House Armed Services Committee
Subcommittee Chairman Taylor's opening statement--March 15, 2007
"The Federal Ship Construction Loan Guarantee Program, more commonly known as the Title XI Loan Program, was originally authorized in the Merchant Marine Act of 1936. The program provides for a full-faith and credit loan guarantee for mortgages incurred in the construction or reconstruction of vessels in American shipyards. It allows long-term financing and mortgage terms that may not otherwise be available to ship-owners. The current rules for the Title XI program authorize guarantees for up to 87 ½ percent of the mortgage for a new or reconditioned vessel. Shipyards can also use the program to fund modernization projects.
"While there have been high-profile defaults in the past, the program has resulted in a significantly greater number of successes. The current Jones Act fleet is comprised predominantly of vessels constructed with Title XI loan guarantees, loans that were repaid on time with zero liability to the federal government.
"The Title XI program complements current United States policy to provide for a healthy Merchant Marine fleet. While the Merchant Marine fleet is used for coastwise and international trade, it also fulfills a key national security role. In the event of a national emergency, the Department of Defense can mobilize the fleet for its use. In order to guarantee readiness, Title XI funds are used to maintain a robust and modern shipyard infrastructure to build, recondition, and maintain Merchant Marine vessels.
"In addition to supporting U.S. national security, Title XI loans also present an opportunity for our nation to revitalize maritime highways. If this country maintained a fleet of roll-on/roll-off ships and short sea-shipping container vessels, we could remove a significant amount of truck traffic from our overcrowded East Coast highways. The same is true of the Gulf Coast and the entire Pacific Seaboard. Sea-shipping is more economical and significantly more environmentally friendly than overland shipping by truck.
"I am convinced there is a market for investors interested in owning these ships, and I am convinced the Title XI program would encourage the construction of these ships. With more commercial work and a greater ability to distribute overhead charges across various projects, the economic benefit to our shipyards would be tremendous. At the end of the day, Title XI loans to our Nation's shipyards could potentially save millions of dollars in construction of warships for the Navy.
"Given the beneficial applications of the program, I am disappointed that again this year the Administration failed to request funding for Title XI loan guarantees. I am particularly concerned by Administrator Connaughton's written testimony, which characterizes the Title XI program as a corporate subsidy and recommends that prospective ship-owners finance their ships in the world credit markets. While this may be possible for ship-owners with significant financial resources, it is hardly practical for small to medium-sized ship-owners who would garner more favorable terms for repayment with the Title XI loan guarantee program.
"I am concerned that the cancellation of the Title XI program, or placing restrictions on the program, may have significant detrimental effects on the future Merchant Marine fleet. It is essential for the future security of this nation that we maintain a strong shipbuilding industrial base and a robust U.S.-flagged and U.S.-crewed Merchant Marine. The Administration's position on the Title XI loan guarantee program puts that industry in jeopardy. By eliminating these funds, the Administration leaves this nation open to a complete collapse of our Jones Act fleet and compromises our future ability to mobilize the Merchant Marine for national emergencies.
"Today's hearing will focus on ways to revitalize this important program and help re-establish American commercial shipbuilding."
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