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American Shipbuilder - Volume 9, Issue 7 - September 2003 |
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Legislative Update
In a continuing effort to inform Members of Congress and the public regarding issues that are of importance to the shipbuilding industry, the American Shipbuilding Association (ASA) takes this opportunity to provide an update on a few of the legislative initiatives the Association strongly supports in the 108th Congress.
Naval Vessel Delivery Method of Accounting
HR 1479 and S 774
The construction of naval ships is not only an incredible commitment of time and labor, but capital resources. Current tax law recognizes the time it takes to build a commercial ship, and permits taxes to be paid upon completion of the contract when profit is known and received. Unfortunately, the Tax Code imposes discriminatory penalties on naval shipbuilders by requiring tax payment on income before it is received. The current Tax Code requires naval shipbuilders to estimate what their profits may be three to seven years into the future, and pay a percentage of the estimated income tax each year. This results in naval shipbuilders operating with negative cash flow during critical years of a ship’s construction, and limits a shipbuilder’s ability to timely pay vendors, train employees, and invest in facilities.
To correct this inequity, Representatives Nancy Johnson (R-CT) and William Jefferson (D-LA), and Senator Olympia Snowe (R-ME) have sponsored companion bills both entitled Naval Vessel Delivery Method of Accounting (HR 1479 & S 774). The legislation would allow naval shipbuilders to pay their income taxes upon delivery of each naval ship, provided the construction or overhaul period is two years or longer in duration. This legislation would not reduce the amount of taxes a shipbuilder pays, but rather would allow tax payment when profit is known and received.
Representatives Rodney Alexander (D-LA), Jo Bonner (R-AL), Eric Cantor (R-VA), Duke Cunningham (R-CA), Jo Ann Davis (R-VA), Phil English (R-PA), Randy Forbes (R-VA), Virgil Goode (R-VA), Wally Herger (R-CA), Amo Houghton (R-NY), Duncan Hunter (R-CA), Steve Israel (D-NY), Walter Jones (R-NC), Carolyn Kilpatrick (D-MI), Frank LoBiondo (R-NJ), Jim McCrery (R-LA), Richard Neal (D-MA), Bobby Scott (D-VA), Rob Simmons (R-CT), Gene Taylor (D-MS), David Vitter (R-LA), and Roger Wicker (R-MS) have co-sponsored HR 1479. Co-sponsors of S 774 include Senators George Allen (R-VA), John Breaux (D-LA), Thad Cochran (R-MS), Susan Collins (R-ME), Chris Dodd (D-CT), Mary Landrieu (D-LA), Trent Lott (R-MS), and John Warner (R-VA).
The respective bills await action by the House Ways and Means and Senate Finance Committees. As both Committees wrestle with revisions to the Tax Code to help U.S. manufacturing, this legislation should be part of any such bill. ASA applauds the leadership of the aforementioned Members to correct an unfair cash flow hardship, strengthen the financial health of the defense shipbuilding industry, and create job growth across the Nation.
The National Naval Force Structure Policy Act
HR 375 & S 902
America’s naval fleet has officially dropped below 300 ships. Our current fleet of 297 ships is smaller than the fleet of 1917. The United States is also experiencing the lowest build rate of naval ships since 1932. Moreover, older ships are being retired faster than new ships are being constructed. If annual ship orders are not increased, the fleet will shrink to 180 ships. Low rates of ship production dangerously coincide with one of the most active periods of naval ship deployment. Our naval forces are being called upon more and more in the defense of this Nation, which has stretched a shrinking fleet perilously thin.
Representatives Jo Ann Davis (R-VA) and Gene Taylor (D-MS), and Senators Mary Landrieu (D-LA), George Allen (R-VA) and Trent Lott (R-MS) have taken the lead in the House and Senate to halt the death spiral of the U.S. Navy’s force structure. Introduced earlier this year in both the House and Senate, HR 375 and S 902 set forth a policy that this Nation provide a naval force structure of 375 ships to meet the essential security requirements articulated by naval fleet commanders and military planners. The legislation does not bind Congress to an annual ship procurement budget, but instead serves as guidance in the budget process to rebuild the fleet. In short, the legislation reaffirms the Article 1, Section 8, Clause 13 constitutional duty of Congress to “provide and maintain a Navy”.
The following members have pledged their support to rebuilding America’s sea power: (co-sponsors of HR 375 include) Representatives Robert Aderholt (R-AL), Todd Akin (R-MO), Rodney Alexander (D-LA), Tom Allen (D-ME), Robert Andrews (D-NJ), Roscoe Bartlett (R-MD), Roy Blunt (R-MO), Jo Bonner (R-AL), Madeleine Bordallo (D-GU), Jeb Bradley (R-NH), Ken Calvert (R-CA), Eric Cantor (R-VA), Duke Cunningham (R-CA), Phil English (R-PA), Randy Forbes (R-VA), Trent Franks (R-AZ), Paul Gillmor (R-OH), Virgil Goode (R-VA), Bob Goodlatte (R-VA), Gene Green (D-TX), Mark Green (R-WI), Melissa Hart (R-PA), Alcee Hastings (D-FL), John Hostettler (R-IN), Amo Houghton (R-NY), Duncan Hunter (R-CA), Steve Israel (D-NY), Sue Kelly (R-NY), Patrick Kennedy (D-RI), Carolyn Kilpatrick (D-MI), James Langevin (D-RI), Rick Larsen (D-WA), Frank LoBiondo (R-NJ), Stephen Lynch (D-MA), Jim McCrery (R-LA), James McGovern (D-MA), Mike McIntyre (D-NC), Michael Michaud (D-ME), Juanita Millender-McDonald (D-CA), Candice Miller (R-MI), Jeff Miller (R-FL), Chip Pickering (R-MS), Todd Platts (R-PA), Ileana Ros-Lehtinen (R-FL), C.A. Dutch Ruppersberger (D-MD), Jim Saxton (R-NJ), Bobby Scott (D-VA), E. Clay Shaw (R-FL), Rob Simmons (R-CT), Ike Skelton (D-MO), Chris Smith (R-NJ), Billy Tauzin (R-LA), Michael Turner (R-OH), David Vitter (R-LA), Zach Wamp (R-TN), Curt Weldon (R-PA), Roger Wicker (R-MS), Joe Wilson (R-SC). Senate co-sponsors to S 902 include Senators John Breaux (D-LA) and Zell Miller (D-GA).
ASA encourages all Senators and Representatives to co-sponsor and enact this important legislation.
Concerns Expressed to Defense Appropriations Conferees
The need to increase shipbuilding in FY 2004 and adopt acquisition approaches that will result in cost savings to America was the focus of an ASA letter submitted to House and Senate Appropriations conferees in late August.
Conferees are urged to restore the President’s budget request of $2.5 billion, and approve a Multi-Year Procurement (MYP) contract for seven SSN-774 submarines. Although the Senate approved an MYP contract for five SSN-774 submarines, this will not result in optimal cost savings. A MYP for seven boats will yield savings of $155 million per submarine, and save the taxpayer more than $1 billion.
The conferees are urged to support the House recommendation of $722 million for the procurement of two T-AKE ships in the National Defense Sealift Fund. The Senate zeroed funding for these two ships, which, if adopted, will increase the unit cost of each ship and prior year shipbuilding bills.
ASA supports the House recommendation of $175 million in advanced procurement for LPD-23, and the Senate language directing DOD to include the remainder of the funding necessary to procure LPD-23 in its FY 05 budget request. In the absence of FY 04 advanced procurement funding there will be a break in the LPD-17 program’s production, resulting in increased costs, layoffs, and disruption throughout the supplier base.
The conferees have been asked to support the Senate mark of $1.03 billion for the research and development for the DD-X family of surface combatants. The House had reduced the budget request by $130 million. This cut will deny needed funds for development of the ship and its systems and could negatively impact the construction start schedule for this needed class of ships.
Additionally, ASA requested the conferees’ support of the Senate’s increase of $20 million for the DDG-51 destroyer modernization program; fully fund the budget request of $368 million in Advanced Procurement for the refueling and overhaul of CVN-70; and adopt the House increase to the budget request to cover prior year shipbuilding bills.
Initiative to Strengthen U.S. Defense Industrial Base
HR 1588, National Defense Authorization Act, FY 2004
The U.S. defense industrial base is under attack. The Department of Defense, in its Defense Transformation package submitted to Congress, sought to waive all laws requiring that defense systems and components (including naval ships) be manufactured in the United States.
The House rejected this proposal. The Senate, in its version of the Defense Authorization bill (S 1050) permitted waiver authority for certain defense systems and components (excluding naval ships) for six countries with which the U.S. has a Memorandum of Understanding for reciprocal defense procurement. Duncan Hunter (R-CA), Chairman of the House Armed Services Committee, working to halt the erosion of the U.S. defense industrial base, included in the House version of the Defense Authorization bill (HR 1588) provisions which would restore the 1939 U.S. manufacture law for weapon systems commonly known as the “Buy American Act”.
The military might and capability of the United States depends upon the strength of the defense industrial base, and the ability to be self-reliant in preserving national security, homeland security, and economic security. The “Defense Industrial Base Initiative” contained in the House Defense Authorization bill would identify critical defense systems and components and require the manufacture of these systems in the United States. ASA supports this important initiative, which will be resolved in the Defense Authorization Conference.
Well Said!
“A powerful Navy we have always regarded as our proper and natural means of defense, and it has always been of defense that we have thought, never of aggression or conquest… We shall take leave to be strong upon the seas, in the future as in the past, and there will be no thought of offense or provocation in that…”
President Woodrow Wilson
December 8, 1914
Address to Joint Session of Congress
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