Financial Aspects of the Maritime Administration's Title XI Federal Ship Financing Fund

Pursuant to a congressional request, GAO discussed on the Maritime Administration's Title XI Federal Ship Financing Fund and summarized its financial aspects. The Federal Ship Financing Program was created to encourage construction of vessels through loan guarantees and had outstanding guarantees and commitments of $6.8 billion in May 1985. Since its conception, the program has grown rapidly and remained stable until the past few years, when the number of defaults began to rise dramatically subsequent to revisions to the Maritime Act. The Inspector General reported that loan defaults were expected to reach $500 million by 1986 and, with liquid assets of only $8 million, the Fund will have to borrow from the Treasury. The Fund continues to make advances to financially troubled vessel owners experiencing difficulties in making their loan payments; however, it is now requiring repayment within a 5-year period. GAO noted that the allowances for probable losses had not been established and did not conform with the Comptroller General's principles and standards of accounting. If these standards had been followed, a clear picture of the deterioration could have evolved more quickly.