SCA Weekly Report | May 5-9, 2014 & HASC NDAA Summary

budget update 

HASC COMPLETES FY15 NDAA MARKUP 

Early Thursday morning just past midnight, the House Armed Services Committee (HASC) wrapped up its work on H.R. 4435, which would authorize defense programs for fiscal year 2015. The legislation, approved on a 61-0 vote, is now scheduled for House floor action the week of May 19.  The HASC bill authorizes $496 billion in discretionary Department of Defense spending in fiscal 2015, plus an additional $79.4 billion for war operations. The measure also would provide for $7.9 billion in mandatory spending and $17.9 billion for national security programs under the Department of Energy.
 
While conforming to spending levels Congress and the White House agreed to in the December budget deal, the bill shifts $6.8 billion among weapon system investment accounts and boosts modernization spending by a total of $1.5 billion. The net increase in weapons spending proposed by the House panel nearly corresponds with a recommended $1.4 billion reduction in readiness spending. 

  • Procurement: $90.8 billion (+$1.3 billion)
  • R&D: $63.5 billion (-$200 million)
  • O&M: $164.3 billion (-$1.4 billion)
  • OCO placeholder: $6.2 billion in procurement; $64.7 billion in O&M, $7.1 billion in military personnel

In total, the House panel would reallocate spending on modernization projects in order to redirect $4.2 billion in additions to Pentagon-requested spending; these shifts would be paid for in part by reductions totaling $2.6 billion from both procurement and research and development accounts.  The House panel recommends adding $3.3 billion to two dozen projects, most of which would benefit Navy programs. These include $800 million for a down payment on a 12th San Antonio-class ship, $782 million spread throughout the Navy SCN, OPN, O&MN and MilPers accounts to be used toward refueling the aircraft carrier George Washington instead of decommissioning the warship, and $450 million to buy five additional EA-18G Growler aircraft.  The procurement increases would be offset by $2 billion in cuts to DOD-proposed spending in FY15, including a $450 million/1-ship cut to the Littoral Combat Ship program, a $54 million decrement to the Navy's DDG-1000 new destroyer program and a $220 million reduction to the Navy's moored training ship request.
 
In order to address the Navy's pending need for resources to replace the retiring Ohio-class nuclear submarines, the HASC bill establishes a "National Sea-Based Deterrence Fund" as special funding category outside of the SCN account to manage the obligation and expenditures for the advanced procurement or construction of nuclear-powered strategic ballistic missile submarines.  The bill allows up to $3.5 billion to be moved into the account from SCN unobligated balances.
 
The committee also voted to bar the Pentagon from inactivating or placing in storage U.S. Navy's guided-missile cruisers and amphibious landing dock ships.  The Navy wants to sideline 11 Ticonderoga-class cruisers, at a projected savings of about $4 billion over five years, with plans to upgrade the ships in the future.  The amendment offered by Rep. Forbes (R-VA) and adopted by voice vote also directs the Navy to upgrade two cruisers during fiscal year 2015.
 
An amendment proposed by Ranking member Smith (D-WA) was passed by voice vote that directs the Navy Secretary to review the proposal to disestablish the National Defense Sealift Fund (NDSF) and provide budget recommendations to appropriate new Navy auxiliary ships.  The Secretary must also report on how the Navy would plan to maximize the use of major shipboard components manufactured in the United States in the construction of DOD sealift and Navy auxiliary ships.
 
Additionally, the HASC bill authorizes an additional $70 million for MARAD's Title XI loan guarantee program.  An amendment was also passed that requires the Secretary of Transportation to provide a report on Obsolete Vessel "Best Value" Contracts as pertaining to MARAD's ship disposal program by March 1, 2015.
 
The HASC mark is a bellwether but just one of four, and it is still very early in the budget process.  SCN and Maintenance and Modernization tables are provided below.  Links to HASC NDAA resources can be found
HERE A more extensive summary that includes legislative provisions of interest will be provided once the Committee finalizes the report.

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HAC-THUD MARKS FY15 MARAD APPROPRIATIONS

On Wednesday the House Appropriations Transportation, Housing and Urban Development (THUD) Subcommittee approved by voice vote its draft fiscal 2015 spending bill.  The bill provides funding for the Maritime Administration which is part of the Transportation Department.  The bill includes $17.1 billion in discretionary spending for DOT, $727.3 million below the current year and $5.8 billion less than the administration's proposal. It includes $40.25 billion for highways, $15.7 billion for aviation programs, $10.5 billion for transit projects, $1.4 billion for the Federal Railroad Administration, $824 million for safety programs and $305 million for the Maritime Administration.  No funding was included for the Small Shipyard Assistance Program, per the Administration request, and no additional funding provided above the $3.1 million requested for Title XI administrative expenses.  Additionally, the bill rescinds $29 million from Title XI funds appropriated last year.  No amendments were offered during the markup, and full committee consideration of the bill is possible by the end of May.

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OMB ISSUES FISCAL YEAR 2016 BUDGET GUIDANCE 

In a memo sent to agency and department heads on May 5, the White House's Office of Management and Budget (OMB) has asked federal agency heads to plan for ways to cut their fiscal 2016 discretionary spending by 2 percent from the FY2016 levels included in the FY2015 budget issued this past March.  The guidance would see the Defense Department lose $10.7 billion from the $535 billion the Department estimated it would have in FY2016.  While the FY2016 budget year does not begin until Oct. 1, 2015, the Obama administration's budget submission to Congress for that year is due Feb. 2, 2015. Agencies will prepare their budget proposal details in the fall, with final decisions on what to present to Congress likely to be made in early 2015.  A copy of the memo can be read HERE.

ADMINISTRATION OPPOSES HOUSE COAST GUARD BILL 

The Obama administration is urging the Senate to reject a House-passed Coast Guard Authorization Bill, saying the legislation would weaken federal marine safety programs and increase costs to the Coast Guard.  In an April 17 letter (HERE) to Sen. Jay Rockefeller (D-WV), chairman of the Senate Commerce, Science and Transportation Committee, Brian de Vallance, acting assistant secretary for legislative affairs at the Department of Homeland Security, said the administration "strongly opposes" the House bill and urges the Senate to delete many aspects of that proposal. "The bill would sharply increase the cost of shipping emergency food aid, potentially denying relief to more than 2 million persons in need annually," he wrote. "Additionally, it would degrade federal marine safety regimes, increase risks within the maritime operational environment, and both increase the Coast Guard's operating costs and prevent the service from realizing planned savings."  The House passed the Coast Guard and Maritime Transportation Act of 2014, H.R. 4005, in April. 

HAC MAKES FY15 SUBCOMMITTEE ALLOCATIONS 

The House Appropriations Committee approved by a vote of 25-20 the fiscal year 2015 spending allocations for each of its 12 subcommittees.  Total discretionary spending for FY 2015 is $1.014 trillion in budget authority, which reflects the budget agreement signed into law in December. Subcommittee spending allocations approved by the committee, known as 302(b) allocations, are as follows:

  • Agriculture - $20.88 billion
  • Commerce, Justice - $51.2 billion
  • Defense - $490.96 billion
  • Energy - $34.01 billion
  • Financial Services, Government - $21.28 billion
  • Homeland Security - $39.22 billion
  • Interior, Environment - $30.22 billion
  • Labor, Health and Human Services - $155.69 billion
  • Legislative Branch - $4.26 billion
  • Military Construction - $71.5 billion
  • State, Foreign Operations - $42.38 billion
  • Transportation, Housing - $52.03 billion

MARAD NEWS

MARAD HOSTS SECOND DOMESTIC MARITIME SYMPOSIUM 

On Tuesday, the Maritime Administration hosted the second National Maritime Symposium that focused on the domestic maritime sectors. The goal of these symposiums is to share ideas and concepts that will eventually inform a national maritime policy. The event featured three panel discussions highlighting ports, shipyards and domestic shipping. Matt Paxton, SCA president, moderated the shipyard panel which included participants Allison Stiller, DASN Ships; Tom Wetherald, GD NASSCO; John Rayfield, House Subcommittee on Coast Guard and Maritime Transportation; and Paul Albert, VT Halter Marine. Overall, the symposium reaffirmed the domestic maritime industry's importance to national and economic security. Speakers, including Secretary of Transportation Anthony Foxx, reaffirmed the domestic industry's vital contributions to the nation. Rep. Joe Courtney (D-CT) who spoke during lunch, said stability is needed within the industry, and that includes the Navy shipbuilding sector.
 
A webcast of the event can be viewed
HERE.

REGULATORY UPDATE 

SEC ISSUES PARTIAL STAY OF CONFLICT MINERALS RULE 

On Monday, the SEC stayed the parts of its conflict minerals rule recently found unconstitutional by the U.S. Court of Appeals for the District of Columbia Circuit.  The partial stay states that companies and foreign private issuers-when filing their disclosures by June 2-do not have to describe their products as "DRC conflict free," "not been found to be 'DRC conflict free,' " or "DRC conflict undeterminable." Recall, the rule requires companies and foreign private issuers in the U.S. to report their use of so-called "conflict minerals"-gold, tantalum, tin and tungsten from the Democratic Republic of Congo and adjacent countries-if those minerals are "necessary" to a product made by the companies. The SEC's partial stay was in response to a petition by the three business groups (including the National Association of Manufacturers of which SCA is a member and an active participant on the Conflict Minerals Task Force) that sued over the rulemaking. The commission denied the groups' full request to stay the entire rule.

OFFSHORE ENERGY NEWS 

ENERGY DEPARTMENT SELECTS OFFSHORE WIND ENERGY PROJECTS

On Wednesday the Department of Energy announced the selection of three offshore wind demonstrations to receive up to $47 million each over the next four years to deploy innovative, grid-connected systems in federal and state waters by 2017. The three demonstration projects are part of the agency's efforts to establish a domestic offshore wind industry and could each provide 12 to 30 megawatts of electricity.  The projects are located off the coasts of New Jersey, Virginia and Oregon. These are the finalists from a group of seven offshore wind projects the agency selected at the end of 2012 for design, engineering and permitting work.

  • Fishermen's Energy will install five 5-megawatt direct-drive wind turbines approximately three miles off the coast of Atlantic City, New Jersey. This project will utilize an innovative, U.S.-developed twisted jacket foundation that is simpler and less expensive to manufacture and install than traditional offshore wind foundations.  Fishermen's project will act as a laboratory for researchers to learn about offshore wind and investigate interactions between turbines.
  • Principle Power will install five 6-megawatt direct-drive wind turbines approximately 18 miles off the coast of Coos Bay, Oregon. The U.S.-developed WindFloat semi-submersible floating foundation will be installed in water more than 1,000 feet deep, demonstrating an innovative solution for deep water wind turbine projects and  lowering costs by simplifying installation and eliminating the need for highly specialized ships.
  • Dominion Virginia Power will install two 6-megawatt direct-drive wind turbines 26 miles off the coast of Virginia Beach, utilizing a U.S.-designed twisted jacket foundation. Dominion's project will demonstrate installation, operation and maintenance methods for wind turbines located far from shore. Additionally, the Dominion project will install and test a hurricane-resilient design to ensure that offshore wind facilities placed in hurricane-prone U.S. waters are reliable, safe, and cost-effective.

NAVY PERSONNEL UPDATE 

NAVY NAMES NEW SURFACE FLEET BOSS 

The Pentagon announced Monday that Rear Adm. Tom Rowden has been tapped for appointment to the rank of vice admiral and to head of Naval Surface Forces, relieving Vice. Adm. Thomas Copeman.  Rowden currently is the director of Surface Warfare for the chief of naval operations in the Pentagon. Rowden graduated from the Naval Academy in 1982 and is a nuclear-trained surface warfare officer who has commanded the destroyer Milius, and served as reactor officer on the carrier George Washington. As a flag officer, he has led the Ronald Reagan and Nimitz Strike Groups.  

Additionally, 
Rear Adm. Peter J. Fanta will be assigned as director, Surface Warfare Division, N96. Fanta is currently serving as deputy director for resources and acquisition, J8, Joint Staff.

INTERNATIONAL NEWS 

RUSSIA TO DISPERSE NEW SUBMARINES TO BLACK SEA 

Following the annexation of the Crimean peninsula, Defense Minister Sergei Shoigu announced Russia plans to stock up its Black Sea fleet this year with new submarines and warships and advised that new air defense and marine infantry units would also be deployed at the fleet's bases, which include Sevastopol in Crimea. A 40-warship fleet is planned with funding upwards of 86.7 billion rubles ($2.43 billion) by the year 2020.

IRAN TO TARGET U.S. AIRCRAFT CARRIERS IN TIME OF WAR 

Iran will target American aircraft carriers in the Persian Gulf should a war between the two countries ever break out, the naval chief of Iran's powerful Revolutionary Guard warned Tuesday as the country completes work on a large-scale mock-up of a U.S. carrier.  The remarks were made by Adm. Ali Fadavi, who heads the hard-line Guard's naval forces.  Iran is building a simple replica of the aircraft carrier USS Nimitz in a shipyard in the southern port of Bandar Abbas in order to be used in future military exercises.  Fadavi was quoted Tuesday by the semi-official Fars news agency as saying the immense size of the U.S. carriers makes them an "easy target." He said contingency plans to target American carriers are a priority for the Guard's naval forces.  "Aircraft carriers are the symbol of America's military might," he said. "The carriers are responsible for supplying America's air power. So, it's natural that we want to sink the carriers."
 
The Revolutionary Guard's naval forces are separate from the main Iranian navy. They are primarily based in and around the Gulf and include a number of missile boats and fast-attack vessels.  Iran's military leaders believe future wars will be air and sea-based. Tehran has sought to upgrade its missile and air defense systems, as well as its naval forces in anticipation of such a possibility.
 
An American Navy official in the Gulf was dismissive of the Iranian claims, and of the simulated carrier in particular.  "Whatever Iran hopes to do with the mock-up, it is likely to have zero impact on U.S. Navy operations in the Gulf," said a spokesman for the U.S. Navy's 5th Fleet.  "Firing weapons at a stationary structure floating on pontoons is not a realistic representation of having the capability to target a 100,000-ton warship ... maneuvering at speeds in excess of 30 knots," he said.

FINCANTIERI TAKES STEPS TOWARD IPO

Italian state-controlled shipyard Fincantieri has filed a request to list shares on the Milan stock exchange, part of a plan to offer a minority stake in the firm to investors.  The Italian government announced last year that it would seek to offer around 40 percent of the yard to investors through an initial public offering as well as a capital increase.  On Tuesday, the company filed its request for a listing, which could take place this summer, forming part of a wider program of privatizations of Italian state firms aimed at cutting national debt.  Apart from building warships and cruise vessels at Italian yards, the firm spent $120 million in 2008 to take over Manitowoc Marine Group (MMG), and through it the Wisconsin-based Marinette Marine yard, which builds littoral combat ships.  In a €455 million deal signed in December 2012, Fincantieri took over 10 shipyards building offshore vessels for oil rigs from Korean shipbuilder STX.  The firm saw an €85 million profit in 2013 with new orders totaling €4.9 billion.

ARCTIC UPDATE 

HOUSE BILL INTRODUCED TO ESTABLISH AMBASSADOR FOR ARCTIC AFFAIRS

Congressmen Jim Sensenbrenner (R-WI) and Rick Larsen (D-WA) introduced the "United States Ambassador at Large for Arctic Affairs Act of 2014" (H.R. 4538) to amend the State Department Basic Authorities Act of 1956 to establish a United States Ambassador at Large for Arctic Affairs.  Currently, 20 government agencies are handling Arctic policy. Under this legislation, an Ambassador would be charged with all coordination and serve as Chair of the Arctic Council when the U.S. assumes Chairmanship of the Arctic Council from 2015-2017.