Foreign Relations of the United States, 1977–1980, Volume IV, National Security Policy

59. Memorandum From the Deputy Director of the Office of Management and Budget (McIntyre) to President Carter¹

Washington, March 22, 1978

SUBJECT

• The Naval Shipbuilding Plan

As we have discussed, Secretary Brown will be sending you this week his recommendations for a 5-year (1979–1983) shipbuilding plan.² That plan, costing about $30 billion, can be accommodated within our current long-range budget projections for Defense. I have reviewed the plan and, while I have some reservations about it, I recommend that you approve it. Harold’s proposal does not change the $4.7 billion shipbuilding program included in your 1979 budget. It essentially takes the Navy’s long term goals and goes about purchasing the requisite ships at a slightly slower rate than that suggested in the Navy’s report to Defense. The plan deemphasizes the extremely costly nuclear surface combatants favored by the Armed Services Committees. As you know, both Armed Services Committees in recent days have suggested the Administration consider a budget amendment increasing the 1979 shipbuilding program. (Both Committees recommended about a $2 billion increase in the Defense $126 billion total to the Congressional Budget Committees last week).

I have four specific concerns which I believe you should consider as we set our long range Navy policy:

Naval Forces Study: Secretary Brown’s plan is supported by the recent Navy Forces Study.³ I found this study disappointing in that it did not question existing Navy missions or examine alternative ways of performing those missions. The Study argues for a completely flexible force in the future, making no real judgments as to the relative merits of the various competing interests within the Navy (carriers, surface combatants, attack subs, etc). The recommended building rate of approximately 14–15 ships per year would provide more than 500 ships in the 1990’s. The Navy’s earlier long term goal of 600 ships would not be reached, however, beyond the year 2000. Ship retirements in the Century’s final decade would, when combined with the recommended annual building rate, lead to an ultimate 400–450 ship force. In conjunction with our Allies, this force level will in our view be sufficient to assure naval superiority over the Soviet Union and its allies.

Trident: The 1979–83 plan calls for only 5 Trident submarines instead of the earlier planned 7, primarily because of construction difficulties at Electric Boat,⁴ but also for overall cost reasons. Given the potentially serious strategic signal associated with such a reduction, it may be premature to reduce the plan at this time. By rephasing Trident procurement, we could continue to plan for seven in the 1979–83 timeframe. This would avoid an alarmist reaction by those who fear that our strategic posture relative to that of the Soviets is on the decline. If you decide to continue plans for 7 Tridents, Defense is likely to request additional funds above the $30 billion. If you desire to keep 7 Tridents in the plan, I recommend that a rephasing such as cited below be followed, and that you ask Harold to adjust other ships to stay within your fiscal guidance:

TRIDENT CONSTRUCTION OPTIONS	1979	1980	1981	1982	1983	Total
Current Plan	1	2	1	2	1	7
Harold Brown Proposal	1	1	1	1	1	5
OMB Alternative	1	1	2	1	2	7

Cost Growth: The plan includes no funds for cost growth resulting from overruns in prior year programs. Over the last 8 years, an average of $643 million has been added annually to the budget for such cost growth. Ship deliveries continue to be delayed and these delays will require more money than is currently budgeted. As a result, cost growth will continue to be present: Over the 5-year period, we should anticipate $2–3 billion of such growth. Again, Defense is likely to press for increased funding to cover the cost increases. We recommend that the $30 billion plan be held firm regardless how much cost growth Defense experiences. Only in this way will adequate incentive exist for the Navy to address their serious overrun problems.

Congressional Salability: The proposed plan is likely to encounter considerable opposition in the House Armed Services Committee. That Committee favors a greatly expanded shipbuilding program, especially more nuclear-powered ships. The Senate Armed Services Committee also is likely to favor more ships, but may support the plan if Secretary Brown forcefully argues for it.

I believe that it is important that we communicate explicitly our rationale for the lower 1979 shipbuilding level ($4.7B) as we present Harold’s five-year plan (which, including cost growth, averages over $6B annually for 1980–83). In the FY 79 Defense budget, we believe that (a) NATO-related Army and Air Forces are of first priority, and (b) the Navy’s severe shipyard problems (multimillion dollar claims and delays of up to two years in many deliveries) warrant at least one year of caution as to just how many billions of dollars we can continue to channel to the problem shipyards in the midst of such difficulties. In sum, I believe the Defense recommendation strikes an appropriate balance between long range Navy goals, mid-term fiscal constraints, and near-term shipyard problems.

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Agency File, Box 11, Navy Department: 6/77–12/79. Confidential.
2. See Document 57.
3. Not found.
4. Electric Boat, owned by the General Dynamics Corporation, had its major submarine manufacturing center in Groton, Connecticut.