example, if we had been able to put through the Depa Natural Resources, which was proposed a couple of years President, because we do have an organizational problem located here, there, and elsewhere in the Government. You advantage by locating it together.

There are also a great number of environmental and pricing connected with this. If we cannot somehow solve our envi problems so that we can produce the energy we need, we ar be in great trouble. We also have to price it properly.

Senator BELLMON. I suggest you are already in great far as energy is concerned.

Secretary SHULTZ. Not only me, sir, but you. We are all and we have to work our way out of it.

Senator BELLMON. I think a good place to begin is th because we have the resources. There is no question we hav fuel in this country to last us 500 or 1,000 years. We have a here where very little has been done to bring those resou production, partially because in some cases we don't kno go about it.

COAL-RELATED ENVIRONMENTAL PROBLEMS

Secretary SHULTZ. I think we have tremendous coal sup environmental reasons, we have decided that we want to pu tions on the mining of the coal and restrictions on the use of If we didn't have those restrictions, we would not have any Now what we have to figure out is-within the framework we are willing to tolerate environmentally-how much do we Senator BELLMON. How much is in the budget for solving t lem relating to coal production, for instance, taking sulfu the gasses?

Secretary SHULTZ. The increase in that particular area factor of four.

Senator BELLMON. What are the numbers?

Secretary SHULTZ. I am sorry. It is an increase of about from $45 to $60 million.

Senator BELLMON. An increase of $15 million to solve the mental problems of coal?

Secretary SHULTZ. This is research on how to produce ener coal without causing undue pollution. That is that particular p There are lots of problems.

Senator BELLMON. Does it cover stack gasses, coal lique the whole area, $15 million?

Secretary SHULTZ. Right.

Senator BELLMON. Does that seem to be adequate?

Secretary SHULTZ. That is what we can see at this particula

Secretary SHULTZ. This represents what we think we can reasonably expect to achieve here. Now we are trying to learn more and see what nore can be done. Just because you have a problem does not mean you should just be throwing money around at that problem until you have figured out what to do about it. It may be that an awful lot of what to do about it is to price the stuff right in the first place. In the second place, we must work on the environmental problems. Here we have all this oil and gas up in Alaska. We have not been able to figure out how to build a pipeline to get it down, at least not satisfactorily enough to get it through the courts. So we don't have that energy. There is a lot there.

Senator BELLMON. There is also a lot of energy just beyond our economic reach in these old zones. What is in the budget for promoting research in secondary and tertiary recovery?

Secretary SHULTZ. I don't know the answer to that offhand. The basic answer to that has to do with pricing. If the price is high, those things will be drawn into use. That does not mean that we necessarily want to get the price of everything way up, but that is the basic economics of it.

Senator BELLMON. One way to get the price down, of course, is to reduce your cost of production. There is nothing being done so far as that is concerned in that field.

Mr. Chairman, those are all the questions I have of the Secretary, but I have a couple questions of Mr. Ash.

SLOWDOWN IN INFLATION

Chairman MCCLELLAN. I will ask you to suspend and let Senator Eagleton have an opportunity to interrogate the Secretary. The Secretary has an engagement in a few minutes he would like to keep. Senator EAGLETON. I will be very brief.

Mr. Secretary, at the bottom of page 2 of your prepared statement, you say, "At the same time inflation will slacken further. We look for the increase in consumer prices to be down to 2.5 percent or less by the end of the year." By that you mean the end of the calendar year 1973?

Secretary SHULTZ. Yes, sir.

Senator EAGLETON. Is that 2.5 percent or less figure a utopian hope or is that really your hard realistic estimate of what the rate of inflation will be?

Secretary SHULTZ. We recognize it as an ambitious goal. We recognize that some independent analysts don't think we will get there. We think we should try and we should not be content with things as they are. We should try to change them.

Senator EAGLETON. Are the rest of your budgetary components that go to making up the $268 or $269 billion budget, based on ambitious goals? Or are they based on what you think are hard realistic efforts? Secretary SHULTZ. As far as the so-called uncontrollables are concerned, those are based on what is the most likely flow of expenditures. Beyond that is the President's budgeting of the controllable items. We think that is a workable, doable budget and it fits within the discipline that we think is necessary as one of the ingredients in reaching that 2.5-percent goal.

92-821 - 7314

PHASE II OF THE PRESIDENT'S ECONOMIC PROGRAM

Senator EAGLETON. Finally, according to your statement, you feel n the calendar year 1973, in phase III, the great emphasis will be on volunteerism. Do you think in phase III with all the large labor contracts that come up for renegotiation that at the end of this year with volunteerism we will have 2.5-percent rate of inflation compared with 3-plus now?

Secretary SHULTZ. We have described the program as being as voluntary as it can be and as mandatory as it must be. That is, we will have no hesitation to use the powers in the Economic Stabilization Act, but we prefer that there be voluntary response.

Now I think it is an encouraging thing that leaders from organized abor and management have agreed to serve on a labor-management advisory panel, and the meetings of that panel have been very good. That is, they have been thoughtful, professional, probing, and serious as people have worked at this problem.

I think that is a very good opener.

Senator EAGLETON. Thank you, Mr. Chairman. Thank you, Mr. Secretary.

IMPOUNDMENT OF HIGHWAY FUNDS

Chairman MCCLELLAN. Senator Bellmon, you may resume.

Mr. Secretary, we thank you very much. Since you have another engagement we are glad to excuse you. We look forward to having you again. I have a question, but I think the budget director can solve it for me.

Senator BELLMON. Mr. Chairman, I would like to ask Mr. Ash about the impoundment of highway trust funds. I can understand the need for some kind of stabilizing effect in Government because the amount of Government spending does have a tremendous impact on a nation's economy, but here is a program that the Congress passed. We assessed certain special levies against those who use our highways, gasoline taxes and excise taxes of one kind or another. The Federal Government's function, as I understand it, was almost ministerial, they were to collect the money, decide how much each State got and apportion to the States and pass it to the States. Somehow along the ine somebody got the idea they are supposed to sit on the money until somebody decides for whatever reason it ought to be spent.

BASIS FOR IMPOUNDMENT

My question is, what criteria do you use to decide when to start mpounding and what criteria do you use when you start to release those funds and what basis do you have that makes you think you can mpound them at all?

Mr. Asн. As you know, Senator, we have not set a precedent this year by not expending all funds.

Senator BELLMON. That does not make it any better.

Mr. Asн. The basic criteria have to do with the effect on the total economy of Federal spending and with considerations of the efficient tilization of funds. Îf the conclusion is, that to spend all of those unds would lead to higher prices and greater inflation than if they were used at a more prudent or lesser rate, then impoundment of non-critical funds may be indicated.

Senator BELLMON. Will you sit on this money until the economy gets sour and then you will have a lot to turn loose?

Mr. Asн. It is not a matter of using them to turn money loose when the economy is sour. It is a matter of spending them in the way which buys the most for the money. As they are in trust funds, those amounts not spent in 1 year accumulate interest, so that there is more available the next year.

Senator BELLMON. Mr. Ash, I know exactly what happens, but I wonder if you do? What happens is that you have a kind of peak and valley situation in the construction industry. The highway contractors and the people who make their living building roads go on a starvation diet, a lot of them have to sell equipment, go out of business, men have to get jobs someplace else. When you release the funds and there are large surges, they are not hungry for them because the people who were in the business are not there any longer. You are increasing the cost of the highway program by not letting this money be available on an orderly basis.

Mr. Asн. It would be a large surge on top of the other to add about $2.5 billion more, which is the amount now reserved.

Senator BELLMON. It would not be a surge at all if the money was collected on an orderly basis and passed to the States in an orderly way. You would have a continual program and not the peaks and valleys.

It strikes me that it is convenient that they hold the money and then release it for political reasons such as 6 months before the election. It seems to me it is a violation of the intent of the program. In fact, that program was not passed for the purpose of helping the economy, but for the purpose of building highways.

Mr. Asн. That's right, and building them in the way that effects the most efficient use of the funds available. That is an implicit objective of any expenditure.

Senator BELLMON. Do you hold back on defense funds and then release those when the economy needs those?

Mr. Asн. This whole business of the Anti-Deficiency Act and the apportionment of funds includes the flow of funds in a way that provides for their most economic use. Defense funds are programed in accordance with these same criteria.

Senator BELLMON. Is there some place in the budget that shows how much is being withheld in each of the categories?

REPORT ON BUDGETARY RESERVES

Mr. Asн. A separate report was submitted on February 5. That will have the data you have asked for. The report includes the amounts in reserve in each of the categories under the Federal Highway Administration. There is the amount apportioned, $4.4 billion, and the amount reserved, $2.4 billion, which of course is available in future years.

Senator BELLMON. How much is being withheld out of defense at the same time? What percent of the total budget?

Mr. Chairman, would it be in order to have this made a part of the record?

Chairman MCCLELLAN. What is it?