Trump and the Maritime Industry: A Look Back and Forward

Mainbrace | March 2018 (No.1)

Joan M. Bondareff and Stefanos N. Roulakis

We have completed one year with the Trump administra­tion, so it is therefore a good time to assess whether he has made any drastic changes in his administration’s approach to the maritime industry. In short, there have not been any major changes. But as with almost everything involving the federal government, minor changes can have great effects.

The First Year

AROUND THE DEPARTMENTS AND AGENCIES
The president has put in place his appointees to key mar­itime positions: Secretary of Transportation Elaine Chao, who has a significant maritime background as the former Deputy MARAD Administrator; Rear Admiral (“RADM”) Mark Buzby, the new MARAD Administrator and former Commander of the U.S. Military Sealift Command; Secretary of the Interior Ryan Zinke, who oversees oil and gas development as well as off­shore wind on the Outer Continental Shelf (“OCS”); and Secretary of Homeland Security (“DHS”) Kirstjen Nielsen, who oversees the Coast Guard (among other agencies). Additionally, Chief of Staff John Kelly is intimately familiar with the Coast Guard from his time undertaking joint operations with the agency while he was in the military. Unlike previous administrations, at least there are political and experienced appointees in place to set maritime policy. We will discuss below what new policies they have put in place.

The president also recently gave his first State of the Union address and submitted his first full budget, outlined below. He described in general terms his request for Congress to enact a $1.5 trillion infrastructure package, but with few details. Draft guidance from the White House indicates that the president intends to leverage $200 billion in federal funds to achieve this goal, allowing state and local govern­ments and the private sector to invest the rest. At a recent Coast Guard Subcommittee hearing, RADM Buzby was asked if he was consulted by Secretary Chao on maritime elements of the infrastructure plan, and he said that he had recommended her support for the marine highway program and small shipyard grants. No mention was made of the ever-popular TIGER grants. We will have to see the devil in the details once a real plan is announced.

FY2019 BUDGET PROCESS UNDERWAY
Further, the budget cycle is well under way in Washington. The president just presented his FY2019 budget request to Congress, which will serve to quantify his administration’s priorities for the upcoming year. This process has been affected by the recent spending bill—the “Bipartisan Budget Act of 2018”—that raises the limits for both defense and discretionary spending. In addition to providing additional funding for hurricane and wildfire relief, this act calls for the sale of some of the U.S. strategic petroleum reserves. This sale could trigger additional movements of supply in the Jones Act market.

INTERIOR SUPPORT FOR OIL AND GAS—AND OFFSHORE WIND
The secretary of the interior wears three hats—land and resource owner, resource developer, and protector of our natural resources. The direction has tilted towards develop­ment with the shrinking of two Obama monuments (Bears Ears and Grand Staircase Escalante in Utah) and the recent release of the proposed five-year plan for oil and gas leas­ing on the entire continental shelf of the United States. The draft plan, received with controversy by several states and non-governmental organizations, is open for comments until March 9, 2018. At the same time, the Department of the Interior (“DOI”) continues to support offshore wind development on the OCS and has recently issued new draft guidelines to expedite permitting of offshore wind farms. At this time, the DOI has already issued 13 leases for offshore wind farms off the Atlantic seaboard and more are in the works.

RESPONSES TO MARITIME TRAGEDIES
At the DHS, the Coast Guard remains under the steady hand of its nonpartisan commandant, with a new commandant expected to be named soon. The Coast Guard is reacting, of course, to its own report and the report by the National Transportation Safety Board (“NTSB”) on their oversight of merchant ships such as the El Faro, which tragically sunk at sea with all hands aboard in 2015. The Coast Guard has stated that they will make it a top priority to provide much better oversight of merchant mariners and third-party classi­fication societies.

The Navy, under the leadership of Secretary Richard Spencer, has also taken a beating (understandably so) from the two tragic accidents at sea of the John McCain and the Fitzgerald, resulting in loss of life that, as the Navy admitted in the case of the McCain, was “avoidable.” Training of per­sonnel or lack thereof seems to be a problem once again.

TIME FOR A NEW POLAR ICEBREAKER?
In the meantime, the Coast Guard issued a Request for Information on the construction of one to two heavy polar icebreakers. Responses were submitted last year, and a Request for Proposal is expected sometime this year for the first polar icebreaker. Construction may take place in 2020, depending on available funding.

CONFUSION ON THE JONES ACT CONTINUES
Customs and Border Protection at the DHS has added to the confusion of how to apply the Jones Act to the OCS by first issuing, and then revoking, a letter ruling that, in turn, withdrew 26 letter rulings interpreting the Jones Act. This has resulted in litigation as well as oversight hearings by the Coast Guard Subcommittee of the House Transportation and Infrastructure Committee.

ON THE HILL
The first session of the 115th Congress came to an end at the end of 2017, and we are now in the second session. Congress accomplished a few major items in 2017—a number relevant for the maritime industry. The first, it has to be acknowledged, is the passage of the Tax Reform and Jobs Act of 2017, which dramatically reduced the corporate tax rate from 35 percent to 21 percent. Some corporations are meting out the tax breaks in bonuses and increases in employee wages; others may pay these out in dividends to stockholders. Two provisions in the tax bill addressed renew­able energy: 1) the good news—Congress left intact the 2015 agreement on the Production Tax Credit for wind farms, phasing it out over five years; and 2) the not-so-good news—Congress added a new BEAT (Base Erosion Anti-Abuse Tax) tax, which is designed to encourage companies with reve­nues overseas to bring them back to the United States or face a higher tax. This could have a dampening effect on equity investment in renewable energy projects.

WHERE IS THE COAST GUARD BILL?
Closer to home, Congress has failed to enact legislation authorizing the programs of the Coast Guard for this year and the next. Final passage has been held up by disagree­ment among senators on the Vessel Incidental Discharge Act (“VIDA”) provisions. The ongoing debate is on whether the Coast Guard should alone regulate these discharges or if the Environmental Protection Agency (“EPA”) should also have a permitting role. Great Lakes senators in particular want states to have more of a role, which the EPA permit process allows.

Although we are more than halfway through the fiscal year, Congress has yet to enact appropriations to fund agency programs and new starts. The current continuing resolution (“CR”) expires on March 23, at which time we anticipate final appropriations as well as perhaps the Coast Guard bill attached to what has come to be known as the “CRomnibus”—a combination of a CR and whatever appro­priations can be agreed to by members of Congress—to be enacted. No new starts and no new contracts can be awarded under a CR.

On the plus ledger, Congress once again passed and the president signed the National Defense Authorization Act (“NDAA”). The NDAA includes provisions autho­rizing the programs of MARAD, including the Maritime Security Program and small shipyard grants. The NDAA also authorized funds for six polar class icebreakers.

A Look Forward

The president released his FY2019 budget on February 12, 2018. It is the starting point for a congressional debate on winners and losers in the agencies. One positive sign for the maritime industry is that the president’s budget for the Coast Guard includes $750 million for the construction of a new polar icebreaker. On the other hand, the Trump budget zeroes out funding for the title XI loan guarantee program and small shipyard grants, as well as decreases funding for the Maritime Security Program.

Personnel changes can be expected in the White House, but no changes have been forecast yet in the agencies with mar­itime jurisdiction.

If we are lucky, Congress will resolve its differences over VIDA and we will have a Coast Guard Authorization bill that the president can sign.

We anticipate continued oversight on the Coast Guard’s and NTSB’s recommendations on the El Faro sinking, and intensi­fied oversight by the Coast Guard of third-party classification society work and maritime training. The NTSB and the Coast Guard have been asked to report back to Congress in June on their progress in implementing recommendations.

Irrespective of the Trump administration’s decision to with­draw from the Paris Climate Agreement—which has not yet happened—states and municipalities are continuing to sup­port renewable energy and reductions in greenhouse gases. Additionally, companies are buying more and more renew­able energy and renewable energy credits through direct and virtual power purchase agreements.

WHO WILL FUND THE $1.5T INFRASTRUCTURE DEFICIT?
Congress will begin to take up the president’s proposed infrastructure plan. How to fund a $1.5 trillion investment will be the key question. The administration supports $200 billion in federal funding to induce the rest in private sector investment; Democrats have supported one trillion dollars in direct federal funding, perhaps financed with an increase in the gas tax. President Trump him­self has spoken out in favor of increasing the gas tax. The ports have already identified their needs as requiring $66 billion in port-related infrastructure investment over 10 years, some of which could be included in this year’s Water Resources Development Act bill.

Conclusions

There have been no drastic shifts in U.S. maritime policy under President Trump. The administration continues to support the Jones Act, despite issuing three national security waivers during this hurricane season. The president’s budget does not support popular maritime programs, such as TIGER grants, but Congress will have a final say in this matter.

The maritime industry should come up with its own wish list of infrastructure projects—whether it is increased support for the title XI loan guarantee program, the Marine Highway Program, small shipyard grants, or TIGER grants. The admin­istration should provide the necessary resources for training of mariners, oversight by the Coast Guard of third-party soci­eties, new polar icebreakers, and infrastructure that is badly needed to maintain our marine and commercial highways, ports, and bridges.