dated October 21, 1944, of the interdepartmental committee which had been appointed by President Roosevelt and which reported as follows:

(a) That there existed a water emergency of vital interest to the Federal Government and demanding relief at the earliest practicable time;

(b) Recommended the immediate construction of the San Diego aqueduct by the Bureau of Yards and Docks, with funds to be provided by the Army, Navy, and Federal Works Agency; and

(c) Advised that existing laws and appropriations authorized the undertaking. This report 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 emergency construction work." Under the authority of Public Law 289 of the Seventy-eighth Congress and under appropriations provided by Public Law 347 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 its construction costs. Work was immediately begun and contracts awarded so that as of VJ-day four contracts had been let obligating public works appropriations 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 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; and

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.

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 in 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. This decision was accepted by the city and embodied in contract NOy-13300, dated October 17, 1945.

The implication in the letter of the Comptroller General that the project should be stopped is both inimical to the best interests of the United States from the standpoint of national defense and unwise from the point of view of a business transaction. To stop the project now would mean disaster to the city of San Diego, a closing of military installations, and a loss to the Government of the bulk of funds expended. Abandonment would relieve the city of San Diego of its obligation to repay under contract NOy-13300, and force the sale of an unfinished project as surplus property at probably a small fraction of its cost. This loss should not be foisted on the Government, when the city of San Diego is ready and willing to repay the cost.

The record will show that the Congress has been kept advised, in accordance with the proviso of Public Law 289, Seventy-eighth Congress, of all major decisions in connection with the project including the plan for eventual disposition to the city. The President's letter of November 29, 1944, first advised the Congress of his approval of the report of his interdepartmental committee. Thereafter by a series of letters the Navy Department informed the Senate and House Committee on Naval Affairs as follows:

(a) On January 6, 1945, advising that $12,250,000 of public works funds had been earmarked for the project;

(b) on May 4, 1945, submitting a summary of the project (337-C) indicating that amortization of costs and postwar use by the city were contemplated; and requesting approval of the project which was granted by the Senate and House Committees on Naval Affairs on May 14 and 16, 1945, respectively; and

(c) on November 3, 1945, forwarding a copy of contract NOy-13300 with the information that the project was being continued to completion.

Contract NOy-13300 is clearly authorized by the general provisions of the First War Powers Act and specifically by the provisions of the Second War Powers Act (sec. 2) which provides that the Secretary of the Navy may dispose of property acquired for naval or other war purposes by "sale, lease or otherwise in accordance with section 1 (b) of the Act of July 2, 1940." If the Comptroller General is questioning the wisdom of the contract of disposition I wish to point out that contract NOy-13300 is for the best interest of the Government in assuring both for an adequate and necessary water supply and for the recoupement of its cost. Furthermore, it is in accord with the original report of the interdepartmental committee of the President which contemplated arrangements for peacetime use of the aqueduct by the city. The aqueduct when completed will ⚫ constitute an essential, but only one part or unit, of the complete water system for which the city of San Diego will have expended in excess of $50,000,000 for treatment, distribution, and other facilities. It is manifest that the Federal Government should not own a unit of a system of no particular utility standing by itself.

In conclusion, after a full consideration of all the facts and the law, it is my opinion that the legal objections raised by the Comptroller General are totally without substance and result from a failure on his part to distinguish between the two separate phases of the project, first, the acquisition and construction of the aqueduct under authority and appropriations provided, respectively, by Public Laws 289 and 347, Seventy-eighth Congress, and, second, the disposition of the aqueduct upon reimbursement of construction costs under the authority of the First and Second War Powers Acts and the act of July 2, 1940.

(Copies of letters, statements of factual background, and exhibits appended to Assistant Secretary Kenney's statement were incorporated in the record at the opening of the hearing).

The CHAIRMAN. The committee is recessed until 10 o'clock Thursday. (Whereupon, at 4:50 o'clock p. m., the committee recessed until 10 o'clock a. m., Thursday, February 27, 1947.)

(The following letter furnishing information requested was received by the committee:)

Hon. GEORGE D. AIKEN,

NAVY DEPARTMENT, Washington 25, D. C., February 26, 1947.

Chairman, Committee on Expenditures,

United States Senate.

MY DEAR MR. CHAIRMAN: At the request of the committee, I am submitting the following information on two Navy contracts similar in character to the contracts covering the construction of the San Diego aqueduct, inasmuch as the ownership of the facility is ultimately vested in other than the Navy.

In each instance money was advanced to a municipality or a corporation covering the construction of the desired facility, and the Government is recompensed by a reduction in the monthly rates for the services delivered by the facility. Were the Navy to construct these facilities as Navy projects, they would have to prepare plans and specifications, organize the work, procure rights-of-way, etc.

CONTRACT N406S-14098 DATED 1 OCTOBER 1944

This contract provides that the city of Tacoma, Wash., shall build a 12-inch 150-pound water line, approximately 4,800 feet from the city limits of said city, following various highway routes to the site of a 10-inch water meter located on the Northeast corner of the naval advance base, Tacoma. Construction advance for labor and materials necessary to completely install said line not to exceed $45,000. The contract further provides the manner in which bills are to be computed. Among other features the special provisions of the contract are: "Term of contract.-The contract to be limited to a term of 10 years, with privilege of renewal on terms to be agreed upon prior to expiration of present contract. Provided that clause (2) 'Method of Refunding Construction Advance' shall continue in any contract entered into at expiration of present contract.

"Method of refunding construction advance. The construction advance shall be written off to the full amount of the advance on the basis of 10 percent of all monthly water bills including minimum bills invoiced to and paid by or for the account of the naval advance base depot, Tacoma, Wash., until the amount of

such 10-percent credits on monthly water bills is equal to the amount of the construction advance.

"In the event that the Government abandons or otherwise disposes of the naval advance base depot and terminates use of water, responsibility of contractor for repayment of funds advanced for construction shall cease 15 months after rendition of final bill to the Government. Provided that contractor's obligation extends to any department or agency of Federal Government which may at any time use subject premises.

"It is understood that all right, title, and interest in pipe line and 10-inch meter located at the naval advance base depot, Tacoma, Wash., shall vest in city - of Tacoma after completion of water line construction contract in consideration of Tacoma maintaining pipe line and meter in good operating condition at all times during life of contract."

CONTRACT N406 9542 DATED 21 JUNE 1944

Under this contract The California-Oregon Power Co., Medford, Oreg., shall build a 12-inch cast-iron pipe line of approximately 19,400 feet and install an 8-inch compound meter at the station near the 1,000,000-gallon tank located at the naval air station, Klamath Falls, Oreg., at a cost not to exceed $50,636. Special provisions of the contract are:

“Delivery.—The contractor stipulates that the construction of item 1 shall be completed by December 1, 1945 and that the supplying of water through the new pipe line shall commence on that date or sooner if possible.

"Construction advance.-It is stipulated by the Government and the contractor that the construction advance contemplated herein shall consist of the following: (1) The lump-sum contract price awarded to a subcontractor by the contractor (described as item 1A on sheet 1 herein). It is contemplated that the contractor shall obtain competitive bids from reputable engineering firms for the proposed work. Award shall be made to the lowest bidder consistent with requirements of reasonable delivery (completion date). (2) Government-furnished material. The following list of material shall be furnished the contractor by the Government at the expense of the Government f. o. b. naval air station, Klamath Falls, Oreg. The value of the material as indicated opposite each item is stipulated by the Government and the contractor:

List of Material

"Payment of construction advance.-Immediately upon the execution of this contract the contractor shall be authorized to invoice the Government for the total amount of item 1A, and the Government shall be obligated to pay the full amount at once.

"The contractor certifies that bids were requested and considered in accordance with good commercial procurement procedures, that to the best of his knowledge all bids received were bona fide, and that there is included in the award price no compensation which will result in either direct or indirect benefit to the contractor or to a member of the contractor's firm.

"Government-furnished material listed under paragraph (B) special provisions shall be released to the contractor in such amounts and at such time as may be requested. The Government as represented by Public Works officer, naval air station, Klamath Falls, shall obtain from the contractor a receipt for materials furnished.

"Refund of contract price (total).—Beginning June 21, 1944 all monthly water bills invoiced under contract N406s-18774 shall be subject to a 14 percent deduction until the amount of such credits is equal to the amount of the total payments made under this contract plus the total value of Government-furnished material received by the contractor and valued according to the table appearing under paragraph (B) of special provisions; or until a period of 15 years has elapsed. The above mentioned 15 percent deduction shall be taken on all bills, including any minimum bills. The contractor's obligation to allow a 15 percent credit on monthly bills extends to any department or agency of the Federal Government which may at any time use subject premises."

Copies of the above contracts were furnished to the Government Accounting Office. Respectfully yours,

J. J. MANNING, Rear Admiral (CEC), U. S. Navy, Chief of Bureau.

AQUEDUCT NEAR SAN DIEGO, CALIF.

THURSDAY, FEBRUARY 27, 1947

UNITED STATES SENATE,

COMMITTEE ON EXPENDITURES IN THE EXECUTIVE DEPARTMENTS,

Washington, D. C.

The committee met, pursuant to adjournment, at 10 a. m., in room 357, Senate Office Building, Senator George D. Aiken (chairman) presiding.

Present: Senators Aiken, chairman, Ferguson, Hickenlooper, Thye, McCarthy, Eastland, Hoey, Taylor, Robertson, and O'Conor.

There were present before the committee:

Hon. Sheridan Downey, a United States Senator from the State of California; E. L. Fisher, assistant general counsel, and R. E. Casey, principal attorney, General Accounting Office; James T. Hill, general counsel, Navy Department; Harley E. Knox, mayor of San Diego, Calif., Rear Adm. J. J. Manning, United States Navy, Chief, Bureau of Yards and Docks; Edward Weinberg, attorney, Bureau of Reclamation; Fred A. Heilbron, chairman, San Diego, Calif., water authority; Purl Willis, San Diego, Calif.

The CHAIRMAN. The committee will come to order. Tuesday afternoon we heard representatives of the Navy Department, stating why they felt they had full authority for the building of the San Diego aqueduct, and this morning we will hear from representatives of the General Accounting Office, from which office the report alleging illegal expenditure on the part of the Navy Department was issued.

The representatives of the Comptroller General here this morning are Mr. Edwin L. Fisher, assistant general counsel, and Mr. Ralph E. Casey, principal attorney.

Mr. Fisher and Mr. Casey, we will be glad to hear from you at this time. Will you identify yourselves?

STATEMENTS OF E. L. FISHER, ASSISTANT GENERAL COUNSEL; AND R. E. CASEY, PRINCIPAL ATTORNEY, GENERAL ACCOUNTING OFFICE

Mr. FISHER. I am Mr. Fisher, and this is Mr. Casey, Mr. Chairman. The CHAIRMAN. You are very familiar, of course, with the Comptroller General's report, and you also heard the testimony of persons interested in the welfare of San Diego, and the reasons given by the officials of the Navy Department for proceeding as they did. That testimony was given on Tuesday last, and the committee would now like to have you give us your view of the situation as seen from the Comptroller General's office.

Mr. FISHER. Mr. Chairman and members of the committee, we would like to express the Comptroller General's appreciation in the first

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place for the opportunity to come here and assist you and explain our position, and also to tell you that he is quite pleased with the prompt action you have taken on his report.

As you no doubt know, but I would like to repeat it, we have not questioned the need for this aqueduct or whether San Diego needs the water. We have merely questioned the authority of the Navy Department to execute the construction contract and the subsequent contract with San Diego. The question was brought to the Comptroller General's attention as a result of routine investigation, first in the reclamation offices in that area, which led into the Navy offices out there, and after looking over the investigator's report the question was raised as to the authority of the Navy Department to go ahead with this project. So we wrote a letter to the Navy Department asking the specific statutory authority for the project and the contract with San Diego, and the provisions of such statutes under which they considered they had the authority. The Navy Department replied, citing the First and Second War Powers Acts, sections 1 (a) and 1 (b) of the act of July 2, 1940, and Executive Order 9262, which transferred certain functions to the Navy Department.

After carefully considering their reply, we concluded that the authority relied upon was not, in fact, authority for this project. As a result, our report was made to the Congess. Thereafter, and prior to the time we came up to these hearings, in response to a request from your committee, the Navy Department cited Public Law 289, April 4, 1944, and Public Law 347, June 1944, which is the Navy Department's Appropriation Act for 1945. It was then mentioned by the Navy Department that these acts had not been cited to us because the contract with San Diego was a disposal contract, not a construction contract, and that no appropriation was involved. We questioned that, and in the prepared statement that was presented to the committee we have made some comment on that, and I would just like to read what we have stated there.

First of all, it should be stated that it is a matter of considerable surprise that the said Public Law 289 was not cited in reply to the Comptroller General's request for the statutory authority for executing a contract with the city of San Diego.

At this point let us examine the contract. Article I, subsection (a) provides:

The Government, at its sole expense, shall diligently prosecute to completion a steel and concrete aqueduct.

Can it be seriously contended, in view of the above quoted provision, that the Government did not thereby take upon itself a legal obligation running to the city of San Diego to construct the aqueduct in question? Moreover, it is clear from the letter of the Secretary of the Navy in reply to the Comptroller General's letter of June 6, 1946, that the Navy Department was fully cognizant at that time that the said contract with the city of San Diego was both a construction and disposal contract. Consider in this connection the language on page 2 of the Secretary's reply as follows-and I might state that what I am reading is essentially all of the text of the Navy Department's letter relating to their authority:

The Chief of the Bureau of Yards and Docks, acting by my authority as contracting officer on the subcontract, determined that the accomplishment of