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THE SECRETARY OF COMMERCE,

Washington, September 25, 1959. Hon. WARREN G. MAGNUSON, Chairman, Committee on Interstate and Foreign Commerce, U.8. Senate, Washington, D.O.

DEAR MR. CHAIRMAN: This letter is in reply to your request of May 18, 1959, for the views of this Department with respect to S. 1956, a bill to amend the Merchant Marine Act, 1936, for the purpose of providing with respect to the requirements for the operation of subsidy-constructed vessels that certain vessels shall be considered as operating in foreign trade.

The Department does not recommend enactment of S. 1956.

Section 506 of the Merchant Marine Act, 1936, as amended (46 U.S. C. 1156), now requires generally that vessels for which a construction-differential subsidy has been paid be operated exclusively in the foreign trade of the United States. On such voyages certain specified limited intercoastal or offshore domestic trade may be engaged in; permission may also be granted for transfer of a vessel to operate in domestic commerce for temporary periods. However, in all cases where any domestic trade is allowed a proportionate amount of construction-differential subsidy must be repaid to the United States.

S. 1956 would amend section 506 by inserting at the end thereof the following: "For the purposes of this section if the majority of the miles logged by any vessel during a calendar year are logged in round voyages from Alaska to British Columbia, Canada, such vessels shall be deemed to have been op erated exclusively in foreign trade during such year.”

Under this bill, if a vessel built with construction-differential subsidy logs a majority of its miles during a calendar year between Alaska and British Columbia, it would be free during the rest of the year to engage in domestic trade of any type without repayment of any construction differential subsidy. Furthermore, since section 905(a) of the Merchant Marine Act, 1936, defines “foreign trade” for the purposes of the act as meaning "trade between the United States, its territories or possessions, or the District of Columbia, and a foreign country," the bill would also enable such a vessel to log up to half its mileage in trade between foreign countries.

Present law provides that, except upon repayment of subsidy in certain specifically authorized cases, a vessel built with construction-differential subsidy may engage only in foreign commerce of the United States. With this limited exception U.S. domestic trade is reserved exclusively for vessels built without the aid of subsidy. However, under S. 1956 domestic operators who have not received subsidy and who have paid full prices for their ships would be faced with competition from ships which have been built with the aid of constructiondifferential subsidy and for which their owners have paid substantially less than the full shipyard price. Section 506 is specifically designed to prevent this type of unfair competition.

The bill would constitute a major departure from the basic principles underlying the award of construction-differential subsidy under the Merchant Marine Act, 1936. This Department is not aware of any special circumstances which would justify such a departure.

The Department therefore recommends against the enactment of S. 1956.

The Bureau of the Budget has advised that there would be no objection to the submission of this letter to the committee. Sincerely yours,

FREDERICK H. MUELLER, Secretary of Commerce.

U.S. SENATE,
COMMITTEE OF INTERSTATE AND FOREIGN COMMERCE,

October 14, 1959.
Mr. W. K. BOARDMAN,
Manager, Ketchikan Chamber of Commerce,
Ketchikan, Alaska.

DEAR MR. BOARDMAN: This will confirm receipt of your telegram reading: "Re letter October 2 enclosing objections of Secretary of Commerce to S. 1956. Can you determine and advise before October 20 if language were changed to require exclusive operation of vessels between Alaska and British Columbia rather than present provision requiring only a majority of the miles operated during a calendar year?'

I have talked today with officials of the Office of Legislative Counsel in the Department of Commerce. They advise me that the only way in which we can obtain an official position of the Department on the proposed change mentioned in your telegram is by addressing an inquiry to the Secretary of Commerce. The enclosed letter to the Secretary of Commerce reflects that information.

Any suggestions on the possible revision of S. 1956 are very welcome because

WO appear to be essential, prior to the convening of Congress in January, that efforts be made to accommodate the views of the Department of Commerce without sacrificing the principles of S. 1956. Sincerely yours,

JOE JOSEPHSON, Legislative Assistant.

OCTOBER 14, 1959. Hon. FREDERICK H. MUELLER, Secretary of Commerce, Washington, D.C.

DEAR MR. SECRETARY: On September 29, in a letter to Hon. Warren G. Magnuson, you submitted for the Department of Commerce an adverse report on S. 1956. This legislation was designed by its sponsors, Senator Ernest Gruening and myself, to make possible construction subsidies for ferry vessels operated on a proposed route between points in southeastern Alaska and British Columbia. The proposed ferry system is the only conceivable way in which the communities of southeastern Alaska and Prince Rupert, British Columbia, could be joined by scheduled surface transportation. As an engineering matter, these communities cannot be connected by roads or highways.

In the course of your report you said :

"Under this bill, if a vessel built with construction-differential subsidy logs a majority of its miles during a calendar year between Alaska and British Columbia, it would be free during the rest of the year to engage in domestic trade of any type without repayment of any construction-differential subsidy. Furthermore, since section 905 (a) of the Merchant Marine Act, 1936, defined 'foreign trade' for the purposes of the act as meaning 'trade between the United States, its territories or possessions, or the District of Columbia, and a foreign country,' the bill would also enable such a vessel to log up to half its mileage in trade between foreign countries."

I have just received a telegram from the manager of the Ketchikan, Alaska Chamber of Commerce. The telegram expresses the great concern about this matter which is felt in Alaska and reads as follows:

"Re let October 2 enclosing objections of Secretary of Commerce to S. 1956. Can you determine and advise before October 20 if bill would be acceptable by Commerce if language were changed to require exclusive operation of vessels between Alaska and British Columbia rather than present provision requiring only a majority of the miles operated during a calendar year?

No operator is currently providing the service contemplated by the proposed ferry system. I am wondering whether the change described in the telegram I have quoted would meet the objections of the Department. I am very anxious that, if possible, some agreement be reached so that the goal of S. 1956 may be attained without impediment. If necessary, I know that the delegation would be pleased to confer with Department of Commerce officials on this matter. Meanwhile, I would appreciate any information which I could report to the sender of the telegram in response to his inquiry. Sincerely yours,

E. L. BARTLETT.

STATEMENT OF ROBERT E. SHARP, CITY MANAGER, KETCHIKAN,

ALASKA

Senator BARTLETT. The next witness is Mr. Robert E. Sharp, city manager of the first city of Alaska, Ketchikan.

Mr. SHARP. Senator Bartlett, my name is Robert E. Sharp, Box 110, Ketchikan.

I put on a different hat, this morning, and represent the southeastern conference, whose membership includes the cities of Juneau, Metlakatla, Port Chilkoot, Ketchikan, Petersburg, Sitka, Skagway, Yakutat, Wrangell, Douglas, Craig, Hydaburg, Klawock, Kake, and the Chambers of Commerce of Petersburg, Ketchikan, Sitka, Juneau, Wrangell, Craig, Hydaburg, Klawock and Haines.

Senator BARTLETT. Mr. Sharp's statement will be incorporated in the record at this point, as exhibit No. 4.

(Southeastern conference statement, exhibit 4, follows, Mr. Sharp testifying :)

SOUTHEASTERN CONFERENCE STATEMENT FOR SUBMISSION TO THE SENATE INTER

STATE AND FOREIGN COMMERCE COMMITTEE HEARING AT KETCHIKAN ON OCTOBER 20, 1959

The southeastern conference is a nonprofit association of cities and chambers of commerce in southeastern Alaska interested in the improvement of transportation and harbor facilities in this area of Alaska. Its membership consists of the cities and towns of Juneau, Metlakatla, Port Chilkoot, Ketchikan, Petersburgh, Sitka, Skagway, Yakutat, Wrangell, Douglas, Craig, Hydaburg, Klawock Kake, and the Chambers of Commerce of Petersburg, Ketchikan, Sitka, Juneau, Wrangell, Craig, Hydaburg, Klawock, and Haines.

There is no road system connecting the various communities in southeastern Alaska. Also, these communities have no road connections with the Alaska highway system on the north or the Canadian highway system on the south. Most of these communities are located on offshore islands. This fact, coupled with the rugged terrain along the coast of southeastern Alaska, makes conventional road or highway construction impractical and uneconomical.

As an example, the cost of local road construction in the vicinity of these cities and towns ranges from $250,000 to $1 million per mile. It is obvious that such high construction costs and the necessity of bridging to the various islands, if it were practical, make the financing of road construction out of the question when you consider that it is some 470 miles by direct water route from Prince Rupert, B.C., to Haines, Alaska. It was for this reason that the southeastern conference decided that the most practical way, and certainly the most economical, to provide surface transportation for motor vehicles and passengers was the establishment of a ferry system.

The board of directors of the southeastern conference, in July 1959, adopted the following resolution in which there is contained a plan for the establishment of a ferry system for southeast Alaska :

“RESOLUTION

"It appearing to the board of directors of southeastern conference that a ferry system is needed in southeastern Alaska which will result in an additional connection through Canada between the highway system in the interior of Alaska and that in the other 48 States: Now therefore, be it

Resolved by the board of directors of southeastern conference, That it recommend the establishment of such ferry system substantially as follows:

"1. Between Prince Rupert, B.C., and Haines, Alaska, to be operated with highspeed vessels on through service.

"2. That such service be supplemented with ferry service to other communities to which economically feasible service can be maintained.

"3. That the service be limited to vehicles and passengers, including freightladen vehicles.

"4. That the service be commenced with 3 vessels capable of each carrying approximately 100 vehicles and 500–700 passengers at a speed of 18 knots.

"5. That a nonprofit corporation be organized to own and operate the system, which will be eligible for financial assistance from the State of Alaska and from the United States under the Merchant Marine Act of 1936.

"6. That legislation be enacted by the Legislature of the State of Alaska which will permit financial assistance to be given by the State to such corporation.

7. That the Congress of the United States be urged to enact either S. 1956 or H.R. 7102 to permit the financing of vessels through a subsidy and construction loan under the Merchant Marine Act of 1936.

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8. That the Congress of the United States be urged to enact an amendment to the Federal Highway Act to permit the financing of terminal facilities and highway access thereto from Federal-aid highway funds.

“9. That upon enactment of the legislation mentioned above, the State of Alaska be requested to grant a loan to the corporation sufficient to pay that part of the cost of constructing the vessels which is not available under the Merchant Marine Act of 1936, and which is now estimated to be $2,500,000.

“10. That on enactment of such legislation, the corporation apply for a construction subsidy under the Merchant Marine Act of 1936 to defray 45 percent of the cost of constructing the vessels and a loan under the same act to defray 75 percent of the remaining cost of said vessels.

".11. That the State of Alaska be requested to loan the corporation operating capital and the amount needed to pay principal and interest on its loans for the first 3 years of operation, now estimated to be $2,300,000.

“12. That the State subordinate its loans to the corporation to any loan made under the Merchant Marine Act of 1936.

"13. That the State provide terminal facilities and access thereto as public facilities which may be used for other purposes, now estimated to cost $3 million."

To initiate the ferry system the above plan envisions the use of three vessels which would provide daily service between Prince Rupert, B.C., and HainesSkagway, with intermediate stops at Ketchikan, Wrangell, Petersburg, and Juneau. Service would be provided to Sitka on a less frequent schedule. The following is an estimate of the cost under the plan outlined :

Estimated cost of system under insured financing through Maritime Administra

tion with a construction subsidy and terminal facilities under Federal highway aid funds

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Subtotal, all estimated costs.-

------ 13, 647,000 Deduct 45-percent construction subsidy on vessels.-

(4, 332, 150) Deduct cost of terminal facilities provided under Federal highway aid funds_

(2, 970,000)

6, 344, 850

Total estimated cost of system.---
Insured loan from private financing sources, 75 percent of vessel

cost, less subsidy--

3,978, 638

Initial cash investment required.---

2, 366, 212 1 The service to Sitka can be provided in either of two ways with the vessels proposed under this system of service. A call can be made weekly by both of the vessels on the Juneau-Prince Rupert run or the vessel on the Juneau-Haines-Skagway run could be used for intermittent trips to Sitka.

It is estimated that the following passenger movements could be expected. The table shown below breaks these movements down by Alaska area of origin or destination as well as winter and summer seasons and a total for the year:

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The above estimated passenger movements reflect an estimated 16,744 deck passengers, 18,262 automobile passengers excluding the drivers, and 11,414 automobiles including drivers. These estimates are contained in the W. C. Gilman Co. report which was made in 1957 for the Bureau of Public Roads. The southeastern conference feels that the estimate is conservative.

The following are recommended rates and charges :

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The above recommended one-way ferry rates are the same as recommended in the Gilman report except for automobiles including driver. The proposed rate for automobiles including driver is approximately 65 percent of the recommended rate in the Gilman report. It is the opinion of the conference that the Gilman recommended rate is excessive for automobiles with driver and would not be conducive to the use of the ferry service.

Based on the estimated passenger movement and rates as previously set forth in this statement the following is an estimate of revenues, expenses, and debt service for the years 1962 through 1965 :

Year

Estimated
revenues

Estimated Balance for Annual
expenses debt service debt service

Net

Debt servo ice times earned

1962 1963. 1964. 1965

$925, 774 || $1,752, 500
1,502, 320 1, 752, 500
1,967, 257 1,752, 500
2, 314, 385 1, 752, 500

($826, 726)
(248, 180)
214, 757
561, 885

$482, 232 ($1,308, 958)
482, 232 (730, 412)
482, 232 (267, 475)
482, 232

79,653

0.45
1. 17

Total deficit.
Total su dy.

(2, 227, 192)
2 2,306,

1 Includes additional fuel costs for operation of 18-knot vessel-other expenses same as Gilman.
3 Total subsidy required to meet full debt service.
NOTE.- Parentheses denote deficit.

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