unless otherwise provided in the offering circular or notice of call, the
following action will be taken:
(1) Payment of final interest will be made to the registered owner of record
on the date the books were closed.
(2) Payment of principal will be made to (i) the assignee under a proper
assignment of the securities, or (ii) if the securities have been assigned for
exchange for bearer securities, to the registered owner of record on the date the
books were closed.
§ 306.16 Exchanges of registered securities.
No assignments will be required for (a) authorized denominational exchanges
of registered securities for like securities in the same names and forms of
registration and (b) redemption-exchanges, or prerefundings, or advance refundings in the same names and forms as appear in the registration or assignments of the securities surrendered.
§ 306.17 Exchanges of registered securities for coupon securities.
Registered securities submitted for exchange for coupon securities should
be assigned to "The Secretary of the Treasury for exchange for coupon securities
to be delivered to (inserting the name and address of. the person to whom delivery of the coupon securities is to be made)." Assignments to "The Secretary of
the Treasury for exchange for coupon securities," or assignments in blank will
also be accepted. The coupon securities issued upon exchange will have all unmatured coupons attached.
§ 306.18 Exchanges of coupon securities for registered securities.
Coupon securities presented for exchange for registered securities should
have all matured interest coupons detached. All unmatured coupons should be
attached, except that if presented when the transfer books are closed (in which
case the exchange wiil be effected on or after the date on which the books are
reopened), the next maturing coupons should be detached and held for collection
in ordinary course when due. If any coupons which should be attached are missing, the securities must be accompanied by a remittance in an amount equal to
the face amount of the missing coupons. The new registered securities will bear
interest from the interest payment date next preceding the date on which the
exchange is made.




EiXHIBITS

221

§ 306.19 Denominational exchanges of coupon securities.
All matured interest coupons and all unmatured coupons likely to mature
before an exchange can be completed should be detached from securities presented for denominational exchange. All unmatured coupons should be attached.
If any are missing, the securities must be accompanied by a remittance in an
amount equal to the face amount of the missing coupons. The new coupon
securities will have all unmatured coupons attached.
§ 306.20 Reissue of registered transferable securities.
Assignments are not required for reissue of registered transferable securities
in the name(s) of (a) the surviving joint owner(s) of securities registered in
the names of or assigned to two or more persons, unless the registration or assignment includes words which preclude the right of survivorship, (b) a succeeding fiduciary or other lawful successor, (c) a remainderman, upon termination
of a life estate, (d) an individual, corporation or unincorporated association
whose name has been legally changed, (e) a corporation or unincorporated association which is the lawful successor to another corporation or unincorporated
association, and (f) a successor in title to a public officer or body. Evidence of
survivorship, succession, or change of name, as appropriate, must be furnished.
The appropriate taxpayer identifying number also must be furnished if the registration of the securities submitted does not include such number for the person or
organization to be named on the reissued securities.
§ 306.21 Reissue of nontransferable securities.
Treasury Bonds, Investment Series B-1975-80, may be reissued only in the
names of (a) lawful successors in title, (b) the legal representatives or distributees of a deceased owner's estate, or the distributees of a trust estate,
and (c) State supervisory authorities in pursuance of any pledge required of the
owner under State law, or upon termination of the pledge in the names of the
pledgors or their successors. Bonds presented for reissue must be accompanied
by evidence of entitlement.
§ 306.22 Exchange of Treasury Bonds, Investment Series B-1975-80.
Bonds of this series presented for exchange for 1% percent 5-year Treasury
notes must bear duly executed assignments to "The Secretary of the Treasury for
exchange for the current series of EA or EO Treasury notes to be delivered to
(inserting the name and address of the person to whom the notes are to be
delivered)." The notes will bear the April 1 or October 1 date next preceding
the date the bonds, duly assigned with supporting evidence, if necessary, are
received by the Bureau or a Federal Reserve Bank or Branch. Interest accrued
at the rate of 2% percent on the bonds surrendered from the next preceding
interest payment date to the date of exchange will be credited, and interest
at the rate of 1% percent on the notes for the same period will be charged and the
difference will be paid to the owner.
SUBPART D — R E D E M P T I O N

OR P A Y M E N T

§ 306.25 Presentation and surrender.
(a) General. Securities, whether in registered or bearer form, are payable
in regular course of business at maturity unless called for redemption before
maturity in accordance with their terms, in which case they will be payable in
regular course of business on the date of call. The Secretary of the Treasury
may provide for the exchange of maturing or called securities, or in advance of
call or maturity, may afford owners the opportunity of exchanging a security
for another security pursuant to a prerefunding or an advance refunding offer.
Registered securities should be presented and surrendered for redemption to
the Bureau, a Federal Reserve bank or branch, or the Treasurer's Office, and
bearer securities to a Federal Reserve bank or branch or the Treasurer's Office.*
No assignments or evidence in support of assignments will be required by or on
behalf of the registered owner or assignee for redemption for his or its account,
or for redemption-exchange, or exchange pursuant to a prerefunding or an advance refunding offer, if the new securities are to be registered in exactly the same
names and forms as appear in the registrations or assignments of the securities
* See § 306.28 for presentation and surrender of bonds eligible for use in payment of
Pederal estate taxes.




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19 73 REPORT OF THE SECRETARY OF THE TREASURY

surrendered. To the extent appropriate, these rules also apply to securities registered in the titles of public officers who are official custodians of public funds,
(b) ''Overdue'' securities. If a bearer security or a registered security assigned
in blank, or to bearer, or so assigned as to become in effect payable to bearer, is
presented and surrendered for redemption after it has become overdue, the
Secretary of the Treasury will ordinarily reciuire satisfactory proof of ownership. (Form PD 1071 may be used.) A security shall be considered to be overdue
after the lapse of the following periods of time from its face maturity :
(1) One month for securities issued for a term of 1 year or less.
(2) Three months for securities issued for a term of more than 1 year but
not in excess of 7 years.
(3) Six months for securities issued for a term of more than 7 years.
§ 306.26 Redemption of registered securities at maturity, upon prior call, or
for prerefunding or advance refunding.
Registered securities presented and surrendered for redemption at maturity
or pursuant to a call for redemption before maturity need not be assigned, unless the owner desires that payment be made to some other person, in which case
assignments should be made to "The Secretary of the Treasury for redemption
for the account of (inserting name and address of person to whom payment is
to be made)." Specific instructions for the issuance and delivery of the redemption check, signed by the owner or his authorized representative, must accompany the secui'ities, unless included in the assignment. (Form PD 3905 may be
used.) Payment of the principal will be made either (a) by check drawn on the
Treasurer of the United States to the order of the person entitled and mailed
in accordance with the instructions received, or (b) upon appropriate request,
by crediting the amount in a member bank's account with the Federal Reserve
Bank of its District. Securities presented for 'i)rerefunding or advance refunding
should be assigned as provided in the prerefunding or advance refunding offer.
§ 306.27 Redemption of bearer securities at maturity, upon prior call, or for
advance refunding or prerefunding.
All interest coupons due and payable on or before the date of maturity or
date fixed in the call for redemption before maturity should be detached from
coupon securities presented for redemption and should be collected separately
in regular course. All coupons bearing dates subsequent to the date fixed in a call
for redemption, or offer of prefundiug or advance refunding, should be left attached to the securities. If any such coupons are missing, the full face amount
thereof will be deducted from the payment to be made upon redemption or the
prerefunding or advance refunding adjustment unless satisfactory evidence of
their destruction is submitted. Any amounts so deducted will be held in the
Department to provide for adjustments or refunds in the event it should be determined that the missing coupons were subsequently presented or their destruction is later satisfactorily established. In the absence of other instructions,
payment of bearer securities will be made by check drawn to the order of the
person presenting and surrendering the securities and mailed to him at his
address, as given in the advice accompanying the securities. (Form PD 3905 may
be used.) A Federal Reserve bank, upon appropriate request, may make payment
to a member bank from which bearer securities are received by crediting the
amount of the proceeds of redemption to the member bank's account.
§ 306.28 Optional redemption of Treasury bonds at par (before maturity or
call redemption date) and application of the proceeds in payment of Federal
estate taxes,
(a) General. Treasury bonds to be redeemed at par for the purpose of applying the entire amount of principal and accrued interest to payment of the Federal
estate tax on a decedent's estate ^ must be presented and surrendered to a Federal Reserve bank or branch or to the Bureau. They should be accompanied by
Form PD 1782, fully completed and duly executed in accordance with the instructions on the form, and evidence as described therein. Redemption will be made
at par plus accrued interest from the last preceding interest payment date to the
s Certain issues of Treasury bonds are redeemable a t p a r and accrued interest upon t h e
death of the owner, a t the option of the representative of, or if none, the persons entitled to,
his estate, for the purpose of having t h e entire proceeds applied in payment of t h e Federal
estate tax on the decedent's estate, in accordance with the terms of the offering circulars
cited on t h e face of t h e bonds. A c u r r e n t list of eligible issues may be obtained from any
Federal Reserve b?mlj or brariph, t h e Bureau of the Public Debt, or the Treasurer's Office,




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223

date of redemption, except that if registered bonds are received by a Federal
Reserve bank or branch or the Bureau within 1 month preceding an interest payment date for redemption before that date, a deduction will be made for interest
from the date of redemption to the interest payment date, and a check for the
full 6 months' interest "will be paid in due course. The proceeds of redemption
will be deposited to the credit of the Internal Revenue Service Center designated
in form PD 1782, and the representative of the estate will be notified of the
deposit. A formal receipt may be obtained upon request addressed to the Center.
(b) Conditions. The bonds presented for redemption under this section must
have (1) been owned by the decedent at the time of his death and (2) thereupon
constituted part of his estate, as determined by the following rules in the case
of joint ownership, partnership, and trust holdings :
(i) Joint ownerships. Bonds held by the decedent at the time of his death
in joint ownership with another person or persons will be deemed to have met
the above conditions either {a) to the extent to which the bonds actually became
the property of the decedent's estate, or (&) in an amount not to exceed the
amount of the Federal estate tax which the surviving joint owner or owners is
required to pay on account of such bonds and other jointly held property.®
(ii) Partnerships. Bonds held at the time of the decedent's death by a partnership in which he had an interest will be deemed to have met the above conditions to the extent of his fractional share of the bonds so held proportionate
to his interest in the assets of the partnership.
(iii) Trusts. Bonds held in trust at the time of the decedent's death will be
deemed to have met the above conditions in an amount not to exceed the amount
of the Federal estate tax (a) if the trust actually terminated in favor of the decedent's estate, or (&) if the trustee is required to pay the decedent's Federal
estate tax under the terms of the trust instrument or otherwise, or (c) to the
extent the debts of the decedent's estate, including costs of administration, State
inheritance and Federal estate taxes, exceed the assets of his estate without regard to the trust estate.
(c) Transactions after owner's death. No transactions involving changes of
ownership may be conducted after an owner's death without affecting the eligibility of the bonds for redemption at par for application of the proceeds to payment of the Federal estate tax. Transactions involving no changes of ownership
which may be conducted without affecting eligibility are (1) exchange of bonds
for those of lower denominations where the bonds exceed the amount of the tax
and are not in the lowest authorized denominations, (2) exchange of registered
bonds for coupon bonds, (3) exchange of coupon bonds for bonds registered in
the names of the representatives of the estate, (4) transfer of bonds from the
owner or his nominee to the names of the representatives of the owner's estate,
and (5) purchases by or for the account of an owner prior to his death, held in
book-entry form, and thereafter converted to definitive bonds. However, any such
transaction must be explained on Form PD 1782 or in a supplemental statement.
J

SUBPART E

INTEREST

§ 306.35 Computation of interest.
The interest on Treasury securities accrues and is payable on a semiannual
basis unless otherwise provided in the circular offering them for sale or exchange. If the period of accrual is an exact 6 months, the interest accrual is
an exact one-half year's interest without regard to the number of days in the
period. If the period of accrual is less than an exact 6 months, the accrued
interest is computed by determining the daily rate of accrual on the basis of the
exact number of days in the full interest period and multiplying the daily rate by
the exact number of days in the fractional period for which interest has actually accrued. A full interest period does not include the day as of which the securities were issued or the day on which the last preceding interest became due,
but does include the day on which the next succeeding interest payment is due.
A fractional part of an interest period does not include the day a.s of which the
securities were issued or the day on which the last preceding interest payment became due, but does include the day as of which the transaction termi® Substantially the same rule applies to community property except that upon the death
of either spouse bonds which constitute part of the community estate are deemed to meet
the required conditions to the extent of one-half of each loan and issue of bonds.




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19 73 REPORT OF THE SECRETARY OF THE TREASURY

nating the accrual of interest is effected. The 29th of February in a leap year is
included whenever it falls within either a full interest period or a fractional part
thereof."^
';
§ 306.36 Termination of interest.
Securities will cease to bear interest on the date of their maturity unless they
have been called for redemption before maturity in accordance with their terms,
or are presented and surrendered for redemption-exchange or exchange pursuant to! an advance refunding or prerefunding offer, in which case they will
cease to bear interest on the date of call, or the exchange date, as the case may be.
§306.37 Interest on registered securities.
(a) Method of payment. The interest on registered securities is payable by
checks drawn on the Treasurer of the United States to the order, of the registered owners, except as otherwise provided herein. Interest checks are prepared by the Department in advance of the interest payment date and are ordinarily mailed in time to reach the addressees on that date. Interest on a registered secuiity which has not matured or been called and which is presented for
any transaction during the period the books for that loan are closed will be
paid by check drawn to the order of the registered owner of record. Upon receipt
of notice of the death or incompetency of an individual named as registered
owner, a change in the name or in the status of a partnership, corporation, or
unincorporated association, the removal, resignation, succession, or death of a
fiduciary or trustee, delivery of interest checks will be withheld pending receipt
and approval of evidence showing who is entitled to receive the interest checks.
If the inscriptions on securities do not clearly identify the owners, delivery of
interest checks will be withheld pending reissue of the securities in the correct
registration. The final installment of interest, unless otherwise provided in the
offering circular or notice of call, will be paid by check drawn to the order of the
registered owner of record and mailed in advance of the interest payment date in
time to reach the addressee on or about that date. Interest on securities presented for prerefunding or advance refunding will be adjusted as provided in
the prerefunding or advance refunding offer.
(b) Change of address. To assure timely delivery of interest checks, owners
should promptly notify the Bureau of any change of address. (Form PD 345
may be used.) The notification must be signed by the registered owner or a joint
owner or an authorized representative, and should show the owner's taxpayer
identifying number, the old and new addresses, the serial number and denomination of each security, the titles of the securities (for example: 4% percent
Treasury Bonds of 1987-92, dated August 15, 1962), and the registration of
each security. Notifications by attorneys in fact, trustees, or by the legal representatives of the estates of deceased, incompetent, or minor owners should be
supported by proof of their authority, unless, in the case of trustees or legal
representatives, they are named in the registration.
(c) Collection of interest checks—(1) General. Interest checks may be collected
in accordance with the regulations governing the endorsement and payment of
Government warrants and checks, which are contained in the current revision of
Department Circular No. 21 (Part 360 of this chapter).
(2) By voluntary guardians of incompetents. Interest checks drawn to the
order of a person who has become incompetent and for whose estate no legal
guardian or similar representative has been appointed should be returned to the
Bureau with a full explanation of the circumstances. For collection of interest,
the Department will recognize the relative responsible for the incompetent's care
and support or some other person as voluntary guardian for the incompetent.
(Application may be made on Form PD 1461.)
(d) Nonreceipt, loss, theft, or destruction of interest checks. If an interest
check is not received within a reasonable period after an interest payment date,
the Bureau should be notified. Should a check be lost, stolen, or destroyed after
receipt, the Office of the Treasurer of the United States, Check Claims Division,
Washington, D.C. 20227, should be notified. Notification should include the name
and address of the owner, his taxpayer identifying number, and the serial num• The appendix to this subpart contains a complete explanation of the method of com^
puting interest on a semiannual basis on Treasury bonds, notes, and certificates of- indebtedness, and an outline of the method of computing the discount rates on Treasury bills. Also
included are tables of computation of interest on semiannual and annual bases.




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ber, denomination, and title of the security upon which the interest was payable.
If the check is subsequently received or recovered, the latter office should also
be advised.
§ 306.38 Interest on bearer securities.
Unless the offering circular and notice of call provide otherwise, interest on
coupon securities is payable in regular course of business upon presentation and
surrender of the interest coupons as they mature. Such coupons are payable at
any JPederal Reserve bank or branch, or the Treasurer'.s Office.^ Interest on Treasury bills, and any other bearer securities which may be sold and issued on a discount basis and which are payable at par at maturity, is represented by the
difference between the purchase price and the par value, and no coupons are
attached.
SUBPART F—^ASSIGNMENTS OF REGISTERED SECURITIES—GENERAL

§ 306.40 Execution of assignments or special endorsements.
(a) Execution of assignments. The assignment of a registered security should
be executed by the owner or his authorized representative in the presence of an
officer authorized to certify assignments. All assignments must be made on the
backs of the securities, unless otherwise authorized by the Bureau, a Federal
Reserve bank or branch, or the Treasurer of the United States. An assignment
by mark (X) must be witnessed not only by a certifying officer but also by at
least one other person, who should add an endorsement substantially as follows:
"Witness to signature by mark," followed by his signature and address.
(b) Special endorsement in lieu of assignments. A security may be presented
without assignment for any authorized transaction by a financial institution
which is (1) a member of the Federal Reserve System, (2) a member of the
Federal Home Loan Bank System, or (3) insured by the Federal Deposit Insurance Corporation, provided full instructions are furnished as to the transaction
desired and the security bears the endorsement, under the official seal of the
institution, as follows :
'
Presented in accordance with instructions of the owner (s).
Absence of assignment guaranteed.
(Name of financial institution)
By

_
_
(Signature and title of oflicer)
("Date")

This form of endorsement of a security will be an unconditional guarantee to
the Department of the Treasury that the institution is acting as attorney in fact
for the registered owner, or his assignee, under proper authorization and that the
officer is duly authorized to act.
§ 306.41 Form of assignment.
Registered securities may be assigned in blank, to bearer, to a specified transferee, to the Secretary of the Treasury for exchange for coupon securities, or to
the Secretary of the Treasury for redemption or for exchange for other securities
offered at maturity, upon call or pursuant to an advance refunding or prerefunding offer. Assignments to "The Secretary of the Treasury," "The Secretary
of the Treasury for tran,sfer," or "The Secretary of the Treasury for exchange'*
will not be accepted unless supplemented by specific instructions by or in behalf
of the owner.
§ 306.42 Alterations and erasures.
If an alteration or erasure has been made in an assignment, the assignor
should appear before an authorized certifying officer and execute a new assignment to the same assignee. If the new assignment is to other than the assignee
whose name has been altered or erased, a disclaimer from the first-named as8 Banking institutions will usually cash the coupons without charge as an accommodation
to their customers.




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19 73 REPORT OF THE SECRETARY OF THE TREASURY

signee should be obtained. Otherwise, an affidavit of explanation by the person
responsible for the alteration or erasure should be submitted for consideration.
§ 306.43 Voidance of assignments.
An assignment of a security to or for the account of another person, not completed by delivery, may be voided by a disclaimer of interest from that person.
This disclaimer should be executed in the presence of an officer authorized to
certify assignments of securities. Unless otherwise authorized by the Bureau, a
Federal Reserve bank or branch, or the Treasurer of the United States, the disclaimer must be written, typed, or stamped on the back of the security in substantially the following form:
The undersigned as assignee of this security hereby disclaims any interest
herein.
(Signature)

I certify that the above-named person as described, whose identity is well
known or proved to me, personally appeared before me the
__ day of
at
(Month and year)

.
(SEAL)

-

(Place)

and signed the above disclaimer of interest.
(Signature and official designation of
certifying officer)

In the absence of a disclaimer, an affidavit or affidavits should be submitted for
consideration explaining why a disclaimer cannot be obtained, reciting all other
material facts and circumstances relating to the transaction, including whether
or not the security was delivered to the person named as assignee and whether
or not the affiants know of any basis for the assignee claiming any right, title,
or interest in the security. After an assignment has been voided, in order to dispo.se of the security, an assignment by or on behalf of the owner will be required.
§ 306.44 Discrepancies in names.
The Department will ordinarily require an explanation of discrepancies in the
names which appear in inscriptions, assignments, supporting evidence or in the
signatures to any assignments. (Forms PD 385 may be used for this purpose.)
Plowever, where the variations in the name of the registered owner, as inscribed
on securities of the same or different issues, are such that both may properly
represent the same person, for example, "J. T. Smith," and "John T. Smith," no
proof of identity will be required if the assignments are signed exactly as the
securities are inscribed and are duly certified by the same certifying officer.
§ 306.45 Officers authorized to certify assignments.
(a) Officers atithorized generally. The following persons are authorized to act
as certifying officers for the purpose of certifying assignments .of, or forms with.
respect to, securities:
(1) Officers and employees of banks and trust companies incorporated in the
United States, its territories or possessions, or the Commonwealth of Puerto
Rico, Federal Savings and Loan Associations, or other organizations which are
members of the Federal Home Loan Bank System, who have been authorized to:
(i) Generally bind their respective institutions by their acts, (ii) unqualifiedly
guarantee signatures to assignments of securities, or (iii) expressly certify assignments of securities.
(2) Officers of Federal Reserve banks and branches.
(3) Officers of Federal Land Banks, Federal Intermediate Credit Banks and
Banks for Cooperatives, the Central Bank for Cooperatives, and Federal Home
•Loan Banks.
(4) U.S. Attorneys, Collectors of Customs, and Regional Commissioners, District Directors, and Service Center Directors, Internal Revenue Service.
(5) Judges and Clerks of U.S. Courts.
(b) Aiithorized officers in foreign countries. The following are authorized to
certify assignments in foreign countries :
(1) U.S. diplomatic or consular representatives.




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227.

(2) Managers, assistant managers and other officers of foreign branches of
banks or trust companies incorporated in the United States, its territories or
possessions, or the Commonwealth of Puerto Rico.
(3) Notaries public and other officers authorized to administer oaths. The official position and authority of any such officer must be certified by a U.S. diplomatic or consular representative under seal of his office.
(c) Officers having Umited authority. The following are authorized to certify
assignments to the extent set forth in connection with each class of officers: .
(1) Postmasters, acting postmasters, assistant postmasters, inspectors in
charge, chief and assistant chief accountants, and superintendents of stations of
any post office, notaries public and justices of the peace in the United States,
its territories and possessions, the Commonwealth of Puerto Rico' and the Canal
Zone, but only for assignment of securities for redemption for the account of the
assignor, or for redemption exchange, or pursuant to an advance refunding or
prerefunding offer for other securities to be registered in his name, or in his
name with a joint owner. The signature of any post office official, other than a
postmaster, must be in the following form: "John A. Doe, Postmaster, by Richard B. Roe, Superintendent of Station."
(2) Commissioned officers and warrant officers of the Armed Forces of the
United States for assignment of securities of any class for any authorized transaction, but only with respect to assignments executed by: (i) Armed Forces personnel and civilian field employees, and (ii) members of the families of such personnel or civilian employees.
(d) Special provisions for certifying assignments. The Commissioner of the
Public Debt, the Chief of the Division of Securities Operations, any Federal
Reserve bank or branch, or the Treasurer of the United States, is authorized to
make special provisions for any case or class of cases.
§ 306.46 Duties and responsibilities of certifying officer.
A certifying officer must require execution of an assignment, or a form with
respect to securities, in his presence after he has established the identity of
the assignor and before he certifies the signature. He must then complete the
certification. An employee who is not an officer should insert "Authorized signature" in the space provided for the title. However, an assignment of a security
need not be executed in the presence of the certifying officer if he unqualifiedly
guarantees the signature thereto, in which case he must place his endorsement
on the security, following the signature, in the form "Signature guaranteed.
First National Bank of Jonesville, Jonesville, N.H., by A. B. Doe, President,"
and add the date. The certifying officer and, if he is an officer or employe of an
organization, the organization will be held responsible for any loss the United
States may suffer as the result of his fault or negligence.
§ 306.47 Evidence of certifying officer's authority.
The authority of an individual to act as a certifying officer is established
by affixing to a certification of an assignment, or a form with respect to securities, or an unqualified guarantee of a signature to an assignment, either:
(a) The official seal of the organization, or (b) a legible imprint of the issuing
agent's dating stamp, if the organization is an authorized issuing agent for
U.S. Savings Bonds of Series E. Use of such stamp shall result in the same
responsibility on the part of the organization as if its official seal were used. A
certification which does not bear a seal or issuing agent's dating stamp will not
be accepted. Any post office official must use the official stamp of his office. A
commissioned or warrant officer of any of the Armed Forces of the United
States should indicate his rank and state that the person executing the assignment is one of the class whose signature he is authorized to certify. A judge
or clerk of court must use the seal of the court. Any other certifying officer must
use his official seal or stamp, if any, but, if he has neither, his official position
and a specimen of his signature must be certified by some other authorized
officer under official seal or stamp or otherwise proved to the satisfaction of
the Department.
§ 306.48 Interested persons not to act as certifying officer or witness.
Neither the assignor, the assignee, nor any person having an interest in a security may act as a certifying officer, or as a witness to an assignment by mark.
However, a bank officer may certify an assignment to the bank, or an assignment executed by another officer in its behalf.




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1973 REPORT OF THE SECRETARY OF THE TREASURY

§ 306.49 Nontransferable securities.
The provisions of this subpart, so far as applicable, govern transactions in
Treasury Bonds, Investment Series B-1975-80.
SUBPART G

A S S I G N M E N T S B Y OR IN BEHALF OF INDIVIDUALS

§ 306.55 Signatures, minor errors and change of name.
The owner's .signature to an assignment should be in the form in which the
security is inscribed or assigned, unless such inscription or assignment is incorrect or the name has since been changed. In case of a change of name, the
signature to the assignment should show both names and the manner in which
the change was made, for example, "John Young, changed by order of court from
Hans Jung." Evidence of the change will be required. However, no evidence is
required to support an assignment if the change resulted from marriage and the
signature, which must be duly certified by an authorized officer, is written to
show that fact, for example, "Mrs. Mary J. Brown, changed by marriage from
Miss Mary Jones."
§ 306:56 Assignment of securities registered in the names of or assigned to two
or more persons.
(a) Transfer or exchange. Securities registered in the names of or a,ssigned
to two or more persons may be transferred or exchanged for coupon bonds during
the lives of all the joint owners only upon assignments by all or on their behalf
by authorized representatives. Upon proof of the death of one, the Department
will accept an assignment by or in behalf of the survivor or survivors, unless the
form of registration or assignment includes words which precludes the right
of survivorship.'* In the latter case, in addition to assignment by or in behalf of the survivor or survivors, an assignment in behalf of the decedent';s
estate will be required.
(b) Advance refimding or prerefunding offers. No assignments are required
for exchange of securities registered in the names of or assigned to two or more
persons if the securities to be received in the exchange are to be registered in the
same names and form. If bearer securities or securities in a different form are
to be issued, all persons named must assign, except that in case of death paragraph
(a) of this section shall apply.
(c) Redemption or redemption-exchange. (1) Alternative registration or assignment. Securitie.s registered in the names of or assigned to two or more persons in the alternative, for example, "John B. Sniith or Mrs. Mary J. Smith"
or "John B. Smith or Mrs. Mary J. Smith or the survivor," may be assigned
by one of them at maturity or upon call, for redemption or redemption-exchange,
for his own account or otherwise, whether or not the other joint owner or owners
are deceased.
(2) Joint registration or assignment. Securities registered in the names of or
assigned to two or more persons jointly, for example, "John B. Smith and Mrs.
Mary J. Smith," or "John B. Smith and Mrs. Mary J. Smith as tenants in common," or "John B. Smith and Mary J. Smith as partners in community," may be
assigned by one of them during the lives of all only for redemption at maturity or
upon call, and then only for redemption for the account of all. No as.signments are
required for redemption-exchange for securities to be registered in the same names
and forms as appear in the registration or assignment of the securities surrendered. Upon proof of the death of a joint owner, the survivor or survivors may
assign .securities so registered or assigned for redemption or redemption-exchange
for any account, except that, if words which preclude the right of survivorship *
*
appear in the registration or assignment, assignment in behalf of the decedent's
estate also will be required.
§ 306.57 Minors and incompetents.
(a) Assigmnents hy natural guardian of securities registered in name of
minor. Securities registered in the name of a minor for whose estate no legal
guardian or similar representative has qualified may be assigned by the natural
guardian upon qualification. (Form PD 2481 may be used for this purpose.)
»See § 306.11(a) (2) for forms of registration expressing or precluding survivorship.




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(b) Assignments of securities registered in name of natural guardian of minor.
Securities registered in the name of a natural guardian of a minor may be assigned by the natural guardian for any authorized transaction except one for the
apparent benefit of the natural guardian. If the natural guardian in whose name
the securities are registered is deceased or is no longer qualified to act as natural
guardian, the securities may be assigned by the person then acting as natural
guardian. The assignment by the new natural guardian should be supported by
, proof of the death or disqualification of the former natural guardian and by evidence of his own status as natural guardian. (Form PD 2481 may be used for this
purpose.) No a,ssignment by a natural guardian will be accepted after re'ceipt of
notice of the minor's attainment of majority, removal of his disability of minority, disqualification of the natural guardian to act as such, qualification of a
legal guardian or similar representative, or the death of the minor.
(c) Assignments hy voluntary guardians of incompetents. Registered securities belonging to an incompetent for whose estate no legal guardian or similar
representative is legally qualified may be assigned by the relative responsible for
his care and support or some other person as voluntary guardian:
(1) For redemption or exchange for bearer securities, if the proceeds of the
securities are needed to pay expenses already incurred, or to be incurred during
any 90-day period, for the care and support of the incompetent or his legal
dependents.
(2) For redemption-exchange, if the securities are matured or have been
called, or pur.suant to an advance refunding or prerefunding offer, for reinvestment in other securities to be registered in the form "A, an incompetent (12345-6789) under voluntary guardianship."
An application on Form PD 1461 by the person seeking authority to act as
voluntary guardian will be required.
d) Assignments hy legal guardians of minors or incompetents. Securities
registered in the name and title of the legal guardian or similar representative
of the estate of a m.inor or incompetent may be assigned by the representative
for any authorized transaction without proof of his qualification. Assignments
by a representative of any other securities belonging to a minor or incompetent
must be supported by properly certified evidence of qualification. The evidence
must be dated not more than 1 year before the date of the assignments and must
contain a statement showing the appointment is in full force unless (1) it shows
the appointment was made not more than 1 year before the date of the assignment, or (2) the representative or a corepresentative is a corporation. An assignment by the representative will not be accepted after receipt of notice of termination of the guardianship, except for transfer to the former ward.
§ 306.58 Nontransferable securities.
The provisions of this subpart, so far as applicable, govern transactions in
Treasury Bonds, Investment Series B-1975-80.
S U B P A R T H—ASSIGNMENTS IN BEHALF OF ESTATES OF DECEASED OWNERS

§ 306.65 Special provisions applicable to small amounts of securities, interest
checks or redemption checks.
Entitlement to, or the authority to dispose of, a small amount of securities and
checks issued in payment thereof or in payment of interest thereon, belonging to
the estate of a decedent, may be established through the use of certain short
forms, according to the aggregate amount of securities and checks involved
(excluding checks representing interest on the securities), as indicated by the
following table:
Amount

Circumstances

$100 No administration
500 Estate being administered
500 Estate settled




Form
P D 2216
P D 2488
P D 2458-1

'

To be executed by—
Person who paid burial expenses.
Executor or administrator.
Former executor or administrator, attorneys or other qualifled person.

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19 73 REPORT OF THE SECRETARY OF THE TREASURY

§. 306.66 Estates—administration.
(a) Temporally or special administrators. Temporary or special administrators may assign securities for any authorized transaction within the scope
of their authority. The assignments must be supported by :
(1) Temporary administrators. A certificate, under court seal, showing the
appointment in full force within thirty days preceding the date of receipt of
the securities.
(2) Special administrators. A certificate, under court seal, showing the ap- ,
pointment in full force within 6 months preceding' the date of receipt of the
securities.
Authority for assignments for transactions not within the scope of appointment must be established by a duly certified copy of a .special order of court.
(b) In course of administration. A security belonging to the estate of a decedent which is being administered by a duly qualified executor or general administrator will be accepted for any authorized transaction upon assignment by
such representative. (See § 306.77.) Unless the security is registered in the name
of and shows the capacity of the representative, the assignment must be supported by a certificate or a copy of the letters of appointment, certified under
court seal. The certificate or certification, if required, must be dated not more than
6 months before the date of the assignment and must contain a statement that
the appointment is in full force, unless (1) it shows the appointment was made
not more than 1 year before the date of the assignment, or (2) the representative
or a corepresentative is a corporation, or (3) redemption is being made for application of the proceeds in payment of Federal estate taxes as provided by
§ 306.28.
(c) After settlement through court proceedings. Securities belonging to the
estate of a decedent which has been settled in court will be accepted for any
authorized transaction upon assignments by the person or persons entitled, as determined by the court. The assignments should be supported by a copy, certified
under court seal, of the decree of distribution, the representative's final account
as approved by the court, or other pertinent court records.
§ 306.67 Estates not administered.
(a) Special provisions under State laws. If, under State law, a person has
been recognized or appointed to receive or distribute the assets of a decedent's
estate without regular administration, his assignment of securities belonging to
the estate will be accepted provided he submits appropriate evidence of his authority.
(b) Agreement of persons entitled. When it appears that no legal representative of a decedent's estate has been or is to be appointed, securities belonging
to the estate may be duly disposed of pursuant to an agreement and assignment by all persons entitled to share in the decedent's personal estate. (Form
PD* 1646 may be used.) However, all debts of the decedent and his estate must
be paid or provided for and the interests of any minors or incompetents must be
protected.
§ 306.68 Nontransferable securities.
The provisions of this subpart, so far as applicable, govern transactions in
Treasury Bonds, Investment Sei-ies B-1975-80.
S U B P A R T I—ASSIGNMENTS BY OR IN BEHALF OF TRUSTEES AND SIMILAR FIDUCIARIES

§ 306.75 Individual fiduciaries.
(a) General. Securities registered in, or assigned to, the names and titles of
individual fiduciaries will be accepted for any authorized transaction upon assignment by the designated fiduciaries without proof of their qualification.s. If
the fiduciaries in whose names the securities are registered, or to whom they
have been assigned, have been succeeded by other fiduciaries, evidence of successorship must be furnished. If the appointment of a successor is not required
under the terms of the trust instrument or otherwise and is not contemplated,
assignments by the .surviving remaining fiduciary or fiduciaries must be supported by appropriate proof. This requires (1) proof of the death, resignation,
removal or disqualification of the former fiduciary and (2) evidence that the surviving or remaining fiduciary or fiduciaries are fully qualified to administer the
^(iuciary estate, which may be in th^ toxm ot a certificate b^ them showing




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231

the appointment of a successor has not been applied for, is not contemplated and
is not necessary under the terms of the trust instrument or otherwise. Assignments of securities, registered in the titles, without the names of the fiduciaries, for example, "Trustees of the George E. White Memorial Scholarship
Fund under deed of trust dated 11/10/40, executed by John W. White," must be
supported by proof that the assignors are the qualified and acting trustees of
the designated trust estate, unless they are empowered to act as a unit in which
case the provisions of §306.76 shall apply. (Form PD 2446 may be used to
furnish proof of incumbency of fiduciaries.) Assignments by fiduciaries of
securities not registered or assigned in such manner as to show that they belong
to the estate for which the assignors are acting must also be supported by evidence
that the estate is entitled to the securities.
(b) Life tenants. Upon termination of a life estate by reason of the death of the
life tenant in whose name a security is registered, or to whom it has been assigned, the security will be accepted for any authorized transaction upon assignment by the remainderman, supported by evidence of entitlement.
§ 306.76 Fiduciaries acting as a unit.
Securities registered in the name of or assigned to a board, committee or other
body authorized to act as a unit for any public or private trust estate may be
assigned for any authorized transaction by anyone authorized to act in behalf of
such body. Except as otherwise provided in this section, the assignments must be
supported by a copy of a resolution adopted by the body, properly certified under
its seal, or, if none, sworn to by a member of the"body having access to its records.
(Form PD 2495 may be used.) If the person assigning is designated in the resolution by title only, his incumbency must be duly certified by another member of
the body. (Form PD 2446 may be used.) If the fiduciaries of any trust estate are
empowered to act as a unit, although not designated as a board, committee or
other body, securities registered in their names or assigned to them as such, or
in their titles without their names, may be assigned by anyone authorized by the
group to act in its behalf. Such assignments may be supported by a sworn copy
of a resolution adopted by the group in accordance with the terms of the trust
iustrument, and proof of their authority to act as a unit may be required. As
an alternative, assignments by all the fiduciaries, supported by proof of their
incumbency, if not named on the securities, will be accepted.
§ 306.77 Corepresentatives and fiduciaries.
If there are two or more executors, administrators, guardians or similar representatives, or trustees of an estate, all must unite in the assignment of any securities belonging to the estate. Plowever, when a statute, a decree of court, or
the instrument under which the representatives or fiduciaries are acting provides otherwise, assignments in accordance with their authority will be accepted.
If the securities have matured or been called and are submitted for redemption
for the account of all, or for redemption-exchange or pursuant to an advance
refunding or prerefunding offer, and the securities offered in exchange are to be
registered in the names of all, no assignment is required.
§ 306.78 Nontransferable securities.
The provisions of this subpart, so far as applicable, govern assignments of.
Treasury Bonds, Investment Series B-1975-80.
SUBPART J

ASSIGNMENTS

IN

B E H A L F OF PRIVATE OR P U B L I C

ORGANIZATIONS

§ 306.85 Private coi-porations and unincorporated associations (including
nominees.)
Securities registered in the name of, or assigned to, an unincorporated association, or a private corporation in its own right or in a representative or fiduciary
capacity, or as nominee, may be assigned in its behalf for any authorized transaction by any duly authorized officer or officers. Evidence, in the form of a resolution of the governing body, authorizing the assigning officer to assign, or to sell,
or to otherwise dispose of the securities will ordinarily be required. Resolutions
may relate to any or all registered securities owned by the organization or held
by it in a representative or fiduciary capacity. (Form PD 1010, or any substantially similar form, may be used when the authority relates to specific securities ; Form PD 1011, or any substantially similar form, may be used for securities generally.) If the officer derives his authority from a charter, constitu-




232

1973 REPORT OF THE SECRETARY OF THE TREASURY

tion or bylaws, a copy, or a pertinent extract therefrom, properly certified, will
be required in lieu of a resolution. If the resolution or other supporting document shows the title of an authorized officer, without his name, it must be supplemented by a certificate of incumbency. (Form PD 1014 may be used.)
§ 306.86 Change of name and succession of private organizations.
If a private corporation or unincorporated association changes its name or
is lawfully succeeded by another corporation or unincorporated association, its
securities may be assigned in behalf of the organization in its new name or that
of its successor by an authorized officer in accordance with § 306.85. The assignment must be supported by evidence of the change of name or successorship.
§306.87 Partnerships (including nominee partnerships).
An assignment of a security registered in the name of or assigned to a partnership must be executed by a general partner. Upon dissolution of a partnership,
assignment by all living partners and by the persons entitled to assign in behalf
of any deceased partner's estate will be required unless the laws of the jurisdiction authorize a general partner to bind the partnership by any act appropriate
for winding up partnership affairs. In those cases where assignments by or in
behalf of all partners are required this fact must be sworn in the assignment;
otherwise, an affidavit by a former general partner must be furnished identifying all the persons who had been partners immediately prior to dissolution. Upon
voluntary dissolution, for any jurisdiction where a general partner may not act
in winding up partnership affairs, an assignment by a liquidating partner, as
such, must be supported by a duly executed agreement among the partners appointing the liquidating partner.
§ 306.88 Political entities and public corporations.
Securities registered in the name of, or assigned to, a State, county, city, town,
village, school district or other political entity, public body or corporation, may
be assigned by a duly authorized officer, supported by evidence of his authority.
§ 306.89 Public officers.
Securities registered in the name of, or assigned to, a public officer designated
by title may be assigned by such officer, supported by evidence of incumbency.
Assignments for the officer'.s own apparent individual benefit will not be
recognized.
§ 806.90 Nontransferable securities.
The provisions of this subpart apply to Treasury Bonds, Investment Series
B-1975-80.
SUBPART

K—^ATTORNEYS

IN

FACT

§ 306.95 Attorneys in fact.
(a) General. Assignments by an attorney in fact will be recognized if supported by an adequate power of attorney. Every power must be executed in the
presence of an authorized certifying officer under the conditions set out in § 306.45
for certification of assignments. Powers need not be submitted to support redemption-exchanges or exchanges pursuant to advance refunding or prerefunding
offers where the securities to be issued are to be registered in the same names
and form,s as appear in the inscriptions or assignments of the securities surrendered. In all other cases, the original power, or a photocopy showing the
grantor's autograph signature, properly certified, must be submitted, together
with the security assigned on the owner's behalf by the attorney in fact. An
assignment by a substitute attorney in fact must be supported by an authorizing
power of attorney and power of substitution. An assignment by an attorney in
fact or a substitute attorney in fact for the apparent benefit of either will not be
accepted unless expressly authorized. (Form PD 1001 or 1003, as appropriate,
may be used to appoint an attorney in fact. An attomey in fact may use Porm
PD 1006 or 1008 to appoint a substitute. However, any form sufficient in substance may be used.) If there are two or more joint attorneys in fact or substitutes, all must unite in an assignment, unless the power authorizes less than all
to act. A power of attorney or of substitution not coupled with an interest will be
recognized until the Bureau receives proof of revocation or proof of the grantor's
death or incompetency.




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233

(b) For legal representatives and fiduciaries. Assignments by an attomey in
fact or substitute attorney in fact for a legal representative or fiduciary, in
addition to the power of attorney and of substitution, must be supported by
evidence, if any, as required by §§ 306.57(d), 306.66(b), 306.75, and 306.76.
Powers must specifically designate the securities to be assigned.
(c) For corporations or unincorporated associations. Assignments by an attorney in fact or a substitute attorney in fact in behalf of a corporation or unincorporated association, in addition to the power of attomey and power of substitution, must be supported by one of the following documents certified under seal
of the organization, or, if it has no seal, sworn to by an officer who has access to
the records:
(1) A copy of the resolution of the governing body authorizing ah officer to
appoint an attorney in fact, with power of substitution, if pertinent, to assign, or
to sell, or to otherwise dispose of, the securities, or
(2) A copy of the charter, constitution, or bylaws, or a pertinent extract therefrom, showing the authority of an officer to appoint an attomey in fact, or
(3) A copy of the resolution of the governing body directly appointing an attorney in fact.
If the resolution or other supporting document shows only the title of the authorized officer, without his name, a certificate of incumbency must al,so be furnished. (Form PD 1014 may be used.) The power may not be broader than the
resolution or other authority.
(d) For puhlic corporations. A general power of attorney in behalf of a public
corporation will be recognized only if it is authorized by statute.
§ 306.96 Nontransferable securities.
The provisions of this subpart shall apply to nontransferable securities, subject only to the limitations imposed by the terms of the particular issues.
SUBPART L—TRANSFER THROUGH JUDICIAL PROCEEDINGS

§ 306.100 Transferable securities.
The Department will recognize valid judicial proceedings affecting the ownership of or interest in transferable securities, upon presentation of the secunties
together with evidence of the proceedings. In the case of securities registered in
the names of two or more persons, the extent of their respective interests in the
securities must be determined by the court in proceedings to which they are parties or must otherwise be validly established.^"
§ 306.101 Evidence required.
Copies of a final judgment, decree, or order of court and of any necessary sup^
plementary proceedings must be submitted. Assignments by a trustee in bankruptcy or a receiver of an insolvent's estate must be supported by evidence of
his qualification. Assignments by a receiver in equity or a similar court officer
must be supported by a copy of an order authorizing him to assign, or to sell, or
to otherwise dispose of, the securities. Where the documents are dated more
than 6 months prior to presentation of the securities, there must also be submitted a certificate dated within 6 months of presentation of the securities, showing the judgment, decree, or order, or evidence of qualification, is in full force.
Any such evidence must be certified under court seal.
§ 306.102 Nontransferable securities.
The provisions of this subpart shall apply to Treasury Bonds, Investment
Series B-1975-80, except that prior to maturity any reference to assignments
shall be deemed to refer to assignments of the bonds for exchange for the current
series of 1^/^ percent 5-year EA or EO Treasury notes.
SUBPART M—BEQUESTS FOR SUSPENSION OF TRANSACTIONS

§ 306.105 Requests for suspension of transactions in registered securities^.
(a) Timely notice. If prior to the time a registered security bearing an apparently valid assignment has been functioned, a claim is received from the owner
^0 Title in a finder claiming ownership of a registered security will not be recognized.
A finder claiming ownership of a bearer security or a registered security assigned in blank
or so assigned as to become in effect payable to bearer must perfect his title in accordance
with the provisions of S t a t e law. If there a r e no such provisions, t h e D e p a r t m e n t will not
recognize his title to t h e security.




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19 73 REPORT OF THE SECRETARY OF TPIE TREASURY

or his authorized representative showing that (1) the security was lost, stolen,
or destroyed and that it was unassigned, or not so assigned as to have become
in effect payable to bearer, or (2) the assignment was affected by fraud, the
transaction for which the security was received will be suspended. The interested parties will be given a reasonable period of time in which to effect settlement of their interests by agreement, or to institute judicial proceedings.
(b) Late notice. If, after a registered security has been transferred, exchanged, or redeemed in reliance on an apparently valid assignment, an owner
notifies the Bureau that the assignment was affected by fraud or that the security
had been lost or stolen, the Department will undertake only to furnish available
information.
(c) Forged assignments. A claim that an assignment of a registered security
is a forgery will be investigated. If it is established that the assignment was in
fact forged and that the owner did not authorize or ratify it, or receive any
benefit therefrom, the Department will recognize his ownership and grant appropriate relief.
§ 306.106 Requests for suspension of transactions in bearer securities.
(a) Securities not overdue. Neither the Department nor any of its agents will
accept notice of any claim or of pending judicial proceedings by any person for
the purpose of suspending transactions in bearer securities, or registered securities so assigned as to become in effect payable to bearer which are not overdue
as defined in § 306.25. ^^ However, if the securities are received and retired, the
Department will undertake to notify persons who appear to be entitled to any
available information concerning the source from which the securities were
received.
(b) Overdue securities. Reports that bearer securities, or registered securities so assigned as to become in effect payable to bearer, were lost, stolen, or possibly destroyed after they became overdue as defined in § 306.25 will be accepted
by the Bureau for the purpose of suspending redemption of the securities if
the claimant establishes his interest. If the securities are presented, their redemption will be suspended and the presenter and the claimant will each be given an
opportunity to establish ownership.
SUBPART N — B E L I E F FOR LOSS, T H E F T , DESTRUCTION,
OF S E C U R I T I E S

MUTILATION,

OR DEFACEMENT

§ 306.110 Statutory authority and requirements.
Relief is authorized, under certain conditions, for the loss, theft, destruction,
mutilation or defacement of U.S. securities, whether before, at, or after maturity.
A bond of indemnity, in such form and with such surety, sureties or security
as may be required to protect the interests of the United States, is required as a
condition of relief on account of any bearer security or any registered security
assigned in blank or so assigned as to become in effect payable to bearer, and is
ordinarily required in the case of unassigned registered securities.
§ 306.111 Procedure for applying for relief.
Prompt report of the loss, theft, destruction, mutilation or defacement of
. a security should be made to the Bureau. The report should include :
(a) The name and present address of the owner and his address at the time
the security was issued, and, if the report is made by some other person, the capacity in which he represents the owner.
(b) The identity of the security by title of loan, issue date, interest rate,
serial number and denomination, and in the case of a registered security, the
^ I t has been t h e longstanding policy of t h e Department to assume no responsibility for
the protection of bearer securities not in the possession of persons claiming rights therein
and to give no effect to any notice of such claims. This policy was formalized on April 27,
1867, when the Secretary of the Treasury issued t h e following s t a t e m e n t :
" I n consequence of t h e increasing trouble, wholly without practical beneflt, arising from
notices which are constantly received a t the Department respecting t h e loss of coupon bonds,
which are payable to bearer, and of Treasury notes issued and remaining in blank a t the
time of loss, it becomes necessary to give this public notice, t h a t t h e Government cannot
protect and will not undertake to protect the owners of such bonds and notes against the
consequences of their own fault or misfortune.
"Hereafter all bonds, notes, and coupons, payable to bearer, and Treasury notes issued
and remaining in blank, will be paid to the p a r t y presenting them in pursuance of the
re£:ulations of t h e Department, in t h e course of regular business ; and no a t t e n t i o n will be
paid to caveats which may be filed for t h e purpose of preventing such payment."




EXHIBITS

235

exact form of inscription and a full description of any assignment, endorsement or other writing.
(c) A full statement of the circumstances.
All available portions of a mutilated, defaced or partially destroyed security must
also be submitted.
§306.112 Type of relief granted.
(a) Prior to call or maturity. After a claim on account of the loss, theft, destruction, mutilation, or defacement of a security which has not matured or been
called has been satisfactorily established and the conditions for granting relief
have been met, a security of like description will be issued to replace the original
security.
(b) At or afte?^ call or maturity. Payment will be made on account of the loss,
theft, destruction, mutilation, or defacement of a called or matured security
after the claim has been satisfactorily established and the conditions for granting relief have been met.
(c) Interest coupons. Where relief has been authorized on account of a destroyed, mutilated, or defaced coupon security which has not matured or been
called, the replacement security will have attached all unmatured interest coupons
if it is established to the satisfaction of the Secretary of the Treasury that the
coupons were attached to the original security at the time of its destruction,
mutilation or defacement. In every other case only those unmatured interest coupons for which the Department has received payment will be attached. The
price of the coupons will be their value as determined by the Department at the
time relief is authorized using interest rate factors based on then current market yields on Treasury securities of comparable maturities.
§ 306.113 Cases not requiring bonds of indemnity.
A bond of indemnity will not be required as a condition of relief for the
loss, theft, destruction, mutilation, or defacement of registered securities in any
of the following classes of cases unless the Secretary of the Treasury deems it
essential in the public interest:
(a) If the loss, theft, destruction, mutilation, or defacement, as the case
may be, occurred while the security was in the custody or control of the United
States, or a duly authorized agent thereof (not including the Postal Service
when acting solely in its capacity as public carrier of the mails), or while in
the course of shipment effected under regulations issued pursuant to the Government Losses in Shipment Act (Parts 260, 261, and 262 of this chapter).
(b) If substantially the entire security is presented and surrendered and the
Secretary of the Treasury is satisfied as to the identity of the security and that
any missing portions are .not sufficient to form the basis of a valid claim against
the United States.
(c) If the security is one which by the provisions of law or by the terms of its
issue is nontransferable or is transferable only by operation of law.
(d) Jf the owner or holder is the United States, a Federal Reserve bank, a Federal Govemment corporation, a State, the District of Columbia, a territory or possession of the United States, a municipal corporation, or, if applicable, a political
subdivision of any of the foregoing, or a foreign government.
SUBPART O—BOOK-ENTRY PROCEDURE

§ 306.115 Definition of terms.
In this subpart, unless the context otherwise requires or indicates :
(a) "Reserve Bank" means a Federal Reserve bank and its branches acting as
Fiscal agent of the United States and when indicated acting in its individual
capacity.
(b) "Treasury security" means a Treasury bond, note, certificate of indebtedness, or bill issued under the Second Liberty Bond Act, as amended, in the
form of a definitive Treasury security or a book-entry Treasury security.
(c) "Definitive Treasury security" means a Treasury bond, note, certificate
of indebtedness, or bill issued under the Second Liberty Bond Act, as amended in
engraved or printed form.
(d) "Book-entry Treasury security" means a Treasury bond, note, certificate
of indebtedness, or bill issued under the Second Liberty Bond Act, as amended, in
506-171—73

18




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1973 REPORT OF THE SECRETARY OF THE TREASURY

the form of an entry made as prescribed in this subpart on the records of a Reserve Bank.
(e) "Pledge" includes a pledge of, or any other security interest in Treasury
securities as collateral for loans or advances or to secure deposits of public
monies or the performance of an obligation.
(f) "Date of call" (see § 306.2) is "the date fixed in the official notice of call
published in the Federal Register * * * on which the obligor will make payment
of the security before maturity in accordance with its terms."
(g) "Member bank" means any national bank. State bank or bank or trust
company which is a member of a Reserve Bank.
§ 306.116 Authority of Reserve Banks.
Each Reserve Bank is hereby authorized, in accordance with the provisions of
this subpart, to (a) issue book-entry Treasury securities by means of entries
on its records which shall include the name of the depositor, the amount, the
loan title (or series) and maturity date; (b) effect conversions between bookentry Treasury securities and definitive Treasury securities ; (c) otherwise service
and maintain book-entry Treasury securities; and (d) issue a confirmation of
transaction in the form of a written advice (serially numbered or otherwise)
which specifies the amount and description of any securities, that is, loan title
(or series) and maturity date, sold or transferred and the date of the transaction.
§ 306.117 Scope and effect of book-entry procedure.
(a) A Reserve bank as fiscal agent of the United States may apply the bookentry procedure provided for in this subpart to any Treasury securities which
have been or are hereafter deposited for any purpose in accounts with it in its
individual capacity under terms and conditions which indicate that the
Reserve bank will continue to maintain such deposit accounts in its individual
capacity, notwithstanding application of the book-entry procedure to such securities. Tliis paragraph is applicable, but not limited, to securities deposited:"
(1) As collateral pledged to a Reserve bank (in its individual capacity) for advances by i t ;
(2) By a member bank for its sole account;
(3) By a member bank held for the account of its customers ;
(4) In connection with deposits in a member bank of funds of States, municipalities, or other political subdivisions; or
(5) In connection with the performance of an obligation or duty under Federal, State, municipal, or local law, or judgments or decrees of courts.
The application of the book-entry procedure under this paragraph shall not
derogate from or adversely affect the relationships that would otherwise exist
between a Reserve bank in its individual capacity and its depositors concerning
any deposits under this paragraph. Whenever the book-entry procedure is
applied to such Treasury securities, the Reserve bank is authorized to take all
action necessary in respect of the book-entry procedure to enable such Reserve
bank in its individual capacity to performs its obligations as depositary with
respect to such Treasury securities.
(b) A Reserve bank, as fiscal agent of the United States, shall apply the bookentry procedure to Treasury securities deposited as collateral pledged to the
United States under current revisions of Department of the Treasury Circulars
Nos. 92 and 176 (Parts 203 and 202 of this chapter), and may apply the book-entry
procedure, with the approval of the Secretary of the Treasury, to any other Treasury securities deposited with a Reserve bank as fiscal agent of the United States.
(c) Any person having an interest in Treasury securities which are deposited
with a Reserve bank (in either its individual capacity or as fiscal agent) for
any purpose shall be deemed to have consented to their conversion to book-entry
Treasury securities pursuant to the provisions of this subpart, and in the manner and under the procedures prescribed by the Reserve bank.
(d) No deposits shall be accepted under this section on or after the date of
maturity or call of the securities.
§ 306.118 Transfer or pledge.
(a) A transfer or a pledge of book-entry Treasury securities to a Reserve
bank (in its individual capacity or as fiscal agent of the United States), or to
^ The appendix to this subpart contains rules of identification of book-entry securities
for Federal income tax purposes.




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237

the United States, or to any transferee or pledgee eligible to maintain an appropriate book-entry account in its name with a Reserve bank under this subpart,
is effected and perfected, notwithstanding any provision of law to the contrary,
by a Reserve bank making an appropriate entry in its records of the securities transferred or pledged. The making of such an entry in the records of a
Reserve bank shall (1) have the effect of a delivery in bearer form of definitive
Treasury securities; (2) have the effect of a taking of delivery by the transferee
or pledgee; (3) constitute the transferee or pledgee a holder; and (4) if a pledge,
effect a perfected security interest therein in favor of the pledgee. A transfer or
pledge of book-entry Treasury securities effected under this paragraph shall have
priority over any transfer, pledge, or other interest, theretofore or thereafter effected or perfected under paragraph (b) of this section or in any other manner.
(b) A transfer or a pledge of transferable Treasury securities, or any interest
therein, which is maintained by a Reserve bank (in its individual capacity or
as fiscal agent of the United States) in a book-entry account under this subpart,
including securities in book-entry form under § 306.117(a) (3), is effected, and
a pledge is perfected, by any means that would be effective under applicable law
to eff'ect a transfer or to effect and perfect a pledge of the Treasury securities, or
any interest therein, if the securities were maintained by the Reserve bank in
bearer definitive form. For purposes of transfer or pledge hereunder, book-entry
Treasury securities maintained by a Reserve bank shall, notwithstanding any provision of law to the contrary, be deemed to be maintained in bearer definitive
form. A Reserve bank maintaining book-entry Treasury securities either in its
individual capacity or as fiscal agent of the United States is not a bailee for purposes of notification of pledges of those securities under this subsection, or a
third person in possession for purposes of acknowledgment of transfers thereof
under this subsection. Where transferable Treasury securities are recorded on
the books of a depositary (a bank, banking institution, financial firm, or similar
party, which regularly accepts in the course of its business Treasury securities
as a custodial service for customers, and maintains accounts in the names of
such customers reflecting ownership of or interest in such securities) for account
of the pledgor or transferor thereof and such securities are on deposit with a
Reserve bank in a book-entry account hereunder, such depositary shall, for purposes of perfecting a pledge of such securities or effecting delivery of such
securities to a purchaser under applicable provisions of law, be the bailee to
which notification of the pledge of the securities may be given or the third
person in possession from which acknowledgment of the holding of the securities for the purchaser may be obtained. A Reserve bank will not accept notice
or advice of a transfer or pledge effected or perfected under this subsection,
and any such notice or advice shall have no effect. A Reserve bank may continue to deal with its depositor in accordance with the provisions of this subpart, not withstanding any transfer or pledge effected or perfected under this
subsection.
(c) No filing or recording with a public recording office or officer shall be necessary or effective with respect to any transfer or pledge of book-entry Treasury
securities or any interest therein.
(d) A Reserve bank shall, upon receipt of appropriate instructions, convert
book-entry Treasury securities into definitive Treasury securities and deliver
them in accordance with such instructions; no such conversion shall affect existing interests in such Treasury securities.
*
(e) A transfer of book-entry Treasury securities within a Reserve bank shall
be made in accordance with procedures established by the bank not inconsistent
with this subpart. The transfer of book-entry Treasury securities by a Reserve
bank may be made through a telegraphic transfer procedure.
(f) All requests for transfer or withdrawal must be made prior to the maturity or date of call of the securities.
§ 306.119 Withdrawal of Treasury securities.
(a) A depositor of book-entry Treasury securities may withdraw them from
a Reserve bank by requesting delivery of like definitive Treasury securities to
itself or on its order to a transferee.
(b) Treasury securities which are actually to be delivered upon withdrawal
may be issued either in registered or in bearer form, except that Treasury billsi
and EA and EO series of Treasury notes will be issued in bearer fonn only.




238

1973 REPORT OF THE SECRETARY OF THE TREASURY

§ 306.120 Delivery of Treasury securities.
A Reserve bank which has received Treasury securities and effected pledges,
made entries regarding them, or transferred or delivered them according to the
instructions of its dei30sitor is not liable for conversion or for participation in
breach of fiduciary duty even though the depositor had no right to dispose of or
take other action in respect of the securities. A Reserve bank shall be fully discharged of its obligations under this subpart by the delivery of Treasury securities in definitive form to its depositor or upon the order of such depositor.
Customers of a member bank or other depositary (other than a Reserve bank)
may obtain Treasury securities in definitive form only by causing the depositor
of the Reserve bank to order the withdrawal thereof from the Reserve bank.
§ 306.121 Registered bonds and notes.
No formal assignment shall be required for the conversion to book-entry Treasury securities of registered Treasury securities held by a Reserve bank (in either
its individual capacity or as fiscal agent) on the effective date of this subpart
for any purpose specified in § 306.117(a). Registered Treasury securities deposited thereafter with a Reserve bank for any purpose specified in § 306.117 shall
be assigned for conversion to book-entry Treasury securities. The assignment,
which shall be executed in accordance with the provisions of Subpart F of this
part, so far as applicable, shall be to "Federal Reserve Bank of
, as
fiscal agent of the United States, for conversion to book-entry Treasury securities."
§ 306.122 Servicing book-entry Treasury securities; payment of interest, payment at maturity or upon call.
Interest becoming due on book-entry Treasury securities shall be charged in
the Treasurer's account on the interest-due date and remitted or credited in accordance with the depositor's instructions. Such securities shall be redeemed
and charged in the Treasurer's account on the date of maturity or call, and the
redemption proceeds, principal and interest, shall be disposed of in accordance
with the depositor's instructions.
SUBPART P — M I S C E L L A N E O U S

PROVISIONS

§ 306.125 Additional requirements.
•In any case or any class of cases arising under these regulations the Secretary of the Treasury may require such additional evidence and a bond of indemnity, with or without surety, as may in his judgment be necessary for the
protection of the interests of the United States.
§ 306.126 Waiver of regulations.
The Secretary of the Treasury reserves the right, in his discretion, to waive or
modify any provision or provisions of these regulations in any particular case
or class of cases for the convenience of the United States or in order to relieve
any person or persons of unnecessary hardship, if such action is not inconsistent with law, does not impair any existing rights, and he is satisfied that such
action would not subject the United States to any substantial expense or liability.
§ 306.127 Preservation of existing rights.
Nothing contained in these regulations shall limit or restrict existing rights
which holders of securities heretofore issued may have acquired under the circulars offering such securities for sale or under the regulations in force at the
time of acquisition.
§ 306.128 Supplements, amendments or revisions.
The Secretary of the Treasury may at any time, or from time to time, prescribe
additional supplemental, amendatory or revised regulations with respect to U.S.
securities.
APPENDIX TO SUBPART E—INTEREST—COMPUTATION OF INTEREST ON TREASURY
BONDS, TREASURY NOTES, AND TREASURY CERTIFICATES OF INDEBTEDNESS,
AND COMPUTATION OF DISCOUNT ON TREASURY BILLS—INTEREST TABLES
COMPUTATION OF INTEREST ON ANNUAL BASIS

One Day's Interest Is 1/365 or 1/366 of 1-Year's Interest
Computation of interest on Treasury bonds, notes, and certificates of indebtedness will be made on an annual basis in all cases where interest is payable in



EXHIBITS

239

one amount for the full term of the security, unless such term is an exact halfyear (6 months), and it is provided that interest shall be computed on a semiannual basis.
If the term of the securities is exactly 1 year, the interest is computed for the
full period at the specified rate regardless of the number of days in such period.
If the term of the securities is less than 1 full year, the annual interest period
for purposes of computation is considered to be the full year from but not including the date of issue to and including the anniversary of such date.
If the term of the securities is more than 1 full year, computation is made on
the basis of one full annual interest period, ending with the maturity date, and
a fractional part of the preceding full annual interest period.
The computation of interest for any fractional part of an annual interest
period is made on the basis of 365 actual days in such period, or 366 days if
February 29 falls within such annual period.
COMPUTATION OF INTEREST ON SEMIANNUAL BASIS

One Day's Interest Is 1/181,1/182,1/183 or 1/184 of y^ Year's Interest
Computation of interest on Treasury bonds, notes, and certificates of indebtedness will be made on a semiannual basis in all cases where interest is payable for
one or more full half-year (6 months) periods, or for one or more full-year
periods and a fractional part of a half-year period. A semiannual interest period
is an exact half-year or 6 months, for computation purposes, and may comprise
181,182,183 or 184 actual days.
An exact half-year's interest at the specified rate is computed for each full
period of exactly 6 months, irrespective of the actual number of days in the
half-year.
If the initial interest covers a fractional part of a half-year, computation is
made on the basis of the actual number of days in the half-year (exactly 6
months) ending on the day such initial interest becomes due. If the initial interest covers a period in excess of 6 months, computation is made on the basis of
one full half-year period, ending with the interest due date, and a fractional
part of the preceding full half-year period.
Interest for any fractional part of a full half-year period is computed on the
basis of the exact number of days in the full period, including February 29 whenever it falls within such a period.
The number of days in any half-year period is shown in the following table:
For the half-year
Beginning and ending days are Beginning and ending days are
1st or 15th of months listed
last days of months listed under
under interest period (number
interest period (number of days)
of days)

Interest period

Regular year
January to J u l y - February to August
March to September.April to OctoberMay to November
June to December
July to January
August to February
September to March
October to April
November to M a y .
December to J u n e .

-

1 year (any 2 consecutive halfyears)
-




Leap year

Regular year

Leap year

181
181
184
183
184
183
184
184
181
182
181
182

182
182
184
183
184
183
184
184
182
183
182
183

181
184
183
184
183
184
184
181
182
181
182
181

182
184
183
184
183
184
184
1.82
183
182
183
182

365

366

365

366

240

1973 REPORT OF THE SECRETARY OF THE TREASURY

The following are dates for end-of-the-month interest computations.
When interest period
Interest-comptitation period will he from, hut
ends on—
loill not include—
Jan. 31
July 31.
Feb. 28 in 365-day year
Aug. 31.
Feb. 29
Do.
Mar. 30, 31^
Sept. 30.
Apr. 30
Oct. 31.
May 30, 3 1 —
Nov. 30.
June 30
i.
Dec. 31.
July 31
Jan. 31.
Aug. 29, 30 or 31
Feb. 28 in 365-day year.
Feb. 29 in leap year.
Sept. 30
Mar. 31.
Oct. 30, 31
Apr. 30.
Nov. 30
May 31.
Dec. 30, 31
June 30.
U S E OF I N T E R E S T

TABLED

In the appended tables decimals are set forth for use in computing interest for
fractional parts of interest periods. The decimals cover interest on $1,000 for 1
day in each possible semiannual (Table I ) , and annual (Table II) interest
period, at all rates of interest in steps of % percent, from % to 9 percent. The
amount of interest accruing on any date (for a fractional part of an interest period) on $1,000 face amount of any issue of Treasury bonds. Treasury notes, or
Treasury certificates of indebtedness may be ascertained in the following way:
(1) The date of issue, the dates for the payment of interest, the basis (semiannual or annual) upon which interest is computed, and the rate of interest
(percent per annum) may be determined from the text of the security or from
the official circular governing the issue.
(2) Determine the interest period of which the fraction is a part, and calculate the number of days in the full period to determine the proper column to
be used in selecting the decimal for 1 day's interest.
(3) Calculate the actual number of days in the fractional period from.but
not including the date of issue or the day on which the last preceding interest
payment was made, to and including the day on which the next succeeding interest payment is due or the day as of which the transaction which terminates
the accrual of additional interest is effected.
(4) Multiply the appropriate decimal (1 day's interest on $1,000') by the
number of days in the fractional part of the interest period. The appropriate
decimal will be found in the appended table for interest payable semiannually
or annually, as the case may be, opposite the rate borne by the security, and in the
column showing the full interest period of which the fractional period is a part.
(For interest on any other amount, multiply the amount of interest on $1,000 by
the other amount expressed as a decimal of $1,000.)




EXHIBITS

241

TREASURY B I L L S

The methods of computing discount rates on U.S. Treasury bills are given
below:
Computation will be made on an annual basis in all cases. The annual period
for bank discount is a year of 360 days, and all computations of such discount
will be made on that basis. The annual period for true discount is 1 full year
from but not including the date of issue to and including the anniversary of such
date. Computation of true discount for a fractional part of a year will be made on
the basis of 365 days in the year, or 366 days if February 29 falls within the year.
BANK

DISCOUNT

The bank discount rate on a Treasury bill may be ascertained by (1) subtracting the sale price of the bill from its face value to obtain the amount of
discount; (2) dividing the amount of discount by the number of days the bill
is to run to obtain the amount of discount per day; (3) multiplying the amount
of discount per day by 360 (the number of days in a commercial year of 12 months
of 30 days each) to obtain the amount of discount per year; and (4) dividing
the amount of discount per year by the face value of the bill to obtain the bank
discount rate.
For example:
91-day biU:
Principal amount—maturity value
$100. 00
Price at issue—amount received
99. 50
Amount of discount

. 50

$0.50-f-91x360-f-$100=.01978 or 1.978 percent
TRUE DISCOUNT

The true discount rate on a Treasury bill of not more than one-half year in
length may be ascertained by (1 and 2) obtaining the amount of discount per
day by following the first two steps described under "Bank Discount"; (3)
multiplying the amount of discount per day by the actual number of days in the
year from date of issue (365 ordinarily, but 366 if February 29 falls within
the year from date of issue) to obtain the amount of discount per year; and
(4) dividing the amount of discount per year by the sale price of the bill to obtain
the true discount rate.
For example:
91-day bill:
Principal amount—maturity value
$100. 00
Price at issue—amount received
99. 50
Amount of discount
$0.50-^91 X365^$99.50=.02016 or 2.016 percent




. 50

242

19 7 3 REPORT OF TPTE SECRETARY OF TPIE

TREASURY

T A B L E I.—Decimal for 1 day's interest on $1,000 at various rates^of interest,
payahle semiannually or on a semiannual hasis, in regular years of 365 days and
in leap year's of 366 days {to determine applicable numher of days, see '^computation of interest on semiannual hasis")
R a t e per a n n u m
(percent)

MK '.

-

-

:

M

^^
-

•:—

-

'H

H
Vs

Half-year of 184
days

-

-

—

iVs

IK

——-

m
n^

-

1^:::::::--::
VA-...
2

2M
2K
2H
23^

—
-

-

2^..

2M-2K

—-

3

3K
BH
SH

-

3J/2

ZVs
3M
SVs

-

-

4

iVs

4^

m

-

43^
4M
4H
4^

5
5V^

5H

6^
6}^^
bVs

5K
5J^

.—

-

-

6 ..




$0,003 396 739
.006 793 478
.010 190 217
.013 586 967
.016 983 696
.020 380 435
.023 777 174
.027 173 913
.030 570 652
.033 967 391
.037 364 130
.040 760 870
.044 157 609
.047 654 348
.050 951087
.054 347 826
.057 744 565
.061 141 304
.004 538 043
.067 934 783
.071331522
.074 728 261
.078 126 000
.081 621 739
.084 918 478
.088 316 217
.091711967
.096 108 696
.098 606 436
.101902 174
.106 298 913
.108 695 652
.112 092 391
.115 489 130
.118 885 870
.122 282 609
.125 679 348
.129 076 087
.132 472 826
.136 869 666
.139 266 304
.142 663 043
.146 059 783
.149 466 622
.162 853 261
.156 260 000
.169 646 739
.163 043 478

Half-year of 183
days
$0.003 416 301
. 006 830 601
. 010 245 902
.013 661 202
. 017 076 603
. 020 491 803
. 023 907 104
. 027 322 404
. 030 737 706
. 034 153 006
.037 668 306
. 040 983 607
. 044 398 907
.047 814 208
. 051 229 508
. 054 644 809
. 658 060 109
.061 476 410
.064 890 710
. 068 306 o n
. 071 721 311
.076 136 612
. 078 651 913
. 081 967 213
. 086 382 614
.088 797 814
.092 213 115
. 095 628 415
.099 043 716
. 102 469 016
.106 874 317
.109 289 617
.112 704 918
. 116 120 219
. 119 535 619
. 122 950 820
.126 366 120
.129 781 421
.133 196 721
.136 612 022
.140 027 322
.143 442 623
.146 867 923
.160 273 224
.153 688 625
.157 103 825
. 160 519 126
.163 934 426

Half-year of 182
days
$0.003 434 066
.006 868 132
. 010 302 198
.013 736 264
. 017 170 330
. 020 604 396
. 024 038 462
. 027 472 527
.030 906 693
. 034 340 669
. 037 774 725
. 041 208 791
.044 642 867
.048 076 923 •
.061 510 989
. 054 945 055
. 058 379 121
.061 813 187
.066 247 263
.068 681 319
. 072 116 385
. 075 649 451
. 078 983 616
. 082 417 682
. 086 861 648
. 089 285 714
. 092 719 780
.096 163 846
.099 687 912
. 103 021 978
.106 466 044
.109 890 110
.113 324 176
.116 768 242
.120 192 308
.123 626 374
.127 060 440
.130 494 506
.133 928 571
.137 362 637
. 140 796 703
.144 230 769
.147 664 835
. 161 098 901
.154 632 967
. 157 967 033
.161 401 099
.164 835 165

Half-year of 181
days
$0.003 453 039
. 006 906 077
. 010 359 116
.013 812 156
.017 266 193
. 020 718 232
. 024 171 271
. 027 624 309
.031 077 348
. 034 630 387
.037 983 426
.041 436 464
.044 889 603
. 048 342 641
. 061 795 680
. 055 248 619
. 068 701 667
.062 154 696
. 066 607 735
. 069 060 773
. 072 613 812
. 075 966 861
. 079 419 890
. 082 872 928
.086 326 967
. 089 779 006
. 093 232 044
. 096 686 083
. 100 138 122
. 103 691 160
.107 044 199
.110 497 238
.113 960 276
.117 403 315
. 120 856 364
. 124 309 392
. 127 762 431
. 131 215 470
.134 668 508
.138 121 547
. 141 674 586
. 145 027 624
.148 480 663
.151 933 702
.155 386 740
.158 839 779
.162 292 818
.165 746 856

EXHIBITS

243

TABLE II.—Decimal for 1 day's inierest on $1,000 at various rates of interest,
payahle annually or on an annual basis, in regular years of 365 clays and in leap
years of 366 days
Rate per annum (percent)

K-

-

-

Y
A

H
Yi
y&.
M
%
1.
lY
IK
lYz
IY2
1^
IM
VA
2.
23^
2K
2%
2Y2
2^
2M
2Ys—.
3—
3H
3J4
3H
3H
ZYz
3M
VYs
4
43^4M
4H
4M
4^
AH
VYs
5
5Y?,
bA
Y
bYs
—
5H
bYi
bYi
bYs...6

-

-

Regular year,
365 days

-

-..--

-

-

-

-

-

-

-

—
-

-

..-

-

.-

-

-

--

-

-

-

--

-

-

-

-

-

-

-

— -

-----

--

---

-

-

-

-

-

-

-

-

-

—-

-

-

--

---

Leap year,
366 days

$0,003 424 658
.006 849 315
010 273 973
013 698 630
017 123 288
.020 547 945
023 972 603
027 397 260
030 821 918
034 246 575
.037 671 233
.041 095 890
.044 520 548
047 945 205
.051 369 863
054 794 521
058 219 178
061 643 836
.065 068 493
068 493 151
071 917 808
075 342 466
.078 767 123
082 191 781
085 616 438
089 041 096
.092 465 753
095 890 411
099 315 068
102 739 726
106 164 384
109 589 041
113 013 699
.116 438 356
119 863 014
.123 287 671
126 712 329
130 136 986
.133 561 644
.136 986 301
140 410 959
143 835 616
.147 260 274
150 684 932
154 109 589
.157 534 247
160 958 904
164 383 562

$0,003 415 301
.006 830 601
.010 245 902
.013 661 202
.017 076 503
.020 491 803
.023 907 104
.027 322 404
.030 737 705
.034 153 005
.037 568 306
.040 983 607
.044 398 907
.047 814 208
.051 229 508
.054 644 809
.058 060 109
.061 475 410
.064 890 710
.068 306 Oil
.071 721 311
.075 136 612
.078 551 913
.081 967 213
.085 382 514
'.088 797 814
.092 213 115
.095 628 415
.099 043 716
.102 459 016
.105 874 317
.109 289 617
.112 704 918
.116 120 219
.119 535 519
.122 950 820
.126 366 120
.129 781 421
.133 196 721
.136 612 022
.140 027 322
.143 442 623
.146 857 923
.150 273 224
.153 688 525
.157 103 825
.160 519 126
.163 934 426

APPENDIX TO SUBPART O—BOOK-ENTRY PROCEDURE
RECORDS FOR FEDERAL INCOME TAX PURPOSES

There are attached three documents in connection with the book-entry procedure which simplify recordkeeping for Federal income tax purposes. They
apply to transferable Treasury bonds, notes, certificates of indebtedness, or bills
issued under the Second Liberty Bond Act, as amended, and to "any other security of the United States." The quoted term is defined to include a bond, note,
certificate of indebtedness, bill, debenture, or similar obligation which is subject to the provisions of 31 CFR Part 306, or other comparable Federal regulations and which is issued by any department or agency of the Government of
the United States, or the Federal National Mortgage Association, the Federal
Home Loan Banks, the Federal Land Banks, the Federal Intermediate Credit
Banks, the Banks for Cooperatives, or the Tennessee Valley Authority.
The three documents are:
(1) The substance of Treasury Department Decision 7081, published in the
Federal Register on December 31,1970; ^
1 Piled as p a r t of the original dpcument. See 26 CFR 1.1012-1 (c) ( 7 ) .




244

19 73 REPORT OF THE SECRETARY OF THE TREASURY

(2) Revenue Ruling 71-21, published in Internal Revenue Bulletin 1971-3,
dated January 18,1971; and
(3) Revenue Ruling 71-15, published in Internal Revenue Bulletin 1971-3,
dated January 18, 1971.
The first document modifies the tax identification rules regarding the determination of basis and holding period of securities held as investments. It applies to the sale or transfer of book-entry securities pursuant to a written instruction by a taxpayer. It permits the taxpayer in its written instruction to its
bank or to the person through whom the taxpayer makes the sale or transfer
to identify the securities being sold or transferred by specifying the unique
lot number which he has assigned to the lot containing them.
The taxpayer may make the specification either—(a) in the written instruction, or (b) in the case of a taxpayer having a book-entry account at a Reserve
bank, or by his bank or any other person through whom the taxpayer makes the
books of the Reserve bank sold or transferred by him on that date: Pi^ovided,
The list is mailed to or received by the Reserve bank on or before the latter's
next business day.
These provisions apply only if the taxpayer assigns lot numbers in numerical
sequence to successive purchases of securities in the same loan title (series) and
maturity date, except that securities of the same loan title (series) and maturity date which are purchased at the same price on the same date may be included within the same lot.
The written advice of transaction furnished to the taxpayer by the Reserve
bank, or by his bank or any other person through whom the taxpayer makes the
sale or transfer, which specifies the amount and the description of the securities
sold or transferred and the date of the transaction is sufficient confirmation. The
Reserve bank need not use or refer to the lot number.
The second document concerns an owner of securities who has assigned sequential numbers to his successive purchases. The owner retains full interest in
the securities but transfers them to a bank which has a book-entry account with
a Reserve bank, or to another party whicli^ transfers them to a bank v/hich has a
book-entry account with a Reserve bank.
When at a later date the bank instructs the Reserve bank to sell or transfer
securities held in book entry for its customer, the bank need not refer to the
sequential number which had been assigned on the owner's books.
The tax identification requirements are satisfied if the owner's written instruction to his bank or to the person through whom the taxpayer makes the
sale or transfer sufficiently identifies the securities to be sold or transferred
and refers to the lot number assigned to them in the owner's books. The bank's
instruction to the Reserve bank will not refer to lot numbers; the Reserve bank
will confirm the sale to the bank in the manner it deems appropriate. The member
bank will confirm the sale or transfer to its customer by furnishing a written
advice of transaction specifying the amount and description of the securities
sold and the date of sale. The confirmation need not refer to lot number.
This document also permits substantially the same kind of identification and
confirmation procedures when securities are purchased through the book-entry
account for the bank's customers.
The third document provides that a dealer, who propeiiy holds securities in
inventory in accordance with § 1.471-5 of the Income Tax Regulations and proposes to transfer them to a book-entry system in a Reserve bank, will continue
to maintain his books and records for Federal income tax purposes with respect
to such securities in accordance with § 1.471-5 of the regulations and not § 1.1012-1
of the regulations.
SECTION 1012—BASIS OF PROPERTY—COST

26 CFR 1.1012.1 Basis of property. Rev. Rul. 71-21^ A taxpayer owns as
investments Treasury securities and certain other securities described in the
new § 1.1012-1 (c) (7) (iii) (c;^) of the Income Tax Regulations. The taxpayer
owner will assign a lot number to the securities in his books. The numbers will be
assigned in numerical sequence to successive purchases of the same loan title (series) and maturity date, except that securities of the same loan title (series) and
lAlso released as Technical Information Release 1063, dated Dec. 30, 1970.




EXHIBITS

245

maturity date which are purchased at the same price on the same date may be
included in the same lot. .
The owner proposes to retain full interest in the securities but he will transfer possession of them to a bank. That bank will not keep records of the securities
by use of the above-described lot numbers. The bank will also take possession of
like securities for other taxpayers.
The bank will transfer all of these securities to a book-entry system of a Federal Reserve bank. The securities will be entries in the book-entry account of the
bank and, as such, the securities will no longer exist in definitive form. That
account will not reflect the fact that the bank holds securities for several
taxpayers.
When the owner wishes to sell certain securities, he will so instruct the bank
in writing. The owner's instruction will sufficiently identify the securities to be
sold, and will also refer to the lot number assigned in the books of the owner
to the securities to be sold. The bank will then instruct, in writing; the Federal
Reserve bank to transfer the securities. The latter instruction will not refer to
the pertinent lot number. The Federal Reserve bank will confirm the sale to the
bank in the manner it deems appropriate. The bank will confirm the sale to the
owner by furnishing a written advice of transaction specifying the amount and
description of the securities sold and the date of the sale. The confirmation will
not refer to lot numbers.
When the owner desires to buy additional securities as investments of the kind
described in the new § 1.1012-1 (c) (7) (iii) (a) of the regulations, he will order
the bank to purchase them. The bank will instruct the Federal Reserve bank
to obtain the securities and to put them in the bank's book-entry account. The
confirmation of the purchase from the Federal Reserve bank to the bank and from
the bank to the owner will be of the nature used for the sale of securities. The
owner will assign lot numbers in the manner described above to these purchased
securities:
Held, the above procedure is consistent with the tax record requirements of
new § 1.1012-1 (c) (7) of the regulations. This procedure exemplifies the tax
record requirements when securities are transferred by parties to a bank who has
an account in the book-entry system of a Federal Reserve bank. The tax record
requirements in the case of a bank who puts its own investment securities in the
book-entry system are set forth in new § 1.1012-1 (c) (7) of the regulations.
SECTION 471—GENERAL RULE FOR INVENTORIES

26 CFR 1.471-5 Inventories hy dealers in Rev. Rul. 71-15 ^ securities. (Also sectioii 1012; 1.1012-1.) A dealer, 'as defined in section 1.471-5 of the Income Tax
Regulations, holds Treasury securities and other securities of the United States.
"Other securities of the United States" means a transferable bond, note, certificate of indebtedness, bill, debenture, or similar obligation which is subject to the
provisions of 31 CFR Part 306 or other comparable Federal regulations and
which is issued by (1) any department or agency of the Government of the
United States, or (2) the Federal National Mortgage Association, the Federal
Home Loan Bank, the Federal Land Banks, the Federal Intermediate Credit
Banks, the Banks for Cboperatives, or the Tennessee Valley Authority.
The dealer properly holds such securities in inventory in accordance with
§ 1.471-5 of the Income Tax Regulations. He proposes to transfer those securities
to a book-entry system maintained by a Federal Reserve bank. The dealer will
continue to maintain his books and records for Federal income tax purposes with
respect to such securities in accordance with §1.471-5 of the regulations.
Held, the dealer is not subject to the provisions of § 1.1012-1 of the regulations
relating to identification of property with respect to such securities. Such a
dealer must, however, comply with the provisions of § 1.471-5 of the regulations
relating to inventory by dealers in securities.
JOHN K. CARLOCK,

Fiscal Assistant Secretary.
1 Also released as Technical Information Release 1064, dated Jan. 14, 1971.




246

19 73 REPORT OF THE SECRETARY OF THE TREASURY

Exhibit 11.—Department Circular No. 853, April 11, 1973, Second Revision,
restrictive endorsements of United States bearer securities
DEPARTMENT OF THE TREASURY,

Washington, April 11,1973.
The regulations in 31 CFR part 328 have been amended for the purpose of
reducing costs of shipping definitive bearer securities submitted for conversion
to book-entry securities or for redemptions or exchanges.
Notice and public procedures are minecessary and are dispensed with as the
fiscal policy of the United States is involved. The changes were effected under
authority of R.S. 3706; -^0 Stat. 288, 502, 1309; 46 Stat. 20; 48 Stat. 343; 49 Stat.
20; 56 Stat. 189; 73 Stat. 622; 85 Stat. 5, 74 (31 U.S.C. 738a, 739, 752, 752a, 753,
754, 754a and 754b) ; and 5 U.S.C. 301.
JOHN K . CARLOCK,

Fiscal Assistant Secretary.
Department of the Treasury Circular No. 853, Revised, dated December 4, 1964,
is hereby further amended and revised and issued as Department of the Treasury Circular No. 853, Second Revision, effective April 11,1973.
§ 328.1 Scope of regulations.
The regulations in this part are applicable only to U.S. bearer securities^ presented (a) by or through banks for payment at or after their maturity or call
date, or in exchange for any securities under any exchange offering, (b) by
banks for conversion to book-entry securities, (c) by or through banks at any
time prior to their maturity or call date for redemption at par and application
of the entire proceeds in payment of Federal estate taxes, provided said securities
by the terms of their issue are eligible for such redemption, and (d) by Service
Center Directors and District Directors, Internal Revenue Service, for redemption, with the proceeds to be applied in payment of taxes (other than securities
presented under paragraph (c) of this section). These regulations do not apply
to bearer securities presented for any other transactions, or to registered securities assigned in blank, or to bearer, or so assigned as to become, in effect,
payable to bearer.
§ 328.2 Definitions.
Certain words and terms, as used in these regulations, are defined as follows:
(a) "Banks" refer to, and include, incorporated banks (i.e., banks doing a general commercial banking business), incorporated trust companies (i.e., trust
companies doing either a general banking business or a general trust business),
and savings and loan associations, building and loan associations, and such other
financial institutions as may be designated by the Federal Reserve banks. This
definition is limited to institutions incorporated within the United States, its
territories and possessions, the Commonwealth of Puerto Rico and the Canal
Zone.
(b) "Bearer securities" or "securities" are those which are payable on their
face to "bearer," the ownership of which is hot recorded. They include "Treasury
bonds," "Treasury notes," "Treasury certificates of indebtedness," and "Treasury bills."
§ 328.3 Authorization for restrictive endorsements.
(a) By hanks.—Banks are authorized, under the conditions and in the form
hereinafter provided, to place restrictive endorsements upon the face of bearer
securities owned by themselves or their customers for the purpose of presentation
to Federal Reserve banks or branches, or to the Treasurer of the United States.,
as follows:
r
(1) For payment or redemption—at any.time within 1 calendar month prior
to their maturity date, or the date on which they become payable pursuant to
a call for redemption, or at any time after their maturity or call date;
(2) For exchange—during any period for their presentation pursuant to an
exchange offering;
(3) For redemption at par in payment of Federal estate taxes (only eligible
securities)—at any time prior to their maturity or call redemption date; and
1 Certain agencies of the United States and certain Government and Government-sponsored
corporations also authorize the restrictive endorsement of bearer securities.




EXHIBITS

247

(4) For conversion to book-entry securities under subpart O of part 306 of this
chapter—at any time prior to their maturity or call redemption date.
(b) By Servi.ce Center Directors and District Directors, Intemal Revenue
Service.—Service Center Directors and District Directors, Internal Revenue
Service, are authorized, under the conditions and in the form hereinafter provided, to place restrictive endorsements upon the face of bearer securities for the
purpose of presentation to Federal Reserve banks or branches, or to the Treasurer of the United States, for redemption and application of the proceeds in
payment of taxes (other than securities presented for redemption at par and
application of the proceeds in payment of Federal estate taxes).
(c) Instructions from Federal Reserve banks.—Federal Reserve banks will
inform eligible banks and Service Center Directors and District Directors,
Internal Revenue Service, in their respective districts as to the procedure to
be followed under the authority granted by these regulations. Restrictive endorsements shall not be placed on securities until such information is received
from the Federal Reserve banks.
§ 328.4 Effect of restrictive endorsements.
Bearer securities bearing restrictive endorsements as herein provided will
thereafter be nonnegotiable and payment, redemption, or exchange will be made
only as provided in such endorsements.
§ 328.5 Forms of endorsement.
(a) When presented hy hanks—(1) For payment or exchange.—The endorsement placed on a bearer security presented for payment or exchange by a bank
should be in the following form :
For presentation to the Federal Reserve Bank of
, Fiscal
Agent of the United States, for redemption or in exchange for securities
of a new issue, in accordance with written instructions submitted by
(Insert name of presenting bank)

(2) For redemption at par.—The endorsement placed on a bearer security
presented for redemption at par in payment of Federal estate taxes should be
in the following form :
For presentation to the Federal Reserve Bank of
, Fiscal Agent
of the United States, for redemption at par in payment of Federal
estate taxes, in accordance with written instructions submitted by
(Insert name of presenting bank)

(b) For conversion to hook-e^itry securities.—The endorsement placed on a
bearer security presented for conversion to a book-entry security shall be in the
following form:
For presentation to the Federal Reserve Bank of
, Fiscal Agent
of the United States for conversion to book-entry securities by
(Insert name of presenting bank)

(c) When presented hy Service Center Directors or District Directoirs, Internal Revenue Service.—The endorsement placed on a bearer security by a
Service Center Director or a District Director, Internal Revenue Service, should
be in the following form :
For presentation to the Federal Reserve Bank of
, Fiscal Agent
of the United States, for redemption, the proceeds to be credited to the
account of the Service Center Director, Internal Revenue Service, at
, for credit on the Federal
taxes due from
(Income, gifts, or other)
(Name and address)

§ 328.6 Requirements for endorsement.
(a) On hearer securities.—The endorsement must be imprinted in the lefthand portion of the face of each security with the first line thereof parallel to the
left edge of the security and in such manner as to be clearly legible and in such
position that it will not obscure the serial number, series designation, or other
identifying data, and cover the smallest possible portion of the text on the face
of the security. The dimensions of the endorsement should be approximately
4 inches iri width and IV^ inches in height, and must be imprinted by stamp or
?




248

1973 REPORT OF THE SECRETARY OF THE TREASURY

plate of such character as will render the endorsement substantially ineradicable.
The name of the Federal Reserve bank of the district must appear on the plate
or stamp used for the imprinting of the endorsement, and presentation to the
appropriate branch of the Federal Reserve bank named will be considered as
presentation to the bank. When securities are to be presented to the Treasurer
of the United States, the words "Treasurer of the United States" should be
used in lieu of the words "Federal Reserve Bank of
, Fiscal Agent
of the United States." No subsequent endorsement will be recognized. If the
form of endorsement on a security is different than that prescribed in § 328.5,
the pro^dsions of §§ 328.7 and 328.8 shall not apply to the security.
(b) On coupons.—Unmatured coupons attached to restrictively endorsed
securities should be canceled by imprinting the prescribed endorsement in such
manner that a substantial portion of thef endorsement will appear on each such
coupon. If any such coupons are missing, deduction of their face amount will
be made in cases of redemption, and in cases of exchange, remittance equal to
the face amount of the missing coupons must accompany the securities. All matured coupons, including coupons which will mature on or before the date of redemption or exchange (except as otherwise specifically provided in an announcement of an exchange offering), should be detached from securities upon which
restrictive endorsements are to be imprinted.
§ 328.7 Shipment of securities.
Securities bearing restrictive endorsements may be shipped, at the risk and
expense of the shipper, by registered mail, messenger, armored car service, or
express to the Federal Reserve bank of the district in which the presenting
bank, the Service Center Director, or the District Director, Internal Revenue Service, is located, or to the appropriate branch of such Federal Reserve bank. Shipments to the Treasurer of the United States, Washington, D.C, should be made
by messenger or armored car.
§ 328.8 Loss, theft or destruction of securities bearing restrictive endorsements.
(a) General.—Relief will be provided on' account of securities bearing restrictive endorsements proved to have been lost, stolen, or destroyed, upon the owner's application, in the same manner as registered securities which have not been
assigned. (See subpart N of the current revision of Department Circular No. 300,
the general regulations governing United States securities.) Except for bearer securities submitted for redemption at par in payment of Federal estate taxes, a
bani? will be considered the owner of securities handled on behalf of customers
unless it otherwise requests. The application for relief (Form PD 2211) and instructions will be furnished by the Federal Reserve banks.
(b) Bond of indemnity.—Where securities bearing restrictive endorsements
shipped by a bank have been lost, stolen, or destroyed, a bond of indemnity with
surety satisfactory to the Secretary of the Treasury will be required from the
owner. If such bond is executed by a bank or other corporation, the execution
must be authorized by general or special resolution of the board of directors,
or other body exercising similar functions under its bylaws. Ordinarily, no
surety will be required on a bond executed by a presenting bank. The Secretary
of the Treasury reserves the right, however, to require 'a surety in any case
in which he considers such action necessary for the protection of the United
States.
§ 328.9 Miscellaneous.
The provisions of this circular are subject to the current revision of Department Circular No. 300. The Secretary of the Treasury reserves the right at any
time to amend, supplement, or withdraw any or all of the provisions of these
regulations.




249

EXHIBITS

Exhibit 12.—Department Circular No. 905, December 12, 1969, Fifth, Revision,
Supplement No. 3, offering of United S t a t e s savings bonds, Series H
DEPARTMENT

OF T H E

TREASURY,

Washington, April 25,1973.
The purpose of this supplement is to show the ainounts of the interest checks
and the investment yields for the next extended m a t u r i t y period for U.S. Savings
Bonds of Series H bearing issue dates of October 1, 1953, through March 1, 1954,
and J u n e 1 through November 1, 1963. Accordingly, the tables to D e p a r t m e n t
Circular No. 905, fifth revision, dated December 12, 1969, as amended (31 C F R
p a r t 332), a r e hereby supplemented by the addition of tables 5-A and 26-A, as
set forth below.
J O H N K . CARLOCK,

Fiscal Assistant Secretary.

T A B L E 5 - A . — B o n d s hearing issue dates from Ociober 1,1953, through March 1, 1954 ^
(Issue price
F a c e valuer R e d e m p t i o n a n d maturity
i value

Period of t i m e b o n d is held after
extencled m a t u r i t y d a t e

$500 $1,000
500

1,000

$5,000 $10,000 A p p r o x i m a t e i n v e s t m e n t yield
( a n n u a l percentage rate)
5,000
10,000

(2) F r o m
(1) A m o u n t s of interest checks for beginning (3) F o r
each d e n o m i n a t i o n
of second half-year
extended
period
;
m a t u r i t y preceding
period to interest
SECOND E X T E N D E D
each i n t e r - p a y m e n t
MATURITY PERIOD
est p a y date
ment date

i^year.......
'.
2(12/1/73) $13.75 $27.50 $137.50 $275.00
lyear
(6/1/74)
13.75 27.50 137.50 275.00
1)^ years
(12/1/74)
13.76 27.50 137.50 275.00
2 years
(6/1/75)
13.75 27.50 137.60 276.00
2>^years
(12/1/75)
13.75 27.60 137.50 275.00
3 years
(6/1/76)
13.75 27.50 137.50 275.00
3M years
(12/1/76)
13.75 27.60 137.50 275.00
4 years
...(6/1/77)
13.75 27.50 137.60 276.00
43^ years
...(12/1/77)
13.75 27.50 137.50 275.00
5 years
(6/1/78)
13.75 27.50 137.50 275.00
5M years
(12/1/78)
13.76 27.50 137.60 276.00
6 years
(6/1/79)
13.76 27.50 137.50 276.00
6M years
...(12/1/79)
13.75 27.60 137.60 276.00
7 years
(6/1/80)
13.76 27.60 137.60 276.00
7M years
(12/1/80)
13.75 27.60 137.60 275.00
8 years
(6/1/81)
13.75 27.50 137.60 275.00
8K years...(12/1/81)
13.75 27.50 137.60 276.00
9 years
(6/1/82)
13.76 27.50 137.50 275.00
9M years
(12/1/82)
13.75 27.50 137.50 275.00
1 0 y e a r s ( 2 d e x t e n d e d maturity) 3.(6/1/83) 13.75 27.50
137.50 -275.00

Percent
5.50
5.50
5.50
6.50
5.50
5.50
6.60
6.50
6.50
6.60
5.50
6.60
6.60
5.50
5.50
6.50
6.60
5.50
5.50
45.50

(4) F r o m
each
interest
payment
d a t e to
second
extended
maturity

Percent
Percent
6.60
6. 50
6.50
5.50
5.60
6.50
6.50
5.60
5.60
6.50
6.50
5.60
6.50
5.60
6.60
5.60
5.50
6.50
5.50
6.60
6.60
6.50
6.50
5.50
6.50
5.50
5.60
6.60
6.60
6.50
5.60
5.50
6.60
6.50
5.50
5.50
5.50
6.50
5.50.

1 T h i s t a b l e does n o t a p p l y if t h e prevailing r a t e for Series H b o n d s being issued a t t h e t i m e t h e second
extension begins is different from 5.50 percent.
2 M o n t h , d a y , a n d year o n which interest check is p a y a b l e o n issues of Oct. 1,1953. F o r s u b s e q u e n t issue
m o n t h s a d d t h e a p p r o p r i a t e n u m b e r of m o n t h s .
3 T w e n t y - n i n e years a n d 8 m o n t h s after issue d a t e .
4 Yield from issue d a t e to second extended m a t u r i t y d a t e o n b o n d s d a t e d : Oct. 1 a n d N o v . 1,1953 is 4.05
percent; D e c . 1,1953 t h r o u g h Mar. 1,1954 is 4.06 percent.




250

19 73 REPORT OF THE SECRETARY OF THE TREASURY

TABLE 26-A:—Bonds hearing issue dates from June 1 through November 1, 1963 ^
(Issue price...
Face value< Redemption and maturity
1 value.

Peiiod of time bond is held after
maturity date

>^year
2 (12/1/73)
1 year..
( 6/1/74)
I M years
(12/1/74)
2 years.
( 6/1/75)
23^ years..
-(12/1/75)
3 years
.( 6/1/76)
3 M years
(12/1/76)
4 years
-.
( 6/1/77)
4 M years
(12/1/77)
5 years.
( 6/1/78)
5 M years
(12/1/78)
6 years
( 6/1/79)
6 k years....
(12/1/79)
7 years
( 6/1/80)
7 3^ years
(12/1/80)
8 years.
'.
.( 6/1/81)
8 K years
(12/1/81)
9 years
( 6/1/82)
9 3^ years..
(12/1/82)
10 years (extended maturity) 3.,( 6/1/83)

$500 $1,000
500

1,000

$5,000 $10,000 Approxmiate investment yield
(amiual percentage rate)
5,000 10,000

(2) From (3) For
(1) Amounts of interest checks for beginning half-year
each denomination
ofextended period
—
matmity preceding
period to interest
E X T E N D E D MATURITY each inter- payment
PERIOD
est paydate .
ment date
Percent
$13. 76 $27. 50 $137.50 $275.00
13.75
27.50
137. 50 275.00
13.75
27.60
137.50
275.00
13.75
27.50
137.60
275.00
137. 50 276.00
13.75
27.50
13.75
27.50
137. 50 275.00
13.75
27.50
137.50
275.00
13.75
27.50
137.50
275.00
13.75
27.50
137. 50 275.00
13.75
27.50
137.50
275.00
13.75
27.50
137.50
275.00
13.75
27.50
137. 50 275.00
13.75
27.50
137.50
275.00
13.75
27.50
137.50
275.00
13.75
27.50
137.50
275.00
13.75
27.60
137. 50 . 275.00
13.75
27.60
137.50
275.00
13.75
27.50
137.50
275. 00
13.75
27.50
137. 50 275. 00
13.75
27.50
137.50
275.00

5.50
5.50
5.50
6.50
5.50
5.50
5.50
5.50
5.50
5.50
6.60
5.50
5.50
6.50
5.50
6.50
5.50
5.50 .
6.50
45.50

(4) From
each
interest
pa3niient
date to
extended
maturity

Percent
5.50
5.50
6.60
5.50
5.50
5.50
5.60
6.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50 . -

Percent
5.60
5.50
5.50
5.60
6.50
6.50
6.50
5.50
5.60
5.50
5.60
5.50
5.50
6.60
6.50
6.60
6.50
5.50
5.50

1 This table does not apply if the prevailing rate for Series H bonds being issued at the time the extension
begins is different from 6.60 percent.
2 Month, day, and year on which interest check is payable on issues of June 1,1963. For subsequent issue
months add the appropriate number of months.
3 Twenty years after issue date.
4 Yield on purchase price from issue date to extended maturity is 4.75 percent.

Exhibit 13.—An act to provide for a 4-month extension of the present temporary
level in the public debt limitation
[Public Law 92-336, 92d Congress, I-I.R. 15390, July 1, 1972]
Be it enacted hy the Senate and House of Representatives of
the United States of America in Congress assemhled. That Public
Law 92-250 and section 2 (a) of Public Law 92-5 are each amended
by striking out "June 30, 1972," and inserting in b'eu thereof "October 31, 1972,".
Ante, p. 63 ;
85 Stat. 5.

Exhibit 14.—An act to provide for a temporary increase in the public debt limit
[Public Law 92-599, 92d Congress, I-I.R. 16810, October 27,1972]
Be it enacted hy the Senate and House of Representatives of the
United States of America in Congress assemhled, That during the
period beginning on November 1, 1972, and ending on June 30, 1973,
the public debt limit set forth in the first sentence of section 21 of
the Second Liberty Bond Act (31 U.S.C. 757b) shall be temporarily
increased by $65,000,000,000.

Public debt
limit.
Teraporary
increase.
Ante, p. 63.




'•
, ;

EXHIBITS

251

Economic and Financial Policy
Exhibit 15.—Statement by Secretary Shultz, July 25, 1972, before the Joint
Economic Committee
The view is now widespread that the economy is expanding with strength and
in a cumulative fashion. This- view also holds that the upward movement in the
general level of prices is moderating, as increased productivity and smaller
increases in average hourly earnings lead to a slower growth in unit costs; and
that the average household has over the past 18 months seen the results of this
process refiected in a sharp upward movement in real spendable earnings, after
7 years in which this crucial measure of well-being failed to rise. The general
view seems also to be that these favorable trends will continue. At the same
time, many people are anxious about 1973 and 1974 insofar as the reemergence
of inflation is concerned.
I agree with this widespread assessment of the current situation and the
outlook. I also agree that the problem of inflation must remain in the forefront
of our thinking as we approach issues of economic policy. This is especially so
since we must work constantly to see that all those who want a job have an
opportunity to have one. Encouraging as are recent indicators of economic expansion, we are nevertheless still short of attaining that important goal!
The Council of Economic Advisers has prepared for you a detailed midyear
review of economic developments. Therefore, it is unnecessary for me to provide
yet another recitation of what you already know, pleasant as it might be to
dwell on recent developments.
Rather, I would like to call attention to certain aspects of policy and analysis,
suggesting thereby some lessons from recent experience that we might appropriately apply in our continuing effort for peacetime prosperity with reasonably
stable prices.
The need for budget discipline
The unified Federal budget has been kept at roughly full-employment balance
for fiscal years 1969, 1970, 1971, and 1972, following the rising and large deficits
in 1966, 1967, and 1968. There are many factors other than fiscal policy involved
in controlling the economy. They include monetary policy and, in the last 11
months, the system of wage and price controls. This exercise in budget discipline
has nevertheless been a powerful force in moving the rate of inflation down from
6.1 percent in 1969 to 5.5 percent in 1970, to 3.8 percent in 1971 prior to the
freeze, to 2.7 percent in the 10 succeeding months as measured by the Consumer
Price Index.
As we move into fiscal year 1973 and look ahead to the year following, will we
be able to maintain this discipline? Recent actions by the Congress certainly
leave the issue in doubt. There will be many actions on appropriations and contract authority taken in the next few weeks.
I urge the Congress to act with restraint on spending.
I urge the Congress to act favorably on the President's proposal for a firm
ceiling on spending, one that would bind the legislative as well as the executive
branch.
Otherwise I fear that we may return to the budget excesses of 1966, 1967, and
1968, with the relentless pressure these excesses put on the price level.
The contribution of industrial peace
The country has benefited greatly this year from a level of strike activity
far below that of other recent years. In fact, in May 1972, the number of workers
involved in new strikes was the lowest for any May in 30 years.
This remarkable degree of industrial peace is a tribute to labor and management and shows what can be done by the system of free collective bargaining.
There have been many noteworthy achievements, including the settlement last
week of two most difiicult issues affecting the railroads and a record of settlements without strikes of many tough cases in the construction industry. The
record in construction, noted and notable on the side of the levels of wage settlements, is as much so on the side of industrial peace.
I know that, in aii exacting scholarly sense, it will not be possible to show
just what contribution relative industrial peace has made to the strength of the
506-171—73

19




252

1973 REPORT OF THE SECRETARY OF TPIE TREASURY

economy this year. It is my belief, however, that freedom from the disruptions
of widespread strikes has contributed significantly to the expansion.
The Secretary of Labor and the Director of the Mediation Service and their
coworkers have worked hard to encourage free collective bargaining. The basic
achievement, however, is one of labor and management together. They deserve
our understanding and encouragement. They also deserve recognition for their
contribution to the economy. I salute them for the record of free collective
bargaining in 1972.
The impact of tax changes
The tax structure has undergone massive change in the last 2i/^ years, and a
further change, in the form of revenue sharing, is currently under review in the
Senate.
The tax burden on individual incomes has been reduced, with the reductions
benefiting low-income earners jproportidnately inore. These reductions' have undoubtedly helped the. expansion and account in some measure for the strong
recent increases in personal consumption expenditures.
The highly regressive tax on youth derived from a combination of the draft
with low pay in the Armed Forces has been replaced by strong movement toward
a volunteer Armed Force.
Greater incentives for new investment, which creates jobs now and low costs
for the future, have resulted from clearing the uncertainty surrounding the
asset depreciation range system last year and by passage of the job development
tax credit. While it is always difiicult to disentangle cause and effect, it is
worth noting that private spending on new investment has picked up sharply
this year, adding pace and quality to the expansion. This shows up not only in
the well-known data on plant and equipment spending by businesses but also
in farm equipment, where outlays are up by one-fifth over a year ago, and in
trucks, buses and trailers, which are up by one-third.
Much has recently been accomplished by way of tax reform. The President
is determined to carry these efforts further, to simplify the tax system, to make
it more equitable, and,to so arrange it that it contributes as much as possible
to the solution of our econoinic .problems. It is an immensely complicated subject, and changes must be made with care and with an understanding of the
results of changes recently made. As we in the Treasury work on this subject,
we welcome the discussion of.it stimulated by this committee, as well as by the
committees directly concerned.
International economic developments
Last August 15, the United States embarked on a program to restore its external economic strength and to reform the international monetary system in the
context of an open and liberal world trading order.
As I pointed, out earlier, our economy is now growing vigorously. In contrast, many of our major competitors are in a period of relatively slow expansion.
As their economies pick up, as they, expect, so should foreign demand for our
exports. Meanwhile, the relative price performance of the United States is helping to reinforce the effects of the recent exchange rate realignment. We are not
satisfied with Our performance—but it is improving, and better than others.
We are determined to make additional progress in the future.
Many factors suggest that our balance of payments position should improve
in the period ahead. But I believe it is evident we cannot afford to relax in the
thought that the changes made so far provide an assured and lasting solution.
To take advantage of the opportunity afforded, we must manage our economy
properly, we must increase its vigor and competitiveness, we must reduce barriers abroad to our exports. We must obtain structural changes in our international economic relationships to better reflect the present balance of power
and responsibility.
In recent months there have.been periods of calm and periods of speculation
in foreign exchange markets. There was sporadic market uncertainty through
early March—during what was an inevitable period of testing of the Smithsonian;
agreement. Markets then remained calm for 31/2 months. During this period, a
gradual unwinding of speculative positions and a reflux of short-term' funds
roughly offset—or more than offset—the continuing deficit in our trade and
other accounts.




EXHIBITS

253

This calm was disturbed in the latter part of June, when strong speculative
concerns reemerged at the time of the U.K. decision to float the pound. We and
other parties to the Smithsonian agreement judged—and announced—that the
speculation associated with the British move need not affect the basic exchange
rate structure established at the Smithsonian. That continues to be our firm view.
Consistent with our view of the validity of the Smithsonian rates, we decided
that some intervention from time to time in the exchange markets could provide a helpful deterrent to unwarranted speculation and to demonstrate the
firmness of our view. This action does not in any way restore the convertibility of
the dollar. Our basic policy approach toward monetary reform and the necessary
efforts to achieve sustainable equilibrium in our balance of payments is unchanged.
These market developments emphasize—if emphasis were needed—the urgency
of moving ahead Avith monetary reform. We must get on with this important
work, and we must get the job done correctly.
Negotiations on reform of the monetary system have in a real sense been underway for some time. A process of discussion:—much of it informal—among national
governments has provided an opportunity to exchange views on the objectives
of reform, and to clarify some of the major issues. Through this process, we
gain understanding and lay the groundwork for developing the necessary consensus on. which lasting reform must be based.
To handle the more formal negotiations of monetary reform, nations are now
in substantial agreement on the formation of a "Committee of Twenty" under
the general auspices of the IMF. The United States has played a major role in
establishing the new Committee. We believe that with its representative membership and its breadth of approach enabling it to consider trade, interrelated
investment and development, as well as monetary questions, it is well-equipped
for the challenging task of monetary reform. We expect the Committee to begin
its work at the time of the annual meetings of the IMF in September.
If we are to find workable and lasting solutions to the diflicult problems of
international monetary reform, we will have to deal with fundamental issues
of importance to the national interest of the United States and other countries.
Too often the smooth functioning of the monetary system is seen as simply a
technical problem, involving nothing more than a search for efficient monetary
devices. But discussion of these devices, important as they are, must not distract our focus from the basic issues.
As we come to grips with these important problems in the negotiations ahead,
we intend to exercise our leadership to ensure that the monetary system which
emerges will be sound and durable and fully meets the needs of a growing and
changing world economy.
Exhibit 16.—Excerpts from address by General Counsel Pierce, October 12, 1972,
before the 45th annual convention of the National Bankers Association Convention, Houston, Tex., on the minority bank deposit program
I welcome this opportunity to address the National Bankers Association for
several very cogent reasons. As a founder and former director of one of your member banks—Freedom National Bank of New York—I believe I have an understanding of and a feeling for many of the problems that face minority-owned or
controlled banks. In addition, through the years, I have gotten to know a number
of the ofiicers and directors of this association and of its member banlis, and this
engagement gives me a chance to renew old acquaintances. I also welcome this
opportunity because it brings me to the wonderful city of Plouston. It is one.of
my favorite cities, and one of the truly great cities of the United States. .
I. Reflections and a progress report on the minority bank deposit program
Essential to the substantial growth of any bank is the growth of its deposits.
In the past, a minority-controlled bank located in a black, Spanish-speaking, or
Indian community has generally experienced difiiculty in securing deposits in
sufliciently large amounts to permit it to grow strong enough to have a truly great
impact on the economic development of its community. This is .understandable because the people in minority communities are often relatively poor and many of
the businesses located in these communities are quite small and relatively weak
financially—to say nothing of the prejudices a minority bank may face and the
competition it may receive from white banking institutions,




254

1973 REPORT OF THE SECRETARY OF THE TREASURY

Deposits are not the only ingredient necessary for a small bank to grow into
a much larger and stronger one. Sufiicient capital growth as well as constant
improvement in management and staff are also essential to the growth of a bank.
Flowever, without a significant growth rate in its deposits—which are the raw
material of banking—the expansion of a small bank would be severely limited.
As I previously mentioned, in addition to deposits, adequate capital and skilled
personnel are important ingredients in the growth of a bank. Last week I talked
with William Camp, the Comptroller of the Currency, about the capital and personnel problems of minority banks. Pie said that minority banks were improving
in both categories; that, on the whole, they were securing the necessary capital
to permit them to grow on a sound basis; and that their management and staff
personnel had shown definite and constant improvement. He did say, however,
that the problem of getting good people was tougher than the problem of securing additional capital, but added that this was true for all banks, not just
minority banks.
As deposits in minority banks are growing at a remarkable rate, and as they
are acquiring the necessary capital to grow on a sound basis, and their management and staff are constantly improving, it is reasonable to conclude that in
general the minority banks of this country should grow and prosper. The extent
to which they expand and the degree of their profitability will not only depend
upon those factors I have already discussed, but also—in substantial measure—
upon the condition of the American economy.
III. Sensitivity to community needs
It seems clear that in general the future for minority banks is quite good. They
are accumulating deposits rapidly; securing the necessary capital to maintain a
sound growth rate; improving their personnel; and operating in a favorable
economic climate. As a result, minority banks can be expected to grow and prosper.
Sometimes when business concerns become large, wealthy, and economically
independent, they also become less sensitive and more impersonal. Their objectives
become more material than human. The profit motive becomes far more important than the motive for helping one's fellow man.
I hope I live to see the day when some of the banks currently referred to as
minority banks grow so large and powerful that their histories can be compared
with the Bank of America, the largest bank in the world, which at one time could
have appropriately been called a "minority bank." However, I hope none of the
members of this association will ever forget the communities that spawned them,
nor their obligation to be sensitive to the needs of those communities, and their
responsibility to help those communities grow and develop both economically
and socially.
Governor Andrew Brimmer of the Federal Reserve Board stated in a report
on black banking released on July 31, 1972, that black banks only loaned 41.1
percent of their total deposits, while the loans of all other insured banks represented 64.5 percent of their deposits. Dr. Brimmer concluded that black banks
had clearly demonstrated their ability to attract capital, but were experiencing
difficulties in finding reasonably secure outlets for their funds in the black
communities.
There may be good and substantial reasons—other than difficulty in securing
loans in their communities—for black banks having such a low loan ratio. For
example, a large percentage of the deposits of black banks may be in tax and
loan accounts or other Federal Government accounts which may be drawn upon
on short notice, thereby preventing the banks from making long-term loans with
those deposits.
Nevertheless, the point made by Dr. Brimmer makes one wonder whether black
banks as well as other minority banks are being as creative as they should in
their efforts to serve the needs of their communities. I am certainly not being
critical, but I do want to urge most strongly that the directors and oflicers of
every minority bank give substantial thought to the question of whether their
bank is truly sensitive to community needs and is doing its utmost to be creative
and imaginative in serving the needs of its community.
I do not believe minority banks are solely in business to make money. Their
commitment is much broader than that. I think that when most minority banks
were founded—particularly those foundecl within the past 10 years, which repre-




EXHIBITS

255

sents about two-thirds of the minority banks in existence today—they were
founded more in the spirit of dedication than in the spirit of free enterprise.
I know when a group of us founded Freedom National Bank our hopes and
aspirations went beyond the profit motive. W^e had dreams that some day the
bank would not only make money for its shareholders, but would be of vital
importance in the economic growth and development of the black community in
New York City. We realized that, to some degree, bank profits might well have
to be sacrificed to fulfill an obligation we believed we had to the community.
I feel certain that the founders of most minority banks had similar thoughts
when they started their banks. That is why I believe there is an unwritten, but
moral, obligation on the part of minority banks to be highly sensitive to community needs and to respond to those needs through creative, imaginative, and
reasonably bold action. To me, this obligation w^ill remain until such time that
there is no further need for minority banks because all people will have respect
for each other as human beings ; prejudice and bigotry will have disappeared ; and
everyone will have the same opportunity to achieve according to his or her
ability. It will be the day—to paraphrase the words of the late and great
Dr. Martin Luther King—when minorities are free at last, free at last—Great
God Almighty when they are free at last!
It was with these factors in mind that the Nixon administration in October
1970 embarked upon its minority bank deposit program. Agencies of government
and businesses in the private sector have been urged by the administration to
participate in this program by making deposits in minority-owned or -controlled
banks. It was and still is believed that by assisting these banks to secure substantial increases in their deposits, they eventually will grow strong enough to
become vital and key instruments in the economic growth and development of
minority communities.
This program refiects part of the administration's eff'ort and desire to see to
it that progress is made in fulfilling the expectations that blacks and other
minorities have to enjoy their just share of the economic fruits of this Nation;
to see to it that they get "a piece of the action"—a phrase used by the President
in referring to his intention to help minorities realize their economic aspirations.
The program has been and continues to be successful. When Dr. Charls
Walker, Deputy Secretary of the Treasury, addressed your association in July
of this year, he reported that as of June 30, 1972, the minority banks in this
country had deposits totaling $825,406,000, an increase of $429 million, or 108 percent, since the Nixon administration launched its minority bank deposit program
in October 1970.
In order to have the latest figures on the growth of minority bank deposits by
the time of this meeting, I had telephone calls made last week to all of the
minority banks to find out what their deposits were as of September 30,1972.1 am
happy to announce today that as of September 30, the 43 minority banks in the
United States had a total of $874,225,000 in deposits, an increase of $477,710,000,
or 120 percent, since the minority bank deposit program was initiated 2 years
ago.*
During the third quarter of this year, the deposits of minority banks increased
by almost $50 million or approximately 12 percent. With some luck and a great
deal of hard work the landmark of $1 billion in deposits may still be attained by
the end of 1972.
*Two tables are attached. Table I shows the growth of total deposits of all banks
participating in t h e program on a quarterly basis since the program was initiated. Table I I
shows the total deposits of each bank in the program as of September 30, 1972.




256

19 73 REPORT OF THE SECRETARY OF THE TREASURY

TABLE I.— Total deposits of banks participating in the administration's minority
bank deposit program
[In rounded thousands of dollars]
31 b a n k s
originally o n
roster

Date
Sept. 30, 1970.
Dec. 31, 1970
Sept. 30, 1971
Dec. 31,1971
June 30, 19723
Sept. 30, 1972 3

.-.-.

396, 615
443. 324
543, 509
618,747
698.721
720,170

B a n k s s u b s e q u e n t l y a d d e d to roster
Total
New banks i

8,493
16, 885
32, 627
44, 276

Existing b a n k s 2

61, 930
94,158
109,779

396,615
443,324
552,002
687, 562
825,406
.4 874, 225

1 At Sept. 30, 1971: Pan American National Bank, Union City, N.J., Banco del Pueblo, Santa Ana
Calif., North Milwaukee State Bank, Milwaukee, Wis., and Atlantic National Bank, Norfolk, Va. At
Dec. 31, 1971: The above and Greensboro National Bank, Greensboro, N.C. At June 30, 1972: The above,
Vanguard National Bank, Hempstead, N.Y., and Lumbee Bank, Pembroke, N.C. At Sept. 30,1972: The
above and First Enterprise Bank, Oakland, Calif.
2 At Dec. 31, 1971: Repubhc National Bank, Miami, Fla., Highland Community Bank, Chicago, 111.,
and American State Bank, Tulsa, Okla. At Jmie 30, 1972, and Sept. 30, 1972: The above and Fidehty
National Bank, Miami, Fla.
3 Figures obtained from banks by phone; may differ shghtly from published figures.
* Includes: 27 State banks with total deposits of $552,533.
16 National banks with total deposits of $321,692.
31 black and multiracial banks with total deposits of $494,761.
11 Spanish-American banks with total deposits of $377,672.
1 American Indian bank with deposits of $1,792.




257

EXHIBITS

TABLE IL—Total deposits of minority-owned banks ai Septemher 30, 1972
[In tliousands of dollars]

Bank
.
Bank of Finance, Los Angeles..
'
Pan American National Bank, Los Angeles
First Enterprise Bank, Oakland
_.
Banco de Pueblo, Santa Ana
•.
Industrial Bank, Washington, D.C
:
United Community National Bank, Washington, D.C
The Bank of ]\Iiami
Fidehty National Bank of South Miami
Republic National Bank of Miami.
Citizens Trust Company, Atlanta
Carver State Bank, Savannah.._
Highland Community Bank, Chicago
Independence Bank, Chicago.
_..
Seaway National Bank, Chicago
Douglass State Bank, Kansas City, Kans..
Unity Bank& Trust Co., Roxbury, Mass
,
.
1st Independence National Bank, Detroit
1st Plymouth National Bank, Minneapolis
Swope Parkway National Bank, Kansas City, Mo
Gateway National Bank, St. Louis
Pan American National Bank, Union City, N.J
Centinel Bank of Taos, N. Mex
Vanguaxd National Bank, Hempstead, N.Y
Banco Credito y Ahorro Ponceno, New York City 2
Banco de Ponce, NewYork City 2._
Banco Popular de Puerto Rico 2
Freedom National Bank, New York City
Mechanics &.Farmers Bank, Durham, N.C.3
Greensboro National Bank, Greensboro, N.C
Lumbee Bank, Pembroke, N . C . . .
'.
Unity State Bank, Dayton.
-...
American State Bank, Tulsa
Freedom Bank of Finance, Portland, Oreg
...
Victory Savings Bank, Columbia, S.C
Tri-State Bank, Memphis
Citizeus Savings Bank & Trust Co., Nashville
Pan American National Bank, Houston
Riverside National Bank, Houston
First StateBank, Danville, Va.
Atlantic NationalBank, Norfolk
Consohdated Bank & Trust Co., Richmond
.
Liberty Bank of Seattle
North Milwaukee State Bank, Milwaukee.
Total

.
.

.:

:..
...
...

.

..-..
i

..

.

•

..

...
•.

•

.

1

.

....^
.
1

.
1

-.

-

1 Deposits reported via phone; may difier slightly from pubhsher! figures.
2 New York City ofiices only.
3 Includes offices in Chai'lotte and Raleigh.
•Estimated, exact figures not readily available in bank.




:

....

.

.

..

:
^...

:.:........
..

..

Total
deposits i
28,745
17,752
3,155
6,310
35,959
16,774
44,325
29,565
66, 679
30,852
5,859
9,963
39,592
41,071
15,960
12,800
23,942
13,3,37
9,500
15,192
7,763
6,880
8,016
19,398
97,525
e75,000
45,647
33,273
2,696
1,792
5,418
3,672
" 7,654
4,865
16,570
8,689
6,575
10,295
7,101
6,989
17,434
6,286
7.556
874,225

258

197 3 REPORT OF THE SECRETARY OF THE TREASURY

Exhibit 17.—Remarks of Assistant Secretary Fiedler, November 15, 1972, before
the National Economists Club Seminar, Washington, D.C, on "The Impact of
Controls"
The rate of infiation has diminished. My family and my noneconomist friends
would seriously question that statement, and understandably so, but among
economists and others who watch the statistics closely there is wide agreement
that both prices and wages are increasing at a slower rate than before the controls were put in place 15 months ago today.
Inflation scoreboard
Most statistical series on prices and wages reveal the slowdown, as shown in
table 1 'and charts 1 and 2, attached. The most decisive evidence is found in the
broadest price measures we have, those from the GNP data, which show a cutback in the rate of infiation to about 2% percent in the first year of the stabilization program, compared to about a 5-percent rate from 1969 through early 1971.
The Consumer Price Index also shows a pronounced but more gradual deceleration of infiation over these years. The slowdown is less decisive as measured by
the Wholesale Price Index, which is narrower in coverage and historically more
volatile than the others.
On the wage side, the adjusted hourly earnings index has increased at a rate
of 6.1 percent during the stabilization program, compared to about 7 percent
previously. Wage increases in major collective bargaining settlements (which
data provide very narrow coverage relative to the hourly earnings series) have
averaged 6.6 percent in the first three quarters of 1972, compared to over 8 percent
in 1971 prior to the controls.
Thus, the evidence shows a clear, but not uniform, deceleration in the rate of
inflation. Price inflation has been cut by perhaps 2 percentage points. The growth
of wage rates appears to have been slowed by a percentage point or more. On
balance, it seems fair to conclude that we have gone from about a 5-percent
inflation world to a 3-percent inflation world.




259

EXHIBITS
CHART

1

Percent15
5.0

Price Deflator, Private Gross Product
6/

^5

5.0

25

2.8

0

Consumer Price Index

15
5.0
2.5

32

0

Wholesale Price Index

15
5.0
25
0-

22
1969

1970

SEE NOTES TO TABLE 1.




EarlylQJI

Stabilization
Program fo Date

260

1973 REPORT OP THE- SECRETARY OF THE TREASTJRY
CHART 2

Percent
fCOrHourly Earnings

Negotiated Wa^e Changes

1969

1910

SEE NOTES TO TABLE 1.




Early1971

Sfabilizaf/or}
Program fo Date

EXHIBITS

261

TABLE 1.—Measures of price and wage inflation hefore and during the economic
stabilization program
[Seasonally adjusted percent changes at aimual rates]

1969 a
ONP Price Deflators
Total
Private, flxed weights
.Consumer Price Index
All items
Food
—
---Conunodities less food._.
Services d
Rentd
Wholesale Price Index
All commodities
^^
Farm products, processed foods, feeds
Industrial commodities
Consumer commodities, excluding food.
Producer finished goods
hitermediate materials, excluding food
Crude materials, excluding food
Wages
Hourly earnings e
Negotiated wage changes '

Early
1971 b

1970 a

Stabihzation
prograni to
date 0

5.3
5.1

...

6.1
6.0

P2.6
P2.8

6.1
7.2
4.5
7.4
3.8

-

6.3
4.5
6.5
2.2
4.8
8.2
4.5

3.8
5.0
2.9
4.6
4.3

3.2
4.2
2.3
3.4
3.3

4.8
7.6
3.9
2.9
4.6
3.8
10.3

2.2
-1.4
3.6
4.0
4.9
3.1
4.6

5.2
6.5
4.7
2.2
3.7
6.9
2.8

4.0
7.7
2.6
1.6
1.5
3.1
8.1

6.5
7.6

6.8
8.9

7.1
8.6

6.1
6.6

a For monthly series, December to December; for quarterly series, fourth quarter to fourth quarter.
b For monthly series, December 1970 to August 1971; for quarterly series, fourth quarter 1970 to second
quarter 1971.
0 For consumer prices, August 1971 to September 1972; for wholesale prices and hourly earnings, August
1971 to October 1972; for GNP series, third quarter 1971 to third quarter 1972 (prehminary); for negotiated
wage changes, first three quarters of 1972.
d Not seasonally adjusted; data contain almost no seasonal movements.
e Earnings of private nonfarm production workers, adjusted for interindustry shifts and for overtime in
manufacturing.
« Average wage change over hfe of contract in collective bargaining agreements covering 1,000 or more
employees—decisions reached during 1969,1970, fhrst half of 1971 and first three quarters of 1972 (not seasonally adjusted).

The comparisons mentioned thus far have treated the first year or so of the
stabilization program as a single period of time. It is possible, of course, to
separate out the various phases of the stabilization program—the freeze,
the postfreeze bulge, and the subsequent period. However, there does not appear
to be any analytical pay dirt in doing so. The freeze did stop the upward movement of prices and wages almost completely for 90 days. The expected postfreeze bulge occurred on the wage side, though little evidence of it appears
in the price series. (Evidently, the postfreeze bulge in prices was diffused
through all of Phase II.) Subsequently, the data settled down and, during the
8 months or so since the postfreeze bubble, do not reveal any patterns—within
that time period—that would appear to be analytically interesting.
Contribution of the controls
The fact that the pace of price and wage inflation has been cut back since
the stabilization program was put in place, coupled with the fact that the deceleration was abrupt and coterminous with the onset of the program, has led
many analysts to the conclusion that the controls, by themselves, were primarily
responsible for that deceleration. Others have challenged this view, in particular
by pointing to the economic slack in the utilization of our manpower and capital
resources. Some have even concluded that the economic slack accounts for
all of the slowdown in inflation, and that the controls have been a pointless
exercise.
My own view is that there have been three important factors that jointly
account for the inflation slowdown: The controls, the economic slack, and the
improved cost picture that was brought about by accelerated growth.
That the economic slack—underutilized equipment and jobless workers—is
exerting some downward pressures on prices and wages is apparent from several
sources. There are many reports that price increases approved by the Price
Commission have not been put into effect because of competitive pressures.




262

19 73 REPORT OF THE SECRETARY OP THE TREASURY

Moreover, a close look within the Wholesale Price Index reveals that 36 different
product classes—13 percent of the total—experienced an actual decline in prices
during the first 12 montlis of the stabilization program. Similarly, many wage
settlements are totaling less than the general Pay Board standard of 5.5/6.2
percent. Pay Board data show that one-sixth of their approvals call for a wage
increase of 3 percent or less, and more than 40 percent involve an increase that
is below 5 percent. These several pieces of evidence suggest that economic slack
has played a part in slowing the rate of both price and wage inflation.
The third factor, the impact of economic growth on the cost structure of
business, has received little attention to date. The process, a familiar one to
business cycle analysts but not otherwise well-known, i s : (1) an acceleration of
the growth in economic output takes place, (2) with this faster output growth
comes an upswing in the rate of productivity growth (in fact, cause and effect
run both ways, with each factor reinforcing the other), (3) the better productivity performance produces a slower rise in unit costs, (4) which in turn
reduces the upward pressure on prices.
That this process has taken place over the past year is clearly demonstrated
in chart 3. That it has played a role in the deceleration of inflation is suggested
by the evidence that price inflation has slowed more than wage inflation.
I want to emphasize my view that the inflation slowdown was the joint
product of the three factors. I doubt very much—based on the past record of
incomes policies here and abroad—that the stabilization program could have
made signiflcant headway in the absence of economic slack. The slack, however,
had not shown much effectiveness in putting the brakes on inflation before
August 1971. And the acceleration of output growth, which brought with it the
improved cost performance, was strongly helped by the fact that inflation slowed
down. Thus, the three factors—controls, slack, and output growth—reinforced
one another in bringing about the slowdown in inflation.
Other effects of the controls
Slowing inflation was and is the name of the game, so the stabilization program must be rated a success for having contributed significantly to that achievement. At the same time, we want to know what other effects, if any, the program
may have had on the economy.
Clearly the program has had other effects, some undesirable and some beneficial. For example, the inflationary expectations of businessmen and workers
have been brought down this past year, along with the rate of inflation itself.
Another beneficial eff'ect is that the economic importance of productivity
has become much more widely known. The relationship between the general
standard of the Pay Board and the overall infiation goal of the Price Commission has made the role of productivity much raore widely understood than before.
The explicit requirement by the Price Commission that the industry's trend
rate of productivity growth be taken into account on an application for price
increases has focused the attention of business managements on the productivity
growth achieved by their own firm. This increased attention and understanding
of a crucial economic concept is all to the good, not only in the fight against inflation but in other ways as well.
Still another beneficial effect of the program is the improvement that it has
brought about in the real earnings of workers. From 1965 to 1970, real earnings
increased very slowly as the large increases in nominal wages were substantially chewed away by rising prices. In the past couple of years, however, the
average worker has seen the purchasing power of his paycheck make headway again, despite the fact that his nominal wage gains are not as large as
before. The better price performance has meant that the real purchasing power of
his pay has increased sharply.
This improvement in real earnings is one argument, and the reduction in
infiationary expectations is another, against the reemergence of excessively large
wage settlements in 1973. It has become conventional wisdom recently that—
leaving aside the controls program for the moment—next year's heavy bargaining
calendar, which includes some especially prominent unions, and a reduction of
the unemployment rate to below 5 percent will bring on a new round of large
wage settlements. These large union settlements, it is said, will be emulated
throughout the economy and will thereby set off a new inflationary spiral. I




263

EXHIBITS
CHART

3

CHANGES m OUTPUT PRODUaiVlTY
Percent—

Output

155.0
25

f.f

2.3

0.5

0

15

_

Productivity

5.0
25
n.

1.5

^.3

31

21

-^

8.1

I lni+
1 1
^>^

11

1 nKnr

1.» M

L/WI

TAQ+Q

KJ' \ J * J 1 *•'

5.0 —

4f/

25
0

aa
\ 1.3 \

1968W/969 m




1969W1970 m

IQIOW- 1971111mim
i972mp

264

19 73 REPORT OF THE SECRETARY OF THE TREASURY

believe, however, that the sharp upswing in real earnings will reduce considerably the pressures for particularly large wage gains.
A second factor that should reduce such pressures is the fact that the large
unions that will be bargaining next, year— e.g., auto workers, electrical workers,
teamsters—have achieved a signiflcant catchup in their wages relative to other
workers over the past 3 years. Generally speaking, the wage increases under
long-term contracts negotiated by these unions in earlier years did not fully
anticipate the subsequent rate of inflation and the continuing acceleration of
wage settlements. As a result, traditional wage rela.tionships got out of line.
In 1970, therefore, these unions, despite the existence of substantial economic
slack, won very large catchup settlements.
Since 1970, however, the rate of inflation has been cut sharply and the level
of wage settlements has been reduced. This has restored the relative wage
position of workers in the 1970-to-73 bargaining cychi vis-a-vis the rest of the
economy. Accordingly, there is much less reason now for these unions to demand
above-average wage increases than in the last round of bargataing.
In addition, it is arguable how instrumental out-of-line settlements in these
industries would be in setting off a renewed wage-price spiral. While the collective bargaining calendar is heavier in 1973 than this year, the number of
workers included in next year's major negotiations still represents only about
5 percent of the total work force. Although there is clearly emulation in wage
settlements from one union to another and between the union and nonunion
sectors, the vast majority of all wage determination in our economy is carried
on in informal ''negotiations," often just between individuals and their supervisors. In the past, out-of-line settlements achieved by prominent unions, either
larger or smaller than average, have not set an unbreakable pattern for the
rest of the economy. Some analysts have argued, furthermore, that union settlements trailed rather than led the acceleration of price and wage inflation during
the 1965-1970 period. Consequently, there is no reason to believe that the prominent 1973 negotiations will 'automatically set the pace for all of the work force.
Dislocations
One of the most common worries about any system of price and wage controls
is that tliey will disrupt the normal operations of the economy—that they will
create resource misallocations and distort the judgment and decisions of managers to the point of creating serious economic inefficicmcies. In an economy as
complex as ours, some distortions are inevitable in any system of wage and
price controls.
A rigid control system like the wage-price freeze of August to November 1971
is sure to create serious distortions if continued for very long. It was for this
reason that the freeze was limited to 3 months duration. In planning Phase II,
a conscious effort was made to provide sufficient flexibility to avoid economic
misallocations and distortions. The most important result of this eff'ort was the
general principle adopted by the Price Commission that price increases were to
be based on the passthrough of cost increases. Another example was the termlimit-pricing rule adopted by the Price Commission. On the pay side, the Pay
Board provided for a variety of exceptions to its general wage standard.
For the most part, the Phase II controls appear to have generated few important economic distortions. Some undesirable changes in business practices
have been reported, but most of these have been of little significance. Where they
were significant, the stabilization authorities have made an effort to correct the
situation.
One way of testing the proposition that there has been sufiicient fiexibility
built into the control system is to examine the behavior of prices and wages in
detail, and to compare the pattern of changes during the controls period against
the pattern in previous years. For example, an examination of wage changes in
major collective bargaining agreements during the first three quarters of 1972
shows a widely varying pattern with many increases above the general standard
and many below—a pattern that is not dissimilar to the patterns of wage settlements recorded for 1970 and 1971.
Similarly, a look at the detail within the Wholesale Price Index by 271 different
product classes also shows a wide dispersion of price changes tliat is not dissimilar to precontrol years. If the price movements of individual product
classes during the freeze had been concentrated in a much narrower range than
in earlier years, we might have concluded that the stabilization program was




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265

disrupting the normal pricing practices of business firms in a serious way. However, since both prices and wages show a pattern for 1972 that is similar to earlier
years, we may conclude, albeit rather tentatively, that widespread, serious economic distortions have thus far not developed.
Signs of demand pull
In the analysis of the various components of the Wholesale Price Index, a second interesting point emerged. When the subgroups of the Wholesale Price Index
are listed in order of their price increases during the first year of the controls
program, 20 commodity subgroups are seen to have experienced an increase of 6
percent or more^—ranging from hides and skins at 112 percent down to live
poultry at 6 percent (see table 2, attached). Seventeen of these 20 subgroups are
concentrated in just three areas: Raw agricultural commodities and related
processed foods; hides and leather; and lumber. The other three subgroups are
wastepaper, gas fuels, and railroad equipment.
In almost every case it appears that strong increases in demand or supply
shortages are responsible for the sharp runup in prices. Of. these 20 groupsi, only
gas fuels and railroad equipment are in industries where "administered pricing"
is sometimes alleged (and the price increase for gas fuels can quite possibly be
traced to a rise in demand because of environmental considerations). In every
other case, I believe, there would be general agreement among economists that
highly competitive markets exist.
The nature of this list—i.e., the fact that almost all of these price increases
are traceable to supply-demand imbalances, the kind of infiation that the stabilization program was not designed to deal with—suggests two conclusions.
First, it suggests again that the stabilization program, by allowing the passthrough of cost increases, and by exempting raw agricultural products and used
products such as wastepaper, has provided a flexibility that permits the price
system to carry out its traditional functions of rationing and resource allocation. Second, the nature of the list raises a question about the eflacacy of the
controls program during some future period—e.g., when full employment is
approached—when demand-pull inflationary pressures become more widespread.
TABLE 2.—Largest increases in subgroups of the Wholesale Price Index, Augus
1971 to August 1972
Subgroup
Hides and skins.._
Plant and animal
Wastepaper..
Leathir
Livestock
Fresh and dried fruits and vegetables
Other farm products
Plywood...
.
Meats, poultry, and
fish
,
Lumber.
.
Other leather and related products
Cotton products
Wool products
Footwear
Grains
_..
Manufactured animal feeds
....'.
Gas fuels...
Other wood products
Railroad equipment
^
Live poultry

fibers
.

:
,

.
..^.-

'......:

.-

Percene
increast
112.0
29.1
23.1
. . 22.9
^
22.1
19.8
..
18.2
12.8
. . . _ . . 12.4
11.9
9.7
..9.2
9.1
....8.0
._....:._.
._ 7.5
.-,:.....
6.7
..-6.6
6.6
^
__ 6.3
.._ 6.0

Pioblem sectors
Although economic distortions do not currently appear to be numerous, there
is one major sector of the economy where significant distortions are reported:
Softwood lumber, which is under heavy demand-pull pressure from the extraordinary boom in homebuilding. It is widely reported by industry sources' that—
Lumber production is being held 5 to 10 percent below levels that would
be achieved in the absence of controls, primarily to avoid violation of the Price
Commission's profit margin rule.
Minor operations are being performed on standard cuts of lumber to create
"new products" that are exempt from price control.




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19 73 REPORT OF THE SECRETARY OF THE TREASURY

Railroad cars full • of lumber are being shipped around the country from
middleman to middleman, accumulating markups (which are individually legal)
but not getting the lumber to, the final user.
Phony export and reimport transactions are being recorded—the paperwork
is there but no lumber ever leaves the country—to circumvent the Price Commission's regulations.
There may be similar problems in the medical field, although in this case the
evidence is thin. In the past year, the rate of increase in medical care prices as
recorded in the Consumer Price Index has been cut very sharply. Hospital service charges have increased at a 4.8-percent annual rate during the stabilization
program, compared to a rate of about 12 percent earlier. Physicians' fees have
increased at a 2.3-percent rate during the program, compared to about 7 percent
previously. At the same time, however, total hospital expenses per patient day
have been increasing at a rate of about 111^ percent over the past year, only
slightly lower than in previous years.
This suggests the possibility that the number of medical care services provided to each patient has been increased sharply. It suggests, for example, that
patients are having their blood tested more frequently than in previous years,
and that other services are being provided more frequently. It raises the question
of whether the hospitals are circumventing the price regulations by providing a
greater volume of unnecessary sei-vices in order to raise the total cost to the
patient. The evidence here is only circumstantial, but it is enough to indicate
the possibility that the control program is significantly distorting the provision
of medical care services.
Summing up
The basic goal of the Cost of Living Council was to reduce the rate of inflation to below 3 percent by the end of 1972. The stabilization program, operating in conjunction with a moderate degree of economic slack and an improved
cost picture arising from the acceleration of economic growth, appears to have
achieved this goal—or at least come very close to it. It has done so despite the
emergence of strong demand-pull inflationary forces in such major industries
as food, lumber, and leather.
The stabilization program also produced a number of side effects, some of
them beneficial, others detrimental. The program has focused increased attention on and understanding of the economic role of productivity. It has reduced
inflationary expectations and increased the purchasing power of workers' paychecks, thus setting the stage for less inflationary price and wage decisions in
the future. The program has provided considerable flexibility for the economy,
thereby allowing the price system to continue its functions of rationing and
resource allocation. By and large, few major inefllciencies and inequitiesshave
appeared, except perhaps for lumber and, possibly, medical care.
^
Taking all the pieces together, the stabilization program has made an important
contribution to the achievement of a major goal of economic policy, and it has
done so without inflicting much economic injury. If the controls were to be continued indeflnitely, however, major inefliciencies and inequities would develop.
Exhibit 18.—Remarks of Assistant Secretary Fiedler, November 30, 1972, before
the National Association of Regulatory Utility Commissioners, New Orleans,
La., on "Economic Directions for Regulated Industry"
We talk a lot about the "regulated industries" today, but when we do we can't
quite think of them as we used to. Regulated industries used to be the "natural
monopolies." But today we don't have just a few regulated industries; every industry is regulated—and that is the second thought that kept coming to me. We
have wage and price controls. There seems to be quite a strong acceptance of wage
and price controls throughout the country—and that bothers me. It implies that
there is a demand for permanent wage and price controls and I have some doubts
about that, so I want to discuss that a little bit.
Let me start with the costs of regulation. I suppose of all the many types of
costs there are, there are basically two types:
First, the fundamental sort of misallocation of resources: the basic waste and
inefficiency that results in higher total costs to the economy.




EXHIBITS

267

Second, a great variety of inequities in the form of different costs to different
people, different costs from what most people would regard as a "fair" distribution of costs or prices. What this really adds up to is discrimination.
The prominent examples of these costs are familiar to everyone, but they are
worth repeating. Let me start with the natural gas industry, where there is a
very serious shortage presently. You heard about this the other day from the
Chairman of the FPC. I saw the headlines this morning in The New York Times :
"3 Percent Shortage Expected This Year"—^which is really quite a serious matter.
In this industry we have a situation where the prices of natural gas at the wellhead have been regulated in such a way as to keep them so low that exploration,
and development of new supplies were inhibited. In recent years, this has become quite obvious as the new supplies, the new reserves, have been exceeded by
a wide margin by the volume of con'sumption.
So the basic cost of this kind of regulation, i.e., this negative aspect of regulation, is that this cost (the shortage) is borne by those users of natural gas who
were prevented from buying the volume of natural gas that they wanted. They
just weren't able to get as much as they wanted, or they weren't able to get a
supply at all because of the basic shortage. In effect, the process of regulation had
interfered with the freedom of choice that consumers should have as to what
type of energy they use. Specifically, the freedom of choice to choose natural gas
was interfered with by making it unavailable.
There is also a cost involved here when people who have been using natural
gas all along now find themselves cut off when a shortage develops (industrial
users, mostly). They must bear the expenses of shifting to another fuel. It seems
to me, however, that this is a cost of small magnitude relative to the cost borne
by those people who want but just cannot get natural gas.
Another cost of regulation is the inequity that develops between various types
of consumers. In the 1960's, there was a shift from residential to industrial users.
In effect, the residential consumers who wanted natural gas were unable to get it.
More recently it has been the other way, with industrial users being pushed aside.
This is purely and simply a form of discrimination, an inequity between types
of users.
There is also an inequity between old and new customers. Those who already
have natural gas coming into their homes hkve an assured supply. But people who
are building new houses can't get hooked up; they can't buy any natural gas.
This is, in effect, a "windfall gain" for the "old" homeowner who has a supply
of natural gas, and a "windfall loss" for the guy who is building now and can't
get it. I might add that there is another kind of cost here. Along the way, as
this shortage developed, the FPC allowed the price to creep up. They did what is
known as "vintaging" : They allowed the new gas supplies coming onto the market
to be sold at a higher price than the old gas, because they had a natural reluctance
to permit a "windfall profit" to those companies that had already found gas
reserves and brought them to the market at the earlier, lower price. Well, what
happens then, of course, is that an inequity exists between those customers receiving old or vintage gas who pay lower prices, as compared to those customers that
received the new supplies and paid higher prices—another kind of discrimination.
Next, there is the difference between interstate versus intrastate gas sales. Intrastate gas sales are not regulated. The price is higher, but there is an assured
supply. Consumers can get all they want, while the regulated sales—the interstate
sales—are regulated at a lower price. There are two kinds of discrimination here.
The first is that tlie interstate customers had the advantage of a lower price, but
they couldn't get all the gas they wanted, while the intrastate customers could. If
you were a natural gas user in some State outside the gas-producing area, and
even if you were willing to outbid the' intrastate customer, you just could not get
it. You were discriminated against, but the local customers were not.
The second aspect to this kind of discrimination, this differential between intrastate and interstate gas, is that other benefits redound to the gas-producing
States. The example I am thinking of is Armco Steel locating a plant in Texas
because they could be assured of an uninterrupted supply of gas. They made that
decision in spite of the fact that they would pay a higher price for the gas. What
that did was to discriminate in favor of Texans against people in other States.
That is, workers in Texas had more job opportunities to choose from, and thus
received higher wages, than they would have had otherwise. Likewise, the owners of business services, equipment manufacturers, and contractors in Texas had
506-171-^73

20




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19 73 REPORT OF THE SECRETARY OF THE TREASURY

a benefit accruing to them, whereas the people in Ohio—'or wherever else Armco
Steel might have located this plant—were at a disadvantage.
Another discrimination is that between gas users on the one hand and oil and
coal users on the other. It is sometimes alleged that keeping the price of natural
gas low would result in lower prices for competing sources of energy, such as oil
or coal. That may be true i/ the siipply is there; but if there isn't a full supply, if
there is a shortage rather than a full availability of supply, it is going to result in
more demand for oil and coal and less for gas, which will drive up the price of oil
and coal above what they would otherwise be. Therefore, people who use oil and
coal are discriminated against as compared to those users of natural gas that
got it at a cheaper price.
Let me mention one more cost in this natural gas area. It is, perhaps, the most
pernicious cost of all: The environmental cost. Natural gas is the cleanest fuel
we have. In the process of electric power generation, in those plants that do not
have air emission controls, natural gas produces 91 percent less air pollution than
coal and 85 percent less pollution than residual fuel oil. Even if these electric
utility plants are fitted with the air emission controls, natural gas is still 58 percent less polluting than coal and 7 percent less polluting than oil. What you have
here is a situation where the most efficient fuel we have, from the standpoint of
keeping the environment clean, is being suppressed in terms of its total supply,
while the dirtier fuels are taking a bigger share of the total energy market. From
the standpoint of the environment, it ought to be the other way around.
There is also a geographic aspect to this. Geographic discrimination exists if
you think of the fact that States like Texas, Oklahoma, and Louisiana get a large
amount of their electric power from natural gas. This happens in part because
of the intrastate versus interstate difference in regulation. The incentives are to
use the gas locally, but those States in the South and Southwest are places where
it is easier to meet the basic environmental cleanliness standards. There's less
need to use natural gas there. Instead, we should have that gas being used for
electric power generation in the big metropolitan areas of the Northeast and other
areas where air pollution is much more serious. The way it is, you have a kind of
perverse geographic discrimination arising from regulation.
That is my list of the costs. It is not a complete list by any means, but it is
complete enough for me—complete enough to persuade me that energy costs our
economy more than it should through these unnecessary inefficiencies of regulation, and also to convince me that there are serious inequities between different
types of customers—some are being discriminated against while others are receiving "windfall gains."
Let me cite a couple more examples from another regulated sector of the
economy, from freight transportation. There has been a lot written about this,
and I think it is clear that there has been a waste of resources, an inefficiency
in the freight transportation industry for many years now because we are regulating a sector of the economy that may not need regulation any longer.
There was probably good reason for regulation a century ago when we started
the ICC. That is hardly true now. The railroads had a monopoly then; they don't
now. The truckers and the barge lines are now thriving industries and there is
really quite a lot of competition. There is not a clear case—in fact I don't think
there is a case at all—that economies of scale are important, particularly in the
trucking area. The case for regulation now is much less strong than it used to be.
At least we don't need as much regulation as we once did in this area.
The cost of this regulation is illustrated by a couple of examples. In trucking,
agricultural products have always been exempt from regulation. In the 1950's,
fresh dressed and frozen poultry and frozen fruits and vegetables were declared
agricultural products. They were added to. the list of agricultural commodities
that were exempt. They had been controlled and now they are exempt. This
resulted in rate decreases in shipping these products. For poultry the tariff went
down 30 percent, and the price of shipping frozen fruits and vegetables went
down 20 percent. At the same time, the shippers reported an increased quality
of service that they received. This strongly suggests that the costs of regulation
are not "peanuts" but are measured in the billions of dollars.
Another example is unregulated intrastate air travel in California, specifically
between Los Angeles and San Francisco. The fares there are 40 percent lower
than they are in comparable situations elsewhere in the United States. This is
another indication that the costs of regulation or the cost of having a regulated
industry are considerable.




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269

What are these inefficiencies? One is the various restrictions on services, e.g.,
the fact that motor carriers are limited to certain cities and can't serve other
cities. Some truckers are limited to what commodities they can carry. Both of
these limitations result in empty backhauls: Trucker A will carry goods from
Chicago to Milwaukee, and trucker B will carry them from Milwaukee to Chicago,
and they will both come back with empty trucks. One study showed that almost
50 percent of the shippers had less than full loads in both directions. Without
such restrictions presumably that figure would be a lot lower. We would then
need fewer trucks, fewer drivers; which would mean lower costs and lower prices
for the goods that are carried.
Another kind of inefficiency is the result of the fact that the rates aren't
always based on cost. The rates don't really correlate well with costs. It is wellestablished that railroads are the most efficient carriers and have a definite cost
advantage for large shipments and bulk shipments on long hauls, and that trucks
are the most efficient for short hauls and small loads. In the case of some commodities, the rates don't reflect these differences and, therefore, the trucks end up
making a lot of long hauls. A very large percent of the 10-20-ton shipments of 200
miles or more go by truck, and as much as 20 percent of some 40-ton commodity
shipments of more than 200 miles go by truck. For these kinds of shipments, there
is an obvious advantage to the railroads, but through unenlightened regulation
we are losing that advantage.
Another regulatory cost is the inhibitions that regulation puts on the introduction of new technology. Innovation in surface freight transportation is scarce and
slow, but part of the reason, I believe, is regulation. The best example I have
picked up is the Southern Railway, which developed the "Big John" car for
carrying grain. They wanted to induce grain shippers to use those big cars and to
achieve that they wanted to give the shippers a much lower tariff. Well, it took
4 years of effort, including litigation, at the ICC, in the courts, and finally in the
Supreme Court, before they won the right to offer lower rates on those "Big John"
cars. And that delay was a significant cost to the industry and to the consumer.
There are restrictions on entry of new firms into the industry that also have a
cost. That these costs can be substantial is suggested by an example from a different part of the transportation market—^^taxicabs. Compare taxi service in New
York City with the District of Columbia and you will see some of the cost. In
New York there are 11,700 cabs with medallions. Entry there is restricted. There
hasn't been a medallion granted since 1937. That works out to about 1^/^ cabs per
thousand population. In the District of Columbia, where there are no restrictions
on entry, there are 11 cabs per thousand population. As a result, per capita ridership in Washington, D.C, is twice what it is in New York, and the cost per trip
is less than half. I am not going to tell you that the conditions and costs of everything else involved in the taxi business are the same in New York as they are in
Washington. Having lived in both places, I am familiar with it. But I am suggesting that there are significant costs to the public arising from the restrictions that
are put on the entry of new firms into business.
Well, neither this example nor any of the other examples I have given are
conclusive. There are always many factors that you can't take into account. The
figures are always suspect in making comparisons between one situation and
another, but I think they add up to very significant costs that have to be assigned
to the fact that the transportation industry is regulated.
Now, as an alternative, a free market would not eliminate all these costs. We
never get perfect competition—what the economists call pure competition. As I
said earlier, I believe in regulation of the so-called natural monopolies; but some
regulation obviously goes too far, and it seems to me that the best example of that
is surface freight transportation. The Nixon administration has a bill before
Congress to reduce this regulation very substantially. I believe enactment of that
bill would reduce these costs that I have been talking about and would save all of
us consumers a lot of money. Furthermore, we would strengthen the freight transportation industry. The railroads are particularly in need of strengthening at this
time, and very quickly, and I think it is important to pass this bill.
Let me go on in the few minutes that I have left and talk about the effects of
permanent wage and price controls. This is another kind of regulatory issue:
Whether the wage and price controls that we now have on virtually all industries
should be continued indefinitely.
I would say that these controls have a pretty good record; that is, they have
contributed to reducing both wage and price inflation. That of course does not say




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1973 REPORT OF THE SECRETARY OF THE TREASURY

whether we do or do not want them continuously and permanently in the economy.
This is a fundamental question of public policy that the administration, tlie Congress, and the Nation will have to face in 1973.
Most of the Nation seems to have endorsed the controls program and found it
valuable. Whether you look at the public opinion surveys or whatever—businessmen certainly—the Nation has endorsed the program, which suggests that maybe
it should be given permanent status.
The view of the President and certainly all of the people in the administration
that I know of is that direct wage and price controls should not be a permanent
part of the economic landscape. Why not? Several reasons. First of all, the fundamental source of inflation is to be found in monetary and fiscal policy. Controls
may buy you some time by speeding the reaction of the economy to the situation
that originally came about because of monetary and fiscal policy, but they don't
buy you anything more. They don't do anything about the fundamental source of
inflation.
Second, if controls were extended for a long time, they would break down. They
would not do the job. I think this is especially true as we approach full employment. We are in a strong economic upswing now, and we are moving back toward
a position of full resource utilization at a rapid rate.
The third point that I would make is the way that our economy works. The way
it really operates, there is serious doubt that permanent controls are needed. There
are many economists that don't agree with that statement^—who say we should
look at the concentration ratios in some of the major industries like automobiles,
steel, and others. Then they jump from there to the idea that monopoly power
exists. They argue that this monopoly power is not subject to restraint from general monetary and fiscal policy, and they assume, therefore, that the classical
forces of competition are suppressed and that it is necessary to superimpose direct
wage and price controls on a permanent basis to prevent full exploitation of this
priyate market power over prices and wages.
Some of the more extravagant statements of this kind are easy to refute. When
Professor Galbraith tells us that large corporations are absolute monarchs who
can contrive to make consumers buy what best suits the pursuit of business profit
and corporate power, it is easy to demonstrate that such power simply does not
exist—even in the most concentrated industries and even where advertising techniques are most highly developed. If such power did exist, could the Edsel have
failed? Of course not. What about Swan soap? With all the expertise and effort
and ballyhoo that accompanied the entry of Swan soap onto the market, why
don't we see it on retailers' shelves anymore ? And look about you at the clothes
women are wearing. If business has control over the tastes of consumers, why
don't we see many maxiskirts ?
There are many other examples. If the establishment is as unassailably established as we are told, how is it that foreign-make cars account for 15 percent or
so of automobile sales in the United States? Whatever happened to Look and
Colliers? Why is it that Duz doesn't do everything for us anymore?
The answer to these questions is, of course, that in our society the consumer is
not a subjugated robot. Not by quite a margin. He is, rather, a powerful force—
the most important single influence on what is produced in the economy.
But to answer the extravagant claims of the Galbraiths and Naders does not
tell us that a workable incomes policy, if one could be found, would not be a
useful addition to our anti-inflation efforts. It is clear that market power does
exist in the United States. No one would argue that pure or perfect competition
is the prevailing modus operandi, that corporate managers have no control over
prices and that union leaders cannot influence wages.
The real question is how much power over the market do our large economic
institutions have? Plow widespread is it? Plow enduring? Those who most
vociferously support authoritarian incomes policies rarely come forward with
hard statistical evidence that market power is effectively used by large corporations and large unions. Certainly if such power were a significant force in the
determination of prices and wages in the United States, it would show up in many
areas of the statistical record.
We would expect to find, for example, that wage rates rise more rapidly in
those industries marked by strong union organization than elsewhere in the
economy (as, indeed, we have seen happen in the construction industry in recent
years).




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If market power over prices were widespread throughout industry, we would
expect to see prices increase more rapidly than costs and, consequently, to see
profit rates of return rise persistently over time.
If this pricing power existed only in certain industries—in the concentrated
industries, presumably—we would expect to see prices in those industries rise
more rapidly than elsewhere in the economy, and we would expect to find that
the profitability of those industries was above average and persistently rising.
The statistical record, however, does not produce patterns of this kind. On
the labor side, the rate of increase in wages over the past 15 to 20 years is very
consistent from industry to industry, suggesting that for the most part our labor
markets work in a reasonably competitive way.
On the corporate side, profit rates of return (although they fluctuate widely
from year to year) tend to be stable over the long term, reflecting the tendency
for real wages to parallel closely the trend of national productivity. Further,
we find that changes in prices tend to coiTclate with changes in unit costs from
industry to industry. Correspondingly, we find that price changes are correlated
inversely with productivity changes, indicating that productivity differentials are
shared throughout the economy. We find also that price changes are not correlated, industry by industry, with either high levels of profitability or with
increasing rates of return over the long term.
All of these trends and relationships are "competitive characteristics." In the
long run, these data are telling us, the economy seems to work in a way that
the textbooks tell us that a reasonably competitive economy would work.
That is my basic conclusion, and it leads me to believe that permanent price
and wage controls are not necessary in the American economy, unless there has
somehow been a massive change in the structure of the U.S. economy in recent
years from what it was in the 1950's and 1960's.
There can be substantial costs, then—the same kind of costs that I referred to
earlier—to permanent wage and price controls. Those cost should be avoided
whenever possible. I think we can and should avoid them. The prime regulator
of prices and wages in this country is and always has been the interplay of competitive forces operating in a reasonably free market. Monetary and fiscal
policies are used to be sure that the total economy operates reasonably close to^—
but neither far below nor far above—^^its full potential.
In some sectors of the economy—the "natural" monopolies that I mentioned—
direct and permanent regulation of prices is required. For most parts of the
economy, however, I doubt that permanent controls are needed.
What will happen in the future on this? I must say, I don't know. There are
opposing, conflicting trends here—more and more industrialized countries are
turning to direct controls over wages and prices. The success of the stabilization
program here in the United States this past year will probably reinforce that
trend. At the same time, there are more and more attempts to insert government
presence one way or another into our economic life—pollution, consumer safety,
etc. Most of these are very beneficial, and some are very necessary.
But it is very possible that this trend toward more regulation of the "private"
lives of our citizens, and in particular of the economy, will go too far. This point
is gaining recognition. There is a growing realization of the problems of too much
reliance on government. Some of you may be familiar with the Brookings Study,
headed by Charlie Schultze, formerly Director of the Bureau of the Budget, which
came to the very strong conclusion that there is a limit to what government can
do to resolve the important problems of this Nation. The United States has a
tendency to tlirow Federal money at its problems. The Brookings Study pointed
out that that just doesn't work. Our manpower problems are a great example. I
can't think of anything that is more needed than effective manpower programs,
but I can't think of anything that is more frustrating in terms of the lack of
results from most of what we've done.
The Hunt Commission report is an example of the recognition that the Government's role in the financial area is in need of restructuring. The report did not
call for the elimination of regulation; instead it called for a streamlining of the
whole system to removing some of the inconsistencies that have characterized it
for so long.
The administration bill to reduce transportation regulation is another example.
The current discussion of natural gas, the strong feelings that now exist to
remove regulation at the wellhead, is another, AU of these are examples of a




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greater realization of the problems of regulation and of the kind of improvement that is necessary.
Looking ahead, I am hopeful that we will learn to regulate well those industries where regulation is required, and that we will learn to avoid regulation, and
therefore will avoid the excess costs of regulation, wherever the competitive market will do the job better without regulation. Thank you very much.
Exhibit 19.—Excerpt from remarks by General Counsel Pierce, March 22,1973, at
the New Orleans Cost of Living Council Regional Conference on Phase III,
New Orleans, La.

During Phase II, as compared to the prefreeze period, the rate of inflation
decreased, total employment rose, the rate of unemployment dropped, and real
spendable eamings rose. In general, the program received wide public acceptance and voluntary cooperation.
The effectiveness of Phases I and II is clearly shown by the leading economic
indicators. At the time Phase I become effective the annual rate of inflation as
measured by the Cost of Living Index was 4.8 percent. By the end of Phase II,
it had dipped to 3.3 percent. Real GNP was 1.4 percent at the beginning oj^
Phase I, and by the end of Phase II, it had risen to 7.5 percent. During the same
period, real spendable earnings rose from 1.2 percent to 3.8 percent, and the
level of unemployment had fallen from 6.1 percent to 5 percent.
One may appropriately ask, "If Phase II was operating so well, why did the
Government shift to Phase III ?"
Development of the rationale for Phase III
While Phase II was generally successful, it did have problems that would
eventually require a change in the system. This became very clear to the Cost of
Living Council and others responsible for the economic stabilization program
after Phase II was carefully analyzed during December 1972 and early January
1973. Consultation meetings were held with labor, management, consumers.
Members of Congress, and the members of the various boards and organizations
serving the economic stabilization program. After reviewing the results of this
consultation process and the experience gained from operating Phase II, it was
clear that the burdens of the Phase II controPsystem would mount in the coming
year.
It was found that redtape and administrative burdens, both for the Government and the public, would expand. Delays and interferences with the normal
conduct of business would become more serious. Inequities in the treatment of
different individuals and businesses would multiply. Incentives to efficiency and
investment would be weakened.
It was believed that if the present system continued for long unchanged, these
difficulties V70uid become so overwhelming that the system would become ineffective. Therefore, the system had to be modified to achieve its continuing
contribution to the anti-infiation effort with less danger of injury to the economy,
and with greater equity in the treatment of the individuals and businesses
covered by the system.
During this iDattle against inflation—^^both in the prefreeze and postfreeze
periods—the administration learned a number of lessons. Those of us involved
with economic stabilization were greatly impressed with the power of competition. In industries where there were lots of firms and excess capacity, so that
firms were really fighting for business, competition was probably more effective
than our control system in holding down prices. There were many instances
during the operation of Phase II when firms met all of the necessary requirements and received price increase approvals, but were not able to implement
those approvals because of the competition in their industries.
We also learned that with public cooperation, a voluntary, self-administered
controlled system can, in general, operate effectively in reducing inflation. There
are, however, certain areas of the economy where, for a variety of reasons,
inanda.tory controls become necessary.. At the preseut time, with rapidly rising




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273

food prices, food processing and retailing industries must be subject to mandatory controls. The health care and construction industries also present problems
which—for the present time at least—can be better handled with the aid of
mandatory controls.
We also realize that our economy is extremely dynamic and other situations
may develop in the future where voluntary restraints are not achieved, and
mandatory controls will become necessary. Therefore, in any control system, it
is necessary to retain the power to impose mandatory controls whenever it is
considered imperative to attain the goals of the program.
Finally, we know that no wage-price system, regardless of how ingeniously
devised, can be successful and produce substantial results unless certain fundamental economic principles are adhered to. Most fundamental among these is
sound fiscal policy. Without strong fiscal discipline. Federal spending may be
so pumped up that the same forces are released that caused the earlier inflation.
The administration will vigorously resist this danger. That is why it intends to
hold Federal spending for fiscal year 1973 within $250 billion. The administration submitted a budget for fiscal year 1974 in which expenditures are not to
exceed $268.7 billion, and which will not exceed the tax revenues that would be
generated by a fully employed economy. It is imperative that Federal spending
be kept within these bounds if two very important goals to the American people
are to be achieved, namely, further reduction of infiation, and np. increase in
Federal income taxes.
It was against this background that the Phase I I I program was formulated.
The Phase III program
Phase I I I became effective on January 11, 1973. The Cost of Living,Council
was continued. The Price Commission and Pay Board and all advisory committees that existed under Phase II were terminated, and the authority of the
Commission and Board as well as their staffs was transferred to the COLO.
Rental units are excluded from the program, but landlords are expected to
exercise restraint. Regulated industries will be guided by the general criteria
listed in present Price Commission regulations, and restraint is expected to be
refiected in their actions and the actions of regulatory agencies.
Generally speaking, except for the food, health, and construction industries,,
Phase III will be a voluntary, self-administered program. As a general guide for
prices, increases in prices above presently authorized levels should not exceed
increases in costs. Even where costs have inci:eased prices should not be increased if the firm's profit margin exceeds the firm's base-profit margin. Alternatively, a firm may increase prices to reflect increased cost without regard to
its profit margin if the firm's average price increases would not exceed 1.5 percent in a year. Moreover, the base period for calculation of the profit margin
guide has been revised to permit inclusion of any fiscal year that has been concluded since August 15,1971..
The existing general standards of the Pay Board can be taken for the present
as a guide to appropriate maximum wage increases unless and until they are
modified. A labor-management advisory committee has been established to advise the Cost of Living Council on whether the standards should be modified
and, if so, how.
In general, with the exception of firms in the food, health, and construction
industries, all firms with sales of more than $50 million (approximately 3,500
firms) are required to keep records of profit margin changes as well as price
changes which will permit the computation of weighted average price increases.
Firms will have the obligation of producing these upon request. All firms With
sales of $250 million or more (approximately 800 firms) are required to file
quarterly reports concerning any weighted average price change and their profit
margin.
Generally speaking, with the exception of employee units in the food, health,
and construction industries, all employee units of 1,000 or more will be required
to keep records of wage rate changes, and all employee units of 5,000 or more
will be required to file reports with the Cost of Living Council indicating wage
rate changeSo
The Cost of Living Council staff and the Intiemar Revenue Service, under the
direction of the COLC, will inonitor performance through reviewing reports
received from firms and employee units; spot checking and auditing the records
of firms; and using various government and trade data. Tiiere will be a reduction




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in the number of Internal Revenue Service agents working on economic stabilization from the 3,000 used in Phase II to approximately 1,500.
The Economic Stabilization Act of 1970, as amended, is sufficient to give the
Council the authority to invoke mandatory controls and punitive sanctions when
necessary. That is why the act did not have to be further amended, except to
provide for a 1-year extension. The Cost of Living Council has the authority to
establish mandatory standards where it is necessary to assure that future action
in a particular industry is consistent with the national goal of further reducing
inflation. Also, if it learns that an action has been or is about to be taken that
is inconsistent with the standards or goals of the program, the Council can issue
a temporary order setting interim price and wage levels. In short, as has often
been stated by officials connected with the economic stabilization program, the
COLC has a "big stick in the closet" which it can use if there is any breakdown
in the system of voluntary restraint. Recently, for example, the Council took
its big stick out of the closet and hit certain oil companies with it by limiting
their price increases, canceling their term limit pricing authorizations, and by
imposing upon them certain reporting requirements.
The food, health, and construction industries will be under mandatory controls.
Special rules have been or will be devised for each of these industries.
Food processors will be required mandatorily to comply with present regulations, somewhat modified, including prenotification and approval of cost-justified
price increases. Food retailers will be held to present margin markups. Pay units
in the food processing and retailing industries will continue to be covered by
present regulations. A committee drawn from the Cost of Living Council has
been established to review and recommend appropriate changes in Government
policies having an adverse effect on food prices. There will also be established
a food industry advisory committee which will be composed of people from the
private sector appointed by the President to advise the Council on the operation
of the economic stabilization program in the food industry and other matters
related to food costs and prices.
The Federal Government has also taken certain steps to increase the supply
of food with the expectation that these actions will help reduce the cost of food.
For example, the administration has suspended all quotas on meat imports for
1973; and the Department of Agriculture has temporarily suspended quotas on
imported, nonfat dry milk, has eliminated the mandatory set-aside requirement
under the 1973 wheat program, and has terminated direct export subsidies for
lard, broilers, and fiour.
The present controls applicable to the health care industry will continue until
appropriate modifications are made by the Cost of Living Council. A committee
drawn from the Cost of Living Council will be established to review and make
recommendations concerning changes in Government programs that could lessen
the rise of health costs. Also, an advisory committee composed of knowledgeable
individuals outside the Federal Government will be established to advise the Cost
of Living Council generally on the problem of health costs. This committee will
also work to mobilize insurance companies and other third-party payers to use
their influence to curb the rise in health costs.
The Construction Industry Stabilization Committee, which existed under
Phase II, will continue its work with the twin goals of improving the bargaining
structure in the industry and achieving additional progress in bringing the rate
of wage growth in this sector into line with the general wage growth in the
economy. Rules are provided to ensure that modifications in the wage growth rate
can be reflected by adjustments in construction prices.
The Committee on Interest and Dividends, which was established under Phase
II, and chaired by the Chairman of the Board of Governors of the Federal Reserve System, will be continued. This Committee, subject to review by the COLC,
is charged with formulating and executing a program for obtaining voluntary
restraints on interest rates and dividends.
Will Phase III be successful?
By the end of 1972 the rate of inflation had been reduced to 3.3 percent. When
he announced Phase III, the President stated that a goal of the program was to
further reduce the rate of inflation to 2i^ percent by the end. of 1973. Can this
goal be attained along with a further substantial reduction in unemployment, a
considerable increase in GNP for 1973, and an increase in real spendable earnings ? If this question is eventually answered in the affirmative, then Phase III
will have been a success.




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275

In my opinion, the success of Phase III will depend on three factors: (1)
Whether Federal spending is held within the budgetary limits recommended by
the administration; (2) whether food costs are brought under control; and
(3) whether the public will voluntarily comply with the standards for wage and
price increases set by the COLC during Phase III. To the extent these things are
done, Phase I I I will be a success. To the extent they are not. Phase II will be a
failure.
Thank you so much for your attention.
Exhibit 20.—Article by Assistant Secretary Fiedler, printed in The Wall Street
Journal, April 19, 1973, entitled "The Case Against Rigid Controls"
Why not impose more rigid controls on prices and wages ?
Prices are surging upward in a number of economic sectors; doesn't that call
for more stringent controls? The changeover to the "self-administered" Phase III
has been widely regarded as a failure; doesn't that call for a new system
of tighter controls ? Certainly there is a great demand for tougher controls—from
consumer groups, from organized labor, and from other sources. And although the
Congress decisively rejected proposals to reinstitute a freeze and to broaden
it to encompass other sectors of the economy, there is a sizable minority of
Congressmen who are demanding more comprehensive, more rigid, and more
permanent controls over prices and wages.
Well, why not?
There are, I think, two fundamental reasons for resisting the call for tighter
controls. One reason is liberty—the old-fashioned principle that the individual
is the important unit in our society, that his freedom is something to be cherished,
and that the Government's power over him should be limited. To me, this
principle is a persuasive reason for opposing a move to inflexible, permanent
controls.
The second fundamental reason is economic efficiency. Our economy is so
complex and changes so rapidly that a system of strict controls on prices and
wages applied over a long period of time would damage it seriously. History
tells us that a comprehensive system of controls would require a gigantic
bureaucracy here in Washington and would produce endless ribbons of redtape
throughout the economy. History also tells us that the major economic impact
of controls would be inefficiency and inequity.
Those of us who remember World War HI know what the comprehensive wage
and price controls of that era produced. We remember the restrictions against
changing jobs and the shortages and rationing of meat, sugar, gasoline, and many
other products. We remember also the black markets and other illegal efforts
to circumvent the controls.
Those World War II controls produced great waste in the economy and great
inconvenience for the public. But we put up with such problems for patriotic
reasons; we were willing to make the sacrifice to help the war effort.
I think it is obvious that today the public would not accept the problems
that rigid controls inevitably create. There are no patriotic or other reasons
that would lead people to put up with, for example, shortages of basic consumer
goods.
The Phase II record
But the World War II experience may not be completely applicable to 1972
and 1973. What, then, can we say about the present controls? Have they done
any damage during the year and a half that they've been in effect? Plave they
hurt productive efficiency and created other problems?
The answer to that is, in the broad general sweep of things, no, but in many
specific cases, yes, very definitely. When we look at the economy as a whole,
we do not find that productivity growth has been slowed, or any other substantial evidence that the controls have done widespread damage. There are two
reasons for this: First, the control system in Phase II was designed wherever
possible to be flexible, and, second, the economy was operating with considerable
slack. These conditions minimized the troublesome effects of the program.
But while the stabilization program did not produce widespread economic
distortions during 1972, it did produce many individual instances of inequity
and inefficiency. And the economy was growing so fast that more and more
of - these difficulties were beginning to show up. Had we continued Phase II




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1973 REPORT OF THE SECRETARY OF THE TREASURY

through the current year, with its rapid growth pushing many industries close
to full utilization of capacity, these dislocations would have become numerous
and serious enough to injure the economy as a whole. To demonstrate that this
is' not just a "bogeyman in the closet," let me cite a few examples of what
happened during 1972.
1. The most disturbing and most wasteful difficulties created by the controls
program were in the lumber and plywood industry, which was under heavy
demand pressure from the boom in homebuilding. There were numerous reports
that production was held 5 to 10 percent below maximum, primarily to avoid
violating the Price Commission's profit margin rule. Sawmills were performing
minor operations on standard cuts of lumber to create "new products" that were
exempt from price control. Phony export and reimport transactions were
recorded, without any lumber ever leaving the country. Tricks like these kept
the Internal Revenue Service working overtime tracking down violators. And
in another effort to circumvent the controls, railroad cars full of lumber were
being shipped around the country from one middleman to another, accumulating
markups, which were individually legal, but not getting the lumber to the final
user.
2. Despite the fairly high levels of unemployment that prevailed during 1972,
we heard a number of complaints from businessmen that their employees were
being lured away by higher wages to a competitor's plant down the road, and that
they were prevented by the controls from raising wages to meet the competition
in order to stop the pirating of their work force. When businessmen complain
that the wages they pay are too low, well, tliat's a pretty sure sign' that the
controls are interfering with the efficient operation Of the labor market.
3. Another inefficiency that was becoming more significant as the program
progressed was the redtape that both labor and business found themselves
tangled up in. By the end of 1972, for any pay or price request that was at all
more than routine, the waiting lines at the Pay Board and Price Commission
were getting longer and longer.
4. The controls had a perverse impact on petroleum refining, creating an
incentive to distill less fuel oil than necessary and more of some other products.
This helped make the fuel oil shortage last winter a little worse than it otherwise
would have been.
5. The controls also produced serious difficulties for commodities that are
traded in international markets. When the world price rises above the ceiling
price of domestic producers, a powerful incentive is created to ship all domestic production out of the country, irrespective of the need for it at home. This
situation developed for soybean meal and phosphate fertilizer late in 1972 and
threatened to create severe shortages of those commodities here in the United
States.
6. The Phase II profit margin limitation created a special kind of problem in
some industries. One company, for reasons unrelated to its major product line,
would be up against its profit margin limit and would be unable to raise prices oh
any product. The pressure of competition would, then, prevent other firms in the
industry from raising their prices, despite the fact that their costs had
increased sharply.
The classic example of this problem is the wine industry, where the Gallo
Company had recently developed a very profitable new line of fruit-based wines.
Because Gallo was up against its profit margin ceiling, it could not raise prices
on its grape wines, despite the fact that a poor crop had sent the price of grapes
up some 50 percent. This increase in costs was not too hard on Gallo, but it did
hurt other vintners badly. These other vintners generally produce only grape
wines and thus would have been justified in raising prices because of the increased costs, but they could not do so because Of competition from Gallo.. These
other vintners, then, saw their profits disappear very quickly and turn to.
losses. This same situation developed in a number of other industries, including
baking, brewer's yeast, linens, pool tables, and others.
The six examples described above are only a few of the many economic distortions and wasteful changes in normal business practices that the controls produced during 1972. We heard endless complaints from labor, business, and
consumers about their troubles, and the complaints were growing in frequency
and intensity as the year progressed. Moreover, these difficulties mounted despite
our best efforts to maintain a flexible and equitable program, and despite the
fact that farm products, interest rates, most rents, wages of low-income workers.




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277

and many other sectors of the economy were exempt altogether from the
regulations.
Miseducating the people
The storm of protest over Phase III and the great demand that exists to move
toward across-the-board price controls indicates that the freeze and Phase II
have had a profound effect on the attitudes of the American people. It tells us
that what the entire stabilization eff'ort has done, more than anything else, is to
miseducate the public to believe that controls are the way to solve the problem
of inflation.
That is a distressing result. To me, it is clear that a comprehensive system of
rigid price and wage controls applied over an extended period would wreak
havoc on the basic structure of our economy.

Exhibit 21.—Excerpts from remarks by Assistant Secretary Fiedler, April 25,
1973, before the Tri-State Conference conducted by the Cost of Living Council,
St. Louis, Mo.
The eruption of price increases in the past 2 months has raised questions about
the prospect of keeping inflation in check over the long term. There is serious
concern that this spurt will set off a new spiral of accelerating pri^e-wage-price
inflation comparable to the pattern of 1965-1970.
Public discussion of this issue—of what was responsible for the burst of price
increases and what should be done about it—has focused almost exclusively on
Phase III of the price and wage controls. This emphasis on the controls is worrisome, since it threatens to divert our attention from the basic causes of the
situation and from the main targets of economic policy.
Our present system of flexible price and wage controls can make an important contribution to the anti-inflation effort,, as it did during 1972. But what
happens to inflation during 1973 and 1974 does not depend solely or even predominantly on the controls program. What it does depend on, fundamentally, is
the economic pressure of demand upon supply.
Most of our recent inflation has been of this nature. Demand for foodstuffs—
especially red meats—has climbed sharply because of rising incomes, but supply
did not increase. Under those conditions, a temporary upsurge in food prices was
inevitable.
The importance of the spurt in food prices over the past 2 months—both the
public perception of this spurt and the impact of food on the price indexes themselves—can hardly be overstated. The public is always sensitive to rising prices,
but especially food prices because the shopper comes face to face with them a
couple of times a week. And although food represents only about one-fourth of
the total weight in both the Consumer Price Index and the Wholesale Price
Index, it has accounted for almost two-thirds of the rise in these indexes since
January.
To be sure, there have also been many price increases among industrial commodities. The most important of these have also followed the pattern of food;
that is, they have been in economic sectors characterized by rapidly increasing
demand and/or limited supply. For example, the largest price increases have
come in lumber (due to the homebuilding boom), petroleum (the fuel oil shortage), and nonferrous metals (the vigorous business expansion here and abroad).
The fact that these three industrial sectors, together with food, account for
the dominant part of the rise in wholesale prices over the past couple of months
points up the need to pursue economic policies that get at the fundamentals, and
not just the symptoms, of the inflation problem:
To expand food supplies by increasing cropland acreage, selling Governmentowned stocks of grains, suspending meat import quotas, and making other major
changes in fai-m policies;
To increase the available supply of nonferrous metals and other commodities by selling excess inventories from Government stockpiles ;
To increase gasoline and fuel oil supplies by ending oil import quotas;
To maintain a tight rein on the budget to keep the economy from running
away with itself. Of all the policy steps taken, this is the most important. We
must not repeat the mistakes of 1965-68 when, at a time of full employment,
massive budget deficits in combination with an excessively easy monetary policy




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19 73 REPORT OF TPIE SECRETARY OF THE TREASURY

created a runaway infiation. To prevent that unhappy pattern from taking place
again. President Nixon is determined to resist the many pressures for increased
Pederal spending and to hold the budget to noninflationary levels.
Finding the right combination of economic policies to keep the economy on a
stable growth path without excessive infiation is not a simple matter. No safe
or sure or painless or instantaneous solution is available. But we can be confident that the policies now in place—the resolute ijosture on fiscal and monetary
policies, the substantial actions to increase supplies of commodities with shortages, and the flexible but forceful controls over prices and wages—will prevent
the present temporary spurt in prices from becoming an endless inflationary
spiral.
Exhibit 22.—Statement by Deputy Under Secretary Bennett, May 2, 1973, before
the Subcommittee on Production and Stabilization of the Senate Banking,
Housing, and Urban Affairs Committee
Mr. Chairman, I welcome this opportunity to present the administration's view
on proposed legislation to allow unregulated ownership of gold by Americans.
I am here to oppose it. The time may well come when U.S. regulations can and
should treat gold just like any other industrial metal. But that time is not now.
It would not be wise to assume now that the time will be on December Slst of
this year.
Government restrictions on the freedom of American citizens should be imposed only on the basis of clear-cut justiflcation. And regulations in force should
be carefully reviewed periodically—as you are doing today—to ensure that they
continue to be justifled under changing conditions. Obviously circumstances today
are markedly different from those of 1933 when the existing regulations had
their beginnings. The problem then was that prices in the United States had been
falling. There are, however, as I shall attempt to explain, strong reasons relating to our current circumstances why the regulations should be kept in force at
this time.
These existing regulations do not ration or limit the amount of gold which
can be used in the United States for customary industrial or artistic uses. Individuals and business firms requiring gold for these purposes may acquire all
they need under Treasury license. All that the regulations prohibit is the acquisition of gold for speculative or investment purposes.
It is also important to emphasize that the regulations have never restricted
domestic producers of gold from selling their production at the prevailing market prices. Domestic producers of gold today are free to sell to licensed industrial users in the United States or to export without restriction for whatever
price the market brings. In recent weeks that price has fluctuated around $90
per ounce.
Americans may also hold without restriction any amount of gold jewelry or
fabricated gold in any form. They can also acquire and trade without license
in rare U.S. or foreign gold coins, deflned as those minted before 1934, for numismatic purposes. In essence, then, when we speak of the U.S. restrictions on
the private ownership of gold we are speaking only of restrictions on investment
or speculation in gold bullion.
Americans are not the only ones subject to such restrictions. Practice in this
respect varies widely among nations, but a list prepared on the basis of International Monetary Fund data shows 75 countries which maintain restrictions
and 44 which do not. The United Kingdom has such restrictions; Canada doesn't.
Australia has such restrictions; Japan doesn't. On the continent of Europe, Denmark and Norway have such restrictions; Germany and France don't. In those
countries where the unrestricted private holding of gold is permitted, there are
wide variations in the extent to which the citizens avail themselves of the
opportunity.
Under the circumstances, there is no way in which I can make a precise forecast as to how much gold Americans would buy in the near future if the controls
were suddenly removed. Yet I do. know that the dollar has experienced two
effective devaluations relative to foreign currencies in the last year and a half.
My own judgment is that the dollar is now more likely to go up than down in
relation to other currencies. At the same time, I think we must realize that the
confidence of many may have been shaken. For this reason we should take




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into account the real possibility that removal of the controls would be followed by
a substantial surge of new demand against the limited market supply. The result
could be a sudden large jump in the free market price of gold. Later on the price
could fall back sharply again, but meanwhile, the price of gold could display an
even greater instability than we have seen in the recent past.
Logically such instability in the price of gold need cause no instability for
the value of the dollar in terms of other currencies. But to place any reliance
on that fact would be to place too much reliance on logic in an area where irrationality often enters in. Today we are only a few weeks away from the recent
period of intense international monetary uncertainty. If in the near future there
were a sharp reduction in the value of the dollar in terms of gold in the private
market, there could well develop as a consequence a sharp drop in confidence in
the dollar in terms of other currencies on purely psychological grounds quite
apart from any developments relating to the real fiows of our international trade
and investment.
At the same time, however, there could develop a seriously adverse real increase in our already serious trade deficit. Gold imports could rise significantly.
Yet gold imports are already a costly component of our import bill. As you can
see from the first chart attached to the copies you have of my written presentation, U.S. consumption of gold has long surpassed by far our domestic production.
Last year, for example, U.S. consumption was more than four times U.S. production, and the trend of consumption was up while the trend of production—even at
the new higher prices—was down. The excess of consumption was about 6 million
ounces. Purchases of that amount from foreigners again this year would cost us
about $540 million at the present price of gold. If the regulations were rescinded
we might have to pay out a lot more, not only for additional imports but in
higher costs for our basic industrial needs as well. Our trade position which now
at last seems to be improving could be knocked into reverse. The real deterioration of our trade position and the psychological impact of the instability in the
gold price could conceivably reinforce each other to the extent of undermining
the dollar and creating new turmoil in international monetary affairs. I can't say
for sure this would happen. I can say it is a real risk we need not and should
not take. Even if the risk is only 1 out of 20 it should be taken seriously. A return
again so soon after our recent experience to an international monetary crisis
could do more than just handicap the efforts of our international traders and
investors. It could seriously damage our effort to fight inflation at home. It could
undermine our prestige and influence abroad to the extent of damaging our
national security.
In view of these dire possibilities, I might well be asked whether it would not
be possible for us, after removing present restrictions on private ownership, to
sell enough gold from the Treasury's present gold holdings to avoid any increase
in price and to avoid any increases in our gold imports in the near future. The
answer, in a i^hysical sense, is "Yes." Our gold stock is probably big enough for
that purpose. Such an operation would, however, bring with it disadvantages
which I sincerely hope you would find unacceptable.
In the first place, the U.S. Government is now party to an understanding with
other major nations that sales of official holdings of gold into the private market
will not be made. That understanding was entered into in 1968 at the time the
so-called two-tier gold market system was established. Yet even if that obstacle
Avere overcome, would you wish to require us to use our gold reserves for this
purpose when the shape of the future international monetary system is not clear?
AVould you think it wise for us to take unilateral action when major negotiations have begun—with our strong encouragement—to seek widespread international agreement on a future cooperative international monetary system? That
would hardly seem the way to gain international cooperation in the future.
In those negotiations we have made clear that we believe that the role of gold
should be diminished; it should not have a central role in the international
monetary system. Those negotiations are progressing. My boss, Paul Volcker, is
off this week discussing the subject with governments in Asia. I returned late
last night from several days of discussions with the experts of the European
governments. We don't have an agreement, but a good faith effort is underway
to reach one. I hope the Congress will not negate this effort by jumping the gun.
My belief is that the wisest course would be for the Congress not to legislate
at this time either a removal of the restrictions on private ownership of gold or
a requirement of gold sales by the Treasury. If the Congress should nonetheless.




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1973 REPORT OF THE SECRETARY OF THE TREASURY

decide now to indicate that private ownership should be permitted as the progress
of reform and other developments allows such action, then I would still strongly
urge that the timing of such action should be left for determination by the
President. Yet even on that basis, Mr. Chairman, such legislation would not
advance our national interest. The most helpful thing the Congress could do
would be to complete action promptly on the Par Value Modification Act to
ensure that long delay does not give rise to unwarranted suspicions abroad as to
U.S. intentions.
Meanwhile, I can assure you that we are pushing vigorously for. international
monetary reform and for improvement in our trade position. New legislation to
change the rules on gold at this time could only hamper these efforts.
Thank you.




EXHIBITS

and Consympll@n

1968

1969

Deportment of the Treasury
Office of Domestic Gold and Silver Operations




1970

281

282

19 73 REPORT OF THE SECRETARY OF THE TREASURY

Loodon Gold Prices
98

-

92

-

86

-

80

I 68

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-

Jan. n, 1973

Ni

a
« 62
o

-8 56

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•

50

r^

44
38

/ v - y --^^v^

•
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Rug. 15,

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^^ ^ ^ - ^ " ^

32

1968

1969

1970

1971

1972

1973

1974

Exhibit 23.—A description of the depositary system of the U.S. Government,
June 1973
The depositary system encompasses all aspects of the deposit of public moneys
of the United States with financial institutions. The term "public moneys of the
United States" has a broad connotation based on its statutory definition as
"Any funds of the United States or any funds the deposit of which is subject to
control or regulation hy Oovernment agencies or officers." As implied by the italics
in the definition, the term embodies two distinct classes of funds, for which the
following explanations may be helpful.

I CASH ASSETS OF THE PEDERAL GOVERNMENT
.
In category I are all the moneys which, in balance sheet terms, have the
common characteristic of being cash assets of the Government, all representing
credits to the Government's accounts for revenues or appropriations and funds
(including trust funds) or accounts for deposit funds which the Government is
holding in a banking capacity. By the same token, all of the cash assets have the
common characteristic of being incorporated in the central accounts of the Government on the books of the Bureau of Accounts in the Treasury's Fiscal Service
on the basis of the official accounts rendered by all accountable officers of the
Government for audit and settlement.
A. Treasurer of the United States.
By and large, the Government's cash assets are in the Treasury within the
accountability of the Treasurer of the United States, and most of that money,
by far, is in the form of demand account balances. The primary demand accounts
are those (a) for day-to-day Treasury operations at the Federal Reserve banl^
(including also funds in process of collection at the Federal Reserve banks),
and (b) for the fiow of most of the Government's cash into the Treasury through
the tax and loan accounts of most of the Nation's commercial banks. The portions of the Treasurer's cash accountability that are in the form of deposits in
commercial banks consist of:
(1) Treasury tax and loan accounts. Most of the receipts of the Government
flow into the Treasury through Treasury tax and loan accounts.. As business




EXHIBITS

283

concerns pay their withholding taxes, corporation taxes, and other types of
Federal taxes, and as banks subscribe for new issues of designated Treasury
securities (for their own or customers* accounts), the funds are transferred
on the bank's books from its account with the payer to its account with the
Treasury (the tax and loan account). The Treasury then draws on the tax and
loan account balances as it actually needs the funds to cover its disbursements,
thereby matching the flow of collections and payments with minimum disruption
of bank reserves and with no undue impact on the money market. All incorporated
banks and trust companies (some 14,000) are eligible to have a tax and loan account with the Treasury, and some 13,000 banks do. They all compete for handling
tax payments and subscribing for Government securities for their customers and
themselves. The incentive—to avoid unnecessary contraction of bank reserves—
is built into the system. Whatever flows through a bank's tax and loan account,
whether a large or small bank, is the result of the bank's own business operations.
(2) Treasurer's general accounts—domestic. The funds for various classes
of collections deposited by Government officers throughout the country reach the
Treasury's operating accounts at the Federal Reserve banks either directly or
through about 1,100 so-called Treasurer's general accounts at commercial banks
designated to provide these local facilities. These are entirely "flow-through"
bank accounts in which, with a few exceptions, there are no balances at the close
of each day's business, because the banks transfer the funds every day to the
respective Federal Reserve banks. About 30 of these accounts serve the same
flow-through function but they are special collection accounts (primarily for
voluminous deposits by Internal Revenue Service offices) under arrangements
permitting the funds to be transferred to the Federal Reserve banks as the
commercial bank collects the proceeds (with the conventional distinction between funds immediately available, 1-day, and 2-day deferred availabilities).
Therefore, whatever the balance of any such special collection account happens
to be at the close of any day, that balance simply represents funds in process of
collection.
(3) Treasurer's general accounts—foreign. Some relatively minor demand
accounts, as checking accounts, needed for day-to-day operations through a few
commercial banks are maintained overseas; and
(4) Compensating halances. Some deposits are placed solely for the purpose
of compensating banks for specific depositary services authorized by the Treasury.
Periodically, the Treasury adjusts these balances to permit each bank to earn
on its balance an income equivalent to what it is entitled to charge for its services. These services include such things as (I) processing deposits made by all
Government officers through the Treasurer's general accounts referred to in item
(2) above; (II) operating military banking facilities, both stateside and overseas; (III) handling special bank accounts for State unemployment compensation payments; (IV) furnishing bank drafts to Government officers in special
situations where this technique gives the Government advantages in the handling
of individual collection instructions; and (V) meeting the currency and coin
needs of certain Government installations. These Treasury balances placed in
banks for compensation purposes are of two types: (a) Time deposits, which
apply to virtually all of the banks; and (b) Special demand deposits, which apply
to just a few banks under special arrangements advantageous to the Government.
Prior to 1972, these deposits were mainly in the preceding time deposit category ; their conversion to demand account status was especially arranged to
permit more prompt recall into the Treasury's operating cash balance as and
when desirable in managing the Treasury's cash position.
B. Other accountable officers.
With relatively minor exceptions, all accountable officers who serve as Government disbursing and collecting officers deposit all of their collections into the
Treasury and draw checks on the Treasury for their disbursements. Of necessity,
disbursing officers operating in foreign countries are largely an exception insofar
as they have to draw checks on checking accounts with local banks, for payments in foreign ciirrencies or denominated in military payment certificates.
Some accountable officers operating within the United States are authorized, for
specified purposes, to have funds temporarily outside the Treasury, including
money on deposit in commercial banks at levels commensurate with authorized
needs.
506-171—73-

21




284

19 73 REPORT OF THE SECRETARY OF THE TREASURY

(1) The largest single class of deposits in U.S. banks in this category consists of
Indian tribal funds and individual Indian moneys in the custody of accountable
officers pf the Bureau of Indian Affairs serving as agents of the tribes, all such
funds being in interest-bearing accounts with banks (including certificates of
deposit).
(2) Other funds authorized to be on deposit in demand (checking) accounts
or interest-bearing accounts in banks include: (a) Postmasters' checking accounts throughout the country, largely for the flow of their collections into the
Treasury (to a minor extent also for certain small purchases best handled
locally) ; (b) Checking accounts of the Veterans Canteen Service, similar to
item (a) above; (c) Registry funds temporarily in checking accounts of clerks
of the U.S. courts (to the extent that the clerks of the U.S. courts do not deposit
such funds directly with the Treasury) ; and (d) Checking accounts and
interest-bearing accounts required under local operating conditions by a few
agencies.
II. 0THE3R FUNDS INCLUDED IN PUBLIC MONEYS OF THE
UNITED STATES
All moneys in category II have the common characteristic of not being part
of the Government's cash assets. They are not included in the official accounts
rendered by any accountable officer for audit and settlement and are not for
credit to any of the Government's accounts for revenues, appropriations and
funds (including trust funds) or deposit funds. The only thing they have in
common with actual Government money in category I is that they, too, fall within
the statutory definition of "public moneys of the United States" because they are
subject to certain control or regulations by certain Government agencies or
officers. By virtue of being such public moneys the Government's interest extends
to requiring the deposits in commercial banks to be secured by collateral, for
category II as well as category I money, to the extent exceeding the protection
covered by the Federal Deposit Insurance Corporation ($20,000 per depositor).
In that connection, the Treasury keeps a special set of records (entirely outside
the formal financial system) representing solely the authorized maximum limits
of individual bank accounts (each authorization is the amount of collateral
the bank has pledged to secure the maximum amount that may be on deposit
in the account at any time in excess of the Federal Deposit Insurance Corporation's coverage). They do not represent amounts actually on deposit in hank accounts at any time. All moneys in category II, entirely on deposit in commercial
banks, fall into two groups, as follows:
A. Certain nonappropriated funds.
For the most part, these nonappropriated funds are moneys under the control
of personnel of military organizations serving in the capacity of club treasurers,
mess officers, exchange officers, etc. Relatively small amounts of nonappropriated
funds pertain also to moneys in the custody of produce and commodity committees and boards under the administrative control of the Consumer and Marketing Services of the Department of Agriculture. These accounts in commercial
banks are both:
(1) Demand {checking) accounts, with balances at levels needed for current
operations (in some foreign banks as well as in U.S. banks) ; and
(2) Interest-hearing accounts (including certificates of deposit) for amounts
not needed for current operations.
B. Funds of certain private entities.
With respect to certain Federal programs for which the statutory definition
of "public moneys of the United States" is applicable, the Government makes
disbursements which are deposited directly to checking accounts that private
entities maintain, in their own names, in their own commercial banks. These
are accounts of some grantees, certain contractors, and other private organizations which the Government funds through grants and other advances. The
public moneys definition applies only because the Government agency administering the particular program has imposed restrictions on these private accounts,
Apart from the protection this affords in the form of collateral, the Government's
interest in these particular accounts also extends to providing assurance that
money funding current operations of the private entities involved will be with-




EXHIBITS

285

drawn from the Treasury and credited to the private checking accounts as
closely as possible to the time actually needed for disbursement by the private
organizations. This is accomplished by a variety of devices, including extensive
use of letters of credit (a technique which, incidentally, applies also to grant
programs for which the statutory definition of "public moneys of the United
States" is not applicable). The private checking accounts in this category
(based upon the Treasury's records of pledged collateral) are funded by disbursements made in programs administered by the agencies identified in the
following:
(1) Accounts of private insurance carriers serving as intermediaries for
making payments under the medicare program, for which advances are authorized by the Social Security Administration, Department of Health, Education, and Welfare; and
(2) Accounts of grantees and contractors funded through programs of: (a)
Atomic Energy Commission; (b) Department of Labor, Manpower Administration (which includes Neighborhood Youth Corps) ; and (c) Department of
Agriculture, Farmers Plome Administration.
Exhibit 24.—Other Treasury testimony published in hearings before congressional committees, July 1, 1972-June 30, 1973
Secretary Shultz
Statement on the Economic Stabilization Program, before the Senate Committee on Banking, Plousing, and Urban Affairs, January 29,1973.
Statement on the Federal budget, before the House Committee on Appropriations, February 5,1973.
Statement on the Federal budget, before the Senate Committee on Appropriations, February 20,1973.
Statement on the Treasury budget, before the Plouse Subcommittee on Appropriations, March 5, 1973.
Statement, together with John T. Dunlop, Director, Cost of Living Council,
in support of the extension of the Economic Stabilization Act, before the House
Committee on Banking and Currency, April 2,1973.
Statement on food and farm prices, before the Subcommittee on Production
and Stabilization of the Senate Committee on Banking, Housing and Urban
Affairs, April 5,1973.
Statement on the Treasury budget, before the Senate Subcommittee on Appropriations, May 3, 1973.
Under Secretary for Monetary Affairs Volcker
Statement on the devaluation of the dollar, before the Senate Committee on
Appropriations, March 19, 1973.
Assistant Secretary for International Affairs Hennessy
Statement given May 17, 1973, and to be published in hearings before the Subcommittee on Africa of the House Foreign Affairs Committee, 93d Congress,
1st Session, providing information with respect to the transfer of funds to
Rhodesia ; the funding of the Rhodesian Information Office in the United States ;
and U.S. fulfillment of obligations under pertinent United Nations Resolutions.

Energy Policy
Exhibit 25.—Statement by Deputy Secretary Simon, April 18, 1973, on the oil
import program
President Nixon today signed a proclamation which terminates volumetric
quotas on oil imports beginning May 1, 1973. The proclamation substitutes a
system of license fees on imports of petroleum and petroleum products into the
United States.
Today's action follows an intensive study of the Nation's oil import policies
relative to current domestic supplies of crude oil and petroleum refinery capacity
and the national security interest of the Nation. The study was conducted by




286

1973 REPORT OF THE SECRETARY OF THE TREASURY

an interagency task force under my direction as Chairman of the Oil Policy
Committee.
License fee program
An explanation of the new license fee program is attached. In essence, however, as of May 1, 1973, there no longer are any volumetric controls on oil
imports, and the existing duties on crude oil and refinery product imports are
suspended. Any person or company wanting to import crude oil and/or refinery
products may do so after obtaining an import license from the Office of Oil and
Gas at the Department of Interior and after paying the license fees in force at
the time.
In order to provide an equitable transition from the current program to the
new license fee system, certain crude oil and product imports will be exempt
from license fees for a limited period after May 1, 1973. These exemptions,
however, will be phased out over a 7-year period.
Demand and supply
In recent years, the United States has seen its surplus supply of crude oil
and refinery capacity rapidly dwindle into a deepening deficit, as demand for
petroleum products has spiraled upward arid discoveries of new reserves and
construction of new refineries in this country have failed to keep pace. Increasing reliance on imports of foreign supplies has raised serious questions with regard to the Nation's balance of payments position and national security requirements. In addition, the difficulty in satisfying the Nation's home heating oil
requirements this past winter and the threat of a gasoline shortage this summer
underscored the imminent need to reconsider national oil policy, and an investigation of current policies was begun in February by the oil import task force
under my direction.
Mandatory oil import program
The task force found that the mandatory oil import program no longer provided the proper climate to support a vigorous domestic petroleum industry,
which is essential to the national security and the economic welfare of the Nation.
It found that the program was neither adequate to alleviate the threat of nearterm crude oil and product shortages, nor adequate to provide longer term incentives for increased investment in domestic exploration and production and new
refinery construction and expansion.
The task force found that the program was not so much a failure as it was
obsolete. It was established at a time when domestic production was in excess of
demand and it was founded on the premise that it was necessary to restrict imports of cheap foreign oil to encourage the domestic petroleum industry in the
interest of national security. The conditions which gave rise to this policy no
longer exist.
Further, the original purpose of quotas was to provide reasonable self-sufficiency by encouraging the development of domestic production and refining
capacity. This clearly has not happened.
Companies were induced to explore and produce abroad in order to benefit both
from lower foreign producing costs and the assurance of a large higher priced
market at home. Imports now account for 30 percent of production and are expected to climb to the 50 percent level in a few years.
The task force found that these unintended developments are inherent in the
quota system, and have not been corrected by the stop-gap measures used to
shore up the program over the past years.
Lately refinery capacity has also begun to move abroad. Although other factors
have contributed to this development, including environmental restrictions which
have blocked refinery plant sitings, the uncertainties of the quota system have
had an adverse effect on long-range investments for new refinery construction
as well as investments for additional exploration and production in this country. This uncertainty developed because:
1. Import allocations are subject to annual realignment;
2. In recent years the program has been altered frequently, making it a
patchwork of special provisions and exceptions ; and
3. General dissatisfaction with the program both in industry and the Governinent has fostered the expectation that it would be abandoned shortly.
Basis for policy recommendation
Based on this assessment of the mandatory oil import program we launched
a full-scale effort to develop recommendations to restructure import policies.



EXHIBITS

287

We recognized the need to get the Federal Government out of the business of regulating oil imports, since the Government does not have the forecasting capability
to predict exactly what import levels will be each year. Our objective was to design a program that would assure the oil industry fiexibility to import oil to
satisfy the short-term needs of U.S. refiners and consumers while, at the same
time, provide longer term stability and additional incentives for increased domestic exploration and production and new refinery construction and expansion.
We knew that in designing this new program the special provisions, exceptions,
and subsidies in the MOIP would have to be ended. We realized that this could
not be done abruptly, but would have to be done gradually to avoid putting an
unfair economic hardship on the numerous persons and companies that together
have invested many millions of dollars in the domestic oil industry based on the
policies under the MOIP.
We also realized that our new policy recommendations would have to satisfy
consumer interests in reasonable prices and sufficient supplies without straining
or disrupting the complex mechanism known as the oil industry. We knew, that
each segment of the industry must continue to be viable in order to meet the
supply needs of the Nation both in the near and longer term. The formidability
of this task is obvious when you realize that the oil industry is composed of
companies that vary in size from global to local and from integrated majors to
independent producers, refiners, marketers, and jobbers.
We further recognized that our policy recommendations would have to be
compatible with other Government policies and prograhas, in particular the economic stabilization program.
We knew that in order to be more attractive for oil companies—or for that
matter anyone—to build new refineries and explore for more oil in this country,
prices in this country for foreign petroleum products would have to be, higher
than the prices for domestic products. Only in this situation would it be more
profitable to manufacture those products here than to make them somewhere
else and import them into this country. There had to be clear advantages to
producing crude oil in this country rather than producing it somewhere else and
in turn selling it in this country. Therefore, we have set a license fee on imports
of crude oil and even higher license fees on imports of residual fuel oil, distillates, gasoline, unfinished oils, and other products. Various changes in these incentives are spelled out in advance so that the oil industry will have a reasonable degree of certainty under which to make major new investments in U.S.
exploration and development and refinery construction.
Independent refiners
Implementation of the new license fees on May 1, 1973, will give value to unused 1973 import licenses, providing landlocked independent refiners with some
additional leverage to bargain for domestic "sweet" (low sulfur) crude oil.
Import licenses, in general, now have no exchange value because the landed
prices of foreign crudes—especially sweet crudes—are roughly equivalent to or
above domestic crude prices. An increase in the value of independents' licenses
by the differential of 10% cents per barrel initially should help independent
refiners bargain for additional sweet crude supplies. Moreover, the ability of the
independent refiner to obtain license fee-exempt tickets from the Oil Import
Appeals Board will, hopefully, enable them to obtain a sufficient number of tickets
to allow them to bargain for adequate crude oil supplies under present-day price
relationships.
Under the new license fee program, the exemption of 1973 allocations for all
refiners will be phased out over 7 years. The intent is to provide refiners both
the time and the incentive to adapt their refineries to run available "sour" crudes
or to develop or contract for adequate sweet crude supplies for the long term.
Independent marketers and jobbers
Today's action also gives value to the 1973 import allocations issued by the
Oil Import Appeals Board to independent marketers and jobbers, enhancing their
ability to bargain for products. The OIAB will continue to hear appeals from
this sector of the industry to make certain that no undue hardships occur as a
result of tight product supplies. In the long run, the license fee program will further benefit independent jobbers and marketers by encouraging additional refinery capacity, which will make products more readily accessible.




288

19 73 REPORT OF THE SECRETARY OF THE TREASURY

Prices
The impact of today's action on oil prices is expected to be gradual over the
long term and minimal in 1973. Imports subject to the new license fees during
1973 are expected to be such a small percentage of the Nation's total oil requirements as to have little, if any, impact on consumer prices. The Cost of Living
Council has advised us that there is adequate fiexibility under the current oil
price controls to allow such price movements should they be necessary to meet
the supply needs of the Nation.
Today's action also gives all importers the opportunity to negotiate long-term
contracts, and thereby lower prices, for their crude oil and product supplies. This
should be especially beneficial to deepwater terminal operators in PAD District I.
Conclusion
The program announced today by the President deals equitably with the many
and varied aspects of oil import policy, while satisfying the national security interest by assuring the oil industry the fiexibility, certainty, and incentives to
meet the growing petroleum needs of the Nation through domestic expansion at
all levels of the production and distribution system.
Today's action suspends oil import quota restrictions without abandoning the
mandatory oil import program. It opens the way for foreign imports to alleviate
potential shortages of crude oil and finished products, without foreclosing the
option of reimposing mandatory controls at any time in the future, should that
ever again become necessary or desirable. The intent is to maintain import control and accountability without restricting the fiow of essential oil into the United
States.
The license fee approach gives the President the flexibility to satisfy shortterm needs of consumers without destroying long-term incentive, namely, domestic exploration and production of crude oil, and construction and expansion
of domestic refineries.
Caution: The following text is meant to clarify the Presidential proclamation
concerning changes in the modified oil import program. It does not have any
legal effect in the interpretation of the regulations to be published shortly.
SUMMARY OF THE MODIFIED OIL IMPORT PROGRAM

As it is currently structured, the mandatory oil import program has neither
prevented near-term crude oil and product shortages nor provided adequate longer
term incentives for increased investment in domestic exploration and production
and new refinery construction and expansion. The program is not so much a failure as it is obsolete. It was established at a time when domestic production was
in excess of demand and it was founded on the premise that it was necessary to
restrict imports of cheap foreign oil to encourage the domestic petroleum industry in the interests of national security. Today foreign oil prices are roughly
equivalent to or above domestic prices, and this country must import ever
larger amounts of foreign oil to supplement its inadequate domestic production.
Not only does the program provide little benefit now, it has the very real potential of aggravating tight supply conditions. Unexpected increases in the demand for imports could lead to a situation in which there is. insufficient import
tickets, creating the possibility of a shortage that otherwise could have been
avoided.
Probably the greatest shortcoming of the current program, however, is the
uncertainty inherent in its operation. This uncertainty has an adverse effect on
long-range investment planning for new refinery construction and drilling. It is
created because:
1. Import allocations are subject to annual realignment;
2. In recent years the program has been altered frequently, making it a
patchwork of special provisions and exceptions; and,
3. General dissatisfaction with the program both in industry and Government
is fostering the expectation that it will be abandoned shortly.
Therefore, it is recommended that the program be modified to meet current
needs and objectives. The program must be restructured to assure the oil industry the fiexibility to import oil to satisfy the short-term needs of U.S. refiners and
consumers while, at the same time, providing longer term stability and additional
incentives for increased domestic exploration and production and new refinery




EXHIBITS

289

construction and expansion. We believe the program recommended below will
achieve these objectives.
There are built into the program a number of exemptions to license fees during
the next 7 years. This is done to provide a period of transition during which both
producers and consumers will be able to adjust to the hew system. In the long
run, however, each of these exemptions will be phased out of existence in order
to create a simpler and more uniform program than now exists.
Plan of action
1. Volumetric quotas now established under the mandatory oil import
program are being eliminated and a system of license fees established to regulate
the level of crude oil and product imports. This change will help to assure adequate supplies of crude oil and refinery products in the short run and sufficient
incentives to domestic drilling and construction of refineries in the long run.
The legal basis for these changes is provided by section 232 of the Trade Expansion Act of 1962.
2. Effective May 1, 1973, any person or company wishing to import crude
oil and petroleum products may do so simply by applying for an import license to
the Department of the Interior, Office of Oil and Gas, and by paying the appropriate license fee.
3. Also effective May 1, 1973, existing tariffs on crude oil and refinery
products will be suspended. In their place, license fees will be imposed on imports
equal, in the long run, to % cent per gallon of crude and 1% cents per gallon for
unfinished oils and all refinery products. Fees will be paid to the Office of Oil
and Gas at the time of application for an import license.
4. These long-term fees will take effect at the end of 1975. In the meantime, license fees will be stepped-up over time. The following schedule of fees
will apply to all but exempt imports.
Schedule of license fees
[Cents per barrel]
Product

Mayl Nov.l Mayl Nov.l Mayl
1973
1973
1974
1974
1975

Crude oil
Residual fuel oil, unfinished oUs, distillates and refinery
products other than gasoline
_
Gasoline

Nov.l
1975

lOM

13

15K

18

21

21

15
52

20

30
57

42

52
63

63
63

^m

593^-

5. License fees will be reassessed from time to time to assure that the primary objectives of the program are being met; namely, to provide adequate incentives to domestic exploration and drilling for crude oil and construction and
expansion of domestic refineries, while not imposing unnecessary burdens on
the American consumer.
6. All import licenses outstanding as of May 1, 1973, will be honored by
the U.S. Government license fee-exempt.
7. Certain crude oil a.nd product imports will also be exempt from license
fees for a limited period of time after May 1, 1973. Current program participants
will be granted yearly allocations, exempt from license fees, equal to import
levels in effect as of April 1, 1973, for residual fuel oil and quota levels in effect
as of January 1, 1973, for crude oil and petroleum products other than residual fuel oil. The exempt allocations will be granted through April 30, 1974,
after which the level upon which allocations are based will be reduced by a
fraction of the original level each year for the next 7 years. No allocations will
be granted license fee-exempt beyond April 30, 1980. The schedule by which
exemptions will be phased out i s :
Percentage of initial allocation exempt from license fees
After April SO




1973
1974
1975 .
1976
1977
1978
1979
1980

Percent
100
90
80
65
50
35
20
0

290

19 73 REPORT OF THE SECRETARY OF THE TREASURY

8. Crude oil import licenses not subject to license fees will continue to be
convertible to unfinished oils and finished products at existing rates (15 and 1
percent, respectively) until January 1, 1974. Crude oil licenses subject to license
fees will not be convertible.
\
9. Current participants in the mandatory oil import program are :
a. Refiners.
b. Petrochemical plant operators.
c. Deepwater terminal operators in District I.
d. Asphalt marketers or consumers in Districts I-I V.
e. Recipients of grants from the Oil Import Appeals Board.
Persons or groups other than those currently participating in the program would
also be allowed to import crude oil and products, subject to the license fee schedule indicated in section 4.
10. The Oil Import Appeals Board will assume primary responsibility for
assuring adequate supplies of oil for the independent segment of the industry.
To this end, the OIAB will be authorized to distribute fee-exempt licenses to
established independent refiners and marketers experiencing exceptional bard- .
ship or emergency. The OIAB will also advice the Oil Policy Committee about
other ways to assist the independent segment of the industry. Integrated oil
companies with special hardship or emergency needs will also be permitted to
apply to the OIAB for assistance. However, those companies with a domestic
crude oil production capability will be required to demonstrate their inability
to obtain by exchange import licenses from those already distributed by the
U.S. Government and their willingness to supply established independent refiners
with 1972 allocations of crude oil and established independent marketers with
1972 allocations of refinery products. Specific guidelines for the OIAB will be
issued shortly after the proclamation. The OIAB will on all matters report to
the Chairman of the Oil Policy Committee. The OIAB's power to distribute
license fee-exempt import licenses will expire on April 30,1980.
11. Fee-exempt import licenses may, as at present, be exchanged for domestically produced crude oil at a rate negotiated by the parties involved in the
exchange. In any exchange, licenses not subject to a license fee would retain
their license fee-exempt status.
12. Imports of ethane, propane, and butane will be exempt from license fees.
License fees will also be refunded on qualities of imported crude used to produce
asphalt.
13. Companies building new refineries or petrochemical plants or expanding
existing refineries or petrochemical plants coming onstream after April 30, 1973,
will be granted license fee-exempt allocations equal to 75 percent of their
additional inputs for their first 5 years of operation. Throughput earning
exempt allocations under these provisions will not be counted as certified refinery
inputs in estimating exempt allocations.
;
14. License fee exemption of existing petrochemical plants using heavy
feedstocks will be considered by the Oil Policy Committee at a later date.
15. Deepwater terminal operators in District I currently under the program
will be allowed to import 50,000 barrels per day of No. 2 fuel oil exempt from
license fee. ALfter May 1, 1973, these imports of No. 2 fuel oil must be produced
from Westem Hemisphere crude oil unless otherwise exempted. The Western
Hemisphere preference requirement will apply only if the Chairman of the Oil
Policy Committee determines that imports from the Western Hemisphere are
available. If they are not available, license fee-exempt imports will be permitted
from other sources. The Chairman of the Oil Policy Committee shall determine
whether, because of supply, price, and other considerations, the Western Hemisphere restriction is unduly restrictive and may suspend or reimpose this
restriction as needed.
16. Import licenses for crude oil and products produced in all Western
Hemisphere countries will be subject to license fees unless otherwise exempted.
The fee-exempt volume of imports for all Canadian and Mexican crude oil and
products will be established at the average daily volume of imports into the
United States under the existing quotas or during the first quarter of 1973,
whichever is higher. The State Department will advise the OPC from time to
time of any changes in the license fees on these imports which it deems to be in
the security interests of the United States. Product imports for which no
quota now exists will be allowed into the country under the license fee schedule
presented in section 4.




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291

17. To integrate Puerto Rican imports more fully into the U.S. program,
imports of crude oil and finished products to Puerto Rico will be subject to the
same license fees after May 1, 1973, as the mainland and will be allowed from
anywhere in the world.
a. All finished products refined in Puerto Rico will be shipped to the mainland license fee-exempt.
b. All license fees on Puerto Rican imports of oil will revert to the
Commonwealth of Puerto Rico.
c. Imports of crude oil and unfinished oils now governed by contractual
agreements between Puerto Rico and the U.S. Government will be exempt
from license fees for the remainder of the terms of these contracts. Upon
expiration of these contracts, the exemption will be phased out according to the schedule in paragraph 7.
d. Imports of crude oil and unfinished oils used to manufacture finished
products shipped to the mainland under the historical classification based
on shipments prior to 1965 will be exempt from license fees and that
exemption will be phased out over the same schedule provided for exempt
refinery allocations.
e. Finally, the Commonwealth will be allowed to impose restrictions on
shipments to the mainland of petrochemical intermediates and products
necessary to assure continued growth of the downstream petrochemical
industry in Puerto Rico. However, ultimate responsibility for determining
import policy will reside with the Chairman of the Oil Policy Committee.
18. Imports of crude oil and finished products into the Virgin Islands and
free trade zones would be exempt from license fees after May 1, 1973. Exports
from the Virgin Islands and entries from free trade zones into the United States
will be subject to fees. Plowever, the existing refinery in the Virgin Islands may
continue to export to the United States license fee-exempt those products governed by contract with the U.S. Government for the term of that contract.
19. All imports from possessions outside the U.S. customs territory will be
subject to license charges.
20. Imports under existing allocations to the Department of Defense will be
allowed license fee-exempt. These allocations will be phased out over the same
period allowed for exempt allocations.
21. Whatever customs drawbacks apply to existing tariffs or the import-forexport provisions that apply to existing petrochemical programs will similarly
apply to license fees.
22. The Oil Policy Committee will explore ways to use the license fee program as an incentive for investment in domestic storage capability and desulfurization of crude oil.
23. Applications for import allocations exempt from license fees will continue to be submitted and allocations assigned according to the current annual
cycle. Applications for import allocations subject to license fees will be accepted
and processed by the Department of the Interior at any time.
24. After termination of the various temporary exemptions, there will be no
differences in license fees or import restrictions for the various petroleum districts in the United States.
What these changes will accomplish
1. These changes would suspend oil import quota restrictions without abandoning the mandatory oil import program. They open the way for foreign imports
to alleviate potential shortages of crude oil and finished products, without foreclosing the option of reimposing mandatory controls at some time in the future.
Nor do they foreclose the option of auctioning some portion of import allocations
should that become desirable. The intent is to maintain import control and accountability without restricting the flow of essential oil into the United States.
2. These changes provide for the implementation of a permanent oil import
program that leaves no uncertainty as to the U.S. Government's longrun policy
intent to assure the availability of adequate supplies of crude oil and finished
products while, at the same time, providing the incentive for increased investment in domestic exploration and production and refinery construction. To do
this, the program establishes over time a clear differential between the prices of
domestic and foreign petroleum in the United States that favors U.S. oil pro-




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19 73 REPORT OF THE .SECRETARY OF THE TREASURY

duction and refining. Various changes in these incentives are spelled out in advance so that the oil industry will have a reasonable degree of certainty under
which to make major new investments in U.S. drilling and refinery construction.
These incentives will be assessed from time to time and, if necessary, increased
to assure that they are sufficient to encourage domestic investment.
3. This approach minimizes the impact on oil prices during the next 2 years.
The license fees will be increased over time. In any event, imports subject to
the proposed license fees during 1973 are expected to be such a small percentage
of the Nation's total oil requirements as to have little, if any,, impact on consumer prices. Moreover, there is adequate flexibility under current oil price controls to allow such price movements should they be necessary.
The trend toward increased prices will begin in 1974, when the Nation is expected to require an additional 1 million barrels per day of petroleum to satisfy
its demand. Should price controls be extended in any form, adequate and timely
consideration could be given to the potential impact of license fees on prices
and the impact; of continuation of price controls on the effectiveness of the
changes discussed here.
There may be some upward price movement for distillate fuels related to
license fee charges in 1973. Because the Nation does not have the reflnery capacity to satisfy its requirements for both gasoline this summer and heating
oil next winter, under the license fee approach domestic refiners could be expected to maximize gasoline output over the next several months in favor of increased distillate imports. There are several reasons for this:
a. Distillates are more likely to be available from overseas due to foreign
refinery yield patterns, although foreign supplies may not satisfy the sulfur
specifications of U.S. environmental restrictibns.
b. Prices for foreign distillates will be seasonally low over the next several
months, whereas gasoline prices will not be.
c. Maximizing domestic gasoline output maximizes a refiner's dollar return.
4. Implementation of license fees on May 1, 1973, would help to give value to
unused 1973 import tickets, providing landlocked independent refiners with
some leverage to bargain for domestic sweet crude oil. The current worldwide
shortage of sweet crudes, coupled with rising foreign prices, has wiped out, the
value of the independent refiners' tickets and has led to many small refiners cutting back production for lack of refinery feedstock. Import licenses, in general,
now have no exchange value because the landed price of foreign cru'des is roughly
equivalent or above domestic crude prices. Raising the value of independents'
unused licenses should help the independents to bargain for additional sweet
crude supplies. Moreover, the ability of the independent refiner to obtain additional fee-exempt licenses from the OIAB would, hopefully, enable him to obtain
an adequate number of tickets necessary to arrange exchanges with the majors
under present-day price relationships.
5. Under the proposed license fee program, the subsidy provided by exemption
of 1973 allocations for all refiners would be phased out over 7 years with the initial reduction coming in the second year. The intent is to pr6vide refiners both the
time and the incentive to retool their refineries to run sour crudes or to develop
or contract for adequate sweet crude supplies for the long term.
6. This approach also gives value to 1973 iraport allocations issued by the Oil
Import Appeals Board to independent jobbers and marketers, enhancing, their
ability to bargain for products. The OIAJB will continue to hear appeals from this
sector of the industry to make certain that no undue hardships occur as a result
of tight product supplies. In the long run, the,license fee approach will further
benefit independent jobbers and marketers by encouraging additional refinery
capacity, which will make products more readily accessible.
7. This approach also gives all importers the opportunity to negotiate longterm contracts, and thereby lower prices, for their crude oil and product supplies. This should be especially beneficial to deepwater terminal operators in
Districti.
Exhibit 26.—Statement by Deputy Secretary Simon, May 10, 1973; before the
Senate Banking, Housing, and Urban Affairs Committee on possible shortages
of gasoline and other petroleum products
I am delighted to appear before you today to discuss the possible shortages of
gasoline and other petroleum products. As such, I would like to focus on the
following:




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293

(1) The causes behind these shortages;
(2) The effect of these shortages;
(3) The impact that gasoline shortages will have on other products for
the remainder of this year and on home heating oil supplies next winter;
(4) The effect of the new mandatory oil import program; and
(5) What steps are being taken to prevent such shortages and their reoccurrence.
. . .
The growth of demand for energy
The first thing to understand is that the demand for energy has been increasing
continually while our supply has not. With 6 percent of the world's population, we
are consuming 33 percent of the world's energy. Furthermore, the demand for
energy in this country is growing at an annual rate of about 4 percent and by
1990, our energy needs will be double that of 1970.
Futher, demand for gasoline in the United States has been growing faster in
the past several years than at any other time in recent history. Since 1968, gasoline demand has risen at an annual rate of about 5 percent. During the past 2
years the rate of increase has been about 6 percent per year. Part of this rise
in demand can be explained by growth in the population, growth in the economy,
and the increasing number of cars on the road.
But .demand has also risen significantly because of the many power-using devices added to cars. These include automatic transmissions, air conditioning,
various safety features, and the changes made in automobiles since 1970 in compliance with EPA regulations issued under the mandate of the Clean Air Act.
Producers' compliance with these regulations has led to substantially reduced
engine efficiency. As more vehicles come on the road equipped with safety, emission control, and physical comfort devices, average mileage per gallon will decrease further. An automobile that once got 14 miles per gallon now gets 8 or 9
miles, and it may get only 6 or 7 miles per gallon if present trends continue.
Because new automobiles are not getting the gasoline mileage obtained by their
counterparts 5 and 10 years ago, and because we are driving more, gasoline consumption has risen. We are using 300,000 barrels per day more of gasoline this
year than last year.
Failure to build refiheries
While gasoline demand has been growing at about 6 percent per year, the volume of crude oil processed by refiners has risen only 3 percent per year. We are
now extremely short of refinery capacity and, at the time of the President's
energy message, which announced the new oil import program, no new refineries
were under construction. Furthermore, expansion of existing refineries had
ceased. Growth.in the capacity of the industry had come to an end because the
industry found that it was more profitable to invest abroad than in the United
States.
.
•
.
. One reason for this is that environmental restrictions have made it increas, ingly difficult to find acceptable sites for new refineries in this country. Because
of resistance to refinery siting, it may take 3 years to obtain site approvals today,
in addition to the 3 years required for construction. Yet modern refineries can be
designed so that they do not significantly pollute the environment. In this regard,
I would mention a recent trip which you. Chairman Mclntyre, made to inspect
a new refinery in the State of Washington. I understand that you were impressed
by the cleanliness of this refinery and have urged your fellow Senators from New
.England to support, such a refinery in their area. I wholeheartedly agree with
you.
Another reason why the industry has located new refineries abroad is that U.S.
oil import restrictions, in the past, created uncertainty as to whether new domestic refineries. could obtain sufficient imported supplies of crude oil. As long as
the Government set import quotas on a year-to-year and, in some cases, on a
month-to-month basis, no company was assured of the stability of supply necessary tp encourage domestic refinery construction. This impediment ended on
April 18 when we terminated volumetric quotas on oil imports.
Finally, the tax and other economic benefits available to refiners in the Caribbean and in Canada have been more lucrative than similar provisions available
in the United States. For all these reasons, U.S. refinery construction has been
standing still while U.S. demand for refinery products has been growing.
To meet the growing demand for gasoline, refiners have been changing their
mix of products to increase their yield of gasoline. The average yield of gasoline




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1973 REPORT OF THE SECRETARY OF THE TREASURY

per barrel of crude oil rose from 43.8 in 1968 to 46.9 percent in 1972. This means,
of course, that the yi^ld of other products, such as fuel oil, has been reduced. It
is also a short-term expedient at best. Whatever the product mix, it will be necessary to increase substantially our overall imports of refinery products to avert
both a gasoline shortage this summer and a fuel oil shortage next winter.
Our growing lack of refinery products was driven home to the public late in
1972 with shortages of distillates and other heating fuels in various parts of the
country. Refineries had to increase their percentage of distillate production and,
correspondingly, reduce gasoline production. As a result, we are now coming into
the summer season with low gasoline stocks. As of April 20, we had only 204
million barrels of gasoline in storage. This is down 12 percent from last year,
while demand is up 6 percent. Furthermore, domestic production, even today,
is not keeping pace with demand. We are using, on average, 47 million barrels
of gasoline weekly, and producing only 43 million barrels. For this reason, we are
faced with the prospect of serious limitations on gasoline supply.
An important aspect of the supply problem is the distribution system in this
country. Some areas of the country are close to pipelines and refineries. Some
areas are served by the retail outlets of the major oil companies. These areas
will not feel a shortage as much as other areas which are relatively distant from
pipelines and not well-served by the major oil companies.
Recognizing the serious nature of the gasoline ahd fuel oil shortage, and that
there are regional differences in the intensity of the problem, we have established
regional subcommittees of the Oil Policy Committee, of which I am Chairman.
These groups consist of representatives of the independent segment of the
industry serving particular areas of the country. In addition, we have contacted the Governor's office of each State and explained to them the need to
reach some compatibility between our energy needs and State environmental
requirements. As a result, representatives of the Governors* offices are attending
these subcommittee meetings, and we are able to identify regional problems and
deal expeditiously with them. Working in this way, we are able to maintain
flexibility in the administration of the new oil import program and to be responsive to the special problems of particular areas of the country.
The problems of the independent oil companies
We are greatly concerned about the independent companies. The independent
segment of the oil industry—the independent refiners and the independent
marketers—are faced with related but distinct problems. The refiners face
crude oil shortages; the marketers, gasoline shortages.
To understand how these problems developed, it is important to realize that
until the early 1970's, we had surplus crude oil production capacity in the United
States. This enabled independent refiners to buy crude oil and build refineries
to supply, among others, independent jobbers, marketers, and other wholesale
customers. There was also a surplus of gasoline and other products being produced by the major oil companies. Independent marketers took advantage of this
surplus and opened thousands of gasoline stations to sell gasoline purchased
in the spot market. By efficient servicing of consumers, these marketers were
able to sell gasoline for a few cents a gallon less than the major oil companies.
I believe that these independents had a healthy influence on the petroleum
industry—by giving consumers a greater choice between price and service they
made it possible for consumers to buy gasoline at lower prices.
The gasoline shortage has hit these independents hardest. In the first place,
independent refineries can no longer get adequate supplies of crude oil. They used
to obtain domestic crude oil by exchanging their import licenses with the major
oil companies. The major companies used the import licenses to import cheaper
foreign crude for their own use, while providing the independent refiners with
domestic crude oil. In addition, the so-called sliding scale method of allocating
import licenses under the old system gave smaller refineries more than a proportionate share of the licenses.
All this has changed during the last 2 years. Quoted prices of foreign crude
oil are now equal to or higher than prices of American crude sold in the same
markets. There is a worldwide shortage of low-sulfur or sweet crude. As a
result, major oil companies have had no economic incentive to trade their domestic sweet crude production for imported crude obtained by means of independents'
import tickets. Further, because of local air quality standards, companies are
compelled to use low-sulfur crude eveu though their plants ^re designed for




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refining high-sulfur crude. The result is that the independent refineries cannot
get the crude oil they need and are operating at less than full capacity.
Independent gasoline marketers are also in a difficult position. The wholesale
market for gasoline is drying up. Many of the independents find it impossible
to purchase gasoline wholesale. Plundreds of independent gasoline stations across
the country are closing down. Those that can obtain gasoline abroad find it
available only at much higher prices. This hurts them competitively, since their
main selling point with the public is that they can underprice the major oil
companies.
The problems of the independent segment of the industry were given considerable attention in designing the new oil import program. Indeed, had it not
been for the independents, the changes in the program might have been announced
much sooner than they were. Our basic objective was to balance the need to
preserve the independent segment of the petroleum industry with the desire to
create a vigorous domestic industry through incentives for construction of new
refineries in the United States and for exploration for new reserves of crude
oil. We also wanted to eliminate the many exceptions built into the oil import
program and to assure a reasonable stability of prices.
Perhaps the major benefit of the new program is the flexibility that it provides to importers. Marketers will be able to shop for supplies of oil anywhere
in the world. They will no longer be dependent entirely on their traditional sources
of supply. Moreover, through the availability of fee-exempt licenses issued by
the Oil Import Appeals Board, independent marketers should have access to
products at lower cost than their major competitors for the remainder of this
decade. This should provide the time required by the independent marketers
to make the changes necessary to protect their market position.
Another benefit of the new program is the incentive it creates for additional
output. The independent marketers have depended for their economic well-being
on the excess refinery capacity of the major oil companies. Excess refinery
capacity no longer exists, largely because we, as a Nation, have discouraged
refinery expansion and construction. The greatest hope for the independent
marketers, in the long run, will be the incentives provided both independent and
major refiners to produce additional supplies of crude oil and products. This,
in the end, is the only real solution to the problems the independent marketers
now face.
The effect of the new import program and other policies on the independent
oil companies
Let me discuss at greater length some of the steps we have taken to protect
the independents. In the past, the Oil Import Appeals Board (OIAB) would not
distribute import licenses in cases of hardships until September. These licenses
were, by and large, distributed to the independent refiners and marketers. Early
this year the OIAB began to allocate tickets immediately upon application. It
had soon disbursed its entire 1973 allocation. Then, on March 23, 1973, the
President issued a proclamation granting unlimited allocations to the Oil Import Appeals Board in an effort to make more crude oil and product available
to both the independents a;nd the Nation. Finally, on April 18, in another proclamation, the President removed volumetric controls altogether.
The new program does several things to help stirengthen the short-term position of the independent refiners and marketers, enabling them to establish themselves on a more enduring basis.
1. Outstanding import licenses will be honored free of license fee. Since the
independents hold a large share of these licenses because of the sliding scale
and past OIAB allocations, this provides some value to their tickets where none
existed previously. The independents will be able to import oil at lower cost
than the majors. As a result, the majors should now have greater incentive to
trade with the independents.
2. To provide greater value to the independents* tickets, we have suspended
existing tariffs. Had we not done this, the independents' ticket value would
have been lower. The only other way to create value under the new program
was to have the consumer pay substantially higher prices.
3. The Oil Import Appeals Board has been given specific responsibility for
helping the independent refiners and marketers by issuing fee-exempt tickets.
Major oil companies may also appeal to the Oil Import Appeals Board, but they
must demonstrate their inability to obtain import licenses by exchanging




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19 73 REPORT OF THE SECRETARY OF THE TREASURY

with independents or their willingness to supply established independent marketers and refiners with the same proportion bf crude oil or products supplied in
1972.
4. The Government has begun to allocate its "royalty oil" to independent
refineries in need. Under the terms of relatively recent lease sales, the Government can collect some of its royalties in cash or in a share of the oil produced
on lease lands. In choosing the latter course, it is, in effect, diverting crude
oil from the major to the independent refineries. To date, about 60,000 barrels
per day have been allocated in this manner to the independents. There is a
possibility for an additional sharing of royalty oil of up to 140,000 barrels per
day under this program.
5. All of these actions are probably not sufficient to assure distribution of
adequate supplies of refinery products to independent marketers and, especially,
adequate supplies of crude oil to independent refiners. It is for this reason that
the Government has decided to utilize the authority given it under the recently
enacted Economic Stabilization Act to allocate both crude oil and products to
independents, municipalities, and other purchasers who have been cut off from
their traditional sources of supply.
The Oil Policy Committee has been given general responsibility for drafting
an allocation program; the Office of Oil and Gas in the Department of the
Interior, responsibility for administering the program. The program adopted by
the administration relies on voluntary compliance with guidelines, set by the
Government, calling for the supply of no less thari the proportion of 1971 and
1972 sales to independents and other customers at prices not to exceed posted
and rack prices charged by refiners, marketers, distributors, and jobbers. Our
purpose is to apportion, as evenly as possible, any curtailment in consumption
that will result from gasoline and distillate shortages: Priority will be given to
meeting the needs of farming, other essential industries, and State and local
governments. A description of the allocation plan is attached as appendix A.
The program will apply to all segments of the industry. The oil companies'
adherence to these guidelines will be monitored and, if voluntary compliance
fails, more stringent measures will be taken by the administration. We hope and
expect, however, that this will be unnecessary. Our preliminary soundings
suggest that the companies are aware of the problems created by curtailments
and are willing to continue to provide a fair share of petroleum products to their
established customers. .
"
6. Perhaps the most critical problem, however, is the supply of sweet crude
oil to independent refiners. There is, at present, a general shortage of low-sulfur
crude oil brought on, in part, by the requirements of several Eastern States
and inunicipalities that refineries use sweet crude oil to meet air quality standards, even though these refineries are designed to take sour or high-sulfur
crude oil. This has diverted sweet crude to the east coast refineries of major
oil companies and away from inland indeperident refineries, many of whom
are unable to handle high-sulfur crude oil.
At the same time, the major oil companies have.had little incentive to exchange crude oil because the price of domestic oil is now equal to or lower than
the landed price of foreign oil. Under Cost of Living Council rules, the majors
cannot charge the replacement value for domestically produced crude oil, but
must absorb the losses resulting from an exchange. It is no surprise, therefore,
that the majors have been reluctant to swap U.S. for foreign crude oil. .
The administration is trying to rectify these problems. We are working with
the Cost of Living Council to find a compatibility between maintaining stable
prices and providing adequate compensation to the major oil companies that
do exehange domestically produced oil for imported oil.
Solutions to the gasoline and distillate shortage
These measures should help bring about a more equitable distribution of crude
oil and products in the short run. What about the long run? What is being done
to solve the basic gasoline and distillate shortages that have created the distribution problems with which we are now concerned ?
1. We have established a license fee program for crude oil and product imports.
This program removes all volumetric quotas on imports and allows free importation of crude and product subject to a fee of 21 cents and 63 cents a barrel, or
V and 1% cents per gallon, respectively, after 2^^ years. This is a longrun
2
system which is designed to spur the construction of refineries in the United




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297

States. It does this by removing obstacles to acquiring an assured supply of
crude oil and by instituting a price differential between crude and products
sufficient to guarantee an adequate profit from domestic refining. I am happy
to report that, since the President's energy message on April 18, a number of
companies, including Shell, Ashland, The Pittston Corp., and Standard Oil of
California, have announced that they now plan to build or expand refineries in
the United States as long as sites are available. Others have indicated to us
that they are seriously considering building refineries here but have not yet
made their plans public. In addition, several independent marketers have stated
their intention to develop their own U.S. refinery capability, a necessary step
if the independent marketers are to become a fully viable entity in the industry.
In each case, however, the decision to build a new refinery is contingent upon a
satisfactory solution to the "siting problem"^—the seemingly chronic inability of
the industry to obtain approval to build new refineries in many parts of the
country.
2. We are also taking actions to solve the domestic crude oil shortage by a proposal we are making to the Congress for an exploratory drilling investment
credit. This gives a 7-percent tax credit for new drilling, plus a supplementary
credit of 5 percent for successful wells. We are confident that this program, if
enacted by the Congress, will stimulate crude oil production and have a significant impact on gasoline and fuel oil supplies.
Conservation measures
Energy conservation can play an important role in stretching gasoline supplies
and thus reducing the shortage. To this end, we will need the cooperation of
the Government, industry, and the public. For example, the public is being
encouraged to minimize its use of automobiles this summer. According to. the
Automobile Manufacturers Association, about 56 percent of the cars on the road
contain only the driver. This underutilization of cars can be reduced in many
cases, especially in metropolitan areas. Car pools and public transportation
should be substituted, where possible, for single-occupant cars. Use of smaller
cars, with better gasoline mileage performance, is another measure the public
might take to conserve gasoline. Additional measures include reducing the use
of the automobile air conditioner, keeping tires properly inflated, cutting off
motors when stalled in traffic, and avoiding excessive speeds on the highway. I
am attaching as appendix B a list of conservation measures that can be taken
to help reduce the demand for petroleum products.
Gasoline prices
Some have expressed concern that the price of gasoline will rise to astronomical levels. This concern is unfounded. There has been a substantial rise in foreign
crude oil prices in the last 3 years, and we will probably experience additional
price increases in the future. But crude oil accounts for only a small fraction of
the costs of producing gasoline. For instance, if the crude oil price were doubled,
this would increase the price of gasoline by only 8 cents a gallon.
One of the largest components of the price of gasoline is represented by Federal and State taxes. The breakdown in the retail price of a gallon of gasoline
costing 39 cents is as follows : Crude oil—8.1 cents ; transportation to reflnery and
refining—5.3 cents ; wholesaling and retailing—13.9 cents ; State taxes—^^7.7 cents;
and Federal tax—4 cents.
It is interesting to note that in England, the retail price of regular gas is 64%
cents a gallon; in Germany, 79% cents; in France, 911/^ cents; and in Italy, a
dollar. With prices like these, it is no wonder that European drivers prefer
smaller cars. Why are European gasoline prices so high? The answer is primarily
the higher taxes paid by motorists in these countries. In Europe, taxes account
for up to 75 percent of the retail price. By comparison, taxes represent only 30
percent of the price inthe United States.
Gasoline and other prices will probably increase over time. This would provide
benefits to the Nation:
1. It will help to save some independent gasoline dealers and refiners who
are otherwise going to go out of business.
- 2. It will encourage Americans to conserve on gasoline.
3. It would also help to provide the economic incentives needed to speed
up the construction and exipansion of badly needed domestic refinery capacity.




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19 73 REPORT OF THE SECRETARY OF THE TREASURY

Fuel oil
A major effort is being made now, and for the rest of the summer, to produce
more gasoline. This will have the effect of reducing the yield of fuel oil below that
which was being produced a few months ago. The question is whether, as a result, we will have adequate stocks of fuel oil for next winter.
In January, we removed all restrictions on the importation of No. 2 fuel oil.
Partly for this reason, stocks of distillate fuel oil are now higher than at this
time last year.. Imports of fuel oil continue at high levels. We are now importing
over 200,000 barrels per day. This, combined with domestic production, gives us
a total projected supply that is adequate to meet our needs this summer and,
barring extremely cold weather, to make it through next winter.
In addition to this, we are confident that the recent changes in the oil import
program will help us to attain needed levels of imports of fueloil. Major oil
companies can now bring in any amount of fuel oil they wish by paying a license
fee of 15 cents a barrel. The independents can, effectively, bring in fuel oil without paying any fee at all.
Further, I believe there is adequate refinery capacity overseas to produce the
fuel oil required by the United States, particularly if U.S. refineries maximize
their yields of gasoline.
Conclusion
In conclusion, let me say that I am basically opposed, as I am sure are most
of the members of this committee, to the needless injection of Govemment regulation and control into any industry, particularly where there is every evidence
of intense and healthy competition. I do not want to take any step which would
discourage private initiative.
I believ