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Sunday, September 25, 2005 - Page updated at 12:00 AM

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Lawmakers question cruise line's contract to provide housing

Los Angeles Times

WASHINGTON — When Carnival Cruise Lines agreed to lease three ships to the government to house evacuees from Hurricane Katrina, the company president portrayed it as an act of compassion intended to "provide desperately needed housing for thousands of individuals."

Two lawmakers now are raising questions about the hastily negotiated deal that could provide the company with as much as $236 million.

Rep. Henry Waxman, D-Calif., sent a letter Friday to Homeland Security Secretary Michael Chertoff requesting a copy of the contract and supporting documentation for its cost. Rep. Marilyn Musgrave, R-Colo., said she intended to ask for an investigation of the deal.

Carnival says it will earn no additional profit on the deal, reached Sept. 2, but would recover only the income it would have received if the three vessels had remained in regular service.

But the pact, made by the Navy's Military Sealift Command (MSC) at the direction of the Federal Emergency Management Agency (FEMA), has raised questions about whether the payments are excessive, especially as neither Carnival nor the government will release details about how they arrived at the contract numbers.

The deal calls for Carnival to be paid $192 million for providing about 7,100 berths for six months — or about $4,507 per berth per month.

Carnival also is being reimbursed for as much as $44 million in operating costs, including charges assessed at ports for fuel, water, electricity and waste disposal.

In addition, Carnival's contract includes compensation to the company for corporate taxes that experts say could amount to tens of millions of dollars. The government agreed to this because Carnival, while based in Miami, is exempt from U.S. income taxes and some other taxes because it is registered in Panama, its ships fly foreign flags and operate primarily in international waters.

The trade association that represents cruise lines is seeking a waiver from the Treasury Department that would exempt vessels under government contract from federal corporate income taxes and withholding taxes for crews. Carnival has said that if the waiver is approved, it would reduce the amount of its contract payment.

Navy Capt. Joseph Manna, who negotiated the contract at MSC, said there was nothing inappropriate about the process or the outcome. The amount of the Carnival deal was comparable to the cost of "a hotel and three meals a day," he said, which is "in a reasonable area of price."

But, he added, "If I'd been able to have more time, I might have been able to get a better price." Jennifer de la Cruz, a Carnival spokeswoman, said, "The deal is designed so that Carnival does not make any money beyond what it would have made if these ships had been kept in service." She said the company was being reimbursed for "any costs incurred in excess of our normal vessel-operating costs."

She said the company might be willing to change the terms if this turns out not to be the case.

Los Angeles Times researcher Janet Lundblad contributed to this report

Copyright © 2005 The Seattle Times Company

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