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INVESTIGATION OF PANAMA CANAL TOLLS

MONDAY, JUNE 6, 1949

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

Washington, D. C. The subcommittee met, pursuant to notice, in the committee hearing room, 219 Old House Office Building, at 10 a. m., the Honorable Clark W. Thompson, chairman of the subcommittee, presiding. Mr. THOMPSON. The meeting will please come to order.

I am going to ask Mr. Burdick of the Washington office of the Panama Canal to give us a little background of how the President happened to issue a proclamation raising the tolls. Will you trace the history of that, Mr. Burdick?

STATEMENT OF BERNARD F. BURDICK, CHIEF OF OFFICE, THE

PANAMA CANAL, WASHINGTON, D. C. Mr. BURDICK. I have no prepared statement on this matter, Mr. Chairman. As you know, the subject in general has been covered rather fully in the testimony of the Governor of the Panama Canal.

Mr. THOMPSON. Maybe I can simplify it, Mr. Burdick. He told us of the situation insofar as increased costs, etc., are concerned, but what I am trying to do for the record is to find out what happened then. Somebody besides the Governor of the Panama Canal evidently had carried the ball to the President in order to get him to issue the proclamation in question. What I am trying to do is just trace the history of it in order to defend the position of the Panama Canal. I don't mean defend it in the sense that it is something that needs to be defended, but only to confirm it, which is perhaps a better word.

Mr. BURDICK. You will recall, Mr. Chairman, that the Governor advised you with respect to appropriation matters. The Appropriations Committee had called the Governor's attention to the fact that there had been a great increase in cost of operation without any increase whatever in toll rates, that the Canal was no longer operating on a self-supporting basis, and the committee was advised that the matter was under consideration and that the study would be continued.

Shortly thereafter, the Governor of the Panama Canal submitted a report to the Secretary of the Army, who exercises the President's supervision over the Panama Canal. In that statement, the Governor pointed out the extent of the capital investment in the Canal, the cost of operation, the revenues received from tolls and business operations, pointing out that we were making only a little more than operating expenses and nothing to cover the carrying charge, that is, interest paid on the money that the Government had invested in the Canal.

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The Secretary of the Army, in a letter of March 10, 1948, which I offer for the record at this time, recommended to the President that the toll rates be increased from 90 cents to $1 per net vessel-ton, one dollar being the maximum amount that can be levied under the present law.

This letter to the President outlines more fully some of the cost factors that I mentioned briefly a moment ago.

Mr. THOMPSON. We will insert the letter into the record at this point. (Letter submitted by Mr. Burdick follows:)

DEPARTMENT OF THE ARMY,

Washington, D. C., March 10, 1948. The PRESIDENT, The White House

(Through the Director, Bureau of the Budget). DEAR MR. PRESIDENT: I submit herewith for your consideration a proposed proclamation sing the rates of tolls for the use of the Panama Canal at $1 per net vessel-ton on laden merchant vessels, 80 cents per net vessel-ton on vessels in ballast, and 55 cents per ton of displacement for other floating craft. The present rates are 90 cents per net vessel-ton on laden merchant vessels, 72 cents per net vessel-ton on vessels in ballast, and 50 cents per ton of displacement for other floating craft.

The following is quoted from a statement of the Governor of the Panama Canal under whose supervision the proposed proclamation was prepared:

"It is the aim of the Panama Canal to return to the Treasury of the United States each year enough money to pay all operating expenses and in addition interest at 3 percent on the net capital investment in the Canal enterprise, now carried on the books as slightly more than $515,000,000. The principal sources of the funds deposited as miscellaneous receipts are the tolls charged for the use of the Canal, civil revenues (fines, license fees, etc.), and the profits from business operations. From the beginning of operations in 1914 to and including the fiscal year 1947, the combined revenues of the Canal have exceeded the total net operating expenses by $271,179,950.91, whereas the total interest on capital at 3 percent amounted to $409,535,628.32. The resulting deficit of $138,355,677.41 would have been reduced to approximately $76,800,000 if tolls had been charged for ships owned or controlled by the United States which transited the Canal without payment of tolls.

“For the total period of operation, therefore, the revenues have been sufficient to pay the operating expenses and something more than 2 percent interest on the net capital investment. In the fiscal years 1946 and 1947, however, because of increased operation expenses resulting from higher wages and prices, the adoption of the 40-hour workweek and other factors, the surplus after payment of operating expenses amounted to only a small fraction of 1 percent on the net capital investment, and it is estimated that the total revenues for the fiscal years 1948 and 1949 will fall short of paying the operating expenses. Therefore, if the Canal is to continue to be a self-supporting enterprise, it is evident that its revenues must be increased, and since the civil revenues and business profits constitute only a minor part of the total revenues, a substantial increase can be obtained only by the rates of tolls charged for transiting the Canal.

"Title 2, section 411, Canal Zone Code, authorizes the President, subject to the provisions of section 412 of the code, 'to prescribe, and from time to time change the tolls that shall be levied by the Government of the United States for the use of the Panama Canal, but no tolls when prescribed as above shall be changed unless 6 months' notice thereof is given by the President by proclamation.' Section 412, as amended August 24, 1937, provides as follows:

" "Tolls on merchant vessels, Army and Navy transports, colliers, hospital ships, supply ships, and yachts shall be based on net vessel-tons of 100 cubic feet each of actual earning capacity determined in accordance with the rules for the measurement of vessels for the Panama Canal prescribed by the President and as may be modified by him from time to time by proclamation, and tolls on other floating craft shall be based on displacement tonnage: Provided, That the basic rules of measurement shall not be changed except after public hearing and 6 months' public notice of such change. The rate of tolls on laden vessels shall not

exceed $1, nor be less than $0.75 per net vessel-ton as determined under the aforesaid rules, and on vessels in ballast without passengers or cargo the rate may be less than the rate of tolls for vessels with passengers or cargo. In addition to the tolls based on measurement or displacement tonnage, tolls may be levied on passengers at rates not to exceed $1.50 for each passenger. The levy of tolls is subject to the provisions of article XIX of the convention between the United States of America and the Republic of Panama, entered into November 18, 1903, and of article I of the treaty between the United States of America and the Republic of Colombia proclaimed March 30, 1922.'

"The tolls rates presently in effect were prescribed and proclaimed by the President, under authority of the above-quoted laws, by proclamations dated August 25 and 31, 1937, and became effective on March 1, 1938. The rates then prescribed are as follows:

1. On merchant vessels, yachts, Army and Navy transports, colliers, hospital ships, and supply ships, when carrying passenger or cargo, 90 cents per net vesselton of 100 cubic feet each of actual earning capacity—that is, the net tonnage determined in accordance with the rules for the measurement of vessels for the Panama Canal.

“2. On vessels in ballast without passengers, or cargo, 72 cents per net vessel-ton.

“3. On other floating craft, including warships, other than transports, colliers, hospital ships, and supply ships, 50 cents per ton of displacement.

“It will be noted that the toll rate which has been in effect since 1938 for laden merchant vessels, that is, 90 cents per net vessel-ton, is 90 percent of the maximum rate which the President is authorized by law to prescribe. If this rate were to be raised to the full amount authorized by law, with corresponding increases in the rates for vessels in ballast and for other floating craft including warships, the increased annual revenue would be approximately $2,000,000 for the present volume of traffic. This increase would cover the estimated deficiency of revenues as compared with operating expenses, and would provide a small surplus to apply to the interest charge of approximately $15,475,000.

The present tolls rates were recommended by a special tolls committee, appointed under authority of an act of Congress approved April 13, 1936, which estimated that the return to the Government from the recommended rates would be sufficient in conjunction with other revenues, to cover the interest charges and operating expenses during the next few years. The special committee's estimates proved to be very accurate for the conditions then existing, since the new rates produced revenues in the fiscal year 1939, the first full year after they became effective, which were sufficient to pay all operating expenses and more than 2.8 percent interest on the net capital investment. Since that time, however, the operating expenses of the Canal have risen approximately 80 percent. Since the increase in the tolls rates recommended herein is only 11 percent, it is apparent that a further increase would be required to carry out the aim of paying all operating expenses and interest at 3 percent on the net capital investment. Study is being given to the desirability of recommending legislation authorizing a further increase.

I concur in the views expressed by the Governor and recommend that you sign the proposed proclamation. Respectfully yours,

KENNETH C. ROYALL,

Secretary of the Army. Mr. FUGATE. Mr. Burdick, didn't this request grow out of the discussion before the Appropriations Committee when requests were being considered for the operation of the Canal last year?

Mr. BURDICK. Yes, sir.

Mr. FUGATE. Testimony was presented that the revenue was insufficient to take care of the charges.

Mr. BURDICK. Yes, sir.

That matter is covered, Mr. Fugate, in the report of the House Committee on Appropriations on the appropriations bill for civil functions for the fiscal year 1949, as follows:

Under authority of an act of Congress passed in 1937 the President of the United States is authorized to fix toll charges for commercial traffic using the Panama Canal at not to exceed $1 per ton for laden ships and a lesser amount for ships in ballast. Shortly after this authority was granted a rate of 90 cents per

ton for laden vessels and 72 cents per ton for vessels in ballast was fixed and has not since been changed. In the meantime operating costs have materially increased to a point where the Panama Canal finds itself with insufficient funds from tolls to meet all operating costs. In view of the facts, including the fact that commercial shipping interests have increased their charges to the public, it is the opinion of the committee that toll charges should be increased to the maximum amount permitted by law, and in addition that the proper legislative committees of the Congress should give early consideration to the question as to whether present maximum charges are sufficient to meet present-day conditions.

Mr. FUGATE. I believe Mr. Bailey set that out to some extent in his statement here, too.

Mr. BURDICK. Yes, sir.

Mr. THOMPSON. Let me make this observation, Mr. Burdick, I said it to you over the telephone and I would like to repeat it here for the benefit of all of us: This committee is asked to formulate a policy on which the future tolls of the Panama Canal may be based. It is a very far-reaching matter. I am amazed and sometimes a little bit appalled by the far-reaching effect that a recommendation from us may have the international repercussions, and so forth.

I want to suggest to you and I want to also suggest to the National Defense Department that someone there very close to the top, if not the top, ought to be interesting themselves in it. We have been faced with a recommendation here in this committee to eliminate the capital structure altogether and to proceed with the Canal on the basis of operating cost plus a reasonable reserve for obsolescence, depreciation, replacement, and so forth. So we are concerned with a whole lot more than merely an order of the President on recommendations of what the tolls ought to be this year and perhaps next year.

I don't know whether I have told my committee, but I have said these very things to Mr. Steelman at the White House and I hope it will bring forth some real interest.

Mr. BURDICK. I assure you, Mr. Chairman, that the Secretary of the Army has an interest in the matter. He has reviewed this matter from time to time and, as a matter of fact, he recommended to the President that the tolls be increased from 90 cents to $1, to come as nearly as is possible under the law to making the Canal self-supporting, pointing out, of course, that that is a continuation of the policy that the Government has followed all these years of trying to make the Canal self-supporting; in other words, let the people that use the Canal pay the costs of the services that are being rendered. That was the position of the Secretary of the Army when he recommended this and I am authorized to speak for the Secretary today, that that is still the policy.

Mr. FUGATE. In that connection, Mr. Burdick, in your discussion with him, has any consideration ever been given to writing off any part of the cost of the Canal for national defense?

Mr. BURDICK. I think that question has been up for consideration probably every time the tolls question has been studied. I certainly know it was up in 1936_and 1937; when the Neutral Tolls Committee appointed by the President studied this matter over a period of many months and heard the testimony of all interested from the Government's viewpoint and from commercial shipping and from the railroads. Those studies lasted more than 6 months.

Mr. FUGATE. But the periods of 1936 and 1937, and 1948 and 1949, of course, are two different periods, wherein a World War has been

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