Senate Joint Resolution No. 171, adopted by the 1998 Session of the General Assembly, established a joint subcommittee to study economic incentives to promote the growth and competitiveness of Virginia's shipbuilding industry. The joint subcommittee was charged with determining whether, and at what level, tax benefits or other economic incentives would be an effective tool in ensuring the continued health of Virginia's maritime industries.

During its first year the joint subcommittee held two meetings, during which it received information regarding the condition of Virginia's shipbuilding industry. The evidence presented indicates that the industry, while still a major presence in the economy of Hampton Roads, is being buffeted by changes in the market that make its long-term prospects uncertain. The joint subcommittee was cautioned that the survival of the shipyards is critical to the continued success of the ports of Hampton Roads. If shipowners are unable to have work performed on their vessels while in Virginia's ports, they may bypass the region in favor of competing port facilities on the Eastern Seaboard. Moreover, the private yards' capacity to repair Naval vessels provides a vital national defense resource.

The changes facing the industry include the reduction in the size of the Navy in the wake of the end of the Cold War, the shrinking amount of Navy ship repair work that is allocated to private yards, and the lack of commercial ship building and repair work resulting from subsidies provided by foreign governments to their own yards. The pressures are affecting shipyards in the rest of the nation as well as in Virginia.

As a result of these and other factors, employment in Virginia's yards has declined by one-third since 1990. Several firms have been forced to seek the protection in bankruptcy court. Norshipco, one of the largest yards in South Hampton Roads has been acquired by Southwest Marine, Inc. While the Hampton Roads Planning District Commission has described the outlook for the shipyards in Hampton Roads as optimistic, others see a bleak future.

The Navy's allocation of approximately eighty percent of non-nuclear Navy ship repair work to the federal Norfolk Naval Shipyard is endangering the future of some private shipyards. While the joint subcommittee cannot direct a change in the Navy's procurement practices, it will continue to monitor the issue.

The joint subcommittee was requested to examine five proposals to assist the Commonwealth's shipyards in making the transition from its traditional focus on Navy work to a new economic era in which firms will need to compete with yards in other states and other nations for the available commercial shipbuilding and repair work while exploring non-traditional opportunities. These recommendations include:

1. Extending deadlines for complying with state TBT regulations;

2. Establishing a Virginia Marine Industrial Commission, similar to the Virginia Film Commission, to promote and provide marketing assistance to the shipyard industry;

3. Establishing a study committee to review the federal and state workers' compensation acts to eliminate duplicative coverage that make the benefit programs confusing and costly;

4. Establishing a study committee to conduct a comprehensive study of the tax structure of the Commonwealth and its impact on the shipyard industry;

5. Considering future proposals for incentives for firms to invest in capital improvements in their shipyards.

These proposals were presented to the joint subcommittee at its meeting on December 17, 1998, and consequently there was insufficient opportunity to address them prior to the 1999 Session. The complexity of the issues prevented the joint subcommittee from completing its mission in a single year. Accordingly, the joint subcommittee recommends that the study be continued for a second year.

Recommendation:

The joint subcommittee's study of economic incentives for Virginia's shipbuilding industry pursuant to Senate Joint Resolution 171 should be continued for a second year.