The Cost of Things

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By Captain J.E. Liebmann, U.S. Navy (Retired)

The conventional wisdom in the Penta­gon holds that the budget laborers know the cost of everything and the value of nothing. As a former member of that species, I must concede that we didn’t always have that good a handle on costs either. It wasn’t our fault. Cost can mean many things and the right answer is fre­quently determined by who does the asking—and why.

1 thought of this as 1 read that the Per­sian Gulf operation, Desert Shield, is costing us somewhere between $1.4 and $1.6 billion dollars a month. I’m not questioning the numbers. I don’t know if they’re right or wrong . . . and I also don’t know what they mean.

While 1 was in charge of the Navy’s surface warfare programs and budget branch in the Pentagon a few years ago, I was frequently asked the cost of, for ex­ample, operating a certain ship. There could be several answers so I needed to ask something like, “Why do you need to know that?” This sometimes invited umbrage, but I had to ask. An answer— right as I saw it— might have been to­tally wrong if I failed to understand the context of the question. We might have such a problem here. The $1.4 to $1.6 billion monthly price tag for Operation Desert Shield may well be the right an­swer to the wrong question.

Let me illustrate. There are, as of this writing, about 55 Navy combatant ships operating in direct support of Desert Shield. Their cost is part of the total price tag of the operation. So what does it cost to operate those 55 ships?

The first cut would appear relatively simple. You pay X dollars monthly to the crew plus hazardous duty pay. You burn Y gallons of fuel at Z dollars per barrel, and you consume a certain number of spare parts and groceries. The cost of expended ordnance, missiles, and bul­lets, comes on top of that. The monthly “cost” of operating this deployed force, when counted this way, might be some­thing like $2 or $3 million.

But that number would not necessarily answer the question. It could be both much too high and far too low. If the interlocutor is trying to establish the posi­tion that it is very expensive to operate a ship and that a high-visibility commit­ment like Desert Shield ought to dissuade anyone from trying to cut our budget, then, still operating within the rules, we can do far better than $2 or $3 million. All we have to do is pro-rate all the costs that ever were or ever will be associated with that ship.

To begin with, there are the research and development (R&D) costs associated with that class of ship and its weapon sys­tem divided by the number of ships in that class. Add to that the construction cost of the ship divided by the expected service life. The ship will probably re­quire a complex overhaul every five years or so at a cost of $40 to $50 million. You pro-rate that, along with the cost of ex­pected interim depot level maintenance, projected modernization (including the R&D costs associated with that), and be­fore you know it you can easily triple the monthly price tag while still remaining technically truthful. These, the total plat­form program costs (TPPC), are, after all, the total outlays that will be paid over the life of the ship, and pro-rating them for the duration of their participation in Desert Shield seems only fair.

If, on the other hand, the questioner wishes to establish what a great, cost- effective deal a Navy ship represents, then it is possible to give a far lower “true cost” by ignoring all sunk costs such as past R&D and construction costs on the basis that this is money already spent, regardless of current operations. After that you count only the “delta fac­tor,” i.e., the difference—those addi­tional expenses required by the operation that would not otherwise accrue. By that formula, hazardous duty pay for Desert Shield gets counted. Regular pay and benefits do not. Fuel is counted only to the degree that the ship steams at a level beyond the norm. Supplies and other material count only to the degree, once again, that they exceed the norm.

The “cost” can thus be displayed as far less than the $2 to $3 million generic cost of operations per se, and as a mini­scule increment of the TPPC. Factor in the reports that Saudi Arabia is providing much of the fuel free of charge, and we might actually be making money. How’s that for being cost effective?

So what is the right way to tally up the true cost of Desert Shield? In the absolute sense, the argument can be made that

The USS Saratoga (CV-60) relieved the USS John F. Kennedy (CV-67) in the Red Sea last October—would this have happened anyway, perhaps in a different location, regardless of Desert Shield?

everything counts. To a very large de­gree, it is only because of Desert Shield and other threats to our national interests like the Middle East crisis that we must maintain armies and navies. It is why we build ships, why we maintain armored divisions, why we have created the most costly and powerful arsenal on earth. None of that would be necessary if it were not for the pervasive possibility of armed conflict. Then why not attribute a pro-rated share of the total program cost of that arsenal to the crisis in the Gulf? It’s only fair.

The right answer, perhaps, but to the wrong question. That isn’t the question being asked when the Congress and the taxpayer want to know the cost of Desert Shield. What is being asked is not the philosophical query into total cost and value. Rather, the bread and butter ques­tion is, “What’s this going to cost me that I wouldn’t otherwise have to pay?”

This is why the “delta principle” is the only correct way of answering the ques­tion of Desert Shield’s cost; perhaps that is being reported, but I doubt it. The rea­son I doubt it is because of what Secre­tary of Defense Richard Cheney said. He said that if war came to the Persian Gulf, then the $1.4 to $1.6 billion monthly cost would rise “manyfold.” This I do not understand. Beyond the terrible loss of life such a war might entail, what is the other “delta” cost that would escalate “manyfold?” Is the Secretary talking full mobilization when the shooting starts? Does he mean to build new fleets of ships and bombers? Heaven help us if any Mid­East war lasts long enough for us to do that.

In the more realistic short term, ships, tanks, and aircraft might be lost, but it’s only fair to count that to the degree that we plan one-for-one replacements. Is such post-crisis replacement likely if, as we are repeatedly told, the Fulda Gap and Soviet scenario are no longer a threat? Would sealift and airlift costs escalate with the onset of war? Some amount, perhaps, though we are told that we al­ready have enough in place in the Saudi desert to fight a war. Would the opera­tional tempo escalate with added fuel costs? Again, perhaps to some degree, but there is a limit to what men and ma­chines can do. And even if the tempo in­creases exponentially, the military doesn’t pay overtime to its soldiers and sailors, so where is the “delta factor” here—especially if Saudi Arabia is pay­ing for most of the fuel? Where, in this scenario of conflict with forces already in place, is this outlay-intensive machine that will drive up costs “manyfold?”

It’s a risky business to play games with the cost of things. Buy the B-2 bomber, the Air Force tried to tell Congress, be­cause, on top of the factor of need, it would be unconscionable to waste all those sunk costs. Procurement for the B-2 bomber is at risk largely because the Air Force, high-balling the total platform program cost, argued that the greater buy made sense because it would spread the enormous development costs over greater numbers. Congress just looked at the total platform program cost and gagged.

They should not have gagged. Most of the R&D and prototype cost is already paid for. Ignore those and you would be buying a fine aircraft at a far from outra­geous price. The Air Force could have made a better case had they downplayed the prior sunk costs as history and em­phasized the “delta” factor: the future outlays required to bring the aircraft on line.

Understating costs is also risky. One of the arguments for reactivating the battle­ships ten years ago was that it would cost about the same as an Oliver Hazard Perry (FFG-7)-class frigate. We all knew that wasn’t true. Technically, in a sense, it was. The cost of initial reactivation was projected to be in that ballpark. But the cost to make the ship run, to provide the manpower, the training, and ultimately the modernization that would bring the ships up to date was largely unaddressed. The upshot was that we never got the ships we should have had, with Aegis and vertical launch systems replacing at least one of the turrets; aviation facilities; and all those other things needed to make the Iowa class truly viable for warfare in the 21st century.

Today, as we ponder the cost of Desert Shield, we ought to be clear as to what we are talking about. To “high-ball” the estimates in order to get more money out of the Congress would be as wrong as the pretense that there are no costs. High­balling Desert Shield may be as likely to make Congress gag as the B-2 bomber, leading to decisions that severely limit any options we might have. Some may believe that Desert Shield, regardless of the cost, represents a puissant imperative, something that Congress dare not touch, but that’s an increasingly risky assump­tion as time passes and patience wears thin. I don’t know if Secretary Cheney believes in this “puissant imperative,” but his assertion that war would increase costs “manyfold”, unless there is some­thing here that I do not see, bears all the characteristics of “high-balling” and, as such, is a formula for trouble.

Why? Because it would add a factor to the equation of war in the Middle East that shouldn’t be there. It would provide Saddam as well as our allies with one more reason to doubt our willingness to bear these manyfold increased costs of action. It would add to the arsenal of the doubters on this side of the Atlantic as well. It would make rational decisions on war more difficult.

There are many very good reasons for not going to war against Saddam while other factors may still prevail, but to hes­itate because of the illusion of a manyfold increase in costs would hold action hos­tage to what is in the end just another desert mirage.

Captain Liebmann retired in 1989 after 30 years ser­vice as a surface line officer. He commanded three ships, including the USS Worden (CG-18). He is the author of “Don’t Spend the Peace Dividend Yet,” Naval Institute Proceedings, July 1990, p. 33.

Desert Shield

The F orces

U.S. Marine Corps----------------------

Ashore in Saudi Arabia and other locations I Marine Expeditionary Force (I MEF)

1st Marine Division (composed largely of the ground units that deployed with the 1st and 7th Marine Expeditionary Brigades)

3d Marine Aircraft Wing (composed largely of the air units that deployed with the 1st and 7th Brigades)

1st Force Service Support Group (composed largely of the supporting units—supply, maintenance, medical—that deployed with the brigades)

British 1st Armored Division Note: Two additional Marine Expeditionary Brigades— the 4th and the 5th—plus two Marine Expeditionary Units—the 13th and the 26th—are afloat with amphibious task forces (see below). Additional brigades will deploy with the II MEF.

U.S. Navy_________________

General Notes: The carriers USS Theodore Roosevelt (CVN-71), USS America (CV-66) and USS Ranger (CV-61) are deploying with appropriate escorts. Department of Defense sources indicate that the three carriers will link up with carrier battle groups already in the area as reinforcements, forming two carrier battle groups, rather than replacing the ships already there. One of the Atlantic-based carriers will join the USS Saratoga (CV-60) battle group while the other will join the USS John F. Kennedy (CV-67) battle group.

Persian Gulf

USS Blue Ridge (LCC-19), Flagship, Commander 7th Fleet, and Commander, U.S. Naval Forces,

U.S. Central Command USS LaSalle (AGF-3), Flagship, Commander,

Middle East Force

USS Missouri (BB-63)—Ban on live firings of 16" guns lifted 11 September 1990.

Amphibious Group 2 and the 4th Marine Expeditionary Brigade (MEB)

USS Nassau (LHA-4)

USS IwoJima (LPH-2)

USS Guam (LPH-9)

USS Raleigh (LPD-1)

USS Shreveport (LPD-12)

USS Trenton (LPD-14)

USS Portland (LSD-37)

USS Pensacola (LSD-38)

USS Gunston Hall (LSD-44)

USS Manitowoc (LST-1180)

USS Saginaw (LST-1188)

USS Spartanburg County (LST-1192)

USS LaMoure County (LST-1194)

USS Wisconsin (BB-64)—Ban on live firing of 16- inch guns lifted on 5 September 1990 USS Worden (CG-18)

USS Mobile Bay (CG-53)

USS MacDonough (DDG-39)

USS David R. Ray (DD-971)

USS O’Brien (DD-975)

USS Reid (FFG-30)

USS Rentz (FFG-46)

USS Nicholas (FFG-47)

USS Vandegrift (FFG-48)

USS Taylor (FFG-50)

USS Ford (FFG-54)

USS Barbey (FF-1088)

USS Avenger (MCM-1)

USS Leader (MSO-490)

USS Adroit (MSO-509)

USS Impervious (MSO-449)

USNS Wright (T-AVB-3)

USNS Curtiss (T-AVB-4)

USNS Mercy (T-AH-19)—Moored off Manama, Bahrain

USNS Comfort (T-AH-20)—Moored off Manama, Bahrain

Arabian Sea

USS Saratoga (CV-60) CVBG with Carrier Air Wing 17

USS Belknap (CG-26)—Flagship 6th Fleet USS Biddle (CG-34)

USS Thomas S. Gates (CG-51)

USS San Jacinto (CG-56)

USS Philippine Sea (CG-58)

USS Sampson (DDG-10)

USS Spruance (DD-963)

USS Elmer Montgomery (FF-1082)

USS Thomas C. Hart (FF-1092)

USS Detroit (AOE-4)

USS Yellowstone (AD-41)

Gulf of Oman and Indian Ocean USS Midway (CV-41) CVBG with Carrier Air Wing 5 (Relived the Independence CVBG)

USS Bunker Hill (CG-52)

USS Sterrett (CG-31)

USS Oldendorf(DD-9U)

USS Fife (DD-991)

USS Curts (FFG-38)

USS Kiska (AE-35)

USS Sacramento (AOE-l)

Six to eight SSN’s also are deployed

USS Ranger (CV-61) with Carrier Air Wing 2

USS Princeton (CG-59) and appropriate escorts

Amphibious Ready Group Alpha, 13th Marine Expeditionary Unit-Special Operations Capable USS Okinawa (LPH-3)

USS Fort McHenry (LSD-43)

USS Durham (LKA-114)

USS Ogden (LPD-5)

USS Cayuga (LST-1186)

Eastern Mediterranean

USS John F. Kennedy (CV-67) CVBG with Carrier Air Wing 3

USS Mississippi (CGN-40)

USS Moosebruger (DD-980)

USS Samuel B. Roberts (FFG-58)

USS Seattle (AOE-3)

USS Sylvania (AFS-2)

USS Theodore Roosevelt (CVN-71) with Carrier Air Wing 8 and appropriate escorts

USS America (CV-66) with Carrier Air Wing 1 and appropriate escorts

Amphibious Ready Group 3-90 with the 26th Marine Expeditionary Unit-Special Operations Capable USS Inchon (LPH-12)

USS Nashville (LPD-13)

USS Newport (LST-1179)

USS Fairfax County (LST-1193)

USS Barnstable County (LST-1198)

En Route Middle East

Amphibious Ready Group 3 and the 5th Marine Expeditionary Brigade (MEB)

USS Tarawa (LHA-1)

USS Tripoli (LPH-10)

USS New Orleans (LPH-11)

USS Mobile (LKA-115)

USS Vancouver (LPD-2)

USS Denver (LPD-9)

USS Juneau (LPD-10)

USS Anchorage (LSD-36)

USS Mount Vernon (LSD-39)

USS Germantown (LSD-42)

USS Peoria (LST-1183)

USS Tuscaloosa (LST-1187)

USS Barbour County (LST-1195)

U.S. Army ------------------------         

XVIIIth Airborne Corps

I Corps Support Command (Coscom).

82nd Airborne Division

3rd Battalion, 73rd Armored with “Sheridan” (M-551) light tanks

One artillery battalion with 105-mm howitzers. 101st Airborne Division (Air-Assault)

101st Combat Aviation brigade Three Infantry/Air-Cavalry brigades One Command and Support Brigade.

18th Field Artillery Brigade 24th Infantry Division (Mechanized)

Five armored and five mechanized battalions in two active brigades with M1A1 tanks and Bradley (M-2) fighting vehicles.

One artillery brigade consisting of 155-mm. M-109 self-propelled howitzers, 203-mm. M-l 10 self-propelled howitzers, and a battery of Multiple Launch Rocket Systems (MLRS). One command and support brigade One aviation brigade 197th Infantry Brigade (Mechanized)

7th and 11th Air Defense Artillery Brigades with Patriot missile launchers

3rd Armored Cavalry Regiment with MlAl’s and Bradley (M-2) AFV’s.

XIII Corps Support Command 1st Cavalry Division

Six armored and four mechanized battalions with M1A1 tanks and Bradleys.

One artillery brigade consisting of 155-mm. M-109 self-propelled howitzers, 203-mm. M-l 10 self-propelled howitzers and a battery of MLRS.

2nd Armored Division—The U.S.-based brigade arrived in Saudi Arabia from Fort