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Special Message to the Congress Transmitting Reorganization Plan 10 of 1953 Concerning Payments to Air Carriers.

June 01, 1953

To the Congress of the United States:

I transmit herewith Reorganization Plan No. 10 of 1953, prepared in accordance with the provisions of the Reorganization Act of 1949, as amended.

The reorganization plan provides for the separate payment of airline subsidies, which now are merged with payments for the transportation of airmail. The purposes of the plan are to place responsibility for subsidy payment in the agency which determines the subsidies and to enable the Congress and the President to maintain effective review of the subsidy program. The plan accomplishes these objectives by transferring from the Postmaster General to the Civil Aeronautics Board that portion of the present airmail payment functions which relates to subsidy assistance.

The reorganization plan will not alter the basic national policy of promoting the sound development of air transportation through Federal aid. Nor will the plan in itself change the aggregate amount of revenue for which any airline is eligible. The policy of providing financial aid for airline development was adopted in the Civil Aeronautics Act of 1938, and reflects the broad national interest in securing a system of air transport services adequate to the needs of defense, commerce, and the postal service. Federal aid provided under that act has contributed greatly to the rapid development of commercial air transportation during the past fifteen years. Continued subsidy support will be required for some time to enable certain segments of the industry to achieve the full measure of growth required by the public interest.

At present, airline subsidies are provided by means of mail transportation rates established by the Civil Aeronautics Board and paid by the Post Office Department. In essence, the Civil Aeronautics Act provides that such mail rates may be set at a level sufficiently high to overcome deficits incurred by the airlines on their total operations, including passenger and freight traffic. Total mail payments by the Post Office Department thus include, not only a reasonable compensation for the service of transporting the mail, but also a subsidy element where required to support the general program of airline development. This method of furnishing subsidy restricts the opportunity for congressional and public review, and substantially inflates the reported cost of the postal service.

Under the reorganization plan, the Civil Aeronautics Board will continue to determine the over-all level of payments to be made to the airlines, and will do so in accordance with the existing policy standards of the Civil Aeronautics Act. However, the Post Office Department will pay only that portion which represents compensation for carrying the mail on the basis of fair and reasonable rates determined by the Board without regard to the need for Federal aid. The plan will transfer to the Board the responsibility for paying any amounts in excess of such compensation, this excess being the subsidy element of the aggregate Federal payment.

In the interest of prompt effectuation, the plan contains an interim provision which authorizes the Board to establish without prior notice or hearing the initial rates to be paid by the Post Office Department, subject however to the right of the Board or any affected party to initiate a proceeding at any time for a hearing and a determination of a new rate. The Board has already made studies estimating the subsidy element contained in airmail payments, and for some time has been setting forth in connection with its mail-rate decisions a breakdown between the subsidy and compensatory elements of the over-all rate. The plan will permit the Board to base the initial rates payable by the Post Office Department on the compensatory rates contained in these studies and decisions.

By providing for a complete and formal separation of subsidy from compensation for the transportation of mail, the reorganization plan will clearly fix the fiscal responsibility for the subsidy program in the appropriate agency. It will assure the Congress and the public of continuing information on the cost of this program. It will give the Congress an opportunity to review and take any appropriate action with respect to the level of subsidy aid in the course of the regular appropriation process. It will also result in a more accurate presentation of the cost of the postal service, by removing from the budget of the Post Office Department a nonpostal expenditure currently estimated at nearly $80 million a year.

The basic principle of airline subsidy separation was recommended in 1949 by the Commission on Organization of the Executive Branch of the Government. Legislation to accomplish separation has been under discussion for several years. Such legislation has generally gone beyond a simple transfer of the subsidy function, and has included provisions which would change existing substantive law. Some of these proposed substantive changes have been the subject of controversy, and have been responsible for the past delays in enacting legislation on this matter. The present reorganization plan provides an opportunity to accomplish immediately the important objective of transferring subsidy payment responsibility, within the framework of existing statutory policy. In view of the general agreement on the principle of subsidy separation, I trust that this plan will have widespread support.

At the same time, the immediate transfer of subsidy payment under this reorganization plan should not preclude the consideration by the Congress of legislation to effect refinements and modifications in the basic law in this field. One such change, for example, would be an amendment of the Civil Aeronautics Act to provide specifically that compensatory rates for mail transportation should be based upon the cost of rendering mail service, plus a fair return. I understand that the Civil Aeronautics Board has been following this general policy in those cases where it has established compensatory mail rates. The reorganization plan will not affect its right to continue applying such a policy in the future. However, I believe it would be appropriate to establish the cost principle as a matter of definite legislative policy.

After investigation, I have found and hereby declare that each reorganization included in the accompanying reorganization plan is necessary to accomplish one or more of the purposes set forth in section 2 (a) of the Reorganization Act of 1949, as amended.

The reorganization plan, by providing a sounder basis for the administration and congressional review of the affected functions, should in the long run promote increased economy and effectiveness of the Federal expenditures concerned. It is not practicable, however, to itemize in advance of actual experience the reductions of expenditures to be brought about by the taking effect of the reorganizations included in the reorganization plan.


Note: Reorganization Plan 10 of 1953 is published in the U.S. Statutes at Large (67 Stat. 644) and in the 1949-1953 Compilation of title 3 of the Code of Federal Regulations (p. 1032). It became effective on October 1, 1953.

Dwight D. Eisenhower, Special Message to the Congress Transmitting Reorganization Plan 10 of 1953 Concerning Payments to Air Carriers. Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/231890

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