Coast Guard: Strategies for Procuring New Ships, Aircraft, and Other
Assets (Testimony, 03/16/99, GAO/T-RCED-99-116).

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.

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.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-RCED-99-116
     TITLE:  Coast Guard: Strategies for Procuring New Ships, Aircraft, 
             and Other Assets
      DATE:  03/16/99
   SUBJECT:  Aircraft
             Ships
             Military procurement
             Cost analysis
             Military cost control
             Mission budgeting
             Future budget projections
             Strategic planning
             Cost effectiveness analysis
IDENTIFIER:  Coast Guard Deepwater Capability Replacement Project
             
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Cover
================================================================ COVER


Before the Subcommittee on Transportation and Related Agencies,
Committee on Appropriations, House of Representatives

For Release
on Delivery
Expected at
10:00 a.m.  EST
Tuesday
March 16, 1999

COAST GUARD - STRATEGIES FOR
PROCURING NEW SHIPS, AIRCRAFT, AND
OTHER ASSETS

Statement of John H.  Anderson, Jr.,
Director, Transportation Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-99-116

GAO/RCED-99-116T


(348148)


Abbreviations
=============================================================== ABBREV

  DOD -
  OMB -

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We are here today to discuss 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.  During the last 2 years, we have issued reports on the
overall fiscal challenges facing the Coast Guard and the
justification and the affordability associated with its
multibillion-dollar Deepwater Replacement Project to modernize or
replace many of its ships and aircraft.\1,2 The project may cost as
much as $9.8 billion (in constant 1998 dollars) over the next 20
years, making it potentially the largest acquisition project in the
agency's history.  This project will put enormous pressure on the
agency's budget for capital projects and heightens the need for
effective capital planning and other strategies to meet the Coast
Guard's needs in a constrained fiscal environment.  For fiscal year
2000, the Coast Guard is requesting $350 million to fund its capital
needs.  By 2002, the cost of the Deepwater Project alone could be
substantially more than this. 

My testimony today, which is based on our recently completed and
ongoing work at the Coast Guard, addresses two topics:  (1) the Coast
Guard's progress in justifying the Deepwater Project and addressing
our concerns about its affordability and (2) the Coast Guard's
progress in developing strategies and plans for funding its capital
needs within a constrained fiscal environment. 

In summary, our work shows the following: 

  -- 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.  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.  The Coast Guard and its
     contractors are currently developing this information, but some
     of it will not be available until later this year.  We 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 capital needs. 
     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.  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. 

  -- 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.  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.  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.  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.  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. 


--------------------
\1 Coast Guard:  Challenges for Addressing Budget Constraints
(GAO/RCED 97-110, May 14, 1997).

\2 Coast Guard's Acquisition Management:  Deepwater Project's
Justification and Affordability Need to Be Addressed More Thoroughly
(GAO/RCED 99-6, Oct.  26, 1998). 


   THE JUSTIFICATION AND THE
   AFFORDABILTY OF THE DEEPWATER
   REPLACEMENT PROJECT HAVE NOT
   BEEN FULLY ADDRESSED
---------------------------------------------------------- Chapter 0:1

In October 1998, we issued a report that raised concerns about the
justification and the affordability of the Deepwater Replacement
Project.  Our major findings included the following: 

  -- The Coast Guard had understated the remaining useful life of its
     aircraft and, to a lesser extent, its ships.  For example, the
     justification the Coast Guard 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.\3
     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.  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.

  -- 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
     completed a baseline study of the capabilities of its existing
     fleet of ships and aircraft last month; a comparative assessment
     is planned for completion in April 1999.

  -- 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 group--the Presidential Roles and
     Missions Commission--will study the Coast Guard's roles and
     missions and report on its findings by October 1999.  The Coast
     Guard plans to use this study to recalculate the operating
     levels needed to meet the requirements of its missions for its
     revised mission analysis, which is scheduled for completion in
     January 2000. 

We agree that the Coast Guard should start now to explore alternative
ways to modernize its deepwater ships and aircraft.  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.  We recommended that the Coast Guard expedite the
development and issuance of updated information from internal studies
to the contractors.  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.\4 Contractors, however, are
scheduled to provide the Coast Guard with an analysis of alternatives
for the Deepwater Project later this month and conceptual designs for
the system in December 1999. 

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 because of the long lead times
associated with a project of this magnitude.  The agency 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 plan to
continue monitoring the project to ensure that contractors receive
timely and accurate data to include in their proposals. 

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.  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 selecting the winning proposal.  Second, they said that the
agency's independent evaluation group would analyze various funding
alternatives to determine their impact 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.  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. 


--------------------
\3 Aviation Near-Term Support Strategy, Office of Aeronautical
Engineering, U.S.  Coast Guard, Sept.  4, 1998. 

\4 In response to GAO's review of the Deepwater Project, the Director
of Resources stated that the Coast Guard will revise its System
Acquisition Manual to require that all future proposals for new
projects develop estimates of total ownership costs as part of the
justification. 


   COAST GUARD FACES POTENTIAL
   FUNDING SHORTAGES FOR CAPITAL
   PROJECTS UNLESS IT DEVELOPS
   BETTER PLANS AND STRATEGIES
---------------------------------------------------------- Chapter 0:2

The ability of the Coast Guard to meet its future capital needs
depends largely on the funding requirements for the Deepwater
Project.  The agency faces potential funding shortages of as much as
$300 million by 2002 to complete ongoing and future projects.  To
deal with this, the Coast Guard must improve its capital planning
process to prioritize and manage its capital projects more
effectively, renew cost-saving efforts, and/or secure additional
funds. 


      FUTURE CAPITAL NEEDS MAY
      EXCEED CURRENT BUDGET
      TARGETS
-------------------------------------------------------- Chapter 0:2.1

In our May 1997 report, we discussed the challenges that the Coast
Guard faces in the future as it buys ships, aircraft, and other
equipment in a constrained budget environment.\5 We reported that
balanced budget agreements would create substantial pressure on the
Coast Guard's budget for capital spending in the coming years.\6 Even
with the current projections for surpluses in the federal budget,
agencies such as the Coast Guard are still subject to spending limits
and must continue to operate in a constrained budget environment.  In
an effort to balance the budget, caps on discretionary spending have
been set.  OMB develops budget marks, or targets, for agencies such
as the Coast Guard so that they can develop budget plans and requests
that are aligned with the marks.  For fiscal years 2001 through 2004,
OMB has set a mark of $485 million a year for the Coast Guard's
budget for capital spending. 

As figure 1 shows, the extent to which capital funding requirements
are less than or greater than OMB's target for fiscal years 2001
through 2004 depends largely on the amount needed for the Deepwater
Project.\7 Funding needs for ongoing acquisition projects decline
steadily through fiscal year 2004 as projects such as the buoy
tenders are completed.  The funding needs for fiscal year 2001 are
well within the budget mark set by OMB, mainly because the projected
cost for the Deepwater Project is still relatively low, at $42.3
million.  In later years, however, the ability of the Coast Guard to
stay within the OMB mark for its budget for capital spending is more
uncertain.  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,\8 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.\9

   Figure 1:  Comparison of OMB's
   Budget Target and Projected
   Coast Guard Capital Funding
   Requirements

   (See figure in printed
   edition.)


--------------------
\5 See footnote 1. 

\6 Accompanying the effort to balance the budget are statutory limits
on total discretionary spending that have been in effect since fiscal
year 1991.  The Balanced Budget and Emergency Deficit Control Act of
1985 (the ï¿½Deficit Control Actï¿½), as amended by the Budget
Enforcement Act of 1990, the Omnibus Budget Reconciliation Act of
1993, and the Budget Enforcement Act of 1997, established statutory
limits on the federal government's discretionary spending for fiscal
years 1991 through 2002.  Under these limits, outlays for
discretionary spending will remain almost constant in dollar terms
from fiscal year 1998 through fiscal 2002. 

\7 The estimate in figure 1 does not include the funding requirements
for three projects--the Human Resources Information System, the
Loran-C Continuation Project, and the Great Lakes Capability
Replacement Project.  The future funding needs of these three
projects have not yet been determined.  In addition, other funding
requirements may arise for projects begun with the emergency funds
the Coast Guard received in fiscal year 1999. 

\8 Coast Guard planning documents submitted to OMB in late 1998 show
a funding stream for the Deepwater Project of $300 million a year for
fiscal years 2002 and 2003. 

\9 The Coast Guard may also have to fund new projects, such as river
buoy tenders and large utility boats.  The Coast Guard has yet to
determine the funding requirements and schedule for any new projects. 


      STATUS OF THE COAST GUARD'S
      CAPITAL PLANNING EFFORTS
-------------------------------------------------------- Chapter 0:2.2

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.\10 Begun in 1997, this effort is directed at
aligning capital needs with probable levels of funding.  The Coast
Guard's previous capital plans simply identified various funding
needs regardless of probable funding.  The Coast Guard acknowledged
that this approach no longer reflected the budget climate and needed
revision. 

In January 1999, the agency produced a draft of a new capital plan
that identifies strategies for dealing with the affordability of
projects such as Deepwater.  These strategies include the following: 

  -- Implementing a number of techniques to control capital costs,
     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 aircraft
     rather than replacing them could result in significant cost
     savings.  A Coast Guard study\11 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
     it would have to phase out these aircraft.\12 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.

  -- Establishing an ï¿½Investment Boardï¿½ composed of senior agency
     managers, such as Assistant Commandants for Operations and
     Marine Safety, the Director of Resources, and the Chief
     Financial Officer.  The board will examine the agency's
     portfolio of assets and assign priorities to projects, including
     shore facilities, and build a range of budget scenarios over a
     5-year period as a means of meeting the budget target given to
     the Coast Guard by OMB.  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 can help it deal with ï¿½spikesï¿½ in the agency's
     capital needs during a period of fiscal constraint. 

The Coast Guard is also striving to better link the capital planning
process to its budgeting process.  Linking capital planning to the
budget process translates cost control strategies into action.  As an
example, the Department of Defense (DOD) links its capital planning
process to its budget through its Future Years' Defense Plan, which
is updated each year to reflect changing conditions.  This plan is
linked to OMB budget targets and used to make programming and
budgeting decisions over a 5-year budget cycle.  It identifies
strategies for meeting budget targets, such as cost-savings in
operations that could be used to help fund capital requirements.  In
addition, according to an OMB official, the plan identifies the funds
needed to complete projects and provides greater assurance that these
funds will be available, which can ultimately lead to better-managed
capital projects.  The plan also allows the Congress to see where DOD
is heading with its capital projects.  Such a plan may be useful to
the Coast Guard in developing plans and strategies for meeting its
capital needs. 

The Coast Guard's new capital planning process is still a work in
process and the linkage between capital plans and the budgeting
process may not be fully in place for several years, according to
agency officials.  While the plans, if implemented, will help the
Coast Guard deal with affordability issues, it is still uncertain
whether they will fully address the funding issues raised by the
Deepwater Project. 


--------------------
\10 Our October 1998 report highlighted the importance of planning
major acquisitions within available funding budgets.  Also, OMB's
1997 Capital Programming Guide emphasizes the need to plan within
available budget levels. 

\11 See footnote 3. 

\12 However, the estimated cost to upgrade does not include the
increased cost of operating older aircraft. 


      OTHER STRATEGIES FOR
      ADDRESSING POTENTIAL CAPITAL
      FUNDING GAPS
-------------------------------------------------------- Chapter 0:2.3

Better planning is not the only strategy the Coast Guard can follow
to address potential capital funding gaps.  Another option involves
achieving cost savings from operations and using the savings to pay
for new equipment in future years.  Shifting funding amounts between
the operations account and the capital account can be achieved in
several ways.  For example, as part of formulating the Coast Guard's
budget requests, OMB and the Coast Guard could engage in an informal
process in which OMB would allow the Coast Guard to add to its
capital account an amount equal to identified cost savings from
operations (with a corresponding decrease in its operations account). 
DOD and OMB have agreed on such an approach, and DOD is pursuing a
number of cost-saving initiatives in operations as a means of
supplementing its budget for capital spending. 

A more formal mechanism for directing cost savings from operations to
help fund capital needs would be to seek congressional authorization
for a special budget account as a repository for such savings.  As an
example, DOD has received authorization to shift savings from its
operations and maintenance account to help pay for capital
acquisitions.  Such an approach could provide incentives to Coast
Guard managers to achieve greater cost savings if they had greater
flexibility in deciding how to use the savings. 

In our May 1997 report, we identified cost-cutting options for the
Coast Guard that had been already identified by a number of studies
conducted since 1981.  Last week, we reported on other administrative
and support functions that have potential for cost savings.\13 The
agency has not implemented many of these options that we and others
identified because they are controversial, require cultural changes
within the Coast Guard, or are not popular with the public.  Here are
several examples of these options: 

  -- Lengthen periods between assignment rotations for military
     personnel.  Past studies by groups outside the Coast Guard have
     pointed out that this option could substantially reduce transfer
     costs, which now amount to more than $60 million a year.  The
     Coast Guard thinks its current rotation policies are best and
     does not plan to study the issue further.  Coast Guard officials
     said that changing current practices would have several
     undesirable effects, including potential adverse effects on
     multi-mission capabilities, a reduced opportunity to command a
     variety of units or vessels, and lower morale among personnel
     assigned to undesirable locations for extended periods of time.

  -- Use civilian personnel rather than military personnel in
     administrative support positions.  This option could achieve
     significant cost savings.  Overall, the Coast Guard has
     estimated that it costs about $15,000 more to compensate
     military personnel than comparable civilians.

  -- Consolidate functions or close facilities.  Previous studies
     have identified this as another option to reduce expenditures. 
     For example, several years ago, the Coast Guard identified a
     cost-cutting option involving the consolidation of its training
     facilities, a move that would have resulted in annual savings of
     $9 million, by closing the facility at Petaluma, California. 
     Fearing a public outcry by the local community, especially
     because of the numerous recent closures of military bases in
     California, the Coast Guard postponed taking this step.  To
     address situations like this, we recommended that the Congress
     may wish to consider a facility closure approach for the Coast
     Guard that is similar to the one DOD has used to evaluate base
     closures.  Under this approach, an independent commission would
     be established and given authority to recommend the closure of
     some of the Coast Guard's facilities.  To date, such a
     commission has not been established. 

Another option for addressing any funding gap would be for the Coast
Guard to secure new sources of funding for its capital projects. 
However, obtaining additional funding through the normal
appropriation process is uncertain, given existing limits on
discretionary funding.  While this may change as the administration
and the Congress deliberate on how to use the existing surplus in the
federal budget, no agreements have been reached.  For fiscal year
1999, the Coast Guard received an emergency appropriation totaling
$230 million in addition to its regular appropriations to help buy
new capital equipment.  Most of these funds were for equipment to
stem the flow of illegal drugs into the United States.  The
additional funds were used in part for ongoing capital projects, such
as upgrades to C-130 aircraft engines and purchases of new sensors
for Coast Guard ships and aircraft, potentially leaving more room in
future years' budgets for the Deepwater Project and other needs. 
Additional emergency funding may be available in future years as
well.  In January 1999, legislation was introduced in the Senate to
authorize additional funding for the Coast Guard in fiscal years 2000
and 2001 for anti-drug operations; however, there is no guarantee
that these funds will be appropriated. 

User fees are another potential source of revenue to supplement the
Coast Guard's future budgets for capital spending, but the Coast
Guard has been unsuccessful in getting congressional approval to
impose such fees on services it performs.  Last year, the House and
the Senate turned down a Coast Guard request to levy $165 million in
user fees and stated its opposition to such fees.  In its fiscal year
2000 budget request, the Coast Guard is again proposing a user fee on
commercial cargo and cruise vessels for navigation services that the
Coast Guard provides but does not charge for.  This user fee, if
approved, would add revenues of $41 million in the last quarter of
fiscal year 2000, and $165 million a year when fully implemented.  We
are not taking a position on whether such fees, including the
proposed fees on navigation services, should be established.  This is
a policy question that the Congress must ultimately decide after
considering a number of issues and trade-offs. 

In conclusion, the Coast Guard faces the daunting task of meeting its
capital needs in a constrained budget environment.  To be successful,
the agency must first satisfactorily justify the need for modernizing
or replacing its deepwater ships and aircraft.  Then, the Coast Guard
must identify approaches and strategies for prioritizing and better
managing its capital projects while continuing to pursue cost savings
and other ways to help meet funding requirements. 


--------------------
\13 Coast Guard:  Review of Administrative and Support Functions
(GAO/RCED 99-62R, Mar.  10, 1999). 


-------------------------------------------------------- Chapter 0:2.4

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


*** End of document. ***