Options for Funding Aircraft Carriers

U.S. aircraft carriers (and most other naval vessels) are fully funded by Congress in a single year, even though it takes several years to build the ship. The full-funding policy lets Congress members know how much of a commitment they are making to a program at the outset, but it has the disadvantage of causing spikes of several billion dollars in the budget every fourth or fifth year and of complicating the funding of other programs in those years. At the request of the Program Executive Office for Carriers, Naval Sea Systems Command, RAND researchers sought to assess the advantages and disadvantages of some alternative carrier-funding strategies: Incremental funding, advance appropriations, and a revolving fund. The study focused on two questions: To what extent would alternative funding strategies smooth the spiky full-funding profile of annual budget authority? and How would a change of funding strategies shift risks and thus incentives among Congress, the Navy, and the shipyard contractor? Choosing from among the various strategies requires trading off the benefits of funding stability against increased risks in various areas. There is a potential gain from smoothing the peaks, since the money must come from other DoD or federal programs. However, incremental funding entails higher contractor risks and costs, and provides less budget visibility to Congress; capital accounts involve the accumulation of balances that Congress, DoD, or the Navy itself might shift to other uses. Advance appropriations shares some of these risks, but to a lesser degree.