February 1, 1984

To the Congress of the United States:

In the past year, the Nation's prospects have brightened considerably. The economy has grown strongly -- beyond expectation. Inflation has been reduced to its lowest rate in 16 years. Unemployment has declined faster than at any other time in 30 years. We are well on our way to sustained long-term prosperity without runaway inflation.

Our national security is being restored. Our domestic programs are being streamlined to reflect more accurately the proper scope of Government responsibility and intervention in our lives. Government operations are being made more effective and efficient, as steps are taken to reduce costs.

These developments are the result of the program I proposed 3 years ago to correct the severe economic and political problems caused by previous short-sighted and misguided policies and priorities. That program focused on long-range real growth. My tax proposals were designed to provide badly needed incentives for saving and productive investment. I supported the Federal Reserve in its pursuit of sound monetary policy. I worked with the Congress to reverse the growth of Government programs that had become too large or had outlived their usefulness, and as a result, domestic programs, which had been growing rapidly for 3 decades, have finally been contained. I worked to eliminate or simplify unnecessary or burdensome regulations.

To the Nation's great good fortune, the preceding Congress appreciated the fundamental soundness of this program and joined with my administration in helping to make it a reality. Frequently, because of entrenched constituency special interests, the political risks involved in doing so were great. I thanked Members then, and continue to be grateful, for the crucial support my program received. The Nation is now beginning to reap the solid fruits of our joint perseverance and foresight.

The economy's response has fully vindicated my economic program. During the past 2 years the percentage rise in consumer price index has been no more than it was during the first 6 months of 1980. Economic recovery has been vigorous during the past year, with real GNP rising over 6% and industrial production by 16%. Unemployment, though still unacceptably high, has declined by a record 2\1/2\ percentage points in a single year. Capacity utilization in American plants has risen dramatically. Business investment in new plant and equipment has risen 11\1/2\% in the past year, in real terms. American productivity, stagnant from 1977 to 1981, climbed 3.7% between the third quarter of 1982 and the third quarter of 1983. Interest rates declined substantially in mid-1982, followed by a major, sustained rally of the stock market that added half a trillion dollars to the net financial worth of American households. Real disposable personal income rose 5.1% in 1983. After a substantial decline, the U.S. dollar has rallied powerfully to its highest level in more than a decade.

We are not, however, out of the woods yet. Despite our success in reducing the rate of growth of nondefense spending in the last three budgets, spending in 1985 will exceed 1981 levels by 41%, reflecting continued increases in basic entitlement programs, essential increases in defense spending, and rapid growth of interest costs. Clearly, much remains to be done. The task of rebuilding our military forces to adequate levels must be carried to completion, and our commitment to provide economic and military support to small, poor nations that are struggling to preserve democracy must be honored. At the same time, further action is required to curb the size and growth of many programs and to achieve managerial efficiencies throughout Government, wherever the opportunity is present.

Three Years of Accomplishment

Last year, I reviewed the dramatic improvements during the preceding 2 years in Government operations, and in the way they affect the economy. I am happy to report that these improvements continued through a third year.

  • Where the growth rate of spending was almost out of control at 17.4% a year in 1980, it will decline to 7.3% this year.
  • Where spending grew 64% over the 4 years from 1977 to 1981, it will rise by only 41% over the 4-year period from 1981 to 1985, despite legislated cost-of-living adjustments and the needed defense buildup.
  • The Federal tax system has been significantly restructured. Marginal income tax rates have been substantially reduced, greatly improving the climate for saving and investment. Depreciation reform has been enacted, restoring the value of depreciation allowances eroded by inflation. Tax loopholes have been closed, making the tax structure more equitable. Efforts have been made to shift to financing Government programs through user fees commensurate with benefits and services provided.
  • Our military strength is being restored to more adequate levels.
  • Domestic spending, which grew nearly 3-fold in real terms in a little more than 2 decades, will actually be lower this year than it was in 1981.
  • The rapid growth of means-tested entitlement programs has been curbed. Eligibility criteria have been tightened to target benefits more to the truly needy, and significant steps have been taken to improve the efficiency and effectiveness of these programs. Unnecessarily frequent cost-of-living adjustments were pared back.
  • The social security system has been rescued from the threat of insolvency raised by rampant inflation, excessive liberalizations, and lagging growth of its tax base.
  • Unnecessary or excessive Federal credit activities have been eliminated or cut back. Improvements in the management and control of Federal credit activities are being pursued. The administration has supported the basic intent of proposed legislation that would move off-budget lending onto the unified budget, in order to provide better budgetary control over Federal lending.
  • Proliferation of regulations and red tape has been stopped. The number of new Federal rules has fallen by over a quarter during the past three years, and hundreds of unnecessary old rules have been eliminated. For the first time, the Federal Register of new regulatory actions has grown shorter for three consecutive years; it is now one-third shorter than in 1980. Federal paperwork requirements have been cut by well over 300 million hours annually, and will be reduced even further in 1984. This has saved the American public over 150,000 work-years that had been spent every year filing out unnecessary Federal forms and reports. Our regulatory reform efforts to date will save individual citizens, businesses, and State and local governments over $150 billion over the next decade.
  • Major management improvement initiatives are underway that will fundamentally change the way the Federal Government operates. The President's Council on Integrity and Efficiency has reported $31 billion in cost reductions or funds put to better use.
  • The Federal non-defense work force has been reduced by 71,000 employees since I took office.

These are impressive accomplishments -- accomplishments to be proud of and to build on. And together we can build on them. With this budget I call on all Members of the Congress once again for additional steps to ensure the firmness of our foundations and overcome the Nation's budget problem.

Maintaining Economic Recovery

Before us stands the prospect of an extended era of peace, prosperity, growth, and a rising standard of living for all Americans. What must we do to ensure that that promise shall be realized and enjoyed in the years to come? What must we do to ensure that the high price of adjustment to this new era paid by the Nation in recent years shall not have been paid in vain?

All signs point to continued strong economic growth, vigorous investment, and rising productivity, without renewed inflation -- all but one. Only the threat of indefinitely prolonged high budget deficits threatens the continuation of sustained noninflationary growth and prosperity. It raises the specter of sharply higher interest rates, choked-off investment, renewed recession, and rising unemployment.

This specter must be laid to rest: just as fears of rampant inflation and its attendant evils are being laid to rest; just as fears of helplessness before growth in Soviet military might and all it threatens are being laid to rest; just as fears that the Nation's social security system would ``go under'' have been laid to rest. A number of actions will be required to lay it to rest. This budget requests these actions of Congress; it calls for measures to continue to curb the upward momentum of Federal spending and to increase Federal receipts. Other actions involve such fundamental reform of our fiscal procedures that they will require that the Constitution be amended.

Congress has each year enacted a portion of my budget prosposals, while ignoring others for the time being. It is moving slowly, year by year, toward the full needed set of budget adjustments. I urge the Congress to enact this year not only the proposals contained in this budget, but also constitutional amendments providing for a line-item veto and for a balanced budget -- rather than the fitful policy of enacting a half-hearted reform this year, another one next year, and so on.

Where Congress lacks the will to enforce upon itself the strict fiscal diet that is now necessary, it needs the help of the Executive Branch. We need a constitutional amendment granting the President power to veto individual items in appropriations bills. Forty-three of the fifty States give this authority to their governors. Congress has approved a line-item veto for the District of Columbia, Puerto Rico, and the trust territories. It is now time for Congress to grant this same authority to the President. As Governor of California, I was able to use the line-item veto as a powerful tool against wasteful government spending. It works, and works well, in State government. Every number in this document bears testimony to the urgent need for the Federal Government to adopt this fundamental fiscal reform.

Let us also heed the people and finally support a constitutional amendment mandating balanced Federal budgets and spending limits. I encourage our citizens to keep working for this at the grassroots. If you want to make it happen, it will happen.

We must seek a bipartisan basis for fundamental reforms of Government spending programs. We need to reexamine just what, how, and how much the Federal Government should be doing -- given our need for security and well-being and our desire to leave power and resources with the people. The President's Private Sector Survey on Cost Control (Grace Commission) has already come up with some interesting suggestions in this regard that, with the help of the Congress, will be adopted wherever possible.

To those who say we must raise taxes, I say wait. Tax increases pile unfair burdens on the people, hurt capital formation, and destroy incentives for growth. Tax cuts helped sustain the recovery, leading to faster growth and more jobs. Rather than risk sabotaging our future, let us go forward with an historic reform for fairness, simplicity, and growth. It is time to simplify the entire tax code so everyone is on equal footing.

The tax system must be made simpler and fairer; honest people should not pay for cheaters; the underground economy should come back into the sunlight; and everyone's tax rates should be reduced to spark more savings, investment, and incentives for work and economic growth. This is the blueprint for a brighter future and a fairer tax system. Therefore, I am directing the Department of the Treasury to complete a study with recommendations by the end of the year.

With these changes completed and the necessary fiscal tools in place, I am confident that we can devise a sweeping set of fiscal policy changes designed to reduce substantially the persistent Federal deficits that cloud our otherwise bright economic future. The plan must be based on these cardinal principles:

  • It must be bipartisan. Overcoming the deficits and putting the Government's house in order will require everyone's best efforts.
  • It must be fair. Just as all Americans will share in the benefits that are coming from recovery, all should share fairly in the burden of transition to a more limited role of Government in our society.
  • It must be prudent. The strength of our national defense must be restored so that we can pursue prosperity in peace and freedom, while maintaining our commitment to the truly needy.
  • Finally, it must be realistic. Government spending will not be curbed by wishful thinking.

In the meantime, the proposals in this budget provide important additional steps toward reducing the deficit.

Meeting Federal Responsibilities

My administration seeks to limit the size, intrusiveness, and cost of Federal activities as much as possible and to achieve the needed increase in our defense capabilities in the most cost-effective manner possible. This does not mean that appropriate Federal responsibilities are being abandoned, neglected, or inadequately supported. Instead, ways are being found to streamline Federal activity, to limit it to those areas and responsibilities that are truly Federal in nature; to ensure that these appropriate Federal responsibilities are performed in the most cost-effective and efficient manner; and to aid State and local governments in carrying out their appropriate public responsibilities in a similarly cost-effective manner. The Nation must ask for no more publicity-provided services and benefits than the taxpayers can reasonably be asked to finance.

Education. -- I have devoted considerable time this year to the problems of our schools. The record of the last two decades is not good, though relieved in places by the efforts of many dedicated teachers, administrators, parents, and students. It has been extremely gratifying to observe the response all across the country to my call for a renewed commitment to educational excellence. Excellence in education will only happen when the States and school districts, parents and teachers, and our children devote themselves to the hard work necessary to achieve it. Federal money cannot buy educational excellence. It has not in the past and will not in the future. What we will do in this budget is seek resources to help the States plan and carry out education reforms. My budget includes $729 million, about 50% more than Congress appropriated for 1984, for the education block grant and discretionary fund. States and localities will receive this increase in resources and be able to use the funds for education reform without Federal prescription and interference.

The budget also provides for stabilizing funding for almost all major education State grant programs at the 1984 level and in the future allows room for modest growth for most of these programs.the budget reflects continued support of several more important initiatives that will strengthen American education:

  • Enactment of tuition tax credits for parents who send their children to qualified private or religiously-affiliated schools.
  • Establishment of education savings accounts to give middle- and lower-income families and incentive to save for their children's college education and, at the same time, to encourage a real increase in saving for economic growth.
  • Reorientation of student aid programs to ensure that students and families meet their responsibilities for financing higher education.
  • Permission for States or localities, if they so choose, to use their compensatory education funds to establish voucher programs to broaden family choice of effective schooling methods for educationally disadvantaged children.
  • Assistance to States to train more mathematics and science teachers.


Training and employment. -- While the economic forecast predicts continuing improvement in the economy and further steady declines in the unemployment rate, I recognize that there are those who lack the skills to find and hold steady jobs. This is particularly true for some of our youth. In the past, Federal training and employment programs have not always helped these people gain the skills needed for success in the job market. Instead the Government spent precious tax dollars funding temporary, dead-end, make-work jobs that did little, if anything, to prepare these people for holding real jobs in the private sector. My administration worked with the Congress to change that. The Job Training Partnership Act, which I signed into law in 1982, involves private industry in the design and delivery of job training programs. Each year it will train 1.5 million disadvantaged adults and youths, dislocated workers, and welfare recipients in skills needed for private sector jobs. Additional work experience for over 700,000 disadvantaged youths will be provided during the summer months. What is needed now is not more Government programs, but removal of Government-created barriers that make it difficult for youths who want to work to find jobs. It has long been acknowledged that the minimum wage is a barrier to job finding for youths, especially minority youths who lack skills. Therefore, I am again asking the Congress to authorize a wage of 75% of the minimum wage for youths newly hired for jobs during the summer months. This will let employers lower their costs to levels more in line with the skills youths possess, and it will help many young people find jobs and gain valuable work experience. The legislation I have proposed includes protections for adult workers.

Research. -- Recognizing the Federal responsibility to maintain and strengthen U.S. leadership in science and technology, the budget proposes further increases of more than 10% in Government-wide funding for basic research. The $8 billion planned for support of such research represents a relatively small share of the budget, but it is a critical investment in the Nation's future. Basic research lays the foundation for a strong defense in the years to come and for new technologies and industries that will maintain U.S. industrial leadership, create new jobs, and improve our quality of life.

Space. -- Our civilian space program has made remarkable progress in the past year. The space shuttle, the world's most advanced space transportation system, has made eight pathbreaking trips into space and is progressing rapidly towards achieving routine operational status.

We can not look forward confidently to the next major challenge in space -- a space station. The space station, to be placed in permanent Earth orbit in the early 1990's, is intended to enhance the Nation's science and application programs, to help develop advanced technologies potentially useful to the economy, and to encourage greater commercial use of space. The budget provides planning money to initiate this program.

National defense. -- During the past 3 years, we have also taken decisive measures to increase our military strength to levels necessary to protect our Nation and our friends and allies around the world. At the same time, we have vigorously pursued diplomatic approaches, such as arms reduction talks, in an effort to ensure the principles of security and freedom for all.

The improvement in our defense posture has been across the board. Long-overdue modernization of our strategic forces is proceeding, while our conventional forces are also being modernized and strengthened. Successful recruiting and retention over the past 3 years have resulted in all of our armed services being more fully manned with capable, high-caliber men and women.

Energy. -- My administration has significantly reoriented the country's approach to energy matters toward reliance on market forces -- instead of Government regulation and massive, indiscriminate Federal spending. This has resulted in greater energy production, more efficient use of energy, and more favorable energy prices. For example:

  • The U.S. economy currently is using 30% less oil and gas per dollar's worth of output than it did 10 years ago when energy prices began to rise.
  • Heating oil prices have been lower this past year than they were in January 1981, when I removed oil price controls. Gasoline prices have fallen to levels which, after adjustments for general inflation and sales taxes, are within 5% of those that prevailed in the U.S. in the 1950's.

Energy programs proposed in the budget are designed to complement market forces by focusing resources on limited but appropriate responsibilities of the Federal Government and by managing these programs well. Thus, for example, the budget proposes increased spending for basic and other long-term energy research. In addition, the administration continues its commitment to filling the strategic petroleum reserve. The reserve has more than tripled in size in the last three years.

Health care. -- Progress has been made in slowing the explosive growth of health costs. As part of the Social Security Amendments of 1983, Congress enacted the Administration's proposed fixed price prospective payment system for hospital care. This replaced the previous Medicare hospital reimbursement system under which hospitals were reimbursed for their costs. The new prospective payment system has altered incentives and should lessen the rate of increase in hospital costs.

Under the proposals in this budget, physicians will be asked to maintain present fee levels for medicare through the next fiscal year. Tax incentives prompting overly-costly employee health insurance benefits would be revised to make users and providers more sensitive to costs. Finally, resources for biomedical research will increase.

Transportation. -- My administration has sought to shift much of the costs of transportation from the general taxpayer to those who use transportation services and facilities. I signed into law several administration-backed proposals to increase excise taxes on aviation and highway users and thereby provide funding needed to revitalize and modernize these important segments of the Nation's transportation system. The proportion of the Department of Transportation's budget financed by user fees has risen from 49% in 1982 to 72% in 1985. The budget reflects the administration's continued commitment to the ``users pay'' principle by including receipts proposals for nautical and aviation aids, the inland waterway system, and construction and maintenance of deep-draft ports.

Recognizing the importance of safety in our transportation systems, the budget provides for significant improvements in this area. In addition, my administration secured passage of legislation designed to rebuild the Nation's highway and public transportation facilities. This legislation substantially increased funds available to the States and local communities to complete and repair the aging interstate highway system, to rehabilitate principal rural and urban highways and bridges, and to improve mass transit systems. The budget also provides for improvements in the safety of our transportation system.

Improved ports and channels will help to make U.S. coal exports competitive in world markets. My administration will work with the Congress to provide for timely and efficient port construction. A system that recovers a significant portion of the cost of existing port maintenance and new port construction must be enacted prior to any new construction. In the last 3 years, my administration has sent several reasonable proposals to the Congress, and progress is being made. It is time for action on this important issue.

Reducing the Federal presence in commercial transportation, currently regulated by the Interstate Commerce Commission, the Civil Aeronautics Board, and the Federal Maritime Commission, will improve the efficiency of the industry. Authority for the Civil Aeronautics Board will expire next year, and its residual functions will be assumed by other agencies. The administration will continue to seek legislation to deregulate ocean shipping, and will propose legislation to deregulate oil pipelines and natural gas. Experience since the adoption of initial transportation deregulation legislation has shown clearly that both consumers and industry benefit from reduced Federal involvement in these activities.

Criminal justice. -- My administration has continued to strengthen the Federal criminal justice system by seeking major legislative changes in immigration policy, sentencing, and bail procedures, and by seeking increased funding for law enforcement activities. An additional organized crime drug enforcement task force will be established in Florida, bringing the total number of task forces to 13. The budget proposes to bolster immigration control by strengthening border enforcement and improving the effectiveness of border inspection programs. Additional attorneys will be sought for the Internal Revenue Service and the Justice Department, underscoring my administration's determination to tackle the serious problem of tax protesters and evaders. The administration will enhance its efforts to identify, neutralize, and defeat foreign agents who pose a threat to the Nation.

International affairs. -- Our foreign policy is oriented toward maintaining peace through military strength and diplomatic negotiation; promoting market-oriented solutions to international economic problems; telling the story abroad of America's democratic, free-enterprise way of life; and reducing barriers to free trade both here and abroad.

  • The security assistance portion of the international affairs program has been increased to assist friendly governments facing threats from the Soviet Union, its surrogates, and from other radical regimes.
  • Development aid emphasizes encouraging the private sectors of developing nations and increasing U.S. private sector involvement in foreign assistance.
  • The budget provides for continuing the major expansion of international broadcasting activities started last year. Television, exchanges of people, and other programs to improve communications with foreign countries are included.
  • My administration will continue to work with the Congress to strengthen the management and coordination of the Government's international trade functions by consolidating them in a Department of International Trade and Industry.

The United States faces threats to its interests in many parts of the world. The Middle East, with its vital energy resources, is still in turmoil. In Central America, Marxist forces continue to threaten democratic governments, exploiting temporary economic dislocations and the continuing poverty of less developed countries. In Africa, the poorest nations of the world are facing the prospect of great privation, accentuated by drought. This budget addresses each of these concerns:

  • It continues military and economic support for Israel and Egypt, with improved financial terms.
  • It provides for a significant increase in assistance to Central America, the specific nature of which will be defined after our review of the recommendations of the National Bipartisan Commission on Central America.
  • It provides special humanitarian aid to counter the immediate effects of African drought and proposes a longer-term program aimed at the root causes of Africa's economic problems.

Although now less than 2% of the budget, international programs are critical to American world leadership and to the success of our foreign policy.

Civil service retirement. -- There is growing recognition that civil service retirement has far more generous benefits and is much more costly than retirement programs in the private sector or in State and local governments. Accordingly, the administration continues its strong support of the civil service reform proposals advanced in last year's budget. In 1985, the administration will focus its legislative effort on three of those proposals, in modified form: cost-of-living adjustment (COLA) reform, a high 5-year salary average for the benefit formula, and increased employee and agency retirement contributions.

GI bill rate increase. -- The budget proposes legislation to provide a 15% increase in the rates of educational assistance and special training allowances to GI bill trainees and disabled veterans receiving vocational rehabilitation assistance, effective January 1985. The increase will offset increased costs since GI bill benefits were last raised in 1981. It will provide an increase in monthy education benefit checks to 544,000 veterans and their dependents and survivors.

Continuing Reform of our Federal System

The overall efficiency of Government in the United States can also be improved by a more rational sorting out of governmental responsibilities among the various levels of government in our Federal system -- Federal, State, and local -- and by eliminating or limiting overlap and duplication.

In 1981, the Congress responded to my proposals by consolidating 57 categorical programs into nine block grants. In 1982, a block grant was created for job training in the Jobs Training Partnership Act.

The administration is improving the management of intergovernmental assistance by providing State and local elected officials with greater opportunity to express their views on proposed Federal development and assistance actions before final decisions are made. Under Executive Order 12372, Intergovernmental Review of Federal Programs, which I signed in July 1982, Federal agencies must consult with State and local elected officials early in the assistance decision process and make every effort to accommodate their views. The Order also encourages the simplification of State planning requirements imposed by Federal law, and allows for the substitution of State-developed plans for federally required State plans where statutes and regulations allow.

Controlling Federal Credit Programs

Federal credit in all its forms imposes costs on the U.S. economy that must be weighed against its benefits. Federal intervention through guarantees and direct loans may misdirect investment and preempt capital that could be used more efficiently by unsubsidized, private borrowers. Because federally assisted borrowers are frequently less productive than private borrowers, large Federal credit demands, and the degree of subsidy involved in Federal credit activity, must be reduced if we are to improve prospects for economic growth.

The administration continues its strong commitment to control Federal direct loans and loan guarantees. It has supported the basic intent of proposed legislation to move off-budget Federal lending into the unified budget. It seeks other basic reforms in the way in which direct loans and loan guarantees are presented and controlled.

In the coming year, my administration will issue a directive establishing Government-wide policies on credit. This directive will be both an explicit statement of the administration's goals in providing credit assistance and a means of controlling the manner in which that assistance is provided.

Regulatory Reform

Federal regulation grew explosively throughout the 1970's. Whether well or poorly designed, whether aimed at worthy or dubious objectives, these rules have one thing in common: they ``tax'' and ``spend'' billions of dollars entirely within the private sector of the economy, unconstrained by public budget or appropriations controls.

My administration has taken steps to correct this problem. Under Executive Order 12291, all Federal regulations must be reviewed by the Office of Management and Budget before being issued to determine whether their social benefits will exceed their social costs. As a result of this review process, we have reversed the rate of growth of Federal regulations. Hundreds of ill-conceived proposals have been screened out, and hundreds of existing rules have been stricken from the books because they were unnecessary or ineffective. Equally important, numerous existing regulations have been improved, and new rules have been made as cost-effective as possible within statutory limits. We are steadily winding down economic controls that regulate prices, form barriers to entry for new firms, and other anti-competitive regulations. At the same time we are increasing the effectiveness of our programs promoting health, safety, and environmental quality.

Our regulatory reform program has been open and public. New rules and changes to existing rules now require public notice and comment. My Executive Order requires regulatory agencies to consider the interests of the general public as well as special interest groups in rulemaking proceedings. The Task Force on Regulatory Relief and the Office of Management and Budget have issued regular reports detailing the progress of regulatory reform efforts. The Unified Agenda of Federal Regulations, issued twice each year, describes all planned and pending regulatory changes in virtually all Federal agencies. The administration's Regulatory Policy Guidelines, published in August 1983, is the first comprehensive statement of regulatory policy ever to be issued.

I believe it is time the policies and procedures of Executive Order 12291 were enacted into law. Individual regulatory decisions will always be contentious and controversial, but surely we can all agree on the general need for regulatory reform. Making each Government rule as cost-effective as possible benefits everyone and strengthens the individual regulatory statutes. Regulation has become such an important role of the Federal Government that strong and balanced central oversight is becoming a necessity and a bi-partisan objective. The Laxalt-Leahy Regulatory Reform Act, which passed the Senate unanimously in 1982, would have accomplished this reform. I strongly urge the Congress to take up and pass similar legislation this year. In addition, my administration continues to support measures to deregulate financial institutions.

Improving the Efficiency of Government

It is important to continue to reduce the size of Government. It is equally important to use the remaining resources as efficiently and effectively as possible. My administration has begun to make great strides in doing exactly that.

During the past 3 years, we have initiated several Government-wide management improvement efforts under the guidance of the Cabinet Council on Management and Administration. They are:

-- Reform 88;

-- Personnel management reform;

-- Federal field structure reform; and

-- The President's Private Sector Survey on Cost Control.

These management improvement and cost reduction programs focus on 4 objectives:

-- Reducing fraud, waste, and mismanagement;

-- Improving agency operations;

-- Developing streamlined Federal Government management systems; and

-- Improving the delivery of services.

Reducing fraud, waste, and mismanagement. -- This objective seeks better use of appropriated dollars. The President's Council on Integrity and Efficiency (PCIE) was formed in early 1981 and is made up of 18 department and agency Inspectors General. They recently reported $8.4 billion in cost reductions or funds put to better use in the last 6 months of 1983 and a total of $31 billion since they were appointed. The PCIE is beginning to direct its efforts toward preventing problems before they occur, through improved technology and better audit processes, as described in their latest report.

The PCIE also found that enormous waste was occurring because the Federal Government had never established an effective cash management system -- despite the fact that it handles almost a trillion dollars in cash annually. This is currently being corrected by installing sophisticated, up-to-date systems that the Department of the Treasury estimates could save as much as $3\1/2\ billion a year.

When my administration came to office we found delinquent debt owed the Government rising at a rate of over 40% per year -- with a total debt outstanding of over $240 billion. After only 2 years' effort, this annual growth rate has been reduced to 2%. A credit pre-screening system is now being put in place, and automated collection centers are being installed.

Federal procurement involves annual expenditures of $170 billion. Procurement was an overly complex process with only 50% of our contract dollars awarded under competitive bid. My administration has replaced three sets of regulations with one, and we are now setting up a new pro-competitive policy to cut costs.

We have extended our fight to reduce waste and mismanagement to a direct attack on that nemesis that has always characterized the Federal Government: red tape and paperwork. We have already reduced the paperwork burden placed on the private sector by the Federal Government by well over 300 million hours. In this current fiscal year we intend to reduce the burden by another 130 million hours.

Further savings and improvements are possible. The President's Private Sector Survey on Cost Control (Grace Commission) developed numerous recommendations for savings and cost avoidance. These recommendations range from reducing costs of Federal employee retirement programs to upgrading the Government's seriously outdated and inefficient management and administrative systems. I have already included many of these ideas in this budget and will include more in future budgets. My administration will develop a tracking system to make sure they are carried out.

These are but a few of the efforts underway to make sure that appropriated funds go further and are used for the purposes for which they were intended.

Improving agency operations. -- I am directing Federal agencies to coordinate their administrative activities so that they reduce their current operating costs immediately, rather than wait for future improvements in systems and technologies. Savings resulting from these efforts are reflected in this budget. These efforts include: (1) consolidating headquarters and regional administrative services; (2) requiring service centers to meet minimum productivity standards for processing documents; (3) using private sector contractors to provide support services where appropriate and economical; (4) reducing Federal civilian employment by 75,000 by the beginning of 1985, reducing higher graded staff, and improving personnel planning; (5) reducing office space by 10%; (6) reducing printing plants by 25% and publications by 25%; and (7) eliminating the processing of documents altogether for most small agencies, by requiring them to obtain services from larger agencies that have efficient centers.

Developing streamlined Federal Government management systems. -- As we are reducing the size of Government and reducing fraud, waste, and abuse, we also need to change fundamentally the way the Federal Government is managed. When I came into office, we found that the Federal Government lacked a well-planned compatible management process, so we set about developing one. This effort involves five major projects: (1) planning and budgeting, (2) financial management and accounting, (3) personnel management and payroll, (4) personal and real property, and (5) automatic data processing and telecommunications management. Responsibilities and resources for the development of each of these management systems have been assigned to those agencies that have or are capable of developing the most advanced management system in each category. Without this effort, the Federal Government would continue to operate in an inefficient manner that does not serve our citizens well.

Improving the delivery of services. -- My administration is looking seriously at the way the delivery of Federal services is handled across the country. The objective of this effort is to achieve improved service at lower cost, through improved technology and management techniques such as prescreening, computer matching, adjusted payment schedules, contractor and grantee performance incentives, and a streamlined field structure.

All of these efforts are being planned and coordinated centrally as part of the budget process. The results of these efforts will be reported to the Congress together with resulting savings and proposals to upgrade management of the Federal Government.


Vigorous, noninflationary economic recovery is well underway. The long winter of transition from the misguided policies of the past, with their inflationary and growth-deadening side-effects, is now yielding to a new springtime of hope for America. The hope of continued recovery to long-term noninflationary prosperity can be realized if we are able to work together on further deficit reduction measures. Bold, vigorous fiscal policy action to break the momentum of entrenched spending programs, together with responsible and restrained monetary policy, is essential to keep the recovery on track; essential to the Nation's future economic health and vitality. Limited measures to increase receipts will also be necessary to make our tax system fairer and more efficient. But it is important -- more than important, crucial -- to get the mix of spending restraint and receipts increases right. There must be substantial reductions in spending and strictly limited increases in receipts.

I call urgently upon the Congress, therefore, to take the actions proposed in this budget. Far too much is at stake to permit casual dismissal of these essential belt-tightening measures. The Nation has paid a high price for the prospect of a secure, prosperous, noninflationary future; that prospect must not be sacrificed to a sense of complacency, to an expedient ducking of the issues.

With confidence in the ultimate beneficial effects of our actions, let us seize the high ground and secure, for ourselves and our posterity, a bright and prosperous future -- a future in which the glory that was America is again restored.

Ronald Reagan

February 1, 1984.

Note: The President's message is printed in the report entitled ``Budget of the United States Government, Fiscal Year 1985'' (Government Printing Office).