American Samoa lies 2,600 miles southwest of Hawaii and consists of seven islands, covering a land area of 76 square miles (see fig. 1). In 2003, it had a population of 57,844. The main island of Tutuila has very little level land and is mostly rugged, with four high peaks, the tallest rising over 2,000 feet. Agricultural production is limited by the scarcity of arable land, and tourism is impaired by the island’s remote location and lack of tourist-rated facilities. Two tuna canneries constitute the main sources of private sector employment. Most of the economic activity and government operations on Tutuila take place in the Pago Pago Bay area. As an unorganized, unincorporated U.S. territory, American Samoa is not subject to the U.S. Constitution in the same manner as the 50 states. For example, some constitutional rights, such as the rights to vote in national elections and to full voting representation in the U.S. Congress, do not apply to American Samoa. Although no congressional act formally establishes a government structure in American Samoa, the territory has its own local government and constitution. Those born in American Samoa are U.S. nationals. Since 1977, a popularly elected governor has headed the American Samoan executive branch for a 4-year term, and the legislature, or Fono, has comprised 18 elected senators and 20 elected representatives. Nearly 40 American Samoan departments, offices, and other entities provide public safety, public works, education, health, commerce, and other services to American Samoans. Providing these services has proved financially challenging for the American Samoan government. After a period of relative budget growth in the early 1980s, the territory’s finances rapidly deteriorated in the second half of the decade when expenditures exceeded income in American Samoa’s budget. In fiscal year 1991, the government borrowed $5 million from its employee pension fund to temporarily relieve its cash flow problems. Following a GAO report in 1992, Congress directed DOI and the American Samoa government to form a joint working group to address the government’s financial management problems. The working group made recommendations to the American Samoa government, which pledged to implement a financial recovery plan based on these recommendations. Beginning in fiscal year 1997, the Senate Appropriations Committee directed DOI to withhold $2 million of capital improvement funding from the territory until DOI could certify that the American Samoan government had adequately implemented the recovery plan. However, the territory’s financial situation subsequently worsened and, in 1999, Congress authorized a direct federal loan to American Samoa for $18.6 million to pay debts and implement reforms. In 2001, the American Samoa government submitted an initial fiscal reform plan to DOI. DOI and the American Samoa government signed an MOA in 2002, implementing fiscal and operational reforms. The MOA was designed to bring the American Samoa government operating expenses into balance with projected revenues for fiscal years 2003 and beyond. It also outlined a schedule for American Samoa to complete all outstanding single audit reports. Five federal departments have historically provided significant grants to the American Samoa government, including one large grant from DOI to support government operations. During fiscal years 1999-2003, DOI, USDA, ED, DOT, and HHS provided about $450 million in grant funds to American Samoa through 12 key grants. Of these 12 grants, 4 were structured specifically for American Samoa, 2 were structured for all U.S. insular areas, and 6 were structured in the same manner as in the 50 U.S. states. Table 1 shows the federal awarding departments and agencies, the grants, the grant structures, and the grant award amounts for fiscal years 1999- 2003. In fiscal years 1999-2003, 12 federal grants, funded by five departments, provided and supported several essential services in American Samoa. DOI awarded grants that subsidized government operations, supported infrastructure improvements, and provided technical assistance. USDA awarded grants that provided nutrition assistance for which about half of the territory’s population was eligible. ED awarded grant funds that supported American Samoa’s education programs, including the special education program. DOT awarded grants for critical infrastructure improvements to the territory’s airports and roadways. Finally, HHS awarded grants to support health care and early childhood education in American Samoa. In fiscal years 1999-2003, DOI provided grants that supported government operations and infrastructure improvements in American Samoa. DOI provided, on average, about 16 percent of the American Samoa government’s total budget during the period of our review, through an annual direct subsidy as well as through grants for capital improvements and technical assistance. (See app. II for more details and an assessment of the DOI grants.) DOI provides the government operations grant as an annual direct subsidy to the American Samoa government to help fund the difference between the territory’s revenues and the cost of maintaining its current government programs and services. To promote the American Samoa government’s self- sufficiency, DOI has held the amount of the grant constant, without adjusting it for inflation or population growth. The grant supports general government operations, including public works, economic development, and salaries. Specific operations that the grant supports include American Samoa’s Department of Education; LBJ Hospital, the territory’s primary clinic and only hospital; and the High Court of American Samoa. In fiscal years 1999-2003, the American Samoa government received an average annual operations grant award of about $23 million. According to DOI officials and our analysis, the portion of the American Samoa government’s budget supported by the government operations grant decreased from about 18 percent in fiscal year 1999 to about 15 percent in fiscal year 2003. DOI’s capital improvement grants provide funds to improve the physical infrastructure of American Samoa and other U.S. insular areas. Capital improvement projects in American Samoa are prioritized and carried out according to the American Samoa government’s Capital Improvements Plan. In fiscal years 1999-2003, DOI provided an average annual award for capital improvement grants of $10.2 million to the American Samoa government. During this period, about 28 percent of the funds awarded to American Samoa were allotted for water and sewer improvements; 25 percent for school improvements, including new and renovated classrooms; 16 percent for improvements to the LBJ Hospital; and 4 percent for roads. LBJ Hospital was allotted about $1.5 million for each year during that period. DOI provided general technical assistance grants to all U.S. insular areas for short-term noncapital projects, such as obtaining computer hardware and software and providing training to improve the insular area’s capacity to conduct government operations. In fiscal years 1999-2003, DOI’s general technical assistance grants provided American Samoa an average of about $350,000 annually. Examples of DOI’s technical assistance included, in April 2001, a $200,000 grant to the American Samoa Port Authority to purchase and install a container tracking system for cargo entering and leaving American Samoa’s harbor of Pago Pago and, in April 2002, a $185,000 grant to the American Samoa government to purchase and install an upgraded immigrant tracking system. LBJ Hospital also received technical assistance grants. Three USDA programs made nutrition assistance available to about half of the American Samoan population during most of the period of our review. The School Lunch Program made free breakfast and lunch available to all school-age children. WIC provided nutrition assistance to pregnant, breast- feeding, and postpartum women and to infants and children up to 5 years of age. The Food Stamp Program in American Samoa provided nutrition assistance to the low-income elderly, the blind, and the disabled. (See app. III for a more detailed description and an assessment of the USDA grants.) USDA’s School Lunch Program is funded as a special block grant and operates under a memorandum of understanding (MOU) established specifically for American Samoa in 1991 and administered by the American Samoa Department of Education. Before 1991, the program in American Samoa followed the same requirements as in the rest of the United States, providing subsidized breakfast and lunch to children in public and nonprofit schools, based on the income level of the children’s households. Since 1991, the American Samoa School Lunch Program has provided free breakfast and lunch to all school-age children. Officials explained that the change in grant and program structure gave American Samoa greater flexibility to serve the needs of its children. In fiscal years 1999-2003, USDA provided an average annual grant of $9.8 million. In school year 2002-2003, the American Samoa Department of Education reported public and private school enrollment of about 19,000 students, all of whom are eligible for the program. In the same year, the School Lunch Program served about 3.2 million breakfasts and 3.6 million lunches. The program currently serves meals at 23 elementary schools, 6 high schools, 10 private schools, 55 early childhood education (Head Start) centers, and 37 day care centers. The program has no citizenship, residency, or income requirements. USDA’s WIC Program in American Samoa follows the same requirements as the program in the 50 states, providing supplemental food and nutrition education at no cost to eligible pregnant, breast-feeding, and postpartum women and to infants and children up to 5 years of age. The American Samoa WIC Program was established in 1996 and is administered by the American Samoa Department of Human and Social Services. In fiscal years 1999-2003, USDA provided an average annual grant of $5.3 million. During fiscal years 2000-2003, an average of about 6,000 recipients were receiving monthly WIC “food instruments,” or checks. Eligibility for benefits is determined on the basis of nutritional risk, income, and residency.