Coast Guard: Key Budget Issues for Fiscal Years 1999 and 2000 (Testimony,
02/11/99, GAO/T-RCED-99-83).

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 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.

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 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.

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

 REPORTNUM:  T-RCED-99-83
     TITLE:  Coast Guard: Key Budget Issues for Fiscal Years 1999 and 
             2000
      DATE:  02/11/99
   SUBJECT:  Cost analysis
             Federal procurement
             Cost control
             Equipment repairs
             Drug trafficking
             Presidential budgets
             Law enforcement
             Funds management
             Future budget projections
IDENTIFIER:  Coast Guard Deepwater Capability Replacement Project
             
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Cover
================================================================ COVER


Before the Subcommittee on Coast Guard and Maritime Transportation,
Committee on Transportation and Infrastructure, House of
Representatives

For Release
on Delivery
Expected at
2 p.m.  EST
Thursday
February 11, 1999

COAST GUARD - KEY BUDGET ISSUES
FOR FISCAL YEARS 1999 AND 2000

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

GAO/T-RCED-99-83

GAO/RCED-99-83T


(348147)


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

  DOT -

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

Mr.  Chairman and Members of the Subcommittee: 

We are here today to discuss several key issues related to the Coast
Guard's budgets for fiscal years 1999 and 2000.  The Coast Guard, an
agency within the Department of Transportation (DOT), is responsible
for maritime missions that range from search and rescue operations to
the enforcement of fisheries, immigration, and drug laws.  For fiscal
year 1999, the Coast Guard initially received $3.9 billion in
appropriated funds to carry out its missions.  It received another
$377 million in emergency funding to pay for additional equipment and
operations, most of which was for expanding its anti-drug efforts. 
This increased the Coast Guard's total fiscal year 1999 funding to
about $4.3 billion.  For fiscal year 2000, the Coast Guard is
requesting $4.1 billion to fund its various programs.  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 multi-billion dollar program for replacing or
modernizing many of its ships and aircraft.\1,2 The program, called
the Deepwater Replacement Project, may cost as much as $9.8 billion
(in constant 1998 dollars) over the next 20 years and is potentially
the largest acquisition project in the agency's history. 

My testimony today, which is based on GAO's recently completed and
ongoing work at the Coast Guard, addresses three topics:  (1) the
Coast Guard's progress in justifying the Deepwater Replacement
Project and addressing our concerns about its affordability, (2) the
Coast Guard's plans for spending its fiscal year 1999 emergency
funds, and (3) the budget strategies the agency may have to consider
in the future to address continuing budget constraints. 

In summary, our work shows the following: 

  -- While the Coast Guard has made progress in addressing our
     concerns about the justification and the affordability of the
     Deepwater Project, additional work is needed.  In our report on
     the Deepwater Project, we had two major concerns.  First, 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.  The Coast Guard
     and its contractors are currently developing this information,
     but some of it will not be available until later this year.  The
     Coast Guard will prepare a new project justification sometime in
     early 2000.  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.  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.  Providing this data is important
     because without it, there is increased risk that contractors
     could develop alternatives that would not be the most
     cost-effective to meet the needs of the Coast Guard's Deepwater
     Project.  Second, we reported that if the cost of the Deepwater
     Project approaches the agency's planning 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 said that
     competition among contractors would cut costs and more closely
     align the potential cost of the project with probable funding
     levels.  In addition, the agency is developing information on
     the advantages and disadvantages of various funding options for
     the project.  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 we nor the Coast Guard can tell whether
     the affordability issue has been adequately addressed.

  -- By the end of fiscal year 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.  As
     directed by the Congress, it has begun buying more patrol boats;
     reactivating its surveillance aircraft and ships; and obtaining
     additional equipment, such as sensors and communications
     systems, to improve its ability to detect drug smugglers and to
     coordinate its anti-drug activities.  The Coast Guard is also
     using a portion of the funds for maintaining operational
     readiness, repairing equipment and facilities that were damaged
     by Hurricane Georges in the southeastern United States, and
     ensuring that its Year 2000 computer problems are resolved.

  -- The additional funding that will likely be needed to modernize
     and acquire deepwater aircraft, ships, and equipment and to
     sustain the newly expanded anti-drug efforts will increase the
     budget pressures on the Coast Guard.  In the future, the agency
     might have to develop different budget strategies and approaches
     to live within its budget.  Typically, the Coast Guard has
     adopted a budget strategy that relies heavily on cost-cutting
     initiatives to improve operating efficiency.  Our work has shown
     that additional cost-cutting measures to improve efficiency are
     possible, and the Coast Guard should renew its efforts in this
     area.  For example, using civilian personnel rather than
     military personnel in administrative support positions could
     achieve significant cost-savings.  However, given the potential
     size of the increased funding requirements, the adequacy of this
     approach to meet the sterner budget challenges is highly
     uncertain.  The agency might have to look for other cost-cutting
     options, including rethinking its missions and services
     performed, which is likely to be controversial, given past
     opposition to reductions in this agency's services. 


--------------------
\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). 


   WORK REMAINS TO BE DONE
   REGARDING THE JUSTIFICATION AND
   THE AFFORDABILITY OF THE
   DEEPWATER REPLACEMENT PROJECT
---------------------------------------------------------- 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 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.\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.  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.\4
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 ï¿½spikesï¿½ 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. 


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

\4 See footnote 3. 


   MOST OF THE EMERGENCY FUNDS
   WILL BE SPENT IN FISCAL YEAR
   1999
---------------------------------------------------------- Chapter 0:2

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.\5

  -- 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.\6

  -- 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. 


--------------------
\5 According to congressional budget documents and a Coast Guard
budget official, the $72 million in emergency funding will be used to
offset a $72 million budget cut that the Coast Guard received in its
fiscal year 1999 appropriation. 

\6 The Coast Guard plans to spend $2.5 million to repair aids to
navigation and other equipment in southern Florida, Puerto Rico,
Alabama, and Louisiana and another $200,000 to repair damage to sites
and equipment used for communications.  The remaining $9.9 million
will be used to repair the Coast Guard's offices, air stations,
search and rescue stations, and other facilities in southern and
western Florida, Alabama, Louisiana, Mississippi, and Puerto Rico. 
Repairs will be made to the piers, roofs, windows, and fences. 


      SPENDING FOR ANTI-DRUG
      EFFORTS
-------------------------------------------------------- Chapter 0:2.1

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.  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.  In
addition, the Coast Guard plans to spend $3.5 million to purchase
eight high-speed boats to help it pursue the high-speed boats used by
drug smugglers. 

The Coast Guard also plans to upgrade and expand its drug
interdiction efforts by spending about $52 million to reactivate six
HU-25 jet aircraft used for surveillance and to buy other aircraft
equipment.  It will also spend about $44 million to buy sensors for
its aircraft, which will improve its ability to detect and classify
suspected drug smugglers at sea, and to upgrade engines for its C-130
surveillance aircraft.  (See the appendix for more details on the
status of the Coast Guard's acquisition of equipment from emergency
funding.)

The Office of National Drug Control Policy has set a national goal of
reducing the flow of drugs entering the United States from maritime
routes by 10 percent by 2002 and 20 percent by 2007.  The Coast Guard
and other federal agencies will be involved in achieving this goal. 
The additional emergency funds should aid the Coast Guard in its
anti-drug efforts; however, currently, there is no effective way of
knowing the true impact of increased funding provided to the Coast
Guard or any other law enforcement agencies.  Similar to what we
found 2 years ago, it is difficult for the Coast Guard or any other
agency to effectively measure the results of its anti-drug
program.\7,8 For example, it is inherently difficult to develop
accurate data on the quantity of illegal drugs entering the country. 
Moreover, it is difficult to distinguish the impact that the Coast
Guard's anti-drug actions are having from those of other agencies. 
However, progress is being made--the Office of National Drug Control
Policy's Interagency Assessment of Cocaine Movement has developed
estimates of the amount of cocaine shipped from foreign countries. 
If reasonably accurate, this information could aid the Coast Guard in
measuring the results of its cocaine interdiction program. 

The Coast Guard plans to use the entire $44.3 million appropriated
for operating expenses by the end of this year to operate new
equipment and continue intensified anti-drug initiatives begun last
year in the Caribbean.  In fiscal year 1999, the Coast Guard also
plans to use $5 million to train reservists in counter-narcotics
operations, hire more reservists and recruiters, and buy new law
enforcement equipment.  Also, the Coast Guard plans to spend $4
million of the $5 million it received for research, development,
test, and evaluation of counter-narcotics strategies by the end of
fiscal year 1999. 


--------------------
\7 The Coast Guard's performance goal in 1998 was to reduce the flow
of illegal drugs by denying maritime smuggling routes as part of the
interagency effort to reduce the supply below the national demand
level.  By fiscal year 2002, the agency's goal is to reduce the
smugglers' success rate from the fiscal year 1995 baseline of 71
percent to 38 percent.

\8 Drug Control:  Observations on Elements of the Federal Drug
Control Strategy (GAO/GGD 97-42, Mar.  14, 1997). 


   THE DEEPWATER PROJECT AND THE
   EXPANSION OF ANTI-DRUG EFFORTS
   HEIGHTEN THE CHALLENGES FOR
   ADDRESSING BUDGET CONSTRAINTS
---------------------------------------------------------- Chapter 0:3

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.  Last month, legislation was
introduced in the Senate to authorize additional funding for the
Coast Guard for anti-drug operations in fiscal years 2000 and 2001;
however, there is no guarantee that these funds will ultimately be
appropriated.  In addition, if the Deepwater Project moves forward as
planned, the Coast Guard would likely need hundreds of millions of
dollars each year for the next 20 years to complete the project. 

In our May 1997 report to this Subcommittee, we discussed the
challenges the Coast Guard faces as it operates within a constrained
fiscal environment.  While the Coast Guard had taken a number of
steps to reduce its costs, we suggested that the Coast Guard look
toward several budget strategies to further cut costs.  Given the
continuing budget pressures that currently exist for the Coast Guard,
much of the message of our 1997 report is still relevant today. 

Our report concluded that the agency could renew efforts to improve
its operating efficiency by delivering services at a lower cost.  For
example, in our earlier report, we identified cost-cutting options
that had been identified by a number of studies on the Coast Guard
that have been conducted since 1981.  The agency has not implemented
many of these options.  For example, past studies by groups outside
the Coast Guard have pointed out that lengthening periods between
assignment rotations for military personnel 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.  In addition, using
civilian personnel rather than military personnel in administrative
support positions could achieve significant cost savings.  Soon, we
will be reporting to this Subcommittee on other administrative and
support functions that have potential for cost savings.  Achieving
some of these cost-cutting measures will be controversial and
difficult, either because they involve a change in the agency's
organizational culture or they are not popular with the public. 

Consolidating functions or closing facilities have been identified by
previous studies 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 $15 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 the Department of Defense 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. 

Even if the Coast Guard is successful in achieving significant cost
savings by improving its operating efficiency, the adequacy of this
approach alone to meet budget challenges is highly uncertain.  As we
pointed out in our 1997 report, the agency may have to look beyond
efficiency measures for cost-cutting options.  Our past work
examining a cross section of private-sector and public organizations
that have faced fiscal constraints similar to the Coast Guard's has
shown that a much broader approach for evaluating potential
cost-cutting options is often needed.  Frequently, these broader
assessments have involved a fundamental rethinking of the missions
and services performed by the organizations and the sources of their
funding. 

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 independent Presidential
Commission, which is about to begin studying the agency's roles and
missions, could identify areas or functions that could be (1) added
or enhanced, (2) maintained at current levels of performance, or (3)
reduced or eliminated.  Also, in its fiscal year 2000 budget request,
the Coast Guard is proposing a user fee on commercial cargo and
cruise vessels for navigation services provided by the Coast Guard
that could add revenues of $41 million each year if it is fully
implemented.  The administration favors earmarking the proposed user
fees as a means of giving agencies an incentive to collect fees. 
Earmarking would allow the agency to keep all or significant portions
of the fees collected to pay for providing the services rather than
the current practice of returning the bulk of the revenues to the
Treasury.  We are not taking a position on whether such fees,
including the proposed fees on navigation services, should be
established or on whether such fees should be earmarked for the Coast
Guard rather than returned to the Treasury's general fund.  This is a
policy question that the Congress must ultimately decide after
considering a number of issues and trade-offs. 

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


THE COAST GUARD'S ACQUISITION OF
EQUIPMENT FROM EMERGENCY FUNDING
TO EXPAND ITS DRUG INTERDICTION
ACTIVITIES, FISCAL YEARS 1999 AND
2000
=========================================================== Appendix I

                              (Dollars in millions)

Planned equipment            Applicability to
purchases or leases    Cost  anti-drug program      Status of acquisition
---------------------  ----  ---------------------  ----------------------------
Purchase 15 new 87-    $66.  These boats will       Have two of these boats in
foot patrol boats         1  allow the Coast Guard  operation and obligate $66.1
                             to deploy larger 110-  million by the end of the
                             foot patrol boats to   fiscal year. The Coast Guard
                             the Caribbean for      plans to have four more
                             counter-narcotics      boats in operation by the
                             operations, resulting  end of fiscal year 2000.
                             in 1,440 more
                             operating hours to
                             support its anti-
                             drug program per
                             patrol boat.

Purchase sensors and   29.3  The sensors will       Begin to receive much of
communications               improve the Coast      this equipment and obligate
systems for cutters          Guard's ability to     $20 million this fiscal
                             detect and classify    year.
                             targets. The
                             communications
                             equipment will
                             improve interagency
                             communications and
                             communications
                             capabilities on
                             cutters, boats, and
                             shore facilities.

Reactivate two ships   20.0  These ships will       Pay the Military Sealift
for command and              provide command and    Command to operate and
control platforms            control and            maintain the platforms.
                             logistical support     Coast Guard personnel will
                             for ships and fast-    be on the ships to carry out
                             pursuit boats. The     law enforcement
                             ships will provide     responsibilities. The first
                             3,600 operating hours  vessel will be available in
                             per ship for anti-     the last quarter of fiscal
                             drug activities.       year 1999 and the second in
                                                    the second quarter of fiscal
                                                    year 2000. The Coast Guard
                                                    plans to obligate all funds
                                                    this fiscal year.

Purchase eight high-    3.5  These boats will       Operate at least two boats
speed pursuit boats          provide the            by the fourth quarter of
                             capability to          fiscal year 1999 and
                             interdict high-speed   obligate all funds in this
                             boats used by          fiscal year. The Coast Guard
                             smugglers. Four will   anticipates all eight boats
                             be deployed to the     will be in operation in
                             reactivated command    fiscal year 2000.
                             and control platforms
                             and four will be
                             deployed to shore-
                             based units.

Reactivate six HU-25   52.0  The jets will          Deploy three aircraft by the
jets, buy other              increase surveillance  last quarter of this fiscal
equipment, and               and will provide 600   year and obligate $21
improve surveillance         hours per aircraft to  million this year. The
capability                   support the anti-      remaining three aircraft
                             drug effort. The use   will be available by the
                             of unmanned airborne   last quarter of fiscal year
                             vehicles to help       2000 and the Coast Guard
                             classify and detect    plans to obligate the
                             targets at sea will    balance in fiscal year 2000.
                             also be examined.

Lease aircraft to       2.5  The aircraft will      Lease aircraft to develop
conduct operational          help the Coast Guard   and test tactics that
testing and use of           evaluate the           include the use of force.
force                        potential use of       The Coast Guard plans to
                             force from aircraft    obligate all funds and
                             to interdict           complete the testing this
                             smugglers at sea.      fiscal year.

Purchase aircraft      44.0  This equipment will    Complete the engine upgrades
sensors and upgrade          improve the Coast      in fiscal year 1999 and
C-130 engines                Guard's ability to     install the sensors starting
                             detect and classify    in the third quarter of
                             targets at sea. In     fiscal year 1999. The Coast
                             addition, the C-130    Guard plans to obligate $9.3
                             upgrade will provide   million this fiscal year.
                             maintenance and fuel
                             savings in future
                             years.

Total                  $217
                         .4
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