A ■Z5 PANAMA CANAL COMMISSION HEARINGS BEFORE THE '^SUBCOMMITTEE ON THE PANAMA CANAL ^^ OF THE COMMITTEE ON MERCHANT MARINE AND FISHERIES HOUSE OF REPRESENTATIVES NINETY-SIXTH CONGRESS ON ORGANIZATION AND OVERSIGHT OF THE PANAMA CANAL COMMISSION NOVEMBER 2, 1979 PANAMA CANAL AUTHORIZATION AND OVERSIGHT— H.R. 6515, H.R. 6516 FEBRUARY 19, 1980 Serial No. 96-25 Printed for the use of the Committee on Merchant Marine and Fisheries 5'J-31'.i o U.S. GOVERNMENT PRINTING OFFICE WASHINGTON : 1980 COMMITTEE ON MERCHANT MARINE AND FISHERIES JOHN M. MURPHY, New York, Chairman THOMAS L. ASHLEY, Ohio JOHN D. DINGELL, Michigan WALTER B. JONES, North Carolina MARIO BIAGGI, New York GLENN M. ANDERSON, California E (KIKA) de la GARZA, Texas JOHN B. BREAUX, Louisiana GERRY E. STUDDS, Massachusetts DAVID R. BOWEN, Mississippi CARROLL HUBBARD, Jr., Kentucky DON BONKER, Washington LES AuCOIN, Oregon NORMAN E. DAMOURS, New Hampshire JAMES L. OBERSTAR, Minnesota WILLIAM J. HUGHES, New Jersey BARBARA A. MIKULSKI, Maryland DAVID E. BONIOR, Michigan DANIEL K. AKAKA, Hawaii MICHAEL OZZIE MYERS, Pennsylvania JOE WYATT, Texas MIKE LOWRY, Washington EARL HUTTO, Florida EDWARD J. STACK, Florida BRIAN DONNELLY, Massachusetts PAUL N. McCLOSKEY, Jr., California GENE SNYDER, Kentucky EDWIN B. FORSYTHE, New Jersey DAVID C. TREEN, Louisiana JOEL PRITCHARD, Washington DON YOUNG, Alaska ROBERT E. BAUMAN, Maryland NORMAN F. LENT, New York DAVID F. EMERY, Maine ROBERT K. DORNAN, California THOMAS B. EVANS, Jr., Delaware PAUL S. TRIBLE, Jr., Virginia ROBERT W. DAVIS, Michigan WILLIAM CARNEY, New York MELVIN H. EVANS, Virgin Islands Carl L. Perian, Chief of Staff Lawrence J. O'Brien, Jr., Chief Counsel Julia P. Perian, Chief Clerk/Administrator Jack E. Sands, Minority Counsel Subcommittee on Panama Canal CARROLL HUBBARD, DAVID R. BOWEN, Mississippi DAVID E. BONIOR, Michigan JOHN D. DINGELL, Michigan WALTER B. JONES, North Carolina MARIO BIAGGI, New York GLENN M ANDERSON, California MIKE LOWRY, Washington JOHN M. MURPHY, New York (Ex Officio) Jr., Kentucky, Chairman ROBERT E. BAUMAN, Maryland DAVID C. TREEN, Louisiana ROBERT K. DORNAN, California WILLIAM CARNEY, New York PAUL N. McCLOSKEY, Jr., California (Ex Officio) Terrence W. Modglin, Staff Director Bernard Tannenbaum, Special Counsel W. Merrill Whitman, Consultant HI) CONTENTS Page ORGANIZATION AND OVERSIGHT OF THE PANAMA CANAL COMMISSION Hearing held November 2, 1979 1 Statement of— Bjorseth, Walter, Chief Financial Officer, Panama Canal Commission 9 Blumenfeld, Michael, Assistant Secretary for the Army, Civil Works 6 Constant, Thomas, Secretary, Panama Canal Commission 9 Manfredo, Fernando, Jr., Deputy Administrator, Panama Canal Commis- sion 9 McAuliffe, D. P., Administrator, Panama Canal Commission 9 Additional material supplied — Panama Canal Commission: Marine accident claims outstanding 29 PANAMA CANAL AUTHORIZATION AND OVERSIGHT Hearing held February 19, 1980 35 Text of— H.R. 6515 36 H.R. 6516 47 Executive Communication No. 3476 53 Reports from — Army Department 41 Panama Canal Commission 43 State Department 45 Statement of — Bjorseth, Walter D., Chief Financial Officer, Panama Canal Commission .. 58 Blumenfeld, Michael, Assistant Secretary of the Army, Civil Works, Department of the Army 54 Constant, Thomas M., Secretary, Panama Canal Commission 58 McAuliffe, Hon. Dennis P., Administrator, Panama Canal Commission 58 Schroeder, Myron A., Chief, Financial Planning Division, Panama Canal Commission 58 Rhode, Col. Michael, Jr., Military Assistant to the Assistant Secretary of the Army, Civil Works 54 Additional material supplied — Army Department: Administrative Procedure Act 107 Questions of subcommittee and answered by Mr. Blumenfeld 140 Defense Department: Additional questions of subcommittee and answers provided 141 Panama Canal Commission: Accounts receivable from Panama 122 Additional capital projects 126 Administrator's residence 123 Cargo carried 121 Expenses of Executive Direction 124 General port operations 128 Justification of programs and estimates for the fiscal year ending September 30, 1981 66 Marine accidents in Panama Canal 120 Objects of appropriation authorizations Ill Processed water deliveries 120 Questions of Mr. Bauman and answers 1H7 Questions of Mr. Hubbard and answered by Mr. McAuliffe 134 Supplemental analysis for fiscal year 1981 budget 143 Communications submitted — Hubbard, Hon. Carroll: Letter of March 10, 1980, to Dennis P. McAuliffe with enclosures 199 McAuliffe, D. P.: Letter to March 14, 1980, to Hon. Carroll Hubbard 202 Digitized by the Internet Archive in 2013 http://archive.org/details/panacommiOOunit ORGANIZATION AND OVERSIGHT OF THE PANAMA CANAL COMMISSION FRIDAY, NOVEMBER 2, 1979 House of Representatives, Subcommittee on the Panama Canal of the Committee on Merchant Marine and Fisheries, Washington, D.C. The subcommittee met, pursuant to notice, at 9:55 a.m., in room 1334, Longworth House Office Building, Hon. Carroll Hubbard (chairman of the subcommittee) presiding. Present: Representatives Hubbard, Bowen, Lowry, Murphy, Dornan, and Carney. Mr. Hubbard. The Subcommittee on the Panama Canal of the Committee on Merchant Marine and Fisheries is now called to order. This is a very imporant day in the history of the regimes provided by the U.S. Government for operation of the Panama Canal. Today, this subcommittee is pleased to witness the inaugu- ral appearance before the Congress of Federal executives invested with the authority and responsibility to operate and administer, under the 1977 treaty with Panama, the crucial interoceanic water- way on the Isthmus of Panama. The importance of this briefing is underlined by the fact that the Panama Canal Commission is a wholly new and different agency, even though it employs many of the same loyal and faithful per- sonnel who serve the Panama Canal Company and Canal Zone Government. The uniqueness of its character was visualized in the Panama Canal Treaty but, more importantly, it was given effect in domestic law by the Panama Canal Act of 1979. Many, if not most, of the objectives of the U.S. control of the Panama Canal for the remainder of this century are reasonably clear from a combined reading of the Panama Canal Treaty and the Panama Canal Act. The subcommittee hopes to learn today more precisely how it is that the U.S. Government is going to organize to attain those objectives. As a consistent opponent of the Panama Canal treaties, and the implementing legislation, I recognize as well as anyone the signifi- cance of the new agency and the threshold we crossed on October 1. I regret that the threshold has been crossed, but the door to yesterday is closed and the treaties are in effect. Legislation imple- menting the treaties is now law, so the best we can do, proponents and opponents of the treaties in implementing legislation, is to move forward and look out for the best interests of our country. The forms and degrees of opposition to the implementing legisla- tion on the part of various organizations and persons, whether (l) from the liberal or conservative side, are now immaterial to the implementing law that has been enacted, signed by the President, taken through the proper legislative process, and supported by our Constitution. The Panama Canal Act is the law of the land. We look forward today to becoming more aware of how this act, which for the next generation will be the charter for the Panama Canal operation, will be administered. We look forward to hearing: How the Commission will be organized to tackle the numerous financial questions facing it; How the Commission will implement the scheme of committees and working groups and service arrangements between the United States and Panama; How the Presidential delegation of authority to the Secretary of Defense is being handled; How the supervisory board of the Commission will relate to the operation of the canal; How the formation of employment policies and the establishment of standards of conduct for personnel is processing; and How appointments to the leadership positions in the Panama Canal Commission and several advisory committees related to the Panama Canal treaties are being treated. Finally, since no one knows the reality of the new regime better than those most affected by it — the canal employees and the people in Panama — we hope that today's briefing will also include a report on their state of mind with respect to the canal issue, because this psychological environment is especially critical to the success of the Commission in its embryonic stages. This subcommittee is aware that the Panama Canal Act was signed into law only 37 days ago, and that the majority of its manifold and diverse provisions were to take effect only 4 days after signing. However, it also is worthy of note that the outlines of almost all of these provisions were known much earlier. The cir- cumstances which prevented the passage of the implementing legis- lation at an earlier time were certainly not due to any lack of effort on the part of the bill managers in the Congress but rather the serious political concerns that arose over the taxpayer impact of the legislation and the question of the stability of the Panama- nian Government. The proper administration of the Panama Canal Act is an abso- lute necessity for the successful operation of the canal. In my estimation, given the attachment to the canal in both the United States and Panama, the treaties and the implementing legislation have at best a chance of succeeding only with the fierce determina- tion of all responsible Government officials of the United States and Panama. That determination has to be reflected from the very beginning of the applicability of the Panama Canal Act. Just as we in the Congress have a responsibility to monitor the actions of the executive to see whether the laws are being executed in accordance with their substance, so the executive has the duty to carry out those laws quickly and fully. For this reason the features of the Panama Canal Act such as those protecting the U.S. taxpayer, providing for the delegation of authority, providing for standards of conduct, and specifying positions of authority must be acted on quickly. What we hope to find today is that the steps being taken by the executive to implement the Panama Canal Act are being taken with the dispatch that is incumbent in responding to the worldwide users of the waterway, and with the dispatch that makes for a government operation truly accountable to the individual taxpay- ers of the United States. In the context of our hopes for the future successful operation of the canal, and in the light of a forward-looking policy for develop- ment of all resources to attain that objective, we now anticipate the comprehensive statements of the Honorable Michael Blumen- feld, Assistant Secretary of the Army for Civil Works, and the Honorable Dennis P. McAuliffe, Administrator of the Panama Canal Commission. Chairman Murphy has a statement extending a cordial welcome to Secretary Blumenfeld, General McAuliffe and Mr. Manfredo for the initiation of a continuing colloquy between the Congress, repre- sented by this subcommittee, and the officials of the newly estab- lished Panama Canal Commission. Because the Deputy Administrator of the Panama Canal Com- mission, Fernando Manfredo, is not scheduled as a witness today, I did not mention him in my prepared remarks, but I do see him in the front row and was with him at a luncheon yesterday. We welcome you to the subcommittee hearings, Seiior Manfredo. I am sorry I didn't see you until I got into Mr. Murphy's prepared remarks. I now recogize Congressman Bob Dornan of California for any remarks he would like to make. Mr. Dornan. Mr. Chairman, I appreciated how forthright your statement was about your opposition to both the Panama Canal Act and the proceedings that preceded it. I join you in that opposi- tion, but I wholeheartedly want to express to the Panamanian citizens and the Americans, who have the very difficult job of maintaining a friendship down there and making this law of the land work, that we and all good representatives involved in our Government and the Panamanian Government, should now put the past behind us, close the door, and proceed as vigorously and as forthrightly and in as friendly a manner as possible to make this work. I look forward to a continual flowering of friendship between our Nation and a small nation that history has brought together in such a peculiar way. And may this next century make any small abrasions over the past just fade into insignificance. There isn't any reason at all why we cannot make this work for the benefit of not only our two great Nations, but for all our neighbors in this, the most peaceful of the two hemispheres on the planet. Thank you, Mr. Chairman. Mr. Hubbard. Thank you, Congressman Dornan. For those who might not know Fernando Manfredo, would you stand, please. Thank you. I would like to ask my dear friend Tom Constant, the Secretary of the Panama Canal Commission, to stand, please. We are slowly doing this right — welcoming both of you. One step at a time, you will notice. We are glad to have you and everyone who is here today visiting with us. Congressman Michael Lowry of the State of Washington. Mr. Lowry. Thank you, Mr. Chairman. I am indeed delighted to see the individuals who are here continuing on this very important work. During my visits to the Canal Zone I was so pleasantly impressed with the work being done by both our Government and the Government of Panama, and I have great confidence that we are going to have a very strong working relationship that will benefit the entire world, and the Panama Canal's importance as we carry on here. I am delighted to see these individuals continue to be involved with this very important mission. Mr. Hubbard. Thank you very much, Congressman Lowry. At this time it would be proper for me to recognize the distin- guished chairman of our Merchant Marine and Fisheries Commit- tee, our friend Congressman John Murphy of New York, for his opening statement. Mr. Murphy. I want to thank the chairman for his recognition. I regret we just had some action on the floor involving legislation from this committee that prevented my being here earlier. I want to take this opportunity to extend a cordial welcome to Secretary Blumenfeld, General McAuliffe and Mr. Manfredo to the initiation of a continuing colloquy between the Congress, represent- ed by this subcommittee, and the officials of the newly established Panama Canal Commission. The frame of reference for our ex- change of views on operation of the Panama Canal will be the Panama Canal Act of 1979, which provides the basic ground rules for the realization of our common interest in the efficient operation of this great international waterway. Although we have been engaged in this challenging undertaking for three quarters of the century, the changed circumstances and problems arising from the inception of an entirely new treaty relationship with the Republic of Panama and the drastic changes effected in the form and management of the operating organization add a new dimension that will call for the very best effort on the part of us all, if the provision of uninterrupted passage from one ocean to the other is to continue to succeed. Some of the problems that we must jointly confront and resolve in the immediate future are already becoming visible. They include the necessity for expeditious review of the operating organization and the effectuation of changes consonant with the new form of organization and method of operation; the speedy location and appointment of personnel to fill the positions necessary under the provisions of the applicable law; and the conversion of the financial management of the agency from the relatively autonomous oper- ation associated with corporate enterprise to the more closely con- trolled and regulated procedures generally applicable to govern- ment agencies. Although I recognize that the operation of the agency is primar- ily, if not exclusively, the responsibility of the executive, I believe that there is also a general acceptance of the principle that the enactment of legislation to provide the authority and means for the accomplishment of the executive function requires close and con- tinuing oversight by the Congress through the committee process. Over and above that technical consideration it seems obvious to me that we can all do a more effective job in the performance of our respective functions if we maintain close coordination with free exchanges of views on matters affecting our separate roles. After this brief explanation of the way I see the purpose of these oversight hearings and the important part they can have in reach- ing prompt and prudent solutions of our common problems, I look forward with great interest and expectation to the statements that you gentlemen are here to give us. Thank you, Mr. Chairman. Mr. Hubbard. Thank you very much, Chairman Murphy. Congressman Bill Carney of New York. Mr. Carney. Thank you, Mr. Chairman. I would like to take this opportunity to associate myself with the remarks of the subcommit- tee chairman, Congressman Hubbard. I think they reflect quite accurately my feeling, and I personally look forward to carrying out the responsibilities of this Subcommittee on Panama Canal. I look forward to seeing this marriage between the United States and the Panamanian Government work for the betterment of not only both our Governments but for the people of the world, because indeed much of the commerce of the world will go through that most critical facility, and if the marriage works between the Pana- manian Government and the American Government, the people of the world will benefit by it, and I look forward to that responsi- bility with vigor. Thank you, Mr. Chairman. Mr. Hubbard. Before I introduce Mr. Michael Blumenfeld, I would like to also introduce two other people in the audience. It could easily make you believe that I was just doing this to break the monotony of hearing Congressmen, to see people stand in the audience, but not to be forgotten are the coordinators of the De- partments of State and Defense for Panamanian Treaty affairs. They are Ambassador David Popper, coordinator for the State De- partment. Would you please stand? And retired Gen. Welborn Dolvin, coordinator for the Defense Department. Would you stand, please? Thank you very much. As I am thanking different people I really ought to thank Terry Modglin, the very efficient staff director for the Panama Canal Subcommittee, for assisting the chairman in doing what is right this morning, including the introductions. Now it is my pleasure to present to the subcommittee our first witness, the Honorable Michael Blumenfeld, Assistant Secretary for the Army for Civil Works. Mr. Blumenfeld oversees for the Secretary of the Army water resources development projects of the Corps of Engineers as well as the Panama Canal operations. We note that our witness has been working with Panama Canal affairs for over 2 years. We also note that before assuming responsibility in the Department of the Army, he held distinction in many impor- tant positions in city government and private enterprise. Finally, we note that Mr. Blumenfeld holds a bachelor's degree from Har- vard, and a master of business administration degree from Harvard Business School. We are looking forward to your testimony today, Mr. Blumen- feld. Thank you very much for being with us. 6 BRIEFING BY HON. MICHAEL BLUMENFELD, ASSISTANT SECRETARY FOR THE ARMY-CIVIL WORKS Mr. Blumenfeld. Thank you very much, Mr. Chairman, and let me say to you, Chairman Murphy and members of the committee, that I very much appreciate the welcome and also associate myself with the wisdom of this kind of continuing dialog in executing our responsibilities well and faithfully. With your permission, Mr. Chairman, I would like to enter my full statement into the record and proceed to summarize it for you at this time. Mr. Hubbard. Yes, without objection, that will be done. [The information follows:] Briefing by Hon. Michael Blumenfeld Mr. Chairman, I am honored to appear before the committee today, as the representative of the Secretary of Defense, with respect to the organization and initiatives of the Panama Canal Commission to meet United States Government obligations under the Treaty, and the Commission's responsibility under the Panama Canal Act of 1979. As you are aware, the lateness of the legislation has had an impact on some of our management initiatives. Items such as appointment of the Administrator and Deputy Administrator were unavoidably postponed beyond Treaty day, October 1st. There has not been an initial meeting of the Board. We are hopeful that the Board members of the new Commission will be nominated by the President this month. An early meeting, hopefully in December, would be desirable in order that the Board can adopt its bylaws and can vest in the Administrator certain authorities conferred by the Panama Canal Act of 1979 on the Commission. The same day the President signed the Panama Canal Act of 1979, the Secretary of the Army was delegated interim responsibility for oversight of the Commission. This assignment enabled the Secretary, and myself as his Deputy, to continue our ongoing supervisory role pending development of an Executive Order detailing delegations of authority. An interim Executive Order shortly to be published pro- vides for interim application of existing rules governing various aspects of Canal operations which are not inconsistent with either the Treaty or the implementing legislation. This interim order delegates selected authorities of the President to the Secretary of Defense for a 120-day period, and permits their redelegation. The Panama Canal Act does not provide for continuance of rules and regulations except in the specific cases of the employment system and the interim continuation of the judicial system during the transition period. The recommended final form of the Executive Order is being staffed. We anticipate the order will not be ready for the President's approval and signature until January 1980 due to staffing and coordina- tion requirements outside the Department of Defense. I am confident these issues will be resolved before the end of the year. Let me then focus on what we have accomplished in the single month since the Treaty became effective. The initial problem, placing someone in charge of the Canal effective October 1st, was satisfied by appointing General McAuliffe as a Special Representative of the Secretary of Defense, and assigning him the duty of managing the Canal enterprise. Mr. Manfredo was installed as his Deputy. Both positions were abolished when Mr. McAuliffe and Mr. Manfredo were appointed to office. This action met our require- ments of getting on with Treaty implementation under the direction of our nominee while not usurping the prerogative of the Senate to consent to the appointment of an Administrator. The tolls increase for fiscal year 1980 was signed by the President on September 29 and became effective on October 1, although vessels already in queue for transit were assessed at the prior rate. The new rate is only 29.3 percent higher than the old one. This is substantially less than had been forecast earlier, due mainly to increased North Slope oil shipment forecasts. Traffic and tolls revenue estimates in the Commission's fiscal year 1980 budget include an Alaska North Slope oil move- ment through the Canal of approximately 480,000 barrels daily, up sharply from an average 295,000 barrels daily during fiscal year 1979. The estimate was based on information, provided by the major participants in the production and distribution of North Slope oil, that indicated shipments through the Canal would average 400,000 barrels daily during October and November, increasing to approximately 500,000 barrels per day by December, with this average level being sustained throughout calendar year 1980. Of course, any optimism for sustaining the lower toll rate is tempered by the realization that North Slope oil is an extremely volatile commodity, and the sustained throughput could easily fall below expectations. Mr. Chairman, let me add that both Mr. McAuliffe and Mr. Manfredo are doing a very fine job in insuring that the Panama Canal continues to be operated efficiently and continues to make an important contribution to world commerce. Traffic through the Canal continues to increase. Transits continue to be conducted in the same professional, steady and safe manner that has always been the hallmark of the Panama Canal workforce. It is also appropriate to mention that the Republic of Panama is pursuing the operation of the railroad, port facilities and bunkering activities (which passed to Panama on October 1) with great zeal. Assisted by Commission employees on reimbursable loan, Panamanians demonstrated so far they are capable of maintain- ing the standards that world commerce expects of them. Similarly, the refuse collection progam for which Panama became responsible has been both responsive and effective, and the joint police patrols are functioning extremely well after one month of actual operations. I will be followed by Mr. Dennis P. McAuliffe, the Administrator of the Panama Canal Commission, who will brief you on the Commission's operations in greater detail. I recommend you hear Mr. McAuliffe's more detailed presentation at this time and offer questions to the both of us. Mr. Blumenfeld. As you are aware and referred to in your opening statement, the lateness of the legislation has had an impact on some of the management initiatives that we have begun to undertake. Items such as the appointment of the Administrator and the Deputy Administrator were unavoidably postponed beyond treaty day, but are, of course, now a fact. They have been accom- plished. We are hopeful that the board members of the new Com- mission will be nominated by the President this month, and that an early meeting of the board can be held, hopefully in early December. The same day that the President signed the Panama Canal Act of 1979, the Secretary of the Army was delegated interim responsi- bility for oversight of the Commission. An Executive order shortly to be issued by the President provides for the interim application of existing rules governing various aspects of the canal operations which are not inconsistent with either the treaty or with the implementing legislation. This interim Executive order will dele- gate selected authorities of the President to the Secretary of De- fense for a 120-day period, and permits their redelegation by the Secretary of Defense. A final Executive order, which would be issued at the end of that 120-day period, is now under preparation. We anticipate approval and signature in January of 1980, probably not before that, due to the staffing and the coordination requirements outside the Depart- ment of Defense. Let me focus now on what we have already accomplished in the 1 month since the treaty became effective. The initial problem, put- ting someone in charge of the canal effective October 1, was satis- fied by appointing General McAuliffe, now Mr. McAuliffe, as a Special Representative of the Secretary of Defense and assigning him the duty of managing the canal enterprise. Mr. Manfredo was installed as his deputy. Both these temporary positions were abolished when Mr. McAu- liffe and Mr. Manfredo were appointed to office. This action met 8 our requirements of getting on with treaty implementation under the direction of our nominee, while not usurping the prerogative of the Senate to consent to the appointment of the Administrator. As you are aware, a tolls increase for fiscal year 1980 was signed by the President on September 29 and became effective on October 1, although vessels that were already in line for transit were as- sessed at the old, lower rate. This new rate is 29.3 percent higher than the old rate. This increase, though, is substantially less than had been forecast earlier, due mainly to increased North Slope oil shipment. The estimate of three shipments was based on information pro- vided by the major participants in the production and distribution of North Slope oil. Of course, any optimism on sustaining a lower toll rate beyond 1980 is tempered by the realization that North Slope oil is an extremely volatile commodity and that the sustained throughput could fall below expectations. Let me say at this point that both Mr. McAuliffe and Mr. Man- fredo are doing a very fine job in assuring that the Panama Canal continues to operate efficiently and contribute to world commerce. Traffic is increasing. Transit continues to be conducted in the steady and safe manner that has always marked the Panama Canal operation and its work force. I think it is also appropriate to mention at this time that the Republic of Panama is pursuing operation of those functions which it took over on October 1, such as railroad, port facilities, and bunkering activities, with great zeal and marked effectiveness. They are assisted by Commission em- ployees who are on reimbursable detail. They are demonstrating so far that they are fully capable of maintaining the standards in these operations that world commerce expects of them. Mr. McAuliffe will talk in greater detail about some of the other conditions now existing on the isthmus and in these operations, but let me mention specifically that the joint police patrols, comprised of Guardia Nationale of Panama and the U.S. Military Police and Canal Police respectively in the military and canal operating areas, are functioning very well indeed. Many of the fears and trepida- tions of the U.S. employees of the canal living in the former zone about the operation of the police function have been put to rest by what has so far been an outstanding operation of that police func- tion. Mr. McAuliffe has a statement as well, and I would recommend, if it is acceptable to the committee, that you hear his more detailed presentation on the situation on the isthmus, and then offer ques- tions to both of us following that. Mr. Hubbard. Yes, there is no problem with that. Your request is accepted. It is a privilege to introduce prior to questioning, and for his statement, our second witness today, the Honorable Dennis P. McAuliffe, newly confirmed Administrator of the Panama Canal Commission. Mr. McAuliffe, having testified here earlier this year on the implementing legislation and on Panama's involvement in Nicaragua, is no stranger to this subcommittee. In fact, the mem- bers who have heard him before appreciate his candor, his honesty, and forthrightness. We welcome you today to hear your plans and thoughts on the policy and organization of the Panama Canal Commission, just as we have welcomed your comments as a lieutenant general and commander of the U.S. Southern Command. Dennis McAuliffe's 35 years of military service to our country have been marked with distinction. As an Army officer, he served in many critical capacities. Among other posts he served in the Office of the Chief of Staff of the Army. He served with the Chairman of the Joint Chiefs of Staff, with the Supreme Headquar- ters Allied Powers Europe, and as a regional director for the Inter- national Security Affairs Office in the Department of Defense. Administrator McAuliffe, with your background of achievement and your knowledge of the Isthmus of Panama, we have high expectations for the operation of the Panama Canal Commission, and we congratulate your choice to your new position, and wish you well in a tough assignment. We are anxiously awaiting your remarks. Mr. McAuliffe. Thank you, Mr. Chairman. Mr. Bauman. Mr. Chairman, before the general begins I wonder if I might join in your statement of welcome, and express my own pleasure at having you, Mr. McAuliffe appointed to this position, and also at seeing Mr. Manfredo named as your deputy. I think that it speaks well for the future of the operation of the canal, that someone with the experience in Panama and in the Southern Hemisphere that you have would be taking on this duty. I know, as we mentioned yesterday, that you had expressed some months ago you were looking forward to your retirement from the Army, and now here you are with a task probably greater than you faced in the past. I compliment you for your willingness to take that position. Mr. Chairman, I wonder if we might ask, in view of the partner- ship that now exists between our country and the Republic of Panama in operating this canal, even though he may not be testify- ing, Mr. Manfredo might join the Administrator at the table, since he is Deputy Administrator. Mr. Hubbard. There is no problem. Prior to your coming in Mr. Bauman. I promise not to ask questions that are too tough. Mr. Hubbard. We have introduced him twice. It is fine to have him sit at the witness table. We may have some questions for you Mr. Manfredo. Congressman Bauman, we will have your remarks later after we hear Administrator McAuliffe. Thank you. Dennis, go ahead. STATEMENT OF HON. D. P. McAULIFFE, ADMINISTRATOR, PANAMA CANAL COMMISSION, ACCOMPANIED BY FERNANDO MANFREDO, JR., DEPUTY ADMINISTRATOR; THOMAS CON- STANT, SECRETARY; AND WALTER BJORSETH, CHIEF FINAN- CIAL OFFICER Mr. McAuliffe. Thank you, Mr. Chairman. It is indeed a pleas- ure to appear before you today. I propose, just as Secretary Blu- menfeld did, to enter my full statement or offer the statement for the record, and to summarize it in my remarks this morning. Mr. Hubbard. Thank you. Without objection, it is so ordered. [The information follows:] 10 Statement of Hon. D. P. McAuliffe, Administrator, Panama Canal Commission introduction Mr. Chairman and members of the Subcommittee, my name is Mr. Dennis P. McAuliffe and I am the Administrator of the Panama Canal Commission. It is a pleasure to appear before you today to outline the organizational structure of the Panama Canal Commission and to discuss the initiatives which this new agency has taken and is taking to bring itself into compliance with the law which created it, the Panama Canal Act of 1979. Before doing that, however, as the Administrator of the Agency, I would like to express my gratitude to this Subcommittee for assisting in the enactment of the treaty implementing legislation prior to October 1. Potentially serious problems would have resulted had October 1 come and gone without the requisite legislation. ACTIVITIES OF ADMINISTRATOR AND DEPUTY At the outset of my remarks, it seems appropriate for me to give you a rundown on what the Administrator and his Deputy have been doing for the past month. I assumed office in the Commission, in an acting capacity, from its beginning on October 1, as did my Deputy, Mr. Fernando Manfredo, Jr. Since October 1, Mr. Manfredo and I have spent much time visiting all of the facilities, offices and shops which the Commission operates. Our purpose was not only to get personally ac- quainted with the organization and its people, but also to give our employees at all levels of the organization the opportunity to see and talk with us. We have also met with a number of employee and community groups during this time. These visits and meetings have served as a good first course in familiarization with Canal operations for Mr. Manfredo and myself. I believe they also have had a beneficial, reassuring effect on our people. I must say that I have been very much impressed with the dedication, loyalty and professional competence of the Canal work force. They have kept this important waterway operating and maintained during what has been for them an extremely turbulent and frustrating period. That, in my view, is a real tribute to them. Many of the employees we have talked with have commented favorably on the peaceful manner in which the change-over from U.S. to Panamanian jurisdiction was carried out, and at the cooperation we have been receiving from the Panama- nian Government in such matters as joint police patrols, refuse collection, the issuance of licenses, employee documentation, railroad service and similar functions. Mr. Manfredo and I are acutely aware, nevertheless, that the problems of uncer- tainty and turbulence of the recent past have continued to impact on employee morale, and I can assure you that corrective measures are being given priority attention. I believe that the combination of a return to stability and the taking of management actions which are sensitive to the needs of the organization as well as to the concerns of our people will result in a favorable period of Canal operation in the months ahead. ORGANIZATION OF COMMISSION Having said that, I would now like to turn to the organization of the Panama Canal Commission and explain to you how the structure of the organization will aid in carrying out its mission. As you know, the Panama Canal Company and the Canal Zone Government were disestablished by the Panama Canal Act of 1979, and were replaced by a new U.S. Government agency, the Panama Canal Commission. The treaty provides that the Commission may not engage in the commercial activities that had traditionally been part of the mission of the Canal organization, such as the operation of retail stores, harbor launch service, automobile repair and other activities intended to benefit the general public. Additionally, the treaty required a redistribution of these and other functions that were previously performed by the Panama Canal Company and Canal Zone Government. For example, functions such as education, health, postal service and retail sales to employees were reassigned to the Department of Defense. The signifi- cant port and railroad functions were transferred to the Republic of Panama togeth- er with jurisdictional responsibilities, such as customs and immigration, formerly carried out by the Canal Zone Government. Furthermore, the two governments now share certain responsibilities, namely, law enforcement for the 30 month transition period, and fire protection for the duration of the treaty. The redistribution of functions mandated by the treaty is presented graphically in Attachment A to my prepared remarks. 11 These major functional changes brought about a management requirement to restructure the Panama Canal organization. Realizing the potentially unsettling effect such action could have, it was decided at the outset to mitigate the impact of this transition. To this end, plans were drawn which preserved the basic Panama Canal Company organization structure to the extent practicable, consistent with good management practice. In my view, we were successful in maintaining continu- ity of operations during this reorganization. Nevertheless, the impact of the changes on the Canal work force was dramatic. It is understandable that with the termination of many major activities personnel strength would be materially reduced. To illustrate, the full-time permanent work force in the Panama Canal Company and Canal Zone Government immediately prior to October 1 was approximately 12,200 employees. The number of employees separated in the reduction in force was approximately 460 and about 2,300 employ- ees (out of approximately 3,000 spaces) were transferred to the Department of Defense. An additional 1,440 employees terminated their employment voluntarily through retirement or resignation. The combination of these actions reduced the Panama Canal full-time permanent work force to about 8,000 employees, of which approximately 2,100 are U.S. citizens and 5,900 are Panamanians and third country nationals. The large majority of these employees remaining with the Commission are dedicated to transit-related activities. The reconfiguration of the agency resulted in the disestablishment of four major operating bureaus. Residual activities that are permitted by the treaty and that continue to be performed by the Commission have generally been placed in existing organizations or consolidated into a new General Services Bureau. A chart of the Panama Canal Commission organization is presented in Attachment B to my pre- pared remarks. The reconfiguration of the Panama Canal organization impacted in different ways on units continuing in the Commission. The Marine and the Engineering and Construction Bureaus, which are the Canal's major operating bureaus, were virtual- ly unaffected. The formation of the organization's third major bureau, the General Services, Bureau, evolved, from the dissolution of the former Supply and Community Service, Transportation and Terminals, and Civil Affairs Bureaus of the Panama Canal Company and Canal Zone Government. Each of these three large bureaus lost significant portions of their functions as a result of the treaty. The remaining activities, were for the most part, consolidated into the General Services Bureau. This Bureau is divided into two primary service areas: Supply and Logistics Services, and Protection and Support Services. The functions encompassed in these service areas include such functions as agency procurement, operation of the Com- mission-owned SS Cristobal and agency vehicles, fire and police protection, the Library-Museum, and recreation services. The elements making up the staff of the Commission are largely carried over from Panama Canal Company and Canal Zone Government and include Personnel Administration, Financial Management, Executive Secretary, General Counsel, Ex- ecutive Planning, Industrial Relations, Equal Opportunity, Public Information and Health and Safety. I would like to point out here that the units I have described, particularly the General Services Bureau, will be surveyed periodically by my staff in order to test the results of agency planning and to improve the organization wherever possible. The majority of future organization changes will be made as the period of transition closes out and the agency settles into more routine activities. I would expect this to occur over the next two to four years. As you know, the implementing legistion established two new positions in the Panama Canal agency, those of Chief Engineer and Ombudsman. We have been studying the appropriate functions to be assigned to these positions as well as their relationship with other elements of the organization. These are necessary first steps before considering candidates for the positions. I expect to be forwarding my views and recommendations on these matters to the Secretary of the Army soon. INITIATIVES UNDER PUBLIC LAW 96-70 The Subcommittee has also asked that I address the initiatives which the Panama Canal Commission has undertaken to bring the agency into compliance with the requirements of Public Law 96-70, the new Panama Canal Act. These initiatives fall mainly into two areas: personnel administration and the conversion from a corpo- rate entity into an appropriated fund agency of the Government. 12 PERSONNEL In the area of personnel administration, section 1214 of the Act provides for the interim application of the Canal Zone Merit System until the Panama Canal Em- ployment System is established. In accordance with that provision, the Canal Zone Merit System continues in operation as before, except that the Treaty requirement to extend hiring preference for Panamanians has been implemented. This has been accomplished by adding 11 extra points to the numerical scores of all Panamanian applicants tested after October 1 who have at least a minimum score of 70 on an assembled or unassembled examination administered by the Central Examinating Office. Regular veterans preference entitlements and procedures continue to apply. With regard to the Panama Canal Employment System, the Act calls for its establishment by the President after consideration of recommendations by the Com- mission. We are already in the process of development the Commission's recommen- dations for that new system. Essentially, we foresee a new Panama Canal Employ- ment System that is patterned substantially after the present Canal Zone Merit System, but modified to carry out unique treaty requirements such as the hiring preference for Panamanians. In addition to the system of hiring preference for Panamanians, the Secretary of the Army also established a new Panama Area Wage Base for employees hired after October 1, which meets the requirements for minimum levels of pay and annual increases set forth in Section 1225 of the Act. Other personnel policies have been developed and are currently under review which would implement for the Commis- sion other changes required by the treaty or the Act. These include policies govern- ing periodic rotation of employees, off-the-Isthmus recruitment and labor relations. Finally, Section 1112 of the Act requires that, no later than 60 days after all members of the Board of the Commission have been appointed, the Board must adopt a Code of Conduct applicable to each of its members and each Commission officer and employee. A proposed Code of Conduct, which has been drafted and is currently under review, will be completed and forwarded for action by the Board well in advance of the prescribed deadline. CONVERSION TO APPROPRIATED FUND AGENCY I would like to turn now to the initiatives already taken, or in progress, to implement the provisions of Public Law 96-70 with regard to the difficult task of converting an agency which has operated as a Government corporation for the last 28 years to one that operates under the appropriated fund concept. Section 1301 of the new law requires that there be covered into the general fund of the Treasury any balances of the appropriation accounts of the Canal Zone Government remaining unexpended at close of business September 30, 1979. In addition, it authorizes funds to be appropriated to the Commission to cover out- standing obligations that would otherwise be chargeable to these accounts. On September 30, the unexpended balance of the appropriation accounts of the Canal Zone Government amounted to $12.2 million. Final reporting to the Treasury is due on November 7, and at that time these funds will be formally covered into the general fund. A final determination of the obligations outstanding against earlier appropri- ations is still underway. In conformance with the authorization granted in the statute, we have included in the Commission's 1980 budget request funding for $5.9 million to cover these Canal Zone Government obligations. With regard to Panama Canal Company funds, the Act requires that all cash balances of the Company as of September 30 be paid into the Treasury in an account to be known as the Panama Canal Commission Fund. In addition, the law requires that tolls and all other receipts of the Commission be thereafter deposited to this fund. On September 30, the cash balance in the Company Fund amounted to $71.2 million, which has been deposited in full into the Treasury to the account of the Panama Canal Commission Fund. Also in accordance with this section of the stat- ute, all receipts of the Commission are being deposited into that fund. Through October 31, receipts so deposited have amounted to $30.4 million. Section 1303 of Public Law 96-70 establishes the Panama Canal Emergency Fund and authorizes the appropriation of $40 million for deposit therein for the fiscal year beginning on October 1, 1979. We attach great importance to this provision as it affords us what we consider to be an essential means of handling unforeseen operational emergencies and traffic increases. On the other hand, although we have requested through the fiscal year 1980 Budget Amendment a $40 million appropri- 13 ation to establish the fund in accordance with this provision of the Act, we do not anticipate having to make withdrawals from it during the year. Section 1302 of the statute provides in part that no funds may be appropriated to or for the use of the Commission for any fiscal year in excess of the amount of revenue deposited into the Commission Fund during such year, as such amount is estimated by the Secretary of Defense and certified by the Comptroller General. In conformity with this requirement, the Secretary of Defense has estimated that total deposits during fiscal year 1980 will amount to $463.9 million. This includes $391.2 million of operating revenue receipts, $71.2 million of unexpended Panama Canal Company funds, and $1.5 million of other miscellaneous receipts expected to be generated during the year. The Secretary's estimate has been certified by the Comptroller General as required by the Panama Canal Act. In the Budget Amendment for the Commission's fiscal year 1980 programs, a total authorization of $511.4 million has been requested. However, this amount includes $40 million to establish the Panama Canal Emergency Fund, discussed previously, $5.9 million to cover outstanding fiscal year 1979 obligations of the Canal Zone Government, and $2 million for obligation in subsequent years to complete Commis- sion capital projects. In essence, then, the net appropriation being requested for the operational and capital needs of the Commission in 1980 is $463.5 million, as compared to estimated deposits into the Panama Canal Commission Fund that year of $463.9 million. We are anticipating, therefore, that deposits will be sufficient to reimburse the Treas- ury for the appropriations used by the Canal agency. While, of course, the Act requires that the Commission operate and account for its funds as an appropriated-fund agency, it also requires that the agency keep a business set of books for the purpose of setting tolls and other rates and for the determination of whether payments are due Panama under paragraph 4(c) of Arti- cle XIII of the treaty. As you are aware, the Canal's accounting and budgeting systems were designed to meet the objectives of commercial accounting. The problem faced, therefore, is to make changes to these systems which will achieve an integration of the varying requirements of an appropriated-fund accounting system and those of a business- oriented system. Since these systems are automated and highly complex, and the nature of fund and commercial accounting is so dissimilar, we foresee a large job ahead before a fully satisfactory system can be implemented. Another important aspect relating to the changed accounting is the need to orient managers and budgetary personnel to their new responsibilities. Financial manage- ment under the Panama Canal Company was directed more towards achieving bottom line results than adhering to set fund limitations. Under the Commission, profitability and fund control must share an equal role in the financial management picture. This will require initiating an extensive orientation program for our em- ployees. I would like to take this opportunity to alert the subcommittee that we foresee some management problems in the capital program area as a result of the authori- zation bill for the Commission recently passed by the House. The bill, as passed, does not provide the reprogramming authority necessary to take into account changes in priorities or in estimates. The Act sets forth the specific elements to be used in calculating the capital investment of the United States in the Panama Canal on which interest is to be computed, and provides further that interest be set at a rate determined by the Secretary of the Treasury. In this connection, the Joint Explanatory Statement of the Committee of Conference stated that interest on the net direct investment of the United States would be computed at the coupon, rather than the average, yield rate. For fiscal year 1980, the Treasury has established an interest rate of 7.096 percent. Section 1602 requires that rates of tolls be calculated to produce revenues to cover, as nearly as practicable, all costs of maintaining and operating the Panama Canal, including interest, depreciation, payments to Panama under paragraph 5 of Article 111 and paragraphs 4 (a) and (b) of Article XIII of the treaty, as well as capital for plant replacement, expansion, and improvements. However, it specifical- ly prohibits inclusion in the toll base of any provision for the contingent $10 million payment to Panama under paragraph 4(c) of treaty Article XIII. In accordance with the requirements of this same section, and under the authori- ty granted in section 1605 for an interim toll adjustment, there were placed in effect on October 1 new toll rates representing a 29.3 percent increase over prior rates. The new rates conform in all respects with the bases of tolls set forth in the law. In addition to the normal costs associated with the maintenance and operation of the Canal, the rates provide for recovery of $14.8 million for interest, $16.7 million 59-319 14 for the increase in the unfunded liability to the Civil Service Retirement Fund attributable to the early retirement benefits extended to Canal employees, $75.9 million for payments to Panama, and $7.0 million for plant replacement, expansion, and improvements. This $7.0 million represents the additional income needed, over and above depreciation, to reimburse the U.S. Treasury for a requested appropri- ation in 1980 of $25.2 million for new capital program obligations of the Commission estimated for that year. As a final comment on financial matters two agreements have been reached in principle with Panama on the treatment of payments due each party. These agree- ments, which we anticipate will be formalized soon by an exchange of diplomatic notes, are in conformity with the provisions of Public Law 96-70, and do not diminish the controls to be exercised by the Congress over the treaty payments to Panama. The first agreement provides that, with respect to amounts due Panama pursuant to paragraph 5 of Article III and paragraphs 4(a) and (b) of Article XIII of the treaty, the Commission is to make monthly payments, beginning in November. Reimbursement for the public services to be performed by Panama and payment of the fixed annuity will be at one-twelfth of the total annual amounts due under the treaty. The thirty cents per ton payment will be calculated at the end of each month based on tonnage actually transiting the Canal. For any annual amounts that might be due Panama under the provisions of paragraph 4(c) of treaty Article XIII, payment would be made no later than seven months after the close of the fiscal year. With respect to reimbursement by Panama for goods provided and services ren- dered by the Commission, this agreement also stipulates that payments will be made monthly, on a current basis, with the Commission having the right to offset against treaty payments due Panama in the event that Government becomes delin- quent. The second agreement relates to Panama's back debt to the predecessor agencies. Under this agreement, Panama will pay the full amount of the debt in quarterly installments over a twenty-seven month period. If payments become delinquent, the Commission, again, will have the right of offset against treaty payments. TRAFFIC AND TOLLS OUTLOOK I would like to conclude my testimony with a brief statement concerning the traffic and tolls outlook for the Commission. During fiscal year 1979, Canal traffic and tolls revenue levels fluctuated rather widely and did not fully develop according to our earlier forecasts. Nevertheless, by year end, traffic and tolls revenue totals had reached impressive levels. Cargo movements through the Canal were up over 8.0 percent from fiscal year 1978, reaching a record 154 million long tons, resulting from increases in the number and size of vessels transiting the waterway. Tolls revenue corresponding to the increased traffic levels was approximately $209.5 million, or $270.8 million at current toll rates. I expect further increases in traffic and tolls revenue during fiscal year 1980, with most of the growth resulting from increased shipments of Alaska North Slope oil through the Canal. Our fiscal year 1980 budget estimates include North Slope oil movements through the Canal of approximately 480 thousand barrels daily, up sharply from an average 310 thousand barrels daily during the prior year. Transits directly related to the North Slope oil trade are now estimated at 1,075, with a corresponding tolls revenue of $41.1 million under the new toll rate structure. That estimate was based primarily on information provided by the major participants in the production and distribution of North Slope oil, which indicated shipments through the Canal would average 400 thousand barrels daily during October and November, increasing to approximately 500 thousand barrels per day by December, with this average level being sustained throughout 1980. Other traffic is also expected to expand during the year, although at a moderate pace. Continued and possibly deeper recession in the United States and the poten- tial for some downturn in Japan in the latter half of the year will tend to limit growth during fiscal year 1980. Nevertheless, I am optimistic that, barring unex- pected, serious change in the economies of these two countries, traffic levels will increase during the year. Our total traffic and tolls revenue, including North Slope oil, is currently estimated at 13,765 oceangoing transits and $299.6 million. This forecast is strengthened by actual results during the month of October. Despite lower than expected North Slope oil shipments, total traffic and tolls revenue levels are very near our estimates for the period. Actual shipments of North Slope oil averaged approximately 295 thousand barrels during the month, but 15 have been increasing during the last two weeks. We understand Trans-Alaska pipeline system throughput just recently reached the level necessary to sustain Canal shipments at the 400,000 barrel per day level, and increases up to this average are expected during November, with further increases to approximately 500 thousand barrels daily still anticipated by December or early January. Of course, we recognize the volatility of this aspect of our traffic and the potential for wide variation in the timing and/or amount of shipments through the Canal. I would like to mention one last factor that could potentially affect Canal traffic levels and that is the increase in toll rates of approximately 29.3 percent as of October 1. The effect of this toll rate increase on the level of Canal traffic is a function of the cost of using the Canal relative to the cost of users' alternatives. While it is too soon to discern the actual effect of the recent toll rate increase on Canal traffic, our studies indicate there will be no diminution of traffic through the Canal as a result of the increase. Nevertheless, we will continue to monitor the situation. CONCLUSION Mr. Chairman, that concludes my prepared remarks. I shall be pleased to answer questions. Thank you. 16 CO 7^. O H- O ^ US Ll. o CO 5 9° cr: co k- '^: O CL o UJ tr. o (>: u_ CO or 17 O O >— sf . < f c-: •■J-: / ^ z o /-I ! •^ ^ < 2 uj p= -> 2 r- O ^ u < s: li. --* LiJ ■'— «~' oz z ~ 2 fc Q 2 *— "J f - Z S £ 5 Q Z fcr '; * *> © y 9 5 u • £ u 7 £: < •'"'■ 3 u O ' j u - ' Ml O <_J ? o O 5 O * C£ S5 z C «, e- i- Z ->- r: y- ^ ,_.,. — e; ^ £ z ^s< ^~ iBSgQl e @ 9 & • * r^ < £93 =j 1^ o_ xr <-n e> u - ^ ^ z — o io ^ < --± Z ' U < » -.1 < ! =d E ! "J / y ; "' -y — -.-■ UJ ~ z / c^ -• u o _, , ? «i o -.; z ;M col Zj f_> LU i t o j ^ -; ; — -j H _j ■7 ;j o u e 9 18 Mr. McAuliffe. As indicated, I am accompanied by Mr. Fer- nando Manfredo, Jr., the Deputy Administrator; Mr. Thomas Con- stant, the Secretary of the Panama Canal Commission, and Mr. Walter Bjorseth, the Chief Financial Officer of the Panama Canal Commission. As the Administrator of the agency, I would like to express my gratitude to this subcommittee for assisting in the enactment of the treaty implementing legislation prior to October 1. Potentially serious problems would have resulted had October 1 come and one without the requisite legislation. At the outset of my remarks it seems appropriate for me to give you a rundown on what the Administrator and his Deputy have been doing for the past month. I assumed office in the Commission, in an acting capacity, from its beginning on October 1, as did my Deputy, Mr. Fernando Manfredo, Jr. Since that time Mr. Manfredo and I have spent much time visiting all of the facilities, offices and shops which the Commission operates. Our purpose was not only to get personally acquainted with the organization and its people, but also to give our employees at all levels of the organization the opportunity to see and talk with us. We have also met with a number of employee and community groups during this time. These visits and meetings have served as a good first course in familiarization with canal operations for Mr. Manfredo and myself. I believe they also have had a beneficial, reassuring effect on our people. I must say that I have been very much impressed with the dedication, loyalty and professional competence of the canal work- force. They have kept this important waterway operating and maintained during what has been for them an extremely turbulent and frustrating period. That, in my view, is a real tribute to them. Many of the employees we have talked with have commented favorably on the peaceful manner in which the changeover from United States to Panamanian jurisdiction was carried out, and at the cooperation we have been receiving from the Panamanian Gov- ernment in such matters as joint police patrols, refuse collection, the issuance of licenses, employee documentation, railroad service, and similar functions. Mr. Manfredo and I are acutely aware, nevertheless, that the problems of uncertainty and turbulence of the recent past have continued to impact on employee morale, and I can assure you that corrective measures are being given priority attention. I believe that the combination of a return to stability and the taking of management actions which are sensitive to the needs of the organi- zation as well as to the concerns of our people will result in a favorable period of canal operation in the months ahead. I have with my prepared statement two charts reflecting the transfer of functions to Panama, and the structure of our new organization. I am prepared to answer questions on those, but I shall not discuss them at length at this moment. I do want to say something about the makeup of our workforce. The full-time permanent workforce in the Panama Canal Company and Canal Zone Government immediately prior to October 1 was approximately 12,200 employees. The number of employees separat- 19 ed in the reduction in force was approximately 460 and about 2,300 employees — out of approximately 3,000 spaces — were transferred to the Department of Defense. An additional 1,440 employees termi- nated their employment voluntarily through retirement or resigna- tion. The combination of these actions reduced the Panama Canal full-time permanent workforce to about 8,000 employees, of which approximately 2,100 are U.S. citizens and 5,900 are Panamanians and third-country nationals. The large majority of these employees remaining with the Commission are dedicated to transit and tran- sit-related activities. My full statement covers such matters as initiatives taken in the personnel planning and policy area. I wish to move to a discussion of some financial aspects. I am, of course, prepared to answer questions on both personnel and financial matters. I would like to mention the initiatives already taken or in prog- ress to implement the provisions of Public Law 96-70 with regard to the difficult task of converting an agency which has operated as a government corporation for the last 28 years to one that operates under the appropriated fund concept. Section 1301 of the new law requires that there be covered into the general fund of the Treasury any balances of the appropriation accounts of the Canal Zone Government remaining unexpended at close of business September 30, 1979. In addition, it authorizes funds to be appropriated to the Commission to cover outstanding obligations that would otherwise be chargeable to these accounts. On September 30 the unexpended balance of the appropriations acccounts of the Canal Zone Government amounted to $12.2 mil- lion. Final reporting to the Treasury is due on November 7, and at that time these funds will be formally covered into the general fund. A final determination of the obligations outstanding against ear- lier appropriations is still underway. In conformance with the au- thorization granted in the statute, we have included in the Com- mission's 1980 budget request funding for $5.9 million to cover these Canal Zone Government obligations. On September 30, the cash balance in the Panama Canal Compa- ny Fund amounted to $71.2 million, which has been deposited in full into the Treasury to the account of the Panama Canal Commis- sion Fund. Also in accordance with this section of the statute all receipts of the Commission are being deposited into that fund. Through October 31 receipts so deposited have amounted to $30.4 million. Section 1303 of Public Law 96-70 establishes the Panama Canal Emergency Fund and authorizes the appropriation of $40 million for deposit therein for the fiscal year beginning on October 1, 1979. We attach great importance to this provision as it affords us what we consider to be an essential means of handling unforeseen oper- ational emergencies and traffic increases. I would like to take this opportunity to alert the subcommittee that we foresee some management problems in the capital program area as a result of the authorization bill for the Commission recent- ly passed by the House. The bill, as passed, does not provide the reprograming authority necessary to take into account changes in priorities or in estimates. 20 In accordance with the requirements of the section 1602, and under the authority granted in section 1605 for an interim toll adjustment, there were placed in effect on October 1 new toll rates representing a 29.3-percent increase over prior rates. The new rates conform in all respects with the bases of tolls set forth in the law. In addition to the normal costs associated with the maintenance and operation of the canal, the rates provide for recovery of $14.8 million for interest, $16.7 million for the increase in the unfunded liability to the civil service retirement fund attributable to the early retirement benefits extended to canal employees, $75.9 mil- lion for payments to Panama, and $7.0 million for plant replace- ment, expansion, and improvements. This $7 million represents the additional income needed, over and above depreciation, to reimburse the U.S. Treasury for a re- quested appropriation in 1980 of $25.2 million for new capital pro- gram obligations of the Commission estimated for that year. A short word now on the traffic through the canal. Transits directly related to the North Slope oil trade are now estimated at 1,075, a corresponding tolls revenue of $41.2 million under the new toll rate structure. That estimate was based primarily on informa- tion provided by the major participants in the production and distribution of North Slope oil, which indicated shipments through the canal would average 400,000 barrels daily during October and November, increasing to approximately 500,000 barrels per day by December, with this average level being sustained through 1980. Our total traffic and tolls revenue including North Slope oil is currently estimated at 13,765 oceangoing transits, and $299.6 mil- lion. This forecast is strengthened by actual results during the month of October. Despite lower than expected North Slope oil shipments, total traffic and tolls revenue levels are very near our estimates for the period. Actual shipments of North Slope oil aver- aged approximately 295,000 barrels daily during the month but have been increasing during the last 2 weeks. We understand Trans-Alaska pipeline system throughput just recently reached the level necessary to sustain canal shipments at the 400,000-barrel-per-day level, and increases up to this average are expected during November, with further increases to approxi- mately 500,000 barrels daily still anticipated by December or early January. Of course, we recognize the volatility of this aspect of our traffic and the potential for wide variation in the timing and/or amount of shipments through the canal. While it is too soon to discern the actual effect of the recent toll rate increase on canal traffic, our studies indicate there will be diminution of traffic through the canal as a result of the increase. Nevertheless, we will continue to monitor the situation. Mr. Chairman, that concludes the summary of my prepared re- marks, and together with Secretary Blumenfeld I am prepared to answer questions. Thank you. Mr. Hubbard. Thank you, Dennis McAuliffe. These questions from the chairman, before we call on Chairman Murphy, Congressman Bauman and other members of the subcom- mittee who are here. My first question for Michael Blumenfeld regarding tolls. Have you received any communication from canal users or countries with respect to the tolls increase that went into 21 effect on October 1? Do you know of any user that has said the new increase would preclude their using the canal? Mr. Blumenfeld. I am not aware of any specific user who has said that they would be precluded from using the canal. I think, as Mr. McAuliffe said, our best knowledge now is that traffic will not diminish as a result of the increase. I am aware of a statement in the OAS which basically opposed the concept of raising tolls, and seeks to keep them as low as possible. I think that is an understand- able sentiment. But we have received, to my knowledge, no spe- cific notification of people who will stop using the canal because of that increase. Mr. Hubbard. Have you heard any protests or criticisms about the toll increase which went into effect on October 1? Mr. Blumenfeld. We had, of course, heard criticism back in the summer months when the amount of the toll increase was under consideration, and the then Panama Canal Company held hearings on a proposed toll increase. There were a number of statements in opposition to a toll increase. It would not surprise me if, as I said, sentiment remains that tolls should not be raised, but we have not heard specific complaints about this toll increase. Mr. Hubbard. Regarding employment and employment costs, how do you intend to carry out the provisions of the treaty in section 1271 of the Panama Canal Act relating to labor-manage- ment relations? Also, how soon do you expect to arrive at a scheme of recognition and negotiation for a contract? Mr. Blumenfeld. I cannot give you a target date for that. That is a very evolutionary kind of situation. Federal labor relations authority which supervises title 7 of the Civil Service Reform Act which will apply to both U.S. and non-U.S. employees in the zone has made a visit to the isthmus, has discussed the situation both with the union representatives and with representatives of the Commission and the Government of Panama. There is a training program which the AFL-CIO will be undertaking for its own affili- ates down there sometime I believe in late November. People are really just getting organized under the provisions of title 7, and there are many open questions as to exactly how it is going to work. So I have no target date for the first recognitions under that title. Mr. Hubbard. The Panama Canal Act authorized in section 3101 the disinterment, transportation, and reinterment of remains of U.S. citizens to fulfill the terms of the Randolph Reservation. How would you describe the progress being made with respect to this project? Mr. Blumenfeld. I would describe it as excellent, sir. The terms of the Randolph Reservation were met. They were met on time, and they were met with all of the dignity that properly should have accompanied the removal and transfer of remains. I believe next of kin are satisfied with the result. We are certainly satisfied with the result, and think that the Canal Zone Government, assist- ed by elements of the Department of the Army who were sent down on detail, accomplished that task with dispatch and to their great credit. Mr. Hubbard. Thank you so much. 22 A few questions, please, for Administrator McAuliffe. In earlier testimony that had been supplied to the subcommittee, the esti- mate of the amount of funds to be covered from the Panama Canal Company Fund into the Treasury on September 30 was $82 million. As you indicated in your statement, $71.2 million was actually covered into the Treasury on September 30. What accounted for the nearly $10 million variation from the earlier estimate? Mr. McAuliffe. The difference was that we paid more predeces- sor obligations than we had estimated, and also there were about $1.5 million lower tolls than estimated. These were normal adjust- ments made in the process. Mr. Hubbard. When the Canal Zone existed, each townsite had an advisory-type civic council and the major civic representatives of the townsites met periodically with the Governor. What is the Commission's plan for relating to these communities within those housing areas controlled by the Panama Canal Commission? Mr. McAuliffe. Sir, I am setting up a successor structure which we will call resident advisory committees, and there will be repre- sentatives from all of the townsites and housing areas in the com- mittees that will meet with my deputy and myself periodically. I will have to add that, since the makeup of many of our Commission housing areas is now changed, you will find in many of them employees not only of the Commission but also of the Department of Defense agencies in the Panama Canal area, and even of the Government of Panama, because of the transfer of functions that has taken place. Therefore, we are working out an arrangement whereby repre- sentatives of the other agencies in the canal area will also sit with us on the residential advisory committees, so that we can handle matters across the board. Mr. Hubbard. During debate on the Panama Canal Act earlier this year some concern emerged regarding a shortage of pilots caused by the number of canal pilots not wishing to work under Panamanian civil jurisdiction combined with some who would retire, due to lucrative retirement benefits. Is there any shortage of Panama Canal pilots? Mr. McAuliffe. We have lost some pilots in the transfer over to the new treaty, and we have also recruited some new pilots to partially make up the deficit. Mr. Hubbard. What number of pilots is currently employed? Mr. McAuliffe. If I may give that number to you for the record. I don't have it immediately at hand. I do want to say that we do have a sufficient number of pilots, qualified pilots, to handle canal traffic at this time, and we are working together with the pilots themselves on bringing up to the proper level of qualification some new personnel. Mr. Hubbard. Can you give us the number Mr. McAuliffe. Yes, sir, I can. Mr. Hubbard [continuing]. That you would like to have? Mr. McAuliffe. Yes. Mr. Hubbard. How about the number of pilots you would like to have? Mr. McAuliffe. About 238 is our objective figure. 23 Mr. Hubbard. At present is the number substantially under that? Mr. McAuliffe. The number currently employed is 220. We are pretty close. Mr. Hubbard. Two more questions from me. On page 8 of your statement you indicated that hiring preference for Panamanians was being implemented by adding 11 points to the numerical score of certain Panamanian applicants. This is related to paragraph 2 of article 10 of the Panama Canal Treaty. How does this policy relate to positions requiring critical skills such as pilot, tugboat, and craftsman positions? Mr. McAuliffe. The 11 points are being awarded to qualified Panamanians who are being hired into the Commission, that is to say new hires. The 11 points would be awarded to any qualified Panamanian applicant whether in the skilled areas or the semi- skilled or unskilled areas. The 11 points are added after the indi- vidual has attained a passing score in qualification testing. This method is designed to provide a means of carrying out the thrust of the legislation for a Panamanian preference in hiring, and I might add that that seems to be working as intended, from my review of the results of the first month under the treaty. Mr. Hubbard. Last, have the recent strikes and marches in Panama had any effect on the canal's operation? Do you anticipate that there will be any effect in the future? Mr. McAuliffe. There has been, as the subcommittee knows, a longstanding teachers strike that had picked up other elements of the Panamanian economy. The strike was settled day before yester- day—October 31— and the schools are expected to reopen on Monday, November 5. The strike, while causing turbulence within Panama, had no effect at all on the operation of the canal. I might add that there were some other labor problems experienced by Panama in one of the port areas recently. This was not in itself directly related to the teachers strike. It was an economic problem. It was settled fairly quickly, although the Cristobal piers were at a standstill for about a 1-day period. I am pleased to note that the canal operation continued. We were able to continue to use our launches, to take our pilots out from the Cristobal piers to the ships awaiting, and to return the pilots there even while that 24-hour strike was in progress. What I am saying is that the labor problems that Panama has been confronted with have not, fortunately, affected the canal oper- ation, and I do not see any of those problems affecting our canal operation for the foreseeable future. Mr. Hubbard. Thank you very much, Mr. McAuliffe. Chairman Murphy, questions? Mr. Murphy. General, one of the major problems seems to be water — the availability of water; the problems in the watershed area; woodcutting; what is developing as a dry period in what has normally not been a dry period. What contingency planning is the Commission doing in reference to the general situation of refolia- tion; security of those areas; and for provision of water, in order to service the canal? 24 Mr. McAuuffe. Sir, our planning and participation with Panama toward the conservation of the watershed area has contin- ued through a Subcommittee on Conservation, and will be the subject of a major effort on the Committee on the Environment, which will shortly be established under the terms of the treaty. But aside from the establishment of that committee, there has been very effective and cooperative working relationships between Pana- manian agencies and U.S. agencies — and I am talking here of both the Commission and the Department of Defense elements — in help- ing to preserve that watershed area. I am happy to note that over the past year a major effort has been made by the Panamanian Government to publicize the dan- gers of further erosion, of further uncontrolled cutting of timber in these areas, and also the Panamanian Government, with the co- operation of the former Canal Zone Police, now the Commission Police, has taken steps to gradually move these squatters and other illegal farming activities out of that area, so that there is, I think, a viable program between the two Governments to preserve the watershed. Obviously it is something that has to be watched very closely, so that there are no retractions on the progress that has been made, and indeed that the progress does continue for the years ahead. The lake levels at the present time are at about the level that they should be in this time of year. As I mentioned to some members of the subcommittee privately yesterday, we have had a rather unusual environmental event in that the month of October turned out to be for the watershed area one of the driest Octobers in many years, something like 7 years. We certainly hope that that does not continue through November, or we may have to make some further reevaluations of our water supply for the coming year. But that is a short-term problem, one that is immediately with us. Mr. Murphy. I have no other questions. Mr. Hubbard. Thank you very much, Chairman Murphy. Con- gressman Bauman? Mr. Bauman. I wanted to address one point that concerns me. In your statement on page 11 you rather succinctly summarized the problem that arises in my own mind. As you well know, section 1302 of the Public Law 96-70, the implementing legislation, makes it clear that the fund must be both authorized and appropriated and that the annual amount appropriated may not exceed the revenues of the canal deposited in the Commission's fund in the Treasury. This provision is the so-called Rudd amendment. The contention made in your statement is that certain amounts that may be required this year, the largest of which is the $40 million emergency fund authorized by the implementing law, should not be considered as part of the appropriation process, or at least not the authorization process. Could you clarify for me your thinking and the reasoning behind this? Mr. Blumenfeld. Let me, if I may, answer that. In our view the authorities extended in sections 1301 and 1303 are supplemental to the authority discussed in and limited in section 1302. I will be a little bit more specific. 25 Section 1301 covers into the general fund of the Treasury unex- pended balances of the Canal Zone Government. As noted in the House Report on H.R. Ill, the section specifically authorizes appro- priations to make payments of duly audited obligations or claims that result from the operation of the Canal Zone Government before October 1. We are seeking an appropriation of $5.9 million to liquidate such claims. We estimate that the larger amount than $5.9 million, to be precise $6.1 million, will be deposited into the general fund of the Treasury during fiscal year 1980, which is an amount to be collect- ed on Canal Zone Government accounts receivable. The intent of the Rudd amendment, embodied in 1302(c), is that the taxpayer not subsidize the operation of the canal. The appropri- ation of the funds as authorized in section 1301 would not subvert that intent. The funds would satisfy claims such as accrued sala- ries, accounts payable, which represent expenses already charged to shippers in past tolls and, therefore, are properly excluded from the toll base in 1980. The $6.1 million that will be covered into the Treasury from these Canal Zone Government accounts receivable, as I said, will more than cover the $5.9 million that we seek to spend. The collection of the accounts receivable is no more speculative than the collection of toll revenues which are estimated at the beginning of the year, and have been certified by the Comptroller General. Those toll revenues will go to finance the operation and mainte- nance of the canal under the constraints of section 1302(c). Section 1302(c) does not contain language indicating that it overrides other portions of the act such as section 1301 or 1303(a), which contain their own separate authorizations. But if I may, let me get to the practical effects of a failure to authorize and to appropriate the $5.9 million as well as the emergency fund. I will treat them separately. As to the $5.9 million, what are the options? Dollars could be appropriated and the legitimate claims could be paid. That is option 1. Option 2, the Commission could default on these claims, and be sued. Option 3, the Congress could force the Commission, if it wishes not to default on the legitimate obligations, to finance that $5.9 million in payments by foregoing other operating expenses, and, in effect, financing that $5.9 million which are carryover Canal Zone obligations out of fiscal 1980 tolls. Since those costs — carryover Canal Zone Government obliga- tions — are not in the 1980 tolls base and are not costs of operating and maintaining the canal, this course of action would raise the legitimate question by Panama as to whether it creates a surplus of revenues triggering a contingency payment to them. The Com- mission would have collected revenues and made expenditures not related to the operation and maintenance of the canal. There is quite arguably a case, therefore, that you would have a surplus which would be payable to the Republic of Panama under article III, section 4(c). 26 I believe that among those options it is most clearly desirable to appropriate the $5.9 million and to let those legitimate claims be paid. With respect to the emergency fund Mr. Bauman. Before you go on to that, Mr. Secretary, I followed you up to a point but you sure lost me on that last part about triggering the article, whatever it is, 4(c) payments. Let me go back. You say there is roughly $6 million in accounts receivable owed from the previous Canal Company operations. What is the source of these receivables? Mr. Blumenfeld. Resulting from prior operation of the canal and the Canal Zone Government. Mr. Bauman. What is the source of these? Mr. Blumenfeld. The source in part is the Republic of Panama. Mr. Bauman. Water payments, electricity, and things like that? Mr. Blumenfeld. That sort of thing, correct, and also from indi- viduals who owe the Canal Zone Government for hospital or other such services that have been provided. They are also from U.S. agencies on the isthmus who owe and who have not yet paid for services provided. Mr. Bauman. It is your suggestion that this amount of money should come into the hands of the Commission and then be used to pay off the outstanding obligations that you describe? Mr. Blumenfeld. Mechanically, whether it comes into the hands of the Commission and then is paid off or goes into the Treasury and becomes appropriated funds from the Treasury general fund I think is, as an nonfinancial expert, immaterial. The point is that it will cost the taxpayer nothing because those funds are coming in: $6.1 million is coming in, $5.9 million would go out. Mr. Bauman. The actual physical transfer and the bookkeeping doesn't concern me as much as your suggestion that the amount of money, whatever it is, should not go through the authorization and appropriation process. Mr. Blumenfeld. I believe it should be appropriated, yes, sir. I believe that it has been separately authorized in section 1301. Mr. Bauman. By virtue of the authority to pay claims of the previous company? Mr. Blumenfeld. That is correct. Mr. Bauman. You foresee this to be a one-time-only operation? Mr. Blumenfeld. Yes. Mr. Bauman. Now if you want to proceed to the $40 million fund, I would like to hear your answer on that. Mr. Blumenfeld. The $40 million emergency fund, I think the legislative history makes clear, was placed into the legislation in order to recognize that the constraints of an appropriated fund agency, as opposed to the old corporate form, may lead to circum- stances where an unexpected event — such as a landslide — leaves you with no revenues and some costs, or where traffic increases requiring increased outlays to service them, happen in a timeframe where the requirements have to be met immediately, and the formal congressional processes are simply not fast enough to ac- commodate them. The $40 million emergency fund was therefore authorized in section 1303 to cover unforeseen expenses. You may have them, 27 you may not. To charge shippers for that, by putting it in the toll base, would raise, I think, a very understandable outcry. The separate authorization existing in section 1303 means that there is no question that it is separate from the limits established in section 1302 for normal operating and maintenance expenses of the canal, which are subject to the limit of those funds put into the Panama Canal Commission Fund. Mr. Bauman. Then what you are suggesting is quite flatly that the $40 million fund has to come out of the U.S. Treasury, not out of the income of the Commission, and that any replenishments in the future must also come out of the U.S. Treasury? Mr. Blumenfeld. No, sir, the concept would be that replenish- ments in the fund would come through tolls. Mr. Bauman. Are you suggesting that the original appropriation, the $40 million, the first amount, should be from the Treasury? Mr. Blumenfeld. Yes. Mr. Bauman. I have to flatly disagree with your interpretation. I can tell you as one who worked on that section, and specifically saved it from oblivion because of a mistake in the printing of the House-passed bill, that it was always my understanding that the amount of money in that fund would not be chargeable to the U.S. taxpayer at any point, but would in fact be appropriated and have to come originally from the tolls. I have to tell you my own view is that you missed the boat on your temporary toll increase, in not including this as a factor, and I would suggest to you as one who has been through the political warfare on this issue that if this has to be reopened on the floor of the House only a matter of weeks after the passing of the imple- menting legislation, you run a great deal of jeopardy in getting this budget through. I hope we can work out some accommodation. It may seem minor in the context of the billions that this Government spends, but in the context of the emotion raised by the entire issue, there are people waiting for something like this. I don't want to pursue it at length today, I don't think that is appropriate, but I just suggest we best work out something that does not allow the U.S. Treasury or the taxpayers to be liable for this original amount. Mr. Blumenfeld. I won't pursue it at great length either, but if I may respond, I think section 1303 on its face authorizes that ex- penditure from appropriation from the Treasury. Were we to have built it into the tolls base and ended up fiscal 1980 or 1981 or any other fiscal year not having had the kind of emergency or the kind of unexpected events that would have required expenditure of funds, we could have a surplus arguably triggering a contingency payment penalty. Mr. Bauman. I agree. But one of the points of contention in the final two conferences was the definition of operation and mainte- nance, and I don't see how you can twist the definition of those phrases to exclude emergency situations for operation or mainte- nance that occur. They are intimately part of the operation and maintenance of the canal, and I would say have to come from the tolls, despite the diplomatic problem that may present to our Gov- ernment with shippers from Latin American and other countries. 28 I hope we can resolve this. I have read the amendment offered by Senator Bayh yesterday in the other body, and I think that it turns the law on its head. It says, in effect, you can appropriate the money beforehand and take it later out of income from the canal. I guess that is the suggestion of the language. Mr. Blumenfeld. Yes, it is. Mr. Bauman. That, to me, is an open-ended arrangement that I think subverts the congressional process. Mr. Chairman, I don't want to prolong the questioning but I did have one other question regarding the amount of money that is suggested for claims against the Canal Commission. Drawing on my memory, you had something in the neighborhood of $21 million in your revised budget estimates for possible vessel damage claims, and the 1978 annual report of the Company indi- cated that the estimated liability for such claims was only $6.9 million. Then there was a revised projection of $8.2 million. The Public Law 96-70, chapter 4, drastically reduced the expo- sure of the new Commission to these claims and turns over to the United States the responsibility for prior claims. What is the justification for the request for that increased amount of money? Mr. McAuliffe. Sir, we had claims totaling some $15.9 million in fiscal year 1979, and while there are limitations placed on the amounts of claims for ship damage and certain parts of the water- way, nevertheless the size of the ships, the almost excessively high cost of repairing ship damage, has convinced us that the amount that we have estimated for claims in fiscal year 1980 is prudent. Mr. Bauman. So the 1978 annual report of the company projects approximately $7 million. Your March statement of this year on which the tolls increase was projected gives about $8.2 million, and you tell me that in fact more than $15 million in claims were filed? Mr. McAuliffe. $15 million, yes, sir, in estimated claims. Mr. Bauman. And on that basis you project for the coming year $21 million? Mr. McAuliffe. The $21 million was our estimate of all claims for accidents projected through the end of fiscal year 1979. Mr. Blumenfeld. If I may add, sir, the increase in vessel traffic has been accompanied by an increase in the proportion of that traffic accounted for by vessels of large size. Those vessels of large size have a greater probability of accident, and I think that prob- ably accounts for some of the upward projection. Mr. Bauman. Are these all current claims or are you counting in this amount any outstanding prior claims? Mr. Blumenfeld. The $21 million was an estimate, made in March 1979, of claims which would be outstanding at the end of fiscal year 1979 for all accidents occurring prior to October 1979. The estimate turned out to be low. In fact, these outstanding claims amounted to $27.7 million. There is included in the budget $6 million for estimated future claims during fiscal 1980, along with $21 million as a provision for payment of prior claims. Mr. Bauman. Doesn't the new law limit the liability for such claims rather severely? Did you take that into account? Mr. McAuliffe. Yes, sir, it has been taken into account. 29 Mr. Bauman. I wonder if our counsel Mr. Whitman could pursue this a little further. He has a better grasp than I do. Mr. Whitman. The new law, as you know, limits the authority of the commission settlement to $120,000 on each claim, and also removes the exposure of the company to suit in the district court on any claim except those occurring in the locks, so that you are not faced with the potential liability of millions of dollars in any case. The ship might be worth $1 million or might suffer damage to that extent, but there isn't any liability of the commission for more than $120,000. Mr. Blumenfeld. I believe, sir, that the limitation of $120,000 refers to accidents outside the locks. The accidents within the locks are not subject to that limit. The accidents within the locks, as I said, are raised in probability by the growing proportion of larger beam ships. Let me add that the estimate that was developed for fiscal year 1980 was developed with the help of Admiral Siler, former Com- mandant of the Coast Guard, who worked with the Panama Canal Company Board of Directors to develop these estimates, and I am comforted by his concurrence that that kind of estimate Was indi- cated for fiscal year 1980. Mr. Whitman. I wonder if you can supply for the committee, if the chairman would agree, the tabulation of the claims occurring in the locks and outside the locks in the last 5 years, and the amount of those claims, and the amount that you project in the locks and outside the locks for 1980. Mr. McAuliffe. We will get those figures; yes. We will include supplementary information on the $21 million estimate of marine accident liabilities outstanding at the end of fiscal year 1979. [The information follows:] Marine Accident Claims Outstanding We will also include clarifying information on marine accident claims outstanding at the end of 1979 and our projection for 1980. 1979 CLAIMS OUTSTANDING The $21 million estimate of marine accident claims outstanding at the end of 1979 was based on actual claims outstanding at the end of 1978 of $15.7 million plus an estimated cost of accidents occurring in 1979 of $10 million, less anticipated pay- ments of claims to be made during that year. As shown below, actual marine accident costs in 1979 amounted to about $15.9 million, rather than the $10 million projected in our $21 million estimate. CLAIMS OUTSTANDING Estimate Actual Outstanding marine accident claims, Sept. 30, 1978 $15.7 $15.7 New claims during 1979 10.0 15.9 Payments of claims during 1979 -4.7 -3.9 Outstanding marine accident claims, Sept. 30, 1979 21.0 27.7 1980 PROVISIONS For purposes of recovering marine accident costs from Canal users, we follow reserve accounting whereby the estimated annual cost of accidents are charged to expense and a reserve established. Cash payments are in turn charged to the 59-319 O - 30 reserve. On this basis, $7 million of marine accident costs was booked in 1978 and $8 million included in the Company's March 1979 Tolls Proposal. This was reduced to $6 million for purposes of the October 1 tolls increase on the basis of the liability limitation contained in Public Law 96-70. The $6 million estimated cost for ship accidents in 1980, which includes a factor for inflation, is also projected in our 1980 Budget Amendment and provides $4.3 million for accidents in the locks and $1.7 million for accidents outside the locks. The tabulation of claims over the past 6 years follows: SIX-YEAR EXPERIENCE [Dollars in millions] At locks Outside locks Fisca| y ear Actual ammint Ac,ual Number ™, Number 3 ~ $ Number amounts over $120000 $120 ' 000 1974 11 $0.4 13 $0.6 2 $1.5 1975 1976. 1977. 1978. 1979. 13 .7 10 .3 1 .3 10 .4 7 .2 3 1.6 14 1.1 18 .4 12 3.4 20 3.9 15 .5 3 1.7 16 3.5 10 .4 14 12.0 Mr. Bauman. The last question I might ask, Mr. Chairman, deals with the change in the budget estimates you sent to the Congress a few weeks ago. When the authorization legislation passed the House, we provided line items for a number of specific capital projects, and these were omitted in your revised budget estimates. Yet the total amounts in the various categories of projected spend- ing remain the same. What is the reasoning behind that change? What is the justification for that? Mr. Blumenfeld. The reasoning is that the line-by-line limita- tion on the capital expenditures may well result, because of the inflation which we are undergoing, and because of the normal vagaries of estimation, in hamstringing us on our ability to execute the individual capital projects. The lump sums in the categories represent a plan to execute those identical line item projects. The amounts are the same because they are the aggregate of what we expect those projects to cost. But by categorizing them, and establishing limits on categories of projects, rather than on individual items project-by-project within the category, we will have the flexibility to actually execute the capital program. An overrun on one particular line item could be compensated by not doing in that fiscal year some other individual capital project, thereby preserving the integrity of the category ceilings. Mr. Bauman. I can understand your desire for flexibility, but on the other hand it gives me some concern that such an arrange- ment, if it is not tied to line items, might in fact lead the Commis- sion to decide not to expend for certain amounts, and that could lead to a surplus, and so on. I do think that if there is a reasonable relationship between the appropriations and authorizations for given projects, it would be far better. Did you have questions? Mr. Whitman apparently has another question. Mr. Whitman. I would like to ask on behalf of the committee whether the Department of Justice has made any move to abate 31 the actions that were pending in the district court against the Panama Canal Company, that probably amounted to several mil- lion dollars at the time. Mr. McAuliffe. Not to my knowledge. Mr. Whitman. I asked the question because under normal legal principles when a corporation is dissolved, the actions against it are abated. Here there is certainly no liability on the part of the Commission, and since the company is no longer in existence, there is no liability on the part of the company, so I should think the Department of Justice would want to take some appropriate action in the matter. Mr. Bauman. Mr. Chairman, last, I would just comment on the issue of tolls increase, which was the subject of the OAS condemna- tion. I am not at all sure from the AP dispatch that I read that the U.S. representative at that meeting made clear the necessity for the tolls increase, since it is tied directly to the costs of the trea- ties. This was made very clear during the debate in the Senate and the House, and Mr. Manfredo made, I thought, a very concise explanation in his remarks of some weeks ago the reason for these increases. I would hope that both the Government of Panama and the United States representatives of the OAS explain to our Latin American neighbors and friends that this is one of the products of the treaty, and it cannot be avoided. There are only three sources for the money: First, is the canal tolls; second, is the U.S. taxpayers, which was the major fight in both Houses; and third, is the possibility that Panama itself might wish to waive some of the payments. There is only so much money to go around, and these tolls are not the fault of the United States, even though we are vested with the final authority to raise the tolls, as you well know. It is simply the operation of economic forces in the terms of the treaties and the legislation. Thank you. Mr. Hubbard. Thank you, Congressman Bauman. Congressman David Bowen of Mississippi. Mr. Bowen. Thank you, Mr. Chairman. I am sorry that I was not able to be here for your testimony. I have not had an opportunity to read it, but I shall do that. I would just like to take a moment, while you are reporting to us, to give you a little bit of a report from here. There are a number of my colleagues who voted for H.R. Ill with some apprehension, and upon the assurance I had given them that I felt that after Treaty Day, there would be a great deal more calm in this country, and that people would be assured that our technicians are still in Panama operating the canal, our troops there defending it, with ships sailing in both directions. That does happen to be the case, so I am happy to tell you that most of those who had shown some concern politically about sup- porting that legislation have reported to me that they have had little or no mail on the subject since that time, and that there seems to be a great deal of calm in the country. Of course, at the same time I share the concern of Mr. Bauman and others who pointed out that this is somewhat of a precarious sort of peace that 32 we have established politically here, and that it can be upset if everything does not happen to go right. I have had one or two of my colleagues who have asked me about a couple of press reports that came out during the time of the consideration of H.R. Ill regarding statements by some of the Panamanian leaders, indicating that in terms of the specific lan- guage of H.R. Ill, particularly some of the later adjustments that we made in the bill, that they might reserve the right not to abide by that language, and to ignore it. Do you know of any kind of expression of that sort which was made to you, General McAuliffe, or to our Ambassador, or to anyone else that would support that sort of position? Mr. McAuliffe. Sir, there has been to my knowledge no adverse comment or protest, if you will, on the part of the Panamanian Government to either the Ambassador or to myself in my previous or present capacity concerning Panama's intentions to carry out the provisions of the treaty. To the contrary, we have seen on the ground there a very intensive effort on the part of Panama to fulfill her obligations as she accepted them on the first of October. Many of those functions which directly tie into the people in the canal area have been performed with courtesy, with thoroughness, and with fairness. Mr. Bo wen. I would hope that spirit of cooperation would contin- ue. I think it will go a long way toward calming the apprehensions of a great many Americans, certainly a good many Congressmen. At this time would you say that you see no substantial problems that would impair the smooth operation of the canal, and a harmo- nious relationship between Americans and Panamanians in sup- porting this operation? Mr. McAuliffe. Speaking as someone who is familiar with the scene around the canal, I see no substantial problems ahead that would interfere with the effective operation and maintenance of the canal and its protection and defense. Obviously, because it is a complicated enterprise, because of the transfer of so many func- tions between U.S. agencies and between the United States and Panama, there are day-to-day problems that arise in literally all sorts of areas, but I am pleased to note that the cooperation of all concerned toward the immediate resolution of these problems has been very encouraging. Mr. Bo wen. I would like to congratuate all of you and your colleagues in Panama who have done so much to make this transi- tion a successful one. Of course, I also want to caution you, as I know you are aware, that we have only just begun, and we have a long way to go. Thank you. Mr. Blumenfeld. If I may, Mr. Bowen, let me add, as Phil McAuliffe said, there are bound to be day-to-day differences. I think the favorable thing is that those differences are being dis- cussed in amicable fashion. One, for example, which we are cur- rently encountering relates to the APO postal system and the handling thereof. There is a disagreement between us and the Republic of Panama on exactly how that APO mail delivery will be undertaken. We are working to straighten out that disagreement now. We are standing firm on the U.S. rights which were secured in the SOFA governing APO. We think Panama is missing that 33 determination of the SOFA and we are discussing it at a different level right now Mr. Hubbard. Congressman Bauman. Mr. Bauman. Following up on what Mr. Bowen said, I read the press conference of the President shortly after the adoption of the implementing legislation and I read various comments from other political leaders, many of them not in the Government, to the effect that not only were they not satisfied with some terms of the implementing legislation, but that they would like to make changes as soon as possible. We have not received any official representations regarding such changes, have we? Mr. Blumenfeld. No, sir. Mr. Bauman. I would say this for my own part: If indeed it appears that any provisions of the implementing law are unworka- ble or that any suggestions from the Government of Panama are being considered, we would like to hear them. One of the reasons that the law provides for authorization is to allow the subcommittee and the full committee to make changes if necessary. We are not, by any means locked into concrete forever, but on the other hand I hope that there would not be any necessity to use disagreements over the law to create an issue that does not exist. I think we can address them if that time comes. Mr. Hubbard. Congressman Bauman, do you have any other questions at this time? Chairman Murphy? Congressman Bowen? Three more questions from the chairman, that were prepared by staff, remain. Unless other members have further questions after these three the hearing can and will be adjourned. Administrator McAuliffe, what is being done to determine the depreciation policy of the Panama Canal Commission? Are any particular policies now being considered? Mr. McAuliffe. Sir, we are continuing the past policy of the Panama Canal Company on straight line depreciation, and consid- ering projects by groups within that depreciation program. We are beginning to look at the depreciation program, but frankly have not yet made any serious attempt to make a change to this pro- gram. I think I want to see how it functions for a while before we make any substantial change, a faster writeoff or anything of this nature. Mr. Hubbard. The second of the three questions: The implement- ing legislation was changed in its later stages to postpone the effective date for the transfer of certain prisoners to the custody of the Attorney General. Have there been any problems in the com- mission's management of prison and jail facilities? Mr. McAuliffe. No, sir, there have not. We are quite aware of our responsibilities to support that facility, and the Department of Justice activities there, and so far it is running quite smoothly. Mr. Hubbard. Have there been any problems of coordination with Panama? Mr. McAuliffe. No, sir. Mr. Hubbard. Last, this subcommittee was informed in earlier hearings that a number of Panama Canal Commission personnel were going to be on loan to the Government of Panama on a reimbursable basis. Their loan was to be for the purpose of helping Panama to initially manage the ports and railroads transfer from 34 the Panama Canal Company. How many Commission personnel are on loan to Panama, and how is this loan program being adminis- tered? Mr. McAuliffe. It is about 80. I believe the actual number is 81 employees of the Commission are on loan to Panama on a reim- bursable basis. All of these loans were made for a term of 1 year, but with the understanding that if sometime short of that there was no further need for those employees by Panama, they could be released and returned to the Commission. We have been monitoring the activities of these employees. We find that in general they are well used in providing advice and indeed in actively participating in these operations with Panama. They are doing what they were intended to do, that is to say, help Panama assume the new function. Mr. Hubbard. Thank you very much, Administrator McAuliffe. Is there anything else you want to say before we conclude? Mr. McAuliffe. No, sir. Mr. Hubbard. I would ask the same of any other member of our committee. Mr. Blumenfeld, do you have any other comments? Mr. Blumenfeld. No, sir. Mr. Hubbard. Again I would like to say to Secretary Blumenfeld and Administrator McAuliffe how much we appreciate their testi- mony and frank answers to our questions. Deputy Administrator for the Panama Canal Commission, Senor Fernando Manfredo, Jr., we thank you very much for being here today. Let us give you a chance to say whatever is on your mind before we conclude. Do you have anything to add? Mr. Manfredo. No, sir, except that the canal is much more than an engineering marvel, than a hydraulic system, dams, locks to move the canal. The canal is a very efficient organization, with a long tradition of efficiency, with many people that have served with loyalty, with efficiency, and I feel very proud to be a member of that organization. Thank you. Mr. Hubbard. Thank you very much. Congratulations upon your appointment as Deputy Administrator of the Panama Canal Com- mission. We are very hopeful that the Panamanian-United States relationship will be enhanced in the years ahead. We further hope that any of the fears that opponents of the Panama Canal treaties might have had will vanish. Hopefully, President Carter and those who urged the treaties will prove the opponents of the treaties wrong, and the relationship between our two countries will grow more meaningful. Thank you again, and best wishes. The hearing is adjourned. [Whereupon, at 11:30 a.m., the subcommittee adjourned.] PANAMA CANAL AUTHORIZATION AND OVERSIGHT TUESDAY, FEBRUARY 19, 1980 House of Representatives, Subcommittee on Panama Canal, Committee on Merchant Marine and Fisheries, Washington, D.C. The subcommittee met, pursuant to notice, at 9 a.m., in room 1334, Longworth House Office Building, Hon. Carroll Hubbard, Jr. (chairman of the subcommittee) presiding. Present: Representatives Hubbard and Bauman. Staff present: Terrence W. Modglin, Merrill W. Whitman, Ber- nard Tannenbaum, Luis Luna, Michael J. Smith, Mary Pat Bar- rett, and Elizabeth Foley. Mr. Hubbard. I want to express my appreciation to all of you who are here this morning, witnesses and guests, and to the staff and members of the press. I would like to indicate that our rules of statement in rule 3(c), that ' 'testimony may be taken and evidence received in any meeting in which there are present not fewer than two members of the committee, one of whom should be, whenever possible, a minority member." We look forward to hearing the testimony this morning, in our February 19, 1980, hearing on the fiscal year 1981 Panama Canal authorization of the Honorable Michael Blumenfeld, Assistant Sec- retary of the Army, Civil Works, Department of the Army, and Hon. Dennis P. McAuliffe, Administrator, Panama Canal Commis- sion. At this time I would like to proceed with my own statement, after having unanimous consent to submit the authorization bills on which this hearing is being held, and the justification of esti- mates, in the record. [The following was received for the record:] (35) 36 96th CONGRESS 2d Session H.R.6515 To authorize appropriations for the fiscal year beginning October 1, 1980, for the maintenance and operation of the Panama Canal, and for other purposes. IN THE HOUSE OF REPRESENTATIVES February 13, 1980 Mr. Murphy of New York (for himself, Mr. Hubbard, Mr. McCloskey, and Mr. Bauman) introduced the following bill; which was referred to the Committee on Merchant Marine and Fisheries A BILL To authorize appropriations for the fiscal year beginning October 1, 1980, for the maintenance and operation of the Panama Canal, and for other purposes. 1 Be it enacted by the Senate and House of Representa- 2 tives of the United States of America in Congress assembled, 3 That this Act may be cited as the "Panama Canal Appropri- 4 ations Authorization Act, Fiscal Year 1981". 5 OPERATING EXPENSES AND CAPITAL OUTLAY 6 Sec. 2. (a) There is authorized to be appropriated from 7 the Panama Canal Commission Fund for the use of the 8 Panama Canal Commission for the fiscal year beginning Oc- 37 2 1 tober 1, 1980, not to exceed $394,453,000, required for ex- 2 penses of the Commission incurred under the Panama Canal 3 Act of 1979, including— 4 (1) hiring of passenger motor vehicles and aircraft, 5 and the purchase of not to exceed 31 passenger motor 6 vehicles, of which 19 are for replacement only, for the 7 fiscal year beginning October 1, 1980; 8 (2) uniforms or allowances therefor, as authorized 9 by sections 5901 and 5902 of title 5, United States 10 Code; 11 (3) official reception and representation expenses; 12 (4) operation of guide services; 13 (5) residence for the Administrator; 14 (6) contingencies of the Administrator; 15 (7) procurement of expert and consultant services 16 as provided by section 3109 of title 5, United States 17 Code; 18 (8) maintenance and alteration of facilities of other 19 United States Government agencies in the Republic of 20 Panama used by the Panama Canal Commission; 21 (9) maintenance and alteration of facilities of the 22 Government of the Republic of Panama, used by the 23 Commission, of which the United States retains use 24 pursuant to the Panama Canal Treaty of 1977 and re- 25 lated agreements; and 38 3 1 (10) payment of liabilities of the Panama Canal 2 Company outstanding as of September 30, 1979. 3 (b) Not to exceed $23,000,000 of the authorization for 4 appropriations for the fiscal year beginning October 1, 1980, 5 provided in subsection (a), shall remain available until ex- 6 pended, for acquisition, construction, and replacement of im- 7 provements, facilities, structures, and equipment required by 8 the Panama Canal Commission. 9 (c) Of the sums referred to in subsection (b) of this sec- 10 tion, not more than the following amounts shall be available 11 for the following purposes: 12 (1) for transit projects, $17,876,000; 13 (2) for general support projects, $2,676,000; 14 (3) for utilities projects, $1,648,000; and 15 (4) for quarters improvement projects, $800,000. 16 (d)(1) Subject to the limitations prescribed in paragraph 17 (2), the amount which may be expended for any individual 18 project within any category of projects contained in para- 19 graphs (1) through (4) of subsection (c) may be increased 20 above the amount specified for that individual project in the 21 budget estimate submitted to the Congress by an amount 22 necessary to meet increased costs in such project due to infla- 23 tion or other unforeseeable factors, if the Board of the 24 Panama Canal Commission has approved such increase and 25 has notified in writing the Committee on Merchant Marine 39 4 1 and Fisheries of the House of Representatives, the Commit- 2 tee on Armed Services of the Senate, and the Subcommittees 3 on Transportation of the Committees on Appropriations of 4 the House of Representatives and the Senate of the Commis- 5 sion's approval of such increase, the reason for such approv- 6 al, and the new cost estimate for the project concerned. 7 (2) In no event may — 8 (A) the total cost of all projects within any of the 9 categories of projects contained in clauses (1) through 10 (4) of subsection (c) exceed the amount authorized by 11 law for that category, or 12 (B) the total cost of all capital projects authorized 13 by this section exceed the amount appropriated for 14 such projects. 15 (e) There may be credited to this appropriation, for pay- 16 ment to other United States Government agencies, funds re- 17 ceived from officers and employees of the Commission or 18 commercial insurers of Commission employees for expendi- 19 tures made for services provided to Commission employees 20 and their dependents by such other agencies. 21 EMERGENCY FUND 22 Sec. 3. There is authorized to be appropriated from the 23 Panama Canal Commission Fund for deposit into the 24 Panama Canal Emergency Fund $25,000,000 to remain 40 5 1 available until expended, for the purpose specified by section 2 1303(b) of the Panama Canal Act of 1979. 3 CONTINUING CONTRACTS 4 Sec. 4. Any program authorized in this Act may be 5 prosecuted by continuing contracts to be funded from appro- 6 priations made by law in annual appropriations Acts, not to 7 exceed in the aggregate the total amount for each program 8 specified herein. 9 NEW SPENDING AUTHORITY 10 Sec. 5. The Commission, in any fiscal year, is author- 11 ized to incur obligations in advance of adequate receipts in 12 the Fund, but only to the extent or in such amounts as are 13 provided in advance in appropriation Acts. O 41 DEPARTMENT OF THE ARMY OFFICE OF THE ASSISTANT SECRETARY WASHINGTON. D.C. 10110 8 MAR iooq Honorable John M. Murphy Chairman, Committee on Merchant Marine & Fisheries House of Representatives Washington, D.C. 20515 Dear Mr. Murphy: Reference is made to your request to the Secretary of Defense for the views of the Department of Defense on H.R. 6515 a bill "to authorize appropriations for the fiscal year begin- ning October 1, 1980, for the maintenance and operation of the Panama Canal, and for other purposes." The Department of the Army has been assigned responsibility for expressing the views of the Department of Defense on this bill. The title of the bill states its purpose. There exist two important differences between H.R. 6515 and H.R. 6516 (the Administration's bill). First, H.R. 0516 contains the following provision in section 2(d) (2) : "...Individual projects not included in the budget estimates which the Board of the Panama Canal Commission determines to be necessary may be initiated if notice thereof is provided to the Committee on Merchant Marine and Fisheries of the House of Representatives, the Committee on Armed Services of the Senate, and the Appropriations Subcommittees for the Panama Canal of both Houses of Congress not later than 30 calendar days before the end of a congressional session. Such pro- jects shall not be initiated prior to expiration of 30 calendar days following the date of such notice." There is no similar provision in H.R. 6515. Such authority is extremely important in the conduct of an effective capital program. It would provide the means to initiate essential projects, the need for which was unforeseen at the time of the budget submission. 42 Honorable John M. Murphy The requested authority would not deprive the Congress of necessary oversight authority, because of the 30 day notice which. must be given to the Merchant Marine and Fisheries Committee, the Senate Armed Services Committee, and to the Appropriations Subcommittee in both houses. Furthermore, the agency could not exceed the amounts authorized by law for a given category of project, or the total amount appropriated for capital programs. The other important difference is that H.R. 6516 provides in section 2e: "There are authorized to be appropriated, in addition to the amounts authorized by subsection (a) of this section such additional supplemental amounts for the activities for which appropriations are authorized as may be necessary for increases in salary, pay, retirement, or other employee benefits determined by law or authorized by administrative action pursuant to law, for covering payments to Panama under paragraph 4(a) of article XIII of the Panama Canal Treaty of 1977, as provided by section 1341 (a) of the Panama Canal Act of 1979, and for increased costs for fuel expenses." There is no similar provision in H.R. 6515. This type of provision, which we understand is included in authorization bills for many agencies, would be desirable for the Panama Canal Commission. It would facilitate the supplemental appropriation process for certain specific cost increases, the occurrence of which is beyond the control of the agency. The desirability of decreasing the time required for obtaining supplementals for these increased costs is the same for the agency as it is for others. Increased costs stemming from legislation or other factors would create current obli- gations for the Commission which must be covered by available operating funds until a supplemental appropriation is obtained. This, in turn, could force a curtailment of Canal maintenance and other essential programs. Accordingly, inclusion of a provision of this type is considered important. The Department of the Army, on behalf of the Department of Defense, favors either (1) enactment of H.R. 6516 in its present form, or (2) inclusion of the two provisions discussed above in H.R. 6515. There are no appropriations to the Department of Defense associated with either H.R. 6515 or H.R. 6516. Sincerely, Michael Blumenfeld Assistant Secretary of the Army (Civil Works) 43 PANAMA CANAL COMMISSION APO MIAMI 3401 1 OFFICE OF THE ADWIMSTR ATOR February 28, 1980 Honorable John M. Murphy Chairman, Committee on Merchant Marine and Fisheries House of Representatives Washington, D. C. 20515 Dear Mr. Chairman: This is in response to your request of February 15 for a report by this agency on H.R. 6515, a bill introduced by you on February 13 "to authorize appropriations for the fiscal year beginning October 1, 1980 for the main- tenance and operation of the Panama Canal, and for other purposes." If enacted, the bill would provide appropriation authority for the Panama Canal Commission for fiscal year 1981. There exist two important differences between H.R. 6515 and H.R. 6516 (the Administration's bill). First, H.R. 6516 contains the following provision in section 2(d)(2): ". . . Individual projects not included in the budget esti- mates which the Board of the Panama Canal Commission determines to be necessary may be initiated if notice thereof is provided to the Committee on Merchant Marine and Fisheries of the House of Representatives, the Committee on Armed Services of the Senate, and the Appropriations Subcommittees for the Panama Canal of both Houses of Congress not later than 30 calendar days before the end of a congressional session. Such projects shall not be initiated prior to expiration of 30 calendar days following the date of such notice." There is no similar provision in H.R. 6515. Such authority is extremely impor- tant in the conduct of an effective capital program. It would provide the means to initiate essential projects, the need for which was unforeseen at the time of the budget submission. One recent example of an instance where it was necessary for the former Panama Canal Company to proceed with an unbudgeted capital project was the emergency replacement of the softnoses at Pedro Miguel and Catun Locks in 1978. The project was necessitated by vessel accidents occurring in January and April of that year which destroyed the existing structure and, in one instance, repositioned the remains in such a way as to present a hazard to ship traffic. There are other examples of unforeseen re- quirements that had to be met from the capital program. The requested authority would not deprive the Congress of necessary over- sight authority, because of the 30-day notice which must be given to your Com- mittee as well as to the Senate Armed Services Committee and to the appropria- tions subcommittee of both houses. Furthermore, the agency could not exceed the total amount appropriated for capital programs. 44 For the reasons stated above, the Commission strongly favors inclusion of the provision regarding unbudgeted projects in the authorization bill. The other important difference is as follows: "There are authorized to be appropriated, in addition to the amounts authorized by subsection (a) of this section such additional supplemental amounts for the activities for which appro- priations are authorized as may be necessary for increases in salary, pay, retirement, or other employee benefits determined by law or authorized by administrative action pursuant to law, for covering nents to Panama under paragraph 4 (a) of article XIII of the Panama Canal Treaty of 1977, as provided by section 1341(a) of the Panama Canal Act of 1979, and for increased costs for fuel expenses." This type of provision, v:hich we understand is included in authorization bills for many agencies, would be desirable for the Commission. It would facilitate the supplemental appropriation process for certain specific cost increases, the occurrence of which is beyond the control of the agency. The desirability of decreasing the time required for obtaining suppleraentals for these increased costs is the same for the agency as it is for others. In- d costs stemming from legislation or other factors would create current obligations for the Commission which must be covered by available operating funds until a supplemental appropriation is obtained. This, in turn, could force a curtailment of Canal maintenance and other essential programs. Accordingly, inclusion of a provision of this type is considered important. In conclusion, the Panama Canal Commission favors either (1) enactment of H.R. 6516 in its present form or (2) inclusion of the two provisions discussed above in H.R. 6515. As required by Rule 13 of the Rules of the House of Representatives, there is enclosed an estimate of the cost which would be incurred in carrying out H.R. 6515 for the period 1981 through 1985. The costs would be the same with the addition of the two provisions proposed above. The Assistant Secretary of the Army (Civil Works) concurs in this assess The Office of Management and Budget advises that it has no objection to the submission of this report to your Committee. Sincerely yours, 1st D. P. McAuliffe Administrator Enclosure 45 DEPARTMENT OF STATE Washington. DC. 20520 MAR 6 1980 Dear Mr. Chairman: The Secretary has asked me to respond to your letter of February 15 requesting comments on H.R. 6515, a bill to authorize appropriations for the fiscal year beginning October 1, 1980, for the maintenance and operation of the Panama Canal, and for other purposes. I refer, for that purpose, to H.R. 6516, legislation prepared for the same end by the Administration and introduced on February 13 under your co-sponsorship. As a comparison indicates, the two bills are quite similar in most respects. There are, however, two provisions of H.R. 6516 which are omitted in H.R. 6515: 1. Section 2(d) (1) concludes with the sentences "Individual projects not included in the budget estimates which the Board of the Panama Canal Com- mission determines to be necessary may be initiated if notice thereof is provided to the Committee on Merchant Marine and Fisheries of the House of Representatives, the Committee on Armed Services of the Senate, and the Appropriations Subcommittees for the Panama Canal of both Houses of Congress not later than 30 calendar days before the end of a congressional session. Such projects shall not be initiated prior to expiration of 30 calendar days following the date of such notice." The Honorable John M. Murphy, Chairman, Committee on Merchant Marine and Fisheries, House of Representatives. 46 2. Section 2 (e) : "There are authorized to be appropriated, in addition to the amounts authorized by subsection (a) of this section such additional supplemental amounts for the activities for which appropriations are authorized as may be necessary for increases in salary, pay, retirement, or other employee benefits determined by law or authorized by administrative action pursuant to law, for covering payments to Panama under paragraph 4 (a) of Article XIII of the Panama Canal Treaty of 1977, as provided by section 1341(a) of the Panama Canal Act of 1979, and for increased costs for fuel expenses. n The Department remains convinced that these provisions of H.R. 6516 would improve significantly the management capability and flexibility of the Panama Canal Commission and that their omission would therefore not contribute to the efficient operation of the Canal. Were a situation to evolve whereby the regular and unimpeded vessel transits of the Canal were to be interrupted, the United States would most certainly be confronted with difficulties, not only in our relations with Panama, but also with other nations which are major users of the Canal. In addition, the provisions of section 2 (e) would facilitate the ability of the United States to comply with its commitment to the Republic of Panama under section XIII 4(a) of the Panama Canal Treaty of 1977. For these reasons, we prefer the Administration's proposed bill as being more in consonance with our basic interest in maintaining an open and smoothly operating waterway. I hope that the foregoing comments will be helpful to the Committee in its deliberations. The Office of Management and Budget advises that from the standpoint of the Administration's program there is no opposition to the submission of this report. Sincerely, J. Brian Atwood Assistant Secretary for Congressional Relations 47 96th CONGRESS 2d Session H. R. 6516 To authorize appropriations for fiscal years beginning October 1, 1980, and October 1, 1981, for the maintenance and operation of the Panama Canal, and for other purposes. IN THE HOUSE OF REPRESENTATIVES February 13, 1980 Mr. Mfrphy of New York (for himself. Mr. Hubbard, and Mr. McCl08KBY) (by request) introduced the following bill; which was referred to the Committee on Merchant Marine and Fisheries A BILL To authorize appropriations for fiscal years beginning October 1, 1980, and October 1, 1981, for the maintenance and oper- ation of the Panama Canal, and for other purposes. 1 Be it enacted by the Senate and House of Representa- 2 tives of the United States of America in Congress assembled, 3 That this Act may be cited as the "Panama Canal Appropri- 4 ations Authorization Act, Fiscal Year 1981". 5 Operating expb^ses and capital outlay 6 SEC. 2. (a) There Is authorized to Be appropriated from 7 the Panama ('anal Commission Fund lor the use of the 48 2 1 Panama Canal Commission for the fiscal year beginning Oc- 2 tober 1, 1980, not to exceed $394,453,000, and for the fiscal 3 year beginning October 1, 1981, such amounts as may be 4 required for expenses of the Commission, incurred under the 5 Panama Canal Treaty of 1977 or the Panama Canal Act of 6 1979, including — 7 (1) hiring of passenger motor vehicles and aircraft; 8 (2) uniforms or allowances therefor, as authorized 9 by section 5901 and 5902 of title 5, United States 10 Code; 11 (3) official reception and representation expenses; 12 (4) operation of guide sendees; 13 (5) residence for the Administrator; 14 (6) contingencies of the Administrator; 15 (7) procurement of expert and consultant services 16 as provided by section 3109 of title 5, United States 17 Code; 18 (8) maintenance and alteration of facilities of other 19 United States Government agencies in the Republic of 20 Panama used by the Panama Canal Commission; and 21 (9) maintenance and alteration of facilities of the 22 Government of the Republic of Panama, used by the 23 Commission, of which the United States retains use 24 pursuant to the Panama Canal Treaty of 1977 and re- 25 lated agreements. 49 3 1 (b) Some $23,000,000 of the aforementioned authoriza- 2 tion for appropriation for the fiscal year beginning October 1 , 3 1980, and such amounts as may be necessary for the fiscal 4 year beginning October 1, 1981, shall remain available until 5 expended, for acquisition, construction, and replacement of 6 improvements, facilities, structures, and equipment required 7 by the Panama Canal Commission, including — 8 (1) the purchase of not to exceed 31 passenger 9 motor vehicles of which 19 are for replacement only 10 for the fiscal year beginning October 1, 1980, and such 11 numbers of passenger motor vehicles as may be neces- 12 sary for the fiscal year beginning October 1, 1981; 13 (2) the recruitment of expert and consultant serv- 14 ices, as authorized by section 3109 of title 5, United 15 States Code; 16 (3) the improvement of facilities of other United 17 States Government agencies in the Republic of 18 Panama used by the Panama Canal Commission; and 19 (4) the improvement of facilities of the Grovern- 20 ment of the Republic of Panama, used by the Panama 21 Canal Commission, of which the United Stales retains 22 use pursuant to the Panama ('anal Treaty of L977 and 23 related agreements. 50 4 1 (c) Of the sums appropriated pursuant to subsection (b) 2 of this section, not more than the following amounts shall be 3 available for the following purposes: 4 (1) for transit projects, $17,876,000; 5 (2) for general support projects, $2,676,000; 6 (3) for utilities projects, $1,648,000; and 7 (4) for quarters improvement projects, $800,000. 8 (d)(1) Subject to the limitations prescribed in paragraph 9 (2) the amount that may be expended for any individual proj- 10 ect within any category of projects contained in clauses (1) 11 through (4) of subsection (c) may be increased above the 12 amount specified for that individual project in the budget esti- 13 mate submitted to the Congress by an amount necessary to 14 meet increased costs in such project due to inflation or other 15 unforeseeable factors if the Board of the Panama Canal Com- 16 mission has approved such increase and has notified the 17 Committee on Merchant Marine and Fisheries of the House 18 of Representatives and the Committee on Armed Services of 19 the Senate in writing of the Commission's approval of such 20 increase, the reason for such approval, and the new cost esti- 21 mate for the project concerned. Individual projects not in- 22 eluded in the budget estimates which the Board of the 23 Panama Canal Commission determines to be necessary may 24 be initiated it notice thereof is provided to the Committee on 25 Merchant Marine and Fisheries of the House 1 of Represents,- 51 5 1 tives, the Committee on Armed Services of the Senate, and 2 the Appropriations Subcommittees for the Panama Canal of 3 both Houses of Congress not later than 30 calendar days 4 before the end of a congressional session. Such projects shall 5 not be initiated prior to expiration of 30 calendar days follow- 6 ing the date of such notice. 7 (2) In no event may — 8 (A) the total cost of all projects within any of the 9 categories of projects contained in clauses (1) through 10 (4) of subsection (c) exceed the amount authorized by 11 law for that category, or 12 (B) the total cost of all capital projects authorized 13 by this section exceed the amount appropriated for 14 such projects. 15 (e) There are authorized to be appropriated, in addition 16 to the amounts authorized by subsection (a) of this section 17 such additional supplemental amounts for the activities for 18 which appropriations are authorized as may be necessary for 19 increases in salary, pay, retirement, or other employee bene- 20 fits determined by law or authorized by administrative action 21 pursuant to law, for covering payments to Panama under 22 paragraph 4(a) of article XIII of the Panama Canal Treaty of 23 1977. ;is provided by section 1.'! 11(a) of the Panama Canal 24 Act of 1979. and for increased costs tor fuel expenses. 52 6 1 (f) There may be credited to this appropriation, for pay- 2 merit to other United States Government agencies, funds re- 3 ceived from officers and employees of the Commission or 4 commercial insurers of Commission employees for expendi- 5 tures made for services provided to Commission employees 6 and their dependents by such other agencies. 7 EMERGENCY FUND 8 Sec. 3. There is authorized to be appropriated from the 9 Panama Canal Commission Fund for deposit into the 10 Panama Canal Emergency Fund $25,000,000 to remain 1 1 available until expended, for the purposes specified by section 12 1303(b) of the Panama Canal Act of 1979. 13 CONTINUING CONTRACTS 14 Sec. 4. Any program authorized in this Act may be 15 prosecuted by continuing contracts to be funded from appro- 16 priations made by law in annual appropriations Acts, not to 17 exceed in the aggregate the total amount for each program 18 specified herein. 19 NEW SPENDING AUTHORITY 20 Sec. 5. The Commission, in any fiscal year, is author- 21 ized to incur obligations in advance of adequate receipts in 22 the Fund, but only to the extent or in such amounts as pro- 23 vided in advance in appropriation Acts. O 53 [Executive Communication No. 3476] Panama Canal Commission, Office of the Administrator, Miami, January 30, 1980. Hon. Thomas P. O'Neill, Jr., Speaker of the House of Representatives, Washington, D.C. Dear Mr. Speaker: Attached is draft legislation to authorize appropriations for the Panama Canal Commission for fiscal years 1981 and 1982. I realize that under the Congressional Budget and Impoundment Control Act of 1974, the proposed legislation for 1981 should have been submitted by May 15, 1979. However, inas- much as the legislation establishing the Panama Canal Commission was not enacted until after that date, the established deadline for fiscal year 1981 could not be met. Future submissions will be forwarded routinely by the dates required. The language pertaining to fiscal year 1982 is by necessity very general in nature since we have not as yet formalized budget estimates for that year. In the interim, the general language is submitted to meet the requirement of section 607 of the Congressional Budget Act. We have been advised by the Office of Management and Budget that there is no objection to the submission of this legislation to the Congress and that its enactment would be in accord with the program of the President. Sincerely yours, D. P. McAuliffe, Administrator. [The draft bill became H.R. 6516.] Mr. Hubbard. Fellow members, distinguished witnesses and guests. Today marks this subcommittee's first opportunity to for- mally examine budget estimates prepared by the Panama Canal Commission under the framework of the Panama Canal Act of 1979, which was signed into law by the President on September 27. We are happy to have with us today to explain those estimates two key executives who are responsible for the canal's operation. Our wit- nesses are the Honorable Michael Blumenfeld, Assistant Secretary of the Army for Civil Works, who oversees the canal operation for the Department of Defense, and the Honorable Dennis P. McAuliffe, Administrator of the Panama Canal Commission. Both of these gentlemen have testified before the subcommittee previously and need no lengthy introduction. Although Mr. Blumenfeld's and Mr. McAuliffe's prepared re- marks appear to address only the legislative language proposed by the administration, I would like to remind the subcommittee that these hearings are being held with respect to two Panama Canal authorization bills. The first of these bills is H.R. 6515, introduced by Chairman Murphy and cosponsored by the Chair, by the rank- ing minority member of the full committee, and, by our subcommit- tee's ranking minority member and fine colleague from Maryland. This of course would include Congressman Murphy, Congressman McCloskey, Congressman Bauman and the chairman of this sub- committee. The other bill is H.R. 6516, introduced by request and as a result of executive communication by Chairman Murphy and cosponsored by Congressman McCloskey and me. There are several important differences between H.R. 6515 and H.R. 6516, the bills just referenced, but I believe the major point to note is that the administration bill, while authorizing $394.4 million for fiscal year 1981, also authorizes such sums as are required for 54 fiscal year 1982. H.R. 6515, the Murphy bill, does not contain any authorization for fiscal year 1982. Again, I would hope that in the course of hearings today we would remember that these two measures are pending. In the course of today's hearings, I would hope that members will pursue detailed and exacting questions based on the amounts that are contained in the authorization and the rationale presented in behalf of the estimates. This is of paramount importance in the performance of our new role as authorizing subcommittee. As a result of today's hearings and subsequent analysis, we hope to be interrelating with the House Transportation Appropriations Subcommittee to convey any views that we may develop. Our sub- committee schedule now calls for an early markup of authorizing legislation on March 5 so we hope that any supplementary data that is requested today would be submitted as soon as possible. Our distinguished ranking minority member, Congressman Robert Bauman, has just returned yesterday from an inspection visit to the Panama Canal and we will be happy to hear any statement he may have. Mr. Bauman. I will defer any statements, Mr. Chairman. Mr. Hubbard. I would like to recognize you later, Mr. Bauman, to make any remarks you may have, as you have requested to do after our witnesses have testified. We hope that you will brief us on any comments concerning the inspection visit of the canal that you and Congressman Bonior conducted. Now, the first witness to present testimony before our subcom- mittee on trie 1981 fiscal year authorization is the Honorable Mi- chael Blumenfeld. Mr. Blumenfeld, we appreciate your being here to bring us this testimony. STATEMENT OF HON. MICHAEL BLUMENFELD, ASSISTANT SEC- RETARY OF THE ARMY, CIVIL WORKS, DEPARTMENT OF THE ARMY, ACCOMPANIED BY COL. MICHAEL RHODE, JR., MILI- TARY ASSISTANT TO THE ASSISTANT SECRETARY OF THE ARMY, CIVIL WORKS Mr. Blumenfeld. Thank you, Mr. Chairman. It is good to be here again. If I may, I would like to enter my statement in the record, and then proceed to summarize it orally, and then ask that the commit- tee hear Mr. McAuliffe, and afterwards, both of us will be glad to answer questions. Mr. Hubbard. Yes, certainly, it is so ordered. [The following was received for the record:] Statement of Hon. Michael Blumenfeld Mr. Chairman, members of the Panama Canal Subcommittee, I am Michael Blumenfeld, Assistant Secretary of the Army, Civil Works. As a portion of my responsibility, I oversee the operation of the Panama Canal Commission on behalf of the Secretary of the Army. It is a pleasure for me to appear here today as you receive testimony concerning the Authorization Bill for the Panama Canal Commis- sion for fiscal year 1981. 55 ORGANIZATIONAL MATTERS Since my testimony before this committee last November, a number of actions have progressed. The nominations for members of the Board of the Commission have been forwarded by the President to the Senate for confirmation. Although the hearing is not yet scheduled, we are hopeful that the appointment process can be completed by month's end, and our first board meeting can be scheduled in March. The nominees, in accordance with the requirements of the Panama Canal Act of 1979 are: Mr. Jay W. Clark, President of Clark Maritime Associates and formerly Chairman of the Board, Delta Steamship Lines; Mr. Clifford O'Hara, Director of Port Commerce for the port authority of New York and New Jersey; Mr. William Sidell, General President of the United Brotherhood of Carpenters and Joiners of America; Mr. John A. Bushnell, Deputy Assistant Secretary of State for Inter- American Affairs; and myself as the official designated by the Secretary of Defense. The four Panamanian nominees are Mr. Edwin Fabrega, Minister Richardo Rodri- guez, Ambassador Gabriel Lewis, and Ambassador Roberto Huertematte. In other organizational developments, the office of Ombudsman has been estab- lished and is now functional. We anticipate appointing a Panamanian Deputy to the Ombudsman. The nomination of a Chief Engineer of the Commission will be an agenda item at an early Board meeting. The President has signed an Executive Order temporarily delegating to the Secre- tary of Defense oversight of the Panama Canal Commission. This function has been in turn redelegated to the Secretary of the Army and I am carrying out the Secretary's responsibility in this regard. A permanent Executive Order is being staffed and should be ready for the President's approval by mid-march. Internally, while awaiting convening of the Board, we are developing for Board consideration the regulations under which it will operate. We have worked to insure that they reflect the intent of both the Congress and the Treaty negotiators and facilitate and increasing involvement of the Panamanians in policy matters. We are also now formulating draft recommendations on the Panama Canal Em- ployment System that will replace the Canal Zone Merit System. While it is too early to discuss any particular provision of the system, I would like to highlight the policies that form the basis of the proposal. A. Training that will contribute to increased participation by Panamanians in all areas and levels of the Commission as required by the Treaty will receive added emphasis. B. Mechanisms will be established to maximize hiring of qualified Panamanian nationals. Already implemented is a system whereby Panamanian applicants who achieve a passing score on the entrance examination are awarded 11 additional points. C. A five-year rotation policy for off-the-Isthmus recruits will be established, as required by the Treaty, in order to facilitate meeting local recruitment goals. These are only a few of the policies being included in the proposal that will eventually become the Panama Canal Employment System. Suffice it to say that we are committed to the training and development of Panamanians over the course of twenty years. A key to Panama's ultimate success is their involvement in the employee selection and classification process. They must be able to identify, hire, train and retain the best people available for the canal operation. CANAL TRAFFIC In my last appearance before this Committee in November, I had indicated that increased shipments of North Slope oil were anticipated, and that shipments had been predicted to reach 500 thousand barrels per day in December. I also cautioned at that time, however, that shipments were not yet meeting our expectations. For the first four months of this fiscal year, the daily average was in fact 327 thousand barrels, building to 375 thousand barrels per day in January. In light of this, we have applied stringent budget constraints to assure we remain close to a break-even point by year's end. As you recall, our estimate was that $463 million would be deposited in the Panama Canal Commission account this year. We have noted that there has been a slight overall increase in the number of oceangoing vessels transiting the Canal over the same period last year; however, since the increase in shipments of North Slope oil has failed to materialize, we are approximately $2 million below budget as of the end of January; but costs have been held below budget as well and we are approximately on target for a breakeven year. 56 to be deposited bv the Panama Canal Fund during fiscal vear 19S1 will --=: ■: --.: ::-- :-:- ::..« -z Sr_4.-: ■• :ri: jr. iii.:.:- :: • " >j :z^tjl:j-.z rfvf--f will deposit into the Panama Canal Com- 1981 certain other funds amounting to SS. 750.000 com- :: :-;-: ::r n-.iT.i Ti-^. .;-zu.- -. :-.: r _..-.: :'_-ii --.-. t: :>:— at. :_i "_j.;i_ 7i:^:«". .- :-f Pi-ii^ T-^ :•:--_*= .:- 7 -r.i projected to be $410,113,000. This, coupled with the unexpended balance of the fund from fi>: I ?80, will far exceed the requested appropriation. --: -._:.- - : - r ... _t : : — :: t-.\: r" ir. :T-:::-.: :"_-.: ::" ?_ r -__:- i-r-.z :"_=•: i_ yf=.- l.-fl ..-_i_:_-i --„. :•:_:::.-■-: :r:~ ~t t~_-h :t::-^.:-i _- :~r .-i~.2j~_2. _i~i- -:~~_sf.:~ : _~ z l~. :hr .re^urv pros the unexpended hwfamry of the fund from 1960, which I have just mentioned. is short of the $40 mil Hon originally requested for to cover any reasonably foreseeable emergency. z^~rrr'. jzj.jl'.jzz T~Trr-r~ :;■' i:~.j.-_ ~\~_r ::~ :_r7r~:.v :r.2.:.:~ _" --r:_.--ri ice is the p roposed c?*p ft?»l p rogr am . S23 million has 9 ■riltiort of that amount will be applied to transit s lor this investment category are the depreciation :r ::' - 1 :-r-'.s z*r ?iz. = z: = 7 =_- :i_ :.:- it. :/-!■=<: - :hr A.:-:r_z^:::- r_ re :"•=■:-= :r.-r ~ :>: i.:_ :.-.r :: "- -i:e;-T-: -.-: ------- .-.-: i during fiscal year 1981 ppear here today and bring you up to date :■": "r.-:-r ir : : •:-ri.-: :: ::.- : : :•--: will be followed by the I Blumen~feld. Since my testimony before this committee last November, there has been progress on a number of actions having to do with organisational matters of the new Commission. As the committee knows, nominations for members of the Board of the Commission have been forwarded by the President to the Senate for confirmation- Although the Senate Armed Services Committee hearings have not yet been scheduled, we are hopeful that the appointment process can be completed by the end of February, and that our first Board meeting can be scheduled in March. In other organizational developments, the Office of Ombudsman has been established, and is now functional. We anticipate appoint- - _■ : r ;.-. i.T.i.-.ir. :t:.:y ~_\ flic Ombudsman The :^:r ; e'^rer^ will be an agenda item at an early Board meeting. The President has also signed an Executive order temporarily delegating to the Secretary of Defense oversight of the Panama Canal Commission. This function has been in turn redelegated to the Secretary of the Army, and I am carrying out the Secretary's responsibility in this regard. A permanent Executive order is being staffed, and should be ready for the President's approval by mid- March. The interim order expires on March _ 1 Internally, while awaiting convening of the Board, we are devel- oping, for Board consideration, the regulations under which it will operate. We have worked to insure that they reflect the intent of 57 both the Congress and the treaty ne-gmators. and facilitate an increasing involvement of the Panamanians in policy matters. We are also now formulating draft recommendations on the Panama Canal employment system that will replace :ne :.ana. zone merit system. As to* canal traffic. Mr. Chairman in my last appearance this com mi nee in .-m-m -: 1 had indicated that increased ship- ments of North Slope oil were anticipated, and that shipments had been predicted to reach " . barrels per : 1 - :-. :m r_ 1 i cautioned at that time, however, that shipment* were net ye: meet- ing our expectations. For the firs: 4 months :: this fiscal year the daily average was in fa:: 11". 1 "11 barrels, building :: :"•: . car- rels per day in January. In light of this, we have applied stringer.: budget rinstraints :: assure we remain close to a break -even mm: :y year = end As recall, our estimate was that S46-3 million would be deposited in the Panama Canal Commission account this year, fiscal 11*1 We have noted that there has been a slight tverali increase in the number of oceangoing vessels transiting the canal :ver the same period last year. However, since the increase in shipments ::' North Slope oil has failed to materialize, we are approximately >'l million below budget as of the end :: January, but lists nave beer. held below budget as well, and we are approximately on target for a breakeven year. As to fiscal year 11*1 revenues ana lists. 1 estimate mat the revenues to be deposited by the Panama Canal 1 im m iss i : n mt-i the Panama Canal Commission Fund during fiscal yr?.r 1ml •••m amount to •>- time from tolls. and S92.423.000 from itr.er services I further estimate that, in addition to those iperating revenue receipts, the Panama Canal Commission will deposit into the Panama Canal Commission Fund in fiscal year 1ml certain it her funds amounting to $3,750,000, comprised of collections from the Government of Panama for Panama Canal Company and Canal Zone Government accounts receivable, am fur. if received frcm various sour: - 1 . deposits fir fiscal year 1ml in the Commission Fund are thus projected :- s ;'. 1 This, coupled with unexpended balance :f me fund frcm fiscal year l;-m\ will far exceed me requested appropriation. As you will note from the admin :: s m posed authorization bill, we pro- pose to establish an en- v fund of $25 million during fiscal year 1981. This fund will be derived from fiscal year 1981 revenues deposited in the Panama Canal Commissior in the Treasury, plus the unexpended balance of the fin i 1980, which I have just mentioned. While the $25 million amour.: is short of the $40 millinn original- ly requested for fiscal year 198 any reasonably foreseeable emergency certainly adequate to permit initiating emergency action while concurrently seeking a supplemental appropriation if required. A second poirv apital program: $23 million has been ^requested for 1981; $17.9 milli nn of that amount will be applied to transit pr this invest men: ry are the depreciation allowance anc 58 capital factor of 2.16 cents per Panama Canal ton included in the toll rate. This level of capital funding is adequate for near term requirements. Finally, Mr. Chairman, we believe this authorization bill reflects the most accurate estimate that can be made at this time of the expected net revenues and required operating costs of the Commis- sion during fiscal year 1981. Again, I appreciate the opportunity to appear here today, and bring you up to date on events since treaty day, and to speak to the proposed authorization bill. As I suggested earlier, I would urge that the committee hear Mr. McAuliffe's statement, and then both of us would be available for questions. Mr. Hubbard. Certainly, there is no objection to Mr. McAuliffe's statement being heard now. We thank you, Mr. Blumenfeld, for your synopsis, and your full statement will be included in the record. We will now hear from the Administrator of the Panama Canal Commission, the Honorable Dennis P. McAuliffe. STATEMENT OF HON. DENNIS P. McAULIFFE, ADMINISTRATOR, PANAMA CANAL COMMISSION, ACCOMPANIED BY WALTER D. BJORSETH, CHIEF FINANCIAL OFFICER; THOMAS M. CON- STANT, SECRETARY; AND MYRON A. SCHROEDER, CHIEF, FI- NANCIAL PLANNING DIVISION Mr. McAuliffe. Thank you, Mr. Chairman. It is a pleasure to appear once again before this committee. I am accompanied today by Mr. Walter Bjorseth, the Chief Fi- nancial Officer of the Panama Canal Commission; Thomas Con- stant, the Secretary of the Panama Canal Commission, and Myron Schroeder, the Chief, Financial Planning Division. I propose to enter my full statement into the record, and to summarize it at this time. Mr. Hubbard. Thank you. It is so ordered. [The following was received for the record:] Statement of Dennis P. McAuliffe, Administrator, Panama Canal Commission introduction Mr. Chairman, members of the Panama Canal Subcommittee, I am Dennis P. McAuliffe, Administrator of the Panama Canal Commission. I am pleased to appear before you today to request authorization for the FY 1981 budget programs of the Panama Canal Commission, the agency responsible for operation of the Panama Canal. Attending with me are Walter D. Bjorseth, Chief Financial Officer; Thomas M. Constant, Secretary; and Myron A. Schroeder, Chief, Financial Planning Divi- sion. I would like first to provide you a brief assessment of the general situation in the Panama Canal area in the period since the Pamana Canal Treaty took effect. TREATY TRANSITION The Treaty has now been in effect over four months. That is not a great deal of time and, for those of us involved in day-to-day operations of the canal, it seems like a very short period indeed. But perhaps enough time has gone by to permit an early assessment of our status, and I believe that for the Panamal Canal Commission things, generally, have been moving in a positive direction. Considering the many possibilities for disruption of activities when the Treaty went into effect, I am pleased to report that October 1 passed smoothly without any adverse incidents. The Canal organization transferred functions such as health, 59 education, postal, and retail services to the Department of Defense. Responsibility for jurisdiction, port and railroad operations, customs and immigration services was transferred to the Government of Panama. The two governments began to share responsibility for fire protection and police protection in the area. The interagency and binational planning involved in the transfer of these activities was substantial, with many built-in hazards and changes for failure, but the record now shows that the extensive prior planning and prepations paid dividends. Personnel of both the United States and the Republic of Panama prepared seriously for the transition and put forth their best efforts to assure its success. From the first day of the Treaty, the same spirit of cooperation has contributed to successful continuation of all activities by their new managers. The bulk of the bilateral agreements between the United States and Panama have been put into effect smoothly to the benefit of our organization and our people. Notable among these are the success of the joint police patrols in the Canal housing areas and the fire protection services (also a joint endeavor), employee documentation, and auto- mobile and driver licensing. The joint police patrols have been a particular source of reassurance to all. However, there is still disagreement on some issues yet to be resolved. A good indication of the new relationship now existing between the United States and Panama was evidenced on January 9, the anniversary date of the 1964 riots. The anniversary was celebrated with a march through the former Canal Zone and passed with less than the usual display of anti-Americanism. Two major functions transferred to Panama on October 1 were the ports of Balboa and Cristobal and the Panama Railroad. The transfer of facilities and equipment was accomplished as planned, and both the ports and railroad continued normal operations. The Commission provided experienced personnel on a loan labor, reim- burseable basis to advise and assist in the transition of these activities to Panama- nian management. Recently, Panama has experienced problems of congestion in the operation of its ports, particularly the Port of Cristobal, due to an increased volume of container traffic, difficulties associated with the maintenance of materials handling equip- ment at the terminals, and some labor problems. Panama is taking steps to correct the situation. Major functions transferred to the Department of Defense were those related to health services and the hospitals, educational services, including the Panama Canal College, the commissary stores, and postal service. These functions continued to serve those authorized with little or no disruption. However, some problems have arisen among Commission families using these facilities, largely due to different funding and administrative criteria. The Army commissary system for example, has had a particularly difficult time in serving the increased customer demand. During the first four months of the new Treaty, the Canal organization has continued to fulfill its mission of transiting vessels safely and efficiently through the waterway. During that period, approximating 4,400 oceangoing vessels transited the canal, a number approximating the level of the same period of the previous year. There has been no apparent decrease in traffic because of the toll rate increase that was placed in effect on October 1, 1979. The smoothness of the transition should not, however, cause us to lose sight of the traumatic impact of the Treaty on the Canal organization and its work force. The Commission's organization is now settling down after the personnel turbulence experienced last year. Some addition organizational changes are contemplated to meet Treaty requirements but these are being designed to have minimal personnel impact. Two such changes contemplated involve establishment of the Office of the Chief Engineer and the Office of the Ombudsman. In fact, the Office of the Ombuds- man is now functional. The morale of the workforce, which was extremely low at the time the Treaty took effect, is now beginning to build. Employee morale has been a matter receiving priority attention from management. The task is all the more difficult as issues impacting on the quality of life surface. The full-time permanent workforce immediately prior to October 1 was approxi- mately 12,200 employees. The number of employees separated through a reduction- in-force was approximately 460, and about 2,300 employees were tranferred to elements of the Department of Defense. An additional 1,440 employees terminated their employment voluntarily through retirement or resignation. The combination of these actions reduced the full-time permanent workforce to something over 8,000 employees, of which approximately 2,000 are U.S. citizens and 6,000 are Panama- nians and third country nationals. We also employ up to 1,000 individuals on a part- time or temporary basis, of whom about 700 are Panamanians. Of the 8,000 perma- 60 nent employees remaining with the Commission, over 1,300 were either reassigned to other jobs or reduced in grade, or both, on October 1. Working to minimize the impact of these actions on personnel, a priority place- ment program is in effect which seeks to place U.S. citizen employees in like jobs in other Federal agencies in the United States. Another program is the priority reem- ployment program which assures that those employees who were terminated be- cause of the Treaty have first consideration in hiring. The third program, the promotion priority program, is designed to give demoted employees preferential consideration for promotion back to their former grade. The Panama Canal employment system currently under development includes provision for granting hiring preference to Panamanians, a five-year rotation policy for recruitment outside of Panama, and a reduction in the need for off-the-Isthmus recruitment through intensified local recruitment efforts and special training and development programs. The hiring preference for Panamanians has already been implemented by adding eleven extra points to the numberical scores of all Panama- nian applicants tested after October 1 who have achieved a passing score. The five- year rotation policy has also been established. Procedures to implement the other changes are being developed at this time. We are also emphasizing training that will contribute to increased Panamanian participation in all areas and levels of the Panama Canal Commission, as required by the Treaty. The concludes my assessment of the general situation since the Treaty went into effect. AUTHORIZATION REQUIREMENTS Our authorization request covers two appropriations for the Panama Canal Com- mission in fiscal year 1981, totaling $419.5 million. One is an appropriation of $394.5 million covering both operational and capital requirements of the Commission. Of that amount, $23.0 million is for capital equipment and construction to remain available until expended. A second authorization of $25.00 million is requested to establish the Panama Canal Emergency Fund. All funds authorized for appropri- ation to the Commission are to come from the Panama Canal Commission Fund. OPERATING EXPENSES The appropriation required for operating expenses in 1981 is $371.5 million. The major cost components of this total are $184.4 million for personnel compensation, $78.6 million for Treaty payments to Panama, $38.5 million for supplies and materi- als, and $16.7 million for liberalized retirement benefits. The appropriation requested for 1981 represents an increase of $8.2 million over the amount authorized for operations in 1980. Most of this increase reflects pay raises and other cost escalations, offset by a decrease of $6.7 million in reimbursable technical support services to Panama. However, the 1981 program does provide for a higher level of maintenance in the transit area, additional pilots, tug crews, and deckhands related to increased transit workloads, and an expanded apprentice training program. The apprentice training program will allow a greater number of local recruit- ments for skilled labor positions, benefiting the Commission and meeting the com- mitment for increased participation by Panamanians in the operation of the canal. The $78.6 million for Treaty payments to Panama is comprised of a $10 million fixed annuity payment, a $10 million payment for public services that Panama is to perform, and a $58.6 million payment calculated on the net tons transited. CAPITAL PROGRAM The Commission's capital program reflects $23 million in budget authority for 1981 and is dedicated primarily to meet the needs of the Canal in terms of increased traffic capacity and safety and efficiency in operations. Accordingly, the major portion of the resources requested, $17.9 million will be applied to the transit operations function. Improvements in the waterway itself include deepening and widening the channel and moderation of difficult curves in the waterway. These projects will permit two- way traffic in areas now restricted to one-way movements and reduce the potential for marine accidents through improvements in navigational safety. Also, pro- grammed in this year is construction of a ship tie-up station at Pedro Miguel Locks which will increase the lockage output and ease scheduling difficulties affecting ship movements at Pedro Miguel. We have planned the obligation of $7.4 million for improvements and additions to our floating equipment in 1981. The major procurement is for a replacement tug- 61 boat at the cost of $4 million. This acquisition is part of a long-range plan to replace overage and underpowered tugboats and to increase the tug fleet as the transit workload demand materializes. The 1981 program also provides for the replacement of one dump scow, a large work boat and a small dredge tender. A project of major significance in our capacity improvement efforts is the installa- tion of additionl lighting in the locks chamber and approaches at a cost of $1.3 million. We presently restrict large vessels to daylight movements. The added light in the locks chambers will allow daylight transits to begin earlier and clear later, and allow the handling of wide beam ships in the lock chambers at night time. PROJECT GROUPINGS The proposed authorization bill presents the Commission capital program in four project groupings — tranist projects, utilities projects, quarters improvement projects, and general support projects. The total dollar amounts for each project group represents the limitation on obligations for that group. Within the project group limitation, reprogramming of funds among the individual projects may be accom- plished with the approval of the Commission's Board and notification to the authori- zation committees. The proposed authorization bill would also authorize the Com- mission to initiate individual projects not included in the budget upon providing 30 days' advance notice to the appropriate authorization and appropriation committees. Any such projects initiated would have to be funded within the project group limitation set by the Congress. The reprogramming authorization will provide the means to accommodate unanticipated cost escalations and to initiate necessary proj- ects, the need for which was unforeseen at the time of the budget submission. I believe that such authority is important to the conduct of an effective capital program. EMERGENCY FUND The Panama Canal Act of 1979 authorized the establishment of the Emergency Fund. The request for a $25 million authorization for fiscal year 1981 is based upon a current assessment of the amounts that could be required immediately for addi- tional expenditures over those appropriated to defray emergency expenses or to maintain continuous, efficient, and safe operation of the Canal. Factors considered in arriving at this amount were the costs of correcting slides, removal of vessels obstructing the Canal, clean up of a major oil spill, and the potential for additional costs of increased Canal traffic. In arriving at that figure, it was also presumed that in the event that $25 million proves insufficient to overcome the emergency a request authorizing additional funding would be expeditiously processed. PANAMA CANAL COMMISSION FUND The Panama Canal Act of 1979 provides that no funds may be appropriated to or for the use of the Commission for any fiscal year in excess of the revenue estimated for deposit in the Panama Canal Commission Fund during the year, plus prior deposits to the Fund remaining unexpended at the beginning of such year. The 1981 request is in compliance with such provisions of this Act. CANAL TRAFFIC AND TOLLS Our budget for fiscal year 1980 is based on a forecast of oceangoing transits of 13,765 for the year or 37.6 daily and tolls revenue of $299.6 million. For 1981, the budget predicts a 1.9 percent increase in oceangoing transits or 14,020, with tolls revenues of $313.9 million. Our estimates of North Slope oil movements in the current year projected ship- ments averaging 400,000 barrels per day during October and November, increasing to 500,000 barrels daily during the remainder of the year. The forecast for 1981 assumes continuation of the 500,000 barrels level predicted for 1980, as well as a moderate rate of growth for other segments of traffic from 1980. Tolls revenues through the first quarter of 1980 are short of budget targets by nearly $2 million. The entire shortfall can be attributed to lower than expected shipments of Alaska North Slope oil during this period. Other traffic, however, is at a somewhat higher level than forecast, partially offsetting this shortfall. However, recently shipments of North Slope oil have begun to rise and, although there is a potential that it may not reach the levels originally projected, it would be prema- ture at this time to adjust our budget estimates. Before leaving the subject of Canal traffic, I would like to mention one significant trend which is impacting on operations and makes the need for Canal improvement more compelling — that is the increase in size of ships transiting the Canal. A decade 59-319 O - 80 62 ago, only about 12 percent of transits were by vessels having beams in excess of 80 feet. This past year, vessels of this size accounted for more than 42 percent of all oceangoing transits. Moreover, the growth in transits of the largest vessels — those having beams over 100 feet — has been impressive. While in 1969 such vessels accounted for about 2 percent of oceangoing transits, today they account for over 15 percent and further increases are expected to occur. OPERATING RESULTS Although tolls revenues are running slightly below projected levels, the Commis- sion has recorded a $600,000 operating margin for the first quarter. Although this is in line with our annual projection for a breakeven operation for 1980, we will continue to closely monitor the situation. Our budget estimates of costs and rev- enues for 1981 indicate that existing toll rates will be adequate to cover all costs of operations of the Canal as required by law. Detailed descriptions of the operating and capital programs for the Commission for fiscal year 1981 are included in the justification booklet previously furnished to the Committee. Mr. Chairman, that concludes my prepared remarks. I shall be pleased to answer any questions that you or other members of the Committee may have. Mr. McAuliffe. The treaty has been in effect for over 4 months, and I believe that for the Panama Canal Commission things have been moving in a positive direction. The treaty went into effect smoothly, without any adverse inci- dents, last October. Men and women of the United States and the Republic of Panama prepared seriously for the transition, and put forth their best efforts to insure its success. From the first day of the treaty a spirit of cooperation has contributed to a successful continuation of all activities by their new managers. A number of bilateral agreements or arrangements between the United States and Panama have been put into effect smoothly, to the benefit of our organization and our people. Notable among these are the success of the joint police patrols, in the canal housing areas, and fire protection services, also a joint endeavor, as well as employee documentation, and automobile and driver licensing. These are just a few illustrations. The joint police patrols have been a particular source of reassur- ance to all. However, there are still some issues to be resolved. A good indication of the new relationships now existing between the United States and Panama was evidenced on January 9, this year, the anniversary of the 1964 riots. The anniversary was celebrated with a march through the former Canal Zone, and passed with less than the usual display of anti-Americanism of past years. There were in fact no incidents on that day. Two major functions transferred to Panama on October 1 were the ports of Balboa and Cristobal, and the Panama Railroad. The transfer of facilities and equipment was accomplished as planned, and both the ports and the railroad continued normal operations. Panama has experienced problems of congestion in the operation of its ports, particularly the Port of Cristobal, due to an increased volume of container traffic, difficulties associated with the mainte- nance of materials handling equipment at the terminals, and some labor problems. Panama is taking steps to correct the situation. Major functions transferred to the Department of Defense were the hospitals, educational services, including the Panama Canal College, the commissary stores, and the postal service. These func- tions continued to serve those authorized. However, some problems 63 have arisen among Commission families using these facilities, largely due to different funding and administrative criteria. The Army commissary system, for example, has had a particular- ly difficult time in serving the increased customer demand. During the first 4 months of the treaty, the canal organization has continued to fulfill its mission of transiting vessels safely and efficiently through the waterway. During that period, approximate- ly 4,400 oceangoing vessels transited the canal, a number approxi- mating the level of the same period of the previous year. There has been no apparent decrease in traffic because of the toll rate in- crease that was placed in effect on October 1. The smoothness of the transition should not, however, cause us to lose sight of the traumatic, impact of the treaty on the canal organization and its workforce. The Commission's organization is now settling down after the personnel turbulence experienced last year. The morale of the work force, which was extremely low at the time the treaty took effect, is now beginning to build. Employee morale has been a matter receiving priority attention from management. The task is all the more difficult as issues impacting on the quality of life surface. Our authorization request covers two appropriations for the Panama Canal Commission in fiscal year 1981, totaling $419.5 mil- lion. The principal one is an appropriation of $394.5 million cover- ing both operational and capital requirements of the Commission. Of that amount, $23 million is for capital equipment and construc- tion, to remain available until expended. A second authorization of $25 million is requested to establish the Panama Canal Emergency Fund. All funds authorized for ap- propriations to the Commission are to come from the Panama Canal Commission Fund. The appropriation required for operating expenses in 1981 is $371.5 million. The major cost components of this total are $184.4 million for personnel compensation, $78.6 million for treaty pay- ments to Panama, $38.5 million for supplies and materials, and $16.7 million for liberalized retirement benefits. The appropriation requested for 1981 represents an increase of $8.2 million over the amount authorized for operations in 1980. Most of this increase reflects pay raises, and other cost escalations, offset by a decrease of $6.7 million in reimbursable technical sup- port services to Panama. However, the 1981 program does provide for a higher level of maintenance in the transit area, additional pilots, tug crews, and deckhands related to increased transit work- loads, and an expanded apprentice training program. The $78.6 million for treaty payments to Panama is comprised of a $10 million fixed annuity payment, a $10 million payment for public services that Panama is to perform, and a $58.6 million payment calculated on the net tons transited. The Commission's capital program reflects $23 million in budget authority for 1981, and is dedicated primarily to meet the needs of the canal in terms of increased traffic capacity and safety and efficiency in operations. Accordingly, the major portion of the re- sources requested, $17.9 million, will be applied to the transit oper- ations function. 64 Improvements in the waterway itself include deepening and wid- ening the channel, and modernization of difficult curves in the waterway. This will permit two-way traffic in areas now restricted to one-way movements, and reduce the potential for marine acci- dents through improvements in navigational safety. Also pro- gramed in this year is construction of a ship tieup station at Pedro Miguel Locks, which will increase the lockage output and ease scheduling difficulties affecting ship movements at Pedro Miguel. We have planned the obligation of $7.4 million for improvements and additions to our floating equipment in 1981. The major pro- curement is for a replacement tugboat at the cost of $4 million. Also provided for is the replacement of one dump scow, a large workboat and a small dredge tender. A project of major significance in our capacity improvement efforts is the installation of additional lighting in the locks cham- ber, and approaches, at a cost of $1.3 million. The added light in the locks chambers will allow the daylight transits of large-sized ships to begin earlier, and clear later. The proposed authorization bill presents the Commission capital program in four project groupings, transit projects, utilities proj- ects, quarters improvement projects, and general support projects. The total dollar amounts for each project group represents the limitation on obligations for that group. Within the project group limitation, reprograming of funds among the individual projects may be accomplished with the approval of the Commission's Board, and notification to the authorization committees of the Congress. The proposed authorization bill would also authorize the Com- mission to initiate individual projects not included in the budget, upon providing 30 days' advance notice to the appropriate authori- zation and appropriations committees. Any such project initiated would have to be funded within the project group limitation set by the Congress. The reprograming authorization will provide the means to accommodate unanticipated cost escalations, and to initi- ate necessary projects, the need for which was unforeseen at the time of the budget submission. I believe that such authority is important to the conduct of an effective capital program. The Panama Canal Act of 1979 authorized the establishment of the emergency fund. The request for a $25 million authorization for fiscal year 1981 is based upon a current assessment of the amounts that could be required immediately for additional expend- itures over those appropriated to defray emergency expenses, or to maintain continuous efficient and safe operation of the canal. Fac- tors considered in arriving at this amount were the costs of correct- ing slides, removal of vessels obstructing the canal, cleanup of a major oilspill, and the potential for additional costs of increased canal traffic. In arriving at that figure, it was also presumed that in the event that $25 million proves insufficient to overcome the emergency, a request authorizing additional funding would be ex- peditiously processed. Our budget for fiscal 1980 is based on a forecast of oceangoing transits of 13,765 for the year, or 37.6 daily, and tolls revenue of $299.6 million. For 1981, the budget predicts a 1.9-percent increase in oceangoing transits, or 14,020 with tolls revenues of $313.9 mil- lion. 65 Tolls revenues through the first quarter of 1980 are short of budget targets by nearly $2 million. The entire shortfall can be attributed to lower than expected shipments of Alaska North Slope oil during this period. Other traffic, however, is at a somewhat higher level than forecast, partially offsetting this shortfall. How- ever, recently shipments of North Slope oil have begun to rise. Before leaving the subject of canal traffic, I would like to men- tion one significant trend, which is impacting on operations, and makes the need for canal improvement more compelling; that is, the increase in size of ships transiting the canal. A decade ago only about 12 percent of transits were by vessels having beams in excess of 80 feet. This past year, vessels of this size accounted for more than 42 percent of all oceangoing transits. Moreover, the growth in transits of the largest vessels, those having beams over 100 feet, has been impressive. While in 1969, some 10 years ago, such vessels accounted for about 2 percent of oceangoing transits, today they account for over 15 percent, and further increases are expected to occur. As a matter of fact, earlier this month, we experienced close to 20 percent of our transits, in ships of this larger beam. Although tolls revenues are running slightly below projected levels, the Com- mission has recorded a $600,000 operating margin for the first quarter. This is in line with our annual projection for a breakeven operation for 1980. We will continue to monitor the situation close- ly- Our budget estimates of costs and revenues for 1981 indicate that existing toll revenues will be adequate to cover all costs of oper- ations of the canal as required by law. Detailed descriptions of the operating and capital programs for the Commission for fiscal year 1981 are included in the justifica- tion booklet previously furnished to the committee. Mr. Chairman, that concludes my prepared remarks. I join with Mr. Blumenfeld in being pleased to answer any questions that you or other members of the committee may have. Thank you. Mr. Hubbard. Thank you very much, Mr. McAuliffe. Again, thank you, Mr. Blumenfeld. At this point we will insert in the record the justification of programs and estimates for fiscal year 1981 submitted by the Panama Canal Commission. [The information follows:] 66 Panama Canal Commission 1981 JUSTIFICATION OF PROGRAMS AND ESTIMATES FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1981 67 PANAMA CANAL COMMISSION, 1980-1981 Justification of Programs and Estimates for the Fiscal Year Ending September 30, 1981 Tab. No. Table of Contents Page No . 1. Summary Statement 1 2. Panama Canal Commission - Operating Expenses Program and financing ....... , . • 5 Revenue and Expense/Statement of Deposits . 7 Summary of Operating Expenses and variations by activity 8 Detail of accrued cost by activity: Transit Operations Canal traffic and tolls ........ 10 Traffic and tolls statistics 11 Maintenance of channels, dams and spillways .............. ........ ...... . 12 Navigation service and control 12 Locks operation ......................... 13 General repairs, Engineering, and Maintenance Services 13 Security and Protection Services 14 Industrial Health and Sanitation 14 General Canal Expense ................... 15 Supporting Operations Supply and Logistical Services .......... 16 Motor Transportation „..„„..„..„ „. 16 Water Transportation .................... 17 Power System ............................ 18 Communications System ................... 18 Water System 19 Central Air Conditioning Service 19 Housing 20 Grounds, Custodial and other services ... 21 Administrative and General Expenses Executive Direction 21 Operations Direction 22 Financial Management 22 Personnel Administration 23 General Service 23 Employment Costs 23 Interest Payments 24 Other Operating Expenses ■.. 24 3. Panama Canal Commission - Capital Outlay Schedule of capital projects 26 Appropriation requirements 28 Capital program justification index 29 Justifications 30 68 PANAMA CANAL COMMISSION Summary Statemen t Introduction 1. The budget programs for FY 1981 presented herein represent the operating and capital requirements of the Panama Canal Commission for the operation and maintenance of the Panama Canal in the second year of operations under the Panama Canal Treaty of 1977. 2. The Panama Canal Commission is an agency of the United States operating by authority cf the tu.. ress or che United States with funds appropriated for those purposes authorized. The Commission has a nine member Board of Directors, an Administrator and a Deputy Administrator, all of whom are appointed by the President of the United States. Five members of the Board will be United States citizens and four members Panamanian citizens. The Administrator is a U. S. citizen with the Deputy Administrator a Panamanian national. In 1990, the Administrator will be Panamanian with a U.S. national as Deputy. Five Board members, of whom at least three are U. S. nationals, constitutes a quorum for the conduct of business. Appropriation Requirements 3. The Panama Canal Commission is an appropriated fund agency of the United States government. As such, the Commission seeks authorization and appropriations annually for its capital and operating requirements and all revenues and cash collected is deposited in the U. S. Treasury. For 1981, the Commission requests a combined appropriation of $394,453,000, of which $371,453,000 is for operating expenses and $23,000,000 for capital projects and equipment acquisitions. In addition the Commission is seeking authority for ah appropriation of $25,000,000 to establish the Panama Canal Emergency Fund. The FY 1981 receipts to be deposited in the U.S. Treasury are estimated at $410.1 million, including revenues of $406.4 million and other .miscellaneous collections for accounts receivables of predecessor agencies and sale of fixed assets of $3.7 million. The total deposit is some $2.6 million higher than the amount included in the President's Budget, reflecting the deposit of $2.6 million of collection of Canal Zone Government receivables deposited in the Pan una Canal Commission Fund. Detail of the appropriation requirements and the deposits into the U. S. Treasury are included under Tab. 2. 1 69 Operating Expenses 4. Totai operating coses including J^preci^ : ion ia 1561 are escicacec ac $402.1 million. This amount includes payments to Panama totaling $78.6 million, comprising net tonnage payments of $58.6 million, a fixed annuity of $10.0 million, and payments for public services of $10.0 million. Inasmuch as the Commission projects a breakeven situation in FY 1981, there is no provision in the estimates to pay Panama the contingency payment as provided under paragraph 4(c) of Article XIII cf the Treaty. Other major cost components in the total of $402.1 million are the reimbursement to the Civil Service Retirement Fund for liberal retirement benefits provided Commission employees ($16.7 million) and the interest on the net direct investment of the United States in the Canal ($14.6 million). Beginning in FY 1980 the Commission included in the tolls rate formula a capital surcharge factor, which is based on the difference between depreciation and the amount required for the capital program. Revenues to be deposited in the Treasury in 1981 are estimated to be $406.4 million. Of this total, $313.9 million derives from tolls assessed transiting vessels of which $4.2 million relates to the capital surcharge, and $9214 million revenues from services provided transiting vessels, Panama, other U. S. Government agencies operating in Panama, and employees and others who may be eligible for services under the terms of the Treaty. Capital Outlay 5. Capital projects and equipment obligations projected in 1981 total $23.0 million. Major projects in the 1981 program are: FY 1981 Appropriation Requested (In thousands) 1. Transit projects Canal Improvements 6,400 Improvement, replacement, and addition of floating equipment 7,294 Replacement and addition of other transit equip- ment ,.u 1,359 Improvement, replacement and addition of transit facilities 2,723 2. Utilities projects Improvement, replacement, and addition to utilities systems 1,648 70 Capital Outlay (Cont'd) FY 1931 Appropriation Request (In thousands) 3. Quarters improvement projects Improvement and rehabilitation of employee quarters 800 4. General support projects Replace and add equipment - general support 1,212 Improvements and rehabilitation of Commission buildings and facilities 944 Miscellaneous general support projects .... 520 Panama Canal Commission Fund 6. The Panama Canal Act of 1979 provides that no funds shall be appropriated to or for the use of the Commission unless covered by estimated receipt deposits into the Commission Fund for the budget year, plus the unexpended balance of the Fund at the beginning of that year. As identified in the tabulation below, the ' " • fling of FY 1981 are estimated at -$469,039 and $459,699 thousand, respectively. 1980 1981 Unappropriated balance, start of year - 469,039 Collections and offsetting receipts: Tolls and other deposits 397,823 410,113 Payment from the Panama Canal Company 71, 216 - Total available for appropriation 469,039 879,152 Appropriation - Panama Canal Commission - -394,453 - Emergency Fund - -25,000 Unappropriated balance end of year 469,0 39 459,699 The above tabulation incorporates the deposit of Canal Zone Government accounts receivable collections into the Commission Fund and the Commission's request for an appropriation to establish the Emergency Fund. E xplanation of Authorization Language 7. A section analysis of the authorization language proposed by the Panama Canal Commission follows: Section 2 . This section authorizes appropriation of $394,453,000 from the Panama Canal Commission Fund for use of the Tanaraa Canal Commission in FY 1981. The amount is a combined total for Operating Expenses and Capital Outlay. In addition, the Coirani ssion ' s proposal includes the following major items: 1. The Commission proposes a general authorization for FY 1982, in 3 71 Explanation of Authorization Language (Cont 'd) accordance with the Budget and Impoundment Act of 1974. 2. The Commission is requesting that a method for making changes and substitutes in capital projects be established within the amounts authorized. 3. Authority is sought to request supplemental for pay increases and other increases as authorized. 4. The Commission seeks authority to credit the appropriation with amounts collected for medical bills and other services provided employees and dependents by other U. S. Government agencies which were paid for by the Commission. Section 3 . This section is being proposed to provide for an Emergency Fund in the amount of $25,000,000 in FY 1981. Section 4 . This section proposes an authorization that will allow the obligation of multi-year renewable contracts each year subject to the availability of funds. Section 5 . This section provides an authorization to incur obligations as provided for in appropriation acts in advance of deposit of adequate receipts in the Panama Canal Commission Fund. Explanation of Appropriation Language 8. The appropriation language for FY 1981 provides a total of $394,453,000, to be derived from the Panama Canal Commission Fund, of which $23,000,000 is to remain available until expended for capital outlay. The combining of the appropriation request has been accomplished at the direction of the Office of Management and Budget and the U. S. Treasury. The language also contains certain other limitations, such as on the numbers of passenger motor vehicles to be purchased and the amount of official reception and representation expenses. It is intended that a separate appropriation be made for the establishment of the Emergency Fund. 72 FAN AH A CANA L ? ^2-1ISSI 0N OPE RATING AND CAPIT A L EXPENS ES Program ana financing (in thousa n ds of doll ar;) 1981 Estimate Program by Activities : Operating costs: 1. Transit operations 248,270 249,570 2. Supporting Operations ^9,804 55,667 3. Administrative and General expense 93 ,109 96,901 Total operating costs Unfunded adjustments to total operating costs Total operating costs, funded . Change in selected resources Total operating obligations Obligations from predecessor agencies Total obligations Capital investment, funded: 1. Transit operation projects 2. General support projects „. 3. Utilities projects 4. Quarters improvement projects 5. '-"j'-.rtr- r - ' '. recoveries ........... Total capital investment, funded Change in selected resources (undelivered orders) Total capital investments Obligations from predecessor agencies Total capi&al investments, obligations Total obligations 469,387 394,453 Financing: Offsetting collections from: Federal funds Unobligated balance available, start of year (capi tal) . Unobligated balance available, end of year (capital) .. Budget authority (appropriation) Distribution of budget authority: Operating expenses .1 outlay Panama Canal Commission 394,453 Relation of obligations to outlays: itions incurred, ii.net ^62,387 394,^53 Obligated balance, start of year „ - 51,063 Obligated balance, end of year - 51,063 -52,346 Outlays Ml, 324 393,170 391,183 402,138 -27,705 -32,114 363,478 370,024 6,829 1,429 370,307 371,453 61,955 - 434.262 ' ' 371,453" 29,285 17,876 3,S'60 2,676 2,^65 1,6 8 1,015 800 -11. 944 3,210 24,681 26,210 -2,S63 -3,210 21,818 23,000 13,307 - 35,125 23,000 -7,000 -1,500 1,500 1,500 463,887 394,&53 427,262 36,625 73 MANAMA CANA.Tj COMMISSION OPEPATIKG AND CAPITAL EXPANSES Program and Financing (in thousands of dollars ) 1980 1981 Estimate Est irate Distribution of outlays: Operating expenses 383,643 40,619 Capital outlay 24,681 11,944 Panama Canal Commission , - 340,607 Selected resources as of September 30 (Operations): Stores 26,656 28,582 Unpaid undelivered orders „ 12,185 11,713 Liability for repatriation -7,500 -8,525 Accured annual leave „....,,„. . 0\2 -?g.m? Total 2,329 3,758 74 THE PANAMA CANAL 'A canal cpyMisri' Revenue and Expense (in thousands of dollars ) 1980 1981 Estimate Estimate Revenues: 344,555 354 ,177 46,191 51 ,805 468 381 391,214 406 : ,363 -7,031 -4 ,225 384,183 402 ,138 Transit operations Supporting activities Administrative and general Total Less: Capital Surcharge Included in Tolls Collections Total operating revenues Expenses : Transit operations 241,270 249,570 Supporting activities 49,804 55,667 Administrative and general 93,109 96,901 Total operating expenses 384,183 402,138 Operating results -0- -0- STATEMENT OF DEPOSITS TN U . S. TREASURY Panama Canal Commission Receipt Deposit 1980 1981 Estimate Estimate Operating Revenues: Tolls 292,607 309,715 Navigation 34,628 36,428 Power 24,374 28,458 Water 5,639 5,704 Housing 5,449 5,845 All other operating revenues 21,486 15,988 Total operating revenues 384,183 402,138 Other Oollections: Capital surcharge collected in tolls 7,031 4,225 Republic of "Panama accounts receivables 1,057 1 094 Sale of fixed assets 100 100 All other collections 300 Total Panama Canal Commission collections deposited in U. S. Treasury 392,671 407,557 Panama Canal Company Ending Cash Balance ice deposited 71,216 Collection of Canal Zone Government Receivables Republic of Panama accounts receivables 2,556 2,556 Other accounts receivables 2 596 5J 152 27556 Total deposits in U. S. Treasury 469,039 410., 113 75 FAN ^MA_CA.VAL_C OMMT S S lON^J. 980 z 1 9 31 SUMMARY OF 0FE3ATINS EX PENS ES AND VARIA TI ONS BY A CTIVITY 1950 1981 Increase or estimate estimate (decrease) operating operating operating exp enses expenses expenses /■ (In thousands of dollars) Transit Operations ^ Maine of channels, daias & spillways. 1 . 26,552 33,536 1,654 Navigation service and control .... 54,093 59,395 5,302 Locks operation 37,531 41,093 3,562 General repair, engineering, and maintensr.ee service ......... 35,606 39,788 A, 182 Security and protection services .. 17,516 18,249 733 Industrial health and sanitation .. 2,584 2,811 227 General canal . ................... 9 8,604 93, 940 (4 r 664) Subtotal ..................... 282,786 Interdivisicnal sales and service . -41 , 516 Total Transit Operating net cost? 241,270 Supporting Operations Supply and. Logistical services.... 18,981 18,887 (94) Motor Transportation 8,175 8,690 515 Water Transportation .. ....... 14,958 15,322 364 Power System ............. 27,426 32,040 4,614 Communications System 5,177 5,400 22'. Water System 5,053 5,461 408 Central Air Conditioning 1,411 1,545 134 Housing 6,339 6,874 535 Grounds, custodial, and other services 9,530 10,050 Subtotal 97,050 104,269 7,219 Interdivisional sales and services - 47,246 -48,602 -1,356 Total supporting activities net costs 49,804 55,667 5,863 293 812 -44 L 242 249^570 18 887 8 690 15 322 32 040 5 400 5 461 1 545 6 874 10 050 104 269 -48 ,602 76 V...A .MA CA NAL COMMISSION, 1 980- 1981 A?.Y j ?;: kaiing expo s es an d vari atio ns by activity I960 1981 Increase or esti: estimate (decrease) operating operating operating expenses expen ses e xpens es (In thousands of dollars) # Administrative and Gcr. c ral Exper.s e s Executive Direction ........... ,5,305 5,630 325 Operations Direction .......... 3,576 3,835 259 Financial Management .......... 10,831 11,561 730 Personnel rtdziinistration ...... 3,6^0 4,214 • 324 General Services .............. 6,300 6 ; 541 241 Employment Costs .............. 3,767 4,164 397 Interest ...................... 14,846 14,622 (224) Other..........-,, . , ... As ?.49 46,340 1,591 Subtotal ................... 93,764 97,407 3,643 Interdivisional sales and services __li?5j> -_506 149 Total Administrative ar.d General Expenses net costs 93,109 i^Ol 3,792 Total Programmed Operating costs .. ............... 384,183 402,138 17,955 77 PANAMA CANAL COMMISSION CANAL rRAFFKTAND TOLLS 1980 1981 Estimate Estimate (Dollars in thousands) Tolls Income: Commercial traffic: Small craft ............. Total commercial tolls U.S. Government traffic: Ocean-going .................. Small craft .................. Tocal U.S.Gover.ner.t tells Total tolls ... ..!.... ....... Number o f Transits : Commercial traffic: Ocean-going ................ ........... 4 .. .;..... ...... Small craft ........................................... Total commercial .................................... United States Government traffic: Ocean-going .............................. Small craft ........................ Total U.S. Government .................. Total revenue transits Free transits, not included: Ocean-going ............... Small craft ............... Total free transits Total number of transits .......................... Other Data : Average number of ocean-going commercial vessels per day 'l05 298,393 312 312 590 105 695 1,225 20 1 225 20 1,245 1 245 299^638 313 940 13 655 750 14 405 100 200 14 ,705 10 50 60 ,765 13 ,920 750 14 ,670 100 200 300 37.3 14,9 15,030o 38.1 10 78 FANAMA CANAL COMPANY, 1966-1979 PANAMA CANAL COMMISSION, 1980-1981 TRAFF I C_ AN D TOl T 5 S TATISTICS Fiscal Years Actual 1966 to 1979 - Estimated 1980 and 1981 Number of Tra n si ts Commer- U. S. cial Govern- Total Revenue ment Revenue Total Tolls PCC Net (In thousands of Tonnage Fiscal Years Transits 12,470 Vessels 725 Transits 13,195 Dollars) (in millions' 1966 72,588 83.0 1967 12,982 980 13,962 82,297 95.1 1968 13.770 1,625 15,395 93,154 107.5 1969 13,733 1,495 15,228 95,914 110.5 1970 14,234 1,158 15,392 100,875 115.6 1971 14,601 626 15,227 100,567 114.7 1972 14,543 561 15,104 101/88 116.0 1973 14,563 491 15,054 113,381 128,8 1974 14,859 353 15,217 121,320 137.9 1975 14,413 280 14,693 143,332 136.4 1976 12,902 221 13,123 134,988 128.5 19TQ 3,241 54 3,295 35,465 33,8 1977 12,655 365 13,020 164,685 134.0 1978 13,469 290 13,759 195,735 157.6 1979 13,871 426 14,297 209,520 168.5 1980 (Est.) 14,405 300 14,705 299,658 136.4 1981 (Est.) 14,670 300 14,970 313,9^0 195.2 Monthly, Fiscal Year 1979 October, 1978 1,169 41 1,210 18,389 14.8 November .... 1,145 30 1,175 17,725 14.2 December .... 1,173 30 1,203 18,299 14.7 January, 1979 1,157 42 1,199 16,945 13.6 February .... 1,054 22 1,076 15,225 12.3 March 1,274 30 1,304 19/85 15.7 April 1,222 46 1,268 18,200 14.7 May 1,225 30 1,255 17,854 14.3 June 1,068 38 1,106 15,581 12.5 July 1,170 32 1,202 17,697 14.2 August 1,141 49 1,190 17,588 14.1 September . . . 1,073 36 1,109 16,532 13.4 Total FY 1979 13,871 426 14,297 209,520 168.5 Monthly, Fiscal Year 1980 43 1,213 23,849 October, 1979 1,170 15.0 November .... 1,074 32 1,106 22,158 13.8 December .... 1,134 28 1,162 23,387 14.5 Total year to date FY 1980 3,378 103 3,481 69,394 43.3 NOTE: Transits of and tolls from small vessels under 500 P.C. net tons measurement are included in above statistics. 79 5 IT OPERATIONS Maintenance of Channels. Dams and Spill: 1980 1981 Estimate Estimate (Dollars in thousands) Opera tin g Expen ses : Suction and dipper dredging operations Other floating equipment operations ................... Coredrill operations Meteorological . • . ................ Maintenance repairs and overhaul services Supervision and general operations .................... Other Depreciation and nonfund expense ...................... Gross operating expenses ............................ Interdivisional sales and services t operating expenses .............................. Revenue: (Sales of Service) ...... .......... The basic purpose of this function is to maintain. proper navigation depth in the channel. In addition, meteorological, hydrographic and seismologic conditions are observed and studied. This function also includes the operation and maintenance of a wide range of equipment and facilities such as lights, beacon; buoys and other navigation aids, the dams and spillways, and other earth works and structures adjacent to the waterway. 6,143 5,974 3,677 4,138 1,626 1,752 4,255 5,214 2,502 2,728 7,090 6,694 9,317 9,647 36,852 38,536 5,893 6,091 30,959 32,445 18 20 - tion Servi ce and Control 1980 1981 £fli!IL§l£ Estimate (Dollars in thousands) 15,190 16,360 1,439 1,459 4,474 4,880 10,898 11,949 18,332 20,895 2,634 2,770 1,126 1,082 54,093 59,395 101 109 S3, 992 59,286 Oper ating Expens es : Transit and port pilotage General port operations Vessel control, admeasurement and dispatch Handl ing ships ' 1 ines Tug and launch operations Supervision and general operations Depreciation and nonfund expense Gross operating expenses Interdivisional sales and services Net operating expenses Revenue : Harbor pilotage Handling ships' lines Tug and launch services , Wharfage, moorings, right of basin and misc Total revenue The Navigation Division under Panama Canal Commission is responsible for the transiting of vessels through the Canal, docking vessels, and providin services such as tug and launch service, boarding and admeasuring services, traffic control, and linehandling services. The general prohibition against all it aiiud in the new Treaty will eventually eliminate all commercial I miscellaneous wharfage mooring provided by the Panama Canal Company. However, Panama has asked that the Commission continue to provide harbor tug S( t ^ices and certain launch services on a reimbursable basis until they can arrange for alternative scrvi. 12 1,667 1,861 13,349 14,995 19,537 19,497 75 75 34^628 36,428 80 TRANSIT OPERATIONS Navigation Service and Control (Cont'd) 1980 1981 Estimate Estimate Canal Transits (numbers of vessels ) : Over 300 PC net tons: Commercial ....................... U. c Government . « . . . ........... Free Small craft 3,655 13,920 100 100 10 10 1,000 1,000 Locks Operations 1980 1981 Estimate Estimate (Dollars in thousands) Operating Expenses : I 883 37 2 531 172 35 359 1 11 330 21 109 3 642 2 964 2 048 41 093 1 033 40 060 1 Lockage operations ..................................... 10,095 Locks maintenance and repair ........................... 19,509 Administration, supervision, and general operations .... 3,317 Accrual for locks overhauls, nonfund ................... 2,727 Depreciation and other nonfund expense Gross operating expenses Interdivisional sales and services .................... Net operating expenses .............................. Revenue : This activitv is responsible for -he direct supervision, operation, and maintenance of the locks and appurtenances, including periodic major overhauls of the underwater -portions of the locks. General Repair, Engineering and Maintenance Services 1980 1981 Estimate Estimate (Dollars in thousands) Operating Expenses : General maintenance Vessel repair services Electrical services Engineering services Contract and inspection services General laboratory services Depreciation and other nonfund Gross operating expenses Interdivisional sales and services Net operating expenses Revenue : (Sales of Services) This activity provides the wide range of maintenance and repair work on structures, floating equipment, and shop and construction equipment necessary to the safe and efficient operation of the total canal enterprise. Also included here are those related engineering services such as surveys, preparation of designs, cost estimates and specifications for work, and the general supervision and administration of construction and demolition work performed by private contracting firms. 13 13,036 14,269 12,097 14,619 4,885 4,912 3,854 4,116 837 947 381 411 516 514 35,606 39,788 33,349 37,008 ?,?S7 2.780 r,202 1,191 81 TRANSIT OPERATIO NS General Repair, Cr^ir.cerin^ and Mninicr^r : Workload Data 1980 1981 Estimate Estimate (Dollars in thousands) Work fcr ace cunt of Panama Canal Coarxission organizations: General services ........................... Vessel repair services Electrical services » Engineering services ..................... . f Contract and inspection services ........... $13.9 $14.4 12.2 I ' " 4.9 3.6 3.4 0,8 0.7 1980 1981 Estimate (Dollars i Estimate n thousands) 9,765 9,854 3,667 4,013 3,373 3,593 400 — -> 106 116 205 17,516 230 18,249 Security a nd Protection Set' Operatin g Exp enses : Police protection .................... Fire protection ............ .......... . Canal security force*'"?. ............... Industrial security services ......... Emergency preparedness ............... Depreciation ......................... Gross operating expenses ........... Revenue? _2^3S2 2 S 589 This activity provides industrial security and prctecr.icn services, an emergency preparedness program for Canal employees and dependents; and police and fire protection services in Canal operating areas and other areas as specified under the new treaty and in accord with joint agreements between Panama and the Commission, including the operation of detention centers and a penitentiary. Indust rial He a lth and San itation 1980 1981 Operating Exp en ses ; Esti*B3te Es timate (Dollars in thousands) Industrial health servic ....... 1,148 1,239 Zoonotic disease control ................................ 102 118 Sanitation ............................................... 1,328 1,448 Depreciation ...................................".."....... 6 6 Gross operating expenses .............................. 2,584 2,8lT Revenue: r.. ....... ............................... ft s Industrial Health and Sanitation activities include functional and professional supervision of industrial first aid stations and on-the-job injuries; the coordination and review of physical examinations of Commission employees; prevention of occupational disease and injuries; and related industrial health services. Also included here are sanitation programs for control of disease vectci nance of sanitation standards in Commission operating and housing areas, and zoonotic disease conirrol and food inspection programs. 14 82 TRANSIT OPERATIONS General Canal Expense 1980 1981 Estimate Est i mate (Dollars in thousands) Operati ng Expe nses: Treaty Derived Costs: Payments to Panama for public services Fixed annuity payments to Panama Panama Canal net tons transited payment to Panama Technical assistance to Panama Relocation of offices and facilities Retail stores closeout costs Additional costs for printing of forms and regulations. Provision for reproduction of drawings facilities turned over to Panama Marine terminals closeout costs Cost of health services provided by DOD Board of Local Inspectors Miraf lores Swingbridge maintenance Special Canal studies, traffic, and capacity studies Central launch repair and marine salvage Accrual for casualty losses and damages to vessels Other miscellaneous Canal expense Functions formerly provided by Canal Zone Government:.... Customs liaison unit Maintenance of public areas Depreciation and other nonfund expense Gross operating expenses Interdivisional sales and services Net operating expense Revenue This category of expense comprises the annuity and public service payments to Panama; the cost of health services provided to certain elderly and disabled former employees and their dependents; a provision for casualty losses and damage, to „ a? «i . and nber c c one tljne cofets assoclatcd wit t. tha ,. _..-__ tation of the Treaty. There is also a provision in 1980 for technical assistance to Panama, on a reimbursable basis, to aid Panama in assuming the responsibility for operation of functions transferred. 10,000 10,000 10,000 10,000 55,920 58,560 6,678 - 1,061 308 495 - 95 - 60 _ 102 - 3,667 3,997 397 423 83 91 50 52 375 411 6,200 6,200 134 131 A14 460 2,215 2,635 658 672 98,604 93,940 1 1 93,603 93,939 6,678 - 15 83 SUPPORTING OPEPATXCXS Supply and fogistlcal Services 1980 1981 E stimate Estimate (Dollars in thousands) Revenue 193 193 41 234 41 Sale of goods ......... . Sale of services . . Total revenue ............. .^ ..... . . Operating Expenses : Cost of goods Warehouse operations Procurement operations Scrap and salvage operations Excess property, liquid fuel, and office furniture operations Management and general operations Depreciation and other nonfund .......................... Gross operating expenses Interdivisional sales and services Operating margin or cost (-) This activity is comprised of the storehouse operations a.-.d provides for the purchasing, warehousing, and issuing of supplies and materials required by Commissic units. Workload 1980 1981 Estimate Estimate Storehouse services : Receipts (line items) 32,000 27,000 Issues (line items) 280,000 230,000 Sales (line items) 15,000 15,000 Tons of metal classified 1 , 500 1 , 500 13,856 13,890 1,970 1.915 847 833 135 143 433 372 1,388 1,380 352 354 18,981 18,887 14,033 14,061 u P48 -4,214 4,826 -4,592 1980 1981 Estimate Estimate Motor Transportation Revenue : (Sales of Services) Operating Expenses : Motor vehicle operations Repair shops Administrative and general expense Depreciation and other nonfund expense Gross operating expenses Interdivisional sales and services Net operating expenses Operating margin or c'pst (-) -25 16 4,379 4,730 2,657 2,860 485 437 654 663 8,175 8,690 8,113 8,656 62 34 84 SlTr oRTI NC On.'KATT ONS Motor Transportation (Cont'd ) Tliis activity operates and maintains motor transportation facilities and repairs cons tract 5 on, material handling, fire fighting, police and grounds maintenance vehicular equipment of the Commission „ In addition, the repair shops operated on both sides of the Isthmus provide miscellaneous repair services to other units of the Commission. The major impact of the Treaty on this activity is the •■^•■-t-'^- in '.•ior!:!e?d associated w"r v Hscont '—. ? 87 SUPPORTING OPERATIONS Central Air Conditioning Service (Cont 'd) This operation consists of a chilled water pumping and cooling plant in the Balboa area which chills and distributes water to users by means of insulated pipes. Two loops of insulated pipes are used, one carrying chilled water to the buildings in the Ancon area and the second serving the Ealboa area. The buildings served provide the necessary air distribution systems, heat exchange equipment, and humidity controls. The Commission provides, on a reimbursable basis, the provision of air conditioning service for connected buildings transferred to Panama and other governmental agencies. Workload Data Connected tons at year-end 1980 1981 Estimate Estimate (Tons of air conditioning) 3,850 3,850 Housing Revenue : (Rentals) Operating Expenses : Quarters operation Quarters maintenance Supervision and general operations Depreciation and other nonfund expense Gross operating expenses Interdivisional sales and services .... Net operating expenses Operating margin or cost (-) 1980 Estimate 1981 Estimate (Dollars in thousands) 5,449 5,845 1,132 1,220 3,514 3,855 858 938 835 6,339 861 6,874 190 210 6,149 6,664 -700 -819 The revenue and expenses shown represent the rental income and operation and maintenance costs associated with providing living quarters in the Canal operating areas for employees of the Panama Canal Commission, and to certain other individuals eligible for quarters. Rental rates are established on a comparability basis. These costs and recoveries pertain to housing units the use of which has been retained by the Commission for its employees. Workload Data Quarters in operation Family Apartments, occupied ., Bachelor Apartments, occupied Bachelor Rooms, occupied 1980 Estimate 3,127 2,956 98 20 1981 Estimate 3,127 2,956 98 20 20 88 439 483 170 185 609 668 3,921 4,135 343 376 2,729 2,913 1,355 1,317 967 1,095 215 214 9,530 10,050 7,862 8,225 1,668 1,825 -1,059 -1,157 . SUPPORTING OPERATIONS ' \ \ Grounds, Custodial and Other Service's 1980 1981 Estimate Estimat e (In thousands of dollars) Revenue : (Sales of Services) Grounds maintenance All others Total revenue Operating Expenses : Care of grounds Garbage and trash disposal Custodial and community services Agency press and duplicating service Recreational facilities Depreciation and other nonf und Gross operating expenses Interdivisional sales and services Net operating expenses Operating margin or cost (-) This activity provides for the care of grounds and the disposal of trash and garbage. Custodial services are provided for the various buildings and offices of the Commission. Additional services are also provided such as operation, maintenance and rental of garage stalls; storage and issue of furniture items for rental to quarters occupants and pickup, delivery and moving van services. Agency press and duplicating service activity is a Government field printing plant authorized under regulations of the Joih,t Committee on Printing. It provides press, duplicating, and related services. The costs for the youth activities program and operation and maintenance of swimming pools and other recreational facilities, previously a governmental responsibility, are provided for in this activity. ADMINISTRATIVE AND GENERAL EXPENSES Executive Direction 1980 1981 Estimate Estimate (Dollars in thousands) Board expenses ~ ~ . . 7. .~ "" 79 aV Administrator's office and staff [ 3 575 3 g7& Secretary's office, Washington, D. C [,[[ 'i 92 '202 Panama Canal Information Office 802 887 Tour guide, launch, and reception service 230 152 Consultants "" 42 7 428 Total executive direction 5,305 5~630 This function is comprised of: The Board of Directors, whose members are paid per diem and travel expenses for meetings and time spent on special services of the Commission, the Office of the Administrator, with an executive planning staff and legal office, residence of the Administrator; the Secretary* s office in Washington, responsible for liaison with the Congress and Federal Government departments and agencies; the Panama Canal Information Office, responsible for public relations activities, press and news releases and the publication of the Panama Canal Review and a weekly newspaper in English and Spanish; the guide and reception service which provides tours for visitors to the Canal area; and a pro- vision for consultants for special studies, Canal improvements, and organizational studies. Legislation Implementing the Panama Canal Treaty of 1977 provides that 21 89 ADMINISTRATIVE AND GENERAL EXPENSES Executive Direction (Cont'd) an ombudsman office be established, and the expenses therefore are included in the Administrator's office and staff. The Coordinating Committee expenses are also shown here. Operations Direction 1980 1981 Estimate Estimate (Dollars in thousands). Marine Director's office 401 432 Engineering and Construction Director's office 920 995 Health and Safety Director's office 443 467 General Service Director's office 910 975 General and special engineering service 902 966 Total operations direction 3, 576 _ 3,835 This function comprises the offices of bureau heads responsible for directing the non-administrative operations of the Commission. Also included are varying needs for general and special engineering services, such as preliminary designs and estimates for development of capital programs and studies relating to use and alteration of existing facilities when functional changes are proposed. Financial Management 1980 1981 Estimate Estimate (Dollars in thousands) Total Financial Management 1 0,381 11, 561 The Financial Management activity covers the office and staff of the Chief Financial Officer. Estimates for the office and staff cover the cost of development of accounting, financial, and rate-making policies; the issuance of accounting procedures; the maintenance of the general books of account; the preparation of payrolls and maintenance of records relating thereto; the preparation of the overall financial statements and reports; establishment of systems of internal control and conduct of comprehensive internal audits; audit and settlement of all claims and demands by or against the Commission; collection, custody, and disbursement of funds; budget programming, administration, supervision, and coordination; and responsibility for manpower control and cost control. 22 90 ADMINISTRATIVE AND GENERAL EXPENSES Personnel -Administration 19S0 1981 Estimate Estimate Total personnel administration . 3,890 4,214 Included herein are costs of administering the personnel functions of the Panama Canal Commission, training and executive development programs conducted by the Personnel Bureau, and the operation of an industrial training school for apprentices and other employees who benefit from advanced technical training. Also included is administration of the incentive awards program. G ener a l Serv i ces 1980 1981 Estimate Estimate (Dollars in thousands) Administrative Services Division 3,265 3,262 Public services 105 122 Commission buildings 2,930 3,157 General Services 6,300 6,541 Included in this function are general services performed for the Panama Canal such as records management and forms control; messenger service; the preparation of various permits, authorizations and other documents, including issuance of travel and transportation orders for official travel; operation and maintenance of office buildings; photographic services; microfilming; certain duplicating work utilizing office-type duplicators, photocopying machines and related equipment; limited assistance to employee associations; and participation of the Panama Canal Information Office in public affairs observances and ceremonies. Employments Costs Employees 1 States travel ........ Apprentice training program ..... Employer's contribution to FEGLI Incentive "awards payments .o....< FICA Total employments costs 1980 1981 Estimate Estimate 1,522 1,523 1,495 1,826 470 510 150 150 130 3,,767 155 4,164 Included in this activity are certain employment costs of the Commission which are general in nature and not identifiable with other specific activities. The estimates include provision for employee states travel, certain other statutory costs, and payments of awards in the incentive awards program. This activity also covers a long-range training program designed to facilitate local recruitment for administrative, management, and craft positions. The program is administered and supervised by the peesent personnel administration staff. 23 91 ADMIN ISTRATIVE AND GENERAL EXPENSES Interest F aymcr.ts to the Urited States Treasury The interest rate for 19SG-51 is to be determined by the Secretary of th« Treasury based upon average market yields in the month preceding the beginninj of the fiscal year. The average interest-bearing investment , the estimated interest rate, and the interest are shown below: Average Interest-bearing Interest Investment Rate FY (In millions) 7 . (In thousands) 1980 $209.2 7.096 $1^,8^6 1981 206.1 7.096 14,622 Oth er Op eratin g Exp enses 1980 1981 I^llE.r.!L£ Estimate (Dollars in thousands") Death and disability (Federal Employees Compensation Act) 1,568 1,726 Federal Employees Health Benefit Act contribution ....... 5,147 5,395 Transportation of Employee's vehicles ................... 872 591 Recruitment and repatriation ............................ 4,443 3,C47 Alien cash relief payments to former employees and their widows 1,579 1,586 Severance pay 50 50 Annuitant welfare program 315 335 Joint personnel program 504 556 Extraordinary repairs to buildings and sites and official moves 636 690 Amortization of the cost for early retirement ........... 16,700 16,700 Panama Social Security payments ......................... 715 610 Excess facility expense 281 200 Mail directory services and . indicia .cos. ts ... 489 500 Community library 587 625 Probation and parole costs 197 176 Judicial system 430 423 A]l other funded costs, net 563 613 Reimbursement to DOD for education and hospital services. 12,388 13,129 Amortization of recoveries of accounts receivable -1,733 -1,733 Repatriation expense variation (nor.fund) .. .......... -1,076 -1,025 Depreciation and other nor. fund expense .................. 594 596 Gross operating expenses 45,249" £6,840 Interdivisional sales ar.d services ....................... 655 506 Other operating expenses, net .... .................. ""44, 594~ 46, 334 Revenue : 468 381 24 92 ADMINISTRATIVE AND GENERAL EXPENSE S Other C per-'tirg Ex penses This activity is charged with certain general expenses not assignable to other activities. Death and disability payments are shown here, as are the sion's share of premium costs for employee health benefits insurance. Alien cash relief estimates reflect the effect of Public Law 91-335 which provides widows benefits and for periodic cost of living adjustments similar to those given Civil Service retirees. The annuitant welfare program provides for home visits by doctors and nurses to aged former employees and their survivors. The service is provided by DOD doctors and nurses and their costs are reimbursed to the DOD by the Commission. The Joint Personnel Program, which requires the direct employment of personnel, includes the functions of a Civilian Personnel Policy Board and a Central Employment Office, which operates under direction of the Policy Board. Costs of this program are fully recovered from participating agencies. The Commission costs for amortization of the expense for the liberalized retirement provision of the Treaty implementing legislation are included here. The provision for social security payments to E resents payments on behalf of those employees covered under the Panamanian social security system. Reimbursement to Department of Defense represents the Commission's expense for hospital and education services provided to eligible Commission employees and dependents including scholarships to the local junior college. Also included are the expenses for postal services, a community library, the judicial system including probation and parole activities, and the costs for recruitment, repatriation and transportation of employee vehicles. The amortization of recovery of receivables represents the first of five annual credits for outstanding accounts previously written off as uncclleccable which are expected to be recovered from the Republic of Panama. 25 93 PANAMA CANAL CCT-^ISSTON CAPITAL OUTLAY, 1980-1981 SCHFDu'T." 07 CAPITAL PROJECTS (In thousands of dollars) Project Total 1. Transit projects 146,613 Individual projects within transit projects a. Canal improve- ments 28,826 b. Improvements, replace- ments and additions of floating equipment.. 59,9600 c. Replacements p.nd additions of other transit equipment . 28,006 c. Improvements and replace- ments of transit facilities 29,821 2. Utilities projects 18,024 Individual projects within utilities projects a. Improvements and replace- ments of utility systems ... ' 18,024 3. Quarters improvement projects 12,648 Individual projects within quarter improvement projects . Improvement and rehabilitation > of employee quarters Acttial Thru 1980 1979 Estimat e 66,312 19,979 15,066 5,000 26,562 4,664 14,335 5,172 10,349 5,143 15,493 883 1981 Estimate 17,876 6,400 7,394 1,359 2,723 1,648 Subsequent Years 42,446 2,360 21,340 7,140 11,606 15,493 11,099 883 749 1,648 800 12,648 11,099 749 800 26 94 PANAMA CANAL COMMISSION CAPITAL OUTLAY, 1930-1931 Actual Frojt-ct Thru 1930 1981 Subsequent Total 1979 Estimate Estimate Years General support projects 25,900 21,517 1,707 2,676 - Individual projects within general support projects a. Replace and add equipment - general support 15,513 13,502 799 1,212 - b. Improvement and rehabilitation of Commission buildirgs and facilities .. 5,286 4,197 145 944 c. Other miscellan- eous general supporting projects <, Total Capital Program 203,185 114,421 237318 23,000 42,446 Adjustment of Slippage -1 ,500 1,500 GRAND TOTAL FANAMA CANAL COMMISSION . . . . 20 3,185 114,421 21,818 23,000 43,946 27 95 PANAMA CA^AL COMMISSION CAPITAL PROGRAM (In thousands of dollars) 1931 Appropriation Require d Transit Projects 17,876 Utilities projects . 1,648 Quarter Improvement Projects „ 800 General Support Projects . . . 2,67 6 Total Panama Canal Commission 23,000 PANA MA CANAL COMMISSI ON C APITAL OUTLAY JUSTIFICATION INDEX Transit Projects 30 Utilities Projects 35 Quarter Improvement Projects 36 General Support Projects o 37 96 it Proiec_ts_ (all dollars in thousands) resent for Trans t Group A. Canal Improvements Project appropriation requirement . ..$ 6,400 1. Channel I mprovements ( $5,000)--This provides for a variety of capacity and safety related channel improvements needed to safely accommodate the future Canal traffic increase as well as a pronounced increase in average ship sire. Currently underway are efforts to ease and widen Name i and Bohio Curves and to deepen the Canal. improving Mamei Curve is necessary to provide the capability of two-way traffic for large ships at an acceptable level of safety. This effort involves casing the channel defi c ct_icn angles at the end of the curve and widening the channel to 800 feet. Easing and widening Bohio Curve will provide a greater degree of safety for transiting vessels. This curve is one of the most difficult in the Cinal to negotiate. While the project is still in the study stage, a portion of perhaps all cf De Lesseps Island will be removed with entrance and exists to the curve flared to permit a wider channel and flatter curve. Present traffic requires special scheduling to avoid large ships meeting at this curve. Deeping the Canal is a long-range capacity improvement program required to meet additional lockage water requirements resulting from increasing size and number of transiting ships. This effort involves digging approximately eight miles of Gaillard Cut, about 3 miles of Gamboa reach and some segments of Gatun Lake to a new navigational bottom of 37' PLD, It should be carried to completion within the next few years to minimize scheduling conflicts with transiting vessels, to permit additional hydropower generation, and to minimize total project cost. 2- Othe r mis c ellaneous can al im provements ($1,400) - This includes but is not limited to such canal improvements as canal bank lighting, erosion control, breakwater improvements, bank stability, and transit assist projects. Funds in 1981 are to be used to initiate construction of a ship tie-up station North of Pedro Miguel Locks, The station is to consist of a series of berthing structures parallel to the bank and equipped with bollards and protected by tendering. Access for line-handlers is provided by means of launches from the. linehandler launch station. Initially, the station will accommodate two vessels. Additional moorings for up to five vessels will be added in future years. For FY 1981, work consists of removing approximately 43,900 cubic yards of material from the east bank in Paraiso Reach, and constructing six (6) breasting stations and seven (7) mooring stations with lights at each station. The tie-up station provides a means of increasing lockage output at Pedro Miguel Locks by., making it possible to moor northbound vessels awaiting clearing of southbound clearcut transiting vessels; When a southbound clearcut enters Gaillard Cut, a lane must be made available for it at Pedro Miguel Locks to enter upon arrival. Thus, no northbound vessel can use that lane during the 75 to 140 minutes that elapse while the southbound clearest transits travel through Gaillard Cut. In the opposite lane at Pedro Miguel Locks, northbound lockages can be made only ar, long as there is room for tieing up of the locked vessels - two on the center approach wall and one in the lock chamber, By providing additional mooring, space, the tie-up station allows using the lane, which otherwise would remain idle, for locking up northbounds. The tie-up station will also serve to tie-up northbound ^vessels waiting for fog to clear and for temporarily mooring a vessel that may be disabled in Gaillard Cut. Project Through FY 1980 FY 1981 Subsequent Total £Y_I2Z2 Estim ate E stim ate Years Obligations Recurring $15,066 $5,000 $6,^00 $2,360 Expenditures Recurring 15,064 5,002 6,400 2,360 30 97 B. Improvements, Replacements and Addition of Floating Ecuip-.ent Project appropriation requirement .......................... $ 7,294 1. Replace and Add Tugboats ($4.QQQ ) - Procurement of one replacement tugboat is planned lor 19&1. Based on current forecasts of Canal traffic, a total fleet of eighteen tugboats will be required to meet transit demand in FY 1984. There are currently 15 tugboats available to service tr3nsiting vessels. It is planned to replace three of the fifteen tugboats and add three tugboats to the fleet. The three tugboats to be replaced are the "ARRAIJAN", built in 1936, and the "SAN PABLO" and the "CULEBRA", built in 1944. All three tugboats to be replaced are underpowered and lack sufficient bollard pull. They do not satisfactorily meet current or anticipated demand. Tugboat requirements relate directly to the number and size of vessels to be serviced. These requirements have been increasing at an accelerated pace. The table below shows actual transits and the latest forecast through 1981. All 7„ 80' Beam % 100' Beam Fiscal Year Oceangoing Transits and o v er and over % 80 Beam a n d over 35 5% 42 2 45 5 46 6 1978 (Actual) 35.0 35.57. 8.47. 1979 (Actual) 35.8 42.2 14.4 1980 (Estimate) 37.6". 45.5 16.0 1981 (Estimate) 38.4 46.6 16.4 ibove figures represent averages. On any given day, transit requirements will vary from the average, at times exceeding 50 percent for vessels of 80 foot beam and over and 25 percent for vessels of 100 foot beam and over. Tugboat requirements can be expressed as the number of tugboat jobs in any given year. Actual FY 1978 tugboat jobs and the forecast through 1981 is as follows: Fiscal Year No. of Tugboat Jobs 1978 (Actual) 42,992 1979 (Actual) 46,168 1980 (Estimate) 52,307 1981 (Estimate) 54,054 2. Re place Dump Scows ($1,650 ) - This is a multi-year program to replace ten (10) obsolete dump scows (1,000 yd) with seven (7) hinged, self dumping scows (1,500 yd) to fulfill the Dredging Division's routine and emergency dredging and shoal removal mission. The program calls for the acquisition of two scows during FY 1980; one during FY 1981, and the last four in subsequent years. The present fleet of dump scows are of the hopper door design manufactured between 1916 and 1941. Their use is becoming increasingly expensive, unsafe, and inefficient. The running maintenance and overhaul total cost between FY 1973 and FY 1979 has averaged about $400 a year. Experience has shown that during actual dipper dredging operations two out of ten scows are always out of service for repairs. Because of the antiquated winding machinery of these scows, it is necessary to operate a barge service station to supply compressed air for closing the hopper doors and maintaining the scows after each dumping operation. Upon completion of this project, the barge service station will be eliminated. 98 B • 'Z2121^HIl1Il\ "er laccmen t s a-d Add ! t ion of_n^jrrng_EQui£2£ill( Con c ' d ) 3. Replace Launches and Launc h Engines ($924) - This provides for the aur.ches and associated engines at the end of their economically : life and provides for additions to the fleet as Lhe projected needs evolve. We new operate a fleet of 57 inboard engine launches between 20 and 65 feet in length. The average economically maintainable life of these launches is 15 to 20 years. As a result it is necessary Lhat an average of 3 to 5 launches be replaced in order to maintain operating and maintenance costs at a minimum. FY 1981 funds are scheduled to replace a large work boat, a small dredge tender foi : - cs and Uv0 ^ s engines. 4. Other Miscella neous Imr^c^rement: 5_and_Re£l ace^nentj3_J:c_Fl £l£lil£. _ - This category provides funding for miscellaneous improvements or replacements to the Commission's diversified floating equipment fleet. These ements and replacements to the fleet are essential if the Commission is to provide safe and efficient service to transiting vessels and maintain the Car.al channel. In FY 1981 funding is required for installing pollution control devices on t proving the controls en the Dredge M1NDI, replacing dredge pipe and : es, and replacing buoys. The items planned arc outlined as follows: a. Install Poll ution Control Devices i.n T >;wboats (Marine Sanitation is a nonrecurring ice-m for the purchase and installation of pollution control devices (marine -antiation devices) on 12 tewboats operated il Support Division to assist transiting vessels through the Canal and at the Locks. Although tins Division will be operating a total of 15 or it ore towboats in the funding years, it is anticipated that 3 of them will be new tugs built to comply with pollution control requirements. The primary purpose of this project is to comply with provisions of the .:er Pollution Control Act (Section 1322) which is applicable to C waters and requires marine sanitation devices on all vessels. It is proposed to install a marine sanitation device capable of breaking down organic waste to meet effluent standards and enable it to be discharged into Canal waters. b - Improve Dredge MINDI Controls - This provides for the systematic adoption of "state-of-the-art" technological developments and improvements to the suction dredge MllsDI. The purpose of these follow on improvements and additions is to insure the realisation of the full potential of the repowered dredge and includes the incorporation of latest production measurement system, and a modular control console system to increase automation of the existing plant and improve productivity. c - i^pl. dCe Dredge Pipe and Appurtenances - This provides for replacement of suction dredge pontoon cylinders, shore pipe, and dredge pipe ball joints that the end of their useful lives. In highly abrasive dre< as Gaillard Cut and Atlantic Canal banks, the life of dredge pipe is one year. Other materials, such as sand, silt, ] life of from two to five years. d. Repla ce and Add Buoys - This provides for the replacement of buoys t hat md compi m r 1 he buoys buoy inventory to satisfy additional rements. (167. of our ex: >ys were obtained circa 1913). This program atain Clonal li ght< d buoy afe and expeditious through the Caral. 32 99 B. Improvements , Re placements and Add it ion o f Flra tir. g Equ ipment (Cont'd) d. P.eplacc ar.d Ad d "-joys (Cont'd) A new program will commence in FY 1981 to establish a spare buoy pool of 59 buoys. Additionally, starting in FY 1951, ar,d each year thereafter, buoys will be procured to systematically replace buoys reaching uneconomical repair life, and to provide replacements for lost and destroyed buoys as well as additional installations. Project Through FY 1980 tt 1981 Subsequent Tota l FY 1 979 Estim ate Estimate Years- Obligations Recurring $26,562 $ 4,664 $7,394 $21,340 Expenditures Recurring 19,061 12,165 7,394 21,340 C . Replacem ent and Addition of Other Tr ansit E quipment Project appropriation requirement ...„....„...........„.....„...$ 1,359 This recurring project provides for purchase and installation of miscellaneous small tools and equipment required for efficient operation of the Canal. Navigation service requirements total $278 for FY 1981 and include such items as replacement of MTCS Hardware/Software, MTCS Terminets, addition of a Large Board Schedule Display, MTCC tug power pack assemblies, and miscellaneous small equip- ment. Locks Division requirements for FY 1981 inciude such items as machinery electrical motors, concrete mixers, miter gate lifting device ar.d miscellaneous small equipment. Industrial Division requirements for FY 1981 include such items as a hull cleaning system, a portable air compressor, an oil furnace, and miscellaneous small equipment. Dredging Division requirements for FY 1981 include such items as work barges, and miscellaneous small tools and equipment. Maintenance Division requirements for FY 1981 include such items as a tractor, a front-end loader, and miscellaneous small tools and equipment. The remaining equipment procurements total $191 and occur in various other branches of the transit function. Project Through FY 1980 FY 1981 Subsequent To tal FY 197 9 Est imate F st imate Years Obligations Recurring $14,335 $ 5,172 $ 1,"359 $7,140 Expenditures Recurring 13,107 6,400 1,359 7^140 D. Improve ments, Replacements and Additions of Transit Facilities Project Appropriation Requirement .......... , ....... 77777777. .. .$ 2 723 1. Install Chamb er Lighting - A l l Locks ($ 1^260) - This will provide lighting within all locks chambers so that pilots may better see and judge the distance between the ship's hull and locks chamber wall during non-daylight hours. This will allow daylight -transits to begin earlier and clear later, and allow handling of wide beam ships in the lock chambers at nighttime. With an increasing number of larger vessels transiting the Canal restricted to daylight, this project has been developed to permit some of these ships to begin their fcransits before daybreak and clear the last locks an hour after sunset; The chamber Lighting makes these lockages possible and safe by lighting the chambers to provide visibility in the spacebbetween the ship and the locks wall. Ships with 100' to 106' beam are difficult to center in a chamber due to the small operating margin of from 5' to 2' between hull and chamber lock wall. The project will also allow safer handling of all night transits at these locks. 33 100 •-•ants '.rid V Edi tions o f T rans it F ac i 1 i t ies (Cent ' d) 1. Install Chamber Lighting - All Locks (Cont'd) It is proposed to install ch at the following locations during the years indicated: FY 1978-FY 1979 Miraflores east and west lanes FY 1981 Gatun east and west lares FY 1985 Pea; : ast and west lanes 2. Relocation Costs, Canal Support Op era tion s ($122 ) - This is a cne treaty related item to provide Tor the renovation of cor Lain facilities to house inistrativ t&onnel. Tn accordance with treaty requirements, a number of fa currently used by Company personnel will be : d to the Government of Panama in FY 1980. As a result, functions displ Lng with the Commission will be relocated to other existing hat will continue with the Commission. Relocation cc_-ts include such ' dropped ccili' lighting, partitions, and general modernisation and ton of space to accommodate the displaced functions and personnel. facility transfers at the end of the 2-1/2 years trai and after 5 years, will mean additional relocation effort. To accommodate all the relocations, it may be necessary to construct new facilities. 3. Miscellaneous^ Lt facilities ($l,3«4l) - This provides fundii rovements, rep] ns to transit facilities of the Panama Canal Commission offer support to the it function in order to ensure f vessels and effective support for all maintenance and improvement projects. Funding in FY 1.981 is for work that will improve the wipgwall knuckle tendering system at all locks, improve miscel'lam 1 the Mt. Hope drydeck floor. a. Improve Win II t 2S_§y£ t £!B_-_jUl _Tocks - This provides for the purchase and installation oj ! >ing Tendering at the Locks wing-wall knuckles.. The FY 1981 funding provides for the purchase and installation n< Subsequent years provide for procure istallation of s'ix (6) pneumatic tires for south Miraflores. The FY 1981 funding also includes the purchase of one additional ;le) pneunr ( j ng un j t Lo serve as a sprirc f or tne Atlantic Locks. The planned schedule for project completion Double Units est & northeast tall 2 st & nort i: 2 - northwest all 2 Sour' hase/lnstall 2+1 tall ;e the ■ the sels ,f force. transiting ubject to j id were torn [uid. When this happens, the lock lane is out of the 34 :tion is foil ows: Triple On i i Estimates $306 175 FY 1979 1979 2 265 630 400 490 1980 1981 1982 1983 101 D . im provements, Re p lacements and Addjcions^of Transit Facilities (Cont ' d) 3. Mis cellaneous Improvements to tr ansit facilities ($546) - (Cont'd) b Miscellaneous I m£rovernents_ to Facili ties, Transit - These improvements provide for construction of additions or replacements to transit facilities as necessary for the efficient operation of the Canal. For FY 1981 improvements are scheduled totaling $546 and cover such items as roof extensions at Pedro Miguel repair shop, expansion of emergency power supply at the Marine Traffic Control Center, improve various weather and river field camp facilities, and replace sawdust collection system in the maintenarce shop. c. Le vel Mt„ Hope Drydock Fl oor - This provides for leveling the Mt. Hope drydock~~floor, including recessing the bilge block hauling tracks below the floor level to permit mobile equipment to travel on the drydock floor,, The major economic benefit of this project will be to reduce operating costs. The savings will result from the decreased time required to stage a vessel due to the using tubular type rolling staging and forklifts to handle blocking and material in the drydock. Project Through FY 1980 FY 1981 Subsequent Total FY 197 9 Estimate Estim ate Years Obligations Recurring $10,394 $5,143 $2,723 $11,606 Expenditures Recurring 9,774 5,718 2,723 11,606 2 > Utilities Pr ojects (All dollars in thousands) Total appropriation requirement for utilities project group ........ $ _1 , 648 A. Impr ovements, Repla c ements an d Addition s t o Ut ilities Syste m Project appropriation requirement ........,...................$ 1,648 !• Water Syste m Improveme nts ($1,197) - This provides for improvements to the water purification plants, pump stations, distribution lines and the central chilled water system. The FY 1981 funds provide for replacement of pumps, electrical switchgear, and starting equipment installed in 1941 at Taraiso Raw Water Pump Station. The purpose of the project is to insure the dependability of uninterrupted potable water service to the Pacific Areas and to reduce annual maintenance costs at the pump station. The existing raw water pumping facility at Paraiso consists of four electric motor driven pumps, two of which are large capacity pumps driven by 600 horsepower voters and two cf which are smaller | driven by 350 horsepower motors. The motors are suitable for continued use and need not be replaced as a part of this project. The pumps and switchgear are 37 years old and have an assigned service life of 25 years. These units have seen almost continuous heavy usage in recent years to meet the water requirements. The equipment is badly worn and has reached the limits of its economical life. Estimated cost is $880. Also included is the replacement of the existing Chiller No. 3 presently installed at the Central Chilled Water Plant. The Plant provides refrigerated water to air condition 32 buildings in the Balboa - Balboa Heights - Ancon Areas. It is equipped with four chillers with a combined capacity of 3,600 tons. The 32 buildings have a nominal connected load of 3,800 tons. However, due to the diversity factor, the Plant is able to accommodate the actual imposed load with two chillers for all but the peak demand periods of a few hours a day, which is then accommodated by placing a third chiller 1 into operation; the fourth chiller is a standby unit to take care of break-downs and routine maintenance on the three units in service. Chiller No. 3 was placed in operation in 1963 and at its present rate of deterioration, will need to be replaced in FY 1981 at a cost of $245. The final item provides $72 for the replacement of obsolete valves and meters. Included are some 16' and larger size check valves in our potable water distribution system that date back to 1929 and some old meters procured in the 1930" s and 1940' s which are difficult to calibrate, which require considerable attention, for which factory parts are no longer available, and which are impractical to rebuild. 35 102 2 . Utilities Projec ts (All dollars In t housands) (Con t ' d) 2. I mprovements t o Electrical Pover an d C omm unication System ($451 ) - This provides for improvements to the power transmission and communications systems and substations of the Company's electric utility which will insure transmission versatility and dependability in addition to reducing equipment failure and damage due to overloads. The improvements to the distribution system will provide for replacement and modifications to serve unforseen demands and will correct poor voltage and overload conditions in the high and low voltage systems network. FY 1981 requirements include such items as primary oil switches and transformers, a microwave link, marine and housing radios, A/C syi-tems, telephone distribution cable, improvements to the microwave system, paging equipment, miscellaneous small equipment for Telephone Exchanges, Power Branch, Electronics Shop, and substations, Data Communications Equipment, and radio equipment for TI-1 system. Project Through FY 1980 FY 1981 Subsequent Total FY 19 79 PsiilBitS Estimate Years Obligations Recurring $15,493 $ 883 $1,648 Expenditures Recurring 13,911 2,465 1,648 3. Quarters Im pro vemen t P rojects (All dollars in thousands) Total appropriation requirements for quarters improvements project group ......... i .....................'....■........ D . ...... ..$ 800 Project appropriation requirement ............ 4 .V; ............ . 800 All improvements are to be made to housing retained by the Commission for .yee use. 1. Minor Improvements to Quarters ($300) - Improvements generally provide for the conversion of open areas into living space and include such items as patio and carport slab, roof and enclosures, security protection systems, basement enclosures and sidewalks. Under this program the agency pays a portion of the cost of each improvement with the employee paying the balance. Rental rates are then increased to offset the agency s cost and provide for future maintenance. Funding in FY 1981 provides tor improvements to approximately 80 apartment units. r 2 ; RG^c^^m E lo Z ee_Quar_ters_J$300) - This program provides for the normal TT d ^eriorating roofs of employees' quartet that ha.e ex e their nomal life expectancy and have become uneconomical to repair. Failure to replace roofs on a timely hae-fo ,-„o a .ii-„ ,•_ u^_i_. are frai Mngs Under the app an to last 15 to 20 years re^cd 1 : df "^ M SU - tS /S Higher mainte — -sts when extensive repairs required and frequently include water-soaked insulation, dry rot damaged ing members and warped and deteriorated interior ceilings. Under the provisions of the new Treaty, the Commission will retain use of llllttltl V 2 ' bUllding UnUS ° f ^^ A/B/C hOUSi ^' Aluminum roof ng is rasTll t °2 ^ *r°* 1,nately " y " rS "" miner31 8UrfaCe ™ fi «* *■ -Pectec r*r*J? a I Program provides for the replacement of built-up type roofs (gravel and marble fhip covered roofs) with aluminum metal roofing where there Is sufficient roof pitch and with mineral surface cap sheet built-up roofing where he roof pitch is insufficient. Wh cre there are attics, three inch bat-type one!inch S ri^rf-K 1 ° n i Will , be i nStalled ' «*«■ the " «■ no attics, an additional one-inch rigid fiberglass insulation will be installed. build-T^rW , 1981 Pr ° Vi( ! e / 0r thC re P lac <*^ of 30 built-up roofs on masonry buildings that have exceeded their life expectancy of 20 years. 36 103 3 . Quarters I mprovement P r ojects (Al l do l lars in thcusar.ds ) 3. Insulate Emp loyee Quarter s ($200 ) - This provides for insulating frame quarters by installing insulation ia attics and installing vinyl siding on those quarters with ship- lap siding. The primary purpose of the insulation program is to reduce electrical energy consumption. A secondary purpose is to lower maintenance and painting costs and retard deterioration of building exteriors. Funds for FY 1981 provide for installation of vinyl siding and insulation of attics for approximately 20 building units. Project Through FY 1980 FY 1981 : Subsequent _l2l5i_ F Y 197 9 Estimate Estimate Y ears Obligations Recurring $11,099 $ 749 $ 800 Expenditures Recurring 10,833 1,015 800 4. General Sup port Pr oject s (Al l dollars in thousands) Total appropriation requirements for general support project group .. $2,676 A. Replace a nd Add E quipment - Gener al_Sup£ort Project authorization requirement ............................. 1,212 1* Replace Mot or Ve h icl es ($765) - This program provides for the replacement of overaged motor vehicles. Failure to provide prompt replacement of overaged vehicles will inevitably lead to higher maintenance and operating cost and less reliability as the overaged vehicles continue in service. Types and estimated cost of vehicles proposed for purchase in FY 1981 are as follows: Estimated Ca pital Cost Item Quan tity Typ e Uni_t Total 1. 18 Sedans, Regular 7.0 126.0 2. 10 Sedans, Compact 6.5 65.0 3. :2 Minibuses, 24 passengers 22.0 44.0 4. 28 Trucks, light (pickup, carryall utility, etc.) 10.0 280.0 5. 5 Trucks, medium (Dump, stake, van, etc.) 20.0 100.0 6. 3 Trucks, heavy (tractor,, moving van, line construc- tion, etc.) 50,0 150.0 Totals 66 $ 765,0 Replacements will be essentially of the same type, size and capacity as those vehicles replaced except that compact sedans will replace some of the larger existing sedan delivery, utility and carryall type vehicles which are currently classified as non-passenger carrying vehicles. This will permit us to replace existing larger type vehicles with replacements that cost less to purchase, are cheaper and easier to maintain, provide a more varied use in pool service and that use less fuel thereby 1 improving fleet mileage. All vehicles to be replaced will exceed the age and/or mileage standards prescribed by the General Services Administration. At this time, approximately 43/i of the motor vehicle fleet meets the minimum replacement standards. The effect of entry-in- force of the new Panama Canal Treaty in October 1979 has been considered in determining the requirements of this recurring project. 37 104 4. Gene ral Support Projects (A l l dollars in thousands) (Cont ' d) 2. Re place and Add Equi p ment, Supporti ng Service s ($447 ) - This provides for the replacement and addition of small plant and equipment that has reached the end of its serviceable life and is no longer economical or practical to maintain. Motor Transportation Division requirements for FY 1981 include such items as a heavy duty lathe, an automatic lube oil dispenser, two electronic engine ignition analyzers, and other miscellaneous shop equipment. Water Transportation Division requirements for FY 1981 include such items as vital components and equipment required in the operation of a steamship. Grounds Maintenance requirements for FY 1981 include such items as three Rider mowers, two trail elevators, and fifteen Gravely movers. Storehouse requirements for FY 1981 include such items as forklift truck batteries, weighing scales and conveyors. Housing Management requirements for FY 1981 include miscellaneous small equipment. Administrative Services requirements for FY 1981 include such items as a whiteprint machine, a 105mm microfilm processor, two CCTV color cameras, and miscellaneous small equipment. Recreation Services requirements for FY 1981 provide for miscellaneous playground and recreational equipment. Personnel Administration and Financial Management requirements include such items as miscellaneous machines, equipment and office improvements needed to support the financial management functions of the Commission, and miscellaneous equipment required for employee training at The Industrial Trade School and The Employee Training Center. B. Impro ve ments and Rehabili tation of Co mm ission Buildings and Facilities Project authorization requirement ....... .......... ........ ....„$ 944 1„ Impro vem en ts to F acil itie s, Su pporting Ser vices ($699) - This provides for construction of additions or replacements to supporting services facilities necpssary for the efficient operation of the Canal, facilities that have been retained by the Commission under the terms of the Treaty. FY 1981 requirements include such items as: a. Reroof Building 5099, Cristobal ............... $143 b. Install Diesel Fuel Centrifuge Facility - Ancon Garage .......,*•.«...<,.»............... 122 c. Reroof Building 19, Balboa .................... 121 d. Install Diesel Engine Overhaul Facility ....... 87 e. Reroof Building 5067, Cristobal garage ........ 62 f. Reroof Building 0625-D, Ancon 58 g. Replace Recap Shop Boiler 55 h. Replace Spray Paint Booth - Ancon garage ...... 51 J 8 105 4 . G eneral Support Projects (All dollars i n .thousands) (Con t ' d) B. I mprovements a nd Rehabilitation of Co mmission B uilding s and .Facilities (Con t ' d) 2. Replacements an d Improvements to Commission Buildings (S245) - This provides for capital maintenance requirements for Commission structures and facilities under the administrative custody of the Buildings Management Branch. The work covers such miscellaneous repairs, replacements, additions, alterations and rehabilitations as are required to accommodate essential reeds of Commission units for day-to-day operations or because of changes in mission. Included is the installation and replacement of window or remote air conditioner units and various sized central air conditioning systems as required due to obsolescence of existing plant and the necessity to reduce the high level of electrical energy consumption. FY 1981 requirements include such items as air handlers for Building 101, floor coverings, fans for Building 8040 and, other miscellaneous small items. Project Through FY 1980 FY 1981 Subsequent Total_ FY 1979 Estimat e Estimate I^li Obligations Recurring $4,197 $ 145 $ 944 ' - Expenditures Recurring 4,039 303 944 C. O ther M is cell aneous General Support ing Projects Project authorization requirement .............................. $ 520 1. Advance E ngineer i ng, Plannin g and Des ign ($300) - This will provide an authorization to be used for engineering and planning work on projects included, or to be included, in the Panama Canal Commission capital program for subsequent fiscal years. The advance work allows detailed design effort on projects selected for accomplishment to be completed in advance which allows early advertisement and award of the projects. 2. Minor Capital Additions and Repla ce ments ($200) - This provides for minor items of capital which are unforeseen or are too small to warrant separate listings and justifications. The authorization makes available to the Administrator of the Commission the authority deemed essential if the operations of the enter- prise are to function without interruption due to need for individual items that cannot be anticipated. The Commission's Board of Directors is informed of the items approved by the Administrator at the meeting subsequent to the action. 3. Retirement and Removal Costs ($ 20) - This recurring item provides for the removal and/or retirement of Panama Canal Commission capital items from plant. Project Through FY 1980 FY 1981 Subsequent Total FY 1979 Estimate ^Il^te X££is Obligations Recurring $3,818 $ 763 $ 520 Expenditures Recurring 2,763 1,818 520 39 106 Mr. Hubbard. I have questions for Mr. Blumenfeld as to appoint- ments of officials. On page 2 of your statement you indicate that "the nomination of a Chief Engineer of the Commission will be an agenda item at an early Board meeting." Section 1104 of the Panama Canal Act of 1979 provides that the Deputy Administrator and Chief Engineer shall be appointed by the President, and perform such duties as may be prescribed by the President. This leads to two questions. First, why is the appointment of the Chief Engineer an item for consideration of the Board, whose duties do not include supervision of the President? Mr. Blumenfeld. You are quite right, Mr. Chairman. Obviously their duties do not include supervision of the President. However, the route by which a proposed nomination makes its way to the President so that he can name the incumbent of the job, is obvious- ly a matter for Executive discretion, and this is the route through which the nomination will come up the line to the President. Mr. Hubbard. Is the appointment of a Deputy Administrator also scheduled for consideration of the Board? Mr. Blumenfeld. No, sir, the Deputy Administrator has already been appointed by the President. Mr. Hubbard. Thank you. As to fiscal year 1982 authorization, why is the administration requesting an authorization for such sums as may be required for fiscal year 1982? I did not notice much comment in your statement in the matter. Also, your booklet on justifications of estimates did not seem to address fiscal year 1982, aside from a general reference on page 3. Mr. Blumenfeld. My understanding is that this is consistent with the practice adopted by the administration for all executive agencies, that it is an attempt to remain consistent with our under- standing of the requirement of the Budget Control and Impound- ment Act, and represents no particular departure for the budget request for this agency, but is a matter of standard practice on the part of the administration. Mr. Hubbard. As to the supervisory board, on the subject of that Board, I note that on page 21 of the justifications, for the supervi- sory board as established by section 1102 of the Panama Canal Act of 1979, it is referred to as the "Board of Directors." That is on page 21 of the justifications. Mr. Blumenfeld. Yes, sir. Mr. Hubbard. This terminology is obviously derived from the repealed legislation establishing a corporate agency to operate the canal, and the bill supported by the executive branch that would have continued the corporate form but that was not enacted by Congress. The difference between the supervisory board contem- plated by section 1102 and the Board of Directors is substantial. For one thing, the Board of Directors of the corporate agency was charged with management of the agency, but under the Panama Canal Act the agency is managed like any other noncor- porate agency under the direction of the President, in this case, the Secretary of Defense. My question now is whether the use of the term "Board of Directors" here was inadvertent, or whether it is 107 intended to convey the concept that the Board has the same func- tions as the board of directors of a corporation? Mr. Blumenfeld. It was neither inadvertent nor is it meant to convey that the Board has the same powers and responsibilities as the board of directors of a corporation. It is meant to conform, number one, with the language of the treaty, which in its Spanish version refers to "Junta Directiva," which is most accurately trans- lated by the term Board of Directors, and No. 2, while it makes absolutely no effort to try to arrogate unto the Commission powers of the corporate form which the Congress has seen fit in its wisdom to deny, it retains the title, Board of Directors, simply to indicate that there is no deliberate attempt to downgrade, by a change of term, membership on what the legislation refers to as the supervi- sory board. I think that we are fully in sync with the intent of Congress that the Board operate under the oversight of the Secretary of Defense, and at the same time fully in cognizance of the treaty, which requires growing Panamanian involvement over the years in mat- ters of policy that govern Commission operations. We are very up front about wanting to retain the name Board of Directors so as not to imply any derogation, and not to be out of sync with the Spanish version of the treaty, and its use of the term "Junta Directiva.' ' Mr. Hubbard. Thank you. Mr. Blumenfeld, as to regulatory procedures, when the regula- tions under which the Board will operate are developed, do you plan to give notice of their content and invite comments under the procedures established under the Administrative Procedures Act? Mr. Blumenfeld. If I may, Mr. Chairman, let me supply that for the record. I am not certain of that. Mr. Hubbard. All right, fine. [The following was received for the record:] Administrative Procedure Act Inasmuch as the Panama Canal Commission is an "agency" of the United States Government, it is subject to the agency rule making procedures of the Administra- tive Procedure Act. Those procedures apply unless the rule is within one of the excepted categories. These exceptions include matters relating to agency manage- ment, organization, procedure, or practice, or to a foreign affairs function of the United States. The salient provisions of the regulations under which the Board will operate include the composition of the Board, terms of office, conduct of meetings, formation of committees, administration, and the procedural details of fiscal management by the Board. We believe these regulations fall within the excepted categories. There- fore, the rule making provisions of the Administrative Procedure Act do not require notice and public comment regarding these proposed regulations. Mr. Hubbard. As to "capital surcharge" on page 5, your state- ment refers to "the depreciation allowance and capital surcharge included in the toll rate" as the source of funds for the capital program of $23 million. I have carefully searched the provisions of the Panama Canal Act and can find no provision whatever limiting appropriations or expenditures for capital items to the amount of depreciation accruals on referring to a capital surcharge. As I read the law, tolls have to be set at a rate sufficient to recover costs of operation and capital replacements and improve- ments but insofar as that act is concerned, there is no limit on the 108 amount that could be authorized and appropriated for capital proj- ects, as long as revenues cover all expenditures. Would you, Mr. Blumenfeld, care to elaborate on the reference in your statement to depreciation and a capital surcharge as the source of funds for the capital program? Mr. Blumenfeld. Yes, Mr. Chairman, I think the more appropri- ate term I should have used in the written statement was "capital factor," as opposed to a "capital surcharge." There is no such surcharge in the toll rate. There is an identifiable amount ear- marked for capital. By definition I think the amount of money available for capital improvement is limited to the amount of de- preciation and the amount earmarked for capital improvement assuming that operating costs ate up the rest of the dollars availa- ble within a given toll rate. Mr. Hubbard. Thank you. As to the employment system on page 3 of your statement, you say that, "a key to Panama's ultimate success is their involvement in the employee selection and classification process." Would you please elaborate on that matter, in light of the fact that article 10 of the treaty, clearly makes the United States the responsible employer of Commission personnel? Mr. Blumenfeld. Yes; the United States is obviously responsible. I think what I was trying to convey was that by the time the year 2000 comes we want the Panamanians to have been intimately involved in the personnel techniques that led to the selection of the best qualified work force possible, and that come the year 2000 when Panama takes over the operation, they ought to be inti- mately familiar with all aspects of the personnel system that gen- erates that kind of employee, and therefore we want, as we go through these next 20 years, to build them very closely into the personnel selection criteria and process. Mr. Hubbard. As to Alaskan oil, for my last question at this time, to you, Mr. Blumenfeld, why has the North Slope, Alaskan oil transited the canal in less than expected quantities in this fiscal year, and why is it expected that nearly 500,000 barrels per day of Alaskan oil will soon be transiting the canal? Mr. Blumenfeld. The 500,000 figure derived from conversations late spring, early summer of last year with the oil companies, and they continue to feel that we will be up to that half a million barrel level. The specific reasons as to why it has not materialized so far include a shutdown of several weeks duration that I believe happened on the pipeline. Mr. Hubbard. I am sorry, shutdown on what? Mr. Blumenfeld. Shutdown on the pipeline, from the oil fields to the port of Valdez, and perhaps I can ask Mr. McAuliffe if he is aware of any specific additional reasons for the delay in the ap- pearance of this traffic. [Mr. Blumenfeld conferring with Mr. McAuliffe.] Mr. Blumenfeld. I am advised that last November and Decem- ber there was a diversion of oil which would normally have come through the canal to California to build up reserves and therefore keep it on the west coast as opposed to moving through the canal. Mr. Hubbard. Thank you for your helpful answers, Mr. Blumen- feld. 109 As to questions now for Mr. Bauman. If it pleases the chairman, I have some questions. Mr. Hubbard. I apologize. I was going to go ahead with my questions to Mr. McAuliffe, but it would be better to yield at this point to our distinguished ranking minority member, Congressman Bauman. Mr. Bauman. Thank you, Mr. Chairman. I want to welcome both the Secretary and the Administrator and their staffs here today. As the Secretary may know, Congressman Bonior and I spent 2 days last week in Panama meeting with a great many different people involved in the canal's operation, and I am not going to burden you or the administrator with questions that have arisen there, because some of them I think we can answer ourselves. But there are certain major ones that come to mind that you might be able to address, if not today, then in the future. One has already been touched upon by the chairman of this subcommittee, and that has to do with the character of the supervisory board. I do not think it is a major problem in my own mind as to the board's characterization as a board of directors, or supervisory board. The implementing legislation uses one phrase and, as you indicated, the Spanish version indicates the other. But the powers are defined in the legislation, and I do not think they are inconsist- ent with the treaty. That raises this question: What precisely does the administration see, since there is a political decision to be made here, that the duties of this Board will comprise, and how active will be the participation by the American members? Mr. Blumenfeld. The participation by the American members will be just as active as we can make it, Mr. Bauman. We believe that an active and a well informed Board is going to be very necessary to making the kinds of recommendations to the execu- tive branch, and to the Congress, that represent the best interests of the canal operation. I would expect that both the United States and Panamanian members will be very much involved in issues such as the develop- ment of the Panama Canal employment system, the identification of priorities between competing capital projects, and discussions of virtually all of the issues that can be characterized as policy issues for the Commission as it makes its recommendations to the Presi- dent or to the Congress. Mr. Bauman. Do I understand that inherent in your answer is support for the concept embodied in H.R. Ill, that allows the President ultimately, but the Secretary of Defense, the Secretary of the Army, and through the chain, to make decisions, even if it comes to the point of having to direct five American members to vote a certain way on an issue? Mr. Blumenfeld. Certainly. Mr. Bauman. Do you think from your discussions on this matter, that this may present diplomatic difficulties with Panama? Mr. Blumenfeld. It may conceivably do so. I think these could be worked out. I think obviously the more that this group of nine individuals can function with, for example, a nine to zero vote on a given issue, the better. I would hope there would be very few occasions where there would have to be a directed vote of the 110 American delegation which would result in a mandated 5 to 4 vote on the issue, and certainly very few occasions where the five U.S. votes were not independently and individually arrived at, but had to be directed. I would hope those would be very few occasions, but obviously, as you say, we are prepared to exercise the powers that the legislation gives us when it comes to that. Mr. Bauman. Well, both you and Secretary Bushnell have more than enough to do without the added burdens of sitting on the Board of Directors of the Panama Canal Supervisory Board, or whatever we called it, and my concern is that the American side of this arrangement is not going to be upheld to the satisfaction of the Panamanians. In my discussions last week with Panamanian officials, it was clear to me that they foresee this Board as an active management group with the understanding that administrative decisions might be overruled, or come to a vote. Nevertheless, that would require on the American side active participation, sometimes at length, perhaps over many days, and the history of the old company was that the Directors would meet only occasionally to ratify decisions of the Governor and the President of the company. I do not think that is going to be adequate in the future, and I am very much concerned that you and Secretary Bushnell, particu- larly, have something available to you in the way of a constant flow of information on canal operation, and also that you be availa- ble to make these decisions. It may prove that after some point in the future we would decide that we need a more active Board, and we have thus far avoided this question of full-time employment as a supervisor, but I just make that suggestion to you because I think the Panamanian hopes are in a far more active and working Board. Mr. Blumenfeld. I think I would share those hopes with respect to an active Board. Let me say that I have spoken with each of the U.S. Board member designees, and indicated the kind of time that I felt would be required to be well informed on the issues for both Board meetings and meetings of committees of the Board. Each of the private sector members has indicated to me that he would find it possible to put in the kind of time that I felt was going to be required. As for myself, I can guarantee that whatever time is required I will put it in, and I will find a way to do so, and I think Mr. Bushnell would share that view. Mr. Bauman. I do not want to prolong these questions, but may I also communicate to you a deep concern that I and Mr. Bonior have? One of the central questions that arose in our discussions last week is the role of the Department of Defense in providing the services, assistance, maintenance, education, health, and other ac- tivities that were removed from the Canal Company and placed in the hands of the Department of Defense. I will not belabor the point this morning, but it is clear to me that there is not only an unwillingness in some quarters in the Department of Defense to cooperate, but almost a resentment that they have been asked to do these things, viewing it to some degree as an imposition on a military organization, of what were formally corporate matters of Ill the Canal Commission. That has resulted in a high degree of dissat- isfaction among Commission employees, mainly directed at the Department of Defense and the Army, because of the lack of serv- ices or difficulties. Now, this is obviously a transition period, and it is going to take a while to iron out these lumps. But much of this goes to the willingness of Canal Commission personnel to stay on beyond the transition period of 30 months, and 5 years, and so on, and thus to efficiency of the canal. But at the moment, it seems to me that DOD is a source of some problem. Perhaps you could look into that, and I would make one last suggestion. One of the major complaints we had was with the chain of command of the military, and the necessity of having a more unified and central unit of command in Panama of all the military services to answer the employees' questions. As I understand it, when it comes to a commissary question, it goes to Houston; if it is a health matter it goes somewhere else, and so on. As recently as October 1, all of these questions were answered in Panama, or in the zone, at that time by a unitary government. I understand that General Nutting is theoretically the one responsible for all of this as Commander in Chief of South Com, but the questions are getting referred up the line to military officials in the States. The net result of this is a lot of confusion and dissatisfaction. Maybe that is some way that you could address this through the various channels in the Department of Defense, because I think if it goes on much longer, it is going to present a problem of effi- ciency and morale. Thank you, Mr. Chairman. Mr. Hubbard. Now for questions for Administrator McAuliffe. H.R. 6515 and H.R. 6516 both include, in section 2, a list of objects for which appropriations are authorized. Using the list of 10 items in H.R. 6515, would you please explain, Mr. McAuliffe, what each item represents, and how much money is being requested for each, and if you could, at the same time, what was spent for each item under the canal agencies in 1979, and how much is estimated for each in 1980? Do you want me to repeat that? Mr. McAuliffe. No; I have it, sir. And I may have to refer to some notes here in order to fulfill the answer. The first item under section 2 of H.R. 6515 refers to the hiring of passenger motor vehicles and aircraft. It appears that I shall not at the moment be able to give you a specific figure of the amounts requested for fiscal 1981 as well as the amount budgeted for fiscal 1980, and expended in fiscal 1979 for each of these because they do tend to be included in other major portions of the budget. I propose, Mr. Chairman, to submit those numbers for the record, and to speak to the substance of the items at this moment. Mr. Hubbard. That will be fine. [The following was received for the record:] Objects of Appropriation Authorizations 1(a) Hire passenger motor vehicles: 112 The principal use of passenger motor vehicle hire is for the movement of vessel line handlers to and from various landing points on the Canal. Costs of this item are presented below. 1979 actual $257,000 1980 estimate ' 454,000 1981 estimate 495,000 1 Reflects a sharp increase in the cost of fuel and application of Panama Labor Code. 1(b) Hire of aircraft: Aircraft are utilized to transport maintenance personnel to remote sites for the installation, repair and inspection of hydrographic equipment, navigational aids and other facilities. Other uses include aerial inspections and transportation in connec- tion with bank surveillance, aquatic weed control emergencies and other purposes. Helicopters provide an efficient means of transport for these purposes. Military agencies provide aircraft, when not needed for their own purposes, on a reimburs- able basis. Commercial sources for this service are also available in Panama. An- other important use of hired aircraft is the transportation of employees on char- tered flights to and from the United States on home leave. The Canal organization has utilized charter flights under contracts with a U.S. airline during peak travel months at an estimated savings of $250 thousand per year. Costs for these activities are estimated as follows: AIRCRAFT HIRE COST Chartered aircraft Round trips Costs requirement operational Total cost 1979 actual 25 $440,000 $48,000 $488,000 1980 estimate 21 554,000 50,000 604,000 1981 estimate 21 721,000 55,000 776,000 1(c) Purchase of not to exceed 31 passenger motor vehicles of which 19 are for replacement only. The planned purchases in 1981 provide for 28 sedans, two minibuses and one ambulance. Nineteen of these will replace existing passenger carrying vehicles and 12 will be used to replace sedan delivery, utility and carry-all type vehicles which are non-passenger carrying vehicles. This conversion of vehicle type will permit us to replace larger type vehicles with replacements that cost less to purchase, are cheaper and easier to maintain and operate. PASSENGER MOTOR VEHICLES COST Number of passenge carrying vehicles P^W Costs carrying WRIS 1979 actual 1 48 $589,000 1980 estimate 48 328,000 1981 estimate 31 260,000 1 The 1979 vehicle procurement included a number of special equipment vehicles such as large buses, police type sedans and ambulances. 2. Uniforms or allowances therefor, as authorized by section 5901 and 5902 of title 5, United States Code. In 1981 uniforms will be provided for police, fire guards, certain transit employ- ees, and other limited categories of employees. Actual and estimated amounts are as follows: 1979 actual $223,000 1980 estimate 138,000 1981 estimate 136,000 3. Official reception and representation expenses. The funds requested for Official Reception and Representation Expense are used on official functions and activities involving Canal customers, orientation groups, 113 international vistors, diplomatic, labor, religious, and philanthropic groups, Pana- manian business groups, and representatives of the Government of Panama in- volved directly or indirectly with the operation of the Panama Canal. This repre- sents the continuation of an activity performed by the Panama Canal Company. Actual and estimated amounts are as follows: 1979 actual $34,090 1980 estimate 25,000 1981 estimate 25,000 4. Operation of guide service. The Panama Canal Guide Service has the responsibility of providing information about the Canal and the Canal Commission to orient the public concerning the history and the operation of the waterway. Particular emphasis is given to the role of the United States in the operation of the Canal in its new relationship with the Republic of Panama. The multi-lingual staff of seven guides operates the visitors' pavilion at Miraflores Locks seven days a week, handling more than 300,000 visitors annually. Visitors include cruise ship passengers, student groups, tourists, officials of the U.S. and many other countries. Special tours are organized for news media representatives, and professional groups, and dignitaries. Briefings in Spanish and English are provided, utilizing movies, videotapes, slide presentations and, on a limited basis, a launch which provides a partial transit of the Canal. The actual and estimated amounts for guide service expense are as follows: GUIDE SERVICE COST Guide service Launch and reception Total service 1979 $142,000 $114,000 $256,000 1980 171,000 230,000 401,000 1981 188,000 152,000 340,000 5. Residence for the Administrator. The residence for the Administrator was formerly used by the Governor/Presi- dent of the former Panama Canal agencies. Costs provide for the operational and maintenance requirements for the resi- dence, its furnishings and facilities in order to service the interrelated functions of official duties and representational activities. 1979 actual $49,000 1980 estimate 64,000 1981 estimate 60,000 The fiscal year 1980 costs have risen for the following reasons: house was repaint- ed, both inside and out for the first complete repainting in ten years, extensive termite damage required repair, and china and silver flatware required replacing, because previous sets engraved with the Canal Zone seal were retired for historical purposes. What are the elements of cost for the residence of the Administrator? The following categories of costs are charged to the residence of the Administra- tor. The estimates for 1981 are provided. * 1981 estimate Maintenance of structure and equipment $34,000 Power and telephone service 13,000 Supplies and minor equipment 6,000 Custodial and other service 7,000 Total 60,000 6. Contingencies of the Administrator. This is used to provide modest assistance for employee organizations in develop- ment, maintenance, and improvement of their facilities for community and recre- ational activities. Grants are based on essentiality of need and benefit, terms of quality of life, to Canal employees and their dependents. This represents continu- ation of an activity performed by the Panama Canal Company. 114 1979 actual $10,000 1980 estimate 25,000 1981 estimate 25,000 7. Procurement of expert and consultant services as provided by section 3109 of title 5, United States Code. Expert and consultant services were used in 1979 and will continue to be used in 1980 and 1981. Examples of the categories of services are as follows: (1) traffic, tolls and economic studies, vessel accidents and other litigation claims, (2) tugboat pro- curements, (3) major system development for financial accounting and control proce- dures, and (4) canal improvement studies as required. Costs for these contracts, including information system development charged to ADP cost accounts in conformance with guidance received from the Office of Man- agement and Budget and the General Accounting Office, are as follows: 1979 actual $472,000 1980 estimate 649,000 1981 estimate 650,000 Provide information on the allocation of amounts provided for consultants and experts between the various categories of services. K b 1981 estimate Professional services in connection with major computer systems devel- opment and revisions to existing accounting and reporting systems; financial accounting and controls procedures (including $222,000 for information systems costed to ADP accounts) $343,000 Economic studies for special traffic forecasts and economic analyses and management studies; special counseling as required in connec- tion with toll studies; vessel accidents, Equal Employment Opportuni- ty program review and Labor Relations Evaluation and training 240,000 Miscellaneous studies including Canal improvements and others 67,000 Total 650,000 8. Maintenance and alteration of facilities of other United States Government agencies in the Republic of Panama used by the Panama Canal Commission. This provision has been included in the bill to allow for the efficient utilization of U.S. Government facilities in the Republic of Panama. Expenditures under the authority have not been significant and are not specifically budgeted, but rather are included as a portion of the general maintenance program. In the past the expendi- tures have included maintenance of military owned school buildings, a cold storage plant, and certain dock facilities. The 1980 and 1981 programs include utilization and maintenance by the Commission of certain military owned communication facilities. 9. Maintenance and alternation of facilities of the Government of Panama, used by the Commission, of which the United States retains use pursuant to the Panama Canal Treaty of 1977 and related agreements. The principal Panama-owned facilities that we anticipate to be maintained and altered with Commission funds are the housing units which have been retained by the Commission for use of its employees and other eligible personnel. Housing maintenance costs are programmed at $3,514,000 in 1980 and $3,858,000 in 1981. Capital obligations for quarters improvement projects are estimated at $749,000 and $800,000 for each of the years, respectively. While no other costs are specifically programmed, there may be some expenditures on other facilities retained for use by the Commission. Provide the numbers of quarters in inventory, the numbers of quarters slated for improvements in this budget and the numbers of U.S. citizen employees. There are currently 3,150 family quarters and 98 bachelor apartments in the inventory of the Panama Canal Commission. The 1981 capital program provides for improvements to the following numbers of quarters buildings: N , Improvements and rehabilitation of employees quarters — number of apartments 80 Reroof employee quarters — number of buildings (includes multifamily units) 30 Insulate employee quarters — number of buildings (includes multifamily units) 20 At the present time the Commission has 2,184 U.S. citizen employees. In addition to providing housing to United States citizen employees, the Commission provides 115 housing to certain non-U. S. citizen employees, such as policemen and other persons, principally former employees that were transferred with activities such as hospitals and schools to other U.S. Government agencies as a result of the treaty. 10. Payment of liabilities of the Panama Canal Company outstanding as of Sep- tember 30, 1979. It is anticipated that all of the Panama Canal Company obligations will be recorded in fiscal year 1980. Amounts included in 1980 for this purpose is $74.3 million, including both operations and capital. However, it is possible that in the process of settlement, additional amounts and claims applicable to the Panama Canal Company will be presented during 1981. What are the liabilities of the Panama Canal Company and the Canal Zone Government? The categories of liabilities provided for in the 1980 program are as follows: CATEGORIES OF LIABILITIES PROVIDED FOR THE 1980 PROGRAM [In thousands of dollars] P g a 7 Canal Zone T , oSny *»«"""" T ° ta Accounts payable 7,663 132 7,795 Accrued salaries 7,455 1,285 8,740 Severance pay due terminated employees 1,246 1,246 Annual leave due terminated employees 5,000 490 5,490 Claims for vessel damage 27,741 27,741 Other accrued liabilities 6,799 6,799 Total 55,904 1,907 57,811 Undelivered orders for operation 5,555 589 6,144 Undelivered orders for capital 12,658 649 13,307 Total 74,117 3,145 77,262 Note.— Answers provided on 36K should have read $74.1 not $74.3. Mr. McAuliffe. Concerning the first item, that is the hiring of motor vehicles and aircraft. These are now hired in the transit activities in the form of contract bus service for the transportation of ship's linehandler crews to and from the various loading points in the canal. We have found this to be an efficient manner of handling this requirement. The aircraft for operational purposes is, in effect, the renting of helicopters from the military forces, U.S. military forces in the Panama Canal area, in order to transport maintenance personnel to remote navigational aids, our specialists to the hydrographic stations, which are required for the constant monitoring of water levels. We normally are able to use these aircraft on request, and on arrangements with the U.S. Southern Command. Concerning the second item, uniforms and allowances. We pur- chase uniforms for police, firefighting personnel, and for security guard personnel. These items will continue through fiscal year 1981. Concerning item No. 3 official reception and representation ex- penses, these are utilized for the support of activities related to the visits made by representatives of the shipping industry, who come through the canal area, certain foreign dignitaries, and also for the promotion of employee morale and community activities. Operation of guide services. This is an important and longstand- ing practice, which we have picked up in the Commission, and has been in practice in the Panama Canal Company for quite a number 116 of years, to provide a means of explaining the operation of the canal to the general public and to visitors to the canal area, as well as, employees and their families. Concerning item No. 5, the residence of the Administrator, this is an item which we have continued in our budget from the past. I believe this particular committee knows it as the residence of the former Governor. It is in effect the formal buildings and grounds type of maintenance activity. Concerning the next item, No. 6, contingencies of the Adminis- trator, this is a small fund, which was of interest to this committee in the past, and is a carryover from the previous Panama Canal Company. It is a small fund which supports a number of incidental expenditures related to community, social, recreational and civic activities in support of our employees. Then with respect to No. 7, the procurement of experts and consultant services, this is a very necessary item in the budget, in that we do need and have programed for the use of consultants, in order to assist us in some important areas where our own expertise requires augmentation. Frankly, I have used this very sparingly, this particular year, 1980, although I see some fairly significant requirements immedi- ately ahead. But, consultants have been used in various areas, from assistance in developing the specifications for the procurement of a tugboat, to making tolls sensitivity evaluations. There are a number of marine and engineering projects on which the use of a well qualified and current consultant can reap large benefits for us. With respect to No. 8, maintenance and alteration of facilities of other U.S. Government agencies in Panama used by the Panama Canal Commission, this is for funding which permits us to use facilities that otherwise would not be fully utilized. In the past we have had joint occupancy of buildings where we maintained and improved our portion of the buildings or grounds, or both. For example, in the past we utilized a dock near Balboa, which really was the property of the Military Command, for dis- patching of pilots and others to vessels awaiting transit. That is just an illustration of the types of items covered under this section. Concerning item No. 9, the maintenance and alteration of facili- ties of the Government of Panama, used by the Commission, of which the United States retains use. This is similarly an attempt to make maximum use of available buildings and facilities, and I would say that, in this instance, our employee housing is the principal example. Since in accordance with the treaty, our housing areas now technically belong to Panama, even though we are assured, by the treaty, the full use of the buildings and facilities thereon until the year 2000. Item No. 10, the last of the items, is the payment of liabilities to the Panama Canal Company outstanding as of September 30 of last year. This provides authorization to pay any liabilities, including contracts and other items payable, from the previous Canal Com- pany, which were not settled from the 1980 appropriation. We can provide information on these for the committee. They are both in the operational and in the capital programs. 117 I believe that, sir, covers the 10 items. Mr. Hubbard. Thank you very much, Administrator McAuliffe. At this point I will temporarily cease any questioning, and ask Congressman Bauman to ask his questions of you. Mr. Bauman. Mr. Chairman, I would first of all like to thank the Administrator for his courtesy last week in the assistance that he gave to both Mr. Bonior and myself. I think we had a very produc- tive 2 days there, and much of it, if not all of it, is attributable to the cooperation of you and your staff. I only have one general question for you at this point. That goes to the necessity of meeting certain needs, financially, as they come up, as opposed to sticking to a set budget requested or submitted to the Congress. In my discussions with any number of the Commission employees last week, there was a continual attribution to the line item Con- gressional annual budget authorization and appropriation system as the reason for their problems. They seemed to have gotten the impression from the management of the Commission that because constraints were placed by the Congress on the financial manage- ment of the Commission, certain things could not be done, because they had not been budgeted. One of the major cases, as I think you know, is maintenance of housing for Commission employees. I personally would just say to you, I would not want the Commission Administrator and officials to feel that they are in any way put in a strait jacket because of this legislation. We have not really defined the emergency fund's total role, but j the implications exist in the language of the law that it could be used in a broad manner, if in fact these kinds of financial problems arise, and they impair the efficiency of the operation of the canal. If indeed you have 170 some housing units empty and unable to be occupied because of maintenance problems, and employees are griping and angry about that, it seems to me that maybe you would want to come back to us at some point and ask for a definition in future legislation of what that allows you to do. But I repeatedly heard that complaint made, and the reason given was, "y° u folks in Congress have tied our hands. It is not like the old company." My suggestion, even though coming from this quarter, is to urge a more liberal interpretation. On the other hand, I think it may be necessary to meet your problems as they arise during the year, consistent with the overall figures that you request. I do not know whether you want to respond to that, but that was one problem that I saw. Mr. McAuliffe. Mr. Bauman, I welcome your clarifying com- ment on the use of the authorized and allocated funds. Speaking for myself, as the Administrator of the Panama Canal Commission, I have not felt limited or constrained in the use of these funds insofar as they pertain to the operation, the maintenance of the Canal, and of all the related supporting activities. I had understood from the previous occasion in which I met before this committee, that your intention, as is my intention, is to run the canal effectively, and I certainly feel that mission and objective. 118 I wish to state in a general clarification of the situation that you have found, Mr. Bauman, and which Mr. Bonior also noted, that I am very mindful of the constraint upon me to balance our expendi- tures against revenues, estimated at this time of the year, and actual as we close out the fiscal year. Since we have been running somewhat below our projections of revenues, for the first 3 or 4 months of this year, I have attempted to slow down, shall we say, our expenditures, through the curtail- ment of overtime and the hiring of temporary personnel. Although I have made it quite clear to the directors of operations that my constraint is not at all to be applied to the canal operation, but to perhaps some of the administrative areas, where stretching things out a bit would not impact on the operation. I found in the case of housing, after hearing some of the same complaints you did, a month or so ago, that our maintenance activity simply could not keep up with the backlog, and so we made a special authorization of the expenditure of overtime funds in order to handle that. I am quite sensitive to the needs of our employees, their families, which relate to the quality of life, and impact the morale of the workforce, and therefore, at least indi- rectly, the operating of the canal. I have taken some other steps to try to make some improvements in the quality of life area, within our resources, of course, and with a measured look at the balancing of revenues and expenditures in order to keep all things in balance. So getting back to my initial point, Mr. Bauman, I really appreci- ate your comment about this very much. It is very pertinent at this time, and I shall certainly be guided by it. Mr. Blumenfeld. If I may add one thing, too, Mr. Bauman. I appreciate your remarks. There is an opportunity before the committee in this authorization bill to afford some of the flexibil- ity, within guidelines, that you are advocating. Section 2(dXD of H.R. 6516, unlike H.R. 6515, would permit the Administrator, with Board approval, to undertake certain capital projects which had not been envisioned at the time of budget submission a year and a half earlier, and would permit him to undertake them, so long as they did not exceed the dollars authorized for a given category of capital projects, or indeed the total capital budget itself. That kind of flexibility which we are urging be given on the basis of notice and weight to the committee would be, I think, very helpful in the operation. It would be helpful particularly, I think, in a matter having to do with improving housing, such as you asked about where you may have some capital expenses involved, and thus some capital projects that you might want to start, fi- nancing those projects by letting others slip for awhile. Mr. Bauman. Do I understand the testimony this morning of both of you that the Administration has abandoned its position that the emergency fund must be funded by a special appropriation from the U.S. Treasury? You now concede that it will come out of the tolls of the canal, is that correct? Mr. Blumenfeld. The emergency fund will come out of an amount in the Panama Canal fund available for appropriation which is the amount certified for the budget year plus unappro- priated balances from prior years. 119 Mr. Bauman. It seems to me it was designed for flexible use. But that is something that we will have to address later. The only other suggestion I have is that you, Mr. McAuliffe, give the committee some advice in the future on the differential wage rates. If I am not mistaken, some of that is because of treaty provisions and the implementing legislation, but there seems to be a real problem existing for the Panamanian employees because of the three different wage rates that were described to us in our informal discussion. How that can be resolved, I am not sure, but it seems to be a source of real morale problems at this point. Maybe you could give us some advice on how to handle this problem. Even though it is not necessarily within our committee's jurisdiction, we could go to the appropriate House committees to remedy the matter. Thank you, Mr. Chairman. Mr. Hubbard. Thank you. Congressman Bauman has to go to another committee meeting at this time. I appreciate your being here. I appreciate your efforts last week in Panama, Congressman Bauman. Back to the questioning of Administrator McAuliffe. At this point I will be asking some questions referring to pages 12 through 25 of the Commission's justifications for the authoriza- tion request. First, as to special studies on page 12 of the justification, please explain what is included in the item, "Special Canal Studies, Traf- fic and Capacity Studies." Again, what is included in the item, "Special Canal Studies, Traffic and Capacity Studies"? Mr. McAuliffe. The "Special Canal Studies" includes items such as bank stabilization studies. In a sense, it goes beyond the actual surveillance activities which are programed, and have been pro- gramed for a number of years in the Panama Canal. There is a continuing sensitivity of all of us who have a responsibility for the canal to the instability of the embankment areas, and some of the other land areas in the vicinity of the canal. These are a source of continuing concern to us, and really a requirement where the continued expenditure of funds can keep us well on top of the situation. With respect to the canal, the traffic and canal capacity, there is a need for the expenditure of funds in order to take note of the trend of shipping, the types of ships used in the canal, evaluate the impact of this on the canal itself, and the canal operation. Accord- ingly, it is from studies such as these which point out the needs for some of the widening, deepening projects in the channel, the rea- lining of some of the curves, these sort of things. They also point up the need, which you can see reflected in the capital program, for certain types of floating equipment to handle the types of traffic that we are experiencing. Mr. Hubbard. Thank you. Now, on page 15, as to claims, please explain the item, "Accrual for casualty losses and damages to vessels,' for which authorization of $6,200,000 is requested. What is the relationship of this item to actual expenditures for vessel damage in 1979, and thus far in 1980? That is on page 15. 120 Mr. McAuliffe. These are amounts estimated in this case, 1980 and 1981, for marine accidents, and the resultant claims against our organization for the disablement or injury of personnel, and for the damage of vessels, when in the case of investigation and court action, the Commission is found liable. This area takes into account the stipulations in the implementing legislation that place us most liable for accidents occurring within the locks area, and with a very relatively small dollar limitation on accidents occurring out- side the locks area, in the channel waters. Mr. Hubbard. Thank you. Please furnish for the record, if you will, a complete list of all pending vessel accident claims, showing the date of the accident, maximum amount of claim, estimated amount of probable maxi- mum liability, and whether the vessel was in the locks, in the meaning of section 1411 of Public Law 96-70, at the time of the alleged damage. If you would want to do that later. Mr. McAuliffe. Yes, sir, and we will be prepared to do that. That would include accidents occurring thus far in fiscal year 1980, plus those which occurred under the previous Panama Canal Com- pany, and are still outstanding? Mr. Hubbard. Yes. Again, the question, or the request, was for you to please furnish for the record later, a complete list of all pending vessel accident claims, showing the date of the accident, maximum amount of claim, estimated amount of probable and maximum liability, and whether the vessel was in the locks, within the meaning of section 1411 of Public Law 96-70, at the time of the alleged damage, thus far this year, and for prior years. Mr. McAuliffe, I shall be pleased to do so. [The following was received for the record:] Marine Accidents in Panama Canal The following tabulation summarizes the marine accidents of the Panama Canal Company prior to October 1, 1979, and the accidents occurring after October 1, 1979 for the Panama Canal Commission. MARINE ACCIDENTS IN PANAMA CANAL [Dollars in millions] Estimate of liability Prior to Oct. 1, 1979: 1. In locks 25 $3.5 $4.4 2. Outside locks a. Under $120,000 59 2.3 5.3 b. Over $120,000 43 21.9 31.7 After Oct. 1, 1979: 1. In locks 9 1.1 2. Outside locks a. Under $120,000 1 0.1 b. Over $120,000 4 '0.5 1 Reflects applying $120,000 limitations. 121 Mr. Hubbard. As to the SS Cristobal, on page 17 of the justifica- tions, what are the results of operation of the SS Cristobal, in terms of net revenue? And also tons of cargo carried for fiscal year 1979, and so far in 1980? What is your current projection for net results in 1980? Mr. McAuliffe. The vessel which is owned by the Commission, and was owned by the Panama Canal Company, has served us very well in the Panama Canal area, through its regular schedule of trips back and forth between the Port of New Orleans and Panama. It is used, as this committee well knows, primarily for cargo shipment purposes. There is a very small passenger carrying capacity of the vessel, a total of 12 passengers, which are used primarily by our employees, and in that respect is a factor in employee morale. In fiscal year 1979 there was an operating cost, or a loss, of $96,000, and we estimate a small margin for 1980, of approximately $100,000, and the same for 1981. I simply am not able to say at this moment whether we are on target in this instance. Mr. Hubbard. Would you please later provide, Mr. McAuliffe, the tons of cargo carried for fiscal year 1979, and those carried so far in 1980? Mr. McAuliffe. Yes, sir. [The following was received for the record:] Cargo Carried Total freight carried on the SS Cristobal in fiscal year 1979 and fiscal year 1980, through January, is as follows: CARGO CARRIED Fisral Fiscal W vea?979 1980 ,hrou 8 h year iy/y January Thousands of tons 160 38 Mr. Hubbard. That part of the question I do not believe was referred to, and if you would give us that later. Mr. McAuliffe. I would be pleased to. Mr. Hubbard. As to water processing, on page 19, the justifica- tions refer to distribution of filtered water to canal and military operating areas in Panama. What percentage of the total processed water is distributed to each class of user? Mr. McAuliffe. I will be pleased to furnish that information more precisely for the record, Mr. Chairman. I believe that I can safely say that the majority of the processed water is provided to Panama on a reimbursable basis. I believe it is on the order of 75 percent, but I would like to furnish that more precisely for the record. Mr. Hubbard. Please do. [The following was received for the record:] 1980 1981 esti- esti- mate mate (per- (per- cent) cent) 122 Processed Water Deliveries The following tabulations identifies the percentage of water deliveries, by princi- pal customers, for fiscal year 1979 through fiscal year 1981: PROCESSED WATER DELIVERIES 1979 actual (per- cent) Government of Panama 77 81 81 U.S. military forces and other U.S. Government agencies 13 13 13 Panama Canal Commission 8 6 6 All others 2 <>> W 1 Less than 1 percent. Mr. Hubbard. What is the status by payment of Panama for water supplied to Panama up to this time? Mr. McAuliffe. They are on schedule, sir, in their water payment. Mr. Hubbard. As to your — you are referring to Mr. McAuliffe. To Panama. Mr. Hubbard. Earlier, as to your referring to submitting that for the record, that would be appreciated. Mr. McAuliffe. Yes, sir. We will give the exact numbers, the exact amounts paid by Panama to the U.S. Government. Mr. Hubbard. You are saying that Panama is current as to their payments? Does that include all water bills, all payments that should have been made, up to this time? Mr. McAuliffe. I believe there is a delinquent account — let me clarify, and again we will be pleased to provide it for the record. Panama is, with minor exceptions, paying its current bills on time, and in the proper amounts. Concerning the past payment deficiencies, in 1975 and 1976, they have paid portions of that, and are working out the remaining payment schedule. There is still a third section under consideration, and that is bills going back to 1959. There has not been any further movement on these, and that is still deficient. But we will give you those figures for the record, sir. [The following was received for the record:] Accounts Receivable From Panama On September 30, 1979, autonomous entities and government agencies of the Panama Government were indebted to the Panama Canal Company and Canal Zone Government in the amount of $9.5 million. Of this amount, $1.1 million is associated with water processing costs which are either being paid on a current basis or under an installment agreement. An agreement was drafted which basically was acceptable to both parties which called for repayment of the amounts outstanding as of June 30, 1979, less the amounts for water processing covered under a separate agreement, over a period of 27 months. At that date $8.2 million was owed by Panama. The agreement allowed for the installment payments to be paid in casn or to be offset against amounts owed Panama under Article III and XIII of the Panama Canal Treaty of 1977. In addition, subsequent billings between June 30 and October 1 were to be paid within 30 days of date of invoice with any unpaid balance outstanding as of November 30 to be applied against the payment to Panama for the month of December. This agreement has not yet been signed. 123 Services rendered to Panama by the Commission since October 1, 1979 are essen- tially being paid on a current basis. The principal exceptions are amounts for telephone service with INTEL where rates have not been agreed upon and the amounts due under a lease purchase agreement on refuse collection equipment. The U.S. Embassy in Panama continues to seek a solution regarding the outstand- ing past debts and the lease purchase agreement for garbage collection equipment. In the interim, the Commission is withholding the tonnage annuity and public service payments owed to Panama. Mr. Hubbard. All right, thank you. Regarding the Administrator's residence, on page 20, of the justi- fications, Mr. McAuliffe, do the estimates for housing include the expense of maintaining the Administrator's house, and other houses officially assigned? Again, do the estimates for housing include the maintenance of the Administrator's house, and other houses officially assigned? If so, what amount is included for that purpose? Mr. McAuliffe. Sir, I will, as I indicated in discussing the 10 specific authorization items, I will provide that information for the record. It is included in the executive direction section of our budget. Mr. Hubbard. You will submit that later? Mr. McAuliffe. Yes, sir. [The following was received for the record:] Administrator's Residence The amount included in the budget for operation and maintenance of the Admin- istrator's residence is $64 thousand and $60 thousand for fiscal year 1980 and 1981, respectively. This includes the residence, furnishings and facilities which are used for visitors, official functions and representation activities. Mr. Hubbard. All right, thank you. What are the specific recreational facilities included in that item on page 21 of the justifications? Mr. McAuliffe. There are a couple of gymnasium facilities, ball fields across the Isthmus, five swimming pools, and several types of youth recreational activities, which are all supported under the general title of recreational facilities. When the treaty took effect, and certain functions were trans- ferred to the military, there was something of a diminution of the wide range of facilities which had been maintained for the benefit of canal company employees in the past. Some of the facilities particularly with the transfer of the schools, were picked up by the military. We have identified for support those that remain within our Commission areas, for exam- ple, Margarita and Gatun. It is really a matter of employee morale, and I might add a measurement of the quality of life, that we maintain these facilities to the extent that we can. That is the purpose of this line item. Mr. Hubbard. As to executive direction, Mr. McAuliffe, what are the items of expense that make up the totals in each of the catego- ries listed under executive direction, on page 21 of the justifications? Mr. McAuliffe. I would like to comment generally on it, and I would like to submit an additional, and perhaps more detailed information for the record, Mr. Chairman. 124 Under executive direction, we include those expenses which we estimate are needed in order to carry out the activities of the supervisory board. I might add that if, as has been suggested, we find that we have a Board that must meet more frequently than perhaps we have programed, this is an area where we may be making additional expenditures in the near future. The Administrator's office, and staff, includes the normal admin- istrative expenditures and the personnel costs for several of the directors of the staff and their offices. For the Secretary's office in Washington, these are expenses to maintain Mr. Constant's office here for the important activities which he performs in the Washington area for our organization. The Panama Canal Information Office is also funded here. Its activities include the tour guides I previously mentioned. This par- ticular funding requirement goes to the various publications which we maintain for the benefit of our employees, and also brochure material, which is used for visitors to the canal area. On con- sultants, the last item, as I previously commented, a very necessary adjunct to our activity. I will be pleased to provide more specific information for the record. [The following was received for the record:] Expenses of Executive Direction The following detail is provided in support of the categories of expense included in the Executive Direction: CATEGORIES OF EXPENSE IN THE EXECUTIVE DIRECTION [In thousands] 1980 1981 Board expense $79 $85 The Board, which is comprised of nine members (five U.S. citizens and four Panamanians), while receiving no salary for their services, are paid per diem allowances and travel expenses in connection with attendance at meetings and time spent on special services of the Commissions. Administrator's office and staff 3,575 3,876 Included in the Administrator's office and staff are an executive planning staff, a legal office, an equal opportunity office and the cost of operating and maintaining the Administrator's residence. Secretary's office, Washington, D.C 192 202 The Secretary's office includes a small staff that is responsible for liaison with the Congress and Federal Government departments and agencies, particularly in the Washington D.C. area. Panama Canal Information Office 802 887 The Panama Canal Information Office is responsible for all public relations activities, including press and news releases, the publication of the Panama Canal Review, and a weekly newspaper in English and Spanish, and related activities which insure public and employee understanding of the programs of the Commission. This line item also includes the salaries of tour guides. Tour guide, launch and reception service 230 152 The guide and reception service provides coordinated tours for visitors to Canal lock facilities. It is a multi- lingual service which can properly portray the Commission's programs and objectives to Panamanian and U.S. visitors as well as to other foreign nationals. Costs included here are primarily for operation of facilities and other costs. Consultants 427 428 This requirements represents special studies, including canal improvements and organizational studies, performed for the Commission by outside specialist, exclusive of information system development which is charged to Financial Management. Categories of service include canal traffic and economic studies, vessel accident and other litigation, major equipment procurements, accounting and financial systems, and canal improvement studies. Total 5,305 5,630 125 Mr. Hubbard. As to the financial management, is the cost of consulting for this function included in the item of $428,000 for consultants shown under executive direction on page 21? Mr. McAuliffe. Yes, it is. Mr. Hubbard. Concerning the emergency funds, could you please tell us how the specific figure of $25 million was arrived at as the desired level for authorization for the Panama Canal emergency funds, and could you give us a cost breakdown? Mr. McAuliffe. Yes, the $25 million emergency fund being re- quested is an estimated amount needed to fund for the possibility of an emergency of major proportions occurring to the canal. This amount, briefly, is estimated to defray emergency expenses for which would, we think, handle a majority of emergencies as have been experienced in the Canal in the past. I should point out that it differs somewhat from the authoriza- tion which the Panama Canal Company had previously had, which was a $40 million borrowing authority. That borrowing authority was used by the Company to backstop program obligations under the Anti-Deficiency Act, and to serve as a resource of funds to finance operations, should the inflow of tolls revenue be cut off as a result of, for example, a canal closure. Our intention here is to establish what amounts to a 2-year reserve. We say 2 years, because we believe that if completed, it would take us about 2 years to replenish that amount under the present appropriated fund concept, under which we are operating. We foresee withdrawals from the fund to be replenished prospec- tively from canal tolls. I feel, at the present moment, vulnerable in operating the canal without some type of emergency fund. We have been very fortu- nate thus far, in that the rainy season closed out without a major slide, or other adverse activity, requiring in effect an emergency action to restore. I believe that an emergency fund is a necessary adjunct. It would not necessarily keep us from having to come to this committee, particularly if the emergency were to require more than the $25 million, we are requesting. But we are sensitive to the fact that when an emergency occurs, everything from a slide to an oil spill, the corrective action has to be initiated immediately, and therefore a fund backup, such as we request, is not only prudent in my judgment, but very necessary to the efficient operation of the canal under the present conditions. Mr. Hubbard. As to employee morale, I am glad to hear you say the employee morale of the work force is beginning to build. How have you arrived at that assessment and are there some tangible signs to demonstrate this? Mr. McAuliffe. My judgment is based upon my own meetings and individual discussions with literally hundreds of employees of the Commission. I try to spend a great deal of my time out in the field visiting the various activities of the Commission, from the locks, to the maintenance shops, to the control centers and to the various offices. And it is from these personal observations that I make the judgment that morale has bottomed out and is starting an upward turn. Having said that, I am also very mindful of the fact that a 59-319 O - 80 - 9 126 number of issues remain — some were referred to by Mr. Bauman earlier this morning — which are irritants and in some cases detri- ments to the individual attitudes and efficiency of our people. These problems at the moment happen to be related to quality of life issues. These are not problems that relate, let us say, to rela- tionships with Panama, which happen to be running smoothly at the present time. But hardly a day goes by that somebody does not suffer in some personal way from an adverse incident at the hospital, or a com- missary store, or at a postal facility and then this spreads, unfortu- nately, like wildfire throughout the canal area and then it assumes an issue far out of proportion to what actually happened. By the same token, those employees who are griping quite a bit are gradually coming to learn that my management and I do care very much about how they are making out and are bending our own personal efforts in order to try to help the situation. So it is this give and take process rather than a specific piece of tangible evidence by which I make the judgment that things are beginning to head upward. Mr. Hubbard. Thank you very much, and I might add that with you in the position that you are that that should be a big positive step toward employee morale continuing to increase in the future. Regarding capital projects, Mr. McAuliffe, why is there a need to authorize the Commission to initiate individual capital projects not included in the original budget estimates and how many times in recent years have projects been initiated when they were not in the original estimates? Mr. McAuliffe. Mr. Chairman, our request for this reprogram- ing or rather for the possible initiation of new capital projects is really a contingency that I personally believe is necessary. I cannot tell you or even give you an off-the-record estimate of any particular project that I have in mind right now that I would want to add to the capital program. In fact, the capital program I support as you see it. But I am having a number of studies and evaluations made particularly with respect to the possible impact of trends of the larger ships, and it is entirely possible that in order to improve canal efficiency, it may be necessary to do something within the framework of a capital program to help us along that line. This is the rationale behind our request for that authority. As far as instances in which the Panama Canal Company may have added projects to the capital program, I believe that there have been such instances. I am not prepared to provide that infor- mation now, but I shall for the record. [The information follows:] Additional Capital Projects The Panama Canal Company over the years has had numerous capital require- ments which were unforeseen at the time of budget development. For the most part these projects were principally associated with the transiting of ship functions and were generally required due to safety, increased capacity or contract economies. A few examples of the kinds of capital projects the Company initiated out of phase with the Budget are: 127 Project: Reason: Replace chamber and culvert eleva- Safety, tors. Procure spare components for exist- Capacity/Contract economies, ing towing locomotives. Chamber lighting all locks Capacity. Relocation costs Treaty. Construct concrete apron — Mira- Safety, flores. There is a continuing need of the Commission for authority to meet unforeseen requirements such as those indicated above. Mr. Hubbard. Please do. As to the Commission fund moneys on page 3 of the justification of estimates, you indicate that the unex- pended balances in the Commission fund at the beginning and ending of fiscal year 1981 are estimated at $469,039,000 and $459,699,000 respectively. Again, that would be the unexpended balances in the Commission fund at the beginning of the fiscal year 1981 $469,039,000 and at the end of fiscal year 1981 $459,699,000 respectively. Can you explain how you arrived at those figures? Mr. McAuliffe. The $469,039,000 for fiscal 1980 is derived from the collections from tolls and other deposits which we expect in our current fiscal year, and also payments which have been made to the fund by the former Panama Canal Company. That briefly totals the $469 million. Going into 1981, carrying over that $469 million, there is an additional amount of approximately $410 million which we expect to obtain from revenues and other collections, and then from that, we would deduct the amounts being requested under current ap- propriation, that is, in the current authorization bill, namely, the $394 million for our operations and maintenance together with the $25 million emergency fund, bringing us back down to the level of $459 million for 1981. If you wish, sir, I can give you a more explicit breakdown of these numbers for the record. Mr. Hubbard. I think that is unnecessary. Just disregard that. Your explanation is sufficient. I might say at this point we are nearing a conclusion of the questions from the chairman, I am going to ask the staff if they might have any questions later. Concerning port operations, under navigation service and control on page 12, again, under navigation service and control on page 12 of your justification, what activities are included within the $1,439,000 for general port operations? I ask this because the ports generally are now under Panama- nian control. Mr. McAuliffe. Mr. Chairman, these are Mr. Hubbard. Actually, I am going to correct myself. It should be $1,459,000. Mr. McAuliffe. For fiscal 1981, $1,459,000. This amount includes the tieup facilities and scheduling services provided in connection with our launch and tug operations. In addition, there are certain other costs in connection with the use of the port areas. I would, if you like, wish to provide the committee with a more specific breakout of that $1.4 million. Mr. Hubbard. If you would, please, on this one, again, in that the ports generally are now under Panamanian control. 128 Mr. McAuliffe. Yes, sir. Let me say that we are not, under this line item or any other, we are not contributing in any way to Panama for their responsibility of operating the ports of Cristobal and Balboa. Rather what we are doing is providing funds for our specific use of certain harbor facilities to include the loading and unloading of our linehandler gangs, launches, tugs, and other activ- ities which are essential to the transiting of vessels through the canal. [The information follows:] General Port Operations The following information is provided for the General Port Operations of $1,459 thousand. Under this line item, the Commission has included amounts for personnel com- pensation, maintenance and other expenses associated with the support of the Commission's launch and tug activities. This activity is conducted in and near the port areas which were turned over to Panama in accordance with the treaty. Mr. Hubbard. As to the Rudd amendment, it has been this committee's view that under the Rudd amendment to the Panama Canal Act, appropriations to the Panama Canal Commission are limited to deposits in the Commission fund. You are requesting $394.4 million for the operating and capital expenses of the Commission and $25 million for the emergency fund, a total of almost $420 million. You estimate deposits in the Commission fund as $410 million, and then you say you will have unexpended balances from fiscal year 1980. These two questions arise. What do you anticipate will be your unexpended balances from fiscal year 1980? Second, are you close to obtaining the certification of your revenue estimate by the Gen- eral Accounting Office? Mr. Blumenfeld. Taking the second question first, Mr. Chair- man, yes; we are close to obtaining the certification. It was submit- ted roughly a week or two ago. I believe at this moment it has cleared OMB and is with GAO, and we expect certification shortly. With respect to the first part of your question, the unappropriat- ed balance at the end of fiscal year 1980 is, as indicated a moment ago, projected at $469,039,000. This year-end 1980 balance will be the beginning year 1981 balance of funds "unexpended." Mr. Hubbard. Last question, regarding the pilot study panel. Several months ago a pilot study panel was convened in order to look at recruitment problems and other matters involving the canal's pilots. What progress has been made by the panel and how might its recommendations affect the Canal Commission's budget? Mr. McAuuffe. The pilot study panel is moving along very well. We expected the panel to complete its work in the very near future. When Mr. Bonior and Mr. Bauman were visiting us last week, the president of the pilots' association reported to them that they were quite pleased with how that was going. We have been making special provisions to take into account the pilots' views of the many factors under consideration, everything from qualifications for the recruitment of pilots to pay and, of course, working conditions. There will be some aspects of the findings of that panel that I think will be a matter of serious evaluation to the management of 129 the Commission for literally the rest of this calendar year whereas other of their findings and recommendations, I think, we can put into effect immediately. It is proving to be a very useful forum in which all concerned are having an opportunity to tell what they support and what, per- haps, improvements they see needed in the canal operation for the future, and in this respect, I am pleased that it is receiving the participation that we had hoped. As far as the budget is concerned, it is very difficult for me to say what the impact might be within the budget. However, I wish to say again, as I said earlier this morning, and which I have said, I might add, to several members of the pilot study panel, whatever may come out of this in the way of additional expenditures are going to have to be balanced because of the Rudd amendment that you previously mentioned. They are going to have to be balanced off against revenues. So there is a leveling process that will have to be kept in mind and we shall keep it in mind as we address those recommendations. Mr. Hubbard. Thank you very much, Administrator McAuliffe, and you, Mr. Blumenfeld. I appreciate your answers to my ques- tions. I would ask Mr. Merrill Whitman, consultant to our full committee and a man who is so helpful to our subcommittee, if he has any questions. Mr. Whitman. I have no questions. Mr. Hubbard. Mr. Bernard Tannenbaum, consultant. Bernard, do you have any questions? Mr. Tannenbaum. Yes, Mr. Chairman. Administrator McAuliffe, I think that we all admire and respect the job you did in very difficult times in taking over this operation and the manner in which you have handled the reins of the new operation and did it in such a relatively smooth manner especially under such difficult conditions. I know you had a lot of morale problems and loss of personnel and a great deal of difficulty. Would you care to comment on the particular types of difficulties which you are currently faced with? I know you mentioned the quality-of-life problems. How about problems regarding Panama's handling of the ports, the problems in connection with, if any, Panama's handling of the sanitation and other services, or any other problems you might care to elaborate on? Mr. McAuliffe. I shall be pleased to do so. Thank you very much for your complimentary comments. The sorts of problems that we are experiencing are, first of all, not central to the efficient operation of the canal. A matter that impresses me very much is the dedication of that work force to keep that canal operating, particularly considering the turbulence and uncertainty affecting the work force over the past, really, couple of years as the new treaty time approached and then passed. The principal range of problems affecting our work force has been in the quality of life area, and as I have mentioned previously this morning, we are working on this in conjunction with the U.S. Southern Command and all others who have a say in that activity. Frankly, some of the issues we are successful on and some of the 130 issues we are not successful on, and there are many factors in- volved. With respect to problems directly over which the Commission has control, there are very few of these existing at the present time. There is no great dissatisfaction, let us say, with the pay system or the operating conditions under which our people work, except to say that, as Mr. Bauman has accurately pointed out, there are now several different pay systems, a couple of them grandfathered over from the previous time and now a new system which, as Mr. Blumenfeld mentioned, are being put into effect and will relate to the personnel employment policies to be addressed soon by the board of directors. I will have to say that with respect to pay and working condi- tions, the pay affecting our Panamanian employees and others recruited locally is the one that you hear more criticism about and that is obviously going to be an area where we will be making comparative pay surveys and studies to be sure that we maintain pay comparability for like skills and can compete in the market. I am not talking about the entry grades, but the grades of the craftsmen and similar grade levels where there may be some differ- ences. With respect to Panama, our work force has found, and much to the surprise of most of them, a very cooperative and helpful atti- tude on the part of the Panamanians with whom they deal. This is very evident in the police area with the joint patrols, but perhaps less so in handling all of the various documents that all of us must have when we leave the country, when we move around, drive a car, all the rest. These were all handled in a courteous and efficient manner and frankly, Panama did a marvelous job in planning and preparing for the task. There is a problem with respect to our Panamanian employees that is not directly related to the pay scales but directly related to their cost of living, and it is that, if I may use some average figures, that the cost of living of the Panamanian employee who is residing in one of the housing areas that formerly were under the control of the Canal Zone Government, that is to say, areas like Rainbow City, Paraiso and the like, that employee's cost of living has increased, has literally skyrocketed. I have seen estimates per individual or per family, that it has increased on the order of $120 or more per month. And when you note that for such employees the average monthly take home pay is on the order of $500, that is a significant in- crease. That is not attributable to the United States but rather to the higher cost of living in Panama that those employees are now subjected to. That is a factor that I am sure the supervisory board will be concerned with, and of course, as the Administrator of the Commis- sion, I am concerned about it because the morale of our Panama- nian employees is also low and a factor to be taken into account. The port areas are now beginning to function efficiently. There has been a long series of problems in the Cristobal port area, problems related to management, and of course, these are areas under Panamanian control now. 131 There have been a series of labor problems there, changes of the pay rates and the like which have kept that port in something of a turmoil. Then an inordinately high amount of container shipments were off-loaded from ships which have literally congested that port. The Panama Port Authority is now making their way out of it. Well, this has been a concern to our employees, and it is a concern to me as the overall manager of the canal operation. When a port area, as important to us as Cristobal is tied up, congested or maybe closed because of a strike it means that some ships that had arrived, let us say, for bunkering or the unloading or loading of cargo cannot be accommodated and they become part of our back- log of ships waiting to transit the canal. I will say on the positive side that, in all of the troubles of that port, our pilots and other personnel who have had to go into that port area to perform their functions, such as take a launch out to a ship or return from a ship, they have not been hindered in any way. Even when the port was closed down during a labor strike, our people were able to continue to get in and out of there without difficulty. The railroad has been less of a problem to Panama than the Cristobal port area. There have been some labor problems and mechanical problems, but by and large, that railroad has been and is operating about the same as prior to the treaty. Panama, of course — you read about this in the newspapers — is trying to determine what their future requirements will be for that railroad. We, the Commission, and I might add, our military forces, continue to use that railroad, particularly for the shipment of cargo in connection with the sailings of the Cristobal between New Orleans and Panama. So I guess I could put it all together and say that there is a whole raft of problems that beset us in the "people" area and in relation to the supporting services and activities on which we depend. The problems may be bad this week and good next week or vice versa, and I suspect that it will continue to be dynamic for the future. But I will say that it is not central to our canal operation, has not adversely impacted on our canal operation, and a good thing about it is that invariably we find men and women in authority, in positions of responsibility on both sides of the issue who are willing to work with us to try to resolve it quickly, and that is both Americans and Panamanians. That has been a factor for the good. Mr. Tannenbaum. How has Panama been handling the sanita- tion problems and do we have any cost breakdown from them as to their costs in keeping within the $10 million amount? Mr. McAuliffe. They have picked up the responsibility for gar- bage and trash collection in the former Canal Zone areas, and that has been operating well since the start of the treaty. There have been, perhaps a little bit like the railroad, some mechanical problems that have beset them, but they have either found substitute ways to accomplish the task or maybe there has been a slight delay of a few days in some areas and then back up to speed again. With respect to the charges, this is in the area of public services which are to be reimbursed under the $10 million payment for 132 which we have budgeted and which, of course, were included in the computation leading to the increase in tolls of last October. And we do not have any specific changes but we are, attempting to work out, through our coordinating committee, a binational committee that deals with matters affecting our communities as well as the canal operation, the specific cost factors that will be taken into account when making those payments. The treaty provides in general that this $10 million payment will be made through the transition period and then will be subject to audit of the actual amounts thereafter. We need to get agreed on all of the factors, the standards, if you will, and this is work ongoing at the present time. Mr. Tannenbaum. Have you been having any problems with regard to the appropriated form of the agency as distinguished from the corporate form? Mr. McAuliffe. My only significant problem to this point, sir, is in connection with the lack of an emergency fund. I think that is the biggest deficit that I have which I can attribute to the appro- priated fund process. Mr. Tannenbaum. Is not the entire appropriation available to you in the event of an emergency, so that you would have ample opportunity to come back? Mr. McAuliffe. Yes; it is, but if I were faced with a large emergency at this moment, I would, of course, take actions to start working toward the correction of that. But I also would be required to apply for a supplemental appropriation, assuming that the amount would be larger than I can handle under the present appropriation. And that is the process that disturbs me the most because there may be occasions when one of these emergencies would occur re- quiring large expenditures when the Congress may not be in ses- sion. And so I find that this is a situation that well, leaves me in a very uncomfortable position. Mr. Tannenbaum. On page 3 of your justification estimates, you have the unappropriated balance at the start of the year of $469 million and then you had the collections of $410 million. It seems that you are ahead of the game substantially to cover any emer- gencies. Mr. McAuliffe. That is true, sir, but that is not the case right now. That is the case as of the end of the fiscal year. The problem that I am outlining to you now is one that I find would exist at the moment. Mr. Blumenfeld. If I may add, sir, despite the amount available for appropriation, you are still limited in what you can spend, of course, by the actual appropriation. As Mr. McAuliffe says, when you do need to spend for an emergency or for an upsurge in traffic or whatever, you are, in effect, borrowing from what is left in your appropriation for the year. The closer you get to the summer recess, to the end of the fiscal year, the tougher it gets to restore that money in a timely fashion, and you do not really know whether you are going to have enough money left to do the normal things which you have put off doing in order to provide for your interim emergency. 133 I think obviously the mechanism to which the committee staff and the committee in H.R. 6515 agrees in terms of counting what is available for appropriation, that is the unappropriated balance, has relieved much of the problem that we jointly went through last year with respect to the emergency fund. But there still remains the problem of being able to spend only what is appropriated and the closer you get to the end of the fiscal year that gives the manager a problem. Mr. Tannenbaum. Just one final request if I may. Without in- curring any expenditure on your part, I assume that there are backup figures for these justification estimates, breakdowns, for instance. Just take one item like the consultants of 400 and some odd thousand dollars. If that information is readily available, we would appreciate your supplying this subsequent to the hearing. Mr. McAuliffe. In fact, that is one of the areas that I have agreed to provide a breakout of funding. That was in those other 10 specific parts of the authorization request, and I shall be pleased to do that. Mr. Tannenbaum. Thank you very much. Mr. Hubbard. Any other questions? Mr. Tannenbaum. No, Mr. Chairman. Mr. Hubbard, Mr. Terry Modglin, the staff director for the ma- jority, and the professional staff member for the minority, Mr. Luis Luna, I believe, do not have any questions. They have that opportu- nity. But I would ask them, please, Terry Modglin and Luis Luna, if you would, to submit any questions for the record that you may have in the next couple of days, and I am sure the two witnesses, Mr. Blumenfeld and Mr. McAuliffe, will be happy to answer them. We do appreciate so much the testimony of Hon. Michael Blu- menfeld, Assistant Secretary of the Army, Civil Works; and the Hon. Dennis P. McAuliffe, Administrator of the Panama Canal Commission. I would like to express my deep appreciation to staff director Terry Modglin, to the clerk, Mary Pat Barrett, and to staff member Michael Smith, staff member Elizabeth Foley, and to the minority professional Luis Luna for their helpfulness to the chairman, and to the ranking minority member, Mr. Bauman. Indeed, the staff members whom I named, headed by Terry Modglin, have been very helpful to the chairman in preparing for him the agenda and the statement, and the questions of the day. To those who visit with us, including some I'll name, we appreci- ate each of you. Thanks especially to Mr. Tom Constant, the Secre- tary of the Panama Canal Commission; Mr. Myron Schroeder, Chief, Financial Planning for the Commission, Mr. Walter Bjor- seth, Chief Financial Officer of the Commission; Lt. Gen. Wellborn Dolvin, Treaty Affairs Coordinator for the Department of Defense; Col. Michael Rhode, military assistant to Mr. Blumenfeld; and Mr. Richard Wyrough from the Department of State, Coordinator for Treaty Affairs, and the others who visit with us. We appreciate your helpfulness and cooperation. Is there any other business to come before our subcommittee at this time? 134 [No response.] Mr. Hubbard. If not, we end in good time, and again, we appreci- ate the two witnesses and their very helpful testimony and answers to our questions. I learned about 13 years ago as a State senator just beginning public life not to start mentioning names because you do omit some. In my trying to make a swooping and sweeping thanks to many who are here, including those who were visitors, I did not express my appreciation to our two excellent consultants, Merrill Whitman and Bernie Tannenbaum, who, it goes without saying, were very helpful regarding the agenda, statement and questions of the day, and to them, I express my appreciation. Thank you, gen- tlemen. There being no other business the subcommittee stands ad- journed subject to call of the chair. [The following was received for the record:] Question of Mr. Hubbard and Answered by Mr. McAuliffe Question. Please give a brief description and status of all the Government of Panama's debts to the U.S. Panama Canal organization. Answer. In general, the Panama Government has been paying bills for services provided them since October 1, 1979 on a current basis. However, the larger portion of back debts which have been outstanding for long time have not been paid. We are still trying to reach an agreement which will be satisfactory to both countries. I will be pleased to provide a summary of the outstanding accounts at the end of January, including the old debts owed to the Panama Canal Company. [The information follows:] 135 OOv£)Ou-lOCT»OOrHv3-inr-rO o^ o iH cn cm r^ o 0(
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CD o OH-Hca P-, xi m c ca ca rj u tO CO .-> O 60 t-l CD u CJ JJ CO JJ CD CO- JJ E o >-. > o c •H O 3 -J- E CJ X 3 ca to 3 3 d o to H C d E r~ X to d o CX X w H C o cfl • o ca o to o o o U-l X) e o CD 3 CD r- CD 60 3 O 41 W .H ao o i-l c Ul a c M cO CJ o a c CJ > E > ON C -t-i rH rH p CO M o C CM o e CO c o c •A XI u H d 1 c C CD O r-l CD •H XI d r~ U CO Pi T-l d CD i-i CD u> d o •> U CJ d -a CD on .H CJ M u 00 CO sO to X (XPm u •H p. H > d CD O J3 J3 c u to JJ o CO C 3 CO a c .e .h 5! ca jr. CJ o c CO ON ca C 3 CD M dl s o 3 O o d 3 t< in w (/J rt H Ph H 3 CO H Cfl Ph H -o H E3 Cfl >; ^ CJ < CJ O H -) JJ u 3 d J"-" ^1 rH iH •-i H I-l H 137 Questions of Mr. Bauman and Answered by Mr. McAuliffe Question. You mentioned in your testimony that the size of ships transiting the Canal has increased. Could this increase account for the higher number of ship accidents the Canal has recently experienced? Answer. Yes, the higher number of vessel accidents occurring in Canal waters is directly related to the increased number of large size vessels utilizing the waterway. Question. What likelihood is there for another tolls increase in the near future, and why? Answer. There are no plans for a toll increase in the immediate future. Our budget estimates indicate that all costs of operation are covered by existing toll rates through 1981. Question. How has Panama's elimination of its Panama Canal Authority affected the operation of the Canal and the Commission's ability to communicate with the Panamanian Government? Has Deputy Administrator Fernando Manfredo assumed the role previously played by this body? Answer. The Panama Canal Authority, an autonomous entity created by the Republic of Panama for implementation of the Treaty, to coordinate the participa- tion of the Panamanian representatives in the Binational Subcommittees, to plan and execute the transfer of properties to Panama, and to be the permanent channel of communication and coordination between the Government of Panama and the Panama Canal Commission was eliminated in early January. This agency had served since September 1978 as the primary Panamanian point of contact for binational coordination with the Panama Canal Company (and later the Commis- sion). Most of the employees of the Panama Canal Authority were distributed among other agencies of the Government of Panama. This permitted continued communica- tions on pending matters at binational levels. Also, working meetings of certain key binational subcommittees such as Ports and Railroads, Police and Housing have continued normally. A new office has been created by the Government of Panama according to a communique dated February 13, with the name of "The Executive Office for Panama Canal Treaty Affairs," to assume the coordinating functions of the former Panama Canal Authority. The office is established in the Executive Branch of the Panamanian Government. The authority of the President with respect to the office shall be exercised through the Minister of the Presidency. The key officials of the former Panama Canal Authority will work in this new office. As an Executive Branch of the Government under the authority of the Minister of the Presidency by delegation of the President, it should be easier to obtain executive approval of the binational agreements that are still pending and the agreements that will be considered in the future. The reorganization of the coordinating office of the Republic of Panama has in no way affected the operation of the Canal. The Deputy Administrator has not assumed the role previvously played by the PCA. Question. What impact has the new regime had on nonprofit organizations? What are the consequences of their loss on the Canal community, particularly on the Atlantic side? Answer. The entry into force of the treaty and the enactment of certain Panama- nian implementing legislation have had significant impact on nonprofit organiza- tions. Except for the temporary granting of PX and commissary privileges for U.S. clergy in the former Canal Zone, all the other organizations and their personnel have lost their purchase privileges thereby incurring considerable increases in their cost of living. Many organizations are required to pay Panamanian taxes, social security and other labor benefits, and are subject to import duties and higher licensing fees. In addition, these organizations have lost their eligibility for U.S. postal services and in most cases their personnel are no longer eligible for treat- ment in MEDDAC hospitals. Since October 1 some organizations have been unable to meet the burden and have discontinued operations. Almost all are undergoing a period of grave uncertainty as to whether or not they will be able to survive. Despite their apprehension, they are striving to find ways to cope with these problems and they appear willing to make every necessary effort to continue to operate in the Panama Canal area. Any significant loss of these organizations has an impact on the quality of life, especially on the Atlantic side which is even more dependent on employee organiza- tion facilities for recreational and social outlets than the Pacific side. Question. How are the joint patrol, using Commission and Panamanian police to jointly enforce the law in the Canal Area, working: 138 Answer. There is a spirit of cooperation and goodwill with open and honest communication. Operationally, the joint patrols are working to the satisfaction of the communities without significant problems. Question. What arrangements have been made to pay Panama monies due it under the treaties and how much has Panama received to date? Answer. Arrangements for making Treaty payments to Panama have not been finalized. They are being held up pending agreement on settlement by Panama of back debts owed to the former Panama Canal Company and Canal Zone Govern- ment. Once the back debt issue is settled, it is contemplated that the Commission will make monthly payments to Panama covering the fixed annuity, public services, and 30 cents per ton provisions. Any payments due Panama under paragraph (4Xc) of Article XIII of the Treaty would be made annually after the end of each year following audit of the Commission accounts by the General Accounting Office. In the meantime, no Treaty payments have been made to Panama. Through the first four months of the Treaty, the payments accrued amount to $24.1 million. Question. In your testimony, you said the cost of living for workers has risen over $100 per month or more. For which workers is this true, and why? Has the Commission proposed any policies to alleviate the impact of such increased living costs? Answer. The increase in the cost of living to which I referred in my testimony is that facing approximately 1,000 of our non-U.S. citizen employees living in the townsites of Pedro Miguel, Paraiso and Rainbow City which, as you know, were transferred to Panama on October 1. In addition to losing their purchase privileges at U.S. Government commissaries and other sales facilities, these people have had to pay increased rents and electrical and water rates. We estimate that the increase in costs being borne by these employees (whose monthly take home pay is about $550) is in the neighborhood of $150 per month. As you will understand, this situation is having a devastating effect on their morale. While we have not devel- oped a solution to the problem, we have communicated our concern to the Panama- nian Government and are, in conjunction with Panamanian authorities, searching for ways to alleviate the plight of this portion of the Canal work force. Question. What specific effects did the recent 2-day strike by Panamanians have on Canal operations? What delays did it cause in port and railroad service? Answer. The recent 208 per hour Ranger Helicopters (4 place) (Estimate) @ $250 per hour Following is scheduled use of helicopters for FY 1981: Ferrying modules of supplies and personnel for Capital improvements at rainfall stations, (funded in Capital Program) (32 hours - Huey) $16,256, Twelve monthly flights, 4.5 hours each, for routine maintenance and collection of data at remote river/rainfall stations: (54 hours - Huey) $27,432, As part of the Flood Control Program, a model watershed was estab- lished to measure the local rate of runoff from rain. This model is located in inaccessible jungle terrain and has six rainfall and three river stations from which data must be recovered monthly (36 hours Huey & Ranger) $14,400. Photography - Aquatic Weed Control Program: (12hours - Huey) $ 6,096. Other : Ship accidents, oil pollution, air evacuation of injured employees, VIP orientation flights (10 hours - Huey) $ 5,080. TOTAL HOURS 132 TOTAL COST $69,254 l.a. The elements of cost in the hire of military aircrafts is the per hour cost for rental of the aircraft with crew. l.b. In FY 1981 there is $16,000 for helicopter rental costs in the Capital Program under the project Miscellaneous Improvement to Facilities, Transit, to improve various weather and river camp facilities. I.e. Comparative costs of each element of costs: REVISED REQUESTED ESTIMATE FY 79 FY 80 FY 81 INCREASE FOR FY 1981 Rental of. helicopters *48,000 *50,000 **55,000 14,000 $69,000 *The higher costs from 1979 to 1980 are duo to deletion of helicopter support for outlying navigation aids, which were turned over to Panama, offset by increased usage to set up a model water shed to measure the runoff rates of rainfall. (We previously used rates developed in the States.) The Corps of Engineers, in their review of our flood control procedures, recommended that a model be set up to determine the localrunoff rate of rainfall. **The funding level for FY 1981 erroneously ommitted the Capital requirements for improvements to field camp facilities. 154 HIRE OF CHARTER AIRCRAFT Higher expense for charter hire of aircraft are directly related to increased fuel costs and deregulation of industries by CAB. The number of flights scheduled in 1979 was 25; for 1980 and 1981 the number was reduced to 21 for each year. Costs of the flights vary with the different aircraft used and whether the flights originate or terminate in Miami or New Orleans. The average cost per passenger, per flight comes out to $127. This represents a savings of approximately $50 per passenger over the commercial fare. Based upon 21 scheduled, round trips with 4,360 available scats and our past occupancy rate of nearly 99Z, it is estimated that about 4,316 employees and dependents will use these flights. Charter contracts are negotiated on a bid basis. For FY 1980, two carriers were willing to submit bids, Braniff and United Airlines. United, however, and other airlines who do not have ground service faci 1 i ties in Panama or an approved airline route to Panama, are at a competitive disadvantage. National, Delta, Eastern and Pan American were contacted, but declined to bid on our FY 1980 Charter Program. The contract is awareded, of course, to the lowest bidder. • ' l.a. Actual costs of the charter flight contract include aircraft rental, taxes, departure charges, airport usage fees, etc., appropriate for all international flights. l.b. There are no related costs in capital budgets. Related operating costs in other portions of the budget could be identified as MTD personnel and fuel costs to bus passengers and baggage to and from the airport using existing equipment and facilities, and a small amount of overtime .for Transportation Branch personnel required to handle departures and arrivals outside of normal working hours. Significant economies of scale are realized by bussing employees and their families to board a small number of charter flights rather than transporting there individually to meet numerous commercial flights. I.e. Costs for these activities are estimated as follows: Chartered Aircraft Round Trips Costs 1979 Actual 25 $440,000 1980 Estimate 21 $554,000 1981 Estimate 21 $721,000 155 UNIFORMS AS AUTHORIZED BY SECTION 5901 AND 5902 OF TITLE 5, USC 4. UNIFORMS AS AUTHORIZED BY SECTION 5901 AND 5902 OF TITLE 5, USC - How many of each type of uniform will the Commission purchase? What is the per unit cost of each? The Commission 1 8 purchase plans for uniforms also include replace- ments for those parts of the uniform that usually wear out or are damaged more easily than other parts. Also, just as additional information, once a new employee receives his initial uniform, he will probably never receive a complete uniform again. He will only receive replacements of shirts, pants, etc. , when needed. In this light, the following represents the Commission's purchase plans for uniforms in FY's 1980 and 1981: FY 1980 FY 1981 PRICE NUMBER PRICE NUMBER ITEM EACH PURCHASED TOTAL EACH PURCHASED TOTAL Police Division Police Uniforms TROUSERS $21.95 378 $ 8,297 $24.14 340 $ 8,208 XL 23.59 10 236 25.94 8 208 $ 8,533 $ 8,416 SHIRTS ' White s/s $11.45 72 $ 824 $12.60 63 $ 800 Blue s/s 8.36 292 2,441 9.20 26 3 2,420 White 1/s 12.95 10 $ 130 3,395 14.25 8 114 3,334 HATS $17.00 192 $ 3,264 $18.70 173 $ 3,235 | PATCHES $ 1.74 1,500 $ 2,610 $ 1.91 1,500 $ 2,865 ALTERATIONS Sew on Patches $ .55 311 $ 171 $ .60 280 $ 168 Alter trousers $ 2.15 221 $ 4 75 $ 2.37 200 $ 474 Chin Straps $ 1.65 90 $ 149 $ 1.82 80 $ 146 Silver Cord $ 2.20 90 s 198 $ 2.40 80 $ 192 $18,795 518,830 156 4. UNIFORMS AS AUTHORIZED, ETC. (CONTINUED ) Oyard Unifonay TROUSERS Tan Green " XL $ 8.29 $21.45 23.60 163 $ 1,351 408 $ 1,807 SHIRTS $ 5.94 144 $ 855 $ 855 CAPS - tan $13.09 13 $ 170 Frame & top 6.55 10 66 $ 236 $ 2,898 No Guard Uniforms In FY 1981 TOTAL POLICE $18,830 Fire Division Every Day Uniforms (Pants & Shirts) $30.00 288 $ 8,640 $35.00 288 $10,080 leplacemc Caps >nts: $15.00 12 $ 180 $20.00 15 $ 300 Boots $60.00 20 $ 1,200 $70.00 10 $ 700 Helmets $30.00 10 $ 300 $35.00 21 $ ' 750 Turnout Coats and Pants $200.00 12 $ 2,400 $210.00 20 $ 4 ,200 Suspenders - - - $ 7.00 60 $ 420 TOTAL FIRE $12,720 $16,450 157 UNIFORMS AS AUTHORIZED, ETC. (CONTINUED) Recreation Service SWIMMING SUITS Women Men GYM OUTFITS Shorts & Shirts OFFICIATING UNIFORMS $28.00 15.00 $ 5.00 31 78 $31.00 31 TOTAL RECREATION $ 224 $30.00 8 $ 240 A 65 18.00 31 558 $ 390 $ 6.00 78 $ 468 $ 961 $35.00 31 $ 1,085 $ 2,040 $ 2,351 Locks Division Linehandlers and Certain Maintenance Personnel Shirt $ 6.25 1,800 $11,250 $ 6.50 1,800 $11,700 Pants $ 7.90 1,800 TOTAL LOCKS $14,220 $25 L 470 $ 8.70 1,800 $15,660 $27jJ60 Canal Support Division Deckhands & Boatswains Shirt $ 9.25 1,836 $16,980 - - - Pants $11.95 1,836 $21,940 - - - Deckhands Shirt $ 6.50 1,850 $12,025 Pants 8.70 1,850 16,095 Boatswains Shirt $10.00 200 • $ 2,000 Pants TOTAL CANAL SUPPORT 13.00 200 2,600 $38,920 $32,720 Community Services Division Movers Coveralls $25.00 80 TOTAL COMMUNITY SERVICES $25.00 59-319 O - 80 - 11 158 4. UNIFORMS AS AUTHORIZED, ETC. (CONTINUED ) Canal Protection Division Shirts $19.00 600 $11,400 $19.00 600 $11,400 Pants $23.95 400 $ 9,580 $23.95 400 $ 9,580 Leather items - holster, case for handcuffs, ammo, etc. $88.50 80 $ 7,080 $88.50 80 $ 7,080 Badges - Shirt & Cap $39.05 100 $ 3,905 $39.05 100 $ 3,905 Rain covers - - $ 1.00 200 $ 200 Cap frames - - $ 5.50 100 $ 550 Cap covers - - $ 5.50 100 $ 550 Hard hats rECTION _ $ 4.50 100 $ 450 TOTAL CANAL PRO' $31,965 $33,715 TOTAL UNIFORMS PURCHASED BY COMMISSION $134,808 $133.426 Uniform Allowances First Aid Station Nurses $31.25 (a quarter) 8 $ 1,000 $31.25 (a quarter) Guide Service $31.25 (a quarter) 7 $ 875 $31.25 (a quarter) Motor Transportation $30.50 (a quarter) 3 $ 366 $30.50 (a quarter) Magistrates' Courts $31.25 (a quarter) 3 $ 375 $31.25 (a quarter) TOTAL UNIFORM ALLOWANCES $ 2^616 $ 1,000 $ 875 $ 366 $ 375 $ 2,616 TOTAL COMMISSION UNIFORM PURCHASES AND UNIFORM ALLOWANCES $137,424 $136,042 159 4. UNIFORMS AS AUTHORIZED, ETC. (CONTINUED ) l.a. The elements of costs included are (1) either the purchase of the uniform for the employee or (2) the granting of a uniform allowance with which the employee must purchase the uniform him or herself. l.b. Costs for uniform or uniform allowances are reported in the operating accounts of the division or unit of the Commission for which the employee works. There are no other operational or capital costs for uniform purchases of uniform allowance elsewhere in the budget. I.e. Comparative costs of each element in 1979, 1980, 1981 are as follows (in thousands of dollars): Uniform Allowances 1979 1980 1981 First Aid Station Nurses Guide Service Magistrates' Courts and Motor Transportation Division Uniforms Purchased Police Division Canal Protection Division Fire Division Recreation Services Supply Division - discontinued by Treaty Education - discontinued by Treaty Hospitals and Clinics - discontinued by Treaty Grounds - Cemeteries - discontinued by Treaty Community Service Division - Movers Canal Support Division Locks Division 23 22 19 52 32 34 16 13 16 2 2 2 12 - - 2 - - 57 - - 2 - - 2 2 2 14 39 33 38 25 27 Total of Uniform Purchases and Allowances $223 $138 $136 160 8 in oo o 8 8 -* oo O 4) ■H U t-i co 41 JS 4) -H 2 fa O i-l o rH m 2 41 SI HOB) 3 .. * a B »M (J 0)"* O 4J O O -H • i a "si B « -I B 4) co O 4-) C .« .a 4) a a> — 1) «j 09 -O O O «CJ - 0) 00 I O 03 U tH oj o I » «l » oj to B OJ ' O »m -H a u o M 0) U oo o O > -o -o CO -H «0 C ►Juan U) o o u o o U u_, H O -H o fa £ WO I CO 01 U 2 •^ B O ) o . CJ 0) 5 a I oo - tl V ■• ■J cj iHO E OH O US a CJ •* 4J B P fa O O CO Ssc/i oi u •«<« l-i l-l (DO co c -h ca m *-> 00 O B 4) • ■rH -H Si 41 4J rH oi •- a a - •H U 01 eO -H > aj co B CO >> a «-> CO 3 •-i a at -o (0 o. .. log co oi 9 B 09 CO C 2b u B cO Cu 3 01 O. Q.-H >M O 01 co co 41 6 161 25 Ul 60 0) 3 -H 3 •H C T3 0) «] 3 o J= C •rl O O C C O CO o -o £U > O D. - rH > U C a ■ > oi oi a O •• C VHfr, o •H U O ,J C -H C 01* Q O. B < in en I- C S3 C *J u c cej C -h oi u c «u B « b > (0 C > 3 o c o o o O Pi 01 60 oi c .-I H C -H (8 o -w .* C £> ac u cfl CO C O U hJ U 3 c <0 •O M o ■V 01 11 D O ►J U II E 3 o er 01 41 CJ U eg 01 0) 01 -H sees 162 OPERATION OF GUIDE SERVICES 6. OPERATION OF GUIDE SERVICES - On Page 36E of questions for the record, the Guide Service is described as including a "reception service." What does this service do? How does it differ from "Official reception?" What does "guide service" pay for besides the guides' salaries and what are the salaries? How much does the operation of the launch Las Cruces cost? How much is budgeted for movies? Is this production of movies included within this object of expenditures, i.e., guide services? The "reception service" refers to costs of maintaining visitor facil- ities at the locks, i.e., observation platform, theater for slide and film presentations. In FY 1979 this expense amounted to $13,000. This reception service is an "open to the public" service targeted to the general public and local civic and educational groups, as distinct from the official reception and representation activities which deal with the Administrator's responsi- bilities as a representative of the United States Government in his appoint- ment to the Commission. Included in the Guide Service budget, in addition to salaries and uniforms, are transportation services and supplies. Salaries in 1979, and estimated for 1980 and 1981 are $133,000, $153,000 and $166,000, respectively, including $875 for uniform allowances each year. Transportation costs are incurred in connection with orientation tours for groups or visiting dignitaries. This amounted to $9,000 in 1979 and is budgeted at $17,000 and $21,000 for fiscal years 1980 and 1981, respectively. Supplies refers to cost of replacing films used in briefings. One thousand dollars is budgeted for each year. No funds are budgeted for production of motion picture films, since all are produced by the Graphic Branch. Only funds for replacement of prints are budgeted by the Information Office, as noted above. The cost of operating the launch Las Cruces is as follows: (dollars in thousands) 1979 1980 1981 $101 $217 $139* *Las Cruces is scheduled to go out of service for a period of two months during FY 80 for its biennial overhaul. l.a. The elements of cost included are: 1. Salaries and uniforms 2. Commission services for transportation 3. Supplies and materials 163 l.b. There are no other costs related to the same object Included elsewhere In the budget for operating expense or capital outlay. I.e. Comparative coat* of aach element In 1979, 1980 and 1961 are: (Dollars in thousands) 1979 Actual 1980 Est. 1981 Est. Guide Service: Salaries and uniforms Commission services Supplies & materials $133 9 $153 17 1 $166 21 1 Engineering & Construction: Las Cruces $101 $217 $139 Marine Bureau: Miraflores & Gatun Locks Pavilion $ 13 $ 13 $ 13 RECLAMA TO REDUCTION OF $68,000 FOR GUIDE SERVICE In FY 1981, the funding requirement for operation of the Commission Guide Service is $340,000. The proposed limitation of $272,000 is not suffi- cient to finance this activity at acceptable levels of service. The limitation as proposed would serve to remove the launch Las Cruces from service, and such action has implications beyond the Guide Service itself, since the launch is also used by employee groups for recreational purposes. The adverse impact on employee morale to be realized by removing the Las Cruces from service is counter-productive to management's repeated commitments to restore and enhance employee morale. The launch Las Cruces makes scheduled trips in the Panama Canal every other Saturday. The trips are one phase of a tour of the Locks conducted by the Guide Service for visitors. In addition, the launch is available for official use on behalf of visiting representatives of governments, and officials from industry and shipping interests from all nations. Also, the launch can be reserved for use of individual employee groups and organizations for recreational purposes at nominal cost. In 1979, the launch served some 800 persons on official visits to the agency; carried over 4,000 visitors and tourists on a partial transit of the Canal while touring the Locks; and was available for employee recreational purposes on 92 occasions averaging 125 guests each time. 164 In addition to the Las Cruces, funds are required to operate visitors pavilions at Miraflores and Gatun Locks seven days a week. More than 300,000 visitors were handled during FY 79, including government, shipping, and industry officials from the maritime nations of the world. The Guide Service also conducts tours and gives briefings to local civic and educational groups to the U.S. and foreign military, to U.S. Government officials and other dignitar- ies, and to cruise ship passengers. These services increase understanding of Canal operations and foster close friendly relations between the Canal Commis- sion and the many diverse groups having interests in the waterway. The Guide Service, through the promotion of good will toward the U.S. Government, helps create a favorable atmosphere for the acceptance of the U.S. presence on the Isthmus and its role in the new relationship with the Republic of Panama. During this transition period when there is much anxiety and uncertainty, the role of the Guide Service has become even more important than in the past as a means of providing communication and a spirit of mutual understanding and . cooperation. 165 RESIDENCE OF THE ADMINISTRATOR 7. RESIDENCE OP THE ADMINISTRATOR - What will the $60,000 for the Administrator's residence buy? How much of the $60,000 is attributable to the entry into force of the new treaties? Already $64,000 was included within this item for FY 80. What did this figure buy? (including cost of each item) What did 1979' s $49,000 buy? Specify what staff is employed by the Commission at the residence and what is paid to each? The costs budgeted for each fiscal year (FY 79 - $49,000; FY 80 - $64,000; and FY 81 - $60,000) provide for services required for upkeep and maintenance of the official residence on a minimal cost basis as itemized in Attachment 7-A. None of the costs for the fiscal years above are attri- butable to the new treaties. Although a staff of four employees is retained at the residence, for budget purposes the payroll expenses of these employees have historically been included in the costs of the Administrator's Office and Staff on page 21. The FY 81 costs of their salaries (including provisions for leave and retirement) are as follows: 1 Housekeeper ($9,800); 1 Cook ($14,50D) and 2 Maids ($16,700). l.a. Elements of cost for the Administrator's Residence range from substantial expenses required for maintaining the central air conditioning system and spiraling costs of electric current, to lesser items such as telescoping window washers for high windows, and bed linens for the official guest bedroom. See Attachment 7-A for breakdown of house costs by category. l.b. A description of costs relating to the Administrator's Residence which are funded elsewhere in the operating budget is shown below. FY 79 FY 80 FY 81 1. Four employees funded in Administrator's Office and staff, page 21 of Budget Justifications Book $30,000 $40,000 $41,000 2. Replacement of china, crystal, silverware imprinted with Seal of Canal Zone Government, page 15 of Budget Justifications Book, Treaty Implementations Costs -0- $11,000 -0- 3. Structural repairs due to termites, page 24 of Budget Justification Book, Extraordinary Repairs to Buildings and Sites $ 6,000 $ 7,000 $ 7JOO0 FY 81. I.e. See Attachment 7-A for comparison of costs for FY 79, FY 80, and l.d. See Attachment 7-A. Some specific examples of costs which will undoubtedly be incurred within these categories in FY 81 include the following: periodic maintenance of air conditioning systems and ice maker; electrical and carpentry repairs; replacement of overage household appliances and security lights; replenishment to normal level of china and glassware depleted through breakage; piano timlnu; and purchase of household cleaning supplies. 166 M o oo O vDHl v© CM ml © iH Li 321 .. 00 si 5*. « •H G a) w u 01 rH 00 -H U) 0> J*. « c o (0 c 01 o 00 O -H 0) O d *j c io <0 <0 fl -Q C o c 01 § 0) -H 01 *j 3 w e *j 3 3 fc~ CHt( r-4 O. 01 00 p ■as. ■H (0 «J 4J > O a p. (0 -H • w o* • oi w ■H H H O. O is 167 CONTINGENCIES OF THE ADMINISTRATOR 8. CONTINGENCIES OP THE ADMINISTRATOR - To what apaciflc end* ware 1979' a $10,000 of the Administrator's contingency fund put:' Please list the grants and other monies expended for community groups under this item? Why does the Commission request $25,000 this year? The funds were used to finance those goals identified in the petition- ing organization's request for aid. Following is a list of the grants and the type of assistance given in 1979: GRANTS Organizations Amount Received Pedro Miguel Gun Club - the club received assistance for the purpose of constructing toilet facilities on the club grounds. Since the club does not have toilet facilities, they are unable to encourage its members and families to partici- pate in lengthy trap shoots, picnics, and other club activities. $3,000 Canal Zone Handicraft Club - the club received assistance to make improvements to their club room in Building 5534, Diablo. With the assistance the club purchased a used air conditioner, tables, chairs, and other office and hobby supplies needed to conduct the club activities. The club is a non-profit organi- zation whose primary purpose is recreation and instruction through the exchange of craft and art- related ideas and skills. $ 500 International Swim Club - the swim club received assistance for the purchase of training equipment and to make repairs to their trophy case and storage box at the Balboa Pool. The club is a non-profit organi- zation established to provide Pacific side youths with competitive swimming instruction and meets throughout the former Canal Zone, Latin America and the United States. $1,000 Brazos Brook Golf Club - the club received assistance for the purpose of replacing antiquated golf course equipment, improving sanitation, and for improvements to the clubhouse facilities. This club provides a much needed recreational facility for Com- mission employees and dependents on the Atlantic side. $2,000 168 GRANTS Organization Amounts Received The Tiger Rags - the Tiger Rags received assistance for the purchase of uniforms for the Cristobal High School Senior Band. The Band, in addition to playing at school activities, play at various community functions and gives cpncerts at the elementary schools. The organi- zation raised money for the uniforms by welcoming donations from civic and fraternal organizations ' and by holding fund raising activities such as concerts, bake sales, dinners, shows, etc. The organization collected $4,004 in their fund drive. $ 2,000 Balboa Rams - the club received assistance for purchasing necessary football equipment. The program provides an activity for approximately 100 children ages 10-15 from the Panama Canal communities. This program relies entirely on minimal registration fees, booster sales, sponsors donation and community donations. $ 1,500 Total amount allocated $10,000 Why does the Commission request $25,000 this year? The $25,000 requested for 1980 and 1981 is required to maintain an acceptable level of support to community activities that include employee community and recreational organizations and Residents Advisory Committees. The grants and services given to employee community organizations and recre- ational activities and to the Residents Advisory Committees are based on the demonstrated need and benefits which will ensue in terms of the quality of life and morale of the Commission employee and dependents. It is especially important that the Commission make every effort to demonstrate its concern over the impact that the recent changes have had on community life. The financial assistance available throught the contingency fund is a proven factor in sustaining morale, and serves to offset the added costs that these organizations now have. They must now make purchases from higher cost outlets in Panama since the Canal retail activities have ceased to exist. The Residents Advisory Committees are composed of elected represen- tatives of the various Commission residential areas who speak and act on behalf of the Canal employees on matters affecting the community and the quality of life. The Residents Advisory Committees provide forum for discussion of problems and concerns of the residents, and speak to the Administrator on the part of the employee and dependents. For 1979, the financial support for such organizations, then called the Civic Councils, was provided by the Canal Zone Government contingency fund. 169 Support of the Residents Advisory Committees is in the form of providing and. maintaining meeting halls and offices, telephone, electric and water service, and other services and supplies available from Commission activities. The grants given to employee community and recreational organizations and the Commission support given to the Residents Advisory Committees, are based on the demonstrated need and benefits which will ensue in terms of the quality of life and morale of the Commission employee and dependents. l.a The elements of cost for which the dollar grants were provided from the contingency fund in 1979 are shown in the preceding listing. For 1980 and 1981, the cost elements are expected to be of the same nature, and in addition will include the cost of telephone service, facilities maintenance, electric and water service, and minor quantities of supplies associated with the operations of the Residents Advisory Committees. l.b. There are no other such costs for these purposes elsewhere in the operating or capital budget. i I.e. Comparative costs for each element in 1979, 1980 and 1981 are: 1979 1980 1981 Assistance to Employee Organizations $10,000 $17,050 $17,050 (Detail shown above for 1979) Residents Advisory Committees (funded in 1979 by the Canal Zone Govern- ment) Building custodial service Electrical service Water Service Telephone service Subtotal Total contingency fund l.d. .This question does not apply. $ 204 $ 300 $ 300 $ 3,624 $ 6,000 $ 6,000 $ 94 $ 150 $ 150 $ 1,003 $ 1,500 $ 1,500 $ 4,925 $ 7,950 $ 7,950 $14,925 $25,000 $25^000 170 PROCUREMENT OF EXPERT AND CONSULTANT SERVICES 9. PROCUREMENT OF EXPERT AND CONSULTANT SERVICES - Please provide an item-by-item accounting of Actual 1979 consulting expenditures and of 1980's to date. Why, after a $177,000 increase in estimated consulting costs for FY '80 does the Commission need the same level of consulting work for FY '81? How many consulting contracts are to be carried over from FY '80 to FY '81? How many new ones are anticipated and for what projects? How much money under this category does the Commission expect to hold in reserve? An item-by-item accounting of actual 1979 consulting expenditures and of 1980 to date is as follows : Consultant or Consulting Firm Equipment Consultants Data General Corporation Office of Personnel Management Office of Federal Women's Program FY 1979 Description of Work Amount in Thousands of Dollars Chemical Cleaning of boilers at Miraf lores Power Plant $ 3 Perform diagnostic test and repair of Data General Computer at Marine Traffic Control Center $ 8 Instructions for Labor-Management courses $ 26 Advisors for Federal Women's Program $ 2 Arthur Andersen Provide a basis to plan the accounting that should be followed by the Panama Canal Commission to provide the most responsive and meaningful reporting system. The basis to be adopted would be in accordance with generally accepted accounting principles establishing the basis for the setting of toll rates and financial reporting which measures the financial results of operations in the most effective manner. A formal report to be issued at the completion of study $139 171 Consultant or Consulting Firm Arthur Andersen Description of Work 1. Financial Planning system-design and Installation of computer-based budgeting system- first phase was completed March 1978; second phase in final stages of implementation. 2. Inventory Control System- Modifying existing storehouse management system to daily rather than cycle processing and for on-line inquiry into the computer files. 3. Project and Job Management System- substantial modifications to existing system to provide for daily status reporting on projects and jobs requiring timely monitoring and effective cost control. Amount ^^-~ in Thousands of Dollars 4. Personnel Management and Payroll System-Conceptual design of comprehen- sive and integrated personnel management and payroll system $294 TOTAL FY 1979 $472 FY 1980 THRU JANUARY 1980 Captain Hopkins Arthur Andersen Marine Consultant in support of a tug mix analysis and other studies concerning future tugboat procurements $ 6 Provide a basis to plan the accounting that should be followed by the Panama Canal Commission to provide the most responsive and meaningful reporting system. The basis to be adopted would be in accordance with generally accepted accounting principles establishing the basis for the setting of toll rates and financial reporting which measures the financial results of operating in the most effective manner. A formal report to be Issued at the completion of study.. $ 31 172 Consultant or Consulting Firm Description of Work Amount in Thousands of Dollars Arthur Andersen Financial Planning system-design and installation of computer- based budgeting system-first phase was completed March 1978; second phase in final stages of imple- mentation. Inventory Control System - Modifying existing storehouse management system to daily rather than cycle processing and for on-line inquiry into the computer files. Project and Job Management System- subtantial modifications to existing system to provide for daily status reporting on projects and jobs requiring timely monitoring and effective cost control. Personnel Management and Payroll System- Conceptual design of comprehensive and integrated personnel management and payroll system $ 92 TOTAL FY 1980 THRU JANUARY $129 The following table explains the $177,000 increase in the estimated consulting cost for 1980 over 1979 actual: FY 1979 FY 1980 FY 1981 (In Thousands of Dollars) Professional services in connection with major computer systems development and revisions to existing accounting, and reporting systems; financial accounting, inventory controls procedures, project and job management systems and personnel management and payroll system $432 Economic studies for special traffic forecasts and economic analyses and management studies; special counseling as required in connection with toll studies; vessel accidents; Equal Employment Opportunity program review and Labor Relations Evaluation and training. . $ 28 Miscellaneous studies including Canal improve- ments, pilot recruitment advisory services, and tug procurement $ 12 TOTAL $472 $343 $240 $343 $240 $ 67 $650 173 Consulting contracts are not carried over from one year to another per se. The length of the contract is determined prior to negotiations with the consultant. No contract goes beyond one year. If it is determined that • particular consultant's aarvlcaa ara needed in tha following yaar, a naw contract is negotiated. In this sense, the Arthur Andersen's contracts and the Captain Hopkins contract may be "carried over" by way of a new contract from FY 1980 to FY 1981. There are no contracts anticipated in 1981 for services other than those utilized in 1980. In 1980 and 1981 the Commission has budgeted $195,000 as a provision for unanticipated needs for consulting service that may arise due to emergencies or other unforeseen events. l.a. Contract costs, with the exception noted below, include personnel service costs, travel costs and per diem. l.b. The contracts for Arthur Andersen do not include local travel cost and nuts for telephone and miscellaneous Commission services. These costs are recorded in the operating accounts of the Office of Financial Management. I.e. Comparative costs of each element in 1979, 1980 and 1981 are (in thousands of dollars): FISCAL YEAR TOTAL PERSONNEL SERVICES TRAVEL PER DIEM AND OTHER COST 1979 Actual $472 $357 $57 $58 1980 Estimate $649 $519 $60 $70 1981 Estimate $650 $520 $60 $70 59-319 0-80-12 174 MAINTENANCE OF OTHER GOVERNMENT FACILITIES USED BY THE PANAMA CANAL COMMISSION 10. MAINTENANCE AND ALTERATION OF FACILITIES USED BY THE PANAMA CANAL COMMISSION, OWNED BY THE GOVERNMENT OF PANAMA OR OTHER UNITED STATES GOVERN - MENT AGENCIES - Which specific facilities are to be refurbished, altered or maintained and at what cost apiece? When will each of these facilities be turned over to Panama? What work will be done to each? Please provide a breakdown by cost of labor and cost of materials for the $3,855,000 for housing maintenance cost? What major types of repairs are anticipated for employee housing? The average cost of rehabilitation of employee quarters using Commission figures, is approximately $10,000 per unit. The average cost of reroofing is $10,000 per unit. The average cost of insulation is $10,000 per unit. How did the Commission arrive at these figures in calculating their anticipated expenditures? U. S. GOVERNMENT AGENCIES In 1980 and 1981 the Commission will be maintaining one facility that is owned by another United States Government Agency. That facility and the cost to maintain it is as follows: Facility Maintenance 1980 1981 Semaphore Hill Antennas ... 20 20 l.a. Exactly what elements of cost are included? The elements of cost are routine maintenance/repair of the antenna facility. l.b. There are no other costs related to the same object elsewhere in the budget. I.e. Comparative costs of each element are shown below: 1979 1980 1981 Maintenance Service 20 20 175 GOVERNMENT OF PANAMA This item covers employee rental housing, the use of which has been retained by the Commission. Under treaty provisions, 20% of the Panama Canal Company's housing inventory was to be released to Panama within 5 years. The target already was exceeded on October 1, 1979 when approximately 25Z was released. Furthermore, major maintenance and improvement efforts will be directed only to housing which is anticipated to be retained for longer periods of time. Employee housing units will be maintained in 1981 at an average annual expense of $1,200 each for housing maintenance costs. The attached schedule of costs indicates at Item 1, the three major types of repairs that will generally apply to each housing unit with descriptions of the work performed under each type. The Canal agency experiences higher than normal costs associated with maintenance of facilities and structures due to the tropical environment here on the Isthmus. High humidity, tropic sun and sea-salt air combine to require a higher level of overall maintenance effort. The $3,855,000 for housing maintenance cost breaks down into $2,891,000 for labor and $964,000 for materials. In addition to the $10,000 per building unit cost for reroofing and insulation, the third category of capital improvements and rehabilitation of employee quarters on page 36 is $3,750 per apartment unit. The average unit costs were developed from engineering designs and cost estimates for the various mix of types of building units containing a miscellaneous number of apartment units. l.a. Elements of cost for maintenance and alterations of Commission housing facilities range from substantial expenses required for interior and exterior painting of quarters and repairs for termite damage to lesser items such as replacing broken jalousie window panes and regulating thermostats on hot water heaters. See the attached chart for breakdown of housing maintenance costs by category. l.b. All costs relating to this object are included in the attached chart. Note that capital obligations of $800,000 and extraordinary repair costs of $454,000 are not included in $3,855,000. I.e. See attached chart for comparison of costs for FY 79, FY 80, and FY 81. 176 It O 10 O LO OO lO ! § I O en co P-. cm < c o 2 w 2 ~ 2 o 5?~ 5 10 i «3 •a 5 j= ■£ emu" <0 T3 D 3 +J (0 C 3 S a- u 0) u U 2 c (0 < c 2 0) w H c 2 5 i 2 "3 o 0) z c a> 00 U 3 (/) C " OT H <0 Cn £3 - « £ °" e 2 « ° 3 uk ~ 2 C X w g o E a w o is C3 10 w 9- to £ -5 3 10 i_ o . 2 £ 6 S en -^ C £ 5 o £ £ CO H .c x: x: o o o O 1 o a) o o o £ o — « m ^h T r- H H S .2 1 1 1 0) > = 1 .§ = 00 K U H a Cm oo O O M . o (0 (0 (0 c c c 3 3 3 C C C < >> > T o o KO CD o CM O o 00 CD v> H O •C H o u 0 10 aJ a! ' /30 177 H X) !j 0) « ° o E" l* z: >■ O w 2 w D O X u. o 2 « ^ O 3 ,v - H 2 < ^ u-i H -J •T Q z < U T3 o 0) ^ 3 c ■ £ ^ c w o X U < <='• o H 13 — S 35 W 0) O «■§£ E c « Q) cy a ^ g <" c 5 £ .2 •§ (/> 10 "O t- X) c &!♦; ill — . (0 v e jS a! £ w in 55 o a ■c E 0) — < 178 11. COMPARATIVE ANALYSIS OF BUDGET ESTIMATES Page 1 of 20 Executive Direction 1978 1979 1980 1981 Actual Actual Estimate Estimate (Dollars in thousands) Director's expenses 11 25 79 85 President's/Administrator's office and staff .. 2,244 2,455 3,511 3,804 Secretary's office, Washington, D. C 168 180 192 202 Panama Canal Information Office 662 693 802 887 Tour guide, launch, and reception service 90 114 230 152 Consultants and advisors 216 178 427 428 ^Official Residence of President/Administrator.. : _ ;__ 64 72 Total executive direction 3,391 3.645 5.305 5.630 Operations Direction Marine Director's office 310 316 401 432 Engineering and Construction Director's office. 758 813 920 995 lflealth and Safety Chief's Office - - 443 467 2£eneral Service Director's office - - 910 975 2£upply and Community Service Director's office. 275 287 ^transportation and Terminals Director's office. 332 362 General and Special engineering service 717 462 902 966 Total, operations direction 2,392 2,240 3,576 3,835 Total financial management Financial Management 8.462 Personnel Administration Total personnel administration 3.757 3,890 4,214 General Services Administrative Services Division Public services Company buildings Contingencies of the President/Administrator, Panama Canal General services , 1,758 101 1,389 3,256 2,080 129 1,528 10 3,747 3,262 97 3,157 U Formerly Canal Zone Government (1978 and 1979). 2/ The General Services Director's office has absorbed the functions remaining from the Supply and Community Service Director's office, Transportation and Terminals Director's office and Civil Affairs Director's office in 1980 and 1981. -1- 1978 1979 Actual Actual 1,025 942 1,275 1,559 184 267 1,056 1,166 633 471 140 175 119 177 ,495 1,826 470 510 150 150 130 155 179 11. • Continued • rngc 4 01 *u Employment Cost 1980 1981 Estimate Estimate Employe*** States travel 1,025 942 1,522 1,523 1/ Recruitment and repatriation , ^/Transportation of employees' motor vehicles.., Other employement costs: Apprentice training program Employer's contribution to FEGLI Incentive award payments PICA Total employment costs 4,432 4,757 3,767 1. Transit Operations . The services performed by this activity are: Maintenance of channels and harbors Navigation service and control Lock operations General repairs, engineering, and maintenance services TJ Security and protection services 2/ Industrial health and sanitation 3/ Public service payments to Panama Annuity payments to Panama General canal expense Total operating costs Less intra-agency recoveries Net operating costs 1978 1979 1980 1981 Actual Actual Estimate Estimate (In thousands of dollars) 31,835 32,738 36,852 38,536 43,597 48,751 54,093 59,395 27,676 30,303 37,531 41.093 41,675 45,412 35.606 39,788 - - 17,516 18,249 - - 2,584 2,811 - - 10,000 10,000 519 519 65,920 68,560 19.948 29.968 187,691 22,684 282,786 15,380 165,250 293,812 -48.014 -54.132 133,559 -41,516 241,270 -44,242 117,236 249,570 rcial vessel traffic volume and other indices of workload are as follows: Ship transits (over 300 net Panama Canal tons) 12,785 13,056 13,765 14,030 Tolls $195,735 $209,520 $299,638 $313,940 1/ Estimates for 1980 and 1981 are shown under Administrative and General Operating expense (page 19) . 2/ Formerly Canal Zone Government (1978 and 1979). 3/ As required by the 1977 Treaty, payments to Panama for services such as garbage collection, street cleaning and Police protection in certain areas of the former Canal Zone. -2- 180 UUIIHIIUCU 2. Supporting services . The services performed by these support activities are: 1978 1979 1980 1981 Actual Actual Estimate Estimate (Dollars in thousands) Supply and logistical services 73.979 80,748 42,114 42,899 Utilities 25,897 31,699 39.067 44,446 Other supporting services 68,657 78,451 15,869 16.924 Total operating costs 168,533 190,898 97,050 104,269 Less intra-agency recoveries -62,496 - 70,^006 - 47,246 -48 602 Net operating costs 106,037 120.892 49.804 55.667 Revenue and Expense Transit operations: Revenue-' 227,566 2 45,324 337,524 349,952 Expense 117.236 133.559 241.270 249.570 Net operating income, transit operations 110,330 111,765 96,254 100,382 Supporting activities operations: Revenue 102,855 112,166 46,191 51,805 Expense 106.037 120.892 49,804 55,667 Net operating income, or loss(-) supporting activities operations -3.182 -8,726 -3,613 -3,862 General corporate expenses: (Administrative/General) Revenue 588 630 468 381 ^/Net cost of Canal Zone Government 23,340 25,400 3/ Interest 19,361 20,782 3/0ther 49.350 52.920 93,109 96.901 General corporate expense, net -91,463 -98,472 -92,641 -96,520 Net operating result 15,685 4,567 -0- -0- 1/ Net of capital surcharge -7,031 -4,225 I 2/ Cost associated with the former Canal Zone Government 0.978 and 1979) . V Interest payments reflected in "Other". 181 PANAMA CANAL COMPANY, 1966-1979 PANAMA CANAL COMMISSION, 1980-1981 TRAFFIC AND TOLLS STATISTICS Fiscal Years Actual 1966 to 1979 - Estimated 1980 and 1981 Number of Transits Conine r- U. S. Total clal Govern- Total Tolls PCC Net Revenue ment Revenue (In thousands of Tonnage Fiscal Years Transits 12,470 Vessels 725 Transits 13,195 Dollars) (in millions) 1966 72,588 83.0 1967 12,982 980 13,962 82,297 95.1 1968 13,770 1,625 15,395 93,154 107.5 1969 13.733 1,495 15,228 95,914 110.5 1970 14,234 1,158 15,392 100,875 115.6 1971 14,601 626 15,227 100,567 114.7 1972 14,543 561 15,104 101,488 116.0 1973 14,563 491 15,054 113,381 128.8 1974 14,859 358 15,217 121,320 137.9 1975 14,413 280 14,693 143,332 136.4 1976 12,902 221 13,123 134,988 128.5 19TQ 3,241 54 3,295 35,465 33.8 1977 12,655 365 13,020 164,685 134.0 1978 13,469 290 13,759 195,735 157.6 1979 13,871 426 14.297 209,520 168.5 1980 (Est.) 14,405 300 14,705 299,638 186.4 1981 (Est.) 14,670 300 14,970 313,940 195.2 Monthly, Fiscal Year 1979 October, 1978 1,169 41 1,210 18,389 14.8 November .... 1,145 30 1,175 17,725 14.2 December . 1,173 30 1,203 18,299 14.7 January, 1979 1,157 42 1,199 16,945 13.6 February .... 1,054 22 1,076 15,225 12.3 March 1,274 30 1,304 19,485 15.7 April 1,222 46 1,268 18,200 14.7 May 1,225 30 1,255 17,854 14.3 June 1,068 38 1,106 15,581 12.5 July 1,170 32 1,202 17,697 14.2 August 1,141 49 1,190 17,588 14.1 September . . . 1,073 36 1,109 16,532 - 13.4 Total FY 1979 13.871 426 14,297 209,520 168.5 Monthly, Fiscal Year 1980 October, 1979 1,170 43 1,213 23,849 15.0 November .... 1,074 32 1,106 22,158 13.8 December .... 1,134 28 1,162 23.387 14.5 Total year to date FY 1980 3,378 103 3,481 69,394 43.3 NOTE: Transits of and tolls from small vessels under are Included in above statistics. 300 P.C. net tons measurement 182 11. Continued Page 5 of 20 1978 1979 1980 1981. Actual Actual Estimate Estimate Tolls Income Commercial traffic: Ocean-going Small craft Total commercial tolls U. S. Government traffic: Ocean-going Small craft Total U.S. Government tolls credits. Total tolls and tolls credits Number of Transits Commercial traffic: Ocean-going Small craft Total commercial I United States Government traffic: Ocean-going Small craft Total U. S. Government Total revenue transits Free transits, not included: Ocean-going Small craft Total free transits Total number of transits Other Data Average number of ocean-going commercial vessels per day Total Panama Canal net tonB transiting (in thousands) (Dollars in thousands) 194,765 71 194,836 208,375 77 208,452 298,288 105 298.393 312,590 105 312.695 899 1,054 14 1.068 1,225 20 1.245 1,225 20 899 1.245 195.735 209.520 34.7 35.4 157,562 168,500 299,638 313.940 12,677 792 13,469 12,935 936 13,871 13,655 750 14,405 13,920 750 14,670 103 187 290 111 315 426 100 200 300 100 200 300 13,759 14.297 14.705 14.970 5 44 49 10 55 65 10 50 60 10 50 60 13.808 14,362 14.765 15,030 37.3 186,400 38.1 195^00 -5- 183 11. Continued Page 6 of 20 Maintenance of Channels and Harbors (Maintenance of Channels, Dams and Spillways) 1978 Actual 1979 Actual 1980 Estimate 1981 Estimate (Dollars in thousands) Operating Expenses : Suction and dipper dredging operations Other floating equipment operations Coredrlll operations Meteorological and hydrographic Maintenance repairs and overhaul services. Supervision and general operations Other Depreciation and nonf und expense Gross operating expenses In terd ivisional sales and services Net operating expenses Revenue : (Sales of Service) 4,117 4,302 6,143 5,974 2,834 3,344 3,677 4,138 1,468 1,484 1,626 1,752 1,854 2,145 2,242 2,389 4,207 4,622 4,255 5,214 1,816 2,108 2,502 2,728 6,568 5,540 7.090 6,694 8,971 9,193 9,317 9,647 31,835 32,738 36,852 38,536 6,191 6,758 5,893 6,091 25,644 25,980 30,959 32,445 621 1,607 18 20 Navigation Service and Control Operating Expenses : Transit and port pilotage , General port operations , Vessel control, admeasurement and dispatch.. Handling ships' lines , Tug and launch operations Supervision and general operations , Depreciation and nonf und expense Gross operating expenses Interdivisional sales and services Net operating expenses Revenue : Harbor pilotage Handling ships ' lines Tug and launch services Wharfage, moorings, right of basin and misc. Total Revenue 12,032 13,700 15,190 16,360 1,198 1,244 1,439 1,459 3,645 3,794 4,474 4,880 8,105 9,491 10,898 11,949 15,047 16,070 18,332 20,895 2,468 2,994 2,634 2,770 1,102 1,458 1,126 1,082 43,597 48,751 54,093 59,395 207 112 101 109 43^390 48,639 53,992 59,286 1,429 1,528 1,667 1,861 9,986 11,273 13,349 14,995 15,711 18,454 19,537 19,497 980 711 75 75 28,106 31 r 966 34 628 36,428 184 11. Continued Page 7 of 20 Locks Operations Operating Expenses : Lockage operations Locks maintenance and repair Administration, supervision, and general operations Accrual for locks overhauls, nonfund .... Depreciation and other nonfund expense . . Gross operating expenses Interdivisioral sales and services Net operating expenses Revenue: 1978 1979 1980 1981 Actual Actual Estimate Estimate (Dollars in thousands) 7,709 8,405 10,095 11,330 13,103 15,726 19,509 21,109 2,405 2.449 3,317 3,642 2,742 2,015 2,727 2,964 1,717 1,708 1.883 2,048 27,676 30,303 37,531 41,093 1,215 1,680 2,172 1.033 26,461 28,623 n General Repair, Engineering and Maintenance Services Operating Expenses : General maintenance 19,185 20,532 Vessel repair services 12,932 14,445 Electrical services 4,877 5,399 Engineering services 3,295 3,584 Contract and inspection services 632 660 General Laborary services . ... 300 342 Depreciation and other nonfund 454 450 Gross operating expenses 41,675 45,412 Interdivisional sales and sevices 39,868 44,175 Net operating expenses 1,807 1,237 Revenue : (Sales of Services) 2,450 2,223 13,036 14,269 12,097 14,619 4,885 4,912 3,854 4,116 837 947 381 411 516 514 35,606 39,788 33.349 37,008 2,257 2,780 1,202 1,191 Workload Data Work for account of Panama Canal Company and other organizations: 1978 1979 1980 1981 Actual Actual Estimate Estimate (Dollars in millions) General services ; Vessel repair services Electrical services Engineering services Contract and inspection services $ 19.1 $ 20.3 $ 13.9 $ 14.4 14.5 14.3 12.2 14.7 5.0 5.6 4.9 4.9 3.1 3.2 3.6 3.4 .5 .7 .8 .7 185 11. Continued Page 8 of 20 1/ Security and Protection Services Operating Expenses : Police protection Fire protection Canal protection force Industrial security services Emergency prepardness Supervision and general Depreciation Gross operating expenses . . Revenue : 1978 1979 1980 1981 Actual Actual Estimate Estimate (Dollars in thousands) _ - 9,765 9,854 - - 3,667 4,013 - - 3,373 3,593 - - 400 443 - - 106 116 jV Industrial Health and Sanitation Operating Espenses : Industrial health service Zoonotic disease control Sanitation , Depreciation .. Grose operating expenses Revenue; 2,382 2,589 1,148 1,239 102 118 1,328 1,448 6 6 2,584 2,811 8 8 _!/ Treaty transfer of function from the former Canal Zone Government. 186 11. Continued Pngc 9 of 20 Transit Operations General Canal Expense Operating Expenses ; Treaty Derived Costs: 1/ Payments to Panama for public services.... Fixed annuity payment to Panama 1/ Panama Canal net tons transited payment to Panama Relocation of offices and facilities Retail stores closeout costs. Additional costs for printing of forms and regulations Provision for reproduction of drawings of facilities turned over to Panama Marine terminals closeout costs 2/Canal Zone Government services 3/Coat of health services provided by DOD 4/Technical assistance to Panama Thatcher Ferry Bridge operation and maint.... Board of Local Inspectors Miraf lores Swingbridge Maintenance Special canal studies, traffic, and capacity studies Central launch repair/marine salvage Canal protection force Accrual for casualty losses and damages to vessels Other miscellaneous canal expense Functions formerly provided by Canal Zone Government : Customs liaison unit Maintenance of public areas Depreciation and other nonfund expense Gross operating expenses Interdivisional sales and services Net operating expense Revenue 1978 1979 1980 1981 Actual Actual Estimate Estimate (Dollars in thousands) ■-«_. _ _ 10,000 10,000 519 519 10,000 10,000 _ _ 55,920 58,560 - 647 1,061 308 - - 495 - ■ - 4 95 _ _ 60 - - 102 - 6,735 7 ,194 - - - - 3,667 3,997 - - 6,678 - 950 767 - - - 245 397 423 17 73 83 91 185 91 50 52 - 306 375 411 3,123 3 ,523 - - 7,172 15 ,894 6,200 6,200 818 225 134 131 . 414 460 - - 2,215 2,635 948 999 658 672 20,467 30 ,487 98,60'. 93,940 1,186 1 ,407 1 1 19,281 29 ,080 6 98,603 6,6/8 93,939 - - 1/ Treaty cost in 1980 and 1981. 2/ Discontinued, due to Treaty. 3/ Treaty transfer of function. 4/ One-time assistance for reimbursable work. 187 11.' Continued Page 10 of 20 SUPPLY AND L0CI8TICAL SERVICES Supply Services Revenue t Sale of goods Sale of services Total revenue Operating Expenses : Cost of goods Warehouse operations Procurement operations Scrap and salvage operations Excess property, liquid fuel, and office furniture operations Management and general operations Depreciation and other nonfund Gross operating expenses Interdlvisional sales and services Net operating expenses Operating margin or cost (-) 23,982 18,148 5,834 ■3,061 25,620 18,965 6,655 -3,604 18,981 14,033 4,948 -4,714 1978 1979 1980 1981 Actual Actual Estimate Estimate (Dollars in thousands) 2,678 2,935 193 193 95 2,773 116 3,051 41 234 41 234 19,773 20,844 13,856 13,890 1,531 1,641 1,970 1,915 750 755 847 833 145 106 135 143 306 416 433 372 1,361 1,507 1,388 1,380 116 351 352 354 18,887 14,061 4.826 -4,592 1978 Actual 1979 Actual 1980 Estimate 1981 Estimate Storehouse services Receipts (line items) 41,746 38,266 32,000 27,000 Issues (line items) 320,803 308,675 280,000 230,000 Sales (line items) 88,950 84,199 15,000 15,000 Tone of metal classified 3,241 3,772 1,500 1,500 ■10- 188 11. Continued Page 11 of 20 Motor Transportation Revenue : (Sales of Services) Operating Expenses : |Motor vehicle operations Repair shops Administrative and general expense Depreciation and other nonfund expense. Gross operating expenses Interdivisional sales and services Net operating expenses Operating margin or cost (-) Workload: 1978 1979 1980 1981 Actual Actual Estimate Estimate 332 336 9 9 3,951 4,547 4,379 4,730 3,208 4,039 2,657 2,860 1,498 1,675 485 437 702 791 654 663 9,359 11,052 8,175 8,690 8,928 10,725 8,113 8,656 431 327 62 34 -99 9 -53 -25 Number of passenger-carrying vehicles (net fleet at year-end) Number of trucks, trailers, and other vehicles. Mileage, all vehicles except trailers (in thousands) 62 799 8,795 104 757 8,206 137 630 8,114 149 618 7,862 Water Transportation Revenue : (Sales of Services) '. . 3,452 Operating Expenses : Funded costs 10,742 Depreciation 93 Gross operating expenses 10,835 Interdivisional sales and services 7,405 Net operating expenses 3,430 Operating margin or cost (-) 22 Workload : Tons of cargo shipped (in thousands) 182 Number of passengers transported 591 10,868 14 10,882 7,424 3,458 163 506 14,890 14,958 8,162 6,796 147 550 7,756 15 ,254 68 15 7 ,322 673 7 649 107 137 550 -11- 189 11. Continued Page 12 of 20 1/ Marine Terminals Operations Revenue : (Sales of Services) Operating Expenses : Marine bunkering Wharfage Stevedoring Handling and transferring Supervision and general operations Depreciation and nonfund expense Gross Operating expenses Interdivisional sales and services Net operating expenses Operating margin or cost (-) Workload ; Tons of cargo handled and transferred 1,892 Tons of cargo stevedored 1 , 361 Barrels of petroleum products handled 31,550 1/ Railroad Operations Revenue : (Sales of Services) 2,145 Operating Expenses : Road Operations Yard Operations Maintenance of equipment Maintenance of way and structures Freight house operations Supervision and general operations Depreciation Gross operating expenses Interdivisional sales and services Net operating expenses Operating margin or cost (-) Workload : Number of passengers: Panama Canal . , 94 Commercial and other U. S. Government agencies 572 Total . 666 Tons of freight: Panama Canal 65 Commercial and other U. S. Government agencies 120 Total 185 1978 1979 Actual Actual (Dollars 25,906 29,974 4,333 1,192 1,485 1,424 4,065 3,818 12,933 15,362 1,072 4,832 683 748 24,571 27,376 1,781 1,698 22,790 25,678 3,116 4,296 1980 1901 Estimate Estimate (In thousands) 2,282 781 781 576 630 2,221 2,719 1,211 1,122 98 105 205 315 140 146 5,232 5,818 2,371 2,818 2,861 3,000 -716 -718 (In thousands) 190 1/ Discontinued activities due to Treaty. -12- 190 11. Continued Pngo J 3 of 20 Power System 1978 1979 1980 1981 Actual Actual Estimate Estimate (Dollars in thousands) Revenue : (Sales of Services) Operating Expenses : Power generation Power transmission and distribution. Supervision and general operations.. Depreciation Gross operating expenses Interdivisional sales and services.. Net operating expenses Operating margin or cost (-) Workload: 13.034 14,249 24,374 12,004 16,217 21,879 26,400 1,889 2,291 2,626 2,843 1,222 765 1,529 1,418 1,397 1,695 1.392 1^379 16,512 6,596 9,916 3,118 20,968 7,040 13,928 321 27,426 4,716 22,710 1,664 32 5 ,040 ,347 26 ,693 1 ,765 Total power sold, including distribution to Panama Canal activities GWH (millions).... Canal Zone peak, MW (Canal Area) Generating stations operated: Hydroelectric Gas turbine | Steam and gas turbine Substations remote controlled Miles of transmission lines 610 600 603 603 103 105 102 102 2 2 2 2 1 1 1 1 1 1 1 1 6 6 6 6 .7.2 117.2 117.2 117.2 Communications System Revenue : (Sales of Services) 929 Operating Expenses : Central Office Equipment 488 Telephone systems operations 732 Electronics operation 1,348 Microwave system 69 Supervision and general ;... 1,105 Depreciation and nonf und 448 Gross Operating Expenses 4,190 Interdivisional sales and services 3,258 Net operating expenses 932 Operating margin or cost (-)...., -3 Workload : Telephone exchanges 5 Microwave channels 520 Trunk Lines 82 Telephone instruments 11,994 Radio Units Maintained 1,003 1,726 1,746 599 669 692 988 862 953 1,454 1,761 1,776 96 85 92 1,157 1,331 1,427 468 469 460 4,762 5,177 5,400 3,699 3,417 3,638 1,063 -60 1,760 -34 1,762 -16 5 5 2 509 580 580 12,007 10,700 10,750 2,602 2,450 2,400 191 11. Continued PnRo 14 of 20 Revenue : (Sales of Services) Operating Expenses ; Pumping operations Filtering operations Reservoir and water line maintenance.... Miscellaneous operations and maintenance Supervision and general operations Depreciation Gross operating expenses Interdivisional sales and services Net operating expenses Operating margin or cost (-) Water System 1978 Actual 3,683 1979 Actual (Dollars in 4,444 1,410 1,848 868 371 263 341 5,101 641 4,460 -16 1980 Estimate thousands) 5,639 1,599 1,709 800 314 301 330 5,053 456 4,597 1,042 1981 Estimate 5,704 1,125 1,724 1,484 1,872 854 883 347 340 239 308 363 334 4,412 5,461 547 486 3,865 4,975 -182 729 Central Air Conditioning Service Revenue : (Sales of Services) 75 Operating Expenses : Operation and maintenance 697 Depreciation 86 Gross operating expenses 783 Interdivisional sales and services 795 Net operating expenses -12 Operating margin or cost (-) 87 workload: uiected tons at year-end 3,642 Housing Revenue : (Rentals) 5,461 Operating Expenses : Quarters operation 842 Quarters maintenance 3,880 Supervision and general operations 673 Depreciation and other nonfund expense 887 Gross operating expenses 6,282 Interdivisional sales and services 133 Net Operating expenses 6,149 Operating margin or cost (-) -688 82 35 1,251 137 1,385 779 1,312 1,442 89 99 103 868 1,411 1,545 821 297 306 47 1,114 1,239 146 (Tons of air conditioning) 3,628 3,850 3,850 5,786 5,449 5.845 - 1,164 1,132 1,220 4,558 3,514 3,855 780 858 938 924 835 861 7,426 6,339 6,874 204 190 210 7,222 6,149 6,664 -1,436 -700 -819 -14- 192 11. Continued Page 15 of 20 <0 Ofi ' og (continued ) 1978 Actual 1979 1980 1981 Actual Estimate Estimate Workload: Apartments in Inventory 4,146 3,083 Occupied Apartments 3,732 2,733 Bachelor Rooms in Inventory 202 98 Bachelor Rooms Occupied 109 14 3,127 2,956 20 3,127 2,956 98 20 Revenue : Grounds, Custodial and Other Services (Dollars in thousands) (Sales of Services) Grounds maintenance. All others Total revenue.... 434 175 1,609 1,522 202 1,724 439 170 609 483 185 668 Operating Expenses : 1/Youth activities ^/Swimming pools jVOther recreational facilities Care of grounds Garbage and trash disposal Custodial and community services Agency press and duplicating service. Depreciation and other nonfund Gross operating expenses Interdivisional sales and services... Net operating expenses Operating margin or cost (-) - - 166 174 - - 601 708 - - 200 213 3,156 4,164 3,921 4,135 1,664 1,699 343 376 2,670 3,294 2,729 2,913 1,120 1,225 1,355 1,317 119 130 215 214 8,729 10,512 9,530 10,050 7,439 9,122 7,862 8,225 1,290 1,390 1,668 1,825 319 334 -1,059 -1,157 1/ Formerly Canal Zone Government. 193 11. Continued Page 16 of 20 Revenue : Retail Units 1978 1979 1980 1981 Actual Actual Kstlmatc E stima te (Dollars In thousands) Sales of commodities Sales of services Total Revenue Operating Expenses : Cost of goods sold Cost of goods issued Retail merchandising operations Packaging and processing operations Procurement Ocean freight Cargo losses Gasoline service operations Supervision and general operations Depreciation and other nonfund Gross operating expense Interdivisional sales and services, including manufacturing and processing for merchandise inventories Net operating expense , Operating margin or cost (-) Workload ; ;r of units in operation at end of year: Retail Stores Gasoline stations Manufacturing and processing plants Laundry 37,533 48 37,581 42,294 -4,713 39,677 64 39,741 17,764 30,922 1,401 1,611 6,438 8,284 2,497 2,842 1,264 1,214 4,547 5,523 367 310 406 422 1,626 1,576 248 249 46,558 52,953 6,015 -7^197 1/ Discontinued activity due to Treaty. -16- 194 11. Continued Page 17 of 20 Revenue : 1978 Actual 1979 Actual 1980 Estimate 1981 Estimate 1/ Food Units (Dollars in thousands) Sales of commodities , Sales of services Total Revenue Operating Expenses : Cost of goods sold Cost of goods issued Cafeteria operations Vending operations Supervision and general operations. Depreciation and nonf und Gross operating expenses Interdivisional sales and services Net operating expenses Operating margin or cost X") 5,571 5,571 6,452 815 -66 5,853 1 5,854 ,051 3,427 313 320 ,975 2,038 624 674 406 401 83 86 6,946 822 5,637 6.124 -270 Workload Data Number of units in operation at year-end: Cafeterias Vending sites Vending sites with merchandise section 1/ Discontinued activity due to Treaty. 195 11. Continued Pn»4c 18 of 20 1/ Theaters and Bowling Alleys Revenue : (Sales of Services) Operating Expenses : I Theater operations ' Bowling alley operations Management, supervision, and general expense. Depreciation and othe nonfund Gross operating expenses Interdivisional sales and services Net operating expenses Operating margin or cost (-) 1978 Actual 306 345 234 23 34 636 14 622 ■316 1979 Actual 358 200 22 34 614 12 602 •324 1980 1981 Estimate Estimate Workload Data Numbers of units in operation at year-end: Motion picture theaters Bowling alleys General Corporate Expense 1/ Net Cost of Canal Zone Government Accrued Costs : Civil functions: Customs and imigration 1,458 1,385 Postal service 2,808 2,913 Police protection 9,037 9,448 Fire protection 3,713 3,984 Judicial system 382 428 Education 23,276 24,278 Public areas and facilities 5,055 5,253 Internal security 364 364 Other Civil affairs 959 1,036 Health and sanitation: Hospitals and clinics 27,257 28,947 Other public health services 4,375 4,484 General government expense: Office of the Governor 285 308 Disinterment and interment - 310 Other general government expense 5, 139 5,442 Total accrued costs 84,108 88,580 Recoveries: 60.768 63,180 * Net cost of Canal Zone Government 23,340 25,400 ♦Includes a $310 anticipated recovery, by appropriation, for disinterment and interment. 1/ Discontinued activities due to Treaty. _18_ 196 11. Continued Pnftc 19 of 20 General Corporate Expense Interest Payments to the United States Treasury (Administrative and General) Interest-bearing Interest Investment Rate Year (In millions) X (In Thousands) 1978 $ 319 6.071 $19,361 1979 $ 319 6.509 $20,782 1980 $ 209 7.096 $14,846 1981 $ 206 7.096 $14,622 -19- 197 11. Completed Page 20 of 20 Other General Expenses Not Under Limitation (Administrative and General) 1978 1979 1980 1981 Actual Actual Ettimaf Eatlaaca (Dollars In thousands) Operating Expenses : Death and disability (Federal Employee Compensation Act) 1,305 1,297 1,568 1,726 Federal Employees Health Benefit Act contributions 5,697 5,755 5,147 5,395 Alien cash relief payments to former employees and their widows 1,471 1,462 1,579 Severance pay - 1,226 50 Annuitant welfare program 260 276 315 Joint personnel program 377 416 504 Extraordinary repairs to buildings and sites and officical moves within the Canal area 362 626 636 1/Amortization of the cost for early retirement - - 16,700 1/Panama Social Security Payments - - 715 2/Maintenance of food service facilities at job sites 183 183 2/Transportation of Canal Zone Government mail 39 - Excess facility expense 181 169 281 3/Recruitment and repatriation expense - - 4,443 ^/Transportation of employee vehicles - - 872 4/Mail and postal services - - 489 4/Community library - - 587 ^/Probation and parole costs - - 197 4/Judicial system - - 430 — All other funded costs, net 642 530 563 4/Sponsorship of fire protection, education, and hospital services provided by Canal Zone Government 12,537 11,730 ^/Reimbursement to DOD for education and hospital services - - 12,388 Provision for doubtful accounts (nonfund) 721 479 5/Amortization of recoveries of accounts receivable - - -1,733 Repatriation expense variation (nonfund) 570 166 -1,076 Depreciation and other nonfund expense 311 1,138 594 Gross operating expenses 24,656 25,453 45,249 Interdivisional sales and services 551 316 655 Other general corporate, net (Operating expenses) 24,105 25,137 44,594 Revenue . 588 630 468 381 1/ Treaty related costs. 2/ Discontinued activity. 3/ Shown in cost category of "Employment Costs" in 1978 and 1979. 4/ Formerly governmental costs. 5/ Treaty related recovery. 1,586 50 335 556 690 16,700 610 200 3,047 591 500 625 176 423 613 13,129 -1 1 ,733 025 596 46 840 506 46 334 -20- 198 Question #12 : The value of many of the various activities of the Panama Canal Commission could be evaluated through measurements of productivity or output. Please pro- vide any available measurements of productivity for relevant activities of the Panama Canal Company and Canal Zone Government for Fiscal Year 1979, as well as any relevant measurements of productivity or output compiled thus far in Fiscal Year 1980. Answer : Listed below are various measurements of productivity for relevant activi- ties of the Panama Canal Company /Canal Zone Government for FY 1979, including measurements of productivity of output compiled as of January for FY 1980. Oct. /Jan. FY 1979 FY 1980 Panama Canal Organization (Prime Indicator) PC Net Tons Transited (in thousands) 168,477 58,121 Marine Bureau Transits - Total 14,362 4,725 Transits - Vessels over 300 tons 13,109 4,385 Time In Canal Waters (over 300 tons) (average) 24.0 Hrs. 24.5 Hrs. In-Transit Time (average) 8.8 Hrs. 8.5 Hrs. Dredging Division Cubic Yards dredged 1,537,300 366,550 Agency Press & Duplicating Center Units Produced (in millions) 61,402 10,781 Motor Transportation Division Fleet Usage (Measurement of Conservation) : Vehicle Mileage (in thousands) 9,174 2,226 Average number of miles per vehicle 10,852 3,067 Vehicle cost per mile (cents) without chauffeur 26.7c 34.0c!' Repair Shop: Manuals - Motor Parts & Time Guide - Motor Flat Rate Manual - Mitchell Collision Estimate Guide Community Services Division, Manual - GSA Standards for custodial services - 1970 Booz, Allan & Hamilton study for grounds maintenance 1/ Gasoline and salary increases. IIXTH CONGRESS HIE MYERS. FA- 199 Wi.B>. ^ouse of &epresentatibes Committer on fflcrcbant iHarine anb JfisbtrieB Boom 1334. Uongtoorlb Jboust Ottue SuilSing iOasfjtngton, D.C. 20515 March 10, 1980 Mr. Dennis P. McAuliffe Administrator, Panama Canal Commission 425 13th Street. N.W. •Suite 312 Washington, D.C. 20004 Dear Phil: In the course of subcommittee consideration of H.R. 6515, a question has arisen as to whether use of Commission's funds for the residence of the Administrator is authorized by section 5913 of title '5 of the U.S. Code. If the section is applicable, inclusion of the item in the current Commission authorization -may well be unnecessary. As' full committee action on H.R. 6515 is scheduled for March 19, 1980, the views of the Commission on this point should be received here before that date. Your usual prompt cooperation will be greatly appreciated. With best wishes for vou, I am Sincerely yours, / ^ CARROLL HUBBARD Chairman Panama Canal Subcommittee CH:WMW:mpb 200 § b91o. Official residence expenses (a) For the purpose of this section, "agency" has the meaning given it by section 5721 of this title. (b) Under such regulations as the President u\z? prescribe, lunds available to an agency for administrative expenses may be allotted to posts in foreign countries to defray the unusual expenses incident to the operation and maintenance of official residences suitable for — (1) the chief representatives of the United States at the posts; and (2) such other senior officials of the Government of the United States as the President may designate. Pub.L. 89-554, Sept. 6, 1966, 80 Stat. 510. Historical and Revision Notes Derivation: United States Code 5 U.S.C. 3030 Revised Statutes and Statutes at Lar»je Aug. 2, 1046, ch. 744, 5 22; added Sept. 0, 1900, Pub.L. Stt-707, § 311(a), 74 Stat. 79G. Kxphinatory Notes The word "agency" is substituted for "department"' and defined to conform to the definition of "department" in section IS of the Act of AUK. 2, 10JU, ch. 744, GO Stat. 811. Standard changes are made lo conform with the definitions applicable and the style of this title as outlined in the pref- ace to the report. Delegation of Function*. Secretary of State empowered to prescribe rcpulations governing the allotment to posts in for- eign countries, for the purpose stated in this section, of funds available to the de- partments for administrative expenses, and to designate senior officials of this government in foreign countries, see sec- tion 1(c) of Kx.Ord.Xo.10003, Jan. 11, 1901, 26 P.U. 217. set out as a note under section 51)21 of this title. 201 Ch. 57 TRAVEL, TRANSPORTATION, ETC. 5 § 5721 SUBCHAPTER II— TRAVEL AND TRANSPORTATION EXPENS- ES; NEW APPOINTEES, STUDENT TRAINEES, AND TRANSFERRED EMPLOYEES § 5721. Definitions For the purpose of this subchapter — (1) "agency" means — (A) an Executive agency; (B) a military department; (C) a court of the United States ; (D) the Administrative Office of the United States Courts; (E) the Library of Congress; (F) the Botanic Garden; (G) the Government Printing Office; and (H) the government of the District of Columbia ; but does not include a Government controlled corporation ; » (2) "employee" means an individual employed in or under an agency; (3) "continental United States" means the several States and the District of Columbia, but does not include Alaska or Ha- waii; (4) "Government" means the Government of the United States and the government of the District of Columbia ; and (5) "appropriation" includes funds made available by statute under section 849 of title 31. Pub.L. 89-554, Sept. G, 19GG, 80 Stat. 500. Historical and Revision Notes Tlio section is based on sections IS and appear in titles 31 and 41 of the Uuited 19 "f the Act of Aug. 2, 1946. ch. 744, GO States Code. Stat. 81], SIS. Sections 18 and 19 of the Act of Auk. 2, 1910, are omitted from this title and transferred to other titles of the United States Code slni-e such sections Hpply also to sections 9, 11, aud lU(a) of the Act of Auk. 2, 1916, which sections Standard changes are made to conform with 'the* definitions applicable and the style of this title as outlined in the pref- ace to t lie report. Crou References Definition vt agency Applicability to provisions covering delegation of authority by agency lauds. bt>e section 30:2 of this title. Applicability to provisions covering witness fees and allowances, see section 503 of this title. 385 202 PANAMA CANAL COMMISSION ^ > APO MIAMI 3401 1 * "* «* W OFFICE OF THE ADMINISTRATOR *4* MAR 14 1980 Honorable Carroll Hubbard Chairman, Panama Canal Subcommittee of the House Committee on Merchant Marine and Fisheries Room 1334, Longworth House Office Bldg. Washington, D.C. 20515 Dear Mr. Hubbard: This is in response to your question concerning the necessity for an item in the Panama Canal Commission's 1981 appropriation for the residence of the Administrator of the Commission . In your letter of March 10 , 1980 you suggest that the item may not be needed in the appropriation act because 5 U.S.C. § 5913 would authorize the expenditure of funds by an agency for the unusual expenses incident to the operation and maintenance of an official residence for a senior government official. The item, residence of the Administrator, which has appeared in the 1980 Commission appropriation act and in appropriations of the Panama Canal Company/Canal Zone Government, has served as authority for the agency to provide the Governor or Administrator a residence suitable for official entertaining, without cost to him and to pay all the expenses incurred in operating and maintaining such residence . It has been traditional in the Company/Government that the agency pay all the expenses of maintaining and operating the residence for the agency head — including such expenses as the provision of electric power and a small household staff. In my view , it is important that the Commission continue to provide these services and facilities to the Administrator. With increased Panamanian participation in the management of the Commission and our increased need to cooperate with Panama concerning matters related to Canal operation , it will be more necessary than in the past for the Administrator to entertain Panamanian government officials . If the item for the Administrator's residence were removed from the appro- priation act , the Commission would be relegated to the authorities provided in title 5, U.S. Code, including section 5913. Section 5913 authorizes an agency 203 to defray the unusual expenses of maintaining and operating an official residence. The regulations implementing section 5913 limit the reimbursable expenses to certain items , and electric power and the use of the quarters themselves are not included among them. Department of State Standardized Regulations (Government Civilians , Foreign Areas) , Chapter 400. Under these regulations the government official occupying the official residence would be required to pay for all household expenses up to an amount equal to five percent of his salary, and the agency would pay for most expenses in excess of that amount. While five percent of the Administrator's salary is not an undue financial burden, it is my view that the longstanding practice of the Canal Company to absorb all such expenses was workable and should be continued. While I can certainly tolerate the diminution of my salary by five percent, neither I nor my successors would welcome any action which diminishes the perquisites or dignity of the office of Administrator. Section 5913 does not authorize an agency to provide cost- free quarters and electricity, but such quarters and electricity could be provided pursuant to 5 U.S.C. § 5912, if the Secretary of State approves regulations to that effect issued by the head of the agency and if appropriations are available for that purpose . (The authority to approve such regulations was delegated to the Secretary of State by Executive Order 10903, Jan. 9, 1961.) It appears that under 5 U.S .C. § 5912, regulations could be promulgated to give cost- free quarters and electricity to the Administrator but not to other employees of the Commission. I am apprehensive about promulgating such regulations , however, because such action would give the appearance of being entirely self-serving and would certainly suggest to Commission employees and their labor organiza- tions that free housing and electricity is a matter within the Commission's discretion. The disparate treatment of rent and utilities for the Administrator is supportable if the Congress has explicitly sanctioned such disparate treat- ment by , for example, an item in the appropriation act for the residence of the Administrator. If we were forced to rely entirely upon 5 U.S.C. S 5912, which does not contain any suggestion of distinction based upon the position of an employee, I predict that the psychological and morale effect upon the Commission's workforce would be adverse . Finally , if the matter of free rent and electricity is one within our discre- tion, it is one with regard to which , under title VII of the Civil Service Reform Act, we can be required to negotiate with exclusive representatives of bargaining units in the Commission. I am sure that you can appreciate that the loss of Commission income from rent and charges for electricity paid by our employees would create a serious financial problem for the Commission. By not disturbing the status quo with regard to the Administrator's residence , we may be able to avoid placing undue emphasis on the matter and possibly defer a union request that we negotiate on the subject of free or reduced- cost quarters and electricity . Administrator [Whereupon, at 11:38 a.m., the subcommittee adjourned at the call of the Chair.] o UNIVERSITY OF FLORIDA 3 1262 08128 298 9