than offset rising payroll and material costs during the budget period to produce the operating margin shown on the foregoing page.

The communications system provides telephone, telegraph, and teletype communications for the Panama Canal Company, the Canal Zone Government, civilian communities, and for shipping and allied interests in the Canal Zone. The system is interconnected with the communications systems of the Armed Forces in the Canal Zone and with the commercial systems in the adjoining cities of the Republic of Panama. It also maintains the special telephone facilities on the locks and elsewhere, as well as the various interoffice communication systems, and operates a repair shop at Balboa for overhauling and repairing communications equipment.

The workload of the communications system is measurable by the number of units in service. There follows a tabulation of the number of each of those in service at the close of the fiscal years indicated:

This activity will experience a continuing increase in workload, during the budget period as additional equipment is added to meet the already existing demand for service. The resulting revenue, along with that to be realized from a programed rate increase is expected to yield the revenue shown on the foregoing page. Expense increases are attributable primarily to additional depreciation on the added equipment, and to rising labor and material costs partly offset by reduced outlay for microwave and cable maintenance.

The water system consists of two principal units, one serving the Pacific side of the isthmus, including Panama City and its suburbs, and the other serving the Atlantic side, including the city of Colon. The Pacific side unit takes its water supply from the Chagres River near Gamboa or from the canal near Paraiso and pumps it to a filtration plant at Miraflores, where it is filtered and treated. Four pump stations then distribute the filtered water. The Atlantic side unit takes its water supply from Gatun Lake, from which raw water flows by gravity to a filtration plant at Mount Hope where it is filtered, treated, and pumped to reservoirs.

As an adjunct to the water system, two laboratories are maintained, one at each of the filtration plants. In addition to work performed in connection with water purification, these laboratories render various services to the Company and the Canal Zone Government, the Armed Forces, the Republic of Panama, and commercial interests.

The total population served by the water system is estimated to be 390,000. The system is more complicated than usually encountered for a community of this size because of the topography and the number and dispersion of the communities served. The total water distribution is as follows:

It is expected that the workload of the water system will continue to increase each year, principally as a result of increases in water sales to the Republic of Panama. The increased operating costs in 1964 and 1965 reflect the direct and indirect cost of pay increases, variations in maintenance work principally on the Mount Hope and Gatun water storage reservoirs and increased power and chemical costs related to the rising workload.

The rate charged for water furnished to the Republic of Panama, which accounts for over 70 percent of the total water sold, is fixed indefinitely at 0.075 cent per 100 cubic feet for the first 100,000 cubic feet and 0.07 cent for each additional 100 cubic feet by the President's 1960 nine-point program to improve relations between the United States and the Republic of Panama.

A central air-conditioning activity to provide air-conditioning services to Panama Canal Company and Canal Zone Government buildings was placed into operation during the first quarter of 1964. Estimates for 1964 and 1965 provide for operation of the chilled water pumping and cooling plant in the Balboa area which chills and distributes water to users by means of insulated pipes. Two loops of insulated pipes are used, one carrying chilled water to the buildings in the Ancon area and the second serving the Balboa area. The buildings served provide the necessary air-distribution systems, heat exchange equipment, and humidity controls.

GENERAL

Expense estimates provide for operation of the service for most of 1964 and for a full year in 1965. Increased estimates of interdivisional sales and services in 1965 include recovery from additional activities served. There will be additional utilization of the service in succeeding years and it is planned that all operating and depreciation costs will be recovered from the users of the service. 1. Tivoli guesthouse

The Tivoli guesthouse is located on the Pacific side of the Canal Zone. It provides guest accommodations, dining room, bar, catering and newstand service to employees, their guests and dependents, and to others having Canal Zone privileges. Space is also rented to licensee barber and beauty shops. Pertinent workload data are as follows:

GENERAL

The operating procedures of this activity are being carefully examined in an attempt to absorb rising payroll costs by improving efficiency and by reductions in other areas of expenditure.

The Printing Plant is a field plant, authorized under regulations of the Joint Committee on Printing. It functions as a manufacturing unit to provide printing and related services, including letterpress and offset printing, addressographing, bookbinding and manufacture of rubber stamps for the Panama Canal Company and Canal Zone Government, for other U.S. Government agencies, and for employees and organizations located in the Canal Zone. Workload

Production units, computed as authorized by the Joint Committee on Printing, are as follows:

1 Includes 6,000,000 units transferred from Duplicating Unit at Balboa Heights.

GENERAL

The 1964 estimate provides for the cost of moving the printing plant from the Atlantic to the Pacific side of the isthmus and for the assumption of part of the workload previously performed by the Duplicating Unit at Balboa Heights. The 1965 estimate reflects normal operations at the new site, and provides for the cost of meeting increased workload demands and rising payroll costs.

Care of grounds

This covers maintenance of grounds in public and residential sections occupied by Company and Government operating units, other Government agencles, individuals, organizations, and companies. The work includes grass cutting and general landscaping, cleaning and correcting of open drains and the removal of trash and rubbish.

Garbage and trash collection and disposal

This activity collects and disposes of garbage and trash from Canal Zone civilian communities, Company and Government operating units, private companies, and certain military establishments. Related operations include maintenance of a sanitary fill disposal area and trash dump on the Atlantic and Pacific sides of the isthmus, control of fly breeding at those areas and periodic steam cleaning of garbage trucks, cans, and buckets.

Other services

This includes a nursery operation for the growing of all plants used in landscaping and replacement of existing landscape. Revenue is derived from sale of plants and other items to employees and others. Also included is the direct expense incurred by the Company and charged to Canal Zone Government for operation of the cemeteries, and street-cleaning activities. Applicable revenue and depreciation for these are included in the Canal Zone Government estimates only and are not reflected herein.

The increased expense estimates in 1964 and 1965 include provision for pay increases in both years, depreciation on new equipment, and additions of new areas to the grounds maintenance program. Also included is the cost of generally improved maintenance standards in townsites, cemeteries, and public areas.