Update 9/16/20 — The original version of this story included a statement from Esper’s prepared remarks calling for the Navy’s shipbuilding accounts to grow to 13 percent of the service’s budget. His delivered remarks did not include that specific figure. The story has been appended below to reflect Esper’s delivered comments.

WASHINGTON — U.S. Defense Secretary Mark Esper on Wednesday announced called for increased funding for Navy shipbuilding after a major review of its force structure — but it is unclear where that funding will come from.

In a speech delivered at the think tank Rand, Esper called for a Navy of “over 350 ships,” specifically by increasing the Navy’s shipbuilding funding account.

“We will build this fleet in such a way that balances tomorrow’s challenges with today’s readiness needs, and does not create a hollow Navy in the process,” Esper said. "To achieve this outcome, we must increase funding for shipbuilding and the readiness that sustains a larger force. Doing this, and finding the money within the Navy budget and elsewhere to make it real, is something both the Navy leadership and I are committed to doing.

The Pentagon sought $207 billion for the Navy in its fiscal 2021 budget request. Even a 2 percent shift under that top line would represent $4.14 billion in extra funding for shipbuilding — real money, even by Pentagon standards.

The call to shift funding toward shipbuilding comes amid an accelerating naval arms race in the Pacific, with China investing in both a massive fleet and shore-based, long-range anti-ship missile capabilities to keep the U.S. Navy’s powerful carrier air wing out of striking distance. China is building toward a fleet of as many as 425 ships by 2030, according to the Center for Strategic and International Studies, while the U.S. Navy is building to a fleet of more than 355 ships, Esper said.

The decision to increase shipbuilding funds, which Esper billed as a “game changer” in his remarks, comes as a result of an internal “Future Naval Force Study,” led by Deputy Secretary of Defense David Norquist. That study — which essentially superseded a review from the service itself — was delivered to Esper this week.

That envisioned fleet will include a number of unmanned systems that will “perform a variety of warfighting functions, from delivering lethal fires and laying mines, to conducting resupply or surveilling the enemy,” Esper added. “This will be a major shift in how we will conduct naval warfare in the years and decades to come.”

In his remarks, Esper said the forthcoming study “will serve as our guidepost as we decide on, program and build out future fleet and conduct follow-on assessment in select areas.”

“In short it will be a balanced force of over 350 ships, both manned and unmanned, and will be built in a relevant time frame and budget-informed manner,” he added.

Part of the increased funding could come from Congress shifting around authorities. Esper called on the defense committees to allow the service to “put unused end-of-year Navy funding directly into the shipbuilding account, rather than see it expire.”

Traditionally, unspent dollars at the end of the fiscal year are no longer usable by the military.

But an internal shift in the Navy’s budget, without a corresponding overall increase, means a shift in priorities elsewhere — likely, at least in part, through the retirement of older systems.

Where’s the money?

A key question is whether the Navy will need to fully fund the budget realignment from inside its own coffers, or whether the Department of Defense will realign its own priorities to cover any of the increase, something Esper has been hesitant to commit to in the past.

The Navy’s shipbuilding budget has been squeezed by the arrival of the Columbia-class ballistic missile submarine, the exorbitantly expensive next generation of nuclear deterrent-bearing boats.

Adm. Michael Gilday, the chief of naval operations, said in a January speech at the annual Surface Navy Association symposium that the DoD budget should be realigned to cover the cost of the new Columbia class because it is eating a disproportionate share of the shipbuilding budget at a time the country is trying to grow the size of the fleet to match China.

Even a single percentage realignment would make a difference, Gilday argued. To compare, he said, the Navy’s budget in the 1980s — when it was building the Ohio-class ballistic missile submarine — was much higher than today’s budget.

“One percent of the DoD budget would be $7 billion per year in the shipbuilding accounts,” the CNO explained. “If I make some comparison from today and I go back to the 1980s, there are some similarities there.”

“Right now we are building the Columbia-class submarine. That is my highest priority,” he added. "By the time we sundown the Ohio class, we’ll have 42 years in those hulls. We need to get Columbia out there.

“Now, let’s go back to when we were building Ohio in the 1980s: It was about 20 percent of the shipbuilding budget. Right now, Columbia is about 20-25 percent. In FY26-30 it’s going to be about 32 percent. That’s a lot of dough. In the 1980s, the Navy’s percentage of the DoD budget was 38 percent. Right now, it’s 34. So I think historically I have a case to make.”

Jerry Hendrix, a retired Navy captain and analyst with the Telemus Group, said the recognition that the DoD is underfunding shipbuilding is a big step.

“It sounds like he [Esper] has recognized that given where we are going with the Columbia class, that the Navy needs more money for shipbuilding, and that’s an important recognition,” Hendrix said.

“The other part of this is: Is this coming from the Navy’s budget, or is it coming from the DoD budget? Because the Navy still needs the rest of its budget to do training and readiness. So that is a very important aspect of this.”

Aaron Mehta was deputy editor and senior Pentagon correspondent for Defense News, covering policy, strategy and acquisition at the highest levels of the Defense Department and its international partners.

David B. Larter was the naval warfare reporter for Defense News.

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