Department of Homeland Security

Office of Inspector General 

Funding Plan for the United States 


Coast Guard Museum 


OIG-10-105 August 2010 
Office ofInspector General

u.s. Department of Homeland Security

Washington, DC 20528

Homeland

Security

August 3, 2010

Preface

The Department of Homeland Security (DHS) Office ofInspector General (OIG) was

establis,hed by the Homeland Security Act of2002 (Public Law 107-296) by amendment

to the Inspector General Act of1978. This is one of a series of audit, inspection, and

special reports prepared as part of our oversight responsibilities to promote economy,

efficiency, and effectiveness within the department.

This report addresses the actions needed to ensure a continued realistic capital budget and

operating forecast for the Coast Guard Museum. It is based on interviews with

employees and officials ofrelevant agencies and institutions, direct observations, and a

review of applicable documents.

The recommendations herein have been developed to the best knowledge available to our

office, and have been discussed in draft with those responsible for implementation. We

trust this report will result in more effective, efficient, and economical operations. We

express our appreciation to all ofthose who contributed to the preparation ofthis report.

~~Anne L. Richards

Assistant Inspector General for Audits
 

Table of Contents/Abbreviations 

Executive Summary.............................................................................................................1
 

Background..........................................................................................................................2 

Results of Review ................................................................................................................3 

Funding Plan Assumptions ............................................................................................3 

Capital Cost Estimate.....................................................................................................4 

Operating Forecast.........................................................................................................6 

Recommendations..........................................................................................................8 

Management Comments and OIG Analysis ..................................................................8 

Appendices 

Appendix A: Purpose, Scope, and Methodology.......................................................10 

Appendix B: Management Comments to the Draft Report.......................................12 

Appendix C: Major Contributors to This Report ......................................................15 

Appendix D: Report Distribution ..............................................................................16 

Abbreviations 

DHS Department of Homeland Security 

OIG Office of Inspector General 
OIG 

Department of Homeland Security 

Office of Inspector General 

Executive Summary 

As required by the Coast Guard and Maritime Transportation Act 

of 2004 (Public Law 108-293), we reviewed the Coast Guard’s 

Funding Plan for Coast Guard Museum. The objective of our 

review was to determine whether the cost estimates associated with 

the plan to construct and operate the Coast Guard Museum are 

reasonable and realistic. We obtained an independent cost estimate 

and consulted the Smithsonian Institution as part of our assessment 

of the funding plan’s estimated $65.2 million capital budget. We 

also compared the funding plan’s estimated $4.0 million annual 

operating budget with actual funding and costs reported by other 

museums throughout the Nation. 

The capital and operating costs presented in the funding plan 

appear both reasonable and realistic. However, due to the expected 

2-year delay in the project initiation, the Coast Guard needs to 

increase its funding plan budget by approximately $2.6 million to 

ensure continued realistic capital cost budgeting. Our conclusion 

that the costs presented in the funding plan are reasonable and 

realistic relies on several assumptions regarding land, parking, and 

fundraising levels, which, if changed, may invalidate our overall 

opinion. 

We are making two recommendations to the Coast Guard, which 

are designed to ensure a continued realistic capital budget and 

operating forecast for the Coast Guard Museum. 

Funding Plan for the United States Coast Guard Museum 

Page 1 
 

Background 

Enacted on August 9, 2004, the Coast Guard and Maritime 

Transportation Act of 2004 (Public Law 108-293), authorized the 

establishment of a Coast Guard Museum in New London, 

Connecticut. This act requires that, prior to the establishment of 

the museum, the Coast Guard submit a funding plan for the 

construction, operation, and maintenance of the museum. Further, 

this act specifies that the funding plan include the following: 

(1) The estimated planning, engineering, design, construction, 

operation, and maintenance costs for the museum 

(2) The extent to which appropriated, nonappropriated, and 

nonfederal funds will be used for such purposes, including the 

extent to which there is any shortfall in funding for 

engineering, design, or construction 

(3) A certification by the Department of Homeland Security, 

Inspector General that the estimates provided pursuant to 

paragraphs (1) and (2) are reasonable and realistic 

We reviewed the Coast Guard’s Funding Plan for Coast Guard 

Museum (Funding Plan). The information and costs presented in 

the Funding Plan are based on the Strategic Master Plan: The 

National Coast Guard Museum, New London, Connecticut, 

September 30, 2008 (Master Plan). A museum planning and 

consulting firm, under contract to the Coast Guard, prepared the 

Master Plan. The Master Plan quantified the projected 

construction and operating costs for the museum. The Funding 

Plan incorporated the capital budget, project schedule, operating 

forecast, and staffing plan from the Master Plan. 

The Funding Plan details a proposed 61,838-square-foot museum. 

Under the plan, the National Coast Guard Museum Association, a 

separate charitable organization, will raise the funds for the 

planning, engineering, design, and construction of the museum. 

Once constructed, the National Coast Guard Museum Association 

will donate the museum to the Coast Guard, assist the Coast Guard 

in jointly operating the museum, and provide ongoing private and 

corporate fundraising support. The Coast Guard will fund and 

manage the museum’s general administration and maintenance. 

The planning and development of the museum will follow a 5-year 

sequence of site planning and preparation, master planning, 

Funding Plan for the United States Coast Guard Museum 

Page 2 
 

program design, architectural drawings, and construction. 

Fundraising will occur throughout the process. The museum is 

expected to reach a stable operating year1 4 years after opening. 

The museum was originally planned to open in 2013, but the Coast 

Guard has stated that fundraising difficulties associated with the 

current economic climate will delay the project by at least 2 years, 

or until 2015. 

Results of Review 

The capital and operating costs presented in the Funding Plan 

appear reasonable and realistic. However, due to the expected 2-

year delay in the project, the Coast Guard needs to increase its 

Funding Plan budget by approximately $2.6 million to ensure 

continued realistic capital cost budgeting. Our conclusion that the 

capital and operating costs presented in the Funding Plan are 

reasonable and realistic relies on several assumptions regarding 

land, parking, and fundraising levels, which, if changed, may 

invalidate our overall opinion. 

Funding Plan Assumptions 

The Funding Plan assumes the following: 

(1) The city of New London or its agent will donate a fully 

prepared and remediated site for the museum. 

(2) The city of New London or its agent will donate or otherwise 

provide parking amenities for the museum. 

(3) The National Coast Guard Museum Association will contribute 

the full $65.2 million in funding for the total cost of the 

museum project. 

Should these assumptions or economic conditions change 

materially, the estimated cost of the museum may increase 

significantly. Further, if funds cannot be raised to meet such 

increases, the scale or quality of the museum may need to be 

adjusted to fit within any reduced budget. 

1

 A stable operating year is defined as one in which attendance trends are normalized after the initial surge 

associated with the opening of a new facility. 

Funding Plan for the United States Coast Guard Museum 

Page 3 
 

 

 

Capital Cost Estimate 

The Funding Plan provides for total capital costs of approximately 

$55.5 million2 for the museum’s planning, design, engineering, and 

construction, including equipment and exhibits. Additional 

nonconstruction costs of $9.7 million3

 will bring the total project 

cost to approximately $65.2 million. Of the $65.2 million total 

project cost, we did not analyze $4.4 million related to preopening 

operating support and fundraising, as these costs were not included 

in the scope of our review. 

We contracted with a professional engineering firm to prepare an 

independent cost estimate for the design, engineering, and 

construction of the museum to serve as our basis for determining 

whether the Funding Plan is both reasonable and realistic. Further, 

the Smithsonian Institution, Cost Engineering Division, reviewed 

both the independent cost estimate prepared by our contractor and 

the capital costs presented in the Funding Plan and made 

suggestions to ensure realistic and reasonable estimates. 

Our analysis of the independent cost estimate and the Funding Plan 

revealed minimal differences totaling approximately $202,000 in 

overall capital costs, as illustrated in Table 1: 

Table 1: Comparison of Independent Estimate to Funding Plan 

Capital Budget Line Funding 

Plan 

Independent 

Cost Estimate 

Difference Between 

Funding Plan and 

Independent Cost 

Estimate 

Building Construction $30,782,130 $32,170,452 ($1,388,322) 

Architectural, Engineering, 

& Associated Costs 

$8,525,122 $8,086,842 $438,280 

Museum Equipment $1,513,000 $1,524,830 ($11,830) 

Program Costs (Exhibit & 

Gallery-related Costs) 

$14,640,065 $13,880,630 $759,435 

Total $55,460,317 $55,662,754 ($202,437) 

The Smithsonian Institution, Cost Engineering Division, noted that 

the approach and methodology used in developing the independent 

cost estimate were sound, consistent with industry standards, and 

in good practice. According to the Smithsonian Institution, 

differences between the Funding Plan and the independent estimate 

are minor and do not seriously impact probable construction costs 

2

 Unless otherwise stated, all dollar figures are 2008 dollar values. 

3

 Nonconstruction costs include preopening support and fundraising; initial cash and endowment funds; and 

cost growth for equipment, exhibits, and other items not related to building construction. 

Funding Plan for the United States Coast Guard Museum 

Page 4 
 

 

for the museum. Further, the Smithsonian Institution noted that the 

construction costs in the Funding Plan appeared both reasonable 

and realistic. 

However, the Smithsonian Institution noted that the current 

construction estimate includes escalation to June 2012, and that, 

based on current projections, any project delays beyond that date 

would add approximately 3.5% in additional costs per year. The 

Smithsonian Institution recommended that the Coast Guard update 

the capital budgets to reflect the cost of any delays. 

Our review of the Funding Plan’s construction escalation4 

allowance showed that the Coast Guard did not provide for cost 

growth for general conditions, the general contractor’s payment 

and performance bond, and the general contractor’s fee in its 

construction escalation allowance. 

We recalculated the Funding Plan’s construction escalation 

allowance to provide for cost growth for the 2-year project delay 

and for general conditions, the general contractor’s payment and 

performance bond, and the general contractor’s fee. We 

determined that these factors would add approximately 

$2.6 million to the Funding Plan’s total project cost. 

Although the estimated capital costs appear both reasonable and 

realistic, the Funding Plan does not include approximately $2.6 

million in expected construction cost growth. Our conclusion 

relies on the assumption that a fully prepared and remediated site, 

as well as parking amenities, will be donated for the museum. 

Nothing came to our attention during the course of our audit to 

suggest that these assumptions are invalid. 

4

 Escalation is defined as the percentage or dollar amount associated with inflation. 

Funding Plan for the United States Coast Guard Museum 

Page 5 
 

Operating Forecast 

The Funding Plan estimates that operating and maintaining the 

museum will cost approximately $4.0 million annually.5 We 

analyzed these estimated costs against other museums’ reported 

operating costs and determined that the Funding Plan’s projected 

operating expenses are both reasonable and realistic. For example: 

• The museum’s personnel costs represent 56.3% of the total 

operating expenses. Similarly, museums in the same geographic 

region report 55.9%. 

• The museum’s building operation and maintenance costs 

represent 12.0% of the total operating expenses. Similarly, 

museums in the same geographic region report 12.6%. 

• The museum’s collection care costs represent 7.2% of the total 

operating expenses. Similarly, museums throughout the Nation 

report a median of 8.0%. 

The Coast Guard will fund approximately $2.72 million (64%) of 

the $4.0 million from annual appropriations. This $2.72 million 

includes funding for 22.4 full-time equivalent employees and will 

fund and manage the museum’s general administration and finance 

facility and exhibit maintenance, collection care and maintenance, 

information systems, and nonrevenue-generating visitor services. 

Revenues from a theater, simulator, food service, gift shop, 

function rentals, and memberships are projected to contribute 

approximately $863,000 (20%) annually toward operating 

expenses. The remaining annual operating shortfall of 

approximately $420,000 will be addressed as follows: 

• An initial endowment of $3 million with an estimated 4% 

annual return will contribute $120,000 annually. 

• An additional $575,000 is to be raised from a variety of 

sources, including individual donations, corporate sponsorships, 

and special event fundraising. 

5 Unless otherwise stated, operating revenues and expense amounts are for the stable operating year 

presented as year 2016 in the Funding Plan. 

Funding Plan for the United States Coast Guard Museum 

Page 6 
These funding ratios are consistent with those of comparable 

museums. According to our analysis of operating data published 

by the American Association of Museums, the Funding Plan’s 

projected ratios closely mirror those of municipal or countygoverned museums. Museums operating under municipal or 

county governance structures are more likely to have a federal, 

state, or other government agency parent. Chart 1 compares 

funding sources for the museum against those reported by 

municipal or county-governed museums: 

Chart 1. Percentage of Operating Revenue by Funding Source 

64% 

20% 

13% 

3% 

68% 

12% 

19% 

1% 

0% 

10% 

20% 

30% 

40% 

50% 

60% 

70% 

Coast Guard Municipal/County 

Government 

Earned 

Private 

Investment 

Source: Developed from data in the American Association of Museums’ 2009 Museum Financial Information 

and the Funding Plan. 

As reflected in Chart 1, the museum is projected to generate a 

higher percentage of its operating costs than other museums likely 

to have a government agency parent. This is a reasonable 

projection given the museum’s planned revenue-generating theater, 

food service, and gift shop components. 

Although we determined that the estimated operating costs appear 

both reasonable and realistic, our conclusion relies on the 

presumption that the National Coast Guard Museum Association 

will raise sufficient funds to construct a facility capable of 

achieving the museum’s operational objectives. If the National 

Coast Guard Museum Association fails to raise sufficient funds, 

the museum may not achieve its budgeted revenues and federal 

funding requirements may increase. 

Funding Plan for the United States Coast Guard Museum 

Page 7 
 

Recommendations 

We recommend that the Commandant of the Coast Guard: 

Recommendation #1: Review escalation and project assumptions 

related to land, parking, and fundraising for validity and update the 

Funding Plan to reflect changes to budgeted costs and federal 

funding requirements at each project milestone. 

Recommendation #2: Adjust the Funding Plan’s construction 

escalation allowance to recognize increases in total project cost 

associated with the anticipated 2-year project delay. The Coast 

Guard should also include cost growth for general conditions, the 

general contractor’s payment and performance bond, and the 

general contractor’s fee in making this adjustment. 

Management Comments and OIG Analysis 

The Coast Guard acknowledged that the start date is unknown for 

the project and there are many variables affecting cost—some of 

which are out of the Coast Guard’s control—which complicate the 

estimation of final capital costs and introduce a degree of risk into 

the project. 

The Coast Guard concurred with all of the findings and has 

implemented the recommendations in the report. 

Management Comments to Recommendation 1: 

The Coast Guard concurred with our recommendation to review 

escalation and project assumptions related to land, parking, and 

fundraising for validity at each project milestone. The Coast Guard 

will work directly with the National Coast Guard Museum 

Association at each milestone to thoroughly monitor market 

influences that affect escalation rates and fundraising feasibility. 

The Coast Guard will also monitor political developments that 

might challenge assumptions in the report regarding status of land 

donation, parking, utilities, zoning, etc., and negatively affect the 

final capital cost of the projects. 

Funding Plan for the United States Coast Guard Museum 

Page 8 
OIG Analysis 

We consider this recommendation resolved and open. This 

recommendation will remain open until the Coast Guard provides us 

with documentation of its first re-evaluation of project assumptions 

and any related cost updates to the Funding Plan. 

Management Comments to Recommendation 2: 

The Coast Guard concurred with our recommendation to adjust the 

Funding Plan’s capital budget escalation allowance to recognize 

increases in total project cost associated with the expected twoyear project delay. The Coast Guard provided a table (See 

Appendix B), which reflects the change in cost of two years of 

additional escalation at 3.5% per year; including escalation in the 

costs for general conditions, the general contractor’s payment and 

performance bond, the general contractor’s fee, and the cascading 

costs from the increased construction total. 

OIG Analysis 

We consider this recommendation resolved and closed. 

Funding Plan for the United States Coast Guard Museum 

Page 9 
Appendix A 

Purpose, Scope, and Methodology 

The objective of our review was to determine whether cost 

estimates in the Coast Guard’s Funding Plan for the Coast Guard 

Museum to construct and operate the National Coast Guard 

Museum are reasonable and realistic. To accomplish our 

objective, we contracted with a professional engineering firm to 

prepare an independent estimate of costs for the engineering, 

design, and construction of the museum. We also engaged the 

Smithsonian Institution, Cost Engineering Division, to review both 

the independent cost estimate prepared by our contractor and the 

capital costs in the Funding Plan. The Smithsonian Institution also 

identified adjustments needed to ensure that the budgeted capital 

costs of the project are reasonable and realistic. 

We reviewed the Funding Plan’s capital costs and operating 

forecast, and we analyzed a 2008 financial survey of 5,510 

member and nonmember museums conducted by the American 

Association of Museums. The results of this survey were 

published in its 2009 Museum Financial Information. We also 

analyzed the Association of Science-Technology Center’s 2008 

annual survey of its 445 members. 

We interviewed officials from the Coast Guard, Office of 

Governmental and Public Affairs, the Office of Environmental 

Law, and the Office of External Coordination, as well as staff from 

the Smithsonian Institution, Cost Engineering Division. 

As part of our review, we evaluated the system of internal controls 

to the extent necessary to accomplish our objective. Specifically, 

we contracted for an independent cost estimate to confirm that the 

data used in the Funding Plan capital budget were valid and 

reliable. We also verified the Funding Plan calculations and 

confirmed that the estimates did not contain significant or material 

mathematical errors. 

We conducted our review between October 20, 2009, and April 

2010 under the authority of the Inspector General Act of 1978, as 

amended, and according to generally accepted government 

auditing standards. Those standards require that we plan and 

perform the audit to obtain sufficient, appropriate evidence to 

provide a reasonable basis for our findings and conclusions based 

on our audit objectives. We believe that the evidence obtained 

provides a reasonable basis for our findings and conclusions based 

upon our audit objectives. 

Funding Plan for the United States Coast Guard Museum 

Page 10 
Appendix A 

Purpose, Scope, and Methodology 

We would like to thank the Coast Guard, the Smithsonian 

Institution, and Martinez-Couch & Associates for their cooperation 

and courtesies extended to our staff during this review. 

Funding Plan for the United States Coast Guard Museum 

Page 11 
Appendix B 

Management Comments to the Draft Report 

Funding Plan for the United States Coast Guard Museum 

Page 12 
Appendix B 

Management Comments to the Draft Report 

Funding Plan for the United States Coast Guard Museum 

Page 13 
Appendix B 

Management Comments to the Draft Report 

Funding Plan for the United States Coast Guard Museum 

Page 14 
Appendix C 

Major Contributors to This Report 

Brooke Bebow, Director 

Lorinda Couch, Desk Officer 

Dawn Pizarro, Auditor 

Joseph Faulk, Program Analyst 

Tessa May-Fraser, Program Analyst 

Jim Bess, Referencer 

The Smithsonian Institution, Cost Engineering Division 

Martinez-Couch & Associates 

Funding Plan for the United States Coast Guard Museum 

Page 15 
Appendix D 

Report Distribution 

Department of Homeland Security 

Secretary 

Deputy Secretary 

Chief of Staff for Policy 

General Counsel 

Executive Secretariat 

Director, GAO/OIG Liaison Office 

Assistant Secretary for Office of Policy 

Assistant Secretary for Office of Public Affairs 

Assistant Secretary for Office of Legislative Affairs 

USCG Audit Liaison 

Office of Management and Budget 

Chief, Homeland Security Branch 

DHS OIG Budget Examiner 

Congress 

Congressional Oversight and Appropriations Committees, as 

appropriate 

Funding Plan for the United States Coast Guard Museum 

Page 16 
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