American Shipbuilding Association

Senate Legislation Introduced Supporting More Naval Ships

In an effort to draw attention to the national security crisis facing America, Senator Mary Landrieu (D-LA) has sponsored legislation that seeks to rebuild our naval fleet.  Introduced on April 11th, The National Naval Force Structure Policy Act, S 902, states that it is the policy of the United States to rebuild as soon as possible a Navy of at least 375 ships.

In Operation Iraqi Freedom, 6 Aircraft Carrier Battle Groups and 9 Amphibious Ready Groups were called upon to bring down Saddam Hussein’s reign of terror.  As of mid-April, approximately 70 ships were called into service in Iraq.  Naval ships are also patrolling the coasts and ports of the United States to protect our homeland from terrorist attacks.  Prior to 9/11, Naval Fleet Commanders testified before Congress that the Nation needed a fleet of 360 ships, comprised of 15 aircraft carrier battle groups and an equal number of amphibious ready groups, to execute the military strategy in response to high operating tempos.  Currently, the naval fleet numbers 301 ships.  This is nearly half the number of ships the United States had in 1987, and far below the 375 ships Chief of Naval Operations ADM Vern Clark says are needed in the post 9/11 world. 

Article 1, Section 8, Clause 13 of the Constitution requires that Congress “provide and maintain a Navy”.  Yet, despite this constitutional duty, the current fleet is smaller than the fleet of 1917.  Current build rates are at their lowest level since 1932.  The fleet will continue to shrink as old ships reach the end of their service life in greater numbers than replacement ships are being built and delivered.  In a statementaccompanying the introduction of the bill, Sen. Landrieu emphasized that “with a current fleet structure well below Department of Defense requirements, our current policy is unsustainable.”  S 902 does not bind Congress to an annual ship procurement budget, but will rather provide guidance in the authorization and appropriations process to reinvest in the future of this country’s naval fleet.  Identical legislation (HR 375) was introduced in the House of Representatives by Congresswoman Jo Ann Davis (R-VA) and Congressman Gene Taylor (D-MS) earlier this year. 

Conferees Appropriate $25 Million for Title XI

On April 16th, the President signed into law the Emergency Wartime Supplemental Appropriations bill.  House and Senate Conferees ultimately appropriated $25 million for Title XI in the Supplemental for 2003. 

Commercial vessels built in the United States for U.S. ship owners under Title XI Loan Guarantees serve as an auxiliary fleet to the Department of Defense in times of mobilization.  During Operation Iraqi Freedom, the Military Sealift Command chartered one roll-on/roll-off vessel, in addition to six clean product tankers built in the late 1990’s and early 2000’s under Title XI Loan Guarantees. 

No funds had been included in the 2003 Omnibus Appropriations bill passed earlier this year for the Title XI Program.  Had it not been for the supplemental appropriation, the Maritime Administration would have had less than $1 million for the remainder of 2003.  ASA would like commend Senators Richard Shelby (R-AL) and Patty Murray (D-WA) for including $50 million for the Title XI Program in their Transportation Appropriations Subcommittee mark, and Senator Ted Stevens (R-AK) for his support in Conference.  Additionally, ASA appreciates the support of the 21 Senators who signed a letter sponsored by Senators Trent Lott (R-MS) and John Breaux (D-LA) in support of funding for Title XI in the Supplemental.  Due to the military utility of ships built with Title XI financing, it is important to encourage on-going commercial ship construction to ensure that vessels are available to the Government in times of war or national emergency.

Tax on Delivery Legislation Introduced in Both Chambers

Prior to adjourning for the April recess, legislation was introduced in both the House and Senate to correct an inequity that exists in the Tax Code.  Congresswoman Nancy Johnson (R-CT) and Congressman William Jefferson (D-LA) have sponsored HR 1479, and Senator Olympia Snowe (R-ME) has introduced a companion bill, S 774 both entitled “Naval Vessel Delivery Method of Accounting”.  Both of these bills are aimed at ending the discriminatory penalties imposed on naval shipbuilders because of the unique nature and extended construction time required for a naval ship. 

Under the Tax Code, when a company builds a commercial ship, it pays income taxes upon the completion of the contract.  However, naval shipbuilders must estimate what their profits may be three to seven years into the future and pay a percentage of this estimated income tax each year.  The shipbuilder does not receive final payment until twelve months after the ship is delivered to the Navy.  This anomaly in the Tax Code places a financial burden on naval shipbuilders during the critical construction phase, and impairs their ability to invest in facilities, train employees, and pay vendors in a timely manner. 

Neither HR 1479 nor S 774 decreases the amount of taxes paid by a shipyard, but instead allows for payment of income taxes when the profit is actually known – when the ship is delivered.  Specifically, the legislation would permit builders of naval ships to pay income taxes to the Internal Revenue Service upon delivery of each ship, provided it takes 24-months or longer to build or overhaul the ship. 

The legislation sponsored by Senator Snowe and Representatives Johnson and Jefferson will correct an inequitable cash flow hardship; strengthen the financial health of the defense shipbuilding industry; and create job growth across the nation. 

Industry News Expansion of Ingalls Operation Announced In partnership with the state of Mississippi, Northrop Grumman Ship Systems has announced an initiative to expand and modernize Ingalls Operation in Pascagoula and its sister facility in Gulfport, Mississippi.  According to Philip A. Dur, President of Northrop Grumman Ship Systems, “There is no doubt that it will improve the efficiency and competitiveness of our company by ensuring that our Ingalls and Gulfport Operations are ‘world class,’ and that they provide 11,000 shipbuilders with the best opportunities and the means to build America’s greatest ships.”  The expansion planned for Ingalls Operation includes the addition of new blasting and painting halls; increased ship construction area of over 400,000 square feet to support the DD(X) and U.S. Coast Guard Deepwater programs; a state-of-the-art, automated steel processing panel line for improved quality and accuracy; and additional technology design and procurement development space.

NASSCO Announces Creation of a New Degree ProgramNational Steel and Shipbuilding Company (NASSCO) of San Diego, California and the San Diego Community College District have announced the creation of a new degree program in shipbuilding technologies.  “Our belief in self improvement is part of our company’s mission and value system…” stated NASSCO President Richard Vortmann,  “this program is in keeping with NASSCO’s commitment to employee education and training.”  Two courses will be offered each semester to employees of the shipyard that will lead to an Associate in Science degree. 

ASA Teams with OSHA on ErogonomicsThe American Shipbuilding Association (ASA) has agreed to work with the Occupational Safety and Health Administration (OSHA) to develop industry-specific, voluntary ergonomic guidelines for shipyard employees.  This effort is a continuation of a process that was spearheaded by ASA shipyard safety managers over five years ago under the auspices of the Maritime Advisory Committee on Occupational Safety and Health (MACOSH) and the National Institute of Occupational Safety and Health (NIOSH).  As a result of the good faith efforts of the shipyard industry and the MACOSH study, OSHA excluded the shipyard industry from a final regulation that established mandatory ergonomic standards.  Although the final regulation on ergonomics was rescinded, NIOSH completed the shipyard ergonomic study and is urging other industry sectors to use it as a model.

Mr. John Henshaw, the OSHA Administrator, acknowledged the cooperation of the shipyard industry in a press release in which he stated that “the shipyard industry has already demonstrated its commitment to work with OSHA to reduce the numbers of overall injuries and illnesses suffered by workers in shipyards.”  The International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers and Helpers, and the International Brotherhood of Electrical Workers have also expressed a willingness to work with OSHA on the development of voluntary ergonomic guidelines.