Facilities proposed for fiscal year 1965 and future years (tentative) :

3, 220

1,505

1,210

610

310

6, 855

3,300

600

276

525

2, 200

6, 901

13, 756

At Fort Myer:

Chairman RUSSELL. Now, last year, we provided, with some reluctance, for the various newly formed defense agencies, such as the Defense Supply.

You are requesting $27 million this year.

We were told that the consolidation of functions would result in substantial increases in efficiency and in economy of expenditures. Have there been any personnel savings accomplished by merging the functions of the three departments in the Department of Defense?

Mr. MORRIS. Yes, sir. I am pleased to report, sir, that there has been substantial progress, especially in the case of the Defense Supply Agency. In fact, in the fiscal year 1963 budget there was an actual reduction reflected of about 3,700 positions or $31 million of operating and maintenance cost.

In the budget before Congrses at this time for fiscal 1954, there are firm savings by DSA of almost $35 million, which would account for a reduction of 4,337 personnel spaces. By the end of fiscal year 1964, these savings will rise to about $39 million. We are looking forward to further savings in the fiscal 1965 period.

Chairman RUSSELL. Are those reductions reflected in the personnel figures and in the spending of the three defense agencies as well, or did you just reduce personnel in a certain area and employ more in some other area?

23-901-63

Mr. MORRIS. No, sir. These spaces were actually subtracted from the personnel allowances of the military departments who formerly performed these functions.

Chairman RUSSELL. You will recall, Mr. Secretary, last year we approved the conversion of two warehouses at Cameron Station in Alexandria for the use of the Defense Supply Agency and the Armed Forces Technical Information Agency.

Mr. MORRIS. Yes, sir.

Chairman RUSSELL. Incidentally, I understand they are very plush transformations, from rags to riches.

This year the Army is asking for $250,000 for storage space for commissary supplies that were formerly stored in these transformed buildings, and I have been told that there are two or three other instances of a similar nature in this year's bill that could be considered as hidden costs of these agencies.

Do you actually know what the cost of setting up and administering these agencies is as compared to cost of the functions previously in the three departments?

Mr. MORRIS. We have very detailed, audited figures, sir, of the costs--both one-time construction and operating costs-for these agencies. The conversion of the spaces at Cameron Station, I might say, was done at what we consider a very reasonable cost, about $11 a square foot as against new office building construction costs which might range as much as $20 per square foot.

Chairman RUSSELL. I notice that you state that you urgently require a new permanent air defense facility in Florida. I suppose that is because of the fact that a nearby area is occupied in part by Soviet troops, and they are garrisoned there in considerable numbers. Mr. MORRIS. Yes, sir. As we wrote to you in May, as a result of our experience last fall we concluded it very important to have a permanent air defense group facility in that area.

Chairman RUSSELL. On page 8 you refer to $32 million for the second increment for an installation in Australia. What did that first installation cost? How much have we already invested there? Mr. MORRIS. Sir, I may have to provide that for the record.

Chairman RUSSELL. I wish you would, and, also, provide the total cost to us before we are through with it, sir.

Mr. MORRIS. I will be glad to, sir.

(The information requested follows:)

Naval Comunication Station, Australia-Summary of authorization and funding

Chairman RUSSELL. It seems to me this installation is growing very rapidly down there and it is getting to be a very expensive project. What proportion of the $172 million for contingency authorizations has been spent in each of the three military departments?

Mr. MORRIS. Over the past 3 years, we have spent about 90 percent of the emergency authorization provided. In the fiscal year 1963 period, the Congress allowed us $45 million. By the end of the year we had approved or in process $41.9 million of that authority, or 93 percent.

Chairman RUSSELL. How much Wherry housing is still in existence that we haven't acquired?

Mr. MORRIS. I would like to ask Mr. Reed, the Deputy for Housing, to answer that.

Chairman RUSSELL. All right, Mr. Reed.

We have been acquiring this housing for a long time.

Mr. REED. Mr. Chairman, there were a total of 82,000 Wherry units built. As of now, we have not acquired a total of about 8,000. We plan to pick up 5,000 in the current year, and we have no plans to acquire the remaining 3,000.

Chairman RUSSELL. Is any of that housing considered substandard under the criteria?

Mr. REED. No, sir. When it is acquired, it goes through rehabilitation improvement.

Chairman RUSSELL. I understand that, but at the time it is acquired, is it considered substandard by your present criteria?

Mr. REED. Yes, sir. Sometimes the units are very small, and we combine units to make adequate quarters.

Chairman RUSSELL. Sometimes the improvements cost almost as much as the original housing; do they not?

Mr. REED. No, sir. It has been fairly modest and has averaged about $3,000 per unit.

Chairman RUSSELL. You have not disposed of any property as outlined on page 17 other than that which has been reported to the standing committees of the House and Senate; have you, Mr. Secretary? Mr. MORRIS. We have not, sir.

Chairman RUSSELL. All of these various transfers have been reported as they have occurred?

Mr. MORRIS. Yes, sir.

Chairman RUSSELL. I will have a number of other detailed questions for the services as to the line items.

One other question. Those huge industrial plants that were built for production in time of war to which you referred will be included here. Is there any requirement that those plants retain any ability to produce materiel of war in case of a national emergency?

Mr. MORRIS. Yes, sir. Wherever we would need the capacity of a plant during a mobilization it is sold with a restriction that the productive capacity must be held in readiness for return to defense use. Chairman RUSSELL. Such a plant would be capable of producing something that we would actually need in time of hostilities?

Mr. MORRIS. That is correct, sir.

Chairman RUSSELL. In other words, a purchaser could not change to the manufacture of perfume in one of these plants and move out all of the machinery? The plant has to do something that could be readily changed to produce something useful in time of war?

Mr. MORRIS. Where we would need the capacity, the purchaser agrees to keep the tools available for immediate reuse.

Chairman RUSSELL. I didn't mean to disparage perfume, in view of the Wacs, Waves, and others to whom it might be an important element of morale in case of a war.

Senator Smith?

Senator SMITH. I haven't any questions, Mr. Chairman.
Chairman RUSSELL. Senator Thurmond?

Senator THURMOND. Mr. Chairman, I think you have asked a great many questions that I had in mind.

Chairman RUSSELL. Senator Cannon?

Senator CANNON. Thank you, Mr. Chairman.

Mr. Secretary, on page 12 you say that you are developing a procedure to ship U.S.-built component-type houses for erection at oversea locations. What is the status of that program?

Mr. MORRIS. I would like to ask Mr. Reed to answer.

Mr. REED. Senator Cannon, we are in the process of making an award for some 500 units through the Philadelphia Corps of Engineers field office. We have already taken bids and analyzed them for some period of time. We expect to make the award within the next few days.

Senator CANNON. Is that the type of house that can be removed and relocated, to which the Secretary referred?

Mr. REED. No, sir. These are different types. This is a componenttype house which is erected on a site out of components. It is not specifically designed with relocation features, though you could do that.

Senator CANNON. But the house actually would be constructed here in parts and shipped over and then erected on the site?

Mr. REED. That is correct, these components are prefabricated and then erected on the site.

Senator CANNON. Is that the cost that you referred to when you said that you were saving some $60-odd million at an expenditure of about $30-odd million?

Mr. MORRIS. No, sir. This step is in addition to that and will not only save gold flow in this case but we expect to get a less expensive house, in addition.

Senator CANNON. How much of a saving do you expect to get from this particular item?

Mr. REED. On the foreign exchange costs, sir?

Senator CANNON. Yes.

Mr. REED. The saving will be 83 percent, because the foreign exchange cost to do the site work and the erection will be 17 percent of the total cost. We are not paying a premium in this instance.

Senator CANNON. In section 506 you request authority to be granted and exception to the requirement that substandard units be demolished by July 1965. In using those units, do you declare them as adequate quarters or are those declared inadequate?

Mr. REED. They are declared as inadequate, sir, and the occupants pay a rental rather than forfeit their quarters allowance, and this, of course, is generally less. To assure that the rental is comparable, we make commercial appraisals in the area to find out what are the local rental rates.

Senator CANNON. Are the rental rates fixed based on the local rates in the area?

Mr. REED. They are.

Senator CANNON. Or are they based on your cost of operation?

Mr. REED. This is one of our criteria, that we will not retain units unless the income from rentals equals or exceeds the operation and maintenance costs. We are now able to do this because of a detailed cost accounting system. But in establishing the rental rates so that there is no unfair advantage to the occupant, we have a local area survey made of prevailing rental rates.

Senator CANNON. Do you have a list some place in the record of where these 20,000 units are located?

Mr. REED. We have a tentative list, yes, sir, which we will furnish when the housing material comes up. We are in the process of making sure each of these tentative retentions meets the criteria.

We view this as a wasting asset, Senator Cannon.

Senator CANNON. I have seen some of those units, and I think that a number of them could well be retained to gain some additional use out of them.

Mr. REED. That is the very reason we propose this, because of the statutory requirements.

Senator CANNON. Under your rental guaranty program I note that you are requesting authority, as I interpret it, for rental guarantee up to 10 years. The best authorization was on a 5-year basis.

What is the reason for this?

Mr. REED. Sir, we have authority up to 10 years, but the actual agreements that we consummated were about 5 years' average. This is to give us maneuvering room.

Senator CANNON. I see. In other words, you generally use the 5-year guarantee?

Mr. REED. We will drive the best bargain we can.

Senator CANNON. Even though you had the 10-year authorization? Mr. REED. Yes.

Senator CANNON. And you wouldn't propose to go in with a 10-year authorization and use that as a basis of your negotiation?

Mr. REED. No, sir. That is a maximum figure, in our thinking. Senator CANNON. You say here how much the average loss has been, about $61/2 per unit per month. Have you had some areas where this loss has been lumped because of removal of bases, for instance? I think in France, wasn't there a base closed out there where you had a rental guarantee project?

Mr. REED. We did not have it in France, sir, but we are facing it right at this moment in Morocco at the two Air Force bases, and it is a lump sum, and that is what the majority of the $1.2 million requested for fiscal year 1964 authorization represents.

The others have worked pretty well in Germany and in France. Senator CANNON. I thought we had a rental guarantee in France. Mr. REED. I am sorry; I am corrected, Senator, there was one in France, but I don't think we had a great payoff there. We can put that in the record for you.

Senator CANNON. I believe, if I remember correctly, in that instance the local economy was able to move in and utilize the units so that actually our loss was not too great.

Mr. REED. Yes, sir; and that is the underlying theory of this concept. There must be a residual local economy that can absorb the units and this keeps our costs down.

.