tion of whether the work properly could be charged to the public funds of any agency under existing law. In conclusion, there have been set forth in this report only such salient facts as appeared necessary to a discussion of the legal issues involved in connection with this project. There are many collateral facts of record in the General Accounting Office, as well as various documents and papers in support of the statements made herein, which will readily be made available if and when desired. Respectfully submitted. LINDSAY C. WARREN, Comptroller General of the United States. After receiving this report it was submitted to the Navy Department for their explanation, and a letter was received from W. John Kenney, Acting Secretary of the Navy, by this committee. I think the members of the committee were furnished with copies of it. The explanation was considered somewhat incomplete by the members of the staff of this committee, and further information was requested, and I will ask to have inserted in the record the reply of the Secretary of the Navy, dated February 1, 1947. We will put in the record the request for supplementary information by the committee under date of February 4, 1947, and the reply of Mr. Kenney, Acting Secretary of the Navy, under date of February 10, 1947. (The papers referred to follow :) THE SECRETARY OF THE NAVY, HON. GEORGE D. AIKEN, Chairman, Committee on Expenditures in the Executive Departments, Washington, D. C. DEAR SENATOR AIKEN: I am writing to you with reference to the Comptroller General's letter of January 27, 1947, addressed to the President pro tempore of the Senate. It is my understanding that this matter has been referred to your committee for consideration. It seems to me that the Comptroller General has made a basic mistake in his approach to the problems which he discusses in his letter. This mistake arises out of the confusion which seems to exist in the Comptroller General's mind with respect to the contracts in question. There are really two types of contracts here involved, rather than only one type, as the Comptroller General's letter would seem to indicate. As a First, there is contract NOy 13300, which the Navy Department entered into with the city of San Diego on October 17, 1945, after construction of the aqueduct was well under way. The Comptrollrer General implies that the Navy Department intends to make illegal expenditures under this contract. matter of fact, far from making any expenditures whatsoever under this contract, the Navy Department will realize the sum of $500,000 a year for the Federal Government, without 1 cent of expenditures under the particular contract discussed by the Comptroller General. (This contract, incidentally, was the contract which I discussed in my letter of June 21, 1946, to the Comptroler General, replying to his inquiry of June 6, 1946. This is the contract, in other words, which the Navy Department entered into on the strength of the First and Second War Powers Acts and the act of July 2, 1940). The second type of contract here involved—a type to which the Comptroller General makes only passing reference in his letter-is the series of contracts under which the aqueduct in question is being constructed. The specifications for these contracts were worked up in early 1945, attempts to obtain quotations were initiated immediately, and the first contract was executed in April 1945. Other contracts in this series were executed in May 1945 and succeeding months. All of this was done in accordance with recommendations of an interdepartmental committee which the President created to study the situation, as summed up in the following statement made by President Roosevelt in his letter of November 29, 1944, to the President of the Senate: "The Bureau of Yards and Docks, Navy Department, has been instructed to construct the emergency water con nection [at San Diego]" S. Doc No. 249, 78th Cong., p. 2). The statutory authorization for these construction contracts is to be found in Public Law 289 of the Seventy-eighth Congress, approved April 4, 1944. This public law was one of the series of blanket authorization acts by which the Congress authorized the Secretary of the Navy to carry out a construction program designed to further the successful prosecution of the war. By prearrangement with the cognizant committees of Congress, the Navy kept the Congress advised of the specific projects which it was undertaking pursuant to the blanket authorization acts. The Chief of the Bureau of Yards and Docks, Vice Admiral Moreell, formally reported the specific project here under discussion to Congress under date of January 6, 1945, by means of letters to the chairmen of the Senate and House Naval Affairs Committees. In the construction of the aqueduct, acquisition of certain lands was necessary. The same authorization act under which the construction was carried out, namely Public Law 289, contains a proviso requiring the Secretary of the Navy to "come into agreement with the Naval Affairs Committees of the Senate and of the House of Representatives with respect to the terms of such prospective acquisitions Accordingly, * * " a full report of the project and of the land to be acquired was submitted to the Naval Affairs Committees of the Senate and the House, and the written approval of the Senate committee was given on May 14, 1945, and the written approval of the House committee on May 16, 1945. The money to pay for the contracts in question was provided by the Congress in Public Law 347 of the Seventy-eighth Congress, approved June 22, 1944. Under the heading "Public Works, Bureau of Yards and Docks," Congress appropriated cash in the amount of $281,060,000, and contract authority in the amount of $1,474,931,400, in order to enable the Navy Department "to enter in contracts for public works equipment, materials, and construction, including collateral public works items and the acquisition of land," pursuant to Public Law 289, already referred to above. There are only two other matters in connection with this subject to which I would like to invite your attention at this time. One is the fact that the Federal Government-principally Navy-installations in the San Diego area, even at their present reduced strength, consume more than 35 percent of the city's annual water supply. The facts which go to prove that San Diego's need for an increased water supply is predominantly attributable to the Navy have been made a matter of public record over a period of several years, and have been the subject of several reports and documents in the Senate and the House. For the convenience of your committee, I am having the facts to which I refer summarized, and a memorandum containing such summary will be forwarded to you next week. The second matter to which I would like to invite your attention is the arrangements which the Navy has made for the disposition of the property in question. As I stated at the outset, Contract NOy 13300 is a contract for the disposition of the aqueduct and does not involve any expenditure of funds, but does provide for a revenue of $500,00 a year to the Federal Government until the full cost of the aqueduct has been recovered. In his letter to you, the Comptroller General concedes that "the Second War Powers Act, 1942, authorizes the lease or other disposition of facilities and property * * * lawfully acquired." Under the circumstances outlined above, I feel that it is clear that the aqueduct constitutes "property * * * lawfully acquired," and it therefore seems to me that the Navy's right to dispose of the aqueduct under the applicable statutes including the First and Second War Powers Acts and the act of July 2, 1940 is clear beyond any question. Very sincerely, Hon. JAMES FORRESTAL, Secretary of the Navy, Washington, D. C. W. JOHN KENNEY, Acting Secretary of the Navy. FEBRUARY 4, 1947. DEAR MR. SECRETARY: I have Acting Secretary Kenney's letter of February 1, 1947, regarding the Comptroller General's report on the San Diego aqueduct and I am very grateful for the information supplied therein. This explanation of the position of the Navy Department will, I am sure, be helpful to the committee. However, the discussion of the statutory authority for the different phases of the project raised one further question which does not appear to be covered in the letter. The proviso in Public Law 289, Seventy-eighth Congress, to which reference is made, requires the Secretary of the Navy to "come into agreement with the Naval Affairs Committee of the Senate and of the House of Representatives" with respect to the terms not only of acquisitions of land but of "disposals" as well. This authorization act is, of course, of a later date than the Second War Powers Act so that, so far as projects thus authorized are concerned, the provisions of section 201, title II of that act, on which your Department relies as authority for the contract with the city of San Diego, would seem to be superseded, or at least limited, by the provisions of the authorization act requiring agreement by the congressional committees. I find no statement, either in the letter to me or in the quotations from your letter to the Comptroller General which are incorporated in his report, to the effect that the prospective terms of the disposal, i. e., of the contract with San Diego, were cleared with the committees. I would be glad to receive your comments on the aspect of the matter. Also, would you please furnish the committee copies (one each) of the Comptroller General's letter to you dated June 6, 1946, and of the approvals of the Senate and House committees dated May 14, 1945, and May 16, 1945, respectively, together with copies of any previous correspondence that may be necessary to indicate the scope of the latter? Sincerely yours, Hon. GEORGE D. AIKEN GEORGE D. AIKEN, Chairman. THE SECRETARY OF THE NAVY, Chairman, Committee on Expenditures in the Executive Departments, United States Senate, Washington, D. C. DEAR SENATOR AIKEN: I am enclosing herewith a memorandum concerning the San Diego aqueduct project to which reference was made in this Department's letter of February 1, 1947, which was forwarded to you by Mr. Kenney as Acting Secretary. With the exception of the Comptroller General's letter of June 6, 1946, which I am also enclosing, all of the correspondence requested in your letter of February 4, 1947, is included in the appendices to this memorandum, together with other factual information which may be of interest. Your letter also requests information with respect to whether the Navy's disposition of the aqueduct received congressional approval as contemplated by Public Law 289, Seventy-eighth Congress. As is set forth in more detail in the attached memorandum, the Congress generally, as well as the Naval Affairs Committees of the Senate and of the House, were fully advised of every major decision relating to the San Diego aqueduct project. The Congress was first advised of the project by the President's communication of November 29, 1944, which reported fully on all phases of the problem. While this communication understandably emphasized the importance of the project to the national defense and the war effort, it also indicated that the aqueduct would have permanent peacetime utility to the city of San Diego and urged the city and the county water authority to initiate early arrangements for its peacetime use. Similarly, the project approved by the Naval Affairs Committee of the Senate and of the House on May 14 and 16, 1945, emhpasized the immediate question of acquisition of the aqueduct right-of-way, but it also indicated that the cost of the project would be at least partly amortized by the city of San Diego. The reasons why it seemed equitable to me that the city should bear the entire cost of the project are set forth in detail on page 6 of the attached memorandum. Contract NOy-13300, under which the city agreed to this decision, was thought of primarily as an essential condition to continued construction of the aqueduct. Although this contract was not formally cleared with the Naval Affairs Committees, as is done as a matter of course with ordinary dispositions, copies of the contract were forwarded by me to such committees in November of 1945. The cognizant committee of the Senate acknowledged receipt of the contract by letter dated November 13, 1945, which appeared to indicate the concurrence of that committee in the action taken under the contract in question. Copies of my letter to the committee, and of the committee's reply, are attached to the enclosed memorandum. The Committee on Naval Affairs of the House has never communicated to me any objection as regards the contract in question, and I have taken that fact to mean that this committee also concurs in the action taken. It seems to me there can be little doubt that the contracts which this Department made for the construction, use, and disposition of the San Diego aqueduct were in the public interest. Construction of the aqueduct has rightly been termed essential to the war effort and the national defense. Such a statement may be misleading, however, to the extent that it implies that the aqueduct is a complete water system rather than merely a conduit for making Colorado River water available for distribution by the existing San Diego water system as it is currently being supplemented by the city. The aqueduct, when completed, will constitute an essential, but only one, part or unit of a complete water system. The balance of the system is owned, maintained, and operated by the city of San Diego. It manifestly makes no sense for the Federal Government to continue to own, maintain, and operate a unit of the system of no particular utility or value standing by itself. Disposition to the city of San Diego, which has always been the contemplation, in order to create an integrated, complete system owned, operated, and maintained by that city, was and is the only sensible course. This leaves for consideration the fairness of the terms of the disposition. I firmly believe the terms are distinctly favorable to the Federal Government, which obtains the assurance of an adequate water supply at nondiscriminatory rates and at the same time is relieved of the costs of construction, maintenance, and operation of the aqueduct. As you know, the city of San Diego is of the opinion that the terms are too favorable to the Federal Government and should be modified. Very sincerely yours, E. W. JOHN KENNEY, Acting Secretary of the Navy. B-48120. COMPTROLLER GENERAL OF THE UNITED STATES, The Honorable The SECRETARY OF THE NAVY. MY DEAR MR. SECRETARY: There has been brought to my attention contract No. NOy-13300 dated October 17, 1945, between the United States, represented by the Chief of the Bureau of Yards and Docks, Navy Department, and the city of San Diego, Calif., for the construction of an aqeduct 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. The pertinent provisions of the said contract are that the United States Government, at its own expense, will 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 the United States by the city in rentals at the rate of $500,000 per annum. Also, the said contract recites that it is made pursuant to the provisions of the First War Powers Act, 1941 (55 Stat. 839), the Second War Powers Act, 1942 (56 Stat. 177), and the act of July 2, 1940 (54 Stat. 712). It would be appreciated if you would furnish this office with a report indicating the particular provisions of the statutes cited which contain authority for the involved contract, together with a statement of the facts and circumstances which are considered to bring said contract within the purview of the statutory authority relied upon. Respectfully, LINDSAY C. WARREN, Comptroller General of the United States. FACTUAL BACKGROUND OF THE NAVY'S SAN DIEGO AQUEDUCT PROJECT Two basic factors led to the Navy's construction of the San Diego aqueduct : (1) The extraordinary depletion of the city of San Diego's water reserves, commencing in 1941 and continuing to the extent that water rationing in San Diego will be necessary unless the aqueduct commences delivery of Colorado River water by the end of September 1947; (2) the necessity for Federal action to assure an adequate water supply for activities of the Federal Government— principally activities of the Navy-which continue to be the largest users of San Diego water and which represent an investment in the area approximately equal to the total private investment. In October of 1944 conditions in the San Diego area had reached a point where President Roosevelt found it necessary to establish an interdepartmental committee to review the problem. The report of this committee was transmitted by the President to the Congress by letter dated November 29, 1944, and has been printed as Senate Document No. 249, Seventy-eighth Congress, second session. In his communication to the Congress, the President characterized the situation as "an impending emergency in the water supply of San Diego County," and advised the Congress: "The Bureau of Yards and Docks, Navy Department, has been instructed to construct the emergency water connection, with the other agencies cooperating. After the war emergency, the Bureau of Reclamation, which will continue its existing relationships with the local interests, will be in a position to assume charge of the aqueduct, and, when suitable arrangements with the local interests have been completed, to build the permanent additional works. I have asked the San Diego County Water Authority, and the city of San Diego, to press negotiations with the Metropolitan Water District of Southern California in order that an equitable arrangement may be completed for the permanent operation of the works, which will have continued value and utility." The report of the interdepartmental committee sets forth the basic information underlying the two factors to which reference has been made above. In summary, the emergency with respect to the water supply of San Diego originates in the city system, and in the increased demands which wartime activities placed upon that system. The water supply of the city of San Diego comes from three principal drainage basins located in the coastal mountains. The crests of the coastal mountains are relatively near to the ocean and the streams are short and of an erratic flow. Because of the seasonal character of the rivers and variable nature of the run-off, the city has necessarily constructed, for water supply purposes, reservoirs to catch and hold the large periodical floods which have appeared approximately at intervals of 10 years, and an adequate water supply must of necessity be predicated on hold-over storage with which to enter the dry cycles. The chief supply is derived from the El Capitan-San Vicente Reservoirs on the San Diego River and tributaries; a secondary supply is from the MorenaBarrett-Otay system; and a small supplementary supply is received from the Hodges Reservoir. The poulation of San Diego in 1940 was slightly over 200,000 and at that time it was predicted that the growth of population would not exceed 350,000 by the year 1960. San Diego's role as a key base in the Navy's conduct of the Pacific war led, however, to an increase in the city's population to about 450,000 as of the early part of 1944. This placed a severe strain upon the city's water supply, the net safe yield of which was 31.9 millions of gallons per day whereas the average use in 1943 was 42.19 millions of gallons per day and in 1944, 45.10 millions of gallons per day. The Navy and other Federal agencies, together with related industrial plants in the San Diego area, had consumed approximately 10 percent of the total amount of water supplied to all users in 1941; by 1944 this figure had increased to over 40 percent, and at the present time is estimated to be 38 percent. The interdepartmental committee summarized the information which it developed in findings of fact which were set forth in Senate Document No. 249, Seventy-eighth Congress, as follows: "Finding No. 1: An emergency impends in the water supply of the city of San Diego and surrounding communities, and an emergency exists in the water supply of Camp Pendleton and other military installations in the Santa Margarita vicinity of San Diego County. These situations demand relief at the earliest practicable time. "Finding No. 2: The Colorado River offiers the only available source from which an adequate, dependable, supplemental water supply can be obtained for the area * * * "Finding No. 3: The present requirement of the military and naval installations, directly connected war industrial installations, and Federal war housing facilities amounts to about 45 percent of the current demand on the San Diego |