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forth, but I do not think they will conclude the agreement until such time as we are ready to take over and have come to an agreement with Mr. Leoffler.
PAYMENT FOR IMPROVEMENTS Mr. Yates. You are not paying Mr. Leoffler for any of the improvements he put into the courses, are you?
Mr. SCHWAB. Yes; in effect we are.
Mr. SCHWAB. The agreement with the Interior Department when he built the golf course and clubhouse at Fort Dupont was that he was to recover that from profits, so we are assuming the unrecovered portion of that.
Mr. YATES. What about the improvements at the other golf courses?
Mr. SCHWAB. There is nothing else; no, sir. That all came under his contract. There were just two items.
You might be interested to know that he built three miniature golf courses and paid for them completely out of profits. He paid for two of them out of a year and a half's operation of them. They cost some $55,000, I think. That is one of the profitable sidelines.
Mr. SCHWAB. Yes, it is a very profitable service.
Mr. SCHWAB. Any foodstuff that he would be selling, and whatever he might have on hand in the way of inventory would be taken. We would have to buy whatever was usable.
Mr. YATES. What is the contingency fund?
Mr. SCHWAB. Well, there are some things that are always contingent. That would be due to the fact that we might have a leeway of $1,000 or $2,000. You see, Mr. Yates, actually, when we get down to business here, there is the possibility that the $69,000 that will have to be paid to Mr. Leoffler for these unrecovered costs will be considerably reduced, if he makes a good profit this year that share of the profit that would go to the Government would be applied against that. If it is $10,000, $20,000, or $30,000 that figure will be reduced accordingly. Unfortunately we cannot now be exact about that.
Mr. BATES. Will you tell us how much the District would lose in taxes in the way of District income, personal property, and so forth?
Mr. FOWLER. I do not know, except the figure that he gave was $1,600 in District taxes. That is the license tax, the only tax he pays.
Mr. SCHWAB. The beverage tax.
Mr. FOWLER. I will try to work that out for you. He operates a few concessions, and he does have a liquor tax to pay. That is one thing I would not want to see this Recreation Board engage in, run a concession that sold beer.
WORKING CAPITAL FUND
Mr. YATES. The profits that will be made by this would go to the Recreation Board or to the District?
Mr. FOWLER. On page 21 of the justifications you will see the working-capital fund. The way we have phrased this, which I think meets with the approval of the Commissioners, the profits would go back to the general fund and be appropriated by the Commissioners.
Mr. YATES. I would like to have an explanation of that.
Mr. SCHWAB. We do not believe that the Department of the Interior is going to permit us to take these courses if they are going to be a source of revenue to the District. I think they are going to expect us to put every nickel that we make in profit back into the courses, and if we do not need it that the rates would be reduced. Now, of course, they expect us to pay back to the District what funds might be advanced by the District.
Mr. YATES. Then I think it probably would be important to consider some sort of provision, such as you have in the public-housing law, for payment in lieu of taxes by the Recreation Board, so that the District does not suffer any great loss in taxes as the result of the Recreation Board taking these facilities over.
Mr. FOWLER. And it leads us also to wonder just how much control the Interior Department is going to have over this thing. We are dealing with a Department that, apparently, is going to hold the whip hand. First it says to us you cannot take any of this money and put it back into the general fund. They want it all to go back into the courses. These capital working funds could be very profitable. You could find that they would be building large structures and very large buildings, and putting much more money back in than is necessary.
Mr. BATEs. It could wind up costing the District some money Mr. FOWLER. Yes; it could wind up costing the District money.
Mr. YATES. Then I think it is very important to have representatives of the Interior Department come down here and have them give us an explanation of what they propose to do:
Mr. FOWLER. They are now in the process of working out a contract. Mr. Dante, Assistant Corporation Counsel, has been in touch with them on that. We are now consulting with them trying to get this straightened out so that we will know what they will do.
Mr. BATES. We certainly ought to have some representative of the Interior Department up here before we act on this.
Mr. SCHWAB. Our Board has been very much pleased with the agreement that the Interior Department has proposed, because they have given us in that agreement practically complete control. We, at one time, thought they would also insist on setting the rates for the courses and for the food as well as everything else we did, but they came to the conclusion that the only way to handle it successfully was to give us the responsibility, and the only control they have is that we must render them a statement once a year, and monthly statements of the gross income on golf and the fees taken in.
CONTROL OVER THE GOLF COURSES
Mr. YATES. What termination period do they have in the terms of the contract?
Mr. SCHWAB. Each side can terminate on 30 days' notice. That is the mutual right of both parties.
Mr. YATES. For any reason?
Mr. DANTE. Or no reason, plus the right on the part of the Secretary of the Interior to withdraw any of the land at any time he sees fit to do so, or change lands.
Mr. YATES. That strikes me as being somewhat strong, because of the fact that here you are undertaking a major venture, one that you expect may be a profitable one, and yet which may turn out to be a nonprofitable one and be costly ultimately, and one in which you may recoup any loss by subsequent operation, and yet you are subject to cancellation of the contract without cause.
Mr. SCHWAB. But we have this safety valve there, Mr. Yates
Mr. Yates. It is difficult for me to ask questions in the absence of the agreement and without knowing what the terms of the agreement
Mr. SCHWAB. Yes, sir; I understand that, but I might explain that if the agreement is canceled by the Interior Department it provides that they will pay over to the District of Columbia any portion of the advanced funds that have not been repaid, either by appropriated funds or from future earnings of the golf courses.
We insisted upon having that provision put in there. We will not spend any money on the golf courses or involve ourselves beyond what we have gotten out of the golf courses.
I want to say with due deference to the District Commissioners, as I know how they feel about Government operations, and I feel the same way about them, as I have my own business, and I have been in business for 25 years, and I feel much the same way as they do about Government operations, but in this case I feel that we have plenty of margin. I have gone into it very carefully over a period of years, and I am positive that we will make an excellent showing on it, and I see no way for us to involve ourselves beyond the money that we take in out of the golf courses. In other words, we cannot cut down the rates, unless we come to you and ask you for some money.
Mr. YATES. That is why it is very important to know just what the attitude of the Department of the Interior is with respect to the funds.
Mr. SCHWAB. We determine the admission rates, not them. You see, we have full control under this arrangement.
Mr. YATES. Then I find myself at a loss somewhat as a result of what you stated the attitude of the Interior Department would be. You stated previously that they would expect you to turn back any profits you made out of the golf courses.
Mr. Schwab. Yes, sir; that is right.
Mr. Yates. How would you do that except through cutting the admission rates, or building expanded facilities?
Mr. SCHWAB. That is right, and that is what has been going on with Mr. Leoffler. While he has been pocketing his share of the profits, the Interior Department has been turning their share of the profits back toward the upkeep of the golf courses. The Federal Government cannot get cash money out of the golf courses. They put it back into the golf courses.
Commissioner John RUSSELL Young. May I ask a question?
Commissioner John RUSSELL YOUNG. If we put up a quarter of a million dollars of public money, I do not see why the Interior Department has to scrutinize these figures or have anything to say about it. It is the taxpayers' money, and all they have is title in that land. r Mr. YATES. I assume that you will not resort to the same practices that Mr. Leoffler resorted to, and that you will maintain the golf courses in an adequate, satisfactory condition.
Commissioner John RUSSELL YOUNG. Surely.
Mr. Yates. I am certain that the Interior Department probably want to make sure of that, and that is the reason for its attitude.
Commissioner John RUSSELL YOUNG. They have no financial investment in it, except in public land which we paid for.
Mr. SCHWAB. Well, they have built these golf courses, and they are worth a lot of money. The improvements and the holes themselves are worth a lot of money and, of course, it is their responsibility and they are farming it out to us to do the job.
We asked for the job, and Congress said we should have it, and we can do the job.
Mr. YATES. Well, based upon the reports that have been issued in the past about the operation by Mr. Leoffler, I certainly do not think the Recreation Board could do worse in the operation of the courses, and from what I know about the operation of the Recreation Board of its other facilities I think it would probably do a much better job.
ATTITUDE OF RECREATION BOARD
Mr. SCHWAB. We have four citizen-member taxpayers on our Board who are not interested in burdening the city unnecessarily with any costly structures.
Mr. Yates. Are any of them golfers who are interested in seeing that the courses are maintained properly?
Mr. SCHWAB. I have played on the public golf courses for the last 25 years. I am not a member of a private club. I have played on the public courses for the last 25 years, and I still play on them. It was as a result of my baving been on the golf courses 2 years ago that I heard of this protest meeting, and out of that finally this grew.
Over this past 25 years, I must say that they have been miserably maintained, and in answer to Mr. Wilson's question-and this may be enlightening as to the condition of the courses-in 1943, 1944, and 1945, of course, they could not spend much money because of labor conditions; but starting in 1945, when they could spend money on them, they had available $36,000 in the rehabilitation fund to bring the golf courses up to good condition. They spent $5,428 that year.
In 1947 they had $57,943 in the rehabilitation fund and spent $3,500, and in 1948 they had $54,000 available and spent $15,000. That was starting in October, after this fuss started that Mr. Wilson has mentioned. They started then to spend some money on the
LEOFFLER CONTRACT WITH INTERIOR DEPARTMENT
Mr. Yates. Let me ask you this question: In their contract with the Interior Department, was there any clause that would compel them to put that money into the courses?
Mr. SCHWAB. The lease provided that the concessionaire would have to spend up to 5 percent of the gross receipts on the courses upon direction of the Secretary of the Interior.
In 1946 and 1947 the Secretary instructed them to spend $40,000 of that money on the courses, and during those 2 years they spent $8,000.
Mr. YATES. Why does not the Secretary have the right to those funds for use on the golf courses?
Mr. SCHWAB. Well, during the three war years they could not spend money on them, so they set it aside as a rehabilitation fund and, of course, it accumulated. It is on a 50-50 basis, and if the fund is not used Mr. Loeffler gets 50 cents and the Government gets 50 cents of each dollar. In other words, every time Mr. Loeffler failed to spend a dollar he was putting 50 cents in his pocket. That explains the condition of the courses, in my opinion.
EXTENSION OF RECREATIONAL FACILITIES
Mr. Wilson. I am less interested in this proposition financially than I am in the facilities and services that may be offered the public under the new plan. I agree that expenditures for rehabilitation and juvenile delinquency and things like that are terrific, and the only way I know to reduce them is to offer the people ripe apples and hope they will quit eating green ones.
We are spending a lot of money. Mr. Yates mentioned the payment in lieu of taxes. We do not pay in lieu of taxes for the playgrounds downtown, the tennis courts and the baseball grounds and the places on the Mall, and I can hardly understand why we should expect people who play golf to pay an additional fee to be passed along in lieu of taxes.
Mr. Yates. If you will yield for a moment, the suggestion was made in anticipation of the profits that were testified to. I would think that the profits that would be made would be in excess of the amount that one would normally expect an operator to put back into his golf course.
Mr. WILSON. I would hope, though, that those profits would be used to produce or create added recreational facilities for the youth and adults of the District of Columbia.
Mr. YATES. I will go along with you on that, if you can do it.
I think it is really the intent, that any additional profits after this original obligation is paid off would be used to improve the facilities, such as the swimming pools.
Mr. Bates. I believe you said you were a businessman, Mr. Schwab? Mr. SCHWAB. Yes, sir.
Mr. BATES. As a businessman you would not be in favor of the Government operating the railroads, would you?
Mr. SchwaB. I do not think so; no, sir.