September 28, 2005
Private: "Sweetheart Deal" for Carnival Cruise Lines
Through no-bid contract, FEMA has leased three Carnival Cruise ships to provide 10,000 beds for Katrina relief. The deal's cost has put both FEMA and Carnival under scrutiny.
The hasty appeal yielded one of the most controversial contracts of the Hurricane Katrina relief operation, a $236 million agreement with Carnival Cruise Lines for three ships that now bob more than half empty in the Mississippi River and Mobile Bay. The six-month contract -- staunchly defended by Carnival but castigated by politicians from both parties -- has come to exemplify the cost of haste that followed Katrina's strike and FEMA's lack of preparation.
To critics, the price is exorbitant. If the ships were at capacity, with 7,116 evacuees, for six months, the price per evacuee would total $1,275 a week, according to calculations by aides to Sen. Tom Coburn (R-Okla.). A seven-day western Caribbean cruise out of Galveston can be had for $599 a person -- and that would include entertainment and the cost of actually making the ship move.
"When the federal government would actually save millions of dollars by forgoing the status quo and actually sending evacuees on a luxurious six-month cruise it is time to rethink how we are conducting oversight. A short-term temporary solution has turned into a long-term, grossly overpriced sweetheart deal for a cruise line," said Coburn and Sen. Barack Obama (D-Ill.) in a joint statement yesterday calling for a chief financial officer to oversee Katrina spending.
According to Carnival, the company will simply break even relative to operating the ships as usual.
"In the end, we will make no additional money on this deal versus what we would have made by keeping these ships in service," said Jennifer de la Cruz, a Carnival spokeswoman. "That has been our position from the outset, and it has not changed."
The deal has drawn so much attention to Carnival that it is now having its tax status investigated.
Carnival, which is headquartered in Miami but incorporated for tax purposes in Panama, paid just $3 million in income tax benefits on $1.9 billion in pretax income last year, according to company documents. "That's not even a tip," said Robert S. McIntyre of Citizens for Tax Justice. U.S. companies in general pay an effective income tax rate of about 25 percent, analysts say. That would have left Carnival with a $475 million tax bill.