Coast Guard: Observations on Agency Priorities in Fiscal Year 2006 Budget Request
Published: 2005-03-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Coast Guard's budget has steadily increased in recent years, reflecting the agency's need to address heightened homeland security responsibilities while also addressing traditional programs such as rescuing mariners in distress and protecting important fishing grounds. The fiscal year 2006 budget request, which totals $8.1 billion, reflects an increase of $570 million over the previous year. GAO has conducted reviews of many of the Coast Guard's programs in recent years, and this testimony synthesizes the results of these reviews as they pertain to three priority areas in the Coast Guard's budget: (1) implementing a maritime strategy for homeland security, (2) enhancing performance across missions, and (3) recapitalizing the Coast Guard, especially the Deepwater program--an acquisition that involves replacing or upgrading cutters and aircraft that are capable of performing missions far out at sea. GAO's observations are aimed at highlighting potential areas for ongoing congressional attention.
section_title: What GAO Found
paragraphs: The Maritime Transportation Security Act of 2002 charged the Coast Guard with many maritime homeland security responsibilities, such as assessing port vulnerabilities and ensuring that vessels and port facilities have adequate security plans, and the Coast Guard has worked hard to meet these requirements. GAO's reviews of these efforts have disclosed some areas for attention as well, such as developing ways to ensure that security plans are carried out with vigilance. The Coast Guard has taken steps to deal with some of these areas, but opportunities for improvement remain. The Coast Guard has three efforts under way that hold promise for enhancing mission performance but also merit ongoing attention. One is a new coastal communication system. The fiscal year 2006 budget request includes $101 million to move the system forward. A successful system would help almost all Coast Guard missions, but to develop it the Coast Guard must build more than 300 towers along the nation's coasts, some of them in environmentally sensitive areas. The second effort involves restructuring the Coast Guard's field units--tying resources and command authority closer together. This effort represents a major organizational change, and as such, it may be challenging to implement successfully. The third effort, enhancing readiness at the Coast Guard's stations for search and rescue and other missions, remains a work in process. The Deepwater program, which would receive $966 million under the budget request, appears to merit the most ongoing attention. GAO reviews of this program have shown that the Coast Guard clearly needs new or upgraded assets, but the Coast Guard's contracting approach carries a number of inherent risks that, left unaddressed, could lead to spiraling costs and slipped schedules. The Coast Guard is taking some action in this regard, but GAO continues to regard this approach as carrying substantial risk. Some expansion of cost and slippage in schedule has already occurred.

section_title: Letter
paragraphs: I am pleased to be here today to discuss the President’s fiscal year 2006  budget request for the Coast Guard, focusing on three priority areas the  Coast Guard believes are critical to improving performance and reducing  vulnerabilities within the U.S. maritime domain. As you know, the Coast  Guard continues to face extraordinary, heightened responsibilities to  protect America’s ports, waterways, and waterside facilities from terrorist  attacks, while also maintaining responsibility for many other programs  important to the nation’s interests, such as helping stem the flow of illegal  drugs and illegal immigration, protecting important fishing grounds, and  responding to marine pollution. At the same time, the Coast Guard is  adjusting to its new home in the Department of Homeland Security (DHS)  and attempting to manage the largest acquisition in its history, replacing or  upgrading virtually all of its deepwater assets (ships and aircraft capable  of operating further out to sea). It is an understatement to say that the  Coast Guard has a lot going on. In recognition of this, the Coast Guard has  received substantial budget increases since the terrorist attacks on  September 11, 2001.
My testimony today provides a brief overview of the Coast Guard’s budget  and performance information, and then discusses key Coast Guard  programs and activities within the context of a three-part framework that  the Coast Guard outlines in its fiscal year 2006 budget documents. The  Coast Guard believes that funding three priority areas—implementing the  maritime strategy for homeland security, enhancing mission performance,  and recapitalizing the Coast Guard—are essential to best position the  agency to implement the President’s strategies and reduce vulnerabilities  in the U.S. maritime domain. My testimony is based on a number of  reviews we have conducted in recent years on several Coast Guard  programs. (See app. II for a listing of recent reports.) Our work for this  testimony has been conducted from February 2005 to March 2005 in  accordance with generally accepted government auditing standards. (See  app. I for additional information regarding our scope and methodology.)
In summary, the 2006 request reflects the continuing importance the  administration attaches to the Coast Guard’s missions—especially those  that relate to homeland security. Our recent work indicates that funding  increases may be warranted, given the condition of the Coast Guard’s  aging assets and the fact that the systems and processes the agency needs  to improve maritime domain awareness and security were either  inadequate or nonexistent prior to the terrorist attacks. Nevertheless, as  our work also has shown, dramatic infusions of money do not guarantee  success, but bring added responsibility to ensure that these large  investments of taxpayer dollars are wisely spent. The risk that an agency  may simply attempt to do too much and do it too quickly is increased  when an agency faces as many significant new heightened responsibilities  as the Coast Guard. We have not evaluated the Coast Guard’s priorities or  whether the funding levels proposed are those needed to accomplish these  priorities. However, our work does show that in key areas the Coast Guard  has not always paid as much attention to program design and management  as it should. These design and management issues can often have  implications for how effectively money is spent. My testimony focuses on  findings from our recent work as they relate to each of the Coast Guard’s  three priority areas, the recommendations we made, the progress that the  Coast Guard has made in addressing them, and the issues that remain.  First, I would like to put the fiscal year 2006 budget request in a historical  context and also provide some perspective on the Coast Guard’s reported  performance results.
subsections: section_title: Funding Has Escalated in Recent Years, but Is Difficult to Link to Performance Results
paragraphs: The Coast Guard’s 2006 budget request continues a trend of increasing  budgets that began in fiscal year 2002, as figure 1 shows.
If the Coast Guard’s full budget request is granted, its funding will have  increased by 45 percent in nominal terms in this 5-year period. A major  portion of this growth will have occurred in the acquisition, construction,  and improvements account, which grew 81 percent in nominal dollars  between the fiscal year 2002 actual funds and the fiscal year 2006  requested funds—a $568 million increase. Much of this increase can be  attributed to two major acquisition projects—Deepwater and Rescue 21.  Deepwater is the Coast Guard’s largest-ever acquisition program. It  replaces or modernizes cutters, aircraft, and communications equipment  for missions that require mobility, extended presence on scene, and the  capability of being deployed overseas. Rescue 21, the Coast Guard’s  second largest procurement in fiscal year 2006, will replace the Coast  Guard’s current antiquated coastal communication system.
The fiscal year 2006 budget request shows a $570 million increase to   $8.1 billion, which is an increase of about 11 percent in its discretionary  funding over the enacted budget for fiscal year 2005. The majority of the  total is for operating expenditures: $5.5 billion. Capital acquisition  accounts for another approximately $1.3 billion, and the remainder is  primarily for retired pay. (See app. III for more detail on the Coast Guard’s  fiscal year 2006 budget accounts.) Much of the additional $570 million over  and above the 2005 budget covers such things as mandatory pay increases  for current employees and operating expenses for existing programs— many of which relate to homeland security functions. In addition, more  than $50 million of the increase would fund new or enhanced initiatives,  all of which relate to homeland security. For example, a portion of this  funding would be dedicated to increasing maritime patrol aircraft  operations, increasing the Coast Guard’s presence in ports, and providing  enhanced security for liquefied natural gas transports. Of the nearly   $1.3 billion requested for capital projects, $966 million, or 76 percent,  would be dedicated to the Deepwater acquisition, while $101 million  would be dedicated to Rescue 21.
By comparison with the pattern of budget increases, performance  results—indicators that track a program’s progress from year to year— have been more mixed in terms of the number of performance targets met  each year. (See app. IV for a detailed discussion of the Coast Guard’s  performance measures and results.) The Coast Guard has a key  performance target—the goal it aims to achieve each year—for 10 of its   11 programs. For search and rescue, for example, its target is to save the  lives of at least 85 percent of mariners in distress. For the 8 programs with  performance results through fiscal year 2004, the Coast Guard met or  exceeded its targets in 4—a decline from the 2003 results, when the Coast  Guard met 6 of these targets (see fig. 2). Such changes can involve  relatively small shifts in results. For example, in fiscal year 2004,   96.3 percent of domestic fishermen were found to be in compliance with  regulations, compared with 97.1 percent the year before—but the  percentage for fiscal year 2004 was below the Coast Guard’s target of   97.0 percent, while the percentage for fiscal year 2003 was above it.
As we have reported in the past, it is difficult to link spending and  resource allocations to performance and results, because many other  factors also are at work. For example, one of the Coast Guard’s  measures—the number of incursions into U.S. fishing grounds by foreign  fishing vessels—is affected by oceanic and climatic shifts that can cause  fluctuations in the migrating patterns of fish. The number of foreign  vessels drawn to U.S. waters could be affected by these fluctuations. In  addition, the Coast Guard is still developing its performance measures and  targets for its primary homeland security program, so this major reason for  funding increases is not yet reflected in the results. These complicating  factors suggest caution in attempting to read too much into the fiscal year  2004 drop. Nevertheless, attention to these trends over the long term is  important, as a way to help ensure that taxpayer dollars are spent wisely.
section_title: Efforts Made on Coast Guard’s Maritime Security Strategy Show Promise, but Concerns Remain
paragraphs: One of the Coast Guard’s fiscal year 2006 priorities involves implementing  a maritime strategy for homeland security. Major portions of this endeavor  are heavily influenced by the requirements of the Maritime Transportation  Security Act (MTSA) of 2002. We have reviewed the Coast Guard’s  response to a number of these requirements, and our findings have  implications for several aspects of the budget request.
MTSA seeks to establish a comprehensive security regime for the nation’s  ports—including planning, personnel security, and careful monitoring of  vessels and cargo—and charges the Coast Guard with lead responsibility  for implementing this regime. Since MTSA was enacted, the Coast Guard  has worked to address vulnerabilities by spurring the development of  meaningful security plans for thousands of facilities and vessels in the  nation’s ports. The Coast Guard has taken many other actions as well,  including establishing area maritime security committees to improve  information sharing, increasing port presence through increased security  patrols, enhancing intelligence capabilities by establishing field  intelligence teams in ports, and beginning to implement an electronic  identification system for vessels in the nation’s ports. As we have reported,  the Coast Guard deserves credit for taking fast action on so many MTSA  security provisions at once, especially with regard to MTSA’s aggressive  requirement that regulated facilities and vessels have security plans in  place by July 2004. However, the combination of so many reforms and an  aggressive schedule posed a daunting challenge, and our review of Coast  Guard efforts to meet these requirements showed some areas for  improvement where we have made recommendations—most notably the  following three from reports issued in 2004.
Automatic Identification System (AIS) has potential for cost savings.
National development of this system, which identifies vessels traveling to  or through U.S. waters, is an important step in the overall effort to  increase port safety and security. The Coast Guard faced several key  decisions to determine AIS’s technical requirements, waterway coverage,  and vessels to be equipped with identification equipment. Estimates to  establish such a system, however, were well above funding levels. We  thought the goals of the system might be achieved more quickly and the  costs to the federal government reduced by pursuing cost-sharing options.  Consequently, we recommended that the Coast Guard seek and take  advantage of partnerships with organizations willing to develop AIS  systems at their own expense.
Port security assessments could be more useful. The port security  assessment program is intended to assess port vulnerabilities and security  measures in the nation’s 55 most economically and militarily strategic  ports. Our review showed that while some improvements were made, the  Coast Guard risked producing a system that was not as useful as it could  have been because its approach lacked a defined management strategy,  specific cost estimates, and a clear implementation schedule. A major  factor of the program—a computer-based geographic information system  that would provide information to personnel in charge of port security— was developed in such a way that gaps in port security postures could be  overlooked. We recommended that the Coast Guard define and document  the functional requirements for this computer system and develop a long- term project plan for the system and for the port security assessment  program as a whole.
The Coast Guard’s strategy for conducting oversight and compliance  inspections of facilities and vessels could be improved. Because the  program was new, we recommended that the Coast Guard undertake a  formal evaluation after the first round of inspections and use the results to  improve the program. The evaluation was to include the adequacy of  security inspection staffing, training, and guidance. To improve the  program strategy, we also recommended that the Coast Guard clearly  define the minimum qualifications for inspectors and link these  qualifications to a certification process, as well as consider unscheduled  and unannounced inspections, and covert testing as a way to ensure that  the security environment at the nation’s seaports met the nation’s  expectations.
The Coast Guard agreed with many of our recommendations and has made  progress in implementing some of them, but the remaining issues have  implications for the availability of funds or the effectiveness with which  available funds are spent.
AIS. Coast Guard officials have taken a number of steps to encourage  stakeholder participation, although they have not formally sought AIS  partners to date. For example, the Coast Guard has a contract with  PETROCOMM (a provider of communications services in the Gulf of  Mexico) to provide locations, maintenance, and data services for several  AIS base stations on offshore platforms in the Gulf of Mexico. The Coast  Guard believes that it is too early to consider partnerships beyond these  initial efforts, because the Coast Guard is still developing operational  requirements for AIS systems and vetting these requirements with  stakeholders and Coast Guard field units. However, Coast Guard officials  also reported that in their discussions with private parties, these parties  have shown little interest in shouldering any of the financial burden  associated with achieving AIS capability. The Coast Guard estimates that  the installation of AIS nationwide could cost nearly $200 million. The fiscal  year 2006 budget requests $29.1 million for this project, in addition to the  $48 million previously enacted ($24 million per year in fiscal years 2004  and 2005)—leaving a substantial sum to be financed.
Port security assessments. Coast Guard officials said they are working  with the Department of Homeland Security to determine the focus and  scope of the fiscal year 2006 port assessments and are taking into  consideration the progress being made by ports to identify shortcomings  and improve security. However, the Coast Guard continues to move  forward with the overall program, as well as the geographic information  system, without a plan that clearly indicates how the program and its  information component will be managed, what they are expected to cost,  or when the various work steps should be completed. The lack of a plan,  in our view, increases the risk that the program will be unsuccessful.  In  response to our recommendation, the Coast Guard has indicated that it  will develop a long-term plan for the port security assessment program but  they did not indicate when this effort will begin or when they expect a  plan to be completed.
Strategy for ensuring facility and vessel compliance. The Coast Guard  has taken a number of actions but has not focused its resources on doing  unscheduled or unannounced spot checks to verify whether domestic  vessels are complying with requirements. We continue to believe that  without unscheduled inspections, vessel owners and operators can mask  security problems by preparing for the annually announced inspections in  ways that do not represent the normal course of business. Unannounced  inspections are a way of ensuring that planning requirements translate into  security-conscious behavior.
section_title: Three Efforts to Enhance Mission Performance Bear Watching
paragraphs: A second Coast Guard priority is to enhance mission performance. Many  Coast Guard personnel and assets are involved in performing multiple  missions. For example, Coast Guard cutters and crews may be involved  with fisheries patrols, distress calls, oil spills, stopping and boarding  vessels of interest, and many other tasks. In fiscal years 2005 and 2006, the  Coast Guard plans to continue developing several initiatives that agency  officials believe will yield increased performance across multiple Coast  Guard missions over time. Three initiatives, in particular, deserve mention.  These are a new coastal communication system, called Rescue 21; a new  field command structure, called Sectors; and efforts to improve readiness  at multimission stations that conduct search and rescue as well as other  missions. All three efforts carry some risk and will merit close attention.
Rescue 21. The Coast Guard has resolved some initial development  problems that delayed the implementation of this new coastal command  and control communication system and is now poised to move forward  again, with a fiscal year 2006 budget request of $101 million. According to  Coast Guard officials, Rescue 21 can improve coastal command and  control communications and interoperability with other agencies, helping  to improve not only search and rescue efforts but also other missions such  as illegal drug and migrant interdiction. The program is composed of very- high-frequency-FM radios, communication towers, and communication  centers. Rescue 21 was originally scheduled to be ready for operational  testing by September 2003, but this was delayed because of problems in  developing system software. Operational testing of this software has been  completed. The program is now set—once additional Coast Guard and  DHS approvals are obtained—to move into its next phase of production,  and the Coast Guard anticipates that the program will be operational by  the end of 2007.
According to the Coast Guard, one risk that remains in moving ahead with  Rescue 21 involves locating sites for about 330 towers that must be built.  The Coast Guard must locate these towers in accordance with the  requirements of the National Environmental Policy Act of 1969 (NEPA), as  amended, which requires federal agencies to prepare an environmental  impact statement for major federal actions that may significantly affect the  quality of the human environment. Towers can have environmental  effects; for example, when they are built in migratory bird locations, birds  can fly into the towers or their supporting wires. Additionally, for effective  communications, each tower must be placed in a way that one tower’s  coverage meets the next tower’s coverage without interference. Thus, if  one tower must be moved for environmental reasons, neighboring towers  may also have to be moved—leading to a potential for schedule slippage, if  additional sites must be identified and developed. The NEPA process  represents the Rescue 21 program’s greatest risk, according to a program  official.
Sectors. This is a new field command structure that will unify previously  disparate Coast Guard units such as air stations, groups, and marine safety  offices into integrated commands. This effort is a budget neutral effect in  the fiscal year 2006 request, but it bears attention for operational  effectiveness reasons. The Coast Guard is making this change to improve  mission performance through better coordination of Coast Guard  command authority and resources such as boats and aircraft. Under the  previous field structure, for example, a marine safety officer who had the  authority to inspect a vessel at sea or needed an aerial view of an oil spill  as part of an investigation would often have to coordinate a request for a  boat or aircraft through a district office, which would obtain the resource  from a group or air station. Under the Sector realignment, these  operational resources will be available under the same commanding  officer. To date, 8 sectors have been established, with approximately 28 to  be established by the end of 2006. According to Coast Guard personnel,  the realignment is particularly important for meeting new homeland  security responsibilities, and will facilitate the Coast Guard’s ability to  manage incidents in close coordination with other federal, state, and local  agencies.
While the establishment of Sectors appears to be an important step that  could positively affect the Coast Guard’s mission performance, the Coast  Guard is likely to face a number of implementation challenges that it will  need to overcome to help ensure success. First, Sectors change a long- standing cultural divide within the agency. This divide has separated those  personnel who typically operate aircraft and boats from those personnel  who typically enforce marine safety, security, and environmental  protection laws. Second, it has implications for alignment above the field  operations level as well. Realignment is likely to be needed at the district  office and headquarters levels to help ensure that management  misalignments among these levels do not pull the field reorganization off  track. Third, it will likely require training, such as taking steps to ensure  that senior commanders are aware of key issues critical for decision  making across the various Coast Guard mission areas. Coast Guard  officials acknowledge these challenges but believe that the culture  challenge will be overcome in time as a result of increased familiarity and  training. They also acknowledged that further realignments at the district  and headquarters levels are likely to be needed over time and that efforts  are under way to implement training changes.
Multimission stations. Another area where the Coast Guard has an  opportunity to improve mission performance involves its 188 multimission  stations. These stations located along the nation’s coastlines and interior  waterways have been the mainstay of one of the Coast Guard’s oldest  missions—finding and rescuing mariners in danger. In 2001, after a series  of search and rescue mishaps, the Coast Guard began efforts to improve  station readiness, which had been declining for more than 20 years. This  included reconfiguring operations and bolstering resources in four areas— staffing, training, boats, and personal protection equipment used by  personnel during operations, such as life vests and survival suits. This  effort was complicated by the new and increased homeland security  responsibilities that stations assumed after the terrorist attacks of  September 11.
Today, 4 years after efforts began to improve station readiness, there have  been operational improvements in staffing, training, boats, and personal  protection equipment, as well as increases in resource levels at stations.  However, even though readiness concerns have been mitigated to some  extent, the stations have still been unable to meet standards and goals  relating to staffing, boats, and equipment, which indicates that the stations  are still significantly short of desired readiness levels in some areas. For  example, even though station staffing has increased 25 percent since 2001,  station personnel continue to work significantly longer hours than are  allowed under the Coast Guard’s work standards.
To address continued readiness concerns, actions are needed in two areas,  and the Coast Guard says that it has such efforts underway. Currently, the  Coast Guard does not have an adequate plan in place for achieving and  assessing readiness in its new post-September 11 operating environment.  The Boat Forces Strategic Plan—the Coast Guard’s strategy for  maintaining and improving essential multimission station capabilities over  the next 10 years—is the agency’s main tool for measuring progress in  meeting station readiness requirements, but it has not been updated to  reflect increased homeland security responsibilities. However, Coast  Guard officials recently reported that they will update the plan to reflect  its homeland security mission and identify actions taken and results  achieved. Second, the Coast Guard is operating under interim homeland  security guidelines, which establish recommended security activities for  field units according to each maritime security threat level. Coast Guard  officials said they would incorporate measurable station readiness goals  into the plan. The Coast Guard plans to complete these efforts in the next  6-9 months.
section_title: Important but Costly Programs for Maintaining and Recapitalizing Deepwater Assets Need Careful Monitoring
paragraphs: The third Coast Guard priority involves the single largest and most  complex acquisition program in the agency’s history—a project designed  to improve the mission performance of the range of cutters and aircraft  that currently conduct the agency’s offshore missions. We have previously  reported on the risky approach for this acquisition, and although progress  has been made to address our past recommendations, the risks still remain  substantial. As it undergoes a transformation to these new or upgraded  assets, the Coast Guard is also faced with sustaining its legacy assets to  ensure that they can continue to perform the Coast Guard’s missions until  new or upgraded assets are in place. Revisions to the Coast Guard’s  mission requirements for Deepwater, slippages in the acquisition schedule,  and limited information about the condition of and likely costs for  maintaining the legacy assets all highlight the need for continued attention  to this area.
subsections: section_title: Deepwater Acquisition Involves a Major Recapitalization of the Coast Guard
paragraphs: In 1996, the Coast Guard initiated a major recapitalization effort—known  as the Integrated Deepwater System—to replace or modernize the  agency’s deteriorating aircraft and cutters. These legacy assets are used  for missions that require mobility, extended presence on scene, and the  capability of overseas deployment. Examples of such missions include  interdicting illegal drug shipments or attempted landings by illegal aliens,  rescuing mariners in difficulty at sea, protecting important fishing  grounds, and responding to marine pollution. The Deepwater fleet consists  of 187 fixed-wing aircraft and helicopters, and 88 cutters of varying  lengths. As currently designed, the Deepwater program replaces some  assets (such as deteriorating cutters) with new ones while upgrading other  assets (such as some types of helicopters) so that all of the assets can  meet new performance requirements.
In an effort to maintain its existing assets until the Deepwater assets are in  place, the Coast Guard is conducting extensive maintenance work.  Notwithstanding extensive overhauls and other upgrades, a number of the  cutters are nearing the end of their estimated service lives. Similarly, while  a number of the deepwater legacy aircraft have received upgrades in  engines, operating systems, and radar and sensor equipment since they  were originally built, they too have limitations in their operating  capabilities. For example, the surface search radar system on the HC-130  long-range surveillance aircraft is subject to frequent failures and is  quickly becoming unsupportable. Flight crews use this radar to search for  vessels in trouble and to monitor ships for illegal activity, such as  transporting illicit drugs or illegal immigrants. When the radar fails, flight  crews are reduced to looking out the window for targets, greatly reducing  mission efficiency and effectiveness. A flight crew in Kodiak, Alaska,  described this situation as being “like trying to locate a boat looking  through a straw.” We have been reviewing the condition of Coast Guard  Deepwater assets for a number of years, and our work has shown that a  need exists for substantial replacement or upgrading. We have additional  work underway this year regarding the status of Deepwater assets, and  will be testifying on this work next month.
section_title: Deepwater Contracting Approach Remains Risky
paragraphs: While we agree that the case for replacing and upgrading the Coast  Guard’s legacy assets is compelling, the contracting strategy the agency is  using to conduct this acquisition carries a number of inherent risks. This  strategy relies on a contractor—called the system integrator—to identify  and deliver the assets needed to meet a set of mission requirements the  Coast Guard has specified, using tiers of subcontractors to design and  build the actual assets. The resulting program is designed to provide an  improved, integrated system of aircraft, cutters, and unmanned aerial  vehicles to be linked effectively through systems that provide command,  control, communications, computer, intelligence, surveillance,  reconnaissance, and supporting logistics. However, from the outset, we  have expressed concern about the risks involved with this approach  because of its heavy reliance on a steady funding stream over several  decades and the potential lack of competition to keep contracting costs in  line.
These risks have had tangible effects, including rising costs and slipped  schedules. Early on in our reviews of the program, we expressed concern  that the Coast Guard risked schedule slippages and cost escalation if  project funding fell short of planned funding levels. These concerns  materialized in the first 2 years of the program, when appropriated funding  was $125 million less than planned for. And, although funding in the fourth  year of the program (fiscal year 2005) exceeded the Coast Guard’s request  by about $46 million, the early shortfalls, according to the Coast Guard,  resulted in schedule slippage and led to increases in the total projected  costs for the program. As of spring 2004, it was estimated that an  additional $2.2 billion (in nominal dollars) would be needed to return the  program to its original implementation schedule. In addition, there is  clear evidence that the asset delivery schedule has also slipped. For  example, under Deepwater’s original schedule, the first major cutter, the  National Security Cutter was due to be delivered in 2006; the current  schedule indicates that it will now not be delivered until 2007. Similarly,  the first nine Maritime Patrol aircraft were due to be delivered in 2005;  now only two will be delivered in 2007.
When we reviewed the Deepwater program again last year, we found that,  on many fronts, the Coast Guard was not doing enough to mitigate these  risks. For example, we found that well into the contract’s second year, key  components needed to manage the program and oversee the system  integrator’s performance had not been effectively implemented. We also  reported that the degree to which the program was on track could not be  determined, because the Coast Guard was not updating its schedule. We  detailed needed improvements in a number of areas, shown in table 1.
The Coast Guard agreed with nearly all of our recommendations and has  since made progress in implementing some of them. In most cases,  however, while actions are under way to address these concerns,  management challenges remain that may take some time to fully address.  Here are some examples.
Strengthening integrated product teams. These teams, the Coast Guard’s  primary tool for managing the program and overseeing the contractor,  consist of members from subcontractors and the Coast Guard. In 2004, we  found these teams often lacked training and in several cases lacked  charters defining clearly what they were to do. Most now have charters  setting forth the team’s purpose, authority, and performance goals, among  other things, and more training is now being provided. However, roles and  responsibilities in some teams continue to be unclear, and about one-third  of team members have yet to receive entry-level training.
Holding the systems integrator accountable for competition. The Coast  Guard has taken a number of steps to improve cost control through  competition. For example, to improve competition among second-tier  suppliers, Coast Guard officials said they will incorporate an assessment  of the steps the system integrator is taking to foster competition at the  major subcontractor level as one of the factors they take into account in  deciding whether to award the first contract option.
Besides the risks noted in table 1, the program also bears careful watching  because it is still being affected in midcourse by the Coast Guard’s  additional homeland security responsibilities. Planning for the Deepwater  program had been set in motion before the terrorist attacks of September  11, and while the initial program included consideration of homeland  security responsibilities, these responsibilities have grown considerably in  the interim. In March 2004, the Coast Guard developed a revised mission  needs statement (MNS) that indicated that current specifications for  Deepwater assets lacked some functional capabilities needed to meet  mission requirements.  The MNS was approved by DHS in January 2005.
According to the Coast Guard, some of the functional capabilities now  deemed to be required include the following:    Rotary wing airborne use of force and vertical insertion/vertical delivery    Greater speed, a larger flight deck, and automated defensive and weapons  systems for the National Security Cutter and Offshore Patrol Cutter  classes;   A common operating picture (COP) for the entire Coast Guard (and  maritime ports of a unified Department of Homeland Security COP), an  interoperable network to improve performance in all mission areas, and a  Secure Compartmentalized Information Facility for improved intelligence  capabilities; and   Chemical, biological, radiological defense and decontamination capability  While we have not conducted an analysis of the likely cost and schedule  impact of the revised MNS requirements, they undoubtedly will have an  effect on cost and schedule. The Coast Guard’s own estimates identified in  the March 2004 MNS show an increased acquisition cost for the original  20-year acquisition of about $1 billion. According to the Coast Guard, the  revised MNS requirements and associated cost and schedule information  have been forwarded to the Department of Homeland Security (DHS) and  the Office of Management and Budget for approval. As of this time, the  implementation plan has not been approved.
These issues point to the need for continued and careful monitoring of the  Deepwater acquisition program both internally and externally. One  positive development in this regard involves the Coast Guard’s efforts to  update the Deepwater acquisition schedule—action that we suggested in  our June 2004 report. The original 2002 schedule had milestone dates  showing when work on an asset would begin and when delivery would be  expected, as well as the integrated schedules of critical linkages between  assets, but we found that the Coast Guard was not maintaining an updated  and integrated version of the schedule. As a result, the Coast Guard could  not demonstrate whether individual components and assets were being  integrated and delivered on schedule and in critical sequence. While as  late as October 2004 Deepwater performance monitors likewise expressed  concern that the Coast Guard lacked adequate visibility into the project’s  status, the Coast Guard has since taken steps to update the outdated  schedule, and has indicated that it plans to continue to update the  schedule—monthly for internal management purposes, and semi-annually  to support its budget planning efforts. We think this is an important step  toward improving the Coast Guard’s management of the program because  it provides a more tangible picture of progress, as well as a baseline for  holding contractors accountable. And, as we have said in the past on  numerous occasions, we will continue to work closely with the Coast  Guard to monitor how risks are mitigated.
section_title: Attention Also Needed to Planned Transition and Phase out of Legacy Assets
paragraphs: Although the Coast Guard expects to upgrade a number of its legacy assets  for use in the Deepwater program, a substantial portion of its legacy  assets—particularly cutters—are scheduled to be replaced. Until their  replacements are available, however, many of the cutters will need to be  kept in service so that the Coast Guard can continue to perform its  missions. Our visits to field locations and conversations with Coast Guard  operations and maintenance personnel clearly indicated that the  maintenance of these assets is already taking increasingly more time and  effort. For example, air station maintenance personnel indicated that  aircraft are being subjected to additional corrosion-related problems. To  address these problems, air station maintenance personnel at the locations  we visited said they have instituted additional measures, such as washing  and applying fluid film to the aircraft prior to each deployment. Similar  accounts were told by personnel working on cutters. For example, officers  of the 270-foot cutter Northland told us that because of dated equipment  and the deteriorating condition of the vessel’s piping and other  subsystems, crewmembers have to spend increasingly more time and  resources while in port to prepare for the cutter for the next deployment.  While we could not verify these increases in time and resources because of  limitations in the Coast Guard’s data, the need for increasing amounts of  maintenance was a message we consistently heard from operations and  maintenance personnel.
The Coast Guard is aware that keeping these legacy assets mission  capable will likely require an additional infusion of funds for some assets  that are scheduled to be replaced. Since 2002, the Coast Guard has  annually created a compendium that consolidates information about  projects needed to maintain and sustain legacy assets. The Coast Guard  uses this compendium as a tool for setting priorities and planning budgets.  The most recent compendium (for fiscal year 2006), lists more than $1  billion worth of upgrades to the Deepwater legacy assets. The planned  upgrades identified in the compendium that have been approved and  received initial funding account for an estimated $856 million the Coast  Guard anticipates it will need to complete those projects. In addition, the  compendium lists another estimated $409 million in sustainment projects  for the other legacy assets for which funding has not been requested. If the  condition of these assets continues to deteriorate or replacement assets  are further delayed, this additional funding will likely be needed.
We are not questioning the Coast Guard’s decisions about which projects  within the compendium should receive priority. We believe it is important,  however, for the Coast Guard to make Congress aware of the magnitude of  the potential funding needs for sustaining the assets that are eventually  scheduled for replacement. Given the schedule slippages we have seen  and the continued possibility that Deepwater requirements may yet  change, this information will be important to determine a thoughtful and  accurate estimate of future maintenance budget needs.
One planning effort under way within the Coast Guard illustrates the kinds  of considerations that may be needed with regard to these assets. This  effort is being undertaken by the Coast Guard’s Pacific Area Command,  which to accomplish its missions, relies on 378-foot cutters—the first asset  scheduled to be replaced under the Deepwater program. Under the  original Deepwater proposal, the final 378-foot cutter was to be  decommissioned in 2013, but by 2005, that date had slipped to 2016. To  help keep these cutters running through 2016, Pacific Area Command  officials are considering such strategies as designating some of the 378- foot cutters as capable of performing only certain missions, rather than  attempting to keep them all fully capable of performing all missions. Even  so, the Pacific Area Commander told us that in order for the 378-foot  cutters to be properly maintained until their replacements become  operational; the Coast Guard will have to provide more focused funding.  So far, the Coast Guard’s budget plans and requests do not address this  potential need.
section_title: Concluding Observations
paragraphs: Over the past several years, the Coast Guard has been in the vortex of the  nation’s response to homeland security concerns. It has been charged with  many new responsibilities related to ports and to marine security in  general, and from the outset, we have often used the word “daunting” to  describe the resulting tasks. In addition, expectations continue that the  Coast Guard will be able to rescue those in distress, protect the nation’s  fisheries, keep vital marine highways operating efficiently, and respond  effectively to marine accidents and natural disasters. Congress has  acknowledged that these added responsibilities carry a price tag and has,  through the appropriations process, provided substantially more money  for the job.
As these efforts begin to move into a more mature phase, allowing lessons  that can already be learned to better inform judgments about the future, it  is increasingly important to explore ways to enhance mission effectiveness  while stretching taxpayer dollars for maximum effectiveness. This is  particularly true in the current budget climate. While we have found the  Coast Guard to be a willing participant in such efforts, the agency’s focus  on achieving all of its missions can make it difficult to carry through with  the many intermediate steps that may be needed to keep management  problems to a minimum. We think the issues we have highlighted are  potential areas for ongoing congressional attention, and we will continue  to work with the Coast Guard on them.
Madame Chair and Members of the Subcommittee, this completes my  prepared statement. I would be happy to respond to any questions that you  or other Members of the Subcommittee may have at this time.
section_title: Contacts and Acknowledgements
paragraphs: For information about this testimony, please contact Margaret Wrightson,  Director, Homeland Security and Justice Issues, at (415) 904-2200, or  wrightsonm@gao.gov. Other individuals making key contributions to this  testimony include Joel Aldape, Jonathan Bachman, Steve Calvo,  Christopher Conrad, Adam Couvillion, Michele Fejfar, Barbara Guffy,  Geoffrey Hamilton, Christopher Hatscher, Samuel Hinojosa, Dawn Hoff,  Julie Leetch, Dawn Locke, Michele Mackin, Sara Margraf, Stan Stenersen,  and Randall Williamson.
section_title: Appendix I: Objectives, Scope and Methodology
paragraphs: To provide a strategic overview of the President’s fiscal year 2006 budget  request for the Coast Guard, focusing on several areas of particular  congressional interest, we reviewed the Coast Guard’s Congressional-stage  budget and other financial documents provided by the Coast Guard. We  also interviewed Coast Guard headquarters officials familiar with the  Coast Guard’s budget and acquisition processes.
To determine the status of the Coast Guard’s performance measures and  results, we reviewed Coast Guard performance data and performance  documentation. We also obtained confirmation from knowledgeable Coast  Guard officials that the performance data sources and the systems that  produced them have not changed since our 2003 data reliability analysis.  We determined that Coast Guard performance measures are sufficiently  reliable for the purposes of this testimony.
To determine the status of key outstanding Coast Guard  recommendations, we reviewed past GAO reports and testimonies related  to the Coast Guard and identified the GAO recommendations contained in  those reports. In addition, we consulted with GAO staff who performed  the work that resulted in the recommendations and interviewed Coast  Guard headquarters officials regarding the status of the  recommendations—including any progress made to implement them. We  also obtained and reviewed relevant documents from the Coast Guard.
To assess the Coast Guard’s recapitalization efforts, we analyzed data and  condition measures used by the Coast Guard for determining deepwater  legacy assets’ condition, reviewed Coast Guard actions to maintain and  upgrade the legacy assets, and assessed the improvements the Coast  Guard is making in its management of the Deepwater acquisition. We will  be following up this testimony with a written report that will contain  detailed information related to the condition of deepwater legacy assets,  and the actions the Coast Guard is taking to maintain and upgrade them.  As part of the follow-on report we will also provide more detailed  information on the Coast Guard’s management of the Deepwater program.
This testimony is based on published GAO reports and briefings, as well as  additional audit work that was conducted in accordance with generally  accepted government auditing standards. We conducted our work for this  testimony between February and March 2005.
section_title: Appendix II: Related GAO Products
paragraphs: Coast Guard: Station Readiness Improving, but Resource Challenges and  Management Concerns Remain (GAO-05-161, January 31, 2005).
Maritime Security: Better Planning Needed to Help Ensure an Effective  Port Security Assessment Program (GAO-04-1062, September 30, 2004).
Maritime Security: Partnering Could Reduce Federal Costs and  Facilitate Implementation of Automatic Vessel Identification  System (GAO-04-868, July 23, 2004).
Maritime Security: Substantial Work Remains to Translate New  Planning Requirements into Effective Port Security (GAO-04-838, June  30, 2004).
Coast Guard: Deepwater Program Acquisition Schedule Update Needed  (GAO-04-695, June 14, 2004).
Coast Guard: Station Spending Requirements Met, but Better Processes  Needed to Track Designated Funds (GAO-04-704, May 28, 2004).
Coast Guard: Key Management and Budget Challenges for Fiscal Year  2005 and Beyond (GAO-04-636T, April 7, 2004).
Coast Guard: Relationship between Resources Used and Results Achieved  Needs to Be Clearer (GAO-04-432, March 22, 2004).
Contract Management: Coast Guard’s Deepwater Program Needs  Increased Attention to Management and Contractor Oversight (GAO-04- 380, March 9, 2004).
Coast Guard: New Communication System to Support Search and  Rescue Faces Challenges (GAO-03-1111, September 30, 2003).
Maritime Security: Progress Made in Implementing Maritime  Transportation Security Act, but Concerns Remain (GAO-03-1155T,  September 9, 2003).
Coast Guard: Actions Needed to Mitigate Deepwater Project Risks (GAO- 01-659T, May 3, 2001).
Coast Guard: Progress Being Made on Deepwater Project, but Risks  Remain (GAO-01-564, May 2, 2001,).
Coast Guard’s Acquisition Management: Deepwater Project’s  Justification and Affordability Need to Be Addressed More Thoroughly  (GAO/RCED-99-6, October 26, 1998).
section_title: Appendix III: Breakdown of the Coast Guard’s Fiscal Year 2006 Request
paragraphs: In addition to operating expenses and acquisition, construction, and  improvements, the remaining Coast Guard budget accounts include areas  such as environmental compliance and restoration, reserve training and oil  spill recovery. (See table 2 below.)
section_title: Appendix IV: Coast Guard Performance Results, Fiscal Years 2001-2004
paragraphs: Table 3 shows a detailed list of performance results for the eight programs  for which the Coast Guard has fiscal year 2001 through 2004 data. Shaded  entries in the table indicate those years that the Coast Guard reported  meeting its target; unshaded entries indicate those years that the Coast  Guard reported not meeting its target. The table also shows that there are  three programs for which performance results are pending and data is not  available across the four-year period. Each program is discussed in more  detail below.
subsections: section_title: Programs Not Meeting Targets in Fiscal Year 2004
paragraphs: Foreign fish enforcement. The performance results for foreign fish  enforcement, which indicate the number of foreign vessel incursions into  the United States Exclusive Economic Zone (EEZ), has experienced  fluctuations from 152 incursions to 250 incursions in the last 4 years. Such  fluctuations can be due to oceanic and climatic shifts that affect the  migratory patterns of important fish stocks, and limited Coast Guard  assets, which the Coast Guard believes are unable to cover the entire 3.4  million square mile EEZ. We reported previously that performance  measures for foreign fish may not reflect agency efforts.  Because EEZ  encroachments can be affected by oceanic and climatic shifts that can  cause significant fluctuations in the migratory patterns of fish, they could  increase (or decrease) as fishermen follow their intended catch across  EEZ boundaries. According to Coast Guard officials, this type of migratory  factor can influence the number of encroachments in a given year.  Consequently, the Coast Guard has added two additional measures to  foreign fish that focus on interception and interdiction. These two  submeasures are not reflected in the Coast Guard’s foreign fish  performance goal. However, the Coast Guard believes that they help it to  better distinguish between those incursions that it is able to identify (for  example, with a C-130 it can identify a foreign fishing vessel incursion) and  those incursions that it can actually respond to (for example, 378-foot  cutter can interdict a stray foreign fishing vessel).
Living marine resources. The performance measure for living marine  resources—defined as the percentage of fishermen complying with federal  regulations—has varied from 96.3 percent to 98.6 percent between fiscal  years 2001 to 2004. According to Coast Guard performance documents, the  agency missed the fiscal year 2004 target because of poor economic  conditions in the U.S. shrimp fisheries, which appear to have made U.S.  fishermen in the Southeast region more willing to violate regulations in  order to maintain operations. However, the Coast Guard reported that  while the number of fishermen in compliance decreased slightly, its total  number of fishery boardings (4,560) was the highest number of boardings  since 2001.
Ice operations. To meet this performance target, the Coast Guard’s ice  operations program must keep winter waterway closures under 8 days per  year for severe winters and under 2 days per year for average winters. In  fiscal year 2004, the Coast Guard reports missing its target for an average  winter with 4 days of waterway closures instead of 2 or less. The Coast  Guard reports that it extended the ice-breaking season for an additional 10  days and because of worsened winter conditions within that period, its  icebreaking assets were challenged to provide services in nine critical  waterways of the Great Lakes. In fiscal year 2006, the Coast Guard plans to  complete the construction of the Great Lakes Icebreaker, which will  significantly improve icebreaking on the Great Lakes.
Defense readiness. Defense readiness, as measured by the percentage of  time units that meet combat readiness status at a C-2 level, improved from  67 percent to 78 percent during fiscal years 2001 to 2003 but decreased to  76 percent in fiscal year 2004 due to a personnel shortage according to the  Coast Guard. The Coast Guard identified its need to supply personnel for  the war in Iraq as the main reason for failing to meet this performance  target. To support fiscal year 2004 efforts in Iraq, the Coast Guard  provided personnel for six patrol boats, one patrol boat support unit, one  port security unit, four law enforcement detachments, as well as two ships  and cutters.
section_title: Programs Meeting Fiscal Year 2004 Performance Targets
paragraphs: Undocumented migrant interdiction. The Coast Guard reported that it  achieved its fiscal year 2004 performance goal of interdicting or deterring  87 percent of undocumented aliens attempting to enter the United States.  The undocumented migrant interdiction performance measure assesses  the percentage of migrants interdicted or deterred on maritime routes. In  2004, the Coast Guard identified 4,761 successful arrivals out of an  estimated threat of 37,000 migrants. In fiscal year 2003, the Coast Guard  missed this target, interdicting or deterring 85.3 percent of migrants. Since  2001, the greatest percentage of migrants deterred or interdicted—88.3  percent—was achieved in fiscal year 2002.
Search and rescue. The Coast Guard’s performance in this area, as  measured by the percentage of mariners’ lives saved from imminent  danger, was 86.8 percent, above the goal of 85 percent for fiscal year 2004.  The Coast Guard identified continuing improvements in response  resources and improvements made in commercial vessel and recreational  boating safety as the main reasons for meeting the target.
Marine environmental protection. The Coast Guard measures the marine  environmental protection target as the 5-year average of oil and chemical  spills greater than 100 gallons per 100 million tons shipped. Since fiscal  year 2001, the reported average number of oil and chemical spills has  dropped from 40.3 to 22.1 in fiscal year 2004. The Coast Guard identified  its prevention, preparedness, and response programs—including industry  partnerships and incentive programs—as reasons for the drop.
Aids to navigation. The aids to navigation program performance  measure—which assesses the total number of collisions, allisions, and  groundings—improved to 1,876 in fiscal year 2004, more than a 6 percent  improvement over fiscal year 2003’s total of 2,000, and below the target of  1,923.  (Since the aim is to prevent these accidents, a lower number than  the target represents attaining the goal). The number has varied from year  to year, but has remained below or at the target in each of the 4 years. The  Coast Guard attributes this success to a multifaceted system of prevention  activities, including radio aids to navigation, communications, vessel  traffic services, dredging, charting, regulations, and licensing.
section_title: Programs with Pending Results
paragraphs: Marine safety. The marine safety measure, a 5-year average of passenger  and maritime deaths and injuries, decreased from 1,651 in fiscal year 2001  to 1,307 in fiscal year 2003. The Coast Guard is currently waiting on the  states to supply recreational boating numbers in order to release their  total performance result for calendar year 2004. Coast Guard officials  identified ongoing inspection, investigation, prevention, and response  programs, as well as work with industry, states, and volunteers to promote  boating safe operations, as factors in reducing the number of deaths.
Illegal drug interdiction. The illegal drug interdiction performance  measure—the rate at which the Coast Guard seizes cocaine—is currently  being modified by the Coast Guard. The Coast Guard expects their  performance results will be available in April 2005.
Ports, waterways, and coastal security. The Coast Guard is currently  developing a performance measure for ports, waterways, and coastal  security.
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