[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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