It is anticipated that many claims of general liability of the Custodian's Office will be asserted against this surplus fund, and it may be that a considerable part thereof will have to be used to defray the continuing general expense of this office, which now, regardless of the drastic reduction in personnel and cost of administration, is operating at a deficit because the income gradually diminishes in the proportion in which the Custodian returns to enemy owners the money and property from which the income has been derived; but even after these contingencies and expenses have been met, it appears that there will still remain, upon liquidation of the office, a surplus which may be used to repay in whole or in part the moneys heretofore appropriated and used out of the public funds for the protection and administration of enemy property.

A number of suits have been instituted by German nationals asserting in general that the aforesaid 2-percent deduction is arbitrary and unauthorized, and while they have substantially conceded that all expenses of this office, if maintained on a daily cost accounting basis, were authorized and proper, they assert that as that course was not followed, restitution of such deduction should be made to them.

While the Alien Property Custodian has contested such litigation, the most recent action is found in the decision of the court of appeals, District of Columbia, in the case of Woodson, as Alien Property Custodian, et al. v. Deutsche Gold und Silber Scheideanstalt vormals Roessler, which court on November 20, 1933, entered a decree dismissing the motions to dismiss which had been made by the Custodian and the Treasurer of the United States. I have submitted to the Solicitor General of the United States a proposed petition for writ of certiorari and supporting brief to be filed in the Supreme Court of the United States, which petition, if filed and granted, would obtain a further hearing before the last-mentioned Court.

The propriety and fairness of the deductions heretofore made by me and my predecessors in accordance with the law, as construed by the Custodian's legal staff and that of the Attorney General, is further emphasized when the total expenses of $8,085,584.41 are compared with the total deductions in the amount of $7,937,263.63, almost an equal off-set.

Under the provisions of the treaties of peace and our law, I do not believe that it was ever contemplated that the former enemy nationals should be given an opportunity to cause a review of the administration of their properties in our courts. In the event they are successful in this present litigation, it would require a review from an accounting standpoint, day by day, of the entire administration over a period of more than 16 years to endeavor to allocate the expenses concerned to the particular properties, necessitating the examination and allocation of expenses in 50,381 separate trusts, and the reconsideration of 49,850 claims for the return of enemy property. This accounting would cost a large sum of money, and take so much time that it would materially delay the final winding up of the Alien Property Custodian Office. Further, it would transfer from the former enemy persons to the American taxpayer a large part of the cost of administering the enemy prop erty in this country-a result obviously against the spirit of the peace treaty and the intention of the Congress in the legislation under which the 2-percent deduction for operating expenses was made.

It may be of interest, in this connection, to note that Great Britain made a flat deduction of 2 percent of all the enemy property it administered to reimburse its government for the expenses of its administration, and France made a similar deduction of 2% percent on part and 3 percent on the balance. In order to stop former enemy persons from securing this fund, and to make sure that the administration of enemy property should not be or become a burden on our taxpayers, I am submitting to the Senate Committee on Ap propriations a proposed amendment to the Trading with the Enemy Act which will make it impossible for such claims or suits to be filed or maintained.

Unless legislation of this character passes the Congress, or unless the present decree of the Court of Appeals, District of Columbia, is reversed, further public appropriation may be required to the extent of several millions of dollars which, in my judgment, would be unwarranted.

The CHAIRMAN. The committee will stand adjourned until Monday at 10 a.m., at which time the committee will hear certain Senators, and perhaps General Hines of the Veterans' Bureau.

(Thereupon, at 12:30 p.m., the subcommittee adjourned until Monday, Jan. 22, 1934, at 10 a.m.)

INDEPENDENT OFFICES APPROPRIATION BILL, 1935

THURSDAY, JANUARY 25, 1934

UNITED STATES SENATE,

SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS,

Washington, D.C.

The subcommittee met at 10 a.m., Hon. James F. Byrnes presiding. Present: Senators Brynes (acting chairman), Russell, Coolidge, Adams, McCarran, Hale, Steiwer, and Townsend.

NAVY DEPARTMENT

STATEMENT OF REAR ADMIRAL CLAUDE C. BLOCH

ECONOMY PROVISIONS AFFECTING NAVY DEPARTMENT

Senator BYRNES (presiding). Admiral Bloch, what is the provision to which you desire to call our attention?

Admiral BLOCH. It is in section 22 of the bill as it passed the House, sir.

Senator TOWNSEND. To what page in the bill do you address your remarks, Admiral?

Admiral BLOCH. It is on page 35 of the bill as sent to the Senate. Senator BYRNES. Go ahead, Admiral.

Admiral BLOCH. The Navy Department has no interest in any part of the independent offices bill except that part having to do with certain economy provisions which are being continued by this bill throughout the fiscal year 1935.

The legislation continuing these economy provisions is contained in title II of the bill and those provisions which affect the Navy Department are contained in section 22 thereof.

The only one which I desire to bring to the attention of your committee is that which suspends automatic increases in compensation, which was originally contained in section 201 of the Legislative Appropriation Act, fiscal year 1933.

This question was taken up by the Navy Department with the Director of the Bureau of the Budget in connection with the Navy Department's budget for 1935, and as a result of the representations made the Director of the Bureau of the Budget recommended the restoration of automatic increases in compensation of the commissioned and other personnel of the Army, Navy, and Marine Corps for the fiscal year 1935, and funds for this purpose were provided in the Budget.

The President, in his budget message to Congress, endorsed this recommendation; but at a later date the President addressed a letter to Mr. Buchanan, chairman of the House Appropriations Committee, in which he modified his recommendation, and recommended that the

commissioned and warrant personnel of the six services mentioned in the Pay Adjustment Act of 1922 be given the privileges of promotion comparable to those conferred upon civilian employees. The only automatic increases in compensation received by civilian employees are increases in pay for length of services. By this act, this is denied them. It is evidently the intention that officers of the service be denied the same increases as civilians.

During the past 2 years, when an officer in the Army, Navy, or Marine Corps was promoted, he received the promotion, but it was construed that he was prevented from receiving any increase in pay by reason of said promotion.

It is not believed that it was ever the intention of Congress to deny officers of the services pay on their promotion, and that the automatic increases referred to in the legislation referred to increases in pay by reason of length of service. This belief is borne out by the statement contained in the report made by the Committee on Appropriations of the House of Representatives when the bill was presented to the House of Representatives on January 10, 1934. (See p. 11 of the report in regard to their belief.)

The pay law governing the pay of officers in the various services is very complicated, and no rank is given any flat rate of pay for that rank; but instead thereof the officers of the service are divided into pay periods according to their length of service and their rank; so that when an officer is promoted, his pay on promotion is determined not only by the rank to which advanced, but also by the number of years that he has been an officer in the service.

In endeavoring to carry out the recommendation made by the President in his letter to the chairman of the House Appropriations Committee this letter being published in the Congressional Record on page 465, issue of January 11, 1934-the Appropriations Committee amended section 201 by the addition of certain words, which read as follows:

During the fiscal year ending June 30, 1935, in the case of the commissioned and warrant personnel of the services mentioned in the Pay Adjustment Act of 1922, the compensation to which the reduction of compensation under section of title II of the act of March 20, 1933, as continued for the fiscal year ending June 30, 1935, shall be applied shall include pay and allowances which would have accrued by reason of promotion in rank but for the suspension of automatic increases in compensation by reason of promotion under this section, if such promotion occurred after June 30, 1932, but before July 1, 1935, but in calculating pay and allowances of the rank to which promoted service after June 30, 1932, and before July 1,1935, shall not be included. This mandatory provision shall not authorize the payment of back compensation.

This wording does not accomplish the purpose of the recommendation of the President. It does give a few officers of the higher pay brackets assistance, but it totally fails to give any relief to the lower ranking officers of the service, who are the ones in the most need of help, and whose condition is really very unfortunate. Furthermore, the amended wording is subject to many decisions concerning its meaning.

Therefore, I have prepared, and I submit herewith, other wording which, in my opinion, will accomplish the purpose of the President and which is clear and can have only one meaning. My recommendation is as follows:

(1) Section 201 (suspending automatic increases in compensation) of part II of the Legislative Appropriation Act, fiscal year 1933, is amended by inserting

at the end thereof the following: "This section shall not apply during the fiscal year ending June 30, 1935, to commissioned and warrant personnel of the services mentioned in the Joint Pay Act of June 10, 1922, except that service rendered by such personnel after June 30, 1932, and before July 1, 1935, shall not be included during said fiscal year in computing their longevity increases provided for in section 3 of title 37, United States Code. This amendment shall not authorize the payment of back compensation."

The wording suggested will have the effect of denying the officer personnel their service during the period June 30, 1932-July 1, 1935, for the purpose of longevity pay, that is, the 5 percent increments every 3 years. However, it will give them advancement from one pay period or grade to another, whether by promotion or length of service, together with the increases of pay by reason thereof. It is believed that this is what the President intended.

To go a little further, I should like to state that, taking into consideration the 15-percent pay cut which is equally applied to all ranks of the service and to all departments of the Government, certain junior officers of the Navy, by being denied their pay on promotion, are actually being deprived of 42 percent of what their pay would have been had not this provision been effected. I do not believe it was ever the intention of Congress to apply such a drastic cut to any one coterie of individuals in the Government service without equal application to others. If the 15-percent cut it taken into consideration, the average loss of pay for each officer in the service amounts to over 20 percent. I doubt that Congress ever intended such a drastic reduction to be made; and in view of rising prices, and the variety of duty performed in various places by officers of the service, they are suffering hardships which I believe should be obviated at the earliest possible time.

I might say that the personnel of the Navy has cheerfully accepted the 15-percent reduction and will continue to accept cheerfully such cuts as are made uniformly throughout the services; but in regard to this particular section of the economy laws, which does not apply equally to all grades and ranks, there is a feeling that it is discriminatory against them and the morale of the personnel is seriously hurt. Senator STEIWER. Did I understand you to say, Admiral, that the present situation operates more oppressively against the younger officers than against those of higher rank?

Admiral BLOCH. It will with the amendment placed in the bill by the House of Representatives, which denies officers service between June 30, 1932, and July 1, 1935. The reason for that is this:

The lowest grade of officer rank that we have in the Navy is that of ensign. An ensign is in the first pay period. The rate of pay is $1,500 a year. If he is denied his service between July 1, 1932, and July 1, 1935, no service accrues while he is an ensign. So when he steps up on promotion to lieutenant, junior grade, he has 1 year's service; and by reason of having only 1 year's service he cannot advance to the second pay period, which requires at least 3 year's

service.

The second pay period is $2,100. To go into the second pay period as a lieutenant, junior grade, in the Navy, or first lieutenant in the Army, an officer must have at least 3 years' service; and service being denied between those dates, he can not have 3 years' service, so he cannot get any increase of pay.

Senator HALE. Therefore under the House provision he will lose his $2,100, and will get only $1,500, and then will have 15 percent of the $1,500 deducted besides?

Admiral BLOCH. Yes, sir.

Senator HALE. Bringing it well over 40 percent?

Admiral BLOCH. Exactly so, sir.

Senator STEIWER. What are the other elements that make up this 42 percent besides the 15 percent? How much of it is longevity pay, and how much of it is lack of pay or promotion?

Admiral BLOCH. He loses his $600 by reason of the fact that he can not advance to the second pay period; he loses 5 percent on account of his longevity pay, and he loses 15 percent, which is a horizontal cut throughout all services. That makes 42 percent.

Senator STEIWER. But this 42 percent is merely the direct pay loss. It does not take into account the equation of rising prices, not does it consider what happens to the officer when he is in foreign stations? Admiral BLOCH. None of those things were taken into consideration. Senator STEIWER. The lack of purchasing power of our dollar under our present governmental policy is not taken into account, either? Admiral BLOCH. No. It is just based on the pay that he would have received had it been normal, and what he actually receives under this condition. No other conditions are taken into consideration.

Senator STEIWER. Let us translate this into a more practical picture. If the junior officer would sustain a pay cut of 42 percent, we will say, under this language, and were ordered to some foreign station, with the American dollar on about a two thirds basis, can he get along? What is going to be his practical situation?

Admiral BLOCH. We have had a great many telegrams within the last month or two months, and perhaps going back as far as June, from China particularly. The bulk of our personnel in foreign waters today is in China. We have in China today about 8,000 officers and

men.

Actually on shore in China we have 2,100 marines, permanently on shore. Then we have a number of gunboats that are in China permanently, that operate up and down those rivers-the south China patrol, which is Canton, and the north China patrol or Yangtse patrol, which is on the Yangtse River. The remainder of the personnel is in the Philippines. Of course, in the Philippines there is no variation in exchange.

In China last January the price of the yuan dollar, which is the currency out there, was 20 cents of our money. That is when we were on the original gold basis. On April 19, when they say that we went off the gold basis-I do not know whether we did or not, but they say we went off the gold basis-the yuan dollar began to rise, because the yuan dollar has not any par. It contains three quarters of an ounce of pure silver; and whatever the yuan dollar is worth depends on what silver is selling for in London on any given day.

A yuan dollar, three fourths of an ounce of silver, last January was worth 20 cents of our money. Today it is worth 33 cents. So you can see that there has been an appreciation in the price of the yuan dollar from 20 cents to 33 cents, which is over 50 percent of the price of the yuan dollar.

Anybody who is living in China, and had a lease for a year, we will say, made out in yuan dollars, and had to buy yuan dollars in Amer