Joan Bondareff, of Counsel Blank Rome LLP, offers MarEx readers an executive review of the requested 2011 MARAD budget.
On February 1, 2010, the Obama Administration submitted its FY2011 budget to Congress, thereby kicking off the year-long budget deliberations for the Federal government, including the key maritime agencies, the Maritime Administration (MARAD), and the Coast Guard.
The Administration’s budget highlights the difficult decisions that have to be made if the deficits are to be brought under control, and if the Administration is to succeed in getting its requested three-year freeze on discretionary spending. The President had fenced off the defense, national security, and VA budgets from this freeze, but this does not mean that the President did not intend to apply a scalpel to programs within these budget areas, including programs housed at the Department of Homeland Security (DHS).
The President’s budget does not include funding for two new maritime programs that Congress authorized in last year’s Department of Defense Authorization Act (P.L. 111-84), the maritime highway grants program (also called short sea shipping), and the port infrastructure grants program. In fact, these new programs were to be administered by MARAD but are not mentioned in the budget documents. If the maritime and ports community ever want to get these programs funded, they will have to redouble their efforts on the Hill. The American Association of Port Authorities (AAPA) has already lamented the lack of funding for maritime highway grants as well as the decline in funding for port security grants from the $400 million authorized level to the $300 million budget request. (AAPA press release, February 1, 2010, at www.aapa-ports.org.)
As for the rest of the MARAD budget, it reflects an overall decline of more than $10 million in discretionary spending from the FY2010 enacted levels. However, this does include a total of $100 million for the Merchant Marine Academy at King’s Point, New York, including $31 million for capital improvements at this aging academy. The state maritime academies take a relatively small hit in the President’s budget, reduced from $18 million to $15 million. The Administration continues to zero fund the title XI loan guarantee program to finance commercial shipbuilding at U.S. shipyards (aside from $3.7 million to administer existing loans).
Jobs legislation is moving on a parallel track to the budget, and is expected to be finished well before the FY2011 appropriations bills are enacted. In the Jobs for Main Street Act, 2010, passed by the House in 2009, $100 million is authorized for title XI loan guarantees. As of this writing, the Senate has not yet decided what to include in its Jobs bill, or bills as the case may be.
The MARAD budget also zeroes out any new funds for the Small Shipyard Grant Program that was funded at $100 million in the American Recovery and Reinvestment Act (popularly called the stimulus bill). The grant program received $15 million in the FY2010 enacted budget. This small, but very popular, grants program has not met with the favor of the Administration and will have to be encouraged from Capitol Hill if it is to remain on the books and actively helping small U.S. yards.
Finally, the Obama budget requests $174 million for the Maritime Security Program (MSP) which defrays the cost of keeping 90 ships under the U.S. flag for deployment in times of war and national emergency. This is a decline of $13 million from the FY2010 enacted budget for MSP.
The FY2011 budget request for the Coast Guard (now housed in DHS) reflects what sources at DHS have called “difficult tradeoffs” between men and women and machine. (Reported in CQ.com on February 1, 2010.) The President’s budget places a priority on recapitalization of the Coast Guard’s aging assets, such as cutters, aircraft, boats, and C4ISR. A total of $538 million is allocated to construct the 5th National Security Cutter and $240 million to construct four more Fast Response Cutters. But, the cost for procuring these assets is a reduction of 1,100 personnel billets.
The personnel cuts are taken by decommissioning five Maritime Safety and Security Teams (MSSTs) and deploying the remaining seven MSSTs regionally to protect the most critical U.S. ports. Other reductions are derived from discontinuing two seasonal Coast Guard Air Facilities at Muskegon, MI, and Waukegan, IL. Finally, a reduction in several hundred billets is associated with decommissioning four High Endurance Cutters being replaced by the new National Security Cutters.
We have already heard complaints from Republican Members of Congress who are displeased with the Coast Guard cuts. For example, Congressman Hal Rogers (R-KY), Ranking Member of the House Homeland Security Appropriations Subcommittee, has called these reductions in “the ranks of our brave Coast Guard personnel” both “dangerous [and] indefensible”. (See www.halrogers.house.gov.)
It remains to be seen whether Democratic Members of Congress will toe the Administration’s line or continue to support their favorite programs and agencies. If the programs can be justified on national security lines and on the basis of creating more jobs for American workers, Congress will probably side with national security and jobs.
1 comment:
If it is only a $10 million discretionary cut in the MARAD budget, fully half is coming from the Ship Disposal Program (SDP). In FY10 the Administration asked for, and received $15 million; this year it is requesting $10 million (while still retaining the 11 SDP FTE's at HQ). MARAD says it is because they are carrying over $26 million from previous years (MARAD money is till expended). However, $8-$12 million is a continuing obligation to the still uncompleted 2003 PRP contract that was novated (under curious circumstances) to ABLE UK in 2007. The 2007 novation doubled the award (from $14+ million for 13 un-towed vessels to $12+ million for four already towed vessels); reduced the performance bond levels, and will give the two nearly-finished KNOX-class oilers parked at the JRRF to Able UK for FREE. Great deal for the taxpayer. Most of the rest of the carry-over is due to domestic recyclers having bought vessels rather than being subsidized (including in FY09).
Pretty certain that with the lower budget -- and known higher costs at the Suisun Bay fleet -- MARAD hopes to offer less ships in order to run some domestic recyclers out of business so it can go cry to Congress that there is "insufficient domestic capacity." MARAD always does this even though there has, since they had to stop scrapping overseas, been increased domestic capacity and on-going expansion. Most likely they want to export because they assist US flag owners with reflagging for scrapping in countries without complying with the Toxic Substances Control Act PCB export ban. They just can't understand why they have to follow US law when they turn the other eye when others break it. Currently they have the EPA saying that they are working together since mid-2009 to come up with a way to manage this (in secret apparently); but in reality, MARAD has let the word out: After 7 taxpayer-subsidized Maritime Security Program ships slipped the export ban in the summer of 2009 and promptly ended up scrapped in China and then Military Sealift Command tried the same thing and got caught, US-flags got wise. Why even bother; don't re-flag for scrapping, just get the vessels out and on the beaches as fast as you can before the whole scam gets caught.
When the country is in a continuing deep recession, vital domestic industrial sectors like metal recycling (of which ship recycling is a part) should not be asked to abide by a double standard. It costs precious capital to meet US environmental (and occupational safety) laws. If the EPA and MARAD say domestic ship recyclers must meet those laws, US flag owners must meet those laws as well. The cost to determine whether a vessel has PCBs in excess of 50 ppm is a whole lot cheaper than the cost to manage and dispose the parts of a vessel to US regulatory standards. We are not complaining; it the cost of doing business in the U.S. U.S. flags take note.
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