American Shipbuilding Association

House & Senate Armed Services Committees Report FY2001 Authorization Bills

On May 10, 2000 the House Armed Services Committee reported H.R. 4205, The Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001, which passed the House of Representatives on May 18, 2000, by a vote of 353 to 63.  The bill authorizes a total of $12.3 billion for shipbuilding and conversion.  The Senate Armed Services Committee reported its version of the defense authorization bill, S. 2549 authorizing $12.9 billion for shipbuilding and conversion.

Both committees agreed to authorize a block buy of 5 ships for the Navy’s Virginia class attack submarine (SSN-774) for FY03 – FY06.  Additionally, both committees extended the multi-year procurement contract for the Arleigh Burke class destroyers (DDG-51) through FY05 while recommending that three ships per year be acquired instead of the current plan to purchase only two ships during the same time period. The Senate authorized an additional $143 million advanced procurement for DDG-51 destroyers, and $460 million in incremental funding for the LHD-8 amphibious assault ship.  The House authorized $10 million for incremental funding of LHD-8.

The House and Senate Armed Services Committee approved the President’s request for:

• $4.053.7 million for one CVN-77 aircraft carrier,
• $2,713.5 million for three DDG-51 destroyers,
• $1,203 million for one SSN-774 attack submarine,
• $1,489.3 million for two LPD-17 amphibious ships,
• $339 million for one ADC(X) auxiliary dry cargo carrier,
• $356.9 million advanced procurement for three DDG-51 destroyers,
• $508.2 million advanced procurement for SSN-774 attack submarines, and
• $21.9 million advanced procurement for CVN(X) nuclear aircraft carrier.

Senate Appropriations Committee Reports Department of Defense Appropriations Act – Cuts Two LPD-17’s

On May 18, 2000, the Senate Appropriations Committee reported the Defense Appropriations Bill, S. 2593 to the full Senate.  The bill cut $1.5 billion in funding for two LPD-17 amphibious ships requested by the Navy and the Marine Corps.  The Committee cited conservative estimates for cost growth and scheduling delays, as the reason for not funding the program.  Additionally, the committee endorsed the 12-ship requirement for the new LPD-17 class of ships, and provided authority for the Secretary of the Navy to award production contracts for LPD-21 and LPD-22 that will be funded on an incremental basis.

The Senate Appropriations Committee approved the following for the Navy’s Shipbuilding and Conversion account:

• $4,053.7 million for one CVN-77 aircraft carrier,
• $ 2,713.5 million for three DDG-51 destroyers,
• $ 1,203 million for one SSN-774 attack submarine,
• $ 339 million for one ADC(X) auxiliary dry cargo carrier,
• $ 485 million advanced procurement and cost growth for two LPD-17 amphibious ships,
• $ 460 million in incremental funding for the LHD-8 amphibious assault ship,
• $ 508.2 million advance procurement for SSN-774 attack submarines, and
• $ 21.9 million advanced procurement for CVN(X) nuclear aircraft carrier.

Senator Olympia Snowe Introduces S. 2564,
The All American Cruise Act

On May 18, Senator Olympia Snowe (R-ME) introduced S. 2564, The All American Cruise Act of 2000, to promote the growth in the U.S. cruise industry and construction of cruise ships in U.S. shipyards.

“Today, the U.S. cruise market is one of the fastest growing tourist vacation attractions, yet the domestic cruise market is very limited.  The industry predominantly consist of foreign built, foreign flagged, foreign crewed and foreign owned ships that operate from U.S. ports to foreign ports and pay no U.S. income taxes.  Additionally, these foreign built and operated cruise ships are not required to meet U.S. ship construction standards, U.S. Safety standards, U.S. labor laws, or U.S. environmental protection and sanitation laws.” 

With over 90 percent of the cruise ship passengers being Americans, Senator Snowe’s bill, “is designed to level the playing field between the U.S. cruise industry and the international cruise industry,” by providing tax parity for U.S. builders and operators.  The bill will:

• Provide a tax credit to American builders of cruise ships,
• Exempt U.S. cruise ship owners from paying U.S. corporate income tax,
• Allow ship owners to depreciate their vessels over a five-year period rather than the current 10 year period,
• Repeal the $2,500 business tax deduction limit for a convention on a cruise ship and provide a tax deduction limit equal to that provided to conventions held at shore-side hotels, and
• Authorize a 20 percent tax credit for fuel operating cost associated with environmentally clean gas turbine engines manufactured in the U.S. 

Senator Snowe’s bill would also allow investment of the Capital Construction Funds to include not only cruise ships in the non-contiguous trades, but also in domestic point-to-point trades and “cruises to nowhere.” 

As Senator Snowe stated on the floor, “ this legislation would jumpstart the domestic cruise trade, benefit U.S. workers and companies, and promote economic growth in our ports.” 

Completed Ship Delivery Method of Accounting 

On May 18, 2000, Representatives David Vitter (R-LA), Jim McCrery (R-LA), and William Jefferson (D-LA) sent a letter to Chairman Bill Archer (R-TX), House Ways and Means Committee, asking his support of Completed Ship Delivery Method of Accounting for builders of naval ships.

Their amendment to the tax code would allow builders of naval ships to defer paying taxes on progress payments until the ship is delivered to the U.S. Navy.  The amendment would streamline and simplify the U.S. Tax Code without any loss to the U.S. Treasury.

The current Percent of Completion Method of Accounting (PCM) places a unique and special burden on naval shipbuilders, because unlike the production of other defense weapon system, it takes three to seven years to build a naval combatant.  Under the current PCM, naval shipbuilders must estimate the profit they may or may not realize upon completion of a ship, which is several years into the future, and pay taxes on progress payments during the construction period.  These progress payments are not revenue to the shipbuilders, but rather a source of financing for the ship’s construction.  Profits or losses on the ship contract are not reasonably known or realized until after a ship is delivered.

The Completed Ship Delivery Method of Accounting would eliminate the discriminatory penalties imposed on builders of naval ships, and apply similar tax laws to those applied to commercial shipbuilders under the tax code.

Senate Commerce, Science, and Transportation Committee Hearing Addresses Title XI Funding

At the Senate Commerce, Science and Transportation Committee hearing on May 16, 2000, Senator Ted Stevens (R-AK) vigorously questioned Clyde Hart, Jr., the Maritime Administrator, about the Title XI Ship Loan Guarantee Program.

Senator Stevens emphasized that, “there is a Title XI backlog” of approximately 20 applications representing close to $ 4 billion dollars in ship construction.  The Senator proceeded to question Hart on the Administrations request of only $2 million to guarantee loans.  Mr. Hart stated that as of the first of the year there was $40 million in carryover funds but now the account is down to approximately $25 million.  Mr. Hart further stated that the administrations request would allow the agency to guarantee an additional $40 million in loan guarantees.  Well below the amount needed to guarantee the pending and expected applications in the next year for additional ship construction contracts.

Senator Stevens asked Administrator Hart to tell the committee how much is needed to keep up with Title XI obligations and why there was not a Title XI priority for Jones Act vessels over vessels that would be operated in foreign trade.

GAO Releases Report on Single-Hull Tankers Under the Oil Pollution Act of 1990

A GAO report requested by Congressmen Rodney Frelinghuysen (R-NJ) and Frank LoBiondo (R-NJ) examined the extent owners and operators of single-hull oil tankers have extended or received waivers to the phase out date under The Oil Pollution Act of 1990 (OPA 90), and their the plans for replacement of their remaining single-hull vessels.

The GAO reported that 17 owners/operators have obtained waivers or workarounds to extend the operational lives of single-hull tankers beyond the phase-out schedule of OPA 90.  Workarounds include re-measuring the weight of the tankers and reconfiguring the tankers to accommodate "centerline loading," which converts internal side tanks into ballast tanks under the theory that this will create faux "double sided" tankers that should qualify them for a later phase-out date.

In an effort to determine the future replacement plans for building or ordering new double-hull tankers, GAO contacted 22 companies that own U.S.-flagged vessels certified to carry oil cargo and determined that most owners of U.S.-built and registered tankers are not making extensive plans to replace single-hull ships.  The GAO stated, “most owners are adopting a ‘wait and see’ approach to replacing vessels.”  Primarily due to the cost involved in replacing the single-hull vessels and the long phase-out schedule.

The GAO report recommends that the Department of Transportation regularly assess the progress being made to replace single-hull vessels with double-hull vessels, and report the results of these assessments to the relevant House and Senate committees of jurisdiction.

Double-hull vessels are environmentally safer because their inner hull helps protect against oil spills if the outer hull is punctured.  Currently, the U.S.-built oil transportation fleet is made up of 194 vessels – 144 single-hull and 50 double-hull.