The Congressional Budget Office (CBO) released a report on Thursday finding the Navy’s plan to increase shipbuilding to get toward 355 ships would cost a third more than the service estimates when including all costs in shipbuilding.
Whereas the Navy’s plan estimated new ships would cost about $631 billion over 30 years with an average of $21 billion per year, the CBO estimated that using its own assumptions the cost would be closer to $26.7 billion per year or a total of $801 billion.
CBO also said the Navy’s plan only covers the cost of new ship construction, excluding activity often funded from shipbuilding accounts like refueling nuclear-powered aircraft carriers or outfitting new ships with small equipment pieces after they are built. When adding these associated costs, the annual shipbuilding budget would be closer to $28.9 billion per year, on average, which is one third more than the Navy estimates.
The report said its estimates are higher not just because of the added costs but also because both organizations make different assumptions about the design and capabilities of some future ships, use different estimating methods, and treated growth in shipbuilding materials and labor differently.
“Much of the difference between the estimates stems from uncertainty about the design and capabilities of large ships being built 10 or 20 years from now,” the report said.
The office noted this disparity increases over time partially because the Navy’s method to develop constant-dollar estimates for most of the shipbuilding programs does not account for faster growth in the cost of labor and materials in the shipbuilding industry than in the economy as a whole.
“As a result, the Navy’s estimate does not reflect the increase in the real (inflation-adjusted) costs of ships with today’s capabilities that would be anticipated if such ships were purchased in the future.”
On average, the CBO’s estimates of new ship construction costs are on average 26 percent higher than the Navy’s for the 30-year period. The CBO estimates start 1 percent higher than the Navy’s in the near-term but peak at 32 percent higher further out in the period.
The report found the main reasons for this disparity related to cost estimates for the new attack submarine and Large Surface Combatant (LSC) the Navy expects to build in the 2030s and 2040s.
The Navy expects to purchase the first post-Virginia-class attack submarine, SSN(X), in 2034 and the 30-year plan thought of it as a new vessel more capable than Virginia but closer to the larger Seawolf-class submarine. While the Navy estimated SSN(X) will cost $3.1 billion per submarine, CBO estimated $5.5 billion, with a difference totaling $72 billion and over 40 percent between the Navy and CBO’s 30-year shipbuilding costs.
“The large difference between the Navy’s and CBO’s estimates under the 2019 plan suggests widely different assumptions about the submarine’s size, capabilities, and design. As a result, its final capabilities and costs are highly uncertain,” the report said.
Relatedly, the Navy plans to start buying 47 new class LSCs to succeed the Arleigh Burke-class DDG-51 in 2030. The service estimated the average cost for this new vessel would match the DDG-51 Flight III ship at $1.6 billion.
In contrast, the CBO estimates the LSC would cost an average of $2.3 billion, about 30 percent higher than the Navy’s expectation. Then over the 30-year period the CBO estimates the Navy would need $108 billion to fund the future LSC portion of shipbuilding, $34 billion more than the Navy estimates.
This disparity is due to reports the Navy is thinking of the LSC as more of a newly designed ship rather than a modest improvement over the DDG-51 Flight III.
CBO highlighted comments from Rear Adm. Ron Boxall, Director for Surface Warfare, that the :SC will have capabilities similar to or exceeding Flight III and the Navy has maximized the footprint in that hull and is examining what it would need a new hull to do.
Therefore, CBO estimated the LSCs will have a mostly new design while being about the size of a DDG-51 Flight III.
The report said this LSC disparity is alone almost 20 percent of the disparity between the Navy and CBO’s shipbuilding cost estimates.
“The great uncertainty about the ultimate size and capabilities of the future class of LSCs suggests that the true cost could differ substantially from both the Navy’s and CBO’s estimates,” the CBO said.
The Navy currently has 285 battle force ships and under the service’s last 30-year shipbuilding plan expects to purchase 301 new ships from FY 2019-2048. The service released the plan alongside its FY ’19 budget request in February (Defense Daily, Feb. 14).
The Navy’s shipbuilding paper calls for 245 new combat ships and 56 new combat logistics and support ships over the 2019-2048 period.
However, the CBO estimates that if the Navy retires old ships according to its FY 2019 plan, then the Navy would not reach the 355-ship goal within 30 years. Indeed, the 30-year plan expected the Navy would not reach 355 ships until the 2050s.
In April, the Navy told Congress it intends to extend the service life of all DDG-51 destroyers by five to 10 years to 45 years total (Defense Daily, April 13).
Back in March, the service told Congress it intends to extend the life of one Los Angeles-class submarine by 10 years from 33 to 43 years before seeing if it will repeat that process for four more submarines (Defense Daily, March 22). The CBO report said the Navy expects to eventually extend the life of up to seven submarines total.
These extensions, paired with the 30-year shipbuilding plan, would allow the Navy to reach its 355-ship goal by 2034, albeit not in the configuration of ships from the 2016 Force Structure Assessment (FSA)
The FSA, released in February, calls for a fleet made of 12 carriers, 103 large surface combatants, 52 small surface combatants, 38 amphibious warfare ships, 66 SSNs, 12 ballistic missile submarines, 32 combat logistics force ships, 10 expeditionary fast transport vessels, six expeditionary support bases, and 23 command and support ships (Defense Daily, Dec. 16, 2016).
The CBO noted that even with the submarine refuelings, the Navy would not meet its goal of 66 attack submarines until 2048 because the extended vessels would still all retire by 2040.
The DDG-51 extension plan would let the Navy reach its goal of 104 large surface combatants by 2029 and stay above that amount through 2048, the CBO said.
The CBO reported its estimate of the Navy’s 30-year plan, at $28.9 billion, would cost 80 percent more per year than it has gotten from appropriations on average over the last 30 years.
The report noted the last 30 years of shipbuilding includes the relatively small 1990s post-Cold War period. When only comparing the plan to the last six years, when shipbuilding appropriations has been on the upswing, the Navy still calls for an increase of more than 50 percent per year, on average.