would be assessed against the total enterprise rather than exclusively against the tolls as under the existing system. One method of distributing such costs among various elements of the enterprise would be on the basis of gross revenues. This method has the merit of simplicity and the merit, also, of recognizing changes in the going-concern value of the enterprise. The Bureau of the Budget report and the President's approval would certainly constitute an endorsement of allocating this expense in this manner. The bill drafted by the Canal authorities, however, does not provide for the allocation of the net expenses of sanitation and civil government on the basis of this method, but provides (p. 21) : In the determination of such appropriate share, substantial weight shall be given to the ratio of the estimated gross revenues from tolls to the estimated gross revenues of the said corporation exclusive of the cost of commodities resold, and exclusive of revenues arising from transactions with the said corporation or from transactions with the Canal Zone government. The exclusion of the cost of commodities resold as inserted in the bill by the Canal authorities relates to the operation of commissaries on the Canal Zone which do a very large business. There appears to us no reason why, in the pricing of the articles sold through the commissaries under which very favorable prices are made available, there should not be an element to cover the cost of civil government "in lieu of taxes" under the theory evolved by the Bureau of the Budget and upon the same gross revenue pro rata basis as is applied to all other business operations of the Canal Company. Certainly these commissaries avail themselves of police and fire protection, the use of the highway systems, and so forth. Commercial enterprises are always taxed for these facilities. We have no objection to the exclusion in this computation of intergovernmental department transactions as suggested by the Canal authorities. The bill should be amended so as to conform to the budget's report, as approved by the President, by the elimination of the language excluding the cost of commodities resold, i. e., the commissaries operation. We present herewith an amendment designed to carry the recommendation into effect and urge that it be accepted by the committee. 3. The Thatcher Ferry: The Thatcher Ferry operation illustrates a philosophy which has apparently pervaded the administration of tolls policy in the past, and is being carried over in the present bill. It gives rise to apprehension as to the administrative problems which may be faced in allocations of cost to nontransit activities unless there is a specific mandate by Congress. The bill authorizes the corporation to operate the Thatcher Ferry free of charge to its users. The cost of operation would be borne by the Panama Canal Company, whose expenses substantially represent the transit tolls base. We understand in a communication to your chairman, the Bureau of the Budget has agreed to deletion of the provision. If deleted, the ferry would be operated by the civil government-still free of charge. While we do not have exact figures on the cost of operation of the ferry and the published accounts of the Panama Canal are significantly silent on the subject, we do know from such accounts that it involves the direct employment of 100 personnel in addition to overhead expenses; that in 1949 it transported almost 3,000,000 individual passengers and the following ve hicular traffic: 69057-50-5 . and that ownership, operation, and maintenance of three vessels is involved. We estimate the cost of operation to be in the neighborhood of $500,000 per anum. In the past, such costs have gone into the Canal accounts and represent a basis for charging tolls against commercial vessels. This ferry proposal is diametrically opposed to the President's recommendation based on the Bureau of the Budget report that the Panama Canal Company should be compensated for any service it furnishes at prices reasonably expected to cover the cost of performing the service. Before the Canal was built, in order to pass over dry land between northern and southern sections of the country, it was necessary to proceed along the summit of the continental divide. The Rio Grande and its outlet to the Pacific Ocean could not be forded at any point south of the present location of Miraflores Locks. The area over which the ferry is now operated was tideland and swamp, subject to the Pacific tidal fluctuations we understand of apporximately 24 feet. At the present time an excellent bridge is located immediately south of Miraflores Locks at a point affording a shorter means of travel from Panama City to the north of Panama than any existing overland or by fording before the construction of the Canal. This bridge was completed in 1942. Yet the operation of the ferry continues; its cost is included in the accounts which form the basis of tolls, included in an item called "dredging division." If such a ferry system is desirable in the public interest or in the interest of the military, there appears no reason why a fair and equitable charge should not be made. If any of its services are required in connection with the operation of the Canal itself, then the tolls base should include the proportionate cost of such services, but we suggest that it is completely unfair to provide such additional facilities on a free basis and to charge all of its costs to the Canal Company and ultimately as a component part of transit tolls for commercial vessels. There is another matter which should be brought to your attention: The United States makes annual payments to the Republic of Panama of $430,000 per annum for the Canal Zone area. Under H. R. 8677, these are to be reimbursed to the Treasury by the Panama Canal Company. It is not clear that such reimbursement is to be allocated among all of the business activities of the Panama Canal Company. In any event, the operation of the Canal itself for transit purposes will bear a substantial part of this cost. It does appear clear that it is not contemplated that the military shall bear any part of this annual payment. The latest report of the Governor shows that 95.3 square miles of, land area in the zone is assigned to naval and military reservations. It would not appear inconsistent with the policy outlined in the budget report to charge a portion of these annual payments to military ex penses. In any event, this rental payment, if that is what it amounts to, plus the priority given Government combatant ships, and so forth, might be considered an offset against any contention that Government vessels are paying a disproportionate toll if a part of the capital investment has been written off to national defense. As the committee is aware, there has been introduced in the Senate by the senior Senator from Washington, Senator Magnuson, a bill, S. 3650, which is very brief, and which incorporates the basic principles of fair and equitable commercial transit tolls at Panama. Nothing in Senator Magnuson's bill is in conflict with the principles for which the shipping industry through this federation is contending. The Senate bill goes to the crux of fair and equitable transit tolls at Panama without involving any of the questions of reorganization, operation of military government, and commercial activities or codification of laws, and so forth. The Senate bill with a few minor implementing amendments would, we believe, cover the shipowner's case. However, we recognize the desire of the administration, of the Bureau of the Budget, and of the President, to set up sound organization, accounting and tolls computation, and we are supporting the provisions of H. R. 8677 with amendments suggested for this purpose. We are grateful, however, to Senator Magnuson for having clearly highlighted the basic principles involved in the matter of computing fair and equitable commercial transit tolls. If the Army insists upon the inclusion of a vast amount of codification of law and other encumbering provisions, and not cooperating with the implementation of the Bureau of the Budget's report as approved by the President, then this committee could very well give consideration to simple implementing amendments to the Senate bill in the interest of effecting with reasonable promptness an equitable situation of commercial transit tolls at Panama. In view of the past history of the segregation of accounts and accounting methods employed in the Canal Zone, the shipping industry is necessarily concerned as to strict compliance with the philosophy of the Bureau of the Budget report as approved by the President. One example of our reason for apprehension may be briefly stated: When the Congress authorized funds for the construction of the third locks project, these were deemed to be exclusively for military purposes and unrelated to the commercial activities. The Congress directed that all costs connected with the third locks project--and this included provision for a bridge-should not be included in the capital base of the Panama Canal for interest purposes. Notwithstanding this direction, last year there was transferred from the "Third locks project" according to the "Capital” account of the Panama Canal an amount of 1.45 million dollars representing the depreciated capitalasset value of the Miraflores Bridge. This occurred during the year 1949, more than a year after the question of Canal operating, accounting, and tolls computation had been raised, while congressional committees were investigating the subject, and the Government and representatives of the Panama Canal had appeared before congressional committees and testified. Meanwhile, the free operation of the Thatcher Ferry continued and its expenses were borne by the Canal. Following the precedent in the case of the administration of the ECA Act, we suggest that this committee constitute itself into a "watchdog committee," that the Canal authorities be required to submit reports at regular intervals, and that the industry be permitted to present its suggestions in the interest of effectively carrying out the provisions of H. R. 8677 and of congressional intent. I have some proposed amendments to H. R. 8677, and I would like to submit them for the record. Mr. O'TOOLE. Without objection, they will become a part of the record. (The matter referred to is as follows:) PROPOSED AMENDMENTS TO H. R. 8677 1. Delete sections 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, and 23. 2. Amend section 19 (p. 16) by inserting at line 7 between the words "for" and "the" the words "a fair and reasonable portion of". 3. Amend section 19 (p. 16) by adding a paragraph lettered (f) after the paragraph lettered (e), reading as follows: "(f) Charges for services and facilities provided by the Corporation or the Canal Zone government for any Government agency or agencies, individual or other person shall be made and set at rates designed to cover, as nearly as practicable, the fully distributed cost (including depreciation and, except in the case of services and facilities provided by the Canal Zone government, interest) of providing such services and facilities." 4. Amend section 25 by striking the words on page 21, lines 8-9, "exclusive of the cost of commodities resold". 5. Amend section 25 by adding the following three paragraphs: "The capital investment in the building and improvement of the Panama Canal and its ancillary facilities and equipment for vessel-transit purposes shall be reduced by one-half as representing their fair and proportionate value for national-defense purposes and as a military asset. "Any capital investment in facilities and equipment which are not required for the operation of the Canal and its ancillary facilities and equipment for commercial-vessel-transit purposes shall not be included in the capital base for computing interest to be included in the toll rate. "There shall be included as an element of the toll-rate interest charges upon only the capital investment base of the Canal and its ancillary facilities and equipment remaining after the deductions and exclusions prescribed by the preceding two paragraphs at the average rate of interest, computed at the time of prescribing or changing the toll rate borne by all interest-bearing long-term public issues of the United States then forming a part of the public debt." Mr. BAILEY. I am very grateful to you, Mr. Chairman. Mr. O'TOOLE. In accordance with the rules of the House, the committee will stand in recess until tomorrow morning at 10 o'clock. At that time, Mr. Bailey, would it be possible for you to return, as Mr. Fugate would like to ask you some questions? Mr. BAILEY. I shall be very happy to, Mr. Chairman. Mr. O'TOOLE. We will stand adjourned until 10 o'clock tomorrow morning. (Whereupon, at 12 noon, the committee adjourned, to reconvene the following day, Tuesday, June 27, 1950, at 10 a. m.) AUTHORIZATION AND PROVISION FOR THE MAINTENANCE AND OPERATION OF THE PANAMA CANAL BY THE PRESENT CORPORATE ADJUNCT OF THE PANAMA CANAL, AS RENAMED TUESDAY, JUNE 27, 1950 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON THE PANAMA CANAL OF THE Washington, D. C. The committee met at 10 a. m., the Honorable Donald L. O'Toole (subcommittee chairman) presiding. Mr. O'TOOLE. The committee will come to order. At this point I would like to read into the record a letter from the Secretary of the Army received this morning. (The letter read is as follows:) Hon. DONALD L. O'TOOLE, Chairman, Subcommittee on the Panama Canal, House of Representatives. DEAR MR. O'TOOLE: I have your letter of June 14 advising that your subcommittee may wish to consider severing from H. R. 8677 certain codifying provisions not covered specifically by the report of the Bureau of the Budget on Panama Canal organization. The provisions in question are regarded as necessary by the Department of the Army to provide complete legislative coverage for the organizational changes recommended in the report of the Bureau of the Budget and all provisions of the bill cover matters embraced directly or indirectly in that report. While I believe it desirable to have the bill enacted in its present form, I shall of course accept the judgment of your committee as to what deletions may be necessary to insure the passage at this session of the provisions specifically covered by the report of the Bureau of the Budget and in the President's recommendations. I should like to point out, however, that none of the codifying provisions to which you refer are essentially new and all are of such nature that they could take effect on the same date as the remainder of the bill, since they are considered to be necessary to effectuate completely the transfer of the Canal operations to the Corporation. Since these provisions are comparatively simple and noncontroversial, I believe that the Governor of the Canal Zone in his testimony before your committee on June 26 can explain their necessity and why they should not materially delay the enactment of the bill. Sincerely yours, FRANK PACE, Jr., Secretary of the Army. The committee will decide that in executive session. Mr. Bailey, yesterday morning it was necessary for us to adjourn because the House went into session. Mr. Fugate, of Virginia, expressed a desire to ask several questions. |