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INVESTIGATION OF PANAMA CANAL TOLLS

MONDAY, MARCH 14, 1949

HOUSE OF REPRESENTATIVES,
COMMITTEE ON MERCHANT MARINE AND FISHERIES,
SPECIAL SUBCOMMITTEE TO INVESTIGATE PANAMA CANAL TOLLS,

Washington, D.'c. The meeting of the Special Subcommittee To Investigate Panama Canal Tolls of the Committee on Merchant Marine and Fisheries was held, to consider House Resolution 44, pursuant to notice, in room 308, Old House Office Building, at 11 a. m., the Honorable Clark W. Thompson (chairman of the subcommittee) presiding.

Present: Representatives Thompson (chairman of the subcom-' mittee) and Fugate.

Also present: Mr. Hugh A. Meade, chief counsel, and Mr. John M. Drewry, assistant counsel, Committee on Merchant Marine and Fisheries.

(H. Res. 44 follows:)

[H. Res. 44, 81st Cong., 1st sess.)

RESOLUTION

Whereas it is the responsibility of the Congress of the United States to establish the policy to be followed in prescribing the tolls that shall be levied for the use of the Panama Canal; and

Whereas there have been substantial changes in economic conditions since Congress last established such policy, including the effect of such tolls upon American shipping: Therefore be it

Resolved, That the Committee on Merchant Marine and Fisheries or any duly authorized subcommittee thereof is authorized to make a full and complete study and analysis of the financial operation of the Panama Canal with particular reference to the proper accounting and allocation of costs attributable to

(a) the transit of the Canal by commercial, governmental, and military vessels of United States and foreign nations;

(b) military activities of the United States in and connected with the Canal Zone;

(c) United States civil government, including, but not limited to, sanitation, public schools, playgrounds, hospitals, and so forth;

(d) business operations conducted under the supervision of the Governor General of the Panama Canal by the various business units of the Panama

Canal and Panama Railroad Company; and to recommend to the Congress concerning what elements of cost should be properly used in the future as the basis of a policy to be followed in establishing and levying tolls for the use of the Panama Canal for transit purposes.

The committee shall report its findings, together with its recommendations for such legislation as it may deem advisable to the House at the earliest practicable date, but not later than June 30, 1949.

The committee or any subcommittee thereof is authoirzed to sit and act at such times and places within or without the United States whether the Congress is in session, has recessed, or is adjourned; to hold such hearings as it deems necessary; to employ such consultants, specialists, clerks, or other assistants; to travel and authorize its assistants to travel; to utilize such transportation, housing, or other facilities as any governmental agency may make available; to require

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by subpena or otherwise the attendance of such witnesses and the production of such correspondence, books, papers, and documents; to administer such oaths; to take such testimony; and to make such expenditures as it deems advisable. The cost of stenographic services to report such hearings shall not be in excess of 25 cents per one hundred words. The expenses of the committee, which shall not exceed $15,000, shall be paid from the contingent fund of the House upon vouchers authorized by the committee, signed by the chairman thereof, and approved by the Committee on House Administration; and be it further

Resolved, That the President of the United States be, and hereby is, requested to defer until after submission of the committee's report any change in tolls currently levied for the use of the Panama Canal.

Mr. THOMPSON. At first I asked the general to come up here for just an informal gathering, but then it struck me that what he has to say is so important that it ought to go in the record, and that is the reason we took the reporter away from his peace and quiet and asked him to come up here.

I would like, with the general's permission, to read into the record this history of him. I do not know where it came from. Captain Duval furnished that to me the first day I met you, General. [Reading:)

Steese, James Gordon, civil engr.; b. Mt. Holly Springs, Pa., Jan. 21, 1882; s. James Andrew and Anna Zug (Schaeffer) $.; X. B., Dickinson College, 1902, A. M. 1906; B. S. (1st honors), U. S. Mil. Acad., 1907; studied U. of Calif., 1908; grad. U. S. Engr. Sch., Washington, 1910; Sc.D., U. of Alaska, 1932; unmarried. Commd. 2d lt. engrs., June 14, 1907; promoted through grades to col., June 18, 1918; brigadier general and adjutant general Alaska N. G., 1926–27; retired Oct. 1927. Asst. engr. San Diego and San Francisco bays, Calif., 1907–08; asst. engr. Panama Railroad Co. and Panama Canal, 1908–12; chief engr. 5th (expeditionary) Brig., Tex., 1913; instr. and asst. prof. engring., U. S. Mil

. Acad., 1913– 17; spl. rep. of gen. mgr. West Md. Ry., June-Sept. 1916; organized 0. T. D., Ft. Riley, Kans., and instr. of engrs. U. S. Army, 1917–18; detailed on General Staff and chief of section, Sept. 1918-June 1920; spl. Alaska Road Commn. 1927–27, also chief engr., 1924, 27; dist. and acting div. engr. for rivers and harbors, Alaska Dist., 1921–27; cons, engr. Department Commerce, 1921-27, also for Ty, of Alaska, 1921-23; mem. spl. commn. to investigate Russian, Japanese, and Am. fur seal rookeries, June-Sept. 1922; dir. pub. works, Alaska, 1923– 27; chmn. Alaska R. R. 1923–24, also chief engr. Mar.-Oct. 1923; with Gulf Oil Corp. as gen. mgr, foreign subsidiary co. 1927-32; chmn. bd. and pres. Guajillo Corp. and affiliated cos., 1932–41; pres. Slate Creek Placers, Inc., 1936–41; recalled to active duty, Corps of Engrs., U. S. Army, detailed as asst. engr. of maintenance, Panama Canal, and asst. to 2d v. p. Panama Ry. Co., Jan. 1941Mar. 1946; asst. to Gov., Panama Canal and asst. to pres. Panama Ry. Co. Brig., gen., a. d. c., Alaska Nat. Guard, 1935–37. In charge President Harding's tour of Alaska, 1923. Trustee Dickinson College since 1919, Amelia S. Givin Free Library since 1921. Fellow Royal Geog. Soc. (London), Am Geog. Soc. A. A. A. S.; mem. Am. Soc. Civil Engrs., Am. Inst. Mining and Metall. Engrs., Soc. Am. Mil. Engrs.,

Phi Beta Kappa, Phi Kappa Sigma, Pi Gamma Mu, Am. Legion. Decorated Distinguished Service Medal, Legion of Merit (U. S.); Distinguished Service Medal, 2d Class (Panamanian); Officer, later Comdr. Order of Prince Danilo I, and silver medal for bravery (Montenegrin); Croix de Guerre, 2d Class (Grecian); Officer of Public Instruction (French); Khames de l'Ahal Saxaoul, French Sahara; Knight of Order of Compassionate Heart, Comdr. Imperial Order of St. Nicholas (Russia); Interallied Victory Medal, American Defense Medal with star, and American Theatre Medal (U. S.); specially commended in Senate and House of Rep. of United States, and salary raised by spl. act of Congress, 1926; mil. road from Fairbanks, Alaska, to Yukon River at Circle officially named Steese Highway by War Dept. Del. U. S. Govt. to XIV Internat. Navigatn. Congress, Cario, Egypt, 1926 (sec. Am. Sect.), XV Internat. Navigatn. Cong., Venice, Italy, 1931, XVI Cong., Brussels, Belgium, 1935; del. Internat. Geog. Congress, Paris, France, 1931; del. U. S. Government to 5th Internat. Congress of Surveyors, London, Eng., 1934 (chmn. Am. section), to Internat. Geog. Congress, Warsaw, Poland, 1934 (pres. sec. I-cartography), to 4th Internat. Congress and Expn. of Photogrammetry, Paris, France, 1934 (declined), to Second World Petroleum Congress, Paris, 1936, Internat. Geog. **ngress, Amsterdam, Netherlands, 1938. Republican. Episcopalian. Mason (33°), Elk. Clubs: Army and Navy (Washington); West Point Army Mess; Strangers (Colón); Union (Panama); University (New York). Author of numerous articles in tech. periodicals and daily press. Home: Army and Navy Club, Washington, D. C. Office: Administration Building, Balboa Heights, C. Z.

That will show, for anyone who wants to read it hereafter, the reason why we have this hearing. I thought if we could sit about the general for an hour or so we could learn more about the Panama Canal than from anybody I have heard of so far. He has not only worked on the initial project, but ever since then has been very close to it, either as a consultant or as a full-time staff member, I suppose you would call it.

The general has just come back from Panama. He sat with me last Saturday for an hour or so and told me so many things so very important in our own deliberations that I thought you all should have this opportunity.

General, in addition to this information, what do you suggest should go into the record about your background?

STATEMENT OF BRIG. GEN. JAMES GORDON STEESE, WASHING

TON, D. c.

General STEESE. That is a complete biography up to 1946. I was retired from the Army for the second time and terminated by the Panama Canal May 14, 1947. Since then I have been about half the time in private consulting practice and about half the time on vacation. This last trip to Panama was on a vacation, or rather on my own. I had two tours of duty as an officer of the Corps of Engineers during the construction period. Then I visited the Canal many times between 1913 and 1939, and was recalled to active duty in January 1941 and served 75 months under the Governor of the Panama Canal, which service, as I said, terminated in May 1947.

I guess that about brings it down to date Mr. Chairman.

Mr. MEADE. At the present time, General, you are a consulting engineer?

General STEESE. In private practice, at the present time unemployed. I just finished an 8 months' job in Mexico last summer, and

. since then have been doing a little traveling on my own.

Mr. THOMPSON. The reason we hurried this along is that General Steese is about to go to Europe, leaving, I think he told me, on Wednesday.

General STEESE. I am leaving here Wednesday and sailing on Saturday on the Dutch Line. I am going to Europe as a delegate to the Sixteenth International Navigation Congress. From "Who's Who” you will see I have been previously a Government delegate at seven or eight different congresses in Europe. I must confess I usually go with the primary idea of visiting London and Paris both

I will speak very freely, Mr. Chairman, with the understanding that you will carefully edit what comes out of this.

Mr. THOMPSON. The duties of this committee are to establish the policy concerning the tolls that are to be charged on the Panama Canal. We are to make a full and complete study and analysis of the financial operation, with particular reference to the proper accounting and allocation of costs attributable to the transit of the Canal by commercial,

ways.

governmental, and military vessels of the United States and foreign nations; the military activities of the United States in and connected with the Canal Zone; the United States civil government, including but not limited to sanitation, public schools, playgrounds, hospitals, and so forth; business operations conducted under the supervision of the Governor General of the Panama Canal, and various business units of the Panama Canal and the Panama Railroad Company; and to recommend to the Congress concerning what elements of cost should be properly used in the future as a basis of a policy to be followed in establishing and levying tolls for the use of the Panama Canal for transit purposes.

General, I wonder if you would like to suggest to us just where we would start.

General STEESE. Well, sir, if the past policy of the Canal is to be followed, which roughly has been to capitalize the cost of the Canal as a commercial enterprise and then charge tolls that would pay the cost of maintenance and operation of the Canal as a commercial enterprise, plus 3-percent return on the capitalization set-up. I might explain that briefly, as I did to you, Mr. Chairman, on Saturday.

The Canal cost about $382,000,000 of appropriated funds. It opened for traffic in 1915, but was not officially declared open under the Panama Canal Act until 1921. World War I intervened and upset the celebration they were going to have at the formal opening.

So in 1921 a board made a study of the costs, and threw out something over $100,000,000 of what were classified as military or defense items, which made the Canal cost $382,000,000 of appropriated funds, and to that was added the interest on that money throughout the construction period, which, by 1921, amounted to $128,000,000, so the total capitalization was a little over $500,000,000.

Now, as a credit against that had been all the tolls that had accrued since 1915, and against the tolls were maintenance and operating expenses year by year subsequent to the appropriations that were made for the construction itself.

That was kept going to 1939, the last normal year of operation, during which period over 100,000 big ships had gone through the Canal and paid tolls. The military and naval traffic was very small and it went through free. There has always been a controversy about that, but it was not a large item. The Canal always kept track of it and in their own minds took credit for those tolls that it did not get, but figuring just the commercial receipts against the actual cost of operation and maintenance, as of 1939, after 25 years of successful operation the tolls aggregated over $500,000,000 by that time.

Aggregating over $500,000,000, they paid all the operating expenses throughout and left a return on the half billion of capitalization, as I recollect-these can be verified from various Government reportsof 2.85 percent interest. In that 25 years the Canal missed paying the full 3 percent by about $26,000,000, or just about 1 year's tolls.

These figures were all revised along about '36 or '37, when this same question came up about revising the toll structure. The tolls had never been satisfactory, and the matter was finally adjusted satisfactory to the Canal management, at least, in about '36 or '37. At that time a new board was organized, including a Treasury Department man, a General Accounting Office man, an internationally known accountant from one of the commercial firms of certified public

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