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.