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there were derived $823,063 from these secondary sources. other activities included a wide variety of business transactions, largely conducted under arrangements for sharing gross receipts with concessionaries. The concession agreements cover the usual variety of enterprises found in a metropolitan shopping area—restaurants, newsstands, florist, insurance, and many others. In addition, certain of our operations produce direct revenue to the airport, such as our sales of utilities and steam to tenants and our receipts from vending machines and other coin-operated facilities.

Our largest item of expense at the airport is for the personal services of the people who operate, maintain, protect, service, and administer its many activities. In fiscal year 1953, this item comprised $931,383 out of a total expenditure of $1,346,187. The balance of our expenses were primarily for contractual services and supplies, materials, and equipment, including the utilities which we resell, and the fuel which we buy to produce the steam sold to our tenants.

We feel that our efficiency in operating this large and complex business is somewhat hampered by the budgetary, fiscal, accounting, and contracting practices which we are required to follow as a conventional Government agency.

As you know, under our present practice our budget estimate must be prepared 2 years or more in advance of the time when the funds may be spent. It is impossible to predict with any accuracy what our expenses will be. The demand for the things we do and sell is subject to sudden and extreme fluctuation; unpredictables, like the weather, can increase our expenditures tremendously-a blizzard can cost us many thousands of dollars for snow removal; the fact that many of our facilities are over 10 years old makes our repair and maintenance estimates often inadequate. The example which we gave in our letter to the President of the Senate recommending this legislation, of our problem in attempting to predict electric power and heat consumption and cost, considering Washington's climate and the fluctuating price of fuel in recent years, we believe is typical of the difficulties which arise.

These difficulties are compounded by the fact that we must operate this business with a one-way cash register. We must put our money into it, but we cannot get it out. All our income must be returned to the Treasury as general receipts, while our expenditures are limited strictly to the amounts appropriated, no matter how much the airport is earning. In practical effect, we must take care not to expand our business beyond our estimates, because no matter how much of a given commodity we may be able to sell, we can supply no more of it to our customers than we can purchase with our appropriations made on the basis of up to 2-year-old estimates.

Senator SCHOEPPEL. Has the airport been self-sustaining financially? Maybe you will cover that later, but I think it is well to get it in the record.

Mr. LEE. I can testify on the receipts and expenditures in the past few years.

Senator SCHOEPPEL. Do you contemplate that if this measure is passed it will be free to operate as an independent business unit and we would not have to be concerned about appropriating money for out there?

Mr. LEE. Senator Schoeppel, the program of the incorporation would include, under this present bill, the payment of interest on the amount of invested capital there, and would in a business-type budget include certain funds for amortization.

In order to meet the full capital expenditures of the incorporation, it would be necessary to have annual appropriations for a period of years following the passage of this bill.

Under the present lease agreements the full capital costs would not be met.

I might say that in recent years the operating revenues including unrealized revenue have exceeded the actual expenditures. In fiscal year 1951 the net expenditures were $1,242,345, the revenue including unrealized revenues from Government agencies totaled $1,318,392, or a profit on that basis of $76,047.

I will give the comparable figure for 1952. Expenditures were $1,369,968; revenues $1,644,624, or a net profit of $281,656.

In 1935 the net expenditures were $1,346,187; revenues were $1,833,812, or a plus figure of $487,625.

These are net figures, Senator Schoeppel. They do not include in the expenditudes any payment into the Treasury for interest on the invested capital at the airport or any funds for the amortization of the capital investment.

Senator SCHOEPPEL. What would that amount to approximately, in any one year?

Mr. LEE. I can give you the estimated figure for fiscal 1955. The figures are rough because it will be necessary to have a complete engineering survey of the plant out there before we can determine its actual capital value and thus fix the interest rate and the amortization figure.

The rough estimates that we have are based upon certain assumptions and I would like them not to be considered as completely a firm figure. The interest payment was based upon an investment of $14,705,608, and at 212 percent this would total $366,000 per year. The amortization payments, if they were actually made into the Treasury would be in a comparable amount. However, I do not have a final figure on the amortization.

Senator SCHOEPPEL. Does this bill safeguard the Government's investment in this airport to the extent that a proper amount of the earnings would be required to be paid in on this amortization?

Mr. LEE. The bill itself does not make specific provision for amortization, Senator.

The interest payment is specified in the bill. That is the interest on the unamortized part of the investment.

However, under sound, business-type budget practices the amortization figure would be included in the future rates for various services which are rendered and for the various concessions which are granted. The total receipts would approach a figure which would meet the amortization and the interest charges.

Senator SCHOEPPEL. Do you not think that some proper safeguard along that line should be included? In other words, the Government has an investment in this airport facility out there, certainly so long as there is an amount outstanding due the Federal Government, certainly some criteria should be established for the income for the airport to be directed toward the payment of this indebtedness and to

leave it completely free. I do not think you would do otherwise in a private business proposition.

Mr. LEE. Perhaps the representatives of the Bureau of the Budget would like to testify on the Government practice in that respect. Senator SCHOEPPEL. I see.

Mr. LEE. To continue with my presentation, Mr. Chairman, the accounting methods prescribed for us as a conventional Government agency are inappropriate for the business of running an airport. The accounts which are prescribed are records of annual cash expenditures allocated to the several arbitrary classifications by object, used in appropriation language.

These accounts, unless they are appropriately modified, are useless for business purposes. They make no attempt at relation to the activities at the airport from which income is derived, and therefore cannot be used directly as a basis for fixing charges for these activities.

In our letter to the President of the Senate proposing enactment of this legislation, we listed four examples of the burden created by the limitations on our authority as a conventional Government agency to negotiate contracts in our operation of the airport. We feel very strongly that the airport should have broader authority to negotiate contracts under the circumstances of those cases.

The airport is a business. Its management cannot be conducted effectively under the restrictions which apply to nonbusiness Government operations. The Hoover Commission found, in its Report on Federal Business Enterprises, that

To make possible more effective management of business enterprises, the executive branch and the Congress over the years have turned more and more to a corporate form similar to that developed in the business world.

In the conduct of the business of Washington National Airport by the Government, the corporate form of organization would have several advantages in terms of the difficulties which I have described.

The Government corporation has a more flexible, business-type budget; it is more of a detailed plan of operations than a rigid ceiling on expenditures, and the budget has sufficient flexibility to allow for increases of expenditures to follow normal fluctuations in business. Corporate receipts from operations are deposited in the corporate fund and may be reused as required. This fiscal practice would permit us to spend the income which we receive to provide additional services and goods, and we would no longer be restricted to the business predicted in our long-range estimates. The corporation would be free of the usual requirement under which conventional government agencies must expend funds during the fiscal year for which they were appropriated. This will permit the setting up of usual business reserves to cover obsolescence, depreciation and other contingent expenses.

Our accounting practices under corporate organization would be the usual business system of cost-accounting under which the cost of each operation which produces income could be accurately and currently determined as a basis for charges.

With respect to normal business transactions, government corporations are exempted from the provisions of the statute which requires that contracts be awarded to the lowest responsible bidder after advertisement for bids. Although we do not anticipate any substan

tial departure from the present procedure for advertising for bids on most of our contracts, this exemption would permit the airport to exercise the discretion of a normal business enterprise to negotiate in proper cases.

A corporation is a familiar business form with which businessmen can deal on terms of equality; it can sue and be sued; and it is free from the rigid detailed regulation which prevents conventional Government agencies from engaging in the normal give and take of business dealings. As such, we believe the corporation would offer a greater incentive to businessmen to enter into arrangements for mutual profit.

I understand, incidentally, that the committee has received communications protesting that incorporation will mean an increase in our charges at the airport. To set the record straight, it is our present policy to have the airport move toward meeting its capital as well as operating costs, and we are revising our rates and charges accordingly. We shall consider the same major factors in fixing charges whether we are incorporated or not. As old agreements expire, we intend to revise our rates and charges to move toward providing for amortization of the cost of facilities that depreciate or obsolesce, for interest at the Treasury rate on unamortized balances of indebtedness, and for other direct and indirect costs of administration, maintenance, and operation.

Incorporation would provide a simpler method of arriving at reasonable rates and charges through businesslike budget and accounting methods. Although interrelated, our recommendation of this legislation and our program for the true cost recovery are not interdependent.

Incorporation would not immediately enable the airport to meet its capital costs. We have several long-term agreements based on older charging techniques which have several years to run. The fact that these rates are too low to cover operating plus full capital costs might result in at least an accounting deficit for the next 6 or 7 years.

This proposal for incorporation of Washington National Airport is not original with us. It was first publicly recommended by the Hoover Commission in March 1949 as one of its specific proposals. More recently, the President of the United States recommended enactment of legislation to incorporate Washington National Airport in his budget message for the fiscal year ending June 30, 1955.

S. 3435 would implement these recommendations. The Department of Commerce favors its enactment.

The CHAIRMAN. Mr. Lee, you have a lease from the Department of Commerce to the Department of the Air Force for the rental of hangar space?

Mr. LEE. Yes, sir.

The CHAIRMAN. What would be the effect on that contract if this is enacted?

Mr. LEE. The Department of the Air Force would be considered like any other tenant on the airport, Mr. Chairman.

The CHAIRMAN. Would the contract be continued then, or terminated?

Mr. LEE. May I answer that question this way: The arrangements with the Air Force in the Washington area are naturally subject to

the whole question of the military and civil operations in the area. The lease might not be continued if other provisions were made for the Air Force. It might be possible to take care of them at other bases in the area. We would hope to keep the President's plane at the Washington National Airport, of course.

The CHAIRMAN. How do you handle the parking concession out there?

Mr. LEE. There is a parking concession under which the concessionaire operates certain areas for public parking. There are other large areas set aside for parking for employees which are policed by the Washington National Airport police.

The CHAIRMAN. Have you a contract for transportation with the taxicab companies in Washington?

Mr. LEE. Yes, sir.

The CHAIRMAN. An exclusive contract?

Mr. LEE. Yes, sir.

The CHAIRMAN. It has created considerable difficulty in years past. It is not so bad now when the officers out there are attempting to prevent you from getting a taxicab in town if there are no other taxicabs there.

By what authority do you exclude the other taxicabs that are otherwise licensed to operate?

Mr. LEE. Mr. Chairman, we have exclusive contracting authority under the basic legislation setting up the airport and it has been found that, in order to insure transportation service 24 hours a day in all types of weather, an exclusive contract is the way to handle it. It also means additional revenue for the Washington National Airport itself.

Consequently, we have felt that the best service to the public would be provided by such a concession. At the same time, the cost of operating the airport would be reduced by increased revenue.

The CHAIRMAN. Who has that contract?

Mr. LEE. Airport Transport, Inc.

The CHAIRMAN. Is that a Washington outfit?

Mr. LEE. Yes, sir. And they operate both limousine service and taxicab service from the airport.

The CHAIRMAN. Are your officers out there directed to prevent other taxicabs from picking passengers up if there are no taxicabs available? Mr. LEE. I don't think they have been directed to do that, Mr. Chairman. However, they do feel that under the present arrangement whereby service is available at all times, it is incumbent that we have one contractor to meet the needs out there.

The CHAIRMAN. My question is prompted by the fact that there is not always service available. Formerly it was very bad. It is better now. I grant you that.

Mr. LEE. Yes, sir. The difficulty with a nonexclusive contract, Mr. Chairman, or with a public arrangement, is that when there is a big demand for taxicabs in town you find none at the airport. In bad weather or in rush hours when transportation is most needed at the airport it is not available there. We found that this is the only way to insure that you get continuity of service. I do hope we can move toward providing continuous service at the airport. I do think they have gotten additional cars and cabs and are trying to meet the needs.


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