Senator wants U.S. reimbursed for costs of 2 Carnival rescues

By Tom Stieghorst
Triumph-CoastGuardThe six-figure costs of some cruise ship rescues have a few members of Congress steamed, especially Sen. Jay Rockefeller (D-W.Va.) who says that the burden such rescues impose on taxpayers stands in stark contrast to the paltry income taxes cruise lines pay.

The U.S. Coast Guard recently put a $779,914 price tag on its efforts helping the Carnival Triumph after its engine room fire in February. Another fire three years ago on the Carnival Splendor cost the Coast Guard and Navy a combined $3.4 million, according to Rockefeller.

“These costs must ultimately be borne by federal taxpayers,” Rockefeller said in a letter to Carnival Corp. Chairman Micky Arison. The letter went on to ask if Carnival planned to reimburse the government for the rescue efforts.

In an April 1 response, Carnival all but said no. It cited maritime tradition that makes it a “universal obligation of the entire maritime community” to help distressed vessels.

“We frequently render assistance at sea at our own cost,” James Hunn, Carnival’s senior vice president of corporate maritime policy, wrote in response to Rockefeller’s question.

Hunn said the cruise industry has been asked 11 times in the past year to assist the Coast Guard off the Florida coast and in Caribbean waters.

Rockefeller’s initiative is just one of several to emerge from Congress following the Triumph’s high-profile misfortune.

Sen. Charles Schumer (D-N.Y.) has suggested a Cruise Passenger Bill of Rights. In the House, Rep. Doris Matsui (D-Calif.) has sought hearings on cruise line safety preparedness.

So far, Rockefeller has neither scheduled hearings nor drafted legislation. But some sources suggest that his eventual target might be Section 883 of the tax code, which governs levies on shipping income.

“At some point, it sounds like we’re going to take a look at the tax code and get rid of some of these loopholes,” a person familiar with Rockefeller’s thinking said.

Although tax changes are outside the jurisdiction of the Senate Commerce Committee that Rockefeller chairs, congressional Democrats are on the hunt for tax revenues to balance spending cuts in their approach to deficit reduction.

In that context, a tax break for an industry tarnished by a recent negative incident could make an easy target.

Current policy does not authorize the Coast Guard to seek payment for situations such as that suffered by the Carnival Triumph, which was adrift after the fire and had power only from an emergency generator.

The reason for that,” said Coast Guard spokesman Carlos Diaz, “is that the budget appropriation on a yearly basis is designed to have responses of this type. We don’t ask people to reimburse us for missions we’re trying to do.”

CLIA spokesman David Peiken said that if the Coast Guard believed it was appropriate to charge for assistance, the cruise group would consider any proposal it makes.

However, an official Coast Guard statement in 2010 dismissed the idea of charging for search-and-rescue missions. It quoted at 1999 speech by Admiral James Loy, then the Coast Guard’s commandant, who called such reimbursement demands “manifestly immoral.”

“Two very bad things would happen if we opened this Pandora’s box,” Loy said at a U.S. Naval Institute conference. “First, financial considerations would keep people from reporting their conditions and seeking help in the early stages of distress. In the business world, time is money. In the search-and-rescue business, time is life.”

In addition, Loy said, “If we charged for rescues, the Coast Guard would forever battle the possibility of having financial considerations affect our search-planning decisions. We would be endlessly second-guessed. ... [It] is manifestly immoral to associate our humanitarian obligation with the cost of fulfilling it.”

And on a purely practical basis, Diaz said last week, it would be counterproductive to make rescue decisions contingent on cost.

“If we started looking for reimbursement, we wouldn’t be as efficient or effective as we are, because we would be looking to get paid back,” he said.
Even so, Joseph Spears, a maritime attorney in Vancouver who has expertise in search-and-rescue issues, said not all countries embrace the same philosophy.

In the U.K., he said, the Coast Guard can ask for payment under salvage law for helping mariners whose troubles derive from poor judgment.

“It’s really up to the rescue agencies,” Spears said. “In the British example, the agencies only charge on a case-by-case basis. Like if it’s pure stupidity, then they will charge.”

Jay RockefellerRockefeller has been exercised about the cruise industry’s light income tax bill since a hearing last year in which he demanded, and received, fiscal year 2011 tax returns for CLIA’s member lines.

In the case of Carnival, 2012 returns revealed that the cruise company earned net income of $1.3 billion last year and paid $4 million in U.S. income taxes, mostly on the U.S. hotel and transportation businesses of Holland America Line Princess Alaska Tours, which operates Alaskan land tours.

Section 883 of the U.S. tax code exempts from taxes income derived from international shipping under certain conditions.

After last year’s hearings, Rockefeller and Arison met to clear the air. In responding to Rockefeller’s March 14 letter, Arison said he left the meeting “with the impression you were satisfied with my responses.”

But the cost of the Carnival Triumph rescue seems to have revived Rockefeller’s interest in taxing cruise lines.

In a report on NBC’s “Rock Center” news magazine program that aired March 29, Rockefeller said the Section 883 exemption is legal, but “disgusting.”

“They’re just bloodsucking the American people,” Rockefeller said of cruise lines, adding that Congress is to blame for allowing it.

In materials provided to Rockefeller on April 1, Carnival said that ships calling on U.S. ports pay hundreds of millions of dollars in annual fees and taxes to federal, state and local agencies in the form of head taxes, dock fees, wharfage and other fees.

“The cruise industry’s contribution to the American economy in the form of various taxes and job creation assists in the payment of the federal services that are provided,” Carnival said.

After receiving the Carnival materials, Rockefeller said, “Carnival’s response to my detailed inquiry is shameful.”

In a statement, he wrote: “It is indisputable that Carnival passengers deserve better emergency response measures than they experienced on the Triumph. I am considering all options to hold the industry to higher passenger safety standards.”

Follow Tom Stieghorst on Twitter @tstravelweekly.
 
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