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Funding Spat Could Sink USN Virginia-Class Sub

Dec. 9, 2012 - 10:51AM   |  
By CHRISTOPHER P. CAVAS   |   Comments
The Navy cut a new submarine from the 2014 construction schedule due to affordability concerns, but Congress supports finding a way to pay for it. At issue is just how. Here, the Virginia-class submarine Minnesota is seen under construction at Newport News Shipbuilding.
The Navy cut a new submarine from the 2014 construction schedule due to affordability concerns, but Congress supports finding a way to pay for it. At issue is just how. Here, the Virginia-class submarine Minnesota is seen under construction at Newport News Shipbuilding. (Chris Oxley / Newport News Shipbuilding)
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The U.S. Navy wants it. Industry wants it. Democrats and Republicans want it. Appropriators and authorizers want it. Everybody, it seems, wants to put a second Virginia-class nuclear submarine back in the fiscal 2014 budget, keeping the service and its industrial suppliers on a two-boats-per-year building schedule.

But if an agreement isn’t reached before too long, a wonky, inside-the-Beltway disagreement on the kind of money used to pay for the sub could kill it, scuttled by an impasse over funding mechanisms.

All four lawmaking entities that oversee the U.S. Defense Department have addressed the absence of the sub, which the Navy cut from plans for 2014 and moved to 2018 for affordability reasons. Service leaders don’t object when the move is characterized as a calculated risk, with a reasonable chance that Congress — pleased and supportive about the overall Virginia-class program — would find some way to restore the boat.

And that they have. House and Senate authorizers and the Senate Appropriations Committee support paying for the sub in installments, called incremental funding. It’s a method frowned on by Congress and the White House.

But the scheme is commonly used to pay for very costly programs such as aircraft carriers and big-deck assault ships, and virtually all consumers know that paying for something on the installment plan is a way to make expensive items more affordable.

The Navy also supports the idea, even though objections continue at the Office of Management and Budget, the White House entity that oversees the executive budget process.

But House appropriators remain adamantly opposed to incremental funding for the submarine, using the oft-repeated argument that the method obligates future congresses to commit money to programs they may not agree with.

The House’s fiscal 2013 defense appropriations bill, approved in July, forbids the Navy from paying for the submarine incrementally. Instead, it defers a new auxiliary ship, provides an additional $723 million in advanced funding for the sub program — needed to buy long-lead items for the 2014 sub, such as the reduction gear — and directs the Navy to find full funding elsewhere for the additional 2014 boat, seeking savings within the existing nine-sub multiyear procurement plan.

But the deleted afloat forward staging base (AFSB) ship saves only $38 million, a pittance against the overall $2.6 billion cost of the submarine. And putting the burden back on the Navy to find more than $1.2 billion that would be needed for the sub in the 2014 budget only gets service planners back to square one, asking how to fit it all in.

“The Navy doesn’t have it,” one Pentagon source said of the chances of finding full funding.

The submarine, hull number SSN 793, will be the second unit in Block 4 of the Virginia-class program. If it were to be added to 2014, the nine-boat Block 4 group would grow to 10 vessels, and the Navy, according to a report by Congressional Research Service analyst Ron O’Rourke, estimates it would save $700 million over the 10-boat group through a variety of efficiency factors.

O’Rourke, in his report, noted that $700 million would be the equivalent of about 27 percent of the cost of a Virginia-class sub, making that much of an additional sub self-financing.

General Dynamics Electric Boat and Huntington Ingalls Newport News Shipbuilding share equally in building the submarines, with each shipyard building specific portions of the subs and alternating in final assembly. Work schedules are calculated years in advance, and while neither company would turn down additional work — a problem the yards would love to have — disruptions could occur as the second boat is squeezed back in, with possible cost ramifications.

“Shipyards plan pretty tight,” one industry analyst said. “Also, the delays change the cost — there’s a factor there.

“But,” the industry analyst added, “it still works out good because of the block buys.”

An Old Argument

The Navy also is fighting to keep the AFSB ship, which would be built at General Dynamics’ National Steel and Shipbuilding (NASSCO) yard. The San Diego shipbuilder, a strong performer held in high regard by the Navy, is struggling with a low order book, and the AFSB is key to keeping the work force employed until more ships come along.

The debate over incremental funding is an old one, and avoiding tying up future budgets with multiyear obligations is the standard objection.

But multiyear procurement plans are themselves a form of incremental funding, some observers point out, as is the standard three-year funding profile of every submarine — two years of advanced procurement plus a third year of full funding. And in an era of declining budgets, the installment plan is attractive.

“If we’re getting poorer, with other fiscal hurdles to get over, wouldn’t you be seeking additional flexibilities — multiyear procurement, economic order quantities, even multiyear or incremental funding?” asked the industry analyst.

A Capitol Hill staff member had a similar take.

“One frustrating part is that when you fully fund the sub up front, most of the money sits around, sometimes three to four years,” the Hill staffer noted.

“At a time when we’re trying to stretch every shipbuilding buck, does it make sense to have $2.5 billion sitting around?” the staffer asked. “We can do this a better way. We kind of do this as it is.”

The issue is not likely to be decided until around March, at the end of which the continuing resolution now funding the U.S. federal government runs out and when a number of Hill observers expect the 2013 spending bill to be decided.

Until then, both the Navy and its congressional supporters remain hopeful the second 2014 submarine will become a reality. “I do think the guys on House Appropriations really want the boat, that they’re supportive of the program and want to keep it at a high production rate. I do think it will happen,” the Hill staffer observed. “We all agree we want to and need to do this, but there’s just this one little sticking point.”

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