[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]





                       CONTINUING EXAMINATION OF
               U.S.-FLAGGED VESSELS IN U.S. FOREIGN TRADE

=======================================================================

                               (111-139)

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                COAST GUARD AND MARITIME TRANSPORTATION

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                           September 29, 2010

                               __________


                       Printed for the use of the
             Committee on Transportation and Infrastructure




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             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                 JAMES L. OBERSTAR, Minnesota, Chairman

NICK J. RAHALL, II, West Virginia,   JOHN L. MICA, Florida
Vice Chair                           DON YOUNG, Alaska
PETER A. DeFAZIO, Oregon             THOMAS E. PETRI, Wisconsin
JERRY F. COSTELLO, Illinois          HOWARD COBLE, North Carolina
ELEANOR HOLMES NORTON, District of   JOHN J. DUNCAN, Jr., Tennessee
Columbia                             VERNON J. EHLERS, Michigan
JERROLD NADLER, New York             FRANK A. LoBIONDO, New Jersey
CORRINE BROWN, Florida               JERRY MORAN, Kansas
BOB FILNER, California               GARY G. MILLER, California
EDDIE BERNICE JOHNSON, Texas         HENRY E. BROWN, Jr., South 
GENE TAYLOR, Mississippi             Carolina
ELIJAH E. CUMMINGS, Maryland         TIMOTHY V. JOHNSON, Illinois
LEONARD L. BOSWELL, Iowa             TODD RUSSELL PLATTS, Pennsylvania
TIM HOLDEN, Pennsylvania             SAM GRAVES, Missouri
BRIAN BAIRD, Washington              BILL SHUSTER, Pennsylvania
RICK LARSEN, Washington              JOHN BOOZMAN, Arkansas
MICHAEL E. CAPUANO, Massachusetts    SHELLEY MOORE CAPITO, West 
TIMOTHY H. BISHOP, New York          Virginia
MICHAEL H. MICHAUD, Maine            JIM GERLACH, Pennsylvania
RUSS CARNAHAN, Missouri              MARIO DIAZ-BALART, Florida
GRACE F. NAPOLITANO, California      CHARLES W. DENT, Pennsylvania
DANIEL LIPINSKI, Illinois            CONNIE MACK, Florida
MAZIE K. HIRONO, Hawaii              LYNN A WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania          JEAN SCHMIDT, Ohio
TIMOTHY J. WALZ, Minnesota           CANDICE S. MILLER, Michigan
HEATH SHULER, North Carolina         MARY FALLIN, Oklahoma
MICHAEL A. ARCURI, New York          VERN BUCHANAN, Florida
HARRY E. MITCHELL, Arizona           BRETT GUTHRIE, Kentucky
CHRISTOPHER P. CARNEY, Pennsylvania  ANH ``JOSEPH'' CAO, Louisiana
JOHN J. HALL, New York               AARON SCHOCK, Illinois
STEVE KAGEN, Wisconsin               PETE OLSON, Texas
STEVE COHEN, Tennessee               TOM GRAVES, Georgia
LAURA A. RICHARDSON, California
ALBIO SIRES, New Jersey
DONNA F. EDWARDS, Maryland
SOLOMON P. ORTIZ, Texas
PHIL HARE, Illinois
JOHN A. BOCCIERI, Ohio
MARK H. SCHAUER, Michigan
BETSY MARKEY, Colorado
MICHAEL E. McMAHON, New York
THOMAS S. P. PERRIELLO, Virginia
DINA TITUS, Nevada
HARRY TEAGUE, New Mexico
JOHN GARAMENDI, California
HANK JOHNSON, Georgia

                                  (ii)




        SUBCOMMITTEE ON COAST GUARD AND MARITIME TRANSPORTATION

                 ELIJAH E. CUMMINGS, Maryland, Chairman

CORRINE BROWN, Florida               FRANK A. LoBIONDO, New Jersey
RICK LARSEN, Washington              DON YOUNG, Alaska
GENE TAYLOR, Mississippi             HOWARD COBLE, North Carolina
BRIAN BAIRD, Washington              VERNON J. EHLERS, Michigan
TIMOTHY H. BISHOP, New York          TODD RUSSELL PLATTS, Pennsylvania
STEVE KAGEN, Wisconsin               PETE OLSON, Texas
MICHAEL E. McMAHON, New York, Vice 
Chair
LAURA A. RICHARDSON, California
JAMES L. OBERSTAR, Minnesota
  (Ex Officio)

                                 (iii)










                                CONTENTS

                                                                   Page

Summary of Subject Matter........................................    vi

                               TESTIMONY

Matsuda, Hon. David, Administrator, U.S. Maritime Administration.     5

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

Matsuda, Hon. David..............................................    22

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   HEARING ON CONTINUING EXAMINATION OF U.S.-FLAGGED VESSELS IN U.S. 
                             FOREIGN TRADE

                              ----------                              


                     Wednesday, September 29, 2010

                  House of Representatives,
          Subcommittee on Coast Guard and Maritime 
                                    Transportation,
            Committee on Transportation and Infrastructure,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 4:13 p.m. in 
room 2167, Rayburn House Office Building, the Honorable Elijah 
E. Cummings [Chairman of the Subcommittee] presiding.
    Mr. Cummings. The Subcommittee will come to order.
    We are sorry. Things out of our control. Somebody just said 
to me on the elevator that these votes get in the way. I 
reminded him that is why we are here.
    In March, the Subcommittee convened to examine the 
availability of shipping services to carry U.S. exports. In 
July, the Subcommittee convened to examine specifically the 
state of U.S.-flag vessels in foreign trade.
    I believe that the Subcommittee has gained through these 
hearings a good overview of the state of the U.S. merchant 
marine and of the carrier services available to shippers. 
According to data provided by MARAD and compiled in part by 
contractors engaged by MARAD to assess the U.S. maritime 
transportation system, the U.S.-flag fleet, which was comprised 
of 94 vessels as of March of this year, is carrying less than 2 
percent of United States foreign trade.
    During our last hearing, witnesses from the shipping lines 
that operate under the U.S. flag, as well as from U.S. maritime 
labor, presented specific details regarding the challenges they 
face operating under our flag, particularly the economic 
challenges that make such operations more costly than 
operations under so-called flags of convenience.
    We also heard how critical the Maritime Security Program 
and cargo preference requirements to making operation under the 
U.S. flag viable. For example, Mr. Phil Shapiro, President of 
Liberty Maritime Corporation, testified that, ``Without the 
cargo preference programs, cargoes being added to that $2.9 
million, there is no way that anyone can sail a ship and make 
any money'' under the United States flag.
    Critically, we also examined the fact that the decline in 
the U.S.-flag fleet in the foreign trade has occurred over the 
course of decades. As I mentioned in my opening statement 
during the July hearing, a study issued in 1981 by the 
Comptroller General documented the fact that the total 
percentage of U.S. commercial cargo carried in U.S.-flag 
vessels had declined from 10 percent in 1959 to just 4 percent 
20 years later. From 1979 to the present, the total percentage 
of U.S. cargoes carried on U.S. vessels has only continued, 
sadly, to fall.
    And as we detailed in our March hearing, it is our Nation's 
level of imports, rather than our level of exports, that 
determines the overall level of ocean freight services 
available to U.S. shippers.
    I frankly have no doubt that our inability to carry even a 
small portion of our U.S. foreign trade commercial cargoes on 
U.S.-flag vessels represents an economic and even a security 
risk to our Nation.
    And this is where MARAD comes into the picture. The U.S. 
Maritime Administration, MARAD, is the sole Federal agency 
charged with improving and strengthening the United States 
maritime transportation system to meet economic, environmental 
and security needs of the Nation.
    Mr. David Matsuda, the Administrator of the Maritime 
Administration, appeared before the Subcommittee during our 
July hearing. However, there were, to be frank, a number of 
questions that Mr. Matsuda appeared totally unprepared to 
answer at that time, and we trust that he is prepared today, 
although I must admit when I read your testimony, I am not 
convinced of that. So hopefully that gap will be filled between 
now and the time you answer the questions here today.
    At that time, I promised that I and Ranking Member LoBiondo 
would send a letter to the Administrator outlining the specific 
issues we wanted to explore further, and that we would 
reconvene the Subcommittee to hear Administrator Matsuda's 
answers to these questions. As promised, Ranking Member 
LoBiondo and I sent out a letter to the Administrator, Mr. 
Matsuda, in July. We received the Administrator's response only 
yesterday.
    I want to thank Mr. LoBiondo for his cooperation and the 
bipartisan spirit in which we both joined to make that happen.
    Today, we are convening the Subcommittee to hear further 
from Mr. Matsuda. One of the most important issues that we are 
looking to address is whether the cargo preference laws apply 
to cargoes financed with loan guarantees created by the Energy 
Policy Act and administered by the Department of Energy. It 
makes zero sense for U.S. loan guarantees to support purchases 
from foreign countries that would then be carried on foreign-
flag ships. That is not a scenario that would stimulate our 
economy in any way, and it certainly does not provide for U.S. 
jobs.
    For that reason, the DOT must take strong and decisive 
steps to ensure that the cargo preference requirements set 
forth in the Title 46 of the U.S. Code are vigorously enforced, 
and I would hope that Mr. Matsuda would tell us how they are 
being vigorously enforced now.
    In our view, Congress was quite clear when we passed the 
National Defense Authorization Act of 2009 that the DOT is to 
be the sole decider, to use President Bush's words, on 
questions relating to the application of cargo preference laws. 
We are concerned that the DOT not relinquish that authority to 
any other entity.
    I am also anxious to hear how MARAD defines the causes and 
consequences of the challenges facing our U.S.-flag fleet, as 
well as the policies that MARAD believes should be pursued to 
maintain and grow that fleet. Again, we did not get decent 
answers the last time.
    For example, proposals have been raised to extend the 
foreign earned income tax credit to U.S. mariners, repeal the 
duty on foreign ship repairs, and extend eligibility for the 
tonnage tax. We are eager to know if MARAD believes that any 
such measures would be effective mechanisms to support the 
growth of the United States-flag fleet.
    Our U.S.-flag fleet is facing significant challenges and it 
is MARAD's job as the entity charged with promoting the 
development of our flag fleet and our maritime transportation 
network to lead the response to these challenges.
    Now, in just a moment, I am going to recognize our Ranking 
Member, but I ask his patience for just a few minutes as there 
are two other issues I want to briefly discuss.
    Those of you who were watching the Floor last night saw 
that the Coast Guard Authorization Act passed the House. This 
bill is a product of four years of diligent work and I commend 
Chairman Oberstar, Ranking Member Mica, and of course our 
Subcommittee Ranking Member, Mr. LoBiondo, for all of their 
work on this legislation. I also commend Chairman Thompson and 
Ranking Member King on the Homeland Security Committee and our 
counterparts in the Senate for their commitment to getting this 
bill done. Development of this legislation has truly been a 
bipartisan team effort.
    The legislation authorizes more than $10 billion for the 
Coast Guard in fiscal year 2011 and increases the authorized 
end strength of the service by 1,500 members, to 47,000 
personnel.
    Further, the legislation strengthens the service's 
acquisition management processes, something that has been a 
critical concern to me and to the Subcommittee. It also 
recognizes the service's senior leadership and strengthens the 
Marine Safety Program and the service's homeland security 
missions.
    Further, the bill will help save the lives of those working 
in our most dangerous industry, commercial fishing, by 
establishing safety, equipment and construction standards for 
fishing vessels that work in the most dangerous fisheries.
    This authorization is long, long overdue, and the safety 
reforms in the bill are long over due. And I hope that the 
Senate will pass it before leaving for recess.
    Now, ladies and gentlemen, if you were watching the Floor 
last night, you also heard that our Subcommittee's Staff 
Director, John Cullather is retiring. And it was with many 
mixed emotions that I heard this news. On the other hand, I am 
so excited that John has a chance to do new things and pursue 
new directions.
    On the other hand, John is one of the true professionals on 
the Hill and he will be sorely missed. His knowledge of 
maritime issues and of the history and missions of the Coast 
Guard is truly unparalleled, as is his knowledge of House 
procedures and his passion of service to those who work, travel 
and recreate on our Nation's waterways.
    John is also an exceptional man, a profoundly generous and 
caring individual who has the respect of every single person on 
the Transportation Committee and of everyone throughout our 
maritime industry. Everywhere I go, everyone I talk to tells me 
how much they love working with John and how dedicated he is to 
the success of this industry.
    And John, on behalf of the entire Subcommittee, I express 
our deepest appreciation for your 30 years of service to the 
Congress of the United States of America. I also say to you 
that I know that there have been many times when you worked 
late at night, weekend; when you, in the words of the great 
theologian Zwingli, said, ``When you are unnoticed, 
unapplauded, unappreciated and unseen,'' but yet still you gave 
your very, very best to make this industry the best that it 
could be.
    And so we take a moment on behalf of a very, very grateful 
Congress and a very, very grateful people of these great United 
States of America to thank you for all that you have done. May 
God bless you and may he bless your journey.
    Ladies and gentlemen, now I yield to the distinguished 
Ranking Member of our Committee, Mr. LoBiondo.
    Mr. LoBiondo. Thank you very much, Mr. Chairman.
    I would like to join in with you in thanking John for his 
years of service and dedication to this Committee and wish you 
all the best of luck, John. Thank you for all that you have 
done.
    Mr. Chairman, I want to thank you for holding the hearing 
today. As you had indicated, this is a follow up to a hearing 
earlier in the month of July on the state of the U.S.-flag 
merchant fleet. At that hearing, we had several important 
questions that were unanswered, so we asked the Administrator 
to come back today. I appreciate the Chairman's dedication on 
this important issue.
    The United States has a long and proud maritime history. 
However, since World War II, the number of ocean-going vessels 
operating under American flag has suffered a long, slow and 
very steady decline. According to the Maritime Administration, 
there were 94 U.S.-flag vessels operated in the foreign trade 
at the beginning of this year, less than 1 percent of the world 
fleet. Nearly all maritime commerce at U.S. ports arrives or 
departs on board a foreign-flag vessel.
    Restoring the U.S.-flag fleet is critical to our economic 
and national security. We need a robust U.S. fleet to ensure we 
can move troops and supplies overseas, provide opportunities 
for U.S. merchant mariners, and preserve our critical shipyard 
industrial base.
    I am very concerned with the continued contraction of this 
vital national resource, and I hope the Administrator can 
recommend some concrete steps that we can take to help 
revitalize the American-flag fleet.
    I look forward to working with you, Mr. Chairman and 
Administrator, on these important issues, and I want to 
apologize for probably not being able to stay. When we got 
pushed back, I got another meeting that I can't miss.
    Thank you.
    Mr. Cummings. Thank you very much.
    Mr. Matsuda?

   TESTIMONY OF DAVID MATSUDA, ADMINISTRATOR, U.S. MARITIME 
                         ADMINISTRATION

    Mr. Matsuda. Good afternoon, Mr. Chairman, Ranking Member 
LoBiondo. With the permission of the Chairman, I would like to 
offer my complete statement for the record.
    Mr. Cummings. So ordered.
    Mr. Matsuda. And also with the permission of the Chairman, 
I would like to offer our congratulations to Mr. Cullather as 
well. I have had the opportunity to work with him over the 
years and we wish him the best.
    Mr. Cummings. Thank you.
    Mr. Matsuda. Thank you for the opportunity to testify 
before you again on the state of the U.S. merchant fleet in 
foreign commerce. On July 20, we met to discuss the challenges 
of U.S.-registry ships operating internationally. Today, I will 
elaborate on these challenges of operating under the U.S. flag, 
ways we are helping to level the playing field, and goals we 
have set for the Maritime Administration.
    We know it costs more to operate a U.S.-flag ship versus 
registering it under a foreign flag, including so-called open 
registries. This difference can be almost three times as much, 
depending on the trade, the type of ship, and the company. 
These higher costs are due to a number of factors, including 
wage costs, vessel maintenance and repair costs, and insurance 
costs.
    Historical and anecdotal data show wage costs are one of 
the biggest differences, being much lower in many other 
countries. In America, companies hiring U.S. mariners pay the 
costs of medical, pension and other benefits, as well as costs 
for training and professional certification.
    Foreign countries often provide government-subsidized 
health care and other benefits. Some countries also exempt 
mariner wages from taxes, while the U.S. does not.
    Addressing differences such as these and others named by 
the Chairman can help level the playing field for U.S.-flag 
companies.
    We at the Maritime Administration realize the importance of 
having the correct and accurate cost information. In our 
discussions with the Subcommittee, we felt it critically 
important to do a comprehensive evaluation of the differential 
between operating under the U.S. flag versus foreign flag. 
Using available resources, we are engaging an independent 
consulting firm to update operating cost data for major cost 
categories. This first step will serve as the foundation for 
working to level the playing field going forward.
    Turning to ways in which our agency helps close the cost 
gap between U.S. and foreign-flag operations, we use every tool 
at our disposal. This includes the Maritime Security Program. 
As we discussed in the July hearing, our Maritime Security 
Program provides the military with assured access to 60 
commercial U.S.-flag ships and related global intermodal 
transportation systems, in addition to a pool of trained U.S. 
mariners.
    This is all in exchange for an annual cost of around $3 
million per ship. To participate in this program, each ship 
must operate for at least 180 days in the international trade 
of the United States. We support reauthorization of this 
important program, which is currently set to expire in the year 
2015. The Maritime Administration has already made significant 
progress this year in working with stakeholders and our Federal 
partners to develop a proposal. Another way that we attract 
U.S.-flag vessels is through the Government's Cargo Preference 
Program. Through this program, U.S.-flag carriers are provided 
with premium opportunities to compete for designated cargo 
financed by the Federal Government. The Maritime Administration 
takes it role very seriously in constantly identifying cargo 
that would otherwise have been lost to foreign carriers.
    One example cited in my written statement details how we 
worked with the Defense Department in issuing a $380,000 
penalty. This was issued against a construction company in Guam 
that improperly used a foreign-flag service for a Federal 
contract.
    In sum, these programs help to retain and, even in tough 
economic times, attract ships to the U.S. registry. Without 
these programs, U.S.-flag ships in international trade would 
potentially scrap, sell or re-flag their ships to foreign 
registries.
    As we near the close of my first 100 days since being sworn 
in as Administrator, I can tell you that we have already 
accomplished a lot, and the Obama Administration's goals for 
this agency and this industry's future are ambitious. We must 
strengthen the merchant marine. We must expand it through 
programs such as America's Marine Highway, and we must help 
prepare the maritime industry for the future with an expanded 
Panama Canal, stronger global environmental standards, and a 
new generation of mariners produced by the U.S. Merchant Marine 
Academy in Kings Point, New York and other institutions.
    Our authority and resources provided by Congress drive our 
efforts to support the U.S.-flag fleet.
    At this time, I am pleased to answer any questions the 
Subcommittee may have.
    Mr. Cummings. Thank you very much, Mr. Matsuda.
    I want to follow up on an issue we discussed in the hearing 
back in July. At the time of that hearing, you said that MARAD 
was examining whether cargo preference laws apply to cargoes 
financed with loan guarantees created by the Energy Policy Act 
and administered by the Department of Energy. You indicated 
back then that DOT's General Counsel was also examining this 
issue.
    What is the status of this examination? And do cargo 
preference laws apply to cargo financed with loan guarantees 
created by the Energy Policy Act or not?
    Mr. Matsuda. Well, sir, you did ask that question. I recall 
answering as you said. We are working with the Secretary's 
General Counsel at his request, and also with the Department of 
Energy to formulate the Administration's position on this. This 
is something that is of high priority. We have progressed to 
the point where the Department of Energy has since changed 
their position and has noted on their website even that this 
issue is unsettled. And we are hoping to achieve a consistent 
application of the law.
    This is a new area, a non-traditional application for the 
cargo preference laws. And so it is something that is taking a 
bit of an education and we know that we will get there.
    Mr. Cummings. Well, let me make sure I understand this. 
This is very frustrating to me because I think that a first 
year law student ought to be able to figure this one out, to be 
frank with you. And let me tell you why I say that.
    It just sort of upsets me that I feel like either we have 
some people who are incompetent or we need to get somebody else 
to answer these questions. And let me just tell you why I say 
that.
    According to 46 U.S.C. 55305, and I am sure you are 
familiar with this: ``When the United States Government 
procures, contracts for, or otherwise obtains for its own 
account any equipment, materials, or provides financing in any 
way with Federal funds for the account of any persons, unless 
otherwise exempted, within or without the United States, the 
appropriate agency shall take steps necessary and practicable 
to ensure that at least 50 percent of the gross tonnage of the 
equipment and materials which may be transported on ocean 
vessels is transported on privately owned commercial vessels of 
the United States to the extent those vessels are available at 
fair and reasonable rates for commercial vessels of the United 
States, in a manner that will ensure a fair and reasonable 
participation of commercial vessels of the United States in 
those cargoes by geographic areas.''
    Further, 46 U.S.C. 55305(d) states that ``each department 
or agency that has responsibility for a program under this 
section shall administer that program under regulations and 
guidance issued by the Secretary of Transportation which shall 
have the sole, sole, sole responsibility for determining if a 
program is subject to the requirements of 46 U.S.C. 55305.''
    Now, given this clear statutory language placing with the 
Department of Transportation the final authority to make 
determinations regarding cargo preference, why hasn't DOT 
determined whether cargoes financed by the loan guarantees 
administered by the Department of Energy and authorized by the 
Energy Policy Act are subject to the cargo preference 
requirements laid out under 46 U.S.C. 55305? Further, when will 
the Department make its determination?
    I have to tell you, this doesn't sound like super, super 
rocket scientist stuff. Go ahead.
    Mr. Matsuda. Sir, I wish I could tell you a date. This is 
something that the Administration is working on to develop its 
position. I can assure you it is getting high levels of 
attention within the Administration and we hope to have a 
resolution soon.
    I can tell you that last year, there was litigation 
involving the application of the cargo preference laws. The 
Administration did come together with a number of agencies and 
formulated a single position.
    Mr. Cummings. Was it a priority back there on July 20th?
    Mr. Matsuda. Absolutely.
    Mr. Cummings. And it remains a priority. So where are we 
now? August and now September, and going into October, and we 
cannot get an answer.
    You know what? We could be here three years from now going 
through this still ring around the rosy and not have a decision 
on this. Can you imagine that?
    Mr. Matsuda. No, sir, I cannot. I believe there will be a 
position. I think there are a number of factors that will lead 
to that. One I think is specifically your interest, the 
Congress' interest in having this settled. I know the industry 
wants this settled. We certainly want this settled. We believe 
a clear application of these laws needs to be achieved and we 
are confident we will get there.
    Mr. Cummings. Who do we need to go to to get an answer as 
to when they will resolve these issues? Obviously, you don't 
have the answer, so who can we go to? Who do we need to go to?
    Mr. Matsuda. At the end of the day, we do not speak for the 
Administration. If it is coming to a legal position as to how 
we interpret the law, only the Department of Justice can do 
that. We hope to not have to involve them, but we are working 
directly with the Energy Department to try and nail this down.
    Mr. Cummings. So you are telling me that the Justice 
Department has to make that decision? Is that what you just 
said?
    Mr. Matsuda. At the end of the day they would have the 
final say on how that would work.
    Mr. Cummings. Are you working with the Justice Department 
on this?
    Mr. Matsuda. No. No. We don't want to. We want to make sure 
that we arrive at a position that applies the law as intended 
and as it should work, but there is also the pressure that 
there are so many stakeholders involved here that the threat of 
litigation would mean there has to be a Federal position in 
court.
    Mr. Cummings. Is there doubt within the Department of 
Transportation, which again has sole authority, to determine 
when the cargo preference requirements of 46 U.S.C. 55305 apply 
to a cargo, that these requirements apply to cargoes financed 
with loan guarantees authorized by the Energy Policy Act?
    Mr. Matsuda. I can tell you there is no doubt within the 
Maritime Administration.
    Mr. Cummings. And what is the Maritime Administration's 
opinion?
    Mr. Matsuda. We believe it does apply.
    Mr. Cummings. And have you stated that to the powers that 
be, to the deciders?
    Mr. Matsuda. Absolutely. And we are working with, like I 
said, the Energy Department to make sure that they understand 
our position and that we can use that to develop a singular 
Administration position on this.
    Mr. Cummings. Is there a document that you have presented 
to them to assist them in their efforts? You have an opinion. 
Have you had occasion to lay out since July 20th or even before 
then specifically why you believe in what you just stated?
    Mr. Matsuda. If there is, I can get you any copies of any 
documents that you would like.
    Mr. Cummings. We would appreciate you doing that. OK?
    And by the way, is there someone else? We want to be 
effective and efficient, so is there anybody else that you 
think I might want to call here so that they might be able to 
give me a better answer? I am not trying to be smart. I am just 
curious. I am trying to get to the bottom line because you have 
an opinion, but you just told me basically your opinion 
apparently is not----
    Mr. Matsuda. Well, it is a team effort and we are working 
with our colleagues to make sure we get this. I can assure you 
it has very high levels of attention both at our Department and 
the Department of Energy.
    Mr. Cummings. And how soon? Can you give me any idea? Do 
you think it will be this year, next year?
    Mr. Matsuda. I would hope this year we arrive at a 
position.
    Mr. Cummings. Before the end of the year?
    Mr. Matsuda. That is my hope.
    Mr. Cummings. Well, what I am going to do is, I know we are 
going to have a lame duck session. We will bring you back and 
maybe you can answer that question then. OK?
    If there is anything that you need us to do to get to folks 
and urge an answer to the question, we would like to do that. 
And I guess the reason why I am raising this issue, and I am on 
top of this is because it just goes to the very essence of my 
opening statement.
    You have a lot of people who are just hanging on and they 
are hanging on by their fingernails. And they are trying to 
employ people. They are trying to make decisions and it is 
almost impossible for them to make decisions. And then they 
look to you and they expect an answer one way or another. I 
mean, even if you said, look, you know, no way, at least there 
is an answer. But you have already told me that you have an 
answer and that answer is that it does apply and that there are 
efforts to try to resolve the matter.
    And so I take you at your word and we will be bringing you 
back so you can answer that question and probably a few others 
of these if we can't get answers today.
    If there is doubt, for what reasons do you think there is 
doubt, by the way? In these negotiations that you are working 
on, what is the doubt?
    Mr. Matsuda. My sense is that it is strictly unfamiliarity 
with the recent changes to the law and the program.
    Mr. Cummings. Mr. Matsuda, you indicated in your testimony 
that MARAD is undertaking a study to survey a sample group of 
carriers and strengthen our analytical assessment of the U.S.-
flag fleet. I am surprised that MARAD does not diligently 
maintain such data, but I am glad to hear that a study is being 
undertaken.
    Will this study provide comprehensive data on the cost 
differential of operating under the U.S. flag compared to 
operating under a flag of convenience? And will it quantify the 
impact that different regulatory structures have on the cost 
differentials? And further, when will the study be done? And 
please give me a specific date.
    You said I think something about six months from the time 
that the study was commissioned. Has it been commissioned yet?
    Mr. Matsuda. If not today, then tomorrow, yes, it will be.
    Mr. Cummings. OK. Let's put a pin in that right there. What 
does it take to commission it? What do you have to do?
    Mr. Matsuda. Well, sir, as you know, the Maritime 
Administration has not ever been provided funds to do a study 
like this. This is something we found within our budget the 
ability to do. I think I share your surprise at the fact that 
there were no studies on record. Maritime Administration has 
never done one of these before. So we are, working with you and 
your staff, pleased to undertake this effort.
    To get it commissioned, we are simply hiring an outside 
consultant. It is something that we had heard would be 
effective in getting this information quickly. The task would 
be for a six month report back to us, and we hope that they can 
do that. And we are finalizing the details on that contract 
right now.
    Mr. Cummings. So when you answered me a moment ago and said 
either today or tomorrow, you meant that literally. Is that 
right?
    Mr. Matsuda. Literally, I am signing on the dotted line.
    Mr. Cummings. Was it your hope initially that you would be 
able to walk in here and say, Mr. Chairman, we have already got 
it commissioned, and it just didn't fall? I mean, you still had 
some negotiations to do? Is that an accurate statement?
    Mr. Matsuda. Oh, yes. I would have loved to have gotten 
this thing going yesterday, but we want to make sure that this 
study addresses the needs that this Subcommittee is interested 
in and that is getting the detailed information that is out 
there.
    Mr. Cummings. So you feel comfortable that when I call you 
tomorrow at 5:00 o'clock, you will be able to tell me, 
Congressman, we have commissioned a study. Is that right?
    Mr. Matsuda. Yes.
    Mr. Cummings. OK. I am going to call you at 5:00 o'clock.
    Mr. Matsuda. I appreciate that. I will tell my staff.
    Mr. Cummings. If you want me to do it earlier, I mean, if 
you need me to, I will wait until Friday, but no, I am serious. 
I am going to hold you to your word. What do you think? Five 
o'clock tomorrow?
    Mr. Matsuda. I think 5:00 o'clock tomorrow it will be done.
    Mr. Cummings. I see your staff behind you shaking their 
head yes. So all right, thank you very much.
    Mr. Matsuda. You bet.
    Mr. Cummings. Mr. Matsuda, I just want to clarify something 
here. MARAD indicated in March that there were 94 flag vessels 
in the foreign trade, and you have indicated in your testimony 
that there were 115 such vessels. Has the total number 
increased since March? And if so, why? Or what accounts for the 
different figures?
    Mr. Matsuda. I believe the 115 figure includes vessels that 
are not full-time or even half-time participating in the 
foreign trade, but they may be largely participating in the 
domestic trade and then once or twice a year they operate 
internationally. And these vessels, they come and go. Some 
years they take an international trip, some years they don't. I 
believe that is the difference between the two figures.
    Mr. Cummings. And would you tell us what trends do you 
project regarding the size of the U.S.-flag fleet in the 
foreign trade over the next five years? Have you thought about 
that?
    Mr. Matsuda. I have. And I have to tell you, I think it is 
dependent on the trade. If there is ability to participate in, 
for instance, transportation of wind energy components and 
projects, that might help bolster those movements. I know that 
for the carriage of defense cargoes, the draw-down in Iraq 
certainly will lead to a downturn in the amount of cargo there, 
and that has been keeping our fleets busy for a while.
    The Food Aid transportation, I think that is also something 
that we are keeping a close watch on. It also depends largely 
on the resources made available to USAID and the Department of 
Agriculture for those programs.
    But we are taking a look. That is part of the Maritime 
Administration's job is to understand these trends, how they 
will impact the fleet, and ultimately our ability to deliver 
what is needed to the military or for defense or humanitarian 
relief purposes.
    Mr. Cummings. As we discussed at the last hearing, we are 
eager to know the specific objectives MARAD is working to 
achieve. Can you please list MARAD's specific performance 
objectives and indicate the quantitative and qualitative 
metrics in place to track progress towards the achievement of 
those objectives?
    Mr. Matsuda. Yes, sir. I believe in the letter you spoke 
of, we responded and wrote back about both the number of ships 
currently engaged in the Maritime Security Program, and that is 
something we track. Also, the amount of cargo space and tonnage 
available to carry cargo for the military is part of those 
programs. That is something we track. We are continuing to make 
improvements to the fleet. The way the program works is that 
there are age limitations on the vessels. So just by the fact 
that they are constantly bringing in newer and newer tonnage, 
it is more efficient. It provides more cargo without actually 
having to add new ships to the program. So that is one of the 
primary ways we measure our ability to deliver performance to 
the military.
    The other one is the Cargo Preference Program, and we 
continue to track how the agencies that ship are meeting the 
law. That is something that we report on an annual basis.
    Mr. Cummings. Now, to put it simply, since World War II, 
the size of the United States-flag fleet engaged in 
international trade has been in a constant decline. The 
Subcommittee is particularly interested in knowing if MARAD has 
any objectives pertaining to increasing the size of the U.S.-
flag fleet or increasing the percentage of U.S. export and 
import trade carried on U.S.-flag vessels.
    Mr. Matsuda. Sir, I believe it is fair to say that the cost 
differential between the U.S.-flag and foreign-flag ships means 
that we have to have an economic incentive to bring ships under 
the U.S. flag. And without that, ships are going to go 
elsewhere. They are going to go to these open registries. Any 
kind of incentive we can offer them, right now, the biggest 
incentives are these two programs that we feature, and that is, 
again, Maritime Security and Cargo Preference.
    If we can offer them cargo financed by the Federal 
Government, for example, then that is one way we can make sure 
that they have the ability to compete and stay under the U.S. 
flag.
    Mr. Cummings. That is why we need to get these questions 
answered, right?
    Mr. Matsuda. Absolutely.
    Mr. Cummings. Based on what you just said, it seems to me 
that that goes to the essence of what you are doing, I mean, 
your job.
    Mr. Matsuda. Yes.
    Mr. Cummings. And it seems to me that as long as that 
question is not answered, is not addressed, it is kind of hard 
for us to--let's put it this way. You have an opinion and until 
that opinion is adopted by the powers that be, it seems that it 
would be very difficult for us to even achieve all the things 
you are talking about. Is that right?
    Mr. Matsuda. I agree. This is one component.
    Mr. Cummings. But it is a major part.
    Mr. Matsuda. The Cargo Preference Program is very important 
in terms of bringing, attracting folks to the U.S. flag.
    Mr. Cummings. I know you left the hearing before we had the 
shippers come up the last time, but they talked about how many 
of them would be almost out of business if it were not for 
these preferences. And I know that the President is very 
anxious to make sure that we get every possible job opportunity 
and every possible contract opportunity that we can to 
American-flag folks. And it just seems to me that, to borrow 
the President's own words, I am really questioning whether we 
have the urgency of now. And I am a big fan of the President's, 
but I am just wondering, if you Department moving with the 
urgency of now?
    Mr. Matsuda. I believe so, and I did review the testimony 
from the second panel, and watched the video of your questions 
and answers. And I can tell you, that was a small sampling of 
folks from the industry, but that represents largely the views 
that we have heard from the entire maritime industry, that 
these programs are important and they mean a lot. Without that 
economic incentive, these folks will take their ships and flag 
elsewhere and all the jobs that go along with them.
    Mr. Cummings. The Maritime Security Act of 2003 authorized 
an increase in funding for the Maritime Security Program from 
the present $174 million to $186 million in fiscal year 2012, 
and until the current program ends in 2015. What amount of 
funding is the Department of Transportation requesting for 
fiscal year 2012? Do you know?
    Mr. Matsuda. I can tell you the President will announce 
that probably in February as part of his budget.
    Mr. Cummings. And have you made a recommendation for an 
increase? Do they ask you your opinion?
    Mr. Matsuda. They do, and it is all part of the 
consultative process to develop the President's budget.
    Mr. Cummings. I know much of this is inside information and 
all. I got that. But I just want to know, and I am not going to 
ask you how much, but did you ask for an increase?
    Mr. Matsuda. Sir, we are working to develop that budget 
recommendation, but we certainly understand the importance of 
the question of whether it is funded at the fully authorized 
level or not. We understand that these things can impact the 
decisions of the shipping companies, the carriers, to know are 
they going to be able to make the investments in the fleets 
they need to serve under the U.S. flag in the long haul. These 
are really long-term questions that they need to know that the 
United States is committed to the economic incentives that we 
currently provide.
    Mr. Cummings. You indicated in your testimony that there 
are 12 MSP-eligible vessels that are documented in the U.S., 
but that are not receiving payments because the MSP program is 
fully subscribed. Do you believe that the MSP program should be 
expanded? If it isn't expanded, what might be done to encourage 
more operators to come under the U.S. flag?
    Mr. Matsuda. Well, that is a tricky question, and we are 
currently discussing that as part of the reauthorization 
proposal. As we mentioned, one requirement of the MSP program 
is that you have to operate 180 days in the foreign trade. If 
there is not enough cargo to go around, I don't know if it 
makes it worthwhile to add ships to the program.
    However, at the end of the day, this program helps serve 
the military and we want to make sure we are meeting their 
needs to be able to carry the Nation's military cargo.
    Mr. Cummings. One of the witnesses who testified in our 
earlier hearing stated that all but 11 MSP agreements are 
effectively controlled by foreign citizens. Is that the case? 
And if so, dose it pose any kind of a security risk to the 
United States do you think?
    Mr. Matsuda. No. In fact I think it helps in some cases, 
and that is because part of the MSP program and the VISA 
program obligates these companies, these parent companies to 
provide access to their worldwide global infrastructure. To get 
cargo right now into Afghanistan to fight the war there, we are 
using routes through countries that there is no way the 
military could go through if we had to do it ourselves. The 
bottom line is we rely on these international companies and 
their infrastructure worldwide to get cargo where we need it to 
go.
    Mr. Cummings. In your testimony, you wrote that ``there are 
ongoing discussions among government agencies and the carrier 
community about how greater efficiencies might be achieved in 
the delivery of U.S. Food Aid.'' You continue and you say, 
``Among the improvements that should be considered is the 
modernization of ocean transportation.''
    Are you familiar?
    Mr. Matsuda. Yes.
    Mr. Cummings. What exactly does that mean? And do you 
believe that U.S. Food Aid should continue to be shipped on 
U.S.-flag vessels? And what are the modernizations that are 
under consideration?
    Mr. Matsuda. Obviously, I do believe U.S. Food Aid should 
be shipped on U.S.-flag vessels, and that to the extent we can, 
we utilize these U.S.-flag ships. What is being talked about in 
the testimony was modernizing U.S.-flag ships, the more modern 
ships we have in the fleet, the more efficient they are to 
operate, and that could help brings costs down.
    The problem is that to get folks to commit and make the 
investments in new vessels, there needs to be a long-term 
incentive.
    Mr. Cummings. Mr. Taylor, did you have some questions?
    Mr. Taylor. If you don't mind, Mr. Chairman, and I 
apologize for some conflicts.
    Mr. Matsuda, I gave you some information. Soft pitch, I 
told you I was going to ask you about Title XI, what your 
agency is doing to get some ships built in America using the 
Title XI program. Previous Administrations started a credit 
council who in my opinion's sole purpose was to keep any ship 
from ever being funded under Title XI.
    I know you have not been on the job that long, but what 
steps are you taking to make use of the Title XI Loan Guarantee 
Program and get some ships built in this Country?
    Mr. Matsuda. Let me start with the Credit Council. I 
understand that really came about as a result of Inspector 
General investigations after a number of loan defaults over the 
years. And they believed that stronger mechanisms were 
necessary to make sure that these applications were being 
scrubbed and the outstanding loans were being monitored.
    I can tell you that over the last couple of years, the 
average time to get from application to an answer has been 
about 289 days per application.
    Mr. Taylor. I think my letter was over 400 days is what 
information that we had gathered. And Mr. Matsuda, that is a 
heck of a long time for anyone to wait, and quite frankly, in 
this business environment. The Title XI Program, when interest 
rates are low and credit is flowing easily, people don't need 
it. Right now is when people need it. And quite frankly, I 
think that you, given your background, have enough common sense 
to look through and say that has an opportunity to work; that 
will never work.
    Just by way of refresher, the Title XI Program was working 
really well until Cruise America, I believe, was going to build 
the two cruise ships down my way for the Hawaiian trade. My 
memory is a guy by the name of Zell owned that company and in 
the immediate aftermath of 9/11, when people were afraid to 
fly, when people were afraid to get on a cruise ship, if truth 
be known, I think he pulled the plug on that project way too 
soon.
    But then the Bush Administration followed up by instead of 
finishing the ships and making them available for things like 
Hurricane Katrina to put people up in, or things like the 
refugee crisis down in Guantanamo, again, to put our troops in, 
sold those ships for pennies on a dollar at a time when scrap 
prices were ridiculously low, and quite frankly it was the 
worst of all worlds.
    But that was a one-time event based on 9/11 with an 
Administration that never wanted that program to work. I would 
hope that you would be very aggressive in trying to find a way 
to make this program work. The shipyards need the work. People 
need the jobs and we need those ships as auxiliaries for our 
fleet should we ever have a major contingency.
    The second thing is, and we have spoken about this before, 
is an amendment to the CLEAR Act. The Chairman was good enough 
to insert language that said for those rigs operating in our 
exclusive economic zone, everybody forgets that the first E of 
EEZ is exclusive, that those oil rigs ought to be built in 
America. With the Deepwater Horizon, we got the wrong end of 
the stick every time. The rig was built in Korea. It was 
licensed in the Marshall Islands and the profits went to 
Switzerland.
    I am for drilling, but I want to see to it that the 
benefits of that drilling go to the American people. And so we 
passed language in the CLEAR Act that said those rigs would be 
built in America. There was some pushback from this 
Administration saying we don't have the technical expertise to 
build them. And quite honestly, that is a bunch of bunk. We 
build nuclear-powered aircraft carriers that have sequentially 
timed electromagnets to launch and retrieve. We build the 
world's best submarines. We build the world's best warships. We 
can build an oil rig.
    I would hope that in your capacity in the time that you 
have in this job, that you would be an advocate for made in 
America, built in America, and operated by Americans.
    So with that, Mr. Chairman, I thank you very much.
    If you would like to respond?
    Mr. Matsuda. Yes.
    Mr. Taylor. Particularly if you like to respond favorably, 
I would love to hear it.
    Mr. Matsuda. Absolutely. I am concerned about the status of 
America's shipbuilding industry. It seems that from the Title 
XI Program that it is one of the only places right now to get 
long-term debt financing. And that is a real challenge.
    The other issue with Title XI is it doesn't necessarily 
cover every part of the shipbuilding industry. There are a 
number of medium and small size shipyards that do construction 
work that still aren't able to invest the time and money into 
the Title XI process that the large shipyards currently are.
    But overall, I agree with you. We are trying to find a way 
to get this money out the door, and we continue to work with 
applicants as they come in. The one application you mentioned 
that was 400 days, we do have a record of one in the last two 
years that was that long. Each one is different. They are going 
to have different risks to the government. We have to make sure 
that we evaluate these. We bring in an external, independent 
evaluator to look at the application and where the risks are to 
the taxpayer, and make sure that at the end of the day, it is a 
good deal for the government.
    But it is tough when you build one of these long-term 
assets, you don't know what the market is going to be like in 
five, 10, 15 years. Shipping rates just are pretty volatile.
    Mr. Taylor. Mr. Chairman, if you don't mind?
    Mr. Matsuda, some of the smartest people I know in that 
industry are countercyclical, I that they want to build their 
ships when the price of steel is down, when the price of 
aluminum is down, and when labor is readily available and 
therefore less expensive. That is where we are right now.
    What the problem for those folks is is financing, and I 
really do think it may not create 10,000 jobs. It may not 
create 5,000 jobs. But if it creates 500 to 1,000 jobs, then it 
is a worthwhile thing for a company that is investing in their 
future and investing in our Nation's future.
    And again, all I can do is ask you to be as aggressive as 
you can using your good business sense. And I also want to make 
myself available, if you see something in, and I forgot what 
President Clinton ended up calling it, but the bill we passed 
in 2003 that refinanced, got Title XI going again. If you see 
something in it that isn't working, I am offering my staff, my 
help to try to tweak those things because we really need to get 
this going again.
    Thank you very, very much, Mr. Chairman.
    Mr. Cummings. OK. Thank you.
    Mr. Matsuda, President Obama has announced a goal of 
doubling U.S. exports over the next five years, and has created 
an Export Cabinet to guide government efforts to achieve this 
goal. The Department of Transportation was not designated to be 
a member of the Export Cabinet. However, a report released by 
the Export Cabinet on September 16 entitled Export Promotion 
Cabinet's Plan For Doubling U.S. Exports In Five Years, 
suggests that this oversight has been erected and the report 
states that addressing regulatory and infrastructure issues can 
have a major impact on U.S. exports.
    In fact, the Subcommittee held a hearing in March in which 
we heard from very frustrated American shippers who could not 
move their goods because they could not get shipping containers 
in certain areas of the Country. So it is encouraging to us 
that the Administration has recognized our infrastructure 
problems.
    The report also states that the Departments of Commerce and 
Transportation have entered into a memorandum of understanding 
to work together with stakeholders to develop and implement 
comprehensive competitiveness to focus national freight policy.
    What is being done to include U.S.-flag shipping as part of 
the Administration's export initiative? And how do we make sure 
U.S.-flag ships are in a position to carry at least a portion 
of these increased exports?
    Mr. Matsuda. Thank you. Sir, as far as the Export Council 
goes, Secretary LaHood is a member of the Export Council. He 
was added fairly recently, but that oversight has been 
corrected. I can verify that.
    The President has made a major announcement in terms of our 
Nation's infrastructure in proposing a six-year reauthorization 
of our Federal Surface Transportation Programs, and a front-
loaded $50 billion investment in the first year. So I know that 
our focus has been on infrastructure and how that can help 
facilitate exports as well.
    As far as the shipping services go, maritime services are 
an export. Anytime you use the U.S. flag, a good chunk of that 
revenue, profits, and income comes back to the U.S. as opposed 
to when you use a foreign-flag ship. And so to the extent we 
can continue to encourage shipping on U.S. flag, given what we 
are currently doing and things that we can do within our 
resources, we are absolutely pursuing that.
    Mr. Cummings. You just mentioned that the President has 
called for a six-year authorization of Surface Transportation 
Programs aimed at infrastructure improvement and developing a 
world class transportation system in the U.S. However, the 
Administration failed to mention maritime projects.
    What are DOT and the Maritime Administration doing to get 
the critical needs of our maritime transportation system on the 
Administration's agenda?
    Mr. Matsuda. Sir, I can tell you that as more details come 
out, we will find exactly how maritime infrastructure is 
intended to be linked through this new effort. I can tell you 
that this Administration has focused on ports and maritime more 
than many others. Just recently, the Secretary held the first 
ever National Port Summit where he got together port directors 
from all over the Country, the first time this has ever been 
done, to hear their concerns and talk about what our future 
needs are.
    Mr. Cummings. Do you see the harbor maintenance tax as one 
of those regulatory issues that the Export Cabinet will talk 
about? And does DOT and MARAD support ending the double 
taxation of domestic waterborne cargo under the HMT? And if 
not, why?
    Mr. Matsuda. Sir, I can tell you that that is an issue 
under discussion within the Administration. This is something 
that we hear consistently as being a major impediment to moving 
on things like our Nation's marine highway. If we can get rid 
of this double taxation from application of the harbor 
maintenance tax, we could see more cargo moving on the water.
    It is a terrible impediment when you have to pay this tax 
twice, especially for containerized goods which usually are 
more expensive or higher value than bulk commodities. So it 
really works against moving containers on the water in the way 
that we would like to see in terms of a true marine highway 
system nationwide.
    Mr. Cummings. What is being done to promote MARAD's Marine 
Highways Program within the Administration as a solution to 
infrastructure issues?
    Mr. Matsuda. Well, we have launched the program this 
summer. I know that it remains a priority for the 
Administration, the first time ever we have provided Federal 
funds for projects around the Country to help buy equipment, to 
help get the shoreside and waterside services together, and 
ready to move these goods.
    There are already several operators around the Country who 
are trying to do this, and making a very tough go at it, given 
the factors working against them. The problem is that there is 
competition from trucks, but it comes at an environmental cost 
and it comes at a cost for congestion on our roads when we 
really could be moving these goods on the water.
    So we are getting the money out the door. Secretary LaHood 
in August named a number of corridors around the Country where 
this could work. I will note that one of the projects that we 
received actually designates as number of East Coast stops, 
including the City of Baltimore.
    I think there is great excitement around the Country when I 
go out to the ports and meet with the Directors and other port 
interests seeing a true marine highway system come about.
    Mr. Cummings. Many seafaring nations do not tax the 
personal income earned by their mariners when employed aboard 
ship. In order to help strengthen the U.S.-flag fleet by 
helping to lower the cost of labor, some propose extending the 
income exclusion provided in Section 911 of the Internal 
Revenue Code to U.S. mariners working aboard commercial vessels 
engaged in foreign trades.
    Under Section 911, American citizens working abroad can 
exclude up to $80,000 of their foreign-earned income from their 
gross income for Federal income tax purpose.
    Should Section 911 be expanded to include seafarers?
    Mr. Matsuda. I can tell you the Administration doesn't have 
a position on that question exactly, but anything we can do to 
reduce that difference and create more of an economic incentive 
for folks to remain under the U.S. flag will be helpful, and 
will help retain and grow the U.S.-flag fleet.
    Mr. Cummings. Are the U.S. shipyard and ship repair 
industries adequate to meet an emergency mobilization requiring 
extensive shipping capacity?
    Mr. Matsuda. Well, that is something that we work with the 
Department of Defense on to have a good understanding of what 
our industrial capacity needs are. I can tell you that one of 
the big concerns I would have right now in the shipbuilding 
industry is the loss of one of the two sole Jones Act vessel 
builders. And I think that would have an impact on the market 
for Jones Act ships.
    Mr. Cummings. Data provided by MARAD to the Subcommittee 
compares the cost of crewing a 20 year old bulk ship under U.S. 
flag and under an open registry in the year 2005. MARAD 
indicated that the costs of the U.S. crew under this scenario 
was about $3 million per year, whereas the cost of a crew under 
an open registry was less than $700,000.
    How do crew costs compare for other types of vessels such 
as a container ship? And how would they compare for a ship that 
carried a high value cargo such as LNG?
    Mr. Matsuda. Sir, as you know, there are no U.S.-flag LNG 
carriers, and that is something that is of concern to us. We 
are leveraging our ability to ensure that U.S. crews can get on 
to foreign-flag LNG ships so they can get the training and 
still be able to work in that industry.
    As far as the costs go, I think that is consistent with 
what we have been seeing. But sir, I really want to make sure 
that we get this study to you so at least we can give you some 
better, more detailed information about the costs of the 
various types of trades.
    Mr. Taylor did you have any other questions?
    Mr. Taylor. No, sir.
    Mr. Cummings. Rear Admiral Philip Greene was recently 
appointed Superintendent of the U.S. Merchant Marine Academy. 
Can you tell us why Admiral Greene is the right person for the 
job? And what plans he will implement to strengthen the 
Merchant Marine Academy?
    Mr. Matsuda. Absolutely, sir. First, let me offer you a 
meeting with Admiral Greene. I understand we are working with 
your staff to try and make that happen soon.
    We spent a long time in a very deliberate effort to go out 
and find the very best candidates for the job of Superintendent 
of the U.S. Merchant Marine Academy. We had more than 50 well-
qualified applicants. We used an executive search firm to 
really go out and get the best candidates. We did a lot of 
outreach to folks within the Academy community to make sure we 
got the right person for the job.
    And we invited folks from the Academy itself, the 
midshipmen, the faculty and staff and others in the greater 
Academy community, and Admiral Greene came out as our selectee. 
We think he is the right person for the job and we have high 
expectations for him.
    Mr. Cummings. How many staff vacancies are there at the 
Merchant Marine Academy?
    Mr. Matsuda. I believe there are, actually I can tell you 
exactly here.
    Mr. Cummings. And tell me out of how many people.
    Mr. Matsuda. Merchant Marine Academy I believe has 
approximately 230 staff, and I would say give or take 20 
positions that we are currently hiring. We are also dealing 
with a number of faculty positions that we are trying to make 
sure they are on board before the start of the new trimester.
    Mr. Cummings. And that is 20 out of 240, you said?
    Mr. Matsuda. Roughly, yes.
    Mr. Cummings. And what measures have been implemented to 
ensure that the proper management of the Academy finances?
    Mr. Matsuda. The GAO had done a report last year detailing 
47 recommendations to improve the financial fiscal controls at 
the Academy. I can tell you that as of today, we have completed 
42 of those, and my goal was to have all 47 completed by the 
end of the fiscal year. So staff will be working hard over the 
next 24 hours to get the remainder of them on my desk.
    I can tell you that we take very seriously making sure that 
we have these controls in place and that we promote a culture 
of responsible fiscal management at the Academy. We know that 
working with Admiral Greene as the new Superintendent, we will 
have that support and he will have the ability to make sure 
that these practices remain in place.
    Mr. Cummings. The GAO released a report in August, 2009 
that identified numerous instances of improper and questionable 
sources and uses of funds by the Academy and its affiliated 
organizations. A MARAD audit authorized by then-Deputy 
Secretary Barrett in 2007 found that barriers between 
appropriated and non-appropriated fund instrumentalities at the 
Academy had broken down. This resulted in transactions at the 
Academy that were ``most probably illegal.''
    We note that the other service academies have some 
authority in the case of mixed-funded athletic and recreational 
extracurricular activities to treat appropriated funds as non-
appropriated funds. In addition, the Coast Guard Academy has a 
NAFI manual that states ``policy governing the use of 
appropriated funds and non-appropriated funds to support the 
Coast Guard's non-appropriated fund programs is based upon 
several sources, including Federal statutes, Comptroller 
General discussions, the financial resource management manual, 
and the policies and procedures followed by the other military 
services for the use of the APF in NAFI operations.''
    With that, would you please explain why the Merchant Marine 
Academy seemingly does not have the authority the other service 
academies have?
    Mr. Matsuda. Sir, there is a major difference between the 
U.S. Merchant Marine Academy and the other Federal services 
academies. And it is that the midshipmen who attend there are 
not employees of the Federal Government. They are students. 
They don't have the same types of morale, welfare and 
recreation funds and accounts that these other branches do.
    Having said that, the NAFIs that were at the Academy, as 
you noted, the fiscal controls broke down over the years and it 
didn't seem that there was a very good situation up there. 
Earlier this year, I issued an order to make clear what our 
goal with these NAFIs is, and that is that we are going to take 
action to close down some of them. Many were just simply bank 
accounts being controlled by Federal employees that were off 
the books.
    We are keeping some of them open and others we are going to 
reform and make sure that if they continue to exist, that their 
dealings with the Federal Government are transparent and that 
their actions--what they are doing--are accountable to the 
people that they are supposed to benefit.
    Mr. Cummings. Has the Department of Transportation or MARAD 
done any sort of analysis to determine what legislative 
solutions there might be to the Academy's apparent inability to 
manage this?
    Mr. Taylor. Mr. Chairman?
    Mr. Cummings. Yes?
    Mr. Taylor. At some point could I weigh in on this?
    Mr. Cummings. Please.
    Mr. Taylor. Mr. Chairman, in my capacity as the Chairman of 
the Seapower Subcommittee, we did look into this. And you raise 
good questions and I think they deserve good answers. The 
Academy being one of the smaller service academies was looking 
for ways, and quite honestly, for fear that if they asked for 
too much money from Congress, that one possible reaction would 
be Congress shutting the Academy down.
    Towards that end, the Academy had several initiatives to 
use the facilities to provide additional training to mariners 
on a fee basis. And they used those funds to subsidize the 
Academy.
    All the academies are legally allowed to have, for example, 
someone give them a yacht. They use the yacht for a while. They 
sell the yacht. They plow that money back into their athletic 
program. That is the norm certainly at Annapolis, and similar 
type programs in the other schools replace the word yacht for 
airplane or something else.
    In the case of the Merchant Marine Academy, they were not 
specifically given the authority to do that in law. So while 
there was never any question, never any question that those 
funds somehow ended up in somebody's pocket, that was never an 
allegation. The real allegation was that somebody in the GAO 
said they are doing this. They are doing this for the right 
reason, but the law doesn't allow them to do this.
    In the Seapower Subcommittee, we did come up with language 
that does allow them to do this, just like the other academies. 
Again, it was done for the purpose of subsidizing the Academy 
through nontraditional means without coming to the taxpayer to 
pay for it.
    And quite honestly, it is my personal opinion that the 
Commandant at the time, Admiral Joe Stewart, was given a very 
raw deal because, quite frankly, I think Mr. Matsuda's 
predecessor did a very poor job of explaining to Admiral 
Stewart what the parameters were that he could operate in. He 
was never really told by his predecessor that you need to be 
staying in these boundaries.
    And so it has been looked into. There has never been any 
allegation of a dime of that money going into anybody's pocket. 
What they did I think they did for all the right reasons, but 
unfortunately they were not given the legal authority to do 
those things, and therefore under the law, it was not allowed.
    But those things have been addressed and, again, he's 
fairly new on the job. Quite honestly, because of my kid going 
there, I follow the Academy matters closer than most. And I can 
tell you that we would be more than happy, and my employee from 
the Seapower Subcommittee, Captain Will Ebbs, anytime that you 
want to speak to them, and Captain Ebbs has done extensive 
research into this. I think he will tell you almost verbatim 
what I just told you.
    Mr. Cummings. Thank you very much.
    Mr. Taylor. Thank you, sir.
    Mr. Cummings. I really appreciate that. That was extremely 
helpful.
    Let me go to something else and then we are just going to 
finish.
    Tell me something, you know, the National Defense 
Authorization Act of 2009, which became law in October of 2008, 
required the Secretary of Transportation to direct the 
Superintendent of the Merchant Marine Academy to prescribe a 
policy on sexual harassment and sexual violence for the 
Academy.
    I understand that the previous Superintendent resigned and 
it took some time before the new Superintendent was appointed. 
However, has a policy on sexual harassment been implemented at 
the Academy? And if so, who is responsible for ensuring that 
the policy is effective?
    Mr. Matsuda. Yes, sir. The policy at the Academy is, in 
short, is that they do not tolerate sexual harassment, sexual 
assault. And I can tell you that my conversation with the 
Superintendent verifies that and we are doing everything we can 
to make sure that that policy is being implemented effectively.
    The law you mentioned required a report back to Congress 
and we are hoping to get that to you shortly. We want to make 
sure that if there are lessons within that survey and that 
report, that we can get those to you, and also make sure that 
they are being implemented; that if there is anything to learn, 
we are using that to improve.
    Mr. Cummings. All right. If there are no further questions, 
we will call this hearing to an end and I will provide you with 
a date as soon as we are clear as to the lame duck session, and 
you and I will talk at 5:00 o'clock tomorrow.
    Mr. Matsuda. I look forward to it, sir.
    Mr. Cummings. Thank you very much.
    [Whereupon, at 5:23 p.m., the Subcommittee was adjourned.]

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