Coast Guard: Observations on the Fiscal Year 2009 Budget, Recent Performance, and Related Challenges
Published: 2008-03-06T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The U.S. Coast Guard, a multi-mission maritime military service within the Department of Homeland Security, has requested more than $9 billion for fiscal year 2009 to address its responsibilities for homeland security missions (such as undocumented migrant interdiction) and non-homeland security missions (such as environmental protection). Integral to conducting its missions, is the Deepwater program--a 25-year, $24 billion effort to upgrade or replace vessels and aircraft. This testimony discusses: budget request and trends, and performance statistics, challenges in balancing operations across multiple missions, and Deepwater affordability, management, and its impact on operations. GAO's comments are based on products issued from 1997 to 2008. This testimony also discusses on-going work related to patrol boat operations. To conduct its work, GAO analyzed documentation and interviewed relevant officials.
section_title: What GAO Found
paragraphs: The Coast Guard's fiscal year 2009 budget request is approximately 7 percent higher than its fiscal year 2008 enacted budget, generally because of proposed increases in both operating expenses and acquisition, construction, and improvements funding. The Coast Guard expects to meet its performance goals for 6 of its 11 mission areas for fiscal year 2007, similar to the performance it reported for fiscal year 2006. The Coast Guard also continues to develop additional measures to better understand the links between resources expended and results achieved. The Coast Guard continues to face challenges balancing its various missions with its finite resources and has had difficulties funding and executing both its homeland security and non-homeland security missions. GAO's work has shown that the Coast Guard's homeland security requirements continue to increase and that it has been unable to keep up with these rising security demands. For example, the Coast Guard is not meeting its requirements for providing vessel escorts and conducting security patrols. The Coast Guard is also facing additional requirements to conduct more inspections of maritime facilities and provide security at a growing number of facilities that import hazardous cargos. The Deepwater acquisition program continues to be a source of challenges and progress for the Coast Guard. In terms of affordability, the magnitude of Deepwater funding--representing about 11 percent of the agency's proposed fiscal year 2009 budget--presents a long-term challenge. In terms of management, the Coast Guard has made changes to improve program management by moving away from reliance on a system integrator, increasing government monitoring of program outcomes and competitively purchasing selected assets. In terms of operations, delays in the procurement of new patrol boats have increased resource requirements to maintain older legacy patrol boats and keep them operating.

section_title: Letter
paragraphs: I am pleased to be here today to discuss the Coast Guard’s fiscal year 2009  budget and related issues.  For more than 10 years, we have provided  Congress with information and observations on the Coast Guard’s budget  and related issues.  Consistent with this approach, this statement will  periodically include information from our prior work to help provide  perspective as appropriate.  During the last 10 years, the Coast Guard’s  budget and missions have continued to grow.  For example, the Coast  Guard’s budget was $3.8 billion for fiscal year 1997 compared to $9.35  billion for fiscal year 2009.  In terms of missions, the terrorist attacks of  September 11, 2001 have led to a myriad of additional and complex Coast  Guard missions related to homeland security, such as conducting harbor  patrols, reducing the flow of undocumented migrants, and participating in  global military operations.
To help fulfill its missions, the Coast Guard is implementing a program to  modernize its fleet.  The Coast Guard’s Deepwater program is a 25-year,  $24 billion effort to upgrade or replace existing vessels and aircraft to  carry out its missions along our coastlines and farther out at sea. The  program is eventually to include 10 major classes of new or upgraded  vessels and aircraft, and 5 other classes of projects, including command,  control, communications, computer, intelligence surveillance, and  reconnaissance systems.
This statement will discuss:    budget request and trends, and performance statistics on achieving its    challenges in balancing its operations across its multiple missions, and   Deepwater affordability, management, and its impact on operations.
The Coast Guard is a multi-mission, maritime military service within the  Department of Homeland Security. The Coast Guard’s responsibilities fall  into two general categories—those related to homeland security missions,  such as ports, waterways, and coastal security (including conducting  harbor patrols and other activities to prevent terrorist attacks), defense  readiness, and undocumented migrant interdiction; and those related to  non-homeland security missions, such as search and rescue, marine  environmental protection (including oil spill response), illegal drug  interdiction, and polar ice operations.
An assessment of the Coast Guard's fiscal year 2009 budget should be  considered in the context of broader federal budgetary issues.  As we have  reported elsewhere, the federal government’s deteriorating long-range  financial condition and long-term fiscal imbalance are matters of  increasing concern.  The nation faces large and growing structural deficits  due primarily to rising health care costs and known demographic trends  that will constrain the government’s ability to pay for other obligations and  discretionary expenses. Addressing this long-term fiscal issue is an  overarching challenge.  As a result, there is a need to engage in a  fundamental review, repriorization, and reengineering of the base of the  government. Understanding and addressing the federal government’s  financial condition and long-term fiscal imbalance are critical to maintain  fiscal flexibility so that we can respond to current and emerging social,  economic, and security challenges.
An assessment of the Coast Guard’s budget should also be considered in  the context of risk management. Risk management is a strategy for helping  policy makers to make decisions about allocating finite resources and take  actions in the face of uncertainty. The Coast Guard cannot afford to  protect all maritime areas and facilities against all possible threats. As a  result, it must make choices about how to allocate its resources to most  effectively manage risk. Risk management has been widely supported by  the President and Congress, as a management approach for homeland  security, and the Secretary of Homeland Security has made it the  centerpiece of departmental policy. The Coast Guard has used risk  management to develop security plans for port areas.
This statement is based in part on ongoing work being done for this  subcommittee and on prior GAO work focusing on the Coast Guard’s  programmatic and management initiatives completed over the past ten  years.  In assessing the Coast Guard’s budget resources, we analyzed  budget, performance, and acquisitions documents and conducted  interviews with Coast Guard officials.  With regard to the budget  assessment, our scope was limited due to the short time available since  the release of the President’s fiscal year 2009 budget request.  Additionally,  this review did not include evaluating whether the proposed funding levels  are appropriate for the Coast Guard’s stated needs.  Our work on  homeland security is based on a series of reviews we conducted in the  aftermath of 9/11.  This work involved discussions with appropriate Coast  Guard and other federal officials at headquarters and field units in  domestic and international locations, reviews of related program  documents, analysis of program databases (including reliability  assessments), as well as discussions with other domestic and international  stakeholders in the maritime industry.
To assess the status of the Deepwater program, we reviewed key Coast  Guard documentation such as the Major Systems Acquisition Manual,  acquisition program baselines, and human capital plans.  We also  conducted interviews with Coast Guard officials, including program  managers, contracting officials, and subject matter experts to discuss  acquisition planning efforts and actions being taken by the Coast Guard  and to obtain information on shipbuilding.  In reviewing patrol boat  operations and Coast Guard efforts to mitigate the loss of the 123-foot  patrol boats, we reviewed reports, memoranda, operational hour data, and  other documents.  We also interviewed Coast Guard officials responsible  for developing and implementing these sustainment and mitigation  strategies.  Finally, we provided a draft of this testimony to DHS and the  Coast Guard and incorporated their technical comments as appropriate.
We conducted this performance audit from October 2007 to March 2008 in  accordance with 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 on our audit objectives.
subsections: section_title: Background
paragraphs: The Coast Guard is an Armed Service of the United States and the only  military organization within the Department of Homeland Security (DHS).  It is the principle federal agency responsible for maritime safety, security,  and environmental stewardship through multi-mission resources,  authorities, and capabilities. To accomplish its responsibilities, the Coast  Guard is organized into two major commands that are responsible for  overall mission execution—one in the Pacific area and the other in the  Atlantic area. These commands are divided into 9 districts, which in turn  are organized into 35 sectors that unify command and control of field units  and resources, such as multimission stations and patrol boats. In its fiscal  year 2009 posture statement, the Coast Guard reported having nearly  49,100 full-time positions—about 42,000 military and 7,100 civilians. In  addition, the agency reported that it has about 8,100 reservists who  support the national military strategy or provide additional operational  support and surge capacity during times of emergency, such as natural  disasters. Finally, the Coast Guard reported that it utilizes the services of  about 29,000 volunteer auxiliary personnel who conduct a wide array of  activities, ranging from search and rescue to boating safety education. The  Coast Guard has responsibilities that fall under two broad missions— homeland security and non-homeland security. The Coast Guard  responsibilities are further divided into 11 programs, as shown in table 1.
For each of these 11 mission-programs, the Coast Guard has developed  performance measures to communicate agency performance and provide  information for the budgeting process to Congress, other policymakers,  and taxpayers. The Coast Guard’s performance measures are published in  various documents, including the Coast Guard’s Posture Statement, which  includes the fiscal year 2009 Budget-in-Brief. The Coast Guard’s 2009  Budget-in-Brief reports performance information to assess the  effectiveness of the agency’s performance as well as a summary of the  agency’s most recent budget request. The performance information  provides performance measures for each of the Coast Guard’s mission- programs, as well as descriptions of the measures and explanations of  performance results.
To carry out these missions, the Coast Guard has a program underway— called the Deepwater program—to acquire a number of assets such as  vessels, aircraft, and command, control, communications, computer,  intelligence surveillance, and reconnaissance systems.  Appendix I  provides additional details on specific vessels and aircraft.  The Coast  Guard began the Deepwater program in the mid-1990s and it is the largest  acquisition program in the agency’s history.  Rather than using a  traditional acquisition approach of replacing individual classes of legacy  vessels and aircraft through a series of individual acquisitions, the Coast  Guard chose a system-of-systems strategy, that would replace the legacy  assets with a single, integrated package.  To carry out this acquisition, the  Coast Guard decided to use a systems integrator—a private sector  contractor responsible for designing, constructing, deploying, supporting,  and integrating the various assets to meet projected Deepwater  operational requirements at the lowest possible costs, either directly or  through subcontractors.  In June 2002, the Coast Guard awarded the  Deepwater systems integrator contract to Integrated Coast Guard Systems  (ICGS)—a business entity led and jointly owned by Lockheed Martin and  Northrup Grumman Ship Systems.  For 10 years, we have reviewed the  Deepwater program and have informed Congress, the Departments of  Transportation and Homeland Security, and the Coast Guard of the risks  and uncertainties inherent in such a large acquisition.
section_title: Budget Increases are for Both OE and AC&I, Recent Performance is Steady
paragraphs: The Coast Guard’s fiscal year 2009 budget is about 6.9 percent higher than  its 2008 enacted levels.  Major increases in this year’s budget are  attributable to operating expenses for the funding of additional marine  inspectors and new command and control capabilities.  Major increases in  this year’s budget are also attributed to acquisition, construction and  improvements for continued enhancement and replacement of aging  vessels, aircraft, and infrastructure.  The Coast Guard expects to meet 6 of  11 performance targets for fiscal year 2007, the same level of performance  as fiscal year 2006.
subsections: section_title: Overall Budget Request is 6.9 Percent Higher than Previous Year’s Enacted Budget
paragraphs: The Coast Guard’s budget request in fiscal year 2009 is $9.35 billion, or 6.9  percent more than the enacted fiscal year 2008 budget (see fig. 1).  About  $6.2 billion, or approximately 66 percent, is for operating expenses.  This  operating expense funding supports 11 statutorily identified mission-  programs and increases in salaries, infrastructure and maintenance costs.   This also includes increased funding for additional marine inspectors, new  and existing command and control and intelligence capabilities, and to  address rulemaking projects.  The greatest change from the previous year  is in the AC&I request, which at $1.2 billion reflects about a 35 percent  increase from fiscal year 2008.   This increase includes funding for such  things as Deepwater program enhancements to the Coast Guard’s  operational fleet of vessels and aircraft, and for continued development of  new assets, as well as emergency maintenance.  The remaining part of the  overall budget request consists primarily of retiree pay and health care  fund contributions.  If the Coast Guard’s total budget request is granted,  overall funding will have increased by over 37 percent (or 17 percent after  inflation) since fiscal year 2003.  Looking back further, overall funding will  have increased by approximately 143 percent (or 87 percent after  inflation) since fiscal year 1997.
Overall, the Coast Guard’s budget request for homeland security missions  represents approximately 40 percent of the overall budget, with the non- homeland security funding representing approximately 60 percent.   However, the Coast Guard does not request funding by mission; it does so  by appropriation account.  Nonetheless, the Coast Guard provides a  comparison of homeland security versus non-homeland security funding  as part of the President’s fiscal year budget request. According to the  Coast Guard, an activity-based cost model is used to estimate homeland  security versus non-homeland security funding for its missions.  This is  done by averaging past expenditures to forecast future spending, and  these amounts are revised from the estimates reported previously.   Although the Coast Guard reports summary financial data by homeland  security and non-homeland security missions to the Office of Management  and Budget, as a multi-mission agency, the Coast Guard can be conducting  multiple mission activities simultaneously.  For example, a multi-mission  asset conducting a security escort is also monitoring safety within the  harbor and could be diverted to conduct a search and rescue case.  As a  result, it is difficult to accurately detail the level of resources dedicated to  each mission.  Figure 2 shows the estimated funding levels for fiscal year  2009 by each mission program.  However, actual expenditures are  expected to vary from these estimates, according to the Coast Guard.
section_title: Performance Remains Steady
paragraphs: The Coast Guard expects to meet 6 of 11 performance targets in fiscal year  2007, the same overall level of performance as 2006, and overall  performance trends for most mission-programs remain steady.  In fiscal  year 2007, as in fiscal year 2006, the Coast Guard met 5 targets—Ports,  Waterways, and Coastal Security; Undocumented Migrant Interdiction;  Marine Environmental Protection; Other Law Enforcement; and Ice  Operations—and agency officials reported that the Coast Guard expects to  meet the target for one additional program, Illegal Drug Interdiction, when  results become available in August 2008.  This potentially brings the  number of met targets to 6 out of 11.  In addition, the Coast Guard  narrowly missed performance targets for 3 of its non-homeland security  mission-programs, Search and Rescue, Living Marine Resources, and Aids  to Navigation; and more widely missed performance targets for two other  mission-programs, Marine Safety and Defense Readiness.  Performance in  6 of 11 Coast Guard mission-programs improved in the last year, although  improvements in the Marine Safety and Search and Rescue mission- programs were insufficient to meet 2007 performance targets.   Alternatively, while performance decreased for the Ports, Waterways, and  Coastal Security program, the performance target was still met.   Meanwhile, three mission-programs that did not meet 2007 performance  targets, Defense Readiness, Living Marine Resources, and Aids to  Navigation, demonstrated lowered performance in 2007 compared to 2006  performance.  (See App. II for more information on Coast Guard  performance results.)
In 2006, we completed an examination of the Coast Guard’s non-homeland  security performance measures to assess their quality.  We reported that  while the Coast Guard’s non-homeland security measures are generally  sound and the data used to collect them are generally reliable, the Coast  Guard had challenges associated with using performance measures to link  resources to results.  Such challenges included comprehensiveness (that  is, using a single measure per mission-program may not convey complete  information about overall performance) and external factors outside of the  agency’s control (such as weather conditions, which can, for example,  affect the amount of ice that needs to be cleared or the number of  mariners who must be rescued).  According to Coast Guard officials, new  performance measures are currently under development to further capture  performance for its mission-programs, and that link resources to results.   For example, officials described efforts to develop a new measure that  captures an additional segment under its search and rescue mission- program, called Lives Unaccounted For.  Also, two new measures are  under development to further capture the Coast Guard’s risk management  efforts and link resources to results under the ports, waterways and  coastal security mission-program.  As we have reported, the Coast Guard  appears to be moving in the right direction with these efforts.  However,  since these efforts are long-term in nature, it remains too soon to  determine how effective the Coast Guard’s larger efforts will be at clearly  linking resources to performance results as certain initiatives are not  expected to be implemented until 2010.
section_title: Coast Guard Continues to Face Challenges in Balancing Its Homeland Security and Non-Homeland Security Missions
paragraphs: After the September 11, 2001 terrorist attacks, the Coast Guard’s priorities  and focus had to shift suddenly and dramatically toward protecting the  nation’s vast and sprawling network of ports and waterways.  Coast Guard  cutters, aircraft, boats and personnel normally used for non-homeland  security missions were shifted to homeland security missions, which  previously consumed only a small portion of the agency’s operating  resources.  Although we have previously reported that the Coast Guard  was restoring activity levels for many of its non-homeland security  mission-programs, the Coast Guard continues to face challenges in  balancing its resources among each of its mission-programs.  Further  complicating this balance issue is the understanding that any unexpected  events—a man-made disaster (such as a terrorist attack) or a natural  disaster (such as Hurricane Katrina)—could result in again shifting  resources between homeland security and non-homeland security  missions.  It is also important to note that assets designed to fulfill  homeland security missions can also be used for non-homeland security  missions.  For example, new interagency operational centers (discussed in  more detail below) can be used to coordinate Coast Guard and other  federal and non-federal participants across a wide spectrum of activities,  including non-homeland security missions.
subsections: section_title: Homeland Security Mission Requirements Continue to Increase
paragraphs: The Coast Guard’s heightened responsibilities to protect America’s ports,  waterways, and waterside facilities from terrorist attacks owe much of  their origin to the Maritime Transportation Security Act (MTSA) of 2002.   This legislation, enacted in November 2002 established, among other  things, a port security framework that was designed to protect the nation’s  ports and waterways from terrorist attacks by requiring a wide range of  security improvements.  The SAFE Port Act, enacted in October 2006,  made a number of adjustments to programs within the MTSA-established  framework, creating some additional programs or lines of efforts and  altering others.  The additional requirements established by the SAFE  Port Act have added to the resource challenges already faced by the Coast  Guard as described below:    Inspecting domestic maritime facilities: Pursuant to Coast Guard  guidance, the Coast Guard has been conducting annual inspections of  domestic maritime facilities to ensure that they are in compliance with  their security plans. The Coast Guard conducted 2,126 of these  inspections in 2006.  However, Coast Guard policy directed that they be  announced in advance.  The SAFE Port Act added additional  requirements that inspections be conducted at least twice per year and  that one of these inspections be conducted unannounced.  More  recently, the Coast Guard has issued guidance requiring that  unannounced inspections be more rigorous than before.  In February  2008, we reported that fulfilling the requirement of additional and  potentially more rigorous inspections, may require additional resources  in terms of Coast Guard inspectors.  Thus, we recommended that the  Coast Guard reassess the adequacy of its resources for conducting  facility inspections.  The Coast Guard concurred with our  recommendation.
Inspecting foreign ports: In response to a MTSA requirement, the  Coast Guard established the International Port Security Program to  assess and, if appropriate, make recommendations to improve security  in foreign ports.  Under this program, teams of Coast Guard officials  conduct country visits to evaluate the implementation of security  measures in the host nations’ ports and to collect and share best  practices to help ensure a comprehensive and consistent approach to  maritime security in ports worldwide.   The SAFE Port Act established  a minimum number of assessments and congressional direction has  called for the Coast Guard to increase the pace of its visits to foreign  ports.  However, to increase its pace, the Coast Guard may have to hire  and train new staff, in part because a number of experienced personnel  associated with this inspection program are rotating to other positions  as part of the Coast Guard’s standard personnel rotation policy.  Coast  Guard officials also said that they have limited ability to help countries  build on or enhance their own capacity to implement security  requirements because—other than sharing best practices or providing  presentations on security practices—the program does not currently  have the resources or authority to directly assist countries with more  in-depth training or technical assistance.
Fulfilling port security operational requirements: The Coast  Guard conducts a number of operations at U.S. ports to deter and  prevent terrorist attacks.  Operation Neptune Shield, first issued in  2003, is the Coast Guard’s operations order that sets specific security  activities (such as harbor patrols and vessel escorts) for each port. As  individual port security concerns change, the level of security activities  also change, which affects the resources required to complete the  activities.  As we reported in October 2007, many ports are having  difficulty meeting their port security requirements, with resource  constraints being a major factor.  Thus, we made a number of  recommendations to the Coast Guard concerning resources,  partnerships, and exercises.  The Coast Guard concurred with our  recommendations.
Meeting security requirements for additional LNG terminals:  The Coast Guard is also faced with providing security for vessels  arriving at four domestic onshore LNG import facilities.  However, the  number of LNG tankers bringing shipments to these facilities will  increase considerably because of expansions that are planned or  underway.  For example, industry analysts expect approximately 12  more LNG facilities to be built over the next decade.  As a result of  these changes, Coast Guard field units will likely be required to  significantly expand their security workloads to conduct new LNG  security missions.  To address this issue, in December 2007 we  recommended that the Coast Guard develop a national resource  allocation plan that addresses the need to meet new LNG security  requirements.  The Coast Guard generally concurred with our  recommendation.
Boarding and inspecting foreign vessels: Security compliance  examinations and boardings, which include identifying vessels that  pose either a high risk for non-compliance with international and  domestic regulations, or a high relative security risk to the port, are a  key component in the Coast Guard’s layered security strategy.   According to Coast Guard officials and supporting data, the agency has  completed nearly all examinations and boardings of targeted vessels.  However, an increasing number of vessel arrivals in U.S. ports may  impact the pace of operations for conducting security compliance  examinations and boardings in the future. For example, in the 3-year  period from 2004 through 2006, distinct vessel arrivals rose by nearly 13  percent and, according to the Coast Guard, this increase is likely to  continue.  Moreover, officials anticipate that the increase in arrivals  will also likely include larger vessels, such as tankers, that require  more time and resources to examine. Similarly, the potential increase  in the number of arrivals and the size of vessels is likely to impact  security boardings, which take place 12 miles offshore, and are  consequently even more time- and resource-intensive. While targeted  vessels remain the priority for receiving examinations and boardings, it  is unclear to what extent increased resource demands may impact the  ability of the Coast Guard field units to complete these activities on all  targeted vessels.
Establishing interagency operational centers: The SAFE Port Act  called for the establishment of interagency operational centers  (command centers that bring together the intelligence and operational  efforts of various federal and nonfederal participants), directing the  Secretary of Homeland Security to establish such centers at all high- priority ports no later than 3 years after the Act’s enactment. The Act  required that the centers include a wide range of agencies and  stakeholders, as the Secretary deems appropriate, and carry out  specified maritime security functions. Four existing sector command  centers the Coast Guard operates in partnership with the Navy are a  significant step toward meeting these requirements, according to a  senior Coast Guard official. The Coast Guard is also piloting various  aspects of future interagency operational centers at existing centers  and is also working with multiple interagency partners to further  develop this project. The Coast Guard estimates that the total  acquisition cost of upgrading sector command centers into interagency  operational centers at the nation’s 24 high priority ports will be  approximately $260 million.  This includes investments in information  systems, sensor networks, and facilities upgrades and expansions.   Congress funded a total of $60 million for the construction of  interagency operational centers for fiscal year 2008.  The Coast Guard  has not requested any additional funding for the construction of these  centers as part of its fiscal year 2009 budget request.  However, the  Coast Guard is requesting $1 million to support its Command 21  acquisition project (which includes the continued development of its  information management and sharing technology in command  centers).  So, while the Coast Guard’s estimates indicate that it will  need additional financial resources to establish the interagency  operational centers required by law, its current budget and longer term  plans do not include all of the necessary funding.
Updating area maritime security plans: MTSA, as amended,  required that the Coast Guard develop, in conjunction with local public  and private port stakeholders, Area Maritime Security Plans.  The plans  describe how port stakeholders are to deter a terrorist attack or other  transportation security incident, or secure the port in the event such an  attack occurs.  These plans were initially developed and approved by  the Coast Guard by June 2004.  MTSA also requires that the plans be  updated at least every five years.  The SAFE Port Act added a  requirement to the plans specifying that they include recovery issues by  identifying salvage equipment able to restore operational trade  capacity.  This requirement was established to ensure that the  waterways are cleared and the flow of commerce through United  States ports is reestablished as efficiently and quickly as possible after  a security incident. The Coast Guard, working with local public and  private port stakeholders, is required to revise their plans and have  them completed and approved by June 2009.  This planning process  may require an investment of Coast Guard resources, in the form of  time and human capital at the local port level for existing plan revision  and salvage recovery development, as well as at the national level for  the review and approval of all the plans by Coast Guard headquarters.   In December 2007, we recommended that the Coast Guard develop  national level guidance that ports can use to plan for addressing  economic consequences, particularly in the case of port closures.  The  Coast Guard generally concurred with this recommendation.
section_title: Non-Homeland Security Mission Requirements Also Continue to Increase
paragraphs: While the Coast Guard continues to be in the vortex of the nation’s  response to maritime-related homeland security concerns, it is still  responsible for rescuing those in distress, protecting the nation’s fisheries,  keeping vital marine highways operating efficiently, and responding  effectively to marine accidents and natural disasters.  Some of the Coast  Guard’s non-homeland security mission-programs are facing the same  challenges as its homeland security mission-programs with regard to  increased mission requirements as detailed below:     Revising port plans into all hazard plans: In February 2007, we  reported that most port authorities conduct planning for natural  disasters separately from planning for homeland security threats.  However, port and industry experts, as well as recent federal actions,  are now encouraging an all-hazards approach to disaster planning and  recovery—that is, disaster preparedness planning that considers all of  the threats faced by the port, both natural (such as hurricanes) and  man-made (such as a terrorist attack).  For homeland security  planning, federal law provides for the establishment of Area Maritime  Security Committees with wide stakeholder representation, and some  ports are using these committees, or another similar forum with wide  representation, in their disaster planning efforts.  Federal law also  provides for the establishment of separate committees (called Area  Committees) for maritime spills of oil and hazardous materials.  We  recommended that the Secretary of Homeland Security encourage port  stakeholders to use existing forums such as these that include a range  of stakeholders to discuss all-hazards planning efforts.  Revising area  plans using an all-hazards approach may require additional Coast  Guard resources at the local port level and at the national level.
Revising oil spill regulations to protect the Oil Spill Liability  Trust Fund: As the recent accident in San Francisco Bay illustrates,  the potential for an oil spill exists daily across coastal and inland  waters of the United States.  Spills can be expensive with considerable  costs to the federal government and the private sector.  The Oil  Pollution Act of 1990 (OPA) authorized the Oil Spill Liability Trust  Fund, which is administered by the Coast Guard, to pay for costs  related to removing oil spilled and damages incurred by the spill when  the vessel owner or operator responsible for the spill—that is, the  responsible party—is unable to pay.  In September 2007, we reported  that the fund has been able to cover costs from major spills—i.e., spills  for which the total costs and claims paid was at least $1 million—that  responsible parties have not paid, but additional risks to the fund  remain, particularly from issues with limits of liability.  Limits of  liability are the amount, under certain circumstances, above which  responsible parties are no longer financially liable for spill removal  costs and damage claims.  The current liability limits for certain vessel  types, notably tank barges, may be disproportionately low relative to  costs associated with such spills, even though limits of liability were  raised for the first time in 2006.  In addition, although OPA calls for  periodic regulatory increases in liability limits to account for significant  increases in inflation, such increases have never been made.  To  improve and sustain the balance of the fund, we recommended that the  Coast Guard determine what changes in the liability limits were  needed.  The Coast Guard concurred with our recommendation.  Aside  from issues related to limits of liability, the fund faces other potential  drains on its resources, including ongoing claims from existing spills,  spills that may occur without an identifiable source, and therefore, no  responsible party, and a catastrophic spill that could strain the fund’s  resources.
Safeguarding the new national marine monument: In December  2000, Executive Order 13178 authorized the creation of the  Northwestern Hawaiian Islands Coral Reef Ecosystem Reserve, called  Papahanaumokuakea.   The Reserve is about 140,000 square miles in  area—slightly smaller than the state of Montana, our 4th largest state.   In 2006 the President declared this region a national monument to be  monitored by the U.S. Fish and Wildlife Service and National Oceanic  and Atmospheric Administration, with support from the State of Hawaii  and the Coast Guard.   The Coast Guard’s stewardship mission includes  preserving the marine environment, which includes monitoring fishing  activities and law enforcement, marine species protection, debris  recovery and oil spill clean-up and prevention.  These activities are  supported by collaboration with other organizations, but nevertheless  require regular aerial surveillance patrols and monitoring of vessel  traffic.  To ensure that commercial fishing is limited to selected vessels  until 2011, several Coast Guard vessels patrol the region and conduct  search and rescue missions, protect threatened species, or respond to  potential hazards such as debris or damaged vessels.  According to the  Coast Guard, monument surveillance has added an additional  enforcement responsibility onto an existing mission workload without  the benefit of increased funding, personnel, or vessels and aircraft.
Increasing polar activity: The combination of expanding maritime  trade, tourism, exploratory activities and the shrinking Arctic ice cap  may increase the demand for Coast Guard resources across a variety of  non-homeland security missions.  Moreover, multiple polar nations  have recognized the value of natural resources in the Arctic region and  have therefore sought to define and claim their own Arctic seabed and  supply-chain access.  However, the increase in Arctic activity has not  seen a corresponding increase in Coast Guard capabilities.  For  example, two of the three Coast Guard polar ice-breakers are more  than 30 years old.  The continued presence of U.S.-flagged heavy  icebreakers capable of keeping supply routes open and safe may be  needed to maintain U.S. interests, energy security, and supply chain  security.  These new demands, combined with the traditional Polar  mission to assist partner agencies such as the National Science  Foundation in research while protecting the environment and  commercial vessels in U.S. waterways, reflect a need for an updated  assessment of current and projected capabilities.  In the explanatory  statement accompanying the DHS fiscal year 2008 appropriations, the  Committees on Appropriations of the House of Representatives and  Senate directed the Coast Guard to submit a report that assesses the  Coast Guard’s Arctic mission capability and an analysis of the effect a  changing environment may have on the current and projected polar  operations, including any additional resources in the form of personnel,  equipment, and vessels.
section_title: Coast Guard Deepwater Program Continues to Experience Challenges and Progress Related to Affordability, Management, and Operations
paragraphs: Over the years, our testimonies on the Coast Guard’s budget and  performance have included details on the Deepwater program related to  affordability, management, and operations.  Given the size of Deepwater  funding requirements, the Coast Guard will have a long term challenge in  funding the program within its overall and AC&I budgets.  In terms of  management, the Coast Guard has taken a number of steps to improve  program management and implement our previous recommendations.   Finally, problems with selected Deepwater assets—the 110-foot patrol  boats that were upgraded and converted to 123-foot boats and  subsequently grounded due to structural problems —have forced the  Coast Guard to take various measures to mitigate the loss of these boats.   These mitigating measures have resulted in increased costs to maintain the  older 110-foot patrol boats and reallocation of operations across the  various missions.  These additional costs and mission shifts are likely to  continue until the Coast Guard acquires new patrol boats.
subsections: section_title: Funding Deepwater Poses a Long Term Affordability Challenge
paragraphs: The Deepwater program represents a significant portion of the Coast  Guard’s budget, especially for acquisition, construction and improvements  (AC&I).  The Deepwater program, at $990 million, accounts for  approximately 11 percent of the Coast Guard’s overall $9.3 billion budget  request for the entire agency for fiscal year 2009.  As noted at the  beginning of this statement, the overall federal government faces a long- term fiscal imbalance, which will put increased pressure on discretionary  spending at individual agencies.  In addition, Deepwater dominates the  Coast Guard’s capital spending as it represents nearly 82 percent of the  agency’s total AC&I request of $1.21 billion. This leaves relatively little  funding for non-homeland security assets which—as we reported last  year—compete with the Deepwater program for AC&I resources.  For  example, many inland aids-to-navigation vessels are reaching the end of  their designed service lives and, without major rehabilitation or  replacement, their ability to carry out their designated missions will likely  decline in the future.  While the Coast Guard has considered options for  systematically rehabilitating or replacing these vessels, it has requested  relatively little funding in the fiscal year 2009 budget request.  Specifically,  the Coast Guard has requested $5 million in AC&I funds for survey and  design activities to allow them to begin examining options for a new vessel  to replace the aging inland river aids-to-navigation cutters.
As we reported last year, Deepwater continues to represent a significant  source of unobligated balances—money appropriated but not yet spent for  projects included in previous years’ budgets.  The unobligated balances  for Deepwater total $566 million as of the end of fiscal year 2007, which is  about 56 percent of the Coast Guard’s fiscal year 2009 request for  Deepwater. These unobligated balances have accumulated for a variety of  reasons—such as technical design problems and related delays—where  the Coast Guard has found itself unable to spend previous year acquisition  appropriations. For two Deepwater assets where the Coast Guard has  postponed acquisition—the Offshore Patrol Cutter and the Vertical  Unmanned Aerial Vehicle—the Coast Guard did not request funds for  fiscal year 2008.  In the fiscal year 2008 appropriation, Congress rescinded  $132 million dollars in unobligated balances for these two assets.  For  fiscal year 2009, the Coast Guard has requested relatively small amounts  (approximately $3 million each) for these two assets.
Given the magnitude of the program within Coast Guard’s overall and  AC&I budgets, affordability of the Deepwater program has been an  ongoing concern over the years. Our 1998 report on Deepwater indicated  that the Coast Guard’s initial planning estimate for Deepwater was $9.8  billion (in then-year constant dollars) over a 20-year period.  At that time,  we said that the agency could face major financial obstacles in proceeding  with a Deepwater program at that funding level because it would consume  virtually all of the Coast Guard’s projected capital spending.  Our 2001  testimony noted that affordability was the biggest risk for the Deepwater  program because the Coast Guard’s contracting approach depended on a  sustained level of funding each fiscal year over the life of the program.  In  2005, the Coast Guard revised the Deepwater implementation plan to  consider post-9/11 security requirements.  The revised plan increased  overall cost estimates from $17 billion to $24 billion, to include annual  appropriations ranging from $650 million to $1.5 billion per year through  fiscal year 2026.  Continuing into future budgets, Deepwater affordability  will continue to be a major challenge to the Coast Guard given the other  demands upon the agency for both capital and operations spending.
section_title: Coast Guard Making Changes to Improve Management of Deepwater
paragraphs: In the wake of serious performance and management problems, the Coast  Guard is making a number of changes to improve the management of the  Deepwater program.  The Coast Guard is moving away from the ICGS  contract and the “system-of-systems” model, with the contractor as  systems integrator, to a more traditional acquisition strategy, where the  Coast Guard will manage the acquisition of each asset separately.  It has  recognized that it needs to increase government management and  oversight and has begun to transfer system integration and program  management responsibilities back to the Coast Guard.  The Coast Guard  began taking formal steps to reclaim authority over decision-making and  to more closely monitor program outcomes.  It has also begun to  competitively purchase selected assets, expand the role of third parties to  perform independent analysis, and reorganize and consolidate its  acquisition function to strengthen its ability to manage projects.
The Coast Guard also continues to make progress in implementing our  earlier recommendations to better manage the Deepwater program.  In  March 2004, we made 11 recommendations to the Coast Guard to address  three broad areas of concern: improving program management,  strengthening contractor accountability, and promoting cost control  through greater competition among subcontractors.  Of the five  recommendations that remained open as of our June 2007 report, we have  closed two, pertaining to the Coast Guard’s use of models and metrics to  measure the contractor’s progress toward improving operational  effectiveness and establishing criteria for when to adjust the total  ownership baseline.  The Coast Guard has taken actions on the three  recommendations that remain open, such as designating Coast Guard  officials as the lead on integrated product teams, developing a draft  maintenance and logistics plan for the Deepwater assets, and decreasing  their reliance on ICGS, including potentially eliminating the award term  provision from the ICGS contract.
section_title: Problems with Assets and Delays Create Operational and Resource Challenges
paragraphs: Deferring acquisitions of new vessels and aircraft can affect the cost of  operations, in that the cost-savings and reliability advantages of new or  modernized assets may not be realized, and the cost of maintaining older  assets can increase.  For example, delays in the acquisition of new patrol  boats have forced the Coast Guard to incur additional costs to maintain  the older patrol boats.  As part of its Deepwater program, the Coast Guard  planned to have ICGS convert all 49 existing 110-foot patrol boats into 123- foot patrol boats with additional capabilities.  This conversion project was  halted after the first eight 110-foot patrol boats were converted and began  to suffer structural and operational problems.  In November 2006, all eight  123-foot patrol boats were removed from service and the Coast Guard had  to take steps to better sustain its remaining 110-foot patrol boats.  In fiscal  year 2005, as the 123-foot patrol boats conversion was experiencing  problems, the Coast Guard initiated the Mission Effectiveness Project  to  replace portions of the hull structure and mechanical equipment on  selected 110-foot patrol boats to improve their overall mission  effectiveness until a new replacement patrol boat is ultimately delivered.   The Coast Guard has been appropriated a total of $109.7 million for this  effort through fiscal year 2008, and in its fiscal Year 2009-2013 Five Year  Capital Investment Plan indicates it will need an additional $56.3 million  through fiscal year 2012.  In addition, the Coast Guard plans on  implementing a “high tempo, high maintenance” initiative for eight of its  110-foot patrol boats.  This initiative is aimed at increasing the number of  annual operational hours for these eight patrol boats, at a cost of $11.5  million in fiscal year 2008.
The removal of the 123-foot patrol boats from service has also increased  operational costs in terms of lost or reallocated missions.  The loss of the  eight 123-foot patrol boats created a shortage of vessels in District 7,  where they were all homeported (i.e., based).  As a result, the Coast  Guard developed various strategies to mitigate the loss of these boats in  District 7--which impacted the ability of the Coast Guard to interdict illegal  migrants.  One of the Coast Guard’s strategies was to shift deployments of  some vessels to District 7 from other districts within the Coast Guard’s  Atlantic Area.  In fiscal year 2007 the Coast Guard redeployed several  vessels--which contributed approximately 6,600 operational hours in  District 7–from Districts 1, 5, 8 and the Atlantic Area Command.  As  discussed in the previous section, the Coast Guard faced a trade off  between homeland security missions and non-homeland security missions.   In general, this mitigating strategy has led to increased homeland security  operations in District 7 (e.g., for migrant interdiction) at the expense of  some non-homeland security missions (e.g., living marine resources and  aids to navigation) in the Districts providing the assets.  For example,  District 5 officials estimated that the loss of one medium-endurance cutter  deployment from its district to District 7 reduced its non-homeland  security operations by potentially preventing District 5 from performing  approximately 24 vessel boardings and issuing 17 violation notices in its  living marine resources mission.
These additional costs will likely continue until the Coast Guard can  acquire the replacement patrol boat—the Fast Response Cutter (FRC)— the FRC was conceived as a patrol boat with high readiness, speed,  adaptability and endurance. ICGS proposed a fleet of 58 FRCs constructed  of composite materials (later termed FRC-As). Although estimates of  the  initial acquisition cost for these composite materials were high, they were  chosen for their perceived advantages over other materials (e.g., steel),  such as lower maintenance and life-cycle costs, longer service life, and  lower weight.  However, in February 2006 the Coast Guard suspended  FRC-A design work in order to assess and mitigate technical risks.  As an  alternative to the FRC-A, the Coast Guard planned to purchase 12  modified commercially available patrol boats (termed FRC-Bs).  In June  2007, the Coast Guard issued a request for proposals for the design,  construction and delivery of a modified commercially available patrol boat  for the FRC-B.  In late 2006, the Coast Guard estimated that the total  acquisition cost for 12 FRC-Bs would be $593 million.  The Coast Guard  expects to award the FRC-B contract in the third quarter of fiscal year  2008, with the lead patrol boat to be delivered in 2010. Coast Guard  officials stated that their goal is still to acquire 12 FRC-Bs by 2012. The  Coast Guard intends to award a fixed price contract for design and  construction of the FRC-B, with the potential to acquire a total of 34  cutters.
Madam Chair and Members of the Subcommittee, this completes my  prepared statement. I will be happy to respond to any questions that you  or other Members of the Subcommittee may have.
section_title: GAO Contacts and Staff Acknowledgments
paragraphs: For information about this statement, please Contact Stephen L. Caldwell,  Director, Homeland Security and Justice Issues, at (202) 512-9610, or  caldwells@gao.gov. Contact points for our Office of Congressional  Relations and Public Affairs may be found on the last page of this  statement. This testimony was prepared under the direction of Dawn Hoff,  Assistant Director.  Other individuals making key contributions to this  testimony include Jonathan Bachman, Christopher Conrad, Adam  Couvillion, Anthony DeFrank, Wayne Ekblad, Susan Fleming, Jessica  Gerrard-Gough, Geoffrey Hamilton, Maura Hardy, Christopher Hatscher,  John Hutton, Lara Kaskie, Monica Kelly, J. Kristopher Keener, Daniel  Klabunde, Richard Krashevski, Ryan Lambert, Scott Purdy, Ralph Roffo,  Michele Mackin, James McTigue, Linda Miller, Kate Siggerud, April  Thompson, Tatiana Winger, and Susan Zimmerman.
section_title: Appendix I: Status of Selected Deepwater Assets
paragraphs: Appendix I provides information on key vessels and aircraft that are part  of the Deepwater program.  In 2005, the Coast Guard revised its  Deepwater acquisition program baseline to reflect updated cost, schedule,  and performance measures. The revised baseline accounted for, among  other things, new requirements imposed by the events of September 11.  The initially-envisioned designs for some assets, such as the Offshore  Patrol Cutter and Vertical Unmanned Aerial Vehicle, are being rethought.  Other assets, such as the National Security Cutter and Maritime Patrol  Aircraft, are in production.  Table 2 shows the 2005 baseline and current  status of selected Deepwater assets.
section_title: Appendix II: Performance Results by Mission-Program from Fiscal Year 2003 through Fiscal Year 2007
paragraphs: Appendix II provides a detailed list of Coast Guard performance results for  the Coast Guard’s 11 programs from fiscal years 2003 through 2007.
section_title: Related GAO Products
paragraphs: Coast Guard: Deepwater Program Management Initiatives and Key  Homeland Security Missions.  GAO-08-531T.  Washington, D.C.: Mar. 5,  2008.
Maritime Security: Coast Guard Inspections Identify and Correct  Facility Deficiencies, but More Analysis Needed of Program’s Staffing,  Practices, and Data. GAO-08-12. Washington, D.C.: Feb. 14, 2008.
Long-Term Fiscal Outlook: Action Is Needed to Avoid the Possibility of  Serious Economic Disruption in the Future. GAO-08-411T. Washington,  D.C.: Jan 29, 2008.
Maritime Transportation: Major Oil Spills Occur Infrequently, but Risks  to the Federal Oil Spill Fund Remain. GAO-08-357T. Washington, D.C.:  Dec. 18, 2007.
A Call for Stewardship: Enhancing the Federal Government’s Ability to  Address Key Fiscal and Other 21st Century Challenges. GAO-08-93SP.  Washington, D.C.: Dec. 17, 2007.
Maritime Security: Federal Efforts Needed to Address Challenges in  Preventing and Responding to Terrorist Attacks on Energy Commodity  Tankers. GAO-08-141. Washington, D.C.: Dec. 10, 2007.
Homeland Security: TSA Has Made Progress in Implementing the  Transportation Worker Identification Credential Program, but  Challenges Remain. GAO-08-133T. Washington, D.C.: Oct. 31, 2007.
Maritime Security: The SAFE Port Act: Status and Implementation One  Year Later. GAO-08-126T. Washington, D.C.: Oct. 30, 2007.
Maritime Transportation: Major Oil Spills Occur Infrequently, but Risks  to the Federal Oil Spill Fund Remain. GAO-07-1085. Washington, D.C.:  Sep. 7, 2007.
Information on Port Security in the Caribbean Basin. GAO-07-804R.  Washington, D.C.: June 29, 2007.
Coast Guard: Challenges Affecting Deepwater Asset Deployment and  Management and Efforts to Address Them. GAO-07-874. Washington,  D.C.: June 18, 2007.
Coast Guard: Observations on the Fiscal Year 2008 Budget,  Performance, Reorganization, and Related Challenges. GAO-07-489T.  Washington, D.C.: Apr. 18, 2007.
Transportation Security: TSA Has Made Progress in Implementing the  Transportation Worker Identification Credential Program, but  Challenges Remain. GAO-07-681T. Washington, D.C.: Apr. 12, 2007.
Port Risk Management: Additional Federal Guidance Would Aid Ports in  Disaster Planning and Recovery. GAO-07-412. Washington, D.C.: Mar. 28,  2007.
Maritime Security: Public Consequences of a Terrorist Attack on a  Tanker Carrying Liquefied Natural Gas Need Clarification. GAO-07-316.  Washington, D.C.: Feb. 22, 2007.
Coast Guard: Condition of Some Aids to Navigation and Domestic  Icebreaking Vessels Has Declined: Effect on Mission Performance  Appears Mixed.  GAO-06-979.  Washington, D.C.: Sep. 22, 2006.
Coast Guard: Non-Homeland Security Performance Measures Are  Generally Sound, but Opportunities for Improvement Exist. GAO-06-816.  Washington, D.C.: Aug. 16, 2006.
Coast Guard: Status of Deepwater Fast Response Cutter Design Efforts.   GAO-06-764.  Washington, D.C.: June 23, 2006.
Coast Guard: Observations on Agency Performance, Operations, and  Future Challenges. GAO-06-448T. Washington, D.C.: June 15, 2006.
Risk Management: Further Refinements Needed to Assess Risks and  Prioritize Protective Measures at Ports and Other Critical  Infrastructure. GAO-06-91. Washington, D.C.: Dec. 15, 2005.
Maritime Security: New Structures Have Improved Information  Sharing, but Security Clearance Processing Requires Further Attention.   GAO-05-394.  Washington, D.C.: Apr. 15, 2005.
Coast Guard: Observations on Agency Priorities in Fiscal Year 2006  Budget Request. GAO-05-364T. Washington, D.C.: Mar. 17, 2005.
Coast Guard: Key Management and Budget Challenges for Fiscal Year  2005 and Beyond. GAO-04-636T. Washington, D.C.: Apr. 7, 2004.
Contract Management: Coast Guard’s Deepwater Program Needs  Increased Attention to Management and Contractor Oversight. GAO-04- 380. Washington, D.C.: Mar. 9, 2004.
Coast Guard: Challenges during the Transition to the Department of  Homeland Security. GAO-03-594T. Washington, D.C.: Apr. 1, 2003.
Coast Guard: Budget and Management Challenges for 2003 and Beyond.  GAO-02-538T. Washington, D.C.: Mar. 19, 2002.
Coast Guard: Actions Needed to Mitigate Deepwater Project Risks.   GAO-01-659T. Washington, D.C.: May 3, 2001.
Coast Guard Acquisition Management: Deepwater Project’s Justification  and Affordability Need to be Addressed More Thoroughly.   GAO/RCED-99-6, Washington, D.C.: Oct. 26, 1998.
Coast Guard: Challenges for Addressing Budget Constraints.  GAO/RCED-97-110. Washington, D.C.: May 1997.
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