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General SEYBOLD. That was inaugurated in February of 1953.
Senator DWORSHAK. Operating about a year now?

General SEYBOLD. Yes, sir. We have been extremely pleased with our experience with the operation into Haiti. It has been greatly beyond, may I say, our expectations. It is shown that due to the call in Haiti now, the present line operating the three ships will cover all costs of operation, including depreciation, and, we think, furnish some significant contribution to the general overhead expense of the company in general. So that it has been both in the line of freight and also in the passenger area quite a paying item to the line. Rather than a deficit, we feel that in 1954 we will come out on the black side of the ledger.

Senator DWORSHAK. There was some consideration given recently to eliminating 1 of 3 ships?

General SEYBOLD. Yes, sir, Mr. Chairman; that has been under consideration by the Board as long as I have been Governor. It was just reconsidered in detail at the next to the last meeting of the Board of Directors of the Company and, in view of the Haitian operation and the fiscal status of the line they have now decided to continue for the time the three-ship operation. If it does not materialize or if it drops off, then they would again reconsider the two-ship operation.

Senator DWORSHAK. The prospects are such, though, that you can justify continued operation of three ships?

General SEYBOLD. Yes, sir.

Senator DWORSHAK. You think you will be operating in the black soon?

General SEYBOLD. We are now, sir.

Senator DWORSHAK. You are now. Have you experienced considerable losses in the past few years in the operation of the shipping Jine?

General SEYBOLD. Well, it has always paid its out-of-pocket er. penses, but of course it has not paid all of its overhead and loading.

Senator DWORSHAK. Any questions, gentlemen!
Senator ROBERTSON. No questions.

HOTEL LEASED

Senator DWORSHAK. Governor, would you discuss the situation with respect to the leasing of the Hotel Washington?

General SEYBOLD. We recently were able to lease the Hotel Washington, which I think is familiar to most of the members of the committee. It is an old hotel that was designed and built by the architect, Stanford White, many years ago, a beautiful place. It is located in Panama. It is in Colon, and out of the zone boundaries. For that reason we were able to lease it to an operating group of Panamanian businessmen. I think the lease is for about $32,500 a year. We think that has been an excellent lease, and we only hope they can make a go of it.

Senator ELLENDER. General, have you obligated yourselves to make repairs there?

General SEYBOLD. No, sir; they maintain the building in the condition as is, fair wear and tear of course excepted.

Senator ELLENDER. When you say $32,000, was that per year?

General SEYBOLD. Per year.
Senator ELLENDER. What will that pay for? ?

General SEYBOLD. That is really rental, and we do furnish a bloc of power. I do not know the exact limits of that, but above it they pay on commercial rates, and we furnish a certain amount of water. But as we have figured the return we get full return of the interest, depreciation, and all of that on the facility.

Senator DWORSHAK. Any other questions? Governor, to what extent do the rents received pay for depreciation of investment, interest cost, cost of maintenance and a portion of the cost of the Canal Zone government; that is, on employee housing?

General SEYBOLD. I assume that this question, Mr. Chairman, is directed at the United States rate housing. At present rents as assessed they cover depreciation of the investment, the interest, the cost of maintenance, but no cost of Canal Zone government as such. The local rate housing, of course, is operated at a loss.

Senator DWORSHAK. Governor, what is your present pricing policy on employee service activities?

EMPLOYEE SERVICE ACTIVITIES

General SEYBOLD. The present pricing policy on employee service activities is that they recover all operational costs; depreciation, interest, general, and administrative expenses.

Senator DWORSHAK. They are not involved in recovering the net cost of the Canal Zone government?

General SEYBOLD. That is correct.

Senator DWORSHAK. Referring to automotive services, Governor, last year you reduced your fleet of passenger cars by 4 and trucks by 62. I note no further reduction is contemplated this year. With the consolidation of towns presently contemplated, would it be possible to further reduce the automotive services?

General SEYBOLD. That is under study. At the time the budget was developed we could not see at that time the effect of the consolidation on our fleet. As I say, it is a current subject with management, and there is to some extent a balancing in the fleet. As we reduce a police station, for instance, then we have to have larger coverage with patrol cars so that there is that balance and at the moment we cannot see any possible reduction on that account.

Senator DWORSHAK. Referring to the telephone system, I note that you showed a net deficit of $23,138 last year and that you have raised the rates to overcome this deficit. Do you now anticipate that you will at least break even on the activity after all the depreciation and interest charges on that?

General SEYBOLD. Yes, sir. Senator DWORSHAK. Governor, what is the status of the first phase of your program to increase the capacity of the canal ?

CONTRACTS ENLARGING CANAL AWARDED

General SEYBOLD. We have awarded contracts for the larger item in the program to increase the capacity of the canal. I am speaking to the first phase, of course, in which we have awarded the contracts for the plugs, which is the larger item. The plans and specifications

for the ventilation blowers have been completed, but not the access shafts. That will be completed along with the pumps on April 1. We have made the award on the plugs and the delivery date for completion of the entire program is on July 1 of 1955.

Senator DWORSHAK. How are the engineering plans for the second phase progressing?

General SEYBOLD. Mostly in preliminary form. We have had discussions with General Electric Co., Sperry Co., and several other companies on the larger problem of navigation in the cut during fog periods and also we have further studies on the removal of the gates by floating them out.

Senator DWORSHAK. What is the total overall cost of the program? For increasing the capacity of the canal?

General SEYBOLD. I will have to furnish that figure and put it in the record. It is $1 million for phase 1. The cost for phase 2 was to be determined by preliminary studies and I think the committee will remember that the proposed program for the company at the present is the advance engineering studies on phase 2 to determine its feasibility,

Senator DWORSHAK. When will that entire program be completed!

General SEYBOLD. We would have phase 1 completed by July 1 of 1955 and at this moment phase 2 really depends on the preliminary engineering studies.

CONVERSION OF POWER SYSTEM TO 60 CYCLES

Senator DWORSHAK. Governor, what is the status of the detailed plans for the conversion of the power system to 60 cycles?

General SEYBOLD. We are progressing quite satisfactorily on that, Mr. Chairman. We are taking the inventory of the industrial and domestic equipment, which will have to be revised. The plans and specifications for the generators, the transformers at the two large hydro stations, are under way. We hope to complete those, and we are on schedule at the moment, at the end of June. We also are in the midst of preparing plans and specifications for the substations at Mount Hope, Summit, Gamboa, and Miraflores.

Senator DWORSHAK. As I recall the original estimated cost of that conversion was about $13 million. Are you still adhering to that figure?

General SEYBOLD. Yes. We have developed nothing to show that that would be very greatly changed.

Senator DWORSHAK. Have you let the first contract for this conversion yet?

General SEYBOLD. No, sir. That will be awarded the next fiscal year.

CANAL ZONE GOVERNMENT-SCHOOLS

Senator DWORSHAK. Governor, considering the Canal Zone government for a few minutes, what class of students are charged tuition in the schools?

General SEYBOLD. Children whose parents are not employees of the company-Government and who are not employees or members of the Armed Forces or any other United States Government agency who attend any zone school; also children of the other Government agencies and Armed Forces attending kindergarten and junior college and

children or dependents of the company-Government employees attending junior college. Our program has been up to date on the basis of sections 105 and 106 of the Appropriations Act of 1954, under which the Government of the Canal Zone would charge the separate agencies for their dependent children in the grades from 1 to 12. We now have a directive from the Comptroller General which states that those agencies who have not had previous authority to pay for the tuition of their children in Cana] Zone schools still have not the authority by virtue of the Appropriations Act of 1954, so that there is some question as to the charges to this group of United States citizens who are employees of the other agencies on the zone. I personally feel, and I feel rather strongly, that this group of citizens who are employees of CAA and others should not be charged tuition for their children. Of course, it means that if we do not charge the individual, from the determination of the Comptroller General it would mean that the Canal Government pays that tuition which in turn, of course, is paid by the company. It isn't very much, but I still hold that the American citizen under those conditions should not be charged tuition for his children in the grades from 1 to 12 inclusive.

Senator DWORSHAK. Governor, section 105 of Public Law 153 states as follows:

Amounts expended by the Panama Canal Company in maintaining defense facilities in standby condition for the Department of Defense and amounts expended by the Canal Zone Government in providing school and hospital services for agencies of the United States other than the Panama Canal Company and the Canal Zone Government, hereafter shall, notwithstanding any other provisions of law, be fully reimbursable to the Panama Canal Company or to the Canal Zone Government, as the case may be, by such other agencies.

Do you have any comment on that?

General SEYBOLD. Yes. I have here the decision of the Comptroller General dated March 3, 1954, and may I read the quote?

Accordingly, I must advise that no Department or agency operating in the Canal Zone or contiguous areas may assume the cost of educational service furnished by the Canal Zone Government to their employees in absence of a statute so authorizing.

Senator DWORSHAK. What percentage of the cost of operating your school system is self-sufficient and what percentage involves subsidies? Can you give us just briefly an estimate of that?

General SEYBOLD. I can't say offhand that I can give you an estimate of that in an amount. It is a very small amount in self-sustaining as any school system is. The tuition amounts are relatively small.

Senator DWORSHAK. You can put that in the record. (The information referred to follows:) The difference between the accrued cost of the Canal Zone schools and the anticipated revenues for fiscal year 1955 is estimated at $1,632,000.

Senator DWORSHAK. What additional legislation would be required to accomplish the intent of section 105 ?

General SEYBOLD. The authority to permit the agencies to provide that tuition in accordance with this ruling of the Comptroller General.

POLICE PROTECTION

Senator DWORSHAK. Governor, there has been some criticism regarding the use of police officers for guard duty at the docks, based on the extra compensation paid police officers due to the hazards involved. Do you care to comment on this?

General SEYBOLD. I think that what was meant here is the docks and other areas where we do use police officers for guard duties. That is under study and changes will be made. There are some problems in the matter as we have conditions there which demand very close supervision and discipline, which is obtained in a police force but hardly in a guard force. There are changes being made in this program.

HOSPITALS Senator DWORSHAK. Governor, I note, referring to hospitals, you propose to replace the X-ray unit at Colon Hospital. If Coco Solo is turned over to the Panama Canal Company I assume it would not be necessary to purchase this unit at an estimated cost of $28,000?

General SEYBOLD. This unit has been the subject of inspection by our hospital authorities and at the present time they feel that it would be necessary to replace the unit at Colon. However, it is still a matter of determination as I am not fully convinced and will have to be before we buy a new one.

INCREASE IN LABOR COSTS

Senator DWORSHAK. Governor, at the time of the visit of certain members of this subcommittee to the zone a few weeks ago we were given to understand that the local labor groups were asking for an increase in local wages. How are such increases budgeted at a time like this, and would this specific increase be reflected in the budged that is now before us?

General SEYBOLD. Mr. Chairman, your question concerns one of the problems of management, of course, of the Government. We must maintain a balance in our labor forces there. The local rate personnel have had no increase in wages since 1951 and after about 3 months of work and discussion the management has granted them a much needed increase in wages. We are not allowed to budget for any increase in wage. After the budget was prepared we gave this because it is a necessity, so that in this 1955 budget there is $100,000 neded for the Government side. The company side we can take care of. It is an increase in wages which management must give. We can't budget for it and I want to assure the committee and the Bureau of the Budget and anyone else that this cannot be assimilated in operations. We feel that due to the mechanics of budgeting it is a distinct and difficult problem to the management of the company and also to the Government, and since the matter has ben brought up by the committee I would ask that $100,000 be placed in the 1955 budget to cover the increased cost due to this increase in labor cost of local rate as applied to the Canal Zone Government.

Senator DWORSHAK. Governor, about a month ago 4 members of this subcommittee visited the Canal Zone spending 3 days there inspecting the various installations and facilities, and holding hearings, and meeting with local citizen groups. What was the general reaction on the part of the people in the Canal Zone and possibly in Panama to that inspection trip?

General SEYBOLD. I may say very sincerely, Mr. Chairman, that the groups, the employees, the management, Panama, and so on, were very, very much pleased with this committee as it visited the Canal Zone the

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