Letter to the Attorney General on the Sale of the SS United States.

My dear Mr. Attorney General:

You are perhaps aware of the problems surrounding the sale by the Government of the superliner, the SS United States, to the United States Lines Company. As you may know, the amount of subsidy involved in the contract sales price for the ship has been seriously challenged as being excessive.

Throughout my Administration, I have consistently supported actions necessary to assure the maintenance of a strong and healthy American flag merchant fleet. I am firmly convinced of the importance of such a fleet for reasons of national defense and our international commerce. The SS United States admirably serves both of these purposes. I feel, therefore, that this ship will represent an important addition to our merchant fleet. It was for that reason I supported its construction in my budget recommendations to the Congress. However, the clearly desirable objective of promoting an adequate merchant marine cannot be used to condone the allowance of excessive subsidies to individual ship operators.

Under the terms of the original contract, which was executed in April 1949, the United States Lines Company would obtain this vessel at a price of about $28 million, compared with the total cost to the Government of almost $78 million. The difference between these amounts would be borne by the Government in the form of construction subsidy and national defense allowances.

In July 1949, the Comptroller General issued a special report to the Congress strongly criticizing the terms of this and similar contracts. As a result of this report, a subcommittee of the House Committee on Expenditures in the Executive Departments, under the chairmanship of Mr. Porter Hardy, made an independent investigation. The findings of this subcommittee, as adopted by the whole Committee, largely substantiated the report of the Comptroller General and give reason to believe that the contract reflects certain errors in calculation, together with possible misconstructions of law, with the result that the operator may have been offered an excessive subsidy allowance. This view would appear to be borne out by the recent redetermination by the Federal Maritime Board of sales prices under a similar contract, also investigated by the Hardy subcommittee, covering two vessels purchased by the American Export Lines. In that redetermination, the Federal Maritime Board found that a subsidy allowed in the original contract was excessive.

The House Committee Report stated, among other things, that "In the light of the findings and conclusions of this report, it is recommended that the contracts executed or to be executed with the operators in each of the three cases involved be reviewed and all possible action taken to prevent excessive expenditures of Government funds."

In November 1949 and again in March 1950, I requested that, as recommended by the Hardy subcommittee, the former Maritime Commission review the legal and substantive aspects of this contract, with a view toward obtaining whatever adjustments might be necessary to protect the financial interests of the Government. I asked that this review include an appraisal of the basic data, assumptions, and calculations underlying the contract. However, I have received no information, from a review or from any other source, which answers the charges as to the substantive deficiencies in the contract from the Government's point of view.

I recently requested that representatives of the United States Lines be invited to discuss with the Government possible adjustments in the contract. I proposed that these discussions be without prejudice to any rights either party might have under the contract and that they be on a purely exploratory basis. Despite the purely tentative character of the proposed discussions, the company on two occasions refused to accept this invitation. I deplore this attitude on the part of the company.

The Secretary of Commerce has informed me that, our offer of exploratory discussions having been rejected, he felt the Government had no alternative but to deliver the superliner to the company on the scheduled delivery date under the terms of the original contract.

In view of the doubt as to the correctness of the subsidy allowance cited above, it would seem advisable to consider the steps that should now be taken to protect the Government's rightful interests. Accordingly, I quest that you determine what legal action should be taken by the Government. I would like for you to consult freely with the Secretary of Commerce, the Maritime Board, and the Comptroller General.

The Government is not helpless in this matter. Viewing the situation in its broadest aspects, I am impressed by the fact that the company has been operating for many years under the benefits of construction subsidies, operating subsidies, tax benefits, and other privileges accorded by the Merchant Marine Act. In view of the generous assistance provided by the Government, it is difficult to believe that the Government would lack a basis for obtaining an adjustment that would compensate fairly for any excessive subsidy that may have been involved in the contract in this case. In the event you should find it impossible to take corrective action under existing law, please consider the kind of new legislation that could be recommended for this purpose.

Sincerely yours,

HARRY S. TRUMAN

[Honorable James P. McGranery, The Attorney General, Washington, D.C.]