An Analysis of the Navy's Fiscal Year 2011 Shipbuilding Plan

At the direction of the Congress, the Department of the Navy issues annual reports that describe its plans for ship construction over the coming 30 years. The latest report--issued in February and covering fiscal years 2011 to 2040--contains some significant changes in the Navy's long-term goals for shipbuilding. The new plan appears to increase the required size of the fleet compared with earlier plans, while reducing the number of ships to be purchased--and thus the costs for ship construction--over the next three decades. Despite those reductions, the total costs of carrying out the 2011 plan would be much higher than the funding levels that the Navy has received in recent years, according to analysis by the Congressional Budget Office (CBO). Specifically:

• Language in the 2011 shipbuilding plan and in related briefings by the Navy implies that the service's requirement for battle force ships (aircraft carriers, submarines, surface combatants, amphibious ships, and some logistics and support ships) now totals 322 or 323--up from 313 in the Navy's three previous longterm plans. The battle force fleet currently numbers 286 ships. (Summary Box 1 describes the major ships in the Navy's fleet.)
• The 2011 plan calls for buying a total of 276 ships over the 2011–2040 period: 198 combat ships and 78 logistics and support ships (see Summary Table 1). That construction plan is insufficient to achieve a 322- or 323-ship fleet.
• In comparison, the previous shipbuilding plan (for 2009) envisioned buying 40 more combat ships and 20 fewer support ships over 30 years. Under that plan, the Navy would have purchased 238 combat ships and 58 logistics and support ships between 2009 and 2038, for a total of 296.
• If the Navy receives the same amount of funding for ship construction in the next 30 years as it has over the past three decades--an average of about $15 billion a year in 2010 dollars--it will not be able to afford all of the purchases in the 2011 plan.
• The Navy estimates that buying the new ships in the 2011 plan will cost an average of about $16 billion per year, or a total of $476 billion over 30 years (about 33 percent less than its estimate for the 2009 plan). Those figures are solely for construction of new ships, the only type of costs reported in the Navy's shipbuilding plans. However, other activities that are typically funded from the Navy's budget accounts for ship construction--such as refueling nuclear-powered aircraft carriers and outfitting new ships with various small pieces of equipment after the ships have been built or delivered--will add about $2 billion to the Navy's average annual shipbuilding costs under the 2011 plan, in CBO's estimation.
• Using its own models and assumptions, CBO estimates that the cost for new-ship construction under the 2011 plan will average about $19 billion per year, or a total of $569 billion through 2040. Including the expense of refueling aircraft carriers as well as outfitting and postdelivery costs raises that average to about $21 billion per year, CBO estimates. (Those figures are about 25 percent lower than CBO's estimates of the Navy's 2009 plan.)
• CBO's estimates of the costs of the 2011 shipbuilding plan are about 18 percent higher than the Navy's estimates overall. That figure masks considerable variation over time, however: CBO's estimates are 4 percent higher than the Navy's for the first 10 years of the plan, 13 percent higher for the following decade, and 37 percent higher for the final 10 years of the plan (see Summary Figure 1). Those differences result partly from different estimating methods and different assumptions about the design and capabilities of future ships. The estimates also diverge because CBO accounted for the fact that costs of labor and materials have traditionally grown much faster in the shipbuilding industry than in the economy as a whole, whereas the Navy does not appear to have done so. That difference becomes more pronounced over time.