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Diego, Calif., under a contract executed by the Navy Department with the city of San Diego. The report indicates the reasons why this contract and expenditures of Federal funds pursuant thereto are considered to be in violation of law. Respectfully,

LINDSAY C. WARREN, Comptroller General of the United States.

GENERAL ACCOUNTING OFFICE,

· Washington 25, January 27, 1947. The Congress:

During the course of a regular examination of the accounts and records of the construction engineer, All-American Canal and Gila projects, Bureau of Reclamation, Department of the Interior, there has come to my attention the matter of the construction of an aqueduct running from a connection with the Colorado River aqueduct of the metropolitan water district of southern California near the west portal of San Jacinto tunnel in Riverside County, to San Vicente Reservoir in San Diego County. This project is being financed with funds appropriated for the War and Navy Departments. Since there appears to be involved an expenditure or contract made by a department or establishment in violation of law, the matter is being specially reported to the Congress as required by section 312 (c) of the Budget and Accounting Act, 1921 (42 Stat. 26).

On October 3, 1944, the President of the United States addressed a letter to the Assistant Commissioner, Bureau of Reclamation, designating him chairman of an interdepartmental committee to make a study, a report, and recommendations on methods of financing a proposed construction of facilities to transfer Colorado River water to relieve a critical shortage in the city of San Diego, Calif., and nearby' communities. Other members of the committee thus established were to be designated by the Secretary of War, the Secretary of the Navy, the Administrator of the Federal Works Agency, and the San Diego County Water Authority. The President designated the Bureau of Reclamation as the construction agency for this work when authorized.

This special committee made its investigation and submitted a report, which the President approved and transmitted to the United States Senate by a letter dated November 29, 1944 (S. Doc. No. 249, 78th Cong., 2d sess.). The findings of the committee may be summarized briefly as follows:

That upon the entry of the United States into the war, large military organizations, training camps, and industrial plants were established in and around the city of San Diego; that the extraordinary increase in population resulting from this activity placed a great strain on many community facilities, including the water supply; that should a drought ensue, the supply might be depleted by July 1947 ; that under such conditions, a firm supplement to the existing water supply was deemed necessary; and that because of the importance of its establishments and activities in the area and “their relation to the winning of the war in the Pacific," the Federal Government had a direct and vital interest in assuring, and an obligation to assure, a continued adequate water supply to its own establishments and to the local communities,

The committee accordingly recommended the immediate construction by the Federal Government of an aqueduct connecting with the Colorado River aqueduct near San Jacinto, the cost of such work to be borne by the War Department, the Navy Department, and the Federal Works Agency. Incident to such reconmendation, it was determined by the committee that Federal participation in the project should be on a 100-percent basis; that the facilities were required as a result of Federal activities in connection with the prosecution of the war; that the development proposed was authorized by existing law, mention being made of the First War Powers Act of 1941, the Lanham Act, and the laws relating to Army and Navy construction and Army and Navy appropriations acts; that no additional legislation would be required to undertake the proposed construction during the war emergency; and that the Bureau of Yards and Docks, Navy Department, rather than the Bureau of Reclamation, should be the agency to undertake the emergency construction.

By a letter dated December 6, 1944, the Chief, Bureau of Yards and Docks, Navy Department, advised the commandant, Eleventh Naval District, of the conclusions of said report and of its approval by the President. He stated that the estimated cost of the work was $17,500,000, which cost the committee had tentatively

decided should be distributed among the participating agencies with the Army bearing 10 percent, the Federal Works Agency 20 percent, and the balance (70) percent) being borne by the Navy. The hope was expressed at that time that the construction work would take less than 2 years. And, finally, the said letter made reference to the recommendation of the committee that the city of San Diego should negotiate with the metropolitan water district of southern California with respect to postwar utilization of the new aqueduct.

The records indicate that by check No. 8540253, dated August 28, 1945, the War Department paid $1,500,000 as its share of the estimated cost of the work to the Navy Department. At about the same time the Chief of the Bureau of Yards and Docks called upon the Federal Works Agency for $3,500,000 as its share of the estimated cost. In reply, the Administrator advised that it would be necessary to secure clearances from the Bureau of the Budget and the Appropriations Committees of the House and Senate before the requested funds could be advanced. Later, by letter dated August 30, 1945, the Administrator wrote to the Secretary of the Navy, in part, as follows:

“With the cessation of the war and the onset of demobilization, I am reluctant to attempt obtaining the necessary authority to allocate any funds to assist in the construction of the San Diego war-supply project, unless such allocation of funds by the Federal Works Agency under present conditions should be essential and clearly in the public interest.

"I urge, therefore, that you review this water project in the light of the changed conditions and that you advise me whether the construction of the project, either as planned or with modifications, is necessary and in the public interest and, furthermore, whether you deem it essential and proper that the Federal Works Agency participate in defraying any part of the cost of such project.

“I shall defer taking any further action regarding this matter pending the receipt of your reply to this letter.”

The reply of the Secretary of the Navy, dated October 23, 1945, was, in pertinent part, as follows:

“Subsequent to receipt of your letter of August 30, the entire matter of the construction of this aqueduct has been given thorough reconsideration by the Secretary of the Navy, with the result that a decision has been made to proceed with the work, without modification in design, as a necessary adjunct to the water-supply system of the city of San Diego. Completion of this construction at the earliest possible date is considered to be in the public interest, inasmuch as the prospective requirements for potable water in the San Diego area will not be appreciably diminished in the foreseeable future and the condition of the reserve supply continues critical. This Bureau accordingly proposes to proceed with construction of the project in conforming with the President's original instructions.

“During the restudy of this project, it was considered appropriate to review the financial aspects and future disposition of this aqueduct. With the approval of the Bureau of Reclamation, the Navy Department has entered into an agreement with the city of San Diego, under which the aqueduct will upon completion be leased to the city at an annual rental of $500,000. The city of San Diego will assume responsibility for the maintenance and operation of the line. The city further has an option at 5-year intervals, with approval of the electors, to purchase the aqueduct at its construction cost minus the total amount of rentals to date. The term of the lease is for 32 years unless terminated at an earlier date due to the city exercising its option to purchase. Under this agreement, construction funds advancd by the Navy and other participating agencies will be eventually returned in full to the Treasury.

"As you will recall, the War Department is to share in the cost of this project and that Department's share of the funds already have been transferred to this Bureau. The original construction cost was conservatively estimated at $17,500,000, but it has now been found that because of the favorable low bids received in the cases of contracts already awarded, the total construction cost of the entire project will be considerably reduced. Inasmuch as revised estimates now indicate that the work can be accomplished for approximately $14,500,000, it will now be possible to reduce your agency's share (20 percent) in the participation to $2,900,000, instead of the $3,500,000, previously agreed upon. Any further savings would be returned to the respective agencies on a pro rata basis.

"In reply to the specific question in your letter of August 30, I consider it essential and proper that the Federal Works Agency participate in defraying part of the cost of the project. Since additional funds are required to award the remain

ing construction contracts, it will be appreciated if you will take the necessary steps to arrange for this allocation of funds in the amount of $2,900,000.”

Thereupon, by letter dated November 15, 1945, the Administrator, Federal Works Agency, advised the Secretary of the Navy as follows:

"When the negotiations with respect to this project were first undertaken the Federal Works Agency gave consideration to the allocation of $3,500,000 from Lanham Act funds, solely on the basis of the war-connected need for this facility. With the end of hostilities on August 14, 1945, I immediately took steps to cancel the allocations of all projects which had been allotted but on which construction contracts had not been awarded. This procedure has been followed without exception in the liquidation of the Lanham Act program. Shortly thereafter we were requested by the Bureau of the Budget, acting on directions from the Appropriations Committee, to report the status of our Lanham Act funds as of August 11, 1945. Such report was made and the first supplemental surplus appropriation rescission bill, 1946, which has been passed by the House, recovers into the Treasury all Lanham Act construction funds except $1,500,000 which the Appropriations Committee permitted us to keep in order that we might have funds to meet contingencies arising on something like 500 projects still under construction. As a result of this action, we are without funds with which to participate in the cost of the San Diego aqueduct project.

"I desire to point out to you that in connection with the appropriations made on December 22, 1944, April 25 and July 5, 1945, for the continuation of Lanham Act activities, the Congress inserted language signifying its desire that allocations not be made to projects costing in excess of $250,000. I feel very strongly that this language was inserted as the result of an impression on the part of Members of the Congress that we were planning to make a sizable allocation for the San Diego job.

"In view of the fact that the Navy Department has already completed negotiations with the city of San Diego for the repayment to the Government the cost of this projert spread over a period of years, it would appear to me that it would be far more desirable to have the project financed in its entirety by Army and Navy funds rather than to bring the Federal Works Agency into the picture,

"I regret that my reply cannot be of a more favorable nature.”

The contract between the United States, represented by the Chief of the Bureau of Yards and Docks and the city of San Diego, to which reference is made in the above-quoted correspondence, was executed under date of October 17, 1945 (Noy-13300). Briefly, it provides that the Federal Government, at its own expense, shall prosecute to completion the described aqueduct—the estimated cost of which is stated to be $14,500,000 and the estimated completion date May 1947; that, upon completion, the aqueduct will be turned over to the city of San Diego upon a lease basis; that, under such lease, the city will be required to repair, maintain, and operate the aqueduct but that title thereto will remain in the United States until its "true cost” has been paid to the United States by the city in rentals at the rate of $500,000 per annum; and that, during the term of the lease, the city shall have an option to purchase the aqueduct from the Federal Government upon either of two alternattive sets of described terms, both of which contemplate payment of the “true cost” of the aqueduct. The maximum term of the lease is fixed therein at 32 years. And, finally, the contract recites that it is made pursuant to the provisions of the First War Powers Act, 1941 (55 Stat. 838), the Second War Powers Act, 1942 (56 Stat. 177), and the act of July 2, 1940 (54 Stat. 712).

It is reported that all contracts for the construction of the San Diego aqueduct have been awarded, and that, as of April 15, 1946, the cost to the Navy was $13,503,500. Latest information indicates that the work is over 50 percent completed and, according to present estimates, should be completed by November 1947.

Under date of June 6, 1946, I wrote to the Secretary of the Navy calling attention to the said contract with the city of San Diego and requesting that there be furnished a report indicating the particular provision of the First and Second War Powers Acts and of the act of July 2, 1940, which contain authority for the involved contract, together with a statement of the facts and circumstances which are considered to bring the contract within the purview of the statutory authority relied upon.

The reply of the Secretary of the Navy pointed out that the project was initiated on instructions from the President, following the report of the special committee, discussed hereinbefore, and stated that, under the circum

stances, the subject contract is considered to be one for the expansion of facilities necessary in the interest of the national defense, and authorized, as in the case of all facility contracts, by the statutes cited. The remainder of the letter is as follows:

“Under the First War Powers Act the President issued Executive Order No. 9262, authorizing the Secretary of the Navy to exercise the powers authorized by subdivisions (a) and (b) of section 1 of the act of July 2, 1940. Under Executive Order No. 9001 the Secretary of the Navy was authorized to enter into contracts without regard to the provisions of law relating to the making of contracts.

“Section 201, title II, of the Second War Powers Act provides :

“ The Secretary of War, the Secretary of the Navy, or any other officer, board, commission, or governmental corporation authorized by the President, may acquire by purchase, donation, or other means of transfer, or may cause proceedings to be instituted in any court having jurisdiction of such proceedings, to acquire by condemnation, any real property, temporary use thereof, or other interest therein, together with any personal property located thereon or used therewith, that shall be deemed necessary, for military, naval, or other war purposes, such proceedings to be in accordance with the Act of August 1, 1888 (25 Stat. 357), to any other applicable Federal statute, and may dispose of such property or interest therein by sale, lease, or otherwise, in accordance with section 1 (b) of the Act of July 2, 1940 (54 Stat. 712). Upon or after the filing of the condemnation petition, immediate possession may be taken and the property, may be occupied, used, and improved for the purposes of this Act, notwithstanding any other law. Property acquired by purchase, donation, or other means of transfer may be occupied, used, and improved for the purposes of this section prior to the approval of title by the Attorney General as required by section 355 of the Revised Statutes, as amended.'

“The pertinent provisions of the act of July 2, 1910, referred to in Executive Order No. 9262, and section 201, title II, of the Second War Powers Act, are as follows:

“ 'That (a) in order to expedite the building up of the national defense, the Secretary of War is authorized, out of the moneys appropriated for the War Department for national-defense purposes for the fiscal year ending June 30, 1941, with or without advertising, (1) to provide for the necessary construction, rehabilitation, conversion and installation at military posts, depots, stations, or other localities, of plants, buildings, facilities, utilities and appurtenances thereto (including Government-owned facilities at privately owned plants and the expansion of such plants, and the acquisition of such land, and the purchase or lease of such structures, as may be necessary), for the development, manufacture, maintenance, and storage of military equipment, munitions, and supplies, and for shelter; (2) to provide for the development, purchase, manufacture, shipment, maintenance, and storage of military equipment, munitions, and supplies, and for shelter, at such places and under such conditions as he may deem necessary; and (3) to enter into such contracts (including contracts for educational orders, and for the exchange of deteriorated, unserviceable, obsolescent, or surplus military equipment, munitions, and supplies or other military equipment, munitions, and supplies of which there is a shortage), and to amend or supplement such existing contracts, as he may deem necessary to carry out the purposes specified in this section

“(b) The Secretary of War is further authorized, with or without advertising, to provide for the operation and maintenance of any plants, buildings, facilities, utilities, and appurtenances thereto constructed pursuant to the authorizations contained in this section and section 5, either by means of Government personnel or through the agency of selected qualified commercial manufacturers under contracts entered into with them, and, when he deems it necessary in the interest of the national defense, to lease, sell, or otherwise dispose of, any such plants, buildings, facilities, utilities, appurtenances thereto, and land, under such terms and conditions as he may deem advisable, and without regard to the provisions of section 321 of the Act of June 30, 1932.'”

Thus, the prime question very simply is whether the provisions of law cited in the Secretary's letter do, in fact, provide authority for the construction of the San Diego aqueduct, the cost of which is to be charged principally-in the first instance at least—to appropriated funds of the Navy Department.

Under title I of the First War Powers Act, 1941 (55 Stat. 838), the President was authorized to redistribute functions among the executive agencies and to transfer any duties or powers from one existing department to another. As

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pointed out by the Secretary of the Navy, the President, pursuant to the authority so conferred, issued Executive Order No. 9262, dated November 5, 1942, whereby the Secretary of the Navy was authorized to perform and exercise, on behalf of the Navy Department, the same functions, powers, and duties as were authorized to be performed and exercised 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.

Subsection (a) of said section 1 provides, in pertinent part, that in order to expedite the building up of the national defense, the Secretary of War is authorized, out of moneys appropriated for the War Department for national defense purposes, to construct, at military posts, stations, and other localities, facilities for the development, manufacture, maintenance, and storage of military equipment and supplies and for shelter, under such conditions as he may deem necessary. Subsection (b) authorizes the Secretary of War to provide for the operation and maintenance of any such facilities, and, when he deems it necessary in the interest of the national defense, to lease, sell or otherwise dispose of any such facilities under such terms and conditions as he may deem advisable.

While, admittedly, the Congress gave the President broad powers in respect to the transfer of functions among agencies during the war emergency, it did retain, by an express provision, its control over the funds to be used in the performance of such functions. Thus, section 3, title I, of the said First War Powers Act, 1941, provides : “That for the purpose of carrying out the provisions of this title, any moneys heretofore and hereafter appropriated for the use of any executive department, commission, bureau, agency, governmental corporation, office, or officer shall be expended only for the purposes for which it was appropriated under the direction of such other agency as may be directed by the President hereunder to perform and execute said functions, except to the extent hereafter authorized by the Congress in appropriation acts or otherwise.”

Said section 3 can have but one meaning. Its terms are clear and unambiguous. It restricts the extent to which the expenditure of appropriated moneys is to be affected by a transfer of functions under the act. And it must be construed as providing that a transfer of a function from one department to another does not ipso facto make the appropriation of the second department available for the performance of the transferred function. Rather, it provides that the funds of the first department must continue to be expended for the purpose for which appropriated albeit under the direction of the second or performing department.

Application of the provisions of said section 3 to the matter under consideration here leaves inescapable the conclusion that the cited provisions of law provide no authority for the use of Navy appropriations for the construction of the San Diego aqueduct. While the President had authority to transfer to the Secretary of the Navy the powers bestowed by the Congress upon the Secretary of War under sections 1 (a) and 1 (b) of the act of July 2, 1940, his authority with respect to the funds to be used for such work was meticulously circumscribed by the Congress in said section 3.

While the Second War Powers Act, 1942, authorizes the lease or other disposition of facilities and property, it can only be construed as relating to facilities or property lawfully acquired and contains no authority to carry on projects for which appropriated funds otherwise are not available. It appears to have no proper application to the present case.

Moreover, there are certain other factors to which the attention of the Congress should be specifically directed. The act of July 2, 1940, is described in its title as having for its purpose "To expedite the strengthening of the national defense.” And conditions existing at the time of its passage amply demonstrate that the statute was not intended as permanent legislation, but only to meet a temporary emergent situation. It was passed almost a year and a half before the entry of the United States into the war, at a time when every effort was being expended to prepare the defenses of this country for any eventuality in connection with the war in Europe. While it was provided by subsequent legislation (act of June 5, 1942, 56 Stat. 317) that the provisions of the said act should remain in force “during the continuance of the present war and for 6 months after the termination of the war," there would seem to be serious doubt that its provisions contemplated the undertaking-after the surrender of Germany and Japan and the cessation of actual hostilities—of a long-range project such as the construction of the San Diego aqueduct which, even at the outset, it was estimated, would take about 2 years to build. So, there is involved not only a question of an expenditure being made from Navy funds instead of Army funds, but essentially a ques

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