We have always felt that this community operation was an essential part of plant management, it is going to be an essential part of plant management.

Mr. DURHAM. Has there been a reduction in the amount of money required for the operation since it began under the present arrangement?

Mr. PIKE. I think so.

Mr. DURHAM. As I recall, they have considerably reduced.

Mr. PIKE. I think they have, but I do not have the figures here. What I do know has happened, is that the expense of operating the town at Oak Ridge, the first year we ran a deficit of about $11,000,000, and for this coming year we think it will be much less than $4,000,000. That, to me, is much more important as an index of town operation than the amount of the fee paid, which, as I remember, is $180,000 a year. It has been reduced very substantially. I do not have the figures.

Mr. COLE. Who pays Roane-Anderson, you or Carbide?

Mr. PIKE. We pay Roane-Anderson. That is a separate contract. Mr. COLE. Who pays Zia?

Mr. PIKE. We pay Zia.

Mr. COLE. You pay all of them? Do you pay American Transit? Mr. PIKE. Yes; all three of them.

Mr. COLE. I do not see where that provision of the House bill would affect the situations.

Mr. PIKE. Well, only in one case they will not work and in the other case they will keep on and sue us and probably have a good case. At least that is what they have told us they would do.

Mr. COLE. I notice Senator McMahon's statement before the Senate committee raised the question that the House provision might jeopardize the contract with Carbide. How can that be if Carbide does not have any dealings with or responsibilities in connection with town management or transportation?

Mr. PIKE. This was a legal concept, and really I do not think I am competent to follow it. We do know this: These contracts were freely entered into after arm's-length negotiations between ourselves and the contractors. This would have, of course, a very disturbing effect outside of the thing I am making the major point on, on all our fee contractors who in the middle of a contract period may find that fee arbitrarily cut by legislative action.

This, of course, is very clear. If somebody is going to devote a staff for 3 or 4 years and feels he has a valid contract with the Government, then along during that period you say the contract is not any good, this is the disturbing factor. I do not know how high to rate, it, but I rate it rather high.

Mr. COLE. Maybe we ought to hear your suggestion.

Mr. PIKE. It happens that two of these contracts expire at the end of this year. The other one expires in the middle of 1951, the end of fiscal 1951. We think, frankly, we ought to carry out these contracts in good faith as they were entered into. Our principal suggestion, however, is that we get immediately on a study by some outside disinterested objective people, who can come up with some idea that will make sense to the lot of us and get this community situation to where it will not be a constant source of irritation to all and

sundry and where it might not be a major obstacle in the way of doing these two jobs.

Mr. DURHAM. When the study was made before, we tried to compare this with the operation of the services rendered by this organization as compared to running a city of comparable community facilities and population.

Mr. PIKE. Something of the sort.

Mr. DURHAM. Was that not done?

Mr. PIKE. It was done, but that missed one of the larger points there. This is not only a municipal organization, but it is a big real estate and commercial operation, too. Ordinary city management has police, fire, streets, garbage, sewage. I do not know whether it furnishes fuel, but we do, and the removal of ashes. We have rent collecting, repair of all buildings, et cetera.

Mr. DURHAM. He directs all those functions to be carried out. We pay for them, of course; is that right?

Mr. PIKE. We pay for them. They have done a pretty good job, it seems to me. The jobs were slack when we first came on. They were new after the wartime and we have no defense.

Mr. DURHAM. On a per capita basis at Oak Ridge, $180,000 is what fee for rendering such a service?

Mr. PIKE. About five or six dollars per person. There are about 32,000 or 33,000 people there.

Mr. COLE. How many people are engaged by Roane-Anderson who give this administrative service for which they are paid the $180,000? Mr. WILLIAMS. Seventeen hundred.

Mr. COLE. None of the salary of that 1,700 personnel is paid by the Commission?

Mr. PIKE. We reimburse the contractor for all of it.

Mr. COLE. How many people are engaged in employment by RoaneAnderson for which Roane-Anderson receives from the Commission $180,000?

Mr. PIKE. We reimburse all their expenses. They represent management only.

Mr. COLE. What do they do for $180,000?

Mr. PIKE. This is their profit on the operation.

Mr. COLE. What is the total operation?

Mr. PIKE. Thirteen million annually, and there is 110 or 111 million dollars' worth of property in their charge.

Mr. COLE. What is that percentage?

Mr. WILLIAMS. One and one-half percent.

Mr. PIKE. One and one-half percent of the annual income and about fifteen one-hundredths of 1 percent of the capital value involved per annum.

Mr. DURHAM. The Appropriations Committee, how deep did it go into this?

Mr. PIKE. This is all we could make out of it. There was no hint before the report came out, as I remember, that this action was proposed. We found it out when we read the report.

Mr. DURHAM. This involves all the utilities, public-health functions, schools, the whole operation of the city?

Mr. PIKE. Yes, sir.

Mr. DURHAM. It could be very disturbing if you cut all the services 50 percent, if you have not been rendering too much service.

Mr. PIKE. You see, this is merely the fee. This is not the services themselves. But it does happen that these contracts were negotiated out and these people of course, one says he will quit. The other says he will go on and put in a suit in the Court of Claims. Our people believe he would have a good suit.

My real reaction is that these communities are a part of the plants just as much, let us say, as the cafeterias in the plants.

Mr. DURHAM. We might set up a city government and hire our own personnel and operate the things and get rid of this.

Mr. PIKE. We do not get rid of it, Mr. Durham, by doing that.
Mr. DURHAM. Why?

Mr. PIKE. In the first, let's take Oak Ridge. We do not have any charter. We do not have any tax base. The Government owns all the property, including all the houses and all the stores.

The usual thing that you have in a town of 30,000, you have an industry, which helps make up your tax base. That is not in the

town.

Mr. DURHAM. I realize that. We are paying that and we ought to, as far as the cost of the present utilities and schools and streets and public health, and all the things that go into the operation of the city. Why could we not have a good man in there and let him manage the thing himself?

Mr. PIKE. We had a little try at this in, I think, early 1946. It only lasted a few months and was one of the finest pieces of empire building started there, Mr. Williams told me, that he ever saw. We got out of it rather quickly and went to the contractor arrangement.

Mr. COLE. Where was that?

Mr. PIKE. Oak Ridge. Our feeling is that we do not see, we have not found any simple and easy answer, and we have tried a good many ways.

What we would like now is to really get a good panel, something like this Bugas panel that just finished on our security set-up, to put some time on it and come up with something we will all view as objective and honest and able, rather than try to prejudge what they will come up with-say here is a problem, it is a serious problem and one thing we can say is that this offers the most serious obstacle right now to getting on with our H-bomb and our expanded program for fissionable material production.

Mr. DURHAM. How many men does Roane-Anderson have at the present time at Oak Ridge functioning on this? How many do they actually have at Oak Ridge? I understand Roane-Anderson uses personnel back in the home office to carry on some of these functions. Mr. PIKE. I do not believe so, Mr. Chairman. It may be true. Mr. WILLIAMS. It is all included in the record.

Mr. SHUGG. If you are speaking of executives, they have 21 of the parent company termed "executives" there, and we reimburse their nominal salary at Oak Ridge. The top salary is twelve thousand.

Mr. DURHAM. I am trying to find out how many people actually draw this $180,000. They ought to be able to give you a justification, in the employment of the personnel for the expenditure, whether it is fifteen hundred or what.

Mr. PIKE. That goes to the parent corporation as its gross profit on the deal. All their expenses are reimbursed at Oak Ridge.

Mr. DURHAM. Evidently they assign some persons to carry it out. Mr. PIKE. They are paid for part of their time and in some cases whole time while at Oak Ridge. I understand those people also get some bonuses.

Mr. COLE. Does Roane-Anderson operate in other places?

Mr. PIKE. No, sir. It was formed only for this thing and does this one job.

Mr. COLE. What is its capital?

Mr. PIKE. It is a directly owned subsidiary of the Turner Construction Co., which is a pretty large concern. It is a purely synthetic corporation, set up for this purpose.

Mr. HOLIFIELD. This, in effect, is a management fee. This it not their operating expense; is that right?

Mr. PIKE. Not at all.

Mr. HOLIFIELD. That is paid in addition?
Mr. PIKE. That is right.

Mr. HOLIFIELD. That is a management fee?

Mr. PIKE. That is right.

Mr. HOLIFIELD. The point involved is: Are they rendering efficient service and enough economical service to justify this type of a fee? That is really the point involved, and the alternative to it would be that the Commission itself would have to operate the town.

Mr. PIKE. I am afraid that is correct.

Mr. HOLIFIELD. If that occurs, that means every complaint coming from a resident or businessman or anybody else then becomes of primary consideration to the Commission in place of the buffer which Roane-Anderson now operates, a buffer agency.

Mr. PIKE. You are right.

Mr. HOLIFELD. In other words, it will make this committee a District of Columbia committee so far as the towns are concerned.

Mr. PIKE. You will be in for it as well as ourselves.

Mr. HOLIFIELD. They will come to you and then come to us and complain about it.

Mr. PIKE. I had not thought about it.

Mr. HOLIFIELD. So the alternative of this is that we become a District of Columbia committee on every community operation of AEC. The CHAIRMAN. How much is the budget? How much does RoaneAnderson spend to get $180,000?

Mr. PIKE. It is about $13,000,000 annual expenditure and about $110,000,000 capital invested.

The CHAIRMAN. That budget would seem to me to be awfully high. You cannot take that amount $110,000,000, did you say?

Mr. PIKE. In that neighborhood, capital invested in the town. The CHAIRMAN. Averaging that among our American cities of similar size, how does it compare budgetwise?

Mr. PIKE. I think it is on the high side.

The CHAIRMAN. I should think very much so. It is a long while since I paid any attention to municipal government, but I would think it is $5,000,000 high.

Mr. PIKE. Of course, Mr. Chairman, you will remember that includes all the real-estate management, collecting of rents, repair of buildings. This is something completely outside of ordinary municipal government. It does not go too far from a 50 to 50 ratio, as I re

member it, the work they do; but you have a real-estate management job as well as a municipal.

The CHAIRMAN. I had not thought of it.

Mr. PIKE. That is extremely important.

Mr. HOLIFIELD. I have given this study and I have been on several subcommittees that have given these community problems study, and I think that the method you are using is right. I do not know whether the $180,000 fee is too much or whether it is too little, but I know that you could not get any management concern such as, for instance, George H. Lee- isn't that a large management concern?

Mr. PIKE. It sounds familiar to me, but I do not know.

Mr. HOLIFIELD. They will go in, for instance, and take over a business that is having trouble, they will streamline and make the business efficient, and they always exact a management fee.

Now the thing that concerns me is not the method by which this is being handled, because I realize you would not fire a man if the Commission took over. You would still have to have the same number of supervisory people and probably more.

Mr. PIKE. We would have to have more on account of Government regulation. It would cost us a half million dollars more a year without any fee just from getting the people in civil service and the leave. Of course, we would then have to have them all FBI'd, too. The cost would be enormous for the two towns. It would cost us at least a million dollars extra that we can see, besides, I am sure, a lot we could not see.

Mr. HOLIFIELD. I am perfectly willing to approve of this present method, and I think that the attention of this committee and Congress should be devoted to whether this is a reasonable management fee in comparison to other management fees of big industries and other large projects which are matters of industrial record. I think that is the point this committee should concern itself with.

Mr. COLE. The Appropriations Committee did not dispute the method of running the place down there, did they? The dispute is entirely with the amount of the fee.

Mr. PIKE. On the fee, except I think in the Senate there was a little question about whether a New York corporation ought to be running a Tennessee town.

Mr. COLE. From my standpoint I will say that when the Federal Government reimburses all of the costs that a person incurs in an operation, where that person has no capital investment whatever, a fee of $180,000 is altogether too much.

Mr. PIKE. I only have one or two pieces of evidence on the other side, Mr. Cole.

Mr. COLE. What are they doing to justify this cost to the Federal Government of $180,000?

Mr. PIKE. I have some belief in the profit system, and when a corporation undertakes to do a job for us, I think it is entitled to a profit. over its costs.

Mr. HOLIFIELD. Is it not true that while this is spotlighted

Mr. COLE. What are its costs?

Mr. PIKE. Its costs are all paid.

Mr. COLE. It has no costs.

Mr. PIKE. Its profit is about 11 percent on the gross business conducted.

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