In October 1995 the United States Coast Guard announced it would close its largest base, at Governors Island, as a cost savings measure.

[5][6] In 1996, the Coast Guard closed the base and conveyed it as surplus property to the federal government's General Services Administration for disposal through transfer or sale.

[9] The issue was exacerbated when the United States Congress passed the Balanced Budget Act in August 1997, stipulating that the GSA sell the island at a fair market value by 2002.

[13] The proclamation did not fully establish the boundaries of the monument, but did set forth the federal intention of preserving the fortifications, Fort Jay and Castle Williams, the oldest and most historic features on the island.

While the White House intended the transaction to be concluded by September 2002, it took several months of negotiations with city, state and federal officials to resolve outstanding issues.

[6] Since the island was managed by the United States Army and the United States Coast Guard for nearly 200 years, and was no longer required for defense or Coast Guard purposes, the establishment of the monument provided an excellent opportunity for the public to observe and understand the harbor history, its defense and its ecology.