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[H.A.S.C. No. 106–49]









FEBRUARY 29, 2000

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HERBERT H. BATEMAN, Virginia, Chairman
CURT WELDON, Pennsylvania
JIM SAXTON, New Jersey
WALTER B. JONES, Jr., North Carolina
STEVE KUYKENDALL, California, Vice Chairman

GENE TAYLOR, Mississippi
JAMES H. MALONEY, Connecticut

Dionel Aviles, Professional Staff Member
Ashley Godwin, Staff Assistant



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    Tuesday, February 29, 2000, Fiscal Year 2001 Maritime Administration Authorization Request and Related Matters

    Tuesday, February 29, 2000



    Bateman, Hon. Herbert H., a Representative from Virginia, Chairman, Special Oversight Panel on the Merchant Marine

    Underwood, Hon. Robert A., a Representative from Guam, Ranking Member, Special Oversight Panel on the Merchant Marine


    Graykowski, Hon. John E., Deputy Maritime Administrator, U.S. Department of Transportation

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[The Prepared Statements can be viewed in the hard copy.]
Bateman, Hon. Herbert H.

Graykowski, John E.

[There were no Documents submitted for the Record.]

[This information is pending.]



House of Representatives,
Committee on Armed Services,
Special Oversight Panel on the Merchant Marine
Washington, DC, Tuesday, February 29, 2000.

    The Special Oversight Panel met, pursuant to call, at 1:00 p.m., in room 2216, Rayburn House Office Building, Hon. Herbert H. Bateman (Chairman of the Special Oversight Panel) presiding.

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    Mr. BATEMAN. If the Panel will come to order, we will proceed to business and anticipate that Mr. Underwood and hopefully some others will join us very shortly.

    My opening remarks at this hearing will be brief. However, before we address the business of the Panel, which is consideration of the Maritime Administration budget and authorization request for Fiscal Year 2001, I want to welcome the witness who will testify today.

    I would like to extend the Panel's warm welcome to the Honorable John E. Graykowski, Deputy Administrator for the United States Maritime Administration (MARAD).

    Mr. Graykowski is testifying for the Administrator, the Honorable Clyde J. Hart, who is accompanying the Secretary of Transportation on travel out of the country.

    Mr. Graykowski, we are, indeed, looking forward to hearing from you and with great interest.

    Since its formation, the Panel has steadfastly pursued policies intended to insure a strong and healthy domestic maritime industry as a critical element of our Nation's military and economic strength. I anticipate that a full and open discussion on maritime issues and challenges facing the Maritime Administration will assist us in that pursuit.

    I must tell you I am gravely concerned about the Administration's position on key issues affecting the industry and your agency. First among these is the inadequate level of funding for the new Title 11 loan guarantees contained in the President's budget request. It appears to me that you've lost another battle with Office of Management and Budget (OMB).
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    This program is critical to insuring a robust, commercial shipbuilding industrial base, and requested levels send the wrong signal to the industry.

    Furthermore, it calls into question the seriousness of this Administration's commitment to maintaining that base.

    Also troubling is the state of the United States Merchant Marine Academy at Kings Point, New York. There are significant health and safety problems at the academy due to prolonged neglect and lack of maintenance. That such conditions exist at one of the country's service academies is disturbing and unacceptable.

    Another major area of concern is MARAD's ability to dispose of obsolete vessels in its custody. The backlog of these vessels is large and growing and represents a potentially serious environmental problem.

    I welcome your views on these important issues and look forward to the upcoming discussion. However, I would be remiss if I did not note that today's meeting marks the first time that the Panel will not receive testimony on the budget from the Panama Canal Commission as the Panel's oversight responsibilities over the Panama Canal ended with the transfer of the canal last year, unfortunately a transfer that took place without this government having made arrangements whereby we would continue a further American presence there at resources and assets that are invaluable to us in the war against drugs.

    I would now like to welcome Mr. Underwood and call upon him for any remarks he may wish to make.
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    [The prepared statement of Mr. Bateman can be found in the Appendix.]


    Mr. UNDERWOOD. Thank you, Mr. Chairman.

    Good afternoon, and before we proceed with the hearing, I wanted to take this brief opportunity to thank Chairman Bateman for his many years of leadership and service on the significant issues that have come before this Panel. As this year will mark his final, yet enduring contribution to the Maritime Administration budget, we can all reflect upon his years of tireless advocacy on behalf of the maritime industry, the Merchant Marine, and the Merchant Marine Academy, and the Maritime Administration.

    As many of us have a perfunctory, yet sincere desire to work on matters relating to the Maritime Administration, I can testify that Chairman Bateman has a passion for these issues.

    Furthermore, his open door policy with the advocates of the maritime industry, as well as with members on both sides of the aisle have insured that the Panel remain one of the most balanced, productive, and nonpartisan efforts in Congress.

    I would like to welcome our friend, Mr. John Graykowski, Deputy Administrator of MARAD, who will present the agency's Fiscal Year 2001 budget. I know we all look forward to his testimony.
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    Mr. Chairman, the longstanding issues that are before this Panel have crucial, indeed, strategic implications for the future of the domestic maritime industry and national security. It is in this vein that I remain concerned for the future of domestic industrial shipbuilding and repair infrastructure, as well as for the men and women who make up the Merchant Marine.

    There are still many concerns that I harbor over the facilities at Kings Point Merchant Marine Academy that I fear continue not to be fully addressed with this budget.

    Mr. Chairman, with that I yield back. Thank you.

    Mr. BATEMAN. Thank you very much, Mr. Underwood, and I thank you especially for the very gracious remarks that you made with reference to me. I hope some of them were deserved.

    Mr. UNDERWOOD. All of them were.

    Mr. BATEMAN. Well, with that, we now turn to our witness. I will ask Mr. Graykowski to proceed.

    We have your complete written statement, which will be made a part of the record, and you may then proceed to make whatever comments you may choose, including delivering the written statement if you'd like.

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    Mr. GRAYKOWSKI. Well, I will spare you that wonderful experience, Mr. Chairman, and just go over a few highlights.

    First, let me note that I am accompanied by Bonnie Green, who is the other Deputy Administrator at MARAD, and she shares fully in all of the operations of the agency and is another person who is invaluable to me and to the industry itself.

    Mr. BATEMAN. We are pleased to have her.

    Mr. GRAYKOWSKI. Also, I will add my voice, Mr. Underwood, and I am sure you will be hearing this a lot this year, Mr. Chairman, but we are going to miss you. The Maritime Administration is going to miss you. Secretary Slater, Clyde Hart, and most importantly, our industry is really going to see a real hole that once was filled by a very great man who did a lot for all of us.

    And so, you know, we will persevere, but you have been a great leader and a good friend. We appreciate it.

    Mr. BATEMAN. Whatever hole is left will be filled very quickly, I am sure.

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    Mr. GRAYKOWSKI. Well, thank you, sir.

    And the same, Mr. Underwood. We have grown to have a good relationship with you. I would note that Mr. Hart is going to be visiting Guam in the very near future, and it has been good to get to know you and your district and the people of Guam actually as an important maritime area as well.

    Let me go over a few highlights of our budget which relates and hopefully reflects the commitment of this administration to this industry and all aspects of the industry within what we all know to be very tight budget constraints and a difficult budgetary situation generally.

    First of all, with respect to the Maritime Security Program, I think any one of you who were part of the enactment of that legislation can take a large measure of pride in the fact that we have done exactly what Congress told us we should do, that Congress indicated was necessary to support and enhance the national defense and the national interest.

    And we now have 47 ships enrolled in the Maritime Security Program. We have requested a full appropriation of $98.7 million to support that program, and that translates into $2.1 million per vessel.

    So as I said, the Maritime Security Program is a success not only in the fact that it reflects fully the will and intention of Congress, but we have cut what was the predecessor program, the Operating Differential Subsidy Program, by more than half in total cost to the government and, we would argue very strongly, gotten much more in return.
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    We have gotten access through our Voluntary Intermodal Service Agreement Program, VISA, access to eight and a half billion dollars worth of worldwide intermodal transportation assets. So on any calculation this is a good deal for the government and a good deal for the country because we get a lot in terms of enhanced national security assets and capability.

    Shipbuilding, which you and I both share a very common and deep interest in, remains one of the highlights and the emphases of the Maritime Administration and of the administration's budget. We have requested $2 million as an increase in the Title 11 loan guarantee program.

    While at first blush that might seem to be a rather small amount, if you take into account the fact that we have $51 million today in available funds for obligation and assume about a five percent subsidy rate, there really is a tremendous amount of money in the Title 11 program to support shipbuilding activities going forward in this year, and that is another program which, when we started it or revitalized it, if you will, in 1994, 1993 when Congress reenacted it or enacted the changes, no one could have foreseen the success that we have witnessed in that program.

    And since 1993, we have generated over $6 billion in new shipbuilding loan guarantees, shipbuilding activity—excuse me—and shipyard modernization. We started brand new projects on brand new designs, and probably the crowning sort of achievement we have had in recent times are the two very large cruise ships which are being built by Ingels Shipyards in Mississippi, which is the first time in about 50 years that this country has been building cruise ships of that size and that complexity. So that is another program that all of us have to share rightfully in a lot of pride and success.
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    Ship scrap, and you referred to that, Mr. Chairman. That is right in your home district, and, you know, that is one of the areas we are going to miss you because it is something that we do not have the luxury of time.

    The vessels are getting older day by day. We have not scrapped any ships in the last year. We have another 24 ships or so which are going to be scrapping candidates in the next year, and if we do not move forward in a very real and concerted way, we are going to some day face a very difficult situation.

    We have asked at the very least that Congress relieve us of the current deadline we face, which says to MARAD you have to scrap your ships by such-and-such a date, September 30th, 2001. We are not going to hit that, Mr. Chairman. Frankly, we cannot.

    And by way of example, between 1987 and 1994, we scrapped, MARAD, 130 vessels to foreign nations, to foreign scrappers for an average of $108 a ton. That is $108 a ton direct revenues to the Maritime Administration, which were used to support other programs.

    Only ten vessels were awarded to be scrapped domestically, by way of example or in contrast. Only ten vessels were awarded to be scrapped domestically in 1997 and 1998 at an average cost of $4.60 a ton, ''cost'' meaning that is what we would have been paid, about a $104 differential.

     Last year we awarded 12 vessels for scrapping and received the robust price of 27 cents per ton, and three vessels were sold for a grand total of $10 per vessel.
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    So there is a net economic cost to the Maritime Administration, a growing environmental problem, contingent problem, and inaction is really the worst outcome to this year's debate.

    Cargo preference is another issue which perennially presents itself to the Maritime Administration. It is something which we wrestle with to find the right balance between the needs of federal agencies to ship their goods and the requirements of the law which say they must share in supporting and enhancing and augmenting the U.S. flag Merchant Marine.

    We expect food aid programs, for example, to Russia, North Korea, and Vice President Gore's recently announced Section 416(b) program to generate about 4.7 million metric tons of bulk grain shipments this year, including the normal flow of aid cargoes to other countries.

    We do not believe, Mr. Chairman, that the existing U.S. flag dry bulk capacity is able to meet the anticipated need or demand. The proposal we have in our bill, which is the second year in a row we have presented this, would allow immediate eligibility for ships that are built in other nations to carry preference cargo in international trade.

    In order for these vessels to come into the United States, all work that would be done to convert them to U.S. flag status would have to be done in the United States. What this would do, Mr. Chairman, is for a very short period of time and a very brief window bring more ships under the U.S. flag, create more merchant mariner jobs and really relieve a lot of pressure on the Cargo Preference Program that we see each and every day which is caused by the lack of available tonnage, which we have identified and the demands of federal agencies, other agencies to support food aid programs and other international aid programs utilizing U.S. flag vessels.
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    There would be no impact and no retreat from our commitment in the administration to the Jones Act, and the preservation of the Jones Act remains one of the tenets and hallmarks of not only the Maritime Administration, but certainly our entire national maritime policy.

    You referred to the academy, U.S. Merchant Marine Academy, and we fully share your concerns there. I mean, we work every day with the academy. They are part of MARAD, fully integrated in the MARAD operations, and we see it. We see it through the cadet's eyes. We see it through the eyes of the administrative staff, Admiral Stewart and others up there.

    And I would argue that we have responded because the academy is key to making sure that we have enough merchant mariners, trained merchant mariners to provide crews for our commercial fleet, but most importantly, to provide the men and women we need to crew our ready reserve fleet and the other sealift assets of the military, if and when that's necessary.

    We have requested about $37.2 million for the academy. This is a $3.3 million increase over funds appropriated in Fiscal Year 2000. This increase will fund both operational and capital improvements at the academy.

    Of primary concern to us is the condition of the utility systems at the academy. This affects the health and safety of all of the students, faculty and staff, and we do, as you say, Mr. Chairman, have a critical backlog in terms of the repairs that are required.

    We are in the process of finalizing an overall facilities master plan. We expect a preliminary assessment later this spring, and that plan really would form the basis on which we will go forward to address the critical needs at the academy.
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    We are also requesting nine and a half million dollars for the State Maritime Academies, including two and a half million, which is needed to renovate the New York Maritime Academy's training ship, the ''Empire State.''

    Finally, Mr. Chairman, let me talk about, if I could, the marine transportation system (MTS), which has received some attention nationwide. It has gotten a considerable degree of interest and support in part of the industry, and in fact, the Congress has recognized the need to sort of look at marine transportation in a much more comprehensive, coordinated, and integrated fashion with the rest of the Nation's transportation system.

    Last September, Secretary Slater released a report to the Congress entitled ''An Assessment of the U.S. Marine Transportation System.'' This was an amazing and truly remarkable and gratifying joint effort by industry and government. The industry really brought this to fruition.

    What is reflected in that report is an accurate representation of what is on the minds of most concerned with the maritime industry.

    This past January we announced the establishment of a marine transportation system National Advisory Council, which will advise Secretary Slater on current and future matters relating to MTS. The charter for that council became effective at the end of January in 2000, and we are in the process of finalizing the membership of that Panel and anticipate the first meeting later this spring.

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    We need the continued leadership and involvement of the Congress. The marine transportation system needs attention. It needs support, and it needs a coordinated effort because without that, our entire national transportation system, national defense structure, and, indeed, I would argue the economy of the country really would be affected.

    So that is a short synopsis of my testimony. I am real eager to get into the questions and discuss whatever is on the minds of the Committee, and thank you again, Mr. Chairman.

    [The prepared statement of Mr. Graykowski can be found in the Appendix.]

    Mr. BATEMAN. Thank you very much, Mr. Graykowski. We appreciate your testimony.

    Let me start with the Maritime Security Program, and the request there for funding is $98 million, and you describe that as being full funding. You could not use more money? You do not need more money for the Maritime Security Program?

    I mean in a perfect world, what would we get?

    Mr. GRAYKOWSKI. You know, I have been working around here 20 years, and saying no when Congress asks do you need more money is really at your own danger, but the requirements of the Maritime Security Program are dictated not only by Congress and the appropriations, but most importantly by the needs assessment by the Department of Defense.

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    And we are in the process of going through a mobility requirement study that is sort of going to say here are all of our assets. Here is what we project the needs to be, and that study is going to be completed at basically the same time we have to reauthorize the Maritime Security Program.

    And so I would argue that for now we are doing fine. This is what we need, and I think it is adequate. I think in the process of this MRS review we are going to come up with an answer to your question of do you need more; if so, how much; and what kind of ships we might get.

    Mr. BATEMAN. Okay. The next subject then becomes the Title 11 Loan Guarantee Program. If I remember reading your statement correctly and hearing you correctly today, you are asking for not two million dollars more for that program, but you are asking for two million dollars; is that correct?

    Mr. GRAYKOWSKI. Yes, sir.

    Mr. BATEMAN. Now, you spoke of the Cruise Ship Program that's ongoing. Would you please furnish the Committee or the Panel for the record a sort of inventory of numbers of applications outstanding? And I do not want to get into proprietary things and put you or anyone in the awkward position of appearing to have made decisions on eligibility/noneligibility.

    But I would be very interested in being able to look at something that tells me if $2 million is an adequate way to fund that which appears to be a potential for getting American ships built in American shipyards.
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    Mr. GRAYKOWSKI. Mr. Chairman, we can provide that. There is a publicly available, pending list. Once an application is formalized and filed with the Maritime Administration, there is public record that it exists. The details obviously are somewhat protected due to proprietary, but I can give you a list of what is there, the amount that is required to support that loan, where it is being built, and what type of vessel. Yes, sir.

    Mr. BATEMAN. That would be very helpful because I do, indeed, have some reservations about the adequacy of a mere two million dollars, even though you may have what, 40-some million dollars?

    Mr. GRAYKOWSKI. Actually it is about $51 million.

    We have been told by the Office of Management and Budget, Mr. Chairman. It is tough to really say in January this is how much we are going to spend because these deals take time. They ripen at their own speed really, and you do not want to hurry something on our part which takes a lot of due diligence and analysis.

    Consequently, sort of plugging it into an annual process is really hard, annual appropriations process, but what OMB has assured us is that this year if, indeed, we do run out of money, that they are going to revisit the issue. They could consider—let me read this. I am trying to find it. I am sorry.

    Mr. BATEMAN. Take your time. This is important.

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    Mr. GRAYKOWSKI. Yes, sir. Oh, here it is. I am sorry, Mr. Chairman. ''We will need to monitor the situation during this year and determine if the need develops to reallocate the budget.''

    So that tells me that even there is a recognition, even on the part of the Office of Management and Budget, that, you know, this is sort of an inexact science here and we may have to come back and look at things later in the year.

    I apologize for the delay here.

    Mr. BATEMAN. Well, I assume they are aware that they are not in the business and do not have the authority to appropriate or authorize programs, only to request them. It helps when they make reasoned requests that meet the Nation's needs.

    It will be especially helpful if they make them in time that we have an opportunity to go through the legislative process where that can be authorized, appropriated funds.

    Okay. The scrapping problem. I do not know that that horse I can beat much harder than I have through the years, but it becomes almost a national disgrace that we are going to let old vessels just sink in the waters of our rivers and cause severe environmental concerns because we are no longer willing to make money from selling them to foreign scrappers, who are anxious to have the opportunity to do so in order that their starving population will have some source of work.

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    I would feel much better about this if you told me that the Maritime Administration was sending to the Hill a bill with some recommended changes in the law and changes in deadlines and changes in procedures and a greater freedom to do what common sense tells us needs to be done in order to handle this problem.

    Mr. GRAYKOWSKI. Well, our bill does request a change in that date, as I indicated to you, by such-and-such a date. But, you know, there's some statutory hurdles that we have right now, one of which is the current statute on the Marine Heritage Act, I think it is. It says we have to maximize the return to the government from scrapping.

    That is in contrast to the Navy, which has a pilot program where they can actually pay people to do it, and we found that there is a significantly constrained, virtually nonexistent scrapping industry in this country generally domestically.

    Mr. BATEMAN. That is why I am suggesting that maybe you should be sending us some drastically different legislation that allows us to just go on and do it the way we used to do it.

    Mr. GRAYKOWSKI. You know, we can certainly consider that. I mean, I hope you carry away, all of you Members, that, first of all, we're doing the best we can.

    Secondly, we are facing the real prospect, and we had this just last year, and to me it is just absurd and indefensible as a taxpayer, in a sense, of taking a 40 year old ship, spending $900,000 to a million-and-a-half dollars in dry dock and dragging it back out and parking it in your case in the James River, Mr. Chairman.
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    Last year we spent a million and a half dollars on a ship called the ''Export Challenger'' to pump oil out of it, and she is 33, 34 years old, and that is going to keep happening because these ships are sitting there, and they are getting older.

    So, you know, in a sense we are already paying a considerable amount of husbanding and housekeeping costs just to maintain the fleet where it is, but we can work with the Committee on that to sort of kick around some ideas.

    Mr. BATEMAN. Well, you send us a message from the Administration that they are prepared to solve this problem, and we will certainly be willing to pursue in this Panel the movement of the legislation that will make it possible.

    Mr. GRAYKOWSKI. Yes, sir.

    Mr. BATEMAN. But we cannot do it over the opposition of the administration, which is what we have had in the past.

    Mr. Underwood.

    Mr. UNDERWOOD. Thank you, Mr. Chairman.

    I would like to explore that issue on the ship scrapping a little bit more as well. Could you explain to the Panel what is the basis of the objection of the administration to opening up the possibility of scrapping these vessels overseas?
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    Mr. GRAYKOWSKI. Oh, there was a change, if you will, a reexamination and reanalysis in 1994, I believe, by the Environmental Protection Agency relating to what they—and I am just recalling this, and they really need to be asked the same question, Mr. Underwood—related to their concerns about some of what they believe to be the constituent products or byproducts of ship scrapping, polybifenols, for example, and whatever other things might be parts of ships built 40 years ago.

    That grew, as I recall, and we can elaborate for the record, into an executive order which precluded us from scrapping overseas, and that has remained basically the law that we have functioned under, and we have been precluded—excuse me—constrained and restrained, I think is in the statement, from going overseas, Mr. Underwood.

    Mr. UNDERWOOD. Well, I understand the dynamics of trying to be environmentally proactive on the issue of PCBs, but at the same time, I do not understand. Isn't there a midpoint? Are people actively exploring the possibility of how these ships can be scrapped overseas in an environmentally safe way?

    I mean we are creating our own environmental disaster domestically while we are ostensibly protecting the environment on an international basis. Has anyone actively explored that possibility or is that door just kind of slammed shut in MARAD's face?

    Mr. GRAYKOWSKI. I am not aware of any sort of organized effort on the part of federal agencies to sort of say, ''Okay. If we are going to scrap overseas, how are we going to do it?'' which I think is your question.
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    To my knowledge, that is not under discussion. We are not part of it, and as the owners of probably most of the vessels that are scrapping candidates certainly on the commercial side, I suspect we would know about it. So that is the short answer there.

    You know, I do not know if there is really that much attention, frankly, Mr. Underwood, being paid to scrapping other than by Mr. Bateman because it affects him in a peculiar way, but getting a really concentrated focus on this is a real problem, it has been a problem.

    Mr. UNDERWOOD. Well, I am a little sensitive to that issue because of the way PCBs are dealt with in law, you know. In my case, in the case of Guam, we have PCBs that have been brought in by the military. Because we are outside the custom zone, we cannot take the PCBs into the United States because of the law, and yet we are restrained from exporting them overseas, and so we are kind of stuck with them.

    I mean, it really boggles the mind to try to understand how we are supposed to be responsive to communities and responsible people on this issue. And so I really—

    Mr. GRAYKOWSKI. Well, let me assure you. We have sort of, for the most part, ''safed'' if you will, if I can coin that word or use that word, the ships. They are not liquid PCBs sort of waiting to be parts of insulation on wires, things like that which are inordinately expensive to strip out and dispose of in a Class 1 facility or incinerator.

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    You know, the irony is if you were a private ship owner and your ship got old, you could take it to India or Bangladesh or Pakistan or any of the other places that might want to scrap it and do it even as an American, Mr. Underwood, but the government is precluded from taking virtually the identical ship and disposing of it in the same way, which is fine, but there has to be an alternative. And there should be a domestic industry and an outlet to do it differently.

    But the posture of doing nothing, you know, for another year is frightening.

    Mr. UNDERWOOD. At the time that MARAD was getting revenue from this source, what did it do with its revenue? I am almost tempted to ask what did you do with the $10, but what did you do with the revenue when you were getting it?

    Mr. GRAYKOWSKI. Part of it the statute delineates exactly where it has to go. I think part of it went for the State Maritime Academies. Part of it was supposed to go to the Marine Heritage—what do they call it? And Kings Point got some of the money, too.

    It basically offset appropriations that then had to be made up by the appropriations process that you all deal with every day.

    Mr. UNDERWOOD. It sounds like a good deal for the taxpayer.

    Just on the issue of what are the most pressing problems that you see in MARAD in the infrastructure of Kings Point?
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    Mr. GRAYKOWSKI. I think probably the first number one is the utility system. I think we did some modification and upgrades on the heating plant itself, but basically you've got to go there to see the place.

    This is a national service academy. It is in no way different in terms of what its mission is than West Point or the Naval Academy or the Air Force Academy or Coast Guard Academy, and yet Admiral Stewart, who is a graduate of Annapolis, you know, it's a night and day difference to see what the conditions are at the academy, and these are men and women that we rely on the same way we do elsewhere.

    So it is hard for me. I mean, I know the heating system is on the top of the list. We need that master plan. It's a normal sort of requirement to give you the list of priorities from there.

    Mr. UNDERWOOD. Okay. Thank you.

    Thank you, Mr. Chairman.

    Mr. BATEMAN. Thank you, Mr. Underwood.

    And let me just make one parenthetical observation and then turn to the very patient Mr. Kuykendall.

    The problem at Kings Point is not a new problem just uncovered last year. It has been a problem that has been known for a long time, and you are talking about a master plan. We should have had a master plan. We should have had something in the works for the past many years to solve some of the problems there.
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    And I get very impatient at the fact that we are doing so little even this year in light of what the testimony has been in past years about the magnitude of the need, and yet we get a little dribble of capital improvement this year, and in a few months we may get a master plan.

    If you would, give us your estimate of what it will cost the American taxpayer to do the scrapping that has got to be done within the next five years if we do not find some more rational, common sense way to deal with that problem.

    That is for the record. I am sure you cannot give—

    Mr. GRAYKOWSKI. Just to clarify, what it will cost with the do nothing approach in terms of—

    Mr. BATEMAN. Well, what it is going to cost if we are going to do it in American scrapping yards and pay the cost that we used to be receiving revenue from.

    Mr. GRAYKOWSKI. The parallel that we have got is a pilot project that the Navy launched last year, and that is probably what we would take off from, recognizing differences between military ships and MARAD, but, sure, we can probably work up some numbers.

    Mr. BATEMAN. Do your extrapolation on that program.

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    Mr. GRAYKOWSKI. Yes, sir.

    Mr. BATEMAN. With whatever analysis needs to be done to make it as accurate as possible and furnish it to us.

    Now, Mr. Kuykendall.

    Mr. KUYKENDALL. Many of these touch on the same subjects you've already had, and I'll try to run through a number of questions.

    I agree with Mr. Bateman about the Maritime Security Program. If there is any reason that that is even one ship short, it ought to be in here, and I would certainly hope that you would focus on it.

    I mean, we are in an area right now particularly as it relates to national defense and the ability to move our forces wherever in the world that they have to go as we have shrunken the outlying basis, but I would rather err on the over side than the short side because the short side means people get killed, and on the over side, we might get there a day sooner or a week sooner.

    And for as little money as these programs cost us relative to what they provide us, it is not one that you should chinch on and come up short with it rather than $2 million over.

    It would be a tough problem, I am sure, if you had to testify next year and say, ''You know, we had three too many ships and, darn, we just will carry it over,'' but that has not ever happened, I do not recall, recently from the testimony that I have seen. That is just a bit of a statement.
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    On the price of these loan guarantees, I mean I have seen lots of federal government loan guarantee programs, and give me an idea. What does one ship cost? You said you had a list of all of those ships. What is the total amount of shipping if it was all put out for contract?

    You said you had a list of applications.

    Mr. GRAYKOWSKI. We have of pending applications for loan guarantees.

    Mr. KUYKENDALL. What would be the value of those loan guarantees if you had—

    Mr. GRAYKOWSKI. Oh, golly, well over $1 billion. I mean the total value of ships we are building? Oh, golly.

    Mr. KUYKENDALL. No, the total value of the guarantees that you have got to support with your $50-some million dollars worth of available cash to support guarantees. So how many dollars worth of shipbuilding, one, and, two, how many dollars worth of loan guarantees based on the list you know you have already gotten.

    Mr. GRAYKOWSKI. Right. As a rule of thumb, you multiply it by 20, the amount of money we have. So if you take $51 million plus $2 million, is $53 million.

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    Mr. KUYKENDALL. I am not asking about the money you have. I am asking about the list that you said was public.

    Mr. GRAYKOWSKI. Right. We have—

    Mr. KUYKENDALL. What is the total amount of vessel cost and how much of that is financed with loan guarantees?

    So is it $5 billion worth of vessel cost, $1 billion worth of loan guarantees, $4 billion worth of private capital to build then, and therefore, I will support $1 billion worth of guarantees with $50 million worth or money, or is it some other?

    I am trying to get where you are on the scale of the shipbuilding program.

    Mr. BATEMAN. Could I? If the gentleman would not mind my injecting myself into this, I think we need information in two distinct areas. One, what is the outstanding potential liability from loan guarantees which have been made to date?

    Mr. KUYKENDALL. That was the next part.

    Mr. BATEMAN. And then the other factor is: how much in dollar value of shipbuilding is the amount of loan guarantee money still in the pot able to create or generate?

    Am I approximately where we want to go, Steve?
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    Mr. KUYKENDALL. I was getting to the part you led with. How much do we currently have to worry about that is already outstanding and we are wondering about getting repaid on? That is the only piece I hadn't—

    Mr. GRAYKOWSKI. I do not like the word ''liabilities,'' Mr. Chairman. They are really good deals out there, but potential.

    No, our portfolio, all kidding aside, not that it is kidding, our portfolio right now is $4 billion supporting $6 billion worth of assets out there. Okay? And we have 21 projects pending. It is $3.4 billion worth of potential projects, okay, in the next year, seeking Title 11 financing for a total of $2.9 billion. That is by virtue of the 87 and a half percent. In some cases 75 percent is all that is covered by the Title 11 loan guarantees.

    We have, as I started to say, $53 billion—excuse me. Wish it was—$53 million between the carryovers and the budget request which has been submitted, and that supports about $2.5 billion, roughly, in shipbuilding.

    Mr. KUYKENDALL. At five percent it would support $1 billion dollars. So you are going to go at two and a half percent?

    Mr. GRAYKOWSKI. Oh, excuse me. It is one billion. Yes, sir, you are right.

    But keep in mind not all projects, as I tried to explain, even though there is 21 pending and you can say, geez, there is—
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    Mr. KUYKENDALL. Well, the math as you just gave it, if you doubled your funds from $53 million to $100 million, you would be able to support about 70 percent of what you think is currently in project financing, and that would allow for 30 percent of it to fall out or be delayed.

    So with using that logic, you need to add about $45 million to the guarantee fund.

    Mr. GRAYKOWSKI. Well, your math is correct, but we are not going to do—we have never done more than 10 or 12 deals in a year. Okay?

     Mr. KUYKENDALL. What if they are big deals?

    Mr. GRAYKOWSKI. Well, last year we did the cruise ship, which was $1.2, $1.3 billion, the largest we have ever done. We anticipate the so-called falling out. Folks either don't make it. Our requirements are such that we cannot meet them. For whatever reason, we do not get it.

    The $51 billion or—excuse me—the $51 million we have today, even without the appropriation, is already being spoken for as we speak, if you will. We've got projects which are rolling down the review process, are mature. They've undergone a lot of analysis, and we anticipate seeing a number of loan guarantees being let in the next three or four months.

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    So you cannot assume $51 million for the rest of the year.

    Mr. KUYKENDALL. I guess the point is it does not take very much math to figure out that $53 million, two million additional requests on top of $51 million you're carrying over, is going to be maybe 40 percent of what you've got in your pipeline if it should come to pass.

    If we want a healthy industry building ships, we need to have a better hit ratio than 40 percent. We need to have them getting 60 or 70 percent of their requests filled, not 40 percent of their requests filled in a timely fashion.

    Part of that, you have mentioned the phrase ''waiting for a deal to ripen.'' I am very familiar with ripening deals because that is what I used to do, is try to ripen them, and part of ripening is having the availability, and if the availability is not there, they sure as hell do not ripen I can tell you. They can always say that the government does not have the money.

    So if you want domestic shipbuilding, you need to push in that direction rather than drag in that direction, and if you are being drug, it is going to slow it down.

    I think you have got our point, anyway, from what Mr. Bateman said as well.

    Mr. GRAYKOWSKI. Can I make sure that the Committee understands? Because I do not want to mislead anybody. We have $58 million, but 7 of it is blocked, and, Dino, you may have gone through this last year.
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    By virtue of the fact that there has been a cap that has been imposed by the Appropriations Committees—I think it is due to them—we cannot do more than $1 billion in a year. The net result of that is there is $7 million sitting in an account that we cannot touch. That is why I am down to $51 million versus $58 million.

    Mr. KUYKENDALL. Maybe this is for the Chairman.

    Is that something we ought to look at changing if we want to do that from our perspective?

    Mr. BATEMAN. Yes, I think it is something that might be fruitful for us to explore with the appropriators, but I take Mr. Graykowski's point that we could be generous in authorization, but if they are blocked by law by the appropriations bill that they are bound by it.

    Mr. GRAYKOWSKI. Well, that is just $7 million that got appropriated. We did not use it in one year because we hit the cap. You know, it is sitting there, and it is sort of—

    Mr. KUYKENDALL. You happen to have a guy who can finance more of his ship without a guarantee, and so you got $1 billion worth of shipbuilding without using as many dollars worth of guarantees?

    Mr. GRAYKOWSKI. Well, somehow in one year we ended up with that result, yes.
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    Mr. KUYKENDALL. It is a good result if your ships are that economical. They ought to be that way.

    Another area briefly, if the Chairman would indulge me, this scrapping of ships, what is the average size of one of those ships that you have got to get rid of in tonnage? Five thousand tons, 10,000 tons?

    Mr. GRAYKOWSKI. Twenty-five to 30,000 tons.

    Mr. KUYKENDALL. Thirty thousand tons. Well, if you are getting 100—

    Mr. GRAYKOWSKI. But that is not the steel weight. I mean that is, you know, dead weight.

    Mr. KUYKENDALL. I know, but are you getting $100 a ton on the steel weight? No, I am talking about if—

    Mr. GRAYKOWSKI. Oh, gosh, no.

    Mr. KUYKENDALL. I am taking the old price you used to get.

    Mr. GRAYKOWSKI. It was $108 bucks a ton.

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    Mr. KUYKENDALL. Times how many tons for the average ship? Ten thousand tons maybe?

    Mr. GRAYKOWSKI. Maybe 5,000 to 8,000 tons, but we will have to get that.

    Mr. KUYKENDALL. Well, let's just use 5,000 tons.

    Mr. GRAYKOWSKI. The light ship weight, I think, is what the term is.

    Mr. KUYKENDALL. That is a half a million dollars.

    Mr. GRAYKOWSKI. Yes.

    Mr. KUYKENDALL. Which you can take for that vessel, and you ought to be able to come up with a program and figure out an environmental piece. Just to get a wash, I will drag it over and pump out a half a million dollars worth of bad oil or whatever it is and then ship the rest of the hull overseas and get your money back for it.

    I mean you can do a tradeoff. There are all kinds of programs, and I think what I am irked at when I see it is that there is not even a program being thought about. I mean, we are just giving away the money and still causing the environmental mess in our own waterways.

    I mean I have got two of those ships anchored in the harbor right next to where my district is. I have got—I do not know—100 of them or something up in Suison Bay.
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    Mr. GRAYKOWSKI. The ships are in Suison, Beaumont, Texas and James River. The worst are right there—

    Mr. KUYKENDALL. I am sorry. I have two ready reserve fleets—

    Mr. GRAYKOWSKI. Yes.

    Mr. KUYKENDALL. —sitting in the harbor right next, not the ones you want.

    Mr. GRAYKOWSKI. Wait long enough, and they kind of cycle in there.

    Mr. KUYKENDALL. These are pretty good looking ships. They should not get there very quickly.

    Mr. GRAYKOWSKI. Yes, I know. Those are good ones.

    Mr. KUYKENDALL. But the point is you had a great revenue source, and we gave up a revenue source to try to improve the environment, and all we are doing is making the environment worse where we are and not getting the revenue.

    So if you have still got the revenue source, we ought to figure out how to offset the revenue source against what environmental clean-up we can do for this time period and do that part domestically if we need to or do it before we get it hauled off.
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    But I am just—

    Mr. GRAYKOWSKI. We do not have anybody domestically, Mr. Kuykendall, who wants to do it.

    Mr. KUYKENDALL. Well, you were talking about spending $900,000 to pull a ship over and have its oil pumped out of it. Now, we can do that over.

    Mr. GRAYKOWSKI. Well, we did, but that was a $1.5 million, and it is still sitting in the James River though.

    Mr. KUYKENDALL. Well, that is the point. That one should have just left as soon as you did that and got something for it because you spent the money to do part of the clean-up, and there are still problems.

    Mr. GRAYKOWSKI. We have let out bids for the last two years, and people have either in one case defaulted on the contract. They go way slow on doing it. The Navy is now paying people. So what do you think the rational economic behavior is going to be? I will do a Navy ship, not a MARAD ship.

    Mr. KUYKENDALL. I would suggest that if you go from $108 a ton—

    Mr. GRAYKOWSKI. To ten bucks.
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    Mr. KUYKENDALL. —to 27 cents or nothing basically, there ought to be room to do a whole lot of environmental clean-up of that hulk so that we can make a program that is not viewed negatively when we ship it overseas. You ought to be able to do enough clean-up of that vessel for that kind of a price.

    Particularly maybe PCB is the one part that we have really got to worry about. We do not think people know how to handle those. So let's clean the PCB part and then ship it over and let somebody else do the rest of it that is not as environmentally tough to handle as PCBs are perhaps, or maybe there is some other element. I am not expert enough on ships.

    Mr. GRAYKOWSKI. Well, the returns are more than just environmental. Department of Labor, there are labor concerns. There was a Pulitzer Prize winning series out of the ''Baltimore Sun.''

    Mr. KUYKENDALL. Build enough ships though and you will have labor happy. I mean labor will be happy building ships as well as cutting them up, and you will take a lot more workers.

    Mr. BATEMAN. Well, I think—

    Mr. KUYKENDALL. I will let you go at that.

    I think the other thing for the record, Mr. Chairman, is the Merchant Marine Academy is an embarrassment.
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    Mr. GRAYKOWSKI. Yes, sir.

    Mr. KUYKENDALL. And that has to be fixed. I do not understand why you do not have a plan.

    Mr. BATEMAN. I thank the gentleman for his input, and I hope that we are going to have this Administration face up to the alternatives that are presented with reference to ship scrapping for the Maritime Administration.

    You are either going to have to do something to get some common sense back into the program or the Administration is going to have to put forward a budget that includes getting it done at the cost of the taxpayers if you are not going to do it the common sense way that we used to do it.

    With that, the very patient Mr. Jones.

    Mr. JONES. Thank you, Mr. Chairman.

    Mr. Graykowski, I just wanted to bring you back to the Merchant Marine Academy, and I really appreciate what you said. I have not had a chance to read your presentation yet, but I appreciate what you said about all of the service academies are equal in their mission and what America should expect from the academies.

    I know that the Maritime Administration is going to be requesting $37 million—I believe that is correct—for the academy. Does that even come close to what is actually needed in the way of maintenance and operational costs?
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    Mr. JONES. What would you say that figure is?

    Mr. GRAYKOWSKI. I mean, I know this is going to infuriate you guys, but I mean, until we get the plan done, I cannot give you a number. The reason I am categorical about no is exactly what the Chairman said: because it has been year after year after year, and you all own houses. It is the same. If you do not do a little bit now, it is a whole lot when you get around to it.

    And I think you can go to almost any corner of the Academy and find a real, real desperate need.

    Mr. JONES. Let me ask you, and this obviously would just be your opinion. Why do you feel that the academy, the Merchant Marine Academy, is somewhat of the stepchild? I mean, just your opinion.

    Mr. GRAYKOWSKI. I think it reflects—I mean, just my opinion—it reflects basically the general attitude people have toward the Merchant Marine generally, the awareness they have. I mean if you take this country versus Japan or Korea, both maritime nations—and I always use this in speeches—Japan has a formal national holiday for the merchant marine.

    We have got Merchant Marine Week in May, and not a lot of people understand it, but we have seen an industry that went from high on people's minds and radar screens to a very low level, and it is some their fault, because the industry is not good at self-promotion. It is some just the way the country has developed.
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    But that is probably why, and public consciousness is ultimately reflected in Congressional enactments and appropriations, and so there is a direct link. And you do not have that. We need to get back to it.

    Mr. JONES. I appreciate your comment because I agree with you fully, and we even see the same thing with the military so many times.

    Mr. GRAYKOWSKI. Sure.

    Mr. JONES. The American people, until you call on a service, no matter what that service might be, human nature, you just kind of forget it. But I think as it relates to our maritime, as well as our armed services, that obviously we all agree on this Committee that they need to be in the forefront.

    And that is what I think, Mr. Chairman, you are trying to do in this Committee, and I applaud you and my colleagues on this Committee.

    Let me ask you this. This was brought to my attention, and I really was a little bit amazed when I heard it. Can you give me an idea of how many buildings at the academy do not meet EPA water standards?

    Mr. GRAYKOWSKI. I am going to have to supply that.

    Mr. JONES. Okay. Well, Mr. Chairman, I am going to ask one other question. I have got about five or six, but with your permission I would like to submit.
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    Mr. GRAYKOWSKI. If I may, Mr. Jones, you know, how do you explain that? How do I explain that? No, it is a rhetorical, and I will get you the answer.

    Mr. JONES. Yes, sir. That is why I think, again, I want to compliment my colleagues and the Chairman, because some of these situations—I will tell you what brought this to my mind. The Chairman held a hearing last year that pretty much dealt with the Academy and the situation at the Academy. I cannot remember who the presenter was at the time. I do not have that knowledge even though my father was here for years. He was Chairman of the Merchant Marine and Fisheries Committee when they had a Committee.

    And I guess because of his interest, I did take an interest myself when I got here, and I was just somewhat taken back about what I heard, and then my staff and I at the time, we started looking into it and talking with some people that actually some of these people were graduates of the Merchant Marine Academy, and I was just somewhat in disbelief when I heard. So to see your reaction as it relates to safe drinking water, I think as you are shaking your head you agree that it is just unacceptable.

    Mr. GRAYKOWSKI. And the graduates are the best in the world, okay, as they are from the state academies, but these kids, if you look at the conditions they sort of go to school under, and yet they stick it out; they get a great degree; and they pursue wonderful careers that are good for them and good for this country, and I think that is a credit to them.

    But, yes, you walk through there, and it is pretty sad.
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    Mr. JONES. So you will be submitting—I am sorry I was late when I got here—but you will be submitting a master plan.

    Mr. GRAYKOWSKI. Yes, sir.

    Mr. JONES. As it relates to recommendations as to what the academy needs and the—

    Mr. GRAYKOWSKI. I think the good news, first of all, we are taking steps right now. We have been under terrible budget constraints, and I know you hear that from every agency, but we have, and in spite of it, we have been sort of doing what we can, if you will, at the Academy, and every year there has been capital expenditures.

    But what the master plan is going to do, I think, apart from sort of laying out the plan, it is the commitment we are making to you to work with you. Okay. Here is the deal. Here is the plan we have got. Let's go from Point A to Point Z.

    But, you know, I think we could develop that into, you know, a budget, if you will, and a budgeting plan to address the capital needs, but you cannot fix everything at once, and you have got to zero in on the most critical first, and I think that is what the plan is going to accomplish.

    Mr. JONES. Let me ask you one other question, and then I will submit the other questions, Mr. Chairman.
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    And I am sure based on your reaction, your response is this is probably true. I was told by several of these alumni a few months back that they actually have to come up with money to help pay for furniture that is in such bad shape it cannot even be used. Have you heard that before?

    Mr. GRAYKOWSKI. Yes, no. It is right here.

    I worked up here a long time. I now know what it feels like when you get all of these papers shoved at you.

    In conjunction with the ongoing needs assessment study, and after we evaluate the recommendations, we are going to consider buying new furniture for the academy. We have had to make the tough choices. We bought a new heating plant for the Academy, but there is a zero sum game associated with that. We did not buy something else, in this case probably furniture.

    The alumni association has donated $400,000. We are going to try to upgrade it. You know, that is just one of the obvious things that lean out at you when you walk through the place.

    But, you know, what is not going to strike your eye is crumbling foundations, is the water system, our buildings you cannot use because the heat is out.

    So, yes, the furniture is old and needs to be replaced, and we would like to get to that, but we are going to get to the stuff that really has a critical need and the longest term both to fix and to help.
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    Mr. JONES. Well, I thank you for being here, and I look forward, as I am sure my colleagues do, to look at the master plan.

    Mr. GRAYKOWSKI. Thank you, Mr. Jones, Thank all of you.

    Mr. JONES. Thank you very much.

    Thank you, Mr. Chairman.

    Mr. BATEMAN. Thank you, Mr. Jones.

    Let me return to this Merchant Marine Academy problem. If you look at the other service academies, and one that immediately comes to mind, and I do not object to this; I support it. I think we are spending 30-some million dollars upgrading Bancroft Hall at the United States Naval Academy. We have spent probably hundreds of millions of dollars in the last few years at West Point. I do not know what the investment is at the Air Force Academy. It is an enormous investment.

    And all of those investments need to have been made. Those investments were made because the military departments involved pressed for it in their budgets and got it approved through the whole torturous processes of OMB and the White House.

    What has been lacking from the Merchant Marine Academy is the inability of the people in the Maritime Administration to have the weight with OMB and the White House to have them authorize or to request the funding that has been critical, and for that reason it has not been done.
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    If the Committee over the five years now, I guess it is, that I have been Chairman of this Panel had any possibility of getting more money in it, we would have certainly been doing it. So it is not a lack of will on the part of this body. It is a lack of requests and recognition from the Administration that has allowed the situation to get worse and worse and worse.

    I am sure that my successors will be more than eager to tackle the problem when you finally get us a master plan that spells out the dimensions of the problem, the cost of the problems, and an administration that will look at it square in the eye and present a budget that includes doing that which needs to be done.

    I do not mean to be lecturing, but I think we all need to understand that the problem does not start here, and I do not think it starts with John Graykowski or Mr. Hart. It is a problem that has its origins elsewhere.

    Mr. GRAYKOWSKI. Well, again, it is what I referred to with Mr. Jones. It is the visibility of the industry, and we scramble and struggle as hard as we can. I think we have made great progress in the last five years in partnership with you, Mr. Chairman, and others up here, in returning this industry to its rightful place in the transportation system and in the national defense.

    But we are not there yet, and it is hard. And people just do not think about us. Heck, I will bet you could poll 100 people out there and 98 of them would not even know there was a Merchant Marine Academy, right?
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    Mr. BATEMAN. Well, let me return to the other program that we have not focused on in our questioning so far, and that is the cargo preference. You made reference to some initiative of Vice President Gore. What is that? I do not understand Vice Presidents having initiatives that get implemented. I thought Presidents and Congresses did that.

    Mr. GRAYKOWSKI. I thought you had to leave at 2:00 p.m. [Laughter.]

    Mr. GRAYKOWSKI. To be totally honest, that was a sentence in the statement that I read—

    Mr. BATEMAN. Get back to me on that. Get back to me on whatever this initiative is and by what authority it is initiated.

    And I will just mention since we are running out of time you mentioned the unwavering support of the Administration for the Jones Act.

    Mr. GRAYKOWSKI. Yes, sir.

    Mr. BATEMAN. Which I take it to mean you will not be pressing any longer for us to pass the enabling legislation for the OECD shipbuilding agreement, which was very contrary to the American Jones Act.

    And with that I think we have to adjourn because I have got to go preside over another hearing.
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    Thank you so much.

    Mr. GRAYKOWSKI. Thank you, Mr. Chairman. We really are going to miss you. Thanks, all of you all.

    Mr. BATEMAN. Okay. The hearing is adjourned.

    [Whereupon, at 2:00 p.m., the Special Oversight Panel was adjourned, subject to the call of the Chair.]


February 29, 2000
[The Appendix is pending.]