out any capital improvements. You had no capital expenditures at all in 1945, did you? At least, they do not show in this sheet.

Mr. AULD. Yes, sir; we had the distribution system alone which had a capital expenditure of $330,000 in 1945. I do not have the figures for the supply capital right here.

Mr. BATES. Well, that would be about $400,000 balance in favor of your capital improvements after your revenues are considered, and your expenditures.

Mr. AULD. Yes, sir.

Mr. BATES. With $400,000 a year running over a period of years, would that be adequate to take care of this capital investment of $50,000,000 that you have in mind?

Mr. AULD. No, sir.

Mr. BATES. And, therefore, you are depending upon the Federal and religious organizations to take up that loan.

Mr. AULD. Yes. The method by which we suggest the religious payment is set forth in the bill. We, of course, feel that if we receive payment from the District government we should reimburse them for such services as they render us, such as legal, purchasing, administrative, and we'd provide that reimbursement annually to the city government, by way of the appropriations act.

It is our suggestion that since the water to churches and charities is given by the Commissioners, not by the Water Department, that the value of such water as is given for good cause be credited to the amount that we would pay back the Commissioners for services rendered us. That is spelled out in one section of this bill.

Senator MCGRATH. May I ask what is the trend of water rates in American cities? Let us speak of these 40 cities on this chart, the trend up or down?

Mr. AULD. As to the future, you mean, as the change which may be. taking place now?

Senator MCGRATH. Well, I am looking at water in the sense that we look at electricity as a utility. The trend in the electrical field is to reduce rates and the reduction usually brings about a greater consumption, thereby the company is just as well off, or better off. Does the same hold true with respect to the sale of water?

Mr. AULD. Water systems considered nationally have been falling behind for about 20 years; their operating costs have gone up. I think it is 27 percent, and it is anticipated that they will go up perhaps-or perhaps it was in 1945 anticipated that they would go up about another 15 percent in order to keep up with wage increases, and so forth. Mr. BATES. But notwithstanding that you want the rate to remain static.

Mr. AULD. Yes.

Mr. BATES. That is the same thing as applying the same principles to the property rate, real estate, whether it be $1.75 or thirty or forty dollars a thousand, as we in New England are in the habit of saying; when the cost of government goes up, there must be some reflection in the ratio of the basic costs, whether it is in the form of water, real, or any other basic tax. I do not see how you can possibly get away from it excepting through the development of some entirely new sources of

revenue.

Mr. AULD. Well, that, of course, is what we propose. Looked at again nationally, at the American Water Works Association convention a year ago, one of the speakers did predict that the water-works industry, as a whole, would probably, have to increase water rates 20 percent to keep up with the changes which have occurred in the past 20 years to bring themselves back in line as a group of utilities.

Mr. BATES. Let us take the reservoir system at the present time. How many years ahead do you think we can go when it will be inadequate to take care of our needs if we do nothing about the expansion of it today?

Mr. AULD. It might be right now; that is, it might be right now that it is inadequate. We do not know. There are so many factors which make up a system that it may be weak in some places and not in others. Now, our filter plants have a nominal capacity of about 185,000,000 a day. In 1944 we had a total consumption of a little more than 200,000,000. Now, there is a situation where that is 15,000,000 gallons more than the nominal rating on your plants, and those plants took the load for the day. There is no assurance that they can do it day after day; they might not even do it another day. There are too many factors which affect the performance to say with confidence, so you have pretty well used up many of your essential facilities right now, and it is not a safe way to leave a town of a million consumers. Mr. BATES. Where is the main source of your supply?

Mr. AULD. The Potomac River.

Mr. BATES. All of it?

Mr. AULD. Yes, sir, all of it at the Great Falls which is about 14. miles up the river from here.

Mr. BATES. And that supply is something which you might call inexhaustible?

Mr. AULD. For our needs it is.

Mr. BATES. What you are up against today and what your facilities embrace more than anything else, are filter plants.

Mr. AULD. Yes, sir. For instance, there is a conduit, two conduits, from those falls to our first filter plant. They have a combined capacity of 233,000,000 gallons a day. Now, we have already had a day where it went over 200,000,000 gallons; that is pretty close, particularly when part of the water which is not included in the 200,000,000 has to be used to wash those filters, so other more or less emergency means have been devised under the circumstances to provide raw water, at least for several years, from the C. & O. Canal by the conversion of what was a hydroelectric plant for the use of surplus water into a pumping plant. However, raw-water facilities, under this program, will have to be begun in 1954. Then, a dam in the river at Little Falls is proposed, and that dam, with a pumping station, to lift the water, the raw water, to the plants, would go into operation in 1957. We feel that by that time the load will be of such proportion that it can be handled no other way.

Mr. TALLE. Would you not say that a good deal of water is wasted where a community is not 100 percent metered?

Mr. AULD. Yes, sir; we feel that that is very probable. That accounts for our determination to meter as soon as we can.

Senator CAIN. Do you have a restricted watering in the summer? Mr. AULD. No, sir; we have not; that was the case prior to 1928, before the newer filter plant was put in service, but that was removed after that.

Mr. BATES. The only thought that I have, Mr. Chairman, is this: I want this part of the record to state that it seems to me that we are approaching this thing, the water board here, whoever is in charge, in a manner that is going to just slow down future generations, and load down those generations with the expense of carrying this so-called capital investment at a time when the economy of this country may not be in the condition that it is in today, and that is one of the crying needs, for the Federal Government to unload the Federal debt insofar as they can when the income of the American people is at its highest, and not wait until the day of reckoning when the income of the American people may be at one of the low points, and they still have to carry this excessive load.

Mr. AULD. Yes, sir.

Mr. BATES. Now, that is just a little theory of my own but I am not alone with it. We ought to start now building up a reserve, whatever the source of revenue, water revenue, maybe, to meet this impending necessity of a capital outlay of $51,000,000 before the year 1961 or thereabouts, that you are speaking about, and not wait until 1971 to start paying for that job. I mean that is my opinion.

Mr. AULD. I would like to point out, sir, that most of these structures are going to be of very long life, and it is customary in utility fields to distribute the costs of capital improvements over a period of years.

Mr. BATES. We are building schools today from current revenues, if I understand it; we are building public buildings and we are building highways that will last 30, 50, probably a hundred years, with 12 and 15 inches of thickness, and all of them are being met from current revenues only, because the trend of municipal finances is to pay as you go along because these recurring costs in these major capital investments are much that the future generations will have their loads to carry, too. That is a theory that we follow in respect to the financing of these so-called capital improvements, like buildings. You have no debt here in the District at all, and yet you are building structures year after year, and structures that will last 100 years; that is a theory I am talking about, and I think we ought to plan accordingly. Mr. AULD. I feel though that water facilities are somehow even more enduring than the average public improvement.

Mr. BATES. Maybe, they are; maybe if you get a break in the dam they will not be.

Mr. AULD. No, but the experience in cities in this country has shown surprisingly long life in water mains, and major structures. The Bureau of Internal Revenue, for instance, has listed the useful lives and various features of the system. They gave 150 years for dams, and for mains of 12 inches and over, 100 years. We know, of course, that many cities have had that experience. We have mains in service which are 80, 90 years old. Some of those we have taken out systematically before highway work partly because of that age, and partly because they are small, but we feel that we are going to build for a long time.

Mr. TALLE. How does the Nation's Capital rate in per capita income?

Mr. AULD. You mean income of the citizen or the water income per capita?

Mr. TALLE. The citizen, yes.

Mr. AULD. I cannot answer you, sir, on that. I can tell you how we compare with other cities on Water Department income.

Mr. TALLE. My point is that I believe the per capita income of the citizens here is so high that they could well afford to pay the going cost of water.

Mr. AULD. I do not think that we can consider one part of the overall tax requirement separately from the rest. I am afraid we should think of them altogether; taken alone that certainly would be reason

able.

Mr. TALLE. I fear that long stretch of years without payments in your proposal.

Senator CAIN. You have no reason in your mind, as the Superintendent, to consider the advisability of increasing rates at this time. You are thoroughly satisfied with your method of projected financing; you think you can carry it on present rates, and you are just not interested in the subject, is that right?

Mr. AULD. No, sir, it would be impossible to carry forward this program at all, or to any sufficient extent, with our present sources of

revenue.

Senator CAIN. Well, I am assuming that you are going to get paid for the water that you are actually supplying, though that may be a very bad assumption.

Mr. AULD. We would still drop behind if we are to build the plant which we feel must be here to serve these people.

Mr. BATES. Mr. Chairman, let me ask this question: Do you know of any other community in the whole United States or a metropolitan water supply district, that is embarking on a major capital outlay, whether it is 10 million, 20 million, 50 million, a 100 million, that does not begin immediately to issue serial bonds and meet those serial payments by increasing the water rate immediately? Do you know of any city in the country that is doing it under the method of financing that you are projecting here?

Mr. AULD. I do not, sir. The Boston metropolitan district, from at magazine article I found a year ago, does contemplate a $39,000,000 capital outlay program.

Mr. BATES. That is a new program. We completed a $50,000,000 program a few years ago.

Mr. AULD. Yes; and that they will reduce over the years. They have shown a curve of how they are going to liquidate.

Mr. BATES. Through serial payments.

Mr. AULD. Yes.

Mr. BATES. That is right.

Mr. AULD. It will be liquidated in the year 2000.

Mr. BATES. Now, the thought I had in mind was, only 20 years ago I was right in the middle of that project when we authorized a $50,000,000 capital outlay for the building of this big reservoir, and here we have within a period of 20 years another capital outlay that we are looking forward to that you now say is $39,000,000.

Mr. AULD. Yes, sir.

Mr. BATES. That is the thought that I am leaving in your mind, that 50 years from now, or 20 or 30 years from now, although you

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say there is a limitation within the District that will not utilize all this water, that you will not have that recurrent capital outlay, 20, 30, 40, 50 years from today. You feel rather safe about that today? Mr. AULD. I feel confident.

Mr. BATES. That was exactly the point of view that the metropolitan district had in the State of Massachusetts 20 years ago, 25 years ago, that it would last them 50 years. I recall that testimony well myself, and here we are 20 years later, and they are spending that amount of money again.

Senator MCGRATH. Of course, it it true that the Boston metropolitan area has unlimited geographical area to expand, and is expanding for miles around. I think what Mr. Auld is trying to tell us is that there is a geographical limitation in the District beyond which you cannot grow. Am I correct in that?

Mr. AULD. That is correct, sir.

Mr. BATES. I understood that was so. The thought I wanted to leave with you, however, was that we anticipated that growth in the metropolitan district in Boston, say, 25 years ago; they thought this reservoir would take care of the needs for 50 years. It was a tremendous undertaking, and we had quite a controversy about it, embracing all that metropolitan area, and correlating all that information, inundating communities, and all that sort of thing, to get the reservoir built, and they anticipated it might last 50 years before they started on a new project.

Senator CAIN. Mr. Auld, thank you very much.

Mr. AULD. Thank you.

Senator CAIN. I wonder if Mr. Pilkerton is with us, and if he is, will he come to the chair. I think, perhaps, it will be more convenient for you there.

This is Mr. Arthur R. Pilkerton, who is the Auditor of the District of Columbia.

STATEMENT OF ARTHUR R. PILKERTON, AUDITOR, DISTRICT OF COLUMBIA, WASHINGTON, D. C.

Mr. PILKERTON. Gentlemen, my position with the District deals primarily with accounting, auditing and accounting for District of Columbia revenues, and District of Columbia appropriations.

I wanted to call attention to some of those statements in that the average cost of operation for the period 1937 to 1941 was about a million dollars a year. From that time on it took a sudden jump, while your capital improvements remained about the same.

Now, there is, of course $5,000,000 held by the District in Federal securities acquired in 1945, and $5,000,000 acquired in 1946 for postwar improvements, $10,000,000 in all. The 1946 act carried provision for the investment of part of the cash reserve that we had, that is, the cash balance, not necessarily free reserve, and $5,000,000 of the general fund was invested in short-term securities for the general fund, and $2,000,000 invested in highway fund. We treat that $7,000,000 as though it were cash, so that you will see that the operating reserve of seven-andsome-odd million dollars at the beginning of 1946 will probably dwindle down to a deficit at the end of 1947.

The annual report for 1946 showed a deficit of $1,477,000 but that is not technically a deficit, since we have a $5,000,000 cash investment.