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Senator CAPEHART. With a need of 288,000?
Secretary FLOETE. 233,000.
Senator CAPEHART. 233,000 ?
Secretary FLOETE. Yes, sir.
Senator CAPEHART. Which is a very small percentage?

Secretary FLOETE. A very, very small percentage. It is a long, long tortuous road to get it done that way.

Senator CAPEHART. Why can you not use both direct appropriations, as you have, and some such method as called for in S. 1501 ?

Secretary FLOETE. Yes, sir. I am going to make a remark about that.

Senator CAPEHART. That is what you have been doing under the Wherry Act and that was a supplemental to your direct appropriation.

Secretary FLOETE. Yes, sir.

Senator CAPEHART. The Wherry Act expires on June 30. The question is, should we extend the Wherry Act as is, or should we extend the Wherry Act with certain amendments and certain changes. That is what S. 1501 is.

Secretary FLOETE. I would like to point out that we must recognize any other method than appropriated funds is going to cost us more money. There is no doubt about that, but we recognize too

Senator CAPEHART. You say it is going to cost you more money? Whom do you mean by "us"?

Secretary FLOETE. The United States. It is largely the difference in the interest rate.

Senator CAPEHART. I was under the impression that the men were going to pay the rental.

Secretary FLOETE. Yes, but we are going to have to appropriate for the quarters allowance.

Senator CAPEHART. But it is their money, is it not? You now pay it to them in cash and they are permitted to go out and rent from whomever they please.

Senator PAYNE. Unless you have quarters, of course.

Secretary FLOETE. Yes. Unless we have quarters, and then we make no appropriation.

Senator CAPE HART. But my point is, it is their money just the same as their salary, is it not?

Secretary FLOETE. Yes, but they do not get it if we give them housing

Senator CAPEHART. I understand that. You either give them the money or the equivalent in a house. My point is, it belongs to them and it is a part of their compensation which they receive as a soldier. The Congress appropriated the money for them. At the moment you pay many of them in cash and permit them to go out and rent a house, either paying more or less than their so-called quarters allowance. Só while I am inclined to agree with you that if you go the mortgage route it will cost more money, still I will have to disagree with you about what the soldiers themselves are paying for out of their rents. If you do not supply them with this kind of housing in my opinion that will cost them a lot more money under existing conditions, because there is no housing.

Secretary FLOETE. I agree with you, sir, but I think —

Senator CAPEHART. So I think if you think in terms of the soldier himself, he will be millions and millions of dollars better off during

the next 20 years if we can get proper housing for him. He will save millions and millions and millions of dollars. That is the fellow I am thinking about. The Federal Government is not paying this rent, as I see it. Secretary FLOETE. No, but they are putting up the money to pay it.

. Senator CAPEHART. You might as well argue then that the $22,500 I get as a Senator at the moment is being appropriated by the Federal Government, and wherever I spend it there is some connection between that and the appropriation. It seems to me you should argue that way. Why do you not take the same position on the serviceman's salary? He spends his salary.

Secretary FLOETE. No, but if we provide this housing we do not pay him the rent.

Senator CAPEHART. Of course you do not pay him the rent. You could not pay him the rent and give him a house too.

Secretary FLOETE. It is a saving against that.

Senator CAPEHART. We could very easily write the law so that you would pay him the money and he in turn would pay it back to you in rent. That is what you are doing now under the Wherry Act, However, I am not going to labor the point as to whether it does or does not cost more.

Secretary FLOETE. I do not think it is a large amount actually.

Senator CAPEHART. I think if you want to go on the premise that the Federal Government might well appropriate more money under this sort of a plan, it would cost some more. I think if you

take into consideration the boys in the field, the servicemen, and the fact that they will save millions and millions of dollars by virtue of securing proper housing, then I feel that this is so badly needed that we ought to go both ways. That is, by direct appropriation and also some

, sort of a plan such as S. 1501 calls for.

Secretary FLOETE. Mr. Chairman and Senator Capehart, here is the way we feel about this matter down there. We believe fundamentally there is some saving by means of direct appropriation. We recognize, however, that there are many claims on the money within the Department of Defense, for instance. We may come along and say next year we need it to build something else, or that we have some sort of a missile we should spend the money on.

So there are other claims on that money all the time. We know when it gets to Congress they have to look at the matter the same way and say, is there something else that should have preference. So we know we are in that spot, and yet we know for even a modest program, which we have suggested here, on the basis of 25,000 units a year for the next 5 years, even that modest number of 25,000, which is only 10 percent of our gross requirement, requires $365 million a year to finance it.

We know that is a problematical thing, as to whether we will get it or not. We also realize it may be desirable to accelerate this program. The need for it is now. It is not 10 years from now. I think the services need it more today than they do at any other time. So I think that is a second reason why we have to give consideration to it. We should possibly accelerate the program, using both approaches, and get our requirements taken care of at an earlier date.

Senator CAPEHART. Would you yield? Does anyone have any figures on how much the Government might save, which might be a lot

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more than the extra interest cost here of the policy proposed over direct appropriations—does anyone have the figures on what would be saved on the men who would remain in the service, which would eliminate this expense involved in the great turnover that you have with the additional training of men, if you had proper housing and places for them to live? Is that not a terrific sum?

Secretary FLOETE. I think some of the men here can speak better on that than I.

Secretary Gates. The figure we agree would be enormous.

Secretary DOUGLAS. We have tried to arrive at a figure various times as to what might be saved by an increased rate of reenlistment. We know that is a tremendously important factor, not only to keep the trained men to operate the Air Force, but also from an economic point of view. You can get all different kinds of figures as to the cost of retraining a new enlistee. We worked up pretty careful figures a year ago, which included GI benefits cost to the Government, when we were practically providing a subsidy to get people out of the service. We came up with the figure at that time that about a 1 percent increase in the reenlistment rate of airmen would save us $20 million.

Senator CAPEHART. $20 million a year?
Secretary DOUGLAS. Yes, $20 million a year.
Senator "CAPEHART. Just on 1 percent?

Secretary DOUGLAS. I could not show under the existing GI rights situation quite as high a figure, but that is very conservative as to training costs. If you take the cost of about four, five or six thousand dollars per man, which I think is extremely conservative, you come up with a figure of between $100 million and $200 million for a 10 percent change in the enlistment rate.

Senator CAPEHART. Is it or is it not a fact that one of the most troublesome problems that these married men have is housing, finding places for their families to live? Also that they become more discouraged over that probably than any other feature?

Secretary DOUGLAS. There is no question about that. I think the Air Force feels it very keenly because of the increasing pressures we are under to put installations away from communities that can readily support additional military personnel.

Senator CAPEHART. So you might save a considerable sum of money if you had proper housing due to the fact that the men would stay in the service much longer, or perhaps indefinitely?

Secretary Douglas. There is a very large cash savings that accrues just as soon as you are able to make the career more attractive to both airmen and officers.

Senator PAYNE. I am still rather interested in—I do not want to slow this up any, but I am still rather interested in having a little more information as to why with specific figures, if you have them, or the approximate figures--as to why it is less costly to the Government under the appropriated housing program by itself than it would be under one of the others, such as $. 1501 or Wherry.

Secretary FLOETE. I think it boils down to just two pretty simple factors. One is, presumably we would borrow money cheaper under a bond issue for appropriated fund housing, and we have assumed that might be 3 percent, than you will under another method. Now on the Wherry Act, for instance, I think they are paying 414 percent now for their mortgages. Whether under S. 1501 you would sell it for 414 or less, I do not know.

Senator CAPEHART. My best judgment is it would sell for 31/2. That is the mortgage.

Senator PAYNE. Let us say you borrow $1 million through the Treasury. We have to work on a hypothetical basis. First, let us say if this country were operating its fiscal affairs on a balanced-budget basis.

Secretary FLOETE. Yes.

Senator PAYNE. Then you would possibly be able to overcome the interest charge figure you are talking about.

Secretary FLOETE. Yes.

Senator PAYNE. But where we are not, you cannot point your finger to where the deficit is actually occurring. You can use any one of a thousand different figures to be able to arrive at it, because you could say it is military housing that is appropriated for that is causing the deficit, or some other activity.

Secretary FLOETE. Yes.

Senator PAYNE. The Treasury goes out in order to cover the deficit and it has to borrow money.

Secretary FLOETE. Yes, sir.

Senator PAYNE. The Treasury on the basis on which they borrow money is not going to be on a short-term, but on a long-term basis. Am I correct in that?

Secretary FLOETE. Unless they had serials of some kind.

Senator PAYNE. But in not too many of those cases is there a retirement of serials without the reissue with the present financial status. Am I correct in that? There is a reissue of the expiring or retired serials. Secretary FLOETE. That has been my observation.

. Senator PAYNE. All right. If you do that then you are going to compute the interest over a long period without any retirement of the amount at all; are you not?

Secretary FLOETE. That may be the result.

Senator PAYNE. All right, sir. Again I am on a theoretical basis of largely a 20-year period. I am working on the basis that to borrow $1 million and not have an amortization at regular periods for the reduction of that principal, that you are going to be paying interest on that principal over the entire period of time, up to a point where we hope perhaps you might get to a reduction of your debt situation, which would theoretically again reduce or amortize the amount that is borrowed. So that the interest rate will have to be computed over the entire period at a fixed rate; whereas under the other program you would be able to borrow the money. It is true you would pay a higher interest charge, but would immediately start under the provisions of the arrangement to have a regular amortization over the 20-year period which, as a net result, would bring in a lower net interest cost than you would have in the other situation.

Am I right or wrong on that?
Secretary FLOETE. I do not know whether that is a fair comparison.
Senator SPARKMAN. Your premise is wrong.

Senator PAYNE. Who do you feel the premise is wrong, Mr. Chairman?


Senator SPARKMAN. You are assuming that the only money the Government borrows is for fiscal purposes. Of course, it is borrowing for all purposes.

Senator PAYNE. I realize that.

Senator SPARKMAN. And it is paying off currently and therefore is retiring these bonds along with others.

Senator CAPEHART. As long as the Government is running at a deficit, it is reborrowing or reselling all the time.

Senator PAYNE. The philosophy is good that we are paying it off, but the fact remains that the deficit remains almost constant.

Senator SPARKMAN. That deficit is accruing from reasons other than this housing. That is the thing that is important about it. You have to assume that if there are savings on these appropriations as you go along they are going to be applied to this particular indebted

Senator PAYNE. In other words, no other activity of the Government comes into that indebtedness?

Senator SPARKMAN. No. According to your premise, no other would.

Senator CAPEHART. The interest on the mortgage would be 31/2 to 4 percent. The interest at the moment on 3-year bonds is possibly 212 or 3 percent. But the mortgage will run for 25 years and it will be 312 or 4 percent for 25 years, and it will be paid off each year. You will pay on the unpaid balance. Each year you will pay on less principal.

Senator PAYNE. That is right.

Senator CAPEHART. If you work on the assumption you are going to be able to borrow money, or the Government is, at the same rate it is now, then there is no doubt it will be a little cheaper on an appropriated basis. But who knows but 5 years from now the Government may be paying more than 4 percent.

Secretary FLOETE. That is true.

Senator "CAPEHART. So it could possibly cost you more money on the direct appropriation basis.

Secretary FLOETE, Assuming it costs us 3 percent by the appropriated fund method, and 4 percent by mortgage, then you get a difference in cost to the Government over the period it takes to amortize the loan of about $2,000.

Senator CAPEHART. My best judgment is
Secretary FLOETE. That is over a 20-year period.

Senator CAPEHART. My best judgment is that the servicemen would save a lot more than that if you had the proper housing. Furthermore, I think we can readily admit it would no doubt cost more over the mortgage route than over the direct appropriation route. I think the big point at the moment is we have to have the houses, and we must work out ways and means to get them. I have always found in my business and other businesses if I could not pay cash then I sold bonds, or I mortgaged it. I think we are up against that same situation here. We spent a lot of money and a lot of time at the end of World War II to get houses for boys coming out of the service. I think we need them just as badly for the boys who are staying in the service, and for those we are picking up and putting into the service, and I think we ought to give some thought to that.

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