CIVIL FUNCTIONS, DEPARTMENT OF THE ARMY J61 Ejst DOCUMENTS DEPT. HEARINGS CONDUCTED BY THE SUBCOMMITTEE OF THE COMMIT- THURSDAY, FEBRUARY 17, 1949. THE PANAMA CANAL STATEMENTS OF BRIG. GEN. F. K. NEWCOMER, GOVERNOR OF Mr. KERR. General you are here before us, I believe, to justify your request for appropriations pertaining to the Panama Canal. General NEWCOMER. Yes, sir. Mr. KERR. We will be delighted to hear from you, sir. GENERAL STATEMENT General NEWCOMER. The Panama Canal is essentially an international public utility, which aims at recovering all costs, including 3-percent interest on the net capital investment. A number of the activities of the Panama Canal are operated on an entirely selfsustaining basis and produce net profits which are annually covered into the Treasury. However, since tolls levied against vessels transiting the Canal represent the principal item of revenue, and as these receipts are deposited in the Treasury, it follows that appropriations are required to cover the net expense of producing tolls revenues, capital improvements and betterments, sanitation, and civil government. The estimates for the fiscal year 1950 have been prepared on the basis of operating and maintaining the Canal at a high level of efficiency to meet the demands for services required by interests using the Canal and its adjuncts, On this basis the estimates envisage an operating work load at approximately the current level of activity and at present costs of labor and commodities. The total amount appropriated for 1949 was $20,797,813, which, together with $7,456,882 carried forward from prior year appropriations, will make a total of $28,254,695 available for obligation in 1949. The appropriation request for 1950 M707758 1 In 1950 the overhaul of eight locks' miter gates is scheduled, which will involve an additional expenditure. Mr. KERR. When were those locks overhauled? General NEWCOMER. That will take place in the next dry season. Mr. KERR. How often do you overhaul these locks? General NEWCOMER. We try to overhaul them every 4 years, but that program was completely disrupted during the war and, until 2 years ago, there was no overhaul after 1939. Mr. RABAUT. The last time you overhauled these locks was in 1939; is that right-the ones you are referring to now? General NEWCOMв. Yes. They cannot overhaul all of them at the same time, but there is a program covering all of them every 4 years, which means, as we had originally planned it, we would do one-half of them every 2 years. But from 1939 to 1947 none of that was done; so it is quite badly behind schedule. PROPOSED INCREASE IN TOLL RATES Due to the generally increased costs of labor, supplies and materials and the consequent increase in operating expenses of the Panama Canal, the President by Proclamation No. 2775, dated March 26, 1948, prescribed increases in toll rates to the extent of 11 percent per net vessel ton, effective October 1, 1948. On June 10, 1948, Senate Resolution No. 258, proposing the deferment of the tolls increases pending a study and submission of a report by the Senate Committee on Interstate and Foreign Commerce, was introduced. Apparently no action was taken by the Senate in the Eightieth Congress on this resolution. However, by Proclamation No. 2808, dated September 7, 1948, the effective date of the increases was postponed until April 1, 1949, to give the Congress an opportunity to consider the question of the cost of operation of the Panama Canal and tolls to be levied for its use. On January 10, 1949, the chairman of the House Committee on Merchant Marine and Fisheries, introduced House Resolution No. 44, proposing the further postponement of the effective date of tolls increases pending a study and report by that committee. This concludes my general statement. This matter of tolls, of course, is one of great interest to us, because there has been practically no change in the tolls since the Canal was officially opened in 1920 and, as everyone knows, the cost of doing everything has increased so greatly since that time that with the present tolls we cannot hope to earn this 3-percent interest on the investment. Mr. KERR. On what basis do you arrive at your tolls? General NEWCOMER. On what is called the Panama Canal net tonnage of the vessel, which is the carrying capacity of the vessel rather than what it actually has aboard, if it is carrying any cargo or any passengers. It pays 90 cents a ton if it has anything aboard; if it is simply in ballast, it pays 72 cents a ton. The original Panama Canal Act authorized the President to fix the rates and, following a study in 1937, the Congress determined that the maximum rate under this system of measurement would be $1 a ton. The President at that same time fixed the rate at 90 cents a ton. So that he has authority under the law, by Executive order, to raise the rate to a maximum of $1 a ton. That is what was recommended last year and which he did by proclamation, to be effective October 1, 1948. Then, by another proclamation, he suspended that effective date until April 1 of this year, and now there is pending a resolution in both the House and the Senate to make a study of the capital s.ructure of the Canal and the proper basis on which to fix tolls. COMPARISON OF PRESENT SERVICE WITH THAT OF PREWAR YEARS Mr. KERR. Eliminating the amount of service that was rendered through this Canal during the war, how does the service you are now performing compare with pre-war years? General NEWCOMER. The actual tolls collected are getting back now. In 1939, the tolls collected were $23,699,000; in 1948, the last date for which we have exact figures, they were $20,000,000—about $3,500,000 less. We anticipate in 1949, the present fiscal year, $21,800,000 or a little more and, in 1950, the year for these appropriations, $22,000,000 is estimated as the amount of the tolls receipts. Mr. KERR. That gets back nearly to normal receipts? General NEWCOMER. Yes, sir. But we figure in that 10-year period the cost of everything we do has increased about 90 percent; so that the net return to the Treasury is substantially less. Mr. KERR. If the $1 rate was put in effect, how much would that pay as interest on the investment in the Canal? General NEWCOMER. It would increase the tolls about 11 percent. Mr. TABER. It would increase the interest rate about one-half of 1 percent-not quite. General NEWCOMER. Yes, sir; that is just about right. Mr. TABER. It would make the whole earnings about 1 percent over-all? General NEWCOMER. It would make them higher than that. General NEWCOMER. Yes; for 1948, it would be about 1 percent. there is fifty-one hundredths of 1 percent for that year. We figure, roughly, that if we took credit for the free tolls which have amounted to approximately $80,000,000, if we assume those tolls had been paid the return on the net investment since the opening of the Canal would be about 2.5 percent, or approaching the 3 percent. Mr. KERR. Did we charge our allies anything at all for passage through the Canal during the war? General NEWCOMER. They were charged unless they were part of a task force under the command of an American military or naval officer. If they were part of that force, they went through free, just as though they were our own vessels. Mr. TABER. What did you do about the Maritime Commission vessels? GENERAL NEWCOMER. They paid tolls. Mr. TABER. Just like other commercial vessels would? General NEWCOMER. Yes, sir. VALUATION OF THE CANAL Mr. RABAUT. Of course, Governor, it is a little difficult to measure the Canal in terms of dollars and cents because of its great service to the Nation as a stand-by utility in time of danger. General NEWCOMER. Yes, sir. Mr. RABAUT. The value of the Canal, according to your figures, was set at $516,322,000? General NEWCOMER. Yes, sir. Mr. RABAUT. Has it ever been revalued? General NEWCOMER. Of course. it was evaluated originally when they completed construction in 1914. Then a commission was sent down in 1921 by the President to go over the whole financial set-up, and they made a distribution of costs between those that served commercial interests, as distinct from the defense features of the Canal. It continued on that basis for 10 years, when the Bureau of Efficiency, at the request of the Governor, sent down a committee to restudy it, and they arrived at somewhat different conclusions. There were some adjustments made. STATUS OF ENLARGEMENT OF PRESENT CANAL Mr. RABAUT. When I was down there some years age. there was some talk about a canal through Nicaragua. There was a second canal built, was there not? General NEWCOMER. No, sir. Mr. RABAUT. Was it not started or something done on it? General NEWCOMER. No, sir. Mr. RABAUT. Well, there was a great deal of talk here during the war of doing something about it. General NEWCOMER. An enlargement of the present Canal was started. Mr. RABAUT. Was that completed? General NEWCOMER. No, sir. The purpose of that was to provide another set of larger locks than those originally constructed, simply to accommodate the anticipated increased commercial use of the Canal. Mr. TABER. When was that started? General NEWCOMER. That was started in 1939 and then suspended by the Secretary of the Army in 1942, because it was obvious it could not be completed during this past war, and the materials and men were needed at other places. Mr. TABER. How far did they get? General NEWCOMER. They completed excavation for the locks at the Atlantic end and for the locks at Miraflores at the Pacific end. You might be interested in looking at this map which shows the Canal Zone and the Canal. (After discussion off the record:) BREAK-DOWN OF TRANSITS, TOLLS, AND TONNAGES Mr. TABER. How much trouble would it be for you to give us a table which would show the traffic through the Canal by years, segregating it into the tonnage that is free and that which is paid for, and giving the gross amount and the annual? General NEWCOMER. We could do that very readily, Mr. Taber. As a matter of fact, if you are interested in some partial figures, I could read off some figures here on page 6. The third from the last column and the next to the last column give the tonnage that paid tolls and transited without tolls, respectively, during the war years. Mr. TABER. And they give the total transit in number of vessels? General NEWCOMER. Over at the left, yes, sir. Mr. TABER. And they give the tonnage of the toll-paying set-up but not the free tonnage? General NEWCOMER. The last two columns are the tonnage of free transits. Mr. RABAUT. Without objection, we will insert that table in the record. (The table above referred to is as follows:) Mr. RABAUT. Have you run into any new conditions down there that you should tell us about? General NEWCOMER. No, sir; there are no new conditions, but we are trying Mr. RABAUT. You are trying to climb back to normalcy? General NEWCOMER. That is right. One of our principal problems there is housing. Mr. KERR. Do you want to discuss that housing feature later? DISCUSSION OF REVENUES REPAID TO APPROPRIATIONS Mr. WIGGLESWORTH. Let me ask you about page 7. You have a table there entitled "Summary of operating expenses and revenues, fiscal year 1948." The first item is "Revenues from tolls, fees, fines, etc., covered into the Treasury, $20,298,000, and then the next item is "Other revenues, transit division, repaid to appropriations, $8,473,000." What does that mean; what are those revenues, and what does "repaid to appropriations" mean? General NEWCOMER. We have the organization divided into what we call transit divisions and business divisions. The transit divisions do business for which they get reimbursed, and we use those funds as part of the appropriations. Mr. WIGGLESWORTH. That is, you have the equivalent of revolving funds that you utilize in addition to the appropriation and the carryover, amounting to $8,473,000; is that right? General NEWCOMER. Well, it is a revolving fund. Mr. WIGGLESWORTH. One revolving fund? |