file a brief of counsel for the city discussing the legality of what the city did-although I do not think we are trying the city of San Diego. The CHAIRMAN. The committee will take that under advisement, and it presumably will be made a part of the record. I think that is customary committee procedure-taking it under advisement so that any member of the committee may have the opportunity to find any objectionable matter in the document.

I cannot imagine what it would be. That is simply a matter of courtesy to the members of the Committee, and the Chair does not have the slightest objection to making that part of the record, and I doubt if any other member of the committee will have.

Senator FERGUSON. I do not have any.

(The opinion of J. F. DuPaul, city attorney of San Diego, Calif., follows:)

Mr. T. G. CHANDLER, Attorney at Law

OCTOBER 22, 1945.

(Care of Capt. Kirby Smith, Bureau of Yards and Docks),

Washington, D. C.

DEAR MR. CHANDLER: I am enclosing three copies of a memorandum supporting the power of the city of San Diego to enter into the lease with the United States Navy for Colorado River aqueduct.

I trust you will find same in order.
Very truly yours,

J. F. DUPAUL, City Attorney.

MEMORANDUM SUPPORTING POWER OF CITY OF SAN DIEGO TO ENTER INTO A 30-YEAR LEASE WITH THE UNITED STATES NAVY FOR THE COLORADO RIVER AQUEDUCT

Article XI, section 18, California Constitution, states:

"No * * * city * * * shall incur any indebtedness or liability in any manner by or for any purpose exceeding in any year the income and revenue provided for such year, without the assent of two-thirds of the qualified electors thereof, voting at an election to be held for that purpose, nor unless before or at the time of incurring such indebtedness provision shall be made for the collection of an annual tax sufficient to pay the interest on such indebtedness as it falls due, and also provision to constitute a sinking fund for the payment of the principal thereof on or before maturity, which shall not exceed 40 years from the time of contracting the same Any indebtedness or liability incurred contrary to this provision * shall be void." The charter of the city of San Diego (statutes 1931, p. 2838), section 76, provides:

*

"The tax levy authorized by the council to meet the municipal expenses for each fiscal year shall not exceed the rate of $1.34 on each $100 of assessed valuation of the real and personal property within the city. In addition to the foregoing tax levy, the council, if necessary, shall levy annually a sum sufficient to meet the requirements of the pension funds herein provided for the police and fire departments and the city employees' retirement fund. No special tax shall be permitted except as expressly authorized by this charter. The foregoing limitations shall not apply in the event of any great necessity of emergency, in which case they may be temporarily suspended, provided that no increase over said limits, except as in this charter prescribed, shall be made in any fiscal year unless authorized by ordinance adopted by the vote of two-thirds of the electors of this city voting on the proposition, and provided further, that no indebtedness shall ever be incurred by the city of San Diego for public improvements which shall in the aggregate exceed 25 percent of the assessed value of all real and personal property of such city, anything in this charter contained to the contrary notwithstanding. This limitation on the part of the city to incur indebtedness shall be construed to include any indebtedness which may be incurred by special taxes or by the voting of bonds by the electors."

Section 179 of 18 California Jurisprudence on the subject of Municipal Corporations, says:

"A city has the right to make contracts otherwise unobjectionable, to continue for a series of years, and to provide for payments at different times. Such a contract is not within the prohibition of section 18, article XI, of the constitution, even though in the aggregate it requires the payment of more money than will be in the municipal treasury during any one year, if the annual payments do not exceed the income in any year, as the sole debt or liability created is that which arises from year to year in separate amounts as the work is performed."

The author cites, in support of this language, a number of California cases, among them being Doland v. Clark (143 Calif. 176; 76 Pac. 958). In this case the city of Sacramento entered into a contract for the lease of the Gamewell system of automatic fire alarm telegraph works, the lease to run for a period of 5 years, the city to pay $390 per month rent each and every month during the lease, and the city was given the privilege of purchasing the plant and system at any time during the lease for a flat sum, provided that if the city elected to purchase it within 2 years, then the amount paid as rental was to be credited as part of the purchase price and deducted therefrom. A second contract provided a system of police telegraph which the city leased upon the same general plan. In this case the court said:

* * *

"The city had the right to make contracts, if otherwise unobjectionable, to continue for 5 years, and to provide for payments thereunder at different times. San Francisco Gas & Light Co. v. Dunn (62 Calif. 585); Riehl v. City of San Jose (101 Calif. 442). The monthly rental under both contracts was $690. This amount would not become due until the appellant had performed his contracts and put the systems contemplated by the contracts in operation. The amounts to become due on completion of the contracts by appellant might never become a liability upon the city. A sum payable upon a contingency is not a debt, nor does it become a debt until the contingency happens. In order for these contracts to appear void under the constitution it must appear that an indebtedness or liability has been incurred for some year exceeding the income and revenue provided for such year. In order for them to be void under the charter it must appear that a liability has been created against a fund in excess of the amount of money existing in the fund. Neither proposition appears here. There may be ample funds to pay the rental when it accrues as provided in the contracts, if it ever should accrue. We cannot distinguish this case in principle from McBean v. City of Fresno (112 Calif. 166; 53 Am. St. Rep. 191). In that case the authorities in other States are reviewed and the provision of the constitution analyzed and construed. It was there held that a contract made by the city of Fresno with McBean, by the terms of which McBean agreed to take care and dispose of the sewage of the city for a period of 5 years for the sum of $4,900 per annum, payable quarterly, was a good and valid contract, subject to there being money in the proper fund to make the quarterly payments as they should become due."

Later California cases on this subject uphold this rule. In Krenwinkle v. City of Los Angeles (4 Calif. (2d) 611); 51 Pac. (2d) 1098) it is held a lease of land to a city for a term of years does not create an indebtedness or liability in excess of the rent presently due and is not invalid under the debt limitation provision of the constitution.

In Los Angeles v. Offner (19 Cal. (2d) 483; 122 Pac. (2d) 14) it is held that the debt limitation provision (Constitution, article XI, section 18) is not violated by a proposed agreement for leasing city land, the construction of an incinerator thereon and a leasing thereof to the city for a definite amount to be specified in the bid, where the transaction constitutes a lease with reasonable terms and an option to purchase, where the city has no present intention to purchase and is not required to exercise the option to protect its prior investment in the form of rental payments and where the amount of rentals to be paid in a single fiscal year, together with other city liabilities, will not exceed its income and revenue for such year.

THE CITY OF SAN DIEGO HAS POWER TO ENTER INTO LEASES OVER A TERM OF YEARS

In article I, section 1 of the city charter, the city is vested with powers: 66* * * May own and acquire property within or without its boundaries for either governmental or proprietary, or any municipal purpose, either by succession, annexation, purchase, devise, lease, gift, or condemnation, may own and operate public-utility systems, including the joint or sole operation

* **

and ownership of utilities for the purchase, development, and supply of water and electrical power for the use of the city and its inhabitants and others; and generally shall have all municipal powers, functions, rights, privileges, and immunities of every name and nature whatsoever now or hereafter authorized to be granted to municipal corporations by the Constitution and laws of the State of California."

In section 2 of article I, the city:

"In addition to any of the powers now held by or that may hereafter be granted to it under the constitution or laws of this State, shall have the righť and power to make and enforce all laws and regulations in respect to municipal affairs, subject to the restrictions and limitations provided in this charter;

The supreme court of this State has repeatedly held that the power given by section 2, article I of the city charter makes such city, under the present constitution, sections 6 and 8 of article XI, all supreme on municipal affairs and that such charter is not a grant of powers but a limitation of powers. See section 95, 18 California Jurisprudence on Municipal Corporations. See also City of Oakland v. Williams (15 Cal. (2d) 542, 103 Pac. (2d) 168); Butterworth v. Boyd (12 Cal. (2d) 140, 82 Pac. (2d) 434); Los Angeles Railroad Corp. v. City of L. A. (16 Cal. (2d) 779, 108 Pac. (2d) 430); West Coast Advertising Co. v. City and County of San Francisco (14 Cal. (2d) 516, 95 Pac. (2d) 138).

In this latter case the supreme court said that a charter under the present constitution is no longer a grant of powers but is rather an instrument which accepts the privilege granted by the constitution of complete autonomous power with respect to municipal affairs and which otherwise serves merely to specify the limitations and restrictions upon the exercise of the power so granted and accepted. It follows that any such power, not expressly forbidden, may be exercised by a municipality, and any limitations upon its exercise are those only which have been specified in the charter.

It is further held in the same case that the enumeration of some powers in the charter does not exclude the exercise of powers not enumerated, except as limited by the charter and the constitution.

There is no provision in the San Diego city charter which restricts or limits in any way the power of the city to enter into leases, except the provisions of the charter above quoted as to contracting for indebtedness in excess of the revenue of any one year.

Mr. HILL. Mr. Chairman, I dislike having to ask Mr. Fisher of the General Accounting Office but I think the record now shows-and I think he ought to be offered the opportunity of reconsidering that in the Comptroller General's judgment the Navy Department acted

in bad faith.

Mr. FISHER. Oh, no.

Mr. HILL. I did not think he meant that.

Senator FERGUSON. In administrative capacity, I think he said.

Mr. FISHER. I suggested in conclusion that if the committee did not agree with the legal conclusions that the contract was illegal, at least we thought they would have to conclude that it was abuse of administrative discretion-I would not go so far as to say "bad faith,”. but that the proper procedure was not followed.

Mr. HILL. As long as the record does not show-bad faith.

Mr. FISHER. I did not intend to indicate fraud or anything like that.

Senator FERGUSON. Bad judgment.

Mr. FISHER. Bad judgment was what I meant.

The CHAIRMAN. We will recess until 2 o'clock this afternoon, and if the representatives of the Navy will be here at 2 o'clock they will have an opportunity to reply to anything that has been said this morning.

(Mr. Fisher submitted the following memorandum :)

MEMORANDUM RE THE SAN DIEGO AQUEDUCT PREPARED BY E. L. FISHER, ASSISTANT GENERAL COUNSEL, AND R. E. CASEY, PRINCIPAL ATTORNEY, GENERAL ACCOUNTING OFFICE, FOR THE COMMITTEE ON EXPENDITURES IN THE EXECUTIVE DEPARTMENTS, UNITED STATES SENATE

Mr. Chairman and members of the committee; the Comptroller General has asked me to express to the committee his appreciation for the opportunity afforded his representatives to appear here today to express the views of the General Accounting Office with respect to this matter of the construction of an aqueduct near San Diego, Calif., and to give the committee every possible assistance in its examination of this matter. Also, the Comptroller General is especially gratified that his special report to the Congress concerning this matter is being given such prompt consideration.

It would appear unnecessary to review the facts and circumstances leading up to this project. The salient facts are set out in the Comptroller General's report. However, in order that the committee may thoroughly understand the basis upon which it was determined that this matter properly should be brought to the attention of the Congress, I should like to review briefly the legal questions raised in the report.

Under date of June 6, 1946, the Comptroller General addressed a letter to the Secretary of the Navy calling attention to contract NOy-13300 with the city of San Diego for the construction and lease of the aqueduct here in question and to the recitation in the said contract that it was executed pursuant to the provisions of the First War Powers Act, 1941, the Second War Powers Act, 1942, and the act of July 2, 1940. There was requested a report indicating the particular provisions of the statutes cited which contained authority for the involved contract, together with a statement of the facts and circumstances which were considered to bring the said contract within the purview of the statutory authority relied upon. The reply of the Secretary of the Navy referred to the report of the President's special committee and to the findings contained therein, stated that the Chief of the Bureau of Yards and Docks had determined that the accomplishment of the provisions of this contract were necessary in the interests of the national defense, and then quoted the provisions of section 201, title II, of the Second War Powers Act, and sections 1 (a) and 1 (b) of the act of July 2, 1940 (54 Stat. 712).

Section 201 of the Second War Powers Act authorizes the Secretary of the Navy to acquire by purchase or by condemnation proceedings any real property, together with any personal property located thereon, that shall be deemed necessary for naval purposes and to dispose of such property by sale, lease, or otherwise, in accordance with section 1 (b) of the act of July 2, 1940. Confining consideration for the moment to the question of the authority of the Secretary of the Navy to undertake this construction project and to expend the appropriated funds of the Navy Department in connection therewith, said section 201 may temporarily be passed over since it provides only the authority to acquire the land or rights-of-way necessary for the construction of the aqueduct. Section 1 (b) of the act of July 2, 1940, concerns primarily the authority to dispose of facilities and likewise is not pertinent to the construction phase of the project. Hence insofar as concerns the authority to expend public funds to build the aqueduct, there was considered in the report the remaining provisions of law cited by the Secretary of the Navy, namely, section 1 (a) of the act of July 2, 1940. That act was passed, as stated in its title, to expedite the strengthening of the national defense. Specifically, it provided authority in the Secretary of War to construct, out of moneys appropriated for the War Department, plants, buildings, facilities, utilities, and appurtenances thereto at military posts, et cetera. However, by title I of the First War Powers Act, the President was authorized to transfer functions from one existing agency to another; and, pursuant to the authority so conferred, he issued Executive Order No. 9262 dated November 5, 1942, authorizing the Secretary of the Navy to perform, on behalf of the Navy Department, the same functions, powers, and duties as were authorized to be performed by the Secretary of War on behalf of the War Department by the provisions of subsections (a) and (b) of section 1 of the act of July 2, 1940. Admittedly broad authority was conferred upon the President by the First War Powers Act of 1941, which was enacted within 2 weeks after Pearl Harbor. However, it might be argued that what the Congress actually intended was only to authorize the President to transfer a particular function from one department to another in situations where he considered the second department to be better equipped or in better position to perform that function; that upon such

a transfer the entire function would then become the duty of the second department; and that there might be transferred along with such function the personnel, records, and other property of the first department pertaining to the performance of such function. This view, if adopted, would even provide a basis for questioning the authority of the President, by Executive Order No. 9262, to grant to the Secretary of the Navy the authority possessed by the Secretary of War in connection with the construction of facilities at military posts. In other words, a distinction might well be made between the authority to transfer a function and the authority to bestow upon any, or every, other department of the Government the powers similar to those which the Congress had conferred upon a particular department. But, it will be noted, this phase of the matter is not questioned in the report of the Comptroller General.

What is questioned is the authority of the President to make available for the work authorized by section 1 (a) of the act of July 2, 1940, the funds of the Navy Department. And, on this point, it is the view of the General Accounting Office that the Congress has made itself unmistakably clear as to its intent by the specific provisions of section 3, title I, of the First War Powers Act. Said section provides, in effect, that in connection with the transfer of a function under the authority of the act, the moneys appropriated for the use of the first department shall be expended only for the purpose for which appropriated under the direction of such other agency as may be directed by the President to perform such function, except to the extent otherwise authorized by the Congress.

Applying the provisions of the said section 3 to the situation here under consideration, there can be but one conclusion. Even if it be assumed that the Congress intended the President to have practically limitless authority to extend to other departments any powers which the Congress previously had bestowed upon a particular department, it would seem that it must be conceded that the Congress has specifically retained control over the extent to which appropriated funds might be used in carrying out any such assimilation of powers. Consequently, as was stated in the Comptroller General's report, it is considered that the provisions of said section 3 constitute an absolute bar to the use of naval appropriations for the performance of such work as is authorized only by section 1 (a) of the act of July 2, 1940, and Executive Order No. 9262.

The other point which was raised in the report of the Comptroller General serves to strengthen the questioned propriety of the execution of the contract. It was conceded by all concerned that this project would take approximately 2 years to complete. In other words, even at its inception it was known that it would not be available for use as an aqueduct until the latter half of the year 1947. The act of July 2, 1940, was passed, as previously indicated, to expedite the strengthening of the national defense prior to our entry into the war. The First War Powers Act was passed to expedite the prosecution of the war effort. In view of the express purposes of these two statutes, which had been cited by the Secretary of the Navy as his authority to construct the aqueduct, the Comptroller General posed for the consideration of the Congress the question of whether the general provisions of said two statutes should properly be regarded as authority for any such long-range project as was here involved. And of significance in connection with this question is the fact that it could not have been known at the time the determination to continue this project was made whether, shortly thereafter and long before its completion, there would not have been issued a formal termination of the national emergency or even the consummation and ratification of a formal treaty of peace. In other words, to put the question simply, is there not involved here a project concededly undertaken pursuant to wartime authority which, from a practical standpoint, definitely was for peacetime use?

Thus far, this statement has been devoted solely to the legal phase of the matter as it appeared at the time the report of the Comptroller General was prepared. However, by a letter of February 1, 1947, addressed to the chairman of this committee, the Secretary of the Navy has made reference to the provisions of Public Law 289, approved April 4, 1944, as constituting the statutory authorization for the construction work. Hence, it is appropriate at this time that comment be made with respect to this statute as well as to certain statements and contentions which have been made since the date of the report.

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. In recent discussions concerning this matter, it has been suggested that