Page 53: of Maritime Reporter Magazine (March 2003)
Title XI: Left Out in the Cold (Continued from page 8) available, will be limited to a term of no more than 10 to 12 years. This mis- match in vessel life and available financ- ing will more than double what should be a project's early year debt service requirements. This will increase the cost of the services to be provided — be it for the coastwise movement of a 53-ft. trailer, or a ferry fare for a work-bound commuter, by the same multiple. In many cases, this doubling of the cost of service will defeat a business plan find- ing of economic viability. So, where will the long term debt financing necessary to properly fund these transactions be found? And, where will we find the equity?
Established Financing Solutions
Put in place under the Merchant Marine
Act, 1936, the MarAd Title VI and Title
XI Programs were intended to meet this very set of problems as they existed at that time.
In their revised forms under the
Merchant Marine Act of 1970, and the
Federal Ship Financing Act of 1972, the
MarAd Capital Construction Fund (CCF) and Title XI financing guarantee programs enable qualified operators: (i) to accumulate vessel equity on a tax deferred basis over a period of up to 25 years under CCF program contracts; and (ii) to access private sector commercial vessel financing for up to 25 years by means of a U.S. government program of financing guarantees.
We have well established national water transportation needs which will require as much as $1 to $2 billion in new vessel construction over the balance of this decade. There is a need for equi- ty funds for these projects, and for long term debt matched to project lives.
Existing U.S. operators have approxi- mately $ 1.4-bilIion of their own monies already set aside for U.S. vessel con- struction under MarAd CCF program contracts. And, there is a "public-private partnership" program of MarAd financ- ing guarantees that has afforded U.S. operators access to long term private sector financing at no cost, or at very lit- tle cost, to the federal government.
However, access to these MarAd pro- grams is currently being denied by the
Bush Administration Office of
Management and Budget that: (1) refus- es to allow a change in the program that would allow these operators to use $1.4 billion of their own monies to contract for vessels to be engaged in coastwise service; and (2) seeks to discontinue the
Title XI financing guarantee program
March 2003 for accessing long term private sector debt financing matched to vessel lives.
U.S. Department of Transportation and Congress are charged with crafting transportation policies for the 21st
Century. The MarAd and Title XI pro- grams are well suited for a place in this mosaic. But there is no change in the
OMB position, which blocks the use of the CCF program for vessels in our coastwise trades, or in OMB efforts to entirely discontinue the Title XI pro- gram. And. now Congress has apparent- ly acquiesced in the OMB Title XI pro- gram termination.
Our highway congestion problems are increasing and cannot be solved by addi- tional highway construction or increased rail services. Water borne passengers and cargo transportation offers the only means for congestion relief. The vessel needs are clear. There are financing means available. But, these solutions continue to elude Congressional and
Executive Branch planners. And, to date, neither branch of government has proposed other means for accessing the equity and long term debt to fund the vessel construction necessary to meet national transportation needs.
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