TRANSPORTATION INSTITUTE STATEMENT OF OPERATIONS AND NET WORTH-Continued

TRANSPORTATION INSTITUTE NOTES TO FINANCIAL STATEMENTS, JUNE 30, 1977

General

The Transportation Institute was established effective September 30, 1965, by various steamship companies for the following purposes:

(a) to study, examine and research issues and problems affecting the American Maritime industry and their related modes of transportation

103,379

125,647

599,574

6,319

1,537,715

1,531,396

2,137,289

1,537,715

(b) to provide and engage in educational, promotional and any other activities which may be related to said industry

(c) to publish the results together with appropriate recommendations

Significant accounting policies

Assets and liabilities, and income and expenses, are recognized on the accrual basis of accounting.

Fixed assets are stated at cost. Gains and losses on the disposition of assets are recognized on a realized basis.

Depreciation is computed on a straight-line method over the estimated useful life of the asset.

Contributions

Contribution rates have been established under collective bargaining agreements entered into between the Seafarers International Union of North America, Atlantic, Gulf, Lakes and Inland Waters District, The Inland Boatmen's Union of the Seafarers International Union of North America, AGLIWD, the District 2 MEBA-AMO, AFL-CIO and their respective contracted employers.

Collective bargaining agreements in effect during the year under review provided for the following contribution rates:

Real Estate-Washington, D.C.-On December 11, 1973, the Institute purchased the land and building located at 923 15th Street, N.W., Washington, D.C., and occupancy commenced January 2, 1974. Prior to its relocation, the Institute occupied the premises located at 2000 L Street, N.W., Washington, D.C., under a lease expiring on December 31, 1977, at an annual rental of $121,920. An assignment of this lease was made effective January 1, 1974, extending through its remaining term. In accordance with the terms of the landlord's consent to the assignment, the Institute will remain primarily responsible under the lease until its expiration. On April 5, 1977, the Institute entered into a lease agreement for docking facilities in Washington, D.C. The premises were leased for a period of 5 years at an annual rental of $24,000, subject to annual increases after 24 months, based on the U.S. Bureau of Labor Statistic's Consumer Price Index. A two-year renewal option, at the same terms, was granted to the Institute.

Real Estate Seattle, Wash.-On March 1, 1975, the Institute leased the premises located at 801 Second Avenue, Seattle, Washington for a 5 year period. the gross rental effective January 1, 1977 is $22,776 annually, subject to yearly adjustments for cost changes. A portion of the premises is sub-leased for $6,243 annually, resulting in a net annual cost of $16,533.

Depreciation

Depreciation charged to operations amounted to $57,648 for the year ended June 30, 1977 and $48,213 for the year ended June 30, 1976.

In view of the Institute's continuing responsibility under the lease for premises at 2000 L Street, N.W., Washington, D.C., the book value of its leasehold improvements is shown separately and reflects its residual interest therein.

Pension plan

The Institute participates in the Seafarers Officers and Employees Pension Plan which covers all of its employees. The total pension expense for the years ended June 30, 1977 and 1976, amounted to $182,082 and $132,687, respectively, which includes amortization of prior service cost over 20 years. The Institute's policy is to fund the accrued pension costs. As of December 31, 1975, the date of the latest actuarial valuation, the pension fund assets and accrued liabilities for pension obligations were in excess of the vested benefits.

Tax status

The Transportation Institute is exempt from Federal income taxes under section 501(c)(5) of the Internal Revenue Code in accordance with a determination letter, dated March 25, 1976, from the Internal Revenue Service.

Procedure on termination

In the event of termination of the Trust, the remaining assets, after providing for the unpaid expenses and obligations of the Trust, may be donated to a Trust whose purposes are similar to that of this Trust, or may be donated to a joint unionmanagement trust fund for the benefit of employees represented by a union and party to such joint trust or donated to a seamen's charity or charities, or a combination of the foregoing, all as the Trustees may determine.

Congressman Snyder asked several questions concerning the sources of funds of the Transportation Institute, and whether the Transportation Institute received funds from the Government. Specifically, he asked whether it was correct that T.I. received $680,000 "directly from the taxpayers last year by way of subsidy."

In his answer at the hearing, Mr. Luciano stated that was not correct. Congressman Snyder requested an elaboration of that answer.

The Institute appreciates the opportunity to clarify this misconception. In order to lay the matter finally to rest, we believe the following full discussion will be helpful to the Committee. In summary, however:

1. The Institute receives no money from the Federal Government.

2. Eight of the Institutes' 174 member companies are operating differential subsidy contractors.

3. In exchange for providing certain services and undertaking certain obligations, these eight companies receive funds from the government pursuant to their contracts. Once earned, these funds are no more "taxpayers" funds than are any other funds earned by and paid to any other Federal contractor or Federal employee. 4. In fiscal 1978, these eight companies contributed about $300,000 to the Institute, or about 12 percent of the total contributions to the Institute. However, as noted above, these payments were not taxpayers funds.

5. While the government pays no funds to the Institute, we believe it does receive substantial benefits through the Institute's research, education and training activities.

DISCUSSION

The transportation Institute receives no money from the Federal Government. The principal source of funds for the Institute results from collective bargaining agreements negotiated at arms' length between various seamens' labor unions and the seamens' employers-vessel owners, operators or multi-employer bargining units. In the case of deep sea vessels, the contracts are negotiated on an industrywide basis, and have the same terms for all employers, whether or not such employers have operating-differential subsidy (ODS) contracts with the government. A few (eight out of 174) of the vessel operators who are members of the Transportation Institute are operating-differential subsidy contractors. Like the other 162 member companies who are not, the collective bargaining agreements covering seamen employed on their vessels provide that for each day of employment a specified amount shall be paid to the Transportation Institute.

These subsidized operators submit vouchers for their various subsidizable expenses, and these are paid by the Maritime Administration. The funds paid are in liquidation of contractual obligations. The operator, pursuant to an ODS contract, performs services, and the government disburses funds to the operator in payment for having fulfilled those services. Once the service has been performed, the payment is an obligation of the government. The funds, once earned and paid, are not the government's, any more than a government employee's paycheck is still the government's once it has been paid.

This is in accord with the statutory mandate of the 1970 Amendments to the Merchant Marine Act, 1936, as amended, and the legal relationships between the Maritime Subsidy Board and the carriers.

Since 1936, substantial questions have arisen over whether the Maritime Subsidy Board, or its predecessors, should include various items claimed by the owners as expenses eligible for reimbursement. In an effort to simplify procedures and minimize these disputes, the 1970 Amendments to the Act specified that wage costs would be determined by collective bargaining agreements subject to control on escalation in the form of an index based on wages on the general economy. The Committee report stated why:

"The wage item has been the most difficult subsidy provision to administer and it is the most controversial. The Act places upon the Maritime Administration the responsibility to determine the 'fair and reasonable' difference between the American and foreign wage. The problem of making this determination has resulted, among other things, in inordinate and excessive delays in the fixing of subsidy rates. The purpose of the new wage index system is to simplify the determination, remove the controversy and expedite the payment of subsidy.

"It is contemplated that no new base period calculations will take place at any time from 2 to 4 years after the previous calculation. In calculating a new case period, the Maritime Administration would take the average of the old case period cost, increased by the index, and the actual collective bargaining costs."-House Report No. 91-1073 (91st Cong., 1st Sess., May 12, 1976), at SR 52:564.

The Senate report on the 1970 amendment made much the same point: "The new subsection (c) relates the term subsidizable wage costs of U.S. officers and crews to the cost incurred by the vessel operators under their collective bargaining agreements. The term 'collective bargaining costs' includes any time of expense paid under a collective bargaining agreement that is related to the employment of officers and crews on a subsidized vessel. Although subsection (c) defines collective bargaining costs as of any particular date, the use of the term in other sections is always with reference to January 1 of any annual period. Thus, it is anticipated that the January 1 date will always be the date on which collective bargaining costs are calculated. The term 'collective bargaining costs' would include such items as pensions and welfare benefits, training fund contributions and any other items included in the collective bargaining contract as a result of good faith bargaining between employer and employee. It would also include payments to insure old age pensions and other crew benefits and the committee amended the section to clarify that it would include taxes on crew payrolls. It would not, of course include taxes in respect of the operators profit regardless of how such taxes are computed. Certain other costs would also be excluded. No subsidy would be paid in respect of subsistence of officers and crews on cargo vessels. Subsistence on passenger vessels, however, is provided for under section 603(b) as that section would be amended."-Senate Report 91-1080 (91st Cong., 2d Sess., Aug. 10, 1970) at SR 52:624.

Collective bargaining, as indexed, was substituted for the process of including or excluding certain items at the Maritime Subsidy Board's discretion.

Since all payments made to the Transportation Institute are pursuant to collective bargaining agreements, they have been determined to be eligible for inclusion by operating-differential subsidy members.

To further lay this matter to rest, we would like to quote from the opinion in American Export Isbrandtsen Lines, Inc., et al. v. United States, 499 F.2d 552 (1974): "In considering the issues involved in this case, we must first determine what legal relationships are suggested by the facts and, second, what scope of review ought to be applied to these relationships. This approach reveals that plaintiffs were not the beneficiaries of the grantor-grantee relationship. Rather, plaintiffs were parties to 20-year subsidy contracts with the United States. Accordingly, plaintiffs' eligibility for subsidy is governed by the principles of contract law and not by the auguries of agency discretion. Both legislative history and decisions of this court support this conclusion. As early as 1938 a Senate Commerce Committee report rejected the notion that the 1936 Merchant Marine Act provided for 'true' subsidies. Instead, the report referred to agreements made under the 1936 Act as 'subsidy contracts.' Under such contracts the United States receives value in implementation of national policy for every dollar of consideration it gives. In Pacific Far East Line, Inc. v. United States, 184 Ct. Cl. 169, 184, 394 F.2d 990, 998 [8 SRR 20, 173] (1968), this court stated that: 'Contracts for construction-differential subsidies are to be treated like any other commercial contract between the United States and a private party. [Citations omitted.] The defendant's rights and responsibilities under this contract are similar to those of a private individual who is a party to a contract. * In Moore-McCormack Lines, Inc. v. United States, 188 Ct. Cl. 644, 667, 413 F.2d 568, 582 (1969), this court was just as explicit in stating that-'* [t]he Government has not chosen to grant subsidy when and if it deems it necessary; it has entered into a twenty-year contract with each of these companies under which it has assumed a number of obligations, and the shipowner has also given valuable consideration,

"-[footnotes omitted]. 499 F.2d at 576.

*

Thus, the funds paid to operators pursuant to collective bargaining agreements are contractural obligations, and once paid, cannot be said to be government money. In turn, the operators are required by their collective bargaining agreements to make certain contributions to the Transportation Institute, and these are certainly not funds "directly from the taxpayers by way of subsidy."