	Work Remains to Be Done Regarding the Justification and the Affordability of the Deepwater Replacement Project

In October 1998, we issued a report that raised concerns about the justification and the affordability of the Deepwater Replacement Project. 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. 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. 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. 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. 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. 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. 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 also plans to spend $29.3 million to purchase new sensors and communications systems for its cutters and patrol boats, and it plans to reactivate two ships for $20 million to provide command and control and logistics support for its drug-fighting efforts. The Deepwater Project and the Expansion of Anti-Drug Efforts Heighten the Challenges for Addressing Budget Constraints

While the Coast Guard received a sizable emergency appropriation for fiscal year 1999, which was largely to expand its anti-drug efforts, the agency will need additional funding to sustain these higher operating levels in future years. As we pointed out in our 1997 report, the agency may have to look beyond efficiency measures for cost-cutting options. Driven largely by the potential magnitude and the impact of the Deepwater Project on future budgets, the administration has renewed efforts to evaluate the roles and the missions of the Coast Guard and to push for additional user fees. The Coast Guard plans to have four more boats in operation by the end of fiscal year 2000. The Coast Guard plans to obligate all funds and complete the testing this fiscal year. This equipment will improve the Coast Guard’s ability to detect and classify targets at sea. Additional copies are $2 each.
Why GAO Did This Study

Pursuant to a congressional request, GAO discussed the Coast Guard's budgets for fiscal years 1999 and 2000, focusing on the: (1) Coast Guard's progress in justifying the Deepwater Replacement Project and addressing GAO's concerns about its affordability; (2) Coast Guard's plans for spending its fiscal year (FY) 1999 emergency funds; and (3) budget strategies the agency may have to consider in the future to address continuing budget constraints.

What GAO Found

GAO noted that: (1) while the Coast Guard has made progress in addressing GAO's concerns about the justification and the affordability of the Deepwater Project, additional work is needed; (2) the Coast Guard had not sufficiently justified the project in that it lacked accurate and complete information on the condition and the performance shortcomings of its ships and aircraft and the resource hours needed to fulfill its missions; (3) the Coast Guard and its contractors are currently developing this information, but some of it will not be available until later this year; (4) in the meantime, contractors working on the conceptual design for the project will be assessing alternatives without the benefit of current data on the performance shortcomings of the agency's ships and aircraft and the resource hours needed to fulfill its missions; (5) the Coast Guard plans to have performance data on its current ships and aircraft by April 1999, and the agency plans to provide that information to contractors at that time; (6) GAO reported that if the cost of the Deepwater Project approaches the agency's planning estimate of $500 million dollars annually, it would consume more than the agency now spends for all capital projects and leave little funding for other critical capital needs; (7) Coast Guard officials said that competition among contractors would cut costs and more closely align the potential cost of the project with probable funding levels; (8) however, until the Coast Guard develops its new justification for the Deepwater Project in early 2000 and contractors provide their cost estimates for various alternatives, neither GAO nor the Coast Guard can tell whether the affordability issue has been adequately addressed; (9) by the end of FY 1999, the Coast Guard plans to spend about 78 percent of the $377 million in emergency funds that it received, primarily to expand its anti-drug efforts; (10) as directed by Congress, it has begun buying more patrol boats, reactivating its surveillance aircraft and ships, and obtaining additional equipment to improve its ability to detect drug smugglers and to coordinate its anti-drug activities; (11) in the future, the agency might have to develop different budget strategies and approaches to live within its budget; (12) typically, the Coast Guard has adopted a budget strategy that relies heavily on cost-cutting initiatives to improve efficiency; and (13) GAO's work has shown that additional cost-cutting measures to improve efficiency are possible, and the Coast Guard should renew its efforts in this area.