Peoria Journal Star

September 29, 2005

Senators criticize cruise ship deal

By Dori Meinert
Copley News Service

WASHINGTON -- Sens. Barack Obama, D-Ill., and Tom Coburn, R-Okla., are questioning a $236 million, six-month federal agreement to house Hurricane Katrina evacuees on three cruise ships.

It would have been less expensive to send Hurricane Katrina evacuees on an actual Caribbean cruise complete with entertainment, the senators said.

The three ships, operated Carnival Cruise Lines, sit half empty, docked on the Mississippi River and Mobile Bay.

"When the federal government would actually save millions of dollars by forgoing the status quo and actually sending evacuees on a luxurious six-month cruise it is time to rethink how we are conducting oversight," Obama and Coburn wrote in a joint statement. "A short-term temporary solution has turned into a long-term, grossly overpriced sweetheart deal for a cruise line."

The two senators highlighted the Carnival Cruise Lines contract as an example of waste that comes with hasty spending decisions in the wake of Hurricane Katrina. They want a chief financial officer appointed to oversee all Katrina spending.

Two days after the hurricane hit, the Federal Emergency Management Agency entered into an agreement with Carnival Cruise Lines for three cruise ships at a cost of $192 million over six months plus $44 million in reimbursable expenses such as fuel. The Navy's Military Sealift Command negotiated the terms of the deal.

Even if the ships were filled to capacity with 7,116 evacuees for six months, the price per person would be $1,275 a week, according to Coburn's aides. A seven-day western Caribbean cruise out of Galveston, Texas, costs just $599 a person, the senators said. And, the Carnival ships aren't even moving, they noted.

A spokeswoman for Carnival said the contract price wasn't based on a per-berth formula. It was based on what Carnival would have earned during the charter period if the ships had been kept in regular cruise service.

"In the end, the company will make no additional money on this deal versus what we would have made by keeping these ships in service. That has been the position from the outset and it has not changed," said Carnival spokeswoman Jennifer de la Cruz.

More than 100,000 passengers' vacation plans were canceled to meet the government's request. Carnival is giving them full refunds and also paying travel agent commissions, said J. Michael Crye, president of the International Council of Cruise Lines.

"I think the contracts will survive scrutiny of this type," he said.

Meanwhile, the trade association is seeking a Treasury Department waiver of corporate income taxes for Carnival and other cruise lines that operate under a government contract. Carnival is exempt from U.S. income taxes because it maintains its ships operate in international waters and not in the United States.

If the income taxes are waived, Carnival will reduce its contract fee by the same amount, Crye said.

Robert McIntyre of the Citizens for Tax Justice hopes that congressional scrutiny of the Carnival contract will shed light on what he sees as a long-existing inequity in tax policy.

"This highlights, 'Why the heck is this company not paying taxes in the first place?"' McIntyre said, adding that he hopes lawmakers "might notice that this is one place they can do something to help pay for hurricane relief without adding to the burdens on current taxpayers and our children."

FEMA officials weren't available for comment.