SD18 - Economic Incentives to Promote the Growth and Competitiveness of Virginia's Shipbuilding Industry

Executive Summary:
The Joint Subcommittee Studying Economic Incentives to Promote the Growth and Competitiveness of Virginia's Shipbuilding Industry was first established by the 1998 Session of the General Assembly (Senate Joint Resolution No. 171; Appendix A). The joint subcommittee was created in large part due to concern over the number of jobs lost by the shipbuilding industry. By the mid to late 1990s, employment in Virginia's shipyards had declined by approximately one-third since 1990. In addition, the industry needed an infusion of capital for the development of state-of-the-art manufacturing facilities to remain competitive and to maintain its position as a leader in the shipbuilding industry. For these reasons, Senate Joint Resolution No. 171 charged the joint subcommittee with determining whether tax benefits or other economic incentives would be an effective tool in ensuring the continued health of the Commonwealth's maritime industries.

Following its first year of study in 1998, the joint subcommittee was continued in 1999 (Senate Joint Resolution No. 436; Appendix B), 2000 (Senate Joint Resolution No. 177; Appendix C), 2001 (Senate Joint Resolution No. 351; Appendix D), and 2002 (Senate Joint Resolution No. 91 ; Appendix E) due to the complexity and the multitude of issues afflicting Virginia's shipbuilding industry. As the joint subcommittee progressed in its study of Virginia's shipbuilding industry, issues such as the Commonwealth's regulation of tributyltin (TBT), the establishment of a state commission to promote and provide marketing assistance to the industry, and the dwindling supply of tradesmen and craftsmen to fill shipbuilding positions became just as important as tax benefits and economic incentives for reviving the shipbuilding industry. Thus, the joint subcommittee examined much more than its initial charge to study tax benefits and economic incentives for Virginia's shipbuilding industry.

The joint subcommittee made several legislative recommendations in the course of its five-year study. The recommendations included:

• Funding in the amount of $500,000 to the Center for Advanced Ship Repair and Maintenance (CASRM), a § 501 (c) (3) organization retained to develop a water treatment process which can help lead to industry compliance with Virginia's Water Quality Standard for TBT. Virginia's Water Quality Standard for TBT is 1 part per trillion (1 ppt). To meet this standard, the Environmental Protection Agency (EPA) required Virginia, beginning in 1994, to include in the permits issued to shipyards a numerical effluent limitation of 50 ppt for TBT. The permits issued to Virginia's shipyards required them to comply with this effluent limitation by December 2002.

Because there was no known technology for meeting the 50 ppt effluent limitation for TBT, Newport News Shipbuilding, Norfolk Shipbuilding & Drydock Corporation (Norshipco), and Colonna's Shipyard, Inc. established CASRM to develop a commercially feasible process that could be used by Virginia's shipyard companies to remove TBT from shipyard wastewaters. While CASRM has made some progress in developing a technology to remove TBT from shipyard wastewaters, as of the fall of 2002, its water treatment process still could not consistently meet the 50 ppt effluent limitation.

• Along with the recommendation to provide funding to CASRM was a related recommendation to change the date by which shipyards had to comply with Virginia's Water Quality Standard for TBT (House Bill No. 389, Senate Bill No 147; 2002) (Appendix F). The joint subcommittee recommended that the compliance date be changed to January 1, 2008, to coincide with the effective date of an international treaty banning the use of TBT. In the interim, the Commonwealth and the shipyard industry would continue to make a good faith effort to develop a water treatment process that ultimately will result in compliance with Virginia's Standard for TBT.

• Establishment of a program to provide grants to shipyards making capital investments. The intent of the program was to provide financial incentives for shipyard companies to invest in infrastructure and new technology. Under the program, ship repair companies would receive a grant from the Commonwealth for making a capital investment of at least $50,000. In general, the amount of the grant would equal 10% of the cost of the capital investment. The joint subcommittee believed that investment in infrastructure and technology was necessary for Virginia's shipyards to remain competitive and to retain their positions as industry leaders.

• Establishment of an apprenticeship program for shipyard workers at Tidewater Community College. The program would be designed as a three-year program consisting of classroom study and on-the-job training for full-time shipyard workers. Classes would be offered in the fields of welding, burning, blasting, and other applied sciences. An Associate in Applied Science degree would be conferred on persons successfully completing the program. The joint subcommittee believed that such a program would result in a better-trained workforce and would help to decrease the employee turnover currently plaguing the industry by providing more career advancement opportunities at Virginia's shipyards for shipyard workers.

• Funding in the amount of $200,000 to the South Tidewater Association of Ship Repairers Inc. (STASR) to help fund the development of a coordinated marketing program promoting Virginia's shipyard industry. STASR is a nonprofit trade association, exempt from federal income taxation under § 501 (c) (3) of the Internal Revenue Code, organized for the purpose of maintaining the integrity and high professional standards of the ship industry in Hampton Roads, Virginia and to promote the interests of the industry. STASR represents approximately 117 member companies of Virginia's shipyard industry, which account for 37,000 jobs.

The joint subcommittee heard testimony that Virginia's shipyards must diversify their customer base and become more competitive in the commercial shipbuilding and repair work marketplace. This has become necessary as the amount of shipbuilding and ship repair work ordered by the United State Navy declined precipitously in the 1990s. The joint subcommittee felt that a coordinated marketing program promoting Virginia's shipyards would pay dividends in the form of additional shipbuilding and repair work from the commercial market.

Recommendations Adopted by the General Assembly and the Governor

House Bill No. 2121 (2001; Appendix G), signed into law by the Governor on March 25, 2001, established, effective July 1, 2001, an apprenticeship program at Tidewater Community College for shipyard workers. The elements of the program are virtually identical to those recommended by the joint subcommittee. The apprenticeship program is a three-year program offering on-the-job training and classroom education in industrial applied sciences to full-time shipyard workers. An Associate in Applied Science degree will be conferred upon shipyard workers who successfully complete the program. Classes are currently being offered to shipyard workers.

House Bill No. 2121 also created the Virginia Vocational Incentive Scholarship Program for Shipyard Workers. The objective of the program is to provide scholarships to shipyard workers enrolled in the apprenticeship program, subject to funds being appropriated for such purposes.

Eligible applicants must be shipyard workers living in Virginia. Scholarship awards are contingent upon the recipient maintaining a cumulative grade point average of at least 3.0 on a scale of 4.0 or its equivalent at the completion of each academic year. In addition, each scholarship recipient must sign a promissory note under which he agrees, upon graduation, to work continuously as a shipyard worker for the same number of years that he was the beneficiary of a scholarship.

Legislation that would have changed the deadline to January 1, 2008, for shipbuilders' compliance with Virginia's Water Quality Standard for TBT was introduced for consideration by the 2002 Session of the General Assembly (Senate Bill No. 147; House Bill No. 389). While this legislation was not adopted by the General Assembly, in 2002 the Virginia Department of Environmental Quality restated Virginia's numerical effluent limitation of 50 ppt for TST on an equivalent mass basis as 5 grams/year. Thus, the 50 ppt effluent limitation will be restated in permits issued to Virginia's shipyards and implemented on a basis of 5 grams/year. The EPA gave its verbal approval for this restatement in 2002.