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The importance of the San Diego area to the Federal Government, and more particularly to the successful prosecution of the war in the Pacific and to a lesser extent in Europe, cannot be overemphasized. An important segment of the aircraft industry operated in this area. The area was one of the important personnel training centers in the United States.

We had the North Island, which is in Coronado, which is across the Bay from San Diego. We had the marine training center. We also had numerous supply depots there. These and a myriad of other important wartime pursuits in the area would have been imperiled by a failure or material inadequacy in the water supply. It is no exaggeration to say that an acute crisis existed which found full recognition in the report dated October 21, 1944, of the Interdepartmental Committee which had been appointed by President Roosevelt, and that report has already been discussed with the committee.

This report pointed out various things which have already been brought to the attention of the committee, and was forwarded to the Navy Department by the President on November 29, 1944, with his approval and direction that the Bureau of Yards and Docks will perform the emergency construction work.

Under the authority of Public Law 289 of the Seventy-eighth Congress and under appropriations provided by Public Law 347, also of the Seventy-eighth Congress, the Secretary of the Navy approved the project and allotted $12,250,000 to defray the Navy's share of the construction costs.

Work was immediately begun, and contracts were awarded so that as of VJ-day four contracts had been let obligating the public-works appropriation in the amount of over $6,000,000.

Following VJ-day, in accordance with the Secretary's directive, the entire project was reviewed in the light of post VJ-day conditions and requirements. Information then available made it evident that

(1) Serious depletion of the San Diego water supply was expected to continue after VJ-day.

(2) Early assurance of an adequate water supply was as necessary for the national defense as it had been for the active prosecution of the war prior to VJ-day.

(3) Termination of the San Diego aqueduct project would have occasioned a failure of the water supply as well as the loss of substantial sums expended by the Federal and local governments.

In connection with this, in the light of Senator McCarthy's questions this morning, the figures that I had on available water supply are considerably different than those which Senator McCarthy had.

I will be glad to go into it, unless that matter has been cleared up to the satisfaction of the committee. I am just trying to give you the factual background basis of our decision for continuation of the project.

The CHAIRMAN. I think that ought to be made a matter of record. Senator McCarthy had to leave to catch a plane, and he will not be back until tomorrow. If it will not take too long to put your data into the record, we would like to have it.

Senator ROBERTSON. Off the record. (Discussion off the record.)

Secretary KENNEY. I can come down any time, Mr. Chairman, and I can also state that it is in the record insofar as it is included in the

memorandum which accompanies my statement of the factual background of the Navy and the project.

The CHAIRMAN. Senator McCarthy will have ample opportunity to read your testimony and go over it, and so you may proceed then, unless some other member desires to ask a question.

Senator ROBERTSON. The essence of the material that you are going to insert in the record and not give extemporaneously at this time is that the Navy faced an emergency need?

Secretary KENNEY. We faced an emergency need, and it appeared to us that there would be a very, very acute water shortage by fall of this year, and that the Federal Government was consuming approximately 38 percent of the water of San Diego.

Developments since then indicate that the VJ-day estimates were accurate. Depletion has continued at an alarming rate. To date the 1946-47 season has produced little run-off, and rationing of water in San Diego is contemplated if there is any serious delay of the scheduled September 1947 completion of the aqueduct.

The interest of the Navy in San Diego as a vital and integral part of the national defense required assurance of an adequate water supply and made it imperative that this project be commenced and be carried to completion. The occurrence of VJ-day in no way minimized the need of the Navy for an adequate water supply for its installations in the San Diego area. Accordingly, the Secretary of the Navy decided in favor of the completion of the aqueduct on condition that the city of San Diego enter into a firm agreement to reimburse the Federal Government for all construction costs.

Senator ROBERTSON. May I interrupt you to ask this question: Was that action taken after the war was over?

Secretary KENNEY. The action for disposition of the aqueduct was taken subsequent to VJ-day.

Senator ROBERTSON. Then, may I ask you to explain this to me? Why, when the war was over, did you decide to enter into this contract to be reimbursed for the actual expenditure to be incurred in preference to referring the matter back to the Congress, let us say, for instructions as to whether to complete the project or abandon it or handle it as the Congress may say?

Secretary KENNEY. Well, along with all of the many other construction projects in the Navy Department, they were all brought up for review after VJ-day. The work had been started and during the earlier negotiations and consideration with Congress, the discussions had always been directed toward an eventual turning over of this project to the city of San Diego.

I want you to appreciate that what the Navy is building here is merely a portion of a water system. The total water system will cost something in the neighborhood of $50,000,000 and this represents a small portion of it.

The CHAIRMAN. Does the Navy claim the right to turn over a construction project of this kind to a city without legislation?

Secretary KENNEY. Not without legislation, Mr. Chairman, but we think there is adequate statutory authority found in the First and Second War Powers Acts.

The CHAIRMAN. But if the War Powers Acts expired before the project is completed, then what authority would there be ?

Secretary KENNEY. The First and Second War Powers Acts have not expired at the present time.

The CHAIRMAN. No; but suppose they did expire! Suppose the project was not completed until after the War Powers Acts had expired?

Secretary KENNEY. You have to look at this thing

The CHAIRMAN (interposing). Then you would have to have legislation, would you not?

Secretary KENNEY. You have to look at this thing in two pieces. First, did we have adequate authority to enter into the contracts for the construction of the project? To that I say "Yes," and that authority is found specifically in Public Law 289 and Public Law 347, which was the appropriations act authorizing us to proceed with this and other public works projects.

The occurrence of VJ-day or the end of the war has no effect whatsoever upon the validity of a contract legally entered into at the time it was entered into.

The CHAIRMAN. Were not thousands of contracts terminated after VJ-day?

Secretary KENNEY. Many contracts were terminated after VJ-day and many contracts were continued. They were reviewed to determine whether or not they should be continued for the maintenance of the Naval Establishment. This would be one which would clearly fall in the second category, because it was decided it was necessary to continue this contract, because of the vital interest that the Navy Department had in San Diego.

The CHAIRMAN. Testimony has been given here to the effect that the Navy contemplated canceling this contract, and then suddenly reconsidered and decided to go through with it.

Secretary KENNEY. Well, the Navy considered this along with many other projects. Everything we had was considered. All construction projects we had were considered. All our contracts came up for examination following VJ-day. We knew that with the surrender of the Japanese our naval activities would be materially reducedwould not be completely eliminated, but would be materially reduced.

The CHAIRMAN. Why was the city of San Diego given only 5 days to decide whether to enter into this contract or not? Why was there such a hurry? Why was there such an immediate importance? I think Mayor Knox testified to that while you were out.

Secretary KENNEY. I did not participate in the proceedings for termination.

Admiral MANNING. One of the reasons was to prevent accrual of damages to the Government due to the contracts which were already in existence, sir. We had a stop order go out, and we had these men

The CHAIRMAN (interposing). Then, you did give the city of San Diego 5 days in which to enter into the contract or have it canceled! Was that the alternative?

Mr. HILL. It was under discussion for a longer period than those 5 days. Under the War Mobilization and Reconversion Act the various departments and agencies were enjoined by the Congress to take a look at all contracts with the understanding that any contracts that were not essential for the continuance of the particular estab

lishment would be terminated, and this came up in connection with the over-all examination of all Navy Department contracts.

The CHAIRMAN. There were four contracts that had been let prior to this time in October

Mr. HILL. And others were in the process of being let.

The CHAIRMAN. What percentage of the entire job did these four contracts represent?

Mr. Hill. About $6,000,000. The amounts obligated were about $6,000,000.

The CHAIRMAN. They were construction contracts ?
Mr. HILL. That is right.

Senator O'CONOR. Mr. Kenney, in order to differentiate between contracts having to do with construction and that of the ultimate disposition, was the same procedure followed in respect to clearance with the Naval Affairs Committee on the distribution?

Secretary KENNEY. At the time the Navy Department proceeded toward the acquisition of the property for the building of the aqueduct, reports were filled with both Naval Affairs Committees of the House and the Senate.

The CHAIRMAN. When was that?

Secretary Kenney. On January 6, 1945, there was submitted a letter to the Hon. Carl Vinson, chairman of the House Naval Affairs Committee, which read as follows:

MY DEAR MR. CHAIRMAN : There is attached hereto a list of public-works projects approved by the Secretary of the Navy for construction under authority of Public Law 279 of the Seventy-eighth Congress, approved April 4, 1944, which did not appear in the break-down of the bill presented to the House Nayal Affairs Committee.

Attached to that letter is a break-down of many projects, and the last one of those to be found on page 3 is Eleventh Naval District, San Diego, Calif., emergency connection between San Diego Water System and Metropolitan Water District of Southern California, total cost of project, $17,500,000; Navy Department, $12,250,000; War Department, $1,750,000; and Federal Works Agency, $3,500,000.

On May 16, we received a reply from Mr. Vinson which says that: This is to advise you that Mr. Drewry and I, constituting a majority of the Subcommittee on Projects of the House Committee on Naval Affairs, today approved the following public-works project.

A similar letter was sent to Senator Walsh. Now, I would like to also point out to the committee, at the time when we were talking about the construction of this project, we also discussed with the committee the fact that it was hoped that arrangements could be worked out with the city whereby the property would be eventually turned over to the city for peacetime operation. That is also contained in the President's report which was submitted to both the House and Senate. At the time we entered into our contract with the city for disposition, a letter was sent again to both committees of the House and Senate on November 3, 1945, which is also attached as an exhibit to my report.

A letter was sent to Senator Walsh advising him of our disposition of the property. This letter advised of the fact that we had entered into the contract and that it was in accordance with the original proposals which had been submitted to Congress at the time we were considering the construction.

And, on the 13th of November, Senator Walsh replied to the Secretary of the Navy, acknowledging receipt of the letter. Well, it is a short letter, and I will read it.

This is to acknowledge receipt of your letter of November 3, 1945, transmitting for my information a copy of the contract dated October 17, 1945, numbered NOy-13300 between the Government (represented by the Navy Department) and the city of San Diego, Calif., providing for the continued construction of the San Diego aqueduct project and its delivery to the city of San Diego, Calif., under specified terms. I shall appreciate your keeping me advised on this project. Sincerely yours,

DAVID WALSH. Senator O'Coxor. Right at that point, then, are we to understand that the Navy considered that it had already the legal authority to make disposition of it, because obviously there is no reference to further congressional action. Are we to understand you did think there was sufficient authority already existing?

Secretary KENNE. That is correct, sir. At the time we had discussed with the committee the construction of the project, we had discussed that there would be an eventual disposition and disposal of it to the city of San Diego.

Senator O’CONOR. Then, what was the purpose of bringing it to the attention of the Senate?

Secretary KENNEY. Because the committee wanted to be kept advised of what we were doing.

Mr. MACOMBER. Mr. Kenney, your position is that Senator Walsh's acknowledgment of the receipt of that letter constitutes a “coming into agreement" as that phrase is used in Public Law 289 ?

Secretary KENNEY. I would construe it to mean that we had come into agreement with the committee at an earlier time and were advising them of developments.

Mr. MACOMBER. You do not have an acknowledgment of receipt from the House committee, do you?

Secretary KENNEY. No; Mr. Vinson's committee did not acknowledge receipt. I mentioned it to him the other day, and he made no comment about it.

Mr. MACOMBER. Were the details of the contract as it was finally negotiated discussed with the committee back in the previous May at the time you received the authority to go ahead!

Secretary KENNEY. No; the details had not been discussed at that time. It was merely that we were hopeful that we would work out some means whereby it could be eventually turned over to the city of San Diego.

Mr. MACOMBER. And at the time you wrote your letter to Senator Walsh, the contract had already been executed? Is that right?

Secretary KENNEY. On November 3, 1945, the contract had been entered into with the city of San Diego for the disposition.

Mr. MACOMBER. Well, is it your contention, then, that without informing the committee of the details of the contract, the Navy Department has authority, based on letters exchanged previously in May, to enter into a contract that, among other things, gave the Chief of the Bureau of Yards and Docks the right every 5 years to set any price that he might see fit as the price which the city of San Diego should pay as the full price of the acqueduct?

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