**[Statement]{.smallcaps}**

**[of]{.smallcaps}**

**[Thomas Bussanich]{.smallcaps}**

**[Acting Director]{.smallcaps}**

**[Office of Insular affairs, Department of the Interior]{.smallcaps}**

**[Before the]{.smallcaps}**

**[Senate Committee on Energy and Natural Resources,]{.smallcaps}**

**[Subcommittee on Insular Affairs]{.smallcaps}**

**[Regarding]{.smallcaps}**

**[The Implementation of the Compact of Free Association]{.smallcaps}**

**[with the]{.smallcaps}**

**[Republic of the Marshall Islands]{.smallcaps}**

**September 25, 2007**

Mr. Chairman and members of the Committee on Energy and Natural
Resources, thank you for the opportunity to discuss the implementation
of the amended Compact of Free Association with the Republic of the
Marshall Islands (RMI) and S. 1756 dealing with Marshall Islands nuclear
issues.

**Implementation of the RMI Compact of Free Association**

In 2003, the U.S. Government approved the amended Compact with the
Republic of the Marshall Islands, providing a total of \$1.5 billion in
assistance from 2004 through 2023. The amended Compact's 20 years of
grant assistance is intended to assist the RMI government promote the
economic advancement and budgetary self-reliance of its people. Under
the amended Compact, U.S. grant funding decreases annually, paired with
increasing contributions to a trust fund established for the RMI;
earnings from the trust fund are intended to provide a source of revenue
for the government of the RMI when the grants expire in 2023. In
addition, the annual grant funding is partially adjusted for inflation.
The amended Compact requires the RMI to target funding to six
development sectors\--education, health, the environment, public sector
capacity building, private sector development, and infrastructure, with
priority given to education and health. The amended Compact also
provides for a Supplemental Education Grant, which takes the place of
certain domestic grants once offered through the Department of
Education, the Department of Health and Human Services and the
Department of Labor.

The Office of Insular Affairs is responsible for administering and
monitoring the grants. The amended Compact's subsidiary fiscal
procedures agreement requires the RMI government to monitor the
day-to-day operations of sector grants and activities, submit periodic
performance reports and financial statements, and ensure annual
financial and compliance audits. In addition, the Compact and fiscal
procedures agreement require the U.S.-RMI Joint Economic Management and
Financial Accountability Committee (JEMFAC) to (1) meet at least once
annually to evaluate the progress of the RMI in achieving the objectives
specified in their development plans; (2) approve grant allocations; (3)
review required annual reports; (4) identify problems; and (5) recommend
ways to increase the effectiveness of Compact grant assistance. The RMI
is also required to conduct annual audits within the meaning of the
Single Audit Act for an independent review of its financial position.

We believe that the amended Compact of Free Association with the
Republic of the Marshall Islands is a promising work in progress.
Although many challenges remain for the RMI government to grow its
economy and to get better performance from the government services that
are supported by the Compact, the RMI has been a solid partner with the
United States in making the Compact work. The RMI leadership has made a
determined effort to adhere both to the letter and the spirit of the
agreement, and is committed to the success of the agreement it
negotiated.

Since implementation of the amended Compact in fiscal year 2004, the RMI
has focused its Compact resources on the three highest priorities,
infrastructure, education and health care. Over \$52.2 million,
approximately 39% of all sector grant funding, has been dedicated to
improved infrastructure. The result is best seen in education, where 82
new classrooms serving over 1,700 students are in use, and additional
classrooms that will house a total of 4,000 students will be in use at
the end of this year. Fully one third of RMI students will be in new
classrooms at the end of the 2008 school year. In coming years, \$5
million will be invested annually in physical improvements at the
College of the Marshall Islands. These improvements will help the
college retain its accreditation.

Since fiscal year 2004, the RMI has dedicated 34% of Compact funds to
education and 21% to its health care system. The RMI has chosen to use
only limited amounts of Compact funding for the environment, public
sector capacity building and private sector development sectors. This
allocation reflects the priorities of the RMI government and of the
amended Compact; JEMFAC has concurred with this RMI decision. The
allocations may change in any future year, although allocations to the
infrastructure sector must be at least 30% of an annual Compact
assistance and priority must be given to education and health care.

The allocation of Compact funding has been appropriate in the short
term. However, growing gaps in the capacity of the RMI government
suggest that it might be prudent to shift some Compact resources to
public sector capacity building. The GAO has concluded that capacity
limitations have affected the RMI's ability to ensure the effective use
of grant funds. We agree with this conclusion. The RMI has made strong
efforts to institutionalize performance management in its government,
and is allocating \$300,000 in fiscal year 2008 Compact funds to Public
Sector Capacity Building. However, the RMI still lacks the capacity to
adequately measure progress because education and health sector baseline
data is not adequate and performance reporting is incomplete. Capacity
restraints also affect the government's ability to collect and analyze
economic data and plan for the future of declining Compact revenues.

The fiscal and economic futures of the RMI are issues of concern to the
United States members of the JEMFAC. The RMI economy is growing, but on
the fragile basis of increased public sector spending. There has been an
unsustainable increase in government employment and its accompanying
wage bill. The RMI reports a 23 % increase in national government
employment in the past three years. Payroll costs jumped from \$26.4
million in fiscal year 2004 to \$30.1 million in fiscal year 2006. This
has taken place at the same time as the RMI has shown annual operating
deficits in its general fund. The increase in employment, again
according to the RMI government, has not been accompanied by an increase
in the effectiveness of government services. The ability to make this
internal assessment speaks well of the RMI government, but we hope that
the RMI leadership will focus on the need to manage the public payroll
in a manner that accounts for the coming decrements in Compact funding.

The Compact does not operate in a vacuum, and its overall success will
be greatly enhanced or diminished by the circumstances of the RMI
economy. The opening of a new tuna loining plant in Majuro has the
potential to create 600 private sector jobs. Japan Air Lines has also
begun a series of special charter flights that may have long-term
benefits for the tourism sector. Even with these successes, the RMI
still has obstacles to economic development: its geographic isolation,
inadequate infrastructure, lack of a skilled workforce and an out-dated
business climate. The theory of the Compact is that improvements in
health and education will create a better workforce at home and more
remittances from abroad, and that these factors, together with improved
infrastructure, will provide a foundation for long-term private sector
economic development. In the short term, we believe that there is a need
for the RMI to take action to improve the business climate, including
tax, land and foreign investment reforms. The United States intends to
enhance our trade dialogue with the Republic of the Marshall Islands and
other Pacific Island nations. Although the United States through its
JEMFAC membership may inquire about and promote change, the decisions to
make these important changes lie with the Marshall Islands government.

An important element of the United States financial assistance under the
Compact is the trust fund established to contribute a source of revenue
to the government for the RMI when annual sector grants cease after
2023, to be used for the same purposes as the annual sector grants were.

As of June 30, 2007, the market value of total assets of the Trust Fund
for the People of the Republic of the Marshall Islands was \$83.2
million. Of that amount, \$64.3 million represented contributions of
governments, including \$31.8 million from the United States, \$30
million from the RMI and \$2.5 million from Taiwan. The return on assets
during the current fiscal year is 10.3 percent

Since Goldman Sachs began managing the Trust Fund assets as investment
manager on November 14, 2005, the Fund's investments gained \$12.0
million through June 30, 2007. The assets have been invested in a mix of
United States public equity and realty funds, international equity
funds, and fixed income funds.

The Trust Fund Committee is also investigating whether securitization of
the future U.S. contributions to the Trust Fund would increase the
ultimate 2023 value of the fund, and has issued an RFP for a study of
its potential benefits and risks. Securitization would permit the Trust
Fund to invest with a longer time horizon by bringing forward the United
States contributions scheduled for later years. If deemed advantageous,
a change in the Compact law would be necessary in order to permit
implementation of a securitization program.

The Joint Economic Management and Financial Accountability Committee met
recently in Honolulu. The meetings were productive and resulted in the
allocation of Compact funding for fiscal year 2008. In the next fiscal
year, the RMI will dedicate \$11.3 million to education, \$6.5 million
to health, \$11.8 million to infrastructure, \$300 thousand to public
sector capacity building and \$5.6 million for assistance to Kwajalein
atoll communities.

In summary, the Republic of the Marshalls Islands faces very serious
challenges, but we are pleased with the mutual respect and cooperative
manner is which our two countries are working to implement the Compact
and address those challenges.

**S. 1756**

S. 1756 would deal with several issues that stem from United States
nuclear testing that took place in the 1950s.

**Section 2 -- Continued Monitoring on Runit Islands**

Section 2 would require the Department of Energy to survey radiological
conditions on Runit Island every four years, and report to the House and
Senate authorizing committees.

The partial clean-up of Enewetak Atoll in the late 1970's resulted in
the creation of an above-ground nuclear waste storage site, a dome, at
Runit Island. Inside Runit dome are over one 110,000 cubic yards of
radioactive material scraped from other parts of Enewetak Atoll.

The United States and the Republic of the Marshall Islands settled all
claims, past, present and future of the Government, citizens and
nationals of the Republic of the Marshall Islands which are based upon,
arise out of, or are in any way related to the Nuclear Testing Program.
Article VII of the agreement subsidiary to section 177 of the 1986
Compact of Free Association relieved the United States of all
responsibility for controlling \"the utilization of areas in the
Marshall Islands affected by the Nuclear Testing Program\" and placed
that responsibility solely with the Marshall Islands Government.
Nevertheless, Runit dome has remained for many years a point of friction
in the otherwise mutually agreeable, bilateral relationship between the
governments of the Marshall Islands and United States. Representatives
of the Marshall Islands have raised questions regarding Runit Island
including (1) the safety of land, water and marine life, (2) the
radiological condition of the northern part of the island, and (3) the
structural integrity of the dome.

At present, the Department of Energy has a plan in place to conduct a
visual engineering survey of Runit Dome in May of 2008. Such a survey is
expected to become a routine part of DOE's field work.

Under the Compact of Free Association Act, DOE provides technical
support in environmental measurement to four atolls (Enewetak, Bikini,
Rongelap and Utrik) within the Republic of the Marshall Islands. The
Marshallese, with their advisors, set all goals and conduct all remedial
actions. DOE takes environmental measurements before and after remedial
actions to see if goals were achieved. DOE may offer suggestions for
remedial actions at the request of the Republic of the Marshall Islands.
Current funding limits the scope of DOE work to resettlement activities;
Runit Island will not be resettled and is off-limits to residents of the
Marshall Islands.

The Administration believes that current and future plans for surveying
Runit dome and aiding the Government of the Marshall Islands in its
assessment of conditions at Runit Island are sufficient to monitor
safety. The Administration, therefore, opposes enactment of section 2 of
S. 1756.

**Section 3 -- Clarification of Eligibility under EEOICPA**

Section 3 deals with the eligibility of former citizens of the Trust
Territory of the Pacific Islands for the Energy Employees Occupational
Illness Compensation Program Act (EEOICPA). In the 1950s, the United
States government hired citizens of the Trust Territory, which was
administered by the United States, to clean up ground-zero locations in
Bikini and Enewetak Atolls and to collect soil and other samples from
contaminated areas in the Marshall Islands. These individuals cannot
receive EEOICPA benefits because the language of the statute does not
overcome the presumption against extraterritorial application of
American law.

The United States used both United States citizens and Trust Territory
citizens (who were under the aegis of the United States), for work that
sustained a program that was crucial for national security. At present,
the former Trust Territory citizen workers are being denied EEOICPA
benefits because the language of the statute does not overcome the
presumption against extraterritorial application of American law.

Section 3 is intended to place the former Trust Territory citizen
workers on an equal footing with United States citizen workers. The
Administration is still reviewing section 3 of S. 1756, and its
implication that compensation would be provided to a subset of DOE
workers even though section 177 of the Compact and its implementing
agreement provided for the full and final resolution of all claims
arising from the Marshall Islands nuclear testing program. In addition,
the Department of Labor notes that there are some drafting issues,
particularly with respect to the bill's offset provisions.

.

**Section 4 -- Four Atoll Health Care Program**

Section 4 would appropriate funds for the Four Atoll Health Care
Program. The Congress established the Four Atoll Health Care Program in
the early 1970s to provide health care for people who resided on the
nuclear-affected atolls of Enewetak, Bikini, Rongelap and Utrik. When
the original Compact of Free Association came into force in 1986, the
Four Atoll program was funded for fifteen years under the Compact
section 177 subsidiary agreement and ended in 2001 in accordance with
the terms of that agreement. In January of 2005, the State Department
submitted the Administration's evaluation of RMI's submission of a
request, among other things, for an enhanced primary, secondary and
tertiary health care system to serve the entire RMI population for 50
years under Article IX of the agreement subsidiary to Section 177 on the
basis of "changed circumstances." The Administration's report concluded
that there was no legal basis for considering additional payments. In
both fiscal years 2005 and 2006, Congress added \$1 million in
appropriations for the Four Atoll program.

Section 4 would create a permanent 17-year appropriation for the program
(from 2007 through 2023). Additionally, it would fund the program
annually at \$2 million, inflation adjusted.

The Administration does not support a permanent appropriation of \$2
million for this program. As noted previously, the Administration
determined in 2005 that there was no basis in the Compact section 177
subsidiary agreement for considering additional claims. Furthermore, as
previously noted in this testimony, the United States is currently
committed to spend over \$1.5 billion in direct assistance and trust
fund contributions in the RMI over the next 20 years, and the area
remains eligible for a number of categorical and competitive public
health grant programs administered by the U.S. Department of Health and
Human Services in the same way as U.S. states and territories.

**Section 5 -- Assessment of Health Care Needs of the Marshall
Islands.**

Section 5 would mandate that the Secretary of the Interior commission an
assessment and report by the National Academy of Sciences (NAS) of the
health impacts of United States nuclear testing conducted in the
Marshall Islands.

The Administration believes that this assessment is not necessary, given
that on January 4, 2005, the State Department submitted the results of
an Administration evaluation that carefully and methodically reviewed
existing scientific studies of the impact of nuclear testing in the
Marshall Islands. The Administration believes that previous studies have
adequately answered questions relating to the impacts of nuclear testing
as they relate to additional claims for damage resulting from the
nuclear testing program, and does not support the commissioning of
additional studies at this time.

Mr. Chairman and members of the subcommittee, this completes my prepared
statement. I will be happy to respond to any questions you may have at
this time.