Page 32: of Maritime Reporter Magazine (August 2000)

U.S. Report • Legal myths about the Title XI Program.

Myths & Realities

Myth: MarAd has not been spending the current funds.

Reality: Already $41.5 million in sub- sidy funds have been obligated in FY 2000.

Although some argue that demand for guarantees is so low that MarAd cannot spend the money appropriated, the real- ity is that with three months remaining in the fiscal year, available subsidy funds for Title XI have dropped to a his- torical low of about $28.1 million. This is sufficient to cover only about $562 million in guarantees. In contrast, at present, applications for guarantees totaling more than $4 billion await

MarAd approval. Although not all of these applications will be approved, the existing funds plus the amount request- ed by the President will be adequate to guarantee only 15 percent of these cur-

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NEWPARK SHIPBUILDING,. www.fwav.com ©2000 FirstWave. All rights reserved. rently pending projects. Applications for other major projects are expected to be submitted to MarAd in the next sev- eral months.

The reality is that in FY 1994-1999 the

Title XI Program obligated on average $45 million per year in loan guarantee subsidy funds. These were the six full fiscal years after the program's revival in FY 1993. Even when the startup year of FY 1993 is included, the average obligation level is just under $40 million per year.

Myth: Additional funds are not needed until current funds are spent.

Reality: At least $50 million in Title XI appropriations is needed each and every year to attract the very large shipbuild- ing projects, especially those that sup- port the national defense industrial base.

Title XI guarantees provide financing every year for a steady stream of small and medium-size projects and periodi- cally for very large shipbuilding pro- jects. Major shipbuilding projects, which provide supplemental commer- cial work to national defense shipyards, are a central objective of both the Ship- building Initiative and the Title XI Pro- gram, and require from two to four years to put together.

Investors in these larger projects will not proceed unless they can depend on the necessary funds being available once they raise the millions of dollars in equity required before MarAd will con- sider a loan guarantee application. Dur- ing FY 1994-1999 the available level of funding averaged $110.2 million annu- ally, ranging from a low of $94.3 million to a high of $126.8 million. With this level of funds available, an investor interested in a very large project can be confident that Title XI funds will be in the account when needed for the project, even if $35-40 million every year goes to smaller projects.

Myth: Title XI is a costly program for the Government to run.

Reality: Title XI makes money for the

U.S. Treasury.

Fees collected from the Title XI pro- gram since FY 1993 are $95.7 million.

When interest is included, this number rises to almost $150 million. Of pro- jects approved since FY 1993 under

MarAd's rigorous review, only $1.9 mil- lion (a single project) was lost due to default. This is less than two percent of the amount gained in fees. Even when including the worst-case outcome of the recent default of the Massachusetts

Heavy Industries loan for the shipyard at

Quincy (which was approved under spe- cial legislation), the fees are still almost double the total defaults. The loss from 32 Circle 234 on Reader Service Card Maritime Reporter/Engineering News