oversight

Coast Guard: Challenges for Addressing Budget Constraints

Published by the Government Accountability Office on 1997-05-14.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  United States General Accounting Office

GAO               Report to Congressional Requesters




May 1997
                  COAST GUARD
                  Challenges for
                  Addressing Budget
                  Constraints




GAO/RCED-97-110
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Resources, Community, and
      Economic Development Division

      274164

      May 1997

      The Honorable Wayne T. Gilchrest
      Chairman
      The Honorable Bob Clement
      Ranking Minority Member
      Subcommittee on Coast Guard
        and Maritime Transportation
      Committee on Transportation
        and Infrastructure
      House of Representatives

      The Honorable Howard Coble
      House of Representatives

      In response to your request, this report discusses the fiscal constraints that the U.S. Coast
      Guard is facing and the efforts that the agency is making to adjust to constrained budgets. This
      report contains recommendations to the Secretary of Transportation and two matters for
      congressional consideration to assist the Coast Guard in meeting its budget targets.

      As requested, unless you publicly announce its contents earlier, we plan no further distribution
      of this report until 7 days after the date of this letter. We will then send copies to the Secretary
      of Transportation; the Commandant of the Coast Guard; the Director, Office of Management
      and Budget; and other interested parties. We will make copies available to others upon request.

      If you or your staff have any questions, please call me at (202) 512-2834. Major contributors to
      this report are listed in appendix III.




      John H. Anderson, Jr.
      Director, Transportation
        Issues
Executive Summary


                 Since fiscal year 1992, the Coast Guard has assumed increased
Purpose          responsibilities while shrinking its workforce by nearly 10 percent and
                 operating with a budget that has risen about 1 percent a year in actual
                 dollars. The Commandant of the Coast Guard told the Congress in 1996
                 that funding was no longer sufficient to sustain the normal pace of
                 operations over time. Yet the Coast Guard, like the federal government as
                 a whole, faces the prospect of further budget cuts to meet deficit
                 reduction targets over the next several years.

                 The Chairman and Ranking Minority Member of the Subcommittee on
                 Coast Guard and Maritime Transportation, House Committee on
                 Transportation and Infrastructure, asked GAO to determine how the Coast
                 Guard plans to carry out its roles and missions in the face of stringent
                 budgets. GAO’s review addressed the following questions:

             •   What is the extent of the gap between the funding needed to maintain the
                 Coast Guard’s current level of services and the funding that the Office of
                 Management and Budget (OMB) has targeted for the agency through fiscal
                 year 2002?
             •   What is the Coast Guard’s strategy for addressing this gap, and is the
                 strategy adequate?
             •   What additional actions, if any, would help close the gap?


                 The Coast Guard, a Department of Transportation (DOT) agency, is
Background       responsible for maritime missions that include conducting search and
                 rescue operations; protecting the marine environment; enforcing fisheries,
                 immigration, and drug laws; and facilitating the safe navigation of vessels
                 through U.S. waters. The Coast Guard’s nearly 43,000 full-time military and
                 civilian employees, 7,800 reservists, and 34,000 volunteer auxiliary staff
                 provide services through a number of boat stations, air stations, marine
                 safety offices, and other facilities located in coastal areas and navigable
                 lakes and rivers. The agency maintains a sizable fleet of cutters and other
                 vessels, airplanes, and helicopters to carry out its functions.

                 The Coast Guard’s budget for fiscal year 1997 is about $3.8 billion.
                 Operating expenses account for nearly three-fourths of this amount; the
                 remainder is mainly for military retirement pay and capital purchases. The
                 President has requested an increase of about $137 million for fiscal year
                 1998, primarily for increased drug interdiction efforts, pay increases and
                 other employee-related programs, and mandatory increases for retirees.




                 Page 2                         GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                   Executive Summary




                   Most of the Coast Guard’s funding comes from the Department of the
                   Treasury’s General Fund. The agency also receives moneys from the Oil
                   Spill Liability Trust Fund (for the prevention and cleanup of oil spills) and
                   from the Boat Safety Account of the Aquatic Resources Trust Fund (for a
                   national recreational boating safety program). Since 1982, the Coast Guard
                   has also received varying annual amounts—$6 million to
                   $490 million—from the Department of Defense for national security
                   activities.

                   The Congress and the President have reached agreement in principle to
                   achieve a balanced budget by fiscal year 2002. OMB, the lead agency for
                   coordinating the administration’s efforts to balance the budget, develops
                   and periodically updates budget targets for each federal agency to use in
                   managing toward a balanced budget. In setting these targets, OMB also
                   estimates the funds that each agency would need to maintain its current
                   level of services in future years. If an agency’s current estimate for
                   services exceeds budget targets, the agency is expected to take the
                   necessary steps to eliminate the gap.


                   Deficit reduction efforts will create substantial pressure on the Coast
Results in Brief   Guard’s budget. By fiscal year 2002, the Coast Guard is projected to have a
                   gap of as much as a $493 million between OMB’s budget target and the
                   estimated cost of maintaining services at current levels. Eliminating a gap
                   of this size means that by fiscal year 2002, the Coast Guard would need to
                   identify cuts in operating expenses of $363 million, or an average of about
                   $90 million each year. The Coast Guard would also have to defer a
                   substantial portion of its budget—at least $130 million—to replace or
                   modernize its aging ships, aircraft, and facilities through fiscal year 2002,
                   according to OMB’s and the Coast Guard’s estimates.

                   Whether the Coast Guard can close the gap with its current budget
                   strategy is highly uncertain at this point and is likely to remain so for some
                   time. Coast Guard managers have acknowledged the enormity of the task
                   but have not yet fully developed an approach or a specific plan for
                   addressing the task. To their credit, agency managers have begun to
                   strengthen planning and budgeting processes through such steps as
                   developing new business and capital expenditure plans. But these changes
                   will not be fully in place for a year or more, and their usefulness in
                   addressing immediate needs for reductions is unclear. In the meantime,
                   the Coast Guard continues to rely heavily on its past strategy, which
                   focuses almost exclusively on cutting costs through greater



                   Page 3                          GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                     Executive Summary




                     efficiency—that is, on providing all services at the same levels as before
                     but doing so at less cost. While this strategy has yielded savings of about
                     $343 million, achieving OMB’s targets will be a much more difficult
                     challenge.

                     The sheer size of the gap and the dwindling number of available
                     efficiency-related options mean that in developing its plan for meeting
                     OMB’s budget targets, the Coast Guard may have to reexamine its current
                     focus of addressing efficiency measures alone. GAO’s past work shows that
                     when private-sector and public organizations have successfully faced
                     fiscal constraints like the Coast Guard’s, they have done so through a
                     much broader approach that includes the consideration of other
                     alternatives, such as changing the services provided or reassessing how
                     they are paid for. As the first step in developing its plan, the Coast Guard
                     needs to quantify the extent of likely savings from ongoing or planned
                     actions. Except for the recent streamlining program, the Coast Guard has
                     relatively incomplete knowledge about the savings that it can anticipate in
                     the next several years from cost-saving steps that are in various stages of
                     implementation. As a result, the agency does not know the degree to
                     which these steps would close future funding gaps. In addition, the Coast
                     Guard may have to consider measures that call for considerable change in
                     its operating culture, such as changing its military rotation policy, or that
                     stir public opposition, such as closing small boat stations. Fully addressing
                     such options may require further study or new implementation strategies.



Principal Findings

Projected Gap Is     OMB’s budget targets call for capping the Coast Guard’s expenditures in
Substantial          most discretionary spending categories at the requested levels for fiscal
                     year 1998 throughout fiscal 1999-2002, with no adjustments for inflation.
                     For operating expenditures—everything from salaries and benefits to
                     maintenance and training—a freeze translates into a reduction in
                     purchasing power and therefore a need to make cuts in activities. Cuts are
                     necessary because costs rise from year to year as a result of inflation and
                     other factors, even if funding levels do not. If no funding is received to
                     cover the additional cost of providing the same level of operations, the
                     Coast Guard must find ways to cover the loss in purchasing power by
                     reducing costs. If OMB’s targets become the mark that the Coast Guard
                     must meet during fiscal years 1999-2002, the Coast Guard will have to




                     Page 4                         GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                          Executive Summary




                          make cuts of $363 million in the operating portion of its budget—an
                          average of about $90 million each year.

                          For capital expenditures, where the gap is $130 million, a freeze in
                          expenditure levels for new ships, aircraft, and facilities does not
                          necessarily translate into the need to make immediate cuts in activities
                          because the Coast Guard may be able to go on using the old equipment.
                          Instead, the effect of the freeze is deferred; at some future point, the
                          equipment will likely need to be replaced or modernized. These deferrals
                          can represent a potential funding dilemma, in that future budgets may not
                          be able to accommodate all of the replacement or modernization projects
                          that the agency believes cannot be put off any longer. The Coast Guard has
                          estimated that replacing aging equipment and facilities on a one-for-one
                          basis would require annual expenditures of from $768 million to about
                          $1.2 billion in fiscal years 1999-2002, an amount that is at least double that
                          included in OMB’s targets. Deferring these acquisition costs can also affect
                          the costs of operations, in that the cost-saving advantages of new or
                          modernized equipment may not be realized, and the costs of maintaining
                          older equipment and facilities can increase.

                          OMB’s current targets are not the final word on how large the gap will be.
                          The targets characteristically are subject to revision, on the basis of
                          assumptions about how well the economy will perform, and changes in
                          these assumptions can have a major impact on the size of the gap. The
                          targets are also subject to change as the administration and the Congress
                          consider the trade-offs involved in distributing limited funding among all
                          programs, including those of the Coast Guard. Any of these factors could
                          cause the Coast Guard’s funding gap to widen or narrow.


Adequacy of Strategy to   For the Coast Guard, the current deficit reduction efforts come on the
Meet OMB’s Targets Is     heels of the largest cost-reduction effort in the agency’s recent history. The
Highly Uncertain          agency’s cost-reduction efforts since fiscal year 1994 occurred in two
                          phases and have yielded savings totaling about $343 million. The agency’s
                          efforts in fiscal years 1994-96 yielded savings of about $266 million by
                          eliminating over 2,600 jobs and decommissioning old cutters and aircraft.
                          In fiscal year 1996, the agency began a second round of efforts, called the
                          National Plan for Streamlining, from which it expects to achieve an
                          additional $77 million in net savings by fiscal year 1999. However, despite
                          the substantial savings from these cost-reduction efforts, Coast Guard
                          management may face an even greater fiscal challenge in the near future.
                          If OMB’s budget targets hold, the Coast Guard must make additional cuts in



                          Page 5                          GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                              Executive Summary




                              operating expenses equal to $363 million by fiscal year 2002. In addition,
                              the agency may have to defer capital expenditures of $130 million or more,
                              according to OMB’s and the Coast Guard’s estimates.

                              Coast Guard managers have not yet fully developed an approach or
                              specific plan to meet OMB’s budget targets. Although the Coast Guard has
                              taken several actions to strengthen its budget review process, specific
                              steps associated with these actions are just getting under way, and some
                              of them will take time to put in place. The actions include developing (1) a
                              revised planning and budgeting process that builds in mechanisms for
                              identifying cost-saving alternatives, (2) a new senior management group
                              that provides the agency with an additional opportunity to focus on
                              dealing with budget targets, and (3) a new capital-planning process
                              designed to focus on the scaled-down realities of the current budget
                              environment. But the internal processes for developing and considering
                              cost-cutting ideas are not yet fully developed, and the full development of
                              the new capital-planning process is not expected until 1999.

                              In the short term, the Coast Guard is planning to rely mainly on its past
                              strategy as a way to meet future budget targets. This strategy, which
                              mirrors many efforts undertaken in past years, relies heavily on asking
                              program managers to (1) consider a number of specific budget-cutting
                              options suggested by top management to improve efficiency for fiscal
                              years 1998-99 and (2) identify additional opportunities to operate more
                              efficiently. However, the Coast Guard itself acknowledges that nearly all of
                              what it considers to be realistic savings opportunities have already been
                              taken, leaving little in the “savings locker.” Given the size of the gap and
                              the depleted list of cost-saving efficiencies, the adequacy of this approach
                              in meeting much sterner budget challenges is highly uncertain, and the
                              agency may have to look beyond efficiency measures only for
                              budget-cutting options.


Additional Actions Needed     Coast Guard officials voiced optimism that additional steps recently
on Several Fronts to Better   undertaken or planned would yield substantial savings to offset future
Prepare for Budget            funding gaps. These steps include such projects as replacing old motor
                              lifeboats with fewer, more efficient ones and replacing aircraft engines
Contingencies                 with others that use less fuel and require less maintenance. However, the
                              Coast Guard does not appear to have a very clear picture of the extent of
                              these savings, particularly on a year-by-year basis. If such estimates can be
                              developed, they would help provide clearer indications of likely savings
                              and earlier warnings about the extent to which further cost-cutting efforts



                              Page 6                         GAO/RCED-97-110 Future Budget for U.S. Coast Guard
Executive Summary




will be needed. Coast Guard officials indicated that in many cases, such
estimates could be developed.

So far, many of the Coast Guard’s cost-cutting measures have generally not
been controversial. However, some of the cost-cutting options that have
been raised by previous studies—but not adopted—are controversial
within the Coast Guard because they involve a change in the
organizational culture. For example, past studies by DOT and the National
Advisory Committee on Oceans and Atmosphere have pointed out that
lengthening periods between military assignment rotations could
substantially reduce the costs of transferring military personnel, which
now amount to more than $60 million a year. The Coast Guard believes
that its current policies are best and does not plan to study this issue
further.

Other changes are controversial with the public. The Coast Guard has
proposed consolidating small boat stations to save money. However,
despite assurances that response capabilities will not be significantly
affected, the agency’s consolidation proposals have not been accepted by
the Congress. Also, substantial public opposition to closing Coast Guard
facilities is likely to occur in local communities that derive significant
economic benefits or services from the agency. If the size of budget
reductions makes it necessary for the Coast Guard to consider
controversial closure actions, these controversies need to be
acknowledged and addressed. To address a similar situation, the
Department of Defense used a “base closure” approach under which an
independent commission had authority to recommend closures of
facilities.

GAO’s past work examining a cross section of private-sector and public
organizations that have faced fiscal constraints similar to the Coast
Guard’s shows that they have often adopted a much broader approach or
framework for evaluating potential cost-cutting options. Frequently, these
broader assessments have involved a fundamental rethinking of the
missions and services performed by these organizations and their
relationship to user groups vis-a-vis the payment for such services.
Expanding budget-cutting options to include a reassessment of missions
or user fees is likely to involve controversy as well, given past opposition
to reductions in services and requirements to pay for services. Partly
because of these potential controversies, the Coast Guard has not pursued
significant changes in its missions and rarely has suggested additional user
fees to pay for its services. But if future cuts cannot be accommodated by



Page 7                         GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                      Executive Summary




                      efficiency measures alone, the Coast Guard’s strategy needs to be nimble
                      enough to allow quick but thorough consideration of changes in these
                      areas. Because most changes in these areas would require congressional
                      action, it is important for the Coast Guard to be able to identify
                      cost-cutting options for congressional consideration as budget targets are
                      being debated.


                      GAO  is not taking a position on the level of resources needed by the Coast
Recommendations       Guard to carry out its responsibilities or the specific budget reduction
                      options that it should adopt. However, to enhance the Coast Guard’s
                      strategic planning process for considering cost-cutting options, GAO
                      recommends that the Secretary of Transportation direct the Commandant
                      of the Coast Guard to

                  •   quantify anticipated year-by-year savings already under way or planned, to
                      the maximum degree possible, and
                  •   develop a more comprehensive strategy and corresponding plan for
                      addressing impending budget targets by, among other things,
                      systematically identifying and prioritizing alternatives that could be
                      considered if future budget targets require additional reductions. Serious
                      consideration should be given to relevant but unimplemented
                      recommendations from past studies and to a reassessment of the Coast
                      Guard’s missions and the issue of users’ paying for a portion of the costs
                      for the services they receive.


                      If future funding levels require the Coast Guard to consider closing
Matters for           operational units, the Congress may wish to establish an independent
Congressional         panel, much like the Defense Base Closure and Realignment Commission,
Consideration         to review potential closures. Also, if the Congress believes that potentially
                      controversial issues within the Coast Guard (such as changing military
                      rotation policies) merit further attention, the Congress may wish to
                      (1) direct the Coast Guard to commission an outside study of these
                      options or (2) otherwise ensure either that the options are reviewed
                      independently or that the Coast Guard’s studies of controversial internal
                      issues are validated by a third party.


                      GAO provided Coast Guard officials with copies of a draft of this report for
Agency Comments       their review and comment. GAO met with Coast Guard officials, including
                      the Director of Resources, who generally concurred with the information



                      Page 8                         GAO/RCED-97-110 Future Budget for U.S. Coast Guard
Executive Summary




and recommendations contained in the report. However, the Coast Guard
believed that the draft report did not (1) thoroughly address the unique
nature of its missions and functions and the breadth of the services it
provides with the budget it has and (2) properly characterize the agency’s
rationale for its reluctance to initiate substantive changes to its missions.
The Coast Guard provided GAO with a number of other technical comments
to clarify portions of the report; these changes have been incorporated
into the body of the report as appropriate.

GAO  believes that the report adequately describes the specific nature of the
Coast Guard’s missions and assets and acknowledges that the Coast Guard
has been asked to do more while dealing with a relatively flat budget over
the last several years. Also, the report describes in some detail the positive
actions the agency has taken and is taking to reduce costs and align itself
with the administration’s priorities.

Coast Guard officials indicated that because the Congress ultimately
decides the missions that the Coast Guard should perform, the agency has
not initiated any mission-related changes. Language has been added to the
report to better reflect the Coast Guard’s position on this matter. However,
the fact that the Coast Guard provides the public with valuable and in
many cases vital services should not prevent the agency from critically
examining its functions to see if other cost-effective alternatives are
available to achieve its missions, as other fiscally constrained
organizations have had to do. By reexamining its missions, the Coast
Guard can position itself to provide relevant and timely information as the
Congress conducts its budget deliberations. Also, the agency can validate
the need for and the scope of its missions and functions before embarking
on an aggressive program to modernize its aging assets.




Page 9                          GAO/RCED-97-110 Future Budget for U.S. Coast Guard
Chapter 1

Introduction


                         Balancing the budget—a goal that the Congress and the administration
                         have agreed in principle to meet by fiscal year 2002—will require the
                         federal government to find ways to dramatically reduce spending.
                         Reducing spending to the degree required for a balanced budget will
                         necessitate many difficult decisions. This report focuses on the efforts
                         taken by one agency—the U.S. Coast Guard—to prepare for making such
                         decisions. Reductions in the Coast Guard’s budget have a potentially
                         far-reaching effect on the public, which looks to the Coast Guard for such
                         services as rescuing people at sea, enforcing marine pollution laws, and
                         ensuring safe operations in the nation’s ports. The Chairman and Ranking
                         Minority Member of the Subcommittee on Coast Guard and Maritime
                         Transportation, House Committee on Transportation and Infrastructure,
                         asked us to conduct this study as a way of helping evaluate how the Coast
                         Guard might best cope with such fiscal constraints.


                         As an agency of the Department of Transportation (DOT), the Coast Guard
The Coast Guard Has      carries out a variety of activities as the agency primarily responsible for
a Multifaceted List of   providing many maritime services and enforcing related laws and
Missions and             regulations. Its staff and equipment are involved in four main missions:
                         (1) maritime law enforcement, (2) marine environmental protection,
Responsibilities         (3) national security, and (4) maritime safety. These missions are
                         supported by seven operating programs, as shown in figure 1.1. Some of
                         these program responsibilities, such as enforcing U.S. fisheries laws and
                         overseeing statutory requirements stemming from the Exxon Valdez oil
                         spill in Alaska’s Prince William Sound, have been added or augmented by
                         the Congress in recent years.




                         Page 10                        GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                                           Chapter 1
                                           Introduction




Figure 1.1: Basic Program Areas of the Coast Guard


                                                  Major Program Areas


  Enforcing maritime laws and treaties                                   Aids to navigation
  Activities center on enforcement of drug, fisheries,                   The Coast Guard maintains about 50,000 federal
  and immigration laws. In 1996, the Coast Guard                         navigational aids (such as signs, buoys, and
  conducted 36 drug-related seizures, 13,100                             lighthouses) along coasts and inland waterways. In
  boardings for fisheries enforcement, and 181                           many major ports, the Coast Guard operates
  immigation-related interdictions affecting about                       vessel traffic systems.
  9,100 people.




  Search and rescue                                                      Marine safety
  The Coast Guard maintains a nationwide                                 In 1996, the Coast Guard conducted about 42,000
  system of boats, aircraft, and rescue                                  vessel inspections and 18,900 casualty
  coordination centers. In 1996, the Coast Guard                         investigations. It also processes documents of
  reported saving about 4,750 lives, assisting                           maritime personnel and operates a recreational
  more than 90,000 people, and preventing $2.2                           boating safety standards program.
  billion in property loss.




  Marine environmental protection                                         Defense readiness
  Among its activities in 1996, the Coast Guard                           The Coast Guard's defense role is intertwined with
  investigated about 15,500 cases of possible marine                      other missions, such as law enforcement and
  pollution and supervised the cleanup of more than                       maritime safety. Specific activities include
  800 spills of oil or hazardous chemicals. It also                       providing search and rescue coverage for other
  inspected waterfront facilities and conducted                           military services and coordinating port security
  patrols in harbor areas.                                                and harbor defense activities.




                             Ice operations
                             In 1996, the Coast Guard deployed its two polar icebreakers in Arctic
                             and Antarctic waters for a total of 214 days, supporting national
                             defense and scientific projects. Coast Guard cutters also provided
                             more than 7,300 hours of domestic icebreaking within navigable
                             waters of the United States.




                                           Page 11                           GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                        Chapter 1
                        Introduction




                        As an organization that is part of the armed services, the Coast Guard has
Services Are Provided   both military and civilian positions.1 At the end of fiscal year 1996, the
Through Many            agency had about 43,000 total full-time positions—about 37,000 military
Locations and           and about 6,000 civilian. The Coast Guard has about 7,800 reservists who
                        support the national military strategy and provide additional operational
Facilities              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.2

                        The Coast Guard is headed by a Commandant, who serves a 4-year term.
                        The agency’s organizational structure contains several tiers; most of the
                        agency’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 certain other waterways like the Great
                        Lakes. Figure 1.2 shows this structure.




                        1
                         The Coast Guard is a military service that was officially established in 1915 (P.L. No. 239; 38 Stat.
                        800-802) as part of the Treasury Department. In 1967, the Coast Guard was transferred from the
                        Treasury Department to the newly created Department of Transportation (P.L. 89-670; 80 Stat.
                        931) because its primary civil functions relate to transportation and marine safety. Upon declaration of
                        war or when directed to do so by the President, the Coast Guard operates as a service of the Navy.
                        2
                        Recently, the Congress extended the role that auxiliary personnel can play in supporting all of the
                        Coast Guard’s missions except for law enforcement and military operations.



                        Page 12                                   GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                                               Chapter 1
                                               Introduction




Figure 1.2: Overview of the Coast Guard’s Operational Structure for Achieving Its Missions


                             Headquarters
                             Headquarters has seven directorates--operations, human resources, systems,
                             civil rights, acquisition, legal, and marine safety, security, and environmental
                             protection. About 1,800 staff work here.
       Not included in
       this overview are
       various support
       functions that are
                             Area commands
       not directly within   Commands in Alameda, Calif., and Portsmouth, Va., are responsible for overall
       the mission-          mission performance in the Pacific and Atlantic, respectively. They also provide
       related               personnel, legal, and other support. About 1,200 staff work here.
       operational
       structure. About
       12,700 staff work
       in such units.
                             District offices
                             There are nine district offices, each responsible for field units in designated
                             geographic areas. About 900 staff work here.



        Groups                                                               Marine safety offices
        Groups provide more localized oversight and                          Marine safety offices are responsible for inspecting
        coordination for field units and provide such services               merchant vessels, investigating incidents involving
        as search and rescue, law enforcement, aids to                       these vessels, coordinating cleanup activities, and
        navigation, and port safety. In all, there are 39                    preventing accidents. There are 43 marine safety
        groups, and about 1,700 staff work in these offices.                 offices; about 2,100 staff are assigned to them.




                                    Patrol and                    Aids to
        Small boat units            other boats                   navigation teams             Air stations
        About 4,000 staff           About 13,300 staff            About 600 staff              About 3,800 staff
        who are assigned to         who are assigned to           who are assigned             who work at 29 air
        185 small boat units        230 cutters provide           to 61 such teams             stations conduct
        provide search and          law enforcment,               inspect and                  search and rescue,
        rescue and related          safety, environmental         maintain buoys,              law enforcement,
        services in coastal         response, and related         lighthouses, and             environmental
        and Great Lakes             functions in ports,           other navigation             response, ice, and
        waters.                     waterways, coastal            aids.                        defense operations.
                                    areas, and at sea.




                                               Page 13                               GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                                          Chapter 1
                                          Introduction




                                          The Coast Guard’s budget for fiscal year 1997 is about $3.84 billion.
The Coast Guard’s                         Operating expenses account for about 68 percent of this total, pay for
Budget Trends, Fiscal                     military retirees accounts for 16 percent, and acquisition, construction,
Years 1993-98                             and improvements (AC&I) accounts for 10 percent. Within the operating
                                          expenses category, about 62 percent of the expenditures, or $1.62 billion,
                                          are for salaries and associated employee costs; the remaining portion
                                          cover all other operations expenses, such as rent, communications, and
                                          materials.

                                          The Coast Guard also prepared estimates of how total operating costs
                                          were allocated among its seven major program areas.3 As figure 1.3 shows,
                                          the enforcement of laws and treaties was the program area with the largest
                                          estimated share of operations expenditures.


Figure 1.3: Major Categories in the Coast Guard’s Budget, Fiscal Year 1997

                                          Operations: $2.62 billion (68%)                  Operations by mission

                                                                      Laws/treaties

                                                                    Navigation aids
                                          Payments to retirees: Marine safety
                                          $612 million
                                          (16%)                 Search/rescue

                                          Acquisition,                 Environment
                                          construction,
                                          improvements:                    Defense
                                          $375 million
                                          (10%)                                  Ice

                                          Other: $236 million                          0     200      400    600   800    1,000 1,200
                                          (6%)                                         Millions of dollars




                                          The Coast Guard’s budgets have remained relatively flat over the past 5
                                          years. During fiscal years 1993-97, the total budget rose from $3.65 billion
                                          to $3.84 billion, or about 1 percent per year in actual dollars. (See table
                                          1.1.) The President’s proposed budget for the Coast Guard in fiscal year

                                          3
                                           The Coast Guard’s accounting system does not accumulate costs by program area; instead, the agency
                                          has developed algorithms to allocate operating costs among its seven key program areas.



                                          Page 14                                 GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                                             Chapter 1
                                             Introduction




                                             1998 is $3.98 billion, an increase of $137 million in actual dollars, or about
                                             3.6 percent from the previous year. The requested increase is mainly for
                                             increased drug interdiction efforts, pay increases and other
                                             employee-related programs, and mandatory increases for retirees.


Table 1.1: Major Categories in the Coast Guard’s Budget, Fiscal Years 1993-98
Dollars in millions
                                                                                                                                           1998
Fiscal year                           1993                    1994                 1995                1996                1997      (requested)
Operating expenses                  $2,561                  $2,588               $2,625              $2,576              $2,618           $2,740
Pay for retired military
personnel                              520                      549                 563                 580                    612           646
Acquisition, construction,
and improvements                       340                      312                 321                 362                    375           370
Other                                  228                      218                 193                 214                    236           221
Totala                              $3,649                  $3,666               $3,701              $3,731              $3,840           $3,977
                                             a
                                                 Because of rounding, totals may differ from the sum of the four categories.



                                          The Coast Guard’s funds come mainly from three sources—the
                                          Department of the Treasury’s General Fund, trust funds, and transfers
                                          from the Department of Defense (DOD).4 (See table 1.2.) Most of the Coast
                                          Guard’s funding is appropriated from the general fund, but since 1982,
                                          significant amounts—ranging from $6 million to $490 million—have also
                                          been transferred from DOD appropriations. The purpose of these transfers
                                          has been to fund national security functions, AC&I projects, and military
                                          pay raises. The Coast Guard also receives moneys from various trust
                                          funds. The Oil Spill Liability Trust Fund, which was established after the
                                          Exxon Valdez oil spill, has been funded by a 5-cent tax on each barrel of
                                          oil produced domestically or imported and is used to pay for oil pollution
                                          prevention and cleanup responsibilities by various federal agencies.5 The
                                          Boat Safety Account of the Aquatic Resources Trust Fund is funded by
                                          taxes on motorboat fuels, sport-fishing equipment, and import duties on
                                          tackle, yachts, pleasure craft, and small engine fuel and is used to pay for a
                                          national recreational boating safety program.



                                             4
                                              General fund accounts for receipts and expenditures are composed of all federal money not allocated
                                             to any other fund accounts. Receipts come from taxes, customs duties, and miscellaneous sources.
                                             General fund expenditures represent amounts appropriated by law for the general support of the
                                             federal government. Trust funds are used to collect and distribute money designated by law for a
                                             specific purpose or program.
                                             5
                                              The authority to collect this tax expired on December 31, 1994.



                                             Page 15                                      GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                                             Chapter 1
                                             Introduction




Table 1.2: Major Sources of Funds for the Coast Guard’s Budget, Fiscal Years 1993-98
Dollars in millions
                                                                                                                                     1998
Fiscal years                         1993                   1994              1995                 1996                1997    (requested)
General Fund
Amounts appropriated
directly to Coast Guard             $3,154              $3,467              $3,517               $3,269               $3,385       $3,512
Amounts transferred from
Department of Defense                  303                   22                  11                 300                 300           300
Trust funds
Oil Spill Liability Trust Fund         122                  105                 116                 121                 110           110
Aquatic Resources Trust
Fund                                    70                   72                  58                   50                 45            55
Totala                              $3,649              $3,666              $3,701               $3,731               $3,840       $3,977
                                             a
                                             Because of rounding, totals may differ from the sum of the categories.




                                             The Chairman and Ranking Minority Member of the Subcommittee on
Objectives, Scope,                           Coast Guard and Maritime Transportation, House Committee on
and Methodology                              Transportation and Infrastructure, asked us to study how the Coast Guard
                                             was preparing to address the fiscal constraints and other budgetary
                                             pressures that it may face in the future. In consultation with their offices,
                                             we established three main questions to address in our review:

                                       •   What is the extent of the gap between the funding needed to maintain the
                                           Coast Guard’s current level of services and the funding that the Office of
                                           Management and Budget (OMB) has targeted for the agency through fiscal
                                           year 2002?
                                       •   What is the Coast Guard’s strategy for addressing this gap, and is the
                                           strategy adequate?
                                       •   What additional actions, if any, would help close the gap?

                                           To identify the projected gap between the estimated costs to maintain the
                                           Coast Guard’s current services and the budget targets set for the Coast
                                           Guard by OMB, we used OMB’s February 1997 budget targets and current
                                           services estimates, which were the latest available at the time of our
                                           review. We examined how the deficit reduction targets might be affected
                                           by economic conditions and other factors. We attempted to verify OMB’s
                                           methodology for developing its estimates; however, OMB officials did not
                                           respond to our requests for information. Also, we reviewed the Coast




                                             Page 16                                  GAO/RCED-97-110 Future Budget for U.S. Coast Guard
Chapter 1
Introduction




Guard’s budget documents and interviewed Coast Guard managers
regarding the factors that have an impact on the gap.

To determine the adequacy of the Coast Guard’s strategy for addressing
fiscal constraints, we interviewed program managers, strategic planners,
and the Director of Resources. We reviewed numerous Coast Guard
planning documents, including the Commandant’s Direction, the
Commandant’s Executive Business Plan, and the Commandant’s
instructions on planning and programming. We reviewed applicable
statutory and legal citations and other documents that described the
agency’s roles and responsibilities and the multi-mission nature of its
functions. We interviewed Coast Guard officials and reviewed the Coast
Guard’s records to identify the extent of cost-saving measures already
implemented by the agency but not included in OMB’s estimates; however,
we did not verify the accuracy of the agency’s savings estimates. We
reviewed the Coast Guard’s streamlining documents and other documents
on cost savings attributable to technology improvements. We also
examined how the estimates for meeting current missions might be
affected by the need to replace aging, inefficient, or outdated ships and
other capital items. We reviewed the agency’s most recent Capital
Investment Plan (Dec. 1996); however, we did not verify the accuracy of or
attempt to validate its estimates for future acquisition needs. Finally, we
visited several Coast Guard units, including the Pacific Area and District
11 Offices, the Petaluma and Yorktown Training Centers, Activity
Command-Baltimore, Activity Command-San Diego, Integrated Support
Center-Alameda, and the Coast Guard Academy.

To determine what kinds of additional actions might be taken to address
the gap, we first reviewed the efforts of other agencies faced with a need
to substantially reduce their budgets. Such efforts have been cataloged
and analyzed in deficit reduction and strategic-planning studies conducted
by us and others. This gave us a frame of reference for analyzing specific
actions. For the actions themselves, we turned to a body of studies that
already exists on the Coast Guard’s operations. We conducted a literature
search to identify major studies that have been conducted by DOT, the
Coast Guard, the National Performance Review, ourselves, and others. We
developed a list of 23 studies, choosing studies that (1) were completed
during the last 15 years and covered a broad range of Coast Guard issues
or (2) were completed in the last 5 years and covered more narrowly
focused issues, such as aids to navigation and ice breaking. Also, we
included only reports that contained potential budget reduction options
and recommendations. (See app. I for a complete list of the outside studies



Page 17                       GAO/RCED-97-110 Future Budget for U.S. Coast Guard
Chapter 1
Introduction




that we included and app. II for GAO studies we included.) The 23 studies
are not intended to be an exhaustive list; rather, they represent budget
reduction options that have been offered during the time periods specified.
We summarized cost-saving recommendations from these 23 studies and
asked the Coast Guard about the current status of the recommendations;
for those options that had not been implemented, we asked the agency to
discuss the reasons why they had not been carried out. (See app. II for a
complete list of these recommendations.) We did not intend the list to be a
set of actions that the Coast Guard should take, but rather a list of options
that might merit consideration. We supplemented the Coast Guard’s
response as needed with interviews and other follow-up work.

We provided the Coast Guard with a draft of this report for review and
comment. The Coast Guard’s comments and our evaluation are presented
in chapter 4.

Our work was performed from July 1996 through April 1997 in accordance
with generally accepted government auditing standards.




Page 18                        GAO/RCED-97-110 Future Budget for U.S. Coast Guard
Chapter 2

Balanced Budget Effort Places Substantial
Pressure on the Coast Guard’s Budget

                        Deficit reduction efforts will create substantial pressure on the Coast
                        Guard’s budget in the coming years. OMB has proposed freezing most
                        elements of the Coast Guard’s budget through fiscal year 2002. Because of
                        the loss of purchasing power brought on by higher costs for such things as
                        salaries and fuel, this freeze translates into cutting each year’s operations
                        budget by an estimated $90 million over the previous year’s amount. The
                        freeze also means that a substantial portion of the amount that the agency
                        believes it needs to replace and modernize aging ships, aircraft, and
                        facilities will remain unmet.


                        In 1996, the Congress and the President reached an agreement in principle
Balanced Budget         to achieve a balanced federal budget by fiscal year 2002. In fiscal year
Efforts Signal          1996, the federal government had a budget of about $1.6 trillion and a
Substantial             deficit that according to the Congressional Budget Office (CBO), was about
                        $107 billion. Unless actions are taken to reduce expenditure levels or
Reductions in Federal   increase revenues, the deficit is expected to rise to $188 billion by fiscal
Expenditures            year 2002. The President’s fiscal year 1998 budget document acknowledges
                        that achieving a balanced budget will mean that agencies no longer can
                        rely on more funding each year, and for the foreseeable future, their
                        resources will be constrained.

                        OMB is the lead agency for developing the administration’s estimates of
                        future budget gaps between an agency’s anticipated needs and available
                        funding caused by efforts to balance the federal budget. OMB develops and
                        periodically updates its estimate of an agency’s potential gap by making
                        two separate determinations—(1) how much money the agency would
                        need to provide its current level of services in future years and (2) how
                        much money it can expect to receive as its share of the federal budget.
                        (See fig. 2.1.) The gap, if any, is the degree to which the cost of services
                        exceeds the agency’s budget target.




                        Page 19                        GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                                          Chapter 2
                                          Balanced Budget Effort Places Substantial
                                          Pressure on the Coast Guard’s Budget




Figure 2.1: Relationship of Budget
Target, Projected Cost of Services, and
Budget Gap                                  Estimated Cost of
                                                                              Budget Target                       Gap
                                            Current Services




                                              Projection of the              Projection of likely         The difference, if
                                              cost of continuing             expenditure                  any, between
                                              the current level              levels, given such           estimated costs
                                              of activity into               factors as future            and the budget
                                              future years                   economic                     target
                                                                             conditions, the
                                                                             need for
                                                                             balancing the
                                                                             federal budget,
                                                                             and the
                                                                             administration's
                                                                             analysis of the
                                                                             agency's
                                                                             programs relative
                                                                             to other funding
                                                                             priorities




                                          To develop its estimate of the agency’s future costs for providing services,
                                          OMB begins with a baseline amount for services currently provided by the
                                          agency and adjusts it for inflation. To develop its estimate of the agency’s
                                          budget target, OMB takes two main factors into account—(1) total federal
                                          revenues and expenditures and (2) the fiscal priority for the agency’s
                                          programs. Estimates of federal revenues and expenditures are based on a
                                          variety of assumptions about how the economy will perform during the
                                          period. The administration’s fiscal priorities take into account the position
                                          of the agency’s programs relative to other federal programs. As a result,




                                          Page 20                             GAO/RCED-97-110 Future Budget for U.S. Coast Guard
Chapter 2
Balanced Budget Effort Places Substantial
Pressure on the Coast Guard’s Budget




the effect of budget reductions is not necessarily uniform across federal
agencies. Funding for some agencies may increase, while funding for
others may be reduced.

Accompanying the effort to balance the budget are statutory limits on total
discretionary spending that have been in effect since fiscal year 1991.1
These limits have placed a general freeze on total discretionary spending
since 1993.2 CBO estimates that under current assumptions about the
economy, extending a freeze of total discretionary spending at the fiscal
year 1998 level without changing other budget policies would still leave a
projected deficit in fiscal year 2002 of about $101 billion. CBO estimates
that the President’s budget strategy would fall $69 billion short of
balancing the budget unless alternative policies are implemented.

Budget forecasts are subject to considerable fluctuation. One major reason
for this is the effect of varying assumptions about how the economy will
perform. OMB’s overall estimate for balancing the federal budget is
contingent on numerous economic and policy assumptions about such
matters as the gross domestic product, the unemployment rate, inflation,
and interest rates. One example of the effect of changing these
assumptions is that lowering the anticipated rate of growth in the gross
domestic product by 1 percent and raising the unemployment rate by
one-half percent each year would cause the projected cumulative federal
deficit to increase by $143 billion by fiscal year 2002. Estimates of overall
economic performance can have a direct effect on individual agency’s
budget targets because the economy’s strength affects how much revenue
the federal government is likely to take in and the funds it will need to
expend.

Budget targets for individual agencies are also subject to change as
policymakers consider trade-offs involved in reducing funds for some
agencies more than others. These policy trade-offs occur both as the
President considers initial budget submissions from agencies and makes
final decisions on the amount to request for each agency from the
Congress and as the Congress considers these requests and makes


1
 Discretionary spending refers to outlays controllable through the congressional appropriation
process. In contrast, mandatory spending, which includes outlays for entitlement programs such as
food stamps, Medicare, and veterans’ pensions, is controlled by the Congress indirectly by defining
eligibility and setting the benefits or payment rules rather than directly going through the
appropriation process.
2
 The Budget Enforcement Act of 1990 established limits on discretionary spending through 1995. The
Omnibus Budget Reconciliation Act of 1993 revised and extended those limits through 1998. OMB
prepares the calculations and estimates used to adjust and enforce those limits.



Page 21                                   GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                                      Chapter 2
                                      Balanced Budget Effort Places Substantial
                                      Pressure on the Coast Guard’s Budget




                                      decisions about them. OMB’s documents make it clear that balancing the
                                      budget will require difficult decisions about what the federal government
                                      should do and what other levels of government or the private sector
                                      should more appropriately do.


                                      Under OMB’s projections, the Coast Guard faces a budget gap of about
Projected Gap for the                 $131 million in fiscal year 1999, cumulatively rising to $493 million by
Coast Guard                           fiscal year 2002. (See fig. 2.2.) OMB’s projections are that during this period,
Approaches $500                       the cost of providing the Coast Guard’s services at the requested levels for
                                      fiscal year 1998 will rise from $4.154 billion to $4.622 billion. The Coast
Million by Fiscal Year                Guard’s budget target would remain much flatter, rising from $4.023 billion
2002                                  to $4.129 billion. The gap reflects the degree to which the budget target
                                      does not fund services at requested levels for fiscal year 1998.


Figure 2.2: Projected Costs, Budget
Targets, and Gaps in the Coast                Dollars (billions)
                                        5
Guard’s Budget, Fiscal Years
1999-2002



                                      4.5
                                                                                                               $493 million
                                                                                         $388 million
                                                                   $284 million
                                            $131 million
                                        4




                                      3.5
                                         1999                        2000                    2001                    2002

                                                    Projected cost of services at current levels
                                                    Budget target as projected by OMB (Jan. 1997)
                                            Dollar amounts shown between lines are the resulting budget gap for the fiscal year




                                      Page 22                               GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                               Chapter 2
                               Balanced Budget Effort Places Substantial
                               Pressure on the Coast Guard’s Budget




                               OMB’s budget targets call for capping the Coast Guard’s expenditures in
                               most discretionary spending categories at the requested levels for fiscal
                               year 1998 throughout fiscal 1999-2002, with no adjustments for inflation.
                               These caps would not apply to the largest category of the Coast Guard’s
                               budget that is subject to mandatory increases—the expenditure for pay for
                               retired military personnel. The cost of this mandatory increase is reflected
                               in the slight increase in the Coast Guard’s total budget targets during the
                               period (from $4.023 billion to $4.129 billion). For discretionary categories,
                               the levels at which spending would be frozen are as follows:

                           •   Operating expenses: $2.74 billion.
                           •   Other operations-related spending: $141 million. This category includes
                               certain activities, such as environmental compliance and restoration and
                               reserve training, which also have their own accounts in the Coast Guard’s
                               budget.
                           •   Acquisition, construction, and improvements: $370 million. This category
                               covers the Coast Guard’s capital needs for replacing or renovating vessels,
                               aircraft, and facilities.

                               A freeze affects operations and capital needs spending in markedly
                               different ways.


Spending Freeze for            For operations, a freeze in expenditure levels translates into the need to
Operations Would Require       make budget cuts. Operating expenses and related activities that have
Cuts in Activities             their own budget accounts constitute about 74 percent of the Coast
                               Guard’s budget. These expenses include such things as salaries and
                               benefits, fuel and supplies, maintenance, training, and administrative
                               overhead. As OMB’s methodology for operations needs acknowledges, the
                               cost of providing the same level of operations activity rises from one year
                               to the next. This occurs because many of these costs increase from
                               inflation. If no money is received to cover the additional cost of providing
                               the same level of operations, cost savings must somehow be achieved to
                               cover the loss in purchasing power.

                               By fiscal year 2002, the Coast Guard will have to cut a total of
                               $363 million—an average of about $90 million each year—from operating
                               expenditures and related activities. The Coast Guard believes that it can
                               partially offset these cuts through management efficiencies, the
                               termination of one-time costs, and improvements in technology. While
                               these offsets will help address OMB’s budget targets, the Coast Guard will
                               still need to identify about $43 million to $51 million in savings each year,



                               Page 23                             GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                             Chapter 2
                             Balanced Budget Effort Places Substantial
                             Pressure on the Coast Guard’s Budget




                             according to Coast Guard officials. Among the alternatives for making
                             such cuts are finding ways to provide the same levels of services, but just
                             more efficiently, or actually reducing the level of services provided.3


A Spending Freeze for        For capital needs, a freeze in expenditures translates into a potential
Capital Expenditures         funding requirement for increased expenditures in the future. Unlike
Would Likely Put the Coast   freezing operations, freezing the expenditure level for capital needs does
                             not necessarily translate into the need to make direct and immediate cuts
Guard Further Behind in      in activity levels. For example, if the Coast Guard is not able to replace or
Replacing Aging              upgrade an aging cutter, the activity associated with this equipment may
Equipment                    still continue unless the equipment is so old or ineffective that it can no
                             longer be used at all. However, the unmet need to upgrade or replace
                             assets still remains; at some point, equipment will have to be replaced or
                             modernized. Deferring these expenditures can represent a funding
                             dilemma, in that, future budgets may not be able to accommodate all of
                             the acquisition and capital improvement projects that the agency believes
                             cannot be put off any longer. A deferral can also represent a source of
                             increased expenditures for operations because of the higher maintenance
                             costs associated with aging equipment. The continued use of aging
                             equipment may also place other limitations on the level of services that
                             can be provided.

                             The Coast Guard has indicated that it is facing a period in which the level
                             of replacement and renovation activity may need to be accelerated. The
                             agency’s December 1996 Capital Investment Plan discusses a “bow wave”
                             of deferred out-year funding needs to replace or renovate an aging fleet of
                             vessels, aircraft, and shoreside facilities. The Coast Guard is currently
                             revising its estimates of this need. The Coast Guard acknowledges that
                             estimates in its December 1996 plan do not reflect the current budget
                             climate; therefore, it is revising its latest capital plan and expects to have
                             an interim plan completed by July 1997.

                             The estimate that the Coast Guard develops is likely to be greater than the
                             capital needs included in OMB’s budget targets, which freeze capital
                             spending at $370 million. As table 2.1 shows, the $370 million target is
                             already below OMB’s estimates of capital needs, which are based mainly on
                             adjusting the amount upward to account for inflation. The target is even
                             further below the Coast Guard’s December 1996 estimates, which
                             generally are based on a one-for-one replacement of obsolete equipment.
                             These estimates, also shown in table 2.1, indicate that capital requirements

                             3
                              See chapter 4 for a discussion of these and other alternatives.



                             Page 24                                    GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                                        Chapter 2
                                        Balanced Budget Effort Places Substantial
                                        Pressure on the Coast Guard’s Budget




                                        will rise to more than $1.2 billion by fiscal year 2001. The Coast Guard
                                        estimates that its capital spending will need to rise to even higher levels in
                                        fiscal years 2003-08.

Table 2.1: Comparison of Coast
Guard’s and OMB’s Estimates of          Dollars in millions
Capital Needs, Fiscal Years 1999-2002   Source of capital needs
                                        estimate                                       1999              2000     2001          2002
                                        Coast Guard’s estimates
                                        issued in December 1996
                                        (based generally on a
                                        one-for-one replacement
                                        need for all aging equipment
                                        and facilities)                                $768              $872    1,258        $1,162
                                        OMB’s budget projection
                                        (based on its estimates of
                                        funding needed to maintain
                                        current services)                               395               478      488           500
                                        OMB’s budget target for
                                        actual capital needs spending                   370               370      370           370

                                        It is important to emphasize that there may be a substantial difference
                                        between the December 1996 estimates and those that will be issued by
                                        July 1997 relative to the time frames for replacing or upgrading capital
                                        assets. The Commandant has indicated that the July 1997 estimates would,
                                        among other things, “provide a basis for a recapitalization strategy which
                                        is more aligned with probable funding levels.” These estimates will also
                                        reflect additional consideration of how technology breakthroughs and
                                        other factors might reduce capital needs. For example, newly acquired
                                        buoy tenders are more efficient than the ships they replaced, which
                                        substantially reduces the need for one-to-one replacement. Similarly, the
                                        Coast Guard’s Deepwater Mission Analysis Report, completed in 1995,
                                        cited a number of technological improvements, such as greater use of
                                        satellite vessel tracking, that could mitigate the need for replacing capital
                                        assets.4


                                        Although deficit reduction efforts will create substantial pressure on the
Conclusions                             Coast Guard’s budget in the coming years, it is not possible at this point to
                                        say how great that pressure will be. This is mainly because OMB’s budget
                                        targets are subject to change and the Coast Guard is still developing its
                                        plans for replacing aging equipment and facilities. If current budget targets
                                        hold, however, they point to the likely need for the Coast Guard to (1) find

                                        4
                                         A fuller discussion of these alternatives can be found in chapter 4.



                                        Page 25                                    GAO/RCED-97-110 Future Budget for U.S. Coast Guard
Chapter 2
Balanced Budget Effort Places Substantial
Pressure on the Coast Guard’s Budget




ways to cut operating expenses throughout fiscal years 1999-2002 and
(2) develop ways to deal with being unable to meet part of its capital
replacement needs. Such possibilities accent the need for the Coast Guard
to have a sound budget reduction strategy that provides for the orderly
consideration of alternatives for dealing with potential budget gaps and a
responsive, data-based approach for deciding what kinds of spending
changes to make.




Page 26                             GAO/RCED-97-110 Future Budget for U.S. Coast Guard
Chapter 3

Magnitude of Likely Cuts Has Spurred the
Coast Guard to Begin Developing
Alternative Approaches
                              Although the Coast Guard is in the process of completing the largest
                              cost-reduction effort in its recent history, these efforts pale in comparison
                              to the fiscal challenge it may face in the next several years. The Coast
                              Guard expects that its most recent plan for streamlining operations, which
                              required several years to study and put in place, will result in net savings
                              of about $77 million in operating costs by fiscal year 1999. But the budget
                              targets established by OMB call for cuts in operating expenditures that are
                              more than four times this amount by fiscal year 2002. In recent months,
                              Coast Guard managers have acknowledged that new and improved
                              planning and budgeting processes are needed to deal with future fiscal
                              challenges. They have begun work on several actions that may help
                              address the prospect of continued reductions. However, most of these
                              actions are just getting under way. As a result, it is too early to determine
                              whether the actions will result in decisions that will allow the Coast Guard
                              to meet budget targets.


                              Starting in fiscal year 1994, the Coast Guard entered a period of fiscal
The Coast Guard Has           austerity that it had not experienced in recent history.1 In August 1994, the
Just Carried Out the          Commandant set a 4-year course for the Coast Guard that centered on
Most Severe Cuts in           eight goals, two of which have particular relevance to cost cutting and
                              Coast Guard operations: (1) meeting cost reduction goals with no
Its Recent History            reduction to essential services and (2) achieving efficiencies through
                              improved technology. These goals were the guiding principles that the
                              Coast Guard’s staff used to translate budget-cutting and management
                              reform requirements into action.


Actions to Streamline         The Coast Guard has made significant progress in meeting the
Activities Have Resulted in   Commandant’s goal of cutting costs with no reduction in essential
Significant Savings           services. Through these efforts, the Coast Guard has cut costs by
                              $343 million and reduced the size of its workforce by over 3,500 personnel
                              to a level that is smaller than at any time in the last 30 years.2 While doing
                              so, the Coast Guard has continued to provide services in its major areas of



                              1
                               The Coast Guard’s cost reduction efforts were part of a larger movement to reduce the size of the
                              federal government. In 1993, the President endorsed a recommendation by the National Performance
                              Review to reduce the federal workforce by 252,000 positions. In March 1994, the Federal Workforce
                              Restructuring Act (P.L. 103-226, 108 Stat. 111) required federal agencies to reduce their workforce by
                              272,900 full time equivalent positions during fiscal years 1994-99.
                              2
                               The Coast Guard’s $343 million savings estimate is in constant fiscal year 1998 dollars and reflects an
                              annual upward adjustment of 2.5 percent for inflation. Also, about $105 million of the $343 million in
                              savings came from budget cuts initiated by the Congress.



                              Page 27                                    GAO/RCED-97-110 Future Budget for U.S. Coast Guard
Chapter 3
Magnitude of Likely Cuts Has Spurred the
Coast Guard to Begin Developing
Alternative Approaches




responsibility, including search and rescue, law enforcement, and
enforcement of maritime laws and regulations.

The Coast Guard has achieved these savings in two phases. The first phase
occurred during fiscal years 1994-96, when the Coast Guard developed a
multiyear budget strategy that cut costs and reduced the size of its
organization. Overall, the agency’s actions taken during this phase reduced
costs by approximately $266 million by (1) eliminating more than 2,600
positions from its regular workforce and 2,500 positions from its reserve
forces, (2) decommissioning 18 older cutters, and (3) relocating aircraft
and removing 17 multi-mission aircraft from service.

While the savings achieved during phase one were significant, the Coast
Guard found that they would not be enough to meet OMB’s budget targets
in place beyond fiscal year 1996. As a result, in fiscal year 1996, the Coast
Guard entered a second phase of its downsizing effort and developed the
National Plan for Streamlining, which concentrated on reducing the Coast
Guard’s overhead and support structure. The plan identified four areas
that would undergo streamlining actions: (1) headquarters, (2) area and
district offices, (3) Governors Island in upper New York Bay, and
(4) information management and research and development. (See table
3.1.) The plan also included a training component that addressed the
headquarters’ management structure for training, key training processes,
and the field training delivery organization. The Coast Guard plans to fully
implement its streamlining plans by fiscal year 1999; it estimates that net
savings of about $77 million a year will be realized through reductions in
these areas and that most of the savings will be realized in fiscal years
1997 and 1998.




Page 28                             GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                                        Chapter 3
                                        Magnitude of Likely Cuts Has Spurred the
                                        Coast Guard to Begin Developing
                                        Alternative Approaches




Table 3.1: Summary of the Coast Guard’s “National Plan for Streamlining”
Streamlining area                         Actions taken or being implemented
Streamline headquarters                   The Coast Guard reduced the number of staff in headquarters by 300, consolidated 11
                                          offices into 7, and relocated 300 other staff to field units.
Streamline area and district offices      The Coast Guard reduced the number of districts from 10 to 9 by merging two district
                                          offices. It also merged its two area offices with adjacent district offices, while retaining
                                          the functions of the districts. Four prototype activity commands were established to
                                          assess the potential for improved coordination and capability among Coast Guard units
                                          (groups, air stations, marine safety offices). The Coast Guard also created 12 units from
                                          existing support centers and other locations to consolidate personnel, finance, and
                                          other support services.
Close Governor’s Island                   The Coast Guard is reducing staff by 500 and relocating about 1,700 staff and two
                                          high-endurance cutters to other locations.
Streamline other support functions        The Coast Guard will create “centers of excellence” by reducing the number of
                                          electronics, communications, and information support facilities by at least one;
                                          restructuring the research and development program; and consolidating military and
                                          civilian personnel services into one unit.



Technology Improvements                 The Coast Guard is also using new capital improvements to achieve
Are Expected to Add                     operating efficiencies. For example, it plans to replace 37 buoy tenders
Further Savings                         with 30 new vessels. According to the Coast Guard, the new ships will
                                        require about 500 fewer crew members, and the reduced number of ships
                                        will also have reduced operating costs of about $14 million each year
                                        when all of the new buoy tenders are deployed. For the most part,
                                        however, detailed savings estimates for technology improvements have
                                        not been developed. The issue of savings from these projects will be
                                        discussed more fully in chapter 4.


                                        The Coast Guard’s past success at cost reductions, while notable, provides
Future Decisions to                     a sobering perspective for the continued austerity forecast by OMB. The
Cut Costs Will Be                       future budget environment outlined by OMB’s budget targets shows that the
Even More Difficult                     savings the Coast Guard has achieved with its current streamlining effort
                                        are relatively small when compared with the effort required in the future.
Than Prior                              To meet OMB’s targets, required operational cuts would be about
Cost-Cutting Efforts                    $363 million by fiscal year 2002—more than a four-fold increase over the
                                        net savings the Coast Guard expects to achieve through its National Plan
                                        for Streamlining. While OMB’s targets are subject to change, DOT’s Budget
                                        Director indicated that the Department’s agencies are expected to manage
                                        their programs and activities to meet the targets. If the current OMB targets
                                        remain essentially unchanged through fiscal year 2002, the




                                        Page 29                                GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                      Chapter 3
                      Magnitude of Likely Cuts Has Spurred the
                      Coast Guard to Begin Developing
                      Alternative Approaches




                      reductions—and the consequent need to find savings—would be
                      substantial.

                      Future cost-cutting efforts could translate into even more difficult and
                      painful budget-cutting decisions than the ones made in the past because
                      the Coast Guard has already taken a number of streamlining steps that are
                      often the first to be used by organizations, such as trimming overhead.
                      During hearings on the Coast Guard’s fiscal year 1997 budget, for example,
                      the Commandant said that funding levels were not sufficient to sustain the
                      agency’s normal pace of operations over time. This is resulting in the
                      deferral of normal maintenance and cutbacks in prevention activities,
                      factors that will eventually lead to compromises in safety and increased
                      costs, according to the Commandant. In a February 1997 memorandum to
                      agency managers, the Coast Guard’s Chief of Staff also acknowledged the
                      formidable fiscal challenge that the agency faces over the next 4 years and
                      told his program mangers that “a concerted effort, involving all program
                      staffs, will be required to develop a strategy to meet the flat line
                      requirements for fiscal years 1999 through 2002.” He said that the Coast
                      Guard’s “savings locker”—those savings opportunities not already
                      achieved under past initiatives—is largely depleted. These conditions
                      frame the environment in which the Coast Guard could operate—a climate
                      in which a smaller resource base could place unprecedented pressure on
                      the Coast Guard’s budget.


                      During the course of our review, the Coast Guard began several actions
The Coast Guard Has   designed to address the tight fiscal environment that it will likely face in
Begun Actions         the next 4 years. These actions are strongly intertwined with
Designed to Address   performance-based concepts embodied in the Government Performance
                      and Results Act (GPRA) (P.L. 103-62). Enacted in 1993, GPRA calls for
Looming Fiscal        agencies to measure and manage their operations with a greater focus on
Difficulties          results rather than on staffing and activity levels. The Coast Guard has
                      taken action to comply with GPRA’s principles and requirements. In its
                      fiscal year 1998 budget proposal, the Coast Guard has set forth 5 strategic
                      goals and 23 performance goals and is developing ways to measure
                      progress toward achieving them.3 According to Coast Guard officials, the
                      agency is attempting to apply the same results-oriented approach as it
                      evaluates alternatives for addressing budget constraints.



                      3
                       GPRA requires agencies to develop a strategic plan by the end of fiscal year 1997 and a performance
                      plan beginning in fiscal year 1999. The strategic plan focuses on broader goals, while the performance
                      plan focuses on objectives and measurable goals.



                      Page 30                                   GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                            Chapter 3
                            Magnitude of Likely Cuts Has Spurred the
                            Coast Guard to Begin Developing
                            Alternative Approaches




                            The Coast Guard’s efforts have centered on several key initiatives: a
                            revised budgeting and planning process that places greater emphasis on
                            cutting costs and linking resources to a program’s performance, a new
                            mechanism for focusing senior management’s attention on such
                            alternatives, and a new capital-planning approach designed more
                            specifically with current funding limitations in mind. The Coast Guard
                            expects that these actions will be closely linked in various ways. For
                            example, the Coast Guard expects the capital plan to include information
                            that is generated from the revised budgeting process and to identify
                            potential cost-saving strategies. These actions are still largely in their
                            infancy; by the time the actions are completed and the new systems are in
                            place, the Coast Guard will already be developing its fiscal year 2000
                            budget proposal. Therefore, it is too early to tell whether the new
                            initiatives will be sufficient or developed in time to meet OMB’s budget
                            targets.


Revised Budgeting Process   In November 1996, the Coast Guard’s Chief of Staff issued a memorandum
Places Greater Focus on     outlining a new budget and planning process for building the Coast
Developing Cost-Saving      Guard’s fiscal year 1999 budget. The new process aims to strengthen the
                            link between resources and a program’s performance. This guidance is the
Alternatives                first in a series of new guidance that will redefine the Coast Guard’s future
                            budgeting and planning process.

                            Among the features of this new approach, one that has particular
                            relevance for addressing budget gaps in the next few years is an emphasis
                            on business plans—documents that will act as planning and budgeting
                            tools for the fiscal year 1999 budget. Ultimately, the revised plans could
                            translate into cost-saving actions that address OMB’s budget targets. For
                            example, the Coast Guard’s guidance calls for managers to identify how
                            services can be provided with fewer resources. Coast Guard officials
                            indicated that the underlying premise of the plans will be to provide
                            information on how programs will find potential economies by innovation
                            or other means.

                            Considerable work remains to be done in putting this new system in place.
                            The Coast Guard does not expect the system to be fully implemented until
                            1998. Initial drafts of the revised business plans were scheduled to be
                            completed in mid-1997. Because revised business plans were not available
                            for our review, we are not in a position to comment on how effective they
                            are likely to be in addressing budget targets. Additional guidance has been




                            Page 31                             GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                           Chapter 3
                           Magnitude of Likely Cuts Has Spurred the
                           Coast Guard to Begin Developing
                           Alternative Approaches




                           or will be issued on a number of other key processes that affect resource
                           allocation decisions.

                           Until the new planning and budgeting system is fully developed, the
                           agency’s top management is emphasizing a number of measures—that
                           have been used in the past—to address OMB’s budget targets over the next
                           4 years. For example, the Chief of Staff urged program managers to
                           examine opportunities within their areas of responsibility to identify
                           savings. Another method that the Coast Guard will continue to use to
                           assess potential budget reduction options, at least as an interim measure,
                           is its determinations process. The agency has used this process in the past
                           as a way for top management to suggest specific areas that program
                           managers should examine each year for potential savings opportunities.
                           For example, the fiscal year 1998 determinations set out a list of potential
                           areas for study that included (1) identifying locations that might be
                           candidates for consolidation, (2) developing and implementing a
                           reorganization plan for the Coast Guard’s research and development
                           efforts, and (3) studying the potential use of civilian rather that military
                           personnel to fill marine inspector positions. According to the Coast
                           Guard’s Chief of Staff, the determinations process may be replaced as the
                           new planning and budgeting system is developed.


Senior Management Group    In September 1996, the Coast Guard formed a new management group,
Provides Opportunity to    called the Senior Management Team, to help, among other things, refine
Guide Budget Process and   the Coast Guard’s planning and budgeting process and to ensure that the
                           Coast Guard “epitomizes the best in quality management practices and
Focus on Budget Targets    performance.” According to Coast Guard managers, the new Senior
                           Management Team will be responsible for developing the Coast Guard’s
                           strategy for meeting OMB’s targets and will help institutionalize the Coast
                           Guard’s capability to deal with these targets. The team, composed of
                           senior managers including the Chief of Staff and the Director of
                           Resources, aims to identify strategic business goals and the highest
                           priority business processes that are candidates for improvement.

                           So far, the team’s efforts have focused on only a part of its broad mandate.
                           The team has developed a format for the revised business plans and
                           chartered several groups to examine ways that headquarters can
                           streamline internal processes to reflect lowered staff levels. For example,
                           these groups have studied the process for responding to requests for
                           information under the Freedom of Information Act and the process for
                           reviewing and approving key Coast Guard documents, such as business



                           Page 32                             GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                            Chapter 3
                            Magnitude of Likely Cuts Has Spurred the
                            Coast Guard to Begin Developing
                            Alternative Approaches




                            plans and the agency’s capital plan. Also, the team will decide on how to
                            implement recommendations from the study groups.


New Capital-Planning        The Coast Guard’s capital-planning process has been based on
Process Intended to Focus   determining replacement and renovation needs irrespective of probable
on Scaled-Down Budget       funding levels. This has produced estimates that were based heavily on
                            one-for-one replacement of equipment and facilities according to
Realities                   established life-cycle schedules. Coast Guard officials decided that
                            another approach was needed—one that would be more aligned with
                            probable levels of funding and a shift toward outcome-oriented
                            operations. This movement is consistent with renewed emphasis by OMB
                            on the manner in which agencies plan for the acquisition of their capital
                            assets. In December 1996, OMB issued draft guidance suggesting that
                            among other things, agencies link capital assets to their contribution to
                            program outcomes—the framework outlined by GPRA.

                            The development of the new capital plan is just getting under way, and
                            Coast Guard officials expect that the development of the new plan will
                            take at least 2 years. Since the initial guidance for developing the plan was
                            issued in January 1997, full development of the plan may not occur until
                            early 1999.


                            The Coast Guard has recognized that future budget targets may continue
Conclusions                 to require aggressive cost-cutting activity. The actions that the Coast
                            Guard has begun in recent months to strengthen its budget and planning
                            process appear helpful in meeting this challenge, in that they hold promise
                            for (1) focusing on ways to achieve specific performance-related
                            outcomes, (2) providing for the comparative evaluation of cost-saving
                            strategies by top management, and (3) developing capital plans that are
                            more closely related to the reality of limited funding. However, much
                            remains to be done to translate these actions into a specific plan and a
                            fully functioning strategy to meet OMB’s targets, and the Coast Guard
                            acknowledges that some actions will take 2 years to put in place. By the
                            time its new system is fully in place, the Coast Guard will be already
                            working on its budget request for fiscal year 2000. This means that the
                            steps that the agency takes in the interim will be of critical importance in
                            identifying and evaluating cost-cutting options.




                            Page 33                             GAO/RCED-97-110 Future Budget for U.S. Coast Guard
Chapter 4

Actions Needed on Several Fronts to Better
Prepare for Budget Contingencies

                       Whether the Coast Guard’s current budget strategy can deal effectively
                       with future deficit-reduction targets remains an open question. Key
                       elements of the strategy are still being developed, and the magnitude of
                       the gap beyond fiscal year 1998 remains somewhat uncertain. However, as
                       the Coast Guard continues to work out its budget-reduction strategy, three
                       areas appear to merit particular attention.

                   •   Identifying the extent of likely savings from current or planned cost-saving
                       measures. Coast Guard planners currently have a number of cost-saving
                       steps in various stages of implementation, but the dollar impact of many of
                       these steps remains largely unclear. The Coast Guard does not, therefore,
                       appear to be in a good position to know the degree to which these steps
                       would close future funding gaps.
                   •   Developing approaches for addressing controversial cost-saving efficiency
                       options. So far, the Coast Guard’s cost-saving efficiencies (such as
                       consolidating units) generally have not been controversial. However, if
                       future cuts are sizable, the Coast Guard may need to consider
                       efficiency-related steps that could (1) call for considerable change in the
                       Coast Guard’s operating culture (such as lengthening rotational periods)
                       or (2) stir public opposition (such as closing operating units that provide
                       services or economic benefits to local communities). Fully addressing
                       such options may require developing new study approaches or new
                       implementation strategies.
                   •   Being prepared to consider other options besides those related to
                       operating efficiency. By design, the Coast Guard’s strategy remains
                       centered on cutting costs through greater efficiency. If future cuts cannot
                       be accommodated in this manner, it will be necessary for the Coast Guard
                       to readily and quickly consider other alternatives, such as changes in the
                       services the Coast Guard provides.


                       As a starting point for discussing further Coast Guard actions, it may be
A Framework for        helpful to present a framework that highlights the basic choices that
Addressing             agencies face as they address budget cuts. In recent years, as the federal
Budget-Reduction       government has struggled increasingly with deficit-reduction issues, we
                       have conducted a number of reviews examining how public and private
Efforts                sector organizations cope with downsizing, change, and related issues.1
                       Some organizations faced with these challenges have been able to achieve
                       significant cost reductions while improving performance and service

                       1
                        See, for example, Managing for Results: State Experiences Provide Insight for Federal Management
                       Reforms (GAO/GGD-95-22, Dec. 21, 1994), Managing for Results: Experiences Abroad Suggest Insights
                       for Federal Management Reforms (GAO/GGD-95-120, May 2, 1995), and Government Reform: Goal
                       Setting and Performance (GAO/AIMD/GGD-95-130R, Mar. 27, 1995).



                       Page 34                                 GAO/RCED-97-110 Future Budget for U.S. Coast Guard
    Chapter 4
    Actions Needed on Several Fronts to Better
    Prepare for Budget Contingencies




    delivery at the same time. They have done so by fundamentally rethinking
    their mission, strategic goals, lines of business (products and services),
    and customer needs and by making changes where necessary.

    The framework we developed for making such reassessments and
    translating them into budget-cutting proposals calls for agencies to
    reexamine their operations and capital needs from three different
    perspectives, as follows:

•   Operating efficiency: Can services be delivered at lower cost by changing
    the way they are structured, delivered, or managed?
•   Program missions and objectives: What services should the agency
    continue to provide?
•   Targeting of resources: Who should receive these services?2

    The first perspective, improving efficiency, focuses on delivery methods
    and performance. As earlier chapters explained, the Coast Guard’s
    cost-reduction efforts have focused almost exclusively on this perspective.
    For example, the Commandant’s directive for the Coast Guard’s
    streamlining initiative called for an approach “with no reduction in
    essential services.” Coast Guard officials reiterated that this approach will
    remain at the center of their attempts to deal with future budget targets as
    they put new elements of their budget strategy in place.

    The second perspective, reexamining missions and objectives, is designed
    to avoid those situations in which budget reductions are made only
    through repeated incremental cuts to the budgets of an agency’s programs
    or activities. Without a thorough reexamination of the agency’s objectives,
    such an approach can eventually yield an overextended agency trying to
    do too much with too little. An assessment from this perspective involves
    reconsidering the intended purpose of a program or activity, the
    conditions under which it continues to operate, and its cost-effectiveness.

    The third perspective, the targeting of resources, is designed to ensure that
    an agency remains up-to-date in ascertaining who needs the agency’s
    services and to what degree they need them. When first authorizing new
    programs, the Congress defines the intended audience for any program or
    service on some perception of eligibility or need. As time passes and
    conditions change, these definitions could benefit from periodic review
    and, where necessary, revision to better target limited resources.

    2
     For more information about this framework, see Addressing the Deficit: Budgetary Implications of
    Selected GAO Work for Fiscal Year 1998 (GAO/OCG-97-2, Mar. 14, 1997).



    Page 35                                  GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                           Chapter 4
                           Actions Needed on Several Fronts to Better
                           Prepare for Budget Contingencies




                           Considering changes in distribution formulas, eligibility rules, and fees and
                           charges could form the basis for such improved targeting.

                           Our observations in this chapter are not meant to suggest that the Coast
                           Guard’s current emphasis on only the first strategy cannot succeed.
                           However, as we have pointed out, future budget targets may tax the Coast
                           Guard’s budget-cutting skills much more severely than past targets have.
                           In our view, this means that the Coast Guard’s approach must be
                           nimble—that is, the Coast Guard must be able to quickly assess whether
                           its strategy is likely to be sufficient and must be capable of adapting it if
                           circumstances warrant.


                           Coast Guard officials were optimistic that steps recently undertaken or
Ascertaining the           planned would yield substantial savings to offset future funding gaps.
Dollar Impact of           However, agency officials do not appear to have a very clear picture of the
Actions Under Way or       extent of these savings, particularly on a year-by-year basis. While we did
                           not attempt to conduct a comprehensive review of all measures under way
Planned                    or planned, we did ask for information about cost savings for a number of
                           specific initiatives. We found that although these actions could entail
                           considerable savings, Coast Guard officials were not able to fully quantify
                           the annual savings involved and/or did not have clear indications of when
                           the savings could occur. For example:

                       •   The fleet logistics system project, expected to be fully in place by 2000,
                           provides automated data and decision support tools to manage vessel
                           inventories more efficiently and cost effectively. The Coast Guard
                           estimated savings of $900,000 for fiscal year 1998 and $100 million over the
                           life of the project but has not developed annual savings estimates for the
                           next few years, when the impact of deficit reduction is expected to be the
                           greatest. A Coast Guard official said that year-by-year estimates could be
                           developed.
                       •   Under the motor lifeboat acquisition project, which is already under way,
                           the Coast Guard expects to replace 100 boats with a lesser number,
                           resulting in less personnel, maintenance, and other costs. A Coast Guard
                           official said that savings have not been quantified at this time because the
                           exact number of boats to be procured is not certain. The official said,
                           however, that a range of estimated savings could be calculated.
                       •   The HC-130 engine conversion project replaces old, inefficient aircraft
                           engines with new, fuel-efficient engines. The Coast Guard estimates that it
                           will save $797,000 in fiscal year 1998 and $1.3 million a year once all the
                           engines are converted. While the Coast Guard has not estimated the



                           Page 36                             GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                            Chapter 4
                            Actions Needed on Several Fronts to Better
                            Prepare for Budget Contingencies




                            year-by-year savings that will occur as the project is being phased in, a
                            Coast Guard official said such estimates could be made.
                        •   The Coast Guard is conducting a pilot program that provides vessel
                            owners/operators with options on how their vessels can be inspected.
                            Instead of being inspected only by the Coast Guard, pilot program vessels
                            can now be inspected by third-party organizations or qualified company
                            personnel, with the Coast Guard’s oversight. The delegation of these
                            functions may allow Coast Guard personnel to perform other high-priority
                            marine safety tasks. This pilot program was started in 1995 and originally
                            was expected to be completed by the summer of 1996, according to a
                            Coast Guard official. Estimates of savings are still not available.

                            If such year-by-year estimates can be developed, they would help provide
                            the Coast Guard with a clearer indication of whether it can meet future
                            budget targets with an efficiency-only approach. This would give earlier
                            warning to the Coast Guard about whether it needs to broaden its efforts.
                            A Coast Guard official responsible for overseeing capital budget issues
                            said that the Coast Guard is considering developing such year-by-year
                            estimates for savings expected from capital projects. It would seem
                            beneficial to identify year-by-year estimates for operations-related
                            initiatives as well.

                            We acknowledge that some things are beyond the Coast Guard’s ability to
                            project. For example, the Coast Guard has just begun the process to
                            replace its high- and medium-endurance cutters. It is too early to estimate
                            savings at this time because the acquisition process has just begun.
                            However, making savings estimates for more mature projects should be
                            easier.


                            The Coast Guard acknowledges that because it has already undertaken an
Expanding the Range         ambitious streamlining effort, finding additional efficiencies will be an
of Efficiency-Related       increasingly difficult task. As an indication of whether additional
Options for                 efficiency options are possible, we examined cost-saving options identified
                            in a wide range of studies conducted on the Coast Guard. From among the
Consideration               various studies conducted since 1981, we focused on 23 reviews
                            conducted by such organizations and entities as the Congress, the National
                            Performance Review, DOT, GAO, and the Coast Guard itself. (See app. I for a
                            list of these studies.) We found a number of efficiency-related
                            recommendations that had not been implemented. Several of these
                            recommendations are discussed below, and a full listing is in appendix II.




                            Page 37                             GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                        Chapter 4
                        Actions Needed on Several Fronts to Better
                        Prepare for Budget Contingencies




                        A number of the options that have not been implemented pose
                        considerable challenges for the Coast Guard, in that, agency officials have
                        either (1) been opposed to taking the recommended steps or slow in
                        implementing them or (2) encountered considerable external opposition in
                        attempting to do so. Of the examples we discuss below in more detail, two
                        (rotational policies and civilian/military mix) illustrate the first challenge,
                        and one (consolidating search and rescue stations) illustrates the second
                        challenge. We also found a few support-related, potentially controversial
                        options that the Coast Guard considered but elected not to use in earlier
                        cost-cutting efforts. The final example below (consolidating training
                        centers) is one such option because of possible public opposition to
                        closure actions.

                        Our discussion of these examples, as well as our longer list, is not
                        intended as an endorsement of these options. Deciding to implement any
                        of them would require careful attention and perhaps additional
                        information. We selected these examples for discussion because they
                        illustrate the kinds of issues that often surfaced in considering additional
                        efficiency-related options.


Lengthening Personnel   The Coast Guard periodically rotates all but a few of its military personnel
Rotations               from assignment to assignment. Officers and enlisted personnel generally
                        change assignments every 2 to 4 years. Costs to rotate staff are over
                        $60 million annually, not counting costs such as moving time and
                        preparing over 19,000 rotation orders annually.3 Studies performed in the
                        early 1980s by DOT and the National Advisory Committee on Oceans and
                        Atmosphere questioned whether the Coast Guard should increase the
                        length of time between rotations or even eliminate rotations for certain
                        types of activities. The studies pointed out that besides saving money,
                        such a change could help counter the undesirable effects of frequent
                        rotation on the continuity of operations and ability to build expertise and
                        knowledge in certain areas.

                        The Coast Guard has not substantially changed the overall lengths of tours
                        for its military personnel since the time of these studies. However, in
                        recent years, the Coast Guard has lengthened rotation policies in some
                        areas on a case-by-case-basis and also made efforts to reduce relocation
                        costs. For example, Coast Guard officials said that in 1995, duty tours
                        were lengthened by about 1 year for certain enlisted personnel (at the rank

                        3
                         The Coast Guard estimates that as much as one-third of the rotation costs are “mandatory” because of
                        transfers for training, retirements, and other factors.



                        Page 38                                  GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                           Chapter 4
                           Actions Needed on Several Fronts to Better
                           Prepare for Budget Contingencies




                           of E-4 and E-5), except those assigned to vessels. The Coast Guard also
                           implemented a policy in 1993 that allows military personnel to stay in the
                           same geographic area for up to 7 years if the stay meets the agency’s
                           needs. The Coast Guard was not able to provide information on the
                           number of personnel affected by these two initiatives or the savings that
                           resulted. The Coast Guard also has made efforts to reduce the logistical
                           costs of rotations, such as obtaining better contracts with moving
                           companies and transferring personnel closer to their former location.

                           Coast Guard officials said that they are reluctant to make further changes
                           to the agency’s rotation policies; officials believe that they have developed
                           optimum tour lengths that should not be revised. They said that changing
                           current practices would have several undesirable effects, including the
                           potential adverse effects on multi-mission capabilities, a reduced
                           opportunity to command a variety of units or vessels, and the concern
                           about assigning personnel to undesirable locations for extended periods.
                           The Coast Guard, however, was not able to provide us with any studies or
                           other data to support these contentions or demonstrate that these factors
                           would adversely affect the agency’s overall effectiveness in performing its
                           missions or serving the public. The Coast Guard currently plans no formal
                           study of this issue.


Civilian/Military Mix of   In addition to its 37,000 military personnel, the Coast Guard has about
Coast Guard Personnel      6,000 civilians. Studies performed in the early 1980s by the Congress, DOT,
                           and the National Advisory Committee on Oceans and Atmosphere
                           questioned whether some military positions should be civilian instead to
                           reduce costs and provide greater stability of the workforce. Overall, the
                           Coast Guard has estimated that it costs about $15,000 more to compensate
                           military personnel than comparable civilians. This differential is consistent
                           with our recent studies on this issue in DOD, where we recently reported
                           that DOD could save about $15,000 annually for certain military support
                           positions that it reprogrammed to civilian positions.4

                           The Coast Guard maintains that military personnel provide a more
                           front-line, rapid response capability in the operational environment than
                           do civilian personnel. The agency also pointed out that governmentwide
                           mandates are currently requiring the Coast Guard to reduce—not
                           increase—the civilian workforce. However, in 1993, the House Committee
                           on Appropriations directed the Coast Guard to initiate a comprehensive

                           4
                            DOD Force Mix Issues: Converting Some Support Officer Positions to Civilian Status Could Save
                           Money (GAO/NSIAD-97-15, Oct. 23, 1996) and DOD Force Mix Issues: Greater Reliance on Civilians in
                           Support Roles Could Provide Significant Benefits (GAO/NSIAD-95-5, Oct. 19, 1994).



                           Page 39                                 GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                           Chapter 4
                           Actions Needed on Several Fronts to Better
                           Prepare for Budget Contingencies




                           review to determine what agencywide military positions should be
                           reprogrammed to civilian positions. A Coast Guard official told us that the
                           review, which was to be completed by the end of 1996, has been delayed
                           because of other priorities. He added that he was not certain of when it
                           will be completed and that to become a priority, it may require upper
                           management’s attention. Upper management officials later told us that
                           they expect this study to be completed by mid-1997; at that time, the Coast
                           Guard will identify the potential for converting current military positions
                           to civilian and estimate the resultant savings.


Consolidating Search and   One example of an option that has proven controversial with the public at
Rescue Stations            large is consolidating locations from which search and rescue services are
                           provided. The Coast Guard currently maintains 185 small boat stations
                           (some established as early as 1884) with 1,569 small boats and 230 larger
                           boats and cutters and 29 air stations with 163 aircraft. The Coast Guard
                           has several times proposed consolidating some of these facilities as a
                           cost-cutting move. For example, in 1995, the Coast Guard proposed
                           closing 23 small boat stations to save $6 million in facility and personnel
                           costs, reduce personnel needs by 115 positions, and generate additional
                           revenues by selling the unneeded properties.

                           These proposals have generated controversy because of concern that
                           search and rescue services may be affected. For its part, the Coast Guard
                           maintains that proposed closures would not affect the agency’s ability to
                           respond to needed search and rescue efforts within its established
                           response time criteria. To address concerns about the reliability of such
                           proposals, the Coast Guard developed a decision process that we
                           evaluated in earlier work and found to be formal, consistent, well
                           documented, and based on relevant criteria and the best data available.5
                           Coast Guard officials acknowledge, however, that despite such
                           assurances, closures may be difficult because people feel safer having a
                           station nearby. The Congress declined to approve the proposed 1995
                           closures.

                           Opposition to closing other types of federal facilities has required the
                           development of new implementation approaches. For several years,
                           recommendations for DOD base closings had to be formulated by an
                           independent Base Closure and Realignment Commission. National
                           Aeronautics and Space Administration and DOD officials, who are jointly

                           5
                            Coast Guard: Improved Process Exists to Evaluate Changes to Small Boat Stations
                           (GAO/RCED-94-147, Apr. 1, 1994).



                           Page 40                                 GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                         Chapter 4
                         Actions Needed on Several Fronts to Better
                         Prepare for Budget Contingencies




                         studying ways to consolidate facilities such as laboratories, have
                         concluded that they may need to use a similar process, and the same kind
                         of problem may also be facing the Department of State in determining
                         office locations to close.6


Consolidating Training   The consolidation of training centers is an example of a potentially
Centers                  controversial support-related efficiency option that the Coast Guard
                         considered but rejected in earlier cost-cutting efforts. If the Coast Guard is
                         faced with the need to make further reductions, however, consolidation
                         represents a potential place to look for savings. The Coast Guard spends
                         about $300 million a year on training, much of which is provided at seven
                         training centers across the country. A study conducted in conjunction with
                         the Coast Guard’s streamlining efforts recommended closing one of these
                         centers (at Petaluma, Calif.), to save an estimated $15 million a year.
                         Although the Coast Guard adopted many of the study’s other
                         recommendations, it decided not to close the training center at Petaluma.
                         One reason was that closing Petaluma would require one-time
                         construction and other costs of about $29 million for additional facilities at
                         centers to which Petaluma’s responsibilities would be transferred (Cape
                         May, N.J., and Yorktown, Va.). Coast Guard officials also cited the need to
                         keep the current training infrastructure in place so that training could be a
                         source of strength and stability during the period when other streamlining
                         initiatives would cause a great deal of organizational realignment. Like
                         small boat stations, closing Petaluma or other training centers could
                         encounter political and public opposition, especially in light of the number
                         of DOD base closures in California in recent years. In a recent
                         congressional hearing, the Commandant said that closing Petaluma would
                         lead to a public outcry because of the local community’s dependence on
                         the Coast Guard.




                         6
                          NASA Infrastructure: Challenges to Achieving Reductions and Efficiencies (GAO/NSIAD-96-187, Sept.
                         9, 1996) and State Department: Options for Addressing Possible Budget Reductions
                         (GAO/NSIAD-96-124, Aug. 29, 1996).



                         Page 41                                 GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                          Chapter 4
                          Actions Needed on Several Fronts to Better
                          Prepare for Budget Contingencies




                          If the strategy of concentrating on efficiency options proves insufficient,
Developing a Broader      the Coast Guard will need to turn to one or both of the other perspectives
Cost-Reduction            in the budget framework—reevaluating its missions and objectives and
Strategy That             reevaluating the targeting of resources. This broader approach is in
                          keeping with OMB’s December 1996 draft guidance suggesting that agencies
Addresses Missions        determine whether they must undertake a function because no alternative
and Program               private-sector or governmental source can more efficiently perform it or
                          whether performance objectives could be met through user fees or
Beneficiaries             regulations.7 To a limited extent, the Coast Guard has already taken
                          actions on some measures in this regard.

                          To provide some indication of whether cost-saving options related to these
                          perspectives would be readily available for consideration—and if so, what
                          kinds of issues would likely surface in considering them—we again turned
                          to our group of 23 previous studies. After eliminating options that were no
                          longer relevant, 17 remaining options could be classified as reflecting
                          these two perspectives. Several of these options are discussed below, and
                          a full listing is in appendix II. Once again, our discussion of these
                          examples, as well as our longer list, is intended to illustrate the kinds of
                          options that might be considered and is not an endorsement of any
                          particular option.


Examples of Reexamining   It has been about 15 years since a comprehensive study of the Coast
Missions and Objectives   Guard’s roles and missions has been published. Since the early 1980s, four
                          such reviews have been completed—the first, by DOT; the second, by the
                          House Committee on Transportation and Infrastructure (the Coast Guard’s
                          House oversight committee); the third, by the Congressional Research
                          Service on behalf of the Senate Committee on Commerce, Science and
                          Transportation; and the fourth, by the National Advisory Committee on
                          Oceans and Atmosphere. While many conditions have changed over the
                          past 15 years, the stated purposes of these studies emphasize some of the
                          same themes that seem important to revisit today—the danger of
                          becoming overextended, the importance of reevaluating the need for each
                          mission, and the value of analyzing who should perform the mission if it is
                          worth continuing.

                          In June 1996, the Coast Guard contracted with the Center for Naval
                          Analyses to conduct a comprehensive analysis of its missions; however,
                          the focus of the analysis is long-term and it is unlikely to assist with
                          short-term budget reduction needs. Instead, the study’s purpose is to

                          7
                           Capital Programming Guide, 12.10.96 Draft (Office of Management and Budget, Dec. 1996).



                          Page 42                                 GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                             Chapter 4
                             Actions Needed on Several Fronts to Better
                             Prepare for Budget Contingencies




                             review current and future trends that will affect the nature and importance
                             of the Coast Guard’s roles and missions, the future direction that those
                             trends imply, and ways in which these future directions translate into
                             operating approaches for the agency. The study’s long-term perspective
                             focuses on what the agency may look like in 2020, but does not consider
                             short-term budgetary constraints, resource allocation factors, or
                             organizational structures. Coast Guard officials acknowledge these
                             limitations but believe the study’s longer-term focus is important for
                             ensuring that short-term decisions do not conflict with long-term
                             strategies.

                             The lack of a comprehensive mission analysis is not the only reason why
                             no reductions in Coast Guard missions have occurred in recent years.
                             Coast Guard officials indicated that because the Congress ultimately
                             decides the missions the Coast Guard should perform, the agency has not
                             initiated any mission-related changes. Moreover, the Coast Guard does not
                             view itself as having the legal authority to eliminate or significantly change
                             many of them. Instead, Coast Guard officials believe that this type of
                             action is a policy decision that rests with the Congress and the American
                             public. However, we did identify mission areas in which the Coast Guard
                             is making efforts to reassess its program standards and the scope of its
                             activities. One area, inspecting private aids to navigation, is an example of
                             a reassessment that might be termed “at the margin”—that is, it assumes
                             that the Coast Guard should still keep the mission but may find another
                             approach for performing it. The second area, operating vessel traffic
                             service systems, demonstrates a more fundamental, in-depth examination
                             of whether the Coast Guard needs to provide a service at all.

New Inspection Process for   Until recently, the Coast Guard has included in its program standard for
Private Aids to Navigation   this mission area a requirement to inspect all private aids to navigation.
                             These short-range aids to navigation include such items as buoys or lights
                             that provide mariners with information. Many of these aids are owned and
                             operated by the Coast Guard; however, almost 49,000 aids are owned and
                             operated by individuals and organizations other than the Coast Guard. The
                             inspection of these aids annually requires the time and resources of active
                             duty or auxiliary personnel to ensure that they are operating properly and
                             are in the correct location. According to the Coast Guard’s program
                             managers, limited resources, affecting the program’s ability to meet this
                             mission standard as well as others, encouraged them to reconsider how
                             they performed this inspection process. As a result, the Coast Guard is
                             initiating a new self-inspection process that allows the owners of private
                             aids to inspect their own aids and provide the Coast Guard with



                             Page 43                             GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                                 Chapter 4
                                 Actions Needed on Several Fronts to Better
                                 Prepare for Budget Contingencies




                                 documentation of that inspection for review. The Coast Guard expects to
                                 have this new process operational by mid-1997 and plans to utilize any
                                 gained staff time or resources to meet other program standards in this
                                 mission area.

New Alternatives for Operating   The Coast Guard has recently begun to reexamine how it will carry out its
Vessel Traffic Service Systems   vessel traffic service (VTS) function. Currently, the Coast Guard owns VTS
                                 systems in eight ports around the United States and operates them at an
                                 annual cost of about $20 million. The purpose of these systems is to
                                 improve the safe and efficient movement of marine vessels in and around
                                 ports and to protect the environment by monitoring vessel traffic
                                 information, assessing the information, and passing it along to mariners.
                                 Until recently, the Coast Guard held the position that operating VTS
                                 systems is “an inherently governmental function” and had proposed
                                 constructing a network of VTS systems to be operated by the Coast Guard
                                 in up to 17 ports at an estimated capital cost of $260 million to
                                 $310 million. However, the Congress decided not to fund this proposal and
                                 instead directed the Coast Guard to reconsider how this function could be
                                 performed.

                                 The Coast Guard’s new approach is a more fundamental reexamination, on
                                 a port-by-port basis, of what VTS services may be needed, if any, and who
                                 best can provide them. According to Coast Guard officials, this
                                 reexamination is being done in consultation with local community
                                 stakeholders to ensure that their wants and needs are addressed in the
                                 proposal developed for each port location. Coast Guard officials said they
                                 are willing to consider a range of options—from a fully private VTS facility
                                 to a fully Coast Guard-operated VTS facility—depending on each port’s
                                 needs.8 Savings associated with this new approach are as yet unknown and
                                 could vary depending upon the decisions reached in each port location.
                                 However, the alternatives selected are likely to involve considerably less
                                 expense than the previously estimated $260 million to $310 million
                                 necessary for the Coast Guard to build its originally planned VTS system.

                                 The VTS mission example comes closer to the type of comprehensive
                                 evaluation that could reveal alternative approaches for conducting
                                 missions deemed necessary while also identifying those missions that may
                                 be unnecessary or less critical than others. This type of information would

                                 8
                                  For example, if a location frequently requires the use of Captain of the Port authority, then this
                                 location might require a Coast Guard-operated or jointly operated (Coast Guard and private entity)
                                 VTS system to accommodate the need for this special Coast Guard authority (that cannot be delegated
                                 to another entity). However, in other ports, where Captain of the Port authority may be seldom used,
                                 the likelihood that a private entity would operate the VTS system is greater.



                                 Page 44                                  GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                           Chapter 4
                           Actions Needed on Several Fronts to Better
                           Prepare for Budget Contingencies




                           certainly be valuable to the Coast Guard if it faces deep budget cuts in the
                           future, and it would also be crucial to ensure that the Coast Guard’s
                           anticipated capital asset needs are justified on the basis of sound
                           assumptions. The Coast Guard’s major acquisition process includes a
                           requirement to conduct a mission analysis for each capital project.
                           However, this analysis begins with the assumption that the mission is valid
                           and analyzes the resources needed to perform it rather than evaluating the
                           more fundamental questions of whether the mission is needed, and if so,
                           who should conduct it. Performing these latter analyses could further
                           prevent the agency from acquiring capital assets for missions that it may
                           not continue to perform.

                           Although the Coast Guard would, for the most part, be unable to
                           unilaterally implement decisions that would eliminate or significantly
                           curtail many of its missions, no statutory language prohibits agency
                           officials from conducting such reviews and identifying necessary
                           legislative actions. With this type of information available, the Congress
                           would then be better prepared to make these decisions if needed.


Examples of Reevaluating   Beneficiary-related recommendations from previous studies have focused
Relationship With Users    on implementing user fees for Coast Guard services. User fees are charges
                           assessed for government services and for the sale or use of government
                           goods or resources. Some of the Coast Guard’s activities such as law
                           enforcement and defense operations generally are not candidates for user
                           fees because they are considered public services—actions that benefit the
                           general public and not just a discrete user group. However, a number of
                           other Coast Guard missions provide identifiable beneficiaries with
                           individual benefits, and under the law, users can be charged for them.9 In
                           recent years, the Congress has directed that user fees be placed on a
                           number of Coast Guard functions. These include marine licensing,
                           certification of registry, and merchant mariner documentation (1993);
                           vessel documentation (1994); and the renewal of merchant mariner
                           documents and inspection or examination of U.S. and foreign commercial
                           vessels (1995). The collections for these user fees was over $20 million in
                           fiscal year 1996.

                           Although the Coast Guard is authorized to implement user fees on its own,
                           it has been reluctant to do so. Coast Guard officials stated that deciding to
                           impose such fees is a policy question that should be addressed by

                           9
                            Title 31, section 9701, of the U.S. Code authorizes federal agencies to charge fees for services or
                           benefits provided for specific beneficiaries. OMB’s Circular A-25 implements this authority by
                           prescribing guidelines for imposing charges on users of the government’s services.



                           Page 45                                    GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                            Chapter 4
                            Actions Needed on Several Fronts to Better
                            Prepare for Budget Contingencies




                            policymakers at higher levels within DOT, the administration, or the
                            Congress. If policymakers decide that such fees should be charged, the
                            Coast Guard’s position is that it then becomes the agency’s responsibility
                            to address implementation and evaluation issues. Coast Guard officials
                            stated that all three of these decision factors (policy, implementation, and
                            evaluation) should be included in the review of a potential fee to ensure
                            that the broad-reaching effects of imposing a user fee on a service are
                            adequately considered.

                            A number of the studies we reviewed contained proposals to implement
                            user fees on various Coast Guard functions; however, past history
                            indicates that user fee proposals sometimes create considerable
                            controversy. Groups affected by the fees may feel that their taxes already
                            represent sufficient moneys to cover the costs of providing a function and
                            that singling out a function for additional charge is unfair. Here are two
                            examples of such controversy. The first involves a user fee that was
                            imposed but subsequently rescinded; the other is a fee that recently has
                            been proposed by the administration and is likely to be controversial. A
                            related issue, also discussed below, is the extent to which the Coast Guard
                            is able to make use of any fees that are charged.

Recreational Vessel Fee     In 1991, the Coast Guard began charging recreational boat owners a fee to
                            partially offset the costs of programs, such as search and rescue, boating
                            safety, and aids to navigation. The annual fee, which applied to all boats 16
                            feet and over, operating where the Coast Guard was present, ranged from
                            $25 to $100, depending on the vessel’s length. The fee met with strong
                            opposition from the recreational boating community, and according to the
                            Coast Guard, was difficult to enforce. Legislation rescinded parts of the
                            fee for fiscal years 1993 and 1994 and the remainder of the fee for fiscal
                            1995. During the short period when this fee was collected, it generated
                            over $60 million in revenue, most of which was deposited in the Treasury’s
                            general fund.

Domestic Ice-Breaking Fee   The Coast Guard conducts ice breaking on the Great Lakes, the St.
                            Lawrence Seaway, and the northeast coast of the United States.
                            Facilitating the safe navigation of vessels and the efficient transport of
                            commercial products and resources through such ice-breaking services is
                            critical to the nation’s economy, according to the Coast Guard. While not
                            taking issue with the importance of domestic ice breaking, three studies
                            we reviewed proposed that the beneficiaries of such services share in the




                            Page 46                             GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                          Chapter 4
                          Actions Needed on Several Fronts to Better
                          Prepare for Budget Contingencies




                          cost of providing them.10 The value of this service to industry can be
                          considerable. For example, a 1995 study computed the value of
                          ice-breaking benefits to shippers in the Great Lakes Region (Ninth Coast
                          Guard District) at $78.1 million, on the basis of a 3-year average of net tons
                          of commodities shipped during the Great Lakes ice season.11 According to
                          this study, the corresponding ice-breaking costs for the Coast Guard in
                          that region were $8.8 million.

                          Industry representatives are not likely to support such a fee. For example,
                          at a congressional hearing in 1996, Great Lakes port and shipping
                          representatives testified on the importance of the Coast Guard’s
                          maintaining Great Lakes ice-breaking services, but none offered user fees
                          as a viable alternative to pay for these services. Although the law does not
                          prohibit the Coast Guard from imposing a fee, the 1995 study noted that
                          doing so would require overcoming “the traditional expectations of free
                          (taxpayer supported) service.”

                          Despite the potential controversy posed by this fee, the administration is
                          making renewed efforts to enact user fees for domestic ice-breaking
                          services. Information in the administration’s fiscal year 1998 budget
                          proposal indicates that legislation will be proposed to assess and collect
                          fees from commercial maritime carriers to recover the Coast Guard’s cost
                          of providing domestic ice-breaking services in the Great Lakes and the
                          Northeast. Fishing vessels and recreational vessels would be exempt from
                          the fee. The administration estimates that these fees, if approved, would
                          become effective in fiscal year 1999 and would produce $25 million
                          annually.

Earmarking of User Fees   The potential for user fees to help the Coast Guard in reducing any future
                          budget gaps is tied directly to the issue of earmarking—that is, allowing an
                          agency to keep at least a portion of fees collected to pay for providing the
                          service. Currently, the Coast Guard is not allowed to keep fees collected;
                          the revenues are sent to the Treasury, and the agency is reimbursed for its
                          collection costs only.12 Under these circumstances, according to Coast

                          10
                            Six of the 23 past studies on the Coast Guard that we reviewed contained recommendations for the
                          Coast Guard to charge user fees for services it provides. Three of these studies specifically
                          recommended that the Coast Guard charge beneficiaries for the costs of domestic ice-breaking
                          services.
                          11
                             Analysis of Great Lakes Icebreaking Requirements, U.S. Department of Transportation, John A. Volpe
                          National Transportation Systems Center (Cambridge, Mass., Mar. 1995).
                          12
                            In some circumstances, the Congress has allowed agencies to keep the proceeds from user fees to
                          finance programs. For example, in 1997, the Congress authorized the National Park Service to conduct
                          a demonstration fee program that allows parks and other units to collect new or increased admission
                          and user fees and spend the new revenue for park improvements.


                          Page 47                                  GAO/RCED-97-110 Future Budget for U.S. Coast Guard
              Chapter 4
              Actions Needed on Several Fronts to Better
              Prepare for Budget Contingencies




              Guard officials, the agency has had little incentive to propose new fees on
              its own, since the agency receives no budgetary benefit from them and
              often encounters public and political opposition to them. Furthermore,
              even though the agency may be reimbursed for its fee collection efforts,
              agency officials said that funds received for this often do not offset the
              costs incurred.

              The administration favors earmarking user fee proceeds for agencies, in
              part as a means of providing agencies with an incentive to collect fees and
              giving them a greater stake in the collection of receipts important to their
              operations. The fiscal year 1998 budget submission contains a proposal
              that would directly align user fees with the agency’s operations being paid
              for by the fees, thereby providing agencies with an incentive to support
              user fees. Under this proposal, a revised budget-scoring rule would also be
              used.13 If the new scoring rule and the proposal to charge user fees for
              domestic ice breaking are both approved by the Congress, the Coast
              Guard would be allowed to use the fee proceeds to cover its costs for
              ice-breaking services.

              One of the key issues to consider in deciding whether to earmark user fees
              relates to oversight and accountability—that is, ensuring that controls are
              in place so that the proceeds will be used prudently and for purposes
              intended or deemed to be high priority. For example, in allowing the Food
              and Drug Administration to retain the proceeds from user fees related to
              new drug applications from manufacturers, the Congress set up specific
              controls on the use of these funds and required that the agency make
              annual reports to the Congress on how the funds were used.14


              The Coast Guard, like other federal agencies, has a daunting task ahead. If
Conclusions   current predictions about the size of its funding gap hold true, the Coast
              Guard is likely to face the task of identifying budgetary savings far in
              excess of what it has been forced to identify in recent years. At the same
              time, the agency faces pressures to find enough money to replace or
              modernize aging equipment.

              13
                “Scoring” is the process of estimating the budgetary effects of pending and enacted legislation and
              comparing them with limits set in the budget resolution or legislation. Scoring involves tracking data,
              such as budget authority, receipts, outlays, the surplus or deficit, and the public debt limit. According
              to the fiscal year 1998 Budget of the United States Government, the new scoring rule proposed by the
              administration would (1) employ a definition of user fees that is currently part of the House rules on
              jurisdiction, (2) support the long-standing practice of authorizing user fees in authorizing legislation,
              and (3) require that the fees be appropriated before they could be spent.
              14
               See FDA User Fees: Current Measures Not Sufficient for Evaluating Effect on Public Health
              (GAO/PEMD-94-26, July 22, 1994).



              Page 48                                    GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                  Chapter 4
                  Actions Needed on Several Fronts to Better
                  Prepare for Budget Contingencies




                  We have no opinion regarding the level of resources needed by the Coast
                  Guard to carry out its responsibilities or on the advisability of specific
                  cost-cutting options. However, we believe that the Coast Guard’s best
                  opportunity to deal effectively with this task is first to identify total
                  expected annual savings from actions already taken or planned. Doing so
                  would allow the Coast Guard to more readily determine the extent to
                  which it may need to seek even further savings to meet future budget
                  targets. If additional savings are needed, the Coast Guard could then
                  expand the scope of its efforts to examine additional efficiency-related
                  actions and, if appropriate, potential changes in the services it provides or
                  the way in which these services are funded. Regarding user fees, we are
                  not taking a position on whether such fees, including the proposed
                  domestic ice-breaking user fees, should be established or if such fees
                  should be earmarked for the Coast Guard rather than returned to the
                  Treasury’s general fund. This is largely a policy question that the Congress
                  must ultimately decide after weighing a number of issues and trade-offs.

                  To a greater degree than with past cost-cutting efforts, future
                  efficiency-related options are likely to be controversial in some way. Some
                  could be controversial within the Coast Guard itself because the changes
                  would involve a major shift in its organizational culture. Others could be
                  controversial with the public because they involve a real or perceived
                  change in services or the closure of facilities deemed important by nearby
                  communities.

                  Expanding budget-cutting options to include a reassessment of missions
                  or user fees is likely to involve controversy as well, given past opposition
                  to reductions in services and requirements to pay for services. Even so,
                  given the uncertainty of future budget targets, it is important for the Coast
                  Guard to be prepared to make or suggest changes in these areas. This is
                  especially relevant in light of the substantial capital expenditures
                  anticipated for replacing or renovating aging equipment and facilities. In a
                  time of budget austerity, it would be a double mistake to commit money to
                  replace or renovate equipment or facilities that may no longer be useful if
                  missions must be trimmed.


                  We recommend that the Secretary of Transportation direct the
Recommendations   Commandant of the Coast Guard to incorporate the following approaches
                  into the Coast Guard’s strategy for confronting and managing possible
                  changes in the current budget climate:




                  Page 49                             GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                      Chapter 4
                      Actions Needed on Several Fronts to Better
                      Prepare for Budget Contingencies




                  •   To the maximum degree possible, quantify the anticipated year-by-year
                      savings from actions already under way or planned, such as specifying the
                      future savings realized by replacing old vessels with fewer new ones and
                      implementing alternative vessel inspection methods.
                  •   Develop a more comprehensive strategy and corresponding plan for
                      addressing impending budget targets, including systematically identifying
                      and prioritizing alternatives that could be considered if future budget
                      targets require additional spending reductions. In so doing, the Coast
                      Guard should give serious consideration to relevant but unimplemented
                      recommendations from past studies and options identified in its recent
                      National Streamlining Study. The agency should also identify the
                      legislative actions necessary to implement these alternatives. Particularly
                      in light of the large anticipated backlog of capital projects, the Coast
                      Guard should consider including a reassessment of its missions and its
                      relationship to user groups as part of this activity.


                      If future funding levels require the Coast Guard to consider closing
Matters for           operational units such as small boat stations, air stations, marine safety
Congressional         offices, or training centers, the Congress may wish to establish an
Consideration         independent panel to review potential agency facilities closures in view of
                      (1) the potential financial benefits, (2) the impact on beneficiaries of
                      services currently provided, and (3) the potential opposition that
                      inevitably accompanies consolidation and closure decisions. A panel much
                      like the Defense Base Closure and Realignment Commission established to
                      review military installations may be useful to address these issues.

                      Also, if the Congress believes that potentially controversial issues within
                      the Coast Guard—such as changing military rotation policies or converting
                      more military positions to civilian positions—merit further consideration,
                      the Congress may wish to (1) direct the Coast Guard to commission an
                      outside study of these options or (2) otherwise ensure either that the
                      options are reviewed independently or that the Coast Guard’s studies of
                      controversial internal issues are validated by a third party.


                      We provided the Coast Guard with copies of a draft of this report for its
Agency Comments       review and comment. We met with Coast Guard officials, including the
                      Director of Resources, who generally concurred with the information and
                      recommendations contained in the report. However, the Coast Guard
                      believed that the draft report did not (1) thoroughly address the unique
                      nature of the agency’s missions and functions and the breadth of the



                      Page 50                             GAO/RCED-97-110 Future Budget for U.S. Coast Guard
Chapter 4
Actions Needed on Several Fronts to Better
Prepare for Budget Contingencies




services that it provides with the budget it has and (2) properly
characterize the agency’s rationale for its reluctance to initiate substantive
changes to its missions. The Coast Guard provided us with a number of
other technical comments to clarify portions of the report; these changes
have been incorporated into the body of the report as appropriate.

We believe that the report adequately describes the specific nature of the
Coast Guard’s missions and assets and acknowledges that the Coast Guard
has been asked to do more while dealing with a relatively flat budget over
the last several years. Also, the report describes in some detail the positive
actions the agency has made and is making to reduce costs and align itself
with the administration’s priorities.

Coast Guard officials indicated that because the Congress ultimately
decides the missions that the Coast Guard should perform, the agency has
not initiated any mission-related changes. Language has been added to the
report to better reflect the Coast Guard’s position on this matter. However,
while we recognize that the Coast Guard provides the public with valuable
and in many cases vital services, this should not prevent the agency from
critically examining its functions to see if other cost-effective alternatives
are available to achieve its missions, as other fiscally constrained
organizations have had to do. By reexamining its missions, the Coast
Guard can position itself to provide relevant and timely information as the
Congress conducts its budget deliberations. Also, the agency can validate
the need for and the scope of its missions and functions before embarking
on an aggressive program to modernize its aging assets.




Page 51                             GAO/RCED-97-110 Future Budget for U.S. Coast Guard
Appendix I

List of Studies With Potential Budget-Cutting
Recommendations and Options for the
Coast Guard

Title of study                                 Description
Broad-based reviews of the Coast Guard
Semi-Paratus: The United States Coast Guard, The Subcommittee on Coast Guard and Navigation, House Committee on Merchant
Nov. 1981                                    Marine and Fisheries, conducted six hearings and issued a report on all of the Coast
                                             Guard’s programs on the basis of the belief that the gap between the agency’s
                                             resources and its responsibilities was growing.
Coast Guard Roles and Missions,                The House Appropriations Committee directed that an interagency task force study the
Mar. 1982                                      Coast Guard’s missions and functions. The study, which was intended to serve as the
                                               impetus for the agency’s planning process for the next 20 years, was undertaken to
                                               identify numerous functions that could be eliminated, reduced in scope, or performed
                                               by the private sector, public authorities, local or state entities, or other federal agencies.
The U.S. Coast Guard,                          The Senate Committee on Commerce, Science, and Transportation requested that the
Mar. 1982                                      Congressional Research Service prepare this report because of the Committee’s
                                               concern over expanded Coast Guard responsibilities and continued budgetary
                                               constraints. The report is meant to be an objective, in-depth analysis of the history of
                                               the Coast Guard, its goals and missions, and options for the future.
President’s Private Sector Survey on Cost      Because of growing budget deficits, President Reagan established the Grace
Control (Grace Commission),                    Commission, led by private sector experts, and gave it a mandate to identify
1983                                           opportunities for increased efficiency and reduced costs achievable by executive and
                                               legislative action.
U.S. Coast Guard: Status, Problems, and        Concerned that the Coast Guard’s resources may not be adequate to support its
Potential,                                     responsibilities, the National Advisory Committee on Oceans and Atmosphere
Jan. 1983                                      examined and highlighted possible efficiencies and alternative approaches.
Creating a Government That Works Better        This federal governmentwide review examined cabinet-level Departments and 10
and Costs Less: A Report of the National       agencies. The report contained numerous recommendations relevant to the Coast
Performance Review,                            Guard.
Sept. 1993
Deepwater Mission Analysis Report,             This study, performed by the Coast Guard, reviews the Coast Guard’s deepwater
Nov. 1995                                      missions, both current and proposed, and projects the capabilities and corresponding
                                               capital resources that may be required to effectively carry out these responsibilities.
                                               The study covers likely technology improvements that may affect the level of resources
                                               needed and provides gross dollar estimates of resources (vessels and aircraft) needed
                                               in the future.
Streamlining U.S. Coast Guard Organization     This study, which stemmed in part from the President’s mandate to improve efficiency in
& Training Infrastructure,                     the federal government, was chartered in 1994 by the Coast Guard’s Chief of Staff to
1996                                           identify opportunities to streamline the agency’s headquarters and field organization
                                               and training infrastructure. Ultimately, it recommended major changes to the agency’s
                                               headquarters and field structure and to enhance training.
GAO reports,                                   Over the past 5 years, we have issued 10 reports and a testimony to Congress
1990-96                                        identifying millions of dollars of potential savings for the Coast Guard. The agency has
                                               taken actions on most of the recommendations in these reports. Open issues include
                                               funding for the VTS 2000 program and ensuring better inventory management of spare
                                               parts.
Mission-specific studies of the Coast Guard
Short Range Aids to Navigation Mission         This report, based on a study performed by the Coast Guard, provides a general
Analysis,                                      description of the short- range aids program and an overall plan for resource allocation
Apr. 1994                                      and replacement within the mission area.
                                                                                                                                 (continued)




                                              Page 52                               GAO/RCED-97-110 Future Budget for U.S. Coast Guard
                                                Appendix I
                                                List of Studies With Potential
                                                Budget-Cutting Recommendations and
                                                Options for the Coast Guard




Title of study                                   Description
Analysis of Required Fleet Size and Private      This study, undertaken by the John A. Volpe National Transportation Systems Center,
Sector Cost Comparisons for the USCG             discusses three areas: the optimum number of construction tenders needed, a
Inland Construction Tender Fleet,                comparison of the Coast Guard’s tender fleet construction costs with private costs, and
May 1994                                         the mission-related factors that need to be considered before reducing the fleet’s size
                                                 or contracting for the construction of fixed aids to navigation.
Analysis of Great Lakes Icebreaking              This study, undertaken by the John A. Volpe National Transportation Systems Center,
Requirements,                                    examines the requirements for Great Lakes ice-breaking services and the feasible
Mar. 1995                                        alternatives for meeting those requirements.
Cost and Operational Effectiveness Analysis      This study, which was conducted by the Coast Guard and outside experts, sought to
for Selected International Ice Patrol Mission    review new technology and management opportunities to improve international ice
Alternatives,                                    patrol operations and identify selected management, technology, and operating
1995                                             alternatives. The report includes a cost analysis of various alternatives required to meet
                                                 current performance standards and an analysis of the cost reimbursement system.

                                                Legend

                                                USCG = U.S. Coast Guard

                                                VTS = Vessel Traffic Service




                                                Page 53                              GAO/RCED-97-110 Future Budget for U.S. Coast Guard
Appendix II




              b
                Coast Guard Cutters: Actions Needed Now to Ensure Better Management of Parts and Supplies
              (GAO/RCED-95-62,
              c                   Jan. 24, 1995).
               Coast Guard: Issues Related to the Fiscal Year 1996 Budget Request (GAO/T-RCED-95-130,
              Mar. 13, 1995).
              d
               Coast Guard: Acquisition Program Staff Were Funded Improperly (GAO/RCED-93-123, Apr. 27,
              1993).
              e
               Coast Guard: Use of Appropriated Funds for the Morale, Welfare, and Recreation Program
              (GAO/RCED-92-158, May 18, 1992).
              f
               Coast Guard: Reorganization Unlikely to Increase Resources or Overall Effectiveness
              (GAO/RCED-90-132, July 12, 1990).
              g
               Coast Guard: Management of the Research, Development, Test and Evaluation Program Needs
              Strengthening (GAO/RCED-93-157, May 25, 1993).
              h
               Coast Guard: Housing Acquisition Needs Have Not Been Adequately Justified
              (GAO/RCED-92-159, May 19, 1992).
              i
               Coast Guard: Program to Inspect Intermodal Containers Carrying Hazardous Materials Can Be
              Improved (GAO/RCED-94-139, Apr. 27, 1994).
              j
              Coast Guard: Abandoned Vessels Pollute Waterways and Cost Millions to Clean Up and Remove
              (GAO/RCED-92-235, July 21, 1992).
              k
               Coast Guard: Progress in the Marine Safety Network, but Many Uncertainties Remain
              (GAO/RCED-92-206, Aug. 28, 1992).
              l
              Marine Safety: Coast Guard Should Address Alternatives as It Proceeds With VTS 2000
              (GAO/RCED-96-83, Apr. 22, 1996).




              Page 54                                 GAO/RCED-97-110 Future Budget for U.S. Coast Guard
Appendix III

Major Contributors to This Report


               Neil Asaba
               Christine Bonham
               Michelle Chang
               Jay Cherlow
               Steven Gazda
               Laura Hamilton
               David Hooper
               Dawn Hoff
               Allen Lomax
               LuAnn Moy
               Stan Stenersen
               Randall Williamson




(344501)       Page 55              GAO/RCED-97-110 Future Budget for U.S. Coast Guard
Ordering Information

The first copy of each GAO report and testimony is free.
Additional copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order
made out to the Superintendent of Documents, when
necessary. VISA and MasterCard credit cards are accepted, also.
Orders for 100 or more copies to be mailed to a single address
are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office
P.O. Box 6015
Gaithersburg, MD 20884-6015

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000
or by using fax number (301) 258-4066, or TDD (301) 413-0006.

Each day, GAO issues a list of newly available reports and
testimony. To receive facsimile copies of the daily list or any
list from the past 30 days, please call (202) 512-6000 using a
touchtone phone. A recorded menu will provide information on
how to obtain these lists.

For information on how to access GAO reports on the INTERNET,
send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov




PRINTED ON    RECYCLED PAPER
United States                       Bulk Rate
General Accounting Office      Postage & Fees Paid
Washington, D.C. 20548-0001           GAO
                                 Permit No. G100
Official Business
Penalty for Private Use $300

Address Correction Requested