Bloomberg News

Coast Guard Snub on Funds Seen as Threat

March 12, 2012

March 12 (Bloomberg) --The Obama administration’s failure to budget $1.6 billion for two of the Coast Guard’s flagship vessels is drawing criticism from U.S. lawmakers who say the service’s missions will be threatened.

The Department of Homeland Security’s proposal for the fiscal year beginning Oct. 1 requests $683 million to fund only the sixth of eight planned National Security Cutters made by Huntington Ingalls Industries Inc (HII). The agency, which oversees the Coast Guard, didn’t seek funding for the remaining two cutters for fiscal years 2014 to 2017.

The 418-foot-long cutters are needed to replace an aging fleet of vessels, many of which are more than 40 years old and expensive to maintain, according to the service. The older ships also aren’t equipped for some of the Coast Guard’s missions, which expanded after the service moved in 2003 from the Department of Transportation to Homeland Security, created following the Sept. 11 attacks.

“I’m very concerned that the department’s budget is spreading our maritime resources too thin,” Representative Chip Cravaack, a Minnesota Republican, said in an interview after a March 7 hearing of the House Transportation and Infrastructure’s Coast Guard subcommittee. “This puts our nation at risk.”

Huntington Contracts

The Coast Guard, more than two centuries old, had 38,000 active-duty men and women, 8,000 reservists and 35,000 auxiliary personnel in 2010, according to its website. The service defines a cutter as any ship more than 65 feet long and with space for the crew to live on board.

Shipbuilder Huntington, spun off from Northrop Grumman Corp. (NOC) a year ago, has received contracts to build the first four new cutters and was awarded the fifth in September, according to the Coast Guard website. Three of the six cutters are in service, the last of which was commissioned in September.

The largest builder of Navy surface warships, Newport News, Virginia-based Huntington depends on the U.S. government for “substantially all” of its revenue, the company said in its prospectus.

Huntington had $6.58 billion in estimated revenue in the 12 months ended Sept. 30, 2011, according to data compiled by Bloomberg. Its shares rose $1.16, or 3.2 percent, to close at $37.46 Friday in New York Stock Exchange composite trading.

The shares have risen 20 percent so far this year. The Standard & Poor’s 500 Index has increased 9.0 percent. Nine of 13 analysts monitored by Bloomberg rate Huntington shares a hold or sell, while four rate them a buy.

Coast Guard Cuts

About 1,000 people work in the National Security Cutter program, Bill Glenn, a Huntington spokesman, said in an e-mail. He declined to comment on what might happen to those workers if the project doesn’t receive future funding.

Whether the two cutters get funding remains in doubt, Coast Guard Commandant Admiral Robert Papp said in a March 6 interview after testifying before the House Appropriations subcommittee on Homeland Security. “Each and every year we will have to do an assessment of what we can afford,” he said.

President Barack Obama’s proposed budget reduces the Coast Guard’s total funding by 5.7 percent in fiscal 2013, to $9.97 billion from the $10.6 billion enacted in fiscal 2012. The service’s capital budget would decline 19 percent, according to budget documents.

“Congress has never supported a plan that so bluntly guts operational capabilities,” Representative Robert Aderholt, an Alabama Republican and chairman of the Appropriations subcommittee on Homeland Security, said at the hearing. “I believe what is at stake is no less than the future of our Coast Guard.”

Lawmakers Disagree

The Coast Guard’s budget is able to meet the service’s needs given the constraints of the U.S. budget deficit, Homeland Security Secretary Janet Napolitano testified March 8 at a hearing of the Senate Appropriations subcommittee on Homeland Security.

Lawmakers from both parties disagreed. “I have strong reservations about the inadequate funding requests to replace aging Coast Guard ships and planes,” Senator Mary Landrieu, a Louisiana Democrat and chairwoman of the Appropriations subcommittee on Homeland Security, said at the March 8 hearing. “I will work with my colleagues to identify resources to restore those cuts.”

Old Cutters

The new National Security Cutter is the largest and most technically advanced ship the Coast Guard has ever commissioned, according to its website. The vessel replaces the 378-foot Hamilton Class High Endurance Cutters first built in the 1960s. The new cutter is faster and can operate farther from shore, the website says.

The Coast Guard’s mission has expanded beyond U.S. shores to include drug enforcement, terrorism prevention and environmental protection in the Arctic, South America, Mexico and the Caribbean. The service’s goal is to detect and deter threats to the nation, and the National Security Cutter plays an important role in those efforts, Papp said in the interview.

While the new cutter performs traditional Coast Guard duties such as search and rescue, it’s also equipped to detect and defend against chemical, biological and radiological attacks.

The service may face additional burdens as the Navy reevaluates its fleet size and patrol commitments, Papp told the House Appropriations Homeland Security subcommittee March 6. The Navy’s Perry-class frigates, for example, are leaving service and those warships are critical to counter-drug missions, he said.

Budget Request

The Department of Homeland Security’s budget request for fiscal 2012 was for $795 million in fiscal 2014 and $853 million the following year for the two cutters. The entire National Security Cutter program is estimated to cost $4.75 billion through 2018, according to budget documents.

The U.S. Government Accountability Office, Congress’s investigative arm, found that figure to be conservative. In a July report, it put the cost of the eight cutters at about $5.6 billion, or 19 percent higher than budgeted.

The budget request for fiscal 2013 also included $860 million through fiscal 2017 to build a polar icebreaker, a ship capable of plowing through ice-filled waterways. The U.S. currently has only one medium-size icebreaker.

Funding for cutters must be provided in multiple budget years to keep the production line going, said Thad Allen, a former Coast Guard commandment who is now a vice president at Booz Allen Hamilton, the McLean, Virginia-based government contractor. This allows equipment to be purchased and personnel hired for the next stage of development, he said.

“Since there was no money in this budget the production line is broken,” Allen said in a March 9 interview. “No one has said that the cutter program is terminated but without the money, and particularly because they did fund the ice breaker, it essentially is.”

To contact the reporter on this story: Carol Wolf in Washington at cwolf@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net


Tim Cook's Reboot
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus