Mr. ELLIS. Gross sales. That is the basis on which they are able to buy it.

The point I was going to make just a few minutes ago was this: most of the post exchange service stations are able to purchase gasoline from the major oil companies at prices from 2 to 4 cents per gallon cheaper than commercially operated stations can buy it.

Mr. JUDD. Why is that?

Mr. ELLIS. There are several reasons, Mr. Judd. No. 1, the post exchange does not have to pay taxes. They are not subjected to the norral taxes that a businessman is subjected to. They do not have those expenses. The second proposition in this: under the program they use for erection of these service stations, the companies that get the bids to erect service stations on the posts and supply the post exchanges on a basis whereby the service station will be paid for on a rental basis, it means that the company that builds the station gets the business for from 5 to 10 years, or for however long it takes to pay for the station at a rental, in most instances, of 1 cent a gallon.

No. 2, some of the companies it is on a volume basis. They are able with these cut-rate prices to sell at the post exchange stations considerably more than the average commercially operated station will sell, and by virtue of the volume these companies can make what they call large transport drops of gasoline and effect some savings with that type of delivery. Those are most of the reasons.

Mr. OSMERS. I did not notice in your exhibit any naval installations. Mr. ELLIS. I do not have those, Mr. Osmers, for the reason the only way I was able to get those that I have was that the Senate Small Business Committee asked the military for them and the Senate Small Business Committee after that supplied them to me for comment and check.

Mr. OSMERS. Does the Navy also operate filling stations of the type to which you refer?

Mr. ELLIS. Yes; they do, but I do not have the statistics in the same manner as I have them here.

Mr. OSMERS. It seems to me for the record to be complete you should show the Navy also operates in this field.

Mr. JUDD. Mr. Ellis, before you leave that, where you say "tank wagon, less 24 cents a gallon," what do you mean by "tank wagon"? Is that the price an independent filling station would have to pay to get the gasoline?

Mr. ELLIS. Yes. In the trade the price at the filling station is referred to as the tank wagon price. The price to the jobber or wholesaler is commonly referred to as a tank car price.

Mr. JUDD. So when you say "price basis" that is what the person who comes in and fills up his tank has to pay? He has to pay the tank wagon price, less 24 cents a gallon?

Mr. ELLIS. No, sir.

Mr. JUDD. Is that what the filling station gets?

Mr. ELLIS. No. That is the buying price of the post exchange shown here.

Mr. JUDD. Yes.

Mr. ELLIS. Now, the price that the consumer pays is a markup on that. I might give you some examples specifically.

For example, at Maxwell Air Force Base in Montgomery they have two stations. The post-exchange prices there are from 3 to 4 cents

under the commercial market prices of other stations on the outside, selling the same brand and out of the same tanks. It is exactly the same quality of gasoline.

Those stations down there took 80,000 gallons per month away from local businessmen. In Arkansas, at Camp Chaffee, they have one post-exchange station there. The prices there are at least 3 cents under other regularly accepted brands of gasoline. At Maxwell Air Force Base in Florida, at one post-exchange station there, they are at least 2 cents under. At the Palm Beach Air Force Base in Florida the post-exchange price there is 3%1⁄2 cents under the local market price. At the Tyndall Air Force Base the price ranges from 2 to 3 cents under the market, and they are doing anywhere from 85,000 to 100,000 gallons of gasoline a month.

Mr. JUDD. Is the markup for the man who is running the filling station on the basis of a contract with the Defense Department, or is it on the basis of his own private enterprise, so to speak?

Mr. ELLIS. The people who run the service stations on the base, Mr. Judd, are post exchange personnel with the exception of a few instances where they let the station out to a concessionaire. There is no contractual obligation to my knowledge that requires any particular price. It is a markup of their own choosing.

Mr. JUDD. You said that in a lot of cases they put on a markup of 1 cent a gallon to sort of amortize the cost of the station, or something of that sort; is that not so?

Mr. ELLIS. Here is what they do. I will get down to specifics. Let us say, for example, that the Socony Vacuum Oil Co. has a contract to supply the Ellsworth Air Force Base at the going tank wagon price in that area, less 3 cents per gallon. If the going tank wagon price to the average station outside the Ellsworth Airbase is 20 cents a gallon, that service station buys it for 17 cents a gallon. They sell it at whatever they want to. Let us say that they sell it for 22 cents a gallon. They pay on every gallon they sell to the Socony Vacuum Oil Co. 1 cent per gallon, which is used to pay for that service station that the Socony Vacuum Oil Co. built for them on the base. That is the way that it goes.

Mr. JUDD. Who gets the other 4 cents?

Mr. ELLIS. The post exchange.

Mr. OSMERS. Are State gasoline taxes collected on the gasoline that is sold on the post exchanges?

Mr. ELLIS. It is my information that on most of them they do collect the State gasoline tax as well as the Federal.

So this differential they sell for, as related to the commercial operator, comes about because they can buy cheaper, No. 1. No. 2, they just do not have all of the other operating expenses of an average businessman. If I can operate my law office down here without having to pay rent, and do not have to pay taxes, why, you can get some pretty reasonable fees down there.

This differential that they sell for, as related to the commercial operator, comes about because they can buy cheaper, No. 1, and No. 2, they do not have all of the other operating expenses of an average businessman.

If I can operate my law office down here without having to pay rent and did not have to pay taxes, why, you can get some pretty reasonable fees down there.

The CHAIRMAN. You do not mean that you charge unreasonable fees now, do you?

Mr. ELLIS. No, sir; but sometimes they are considered unreasonable by my clients, and I suspect that they would call them unreasonable, whatever they were.

Going further, the question is that, despite all of the conversation we have heard about trying to do something about this competition, I would like to point out to you by the Army's own regulation and their own statements that they do not intend to do anything about the problem I am talking about.

The CHAIRMAN. What do you say about that, Mr. Pike?

Mr. PIKE. That is out of my field. This, also, comes under the post-exchange thing, which has been assigned by Secretary Wilson to Dr. John Hannah's area, Assistant Secretary of Defense for Manpower and Personnel, and it is tied directly into the whole question of morale, pay, fringe benefits, health and welfare arrangements, that are set up at these various bases.

Outside of that general information, I am not competent to reply to it.

These are nonappropriated funds which we are talking about here, and it is my understanding that the differential between what they pay and what they sell goes into the kitty on these bases, and exchanges for health and welfare purposes.

The CHAIRMAN. Who gets that money?

They do make a little profit, I suppose?

Mr. PIKE. They have to pay their employees who run the gas stations, for instance.

The CHAIRMAN. Some of the employees are in the service, and they do not get paid extra; do they?

Mr. PIKE. No, sir; that is my understanding of it.

The CHAIRMAN. What do they do with the profits? Let us cut it short on that.

Mr. PIKE. With the profits, to the best of my knowledge, they use that in a kitty for the base to finance

The CHAIRMAN. Use it for what?

Mr. PIKE. That goes into a kitty, which the base uses to finance welfare and health projects.

The CHAIRMAN. It is used for social and recreational activities on the post; is that right?

Mr. PIKE. That is correct. That is an important part of the morale of our enlisted personnel, and we are having difficulty with reenlistments.

It is a long story.

The CHAIRMAN. I cannot see why the Government should go into any commercial business and make a profit, and then take whatever profit they make and use it for the benefit of those on that particular post.

Maybe I am wrong, but that is the way it looks to me.

Mr. PIKE. There is a broad personnel problem involved there, Mr. Chairman.

Mr. JUDD. The post-exchange employees are paid out of the profits of the post exchange, and not out of appropriated funds; is that true? Mr. PIKE. That is my understanding.

Mr. ELLIS. I have been in the United States Army, and I crawled on my hands and knees halfway across France, and I used post-exchange service stations.

The CHAIRMAN. Wait a minute. That is a very far distance.

Mr. ELLIS. I have some pretty bony knees to show for it, too, Mr. Chairman. I am thoroughly familiar with what a private, a sergeant, a second lieutenant, and a first lieutenant is, and the matter of the necessities and conveniences to him on the post, because I have been all of those, but never any higher.

I am not trying to say that we should not have shaving cream and a place where they can get a coke or a bottle of beer, if it is all right with their church, and those things which a man has to have on the post. I am not talking about those items of necessity and convenience. That is the language they use in these letters.

I am familiar with the fringe benefits of necessity and convenience to maintain personnel in the Army, but I do say this: The United States Army and the Armed Forces are maintained for the total citizenry of this country. If we are not paying enough to keep competent men in, then let us pay enough, but I do say that the difference is not enough and what we are paying should not be made up by subsidy granted by the small-business men in the communities surrounding the posts.

They should be paid for by the total citizenry for whom the Armed Forces operates.

Let us see how much benefit they get: If a man drives his car 10,000 miles a year going back and forth to these posts to work, or whatever he drives, and uses their gasoline and gets 15 miles to the gallon, that is 666, approximately, gallons a year.

If he buys it 3 cents cheaper than he would pay at a commercial operator, that would total out as a savings to him of about nineteen dollars and some odd cents.

Let us say he gets his oil changed every 1,000 miles for the 10,000 miles total involved, and he gets 5 quarts of oil at a savings of 10 cents a quart. That is 50 cents each 1,000 miles, or 10 times 50, sir, is $5, and $5 plus $19 makes a total of $24, if he drives his car 10,000 miles a year, using post exchange or station facilities.

I would suggest to this committee that if any man will go into the United States Army purely and simply because he can save $24 on his gasoline and oil, or if he will stay in because he is getting that service, they are not the brand of personnel I want defending me when they blow the whistle.

Now, then, getting back to this other question, I made a remark a while ago that it is obvious they do not intend to do anything about it. You had submitted for the record this morning two regulations, one referred to as 4100.15, and that was the one that was issued about last November, I believe, where it stated in substance, and it is the one that excited me, that the armed services were going to try to get out of competition with commercial enterprise.

Now, then, again, you have that instance of where what the large print gives, the small print taketh away.

If you will read that regulation, you will find it does not apply to post exchanges. They have come up with this other regulation which is made part of your record, for 4100.16, wherein they are going to study the problem and here is a lot of pages, front and back, where

they are going to make a big study of competition of the military with commercial enterprise.

Again, we are going to study the same thing which they were going to study in 1948 and 1949.

When I was on the Small Business Committee

The CHAIRMAN. We are familiar with all that.

Mr. ELLIS. I refer to paragraph II, where it says "definition":

As used in this instruction, commercial or industrial type facilities are those devoted to an activity which normally might be performed by private industry, except, commissaries, post exchanges, and non-appropriated-fund activities.

They are not even going to study this problem by their own regulation.

The CHAIRMAN. Maybe we can jog their elbows a little. That is what you want us to do; is it not?

Mr. ELLIS. What you can do, Mr. Hoffman, is to make them come up here, and think in terms of doing what they say they are going to do, and that is, get out of business that com petes with commercial enterprise and I am particularly interested in post-exchange-operated service stations, which I cannot see as a necessity for the maintenance of the Army.

The CHAIRMAN. I believe Mr. Ward has a question at this point. Mr. WARD. I would like to ask him one question:

Did you say appropriated funds are not, or shall not be used in connection with these activities?

Mr. ELLIS. I cannot answer that.

Mr. WARD. Who owns the land?

Mr. ELLIS. I presume the United States Government does, sir. They are located on Army posts.

Mr. WARD. Does the Government own any of the other facilities, to your knowledge?

Mr. ELLIS. You mean as distinguished from the post exchange? I do not know, sir.

Mr. WARD. How about the personnel? Are there any Governmentpaid personnel involved in the operation at all, to your knowledge?

Mr. ELLIS. My understanding is that their personnel is from the post exchange group of personnel, but I could not say about that. Mr. WARD. They are paid entirely from the proceeds of the operation?

Mr. ELLIS. That is my understanding.

Mr. DAWSON. May I ask the witness a question?

The CHAIRMAN. Sure.

Mr. DAWSON. I am interested in that phase of your statement which applies to the civilians working on the posts, who come in every day, and who are not members of the military personnel, to whom you say this gas is sold at a reduced rate.

9 Mr. ELLIS. I said that was according to the information supplied by my jobbers in certain territories to the effect that it is sold to civilians in some instances. I do not say that is the situation on all posts.

Mr. DAWSON. This 1 cent per gallon that is paid by the post exchange to the oil companies as rental for 10 years, at the end of 10 years the station then belongs to the post exchange; does it not? Mr. ELLIS. Whatever period of time it takes to pay it out.