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say, that they can do the job cheaper and better, we take the position that such a statement is not only unfair, but ridiculous. The warehousemen of this Nation challenge this claim of the Government agencies and suggest that documented proof be given by any Government agency:
The American Warehousemen's Association recommends through this committee or the Harden subcommittee that actual warehouse costs of Government warehouse operations be systematically and objectively studied by private, impartial professional accountants.
Costs in commercial warehouses are necessarily kept down by competition, an incentive factor not present in Government operations.
The advantages of commercial storage: There are numerous advantages which would accrue to the Government by using commercial storage space and by turning over its present space, wherever possible, to commercial operators:
(a) The tax loss and cost savings to the Government have already been pointed out.
(6) Use of commercial space would give the Government greater flexibility in selection and use of storage space.
(c) Frequent incomplete use of Government space is wasteful and there is always the tendency to fill up empty space with something to justify its existence.
(d) By using commercial facilities the Government would pay only for the space actually needed, when needed, and would have a greater choice of storage locations, also a possible reduction in transportation costs.
(e) When the Government wants tanks, guns, and shells-for emergency purposes-it contracts for their manufacture by private competitive firms, who are acknowledged experts on those items. We submit that warehouse space should be similarly regarded. Proper warehousing of critical supplies is equally vital during emergency periods.
(f) The maintenance on Government warehouses is tremendous, and could be greatly reduced if unneeded facilities were kept in a standby status only or turned over to private operators.
In sụmmary: There is adequate warehouse space available throughout the country to meet all reasonable Government requirements, if Government space were turned over to private operators wherever possible.
Government competition also deprives States and municipalities of needed taxes they would otherwise collect from private business.
While we strongly believe the Government should get out of competition with the warehousing industry, we realize that in some instances this will take time. We do believe that a large part of the storage activity being performed by the Government can be done at less cost by privately operated warehouses without impairing Government efficiency.
The American Warehousemen's Association submits that the typical American triumvirate of government, industry, and labor, plus agriculture, would be better off with the private operation of warehouses, if for no other reason than the fact that the constant and continuous threat of Government competition destroys incentive for warehouse construction and expansion.
We believe H. R. 8832 will go a long way toward accomplishing this, and we strongly urge its passage.
All private industry, including warehousing, will be in a better position to obtain and provide information to the Government if a central board, such as provided for in H. R. 8832, interested in business and its vital relationship to Government were available. Free exchange of information between Government and these groups would be the result.
Mr. Chairman, you and the members of the committee have copies of our official statement to which are attached exhibits A and B. If there are questions about my testimony, or those exhibits, I shall try to answer them. Thank you.
Mr. Osmers. Mr. Johnson, I want to tell you I think, of all the representatives we have had, you have made one of the very best statements on a specific industry that I have heard. You got right down to cases, in dollars and feet, and so on, and we are very appreciative for having your statement.
I assume there will be some questions.
Mr. CONDON. Mr. Johnson, how many of these Government warehouses are on military reservations or installations of some sort?
For example, in my district we have the Benecia Arsenal. That arsenal probably has 10 or 12 warehouses. Obviously, they couldn't sell those warehouses to private industry, and I don't think private industry would be interested in purchasing any warehouse which is behind fence and sentries.
Do you have any idea how many of these warehouses are out in the city where they would be available?
Mr. JOHNSON. Mr. Condon, I have not, but I can have that information for you tomorrow morning.
Mr. CONDON. I think that is a factor that would have to be considered.
Mr. JOHNSON. All right.
Mr. CONDON. Do you know anyone who would want to buy a Benecia Arsenal warehouse?
If anyone did want to buy any of them, I don't think they would want to sell them.
Mr. Johnson. If that information is valuable to you, we can produce it. Do you wish it?
Mr. Condon. I would like to know if there are any reliable statistics available.
Mr. Johnson. We can get it for you from the same source we got these.
Mr. CHUDOFF. Mr. Johnson.
Mr. CHUDOFF. I believe you will agree it is not practical for the Government to store everything in private warehouses. I think you would agree they would have to store some of their supplies or materials or files in their own warehouses.
Mr. JOHNSON. That we will.
Mr. CHUDOFF. Now, you mentioned in your statement that the Veterans' Administration maintains somewhere around several hundred thousand square feet at Hines, Il., Somerville, N. J., Wilmington, Calif., and other places.
Mr. JOHNSON. That is correct.
Mr. CHUDOFF. They also use several hundred thousand square feet in Philadelphia, where they have practically the entire national service life insurance program administered from the Veterans' Administration offices in Philadelphia, in my district, and they have hundreds of thousands of square feet.
You would agree it wouldn't be practical to put those records in a private warehouse, would you not?
Mr. Johnson. That would be dependent entirely upon the circumstances that governed their storage there.
Mr. CAUDOFF. Let's assume they have to run in and get a file now and then.
Mr. Johnson. That we would agree.
Mr. CHUDOFF. That type of storage you agree should be in the Government warehouses?
Mr. Johnson. In the storage of records to which they must make reference; yes, I will agree with you, but dead storage
Mr. CHUDOFF. What do they store in their warehouses at Hines, Ill., Somerville, N. J., and Wilmington, Calif.?
Mr. Johnson. That I cannot answer, but again I can furnish that information, if it is of value.
Mr. CHUDOFF. Thank you, sir.
Mr. FOUNTAIN. Can you give us a general idea of the type of items you think the Government should store in private warehouse facilities?
Mr. Johnson. Well, as to the specific items which they should store, you mean in their own Government space?
Mr. FOUNTAIN. I mean in private warehouses.
Mr. Johnson. Oh, there are hundreds of items that are normally carried by our customers, which the Government also uses, which the Government could profitably store in commercial warehouses.
Items the same as our own customers carry, of merchandise-a specific list we could give you, the same as the Army has.
Mr. CONDON. Do you consider these warehouses, like the one they built down in Franconia-is that considered to be a private warehouse
Mr. JOHNSON. I would state this: That the merchandise that is stored in the Franconia warehouse I am reasonably certain could have been taken care of in private warehouses; yes, sir.
Mr. Condon. It is my understanding a private concern-in fact, 1 of my constituents was 1 of the people that built that warehouse, and I understand that they own it and lease it to the VA.
Mr. JOHNSON. They do, indeed.
Mr. Johnson. He was not in the warehouse business for hire. He was an investment. He invested in a warehouse to rent to the Government.
Mr. CONDON. He has been in the warehouse business in California for many years.
Mr. JOHNSON. Yes; but not in the District of Columbia. Not in the District of Columbia.
Mr. OSMERS. I would like to make an observation about Mr. Johnson's statement.
I think, as this story unfolds, and as we hear more witnesses, it is becoming more clear-I hope it is becoming more clear—to the committee that we cannot sit up here on Capitol Hill and issue an edict on the subject of Government competition with private business.
Now, I am going to ask Mr. Johnson whether he feels that Congress should establish some place in the executive department where business can state its case and an affected Government department can make its reply.
Mr. JOHNSON. Mr. Chairman, I touched upon that in my testimony, and the answer is emphatically yes.
Mr. OSMERS. And don't you feel that any Government department that establishes a new competitive activity should be made to prove its case to some department other than itself?
Mr. Johnson. Equally emphatically, yes, sir.
Mr. OSMERS. And, thirdly, that the Executive should report to the Congress and to the people once a year on this very vital subject?
Mr. Johnson. By all means.
Mr. PILCHER. Mr. Johnson, I have a small military installation in my district, a Marine base. It has about 2,500 enlisted personnel and about 2,500 civilians, but they have 17 warehouses, each warehouse covering 5 acres, or 85 acres of warehouses. Now, they store everything from a typewriter to a tank. They ship to every post we have in the world.
You don't believe an installation like that should be taken over by private industry?
Mr. Johnson. My answer to that would be “No”; but I equally say had this bill been in effect at the time they were built they would have been given a clear bill of health to build that, if it were essential. If it were not essential, then there would be no competition with private industry.
Mr. Osmers. Do you have any other questions?
AMERICAN WAREHOUSEMEN'S ASSOCIATION,
Washington 5, D. C., July 16, 1954. Hon. CLARE E. HOFFMAN, Chairman, Committee on Government Operations,
New House Office Building, Washington 25, D. C. DEAR MR. HOFFMAN: During our testimony on H. R. 8832 by Mr. J. P. Johnson on Thursday, July 15, three questions were asked to which the answers were not immediately available. We have now obtained this information which is submitted at the request of Mr. Ray Ward.
Mr. Condon asked how many arsenal or ammunition warehouse installations the military operates. We are informed by the Department of Defense that it operate approximately 45 such facilities.
Mr. Chudoff asked what the Veterans' Administration stores at its Hines, Ill., warehouse. We have learned that this is a regional VA distribution depot which stores medical and hospital supplies and dry subsistance stores such as canned
Canned goods and other dry stores are a regular storage item in commercial merchandise warehouses. A number of medical supplies such as vaccines and other drugs are also being increasingly stored in private refrigerated warehouses.
Mr. Fountain wanted to know what items should the Government store in private warehouses.
These would be items which are normally stored in private warehouses by commercial customers and which are also used by the military and other Government agencies. Such items include household equipment, foodstuffs, spare parts, rope, wire, soap, powder, paint, office equipment and supplies, tires, batteries, cables, clothing, tools, and hundreds of similar items. One Department of Defense official tells us that 80 percent of what the military stores could be stored in privately operated warehouses without involving classified material. Again we wish to thank you for the opportunity
to be heard. If there is any
STATEMENT OF QUAIFE M. WARD, ASSISTANT TO THE PRESIDENT
OF THE AMERICAN RETAIL FEDERATION
Mr. Osmers. That will be very satisfactory to us, Mr. Ward.
(The statement submitted by Quaife M. Ward is as follows:) STATEMENT OF QUAIFE M. WARD, ASSISTANT TO THE PRESIDENT OF THE AMERICAN
RETAIL FEDERATION At the conclusion of an investigation of domestic Armed Forces exchanges and commissaries by the House Committee on Armed Services in 1949 the committee stated offrcially that it had "come to the conclusion that the Armed Forces are actively competing with established private business. In accordance with current regulations, a very wide range of merchandise is being sold through post exchanges and ships' service stores and most of it duplicates merchandise being sold by retail businessmen within the same general area of the service activities. Due to the fact that post exchanges and ships' service stores are not subject to State taxes, have not imposed a Federal retailer's excise tax on appropriate items, have no rent to pay, pay only a portion of the upkeep of the premises, pay only a portion of the utilities and pay no salaries of the military personnel employed in the activities, it is inevitable that these stores can sell merchandise at a much lower price than merchants in the same vicinity. We deem this to be unfair competition.”
Twenty-five retailers appeared before that committee and told of the impact of exchange competition upon their business. Many of these individuals later were subjected to severe retaliation, even boycotts, from local Armed Forces personnel many suffered substantial losses in business because they had dared to speak out against the practices of exchanges.
Late in 1949, an agreement was reached between the Armed Services Committee and the Department of Defense whereby; (1) the Federal retail excise tax would be collected by exchanges; (2) the special order system for purchasing unstocked merchandise would be terminated; (3) the list of approved items for resale in exchanges would be curtailed and price limits established; and (4) steps would be taken to insure that unauthorized individuals would not be allowed to purchase in exchanges or commissaries.
DISREGARD OF AGREEMENT ON RESALE ACTIVITIES Soon after the outbreak of the Korean war there was a recurrence of complaints of unfair competition on the part of Armed Forces exchanges and commissaries.