the return to the T. V. A. was commensurate with the amount that they had invested?

Mr. OWEN. I didn't think so at the time that I was making the audit, although sufficient time had not elapsed; you see, this leasing has taken place comparatively recently.

Representative WOLVERTON. Well, prior to that, the practice which is now in effect, what was the system?

Mr. OWEN. The system was worked at a loss; the drug store and the grocery store usually operated at a loss on account of the high salaries they paid at the drug store; that was one reason, and I forget exactly the reason that the grocery store had a loss, and the filling station had to build up a trade first, and it was losing but when it built up a trade and got to going good, they leased it.

Representative WOLVERTON. If there was a loss in the store and in the drug store, who actually pays the loss? You have said it was due to salaries that they were paying?

Mr. OWEN. Yes, sir..

Representative WOLVERTON. They seemed to be too high to make it profitable?

Mr. OWEN. Yes.

Representative WOLVERTON. Who paid those salaries?

Mr. OWEN. The T. V. A. paid them before they leased to the cooperatives, and the experience of the T. V. A. showed that they were losing, they knew that they were losing, so they reduced the salaries when they let them go over to the cooperatives, hoping to then make profit because the trade had been built up and it was known what the business was.

Representative WOLVERTON. Now that they have been turned over to the cooperatives under lease, does the T. V. A. still continue to pay the salaries of the employees?

Mr. OWEN. No; they pay their own help, as I understand it.

Representative WOLVERTON. The report that came to my attention when we were at Knoxville dealt with this current year, and it stated that they would be conducted as a loss, and gave the figures of what the estimated loss would be, and then they made the comment that it was due to increased salaries.

Now, if the salaries are paid by the cooperative, then why should it be of any concern to the budget officer of the T. V. A. whether it was conducted at a profit or a loss?

Mr. OWEN. I can't see why it would, because when you lease anything out, you don't lease a lot of employees with it; you lease the building and sell them the stock of goods.

Representative WOLVERTON. Well, I am hopeful that we can get some idea of the basis on which these cooperatives are carried on, so that we might ascertain whether it is a kindly, paternalistic service that is rendered by the T. V. A. to employees and nonemployees who reside in the Norristown, or whether it is a service that is entirely based on their own efforts and for which they suffer the loss and not the T. V. A.

Mr. OWEN. It is my understanding that the cooperative hires its own employees and after it had an experience figure from the T. V. A. over the time the T. V. A. had operated it, it hoped that with the

trade built up and their knowledge of it, and the favorable rental, they could make money out of it.

Representative WOLVERTON. You see, I had before me a report for this present year, in which they stated that it was going to be a loss.

Mr. OWEN. Yes.

Representative WOLVERTON. I am trying to find out how great the loss is, and also to find out whether a proper rental is being charged for the properties in which business is done. Now, if we are to assume that the subnormal rate of rent for those stores is comparative to that which is charged for the rental of homes, it would seem to me that the loss might be fairly considerable.

Mr. OWEN. I remember those contracts, but I don't-or I didn't go out to Norris and I would have to look at the contracts again to see exactly what the rates were, but the rates were low, in my opinion, at the time I looked at them.

Representative WOLVERTON. I don't want to pursue it any further

now.

Mr. OWEN. I think that the rates were low and they were given an unusual opportunity

Representative WOLVERTON. Evidently you are not sure enough of the situation to give the accurate information that I think the committee members would want in this matter.

Now, maybe the picture is changing because I have been told that there was an announcement made recently-I did not see it myself— that it was the intention on the part of T. V. A. to sell the town of Norris.

Mr. OWEN. I understand they have tried to sell it, but have failed so far as I know.

PRICES PAID FOR AUTOMOBILES BY AUTHORITY

Representative WOLVERTON. Now, will you turn to page 368 of the report, starting on that page, you had thought necessary to set out the situation that was existing at that time with respect to the use of automobiles by the employees of the T. V. A. In one of your statements, there is this:

Pardon me, it is on page 367; you make this statement:

Notwithstanding the Tennessee Valley Authority owned several hundred carsis it six hundred-and-some, or is it two hundred-and-some cars? I am uncertain in my own mind, and I can't put my finger on it right at this moment.

How many passenger automobiles are owned by the T. V. A.? I see a statement on page 366 that would indicate 223 is the number of passenger automobiles and light trucks at that time.

Mr. TULLOSS. I think that that is true, as of June 30, 1934. Representative WOLVERTON. Do you know how many it is now? Mr. TULLOSS. No, sir; I do not.

Representative WOLVERTON. I may be wrong and I don't say it as a fact, but I get the impression that it was something over 600. Would that be anywhere near?

Mr. TULLOS. I understand that that is nearly it, or somewhere near that, but I do not know the exact number.

Representative WOLVERTON. Notwithstanding the ownership of this great number of cars, your report indicates that there was a

practice at that time of hiring cars on a drive-it-yourself basis, and that in one instance, I take this quotation from your report:

In the meantime there was paid for hire to one private drive-it-yourself concern, without competitive bids, approximately $36,000 between November and June, exclusive of gasloine and oil.

That is about two-thirds of the way down the page 367.
Mr. TULLOSS. I see that; yes, sir.

Representative WOLVERTON. Now, your report called attention to that, and recommended that a system be set up by which the cars owned by the T. V. A. could be sort of pooled, so that they would be of service without the necessity of being assigned to particular individuals, and thereby preclude the necessity of obtaining cars by this drive-it-yourself method, where you would hire the cars on an hourly basis or a mile basis.

Now, in the years that have intervened between 1934 and the present, has that situation been corrected?

Mr. TULLOSS. Yes, sir; our suggestion, I understand, was followed in that respect.

Representative WOLVERTON. At the present time, is there any moneys being expended for the hire of automobiles?

Mr. TULLOSS. I don't know of any.

Representative WOLVERTON. So that you think that that criticism. has been entirely eliminated?

Mr. TULLOSS. I think so; yes, sir.

Mr. BIDDLE. Mr. Chairman, before passing on for the next item, did the committee wish to have the answer of the T. V. A. read on the record? They had so indicated before when these items of exceptions had been taken up; or would they prefer to pass to the next item without reading the T. V. A.'s answer?

Representative WOLVERTON. I would say that there is no intention on my part to pass on to the next item, if there is something material on the subject that I have examined, because all I am doing is trying to seek information on these questions, so that if the counsel or anyone else has different information, why, I think that it would be

Mr. BIDDLE. There is an answer to every one of them and I suggest, therefore, that the witness read the answer to this. I haven't read it, and I don't know what it is.

Chairman DOHANEY. Without objection, so ordered.

Representative WOLVERTON. He has said that it has been corrected in recent years, and I am more interested in what is taking place now than I am in what took place

Mr. BIDDLE. If you prefer, we won't have the answer read. Representative WOLVERTON. What I have before me is the report of 1934, and therefore my examination must be confined to that. Chairman DONAHEY. You may read it.

Mr. TULLOSS. On page 350 of the reply, it is stated:

In the first paragraph of the comments under this heading the report states that "when others, not having a regular assigned car, were required to travel outside cars were hired * * *""

In the comments regarding "passenger automobiles and light trucks" it was noted that 80 owned passenger cars were assigned to individuals and divisions. On page 368 the comments state that the total number of owned cars was 223. Obviously, with 143 cars unassigned, in accordance with the figures just quoted

from the report, the statement that persons who did not have regularly assigned cars were required to use outside cars is incorrect.

Drive-it-yourself cars were hired when owned cars were not available, or when the intended use of a car was such that it was not thought practicable to assign an owned car. As it was impossible, at that stage in the development of the Authority's program to determine the needs over a reasonable period of time for automobile equipment, it was believed unwise to invest too large a sum of money in owned cars. Also, the need for such equipment developed so rapidly that it was impossible to purchase cars to fully take care of the entire requirements. On page 368 there is a discussion which is intended to develop a lack of use of cars by certain individuals. The fallacy of this showing is that certain individuals are doing work of such nature, and the work is located at such points, that the assignment of cars is necessary.

In connection with these comments, costs per mile are quoted which are intended to show the effects on cost of increased use of units of equipment. On page 366 of the report statement is made to the effect that:

"Although cost accounts on all cars are maintained, and statements prepared monthly, such records do not reflect costs correctly due to the outstanding charges on purchases of gasoline and other supplies."

In view of this statement, it would appear that the report places no reliance upon the figures which are quoted from page 368 in support of the comments made therein.

The last paragraph of the report reads as follows:

"Had the Authority pooled the owned cars, which, while assigned to individuals, were used but a small part of the time, it would have eliminated or at least greatly reduced the necessity for hiring."

This statement cannot be supported in accordance with the facts.

We are quoting a statement made by the chairman of the Board of the Tennessee Valley Authority on May 20, 1935, before the Committee on Military Affairs, House of Representatives:

"The Comptroller General, on page 368, lists what he considers to be improper use of automobiles. We were renting certain automobiles at the time because we did not have enough of our own. He draws attention to the fact that if we would use our own automobiles to better advantage, we would not have to rent other automobiles. He gives a list of automobiles that are used to bad advantage by the Tennessee Valley Authority.

"The first name on that list is L. H. Huntley, who in this period traveled 268 miles, and the cost, most of which is the set depreciation of his car, was 56 cents

a mile.

"Then he has a list showing the proper use of automobiles in the case of large mileages. The first name on that list is F. C. Schlemmer, who traveled 4,765 miles at a cost of 2 cents per mile.

"I want to take these cases and show what the auditor would have found if he had known the facts. Mr. Huntley is construction superintendent in entire charge of a $20,000,000 job. He lives right close to the job. He has his own automobile. He has to go from the job to the office, to the warehouse, to the paymaster's office; in other words, he just moves around that job with his automobile, not more than a mile or two at a time. He has it at hand all the time.

"The auditors' report indicates that Mr. Huntley should call for a car out of the general pool when he needs it. We do not have any general pool on that job, just a few automobiles there.

"But the construction superintendent must have an automobile. To ask that superintendent of construction to walk around that job would have been just foolish. Any private construction firm that received a suggestion like that would get rid of the man who made the suggestion.

"Now take the other case that they represent as especially good policy, that of Mr. Schlemmer. He was assistant superintendent on the Norris Dam. Unfortunately for a time we had no place for him to live at the dam, and he was living 25 miles away and riding back and forth between the dam and his home every day. So he showed a large mileage.

"As soon as we got him a house we stopped that, and he lives right close to the job. If that had continued, it would have been bad management. The only reason it was tolerated was that it was an emergency.

115943-39-pt. 11- -9

"Thus the top case that they have referred to as bad management was good management, as a matter of fact; and the top case that they referred to as good management, if it had been anything else but an emergency condition, would have been actually bad management.

"So I say that the effort to direct the engineers how to handle this job is out of place."

Representative WOLVERTON. Is there any explanation made of your criticism that there had been paid to one private drive-it-yourself concern, without competitive bids, approximately $36,000 between November and June, exclusive of gasoline and oil?

Mr. TULLOSS. I think that I have read the entire reply, and I do not recall

Representative WOLVERTON. Now let us turn to page 374, and I direct your attention to what appears--

Representative BARDEN. Could I ask one question? Was that $36,000 item the object of specific objection in your report?

Representative WOLVERTON. It appears on page 367, about twothirds down the page; you will find the language that I read.

Mr. TULLOSS. I believe that that is just comment in the report; there was no exception.

Representative BARDEN. It wouldn't necessitate a reply if it wasn't an exception, would it?

Mr. TULLOSS. They-in general, they replied to all comments in the report, with some exceptions.

Mr. BIDDLE. I understand the criticism was leveled not at the amount that was paid, but at the practice of taking cars, of renting cars, instead of taking them out of a pool; that was the basis of the criticism, there being no exception filed to any particular account, and, as I understand, the criticism was leveled at the administrative procedure of the handling of the automobiles and was not leveled at any item of account; would that be correct?

Representative WOLVERTON. There was a further basis, if I may call it to your attention.

Representative BARDEN. Will you let the witness answer that question?

Representative WOLVERTON. I want to get the facts. I don't think that Mr. Biddle intentionally departed from them. I noted that it had been done without competitive bidding.

Mr. BIDDLE. And that there had been no competitive bidding for drive-your-own machines; I suppose it would have to be each time the particular car was handled, so perhaps you could answer that; would you answer the question?

Mr. TULLOSS. I can't be sure at this time that we didn't take exception to some of these items. I think that we have some items in our

statement of exceptions.

Mr. BIDDLE. There is your report right there; will you look and see? Mr. TULLOSS. It is not in this part of the report.

Mr. BIDDLE. You didn't at that time take an exception. Wouldn't that show in your report?

Mr. TULLOSS. I am advised that there are some in here, but they are difficult of location, and I don't believe that I could point them out at this time.