TOTAL COST OF PROGRAM

Mr. KERR. It appears from House Document 640 that the total cost of this will be $80,000,000, whereas the justification states only $70,882,000.

General NEWCOMER. Yes, sir.

Mr. KERR. Why that difference?

General NEWCOMER. The difference of $10,000,000 is purely an estimate now based on the fact that before the program is finished we are going to have to build two new town sites. That $10,000,000 is an estimate of what some of the other facilities in connection with those town sites will cost-for instance, club houses, commissaries, post offices, and things of that type, many of which will come from nonappropriated funds.

Mr. KERR. How did you arrive at this estimate of $16,460,000 to be supplied by money from the railroad?

General NEWCOMER. That would be its proportion based on the relative number of employes and the cost of the new housing.

Mr. KERR. How long have you been rebuilding these homes for these laborers, both the black and the white?

General NEWCOMER. Well, we have been struggling along at this very slow rate for about 5 years now.

Mr. KERR. You have made considerable improvement; have you not?

General NEWCOMER. Very considerable improvements, but to a very limited extent.

Mr. KERR. You won't have to tear down these homes that have been built there in the last 2 or 3 or 4 or 5 years?

General NEWCOMER. No, sir. For the information of the committee, here, for instance, is a photograph of a house built in 1907 [exhibiting]. That is one that we would demolish.

Mr. KERR. This house would accommodate how many families? General NEWCOMER. I think there are four families in that one. Here is a picture of the general type of two-family house that we would like to build in place of the old one [submitting].

Mr. RABAUT. This has a concrete foundation?

General NEWCOMER. Yes, sir; a concrete basement underneath, concrete columns, and concrete beams.

DISCUSSION OF RENTALS

Mr. KERR. I notice you have down here that the rents run $31 per apartment per month. Who fixes the rental value? General NEWCOMER. We fix that, and it varies. We fix it to cover the cost of the maintenance and the amortization of the investment. Mr. KERR. This building would cost how much for construction? General NEWCOMER. I think that is two bedrooms.

Mr. RABAUT. It says here, "House 5729 Sibert Street, Balboa Heights, Canal Zone. Two family." It does not say what the number of bedrooms is.

General NEWCOMER. I think that house costs $13,200 per family.
Mr. RABAUT. How could you rent it for $31 a month, then?

General NEWCOMER. That covers the amortization of the building over its anticipated life.

Mr. RABAUT. At what rate of interest?

General NEWCOMER. Over 40 years.

Mr. TABER. It does not cover maintenance?

General NEWCOMER. Yes; the amortization plus the maintenance cost.

Mr. RABAUT. At $31 per month?

General NEWCOMER. Yes, sir.

Mr. TABER. At $13,000 per family unit, two families would be $26,000, and it rents for $62 a month. The interest on that would be— Mr. RABAUT. What rate of interest do you figure?

General NEWCOMER. Simply the amortization of the investment. In other words, we have recovered the cost of the investment at the end of the life of the building.

Mr. TABER. You would not get enough out of the place to pay the interest on the money at that rate.

Mr. RABAUT. At 6 percent it would be $65 per month.

Mr. TABER. At 3 percent, it would be $780 a year.

Mr. RABAUT. At 3 percent, it would be $32.50 per month.

General NEWCOMER. It does not cover interest on the investment. By executive order, we are authorized to fix the rents at rates that will amortize the investment and pay all of the maintenance costs. Mr. TABER. You mean you will amortize $26,000?

General NEWCOMER. In 40 years.

Mr. TABER. That would take up more than the rent alone, outside of any maintenance.

General NEWCOMER. That is 21/2 percent annually.

Mr. TABER. That would be about $650, which would be more than the gross rent; would it not?

Mr. KERR. The $650 figure is on two families.

Mr. TABER. The $650 figure is for two families, and the rent at $63 a month would be $756 a year. If you have $650 for amortization, that only allows you $100 a year for maintenance. You could never do it. General NEWCOMER. As I figure it, $330 covers the amortization per family.

Mr. TABER. The amortization per family at $26,000 is $650 at 21⁄2 percent.

General NEWCOMER. For the two families.

Mr. TABER. For the two families; that would be $325 per family. Mr. RABAUT. It would figure over 40 years $15,420 per family, and at $13,000 you would have $2,000 leeway for maintenance and anything else. That is just getting your money back.

General NEWCOMER. That is just getting our money back. The maintenance in that type of house really is confined almost exclusively to replacing the roof once, and to painting.

Mr. RABAUT. Over 40 years, you would have $2,420 leeway.
General NEWCOMER. Is there a date shown on that?

Mr. RABAUT. It says "January 1949." I think that must be a lower price.

General NEWCOMER. I have the present rental on that as $36 to $38.

Mr. RABAUT. Oh, that is different. What is the cost on it? Are you sure of the cost?

General NEWCOMER. Yes, sir.

Mr. RABAUT. What is the cost-$13,000 a unit?

General NEWCOMER. $13,200.

Mr. RABAUT. A family?

General NEWCOMER. Yes, sir.

Mr. RABAUT. And what is the rental?

General NEWCOMER. $36 to $38 per family.
Mr. RABAUT. That is different.

AUTHORITY TO INCREASE RENTS

Mr. KERR. You are not estopped from increasing these rents, if necessary?

General NEWCOMER. Oh, no, sir. We are authorized to fix them to meet those costs, and our experience has indicated that the costs are met. We do change them from time to time.

Mr. KERR. You have jurisdiction to go above that cost; do you not? General NEWCOMER. To go above that rent?

Mr. KERR. Yes.

General NEWCOMER. Oh, yes, sir.

Mr. KERR. You have authority to go above the amortization?
General NEWCOMER. Yes, sir.

Mr. RABAUT. That would give $2,640 more at $36 a month.

Mr. KERR. You have the right to make a profit in that rent; have you not?

General NEWCOMER. We have a right to make a profit, but the policy is not to make a profit at the expense of the employees.

Mr. KERR. You take into consideration wear and tear and upkeep of the property, do you not?

Geenral NEWCOMER. Oh, yes, sir. This actually covers the upkeep. Mr. KERR. And all of those items?

General NEWCOMER. Yes, sir. That $31 figure must have been a year and a half ago.

Mr. RABAUT. This other figure gives them a $5,000 leeway.
Do you have your own maintenance crews?

General NEWCOMER. Yes, sir. We do that by hired labor.

Mr. KERR. The number of employees is static; you do not look for any increase in the number of employees down there; do you?

General NEWCOMER. Not unless this present situation changes. If it does change and results in an increase in the military garrison in the Canal Zone, we will have to meet that with a proportional increase in our employees.

Mr. TABER. I have been looking at these justifications. Appendix A seems to show a total cost of about $2,500,000, and you are asking here for $4,000,000. I just do not see it.

General NEWCOMER. Mr. Taber, that justification, beginning with appendix A, if you will note is headed "United States rate quarters.' This $4,000,000 covers both the United States rate quarters and the local rate quarters.

Mr. BURDICK. That is appendix C.

Mr. TABER. That is another item of $2,100,000.

General NEWCOMER. And an appropriation of $2,000,000.

Mr. TABER. For local rate quarters?

General NEWCOMER. Yes, sir. I would like to explain, Mr. Taber, that these details of what we plan to expend each fiscal year are slightly different from what we will have to do now, in view of the fact that it was based on an estimate somewhat different for the fiscal year 1951. In other words, the fiscal year 1951 estimates that you now have are not quite the same as those submitted originally, and we did not know about that until too late to try to change this throughout the 10 fiscal years.

REASONS FOR SUBMITTING SUPPLEMENTAL ESTIMATE

Mr. TABER. Why is this thing coming up here now, 3 months after we had hearings on the original bill?

General NEWCOMER. It is due to the fact that the Bureau of the Budget, when those estimates were submitted last fall, was not satisfied that we were going at the program in the most economical way. That is to say they wanted to have assurance that the time over which the whole program would be spread was the most economical and that our distribution between contract work and force-account work was the most economical. So we employed a firm of consultants to go over that with us, a reputable concern from New York, to study our program, and they said it was properly conceived. We submitted that information to the Bureau of the Budget, but it was too late to be included in the estimates that were considered by this committee this past spring, although the President anticipated this would come along later, because in January in his budget message he did include an item of $4,000,000 for this program.

Mr. TABER. Now, we have a situation where we are right on edge. We do not know what is going to happen. It may be that we are going to be in a war that is going to take every bit of energy we have. Now, a construction program such as this, unless it is especially urgent, in immediate connection with the war effort, ought to wait until after the war effort has subsided. Otherwise, we will be just doing more damage to the war effort than we will be doing good. Now, we ought to begin to think about that end of it in all of these approaches. Now, what do you have to say about that?

General NEWCOMER. I understand your concern on that point, but I would like to try to emphasize, to the best of my ability, the fact that the Panama Canal is, and always has been very closely related to any war effort.

Mr. RABAUT. Yes.

General NEWCOMER. And particularly during the past war it was an essential adjunct to the war.

Mr. TABER. I know, but unless this particular activity is absolutely necessary to take care of what you need in connection with the war effort why could you not wait a while; and, practically, we have just finished a war effort on a very considerable scale, 4 or 5 years ago. General NEWCOMER. Yes, sir.

Mr. TABER. And the question is whether you could not get along with the facilities that they had until we get through. What can you tell us about that, General?

General NEWCOMER. You are wondering whether this could not be postponed for a while?

Mr. TABER. I am wondering if you would not, instead of aiding the the war effort, be interfering with it by launching a program of this sort at this time.

General NEWCOMER. No, sir; I feel not because the efficient operation of the Panama Canal is essential in wartime.

Mr. TABER. That is true, but we must have had a lot of temporary housing down there in connection with World War II, did we not? General NEWCOMER. Not very much, so far as the Panama Canal is concerned. The Army built a great deal of housing, of course. Mr. TABER. Is it not there yet?

General NEWCOMER. The Army housing?

Mr. TABER. Yes.

General NEWCOMER. Yes, sir, but it is completely occupied by the Army.

Mr. TABER. It is completely occupied by the Army?

General NEWCOMER. Yes, sir. I would like to amend that, except on the Atlantic side they have just given up two of their posts, Fort Randolph and Fort Sherman. Fort Randolph was an old World War I establishment, and they have found that they are unable to maintain it economically, and they have abandoned it.

Mr. TABER. They had no housing that was put up in connection with World War II?

General NEWCOMER. No, sir.

Mr. TABER. Did the other fort have any?

General NEWCOMER. Fort Sherman was built much later than Fort Randolph, immediately preceding or early in World War II, I believe. That is at a very inaccessible place on the west side of the Canal, at the Atlantic entrance, and they have found that they no longer need that.

Mr. TABER. That does not have any substantial quantity of housing that is available?

General NEWCOMER. It has quite a few sets of quarters, yes, sir, but which are really of no value to us.

Mr. TABER. Why?

General NEWCOMER. Because of their inaccessibility and their remoteness from where people on the Canal are employed, and because of poor communications. There is only one method of crossing the Canal, and that is on one of the lower gates at the Atlantic entrance to Gatun Locks, which is bad.

Mr. TABER. You have a lot of employees over on the Atlantic side. General NEWCOMER. Yes, sir, in Ĝatun, in New Cristobal and Old Cristobal, and Margarita.

Now, as far as postponement of this is concerned, it has been postponed at least 10 years already longer than it should have been, that largely due to World War II and the inability of men and materials to carry this program through.

The efficiency of the employees, as anywhere else, depends to a very considerable extent on the conditions under which they live, and these conditions have become very, very bad.

Mr. TABER. Well, now, take this four-family set-up here, I do not know enough about it to know but the worst-looking trouble is the roof; the roof does not look good.

General NEWCOMER. Well, the whole building is practically ready to fall down. The maintenance costs on a building like that are very

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