"Transformation Over Time"

Interview with Coast Guard Commandant Adm. James M. Loy

Serving as commandant of the Coast Guard since May 1998, Adm. James M. Loy has focused his leadership on restoring readiness and shaping the future of the Coast Guard. The most visible expressions of restoring Coast Guard readiness have been rebuilding the work force to authorized levels, improving retention, and managing operational tempo. The most important element of shaping the service's future has been overseeing the Integrated Deepwater System acquisition project, which will modernize the ships, aircraft, and sensors that the Coast Guard uses to perform its many open-ocean missions. A career seagoing officer, Loy has served tours aboard six Coast Guard cutters, including command of a patrol boat in combat during the Vietnam War, and commanded major cutters in both the Atlantic and Pacific Oceans. Loy was graduated from the U.S. Coast Guard Academy in 1964 and holds masters degrees from Wesleyan University and the University of Rhode Island. He also attended the Industrial College of the Armed Forces and interned at the John F. Kennedy School of Government at Harvard University.

Senior Editor Gordon I. Peterson interviewed Adm. Loy for this issue of Sea Power.

Sea Power: Admiral Loy, you recently delivered your third annual "State of the Coast Guard" address as commandant. What was your principal message to the men and women of the Coast Guard?

LOY: "Transformation over time" was the message that I was trying to help our Coast Guard understand. I wanted to express the Coast Guard's transformation in terms that will encourage optimism on the part of our military and civilian work forces.

I want our people to be able to take stock of the transformation that our service has been undergoing for the past decade--even as we look forward to yet another decade of important change. One normally thinks of transformation in a shorter time segment, but we have spent the last 10 years renewing most of our coastal inventory with new buoy tenders, patrol boats, 47-foot self-righting motor lifeboats, and other equipment.

When we complete our National Distress and Response System Modernization Project [NDRS MP] we will have renewed the coastal inventory of our organization. We must now concentrate on the Coast Guard's offshore capabilities during the next 10 to 15 years--if not longer. That is why the combination of the Integrated Deepwater Systems project and the NDRS MP are such crucially important segments of our acquisition budget for the near future.

We have a sound plan for the Coast Guard's transformation. It is working well. We are halfway there. We must keep the faith and keep our nose to the grindstone--to press forward and complete the remaining half of our modernization program.

What would you like to see result from your approach to industry with the Deepwater program?

LOY: The principal goal is to develop a public/private partnership with industry. This will help us understand if there are better ideas in the private sector than just a one-for-one replacement of the Coast Guard's inventory that has served the nation so well over the last 40 years. The reality we face is that the service-life expectancy of virtually all of our assets will be reached during a four- to eight-year window. This stark reality gives us a unique opportunity to guarantee the interoperability, efficiency, and effectiveness of our future deepwater capability for America.

The best way to achieve this partnership was to provide a blank sheet of paper to the three industry teams that have formed themselves into competing consortiums with a set of performance specifications that outline how we would like to be able to carry out our missions in the future. We have challenged industry to help us sort out what will be the best equipment, manpower, and logistics packages.

The two principal criteria we will use to judge their proposals are operational effectiveness--how well the proposal will do the job that we identify in the specifications that are on the street--and, secondly, total-ownership costs. In other words, at the same time that we are working to transform the Coast Guard's future Deepwater assets, we are attempting to be good stewards of the taxpayers' dollar.

What is the timeline for your RFP [request for proposals]?

LOY: The final RFP was released to industry in late June, and the three competing industry teams have three months to prepare and submit their final proposals. We plan to award the contract in the second quarter of fiscal year 2002. For this reason, the budget process that we are currently negotiating on Capitol Hill is enormously crucial--it is a pivotal year for not only the project but for the Coast Guard at large. This is our opportunity to secure the funding necessary to commit to an award contract in the second quarter of 2002.

Thereafter, the project's acquisition strategy has been designed in such a way that it has been applauded by a wide variety of different acquisition strategy experts. It will enable us to look down the road with every conviction that at the other end we will have optimized Deepwater's equipment, manpower, and logistics packages against the threat that had been validated for us just last year by the interagency task force on our roles and missions [Sea Power, April 2000].

The Deepwater program--the hinge to what America needs its Coast Guard to do into the next 20 or 30 years--has now been revalidated and accepted by the Office of Management and Budget [OMB], by the Bush administration, and by the Congress. The next challenge is for us simply to get on with the business of establishing what it will take for us to do our jobs for America today and in the future. That is what Deepwater is all about.

How have U.S. defense industries responded to the Deepwater program's requirements and specifications?

LOY: They have been absolutely terrific. We have three of the world's premier systems integrators leading teams of the world's best shipbuilders, best aircraft manufacturers, and best sensor developers. We have had a wonderfully positive experience with industry. They have stepped up to the plate and delivered on time and under budget in meeting the terms of the first three and a half years of the project's first phase of functional design work.

We have commenced the project's second phase by standing up a program executive office--the Coast Guard's first--led by a flag officer, Pat Stillman [Rear Adm. Patrick M. Stillman; see page 31]. We have recognized, as has industry, that we must be sure that this project is accomplished well for America--at every step along the way.

At this point, industry's challenge is to survey the waterfront and incorporate optimum designs into their proposals. We want to see what they think is the very best way to accomplish the missions that have been identified for the Coast Guard to perform for the United States over the next 20 or 30 years. I look forward, quite frankly, to seeing as much imagination as they can possibly breed into their proposals. We must identify a better and cheaper way to do our business for America--and press on.

The Department of Transportation's inspector general told the Senate in June that the Deepwater program risks short-changing other critical Coast Guard mission areas. How do you respond to this concern?

LOY: The most important notion that Mr. Mead [Kenneth Mead] wants to get on the table is the need for a constant funding stream for Deepwater into the future. He very properly counsels the secretary [Secretary of Transportation Norman Y. Mineta], the administration, and the Congress that Deepwater is a big project estimated to cost between $10 and $12 billion over the course of the next 15 years or more.

In 1998 we identified a funding level of $500 million a year as a requirement for the Deepwater program. That planning factor has been used for the last three and a half years by the Coast Guard, industry teams, OMB, the Department of Transportation [DOT], and the Congress. I think Mr. Mead is right in making sure that the secretary is aware that these dollar requirements will best serve the Deepwater project into the future, but I would offer further that there is no one who values the rest of what the Coast Guard does for America more highly than I do.

I certainly would not subjugate one or more of our many other missions to a second-class-citizen status so as to be able to fund Deepwater. The reality is that we need to do all of our many missions for America. We are--and will remain--a multimission service.

Events during the last several years have greatly reduced the discretionary authority that our congressional appropriations committees have when most of DOT's dollars are spoken for in advance. They have a smaller amount of general-fund monies to be distributed to the Coast Guard and other needs. I think that highlighting this issue is important, but what I would offer is that to date both the president and Capitol Hill have supported the Deepwater project's requirements. I have every hope and every expectation that they will continue to do so.

Another issue of consequence to me is our shore-infrastructure budget. Like the Navy, we have put money into keeping planes in the air and ships at sea over the years at the expense of our shore infrastructure.

I would very much like to see relief associated with our $7 billion shore plant. Using just a 2 percent projection we should be spending roughly $140 million a year on replacing our shore infrastructure--plain old capital-replacement rates that any good MBA [master of business administration] student can tick off for you when they get out of graduate school. We are only spending somewhere between $40 million and $50 million a year on our shore infrastructure now.

One can find mission growth in every area of the Coast Guard's responsibilities, but is this trend more significant in your Deepwater operations?

LOY: Yes. When I was a young officer we went to sea on high-endurance cutters--deepwater cutters, if you will--to places called "ocean stations." The purpose was to support a navigation system for trans-Atlantic aircraft or trans-Pacific aircraft as they were coming and going to Europe and to the Far East. Together with our search-and-rescue mission, that caused us to have a foundation for an offshore operational capability. The ocean-station mission has gone away, but in its place has evolved counterdrug operations, enforcement of U.N. trade sanctions, illegal-alien interdiction operations, and fisheries patrols in some of the most inhospitable waters of the world.

All of the Coast Guard's mission areas today were scrubbed to the bone by the Roles and Missions Interagency Task Force and revalidated as absolutely legitimate things for the Coast Guard to do for the nation well into the foreseeable future. As the Task Force suggested, our nation will need more Coast Guard before we need less Coast Guard during the years ahead.

How do you assess the Coast Guard's performance in its other mission areas?

LOY: The most important way to assess the Coast Guard's performance is to have a sense of balance. It would be easy for me to say that our best accomplishment last year was taking 66 tons of cocaine out of the transit zone, saving 4,000 lives, or protecting many billions of dollars worth of property. If I am leading this organization well--and if we are doing our job well--we have balanced excellence in all of the missions that the nation asks us to do.

In that regard, we also had a terrific year working with the International Maritime Organization. U.S.- and Coast Guard-led delegations were able to put an emphasis on passenger vessel safety and on ballast water exchange, two of the most critical issues facing that international standard-setting organization.

We also worked very hard on strategic planning, and that effort generated not only our strategic plan but the metrics, goals, and objectives outlined in the performance plan that is submitted each year with our budget. It would be unfair for me to single out any one accomplishment. I see balanced excellence across all our missions.

Are Coast Guard port-security and force-protection responsibilities growing in importance?

LOY: Yes. Port security clearly is a principal responsibility for our nation in terms of homeland security as well as for U.S. expeditionary forces deployed around the world. We have stressed the expeditionary nature of our port security units at the expense of their potential use and responsibility for homeland security--a topic of discussion that is not well understood by the American public and, to a degree, by many elements within the public and governmental sectors.

This tendency to use Cold War paradigms as the solution for 21st-century threats is finally being recognized and corrected. We need a solid discussion of the homeland-defense issue among policy makers so we may reach a consensus and make needed decisions. The Coast Guard has been responsible for port security for many, many years. That experience will put us front and center in many of those discussions.

We can, for example, become the bridge between the armed forces of DOD [Department of Defense] and those law-enforcement agencies responsible for domestic incidents. We have a central role in the process associated with the incident command system and as a member of the National Response Team. Our National Response Center is situated here in the headquarters building, and we maintain a 24/7 [i.e., 24 hours per day, seven days per week] watch station.

We need to develop a stronger relationship with FEMA [Federal Emergency Management Agency]. President Bush has challenged Mr. Allbaugh [FEMA Director Joe M. Allbaugh] to create an Office of National Preparedness, and we need to understand where that initiative is going so we may outreach with the National Guard, the Customs Service, the Border Patrol, and the Immigration and Naturalization Service--all key players who would in one way or another potentially have a role in this new domestic arrangement.

And in your expeditionary role?

LOY: In our expeditionary role, we conducted two operations for CENTCOM [U.S. Central Command] in the aftermath of the terrorist attack on the USS Cole last autumn. We provided port security units [PSUs] to secure a port in Bahrain, and we deployed personnel to prototype, if you will, the means to protect in-transit Navy units. For the most part we worked on MSC [Military Sealift Command] ships in the region. I am proud of the performance of our PSUs.

I've had long conversations about this matter with Admiral Clark [Chief of Naval Operations Adm. Vern Clark] and many other officials. I'm of the mind that, first and foremost, the United States Navy must decide if anybody other than the U.S. Navy will be responsible for the protection of its people, ships, and facilities in ports at home or abroad. If the answer to that question is either "yes" or "maybe," then--absolutely--we must contemplate what part of that overall challenge would perhaps best be appropriately served by Coast Guard people and units--properly trained, equipped, and resourced to do the job.

First and fundamentally, however, the foremost question is up to Admiral Clark to answer. We'll be delighted to engage with him as a potential service provider down the road, but such missions must be resourced properly. We can't be expected to have such operations funded out of hide [i.e., funded from current Coast Guard budget appropriations].

Some observers have suggested that the Coast Guard might fare better if it were placed under the Department of Defense with the nation's other uniformed armed forces. Do you agree?

LOY: It's a complicated issue. With regard to such matters as personnel compensation, for example, my challenge is to make certain that as the Pentagon's budget is finalized OMB understands the implications for the nation's fifth armed service. If we have already had the Department of Transportation budget put to "sleep" inside the president's bill and then decisions are taken about DOD's military housing or health-care compensation, we need a last bite at the apple, so to speak, to assess Coast Guard requirements.

We finally have established that arrangement with OMB. It's an awareness-and-education challenge as new players come into new chairs in OMB, but we have worked very hard during the last two years to explain our needs. That educational effort has taken hold.

We need the same awareness on Capitol Hill. The Transportation Department's appropriation bill is invariably among the earliest to go to the president for signature. If I feel pretty good about my appropriation for next year and then have a National Defense Authorization Act that authorizes many things for people that weren't appropriated for me when the president signed the transportation bill, I have a problem! My exposure could entail hundreds of millions of dollars based on what judgments are taken at the last minute by the House and Senate Armed Services Committees.

Regarding talk of placing the Coast Guard within the Department of Defense, there are some fundamental considerations. From a budget perspective, there could be the potential for the Coast Guard to lose attention, focus, and emphasis based simply on being such a comparatively small organization by DOD's standards. The second consideration involves the Posse Comitatus Act and the Coast Guard's unique congressional authorization as an armed force to enforce U.S. laws. Law-enforcement authority is absolutely critical to all that the Coast Guard does for America.

The Coast Guard is a multimission armed force and law-enforcement agency, and our duties span national and international areas of responsibility. Regardless of where we are assigned organizationally within the federal government, fully 75 percent of what we do for America will likely be in someone else's shop!

Perhaps the Coast Guard should be an independent agency?

LOY: The notion of independent-agency status has come up from time to time, but cabinet-level representation and advocacy are enormously important in this town! The bottom line is that we are perfectly content in the Transportation Department.

The Coast Guard was obliged to reduce operations during the past year, and you are now proposing to remove older and more maintenance-intensive cutters and aircraft from service during 2002. Why are these actions necessary?

LOY: Let me divorce the two issues. For 2001 we had a Transportation Department appropriation, followed by a Defense Department appropriation, which was then followed by a defense authorization. We went into fiscal year '01 facing underfunding of $80 to $100 million for things that we were mandated to provide. Two principal areas included housing and health care issues. We also experienced an exorbitant rise in fuel costs this past year.

The Office of Management and Budget mandated an allocation process of spending equally over the course of the four fiscal quarters. Had I been allowed to spend more freely in quarters one and two--anticipating a supplemental appropriation in quarter three--then we would not have been in the position of having to pull back the throttles on the organ-nization to reduce principally offshore law-enforcement activities as we had to do in this past year. I had to meet the spending limit imposed on me for the end of each quarter.

Today, the president is supporting us in our supplemental requests, and it appears that we're going to get good support from the Congress. I expect to be able to push those throttles back to their normal position at the end of '01 anticipating supplemental relief.

And for the year ahead?

LOY: As we looked at the fiscal 2002 budget, we determined that we had a number of ships and aircraft that we should decommission as part of the initial pain associated with our transformation process. We must step away from people- and maintenance-intensive assets that are costing us more and more to do less and less with on an annual basis.

I had to establish a guiding principle for our organization: to set my optempo [operational tempo] at the level at which I can sustain my support structure. We simply cannot continue to steal from our human-resources locker--recruiting, retention, training--and maintenance accounts in order to hold optempo at an abnormally high level.

Much of our offshore capability is deteriorating. It continues to erode over time. Retiring older cutters and aircraft will enable us to jump-start the transition to the new Deepwater inventory. Our challenge is to manage the crossover of the deterioration of our legacy inventory and the acceleration of an oncoming new Deepwater capability.

The painful period in between sees us facing budget restrictions that will keep us at the 3, 4, and 5 percent level [of annual funding increases] when growing costs for health care and pay eat up whatever we see by way of such inflationary gains.

We had to identify a decommissioning profile for the most maintenance-intensive cutters and aircraft so we could salvage the dollars for their operations and maintenance to keep the remainder of the legacy fleet as constructively employed as we possibly can. What's the bottom line there? Productivity--without putting it on the backs of our men and women.

Speaking of your men and women, you also advocate a transformation for your work force. Why is that?

LOY: I applied three priorities in the development of our 2002 budget. The first is restoring the readiness of our organization, the second is shaping the future of our organization, and the third is the notion of transformation. It is just as important in people as it is in equipment.

On the people side I have asked Admiral Fred Ames [Rear Adm. Fred L. Ames, assistant commandant for human resources] to develop a game plan for the future of our work force. We're calling this Future Force 21 [FF 21]. We know exactly what some pieces of the puzzle will look like, and we will have them all carefully outlined in the game plan. There are other elements yet to take shape for us.

We will be very attentive, for example, to Admiral Jeremiah's [retired Navy Adm. David E. Jeremiah's] wonderfully thoughtful suggestions in the "Morale and Quality of Life" review he directed for DOD. We are in the midst of a joint rating review with DOD's Office of Management to see whether the enlisted specialties that have served us for the last 30 or 40 years are still the same ones that we want to have serve us for the next 20 or 30 years.

Should we have lateral entry into the military work force? Should we hold on to the spirit of "up or out" as the only way to do business? Should more of our work be contracted out? I believe that the answer to many of these questions is that the work force structures of today were basically born in the early 1960s and 1950s. I have challenged Admiral Ames to step back and take a look at the United States Coast Guard today and redesign a Future Force 21 for our organization's foreseeable future.

The focus of the Clinton and Bush administrations of putting money into the work force side of military life is a good one if we are to stay competitive in our all-volunteer environment. I don't think there's any choice. Having said that, five years ago we spent about 66 cents of every dollar on people--recruiting, training, retention, housing, health care, and pay and benefits. Today we are paying closer to 71 or 72 cents out of every dollar, and that level continues to go up. HR--human resources--is becoming more and more expensive.

If we are to be a better steward of the taxpayers' dollar in the future, we must deal constructively with other ways of doing business. That is the challenge I have given my HR folks to address in developing our FF 21 game plan.

One of the other challenges that the executive branch faces every year is gaining support on Capitol Hill. What is your assessment?

LOY: Congress is an amazing creature of "one year at a time." I was enormously enthused with this year's budget resolution. For the very first time the Coast Guard was mentioned by name by the Senate and House in their joint budget resolution as an organization that is underfunded and inadequately supported--to the tune of a shortfall of about $250 million in operating expenses.

I have been saying since becoming commandant that we were about $200 million behind the power curve in terms of restoring the readiness of our organization to the level that I thought was appropriate. The synergy of the Congress making that statement was not lost on me. The House also noted in June that they thought the president's budget for 2002 underfunded the Coast Guard by about $300 million.

Our challenge is to have the sense of the Congress, as exhibited by the authorizers and appropriators, result in actual appropriations at the other end of the session. One vehicle by which that can occur is, of course, the Transportation Department's appropriation bill itself. A supplemental appropriation offers another vehicle. There has been much discussion about it being passed as a tight supplemental without the growth of the last couple of years, and I'm inclined to think that is what will likely occur.

Should you see your budget for 2002 increased, how would you spend the additional funds?

LOY: If I were to receive $250 million in additional funding the first thing I would do would be to cover the unfunded requirements that we will carry into 2002 as the result of this year's exposure. Then I would reimburse my maintenance accounts and reestablish the operating tempos that we have been forced to reduce during the past two years.

Our time is drawing to a close. When you want to feel good about the Coast Guard at the end of each day, what do you think about?

LOY: I think about Coast Guard people. They came aboard this organization to save lives, to protect property, to protect the environment, to do our law-enforcement work, and to do our national-security work. The notion of doing all of that well is what drives our people to go to work in the morning, to stay optimistic, and to do their job. We owe it to them to push through to complete the transformation of the Coast Guard through the Deepwater program so they may perform their demanding missions more effectively and safely.

The American public probably gets more bang for its buck out of the Coast Guard than any other organization in the country--and I'm happy to compare notes with any other CEO [chief executive officer] in the nation.

In closing, is there anything else you would care to say to the members of the Navy League and other readers of Sea Power?

LOY: I would be absolutely remiss if I did not thank the Navy League--at the national level and right down to the individual council level--for all that it does for the Coast Guard. I have tried never to turn down a council's invitation to speak. In each place I find this marvelous zeal to take care of Coast Guard people when and where they need it most. The Navy League has done just a marvelous job, whether it's awarding a savings bond to the Coast Guardsman of the quarter or whether it's sponsoring or adopting a ship in their local home port.

The service that is being provided so well to the Coast Guard by Navy League councils and its national leadership throughout this nation and literally around the world is a wonderful tribute to what the Navy League is all about.