FEMA's $236M cruise ship boondoggle is sweetheart deal for Carnival

FEMA made hasty $236 million deal with cruise line during Katrina crisis
3 ships now sit half empty in river and Mobile Bay
Jonathan Weisman, Washington Post
Wednesday, September 28, 2005

Washington -- On Sept. 1, as tens of thousands of desperate Louisianans packed the New Orleans Superdome and convention center, the Federal Emergency Management Agency pleaded with the U.S. Military Sealift Command: The government needed 10,000 berths on full-service cruise ships, FEMA said, and it needed the deal done by noon the next day.

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 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," said Coburn and Sen. Barack Obama, D-Ill., in a joint statement Tuesday calling for a chief financial officer to oversee Katrina spending. "A short-term temporary solution has turned into a long-term, grossly overpriced sweetheart deal for a cruise line."

Carnival's bid totaled $192 million over six months, plus $44 million in reimbursable expenses, such as port charges, fuel, food and docking costs. To Carnival executives, the contract will ensure only that the company breaks even when it pulls three ships from holiday operations. "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.

Government contracting officials defended the deal. "They were the market," Capt. Joe Manna, director of contracts at the Sealift Command, said of Carnival. "Under the circumstances, I'd say we're getting a pretty good value."

Coburn and Obama disagreed. "Finding out after the fact that we're spending taxpayer money on no-bid contracts and sweetheart deals for cruise lines is no way to run a recovery effort," they said in the statement.

The Carnival deal has come under particular scrutiny. Not only are questions being raised over the contract's cost, but congressional investigators are examining the company's tax status. Carnival, which is based 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 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.

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