In October 1998, we issued a report that raised concerns about the justification and the affordability of the Deepwater Replacement Project. Our major findings are summarized as follows: We found that the Coast Guard had understated the remaining useful life of its aircraft, and to a lesser extent, its ships. For example, the Coast Guard’s justification that was prepared in late 1995 estimated that its aircraft would need to be phased out starting in 1998. However, last year, the Coast Guard issued a study showing that its aircraft, with appropriate maintenance and upgrades, would be capable of operating until at least 2010 and likely beyond. The study’s findings suggest that in upgrading or replacing its deepwater ships and aircraft, the Coast Guard should give a relatively low priority to modernizing or replacing its aircraft. Also, since our report was issued, the Coast Guard has taken additional steps to assess the condition and the remaining useful life of its ships, including hiring naval architects to evaluate the condition of its deepwater ships and completing studies on two 378-foot cutters. According to a Deepwater Project official, contractors have also conducted their own evaluations of the condition of deepwater ships and aircraft to validate their condition. We found that the Coast Guard had not conducted a rigorous analysis comparing the current capabilities of its aircraft and ships with current and future requirements, as required by DOT’s and the Coast Guard’s own guidance. Although, the Coast Guard asserted that its current deepwater ships and aircraft were incapable of effectively performing future missions or meeting the future demand for its services, we were unable to validate these assertions. The Coast Guard had originally planned to complete a comparative assessment of the current capabilities and the functional needs of the future deepwater system by November 1998, but work on that assessment has slipped. The Coast Guard now plans to complete a baseline study of the capabilities of its existing fleet of ships and aircraft later this month; a comparative assessment is planned for completion in April 1999. We found that the Coast Guard lacked support for its estimates of the resource hours needed for its deepwater ships and aircraft to perform required missions. We attempted to verify the Coast Guard’s estimates of surface and aviation hours needed for deepwater law enforcement missions, which constitute over 95 percent of the total estimated mission-related hours for its ships and about 90 percent of the total estimated mission-related hours for its aircraft. We could not verify the reasonableness of these estimates because the sources for the data were not documented or available. An independent Presidential Roles and Missions Commission will study the Coast Guard’s roles and missions. The Commission plans to issue a report by October 1999 that will be used to gauge the demand for the Coast Guard’s services. The Coast Guard plans to use this study to recalculate the operating levels needed to meet the requirements of its missions when it issues a revised mission analysis that is scheduled for completion in January 2000. In our report on the Deepwater Project, we acknowledged that the Coast Guard is correct in starting now to explore alternative ways to modernize its deepwater ships and aircraft. However, we expressed concerns about proceeding with the project without a clear understanding of the current condition of its ships and aircraft and whether they are deficient in their capabilities and service demands. We recommended that the Coast Guard expedite the development and issuance of updated information from internal studies to the contractors involved in developing proposals for the project. The Coast Guard agreed with our recommendation and has made progress in developing data on the condition of its ships and aircraft; however, other data on its roles and missions and any shortfalls in its performance capabilities will not be available until later this year or early next year. Contractors, however, are now evaluating deepwater alternatives without such data, and they are scheduled to provide the Coast Guard with an analysis of alternatives for the Deepwater Project in March 1999 and conceptual designs for the system in December 1999. Without basic data on the needs of its deepwater ships and aircraft, there is increased risk that the contractors could develop alternatives or designs that would not be the most cost-effective to meet the Coast Guard’s needs for the Deepwater Project. The Coast Guard agreed with the importance of providing contractors with accurate and complete data as soon as possible; however, it also noted the importance of starting now due to the long lead times associated with a project of this magnitude. The agency has plans to provide the contractors with data on its roles and missions and performance shortfalls as soon as the information becomes available. Coast Guard officials believe that they will have data in enough time so as not to adversely affect the contractors’ proposals. We believe that this is a concern that requires close oversight. Our report also raised concerns about the project’s affordability. The estimated cost of the Deepwater Project could consume nearly all of the agency’s projected spending for its capital projects. By fiscal year 2002, when capital spending for the project could reach as much as $500 million a year, the project could consume 97 percent of the Coast Guard’s total projected capital budget, leaving little for other capital projects and expenditures. Unless the Congress grants additional funds, which under current budget laws could mean reducing funding for other agencies or programs, the Coast Guard’s other capital projects could be severely affected. In January 1999, Coast Guard officials told us that they plan to address the Deepwater Project’s affordability issue in two ways. First, they believe that competition among three teams of contractors to develop alternative deepwater systems will help minimize the project’s life-cycle costs because the proposed costs will be one key factor in the selection of the winning proposal. Second, they said that the agency’s independent evaluation group will analyze various funding alternatives to determine what impact they would have on the project. The group will examine the most cost-effective funding amounts for the project as well as the minimum amount that is needed each year. However, until the Coast Guard develops its revised mission analysis in early 2000 and the contractors provide their cost estimates for various alternatives, it will not be known whether the affordability issue has been adequately addressed. The Coast Guard’s draft Agency Capital Plan, issued in January 1999, also identifies strategies for dealing with the affordability of the Deepwater Project. The plan describes the agency’s long-term capital requirements and identifies strategies for dealing with affordability issues, such as extending the service life of the Coast Guard’s ships and aircraft and replacing equipment with fewer, more capable assets. As an example, extending the service life of its aircraft could result in significant cost savings. A Coast Guard study estimates that between $257 million and $297 million in upgrades and maintenance could extend the service lives of current deepwater aircraft by 11 to 28 years longer than the Coast Guard’s initial estimate of when these aircraft would need to be phased out.However, the estimated cost to upgrade does not include the increased cost of operating older aircraft. The Coast Guard estimates that a one-for-one replacement would cost $3.8 billion to replace the same aircraft, or about $3.5 billion more than the option to extend the aircraft’s service life. In addition, the Coast Guard’s Director of Resources told us that, as part of the capital planning process, the agency will prioritize projects rather than give them the equal priority that it had previously done. This strategy would involve making trade-offs between projects. For example, the Coast Guard could concentrate its resources on buying more ships over 2 to 3 years and buying fewer aircraft or other equipment. After the ships have been bought, the agency could then focus its resources on buying the aircraft or other equipment and reducing the amount of resources used to buy ships. The Coast Guard believes that this approach could help it deal with “spikes” in the agency’s capital needs during a period of fiscal constraint. While these strategies will help the Coast Guard deal with affordability issues, it is uncertain whether they will fully address the affordability issues raised by the Deepwater Project. The Coast Guard received about $377 million in emergency funds for fiscal year 1999, most of which are aimed at reducing the use of illegal drugs in the United States. The Congress directed that these funds be used in the following ways: About $271.7 million was provided for expanding the Coast Guard’s anti-drug program. The Congress directed the Coast Guard to use $217.4 million to buy new equipment; $44.3 million to operate the new equipment and expand drug interdiction activities; and $10 million for training Coast Guard reservists and for research, development, test, and evaluation. The Coast Guard plans to obligate about $195 million of these funds in fiscal year 1999, with the balance to be obligated in fiscal year 2000. Another $72 million was provided for maintaining the overall military readiness of the Coast Guard. According to a Coast Guard official, the funds will allow the agency to carry out its basic missions and responsibilities, such as law enforcement and search and rescue activities. All of these funds will be expended in fiscal year 1999. Another $12.6 million was provided for repairing damage to equipment and facilities caused by Hurricane Georges. The Coast Guard plans to spend about $7.5 million of these funds in fiscal year 1999 and the remaining $5.1 million the following year. Finally, $20.5 million was provided for ensuring that the Coast Guard’s computer systems do not have Year 2000 computer problems. The agency intends to expend all of these funds in fiscal year 1999. The Coast Guard plans to acquire a variety of new equipment to help expand its anti-drug program. For example, it plans to purchase 15 new 87-foot patrol boats at a cost of $66.1 million. This purchase will allow it to deploy some of its larger 110-foot patrol boats in the Caribbean for counter-narcotics operations.