These requests covered a wide field, including for the most part information and reports furnished by the various government departments and matters before the Interstate Commerce Commission.

The Washington office can be called upon by member companies in all such matters and is in position to furnish useful service.

Respectfully submitted,

LUCIUS S. STORRS,

HENRY G. BRADLEE,

В. С. Совв,

JOHN J. STANLEY,

C. D. CASS,

ARTHUR W. BRADY,

SAMUEL M. CURWEN,

W. R. ALBERGER,

CHARLES L. HENRY, Chairman,

J. W. Welsh, Executive Secretary.

Committee on National Relations

PRESIDENT TODD:- Is there any discussion on the report of the Committee on National Relations which was read by Mr. Henry?

Some men are born to render service to their fellow men. They emerge at an early age from the narrow limits of a selfish career and devote their time and talents for the benefit of the whole country. Such is the record of the distinguished gentleman who is to address us today. To recount his achievements would be to give you a current history of the United States. An Ohioan by birth, after a brilliant college career, he qualified in the best law schools of the country for his chosen profession, practiced in Cincinnati, Ohio, where his talents. attracted the attention of Judge Taft who has always been his friend and admirer.

He served as Chief Law Clerk of the United States Treasury, later with the Panama Canal Commission in Washington, D. C., then as Associate Justice of the Supreme Court of the Canal Zone, afterwards Assistant Comptroller of the Treasury and latterly during the years 1915 to 1921 has filled what may be termed the most important office in the country, namely, Comptroller of the Treasury, with marked efficiency, clear judgment and great ability. He is at present Assistant

Director of Budget, United States Treasury, Washington, D. C.

I have the honor to present to you Hon. Walter W. Warwick, who will address us on "The National Budget System and Its Relation to the Financing of Public Utilities."

THE NATIONAL BUDGET SYSTEM AND ITS RELATION TO THE FINANCING OF PUBLIC UTILITIES

BY WALTER W. WARWICK, Assistant to the Director of the Budget, WASHINGTON, D. C.

In response to your invitation to speak to this Convention, I have thought it best to discuss the relation between Government financing and the financing of public utilities. This relation is not apparent at first. The one seems so easy and the other so difficult. It is often said a government can secure all the money it needs or wants because of its unlimited taxing power. It is true a government can take by taxation any part or all of the property of its citizens. But a successful national life requires that the people be prosperous and contented. The fatal mistake that breeds revolution and the ultimate destruction of any nation is a course of unnecessary and therefore unjust taxation, gross extravagance, and failure on the part of rulers or of public officials in a republic to consider the best interests of the people as a whole.

The experience during the war furnishes a striking example of the efficiency of our form of government. I do not mean that the war in all its details was carried on in the most efficient manner, for we know that war is a form of lawlessness, a time of waste and of necessary disregard of cost. The first consideration is to win the war with the minimum loss of life. The question of mere money cost is thrown aside by the force of public opinion. The strength of a nation lies in the confidence the people of that nation have in their form of government. When they believe that form is the best, as Americans do, no sacrifice is too great for them to endure. The burden of reasonable taxation is not then resented.

GOVERNMENT FINANCING.

In the years before the late war it was comparatively easy to finance the constantly growing activities of the Government. The people wanted service and hardly knew there was such a thing as Federal taxes. The receipts from tariff duties and internal revenue taxes were sufficient to meet all requirements. The total expenditures were about one billion dollars a year and the balancing of the budget, or the consideration of receipts and expenditures at one time, was not thought to be an important subject. The United States Treasury was a mine of coined gold and of unfailing supply.

About ten years ago an agitation for a budget system began. The debt of the Government was then less than one billion dollars, but as a result of the war, notwithstandng the large taxes collected during the war period, the debt rose to about twenty-three billions of dollars. The situation after the war when expenditures, including those of the postal service, could not be brought below four billion dollars a year, forced the adoption of some method of controlling expenditures and considering them in relation to receipts from taxation. Then Congress passed the Budget and Accounting Act in June, 1921. Concerning the budget method of managing public finances and informing the public of the true situation of their business, I wish to speak briefly.

THE NATIONAL BUDGET SYSTEM.

Prior to the passage of the Budget law, each department of the Government submitted estimates of what it needed or desired in the way of funds for expenditure during the next year. It must be remembered that most public activities are carried on for the public welfare and as much work can be done as the funds provided will permit. These estimates were required to be transmitted to Congress by the Secretary of the Treasury without change. Each department and bureau representative then appeared before the proper committees of Congress and argued its case. By a vote of Congress it was decided the amount each service would receive. At no time or place, either in the executive or legislative branch of the Government, was consideration given to the relation between receipts and expenditures or the relative importance of all activities. Sometimes it was said that the Government was suffering from an embarrassing surplus and many methods of relief were suggested. The ancient remedy of bleeding was popular. This cause for embarrassment can not be said to plague many individuals and, I believe, has not appeared on the horizon of the street railway industry in recent years. It might be a welcome addition to your troubles. During those years of plenty the Government did not even retire its small debt of less than one billion dollars.

In the present Budget law responsibility has been fixed in both the executive and legislative branches. The fixing of responsibility is an important feature of a budget system. The President has now taken control of the expenditures of the executive branch and through that branch 99 per cent of the public money is spent. The legislative and judicial branches spend for maintenance and operation less than one per cent. Many of the expenditures included in the 99 per cent are fixed and can not be changed by the Executive. The first large item is our obligation to the soldiers of the late war and to those of former wars, over three-fourths of a billion. The second is the interest on the public debt and a reasonable sinking fund. This requires one and one-fourth billion dollars annually. Excluding the revenues of the postal service, which service is usually self-supporting, the receipts of the Government are

but a little over three billion dollars. The fixed charges referred to take more than two billions of this sum. Upon the other one billion dollars of expenditures the Executive discretion is exercised through a Director of the Budget, an officer created by law to carry out the President's program of scrutinizing proposed expenditures and recommending to the President where expenditures can be reduced without injury to the service or with the least injury when the necessity for keeping expenditures within the receipts makes drastic cuts imperative. The director has no policy of his own, he acts for the President.

THE FUTURE OF THE BUDGET.

The Budget law has been in effect but a little more than one year. It is not to be expected that its full value to the people will be appreciated until, through experience, by constant effort in the improvement of methods, and by cooperation with Congress, the best ways of operating the Budget system, in harmony with our form of government, will be developed. I think it safe to say that within a few years the annual Budget message of the President, reporting to Congress and to the people the results of the past year and the proposed program of public activities for the coming year, will be the most widely read of all Government publications. Those who urged the adoption of the budget system for the Federal Government have reason to be satisfied with the progress that is being made, confident in the assurance that the United States has at last adopted and is perfecting a plan which all the experience of private business has determined to be essential to the successful management of a large business.

THE BUDGET IN CONGRESS.

In Congress rapid progress has been made by centering in one committee of the House of Representatives and one committee in the Senate full control over appropriations. The Budget law takes from Congress none of its constitutional responsibility to the people for the appropriation of the public money. Congress may reduce or increase any item of the Budget submitted by the President. Congress also still retains the power to initiate appropriations that it may believe to be desirable in the public interest.

Another feature of the Budget and Accounting Act is the creation of the office of Comptroller General of the United States. That officer is charged with the audit of all public accounts and with reporting to Congress, for its information and for the information of the people, upon all subjects relating to the receipt and expenditure of public money. He is also charged with many other duties relating to the inspection of books, contracts, and accounts, looking to recommendations for changes in laws and methods to insure honesty in expenditures and efficiency and economy in all matters embraced in the subjects coming before him

in the exercise of his broad authority. To this officer Congress and the people look for constructive criticism of all that goes on in connection with public revenues and expenditures.

IMMEDIATE BUDGET PROBLEMS.

During the present fiscal year, ending June 30, 1923, there is an apparent failure of receipts and expenditures to balance by more than 600 million dollars, it being estimated that expenditures may run over $3,700,000,000 while receipts of all kinds are estimated at about $3,100,000,000. To increase receipts by sales of surplus property and by other means, and to reduce expenditures by every means available so that the Budget will balance for this fiscal year is a task to test the Budget system. It presents a gigantic problem for the President and his aides in all departments of the Government. The problem must be solved and the balancing accomplished if the credit of our people is to be maintained at the high level we all demand and expect.

These problems of financing your Government are your problems. The success which must be attained has a direct bearing upon the financing of great industries like that in which you are so much interested. The credit of the Government is reflected in the low interest rate it can obtain in the large refinancing it is undertaking in connection with the war obligations maturing in the near future. The Secretary of the Treasury, under the broad authority given him by law, is conducting these operations in a way to avoid unnecessarily interfering with the needs of business. Your need to obtain necessary funds at a reasonable rate of interest is closely related to the problem of Government financing. The national budget must balance and the debt be reduced each year if we are to maintain the high credit of our country.

FINANCING PUBLIC UTILITIES.

I come thus to a discussion of the subject of financing the needs of the electric street railways of the country. In view of the long and somewhat disagreeable experience you have had, and the difficulties you have encountered and overcome during the past few years, it is not to be expected that one not familiar with your industry can make suggestions for a procedure to do away with your troubles nor point the way to an easy management of finances. Your task is a large one and the mention of five billions of value should make the public think of their relation to its accomplishment.

I remember the work done by the Commission appointed by President Wilson to investigate and report upon the needs of the electric street railway companies, and some time ago when I read its interesting and instructive report I was impressed with the seriousness of the troubles brought on the industry as a result of war conditions. I doubt if the public ever fully realized, during the war, the burden put upon the