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Tuesday, April 30, 2013

Navy Virginia (SSN-774) Class Attack Submarine Procurement: Background and Issues for Congress

Ronald O'Rourke Specialist in Naval Affairs

The Navy has been procuring Virginia (SSN-774) class nuclear-powered attack submarines since FY1998. The two Virginia-class boats requested for FY2014 are to be the 19
th and 20th boats in the class, and the first two in a 10-boat Virginia class multiyear-procurement (MYP) contract for the period FY2014-FY2018. Congress granted authority for this MYP contract as part of its action on the FY2013 Department of Defense (DOD) budget. The Navy’s FY2013 budget submission had projected one Virginia-class boat in FY2014. Congress, as part of its action on the FY2013 DOD budget, added AP funding in FY2013 to support the procurement of a second Virginia-class boat in FY2014. The Navy’s inclusion of a second Virginia-class boat in FY2014 (which increases from 9 to 10 the number of boats in the FY2014-FY2018 MYP contract) follows through on this Congressional action.

The Navy’s proposed FY2014 budget estimates the combined procurement cost of the two boats requested for FY2014 at $5,414.2 million. The two boats have received a total of $1,530.8 million in prior-year advance procurement (AP) funding (although this figure may be reduced by the March 1, 2013, sequester), leaving another $3,883.4 million to complete the funding for the two boats.

The Navy’s proposed FY2014 budget requests $5,285.3 million in procurement and AP funding for the Virginia class program. This figure includes:

  • $2,930.7 million in procurement funding to complete the procurement cost of the first boat requested for FY2014, and to pay part of the procurement cost of the second boat requested for FY2014; 
  • $1,612.0 million in AP funding for Virginia-class boats to be procured in future fiscal years; and 
  • $742.6 million in AP funding for Economic Order Quantity (EOQ) purchases (i.e., batch orders) of selected components of the 10 Virginia-class boats to be procured under the FY2014-FY2018 MYP contract. EOQ purchases are a regular feature of the first year or two or an MYP contract. 

The Navy is proposing to defer to FY2015 the remaining $952.7 million of the procurement cost of the second boat requested for FY2014. This would divide the procurement funding for the boat between two fiscal years (FY2014 and FY2015)—a funding profile sometimes called split funding. In recent instances where split funding has been used to fund Navy ships, the funding has been appropriated using a funding method called incremental funding, under which Congress takes a positive action to approve each of the two annual funding increments. For the second Virginia-class boat requested for FY2014, however, the Navy is proposing to use a different funding method called advance appropriations, which is a form of full funding that resembles a legislatively locked in form of incremental funding. Under advance appropriations (which is not to be confused with advance procurement [AP] funding), the FY2015 funding increment for the boat would be legislatively locked into place (i.e., it would be “automatic”), and Congress would need to take action to stop that increment from being appropriated. Although the Navy in recent years has occasionally expressed interest in using advance appropriations for funding ships, there is little precedent in recent years for funding Navy ships with advance appropriations.

DOD and the Navy are considering whether to build Virginia-class boats procured in FY2019 and subsequent years with an additional mid-body section, called the Virginia Payload Module
(VPM), that contains four large-diameter, vertical launch tubes that the boats would use to store and fire additional Tomahawk cruise missiles or other payloads, such as large-diameter unmanned underwater vehicles (UUVs). Building Virginia-class boats with the VPM might increase their unit procurement costs by about 15%-20%, and would increase the total number of torpedo-sized weapons (such as Tomahawks) that they could carry by about 76%.

The Navy’s FY2013 30-year SSN procurement plan, if implemented, would not be sufficient to maintain a force of 48 SSNs consistently over the long run. The Navy projects under that plan that the SSN force would fall below 48 boats starting in FY2022, reach a minimum of 43 boats in FY2028-FY2030, and remain below 48 boats through FY2034.

Potential issues for Congress regarding the Virginia-class program include the following:

  • the impact on the Virginia-class program of the March 1, 2013, sequester on FY2013 funding and unobligated prior-year funding for the program; 
  • the potential impact on the Virginia-class program of a possible sequester later this year or early next year on FY2014 funding and unobligated prior-year funding for the program; 
  • whether to use traditional (i.e., single-year) full funding, incremental funding, or (as the Navy proposes) advance appropriations for funding the second of the two boats requested for procurement in FY2014; 
  • the Virginia-class procurement rate more generally in coming years, particularly in the context of the projected SSN shortfall and the larger debate over future U.S. defense strategy and defense spending; and 
  • Virginia-class program issues raised in a December 2012 report from DOD’s Director, Operational Test and Evaluation (DOT&E). 

The Navy’s Ohio Replacement (SSBN[X]) ballistic missile submarine program is discussed in CRS Report R41129, Navy Ohio Replacement (SSBN[X]) Ballistic Missile Submarine Program: Background and Issues for Congress, by Ronald O'Rourke.

Date of Report: April 22, 2013
Number of Pages: 28
Order Number: RL32418
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U.S. Air Force Bomber Sustainment and Modernization: Background and Issues for Congress

Michael A. Miller
US Air Force Fellow

The United States’ existing long-range bomber fleet of B-52s, B-1s, and B-2s are at a critical point in their operational life span. With the average age of each airframe being 50, 28, and 20 years old, respectively, military analysts are beginning to question just how long these aircraft can physically last and continue to be credible weapon systems. As potential adversaries acquire twenty-first century defense systems designed to prevent U.S. access to the global commons (sea, air, space, and cyberspace) and to limit U.S. forces’ freedom of action within an operational area, the ability of these Cold War era bombers to get close enough to targets to be effective will continue to deteriorate. Although the Air Force is committed to the development and acquisition of its proposed Long-Range Strike-Bomber (LRS-B), it is anticipated that flight-testing of the new bomber will not start until the mid-2020s, with initial operational capability near 2030. With this timeline in mind, the Air Force has extended the operational lives of the B-52 and B-1 out to 2040 and the B-2 out to 2058. Air Force and aerospace industry experts insist that with sufficient funding for sustainment and modernization over their expected lifespans, all three of the existing bombers can physically last and continue to remain credible weapon systems. However, appropriations decisions made by Congress based on required military capabilities to meet national security objectives will ultimately determine how long the B-52, B-1, and B-2 will remain in service.

The central issue for Congress is how much funding should be appropriated for the continued sustainment and modernization of the B-52, B-1, and B-2 bombers over the remainder of their service lives. Interest in this subject stems from Congress’s authority to approve, reject, or modify Air Force funding requests for bomber sustainment and modernization as well as its oversight of the nation’s long-range strike requirements and capabilities. In addition, sustainment, modernization, and size of the bomber force have been perennial legislative topics since the early 1990s. As the Air Force progresses through development and acquisition of the LRS-B and begins the gradual phase-out of 50-year-old bombers, it is anticipated Congress will continue dealing with bomber sustainment and modernization legislation. Congress’s decisions on appropriations for the bomber force could affect the nation’s long-range strike capabilities and have unintended consequences on U.S. national security as well as the U.S. aerospace industry.

The context through which Congress will make these decisions includes U.S. national security and defense strategies and the expectation of the role the B-52, B-1, and B-2 will play in executing those strategies. Some of the many global and strategic variables that could become central in Congress’s decision making on the bomber force include the following:

  • the Obama Administration’s 2012 rebalance in national security strategy toward the Asia-Pacific region and the military implications applicable to the bomber force; 
  • the expected contribution of bombers in accomplishing the critical missions of U.S. Forces as outlined in the Department of Defense’s strategic guidance, Sustaining U.S. Global Leadership: Priorities for the 21st Century Defense
  • the effectiveness and sustainability of the Air Force’s continuous bomber presence operation—based in the Pacific at Anderson Air Force Base, Guam— and corresponding displays of worldwide power projection missions by all three bombers;
  • the anti-access/area denial (A2/AD) challenge presented by potential adversaries and the developments related to bomber’s employment in an A2/AD threat environment; and 
  • the bomber’s role in nuclear deterrent operations and the impact of the New Strategic Arms Reduction Treaty on the B-52 and B-2. 

The starting point for Congress’s debate on bomber modernization and sustainment is the existing Air Force bomber force, which includes

  • 76 B-52H Stratofortress bombers capable of both conventional and nuclear operations and capable of employing long-range standoff weapons. The B-52H first entered service on May 9, 1961.
  • 63 B-1B Lancer bombers capable of supersonic and low-level flight, conventional only operations, and employing long-range standoff weapons. The B-1B became operational in 1986. 
  • 20 B-2A Spirit, low observable (stealth) bombers capable of both conventional and nuclear operations. The B-2A entered service in December 1993 and became fully operational capable (FOC) on December 17, 2003. 
Potential congressional oversight and appropriations concerns for the sustainment and modernization of the U.S. Air Force’s bomber force may include the following: 
  • the potential for a shortfall in the nation’s long-range strike capabilities as development of the Air Force’s proposed LRS-B continues; 
  • the feasibility and affordability of Air Force bomber sustainment and modernization plans and whether those plans bridge any potential long-range strike capabilities gap until the LRS-B becomes operational; 
  • the amount of money Congress and the nation should continue spending on 28- and 50-year-old bombers; 
  • the sufficiency of acquisition plans for the 80 to 100 LRS-Bs to backfill U.S. long-range strike requirements as the legacy bomber force ages out of service; 
  • the possibility of further delaying development and acquisition of the proposed LRS-B given sufficient levels of funding for sustainment and modernization of the current bomber force; 
  • the modernization, sustainment, and development of the weapons employed by the bomber force that affect the bomber’s effectiveness and ability to operate in advanced, twenty-first century A2/AD threat environment; 
  • the potential implications of reduced bomber sustainment and modernization, and subsequent diminishing numbers of airframes, on any future rounds of base realignment and closure efforts; and 
  • the ability of the nation’s industrial base to sustain an aging bomber force.

Date of Report: April 23, 2013
Number of Pages: 76
Order Number: R43049
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Terrorism Risk Insurance: Issue Analysis and Overview of Current Program

Baird Webel Specialist in Financial Economics

Prior to the September 11, 2001, terrorist attacks, insurance coverage for losses from such attacks was normally included in general insurance policies without specific cost to the policyholders. Following the attacks, such coverage became very expensive if insurers offered it at all. Because insurance is required for a variety of economic transactions, it was feared that the absence of insurance against terrorism loss would have a wider economic impact. Private terrorism insurance was largely unavailable for most of 2002, and some have argued that this adversely affected parts of the economy.

Congress responded to the disruption in the terrorism insurance market by passing the Terrorism Risk Insurance Act of 2002 (TRIA; P.L. 107-297, 116 Stat. 2322). TRIA created a temporary three-year Terrorism Insurance Program in which the government would share some of the losses with private insurers should a foreign terrorist attack occur. This program was extended in 2005 (P.L. 109-144, 119 Stat. 2660) and 2007 (P.L. 110-160, 121 Stat. 1839). The amount of government loss sharing depends on the size of the insured loss. In general terms, for a relatively small loss, private industry covers the entire loss. For a medium-sized loss, the federal role is to spread the loss over time and over the entire insurance industry; the government assists insurers initially but then recoups the payments through a broad levy on insurers afterwards. For a large loss, the federal government would cover most of the losses, although recoupment is possible in these circumstances as well. Insurers are required to make terrorism coverage available to commercial policyholders, but TRIA does not require policyholders to purchase terrorism coverage. The prospective government share of losses has been reduced over time compared with the initial act, but the 2007 reauthorization expanded the program to cover losses stemming from acts of domestic terrorism. The TRIA program is currently slated to expire at the end of 2014.

The specifics of the current program are as follows: (1) a single terrorist act must cause $5 million in damage to be certified for TRIA coverage; (2) the aggregate insured loss from certified acts of terrorism must be $100 million in a year for the government coverage to begin; and (3) an individual company must meet a deductible of 20% of its annual premiums for the government coverage to begin. Once these thresholds are passed, the government covers 85% of insured losses due to terrorism. If aggregate insured losses due to terrorism do not exceed $27.5 billion, the Secretary of the Treasury is required to recoup 133% of the government coverage by the end of 2017 through surcharges on property/casualty insurance policies. If the losses exceed $27.5 billion, the Secretary has discretion to apply recoupment surcharges, but is not required to do so.

Since TRIA’s passage, the private industry’s willingness and ability to cover terrorism risk have increased. According to industry surveys, prices for terrorism coverage have generally trended downward, and approximately 60% of commercial policyholders have purchased coverage over the past few years. This relative market calm has been under the umbrella of TRIA coverage, and it is unclear how the insurance market would react to the expiration of the federal program.

In the 113
th Congress, Representative Michael Grimm has introduced H.R. 508 to extend the TRIA program’s expiration date five years until the end of 2019. The bill has been referred to the House Committee on Financial Services, who has yet to take further action in this Congress. The committee’s Subcommittee on Insurance, Housing, and Community Opportunity held a hearing on TRIA during the 112th Congress. .

Date of Report: April 26, 2013
Number of Pages: 15
Order Number: R42716
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