Page 9: of Marine News Magazine (March 2021)

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subsidized, as governments consider it an important source though these funds do remain available for multiple years of employment not only in shipyards, but also in supplier if unused. Its most recent appropriation was $27 million industries such as steelmaking. for FY2018. Absent congressional appropriations, the fees

Under Title XI, the U.S. Maritime Administration collected by MARAD from borrowers can be enough to (MARAD) offers loan guarantees intended to make do- allow the agency to guarantee additional loans.

mestic shipbuilding more attractive to vessel buyers. These As of December 2020, MARAD’s portfolio contained guarantees permit both vessel buyers and shipyards to ob- 18 guaranteed loans worth a total of $2.5 billion, the tain ? nancing on more favorable terms than would other- newest approved in FY2020 and the oldest approved in wise be made available by a commercial lender, offsetting FY2000. Six more applications for a total of $487 million the comparatively high costs of shipbuilding in the United in loan guarantees remained pending. A $331 million loan

States. A single guarantee may support the construction of guarantee that was approved in March 2020 was the ? rst more than one vessel. In return, MARAD collects a one- to be issued since FY2016, and was the ? rst to be issued time fee equal to between 0.5% and 1.0% of the principal under new rules that specify that the Federal Financing outstanding balance. Given the costs associated with ship- Bank replace commercial banks as the sole buyer of debt building, these fees can reach into the millions of dollars, guaranteed under Title XI.

and can be ? nanced alongside the loan itself.

Reform proposals

A wave of loan defaults during the 1980s prompted a reorganization of the program with a greater emphasis Congress commissioned an audit of the program in on creditworthiness. Congress appropriated new funds 2003 after a series of defaults. MARAD is not a private- to underwrite guarantee subsidy costs during the 1990s. sector lender and is therefore not expected to turn a pro? t

MARAD approved $1.4 billion in loan guarantees in in pursuing its policy goal of strengthening the U.S. ship- 1998, the peak year. In 2001, a company that received building and merchant shipping industries, but it does $1.2 billion in loan guarantees to build two U.S.-? agged have a secondary policy goal of responsible stewardship of cruise ships went bankrupt, sending the loans into default. taxpayer dollars. Auditors found that between 1993 and

The economic downturn that followed the September 11, 2002, MARAD had underestimated the number of de- 2001, terrorist attacks was accompanied by additional loan faults and overestimated its ability to recover value from defaults, and MARAD struggled to recover assets to offset loans in default, and that it had not fully complied with payouts to creditors. regulations governing the program. A follow-up audit con-

Since then, MARAD’s credit assistance has been far ducted in 2009-2010 by the Department of Transporta- more limited. Over the past decade, MARAD has ap- tion (DOT) Of? ce of the Inspector General (OIG) found proved seven Title XI loan guarantees for a total amount that MARAD had not yet fully implemented procedures of $1.9 billion, supporting the construction of 19 vessels. for improving oversight of borrowers pursuant to recom-

MARAD has received few applications to build certain mendations of previous audits.11 OIG initiated a new au- types of vessels most needed by the military, such as ships dit of the Title XI program in December 2018, as required with truck ramps or onboard cranes able to unload cargo at by the John S. McCain National Defense Authorization underdeveloped or damaged ports. Of the vessels ? nanced Act (NDAA) for FY2019 (P.L. 115-232). The results of in the past decade, eight have been barges or combination the 2018 audit have not yet been published.

tug-barges and ? ve have been supply ships for offshore oil In its FY2021 budget request, the Trump Administra- drilling platforms. In the past, several large loans have gone tion proposed the elimination of the Title XI program, and to building such platforms themselves. the transfer of the existing loan portfolio to the National

As of June 2020, MARAD had $35.4 million avail- Surface Transportation and Innovative Finance Bureau able for subsidy costs associated with Title XI, enough to (also called the Build America Bureau) in DOT. Congress guarantee approximately $432 million in loans.8 Congress did not take these actions in the Consolidated Appropria- does not appropriate new funding for subsidies every year, tions Act, 2021 (P.L. 116-260).

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