American Shipbuilding Association

FY 2007 Appropriations Update

The House of Representatives has passed, and the Senate Appropriations Committee has completed work on their respective versions of the FY 2007 Defense, Transportation, and Homeland Security Appropriations Bills. The legislation now heads for conference to resolve differences between the House and Senate versions of each Bill, with final versions expected later this year. Following is a summary of the major shipbuilding programs contained in each bill, with focus on the Senate bills which were reported out of Committee prior to the August recess.

House and Senate Each Approve Funding for Six Naval Ships

The Senate version of the FY 2007 Defense Appropriations Bill approves $10.6 billion for the Navy’s shipbuilding and conversion account, including over $8 billion for six naval ships. Specifically, the Senate Bill fully funds the Administration’s request for two DDG-1000’s; one Virginia-class submarine; one LHA-R amphibious assault ship; and approves the advance procurement requests for the CVN-21, the next generation aircraft carrier, and the LPD-17 amphibious transport dock ship. The Senate Appropriations Committee (SAC) also added $117 million for one T-AGS Oceanographic Survey Ship. The SAC approved the Administration’s request for the legislative authority to split fund the construction of two lead DDG-1000 Zumwalt-class destroyers at two surface combatant shipyards over FY 2007 and 2008. The House of Representatives denied this request in its Defense Appropriations Bill. Though the SAC acted in support of the Navy’s plan to simultaneously construct two lead ships, the SAC cautioned the Navy “that this a unique acquisition strategy and should not be used as a precedent for incrementally funding any future DDG-1000 or any other shipbuilding program.”

Two major Navy programs were the focus of cuts, with the SAC cutting $455 million from the Administration’s request for one T-AKE defense auxiliary ship, and cutting $220 million from the littoral combat ship (LCS) program, reducing procurement from two ships to one. In the Committee Report accompanying the bill, the SAC justified its decision to cut funding for the T-AKE by citing that “the Navy has yet to commence construction on the five previously appropriated ships” and $2.4 billion previously appropriated funds for the Program have not been expended. The report states that providing funding for a new ship is premature until construction progress is made on the ships that have already been funded. Regarding the cuts to LCS, the SAC expressed concern that the unit cost estimates for LCS provided by the Navy in previous years to accelerate procurement of LCS did not factor in contract change orders, planning and engineering services, and other related costs in the original ship construction contract. Combined with cost overruns on the ships already under construction, the SAC believes that the “affordability appeal of LCS” is being jeopardized. In response, the FY 2007 budget request of $841 million for two ships was deemed insufficient. Consequently, $220 million was cut from the Program, providing funding for only one ship.

The House bill, passed on June 20th, provides $8.9 billion for six ships. Fully funding all major shipbuilding programs requested by the Navy, including an increase for LCS, the House did cut $141.4 million for prior year shipbuilding programs. The House did not provide funding for a T-AGS, which was not included in the Administration’s budget request.

Title XI Revitalized by Senate

The Senate Appropriations Committee provided a much needed boost for commercial shipbuilding in its FY 2007 Bill by increasing the Maritime Administration’s budget by $30 million for the Title XI Ship Loan Guarantee Program. The House of Representatives, which passed its bill on June 14th, included no funds for Title XI Loan Guarantees.

In April of this year, Senators Trent Lott (R-MS), Mary Landrieu (D-LA), Daniel Akaka (D-HI), George Allen (R-VA), Barbara Boxer (D-CA), Lincoln Chafee (R-RI), Susan Collins (R-ME), Richard Durbin (D-IL), Daniel Inouye (D-HI), John Kerry (D-MA), Barbara Mikulski (D-MD), Jack Reed (D-RI), Rick Santorum (R-PA), Paul Sarbanes (D-MD), Olympia Snowe (R-ME), Arlen Specter (R-PA), Ted Stevens (R-AK), David Vitter (R-LA), and Ron Wyden (D-OR), sent a letter to Senators Kit Bond (R-MO) and Patty Murray (D-WA), the Chairman and Ranking Member of the Transportation Appropriations Subcommittee, stressing the importance of appropriating $30 million for Title XI in FY 2007. The Senate’s inclusion of $30 million for Title XI is vital for commercial shipbuilding. Title XI provides small and medium sized ship owners with a federal guarantee of their commercial bank loans for the construction of commercial ships in the United States. With the exception of a special projects appropriation in last year’s Highway Bill, the Title XI Program has not received funding for new loan guarantees since $25 million was appropriated in the FY 2003 Emergency Supplemental Appropriations Bill. Without adequate money for loan guarantees, many small and medium-size ship operating companies will not be able to secure financing at reasonable terms and conditions to modernize and expand their fleets.

Also contained in the House and Senate versions of the Transportation Appropriations Bill is approval of the Administration’s rescission of $74 million for the National Defense Tank Vessel Construction Program. This program was established in the FY 2004 Defense Authorization Bill to provide a subsidy for the construction of up to five privately owned tank vessels that would be made available to DOD in times of war or national emergency. The Administration opposes the Program and has sought to have the funds rescinded for the past two years.

Coast Guard Deepwater Funding Heads to Conference

The House and Senate are heading to conference on the FY 2007 Homeland Security Appropriation Bills, which includes funding for the Coast Guard’s Deepwater Program. Deepwater is the Fleet recapitalization plan to replace aging Coast Guard assets with 21st Century ships and aircraft. The Administration’s budget request for FY 2007 requested $934 million for Deepwater, including $499 million for surface ships.

In legislation passed on June 6th, the House approved only $893 million for Deepwater, with surface ships facing the bulk of the budget cuts. Specifically, the House cut $42 million from the budget request for the Fast Response Cutter (FRC), and rescinded $79 million in un-obligated funds from prior year appropriations. The House cited concerns that the FRC has experienced too many delays in procurement and that continued funding is premature until the Program is back on schedule. The House, expressing the need for additional patrol boats, added $10 million for replacement vessels, in addition to re-programming prior year FRC funds for the acquisition of patrol boats.

Completed on July 13th, the Senate version of the Homeland Security Appropriations Bill, while cutting $20 million from the President’s total Deepwater budget request, fully funded the requested amounts for surface ships. Addressing the delays in FRC, the Senate responded by fully funding the budget request, but directed that the $42 million be used to develop and fund the preliminary ship and contract designs. The Senate also mirrored House action by reprogramming $79 million in prior year appropriations for FRC, directing those funds for the purchase of more patrol boats. The Senate cut $20 million in prior year’s appropriations for the Offshore Patrol Cutter (OPC), leaving $102 million in the account for the continued design and development of OPC.

INDUSTRY NEWS

Lasercut Becomes ASA Partner

Lasercut, Inc., located in Branford, Connecticut has joined the American Shipbuilding Association. Lasercut is a leading designer and manufacturer of die making and metal cutting technology and tools.

Same Address, New Look

The American Shipbuilding Association has redesigned its website. The new site provides individual profiles of the ASA Shipyards and Partner companies, easier access to industry news and press releases, and notice of ASA events, such as our Sea Power Forums. Please visit the new website at www.americanshipbuilding.com.

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Well Said!

"Sometimes I think the nation forgets, perhaps, what caliber of citizens work in these shipyards for the country's security. They are all great Americans, great patriots…”

Philip Teel
President, Northrop Grumman Ship Systems
Christening of the USS Green Bay (LPD 20)
July 15, 2006