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Mr. O'TOOLE. Mr. Fugate.
Mr. FUGATE. I have no questions.
Mr. O'TOOLE. Mr. Allen.
Mr. ALLEN. I have no questions, Mr. Chairman.
Mr. O'TOOLE. At this time the Chair desires to place in the record a telegram addressed to the committee from C. J. Stettin, assistant to the general manager of the port of Seattle; another telegram from Mr. Stettin and other businessmen of Seattle; a statement by Mr. Christy Thomas, of the Seattle Chamber of Commerce; a letter from Harold B. Say, a representative of the Port of Portland Chamber of Commerce; and some statements on the national defense importance of the Panama Canal.
(The matter above referred to is as follows:)
SEATTLE, WASH., June 27, 1950. CHAIRMAN AND MEMBERS, PANAMA CANAL SUBCOMMITTEE, House Committee of Merchant Marine and Fisheries,
House Office Building, Washington, D. C.:
The undersigned representative groups believe that a bill, H. R. 8677, presently before your subcommittee fails to include provisions which we have strongly urged; namely, elimination of national defense costs from the capital structure of the Panama Canal and division of dual-purpose, costs among users on a proportionate-use basis.
We are also fearful that the proposed changes in the Canal Zone Code may result in delays which might well jeopardize the establishment of a just tolls formula during the current session.
We, therefore, urge that the codification provisions be deleted and that there be added to the bill the provisions outlined in the first paragraph of this wire. C. J. STETTIN, Assistant to General Manager, Port of Seattle.
SEATTLE, WASH., June 27, 1950.
CHAIRMAN AND MEMBERS, PANAMA CANAL SUBCOMMITTEE,
House Office Building, Washington, D. C.:
The undersigned representative groups believe that a bill, H. R. 8677, presently before your subcommittee fails to include provisions which we have strongly urged, namely, elimination of national defense costs from the capital structure of the Panama Canal and division of dual-purpose costs among users on a proportionate-use basis.
We are also fearful that the proposed changes in the Canal Zone Code may result in delays which might well jeopardize establishment of a just tolls formula during the current session.
We, therefore, urge that the codification provisions be deleted and there be added to the bill the provisions outlined in the first paragraph of this wire.
C. J. Stettin, Assistant to General Manager, Port of Seattle, Seattle,
STATEMENT OF CHRISTY THOMAS, REPRESENTING THE SEATTLE CHAMBER
My name is Christy Thomas. I am manager of the Washington offic
the Pacific Northwest. It handles a tremendous amount of shipping which goes through the Panama Canal, the cost of which is affected by the method of computing tolls through the Canal.
On January 10 of this year, after a thorough study of the subject by members of its maritime division, the Seattle Chamber of Commerce adopted a resolution, as follows:
"The Seattle Chamber of Commerce urges the second session of the Eightyfirst Congress to provide an equitable formula for computing Panama Canal tolls payable by commercial users."
Since that time there have been introduced in the Senate two bills-S. 3649, by Senator Tydings, and S. 3650, by Senator Magnuson-and in the House, H. R. 8677, which this committee has before it today. The Seattle Chamber of Commerce has not taken a specific choice between these bills, preferring to rely upon the committees and the Congress to write fair legislation after full investigation into the history of the Canal and the facts regarding military usage of the Canal which is presently being paid for entirely by commercial shippers.
We of the Pacific Northwest are accustomed to paying for the benefits we derive from the Federal Government and its agencies. We gladly repay the Federal investment in reclamation, power development, and similar wealthcreating projects. By the same token, we are perfectly willing that our ship operators pay a reasonable fee for their use of the Panama Canal.
But we do not think it fair that commercial shipping alone should pay the cost of the military and other governmental uses now charged to the repayment accounts of the Panama Canal.
Therefore we urge the committee to determine a proper allocation of costs which can be used to determine fair tolls payable by commercial users of the Panama Canal.
PORTLAND CHAMBER OF COMMERCE
Hon. DONALD L. O'TOOLE,
Chairman, Panama Canal Subcommittee,
Merchant Marine and Fisheries Committee,
House of Representatives, Washington, D. C.
DEAR SIR: I am Harold B. Say, representative in Washington, D. C., for the Portland Chamber of Commerce, for whom I wish to file this brief statement. My address is 1604 K Street NW., Washington, D. C.
The Portland Chamber of Commerce for many years has been on record as desiring the Federal Government to make a study of the elements of Panama Canal costs and operations, and from such to establish sets of charges against commercial vessels and noncommercial vessels that would be equitable. It believes that not only operating costs should be taken into consideration but capitalization costs measured against the purposes for which the Canal was
If H. R. 8677, which your committee has under consideration, does not accomplish these ends in full, the Portland Chamber of Commerce hopes that this committee will embody amendments which will so do and from which toll schedules can be established that will reflect the rightful cost commercial vessels should bear and simultaneously the costs that national defense and related elements should bear.
HAROLD B. SAY.
STATEMENTS ON NATIONAL DEFENSE IMPORTANCE OF THE PANAMA CANAL
Theodore Roosevelt, message to Congress, January 4, 1904:
"Long acknowledged to be essential to our commercial development, `(the Canal) has become, as a result of the recent extension of our territorial dominion, more than ever essential to our national defense. In the light of our present situation, the establishment of easy and speedy communication by sea presents itself not simply as something to be desired but as an object to be positively and promptly attained. Reasons of convenience have been superseded by reasons of vital necessity."
Col. Harry Burgess, former Governor of the Canal Zone, The Military Engineer, July-August 1929:
"The French company * * * failed disastrously in executing the project. These facts being known, it seems improbable that the United States would have decided on the construction of the Canal solely from commercial considerations. The deciding factor was the value of the Canal as an element of the national defense."
General Goethals, before a Senate committee in 1911:
"Assuming that the Panama Canal is a military necessity of the United States, I naturally take the military point of view that it is for the use of the fleet. I have always felt that the cost of building the Canal should be charged off the books as against the military defenses of the Union ** *
Governor Burgess, 1929:
"In other words, for the United States to obtain without a canal, the naval power-national safety insurance-equal to that of the present fleet with the Canal, would require an increase of the naval force by 50 or 60 percent with an increase in annual cost of about 40 percent. The naval expenditure in the fiscal year 1928 was about $320,000,000, and it would be fair to evaluate the defense insurance of the Canal as at least $125,000,000 per year."
The Bureau of the Budget, January 31, 1950:
"Whether any part of the capital cost of the Canal should be allocated to national defense presents a problem to which there is no positive answer. The Canal admittedly does serve a dual purpose-defense and commerce. However, any attempt to establish which purpose was primary at the time the Canal was built would be an utterly fruitless undertaking."
Governor Mahaffey, 1947:
('Based on the volume of military traffic that transited the Panama Canal during the war years, an approximation has been made of the monetary saving that has accrued to the United States from its use. This saving which is estimated to be one and one-half billion dollars is in shipping costs only and does not represent the lives and material that were saved by a shortening of the war." Governor Mahaffey, 1947 (to Congress):
"During the period from 1914 to 1947, tolls and other revenues amounting to $587,137,000 were deposited in the Treasury of the United States, while the net appropriation expense for the same period was $315,956,000. If tolls at the prescribed rates had been paid on tolls-free vessels of the United States, it is estimated that the additional revenue would have amounted to not less than $64,000,000. Thus, the Panama Canal has returned to the United States in money or in free services the entire cost of maintenance and operation since its completion and, in addition, all but $74,000,000 of investment at 3 percent annually on the net capital investment."
Governor Mahaffey, 1947 (before Appropriations Committee of the House of Representatives):
* The Canal is a great international public utility serving the maritime commerce of the world; from its opening in 1914 to 1946, its revenues have been sufficient to pay all costs of operation and maintenance, including the cost of sanitation and civil government, and in addition to return approximately 2 percent of the net capital investment.
"These figures disregard the value of the Canal to national defense. It is safe to say that the services rendered by the Canal to the recent war effort were more than enough to repay the entire cost of maintenance and operation, but because of revenues of the Canal as a commercial enterprise, its cost as an adjunct to the national defense has been negligible."
The history of the inclusion of interest in the tolls base is of importance because it indicates how, in the absence of specific congressional direction, important changes in tolls policy are made by administrative fiat.
At the time of the official opening of the Canal in 1921, a special commission was appointed by the Secretary of War to advise on matters relating to the Panama Canal. This commission stated that
"A great part of the cost of the Canal is for things that are admittedly military and in capitalizing the Canal for commercial purposes these must of course be omitted. But in addition to them, there is a great part of the cost that must be written off for the Canal would not have been constructed as it is purely commercial purposes and the question now arises as to how much of + of the Canal proper ought to be set up as the amount upon which a retu to be demanded."
Pursuant to the recommendations in this report, the Secretary of War, under date of October 18. 1921, ordered a careful study to be made in order to establish if possible a capitalization to determine a fair commercial value that should be fixed for the Canal and its various allied activities. As a result of this order, the Governor of the Canal reported in 1921 the (a) transit, (b) business, and (c) defense capitalization of the Canal. Approximately $113,000,000 was allocated to defense, $235,000,000 to transits, and $19,000,000 to business.
Until 1927 no interest was charged in the Annual Reports of the Governor on either the commercial, business, or defense capital expenditures so arrived at. In 1927, however, the Governor reported surplus over and above operating expenses of $16,487,630.60 for the year, and for the first time included in his report a fixed capital charge at 3 percent on the commercial investment in the Panama Canal as determined under the 1921 order. Interest was not then charged on the amount determined in 1921 to be defense capital.
The Canal continued to report profits after this interest and it was suggested by the Canal authorities in 1928 and 1929 that the capitalization of the Canal should be increased and that the rate of interest should he increased to 4 percent. In 1932 the practice of charging interest only on the commercial portion of the capital investment was abandoned and the defense capital expenditures were from that time forward included in the capitalization upon which interest at 3 percent was thereafter charged. In this way the defense capital, which was excluded in 1921, was restored to the Canal books.
In addition, in the 1932 report and all subsequent reports there was included in the capital upon which interest was charged "interest during the construction period" in an amount which is now established at approximately $129,000,000, nd from that time forward interest has been computed annually upon this interest and charged in the accounts of the Canal against tolls and other revenues. The effect of the restoration of the defense capital to the Canal books and the inclusion of interest during the construction period can be seen from the reports of the Governor. In 1931. before these changes, the Governor reported
a profit for 1931 of 7.1 million dollars. In his 1932 report, however, the Governor, as a result of these switches in accounting methods and the reinclusion of defense capital and interest, reported a loss for 1931 of 0.8 million dollars.
It is only fair to say, of course, that these changes, accomplished by administrative fiat, were subsequently in 1937 approved by Congress and that the present congressional policy is to charge interest on the defense capital. What is required is a reexamination of this policy by the Congress to determine whether it is equitable and fair and whether on a broad long-range basis it best serves the public interest.
Mr. O'TOOLE. If there are not other witnesses who desire to be heard, the meeting stands adjourned.
(Thereupon, at 12:25 p. m., the subcommittee adjourned, subject to the call of the Chair.)