D

Pt. II-A (4) Indicate the trends in recent years in the proportion of total
expenses of the Canal organization by operational activities.

Answer: The attached tabulation indicates trends in the proportion of total
expenses by operational activity.

1 Includes printing plant, grounds maintenance, community-custodial services operating expenses, general canal expense
and for fiscal years 1966 through 1971 includes Tivoli guest house operating expenses. Other expense for fiscal years
1966 through 1970 also includes expense for sea level canal support division.

2 Net cost of Canal Zone Government has been recast for fiscal years 1973 through 1975 to include in net cost amounts
reimbursed by the Panama Canal Company for its share of education, hospital, and fire protection costs.

Per-
Amount cent

Amount cent Amount cent Amount cent Amount cent Amount cent Amount cent

Pt. II-A (5) Indicate the recent trend in the expenditure of funds for the use of outside consultants and analysts by the Canal organization. What have been the reasons for any changes or trends in this regard?

Answer: The level of consultant and advisor services for the Panama Canal Company is a minor cost, never exceeding 1⁄2 of 1% of total expenses in any one year. In relation to total expenses this cost has varied from a low of 0.15% in 1973 to a high of 0.42% in 1970, as may be seen from the following tabulation:

Throughout the ten year period from 1966 to 1975, consultant usage has included services in the areas of enginering studies; management information systems; tolls studies relating to methods of assessment, sensitivity, and traffic forecasts; and various computer applications.

Increases for consultant services were required in 1970 and 1974. In 1970, in addition to the above type of services, the Company employed a consulting firm to conduct a comprehensive organization and management survey of Panama Canal activities and to recommend cost reductions. The unusual increase in 1974 reflects employment of consultants to perform economic research relative to evaluation of toll rates.

Pt. II-A (6) Indicate the trends in the revenues and expenses the Canal Zone Government vis-a-vis the Panama Canal Company. If the proportions of the total Canal budget for each of these sister organizations have changed significantly, indicate the reasons.

Answer: In the past ten years, 1966-1975, the net cost of the Canal Zone Government has represented, on the average, some 15.8% of total Panama Canal Company costs, and, additionally, has not varied significantly from the average in any year (High 1973-16.7%; low 1975-14.6%).

In general, the trend of the Canal Zone Government vis-a-vis the Panama Canal follows the same inflationary pattern.

The following tabulation shows, by year, how the revenues and expenses of the Canal Zone Government and the Panama Canal Company have increased over the 1966 base.

Pt. II-A (7) Specify, for each program and function of the Canal organization budget, the causes of increased expenditures (e.g., wages, workload, requirements, depreciations) and the relative weight of each of these causes in increased or decreased expenses.

Answer: Per telephone conversation with Mr. Terry Modglin, the response to this question is to cover detail analysis of actual operations for fiscal years 1973-1975. The attached exhibits compare fiscal years 1973 and 1975 operating expenses and present an analysis of the increases in expense by operational activity. A summary of the variations by cause is included in the answer to question 2.

STATEMENT OF OPERATING EXPENSES FOR FISCAL YEARS 1973 AND 1975

1 Wage increases have been determined consistent with the description contained in the answer to question A-2. 2 Employment levels decreased 78 man-years by 1975. This was primarily due to the transfer of towboat personnel to the Navigation Service and control activity and the transfer of the guard force to the newly formed Canal Protection Division 3 The increase in the cost of services received from other Company activities reflects principally wage and material cost escalations.

The increase in depreciation results from the initiation in 1974 of depreciation of the channel and other excavations. The depreciation of these assets was recommended by the Comptroller General and was included in the 1974 budget as approved by the Congress.

5 The increase in other expenses results primarily from escalations in the cost of fuel and other materials.