Compacts of Free Association: Issues Associated with Implementation in Palau, Micronesia, and the Marshall Islands
Published: 2016-04-05T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: U.S. compacts with the FSM and the RMI entered into force in 1986 and were amended in 2003. A compact with Palau entered into force in 1994. Legislation pending before the Senate would approve, provide funding for, and make modifications to a 2010 agreement between the U.S. and Palau governments regarding their compact.
Under the compacts, the United States provides each country with, among other things, economic assistance—including grants and contributions to a trust fund; access to certain federal services and programs; and permission for citizens of the three countries to migrate to the United States and its territories without regard to visa and labor certification requirements. Guam, Hawaii, the Commonwealth of the Northern Mariana Islands, and American Samoa, which are designated in law as jurisdictions affected by compact migration, receive grants to aid in defraying the cost of services to migrants.
This testimony examines (1) the potential impact of the proposed legislation approving the 2010 Palau agreement, (2) challenges affecting implementation of the FSM and RMI compacts, and (3) migration from the FSM, RMI, and Palau and its impacts on U.S. areas. For this statement, GAO summarized previous reports issued in 2007 through 2013 and incorporated updated information from Palau, the Department of the Interior, and affected jurisdictions. GAO is not making any new recommendations in this testimony. GAO has made recommendations in its prior reports, some of which have not yet been addressed.
section_title: What GAO Found
paragraphs: If enacted, Senate Bill 2610 (S. 2610) would change the schedule for U.S. assistance to the Republic of Palau and improve prospects for Palau's compact trust fund. S. 2610 would approve a 2010 agreement between the U.S. and Palau governments and provide annual assistance to Palau through 2024. Congress has not approved legislation to implement the 2010 agreement, which scheduled $216 million in U.S. assistance for fiscal years 2011 through 2024. Since 2011, the United States has provided $79 million in economic assistance to Palau through annual appropriations. However, this amount was less than anticipated under the agreement and has not included trust fund contributions. S. 2610 would modify the agreement schedule to provide the remaining $137 million in fiscal years 2017 through 2024, including a $20 million trust fund contribution in 2017 and smaller contributions in later years (see fig.).
U.S. Assistance to Palau Provided in Fiscal Years 2011-2016 and Proposed by Senate Bill 2610 for Fiscal Years 2017-2024
The Federated States of Micronesia (FSM) and Republic of the Marshall Islands (RMI) face challenges to achieving the compact goals of economic growth and self-sufficiency. GAO previously found that neither country has made significant progress on reforms and compact implementation has been characterized by unreliable performance data and by accountability and oversight challenges.
GAO has previously reported on the growth of migrant populations from Palau, the FSM, and RMI in U.S. areas as well as the reported impacts of these compact migrants. In Guam, Hawaii, and the Commonwealth of the Northern Mariana Islands—areas Congress has deemed affected jurisdictions—compact migrants increased from about 21,000 in 2003 to about 35,000 in 2013. In fiscal years 2004 through 2016, the Department of the Interior provided approximately $409 million to affected jurisdictions to aid in defraying costs, such as for education and health services, attributable to compact migrants. In contrast, affected jurisdictions estimated costs of $2.1 billion for these services in 2003 through 2014. However, GAO has noted that these estimates have limitations related to accuracy, documentation, and comprehensiveness.

section_title: Letter
paragraphs: Thank you for this opportunity to discuss our prior work on U.S. Compacts  of Free Association with the Freely Associated States (FAS) of the  Pacific—the Republic of Palau, the Republic of the Marshall Islands  (RMI), and the Federated States of Micronesia (FSM). In recent years, we  have testified on several aspects of compact implementation, including  analyses of a September 2010 agreement with the Palau government  (2010 agreement) to provide assistance to Palau, challenges to FSM  and RMI compact progress and management, and the impact of migration  from the FAS to U.S. areas. As Congress considers legislation approving  the 2010 agreement, my statement today will examine the proposed  legislation’s potential effects on U.S. assistance outlined in the 2010  agreement, including contributions to a trust fund established for Palau  under the U.S.–Palau compact (compact trust fund). I will also  summarize and update our previous reporting on challenges in FSM and  RMI compact implementation and on migration from the FAS (compact  migration) and its impacts on U.S. areas, including updates on the status  of actions to address selected prior recommendations.
To examine the proposed legislation’s potential effects on U.S. assistance  outlined in the 2010 agreement, we reviewed the bill pending before the  Senate, Senate Bill 2610 (S. 2610), introduced in March 2016; analyzed  U.S. economic assistance to Palau over the past 6 fiscal years; and  updated our projections for Palau’s compact trust fund. To discuss  challenges in compact implementation, we relied primarily on prior reports  on FSM and RMI compact trust fund and grant management that we  issued from fiscal year 2007 through fiscal year 2013 as well as agency  responses to our prior recommendations. To describe the impacts of  compact migration on U.S. areas, we primarily relied on our prior report  issued in 2011 and updated our previous analysis of reported cost  impacts based on subsequent information obtained from the Department  of the Interior (Interior), Hawaii, Guam, and the Commonwealth of the  Northern Mariana Islands (CNMI). We also reviewed information provided  by Interior to update the status of its response to our previous  recommendations to address the impact of compact migration. Detailed  information on the scope and methodology for our prior work summarized  in this testimony can be found in the reports cited.
We conducted the work on which this statement is based in accordance  with generally accepted government auditing standards. Those standards  require that we plan 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: U.S. relations with the FAS began when American forces liberated the  islands near the end of World War II. In 1947, the United Nations  assigned the United States administering authority over the Trust  Territory of the Pacific Islands, which included what are now the Republic  of Palau, the FSM, and the RMI. Interior’s Office of Insular Affairs (OIA)  has primary responsibility for monitoring and coordinating all U.S.  assistance to the FAS, and the Department of State is responsible for  government-to-government relations. All three compacts give the United  States responsibility for the defense of the FAS and provide the United  States with exclusive military use rights in these countries. According to  the Department of Defense, the compacts have enabled it to maintain  critical access in the Asia–Pacific region.
In 2014, Palau had the smallest population of the three nations, but its per  capita gross domestic product (GDP) was about four times greater than  the FSM’s or the RMI’s (see table 1). Economic growth has varied  among the three nations. After adjustment for inflation, per capita GDP in  the FSM was unchanged from 2004 to 2014 but grew by 11 percent in the  RMI and 8 percent in Palau.
subsections: section_title: Palau Compact
paragraphs: The U.S. and Palau governments concluded their Compact of Free  Association in 1986, and the compact entered into force on October 1,  1994. Key provisions of the Palau compact address the sovereignty of  Palau, types and amounts of U.S. assistance, security and defense  authorities, and periodic reviews of compact terms. (See app. I for a table  summarizing the key provisions of the Palau compact.) In fiscal years  1995 through 2009, the United States provided about $574 million in  compact assistance to Palau, including $70 million to establish Palau’s  compact trust fund and $149 million for road construction. In addition,  U.S. agencies—the Department of Education, the Department of Health  and Human Services (HHS), and Interior, among others—provided  assistance to Palau through discretionary federal programs as authorized  by U.S. legislation and with appropriations from Congress.
On September 3, 2010, the governments of the United States and Palau  reached an agreement to extend U.S. assistance to Palau, totaling  approximately $216 million in fiscal years 2011 through 2024. The  planned assistance included extending direct economic assistance to  Palau, providing infrastructure project grants and contributions to an  infrastructure maintenance fund, establishing a fiscal consolidation fund,  and making changes to the compact trust fund.
section_title: FSM and RMI Compacts
subsections: section_title: 1986 Compact
paragraphs: The 1986 Compact of Free Association between the United States, the  FSM, and the RMI provided a framework for the United States to work  toward achieving its three main goals: (1) to secure self-government for  the FSM and the RMI, (2) to assist the FSM and the RMI in their efforts to  advance economic development and self-sufficiency, and (3) to ensure  certain national security rights for all of the parties. The second goal of  the compact—advancing economic development and self-sufficiency for  both countries—was to be accomplished primarily through U.S. direct  financial payments (to be disbursed and monitored by Interior) to the FSM  and the RMI. Under the 1986 compact, U.S. assistance to the FSM and  the RMI to support economic development was estimated, on the basis of  Interior data, at about $2.1 billion in fiscal years 1987 through 2003. In  addition, other U.S. agencies provided assistance to the FSM and RMI in  the form of grants, services, technical assistance, and loans.
section_title: 2003 Amended Compacts
paragraphs: In 2003, the United States approved separate amended compacts with  the FSM and the RMI. The amended compacts provide for direct  financial assistance to the FSM and the RMI in fiscal years 2004 through  2023, decreasing in most years, with the amount of the decrements to be  deposited in trust funds for the two nations established under the  amended compacts. The amended compacts’ enabling legislation  authorized and appropriated funds for the compact trust funds. The trust  funds are to contribute to the economic advancement and long-term  budgetary self-reliance of each government by providing an annual  source of revenue after fiscal year 2023. After the grants end in fiscal  year 2023, trust fund proceeds are to be used for the same purposes as  grant assistance, or as mutually agreed, with priorities in education and  health care. (See app. II for further information about planned U.S. trust  fund contributions and grants to the FSM and RMI through fiscal year  2023.)
The amended compacts identify the additional 20 years of assistance— primarily in the form of annual sector grants and contributions to the  compact trust fund for each country—as intended to assist the FSM and  RMI governments in their efforts to promote the economic advancement  and budgetary self-reliance of their people. The amended compacts and  their subsidiary agreements, along with the countries’ development plans,  target the grant assistance to six sectors—education, health, public  infrastructure, the environment, public sector capacity building, and  private sector development—prioritizing two sectors, education and  health. Interior projects that it will provide the FSM $2.1 billion under the  compact, while economic assistance and trust fund contributions to the  RMI will total $1 billion in fiscal years 2019 through 2023. The amended  compacts also provided for a joint economic management committee for  the FSM and a joint management and financial accountability committee  for the RMI to promote the effective use of compact funding. In practice,  the committees allocate grants and attach terms and conditions to grant  awards through resolutions, which the committees discuss and vote on at  their meetings.
OIA has responsibility for administration and oversight of the FSM and  RMI compact grants. The public law implementing the amended  compacts required the President to submit annual reports to Congress  regarding the FSM and RMI, a reporting requirement that has been  delegated to the Secretary of the Interior. Every 5 years, these annual  reports are to include additional information, including findings and  recommendations, pertaining to reviews that are required by law to be  conducted at 5-year intervals.
section_title: Compact Migration
paragraphs: The compacts provide for FAS citizens to enter and reside indefinitely in  the United States, including its territories, without regard to the  Immigration and Nationality Act’s visa and labor certification  requirements. Since the compacts went into effect, thousands of migrants  from the FAS have established residence in U.S. areas, particularly in  Guam, Hawaii, and the CNMI. In the 2003 amended compacts’ enabling  legislation, Congress authorized and appropriated $30 million annually for  20 years for grants to Guam, Hawaii, the CNMI, and American Samoa,  which it deemed affected jurisdictions, and authorized additional  appropriations. The $30 million annual appropriation is 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, due to the residence of compact migrants in their  jurisdiction. Congress directed Interior to divide the $30 million compact  impact grants among the affected jurisdictions in proportion to the most  recent enumeration of those compact migrants residing in each  jurisdiction. The U.S. Bureau of the Census (Census) conducted these  enumerations in 2003, 2008, and 2013.
section_title: Proposed Legislation Would Change Palau Assistance Schedule and Improve Prospects for Compact Trust Fund
paragraphs: If enacted, S. 2610 would approve, provide funding for, and make  modifications to the September 2010 agreement between the  governments of the United States and Palau regarding their compact. S.  2610 would not greatly alter the total U.S. assistance to Palau for fiscal  years 2011 through 2024 specified in the 2010 agreement. However, S.  2610 would make changes to the provision of assistance outlined in the  agreement in line with the reduction in U.S. assistance in fiscal years  2011 through 2016 from that planned in the 2010 agreement. The annual  trust fund contributions and withdrawal conditions that S. 2610 details  would improve the fund’s prospects for sustaining scheduled payments  through fiscal year 2044.
subsections: section_title: S. 2610 Maintains Assistance to Palau at About $216 Million but Would Modify Assistance Schedule
paragraphs: Under S. 2610, U.S. assistance to Palau would total about $216 million— approximately equal to the amount specified in the 2010 agreement—for  fiscal years 2011 to 2024. However, after 2016, larger amounts of  assistance would be provided under S. 2610 than the annual amounts  scheduled under the 2010 agreement. Under the 2010 agreement, which  has not been implemented, annual U.S. assistance to Palau would have  declined over 14 years from roughly $28 million in 2011 to $2 million in  2024. The 2010 agreement includes the following:
Direct economic assistance ($107.5 million). The 2010 agreement  would provide direct economic assistance—budgetary support for  Palau government operations and specific needs such as  administration of justice and public safety, health, and education—of  $13 million in 2011, declining to $2 million by 2023. The 2010  agreement also calls for the U.S. and Palau governments to establish  a five-member Advisory Group to provide annual recommendations  and timelines for economic, financial, and management reforms. The  Advisory Group must report on Palau’s progress in implementing  these or other reforms, prior to annual U.S.–Palau economic  consultations. These consultations are to review Palau’s progress in  achieving reforms such as improving fiscal management, reducing  the public sector workforce and salaries, reducing government  subsidization of utilities, and implementing tax reform. If the U.S.  government determines that Palau has not made significant progress  in implementing meaningful reforms, direct assistance payments may  be delayed until the U.S. government determines that Palau has  made sufficient progress.
Infrastructure projects ($40 million). Under the 2010 agreement, the  U.S. government would provide U.S. infrastructure project grants to  Palau for mutually agreed infrastructure projects—$8 million in 2011  through 2013, $6 million in 2014, and $5 million in both 2015 and  2016. The 2010 agreement requires Palau to provide a detailed  project budget and certified scope of work for any projects receiving  these funds.
Infrastructure maintenance fund ($28 million). The 2010 agreement  stipulates that the United States make contributions to a fund to be  used for maintenance of U.S.-financed major capital improvement  projects, including the Compact Road and Airai International Airport.  From 2011 through 2024, the U.S. government would contribute $2  million annually, and the Palau government would contribute  $600,000 annually to the fund.
Fiscal consolidation fund ($10 million). The 2010 agreement states  that the United States would provide grants of $5 million each in 2011  and 2012, respectively, to help the Palau government reduce its  debts. Unless agreed to in writing by the U.S. government, these  grants cannot be used to pay any entity owned or controlled by a  member of the government or his or her family, or any entity from  which a member of the government derives income. U.S. creditors  must receive priority, and the government of Palau must report  quarterly on the use of the grants until they are expended.
Trust fund ($30.25 million). The 2010 agreement provides for the  United States to contribute $30.25 million to the fund from 2013  through 2023. The government of Palau would reduce its previously  scheduled withdrawals from the fund by $89 million. From 2024  through 2044, Palau can withdraw up to $15 million annually, as  originally scheduled. Moneys from the trust fund account cannot be  spent on state block grants, operations of the office of the President of  Palau, the Olibiil Era Kelulau (Palau national congress), or the Palau  judiciary. Palau must use $15 million of the combined total of the trust  fund disbursements and direct economic assistance exclusively for  education, health, and the administration of justice and public safety.
If enacted, S. 2610 would increase the total annual assistance to Palau in  fiscal years 2017 through 2024 over that which was scheduled in the  2010 agreement. This increase would be in line with the lower than  scheduled amount of annual U.S. assistance that has been provided to  Palau since 2011. Specifically, Congress has not passed legislation to  approve the agreement, and Interior has provided Palau with a total of  $78.88 million in direct economic assistance from annual appropriations— $13.147 million in each fiscal year from 2011 through 2016. The amount  provided was approximately $67 million less than the amount outlined for  those years in the 2010 agreement, and it included no contributions to the  Palau trust fund. S. 2610 outlines changes in the schedule for contributing  approximately $137 million with larger total contributions in fiscal years  2017 through 2024, which would amount to approximately the same total  assistance specified in the 2010 agreement, $216 million. S. 2610  would make the following changes to the contribution schedule:
Rescheduling U.S. contributions to Palau’s trust fund, with a $20  million contribution in fiscal year 2017, $2 million annually through  fiscal year 2022, and $250,000 in fiscal year 2023.
Rescheduling U.S. contributions to Palau’s infrastructure maintenance  fund and fiscal consolidation fund, infrastructure project grants, and  direct economic assistance.
Figure 1 contrasts the scheduled annual assistance to Palau under the  2010 agreement with the contribution schedule under S. 2610. (See app.  III for additional details on the schedule of U.S. assistance to Palau in the  2010 agreement and as modified in the provisions of S. 2610.)
S. 2610 would also place conditions on the provision of assistance to  Palau. Under the bill, if Palau withdraws more than $5 million from the  trust fund in fiscal year 2016 or more than $8 million in fiscal year 2017,  additional assistance would be withheld until Palau reimbursed the trust  fund for the amounts that exceed the $5 million for fiscal year 2016 or the  $8 million for fiscal year 2017. S. 2610 would not otherwise alter the  withdrawal schedule outlined in the 2010 agreement. In the 2010  agreement, Palau agreed to a maximum withdrawal of $5 million annually  in fiscal years 2011 through 2013, with the maximum subsequently  increasing in increments through fiscal year 2023 to $13 million. Under  the 2010 agreement, Palau agreed to withdraw up to $6.75 million in  fiscal year 2016; under S. 2610, Palau would be able to withdraw up to $5  million in fiscal year 2016 without having assistance withheld.  Furthermore, Palau did not commit to a withdrawal schedule beyond 2023  in the 2010 agreement. However, the compact details an annual  distribution goal of $15 million for 2024 through 2044 from the trust fund.
section_title: Proposed Legislation Would Improve Long-Term Prospects for Palau’s Trust Fund
paragraphs: The contributions to, and conditions on withdrawals from, Palau’s  compact trust fund that S. 2610 outlines would improve the fund’s  prospects for sustaining payments beyond fiscal year 2044. At the end of  fiscal year 2015, the trust fund had a balance of nearly $184 million. With  or without the contributions and conditions that S. 2610 would provide,  the trust fund would be sustained through fiscal year 2044 if it maintains  the 7.6 percent compounded annual rate of return it earned from  inception through fiscal year 2015. However, given this historical rate of  return, the account balance at the end of fiscal year 2044 would be  dramatically lower without the contributions and conditions outlined in S.  2610—about $32 million—than it would be with them—about $521  million. The balances with and without these contributions equal $18  million and $292 million, respectively, in 2015 inflation-adjusted dollars.  Figure 2 compares the fund balance at the historical rate of return with  and without the changes outlined in S. 2610.
In addition, with the changes in S. 2610, Palau’s trust fund would be able  to sustain scheduled payments through 2044 given varying rates of return  in fiscal years 2015 through 2044.
With its historical 7.6 percent annual compounded return, Palau’s trust  fund would sustain its annual withdrawal schedule and continue to  grow beyond 2044, with a balance of $521 million at the end of fiscal  year 2044. (The 2044 balance would be $292 million in 2015  inflation-adjusted dollars.)
With at least a 6.3 percent annual compounded rate of return, Palau’s  trust fund would sustain its annual withdrawal schedule, with a  balance of $245 million or more at the end of fiscal year 2044. (The  2044 balance would be $137 million in 2015 inflation-adjusted  dollars.)
With a 4.4 percent annual compounded return, Palau’s trust fund  would sustain its annual withdrawal schedule through 2044, with a  balance of $0 at the end of fiscal year 2044.
Figure 3 shows the projected trust fund balances with these varying  assumed rates of return.
section_title: FSM and RMI Have Faced Critical Challenges to Achieving Long-Term Development Goals
paragraphs: As we have previously reported, in implementing their amended  compacts with the United States, the FSM and RMI have faced a number  of critical challenges that could affect their ability to achieve the compacts’  long-term development goals. Both countries have historically had  limited prospects for achieving economic growth. Moreover, compact  implementation by the FSM, RMI, and U.S. governments has displayed  weaknesses that have affected their ability to allocate resources  appropriately as well as provide accountability for, and oversight of, the  use of compact grants, which are scheduled to end in 2023.
subsections: section_title: FSM and RMI Prospects for Economic Growth and Self-Sufficiency Are Limited
paragraphs: We previously reported that the FSM’s and RMI’s economies were largely  dependent on government spending of foreign assistance, including U.S.  assistance under the amended compacts. Because of the scheduled  annual decrements of compact grant funding, annual grant assistance to  the FSM and RMI will diminish over the funding period. In addition,  neither country had made significant progress in implementing reforms  needed to improve tax income or increase private sector investment  opportunities. Moreover, tourism and fishing—private sector industries  that both countries have identified as having growth potential—faced  significant constraints, such as geographic isolation and lack of tourism  infrastructure. In 2011, Interior’s annual report to Congress regarding the  FSM and RMI noted that the FSM faced numerous challenges to private  sector economic growth and suggested that a consequence of declining  U.S. grant assistance could be a decline in living standards or migration  to the United States. At that time, Interior found that economic prospects  for the RMI remained uncertain, although the RMI had experienced  growth in fisheries and tourism. Interior expected the continuation of  migration from the RMI to the United States.
We reported in 2007 that uncertainty existed regarding the sustainability  of the FSM’s and RMI’s compact trust funds as sources of revenue after  the amended compacts end. We noted that the countries’ compact trust  funds’ balances in 2023 could vary widely owing to market volatility and  choice of investment strategy and that, as a result, the compact trust  funds might be unable to generate disbursements in some years,  affecting the governments’ ability to provide services after U.S.  contributions to the trust funds end. More recent analyses of the FSM and  RMI trust funds have highlighted the challenge of ensuring trust fund  disbursements and proposed technical revisions to trust fund  procedures. In 2015, the Asian Development Bank (ADB) projected that  the probability of FSM and RMI trust funds’ maintaining their value  through 2050 was 22 and 49 percent, respectively. The ADB projects  significant fluctuations in FSM and RMI annual drawdowns and proposes  revised trust fund withdrawal rules. Moreover, 2015 economic reviews  of the FSM and RMI compacts funded by Interior have projected that both  trust funds will be underfunded and distribution shortfalls will be frequent  and have recommended several changes to the distribution mechanism.  In its September 2012 comments on the U.S. government’s first 5-year  review of the amended compact, the RMI government made specific  recommendations to improve compact performance, including technical  revisions to trust fund procedures.
section_title: Implementation of FSM and RMI Compacts Has Shown Weaknesses
paragraphs: During the amended compacts’ first 10 years, the FSM and RMI joint  management and accountability committees directed the majority of  compact grant assistance to the education and health sectors, which the  compact agreements prioritized. As we previously reported,  weaknesses in FSM, RMI, and U.S. implementation of the compacts have  limited the governments’ ability to ensure the effective use of grant  funds.
Lack of reliable performance data. Ongoing problems with the  reliability of data on grant performance in the education and health  sectors have prevented both countries from demonstrating and  assessing progress toward compact goals for these sectors and from  using the data to set priorities and allocate resources to improve  performance.
Challenges to ensuring accountability for compact grant funding.  The FSM’s and RMI’s single audits for fiscal years 2006 through 2011  indicated challenges to ensuring accountability of compact and  noncompact U.S. funds in the FSM and RMI. For example, these  governments’ single audits showed repeat findings and persistent  problems in noncompliance with U.S. program requirements, such as  accounting for equipment. For this hearing, we have updated our  prior analysis of audit reports and have found that accountability  remains a concern. For example, while the RMI met the single audit  reporting deadline for fiscal years 2006 through 2010, it submitted the  required reports for fiscal years 2011 through 2014 after the deadline.
Moreover, the 2014 reports for both countries identified several  material weaknesses, such as an inability to account properly for  equipment.
Limited oversight of compact grants. OIA’s oversight of grants  under the amended compacts has been limited by staffing shortages.  As we have previously reported, OIA officials noted that budget  constraints, as well as decisions to use available funding for other  hiring priorities, were among factors that prevented OIA from hiring  staff that it had projected as necessary to ensure effective oversight  for the amended compacts. These staffing shortages have affected  OIA’s ability to ensure that compact funds are used efficiently and  effectively. According to FSM and RMI officials, staffing constraints,  as well as a lack of authority to enforce compact requirements,  hampered oversight by the FSM and RMI offices responsible for  compact implementation.
section_title: Compact Migrant Populations and Reported Cost Impacts Are Growing
paragraphs: The population of FAS migrants in U.S. areas has continued to grow. We  have previously reported that, while the majority of compact migrants live  in three affected jurisdictions—Hawaii, Guam, and the CNMI—migrants  are also present in several other U.S. states. The three affected  jurisdictions have reported more than $2 billion in costs associated with  providing education, health, and social services to compact migrants and  have called for additional funding and changes in law to address compact  migrant cost impacts.
subsections: section_title: Thousands of Compact Migrants Live in U.S. Areas, with the Majority in Three Affected Jurisdictions
paragraphs: Since the signing of the Compacts of Free Association, thousands of FAS  citizens have migrated to U.S. areas. According to Census enumerations  of migrants in three affected jurisdictions—Guam, Hawaii, and the  CNMI—the total number of compact migrants in those jurisdictions  increased from about 21,000, estimated in the 2003 enumeration, to  about 35,000, estimated in the 2013 enumeration (see fig. 4). In 2011,  Census estimated 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 Hawaii, Guam, and the  CNMI at that time. Nine mainland U.S. states—California, Washington,  Oregon, Utah, Oklahoma, Florida, Arkansas, Missouri, and Arizona— each had an estimated compact migrant population of more than 1,000.  (See app. IV for further information about the estimated compact migrant  populations.) Approximately 68 percent of compact migrants were from  the FSM, 23 percent were from the RMI, and 9 percent were from  Palau.
section_title: Three Affected Jurisdictions Report That Cost Impacts Far Exceed Compact Impact Grants
paragraphs: In fiscal years 2004 through 2016, affected jurisdictions received  approximately $409 million in compact impact grants to aid in defraying  their costs due to the residence of compact migrants. In fiscal years 2004  through 2016, Interior distributed a portion of the $30 million annual  appropriation that was authorized and appropriated in the amended  compacts’ enabling legislation to each affected jurisdiction according to  the size of its compact migrant population. Since fiscal year 2012, as  authorized by the amended compacts’ enabling legislation, Interior has  also provided compact impact grants to affected jurisdictions from annual  appropriations, which it has also divided according to the size of their  migrant populations. Table 2 shows the compact impact grants that  Guam, Hawaii, and the CNMI received in fiscal years 2004 through 2016.
The affected jurisdictions have continued to report to Interior that their  cost impacts from compact migrants greatly exceed the amount of the  compact impact grants. In 2003 through 2014, Guam reported $825  million in costs, Hawaii reported $1.2 billion, and the CNMI reported $89  million. (Fig. 5 shows the affected jurisdictions’ reported annual costs of  services to compact migrants.) These affected jurisdictions reported costs  for the services identified in the amended compacts’ enabling legislation:  educational, health, public safety, and social services. Education costs  accounted for the largest share of reported expenses in all three  jurisdictions, and health care costs accounted for the second largest  share. Officials in Guam and Hawaii also 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.
We have previously found that the three affected jurisdictions’ cost  estimates contained a number of limitations with regard to accuracy,  adequate documentation, and comprehensiveness. These limitations  affect the reported costs’ credibility and prevent a precise calculation of  total compact cost impact on the affected jurisdictions. For example,  some jurisdictions did not accurately define compact migrants according  to the criteria in the amended compacts’ enabling legislation, account for  federal funding that supplemented local expenditures, or include revenue  received from compact migrants. Many local government agencies did not  include capital costs in their impact reporting, which may have led to an  understatement of costs. We recommended that the Secretary of the  Interior disseminate guidelines to the affected jurisdictions that  adequately address concepts essential to producing reliable impact  estimates and that the Secretary call for their use in developing compact  impact reports. In a February 2015 report to Congress on the  Governors’ compact impact reports, Interior noted that it had concerns  about the uniformity of compact impact reports, including the use of  different data gathering and formats by Guam and Hawaii. Interior  reiterated those concerns in its January 2016 report to Congress. While  Interior developed a draft of compact impact reporting guidelines in 2014,  it has not disseminated them to affected jurisdictions. In March 2016,  Interior stated that OIA, in consultation with the leaders from the affected  jurisdictions, would develop guidelines for measuring compact impact and  that the guidelines would be completed in December 2016.
Since we reported on compact migration impacts in 2001, the three  affected jurisdictions have continued to express concerns that they do not  receive adequate compensation for the growing cost of providing  government services to compact migrants. For example, in his 2015  State of the Island address, the Governor of Guam noted that compact  impact reimbursement had been a topic of disagreement for decades and  criticized “the federal government’s inability to live up to its promise” to  help provide services to the compact migrant population. Similarly, in  Hawaii’s August 2015 cost impact report to Interior, the Governor of  Hawaii noted that Hawaii had consistently advocated for an increase in  compact impact assistance to the affected jurisdictions and that providing  for direct federal assistance in programs such as Medicaid, Temporary  Assistance for Needy Families (TANF), Supplemental Nutrition  Assistance Program (SNAP), and other means-tested public assistance  not currently available to compact migrants would significantly reduce  Hawaii’s impact costs. The Governor further suggested that the  governments of the FAS be encouraged to utilize the financial support  they receive directly from the United States to contract services in the  United States for their citizens who choose to reside in the United States.
In our 2011 report, we recommended that the Secretary of the Interior  work with the U.S.–FSM and U.S.–RMI joint management committees to  consider uses of sector grants that would address the concerns of FSM  and Marshallese migrants and the affected jurisdictions. While Interior  took initial steps to implement this recommendation and discuss compact  impact at the joint management committee meetings, the discussions  have not been continued. In March 2016, Interior OIA stated that the  concerns of FSM and RMI migrants and affected jurisdictions will be  discussed at future meetings of the joint management committees. In a  January 2016 letter accompanying its Report to the Congress: 2015  Compact Impact Analysis, OIA stated that increased oversight and  accountability are needed in the use of compact sector grants by the  FAS—particularly for infrastructure grants for health and education—and  that improving the quality of life for FAS citizens may help address the  migration from the FAS to the United States.
Chairwoman Murkowski, Ranking Member Cantwell, and Members of the  Committee, this concludes my statement. I would be pleased to respond  to any questions you may have.
section_title: GAO Contact and Staff Acknowledgments
paragraphs: If you or your staff have any questions about this testimony, please  contact David Gootnick, Director, International Affairs and Trade 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 testimony  are Emil Friberg (Assistant Director), Ashley Alley, Ming Chen, David  Dayton, Brian Hackney, Julie Hirshen, Jeff Isaacs, Reid Lowe, Grace Lui,  Mary Moutsos, Michael McKemey, Michael Simon, Jena Sinkfield, and  Ozzy Trevino.
section_title: Appendix I: Key Provisions of the Palau Compact of Free Association and Subsidiary Agreements
paragraphs: Key provisions of the compact and its subsidiary agreements address the  sovereignty of Palau, types and amounts of U.S. assistance, security and  defense authorities, and periodic reviews of compact terms. Table 3  summarizes key provisions of the Palau compact and related subsidiary  agreements.
section_title: Appendix II: U.S. Compact Trust Fund Contributions and Grants to the Federated States of Micronesia and Republic of the Marshall Islands
paragraphs: Figure 6 shows the annually decreasing U.S. grant funding to the  Federated States of Micronesia (FSM) and Republic of the Marshall  Islands (RMI) and increasing U.S. contributions to the FSM’s and the  RMI’s compact trust funds in fiscal years 2004 through 2023.
section_title: Appendix III: U.S. Assistance to Palau as Outlined in 2010 Agreement and Proposed in Senate Bill 2610
paragraphs: Senate Bill 2610 (S. 2610) would modify the schedule of U.S. assistance  to Palau specified in the 2010 agreement between the U.S. and Palau  governments, which has not been implemented. Table 4 shows the  assistance schedule for fiscal years 2011 through 2024 outlined in the  2010 agreement.
Table 5 shows U.S. assistance provided to Palau through discretionary  appropriations in fiscal years 2011 through 2016 and the assistance  schedule proposed in S. 2610.
section_title: Appendix IV: Estimated Numbers of Compact Migrants in U.S. Areas, 2005–2009
paragraphs: Compact migrants reside throughout U.S. states and territories. In 2011,  we reported that 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 Commonwealth of the Northern Mariana Islands (CNMI).  According to American Community Survey data, nine mainland states had  estimated compact migrant populations of more than 1,000 in 2005  through 2009 (see fig. 7). According to these estimates, the Federated  States of Micronesia produced the highest number of migrants but  migrants from the Republic of the Marshall Islands predominated in  Arizona, Arkansas, California, and Washington.