Function 050 - National Defense
Reduce Funding for Naval Ship Construction to Historical Levels
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
|Billions of Dollars||2019||2020||2021||2022||2023||2024||2025||2026||2027||2028||2019-
|Change in Planned Defense Spending|
The Navy's fiscal year 2019 shipbuilding plan proposes buying 301 new ships over the next 30 years at an average cost of about $27 billion per year (in 2018 dollars), the Congressional Budget Office estimates. Including the costs of all activities funded by the Navy's shipbuilding account, such as refueling nuclear-powered aircraft carriers and outfitting new ships, the average annual cost of implementing the plan is about $29 billion. That amount is 80 percent more than the average of $16 billion per year (in 2018 dollars) that the Navy has spent on shipbuilding over the past 30 years.
This option would decrease budget authority for naval ship construction to the 30-year average in real (inflation-adjusted) terms.
Effects on the Budget
If funding for ship construction was reduced to its 30-year average, discretionary budget authority would decline by about $75 billion through 2028 compared with amounts under the Department of Defense's (DoD's) plans. Outlays would fall by a total of about $50 billion over that period, CBO estimates. (For naval ship construction, outlay savings are usually substantially less than budget authority savings. Because most ships are built over many years, outlay savings are not fully captured within the 10-year period.)
The savings were determined by calculating the difference between historical average funding and amounts in DoD's 2019 Future Years Defense Program (FYDP) and CBO's extension of that plan. To determine the historical average for shipbuilding, CBO adjusted the amount of appropriated dollars over the past 30 years using an index for naval shipbuilding provided by the Navy. Because CBO's estimates are in nominal dollars, the future savings in nominal dollars are calculated against the historical average, which then grows at the rate of the shipbuilding index. For the extension of DoD's FYDP, CBO's method relies on historical experience, with adjustments for four factors: rate (the production efficiencies that are made possible when several ships of the same type are built simultaneously or in close succession at a given shipyard), learning (the gains in efficiency that accrue over the duration of a ship's production as shipyard workers gain familiarity with a particular ship model), acquisition strategy (such as whether ship contracts are granted directly to a company or awarded as the result of a competitive process), and economic factors.
Specifically, this option would reduce the number of ships that the Navy plans to purchase over the next 30 years from 301 to 177, decreasing the number to be purchased over the 2019-2028 period from 110 to 71. The cuts would affect several types of ships in the Navy's fleet: surface combatants, attack submarines, amphibious ships, and combat logistics and support ships. The number of aircraft carriers, would remain unchanged, however, to comply with a statutory requirement that the Navy maintain a force of at least 11 such ships. The number of ballistic missile submarines also would not be affected by the cuts, because Navy officials consider those ships their highest acquisition priority.
The savings in this option are somewhat uncertain because the final costs of some types of ships the Navy plans to buy over the next 10 years are uncertain. For example, the Navy plans to buy 16 new frigates by 2028, but the design, size, capabilities, and cost of those ships have not yet been determined. (Five companies with designs for ships that vary between 3,000 tons and 6,500 tons are competing for the program.) In the case of other ships, such as the new Columbia class ballistic missile submarine, CBO's estimates of their costs are higher than the Navy's, and even those higher estimates could be too low based on historical cost growth of new ship construction programs.
Savings under this option could be adjusted by buying more or fewer ships. A higher level of funding, albeit less than that under the Navy's 2019 plan, could maintain today's fleet at or around its current 284 ships, for example. Conversely, a level of funding lower than the 30-year historical average, such as the level of funding in the 1990s, would result in an even smaller Navy by 2048 than the one envisioned under this option.
An argument in favor of reducing funding for ship construction is that the Navy would still have a powerful fleet in 2028 and beyond. Because ships take a long time to build and then serve in the fleet for 25 to 50 years, even with the cuts the size of the fleet would grow by nearly the same amount through 2028 under this option as it would under the 2019 plan. Under the Navy's 30-year plan, the fleet would grow to 313 ships by 2028 and to 335 ships by 2048. Under this option, the fleet would grow to 308 ships by 2028, at which point it would steadily decline to 228 ships by 2048. As the fleet grew to 308 ships over the next 10 years, it would require more sailors to crew the additional ships and more personnel, both military and civilian, to support those ships and sailors. More money also would be needed to operate and maintain those ships. As the fleet declined in size thereafter, fewer personnel would be required. Operating and support costs would continue to rise, though, because of real growth in those costs above general inflation in the economy. As a result, even the smaller fleet in 2048 would cost more to operate and maintain than today's fleet.
An argument against this option is that it would further decrease the size of the fleet over the next 30 years. The fleet has already shrunk over the past 30 years: Since 1987, the number of ships has fallen by more than 50 percent—from 568 to 285. With a smaller fleet, the Navy may not have the forces that it needs to implement its war plans if a conflict was to erupt. The Navy's shipbuilding plan is based on the 2016 force structure assessment, which concluded that the Navy needs a minimum of 355 ships in its fleet to deploy an adequate number overseas in the event of a major conflict. At any given time, some ships are undergoing long-term maintenance or are in the early stages of training and thus are unavailable to be immediately deployed, so the Navy must maintain more ships in the fleet than it would need to fight. Some observers, pointing to the increasing assertiveness with which Russia and China conduct foreign relations, have noted that the world appears to be entering an era of renewed competition between major powers. Decreasing funding for shipbuilding and substantially reducing the size of the fleet would, over the long run, result in the Navy having fewer ships than it says it needs to protect the United States' interests overseas in the event of a conflict with another major power.
Another argument against this option is that it could lead the Navy to reduce its overseas presence. Today the Navy operates more than a third of its fleet—or about 100 ships—overseas. If the fleet was smaller, it is likely that fewer ships would be based overseas in peacetime. The Navy could, however, maintain the same level of presence with a smaller fleet by stationing more ships overseas, increasing the practice of rotating crews to forward-deployed ships to keep them on station longer, or extending the length of deployments. But those measures would cost money and, in the case of longer deployments, place greater stress on the crews that operate the ships.