Washington Insider - Money and Regulations Top Washington's Agenda
The Maritime Executive | June 1 2012

Don’t be distracted by all the presidential politicking. There’s important maritime business going on in Washington.

As the buildup to a full-fledged presidential campaign dominates the nation’s media, lawmakers and policymakers in the nation’s capitol returned to the nitty-gritty details of governing. Having achieved bipartisan agreement on the overall level of federal spending, the intricate decision-making of actually implementing fiscal restraint has begun in earnest. Meanwhile, debate also swirls around controversial regulatory initiatives advanced by the Obama Administration.

President Obama launched the annual appropriations struggle by announcing that his budget proposal for 2013 freezes domestic spending for five years and thereby reduces the deficit by $400 billion. He emphasized that his proposal reduced domestic spending to its lowest level since the Eisenhower Administration. It was, nonetheless, immediately and roundly denounced by Republican congressional leaders. Senator Mitch McConnell (R-KY) declared it was merely a “campaign document.” House Speaker John Boehner decried it as a “gloomy reflection of [President Obama’s] failed policies.”

Putting aside the political rhetoric, the real process of setting national priorities is now underway. Hearings, debates and negotiations are proceeding on Capitol Hill, and decisions are being taken by the Administration on determining national funding priorities and establishing new regulatory requirements affecting the maritime industry. All of this pick-and-shovel work proceeds against the fiery backdrop of the 2012 presidential and congressional elections, wherein the competing parties principally seek to define themselves and their opposition with dramatic contrasts for political advantage.

Shrinking Budgets for the Coast Guard and Navy
In this year’s budget and appropriations processes, key maritime constituencies are vying for shrinking funding. There is no plainer illustration of this than the Administration’s proposal to dramatically cut the shipbuilding budgets of the U.S. Navy and Coast Guard. The Administration’s budget would cut the Navy’s program by approximately 30 percent over the next five years by foregoing the building of 16 ships previously planned. Likewise, the budget for the Coast Guard fails to include long-lead funding for the seventh and eighth national security cutters, and the service's five-year capital investment plan shows no money for these cutters beyond the sixth ship. The proposal cuts approximately $1.4 billion from the Coast Guard’s acquisition plans in the next few years. In 2013 alone it cuts the Coast Guard's acquisition funding by 20 percent, down $272 million from this year's level of $1.46 billion.

The significance of the Administration’s decision to withhold funding for these national security cutters cannot be exaggerated. As a practical matter, the budget represents a cut of 25 percent in the Coast Guard’s long-range capability by reducing the cutter fleet from eight to only six ships. Coast Guard Commandant Robert Papp has emphasized the service’s need for “modern ships capable of independently operating on the high seas to perform missions like drug interdiction” because “these cutters enable us to stop multi-ton loads of pure cocaine before they reach our shores.” He further highlighted that smaller cutters simply cannot operate in the harsh Bering Sea.

Secretary of Homeland Security Janet Napolitano acknowledged the Administration’s elimination of the two cutters in congressional testimony and justified it because of a need to reduce federal spending and to see what the Navy does. According to the Secretary, “We need to look at what the Department of Defense is doing with respect to their own force ... to see what we need to be putting in the acquisition pipeline." But this explanation rings hollow when the same budget slashes the Navy’s shipbuilding program. The explanation, of course, appears to be nothing more than an artful dodge demonstrating that the Administration’s budget priorities do not include shipbuilding. Is the Secretary really suggesting that the many previous years of justifications of the need for the national security cutters has been summarily abandoned or that the Navy’s shrinking fleet of frigates will perform Coast Guard missions?

Additionally, the President’s budget cuts operating expenses by four percent or $350 million, which means the service will lose 1,000 personnel and decommission five cutters (including two high-endurance cutters), three patrol boats and two air rescue facilities. Admiral Papp has explained he operates an aging fleet of ships and aircraft plagued with chronic breakdowns and skyrocketing maintenance costs, warranting further decommissioning.

The Administration’s budget priorities clearly lie elsewhere. Obama himself acknowledged as much in a speech following the unveiling of his budget when he explained that he had proposed a massive $74 billion transportation infrastructure funding plan for roads, bridges and mass transit at the cost of other agencies’ budgets.

Ports and MARAD Feel the Ax Too
Other maritime programs are also falling on hard times. The President’s budget cuts port security grant funding by 59 percent, the Maritime Administration’s budget by $10 million, and eliminates funding for small shipyard grants. The longstanding, bipartisan-supported PL-480 food aid funding program, which fills the holds of many U.S.-flag ships and strengthens our national security, has come under increasing pressure from the Administration and long-time critics, who favor local purchase of foreign food rather than export of American agricultural products by American mariners to aid famine-stricken regions of the world.

Unfortunately, the setting of national budget priorities is not simply a partisan divide. For example, the Chairman of the House Appropriations Subcommittee, Representative Robert Aderholt (R-AL), provided cold comfort to the Coast Guard Commandant during his recent congressional testimony. That subcommittee has a history of skepticism towards the service’s major shipbuilding priorities, preferring patrol boats instead and leaving it to the U.S. Senate to rescue the Coast Guard’s budget. Thus, setting national priorities plays out amidst competing institutional, regional and industry constituencies, not just partisan ones.

Agreement on Ballast Water Regulations
The Obama Administration is also forging ahead with important regulatory initiatives affecting the maritime industry. In recent months the Environmental Protection Agency (EPA) issued its new proposed Vessel General Permit (VGP) and undertook a public comment process, soliciting input from those affected by the proposed changes. For the first time the agency is proposing effluent limits for ballast water discharges from commercial vessels in the U.S. And while that has captured industry attention, the more significant development is that in the end, after years of controversy, EPA ultimately decided to coordinate its approach with the U.S. Coast Guard and use the discharge standard adopted by the International Maritime Organization (IMO) in 2004.

Thus, as a practical matter, a decade after the IMO established the effluent standard, the EPA will accede to it as the logical starting point following improvements in technology in the intervening decade. Importantly, the EPA decision relies upon two scientific studies conducted by the National Academy of Sciences and the EPA Science Advisory Board, which concluded that practical technology is available to achieve the standard. Thus it appears that the EPA has principally grounded its approach in what is technologically feasible. However, considering the sordid history of oil pollution-prevention technology on ships, it is incumbent on the industry to ensure that it is not again being saddled with another unreliable technology that renders compliance a trap for the unwary.

New York State’s recent decision to abandon its unilateral demand for stricter standards in favor of coordinating with other states and the EPA to achieve a uniform national discharge standard marked an important political breakthrough in the struggle over how to implement ballast water standards. No doubt the maritime industry and its allies have found a more hospitable audience in the Cuomo and Obama Administrations, which have made jobs’ growth their top priority.

Offshore Permitting in Alaska
Another major area of regulatory activity by the Obama Administration has been its recent approval of offshore oil exploration, particularly in coastal Alaskan waters. On February 17 the Administration approved permit applications by Shell Oil for drilling in the Chukchi Sea, and it is expected to soon do likewise for the Beaufort Sea. The Administration’s approval of the permits necessary for these drilling projects follows years of litigation by environmental organizations implacably opposed to drilling in Alaskan waters. For example, a leading environmental critic denounced the drilling as “beyond the pale of stupidity.”

Yet the Administration approved the permits. While the potential nightmare of an oil spill in the Arctic region sparks painful flashbacks to the Deepwater Horizon and EXXON Valdez oil spills, the risks have been reduced. The wells will be in much shallower water than the Deepwater spill, and the new well-capping technology developed in response to that incident reduces the potential risk. If these wells can be successfully drilled without major environmental harm, they promise to open the way to widespread exploration of the coastal waters of Alaska. Shell Oil estimates those reserves contain the extraordinary potential of 25 billion barrels of oil and 120 trillion cubic feet of gas. The wells could soon supply 500,000 barrels a day for the Trans-Alaska Pipeline, a major source of the nation’s domestic oil production.

The significance of the Administration’s actions in granting these permits cannot be overstated. On March 13, by a vote of 57-41, the U.S. Senate resoundingly rejected proposed legislation to open more coastal waters and the Arctic National Wildlife Refuge for oil drilling. Seven Republican senators voted against the proposal, highlighting its political sensitivity. The Administration’s approval rejected the cries of its environmental allies. It has thereby concluded that the American people are willing to allow it to proceed cautiously. But the Administration remains mindful of the potentially devastating political blowback of another major oil pollution incident from a drilling project that it has approved.

Decision-Making Deserves Attention Now
While national media attention focuses on the results of the latest Republican primary contests and the emergence of President Obama’s reelection campaign strategy, legislators and policymakers in Washington are debating and determining the crucial details that make law and policy real to the nation’s maritime industry. Major appropriations decisions impact not just the government’s maritime agencies but also important elements of the industry. Regulatory decisions are being made establishing the rules for years to come. Therefore industry leaders are well-advised not to let their interest in the campaign imbroglio divert their attention from the real work of government underway in Washington right now.

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