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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Appendix II provides a detailed list of Coast Guard performance results for the Coast Guard’s 11 programs from fiscal years 2003 through 2007. 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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Summary: 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. 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.