covered annually into the Treasury. This procedure has been followed in the case of facilities and appurtenances susceptible of being operated on a self-sustaining basis. Section 53 restates and clarifies present section 52 and present appropriation language, in authorizing the expenditure or reinvestment under the several heads of appropriation for the Panama Canal, without coverage into the Treasury (except in the case of net profits of business operations), of the receipts of the operations authorized by proposed-sections 51 and 52, and of receipts from sales made and services rendered with the exception of tolls, taxes, court fees or fines which are deposited in the Treasury of the United States as miscellaneous receipts. Proposed section 53 would require, as in present section 52, monthly reports of such receipts and expenditures to the President, and annual reports to the Congress. Section 54 provides that section 51 to 53 shall have no application to operations of the Canal Zone Postal Service. The operations of the Canal Zone Postal Service are already provided for in substantive legislation in chapter 14-sections 271 to 281-of title 2, Canal Zone Code, as restated by amendment in act June 13, 1940, chapter 358, section 2, 54 Statutes 389, 48 United States Code, sections 1323a to 1323j. Section 3 would add to the Canal Zone Code a section 85 of title 2, authorizing the Governor within the limits of appropriations made therefor, to provide for the special training in the United States or elsewhere of employees of the Panama Canal when in the judgment of the Governor such special training would be of benefit to the work of the Panama Canal. It would authorize, during such special training, the payment of the employee's regular compensation and his traveling and subsistence expense. A provision has been included in Panama Canal appropriations since 1939, authorizing attendance of selected employees at police and fire department training schools. This aids the organization in keeping abreast of advanced scientific methods, a problem made difficult by its isolated location. Section 85 would support this item and would authorize, with appropriate limitations, the special training of other classes where needed to enable the organization to modernize and improve its methods and procedures in the light of scientific and technical advancements in the United States. Section 4 would add to the Canal Zone Code a section 124 of title 2 authorizing the Governor (a) to purchase artificial limbs or other appliances for persons injured in the service of the Isthmian Canal Commission or of the Panama Canal prior to September 7, 1916, the effective date of the United States Employees' Compensation Act, and (b) to make payments in lump sums not exceeding the amounts authorized by the Compensation Act to alien cripples who are now a charge upon The Panama Canal by reason of injuries sustained while employed in the construction of the Panama Canal. This section would support items appearing in Panama Canal appropriations since 1924 and 1918, respectively, for the purchase of artificial limbs and appliances and for making lump-sum injury payments to the persons involved. Section 5 would add to the Canal Zone Code a section 906 of title 6 which, on the discharge of a prisoner from a penal institution in the Canal Zone, would authorize the furnishing to such prisoner, in the discretion of the Governor, of such suitable clothing as may be authorized by the Governor and an amount of money not exceeding $20. The proposed section would support an item in Panama Canal appropriations for gratuities and necessary clothing for indigent discharged prisoners. This bill is recommended by the Panama Canal and the Bureau of the Budget. It has the concurrence of the Secretary of the Army and, with a minor exception relating to establishment of a maximum limitation on the settlement of claims under section 17, it has the concurrence of the General Accounting Office. Mr. O'TOOLE. Are there any questions, gentlemen? Mr. WICKERSHAM. I have no questions. It was a very well-prepared statement. Mr. O'TOOLE. Is there anyone else who would like to be heard on H. R. 3159? Mr. WICKERSHAM. Mr. Chairman, I believe Mr. Krebs wishes to be heard. Mr. O'TOOLE. On H. R. 3159? Mr. WICKERSHAM. Yes. Mr. O'TOOLE. We will be glad to hear you, Mr. Krebs. STATEMENT OF ALFRED U. KREBS, COUNSEL, NATIONAL Mr. KREBS. Mr. Chairman, I believe copies of a statement on behalf of the National Federation of American Shipping, Inc., have been delivered to the committee. I have a few extra copies left, if you do not have them before you. My name is Alfred U. Krebs. I am counsel for the National Federation of American Shipping, Inc., an organization of three steamship associations. Through its member associations, the Federation. represents the owners of two-thirds of the active privately owned dry-cargo merchant vessels under the American flag, and one-half of the tanker operators. We are appearing at this time in connection with H. R. 3159, and I would like to say to the committee that we have no objection to any of the provisions of the bill except those contained in section 2. Section 2 of H. R. 3159 would amend chapter 4 of title 2 of the Canal Zone Code, relating to "business operations" of the Panama Canal, so as to authorize the President of the United States to transfer to the Panama Railroad Company all of the personnel, property, records, funds, assets, contracts, obligations, and liabilities of certain facilities presently operated by the Panama Canal. These facilities would include docks, wharves, piers, drydocks, shops, yards, marine railways, salvage and towing facilities, dredging facilities, fuelhandling facilities, motor-transportation facilities, civil air terminals, power systems, water and sewer systems, warehouses, storehouses, hotels, a printing plant, living quarters, and other buildings. The shipping industry is not interested in whether enterprises auxiliary to the operation and maintenance of the Canal are conducted by the Panama Canal or by the Panama Railroad Company. The industry does, however, have an interest in making certain that com mercial vessels using the Panama Canal do not pay more than their share of the cost of operation of the Canal for transit purposes. Transfer of the facilities as proposed by section 2 of the bill would result in a decrease in the net business revenues of the Canal of approximately $1,500,000 a year. Although the business operations of the Canal are conducted separately from operating activities pertaining directly to the transiting of vessels and government of the Canal Zone, they are treated as part of the over-all operations for accounting purposes, and are included in determining whether the fixed capital charge of 3 percent per annum has been earned on the total capital investment of the Canal. Obviously, transfer of the facilities in question would have a serious effect upon the financial operations of the Canal and the policy to be followed with respect to the fixing of tolls. Pursuant to authority contained in House Resolution 44, considered and agreed to on February 28, 1949, the Committee on Merchant Marine and Fisheries is now engaged in a full and complete study and analysis of the financial operation of the Panama Canal for the purpose of recommending to the Congress what elements of cost should be properly used in the future as the basis of a policy to be followed in establishing and levying tolls for the use of the Canal for transit purposes. One of the items being studied by the committee is the proper accounting and allocation of costs attributable to thebusiness operations conducted under the supervision of the Governor General of the Panama Canal by the various business units of the Panama Canal and Panama Railroad Company. The President of the United States has found it to be consistent with the public interest to postpone until September 1, 1949, the effective date of a proclamation increasing tolls for the use of the Panama Canal in order that the Congress may have adequate opportunity for consideration of the committee's report. We believe that transfer to the Panama Railroad Company of the facilities referred to in section 2 would complicate and render more difficult the task of the committee engaged in the study under House Resolution 44, and we respectfully urge that the provisions authorizing the transfer of such facilities be deleted from the bill. Mr. O'TOOLE. Thank you very much, Mr. Krebs, for your statement. Are there any questions? Mr. MILLER. I would like to ask one question: I notice on page 2 of your statement, Mr. Krebs, you say that $1,500,000 a year of profits would be accounted for differently if this new act were adopted. In other words, I assume that those profits would be transferred to the Panama Canal Company rather than going into the general fund in the operation of the property? Mr. KREBS. That is correct. Actually that figure for 1948 was $1,559,478.71. The statement of mine was based on the fact that the figure for the year of operation, the fiscal year ended 1948, would be approximately that much. The operations have continued to show profits, and it is my recollection that there has not been any decrease in the net revenue derived from the operation, particularly of that line, for several years. Mr. MILLER. Well, you assume that they are operating at a profit? Mr. KREBS. Yes. Mr. MILLER. Then perhaps you could explain to us, because there must be some purpose behind this proposition, why is it proposed by the people who are advocating it? Mr. KREBS. I know of no other reason other than that stated by Mr. Burdick, and that is, in the opinion of the General Accounting Office and perhaps the Bureau of the Budget, these operations could be conducted more efficiently by the Panama Railroad Company rather than The Panama Canal. Mr. MILLER. All right; then we come to the last thing that I would like to get my mind clear on: Does the Panama Line Company itself— and it is government-owned, is it not? Mr. KREBS. The Panama Railroad Company? Mr. MILLER. Yes. Mr. KREBS. It is a Government-owned corporation. Mr. MILLER. Does not that profit go into the whole picture just as much as that derived from any other operation? Mr. KREBS. The profits from the Panama Railroad Company, as I understand, are covered into the Treasury. However, and I think this is probably what your question has reference to, any profits from the Panama Railroad Company are not included in the revenue derived by the Panama Canal in determining whether or not the fixed charge of 3 percent has been earned on the net capital investment in the Panama Canal. The Panama Railroad Company files a separate report with respect to its operations, and its operations are separate and distinct from those of the Panama Canal. That is my understanding of the situation. Mr. MILLER. As I understand it, the Panama Railroad Company not only runs the Panama line, that is, the shipping company, you might say; it is the official communication chain between the continental United States and the Canal Zone, but in addition it runs the only railroad; does it not? Mr. KREBS. Yes. Mr. MILLER. On the line? Mr. KREBS. Yes. Mr. MILLER. It is very vitally tied in with the whole economics of the area. Now, just at first thought, at first blush, I do not see how you could divorce the Panama Canal Company, which is Government-owned, from the operations of the Canal, which is Governmentowned; the two are absolutely interdependent; are they not? Mr. KREBS. They are related, yes, and I believe that the Panama Canal, at the present time, is charged for any services which the Panama Railroad Company might render in connection with the operation. Mr. MILLER. Would it not also seem logical that if the Panama Canal Railroad Company is operating at a profit and that profit goes into the general funds of the Treasury, that that operation should be considered in this picutre of determining the over-all profit, in respect to a proper return or a proper rate which the Canal charges as much as the other operations to which you are making reference here? Mr. KREBS. Mr. Miller, it may be that is one of the things that this subcommittee which is now studying the whole Panama Canal situation would suggest. As it is now the operations and revenue derived from the Panama Railroad Company's operation, are not included in revenues which are derived from the operation of the Panama Canal. They are accounted for separately; separate reports are filed with respect to the two operations. Mr. MILLER. I could see frankly, if they are operating at a loss it might be very much to the disadvantage, I mean, to your disadvantage to have this money dumped into their lap; but on the other hand, if they are operating at a profit you might be better off to have all the funds, that is, the other profits, as well as this $1,500,000 taken into the full over-all picture. Mr. KREBS. If that is the situation it may be that this committee would recommend that that be done. However, at the present time they are treated separately for accounting purposes. Therefore, with revenue from the Panama Canal, with business operations which are operating at a profit, would perhaps provide a possible basis for suggesting that tolls should be increased in order for the Canal to earn this 3 percent on the net capital investment. Mr. MILLER. One more question along that line: Suppose that any new rate that is recommended and adopted, any profits that were made by the Panama line, Panama Railroad, or whatever the company's name is, were figured into the picture, so far as determining the rate, with the other earning on the Canal property, you would not object to this provision then, under those circumstances? Mr. KREBS. I Could not say at this time whether we would or whether we would not. One of the chief objections that the shipping industry has had to the present system is that it feels that there are certain costs which are being allocated at the present time to the transiting of vessels through the Canal which should not be allocated to that operation. Therefore, it is suggested that the entire operation of the Panama Railroad Company and the Panama Canal be thrown together, and to us at this point it would seem to be of a dubious procedure, and it will have to be examined more thoroughly and gone into before it could be determined whether or not that was the proper procedure to be followed with respect to the fixing of tolls. Mr. MILLER. But your only objection to this merger is based solely on the fear that it might give an improper accounting picture in respect to the 3 percent return on the Canal investment, whatever the policy might be. In any event, your objection is directed to that point, to the accounting feature. Mr. KREBS. To the accounting, and to the possibility that it would provide a base for increasing the present tolls. Mr. MILLER. Increasing or maintaining rates that would otherwise be less, and that is your only concern with the suggestion, and if that feature of it were taken care of you would not care how the accounting was done; is that right? Mr. KREBS. That is correct. What we are concerned with is that in making the rates, the vessels transiting the Canal do not bear more than their fair share of the cost. Mr. MILLER. Thank you. That is all I have. |