CBO: Navy underestimates long range shipbuilding costs

JULY 25, 2012 — The non-partisan Congressional Budge Office (CBO) says that the U.S. Navy’s most recent long term shipbuilding plan underestimates the cost of new ship construction over the next 30 years by 19 percent compared with the CBO’s estimates.

Congress requires the Navy to issue an annual report that describes its plan for building new ships over the next 30 years. The CBO has prepared a report—required under the National Defense Authorization Act for Fiscal Year 2012—analyzing the Navy’s latest long-term shipbuilding plan, which covers fiscal years 2013 to 2042.

Since 2006, CBO has performed an analysis of the Navy’s annual report on its plans for building new ships over the next 30 years. The latest CBO report summarizes the ship inventory goals and purchases described in the Navy’s 2013 plan and assesses their implications for the Navy’s funding needs and ship inventories through 2042.

The 2013 plan contains some significant changes in the Navy’s goals for shipbuilding during the next 30 years. Compared to the 2012 plan, the 2013 plan:

• Reduces the goal for the inventory of ships from 328 to a range of 310 to 316,
• Reduces the number of ships to be purchased from 275 to 268, and
• Buys 17 more high-end combat ships and 24 fewer less-expensive support ships.

The Navy estimates that the cost for new-ship construction under its plan would be $505 billion over 30 years, or an average of $16.8 billion per year (all figures are in 2012 dollars). In contrast, CBO estimates that the Navy’s intended new-ship construction would cost $599 billion over 30 years, or an average of $20.0 billion per year.

CBO’s estimate of the costs for new-ship construction over the next 30 years is 19 percent higher than the Navy’s estimate, but average annual costs vary by decade. As shown in the figure below, CBO’s estimates are 11 percent higher than the Navy’s for the first 10 years of the plan, 13 percent higher for the following decade, and 33 percent higher for the final 10 years of the plan.

The figures above are solely for the construction of new ships, the only type of costs reported in the Navy’s 30-year shipbuilding plans. Total shipbuilding costs—which include new construction, refueling of nuclear-powered aircraft carriers, and some other items—would average about $19 billion per year using the Navy’s figures. Under CBO’s estimate, total shipbuilding costs would average about $22 billion per year.

CBO says the Navy’s plan would not meet the service’s goals for inventories of destroyers, attack submarines, and ballistic missile submarines:

• Destroyers would fall below the goal of about 90 after 2029;
• Attack submarines would fall below the goal of about 48 between 2022 to 2034; and
• Ballistic missile submarines would fall below the goal of 12 to 14 between 2029 and 2041.

The Navy’s plan would largely meet its inventory goals for aircraft carriers and amphibious ships.

If the Navy receives the same amount of funding for new-ship construction in the each of the next 30 years as it has on average over the past three decades—$14.3 billion annually—it will not be able to afford all of the purchases in the 2013 plan. CBO’s estimate of $20.0 billion per year for new-ship construction in the Navy’s 2013 shipbuilding plan is about 40 percent above the historical average funding. CBO’s estimate of $21.9 billion per year for the full cost of the Navy’s shipbuilding program is about 37 percent higher than the $16.0 billion the Navy has spent each year on average for all items in its shipbuilding accounts over the past 30 years.

Download the CBO report HERE

http://www.cbo.gov/publication/43468