Congress Decides Maritime Issues Amid Fiscal Policy Debate

Despite threats to plunge the nation off the politically contrived “fiscal cliff,” saner heads ultimately prevailed and the President and Congress adopted the American Taxpayer Relief Act of 2012. This limited bipartisan agreement avoided the most threatening aspect of the impending January 1, 2013 deadline – across-the-board tax increases that economists feared would drag the nation’s economy back into recession. Like the debt limit crisis of 2011, the agreement was possible because the opposing political parties decided to postpone the harder parts of their protracted fiscal policy debate involving spending cuts. The result was another missed opportunity for the elusive “grand bargain” addressing America’s long-term fiscal health.

The Debate Continues  

From the outset, the newly convened 113th Congress featured threats of a “partial” government shutdown in order to force more spending cuts. Prominent House Republican leaders initially asserted that they would refuse to raise the national debt limit and thereby trigger a shutdown and mandatory spending cuts. They have recently postponed that threat until mid-April. President Obama has asserted he will not bargain at all over the debt limit. Democratic congressional leaders decried the threat of a default as irresponsible. And Federal Reserve Chairman Ben Bernanke called on lawmakers to “take care of their job” and raise the debt ceiling, warning that default would damage the economy.  

Adding fuel to the fire, the President stated that additional tax increases must accompany spending cuts. Rejecting that, Republican Senate Minority Leader Mitch McConnell (R-KY) announced simply that there will be no additional tax revenues.     

So the first months of the new Congress promise to replay the acrimonious process whereby Congress will eventually accept the inevitable increase to the nation’s borrowing authority while trying to cobble together majorities for additional spending cuts and tax increases. As a practical matter, the nation has already reached the limit of its borrowing authority, and another politically contrived crisis looms. Sadly, this irresponsible political game of chicken only harms the nation’s economy, including its maritime industry. In the summer of 2011 this same kind of brinksmanship needlessly stalled the economic recovery and downgraded the nation’s financial rating.

When Congress proves unready to make hard decisions, it does what most legislative bodies do: It postpones them. Thus chronic congressional calls for fiscal responsibility are accompanied by growing debt and deficits. There is a reason why legislators have proven unable to agree on additional spending cuts and tax hikes: Key constituencies oppose them. Congress’s recent decision to approve $60 billion of emergency funding for Hurricane Sandy relief while rejecting the proposal of House Republican budget hawks to pay for it with an across-the-board spending cut of less than two percent illustrates the challenge.

Considering how the 2011 confrontation ended and the way spending cuts have been rhetorically linked to the debt limit increase by Speaker of the House John Boehner, the most likely outcome appears to be something akin to what we have just witnessed. When push comes to shove, Congress will likely not default on the national debt and the borrowing limit will be raised at the last minute, or even shortly thereafter. Whether or not such a measure will include additional spending cuts or tax increases remains doubtful because that will require offending core constituencies. So an increase in the debt limit may be accompanied by another face-saving congressional maneuver espousing fiscal responsibility, such as adoption of a budget, while actually producing the opposite effect.  Cutting federal spending materially means assembling majorities that agree to cut specific programs upon which Americans rely.    

Key Maritime Issues

Despite the fiscal cliff controversy, the lame duck session of the 112th Congress decided significant maritime issues. Congress and the President enacted three important laws: (1) the Coast Guard Authorization Act of 2013, (2) the National Defense Authorization Act of 2013, and (3) the American Taxpayers Relief Act of 2012.  

On December 20, President Obama signed the Coast Guard authorization into law. Omitted from the legislation was a House proposal that would have established a uniform national ballast water standard and prohibited states from setting stricter standards. Repeated House proposals to accomplish this have now failed, and in light of the decision this year by the Environmental Protection Agency (EPA) with respect to its Vessel General Permit to adopt the uniform ballast water standard set forth by the Coast Guard and the International Maritime Organization, it appears this decision is resolved at the federal level. 

Congress also declined to adopt other significant proposals. Notably, it failed to use the year-end flurry of legislation to correct its erroneous repeal of an important cargo preference provision inserted in the highway bill last June. As reported in our July/August 2012 column, the repeal hurts national security while off-shoring the jobs of American seafarers who would otherwise transport U.S. government cargoes. Representatives Jeff Landry (R-LA) and Elijah Cummings (D-MD) introduced the “Saving Essential American Sailors Act” to correct this legislative misstep. However, despite widespread bipartisan support, it was not included in any of the new legislation passed during the lame duck session.  

Congress did not even attempt to ratify the Law of the Sea Treaty, having failed on numerous previous occasions. It declined to adopt the Administration’s proposal, approved by the Senate, to establish a “Seafarer Fund” to provide support for whistleblowers who accuse vessel operators of crimes. It also did not adopt the House proposal to waive the Jones Act for transportation of passengers between ports in Puerto Rico.  

Congress did adopt several measures. Of great significance to the nation’s fishing fleet and to operators of vessels less than 79 feet in length, it extended for another year – to December 2014 – the moratorium on the EPA’s Vessel General Permit. The “Piracy Suppression Act of 2012” was enacted, requiring federal nondefense agencies to either provide armed security for U.S.-flag vessels carrying government cargoes in high-risk waters or to reimburse vessel owners for the cost of providing such security. The industry had sought such a provision following the Somali pirate attacks on the Maersk Alabama and Liberty Sun in 2009.   

In response to Jones Act proponents who have decried the encroachment of foreign-flag vessels into the coastwise trade, Congress increased penalties for violations of U.S. vessel documentation laws. The legislation provides for a civil penalty of up to $15,000 per day and, in the case of a mobile offshore drilling unit, up to $25,000 or twice the charter rate, whichever is greater. Jones Act supporters also succeeded in securing a measure to restrict the executive branch’s issuance of Jones Act waivers by requiring notice of such waivers and efforts to use qualified U.S.-flag vessels.  

Congress also amended the Deepwater Port Act of 1974 to include ports transporting petroleum and natural gas from the U.S., not just into it. While the amendment doesn’t alter other laws governing export controls, it clarifies that the Deepwater Port Act would not bar exports.  

Congress barred foreign classification societies from performing services pursuant to delegations from the U.S. Coast Guard if they also provide services to a state sponsor of terrorism, e.g., Iran, Cuba, Sudan, or Syria. The legislation was originally introduced in the Congress as the Ethical Ship Classification Act of 2011 and enjoyed prominent bipartisan support, providing another opportunity for Congress to sanction Iran. European Union sanctions in 2012 and proposal of this legislation influenced decisions by the last three major classification societies doing business with Iran – Lloyds Register, Bureau Veritas, and Germanischer Lloyd – to end that work.

National Defense Authorization Act  

On January 2 President Obama signed into law the National Defense Authorization Act of 2013. The legislation has several maritime industry provisions, including tougher sanctions on Iran pertaining to shipping. Some of the maritime-related provisions overlap with parts of the Coast Guard authorization legislation, in which case the Coast Guard provisions take precedence. 

However, the defense legislation includes significant provisions not included in the Coast Guard Authorization Act. Importantly, it extends the Maritime Security Program through 2025.  The program provides funding for 60 privately owned, militarily useful U.S.-flag vessels engaged in the foreign trade that are available to the Department of Defense. Another provision clarifies the application of Federal Acquisition Regulations to the scrapping of National Defense Reserve Fleet vessels.

The American Taxpayer Relief Act of 2012

Press reports have emphasized that the American Taxpayer Relief Act avoided the automatic across-the-board tax hikes resulting from the expiration of the Bush-era tax cuts by exempting taxpayers with incomes below $400,000. It had other important provisions as well, including those pertaining to offshore wind projects. First, it extended the tax credit for such projects for another year, through 2013. Second, it expanded the provision to include projects that start construction within the year rather than projects that are in service within the year, thereby allowing significantly more projects to qualify. 

The Administration has been actively promoting the development of renewable energy projects, including offshore wind farms, particularly on the U.S. East Coast. The continued availability of the wind energy tax credit, combined with the declining cost of these projects, will likely fuel construction and spur additional demand for the maritime resources necessary to start building these wind farms this year.      

In an otherwise challenging political environment, these maritime-related measures mark significant progress, providing greater clarity and needed certainty for the industry to grow.