was leased to General Motors and the lease there was that they would pay a half million dollars a year, plus an amount that would equal the

taxes.

Now, I don't know what arrangement was made.

Mr. BORCHARDT. Paid to whom?

Mr. HUSBANDS. Paid to the Army.

Mr. BORCHARDT. The proposition which Mayor LaGuardia was interested in was this: From what source are the communities going to collect their revenue?

Mr. HUSBANDS. That question is worrying us now.

As far as we are concerned in the RFC, we are not worried about it, but when we get an Army plant declared surplus to us we have the question of what shall be done about local taxes.

As I understand it, the Federal Government cannot pay local taxes under those situations. Therefore, should not the Federal Government collect from a lessee an amount which would equal Federal taxes to put him on a parity with a man who leases from the RFC?

Mr. BORCHARDT. The suggestion was made in the course of the Mead committee hearings, to insert in the leases provisions compelling the lessee to pay an amount equal to taxes which would otherwise be paid for the purpose of passing that amount on to the community or State. Do you think that kind of provision would be effective?

Mr. HUSBANDS. I don't know whether that would be legal. That is a problem before the RFC today.

Senator WHERRY. In our State we have a similar lessee and it is optional whether they pay or don't. Legally they are not bound. Is that about your opinion?

Mr. HUSBANDS. I have the impression, Senator, that we could not legally pay that money on an Army-owned plant. It may be that what Mr. Borchardt says is practical, that we could require a lessee to pay an amount to the community. I do not know.

Senator STEWART. I am interested in pursuing the matter you mentioned about the plant in Birmingham. Is that the multiple tenancy idea we have discussed?

Mr. HUSBANDS. Yes, sir.

Senator STEWART. How many different tenants would be in that plant?

Mr. HUSBANDS. As I recall there are about 20 or 25 in there. It is a large airplane modification center.

Senator STEWART. They will go through the complete process of manufacturing everything from the handling of the ore on to the finished product?

Mr. HUSBANDS. That is not an aluminum plant. That is an airplane modification plant.

Senator STEWART. Where is it you are trying that on an aluminum plant?

Mr. HUSBANDS. At Cannonsburg, Pa., but the lessee is not going to make aluminum products, but merely manufacture in an aluminum forging plant. We have had no interest expressed by aluminum operators.

Senator STEWART. The Government would purchase it for stock piling unless it could be sold on the general market?

Mr. HUSBANDS. You mean in connection with the Reynolds offer and this offer I have here?

Senator STEWART. No; at the plant in Pennsylvania.

Mr. HUSBANDS. No. You understand the lessees there do not propose to make aluminum products. We are merely dividing the plant up into small compartments and leasing them to a number of small manufacturers who manufacture various things.

Senator STEWART. Other things?

Mr. HUSBANDS. Yes; other things.

Senator O'MAHONEY. Mr. Harvey, did you want to ask a question? Mr. HARVEY. I want to bring up the question of taxes.

In the city of Los Angeles there is an extrusion plant which the city has assessed, as a part of the basis of taxation, the cost of the foundation and installation costs of the machinery as part of the legal property cost, and the cost to the lessee who is obligated to pay under the lease, is an exorbitant tax, $136,000. That is one of the reasons that the original lessee gave for not exercising his option for the purchase of the property.

It raises the question as to the method of assessment, whether or not to use the net building cost, whether or not you would create a liability on the part of a new owner or lessee, and whether or not the taxing body would base its assessment on the original cost to the Government, or the new appraised cost.

For example, the plant I am interested in, if it were assessed at the cost to the Government, would be impossible for me to operate.

Senator REVERCOMB. That would largely be a matter of State policy as a State tax?

Mr. HARVEY. Yes; but the Federal Government, by writing it into their lease, creates a third-party liability to the taxing authorities within the local area.

Senator REVERCOMB. I don't believe the Federal Government by putting anything in a lease can change the State tax law, or the basis of State taxes.

Mr. HARVEY. I merely point out that that is an important consideration in the operation of these plants.

Mr. TROY. The thought occurred to me that the RFC had no right to write a lease whereby the Government sustained a loss.

Under what right do they do that?

Senator O'MAHONEY. That was a war right under the power granted to the RFC. We are now talking about peacetime and the question that is presented to us now might be boiled down to this simple question: What is it worth to the Government of the United States to reestablish a competitive economy in aluminum?

Mr. CASKIE. May I ask a question?

Mr. Husbands, I know you desire to recover as much of this money that has been spent by the Government for these aluminum plants as possible; is that correct?

Mr. HUSBANDS. Always.

Mr. CASKIE. I have found you that way in dealing with you in the past. Now, let me ask this:

There has accumulated a certain depreciation on these plants up to the present time. The RFC has been paid that depreciation. Am I correct about that?

Mr. HUSBANDS. Yes, sir.

Mr. CASKIE. The proposal made by Reynolds would provide that you would continue to receive 5 percent a year?

Mr. HUSBANDS. If you earned it; yes.

Mr. CASKIE. Well, if we didn't earn it wouldn't we pay part of it? Wouldn't we pay 15 percent?

Mr. HUSBANDS. Yes.

Mr. CASKIE. Assuming we are at least going to make the depreciation, and if we don't we are sunk and you are, too, you would continue to get your 5 percent over a period of 5 years which would be 25 percent in addition to the depreciation you already received?

Mr. HUSBANDS. That is assuming no loss in operation.

Mr. CASKIE. If there is any loss in operation-and I am assuming no loss-we are going to pay 15 percent of it?

Mr. HUSBANDS. Let's assume there is no loss in operation and you eliminate that requirement from the contract.

Mr. CASKIE. What requirement?

Mr. HUSBANDS. That we guarantee you against loss.

Mr. CASKIE. We haven't asked you to guarantee us against loss. We are willing to assume 15 percent of your loss.

Senator O'MAHONEY. Let me suggest that this is a very interesting question.

Mr. CASKIE. I want to answer Senator Revercomb's question. He wanted to know why we deducted depreciation, and I wanted to follow out on that with Mr. Husbands.

Senator O'MAHONEY. I was about to say it is a stimulating discussion, and it may not be that the Government can carry on its trading in public here.

Senator WHERRY. May I add that I think that is where they ought to do their trading, right out in public.

Senator O'MAHONEY. When you consider, Senator Wherry, that there are a lot of businessmen who are not in this business for purposes of philanthropy, I think the Government interest or the public interest may very well be worthy of a little conservation even by Members of

the Senate.

Mr. HUSBANDS. I appreciate those kind words.

Mr. CASKIE. You had taken depreciation up to the present time on these plans over the last 3 or 4 years, say 4 years. You have taken thus far 20 percent of the depreciation.

Mr. HUSBANDS. They have operated about 22 years, according to

this record.

Mr. CASKIE. Whatever it may be, you have taken 122 percent?
Mr. HUSBANDS. Yes, sir.

REYNOLDS OFFER NEVER ACCEPTED OR REJECTED ITS TERMS DISCUSSED

Mr. CASKIE. If you entered into the agreement which I understand now you say you have rejected, which is news to the Reynolds Metals Co. as we thought we were negotiating with you on this proposition as late as last Friday-but be that as it may, if you had entered into a lease with Reynolds for the next 5 years, you would have gotten 25 percent more depreciation. Now, add that to your 121⁄2 and you get 372 percent depreciation. In other words, you recover 372 percent of your investment in these plants.

Mr. HUSBANDS. I want to call your attention-and I don't want to enter into a controversy here-to the fact your 5 percent is not predicated on the original cost of the plant but on the depreciated value of the plant to $60,000,000. I think it cost $90,000,000.

Mr. CASKIE. Whatever the basis was, I think you have conceded that plants cost during wartime very much more than they would cost in normal times. Am I correct about that?

Mr. HUSBANDS. I think that is true.

Mr. CASKIE. Reynolds didn't ask for any allowance other than the proposal in that connection, did they? What I am trying to find out is why did you reject Reynolds' proposal?

Senator O'MAHONEY. That is an irrelevant matter at the moment. Pardon me, Mr. Caskie, but the opportunity will be given to Reynolds to testify later on. I am forced to call this particular phase of the hearing to a conclusion now because members of the committee have some other obligations that they have to meet. I think that Mr. Husbands has completed the statement he intended to make.

General Sorensen is here from the War Department and I think has a simple and brief presentation to make from the point of view of the War Department.

Senator MAYBANK. I would like to say one thing first. I never understood Mr. Husbands to say that Reynolds Metals' offer had been completely rejected. I understood him to say that it had not been accepted as it was. I would like to know whether I understood correctly.

Mr. HUSBANDS. That is correct. I think I used the words "I would not recommend it." Frankly, I never told Reynolds I would recommend it.

Senator MAYBANK. You never said it was out. I understood you just hadn't accepted it as it was.

Mr. HUSBANDS. That is right.

Senator MCCLELLAN. Mr. Husbands, as I understood you a while ago, if the Congress does not take some affirmative action indicating its rejection of the policy proposed to be pursued in this report, and if that action is not taken by Congress by the 21st, you would feel that the Congress had acquiesced in this program and the policies announced, and you would feel free to enter into contracts such as proposed by the Reynolds Metals Co.; is that correct?

Mr. HUSBANDS. I think I would be able to answer that, Senator, by saying we would look to the Surplus Property Board for guidance on that. They formulate the policies; we are the "man behind the counter," so to speak. We do the trading.

What we would do, if we had the right to do this, and the Surplus Board will direct us to do, is negotiate further with Reynolds or anyone else to get the best proposition we can.

Senator MCCLELLAN. Is there anyone here from Surplus Property? Mr. HUSBANDS. Mr. Moment, I think, is here.

Mr. MOMENT. I could not answer that question, Senator, because that is a problem which Mr. Symington would personally have to pass upon.

Senator MCCLELLAN. What I am trying to determine is that if Congress takes no action to reject the proposed policy set forth in the report, or to extend the time for further consideration before the 21st,

when the time expires, whether you interpret the law and its provision here that we are pursuing as giving you absolute authority to negotiate contracts on the basis of the proposal submitted by Reynolds which would definitely involve a subsidy to some extent. That is what I am trying to determine, whether we are just about to let the door close here on the 21st against us so that Congress could not prohibit or take action to prevent entering into a general subsidy program in the disposal of these plants. That is what I want to determine, whether we are about to let the door swing to on the 21st.

Mr. MOMENT. I would suggest that since Mr. Symington will be here again, or his counsel, that that question be brought before him by the end of these hearings.

Senator MCCLELLAN. I think it is important for us to know that and determine what we are doing.

I

I would like to ask one or two more questions of Mr. Husbands. would like to ascertain just what occurred between your agency or the disposal agency of Surplus Products and Alcoa immediately preceding the cancellation letter on these plants. Was there any discussion about it previously whereby you undertook to make any arrangements for the interim operation of the plants?

STILL POSSIBLE FOR ALCOA TO TAKE TEMPORARY CONTRACT

Mr. HUSBANDS. I might state this, Senator, that I have a memorandum in my office of a conversation I had with Mr. Arthur Davis and Mr. Wilson in July, in which I stated, in substance, that we had some people interested in these plants and asked them if they would voluntarily give up their leases so that we could negotiate with these people. You understand we have been talking to various people now for 6 or 8 months, and there was always hanging over the situation the fact that Alcoa still had the contract. It was a futile sort of thing.

I also asked Mr. Davis whether Alcoa would be willing to impart the know-how which they had, because that seemed to be the stumbling block, particularly on alumina.

Senator MCCLELLAN. That is their secret in trade?

Mr. HUSBANDS. That is right.

Senator MCCLELLAN. And it belongs to them?

Mr. HUSBANDS. I don't blame them at all. I asked them, for there was no harm in that. Mr. Davis' reply was that they did not feel disposed to give up the plants under their lease, and they would not impart the know-how to anyone else, because that represented long years of experience.

Senator O'MAHONEY. But it is still possible, is it not, for Alcoa to take a temporary contract?

Mr. HUSBANDS. Yes, sir.

Senator O'MAHONEY. And Alcoa, by taking a temporary contract, can prevent these plants from closing on November 1?

Mr. HUSBANDS. They have been closed, Senator, but they would be able to reopen them and continue operations; yes, sir.

Senator REVERCOMB. Mr. Chairman, may I ask at this time that Mr. Symington be requested to be here to answer the question of Senator McClellan ?

Senator O'MAHONEY. Certainly.