Compacts of Free Association: Guidelines Needed to Support Reliable Estimates of Cost Impacts of Growing Migration
Published: 2013-07-11T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: U.S. compacts with the FAS permit those three countries' citizens to migrate to the United States and its territories (U.S. areas) without regard to visa and labor certification requirements. Thousands of FAS citizens have migrated to U.S. areas (compact migrants)—particularly to Hawaii, Guam, and the CNMI. In fiscal year 2004, Congress appropriated $30 million annually for 20 years to help defray affected jurisdictions' costs for migrant services. Interior allocates the $30 million as compact impact grants in proportion to the number of compact migrants living in each affected jurisdiction. Although not required, affected jurisdictions may report impact costs to Interior, which submits any reports it receives to Congress.
This statement draws from GAO's November 2011 report on compact migrants and discusses challenges in identifying the impact of compact migrants on U.S. areas. For this statement, GAO assessed progress made by Interior to address the recommendation that it disseminate cost guidelines.
section_title: What GAO Found
paragraphs: Data from the U.S. Census Bureau (Census) show that migrants from the freely associated states (FAS)—the Federated States of Micronesia (FSM), the Marshall Islands, and Palau—reside throughout U.S. areas. GAO's 2011 report found that Census estimates that roughly 56,000 compact migrants—nearly a quarter of all FAS citizens—were living in U.S. areas in 2005 to 2009. About 58 percent of compact migrants lived in areas that Congress defined in the amended compacts' enabling legislation as affected jurisdictions: American Samoa, Hawaii, Guam, and the Commonwealth of the Northern Mariana Islands (CNMI).
For fiscal years 2004 through 2010, Hawaii, Guam, and the CNMI reported more than $1 billion in costs associated with providing education, health, and social services to compact migrants—far in excess of the $210 million in compact impact grants over that time period. The affected jurisdictions reported impact costs for education, health, public safety, and social services to the Department of the Interior (Interior). Education accounted for the largest share of reported expenses in all three jurisdictions, and health care costs accounted for the second-largest share overall.
However, assessed against best practices for cost estimation, these cost estimates contain a number of limitations with regard to accuracy, adequate documentation, and comprehensiveness, affecting the reported costs' credibility and preventing a precise calculation of total compact impact on the affected jurisdictions. For example, some jurisdictions did not accurately define compact migrants, account for federal funding that supplemented local expenditures, or include revenue received from compact migrants.
Interior developed guidelines in 1994 for reporting compact impact. However, several officials from the reporting local government agencies, as well as Interior officials, were not aware of the guidelines and had not used them. Moreover, the 1994 guidelines do not address certain concepts that are essential for reliable estimates of impact costs, such as calculating revenue received from providing services. Providing more rigorous guidelines to the affected jurisdictions that address concepts essential to producing reliable impact cost estimates and promoting their use for compact impact reports would increase the likelihood that Interior can provide reliable information on compact impacts to Congress. Although Interior took initial steps to implement GAO's recommendation in 2012, it has not yet provided updated guidelines for estimating compact cost impacts.
section_title: What GAO Recommends
paragraphs: GAO is not making new recommendations in this statement. In its 2011 report, GAO recommended that Interior disseminate adequate guidance for estimating compact cost impacts and call for the affected jurisdictions to apply these guidelines, among other steps needed to assess and address the impact of the growing compact migration. Interior concurred with the recommendation on providing adequate guidance for estimating compact cost impacts.

section_title: Letter
paragraphs: I am pleased to submit this statement about our previous work on the  impact of migration under provisions of the compacts of free association.  Three Pacific island nations—the Federated States of Micronesia (FSM),  the Republic of the Marshall Islands, and the Republic of Palau—have  entered into compacts with the United States. Compact goals included  achieving self government, promoting economic advancement, and  securing security and defense rights. In addition, the compacts provide for  citizens of these freely associated states (FAS) to enter and reside  indefinitely in the United States, including its territories. Since the  compacts went into effect—in 1986 for the FSM and the Marshall Islands  and in 1994 for Palau—thousands of migrants from these countries have  established residence in U.S. areas, particularly in Guam, Hawaii, and the  Commonwealth of the Northern Mariana Islands (CNMI).
In 2003, Congress approved amended compacts with the FSM and the  Marshall Islands. In the amended compacts’ enabling legislation,  Congress extended additional economic assistance to the two countries  and authorized and appropriated $30 million annually for 20 years for  grants to Guam, Hawaii, the CNMI, and American Samoa, which it  deemed “affected jurisdictions,” to help defray the cost of services to   Congress directed the Department of the Interior  compact migrants.(Interior) to divide these compact impact grants among the affected  jurisdictions in proportion to the most recent enumeration of compact  migrants residing in each jurisdiction. Since 1986, affected jurisdictions  have submitted to Interior compact impact reports that include  descriptions of, and estimated costs for, education, health, public safety,  and social services that local government agencies provided to compact  migrants. However, affected jurisdictions have expressed continuing  concerns that they do not receive adequate compensation for the growing  cost of providing government services to compact migrants. In addition,  thousands of compact migrants have moved to other states that are not  eligible to receive compact impact grants. My statement draws from our  November 2011 report on compact migrants and will discuss challenges  in assessing the impact of compact migrants on U.S. areas.
For our 2011 report’s discussion of the impact of compact migrants, we  reviewed previous reports on compact migration and cost estimation,  Interior’s impact reports, as well as the supporting documentation and  methodologies used to prepare impact reports. We also interviewed  Interior and local government officials. To assess compact impact cost  reporting, we reviewed affected jurisdictions’ impact reports since 2004  and compared these reports to cost estimation criteria. Interior’s guidance on compact impact reporting, we reviewed the  requirements in the amended compacts’ enabling legislation and Interior’s  existing guidelines. To describe compact migrants’ role in the economy,  we used data from earlier FAS migrant surveys, supplemented where  possible with additional information from local agencies and other  literature. For this statement, in June 2013, we updated and assessed  progress made by Interior on the recommendation in the 2011 report that  Interior disseminate adequate guidance on estimating compact cost  impacts. Our 2011 report contains a detailed description of its scope and  methodology.
GAO, GAO Cost Estimating and Assessment Guide: Best Practices for Developing and  Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.: March 2009) and  OMB Circular No. A-94, Guidelines and Discount Rates for Benefit-Cost Analysis of  Federal Programs, revised October 29, 1992. and perform the audit to obtain sufficient, appropriate evidence to provide  a reasonable basis for our findings and conclusions based on our audit  objectives. We believe that the evidence obtained provides a reasonable  basis for our findings and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The FSM, the Marshall Islands, and Palau are among the smallest  countries in the world. In 2008, the three FAS had a combined resident  population of approximately 179,000—104,000 in the FSM, 54,000 in the  Marshall Islands, and 21,000 in Palau.
Under the compacts of free association, citizens of the FAS are exempt  from meeting the visa and labor certification requirements of the  Immigration and Nationality Act as amended. The migration provisions of  the compacts allow compact migrants to enter the United States  (including all U.S. states, territories, and possessions) and to lawfully   In the 1986 compacts’ enabling  work and establish residence indefinitely.legislation, Congress stated that it was not its intent to cause any adverse  consequences for U.S. territories and commonwealths and the state of  Hawaii. Congress further declared that it would act sympathetically and  expeditiously to redress any adverse consequences and authorized  compensation for these areas that might experience increased demands  on their educational and social services by compact migrants from the  Marshall Islands and the FSM.
The December 2003 amended compacts’ enabling legislation restated  Congress’s intent not to cause any adverse consequences for the areas  defined as affected jurisdictions—Guam, Hawaii, the CNMI, and  American Samoa. The act also authorized and appropriated $30 million  for each fiscal year from 2004 to 2023 for grants to the affected  jurisdictions, to aid in defraying costs incurred by these jurisdictions as a  result of increased demand for health, educational, social, or public safety  services, or for infrastructure related to such services specifically affected  by compact migrants resident in the affected jurisdictions.
Figure 1 shows the locations of the FAS and the affected jurisdictions.
The amended compacts’ enabling legislation provides for Interior to  allocate the $30 million in grants to affected jurisdictions on the basis of  their compact migrant population. Each affected jurisdiction is to receive  its portion of the $30 million per year in proportion to the number of  compact migrants living there, as determined by an enumeration to be  undertaken by Interior and supervised by the U.S. Census Bureau  (Census) or another organization at least every 5 years.the population to be enumerated as persons, or those persons’ children  under the age of 18, who pursuant to the compacts are admitted to, or  resident in, an affected jurisdiction. The amended compacts’ enabling  legislation permits, but does not require, affected jurisdictions to report on  compact migrant impact. If Interior receives such reports from the affected  jurisdictions, it must submit reports to Congress that include, among other  things, the governor’s comments and administration’s analysis of any  such impacts.
The combined data from Census’s 2005-2009 American Community  Survey and the 2008 required enumerations in Guam and the CNMI  estimated that approximately 56,000 compact migrants quarter of all FAS citizens—lived in U.S. areas, with the largest  populations in Guam and Hawaii. An estimated 57.6 percent of all  compact migrants lived in affected jurisdictions: 32.5 percent in Guam,  21.4 percent in Hawaii, and 3.7 percent in the CNMI, while nine mainland  states each had an estimated compact migrant population of more than  1,000. (See fig. 2.)
Census’s 2005-2009 American Community Survey and 2008 enumerations estimated  the total number of compact migrants in U.S. states and territories as ranging from 49,642  to 63,048, with a 90 percent confidence interval; that is, Census is 90 percent confident  that the true number of compact migrants falls within that range. For additional detail on  these Census estimates, see pages 12 through 18 of GAO-12-64.
Census suppressed the estimated values of remaining states to protect the confidentiality of  individual respondents; we do not know how many of the remaining states contain migrants.
On the basis of these combined data, we estimate that approximately 68  percent of compact migrants were from the FSM, 23 percent were from  the Marshall Islands, and 9 percent were from Palau. Surveys conducted  in affected jurisdictions from 1993 through 2008 show growth in the  compact migrant populations in Guam and Hawaii. In the CNMI, from  2003 to 2008, the compact migrant population declined. Over the same  period, the total compact migrant population in Guam and Hawaii grew as  a percentage of their total populations. The estimated number of compact  migrants in Guam increased from 9,831 in 2003 to 18,305 in 2008. In  2003, compact migrants represented approximately 6 percent of Guam’s  total population, but by 2008 they had increased to approximately 12  percent. Compact migrants in Hawaii increased during the same period  from an estimated 7,297 to 12,215 and represented approximately 1  percent of Hawaii’s total population in 2008.
An analysis of 2010 decennial census race data also shows growth in the  population of FAS-related persons throughout the United States, with the  U.S. population of FAS-related persons more than tripling from 17,380 in  2000 to 55,286 in 2010.
section_title: Guam and Hawaii Report Rising Compact Costs, Primarily for Education and Health
paragraphs: For 2004 through 2010, the affected jurisdictions’ reports to Interior show  more than $1 billion in costs for services related to compact migrants.  During this period, Guam’s annual reported costs increased by nearly 111  percent, and Hawaii’s by approximately 108 percent. The CNMI’s  reported annual costs decreased by approximately 53 percent, reflecting  the decline in the CNMI compact migrant population. During the same  period, the amended compacts’ enabling legislation provided $210 million  in impact grants—approximately $102 million to Guam, $75 million to  Hawaii, and $33 million to the CNMI. Figure 3 shows compact impact  costs reported by the affected jurisdictions for 1996 through 2010.
The affected jurisdictions reported impact costs for education, health,  public safety, and social services. Education accounted for the largest  share of reported expenses in all three jurisdictions, and health care costs  accounted for the second-largest share overall (see table 1). Several  officials in Guam and Hawaii cited compact migrants’ limited eligibility for  a number of federal programs, particularly Medicaid, as a key contributor  to the cost of compact migration borne by the affected jurisdictions.  While their parents may not be eligible for some programs, U.S.-born  children of compact migrants are eligible as citizens for the benefits  available to them as U.S. citizens.
section_title: Compact Impact Estimates Have a Number of Weaknesses
paragraphs: We identified a number of weaknesses related to accuracy, adequacy of  documentation, and comprehensiveness in affected jurisdictions’  reporting of compact impacts to Interior from 2004 through 2010.  Examples of such weaknesses include the following.
subsections: section_title: Accuracy
paragraphs: Definition of compact migrants. For several impact reports that we  examined, the reporting local government agencies, when calculating  service costs, did not define compact migrants according to the  criteria in the amended compacts enabling legislation. For instance,  some agencies defined and counted compact migrants using the  proxy measures of ethnicity, language, or citizenship rather than the  definition in the amended compacts’ enabling legislation. Using  ethnicity or language as a proxy measure could lead to overstating  costs, since neither measure would exclude individuals who came to  the jurisdiction prior to the compact, while using citizenship as a proxy  measure could lead to understating costs, since it would exclude U.S.- born children of compact migrants.
Federal funding. Guam, Hawaii, and the CNMI, among other U.S.  states and territories, receive federal funding for programs that  compact migrants use; however, not all compact impact reports  accounted for this stream of funding and included costs in compact  impact estimates for programs that federal funding had partially  addressed. To the extent that federal revenue for programs in affected  jurisdictions is based on population counts or data on usage, the  presence of, and use of services by, compact migrants lead to federal  offsets. For example, from 2004 to 2008, Hawaii developed its  education impact costs by calculating a per-pupil expenditure  multiplied by the number of compact migrant students enrolled each  school year. However, federal funds received through several  programs are included in these annual expenditures. If the federal  funds component of per-pupil expenditures were subtracted from  Hawaii’s education impact reporting, as well as a correction made to  eliminate a data error that double-counted Marshallese students, it  would reduce the total cost of services to compact migrants by  approximately $61 million for 2004 through 2008 from $229 to $168  million.
Revenue. Multiple local government agencies that receive fees as a  result of providing services to compact migrants did not consider fees  in their compact impact reports. Any exclusion of revenue may cause  an overstatement of the total impact reported. Compact migrants also  participate in local economies through their participation in the labor  force, payment of taxes, consumption of local goods and services,  and receipt of remittances. Previous compact migrant surveys  estimated compact migrants’ participation in the labor force, but  existing data on other compact migrant contributions such as tax  revenues, local consumption, or remittances are not available or  sufficiently reliable to quantify their effects.
Capital costs. Many local government agencies did not include  capital costs in their impact reporting. Capital costs entail, for  example, providing additional classrooms to accommodate an  increase in students or constructing additional health care facilities. In  cases where compact migration has resulted in the expansion of  facilities, agencies understated compact migrant impact by omitting  these costs.
Per person costs. A number of local government agencies used an  average per-person service cost for the jurisdiction rather than  specific costs associated with providing services to compact migrants.  For example, one jurisdiction based the cost of providing health care  services to compact migrants on the number of migrants served out of  the total patient load instead of totaling each patient’s specific costs.  Using the average cost may either overstate or understate the true  cost of service provision.
section_title: Documentation Adequacy
paragraphs: A number of local government agencies did not disclose their  methodology for developing impact costs, including any assumptions,  definitions, and other key elements, which makes it difficult to evaluate  reported costs. Furthermore, some agency methodologies vary among  affected jurisdictions.
section_title: Comprehensiveness
paragraphs: For those years when the affected jurisdictions submitted impact reports  to Interior, not all local government agencies in the affected jurisdictions  included compact impact costs for those years. For example, Hawaii did  not provide estimated costs to Interior in 2005 and 2006, although it  included partial costs incurred in those years in its 2007 and 2008 reports.  Without comprehensive data in each year, the compact impact reports  could understate total costs. In addition, compact impact reporting has not  been consistent across affected jurisdictions. For example, Guam and the  CNMI included the cost of providing police services, while Hawaii did not.
section_title: Existing Compact Impact Reporting Guidelines Have Gaps and Generally Are Not Used
paragraphs: Guidelines that Interior developed in 1994 for compact impact reporting  do not adequately address certain concepts key to reliable estimates of  impact costs. Developed in response to a 1993 recommendation by the   the guidelines suggest that impact costs in  Interior Inspector General,Guam and the CNMI should, among other concepts, (1) exclude FAS  citizens who were present prior to the compacts, (2) specify omitted  federal program costs, and (3) be developed using appropriate  methodologies. However, the 1994 guidelines do not address certain  concepts, such as calculating revenue received from providing services to  compact migrants, including capital costs, and ensuring that data are  reliable and reporting is consistent.
Several Hawaii and CNMI officials from the reporting local government  agencies we met with, as well as Interior officials, were not aware of the  1994 guidelines and had not used them. Officials at the Guam Bureau of  Statistics and Plans, which possessed the guidelines, said that the  bureau attempts to adhere to them when preparing compact impact cost  estimates. However, we found some cases where the bureau and other  Guam agencies did not follow the guidelines.
In order to strengthen Interior’s ability to collect, evaluate, and submit  reliable information to Congress on compact impact, we recommended in  our November 2011 report that Interior disseminate guidelines to the  affected jurisdictions on producing reliable impact estimates, and call for  the affected jurisdictions to apply these guidelines when developing  compact impact reports. Interior agreed with our recommendation. In  March 2012, Interior convened a meeting of the Presidents of the FAS  and governors and senior officials from affected jurisdictions to  collaboratively develop strategies to address policy issues concerning the  compacts. At the meeting, Interior stated that it would work directly with  the affected jurisdictions regarding the feasibility of developing uniform  reporting guidelines, with Guam and Hawaii having leadership roles in the  effort. As of June 2013, Interior had not prepared any new guidance. We  continue to believe that providing more rigorous guidelines to the affected  jurisdictions and promoting their use for compact impact reports would  increase the likelihood that Interior can provide reliable information on  compact impacts to Congress.
This concludes my statement for the record.
section_title: Contacts and Staff Acknowledgments
paragraphs: If you or your staff have any questions about this statement, please  contact me at 202-512-3149 or gootnickd@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this statement. GAO staff who made key contributions  to this statement include Emil Friberg, Jr. (Assistant Director); Ashley  Alley; David Dayton; Martin De Alteriis; Keesha Egebrecht; Fang He; Reid  Lowe, Mary Moutsos; Michael Simon; Sonya Vartivarian; and Monique  Williams.
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