However, 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 increases the risk that the contractors, now developing proposals for the project, 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 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. 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. 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. Furthermore, the Coast Guard will have additional time to demonstrate that it has put in place a prudent strategy for dealing with the cost of the project within probable funding levels—a practice that becomes highly critical during this time of fiscal constraint. Coast Guard Faces Potential Funding Shortages for Capital Projects Unless It Develops Better Plans and Strategies

The ability of the Coast Guard to meet its future capital needs depends largely on the funding requirements for the Deepwater Project. For example, if the Coast Guard’s funding needs for the Deepwater Project and other new projects amount to $300 million annually beginning in 2002, the Coast Guard will experience a funding gap of about $100 million in fiscal year 2002 but little or no gap in fiscal years 2003 and 2004. If, on the other hand, funding requirements for the Deepwater Project approach its initial estimate of $500 million annually beginning in 2002, then the Coast Guard will face a substantial funding gap— exceeding $200 million in 2002 and beyond. Status of the Coast Guard’s Capital Planning Efforts

The Coast Guard is developing a new capital planning process that, when implemented, could improve its ability to set priorities and manage its capital projects and ultimately provide a workable approach for acquiring the ships and aircraft it needs within its approved budget. Begun in 1997, this effort is directed at aligning capital needs with probable levels of funding. This plan is linked to OMB budget targets and used to make programming and budgeting decisions over a 5-year budget cycle. To be successful, the agency must first satisfactorily justify the need for modernizing or replacing its deepwater ships and aircraft.
Why GAO Did This Study

Pursuant to a congressional request, GAO discussed the Coast Guard's plans for modernizing its ships, aircraft, and other capital assets needed to carry out its missions, as well as the agency's plans and strategies to fund these needs, focusing on the Coast Guard's progress in: (1) justifying the Deepwater Capability Replacement Project and addressing GAO's concerns about its affordability; and (2) developing strategies and plans for funding its capital needs within a constrained fiscal environment.

What GAO Found

GAO noted that: (1) the Coast Guard has not yet sufficiently justified the Deepwater Project, in that accurate and complete information is lacking on the performance shortcomings of its ships and aircraft and the resource hours needed to fulfill its missions; (2) proceeding without these key data increases the risk that contractors will develop alternatives that are not the most cost-effective to meet the needs of the project; (3) the Coast Guard and its contractors are developing this information, but some of it will not be available until later this year; (4) GAO also reported that if the cost of the Deepwater Project approaches the agency's initial estimate of $500 million annually, it would consume more than the agency now spends for all capital projects and leave little funding for other critical needs; (5) Coast Guard officials believe that competition among contractors will reduce the cost of the Deepwater Project and more closely align its potential cost with probable funding levels; (6) however, until the Coast Guard develops its new justification for the project in early 2000 and contractors provide their cost estimates for various alternatives, the Coast Guard will not know whether the affordability issue has been adequately addressed; (7) the costs of the Deepwater Project, together with funds needed to complete all other ongoing capital projects, may outstrip the Coast Guard's ability to pay for them; (8) the Office of Management and Budget (OMB) proposes freezing the Coast Guard's budget for capital spending at $485 million annually through fiscal year 2004; (9) if the Deepwater Project requires annual funding levels of $500 million, this cost, coupled with the costs of ongoing capital projects, would exceed the OMB target by about $300 million in 2002; (10) with good planning, renewed efforts to reduce costs, and better information on the useful life of its ships and aircraft, the Coast Guard may be able to prioritize its needs and minimize future capital needs; and (11) the Coast Guard is now developing a new plan and budget strategies for dealing with its capital funding needs in an environment of fiscal constraint, but putting these approaches in place may take several years and their effectiveness is uncertain.