portation system, have been lumped over a period of 12 years. The committee deems this provision necessary to insure as completely as the present state of the science of accounting will permit the clear separation of the subsidy element from mail pay. Unless this is done, and done well, there is serious danger that, no matter how clearly we state that we want the subsidy element separated, it will still remain in substantial part in the compensation for the transportation of mail. This provision is fair and just to the carriers and the Government alike. Section 405 (g) of the Civil Aeronautics Act imposes a duty upon carriers certificated for the carriage of mail to carry mail tendered them by the Postmaster General. It also requires the Postmaster General to tender mail to the extent required by the postal service.' Thus, there are obligations on both sides. Considering the fact that public utilities are entitled only to a fair and reasonable return on their investiments devoted to the public service, there is no occasion for air carriers to object if they receive no more than their costs, plus a fair and reasonable return, for transportating mail, and, on the other hand, the Government cannot reasonably object to making payment in that amount for the service it receives.

"[From the minority report of July 2, 1952, H. Rept. 2439, 82d Cong.]

"This cost standard, which is totally absent from the bill reported by the majority, is essential to protect the Post Office and the taxpayers from continuing to be overcharged by the airlines for carriage of the mail.

"Subsequent to the committee report of the 81st Congress, the former Chairman of the Commission on Organization of the Executive Branch, former President Hoover, wrote that "The most practical and accurate way to separate these two types of payments is to base the determination of the mail pay upon what it costs the carriers to furnish mail carriage services to the post office. *** That type of standard will make it possible for the taxpayers and the Congress to have accurate information. In order for the reform to be effective, it is not equitable to exempt any mail carriers, foreign or domestic. The reform should apply equally to all.'

"Former President Hoover's subsequent letter reaffirms the sound principle of the committee report of 1950.

"President Truman has twice more indicated his conviction that mail pay should mean compensation for the 'cost' of carrying airmail, and this same standard has been specifically endorsed at the committee hearings in the 82d Congress by the Budget Bureau, Post Office Department, and Civil Aeronautics Board.

"We urge that without the cost standard there would be no definite dividing line between what constitutes mail pay, on the one hand, and what constitutes subsidy, on the other hand. Such a dividing line is essential to separation."

Another important legislative proposal, directly connected with the establishment of a sound cost standard, is the problem of standards for allocating receipts and expenditures.

Again I want to quote briefly excerpts from the two reports I have cited:

"STANDARDS FOR ALLOCATING RECEIPTS AND EXPENDITURES

"(Committee report of 81st Cong.)

"Closely related to the problem of the cost standard discussed above is the amendment to existing law, made by section 3 of the bill, which directs the Civil Aeronautics Board, on or before July 1, 1951, to prescribe standards by which air carriers, in keeping their accounts, records, and memoranda, shall allocate receipts and expenditures among four classes of service (passenger, freight, express, and mail). In fact, the provisions which relate to the cost standard (par. (2) of the amended sec. 406 (a)) expressly provide that the cost of the mail transportation services rendered by an air carrier is to be computed in accordance with the standards so prescribed by the Board.

"It is, of course, impossible to arrive at the cost of one service rendered by an air carrier, such as its mail service, without arriving at the cost of the other services it renders. Furthermore, while it is true that the final determination of the cost to any carrier of rendering mail services will have to be made in the proceeding for the fixing of the mail rate for such carrier, the making of such determination will be greatly facilitated if the carrier or carriers concerned in the proceeding have been keeping their accounts, records, and memoranda in accordance with the general principles of cost allocation which, as required by

paragraph (2) of the amended section 406 (a), will be used in the proceeding. Nor is the value of requiring adherence to these general principles limited to the field of airmail pay. It will be helpful, for example, in determining the economic soundness of a particular service, in determining the amount of subsidy needed to maintain a particular service, and for ascertaining the rates which should be charged to the public for any nonmail transportation service.

"[From the minority report of July 2, 1952]

"If the cost of mail services rendered is accepted as the proper standard for mail pay in the future, as it is by the great preponderance of opinion in the executive branch, among other congressional committees, and among the public, then it is essential to provide a means of getting at the cost figures.

"The Hoover Commission Task Force Report on Regulatory Commission stated:

""The mail rates should no longer include any need for subsidy element, but should be based on the service rendered. They should reflect a fair allocation of costs between mail, passenger, and freight services.'

"H. R. 508 requires such allocation of costs to be made by the airlines under standards prescribed by the Civil Aeronautics Board, as the House committee bill of the 81st Congress did. The only subsequent change has been in deference to the request of the Civil Aeronautics Board not to be confined to the four specified categories of airline traffic, viz, passengers and baggage, freight, express, and mail, as previously specified in H. R. 9184.

"Therefore, H. R. 508 simply requires that the airlines should allocate costs 'among the air transportation services rendered by them.' Thus it is left to the discretion of the Civil Aeronautics Board how many categories there should be. "This change, which was in the direction of compromise or concession, has been known as the Brown amendment, offered December 7, 1950. In telegrams of December 11, 1950, to the gentlemen from Massachusetts, Mr. Kennedy and Mr. Heselton, Dr. Robert L. Johnson, the chairman of the Citizens Committee for the Hoover Report, stated:

"In the message to Congressman Clarence Brown we have defined what we believe to be the three essentials which any effective measure must contain and have pointed out that the proposed changes so far as they safely may in the direction of compromise without weakening or negating the aims of the bill as a whole. Mr. Brown's recommendation on cost allocation represents absolute bare minimum, and we recommend keeping this provision as strong as possible' (House committee hearings, 82d Cong., pp. 397-398)."

Another matter involved in the overall problem of subsidy separation has to do with the question of what carriers should be eligible for the payment of subsidy upon an adequate showing as to the soundness of any such subsidy payment. Again, two brief quotations from the reports I have cited outline clearly the justification for eliminating the restriction in existing law of payments only to air carriers holding a mail certificate:

"CARRIERS ELIGIBLE FOR SUBSIDY

"(House committee report of 81st Cong.)

"Since, under existing law, any subsidy paid to an air carrier by the Federal Government is included in that carrier's airmail pay, an air carrier may receive subsidy only if it holds a mail certificate.

"Subsection (c) of section 406 of the Civil Aeronautics Act, as it would be amended by section 2 (a) of the bill, would permit the payment of subsidy not only to an air carrier holding a mail certificate but also to an air carrier holding any other type of certificate authorizing it to engage in air transportation. The committee feels that, with the separation of subsidy from airmail pay made by the bill, there is no logical basis for limiting the class of air carriers eligible for subsidy to those holding mail certificates, particularly in view of the fact that subsidy determinations are to be made with respect to furthering not 1 national objective, but 3: That is, the national defense and the commerce of the United States, as well as the postal service.

"(From the minority report of July 2, 1952)

"The language of the House committee bill of the 81st Congress, making 'any certificated air carrier' eligible to apply to the Civil Aeronautics Board for the newly separated subsidies, is in H. R. 508.

"The following choice of language was placed before the Defense Department between: (a) The most restrictive-only 'carriers holding a certificate authorizing transportation of mail by aircraft' (embodied in S. 436 and also in the present majority bill; a term covering only the 51 lines now receiving mail pay, all of whom are members of the Air Transport Association); (b) the middleground definition-'any certificated air carrier' (embodied in H. R. 508), which term covers all airlines holding a certificate of convenience and necessity, regardless of what type of traffic is authorized in that certificate, therefore includes the 51 airmail lines and also 12 airlines holding certificates for passengers and for freight but not mail; and (c) the broadest terms-any air carrier,' embodied in H. R. 4827, which includes not only the companies defined under (a) and (b) above but also some 2,000 small nonscheduled airlines. "Of these three choices, the Defense Department selected the middle one, as evidenced in this letter: "DEPARTMENT OF THE AIR FORCE,

"Hon. JOHN W. HESELTON,

"House of Representatives.

"OFFICE OF THE SECRETARY, "Washington, D. C., March 28, 1952.

"DEAR MR. HESELTON: Thank you for your letter of March 24, 1952, requesting the views of the Department of Defense concerning the eligibilty of air carriers to apply for subsidies.

"The Department of Defense would prefer that any certificated air carrier be made eligible to apply for subsidy. If mail pay is to have an actual service or use basis there would seem to be no reason to relate separate subsidy payments to the carrying of mail.

"The Department of Defense has a twofold interest in defense requirements concerning civil aircraft. These requirements are for passenger and light cargo aircraft and heavy cargo transports. It is the opinion of the Department of Defense that it would be inconsistent to deny to the Government the possibility, if desirable in the national interest, of subsidizing operators of heavy freight aircraft requiring little conversion for military use. The requirements of passenger and freight traffic are both important to the military program.

"It is a pleasure to be of service to you, and I hope you will not hesitate to call on me if I may be of further assistance to you.

"Sincerely yours,

"R. L. GILPATRIC.

"The same answer, preference for any certificated air carriers, had also been given by the Postmaster General to the gentleman from Massachusetts, Mr. Kennedy.

"Hon. JOHN F. KENNEDY,

"OFFICE OF THE POSTMASTER GENERAL,
"Washington 25, D. C., December 12, 1950.

"House of Representatives.

"DEAR CONGRESSMAN: This is in reply to your telegram of December 10, 1950, concerning H. R. 9184.

"The Department should not be required to tender mail to air carriers certificated for purposes other than the needs of the postal service. The present language of H. R. 9184, page 4, line 12, ‘certificated air carriers,' would protect the Post Office Department from being required to tender mail and pay for services not actually required.

"The Civil Aeronautics Board would be required to determine whether such nonmail carriers were entitled to subsidy support and to pay any subsidy from appropriation for that purpose, without involving the Post Office Department. "Sincerely yours,

"J. M. DONALDSON,
"Postmaster General."

In my opinion, it would strengthen the probability of an adequate annual review on the part of Congress if an affirmative legislative provision was made that such a report should include data relative to the mail payments and subsidy payments, both in the aggregate and on an individual basis with a separate analysis of the bases upon which each such mail payment and each such subsidy payment was provided.

For the convenience of those interested in this important problem, I would like to give the citation of the report of the Committee on Interstate and Foreign Commerce of July 2, 1952. It is Report No. 2439, 82d Congress, 2d session.

I referred to the administrative separations which have been instituted by the Civil Aeronautics Board. In that connection, I would like to make available at this point certain summary features of those separations.

The separation of subsidy from total mail payments to domestic carriers was made September 28, 1951.

It established the following breakdown for fiscal 1951, on an actual basis and for fiscal 1952 and 1953, on an estimated basis as follows:

While it is encouraging to note the trends of increases in service-mail pay and of decreases in subsidy, the fact remains that when so significant a sum as $86,485,000 is involved in subsidy in these 3 years alone, it is crystal clear that all steps that are necessary to develop an economically sound method of handling this program should be taken as soon as possible.

In this report, the Civil Aeronautics Board estimated that in the 13-year period since the passage of the Civil Aeronautics Act to the time of the report, a total of $457 million had been paid to domestic carriers for mail service of which approximately $270 million represented subsidy.

In carrying out the administrative separation, the CAB established seven groups with varying service-rate pay per ton-mile. Those groups and the respective rates in these 3 years are as follows:

The 45-cent rate for American, Eastern, TWA, and United was established by the Board in the so-called Big Four mail-rate case on September 19, 1951, and it is indicated in the report that this is a service mail rate without subsidy.

On July 14, 1952, the CAB issued an administrative separation of subsidy from mail payments to United States international, overseas, and territorial air carriers.