Comparing Working-Capital Funding and Mission Funding for Naval Shipyards

Abstract : The Navy owns and operates four shipyards: the Norfolk Naval Shipyard in Portsmouth, Virginia; Portsmouth Naval Shipyard in Kittery, Maine; Puget Sound Naval Shipyard in Bremerton, Washington; and Pearl Harbor Naval Shipyard in Pearl Harbor, Hawaii. These shipyards maintain, repair, overhaul, and upgrade surface ships and submarines -- a range of services that costs the Navy over $3 billion annually. In recent years, the Navy has changed the mechanism it uses to fund each of the shipyards, shifting from the Navy Working Capital Fund (NWCF) to direct appropriations. Previously, under the NWCF's revolving-fund approach, the shipyards set prices for maintenance and repair services that were intended to cover their full operating costs, and the Navy's Atlantic and Pacific Fleets as well as its other customers paid for those services out of their appropriated funds. Now, under the direct appropriations approach, the Navy uses a portion of the money appropriated to it by the Congress to fund the shipyards directly, a financing mechanism known as "mission funding." The Navy believes that the shift to mission funding gives it more flexibility in allocating its resources across regions and types of maintenance. But the change has generated some concern, both within the Department of Defense (DoD) and the Congress and among outside observers and organizations. Naval shipyards had been operating successfully under some form of revolving-fund financial system since the 1950s; as a result, some analysts have questioned the Navy's rationale for the change. This Congressional Budget Office (CBO) paper -- which was prepared at the request of the Readiness Subcommittee of the House Committee on Armed Services -- outlines the advantages and disadvantages of working-capital funding versus mission funding for financing naval shipyards' operations. It also provides an overview of naval ship maintenance and describes the shipyards' transition from working-capital to mission funding.