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Thank you, Admiral Donald.He’s been a long-time friend and mentor.I first met Admiral Donald when he was PERS 42B and I was working for Admiral Joe Lopez in the N8 front office as the Deputy Executive Assistant.Then he got orders to DEVRON 12 and I got orders to the USS SAN JUAN, so it worked out pretty well and he got to lead me again.

At that point in time he would go skiing and the rest of us Commanding Officers were told you can’t get hurt—so we couldn’t go skiing.So we had wonderful skiing in New England, but were not be able to go enjoy it.I learned a number of things working for you, sir.I guess one of them is: life isn’t fair sometimes, and then you get assigned to be N8.

Next slide,please.I spoke to the Submarine Industrial Base Council last week and it was an interesting group, hundreds of people from a lot of the companies that support the major companies here.I really enjoyed that evening. It was more of a talk about what submarining is and the importance of quality assurance. The same applies here to all of you, but I think you all know that message.

I cannot fully explain to you the value of the Submarine Force as seen right now in the Pentagon to our Combatant Commanders around the world.I see it in the blue pouch from what used to be N23 or N-009G with a bunch of manifestations of what’s going on and what the aviators call sneaky stuff.It’s an array of amazing commanding officers and people out there riding on fantastic submarines doing important things day-in and day-out get our attention and gets seen by the president and the leadership.

I was telling Admiral Donald about a fascinating conversation with my compatriot in the Air Force, the A-8, over the holidays.General Breed love, who’s an Air Force four-star, the Commander of European Command, was discussing a number of issues as the Air Force budget was locking.And one of the things he was talking about which concerns him on a daily basis is what’s going on in the submarine world, the Russian submarines, and what is he going to have available in U.S. submarines and anti-submarine warfare capabilities? That’s one of his major concerns. He’s looking at Europe falling apart, but the man is talking to the N8 about the Submarine Force.

I’m kind of jumping back: we need to remember—on the Naval Academy football team, tradition never graduates. I would say excellence can never be allowed to graduate in what we do.We have been through ups and downs in the Submarine Force, and we’re heading towards a period of going to 41 submarines. But what we are doing is important and we have to keep buying the submarines.And that has been the message on the Hill.

My message is we have to keep buying surface ships too because we will get a backlog twice as long and almost as deep on DDGs and cruisers if we’re not careful in the future.So that’s what I have to balance as I look at this whole picture.We have to keep building quality in there as well, and it’s across the whole shipbuilding industry and it leverages all of America’s talents, led by a lot of the men and women in this room.

It’s a message that shipbuilding is important.The SECNAV has been talking about it. We have to be able to keep what we have and maintain the efforts to allow our ships to go to longer life, but at the same time we have to also build new to get quality, to be able to take on the world as it’s changing.

So where is our ’17 budget?It is a balance, and it was a difficult balance.I will tell you a year ago as we were working on POM -17, there were a lot of big bills coming in.We weren’t going to be able to buy all the things we wanted to buy.How we were going to square the circle I didn’t know.

When this POM went down to OSD, I will tell you a lot of stuff that got bought at the end wasn’t there.We had to make a lot of hard trades.We had to put the money into ship maintenance.We had to pay for the new construction aircraft carriers.We had to pay the total bills of what was going on.

So we ended up cutting a lot of capabilities we need to have, but we had to square our circle.Our take to OSD was; if you want the Navy,we want to be that Navy, but a Navy of this size costs this much money.They were like, we’re going orange and red in all these plans.

I’ll talk at the very end about all the plusses that came back.As they went through the Strategic Portfolio Reviews, the value of the Submarine Force and the initiatives—even innovations working with SCO, the Strategic Capabilities Office –we leverage them, they leverage us, the Navy, but they also leverage the Submarine Force.So that connection to SCO, the innovation thoughts, what submarines could do, was really, really important, and it showed up in a number of areas with the UAV and submarine development and VPM and acoustic superiority.

Most special was Ohio Replacement.In the end we did get money from OMB, $2.3 billion in ’21, to actually be able to fund the first increment 41 percent.So that was a significant add to the Navy at the end.

The U.S. economy has been slowly improving. But it could be a challenge for us that one change in the 10 year Treasury bond rating could affect inflation rates, which could affect the debt we have to pay each year, which competes for the dollars I worry about.And I’ll talk about the balance later.That’s my concern of what’s going on.

But because we are on this line of where things were actually improving for a while, there was a tremendous amount of—effectively it was called inflation savings.The cost of doing things was less.That money rolled back out again and that’s where the $21 billion came that DOD had that the President didn’t have to add back in and actually squared that circle that allowed us to pay for a lot of these items.Otherwise, they wouldn’t be here.

So basically from June through November there was a massive discussion about the value of DoD. Everyone kept coming back saying the Navy is important, but how are we going to pay for it? We had some ideas and they had some, and that made it helpful.But in the end we have a Navy that will be able to maintain maritime security in our dynamic environment.

We shrank the naval power with a number of interesting investments.We have to make hard choices, some we’ll talk about, and we have emphasized innovation and reform.

This is the way that John Richardson kind of looks at the world, and I actually relish the discussion, as opposed to a flat view.This is a chart I could have had in the 1700s, and the yellow lines would have all been sea lines of communication.If you look at the individual areas, the Mediterranean could have been Phoenician or Roman sailing routes.

When I was over in Mumbai, India, on the Pacific Fleet staff, the connections between India and the Persian Gulf were tremendous 2,000 years ago. Independent of all of the sailing going on, those connections you see over there were all alive and well.There’s very large numbers of items in the Indian museums that go back to connections with the Babylonian Empire.

But that also reflects the modern world and why we have to have a Navy.You look at what we call the five—not really adversaries—but the five conditions of Russia, ISIL, China, Iran, and North Korea, they’re laid above us there.How do you engage that as a Joint Force? You can clearly see that if you want to defend America and be pushing ahead, this view gives you—that Navy and Marine Corps team.

It also tells you the cyber connections are alive and real.We need to have a Navy pushing out to defend and we have to be well-prepared on cyber. There are inroads connected into us right now. We’ve seen that with the OPM hack and other places.We have to make sure we don’t have ships taken over or shut down.

So, as we look at that more, we are connected to this web. This is the world we live in and we need to have a modern naval force to be able to push out there and be able to make sure these conditions are all well away from us. And you can clearly see where Russia plays center point in General Breed love’s, and our, view.

In the Pacific it’s the China connection.It’s a little bit harder to see it here, but the focus is, what’s happening with their trying to segment those areas? The aggressiveness and the level of building in the South China Sea has now expanded to Scarborough Reef, another area that can be built up over there.And as Admiral Harris, who I’ll see next week, will talk more about it, the “Great Wall of Sand” is kind of resonating on the Hill.

Both Admiral Harris and General Breed love last week mentioned they are getting about 55 to 60 percent of the submarines they want. And I heard about, when I was testifying the next day, about “what are we doing?”“What about ship construction?” “What do we have to have?” “We don’t have the forces we need.”We need to have a national discussion on that.

I just saw an article yesterday that said the Marines are the right size, we should cut a Navy carrier, we should cut some other stuff. So I’m not sure of the value of this poll that was done and who was polled, but it’s clear that the American people don’t quite see the world this way.And that’s one of the important discussions which has to happen on a nationwide level.What does it mean to be in the modern world?

We see it inside the Pentagon, as I look at defense scenarios, it’s not quite clear to everyone else around the country.I think that’s going to be an important part of the message. Hopefully it comes out in this national debate in the election.

It wouldn’t be a Mulloy meeting if there wasn’t a graph. Less to say about individual years, but I will tell you the orange line, up and down, the real spikey one, that’s the actual money I’ve gotten enacted.If you’re running a business, that’s not exactly the kind of money profile you’d like to have to be connected over time.The spiking going on is a relationship of what D.C. would call—quote, “learning to live with the monster they created, the Budget Control Act.”

I talked before about how I’ve gotten about 84 to 93 percent of all the dollars I’ve wanted each year.I lost $25 billion in the first four years.I’m actually about even in FY-16.A billion dollars was added for a DDG (two-thirds of a DDG, so I’m actually down in ’16, but not that much).

In FY-17 I’m down another $4.6 billion.That’s the big red arrow there.It is difficult to plan in that world, but we’re trying to do the best we can.Congress has been working with us but, unfortunately, it’s not the real solution we want.

It has been an exhausting time.I know it’s exhausting for all of you.It has been exhausting for me since this sequester thing started.

On Christmas Day of 2012 I was up in Maine with my family visiting my in-laws.On that morning I got up and got a call. We opened Christmas gifts at nine o’clock, got on an airplane, and came back down to D.C. to start working, on Christmas Day, and didn’t take a day off again for three months until we actually got some kind of a year-long CR.We eventually got an appropriations act, but we were down $13 billion.

Everyone in this room has been living that dream. It is better now than it was then because, essentially, what they’ve discovered is they can write a Budget Control Act, try to pass some of the bills in different years, give us some of the money, and put a lot in OCO. And I will tell you—you’ve heard the word OCO gimmick?It is not a gimmick.It is a matter of learning.

It is a matter of when the money is appropriated it merges with the account.Congress doesn’t consider it a gimmick.OMB only considers it a gimmick. OSD considers it a gimmick until they get the first dollar and then all of a sudden it’s not a bad solution.

We squared our circle this year with a lot more OCO.If there was not OCO Congress would have enacted an OCO solution, or they would have lifted this Budget Control Act, because you cannot run the country at the BCA levels in any department across any part of the federal government. The President is holding out for—he realizes all of your non-DOD entities would be falling apart as well, so that’s why they get some of the dollars.We get some base and then DOD gets OCO on top of it, as well as a certain amount of Treasury, all the people that get NIP dollars and other counter terrorism dollars.

So it’s an interesting process.I expect it will keep going.My issue there is, in the slide what is that green arc, that green arc in the middle?That’s the FY-15 BBA and for FY-16 and FY-17.

I was talking to the Staff Directors for the last two days about a bunch of items on the Hill.What will I get in ’18, ’19, ’20 and ’21?There will be two more BBAs. This law doesn’t lift until ’21, and I can see no way in this national discussion in this election right now that anyone is going to lift that.All we can do is wait out this storm.

We talked about it.I mentioned it here in this room a couple of years ago—I’m in the middle of falling down 10 stairs, one stair at a time, breaking bones as I go.I’m now five down and five more to go and it’s not as bad as we thought.We’re getting fixes as we get along, people stitching steel bars in my arm and giving me OCO dollars, and I fall down the next stair.There are still four more to go.

So eventually, I don’t think I will be able to live long enough to be here in this job, but someone will relieve me and finish the stair falling.In ’22, hopefully there will be some recognition that we need to move on. The issue then will be, what will be the amount of national debt.

I don’t think the BCA law will end.I think we’ll just cope, and I don’t know how much money we’ll get.Each year has been more than the past, because Congress is learning about what they have to do.I think that’s an important message to people here, what is required for the Department of Defense and what solutions are there?I just don’t see that one changing.

Critical capabilities we brought, our Sailor 2025,—it’s important—we’re investing in the health and welfare and the fitness of our people.We are doing Ready Relevant Learning.I think Fritz may talk more about—or actually he was in his previous job, I’m sorry he’s now SUBPAC, so he leaves all that behind now.He turned that over.

We created, as many of you know, a long system of very advanced C-schools.A petty officer in the advanced electronic field comes in the Navy and he won’t be on a submarine for two or three years.We’re going to kind of cut that back.We’re working with all the Type Commanders to start changing the rates that people get to sea, to change the schooling. There’ll be computers in it, but it won’t be just straight, solely computer based.They’ll be actually more focused, with more vigilant tutors and some learning, to make people relevant and ready.

I think this will work.I don’t know if it’s quite the panacea that they say, but my son’s in explosive ordnance school right now and that’s one place where they tested it.He said those things are helping, especially on the enlisted side.

I think that’s the parallel level up there, how do we get more of our people?We see it—in terms of savings it’s about 6,000 people.We’re not going to put anyone out of the Navy—it’s just the people waiting for education, the people in education, there will be fewer of them sitting and waiting for long schools, and that’s where that savings came from.

In aviation, we have cut it.We have cut that, except this year.The money available here, thereare13 more JSFs.Congress has been able to buy a lot more F-18s.We have a Strike Fighter shortfall.We could not put money in ’17 because of the shortfall with the BBA but in ’18 we added airplanes in.

What’s that expectation?Two things, one we think a Middle East partner is actually probably going to buy F-18s; and two, I’m pretty confident that Congress will buy more too for us.They have the last couple of years.I expect they’ll fill in that divot.And between ’15, ’16, ’17 and ’18, we’ll have between 36 and 40 F-18s more, which will be very helpful.Congress added seven more Growlers, so we’re at a fleet of 160 of them.We will be able to man our carrier flight decks with eight, which is much closer to what we want to have for that modern electronic warfare world, especially dealing with the two major foes that we are concerned about, especially China.

We are going to build an unmanned vehicle called Stingray.This has been a two-year-long painful process.The Navy was ripped apart—half of DOD said we had to have a penetrating high stealth, compete with unusual agencies for having a vehicle to fly from a carrier.

We were like, okay, but we want something lower-end.We really want to make the air wing better.We want to be able to mission tank and have some ISR off this thing.

You couldn’t square that circle.I mean it was impossible to come up with the money that would have a program that would have something from an aircraft carrier fly downtown over major countries, at least in any kind of numbers, and be part of an air wing.So, we ended up saying okay, the higher end portion we’ll wait.It will be a part of our next generation air dominance.There’s other services or other agencies doing that.We need to focus on the lower end and take what we’ve done as demonstra-tors, as UCAS-D and other stuff we’ve done, and actually go on.

And it relates to—what happened to UAVs too is you have to eventually move on and build something that will work for us, and that’s where we’re going on that program.We’re pretty excited about it.We actually have a gate review with Mr. Stackley and the CNO and myself on either 4 of 5 April.We will finalize those requirements for the MQXX and actually go back out to the four partners and get going on an RFP as fast as we can to build something that will have some ISR capability, probably 15-20,000 pounds of gas, and have some legs on it to fly 14 hours to be able to match the duty cycle on the aircraft carrier but still also support strike fighters and make a difference when we’re out there on these long missions.

Surface ships across the board, DDG flight threes, we have to have it: 30 times more sensitive radar.The ESBs, Congress brought one.I mean, this is our third base.The first one has been operating here—it’s going to be going to the Middle East here within about a year.It’s pretty amazing when you have a giant tanker that’s got a larger than a football field flight deck on it, and you can put V-22s, 53s on it.The Special Forces are excited and so are the Marines.

And the Marines took a long time checking us out, thinking about what are we doing?Are we walking away from them? It’s interesting, I have a great relation with the Marines, but my father told me a long time ago, “Joe, Black Jack Fletcher and Guadalcanal, the Marines will never forget.”

No kidding, he’s absolutely right.He told me that back when I was 17 years old and going to the Naval Academy.He said, “You’ll have an interesting relationship with the Marine Corps.”I love them but it’s always painful.

Herewe are, exactly.I have an interesting relationship with the Marine Corps and it’s always painful.But they were concerned that we were going to walk away from amphibs, and we’re not, but we have to have a different way of doing business aswe go forward.

This idea of flexible basing, other ways to make things happen–and it’s not always going to be totally opposed to transits shore, but we’re building to 38 amphibs. In this 30 year plan, actually shortly after 2020, we get to 38.But these ships will make, I think, a different level of being able to maneuver in the world and deal with the world we really have, especially in the ISIL counter terrorism world, which is going to be the most prevalent thing people will see.

The China/Russia fight plays out in the backdrop.A lot of it is classified.It’s hard for people to see.This fight is actually in the obvious places where we have to be and have to have those forces.

TAO-X and LHAR, we’ve got the bids in.It’s a pretty exciting idea for competition for NASCO and HII to compete for who wins what ship there and then who has most of the R&D for the LXR, the replacement for the LSDs.So shipbuilding, we just have to protect the numbers.The program is going well, but once again the concern is the numbers and the money.

Cyber and electronic warfare—cyber has been important.We’re still supporting that. That’s one area where we added some dollars over time.

The bottom line is, once again, where did later money roll back in?It rolled back in to buying—and I’ll talk about submarine stuff—it rolled back in to buy those airplanes.It rolled back in to buy a lot here.

We are buying many more SEWIP with Block IIs and IIIs.We need to have that to be able to electronically defend our ships.The old SLQ-32 has been around since I was a Midshipman.It’s getting a little long in the tooth and it really can’t even detect the things Russia or China are doing.We have to go onto this next program.We were able to buy 18 more for a total of 40 something over the FYDP to outfit our ships properly.

The same with the signal exploitation sets, which is essentially, for the people here, a surface ship version of having your cryptology gear onboard.We were able to buy that.We also brought 41 more of what they call Tactical Cryptology Sets.It’s a three rack system to put a lot more of that on ships all the time so that every one of our ships will be able to have that embedded facility and be able to have a simple three rack stand that could be added to in time of need.

Normally, surface ships only have limited SSEE equipment and sometimes only part of the time.They’re realizing that’s part of the world they have to have to deal with,UAVs,and deal with the Iranian Guardsmen, communications, and understand what’s going on.You have to be able to sense the environment around you.

Communications and electronics, we need to put that every-where. Buying 41 of the TCS sets gets a lot more surface ships plugged into that cryptology world, which is where we need to be.If you take that and you link them together, you start putting the power of American computing together.

I feed dollars into programs that NRO is working on that can tie a snippet of data, a comms hit here, a detection of a UAV there.What did I see on a satellite?Did a submarine get underway?You start stitching this together, the power of where we go, that’s where I see some of the Third Offset stuff is—how do you link naval programs around the world with national sensors and then find out what’s really out there?

So even though it’s a simple purchase, it makes a big difference to making a network.I think Chas Richard would tell you, every node on a net can add value, especially if they have some kind of communication path and if they have equipment that brings value.So putting TCS out there gave me 41 more nodes on that net that are now receiving the things that China, Russia, Iran and North Korea are doing.

The Next Gen Jammer, the NGJ, is another key step ahead.I mean, the ALQ-99 has been around forever.In fact, today they’re having meetings going on out there at El Segundo as we work our way through the next phase on contracting for NGJ.Other capabilities: weapons. SECDEF just announced we sank a ship with a SM-6.It is an anti-ship version now, so it’s an anti-air weapon that now has multiple capabilities.The ability to have prompt strike at high speed at great distance is a capability we have to have, and that’s what that weapon brings us.

We’re doing that with a number of other weapons. LRASM is launching from airplanes right now, but eventually will become OASUW Phase 2: same idea, high speed, deliver at great range.High Velocity Projectile, how do I make not just rail guns, but use all 106 barrels on the surface fleet to fly a shell at more than 30 miles and have the accuracy to knock down a cruise missile?You change the scale in our favor when I finally shift the old paradigm that at some point in time the thing I blow up will actually cost more than the thing I use to blow it up with.Then I can have a $10,000 shell take out a multi-million dollar missile, as opposed to a $5 million dollar missile shooting down a million dollar missile.

Maritime TACTOM, we’ve demonstrated that we can steer a TACTOM into a moving target.We actually have funded this item to actually modify the Tomahawks when they come off the improvement line at Raytheon at the end of the FYDP.We’ll have about 245 of them by FY-21.

They’ll actually be able to go back to kind of where we had the TASM a long, long time ago.I remember going through the department head school and all the various paths and searching.This will be a different level.Where that thing would clobber every other white ship in the world, this thing will be targeted better.

Once again, the communication paths, the picture of the world, comes from our communications, our national architecture, but we have to have a weapon that can actually strike on the move.These are just different paths to make Russia and China think about where are we going, what weapons do we have, and helps us on that bottom line hole analysis. You only have so many holes on a ship, can you get more of the weapons you have in there?A hard choice.

Depot maintenance, we had to add a lot of money to that.We have to keep what we have functioning.I want to build new.

You’re all going to see about a two to three percent cut in OPN and RDT&E lines due to the BBA cut in FY-17. We protected Ohio Replacement, protected some critical items in the nuclear weapons stuff.What we told people was your management reserve is gone.In FY-17, if you’re in Other Procurement Navy or in RDT&E, those project managers you’re talking to will see that four percent cut.

Trying to balance at the last minute in December was tough; how do I take out that $4.6 billion to take advantageof where Congress gave us money?Other places we had to cut.With LCS we ended up cutting one hull, which was less about dollars and more about a lot of emotion, and I’ll leave that alone.

And then Congress gave us some things.I’m going to go really quick to submarines and then convert to answer questions.An amazing year, as I fill this next slide.

Across the board, I’ve been able to have a slide on the Submarine Force that has a whole bunch of pictures on it because it’s an area that resonated with OSD.It’s a very different world at the Pentagon than in 2004 right now, but the value of submarines has not changed—they were just not properly appreciated—sometimes you have the long view.I talked about tradition never graduates.The role of the people in this room is to keep saying “this is a relevant force.” It took a while to connect through to OSD and now it’s connected across the board.When I have two combatant commanders testifying that one of the biggest thing they need is submarines, it’s a very different world than we were in in 2004.

But the people in this room knew, kept their eye on the ball, and what we have to keep doing is to remember there is one ultimate stealth platform.There is one place that you can connect in and sample the environment and actually violate that Heisenberg uncertainty principle.We can measure the speed and charge on an electron at the same time because we’re not part of the experiment.We’re outside of it, but we’re inside of it, and we bring that value.

As we worked through the Submarine Unified Build Structure (SUBS) with the corporations and Mr. Stackley, we see that there is a ramp out there with the companies, between HII and Electric Boat and all of the hundreds of vendors below them, that the ability to move and maintain two a year, convert to adding a VPM, and also get a Ohio Replacement on, there was some real concern Ohio Replacement cannot slide.I think you heard that all day and probably last night.We have to build ORP in ’21 to get to sea in ’28 to be on patrol in ’31.We’re going to build a submarine twice as large as Virginia but build it in the same time, seven years.That’s a tremendous feat, tremendous level of effort.

At the same time, we’re going to put a 70 to 80 foot plug into Virginia, three of them before ORP, and we’re going to keep on building Virginia just as excellently and as fast as we have been. That’s a tremendous order. Very few industries in this country could do that.And I’ve got to admit, this symbiotic relationship between ourcompanies and our Submarine Force is what made a tremendous difference for our country, and will continue to make a difference.We have to do that, but we can’t take our eyes off the ball.

The Navy and OSD have taken a hard look at this one and said, you know what?We can ramp through that. We can build one VPM.We can build two VPMs.We can build Ohio Replace-ment.One of our goals in POM-18 is to go back and start scrubbing accounts and see where we can go and be able to stay at two, because I’ve got to work with that trough out there, the submarine trough as well as the DDG trough.

ICEX-16 is coming up, pretty exciting times. CNO is going up. SECNAV is going up.Having been up there myself, it is a tremendous effort to learn about the world. We kind of slowed that for a while. We’re back again. I think in two years we’ll be doing torpedoes.

The U.S. is heading the Arctic Council this year and part of their meeting was in Alaska.Some of those people may be going up to the ice camp. We are a relevant part of the force. We understand the Arctic. Almost everything we have in Arctic manuals came from the Submarine Force and a lot of people in this room. I think that’s another connection we have, bringing excellence to the Navy and to the nation.

Quonset Point, I was up there a couple of weeks ago, a pretty amazing facility. The scale of the machines to fill one room to build an Ohio segment is pretty impressive—it shows the scale of this country to build that kind of precision. And it’s interesting, talking to the engineers there. One of the issues we’re having on aviation depot maintenance is the F-18A to Ds, the older F-18, when they drove a panel, they were plus or minus an eighth of an inch on a high speed precision aircraft. So that’s why they can’t rapidly replace parts because you can’t just come up and build a part for an A to D.Nothing would work if you built all these parts and put them in. They would never line up.

They’re talking plus or minus ten-20,000thof an inch on a submarine that’s 18,000 tons.I mean, the scale of accuracy in what I would think aviation would be, is where the Submarine Force is and where aviation is going.I think Joint Strike Fighter is obviously very different than that, and the E and F is, but I was amazed at the difference of the scale and the accuracy in the construction industry you’re in, compared to what I saw in aviation depot, and aviation is going to have to get caught up on that to have that kind of accuracy.I think they are in some of the more advanced areas, butI was just tremendously impressed at Quonset Point.

UUVs, I will tell you significant investments, $634 million added to the $1.5 billion program we have.This is now over $2 billion over the FYDP in the Navy for UUVs.It was an interesting discussion in the Strategic Portfolio Review, OSD was like;we really want the Navy to get going on this one.Where are these investments going to go?

The talk at that meeting was, if you told me in 1993 or 1995 I want a Raptor to be able to take out bad guys and fly for 19 hours and have this amazing ability to ISR and do slow-motion video and do all the things we do to rapidly get to a Raptor, you never would have been able to build a Raptor if I said build it in ’95.I said, UUVs have advanced but we still have a longway to go.We don’t have that same level.We don’t need to be building one answer right now.

The LDUV Program of Record was to build 19 of them.Okay, well that’s really interesting.It will never be what I want.It will never be the right answer.What we really do is get a lot more options out there.So this money buys 21 UUVs, 16 of them are sized for submarines, five are much larger ones, and it actually puts in money to do operations and exercises forward, and actually provides money for fuel cells, power options, communications, everything.Because we don’t know what we don’t know, but we know we need it.

The Submarine Force, I think, was afraid of UUVs 15 years ago.Some people said it might compete with the submarine.I think we realized we need to embrace it.But we’ve had a number of fits and starts.Are we going to lose these darn things—and we have—and whatever else?

But the picture here on the left of the NORTH DAKOTA —and I’ll tell you, Doug Perry has been an amazing champion across this. He’s single-handedly moving the ball.It’s amazing for a captain to have that much impact across OSD, the companies, and everywhere else.He has had a tremendous drive to make this happen.

And this mission is exactly where the CNO wants to be.He wants to take them forward.He doesn’t want to do an exercise in California.He wants to go to the Mediterranean and he wants to go to the Western Pacific and do a tactical, actual, real operation with these vehicles and have the faith that some of them will come back and we’ll get something out of it.

So NORTH DAKOTA is kind of a highlight of that’s the way we want to go.That’s why the CNO embraced this money.It’s paying for operations to put these 21 UAVs in the fleet.

We have one UUV operation going on, the first one of these large ones, is actually on a 500 mile trip. It is from San Diego to San Francisco and back, but we need to do something over there.This may be some of the last ones we do close to CONUS.We need to go forward.That is a tremendous investment.

There was $600 million put into acoustic superiority to make all the submarines likeSOUTH DAKOTA, and actually start putting large arrays on the older Ohios, and actually putting them on all the Virginia-class to make those changes.That’s another significant investment.

There’s $500 million for VPM.There’s $571 million for submarine combat systems.This is a tremendous area of investment between OSD and Navy of money because it has tangible, measurable outputs.It shows up in that blue pouch, every week, of what’s happening.Our Sailors, our Commanding Officers, have guts and they’re working and operating with great systems and great equipment.We are getting bang for our buck and it’s showing up across the board as what’s happening in the world.

In the middle there, that D5 LE picture(slide on page 42), I think Terry Benedict and Cecil Haney must have conspired with Scott Ridley or James Cameron to pick the right night at the right time to launch a missile.You almost couldn’t pay to get some guy, some Brit up there by the Golden Gate bridge taking time-phased photography looking over California of a missile shot like that.But it’s pretty amazing. The missile that was seen around the world, or at least over the western half of the United States, was just another shot from proven excellence in our D5 Life Extension Program.A pretty amazing testimony to engineering and a pretty important point of making people know we are out there.So it probably wasn’t planned, but I’ll tell you it’s a pretty amazing shot.

And that’s an area where we continue to invest in.We put a lot of money in last year for the Nuclear Deterrence Review.That kept going on here where we’ve added lots of money for MILCON, for the TSP out at Bangor. There’s money invested in the TACAMO,strategic communications, our transmitters; not to the same level as before, but that’s because it already was a pretty well-funded program.

We’re not backsliding anywhere, we have to get there, and Ohio Replacement is just a very small part of doing this. It is excellence day-in and day-out.The CNO has been focused on that, too.

It’s the TACAMOs, it’s the planes, it’s the petty officers, it’s the equipment.It’s a recurring theme up there.We have excellence, we demand excellence, excellence cannot leavethis force.

Weapons, thereareitems laid in there about where we’re going to go withlonger range torpedoes. I think Joe Tofalo and some of the others may talk about that. And once again, the Virginia-class ultimately has been very, very successful. We need to keep that up and not break that golden goose as we step to our new construction.

As I said, I worry about balancing. My job is the total Navy.But I will tell you what I look at, what’s the competition for a buck?

And around there, every day Ilook at what’s happening with the stock market.I look at what’s happening with the 10-year Treasury Bill.Every one of thoseaffects the money that we get. It’s a constant competition.

So I look at all these things each time, and right now the prognosis was it’s not as bad as people feel, and I think that’s been helpful to us.But I worry that the gains we got during the BCA world are very ephemeral.They could disappear in a moment.One change in one of these factors will all drive to each other and could affect us.

So we are on what I view as a much better, more sound path than last year, but a lot of it is related to the U.S. economy and the way Congress has looked at us.So what we can do is keep Congress looking at us being excellent at what we do, and then keep striving to realize the message of the Navy is keeping peace out there.The day-to-day events where the Navy presents itself well: helping people, reacting to Chinese threats, showing up in the Great Wall of Sand, the events on CNN, all the stuff you see out there, puts that message out there.

The American people know they have a Navy, they want to have a Navy.They don’t always completely understand us, and that’s just part of that outreach.And I think some of the items you’ve done with the Submarine Industrial Base Council, of getting to members that aren’t in our major cities to understand what the importance of the Submarine Force is, and the importance of those companies.

A fascinating guy I met last week had been working for 42 years for a company that makes welding rod and welding machines. I just enjoyed talking to him. There’s probably nothing more important to the Submarine Force than welding rod and welding machines.

I think of all my time in submarines, but that individual talking about his workforce and how important they are and the connection they have in his small town—because he’s not in a state that has a direct connection to submarine construction.It’s not in Connecticut.It’s not in Virginia.But that’s important to us, where they’re at.The connections to the mid-West are really, really important to those companies.

So, I’d like to open it up for questions.This has been an interesting fall.I’ve done about six or seven cycles of this.Everyone is different.All are unpleasant in a different way.

I feel like I’m caught in that series school thing where you’re supposed to escape and evade and they catch you and bring you back and beat you.I just get put in different little hovels, as to where I get beat from, but it’s an interesting view.But, I’d like to go ahead and see if anyone has any questions?

MR.:Could you possibly talk about what the ’16 program might look like and do oil prices and fuel prices potentially help us?

ADM. MULLOY:Yeah, we have started on the first minor reprogramming right now, more related to the over-the-horizon missile for the LCS we want to test.There’s a couple of small items on it.We’re actually looking at right now, based on fuel prices, we could have potentially an asset, and we’re talking hundreds of millions of dollars.

So now we’re in negotiations with OSD to let the services have that money. They indicated they may keep about half the asset to help pay for the troop extension in Afghanistan. That money is what we really need, and, honestly, the fleets are looking at bills in terms of the current ship maintenance they’re paying for and some of the operations, to the tune of a couple hundred million dollars.So any money—you know, you give and you lose.

The money I’m collecting, potentially, from fuel the fleet is already spending it, so I don’t think I’m ahead at all.It’s kind of like I’m here right now, my wife is heading to Tysons Corner Mall.I feel like it’s the same way with the fleet.

We’re also trying to lobby that if the other forces can’t spend their OCO, and there’s one particular force that’s usually in green uniforms that has provided an asset to the Navy for the last couple of years, that has been helpful.

The Army gets a lot of money but they can’t always spend it all.We’re definitely eyeing that for a reprogramming this summer as well.It’s not in a vindictive way, it’s just a matter of the money is there and I’d much rather get it where I could.

MR.:Good morning, Admiral.Many of us in industry struggle with obligating and executing funds.We share that concern or struggle with our program managers.Yet the contracting process seems to be bogged down.Simple modifications to contracts and new contracts seem to take forever.I imagine that drives you crazy.Do you have any words of wisdom or thoughts on that subject?

ADM. MULLOY:Yeah, it drives me crazy but I don’t own that contracting point.I will tell you if Dave Johnson is speaking that’s a great question to ask him.

Heis now Mr. Stackley’s principalmilitary deputy.I’ve had great relations with all the PMDs and it’s actually the best I’ve had in seven years working with Dave.I mean, what we talk about is we need to get obligated to show internal to OSD and the Hill, we’re moving on.Otherwise we all lose money.

I wish I knew where I could go on that one.I talk to Elliot Branch, I talk to Dave.We’ll have to keep looking at that.

I think it comes back to some examples of people and give us what—rather than saying it’s a general problem—what I’m really looking for is, I can’t just say the fleet sucks at RADCON.I mean, that’s pretty easy to say.Okay, what program, what did you survey, what ELT, what prototype did he come from?

You need to give some more specificity.But the feedback is, I can’t solve that directly.But I will tell you since I’m not in the acquisition world, if you have your companies give me indirect comments I’ll try to take those as examples and nuggets and try to walk those back, to what area on that contract is that hard?We do need to make that better because that’s the only way I can show Congress and OSD that we’re actually using the money wisely.And if we’re trying to write a contract, we want what you’re giving us.

MR.:Sir, the Congressional Budget Office and Congressional Research Service kind of sounded the alarm about the effect of the cost of ORP on the shipbuilding program.If you look at the 30 year shipbuilding plan, from your perspective, do you see some separate funding for the strategic forces?

ADM. MULLOY: Well, the first down-payment was from the White House for the first $2.3 billion.So what we’ve told them is, over the next couple of years that needs to get up to about $7 billion.So that’s going to have to either come from the White House with top line –and that’s where Mr.Work has been talking to them, the past cycles of that has been DOD has been able to have on this 20 to 25 year cycle a greater amount goes to strategic without crushing the nonstrategic forces.So that was the potential goal.It is after the BCA law and that’s what we’re lobbying for right now for FY-22.

I would tell you, the fund doesn’t come with any money.It’s an interesting discussion.We’ve been thanking the authorizers for it, and it’s important to have a concept because it’s on people’s minds.Butif the fund merely takes whatever Congress appropri-ates and puts those dollars in there, it didn’t create any more money.

There is talk about transferring money in from other DOD accounts, but they don’t gain new life.So if I get a dollar in, it’s the last year of a three year dollar.It goes in the summer of the year.I have to spend it within a month or two.

And I will tell you, if the Navy turns on this Hoover vacuum called the Strategic Defense Fund and we start going around with OSD in the summer of the last year of this availability of this money, it will not take long for the behavior for all the other services to change to meet and obligate their money and then de-obligate later or something. They’ll know with a click, the Hoover just came on. Herecomes the Strategic Defense Fund wandering through their little zoo in August or September, and then immediately within 45 days, writing a contract for all the money we just Hoovered up.

We’ve got to have a different way for the fund to operate. They add money to it.They allow funds that have already expired, like we do for foreign currency, to be sucked up.In that case, we’re not taking from the Army, it’s just money that went on contract but then got de-obligated.

Now you get into—what the CBO will bring up is the scoring.How do you score money that should have already been obligated—you know, the Treasury never had to go get that money at the Dutch auction.It’s gone.Now you’re putting it back in life.

So what CBO and CRS have said is, to save 10%, it’s the authorities that come in the fund, being able to buy missile tubes economically ahead of need.So as I start buying missile tubes in ’19, I don’t want to build up to have to have missile tubes.I’ve got years in there where I’m not building submarines but I just produce tubes at an efficient rate.

Why not get a running start on Ohio’s 3/4/5 and 6, and level load that one?I want to be able to buy HPR compressors for Virginia, Virginia Payload, and Ohio Replacement.Why not have a multi-year deal across these programs?

There’s a lot of authorities in that where they said we would get 10 percent savings.I’m not sure we’re at 10 percent.We know we’ll get savings.

So our answer has been, we want the authorities. We’ll work with Congress on whether theycome in the fund or as a separate authority bill, but we want those authorities. That’s where the money will be.But the fund right now, I don’t see it generating any money.And like I said, I think it will end up being a negative behavior within the Department of Defense unless they can pick up expired money, and that’s not in the bill right now.

ADM. DONALD: We’re going to let you off the hook.
ADM. MULLOY: Alright. Thank you very much, sir. I appreciate it.

ADM. DONALD:Joe, thanks.Thank you very much.I think it goes without saying that we just had the expert speak to us and give us some insights that are valuable for the group, but also for the perspective as we go forward.

Again, what’s obvious about it is Joe’s grasp and his credibility in this business. What’s not so obvious is just how many times that guy has saved our bacon doing things and finding money in places that we don’t know where that stuff came from. We just don’t ask.

But Joe, thank you very much. It’s a delight to see you’ve done so well in your career and we wish you the very best.

ADM. MULLOY: Thank you.

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