U.S. Navy Hunts for $40B in Cost Cuts to Pay for Shipbuilding

In order to meet budget realities and grow its vessel count, the U.S. Navy is looking to squeeze out $40 billion in costs over the next five years - an amount roughly equal to the price of three Ford-class aircraft carriers. 

In a memo this week, Acting Secretary of the Navy Thomas B. Modly warned that the service faces three competing pressures: a political and strategic demand for a larger fleet; a persistent readiness shortfall from years of overwork and underfunding; and the massive cost of 12 new Columbia class nuclear ballistic submarines, which are expected to consume at least $115 billion out of the shipbuilding budget in the 2020s. 

"All three of these mandates are occurring within a flat budget environment we expect to continue for several years. Therefore, we must act now to make tough, fiscally-informed choices," Modly wrote. "The bottom line is that we need to find at least $40 billion in real line-of-accounting savings to fund the development, construction, and sustainment of this new fleet over the next five years, and to set the department up for continuing this trajectory in the five years that follow."

Modly has launched a "stem to stern" review of Navy spending with an aim of cutting out $8 billion a year on average over FY2022-2026. The review will seek to find "low priority, redundant, or legacy capabilities, programs, processes, or headquarters functions" that can be merged, eliminated or reduced. The funds freed up by these cuts would go towards a 355-ship fleet; training and "ethical excellence;" and digital modernization.  

In particular, Modly has tasked the review team to look at: 

- reducing duplication of IT systems and infrastructure;

- consolidation or elimination of headquarters, commands, and organizations;

- streamlined naval logistics;

- outsourcing for enabling capabilities;

- enabling capabilities that can be consolidated (e.g., installation management, education and training pipelines);

- significant reductions in service support contracts; and

- repurposing of personnel due to program realignments.

Reassessing force structure

In an acknowledgement of these cost challenges, the Navy has proposed early retirement for a small number of unwanted vessels and new attention to the potential of unmanned systems - a solution that has created tremendous savings for the U.S. Air Force but has not yet been realized for the Navy. With fewer personnel on board, the cost of recruiting, training, paying, housing and caring for the hundreds of sailors that each surface combatant carries would be greatly reduced.

However, unmanned vessels (regardless of size or capability) are unlikely to be a politically permissible addition towards the 355-ship count, according to CSIS. Given this reality, the Navy has delayed a revised force structure assessment until later this year, giving it more time to come up with a proposal to reach the administration's fleet size target.