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By David Folkenflik, The Baltimore Sun

As part of a much larger bill setting spending limits for the Defense Department, the House voted yesterday to require that all such ships be sold overseas for scrap, a controversial practice that has caused deaths, serious injuries and environmental hazards. A separate measure pending in the Senate sponsored by Arizona Sen. John McCain, chairman of the Commerce Committee, would direct the maritime administration to sell 39 of the most environmentally dangerous ships abroad for scrap.

Meanwhile, a key Senate panel - led by Sens. Ted Stevens, an Alaska Republican, and Barbara A. Mikulski, a Maryland Democrat - set aside $38 million yesterday to subsidize U.S. shipyards to scrap former Navy vessels under scrupulous labor safety and environmental safeguards.

"We owe it to these ships to retire them with honor, and not by some rogue shipyards here or abroad," Mikulski said yesterday. "I don't think the Navy should be shipping our fleet overseas to avoid environmental [regulations]."

She said she also sees an opportunity to breathe life into financially precarious shipyards. Baltimore Marine Industries Inc. recently wrapped up a three-year, $3.8 million project that employed 300 people to disassemble a retired ship safely in a pilot program pushed by the Maryland senator, an approach she hopes to accelerate.

But McCain and Rep. Herbert H. Bateman, a Virginia Republican who was behind the House action, believe the worst ships must be banished from U.S. waterways immediately. House GOP leaders rejected the efforts of Oregon Democrat Peter DeFazio to offer amendments to Bateman's ship-breaking provision during debate yesterday.

Although Bateman did not return several calls seeking comment, aides to other officials described the Virginian as livid that 58 aging vessels in the James River awaiting scrapping contain such environmentally damaging substances such as PCBs and asbestos. Federal investigators say those toxins could readily leach into the water there; in some cases, investigators said, the ships' hulls are so fragile that they could be punctured with a single hammer blow.

Ghost Ship in Virginia

One of the worst ghost ships in the James River in Virginia, according to the inspector general for the U.S. Department of Transportation, "is over 30 years old, contains hazardous substances including asbestos, and has leaked oil."

A March report by the inspector general, Kenneth M. Mead, also found that ship's deteriorating condition has forced maritime employees to apply "over 209 patches to leaks and deploy containment booms, but the vessel is disintegrating to a point where it will not be seaworthy much longer."

But Mead's audit concluded that the maritime administration, a division of the Transportation Department, is hamstrung from disposing of such ships by a series of contradictory edicts.

Over the past two years, his report states, the number of obsolete ships has doubled. More than 150 ships are estimated to require scrapping by fall 2001. Yet the maritime administration has been able to sell only 22 ships to scrap companies since 1995, and only five vessels have been scrapped.

Profit Ordered

In 1994, the agency was ordered by Congress to make a profit from the sale of old ships. While naval vessels and other ships come under separate federal departments, the maritime agency is responsible for overseeing the dismantling of all government ships.

In 1997, a Pulitizer Prize-winning series of articles in The Sun documented the cavalier environmental and safety practices of many for-profit ship scrappers. The series also reported on the deaths of shipyard laborers, in the United States and abroad. In response, labor and environmental scrutiny was stepped up by federal regulators, driving up the cost for many scrapping companies.

In late 1998, a White House executive order banned for at least one year the scrapping of ships overseas, where regulation is often lax. Any ships to be sent overseas for dismantling must now be reviewed by the Environmental Protection Agency and judged not to pose a severe threat to the environment of its ultimate resting place.

The inspector general's report concluded that because of the high cost to scrappers to meet new environmental and safety regulations the maritime administration is unable to make any profit selling the ships for scrap to U.S. firms.

As a result, the audit found, a backlog has built up of nearly 100 deteriorating vessels that are, by law, to be scrapped by Sept. 30, 2001. Mead recommended that the agency's deadline be pushed back and that it be released from its obligation to make money from the sale of the ships.

Mikulski and fellow Maryland Democratic Sen. Paul S. Sarbanes wrote to President Clinton last week asking for another year's extension of the moratorium on sending ships abroad.

Eastern Shore Rep. Wayne T. Gilchrest, a Republican, and DeFazio are holding a hearing on the issue next week when Mead will present his report on the issue.

"We've got ships sinking in the James River," said Gilchrest, chairman of a House subcommittee that oversees the maritime administration. "But I don't want to return to the appalling days of shipping out our problems to a Third World country. . . . We should fix them ourselves."

A spokesman for the maritime administration did not return calls. But the report said that the agency was willing to accept the inspector general's conclusions.