Capital with a mass transit system-to continue to have safe and certain use of the Panama Canal. Though $34 million is a good deal of money to my constituents and yours, I, myself, believe we can afford that cost a lot better than we could to spend untold millions to repair the damage caused by sabotage to any of the locks or to Lake Gatun. Or a lot better than we could afford the millions of dollars it would take to support the 100,000 troops General McAuliffe testified would be needed to protect the canal against a 10,000-person guerrilla force. I am aware from having listened to the debate over the last few weeks that some of my colleagues have cited a variety of problems they have with the treaties. I hope I have clarified some of the points, and I urge my colleagues not to turn these treaties down for financial reasons. Frankly, the figures I have discussed lead me to conclude that the cost argument is a red herring. As chairman of the Budget Committee you do not often hear me saying this-but I think $34 million per year is a fair price to pay for what we would gain from these treaties: assured, continued use of an essential waterway. In the context of the historical evolution of our relations with Panama, our commercial and military interests in the canal, and our international position, it is clear to me that the advantages of these treaties to both the United States and Panama far outweigh the costs involved. In consenting to the ratification of these treaties, we will not lose the canal. On the contrary, we are taking the steps necessary to gain and maintain safe and certain access to this international passageway. Americans have always taken great pride in the building and operation of the Panama Canal-and rightfully so. It was a brilliant technological and medical feat. Today, we are being called upon to redefine the status of this important waterway, a symbol of economic and political independence for a friendly neighbor to the South. These treaties are an opportunity to reaffirm our strength while standing by our ideals and our interests, because in this case, they coincide. Mr. President, I ask unanimous consent to have printed in the Record the Budget Committee staff's cost table, plus the views of the Congressional Budget Office and the administration about this table. so that Members of the Senate may have access to the details underlying the budgetary conclusions which I have stated in my prepared remarks. There being no objection, the material was ordered to be printed in the Record, as follows: Total payments to Panama for property rights land use, and water rights under the treaty of 1903 Title and treaty rights: Payment to Republic of Panama.... Payment to individual property owners. Million $10.0 4.0 Madden Dam area land rights 1924-32__. 0.4 Payment to Panama for annuity: 1913-20 (capitalized as construction costs). 1921-51 (dollar value in gold changed, 1933)_. 2.0 11.0 1952-77 (dollar value in gold changed, 1973 and 1974). 45.9 Total payment to Panama for property and water rights______ 73.3 ! It should be noted that this chart was updated on February 26 by the Senate Budget Committee staff. New material is based on CBO and administration estimates. 2 Expected impact taken from fiscal year 1979 President's budget, unless otherwise noted. This table explicitly assumes that the treaty payments to the Republic of Panama are paid out of Canal Commission revenues and the Commission is self-sustaining. No adjustment is made for inflation in the future. $ Net of $500,000 reimbursed to the Treasury by Panama Canal Company. This cost represents changes in the company's fund balance with the Treasury which fluctuate from year to year. In recent years the fund balance has been increasing not decreasing. Should the Commission take a corporate form these fluctuations would likely continue with little net effect over the Treaty period. Canal Zone Government costs represent changes in fund balances and unrecovered capital appropriations. Capital appropriations are repaid over the useful life of the asset required. Cost savings in this line are partially offset by increased capital costs in line 8 and 12 for equipment purchases and repairs to schools and hospitals absorbed by DOD. Assumes requirement for this interest payment will be deleted by implementing legislation, as proposed by the administration. In recent years, annual interest payments have averaged between $18,000,000 and $20,000,000. Civil Service Commission estimates the unfunded liability created by an early retirement plan would be $148,000,000. $9,200,000 represents the annual payment necessary to amortize the unfunded liability over 30 yr. The $3,200,000 estimate includes $1,500,000 for DOD contribution for employee health benefits, $1,400,000 recurring capital investment in buildings and equipment, and $300,000 net cost of educating dependents of canal enterprise employees transferred to DOD. This does not include any additional hospital costs DOD may absorb after the 3d yr as the population being served is halved and the reimbursable population is reduced even more. The magnitude of any additional costs depends on the extent DOD is able to reduce fixed costs in relation to the reduced population. NA-Not available at this time. Administration estimates are underway. 18 Preliminary estimates used by Lieutenant General McAuliffe, in testimony before Senate Armed Services Committee, Jan. 24, 1978. "This estimate assumes that the medical evacuation helicopters and the dental clinics being considered by DOD are one-time costs attributable to the assumption of hospitals and schools by the DOD. The other construction and equipment costs appear to be routine replacement and repair items which will recur through the treaty period. An allowance for these costs is included in line 8 with no assumption on the timing purchases being made. 13 The preliminary DOD estimate of $3,000,000 to $17,500,000 for this line includes only the U.S. matching contribution. The withdrawal of both the employee contribution and the matching U.S. contribution are outlays in the year when withdrawn. Costs, therefore, are double the DOD estimate. Only the payment of the U.S. will require enabling legislation and appropriations. All withdrawals represent payments made in previous years to the civil service retirement fund and eliminate future liabilities to employees withdrawing their funds. Conceptually, this payment will substitute for future payments and should not be added to the 20 yr total, line 21. 12 Preliminary DOD estimate. These employees are not covered by the U.S. civil service retirement system. Some are enrolled in commercial retirement plans. 14 Assumes new borrowing authority will be included in implementing legislation. Canal Company has $40,000,000 borrowing authority under current law, which administration proposes to continue under Canal Commission. Under the assumption of a self-sustaining Commission, the borrowing authority would not be drawn upon. 15 Based on 21-yr cost difference of annual items plus known one-time costs. No adjustment for inflation in annual costs were made. Only lines 5, 8, and 8a are affected by inflation. 1 Same as line 21 with the additional 9 yr payments to the civil service retirement fund. "Assumes that the contingent liabilities proposed in the $345,000,000 foreign aid package do not represent an increase over current overall levels for these programs. CONGRESSIONAL BUDGET OFFICE, Washington, D.C., February 25, 1978. Hon. EDMUND S. MUSKIE, Chairman, Committee on the Budget, DEAR MR. CHAIRMAN: In response to your request of February 23, 1978, CBO has reviewed the estimate of costs associated with the Panama Canal Treaty as prepared by the staff of the Senate Budget Committee. To expedite a response, the attached table retains the format and methodology developed by the staff of the Budget Committee with suggested adjustments in estimates and footnotes. The concept of cost used is similar to the estimated costs used in CBO Section 403 cost estimates. It is not an estimate of required appropriations. No attempt was made to spread costs by fiscal year or to inflate costs using current economic assumptions. The estimate assumes the Treaty payments to the Republic of Panama will be paid out of canal revenues and the Canal Commission will be self-sustaining. The Canal Company has authority to seek appropriations to cover operating losses and similar authority may be sought for the new Commission. We are continuing to review Administration studies concerning the financial viability of the canal. The attachment contains some changes from our letter to the Foreign Relations Committee. It contains our best estimate of the cost items and their magnitude available at this time, subject to the above limitations and assumptions in the footnotes. Should you so desire, we would be pleased to provide further assistance. Sincerely, ALICE M. RIVLIN, Director. DEPARTMENT OF STATE, Washington, D.C., February 25, 1978. DEAR MR. CHAIRMAN: Thank you for your letter of February 23 on the economic aspects of the Panama Canal Treaties. We find the staff's estimate to be within the general range of cost estimates noted in the letter from Secretaries Vance, Brown and Alexander of February 10 to you and other Senators. The staff's summary has been discussed with the Department of Defense, and they have made certain specific observations which are contained in the enclosed memorandum. We would like to offer the following comments on the summary: Listed among the "one-time" costs is the transfer to the Panama Social Security System of Civil Service Contributions of Employees of the Canal Enterprise, a figure of $3-17.5 million. This amount represents the Panama Canal Company/ Canal Zone Government contribution to the U.S. Civil Service Retirement fund that will have been deposited on behalf of employees during their employment with the Canal enterprise. The funds therefore represent a refund of deposits already made by the Canal enterprise for employee retirement rather than fresh expenditure. These funds have come from Canal-generated revenues. Also, the withdrawal of these retirement funds from the Civil Service System may result in diminishing liability for payment of future benefits. Another "one-time cost" in the summary is the $40 million net borrowing authority which the Administration will propose for the Panama Canal Commission. This figure, of course, does not represent a new cost to the Government but rather a replacement for the $40 million net borrowing authority of the present Canal Company. We therefore suggest that item 19 not be labelled "new" borrowing authority. Item 19 might be deleted and footnote "1" refer to item 22. I should also note that if the borrowing authority were used, we would expect that the Commission would be required to repay the loan, with interest, from future revenues. Discontinuing the interest payments or net investment to the U.S. Treasury is listed as a "recurring cost" which would amount to approximately $433 million over the lifetime of the Treaty. It will be the Administration's recommendation in implementing legislation to discontinue this payment in order to provide maximum benefit to world shipping. Interest payments were not made prior to 1951. Nevertheless, the Treaty does not specifically prohibit the payment of interest, and the Congress could require interest payments to be continued. It might therefore be appropriate to break down item 21 into an estimate of appropriated funds and an estimate of the forbearance of the annual interest payments to the Treasury, since each is a different category of cost. We believe that the Budget Committee staff cost estimates, taking into account our observations and those of the Department of Defense, represent the best available information on the budgetary impact of the implementation of the new treaties. However, the exact budgetary impact cannot be measured by the Administration until the legislation implementing the new treaties has been passed by Congress. Should you require any further information regarding this matter, please do not hesitate to let me know. With best regards. Sincerely, DOUGLAS J. BENNET, Jr., Assistant Secretary for Congressional Relations. D. Economic-Pro (2) Senator Mike Gravel (in dialog with Senator Paul Laxalt), March 1, 1978 (S 2603-04) Mr. GRAVEL.*** The chart I now show will help explain the phenomenon that has taken place with respect to the size of the vessels going through the canal and the tonnage going through the canal. What I would like to show here is what has taken place from 1961 up to today with respect to the construction of bulk carriers in the world-I am not talking just about the United States but about the entire world. Up until 1961 there were very, very few vessels that were built that were in excess of 60,000 deadweight tons. Let me just state here parenthetically that the ability to get through the canal is based upon tonnage, and is based upon the beam of your vessel, the restriction on beam being 107 feet. The tonnage that can pass the canal varies, depending upon draft and beam of the vessel, from 60,000 to 80,000 deadweight tons. So I draw the line at the 60,000 to 80,000 deadweight tons for the purpose of these charts. This chart shows that from 1950 to 1961 very, very few bulk carriers in excess of 60.000 deadweight tons were constructed. But from 1961 forward we find a very rapid rise, a very steep incline, in this chart, showing that 19.6 percent of all bulk carriers today in the world are over 60,000 deadweight tons. Now, 19 percent is not a terribly shocking number with respect to the canal, but when you translate that number of vessels into tonnage you get the somewhat shocking figure that 43.8 percent of the total deadweight tonnage of the world's maritime fleet with respect to bulk carriers cannot go through the Panama Canal. It is pretty surprising when you look at that figure. Bulk carriers are a substantial traffic through the Panama Canal. The next chart I want to show demonstrates what took place with respect to oil tankers. Here I have a chart that shows a line with a very steep incline. I would like to more precisely explain these figures by saying that in the period from 1956 to 1960 a lot of tankers were built. Only 2.4 percent of the tankers that were built in that period were above 70.000 deadweight tons, meaning they are too large to get through the Panama Canal. If you take the next period, 1961 to 1965, you find that of the new tankers built in that period 21.4 percent were above 70,000 deadweight tons. Then when you move to the next period of 1966 to 1970 vou find out that 66 percent of all the new tankers built were above 70.000 deadweight tons, and therefore unable to get through the Panama Canal. When you look at the next period, 1971 to 1975, you see that 66.7 percent of all the new tankers built in the world were above 70,000 deadweight tons. That means old vessels are obviously being obsolesced, |