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which the territory faces, with all the problems which the islands must overcome, in their continued struggle for self-support and selfdetermination.

Under Governor Paiwonsky's leadership, if you will confirm him, the people of the Virgin Islands may expect that the progress of the islands will continue without any interruption. There will be no period of halting as there was some years ago. There will be no hesitancy. There will be no uncertain steps. There will be no holdup of good programs on the contrary, the islands will be faced with a vigorous administration guided by steady and capable hands. The President's nomination of Mr. Paiewonsky has met with the universal acclaim of the people of the islands. I unhesitatingly say that if the selection of a new Governor for the islands this year has been by election rather than by appointment and if Mr. Paiewonsky had been a candidate for election he would have been the choice of the majority of the people of the islands.

Mr. Chairman and members of the committee, as a veteran public official, as a native of the islands who is deeply interested in the welfare of the people of the islands, as a native who has given the better part of his life to public service, I most earnestly recommend that your committee confirm Mr. Paiewonsky's nomination.

Thank you.

The CHAIRMAN. Governor de Castro, you said that you hoped the islands might be self-supporting. You said you thought they were well on the way to becoming self-supporting. Mr. DE CASTRO. Yes, sir.

The CHAIRMAN. What makes you think that? Does the Federal Government receive any of the income tax money that is collected in the Virgin Islands, or does it stay there and is returned to local government?

Mr. DE CASTRO. The income tax collected in the islands is the Federal income tax. It was made applicable to the Virgin Islands in 1921 at the request of the then Governor of the islands.

The CHAIRMAN. Regardless of its history, does it stay there or doesn't it?

Mr. DE CASTRO. It remains in the islands, yes, sir; but it is a local tax, in effect.

The CHAIRMAN. In addition to the Federal income tax which stays in the islands does the Federal Government pay the salary of the Governor?

Mr. DE CASTRO: The Federal Government pays now directly the salaries of the Governor and the Governor's secretary and their immediate staff.

The CHAIRMAN. And the members of the legislature ?
Mr. DE CASTRO. Yes.

The CHAIRMAN. In addition to that, the Virgin Islands lost in 1960 $662,021 in the operation of sugar alone. Has it ever been further away from being self-sufficient than that.

Mr. DE CASTRO. I do not intend to be argumentative or contradictory.

The CHAIRMAN. I merely say has it ever been further away from being self-supporting than that?

Mr. DE CASTRO. Yes, sir; I think they have been made further away. When I was Governor we used to receive direct contributions from the Federal Government, direct appropriations, of over a million dollars a year.

The CHAIRMAN. Was any of that for capital improvement ?

Mr. DE CASTRO. All of that was for operation of the islands government at that time, but may I point out, Senator, and why I speak of the goal of self-support and why I think we are closer to the way of achieving self-support. When I left the government in 1954, our total revenues in the islands was just about $3 million, the total reveues collected in the Virgin Islands. Last year we collected $7,274,527 in local revenue, The year before we collected $5,114, 000. This year my present estimate is $9.5 million. My estimate for next year is a little over $10 million in revenue.

If this continues to keep up, and there is no reason why it should not keep up with the continued development of the islands as a tourist resort, I see very excellent prospects of the islands becoming selfsupporting

Senator GRUENING. May I make a comment ?
The CHAIRMAN. Yes.

Senator GRUENING. If this optimistic picture prevails it seems to me the Virgin Islands are much better off than the United States.

Mr. DE CASTRO. I couldn't agree with my good friend, Senator Gruening, with whom I worked many years ago when he was director of territories, but I do give a most optimistic picture of the revenue of the islands because that is a fact and it is substantiated by the figures, which can be given to the committee and I am sure which you have.

The CHAIRMAN. If the Congress would kill off the Virgin Islands Corporation it would help you become self-sufficient much faster, would it not? You would quit losing your shirts in these operations down there.

Mr. DE CASTRO. You are asking me a very difficult question about the Virgin Islands Corporation. There are complex problems and complications. The big business of the Virgin Islands I am not an expert on sugaring—is the sugar industry. The sugar industry has very seldom made money on the Virgin Islands, because of the marginal nature of the land, because of the small amount of sugar raised in a small island on a small economy.

The CHAIRMAN. You have been a longtime Government official down there. What percentage of the food consumed by the people in the Virgin Islands is produced in Virgin Islands ? Mr. DE CASTRO. Very little, sir. The CHAIRMAN. Why is that? Mr. DE CASTRO. Practically everything is imported. In the first place, Mr. Chairman, St. Thomas cannot be made an agricultural island. The island of St. Thomas as is, agriculture there would be quite expensive.

The CHAIRMAN. But if you lose so much money growing the sugar, why don't you try growing food ?

Mr. DE CASTRO. Mr. Chairman, that has been tried and I think under able hands it can be tried again, but there are conditions in the islands that make these things quite perilous.

May I point out that while I was Governor in 1952 the Virgin Islands Corporation tried growing tomatoes, both for local consumption as well as for shipment to the American market. Usually we have a severe drought. In that particular year we had not a severe drought, but we had floods and the entire tomato crop was destroyed. It was tried the next year and that year we had a very bad drought, the entire tomato crop was lost. To make the Virgin Islands Corporation self-supporting would be a situation of trying to determine what could or could not replace sugar on St. Croix. That isn't as easy to work out as it is to speak about. Some one suggested some years ago that perhaps St. Croix should go from sugar to the raising of cattle. Then it developed after study that if we would put the entire island of St. Croix ín cattle we would employ between 80 to 150 people and by leaving the island without the sugar we would have several thousand people unemployed. That requires deep study. It is entirely possible that the Virgin Islands Corporation or portions of it can be sold to private industry. I understand that the St. Thomas power situation, which is under the Virgin Islands Corporation, has made money. I have not seen the last balance sheet, but I know the year before the St. Thomas power section made money.

The CHAIRMAN. Do you think when this new electric plant is finished and the sale in waterplant is finished that the Government deficit will be higher or lower?

Mr. DE CASTRO. I thing the goal would be to sell the power to private industry.

The CHAIRMAN. I know what is the goal. The goal is always to do better. What do you think will happen?

Mr. DE CASTRO. I can't say what will happen because I do not make policy. I think it should be done. The Virgin Islands Corporation just got out of the telephone service business. It just sold the telephone service to I.T. & T. and it is putting in a dial system which we didn't have because we didn't have the money.

In my opinion, the powerplant and power operation should be sold to private industry. I cannot say the same about sugar. That will take some study and further thought and some clear determination as to the goal as to where we are going on St. Croix but I do repeat, sir, that with the revenue picture I have given, which is not fantasyit is a fact—the islands are closer to their goal of self-support than they have ever been.

The CHAIRMAN. Do you plan to stay with the government?
Mr. DE CASTRO. If Mr. Paiewonsky wishes me to, sir.

The CHAIRMAN. You know that political gratitude is the lively anticipation of favors yet to come?

Mr. DE CASTRO. Senator, I do not need political gratitude. I have been a veteran public official and I am a retired Federal Government employee. I left the Government in 1954 when my replacement was appointed by the Republican administration and I joined Mr. Paiewonsky's bank as a cashier and I became president.

Senator DWORSHAK. Do you think statehood for the islands would help to make them self-supporting?

Mr. DE CASTRO, I do not think that the islands could ever even think of achieving statehood. I think that the most the islands would want to do further politically would be their right to elect their own Governor and to have their Representative here. The islands do not expect to become a State. They are too small.

Senator DWORSHAK. You said you were director of the budget under Governor Merwin. How much money did you handle ?

Mr. DE CASTRO. The total budget for the islands, Seantor now amounts to about $16 to $17 million, of which $9 million is raised locally, about $6.5 million comes from the internal revenue tax on liquors produced in the islands and sold here.

Senator CARROLL. What was the $9 million for? You are speaking so rapidly it is difficult for us to follow you.

Mr. DE CASTRO. The $9 million represents revenues, income tax, real property taxes, inheritance taxes, business taxes, and so on.

Senator DWORSHAK. You say the cost of operating the local government with this budget is what?

Mr. DE CASTRO. The cost of operating the local government now, this year, is around $9.5 million.

Senator DWORSHAK. How many employees do you have?

Mr. DE CASTRO. In all three islands between 2,500 and 3,000 employees, but we operate the government in the islands on the local level, the state level, the city level, and the county level.

Senator DWORSHAK. Uncle Sam picks up the bill at the end of the year if there is a deficit. Uncle Sam has been doing that for many years.

Mr. DE CASTRO. Not any more, sir, except for the loss in the Virgin Islands Corporation. The local government raises $8 million in local taxes and the balance comes from the internal revenue taxes on liquors produced in the islands when shipped to the United States. That was not unusual because Puerto Rico has had that benefit of the Federal internal revenue taxes since 1917 and Puerto Rico has them on an unlimited basis. We have only had them since 1954 on a limited basis. We get the internal revenue taxes back provided we can match the taxes dollar for dollar.

In other words, if we raise half a million dollars in taxes we get half a million dollars of the Federal internal revenue taxes.

Senator DWORSHAK. How many people are employed by the Virgin Islands Corporation ?

Mr. DE CASTRO. I am not certain. I couldn't give you the exact answer. During the crop season there are probably several thousand employed. Normally I would say about a thousand.

Senator DWORSHAK. The government is the biggest industry, though, is it not, the operation of the local government, really? Mr. DE CASTRO. Not any more, sir. Senator DWORSHAK. It used to be.

Mr. DE CASTRO. That is correct, but with the expanded economy of the islands, the operation of the hotels and gift shops and the purchase of facilities for tourism is becoming the biggest industry in the islands.

Senator DWORSHAK. Who owns the tourist hotels ? Mr. DE CASTRO. The hotels are owned by some people in the islands from the United States who have formed corporations there.

Senator DWORSHAK. The local government has no interest ? Mr. DE CASTRO. The government had an interest only in Bluebeard's Castle Hotel, which was started at the same time the Virgin Islands Corporation was. That interest was sold.

The CHAIRMAN. Senator Allott. Senator ALLOTT. Yes, I have several things. Governor, I didn't get how much is collected on the Federal income tax and is retained in the islands.

Mr. DE CASTRO. I can give you the exact figure.

Preceding the direct answer to your question, and I have the figures here, may I say that the Virgin Islands had their own local income tax. The islands were taken over in 1917 by the United States. They were purchased in 1917 from Denmark. From 1917 to about 1921 the Virgin Islands had their own income tax law. In 1921, at the request of a former naval Governor, Congress applied the Federal income tax law to the islands in a rider to the 1921 Naval Appropriation Act at the specific request of Governor Kittelle for the reason that we wanted to assure at that time two things: One, that we could always say that the people of the Virgin Islands paid the same income taxes as American citizens elsewhere; secondly, that we wanted to have an income tax statute on our books which could not be changed by the local legislature.

Senator ALLOTT. What is the figure?

Mr. DE CASTRO. Yes, I will give you the figure. The income taxes collected in fiscal year 1960 amounted to $4,332,187. In the present fiscal year my estimate is $5,934,000. My estimate for next year is $6,250,000.

Senator ALLOTT. So that in addition to the figures that you have given us we have to add the $4,332,000 that the Federal Government has left there for the utilization of your own government economy!

Mr. DE CASTRO. Senator, that figure is included in our revenue.
Senator ALLOTT. Is this true or not?
Mr. DE CASTRO. It is included in our revenue figure.
Senator ALLOTT. In your total figure of $9 million.

Mr. DE CASTRO. In your total figure of $7,274,000 in revenue in 1960. Of that $7 million, $4 million was income taxes.

Senator ALLOTT. Now, you said that the Federal Government had no interest in any of these hotels that are considering coming up here. Do you know of a Howard Lundgren? Mr. DE CASTRO. Yes, I know of Howard Lundgren Associates. Senator ALLOTT. Do you know of a Howard Lundgren? Mr. DE CASTRO. Yes.

Senator ALLOTT. Is it not a fact that the Virgin Islands Legislature has authorized the issuance of $4 million in government bonds to construct and operate a hotel and other commercial properties associated with and owned by Howard Lundgren and his associates ?

Mr. DE CASTRO. That is correct. The bond issue has not been made yet.

Senator ALLOTT. It has been authorized ?
Mr. DE CASTRO. Yes.
Senator ALLOTT. Do you know Leslie Hunt?
Mr. DE CASTRO. Yes.

Senator ALLOTT. Is it not true that the Virgin Islands issuance of $3 million in government bonds is to construct and operate a hotel owned by Leslie Hunt and his associates?

Mr. DE CASTRO. Yes, sir; and there are two more, I think.
Senator ALLOTT. Sidney Kessler ?

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