May 19, 2005

House panel votes for limit on Navy ship leasing

In what has been hailed as "a victory for the defense shipbuilding industry," Congresswoman Jo Ann Davis (R-VA) won overwhelming bipartisan support for an amendment to the Department of Defense Authorization Bill to limit leases of foreign-built ships to not more than two years. Her amendment was adopted by the full House Armed Services Committee by a vote of 32 to 16.

"Congresswoman Jo Ann Davis stood up for the industry and the security of our nation with this important amendment," said Cynthia Brown, president of the American Shipbuilding Association. "The Department of Defense (DOD) practice has been to evade the Budget Enforcement Act and U.S. acquisition laws by purchasing, via long-term leases of 59 months in duration, foreign-built ships to the detriment of America's defense industrial base."

Congress enacted the Budget Enforcement Act in 1990 to curtail leasing of capital assets such as ships because of budget analyses demonstrating that leasing is more expensive to the taxpayer than a direct acquisition. DOD, however, has been leasing foreign-built ships for 59 months, or one month shy of five years, and then leasing the same ship for another 59 months to meet military unique long-term mission requirements. By using a lease contract one month shy of five years, DOD is not required to request funding authorization for the entire cost of the lease in the first year as required by Office of Management and Budget regulations accompanying the Budget Enforcement Act.

U.S. law also requires that ships purchased for all branches of the Armed Forces be built in the United States. The American Shipbuilding Association says this law is being circumvented because a lease acquisition is not technically interpreted as a "purchase".

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