U.S. Merchant Fleet Kept Afloat With Tax Dollars : Subsidies: Obscure laws typify ‘corporate welfare.’ Some business breaks no longer serve original purpose.

Life is good for the men who sail the President Truman.

This hulking commercial container ship, which ferries everything from walnuts to blue jeans to videocassette recorders between California and Japan, is one of the world’s most sophisticated oceangoing vessels. It boasts an extensive network of computers, fax machines and navigational gadgetry--not to mention a golf driving range, swimming pool and sauna.

As chief engineer of the Truman, Richard Moylan, 37, is in charge of keeping this miniature city afloat. The job has “moments of panic,” he said, “and hours of boredom.” Each round-trip voyage means 10 long weeks away from home.

But for every 10 weeks at work, there are 10 weeks of vacation--time Moylan spends golfing, taking college courses, traveling or relaxing at his home in the fashionable San Francisco suburb of Mill Valley. And the money can’t be beat: American merchant mariners earn as much as $150,000 for six months’ work. “It’s a great lifestyle,” said Moylan, whose pay is $354 a day.

And it comes courtesy of the taxpayers of the United States.

To keep the President Truman sailing under the American flag, the U.S. Maritime Administration will write a check of roughly $3.3 million this year to the ship’s owner, American President Lines of Oakland. The company says it will use the public money to pay the salaries of Moylan and other crew members, who earn four times the pay of their foreign counterparts.

These little-known payments are part of a complicated web of assistance that the government provides to dozens of commercial shipowners, the lion’s share of which goes to APL and a handful of others. For the past 60 years, these subsidies--some direct, others indirect--have helped prop up the nation’s dying maritime industry, costing taxpayers about $1 billion each year.

The theory is that, in wartime, the nation needs these ships and the seamen who run them. The reality, according to critics, government auditors and even the Pentagon, is that this noble effort to promote national security has evolved into an entrenched system of business breaks that continue even though they no longer serve their original purpose.

Now that may change.

Such payments have a new name in Washington. No longer are they plain old “subsidies.” Suddenly they are “corporate welfare”--in an era when welfare is a dirty word. And with a new breed of Republican budget-cutters running the show on Capitol Hill, programs like the one that pays Moylan’s salary may soon be on the chopping block.

Indeed, as Congress struggles to balance the nation’s checkbook by the year 2002 by scaling back social welfare programs--such as student loans, Medicaid and Aid to Families With Dependent Children--business is getting the same scrutiny as welfare mothers.

Last month, Rep. John R. Kasich (R-Ohio), chairman of the House Budget Committee, declared war on corporate welfare. Last week, the House suggested it is ready to make good on that threat; its budget plan targets a broad swath of government subsidies, cutting $17 billion in farm subsidies and $4 billion in mass transit operating subsidies, among others.

The House plan also recommends abolishing the U.S. Maritime Administration, which runs the maritime subsidy programs. Although the subsidies could be transferred to other agencies, a House Budget Committee report cast them in a dim light, saying they “have undermined the competitiveness of U.S. shipping and shipbuilding.”

In anticipation of the current budget debate, two corporate welfare “hit lists” began making the rounds in Congress earlier this year. The libertarian Cato Institute recommended eliminating $87 billion in annual business breaks--an amount equal to about one-third of the Pentagon budget. The liberal Progressive Policy Institute called for $131.2 billion in corporate welfare cuts over five years.

The maritime industry was hardly the biggest corporate welfare beneficiary to earn a spot on those lists. That distinction is reserved for farmers, utility companies, airlines, aerospace firms, hospitals and mass-transit construction companies, among others.

But maritime subsidies offer an illustration of how corporate welfare has survived over the years and are typical of most business-subsidy programs--obscure, so convoluted most people are afraid to tackle them and too small to make much of a dent in the $1.5-trillion federal budget.

“All of these programs, not just the maritime subsidies, are relatively small in terms of the whole budget picture,” said Stephen Moore, the author of the Cato Institute report. “So the political price of getting rid of them is much higher than the political value of getting rid of them.”

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If anyone can testify to this, it is Tom Tellure.

Tellure is a federal white-collar crime investigator who in 1993 worked on the National Performance Review, Vice President Al Gore’s task force on streamlining government. He stumbled across maritime subsidies and, intrigued, decided to look into them. He recommended abolishing the subsidies, as well as regulations like those requiring U.S. ships to hire expensive American crews that make the government support necessary for shipowners to survive foreign competition.

“The maritime subsidies make absolutely no sense at all,” Tellure said. “I’m all for national security, and I’m all for helping our country, but we’re not helping the taxpayers of this country by having these subsidies.”

But Tellure didn’t figure politics into his equation, and when word of his plans leaked, there was an uproar in Congress. Only then did Tellure learn that 400 of the 435 House members were receiving political contributions from either shipowners or maritime unions. His proposal was deleted from Gore’s final report, and the subsidies remained intact.

This is a textbook example of why business breaks have for years escaped the budget ax, said Robert Shapiro, vice president of the Progressive Policy Institute.

“These subsidies are the making of economic policy according to the distribution of political influence, and that’s why they are sustained,” Shapiro said. “They are not a partisan issue. Among various subsidies, you will find liberals, conservatives, Democrats, Republicans supportive. It’s not ideology. It is transactional politics.”

Subsidies make curious bedfellows. How often, for instance, does Sen. John B. Breaux--the Louisiana Democrat whose state is home to the Lykes Bros. Steamship Co., the biggest beneficiary of maritime subsidies--see eye-to-eye with Sen. Trent Lott, a Republican from Mississippi, another Gulf Coast state with a busy shipping trade?

And why else would Sen. Charles E. Grassley, a Republican from Iowa, derisively brand shipowners and merchant seamen “the welfare queens of the high seas?”

The reason is not apparent to the uninitiated: The farmers in Grassley’s home state must share agricultural subsidy money with the shipowners and merchant seamen. This is because the U.S. Department of Agriculture is required to use U.S.-flagged ships to send food to needy nations overseas--a practice that over the past three years has cost taxpayers $600 million more than shipping goods under foreign flags.

The more money spent on shipping, the less there is for farmers.

Given such quirks of bureaucracy, experts say, there is only one way to attack corporate welfare: Congress must roll the subsidies into a package and do away with them all at once.

“You are never going to get rid of these if you take each constituency one by one,” Moore said. “I have been dealing with almost every single business group that is trying to promote these programs, and they all say the same thing: that this is essential to dealing with foreign competition, or we need this subsidy program to maintain America’s dominance in such and such industry, or for national security reasons, whatever.”

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From his desk in the cavernous union hall that belongs to the Marine Engineers Beneficial Assn., Cecil McIntyre spends his days trying to thwart people like Moore.

As the Southern California business agent for the union that represents Moylan and the other engineers aboard the President Truman, McIntyre is fighting to preserve the subsidies that are, in effect, keeping jobs for these engineers and other merchant seamen--nearly 10,000 people in all.

Where critics see a drain on American taxpayers, McIntyre sees jobs for hard-working, honest Americans.

Where critics complain about fat salaries, McIntyre heralds just compensation for long nights away from home and dangerous work. He recounts how last year a maritime engineer electrocuted himself. Two years ago one suffocated, leaving six children without a father.

Where critics say foreign crews will do, McIntyre says you get what you pay for. Foreigners, he maintains, are not as well-trained as Americans--and certainly not as loyal to the Stars and Stripes.

Smoking one stubby cigarette after another, the union man works the phones and fax machine, dispatching missives to members of Congress, journalists, anyone who will listen. One sentence blurs into the next as he makes his impassioned plea.

“I’ll admit that there might be people saying: ‘Well, this is just another guy whining about losing his job.’ And I would go along with that, if the government didn’t bring this situation about in the first place. They’re the ones that started the subsidies. They’re the ones that wanted the ships in wartime, and now they want to turn around and leave you high and dry.”

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To understand what brought “this situation about in the first place,” one must look as far back as the founding of the republic, to 1789, when the first Congress required that any vessel flying the U.S. flag be owned and manned and built by Americans.

This simple premise--that American merchant seamen should work American ships--has been costly for companies like American President Lines. Ships that fly under foreign flags can hire cheaper labor and face fewer of the regulations that drive up operating costs.

In the face of stiff foreign competition, Congress has over the past century put into place an array of subsidies designed to keep America’s merchant marine alive. The first was enacted in 1904, when Congress ordered that military goods transported by sea be shipped on U.S.-flagged vessels. Food aid shipped to foreign nations is governed by the same rule.

The General Accounting Office has estimated that from 1989 to 1993, these indirect “cargo preference” subsidies cost U.S. taxpayers $578 million a year more than shipping on foreign-flagged vessels. Shipowners, however, contend the GAO’s analysis is flawed. They maintain cargo preference costs taxpayers nothing.

In 1936, with World War II looming, Congress voted to make direct payments to shipowners who signed 20-year contracts with the military pledging that their vessels would be available to carry cargo in wartime. As part of the contracts, merchant marine unions agreed that, in the event of a national emergency, they would provide crews to staff the military’s “ready reserve fleet” of 80 ships.

These “operating differential subsidies”--so named because they account for the difference in pay between U.S and foreign crews--now average $3.5 million per ship for 75 ships. With the current contracts about to expire, the Clinton Administration has proposed a 10-year, $1.3-billion plan to eventually decrease the subsidies to a flat $2 million per ship per year for 50 ships.

The Administration says the subsidies are vital to the nation’s military and economic health.

“Every major trading nation in the world finds it in their best national interest to have a merchant marine,” said Vice Adm. Albert Herberger, head of the U.S. Maritime Administration. “We feel very strongly that it is worth paying some amount of the taxpayers’ money for that. . . . We think it’s in our vital interest not to be able to have to depend on unknown foreign personnel.”

Critics say the subsidies aren’t working. Despite 60 years of government assistance--or perhaps because of it, as these critics contend--the American maritime industry is a shadow of its former self.

At the end of World War II, America dominated the world market in commercial shipping, with about half the fleet--more than 2,000 ships--sailing under the U.S. flag. Today, fewer than 350 vessels fly the Stars and Stripes. Seafaring jobs also have dwindled, down to 10,000 from 100,000 in 1960.

Some, like Herberger, say this is because the industry is now more efficient. Fewer ships carry just as much cargo with smaller crews. Others, like Rob Quartel, a former U.S. maritime commissioner who is an outspoken foe of the subsidies, say the payments have stripped the industry of its incentive to compete. “We have killed this industry with kindness,” Quartel said.

At the Pentagon, meanwhile, officials question whether the subsidies remain necessary. Commercial container ships, they note, are not very useful in mobilizing troops for war. They are not equipped to carry tanks, trucks or helicopters needed during the “surge”--the first few days of a military maneuver. They handle only “sustainment cargo,” providing food, clean undershirts, ammunition and the like to troops once they are in position.

During the Persian Gulf War, U.S.-flagged ships carried roughly three-quarters of the sustainment cargo headed for the Gulf. But once the huge container ships got close to their destination, the goods were often transferred to smaller foreign-flagged vessels to be taken into the war zone.

“They’re saying: ‘You need us during wartime, you need us during wartime,’ ” said one Pentagon source. “Of course, any American fighting man or woman would like to have their stuff shipped on U.S.-flagged vessels. But we have got to be reasonable about what the American taxpayer is willing to spend for it. It’s expensive.”

Shipowners counter that their critics fail to understand the crucial benefits their companies provide to the military, including a vast network of trucks and train lines and feeder ships. They argue that not every conflict will enjoy such broad international support as Operation Desert Storm. There may come a time when only Americans will do America’s work.

“Can you rely on foreign citizens to support your troops in the event of a national emergency?” asked American President Lines spokesman Gil Roder. “That is the question.”

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As the debate rages on, each side armed with its own cost-benefit analyses, the men who sail the President Truman are keeping close tabs on Washington, wondering if the subsidies will survive the budget battle.

With the ship’s extensive communications network, Capt. John Monson says, the mariners are never far removed from politics--no matter how far they are from home.

But the captain refuses to venture a guess as to his future. Asked how he expects the vote to go, he flicks his thumb against his forefinger and raises his eyes to follow the imaginary coin he has pretended to toss.

“If you could foresee that one,” he said, shrugging, “you could probably do better in Vegas.”