SUMMARY OF RECOMMENDATIONS SUBMITTED

ON SURPLUS PROPERTY LEGISLATION

I. Excerpts From Subcommittee Hearings on Mobilization and Demobilization Problems, April 4 Through May 5, 1944

Hon. Francis Biddle, Attorney General of the United States-Part 14, April 18 and 19, 1944.

Pages 921-939:

The value of reports is to give to the Congress and to the public information with respect to what we might consider very large transactions-they won't be interested in the minuteness of disposition, but they will be very much interested in dealing with aluminum plants and matters of that kind. Now if there is no responsibility on any comparatively small body to follow up what might be a difference of opinion in the country and in Congress, then the effect of that requirement will not be very valuable. If, however, you have a comparatively small committee whose duty will be to keep a constant eye on the transfer of the property so that it will be coming to Congress and saying, "We do not believe in this disposition," or "that such legislation is a mistake," it seems to me that will be the best brake that you can have, rather than to attempt in committee to do any actual administrative detail or consultation, which I think is a very essential point.

Mr. BIDDLE. Section 107 (b) of S. 1730 directs the Attorney General to make surveys during the period of reconversion to determine if there are any factors which tend to eliminate competition, to create or strengthen monopoly, to injure small business, or otherwise to promote undue concentration of economic power. The section requires the Attorney General to report the results of the surveys to the Congress and to make recommendations for legislation designed to strengthen and promote free, competitive enterprise. There again you may wish to consider the Attorney General reporting to this committee in form.

I welcome this responsibility. The Department of Justice has a substantial interest in the economic problems of demobilization. That interest arises in the first instance because it is the duty of the Department of Justice to enforce the Sherman Act. It extends, however, beyond the prosecution of violations of that statute. The Sherman Act embodies a public policy against monop olistic practices and favors free competitive enterprise. It is our hope that this public policy will serve as a guide in the formulation and administration of a program for demobilization. To carry out the broad policy of that act, steps should be taken during the reconversion period to reverse the tendency toward concentration of industrial control brought about by the war-production program, and to encourage the existence and success of small and independent business, and the creation of a truly competitive market. Because of its experience in this field, the Department of Justice will be able to make a contribution with respect to these problems. I hope that any legislation that is adopted will include this or some similar provision so that the Department may bring its views to the attention of the Congress and of the agency dealing with these problems. For the same reasons, I believe that the Attorney General should be included in any interdepartmental board that is established to determine policy for the demobilization period.

Mr. BIDDLE. Yes. There are, as you know, a large number of statutes dealing with the management and disposition of Government property. If we exclude statutes authorizing particular transactions, there are more than 200 that re

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late to the disposition of Government property. In most cases, the authority conferred by these statutes is limited to a particular kind of property or to property of a particular group. In other words, they deal with the disposition of specific property, or deal with a specific agency of the Government, or department of the Government. These statutes are satisfactory for the purposes for which they were enacted, but they do not give the Government the general authority that will be required to manage and dispose of surplus property promptly, economically, and pursuant to a considered and consistent plan.

Let me give one illustration of the limitations on existing authority. Title II of the Second War Powers Act, and the act of July 2, 1940, taken together, confer on the War and Navy Departments, and other agencies designated by the President, wide authority to acquire and sell property for what may conveniently be called war purposes. Acquisition and disposal of property under the authority of this statute during the continuance of the war and for war purposes does not raise very serious legal problems. The use of this statute to dispose of surplus property, particularly after hostilities have ceased, may raise troublesome legal questions.

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An example of a very unwise limitation on the powers of disposition is found in the Public Law 289, approved April 4, 1944, which authorized the Secretary of the Navy to proceed with the construction of certain public works. It was an appropriation bill-no, it was an authorization bill. The law contains and this is one proviso that seems to me unwise-the law contains a proviso that prior to the acquisition or disposal of any land acquired for naval use under the authority of that or any other statute, the Secretary of the Navy shall come into agreement with the Naval Affairs Committees of the Senate and of the House of Representatives with respect to the terms of such acquisition or disposal. There are certain doubts as to the constitutionality of this provision. I may say in connection with that statute, that the Secretary of the Navy is in entire agreement with me. The policy, and a very appropriate one, of the Navy has been to keep both of these committees thoroughly informed as to the disposition of any piece of real property. That is thoroughly appropriate. But to say that the Secretary must never dispose of or acquire property until he goes to the committee and gets its permission, seems to me unwise, irrespective of any constitutional question, from a competent administrative point of view of handling this property.

I now turn to some questions raised by the bills

Senator KILGORE. One question also there, General, while you are talking about that:

Is there any way in the world that these committees can make their findings a matter of record, so that the purchaser of that property, for instance, would be safeguarded and would know?

Mr. BIDDLE. The amendment has

Senator KILGORE. There is no resolution passed, it is simply committee action. Mr. BIDDLE. It also requires that a certificate be placed in the conveyance showing the congressional approval. It has a very curious requirement. The difficulty is, in the first place, I think it would discourage the prospective purchaser. If the Secretary of the Navy said, "I am going to sell you this plant, but, of course, I have to get two committees to give their certificate of approval before I have any power or right to sell it to you," I think it would discourage the prompt disposal of real estate. I am not sure if I have answered your question, Senator Kilgore. Senator KILGORE. I was just wondering, even with that certificate, what record you would have, if any, of possible action, save the certificate of the chairman of the committee.

Mr. BIDDLE. That will be for the committee to determine. What the Navy would have to get would be the certificate. Nobody could go behind that, of course. Senator KILGORE. I am thinking of a title abstractor looking at that title 10 or 15 years later.

Mr. BIDDLE. I said first of all that it will be added to the certificate of conveyance. The Act actually says: "the recital in the conveyance of this proviso" that is, the recital of the provision requiring the Secretary to go before the committees "in any instrument of conveyance by the Secretary of the Navy under the authority of this or any other act, shall be conclusive evidence." So that is covered.

I see you have had title search experience, Senator Kilgore.

Quite apart from that question-continuing my general statement—however, a requirement that the Navy Department cannot execute a conveyance, without prior approval of a committee of each of the Houses of Congress, creates difficult administrative problems, both for the Navy and for any central disposing agency. If Congress should apply a provision of this kind generally so that all Government transactions in real estate had to be consummated by an agreement with one or more committees of Congress, it would be difficult for the executive to acquire or to dispose of property in an orderly and prompt way. Remember, it is not congressional approval, it is committee approval.

It is my view that general enabling legislation is necessary. An examination of the existing statutes in the light of the problems which are facing the Govern ment today, strengthens my belief that a statute should be enacted as soon as possible. The alternative is that the Government will be compelled to continue to operate under a hodge-podge of statutes which is not adequate to meet the needs of the situations. I urge, therefore, that the enactment of a general statute authorizing the management and disposal of Government property should not be delayed.

The first requirement of a statute dealing with surplus property is that it clearly confer and define legal authority to manage and to dispose of surplus property. S. 1823, for example, does not contain such a statement of authority-it is only by inference that authority to sell or dispose of the property can be found in that bill. In a matter of this importance the scope of authority should not be left to inference. The grant of authority contained in section 205 (b) of S. 1730 is preferable because it leaves nothing to inference. That paragraph reads as follows:

"(b) Subject to the provisions of this act, the Director may dispose of any surplus property acquired by him or reported to him, by sale, exchange, lease, transfer, or other disposition, upon such terms and conditions as he deems proper. and may prescribe regulations to govern the disposition of such surplus property by other Government agencies."

That is the existing provision in the statute that you have before you in that bill.

I think the paragraph would be improved if after the word "Director" a clause were added reading "notwithstanding the provisions of any existing law"; this would make it clear that present limitations do not restrict the Director's power of disposition. I think it might also be desirable to add language making it clear that the Director has the power to conserve, store, and to manage property pending its final disposition.

That is one question before the Surplus Property Board at this minute, whether that agency, or some agency, can pay the cost of storage of certain of the surplus property. I think they probably can, but the power is not absolutely clear.

As an example of another clear grant of authority, I call attention to the provision contained in the act of July 18, 1918, which gave the President general authority to sell, through the head of any executive department, any war supplies, material, equipment, and any building, plant, or factory acquired by the United States during the past war.

Although I think the Congress should give the executive agencies broad authority to manage and dispose of property, I am not suggesting that the exercise of the authority should necessarily be unrestricted. I think it desirable that Congress should determine and define the policies and procedures that the agencies are to follow in disposing of property. The amount of property involved is too large and any economic consequences of its disposal will be too serious for the whole problem to be left to the unfetered discretion of executive agencies. But the standards and the procedures prescribed should be flexible. Different kinds of property and different situations will require different treatment. For example, the problems involved in disposing of personal property will not be the same as those involved in the disposal of real property and plants. In the case of much of the surplus personal property the Government now has on hand, particularly termination inventory, the essential thing is to dispose of it quickly while it can be used either for war production or for civilian use. In the case of real property and plants, more deliberation may be possible.

Even as to real property and plants, however, flexibility and the possibility of prompt action is desirable. For this reason, I doubt the wisdom of the provisions contained in both S. 1730 and S. 1823 that forbid sales of particular kinds of Government property such as-to use the actual language of the billships, shipyards, pipe lines, magnesium, aluminum, synthetic rubber, and steel plants, pending further action by Congress. Everyone wants to avoid hap

hazard or all-considered sales. On the other hand, adoption of a proposal to freeze sales of property may lead to serious difficulties. A market for some of the property exists now but may not exist later. If property is frozen for a long period, it may be difficult at the end of the period to dispose of it on terms that will bring the Government any substantial return. Furthermore, the longer the property is held the more difficult it may be to get it into productive use in private hands. The pressure by private groups who wish the property withheld to prevent its use in competition with existing plants of marginal or submarginal efficiency will become greater as time goes on. In short, this prohibition against sale may play into the hands of those who wish to withhold property from the market or to destroy it in order to protect vested interests. If we wish to encourage new enterprise and the maximum private use of these Government plants, particularly in newly industrialized areas in the West, South, and Southwest, it may be necessary for us to move promptly. I suggest that the committee should carefully consider whether it is wise, therefore, to include a rigid prohibition against the disposal of particular kinds of property. There is an alternative proposal that should be considered. Congress might give authority to dispose of this property but require that prior to the sale of particular plants or facilities the central agency should make a careful examination of the problems involved and prepare a report for the public and Congress, outlining a proposed method or plan of disposal. This would not be a separate report for each plant but a report for all plants of a particular kind. I think probably if such a provision were considered that it should relate only to property of a certain size. I don't think it should prevent the sale, let us say, of small portions of a very large plant, or sales of property beyond a certain value. They should not make needless brakes. There ought to be some opportunity to clear away smaller amounts of real estate, but when you get into the larger figures, then some brake or public hearing or report to the Congress might be a better formula than to rigidly say every time you sell a plant you must come in and get a piece of legislation. I throw that to you for a matter of consideration.

Senator KILGORE. However, General, wouldn't it be highly dangerous to permit the sale of a small portion of a big plant? You might sell the one key portion of it which would forever eliminate the rest of the plant from use?

Mr. BIDDLE. Well, I would prefer to set down a general policy and then trust your administrator to carry it out, because otherwise you get into the same difficulty. There is no way of your breaking up a plant which cannot be purchased by a small competitor which could be sold only to a great industrialist whose only purpose would be to buy and close it. You got both considerations, but any rigid formula would make it impossible. I would set up your committee and give it a good deal of leeway, no specific, general policies, and then, if they do not carry out the general policies, I would then amend your act, but I would hesitate at this time, with our very limited experience in these matters, to set up such a very rigid formula every time they sell a plant they must come to Congress.

Senator MURRAY. Should not some of these larger war plants be disposed of and divided up amongst a great group of smaller concerns, like up at Amoskeag, where they have either divided it up or allowed a number of small plants to take possession of the

Mr. BIDDLE. I have no doubt some could, but I could not generalize on that. Of course, that is a very technical problem which you may wish to have the benefit of the views of some of the other agencies on.

(Continuing statement.) This would not be a separate report for each plant, but a report for all plants of a particular kind. For example, there would be one report for all aluminum plants, another for all magnesium plants, and so forth. The agency could obtain information and suggestions for the reports from any interested group, governmental or private. The final report prepared by the agency could be the subject of a public hearing in which anyone interested could make suggestions or criticisms about the proposals of the report. The report could then be submitted to Congress before it is carried into effect so that if Congress disapproves of the report it will have an opportunity to take any action that it thinks desirable.

A proposal of this kind would prevent improvident and unwise dispositions of property; it would permit the public and the Congress to consider the merits of plans for the disposal of particular kinds of property before the disposal is actually carried out; at the same time it would not freeze the power of disposition and thus prevent the executive agencies from taking the kind of prompt action that the situation may require.

There are several other questions of policy with regard to surplus property, raised by particular provisions in the bills now before your committee, that deserve comment:

1. Everyone agrees that we should try to avoid the sale of surplus property to speculators. The bills now before your committee try to do this by requiring that sales be made through "established" or "regular" trade channels. These provisions are open to objection. It seems to me they may be construed to mean that sales could be made only to firms that are already established in the business of selling particular products. They may be construed to require sales to a particular class of distributors, such as wholesalers. My criticism of this provision is strengthened by the fact that antitrust investigations have revealed that in some industries trade channels are frozen by private agreement for the purpose of maintaining artificial prices. One of the outstanding examples of this kind of agreement is described in an indictment returned against the plumbing industry by a Federal grand jury in the United States District Court for the Northern District of Ohio. If the Government is required to sell only through artificially fixed trade channels, both the Government and the public will suffer. I am certain that those who drafted these proposals did not intend these results. As an alternative statement of policy on this matter, I would suggest that any concern that wishes to perform an ordinary trade function should be permitted to bid on the sale of property. A declaration of policy in these terms would accomplish the desire of those who wish to prevent speculation. It is not subject to the objections I have discussed because it would not prevent new firms from becoming established or older firms from entering new fields of business.

2. Another declaration of policly found in the bills before your committee is that no sales should be made if they will "unduly dislocate" the market or inflict "substantial injury" on an industry, or unless the goods can be absorbed at "reasonably competitive prices." A word of caution is necessary here. The purpose of these declarations of policy is to prevent indiscriminate dumping of surplus war property on the market. That is doubtless a desirable objective. But the language I have quoted may lead to dangerous results. I do not believe that anyone intends that an administrator of surplus property should be given power, through the sale of surplus property, to prevent competition or to regulate the market; yet, under these or similar provisions, the Administrator would be required to decide whether sale of particular surplus property or sale of a plant would result in the production of more goods than could be sold at "reasonably competitive" prices. An administrator, having made such a finding, could withhold the property from the market even though there were a prospective purchaser who believed that he could use the property profitably and who was willing to pay a fair price for it. In effect, the Administrator could arbitrarily decide what is a desirable price level for the sale of various commodities and how many competitors should be permitted in any particular field. As a matter of fact, if the Administrator is trying to sell the property, and this is largely personal property we are talking of now-if he is trying to sell it for the best amount he can make for the Government, he is not going to dump it on the market. His consideration will be to get the best possible market, so that, naturally, his instinct will be that, with a very large amount of surplus property of a special kind that the market cannot absorb, to sell it over a period of time, but to put that, power in the Administrator's hands, the power of almost life or death in competitive industries, seems to me unwise. A declaration of policy that would permit an administrator to withhold a plant from the market, or to destroy it, because he thinks that otherwise there will be too much competition, runs counter to the basic idea of a free market. In a free market_businessmen are able to buy and sell property whenever they believe they can do so profitably. The result of these policy declarations would be to permit an administrator by arbitrary decision to control and regulate the free play of economic forces in the market. Since there will be a very large amount of surplus property to be sold at the conclusion of the war, this power in the hands of the administrative officer would have alarming potentialities.

There is another, and in my opinion much better, way of preventing the dumping of surplus war property. Most of these difficulties would be avoided if it were declared as a matter of policy that surplus property should be sold or otherwise disposed of expeditiously, but on such terms that the Government will realize "a fair return." In determining what is "a fair return," the Administrator should be required to take into account the original cost of the property, its present condition, and the present state of the market for that kind of property.