The U.S. Coast Guard is a multimission, maritime military service within the Department of Homeland Security (DHS). 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 fiscal year 2005, the Coast Guard had over 46,000 full-time positions—about 39,000 military and 7,000 civilians. In addition, the agency had 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. Furthermore, the Coast Guard also had about 31,000 volunteer auxiliary personnel help with 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 these 11 programs, the Coast Guard has developed performance measure 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 fiscal year Budget-in-Brief. The Coast Guard’s 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. This, and other documents, reports the performance measures for each of the Coast Guard’s programs, as well as descriptions of the measures and explanations of performance results. To continue executing its missions, the Coast Guard has programs to acquire a number of assets such as vessels, aircraft, and command, control, communications, computer, intelligence surveillance, and reconnaissance (C4ISR) systems. The Coast Guard’s Deepwater program is a 25-year, $24 billion effort to upgrade or replace existing vessels and aircraft in order to carry out its missions along our coastlines and farther out at sea. The program is eventually to include 10 major classes of new or upgraded vessels and aircraft. The Coast Guard also has an acquisition program called the National Automatic Identification System to identify and track vessels bound for or within U.S. waters. Another acquisition program is called Rescue 21, a program to replace the Coast Guard’s 30- year-old search and rescue communications systems. Rescue 21 was to be used not only for search and rescue, but to support other Coast Guard missions, including those involving homeland security. The Coast Guard’s fiscal year 2008 budget request reflects a smaller increase than in years past. Requests for new capital spending are down, as the agency slows the pace of new acquisitions for Deepwater and other capital projects. Instead, several of the budget initiatives being emphasized reflect a reorganization of internal operations and support command infrastructure. Although the Coast Guard met fewer performance targets than last year, overall performance trends for most mission programs remain positive. That is, many of the measures that Coast Guard uses to evaluate performance have improved since last year, even though the agency did not meet as many of its performance targets in 2006 as in the year before. The Coast Guard’s budget request in fiscal year 2008 is $8.73 billion, approximately $275 million, or 3.3 percent, more than in fiscal year 2007 (see fig. 1). About $5.9 billion, or approximately 68 percent, is for operating expenditures (OE). This funding supports its 11 statutorily identified mission programs; increases in cost of living, fuel, and maintenance costs; and previous administration and congressional initiatives. The greatest change from the previous year is in the AC&I request, which at $949 million reflects about a 19 percent decrease from fiscal year 2007. According to Coast Guard officials, no new appropriations are requested in fiscal year 2008 for several Deepwater assets until business case reviews can be completed to assess the viability of technology and contracting oversight. The remaining part of the request consists primarily of funds requested for retiree pay and health care fund contributions. If the Coast Guard’s total budget request is granted, overall funding will have increased by over 55 percent since 2002, an increase of $3.1 billion. The Coast Guard’s budget request for homeland security missions represents approximately 35 percent of the overall budget. Figure 2 illustrates the percentage of funding requested for homeland security versus non-homeland security funding, and figure 3 shows the funding levels by each mission program. Two key budget initiatives—both reallocations rather than increases— reflect reorganization efforts. First, a major budget reallocation within the operating expenditures category establishes a single unified command for the agency’s deployable specialized forces. These are the Coast Guard’s response teams that can deploy wherever needed for natural disasters, terrorism incidents, and other concerns. According to senior Coast Guard officials, this initiative entails a onetime, budget-neutral reallocation of $132.7 million from the Atlantic and Pacific Area Commands to a new deployable operations command, which will be located in Ballston, Virginia. No new funds have been requested for this initiative. This initiative is discussed in more detail later in this testimony. The second reallocation involves an $80.5 million transfer from AC&I into the operating expense appropriation. The operational aspect of this reallocation is associated with creating a new consolidated acquisition function, also discussed in further detail below. Coast Guard officials said this reallocation consolidates all personnel funding into the operating expense appropriation and enables the Coast Guard to manage one personnel system for the entire agency. They said although this reallocation is budget neutral in 2008, future budget requests may include financial incentives that will enable the Coast Guard to develop a more robust cadre of acquisition professionals. The 19 percent decrease in fiscal year 2008 for AC&I reflects a slowing in the pace of acquisition efforts, which, according to Coast Guard officials, is an attempt to address technology issues and contracting oversight associated with Deepwater programs such as the Vertical Unmanned Aerial Vehicle and Fast Response Cutter. The Coast Guard also recognizes that it is carrying significant unobligated balances for a number of its acquisition projects. These balances reflect money appropriated but not yet spent for projects included in previous years’ budgets. During our work for this testimony, we reviewed budget data and Coast Guard documentation showing the current status of the agency’s unobligated balances. We found, for example, that the current unobligated balances total $1.96 billion for all acquisition projects. The Deepwater acquisition alone has $1.6 billion in total unobligated balances, which is nearly double the Coast Guard’s fiscal year 2008 request for the Deepwater project. Other acquisition programs, such as the Nationwide Automatic Identification System and Rescue 21, also have unobligated balances, but these are considerably lower (see table 2). The unobligated balance for Rescue 21, for example, is $30.5 million. These unobligated balances have accumulated for a variety of reasons as the Coast Guard has found itself unable to spend previous-year acquisition appropriations. For example, we and others have documented technical design issues involving the Coast Guard’s 123-foot patrol boat and the Fast Response Cutter. These problems have led to major delays in some programs and outright cancellations in others. We asked Coast Guard officials about their plans to spend these unobligated balances either in fiscal year 2008 or beyond, but at this point they were unable to provide us with detailed plans for doing so. To the agency’s credit, steps have been taken to address the issue, including reporting quarterly acquisition spending levels. Since these unobligated balances represent a significant portion of the Coast Guard’s entire budget, the degree to which the Coast Guard spends these balances in fiscal year 2008 could have a substantial impact on the overall level of capital spending for the year. According to senior Coast Guard officials, each acquisition project is now receiving more scrutiny and oversight of how previous funds are spent. The Coast Guard is not requesting additional funds for the Offshore Patrol Cutter, Fast Response Cutter, and Vertical Unmanned Aerial Vehicle in the fiscal year 2008 budget request until business case reviews are completed to assess the viability of the technology and contracting oversight. Despite the fact that Coast Guard met fewer performance targets than last year, overall performance trends for most mission programs remain positive. Performance in 7 of 11 Coast Guard mission areas increased in the last year, but the Coast Guard also set performance targets at a higher level than it did last year. Coast Guard’s performance did not improve sufficiently for the Coast Guard to meet as many of its higher performance targets in 2006 as it did in 2005. In fiscal year 2006, the Coast Guard reported that 5 of its 11 programs met or exceeded program performance targets. In addition, agency officials reported that the Coast Guard expected to meet the target for 1 additional program when results become available in August 2007, potentially bringing the total met targets to 6 out of 11 (see fig. 4). In comparison, last year we reported that in fiscal year 2005, Coast Guard met 8 out of 11 targets. In fiscal year 2006, the agency narrowly missed performance targets for 3 programs—Search and Rescue, Living Marine Resources, and Aids to Navigation. In fiscal year 2005, it missed only 1 of these 3, Living Marine Resources. The Coast Guard more widely missed performance targets for 2 programs, Defense Readiness and Marine Safety. In fiscal year 2005, Coast Guard met its Marine Safety target, but missed on Defense Readiness. See appendix I for more information on Coast Guard performance results. Congressional committees have previously expressed concern that Coast Guard’s shift in priorities and focus toward homeland security missions following the events of September 11, 2001, may have affected the agency’s ability to successfully perform its non-homeland security missions. However, the Coast Guard’s performance on its non-homeland security indicators has not changed substantially over the past 5 years. This past year, we also completed an examination of some of the performance indicators themselves. We found that while the Coast Guard’s non-homeland security measures are generally sound and the data used to collect them are generally reliable, there are challenges associated with using performance measures to link resources to results. Such challenges include comprehensiveness (that is, using a single measure per mission area may not convey complete information about overall performance) and external factors outside agency control, (such as weather conditions, which can affect the amount of ice that needs to be cleared or the number of mariners who must be rescued). The Coast Guard continues to work on these measures through such efforts as the following: Standardized reporting. The Coast Guard is currently developing a way to standardize the names and definitions for all Coast Guard activities across the agency, creating more consistent data collection throughout the agency. Measurement readiness. The Coast Guard is developing a tool to track the agency’s readiness capabilities with up-to-date information on resource levels at each Coast Guard unit as well as the certification and skills of all Coast Guard uniformed personnel. Framework for analyzing risk, readiness, and performance. The Coast Guard is developing a model for examining the links among risk, readiness management, and agency performance. This model is intended to help the Coast Guard better understand why events and outcomes occur, and how these events and outcomes are related to resources. While the Coast Guard appears to be moving in the right direction and is about done with some of these efforts, it remains too soon to determine how effective the Coast Guard’s larger efforts will be at clearly linking resources to performance results. These initiatives are not expected to be fully implemented until 2010. The 2008 budget request reflects a multiyear effort to reorganize the Coast Guard’s command and control and mission support structures. Three efforts are of note here—reorganizing shore-based forces into sector commands, placing all deployable specialized forces under a single nationwide command, and consolidating acquisitions management programs. Each of these efforts faces challenges that merit close attention. As we reported for the last 2 years, the Coast Guard has implemented a new field command structure that is designed to unify previously disparate Coast Guard units, such as air stations and marine safety offices, into 35 different integrated commands, called sectors. At each of these sectors, the Coast Guard has placed management and operational control of these units and their associated resources under the same commanding officer. Coast Guard officials told us that this change helped their planning and resource allocation efforts. For instance, Coast Guard field officials told us the sector command structure has been valuable in helping to meet new homeland security responsibilities, and in facilitating their ability to manage incidents in close coordination with other federal, state, and local agencies. Our follow-up work found, however, that work remains to ensure the Coast Guard is able to maximize the potential benefits of sector realignment. In particular, Coast Guard officials reported that some sectors had yet to colocate their vessel tracking system (VTS) centers with the rest of their operational command centers. According to field officials, the lack of colocation has hindered communications between staff that formerly were from different parts of the agency. According to Coast Guard officials, competing acquisition priorities are limiting the progress in obtaining funding needed to colocate these facilities. The fiscal year 2008 budget does not provide funds to colocate the VTS centers and command centers. Coast Guard headquarters officials told us they would work to address this challenge as part of the capital investment plan to build interagency operational centers for port security, as required under the SAFE Port Act, but they had not yet developed specific plans, timelines, and cost estimates. The Coast Guard is planning to reorganize its deployable specialized forces under a single unified command, called the Deployable Operations Group (DOG). This change is reportedly budget neutral in the fiscal year 2008 request, but it bears attention for operational effectiveness reasons. According to Coast Guard officials, the agency is making this change based on lessons learned from the federal response to Hurricane Katrina. They said the response highlighted the need to improve effectiveness of day-to-day operations and to enhance flexibility and interoperability of forces responding to security threats and natural disasters. Currently, there are five different types of Coast Guard specialized forces, totaling about 2,500 personnel. Their roles and missions vary widely, ranging from conducting antiterrorism operations to conducting environmental response and cleanup operations (see table 3). The Coast Guard’s existing structure divides operational control of specialized forces into three different command authorities— headquarters, Pacific Area, and Atlantic Area. Under the planned realignment, these forces would be available under a single operational command, with the expectation of more effective resource management, oversight, and coordination. The Coast Guard plans to establish operating capability for this unified approach by July 20, 2007, with an initial command center located in Ballston, Virginia. Officials told us they were well under way in planning for this reorganization. Officials expect about 100 staff will be assigned to the center when it reaches its initial operating capability, growing to about 150 personnel once the command structure is completed. According to officials, all administrative staff selected for the center will be drawn from headquarters, district, and area levels. We have not studied this reorganization, but our prior work on other aspects of Coast Guard operations suggests that the Coast Guard may face a number of implementation challenges. Some may be similar to those that Coast Guard faced when it created its sector commands, such as obtaining buy-in from personnel that will be affected by the reorganization or addressing realignment issues at the district level. Another challenge is to ensure that the change does not adversely affect mission performance at the sector and field unit levels. Currently, for example, sector commanders make use of available local MSST units—made available by district and area commanders—to help meet shortfalls in resource availability for everyday missions, such as conducting high-risk vessel escorts and harbor security patrols. If these units were not available to support mission needs, additional strain could be put on the performance of these local units. These changes to the command structure are part of plans that extend beyond fiscal year 2008. In his recent State of the Coast Guard speech, the Commandant of the Coast Guard unveiled a proposal to combine the Coast Guard’s Atlantic and Pacific Area command functions into a single Coast Guard operations command for mission execution. In addition, the Coast Guard plans to establish a new mission support command, which will have responsibility for nationwide maintenance, logistics, and supply activities. According to Coast Guard officials, the current structure is not well suited to responding to post-September 11 transnational threats. For example, Coast Guard officials said the current structure at times works against the Coast Guard in operations with Joint Interagency Task Forces, whose operating areas are not the same as the Coast Guard’s established area boundaries. Coast Guard officials told us a working group had developed a blueprint of the new operational force structure, but the Coast Guard is not ready to release it. Guard officials told us they expected the reorganization would be implemented during the current Commandant’s 4-year term. The Coast Guard also plans to consolidate its acquisitions management offices, placing all major acquisitions programs and oversight functions under the control of a single acquisitions officer. The goals of this consolidation are to improve Coast Guard oversight of acquisitions, better balance contracting officers and acquisition professionals among its major acquisition projects, and address staff retention and shortage problems associated with the acquisitions management program. However, the Coast Guard has not adequately staffed the acquisitions management program to meet its current workload, and maintaining an appropriate staff size will be challenging, despite the reorganization. For example, a February 2007 independent analysis found that the Coast Guard does not possess a sufficient number of acquisition personnel or the right level of experience needed to manage the Deepwater program. Headquarters officials told us the reorganization would address retention problems by creating a new acquisitions specialty career ladder that could attract new pools of talent. Still, given its past history of staff shortages and difficulties retaining acquisition staff, the Coast Guard will face challenges maintaining an appropriately sized acquisition staff, at least in the near term. Coast Guard headquarters officials told us the Deepwater program had pushed other important acquisitions priorities aside, and this new organization would help the Coast Guard advance these other priorities, such as boats, piers, and other shoreside physical infrastructure. In our view, it is unclear how the reorganization of the acquisition function will improve the prospects for these other programs, given Coast Guard’s priorities and ongoing constraints on funding. The reorganized acquisition office is expected to merge the now stand- alone Deepwater acquisition project with the existing acquisition directorate and research and development centers. The new office is expected to be led by a new Coast Guard Chief Acquisition Officer who will have responsibility over all procurement projects and by a deputy who will deal largely with Deepwater issues. At the program management level, Coast Guard is establishing four program managers to lead each acquisitions area, including (1) surface assets; (2) air assets; (3) command, control, communications, computers, intelligence, surveillance, and reconnaissance; and (4) small boats and shore-based infrastructure, such as command centers and boathouses. The Coast Guard plans to begin implementing this reorganization in July 2007. It is too early to tell if the Coast Guard’s reorganization will enable it to achieve its goals—notably, better balance of acquisitions support between Deepwater and the Coast Guard’s other acquisitions programs. While some Coast Guard major acquisition projects continue to face challenges, especially the Deepwater program, several of these projects are making progress. The record for Deepwater has been mixed, with 7 of 10 asset classes on or ahead of schedule. Three classes, however, are behind schedule for various reasons and several factors add to the uncertainty about the delivery of other Deepwater assets. Contract management issues that we have reported on previously continue to be challenges to the Coast Guard. Installation of equipment for the initial phase of NAIS, an acquisition that is designed to allow the Coast Guard to monitor and track vessels as far as 2,000 nautical miles off the U.S. coast, is currently under way, but without changes to existing regulations, some vessels will be able to avoid taking part in the system. The Coast Guard’s timeline for achieving full operating capability for its search and rescue communications system, Rescue 21, was delayed from 2006 to 2011, and the estimated total acquisition cost increased from 1999 to 2005, but according to Coast Guard officials, many of the issues that led to these problems are being addressed. Coast Guard acquisition officials said they are providing more oversight to the contractor after we reported on contract management shortcomings. The Coast Guard continues to face challenges in managing the Deepwater program. The delivery record for assets is mixed and technology and funding uncertainties, recent changes to Coast Guard plans for procuring Deepwater assets, as well as the 25-year time frame for asset delivery add to uncertainties about the delivery schedule for future Deepwater assets. We have reported concerns about management of the Deepwater program for several years now and have made recommendations aimed at improving the program. The Coast Guard continues to address these recommendations as it seeks to better manage the Deepwater program. In addition to these program management issues, performance and design problems for certain Deepwater assets have created additional operational challenges for the Coast Guard. The Coast Guard is taking steps to mitigate these problems, but challenges remain. Below is a summary of our recent Deepwater work. The Coast Guard’s Deepwater program is a 25-year, $24 billion plan to replace or upgrade its fleet of vessels and aircraft. Upon completion, the Deepwater program is to consist of 5 new classes of vessels—the National Security Cutter (NSC), Offshore Patrol Cutter (OPC), Fast Response Cutter (FRC), Short-Range Prosecutor (SRP), and Long-Range Interceptor (LRI); 1 new class of fixed-wing aircraft—the Maritime Patrol Aircraft (MPA); 1 new class of unmanned aerial vehicles—the Vertical Unmanned Aerial Vehicle (VUAV); 2 classes of upgraded helicopters—the Medium- Range Recovery Helicopter (MRR) and the Multi-Mission Cutter Helicopter (MCH); and 1 class of upgraded fixed-wing aircraft—the Long- Range Surveillance Aircraft (LRS). Figure 5 illustrates the 10 classes of Deepwater assets. Our preliminary observations indicated that, as of January 2007, of the 10 classes of Deepwater assets to be acquired or upgraded, the delivery record for first-in-class assets (that is, the first of multiple aircraft or vessels to be delivered in each class) was mixed. Specifically, 7 of the 10 asset classes were on or ahead of schedule. Among these, 5 first-in-class assets had been delivered on or ahead of schedule; and 2 others remained on schedule but their planned delivery dates were in 2009 or beyond. In contrast, 3 Deepwater asset classes were behind schedule due to various problems related to designs, technology, or funding. Using the 2005 Deepwater Acquisition Program Baseline as the baseline, figure 6 indicates, for each asset class, whether delivery of the first in class asset was ahead of schedule, on schedule, or behind schedule as of January 2007. As part of our ongoing work, we are analyzing Coast Guard planning documents to evaluate the current estimates of Deepwater asset delivery dates. Several factors add to the uncertainty about the delivery schedule of Deepwater assets. First, the Coast Guard is still in the early phases of the 25-year Deepwater acquisition program and the potential for changes in the program over such a lengthy period of time make it difficult to forecast the ability of the Coast Guard to acquire future Deepwater assets according to its published schedule. For example, technology changes since the award of the original Deepwater contract in 2002 have already, in part, delayed delivery of the VUAV, and the Coast Guard is currently studying the potential use of an alternative unmanned aerial vehicle. Second, changes to funding levels can impact the future delivery of Deepwater assets. For example, despite earlier plans, the fiscal year 2008 Department of Homeland Security congressional budget justification indicates that the Coast Guard does not plan to request funding for some Deepwater assets in FY 2008, such as the OPC and the VUAV. Acquisition of these two Deepwater assets has now been delayed until FY 2013, at the earliest. Finally, the Coast Guard has recently made a number of program management and asset-specific changes that could impact the delivery schedules for its Deepwater assets. For example, the Coast Guard has begun to bring all acquisition efforts under one organization. Further, the Coast Guard announced that it has terminated acquisition of the FRC-B, an off-the-shelf patrol boat that is intended to serve as an interim replacement for the Coast Guard’s deteriorating fleet of 110-foot patrol boats, through the system integrator and plans to assign responsibility for the project to the Coast Guard’s acquisition directorate. These types of programmatic changes will take time to implement, and thus add to uncertainty about the specific delivery dates of certain Deepwater assets. In 2001, we described the Deepwater program as “risky” due to the unique, untried acquisition strategy for a project of this magnitude within the Coast Guard. The Coast Guard used a system-of-systems approach to replace or upgrade assets with a single, integrated package of aircraft, vessels, and unmanned aerial vehicles, to be linked through systems that provide C4ISR and supporting logistics. In a system of systems, the deliveries of Deepwater assets are interdependent, thus schedule slippages and uncertainties associated with potential changes in the design and capabilities of any one asset increases the overall risk that the Coast Guard might not meet its expanded homeland security missions within given budget parameters and milestone dates. The Coast Guard also used a systems integrator—which can give the contractor extensive involvement in requirements development, design, and source selection of major system and subsystem subcontractors. The Deepwater program is also a performance-based acquisition, meaning that it is structured around the results to be achieved rather than the manner in which the work is performed. If performance-based acquisitions are not appropriately planned and structured, there is an increased risk that the government may receive products or services that are over cost estimates, delivered late, and of unacceptable quality. In 2004 and in subsequent assessments in 2005 and 2006, we reported concerns about the Deepwater program related to three main areas— program management, contractor accountability, and cost control. The Coast Guard’s ability to effectively manage the program has been challenged by staffing shortfalls and poor communication and collaboration among Deepwater program staff, contractors, and field personnel who operate and maintain the assets. Despite documented problems in schedule, performance, cost control, and contract administration, measures for holding the contractor accountable resulted in an award fee of $4 million (of the maximum $4.6 million) for the first year. Through the first 4 years of the Deepwater contract, the systems integrator received award fees that ranged from 87 percent to 92 percent of the total possible award fee (scores that ranged from “very good” to “excellent” based on Coast Guard criteria), for a total of over $16 million. Further, the program’s ability to control Deepwater costs is uncertain given the Coast Guard’s lack of detailed information on the contractor’s competition decisions. While the Coast Guard has taken some actions to improve program outcomes, our assessment of the program and its efforts to address our recommendations continues, and we plan to report on our findings later this year. In addition to the program management issues discussed above, there have been problems with the performance and design of Deepwater patrol boats that have created operational challenges for the Coast Guard. The Deepwater program’s bridging strategy to convert the legacy 110-foot patrol boats into 123-foot patrol boats has been unsuccessful. The Coast Guard had originally intended to convert all 49 of its 110-foot patrol boats into 123-foot patrol boats in order to increase the patrol boats’ annual operational hours and to provide additional capabilities, such as small boat stern launch and recovery and enhanced and improved C4ISR. However, the converted 123-foot patrol boats began to display deck cracking and hull buckling and developed shaft alignment problems, and the Coast Guard elected to stop the conversion process at eight hulls upon determining that the converted patrol boats would not meet their expanded post-September 11 operational requirements. These performance problems have had operational consequences for the Coast Guard. The hull performance problems with the 123-foot patrol boats led the Coast Guard to remove all of the eight converted normal 123- foot patrol boats from service effective November 30, 2006. The Commandant of the Coast Guard has stated that having reliable, safe cutters is “paramount” to executing the Coast Guard’s missions. Thus, removing these patrol boats from service affects the Coast Guard’s operations in its missions, such as search and rescue and alien and migrant interdiction. The Coast Guard is taking actions to mitigate the operational impacts resulting from the removal of the 123-foot patrol boats from service. Specifically, in recent testimony, the Commandant of the Coast Guard stated that the Coast Guard has taken the following actions: multicrewing eight of the 110-foot patrol boats with crews from the 123-foot patrol boats that have been removed from service so that patrol hours for these vessels can be increased; deploying other Coast Guard vessels to assist in missions formerly performed by the 123-foot patrol boats; securing permission from the U.S. Navy to continue using three 179- foot cutters on loan from the Navy (these were originally to be returned to the Navy in 2008) to supplement the Coast Guard’s patrol craft; and compressing the maintenance and upgrades on the remaining 110-foot patrol boats. The FRC, which was intended as a long-term replacement for the legacy patrol boats, has experienced design problems that have operational implications as well. As we reported in 2006, the Coast Guard suspended design work on the FRC due to design risks such as excessive weight and horsepower requirements. Coast Guard engineers raised concerns about the viability of the FRC design (which involved building the FRC’s hull, decks, and bulkheads out of composite materials rather than steel) beginning in January 2005. In February 2006, the Coast Guard suspended FRC design work after an independent design review by third party consultants demonstrated, among other things, that the FRC would be far heavier and less efficient than a typical patrol boat of similar length, in part, because it would need four engines to meet Coast Guard speed requirements. One operational challenge related to the FRC is that the Coast Guard will end up with two classes of FRCs. The first class of FRCs to be built would be based on an adapted design from a patrol boat already on the market to expedite delivery. The Coast Guard would then pursue development of a follow-on class that would be completely redesigned to address the problems in the original FRC design plans. Coast Guard officials recently estimated that the first FRC delivery will slip to fiscal year 2009, at the earliest, rather than 2007 as outlined in the 2005 Revised Deepwater Implementation Plan. Thus, the Coast Guard is also facing longer-term operational gaps related to its patrol boats. Outside Deepwater, one acquisition project included in the fiscal year 2008 budget is the Nationwide Automatic Identification System, a system designed to of identify, track, and communicate with vessels bound for or within U.S. waters and forwarding that information for additional analysis. NAIS uses a maritime digital communication system that transmits and receives vessel position and voyage data. The Coast Guard describes NAIS as its centerpiece in its effort to build Maritime Domain Awareness, its ability to know what is happening on the water. NAIS is not expected to reach full capability until 2014, when the system will be able to track ships as far as 2,000 nautical miles away and communicate with them when they are within 24 nautical miles of the U.S. coast. It is being implemented in three phases, the first of which is scheduled to be fully operational in September 2007. At that time, the Coast Guard expects to have the ability to track—but not communicate with—vessels in 55 ports and 9 coastal areas. The largest areas of the continental U.S. coastline that will remain without coverage after this first phase are the Pacific Northwest and Gulf coasts. The second phase calls for being able to track ships out to 50 nautical miles from the entire U.S. coast and communicate with them as far as 24 nautical miles out. This is the phase addressed in the fiscal year 2008 budget. The $12 million fiscal year 2008 AC&I request for NAIS is expected to pay for implementing the initial operating capability for phase two. The Coast Guard has received approval from the Department of Homeland Security to issue solicitations and award contracts for this initial capability, and the agency has held information sessions to gauge industry interest in participating and to help refine its statement of work for the initial solicitation. The initial solicitation will provide requirements for full receiving and transmitting capability for two sectors within one Coast Guard area and one sector in another area. With this infrastructure in place the Coast Guard expects to be able to test identification, tracking, and communication performance, including such features as the ability to determine if the vessel transmissions are accurately reflecting the actual location of a vessel. The Coast Guard is considering whether to require additional types of vessels to install and use the equipment needed for the Coast Guard to track vessels and communicate with them. Current regulations require certain vessels (such as commercial vessels over 65 feet in length) traveling on international voyages or within VTS areas to install and operate the transmission equipment. Vessels that are not subject to current regulations generally include noncommercial and fishing vessels and commercial vessels less than 65 feet long. This means that many domestic vessels are not required to transmit the vessel and voyage information and therefore will be invisible to the NAIS. The Coast Guard has indicated in the Federal Register that it is considering expanding the requirements to additional vessels. Another non-Deepwater project covered in the budget request is Rescue 21, the Coast Guard’s command, control, and communication infrastructure used primarily for search and rescue. The fiscal year 2008 AC&I budget includes $81 million for continued development of Rescue 21. In May 2006 we reported that shortcomings in Coast Guard’s contract management and oversight efforts contributed to program cost increases from $250 million in 1999 to $710.5 million in 2005 and delays in reaching full operating capability from 2006 to 2011. Our recommendations included better oversight of the project, completion of an integrated baseline review of existing contracts, and development of revised cost and schedule estimates. According to the Coast Guard, it has taken a series of actions in response, including program management reviews and oversight meetings, conducting integrated baseline reviews on existing contracts, and meeting regularly to assess project risks. According to the Coast Guard officials we met with, the contractor is currently on time and on budget for installing the full system in 11 Rescue 21 regions, including such regions as New Orleans, Long Island/New York, and Miami. The last of the 11 regions covered by current contracts is scheduled to be completed by October 2008. Contracts for the 25 regions that remain have not been signed. To keep to current project cost and schedule baselines, however, the Coast Guard has reduced the required performance of the system. Originally, Rescue 21 was supposed to limit coverage gaps to 2 percent, meaning that the system had to be able to capture distress calls in 98 percent of the area within 20 nautical miles of the coast and within navigable rivers and other waterways. The current contract calls for coverage gaps of less than 10 percent. Rescue 21 was also intended to have the capability to track Coast Guard vessels and aircraft and provide data communication with those assets. Neither the capability to track the Coast Guard’s own assets nor data communications is included in the current technology being installed. While the fiscal year 2008 budget request contains funding for specifically addressing the projects discussed above, certain other projects were judged by Coast Guard officials to be lower in priority and were not included. We have examined two of these areas in recent work—vessels for aids to navigation and domestic icebreaking activity, and vessels for icebreaking in polar areas. Last September, we completed work for this committee on the condition of Coast Guard aids-to-navigation (ATON) and icebreaking assets. More than half of these assets have reached or will be approaching the end of their designed service lives. In 2002, the Coast Guard proposed options for systematically rehabilitating or replacing 164 cutters and boats in these fleets after determining that the age, condition, and cost of operating these assets would diminish the capability of the Coast Guard to carry out ATON and domestic icebreaking missions. We noted that no funds had been allocated to pursue these options, apparently due to competing needs for replacing or rehabilitating other Coast Guard assets. These competing needs, reflected largely in the Coast Guard’s expensive and lengthy Deepwater asset replacement program, will continue for some time, as will other pressures on the federal budget. The Coast Guard is requesting no additional spending for ATON assets or infrastructure in fiscal year 2008. Without specific funding to move forward, the Coast Guard has attempted to break the project into smaller components and pursue potential funding from within the Coast Guard’s budget, focusing on the assets most in need of maintenance or replacement. In February 2006, the Coast Guard began a project to replace its fleet of 80 trailerable aids-to-navigation boats with new boats that have enhanced capabilities to do ATON work as well as other missions. According to a Coast Guard official, this acquisition would cost approximately $14.4 million if all 80 boats are purchased and would bring on new boats over a 5-year period as funds allow. The Coast Guard official responsible for the project said the Coast Guard intends to make the purchases using a funding stream appropriated for the maintenance of nonstandard boats that can be allocated to the boats with the most pressing maintenance or recapitalization needs. Availability of these funds, however, depends on the condition and maintenance needs of other nonstandard boats; if this funding has to be applied to meet other needs, such as unanticipated problems, it may not be available for purchasing these boats. In addition to carrying out their primary missions of ATON and domestic icebreaking, these assets have also been used in recent years for other missions such as homeland security. The Coast Guard’s ATON and domestic icebreakers saw a sharp increase in use for homeland security missions after the attacks of September 11, and while this trend has moderated somewhat, the use of some assets in these missions continues well above pre-September 11 levels. This increase is most prominent for domestic icebreakers, which are being operated more extensively for other purposes at times of year when no icebreaking needs to be done. Newer ATON vessels, which have greater multimission capabilities than older vessels, tend to be the ATON assets used the most for other missions. In addition to considering options for replacing or rehabilitating its ATON assets, the Coast Guard also has examined possibilities for outsourcing missions. In 2004 and 2006, the Coast Guard completed analyses of what ATON functions could be feasibly outsourced. Although possibilities for outsourcing were identified for further study, Coast Guard officials noted that outsourcing also carries potential disadvantages. For example, they said it could lead to a loss of “surge” capacity–that is the capacity to respond to emergencies or unusual situations. Coast Guard officials noted that outsourcing or finding a contractor to do work after an event such as Katrina is difficult due to the increased demand for their services as well as the fact that the labor pool may have been displaced. When a contractor is found, it usually takes a long time to get the work completed due to the backlog of work and tends to be very expensive. In addition, this surge capability may be needed for other missions, such as those that occur when ATON assets can be used to support search and rescue efforts. In the aftermath of Hurricane Katrina, for example, some ATON assets provided logistical support for first responders or transported stranded individuals. Coast Guard officials stated that after Hurricane Katrina, its own crews were able to begin work immediately to repair damaged aids and get the waterways open to maritime traffic again. Coast Guard officials also indicated that outsourcing may adversely affect the Coast Guard’s personnel structure by reducing opportunities to provide important experience for personnel to advance in their careers. The Coast Guard confronts ongoing maintenance challenges that have left its polar icebreaking capability diminished. The Coast Guard has two Polar-class icebreakers for breaking channels in the Antarctic. Both are reaching the end of their design service lives, and given the funding challenges associated with maintaining them, the Coast Guard decided to deactivate one of the two, the Polar Star, in 2006. This reduced icebreaking capability since only one Polar-class icebreaker, the Polar Sea, was available, and for the Polar Sea it increased maintenance needs while reducing time available to conduct maintenance. Coast Guard officials and others have reported that failure to address these challenges could leave the nation without heavy icebreaking capability and could jeopardize the investment made in the nation’s Antarctic Program. According to Coast Guard officials, the remaining Polar-class icebreaker’s age and increased operational tempo have left it unable to continue the mission in the long term without a substantial investment in maintenance and equipment renewal. One option, refurbishing the two existing Polar-class icebreakers for an additional 25 years of service, is estimated to cost between $552 million and $859 million. Another option, building new assets, would cost an estimated $600 million per vessel, according to Coast Guard officials. Coast Guard officials have begun planning a transition strategy to help keep the sole operating Polar-class icebreaker mission-capable until new or refurbished assets enter service, which would take an estimated 8 to 10 years. According to officials, this 10-year recapitalization plan will identify current and projected maintenance service needs and equipment renewal projects and associated costs, alternatives to address these needs, and timelines for completing these projects. Madam Chair and members of the subcommittee, this completes my statement for the record. For information about this statement, please Contact Stephen L. Caldwell, Acting 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. Individuals making key contributions to this testimony include Penny Augustine, Jonathan Bachman, Jason Berman, Steven Calvo, Jonathan Carver, Christopher Conrad, Adam Couvillion, Geoffrey Hamilton, John Hutton, Christopher Hatscher, Tonia Johnson, and Stan Stenersen. Appendix I provides a detailed list of Coast Guard performance results for the Coast Guard’s 11 programs from fiscal year 2002 through 2006. Coast Guard: Status of Efforts to Improve Deepwater Program Management and Address Operational Challenges. GAO-07-575T. Washington, D.C.: March 8, 2007. Coast Guard: Preliminary Observations on Deepwater Program Assets and Management Challenges. GAO-07-446T. Washington, D.C.: Feb. 15, 2007. Coast Guard: Coast Guard Efforts to Improve Management and Address Operational Challenges in the Deepwater Program. GAO-07-460T. Washington, D.C.: Feb. 14, 2007. Homeland Security: Observations on the Department of Homeland Security’s Acquisition Organization and on the Coast Guard’s Deepwater Program. GAO-07-453T. Washington, D.C.: Feb. 8, 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.: Sept. 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: Observations on the Preparation, Response, and Recovery Missions Related to Hurricane Katrina. GAO-06-903. Washington, D.C.: July 31, 2006. Maritime Security: Information-Sharing Efforts Are Improving. GAO-06-933T. Washington, D.C.: July 10, 2006. Coast Guard: Status of Deepwater Fast Response Cutter Design Efforts. GAO-06-764. Washington, D.C.: June 23, 2006. United States Coast Guard: Improvements Needed in Management and Oversight of Rescue System Acquisition. GAO-06-623. Washington, D.C.: May 31, 2006. Coast Guard: Changes in Deepwater Acquisition Plan Appear Sound, and Program Management Has Improved, but Continued Monitoring Is Warranted. GAO-06-546. Washington, D.C.: April 28, 2006. Coast Guard: Progress Being Made on Addressing Deepwater Legacy Asset Condition Issues and Program Management, but Acquisition Challenges Remain. GAO-05-757. Washington, D.C.: July 22, 2005. Coast Guard: Preliminary Observations on the Condition of Deepwater Legacy Assets and Acquisition Management Challenges. GAO-05-651T. Washington, D.C.: June 21, 2005. Maritime Security: Enhancements Made, but Implementation and Sustainability Remain Key Challenges. GAO-05-448T. Washington, D.C.: May 17, 2005. Coast Guard: Preliminary Observations on the Condition of Deepwater Legacy Assets and Acquisition Management Challenges. GAO-05-307T. Washington, D.C.: April 20, 2005. Coast Guard: Observations on Agency Priorities in Fiscal Year 2006 Budget Request. GAO-05-364T. Washington, D.C.: March 17, 2005. Coast Guard: Station Readiness Improving, but Resource Challenges and Management Concerns Remain. GAO-05-161. Washington, D.C.: January 31, 2005. Maritime Security: Better Planning Needed to Help Ensure an Effective Port Security Assessment Program. GAO-04-1062. Washington, D.C.: September 30, 2004. Maritime Security: Partnering Could Reduce Federal Costs and Facilitate Implementation of Automatic Vessel Identification System. GAO-04-868. Washington, D.C.: July 23, 2004. Maritime Security: Substantial Work Remains to Translate New Planning Requirements into Effective Port Security. GAO-04-838. Washington, D.C.: June 30, 2004. Coast Guard: Deepwater Program Acquisition Schedule Update Needed. GAO-04-695. Washington, D.C.: June 14, 2004. Coast Guard: Station Spending Requirements Met, but Better Processes Needed to Track Designated Funds. GAO-04-704. Washington, D.C.: May 28, 2004. Coast Guard: Key Management and Budget Challenges for Fiscal Year 2005 and Beyond. GAO-04-636T. Washington, D.C.: April 7, 2004. Coast Guard: Relationship between Resources Used and Results Achieved Needs to Be Clearer. GAO-04-432. Washington, D.C.: March 22, 2004. Contract Management: Coast Guard’s Deepwater Program Needs Increased Attention to Management and Contractor Oversight. GAO-04-380. Washington, D.C.: March 9, 2004. Coast Guard: New Communication System to Support Search and Rescue Faces Challenges. GAO-03-1111. Washington, D.C.: September 30, 2003. Maritime Security: Progress Made in Implementing Maritime Transportation Security Act, but Concerns Remain. GAO-03-1155T. Washington, D.C.: September 9, 2003. Coast Guard: Actions Needed to Mitigate Deepwater Project Risks. GAO-01-659T. Washington, D.C.: May 3, 2001. Coast Guard: Progress Being Made on Deepwater Project, but Risks Remain. GAO-01-564. Washington, D.C.: May 2, 2001. Coast Guard: Strategies for Procuring New Ships, Aircraft, and Other Assets. GAO/T-HEHS-99-116. Washington, D.C.: Mar. 16, 1999. Coast Guard’s Acquisition Management: Deepwater Project’s Justification and Affordability Need to Be Addressed More Thoroughly. GAO/RCED-99-6. Washington, D.C.: October 26, 1998. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Summary: The U. S. Coast Guard is a multimission agency responsible for maritime safety, security, and stewardship. It performs these missions, relating to homeland security and non-homeland security in U.S. ports and inland waterways, along the coasts, and on international waters. The President's budget request, including the request for the Coast Guard, was transmitted to Congress on February 5, 2007. This testimony, which is based on current and past GAO work, synthesizes the results of this work as it pertains to the following: budget requests and performance goals, organizational changes and related management initiatives, current acquisition efforts and challenges, and challenges related to performing traditional legacy missions. The Coast Guard's fiscal year 2008 budget request totals $8.7 billion, an increase of 3 percent over the enacted budget for fiscal year 2007 and a slowing of the agency's budget increases over the past 3 fiscal years. The Coast Guard expects to meet its performance goals in 6 of 11 mission areas in fiscal year 2006, down from 8 in 2005. Trends indicate increased homeland security activities have not prevented meeting non-homeland security goals. Two new reorganization efforts are under way. One creates a single command for all specialized deployable units, such as those for responding to pollution or terrorist incidents. However, experience with an effort to reorganize field units suggests there may be challenges in such matters as merging different operating approaches and addressing resource issues. The other effort merges the Coast Guard's various acquisition management efforts under a single Chief Acquisition Officer. The reorganization of acquisition management is in part a response to past troubled acquisition efforts. This change in the acquisition structure is too new to assess. Current major acquisitions include Deepwater for cutters and aircraft, the Rescue 21 communication system, and the National Automatic Identification System for vessel tracking. Deepwater and Rescue 21 have had schedule delays and performance reductions in the past, but the Coast Guard has been taking actions to improve oversight. Installation of equipment for the first phase of the National Automatic Identification System is under way, but the Coast Guard is still determining which types of vessels will have to participate. All three programs have also accumulated sizeable carryover balances of unspent moneys from previous years. Competing funding priorities have placed aging polar icebreakers and aids-to-navigation assets at risk. Many aids-to-navigation vessels are near the end of their service lives. The Coast Guard is exploring alternatives for replacement or extending their service. Similarly, high maintenance costs prompted the Coast Guard to take one of two Antarctic icebreakers out of service, increasing reliance on the remaining one.