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[Senate Hearing 109-291]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 109-291

  REPEAL ACT OF MAY 26, 1936, PERTAINING TO THE VIRGIN ISLANDS; AMEND 
 COMPACT OF FREE ASSOCIATION AMENDMENTS ACT; AND CONVEY SUBMERGED LAND 
            TO COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                                   ON

                                S. 1829

 TO REPEAL CERTAIN SECTIONS OF THE ACT OF MAY 26, 1936, PERTAINING TO 
                           THE VIRGIN ISLANDS

                                S. 1830

 TO AMEND THE COMPACT OF FREE ASSOCIATION AMENDMENTS ACT OF 2003; AND 
                           FOR OTHER PURPOSES

                                S. 1831

 TO CONVEY CERTAIN SUBMERGED LAND TO THE COMMONWEALTH OF THE NORTHERN 
                MARIANA ISLANDS, AND FOR OTHER PURPOSES

                               __________

                            OCTOBER 25, 2005

                       Printed for the use of the
               Committee on Energy and Natural Resources

                                 _____

                     U.S. GOVERNMENT PRINTING OFFICE
                             WASHINGTON: 2006        
26-254 PDF

For Sale by the Superintendent of Documents, U.S. Government Printing Office
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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                 PETE V. DOMENICI, New Mexico, Chairman
LARRY E. CRAIG, Idaho                JEFF BINGAMAN, New Mexico
CRAIG THOMAS, Wyoming                DANIEL K. AKAKA, Hawaii
LAMAR ALEXANDER, Tennessee           BYRON L. DORGAN, North Dakota
LISA MURKOWSKI, Alaska               RON WYDEN, Oregon
RICHARD M. BURR, North Carolina,     TIM JOHNSON, South Dakota
MEL MARTINEZ, Florida                MARY L. LANDRIEU, Louisiana
JAMES M. TALENT, Missouri            DIANNE FEINSTEIN, California
CONRAD BURNS, Montana                MARIA CANTWELL, Washington
GEORGE ALLEN, Virginia               JON S. CORZINE, New Jersey
GORDON SMITH, Oregon                 KEN SALAZAR, Colorado
JIM BUNNING, Kentucky

                       Alex Flint, Staff Director
                   Judith K. Pensabene, Chief Counsel
                  Bob Simon, Democratic Staff Director
                  Sam Fowler, Democratic Chief Counsel
                Josh Johnson, Professional Staff Member
            Al Stayman, Democratic Professional Staff Member

                             C O N T E N T S

                                ----------                              

                                STATEMENTS

                                                                   Page

Akaka, Hon. Daniel K., U.S. Senator from Hawaii..................    12
Christensen, Hon. Donna M., Delegate to Congress, U.S. Virgin 
  Islands........................................................     2
Craig, Hon. Larry E., U.S. Senator from Idaho....................     2
Murkowski, Hon. Lisa, U.S. Senator from Alaska...................     1
Pula, Nikolao I., Acting Deputy Secretary for Insular Affairs, 
  Department of the Interior.....................................     8
Richards, Vargrave A., Lieutenant Governor, U.S. Virgin Islands..     4

                               APPENDIXES

                               Appendix I

Responses to additional questions................................    17

                              Appendix II

Additional material submitted for the record.....................    19

 
  REPEAL ACT OF MAY 26, 1936, PERTAINING TO THE VIRGIN ISLANDS; AMEND 
 COMPACT OF FREE ASSOCIATION AMENDMENTS ACT; AND CONVEY SUBMERGED LAND 
            TO COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS

                              ----------                              

                       TUESDAY, OCTOBER 25, 2005

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m., in room 
SD-366, Dirksen Senate Office Building, Hon. Lisa Murkowski 
presiding.

           OPENING STATEMENT OF HON. LISA MURKOWSKI, 
                    U.S. SENATOR FROM ALASKA

    Senator Murkowski. Good morning and welcome to the Energy 
Committee this morning.
    The purpose of the hearing today is to receive testimony on 
S. 1829 pertaining to the Virgin Islands; S. 1830, to amend the 
Compact of Free Association Amendments Act of 2003; and S. 
1831, which pertains to the Commonwealth of the Northern 
Mariana Islands.
    Just very briefly this morning, I will describe the various 
legislation we have in front of us. S. 1829 would repeal 
sections of the U.S. Code to provide the Government of the U.S. 
Virgin Islands the ability to fully regulate real property tax 
matters within the territory.
    S. 1830 would make several changes to the Compact of Free 
Association Amendments Act of 2003. Since the passage of this 
law, the administration has transmitted language to Congress 
that would provide authority for the Republic of the Marshall 
Islands and the Federated States of Micronesia to obtain 
disaster assistance.
    Then finally, S. 1831, to provide the CNMI with the same 
ownership and jurisdiction over offshore submerged lands as has 
been provided to other United States territories and to provide 
a less formal mechanism for the Governor of CNMI to raise 
issues with the Federal Government.
    This morning we are honored to have with us the Honorable 
Donna Christensen, the Delegate to Congress from the U.S. 
Virgin Islands. Good morning and welcome to you. We also have 
the Lieutenant Governor of the U.S. Virgin Islands, the 
Honorable Vargrave Richards. Good morning and welcome. And we 
also have Nikolao Pula, who is the Director of the Office of 
Insular Affairs for the United States Department of the 
Interior, and welcome to you.
    Additionally we have some written statements that have been 
submitted from the governments of the freely associated states 
of the RMI, the Republic of Palau, and the FSM. In addition, 
the Governor and the Resident Representative of the CNMI have 
submitted their written testimony.
    Before we proceed with the hearing, I want to mention that 
we have received a request from the Resident Representative of 
the CNMI regarding legislation that is moving through the House 
of Representatives which would provide the CNMI a non-voting 
delegate to the House of Representatives. The committee looks 
forward to working with the Resident Representative of the CNMI 
and the House of Representatives as this legislation proceeds.
    I do welcome all of you this morning. I will just make a 
note. We are scheduled to have a vote coming up at 10:30. I 
anticipate that this will be a pretty expedited hearing, and we 
should probably make that vote without a problem, but just to 
alert you all to that.
    With that, then let us begin with you, the Honorable Donna 
Christensen. Welcome.
    [The prepared statement of Senator Craig follows:]
   Prepared Statement of Hon. Larry E. Craig, U.S. Senator From Idaho
    Mr. Chairman, thank you for holding this important hearing today 
regarding numerous issues facing U.S. territories and commonwealths.
    One issue that I would like addressed, at this time, is the need to 
help strengthen and diversify the economies of the Commonwealth of the 
Northern Mariana Island's. Recently, the CNMI has faced growing 
competition from China's garment and apparel industry. Further, the 
CNMI's economy has been negatively impacted by fewer tourists from 
Japan in recent years as a result of Japan's falling currency. To help 
combat these outside influences, Congress must begin to address the 
economic realities of the CNMI.
    Over the last few months my staff and I have met with numerous 
officials from the CNMI to discuss these issues. I must say, I am very 
impressed with Governor Babauta's willingness to address these issues 
facing his Commonwealth. Governor Babauta understands what steps need 
to be taken to stabilize the economy and establish positive growth for 
CNMI. I believe his leadership will prove extremely valuable as the 
United States works with the CNMI to find long-term solutions for their 
economy.
    As a first step, I would like to introduce for the record numerous 
documents on this subject from the Governor, members of their 
government, and the Chamber of Commerce, on the economic status of the 
CNMI. Additionally, I would like to submit for the record legislation 
that I, along with Senator Akaka, will be introducing to address and 
mitigate the economic impacts on the CNMI. It is my hope that this 
Committee, along with the Finance Committee, can and will take a hard 
look at the CNMI and address these issues.
    Thank you Mr. Chairman.

STATEMENT OF HON. DONNA CHRISTENSEN, DELEGATE TO CONGRESS, U.S. 
                         VIRGIN ISLANDS

    Mrs. Christensen. Thank you, Madam Chairman, and good 
morning. I want to thank you for the opportunity to make this 
statement in support of S. 1829, companion legislation to one I 
introduced in the House, to repeal the 1936 law which governs 
the levying of property taxes in the Virgin Islands. Passage of 
this legislation is necessary to allow the Virgin Islands to 
fashion a local property tax law that takes into account the 
circumstances and realities of our community.
    I also want to especially thank Chairman Domenici and 
Ranking Member Bingaman for their willingness to respond to my 
request to introduce S. 1829 and to you, Madam Chair, for 
working with them to so quickly schedule it for a hearing.
    Madam Chairman and members, this bill became necessary when 
5 years ago some of my constituents filed a lawsuit in Federal 
court alleging that the Virgin Islands government was violating 
Federal law in the manner in which they were assessing the 
value of commercial properties in the territory. The court then 
ruled that the 1936 Federal statute was not repealed by the 
1954 Organic Act, as we had all believed, and thus invalidated 
the current Virgin Islands property tax law.
    Madam Chair, the Virgin Islands is the only jurisdiction in 
the country whose local property taxes are based on Federal 
law. This anomaly in our system of government is unnecessary 
today because the Virgin Islands, although still a territory of 
the United States, has been exercising all the rights and 
responsibilities of government in a similar manner as the 50 
States, at least since Congress passed our revised organic act 
in 1954 and we, of course, began electing our own Governors in 
1970.
    In invalidating our local property tax laws, the Federal 
courts have removed the ability of the Virgin Islands 
government to provide insulation for Virgin Islands homeowners 
to protect them against the consequences of rapidly rising 
property values on their tax bills.
    Moreover, the provisions that were struck down were similar 
to those used in other jurisdictions throughout this country. 
The local property tax laws, which were struck down, provided a 
10 percent cap on the increase in assessments for residential 
real estate in any assessment period, as well as certain 
exemptions from taxation for homesteads, veterans, and 
farmland, and exemptions offered as part of our economic 
incentive program.
    Madam Chair, the 10 percent cap limiting any increase in 
residential assessments is modeled after similar statutes in 
the United States and is essential to protect homeowners from 
soaring property values. Without a cap or similar provisions, 
if an individual or family owns a modest dwelling that is 
surrounded by million dollar homes, the assessed value and thus 
the property taxes will increase significantly.
    This will have serious consequences for long-time property 
holders. We have limited land mass in the Virgin Islands which 
makes real property a commodity that is in short supply.
    Because the current trend in real estate is for prices to 
continue to climb exponentially, basing property taxes on 
actual prices will create a large number of instant paper 
millionaires who will never be able to see this new wealth 
unless the property is mortgaged or sold.
    This situation presents a very serious one for many of my 
constituents, most acutely on the island of St. John because 
their property tax bills are already moving way beyond their 
reach.
    Many of the areas on St. John have seen wealthy individuals 
purchasing properties and making improvements which have had 
the effect of immediately and drastically increasing the value 
of their properties, as well as the value of the properties 
surrounding them.
    I must caution, however, that the entire Virgin Islands 
would be impacted should the 1936 law continue to prevail.
    In summary, it is important for the economic security, as 
well as the social stability, of the territory for the 1936 
statute to be repealed.
    Madam Chair, I ask unanimous consent to submit the 
testimony for the record of Senator Craig Barshinger; former 
Senator Almando Liburd; Mr. Myron Allick, a local businessman; 
and Ms. Sharon Coldren, president of the Coral Bay Community 
Council.
    I want to thank you once again for bringing this important 
bill to the committee in such an expeditious fashion. I look 
forward to the speedy passage and to returning to testify on an 
equally important piece of legislation which has already passed 
the House twice, one which would create a chief financial 
office for the U.S. Virgin Islands. Thank you, Madam Chair.
    Senator Murkowski. Thank you, Delegate Christensen, and the 
request that you had made, as far as the written testimony 
being included as part of the record, will be made part of the 
record.
    Mrs. Christensen. Thank you, Madam Chair.
    Senator Murkowski. Thanks for your testimony.
    Lieutenant Governor Richards, welcome.

 STATEMENT OF VARGRAVE A. RICHARDS, LIEUTENANT GOVERNOR, U.S. 
                         VIRGIN ISLANDS

    Mr. Richards. Good morning, Madam Chair and distinguished 
members of the committee. At this time, I would like to 
recognize my distinguished Delegate to Congress who introduced 
this legislation, which is critical to the people of the Virgin 
Islands.
    My name is Vargrave Richards, and I am the Lieutenant 
Governor of the U.S. Virgin Islands. On behalf of Governor 
Turnbull and the people of the U.S. Virgin Islands, I am here 
before you to testify in support of S. 1829.
    Under Virgin Islands law, the Office of the Tax Assessor 
falls under the Office of the Lieutenant Governor. The tax 
assessor is charged with generating the real property tax bills 
for the Territory of the U.S. Virgin Islands.
    I am here to respectfully request that you adopt S. 1829, 
which repeals sections 1401 through 1401(e) of title 48 of the 
U.S. Code, which limit the authority of the Virgin Islands to 
assess and collect real property taxes in the territory.
    I strongly support the bill for three reasons.
    One, a recent court ruling held that the 1936 statute 
prohibits the territory from setting its own real property tax 
policy.
    Two, the 69-year-old statute, which was designed to assist 
the Virgin Islands, now hinders it from performing a basic 
governmental function and has a debilitating effect.
    And three, this is a purely local issue with no Federal 
impact.
    The reason I am here before you is a recent court ruling 
which has essentially revived a long forgotten Federal statute 
governing the assessment of real property taxes in the 
territory.
    On June 28, 2004, the U.S. Court of Appeals for the Third 
Circuit issued an opinion affirming a decision of the U.S. 
District Court of the Virgin Islands in Berne Corp. v. 
Government of the Virgin Islands. The court held that the 1936 
Statute is still controlling in the Virgin Islands and that it 
governs the basis for assessment for real property taxes in the 
territory, preempting subsequent local laws in this area. Based 
on the 1936 Statute, the court ordered that all property 
subject to taxation be taxed on the basis of actual value and 
at the same rate. Under the ruling, to be valid, an exemption 
must grant a 100 percent exemption from taxation, cover the 
full tax year of the exemption period, and apply to all subject 
property.
    The effect of the ruling is far-reaching. It limits the 
Virgin Islands in the performance of the basic government 
function of setting real property tax policy.
    In order to protect homeowners in the territory from losing 
their land due to the inability to pay property tax increases 
resulting from a dramatic rise in property values due to the 
outside investment, local law provides that no residential tax 
bills can increase more than 10 percent over the previous 
valuation. This crucial provision, however, was struck down by 
the courts as inconsistent with the 1936 Statute.
    The problem of rising land values is particularly acute on 
the island of St. John, two-thirds of which is national park. 
Recent development has generated increased property values and, 
therefore, higher property taxes. Many Virgin Islanders fear 
losing land which has been in their family for generations 
because of the inability to pay increased property taxes. 
Indeed, at a recent town meeting on St. John, I heard firsthand 
from residents who passionately expressed their concern that 
the recent court decision would lead to soaring taxes and force 
them out of their respective homes. Since the days of 
emancipation, in our islands land has been a precious commodity 
which has traditionally passed from generation to generation.
    Unless S. 1829 is adopted, the Virgin Islands will not have 
the ability to reinstitute the 10 percent cap or to employ 
other appropriate tax policy measures to address the legitimate 
concerns of these Virgin Islanders desirous of preserving their 
land for their children.
    Based on the ruling, the 1936 Statute may also preclude our 
local government from establishing partial tax exemptions for 
veterans, the elderly, or farmers, and from using tax policy to 
encourage development through the creation of the Enterprise 
Zones. While State and local governments are free to set 
different tax rates for different uses of property, such as 
residential, agricultural, commercial, income-producing, or 
charitable, the 1936 law prevents our local government from 
doing the same. To my knowledge, no State, no county, city, or 
territory has such restrictive provisions imposed upon it by 
the Congress.
    In short, the 1936 Statute needs to be repealed in order to 
put us on par with other jurisdictions, such as Montgomery 
County or New York City, and to enable us to set our own local 
tax policy.
    The second reason. The 1936 Statute was adopted by Congress 
to reform the real property tax system in the Virgin Islands, 
which at the time was based upon the use to which property was 
put as opposed to its value. Cultivated or developed land was 
taxed at a higher rate. It was felt that this system was unfair 
to those who cultivated their land and the policy discouraged 
cultivation and also favored a few large owners.
    A third reason. The adoption of S. 1829 and the consequent 
repeal of the 1936 Statute will have absolutely no economic 
effect on the Federal Government. Like State and local property 
taxes, Virgin Islands real property taxes are imposed by the 
territory and are payable to the territory. This is a local 
matter. It is not a Federal question.
    In 1936, the Virgin Islands were closely administered by 
the Federal Government. Since then there has been a steady 
progression toward local autonomy in an effort to move from 
colonialism toward self-governance. In 1954, Congress passed 
the Revised Organic Act which established a framework for 
Virgin Islands self-government, and in 1968, Congress passed 
the Elective Governor Act which authorized the popular election 
of the Virgin Islands Governor and eliminated the power of the 
President to veto local legislation.
    The provisions of the 1936 Statute that might have been 
viewed as necessary by Washington in the colonial era now bind 
the hands of the Virgin Islands government and prevent it from 
enacting socially and economically beneficial legislation. 
While it is the Government's position that the 1936 Statute was 
implicitly repealed by the Revised Organic Act of 1954, the 
court ruling provided otherwise, making an express 
congressional repeal necessary to achieve the goal of self-
government for the territory.
    I would like to thank the Honorable Congresswoman Donna 
Christensen for sponsoring this legislation.
    Senator, I respectfully request you adopt S. 1829 and 
repeal the old and outdated 1936 Federal Statute. I thank you 
for your time and attention to a matter of great importance to 
the people of the Virgin Islands.
    Madam Chair, your father, I understand, has been very 
influential in the territory for many, many years. So we want 
to convey our thanks and gratitude.
    [The prepared statement of Mr. Richards follows:]
   Prepared Statement of Vargrave A. Richards, Lieutenant Governor, 
                          U.S. Virgin Islands
    Good morning, Mr. Chairman and members of the Committee. My name is 
Vargrave Richards, and I am the Lieutenant Governor of the United 
States Virgin Islands.
    Under Virgin Islands law, the Office of the Tax Assessor falls 
under the Office of the Lieutenant Governor. The Tax Assessor is 
charged with generating the real property tax bills for the Territory 
of the United States Virgin Islands. One of the bills before this 
Committee, S. 1829, addresses the real property tax of the Virgin 
Islands.
    I am here to respectfully request that you adopt Bill S. 1829 which 
repeals sections 1401 through 1401(e) of Title 48 of the United States 
Code, which I will refer to as the ``1936 Statute''. I strongly support 
the Bill for three reasons: One, a recent court ruling held that the 
1936 Statute prohibits the Territory from setting its own real property 
tax policy; Two, the 69 year old statute, which was designed to assist 
the Virgin Islands, now hinders it from performing a basic governmental 
function; and Three, this is a purely local issue with no federal 
impact.
    The reason I am here before you is a recent court ruling which has 
essentially revived a long forgotten federal statute governing the 
assessment of real property taxes in the Territory.
    On June 28, 2004, the United States Court of Appeals for the Third 
Circuit issued an opinion affirming a decision of the United States 
District Court of the Virgin Islands in Berne Corp. v. Government of 
the Virgin Islands, 2004 WL 1443889 (3d Cir. Jun. 28, 2004).
    The courts held that the 1936 Statute is still controlling in the 
Virgin Islands, and that it governs the basis for assessment for real 
property taxes in the Territory, preempting subsequent local laws in 
this area. Based on the 1936 Statute, the court ordered that all 
property subject to taxation be taxed on the basis of actual value and 
at the same rate. Under the ruling, to be valid, an exemption must 
grant a 100% percent exemption from taxation, cover the full tax year 
of the exemption period, and apply to all of the subject property.
    The effect of the ruling is far reaching. It limits the Virgin 
Islands in performance of the basic government function of setting real 
property tax policy. Based on the ruling, a federal law precludes our 
local government from establishing partial tax exemptions for veterans, 
the elderly or farmers, and from using tax policy to encourage 
development through the creation of enterprise zones.
    To my knowledge, no State or Territory has such restrictive 
provisions imposed upon it by Congress.
    For example, under a local law enacted to encourage agriculture, 
farmland was 95% exempt from property taxation. Under the new court 
ruling, this exemption is no longer valid because it is not a 100% 
exemption.
    Similarly, the general homestead exemption, and the specific 
homestead exemptions for veterans and the elderly, as well as 
Enterprise Zone tax exemptions, would only be valid if they were to 
provide a full exemption from taxation. Based on the court ruling, the 
Guaranteed Housing Rehabilitation Loan exemption is also invalid.
    Another critical provision of Virgin Islands law is at stake as 
well. In order to protect homeowners in the Territory from losing their 
land due to inability to pay property tax increases resulting from a 
dramatic rise in property values due to outside investment, local law 
provides that no residential tax bill can increase more than 10% over 
the previous valuation. This crucial provision was also struck down by 
the courts.
    The problem of rising land values is particularly acute on the 
Island of St. John, two thirds of which is National Park. Recent 
development has generated increased property values and therefore 
higher property taxes. Many Virgin Islanders fear losing land which has 
been in their family for generations because of the inability to pay 
increased property taxes. Since the days of emancipation, in our 
islands, land has been a precious commodity which has traditionally 
passed from generation to generation.
    Unless Bill S. 1829 is adopted, the Virgin Islands will not have 
the ability to reinstitute the 10% cap, or to employ other appropriate 
tax policy measures to address the legitimate concerns of these Virgin 
Islanders desirous of preserving their land for their children.
    Unless Bill S. 1829 is adopted, the Virgin Islands will not be able 
to set different tax rates for different uses of property. While state 
and local governments are free to set different tax rates for differing 
uses of property, such as residential, agricultural, commercial, income 
producing or charitable, the 1936 Statute prohibits our local 
government from doing the same.
    In short, the 1936 Statute needs to be repealed in order to put us 
on par with other jurisdictions and enable us to set our own local tax 
policy.
    The second reason the Bill should be adopted is that the 1936 
Statute is an anachronism whose historical purpose is no longer served.
    The Statute was adopted by Congress on May 26, 1936 to reform the 
real property tax system in the Virgin Islands which at the time was 
based upon the use to which property was put as opposed to its value. 
Cultivated or developed land was taxed at a higher rate. It was felt 
that this system was unfair to those who cultivated their land and the 
policy discouraged cultivation and also favored a few large land 
owners.
    Today, the 1936 Statute as interpreted by the courts no longer 
assists the people of the Virgin Islands. To the contrary, it hampers 
our ability to make sensible tax policy.
    A third reason to support the Bill is that this is a local issue 
with no impact on the federal treasury. The adoption of S. 1829 and the 
consequent repeal of the 1936 Statute will have absolutely no economic 
effect on the federal government. Like state and local property taxes, 
Virgin Islands real property taxes are imposed by the Territory and are 
payable to the Territory. This is a local matter. It is not a federal 
tax question.
    In 1936, the Virgin Islands were closely administered by the 
federal Government. There has been a steady progression toward local 
autonomy in an effort to move from colonialism toward self governance. 
In 1954, Congress passed the Revised Organic Act which established a 
framework for Virgin Islands self-government. In 1970, Virgin Islanders 
elected their own Governor for the first time.
    The old 1936 tax Statute severely impairs the ability of the 
Government of the Virgin Islands to set real property tax policy. The 
Virgin Islands legislature should be able to grant partial real estate 
tax exemptions to encourage farming, economic development, and the 
creation of homesteads, and to provide tax relief for veterans, the 
elderly and the disabled.
    The provisions of the old 1936 Statute that might have been viewed 
as necessary by Washington in 1936, now bind the hands of the Virgin 
Islands Government and prevent it from enacting socially and 
economically beneficial legislation. While it is the Government's 
position that the 1936 Statute was repealed by the Revised Organic Act 
of 1954, the court ruling provided otherwise, making an express 
Congressional repeal necessary to achieve the goal of self-government 
for the Territory.
    I would like to thank the Honorable Congresswoman Donna M. 
Christensen for sponsoring the legislation.
    Senators, I respectfully request that you adopt Bill S. 1829 and 
repeal the old and outdated 1936 federal Statute. I thank you for your 
time and attention to a matter of great importance to the people of the 
Virgin Islands.

    Senator Murkowski. Thank you, Lieutenant Governor. I 
appreciate that.
    Mr. Pula, your testimony, please. Good morning.

STATEMENT OF NIKOLAO I. PULA, ACTING DEPUTY ASSISTANT SECRETARY 
        FOR INSULAR AFFAIRS, DEPARTMENT OF THE INTERIOR

    Mr. Pula. Thank you, Madam Chairman. I am pleased to be 
here before you today to discuss S. 1829 and S. 1831. I am 
Nikolao Pula, Acting Deputy Assistant Secretary of the Interior 
for Insular Affairs.
    I respectfully request that my full written remarks be 
submitted for the record while I summarize my statement.
    Senator Murkowski. Your full remarks will be included.
    Mr. Pula. Thank you.
    S. 1829 would repeal sections 1 through 6 of the 1936 
Organic Act of the Virgin Islands, which deal with property 
taxation. In 2004, the Third Circuit Court of Appeals held that 
these provisions were still in effect. This decision 
invalidated local Virgin Islands statutes that give exemptions 
to residents such as veterans and seniors.
    For decades, the Department of the Interior has sponsored 
and backed measures that increase self-government for the 
territories. S. 1829 would return control of the property tax 
to the government of the Virgin Islands and property taxes 
would be levied as they were prior to the Third Circuit's 
decision. The administration supports the enactment of S. 1829.
    S. 1831 deals with two subjects: submerged lands and the 
settlement of claims pursuant to the CNMI Covenant. Do you want 
to wait on this, or do you want me to continue?
    Senator Murkowski. Go ahead. The vote has not yet started.
    Mr. Pula. All right.
    Section 1 of S. 1831 would give the Commonwealth of the 
Northern Mariana Islands authority over its submerged lands.
    It has been the position of the Federal Government that 
United States submerged lands around the Northern Mariana 
Islands did not transfer to the CNMI. This position was 
validated in the Ninth Circuit Court of Appeals. One 
consequence of this decision is that CNMI law enforcement 
personnel lacked jurisdiction in the territorial waters 
surrounding the islands of CNMI without a grant from the 
Federal Government.
    Currently the CNMI is the only U.S. territory that does not 
have title to the submerged lands. It is appropriate that CNMI 
be given the same authority as her sister territories.
    The administration, therefore, supports enactment of 
section 1 of S. 1831, provided that language is added regarding 
consistent interpretation.
    Section 2 of S. 1831 would permit the Secretary of the 
Interior to settle claims of the CNMI arising pursuant to the 
CNMI Covenant. The authority would be activated by a request by 
the Governor of the CNMI.
    The administration does not support the enactment of 
section 2 of S. 1831 because it does not believe that the 
creation of an additional formal mechanism with its attendant 
costs, as described in the bill, is necessary.
    Although we were not specifically invited to speak with 
regard to the compact-related amendments in S. 1830, with your 
indulgence I would like to raise one issue that is not 
considered in the bill.
    The Compact of Free Association Amendments Act of 2003 
contemplated the creation of separate trust funds for the 
peoples of the Republic of the Marshall Islands and the 
Federated States of Micronesia. To aid in building corpus, both 
compacts provide that their respective trust funds shall not be 
subject to Federal or State taxes.
    Another provision requires that the trust funds be 
incorporated in the District of Columbia. Because the District 
of Columbia is neither a State nor the Federal Government, the 
intended tax-free status of the trust fund has been called into 
question.
    The administration, therefore, requests that the following 
new section be added to S. 1830, an amendment for the tax-free 
status in the District. ``Clarification of Tax-Free Status of 
Trust Funds. In the U.S.-RMI Compact, the U.S.-FSM Compact, and 
their respective trust funds subsidiary agreements, for the 
purposes of taxation by the United States or its subsidiary 
jurisdictions, the word `state' means `state, territory, or the 
District of Columbia.' ''
    Such an amendment would ensure that full effect will be 
given to the intended tax-free status of the trust funds.
    I thank you for allowing me the opportunity to testify 
today.
    [The prepared statement of Mr. Pula follows:]
    Prepared Statement of Nikolao I. Pula, Acting Deputy Assistant 
   Secretary of the Interior for Insular Affairs, U.S. Virgin Islands
    Mr. Chairman and Members of the Committee on Energy and Natural 
Resources, I am pleased to appear before you today to discuss S. 1829 
and S. 1831. I am Nikolao Pula, Acting Deputy Assistant Secretary of 
the Interior for Insular Affairs.
                                s. 1829
    S. 1829 would repeal sections 1 through 6 of the 1936 Organic Act 
of the Virgin Islands of the United States, which deal with property 
taxation in the territory. In 2004, the Third Circuit Court of Appeals 
held that the property tax provisions in the 1936 Organic Act, 
requiring market valuation, were still in effect despite enactment of 
the Revised Organic Act of 1954. This decision has had the effect of 
invalidating local Virgin Islands' statutes that give property tax 
exemptions to residents such as veterans and seniors.
    In a rapidly escalating real estate market, people on limited 
incomes, including many veterans and seniors, can be forced from their 
homes due to an inability to pay the increased levies. Adverse social 
consequences can follow.
    For decades, the Department of the Interior has sponsored or backed 
measures that increase self-government for the territories. S. 1829 
advances Virgin Islands citizens' self-government, consistent with 
Departmental policy. Additionally, it is my understanding that there is 
no Federal regulation of property taxation in any other state or 
territory under the American flag.
    S. 1829 would return control of the property tax to the Government 
of the Virgin Islands, and property taxes would be levied as they were 
prior to the Third Circuit's decision. The Administration supports 
enactment of S. 1829.
                                s. 1831
    S. 1831 deals with two subjects: submerged lands and the settlement 
of claims arising pursuant to the Covenant to Establish a Commonwealth 
of the Northern Mariana Islands in Political Union with the United 
States of America.
Submerged Lands
    Section 1 of S. 1831 would give the Commonwealth of the Northern 
Mariana Islands (CNMI) authority over its submerged lands from mean 
high tide seaward to three geographical miles distant from its coast 
lines.
    It has been the position of the Federal Government that United 
States submerged lands around the Northern Mariana Islands did not 
transfer to the CNMI when the Covenant came into force. This position 
was validated in Ninth Circuit Court of Appeals opinion in the case of 
the Commonwealth of the Northern Mariana Islands v. the United States 
of America. One consequence of this decision is that CNMI law 
enforcement personnel lack jurisdiction in the territorial waters 
surrounding the islands of the CNMI without a grant from the Federal 
Government.
    At present, the CNMI is the only United States territory that does 
not have title to the submerged lands in that portion of the United 
States territorial sea that is three miles distant from the coastlines 
of the CNMI's islands. It is appropriate that the CNMI be given the 
same authority as her sister territories.
    It should be noted that the language of section 1 is similar, but 
not identical, to the language of the 1974 territorial submerged lands 
act applicable to Guam, the Virgin Islands and American Samoa. The 
differences appear to be attributable to the fact that the CNMI 
provisions would be a later enactment. We assume that the intent of the 
bill is to give the CNMI the same benefits in its submerged lands as 
its sister territories enjoy in their submerged lands. If this is the 
case, it would be helpful, for those who will later interpret the 
statute, to include language in S. 1831 stating that, as a general 
rule, the submerged lands statute is intended to be applied in a 
consistent manner to each of the four territories, unless, of course, 
there is a specific and express exception for one of the territories.
    The Administration, therefore, supports enactment of section 1 of 
S. 1831, provided that language is added regarding consistent 
interpretation.
Covenant Authority
    Section 2 of S. 1831 would permit the Secretary of the Interior to 
settle claims of the CNMI arising pursuant to the CNMI Covenant. This 
authority would be activated by a request by the Governor of the CNMI.
    On a number of occasions over the past quarter of a century, the 
Federal Government and the CNMI have sought accommodation on a variety 
issues and disputes through the formal process of appointing 
representatives provided for in section 902 of the Covenant. In 
addition to this formal process, and on a separate track, the CNMI has 
sought to have the Department of the Interior help resolve issues with 
other Federal agencies.
    The Administration does not support the enactment of section 2 of 
S. 1831 because it does not believe that the creation of an additional 
formal mechanism with its attendant costs, as described in the bill, is 
necessary.
                                s. 1830
    Although we were not specifically invited to speak with regard to 
the compact-related amendments in S. 1830, with your indulgence, I 
would like to raise one issue that is not considered in the bill.
    The Compact of Free Association Amendments Act of 2003, 
contemplated the creation of separate trust funds for the peoples 
Republic of the Marshall Islands and the Federated States of 
Micronesia. It is anticipated that after the year 2023, the trust 
proceeds will be the source of substantial funds that will help sustain 
their respective governments. To aid in building corpus, both Compacts 
provide that their respective trust funds shall not be subject to 
Federal or state taxes. Another provision requires that the trust funds 
to be incorporated in the District of Columbia. Because the District of 
Columbia is neither a state nor the Federal government, the intended 
tax free status of the trust fund has been called into question.
    The Administration, therefore, requests that the following new 
section be added to S. 1830:

          Sec.--. CLARIFICATION OF TAX-FREE STATUS OF TRUST FUNDS. In 
        the U.S.--RMI Compact, the U.S.-FSM Compact, and their 
        respective trust fund subsidiary agreements, for the purposes 
        of taxation by the United States or its subsidiary 
        jurisdictions, the word ``state'' means ``state, territory, or 
        the District of Columbia''.

    Such an amendment would insure that full effect will be given to 
the intended tax free status of the trust funds.

    Senator Murkowski. Thank you, Mr. Pula. The committee will 
look forward to working with you and your office on the 
suggestions that you have raised this morning.
    Mr. Pula. Thank you.
    Senator Murkowski. This is directed to you, Delegate 
Christensen. The committee has reviewed the views of a Mr. 
David Berne, the individual who brought the case which upheld 
the 1936 Statute that S. 1829 would repeal. We have included 
the letter from David Berne in the record here.
    Now, Mr. Berne proposes that 1829 be amended to grant the 
U.S. Virgin Islands the authority to establish property tax 
exemptions and caps, but that the principle of using the actual 
value in determining underlying property value tax assessments 
be maintained.
    What is your reaction to the proposal that Mr. Berne has 
put forth?
    Mrs. Christensen. Thank you for that question, Madam Chair.
    Regardless of what one may feel about how property ought to 
be taxed in the Virgin Islands, there is no other jurisdiction 
in the United States where the Federal Government makes that 
determination. So it is my position that that is a matter for 
the legislature of the Virgin Islands to determine how the 
property tax would be levied, but that there is not a role for 
the Federal Government, as it does not exist in any State or 
any jurisdiction in this country. I feel it would be 
extraordinary for the Federal Government to determine in any 
way how property taxes would be applied in the Virgin Islands.
    Senator Murkowski. Lieutenant Governor, did you care to add 
anything to that?
    Mr. Richards. Yes. I will simply echo what the Delegate 
said. This is a matter of local law. Our legislature can handle 
and impose their respective policies, and I do not think that 
the Federal Government would have any say in this matter. This 
can be addressed through our local legislation.
    Senator Murkowski. Thank you for that.
    Mr. Pula, please relay to the Secretary our appreciation 
for her convening this initial meeting to discuss with the 
Marshalls their issues as they relate to the nuclear testing 
program. I guess this morning I would ask for your assurance 
that you will follow up and pursue the individual issues with 
the Marshalls, report back to the committee, as you develop 
either the solutions or a range of options. We appreciate the 
forward motion that we have made and would look forward to 
updates in the future and know that there is being some 
progress made as it relates to the Marshall Islands.
    Mr. Pula. Thank you, Madam Chairman. I will relay and 
convey your remarks to the Secretary.
    As a follow-up to your request, the Deputy Assistant 
Secretary of Insular Affairs had a conference call just last 
Thursday with officials in the State Department and HHS and 
Energy to follow up on some of these issues regarding the 
Marshall Islands. We will continue to work as an administration 
and report to the committee those things that we pursue.
    Senator Murkowski. Great. We certainly appreciate that.
    We have been joined by Senator Akaka. Senator, would you 
care to make any remarks or comments? We had some good 
testimony on the legislation before us and we are just wrapping 
it up, but we would love to have your comments.

         STATEMENT OF HON. DANIEL AKAKA, U.S. SENATOR 
                          FROM HAWAII

    Senator Akaka. Thank you very much, Madam Chairman. Thank 
you for this hearing, and I want to add my welcome to our 
panelists here.
    I understand there are some bills that we are dealing with 
here. I would like to mention just two of the three that we are 
considering. That is the one to amend the Compact of Free 
Association for RMI and FSM, and the other is with the CNMI. We 
are looking forward, of course, to moving those. So I look 
forward to hearing your responses here.
    [The prepared statement of Senator Akaka follows:]
  Prepared Statement of Hon. Daniel K. Akaka, U.S. Senator From Hawaii
    I'd like to thank Chairman Domenici for scheduling this morning's 
hearing on these three bills regarding the U.S.-affiliated islands.
    The first bill, S. 1829, was requested by the Delegate and Governor 
of the U.S. Virgin Islands and would repeal a 1936 federal law 
regarding property tax assessments in the USVI. I welcome Delegate 
Christensen and Lieutenant Governor Richards here today and look 
forward to their testimony.
    The second bill, S. 1830, would effectively amend the Compact of 
Free Association Amendments Act of 2003 by approving the government-to-
government agreements reached between the U.S. and the Republic of the 
Marshall Islands (RMI), and between the U.S. and the Federated States 
of Micronesia (FSM). These agreements were negotiated and transmitted 
to Congress by the State Department, and would alter the way future 
disaster assistance will be administered. My understanding is that 
there is not intended to be any reduction in the level of U.S. 
assistance. Instead, these agreements would shift the administration of 
that assistance from the Federal Emergency Management Administration 
(FEMA) to the Office of Foreign Disaster Assistance (OFDA) in the State 
Department.
    This second bill also contains other changes requested to the 
Compacts by the Government of the FSM to extend the Legal Services 
program to FSM migrants living in the United States, and to clarify 
that FSM students attending college in Palau shall continue to be 
eligible for college scholarship programs for up to two more years 
while they complete their ongoing programs of study.
    I understand that the FSM Ambassador has submitted testimony for 
the record with further details on these requests.
    I also understand that the Ambassador from the Republic of Palau, 
Hersey Kyota, has submitted testimony for the record with requests for 
other amendments, and that he is available to answer any questions that 
may arise. Welcome Ambassador.
    With respect to the Compact, I would like to add that I hope 
Chairman Domenici will agree to schedule an oversight hearing on 
Compact implementation this winter. The Compacts are now in the third 
year of implementation and there are concerns regarding planning and 
reporting on the use of Compact funds. In fact, this Committee is 
sending a staff delegation to Micronesia next month to meet with local 
officials to learn more about the steps that are being taken to promote 
effective use of U.S. assistance.
    I look forward to working with FSM and RMI officials next year in 
support of our Compact partnerships.
    Finally, the third bill, S. 1831, addresses two issues in the 
Commonwealth of the Northern Mariana Islands (CNMI). It would grant the 
CNMI three-mile jurisdiction over its offshore submerged lands--the 
same jurisdiction as provided to the other territories. The bill would 
also authorize the Secretary of the Interior to resolve, in cooperation 
with other Federal agencies, any issues that may arise between the U.S. 
and the CNMI. This language is meant to underscore the Committee's 
desire to have the Secretary take the initiative in resolving disputes 
before resorting to the formal consultation process set forth in the 
law.
    I look forward to hearing from our witnesses, and working with my 
colleagues in considering these bills.

    Senator Akaka. May I proceed with the questions?
    Senator Murkowski. Yes.
    Senator Akaka. I would like to ask Nick Pula--good to see 
you here.
    Mr. Pula. Good to see you too, Senator.
    Senator Akaka. I understand that the administration has no 
objection to the committee favorably reporting these three 
bills, with two changes, the deletion of section 2 of S. 1831 
regarding the ability of the Secretary of the Interior to 
resolve disputes with CNMI, with an addition of a new section 
to S. 1830, to clarify the tax-free status of the compact 
trusts. Now, is that correct, as far as you know?
    Mr. Pula. Yes, Senator. Section 2 of S. 1831 calls for the 
Secretary of the Interior to resolve conflicts with the CNMI. 
There are mechanisms now that the Secretary is already using. 
As you know, the Covenant also has section 902, which handles 
any discrepancy or any issues that the CNMI would like to 
discuss with the U.S. Government. And the President's 
representative on section 902 can handle that.
    Also, generally speaking, the Secretary of the Interior, in 
dealing with the insular areas, does advocate and take up 
issues or conflicts with other agencies by trying to work out 
within the administration whatever differences there are. So we 
felt that it was unnecessary to have this particular provision.
    Senator Akaka. In S. 1831, you stated that the 
administration does not support the enactment of section 2 of 
S. 1831 because it does not believe that the creation of an 
additional formal mechanism with its attendant costs, as 
described in the bill, is necessary. And that is a quote from 
you.
    However, the intent of section 2 is to encourage the 
Secretary to use her existing authority and appropriations to 
informally resolve disputes before resulting to the more formal 
and costly consultation procedures established under section 
902 of the Covenant between the United States and CNMI. Could 
you please explain how this informal approach would be more 
costly than the current formal consultation procedures?
    Mr. Pula. At this moment, as I mentioned earlier, the 
Secretary does use her influence informally to discuss issues 
that are brought to her with the other sister agencies, at 
times including the OMB.
    Regarding cost, that was a reference to the second part of 
that bill that has to deal with any appropriations. There are 
none attached to it, but just in case there are.
    Senator Akaka. The Ambassador of Palau has submitted 
testimony requesting further amendments to S. 1830 that would: 
one, extend availability of U.S. education programs under the 
compact with Palau from 2007 to 2009; two, to extend the 
authorization for television stations in Palau to continue to 
transmit videotaped television programming from the United 
States; and three, to allow the citizens of Palau to apply for 
merchant marine documentation and serve on U.S. flag vessels.
    I do not know whether you have a position on these requests 
at this time, but I would appreciate your, let me say, initial 
reaction and that you will respond in detail for the record 
with the administration's analysis and positions.
    Mr. Pula. Thank you, Senator. We were not asked to testify 
on this particular provision, as you mentioned. I personally 
would like to take this back and have a discussion with other 
sister agencies that have jurisdiction over this, including the 
State Department, and whatever other agencies that would be 
required to have a discussion on this. We would be happy to 
follow up on that.
    Senator Akaka. Finally, I understand that the State 
Department is considering negotiations with the Republic of 
Palau in order to update certain provisions of the Palau 
compact so that they will conform with provisions in the FSM 
and RMI compacts. I believe this committee is interested in 
having Palau agree to the more recent provisions regarding 
immigration, adoption, and labor recruiting.
    Would you please consult with your colleagues at the State 
Department and let the committee know whether and when they are 
committed to undertake such negotiations? We would like to hear 
that, and you can inform the committee about that.
    Mr. Pula. Senator, I will definitely contact our contacts 
with the State Department and follow up as you request. Yes.
    Senator Akaka. Well, thank you very much and thank you very 
much for your responses.
    Thank you very much, Madam Chairman, for this opportunity 
to ask these questions.
    Senator Murkowski. Thank you, Senator Akaka.
    Well, I told you we were going to have a vote at 10:30. It 
has bumped to 10:45. So it gave us just the time that we needed 
to accomplish this morning's business. I want to thank you for 
your willingness to appear here today and present your 
testimony. I appreciate that.
    With that, we are adjourned.
    Mr. Richards. Madam Chair, I just wanted to recognize the 
tax assessor, Mr. Roy Martin, who has joined me on this trip.
    Senator Murkowski. And who is that? Welcome. Thank you for 
being here and thank you for what you do.
    With that, we are adjourned.
    [Whereupon, at 10:40 a.m., the hearing was adjourned.]
                               APPENDIXES

                              ----------                              

                               Appendix I

                   Responses to Additional Questions

                              ----------                              

                        Department of the Interior,
           Office of Congressional and Legislative Affairs,
                                  Washington, DC, December 6, 2005.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Mr. Chairman: Enclosed are responses prepared by the Office of 
Insular Affairs to questions submitted following the October 25, 2005, 
hearing regarding, ``the Compact of Free Association Amendments Act of 
2005.''
    Thank you for the opportunity to provide this material to the 
Committee.
            Sincerely,
                                             Jane M. Lyder,
                                               Legislative Counsel.
[Enclosure.]
                      Questions From Senator Akaka
    Question 1. The Ambassador of Palau has submitted testimony 
requesting further amendments to S. 1830 that would: extend the 
availability of U.S. education programs under the Compact with Palau 
from 2007 to 2009; extend the authorization for television stations in 
Palau to continue to transmit videotaped television programming from 
the U.S.; and allow citizens of Palau to apply for merchant marine 
documentation and serve on U.S. flagged vessels. Please provide the 
Administration's position on the inclusion of these proposals in S. 
1830.
    Answer. The United States and Palau conducted their latest 
bilateral consultations on May 26, 2005, at the Department of State. 
Discussed, among other things, were the education programs and 
videotaped television programming noted in the question. The United 
States is studying the former. Although not a part of the May 2005 
consultations, the Government of Palau's desire for Palauan citizens to 
qualify for merchant marine documentation and to serve on U.S. vessels 
is an issue that the Office of Insular Affairs is striving to advance 
with the appropriate Federal agencies.
    The Executive Branch is not prepared at this time to endorse 
inclusion in S. 1830 of any of these provisions. It is appropriate for 
agreement to be reached first by the representatives of each government 
before approval is given by the United States Congress.
    Question 2. I understand that the State Department and the Republic 
of Palau are considering negotiations to update certain provisions of 
the Palau Compact so that they will conform to provisions in the new 
FSM and RMI Compacts. The Committee is interested in establishing 
consistency between the Palau Compact and the more recent provisions in 
the FSM and RMI Compacts on immigration, adoption, and labor recruiting 
and we assume that the Administration is also interested in this 
objective. At the same time, Palau is seeking changes in program 
assistance such as a extension of certain telecommunications program 
eligibility. I note that any negotiations should be limited in scope to 
program assistance and should not include discussion of any extension 
of U.S. financial assistance beyond the current term of financial 
assistance. Would you please ask your colleagues at the State 
Department and let the Committee know when they are committed to 
undertake such negotiations?
    Answer. Section 432 of the Compact of Free Association with Palau 
provides for a formal ``review'' of the terms of the Compact at 
prescribed intervals; it does not call for ``negotiations.'' The 
Administration will review with Palau the terms of the Compact as 
required in Compact section 432 (October 1, 2009, 2024, and 2034). 
Representatives of our two countries, however, may meet at any time to 
discuss issues of interest to either party. The United States, at 
present, is not committed to undertake any such discussions of issues 
except when new economic consultations are scheduled or as a follow-up 
to our May 26, 2005, economic consultations.
    Question 3. Following the Committee's recent hearing on the 
Marshall Islands nuclear compensation petition, the Secretary of the 
Interior held a meeting for Administration officials to hear in more 
detail from the Marshall Islands. I thank the Secretary for her 
initiative and wonder if you can tell us where this process currently 
stands? Are further meetings planned?
    Answer. On October 20th, Deputy Assistant Secretary David Cohen 
organized a follow-up inter-agency conference call with the State 
Department's Office of the Assistant Legal Adviser for East Asia and 
the Pacific, two HHS offices and two Energy offices (Germantown and 
Honolulu). The principal result of that conference call was an 
agreement by HHS Region IX to prepare a comprehensive inventory of HHS 
programs unutilized or under-utilized by the Marshall Islands. In 
addition, a senior member of the staff of the Office of Insular Affairs 
has met with the Marshall Islands First Secretary to brief the First 
Secretary on the conference call.

                              Appendix II

              Additional Material Submitted for the Record

                              ----------                              

      Commonwealth of the Northern Mariana Islands,
                            Office of the Attorney General,
                                          Saipan, MP, June 6, 2005.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.

Hon. Jeff Bingaman,
Ranking Member, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Gentlemen: One of the continuing issues between the Commonwealth of 
the Northern Marianas and the United States has been jurisdiction over 
the submerged lands beyond the mean high water mark. In previous 
enactments, the Congress has ceded to all States and virtually all 
territories at least three miles of jurisdiction. As you know, this 
matter is currently the subject of litigation between the CNMI and the 
United States. However, for environmental and other purposes it is 
increasingly vital that some measure of control be vested in the CNMI.
    With that in mind, we would request the enactment of amendments to 
the Territorial Submerged Lands Act which establish a three mile 
territorial limit for the CNMI--the minimum afforded all other states 
and territories. Importantly, however, this legislation should not 
prejudice the legal claims or position of the CNMI in the ongoing 
litigation to establish a greater limit. Such an approach has been 
taken in other instances, including for Guam. This will afford the CNMI 
the certainty it needs for coastal protection in the near term, while 
allowing it to fully prosecute its claims far a greater limit through 
the judicial process.
    Thank you for your consideration of this request and please let me 
know if I can provide any further information.
            With best regards,
                                              Pamela Brown,
                                                  Attorney General.
                                 ______
                                 
              Commonwealth of the Northern Mariana Islands,
                                          Saipan, MP, June 6, 2005.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.

Hon. Jeff Bingaman,
Ranking Member, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Chairman Domenici and Ranking Member Bingaman: Thank you for this 
opportunity to comment of S. 1831. As the Governor of the Commonwealth 
of the Northern Mariana Islands, I appreciate your introduction of this 
bill pursuant to my request. Your support of and assistance in, 
resolving the issues addressed by this legislation will enhance the 
lives and prosperity of residents in the Commonwealth.
    Section 1 of the bill amends the Submerged Lands Act to provide a 
three mile territorial limit for the CNMI--the minimum afforded all 
other states and territories. As such, S. 1831 clearly provides the 
Commonwealth with jurisdiction over, and ownership of, these 
territorial waters.
    When the United States District Court for the Northern Mariana 
Islands issued its opinion that the Commonwealth's territorial limit, 
it generated a great deal of uncertainty. The decision, read literally, 
held the Commonwealth did not have any ownership interests or 
regulatory powers beyond the ordinary low-water mark. At worst, that 
meant that the Commonwealth cannot enforce any of its laws in the 
waters surrounding the Commonwealth. Some relevant laws include fishing 
laws, environmental laws, tax laws, immigration laws, and criminal 
laws.
    For example, the bans on gill nets and fishing in sanctuaries such 
as Bird Island and Managaha could not be enforced, anti-dumping and 
pollution controls to protect our coral reefs could not be enforced, 
and the Commonwealth could not collect taxes on income from activities 
within the territorial waters. it was not even clear that if someone 
committed a crime, even murder, in the waters, IMPS would have 
enforcement powers over them. Furthermore, smuggling and anti-
trafficking activities could not be stopped by local immigration agents 
until they reached land.
    S. 1831 puts to rest any questions regarding the Commonwealth's 
ability to enforce its laws within its territorial limits.
    Further, S. 1831 is consistent with international law as well as 
ownership and revenue schemes currently in place in the United States. 
It recognizes the United States' interest in jurisdiction for national 
defense and security, while encouraging the Commonwealth's economic 
independence and decreasing its federal dependence. Our economy and 
welfare are heavily dependent on marine resources. On the other hand, 
we understand that the Commonwealth has limited enforcement resources 
and that there is a need for federal funding, expertise, and other 
resources to develop and exploit the submerged lands for the people of 
the Commonwealth. We also do not contest the authority of the Federal 
government to regulate and control submerged lands and the overlaying 
waters for the purposes of commerce, navigation, national defense, and 
international affairs, as permitted by the Covenant and applicable law.
    The Commonwealth needs economic development and the submerged lands 
have most of the Commonwealth's resources. This development will not 
occur until the cloud of title is finally resolved. While S. 1831's 
grant of the three mile territorial limit may not be satisfactory to 
some residents of the Commonwealth, it is vitally important for all.
    The Commonwealth also appreciates introduction of section 2 in the 
bill. That provision simply authorizes the Secretary of the Interior to 
resolve any issue arising under the Covenant when raised by the CNMI. 
The Secretary would involve any other federal agencies as relevant and 
the section authorizes the appropriation of funds as necessary as well 
as allowing the Secretary to use any other funds appropriated for the 
provision at issue. That would be useful if the discussion were over 
requirements for the obligation of funds made available from the $27.7 
million under section 702, for example.
    The reason for section 2 is that at the moment the Commonwealth has 
only two formal mechanisms to raise issues with the federal government. 
We can proceed in court, as we have done to establish jurisdiction over 
submerged lands, or we can initiate the 902 process under the Covenant 
which requires the President to appoint a negotiator. The 902 process, 
however, is not always responsive enough to address issues of concern 
to the Commonwealth such as the submerged land matter. Further, the 
proposed section 2 does not eliminate the 902 discussions.
    While many issues, such as the one recently raised by the Resident 
Representative under the American Jobs Creation Act of 2004 that you 
are aware of involve agencies other than the Department of the 
Interior, it seems to us that the first approach by the Commonwealth 
should be to the Secretary of the interior who can request assistance 
from the other agency. A major reason for that, aside from the general 
responsibilities of the Secretary for insular affairs, is that both the 
Commonwealth and your Committee will likely look to the resources of 
the Department for relief if the discussions prove unsuccessful. Having 
the Department involved from the outset may serve not only to advance 
resolution, but may also serve as an early warning to your Committee of 
a significant problem.
    On behalf of the people of the Commonwealth of the Northern Mariana 
Islands, I offer my sincere appreciation for the support of the support 
of the Energy Committee. I stand ready to provide answers to whatever 
questions you may have on S. 1831.

                                           Juan N. Babauta,
                                                          Governor.
                                 ______
                                 
                                    Cruz Bay, VI, October 21, 2005.
Hon. Donna Christian-Christensen,
U.S. Virgin Islands Delegate to Congress, U.S. House of 
        Representatives, Washington, DC.

Re: H.R. 59--109th Congress, To repeal certain sections of the Act of 
May 26, 1936, pertaining to the Virgin Islands

    Dear Delegate Christian-Christensen: I write to express my deep and 
sincere support for H.R. 59, a measure you sponsored in the 109th 
Congress of the United States, now assigned to the House: Committee on 
Resources. This legislation seeks to remove congressionally mandated 
language that significantly impacts the Virgin Islands property tax 
system. The provisions sought to be removed date back to 1936, the 
transitionary period following purchase of the Virgin Islands from 
Denmark. We have operated under congressional guide and directive for 
seventy (70) years without further amendment, even though the issue of 
property tax is traditionally controlled at the state level.
    In light of a host of problems that require unique address--taking 
into consideration island topography and U.S. National Park ownership 
of Large tracts of land on St. John, it is imperative that the issue of 
property tax assessment be ceded to territorial determination, in all 
respects. Having resided on both St. Croix and St. John, I communicate: 
with an understanding of both island districts. The active real estate 
market on St. John and the limitation imposed by National Park 
ownership of most land on the Island is displacing families who have 
lived on island for generations and now cannot keep pace with the red 
hot acceleration in their property values. Our people work hard taming 
island-level wages and cannot compete with the wealthy who are moving 
in. The territory must have opportunity to properly address this 
situation so that all parties benefit and live together peacefully
    I welcome an opportunity to personally express my support of H.R. 
59 and trust that your colleagues will understand and likewise support 
you on this issue that is so important to the people of all four Virgin 
Islands.
            Sincerely,
                                                   Myron A. Allick.
                                 ______
                                 
                         Coral Bay Community Council, Inc.,
        Coral Bay, St. John, U.S. Virgin Islands, October 24, 2005.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.

Re: October 25th Hearing on S. 1829

    Dear Senator Domenici: The Coral Bay Community Council is a 200-
member organization whose mission is to provide an effective means for 
Coral Bay residents to participate in planning the future of Coral Bay 
development. The current property tax law situation threatens long time 
property owners and old island families. Your help is needed.
    Please support passage of S. 1829 to repeal the anachronistic 1936 
federal law that requires full market value property taxation in the 
Virgin Islands and prohibits use of exemptions for homeowners, tax 
equity, land conservation or other purposes. The Virgin Islands needs 
to have the same options states and local governments have to make fair 
property tax policy.
    Thank you.
            Sincerely,
                                         Sharon L. Coldren,
                                                         President.
                                 ______
                                 
                        St. John, Virgin Islands, October 24, 2005.
Hon. Donna M. Christensen,
Delegate to Congress, U.S. House of Representatives, Washington, DC.
    Dear Delegate Christensen: I am writing to bring to your attention 
a matter of utmost urgency to the people of the Virgin Islands inasmuch 
it will determine whether many Virgin Islanders will be able to keep 
their homes and also, whether the Virgin Islands will be able to 
maintain significant areas of green space for future generations to 
enjoy. Recent decisions by federal courts have overturned sections of 
Virgin Islands law that provided significant insulation for Virgin 
Islands homeowners to protect them against the consequences of rapidly 
rising property values on their tax bills. The Virgin Islands 
Government has been ordered to change its system of real property 
assessment to come into compliance with 48 U.S.C. 1401(a) which 
mandates that all real property in the Virgin Islands must be assessed 
based on actual value and that the rate of taxation on real property in 
the Virgin Islands must be uniform without regard to the use of the 
real property in question. This decision, if allowed to stand without a 
change in federal law, will have significant negative consequences for 
Virgin Islands homeowners in particular and for sustainable development 
and land use for the Virgin Islands in general.
    After examination of the issues involved, it becomes dear that the 
Legislature does not have the power to address this matter through 
legislation inasmuch as the determining law in this matter is federal 
law relating to the Virgin Islands. It is important to note that the 
provisions that were struck down are not uniquely used in the Virgin 
Islands but are similar to provisions that are widely used in 
jurisdictions throughout the United States. For example, V.I. Code T. 
33, 92402 provides that the Tax Assessor shall not increase the 
valuation of any residential property by more than 10% unless there has 
been substantial improvement to the property since the last valuation. 
This provision is not art unusual one, as there are 19 states in the 
Union that have assessment limits, and some of those states apply these 
limits only to residential property. As this analysis will demonstrate 
later, the striking down of cap combined in Section 2402, combined with 
the requirement that assessment must be based on ``actual value'', will 
be ruinous to many Virgin Islands homeowners. As this analysis will 
demonstrate in greater detail, many homeowners will face a property tax 
bill that will be three times higher than it would be under the present 
system of taxation.
    Federal law regarding property taxes in the V.I. are not only 
injurious to individual owners who will most certainly face drastic 
increases in their property tax bill, but they also severely hamper the 
ability of the government to use property taxes as a tool to influence 
land use and land conservation. Although a number of states provide 
lower assessments for land that is determined to be agricultural land 
or open space, the Virgin Islands is prevented from doing so by the 
provisions of 48 U.S.C. 1401(a). Thus, as we see, the case of Berne 
Corp. v. Government of the Virgin Islands has consequences that reach 
far beyond some commercial property owners being over-assessed. The 
issues at stake, in fact, are the continued viability of local 
homeowners and the preservation of the few precious areas of green 
space that remain in the territory.
    In order to prevent these disastrous consequences, it is vital that 
48 U.S.C. 1401(a), whose original purpose has long been out-lived, be 
repealed immediately.
                               background
    In the year 2000, the District Court of the Virgin Islands decided 
a case in which the Berne Corporation, later joined by other 
plaintiffs, sued the Tax Assessor with the complaint that their 
commercial properties were being taxed based on inflated assessments of 
value rather than on the actual value as required by federal law 
relating to the Virgin Islands.\1\ Judge Thomas Moore found in favor of 
the plaintiffs and ordered the Virgin Islands government to revise its 
system of property tax assessment to conform with federal law.\2\ 
Additionally, Moore struck down a provision of Virgin Islands law that 
has served to protect residential property owners from the effects that 
skyrocketing real estate values would otherwise have on their property 
taxes. This decision and the resulting revision of the V.I. property 
tax code, if done under present federal law, will have far reaching 
negative consequences for many local property owners in particular and 
for the Virgin Islands in general.
---------------------------------------------------------------------------
    \1\ Berne Corporation v. Government of the Virgin Islands, 120 F. 
Supp. 2d 528.
    \2\ 48 U.S.C. Sec. 401(a) states that ``For the calendar year 1936 
and all succeeding years all taxes on real property in the Virgin 
islands shall be computed on the basis of the actual value of such 
property and the rate in each municipality of such islands shall be the 
same for all real property subject to taxation in such municipality 
whether or not such property is in cultivation and regardless of the 
use to which such property is put.''
---------------------------------------------------------------------------
Property taxation based on actual value as opposed to replacement 
        value.
    Currently the assessed value of real property for taxation purposes 
is heavily based on replacement value as opposed to the market value of 
the property. Assessing property based on actual, or cash value, will 
make the assessed value of any given property much more sensitive to 
the value of the properties surrounding it. Thus if an individual or a 
family owns a modest dwelling that is surrounded by million dollar 
homes, the assessed value and thus the property taxes due, will 
increase significantly. This will have serious consequences for long-
time property holders, particularly on the island of St. John. In the 
Virgin Islands, where the limited land mass makes real property a 
commodity in short supply, the prevailing trend in real estate prices 
has been upwards. With the exception of periods such as that following 
the Fountain Valley incident in 1972 and the Hurricanes Hug and 
Marilyn, in 1989 and 1995 respectively, Virgin Islands homeowners have 
seen a consistent increase in the market value of their property. This 
results, for many, in a situation where they have increased wealth on 
paper, but the wealth cannot be realized unless the property is 
mortgaged or sold and moreover, a situation in which they cannot afford 
to keep this ``wealth'' that they have because their property tax bills 
are moving beyond their reach. This is particularly the case in St. 
John and in many areas of St. Thomas and St. Croix where wealthy 
individuals have purchased properties and made improvements at prices 
that have immediately and drastically increased the property values of 
the properties surrounding them. Assessing properties on the basis of 
their market value will only exacerbate this situation.
Elimination of the 10% cap on increased valuation.
    In 1988, the Legislature, in response the outcry of property owners 
whose taxes were skyrocketing due to the increasing values of 
surrounding properties, enacted legislation placing a cap on assessment 
increases on residential property for tax purposes. This 10% cap 
provided vital insulation against the effects of rapidly rising 
property values.
    Judge Moore's ruling has drastically changed the situation by 
striking down the ten percent cap on. valuation increases. As a result, 
residential property owners whose taxes have been held down for the 
last 16 years are likely to face a sudden increase of staggering 
proportions. The following example will demonstrate. In this instance 
we use an assumed residential property on St. John which has a modest 
house but which commands a breath-taking view and moreover, is 
surrounded by properties that have been bought and sold for figures 
exceeding a million dollars during the past decade and a half. As such, 
the property's market value has risen from just $150,000 in 1987 to 
$900,000 by the year 2006. Any discussion with homeowners on St. John 
will confirm that this is not an anomalous example. The calculations of 
taxes owed under the current assessment system for the years between 
1987 and 2011 are based on a revaluation every two years between 1987 
and 2001, and a revaluation every five years thereafter, subsequent to 
the passage of Act No. 6415 which changed the revaluation period from 
two years to five years. The property taxes charged equal 1.25% of an 
amount equal to 660% of the property's value. For purposes of 
simplicity, homestead exemptions, veterans exemptions and the like have 
not been included in the calculations.

COMPARISON OF REAL PROPERTY TAXES BETWEEN THE CURRENT ASSESSMENT METHOD AND AN ACTUAL VALUE-BASED METHOD WITHOUT
                                              THE ASSESSMENT LIMIT
----------------------------------------------------------------------------------------------------------------
                                                                                           Tax
                  Year                   Property Value  Tax Value  ($)    60% of tax      Rate    Tax owed  ($)
                                               ($)                          value ($)      (%)
----------------------------------------------------------------------------------------------------------------
    1987...............................      150,000.00      150,000.00       90,000.00     1.25        1,125.00
    1989...............................      180,000.00      165,000.00       99,000.00     1.25        1,237.50
    1991...............................      195,000.00      181,500.00      108,900.00     1.25        1,361.25
    1993...............................      240,000.00      199,650.00      119,790.00     1.25        1,497.38
    1995...............................      275,000.00      219,615.00      131,769.00     1.25        1,647.11
    1997...............................      330,000.00      241,576.50      144,945.90     1.25        1,811.82
    1999...............................      500,000.00      265,734.15      159,440.49     1.25        1,993.01
    2001...............................      650,000.00      292,307.57      175,384.54     1.25        2,192.31
    2008...............................      900,000.00      321,538.32      192,922.99     1.25        2,411.54
    2011...............................    1,094,987.61      353,692.15      212,215.29     1.25        2,652.69

W/O Cap

    2006...............................      900,000.00      900,000.00      540,000.00     1.25        6,750.00
    2011...............................    1,094,987.61    1,094,967.51      656,992.57     1.25        8,212.41
----------------------------------------------------------------------------------------------------------------

    As you can see, removing the ten percent cap would result in a 
$4,300 increase in our homeowner's tax bill, and it will force him to 
pay an additional $21,692.30 over the next five years. The bill will 
rise to $8,212.41 dollars when the property is next assessed in 2011 
even if the property's value only increases at the rate of 4% a year. 
If property values increase at the rate of 10% per year, his property 
tax bill in 2011 would be almost $11,000, compared to the amount of 
$2,652.69 that would be due in 2011 if the cap remained in place.
The effect of Judge Moore's ruling on the preservation of green space
    Federal law, as interpreted in the Berne Corp. v. Government of the 
V.I. decision, will have long-term negative effects on the preservation 
of green space in the Virgin Islands by placing pressure on land owners 
to develop or sell their properties in order to be able to pay the 
property taxes on their land. In addition to providing some measure of 
relief and insulation for long-time homeowners, the 10% cap on 
assessment increases also encouraged the preservation of green spate by 
holding taxes down on properties that had not had substantial 
improvements since the previous valuation. The removal of the cap, 
combined with the requirement that properties be assessed on the basis 
of actual value, will substantially raise the property taxes of large 
parcels of undeveloped land and will force their owners to either bear 
the increased burden our of their pockets or to cause the property to 
be commercially developed in order to generate the revenues necessary 
to pay the additional taxes and keep the property. In many cases, 
owners of large undeveloped properties will be forced to sell or lease 
their lands rather than face attachment by the government for non-
payment of property taxes.
    Besides the loss of aesthetic value and recreational opportunities 
that the loss of green space will bring about, there will also be long-
term environmental consequences. The loss of green space will 
inevitably' cause greater soil erosion and runoff, thus causing further 
damage to the marine environment. Furthermore, the loss of green areas 
will also negatively affect rainfall, thus contributing to increased 
aridity and decreased agricultural activity.
The Importance of changing federal law regarding taxation of V.I. real 
        property
    At the crux of the matter is the nature of federal governing the 
administration of real property taxes in the Virgin Islands. It is 
important to note that the federal law to which Moore referred in 
striking down the ten percent cap and requiring assessment based on 
actual value is not federal law that applies nationwide but is specific 
to the Virgin Islands. In fact, according to the National Conference of 
State Legislatures, over 38 states have some time of property tax 
limit, and 19 of them have assessment limits similar to the 10% cap 
that was struck down in Berne v. Gov't. Furthermore, constitutional 
principles have clearly established that the federal government shall 
not involve itself with the various states' administration of property 
taxes. Why then, has this special dispensation been made for the Virgin 
Islands? A bit of historical background is in order.
    Up until 1936, the property taxation system, which was based on 
Danish colonial law, taxed property at a certain amount per acre based 
on the land's use, and uncultivated land was taxed at a very law rate 
thus, in the words of the bill's advocates, ``providing an incentive to 
keep land--even very valuable land, unproductive.'' In 1936 Congress 
passed legislation requiring that from the tax year 1936 forward, all 
property was to be assessed for taxation purposes on the basis of 
actual value, and that a uniform rate of taxation would be applied to 
all real property regardless of use.\3\ The legislation was intended to 
stimulate the development of unused parcels of land. In passing this 
legislation, however, Congress tied the hands of the government and 
prevented it from adopting policies geared towards homeowner relief and 
land preservation that many jurisdictions around the country have 
adopted. It is noted that in addition to the 19 states that have 
assessment limits similar to that struck down by Moore, many others, 
including Virginia, Oregon, Nevada, Florida, Texas, Maine, Washington, 
Wisconsin and Michigan, have lower assessments for agricultural land 
and open space.
---------------------------------------------------------------------------
    \3\ Although this would never have been imposed on a state, 
Congress was able to do so under Article 4, Section 3 of the United 
States Constitution, which grants Congress the power to make any 
needful laws and regulations for the governance of U.S. territories.
---------------------------------------------------------------------------
    Federal statutes governing property taxation in the V.I., are not 
only restrictive, but they are now outdated and have outlived their 
purpose. Far from the situation of 1936, the Virgin Islands now suffers 
not only from excessive population density, but from over-development 
and mal-development of land resources. At this point, the preservation 
of our remaining green and open spaces is vital not only to maintaining 
the aesthetic beauty of the islands and thus, our economic viability, 
but also to preventing further damage to our natural habitats and the 
marine ecosystem. It is also a vital component in maintaining the 
overall quality of life. Local policymakers are and will be unable to 
set tax policy to intelligently influence land use and development 
without a change in federal law.
    I urge you therefore, as our Delegate to Congress, to give this 
matter your most urgent attention and to seek to have this provision 
repealed before the end of this Congress. We cannot afford to have this 
matter linger until V.I. homeowners receive tax bills they cannot pay, 
but must act swiftly and proactively in defense of our people's 
interests. Thus, I anxiously await your response and I look forward to 
your assistance and cooperation in this matter.
            Sincerely,
                                  Almando ``Rocky'' Liburd,
                         Former Senator-at-Large & St. John Native.
                                 ______
                                 
  Statement of Hon. Pedro A. Tenorio, Resident Representative to the 
 United States, Commonwealth of the Northern Mariana Islands on S. 1831
    Hafa Adai, Chairman Domenici, Ranking member Bingaman, members of 
the Committee, I am Pedro A. Tenorio, Resident Representative to the 
United States for the Commonwealth of the Northern Mariana Islands. 
Thank you for holding this historic hearing on Senate bill 1831, a bill 
to convey certain submerged land to the Commonwealth of the Northern 
Mariana Islands. I am privileged to submit written testimony in support 
of this important legislation.
    Almost thirty years ago, this Congress enacted Public Law 94-241--
The Covenant to Establish a Commonwealth of the Northern Mariana 
Islands in Political Union with the United States of America. One of 
the basic objectives of the Covenant was the economic development of 
the Commonwealth. Consistent with this objective, the Covenant provided 
several economic incentives to the CNMI such as Article VII, United 
States Financial Assistance, where the Government of the United States 
agreed to ``assist the Government of the Northern Mariana Islands in 
its efforts to achieve a progressively higher standard of living for 
its people as part of the American economic community and to develop 
the economic resources needed to meet the financial responsibilities of 
local self-government.''
    For the past quarter century, the people of the CNMI enjoyed the 
privilege of ownership and administration of its submerged land and the 
waters surrounding the islands of the Commonwealth and successfully 
implemented regulatory and management responsibility of its marine 
resources to the benefit of its citizens.
    However, two years ago, the U.S. District Court for the Northern 
Mariana Islands rendered judgment against the Commonwealth to the 
effect that all submerged land around the CNMI belongs to the United 
States. Earlier this year, the Ninth Circuit Court of Appeals affirmed 
the District Court's decision upholding the sovereignty of the United 
States over the submerged land of the Commonwealth. The CNMI is 
currently appealing this ruling to the U.S. Supreme Court.
    Under an agreement between the CNMI and the federal government 
entered into following the District Court decision, the CNMI has 
continued to administer the federal rules and regulations relating to 
CNMI submerged land. This agreement can be sustained as long as the 
litigation is ongoing. Without this agreement, or, in the event that 
the Supreme Court rules contrary to the CNMI's claims, the District 
Court's order could have serious adverse consequences. In essence, 
according to the Court, the current ownership rights and regulatory 
authority of the Commonwealth extends only to the area between the high 
and low water marks, an area of approximately two feet of sand. A 
quarter century of effort to protect the marine resources, including 
the fragile coral reefs surrounding most of the islands in the CNMI 
would be in peril. It is essential that CNMI and Federal environmental 
and marine protection laws be enforced for the protection of these 
resources. Simultaneously it is vital to economic development that the 
CNMI enjoy the same rights to submerged land that other coastal States 
and Territories have.
    The intent of Section 1 of S. 1831 is to convey certain submerged 
land to the Commonwealth of the Northern Mariana Islands of the 
existing rights, title and interest of the United States in lands 
permanently or periodically covered by tidal waters up to but not above 
the line of mean high tide and seaward to a line three geographical 
miles distant from the coastline of the CNMI. Such a conveyance will be 
keeping in spirit with previous enactments of Congress ceding to most 
coastal States and the territories three miles of jurisdiction. I fully 
support this provision, and see this as a logical first step. To 
increase the economic potential of submerged land resources in the 
CNMI, where land based natural resources are almost non-existent, and 
in keeping with precedents set by Congress for larger grants, I would 
anticipate a subsequent request from the CNMI in the years to come for 
a grant similar or equal to that of Puerto Rico's grant of 
approximately 10 geographic miles.
    The objective of Section 2 of S. 1831 is to authorize the Secretary 
of the Interior, on the request of the Governor of the CNMI, to settle 
any claim of the Commonwealth arising pursuant to any provision of the 
Covenant. An issue that would be appropriately addressed by this 
section, is the outstanding issue of tax cover-over as addressed in 
section 703(b) of the Covenant. Over a year ago, Mr. Chairman, you and 
Senator Bingaman requested from the Secretary of the Interior a 
progress report in determining the cover-over amount due the CNMI. You 
also indicated that Section 703(b) of the Covenant clearly provides for 
the cover-over to the CNMI of income taxes and taxes on articles 
produced in the Northern Mariana Islands, as well as ``the proceeds of 
any other taxes which may be levied...'' In addition, you pointed out 
that the CNMI government has provided Congress with its estimate of tax 
proceeds from some categories subject to cover-over. The estimates 
focused on income and estate taxes--two categories that are clearly 
covered by section 703(b).
    Furthermore, during the last Congress, the Senate approved a 
package of Energy Committee bills which included a resolution of the 
cover-over issue for the CNMI. The resolution clarified that the cover-
over of federal collections to the treasuries of certain territories 
(CNMI, Puerto Rico, Guam, and the Virgin Islands) encompasses all taxes 
and fees, including the proceeds on estates and gifts. It further 
directs the Department of the Interior to negotiate with CNMI to reach 
a settlement on the past due amounts and condition such settlement on 
CNMI submitting a plan to spend these cover-over amounts on 
infrastructure needed for education and water purposes. With your 
ongoing support, I pledge to work with the committee to find a suitable 
mechanism to address this issue to the satisfaction of all parties.
    Thank you.
                                 ______
                                 
  Statement of Hon. Hersey Kyota, Ambassador of the Republic of Palau 
                        to the U.S., on S. 1830
    Good morning, Mr. Chairman and distinguished Members of the Senate 
Energy and Natural Resources Committee. It is indeed an honor and 
privilege for me to appear and testify before your Committee.
    Mr. Chairman, before I continue, I would like to take this 
opportunity to thank you and your colleagues for inviting me to this 
important hearing this morning. On behalf of President Remengesau and 
the people of Palau, I would also like to convey our special 
appreciation and gratitude to you Mr. Chairman and members of this 
Committee for your continued support and assistance to the Government 
and people of Palau.
    Mr. Chairman, per your request, I will limit my testimony to S. 
1830, which is an Act to amend the Compact of Free Association 
Amendments Act of 2003, and for other purposes. There are two 
amendments in 5.1830 that pertain to Palau and they are found in 
Sections 4 and 5.
    In section 5, the availability of legal services would be extended 
to citizens of Palau residing in the United States, including its 
territories and possessions. This amendment provides the same 
eligibility and treatment to the citizens of the three Freely 
Associated States, namely, the Republic of Palau, Federated States 
Micronesia and Republic of Marshall Islands. We support and welcome 
this amendment.
    At a glance, Section 4 seems to offer extension of education grants 
to Palau, but further review indicates that the amendment extends 
eligibility of the citizens of the Federated States of Micronesia and 
the Republic of the Marshall Islands who are attending institutions of 
higher learning in the FSM, RMI, United States and its territories and 
the Republic of Palau until 2023. The eligibility for citizens of Palau 
for federal education programs, which include the Head Start Program 
and elementary, secondary and post secondary education will expire or 
discontinue in 2007. This is unacceptable Mr. Chairman.
    Under the Compact of Free Association between the United States and 
the Republic of Palau, entered into force on October 1, 1994, the 
government of the United States has a pre-existing obligation, and that 
obligation is to fund education programs, and other programs for that 
matter, to Palau for the duration of our Compact's financial 
provisions, which is fifteen years. That Compact ends in 2009, not 
2007. Your amendment therefore falls two full years short of the 
fifteen-year duration of the Compact between our two nations. I appear 
before you today to reiterate our request to Congress to extend 
educational grants to the government and people of Palau until 2009.
    Mr. Chairman, we are not asking for new programs. We are simply 
asking that Congress extends these existing educational programs to 
Palau, as was bilaterally agreed by our two countries, for the duration 
of our Compact. After all, the same programs were provided to the FSM 
and the RMI during the complete duration of their first compacts, and 
were further extended to 2023 in their new compacts. We are merely 
asking for a fair and equitable treatment.
    Mr. Chairman, there are two other requests that I wish to bring to 
your attention. I have addressed these requests in my letter of June 
27, 2005 to you and Senator Bingaman. Allow me, Mr. Chairman, to 
reiterate them for the record and request the Committee to consider 
these items as amendments to S. 1830.
    The first request has to do with 17 U.S.C. 111(e)(2), a U.S. 
Copyright Statute relating to the transmission of videotape 
programming. Prior to its independence in 1994, Palau, as a Trust 
Territory of the Pacific Islands, was permitted to transmit videotape 
programming through its cable system, along with Alaska, Hawaii, Guam 
and the Northern Mariana Islands. This privilege, for Palau and the 
other two Freely Associated States, is no longer permitted under Title 
17 U.S.C. 111(e)(2). I believe that this was merely an oversight that 
occurred when the Freely Associated States changed status from Trust 
Territories to Freely Associated States. In fact, the failure of the 
Statute to include Freely Associated States just came to light when the 
company providing such services was sold and the issue was discovered 
by the new owner.
    Transmittal of videotape programming can only be resumed if 
Congress amends this copyright statute. Mr. Chairman, both the United 
States and Palau benefit from the extension of such programming by 
further strengthening our cultural ties. Moreover, the U.S., in some 
instances, spends millions of dollars to expose or introduce its 
culture and way of life in other parts of the world. We are asking your 
government to permit us to expose and introduce the American culture 
and way of life in our country, free of charge, through videotape 
programming. You and members of this Committee can change the lives of 
so many people in Palau, FSM and RMI by correcting this oversight. I 
therefore appeal to you today to amend Title 17 and put videotape 
programming back into the living rooms of the people of all of the 
Freely Associated States.
    The second request relates to the eligibility of our citizens to 
apply for merchant mariner's licenses for seamen or crew on U.S. 
flagged ships and cruise liners. This issue is governed under 46 CFR 
part 12. At the present, citizens of the three Freely Associated States 
are not eligible to apply for merchant mariner's documents, unless they 
are permanent legal residents or intended permanent legal residents of 
the U.S. or its territories and possessions. Given our status as Freely 
Associated States, with close and special relationships with the U.S., 
where our citizens are permitted to work, study and reside in the U.S., 
including its territories and possessions, without visa requirements, 
our citizens should be eligible to apply for and be granted merchant 
mariner's licenses and associated documents.
    Moreover, under our respective compacts, citizens of the Freely 
Associated States are eligible to serve, and many of our sons and 
daughters are actively serving, in the U.S. Armed Forces, including the 
U.S. Coast Guards. Given these facts, I respectfully request this 
Committee to include in S. 1830 an amendment to rectify this oversight, 
and to lawfully permit our citizens to apply for and obtain merchant 
mariner's licenses in order for them to work in U.S. flagged ships and 
cruise liners.
    Like the above issue regarding videotape programming, I believe 
that the failure to permit the issuance of merchant mariner's licenses 
and documents is a mere by-products of our status change from that of a 
Trust Territory to a Freely Associated State. In other words, the 
necessary transitional amendment merely slipped through the cracks.
    Statutes relating to both of these issues should have been amended 
to reflect our new political status with the United States. For 
example, the phrase ``Trust Territory of the Pacific Islands'' in Title 
17 U.S.C. 111(e)(2) should have changed or amended to ``Freely 
Associated States''. I have personally come across a number of U.S. 
statutes that define Palau as ``insular area'' or ``out laying area''. 
Of course, those statutes were enacted before Palau became a Freely 
Associated State under the Compact of Free Association.
    While I recognize that it is unnecessary to change every law on the 
books to reflect the current status of Palau, the FSM and the RMI, it 
is worth noting that privileges, rights and freedoms that were 
authorized under these statutes, which were not expressly forbidden in 
our respective Compacts of Free Association or recent acts of Congress, 
should continue in full force and effect.
    It is very contradictory for our citizens to be allowed to join the 
U.S. Armed Forces, fight side by side with American comrades, sail on 
U.S. Navy and U.S. Coast Guard battleships, and even attend the U.S. 
Coast Guard Academy, and not be able to obtain merchant mariner's 
licenses from the U.S. Coast Guard. It is also very contradictory for 
the U.S. Government to represent Palau before the International 
Telecommunications Union (ITU) as mandated by the Compact and not 
permit Palau to transmit videotape programming through its cable 
system.
    And more importantly, Mr. Chairman, good faith requires that 
educational grants agreed to in bilateral negotiations between our two 
countries extend through the duration of the resulting Compact of Free 
Association that guides our current relationship with one another. 
These grants must be extended through 2009 for the continuing health 
and educational welfare of our children. These grants are, and were, a 
critical component of the financial provisions of the Palau Compact, 
which end in 2009, not 2007.
    Mr. Chairman and distinguished members of this Committee, these 
proposed amendments, which I have outlined, are non-controversial, 
straightforward, simple, necessary and urgent. I therefore respectfully 
request, on behalf of President Remengesau, the government and the 
people of Palau, your full support and assistance in incorporating 
these proposed amendments into S. 1830.
    Mr. Chairman, if I may, I would like to acknowledge the support and 
assistance of your staff. You have a group of hard working and 
dedicated personnel in the company of Josh Johnson, Steve Waskiewicz 
and Al Stayman, whom I worked closely with in addressing some of the 
issues concerning Palau.
    Thank you very much.
                                 ______
                                 
        Statement of Hon. Balmy deBrum, Ambassador, Embassy of 
            the Republic of the Marshall Islands, on S. 1830
    Mr. Chairman, Distinguished Members, Ladies and Gentlemen: The 
Government of the Republic of the Marshall Islands (RMI) is pleased to 
provide its testimony in respect to S. 1830, a bill to amend the 
Compact of Free Association Amendments Act of 2003.
    This legislation, as noted by Chairman Domenici and Ranking Member 
Senator Bingaman in the Congressional Record of October 6, 2005, deals 
with one of the several issues that were left unresolved in 2003 as a 
result of the deadline on the term of the original Compact assistance 
when Congress enacted the Compact of Free Association, as amended.
    The main issue that this legislation addresses concerns replacement 
of the existing agreement under the Federal Programs and Services 
Agreement concerning United States Disaster Preparedness and Response 
Services and Related Programs with the Agreement between the RMI and 
United States Governments signed on June 30, 2004, as specified in 
Section 105(f)(1)(A)(iii) of the Compact of Free Association Amendments 
Act of 2003.
    I cannot adequately underscore the importance of U.S. disaster 
assistance to the RMI. As a nation of low-lying coral atolls, the RMI 
is especially susceptible to unusually high tides, wave action, and 
tropical storms and typhoons that are endemic to our part of the world. 
Adequate disaster assistance should be viewed by both the RMI and U.S. 
governments not only in humanitarian terms, but also as an insurance 
policy against catastrophic damage to essential infrastructure and 
Compact investments.
    The new disaster assistance agreement will create a new structure 
for dealing with future natural disasters in the RMI. First, the new 
agreement provides that the United States Agency for International 
Development (USAID) will be responsible for initial disaster response 
and coordinating U.S. disaster assistance efforts in the RMI. Second, 
the agreement allows for the implementation of Section 211(e) of the 
Compact, as amended, the Disaster Assistance Emergency Fund. Third, and 
most important, the new agreement provides for the continuation of the 
availability of FEMA resources under the Robert T. Stafford Disaster 
Relief and Emergency Assistance Act in cases where other resources are 
not adequate to deal with the damages caused by a disaster.
    The RMI supports the new agreement and looks forward to working 
with appropriate U.S. Government officials in its implementation.
    S. 1830 also clarifies that that the services of the Legal Services 
Corporation will continue to be available to RMI citizens residing in 
the United States. Although the RMI has understood that this was always 
the case, we appreciate clarifying the issue.
    The proposed legislation also contains a series of technical 
amendments consisting of clerical corrections, conforming changes, and 
updating U.S. statutory references in the Compact, as amended, and the 
Compact of Free Association Amendments Act of 2003. The RMI concurs 
with these technical amendments.
    As I noted in the beginning of my testimony, S. 1830 basically 
deals with one of several issues that were not addressed when Congress 
enacted the Compact, as amended, in 2003. I would, therefore like to 
take this opportunity to raise a few other issues of concern to the RMI 
and request that these issues be addressed in the pending legislation.
    The first issue I would like to raise concerns the Supplemental 
Education Grant provided in Section 105(f)(1)(B)(iii) of the Compact of 
Free Association Amendments Act of 2003. These funds are provided to 
replace funding from certain federal programs that had previously been 
available to the RMI and represent an essential part of the RMI's 
emphasis on education and improving the educational outcomes of its 
citizens under the Compact, as amended.
    Presently this funding is dependent on annual appropriations of 
Congress, as it was not appropriated for the twenty-year term of the 
economic assistance provisions of the Compact, as amended. To date, 
there has been a series of problems with making this funding available 
to the RMI that has caused significant hardship to the RMI Ministry of 
Education and to the national government, which has been compelled to 
use its own limited general revenues to fund some of these programs. 
Nonetheless, these programs are now moving forward and will be 
integrated with the RMI's education system. For example, funding which 
had previously gone to the Head Start Program is now being used to 
establish a nationwide kindergarten program in the RMI.
    There remains the risk, however, that these funds may not be 
appropriated in the future, which could have devastating consequences 
to the RMI's education system. Since both the U.S. and RMI governments 
have agreed to make education a priority under the Compact, as amended, 
it is important that this funding be stable and predictable in the 
future. We believe that this legislation provides an appropriate 
vehicle to remedy this glitch in the Compact by ensuring that the 
Supplemental Education Grants have the same certainty as other Compact 
assistance.
    Mr. Chairman, we would request that your Committee work with the 
Appropriations Committee and the Administration to make the current 
discretionary appropriations mandatory as is the case with other annual 
funding under the Compact, as amended, including the Compact Impact 
funding provided to Guam, the CNMI, and Hawaii.
    Mr. Chairman, my government and the people of the Republic are 
grateful for the leadership of this committee in conducting a hearing 
earlier this year on the legacy of the U.S. nuclear testing program in 
the Marshall Islands. We also appreciate the assistance and support 
that you and other members of the Committee have demonstrated in 
beginning a follow-on dialogue--in conjunction with the relevant 
federal agencies--on several issues related to the testing program that 
pose enduring problems for us. Some of these issues may be able to be 
resolved administratively, some will require new authorizations and 
appropriations, and some may simply require additional clarifying 
legislation. We are ready to work through each of these issues with 
your committee and the relevant agencies, and would encourage your 
continued leadership in moving this process forward as expeditiously as 
possible.
    An example of one issue that might be solved through clarifying 
legislation is the Energy Employees Occupational Illness Compensation 
Program Act that was enacted to cover workers at various sites included 
the Pacific Test Site. While the intention, we understand, was to 
include the residents of the Trust Territory who represented the 
majority of the workers, a narrow reading of the statute has excluded 
them because they were citizens of the Trust Territory--not the United 
States--although the United States was the Administering Authority.
    Similarly, we understand that there are some who have expressed 
concerns that the transfer of functions from the old Defense Nuclear 
Agency to the Department of Energy may need some clarification. The RMI 
government would also like to ask this Committee whether clarifying 
assignment for the monitoring of the integrity of the Runit dome on 
Enewetak Atoll could be considered a technical matter. Although a 
formal transfer of responsibility for monitoring the dome never took 
place when DNA ceased to exist, we believe that existing language gives 
DOE the discretion to monitor the dome and provide assurances to the 
community resettled adjacent to the dome that their health is not 
adversely affected by their proximity to the storage site. Nonetheless, 
we believe clarifying language would be useful.
    All of these issues were deferred at the request of the United 
States negotiators when the Compact was being renegotiated. 
Consequently, although some are, in our judgment, purely technical, 
they are not encompassed by this legislation and will otherwise need 
subsequent review and action by your Committee.
    Once again Mr. Chairman, I would like to take this opportunity to 
thank you on behalf of the government and people of the RMI for all of 
the assistance, understanding, and support that you and other members 
have provided to the RMI over the years. The RMI looks forward to 
working with you, other committee members, and committee staff on 
addressing these and other issues that were left unresolved with the 
passage of the Compact of Free Association Amendments Act of 2003.
    Thank you very much.
                                 ______
                                 
       Statement of Hon. Craig W. Barshinger, Senator At Large, 
             26th Legislature, United States Virgin Islands
    Mr. Chairman, the United States Virgin Islands economy has grown 
since 1936, and even begun to prosper. Now the 1936 law which was 
appropriate in 1936 is poised to cause grievous hardship to residents 
of the U.S. Virgin Islands. The burden would fall particularly to 
lifelong residents of the Virgin Islands, who are our culture bearers, 
and who are often retired and live on a modest, fixed income.
    Your affirmative support of S.1829, offered by the Honorable 
Delegate to Congress Donna M. Christensen of the United States Virgin 
Islands, will allow the Virgin Islands the freedom to do what any State 
in the Union can do: to choose a method of taxation that raises the 
money necessary for public services; which distributes the burden of 
the taxation fairly and justly; and which preserves the cultural and 
social fabric.
    A recent ruling in District Court by Judge Thomas. K. Moore found 
that under the 1936 law, all exemptions, be they agricultural, 
homestead, or any other special use, is not permitted. All real 
property must be taxed at the same rate. Period.
    By your support of S. 1829 you will repeal the crippling, 
anachronistic 1936 law and restore to the Virgin Islands the ability to 
choose a system of taxation that takes all factors into account.
    That is all you need do to solve this grave problem.
    The need for the Delegate's bill is not abstract. If the Virgin 
Islands is forced to operate under the shadow of the 1936 law, native 
Virgin Islanders will be forced from their homes. This would occur in 
the follow scenario: A Virgin Islander has been living a simple home 
for decades on land that has become very valuable due to skyrocketing 
land prices, particularly on the island of St. John.
    The Virgin Islander has been able to afford her $600 annual tax 
bill, with the help of the $250 homestead exemption. The $2 Million 
house built next door five years ago has not been factored in, to date. 
As a result of Judge Moore's ruling, next year her tax bill will jump 
to $5,000. Living on social security alone, the Virgin Islander will be 
forced to leave the home she has lived in for decades.
    Clearly, this would be a tragedy that must not be allowed.
    In another perspective, Agriculture in the Virgin Islands, 
particularly the island of St. Croix, will whither and die in the 
shadow of the 1936 law. Agriculture exemptions will be gone, and it 
farmers will simply loose their land, unable to withstand the 
astronomical tax increase.
    Clearly, this is another tragedy that must not be allowed.
    You can avoid these and dozens of other tragic blows to the Virgin 
Islands. Vote to repeal the 1936 law.
    There is an emergency path for survival, if we remain under the 
1936 law: I have a bill that would abolish the real property tax 
altogether, and replace that revenue stream with an Improvement tax. In 
essence, land would no longer be taxed. Improvements would be taxed. 
This provides protection from the devastating effects of someone 
building a $2 million home adjacent to a $100,000 home; as well it 
provides protection for agricultural land. This is an emergency 
measure. Our options for survival are severely limited.
    I ask for your affirmative vote. My office has begun formulating a 
plan that will give to the U.S. Virgin Islands a uniform method for 
taxing real property that takes economic, legal, social, and cultural 
factors into account. We continue to consult with our constituents to 
arrive at a solution everyone can live with, and thrive with. From 
California to Florida, states have dealt with the crises similar to 
what the United States Virgin Islands faces today. We will draw from 
these successes, and formulate a Virgin Islands solution. On behalf of 
the People of the United States Virgin Islands, I thank you for your 
affirmative vote on bill S. 1829.
    Thank you.
                                 ______
                                 
   Statement of the Government of the U.S. Virgin Islands, on S. 1829
    The Government of the Virgin Islands (``Government'') hereby states 
its support of S. 1829, a bill introduced by Chairman Pete Domenici and 
Ranking Minority Member Jeff Bingaman of the Committee on Energy and 
Natural Resources to repeal a deadweight provision of law enacted by 
Congress in 1936 in furtherance of a legislative objective long since 
relegated to the dust bins of a bygone colonial era.
    S. 1829 would repeal a 1936 statute, codified in Sections 1401 
through 1401(e) of Title 48, which limits the authority of the Virgin 
Islands legislature to assess and collect real property taxes in the 
Territory. These limitations were originally enacted to address tax 
policies of the Danish-era municipal councils which favored land 
speculation by large landowners and discouraged investment in 
productive uses of land, thus depriving the local government of needed 
revenues. The need for such federal limitations, however, was 
superseded by the enactment by Congress of the Revised Organic Act of 
the Virgin Islands of 1954, as amended (``Revised Organic Act''), which 
abolished the municipal councils and created a comprehensive system of 
local government with sufficient legislative powers to resolve local 
property tax issues without federal intervention. Indeed, the courts 
have held that the Revised Organic Act repealed by implication all 
prior federal statutes limiting local self-governance inconsistent with 
the powers conferred by the 1954 Act. Until a recent federal court 
decision, the Government believed that the 1936 statute had been 
effectively repealed.
    Pursuant to its duly delegated legislative authority under the 
Revised Organic Act, the Legislature of the Virgin Islands has, over 
the years since 1954, enacted a comprehensive scheme of property tax 
laws, including provisions modeled on state and local laws in the 
United States which are designed in part to encourage economic 
development and to protect residential homeowners from spiraling 
property taxes caused by surging property values. The U.S. Court of 
Appeals for the Third Circuit last year upheld a series of orders by 
the District Court of the Virgin Islands--based in large measure on the 
1936 statute which requires uniform taxation without regard to 
classification or use of property--which impedes the power of the 
Government to establish its own property tax policies and undermines 
its authority to legislate in an area traditionally reserved for state 
and local governments. If not now repealed by Congress, the 1936 
statute will hinder the exercise of the Government's power, as 
conferred by the Revised Organic Act, to assess, administer and collect 
real property taxes in the Virgin Islands. Indeed, by precluding 
classification of property by use and requiring a uniform rate of tax 
between residential and commercial property, the 1936 statute puts at 
risk long-standing Government policies designed to develop the economy, 
promote social welfare, and protect homeownership in the Virgin 
Islands.
    Accordingly, the Government respectfully submits that the 1936 
statute has long outlived its original purpose and now interferes with 
the Government's ability to perform a basic governmental function. 
Because the assessment and collection of property taxes is 
fundamentally a local government issue with no federal impact, and 
because no other State, Territory or Commonwealth is subject to such 
federal restrictions, the 1936 status must be repealed as a 
dysfunctional reminder of a bygone colonial era.
                             i. background
A. Congress Initially Provided Limited Autonomy to the Virgin Islands 
        Municipal Councils
    Upon the acquisition of the Virgin Islands by purchase from Denmark 
in 1917, the U.S. Government administered the Territory through a 
succession of Governors appointed first by the Secretary of the Navy 
and, after 1931, by the Secretary of the Interior.\1\ The United States 
also continued in force the role of the Danish-era Municipal Councils 
for the Municipality of St. Thomas-St. John and the Municipality of St. 
Croix. The Municipal Councils had, from Danish times, limited authority 
to legislate on matters of local government, including the taxation of 
real property.
---------------------------------------------------------------------------
    \1\ In 1931, the President of the United States transferred 
jurisdiction of the Virgin Islands from the Department of the Navy to 
the Department of the Interior. See Exec. Order No. 5566, available in 
2 Proclamations and Executive Orders: Herbert Hoover 792-93 (1974).
---------------------------------------------------------------------------
    In providing for the governance of the Islands, Congress by statute 
``continued the force and effect of all local laws imposing taxes, so 
far as compatible with the change in sovereignty, until Congress 
provided otherwise.'' (Act of March 3, 1917, 39 Stat. 1132). Pursuant 
to this Congressional statute, the Danish laws providing for the 
assessment of real property taxes in the Municipality of St. Thomas and 
St. John remained in force until 1922, when they were repealed. See 
Ricardo v. Ambrose, 211 F.2d 212, 215 (3d Cir. 1954). In the 
Municipality of St. Croix, however, the Danish property tax laws 
remained in effect until 1936. See id. at 216.
    By 1936, it became clear that the real property tax laws in the two 
municipalities were insufficient to generate adequate revenue for the 
Territory, and were thus ``unsatisfactory.'' Id. at 216. The tax system 
implemented in 1922 by the Municipal Council for St. Thomas and St. 
John included ``separate classifications of cultivated land, pasture 
land and bush land.'' Id. Uncultivated land was taxed at the lowest 
rate, thus ``penaliz[ing] the cultivation of land and tend[ing] to keep 
it idle and in the hands of a few landowners.'' Id. The 1917 Danish tax 
laws governing St. Croix were ``equally unsatisfactory.'' Id. Because 
``[r]ecommendations by the [appointed] Governor to the Colonial 
Councils to enact improved tax laws brought no action,'' id., the 
Governor of the Virgin Islands and the United States Department of 
Interior petitioned Congress to enact legislation designed to encourage 
the productive use of land and to generate additional revenue for the 
local government. Ricardo v. Ambrose, 110 F. Supp. 716, 718 (D.V.I. 
1953), aff'd, 211 F.2d 212 (3d Cir. 1954). See also S. Rep. No. 74-
1973, at 1-6 (1936).
    In response to that request, Congress reluctantly intervened and 
imposed on the Virgin Islands a uniform system of property tax 
valuation to be used throughout the Virgin Islands. (Act of May 26, 
1936, ch. 450, 49 Stat. 1372, codified at 48 U.S.C. Sec. Sec. 1401-
1401(e).) In doing so, Congress stated that ``[i]t is the policy of 
Congress to equalize and more equitably to distribute existing taxes on 
real property in the Virgin Islands of the United States and to reduce 
the burden of taxation now imposed on land in productive use in such 
islands.'' 48 U.S.C. Sec. 1401. In particular, Section 2 of the Act of 
May 26, 1936, codified at 48 U.S.C. Sec. 1401(a) (the ``1936 Real 
Property Tax Limitation''), required all taxes on real property in the 
Virgin Islands to be computed on the basis of ``actual value'' and at 
the same rate, regardless of the classification of the land or the use 
to which it was put:

          For the calendar year 1936 and for all succeeding years all 
        taxes on real property in the Virgin Islands shall be computed 
        on the basis of the actual value of such property and the rate 
        in each municipality of such islands shall be the same for all 
        real property subject to taxation in such municipality whether 
        or not such property is in cultivation and regardless of the 
        use to which such property is put.

    48 U.S.C. Sec. 1401(a) (emphasis added).\2\ As further 
explained in the legislative history, the motivating purpose of 
this provision was to provide the Virgin Islands with more tax 
revenue. See S. Rep. No. 74-1973, at 2, 4, 6 (1936).
---------------------------------------------------------------------------
    \2\ The relevant provisions of the Act of May 26, 1936, as codified 
in Title 48, are set forth below:

          Section 1401. Equalization of taxes on real property; 
        declaration of policy: It is the policy of Congress to equalize 
        and more equitably to distribute existing taxes on real 
        property in the Virgin Islands of the United States and to 
        reduce the burden of taxation now imposed on land in productive 
        use in such islands.
          Section 1401(a). Valuation of real property for assessment; 
        uniformity of rates: For the calendar year 1936 and for all 
        succeeding years all taxes on real property in the Virgin 
        Islands shall be computed on the basis of the actual value of 
        such property and the rate in each municipality of such islands 
        shall be the same for all real property subject to taxation in 
        such municipality whether or not such property is in 
        cultivation and regardless of the use to which such property is 
        put.
          Section 1401(b). Rate of tax in absence of local laws; 
        regulations by President for assessment and collection pending 
        adoption of local laws: Until local tax laws conforming to the 
        requirements of sections 1401 to 1401(e) of this title are in 
        effect in a municipality the tax on real property in such 
        municipality for any calendar year shall be at the rate of 1.25 
        per centum of the assessed value. If the legislative authority 
        of a municipality failed to enact laws for the levy, 
        assessment, collection, or enforcement of any tax imposed under 
        authority of said sections, within three months of May 26, 
        1936, the President shall prescribe regulations for the levy, 
        assessment, collection, and enforcement of such tax, which 
        shall be in effect until the legislative authority of such 
        municipality shall make regulations for such purposes.
          Section 1401(c). Depository: All taxes so levied and 
        collected shall be deposited in the municipal treasury of the 
        municipality in which such taxes are collected.
          Section 1401(d). Omitted
          Section 1401(e). Exemptions from taxation; authority of 
        municipalities to alter, amend, or repeal existing laws: 
        Nothing in sections 1401 to 1401(e) of this title shall be 
        construed as altering, amending, or repealing exemptions from 
        taxation, existing on May 26, 1936, of property used for 
        educational, charitable, or religious purposes. Subject to the 
        provisions of said sections, the legislative authority of the 
        respective municipalities is empowered to alter, amend, or 
        repeal, subject to the approval of the Governor, any law 
        imposing taxes on real and personal property on May 26, 1936.
    Barely one month after it passed the 1936 Real Property Tax 
Limitation, Congress enacted the Organic Act of June 22, 1936 (``1936 
Organic Act'') to ``provid[e] a complete government--including a 
Legislative Assembly'' for the Virgin Islands. Granville-Smith v. 
Granville-Smith, 349 U.S. 1, 7 (1955). After almost two decades, 
however, it became clear that the government empowered by the 1936 
Organic Act was ``unnecessarily cumbersome and inefficient,'' and 
required further restructuring to enable the Virgin Islands to govern 
themselves. Virgo Corp. v. Paiewonsky, 384 F.2d 569, 576 (3d Cir. 
1967). Such inefficiency was not surprising since the 1936 Organic Act 
was ``based in no small part on the old Danish colonial system in the 
islands, which was evolved before the days of modern communication.'' 
Id. (quoting S. Rep. No. 83-1271, at 1, 2 (1954), reprinted in 1954 
U.S.C.C.A.N. 2585, 2585-86.).
B. Congress Delegated Increased Authority to the Virgin Islands 
        Legislature in the Revised Organic Act of 1954, Which 
        Effectively Repealed the 1936 Organic Act, including the 1936 
        Real Property Tax Limitation
    Congress enacted the Revised Organic Act of 1954 to address the 
deficiencies of the 1936 Organic Act. See 68 Stat. 497, 48 U.S.C. 
Sec. Sec. 1541-1645. ``The Revised Organic Act of 1954 declared the 
Virgin Islands to be an unincorporated territory, and completely 
reorganized its government, abolishing the two existing municipalities 
with their separate municipal councils and joint legislative assembly, 
and creating a single territorial government with a single 
legislature.'' Virgo Corp. v. Paiewonsky, 384 F.2d 569, 576 (3d Cir. 
1967). The Revised Organic Act thus provided ``a greater degree of 
autonomy, economic as well as political, to the people of the Virgin 
Islands,'' Virgo Corp., 384 F.2d at 576 (citation omitted), including 
``the power to pass legislation having `local application,' Granville-
Smith, 349 U.S. at 9. To effect this broad grant of autonomy, the 
Revised Organic Act specifically abrogated all ``laws of the United 
States applicable to the Virgin Islands on July 22, 1954'' that were 
inconsistent with the Act and its amendments. 48 U.S.C. Sec. 1574(c).
    The Third Circuit (which has jurisdiction to hear appeals from the 
District Court of the Virgin Islands) construed Sec. 1574(c) to repeal 
virtually the entire Organic Act of 1936:

          It is, of course, clear that those provisions of the Act of 
        1936 which were inconsistent with provisions of the Revised 
        Organic Act were repealed by implication by the latter Act. It 
        is equally true, we believe, that those provisions of the old 
        Act which dealt with and limited the powers of organs of the 
        former municipalities, such as the municipal councils, fell 
        with the abolition of the organs of government to which they 
        related.

    Virgo Corp., 384 F.2d at 577 (emphasis added). The Court of Appeals 
explained that adherence to outdated laws from 1936 would unduly 
``shackle'' the new Legislature with laws that pertained to, and 
restricted, the abolished municipal councils:

          There is no reason to believe that the Congress, which was 
        intent on providing a greater degree of autonomy to the people 
        of the territory through a newly created territorial 
        legislature, intended to shackle that legislature with 
        restrictions which had been placed in 1936 upon the municipal 
        councils as the direct successors of the old Danish colonial 
        councils but which the Congress had omitted from the revised 
        Act.

    Id.
    The Revised Organic Act thus not only addressed the problems 
inherent in the 1936 Organic Act, it also repealed the statutory scheme 
providing federal oversight of local real property matters, including 
the Real Property Tax Limitation in Sec. 1401(a). Section 1401(a)--
enacted by Congress one month before the repealed Organic Act of 1936--
similarly stems from a bygone era when Congress' guidance was deemed 
necessary to remedy what was perceived to be a deficient colonial 
legislative system.
    The legislative history of the Revised Organic Act further 
emphasizes that Congress essentially ``started from scratch'' in 
creating this ``new organic act'' or ``basic contract'' for the 
citizens of the Virgin Islands:

          The purpose of S. 3378 is to provide a new organic act, or 
        basic charter of civil government, for the people of the Virgin 
        Islands of the United States. The present act dates from 1936 
        and is based in no small part on the old Danish colonial system 
        in the islands, which was evolved before the days of modern 
        communication. Substantial changes, political and economical, 
        have taken place in the Virgin Islands in the 18 years since 
        the first somewhat makeshift organic legislation was put 
        together, and under modern conditions the 1936 law is proving 
        unnecessarily cumbersome and inefficient as well as expensive 
        for the mainland taxpayers.
          S. 3378 would eliminate much of this wasteful duplication in 
        governments and governmental services, thus affording the 
        islands more efficient and more truly representative 
        government. At the same time, it would give a greater degree of 
        autonomy, economic as well as political, to the people of the 
        Virgin Islands.

    Id. at 576 (emphases added) (quoting S. Rep. No. 83-1271, at 1, 2 
(1954), reprinted in 1954 U.S.C.C.A.N. 2585, 2586). In crafting an 
entirely new ``contract'' for the citizens of the Virgin Islands, 
Congress plainly intended that the legislative power of the local 
government over purely local matters, such as the taxation of real 
property, not be constrained by federal limitations intended for a 
different era. The 1936 Real Property Limitation in Sec. 1401(a), like 
other inconsistent provisions of the 1936 Organic Act, was effectively 
abrogated by the Revised Organic Act and eventually replaced by locally 
enacted property tax laws. See 33 V.I.C. Sec. 2402 et seq.\3\
---------------------------------------------------------------------------
    \3\ In Revised Organic Act of 1954 Sec. 8(e), Congress directed the 
Secretary of the Department of the Interior to arrange for the 
preparation of the Virgin Islands Code to constitute ``a consolidation, 
codification and revision of the local ordinances in force in the 
Virgin Islands.'' 68 Stat. 500, repealed by Act of Oct. 19, 1982, Pub. 
L. No. 97-357, Title III, Sec. 305, 96 Stat. 1709. Subtitle 2 of Title 
33 of this Virgin Islands Code prepared by the Code Advisory Committee 
created by Secretary of the Department of Interior in 1955, submitted 
by the Federally-appointed Governor, and enacted by the VI Legislature 
on May 16, 1957, superseded the Act of May 26, 1936, and created the 
purely local property tax system presently set forth in Title 33 of the 
Virgin Islands Code.
---------------------------------------------------------------------------
C. Subsequent Amendments to the Revised Organic Act Provided the Virgin 
        Islands with Greater Autonomy and Self-Government, Further 
        Diminishing the Need for Federal Limitation on the Legislative 
        Powers of the Government
    The Revised Organic Act has been amended by Congress on several 
occasions, each time with the purpose of further expanding the autonomy 
of the Virgin Islands in a manner that is clearly inconsistent with the 
1936 Real Property Tax Limitation and the 1936 Organic Act. In 1958, 
Congress, reacting to the ruling of the Supreme Court in Granville-
Smith that narrowly construed the Virgin Islands' legislative authority 
under the 1954 mandate, expanded the Virgin Islands' legislative 
charter to include ``all rightful subjects of legislation not 
inconsistent with this chapter or the laws of the United States made 
applicable to the Virgin Islands.'' Virgin Islands Revised Organic Act-
Amendments, Pub. L. No. 85-851 Sec. 2, 72 Stat. 1094 (1958) (codified 
at 48 U.S.C. Sec. 1574(a)). This amendment ``broaden[ed] the 
legislative power of the Virgin Islands to cover `the ordinary area of 
sovereign legislative power' limited only by the provisions of the 
Revised Organic Act and the laws of the United States made applicable 
to the Virgin Islands.'' Virgo Corp., 384 F.2d at 579 (quoting S. Rep. 
No. 85-2267, 85th at 2 (1958), reprinted in 1958 U.S.C.C.A.N. 4334, 
4335) (emphasis added).\4\
---------------------------------------------------------------------------
    \4\ The Third Circuit in Virgo Corporation further explained that 
the phrase ``laws of the United States made applicable to the Virgin 
Islands'' in Sec. 1574(a) merely refers to ``those federal statutes 
applicable to the United States generally which, either by their own 
terms or by other legislation, are also made applicable to the Virgin 
Islands.'' 384 F.2d at 579. This phrase, therefore, cannot be read as 
preserving Sec. 1401(a).
---------------------------------------------------------------------------
    With this amendment, Congress expressly delegated areas of 
``sovereign legislative power'' that traditionally fall beyond the 
scope of federal law, including issues of real property assessment and 
taxation, to the Legislature of the Virgin Islands. Cf. Nat'l Private 
Truck Council, Inc. v. Okla. Tax Comm'n, 515 U.S. 582, 586 (1995) (``We 
have long recognized that principles of federalism and comity generally 
counsel that courts should adopt a hands-off approach with respect to 
state tax administration.''); Fair Assessment in Real Estate Ass'n, 
Inc. v. NcNary, 454 U.S. 100, 116 (1981) (holding that principles of 
comity bar taxpayers from challenging ``the validity of state tax 
systems in federal courts''). Thus, there is no basis to conclude that 
Congress intended to preserve the 1936 Real Property Tax Limitation in 
Sec. 1401(a)--a real property assessment law intended to remedy 
specific problems with land productivity and tax revenues associated 
with the Danish era municipal councils that had long since been 
resolved--at the same time it intended to broaden the Legislature's 
power to cover ``the ordinary area of sovereign legislative power.'' 
Rather, the 1958 amendment rendered clear Congress' intent to remove 
the ``shackle[s]'' imposed during the colonial era and similar outdated 
federal statutes that restricted or otherwise limited local self-
government.
    Since 1958, Congress has continued to expand and refine the 
authority of the Virgin Islands Government to legislate its own 
affairs. Notably, in 1968, Congress passed the Elective Governor Act, 
Pub. L. No. 90-496, 82 Stat. 837 (1968), which authorized the popular 
election of the Virgin Islands governor, and eliminated the authority 
of the President to veto local legislation. In addition, Congress in 
1984 ``set in motion a restructuring of the Virgin Islands judicial 
system,'' Callwood v. Enos, 230 F.3d 627, 631 (3d Cir. 2000), by 
statutorily limiting the jurisdiction of the Virgin Islands District 
Court to ``general original jurisdiction in all causes in the Virgin 
Islands the jurisdiction over which is not then vested by local law in 
the local courts of the Virgin Islands.'' 48 U.S.C. Sec. 1612(b) 
(emphasis added).\5\ By this statute, Congress delegated to the 
Legislature of the Virgin Islands ``the power to vest jurisdiction over 
local actions exclusively in the local courts.'' Callwood, 230 F.3d at 
631 (emphasis added); see also Brow v. Farrelly, 994 F.2d 1027, 1035 
(3d Cir. 1993) (confirming that Congress' ``ultimate intention was to 
divest the Virgin Islands District Court of jurisdiction over local 
causes of action'') (citation omitted). Pursuant to this authority, the 
Legislature enacted 4 V.I. Code Ann. Sec. 76(a), which, as of October 
1, 1991, required ``all civil actions that are based on local law and 
that do not satisfy diversity jurisdiction requirements [to be] brought 
in the Territorial Court of the Virgin Islands, with a few exceptions'' 
not relevant here. Callwood, 230 F.3d at 631. In 1994, the Legislature 
also vested the Territorial Court with exclusive jurisdiction over all 
local crimes that do not relate to federal crimes. Id.; see also 48 
U.S.C. Sec. 1612(c); 4 V.I. Code Ann. Sec. 76(b).
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    \5\ 48 U.S.C. Sec. 1612(a) ``affirmatively bestows on the District 
Court of the Virgin Islands the entire jurisdiction of a District Court 
of the United States.'' Walker v. Gov't of the V.I., 230 F.3d 82, 86 
(3d Cir. 2000).
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    The current federal statutory scheme for self-governance in the 
Virgin Islands has thus evolved significantly over the years and is a 
far cry from its nascent state in 1936--when Congress was asked to 
intervene in the local affairs of the Virgin Islands because the 
Territory was perceived, at that time, to be incapable of proper self-
governance:

          The Territory of the Virgin Islands is a body politic. While 
        not sovereign, in the true sense of that term, the Revised 
        Organic Act has conferred upon it attributes of autonomy 
        similar to those of a sovereign government or a state.

    Gov't of the V.I. v. Bryan, 818 F.2d 1069, 1072 (3d Cir. 
1987) (emphasis added) (citation omitted); see also Water Isle 
Hotel and Beach Club, Ltd. v. Kon Tiki St. Thomas, Inc., 795 
F.2d 325, 327 (3d Cir. 1986) (``Congress has steadily increased 
the scope of self-government granted to the Virgin Islands.''); 
Harris v. Boreham, 233 F.2d 110, 113 (3d Cir. 1956) (holding 
that ``aim of Congress'' was to delegate ``full power of local 
self-determination''). There is absolutely no reason to believe 
that throughout the process of granting the Virgin Islands 
increasing autonomy--including the establishment of a 
Territorial judicial system with exclusive jurisdiction over 
local issues--that Congress simultaneously intended to limit 
the legislative authority of the Virgin Islands by extending 
the shelf-life of an anachronistic statute intended to address 
the detritus of the Danish colonial system.\6\
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    \6\ The Third Circuit explained that, with limited exceptions not 
applicable here, Congress intended that all pre-Revised Organic Act of 
1954 statutes be repealed:

        We think . . . that in conferring upon the people of the 
      Virgin Islands a new and up-to-date charter of government 
      the Congress could not have intended at the same time to 
      impose upon them the well-nigh impossible task of sorting 
      out those provisions of the old Act which were so 
      inconsistent with the new Act as to be repealed by it from 
      those provisions of the old Act which were to remain in 
      force because they were not sufficiently inconsistent with 
      the new law. The very fact that the Act of 1954 is 
      described in its title as `An Act to revise the Organic Act 
      of the Virgin Islands of the United States' and in its 
      first section as the `Revised Organic Act of the Virgin 
      Islands' indicates that it was intended to supersede and 
      take the place of the Organic Act of 1936 and not merely to 
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      amend or repeal portions of it.

Virgo Corp., 384 F.2d at 577 (emphases added) (footnotes omitted).
      ii. the berne decision and the need for legislative redress
    In enacting the 1936 Real Property Tax Limitation, Congress also 
required the two Municipal Councils to enact local laws in conformance 
with the federal statute. Congress further provided that, if the 
Municipal Councils failed to enact such provisions within three months 
of the date of enactment of the 1936 Real Property Tax Limitation, the 
President of the United States shall issue interim regulations 
governing the property tax system in the Virgin Islands. When the 
Municipality of St. Thomas-St. John did not follow the action of the 
Municipality of St. Croix, President Roosevelt prescribed regulations 
for the levy, assessment, collection and enforcement of real property 
taxes in the Municipality of St. Thomas and St. John. These regulations 
remained in force until 1955, when the First Legislature of the Virgin 
Islands, organized under the authority of the Revised Organic Act, re-
enacted the regulations and made them applicable throughout the Virgin 
Islands.
    Since that time, the Legislature of the Virgin Islands has 
enacted, and periodically amended, a comprehensive system for 
the assessment and collection of real property taxes in the 
Territory. See 33 V.I.C. Sec. 2202 et. seq. In doing so, the 
Legislature has acted, in a manner similar to the legislative 
enactments of other state and local governments in the United 
States, to protect homeowners from spiraling property tax 
assessments by imposing a ceiling on the increase in the 
assessment of residential real property in any assessment 
period.\7\ That ceiling has now been held by the U.S. District 
Court for the Virgin Islands to violate the judicially revived 
1936 Real Property Tax Limitation. Berne Corp. v. Gov't of the 
Virgin Islands, 262 F. Supp. 540 (D. V.I. 2003), aff'd 2004 WL 
1443889 (3d Cir. June 28, 2004). The effect of the decision 
unfairly limits the Virgin Islands--alone among other State, 
Territorial and local governments--in its ability to protect 
homeowners from rapidly rising property values. This problem is 
particularly acute on St. John, where recent development has 
resulted in significant increases in property values. Without 
the ability to cap the increase in assessments or to utilize 
similar tax policies commonly used by other jurisdictions, the 
1936 Real Property Tax Limitation revived by the Berne decision 
may price land and homeownership beyond the reach of many 
Virgin Islanders.
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    \7\ 33 V.I.C. Sec. 2202(a) provides in relevant point:

          (a) The tax assessor shall at least once every five (5) 
        years, upon actual view, value and assess all noncommercial 
        property subject to taxation in the Virgin Islands. Provided, 
        however that the tax assessor shall not increase the valuation 
        and assessment of noncommercial property more than 10% over the 
        previous valuation and assessment except in the following 
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        cases:

                  (i) Where there has been an improvement to the 
                subject real property subsequent to the previous 
                valuation and assessment. Provided, however, that there 
                shall be no increase over the 1987 assessed valuation 
                except where there have been improvements which exceed 
                $50,000.
                  (ii) Where there has been an improvement to the 
                improvement, which occurred subsequent to the previous 
                valuation and assessment. Provided, however, that there 
                shall be no increase over the 1987 assessed valuation 
                except where there have been improvements which exceed 
                $50,000.
                  (iii) Where the subject real property has been sold 
                subsequent to the previous valuation and assessment.
    In addition, the Legislature has acted in other ways to encourage 
economic development and agricultural production in the Territory. In 
the exercise of its duly conferred legislative authority, the 
Government has created enterprise zones with partial tax exemptions, as 
well as a 95 percent exemption for farmland designed to encourage 
agricultural production and greater self-sufficiency in the Territory. 
The Government has also created certain homestead exemptions, including 
special exemptions for the elderly and veterans. By breathing new life 
into the 1936 Real Property Tax Limitation, the Berne decision also 
calls into question the lawfulness of these legislative enactments 
involving purely local policy choices.
    Indeed, many jurisdictions in the United States assess and tax real 
property differentially based on the classification of real property, 
generally with the purpose of encouraging economic development, or 
easing the burden on homeownership. See e.g., Exhibit A, letter from 
Huff Wilkes describing New York City real property assessment system. 
Such exercise of legislative authority in the furtherance of a 
legitimate and articulated public policy goal in the Virgin Islands, 
however, is now barred by the decision of the District Court. 
Interestingly, in affirming the decision of the District Court, the 
Third Circuit Court of Appeals did not expressly rule on the issue of 
whether the 1936 Real Property Tax Limitation had been repealed by the 
Revised Organic Act.
    The Congress must now clarify, through express action, that the 
anomalous 1936 Real Property Tax Limitation was repealed by the Revised 
Organic Act, and allow the Legislature of the Virgin Islands to 
continue to legislate for the public good on all rightful matters of 
local self-government. The taxation of real property is a purely local, 
not a federal issue. Neither is it a local issue that requires 
arbitrary federal restrictions applicable to no other State or 
Territory or Commonwealth.
    The Government submits that the District Court improperly intruded 
on duly conferred local authority when it instructed the Government to 
restructure its real property taxation system based on an anomalous 
statute intended for a different era. The Government asks only that it 
be accorded the same powers and respect accorded to all other States, 
Territories and Commonwealths. Accordingly, the Government respectfully 
requests that Congress expressly repeal the 1936 Real Property Tax 
Limitation in Sec. 1401(a) and favorably report S. 1829.

                                 

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