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Senator DOUGLAS. And Henry Wallace was the man who furnished the pilot plant to put it into operation.
Dr. BRESSMAN. My next sentence, Senator.
Dr. BRESSMAN. And Wallace, of Iowa, the first developer of commercial hybrid corn; Kiesselbach, of Nebraska; Holbert, of Illinois, our earliest corn scientists.
These men made corn the important crop that it is today-corn that is averaging yields of 50, rather than 20, bushels per acre, and individual yields of over 300 bushels per acre.
My point is this: What has been done with corn production can and must be done with corn utilization. A group of scientists and technicians, similar to the ones that I just mentioned, should be turned loose on the problem of utilizing what has been produced. The needs are great, and groups such as the Commission on Increased Industrial Use of Agricultural Products should be encouraged.
I would like to see the report of this Commission made before any action is taken on H. R. 2528.
I was delighted when the Congress approved the setting up of the Commission, and I hope that their efforts will be helpful to the corngrower.
Finally, this point. I wish that I had had more time to prepare for these hearings, going into more detail in regard to this history during World War II. I would like to have enlarged on my statements and given you some of my reasons why I am concerned about the corn surplus today. Farming is tough and getting tougher. However, I presume that is a problem of other committees in the Senate.
I thank the committee for this time, and your kind consideration.
Senator Douglas. We appreciate your testimony. I want to say that both you and Mr. Weatherford have shown public spirit of a very high order in coming here to testify.
Dr. BRESSMAN. Thank you, sir.
Senator DOUGLAS. It is only through the participation of people like yourself that we can really get the best legislation. I do not say that I underwrite everything you have said—I want that clearbut I do want to express the committee's sincere appreciation.
The hearing is now adjourned, sine die. (Whereupon, at 5:20 p. m., the hearing was adjourned, sine die.)
FEDERAL FACILITIES CORPORATION STATEMENT REGARDING 1956 LEASE NEGOTIATIONS
ON ALCOHOL BUTADIENE PLANT AT LOUISVILLE, Ky. (PUBLIC LAW 433, 84TH CONG.), JANUARY 1957
FEDERAL FACILITIES CORPORATION'S SUCCESSION TO FUNCTIONS OF RUBBER PRODUCING
FACILITIES DISPOSAL COMMISSION: STATUTORY AUTHORITY FOR 1956 LOUISVILLE LEASE NEGOTIATIONS
The Rubber Producing Facilities Disposal Commission was created under authority of the Rubber Producing Facilities Disposal Act of 1953 to dispose of the 27 Government-owned facilities engaged in the manufacture of synthetic rubber and its component materials. The Commission formally organized on November 10, 1953, and expired by operation of law on September 23, 1956. During its existence, the Commission sold 26 of the facilities and leased the 27th. Sale of the facilities and miscellaneous equipment returned $284,848,000 to the Treasury, which exceeded by $25,885,000 the Government's remaining net investment in the synthetic-rubber program.
By Executive Order 10678, the President on September 20, 1956, designated Federal Facilities Corporation as successor to the Commission, effective September 24, 1956. This Presidential action was taken in accordance with section 20 of the Rubber Producing Facilities Disposal Act of 1953, as amended. As the Commission's successor, FFC was thus empowered to negotiate for a longterm lease of the Louisville plant pursuant to Public Law 433, 84th Congress, 2d session, approved March 21, 1956, which is set out in full as exhibit I attached hereto.
Public Law 433 in section 4 authorized extension of the existing lease (this lease with Publicker Industries Inc., Philadelphia, Pa., expires April 4, 1956) or the making of a new lease on the Louisville plant for a term of not less than 5 years nor more than 15 years from the date of termination of the existing lease, provided no sales proposal or contract for the purpose of the plant was then pending or in effect. Public Law 433 required that any lease which might be recommended should be submitted to the Attorney General for an opinion as to whether it would tend to create or maintain a situation inconsistent with the antitrust laws, and also provided for congressional review in the same manner which had previously been employed with respect to sales. The time and manner in which lease proposals would be invited and negotiations conducted was left to the discretion of the executive agency.
BACKGROUND FOR TIMING OF 1956 LEASE NEGOTIATIONS, AND STEPS TAKEN TO ELICIT
As the Commission reported to the Congress in January 1955, no bids for the Louisviille plant were received when it was first offered for sale by the Commission in November 1953. The existing lease with Publicker Industries Inc. was entered into on March 25, 1955 and will expire on April 4, 1958. This lease was for the maximum term—three years—permitted by the original Disposal Act. Publicker sponsored the legislation which became Public Law 433, stating that an assured occupancy as owner or as lessee under a long-term lease was necessary to permit more economical operations that would justify contemplated expenditures of a substantial nature.
Immediately following enactment of Public Law 433, the Commission advertised for bids and received 2 proposals to purchase the plant, 1 from Publicker Industries Inc. and the other from Union Carbide & Carbon Corp., New York, N. Y. Following negotiations with the bidders, the Commission on May 16, 1956 entered into a contract of sale with Union Carbide & Carbon Corp. calling for a purchase price of $3,125,000, plus approximately $375,000 for the plant's in
ventory of materials and spare parts, or a total of $3,500,000. The proposed sale was referred to the Attorney General, and the Acting Attorney General advised the Commission on May 23, 1956 that the sale did not involve any violation of the antitrust laws, but could not be approved because the sale would not best foster a competitive synthetic rubber industry, as required by the terms of the Disposal Act of 1953, as amended. The Acting Attorney General further advised that despite this finding of disapproval, it was entirely appropriate for the Commission to report its recommended sale to the Congress for review. The Commission's report was filed with the Congress on May 26, 1956, and a resolution of disapproval, H. R. 524, was introduced in the House of Representatives on June 6, 1956. The House Committee on Armed Services, to which H. R. 524 was referred, held a hearing thereon on June 13, 1956 and favorably reported H, R. 524 to the House on June 14, 1956. The House on June 19, 1956 approved H. R. 524 and thus, under the statutory review procedure, the sale was disapproved without necessity for any action on the part of the Senate.
The Commission's chairman at the hearing on June 13, 1956 testified that the Louisville, Ky., alcohol butadiene plant could not compete economically under normal conditions with the petroleum butadiene plants, the productive capacity of which had been expanded considerably since private industry acquired them in April 1955. In response to questioning, Chairman Pettibone expressed the view that if the Louisville plant could be reoffered for sale free from some of the restrictive provisions of the Rubber Producing Facilities Disposal Act of 1953, such as the required statement from a purchaser of actual intent to operate the plant to produce a component material of synthetic rubber and the 10-year national security clause, there would likely be more bidders competing for the plant and a greater financial return to the Government than had been possible under existing law. He also said that he doubted if a satisfactory long-term lease could be obtained because any such lease properly should reflect a return to the Government comparable to that which would have accrued from the recommended sale.
Two bills were then introduced in the House of Representatives, the first, H. R. 11813 extending the Commission's official life and permitting a reoffering of the Louisville plant as a general chemical plant on terms different, in certain respects, from those which had obtained in the prior sales of synthetic rubber facilities, and the second, H. R. 11878 providing only for the extension of the Commission's existence until July 1, 1957. At its hearing on June 21, 1956 the committee decided to report favorably the extension measure, H. R. 11878, it being understood that the Commission would take up the question of leasing the plant for a long term prior to the convening of the incoming 85th Congress. If a satisfactory lease could be worked out, the recommended lease would, as required by law, be reported to the Congress for review. If the leasing efforts proved unsuccessful, the Commission would give the committee its recommendations with respect to further disposal legislation concerning this plant. No action on H. R. 11878 was taken by the Senate, and the Commission, as stated previously, ceased to exist on September 23, 1956.
Upon its takeover of the Commission's functions, Federal Facilities Corporation immediately proceeded to carry out the Commission's undertaking with the committee regarding the leasing of the plant. The official advertisement inviting proposals appeared in 9 newspapers published in 5 cities on September 25, 1956, and also appeared in the Federal Register on September 26, 1956 (the advertisement is set out as exhibit II attached hereto). A general press release was issued on September 25, 1956.
The Corporation mailed reprints of the advertisement to every party, totaling 450, who had ever shown any interest in the synthetic rubber plant disposal program since its inception in 1953, as a further step in a broad solicitation of bidders. The Corporation also prepared detailed instructions and information on bidding procedure, which were available to potential bidders, the press, and other interested parties. This information appears as exhibit III attached hereto.
The brochure on the plant was revised and made current. This contained a full description of the plant, its equipment, and process; financial data, photographs, flow charts, and other information to assist interested parties in evaluating the plant and preparing proposals. Eighteen brochures were given on request to prospective lessees, and in each case a personal followup was made to ascertain if any further information or assistance from the Corporation would
be helpful. Only one request to inspect the plant was received, and permission was immediately granted. The Corporation thus considers that it exerted every appropriate effort to stimulate bidding interest.
PROPOSALS RECEIVED At the end of the bidding period on October 31, 1956, lease proposals had been received from Publicker Industries, Inc., Philadelphia, Pa., and Union Carbide & Carbon Corp., New York, N. Y. The original proposals, in copy form, are attached as exhibits IV and V, respectively. Thus the same 2 firms which had competed earlier in 1956 for the purchase of the plant were again the sole bidders for a long-term lease. On November 1, 1956, both bidders were notified that they were eligible to negotiate with the Corporation, and this information was immediately furnished to the Attorney General, who was given copies of the proposals, and to the appropriate congressional committees and to the press.
NEGOTIATIONS; DECISION TO REJECT BOTH BIDS AND RECOMMEND NEW SALE
The negotiating period began on November 1, 1956, and was officially terminated by the Corporation on December 12, 1956. Several negotiating sessions were held with each bidder and each of them also supplied the Corporation with additional written data requested by the Corporation to aid its study of the respective proposals. On November 29, 1956, the bidders were requested in writing to submit their final and last offers to the Corporation no later than 5 p. m. on December 10, 1956, and each bidder did so.
The decision to reject both bids was made December 12, 1956, and was communicated at once to each bidder, and to the Attorney General. Immediately thereafter an announcement of such decision was made to the appropriate congressional committees and to the press.
The Publicker bid was not found acceptable for 2 principal reasons, namely, the low guaranteed rental of only $2,000 a month and Publicker's uncertainty of a supply of molasses for conversion into alcohol for the manufacture of alcohol butadiene at the plant. The Carbide bid was viewed unfavorably because the guaranteed annual rental of $150,000 amounted only to a return to the Government of interest on the $3,500,000 it would have realized from the recommended sale, without any allowance to cover depreciation, leaving the Government at the expiration of the lease with a plant 10 to 15 years older and of uncertain value.
For the above reasons, it was the conclusion of the Corporation that the interests of the Government, including the financial return which could be realized, would be better served by a prompt sale of the plant under new legislation rather than through a long-term lease.
The Corporation's problem in attempting to negotiate a long-term lease was complex for various reasons. The governing law permitted alcohol butadiene plants to be leased for the manufacture of any product, subject to national security and recapture clauses to protect the Government in case of emergency. Under the existing lease, Publicker can use the plant for purposes other than the production of alcohol butadiene. During negotiations, Publicker stated that it had no plans for using the plant except to produce alcohol butadiene, while Carbide envisioned the possibility of various uses. A comparison of the bids in the usual sense was impossible because of the different rental terms offered, since Publicker conditioned any significant payments entirely upon an uncertain production of alcohol butadiene at the plant, whereas Carbide proposed to pay a flat fixed sum annually.
Publicker asked for a 10-year extension of its existing lease, under which it pays the Government $6 per ton of butadiene produced, the Government receiving a guaranteed minimum monthly rental of only $1,000, with the Government paying all costs of maintenance and taxes (about $342,000 per annum) except those applicable to the portions of the plant which are actually in operation. At its final negotiating session, Publicker agreed to increase the guaranteed minimum monthly rental to $2,000 and to shorten the term of the lease extension to 5 years, if the shorter term were more attractive to the Corporation.
The history of Publicker's Louisville operation lent no encouragement to its request for a continuation of the lease for 10 years beyond 1958 on the basis of rentals dependent upon production, Publicker took possession as lessee at Louisville on April 4, 1955, and commenced production of butadiene on 1 of the 3
lines in October 1955. It ceased operations completely on October 3, 1956, had no substantial production after August 1956, and actually manufactured a total of 21,839.99 short tons of butadiene while it operated. Through September 30, 1956, the Government received in rental $137,702.45 and paid out over the period April 4, 1955, through September 30, 1956, approximately $377,168.07 for maintenance and taxes. Publicker stated that although it expected the molasses supply situation to change materially for the better by 1958, it foresaw no likelihood of any operation in 1957, so that the Government must expect to assume the entire burden of maintaining the plant and paying the taxes thereon during such period, with assured income limited solely to the guaranteed monthly rental of $1,000.
The Carbide proposal contemplated use of the plant for the manufacture of alcohol butadiene when economically feasible, but looked presently to its use for refining crude butadiene manufactured at other Carbide installations, plus use of the existing storage facilities. Carbide said that with some modifications the existing plant could be employed to make chemical products other than alcohol butadiene, but that any such alternative use would have to be planned in the light of the statutory mandate for reconversion to alcohol butadiene manufacture under the national security clause required to be included in any lease. Carbide said that tentatively it planned to make improvements and build additional structures on the unoccupied land included in the plant site, with $4 million being mentioned as the maximum capital expenditure presently envisioned. Carbide proposed to pay to the Government a flat rental of $100,000 per year, and to assume all costs of maintenance of the plant for the 5-year term requested. Carbide also asked for a renewal option which would have permitted it to remain in occupancy for an additional total of 5 years, the option to be exercised annually. Under Carbide's original proposal, taxes which now aggregate about $42,000 a year would continue to be paid by the Government. Carbide also asked that if the Government repossessed the plant under the recapture clause required by statute to be included in any lease, Carbide be compensated for its capital expenditures.
As negotiations ensued, Carbide increased the flat annual rental offered to $150,000 per year, and also agreed to assume the payment of taxes, in addition to the total expense of maintaining the plant. The fixed term of the lease would be 10 years, with an option in Carbide to extend the term for an additional 5 years. The plant had to be maintained at all times in accordance with the national security clause requirements. While recapture of the plant by the Government was recognized as a very remote possibility, since the production of necessary alcohol butadiene could and would be obtained instead under the national security clause, Carbide was prepared on recapture to get out of the butadiene plant completely, but would be allowed to retain occupancy of separate facilities constructed by it at its own expense on unoccupied land, with the Government's responsibility being limited to furnishing steam capacity for the separate facilities under a formula which took into account the quantity of steam demonstrated by operating experience to be necessary.
The foregoing summarizes the final results of negotiations as of December 10, 1956, when the bidders filed their last and best offers. The Corporation thus had to decide whether it would accept either bid, or reject both and recommend new legislation, or to send to the Congress a lease which would leave the way open for a sale to supersede the lease if the Congress authorized this to be done under a new law. (With the latter possibility in mind, the Corporation had inquired during negotiations whether each bidder would be more interested in buying the plant than in leasing it, had received affirmative answers, and had obtained each bidder's consent to the inclusion in any lease of a clause making the lease nonoperative if the plant were sold by July 31, 1957, with congressional approval under new legislation to be enacted.) The Corporation then considered:
(1) The fact that the recommended sale to Carbide in May of 1956 had established a minimum value for the plant. Had that sale gone through, the Government would have received approximately $3,500,000 in cash from the sale of the plant plus its inventory of spare parts, etc. It would have been freed from annual costs of maintenance and taxes now approximating $342,000 a year, and from Washington overhead charged to this plant. Those items, plus interest on the $3,500,000 and the cost of insurance, had to be taken into account in evaluating the lease proposals, as did depreciation. The Publicker proposal in no way assured any benefits to the Government comparable to the benefits which would have accrued from the rejected sale. The final Carbide proposal came closer to