Keep that number in your head. Four. That is the number of graduates from New York (SUNY) Maritime in 2010 (the last, and only, year for which the data has been published) who incurred an obligation to the federal government in return for the annual multi-million investment it makes in the school. In contrast, USMMA produces approximately 225 graduates every year, all of whom incur an obligation to the federal government.
Let me start by saying that I regret that the battle to protect the Academy from an attack from within — by people at MARAD — has affected the traditionally friendly rivalry between the state maritime schools and the Academy. Unfortunately, as detailed here, the prior MARAD administration used USMMA midshipmen as pawns in a quest to create Congressional support for a $1.8 billion federal bailout to buy new training ships for the use of the six state maritime schools. I suspect that most of the state school administrators were unaware of MARAD’s actions; however, with former Deputy Maritime Administrator, Michael “Anchorman” Rodriguez (who cheered on the USMMA sea year
stand down cancellation) now collecting his 30 pieces of silver as the new superintendent of Texas Maritime, It’s no longer reasonable to presume such innocence. Consequently, until MARAD stands down from all efforts to alter the Academy’s sea year program on commercial ships as a part of the effort to fund state school training ships, I’m going to continue to comment on the efforts of those schools to obtain the funding for those new ships.
Which brings me to the renewed lobbying effort by the state schools to get a Congressional $1.8 billion bailout. The link is to a message from the president of SUNY Maritime, Michael Alfultis (who just happens to be a registered lobbyist). Alfultis has announced that the state schools are amping up their lobbying effort for the $1.8 billion bailout. But you will notice a few interesting things about his message. First, he cleverly only mentions funding a single ship; yet, all six state schools have made it clear that they each want a brand new ship. The other thing that Alfultis doesn’t mention is the price tag. His message only mentions $36 million; but, that sum is for the design of the ships. Once the ships are designed, you’ve got to build them; and the current estimate for building each ship is $300 million, according to this Congressional Budget Office estimate (at page 17). So the price tag to build six state maritime school ships comes to $1.8 billion (before cost overruns).
The last Congress recognized that $1.8 billion for six ships was not feasible. When MARAD and the state schools’ lobbyist (K&L Gates) came before Congress seeking the bailout, the House THUD Appropriations Committee instead instructed MARAD
“to report to the Committees within 180 days of enactment of this Act a cost-benefit analysis of undertaking a design and build effort for new schoolships versus purchasing and retrofitting ships less than 10 years old available on the open market.”
Committee Report, pp.57-58 (emphasis added).
Here is Alfultis’ non-answer to a similar question in his recent message:
I am often asked why we don’t convert a ship. There are several reasons. First, this is not just a SUNY Maritime effort. The SMA [n.b. state maritime academy] ships are federally owned. The Department of Transportation is responsible for identifying a suitable ship or, if none is available, authorizing new construction.
Second, the current training ships were all obtained by converting a ship in the ready reserve fleet (RRF) or by purchasing a US-flag ship. Congressional earmarks previously funded the conversions. There are no more suitable ships in the RFF and no more earmarks. Requests for funding for programs must be included in the administration’s budget for Congress to consider funding.
Finally, MARAD has done numerous studies that indicate that new construction is the most cost-effective solution. If MARAD was to propose one solution and the SMAs were to push another, Congress would not fund either.
Let’s deconstruct the above non-answer:
First, DOT has absolutely no obligation to provide the state maritime schools with training ships. The law, 46 U.S.C. § 51504(b), allows the Secretary of Transportation to lend a ship to a state school for training purposes and allows the Secretary to authorize construction of such a training vessel; but, it does not require the Secretary to do so. Historically, the United States has loaned surplus vessels to the state maritime schools. To suggest that DOT owes it to the schools to provide them with brand new training ships because it does not have any suitable surplus ships is ludicrous.
Second, the idea that because earmarks are banned, funds to convert an existing ship to a training vessel are not to be had; but, funds to buy new ships at a much higher cost are available, is inaccurate. This is a game of semantics. Funds to renovate existing ships can be provided in the MARAD budget in the same way that funds to buy a new ship can be put in the budget.
Third, the economics of converting a ship have altered dramatically over the last five years. The argument used to be that it didn’t make sense to convert a 25 or 30-year-old ship because its useful life expectancy was too short given the conversion costs involved (including complying with new regulations and replacing out-of-date equipment). For example, here’s what the then-president of Mass Maritime, Richard G. Gurnon, had to say in March 2015 about converting existing ships to training ships:
“It doesn’t make sense for the federal government to take old ships and invest money to repurpose them. It would make sense to build them from the keel up.”
But with the expansion of the Panama Canal in 2016, there is now a glut of young ships on the market that didn’t exist when Gurnon made his statement only one year earlier. Ships that are only seven years old are being sold for scrap for pennies on the dollar. Last year, you could have driven this 7-year-old containership off of the lot for a mere $5.5 million. And the sale of such a young ship for scrap value was not an isolated event. It is disingenuous to suggest that outdated studies of conversion costs are relevant in today’s vastly different market. Congress clearly is aware of that the market has changed — that’s why it wanted a feasibility study from MARAD based upon “retrofitting ships less than 10 years old available on the open market.” And, the notion floated by Alfultis — that the state schools should not propose a solution that is contrary to MARAD’s new ship solution — is insulting to Congress and smacks of arrogance. Congress authorizes the spending — how about proposing a solution that is of interest to Congress instead of pursuing MARAD’s budget-busting-but-bureaucracy-building-boondoogle?
The federal government has an obligation to all taxpayers to get a good bang for its buck. As described above, a part of that equation is not buying a new ship for $300 million when you can get six ships that are only 7 years-old for a tenth of that amount and then convert them for far less than the cost of new ships.
What about the Return on the Federal Government’s Investment? Alfultis’ letter does not discuss how the state schools meet, or do not meet, the needs of the federal government — if the federal government is providing subsidies, then it should get a return on its investment that reflects its needs. For example, the federal government funds USMMA because it needs to ensure that in times of overseas hostilities, ships carrying the United States’ military sealift are competently manned by trusted personnel who are subject to recall by the federal government. Every graduate of USMMA “pays” for the “free” education at the Academy with three critical obligations to the United States: to sail in the merchant marine for at least five years; to maintain his/her Coast Guard license for six years (which effectively means for ten years since licenses are issued for five year terms); and to serve for eight years as a reserve officer in the United States military. MARAD monitors what USMMA graduates do during their obligation period to ensure compliance.
In contrast, only a few students from all six state maritime schools combined graduate with a similar obligation This despite the fact that the schools receive substantial financial subsidies from the federal government. Along with loaning each school a training vessel, the federal government provides funds for operating expenses ($26+ million budgeted for FY17) and it offers the “Student Incentive Program,” (SIP). For those students willing to incur a post-graduate service obligation, the SIP covers funding “to offset the cost of uniforms, books, subsistence, and tuition.” The SIP sailing obligation is for only three years; the reserve officer obligation and the license maintenance obligation are the same as for USMMA.
In 2010, (the last, and only,*** year for which data is publicly available), a total of only 38 graduates from the all six state schools combined participated in the SIP, of which only four were SUNY graduates. [Remember that number?] So let’s assume that the United States buys SUNY a $300 million training ship with a service life of thirty years. And let’s assume that SUNY doubles (compared to 2010) the number of graduates who exit the school with the service obligation to eight graduates. That works out to a cost of $1.25 million per per student. That’s in addition to the state school operating expenses that MARAD already pays (which yields a return (across all six state schools) of approximately $700,000/obligated student). That’s more than five times the cost the government pays to train USMMA midshipmen. The United States would get a much better bang for its buck by simply expanding the size of the student body at the Academy to absorb the few students at the state schools who participate in the SIP.
If I were a Member of Congress faced with an “ask” for a $1.8 billion bailout, I’d have a series of questions I’d want answered:
- I don’t care if MARAD says it wants new ships or what out-of-date studies show. And I certainly don’t care that you don’t want to offend the folks at MARAD. What is the cost of converting a ship to a training ship based upon today’s market?
- Would you agree that if the federal government is to fund the training ships as you propose, every student who embarks on the summer sea term on such vessels should be subjected to obligations to sail in the merchant marine, maintain their licenses, and serve as officers in a military reserve unit?
- Over the past five years, how many of each state school’s students graduated with the SIP obligation and why is this information not routinely published?
- Do you agree that as long as the United States is paying the costs for the training ships, it should be able to dictate that the ships be shared between the state schools?
- What if Congress decided to only fund three new ships and required them to be shared between two state schools each. Would you rather have three new ships that you share or six converted ships that you don’t share?
So why does this matter to USMMA? Because all evidence suggests that MARAD canceled sea year to use USMMA midshipmen as pawns to bolster its effort to force Congress to fund the training ships. It goes back to April 2016 and the introduction of Senate bill S.2829 where MARAD sought to have a plurality of state school representatives recommend to Congress that USMMA shift sea year from commercial ships to “alternative training.” Thank goodness that was caught in time, found buried amidst SA/SH language, and removed before the final bill became law.
That language did not write itself.
*** We suspect that the publication of the number of service-obligated state maritime school graduates for 2010 was a mistake. MARAD has assiduously avoided publicizing this information.