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+
+ - PROPOSED FISCAL YEAR 2008 BUDGET REQUEST FOR THE DEPARTMENT OF INTERIOR'S OFFICE OF INSULAR AFFAIRS
+
+[House Hearing, 110 Congress]
+[From the U.S. Government Publishing Office]
+
+
+
+
+ PROPOSED FISCAL YEAR 2008 BUDGET REQUEST FOR THE DEPARTMENT OF
+ INTERIOR'S OFFICE OF INSULAR AFFAIRS
+
+=======================================================================
+
+
+
+ OVERSIGHT HEARING
+
+ before the
+
+ SUBCOMMITTEE ON INSULAR AFFAIRS
+
+ of the
+
+ COMMITTEE ON NATURAL RESOURCES
+ U.S. HOUSE OF REPRESENTATIVES
+
+ ONE HUNDRED TENTH CONGRESS
+
+ FIRST SESSION
+
+ __________
+
+ February 27, 2007
+
+ __________
+
+ Serial No. 110-3
+
+ __________
+
+ Printed for the use of the Committee on Natural Resources
+
+
+
+ Available via the World Wide Web: http://www.gpoaccess.gov/congress/
+ index.html
+ or
+ Committee address: http://resourcescommittee.house.gov
+
+
+
+ U.S. GOVERNMENT PRINTING OFFICE
+
+33-609 PDF WASHINGTON : 2007
+------------------------------------------------------------------
+For sale by Superintendent of Documents, U.S. Government Printing
+Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
+DC area (202) 512-1800 Fax: (202) 512-2250. Mail: Stop SSOP,
+Washington, DC 20402-0001
+
+
+
+ COMMITTEE ON NATURAL RESOURCES
+
+ NICK J. RAHALL II, West Virginia, Chairman
+ DON YOUNG, Alaska, Ranking Republican Member
+
+Dale E. Kildee, Michigan Jim Saxton, New Jersey
+Eni F.H. Faleomavaega, American Elton Gallegly, California
+ Samoa John J. Duncan, Jr., Tennessee
+Neil Abercrombie, Hawaii Wayne T. Gilchrest, Maryland
+Solomon P. Ortiz, Texas Ken Calvert, California
+Frank Pallone, Jr., New Jersey Chris Cannon, Utah
+Donna M. Christensen, Virgin Thomas G. Tancredo, Colorado
+ Islands Jeff Flake, Arizona
+Grace F. Napolitano, California Rick Renzi, Arizona
+Rush D. Holt, New Jersey Stevan Pearce, New Mexico
+Raul M. Grijalva, Arizona Henry E. Brown, Jr., South
+Madeleine Z. Bordallo, Guam Carolina
+Jim Costa, California Luis G. Fortuno, Puerto Rico
+Dan Boren, Oklahoma Cathy McMorris Rodgers, Washington
+John P. Sarbanes, Maryland Bobby Jindal, Louisiana
+George Miller, California Louie Gohmert, Texas
+Edward J. Markey, Massachusetts Tom Cole, Oklahoma
+Peter A. DeFazio, Oregon Rob Bishop, Utah
+Maurice D. Hinchey, New York Bill Shuster, Pennsylvania
+Patrick J. Kennedy, Rhode Island Dean Heller, Nevada
+Ron Kind, Wisconsin Bill Sali, Idaho
+Lois Capps, California Doug Lamborn, Colorado
+Jay Inslee, Washington
+Mark Udall, Colorado
+Joe Baca, California
+Hilda L. Solis, California
+Stephanie Herseth, South Dakota
+Heath Shuler, North Carolina
+
+ James H. Zoia, Chief of Staff
+ Jeffrey P. Petrich, Chief Counsel
+ Lloyd Jones, Republican Staff Director
+ Lisa Pittman, Republican Chief Counsel
+ ------
+
+ SUBCOMMITTEE ON INSULAR AFFAIRS
+
+ DONNA M. CHRISTENSEN, Virgin Islands, Chairwoman
+ LUIS G. FORTUNO, Puerto Rico, Ranking Republican Member
+
+Eni F.H. Faleomavaega, American Elton Gallegly, California
+ Samoa Jeff Flake, Arizona
+Raul M. Grijalva, Arizona Don Young, Alaska, ex officio
+Madeleine Z. Bordallo, Guam
+Nick J. Rahall II, West Virginia,
+ ex officio
+ ------
+ CONTENTS
+
+ ----------
+ Page
+
+Hearing held on February 27, 2007................................ 1
+
+Statement of Members:
+ Bordallo, Hon. Madeleine Z., a Delegate in Congress from Guam 5
+ Christensen, Hon. Donna M., a Delegate in Congress from the
+ Virgin Islands............................................. 1
+ Prepared statement of.................................... 3
+ Faleomavaega, Hon. Eni F.H., a Delegate in Congress from
+ American Samoa, Statement submitted for the record......... 50
+ Fortuno, Luis G., the Resident Commissioner in Congress from
+ Puerto Rico................................................ 4
+ Prepared statement of.................................... 4
+
+Statement of Witnesses:
+ Camacho, Hon. Felix Perez, Governor of Guam.................. 12
+ Prepared statement of.................................... 14
+ Cohen, David B., Deputy Assistant Secretary for Insular
+ Affairs, U.S. Department of the Interior................... 26
+ Prepared statement of.................................... 29
+ Letter submitted for the record.......................... 53
+ Tulafono, Hon. Togiola T.A., Governor of American Samoa...... 6
+ Prepared statement of.................................... 8
+
+Additional materials supplied:
+ deJongh, Hon. John, Jr., Governor of the U.S. Virgin Islands,
+ Statement submitted for the record......................... 45
+ Tenorio, Pedro A., Resident Representative, Commonwealth of
+ the Northern Mariana Islands, Statement submitted for the
+ record..................................................... 48
+
+
+OVERSIGHT HEARING ON THE ``PROPOSED FISCAL YEAR 2008 BUDGET REQUEST FOR
+ THE DEPARTMENT OF INTERIOR'S OFFICE OF INSULAR AFFAIRS''
+
+ ----------
+
+
+ February 27, 2007
+
+ U.S. House of Representatives
+
+ Subcommittee on Insular Affairs
+
+ Committee on Natural Resources
+
+ Washington, D.C.
+
+ ----------
+
+ The Subcommittee met, pursuant to call, at 10:03 a.m., in
+Room 1324, Longworth House Office Building, Hon. Donna
+Christensen [Chairwoman of the Subcommittee] presiding.
+ Present: Representatives Christensen, Bordallo and Fortuno.
+
+ STATEMENT OF THE HONORABLE DONNA M. CHRISTENSEN,
+ A DELEGATE IN CONGRESS FROM THE VIRGIN ISLANDS
+
+ Mrs. Christensen. Good morning. The oversight hearing by
+the Subcommittee on Insular Affairs will come to order. The
+Subcommittee is meeting today to hear testimony on the proposed
+Fiscal Year 2008 budget request from the Department of
+Interior's Office of Insular Affairs. Under Committee Rule
+4(g), the Chairman and Ranking Member usually are the only ones
+to make opening statements, but today we will depart from that,
+without objection, and allow every member on the Subcommittee
+to make an opening statement if they so wish.
+ But I am very pleased and honored to call this first
+meeting of the Subcommittee on Insular Affairs of the 110th
+Congress to order. I am looking forward to an active and
+productive Subcommittee, and I want to thank Chairman Rahall
+for reinstating the Subcommittee and giving me the opportunity
+to chair it. I also want to welcome my colleague, Congressman
+Fortuno, and welcome the insights and leadership that he is
+going to bring to our deliberations. And, of course, on this
+first meeting, I want to welcome all the members of the
+Subcommittee.
+ It is a very special honor and pleasure also to welcome our
+friends and the leaders of our territories, the Governors. The
+two who are here are from the far-off Pacific insular areas,
+and we thank them for being here with us today.
+ When the Committee was first under the Chairmanship of my
+predecessor and former Virgin Islands Congressman Ron DeLugo,
+we took advantage of the Governors being in Washington for the
+annual National Governors Association meeting to invite them to
+come before the Subcommittee, your home here in Congress, to
+comment on the proposed budget of the Office of Insular Affairs
+as well as to inform us of any issues facing you at home that
+the Federal Government could be helpful with. So I want to
+welcome The Honorable Felix Camacho, the Governor of Guam, and
+The Honorable Togiola Tulafono, the Governor of American Samoa.
+Unfortunately The Honorable Benigno Fitial, the Governor of the
+Commonwealth of the Northern Mariana Islands, was unable to
+travel to Washington for the annual meeting this year because
+of pressing business at home, including a visit by the senior
+staff of the Senate committee to the CNMI. I also regret that
+as of now, my own Governor, The Honorable John deJongh, Jr., is
+unable to be here today, but both have submitted statements for
+the record.
+ Mrs. Christensen. And soon we look forward to welcoming the
+Deputy Assistant Secretary David Cohen, who I understand is
+just getting off a plane.
+ As we are keenly aware, the Office of Insular Affairs has
+broad general authority to provide for the special needs and
+concerns of the U.S. insular areas. President Bush in his
+Fiscal Year 2008 budget has proposed sending $403.8 million for
+the Office of Insular Affairs of which $79.8 million is in
+current appropriations. That figure is $425,000 below the 2007
+continuing resolution, but $560,000 above the President's
+Fiscal Year 2007 budget request. $324.1 million of the Fiscal
+Year 2008 figure includes $119 million in estimated income tax
+payments to Guam and the Virgin Islands, and $205.1 million in
+payments under the Compacts of Free Association. Programs
+funded under the 2008 fiscal year budget request will continue
+long-term efforts throughout the territories and freely
+associated states. Over $200 million in Compact of Free
+Association Sector Grants will be included in the 2008 budget.
+More than $12 million will be requested for a variety of
+technical assistance programs, including ongoing efforts on the
+brown tree snake control, insular management controls, coral
+reef conservation, maintenance assistance and water and
+wastewater projects.
+ Some questions we hope to receive answers from the Office
+of Insular Affairs include the specifics of the competitive
+allocation system for the Covenant Improvement Project Grants
+and whether more consideration should be given to those
+projects that are under court orders, and what are their plans
+for addressing the potential catastrophes looming for the
+economies of American Samoa and the CNMI and, to a lesser
+extent, my home islands as we continue to stave off attempts by
+the Treasury Department to effectively neuter the successful
+economic development program that Congress put in place to
+assist with our economic development. In my opinion, it is one
+that could and should serve as a model to our sister
+territories, which are all in need of an economic shot in the
+arm.
+ The budget of the Office of Insular Affairs has either
+remained constant or been reduced over the last 5 fiscal years,
+from a high of $102 million in 2002 to the proposed $79.7
+million for 2007. All the while the needs and the challenges
+facing the islands have increased.
+ We have also recently heard testimony at the committee on
+the severe fiscal challenges that are not being adequately met,
+and we heard those from the Office of Inspector General and
+from the Government Accountability Office.
+ It is my hope that as Chair of this Subcommittee, and with
+the assistance of my colleagues, that we will explore today
+whether adequate resources are being given to the OIA to enable
+them to address the unique, important challenges that are faced
+by these, our most vulnerable members of the American family,
+the members of the insular areas. In this regard, I look
+forward to hearing from our witnesses, and now I yield to my
+friend, the Ranking Member on the Subcommittee, The Honorable
+Luis Fortuno, for any opening statements he wishes to make.
+ [The prepared statement of Mrs. Christensen follows:]
+
+ Statement of The Honorable Donna M. Christensen,
+ Chairwoman, Subcommittee on Insular Affairs
+
+ I am pleased and honored to call the first meeting of the
+Subcommittee on Insular Affairs for the 110th Congress to order.
+ I am looking forward to an active and productive subcommittee and I
+want to thank Chairman Rahall for re-instating the subcommittee and
+giving me the opportunity to chair it. I also want to welcome my
+colleague, Congressman Fortuno, and the insights and leadership he will
+bring to our deliberations and on this first meeting to welcome all of
+the members of the subcommittee.
+ It is a special pleasure to welcome our friends, the governors from
+the far off pacific Insular Areas and thank them for being here with us
+today.
+ When this subcommittee was under the Chairmanship of my predecessor
+and former Virgin Islands Congressman, Ron de Lugo, we took advantage
+of the governors being in Washington for the annual National Governor's
+Association meeting to invite you to come before the subcommittee--your
+home here in the Congress--to comment on the proposed budget of the
+Office of Insular Affairs as well as to inform us of any issues you are
+facing at home that the federal government could be helpful with.
+ And so, I want to welcome The Honorable Felix Camacho, the Governor
+of Guam and The Honorable Togiola Tulafono, the Governor of American
+Samoa. The Honorable Benigno R. Fitial, the Governor of the
+Commonwealth of the Northern Mariana Islands was unable to travel to
+Washington for the annual meeting this year because of pressing
+business at home including a visit by the senior staff of the Senate
+committee to the CNMI. I regret that my own Governor, The Honorable
+John P, deJongh, Jr. is unable to be here today. Both have submitted
+statements for the record.
+ Of course we also welcome Deputy Assistant Secretary, David Cohen
+as well.
+ As we all are keenly aware, the Office of Insular Affairs has broad
+general authority to provide for the special needs and concerns of the
+U.S. Insular Areas. President Bush, in his Fiscal Year 2008 budget, has
+proposed spending $403.8 million for the Office of Insular Affairs
+(OIA), of which $79.8 million is in current appropriations.
+ This figure is $425,000 below the 2007 Continuing Resolution and
+$560,000 above the President's FY 2007 budget request. $324.1 million
+of the FY08 figure includes $119 million in estimated income tax
+payments to Guam and Virgin Islands and $205.1 million in payments
+under the Compacts of Free Association.
+ Programs funded under the FY 2008 Budget Request will continue
+long-term efforts throughout the territories and Freely Associated
+States. Over $200.0 million in Compact of Free Association Sector
+Grants will be included in the 2008 budget. More than $12.0 million
+will be requested for a variety of Technical Assistance programs,
+including ongoing efforts on Brown Tree Snake control, insular
+management controls, coral reef conservation, maintenance assistance,
+and water and wastewater projects.
+ Some questions we hope to receive answers from the Office of
+Insular Affairs include the specifics of the competitive allocation
+system for the Covenant Improvement Project (CIP) grants and whether
+more consideration should be given to those projects that are under
+court orders; and what are their plans for addressing the potential
+catastrophes looming for the economies of American Samoa and the CNMI
+and to a lesser extent my home islands as we continue to stave off
+attempts by the Treasury Department to effectively neuter the
+successful economic development program that Congress put in place to
+assist with our economic development. In my opinion it is one that
+could and should serve as a model for our sister territories which are
+all in need of an economic shot in the arm.
+ The budget of the Office of Insular Affairs has either remained
+constant or been reduced over the last five fiscal years--from a high
+of $102 million in FY 02 to the proposed $79.7 million for FY07--all
+the while the needs and challenges facing the islands have increased.
+We have also recently heard testimony at the Committee on the severe
+fiscal challenges that are not being adequately met from the office of
+the Interior Inspector General and the GAO.
+ It is my hope, as chair of this subcommittee and with the
+assistance of my colleagues, to explore whether adequate resources are
+being given to OIA to enable them to address the unique, important
+challenges that are faced by these our most vulnerable members of our
+American family; the residents of the Insular Areas. In this regard, I
+look forward to hearing from our witnesses.
+ I now yield to my friend, the Ranking Member on the Subcommittee,
+The Honorable Luis Fortuno for any opening statement he wishes to make.
+ ______
+
+
+ STATEMENT OF THE HONORABLE LUIS FORTUNO, THE RESIDENT
+ COMMISSIONER IN CONGRESS FROM PUERTO RICO
+
+ Mr. Fortuno. Thank you very much, Madam Chairwoman. First
+of all, I want to congratulate you on being selected to chair
+this Subcommittee. I am truly enthusiastic about this honor
+being bestowed upon my friend from the U.S. Virgin Islands.
+ It is appropriate that our first hearing together involves
+the review of the President's Fiscal Year 2008 budget request,
+which reflects the budget priorities of the Department of
+Interior's Office of Insular Affairs. While this priority may
+not always match yours or even mine sometimes, I welcome this
+historic time for a Delegate and a Resident Commissioner to
+receive policy on the insular areas, and for a chance for us to
+work together with the President and the Secretary of Interior
+to work forward in a productive fashion for the benefit of all
+the people affected by at least the decision of the
+Subcommittee.
+ I join you in welcoming our witnesses today, The Honorable
+Togiola Tulafono, the Governor of American Samoa; The Honorable
+Felix Camacho from Guam; and Deputy Assistant Secretary David
+Cohen.
+ Madam Chairwoman, the President's budget proposals have
+balanced the increase in funding for the Office of Insular
+Affairs to $403.8 million, an increase of $2 million over the
+present Fiscal Year 2007 continuing resolution. What I
+recognize, we are all living within difficult budget
+restraints. I look forward to hearing from the Governors here
+today about the needs and priorities of their communities as
+well as from the administration witness as to how the Office of
+Insular Affairs can best administer these scarce budget
+resources more efficiently for the benefit of all the insular
+areas.
+ Thank you again, Madam Chairwoman. I look forward to
+working with you on these issues over the course of this
+Congress. I yield back.
+ Mrs. Christensen. Thank you.
+ [The prepared statement of Mr. Fortuno follows:]
+
+ Statement of The Honorable Luis Fortuno, Ranking Republican Member,
+ Subcommittee on Insular Affairs
+
+ Madam Chairwoman, I want to congratulate you on being selected to
+Chair this Subcommittee. It is appropriate that our first hearing
+together involves a review of the President's Fiscal Year 2008 Budget
+Request which reflects the budget priorities of the Department of
+Interior's Office of Insular Affairs.
+ While these priorities may not always match yours, or even mine
+sometimes, I welcome this historic time for a Delegate and Resident
+Commissioner to oversee policy on the Insular Areas and a chance for us
+to work together with the President and the Secretary of Interior to
+move forward in a productive fashion for the benefit of all the people
+affected by the legislation of this Subcommittee.
+ I join you in welcoming our witnesses today: The Honorable Togiola
+T.A. Tulafono, Governor of American Samoa; The Honorable Felix Camacho
+from Guam; and from the Administration, Deputy Assistant Secretary
+David Cohen (or Nik Pula) of the Interior Department's Office of
+Insular Affairs.
+ Madam Chairwoman, the President's budget proposes a modest increase
+in the funding for the Office of Insular Affairs to $403.8 million, an
+increase of $2.0 million over the present Fiscal Year 2007 continuing
+resolution.
+ While I recognize we are all living within difficult budget
+restraints, I look forward to hearing from the Governors here today
+about the needs and priorities of their communities, as well as from
+the Administration witness, as to how the Office of Insular Affairs can
+best administer these scarce budget resources most efficiently for the
+benefit of all the Insular areas.
+ Thank you Madame Chairwoman. I look forward to working with you on
+these issues over the course of this Congress.
+ ______
+
+ Mrs. Christensen. The Chair now recognizes The Honorable
+Congresswoman from Guam Madeleine Bordallo for an opening
+statement.
+
+ STATEMENT OF THE HONORABLE MADELEINE BORDALLO,
+ A DELEGATE IN CONGRESS FROM GUAM
+
+ Ms. Bordallo. Thank you. Thank you for calling this hearing
+today, Chairwoman Christensen. To me this is a very important
+moment as we have the first oversight hearing of the newly
+reestablished Subcommittee on Insular Affairs. And I am very
+thankful to you, Chairwoman Christensen, to Chairman Rahall and
+to Congressman Faleomavaega for reestablishing this
+Subcommittee to bring greater focus on the programs
+administered by the Office of Insular Affairs and on Federal
+policy affecting the territories.
+ This hearing on the President's proposed budget for the
+Office of Insular Affairs provides to us an opportunity to hear
+from the Governors of the territories. I want to welcome all of
+you who have traveled great distances to be here with us today,
+and a very warm hafa adai to Guam's Governor, The Honorable
+Felix P. Camacho. Talofa to the Governor of the American Samoa,
+Governor Tulafono.
+ Each of our territories are facing economic challenges, and
+I am interested to hear how the Office of Insular Affairs is
+helping the territories to cope with these challenges. In
+particular, while Guam's economic forecast is bright due to the
+Pentagon's intention to relocate a number of Armed Forces to
+Guam, the military build-up presents serious challenges to our
+local government. I hope to hear from Governor Camacho today on
+what some of these challenges are and how best the Department
+of Interior can assist the Government of Guam in the years
+ahead.
+ Finally, let me make one comment on the Office of Insular
+Affairs Capital Improvement Grant Program for the territories.
+We are not talking about a large amount of money here. Annual
+allocations for the territories from this program amount to
+$27.72 million. For this reason I believe that it is important
+that a very clear set of priorities and transparent process be
+established for allocating these funds.
+ I would like to have a better understanding from the Deputy
+Assistant Secretary of the evaluation process that has been
+developed regarding the financial management of the individual
+governments that affects the annual allocation received under
+this program.
+ I would also like to hear your comments, Mr. Cohen--he is
+not here yet--regarding Congress's intent that Federally
+mandated court-ordered projects be given a higher priority than
+other projects as noted in the colloquy during House floor
+debate on the Fiscal Year 2005 Interior Appropriations Act and
+the committee's accompanied report that year.
+ Again, let me welcome all of you, and let me extend my
+thanks to Chairwoman Christensen. Thank you.
+ Mrs. Christensen. Thank you for your opening statement.
+ Mrs. Christensen. The Honorable Eni Faleomavaega is on his
+way also from the airport, and we will give him an opportunity
+to make an opening statement when he arrives.
+ At this time we will be pleased to turn to the panel, and
+we will begin with the testimony from the Governor of American
+Samoa, The Honorable Governor Tulafono.
+
+ STATEMENT OF TOGIOLA T.A. TULAFONO,
+ GOVERNOR, AMERICAN SAMOA
+
+ Governor Togiola. Thank you very much, Madam Chairlady.
+Talofa and good morning to all the members of the Subcommittee.
+ At the outset, let me just say, Madam Chairlady, that I am
+very grateful for the opportunity to reopen this dialogue
+through the recreation of this Subcommittee and allowing the
+Governors of the insular areas to be able to participate in the
+budget process. It has been a long time since an elected
+Governor of American Samoa was able to speak directly to
+Members of Congress about the budget process and what we are
+doing.
+ I want to congratulate you on your ascent to the
+Chairmanship of the Subcommittee and all the insular area
+members in this committee. We want to register also our
+gratitude and appreciation to the Chairman of the Subcommittee
+on Resources for recreating and reinstatement of this
+Subcommittee.
+ We have submitted a written statement, Madam Chairlady, and
+I am now going to try and rehash the matters we have stated. I
+am going to digress a little bit in our oral statement to
+supplement our submission today. I suppose the basic question
+here is how do we feel about the funding and the mechanism in
+which it is done for the insular areas and especially for
+American Samoa.
+ Madam Chair and the honorable Members, you all know that no
+matter who is doing the talking, there will always be more
+needs and wants, and there will always be insufficient funds to
+meet all those needs. For our part today, let me just say,
+American Samoa appreciates the fiscal restraints of our
+national government, and we appreciate the fact that we are
+getting help from the Federal Government for our operation. Of
+course, these funds are nowhere near what American Samoa needs,
+and, of course, we can spend all day going through all the
+things we need to develop and sustain the economy and the
+quality of life for the people of American Samoa, but if you
+approve what has been proposed, I assure you they will be put
+to the best use we have planned.
+ I would venture to say today that it is my hope that we
+will convince the United States Department of Interior that we
+need to revisit our budget system and come up with a plan that
+will adequately anticipate the needs and unique circumstances
+of American Samoa and reflect that in our submissions to
+Congress for approval.
+ Two things I would like to point out. The budget system
+that we are using today to address our operations and
+developments in American Samoa as a U.S. territory is the same
+system that has been there for many, many years, and that has
+never changed. Very little has changed. Two, the same
+development plan that is being utilized for planning the
+progress of American Samoa is the same that it has been for the
+last 40 years.
+ It is my hope that sometime soon, and through the process
+of the newly reinstated Subcommittee, that we will be able to
+forge Federal policy for American Samoa that will transcend
+shifts in policies and changes in attitude of our national
+government that are made to accommodate the global policies of
+our Nation, and leaving insular areas struggling to find a way
+to fit in the mix. American Samoa and the insular areas are so
+vulnerable to these policy changes and shifts that today any
+development efforts in our part is completely stagnant by the
+fact that we have lost the benefits of section 936, headnote 3A
+and the uncertainty of the minimum wage policies that are to be
+applied to us.
+ We are not afraid of being self-sufficient and self-
+sustained, but like any other State or territory, we need to
+have the ability to build our economy to be self-sufficient and
+self-sustaining. Unfortunately we are extremely limited in our
+ability to do so without a consistent, well-considered plan
+that will keep us competitive in our development efforts like
+any other State or country. That requires a consistent and
+sustainable Federal policy.
+ The last time there was a well-considered and well-
+supported plan for American Samoa, I hate to say, was in the
+early 1960s, but that, too, was in response to an article which
+called American Samoa the shame of the U.S. in the Pacific.
+Only at that time there was a consistent policy that would
+build infrastructure, put in new hospitals, new schools, a new
+airport, and created a new corporation for developmental
+efforts.
+ We certainly do not want to wait until another article like
+that, nor do we want to go back to those times, but we cannot
+do it alone, and we are looking to your leadership and your
+guidance to help us develop these kinds of policies for at
+least--for our part, American Samoa.
+ In terms of our economic development efforts, we are indeed
+doing all we can with the resources we have together with the
+resources allotted to us in order to build a sustainable
+economy that will sustain American Samoa and give our people a
+quality of life just like any other American.
+ The operation grant that we receive through the Department
+of Interior is divided in five pieces: One, to support the
+operation of the high court that is still under the control of
+the Department of Interior. Two, of the remaining portion of
+those funds, I ask Interior to split that in four ways between
+our community college, Department of Education and our medical
+center. I did ask Interior to set aside $2 million of that to
+secure the consistent supply of medicine and drugs for our
+medical center. That was accomplished through the efforts of
+Congressman Faleomavaega in earmarking that grant and setting
+aside the $2 million, and we are grateful.
+ For the funds allocated for capital improvements, the
+government submits to DOI a 5-year plan requesting funding
+based on the recommended priorities we provide in a 5-year
+plan. DOI submits this funding to Congress for approval. When
+approved, we follow the priorities we provided in the plan for
+CIPs. Occasionally we require some reprogramming, and we have
+received the cooperation of DOI in making sure that our needs
+are met through that program.
+ Beginning with this fiscal year, I have prioritized the
+development of fiberoptic submarine cable over the next 5
+years. While our satellite communication capability is great,
+it has been proven--it has proven that it will not support our
+development efforts. The fiberoptic cable will allow us to
+expand those development efforts and truly achieve
+diversification, which is something that has been talked about
+in American Samoa since 1950 and has never been possible.
+ Even with the availability of Federal incentives as section
+936, headnote 3A and lower wages than in the United States,
+only two U.S. companies ever relocated their plants into
+American Samoa. Since then every Governor that came to American
+Samoa talked about diversification and never was able to
+accomplish anything close to it. Madam Chairlady, the
+fiberoptic promises to bring about that diversification for
+American Samoa. Perhaps it is a timely project because the
+future of our counties are really very uncertain. The cable is
+already inspiring businesses as call centers, banking
+institutions, educational institutions to inquire as to when it
+may be available.
+ I would like to register our gratitude and appreciation to
+Mr. Cohen and the Office of Insular Affairs for their support
+of this endeavor. I would also like to acknowledge our
+appreciation for the business development conferences that the
+Department of Interior has sponsored for the last few years to
+help us identify and come together with businesses that may be
+interested in investing in American Samoa. I will say through
+those conferences we have been able to meet with people
+interested in fiberoptic development, and we are moving forward
+with that project. And I realize that the Department of
+Interior has set aside $3 million every year for the next 4
+years in that submission to help us accomplish that purpose,
+and we will ask for your support of that project.
+ I will stop there and will answer any questions you may
+have.
+ Mrs. Christensen. Thank you.
+ [The prepared statement of Governor Togiola\1\ follows:]
+---------------------------------------------------------------------------
+ \1\ According to traditional Samoan cultural protocol, Governor
+Togiola T.A. Tulafono is addressed by his matai title of ``Togiola''
+and is referred to as ``Governor Togiola.'' However, those not familiar
+with Samoan culture address him as ``Governor Tulafono.'' Both forms of
+address are correct.
+---------------------------------------------------------------------------
+
+ Statement of The Honorable Togiola T.A. Tulafono,
+ Governor of American Samoa
+
+ Talofa. Honorable Chairman and distinguished members of this
+Committee; it is with great pleasure and honor that I appear here today
+at your invitation to give testimony on the Fiscal Year 2008 budget of
+the Office of Insular Affairs. I thank you for this opportunity to
+convey to you the importance of this funding for the territory of
+American Samoa, our operations and our economic development. I also
+want to greet and thank all of the Committee's new members as well.
+Introduction
+ American Samoa, located in the Central South Pacific is the only
+United States territory south of the equator. The islands of eastern
+Samoa became part of the U.S. in 1900 and 1904. A central premise of
+ceding eastern Samoa to the U.S. was to preserve the rights and
+property of the islands' indigenous inhabitants. American Samoa's
+constitution requires the government to protect persons of Samoan
+ancestry from the alienation of their lands, protect against the
+destruction of the Samoan way of life and language, and to encourage
+business enterprise among persons of Samoan ancestry. American Samoa,
+in turn, ceded authority over its lands and pledged its allegiance to
+the United States of America. The depth of our commitment is evident
+today in the disproportionately high share and the contributions of our
+people in the U.S. military, especially their dedicated service in past
+and current wars.
+Economic Development Conditions in American Samoa:
+ American Samoa has made extraordinary progress in recent decades,
+considering it only began its own pursuit of modern development since
+the Second World War. This is a relatively brief period from a
+development standpoint. In addition to building modern economic,
+education, health care and infrastructure systems, American Samoa has
+essentially become self-governing under the general authority of the
+U.S. Executive Office (DOI). However, we have a very long way to go.
+For example, our per capita income is only about one-fifth the U.S.
+average, and poverty levels in American Samoa are almost six times the
+national average. American Samoa also suffers from high rates of
+substandard housing and our public services and facilities remain well
+below U.S. standards.
+ At the same time, American Samoa is subject to the same forces that
+affect economies, large and small, throughout the world. Rising world
+trade and globalization, as we often refer to it, is changing our
+economies dramatically as industries seek lower and lower cost venues.
+American Samoa, however, does not have the options that are available
+to major industrial economies. Our productivity, i.e. output per
+worker, is only about one-fifth that of the U.S. average. In addition
+we have the added issues of distance to markets and sources of supply
+and the diseconomies of relatively small size which affects our labor
+force quantity and skill characteristics. We do no have the development
+options that are available to most of the US.
+ On the other hand, we are not really a developing economy either
+(or less developed, if you prefer) in the sense that these terms are
+used to describe nations in or bordering on abject poverty. Because of
+our relationship with the U.S. we have had access to special
+advantages. We have received financial support, federal corporate tax
+credits, and duty free access to U.S. markets and a special procedure
+for establishing minimum wages. We have had the flexibility to operate
+our own customs and immigration. These benefits have helped us rise
+above the economic fate that has befallen island nations similarly
+endowed and situated throughout the world.
+ These advantages were largely responsible for our ability to retain
+our tuna cannery industry for fifty years. Furthermore, the loss of
+these benefits threatens to cause our cannery industry to seek lower
+cost locations elsewhere. Much of our success to date has been based
+upon these benefits which are now rapidly disappearing or threatened.
+There is nothing on the horizon or in the offing to replace these
+benefits.
+ The departure of the canneries from American Samoa would wipe out
+one-half of the total jobs in American Samoa directly and indirectly.
+This would be a catastrophe for any economy, but it would be worse for
+a small isolated area like American Samoa.
+ Furthermore, there could be very serious additional contingency
+costs for the Federal Government if the canneries were to leave
+American Samoa. The Federal Government would likely be petitioned for
+assistance to deal with very serious and protracted problems including
+unemployment, retraining, relocation assistance, business failures,
+plummeting local revenues for essential public services and other needs
+that could emerge in such an economic disaster.
+ Unfortunately, the threat to American Samoa's economy does not end
+with the revocation of corporate tax credits and the diminishing value
+of our duty free access to the U.S. because of declining tariffs
+worldwide. There are pressures now to equalize U.S. and American Samoa
+minimum wage rates. There is even talk of bringing American Samoa under
+U.S. Immigration, possibly even under U.S. Customs. These are the
+characteristics that have helped us to succeed in economic development.
+If we lose these special conditions, American Samoa could face
+insurmountable economic development barriers in the future.
+ However, the U.S. Congress has taken notice of our plight and we
+are hopeful that help is on the way. Last year in connection with the
+extension of our cannery tax credit, the Congress provided in its
+report:
+ ``The two-year credit allowed by the provision is intended to
+ provide additional time for the development of a comprehensive,
+ long-term economic policy toward American Samoa. It is expected
+ that in developing a long-term policy, non-tax policy
+ alternatives should be carefully considered. It is expected
+ that long-term policy toward the possessions should take into
+ account the unique circumstances in each possession.''
+ I am concerned that we don't know enough about what Congress wants
+except for the few words in the Committee/staff report on the tax bill
+I just cited. We are hopeful that this opportunity is taken to examine
+the critical ways in which federal legislation and policy affect
+American Samoa's development including tax credits, the minimum wage,
+immigration and customs, and a variety of other areas.
+ I hope that the American Samoa Government, American Samoa's
+Congressional Representative, and the Office of Insular Affairs will be
+part of the design and conduct of the preparation of a long-term
+economic development policy for American Samoa.
+ASG Economic Development Programs:
+ For our part, we are working with you and the Department of
+Interior on tax credit alternatives. We are also moving ahead on the
+cannery impact analysis which will nail down cannery reduction impacts,
+remedial programs and redevelopment alternatives. Additionally, in
+conjunction with the Office of Insular Affairs, my administration has
+submitted to our Representative, for his review, consideration and
+possible adoption, a proposal for a tax incentive package that we
+believe focuses on promoting business investment within American Samoa.
+With the honorable Congressman's help and the help of this Committee, a
+tax incentive package would attract new businesses and help us overcome
+our disadvantages in distance, scarcity of transportation and reliance
+on federal grants to fund basic services.
+ In addition to promoting federal tax incentives for businesses
+willing to invest in American Samoa, ASG is pursuing a number of
+complementary initiatives such as streamlining the business permitting
+and licensing process in order to make the investment climate more
+business friendly. Through technical assistance funding from the Office
+of Insular Affairs, ASG will make the process of attaining a business
+license much simpler through electronic means. Additionally, the ASG
+will do away with the inefficient waiting periods in order for multiple
+agencies to sign off on permits by consolidating hearings and allowing
+for a ``one-window'' approach to electronically apply for licenses and
+permits through the internet and to electronically attach and store
+licensing and permitting documentation. Approval of licenses and
+permits will take place electronically, without sacrificing the
+safeguards that any one agency provides.
+ ASG is also pursuing a number of new programs which will encourage
+investment in the territory, including the establishment and
+administration of the territory's Low Income Housing Tax Credit
+Program, which has the potential to infuse eighteen million grant-like
+dollars into the local economy and help foster our private construction
+sector. And this is in addition to the provision of housing for our
+low-income population. Through technical assistance funding, we hope to
+bring this program into reality within the next two years.
+ These are only a few of the programs that ASG is able to pursue
+through the technical assistance funding available through the Office
+of Insular Affairs. This program is invaluable to our development as a
+territory, and I express my wholehearted support for its continuation
+and expansion into the future.
+Diversified Industries
+ American Samoa has had some success over the years in attracting
+diversified manufacturing. Today, a key industry targeted for
+development is technology based (e-Commerce) which depends on skilled
+workers and well-developed internet-based communication systems.
+ We recognize and thank the Department of Interior, Office of
+Insular Affairs, for its foresight in requesting funding for our
+undersea fiber-optic cable. In recent times, American Samoa has
+entertained proposals from U.S. companies looking to do business in the
+territory. The types of business contemplated by these companies
+require broadband Internet capability that only a hard landline
+connection may provide. American Samoa has made it clear to the Office
+of Insular Affairs that we are prepared to follow the recommendations
+of past economic advisory councils and commissions, and pursue
+aggressively, any and all opportunities to cultivate e-commerce and
+export of services via information technology from American Samoa.
+ Among other economic development projects and proposals that are
+currently being pursued are a local fish processing facility, co-ops
+for local fishermen and farmers, and numerous niche markets within the
+Tourism industry.
+Operational Grants
+ ASG receives direct operating grants from DOI of $22 million per
+year. I can assure this Committee that these operational grants are
+absolutely vital to the well being of our people. ASG's only full-scale
+health care institution, the LBJ Tropical Medical Center, and the
+Department of Education are the major recipients of the operational
+grant funds.
+ The operations grants have not had a significant increase for over
+2 decades. During that time, the population has doubled, and the cost
+of living has increased approximately sixty percent. American Samoa has
+struggled to maintain essential government services, but this can
+hardly be done given the state of the economy in American Samoa.
+Operations Maintenance Improvement Program (OMIP)
+ One of the biggest challenges that ASG deals with on a regular
+basis, especially given the corrosive nature of a tropical environment,
+is maintenance and improvement of facilities. Through the OMIP program,
+ASG is able to access funds that would otherwise have to come from
+other portions of the ASG budget. Currently, our own community college,
+ASCC, is availing itself of the opportunity to set up its own
+maintenance program utilizing software that is currently being used in
+other insular areas.
+Capital Improvement Projects
+ Currently, American Samoa receives $10.5 million in CIP funding.
+This funding is directly responsible for developing critical
+infrastructure in the territory. From the construction of schools and
+hospital facilities, to the hardening of utilities which aid in
+recovery following disasters, this funding is essential for developing
+the territory's infrastructure and making the territory more attractive
+for development. Again, it is my recommendation that this specific
+program be continued at its current level, and if possible, expanded to
+increase the funding of additional necessary infrastructure in the
+islands.
+Island Fellows Program
+ Agencies of the American Samoa Government have benefitted directly
+from the Office of Insular Affair's Island Fellows Program. One agency
+in particular, the Development Bank of American Samoa, is especially
+satisfied with this program. Over the past year, the Development Bank
+has increased the number of programs it administers. The Bank
+encourages the continuation of this program which promotes forward-
+thinking analysis by innovative young scholars as an aid to economic
+development.
+Special Industry Committees
+ Of particular interest in recent months is the special industry
+committee process by which American Samoa's minimum wages are set. As I
+have stated in the past, it is the position of my administration that
+these special industry committees work for our territory. They are
+responsive and they take into account the unique factors presented by
+American Samoa's fledgling economy. Unless and until a more responsive
+and effective approach is proposed, I am asking this Committee for its
+support in maintaining the special industry committee system for
+setting minimum wages in American Samoa.
+Conclusion
+ I once again thank you Mr. Chairman, as well as your distinguished
+colleagues for the opportunity to speak here today. It is my fervent
+wish that you keep American Samoa's plight in your thoughts as you
+consider the budget of the Office of Insular Affairs for the new fiscal
+year.
+ Soifua ma ia manuia.
+ ______
+
+ Mrs. Christensen. And now we will receive the testimony
+from The Honorable Felix Camacho, the Governor of Guam.
+
+ STATEMENT OF FELIX PEREZ CAMACHO,
+ GOVERNOR, GUAM
+
+ Governor Camacho. Madam Chair, thank you. And members of
+this newly reestablished Subcommittee on Insular Affairs, I
+thank you for this opportunity to present my testimony today
+which will present Guam's view on the work of the Office of
+Insular Affairs and the support OIA has offered us, assisting
+us in the challenges that face the Government of Guam, and, of
+course, the role of the U.S. Department of Interior in our
+island's future as we enter a period of growth and extreme
+complexity.
+ I had a State of the Island address recently, and I
+mentioned that the island is growing stronger, our economy and
+the state of our island is strong. But despite that, we have
+many complex challenges that the anticipated increased military
+presence will bring. And I am confident that OIA will be of
+invaluable assistance as we partner with the Federal Government
+and DOD in this season of growth.
+ I also would like to express my appreciation to David
+Cohen, Nik Pula and other members of their staff of OIA. The
+Bush administration's proposal for Fiscal Year 2008 is roughly
+$403.8 million for OIA. I believe it is a responsible budget,
+and one I believe will do much to ensure that the territories
+of the insular areas are able to further improve their
+respective government infrastructure and economic
+diversification. I believe it is in those two areas that we
+have really received much input.
+ As you know, Guam stands to benefit, of course, from the
+technical assistance programs to eradicate, as you mentioned
+earlier in your opening statements, invasive species like the
+brown tree snake. There has been very much success in the FMIP
+programs, the Financial Management Improvement Programs, with
+our Department of Administration and the technical assistance
+that has been provided. The protection of our ecosystems, and I
+believe most important is the hardening of our aging
+infrastructure systems is where the greatest challenge will be.
+I, of course, have submitted the testimony, so I think the
+record speaks for itself.
+ But Congresswoman Bordallo talked about--the question
+really was, what is it we are going to do in the anticipation
+of the build-up, you know, and others that it is going to be an
+extremely complex issue and of a magnitude we have never seen
+before. There is concern of its impact on the quality of life,
+of course, and our ability to keep pace with the military
+development.
+ Our desire is to ensure that the development is mutually
+beneficial. The challenge though, as we all know in the
+islands, is our ability, our financial capacity to provide for
+infrastructure; on top of that, the many demands placed upon us
+with other Federal agencies. There may be Federal mandates that
+are unfunded, EITC being one, consent decrees imposed upon us
+for the closure of a 60-year-old dump, and the requirement of
+the building of a new one, time management is not met, moneys
+that are not available, and an almost impossible situation, it
+seems, at times.
+ That, of course, all faced with the realization that as the
+U.S. realigns its forces throughout the world, the strategic
+importance and significance of Guam is becoming abundantly
+clear. I look at all of this as an opportunity, not a
+challenge, but really an opportunity for us to work together.
+We have had the ability of working with OEA as an example, but
+Interior and the funding that is provided there is going to be
+extremely critical.
+ Our Port Authority is one area that definitely has not had
+or seen any type of improvement in its infrastructure for many
+years. It receives 95 percent of all the goods. There is a $2
+million loan or grant that would be provided to purchase an
+additional gantry crane. The impact on that not only in our
+local economy, but on the capacity and the need for the
+military or DOD to bring in their goods for growth and
+development is extremely highlighted.
+ So the challenges obviously remain--there are discretionary
+fundings that are provided to deal with various issues at OIA,
+including the compliance with the National Environmental Policy
+Act, the transition of the Department's financial and business
+management system.
+ Now, I mentioned earlier that the build-up of the U.S.
+military on Guam is underway. Aside from infrastructure,
+challenges that we face, of course, are going to be expected
+growth in population. I anticipate that over the next 10 years,
+we are going to see a 12 to 15 percent growth in our
+population, and the stresses placed upon it in health,
+education, public safety are going to be extremely highlighted.
+So along with that, we talked about the water, wastewater,
+power, transportation systems that have been identified, and
+there is a need to maintain and improve the current or future
+service levels.
+ As mentioned, because of our limited resources, individual
+agencies within our government continue to seek funding sources
+or availability. I have submitted a request to the Secretary of
+Interior to create an Interagency Group on Insular Affairs
+Working Group on Military Expansion. This would be in
+cooperation with the U.S. Department of Defense's Joint Guam
+Program Office, and I believe that a combination of these two
+groups would be extremely beneficial.
+ To put the notes aside, I also just wanted to talk briefly
+on your concept of a bond bank, which can be utilized in the
+territories as a vehicle for securing Federal guarantees for
+funding necessary to prepare for and support the military
+expansion on our island. I support this effort to pull the
+efforts of the territories together to seek bond financing for
+specific issues like infrastructure development. This bond bank
+would take much of the administrative work normally reserved
+for economic development authorities in our areas and would
+focus on working with borrowing communities or institutions to
+ensure that the most advantageous financing options are
+explored.
+ The bond bank is an attractive vehicle that is greatly
+needed for our investors and can certainly bring about the
+projected $600- to $800 million worth of needed improvements in
+our infrastructure as a whole, and I ask that the committee
+supports the territories in such an effort, and please know
+that this would greatly assist Guam as the military is building
+up on both ends of our island.
+ I am truly appreciative of all the efforts that have been
+provided, and as mentioned by my colleague, Governor Tulafono,
+this Subcommittee and our ability to talk to you directly on
+the issues that affect our islands I think is critical and
+much, much received.
+ The islands, in closing, always face the challenges of
+financing, and fragile economies that oftentimes our ability to
+deliver and provide for the quality of life and opportunities
+necessary for our people are extremely and greatly challenged.
+But by working with you and recognizing the uniqueness of
+island economies and governments, I believe that there are, as
+I mentioned, extreme opportunities to prosper. So I look
+forward to working with you, as mentioned earlier. The details
+of our testimony is provided here. But again, I believe that
+Guam stands to benefit from this, and the $403.8 million budget
+for OIA I believe, again, is a responsible one, and would do
+much to ensure that the territories are able to further improve
+our economies, both in infrastructure and quality of life. So
+with that, I thank you very much for this opportunity.
+ [The prepared statement of Governor Camacho follows:]
+
+ Statement of The Honorable Felix Perez Camacho,
+ Governor of Guam
+
+ Mr. Chairman and Members of the Committee, thank you for inviting
+me to participate in your hearing on the Fiscal Year 2008 Budget
+request for the Office of Insular Affairs, U.S. Department of the
+Interior, specifically its impact on the island of Guam for the coming
+year. My name is Felix Perez Camacho; I am the Governor of Guam. My
+testimony today is to present to you Guam's view on the work of the
+Office of Insular Affairs, the support OIA has offered in assisting us
+through the challenges that have faced the Government of Guam in
+providing basic services to our people, and the role of the U.S.
+Department of the Interior in our island's future as we enter a period
+of prosperity.
+ Mr. Chairman, I would like to express my appreciation to you and to
+the members of the Committee for holding this hearing to better
+understand the needs and concerns of the Pacific Island Territories on
+this most important issue for the people of Guam and our Pacific Island
+brothers and sisters.
+ Last week, I delivered my annual report on the State of the Island
+of Guam. It offered a synopsis of the challenges we currently face,
+offered up realistic solutions to get our island through what has been
+some tough financial times for the Government of Guam, and, most
+importantly, where we are headed in the next year and beyond. As I told
+my people and as I share with you here on Capitol Hill, the State of
+our island is growing strong and will grow even stronger. Despite the
+challenges that an increased military presence will bring, I am
+confident that the OIA will be of invaluable assistance as we partner
+with the Federal Government in Guam's Season of Transformation.
+ During my Administration I have been proud of the relationship that
+has been established between the Office, its management and the great
+people who work everyday with the Government of Guam to ensure that
+federal money spent on our island is done so wisely and with great
+attention to reporting its use back to Washington D.C.
+ I want to take this opportunity to commend Deputy Assistant
+Secretary of the U.S. Department of the Interior David Cohen for his
+leadership of the Office of Insular Affairs. Mr. Cohen has been such a
+staunch advocate for the people of Guam and it has been through his
+efforts that great progress has been made on our island in the areas of
+accountability and in the capital improvements made over the past four
+years.
+ Mr. Nik Pula and the staff of the Office of Insular Affairs have
+also been a tremendous help. Their vision is in line with ours to bring
+about lasting change to the programs we offer our people and to ensure
+that each dollar is protected and well spent for the betterment of the
+people of Guam.
+ It has been the commitment to following the mandates as set out by
+Congress and the unwavering support of the good men and women at the
+U.S. Department of the Interior that have changed the perception of
+Guam to one that is responsible in the administration of federal
+dollars and with a clear direction of where as a people and, as
+citizens of this great nation.
+ The Bush Administration proposal for FY 2008 of $403.8 million for
+the Office of Insular Affairs (OIA) is a responsible budget and one I
+believe will do much to ensure that the Territories of the Insular
+Areas are able to further improve their respective government
+infrastructure and economic diversification.
+ There is no question that the programs funded under the FY 2008
+Budget Request will continue to result in long-term benefits throughout
+the territories and Freely Associated States. I look with great
+interest in the more than $200 million in Compact of Free Association
+Sector Grants that are included in the 2008 budget. Guam stands to
+benefit from the more than $12 million in technical assistance programs
+to eradicate invasive species in the Western Pacific, strengthen the
+financial management of our governments, protecting our reef ecosystems
+and hardening our aging infrastructure systems.
+ There is one item of interest that this budget reflects and that is
+$2 million to support the installation of an additional gantry crane at
+the Port Authority of Guam. The Port Authority of Guam owns, controls
+and manages just over 1,000 acres of fast and submerged lands
+comprising Cabras Island (CI), which is a heavy industrial area. The
+Sea port at Apra Harbor is the entry point for 95% of all goods
+entering the island, and is a transshipment center for Micronesia with
+over 20 cargo ships leaving outbound throughout the Western Pacific on
+a monthly basis. The port also sees 200 port calls by vessels carrying
+containers annually, accommodates over 27,000 cruise passenger
+arrivals, 5 million barrels of fuel, up to 100 fuel tankers, and 2,000
+port calls by foreign fishing boats each year. This additional gantry
+crane will continue to allow us to reap the benefits of trade between
+the United States and Asia. It is critical to the further
+diversification of our economy through the Regional Distribution Center
+initiative I am committed to implementing. This compliments the Office
+of Insular Affairs mandate to improve the economies of our islands and,
+to expand our economic base so that we will be less reliant on the
+largesse of the Federal Government. OIA is committed to seeing this
+initiative occur and even supported it by providing with the initial
+grant for this project.
+ As the U.S. realigns its forces throughout the world, the strategic
+importance and significance of Guam is becoming abundantly clear. With
+the repositioning of U.S. forces and their dependents to Guam in the
+immediate years ahead, Guam's Port will be the first entity to feel and
+support the impact of this increase in the form of construction
+materials and goods. These materials are immediate and essential for
+the enormous buildup that will occur to accommodate our troops and
+their families. The Port of Guam will also see an influx of household
+goods and consumer goods as a result of our increased military
+population and their families. The $2 million will contribute to a
+portion of the cost associated with the acquisition of a new gantry
+crane, which will assist immediately with the importation of
+construction materials related to the buildup of necessary.
+ The budget request also includes an increase in discretionary
+funding to deal with various issues at OIA including compliance with
+the National Environmental Policy Act and the transition of the
+Department's Financial and Business Management System. Just as the OIA
+has remained committed to promoting sound financial management
+practices in the insular governments, encouraging private sector-led
+economic development, and increasing Federal responsiveness to the
+unique needs of island communities, their budget must reflect that.
+ This request comes as word of the buildup of the U.S. Military is
+underway on Guam. With the increase of U.S. military assets to Guam
+expected over the next 10 years, the Government of Guam has begun the
+preparation to receive an estimated 8,000 to 12,000 military personnel
+and their dependents. According to U.S. Census Bureau estimates, Guam's
+population is expected to increase from 168,564 in 2005 to 180,692 in
+2010, without factoring any increase to the local military population
+by the United States Department of Defense. The increases are enough to
+direct capital improvement in those locations expected to develop more
+rapidly in the expansion as identified by military planners.
+ The Government of Guam's 10-year Consolidated Infrastructure
+Improvement Forecast has determined that much of the infrastructure
+throughout the island, installed following the Liberation of Guam from
+Japanese occupation in 1944, needs to be completely replaced.
+ Other major water, wastewater, power and transportation systems
+projects have been identified to maintain or improve current and future
+service levels. The improvements to the junctions that adjoin military
+and civilian facilities have also been slated for improvement. Millions
+of dollars in capital improvement projects have been identified in the
+civilian community, though we continue to seek for more than half of
+those projects. Because of limited resources, individual agencies
+within the Government of Guam continue to seek funding sources,
+including bond financing, to support projects that will improve the
+quality of life for all residents. The Government of Guam is taking
+cost-cutting measures and approaches to maximize the limited funding
+opportunities afforded the island as a U.S. Territory void of natural
+resources.
+ I have already asked the Secretary of the Interior to create an
+Interagency Group on Insular Areas Working Group on Military Expansion.
+The U.S. Department of the Interior Office of Insular Affairs, in
+cooperation with the U.S. Department of Defense Joint Guam Program
+Office, would lead the group. The group would ideally include a number
+of federal government agencies and all relevant executive branch
+divisions of the agencies to guide the Government of Guam and the
+island's U.S. military commands in understanding what is needed to
+respond to this tremendous growth and the certain impacts to the Guam
+community now and into the future. I believe that proceeding on a
+monthly basis, the working group would help in the effort to address
+critical workforce needs and provide guidance in the completion of all
+expedited Capital Improvement Projects related to the military
+expansion in Guam.
+ This, in combination with funds from the U.S. Congress, public-
+private partnerships would also help the Government of Guam and Guam's
+military partners in securing the necessary funding to make the
+upgrades necessary in anticipation of the increase in U.S. forces in
+Guam and improve the quality of life for both residents and military
+personnel. This issue will be further worked out as the Government of
+Japan continues its efforts to assist with the $10 billion investment
+into the military in the Western Pacific.
+ I believe that a bond bank can be utilized in the Territories as a
+vehicle for securing federal guarantees for funding necessary to
+prepare for and support the military expansion on our island. I support
+this effort to pool the efforts of the territories together to seek
+bond financing for specific issues like infrastructure development. A
+bond bank would take much of the administrative work, normally reserved
+for the economic development authorities in our areas, and would focus
+on working with borrowing communities to ensure that the most
+advantageous financing options are explored. The bond bank is an
+attractive vehicle for investors and can bring about the projected $600
+to $800 million needed to improve our infrastructure as a whole. I ask
+that the Committee support the Territories in such an effort and please
+know that this would greatly assist Guam as the military is building up
+on both ends of my island.
+Summary
+ Mr. Chairman and members of the Committee, Guam continues to move
+ahead together with our island brothers and sisters in Micronesia and
+the Western Pacific; but there is so much more that can be done to
+ensure that Guam stays on a course to prosperity. I share your values,
+your priorities and your concerns as leaders of our great Nation and
+today, I ask you to stand with the people of Guam as we take our island
+to new heights and to build a greater Guam better and stronger than
+we've ever seen and firmly establish Guam as the showcase of our
+democracy.
+ Thank you for your attention. I am pleased to answer any questions.
+ ______
+
+ Mrs. Christensen. Secretary Cohen, welcome. We have just
+taken testimony from the Governors, so what we will do now is
+we will ask them some questions, and we will give you a chance
+to catch your breath, if that is OK with you. Thank you.
+ And the Chair now recognizes myself for 5 minutes of
+questioning, and I will start. Governor Camacho, at the end of
+his testimony spoke about the budget and feeling that it was a
+good budget. Governor Tulafono, in your testimony, you talk
+about the value of the Office of Insular Affairs in helping to
+promote economic development in the territory, and you
+underscore the importance of the technical assistance account,
+and your support for its continuation and expansion. So given
+your experience with having to compete with the other insular
+areas for technical assistance, have you given any thought to
+what level you think that technical assistance accounts ought
+to be funded at?
+ And if you have any comments, Governor Camacho, I would
+welcome yours as well.
+ Governor Togiola. The technical assistance grant has been a
+great vehicle to back us up in areas where we are not able to
+provide funding for critical needs in terms of studies and
+affecting some of the things that we need to promote ourselves.
+However, the efforts are limited only by the fact that the
+fundings are limited.
+ I don't know exactly how much would be adequate, but I do
+believe that in order to adequately address the needs, which
+there are abundant from all the insular areas, that an
+extension of that program is truly required.
+ Mrs. Christensen. Governor Camacho, did you have any----
+ Governor Camacho. Certainly. Is there ever enough? No. And
+I think our challenge has always been recognizing that it is a
+limited pool of resources that is competitive. How can we
+maximize these technical assistance grants? And I believe that
+one area that we have been successful, and I am very much
+appreciative of this technical assistance and the grants, has
+been in the Financial Management Improvement Projects for the
+government. Both hardware and technical assistance has enabled
+us, at least in the Department of Administration, to get a
+better handle on our finances to certainly upgrade the
+infrastructure in that area, and I see a need to expand
+greatly.
+ I believe that with innovation and technology, we can
+improve efficiencies, and this is not just in the financial
+management of our accounts, but certainly in the reporting
+requirements and data necessary that is required as grant
+moneys are given. So reporting is certainly there.
+ Efficiency improvements in the area of health care, in
+public safety and education are areas that I think with
+assistance grants, that if we can improve on those areas, it
+certainly has long-lasting impacts that are extremely
+beneficial.
+ As you know, we have received grant moneys also for
+invasive species, and although it may be--it may seem that the
+brown tree snake doesn't have--it may be a joke, it seems,
+outside of Guam, the impact it could have on neighboring
+islands and their fragile tourism economies, even the State of
+Hawaii and the impact on agriculture and livestock, it is
+tremendous. So when you think about also the grants provided
+for our ecosystems upon which our tourism industry depends on
+is very real.
+ The one area that we fall short of, I believe, is the
+hardening of our aging infrastructure systems, and I talk about
+water power, wastewater systems that are absolutely mandatory,
+necessary. That is where the challenges are. And as I mentioned
+earlier, with this bond bank as a financing vehicle, we need to
+be creative in finding ways for the territories to seek
+additional funding outside of the normal channels. It is always
+going to be a challenge for us in finding ways to pay for it,
+and the ability of the local governments with restricted and
+limited budgets to pay for multimillion-dollar improvements is
+always going to be very real and very, very complex. Thank you.
+ Mrs. Christensen. Since I am almost out of time, I will
+come back on another round with some of my further questions.
+ At this point I will yield to the Ranking Member Mr.
+Fortuno for 5 minutes.
+ Mr. Fortuno. Thank you, Madam Chairwoman. I commend you for
+the hearing we are having today, and I want to thank both
+Governors for your testimony.
+ You both talked about the challenges the territories face.
+Perhaps we have an 18th century solution to 21st century
+issues, and that is what we are dealing with, and we are fully
+cognizant of that fact over here on the dais as well.
+ If I may start with Governor Tulafono, you mentioned
+actually report language on the tax package that was extended
+for another 2 years, and actually that report language is very
+explicit, I would say, in terms of promoting that nontax policy
+alternatives be explored for any long-term economic development
+policies toward the possessions. And actually I believe that is
+the mood of Congress regardless of who is in the Majority or in
+the Minority. That is my feeling here.
+ And you mentioned and stressed how important maintaining
+the special industry committee processes for setting minimum
+wage standards are. Could you expand further on those needs
+regarding those special industry committee processes, please?
+ Governor Togiola. We support the continuation of the
+special committees because we believe the committees have been
+very responsive to the local conditions and the local
+situations. Imposition of minimum wages that are conducive to
+economic conditions in the United States are definitely not
+going to now work for American Samoa, and the structure of this
+committee is such that an economic study is done before the
+hearings. Our input is given as a local government from a
+government's point of view, and then the participation of our
+community and the Federal Government in the process of the
+committee itself lends for a very well-supported investigation
+of whether or not, you know, increases in the wages are
+justifiable.
+ And I will say that ever since I have been involved with
+the process, I found the committees to be very responsive to
+real situations and to the real conditions of American Samoa,
+and their decisions have been conducive to the supporting of
+the committee and what they do. So in that regard, we believe
+that it is the only thing that has proven to work for our
+situation at this point in time. Perhaps in the future there
+might be some other process that may work better, but for now,
+this is the thing that has been proven to work best for us. So
+we would urge your support in continuing that for American
+Samoa.
+ Mr. Fortuno. I understand.
+ Governor Perez Camacho, if I may, certainly this increase
+in the number of military personnel in the next couple of years
+will create some stress on the infrastructure, as you were
+mentioning, of Guam. Could you expand a little bit further as
+to different examples of what you all are doing in preparing
+for the arrival of the personnel and their dependents and all
+the assets that will be there?
+ Governor Camacho. Thank you very much. Our Census Bureau
+estimates that our population is expected to increase from
+roughly 168,000, which was in 2005, to roughly 180,000 by 2010.
+When you add military personnel, an anticipated 8,000 to 12,000
+Active Duty, and when you throw in the support personnel and
+family members, it could be anywhere from a total of an
+additional 17,000 to 24,000 personnel by 2014. So between 8 and
+10 years from now, I think we can see that the population will
+grow between 12 and 15 percent.
+ In anticipation of that growth, we are working closely with
+the Office of Economic Adjustment, or OEA, working, of course,
+with the Department of Interior, and ensuring that we have to
+improve--we are going to be developing a master plan that would
+cover infrastructure, water power, wastewater, all the
+infrastructure needs. We have also got a group together that is
+focusing on the social impact for, of course, public safety,
+education and public health. And by recognizing that we have to
+approach this in a very deliberate and phased process, by
+developing a master plan that would transcend administrations,
+recognizing I will be gone in 4 years and the new Governor will
+be there and legislature and other leaders, a plan must be
+implemented, backed up by an organization that will transcend
+politics and be there for the duration. We then have to back
+this up with adequate funding.
+ The government to this day actually is still challenged in
+the U.S. Supreme Court by a case that was brought against my
+administration from the now removed attorney general. We are
+anticipating a decision by June on our ability or authority to
+borrow on the bond market anywhere up to $250 million, but that
+is just for debt. The challenge will be how do we pay for
+infrastructure that can be mutually beneficial to our civilian
+community and allow for growth on the military end? We think
+that there are opportunities there, but by working with OEA, by
+working with Interior, by working with the Department of
+Defense and finding creative ways through public-private
+partnerships, we can find ways to fund it, but it is going to
+be a very, very deliberate, very well thought out and complex
+issue. Something of this magnitude has never been seen on Guam
+since World War II when we had to recover from the effects of
+the Japanese invasion and, of course, liberation by U.S.
+forces. So it is of that magnitude.
+ So it is with those efforts that we are going to proceed in
+a very deliberate manner. But again, the challenges are, once
+we have that master plan, finding a way to pay for it will be
+the biggest challenge.
+ Mr. Fortuno. Thank you. And I am sorry we went over time.
+ Mrs. Christensen. That is all right.
+ The Chair now recognizes Ms. Bordallo for 5 minutes.
+ Ms. Bordallo. Thank you, Madam Chairman.
+ First of all, Governor Camacho, thank you for your comments
+on the bond bank. I do agree with you and the military build-
+up. It is an opportunity. And there are challenges, and I think
+working together, we are going to be able to survive all of the
+challenges.
+ I have one question here for you. Is the reconciliation
+process for Section 30 funds adequate from your standpoint? And
+are the Federal agencies forthright in reporting Section 30
+funds that are owed to Guam?
+ Governor Camacho. We recently had a Director of Taxation
+working out here with, I believe, the relevant agencies that
+are there. We have been able to go back, I think, to the mid-
+1980s to rectify some of the discrepancies and make some
+corrections there.
+ I believe there is room for improvement in the way of
+reporting, in the way of accuracy of data and information. It
+has been an ongoing process, but I think we are getting there.
+Through better communication and better data, I think we can
+begin to reconcile and ensure that we do collect on the Section
+30s.
+ But if I may just digress a bit and indicate that the real
+challenge we face right now is with Department of Defense
+contracts for construction and business that is being conducted
+on Guam. We need to find ways to ensure that corporations that
+come and do Department of Defense work on the island are
+properly registered, and they pay their fair share in taxes. A
+billion dollars' worth of construction has occurred over the
+last 4 or 5 years, and without Guam being able to collect. I
+think we were able to collect out of the amount of money owed
+roughly $4 million, or rather $40,900,000. So you can see that
+there is a real shortfall in that area, but by better
+cooperation with DOD and our taxation department, we can work
+on it.
+ Section 30, though, there is room for improvement, but I
+see that there has been collaboration.
+ Ms. Bordallo. So what you are saying then to the committee,
+Governor, is you will continue to monitor this, correct?
+ Governor Camacho. Yes.
+ Ms. Bordallo. All right. I have another question. Does the
+government in Guam have a process for clearing open items in
+the Inspector General's reports? By this, I think these open
+items are financial accountability, audit reports and that type
+thing. Is OIA helpful in working with you to clear the open
+items?
+ Governor Camacho. I believe that they are. With the
+technical assistant grants that have been given, particularly
+in the area of our financial management improvement plans
+through Department of Administration, our ability to improve
+upon our accounting procedures has greatly improved. There have
+been a certain number of qualifications; I would say on average
+about 11. We have reduced to down to about one or two, so we
+have made tremendous progress in that regard.
+ Ms. Bordallo. Governor from American Samoa Tulafono, do you
+feel Insular Affairs has been responsive to your request for
+technical assistance?
+ Governor Togiola. I believe they have, and I think one of
+the classic examples of that success and one of the, I think,
+finance success stories is the fact that when we came into
+office, American Samoa was about 8 years behind in their
+financial statements, and where----
+ Ms. Bordallo. Did you say 8 years or 80?
+ Governor Togiola. Eight. I am sorry. I am still recovering
+from a cold. I could say 80 because that would just make me
+look better.
+ But we asked the Department of Interior for assistance, and
+through the technical assistance and other OMIP and FMIP
+grants, we were able to put together the financial system and
+the financial mechanisms that has brought us current to date
+with our financial statements. And without that technical
+assistance and the assistance from OIA and the Department of
+Interior, it might have never been possible for us to bring our
+financial information and our financial statements current as
+it is today.
+ And I believe also the success of the business conferences
+are beginning to yield results, and in addition to that, they
+are also helping us with our own local promotions, efforts
+where they would allow technical assistance funds to allow our
+Department of Commerce to do their own promotions in promoting
+our economic development.
+ Ms. Bordallo. Perhaps you have more or less answered this,
+but I will ask it. In 2002, the American Samoa Economic
+Advisory Commission submitted a report entitled Transforming
+the Economy of American Samoa. As you know, the Commission was
+the first of its kind in American Samoa's history to
+specifically address the economic needs of American Samoa. To
+what extent has the report assisted you in laying out a vision
+for the economic diversification in American Samoa?
+ Governor Togiola. Well, before I give an opinion, response
+to your question, ma'am, I should preface my response by saying
+that I was one of the Commissioners, so if my response is
+slightly biased, there is a good reason for that.
+ I believe the report of the Governor Waihee Commission that
+was commissioned by the Department of Interior had provided us
+a great document that provided good guidelines for what we
+needed to do. Even though we have had a long dialogue about
+that and what to do with it, our administration has gone
+forward and begin to implement changes along the lines of the
+recommendations provided by the Commission. So every now and
+then we have some agreements on some of those things. And we
+have also been able to utilize that document to support
+technical assistance requests.
+ Ms. Bordallo. Good.
+ Governor Togiola. And to some degree, we have received some
+assistance to implement some of those things on a local level.
+ Ms. Bordallo. Thank you. Thank you very much, Governor.
+ I yield back.
+ Mrs. Christensen. Thank you.
+ I am going to recognize myself for another round. And if
+the other Members have other questions, we will recognize them
+as well.
+ Governor Tulafono, I wanted to follow up on that question.
+And you talked a lot about the need for a plan, and I was
+wondering what is the relationship of that Commission's plan,
+the report, to your need for a plan, and are you required--
+would you require more assistance from OIA for the development
+of that plan, or is it something that you think American Samoa
+can do on its own?
+ Governor Togiola. I think this is, Madam Chairlady,
+something that is not necessarily related to the American Samoa
+Economic Advisory Commission report. What I talk about today is
+something that will help us deal with the shifts and changing
+in the national policies, trade agreements, issues of minimum
+wage increases, the loss of tax credits and the withering away
+of the benefits of headnote 3A as it relates to trade
+agreements and all that.
+ What I am talking about is, I believe, that funding for--at
+least for American Samoa should be done within the context of a
+plan where funding sources are identified much like what, you
+know, the United States does with compact states, where you
+know what you are going to get, and you know what you can plan
+for that, and we will give you a direction for the long term
+instead of just a year by year by year. As it is, as much as we
+appreciate the funds that we receive, it is very tough to plan.
+It is very tough to plan replacing the infrastructure from--you
+know, in this fashion.
+ So what I am talking about is maybe through the process of
+your Subcommittee and the necessary parties, us, the Interior
+and who else there may be, so that we can look at all the
+policies of the United States and say, this is the best
+direction for the territory that we will assure that no matter
+what the policy shifts will be, that there is consistency. As
+it is today, we cannot market American Samoa meaningfully
+because of their minimum wage issue, because of the lack of
+Federal incentives. So that is what I am talking about today,
+ma'am.
+ Mrs. Christensen. I understand it better now.
+ And just to follow up on another issue that was raised by
+Governor Camacho, and it is also included in Governor Tenorio's
+written statement, on their support for the bond bank. Do you
+also support that concept?
+ Governor Camacho, you recently noted in your State of the
+Island address that the island of Guam has a $700 million
+deficit. Could you tell the Subcommittee what steps have been
+taken to address that growing deficit over the last 2, 3 years,
+and do you see the Federal Government in having any role in
+Guam's financial problems.
+ Governor Camacho. As a matter of record, the deficit is at
+$511 million. When I had stepped into office in 2003, we
+inherited a deficit of $209 million. What has added to it has
+not been so much an operational deficit, but rather several
+judgments and settlements that have occurred in our courts, the
+biggest being the most recent $123 million judgment against the
+government for a retirement bonus, if you will. It is a 13- or
+14-year-old law--or case that had been filed and was finally
+dealt with by a certain judge and made a ruling against the
+government. It is, again, a judgment that would have to be
+funded by the local general fund, totally unanticipated.
+ The other significant addition to the deficit has been a
+$90 million settlement on the earned income tax credit that
+remains unpaid after roughly 8 years, dating back to 1996.
+That, again, is another settlement that has to be paid out of
+the general taxes or the general fund of our government. It is
+another typical example of the--you know, the round peg going
+into a square, or square peg going into a round hole. It is an
+unfunded Federal mandate that the territories have a very
+difficult time, and now it has a major impact upon our
+finances.
+ So those are the two issues that have added greatly to it.
+ And finally, I would have to say that the $700 million
+figure is what I indicated that in the next 5 years, should we
+not--or should our local policymakers or legislature not
+implement what I am going to be presenting, which is a deficit
+elimination and fiscal recovery plan, should they not follow it
+and implement it as we proceed in the 2008 budget over the next
+5 years, it could potentially grow to that amount. So there is
+a sense of urgency and a need for fiscal discipline in that
+area.
+ Mrs. Christensen. The Chair will now recognize Mr. Fortuno
+for a second round.
+ Mr. Fortuno. Thank you again, Madam Chairwoman.
+ Actually, going back to each of the two local economies and
+the concerns that you raise--certainly you are both trying to
+do the best you can given the circumstances--brings to my
+recollection actually a great piece that was put together by a
+university professor. He is of Chilean descent. His name is
+Fernando Lefort. He wrote about how in colonial times, colonial
+colonies, economies diverted from the country's--you know, the
+mother country's economy in such a way that is very similar to
+what occurs between the economies of territories and the U.S.
+economy. And there are different reasons for it, and actually,
+if I may, we will get it, and if we have a few days to put it
+into the record, I appreciate that.
+ Mrs. Christensen. Without objection, so ordered.
+ [NOTE; The report entitled ``PUERTO RICO'S ECONOMY IS NOT
+CATCHING UP'' by Fernando Lefort, Business School, Pontificia
+Universidad Catolica de Chile submitted for the record has been
+retained in the Committee's official files.]
+ Mr. Fortuno. Thank you.
+ Going back to that issue again, again, the issues, for
+example, Governor Tulafono, you bring to our attention are very
+familiar: trade agreements, our opening of markets that
+previously were almost exclusive to U.S. territories, the fact
+that the tax policies have changed and those benefits are no
+longer there, the increases in the cost of operating vis-a-vis
+the cost that could be borne in the mainland and so on and so
+forth. What--if you would discuss very briefly, which way--you
+mention at the end Internet-Based and knowledge-based,
+specialized industries perhaps. Is that the way American Samoa
+will be going? Is that how you feel you will be going?
+ Governor Togiola. Just reflecting back on the historical
+successes of Section 936, after 50 years, we have only really
+had two companies that took advantage of that and located
+plants in American Samoa. I do not think it really is going to
+do anything further for us.
+ The fiberoptic cable was brought to the fore as a result of
+the investigation of business opportunities and where a certain
+company came in and wanted to establish call centers on the
+islands, but after their investigation of the satellite
+capability and telecommunication capability, they determined
+they cannot do that kind of business unless there is
+fiberoptic.
+ From that point forward, we have gone forward, full steam
+ahead, in doing that because we have also been consulted by
+banking institutions. They would like to relocate certain
+banking products into American Samoa because of the favorable
+business atmosphere, but they cannot do it with satellite
+communications.
+ So, after listening to those two discussions, we made the
+determination that if we are going to be able to diversify,
+invite new businesses different from the canneries and truly
+achieve diversification of the economy, the fiberoptic is the
+link that is necessary; and that is why we are asking for your
+assistance in this endeavor.
+ Mr. Fortuno. If I may ask very briefly and quickly, what
+percentage of the total workforce is tourism and what
+percentage is government employees in both Territories?
+ Governor Togiola. In American Samoa, tourism is not a very
+well developed----
+ Mr. Fortuno. OK.
+ Governor Togiola.--industry. We are doing some things
+together with the assistance of the Department of Interior to
+develop the infrastructure for tourism, but one of the biggest
+challenges that we have is transportation. Transportation is
+extremely expensive and erratic, and you cannot develop, you
+know, meaningful tourism unless you have consistent, reasonably
+priced air transportation. We do not have that. It is an issue
+with us before the Department of Transportation right now.
+ Mr. Fortuno. And how big is the government vis-a-vis the
+general population, the working population?
+ Governor Togiola. Our employable workforce is estimated
+around 18,000. Unfortunately, the most recent figures that have
+been presented to us show that the aggregate unemployment rate
+in American Samoa is 29 percent. Of course, that percentage
+includes people--farmers, subsistence farmers, who sell their
+products in the markets and are self-supporting in that regard,
+who may not be employed, but they earn income through different
+sources. So, while it says 29 percent, our local estimate is
+around 16, 17 percent.
+ Mr. Fortuno. OK. Thank you.
+ May I have Governor Perez Camacho answer very briefly about
+what percentage is government and what percentage is tourism?
+ Governor Camacho. With the total workforce right now, the
+government has, roughly, between 11,000 to 12,000 employees. A
+small percentage of that is Federally funded, but the majority
+of our workforce is in the private sector, and as a parallel
+comparison, the economy is 60 percent funded by tourism, 30
+percent funded by military and 10 percent, roughly, by the
+service industry.
+ We have an unemployment rate of about 7 percent. It has
+been slashed by half. When I entered office, it was about 14.
+So there has been dramatic improvement in that area.
+ Mr. Fortuno. Thank you both.
+ Mrs. Christensen. Thank you.
+ The Chair recognizes Ms. Bordallo for a second round.
+ Ms. Bordallo. Thank you, Madam Chairman. I do have some
+questions for Mr. Cohen. We are going to be able to----
+ Mrs. Christensen. Yes. Yes.
+ Ms. Bordallo. This one is for Governor Camacho.
+ In your State of the Island address, Governor, you also
+stated that you cannot adequately exercise sufficient
+management of the entire government of Guam.
+ Can you give us a sense of the additional authority that
+you would need to address these concerns? And do you think the
+Organic Act should be amended further to strengthen the
+authority of the Governor?
+ Governor Camacho. Well, that is--thank you--a very, very
+intriguing question and a very, very important question. I
+thank you for asking that.
+ I had noticed prior to being Governor--I had a 10-year
+career as a senator. I was a local legislator, and through the
+years there has been an erosion of the organic authority of the
+Governor by local legislation. I think the Organic Act is
+written in a very broad sweep, and there is a provision that
+would allow for local interpretation in the very broad areas.
+However, the local legislature has begun to erode that.
+ For example and specific to your question about my
+authority to manage specifically the cash management of our
+government, in the area of our public school system, which
+clearly utilizes in excess of--more than half of our revenues
+go toward education, local legislation has established an
+elected body which then chooses its superintendent.
+ But by budget law, they have required that a section of our
+revenue, which is withholding tax--first, it began with 82.5
+percent goes toward education; we found out it was
+insufficient. Then they improved it to 100 percent of
+withholding taxes will then go to education; they found out
+that that still was not sufficient. Then they said, you now
+must give all withholding tax and anything else needed, and you
+must give it to education first before you can pay anyone else.
+ And so, if I may use an analogy, it would be like a family
+that is at the table having a meal, and you have a very robust
+and healthy child who may be slightly overweight, and the
+father says, ``That child will eat everything on this table
+until he is satisfied, and whatever is left over, the rest of
+you can eat.'' so my authority has been taken.
+ If I can further explain, between Fiscal Year 2004 and 2005
+in the line agencies that I have controlled with casual
+management, we have reduced expenditures by $11.1 million
+between 2005 and 2006 with the line agencies that I, again,
+control; and with the cash allotment, I have reduced it by
+12.2, and yet, our education department has gone extremely
+overboard.
+ If I cannot control more than 50 percent of the cash flow
+of government which goes toward education, then I lose control,
+and we have a growing deficit. I do intend to take a look at my
+own organic authority and see if it has been violated and,
+perhaps, bring this to court.
+ Thank you.
+ Ms. Bordallo. Thank you, Governor.
+ Mrs. Christensen. Thank you.
+ You know, I am just getting used to being a chairwoman. I
+cut myself off right at the 5 minutes, but I did have one
+further question to Governor Camacho which follows what you
+just spoke about and also your statement earlier about the need
+for fiscal discipline.
+ There are a lot of similarities between Guam and the U.S.
+Virgin Islands, and as you, I am sure, know, I have introduced
+legislation to create a chief financial officer for the
+Territory, which would be a person who would be chosen locally,
+nominated by the Governor, confirmed by the local legislature;
+and that person would have the responsibility for certifying
+revenues and ensuring that we do not overspend in any area or
+overall.
+ We heard from the Inspector General last week and from
+someone from the General Accountability Office who had been
+looking at issues in Interior and in the Territories, and they
+both supported the concept of a CFO.
+ Do you think that would be something that would be helpful
+for Guam?
+ Governor Camacho. I believe it would be, but it must be
+balanced against the existing legislation that through the
+years continues to grow certain pieces of legislation. As it
+relates to cash allotment and cash management, it would have to
+be repealed, and I think, if you can find that balance,
+certainly it would work.
+ What the local legislature has attempted to do, to lend
+credibility to their efforts for funding education, is to
+engage and authorize our public auditor to certify the
+expenditure levels, and then it approves, of course, the
+releasing of funds. In violation of that very law, we have had
+to give more just so they can make payroll. So, in many ways,
+there is the use of the Office of Public Auditor as a chief
+financial officer, but I certainly would appreciate that. We do
+have our director of administration that serves in that role
+and capacity anyway right now.
+ Mrs. Christensen. Thank you.
+ If it is OK with the other members of the committee, Deputy
+Assistant Secretary Cohen, I think, just got off a plane at
+around 6:00 o'clock this morning. We really appreciate your
+making that extra effort to be here, and we recognize you now
+for your testimony.
+
+ STATEMENT OF DAVID B. COHEN, DEPUTY ASSISTANT SECRETARY FOR
+ INSULAR AFFAIRS, U.S. DEPARTMENT OF THE INTERIOR
+
+ Mr. Cohen. Thank you very much, Madam Chairwoman.
+ Mrs. Christensen. Governors, would you like to be excused
+or are you fine?
+ OK. Thank you.
+ Go ahead, Mr. Cohen. I am sorry for the interruption.
+ Mr. Cohen. Thank you, Madam Chairwoman.
+ First, let me express my appreciation to the new leadership
+of this Congress and of the House Resources Committee for
+seeing fit to reestablish a Subcommittee on Insular Affairs. I
+think it is an excellent step, and I very much look forward to
+working with all of you.
+ Madam Chairwoman, we would like to thank you and the entire
+committee for the support that you have provided to the insular
+areas by funding economic development initiatives, critical
+infrastructure and technical assistance projects, which provide
+invaluable resources to the insular areas. OIA's top two
+priorities for the insular areas are to promote private-sector
+economic development and accountability for the Federal
+financial assistance that we provide to the insular areas. We
+discuss our specific efforts to make progress in these areas
+later in the testimony, but will begin with an overview of the
+proposed budget.
+ The Fiscal Year 2008 budget seeks to continue efforts to
+promote economic sustainability throughout the Territories and
+the freely associated states. The proposed Fiscal Year 2008
+budget is $403.8 million of which $79.8 million is requested in
+current appropriations. With enactment of the Fiscal Year 2007
+joint resolution, we now have a full-year current appropriation
+of $81.5 million. Based on the direction of the joint
+resolution, we are preparing a detailed operating plan for
+Fiscal Year 2007.
+ OIA's budget is broken out into two major categories of
+funding--permanent and mandatory and current discretionary.
+Most of OIA's budget reflects mandatory commitments to U.S.-
+affiliated insular areas and has permanently appropriated
+$324.1 million. With current appropriations, two activities are
+considered to be mandatory--covenant grants, $27.7 million,
+that provide for capital improvement projects, or CIP, in the
+U.S. Territories; and an annual health and education block
+grant given to the Republic of Palau in the amount of $2
+million.
+ This budget request includes a discretionary increase
+totaling $560,000. This includes an additional $200,000 to
+ensure compliance with the National Environmental Policy Act,
+NEPA, on Federally funded infrastructure projects, $352,000 to
+fully fund fixed costs, and $8,000 for the transition to the
+Department's financial and business management system.
+ The Fiscal Year 2008 OIA budget continues to focus on
+increasing self-sufficiency of insular areas. OIA will continue
+to provide assistance to develop more efficient and effective
+government in the insular areas through the Technical
+Assistance Program. This assistance includes grant funding that
+meets a variety of needs, including resources for critical
+infrastructure like wastewater systems, hospitals and schools.
+ In Fiscal Year 2006, OIA received over $81 million in
+assistance to Territories' funding, providing over 90 percent
+of these funds to insular areas in the form of financial
+assistance grants and will continue this effort in the future.
+The 2008 request is $79.8 million.
+ American Samoa operations in the amount of $22.9 million,
+the second largest budget activity, is part of OIA's
+discretionary funding, but the requirement to provide funds is
+included in authorizing language. These funds provide essential
+assistance to the American Samoa government to provide basic
+services of health care, education, public safety, and support
+for the judiciary.
+ While not officially considered a mandatory program,
+Federal Services assistance--that is, $2.9 million--is
+comprised of two subactivities that were negotiated and defined
+in law. The first is reimbursement to the U.S. Postal Service
+for continuation of mail service to the Freely Associated
+States. Failure to provide this service would be a breach of
+the negotiated compact. The second activity provides funding
+for the Republic of Palau to conduct an annual financial audit.
+The only funding that can be considered truly discretionary are
+OIA salaries and expenses and the technical assistance
+activity, $16.1 million, which account for $24.3 million out of
+a total OIA budget of over $400 million in Fiscal Year 2008.
+ It should be noted that all but 2 percent of the total
+funding received by OIA goes toward assistance to the
+Territories and to the Freely Associated States.
+ One of OIA's top two priorities, as noted above, is to help
+the insular areas expand and strengthen the private sectors,
+building more sustainable economies to meet the needs and
+aspirations of their citizens. Most of the economies of the
+insular areas are currently dominated by the public sector and
+cannot be sustained without significant subsidy from the
+Federal Government.
+ OIA has historically provided financial and technical
+assistance for a number of activities that can help strengthen
+the foundations for economic development, such as developing
+public infrastructure, improving health care, improving
+education, and providing expert analysis on issues affecting
+the economy. More recently, however, OIA has recognized the
+need to more directly facilitate private-sector economic
+development. OIA now makes it their priority to provide
+technical assistance to help the insular areas identify and
+implement the necessary steps to make their economies more
+sustainable.
+ For example, OIA has provided technical assistance in
+recent years to help the insular areas identify their
+competitive advantages, identify industries that have the most
+potential for success in bringing prosperity to the insular
+areas, identify companies in those industries that might
+consider investing in the insular areas, identify specific
+investment opportunities for those companies, reach out to as
+many of those companies as possible, educate companies on the
+competitive advantages offered by the insular areas, and assist
+insular area governments to identify and implement ways to make
+the insular areas more attractive to private-sector investment.
+ OIA has worked to find ways to make progress and economic
+development without a large commitment of resources. In fact,
+less than 1 percent of the assistance to Territories'
+appropriation is spent on private-sector development due to the
+fact that many of the costs of the major events in this program
+are borne by the participants. This effort is proving to be
+successful with business opportunities being fostered in the
+insular areas through OIA's facilitation efforts.
+ OIA's other top priority is to promote accountability in
+the insular areas for the Federal funds that we provide there.
+Specifically, OIA has been working with all of the Territories
+and the Freely Associated States to help the island governments
+improve financial policies and procedures, upgrade automated
+financial management systems, train staff, complete accurate
+financial statements, and meet Single Audit Act requirements.
+ At the start of this comprehensive effort, all of the
+insular areas were several years behind in completing financial
+statements in annual audits. At the same time, the insular
+areas have significantly improved their submission times for
+the annual audits. At this time, the insular areas have
+improved their timeliness. OIA will continue to assist the
+insular areas as they work toward compliance with the Single
+Audit Act.
+ In conclusion, we believe that this budget request supports
+the continuation of programs to help the insular areas attain
+self-sufficiency. Toward this ultimate goal, we are committed
+to promoting sound financial management practices in the
+insular area governments, encouraging private-sector-led
+economic development, increasing Federal responsiveness to the
+unique needs of the island communities.
+ We thank you for your continued support of the insular
+areas as you are considering OIA's 2008 budget request.
+ Thank you.
+ [The prepared statement of Mr. Cohen follows:]
+
+Statement of David B. Cohen, Deputy Assistant Secretary of the Interior
+ for Insular Affairs
+
+ Madam Chairwoman and members of the Committee, thank you for the
+opportunity to testify on the Fiscal Year 2008 Office of Insular
+Affairs budget request. As Deputy Assistant Secretary of the Interior
+for Insular Affairs, I am the Federal official that is responsible for
+generally administering, on behalf of the Secretary of the Interior,
+the Federal Government's relationship with the territories of Guam,
+American Samoa, the U.S. Virgin Islands, and the Commonwealth of the
+Northern Mariana Islands, as well as administering the financial
+assistance provided to the Freely Associated States (the Federated
+States of Micronesia, the Republic of the Marshall Islands, and the
+Republic of Palau) under the Compacts of Free Association.
+ Madam Chairwoman, we would like to thank you and the entire
+committee for the support you have provided to the insular areas by
+funding economic development initiatives, critical infrastructure, and
+technical assistance projects which provide invaluable resources to the
+insular areas. OIA's top two priorities for the insular areas are to
+promote private sector economic development and accountability for the
+Federal financial assistance that we provide to the insular areas. We
+discuss our specific efforts to make progress in these areas later in
+the testimony, but will begin with an overview of the proposed budget.
+Overview of the FY2008 Budget Request
+ The FY 2008 budget request seeks to continue efforts to promote
+economic sustainability throughout the territories and Freely
+Associated States.
+ The proposed FY 2008 budget is $403.8 million, of which $79.8
+million is requested in current appropriations. With enactment of the
+FY2007 Joint Resolution, we now have a full year current appropriation
+of $81.5 million, not including additional funds that will be provided
+for 50 percent of the January 2007 pay raise. Based on direction of the
+Joint Resolution we are preparing a detailed operating plan for FY2007.
+We are not at liberty to disclose the details of the operating plans
+until they are approved by the Administration and submitted to Congress
+on March 17. At that time we will be able to provide comparisons at the
+program level with the 2008 budget request. The comparisons in our 2008
+budget are with the third 2007 continuing resolution, which was in
+effect through February 15. Throughout this testimony the comparisons
+will be on that basis.
+ Over $200.0 million in Compact of Free Association sector grants
+are included in the 2008 budget. More than $12.0 million is requested
+for a variety of technical assistance programs, including ongoing
+efforts on Brown Tree Snake control, insular management controls, coral
+reef conservation, maintenance assistance, and water and wastewater
+projects. The 2008 budget request funds $27.7 million in critical
+infrastructure projects including: $3.0 million to support the
+development of an undersea fiber-optic link to American Samoa, $3.7
+million to support the closure of the Puerto Rico Dump on Saipan, with
+the area being redeveloped as a public park, $2.0 million to support
+the installation of an additional gantry crane at the Port of Guam, and
+$2.8 million to support wastewater collection system upgrades
+throughout the U.S. Virgin Islands.
+ OIA's budget is broken out into two major categories of funding--
+permanent or mandatory and current discretionary. Most of OIA's budget
+reflects mandatory commitments to U.S.-affiliated insular areas and is
+permanently appropriated ($324.1 million). Within current
+appropriations, two activities are considered to be mandatory: covenant
+grants ($27.7 million) that provide for capital improvement projects
+(CIP) in U.S. territories and an annual health and education block
+grant given to the Republic of Palau ($2.0 million).
+ This budget request includes a discretionary increase totaling
+$560,000. This includes an additional $200,000 to ensure compliance
+with the National Environmental Policy Act (NEPA) on Federally funded
+infrastructure projects, $352,000 to fully fund fixed costs, and $8,000
+for the transition to the Department's Financial and Business
+Management System.
+ The FY 2008 OIA budget continues to focus on increasing the self-
+sufficiency of insular areas. OIA will continue to provide assistance
+to develop more efficient and effective government in the insular areas
+through the Technical Assistance Program. This assistance includes
+grant funding that meets a variety of needs, including resources for
+critical infrastructure like wastewater systems, hospitals, and
+schools. In FY 2006, OIA received over $81.0 million in Assistance to
+Territories funding, providing over 90 percent of these funds to
+insular areas in the form of financial assistance grants and will
+continue this effort in the future. The 2008 request is $79.8 million.
+ American Samoa Operations ($22.9 million), the second largest
+budget activity, is part of OIA's discretionary funding but the
+requirement to provide funds is included in authorizing language. These
+funds provide essential assistance to the American Samoa Government to
+provide basic services of health care, education, public safety, and
+support for the judiciary.
+ While not officially considered a mandatory program, Federal
+Services assistance ($2.9 million) is comprised of two subactivities
+that were negotiated and defined in law. The first is reimbursement to
+the U.S. Postal Service for continuation of mail service to the Freely
+Associated States. Failure to provide this service would be a breach of
+the negotiated Compact. The second activity provides funding for the
+Republic of Palau to conduct an annual financial audit. Public Law 99-
+658 provides that the Republic of Palau's single audit, in accordance
+with the Single Audit Act of 1984, will be conducted at no cost to
+Palau through FY 2009.
+ The only funding that can be considered truly discretionary are OIA
+salaries and expenses ($8.2 million) and the Technical Assistance
+activity ($16.1 million), which account for $24.3 million out of the
+total OIA budget of $403.8 million in FY 2008. It should be noted that
+all but two percent of the total funding received by OIA goes toward
+assistance to the territories.
+Strengthening the Private Sector
+ One of OIA's two top priorities, as noted above, is to help the
+insular areas expand and strengthen their private sectors, building
+more sustainable economies to meet the needs and aspirations of their
+citizens. Most of the economies of the insular areas are currently
+dominated by the public sector and cannot be sustained without
+significant subsidy from the Federal government. OIA has historically
+provided financial and technical assistance for a number of activities
+that can help strengthen the foundations for economic development, such
+as developing public infrastructure, improving health care, improving
+education, and providing expert analysis on issues affecting the
+economy.
+ More recently, however, OIA has recognized a need to more directly
+facilitate private sector economic development. OIA now makes it a
+priority to provide technical assistance to help the insular areas
+identify and implement the necessary steps to make their economies more
+sustainable. For example, OIA has provided technical assistance in
+recent years to help the insular areas identify their competitive
+advantages; identify industries that have the most potential for
+success in bringing prosperity to the insular areas; identify companies
+in those industries that might consider investing in the insular areas;
+identify specific investment opportunities for those companies; reach
+out to as many of those companies as possible; educate companies on the
+competitive advantages offered by the insular areas; and, assist
+insular area governments to identify and implement ways to make the
+insular areas more attractive to private sector investment.
+ The Island Fellows Program has been an important part of OIA's
+efforts to promote private sector economic development in the insular
+areas. Launched in 2003, the program sends graduate students from
+business schools such as Wharton, Harvard, Kellogg, and Georgetown to
+the insular areas to study their economies, identify competitive
+business advantages, identify industries that could be successful in
+the insular areas, identify investment opportunities for businesses in
+the insular areas, facilitate outreach to announce opportunities to
+mainland companies, and identify ways to improve the business climate.
+The work of the Island Fellows has supported the year-round efforts of
+OIA full-time staff and contractors in all of these activities. The
+Island Fellows also helped OIA organize conferences in 2003, 2004, and
+2006, as well as three separate Business Opportunities Missions in 2005
+and 2006, which gave island business and government officials the
+opportunity to meet and market opportunities to businesses from around
+the country. In 2006, the Island Fellows prepared private sector
+assessment reports for American Samoa, Guam, the U.S. Virgin Islands
+and the Commonwealth of the Northern Mariana Islands, following
+methodologies that the Asian Development Bank has used to produce
+similar reports for the Freely Associated States. These reports have
+received a great deal of attention in the insular areas, and are
+available on OIA's web site. In the coming year, the Island Fellows
+program will continue to focus on assisting with preparations for the
+fourth Conference on Business Opportunities in the Islands, which will
+be held in Guam in the Fall of 2007.
+ OIA has worked to find ways to make progress on economic
+development without a large commitment of resources. In fact, less than
+one percent of the Assistance to Territories appropriation is spent on
+private sector development, due to the fact that many of the costs for
+those major events are borne by participants. This effort is proving to
+be successful, with business opportunities being fostered in the
+insular areas through OIA's facilitation efforts.
+Promoting Accountability
+ OIA's other top priority is to promote accountability in the
+insular areas for the Federal funds. Specifically, OIA has been working
+with all of the territories and Freely Associated States to help the
+island governments improve financial policies and procedures, upgrade
+automated financial management systems, train staff, complete accurate
+financial statements, and meet Single Audit Act requirements. At the
+start of this comprehensive effort all of the insular areas were
+several years behind in completing financial statements and annual
+audits. At this time the insular areas have significantly improved
+their submission times for the annual audits. OIA will continue to
+assist the insular areas as they work towards compliance with the
+Single Audit Act.
+Conclusion
+ In conclusion, we believe that this budget request supports the
+continuation of programs to help the insular areas attain self-
+sufficiency. Towards this ultimate goal, we are committed to promoting
+sound financial management practices in the insular governments,
+encouraging private sector-led economic development, and increasing
+Federal responsiveness to the unique needs of the island communities.
+We thank you for your continued support of the insular areas as you are
+considering OIA's 2008 budget request.
+ ______
+
+ Mrs. Christensen. Thank you for your testimony, Mr. Cohen.
+ I recognize myself for 5 minutes.
+ Mr. Cohen, I am interested in reviewing what you describe
+as the new competitive allocation system for the CIP dollars.
+Can you tell us how you determine the base amounts for each
+Territory and review the competitive criteria for us?
+ Mr. Cohen. Sure.
+ First of all, the base amounts were established largely out
+of historical practice, so we wanted to establish baselines
+that did not significantly alter the levels of funding that we
+have been provided historically. And as you know, typically,
+since the economies of American Samoa and the Northern Mariana
+Islands were less developed, especially in terms of critical
+infrastructure, than Guam and the U.S.V.I.--even though,
+obviously, Guam and the U.S.V.I. also have very severe
+infrastructure challenges--we continued a higher level of
+funding for the baseline for American Samoa and the CNMI than
+for the other two.
+ The criteria were designed to encourage the insular areas
+to improve their financial management practices, and in our
+budget, as I outlined in my testimony, we have limited areas of
+flexibility; and we sought to develop an area where we can
+provide incentives for improving fiscal management. And that is
+what we sought to do, but we wanted to limit this so that, as
+Governor Togiola has suggested, we did not create wild swings
+in funding from year to year. So we established a range from
+the baseline, up to $2 million above and up to $2 million
+below, where the ultimate allocation might fall on the basis of
+how each of the Territories in this case performed in the
+competitive criteria.
+ We have a set of 10 criteria. I could go through them if
+you would like--you know, we can submit them for the record--
+but they are all designed to improve fiscal management,
+including timeliness on single audits, responsiveness to
+inquiries and questions that are raised in Inspector General
+reports, GAO reports, things of that sort.
+ Mrs. Christensen. Can I ask you, what were the specific
+performance criteria that led the Virgin Islands to be
+penalized to the extent of a reduction in their CIP funding
+over their baseline?
+ Mr. Cohen. Sure. And we would not characterize it as being
+penalized because, I guess, the way the allocation works is,
+you know, an insular area might improve financial management
+from one year to the next, but if all of the other Territories
+make greater improvements as determined according to the 10
+criteria, then that insular area may still end up with less of
+an allocation. But in the case of the Virgin Islands, as I
+recall, the number one factor was the failure to be timely on
+the single audits.
+ The other three Territories--Guam, the U.S.V.I. and
+American Samoa--are all current on their single audits; and we
+believe the U.S. Virgin Islands is one single audit behind. So,
+on that factor, which we attach a lot of importance to, the
+U.S. Virgin Islands, even though it has made very commendable
+progress in recent years in catching up on its single audits,
+was still behind the other three Territories.
+ Mrs. Christensen. Thank you, and you know--let's see. We
+have talked about the decreasing of our allocation over the
+last couple of years, but you know that our islands remain
+under Federal court orders with the Department of Justice and
+EPA, which estimate that it will cost about $50 million to
+construct new wastewater treatment plants to comply with the
+Clean Water Act.
+ I can support your efforts on the compliance of the single
+audit and the other criteria, but I am inclined to believe that
+an additional criterion relating to complying with court orders
+or consent decrees might be needed to really address the
+significant cost that such compliance actions will have on the
+already-strained budgets of insular governments.
+ So what is your view on the impact of court orders and
+consent decrees on CIP funding? Do you think that it should be
+another criterion that would be considered?
+ Mr. Cohen. Thank you for the question, Madam Chairwoman.
+ That certainly could be considered, and we have thought
+about it. Our thinking to date has been that the state of
+infrastructure at each of the insular areas is--well, they are
+all facing such great challenges that it is very hard to
+distinguish between them in terms of consent decrees and court
+orders, not to say that it is not relevant; and we are
+certainly open to taking another look at that because it is
+certainly--you know, it is certainly a very valid point.
+ But I believe there are consent decrees active in all of
+the Territories, with the possible exception of American Samoa
+where there are also similar needs. I mean, we funded the
+hospital with a certain allocation, not because it was under
+consent decree, but it was in violation of certain other
+standards that might have affected its eligibility for other
+Federal funds.
+ So, between consent decrees and situations such as those
+faced by LBJ Medical Center, all of the Territories have those
+issues. But we have been thinking about this, and as of course
+you know, we received an additional source of funding
+specifically for water and wastewater projects recently, and we
+established criteria, competitive criteria, again for all of
+the Territories to be able to apply for this fund, for this
+amount of funds. It is just under $1 million, and we do include
+consent decrees in that. In fact, the criteria are whether the
+Territory is subject to a consent decree and, if so, whether
+the proposed activity will directly assist in meeting consent
+decree deadlines and obligations. And we have three other
+criteria, particularly because these additional funds, I think,
+are more focused on helping the Territories get out from under
+consent decrees and comply with their requirements.
+ Mrs. Christensen. Are those funds competitive also?
+ Mr. Cohen. They are competitive. In fact, I think, for
+Fiscal Year 2007, the entire amount, which is $990,000, is
+going to be provided to the U.S. Virgin Islands for wastewater
+system infrastructure and improvements. I think mostly the
+sewer system on St. Croix is mandated by the USEPA because we
+know that there are very urgent challenges both on the ground
+and legally that are being faced by the U.S.V.I. now.
+ Mrs. Christensen. OK. Beginning in Fiscal Year 2005,
+Congress and Appropriations gave the Secretary the authority to
+modify the covenant CIP funding formula to address
+appropriately court-ordered infrastructure projects. It sounds
+as if everything else was equal, that that would also be a
+criterion, if I understand your response.
+ Mr. Cohen. Yes, definitely. We have it as an express
+criterion for the water and wastewater funds, and are very open
+to considering your request that it be an express criterion for
+the CIP funds as well. I mean, that is certainly a reasonable
+thought; and you know, I guess I would welcome the opportunity
+to continue the dialogue with yourself and your staff and the
+staff of the other members of the committee on this issue.
+ Mrs. Christensen. Thank you.
+ I now recognize Congressman Fortuno for questions.
+ Mr. Fortuno. Thank you, Madam Chairwoman, and again, thank
+you, Assistant Secretary Cohen, for making the effort to be
+here with us this morning. We truly appreciate the effort.
+ I will go back to my line of questioning with the Governors
+regarding the Territories' economy. Certainly, actually, you
+mentioned that your office is trying to attain self-sufficiency
+for the Territories. I would like to discuss this further.
+ Can you identify--or certainly you have provided particular
+assistance to the Territories to identify their comparative
+advantages, and you discuss or identify some of those
+advantages, at least pertaining to two Territories that
+represent the respected Governors here this morning; and
+second, as to those industries that perhaps may have the most
+potential, given the actual present circumstances, they are
+very different. Certainly, we heard, for example, of how
+different the two economies may be even though there are
+similarities in their political status right now.
+ So can you expound on this, please?
+ Mr. Cohen. Sure. Thank you very much for the question, and
+they are very different circumstances.
+ Guam, of course, is going to be the recipient of
+approximately $14 billion of investment from the Department of
+Defense not only for the relocation of the III Marine
+Expeditionary unit from Okinawa to Guam, but also complementary
+upgrades that are going to be occurring at Anderson Air Force
+Base and the naval base in Guam. So that amount of money going
+to the economy, is going to fund a lot of construction, and the
+percentages that Governor Camacho has cited as to
+contribution--30 percent military, 60 percent tourism--will
+perhaps alter somewhat with this type of infusion of funds into
+the economy.
+ They continue to have a very strong tourism sector
+primarily from Japan, but they are looking at opportunities to
+diversify outside of that, as well; and I know Governor Camacho
+has been very active in looking at other opportunities of maybe
+using Guam as a Customs clearing center where goods can be
+transferred, you know, where Customs could clear goods there,
+and they can be shipped on to the U.S. mainland.
+ There has been investigation of whether Guam could serve as
+a good financial services center or banking center for that
+part of the world because one of the competitive advantages
+that all of the Territories share is the protection of the U.S.
+flag and the U.S. legal system. So Guam, which refers to itself
+as America in Asia, can provide that type of safety and
+security, maybe for a trust fund business or other types of
+financial services in that region of the world, bringing the
+U.S. legal system there.
+ So there are a number of opportunities that Guam has been
+looking at.
+ In American Samoa, it is a very different circumstance. You
+know, Guam is a transportation hub for Asia and Micronesia, and
+it benefits from that. American Samoa, as Governor Togiola
+pointed out, is very isolated both geographically and in terms
+of the air service that it desperately relies upon.
+ Its competitive advantages include the benefits of the U.S.
+flag; it has more flexibility with respect to wages because of
+the special industry committee structure that Puerto Rico once
+used and American Samoa still does. As the Governor has
+suggested, they are looking at the contact center industry; in
+other words, you know, taking advantage of what the different
+cost structure businesses might encounter there.
+ Plus, the fact that the workforce is fluent in the English
+language and it is a different time zone, people in American
+Samoa can work while people in England are asleep and vice
+versa, and that might make some sense, but that would require
+an investment in a fiberoptic cable, which is something that
+the Governor has put into his budget request. And we have
+honored that in our budget request, so that is a possibility.
+ American Samoa, like Guam, is physically a very beautiful
+place, and in fact, American Samoa is, if I may say so, more
+unspoiled, less developed and offers a great deal of
+opportunity in tourism. As the Governor suggested, the tourism
+industry is not that well developed yet, which means that there
+is a lot of room to grow if we can solve the transportation
+problem, especially ecotourism.
+ American Samoa, I think alone with Puerto Rico, has a
+national park that is in a tropical rainforest environment. So
+that is unique to American Samoa and Puerto Rico. And, you
+know, it is a beautiful place; the outer islands of Manu'a,
+these are spectacularly beautiful places. If we can get people
+out there, it will be very popular, but solving the
+transportation issue is the key.
+ Mr. Fortuno. Thank you again.
+ Thank you, Madam Chairwoman.
+ Mrs. Christensen. The Chair now recognizes Ms. Bordallo for
+questions.
+ Ms. Bordallo. Thank you. Thank you very much, Madam
+Chairman.
+ I was listening very carefully to Mr. Cohen's comments
+about the islands. As island representatives, of course, we
+always feel they are equally as beautiful.
+ Mr. Cohen, I note that the Fiscal Year 2008 budget request
+represents the fourth consecutive year of proposed capital
+improvement grant funding under the new criteria. The baseline
+for both Guam and the Virgin Islands is reportedly $3.36
+million. Yet, I believe that Guam, if you average the level of
+funding provided under the program for the past 3 years, has
+come out below this baseline.
+ Can you please comment on how effective you believe the
+established competitive criterion has been toward improving
+financial management practices in the Territories; and in
+addition to that, have you shared the CIP competitive criterion
+with the territorial Governors and public auditors?
+ How transparent is the process? Do they receive a scorecard
+each year?
+ After your comments, if the Governors would like to
+respond, please do.
+ Mr. Cohen. Thank you very much for the question,
+Congresswoman Bordallo.
+ First of all, I think the system has been effective. For
+example, you mentioned that, as for Guam, the average funding
+in these past years is below Guam's baseline. Well, in Guam's
+first year, it scored fairly low, and Governor Camacho is
+fairly new; and obviously you inherit a bureaucracy, and it
+takes a while to identify areas that can use improvement. He
+immediately came to us and said, I want to know why we scored
+the way we did, what we need to do to score better and--as we
+would offer to the governments of all of the insular areas,
+which by the way, are equally beautiful. If I was not clear on
+that, I want to make sure that is on the record.
+ Ms. Bordallo. Thank you.
+ Mr. Cohen. We honored his request, and we sent the head of
+our Budget and Grants Management Division out to consult with
+them and the relevant members of his team; and the next year,
+their score improved dramatically.
+ So what we are trying to do is send the right signals. It
+is never going to be an exact science, but we want to send the
+right signals. We want to make it very clear that good
+financial management practices will be rewarded and that the
+converse is also true. We have been under tremendous pressure
+from the GAO reports and the Inspector General reports, and
+rightfully so, to send stronger signals to the governments of
+the insular areas that financial management practices,
+especially with respect to the Federal funds, are of utmost
+priority.
+ The criteria, themselves, have been shared. They are
+transparent, and I think we can investigate ways to--and we are
+happy to share the results of the scoring practice. I mean, we
+have sort of--I mean, this is a newly conceived and a newly
+developed program, and we are very much open to suggestions. I
+believe--you know, we do not put these on our Web site, but we
+do not want to make any of our Territories feel that we are
+making them look bad or favoring one over the other; we are
+very happy to share this process and be very transparent about
+it. I mean, that is our obligation in any appropriate way that
+does not make it look like we are being overly critical of any
+of the Territories.
+ So we are open to suggestions on how to do that, and we are
+free to share the results of our analysis.
+ Ms. Bordallo. Just on that same note, Governors, are you
+satisfied with this new practice?
+ Governor Togiola. I think the record should show that when
+this program was--when this was first announced, I was one of
+the most critical ones that resisted handling the CIPs this
+way, and more so after the first 2 years when we lost funding
+because of the grading. We decided to stop wondering what they
+are doing with it and just go ahead and do it; and since then,
+they have improved my score, and I have been happy, so----
+ Ms. Bordallo. Very good, Governor.
+ Governor Camacho.
+ Governor Camacho. Definitely, what David had expressed is
+exactly what happened. Recognizing that Guam was below the
+baseline and it scored poorly in the previous years, what could
+we do to improve it? With their guidance, we have improved and
+have benefited from it.
+ I think one of the things we are requesting, for example,
+now, is some help on the new gantry crane, but as I mentioned
+earlier in response to your inquiry, with the financial
+management improvement plans that have been there in a single
+audit, we went from 11 qualifications, I think down to one or
+two now. So there have been tremendous improvements in our
+reporting requirements, and it has, as you mentioned, resulted
+in not only better scores, but we have been rewarded.
+ Ms. Bordallo. Very good, and I am happy. I am always out
+for new ideas and new methods, and if it is working, great.
+ Now, one other question. Has the criterion been modified at
+all since the implementation?
+ Mr. Cohen. Yes. Yes, it has.
+ When we originally developed the criterion, we focused not
+only on good fiscal management but also on providing a good
+slate of projects; but we subsequently determined that the
+slate of projects kind of takes care of itself because we have
+a planning process and we have the ability to say that the
+slate of projects you presented is not consistent with your
+plan. We communicate back and forth with the island
+governments, and we really wanted to send a strong, clear,
+unambiguous signal that fiscal management needs to be improved
+in the Territories, in all of the Territories.
+ It needs to be improved in all of the States; we do not
+want to single out the Territories, but we want to send a very
+clear, unambiguous signal that this is our priority.
+ And the quality of the projects is also very important, but
+we have other ways to address that.
+ Ms. Bordallo. Madam Chair, I have one simple, little
+question here for Mr. Cohen again.
+ This has to do with the $30 million compact impact funding.
+It is allocated based on a census of the FAS citizens.
+ What are your plans for the upcoming census and how will
+this be conducted?
+ Mr. Cohen. Well, we are planning, again, to work with the
+island governments to help on these enumerations and to make
+sure that our methodology is standard across all of the island
+jurisdictions and that there should not be any sort of
+undercount or overcount bias of----
+ Ms. Bordallo. Inflated numbers, right?
+ Mr. Cohen. Right, and as you know, we are required to do
+this no less frequently than every 5 years----
+ Ms. Bordallo. Five years.
+ Mr. Cohen.--and I guess we are coming up on the next one
+soon. But we have a budget for this.
+ The budget actually comes out of the $30 million. The first
+time we did it, we offered from the Office of Insular Affairs
+to fund that out of our technical assistance grant, but for all
+subsequent years, we will take that out of the $30 million. It
+is not going to be a significant deduction from the $30 million
+at all, and it is an investment to make sure we are counting
+accurately; but of course, that is a very important procedure
+because it determines for up to the next 5 years how much
+compact impact money each of the jurisdictions is going to
+receive.
+ Ms. Bordallo. Yes.
+ Governor Camacho.
+ Governor Camacho. Thank you for allowing me to just comment
+on this.
+ I wanted to commend OIA and David Cohen and his staff for
+having an open mind when it comes to the expenditure of compact
+impact moneys. What we did was a very unique thing in
+leveraging the moneys. We were taking $6.1 million out of our
+allotment, and by entering into a municipal lease over 20
+years, we are now able to build for schools----
+ Ms. Bordallo. Yes.
+ Governor Camacho.--worth millions of dollars that, if we
+had just outright spent, we could not have done it.
+ So finding ways to take the limited funds we have and
+leveraging them over the years has allowed us some brick-and-
+mortar projects that would be there for quite awhile.
+ So I just wanted to commend them for having an open mind
+and allowing that to happen.
+ Ms. Bordallo. Thank you.
+ Thank you very much, Madam Chair.
+ Mrs. Christensen. Thank you.
+ Mr. Cohen--let's see. I have a few more questions.
+ You know, we have benefited, as have all of the other
+Territories, from the outreach to investors and to the economic
+conferences that have been held; but I am curious to know if
+any thought has been given to also putting some focus on the
+development of small businesses, small local businesses, either
+on their own or in conjunction with some of these new investors
+that are coming in.
+ Mr. Cohen. Thank you, Madam Chairwoman, for the question.
+ Yes, we give a lot of thought to that, and we give a lot of
+priority to it. Our ideal scenario is not that a big company
+will come in from off-island and establish a presence in the
+islands and compete out all of the local businesses. In fact,
+that is the type of thing we are trying to avoid.
+ We are very much focused on what we call ``win-win
+opportunities.'' I mean it is a slogan, but it is also
+something that we try to put substance to and take very
+seriously, and that is facilitating strategic partnerships
+between local small businesses on the islands and off-island
+businesses so that both can prosper.
+ I mean, the typical scenario is, you might have a small
+business on an island that does not have sufficient capital or
+technological expertise or business expertise or marketing
+channels to take its business to the next level, that can
+partner up with an off-island company that provides that so
+that both can prosper. The off-island business can take
+advantage of the local knowledge and presence of the small
+business on the island, and the small business on the island
+can benefit from the additional capital expertise and all of
+that. So that is our ideal scenario.
+ A lot of the success stories that we have had have been
+ones where island businesses themselves have benefited. There
+have been IT entrepreneurs, for example, in American Samoa that
+have teamed up with other island businesses to provide services
+in different island communities; and for us, those are the most
+exciting opportunities.
+ Mrs. Christensen. Well, we see the emphasis on the
+investment coming in, which is, again, very important. You
+know, we would like to see a little more. I am sure the
+Congresswoman and my Ranking Member would also appreciate the
+help for some of the small, struggling, locally owned
+businesses in the Territory as well.
+ A similar question that I have.
+ You heard Governor Camacho talk about the impact of the
+military buildup, and even bringing these wealthy investors
+into the Territory has a tremendous social impact on the
+Territories. Has OIA given any consideration to looking at not
+only the economic benefits and the infrastructure needs for
+bringing in these businesses, but how we can ameliorate some of
+the, perhaps even negative impacts that the residents, the
+longtime residents, of the Territories might experience?
+ Mr. Cohen. That is a very good and important question; and
+of course, I am familiar with the situation, particularly in
+the U.S. Virgin Islands, where incentive programs actually had
+a lot of high-wealth individuals relocating and moving their
+homes to the U.S. Virgin Islands.
+ And, of course, as you know better than anyone, it created
+a lot of good, and it also raised certain issues as to
+interaction between the folks who have been there for a long
+time and folks who are new to the community. That is
+something----
+ Mrs. Christensen. Property values, to name one impact?
+ Mr. Cohen. Sure, and it goes back and forth.
+ Property values can have the effect of pricing middle-class
+people out of the market, but yet more jobs are provided by the
+demand for these types of homes. So you are right. There are
+positive and negative impacts.
+ We are open to using our technical assistance funds to
+study these impacts when appropriate. We certainly like to keep
+them in mind. I mean, our office is, I guess in the Federal
+executive branch, the one that is most aware of the cultural
+sensitivities of all of the island communities in the Pacific
+and the Caribbean more than any other Federal executive branch
+office. We keep that in mind when we do our business
+opportunities missions and our conferences, but we can
+certainly do more to address those issues.
+ Mrs. Christensen. OK. Let me try to get in one other
+question here.
+ In the budget request, you make mention of the Island
+Fellows Program which you offer to several different
+universities, and I notice they are all Ivy League
+universities. So I have two questions, really.
+ One, do you seek out students from the Territories when you
+do this? Do you look at HBCUs and other minority-serving
+institutions? Do you look for fellows at the University of Guam
+or at the University of the Virgin Islands to help our young
+people develop these skills and to help give them an
+opportunity to help their communities?
+ Then, how is the final product from these students used?
+Are there private-sector assessments made available to the
+island governments? Are they provided to Congress?
+ Mr. Cohen. Thank you very much for the question. And I
+think in the question, there was, I guess, a suggestion that we
+do reach out to other schools.
+ Mrs. Christensen. Yes, in all of my questions.
+ Mr. Cohen. Yes. Well, I think it is an excellent
+suggestion, but let me give you an idea of how we sort of got
+to this point with the Island Fellows Program. To skip ahead to
+the end, I think your suggestion is an excellent one, and we
+will definitely look at that.
+ The Island Fellows Program started as, really, just a joint
+program with the Wharton School, the University of
+Pennsylvania. Actually, it started from an offhand suggestion
+that Secretary Norton, at the time--you know, my former boss at
+Interior--said:
+ ``Well, can't we send bright, young business students from
+Harvard Business School out to the islands to help think
+through some of these economic issues?''
+ I am actually a graduate of the Wharton School, and I said,
+``Well, Harvard. We can do better than that.'' so I went to
+Wharton to establish the program there.
+ The first year was very successful, but after that, it was
+suggested that--well, we expanded out, and we have expanded it
+beyond just Ivy League schools.
+ I just got back from a trip to Wharton and Harvard to
+recruit up there, but we also have students--we have had
+students from the University of Hawaii. We have had many
+students from there. We have had students from the University
+of Virginia, Northwestern University, George Washington,
+Georgetown, and we are always looking to expand it out.
+ I think your suggestion to expand it out maybe to the
+University of Guam--well, one issue there is, we have
+traditionally used MBA candidates because of the nature of the
+program, so some of these colleges do not have MBA programs.
+But we can still think that through.
+ We are looking for ways to bring folks from the islands
+into our office either as permanent employees or for the
+summer, and we have a very good record of having done that, but
+we certainly would be open to doing that.
+ Part of the charm--or one of the greatest benefits, I would
+say, of the Island Fellows Program is, even though we have
+hired students who are from the islands--we have had folks from
+Palau, and some were just from, like, Hawaii. But one of the
+most satisfying things from my perspective is that most of the
+folks that we have hired have no background in the islands, but
+as a result of their experience, they form what I hope will be
+life-long affinities with the islands; and often these folks go
+on to careers in high-powered consulting firms or investment
+banks or whatnot, but yet they are always friends of the
+islands.
+ I mean, we have folks coming back from a few-weeks' stay in
+the islands, and then they start referring to the community
+they visited as ``we,'' you know, like ``we'' have to improve
+our economy, and that really struck me. So I like the idea of
+bringing folks who have never been exposed to the islands out
+to the islands and creating life-long friendships.
+ But we have also benefited from the perspectives of those
+who are from the islands, and it creates good interaction. So I
+consider that an excellent suggestion which we will definitely
+look into.
+ Mrs. Christensen. Thanks.
+ Mr. Fortuno.
+ Mr. Fortuno. Yes. Thank you again, Madam Chairwoman.
+ Mr. Cohen, if we may follow the economic development
+issues, actually, in our earlier discussions with the Governors
+here, we were acknowledging the fact that the tax incentives
+that were in place for so many years are gone, and actually, I
+made some comments after reading the report, the report that
+came out of Congress, essentially stating that in terms of
+future, long-term economic policy, it should be non-tax-based
+and what have you.
+ Have you thought of what kind of incentives, economic and
+otherwise, may be needed to promote greater private-sector
+investment and development in the islands?
+ Mr. Cohen. Yes, we have given a lot of thought to that. I
+want to be careful in not suggesting an administration position
+on any particular approach, because we are still in the process
+of working that through; but if you look at the tools that are
+available, arguably they are fairly limited. You have tax
+incentives, and we have worked with those, and we have
+experienced some problems and also some successes. We have
+trade.
+ Now, arguably, the ability to use trade incentives is being
+eroded with the very positive development of expanding free
+trade around the globe, and the more foreign nations that get,
+for example, duty-free access to the U.S. or other sorts of
+favored access to the U.S. market, the less room for maneuver
+you have to provide those benefits to the Territories in a way
+that creates a real competitive advantage. So, arguably, the
+value of trade incentives is going down.
+ Then you have direct grant assistance, and we have been
+working to sort of reduce the Territories' dependence on direct
+grant assistance. There are other things, like helping to build
+up the infrastructure, and we are doing that as much as we can.
+ As Governor Camacho pointed out, we are also looking at
+ways to be creative with the grant assistance we have, so that
+it can be leveraged and that the private sector and other
+financing sources can come in and really carry most of the
+burden.
+ Mr. Fortuno. Mr. Cohen, if I may--and I am sorry to
+interject here--there is a reason why I called this structure,
+political structure, 18th century solutions to 21st century
+realities; and everywhere I turn, I think we are facing the
+same challenges in that the world is changing for the better in
+terms of opening up markets, that actually we have WTO
+restrictions as to what can and cannot be done. So that creates
+additional burdens on our economic development possibilities;
+and we are turning back to the same problems, actually, that we
+have been facing.
+ And actually, if I may say so--actually, Governor Tulafono
+mentioned only two plans that were created or built in X number
+of years given all these tax incentives; and I am very
+concerned. Really, we have a responsibility here. There is a
+political aspect to this, but certainly I have a feeling that
+we are getting to the same point over and over again.
+ There is only so much we can do short of a major influx of
+new money for military construction that will be occurring in
+Guam, for example. Are you in agreement with this?
+ Mr. Cohen. Well, I want to be careful to say, that is
+really the only tool we have, but I certainly accept your
+assertion that the tools we have are limited. That is one of
+the reasons that we have put such emphasis on trying to bring
+the private sector into this, because at the end of the day,
+the Territories are going to be strong if they are strong
+economically, and they can only be strong economically if they
+have the strong private-sector-driven economies.
+ We are talking about, well, how do you finance all the
+infrastructure, how do you finance the health care needs, the
+education needs?
+ Well, jurisdictions that generate sufficient tax revenue to
+provide for all of these needs do not have to worry. It is
+jurisdictions that have private sectors that are too small and
+are too thin and concentrated, lacking economic
+diversification, so that they cannot reliably generate the
+revenues they need to provide the critical needs.
+ Well, those are the ones that are in trouble. Those are the
+ones that need to keep turning to the Federal Government.
+ Now, the island communities, as you well know, start with
+so many disadvantages in terms of remoteness, resource poverty,
+a small population base. Puerto Rico less than the other
+insular areas, but these are problems throughout the island
+communities; and the Federal Government cannot solve these
+problems on its own and the island governments cannot solve
+these problems on their own. It really all comes down to
+whether there is a strong, healthy, private-sector-led economy
+that we can establish in the islands. There are barriers to our
+ability to do this.
+ But there are competitive advantages that the island
+communities have. We have to stress those, enhance those, make
+sure everybody knows about them, do our best to promote the
+islands, because ultimately that is really the only way that
+the islands are going to have long-term fiscal and economic
+health.
+ Mr. Fortuno. Thank you again, and I couldn't agree with you
+more. Thank you again, Madam Chairman.
+ Mrs. Christensen. Thank you. Ms. Bordallo?
+ Ms. Bordallo. Thank you again, Madam Chairman. I have one
+question for Mr. Cohen. Could you expand on what efforts are
+currently being undertaken by OIA to address high risk grantee
+status of some territorial government agencies with certain
+Federal Government agencies, including the Department of
+Education, for example? Is OIA taking a lead role in
+coordinating with other agencies in this area? This is the
+reconciliation of Section 30 funds owed to the government of
+Guam, say, by certain Federal agencies. It remains an ongoing
+challenge, and I have been asked over and over by our local
+senators. I just returned from Guam yesterday, and the Governor
+and I were referencing this earlier. Certain fees and
+withholding taxes collected are not always covered over to the
+Guam Treasury by individual and relevant agencies. Can you give
+us some idea about this? What is being done to improve this?
+ Mr. Cohen. Sure. Thank you, Madam Congresswoman. We put a
+very high priority in making sure that the Territories get
+their due, what they are entitled to under Federal law. So my
+staff has been very active in trying to make sure that, you
+know, these Section 30 amounts are properly accounted for and
+that the government of Guam in particular, of course, in this
+case gets what it is entitled to. Our chief budget officer,
+Charlene Leizear, actually takes very--has been very actively
+involved. We also participate in the All Island Tax Association
+meeting annually with the IRS where we work through these
+issues. Because a lot of this is under the control of other
+agencies, you know, we certainly are very active behind the
+scenes just to make sure that they are engaged, and especially
+in recent years we have a lot of good cooperation from the IRS.
+But we also recognize that because of upswings and downswings
+in sort of the accounting as to what is ultimately owed under
+Section 30, that it can create a hardship on the government of
+Guam. So what one thing we are able to control is to the extent
+that say a large amount is owed because of, you know, a
+perceived overcompensation on the Section 30 funds, we have
+been giving Guam more time to repay, that they wouldn't have
+to, you know, pay a larger amount up at once, but the IRS has
+been catching up on its process of determining how much--of
+making sure Guam is paid everything it is owed, including from
+back years, and then we have provided greater flexibility to
+the government of Guam, recognizing the Section 30 amounts will
+likely increase as this process continues to not have to pay
+back all at once. We have given them 3 years to pay back an
+amount that hopefully will never have to be fully paid back
+because Section 30 amounts Guam is entitled to will be
+increased.
+ Ms. Bordallo. Governor Camacho, is there any area that you
+wish to bring up at this point in regards to this?
+ Governor Camacho. As mentioned earlier, we had a director
+here I believe that worked with you in OPM. And I think those
+matters are being resolved. And we are grateful also to the
+fact that where years the government overestimated Section 30
+we are allowed a number of years, over 3 years to pay it back,
+settle. So we are very much appreciative of that.
+ Ms. Bordallo. The other part of that question, any efforts
+at OIA to address high-risk grantee status of the Territories?
+ Mr. Cohen. Yes, Congresswoman. We have been funding a
+number of programs to help give the insular area governments
+the tools they need to address these fiscal management
+challenges, and other agencies have put either entire--well,
+you know, we had a high risk situation with the government of
+American Samoa, and other agencies have put various agencies,
+various local agencies in Guam, U.S. Virgin Islands and other
+communities in high risk status, and we recognize that it is
+often a matter of capacity. It is very much a matter of
+capacity. So we have put a lot of resources and a lot of effort
+into capacity building for fiscal management. We have a strong
+partnership with the USDA grad school. We have a program funded
+to the tune of about $2 million every year where they provide
+intensive training to fiscal managers in the islands. We host
+annual conferences where training occurs, and it is always
+attended at a high level by the Office of Insular Affairs. We
+have provided funds for hardware, software, fiscal hardware and
+software. As Governor Camacho has pointed out, we have funded
+the fiscal management improvement plans for a number of
+agencies in Guam, Department of the Administration, Department
+of Education, as you have suggested. We have recognized it is a
+resource issue. We also recognize that the island communities
+have very serious challenges that they have to face, you know,
+to have good fiscal management. They have smaller population
+bases, you know, it is harder to attract talent to the islands.
+Basically, the pay scale is lower than what you get in the
+States. So you don't have enough of a home grown talent pool to
+rely on. You know, you can't pull folks in from neighboring
+counties or neighboring states because you are in the middle of
+the ocean. And to attract, you know, off-island talent, you
+generally have to--and keep it there, you have to pay beyond
+what your typical pay scale is. So we recognize there are
+inherent difficulties--not to make excuses. We recognize there
+are challenges that simply are not faced in mainland
+communities so we devote resources to try to overcome those.
+ Ms. Bordallo. Thank you. Thank you, Mr. Cohen. Madam
+Chairman, I have no further questions, but I do want to make a
+comment. We are actually witnessing a historic meeting today. I
+think after 12 years we have re-established the Insular Affairs
+Subcommittee, and by re-establishing this committee I think it
+brings specific attention to all matters pertaining to the
+Territories, and I am extremely pleased with that. It gives us
+a unique advantage, and Madam Chairman, I am very pleased to be
+a part of this re-establishment of the Insular Subcommittee,
+and I want to thank the Governor from American Samoa, the
+Governor from Guam and of course you, Mr. David Cohen, for
+being a part of this historic meeting. Thank you.
+ Mrs. Christensen. Thank you. Mr. Fortuno also--he will
+return shortly, but he doesn't have any further questions. Of
+course I have one more.
+ Mr. Cohen, when they appeared before the full committee 2
+weeks ago, as you heard me say in a question to Governor
+Camacho, both the Inspector General of the Department of
+Interior and the GAO representative endorsed the idea of a
+chief financial officer as a good idea for the Virgin Islands
+and perhaps the other islands. So in light of those recent GAO
+reports on the severe problems in financial management in the
+Territories as well as the reports from the Inspector General,
+do you still oppose a CFO or similar officer in the USVI? And
+if so, why?
+ Mr. Cohen. Madam Chairwoman, we are happy to take another
+look at it. You know, the last time the bill came up, you know,
+to be frank, we were put in an awkward position because there
+was, you know, obviously, you know, you had a position that was
+well reasoned and as reflected in your legislation, and the
+Governor had a different position. And in those situations, we
+don't choose between oh, well, we would--you know, side with
+the Congresswoman over the Governor or the Governor over the
+Congresswoman. In situations like that, you know, we would
+typically want to defer to the institution where there is the--
+where the people of the Virgin Islands would have the most say.
+So that is why, you know, we would--you know, our----
+ Mrs. Christensen. I agree it was a difficult position.
+ Mr. Cohen. Yeah. But what I would want to say--and that is
+because there is a split. So when in doubt, regardless of the
+personalities or whatever, you know, we would tend to favor,
+you know, deferring the solution to the institution where local
+people have the most say, and of course you are elected by all
+of the people of the Virgin Islands, but you are serving a body
+where you are the only voice from the Virgin Islands as opposed
+to, you know, a local legislature that is fully elected by the
+people of the Virgin Islands. So that has nothing to do with
+the merits of the proposal. That was just sort of the
+institutional difficulty we were placed in.
+ Mrs. Christensen. But you could probably see it, I mean,
+God willing this will never happen, but there could have come a
+time where the situation was so dire that it might have
+required that you not defer to the local legislature but do
+what was the right thing to do in the interest of the people of
+the Territory.
+ Mr. Cohen. Oh, absolutely. Absolutely. And, you know, our
+first preference is when there is a disagreement on substance
+between elected officials is to, you know, try to defer to one
+institution or the other based on local control. But I will say
+if, for example, you know, with the new Governor in the U.S.
+Virgin Islands, you know, if the government there were to
+support a proposal that you were to put forward, we wouldn't be
+put in that situation. I couldn't guarantee any particular
+result without having cleared it through the administration.
+ Mrs. Christensen. Sure.
+ Mr. Cohen. But it is a different--put aside the substance,
+that puts us in a different situation as to what institutions
+we would tend to defer to.
+ Mrs. Christensen. Would you ever remain neutral if it was a
+good--if there was a division between different offices in a
+Territory and--but a good proposal?
+ Mr. Cohen. I am sorry. Could you say that again?
+ Mrs. Christensen. Would you ever consider remaining
+neutral, not having an opinion?
+ Mr. Cohen. Yeah. We would take every situation as it
+arises. We do have a preference to allow local decisions to be
+made locally, and again, that has nothing to do with the
+substance. And you are right, the substance--the facts on the
+ground could reach a point where we would override that
+preference and say, you know, there is a compelling need to,
+you know, impose a Federal solution because a local solution,
+you know, may result in, you know, irreparable harm or
+something of that sort. So the bottom line though is that we
+are happy to take another look at whatever proposal you have,
+and we are happy to work with you on that, and of course we
+will be in contact with your office, and the Office of the new
+Governor and especially if there is agreement between your two
+offices, that is a completely different situation for us.
+ Mrs. Christensen. OK. If there are no further questions, I
+move to have the testimonies of the U.S. Virgin Islands
+Governor John deJongh and the Commonwealth of the Northern
+Mariana Islands Representative Pete Tenorio entered into the
+hearing record, and without objection, so ordered.
+ [The prepared statement of Governor deJongh follows:]
+
+ Statement of The Honorable John deJongh, Jr.,
+ Governor of the U.S. Virgin Islands
+
+ Madame Chairwoman, and distinguished members of the House
+Subcommittee on Insular Affairs, it is an honor for me to present
+testimony today on the state of the Virgin Islands and on some of the
+critical issues facing our Territory.
+ As you know, I was privileged to be elected by the people of the
+Virgin Islands last November as their governor. While our Territory has
+made undeniable progress since the days of appointed governors, we are
+still challenged by difficult, though not intractable, problems.
+Thirty-five percent of our children still live in poverty. Our family
+incomes are a third lower than the poorest State in the Union. As a
+group of small islands geographically removed from the United States
+mainland, our cost of living is significantly higher than the average
+American community. Our economy is overly dependent upon tourism and
+requires further diversification. Like many of our border states, our
+social services and the fabric of our community are strained by illegal
+immigration and drug smuggling. And while the fiscal condition of our
+government has improved in recent years, much more remains to be done
+to close the gap between the standard of living in the Territory and
+that on the mainland.
+ It is my fervent belief that the people of the Virgin Islands have
+the capacity, the strength, and the will to successfully address these
+challenges over the next four years. As I have said at home, the State
+of our Territory in the midst of these challenges is one of hope and
+great expectations. And while I will call on our proud and resilient
+people to unleash their imaginations, their ideas and their energy to
+help my administration build a better future for all, there are also
+issues where the Federal Government--including this Congress--must play
+their part as well. It is in these areas that I would like to focus my
+remarks today.
+Property Tax Reform
+ Economic growth and development in recent years has helped generate
+the marked improvement in the Government's financial condition, but it
+has also come with social costs that cannot be ignored. In particular,
+growth and development invariably bring rapidly increasing property
+values which, if not addressed, can threaten to tax homeownership out
+of reach for the average Virgin Islander. The ability of the
+Territorial government to deal with this problem has, as you know, been
+hampered by a recent federal court decision reviving a colonial-era
+statute which severely limits the authority of the Virgin Islands
+Government to administer its real property tax system.
+ Under this outdated statute--enacted by Congress in 1936 and
+previously thought to have been repealed by the 1954 Revised Organic
+Act--the Virgin Islands Government is prevented from exercising the
+authority enjoyed by States and local governments on the mainland to
+tax real property on the basis of use or other rational classification.
+By requiring, for example, a uniform rate of tax for both 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 Territory, including capping
+residential assessments during any assessment period.
+ Without the authority to limit property tax increases caused by
+rising property values--through capping assessments or phasing in
+increases--the revived 1936 statute may quickly put land and
+homeownership beyond the reach of many Virgin Islanders. This is
+particularly true in St. John, where development has resulted in
+significant increases in property values in recent years. The 1936
+statute also puts into legal question other Government policies
+designed to promote economic and social development, including taxing
+agricultural land at lower rates than commercial land and providing
+veterans preferences.
+ I want to thank you, Madame Chairwoman, for your leadership in
+sponsoring legislation to repeal this anachronistic law and to clarify
+that the Virgin Islands has the same powers and authority as any other
+American jurisdiction to determine and to administer its own property
+tax system. I am pleased that the House moved quickly, upon the
+convening of the 110th Congress, to pass this important and necessary
+legislation. I am hopeful that the Senate will act quickly as well so
+that the legislation can be signed into law as soon as possible.
+Control of Our Borders
+ Madame Chairwoman, I would also like to commend you for your
+efforts to secure a Border Patrol Unit for the Virgin Islands. As you
+know, currently there is no Border Patrol station in the Territory,
+with the closest station responsible for protecting our borders and our
+coast line located in Puerto Rico. The problem is that the station in
+Puerto Rico must focus on the hundreds of miles of coastline in that
+part of the Caribbean, leaving the coastline and coastal waters of the
+Virgin Islands largely exposed and vulnerable to human smuggling and
+drug trafficking. As a result, international smugglers and organized
+crime have been increasingly utilizing our Islands as a major
+transshipment point into the United States. In addition to this
+implications for our national and regional security, the scourge of
+smuggling and illegal drug trafficking has a direct impact on the crime
+rate in the Territory and on our quality of life.
+ I am therefore pleased to reaffirm my commitment to work with you,
+other Congressional leaders and the Department of Homeland Security to
+establish a Border Patrol Unit in the Virgin Islands as soon as
+possible.
+Elimination of the Cap on Rum Excise Taxes Returned to the Virgin
+ Islands
+ Madame Chairwoman, I would also like to lend my support to your
+efforts to eliminate the ``cap'' on the amount of federal rum excise
+taxes that are returned to the Virgin Islands each year under the
+provisions of the Revised Organic Act and the U.S. Internal Revenue
+Code. As you know, Congress is required periodically to extend the
+current formula for calculating the rum tax payment to the Virgin
+Islands. In the absence of such periodic extensions, the formula would
+be reduced, costing the Virgin Islands Government millions of dollars
+and putting at risk the Government's bonds which are secured by such
+tax revenues.
+ But even the temporary extensions, while welcome, cause problems
+for the local Government which could be eliminated by removing the cap
+entirely and allowing the Territory to receive the full amount of the
+federal tax imposed on Virgin Islands rum. First, the temporary
+extensions authorize the return of $13.25 per proof gallon of rum
+produced in the Virgin Islands and shipped to the United States, while
+the full tax imposed by the Federal Government on Virgin Islands rum is
+$13.50 per proof gallon. Under the temporary formula, 25 cents on each
+proof gallon of Virgin Islands rum is retained by the U.S. Treasury.
+Second, it is difficult to securitize long-term bonds with revenue
+streams that may be interrupted by unscheduled or unforeseen delays by
+Congress in extending the present formula. Indeed, the history of the
+most recent extension by Congress reinforces this point. Congress
+passed the last extension this past December--eleven months after the
+previous extension expired. While Congress made the extension
+retroactive and the Territory did not lose funds as a result, it
+nonetheless created concerns for the nation's financial institutions
+that hold our bonds and has the potential to affect both our bond
+ratings and bond capacity.
+ It is generally accepted that there are no policy reasons that
+stand in the way of Congressional action to remove the cap and allow
+the Territory to receive the full amount of the tax imposed on Virgin
+Islands rum. The tax was imposed, in the first place, not to raise
+revenues for the Federal government, but rather to ensure a commercial
+level playing field for domestically produced distilled spirits with
+which Virgin Islands rum competes in the U.S. market. Rather, it would
+appear that the reasons blocking a permanent solution to this problem
+up until now is a more practical one: under the Congressional budget
+rules, a Congressionally initiated legislative change must be
+``offset'' with other revenues, but a permanent solution proposed by
+the administration as part of its annual budget proposals to the
+Congress does not. Accordingly, I would respectfully request that this
+Committee work with the House Ways and Means Committee to urge the
+President to include a permanent solution to the rum tax formula in his
+next budget submission to the Congress.
+Elimination of the Discriminatory Cap on Medicaid Funding for the
+ Virgin Islands
+ Madame Chairwoman, as you are well aware, the ability of the Virgin
+Islands Government to assure adequate health care to Island residents
+is hampered by the discriminatory cap on Medicaid funds provided to the
+Virgin Islands and the other U.S. Territories. Medicaid is a federal-
+state program to provide for the health care needs of the poorest and
+neediest persons in our country. The quality of health care should not
+depend on whether an individual lives in California, Alaska or in a
+United States Territory. While, under your leadership, Congress
+approved last year an increase in the amount of Medicaid funds provided
+to the Virgin Islands, such increases only narrow the gap between the
+funds allocated to the Virgin Islands and funds the Virgin Islands
+would be entitled to if the Virgin Islands were treated as a State
+under the Medicaid formula. The Government of the Virgin Islands
+respectfully requests the Administration to support, through the IGIA
+process, further improvements in the Medicaid formula and to ensure
+that the neediest residents in the Territories receive no less
+favorable treatment than the neediest residents in the United States.
+Support for the Virgin Islands Economic Development Commission Program
+ Finally, I would like to bring to this Committee's attention an
+issue which has profound implications for the fiscal and economic
+independence of the Virgin Islands. That issue is the unrestrained
+program of IRS audits which is having a significant adverse impact on
+our vital Economic Development Commission (``EDC'') program.
+ As you know, residents of the Virgin Islands, as citizens of the
+United States, are required to pay Federal income tax like any other
+citizen living outside the United States. However, Section 932 of the
+Internal Revenue Code states that bona fide residents of the Virgin
+Islands are not required to file an income tax return with the IRS.
+They are required instead, to file their income tax return with, and
+pay the applicable tax to, the Government of the Virgin Islands.
+ The amount of the liability to the Virgin Islands, determined under
+the ``mirror code'' system, in most cases is exactly the same amount
+that they would otherwise have been required to pay to the Federal
+Government. The only exception is a provision under Section 934 of the
+Code which permits the Virgin Islands to provide economic development
+incentives through tax credits or tax rate reductions for income from
+sources in the Virgin Islands or income effectively connected with the
+conduct of a trade or business in the Virgin Islands.
+ Pursuant to this authority, the government of the Virgin Islands
+established, almost 50 years ago, an economic development program that
+was intended to diversify the local economy, create jobs for its
+citizens, and to lessen its dependence on the Federal Government. Under
+this program, the Virgin Islands government provided tax incentives to
+qualified businesses that established operations and invested in the
+Virgin Islands, and that met the program's criteria for creating jobs
+and economic opportunity for Virgin Islanders.
+ In response to concerns that some U.S. citizens claimed tax
+benefits who neither lived nor worked in the Territory, Congress two
+years ago tightened the income and residency rules as part of the
+American Jobs Creation Act of 2004 (``Jobs Act''). With respect to the
+rules for determining residency in the Virgin Islands, the Jobs Act
+replaced a ``facts and circumstances test'' similar to that previously
+used for determining the tax residency for aliens with a physical
+presence test, a closer connection test, and a tax home test.
+ At around the same time, the U.S. Internal Revenue Service
+(``IRS'') initiated a comprehensive series of audits not only of
+individuals who participated in the Territory's EDC program, but also
+of many taxpayers who had moved to the Virgin Islands years earlier and
+who did not participate in the EDC program, as well as taxpayers who
+were born in the Virgin Islands but who had spent periods of their
+working life outside the Territory due to the lack of opportunities in
+the Virgin Islands.
+ Neither the Government of the Virgin Islands nor most responsible
+members of our EDC community have any objection to properly conducted
+IRS audits, performed in compliance with the statutes and rules
+governing such audits and with clear audit guidelines in place at the
+outset. However, it appears that the IRS has used the subjective nature
+of the pre-Jobs Act legal standard for determining bona fide V.I.
+residency as a license to challenge anyone who claimed EDC benefits as
+a potential participant in an abusive tax shelter, rather than as a
+participant in a lawful economic development program duly authorized by
+the Congress.
+ Rather than facilitating and ensuring tax compliance and, if the
+facts warrant, ferreting out wrongdoers, the IRS audits have instead
+become a vehicle for undermining a Congressionally sanctioned and
+authorized economic development program through punitive and heavy-
+handed techniques, including repetitive, intrusive, and burdensome data
+and document requests. Unfortunately and unfairly, the IRS audit
+presumption seems to be that the taxpayer engaged in tax fraud unless
+he or she can prove otherwise.
+ The IRS tactics, however, go far beyond intrusive and burdensome
+data requests. In the course of these audits, the IRS has reversed its
+long-standing administrative practice and published position, and now
+claims that the statute of limitations never runs for V.I. taxpayers
+who reasonably and in good faith file their tax returns with, and pay
+their tax to, the Virgin Islands Bureau of Internal Revenue (BIR), as
+the law requires them to do.
+ In a General Counsel Advisory Memorandum published last summer, the
+IRS announced its new position that it has the right to audit the
+returns of a V.I. taxpayer as far back as they like and, if they
+determine under the subjective pre-Jobs Act test that the taxpayer was
+not a bona fide V.I. resident, that it can assess full tax and
+penalties even if the taxpayer has paid the correct amount to the
+Virgin Islands. Because the Virgin Islands statute of limitations will
+have run in many of these circumstances, the taxpayer will be precluded
+from seeking a refund of tax paid to the Virgin Islands, and thus be
+subject to double taxation. Moreover, since the IRS position reverses a
+previously issued IRS advisory memorandum and also runs counter to the
+general rule that persons can be audited for up to three years after
+filing a return, many taxpayers who are being audited no longer have
+the records to defend themselves.
+ Similarly, at least some IRS agents may now be taking the position
+that even a bona fide V.I. resident who underpays his tax to the Virgin
+Islands by even one dollar (even if this is a result of a good faith
+error) may now be subject to full taxation by the United States without
+regard to, or credit for, any payments made to the Virgin Islands. Such
+a position is not only not without legal support, but it operates
+perversely as a disincentive for our Bureau of Internal Revenue to
+audit and seek any underpayments of tax from our own taxpayers.
+ These heavy handed practices violate the due process rights of
+Virgin Islands taxpayers and have had a chilling impact on the
+Territory's EDC program, raising the specter of guaranteed and endless
+audits of virtually anyone who moves to, and invests in, the Virgin
+Islands. This is not, I would respectfully submit, what Congress had in
+mind when it enacted the Virgin Islands tax incentives at issue as part
+of the 1986 Tax Reform Act, or when Congress acted to include more
+objective factors in the determination of residency and sourcing of
+income as part of the Jobs Act in 2004. Without any consultation and
+indeed notice, these actions continue. On February 21, 2007, Treasury
+issued Notice 2007-19, covering statute of limitations that does not
+adequately address our concerns and has unilaterally imposed draconian
+measures on our residents. I hope that through my efforts, beginning
+with this testimony and continuing with meetings that had already been
+scheduled with both Houses of Congress and the Executive Branch, we
+will be able to restore a cooperative process going forward and that we
+will be able to revise, amend or replace these recent regulations and
+actions with policies and programs that work to assure our mutual
+goals.
+ I appreciate the efforts you have made along with other Members of
+Congress to rectify this wrong. Because this issue cuts at the heart of
+our efforts to diversify and grow our economy and to achieve fiscal
+independence, I would respect urge this Committee to support
+legislation affirming the previous federal policy that a tax return
+filed in the Virgin Islands shall be treated as a tax return filed in
+the United States for purposes of triggering the statute of
+limitations.
+ Thank you very much.
+ ______
+
+ [The prepared statement of Mr. Tenorio follows:]
+
+ Statement of Pedro A. Tenorio, Resident Representative,
+ Commonwealth of the Northern Mariana Islands
+
+ Madame Chairwoman, members of the Committee, thank you for this
+opportunity to submit testimony today on the FY 2008 proposed budget
+for the Office of Insular Affairs. I apologize for being unable to be
+with you in person today. I am in the Commonwealth accompanying Senate
+Energy and Natural Resources Committee staff, Allen Stayman and Joshua
+Johnson, as they conduct a series of fact finding meetings on issues
+relating to local immigration control and the CNMI economy. If you have
+any questions regarding this testimony please do not hesitate to submit
+them to me and I will respond as soon as possible.
+ The Commonwealth of the Northern Mariana Islands is committed to
+being self-sufficient, self-reliant, and able to provide a high
+standard of living for its people. Unfortunately, we have encountered a
+few problems and have not been able to reach and maintain this goal. As
+the subcommittee members are fully aware, the CNMI is currently in a
+financial depression and that we have yet to find our way out of this
+crisis.
+ It is a necessity that we rely on funding that we receive under
+Compact Impact from OIA to supplement our local funding for schools,
+health care clinics, police and fire protection, and other basic
+government services. The continuation of this funding is vital.
+ We are also dependent on Covenant funding that we receive to build
+and/or improve our infrastructure. While I would like to ask for a
+greater share of these funds, I am aware that we have a back log of
+unspent funding that we must liquidate first.
+ There are several areas that I would request special consideration
+for in the FY 2008 budget.
+ 1. I am bothered about the accountability and audit problems that
+were highlighted in a recent GAO report: U.S. Insular Areas: Economic,
+Fiscal, and Financial Accountability Challenges. Although throwing
+money at a problem doesn't always fix it, if this problem needs more
+staff training, technical expertise, or general technical assistance, I
+respectfully request that funding be provided to address these needs.
+ 2. As CNMI Government revenues continue to decline our first
+priority must be to the general welfare of our residents. Shortages in
+government funding could easily interfere with our responsibilities for
+immigration and border control. The CNMI Law Enforcement, Labor and
+Immigration Initiative is currently funded under The OIA Technical
+Assistance Program. It is my understanding that annual grants have been
+declining for the past five years or so. I respectfully request that
+additional funds be provided to the Technical Assistance Program to
+strengthen this important initiative.
+ 3. Congressional appropriating committees have always earmarked
+funding for the Close Up Foundation, Junior Statesmen, and the Pacific
+Business Center out of the Technical Assistance Program. These are
+worthy organizations and I request that their earmarks be continued.
+ 4. Congresswoman Bordallo has recently introduced H.R. 1075, the
+United States Territories Infrastructure Bond Bank Authorization Act. I
+strongly support this bill, and thank her for her leadership in
+bringing it to a reality. As I am sure that this structure will have
+great benefits for the CNMI as well as the other territories, funds
+need to be identified so that the purchasers of these bonds can be
+paid. I respectfully request that this subcommittee examine ways to
+allow Compact Impact funding available as leverage for these bonds.
+ 5. Lastly, Madame Chairwoman, I need to ask for additional funds
+to repair vital infrastructure at the CNMI's only hospital. The back-up
+generator and reverse osmosis equipment are in need of replacement. The
+lives of the patients in the Commonwealth Health Center are dependent
+on stable power and clean water. It is estimated that $1 million is
+needed to replace these systems and upgrade the hospital interfaces.
+ Thank you for this opportunity to share my thoughts on the Office
+of Insular Affairs' FY 2008 Budget with you today.
+ ______
+
+ Mrs. Christensen. I would also ask your office, Deputy
+Assistant Secretary Cohen, if you would supply the information
+on the 10 criteria in the CIP program and, in addition to that,
+a report on what has occurred in the years of this program has
+existed with respect to each of the Territories, what were the
+criteria they were judged on and their funding levels.
+ Mrs. Christensen. A lot came up during this hearing on
+issues related to the IRS, and we will be looking at perhaps
+holding a joint hearing with Ways and Means to look at some of
+the concerns of the Territories with respect to IRS and I don't
+have to go into detail on what those might be for the Virgin
+Islands. You have heard from Ms. Bordallo on some of her
+concerns. But I want to thank also the Deputy Assistant
+Secretary Cohen for coming under such difficult circumstances
+and being patient and waiting for the Governors to be
+questioned and taking our questions, and of course I want to
+thank the Governors for being here and for your testimony and
+for your responses and your recommendations, and I am also very
+happy that we have reinstituted this Subcommittee and that you
+have an opportunity to come to the Congress and for us to have
+this dialogue on the record and to be able to really focus on
+some of the unique challenges that the Territories face.
+ The hearing record will be open for 10 days for any
+responses to additional questions that the Subcommittee members
+may have. And if there is no further business before the
+Subcommittee, the Chairman again thanks the members of the
+Subcommittee and our witnesses, and the Subcommittee stands
+adjourned.
+ [Whereupon, at 12:17 p.m., the Subcommittee was adjourned.]
+
+ [Additional material submitted for the record follows:]
+
+ [A statement submitted for the record by Mr. Faleomavaega
+follows:]
+
+ Statement of The Honorable Eni F.H. Faleomavaega,
+ a Delegate in Congress from American Samoa
+
+ Madame Chairman:
+ I commend you for holding this hearing which is both necessary and
+timely. The 2008 budget request for the Office of Insular Affairs (OIA)
+is $403.8 million. Of this, $27.7 million has been requested for
+critical infrastructure projects (CIPS).
+ Historically, at least for the past decade or more, the U.S.
+Department of the Interior has left American Samoa's CIP funds unmarked
+in the President's budget. In fact, Congress appropriates (through the
+Covenant) a fixed amount of about $10 million per year for American
+Samoa's CIPs based now on a competitive allocation system. These funds
+are held by OIA until the American Samoa Government (ASG) makes a
+request or proposal for funding of a specific project.
+ Over the years, it is my understanding that the Governors and the
+Fono are supposed to work together in determining what projects should
+be undertaken. By way of this process, our local leaders were supposed
+to be assured of having input in how federal dollars are spent and
+managed in the Territory.
+ However, this year, OIA and Governor Togiola have pre-determined
+that $3 million should be set aside for fiber optics or ``economic
+development'' and this has been done without consultation with the Fono
+and without my knowledge. As a Member of Congress, it is within my
+purview to earmark CIP funds prior to ASG receiving those funds.
+However, as a courtesy to our local leaders, I have never earmarked CIP
+funds even though I may have disagreed with ASG's priorities. The only
+exception was a $2 million set aside for emergency medicines and
+supplies at LBJ.
+ While I am not against fiber optics and while I actually introduced
+the Governor and OIA to the idea, I was led to believe that OIA would
+loan money to ASG for this purpose and was never informed that money
+would be taken from our CIPs to fund this proposal. American Samoa's
+CIP funds are used for health and education and these are and must be
+our highest priorities and we cannot afford to have $3 million stripped
+away to fund fiber optics which ultimately will be a $20 million or
+more project.
+ More importantly, I cannot support a process that cuts out the
+Fono. Again, as a courtesy to our local government, I have never
+earmarked, or set aside, ASG's CIP funds, although it is within my
+purview to do so. As a matter of personal policy, I have left it to the
+discretion of our local leaders to decide how CIP and operations funds
+should be spent and this is how I believe the process should remain.
+ However, if the Department of the Interior, OIA, and Governor
+Togiola intend to stand by their proposal to take $3 million from our
+CIP funds without consultation with the Fono, then I will earmark the
+remaining money to assure that the Fono is represented and that
+critically needed projects are funded.
+ I also want to comment about how OIA has labeled this $3 million
+for fiber optics. OIA has stated that this is for purposes of
+``economic development.'' I believe if OIA was sincerely interested in
+economic development in American Samoa it would seriously consider the
+recommendations made by the American Samoa Economic Development
+Commission.
+ In 1997 federal legislation was introduced and enacted in 1999
+which established a Secretarial Commission to examine American Samoa's
+economic condition and make recommendations on how to diversify and
+expand American Samoa's economy. This was the first time in American
+Samoa's relationship with the United States that a Secretarial
+Commission was established.
+ This Secretarial Commission was established at a cost of $600,000,
+supported by Presidents Clinton and George W. Bush, chaired by the
+former Governor of Hawaii John Waihee, and administered by the U.S.
+Department of the Interior. Governor Tulafono Togiola of American Samoa
+served as a commission member. I served as an ex officio member.
+ In conjunction with the people of American Samoa, the Commission
+developed an economic plan based on the will of the people. In fact,
+over 8,000 people were surveyed at the request of the Commission by the
+American Samoa Community College.
+ In April 2002, the Secretarial Commission issued its final report
+to the President of the United States and I would like to ask that the
+Executive Summary be included for the record. The Chair noted that
+``while the people of American Samoa are ultimately responsible for
+implementing the plan, they will need the direct assistance and support
+of the United States Government, in particular the Department of the
+Interior to succeed.''
+ To date, the U.S. Department of the Interior has failed to move
+forward on this plan and I must say our local government officials have
+also not acted. Despite $600,000 of American taxpayer dollars having
+been set aside for this purpose, I am disappointed that OIA has
+dismissed the findings of the Commission and has instead set about
+spending additional taxpayer dollars on bringing down university
+students from the mainland who are completely unfamiliar with our
+culture to develop our economy with no input from the community or even
+my office and maybe even without input from our local Governor although
+he is in a better position to know what he has been privy to or not.
+ I am also disappointed that the OIA recently spent $92,000 of
+taxpayer dollars to fund the writing of a federal bill to replace IRS
+section 936, the possession tax credit. I would like to ask that a copy
+of this proposed bill be included as a matter of record as well as
+other pertinent materials relating to this decision. I would also like
+to note that the proposed bill failed to include input from our
+canneries, our Fono, our fishing fleet, my office, and other vested
+stakeholders.
+ Given that the House Ways and Means Committee and Senate Committee
+on Finance have jurisdiction for any and all federal tax policy, I am
+concerned that DOI entered into murky waters by funding the drafting of
+legislation. Again, the DOI did not fund a report or a study but
+instead funded the drafting of a bill. It was my impression that this
+is not the role of federal agencies.
+ I also have concerns that in addition to funding the writing of
+legislation, OIA has now provided ASG with $150,000 to develop an
+economic strategy to address the impact of the tuna cannery shutdown.
+Again, I want to point out that $600,000 was already set aside and
+expended for the establishment of the American Samoa Economic
+Development Commission which developed an economic plan based on the
+will of the people. OIA has also already published a report in July
+2006 entitled, ``The Economic and Financial Impact of American Samoa
+Cannery Shutdown on the Territory's Economy, Employment, Public Sector
+and the Federal Budget.'' I ask that this report be placed in the
+record and also all relevant correspondence relating to OIA's decision
+to spend another $150,000 to reinvent the wheel.
+ I would also like to request oversight over OIA's use of technical
+assistance grant funds which have paid for the above mentioned
+activities. According to Assistant Secretary Cohen's testimony, ``the
+only funding that can be considered truly discretionary are OIA
+salaries and expenses ($8.2 million) and the Technical Assistance
+activity ($16.1 million), which account for $24.3 million out of the
+total OIA budget of $403.8 million in FY 2008.''
+ Since OIA set aside $150,000 in 2007 to develop an economic
+strategy for American Samoa, then I believe Congress has a right to
+know what expert has been identified to develop this strategy. I also
+believe that if we're paying for a strategy we should get a strategy
+and there should be oversight to make sure we don't get another bill.
+ Also, if OIA determines that $92,000 should be set aside for a
+study about IRS section 936, then I believe a study is what we should
+get. Instead, we got a bill which was slipped to the Senate Finance and
+Energy Committees. I might also add that the bill went nowhere because
+that is not the way we do business in Congress. In Congress, we
+introduce our bills in the light of day.
+ As a complement to federal efforts to develop and diversify
+American Samoa's economy, I remain hopeful that ASG will propose and
+enact local tax reform. I believe the Territorial Tax Exemption Board
+has served its usefulness and ASG now needs to standardize, by law,
+corporate tax rates, exemptions, tax holidays, and capitalization
+requirements so that investors and companies that want to conduct
+business in the Territory will be treated equally under the law.
+ On the federal side, I also want to say that the original purpose
+of the possession tax provisions was to enhance the ability of U.S.
+firms operating in the possessions to compete with foreign firms and
+section 936 encouraged our tuna industry to stay in American Samoa.
+However, we cannot be so naive as to think that by resolving the issue
+of section 936 that we have resolved American Samoa's dependency on the
+tuna industry. Nothing could be further from the truth. American
+Samoa's private sector economy continues to be more than 80% dependent,
+either directly or indirectly, on the U.S. tuna fishing and processing
+industries and, even with 30A tax credits in place, we have no
+guarantee that the tuna canneries will stay in American Samoa.
+ Our tuna industry faces serious challenges as a result of one free
+trade agreement after another including the Andean and Thailand Free
+Trade agreements. Thailand is already the biggest exporter of tuna in
+the world and even the Andean countries can wipe out American Samoa's
+entire tuna industry. While we have been successful in making sure tuna
+is considered highly import sensitive, we must be successful in keeping
+canned tuna in the longest phase out possible and we must protect our
+albacore base or all of our efforts will be for naught.
+ But even if we are successful in these areas, American Samoa cannot
+control world wage rates. For now, a tuna cannery worker in American
+Samoa is paid about $3.60 per hour. In Thailand and the Andean
+countries, cannery workers are paid 60 cents and less per hour. These
+are the realities facing American Samoa. And this is why almost ten
+years ago, Congress established a Secretarial Commission to help
+American Samoa develop a plan to diversify its economy. With its final
+report issued in 2002, I believe it is now time for OIA and ASG to take
+action.
+ In November, the American people overwhelmingly voted to take our
+country in a New Direction. As a result, I believe it is our duty to
+make sure all federal agencies, including OIA, operate in a manner that
+is transparent and inclusive. In other words, I believe OIA should be
+obligated to make sure that the Fono has a voice in how federal funds
+from the Department of the Interior are expended in American Samoa and
+it is my intention to also bring these matters to the attention of the
+Subcommittee on Interior Appropriations.
+ ______
+
+ [NOTE: An explanatory memorandum dated August 2, 2005,
+submitted for the record by Mr. Faleomavaega has been retained
+in the Committee's official files.]
+
+ [A letter submitted for the record by David B. Cohen,
+Deputy Assistant Secretary for Insular Affairs, follows:]
+[GRAPHIC] [TIFF OMITTED] 33609.001
+
+
+ [NOTE: Attachments to Mr. Cohen's letter have been retained
+in the Committee's official files.]
+
+
+
+