Public Policy Alert: K&L Gates Provides Analysis of Duncan Hunter National Defense Authorization Act

President Signs New Maritime Measures into Law; Congress Provides Significant New Authorities and Funding to the Maritime Administration

In a year of few significant legislative enactments and no Coast Guard Authorization bill, a perennial favorite for maritime legislation, several significant maritime-related measures were enacted during the final weeks of the 110th Congress, including provisions relating to cargo preference, coastwise waivers, and the Title XI maritime loan guarantee program. The new laws, recently signed by the President, were contained in the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009 (“NDAA FY09”) (S. 3001), enacted October 14, 2008, and the Continuing Resolution for Fiscal Year 2009 (“CR FY09”) (P.L. 110-329), enacted September 30, 2008, and grant the Maritime Administration (“MarAd”) significant new legal authorities and funds for key programs run by the agency. A summary of key provisions is provided below.

•Maritime Administration Obtains Additional Authorities in the NDAA FY09:

MarAd, the agency responsible for promoting the U.S.-flag maritime industry, was the beneficiary of several new provisions enacted in Title XXXV of the NDAA FY09. Among the provisions are new measures that grant additional cargo preference authority to the agency and enhance the agency’s role in administrative waivers of the coastwise laws. In addition, the new laws modify and reauthorize current programs such as the Small Shipyard Assistance Program, the Maritime Security Fleet Maintenance and Repair Pilot Project, and U.S. Merchant Marine Academy and State maritime academy programs, and also amend the statutory requirements for the use of foreign riding gangs on commercial U.S.-flag ships under contract or charter to the Department of Defense (“DoD”).

•Transportation in American Vessels of Government Personnel and Certain Cargoes (Section 3511).

With enactment of this provision, MarAd is granted additional authority to ensure shippers and shipper agencies are complying with the cargo preference laws, specifically providing sole authority to MarAd for determining if programs administered by other agencies are subject to the cargo preference requirements under the Cargo Preference Act of 1954. Prior to this change, those determinations were established by the administering agencies under regulations promulgated by MarAd. For the first time, the new law would provide for remedies for non-compliance with the requirements by: imposing possible civil penalties of up to $25,000 per violation (with each day being potentially a separate violation); giving MarAd the authority to require “make up” cargoes for U.S.-flag vessels when violations have occurred; and granting MarAd broad authority to take measures under the Federal Acquisition Regulations to address violations. It also clarifies the scope of the cargo preference laws to “eliminate[] confusion over the application of cargo preference.” These changes are intended to ensure that agencies engaged in international food aid or other federal assistance programs are requiring certain cargoes to be transported on U.S.-flag vessels.

•Consultation on Jones Act Waivers (Section 3510).

A new statutory requirement that MarAd agree with any decision to waive the inspection and navigation laws of the United States under 46 U.S.C. 501 was included in the new law. A primary purpose of the provision is to address the increased propensity of the Executive Branch to waive the Jones Act in times of national emergencies without a prior evaluation of the compelling need for such waivers or the availability of U.S.-flag assets to handle affected cargoes. The previous law permitted the head of each department or agency responsible for the administration of the navigation and inspection laws (currently the Department of Homeland Security) the authority to waive those laws when necessary in the interest of national defense. The new law requires MarAd to make an affirmative determination that U.S.-flag vessels are not available to address the situation prior to the issuance of such navigation and inspection waivers (which include the coastwise laws).

•State Maritime Academies (Sections 3501 and 3503).

The State Maritime Academies were authorized to receive $10.9 million for the maintenance and repair of federally-owned State Maritime Academy school training ships. Additionally, State Maritime Academy cadets who participate in the Student Incentive Payment (“SIP”) Program are authorized to receive $4,000 annually to offset school costs. The new law increases the SIP amount from $4,000 to $8,000 per year and allows cadets to use the payments for tuition.

•Riding Gang Member Requirements (Section 3504).

Congress, in two separate prior legislative enactments, restricted the use of foreign riding gang members on U.S.-flag vessels, one pertaining to U.S.-flag operators generally (administered by the U.S. Coast Guard (“USCG”)) and a more restrictive requirement for vessels engaged in defense contracting or cargo carriage administered by DoD. (Riding gang members are persons not part of the required crew complement performing certain maintenance and repair functions.) The new law would make the DoD riding gang requirements for U.S.-flag vessels more consistent with USCG requirements, and specifically exempts DoD-owned vessels from both the general and DoD-specific riding gang limitations.

•Maintenance and Repair Reimbursement Program for Maritime Security Fleet (Section 3505).

Public Law 109-163, enacted in January 2006, implemented a mandatory maintenance and repair pilot program for Maritime Security Program (“MSP”) participants to encourage such work to be performed in shipyards in the United States. Under the pilot program, MarAd was required to enter into an agreement with one or more MSP contractors, subject to appropriations, for the maintenance and repair in a U.S. shipyard of one or more vessels enrolled in the MSP program. That law was interpreted to only apply to future, not current, MSP contracts, and therefore it remained effectively a voluntary program for MSP participants. The new law changes the pilot program to try to address the discrepancy so that MarAd can seek agreements for maintenance and repair with existing MSP operators.

•Assistance for Small Shipyards and Maritime Communities (Section 3508).

Congress established a small shipyard assistance program in 2005 to provide grants, loans and loan guarantees to U.S. shipyards for capital improvements and training programs in maritime communities. That statute is amended to improve the program and expand the eligibility of small shipyards and workers that may qualify for assistance. The program received $10 million in Federal appropriations in FY08, which was used to provide grants to 19 shipyards.

•U.S. Merchant Marine Academy.

In addition to the usual authorizations of appropriations for the U.S. Merchant Marine Academy, Congress granted authority to the Maritime Administrator to transfer MarAd employees to the Academy and to contract with up to 25 “personal services contractors” to provide services as adjunct professors to support Academy programs. The new law would grandfather prior contracts, which otherwise would have been out of compliance with Federal requirements. Additionally, MarAd gains new authority to accept and use money and property gifts for the benefit of the Academy, and establishes an “Academy Gift Fund” for such purposes.

CR FY09 Provides Funding for Key Maritime Programs Congress failed to approve funding bills for continued government operations in Fiscal Year 2009, which began on October 1. To avoid a government shutdown, Congress passed a “continuing resolution” funding government programs at FY08 levels (with certain exceptions). The CR FY09, however, did include several appropriations bills providing full-year FY09 funding for military construction and the departments of Defense, Veterans Affairs and Homeland Security. MarAd programs did not receive FY09 appropriations, and therefore are covered by the general continuing resolution requirements on the obligation and expenditure of funds by the agency, the only exception being the Title XI loan guarantee program, which was funded out of DoD appropriations. Notable programs covered by the CR FY09 are as follows:

•Maritime Security Fleet Program.

The Administration’s FY09 budget and the respective House and Senate subcommittees recommended full funding of $174 million for MSP. However, since the Department of Transportation (“DoT”) was not among those departments receiving full funding for FY09, MSP operations were funded at the FY08 annual level of $156 million for five months (through early March, when the CR expires) until the Congress addresses full-year funding for the program. This equates to approximately $65 million in appropriations for MSP for MarAd to allocate to MSP operators. Congress will likely address the issue of full funding for MSP either in a lame duck session later this year or when the new 111th Congress convenes as part of a larger package to ensure full-year funding for Federal government programs, either as part of an omnibus appropriations bill or a longer-term continuing resolution.

•Title XI Loan Guarantees.

The Title XI Loan Guarantee program received significant funding for FY09, funding levels not seen since 2003. That program provides “for a full faith and credit guarantee by the United States Government to promote the growth and modernization of the U.S. merchant marine and U.S. shipyards.” In addition to continued funding at FY08’s $5 million annual level until early March through the continuing resolution affecting DoT, Congress approved $48 million for the program out of DoD’s National Defense Sealift Fund. The result is approximately $50 million in new funding for Title XI loan guarantees – $48 million full-year funding out of DoD accounts plus $2 million under the DoT continuing resolution – which could equate to between $500 million and $1 billion in new project loan guarantees.

•Small Shipyard Assistance Program Funding.

In additional to reauthorizing and modifying the Small Shipyard Assistance Program in the NDAA FY09, Congress provided funding for the program through the period of the continuing resolution until early March. On a pro rata basis, during the period of the continuing resolution, funding will be approximately $4 million.

•State Maritime Academy School Training Ship Funding.

In addition to the annual programmatic funding for all six of the State Maritime Academies, the CR FY09 provided an additional $10 million out of the DoD’s National Defense Sealift Fund for upgrading a federally-owned training ship used by one of the State Academies.

•Authors and Contact Information:

Darrell L. Conner, +1.202.661.6220, [email protected]
Rolf Marshall, +1.202.661.6249, [email protected]
Yvette T. Wissmann, +1.202.661.3829, [email protected]