You are given two reports by the government agency.  

Report 1:
The Commercial Space Launch Act Amendments of 1988 established the foundation for the current U.S. policy to potentially provide federal payment for a portion of claims by third parties for injury, damage, or loss that results from a commercial launch or reentry accident. A stated goal of the act was to provide a competitive environment for the U.S. commercial space launch industry. The act also provided for, among other things, government protection against some losses—referred to as indemnification—while still minimizing the cost to taxpayers. All FAA- licensed commercial launches and reentries by U.S. companies, whether unmanned or manned and from the United States or overseas, are covered by federal indemnification for third-party damages that result from the launch or reentry. According to agency officials, in 2016 FAA issued five active licenses, which had an average third-party MPL of about $51 million and ranged from $10 million to $99 million. The amount of insurance coverage that FAA requires launch companies to purchase—the MPL value—is intended to reflect the greatest dollar amount of loss to third parties and the federal government for bodily injury and property damage that can be reasonably expected to result from a launch or reentry accident. FAA calculates separate MPL values for potential damages to third parties and the federal government. For each launch license that it issues, FAA determines MPL values for third parties with the intent of estimating the greatest dollar amount of losses that reasonably could be expected from a launch or reentry accident, which have no less than a 1 in 10 million chance of occurring. For damages to the federal government, FAA determines MPL values with the intent of estimating the greatest dollar amount of losses that reasonably could be expected from a launch or reentry accident, which have no less than a 1 in 100,000 chance of occurring. According to FAA, the agency defines these probability thresholds to estimate the federal government’s exposure to losses above the MPL. Agency officials said that the current probability thresholds are set such that losses are very unlikely to exceed launch companies’ private insurance and become potential costs for the government under CSLCA. FAA’s process for determining the MPL value for a launch or reentry license generally includes three elements: 1. Number of casualties. Estimating the number of third-party casualties involves adding the number of direct and secondary casualties that could result from a launch accident. Direct casualty estimates include serious injuries and deaths. Secondary casualties include those resulting from fires and collapsing buildings. 2. Cost of casualties. FAA uses $3 million as an estimate of the average loss per casualty, which is multiplied by the number of estimated casualties. 3. Property damage. FAA applies a predetermined factor—which it recently changed from 50 percent to 25 percent—to the estimated cost of casualties to derive estimated losses from property damage. The total MPL is equal to the estimated cost of casualties plus property damage. FAA has revised two components of its MPL methodology since our 2012 report. For example, in April 2016, the agency adopted a new method for estimating the number of casualties, known as the risk profile method. This method uses different tools to simulate a range of possible scenarios to create a distribution of potential casualty numbers and the simulated probability of different levels of casualty numbers. The risk profile method replaced FAA’s “overlay method,” which was a method it had used since the early 1990s which the agency said did not work well for launches of small launch vehicles in remote areas, or for reentries. In addition, FAA reduced the factor it uses to estimate losses due to property damage, based on tests of a new process for estimating such losses that showed the previous factor was too high. We have previously reviewed FAA’s MPL methodology in 2012 and 2017. In 2012 we examined the U.S. government’s indemnification policy, the federal government’s potential costs for indemnification, and the effects of ending indemnification on the competitiveness of U.S. launch companies, among other aspects of FAA’s MPL methodology. In 2017 we examined the extent to which FAA had revised its MPL methodology since our 2012 report to address previously cited weaknesses and the potential effect of any changes to that methodology on financial liabilities for the federal government. The findings and recommendations of those reports, including any unaddressed weaknesses, are discussed later in this report. CSLCA required FAA to evaluate its MPL methodology incorporating three requirements, but the agency’s report did not fully address these requirements. First, the act required FAA to ensure a balance of risk between launch companies and the federal government. However, agency officials told us that they did not re-evaluate the probability thresholds—which are used to divide the risk of loss between launch companies and the federal government—as part of evaluating its MPL methodology when implementing the risk profile method due to resource constraints. Second, the act required FAA to consider the cost impact of implementing an updated MPL methodology, but the agency did not evaluate the impact of implementing its revised methodology on the direct costs to launch companies (insurance premiums) and to the federal government (indemnification liability). Third, the act required FAA to consult with the commercial space sector and insurance providers in evaluating its MPL, but they did not consult such parties in response to the act. Without fully addressing CSLCA’s mandated requirements, FAA cannot ensure that the federal government is not exposed to greater liability costs than intended or that launch companies are not required to purchase more insurance coverage than necessary. In its report, FAA states that implementing an updated MPL methodology in April 2016—the risk profile method—helps ensure that the federal government is not exposed to greater liability costs than intended and that launch companies are not required to purchase more insurance coverage than necessary, as required under CSLCA. Further, agency officials told us that their updated methodology is technically more valid and improves their ability to avoid overestimating MPL values (which can cause launch companies to purchase more insurance coverage than necessary) or significantly underestimating MPL values (which can expose the federal government to greater costs than intended). While an improved model may provide a more realistic calculation of the MPL, by changing the resulting estimates it can also change the balance between the federal government’s exposure to liability costs and the amount of insurance launch companies are required to purchase. For example, if the more realistic results produced by the revised methodology increased the MPL estimates, this would increase insurance costs for the launch companies and reduce the federal government’s exposure, thereby shifting the balance of costs between the two and suggesting a reevaluation of the thresholds. In addition, FAA officials told us that they had not reevaluated the probability thresholds upon implementing the revised MPL methodology, although defining these thresholds is their primary mechanism for adjusting the balance of risk between launch companies and the federal government. Agency officials acknowledged that an examination of the thresholds’ continued appropriateness would be warranted in the future. However, they told us that changing the probability thresholds would require significant effort because it would require them to change federal regulations and that resources are currently allocated to other rulemaking priorities. Nevertheless, without evaluating the appropriateness of the probability threshold as part of the mandated evaluation of the MPL methodology, FAA cannot ensure that the federal government is not exposed to greater liability costs than intended or that launch companies are not required to purchase more insurance coverage than necessary. CSLCA also required FAA to consider the cost impact on both the commercial space launch industry and the federal government of implementing an updated MPL methodology. In its report to Congress, the agency discussed indirect costs to launch applicants and the federal government. For example, FAA discussed indirect data burden costs on launch company applicants and FAA analysts associated with the agency’s risk profile method implementation. The report states that the risk profile method requires more data from a launch applicant than the previous method, but that the added burden is minimal because the information is similar to the type of information required by FAA for a risk analysis. Agency officials also said that the risk profile method requires more of an FAA analyst’s time than the overlay method, but that the added burden is minimal because the work done by FAA on risk analysis provides much of the foundation for an MPL analysis. However, FAA’s report did not include an evaluation of the direct costs to launch companies and the federal government of implementing an updated MPL methodology. The report identifies the direct cost to the launch industry as insurance premiums, and the direct cost to the federal government include potential indemnification payments. Agency officials also told us that the agency does not track commercial space launch insurance costs, and that they do not have meaningful insights on insurance premiums paid by commercial launch companies. FAA officials told us that they only have a general notion of insurance premiums because the industry is reluctant to share such information. FAA officials also told us that, outside of the work done for the report, they have not evaluated the economic implications for launch companies of implementing an updated MPL methodology. Without evaluating direct costs to both the launch companies and the federal government, FAA will be limited in its ability to consider the impact of the cost to both the industry and the federal government of implementing an updated methodology. Although CSLCA required FAA to consult with the commercial space sector and insurance providers in evaluating its MPL methodology for the mandated report, it obtained limited input. For example, FAA officials told us that they obtained input from their Commercial Space Transportation Advisory Committee (COMSTAC) in April 2016 about what to include in their report to Congress, but did not consult with the commercial space sector and insurance providers to evaluate their MPL methodology in response to CSLCA. FAA officials also said that, to respond to CSLCA’s consultation requirement, they did not think they needed to repeat the consultations they took in 2013. In January 2013, the agency solicited input from COMSTAC’s Business/Legal Working Group about how to best conduct a review of FAA’s methodology for calculating MPL, in response to our July 2012 report. FAA also briefed the Business/Legal Working Group in May 2013 to solicit input on MPL methodologies, including the risk profile method. In the January 2013 meeting, a COMSTAC member suggested several contractors for a study by outside experts of the complete MPL methodology, and FAA subsequently hired one of these contractors to develop the risk profile method that it implemented in April 2016. However, the agency did not solicit input from COMSTAC about its risk profile methodology prior to its April 2016 implementation or following CSLCA’s November 2015 mandated evaluation. As a result, FAA lacks input on the effect of its revised MPL methodology on launch companies and the federal government, making it difficult to evaluate the balance of risk between the two. Our 2012 report identified concerns with all three components of FAA’s MPL methodology: estimating the number of casualties, estimating the cost of casualties, and deriving estimated property damage costs from estimated casualty costs. In that report we recommended that the agency reassess its methodology, including the reasonableness of several key elements. As noted in our 2017 report, FAA has since made improvements to its methodology. However, it still has not yet updated the cost of a casualty. In addition, in our 2017 report we also noted that there are instances where deriving estimated property damage from estimated casualty costs is inappropriate. As of November 2017, FAA does not have guidance to identify such instances or to guide decisions on which tools to use in developing the MPL estimate. FAA has taken steps designed to improve two of three elements of its MPL methodology, including revising its methodology for estimating the number of potential casualties for a given launch and changing the factor it uses to derive estimated property damage from estimated casualties. However, the agency has not updated the third element, the amount it uses for the cost of an individual casualty, leaving a previously identified weakness unaddressed. Our 2012 report raised concerns with each of the three components of FAA’s MPL calculation methodology. First, we found that FAA’s method for estimating the number of casualties involved use of a single loss scenario instead of applying the insurance industry’s standard practice of catastrophe modeling, and that the agency’s method might significantly understate the number of potential casualties. Catastrophe modeling, unlike the single-loss approach, generally estimates losses by using various tools to simulate tens of thousands of scenarios to create a distribution of potential losses and the simulated probability of different levels of loss. Second, we reported that FAA had been using an outdated and likely understated figure of $3 million to estimate the cost of a single casualty—including injury or death—which Office of Commercial Space Transportation officials said has not been updated since they began using it in 1988. Third, we reported that the agency’s approach of estimating potential property damage by adding a flat 50 percent to the estimated casualty damage could lead to estimates that were too high in some cases. Given these weaknesses, we recommended that FAA reassess its MPL methodology, including assessing the reasonableness of the cost-of- casualty amount and other assumptions used. Because the agency took actions to assess its MPL methodology, we closed the recommendation as implemented. In March 2017 we reported that FAA had taken steps to address weaknesses in two of these three areas. Specifically, we reported that FAA’s adoption of the risk profile method in April 2016 had improved its estimates of the number of potential casualties associated with a particular license launch. In addition, we reported that the agency had revised the factor it uses to estimate losses from property damage in the MPL calculation from 50 percent to 25 percent. This change has resulted in property damage estimates that FAA officials believe are still conservative but more realistic than previous estimates. However, in our March 2017 report we also determined that FAA had not yet addressed weaknesses in the cost-of-casualty amount we had previously identified; despite the conclusion by a contractor it had hired to study the cost-of-casualty that it was too low. Agency officials told us that they had not addressed this weakness because of other priorities. Given the significance of the cost-of-casualty amount to the MPL calculations, we recommended that FAA prioritize the development of a plan to address the identified weakness in the cost-of-casualty amount, including setting time frames for action, and update the amount based on current information. In October 2017, FAA officials told us that they had not yet updated the cost-of-casualty because they have continued to prioritize completing other work with their limited resources, such as reviewing launch applications and fulfilling other safety responsibilities. As a result, our recommendation remains open. FAA officials told us that they have identified potential steps to update the cost-of-casualty amount, including seeking public input on whether and how to revise the amount, but that they do not expect to make a decision on whether to make any changes to the cost-of-casualty amount until June 30, 2018, at the earliest. FAA officials told us that in order to prioritize the development of a plan to address the identified weakness in the cost-of-casualty amount they will need to consult with both the commercial space and insurance industries about the necessity and implications of any potential increase in the cost-of-casualty amount. Agency officials said that they plan to do such consultations through COMSTAC. However, because COMSTAC was just reestablished in June 2017 after not having been active since November 2016 and new members had not been approved as of October 2017, the anticipated decision date of June 2018 could be further delayed. As we reported in March 2017, an understated cost-of-casualty amount can lead to an inaccurate loss calculation, which in turn understates the amount of insurance a launch company must obtain. This could increase the potential exposure to the federal government, as the insurance amount would be less than the potential losses associated with the launch activity and the property would be inadequately protected. Because of this potential exposure, we maintain that addressing this weakness is a priority. As noted above, in our 2012 report we raised concerns about the first element of FAA’s MPL methodology, which is estimating the number of potential casualties. FAA officials said that they have implemented two tools for estimating the number of potential casualties, and that each tool requires a different level of resources and is more appropriate for different launch scenarios. The Range Risk Analysis Tool creates physics-based simulations of possible accidents using launch vehicle data, such as launch trajectory and types of failures, and assigns each simulated accident a probability of occurrence based on the failure rates of the different elements of the launch vehicle. According to agency officials, the Range Risk Analysis Tool is a comprehensive, high-fidelity tool and is the most appropriate tool for coastal launch sites, which are often located in heavily populated areas, and is labor intensive. The Risk Estimator Sub- orbital and Orbital Launch Vehicle and Entry tool, which in contrast to the Range Risk Analysis Tool, is a medium-fidelity tool that can be used for low-risk launches, such as launch sites located in very sparsely populated areas and reentry operations that do not need the use of a high-fidelity tool. According to FAA, this tool significantly reduces the time required to estimate the risk from launch and reentry vehicle operations. In our 2017 report, we also reiterated that there are cases where the third element of FAA’s methodology, deriving estimated property damage from estimated casualties, could lead to misleading MPL calculations. Specifically, in March 2017 we reported that estimating losses from property damage as a percentage of losses from casualties could lead to overestimates. For example, FAA’s contractor found that, if a launch accident affected a residential area, the agency’s practice of estimating property damage based on casualties would likely overstate property damages because residential structures have relatively low values compared to losses from casualties. We also reported in March 2017 that in some accidents the number of casualties may be low but property losses could still be very large, in which case FAA’s estimating property losses based on casualties would likely understate potential property damage. For example, a launch vehicle could strike an unoccupied structure that is very expensive, such as a neighboring launch complex. Agency officials said that while deriving property losses from casualty losses is a simpler method that may be an effective use of limited FAA resources, it could be inappropriate in scenarios where the number of casualties might be low but property losses could still be very large. In October 2017, agency officials said that FAA had not developed guidance for determining, for a given launch license, which of the available tools would be most appropriate to estimate the number of potential casualties, and whether it would be more appropriate to estimate property losses separately rather than derive them from estimated casualties. While FAA officials said they believe their current decision process is adequate and that they do not need more formal guidance at this time, they also told us that they were in the process of developing internal guidance on the most appropriate tool to use for future launches. The officials said that they did not have a projected completion date for the guidance, primarily because the agency has other priorities and resource limitations. As noted earlier, these priorities include reviewing commercial space launch license applications and managing program safety. Federal internal control standards state that, as part of an entity’s risk assessment component, management should identify, analyze, and respond to risks to achieving objectives. For example, the standards state that management should design control activities in response to the entity’s objectives and risks to achieve an effective internal control system. Without such guidance, FAA could face challenges in ensuring that it is using the most appropriate method to calculate an MPL for a given launch and is making the most efficient use of its resources. Such guidance could become more important as the number of commercial space launches increases, potentially creating greater demands on its resources. We have previously reported that the commercial space launch industry has experienced significant growth in the number and complexity of launches in the past half-decade. FAA has also reported that its licensed launches have increased 60 percent and industry revenue has increased 471 percent since 2012. FAA’s MPL methodology is critical in balancing the encouragement of the U.S. commercial space industry with the need to manage the federal government’s risk exposure because it determines how much risk each party will bear for third-party damages resulting from potential space launch accidents. However, despite changes to the methodology, the probability threshold that the agency uses to achieve this balance of risk has been the same since the 1990s, and has not been reviewed for appropriateness. In addition, while FAA evaluated the effect of its MPL methodology on the indirect costs of launch companies and the federal government, it did not similarly evaluate direct costs. Further, although FAA has obtained input from some stakeholders on certain aspects of its MPL methodology, it has not consulted with launch providers and insurance companies to evaluate effects on key potential costs to launch companies and the federal government, as required under CSLCA. FAA officials told us that resource issues and pursuing other priorities have prevented them from taking these actions. However, the longstanding nature of these issues, as well as their importance in determining the federal government’s financial exposure, makes their completion a priority. FAA has also begun improving other aspects of its MPL process, but important actions remain incomplete. For example, the cost of a casualty, a key component of the methodology, has not been updated since 1988. While FAA has identified potential steps to update this amount, it has not implemented these steps and our March 2017 recommendation to prioritize the updating of this amount remains open. Further, agency officials said they have begun to develop internal guidance on how to determine which methodological tools should be used for a given launch, but are not sure when this process will be completed. These are important steps to help ensure the validity of the MPL methodology and the results obtained for each launch, which in turn determine the balance between the amount of insurance launch companies are required to purchase and the potential financial exposure for the federal government. We are making the following four recommendations to FAA: The FAA Administrator should fulfill the CSLCA mandate to include ensuring a balance of risk between the federal government and launch companies as part of FAA’s MPL methodology evaluation by reexamining the current probability thresholds. (Recommendation 1) The FAA Administrator should fulfill the CSLCA mandate to analyze the cost impact of implementing its revised MPL methodology by evaluating the impact on the direct costs of launch companies and the federal government. (Recommendation 2) The FAA Administrator should fulfill the CSLCA mandate to evaluate its MPL methodology in consultation with the commercial space sector and insurance providers by consulting with those entities on the cost impact of its revised MPL methodology, including an updated cost-of-casualty amount, on the launch industry and the federal government. (Recommendation 3) The FAA Administrator should establish an estimated completion date for developing and implementing a plan to establish guidance on the most appropriate MPL methodologies and tools to use for each launch. (Recommendation 4) We provided a draft of this report to the Department of Transportation for their review and comment. In its comments, reproduced in appendix I, the Department of Transportation concurred with our recommendations. The Department of Transportation also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to interested congressional committees and the Secretary of the Department of Transportation. In addition, this report will be available at no charge on GAO’s website at http://www.gao.gov. If you or your staff have any questions or would like to discuss this work, please contact Alicia Puente Cackley at (202) 512-8678 or cackleya@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Individuals making key contributions to this report are listed in appendix II. In addition to the contact named above, Patrick Ward (Assistant Director), Jessica Artis, Isidro Gomez (Analyst in Charge), Courtney La Fountain, Maureen Luna-Long, Jessica Sandler, Jennifer Schwartz, Joseph Silvestri, and Shana Wallace made key contributions to this report.

 

 Report 2:
With a staff of over 47,000 members, the Coast Guard operates a multimission fleet of 201 fixed and rotary-wing aircraft and over 1,400 boats and ships. Operational control of surface and air assets is divided into two geographic Areas (Pacific and Atlantic), within which are nine Districts consisting of 37 sectors and the stations within them. The Coast Guard’s program oversight, policy development, and personnel administration are carried out at the Coast Guard’s headquarters. As shown in table 1, the Coast Guard is responsible for 11 statutory missions identified in the Homeland Security Act of 2002, as amended. The Coast Guard manages these missions through six mission programs, also listed in table 1. As part of its marine safety mission, for example, the Coast Guard conducts, among other activities, safety inspections and vessel accident investigations, including those involving commercial fishing vessels, which are part of an industry with one of the highest death rates of any industry in the United States. For each of its 11 missions, the Coast Guard has developed goals and targets to assess and communicate agency performance. The Coast Guard’s performance assessment process also includes identifying performance gaps and implementing corrective actions to address unmet performance goals. As part of its process, the Coast Guard is to establish targets for the current and subsequent 2 fiscal years, according to Coast Guard officials. Each target is set by the Coast Guard, but according to the Coast Guard’s Annual Performance Report (APR), some are derived from external factors. For example, DHS requires that Coast Guard set a 100 percent target for the percent of people in imminent danger saved in the maritime environment. Further, several of the Coast Guard’s assets used to conduct these missions are approaching the end of their intended service lives. As part of its efforts to modernize its assets used to carry out various missions, the Coast Guard has begun acquiring new vessels, such as the National Security Cutter, the Fast Response Cutter as well as other assets. However, concerns surrounding the affordability of this effort remain as the Coast Guard continues to pursue multiple new acquisitions without long-term planning to guide the affordability of its acquisition portfolio. Figure 1 shows the Coast Guard’s Fast Response Cutter and National Security Cutter. We previously reported on actions the Coast Guard could take to ensure that, among other things, it addresses limitations posed by incomplete data, the use of unrealistic asset performance data, and limitations with its performance goal data, for more effective program management. Examples of data limitations that we have recommended that the Coast Guard take action on are below. Improve completeness of mission data. In December 2017, we found that several different federal agencies play a role in overseeing and promoting commercial fishing vessel safety, including the Coast Guard. As part of its marine safety activities, the Coast Guard conducts, among other activities, safety inspections and vessel accident investigations. Commercial fishing has one of the highest death rates of any industry in the United States and vessel disasters are the leading cause of fatalities among fishers, according to the National Institute for Occupational Safety and Health. However, our December 2017 review found that more information is needed to calculate vessel safety statistics that could enhance the Coast Guard’s knowledge about accident, injury, and fatality trends involving commercial fishing vessels. The Coast Guard collects some data on commercial fishing vessels that operate in federal waters—including a vessel’s length and construction date—but data on the population of the active U.S. commercial fishing vessel fleet are not complete. Between 2006 and 2015, the Coast Guard investigated 2,101 commercial fishing vessel accidents that were identified as occurring in federal waters. While the number of accidents generally increased over this time period, the number of injuries and fatalities declined over the same 10-year period. However, we could not assess the number of accidents, injuries, and fatalities by fishery— meaning the area in which a certain type of fish (e.g., shrimp, salmon, crab) is caught—because the Coast Guard’s data is not complete. Further, we were unable to calculate the rates of commercial fishing vessel accidents, injuries, and fatalities, because reliable data on certain information needed to do so—including the total number of vessels that are actively fishing and the fishery or region in which the vessel operates—are either not maintained or are not collected by the Coast Guard or other federal agencies. Having this information could be useful to carrying out the Coast Guard’s marine safety mission, which includes enforcing laws to prevent death, injury and property loss in the marine environment. We recommended in our December 2017 report that the Coast Guard ensure that data it collects during commercial fishing vessel incident investigations is accurately captured. We also recommended that the Coast Guard work with stakeholders to form a working group to determine an efficient means to establish a reliable estimate of the population of active commercial fishing vessels. The Coast Guard agreed with both recommendations, and in February 2018 informed us that it is in the process of developing additional data fields to capture more information, such as the fishery in which the commercial fishing is involved, and is engaging stakeholders to establish an appropriate working group. We will continue to monitor these actions. Use more realistic asset performance data. In our May 2016 report on Coast Guard strategic planning, we found that the Coast Guard did not provide field units with realistic goals for allocating assets, by mission. We reported that the Coast Guard’s strategic allocations of assets were based on unrealistic assumptions about the performance capacity of its assets and did not reflect asset condition and unscheduled maintenance. This was due, in part, to the Coast Guard not including information from its field units on the actual performance of its assets. For example, agency officials noted that one of its classes of cutters was 50 years old and these cutters were hampered by mechanical failures requiring emergency dry dock repairs, which resulted in reduced availability to carry out their missions during the year. In another example, a field unit stated that based on historical use, it planned for 575 hours per vessel for one type of cutter instead of the 825 hours performance capacity. Because actual asset use has consistently fallen below asset performance capacities, there is not a direct alignment between the Coast Guard’s strategic operational goals and its prospects for achieving those goals. As a result, the headquarters’ strategic intent, which is based on asset capacity rather than actual performance, did not provide the field with strategic, realistic goals for allocating assets by mission. Agencies should use quality information that is appropriate, current, complete, accurate, accessible, and timely to achieve objectives and address related risks. We recommended that the Coast Guard incorporate field unit input, such as information on assets’ actual performance, to inform more realistic asset allocation decisions. The Coast Guard concurred with this recommendation, and in February 2018 informed us that it plans to address this recommendation through changes to two process documents that are under revision, with an expected completion date in March 2018. Improve performance goal data. In our October 2017 review of Coast Guard performance goals, we reported that the Coast Guard and DHS identified limitations with two of the seven selected performance goals we reviewed, including the five year average number of recreational boating deaths and injuries. In particular, officials believe that many recreational boating injuries that do not require hospitalization are not reported to the Coast Guard. These officials believe that the amount of underreporting may vary over time due to changes in industry trends, making it difficult to accurately determine actual injury rates and program performance. We determined that the data for this performance goal was not sufficiently reliable for the purposes of our reporting objectives due to these likely limitations. We found that the Coast Guard did not report the possible extent of these limitations with this performance goal in its fiscal year 2016 APR. For the other performance goal, the Coast Guard and DHS identified limitations with the number of detected incursions of foreign fishing vessels violating U.S. waters, which is publicly reported in DHS’s APR. DHS’s review of this performance goal, reported in August 2015, raised questions about the validity of this goal—that is, whether it provides a useful measure of the Coast Guard’s performance. Specifically, the review noted that this performance goal is intended to measure a deterrence effect, but doing so is inherently difficult and may lead to contradictory interpretations of performance. In October 2017, we found that the data for this performance goal was sufficiently reliable for our reporting objective purposes, but questions remain about its validity. Reliable data is not a useful indication of performance unless it is also a valid representation of the goal being addressed. DHS officials reported that they did not include a discussion of the limitations for this performance goal in DHS’s fiscal year 2015 APR because the performance goal met the minimum threshold for data reliability despite the goal’s limitations. Coast Guard officials reported they were aware of these limitations and were working with DHS and OMB to improve the performance goal and implement corrective actions within 1 to 2 years. We recommended that the Coast Guard assess the extent to which documentation on performance data reliability contains appropriate information on known data reliability limitations and update these documents, as needed, based on the results of the assessment. The Coast Guard concurred and in February 2018, informed us that it had taken initial actions to address our recommendation. However, our preliminary review of these actions indicates that further action will be needed to fully address our recommendation, such as documenting and reporting the limitations of performance data. Our previous reports have identified areas in which the Coast Guard could improve the transparency of its data used for reporting on its mission performance and planning. Improve transparency of data on mission performance. In our October 2017 report on performance goals, we found that the Coast Guard’s APR has not been released publicly since 2011 due to a previous DHS leadership decision. Consequently, there has not been full visibility over performance across all of the Coast Guard’s missions. For example, one of the Coast Guard’s missions—defense readiness—has no goals that are publicly reported or shared with Congress, even though measures related to defense readiness are included in the Coast Guard’s APR. Coast Guard officials stated that they could see the benefit of publicly releasing their APR; however, DHS’s decision to limit the number of performance goals shared publicly has so far deterred the Coast Guard from pursuing the public release of its APR. DHS officials told us that the department is concerned about conflicting information that a component’s APR might present because it is vetted and produced separately from the DHS APR. However, the lack of transparency regarding performance data shared publicly and with Congress can result in an incomplete picture of mission performance and can limit effective oversight of Coast Guard operations. As a result, the public and Congress may be unable to determine the extent to which the Coast Guard is meeting its missions. We recommended that future Coast Guard APRs be available on the Coast Guard’s public website. The Coast Guard concurred with this recommendation and in February 2018, the Coast Guard informed us that it had completed its 2017 APR and are determining an appropriate approach for making it publicly available. Improve capital planning transparency. In our previously issued work on the Coast Guard’s annual 5-year capital investment plan (CIP), we found that the CIP does not consistently reflect current total cost estimates or the effects of tradeoffs that are made as part of the annual budget cycle. We made several recommendations in recent years intended to help the Coast Guard plan for future acquisitions and the difficult tradeoff decisions it will likely face. The Coast Guard generally concurred with these recommendations and is in various stages of implementation. For example, in 2017 we reported that we have made recommendations that DHS and the Coast Guard take several actions to gain an understanding of what the Coast Guard needs to meet its mission within its likely acquisition funding levels. These recommended actions included the Coast Guard: (1) conducting a comprehensive portfolio review across all its acquisitions to develop revised baselines that meet mission needs and reflect realistic funding scenarios and (2) developing a 20-year plan that identifies all necessary recapitalization efforts and any fiscal resources likely necessary to complete these efforts. For example, in 2014 we recommended the Coast Guard develop a 20-year fleet modernization plan that identifies all acquisitions needed to maintain the current level of service and the fiscal resources needed to acquire them. Without these efforts, the Coast Guard will continue, as it has in recent years, to plan its future acquisitions through the annual budgeting process, an approach that has led to delayed and reduced capabilities. In 2016, the Coast Guard revised its 2005 Mission Needs Statement, which provides a basic foundation for long-term investment planning that is to serve as the basis for evaluating the effectiveness of various fleet mixes, and inform the Coast Guard’s CIP. However, the 2016 Mission Needs Statement did not identify specific assets the Coast Guard needs to achieve its missions, nor did it update the annual hours it needs from each asset class to satisfactorily complete its missions. The Coast Guard has stated it is developing a 20-year Long-term Major Acquisition Plan, but it has not stated when the plan will be completed or what will be included in this plan, such as potential trade-offs that could be made across the Coast Guard’s portfolio of acquisitions to better meet mission needs within realistic funding levels. A long-term plan with a tradeoff analysis would facilitate a full understanding of the affordability challenges facing the Coast Guard while it builds the Offshore Patrol Cutter. DHS concurred with our 2014 recommendation, but it is unclear when the Coast Guard plans to complete the 20-year plan. Chairman Hunter, Ranking Member Garamendi, and members of the sub- committee, this completes my prepared statement. I would be happy to respond to any questions you may have at this time. If you or your staff members have any questions about this testimony, please contact Nathan Anderson at (202) 512-3841 or andersonn@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Other individuals making key contributions to this work, and the underlying reports on which it is based, include Dawn Hoff (Assistant Director); Andrew Curry (Analyst-in-Charge); Chuck Bausell; David Bieler; Richard Cederholm; John Crawford; Timothy J. DiNapoli; Michele Fejfar; Laurier R. Fish; Peter Haderlein; Eric Hauswirth; Laura Jezewski; Tracey King; Benjamin Licht; Marie A. Mak; Gary Malavenda; Diana Moldafsky; Heidi Nielson; Meg Ullengren; and Kayli Westling. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Question: Write a one-page summary of the report 1.

Answer: The federal government shares liability risks with the commercial space launch industry for accidents that result in damages to third parties or federal property. This arrangement requires space launch companies to have a specific amount of insurance to cover these damages. The government is potentially liable for damages above that amount, up to a cap GAO estimated to be $3.1 billion in 2017, subject to appropriations in advance. CSLCA, enacted in 2015, directed the Department of Transportation, of which FAA is a part, to evaluate its MPL methodology and, if necessary, develop a plan to update that methodology. The act also included a provision requiring GAO to assess FAA's evaluation and any actions needed to update the methodology. This report discusses the extent to which (1) FAA's evaluation report addresses the requirements in CSLCA and (2) FAA has addressed previously identified weaknesses in the MPL methodology. GAO reviewed documents and interviewed FAA on its loss methodology evaluation and actions to address weaknesses. The Federal Aviation Administration's (FAA) report evaluating its maximum probable loss (MPL) methodology did not fully address the evaluation and consultation requirements specified by the U.S. Commercial Space Launch Competitiveness Act (CSLCA). Balance of Risk. CSLCA required FAA to include ensuring that the federal government is not exposed to greater indemnification costs and that launch companies are not required to purchase more insurance coverage than necessary as a result of FAA's MPL methodology. FAA said that it ensured this balance by improving its methodology, but it did not reevaluate its probability thresholds after revising its methodology. These thresholds are used to divide the risk of loss between launch companies and the government. Impact on Costs. The act required FAA to consider the costs to both the industry and the federal government of implementing an updated methodology. FAA's report discussed the impact on indirect costs, such as data collection, but did not discuss direct costs: insurance premiums for launch companies and indemnification liability for the federal government. Consultation. The act also required FAA to consult with the commercial space sector and insurance providers in evaluating its MPL methodology in accordance with the preceding requirements. While the agency consulted with some stakeholders, these consultations were limited in scope. FAA officials said they have not been able to take the actions needed to fully satisfy the mandated elements because of issues such as resource limitations and the lack of available data. However, by not resolving these issues, FAA lacks assurance that launch companies are not purchasing more insurance than needed or that the federal government is not being exposed to greater indemnification costs than expected. FAA has addressed two of three previously identified weaknesses in its MPL methodology but has not yet dealt with the remaining weakness. Specifically, the agency has revised its methodology for estimating the number of potential casualties for a launch and changed the factor it uses to derive estimated property damage from estimated casualties. However, FAA has not updated the amount used for the cost of an individual casualty. GAO recommended in a March 2017 report (GAO-17-366) that FAA update this amount. Not doing so could understate the amount of insurance launch companies are required to purchase, exposing the federal government to excess risk. GAO also determined that while FAA has two tools and methods it can use in making its MPL estimates, it does not have guidance on determining which are most appropriate for a given launch scenario. For example, one tool is more comprehensive but also labor intensive to use, while the other is inappropriate for certain launch scenarios and could result in misleading MPL amounts. Officials said they have begun to create such guidance but do not have an estimated completion date. Without such guidance, FAA cannot ensure that the most appropriate MPL methodology is used for each launch. FAA should fully address mandated requirements in evaluating its MPL—probability thresholds, direct costs, and stakeholder consultations— and establish an estimated completion date for developing guidance on tools and methods to use for specific launch scenarios. The Department of Transportation concurred with the recommendations, and provided technical comments.