Owners Strongly Oppose Federal Financing Bank Control Of Title XI

For 39 years, the Title XI Federal Ship Mortgage Guarantee Insurance program has run smoothly and effectively. To bring it under control of the Federal Financing Bank, as now proposed, would only add another "layer of bureaucracy," cause interminable delays, and increase costs in administering the program.

Albert E. May, vice president of the American Institute of Merchant Shipping, the national shipowner association, testified to this before the House Ways and Means Committee. He urged that the Title XI ship financing assistance program, administered by the Secretary of Commerce under p r e s e n t law, "not be brought within the purview and control" of the Bank, as intended in H.R.

7918 to amend the Federal Financing Bank Act of 1973.

The Title XI program, established in 1938 by an amendment to the 1936 Merchant Marine Act, has since been updated a number of times, Mr. May said. "I would state without hesitation," he added, "that Title XI is the single most effective weapon in the Secretary of Commerce's arsenal for accomplishing the stated national policy goal set forth in the Act, namely that the United States should have a merchant marine sufficient to meet the needs of national defense and to support the requirements of domestic and international oceanborne commerce.

Additionally, Title XI guarantees are available to assist in financing the construction of research, inland, fishing and drilling vessels.

In reviewing the Title XI program, Mr. May said the ceiling on outstanding Title XI obligations is $7 billion, a modest sum considering the $250 billion total for all federally guaranteed programs.

"The program is totally selfsustaining," he noted, "since each recipient of its benefits is required to pay an initial investigation fee, as well as an annual guarantee fee for the life of the obligation. These fees are paid into the Federal Ship Financing Fund which presently has a balance of about $100 million. From this fund are deducted all of the salaries and other expenses incurred by the Government in administering the Title XI program, with the balance being available to make payments in the event of default. Since 1938, there have been only 10 defaults, involving a net cost to the fund after resale of the vessels totaling $14.6 million. . . . It has been run efficiently and at no expense to the American taxpayers. It is not unreasonable, I think, for us to recommend that it remain unchanged." The national shipping spokesman said H.R. 7918 would have four effects which, in essence, would disrupt the program: (1) the Bank would be required to purchase all new Title XI obligations guaranteed by the Secretary of Commerce, (2) failure to sell those obligations directly to the Bank would result in a loss of their guarantee, (3) the Bank's ability to purchase Title XI guarantee obligations would be subject to Appropriations Acts, and (4) the Bank would be able to dictate the terms and conditions of Title XI obligations, and hence directly impact the financing of vessel construction.

The Title XI program, with an unbroken 39-year record of accomplishment, is completely under the control of the Secretary of Commerce and under the purview of the Congress, Mr. May pointed out. At no cost to the taxpayer and with minimal risk involved to the government, the Title XI program has assisted immeasurably in the construction and maintenance of a modern U.S.

merchant fleet, has had the flexibility to maximize market pressures on interest rates, and the means to tailor financing to the needs of the user or the project involved.

"The enactment of H.R. 7918, as presently drafted, would seriously disrupt this program, would needlessly add an expensive and time-consuming layer of decisionmaking bureaucracy to the approval and issuance process, and would, by treating Title XI guarantees as an 'on-budget' item, create an erroneous and inflated impression of federal financing of the maritime industry," Mr. May concluded. "I urge that this measure not be adopted."

Maritime Reporter Magazine, page 47,  Oct 15, 1977

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