OPERATION OF THE PANAMA CANAL COMPANY AND CANAL ZONE GOVERNMENT WEDNESDAY, JULY 7, 1954 HOUSE OF REPRESENTATIVES, COMMITTEE ON MERCHANT MARINE AND FISHERIES, SUBCOMMITTEE No. 3, The subcommittee met, pursuant to recess, at 10 a. m., 219, Old House Office Building, Hon. John J. Allen, Jr., of California, presiding. Mr. ALLEN. The committee will come to order. There will be inserted in the record the letter of transmittal of the statement from Benjamin Kaplan to President Seybold with regard to the Rent Panel. (Letter referred to will be found on p. 152.) Mr. ALLEN. This morning the first witness we will hear will be Mr. LaVern R. Dilweg. STATEMENT OF LAVERN R. DILWEG, REPRESENTING UNITED STATES CITIZENS ASSOCIATION Mr. DILWEG. My name is LaVern R. Dilweg, former Member of Congress and practicing attorney in Washington, D. C. My associate is Emmit O'Neal, former Member of Congress and attorney and former Ambassador to the Philippines, and at present located in Washington, D. C. My associate doesn't need any introduction. He has been on the Appropriations Committee for a long time. With your indulgence, I will read into the record my statement which is very short and I hope that I can elicit some questions from the committee to give you the benefit of whatever I know about the situation down there in Panama. The United States Citizens Association members are composed of United States citizens residing in the Canal Zone, and we are acting as their counsel and Washington representatives. Many, if not all of the members of the USCA chose to establish a home in the Canal Zone upon representation from the United States Government that certain compensation would be given them, including low rental, free medical care, hospitalization, a 25-percent differential in pay, and other so-called fringe benefits. These provided the margin necessary for their needs for a way to prepare for old age after years of service in the Tropics. The Federal Government carried out its inducements approximately 40 years ago and thereby attracted and retained skilled United States workers for the operation in the Panama Canal. Original housing was free and then for many years only a nominal fee was charged for rent. Commodities and services sold by the canal to the employees, were sold at extremely low cost. Liberal leave was provided and for years it was recommended that employees and their families return to their natural climate at least once in every 2 years. The basic cost of living in this area was lower than the cost of living in the United States, which permitted an employee to enjoy a decent standard of living, periodic returns to his home, a possible college education for his children and in many cases, perhaps a home in the United States. During the 40 years of operation of the Panama Canal under the conditions whereby an employee was sufficiently compensated for the disadvantage of working and living in the zone, the canal paid into the United States Treasury, many millions of dollars of profit and the employees were efficient and loyal, and the morale was high. Now when we talk about morale, I have listened intently to the testimony presented before this committee and I must say that I was amazed when Governor Seybold informed this committee that the morale of the worker in the Canal Zone was "reasonably high." I know that the chairman of this committee and some of the other Members of Congress who are sitting here today, are lawyers and as lawyers, respect a statement of fact, upon which they can arrive at their own conclusion, and I am sure Mr. Dies is a lawyer. Mr. DIES. That might be an assumption. Mr. DILWEG. No; I happen to know you, and I was associated with you not too long ago. Bearing in mind that a statement has been made before this committee by the Governor as to the morale being "reasonably high" and by Mr. Brownlow, representing labor that morale was high, but gripes were there, I would like to present to the committee at this time the matters which affect morale, and which in turn you can arrive at your own conclusion. Public Law 814, 81st Congress, made income tax applicable on the Canal Zone for the first time. This reduced the employee's income by approximately 20 percent, with no corresponding increase in salary. Application of this tax was discriminatory in that only citizen employees of the Federal Government in the Canal Zone are subject to the tax, while employees of non-Federal activities such as churches, banks, commissaries, shipping, and oil companies are not taxed nor are the noncitizen employees of the Federal Government in the zone. Naturally, this seems unfair and serves to lower the morale of canal citizen employees. Public Law 841, 81st Congress, placed in effect a new accounting system for the Panama Canal Company. Section 412 (b) of that legislation reads as follows: Tolls shall be prescribed at a rate or rates calculated to cover as nearly as practicable, the cost of maintaining and operating the Panama Canal, together with the facilities related thereto, including interest and depreciation, and an appreciable share of the net cost of operation of the agency known as the Canal Zone Government. Through an administrative decision, the policy was adopted that each separate activity of the Panama Canal Company would recover all costs of its operations despite the inclusion of the words "facilities and appurtenances" related thereto in the basic legislation. The application of this total cost recovery program has resulted in a tremendously increased cost of living for the canal employee. In addition, the employees of the Canal Company and Panama Canal Government have been apprehensive over the representation that they had under the Secretary of War, one Peter Beasley. Mr. Beasley was the adviser to the Under Secretary of War as late as October 1953. As of August 1953, the Panamanian Government requested a review and revision of the treaty arrangement between their country and the United States Government. At this time the adviser to the Under Secretary of War, Mr. Beasley, had access to classified material in regard to any revision of the treaty agreement between the respective countries and as of October 30 left the employment of the United States Government and was employed by the Panamanian Government as an economic adviser. I have with meit is in my briefcase here the original stenographic transcript of the hearing before the Committee on Armed Services in the matter of the Beasley case. I personally believe that his action is reprehensible; however, I will await any action that might be taken in this case by the Attorney General of the United States. Gentlemen, ladies, I think that these facts would certainly affect any worker, be it in Panama Canal or any other place, for, to my knowledge, no one makes a good worker when he has money troubles, which is quite evident in this case. May I, with your indulgence, return to the matter of rents. In some instances these rents have increased more than 100 percent within 12 months. The complete cost of construction, maintenance, interest and all overhead, must be recovered through rental charges. Rents of houses built in the early 1900's have increased to the point where they are out of proportion to the value received by the tenants and the newly constructed housing rents for approximately $100 per month, which few employees can pay. Except for marine activities, almost all commodities and services sold by the canal are sold to the employees who number approximately 3,800-United States citizens. In an attempt to meet the total cost recovery program, the zone prices to its employees have spiraled. It is true that the cost of living has increased in the United States but workers in the United States are not burdened with completely repaying to the Government the cost of building and maintaining the "facilities and appurtenances" in the Panama Canal. The price paid for food, clothing, other necessary utilities, and so forth, must be sufficiently high to cover the cost of construction of the buildings housing the activities, maintenance and interest, depreciation, operating overhead, plus actual cost of the article or service purchased. With this background, one can readily understand the morale of the citizen employee of the canal was extremely low at this point but then the roof fell in when Congress proposed to cut the differential of base pay from 25 percent to 10 percent, with no representation in the National Congress. It was necessary for the employees to band together and send representatives to Washington to plead their case. Thus the USCA was born as a child of necessity, and after explanation by its representatives and others, Congress did not insist on a disastrous reduction in the last session, which in effect, would have reduced the present 25-percent differential for United States citizens to 10 percent, and cause the loss of other fringe benefits. I have listened to the testimony offered to this committee and was positively amazed when the Governor told this committee that the Panama Canal Company had no plan to implement the recommendations of the Booz-Allen-Hamilton report. I personally cannot be so naive as to feel that an administrative agency doesn't suggest to Congress recommendations or legislation needed to make its particular unit operate with precision. The Governor testified before the Appropriations Committee of the Senate on Civil Functions and stated that with the reduction in help it was necessary to give the remaining United States raters adequate compensation and fair treatment. The Senate committee in its report on this same bill concurred in the position expressed by the Governor. The cost of the Booz-Allen-Hamilton report to the United States Government was $38,000. If there is any question about justifying the basic approach to the report, with an expenditure of $38,000, we certainly could require some member from the Company who made the report to appear before this committee and present the necessary evidence. 'On the other hand, it would seem that if the Governor, who is in direct contact with the employee in the Canal Zone, appreciated the fact that they had not been treated properly and, along with his Board of Directors, recommended that the Booz-Allen-Hamilton report be accepted as a solution for the employer-employee relationship in the Canal Zone. I had an opportunity to hear Mr. Newman from the General Accounting Office and his attorney, Mr. Eckert, state that in the transiting of boats through the Canal Zone, we must do equity to the shipper, to the United States Government, and the employee. A great deal of time was spent by the gentlemen from General Accounting Office in stating that their Office, as an adviser to Congress, should be able to place their fingers on the cost of rentals, commodities, and so forth. In that we must agree inasmuch as we feel that certain accounting practices must be carried on in conducting an entity under Federal charter. If we knew how much the housing was watered down by site clearance and other elements, the United States rater would be very happy. In the main, the United States citizen who is working in the Panama Canal Zone objects to having his compensation reduced by an accounting practice that amounts to a subsidy to local raters either in the housing project or hospitalization and medical care. I think the chairman of this committee, the Honorable John Allen, Jr., perhaps placed his finger on the crux of the problem as far as the employee is concerned, when he interrogated Mr. Newman from the General Accounting Office as to the apprehension of the employee as to things that might happen rather than existing conditions. At this point I would like to make a very positive statement that the chairman and the committee as a whole, have done a wonderful job in trying to get at the facts. I also wish to pay a compliment to Howard E. Munro, who presented a very fine statement in his presentation to the committee on July 6. I studied his statement in detail and certainly must agree that he exhausted the subject. Having served in the House as a Member from Green Bay, Wis., I appreciate the extreme difficulties that a Member is up against in analyzing and finding a solution for matters of this kind. With this fine statement in the record, I feel that I can confine my statement to a need as far as the employees are concerned in the Panama Canal Zone, to one of action by this committee now, and if the General Accounting Office and the Bureau of the Budget have other ideas how this problem can be solved, let us bear in mind that the employee is entitled to some immediate action on the part of this Congress. I would like to slant my remarks at this time to the fact that the average GS-5-9 employee of Panama Canal Company, with benefits as recommended by Booz-Allen-Hamilton report, will consist of $5,435. In base salary and $1,359 in differential, plus $652, in rent and transportation allowances, total $7,446-gross extra compensation amounts to 37 percent of his taxable salary. If he bases tax on his full salary and differential, his net earnings would be $6,580 or 36.4 percent of net earnings of his counterpart in the States, exemption of $280 on differential will be necessary to bring his compensation into reasonable gross alliance with the market. On recommended extra compensation-net earnings would rise from $5,800 to $6,760 annually by virtue of $932 in additional compensation provided by partial tax exemption by rent allowance and transportation allowance on leaves. The average employee has a $932 stake in the race against inaction by Congress before adjournment. In two respects, rent and transportation, the recommended program will involve additional costs to the Company. These costs should not be permitted to find their way through accounting allocations into rents or into the prices of goods and services sold employees. I believe that this committee has been adequately informed as to what the Booz-Allen-Hamilton report recommended without reiterating at this point the respective recommendations. The Appropriations Committee of the House made some comment on this report and did criticize same in its minor aspects, but in the basic recommendations said nothing. I believe we have to be practical in these matters and feel that this committee will analyze the picture properly. In conclusion, I wish to suggest that if the General Accounting Office and the Bureau of the Budget or the shippers have any question as to the amounts to be paid for tolls, that the individual employee be given his proper compensation by congressional directive to the Panama Canal Company. In my opinion the Panama Canal Company can give relief to the individuals involved without legislation. I personally believe that it is absurd for the employer to take the position that he is all for certain recommendations and then do nothing about it. You gentlemen on this committee are practical persons, and I think you get my general approach to this matter. In December of last year I spent approximately 10 days of course that makes me an expert-on the isthmus in order to acquaint myself with all the problems first hand. I believe that my visit to the isthmus gave me sufficient contact with the employees to understand their problems and I hope this committee will extend to me the courtesy of asking any questions that might solve those problems. Mr. ALLEN. Do you have any questions? Mr. DORN. Yes, Mr. Chairman. You state here that the individual employee be given his proper compensation by congressional directive to the Panama Canal Company. What do you mean by congressional directive there? |