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employee families in Washington, D. C. These two lists would be adjusted for equivalence by tested statistical methods which the Bureau has developed. On the basis of our experience in computing the Consumer Price Index, it is estimated that the final lists would comprise a total of about 300 items each. These items would then be priced in Washington and in the zone. The Bureau would provide estimates of the cost difference between Washington and the zone for the total budget and for each of its major components, including food, apparel, housing, and other goods and services.

These estimates could be made available within 1 year after the start of the project. It is our understanding that the Administrator will require an annual calculation of the budget differences thereafter. For this purpose we would reprice the budget each year in the zone. For the Washington prices we would use data collected for the Consumer Price Index. The initial expenditure survey results, with possibly some modifications to take account of unusual developments, should serve as an adequate framework for the differential cost estimates for 5 years or more. If the estimates are to be provided annually for longer periods, however, it would be necessary in the course of time to conduct a new expenditure survey among zone employees.

If the Bureau is to perform this service for the Administrator, funds must be provided to cover the necessary costs.

Senator DUFF. Mr. Eckert, would you and Mr. Newman come back for a few minutes?

STATEMENT OF CHARLES E. ECKERT, LEGISLATIVE ATTORNEY, OFFICE OF THE COMPTROLLER GENERAL, ACCOMPANIED BY W. A. NEWMAN, ASSOCIATE DIRECTOR OF AUDITS-Resumed

Mr. BOURBON. In General Seybold's statement the other day he made the categorical statement that none of the activities now being carried on could be discontinued even if they were not self-supporting. He was asked whether this meant, for instance, with reference to the steamship line that they couldn't do away with 1 ship and operate on the remaining 2 in order to reduce their losses. He didn't say this couldn't be done, but he said that generally they would prefer not to do it, and that they felt that they could make a better financial showing by carrying commercial cargoes from Haiti and by picking up tourists.

The question that would be interesting for the record, is, in your audits down there, have you come upon any activities that are the subject of losses each year that in the opinion of the General Accounting Office might properly be reduced or done away with entirely and thus reduce the losses in connection with them?

Mr. ECKERT. Mr. Newman, if it is all right with the chairman, could probably cover that.

Mr. NEWMAN. Mr. Chairman, we could go on for about 2 hours, if you wish to.

Senator DUFF. I don't wish to.

Mr. NEWMAN. I think we can cover pretty much the major activities. We have attended the hearings that have been held for S. 2167 through the past few weeks. Questions have been asked regarding the Panama Line. We have made an extensive examination of the Panama Line and have consulted with other steamship owners who operate the same routes and for the past 3 years we have recommended that some consideration be given to the discontinuance of 1 ship; also, that consideration be given to using the Port of New Orleans.

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Also, in our study of duplicate facilities, the operation of the Canal Zone, if you have ever been fishing, is like looking into a can of worms. Everything is interrelated. The military is so tied up, not alone in direct control of the management of the Company, with the commanding officers, but taking the area of MSTS, MSTS operates ships to Puerto Rico and to the Canal Zone and returns sometimes to New Orleans and New York.

The Panama Line operates out of New York to Port-au-Prince, Haiti, to the Canal Zone.

None of the ships are operated to capacity except rarely during certain periods of time when the employees come back, as far as

passengers.

As far as cargo goes, we haven't found where the ships have been fully loaded. Possibly some of the MSTS, when they are transferring troops back and forth to the Canal Zone or Puerto Rico. In 1952 we recommended in a report on duplicate facilities that the Secretary of the Army, that the Governor, that the Board of Directors, consider utilizing one steamship line. They operate now in the neighborhood of 5 ships-2 MSTS, 3 Panama Line.

Governor Seybold testified they are still considering it. That is the answer we get every year, still considering it. We have contacted MSTS. They have characterized the Panama Line as a commercial line rather than a Government operation.

We feel that there could be marked savings made if the operations were consolidated. That is one, say, alternative. The Hoover Commission has recommended such. With regard to the Panama Line, we have figured that the cost of transporting a passenger is in the neighborhood of about $170, which is about the same as the minimum tariff to any tourist.

Mr. BOURBON. Is that one way?

Mr. NEWMAN. That is one way. That was necessary on account of the new home-leave travel bill that was passed in August of last year.

Recently the American President Lines has contacted the Secretary of the Army and stated, in a proposal, that they would be interested in operating the three Panama Line ships, and their survey has gone far enough to state in the letter, signed by its president, that it would save $1 million a year. We personally feel, in the General Accounting Office, that something should be done: First, eliminate the duplicate facility and second, cut down the loss. With regard to losses on the Panama Line, in 1955, the loss will be about half a million dollars. We feel that those losses on the basis of the allocation formula are made up in tolls revenue. That half million dollars is made up of a number of different items. We have found that the reporting of the Panama Canal Company is not consistent. For example, we had $200,000 of expenses in the New York office for administration expenses, bookkeeping expenses, paying the bills, all in that area.

For years and years they have charged those expenses partly to the steamship line and partly to their procurement activities in New York City. That is normal business practice, to put accounting and financing operations near where the operation is, so the management will have full utilization of the books and records in determining daily costs and other information necessary for an efficient operation. In 1955, for the first time, they pulled the $200,000 down into the Canal

Zone books and threw it into corporate charges. So from their contributory concept, as they call it, it means that that will be borne primarily by the tolls.

The depreciation on the ships was changed. We seem to be going through an era, in order to keep the steamship line going, that we juggle the figures on depreciation, accounting expenses, change the policy, so the steamship line as near as possible will break even.

It is true a few years ago that the Haitian Government requested the Panama Line to stop at Port-au-Prince. We understand from the management-there aren't separate records kept on the operationthat it has been profitable. Without that business the loss may double. But that is strictly commercial business.

We personally think, Mr. Chairman, that something should be done with the Panama Line.

Mr. ECKERT. In substance, we may sum it up, as a result of the survey of the operations, we found that they could carry the traffic which they actually did carry with 2 ships, as distinguished from 3, and that they could have disposed of at least 1 ship. In addition to that, we found a duplication of transiting facility between New York and the canal as between MSTS and the Panama Line, and recommended that some consideration be given to determine whether they couldn't coordinate at least those services to handle the Government's business in the Canal Zone.

This later matter that Mr. Newman has brought up about possible offers from private industry to take over the line is something that may develop into another avenue of correcting this matter.

Mr. BOURBON. Do you recall any investigation or study of the repair yard, ship repair yard, and how that operation has been working out?

Mr. NEWMAN. I will say this: There were some changes made. I think it was Captain Emerick that came in from the Navy. He is a specialist in shipyards. It is his lifework. He frankly is a civilian, just called back to active duty to go to the Canal Zone to set that shipyard-it is a small one-up on a more or less self-sustaining basis. I met him and after only 15 minutes with him I knew that he was on top of the job. We talked the same language. He had put in controls, he was very receptive to changes that would eliminate waste and have a better control of lost time. The operation there was greatly improved.

Mr. ECKERT. I wonder, Mr. Newman, do you know what the loss factor was? Was it a loss factor when we first looked into it? Has it improved?

Mr. NEWMAN. There are still losses, when you consider the allocation of all costs to it. That shipyard, by the way, is used by the Navy. There has been quite a bit of discussion about the operation of it. The large percentage of the ships that are overhauled and repaired in that small shipyard are the Navy, or the company tugs and barges and the small craft. But everything has been done under Captain Emerick's direction to curtail expenses and operate as near as possible on a self-sustaining basis.

Mr. BOURBON. Äre the Panama Steamship Line ships repaired there?

Mr. NEWMAN. In all my visits and in all the records we examined, the Panama ships are not repaired in the Canal Zone.

Mr. BOURBON. They don't use their own repair yard?

Mr. NEWMAN. No, sir; the management of the Panama Line claims that the costs are too high. I could go into other operations, the marine terminal for example.

Senator DUFF. I am sorry that I have to leave. You may continue, Mr. Bourbon.

Mr. BOURBON. I think it would be helpful if you would discuss those terminals for the record.

Mr. NEWMAN. About 3 years ago, in our survey of the marine terminal operations that is, the stevedoring and the handling of cargo from one pier to another and from one vessel to another-we found, by a very simple survey, that the Company was not even recovering the cost of the various gangs that worked on the ships. As a result thereof the rates, stevedoring rates, were increased. However, the Company has not kept on top of its operating costs. For the year 1955 there will be in the neighborhood of a half million dollars of costs not recovered.

That, again I want to say, is after our allocations of administrative expenses, of Canal Zone Government costs, interest, and depreciation. We feel in that area, where we are serving strictly the public, rates should be sufficient to cover all costs. It is rare that a battleship or a cargo vessel will come in there except for MSTS. The Navy has its own piers for tankers and those types of vessels.

What should be done-and it goes back to the point of what is in S. 2167, and that is good, sound business management, people that will keep on top of the costs from day to day, and if prices need to be raised to recover costs, they will do so.

Mr. BOURBON. Would you say that these terminals or all of them are necessary adjuncts of the canal operation?

Mr. NEWMAN. Actually the terminals themselves are used for the Company and for some of the other military where MSTS docks, and commercial vessels who pick up cargo and go down the east or the west coast of South America.

The Panama Line cargo, of course, more than 50 percent of it is commercial, which is put on those docks and transhipped either across the isthmus by truck to Panama City or loaded on other vessels to go to other ports.

The treaty mentions these terminals, and some day these operations may be turned over to the Republic of Panama, if and when they build their own marine terminal piers.

Mr. ECKERT. This would indicate then that it is not an essential part of the transiting activity.

Mr. NEWMAN. Except to bring in the food, clothing, and raw materials that are necessary to operate the canal and run the commissaries. Mr. BOURBON. There are several terminals at each end?

Mr. NEWMAN. Yes, sir; they are at both ends. The basic operation is on the Atlantic side. There are piers on the Pacific side but the activity is not as great on the Pacific side.

Mr. ECKERT. I think if we may set out our position here, Mr. Bourbon, it is that we believe that many of these activities relate to the transiting and that if they do, they certainly become a part of the operation. As a part of the operation, while we agree and recommend most strongly that the costs be reduced, or the costs be recovered, or

any losses reduced to an absolute minimum, as a result or in the final analysis, the loss or whatever the operation is, must eventually be charged to tolls.

Mr. BOURBON. Do you feel about the terminals and some of the others that where you suggest a reduction of one-third in the operation of the steamship line-let's say one-third, a reduction by getting rid of 1 of the 3 ships-is it possible if not to eliminate some of the other activities like the marine terminals, at least to reduce operations or consolidate operations and thus reduce the deficit?

Mr. ECKERT. I don't know that we could really answer that question. I think probably your industrial bureau, your yard, is a particularly fine example. Is it possible for the canal operation to go on without the use of some facility for drydocking? Could they possibly use a portion of it and thus economically, let's say, reduce the size or the operation and let the commercial ships do the best they could to beat it up to the coast of of America to be repaired, or possibly maintain some small emergency repair station there?

Frankly, I think some special study would have to be made as to whether they could operate without the industrial bureau. If they could, of course, I think it should be done away with. If they can't, then we must operate it. Your question, then, comes down to operating it as economically and efficiently as you can. If it is necessary to the operation of the canal, and if there is a loss as a result, the loss would be charged against the total operation. If, as a practical matter, it could make a profit, O. K., the profit would be used to reduce the cost of operation of the canal.

Mr. BOURBON. If the Dominican Republic completes the $7-million repair yard on which they have made good progress, I imagine some of the ships would find it of interest before they entered the canal to have the repairs done at Ciudad.

Mr. ECKERT. Historically, the docks and yards have been a real problem. For one thing, the priority accorded military vessels. One of the things we ran into there is that no one could ever really know how much a ship was going to cost to get it out of there once you put it in. We do believe great improvement has been made in that area. As Mr. Newman pointed out, it has a good business-type operation today. While it is still accruing losses on its operation, those losses, I am sure, have been reduced.

The basic determination of what facility you actually need to make the operation successful as a transiting operation is one that I don't believe we could answer.

Mr. BOURBON. Thank you very much. I think that these figures and views for the record will be very helpful to the committee. Gentlemen, this, I believe, finally concludes our hearings on the Panama Canal, except that we will be receptive to any further statements which any interested parties care to make.

(Whereupon, at 12:10 p. m., the hearing was concluded.)

(Subsequently statements were received for the record from W. H. Brunner, Cururdu, Canal Zone, dated March 12, 1956; from the Northwest Marine Terminals Association, Seattle, Wash.; and from William S. Tyson, Bowen Building, Washington, D. C., as counsel for the Panama Canal Pilots, as follows:)

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