Budget

A Pork Program for Shipbuilders


Even as Congress rails over runaway spending, a visit to Norfolk, Va., shows how hard it will be to trim the budget. At the Lambert’s Point Docks, you’ll find a pair of passenger ferries commissioned by Hawaii Superferry. The Honolulu company got $140 million in federal loan guarantees to cover the cost of the ships, but it filed for bankruptcy and defaulted on the loans in 2009. Since taking possession of the ferries last October, the U.S. Maritime Administration has been stuck trying to sell them to recoup some of the government’s money.

The guarantees came from an initiative known as Title XI, which has long been used by both Republicans and Democrats to support shipbuilders and owners of all kinds of marine vessels in their districts. The program was suspended in 1987 after 129 defaults cost the Treasury some $2 billion. It came back in 1993 when Title XI was reauthorized, and since then the government has paid out $801 million in defaults on 15 loans it guaranteed. It recovered just $142 million from ship auctions and other asset seizures. Despite the losses, members with shipbuilders in their districts will “fight to the death for it,” says Chris Edwards, a scholar at the Cato Institute, a Washington group that advocates for smaller government.

Vessel owners have won $798 million in new guarantees this year, the most since 2001, and an additional $712 million worth is being reviewed. Maritime Administrator David Matsuda says guarantees approved in recent years will create 8,000 jobs, though he acknowledges that the agency hasn’t always properly assessed risk. At times, Matsuda said at a House hearing on Mar. 1, “decisions were made that, well, maybe they weren’t the best.”

The bottom line: A federal program that guarantees loans to shipbuilders has cost the government billions, but Congress continues to back it.

Kollipara is an intern for Bloomberg News.

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