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Mr. KANE. This is for fiscal year 1952, though, isn't it?
Senator SCHOEPPEL. In your report, under the heading "Repair and maintenance of aircraft-Capital Airlines, Inc.," I note there has been a suit instituted in the Court of Claims, which is probably in the process of being litigated, involving approximately $18,000. From a hurried look at your report it appears to stem from repair and maintenance on certain types of aircraft equipment out there. Just what is that? What does that involve? Do they charge or have to pay a fee on work that is performed out there?
Mr. KANE. Mr. Milner, will you explain that?
Mr. MILNER. Yes, sir.
Capital Airlines has Washington National Airport as its home base. They have a large machine shop out there. Other airlines who have no facilities there have their planes repaired here. Also nonscheduled airlines and private planes have their airplanes repaired there. Since this is a separate business apart from Capital's transportation business, it is covered by a concession contract and they pay a percentage of the receipts to the Airport.
Senator SCHOEPPEL. I see. I was wondering how that would apply to one airline and possibly not to the others out there. I will read the report.
Mr. KANE. I might explain a little bit on that, Senator. When we went in to make this audit of the concessionaire contracts up to the fiscal year 1952 we raised the question as to whether or not the concessionaire was paying proper fees to the Government under the contract terms. I won't say definitely it never would have been caught by the administrative officials, but when we brought it to their attention certain action was taken by them asking the concessionaire to pay the additional amount which we felt was due under the contract. We set off approximately $18,000 against moneys due Capital Airlines, and that case is now in the Court of Claims and we are very hopeful that the outcome of that litigation will be for the full amount for the Government.
Senator SCHOEPPEL. No further questions.
The CHAIRMAN. Will you communicate with the committee and furnish us the report for 1953 ?
Mr. KANE. Yes, sir. We certainly will and we will give special emphasis to that particular contract for your information. The CHAIRMAN. I wish you would.
Mr. KANE. We feel in a nutshell, Senator, that they have not installed a proper accounting system out there in order to have a business-type operation. They have sufficient authority under the present law to do so. If that is done and with the use of revolving funds there is no reason in the world why it is necessary to incorporate. The CHAIRMAN. Was this taxi contract let to the highest bidder? Mr. MILNER. Yes, sir.
Mr. KANE. Was that after advertising?
Mr. MILNER. NO.
Mr. KANE. It was not advertised. That is the whole thing, Senator. In accordance with the American system of free enterprise we feel these are very desirable concessions out there and it is Government
business, and there should be specifications prepared in advance as to what the Government is willing to give in the way of space, and then give widespread advertising to it so as to get the best possible contract for the Government.
Senator SCHOEPPEL. Of course, these people out there who would make that kind of contract without bidding, have a little closed business. It would seem to me, and I thoroughly and completely agree with you, it should be open to competitive bid and under specifications that do give the traveling or using public at an airport of that magnitude certain protective leeway, and a right to expect the degree of service commensurate with the traffic there. Does the taxi service have the sole and exclusive right out there, which they apparently have?
Mr. KANE. That is true, Senator.
The CHAIRMAN. Have you examined the books of this contracting company to see the profits that Air Transport, Inc. has made on this contract?
Mr. MILNER. No, sir. We just examined it to see that all the revenues they have reported to the airport are included on their books, but we did not go into their books to see what profits they made. The CHAIRMAN. What they are making out of it?
Mr. MILNER. That is right.
Mr. KANE. Mr. Chairman, I might ask a question of Mr. Milner on that. Do the airport officials make proper audit of the concessionaire contracts?
Mr. MILNER. In the last few months the airport has started to make its own audits. They never did so heretofore.
The CHAIRMAN. Will your audit of last year include the figures of the profit made by the Air Transport, Inc.?
Mr. MILNER. It will not include the profit that the Air Transport, Inc., made. If you mean by that, Senator, what they reported to Internal Revenue?
The CHAIRMAN. No. What they made showing on their own books.
Mr. MILNER. That is right.
Mr. KANE. The question was raised with me this morning, Senator, as to the position of the General Accounting Office being not in accord with the position of the Bureau of the Budget. The Bureau of the Budget apparently adopts the principle of incorporating.
I would like to point out that we, as the agent of Congress, make our reports directly to the committees. We do not submit them to the Bureau of the Budget. However, the Bureau of the Budget, whenever it has important legislation of this type, generally sends to us, or calls us up, or brings to our attention, the legislation to get our views on it. I assume that in the rush of preparing this bill that that procedure was not followed in this case, but we are always ready to cooperate with the executive department on any proposed legislation. The CHAIRMAN. Is that all?
Senator SCHOEPPEL. That is all.
The CHAIRMAN. Thank you very much.
The CHAIRMAN. The Bureau of the Budget, Mr. Percival F. Brundage, Director, and Mr. Harold Seidman.
STATEMENT OF PERCIVAL F. BRUNDAGE, DEPUTY DIRECTOR, BUREAU OF THE BUDGET, ACCOMPANIED BY HAROLD SEIDMAN, STAFF EXPERT ON GOVERNMENT CORPORATIONS, BUREAU OF THE BUDGET
The CHAIRMAN. You may proceed, Mr. Brundage.
Mr. BRUNDAGE. I think perhaps it might be helpful, Senator Bricker, if I were to comment briefly on the previous testimony.
It is my understanding on the basis of the figures which we have received that the Washington Airport has been operating at a profit before depreciation. That is, on the basis of the proposed new bill, that the revenues would have exceeded in the past, and will exceed in the future, all of the direct expenses plus interest on the amount that has been mentioned covering advances for the construction of the airport equivalent to what a State or city or public corporation would do. However, they have not been sufficient to cover the depreciation charges or amortization of the capital contribution to which Senator Schoeppel referred.
The CHAIRMAN. Plus interest.
Mr. BRUNDAGE. No. They cover interest, but they do not cover the bookkeeping charge of the depreciation of the facility, or amortization of it.
As I understand it, however, that is the way the Government's accounts are kept, both in the ordinary Departments and in the Government corporations. Provisions for depreciation are accumulated for renewal purposes and are not charged back as amortization of the debt, while any profit after depreciation would be turned over to the Treasury to reduce the debt.
As between the recommendations of the General Accounting Office and the Budget Bureau, I feel that the staff could very properly exchange comments on new legislation of this kind, so that we would at least agree on the points to be considered, although we need not necessarily agree on the final conclusion.
I think I would agree with practically everything which Mr. Kane said, except the conclusion that while I am also opposed to Government corporations, I think this kind of an operation is ideally suited to a corporation as against a revolving fund or other agency.
Perhaps now if I could proceed with the presentation? In view of what has already been said I think I can save you time by skipping a few paragraphs.
The President in his 1955 budget message to the Congress recommended legislation to establish a Government corporation to operate the Washington National Airport. An identical recommendation was made by the first Hoover Commission in its report on Federal business enterprises. The Commission noted in its report that the airport was a straight-line business activity which should be incorporated, "so as to secure greater flexibility in management and simpler accounting, budgeting, and auditing methods." S. 3435 would implement the recommendations of the President and the first Hoover Commission.
S. 3435 provides for the creation of a Washington National Airport Corporation which, subject to the direction of the Secretary of Commerce, shall be responsible for the protection, operation, improvement, and maintenance of the Washington National Airport. The bill confers upon the Corporation the powers and financial flexibility customarily accorded Government corporations; provides that the
Corporation shall bear all costs of its operations, including costs incurred by other agencies on behalf of the Corporation and interest on an appropriate share of the Government's investment in the airport, and subjects the Corporation to the financial controls specifically designed for business activities.
The primary purpose of the legislation is to place the operations of the Washington National Airport on a sound business basis so that it may better serve its customers, the airlines and traveling public, at a minimum cost to the taxpayer. There has been an increasing awareness in recent years, both on the part of the Congress and the executive branch, that financial procedures and controls generally applied to normal Government activities are not necessarily suitable to business operations. This is reflected by the enactment in 1945 of the Government Corporation Control Act, which provides for new types of controls such as the business-type budget and the commercialtype audit, specially designed to meet the needs of programs of a business character.
Under existing law the Washington National Airport has no authority to use its receipts, must obtain all of its funds from annual appropriations, and is subject to the provisions of law governing budget, accounts, audit and expenditures applicable to nonbusiness agencies which do not sell services to the public and which are not expected to be substantially self-supporting. Present methods of budgeting, accounting and financing hamper operations without providing a satisfactory basis for control either by the executive branch or the Congress. The budget submitted by the airport has not furnished the basic data essential for the evaluation and control of a business enterprise. At the present time, no sound basis exists either for analyzing rates and charges for airport services or the financial results of operations.
I think all of the agencies are agreed up to that point.
The proposed new Corporation, the Washington National Airport Corporation, would be required to follow the business-type budget procedures prescribed by the Government Corporation Control Act and to develop and install a commercial accounting system. A business-type budget includes such items as statements of financial condition, income and expense, sources and application of funds, and such other supplementary statements and information as are necessary or desirable to make known the financial condition and operations of the Corporation.
In addition, the financial transactions of the Corporation would be audited by the General Accounting Office
in accordance with principles and procedures applicable to commercial corporate transactions.
I am very glad to learn they are now using that type of audit on the Washington Airport.
Such an audit provides an independent annual review of the adequacy of the Corporation's accounting system and internal controls, and makes available to the President, the Congress, and the public the necessary data for appraising the Corporation's financial policies and the results of its operations.
We believe that enactment of S. 3435 will bring about not only improved methods of budgeting, accounting, and financial control, but also that it will encourage more businesslike administration of the airport. While the Corporation undoubtedly will have to obtain
appropriations to finance major capital expenses-that means in the future if it is enlarged or improved we would have to go to Congress for an appropriation of a capital nature, but ordinary replacements and repairs would be taken out of the ordinary business corporation budget-it is authorized to utilize its revenues for all expenditures incurred in connection with its approved budget program.
All receipts of the airport are now paid into the Treasury as miscellaneous receipts with the result the management has little incentive to seek increased revenues. Under some circumstances ventures which might produce additional revenues for the Government may have to be abandoned to conserve appropriations. This occurs when the airport has to spend appropriated dollars to purchase goods or services which are later to be resold at a profit to outside customers.
Rate structures often tend to become static and are not adjusted to meet rising costs when the additional expense can be absorbed out of appropriations. Budgetary requirements must be anticipated 1 or 2 years in advance with the result that sudden fluctuations in demand for service cannot be met satisfactorily.
Authorization to use its revenues would give the airport needed operating and financial flexibility without any significant loss of control.
Other provisions of the bill, particularly those relating to acquisition of property, contracts, expenditures and lawsuits, are designed to provide the operating flexibility essential to the successful conduct of a business enterprise. Section 4 (h) provides that the Corporation shall have the power to sue and be sued in its corporate name. When the Government engages in a business undertaking, obviously it should not seek to retain its sovereign immunity from being sued without its consent. To the maximum extent practicable, persons doing business with the Airport Corporation should have the same legal remedies as they would have against a private corporation.
Particular attention is called to sections 7 (a) and (b), 9, 10, and 11 of the bill. These sections establish for the first time a statutory rate base for the airport-the amount of the cost of capital contributions which is deemed reasonable from an operating standpoint.
The Corporation is directed to pay interest to the Treasury on that part of its capital which is equivalent to the local share that would have been supplied by the project sponsor had the airport been built with a maximum Federal grant-in-aid under the Federal Airport Act.
In other words, the Corporation is placed in the same position as a non-Federal airport whose capital was contributed, in part, by the Federal Government. The Corporation, therefore, will not have to bear a greater interest burden than would be borne by an equivalent municipal or State airport authority.
In addition, sections 10 and 11 of the bill require the Corporation to furnish certain services without charge to Federal agencies on the same basis as other airports which have received Federal grants. That applies to the operation of the airport.
Section 9 directs the Corporation to reimburse the civil-service retirement and disability fund, and the employees' compensation fund for any expenses incurred on behalf of its employees.
This administration, as a matter of policy, does not favor Government business undertakings, particularly those which compete with private enterprise. We are not anxious to add to the large number of Government corporations. But when there is no feasible alterna