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Reports requested by Corps of Engineers, fiscal year 1949Continued

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STATEMENTS OF BRIG. GEN. J. C. MEHAFFEY, GOVERNOR, THE

PANAMA CANAL; B. F. BURDICK, CHIEF OF OFFICE; R. E. RAMSEY, ATTORNEY; AND L. B. MAGNUSON, BUDGET ACCOUNTANT, THE PANAMA CANAL

STANDARD CLASSIFICATION

Mr. ENGEL. We will now take up the items for the Panama Canal. Brig. Gen. J. C. Mebaffey, Governor of the Panama Canal is here with us.

Do you have a general statement to make? General MEĦAFFEY. I have a general statement, sir. like to have me read it?

Mr. Engel. Yes, please.

Would you

GENERAL STATEMENT

General MEHAFFEY. It has been customary to present to this com...mittee, in connection with appropriation estimates of the Panama

Canal, a summary of operating and capital statistics showing the financial status of the Canal as a commercial enterprise, which except in periods of warfare is and has been its predominant status. That custom has been followed again this year, but it is desirable to point

out again that changed conditions, brought about during and subsei quent to World War II, including those involving pay increases and

the generally rising costs of commodities, bave imposed increased financial burdens on the Panama Canal which result in a less favorable showing from a net revenue viewpoint. It should also be noted that until world-wide economic levels which have a bearing on Canal traffic are better known, the prospective work load of the Canal organization cannot be as accurately determined as would be the case if these conditions were fairly stabilized.

The estimates for the fiscal year 1949 have been prepared from the best available information, on the basis that the Panama Canal and its adjuncts will be operated and maintained at the highest efficiency, in order to continue the expeditious passage of vessels through the Canal and provide for adequate facilities and personnel to meet the demands for basic necessary services.

The justifications for the 1949 appropriation requirements, copies of which have already been furnished to the members of this committee, show in detail the result of the over-all operations of the Panama Canal during the fiscal year 1947 and the estimated obligations and fund requirements for the fiscal years 1948 and 1949.

The estimates for the Panama Canal are presented on a gross basis, including the authorized business activities that are not only selfsupporting but produce a net profit which is covered into the Treasury, and also certain other functions which are independently operated without appropriation from the general funds of the Treasury.

However, as has been customary, the justifications for the regular operation and maintenance, sanitation, and civil government requirements cover only the increases that are requested, while full justifications have been shown for the improvements and betterments to be undertaken in the fiscal year 1949 and for construction, additional facilities. The improvement and betterment items include projects selected from an established advance-planning program.

In addition, the justification material contains general information, prefaced by a digest as requested by the House Committee on Appropriations, through the Director of the Bureau of the Budget, as well as data relative to the requirements under postal operations, and also relative to the existing appropriations for the memorial to Maj. Gen. George W. Goethals and for repatriation of unemployed aliens.

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TOTAL CAPITAL INVESTMENT

The total capital investment of the United States in the Panama Canal as of July 1, 1946, without deducting accrued depreciation, amounted to $712,220,469.37. This amount includes $68,980,089.98

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covering the construction costs of special protective works which have been set up as Canal defense property, and $75,989,997.14 for third locks construction and studies of the means of increasing the capacity and security of the Panama Canal, both of which items, together with accrued depreciation, are deducted from the total capital investment for the purpose of interest calculations in comparison with the net revenues of the Canal.

During the fiscal year 1947, receipts for direct deposit in the United States Treasury as miscellaneous receipts amounted to $18,894,299.09. The net operating expenses, including depreciation and the annual payment by the State Department to the Republic of Panama, but not interest on the investment, and after deducting revenue repaid to appropriations, amounted to $18,073,909.26, leaving a net operating surplus of $820,389.83, compared to $722,196.87 in the fiscal year 1946.

Mr. Engel. That is the total receipts and total revenues, excluding the Panama Railroad?

General MEHAFFEY. Those are the receipts of the Panama Canal which were deposited in the Treasury as miscellaneous receipts.

Mr. ENGEL. Thank you. Proceed.

PRINCIPAL REVENUE FROM TOLLS

General MEHAFFEY. The principal revenue is derived from tolls, which amounted to $17,642,146.24 in the fiscal year 1947, as compared with $14,791,807.14 in 1946. Tolls, together with fees, fines, and profits on business operations, are deposited directly in the Treasury to the credit of miscellaneous receipts. Other earnings received from services and sales are repaid to the appropriation and used to pay the operating expenses of the divisions which furnish the service from which the revenues are derived. Congress thus appropriates from the Treasury for current expenses each year only enough to pay the excess of the expenses over those earnings that are repaid to the appropriations. Fiscal year 1943 was the first year since 1916 in which the revenues of the Panama Canal were not sufficient to cover the ordinary expenses, and this condition continued through fiscal year 1945. Following the cessation of hostilities and the approaching resumption of normal traffic through the Canal, operations in the fiscal year 1947 produced a net surplus of $820,389.83. This favorable improvement in financial results is not expected to continue during 1948 or 1949, because of the overhaul of the Pacific locks in 1948 at an estimated cost of $1,307,440, and commencement of work in connection with the modernization of the electrical facilities on the locks in 1949 at an estimated cost of $970,000.

ORGANIZATION OF CANAL

For purposes of administration and accounting, the divisions of the Canal organization may be considered in three groups: First, transit divisions; second, business divisions; third, special engineering division.

Funds required for capital expenditures; that is, expenditures on new projects, for any part of the Canal organization must be appropriated by Congress.

TRANSIT DIVISIONS

The transit divisions include those that furnish services directly concerned with passage of vessels, such as pilotage, lighthouse and tug

service, lockages, and channel maintenance; those concerned with sanitation and civil government; and those which furnish administrative, accounting, and general engineering services. Transit divisions have some earnings from services rendered which offset a part of their expenses, but the remaining expenses are covered by the appropriation of funds from the Treasury and are properly regarded as a charge against revenue from tolls.

As a matter of theoretical accouting, depreciation charges are set up in the general Canal accounts in respect to depreciable property of transit divisions, but the depreciation shown is not retained or funded -except that pertaining to floating plant. The unfunded depreciation reserve balance for the transit divisions on June 30, 1947— exclusive of floating plant-amounted to $30,382,601.89. Thus, for this part of the organization, the Panama Canal is dependent upon Congress to provide funds not only for current operations, but also for the replacement of worn-out and obsolete plant and for expansion as it becomes necessary to meet the requirements of efficient operation.

BUSINESS DIVISIONS

The business divisions, such as the municipal, electrical, mechanical, and building divisions, are auxiliary divisions set up and managed to furnish supplies and services—including construction work-at reasonable prices to other parts of the organization, to other branches of the Government, to shipping, and to employees. Normally no appropriation from the general funds of the Treasury is required for the operating expenses of business divisions. Last year their expenses were $34,480,827.91, including depreciation. The net earnings for the fiscal year 1947 turned in to the general fund of the Treasury amounted to $1,142,341.02, or 3.2 percent return on a net plant investment of $35,865,808.25 as of July 1, 1946. Accrued depreciation on plant and equipment maintained by business divisions is partially funded.

SPECIAL ENGINEERING DIVISION

The special engineering division was created to plan and supervise the construction of a proposed third set of locks for which funds were initially appropriated under the heading, "Construction, additional facilities.” Effective in May 1942, by direction of the Secretary of War, the project was modified in order, primarily, to release manpower, materials, and equipment for the direct prosecution of the war effort. The amount of $100,000 requested for 1949 is to provide funds for the operation of the special engineering division on a custodial basis, and for continuance by that division of special research programs and studies.

The act of December 28, 1945 (Public Law 280, 79th Cong.), directed the Governor to make a comprehensive review, study, and report of the means for increasing the capacity and security of the Panama Canal to meet future needs of interoceanic commerce and national defense. For this purpose there has been expended to December 31, 1947, approximately $3,866,000 from funds appropriated under the heading of“Construction, additional facilities.” The report covering the review and study was submitted to the President, who in turn transmitted it to the Congress on December 1, 1947. In the event that Congress should authorize commencement of work in the

fiscal year 1949 as a result of that report, a supplemental appropriation would be required in that year to provide for the construction of townsites for construction workers, the mobilization of forces, plant and equipment, and other preliminary work.

COMMERCIAL TOLLS-PAYING TRAFFIC THROUGH THE PANAMA CANAL

Peak traffic through the Panama Canal occurred in the fiscal years 1929 and 1930. Traffic declined during the depression years, but for the fiscal year 1939 attained again approximately the peak level of 10 years earlier. The outbreak of hostilities in Europe produced a decline in traffic between Europe and the west coasts of North and South America, with later on a gradual decrease in some of the other trade routes. Following the entry of the United States into the war, there was a marked decline in commercial tolls-paying traffic and a sharp increase in free transits of public vessels of the United States essentially engaged in the prosecution of the war.

Since the termination of hostilities, traffic has become partially adjusted to peacetime conditions, and the process of adjustment is expected to continue in 1948 and 1949. Commercial tolls-paying traffic increased from 4,032 transits in fiscal year 1946 to 5,107 in 1947 while in the same period there was a decrease of free transits from 5,554 to 1,265. A similar comparison for the 6 months ending December 31, 1947, and the 6 months ending December 31, 1946, shows that the number of tolls-paying vessels increased by 656 transits and free transits decreased by 169.

The following table shows the trend of transits during the 6-month periods ending December 31, 1946, and December 31, 1947:

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The revenue from tolls for the first 6 months of this fiscal year, totaling $9,774,528.12, is greater by $1,738,395.30, or 21.6 percent, than for the first 6 months of last year, and is slightly more than five-sixths of the rate of tolls receipts during the 6-year period from 1934 to 1939, inclusive.

ESTIMATES FOR 1949

Appropriations for the Panama Canal provide funds for the operation and maintenance of the Canal, sanitation and government of the Canal Zone, postal services, and for 1949 for a nominal amount for the custody of records, maintenance of plant, and continuance of special research programs and studies by the special engineering division. The total amount appropriated for 1948 was $21,322,000, which together with $5,929,110 carried forward from prior year appropriations will make a total of $27,251,110 available for obligation

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