STATEMENT
Statement
of
Nikolao Pula,
Acting Deputy Assistant Secretary of the Interior for Insular Affairs,
Before
the
House Subcommittee on Insular Affairs,
Regarding the
Department of the Interior, Office of Insular Affairs
Fiscal Year 2009 Budget Request
February 28, 2008
Madam Chair and members of the Committee, thank you for the opportunity to
testify on the President’s fiscal year 2009 budget request for Insular
Affairs. The Office of Insular Affairs (OIA) is responsible for generally
administering, on behalf of the Secretary of the Interior, the Federal Government’s
relationship with the territories of Guam, American Samoa, the United States
Virgin Islands (USVI), and the Commonwealth of the Northern Mariana Islands
(CNMI), as well as administering the financial assistance provided to the freely
associated states (FAS) of the Federated States of Micronesia, the Republic
of the Marshall Islands, and the Republic of Palau under the Compacts of Free
Association.
Madam Chair, we would like to thank you and the entire committee for your support of the economic development initiatives, critical infrastructure, and technical assistance projects through which we provide invaluable resources for the insular areas. OIA’s top priorities for the insular areas are to promote private sector economic development and accountability for Federal financial assistance, and to increase Federal responsiveness to the unique needs of island communities. I will discuss our specific efforts to make progress in these areas later in my testimony, but will begin with an overview of the proposed budget.
Overview of the FY2009 Budget Request
The fiscal year 2009 budget request seeks to continue efforts to promote economic
sustainability throughout the territories and freely associated states.
The proposed fiscal year 2009 budget is $401.6 million, of which $79.9 million
is requested in current appropriations, a net decrease of $3.3 million below
the fiscal year 2008 enacted appropriation. The request for current appropriations
includes $227,000 for fixed cost increases and a decrease of $3.5 million for
program changes and earmarks. The current appropriations request includes $50.2
million in discretionary funding and $29.7 million in mandatory funding. In
addition, $321.7 million for permanent and indefinite appropriations is estimated
for fiscal year 2009, including $113 million estimated for fiscal payments
to Guam and the United States Virgin Islands and $208.7 million for payments
under the Compacts of Free Association.
The fiscal year 2009 OIA budget continues to focus on strategies that contribute
to increasing the self-sufficiency of insular areas. OIA will continue
to provide support to help develop more efficient and effective government
in the insular areas through the various Assistance to Territories programs. This
assistance includes grant funding to meet a variety of needs, including resources
for critical infrastructure like wastewater systems, hospitals, and schools. In
fiscal year 2007, OIA received over $81 million in assistance to territories
funding, providing over 90 percent of these funds to insular areas in the form
of grants of financial assistance. OIA plans to continue this effort
in fiscal year 2009.
OIA’s budget is divided into two major categories of funding – permanent
or mandatory and current discretionary. Most of OIA’s budget reflects
mandatory commitments to U.S.-affiliated insular areas and is permanently appropriated
($321.7 million). Within current appropriations, two activities
are considered mandatory, Covenant grants ($27.7 million) that provide for
Capital Improvement Projects (CIP) in the U.S. territories and an annual Health
and Education Block Grant given to the Republic of Palau ($2.0 million).
American Samoa Operations ($22.8 million), the second largest budget activity
is considered discretionary but is a directed appropriation that provides essential
assistance to help the American Samoa Government provide basic services of
health care, education, public safety, and support for the judiciary.
While not officially considered a mandatory program, Federal Services assistance
($2.8 million) is comprised of two subactivities that were negotiated and are
defined in law. The first is reimbursement to the United States Postal
Service for continuation of mail service to the FAS. Failure to provide
this service would be a breach of the negotiated Compact. The
second activity provides funding for the Republic of Palau to conduct an annual
financial audit. Public Law 99-658 provides that the Republic of Palau’s
single audit, in accordance with the Single Audit Act of 1984, will be conducted
at no cost to Palau through fiscal year 2009.
The only true discretionary programs are the OIA Salaries and Expenses account
($8.4 million) and the Technical Assistance activity ($16.1 million) which
account for $24.5 million out of a total OIA budget of $401.6 million in fiscal
year 2009.
National Security
Although the budget request is focused primarily on the upcoming fiscal year,
it is framed by long-term security interests of the United States in the western
Pacific and Caribbean and serious economic and fiscal problems affecting the
United States territories of Guam, American Samoa, the Virgin Islands, and
the CNMI.
National security issues related to the relocation 8,000 Marines and 9,000
dependents from Okinawa to Guam will create major challenges for the island’s
infrastructure in 2009 and subsequent budgets. Guam’s population
is expected to grow by 20% by 2014. Although financial resources are
available for on-base military construction, a funding strategy to improve
the inadequate port, roads, power, water, wastewater, and solid waste systems
shared by the military and the civilian community has not been developed. Guam
also faces a need to improve its healthcare and educational facilities, and
to improve its public sector management. Guam will be forever changed
by the military’s build-up and its increased strategic visibility. Community
support for this endeavor may be undermined if civilian facilities remain inadequate
to meet the growing resource needs of the larger population.
The three other United States territories are facing economic and fiscal difficulties. In
American Samoa, the continued operation of two tuna canneries that account
for 80 percent of the private sector economy is threatened by changes in international
trade and tariff policies. The CNMI economy has been adversely affected
by a change in regional tourism patterns and by international trade rules that
have diminished the CNMI garment industry. The economies and tax revenues
in both territories are in jeopardy.
Strengthening the Private Sector
One of OIA’s top priorities, as noted above, is to help the insular
areas expand and strengthen their private sectors, building more sustainable
economies to meet the needs and aspirations of their citizens. Most of
the economies of the insular areas are currently dominated by the public sector
and cannot be sustained without significant support from the Federal government.
OIA has historically provided financial and technical assistance for a number
of activities that can help strengthen the foundations for economic development,
such as developing public infrastructure, improving health care, improving
education, and providing expert analysis on issues affecting the economy.
More recently, however, OIA has recognized a need to more directly facilitate
private sector economic development. OIA now makes it a priority to provide
technical assistance to help the insular areas identify and implement the necessary
steps to make their economies more sustainable. For example, OIA has
provided technical assistance in recent years to help the insular areas identify
their competitive advantages; identify industries that have the most potential
for success in bringing prosperity to the insular areas; identify companies
in those industries that might consider investing in the insular areas; identify
specific investment opportunities for those companies; reach out to as many
of those companies as possible; educate companies on the competitive advantages
offered by the insular areas; and, assist insular area governments to identify
and implement ways to make the insular areas more attractive to private sector
investment.
In order to facilitate this process, OIA is working with the insular areas
to address their needs. OIA will organize a Business Opportunities
Conference in Hawaii. This will be the fifth such Conference since 2003,
continuing OIA’s effort to focus on increasing awareness in the United
States and around the world of business and other opportunities in all seven
insular areas. The format will be similar, though the content and outreach
will be somewhat different, reflecting the experiences of the last four years'
work. Also, OIA will work actively to assist insular area officials with
following up on contacts made at the conferences. We will also ensure
that each of the potential investors—which included companies involved
in tourism, information technology, environmental technology, defense systems,
financial services, health care, education, agriculture and construction—has
a full schedule of meetings with government officials and potential local business
partners. The local governments and business communities will be active
participants in both the planning and execution of the conferences.
OIA has worked to find ways to make progress on economic development without
the need for a large commitment of resources. In fact, less than 1 percent
of the Assistance to Territories appropriations is spent on private sector
development, due to the fact that most of the costs for the major events spearheaded
by OIA are borne by participants. This effort is proving to be successful,
with business opportunities in the insular areas having been fostered with
the help of OIA’s facilitation efforts.
OIA is continuing the Island Fellows Program, launched in 2003, which has
sent graduate students from business schools such as Wharton, Harvard, Kellogg,
Columbia and Georgetown to the insular areas to study their economies; identify
competitive advantages, industries with potential, specific investment opportunities,
and other business climate-related issues; facilitate outreach to mainland
companies; and help insular area business and government officials to follow
up with potential investors. The work of the Island Fellows has supported
the year-round efforts of OIA full-time staff and contractors in all of these
activities. The work of the Island Fellows also helped OIA to organize
conferences in 2003, 2004, and 2006, as well as three separate Business Opportunities
Missions in 2005 and 2006, which gave island business and government officials
the opportunity to meet and market opportunities to businesses from around
the country. In calendar year 2008, the Island Fellows program will again
focus on assisting with preparations for the upcoming events currently under
development.
In addition to conferences, OIA has recognized a need to develop a system
to facilitate ongoing continuous linkages between private sector businesses
in the United States territories and freely associated states, and potential
investors in Hawaii and the United States mainland. Therefore,
OIA is planning to introduce a web-based listing of business opportunities
in the islands to be known as “Island Link.” In the past,
this has been accomplished through conferences, trade missions and our Island
Fellows Program. These events created excitement and identified opportunities
but they were not continuously available. The planned program will be
released in phases during 2008, but once complete it will allow islanders and
potential business partners to make connections. Users of the system
will register and complete a form describing their business opportunities. A
business on the United States mainland or anywhere in the world could then
connect with another user by simply pressing a computer button. The objective
is to initiate the connection and facilitate discussion for a possible business
relationship. It is then up to the users to communicate and follow-up
with the opportunities.
This program is in response to suggestions OIA received in evaluation forms
from the 2007 conference. There were an overwhelming number of requests
for on-line business opportunities listings. We believe that we are providing
a significant resource that will facilitate economic growth in the insular
areas.
One measure of success is to look at the ratio of private sector jobs to total
employment with anticipated increases in private sector jobs. OIA’s emphasis
on economic development is geared to assist the private sector with an anticipated
result in the long term of increased private sector job availability to lessen
dependence on Federal and local government employment. Increases in
local business and income tax revenue are also potential measures.
Promoting Accountability
OIA’s second priority is to promote accountability in the insular areas
for the Federal funds. Specifically, OIA is working with all of the territories
and freely associated states to help the island governments improve financial
policies and procedures, upgrade automated financial management systems, train
staff, complete accurate financial statements, and meet Single Audit Act requirements. At
the start of this comprehensive effort all of the insular areas were several
years behind in completing financial statements and annual audits. At this
time the insular areas have significantly improved their submission times for
the annual audits. OIA will continue to assist the insular areas as they
work towards compliance with the Single Audit Act.
Increasing Federal Responsiveness
OIA’s third priority is to increase Federal responsiveness to the unique
needs of island communities. OIA has developed a number
of approaches to advance this goal. The first was the creation, by Presidential
Executive Order, of the Interagency Group on Insular Areas (IGIA). This
group meets periodically under the Chairmanship of the Secretary to bring together
Federal agencies to hear the concerns of the insular governments, identify
problems and develop solutions, and create a forum for sharing information. OIA
is also a key partner with the State Department in the Interagency Group on
Freely Associated States. This group meets periodically to resolve problems
and coordinate efforts in the Federated States of Micronesia, the Republics
of Palau and the Marshall Islands.
Major efforts are directed toward marshalling Federal agencies and resources
to assist the civilian community of Guam meet its serious challenges related
to the Department of Defense’s plan to move Marines from Okinawa and
to increase the presence of the other services on the islands. Guam faces an
unprecedented challenge to improve its inadequate infrastructure to meet an
anticipated 25 percent increase in its population in the next few years.
Additionally, OIA supports the preservation of coral reefs. From the
Virgin Islands to Guam and Palau, healthy coral reef resources are an integral
part of the economy and environment of United States-affiliated island communities. Among
the most diverse and biologically complex ecosystems on earth, coral reefs
protect island communities from coastal erosion and storm damage, are habitat
for numerous species, and support important tourism and recreational industries. Coral
reef resources are now threatened by a variety to stresses including poor water
quality, over-harvesting, coastal development, disease, and bleaching (loss
of symbiotic algae). According to recent estimates, more than 25 percent
of the world’s coral reefs already have been lost or severely damaged.
Compact
The fiscal year 2009, budget proposal includes the final guaranteed amounts
of Compact of Free Association funding to the Republic of Palau that were permanently
appropriated. Although the relationship between Palau and the United
States under free association will not change, the fifteen-year period of assistance
ends with 2009. The United States and Palau will soon begin a legally
required review of the terms of the Compact and consider the overall nature
of the relationship. Without prejudging the outcomes of this discussion, this
committee should note that with the end of the permanent appropriation, any
appropriations made to Palau after fiscal year 2009 will be scored against
current appropriation levels.
Conclusion
In conclusion, we believe that this budget request supports the continuation
of programs to help the insular areas attain self-sufficiency. Towards
this ultimate goal, we are committed to promoting sound financial management
practices in the insular governments, encouraging private sector-led economic
development, and increasing Federal responsiveness to the unique needs of the
island communities. We thank you for your continued support of the insular
areas as you are considering OIA’s 2009 budget request.
|