NEW ISSUE IN EXECUTIVE ORDER In the face of this extensively documented controversy within the executive department, and in the face of the congressional resolution, the Eisenhower administration did not carry out its previous intention of ordering abandonment of the Panama Line. Instead, on December 21 (see p. 4), Mr. Eisenhower issued an Executive order providing that, as of this February 10, the Panama Line could no longer carry any outside cargo or passengers. Amputating the nongovernmental activities of the line from the purely governmental had never before been suggested, so far as I can determine, in any of the reports or proposals made to the President and the Bureau of the Budget regarding the Panama Line. Whether the line could continue in operation as a practical matter if it were no longer permitted to handle any commercial cargoes is something we want to determine in these hearings. Whether the abandonment of commercial functions would hurt friendly nationsHaiti and Panama, to name two which now depend on this line-Haiti has been almost completely dependent on it from a maritime standpoint-these, too, are things we want to examine. I wired President Eisenhower in December urgently asking that he either cancel his December 21 directive or else set a later date than February 10 for its effectuation, so that our committee and the new President, too, could have an adequate opportunity to look into the factors involved. I was informed some time in January that President Eisenhower had no intention of delaying the effectiveness of his order. Meanwhile, I had arranged for our subcommittee, joined by Chairman Bonner of the parent committee, to write to President-elect Kennedy on this matter, and we renewed our request for cancellation of or delay in the effectiveness of the Eisenhower order after Mr. Kennedy became President. Earlier this month, President Kennedy announced delay until April of the Eisenhower Executive order affecting the Panama Line. (See p. 6.) QUESTIONS FOR SUBCOMMITTEE TO CONSIDER So that gives us some time, but not as much as we would like. Therefore, it is vital that in these hearings we get all of the relevant facts on the record. We want to know whether this line is or is not vital or indispensable to the canal's operation; we want to know if private shipping lines could handle the load and would be willing to do so on a basis which would meet the Canal Company's needs; we want to know what would happen if only the commercial operations of the line were abandoned as Mr. Eisenhower ordered, Let us all acknowledge at the start that the private shipping lines want this Government line killed in order to pick up parts or all of its passenger and cargo business; that many private shippers prefer to use the Panama Line even though rates are identical with other lines; and that the line provides unusual travel and transportation advantages for Canal Company and Canal Zone employees. The question which is uppermost in the minds of the members of this subcommittee, however, is this: Do we need this line, operating as it has been operating in the past, in order to assure the continued, efficient operation of the Panama Canal? That is our overriding concern in this matter. Before we call the witnesses, if any of the other members of the subcommittee want to add to or correct anything I have said in trying to establish the framework of this hearing, I would be glad to have them speak to it. Mr. JOHNSON. Madam Chairman. Mrs. SULLIVAN. Mr. Johnson. Mr. JOHNSON. Do you have a copy of the directive of President Eisenhower? Mrs. SULLIVAN. Yes, we do have copies. Mr. JOHNSON. I have never seen a copy of it. Mrs. SULLIVAN. We will have counsel provide it. (The following was furnished for insertion.) THE WHITE HOUSE, Washington, December 21, 1960. Memorandum for the Secretary of the Army: I have studied the analyses of the Panama Line that have been made by the Board of Directors of the Panama Canal Company and by the Director of the Bureau of the Budget. I have concluded that its transportation of nongovernmental passengers and cargo for commercial shippers is wholly inconsistent with the intended role of Government in a free enterprise economy. Accordingly, the Board of Directors of the Panama Canal Company should immediately give the necessary notice, and discontinue the commercial operations of the Panama Line by February 10, 1961. Thereafter the activities of the line should be confined solely to the transportation of passengers and freight for the account of the Panama Canal Company and the Canal Zone Government. This action will, of course, necessitate a reappraisal of the line's operation. The Board of Directors should, therefore, immediately restudy its position that the operation of the steamships is essential to the mission of the Panama Canal Company and promptly report its findings to the Director of the Bureau of the Budget. DWIGHT D. EISENHOWER. [H. Res. 623, 86th Cong., 2d sess.] RESOLUTION Whereas there is a threat of discontinuance of the maintenance and operation of the Panama Line by administrative action; and Whereas the Panama Line and the steamships operated by it through the years. have been, and may continue to be, an indispensable adjunct in operation and maintenance of the Panama Canal: Now, therefore, be it Resolved, That it is the sense of the House of Representatives that operation of the Panama Line be continued by the Panama Canal Company until completion of a study and report by the Merchant Marine and Fisheries Committee. [H. Rept. 2206, 86th Cong., 2d sess.] RELATING TO THE OPERATION OF THE PANAMA LINE The Committee on Merchant Marine and Fisheries, to whom was referred the House resolution (H. Res. 623) relative to the operation of the Panama Line, having considered the same, report favorably thereon with amendment and recommend that the House resolution do pass. The amendment is as follows: At the end of line 4, delete the period and insert the following: ", which study shall be completed prior to the end of the first session of the 87th Congress.' RELATIVE TO PROPOSED DISCONTINUANCE OF PANAMA LINE The Panama Line is an integral part of the Panama Canal Company, functioning primarily to provide fast, reliable, regularly scheduled 6-day freight and passenger service between New York City and Cristobal, Canal Zone, for moving equipment, supplies, and personnel connected with the operation of the Panama Canal. It also provides regularly scheduled service between New York and Port au Prince, Haiti, and between that port and Cristobal, a service which the Government of Haiti regards as of great importance to that nation's economic development. The New York-Cristobal service (via Port au Prince in both directions) is handled by two combination passenger-freight ships specially designed and constructed for the use they now serve. Based on the system of accounting approved by the General Accounting Office, the line breaks about even on its operations, showing a slight profit in some years and a loss in others, with deficits, if any, being covered by other operating revenues of the Panama Canal Company. More than a year ago, the Bureau of the Budget retained the firm of Drake, Startzman, Sheahan & Barclay, distribution and materials handling consultants of New York City, to make a study of the feasibility of eliminating this Government enterprise. Its report, analyzing the activities of the Panama Line and suggesting its elimination so that private shipping firms could compete for freight and passenger business now carried by the Panama Line, was submitted to the Bureau of the Budget by the consulting firm a year ago, but was not made public. Despite repeated requests this year from the Committee on Merchant Marine and Fisheries for copies of the report, none was made available to the committee until shortly after Congress recessed in July 1960. Nevertheless, based on rumors, and on indications from various sources as to the facts on which the Drake report was based, the Subcommittee on the Panama Canal arranged an executive hearing on the matter in July, several days before the adjournment for the recess of Congress, at which representatives of the Bureau of the Budget and of the Department of the Army were heard. Subsequently, when copies of the Drake report were submitted to the committee, it was found that the Secretary of the Army and the Panama Canal Company had each submitted to the Bureau of the Budget detailed analyses of alleged inaccuracies and unsupported conclusions in the report and strongly urged the continued operation of the line as necessary to the proper functioning of the canal enterprise. While this material was not available to the Subcommittee on the Panama Canal at the time of the July hearing, the witnesses from the Bureau of the Budget and the Department of the Army who testified freely acknowledged the existence of controversy within the executive department on this matter. However, it was made clear to the subcommittee that the Bureau of the Budget intended to require the elimination of the Panama Line after the Army had completed a survey of the availability of private transportation to serve Panama Canal Company needs. Such a survey, it was said, would take about 3 months. Congress will not be in session at the end of the 3-month period referred to. Since the facts on which the proposed Bureau of the Budget decision would be based are in vigorous dispute within the executive department, and since the availability of private transportation to fill the needs of the Panama Canal Company will not be established, if at all, until after Congress adjourns for this term, this resolution was introduced to make clear the conviction of the House of Representatives that no final decision on so far-reaching a matter affecting the Panama Canal should be taken by the executive department until the appropriate committees of Congress can make a full investigation of all of the facts bearing on this vital issue. Since the Panama Line is self-supporting, according to General Accounting Office accounting procedures, the Panama Canal Company would not appear to be in danger of encountering any financial loss through continued operation of the Panama Line, pending a full study of the controversy by the Committee on Merchant Marine and Fisheries or a subcommittee thereof. Furthermore, the topmost officials of the Panama Canal Company have made it emphatically clear that they believe the Panama Line's operation is essential to the Canal Company's successful completion of its assignment in the Canal Zone. COMMITTEE ON MERCHANT MARINE AND FISHERIES, Hon. JOHN F. KENNEDY, Washington, D.C. DEAR MR. KENNEDY: On December 21, 1960, the President ordered the Secretary of the Army to terminate the commercial operation of the Panama Line by February 10, 1961. About 6 months ago the Bureau of the Budget indicated that it was prepared to eliminate the Panama Line. As chairman of the Panama Canal Subcommittee of the House Committee on Merchant Marine and Fisheries during the 86th Congress, I initiated a study by the subcommittee into the reasons for the abrupt action by the Bureau of the Budget. By reason of the limitations of time incident to the adjournment of Congress the subcommittee was unable to complete its work and requested the President to defer final action pending further study by the Merchant Marine Committee during the 1st session of the 87th Congress. In the meantime, the General Accounting Office was requested to evaluate the various studies made by the Bureau of the Budget, the Department of the Army, and the Panama Canal Company regarding the service. The Panama Canal Company and the Army reported on the need for continuation of the line. The new directive of the President, while eliminating only the commercial operations of the line, will probably lead to the complete elimination of the line. I am not aware that the proposal to eliminate only the commercial aspect of the operation had been presented to any of the interested agencies prior to the President's memorandum of December 21. I know that it was not presented to my subcommittee at the time of our hearings. Inasmuch as this introduces a new factor into the situation, it is important that time be given to those interested to consider its effect. There does not appear to be any reason for hasty action in terminating the operation. Accordingly, I feel that I must suggest that steps be taken to defer such termination for a period of at least 6 months, during which time the Merchant Marine Committee will be in a position to evaluate the situation and make recommendations based upon a solid record. Also, during this time your administration will have an opportunity to review and evaluate the arguments of the interested parties. There can be no doubt that the proper operation of the Panama Canal is of great importance to the welfare of our country. Therefore, I feel that any precipitate action, the effect of which would be to impair its operation to any degree, is most unwise. Accordingly, I request that after your inauguration you give consideration to extending the date of February 10, 1961, as given in the President's memorandum of December 21, 1960, to about August 1, 1961, or cancel the directive entirely pending further study. Sincerely, Hon. ELVIS STAHR, LEONOR K. SULLIVAN, Chairman, Subcommittee on Panama Canal. HERBERT C. BONNER, Chairman, Committee on Merchant Marine and Fisheries. Secretary of the Army, Department of Defense, H. R. GROSS, ELMER J. HOFFMAN, BOB CASEY, EDWARD A. GARMATZ, VICTOR L. ANFUSO. Subcommittee Members. THE WHITE HOUSE, Washington, February 6, 1961. DEAR MR. STAHR: I am herewith suspending until April 1, 1961, the effect of the letter dated December 21, 1960, from President Eisenhower to the Secretary of the Army, directing discontinuance of the commercial operations of the Panama Line by February 10, 1961. This action will allow time for a careful review of the effect of the December 21 order as to actual savings to be realized for this Government, as a result of the directive, and the import on those now served by the line and on the line itself. I am asking the Director of the Bureau of the Budget to consult with you, the Maritime Commission, and all other appropriate authorities and make a report to me on this matter no later than March 15. Sincerely, (Signed) JOHn Kennedy. Mrs. SULLIVAN. Is there anything else from the members? Our first witness this morning will be the gentleman from the General Accounting Office, Mr. L. K. Gerhardt, Associate Director, Civil Accounting and Auditing Division, accompanied by Mr. A. B. Jones and Mr. A. B. Brown. Mrs. SULLIVAN. Gentlemen, I might say in preface that the General Accounting Office as an arm of the Congress is the chief watchdog on governmental expenditure and is assigned responsibility for making sure that all Federal expenditures are made in conformity with the law. In addition to seeking out evidence of fraud or illegality in the spending of Federal appropriations, it also does a good job of uncovering waste and duplication. In connection with the Panama Line, the GAO was asked to review independently for the committee the various reports filed with the Bureau of the Budget bearing on the steamship line. One of the functions of the General Accounting Office is to do a complete and thorough annual audit of the operating expenditures of the Panama Canal Company. I am sure that the witnesses today will have reliable figures on the Panama Line. Mr. Gerhardt, do you have a prepared statement? Mr. GERHARDT. I do, Mrs. Sullivan. Mrs. SULLIVAN. Do you wish to go through it or summarize it? Mr. GERHARDT. I think that probably I should go through it. STATEMENT OF L. K. GERHARDT, ASSOCIATE DIRECTOR, ACCOMPANIED BY A. B. JONES, SUPERVISORY ACCOUNTANT, CIVIL ACCOUNTING AND AUDITING DIVISION, AND A. B. BROWN, ATTORNEY, OFFICE OF THE GENERAL COUNSEL, GENERAL ACCOUNTING OFFICE. Mr. GERHARDT. Madam Chairman and members of the subcommittee, we are pleased to appear at this hearing regarding the Panama Line and hope that the comments contained in our report to the chairman of the Merchant Marine and Fisheries Committee on February 6, 1961, on our review, pursuant to his request, of various documents relating to the possible discontinuance of the Panama Line will prove helpful in the committee's consideration of the matter. I shall, with your approval, comment on our review findings and will endeavor to answer any questions relating thereto. The documents submitted to us for review were (1) a report to the Bureau of the Budget by Drake, Startzman, Sheahan, & Barclay, Distribution and Materials Handling Consultants of New Yorkreferred to hereafter as the Drake report (2) Panama Canal Company reports consisting of an analysis of the Drake report; a letter to the Director, Bureau of the Budget, by the Secretary of the Army; and a related memorandum by the Assistant Secretary (FM), and (3) a |