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Now, the third item concerning the need for authority to award contracts of the airport without advertising involves a basic policy matter for determination by the Congress. Under section 3 of the Washington National Airport Act of 1940 (54 Stat. 687) the Secretary is now empowered to make concessionaire contracts "upon such terms as he may deem proper," which in plain words means he can negotiate
There are about a hundred contracts with concessionaires. One involving restrooms grossses $18,000 annually, no part of which is paid to the Government. On the other hand, the taxi and limousine concessions netted $105,000 to the Government for fiscal year 1952.
Senator SCHOEPPEL. On this little matter of sanitation and maintaining the restrooms, you say the Government gets nothing out of it? Mr. KANE. In the contract arrangement they have now, that concession is given to one of the concessionaires and it does not provide for any part of the receipts to be paid to the Government.
Senator SCHOEPPEL. Who provides the maintenance of those quarters?
Mr. MILNER. The concessionaire.
Mr. KANE. I mentioned that, Senator Schoeppel, to give you an idea of what types and large amounts of revenues come in from that type of concession out there.
Senator SCHOEPPEL. Sure, and if there are no other facilities provided out there I suppose they could make any charge they want to and the public would have to pay it.
Mr. KANE. That is correct. On the other hand, I might mention there are other restrooms for which the Government bears the expense of operating, and no revenue, of course, comes to the Government from those. It is a direct expense to the Government.
Perhaps some consideration should be given to putting that under the concessionaire, or even having the present restrooms operated by the Government, with the possibility of making a little bit of money directly.
This point is very important. There are no written policies governing the letting of concession contracts and the practice has been to negotiate most of them without advertising. I should like to mention the possibility, however, that if the normal Government procedure of awarding contracts of this type to the highest bidder after advertising were followed by the airport management, greater revenues to the Government might accrue. For instance, the pinball concessionaire is required to pay only 35 percent of gross income, although it is understood that the prevailing practice in private operations is for concessionaires to pay 50 percent.
As a practical matter, I think that the proposal for authority to award contracts without advertising would only give new authority and freedom to airport officials with respect to maintenance and construction contracts. However, since 1942 maintenance and operation expenses total about $13 million; and construction contracts total approximately $11 million. The need for negotiating authority certainly cannot be justified by the amount of money involved.
In conclusion, it has taken Congress 9 years since the passage of the Government Corporation Control Act to reduce the plethora of Government corporations to the present number. We are convinced
that the Secretary of Commerce with the existing authority, coupled with the proposed use of a revolving fund, would have ample authority to make the airport the efficient operation he desires without incorporating it.
Now, the Senate Government Operations Committee in January issued its report on the Audit of Government Corporations and Agencies by the General Accounting Office (S. Rept. 861, 83d Cong., 2d sess.). They gave this matter of incorporating Government agencies careful consideration, and this is what they concluded:
Experience has shown that the most complicated Government programs can be carried out by the normal-type agency of the Government.
The committee also stated that under the Budget and Accounting Procedures Act of 1950
Business-type budgets and commercial-type audits can now be applied to the normal Government agency without having to resort to the budgeting and auditing provisions of the Government Corporation Control Act.
Mr. Chairman, that concludes my statement. I have Mr. Milner here and Mr. John Fenton, of our Audit Division, and we will try to answer any questions you care to ask us.
The CHAIRMAN. Is this a complete list of the Government corporations?
Mr. KANE. We hope it is. After that report had been issued, lo and behold, we discovered another one we didn't know anything about. The CHAIRMAN. I don't think it is necessary to make this a part of the record. I think every committee member has a copy and we will have conies provided for the committee members in the consideration of this bill.
Senator SCHOEPPEL. Assuming this measure is passed with whatever amendments or modifications there may be, do you feel that under good business methods there ought to be some fixed amount, or some definite and positive features in the bill requiring certain set payments on amortizing out the Government's investment in this?
Mr. KANE. If they want to operate this on a business-type activity—and we endorsed the revolving-fund principle for this particular operation-we definitely think that it should be operated so that there will be included all expenses, including depreciation, payment of interest on the Government's investment, and amortization of the construction cost of the airport. And not only that, but also any cost borne by other Government agencies on behalf of the airport, such as the civil-service retirement expenses. We definitely feel that it should be done. But, as I pointed out, we feel that unless the concessionaire contracts are revised drastically, in all likelihood it is going to be a deficit operation.
Senator SCHOEPPEL. That is the thing that gives me some concern. If you allow too much leeway we may find that year after year after year we are going to have to appropriate funds to make up some deficits because of losing operations. Of course, I hope not. But we have no set business approach to amortizing out this indebtedness, and yet you have concessionaires out there who are sliding through without paying their proportionate amount that they ought to pay somebody, and obtaining privileges out there and in instances gigging the public. It just does not seem right to me if we let this thing slide by without some pretty definite loopholes being closed.
Mr. KANE. I agree with you, Senator. If they are going on a revolving fund basis, they should be required to bear these expenses, which will naturally make it necessary for them to tighten up on their revenue-producing activities to try to get more so that they can pay their expenses and also repay the Government's investment in the airport.
The CHAIRMAN. Have you an audit of the taxi concession out there? Mr. FENTON. Yes.
Mr. KANE. Do we have one for this year?
Mr. MILNER. Yes. We made an audit for this year. Our working papers are not here.
The CHAIRMAN. Will you provide that for the record? Let us say for the year 1953?
Mr. MILNER. Yes, sir.
Mr. KANE. May I make this suggestion, Mr. Chairman, on that? We are in the process of preparing the audit report on the airport for the fiscal year 1953, and we will make every effort to get the whole audit report up within the next 2 or probably 3 weeks, if that would be helpful.
The CHAIRMAN. It would be very helpful if we can get it in time, but we do not want to delay the consideration of this too long, because I hope we are getting toward the short road. (The document referred to is as follows:)
COMPTROLLER GENERAL OF THE UNITED STATES,
Hon. JOHN W. BRICKER,
Chairman, Committee on Interstate and Foreign Commerce,
United States Senate.
DEAR MR. CHAIRMAN: During the hearings on S. 3435, 83d Congress, to incorporate the Washington National Airport, you requested representatives of the General Accounting Office to furnish for the record certain information on the financial results of operations under the airport's contract with Airport Transport, Inc., holders of the concession for taxicab and limousine service from the airport. The information is as follows:
NEGOTIATION OF CONTRACT
The original contract (Cca-11320) with Airport Transport, Inc., was dated March 20, 1941, and became effective for a period of 5 years from June 15, 1941. It was negotiated pursuant to authority contained in section 1303 of the act of June 29, 1940 (7 D. C. Code 1302, 1303), which provides that "the Administrator is empowered to lease, upon such terms as he may deem proper, space or property within or upon the airport for purposes essential or appropriate to the operation of the airport."
The airport director has submitted to our representatives a digest showing that proposals were received from seven bidders but has informed us that he was unable to locate all the proposals. In this connection, by memorandum dated March 20, 1941, the assistant to the Administrator of Civil Aeronautics informed the Administrator that Airport Transport, Inc., submitted a bid giving a guaranteed annual return to the United States for a taxi service, a bus service, and a sightseeing service which was in excess of any other combination of bids received for these services, and that as a result the company was advised that its bid was accepted to serve as the basis for a negotiated contract. It was further stated that, in negotiating the final contract, both bus and sightseeing concessions were eliminated and the minimum return from the contract was reduced to $15,100, which was in excess of any bid received for taxicab service alone.
Article II (B) of the original contract stated that
"In view of the capital investments made or to be made by the company in the necessary equipment to carry out the terms of this agreement and the probable necessity for additions from time to time during the 5-year term of this
agreement, it is hereby agreed that this agreement may, in the discretion of the Administrator, be renewed for further 5-year periods upon terms to be mutually agreed upon by the Administrator and the company."
A similar provision was included in the contract for the 5-year period from July 1, 1946, to June 30, 1951 (Cca-24580), and in the current contract (Cca-Na-610).
The airport director has informed us that
"In 1946, and again in 1951, no bids were solicited when the Airport Transport, Inc., agreement was renewed. The company had demonstrated its willingness, abiilty, and readiness to perform the service required and in the opinion of airport management has performed satisfactorily. It was, therefore, determined to be in the best interest of the Government and the public to renew the agreement without advertising for bids."
In 1947 at least 1 company had requested that it be placed on record as desiring to be notified when bids for renewal of the contract would be accepted.
FEES PAID TO WASHINGTON NATIONAL AIRPORT
The original contract required the concessionaire to pay fees to the Washington National Airport equal to 10 percent of the gross receipts derived from trips departing from the airport, plus 22 percent on gross receipts in excess of $100,000 yearly, and 21⁄2 percent additional on gross receipts in excess of $250,000, with a minimum guaranty of $15,100 per year. The contract provided for the deduction of certain taxes in determining gross receipts.
The contract for the 5-year period from July 1, 1946, to June 30, 1951, contained the same provisions with respect to the payment of fees except that the fee on receipts from trips from the airport to points outside the metropolitan area was fixed at the flat rate of 10 percent.
The present contract, which was negotiated for a 5-year period from July 1, 1951, requires the payment of fees equal to 10 percent of the gross receipts derived from trips departing from the airport plus 22 percent of the gross receipts in excess of $150,000 and 21⁄2 percent additional on gross receipts in excess of $300,000 per annum except that receipts derived from trips departing from the airport and terminating outside the metropolitan area are subject to the 10percent rate only. This contract provideș for a minimum guaranty of $35,000 a year. The right to deduct certain taxes in determining gross receipts was eliminated.
The gross receipts and the fees paid through June 30, 1953, were as follows:
Gross receipts on outgoing trips for the period from July 1, 1953, to April 30, 1954, were $733,477.
The concessionaire is not required to pay fees on gross receipts derived from trips to the airport. As a matter of information, however, these receipts amounted to $144,630 in fiscal year 1951, $159,539 in fiscal year 1952, $170,473 in fiscal year 1953, and $148,120 for the period from July 1, 1953, to April 30, 1954.
NET INCOME OF CONCESSIONAIRE
The present contract requires the concessionaire to submit monthly certified statements of gross receipts and authorizes the Administrator or his representative to make periodic examinations of the company's records from which the certified statements are prepared. Inasmuch as the airport management had not made any examinations under this authority, representatives of the General Accounting Office arranged through the airport director to examine the company's records pertaining to gross receipts under the contract for the period from July 1, 1948, through June 30, 1952. This examination disclosed that the company's records were well kept and that the gross receipts reported on its certified monthly statements were in agreement with its records.
The contract, however, does not appear to authorize airport officials to examine the records from which the concessionaire's net income can be ascertained, and the airport does not make annual audits for this purpose. However, inasmuch as the contract provides that the company may not change its rates without the approval of the Administrator, it could be reasoned that the airport officials properly would have the authority to request such financial information as it required before approving any changes in rates proposed by the company.
In response to General Accounting Office inquiry for any information concerning the financial results of operations of Airport Transport, Inc., during the period from January 1, 1951, to date, the airport director submitted the following:
"When the agreement was being negotiated in 1951, we reviewed the records of Airport Transport, Inc., to determine whether the Government would be justified in demanding an increase in the percentage of gross receipts payable to the Government. The company had presented a letter to the effect that because of economic changes affecting operating conditions over which they had no control, the company must have sufficient revenue to meet higher costs and proposed to either change the percentage payable to the Government by paying a straight 10 percent on assessable taxicab revenue as distinguished from limousine revenue, or to pay a straight 10 percent on all assessable revenue and eliminate the 'escalator' payment clauses. In any event they wanted to increase by 10 percent the taxicab tariffs. After careful study the Government rejected the proposed changes and increase in tariff. In the interest of the Government, however, the clause permitting the company to deduct corporate taxes or fees paid by the company in establishing its right to carry out the terms of the agreement, less additional levies and special taxes paid by the company to any municipal, State, or Federal Government, was deleted and an appropriate adjustment made in the 'escalator' payment clause. Also, airport management verbally agreed it would, within a reasonable time, consider a request for increased tariff rates.
"Early in 1953, Airport Transport, Inc., requested authority from us to increase the tariff rates for limousine service from 90 cents to $1 to zone 1 in the city of Washington. Again we carefully analyzed the financial records of the company and reports presented to us by a certified public accountant, which I assume were returned to the company since they are not in our files. Enclosed is a copy of a memorandum dated February 20, 1953, from me to the Administrator on the subject. Also enclosed is a copy of a letter dated February 27, 1953, from the company in further support of their request. Considering the financial condition of the company, the administrator authorized the increase in tariff effective March 1, 1953."
In the cited memorandum of February 20, 1953, the airport director stated that "We are convinced that the company is operating efficiently and that the proposed fare increase will be almost entirely absorbed by additional payments to the Government under the concession agreement and by increased wage and operating costs." The letter dated February 27, 1953, from the company contains information with respect to executive and management salaries paid by the company.
If there is any further information you desire in this matter please advise. Sincerely yours,
FRANK H. WEITZEL, Acting Comptroller General of the United States.
Mr. FENTON. On page 6 of the document you have before you is set forth the terms of the contract and the revenue obtained by the Washington National Airport from that contract.