Navy Ship Construction: From the Budget Control Act to Building a New Fleet
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Navy Ship Construction: From the Budget Control Act to Building a New Fleet

January 14, 2020

Hello, my name is Eric Labs and I’m a
senior analyst focusing on naval forces and weapons in the National Security
Division at the Congressional Budget Office. I’m going to talk about three issues here today. One is how the Navy’s shipbuilding budget fared under the
Budget Control Act. Second, what was the Navy’s force structure assessment and how did that change from its previous force structure assessment in 2016?
And finally, looking at how the Navy will implement that force structure
assessment in the course of its 2019 shipbuilding plan and the prospects of
achieving a larger fleet that the Navy wants. A fourth topic that is listed here is the role of service life extensions. I’m not going to talk about that topic in a direct set of slides but it is an issue that is embedded in several of the
slides that I’m going to talk about here today. First, let’s talk about naval
shipbuilding under the Budget Control Act. If you look back at when the
Congress passed the Budget Control Act in 2013, you might have expected that
there would be serious cuts to the shipbuilding budget that would occur as
a result of the implementation of that law. However, as it turns out, the Navy
shipbuilding budget fared quite well under the Budget Control Act – probably
better than almost any other account within the Department of Defense’s
budget. For the first few years, the shipbuilding budget did not go up very
much in the terms of the administration’s request, but Congress
added money each and every year above the administration’s request.
In the last three to four years, shipbuilding budgets have been rising
under the Budget Control Act era and the Congress has been adding money above the administration’s requests quite substantially despite those larger
increases for shipbuilding. So for example, over the entire time period
since the Budget Control Act was implemented, Congress increased the Navy
shipbuilding budget an average of about two billion dollars a year. Under the
last three years, that average was almost three billion dollars a year increased
above the administration’s request. What is kind of interesting about those
increases in the Navy’s shipbuilding account is that it has become – as a percentage of the Navy’s top line – that number has been increasing over the last three
years. Historically, the Navy gets about 30 percent of the DoD budget allocated to
itself. And of that amount, historically the Navy has typically allocated about
10 percent to shipbuilding. But over the last three to four years, as a result of increases requested by the
administration as well as the additional funds that were put on top of those
requests by the Congress, the percentage of the Navy’s budget devoted to
shipbuilding has increased from around 10 percent up to around 13 percent, on
average. And even getting as high as 15 percent in 2018. An interesting
question going forward for the Navy’s ability to implement its shipbuilding
plans, which we will talk about shortly, is whether those higher budgets and
those higher percentages of the Navy top line: Will they persist or will they
return to the historical norm? Now what was bought with that money over the last six years under the Budget Control Act period? Well if you look at the last shipbuilding plan that was put out before the Budget Control Act was passed, that’s the Navy’s 2012 shipbuilding plan.
In that plan, the Navy proposed buying 35 large combat ships and then
54 much smaller much less expensive small combat ships and support ships.
With the congressional action over the last six years to increase what the Navy
was spending and the number of ships that the Navy was planning to buy under
those budgets, the result was that the fleet ended up getting 40 large combat
ships and only 47 small combat ships and support ships. So overall the
result of congressional action during the Budget Control Act period was
not only more money than might have been expected for the time period but also a
more capable fleet was purchased because more capable ships were being
bought than what the Navy had proposed in 2012. Now let’s turn to the Navy’s force
structure assessment. In 2014, the Navy had a four structure assessment that it
wanted a fleet size of 308 ships. In 2016, however, with the changing international
environment, with the rise of geopolitical competitors, and an era of great power competition, the Navy determined that it needed a larger fleet
of 355 ships which had established in its 2016 force structure assessment. That
increase of 47 ships between those two force structure assessment was primarily
in large surface combatants – cruisers and destroyers – and attack submarines. Those were increased by 16 and 18, respectively.
There were other increases as part of that force structure assessment in a 12th
aircraft carrier, for example, and a few amphibious ships and logistics and
support ships. But primarily the increases come in large surface
combatants and attack submarines. Now the prospects of the Navy achieving a 355
ship fleet depend very much on how much money it’s going to get over the next 30
years to implement that plan. It takes a long time to build a fleet up. And how
many ships the Navy is planning to buy with that money. Under the 2017
shipbuilding plan, the last shipbuilding plan that was put out under the old force
structure assessment – there was no 2018 shipbuilding plan – the Navy had planned
to purchase 254 ships. Under the 2019 shipbuilding plan,
that was put out earlier this year, the Navy proposed buying 301 ships over the next 30 years, or 47 more than the 2017 plan would have purchased. And again, as
it parallels what the Navy’s force goals are in its force structure assessment,
the largest increases there compared between the two plans were in large surface combatants
and attack submarines. Now that shipbuilding plan to build 301 ships over the next 30 years would not actually build to a 355 ship Navy.
It would fall several ships short. The highest point it reaches is 342 ships in
the 2030s – in 2040s. And then by the end of the period – 2048 – it actually falls
back to 335 ships. Now after the Navy put out at shipbuilding plan, it announced in
the spring that it was going to extend the service lives of two types of ships:
Arleigh Burke destroyers and Los Angeles-class attack submarines.
It was going to extend the service life of its destroyers from 35 or 40 years depending
on which model you’re talking about to 45 years. And a handful – seven to be exact – attack submarines we’re going to have their service lies extended from 33 to
43 years. Now that change in the service life of those two types of ships
resulted in the Navy being able to achieve a 355 ship fleet around 2033.
That is not the exact 355 ship fleet that the Navy proposes in its force
structure assessment, but it is a very capable fleet. The 355 ships that the Navy will get with this service life
extensions will have much more destroyers and fewer attack submarines
than what the force structure assessment calls for, but nonetheless it will be a
much larger and much more capable fleet compared to the 285 ships that are in
the fleet today. So the question arises with that shipbuilding plan and the
drive to move towards a 355 ship Navy, how much is this all going to cost? Over
the course of the entire 30-year period, the Navy estimates that it’s going to cost
about $631 billion dollars for a new ship construction or $801 billion dollars
under the CBO estimates. That works out to an average of $23 billion dollars a
year with the Navy’s estimates and $29 billion dollars a year with the CBO
estimates. And that includes all new ship construction that would be in the Navy
shipbuilding account plus various other activities that also must be paid out of
that account, such as the refueling of nuclear-powered aircraft carriers and
the outfitting and delivery of new ships. The question arises then: What is causing
such a large difference between the CBO estimates and the Navy estimates?
Six billion dollars a year is a very substantial difference and prior
estimates of the CBO and the Navy on prior shipbuilding plans were not so far
apart. The major sources of difference between those estimates are: first, the
Navy plans to build a new attack submarine following on the
Virginia-class. It’s starting around 2030. That new attack submarine is going to be
much more capable than the Virginia-class. It’s going to be larger,
it’s going to be faster, it’s going to carry more weapons. The Navy’s shipbuilding plan seems to indicate by the way how much it assumes that ship would cost – that it would be a slight follow-on to the Virginia-class. But in information
that came out after the plan was produced, it was clear that the Navy is thinking
about a new Sea Wolf type of submarine, which is a larger submarine that was
built by the United States in the 1990s. So as a result, that ship is
substantially more expensive in the CBO estimate of the plan than it is in the
Navy estimate of the plan. Similarly, the Navy plans to build a new large surface
combatant starting in the 2020s and the estimates in the Navy shipbuilding plan
would suggest that it would be not much different or not much more capable than the Arleigh Burke class destroyer.
But the Navy plans to use the most up-to-date and available combat systems on this ship, but develop
a new hull, a new power system, a larger ship with more space and weight and
margin to it. As a result, the CBO estimate for that ship is several
hundred million dollars more than the Navy estimate for the new large surface
combatant. The new frigate that the Navy plans to start building in 2020, and the
follow-on small surface combatant to that ship, the Navy says that that ship
is going to cost an average of around $800 to $900 million dollars. But currently,
the bids for that ship the designs that the Navy is considering range anywhere
from 3,000 tons to 6,500 tons for the ship. That’s quite a large range for
potential new small surface combatant. So what CBO did is we estimated a sort of a midpoint between those two weights and we priced our ship accordingly. As a
result, rather than assuming it was going to be on the low side of that and
therefore less expensive, the Navy, I mean, CBO estimate is a couple hundred million
dollars more than the Navy’s estimate for the new frigate and the follow-on
small surface combatant. Another issue that arises is that feeds the
differences between the CBO estimates and the Navy estimates in the
shipbuilding plan is how successful will the Navy be and executing its new
shipbuilding programs. In particular, the Navy plans to build a new ballistic
missile submarine starting in 2021. This is a very large ship that is capable of
carrying most of the nation’s strategic deterrent and it is a large, complex program that we have not attempted to build in 25 years. So the question becomes:
Will that program execute on-time? Will that program execute on budget?
Or if not then what kind of cost growth might the Navy experience in that?
Looking historically, new lead ship programs like that ballistic missile
submarine have almost always experienced substantial cost growth – an average of 27
percent over the last 30 years of new lead ship programs. Some have been more
than that, some have been less than that. But they have all been substantial.
So CBO assumes that that ballistic missile submarine is not going to come in on
budget and that it will cost more than what the Navy is estimating in its
shipbuilding plan. Compared to the historical average of how much money was
spent on Navy ship building, which was about $16 billion dollars a year, the Navy’s 2019 shipbuilding plan is going to be 80 percent higher in cost than what the historical average is. That represents a substantial requirement for new resources that are going to need to be devoted to shipbuilding each and
every year, on average, over the next 30 years. However, many experts have
discussed and are pointing out that we are in a different strategic era than
what we have been over the last 20 years or so. We’re no longer in the post-cold
war era where the United States is the only dominant power and there is no
geopolitical rivals to us. Rather China and Russia are now posing geopolitical
challenges to the United States. So we are in an era of new great power
competition. So if you think that that is true, then you have to ask yourself: Is including the last 20 years in a historical comparison to what we need to
spend in the future, is that an appropriate benchmark? If you therefore
think that that is not an appropriate benchmark, what you might want to then
compare it to is how much did we spend on naval shipbuilding during the Cold
War era? I have data that goes back to 1961 that I can reliably convert to
constant dollars – in today’s dollars. Between 1961 and 1988, the United States
spent almost $25 billion dollars a year on naval ship construction. If you look
at that comparison, then $29 billion dollars a year may be an appropriate amount to spend on naval ship construction in a new era of great power competition.
But the challenge of implementing a large increase in naval
ship construction compared to what the Navy has spent recently, and sustaining
that higher level of spending over 30 years remains. And the biggest challenge comes
from the need to replace the Navy’s ballistic missile carrying submarines – its SSBNs – while at the same time buying all of its other ship and aircraft programs.
This presentation is largely drawn from two reports CBO published and
are available at CBO’s website, An Analysis of the Navy’s Fiscal Year 2019 Shipbuilding Plan, published in October 2018, and Comparing a 355 Ship
Fleet With Smaller Naval Forces, published in March 2018. If you have any
further questions, please contact us here at CBO. Thank you very much!

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