appeared in Public Law 268 as a means of determining a ceiling for the payments to land-grant institutions. It was in no sense of the word a formula for reimbursement of costs as we in educational institutions think of reimbursements. It was a formula for determining compensation. Now when we do-as we do-vast amounts of research for the various Federal agencies, we enter into cost-reimbursement contracts. When one categorizes costs, those several categories of costs are then allowable under the contract, and cost X is by intent read into that contract. On the other hand, here was a device for establishing a ceiling. Now, I would defy anyone to try to identify the_components of costs involved in the so-called 15-percent override. It was an arbitrary figure added to the cost per credit-hour, again as a means of recognizing certain undefined costs to the institution. If that be true, as I personally think it is true, then to blithely dismiss the anonymity of the 15 percent and try to personalize the other part of the formula is to me inconsistent. It is not my intention to enter into any discussion as to the adequacy or inadequacy of the compensation paid by the Government to landgrant institutions for the education of veterans, but I think it is of more than casual interest for you gentlemen to know the magnitude of the burden so willingly assumed by the land-grant institutions and the costs involved. Let me tell you about the State of Minnesota and the role my institution played in educating veterans. Since the inception of this program, we in no year have had less than 63 percent of the veterans eligible for training in the State of Minnesota. The estimated tuition received for education of veterans as actually distributed during the years 1946-50-the actual, ratheris $19,102,900. Had the University of Minnesota, through restricted enrollment or through other means, not been able to meet the impact of registration by veterans to the extent it did, and the veterans had gone to public junior colleges, public teachers' colleges, private junior colleges, and private liberal-arts colleges, the payments by the Government would have been $20,339,300, or $1,236,400 over and above what we received. Senator HILL. State that last figure again. Senator Aiken just came in. Dr. LUNDEN. To pick up the original figure, I indicated that at the University of Minnesota we have never in 1 year had less than 63 percent of the veterans eligible for training in that State enrolled at our institution. Senator HILL. In other words, of all the colleges and universities and schools in Minnesota where these veterans attend, you have had 63 percent of the total enrollment? Dr. LUNDEN. That is correct, and we have received from the Veterans' Administration $19,102,000. Now, while it is a far-fetched case and I am trying to draw some comparative figures here without too great emphasis, had we through restricted enrollment or sharing ability not absorbed these individuals and they had been spread into junior colleges, public teachers' colleges, private junior colleges and private liberal arts colleges, the cost would have been $1,236,400 additional. Now, had the veterans not absorbed by the University of Minnesota gone to liberal-arts colleges alone, disregarding the other public institutions, then the difference would have been $6,422,600. Surely the foregoing comparisons are enlightening in terms of comparative costs within a single State. I am compelled to take cognizance of the testimony of Mr. W. L. Ellis, representative of the General Accounting Office, before the Committee on Veterans' Affairs on February 1, 1950. I am told that Mr. Ellis has given substantially the same testimony before this committee. I should like to be permitted to have, as an attachment to this statement for your later reading, a copy of a letter written by Mr. Lloyd Morey, Comptroller of the University of Illinois, to Mr. Lindsay Warren, Comptroller General. Senator HILL. Without objection, we will put that statement in the record in full following your testimony. Dr. LUNDEN. Thank you, Mr. Chairman. It seems to me that Mr. Morey has successfully refuted the arguments advanced by Mr. Ellis. I do not want to extend my remarks unduly and thereby impose upon your time, so I will not offer any detailed comments of my own. If the percentage of costs recaptured by land-grant institutions is of the degree I have previously pointed out-and I will interpolate for the benefit of those members of the committee who arrived late that that percentage at the University of Minnesota is 54 percentand I insist that I am right on this point, there can be no "profits" or "surpluses" or "moneys" in any other form for the building of auditoria, stadia, and the like. Assuming that contracts are honestly entered into by both parties, I submit that there is only one circumstance wherein institutions might enlarge or improve physical plants from receipts for veteran education, and that is when a State legislature decides through appropriation to support completely from State funds the operation of a State institution. In that event, receipts from the Government could be "surplus" and be available for capital improvements, but in this situation the amount of State funds used in lieu of Federal receipts might just as well have been appropriated for capital expenditures and thereby permit Federal receipts to enter into current operations. I do not know the institution referred to by Mr. Ellis, nor do I know any of the circumstances surrounding it, but I do know at the University of Minnesota the demands for money to cover normal operations would never permit compensation from the Federal Government to be channeled into capital purposes. Furthermore, I believe that the University of Minnesota is representative of virtually all land-grant institutions. I was struck by Mr. Ellis' statement And as to the total profits, the figure for 1948 shows that there was $20,000,000— that is the figures for 1948 show there was as far as income and outgo were concerned, about a 10 percent difference between them in 1948. I believe that we do not have to go beyond the inferential stage to gather that this is a direct charge that land-grant institutions have realized "profits" from the GI program. This $20,000,000 figure is apparently identifiable as the amount that was transferred from current funds of all land-grant institutions and devoted to plant expansion and other capital purposes. A quick analysis of the landgrant statistics indicates that of the $20,000,000 over-all there was an item applicable to the University of Minnesota of $885,894. I should like to tell you what these transfers aggregating $885,894 were and then to ask if these transfers represented profits. An analysis of our records show the following break-down by funds of this amount; From the general maintenance, which is the appropriated funds by the State legislature, we transferred an amount of $240,823. From service enterprise funds--and by "service enterprise" I mean the nonteaching activities of the university such as the operation of dormitories, dining halls, cold storage plants, and the like-$628,239, and from non-Federal endowment funds, $16,832. Senator HILL. None of those funds were Federal funds? Now there is $240,823 transferred from the general maintenance fund, for the following purposes: For new construction, $83,836, for purchase of land, $40,069, for equipment, $116,918. Now let me repeat that that $240,823 was transferred from the State appropriations, as is commonly done, and as has been done at the University of Minnesota for a period of over 20 years, which is the period that I have been there, and indeed all of the purposes for which this money was expended actually were listed in the legislative requests. Senator HILL. What percentage of your over-all capital investment, building, land, equipment, fixtures, would you say that $240,000 would be? It would be very small, would it not, compared to the capital outlay of a university like the University of Minnesota? I think that would be very, very small. Dr. LUNDEN. That is correct. Now we come to the largest single part of this total fund, the $628,239 transferred from service enterprise funds to plant. Now let us see where this money went. For new construction such as dormitories and dining halls, $417,188, for new construction of athletic plant, $150,000. Then for purchase of land, $45,700, for equipment, $2,932, for remodeling, alterations, et cetera, $12,308, which is the $628,239. It has been the practice to finance construction of new dormitories and dining halls at Minnesota from income from existing dormitories. Senator HILL. When you say "the practice," you mean this existed long before you had any funds coming in under the Servicemen's Readjustment Act? Dr. LUNDEN. That is absolutely correct. When needed for construction of new dormitories, these amounts are transferred from this current fund to plant funds. The item for new construction for the athletic plant has come from net earnings on intercollegiate athletics. None of the funds in the above total of $628,239 had come from funds in any way connected with teaching or research programs. If I may interpolate then as summary on that particular point, the allegation has been made that by following transfers of funds of landgrant institutions in the aggregate, there has been a transfer of $20,000,000. It is blandly alleged that this $20,000,000 is profit. Well, the method of accounting in a State university or a land-grant institution is to run together all of these various sources of income into the current income fund and then at the close of the year transfer 65956-50-7 them out to their various dedicated purposes, so that they cannot under any stretch of the imagination be regarded as profits. Now I have indicated that at Minnesota we have identified, of this $20,000,000, $885,894. In the letter from Mr. Morey that I am introducing, he traces through in a similar manner a transfer of $1,025,033, or if you take the experience of Minnesota and Illinois, only two institutions out of the many land-grant institutions, you can easily account for approximately 10 percent of the transfers involved, and I am satisfied that a detailed examination of the $20,000,000 would show the experience of Minnesota to be typical. Senator HILL. Mr. Morey's letter will be placed in the record, as we know; however, we have not had an opportunity to examine it as yet. It tells about the same story with reference to Illinois that you have given us with reference to the University of Minnesota, is that correct? Dr. LUNDEN. If I may, Mr. Chairman, I will quote two short paragraphs of Mr. Morey's letter. Senator HILL. All right, sir. Dr. LUNDEN. He documents it by showing the pages of the financial report of the institution, the total operating income for 1939-40 was $8,577,576. In 1948-49 it was $39,208,938. Instructional expenditures increased from $4,415,298 to $15,531,483. Of the latter figure, as shown on page 21, the sum of $3,768,547 was paid by the Government for instruction of veteran students; and yet veteran enrollment in that period made up approximately 50 percent of total enrollment. * It is also noted from other figures on pages 78 and 79 that additional large amounts of money were spent from other sources * * for plant additions. Included in this total is a certain amount ($1,025,033) appropriated out of current funds, but such appropriations came from unitemized State current appropriations or from other unrestricted income and not out of veterans' tuition. I will not go beyond my own institution to identify further the nature of these alleged profits. In the letter previously referred to, written by Mr. Lloyd Morey, comptroller of the University of Illinois, he presents a similar analysis and I believe that if anyone took the trouble to make a detailed analysis of all land-grant institutions that profits would be found to be nonexistent. I, as an individual and as a business officer of one of the largest State universities in the country, would be as interested as anyone else in stopping practices resulting in profits to educational institutions. Indeed, I would cooperate in seeing that this be done because my institution by its very nature is interested in cost reimbursement at the most and has patriotically educated veterans for a cost to the Government substantially below the costs of the services rendered. I conclude then by reiterating my belief that the Morrill-Nelson and Bankhead-Jones funds are endowment in character and should not be deducted in figuring the estimated costs of teaching. Senator HILL. Let me ask you a question, Doctor. One of the most interesting points brought out by Dr. Adams was in this language which was in the original Servicemen's Readjustment Act and which was stricken therefrom. I refer of course to the language to the effect that the Administrator could readjust payments to institutions furnishing educational training and then "in consideration of increased or decreased enrollment and available contributions to meet such costs, whether from public or private funds," that was stricken out. Have either one of you gentlemen-I do not know that you have, because it is a very laborious job-had an opportunity to examine the debates in either House or Senate, and whether or not there was anything said in those debates about that language, why the language was stricken out and whether or not this question of your MorrillNelson funds or the Bankhead-Jones funds came up in the discussion in the debates? Dr. LUNDEN. I have not personally examined that material, Mr. Chairman. Dr. ADAMS. I have looked over the record and I find no reference to it. Senator HILL. I see. Well, so often, as we know, matters of that kind are discussed in the conference committee or an executive committee meeting of a committee, and you have no record made. All right, Doctor. Dr. LUNDEN. I conclude then by reiterating my belief that the Morrill-Nelson and Bankhead-Jones funds are endowment in character and should not be deducted in figuring the estimated cost of teaching. I believe that congressional intent is clear. If there is any question about this, however, it seems to me that in recognizing and correcting the inequities against land-grant institutions this Congress can effectively remove any question by reaffirming beyond any doubt the intent of previous Congresses that first established landgrant institutions and then provided additional support for the very praiseworthy purpose of providing instruction in agriculture and mechanics arts. I reiterate my belief that there is no element of duplication in payments made by the Federal Government and have sought to indicate to you the extent to which land-grant institutions have been paid for services rendered. I have also tried, by using my own institution as an illustration, to dispel any notion that may be entertained by you as the result of previous testimony that landgrant institutions have "profited" from the trairing of veterans. For these reasons I believe that the enactment of H. R. 7057 is desirable, not only to correct an existing inequity, but to reaffirm the integrity of the relationship that has existed between the Federal Government and the land-grant institutions. That concludes my statement, Mr. Chairman. The CHAIRMAN. The letter that you asked be incorporated in the record will appear at this point. (The document above referred to follows:) UNIVERSITY OF ILLINOIS, Urbana, Ill., February 15, 1950. Re treatment of Federal endowment grants in Veterans' Administration contracts with land-grant colleges Hon. LINDSAY C. WARREN, Comptroller General of the United States, General Accounting Office, Washington 25, D. C. We DEAR SIR: On January 31, the writer in company with President Arthur S. Adams, of the University of New Hampshire and president of the Association of Land-Grant Colleges and Universities, appeared before the House Committee on Veterans' Affairs in support of H. R. 6985 (now replaced by H. R. 7057). placed before the committee testimony as to the lack of soundness of a requirement made by the Administrator of Veterans' Affairs that, in contracts made by him with institutions for compensation for instruction to veteran students in lieu of the payment of regular tuition fees, in arriving at rates of such compensation there must be deducted a prorata amount of certain Federal grants paid to institutions under standing congressional acts for the "further endowment and |