It is the ultimate payoff, the tangible result of the management and leadership attention of the kind that the Coast Guard has traditionally applied to its affairs.

OPERATING EXPENSES

The operating expenses appropriation request for just over $1.78 billion is to fund the operation and maintenance of Coast Guard ships, aircraft, and shore units, including facilities acquired through capital investments in recent years.

Our request will provide for 38,220 full-time equivalent military personnel. The total amount for operating expenses includes $15 million provided from the boat safety account as authorized by law.

ACQUISITION, CONSTRUCTION, AND IMPROVEMENTS

The acquisition, construction, and improvements appropriation request for $303.1 million in budget authority is to fund capital improvements, including aircraft procurements, cutter acquisitions, renovations, and modernization, and replacement and renovation programs at selected shore facilities.

Projects have also been initiated to provide electronic data processing and communications to more Coast Guard commands to enhance productivity and management and command decision making.

RETIRED PAY

The retired pay appropriation request of $340.5 million is based upon an average of 24,298 annuitants on the rolls.

RESERVE TRAINING

The reserve training program proposed at $61.5 million will support the Selected Reserve at a continuing level of 12,500 people. The Coast Guard Reserve is a valuable contributor to our national security, especially in the areas of strategic mobility and defense readiness.

RESEARCH, DEVELOPMENT, TEST, AND EVALUATION

The research, development, test, and evaluation request, totaling $23 million, is consistent with the level appropriated in fiscal year 1985. The balance of our request, approximately $43 million, will fund our alteration of bridges account, our boat safety account, and our pollution type funds.

The total dollar level of the request before you represents just a small increase from last year, and personnel levels are actually lower. Yet even with this no-growth budget, we will sail more ships and fly more planes than last year. We will do all of those things by working smarter, by using a combination of technical improvements and management initiatives to make us even more cost-effective.

We will also continue to meet increasing program responsibilities, particularly in the areas of drug law enforcement and defense readiness, continuing what I believe is our well-justified reputation for productivity in the truest sense of the word.

In keeping with the President's determination to control Government spending and reduce the deficit, our budget is a frugal one. We are not asking for one more dollar or one more person than we need to do our job.

As you review our budget request, I feel confident you will find that it properly balances the need to seek economies and cost effectiveness with the requirements to maintain our statutory responsibilities in the areas of maritime safety, law enforcement, and defense readiness. Certainly those were our goals as we prepared it.

I look forward to working with you and the other members of the committee as we try to meet the fiscal challenges facing all of us in Government this year.

And now, Mr. Chairman, I will be happy to respond to any questions the committee may have.

PREPARED STATEMENT

Senator ANDREWS. Thank you very much, Admiral. We will insert your complete statement in the record, and we will proceed with the questions.

[The statement follows:]

STATEMENT OF ADM. JAMES S. GRACEY

MR. CHAIRMAN, I AM PLEASED TO HAVE THIS OPPORTUNITY TO MEET

WITH YOU AND OTHER MEMBERS OF THIS SUBCOMMITTEE TO REVIEW AND

DISCUSS THE COAST GUARD FISCAL YEAR 1986 BUDGET REQUEST. ACCOMPANYING ME ARE THE VICE COMMANDANT, VICE ADMIRAL BENEDICT STABILE; MY CHIEF OF STAFF, REAR ADMIRAL DONALD THOMPSON; THE

CHIEF OF THE PROGRAMS DIVISION, CAPTAIN ROBERT NELSON; AND THE

CHIEF OF THE BUDGET DIVISION, CAPTAIN KENT WILLIAMS.

OUR OVERALL REQUEST, TOTALING ABOUT $2.54 BILLION IN BUDGET

AUTHORITY, ALLOWS A CONTINUATION OF PLANS TO MODERNIZE AND

IMPROVE THE EFFICIENCY OF THE COAST GUARD'S CAPITAL PLANT; TO

INCREASE THE CAPABILITY OF EXISTING RESOURCES THROUGH SENSOR

ADDITIONS AND COMMAND AND CONTROL ENHANCEMENTS; AND TO REDUCE

ADMINISTRATIVE OVERHEAD THROUGH CONSOLIDATIONS AND OTHER

ECONOMIES.

THIS REQUEST REPRESENTS A BALANCE BETWEEN THE NEED TO LIMIT

FEDERAL BUDGET GROWTH AND THE REQUIREMENT TO SUPPORT PRIORITY PROGRAMS VITAL TO THE NATIONAL INTEREST; PARTICULARLY THE COAST GUARD'S THREE BASIC MISSIONS: MARITIME SAFETY, DEFENSE READINESS, AND LAW ENFORCEMENT.

THIS REQUEST PROVIDES FOR A CONTINUATION OF ESSENTIAL COAST

GUARD FUNCTIONS AND THE OPERATION OF NEW FACILITIES AND

EQUIPMENT, WHILE SIMULTANEOUSLY PROPOSING A NET REDUCTION IN PERSONNEL. TO EFFECT MANY OF THOSE PERSONNEL REDUCTIONS, WE WILL

FOCUS ON REALIGNING SUPPORT ACTIVITIES AND TRIMMING ADMIN

ISTRATIVE OVERHEAD THROUGH STAFF CONSOLIDATIONS. THE A-76 PRO

CESS WILL ALSO REMAIN A MAJOR TOOL IN SEEKING PERSONNEL

ECONOMIES AND PRODUCTIVITY IMPROVEMENTS THROUGH REVIEWING SUPPORT

ACTIVITIES THAT ARE NOT INHERENTLY GOVERNMENTAL IN NATURE, WITH A

VIEW TO HAVING THEM PERFORMED BY PRIVATE SECTOR FIRMS UNDER

THE COMMERCIAL VESSEL SAFETY PROGRAM OR GREAT LAKES SEARCH AND

WE ARE ONCE AGAIN SEEKING USER FEES FOR CERTAIN COAST GUARD

SERVICES. OUR LEGISLATIVE PROPOSAL ANTICIPATES THAT IN FISCAL

YEAR 1986 THE FEES BEING PROPOSED WILL GENERATE HALF-YEAR

RECEIPTS OF ABOUT $236 MILLION. IN FISCAL YEAR 1987, THE FIRST FULL YEAR OF IMPLEMENTATION, RECEIPTS WOULD INCREASE TO A LEVEL OF ABOUT $476 MILLION AND THEN REMAIN AT THAT LEVEL IN THE OUT

YEARS.

WE HAVE ALSO INCLUDED A NUMBER OF MANAGEMENT IMPROVEMENT

INITIATIVES IN THIS BUDGET TO HELP KEEP US WITHIN THE PRESIDENT ́S

"FREEZE" GUIDELINES. WE ARE LOOKING FOR IMPROVED PRODUCTIVITY

.AS WE ALWAYS HAVE. IT IS THE ULTIMATE PAYOFF.

TANGIBLE RESULT OF THE MANAGEMENT AND LEADERSHIP ATTENTION THE

COAST GUARD HAS TRADITIONALLY APPLIED TO ITS AFFAIRS.

OPERATING EXPENSES

THE OPERATING EXPENSES APPROPRIATION REQUEST FOR JUST OVER $1.78 BILLION IS TO FUND THE OPERATION AND MAINTENANCE OF COAST GUARD SHIPS, AIRCRAFT, AND SHORE UNITS, INCLUDING FACILITIES

ACQUIRED THROUGH CAPITAL INVESTMENTS IN RECENT YEARS. THE LEVEL

IN THE APPROPRIATION LANGUAGE FOR FUNDING MILITARY COMPENSATION

AND BENEFITS WILL PROVIDE FOR THE 38, 220 FULL-TIME EQUIVALENT PERSONNEL REQUESTED. FUNDING WILL ALSO ALLOW OPERATION OF 2 LEASED AND 3 COAST GUARD OWNED AEROSTATS...MOBILE, TETHERED

BALLOON, RADAR SURVEILLANCE SYSTEMS. . .FOR USE IN OUR DRUG INTERDICTION EFFORT. ALSO, IN FY 1986 WE WILL BEGIN OPERATING 4

NEW 270 FOOT MEDIUM ENDURANCE CUTTERS, 1 NEW 140 FOOT ICEBREAKING TUG, 2 NEW HC-130 LONG RANGE SEARCH AIRCRAFT, 26 NEW SHORT RANGE

RECOVERY HELICOPTERS AND THE FIRST 10 OF OUR NEW 110 FOOT PATROL

BOATS.

THE TOTAL AMOUNT FOR OPERATING EXPENSES INCLUDES $15 MILLION

PROVIDED FROM THE BOAT SAFETY ACCOUNT. FISCAL YEAR 1986 IS THE

FIRST YEAR FOR THIS FUNDING TRANSFER WHICH WAS AUTHORIZED BY THE

DEFICIT REDUCTION ACT OF 1984.

ACQUISITION, CONSTRUCTION AND IMPROVEMENTS

THE ACQUISITION, CONSTRUCTION AND IMPROVEMENTS APPROPRIATION REQUEST FOR $303.1 MILLION IN BUDGET AUTHORITY IS TO FUND CAPITAL IMPROVEMENTS, INCLUDING AIRCRAFT PROCUREMENTS; CUTTER ACQUISITIONS, RENOVATIONS, AND MODERNIZATION; AND REPLACEMENT

AND RENOVATION PROGRAMS AT SELECTED SHORE FACILITIES.

THIS BUDGET PROVIDES FOR THE CONSTRUCTION OF 1 REPLACEMENT

RIVER TENDER. IT WILL ALSO ALLOW US TO RENOVATE AND MODERNIZE

3 MORE 210 FOOT MEDIUM ENDURANCE CUTTERS, 2 ADDITIONAL 378 FOOT HIGH ENDURANCE CUTTERS, AND TO MAKE SAFETY AND SUPPORTABILITY UPGRADES TO 1 POLAR ICEBREAKER. 42 OF THE 96 SHORT RANGE RECOVERY (SRR) HELICOPTERS ARE TO BE DELIVERED BY THE END OF

FY 1986. RENOVATION AND REPLACEMENT OF OBSOLETE SHORE FACILITIES

WILL ALSO CONTINUE. PARTICULAR EMPHASIS WILL BE PLACED ON

UPGRADING SHORE FACILITIES TO INSURE ADEQUATE SUPPORT FOR BOTH NEW AND RENOVATED HIGH AND MEDIUM ENDURANCE CUTTERS. PROJECTS

HAVE ALSO BEEN INITIATED TO PROVIDE ELECTRONIC DATA PROCESSING

AND COMMUNICATIONS TO MORE COAST GUARD COMMANDS TO ENHANCE

PRODUCTIVITY AND MANAGEMENT AND COMMAND DECISION-MAKING.

ALTERATION OF BRIDGES

THE $5.2 MILLION REQUESTED FOR ALTERATION OF BRIDGES WILL

PROVIDE FOR THE GOVERNMENT'S SHARE OF THE COST TO CONTINUE

ALTERATIONS ON THE WILLAMETTE RIVER BRIDGE, PORTLAND, OREGON.

RETIRED PAY

THE RETIRED PAY APPROPRIATION REQUEST OF $340.5 MILLION IS BASED UPON AN AVERAGE OF 24,298 ANNUITANTS ON THE ROLLS. THE