Some observers have proposed procuring Navy ships using funding approaches other than the traditional full funding approach that has been used to procure most Navy ships since the 1950s. These alternative funding approaches include incremental funding, which has been used to fund a few Navy ships in recent years, and advance appropriations, which has not been used for Navy ship procurement. Supporters of these alternative funding approaches believe they could increase stability in Navy shipbuilding plans and perhaps increase the number of Navy ships that could be built for a given total amount of ship-procurement funding. The issue for Congress is whether to maintain current practices for funding Navy ship procurement or change them by, for example, increasing the use of incremental funding or starting to use advance appropriations. Congress's decision on this issue could be significant because the full funding policy relates to Congress's power of the purse and its responsibility for conducting oversight of Department of Defense (DOD) programs. Consequently, the issue can be alternately expressed as how to procure Navy ships economically while maintaining key congressional prerogatives. Congress's decision on ship funding approaches could also affect future Navy capabilities, annual Navy funding requirements, and the shipbuilding industrial base. Portions of this report are adapted from another CRS report that discusses the full funding policy in DOD procurement generally. Most Navy ships procured since the late 1950s have been funded in accordance with the full funding policy. Before then, many Navy ships were procured with incremental funding, which is discussed in the next section. For DOD procurement programs, the full funding policy requires the entire procurement cost of a usable end item (such as a Navy ship) to be funded in the year in which the item is procured. The policy applies not just to Navy ships, but to all weapons and equipment that DOD procures through the procurement title of the annual DOD appropriations act. In general, the full funding policy means that DOD cannot contract for the construction of a new weapon or piece of equipment until funding for the entire cost of that item has been approved by Congress. Sufficient funding must be available for a complete, usable end item before a contract can be let for the construction of that item. Under traditional full funding, no portion of a usable end item's procurement cost is funded in a year after the year in which the item is procured. Congress imposed the full funding policy on DOD in the 1950s to make the total procurement costs of DOD weapons and equipment more visible and thereby enhance Congress's ability to understand and track these costs. Congress's intent in imposing the policy was to strengthen discipline in DOD budgeting and improve Congress's ability to control DOD spending and carry out its oversight of DOD activities. Understanding total costs and how previously appropriated funds are used are key components of Congress's oversight capability. The full funding policy is consistent with two basic laws regarding government expenditures—the Antideficiency Act of 1870, as amended, and the Adequacy of Appropriations Act of 1861. Regulations governing the full funding policy are found in Office of Management and Budget (OMB) Circular A-11 and DOD Directive 7000.14-R, which provide guidelines on budget formulation. OMB Circular A-11 states, among other things, that Good budgeting requires that appropriations for the full costs of asset acquisition be enacted in advance to help ensure that all costs and benefits are fully taken into account at the time decisions are made to provide resources. Full funding with regular appropriations in the budget year also leads to tradeoffs within the budget year with spending for other capital assets and with spending for purposes other than capital assets. Full funding increases the opportunity to use performance-based fixed price contracts, allows for more efficient work planning and management of the capital project (or investment), and increases the accountability for the achievement of the baseline goals. When full funding is not followed and capital projects (or investments) or useful segments are funded in increments, without certainty if or when future funding will be available, the result is sometimes poor planning, acquisition of assets not fully justified, higher acquisition costs, cancellation of major investments, the loss of sunk costs, or inadequate funding to maintain and operate the assets. Support for the full funding policy has been periodically reaffirmed over the years by Congress, the Government Accountability Office (GAO), and DOD. The executive branch regulations that implement the full funding policy for DOD procurement programs permit two circumstances under which advance procurement (AP) "down payments" on a usable end item can be provided in one or more years prior to the item's year of procurement: AP funding may be used to pay for long-lead items—components of a usable end item that have long manufacturing lead times—if needed to ensure that these items will be ready for installation into the end item at the appropriate point in the end item's construction process. AP funding may also be used to pay for economic order quantity (EOQ) procurement of a set of long-lead items for a set of weapons being acquired under a multiyear procurement (MYP) arrangement. Each of these is discussed below. Long-lead items are often manufactured not at the end item's final assembly facility (such as a shipyard) but at separate supplier firms. In Navy shipbuilding, AP payments have most commonly been used to pay for nuclear-propulsion components of nuclear-powered aircraft carriers and submarines. Congress in recent years has occasionally approved AP funding for conventionally powered Navy ships, such as destroyers and amphibious ships, for which the Navy did not request any AP funding for long-lead items. Congress in recent years has also occasionally approved AP funding for "advance construction" work on certain ships, which apparently refers to early shipyard activities for building the basic structure of a ship, as opposed to manufacturing long-lead components to be installed into the ship. The use of AP funding for shipyard advance construction activities is not recognized in executive branch budget regulations on the full funding policy, at least not in the same way as these regulations recognize the use of AP funding for long-lead components. Congressional decisions to approve AP funding for ships for which the Navy did not request such funding, or for shipyard advance construction activities, could be aimed at one or more of the following goals: generating shipyard construction work (and thus shipyard revenues and jobs) on a particular ship in a year prior to that ship's year of procurement; creating an early financial commitment to procuring a ship that is planned for procurement in a future year, which can enhance job security for construction workers at the yard that would build the ship; reducing the total construction cost of a ship through improved sequencing or year-to-year balancing of shipyard construction work; and reducing the portion of a ship's cost to be funded in the year of procurement. Most DOD procurement programs use annual contracting, under which DOD lets one or more contracts for each year's worth of procurement of a given item. Multiyear procurement is a special contracting authority, approved by Congress on a program-by-program basis, that permits DOD to use a single contract to procure a set of end items that are scheduled to be procured across a series of up to five fiscal years (i.e., the budget year in question, plus up to four future years). An MYP arrangement approved for the Navy's F/A-18E/F strike-fighter program, for example, permitted the Navy to use a single contract for a total of 198 to 224 F/A-18E/Fs procured during the five-year period FY2000-FY2004. Congress over the years has granted MYP authority for a relatively small number of procurement programs. The law governing MYP arrangements is set forth in 10 U.S.C. § 2306b. This provision permits AP funding to be used to finance, at the outset of an MYP arrangement, the procurement of long-lead components for all of the end items to be procured under the MYP arrangement. The MYP arrangement to procure a total of five Virginia (SSN-774) class nuclear-powered attack submarines over the five-year period FY2004-FY2008, for example permits the Navy to procure, in the first years of the arrangement, five sets of long-lead nuclear-propulsion components. This up-front batch procurement of long-lead items is called an economic order quantity (EOQ) because it procures (i.e., places an order for) these items in the form of a batch that can be manufactured in an efficient (i.e., economic) manner. Although some DOD weapons and equipment are procured with AP funding provided in prior years, most DOD procurement items are funded through a single decision by Congress to provide the entire cost of the item in the item's year of procurement. For this reason, the full funding policy for DOD procurement programs can be described in simplified terms as "one decision for one pot of money." In spite of the existence of the full funding policy, a few Navy and DOD ships have been procured in recent years, are currently being procured, or are proposed to be procured, with incremental funding. Examples include DOD sealift ships, the attack submarine SSN-23, the amphibious assault ships LHD-6, LHD-8, and LHA-6, the first two DDG-1000 (formerly DD(X)) destroyers, and the aircraft carrier CVN-78. The DOD sealift ships were procured through the National Defense Sealift Fund (NDSF), a DOD revolving and management fund that is outside the procurement title of the DOD appropriations act and therefore not subject to the full funding policy in the same way as DOD procurement programs funded through the procurement title. LHD-8 was incrementally funded by explicit legislative direction.