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Thank you for the kind introduction -and for inviting me back to speak at this year’s symposium.

And thanks also for the nice lunch, including especially the crab cake, which was quite good. As a kid who grew up in San Francisco eating Dungcness crab-including at cioppino nights at the Italian American Social Club, which my father was a founding member of, in spite of his last name -eating crab is always a treat.

It’s an honor and a pleasure to be here, and I especially appreciate the symposium’s continued willingness to hear my views, knowing that I don’t try to give you the party line, whatever it might be in a given year, but instead try to call things as I see them.

It’s been a busy time on the Hill this year, and there arc several things I want to talk about today, so I’d like to start right in on them.

And as always, I should note that these views arc my own and not necessarily those of my employer.

Activities on the Hill
I want to start by making three general comments about Con-gress’ activities on defense issues this year.

The first is that there’s a strengthened emphasis in this Congress on conducting effective oversight and seeking accountability. A lot of oversight hearings have been held, and a lot of tough questions have been asked at these hearings. Between January 11 and April 25, for example, the House Armed Services Committee and its various subcommittees held a total of 55 hearings to receive testimony from witnesses on various oversight issues. When you subtract out Saturdays, Sundays, and the recesses around President’s Day and Easter, that works out to an average of almost one committee or subcommittee hearing each day for a period of more than 3 months.

The second general comment is that there is strong skepticism on the Hill about the concept of private-sector lead-system integrators, and a corresponding interest in shifting certain acquisition responsibilities back to the federal government. Section 806 of the House-reported version of the defense authorization bill would essentially prohibit the awarding of new contracts for lead system integrator functions after October I, 2011, except under certain conditions.

And the third comment is that there’s a strong skepticism among some Members regarding cost-plus type contacts, and a corresponding desire to shift acquisition programs back toward a greater use of fixed-price type contracts. Section 822 of the House-reported version of the defense authorization bill would require federal agencies that award more than $1 billion worth of contracts per year to develop and implement plans for maximizing the use of fixed price-type contracts for the procurement of goods and services.

Additional ships, including submarines
I want to tum now to the core issue at hand for my address here today, which is submarine procurement. I’m going to spend a good portion of my time today on this topic, and then turn more quickly to some other issues.

I think a lot of you are aware at this point that there is strong interest, particularly in the House, in adding funding to the FY08 Navy shipbuilding budget to support the procurement of additional ships beyond those requested by the Navy for FYOS. And a lot of you might also be aware that at the budget-review hearings this year, the Navy has reacted warily, if not outright negatively, to this idea. Listening to the Navy’s unenthusiastic reaction, one might never suspect that an additional LPD-17 is the No. 1 item on the Navy’s unfunded programs list this year, or that two additional TAKE cargo ships are the No. 2 item.

Navy leaders need to support the President’s budget, and consequently can’t openly argue in favor of an increase to the Navy top line. (This rule doesn’t seem to apply to Air Force leaders, but that’s a topic for another day.)

In any event, since Navy leaders can’t argue in favor of a top line increase, they are concerned that, within a fixed FY08 Navy budget, funding for additional ships could come at the expense of other Navy priorities. That’s understandable. But to discourage Congress from attempting to include funding for additional ships in the ’08 budget, the Navy this year has resorted to a number of arguments, some of which I think are very unfortunate.

One of these is that since submarines are normally procured with two years of advance procurement funding, the earliest that you can procure an additional submarine would be FY I 0.

That’s not true. Repeat: Not true. The use of advance procurement funding is permitted, but it’s not required. Congress can -and in the past has-fully funded the procurement of nuclear-powered warships in a point-blank fashion, without any advance procurement funding. Congress did it with a Nimitz-class nuclear-powered carrier in FY80, and did it again with another two Nimitz. class nuclear-powered carriers in FY88. And it wasn’t the existence each time of an extra set of Nimitz class propulsion components that made Congress’ action possible. That simply permitted the ships to be built more quickly. What made it possible for Congress to procure the ships in this manner was Congress’ constitutional authority to appropriate funds for the purpose.

Congress, if it chooses, could fund the procurement of an additional submarine in FY08, with no advance procurement funding, or in FY09, with either no advance procurement funding, or a single year of advance funding in FY08. And don’t let anyone try to tell you otherwise.

If one or more additional submarines were procured in this manner, they could be built in the usual way, with two years or so of long-lead component manufacturing, followed by five or six years of construction work on the ships themselves. The outlay rate on the funds for these ships would be slower than normal, and the interval between the nominal year of procurement and the year of commissioning would be one or two years longer than normal. But they’d look and perform the same as any other Virginia-class boats.

Another questionable argument that the Navy used this year to try to discourage Congress from the idea of funding an additional submarine prior to FY 12 was that if you go up to 2 subs in FY I 0, then go back down to one sub in FY 11 before going back up again to 2 subs in FYl2, the resulting 2-1-2 pattern could place a strain on the workforce.

The strategy behind this argument might have been to suggest to certain Members that if they wanted to fund an additional submarine in FY l 0, they’d also need to find the funding for another submarine in FY 11, which is something that some Members might find daunting.

This is the kind of argument that sounds like it might have been cooked up in a public relations-type war room, and the premise on which it’s based is weak. If you procure two submarines in one year followed by one submarine the next, you’ve procured a total of 3 subs over 24 months, and you can phase those subs so that you start one every 8 months. A rate of one submarine every 8 months might actually help, rather than hurt, the industrial base transition from the current rate of one submarine every 12 months to the planned eventual rate of one submarine every 6 months.

The Navy has retreated to a revised form of this argument, if I heard it right, that a 2-1-2-1 sawtooth pattern, as the Navy terms it, could place a strain on Navy program management. This is the same service, mind you, that has included a 2-1-2-1 sawtooth pattern for attack submarine procurement in the final 10 years of its own 30-year shipbuilding plan. Apparently, a 2-1-2-1 pattern poses a problem only when it’s proposed by someone other than the Navy.

I pointed out the problems with the Navy’s arguments in my testimony to the House Seapower subcommittee on March 8. Indeed, countering these flawed arguments formed a significant part of my remarks at that hearing. Which made it even more impressive, if that’s the word, when later that same month, in testimony on the Senate side, the Navy casually repeated both of these flawed arguments again. It wasn’t until May 3, when confronted directly on the point at another Senate hearing, that the Navy finally acknowledged that Congress can, in fact, fully fund the procurement of an additional submarine this year, if it chooses.

From my perspective, the Navy’s testimony this year on the idea of procuring one or more additional submarines prior to FY 12 was very unfortunate, not only because the arguments were flawed, but because of the attitudes that appeared, by implication, to be animating the Navy’s testimony. The implication was that the Navy believes one or more of the following:

  • that if you can mislead Congress into thinking that it doesn’t have a funding option that it does in fact have, that’s ok,
  • or more generally, that the ends justify the means, so the quality of the arguments you make doesn’t matter, as long as they succeed in getting Congress to do what you want,
  • or that if you repeat flawed arguments to Congress often enough, even after their flaws have been pointed out, Congress will eventually agree with you

Most recently, the Navy has argued that a down payment in FY08 on an additional submarine to be procured in a future year would create an unfunded out-year liability. That’s true enough, but calling attention to this point, as the Navy has, is really just another way of saying, “We, the Navy, do not trust you, the Congress, to follow through on your own plans to fund an additional submarine.” It’s hard to see how at least some Members won’t find that argument insulting.

It was twelve years ago, in March of ’95, that I first testified on the projected attack submarine shortfall, which is the situation that has caused some Members to be interested in procuring one or more additional submarines prior to FY 12. In the twelve years since that testimony, I’ve testified, reported, and spoken about the shortfall on numerous other occasions.

Last year, II years after I began issuing warnings about the shortfall, Congress began discussing the idea of procuring additional submarines prior to FY 12. In response, the Navy acknowledged the projected shortfall but argued, without providing too many details, that it was manageable.

This year, as the Congress has continued to discuss the possibility of procuring additional submarines, the Navy began to talk a little more about non-procurement options for mitigating the shortfall, such as extending the service lives of up to 19 existing submarines by relatively short amounts of time, or increasing submarine operating tempo, or compressing the Virginia-class construction process by a year, which can give you a one-time addition of two extra submarines in the Force. These are all legitimate options. But the Navy also presented the questionable arguments I have just reviewed for why it would supposedly not be possible, or would not be a good idea in terms of the industrial base, or Navy program management, or unfunded out-year priorities, to procure one or more additional submarines prior to FY12.

I don’t want to give you the idea that the Navy has been focusing its lack of enthusiasm for additional ships solely on submarines, because the Navy has been similarly downcast in reacting to proposals for adding funding for other ships, including even the LPD-17 that is at the top of the Navy’s own unfunded programs list this year. So submarines are not being singled out.

But as the latest tum of events in a story about submarine procurement that, from my perspective, goes back 12 years, I find this year to be a memorable one, and not because it stands out as a high point in the history of Navy testimony to the Hill.

So where do things now stand, legislatively, on the issue of adding funding in the FY08 budget for the procurement of an additional submarine prior to FY 12?

Right now, only one of the committees-the House Armed Services Committee-has marked up and reported its bill. The committee recommended advance procurement funding for an additional ship-set of Virginia-class long-lead components that could support the procurement of an additional submarine in some year prior to FY 12. The bill and its accompanying report do not make a commitment to procure that submarine, but the funding is intended to facilitate the option of doing so.

The chairman of the House Appropriations Committee has indicated general sympathy or support for the idea of including funding in the FY08 budget for the procurement of additional ships, including possibly some amount of funding for a submarine.

Senate authorizers and appropriators, meanwhile, are aware of the interest on the House side in funding additional ships, and have asked for the Navy’s reaction to the idea, but have provided little indication one way or the other of what they might do.

Industrial base
I want to tum now to four other topics that I want to cover more quickly in the remainder of my time. The first concerns the industrial base. Members are impressed with the Virginia-class Capital Expenditure (CAP EX) program, and some of them, at least, would like to see this concept expanded to other Navy shipbuilding efforts. Section 125 of the House-reported version of the defense authorization bill would give the Navy authority to provide capital expenditure incentives for contractors in the shipbuilding industry.

Members also continue to be concerned about the future of the submarine design and engineering base. They were eager to learn the results of the RAND analysis on the issue, which appears to have validated the Navy’s general thinking about accelerating the start of the next SSBN. My sense is that a number of Members strongly support funding for implementing that idea.

Nuclear power for surface ships
The second topic is nuclear propulsion for Navy surface ships. The House Armed Services Committee strongly supports expand· ing the use of nuclear power to a wider array of Navy surface ships, starting with the CG(X). The committee’s interest in this idea is due partly to a concern over the future price and availability of oil, and partly to an appreciation of the operational benefits of nuclear power. As many of you may know, the Navy submitted a report to Congress earlier this year that concludes that nuclear power should be considered for near-term applications for medium-size surface combatants.

Section 1012 of the House-reported version of the defense authorization bill would go further by making it the policy of the United States to use nuclear power for future cruisers or other large surface combatants whose primary mission includes protection of carrier strike groups, expeditionary strike groups, and vessels comprising a sea base. The legislation appears similar in some respects to the Title VIII legislation of the mid-to-late- 1970s, for those of you who might remember that.

The Navy estimates that adding nuclear power to a medium-sized surface combatant like the CG(X) would increase its procurement cost by roughly $600 million to $700 million in constant FY07 dollars. Since the Navy wants to procure two CG(X)s per year between FY 15 and FY21, adding nuclear power could therefore increase annual Navy shipbuilding costs in these years by $ 1,200 million to $ 1,400 million in constant FY07 dollars. This could put additional pressure on other Navy shipbuilding programs, including submarines.

On the other hand, the Navy has also testified that building the CG(X) or other Navy surface ships with nuclear power would increase economies of scale in the production of nuclear propulsion components and thereby reduce the cost of these components by as much as $115 million for each carrier, and about $35 million for each submarine.

The Navy’s AOA on the CG(X), which includes an examination of the option of nuclear power, is due to be completed by the end of September.

The third topic I want to mention briefly is China. China’s military modernization, including its naval modernization, has become a topic of concern and discussion on the Hill. Section 1244 of the House-reported version of the FY08 defense authorization bill expresses the sense of the Congress that U.S. military war-fighting capabilities are potentially threatened by the strategic military capabilities and intentions of China, as demonstrated by its recent anti-satellite test and the October incident involving the Song-class submarine that surfaced near the Kitty Hawk.

China’s submarine-building program is increasingly being cited by those who support U.S. submarine procurement. The argument that we need to procure submarines to counter China’s submarine-building effort is simple to make and understand, and not without merit. But l am concerned that this argument could encourage a resurgence of the old Cold War stereotype that submarines are primarily ASW platforms, and that the primary reason for procuring submarines is to counter someone else’s submarines.

As a naval analyst, I have worked for about 15 years to try to correct this inaccurately narrow stereotype of the roles, missions, and value of submarines. It’s a stereotype that, if allowed to spread, could eventually come back bite the submarine community in the butt, like it did at the end of the Cold War.

In light of the momentum of China’s submarine-building program, I think it’s inevitable that people will cite China’s submarine force as a reason for the Untied States to build new submarines. The challenge will be to take the merit in that argument without letting it slide into an oversimplified stereotype that could make it difficult to explain why submarines might also be needed for other reasons.

30-year shipbuilding plan
The fourth and final topic I want to discuss today is the Navy’s 30-year shipbuilding plan. In my address to you last year, I noted how last year’s 30-year plan would produce a huge shortfall in cruisers and destroyers that was more urgent, mathematically, than the projected attack submarine shortfall, which could give cruiser and destroyer supporters a reason to move ahead of submarine supporters in the line for claiming any additional shipbuilding funds that might become available. As a result, I urged you to offer your help to the surface community in finding ways to address the projected cruiser-destroyer shortfall, particularly in terms of reducing the cost of future cruisers and destroyers.

Well, perhaps the prospect of seeing all of you marching down the hall to help your surface colleagues on this issue encouraged them to focus their minds more sharply on the matter, because this year’s version of the 30-year shipbuilding plan reduces the projected cruiser-destroyer shortfall considerably. Instead of a 26-ship shortfall, it’s now about a I 0-ship shortfall.

And how did Navy officials accomplish this? Well, they did it by simply penning in a dozen additional destroyers in the final 12 years of the plan. Instead of procuring destroyers during this period at a rate of 2 per year, the new plan calls for procuring them at 3 per year.

And voila!, the shortfall is much reduced.

But get this: Although the Navy added a net total of about I 0 additional ships to the shipbuilding plan, most of which are these additional destroyers, it didn’t increase its estimated cost for executing the overall plan. The Navy, in other words, added ships to the plan, but it didn’t add any extra money to build them.

With more ships for the same total amount of money, the implication is that the ships in the 30-year plan are now expected to cost, on average, less to build than was assumed under last year’s plan. The Navy did this, moreover, at a time when it was learning that at least one of its ships -the LCS -is going to cost substantially more to build than the Navy estimated, not less.

This business of adding ships but not adding any money to pay for them isn’t planning so much as wishful thinking. It reminds me of that new self-help book that a lot of people have bought, called The Secret. Perhaps you’ve heard about this book. You know what the big secret in the book is? Apparently, from what I’ve read, it’s this: That you can get things simply by wishing for them. I’m not kidding, that’s it-that if you simply wish hard enough for something to happen, it will.

The writers of the TV show Boston Legal had some fun with this idea on a recent episode, where they had the character played by William Shatner wish for Raquel Welch to walk through his door. But something went wrong and he wound up with Phyllis Diller instead.

Is the Navy wishing for Raquel Welch? And is it more likely to wind up with Phyllis Diller?

I spoke to you last year about the various budgetary risks to the executability of the Navy’s 30-year shipbuilding plan. Since then, developments have increased one of those risks, and added a new one. The risk about the Navy’s ability to build all the ships in the 30-year plan for a certain total amount of money has been increased by cost growth on the LCS, and by the Navy’s decision to add ships to the plan without adding any extra money to build them. And the decision to increase Anny and Marine Corps end strength has added a new risk concerning the Navy’s assumption about its future top line.

So the executability of the Navy’s 30-year shipbuilding plan, including two submarines per year, is as much a question this year, if not more of a question, than it was a year ago. As I’ve said before, the risk to the plan could become particularly acute starting in FY 11 and FY 12, when the Navy wants to start procuring two large surface combatants and two submarines per year, respectively.

The Navy had a chance about three years ago to help address this looming shipbuilding affordability challenge by starting design work on a new attack submarine that could take advantage of new technologies in a more comprehensive, clean-sheet manner than is possible with the Virginia class, and consequently be equal in capability to, but less expensive than, the Virginia class. The Navy decided against that idea, in part because it wasn’t attractive enough in terms of up-front cost vs. downstream break-even point.

I don’t want to reopen that debate, but I do want to note that this was one of two major opportunities, in terms of new ship class designs, for the Navy to take steps to reduce its downstream annual ship procurement funding requirements. Now that the window of opportunity on that potential new attack submarine has closed, there is only one remaining new ship class design opportunity over the next few years for the Navy to take steps to reduce the procurement cost of a major combat ship that is scheduled to be built in larger numbers, and that is the CG(X).

Because the CG(X) is the one current remaining opportunity in this regard, I have encouraged the Navy to do what it can to make the ship as inexpensive as it can while still being capable of performing its core missions. My hope is that those core missions can be performed by a ship that is substantially less expensive than the DDG-1000. But I have no great expectations in this regard. The Navy has commented several times that it would like to use the basic DDG-1000 hull design as the basis for the CG(X), and that the CG(X) might, if anything, need to be bigger than the DDG-1000, in part because of the powerful radar it is to carry.

If so, then the CG(X) could wind up being at least as expensive to procure as the DDG-1000, if not more so, which will not do much to ease the risk concerning the executability of the Navy’s 30-year shipbuilding plan.

I am very concerned about where this situation may be heading, and I think you should be, too. I think I hear Phyllis Diller coming down the hall.

And on that lovely note, I want to thank you again for taking the time to listen to me, and I’ll be happy to take your questions.

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