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26–254 PDF 2006

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 

(II)

COMMITTEE ON ENERGY AND NATURAL RESOURCES 

PETE V. DOMENICI, New Mexico, Chairman 

LARRY E. CRAIG, Idaho 

CRAIG THOMAS, Wyoming 

LAMAR ALEXANDER, Tennessee 

LISA MURKOWSKI, Alaska 

RICHARD M. BURR, North Carolina, 

MEL MARTINEZ, Florida 

JAMES M. TALENT, Missouri 

CONRAD BURNS, Montana 

GEORGE ALLEN, Virginia 

GORDON SMITH, Oregon 

JIM BUNNING, Kentucky 

JEFF BINGAMAN, New Mexico 

DANIEL K. AKAKA, Hawaii 

BYRON L. DORGAN, North Dakota 

RON WYDEN, Oregon 

TIM JOHNSON, South Dakota 

MARY L. LANDRIEU, Louisiana 

DIANNE FEINSTEIN, California 

MARIA CANTWELL, Washington 

JON S. CORZINE, New Jersey 

KEN SALAZAR, Colorado

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 

(III)

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

(1)

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 LieuVerDate 0ct 09 2002 12:07 Mar 02, 2006 Jkt 109291 PO 26254 Frm 00005 Fmt 6633 Sfmt 6633 P:\DOCS\26254.TXT SENERGY2 PsN: PAULM
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tenant 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 legVerDate 0ct 09 2002 12:07 Mar 02, 2006 Jkt 109291 PO 26254 Frm 00006 Fmt 6633 Sfmt 6602 P:\DOCS\26254.TXT SENERGY2 PsN: PAULM
3

islation 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. 

4

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. 

5

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. 

6

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 

7

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 

8

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. 

9

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. 

10

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. 

11

S. 1830

Although we were not specifically invited to speak with regard to the compactrelated 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. 

12

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. 

13

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 

14

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. 

15

With that, we are adjourned. 

[Whereupon, at 10:40 a.m., the hearing was adjourned.] 

(17)

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 DeVerDate 0ct 09 2002 12:07 Mar 02, 2006 Jkt 109291 PO 26254 Frm 00021 Fmt 6601 Sfmt 6621 P:\DOCS\26254.TXT SENERGY2 PsN: PAULM
18

partment 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. 

(19)

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 

20

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. 

21

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 

22

1 Berne Corporation v. Government of the Virgin Islands, 120 F. Supp. 2d 528. 2 48 U.S.C. § 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.’’

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. 

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, 

23

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 

Year Property Value 

($) 

Tax Value

($) 

60% of tax

value ($) 

Tax 

Rate

(%) 

Tax owed

($) 

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. 

24

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. 

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. 

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 peoVerDate 0ct 09 2002 12:07 Mar 02, 2006 Jkt 109291 PO 26254 Frm 00028 Fmt 6601 Sfmt 6621 P:\DOCS\26254.TXT SENERGY2 PsN: PAULM
25

ple’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 reVerDate 0ct 09 2002 12:07 Mar 02, 2006 Jkt 109291 PO 26254 Frm 00029 Fmt 6601 Sfmt 6621 P:\DOCS\26254.TXT SENERGY2 PsN: PAULM
26

port 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. 

27

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 byproducts 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, 

28

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 

29

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. 

30

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, 

31

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). 

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. 

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] 

32

2The 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.

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. 

§§ 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. § 1401. In particular, Section 

2 of the Act of May 26, 1936, codified at 48 U.S.C. § 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. § 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). 

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.). 

33

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. §§ 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. § 1574(c). 

The Third Circuit (which has jurisdiction to hear appeals from the District Court 

of the Virgin Islands) construed § 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 

§ 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 § 1401(a), like other inconsistent provisions of the 1936 

34

3 In Revised Organic Act of 1954 § 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, § 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. 4The Third Circuit in Virgo Corporation further explained that the phrase ‘‘laws of the United 

States made applicable to the Virgin Islands’’ in § 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 § 1401(a). 5 48 U.S.C. § 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). 

Organic Act, was effectively abrogated by the Revised Organic Act and eventually 

replaced by locally enacted property tax laws. See 33 V.I.C. § 2402 et seq.3

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 § 2, 72 Stat. 1094 (1958) (codified at 48 U.S.C. § 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

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 § 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. § 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 

35

6The 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 upto-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 amend or repeal portions of it.

Virgo Corp., 384 F.2d at 577 (emphases added) (footnotes omitted). 7 33 V.I.C. § 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 

Continued

Court of jurisdiction over local causes of action’’) (citation omitted). Pursuant to this 

authority, the Legislature enacted 4 V.I. Code Ann. § 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. 

§ 1612(c); 4 V.I. Code Ann. § 76(b). 

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

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. § 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 

36

property more than 10% over the previous valuation and assessment except in the following 

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.

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. 

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 § 1401(a) and favorably report S. 1829.

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