Coast Guard: Budget and Management Challenges for 2003 and Beyond
(19-MAR-02, GAO-02-538T).					 
								 
Like many federal agencies, the Coast Guard's priorities were	 
dramatically altered by the events of September 11, 2001. Its	 
fiscal year 2003 budget request of $7.3 billion is a 36 percent  
increase from the previous year, with an increased emphasis on	 
homeland security. At the same time, the Coast Guard has other	 
responsibilities, ranging from boater safety to icebreaking. The 
events of September 11th caused a substantial shift of effort	 
toward homeland security and away from other missions. As	 
resources were shifted to meet these needs, the law enforcement  
mission area, which consists mainly of drug and migrant 	 
interdiction and fisheries enforcement, saw a dramatic drop in	 
mission capability. The Coast Guard's fiscal year 2003 budget	 
request reflects an attempt to maintain and enhance heightened	 
levels of funding for homeland security while also increasing	 
funding for all other Coast Guard missions beyond fiscal year	 
2002 levels. The Coast Guard faces substantial management	 
challenges in translating its requested funding increases into	 
increased service levels in its key mission areas. For example,  
workforce issues present a daunting challenge. If the FY 2003	 
budget request is approved, the Coast Guard will add 2,200	 
full-time positions, retain and build on the expertise and skills
of its current workforce, and deal with already high attrition	 
rates and looming civilian retirements. Further, the Coast Guard 
has not yet determined the long term level of security required  
to protect the nation's major ports. These challenges mean that  
in the short term giving the Coast Guard additional funding does 
not immediately translate into an increased ability to carry out 
its missions.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-538T					        
    ACCNO:   A02905						        
  TITLE:     Coast Guard: Budget and Management Challenges for 2003   
and Beyond							 
     DATE:   03/19/2002 
  SUBJECT:   Agency missions					 
	     Budget functions					 
	     Counterterrorism					 
	     National defense operations			 
	     Planning programming budgeting			 
	     Coast Guard Deepwater Project			 
	     Coast Guard National Distress System		 
	     Coast Guard Operation Neptune Shield		 
	     Coast Guard Sea Marshal Program			 

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GAO-02-538T
     
Testimony Before the Subcommittee on Oceans and Fisheries, Committee on
Commerce, Science, and Transportation, U. S. Senate

United States General Accounting Office

GAO For Release on Delivery Expected at 3: 00 p. m. EST Tuesday

March 19, 2002 COAST GUARD Budget and Management Challenges for 2003 and
Beyond

Statement of JayEtta Z. Hecker Director, Physical Infrastructure Issues

GAO- 02- 538T

Page 1 GAO- 02- 538T

Mr. Chairman and Members of the Subcommittee: We are pleased to be here
today to discuss the challenges that the Coast Guard faces in its fiscal
year 2003 and future budgets and the critical management issues it must
resolve as it focuses relatively more of its resources on homeland security.
Like many federal agencies, the Coast Guard?s priorities were dramatically
altered by the events of September 11, 2001. Its fiscal year 2003 budget
request of $7.3 billion is a 36 percent increase from the previous year,
part of which is for an increased emphasis on homeland security. At the same
time, the Coast Guard has many other ongoing responsibilities, ranging from
boater safety to icebreaking. How- and whether- the Coast Guard can continue
to meet all of these responsibilities is a matter of concern to the
Congress.

My testimony today, which is based on recently completed and ongoing work,
addresses three topics: (1) the extent to which the homeland security
measures undertaken by the Coast Guard since September 11th affected the
agency?s multiple missions; (2) how these changes are reflected in the
requested fiscal year 2003 funding levels for each of the Coast Guard?s
major missions, and (3) the challenges the Coast Guard faces in 2003 and
beyond in continuing to perform all of these missions. Appendix I describes
the scope and methodology of our review.

In summary, our work shows the following:  The events of September 11th
caused a substantial shift of effort toward

homeland security and away from certain other missions. Cutters and
aircraft, used mainly on the high seas, were redeployed closer to major
harbors; security was strengthened for potential terrorist targets such as
oil refineries, cruise ship terminals, and port facilities; and security
patrols and monitoring of ships in port were stepped up. As resources were
shifted to meet these needs, the law enforcement mission area, which
consists mainly of drug and migrant interdiction and fisheries enforcement,
saw the most dramatic drop in mission capability, according to the Coast
Guard. Although activity levels for law enforcement and other mission areas
are once again on the rise, they have not all reached levels of activity
that existed before the terrorist attacks.

 The Coast Guard?s fiscal year 2003 budget request reflects an attempt to
maintain and enhance heightened levels of funding for homeland security
while also increasing funding for all other Coast Guard missions beyond
fiscal year 2002 levels. About two- thirds of the requested increase of $1.9
billion would be used for future retirement payments, in keeping with

Page 2 GAO- 02- 538T

proposed legislation that would make agencies more accountable for funding
such obligations on an ongoing basis. The remaining one- third of the
requested increase, or $680 million, would be used for maintaining and
enhancing missions. Marine safety and security, the mission area that
encompasses most of the Coast Guard?s homeland security activities, is
slated to receive the largest percentage increase in operating expenses of
any mission area- 20 percent, or $180 million. The remaining mission areas
would each receive an increase over fiscal year 2002 levels of at least 12
percent. A substantial part of the increase in each mission area would go to
pay increases and other entitlements, but we have not yet determined these
amounts.

 The Coast Guard faces substantial management challenges in translating its
requested funding increases into increased service levels in its key mission
areas. When the Coast Guard received supplemental fiscal year 2002 funding
after September 11th, it increased services by stretching available
equipment and personnel to the limit, according to Coast Guard personnel.
Additional cutters, aircraft, and patrol boats are not immediately
available. Workforce issues present a daunting challenge: the Coast Guard
will add an additional 2,200 full- time positions in the fiscal year 2003 1
(if the budget request is approved), retain and build the expertise and
skills of its current workforce, and deal with issues of already high
attrition rates and looming civilian retirements. Finally, the Coast Guard
has not yet determined the level of security required in the long term to
protect the nation?s major ports. These challenges mean that in the short
term giving the Coast Guard additional funding does not immediately
translate into an increased ability to carry out its missions.

The Coast Guard, a Department of Transportation agency, is involved in seven
main mission or program areas: (1) enforcing maritime laws and treaties, (2)
search and rescue (3) aids to navigation, (4) marine environmental
protection, (5) marine safety and security (including homeland security),
(6) defense readiness, and (7) ice operations. Most of the Coast Guard?s
services are provided through a number of small boat stations, air stations,
marine safety offices, and other facilities and assets located in coastal
areas, at sea, and near other waterways like the Great

1 With funding provided in the Coast Guard?s $209 million supplemental for
fiscal year 2002, the agency plans to hire people during fiscal 2002 to fill
843 of the 2, 200 positions. Background

Page 3 GAO- 02- 538T

Lakes. Its equipment in operation today includes 228 cutters, approximately
1, 200 small patrol and rescue boats, and 200 aircraft.

As an organization that is also part of the armed services, the Coast Guard
has both military and civilian positions. At the end of fiscal year 2001,
the agency had over 39,000 total full- time positions- about 33,700 military
and about 5,700 civilians. The Coast Guard also has about 8,000 reservists
who support the national military strategy and provide additional
operational support and surge capacity during emergencies, such as natural
disasters. Also, about 34,000 volunteer auxiliary personnel assist in a wide
range of activities ranging from search and rescue to boating safety
education.

Overall, after adjusting for the effects of inflation, the Coast Guard?s
total budget grew by 32 percent between fiscal years 1993 and 2002. During
nearly half this period, however, in real terms the budget was basically
flat. As figure 1 shows, in constant 2001 dollars, the Coast Guard?s budget
remained essentially static from fiscal year 1993 to 1998. Significant
increases have occurred since fiscal year 1998.

Figure 1: Annual Budgets for the Coast Guard, Fiscal Years 1993- 2002

(Dollars in Millions)

Note: Amounts are presented in 2001 dollars. Source: GAO analysis of data
provided by the Office of Management and Budget.

0 1,000

2,000 3,000

4,000 5,000

6,000 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02

Fisc a l Ye a r

Page 4 GAO- 02- 538T

The Coast Guard?s initial budget request for fiscal year 2002, submitted
early in 2001, represents a pre- September 11th picture of how the Coast
Guard intended to operate. As figure 2 shows, law enforcement was by far the
largest mission category, with budgeted expenses estimated at $1. 47
billion, or about 43 percent of total operating expenses. Marine safety and
security, at $456 million, was about 13 percent of the total. 2

Figure 2: Distribution of Budgeted Operating Expenses by Mission, Fiscal
Year 2002 Budget Request

(Dollars in Millions)

Source: GAO analysis of data provided by the United States Coast Guard.

Following the events of September 11th, the Congress provided the Coast
Guard with a supplemental appropriation of $209 million. After it received
this additional amount, the Coast Guard revised the budget allocation for

2 Budget allocations such as these are estimates, not final amounts. The
Coast Guard?s accounting system does not track cost by program area, so
there is no precise way to measure the extent to which actual expenditures
in each program area mirror these budget allocation projections. Coast Guard
officials note that as an agency with multiple missions, the Coast Guard
must be flexible in shifting resources from one priority to another. This
means that resources such as cutters may be projected for one mission but,
depending on circumstances, actually be used for another more pressing need.

0 200

400 600

800 1,000

1,200 1,400

Law Enforcement Aids to Navigation

Marine Safety & Security Search & Rescue

Marine Environmental Protection Ice Operations

Defense Readiness Requested 2002 Budget Authority

Page 5 GAO- 02- 538T

its various missions. As figure 3 shows, the revision produced a doubling of
projected expenses for marine safety and security and smaller increases for
aids to navigation and search and rescue. By contrast, projected expenses
for law enforcement, ice operations, and marine environmental protection
were reduced.

Figure 3: Comparison of Initial and Final Operating Expense Projections by
Mission, Fiscal Year 2002

(Dollars in Millions)

Source: GAO analysis of data provided by the United States Coast Guard.

For the Coast Guard, the events of September 11th produced a dramatic shift
in resources used for certain missions. The Coast Guard responded quickly to
the attacks with a number of significant steps to ensure that the nation?s
ports remained open and operating. The Coast Guard relocated vessels,
aircraft, and personnel from traditional missions- especially law
enforcement- to enhance security activities. Subsequently, the Coast Guard
has returned some of these resources to their more traditional nonsecurity
missions, but in some areas, it faces challenges in restoring the level of
activity to what it had been. Events of September

11th Substantially Affected Some Coast Guard Missions

0 200

400 600

800 1,000

1,200 1,400

Law Enforcement Aids to Navigation

Marine Safety & Security Search & Rescue

Marine Environmental Protection Ice Operations

Defense Readiness Requested 2002 Budget Authority Enacted 2002 Budget
Authority

Page 6 GAO- 02- 538T

After September 11th, the Coast Guard responded by positioning vessels,
aircraft, and personnel not only to provide security, but also to increase
visibility in key maritime locations. Key actions taken included the
following:

 Recalling all cutters that were conducting offshore law enforcement
patrols for drug, immigration, and fisheries enforcement and repositioning
them at entrances to such ports as Boston, Los Angeles, Miami, New York, and
San Francisco. The Coast Guard also used smaller assets, such as patrol
boats, motor lifeboats, and aircraft, to supplement increased port security
activities. The smaller boats were used mainly for conducting security
patrols within port facilities and in fact, became the port?s ?cop on the
beat, 3 ? according to Coast Guard officials.

 Establishing a new National Vessel Movement Center to track the movement
of all foreign- flagged vessels entering U. S. ports of call. The center is
now the clearinghouse for vessel information, such as type of cargo and crew
manifest. All commercial vessels over 300 gross tons are required to report
this information to the center 96 hours in advance of their arrival. This
information is then provided to the Coast Guard?s local marine safety
offices, which use a risk- based decision model to decide if a specific
vessel is considered high interest, thus requiring an escort or additional
security and safety inspections or oversight.

 Implementing a series of limited risk assessments that identified high-
risk infrastructure and facilities within specific areas of operation. 4
These assessments, which were done by Coast Guard marine safety office
personnel at individual ports, were the basis for deploying small boats for
security patrols inside harbors and focused on identified high- threat
facilities.

 Adopting a temporary regulation prohibiting any private vessel from
approaching within 100 yards of Navy ships without permission. The Coast
Guard is proposing that such a restriction become permanent.

3 The Coast Guard reported that for some facilities there were requirements
for conducting continuous 24- hour patrols, and this caused a great strain
on both assets and personnel. 4 Examples of high- risk infrastructure
include fossil fuel processing and storage facilities, nuclear power plants,
liquid natural gas transfer facilities, naval ships and facilities, cruise
ships, and terminal facilities. Protecting Port Facilities

Became a Top Priority

Page 7 GAO- 02- 538T

 Activating and deploying the Coast Guard?s port security units 5 to help
support local port security patrols in high- threat areas. To maintain surge
capacity and to deploy these units overseas, the Coast Guard also formed
five interim marine security and safety teams, using full- time Coast Guard
personnel trained in tactical law enforcement and based in Yorktown,
Virginia. The Coast Guard is considering adding more of these teams in the
future.

 Recalling about 2,700 reservists to active duty. Today, more than 1,800
are still on active duty. According to Coast Guard officials, reservists
have played a major role in allowing the Coast Guard to respond to both its
homeland security and other mission functions. Their functions include
staffing boat crews and port security units and performing administrative
functions in place of active duty personnel who were pressed into new
responsibilities elsewhere.

The precise extent to which these responses changed the Coast Guard?s
allocation of mission resources cannot be determined, mainly because the
Coast Guard is still gathering and analyzing the data. However, in our
discussions with Coast Guard personnel, we were told that law enforcement
activities, such as fisheries and counter drug patrols, saw the greatest
reduction in actual services. For example:

 A number of Coast Guard districts have reported that security activities
have impacted their ability to conduct fisheries enforcement missions, such
as boarding of recreational and commercial fishing vessels. For example,
District 1 6 reported a drop in fishing boat boardings in the New England
fishing grounds, from 300 in the first quarter of fiscal year 2001 to just
38 during the first quarter of fiscal year 2002. Also, law
enforcementrelated civil penalties and fines were down substantially for the
District as well.

5 The Coast Guard?s port security units are specially trained reserve
personnel that provide port security for U. S. Navy vessels deployed
oversees. 6 District 1 is headquartered in Boston, Massachusetts and is
responsible for Connecticut, Massachusetts, Maine, New Hampshire, New
Jersey, New York, Rhode Island, and Vermont. Enhanced Security

Activities Drew Resources From Other Missions

Page 8 GAO- 02- 538T

 Districts also reported reduced drug interdiction efforts. For example,
prior to September 11th, District 11 7 would send 110- foot patrol boats,
which serve as the District?s primary boats for drug patrols, from Alameda
to areas off the southern California and Mexican shores. The District had to
eliminate these patrols when the boats were reallocated for security
functions.

 Some districts had to re- allocate personnel to specific security
activities. For example, District 13 8 reallocated personnel from small boat
stations along the Washington coast to help implement added security
measures in ports in Puget Sound. District 13 staff reported that patrol
boats and small boats experienced a large increase in operational hours and
that Coast Guard personnel who were assigned to boat stations experienced a
marked increase in work hours from 60 to 80 hours per week. Other districts
reported similar strains on personnel.

Although the Coast Guard drew resources from many mission areas, some areas
were less negatively affected than law enforcement in continuing to meet
mission requirements. For example, although the Coast Guard had to put
search and rescue vessels and personnel into security roles, doing so did
not negatively affect search and rescue activities or detract from saving
lives, according to the Coast Guard. The main reason was that the terrorist
attacks occurred when the busiest part of the search and rescue season was
essentially over. In addition, during the initial response, there were no
major storms and the weather was warmer, requiring less icebreaker services,
search and rescue calls, and oil tanker escorts.

In an attempt to restore capabilities in its key mission areas, the Coast
Guard has begun Operation NEPTUNE SHIELD, which has a goal of performing new
enhanced security missions, while at the same time returning resources to
other missions such as law enforcement, search and rescue, defense
readiness, and marine safety. Also, in March 2002, the Coast Guard
Commandant issued guidance 9 that instructed his Atlantic

7 District 11 is headquartered in Alameda, California and is responsible for
Arizona, California, Nevada, and Utah. 8 District 13 is headquartered in
Seattle, Washington and is responsible for Washington, Oregon, Idaho, and
Montana. 9 Operational and Marine Safety Mission Planning Guidance amended
the fiscal year 2002 Law Enforcement Planning Guidance dated July 16, 2001
and COMDT COGARD Washington DC// G- M// P 042025Z of October 1, 2001. Some
Resources Are

Returning to Non- Security Missions, but Others Are Not

Page 9 GAO- 02- 538T

and Pacific Area Commanders to plan and manage assets and personnel for
long- term, sustainable operating tempos more in line with traditional
mission functions, while still maintaining heightened security. Coast Guard
officials from both the Atlantic and Pacific Areas have started implementing
this guidance. As a result, deepwater cutters and aircraft are returning to
traditional mission allocations but are still not at preSeptember 11th
levels. For example, because the Atlantic and Pacific areas each continue to
allocate a deepwater cutter for coastal security patrols, the amount of time
that will be spent on counter- drug and marine resources patrols is still
below pre- September 11th levels.

While a return to the pre- September 11th activity pattern is under way for
deepwater cutters, district patrol boats and small boats remain deployed
closer to their post- September 11th levels. Because the Coast Guard has
implemented a number of new security activities or has increased the level
of normal port security activities, the Coast Guard has continued to use
boats and personnel from small boats stations and other areas for security
missions. These missions include performing security inspections of cargo
containers and port facilities, escorting or boarding high- interest
commercial vessels, escorting Navy ships and cruise ships, establishing and
enforcing new security zones, and conducting harbor security patrols. To
relieve or augment its current small boats now performing security
functions, the Coast Guard plans to purchase 70 new homeland security
response boats with supplemental funds appropriated for fiscal year 2002 and
fiscal year 2003 funding. 10 According to the Coast Guard, these new boats
will increase the capabilities of existing stations at critical ports, while
others will provide armed platforms for the agency?s newly established
marine safety and security teams.

One program, San Francisco?s sea marshal program, illustrates the continued
strain occurring at local ports. This program uses armed Coast Guard
personnel to board and secure steering control locations aboard high-
interest vessels. Implementing this program has affected the ability of the
local Coast Guard office to accomplish its traditional missions in at least
two ways, according to Coast Guard officials. First, the program has created
new vessel boarding training needs for the sea marshal personnel. Second,
the program requires the use of Coast Guard small boats in

10 The fiscal year 2002 supplemental appropriation provided funds to
purchase 42 homeland security response boats. The fiscal year 2003 request
includes funding in the operating expenses account to purchase an additional
28 of these boats.

Page 10 GAO- 02- 538T

transporting sea marshals to vessels at assigned boarding points. This means
that the Coast Guard must use small boats that are also being used for such
missions as search and rescue and marine environmental protection, which
will require further prioritizing and balancing of missions. Similar sea
marshal programs are being implemented at other ports, such as Boston and
Seattle, with similar impacts on other missions.

The fiscal year 2003 budget request of $7.3 billion would increase the Coast
Guard?s budget by about $1.9 billion, or 36 percent, over the fiscal year
2002 budget. 11 More than $1.2 billion of this increase is for
retirementrelated payments for current and future retirees, leaving an
increase of about $680 million for operating expenses, capital improvements,
and other expenses. Funding for operating expenses for all of the Coast
Guard?s mission areas would increase from fiscal year 2002 levels. Under the
Coast Guard?s allocation formula, 12 operating expenses for marine safety
and security (the mission area that includes most homeland security efforts)
would have the largest percentage increase- 20 percent. Increases in other
mission areas would range from 12 percent to 16 percent.

The fiscal year 2003 budget contains a significant amount for retirement
funding. In October 2001, legislation was proposed 13 that would fully
accrue the retirement costs of Coast Guard military personnel. This
legislation directs that agencies fully fund the future pension and health
benefits of their current workforces. Although this proposed legislation has
not been enacted, the Coast Guard prepared its fiscal year 2003 budget to
comply with these requirements. 14 Excluding the amounts for retirement

11 The Coast Guard?s budget for fiscal year 2002 included both an initial
budget of $5. 2 billion and a supplemental appropriation of $209 million for
operating expenses. The supplemental appropriation was for expenses to
respond to the September 11, 2001 terrorist attacks on the United States.
Budget figures presented in the report are based on data provided by the
Coast Guard.

12 The Coast Guard uses a cost allocation model to apply dollars to mission
resource hours. Direct, support, and overhead costs associated with each
asset type are multiplied by the operation baseline (resource hours devoted
to each mission area) to determine the allocation of operating costs across
mission areas.

13 ?Managerial Flexibility Act of 2001? (S. 1612). 14 The Coast Guard?s
fiscal year 2002 budget did not include accruals. Fiscal Year 2003

Budget Request Reflects Changing Mission Priorities

Retirement Expenditures Account for Nearly TwoThirds of the Budget Increase

Page 11 GAO- 02- 538T

costs, 15 the fiscal year 2003 increase totals about $680 million, which
represents a 13 percent increase over the Coast Guard?s fiscal year 2002
budget.

About $542 million of the requested $680 million increase is for operating
expenses for the Coast Guard?s mission areas. 16 The requested amount for
operating expenses represents an increase of 15 percent over fiscal year
2002 levels. These expenses include such things as pay increases and other
entitlements as well as new initiatives. Pay increases and military
personnel entitlements in the fiscal year 2003 budget request total about
$193 million or 36 percent of the requested increase for operating expenses.
This leaves $349 million for new mission- related initiatives and
enhancements. As figure 4 shows, all mission areas would receive more
funding than in fiscal year 2002.

15 Retirement funding in the budget request includes a $736 million payment
to the Coast Guard?s Military Retirement Fund and $496 million included in
the budget request for operating expenses, capital improvements, and other
expenditures.

16 Most of the remainder of the $680 million increase would be for
Acquisition, Construction, and Capital Improvements (AC& I)- the Coast
Guard?s capital expenditures budget. AC& I expenses would increase by nearly
$89 million, an increase of 14 percent. About $48 million of the $680
million increase would be for other expenditures, which include such things
as environmental compliance and restoration; reserve training; and research,
development, testing, and evaluation. Remaining Budget Request

Would Increase Operating Expenditures for All Mission Areas

Page 12 GAO- 02- 538T

Figure 4: Comparison of Operating Expenses by Mission Area for Fiscal Years
2002 Enacted and 2003 Requested.

(Dollars in Millions)

Source: GAO analysis of data provided by the United States Coast Guard.

Projected increases in operating expenses would range from a high of 20
percent for the marine safety and security mission area to a low of 12
percent for the law enforcement mission area. (See table 1.) The Coast Guard
stated that the increases are intended to improve the Coast Guard?s
capabilities in each respective mission area. For example, if fully funded,
operating expenses for the search and rescue mission area would increase by
13 percent. According to Coast Guard officials, the Coast Guard has
experienced staffing shortages, resulting in personnel working an average of
84 hours per week; therefore, if the budget request is fully funded, the
Coast Guard intends to improve readiness at small boat stations by adding
138 new positions to reduce the number of hours station personnel must work
each week.

0 200

400 600

800 1,000

1,200 1,400

Law Enforcement Aids to Navigation

Marine Safety & Security Search & Rescue

Marine Environmental Protection Ice Operations

Defense Readiness Enacted 2002 Budget Authority

Requested 2003 Budget Authority (excluding accruals)

Page 13 GAO- 02- 538T

Table 1: Percentage Increase for Operating Expense by Mission Area, Fiscal
Year 2003 Budget Request Compared to Fiscal Year 2002 (Enacted)

Increase Mission Area Dollars (in millions) Percentage

Law enforcement 131.5 12 Aids to navigation 94.3 15 Marine safety and
security 180.5 20 Search and rescue 59.2 13 Marine environmental protection
45.5 16 Ice operations 17.3 16 Defense readiness 14.1 15

Source: GAO analysis of data provided by the United States Coast Guard.

In line with the Coast Guard?s relatively new responsibilities for homeland
security, the marine safety and security area would receive the largest
portion of the operating expenses increase. The levels of funding requested
for the maritime security area would allow the Coast Guard to continue and
enhance homeland security functions, begun in 2002, aimed at improving the
security of the nation?s ports, waterways, and maritime borders. New
security initiatives to be undertaken in fiscal year 2003 include programs
to build maritime domain awareness, 17 ensure controlled movement of high-
interest vessels, 18 enhance presence and response capabilities, protect
critical infrastructure, enhance Coast Guard force protection, and increase
domestic and international outreach. For example, to enhance presence and
response capabilities, the Coast Guard intends to spend $12.7 million to
establish two additional deployable maritime safety and security teams,
which are mobile law enforcement and security specialists that can be used
in various regions during times of heightened risk. These teams would be
added to the four teams already established with funds from the fiscal year
2002 supplemental appropriation. Other new security initiatives would
largely be funded from

17 Maritime domain awareness is the real- time tracking of vessels, people,
and cargo. The Coast Guard plans to increase intelligence efforts in ports
and improve advanced information on passengers, crew, and cargo.

18 High- interest vessels are vessels that may pose a threat to the United
States or that require a heightened level of security. For example, naval
vessels or vessels carrying hazardous materials would be considered high
interest vessels.

Page 14 GAO- 02- 538T

the operating expenses appropriation. 19 Table 2 provides a detailed
breakdown of the cost of each of the proposed security measures.

Table 2: Homeland Security Strategies and Initiatives in the Fiscal Year
2003 Budget Request (Dollars in millions) Strategy Security Initiative
Amount (in millions)

Build maritime domain awareness Improve communications and connectivity
Improve information and investigations capability

$34.4 $26.1 Ensure controlled movement of high interest vessels Maritime
escort and safety patrols $18.5 Enhance presence and response capabilities
Maritime Safety and Security Teams $47.5 Protect critical infrastructure and
enhance Coast Guard force protection Chemical, biological and radiological

countermeasures Critical infrastructure protection Firearms and ammunition

$17.5 $11.2

$9.1 Increase domestic and international outreach Security readiness and
planning

Incident command system $21.5

$2.3

Total fiscal year 2003 new initiatives $188.1

Source: United States Coast Guard Fiscal Year 2001 Performance Report and
Fiscal Year 2003 Performance Plan.

Note: Figures may not add up to total due to rounding.

While the fiscal year 2003 budget request provides funding increases for
every mission area, these increases alone may not return all of its missions
to levels that existed prior to September 11th. The Coast Guard faces other
daunting budget and management challenges and unknowns as it strives to
achieve its new mission priorities and maintain its core missions at desired
levels. The most serious challenges are as follows:

 The Coast Guard is now at or near its maximum sustainable operating
capacity in performing its missions. The agency has a finite set of cutters,
boats, and aircraft to use in performing its missions, and according to
Coast Guard officials, these assets, particularly the cutters, are now being
operated at their maximum capabilities. In fact, officials in some districts

19 A portion of this funding, $9. 4 million, would come from the AC& I
appropriation. This would fund the Maritime Domain Awareness Information
Management initiative, which is intended to enhance the Coast Guard?s
information management capabilities and improve its ability to collect,
analyze, and disseminate information. Coast Guard Faces

Difficult Budget and Management Challenges

Page 15 GAO- 02- 538T

we visited said that some of the patrol boats and small boats are operating
at 120 to 150 percent of the levels they normally operate. Significantly
increasing the numbers of its cutters, boats, and aircraft is not feasible
in the short term. Adding new deepwater cutters and aircraft, for example,
is years away as are new motor lifeboats to replace the aging 41- foot
boats, which have been the mainstay of harbor security patrols in recent
months. Also, according to officials in various Coast Guard units, many
personnel are also working long hours even now, six months after the
terrorist attacks.

 The Coast Guard does not yet know the level of resources required for its
?new normalcy?- the level of security required in the long term to protect
the nation?s major ports and its role in overseeing these levels. Until the
Coast Guard completes comprehensive vulnerability assessments at major U. S.
ports and the Congress decides whether or not to enact proposed port
security legislation, 20 the Coast Guard cannot define the level of
resources needed for its security mission. Also, the full extent of the
demands on its resources to deal with all of its missions may not have been
fully tested. In terms of its ability to respond to port security functions,
the Coast Guard was fortunate in the timing of the terrorist attacks. For
example, the busiest part of the search and rescue season was essentially
over, and the agency was able to redeploy search and rescue boats from
stations during the off- season to perform harbor security functions. The
cruise ship season was over in many locations, requiring fewer Coast Guard
escorts for these vessels. There were no major storms, and the weather has
been warmer- requiring less icebreaking services, search and rescue calls,
and oil tanker escorts. Also, there were no major security incidents in our
nation?s ports. A major change in any or a series of these events could mean
major adjustments in mission priorities and performance.

 The Coast Guard faces a host of human capital challenges in managing its
most important resource- its people. Even before September 11, 2001, the
Coast Guard saw signs of needed reform in its human resources policies and
practices. Attrition rates among military and civilian employees are
relatively high, and about 28 percent of the agency?s civilian employees are
eligible to retire within the next five years. Budget constraints during the

20 Pending legislation (S. 1214 and H. R. 3437) proposed a number of
security measures for U. S. seaports. Major provisions of these bills would
require heavy involvement by the Coast Guard in conducting vulnerability
assessments at 50 U. S. ports, reviewing port security plans, developing
seaport security standards, and making loan guarantees and authorizing
grants for port security improvements.

Page 16 GAO- 02- 538T

last decade had led to understaffing and training deficiencies in some
program areas. For example, a recent study 21 of the Coast Guard?s small
boat stations showed that the agency?s search and rescue program is
understaffed, personnel often work over 80 hours each week, and many staff
are not fully trained. All of these challenges have been exacerbated by new
challenges added since September 11th. As a result of its new emphasis on
homeland security, the Coast Guard plans to hire over 2,200 new full- time
positions to its workforce and increase its pool of reservists by 1,000 if
its funding request is approved- putting added strain on its recruiting and
retention efforts. While the Coast Guard has embarked on a strategy to
address these issues, many of its human capital initiatives are yet to be
developed or implemented.

 Other needs that have been put on the ?back burner? in the fiscal year
2003 request may require increased attention- some rather soon. For example,
sizeable capital improvements for shore facilities may be required in the
near future, and required funding for this purpose could be considerable.
For example, it appears that the agency reduced the fiscal year 2003 budget
request for this budget item to fund other priorities. In last year?s
capital plan, the Coast Guard estimated that $66.4 million would be required
in fiscal year 2003 for shore facilities and aids to navigation. However,
the fiscal 2003 budget request seeks only $28.7 million, a significant
disparity from last year?s estimate. Other priorities, such as funding for
the Deepwater Project and the National Distress System, will consume much of
the funding available for its capital projects for years to come. Coast
Guard officials said that while they still face the need for significant
capital projects at their shore facilities, they are taking steps in the
fiscal year 2003 budget request to improve the agency?s maintenance program
in an effort to forestall the need for capital projects at these facilities.

In conclusion, to its credit, the Coast Guard has assumed its homeland
security functions in a stellar manner through the hard work and dedication
of its people. It has had to significantly adjust its mission priorities,
reposition and add to its resources, and operate at an intense pace to
protect our nation?s ports. Now, six months after the terrorist attacks, the
agency is still seeking to define a ?new normalcy?- one that

21 Report on Audit of the Small Boat Station Search and Rescue Program,
United States Coast Guard (MH- 2001- 094, September 14, 2001), U. S.
Department of Transportation, Office of Inspector General.

Page 17 GAO- 02- 538T

requires a new set of priorities and poses new challenges. By seeking
increases in each of the agency?s mission areas, the fiscal year 2003 budget
request is an attempt to provide the Coast Guard with the resources needed
to operate within this environment. But particularly in the short term,
increased funding alone is not necessarily the answer and is no guarantee
that key Coast Guard missions and priorities will be achieved. In fact,
because of the formidable challenges the Coast Guard faces today-
particularly the finite numbers of cutters, boats, and aircraft it has
available in the short run and its significant human capital issues- the
Coast Guard will likely have to continue to make significant trade- offs and
shifts among mission areas until it develops clear strategies to address its
new mission environment.

Mr. Chairman, this concludes my testimony. I will be happy to respond to any
questions you or other Members of the Subcommittee may have.

Page 18 GAO- 02- 538T

To determine the nature of the Coast Guard?s shift from traditional core
missions to its new security functions for homeland security, we interviewed
Coast Guard officials and reviewed relevant documents regarding the
reallocation of Coast Guard resources. Coast Guard interviews involved
personnel from Headquarters, Atlantic Area Command, Pacific Area Command,
District 1, District 5, District 11, District 13, and a variety of group and
small boat station personnel under these commands. These officials provided
examples of post- September 11th activities and the operational status of
assets and personnel. We gathered information on asset planning and
operations from the Coast Guard?s Abstract of Operations and the
Commandant?s Fiscal Year 2002 Law Enforcement Planning Guidance.

To evaluate the Coast Guard?s efforts to fund enhanced security missions and
increase funding for all other Coast Guard missions beyond fiscal year 2002
levels, we examined relevant budget and performance documents including the
Coast Guard?s Fiscal Year 2003 Budget in Brief and the Coast Guard?s Fiscal
Year 2001 Performance Report and Fiscal Year 2003 Performance Plan. We
interviewed Coast Guard officials within the Office of Programs regarding
proposed legislation establishing an accrual funding system, the Coast
Guard?s method of allocating operating costs across mission areas, and the
fiscal year 2003 budget request.

To identify substantial management challenges that the Coast Guard will face
translating these budget request increases into increased service levels, we
relied on previous GAO work. We also interviewed Coast Guard Headquarters
and field personnel regarding the Coast Guard?s ability to establish a
sustainable operating tempo, develop and implement new security requirements
and port security assessments, manage and plan for major increases its
workforce, and funding requests for capital improvements at shore
facilities. Appendix I: Scope and Methodology

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