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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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.

Summary: 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. 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.