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Special Shipbuilding Fund is Reckless and Unaffordable

The United States Navy has an annual budget of over $130 billion. That’s more than the entire Chinese military (paywall) or Russian military spend in a given year. Yet somehow, amazingly, the Navy claims its budget is too small. That’s what the service told Congress in 2013 when it asked to spread the cost of new missile submarines across the Pentagon. The admirals argued that the subs were “national assets,” too important to be funded by a single service. Rather than telling the Navy to prioritize spending, Congress set up a special fund outside the Navy’s budget, the National Sea-Based Deterrence Fund. At the time, the Project On Government Oversight pointed out that giving the services this mechanism to buy weapons would be a slippery slope, and HASC proved us right in this year’s National Defense Authorization Act. Where the Act previously authorized spending on “national sea-based deterrence vessels,” it now provides authority for “cross-program coordinated procurement efforts with other nuclear powered vessels.” In other words, the off-budget fund for missile subs is now also the off-budget fund for aircraft carriers and attack submarines. This erases the distinction between major programs and so-called “national assets,” and gives the services purchasing power with no correlation to affordability or accountability. It’s a blank check, paid for by taxpayers.

The Navy can’t afford the 12 new ballistic missile subs (otherwise known as the SSBN(X)) it wants without supplemental funding. According to the Congressional Budget Office, building the new submarines along with the other ships the Navy wants will require a shipbuilding budget 32 percent larger in the next 30 years than it has been over the previous 30. On average, this means a budget of $20.7 billion per year, compared to the $13.9 billion averaged in the last 30 years. In terms of ships, if the Navy doesn’t get the additional $7 billion or so a year, building the 12 SSBN(X) will require the Navy to give up 69 other vessels, including 2 carriers and 17 attack subs.

 
Graph of CBO Estimate of Annual Shipbuilding Costs Under the Navy's 2015 Plan

 During the 2020's, new ballistic missile submarines will cost around 50 percent of what has historically been spent on all new ships.

The Navy has made a choice to stick to reckless and unaffordable shipbuilding plans going forward, knowing full-well the consequences. This has led to the need for special funding, and put Congress in the position of potentially choosing between the Navy’s pet projects and the nation’s best interests.

History tells us this is a false dichotomy. The current fleet of 14 Ohio-class ballistic missile submarines (and four Ohio-class subs converted to carry cruise missiles) were all built within the Navy’s budget. So were the 12 missile subs before them, and the 12 before them. At the same time, that same budget sufficed for dozens of carriers and well over one hundred attack submarines. Somehow the Pentagon managed to do this through the duration of the Cold War, including Vietnam and President Reagan’s arms-buildup, all with a smaller budget than it has today.

The problem here is not that Pentagon budgets are too small, but that Pentagon leaders refuse to make smart spending choices. During his confirmation to become Secretary of Defense, Ashton Carter told the Senate Armed Services Committee, “I believe the important decision is to make the commitment to modernizing the ballistic missile submarine fleet....Which account it is funded in is of lesser importance.” Undersecretary of Defense Frank Kendall expressed a similar sentiment last September when he said, “At the end of the day we have to find money to pay for these things one way or another, right? So changing the accounting system doesn’t really change that fundamental requirement. We still need the money and it has to come from somewhere.” To paraphrase the two most important civilians in the Pentagon, “We’re going to buy what we want, regardless of the cost.”

Enabling this attitude through the Sea-Based Deterrence Fund is especially problematic. The fund tests the appropriations system the way kids test their parents, and will create a “spoiled-child” problem should it be put into use. If the services do not think they will be required to spend within their budgets, they will have no incentive to plan, control costs, or effectively manage programs. Taxpayers will end up with the bill for excess spending because Congress did not insist on accountability from the Pentagon. Perhaps more importantly, as Taxpayers for Common Sense writes, the fund “isn’t reducing the cost of the submarine. It doesn’t lower the top line of Pentagon spending. In fact it will create pressure to increase it.” All it does is create short-term relief for the Navy’s budget, and postpone an inevitable budget reckoning.

Perhaps this is why then-Secretary of Defense Robert Gates, and his then-Undersecretary for Acquisition Ashton Carter, were so opposed to the idea of a special fund. "We have to ask whether the nation can really afford a Navy that relies on $3 billion to $6 billion destroyers, $7 billion submarines and $11 billion carriers," Gates told an industry conference in May 2010. Carter expanded on those concerns in a 2011 interview with Inside Defense saying, The "[Missile submarine program has] been in the shipbuilding account, and our plan is it's going to stay in the shipbuilding account….We just have to make it so that it is digestible for the Navy....[So] we can manage through that path for decades." While it seems that Carter’s views have changed, the Gates Pentagon was skeptical they could afford the fleet the Navy was planning, and had added reticence about the long-term stability of special funding mechanisms.

Those concerns make sense. Allowing the Navy to build subs through special accounts is already encouraging the Air Force to seek special funding for its new bomber, and will likely invite similar gimmicks from the other branches. Taxpayers end up footing the bill, whether it’s for coffee pots or missile submarines. And as the expanded language in this year’s Act shows, the “national asset” label is essentially meaningless when it comes to budgeting: missile subs, attack subs, carriers, and bombers are all, by definition, national assets. Moreover, if all four programs need to be put into special accounts, it suggests that the Pentagon, and in particular the Navy, is facing affordability issues that extend well beyond the SSBN(X).

There is a way for the Navy to relieve a substantial amount of budget pressure and retain all of its nuclear firepower: cut the replacement program down to 8 subs. Doing so would require some modifications to current nuclear posture, but given the budget pressures, risk to other capabilities, and improbability of nuclear war, such changes are justifiable. (A number of other common sense ways for the Pentagon to save money can be found in POGO’s Baker’s Dozen.) The budget-wrecking 12-SSBN(X) fleet is a luxury, not a necessity.

Paying for those subs through the Sea Based Deterrence Fund is a ploy that makes no sense for national defense or taxpayers. It’s clear that the Pentagon is unwilling to choose between one “national asset” and another. Congress can’t allow, much less help, the Pentagon buy whatever it wants without ensuring affordability or need. Last year, appropriators recognized that; POGO hopes they will continue to hold the Navy and other services to their budgets and reject their reckless and unaffordable gimmick.

By: Jacob Marx
Former Researcher, POGO

Photograph of Jacob Marx At the time of publication, Jacob Marx was a Researcher for POGO.

Topics: National Security

Related Content: Budget, Submarines, Defense, Wasteful Defense Spending

Authors: Jacob Marx

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