O AUTHORIZE APPROPRIATIONS FOR CERTAIN MARITIME PROGRAMS OF THE DEPARTMENT OF COMMERCE MONDAY, MARCH 23, 1970 U.S. SENATE, COMMITTEE ON COMMERCE, Washington, D.C. The subcommittee met at 10 a.m. in room 2221, New Senate ffice Building, Hon. Russell B. Long (chairman of the subcommittee) esiding. Present: Senators Long and Griffin. Senator LONG. This morning we take up S. 3489 and H.R. 15945, lls to authorize appropriations for certain maritime programs of the epartment of Commerce. As originally introduced, the bills were entical. However, the House adopted two amendments which had e effect of authorizing $4 million for the continued operation of the .S. Savannah rather than $1.7 million to lay up the ship as had iginally been requested. (The bills and agency comments follow:) [S. 3489, 91st Cong., second sess.] A BILL To authorize appropriations for certain maritime programs of the Department of Commerce Be it enacted by the Senate and House of Representatives of the United States of nerica in Congress assembled, That funds are hereby authorized to be appropriated thout fiscal year limitation as the appropriation Act may provide for the use of e Department of Commerce, for the fiscal year 1971, as follows: (a) acquisition, construction, or reconstruction of vessels and constructiondifferential subsidy and cost of national defense features incident to the construction, reconstruction, or reconditioning of ships, $199,500,000; (b) payment of obligations incurred for ship operation subsidies, $193,000,000; (c) expenses necessary for research and development activities (including reimbursement of the Vessel Operations Revolving Fund for losses resulting from expenses of experimental ship operations), $20,700,000; (d) reserve fleet expenses, $4,675,000; (e) maritime training at the Merchant Marine Academy at Kings Point, New York, $6,800,000; and (f) financial assistance to State marine schools, $2,325,000. [H.R. 15945, 91st Cong., 2d sess.] ACT To authorize appropriations for certain maritime programs of the Department of Commerce Be it enacted by the Senate and House of Representatives of the United States of nerica in Congress assembled, That funds are hereby authorized to be approiated without fiscal year limitation as the appropriation Act may provide for e use of the Department of Commerce, for the fiscal year 1971, as follows: Staff member assigned to this hearing: Emanuel Rouvelas. (a) acquisition, construction, or reconstruction of vessels and constructiondifferential subsidy and cost of national defense features incident to the construction, reconstruction, or reconditioning of ships, $199,500,000; (b) payment of obligations incurred for ship operation subsidies, $193,000,000; (c) expenses necessary for research and development activities (including reimbursement of the Vessel Operations Revolving Fund for losses resulting from expenses of experimental ship operations), $19,000,000; (d) reserve fleet expenses, $4,675,000; (e) maritime training at the Merchant Marine Academy at Kings Point, New York, $6,800,000; (f) financial assistance to State marine schools, $2,325,000; and (g) continued operation of nuclear ship Savannah (including reimbursement of the Vessel Operations Revolving Fund for losses resulting from expenses of experimental ship operations), $4,000,000. Passed the House of Representatives March 11, 1970. Attest: W. PAT JENNINGS, Clerk. OFFICE OF THE SECRETARY OF TRANSPORTATION, Hon. WARREN G. MAGNUSON, DEAR MR. CHAIRMAN: The views of this Department have been requested on S. 3489, a bill to authorize appropriations for certain maritime programs of the Department of Commerce. The bill would authorize funds to be appropriated for the use of the Secretary of Commerce to carry out the programs authorized by the Merchant Marine Act, 1936, as amended, and related shipping statutes to aid the development, promotion and operation of the U.S. merchant marine. We recommend favorable consideration of the bill. The plight of the U.S. merchant marine is well known to your Committee. Enactment of this bill will assist the Secretary of Commerce in building the new ships and in providing the other necessary factors required to permit the U.S. merchant marine to exercise its proper role in the economic strength and defense mobility of this country. The Bureau of the Budget advises that from the standpoint of the Administration's program there is no objection to the submission of this report for the consideration of the Committee. Sincerely, JAMES A. WASHINGTON, Jr., Senator LONG. With respect to the N.S. Savannah, on February 9, 1970, the distinguished chairman of the full committee, Senator Magnuson, wrote the Maritime Administrator requesting certain information regarding the proposed layup. The full reply to that inquiry was received yesterday, and will be inserted in the record, along with the chairman's letter, following the statement of our witnesses. These authorization bills represent the initial phase in the proposed new, 10-year, maritime program. Our only witnesses this morning are Robert J. Blackwell, Deputy Maritime Administrator, and William J. Heneghan, Jr., Chief of the Office of the Budget of the Maritime Administration. Now, I believe you have a prepared statement here. If it is all the same with you, I will just ask that your statement be printed in full so we can get on with the hearings, Mr. Blackwell. I would like to get on with the business, and if you want to, you can summarize it, directing my attention to anything that is particularly important in this statement, and I will ask you a few questions thereafter. So I ask that this be printed in full. (The prepared statement follows:) STATEMENT OF ROBERT J. BLACKWELL, DEPUTY MARITIME ADMINISTRATOR, on BEHALF OF THE MARITIME ADMINISTRATION OF THE DEPARTMENT OF COMMERCE Mr. Chairman and members of the subcommittee: I appreciate the opportunity to appear before your subcommittee. Both S. 3489 and H.R. 15945, as introduced, proposed identical total 1971 funding authorizations of $427,000,000 for various Maritime Administration appropriations, which agreed with amounts similarly contained in the 1971 Presidential budget request. Both bills included funds of $20,700,000 for research and development activity of which the Presidential budget document proposed the allocation of $1,700,000 for the initial phase of lay up fo the N.S. SAVANNAH. H.R. 15945, as passed the House, however, amounted in total to $429,300,000 which included funds of $4,000,000 for continued operation of the SAVANNAH in lieu of the $1,700,000 allocation for lay up. My testimony this morning is in support of S. 3489 which expresses the dimensions of the Presidential budget proposal. S. 3489 includes, among other items, a requested authorization of ship construction subsidy, which would represent the largest regular appropriation for this activity in over 20 years. I think this is highly indicative of this Administration's commitment to revitalize the American merchant marine. The amounts contained in the authorization bill reflect the attainment of funding levels needed to implement the new Maritime program announced by the President on October 23, for which hearings on proposed revisions in enabling legislation are now being held by your subcommittee. In announcing the new Maritime program, the President expressed the hope that it would "*** introduce a new era in the maritime history of America, an era in which our shipbuilding and ship operating industries take their place once again among the vigorous competitive industries of this Nation." I know that you, Mr. Chairman, along with members of your Subcommittee share the President's desire for revitalization of the American Merchant Marine. I will now explain in some detail the various elements contained in S. 3489, which are dedicated to this purpose. "(a) acquisition, construction, or reconstruction of vessels and constructiondifferential subsidy and cost of national defense features incident to the construction, reconstruction, or reconditioning of ships, $199,500,000" The 1971 request of $199,500,000 for this appropriation provides an increase of $81,236,000 over 1970 funding of $118,264,000. Funding in 1970 consisted of an appropriation of $15,918,000 and carryover funds of $102,346,000. The 1971 request provides initial financial requirements for a 10-year program of expanded ship construction designed to rebuild the U.S. flag merchant marine. Contract awards for 19 ships are anticipated in 1971 compared to 10 which can be funded in the current fiscal year. The new Maritime program plan calls for reaching a level of 30 ships per year by 1973, and anticipates maintenance of that rate n the seventies to provide a total of approximately 300 new ships. In announcing the new program, the President also stressed that both Government and industry share responsibility for the decline in American shipping and shipbuilding. The President therefore made it clear that the new program is one of challenge and opportunity, designed to reverse this trend by making the American merchant fleet more competitive. Reduction in the need for Government construction subsidy is one of the measures which will be emphasized to achieve this end. The underlying plan calls for an initial level of approximately 45 percent subsidy in 1971. The present U.S. foreign trade fleet consists of approximately 650 ships, which carry about 6 percent of U.S. oceanborne foreign trade. Approximately threefourths of this U.S. foreign trade fleet is now over 20 years of age, having been constructed in World War II, compared to the world fleet only one-fourth of which is 20 years old. The U.S. ships are now past their useful economic life and we estimate that approximately 85 percent of them will likely be lost from the fleet by the end of 1973. Some of the key objectives of the new Maritime program call for rebuilding the U.S. merchant fleet, increased participation by the U.S. fleet in the carriage of U.S. oceanborne trade, and improved efficiency in the maritime industry. The new program is also structured to provide the shipping capability needed by the Nation for defense in times of crisis and participation in essential inter national trades in times of peace. Under the planned program expansion, construction subsidy will be extended to bulk carriers in addition to general cargo ships receiving subsidy exclusively over the past several years. Extension of subsidy to dry bulk vessels is designed to assist the non-liner segment of the United States fleet, and subsidy extension to tankers is aimed at assuring adequate capability transportation of liquid cargoes for which the United States is now overly dependent upon foreign flag carriers. The new Maritime program also introduces multi-year ship procurement now being utilized by other Government agencies. Its implementation strives for the attainment of quantity productions through the procurement of standard ships in lot sizes. This is enabled through anticipated future Government contract commitments in part based on subsequent year appropriations. The new program also establishes procedures which are designed to minimize the Government's undue involvement in shipbuilding by awarding subsidy directly to the shipbuilder. The program also is designed to encourage shipbuilders to develop efficient production and procurement methods through the employment of production line manufacturing techniques, prefabrication of standard components, etc. "(b) payment of obligations incurred for ship operation subsidies, $193,000,000" The requested 1971 authorization for payment of ship operation subsidies provides for the continued payment of subsidies to American operators to enable them to operate their ships competitively with foreign counterparts. The 1971 estimate anticipates the addition of some new operators and reflects savings due to the elimination of the need for subsidy on certain trade routes where the introduction of new technology has enabled profitable operation without Government assistance. In line with the legislative recommendation, calling for the elimination of the recapture provisions of the 1936 Act, no estimate is made for minor offsetting receipts previously generated under this section. A basic component of the new program provides for a modification in the method of determining and administering subsidizable expenses. The new program calls for the initiation of an index system for determining wage subsidy. Subsidy rates under this system will be the difference between allowable U.S. costs and comparable foreign costs as calculated under the present system. Allowable U.S. costs in subsequent years will increase proportionately with an appropriate index of wages and benefits under development by the Bureau of Labor Statistics. No change in requirements has been factored into the 1971 estimate of appropriation requirements since the index system would not become effective until fiscal year 1972. "(c) expenses necessary for research and development activities (including reimbursement of the Vessel Operations Revolving Fund for losses resulting from expenses of experimental ship operations), $20,700,000" The 1971 authorization proposed for research and development is also keyed to the initiation of the new Maritime program. The amount requested reflects a substantial funding expansion in order to apply the benefits of advanced technology to increase productivity in the maritime industry. Intensified efforts will also be made to obtain greater financial participation from industry. Extended industry involvement is calculated to catalyze the translation of technology advances into marine applications and speed the search for fundamental technology advances not now within the state-of-the-art The 1971 program represents a departure from previous investment in large long-range programs and projects with little industry relationship, It concentrates resources on projects with immediate objectives to reduce life-cycle costs of American merchant ships and increase productivity in both ships' operation and shipbuilding. More restricted sums will be spent on secondary objectives designed for longer term growth and support in the field of advanced technology. Summarily, the 1971 program seeks to improve the competitive position of the U.S. merchant marine while reducing Government subsidy for construction and operation. Key undertakings anticipated in 1971 relate to standardization of ships in new categories in cargo transportation to reduce costs through a multi-year program. Substantial expansion is anticipated in current research and development efforts to combat pollution arising from oceangoing ships. A program is being established to identify research and development requirements for commercial vessels employing the Northwest passage. Research and development will also be undertaken in the field of high speed displacement ships in order to maintain the U.S. current lead in high speed container ships. |