SENATOR BAILEY'S BILL TO BAR COMMERCIAL OPERATION BY GOVERNMENT AGENCY Senator O'MAHONEY. I think perhaps it would be appropriate to point out here that there has been introduced in the Senate, and referred to the Committee on Military Affairs, and by that committee to the Committee on Surplus Property, S. 1475, a bill by Senator Bailey, of North Carolina, to amend section 15 of the Surplus Property Act of 1944. This bill deals with the precise question that has been raised by these interrogations. The new language which Senator Bailey's bill proposes reads as follows: Nothing contained in this Act shall be deemed to authorize: (1) the commercial operation by any Government agency of any plant declared to be surplus property; or (2) the disposal of any such plant on terms which directly or indirectly obligate the United States or any Government agency to pay losses resulting from, or otherwise to subsdize, the commercial operation of such plant. It is the understanding of the chairman that the RFC, for purposes of the war, was authorized to make subsidy contracts, to make contracts by which the Government assumed the losses. I understand that inquiry has been made of the Surplus Property Administration as to whether in the opinion of its legal counsel the Surplus Property Act authorizes the Surplus Property Administration or any of the disposal agencies to make such contracts as were made by Defense Plant or RFC. Can you answer that, Mr. Cox? Mr. Cox. It is my present view that the Surplus Property Act does not authorize the Surplus Property Administration or any disposal agency to make any direct money payment by way of subsidy, or to make up an operating deficit. I think it might authorize you-in fact I think it probably does-to make a lease agreement whereby your rentals and other payments went up and down, depending upon how much money the man made, or where money lost in one year might be credited against rent in another. But that is quite a different thing from a direct money payment, which would, of course, involve the use of appropriated funds and therefore raises a completely different set of questions. As to the RFC Act, I would prefer to have Mr. Goodloe speak as to that, but I understand he has reached substantially the same conclusion under that statute. Senator O'MAHONEY. Mr. Husbands, have any of the proposals or suggestions for proposals which have been submitted to you or your staff involved any such assumption of loss by the Government? OFFER OF REYNOLDS METALS CO. DESCRIBED Mr. HUSBANDS. Well, the offer of the Reynolds Metals Co. in substance was this, Senator-I will brief it if you like-that they lease the plants for a period of 5 years. By "plants" I am referring to the four plants I mentioned a moment ago. For the first year the Government would stand all the loss in operations, if any, and the profits would be divided, in this manner: First, the Government would get the depreciation on that portion of the plant used. Then the Government would get 85 percent of the profits, and Reynolds would get 15 percent before income taxes. They proposed that the Government guarantee to buy the aluminum produced by these plants, 85 percent of their capaci ties, at 14 cents for pig and 15 cents for ingot, and also that the Government shall negotiate the power contracts. Senator REVERCOMB. Mr. Chairman, may I ask a question at this point, of Mr. Husbands? Senator O'MAHONEY. Yes. Senator REVERCOMB. Mr. Husbands, that offer means virtually the Government in business and operating the plants, does it not? Mr. HUSBANDS. The Government guarantees them against loss. Senator REVERCOMB. Yes; and that is hardly a stimulation of free independent enterprise, is it? Mr. HUSBANDS. Well, as I see it, Senator, that which you have are some aluminum plants that you cannot get industry to undertake to operate. It is merely a question of whether there shall be a trial period in which industry, other than Alcoa, comes in to compete; and in view of the situation as it exists, with big stock piles of aluminum on hand at the present time, and uncertain markets, we have found no industry which was willing to go in on a clean lease and take it for better or for worse. Senator O'MAHONEY. Mr. Caskie, did you want to make a remark? Mr. CASKIE. I don't agree with Mr. Husbands. The proposal submitted by Reynolds assumes very great risk-15 percent of the loss and never more than 15 percent of the profits. Those losses can be very substantial. Mr. HUSBANDS. I should have said that after the first year Reynolds did agree to stand 15 percent of the losses. Senator O'MAHONEY. As we proceed no doubt these various things will be analyzed. Senator WHERRY. Doesn't that offer go on and permit the leasing company to purchase the plant on an earnings basis, after a certain showing for a number of years? Mr. HUSBANDS. No, sir; their offer provides that at the end of 1 year they shall be allowed to negotiate for the lease of the plant on a commercial basis, not a purchase. Senator WHERRY. There is no place in the contract, or no offer has been made where, after being on a lease basis for perhaps 1, 2, or 3 years, the worth of the plant is to be determined upon its earnings, and then the leasing company would have the right to buy it? Mr. HUSBANDS. No sir. Mr. CASKIE. It is perfectly agreeable to Reynolds to have such a provision. Senator WHERRY. I understand from our Small Business hearings that such a proposition has been made and that was under consideration, and I wondered if it was part of this offer? Mr. HUSBANDS. No. Senator MITCHELL. Didn't the RFC think that, by operation of the plant over a period of years, and by a determination as to what the real market would be, then you could reach a real figure as to the value of the plant? Mr. HUSBANDS. That is true on a great number of our plants, sir. Senator MITCHELL. You can't set a definite figure now and know that that is going to be the value of the plant 5 years from now? Mr. HUSBANDS. That is true. We have leased over a hundred plants on what we call a temporary basis, to give the operator a chance to determine what he can do with the plant, and the rent is comparatively small. Now there is no case where we guarantee anyone against loss, you understand that, but we have leased plants on a trial basis, so to speak. Senator WHERRY. Are those plants mostly fabricating plants? Mr. HUSBANDS. Well, they are various kinds of plants. I am not referring to aluminum plants, I am referring to plants generally. Senator WHERRY. But it isn't your policy now to effect a sale at the end of that period on the basis of the earnings of the plant? Mr. HUSBANDS. That would be our policy; yes. Senator WHERRY. That will be your policy? Mr. HUSBANDS. Absolutely. Senator WHERRY. Then don't you find yourself in this position: You might take the Reynolds Co. and they would produce an outstanding result, and you would have a high valuation at the end of the period? Mr. HUSBANDS. That is true. Senator WHERRY. Or, you might take a company which, because of mismanagement and maladministration, or this or that or the other thing, produced a totally different picture way below the value of the plant. How are you going to be guided in that event? Mr. HUSBANDS. I think Mr. Symington, in his report, makes the recommendation that if this method of leasing is adopted then we should be careful to pick those who apparently are capable, in a metallurgical line, and of proven ability. Senator WHERRY. Are there any in the field now that you feel have the ability to do it on that basis, who might not be interested in an outright sale of these plants and be what we call competitors in the field of private enterprise? Mr. HUSBANDS. I might say that we had the American Smelting & Refining interested in these plants until recently, but they have backed up on us. Senator WHERRY. Why? Mr. HUSBANDS. They say they would not care to have any part of a subsidy, for one reason; and another is that they are too large for them. The Olin Corp. was interested until recently and they have now backed out of the picture. Senator WHERRY. Why did they back out? Mr. HUSBANDS. I think Mr. Symington can answer that question; he talked with them. Senator WHERRY. What I am trying to find out is this: Here you have got the Olin Co., and I heard about this other company, figuring on going into business on a free-enterprise basis, and now they have backed down. I would like to know why. Senator O'MAHONEY. Senator, may I suggest, in the interest of the orderly development of this hearing, that a discussion of the precise proposals might better await the development of Mr. Symington's comments upon the report? (Discussion off the record.) Senator O'MAHONEY. Proceed, Mr. Symington. Mr. SYMINGTON. If Congress would authorize, or refuse to authorize, the Reconstruction Finance Corporation to subsidize new aluminum producers, such action would help by determining how far the Government can go in any disposal contracts. A related problem arises in those fields of fabrication where there is now some competition to Alcoa; and where Alcoa appears willing to acquire Government facilities. If Alcoa can use the properties in question, can provide additional employment, and can furnish the Government suitable financial terms, à question arises as to the point at which monopoly is created. As we see it, this issue should be decided by the Attorney General under section 20 of the Surplus Property Act. Finally, in our effort to obtain competition, we are faced with proposals made by organizations which do not appear to have responsible financial backing, or adequate technical staffs, or production and marketing organizations capable of operating an aluminum business successfully. Because we wish to assure a steady operation of the plants, it appears unwise to entertain offers from individuals or firms who do not have adequate resources or experience. BAUXITE The Attorney General recommends a complete survey be made of available bauxite resources in this country. This is not within our jurisdiction, but we believe continued exploration of domestic bauxite reserves should be encouraged, and the Bureau of Mines granted sufficient funds for this purpose. The Attorney General recommends a thorough engineering and cost analysis; this in order to determine what will be the costs of producing alumina at Government-owned plants when utilizing available grades of domestic bauxite. Such cost data are now available, based on wartime performance. In addition, we have recommended an engineering survey by the Reconstruction Finance Corporation as to costs of operation at relatively low levels in relation to plant capacity; and RFC is now undertaking such a survey. Senator MITCHELL. When will that survey be completed? Mr. HUSBANDS. I think very shortly, sir. They have been on it a couple of months; that is being made by Dorr & Co. Senator MITCHELL. I ask that question in relation to the present operation of the plants by Alcoa. As I understand it, they will get out of the plants on the 1st of November. Mr. HUSBANDS. That is correct. Senator MITCHELL. Will that information be available so you can use it in reaching a conclusion through negotiations by that time? Mr. HUSBANDS. I would think we would be able to discuss with Dorr & Co.-their formal reports will probably not be prepared-but in an advisory capacity I think we would probably be able to get all the information that we need. Senator MITCHELL. Do you think you will reach a conclusion on negotiations for the lease of the plants by the time Alcoa leaves the plants? Mr. HUSBANDS. It depends upon the action here as to the policies which Mr. Symington Senator MITCHELL (interposing). Of course, the policy on leasing does not have to be acted upon by Congress, does it? Mr. HUSBANDS. I think on the question of a subsidy, we should have guidance on that point, sir. Senator WHERRY. You mean subsidy arising from rentals? Mr. HUSBANDS. I mean this guaranty of losses. Senator WHERRY. From losses? Mr. HUSBANDS. If there is a loss. Senator REVERCOMB. You say you will need guidance on it. You will also need authority, will you not? Mr. HUSBANDS. I will have to ask our counsel to answer that question. Senator MCCLELLAN. May I ask a question? Senator O'MAHONEY. Yes, Senator McClellan. Senator MCCLELLAN. Have you already predetermined that if Congress does not take affirmative action to prevent this policy from going into effect, you are ready to accept the proposition made by the Reynolds Metals Co.? Have you already predetermined that? Mr. HUSBANDS. That will be up to Mr. Symington as a matter of policy. Senator MCCLELLAN. Has that been determined yet? Senator O'MAHONEY. Proceed, Mr. Symington. Mr. SYMINGTON. The Attorney General recommends that the Government stock pile of bauxite be made available to independent producers for use in operating the Hurricane Creek alumina plant. The Surplus Property Board has requested that the Metals Reserve stock pile be withheld from declaration as surplus and be offered to the Hurricane Creek operator to whatever extent is necessary to supplement Arkansas, or other, domestic production. POWER The Attorney General recommends that power surveys be made immediately, in order to determine what arrangements are possible to assure the cheapest supply of electric energy. Our report has called attention to the inflexibility of power contracts in the Pacific Northwest and the Tennessee Valley, and has suggested that Congress may wish to consider a modification of the laws which prevent Federal agencies from disposing of power on competitive terms to possible operators of Government aluminum plants. Senator MITCHELL. Mr. Chairman. Senator O'MAHONEY. Senator Mitchell. Senator MITCHELL. On that point, I wonder if you plan to go into these problems with the agencies at a later time, or should we discuss that now? I would like to discuss the Columbia Valley power rate at some time during the hearings. Senator O'MAHONEY. That is an integral part of this problem, and it will be brought out, of course. Senator MITCHELL. You would rather not go into it now? Mr. SYMINGTON. May I proceed, Senator? |