2d Session No. 94-1581 REDETERMINATION OF MAIL RATE COMPENSATION SEPTEMBER 16, 1976.-Committed to the Committee of the Whole House on the State of the Union and ordered to be printed Mr. JONES of Alabama, from the Committee on Public Works and Transportation, submitted the following REPORT [Including cost estimate of the Congressional Budget Office] [To accompany H.R. 12349] The Committee on Public Works and Transportation to whom was referred the bill (H.R. 12349) to amend the Federal Aviation Act of 1958 to limit under certain circumstance the discretion of the Civil Aeronautics Board in determining the rate of compensation to be paid to an air carrier for the transportation of mail by aircraft, having considered the same, report favorably thereon with an amendment and recommend that the bill as amended do pass. The amendment is as follows: Strike out all after the enacting clause and insert in lieu thereof the following: That (a) section 406(b) of the Federal Aviation Act of 1958 (49 U.S.C. 1376(b)) is amended by adding at the end thereof the following new sentence: "In determining compensation for any local service air carrier for the year 1966 in accordance with the provisions of this subsection, the Board shall apply Local Service Class Subsidy Rate III-A as set forth in Board order E-23850 (44 CAB 637 et seq.), except that the Board shall not apply that part of such order which requires the Board to take into account any decrease in the Federal income tax liability of such carrier for such year resulting from any net operating loss carry · back pursuant to section 172 of the Internal Revenue Code of 1954.". (b) In the event that the Civil Aeronautics Board in determining the amount of compensation to be paid to any local service air carrier for the year 1966 in accordance with the provisions of section 406(b) of the Federal Aviation Act of 1958 took into account any decrease in the Federal income tax liability for such air carrier for such year resulting from any net operating loss carryback pursuant to section 172 of the Internal Revenue Code of 1954, the Board shall redetermine the compensation to be paid to such air carrier in accordance with such section 406(b) as amended by this Act, and shall make payment to such air carrier of any amount owed to such carrier as provided in such redetermination. BACKGROUND H.R. 12349 is designed to correct an inequity in the 1966 subsidy program for local service air carriers. As a result of a series of administrative and judicial decisions, two local service carriers were required to make subsidy refunds because they received tax loss carrybacks, while six other local service carriers, which also received tax loss carrybacks, were not required to make subsidy refunds. Local service carriers are authorized to receive subsidy by Section 406(b) of the Federal Aviation Act [49 USC 1376 (b)]. Under the subsidy formula used by CAB in 1966, subsidy was paid monthly during the year according to a formula. These payments could be adjusted on the basis of an audit conducted after the conclusion of the year, to determine whether the prior subsidy payments had resulted in excess profits. In the years following 1966, the local service carriers lost money, even after the payment of subsidy. Most of the carriers used these losses as a tax carryback to reduce 1966 taxes. As a result 8 carriers had excess profits for 1966 subsidy purposes. The CAB's treatment of the tax loss carrybacks and excess profits depended on when the CAB completed each carriers case. For three carriers the CAB did not adjust the 1966 subsidy, because the case was closed before the carrier became entitled to a tax loss carryback.1 Four other carriers still had their 1966 cases open when they became entitled to tax loss carry backs. In these cases CAB required subsidy repayments. The four carriers which were required to make refunds petitioned for judicial review in different United States Courts Appeals. In the first two cases the court upheld the CAB. In the last two cases the CAB was reversed, and the CAB was required to return the subsidy refunds to the carriers. Despite the conflict in decisions, the Government did not ask the Supreme Court to resolve the problem. At the hearing on H.R. 12349 it was established that the CAB desired Supreme Court review, but that the Department of Justice, which controls Supreme Court litigation by the government, decided not to seek review because it considered the amounts involved relatively insignificant. As a result of these judicial and administrative proceedings, two carriers have been required to make 1966 subsidy refunds because of tax loss carrybacks, while six other carriers which also had tax loss carrybacks have not required to make subsidy refunds. There are no judicial or administrative remedies open to the two carriers which were required to make refunds. H.R. 12349 is designed to correct the inequitable results of the CAB's 1966 subsidy program. The committee agrees with the following description of the 1966 program by the U.S. Court of Appeals for the 9th Circuit: Whether a carrier would be forced to return or allowed to keep hundreds of thousands of dollars would turn on fortuitous circumstances, including the order in which the CAB 1 A fourth carrier's case was subsequently settled witout a refund after the CAB had lost several court cases, as discussed below. 2 Ozark Air Lines v. CAB 441 F. 2d 892 (8th Cir. 1971); Texas International Airlines v. CAB 458 F. 2d 782 (D.C. Cir.. 1971). Allegheny Airlines v. CAB, 465 F. 2d 778 (4th Cir. 1972); Hughes Air Corp. v. CAB, 482 F. 2d 143 (9th Cir. 1973). H.R. 1581 decided to process paper work and the dispatch with which it was processed. The facts of this case failed to demonstrate any reasonable justification for continued adherence to a procedure which did not treat all members of the class equally.1 II.R. 12349 eliminates the inequitable 1966 results by directing CAB to refund subsidies to the carriers which were required to make repayments. The effect of the bill is to provide that Texas International Airlines would be entitled to a refund of $296,000, while Ozark Air Lines would be entitled to a refund of $148,000. The bill would not create a precedent for similar legislation for the years after 1966, since profit-sharing provisions were not used by the CAB after 1966. COST OF THE LEGISLATION In accordance with rule XIII(7) of the rules of the House of Representatives, the following information is furnished. The Committee estimates that the bill would require an outlay of $415,583 in Fiscal Year 1977 and no outlays in Fiscal Years 1978-1981. This estimate is consistent with data submitted to the Committee by the Civil Aeronautics Board. COMPLIANCE WITH CLAUSE 2(1) OF RULE XI OF THE RULES OF THE HOUSE OF REPRESENTATIVES (1) With reference to clause 2(1) (3) (A) of rule XI of the Rules of the House of Representatives no separate hearings were held on the subject matter of this legislation by the Subcommittee on Investigations and Review. However, the Subcommittee on Aviation held hearings on this subject matter which resulted in the reported bill. (2) With respect to clause 2(1) (3) (B) of rate XI of the Rules of the House of Representatives the bill, as reported, does not provide new budget authority or increased tax expenditures. Accordingly, a statement pursuant to section 308 (a) of the Congressional Budget Act is not required. (3) With reference to clause 2(1)(3)(C) of rule XI of the Rules of the House of Representatives, the committee has received an estimate and comparison prepared by the Director of the Congressional Budget Office under section 403 of the Congressional Budget Act. The report is as follows: Hon. ROBERT E. JONES, CONGRESSIONAL BUDGET OFFICE. Washington, D.C., September 10, 1976. Chairman, Committee on Public Works and Transportation, U.S. House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: Pursuant to section 403 of the Congressional Budget Act of 1974, the Congressional Budget Office has prepared the attached cost estimate for H.R. 12349, Amendments to the Federal Aviation Act of 1958. Should the committee so desire, we would be pleased to provide further details on the attached cost estimate... Sincerely, JAMES BLUM (For Alice M. Rivlin, Director). Hughes Air West Corp. v. CAB 448 F. 2d 782, 784. H.R. 1581 CONGRESSIONAL BUDGET OFFICE-COST ESTIMATE 1. Bill Number: H.R. 12349, SEPTEMBER 10, 1976. 2. Bill title: Amendments to the Federal Aviation Act of 1958. 3. Purpose of bill: This bill amends the Federal Aviation Act of 1958 to modify Civil Aeronautics Board (CAB) treatment of tax loss carryback in the determination of local service air carrier subsidy for 1966. It requires the CAB to redetermine subsidy payments for any carrier affected, and to pay such carriers any amount owed. 4. Cost estimate: Fiscal year 1977.. Fiscal year 1979. Fiscal year 1980. 5. Basis for estimate: 445, 583 This bill is directed specifically at two local service carriers, Ozark Airlines and Texas International Airlines. The final subsidy payments to these two carriers for 1966 were based on a tax liability that had been reduced by losses in later years. Payments to all other carriers that received similar treatment have since been adjusted. According to CAB calculations, the adjustment required by this bill would require additional subsidy payments of $148,579 to Ozark Airlines and $296,792 to Texas International Airlines, for a total cost of $445,583. 6. Estimate comparison: None. 7. Previous CBO estimate: None. 8. Estmiate prepared by: Jack Garrity (225–9675). 9. Estimate approved by: JAMES L. BLUM, Assistant Director for Budget Analysis. (4) With reference to clause 2(1) (3) (D) of rule XI of the Rules of the House of Representatives, the Committee has not received a report from the Committee on Government Operations pertaining to this subject matter. (5) With reference to clause 2(1) (4) of rule XI of the Rules of the House of Representatives, H.R. 12349 as reported, provides for subsidy adjustments which are too small to affect prices and costs. Therefore, H.R. 12349 as reported, would not have an inflationary impact on the national economy. VOTE The committee ordered the bill reported by voice vote. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED In compliance with clause 3 of rule XIII of the Rules of the House of Representatives, changes in existing law made by the bill, as reported, are shown as follows (new matter is printed in italic, existing law in which no change is proposed is shown in roman): H.R. 1581 (b) In fixing and determining fair and reasonable rates of compensation under this section, the Board, considering the conditions peculiar to transportation by aircraft and to the particular air carrier or class of air carriers, may fix different rates for different air carriers or classes of air carriers, and different classes of service. In determining the rate in each case, the Board shall take into consideration, among other factors, (1) the condition that such air carriers may hold and operate under certificates authorizing the carriage of mail only by providing necessary and adequate facilities and service for the transportation of mail; (2) such standards respecting the character and quality of service to be rendered by air carriers as may be prescribed by or pursuant to law; and (3) the need of each such air carrier (other than a supplemental air carrier) for compensation for the transportation of mail sufficient to insure the performance of such service, and, together with all other revenue of the air carrier, to enable such air carrier under honest, economical, and efficient management, to maintain and continue the development of air transportation to the extent and of the character and quality required for the commerce of the United States, the Postal Service, and the national defense. In applying clause (3) of this subsection, the Board shall take into consideration any standards and criteria prescribed by the Secretary of Transportation, for determining the character and quality of transportation required for the commerce of the United States and the national defense. In determining compensation for any local service air carrier for the year 1966 in accordance with the provisions of this subsection, the Board shall apply Local Service Class Subsidy Rate III-A as set forth in Board order E-23850 (44 CAB 637 et seq.), except that the Board shall not apply that part of such order which requires the Board to take into account any decrease in the Federal income tax liability of such carrier for such year resulting from any net operating loss carryback pursuant to section 172 of the Internal Revenue Code of 1954. |