<DOC>
[109 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:26254.wais]
S. Hrg. 109-291
REPEAL ACT OF MAY 26, 1936, PERTAINING TO THE VIRGIN ISLANDS; AMEND
COMPACT OF FREE ASSOCIATION AMENDMENTS ACT; AND CONVEY SUBMERGED LAND
TO COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS
=======================================================================
HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
ON
S. 1829
TO REPEAL CERTAIN SECTIONS OF THE ACT OF MAY 26, 1936, PERTAINING TO
THE VIRGIN ISLANDS
S. 1830
TO AMEND THE COMPACT OF FREE ASSOCIATION AMENDMENTS ACT OF 2003; AND
FOR OTHER PURPOSES
S. 1831
TO CONVEY CERTAIN SUBMERGED LAND TO THE COMMONWEALTH OF THE NORTHERN
MARIANA ISLANDS, AND FOR OTHER PURPOSES
__________
OCTOBER 25, 2005
Printed for the use of the
Committee on Energy and Natural Resources
_____
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON: 2006
26-254 PDF
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
PETE V. DOMENICI, New Mexico, Chairman
LARRY E. CRAIG, Idaho JEFF BINGAMAN, New Mexico
CRAIG THOMAS, Wyoming DANIEL K. AKAKA, Hawaii
LAMAR ALEXANDER, Tennessee BYRON L. DORGAN, North Dakota
LISA MURKOWSKI, Alaska RON WYDEN, Oregon
RICHARD M. BURR, North Carolina, TIM JOHNSON, South Dakota
MEL MARTINEZ, Florida MARY L. LANDRIEU, Louisiana
JAMES M. TALENT, Missouri DIANNE FEINSTEIN, California
CONRAD BURNS, Montana MARIA CANTWELL, Washington
GEORGE ALLEN, Virginia JON S. CORZINE, New Jersey
GORDON SMITH, Oregon KEN SALAZAR, Colorado
JIM BUNNING, Kentucky
Alex Flint, Staff Director
Judith K. Pensabene, Chief Counsel
Bob Simon, Democratic Staff Director
Sam Fowler, Democratic Chief Counsel
Josh Johnson, Professional Staff Member
Al Stayman, Democratic Professional Staff Member
C O N T E N T S
----------
STATEMENTS
Page
Akaka, Hon. Daniel K., U.S. Senator from Hawaii.................. 12
Christensen, Hon. Donna M., Delegate to Congress, U.S. Virgin
Islands........................................................ 2
Craig, Hon. Larry E., U.S. Senator from Idaho.................... 2
Murkowski, Hon. Lisa, U.S. Senator from Alaska................... 1
Pula, Nikolao I., Acting Deputy Secretary for Insular Affairs,
Department of the Interior..................................... 8
Richards, Vargrave A., Lieutenant Governor, U.S. Virgin Islands.. 4
APPENDIXES
Appendix I
Responses to additional questions................................ 17
Appendix II
Additional material submitted for the record..................... 19
REPEAL ACT OF MAY 26, 1936, PERTAINING TO THE VIRGIN ISLANDS; AMEND
COMPACT OF FREE ASSOCIATION AMENDMENTS ACT; AND CONVEY SUBMERGED LAND
TO COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS
----------
TUESDAY, OCTOBER 25, 2005
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 10 a.m., in room
SD-366, Dirksen Senate Office Building, Hon. Lisa Murkowski
presiding.
OPENING STATEMENT OF HON. LISA MURKOWSKI,
U.S. SENATOR FROM ALASKA
Senator Murkowski. Good morning and welcome to the Energy
Committee this morning.
The purpose of the hearing today is to receive testimony on
S. 1829 pertaining to the Virgin Islands; S. 1830, to amend the
Compact of Free Association Amendments Act of 2003; and S.
1831, which pertains to the Commonwealth of the Northern
Mariana Islands.
Just very briefly this morning, I will describe the various
legislation we have in front of us. S. 1829 would repeal
sections of the U.S. Code to provide the Government of the U.S.
Virgin Islands the ability to fully regulate real property tax
matters within the territory.
S. 1830 would make several changes to the Compact of Free
Association Amendments Act of 2003. Since the passage of this
law, the administration has transmitted language to Congress
that would provide authority for the Republic of the Marshall
Islands and the Federated States of Micronesia to obtain
disaster assistance.
Then finally, S. 1831, to provide the CNMI with the same
ownership and jurisdiction over offshore submerged lands as has
been provided to other United States territories and to provide
a less formal mechanism for the Governor of CNMI to raise
issues with the Federal Government.
This morning we are honored to have with us the Honorable
Donna Christensen, the Delegate to Congress from the U.S.
Virgin Islands. Good morning and welcome to you. We also have
the Lieutenant Governor of the U.S. Virgin Islands, the
Honorable Vargrave Richards. Good morning and welcome. And we
also have Nikolao Pula, who is the Director of the Office of
Insular Affairs for the United States Department of the
Interior, and welcome to you.
Additionally we have some written statements that have been
submitted from the governments of the freely associated states
of the RMI, the Republic of Palau, and the FSM. In addition,
the Governor and the Resident Representative of the CNMI have
submitted their written testimony.
Before we proceed with the hearing, I want to mention that
we have received a request from the Resident Representative of
the CNMI regarding legislation that is moving through the House
of Representatives which would provide the CNMI a non-voting
delegate to the House of Representatives. The committee looks
forward to working with the Resident Representative of the CNMI
and the House of Representatives as this legislation proceeds.
I do welcome all of you this morning. I will just make a
note. We are scheduled to have a vote coming up at 10:30. I
anticipate that this will be a pretty expedited hearing, and we
should probably make that vote without a problem, but just to
alert you all to that.
With that, then let us begin with you, the Honorable Donna
Christensen. Welcome.
[The prepared statement of Senator Craig follows:]
Prepared Statement of Hon. Larry E. Craig, U.S. Senator From Idaho
Mr. Chairman, thank you for holding this important hearing today
regarding numerous issues facing U.S. territories and commonwealths.
One issue that I would like addressed, at this time, is the need to
help strengthen and diversify the economies of the Commonwealth of the
Northern Mariana Island's. Recently, the CNMI has faced growing
competition from China's garment and apparel industry. Further, the
CNMI's economy has been negatively impacted by fewer tourists from
Japan in recent years as a result of Japan's falling currency. To help
combat these outside influences, Congress must begin to address the
economic realities of the CNMI.
Over the last few months my staff and I have met with numerous
officials from the CNMI to discuss these issues. I must say, I am very
impressed with Governor Babauta's willingness to address these issues
facing his Commonwealth. Governor Babauta understands what steps need
to be taken to stabilize the economy and establish positive growth for
CNMI. I believe his leadership will prove extremely valuable as the
United States works with the CNMI to find long-term solutions for their
economy.
As a first step, I would like to introduce for the record numerous
documents on this subject from the Governor, members of their
government, and the Chamber of Commerce, on the economic status of the
CNMI. Additionally, I would like to submit for the record legislation
that I, along with Senator Akaka, will be introducing to address and
mitigate the economic impacts on the CNMI. It is my hope that this
Committee, along with the Finance Committee, can and will take a hard
look at the CNMI and address these issues.
Thank you Mr. Chairman.
STATEMENT OF HON. DONNA CHRISTENSEN, DELEGATE TO CONGRESS, U.S.
VIRGIN ISLANDS
Mrs. Christensen. Thank you, Madam Chairman, and good
morning. I want to thank you for the opportunity to make this
statement in support of S. 1829, companion legislation to one I
introduced in the House, to repeal the 1936 law which governs
the levying of property taxes in the Virgin Islands. Passage of
this legislation is necessary to allow the Virgin Islands to
fashion a local property tax law that takes into account the
circumstances and realities of our community.
I also want to especially thank Chairman Domenici and
Ranking Member Bingaman for their willingness to respond to my
request to introduce S. 1829 and to you, Madam Chair, for
working with them to so quickly schedule it for a hearing.
Madam Chairman and members, this bill became necessary when
5 years ago some of my constituents filed a lawsuit in Federal
court alleging that the Virgin Islands government was violating
Federal law in the manner in which they were assessing the
value of commercial properties in the territory. The court then
ruled that the 1936 Federal statute was not repealed by the
1954 Organic Act, as we had all believed, and thus invalidated
the current Virgin Islands property tax law.
Madam Chair, the Virgin Islands is the only jurisdiction in
the country whose local property taxes are based on Federal
law. This anomaly in our system of government is unnecessary
today because the Virgin Islands, although still a territory of
the United States, has been exercising all the rights and
responsibilities of government in a similar manner as the 50
States, at least since Congress passed our revised organic act
in 1954 and we, of course, began electing our own Governors in
1970.
In invalidating our local property tax laws, the Federal
courts have removed the ability of the Virgin Islands
government to provide insulation for Virgin Islands homeowners
to protect them against the consequences of rapidly rising
property values on their tax bills.
Moreover, the provisions that were struck down were similar
to those used in other jurisdictions throughout this country.
The local property tax laws, which were struck down, provided a
10 percent cap on the increase in assessments for residential
real estate in any assessment period, as well as certain
exemptions from taxation for homesteads, veterans, and
farmland, and exemptions offered as part of our economic
incentive program.
Madam Chair, the 10 percent cap limiting any increase in
residential assessments is modeled after similar statutes in
the United States and is essential to protect homeowners from
soaring property values. Without a cap or similar provisions,
if an individual or family owns a modest dwelling that is
surrounded by million dollar homes, the assessed value and thus
the property taxes will increase significantly.
This will have serious consequences for long-time property
holders. We have limited land mass in the Virgin Islands which
makes real property a commodity that is in short supply.
Because the current trend in real estate is for prices to
continue to climb exponentially, basing property taxes on
actual prices will create a large number of instant paper
millionaires who will never be able to see this new wealth
unless the property is mortgaged or sold.
This situation presents a very serious one for many of my
constituents, most acutely on the island of St. John because
their property tax bills are already moving way beyond their
reach.
Many of the areas on St. John have seen wealthy individuals
purchasing properties and making improvements which have had
the effect of immediately and drastically increasing the value
of their properties, as well as the value of the properties
surrounding them.
I must caution, however, that the entire Virgin Islands
would be impacted should the 1936 law continue to prevail.
In summary, it is important for the economic security, as
well as the social stability, of the territory for the 1936
statute to be repealed.
Madam Chair, I ask unanimous consent to submit the
testimony for the record of Senator Craig Barshinger; former
Senator Almando Liburd; Mr. Myron Allick, a local businessman;
and Ms. Sharon Coldren, president of the Coral Bay Community
Council.
I want to thank you once again for bringing this important
bill to the committee in such an expeditious fashion. I look
forward to the speedy passage and to returning to testify on an
equally important piece of legislation which has already passed
the House twice, one which would create a chief financial
office for the U.S. Virgin Islands. Thank you, Madam Chair.
Senator Murkowski. Thank you, Delegate Christensen, and the
request that you had made, as far as the written testimony
being included as part of the record, will be made part of the
record.
Mrs. Christensen. Thank you, Madam Chair.
Senator Murkowski. Thanks for your testimony.
Lieutenant Governor Richards, welcome.
STATEMENT OF VARGRAVE A. RICHARDS, LIEUTENANT GOVERNOR, U.S.
VIRGIN ISLANDS
Mr. Richards. Good morning, Madam Chair and distinguished
members of the committee. At this time, I would like to
recognize my distinguished Delegate to Congress who introduced
this legislation, which is critical to the people of the Virgin
Islands.
My name is Vargrave Richards, and I am the Lieutenant
Governor of the U.S. Virgin Islands. On behalf of Governor
Turnbull and the people of the U.S. Virgin Islands, I am here
before you to testify in support of S. 1829.
Under Virgin Islands law, the Office of the Tax Assessor
falls under the Office of the Lieutenant Governor. The tax
assessor is charged with generating the real property tax bills
for the Territory of the U.S. Virgin Islands.
I am here to respectfully request that you adopt S. 1829,
which repeals sections 1401 through 1401(e) of title 48 of the
U.S. Code, which limit the authority of the Virgin Islands to
assess and collect real property taxes in the territory.
I strongly support the bill for three reasons.
One, a recent court ruling held that the 1936 statute
prohibits the territory from setting its own real property tax
policy.
Two, the 69-year-old statute, which was designed to assist
the Virgin Islands, now hinders it from performing a basic
governmental function and has a debilitating effect.
And three, this is a purely local issue with no Federal
impact.
The reason I am here before you is a recent court ruling
which has essentially revived a long forgotten Federal statute
governing the assessment of real property taxes in the
territory.
On June 28, 2004, the U.S. Court of Appeals for the Third
Circuit issued an opinion affirming a decision of the U.S.
District Court of the Virgin Islands in Berne Corp. v.
Government of the Virgin Islands. The court held that the 1936
Statute is still controlling in the Virgin Islands and that it
governs the basis for assessment for real property taxes in the
territory, preempting subsequent local laws in this area. Based
on the 1936 Statute, the court ordered that all property
subject to taxation be taxed on the basis of actual value and
at the same rate. Under the ruling, to be valid, an exemption
must grant a 100 percent exemption from taxation, cover the
full tax year of the exemption period, and apply to all subject
property.
The effect of the ruling is far-reaching. It limits the
Virgin Islands in the performance of the basic government
function of setting real property tax policy.
In order to protect homeowners in the territory from losing
their land due to the inability to pay property tax increases
resulting from a dramatic rise in property values due to the
outside investment, local law provides that no residential tax
bills can increase more than 10 percent over the previous
valuation. This crucial provision, however, was struck down by
the courts as inconsistent with the 1936 Statute.
The problem of rising land values is particularly acute on
the island of St. John, two-thirds of which is national park.
Recent development has generated increased property values and,
therefore, higher property taxes. Many Virgin Islanders fear
losing land which has been in their family for generations
because of the inability to pay increased property taxes.
Indeed, at a recent town meeting on St. John, I heard firsthand
from residents who passionately expressed their concern that
the recent court decision would lead to soaring taxes and force
them out of their respective homes. Since the days of
emancipation, in our islands land has been a precious commodity
which has traditionally passed from generation to generation.
Unless S. 1829 is adopted, the Virgin Islands will not have
the ability to reinstitute the 10 percent cap or to employ
other appropriate tax policy measures to address the legitimate
concerns of these Virgin Islanders desirous of preserving their
land for their children.
Based on the ruling, the 1936 Statute may also preclude our
local government from establishing partial tax exemptions for
veterans, the elderly, or farmers, and from using tax policy to
encourage development through the creation of the Enterprise
Zones. While State and local governments are free to set
different tax rates for different uses of property, such as
residential, agricultural, commercial, income-producing, or
charitable, the 1936 law prevents our local government from
doing the same. To my knowledge, no State, no county, city, or
territory has such restrictive provisions imposed upon it by
the Congress.
In short, the 1936 Statute needs to be repealed in order to
put us on par with other jurisdictions, such as Montgomery
County or New York City, and to enable us to set our own local
tax policy.
The second reason. The 1936 Statute was adopted by Congress
to reform the real property tax system in the Virgin Islands,
which at the time was based upon the use to which property was
put as opposed to its value. Cultivated or developed land was
taxed at a higher rate. It was felt that this system was unfair
to those who cultivated their land and the policy discouraged
cultivation and also favored a few large owners.
A third reason. The adoption of S. 1829 and the consequent
repeal of the 1936 Statute will have absolutely no economic
effect on the Federal Government. Like State and local property
taxes, Virgin Islands real property taxes are imposed by the
territory and are payable to the territory. This is a local
matter. It is not a Federal question.
In 1936, the Virgin Islands were closely administered by
the Federal Government. Since then there has been a steady
progression toward local autonomy in an effort to move from
colonialism toward self-governance. In 1954, Congress passed
the Revised Organic Act which established a framework for
Virgin Islands self-government, and in 1968, Congress passed
the Elective Governor Act which authorized the popular election
of the Virgin Islands Governor and eliminated the power of the
President to veto local legislation.
The provisions of the 1936 Statute that might have been
viewed as necessary by Washington in the colonial era now bind
the hands of the Virgin Islands government and prevent it from
enacting socially and economically beneficial legislation.
While it is the Government's position that the 1936 Statute was
implicitly repealed by the Revised Organic Act of 1954, the
court ruling provided otherwise, making an express
congressional repeal necessary to achieve the goal of self-
government for the territory.
I would like to thank the Honorable Congresswoman Donna
Christensen for sponsoring this legislation.
Senator, I respectfully request you adopt S. 1829 and
repeal the old and outdated 1936 Federal Statute. I thank you
for your time and attention to a matter of great importance to
the people of the Virgin Islands.
Madam Chair, your father, I understand, has been very
influential in the territory for many, many years. So we want
to convey our thanks and gratitude.
[The prepared statement of Mr. Richards follows:]
Prepared Statement of Vargrave A. Richards, Lieutenant Governor,
U.S. Virgin Islands
Good morning, Mr. Chairman and members of the Committee. My name is
Vargrave Richards, and I am the Lieutenant Governor of the United
States Virgin Islands.
Under Virgin Islands law, the Office of the Tax Assessor falls
under the Office of the Lieutenant Governor. The Tax Assessor is
charged with generating the real property tax bills for the Territory
of the United States Virgin Islands. One of the bills before this
Committee, S. 1829, addresses the real property tax of the Virgin
Islands.
I am here to respectfully request that you adopt Bill S. 1829 which
repeals sections 1401 through 1401(e) of Title 48 of the United States
Code, which I will refer to as the ``1936 Statute''. I strongly support
the Bill for three reasons: One, a recent court ruling held that the
1936 Statute prohibits the Territory from setting its own real property
tax policy; Two, the 69 year old statute, which was designed to assist
the Virgin Islands, now hinders it from performing a basic governmental
function; and Three, this is a purely local issue with no federal
impact.
The reason I am here before you is a recent court ruling which has
essentially revived a long forgotten federal statute governing the
assessment of real property taxes in the Territory.
On June 28, 2004, the United States Court of Appeals for the Third
Circuit issued an opinion affirming a decision of the United States
District Court of the Virgin Islands in Berne Corp. v. Government of
the Virgin Islands, 2004 WL 1443889 (3d Cir. Jun. 28, 2004).
The courts held that the 1936 Statute is still controlling in the
Virgin Islands, and that it governs the basis for assessment for real
property taxes in the Territory, preempting subsequent local laws in
this area. Based on the 1936 Statute, the court ordered that all
property subject to taxation be taxed on the basis of actual value and
at the same rate. Under the ruling, to be valid, an exemption must
grant a 100% percent exemption from taxation, cover the full tax year
of the exemption period, and apply to all of the subject property.
The effect of the ruling is far reaching. It limits the Virgin
Islands in performance of the basic government function of setting real
property tax policy. Based on the ruling, a federal law precludes our
local government from establishing partial tax exemptions for veterans,
the elderly or farmers, and from using tax policy to encourage
development through the creation of enterprise zones.
To my knowledge, no State or Territory has such restrictive
provisions imposed upon it by Congress.
For example, under a local law enacted to encourage agriculture,
farmland was 95% exempt from property taxation. Under the new court
ruling, this exemption is no longer valid because it is not a 100%
exemption.
Similarly, the general homestead exemption, and the specific
homestead exemptions for veterans and the elderly, as well as
Enterprise Zone tax exemptions, would only be valid if they were to
provide a full exemption from taxation. Based on the court ruling, the
Guaranteed Housing Rehabilitation Loan exemption is also invalid.
Another critical provision of Virgin Islands law is at stake as
well. In order to protect homeowners in the Territory from losing their
land due to inability to pay property tax increases resulting from a
dramatic rise in property values due to outside investment, local law
provides that no residential tax bill can increase more than 10% over
the previous valuation. This crucial provision was also struck down by
the courts.
The problem of rising land values is particularly acute on the
Island of St. John, two thirds of which is National Park. Recent
development has generated increased property values and therefore
higher property taxes. Many Virgin Islanders fear losing land which has
been in their family for generations because of the inability to pay
increased property taxes. Since the days of emancipation, in our
islands, land has been a precious commodity which has traditionally
passed from generation to generation.
Unless Bill S. 1829 is adopted, the Virgin Islands will not have
the ability to reinstitute the 10% cap, or to employ other appropriate
tax policy measures to address the legitimate concerns of these Virgin
Islanders desirous of preserving their land for their children.
Unless Bill S. 1829 is adopted, the Virgin Islands will not be able
to set different tax rates for different uses of property. While state
and local governments are free to set different tax rates for differing
uses of property, such as residential, agricultural, commercial, income
producing or charitable, the 1936 Statute prohibits our local
government from doing the same.
In short, the 1936 Statute needs to be repealed in order to put us
on par with other jurisdictions and enable us to set our own local tax
policy.
The second reason the Bill should be adopted is that the 1936
Statute is an anachronism whose historical purpose is no longer served.
The Statute was adopted by Congress on May 26, 1936 to reform the
real property tax system in the Virgin Islands which at the time was
based upon the use to which property was put as opposed to its value.
Cultivated or developed land was taxed at a higher rate. It was felt
that this system was unfair to those who cultivated their land and the
policy discouraged cultivation and also favored a few large land
owners.
Today, the 1936 Statute as interpreted by the courts no longer
assists the people of the Virgin Islands. To the contrary, it hampers
our ability to make sensible tax policy.
A third reason to support the Bill is that this is a local issue
with no impact on the federal treasury. The adoption of S. 1829 and the
consequent repeal of the 1936 Statute will have absolutely no economic
effect on the federal government. Like state and local property taxes,
Virgin Islands real property taxes are imposed by the Territory and are
payable to the Territory. This is a local matter. It is not a federal
tax question.
In 1936, the Virgin Islands were closely administered by the
federal Government. There has been a steady progression toward local
autonomy in an effort to move from colonialism toward self governance.
In 1954, Congress passed the Revised Organic Act which established a
framework for Virgin Islands self-government. In 1970, Virgin Islanders
elected their own Governor for the first time.
The old 1936 tax Statute severely impairs the ability of the
Government of the Virgin Islands to set real property tax policy. The
Virgin Islands legislature should be able to grant partial real estate
tax exemptions to encourage farming, economic development, and the
creation of homesteads, and to provide tax relief for veterans, the
elderly and the disabled.
The provisions of the old 1936 Statute that might have been viewed
as necessary by Washington in 1936, now bind the hands of the Virgin
Islands Government and prevent it from enacting socially and
economically beneficial legislation. While it is the Government's
position that the 1936 Statute was repealed by the Revised Organic Act
of 1954, the court ruling provided otherwise, making an express
Congressional repeal necessary to achieve the goal of self-government
for the Territory.
I would like to thank the Honorable Congresswoman Donna M.
Christensen for sponsoring the legislation.
Senators, I respectfully request that you adopt Bill S. 1829 and
repeal the old and outdated 1936 federal Statute. I thank you for your
time and attention to a matter of great importance to the people of the
Virgin Islands.
Senator Murkowski. Thank you, Lieutenant Governor. I
appreciate that.
Mr. Pula, your testimony, please. Good morning.
STATEMENT OF NIKOLAO I. PULA, ACTING DEPUTY ASSISTANT SECRETARY
FOR INSULAR AFFAIRS, DEPARTMENT OF THE INTERIOR
Mr. Pula. Thank you, Madam Chairman. I am pleased to be
here before you today to discuss S. 1829 and S. 1831. I am
Nikolao Pula, Acting Deputy Assistant Secretary of the Interior
for Insular Affairs.
I respectfully request that my full written remarks be
submitted for the record while I summarize my statement.
Senator Murkowski. Your full remarks will be included.
Mr. Pula. Thank you.
S. 1829 would repeal sections 1 through 6 of the 1936
Organic Act of the Virgin Islands, which deal with property
taxation. In 2004, the Third Circuit Court of Appeals held that
these provisions were still in effect. This decision
invalidated local Virgin Islands statutes that give exemptions
to residents such as veterans and seniors.
For decades, the Department of the Interior has sponsored
and backed measures that increase self-government for the
territories. S. 1829 would return control of the property tax
to the government of the Virgin Islands and property taxes
would be levied as they were prior to the Third Circuit's
decision. The administration supports the enactment of S. 1829.
S. 1831 deals with two subjects: submerged lands and the
settlement of claims pursuant to the CNMI Covenant. Do you want
to wait on this, or do you want me to continue?
Senator Murkowski. Go ahead. The vote has not yet started.
Mr. Pula. All right.
Section 1 of S. 1831 would give the Commonwealth of the
Northern Mariana Islands authority over its submerged lands.
It has been the position of the Federal Government that
United States submerged lands around the Northern Mariana
Islands did not transfer to the CNMI. This position was
validated in the Ninth Circuit Court of Appeals. One
consequence of this decision is that CNMI law enforcement
personnel lacked jurisdiction in the territorial waters
surrounding the islands of CNMI without a grant from the
Federal Government.
Currently the CNMI is the only U.S. territory that does not
have title to the submerged lands. It is appropriate that CNMI
be given the same authority as her sister territories.
The administration, therefore, supports enactment of
section 1 of S. 1831, provided that language is added regarding
consistent interpretation.
Section 2 of S. 1831 would permit the Secretary of the
Interior to settle claims of the CNMI arising pursuant to the
CNMI Covenant. The authority would be activated by a request by
the Governor of the CNMI.
The administration does not support the enactment of
section 2 of S. 1831 because it does not believe that the
creation of an additional formal mechanism with its attendant
costs, as described in the bill, is necessary.
Although we were not specifically invited to speak with
regard to the compact-related amendments in S. 1830, with your
indulgence I would like to raise one issue that is not
considered in the bill.
The Compact of Free Association Amendments Act of 2003
contemplated the creation of separate trust funds for the
peoples of the Republic of the Marshall Islands and the
Federated States of Micronesia. To aid in building corpus, both
compacts provide that their respective trust funds shall not be
subject to Federal or State taxes.
Another provision requires that the trust funds be
incorporated in the District of Columbia. Because the District
of Columbia is neither a State nor the Federal Government, the
intended tax-free status of the trust fund has been called into
question.
The administration, therefore, requests that the following
new section be added to S. 1830, an amendment for the tax-free
status in the District. ``Clarification of Tax-Free Status of
Trust Funds. In the U.S.-RMI Compact, the U.S.-FSM Compact, and
their respective trust funds subsidiary agreements, for the
purposes of taxation by the United States or its subsidiary
jurisdictions, the word `state' means `state, territory, or the
District of Columbia.' ''
Such an amendment would ensure that full effect will be
given to the intended tax-free status of the trust funds.
I thank you for allowing me the opportunity to testify
today.
[The prepared statement of Mr. Pula follows:]
Prepared Statement of Nikolao I. Pula, Acting Deputy Assistant
Secretary of the Interior for Insular Affairs, U.S. Virgin Islands
Mr. Chairman and Members of the Committee on Energy and Natural
Resources, I am pleased to appear before you today to discuss S. 1829
and S. 1831. I am Nikolao Pula, Acting Deputy Assistant Secretary of
the Interior for Insular Affairs.
s. 1829
S. 1829 would repeal sections 1 through 6 of the 1936 Organic Act
of the Virgin Islands of the United States, which deal with property
taxation in the territory. In 2004, the Third Circuit Court of Appeals
held that the property tax provisions in the 1936 Organic Act,
requiring market valuation, were still in effect despite enactment of
the Revised Organic Act of 1954. This decision has had the effect of
invalidating local Virgin Islands' statutes that give property tax
exemptions to residents such as veterans and seniors.
In a rapidly escalating real estate market, people on limited
incomes, including many veterans and seniors, can be forced from their
homes due to an inability to pay the increased levies. Adverse social
consequences can follow.
For decades, the Department of the Interior has sponsored or backed
measures that increase self-government for the territories. S. 1829
advances Virgin Islands citizens' self-government, consistent with
Departmental policy. Additionally, it is my understanding that there is
no Federal regulation of property taxation in any other state or
territory under the American flag.
S. 1829 would return control of the property tax to the Government
of the Virgin Islands, and property taxes would be levied as they were
prior to the Third Circuit's decision. The Administration supports
enactment of S. 1829.
s. 1831
S. 1831 deals with two subjects: submerged lands and the settlement
of claims arising pursuant to the Covenant to Establish a Commonwealth
of the Northern Mariana Islands in Political Union with the United
States of America.
Submerged Lands
Section 1 of S. 1831 would give the Commonwealth of the Northern
Mariana Islands (CNMI) authority over its submerged lands from mean
high tide seaward to three geographical miles distant from its coast
lines.
It has been the position of the Federal Government that United
States submerged lands around the Northern Mariana Islands did not
transfer to the CNMI when the Covenant came into force. This position
was validated in Ninth Circuit Court of Appeals opinion in the case of
the Commonwealth of the Northern Mariana Islands v. the United States
of America. One consequence of this decision is that CNMI law
enforcement personnel lack jurisdiction in the territorial waters
surrounding the islands of the CNMI without a grant from the Federal
Government.
At present, the CNMI is the only United States territory that does
not have title to the submerged lands in that portion of the United
States territorial sea that is three miles distant from the coastlines
of the CNMI's islands. It is appropriate that the CNMI be given the
same authority as her sister territories.
It should be noted that the language of section 1 is similar, but
not identical, to the language of the 1974 territorial submerged lands
act applicable to Guam, the Virgin Islands and American Samoa. The
differences appear to be attributable to the fact that the CNMI
provisions would be a later enactment. We assume that the intent of the
bill is to give the CNMI the same benefits in its submerged lands as
its sister territories enjoy in their submerged lands. If this is the
case, it would be helpful, for those who will later interpret the
statute, to include language in S. 1831 stating that, as a general
rule, the submerged lands statute is intended to be applied in a
consistent manner to each of the four territories, unless, of course,
there is a specific and express exception for one of the territories.
The Administration, therefore, supports enactment of section 1 of
S. 1831, provided that language is added regarding consistent
interpretation.
Covenant Authority
Section 2 of S. 1831 would permit the Secretary of the Interior to
settle claims of the CNMI arising pursuant to the CNMI Covenant. This
authority would be activated by a request by the Governor of the CNMI.
On a number of occasions over the past quarter of a century, the
Federal Government and the CNMI have sought accommodation on a variety
issues and disputes through the formal process of appointing
representatives provided for in section 902 of the Covenant. In
addition to this formal process, and on a separate track, the CNMI has
sought to have the Department of the Interior help resolve issues with
other Federal agencies.
The Administration does not support the enactment of section 2 of
S. 1831 because it does not believe that the creation of an additional
formal mechanism with its attendant costs, as described in the bill, is
necessary.
s. 1830
Although we were not specifically invited to speak with regard to
the compact-related amendments in S. 1830, with your indulgence, I
would like to raise one issue that is not considered in the bill.
The Compact of Free Association Amendments Act of 2003,
contemplated the creation of separate trust funds for the peoples
Republic of the Marshall Islands and the Federated States of
Micronesia. It is anticipated that after the year 2023, the trust
proceeds will be the source of substantial funds that will help sustain
their respective governments. To aid in building corpus, both Compacts
provide that their respective trust funds shall not be subject to
Federal or state taxes. Another provision requires that the trust funds
to be incorporated in the District of Columbia. Because the District of
Columbia is neither a state nor the Federal government, the intended
tax free status of the trust fund has been called into question.
The Administration, therefore, requests that the following new
section be added to S. 1830:
Sec.--. CLARIFICATION OF TAX-FREE STATUS OF TRUST FUNDS. In
the U.S.--RMI Compact, the U.S.-FSM Compact, and their
respective trust fund subsidiary agreements, for the purposes
of taxation by the United States or its subsidiary
jurisdictions, the word ``state'' means ``state, territory, or
the District of Columbia''.
Such an amendment would insure that full effect will be given to
the intended tax free status of the trust funds.
Senator Murkowski. Thank you, Mr. Pula. The committee will
look forward to working with you and your office on the
suggestions that you have raised this morning.
Mr. Pula. Thank you.
Senator Murkowski. This is directed to you, Delegate
Christensen. The committee has reviewed the views of a Mr.
David Berne, the individual who brought the case which upheld
the 1936 Statute that S. 1829 would repeal. We have included
the letter from David Berne in the record here.
Now, Mr. Berne proposes that 1829 be amended to grant the
U.S. Virgin Islands the authority to establish property tax
exemptions and caps, but that the principle of using the actual
value in determining underlying property value tax assessments
be maintained.
What is your reaction to the proposal that Mr. Berne has
put forth?
Mrs. Christensen. Thank you for that question, Madam Chair.
Regardless of what one may feel about how property ought to
be taxed in the Virgin Islands, there is no other jurisdiction
in the United States where the Federal Government makes that
determination. So it is my position that that is a matter for
the legislature of the Virgin Islands to determine how the
property tax would be levied, but that there is not a role for
the Federal Government, as it does not exist in any State or
any jurisdiction in this country. I feel it would be
extraordinary for the Federal Government to determine in any
way how property taxes would be applied in the Virgin Islands.
Senator Murkowski. Lieutenant Governor, did you care to add
anything to that?
Mr. Richards. Yes. I will simply echo what the Delegate
said. This is a matter of local law. Our legislature can handle
and impose their respective policies, and I do not think that
the Federal Government would have any say in this matter. This
can be addressed through our local legislation.
Senator Murkowski. Thank you for that.
Mr. Pula, please relay to the Secretary our appreciation
for her convening this initial meeting to discuss with the
Marshalls their issues as they relate to the nuclear testing
program. I guess this morning I would ask for your assurance
that you will follow up and pursue the individual issues with
the Marshalls, report back to the committee, as you develop
either the solutions or a range of options. We appreciate the
forward motion that we have made and would look forward to
updates in the future and know that there is being some
progress made as it relates to the Marshall Islands.
Mr. Pula. Thank you, Madam Chairman. I will relay and
convey your remarks to the Secretary.
As a follow-up to your request, the Deputy Assistant
Secretary of Insular Affairs had a conference call just last
Thursday with officials in the State Department and HHS and
Energy to follow up on some of these issues regarding the
Marshall Islands. We will continue to work as an administration
and report to the committee those things that we pursue.
Senator Murkowski. Great. We certainly appreciate that.
We have been joined by Senator Akaka. Senator, would you
care to make any remarks or comments? We had some good
testimony on the legislation before us and we are just wrapping
it up, but we would love to have your comments.
STATEMENT OF HON. DANIEL AKAKA, U.S. SENATOR
FROM HAWAII
Senator Akaka. Thank you very much, Madam Chairman. Thank
you for this hearing, and I want to add my welcome to our
panelists here.
I understand there are some bills that we are dealing with
here. I would like to mention just two of the three that we are
considering. That is the one to amend the Compact of Free
Association for RMI and FSM, and the other is with the CNMI. We
are looking forward, of course, to moving those. So I look
forward to hearing your responses here.
[The prepared statement of Senator Akaka follows:]
Prepared Statement of Hon. Daniel K. Akaka, U.S. Senator From Hawaii
I'd like to thank Chairman Domenici for scheduling this morning's
hearing on these three bills regarding the U.S.-affiliated islands.
The first bill, S. 1829, was requested by the Delegate and Governor
of the U.S. Virgin Islands and would repeal a 1936 federal law
regarding property tax assessments in the USVI. I welcome Delegate
Christensen and Lieutenant Governor Richards here today and look
forward to their testimony.
The second bill, S. 1830, would effectively amend the Compact of
Free Association Amendments Act of 2003 by approving the government-to-
government agreements reached between the U.S. and the Republic of the
Marshall Islands (RMI), and between the U.S. and the Federated States
of Micronesia (FSM). These agreements were negotiated and transmitted
to Congress by the State Department, and would alter the way future
disaster assistance will be administered. My understanding is that
there is not intended to be any reduction in the level of U.S.
assistance. Instead, these agreements would shift the administration of
that assistance from the Federal Emergency Management Administration
(FEMA) to the Office of Foreign Disaster Assistance (OFDA) in the State
Department.
This second bill also contains other changes requested to the
Compacts by the Government of the FSM to extend the Legal Services
program to FSM migrants living in the United States, and to clarify
that FSM students attending college in Palau shall continue to be
eligible for college scholarship programs for up to two more years
while they complete their ongoing programs of study.
I understand that the FSM Ambassador has submitted testimony for
the record with further details on these requests.
I also understand that the Ambassador from the Republic of Palau,
Hersey Kyota, has submitted testimony for the record with requests for
other amendments, and that he is available to answer any questions that
may arise. Welcome Ambassador.
With respect to the Compact, I would like to add that I hope
Chairman Domenici will agree to schedule an oversight hearing on
Compact implementation this winter. The Compacts are now in the third
year of implementation and there are concerns regarding planning and
reporting on the use of Compact funds. In fact, this Committee is
sending a staff delegation to Micronesia next month to meet with local
officials to learn more about the steps that are being taken to promote
effective use of U.S. assistance.
I look forward to working with FSM and RMI officials next year in
support of our Compact partnerships.
Finally, the third bill, S. 1831, addresses two issues in the
Commonwealth of the Northern Mariana Islands (CNMI). It would grant the
CNMI three-mile jurisdiction over its offshore submerged lands--the
same jurisdiction as provided to the other territories. The bill would
also authorize the Secretary of the Interior to resolve, in cooperation
with other Federal agencies, any issues that may arise between the U.S.
and the CNMI. This language is meant to underscore the Committee's
desire to have the Secretary take the initiative in resolving disputes
before resorting to the formal consultation process set forth in the
law.
I look forward to hearing from our witnesses, and working with my
colleagues in considering these bills.
Senator Akaka. May I proceed with the questions?
Senator Murkowski. Yes.
Senator Akaka. I would like to ask Nick Pula--good to see
you here.
Mr. Pula. Good to see you too, Senator.
Senator Akaka. I understand that the administration has no
objection to the committee favorably reporting these three
bills, with two changes, the deletion of section 2 of S. 1831
regarding the ability of the Secretary of the Interior to
resolve disputes with CNMI, with an addition of a new section
to S. 1830, to clarify the tax-free status of the compact
trusts. Now, is that correct, as far as you know?
Mr. Pula. Yes, Senator. Section 2 of S. 1831 calls for the
Secretary of the Interior to resolve conflicts with the CNMI.
There are mechanisms now that the Secretary is already using.
As you know, the Covenant also has section 902, which handles
any discrepancy or any issues that the CNMI would like to
discuss with the U.S. Government. And the President's
representative on section 902 can handle that.
Also, generally speaking, the Secretary of the Interior, in
dealing with the insular areas, does advocate and take up
issues or conflicts with other agencies by trying to work out
within the administration whatever differences there are. So we
felt that it was unnecessary to have this particular provision.
Senator Akaka. In S. 1831, you stated that the
administration does not support the enactment of section 2 of
S. 1831 because it does not believe that the creation of an
additional formal mechanism with its attendant costs, as
described in the bill, is necessary. And that is a quote from
you.
However, the intent of section 2 is to encourage the
Secretary to use her existing authority and appropriations to
informally resolve disputes before resulting to the more formal
and costly consultation procedures established under section
902 of the Covenant between the United States and CNMI. Could
you please explain how this informal approach would be more
costly than the current formal consultation procedures?
Mr. Pula. At this moment, as I mentioned earlier, the
Secretary does use her influence informally to discuss issues
that are brought to her with the other sister agencies, at
times including the OMB.
Regarding cost, that was a reference to the second part of
that bill that has to deal with any appropriations. There are
none attached to it, but just in case there are.
Senator Akaka. The Ambassador of Palau has submitted
testimony requesting further amendments to S. 1830 that would:
one, extend availability of U.S. education programs under the
compact with Palau from 2007 to 2009; two, to extend the
authorization for television stations in Palau to continue to
transmit videotaped television programming from the United
States; and three, to allow the citizens of Palau to apply for
merchant marine documentation and serve on U.S. flag vessels.
I do not know whether you have a position on these requests
at this time, but I would appreciate your, let me say, initial
reaction and that you will respond in detail for the record
with the administration's analysis and positions.
Mr. Pula. Thank you, Senator. We were not asked to testify
on this particular provision, as you mentioned. I personally
would like to take this back and have a discussion with other
sister agencies that have jurisdiction over this, including the
State Department, and whatever other agencies that would be
required to have a discussion on this. We would be happy to
follow up on that.
Senator Akaka. Finally, I understand that the State
Department is considering negotiations with the Republic of
Palau in order to update certain provisions of the Palau
compact so that they will conform with provisions in the FSM
and RMI compacts. I believe this committee is interested in
having Palau agree to the more recent provisions regarding
immigration, adoption, and labor recruiting.
Would you please consult with your colleagues at the State
Department and let the committee know whether and when they are
committed to undertake such negotiations? We would like to hear
that, and you can inform the committee about that.
Mr. Pula. Senator, I will definitely contact our contacts
with the State Department and follow up as you request. Yes.
Senator Akaka. Well, thank you very much and thank you very
much for your responses.
Thank you very much, Madam Chairman, for this opportunity
to ask these questions.
Senator Murkowski. Thank you, Senator Akaka.
Well, I told you we were going to have a vote at 10:30. It
has bumped to 10:45. So it gave us just the time that we needed
to accomplish this morning's business. I want to thank you for
your willingness to appear here today and present your
testimony. I appreciate that.
With that, we are adjourned.
Mr. Richards. Madam Chair, I just wanted to recognize the
tax assessor, Mr. Roy Martin, who has joined me on this trip.
Senator Murkowski. And who is that? Welcome. Thank you for
being here and thank you for what you do.
With that, we are adjourned.
[Whereupon, at 10:40 a.m., the hearing was adjourned.]
APPENDIXES
----------
Appendix I
Responses to Additional Questions
----------
Department of the Interior,
Office of Congressional and Legislative Affairs,
Washington, DC, December 6, 2005.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate,
Washington, DC.
Dear Mr. Chairman: Enclosed are responses prepared by the Office of
Insular Affairs to questions submitted following the October 25, 2005,
hearing regarding, ``the Compact of Free Association Amendments Act of
2005.''
Thank you for the opportunity to provide this material to the
Committee.
Sincerely,
Jane M. Lyder,
Legislative Counsel.
[Enclosure.]
Questions From Senator Akaka
Question 1. The Ambassador of Palau has submitted testimony
requesting further amendments to S. 1830 that would: extend the
availability of U.S. education programs under the Compact with Palau
from 2007 to 2009; extend the authorization for television stations in
Palau to continue to transmit videotaped television programming from
the U.S.; and allow citizens of Palau to apply for merchant marine
documentation and serve on U.S. flagged vessels. Please provide the
Administration's position on the inclusion of these proposals in S.
1830.
Answer. The United States and Palau conducted their latest
bilateral consultations on May 26, 2005, at the Department of State.
Discussed, among other things, were the education programs and
videotaped television programming noted in the question. The United
States is studying the former. Although not a part of the May 2005
consultations, the Government of Palau's desire for Palauan citizens to
qualify for merchant marine documentation and to serve on U.S. vessels
is an issue that the Office of Insular Affairs is striving to advance
with the appropriate Federal agencies.
The Executive Branch is not prepared at this time to endorse
inclusion in S. 1830 of any of these provisions. It is appropriate for
agreement to be reached first by the representatives of each government
before approval is given by the United States Congress.
Question 2. I understand that the State Department and the Republic
of Palau are considering negotiations to update certain provisions of
the Palau Compact so that they will conform to provisions in the new
FSM and RMI Compacts. The Committee is interested in establishing
consistency between the Palau Compact and the more recent provisions in
the FSM and RMI Compacts on immigration, adoption, and labor recruiting
and we assume that the Administration is also interested in this
objective. At the same time, Palau is seeking changes in program
assistance such as a extension of certain telecommunications program
eligibility. I note that any negotiations should be limited in scope to
program assistance and should not include discussion of any extension
of U.S. financial assistance beyond the current term of financial
assistance. Would you please ask your colleagues at the State
Department and let the Committee know when they are committed to
undertake such negotiations?
Answer. Section 432 of the Compact of Free Association with Palau
provides for a formal ``review'' of the terms of the Compact at
prescribed intervals; it does not call for ``negotiations.'' The
Administration will review with Palau the terms of the Compact as
required in Compact section 432 (October 1, 2009, 2024, and 2034).
Representatives of our two countries, however, may meet at any time to
discuss issues of interest to either party. The United States, at
present, is not committed to undertake any such discussions of issues
except when new economic consultations are scheduled or as a follow-up
to our May 26, 2005, economic consultations.
Question 3. Following the Committee's recent hearing on the
Marshall Islands nuclear compensation petition, the Secretary of the
Interior held a meeting for Administration officials to hear in more
detail from the Marshall Islands. I thank the Secretary for her
initiative and wonder if you can tell us where this process currently
stands? Are further meetings planned?
Answer. On October 20th, Deputy Assistant Secretary David Cohen
organized a follow-up inter-agency conference call with the State
Department's Office of the Assistant Legal Adviser for East Asia and
the Pacific, two HHS offices and two Energy offices (Germantown and
Honolulu). The principal result of that conference call was an
agreement by HHS Region IX to prepare a comprehensive inventory of HHS
programs unutilized or under-utilized by the Marshall Islands. In
addition, a senior member of the staff of the Office of Insular Affairs
has met with the Marshall Islands First Secretary to brief the First
Secretary on the conference call.
Appendix II
Additional Material Submitted for the Record
----------
Commonwealth of the Northern Mariana Islands,
Office of the Attorney General,
Saipan, MP, June 6, 2005.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate,
Washington, DC.
Hon. Jeff Bingaman,
Ranking Member, Committee on Energy and Natural Resources, U.S. Senate,
Washington, DC.
Gentlemen: One of the continuing issues between the Commonwealth of
the Northern Marianas and the United States has been jurisdiction over
the submerged lands beyond the mean high water mark. In previous
enactments, the Congress has ceded to all States and virtually all
territories at least three miles of jurisdiction. As you know, this
matter is currently the subject of litigation between the CNMI and the
United States. However, for environmental and other purposes it is
increasingly vital that some measure of control be vested in the CNMI.
With that in mind, we would request the enactment of amendments to
the Territorial Submerged Lands Act which establish a three mile
territorial limit for the CNMI--the minimum afforded all other states
and territories. Importantly, however, this legislation should not
prejudice the legal claims or position of the CNMI in the ongoing
litigation to establish a greater limit. Such an approach has been
taken in other instances, including for Guam. This will afford the CNMI
the certainty it needs for coastal protection in the near term, while
allowing it to fully prosecute its claims far a greater limit through
the judicial process.
Thank you for your consideration of this request and please let me
know if I can provide any further information.
With best regards,
Pamela Brown,
Attorney General.
______
Commonwealth of the Northern Mariana Islands,
Saipan, MP, June 6, 2005.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate,
Washington, DC.
Hon. Jeff Bingaman,
Ranking Member, Committee on Energy and Natural Resources, U.S. Senate,
Washington, DC.
Chairman Domenici and Ranking Member Bingaman: Thank you for this
opportunity to comment of S. 1831. As the Governor of the Commonwealth
of the Northern Mariana Islands, I appreciate your introduction of this
bill pursuant to my request. Your support of and assistance in,
resolving the issues addressed by this legislation will enhance the
lives and prosperity of residents in the Commonwealth.
Section 1 of the bill amends the Submerged Lands Act to provide a
three mile territorial limit for the CNMI--the minimum afforded all
other states and territories. As such, S. 1831 clearly provides the
Commonwealth with jurisdiction over, and ownership of, these
territorial waters.
When the United States District Court for the Northern Mariana
Islands issued its opinion that the Commonwealth's territorial limit,
it generated a great deal of uncertainty. The decision, read literally,
held the Commonwealth did not have any ownership interests or
regulatory powers beyond the ordinary low-water mark. At worst, that
meant that the Commonwealth cannot enforce any of its laws in the
waters surrounding the Commonwealth. Some relevant laws include fishing
laws, environmental laws, tax laws, immigration laws, and criminal
laws.
For example, the bans on gill nets and fishing in sanctuaries such
as Bird Island and Managaha could not be enforced, anti-dumping and
pollution controls to protect our coral reefs could not be enforced,
and the Commonwealth could not collect taxes on income from activities
within the territorial waters. it was not even clear that if someone
committed a crime, even murder, in the waters, IMPS would have
enforcement powers over them. Furthermore, smuggling and anti-
trafficking activities could not be stopped by local immigration agents
until they reached land.
S. 1831 puts to rest any questions regarding the Commonwealth's
ability to enforce its laws within its territorial limits.
Further, S. 1831 is consistent with international law as well as
ownership and revenue schemes currently in place in the United States.
It recognizes the United States' interest in jurisdiction for national
defense and security, while encouraging the Commonwealth's economic
independence and decreasing its federal dependence. Our economy and
welfare are heavily dependent on marine resources. On the other hand,
we understand that the Commonwealth has limited enforcement resources
and that there is a need for federal funding, expertise, and other
resources to develop and exploit the submerged lands for the people of
the Commonwealth. We also do not contest the authority of the Federal
government to regulate and control submerged lands and the overlaying
waters for the purposes of commerce, navigation, national defense, and
international affairs, as permitted by the Covenant and applicable law.
The Commonwealth needs economic development and the submerged lands
have most of the Commonwealth's resources. This development will not
occur until the cloud of title is finally resolved. While S. 1831's
grant of the three mile territorial limit may not be satisfactory to
some residents of the Commonwealth, it is vitally important for all.
The Commonwealth also appreciates introduction of section 2 in the
bill. That provision simply authorizes the Secretary of the Interior to
resolve any issue arising under the Covenant when raised by the CNMI.
The Secretary would involve any other federal agencies as relevant and
the section authorizes the appropriation of funds as necessary as well
as allowing the Secretary to use any other funds appropriated for the
provision at issue. That would be useful if the discussion were over
requirements for the obligation of funds made available from the $27.7
million under section 702, for example.
The reason for section 2 is that at the moment the Commonwealth has
only two formal mechanisms to raise issues with the federal government.
We can proceed in court, as we have done to establish jurisdiction over
submerged lands, or we can initiate the 902 process under the Covenant
which requires the President to appoint a negotiator. The 902 process,
however, is not always responsive enough to address issues of concern
to the Commonwealth such as the submerged land matter. Further, the
proposed section 2 does not eliminate the 902 discussions.
While many issues, such as the one recently raised by the Resident
Representative under the American Jobs Creation Act of 2004 that you
are aware of involve agencies other than the Department of the
Interior, it seems to us that the first approach by the Commonwealth
should be to the Secretary of the interior who can request assistance
from the other agency. A major reason for that, aside from the general
responsibilities of the Secretary for insular affairs, is that both the
Commonwealth and your Committee will likely look to the resources of
the Department for relief if the discussions prove unsuccessful. Having
the Department involved from the outset may serve not only to advance
resolution, but may also serve as an early warning to your Committee of
a significant problem.
On behalf of the people of the Commonwealth of the Northern Mariana
Islands, I offer my sincere appreciation for the support of the support
of the Energy Committee. I stand ready to provide answers to whatever
questions you may have on S. 1831.
Juan N. Babauta,
Governor.
______
Cruz Bay, VI, October 21, 2005.
Hon. Donna Christian-Christensen,
U.S. Virgin Islands Delegate to Congress, U.S. House of
Representatives, Washington, DC.
Re: H.R. 59--109th Congress, To repeal certain sections of the Act of
May 26, 1936, pertaining to the Virgin Islands
Dear Delegate Christian-Christensen: I write to express my deep and
sincere support for H.R. 59, a measure you sponsored in the 109th
Congress of the United States, now assigned to the House: Committee on
Resources. This legislation seeks to remove congressionally mandated
language that significantly impacts the Virgin Islands property tax
system. The provisions sought to be removed date back to 1936, the
transitionary period following purchase of the Virgin Islands from
Denmark. We have operated under congressional guide and directive for
seventy (70) years without further amendment, even though the issue of
property tax is traditionally controlled at the state level.
In light of a host of problems that require unique address--taking
into consideration island topography and U.S. National Park ownership
of Large tracts of land on St. John, it is imperative that the issue of
property tax assessment be ceded to territorial determination, in all
respects. Having resided on both St. Croix and St. John, I communicate:
with an understanding of both island districts. The active real estate
market on St. John and the limitation imposed by National Park
ownership of most land on the Island is displacing families who have
lived on island for generations and now cannot keep pace with the red
hot acceleration in their property values. Our people work hard taming
island-level wages and cannot compete with the wealthy who are moving
in. The territory must have opportunity to properly address this
situation so that all parties benefit and live together peacefully
I welcome an opportunity to personally express my support of H.R.
59 and trust that your colleagues will understand and likewise support
you on this issue that is so important to the people of all four Virgin
Islands.
Sincerely,
Myron A. Allick.
______
Coral Bay Community Council, Inc.,
Coral Bay, St. John, U.S. Virgin Islands, October 24, 2005.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate,
Washington, DC.
Re: October 25th Hearing on S. 1829
Dear Senator Domenici: The Coral Bay Community Council is a 200-
member organization whose mission is to provide an effective means for
Coral Bay residents to participate in planning the future of Coral Bay
development. The current property tax law situation threatens long time
property owners and old island families. Your help is needed.
Please support passage of S. 1829 to repeal the anachronistic 1936
federal law that requires full market value property taxation in the
Virgin Islands and prohibits use of exemptions for homeowners, tax
equity, land conservation or other purposes. The Virgin Islands needs
to have the same options states and local governments have to make fair
property tax policy.
Thank you.
Sincerely,
Sharon L. Coldren,
President.
______
St. John, Virgin Islands, October 24, 2005.
Hon. Donna M. Christensen,
Delegate to Congress, U.S. House of Representatives, Washington, DC.
Dear Delegate Christensen: I am writing to bring to your attention
a matter of utmost urgency to the people of the Virgin Islands inasmuch
it will determine whether many Virgin Islanders will be able to keep
their homes and also, whether the Virgin Islands will be able to
maintain significant areas of green space for future generations to
enjoy. Recent decisions by federal courts have overturned sections of
Virgin Islands law that provided significant insulation for Virgin
Islands homeowners to protect them against the consequences of rapidly
rising property values on their tax bills. The Virgin Islands
Government has been ordered to change its system of real property
assessment to come into compliance with 48 U.S.C. 1401(a) which
mandates that all real property in the Virgin Islands must be assessed
based on actual value and that the rate of taxation on real property in
the Virgin Islands must be uniform without regard to the use of the
real property in question. This decision, if allowed to stand without a
change in federal law, will have significant negative consequences for
Virgin Islands homeowners in particular and for sustainable development
and land use for the Virgin Islands in general.
After examination of the issues involved, it becomes dear that the
Legislature does not have the power to address this matter through
legislation inasmuch as the determining law in this matter is federal
law relating to the Virgin Islands. It is important to note that the
provisions that were struck down are not uniquely used in the Virgin
Islands but are similar to provisions that are widely used in
jurisdictions throughout the United States. For example, V.I. Code T.
33, 92402 provides that the Tax Assessor shall not increase the
valuation of any residential property by more than 10% unless there has
been substantial improvement to the property since the last valuation.
This provision is not art unusual one, as there are 19 states in the
Union that have assessment limits, and some of those states apply these
limits only to residential property. As this analysis will demonstrate
later, the striking down of cap combined in Section 2402, combined with
the requirement that assessment must be based on ``actual value'', will
be ruinous to many Virgin Islands homeowners. As this analysis will
demonstrate in greater detail, many homeowners will face a property tax
bill that will be three times higher than it would be under the present
system of taxation.
Federal law regarding property taxes in the V.I. are not only
injurious to individual owners who will most certainly face drastic
increases in their property tax bill, but they also severely hamper the
ability of the government to use property taxes as a tool to influence
land use and land conservation. Although a number of states provide
lower assessments for land that is determined to be agricultural land
or open space, the Virgin Islands is prevented from doing so by the
provisions of 48 U.S.C. 1401(a). Thus, as we see, the case of Berne
Corp. v. Government of the Virgin Islands has consequences that reach
far beyond some commercial property owners being over-assessed. The
issues at stake, in fact, are the continued viability of local
homeowners and the preservation of the few precious areas of green
space that remain in the territory.
In order to prevent these disastrous consequences, it is vital that
48 U.S.C. 1401(a), whose original purpose has long been out-lived, be
repealed immediately.
background
In the year 2000, the District Court of the Virgin Islands decided
a case in which the Berne Corporation, later joined by other
plaintiffs, sued the Tax Assessor with the complaint that their
commercial properties were being taxed based on inflated assessments of
value rather than on the actual value as required by federal law
relating to the Virgin Islands.\1\ Judge Thomas Moore found in favor of
the plaintiffs and ordered the Virgin Islands government to revise its
system of property tax assessment to conform with federal law.\2\
Additionally, Moore struck down a provision of Virgin Islands law that
has served to protect residential property owners from the effects that
skyrocketing real estate values would otherwise have on their property
taxes. This decision and the resulting revision of the V.I. property
tax code, if done under present federal law, will have far reaching
negative consequences for many local property owners in particular and
for the Virgin Islands in general.
---------------------------------------------------------------------------
\1\ Berne Corporation v. Government of the Virgin Islands, 120 F.
Supp. 2d 528.
\2\ 48 U.S.C. Sec. 401(a) states that ``For the calendar year 1936
and all succeeding years all taxes on real property in the Virgin
islands shall be computed on the basis of the actual value of such
property and the rate in each municipality of such islands shall be the
same for all real property subject to taxation in such municipality
whether or not such property is in cultivation and regardless of the
use to which such property is put.''
---------------------------------------------------------------------------
Property taxation based on actual value as opposed to replacement
value.
Currently the assessed value of real property for taxation purposes
is heavily based on replacement value as opposed to the market value of
the property. Assessing property based on actual, or cash value, will
make the assessed value of any given property much more sensitive to
the value of the properties surrounding it. Thus if an individual or a
family owns a modest dwelling that is surrounded by million dollar
homes, the assessed value and thus the property taxes due, will
increase significantly. This will have serious consequences for long-
time property holders, particularly on the island of St. John. In the
Virgin Islands, where the limited land mass makes real property a
commodity in short supply, the prevailing trend in real estate prices
has been upwards. With the exception of periods such as that following
the Fountain Valley incident in 1972 and the Hurricanes Hug and
Marilyn, in 1989 and 1995 respectively, Virgin Islands homeowners have
seen a consistent increase in the market value of their property. This
results, for many, in a situation where they have increased wealth on
paper, but the wealth cannot be realized unless the property is
mortgaged or sold and moreover, a situation in which they cannot afford
to keep this ``wealth'' that they have because their property tax bills
are moving beyond their reach. This is particularly the case in St.
John and in many areas of St. Thomas and St. Croix where wealthy
individuals have purchased properties and made improvements at prices
that have immediately and drastically increased the property values of
the properties surrounding them. Assessing properties on the basis of
their market value will only exacerbate this situation.
Elimination of the 10% cap on increased valuation.
In 1988, the Legislature, in response the outcry of property owners
whose taxes were skyrocketing due to the increasing values of
surrounding properties, enacted legislation placing a cap on assessment
increases on residential property for tax purposes. This 10% cap
provided vital insulation against the effects of rapidly rising
property values.
Judge Moore's ruling has drastically changed the situation by
striking down the ten percent cap on. valuation increases. As a result,
residential property owners whose taxes have been held down for the
last 16 years are likely to face a sudden increase of staggering
proportions. The following example will demonstrate. In this instance
we use an assumed residential property on St. John which has a modest
house but which commands a breath-taking view and moreover, is
surrounded by properties that have been bought and sold for figures
exceeding a million dollars during the past decade and a half. As such,
the property's market value has risen from just $150,000 in 1987 to
$900,000 by the year 2006. Any discussion with homeowners on St. John
will confirm that this is not an anomalous example. The calculations of
taxes owed under the current assessment system for the years between
1987 and 2011 are based on a revaluation every two years between 1987
and 2001, and a revaluation every five years thereafter, subsequent to
the passage of Act No. 6415 which changed the revaluation period from
two years to five years. The property taxes charged equal 1.25% of an
amount equal to 660% of the property's value. For purposes of
simplicity, homestead exemptions, veterans exemptions and the like have
not been included in the calculations.
COMPARISON OF REAL PROPERTY TAXES BETWEEN THE CURRENT ASSESSMENT METHOD AND AN ACTUAL VALUE-BASED METHOD WITHOUT
THE ASSESSMENT LIMIT
----------------------------------------------------------------------------------------------------------------
Tax
Year Property Value Tax Value ($) 60% of tax Rate Tax owed ($)
($) value ($) (%)
----------------------------------------------------------------------------------------------------------------
1987............................... 150,000.00 150,000.00 90,000.00 1.25 1,125.00
1989............................... 180,000.00 165,000.00 99,000.00 1.25 1,237.50
1991............................... 195,000.00 181,500.00 108,900.00 1.25 1,361.25
1993............................... 240,000.00 199,650.00 119,790.00 1.25 1,497.38
1995............................... 275,000.00 219,615.00 131,769.00 1.25 1,647.11
1997............................... 330,000.00 241,576.50 144,945.90 1.25 1,811.82
1999............................... 500,000.00 265,734.15 159,440.49 1.25 1,993.01
2001............................... 650,000.00 292,307.57 175,384.54 1.25 2,192.31
2008............................... 900,000.00 321,538.32 192,922.99 1.25 2,411.54
2011............................... 1,094,987.61 353,692.15 212,215.29 1.25 2,652.69
W/O Cap
2006............................... 900,000.00 900,000.00 540,000.00 1.25 6,750.00
2011............................... 1,094,987.61 1,094,967.51 656,992.57 1.25 8,212.41
----------------------------------------------------------------------------------------------------------------
As you can see, removing the ten percent cap would result in a
$4,300 increase in our homeowner's tax bill, and it will force him to
pay an additional $21,692.30 over the next five years. The bill will
rise to $8,212.41 dollars when the property is next assessed in 2011
even if the property's value only increases at the rate of 4% a year.
If property values increase at the rate of 10% per year, his property
tax bill in 2011 would be almost $11,000, compared to the amount of
$2,652.69 that would be due in 2011 if the cap remained in place.
The effect of Judge Moore's ruling on the preservation of green space
Federal law, as interpreted in the Berne Corp. v. Government of the
V.I. decision, will have long-term negative effects on the preservation
of green space in the Virgin Islands by placing pressure on land owners
to develop or sell their properties in order to be able to pay the
property taxes on their land. In addition to providing some measure of
relief and insulation for long-time homeowners, the 10% cap on
assessment increases also encouraged the preservation of green spate by
holding taxes down on properties that had not had substantial
improvements since the previous valuation. The removal of the cap,
combined with the requirement that properties be assessed on the basis
of actual value, will substantially raise the property taxes of large
parcels of undeveloped land and will force their owners to either bear
the increased burden our of their pockets or to cause the property to
be commercially developed in order to generate the revenues necessary
to pay the additional taxes and keep the property. In many cases,
owners of large undeveloped properties will be forced to sell or lease
their lands rather than face attachment by the government for non-
payment of property taxes.
Besides the loss of aesthetic value and recreational opportunities
that the loss of green space will bring about, there will also be long-
term environmental consequences. The loss of green space will
inevitably' cause greater soil erosion and runoff, thus causing further
damage to the marine environment. Furthermore, the loss of green areas
will also negatively affect rainfall, thus contributing to increased
aridity and decreased agricultural activity.
The Importance of changing federal law regarding taxation of V.I. real
property
At the crux of the matter is the nature of federal governing the
administration of real property taxes in the Virgin Islands. It is
important to note that the federal law to which Moore referred in
striking down the ten percent cap and requiring assessment based on
actual value is not federal law that applies nationwide but is specific
to the Virgin Islands. In fact, according to the National Conference of
State Legislatures, over 38 states have some time of property tax
limit, and 19 of them have assessment limits similar to the 10% cap
that was struck down in Berne v. Gov't. Furthermore, constitutional
principles have clearly established that the federal government shall
not involve itself with the various states' administration of property
taxes. Why then, has this special dispensation been made for the Virgin
Islands? A bit of historical background is in order.
Up until 1936, the property taxation system, which was based on
Danish colonial law, taxed property at a certain amount per acre based
on the land's use, and uncultivated land was taxed at a very law rate
thus, in the words of the bill's advocates, ``providing an incentive to
keep land--even very valuable land, unproductive.'' In 1936 Congress
passed legislation requiring that from the tax year 1936 forward, all
property was to be assessed for taxation purposes on the basis of
actual value, and that a uniform rate of taxation would be applied to
all real property regardless of use.\3\ The legislation was intended to
stimulate the development of unused parcels of land. In passing this
legislation, however, Congress tied the hands of the government and
prevented it from adopting policies geared towards homeowner relief and
land preservation that many jurisdictions around the country have
adopted. It is noted that in addition to the 19 states that have
assessment limits similar to that struck down by Moore, many others,
including Virginia, Oregon, Nevada, Florida, Texas, Maine, Washington,
Wisconsin and Michigan, have lower assessments for agricultural land
and open space.
---------------------------------------------------------------------------
\3\ Although this would never have been imposed on a state,
Congress was able to do so under Article 4, Section 3 of the United
States Constitution, which grants Congress the power to make any
needful laws and regulations for the governance of U.S. territories.
---------------------------------------------------------------------------
Federal statutes governing property taxation in the V.I., are not
only restrictive, but they are now outdated and have outlived their
purpose. Far from the situation of 1936, the Virgin Islands now suffers
not only from excessive population density, but from over-development
and mal-development of land resources. At this point, the preservation
of our remaining green and open spaces is vital not only to maintaining
the aesthetic beauty of the islands and thus, our economic viability,
but also to preventing further damage to our natural habitats and the
marine ecosystem. It is also a vital component in maintaining the
overall quality of life. Local policymakers are and will be unable to
set tax policy to intelligently influence land use and development
without a change in federal law.
I urge you therefore, as our Delegate to Congress, to give this
matter your most urgent attention and to seek to have this provision
repealed before the end of this Congress. We cannot afford to have this
matter linger until V.I. homeowners receive tax bills they cannot pay,
but must act swiftly and proactively in defense of our people's
interests. Thus, I anxiously await your response and I look forward to
your assistance and cooperation in this matter.
Sincerely,
Almando ``Rocky'' Liburd,
Former Senator-at-Large & St. John Native.
______
Statement of Hon. Pedro A. Tenorio, Resident Representative to the
United States, Commonwealth of the Northern Mariana Islands on S. 1831
Hafa Adai, Chairman Domenici, Ranking member Bingaman, members of
the Committee, I am Pedro A. Tenorio, Resident Representative to the
United States for the Commonwealth of the Northern Mariana Islands.
Thank you for holding this historic hearing on Senate bill 1831, a bill
to convey certain submerged land to the Commonwealth of the Northern
Mariana Islands. I am privileged to submit written testimony in support
of this important legislation.
Almost thirty years ago, this Congress enacted Public Law 94-241--
The Covenant to Establish a Commonwealth of the Northern Mariana
Islands in Political Union with the United States of America. One of
the basic objectives of the Covenant was the economic development of
the Commonwealth. Consistent with this objective, the Covenant provided
several economic incentives to the CNMI such as Article VII, United
States Financial Assistance, where the Government of the United States
agreed to ``assist the Government of the Northern Mariana Islands in
its efforts to achieve a progressively higher standard of living for
its people as part of the American economic community and to develop
the economic resources needed to meet the financial responsibilities of
local self-government.''
For the past quarter century, the people of the CNMI enjoyed the
privilege of ownership and administration of its submerged land and the
waters surrounding the islands of the Commonwealth and successfully
implemented regulatory and management responsibility of its marine
resources to the benefit of its citizens.
However, two years ago, the U.S. District Court for the Northern
Mariana Islands rendered judgment against the Commonwealth to the
effect that all submerged land around the CNMI belongs to the United
States. Earlier this year, the Ninth Circuit Court of Appeals affirmed
the District Court's decision upholding the sovereignty of the United
States over the submerged land of the Commonwealth. The CNMI is
currently appealing this ruling to the U.S. Supreme Court.
Under an agreement between the CNMI and the federal government
entered into following the District Court decision, the CNMI has
continued to administer the federal rules and regulations relating to
CNMI submerged land. This agreement can be sustained as long as the
litigation is ongoing. Without this agreement, or, in the event that
the Supreme Court rules contrary to the CNMI's claims, the District
Court's order could have serious adverse consequences. In essence,
according to the Court, the current ownership rights and regulatory
authority of the Commonwealth extends only to the area between the high
and low water marks, an area of approximately two feet of sand. A
quarter century of effort to protect the marine resources, including
the fragile coral reefs surrounding most of the islands in the CNMI
would be in peril. It is essential that CNMI and Federal environmental
and marine protection laws be enforced for the protection of these
resources. Simultaneously it is vital to economic development that the
CNMI enjoy the same rights to submerged land that other coastal States
and Territories have.
The intent of Section 1 of S. 1831 is to convey certain submerged
land to the Commonwealth of the Northern Mariana Islands of the
existing rights, title and interest of the United States in lands
permanently or periodically covered by tidal waters up to but not above
the line of mean high tide and seaward to a line three geographical
miles distant from the coastline of the CNMI. Such a conveyance will be
keeping in spirit with previous enactments of Congress ceding to most
coastal States and the territories three miles of jurisdiction. I fully
support this provision, and see this as a logical first step. To
increase the economic potential of submerged land resources in the
CNMI, where land based natural resources are almost non-existent, and
in keeping with precedents set by Congress for larger grants, I would
anticipate a subsequent request from the CNMI in the years to come for
a grant similar or equal to that of Puerto Rico's grant of
approximately 10 geographic miles.
The objective of Section 2 of S. 1831 is to authorize the Secretary
of the Interior, on the request of the Governor of the CNMI, to settle
any claim of the Commonwealth arising pursuant to any provision of the
Covenant. An issue that would be appropriately addressed by this
section, is the outstanding issue of tax cover-over as addressed in
section 703(b) of the Covenant. Over a year ago, Mr. Chairman, you and
Senator Bingaman requested from the Secretary of the Interior a
progress report in determining the cover-over amount due the CNMI. You
also indicated that Section 703(b) of the Covenant clearly provides for
the cover-over to the CNMI of income taxes and taxes on articles
produced in the Northern Mariana Islands, as well as ``the proceeds of
any other taxes which may be levied...'' In addition, you pointed out
that the CNMI government has provided Congress with its estimate of tax
proceeds from some categories subject to cover-over. The estimates
focused on income and estate taxes--two categories that are clearly
covered by section 703(b).
Furthermore, during the last Congress, the Senate approved a
package of Energy Committee bills which included a resolution of the
cover-over issue for the CNMI. The resolution clarified that the cover-
over of federal collections to the treasuries of certain territories
(CNMI, Puerto Rico, Guam, and the Virgin Islands) encompasses all taxes
and fees, including the proceeds on estates and gifts. It further
directs the Department of the Interior to negotiate with CNMI to reach
a settlement on the past due amounts and condition such settlement on
CNMI submitting a plan to spend these cover-over amounts on
infrastructure needed for education and water purposes. With your
ongoing support, I pledge to work with the committee to find a suitable
mechanism to address this issue to the satisfaction of all parties.
Thank you.
______
Statement of Hon. Hersey Kyota, Ambassador of the Republic of Palau
to the U.S., on S. 1830
Good morning, Mr. Chairman and distinguished Members of the Senate
Energy and Natural Resources Committee. It is indeed an honor and
privilege for me to appear and testify before your Committee.
Mr. Chairman, before I continue, I would like to take this
opportunity to thank you and your colleagues for inviting me to this
important hearing this morning. On behalf of President Remengesau and
the people of Palau, I would also like to convey our special
appreciation and gratitude to you Mr. Chairman and members of this
Committee for your continued support and assistance to the Government
and people of Palau.
Mr. Chairman, per your request, I will limit my testimony to S.
1830, which is an Act to amend the Compact of Free Association
Amendments Act of 2003, and for other purposes. There are two
amendments in 5.1830 that pertain to Palau and they are found in
Sections 4 and 5.
In section 5, the availability of legal services would be extended
to citizens of Palau residing in the United States, including its
territories and possessions. This amendment provides the same
eligibility and treatment to the citizens of the three Freely
Associated States, namely, the Republic of Palau, Federated States
Micronesia and Republic of Marshall Islands. We support and welcome
this amendment.
At a glance, Section 4 seems to offer extension of education grants
to Palau, but further review indicates that the amendment extends
eligibility of the citizens of the Federated States of Micronesia and
the Republic of the Marshall Islands who are attending institutions of
higher learning in the FSM, RMI, United States and its territories and
the Republic of Palau until 2023. The eligibility for citizens of Palau
for federal education programs, which include the Head Start Program
and elementary, secondary and post secondary education will expire or
discontinue in 2007. This is unacceptable Mr. Chairman.
Under the Compact of Free Association between the United States and
the Republic of Palau, entered into force on October 1, 1994, the
government of the United States has a pre-existing obligation, and that
obligation is to fund education programs, and other programs for that
matter, to Palau for the duration of our Compact's financial
provisions, which is fifteen years. That Compact ends in 2009, not
2007. Your amendment therefore falls two full years short of the
fifteen-year duration of the Compact between our two nations. I appear
before you today to reiterate our request to Congress to extend
educational grants to the government and people of Palau until 2009.
Mr. Chairman, we are not asking for new programs. We are simply
asking that Congress extends these existing educational programs to
Palau, as was bilaterally agreed by our two countries, for the duration
of our Compact. After all, the same programs were provided to the FSM
and the RMI during the complete duration of their first compacts, and
were further extended to 2023 in their new compacts. We are merely
asking for a fair and equitable treatment.
Mr. Chairman, there are two other requests that I wish to bring to
your attention. I have addressed these requests in my letter of June
27, 2005 to you and Senator Bingaman. Allow me, Mr. Chairman, to
reiterate them for the record and request the Committee to consider
these items as amendments to S. 1830.
The first request has to do with 17 U.S.C. 111(e)(2), a U.S.
Copyright Statute relating to the transmission of videotape
programming. Prior to its independence in 1994, Palau, as a Trust
Territory of the Pacific Islands, was permitted to transmit videotape
programming through its cable system, along with Alaska, Hawaii, Guam
and the Northern Mariana Islands. This privilege, for Palau and the
other two Freely Associated States, is no longer permitted under Title
17 U.S.C. 111(e)(2). I believe that this was merely an oversight that
occurred when the Freely Associated States changed status from Trust
Territories to Freely Associated States. In fact, the failure of the
Statute to include Freely Associated States just came to light when the
company providing such services was sold and the issue was discovered
by the new owner.
Transmittal of videotape programming can only be resumed if
Congress amends this copyright statute. Mr. Chairman, both the United
States and Palau benefit from the extension of such programming by
further strengthening our cultural ties. Moreover, the U.S., in some
instances, spends millions of dollars to expose or introduce its
culture and way of life in other parts of the world. We are asking your
government to permit us to expose and introduce the American culture
and way of life in our country, free of charge, through videotape
programming. You and members of this Committee can change the lives of
so many people in Palau, FSM and RMI by correcting this oversight. I
therefore appeal to you today to amend Title 17 and put videotape
programming back into the living rooms of the people of all of the
Freely Associated States.
The second request relates to the eligibility of our citizens to
apply for merchant mariner's licenses for seamen or crew on U.S.
flagged ships and cruise liners. This issue is governed under 46 CFR
part 12. At the present, citizens of the three Freely Associated States
are not eligible to apply for merchant mariner's documents, unless they
are permanent legal residents or intended permanent legal residents of
the U.S. or its territories and possessions. Given our status as Freely
Associated States, with close and special relationships with the U.S.,
where our citizens are permitted to work, study and reside in the U.S.,
including its territories and possessions, without visa requirements,
our citizens should be eligible to apply for and be granted merchant
mariner's licenses and associated documents.
Moreover, under our respective compacts, citizens of the Freely
Associated States are eligible to serve, and many of our sons and
daughters are actively serving, in the U.S. Armed Forces, including the
U.S. Coast Guards. Given these facts, I respectfully request this
Committee to include in S. 1830 an amendment to rectify this oversight,
and to lawfully permit our citizens to apply for and obtain merchant
mariner's licenses in order for them to work in U.S. flagged ships and
cruise liners.
Like the above issue regarding videotape programming, I believe
that the failure to permit the issuance of merchant mariner's licenses
and documents is a mere by-products of our status change from that of a
Trust Territory to a Freely Associated State. In other words, the
necessary transitional amendment merely slipped through the cracks.
Statutes relating to both of these issues should have been amended
to reflect our new political status with the United States. For
example, the phrase ``Trust Territory of the Pacific Islands'' in Title
17 U.S.C. 111(e)(2) should have changed or amended to ``Freely
Associated States''. I have personally come across a number of U.S.
statutes that define Palau as ``insular area'' or ``out laying area''.
Of course, those statutes were enacted before Palau became a Freely
Associated State under the Compact of Free Association.
While I recognize that it is unnecessary to change every law on the
books to reflect the current status of Palau, the FSM and the RMI, it
is worth noting that privileges, rights and freedoms that were
authorized under these statutes, which were not expressly forbidden in
our respective Compacts of Free Association or recent acts of Congress,
should continue in full force and effect.
It is very contradictory for our citizens to be allowed to join the
U.S. Armed Forces, fight side by side with American comrades, sail on
U.S. Navy and U.S. Coast Guard battleships, and even attend the U.S.
Coast Guard Academy, and not be able to obtain merchant mariner's
licenses from the U.S. Coast Guard. It is also very contradictory for
the U.S. Government to represent Palau before the International
Telecommunications Union (ITU) as mandated by the Compact and not
permit Palau to transmit videotape programming through its cable
system.
And more importantly, Mr. Chairman, good faith requires that
educational grants agreed to in bilateral negotiations between our two
countries extend through the duration of the resulting Compact of Free
Association that guides our current relationship with one another.
These grants must be extended through 2009 for the continuing health
and educational welfare of our children. These grants are, and were, a
critical component of the financial provisions of the Palau Compact,
which end in 2009, not 2007.
Mr. Chairman and distinguished members of this Committee, these
proposed amendments, which I have outlined, are non-controversial,
straightforward, simple, necessary and urgent. I therefore respectfully
request, on behalf of President Remengesau, the government and the
people of Palau, your full support and assistance in incorporating
these proposed amendments into S. 1830.
Mr. Chairman, if I may, I would like to acknowledge the support and
assistance of your staff. You have a group of hard working and
dedicated personnel in the company of Josh Johnson, Steve Waskiewicz
and Al Stayman, whom I worked closely with in addressing some of the
issues concerning Palau.
Thank you very much.
______
Statement of Hon. Balmy deBrum, Ambassador, Embassy of
the Republic of the Marshall Islands, on S. 1830
Mr. Chairman, Distinguished Members, Ladies and Gentlemen: The
Government of the Republic of the Marshall Islands (RMI) is pleased to
provide its testimony in respect to S. 1830, a bill to amend the
Compact of Free Association Amendments Act of 2003.
This legislation, as noted by Chairman Domenici and Ranking Member
Senator Bingaman in the Congressional Record of October 6, 2005, deals
with one of the several issues that were left unresolved in 2003 as a
result of the deadline on the term of the original Compact assistance
when Congress enacted the Compact of Free Association, as amended.
The main issue that this legislation addresses concerns replacement
of the existing agreement under the Federal Programs and Services
Agreement concerning United States Disaster Preparedness and Response
Services and Related Programs with the Agreement between the RMI and
United States Governments signed on June 30, 2004, as specified in
Section 105(f)(1)(A)(iii) of the Compact of Free Association Amendments
Act of 2003.
I cannot adequately underscore the importance of U.S. disaster
assistance to the RMI. As a nation of low-lying coral atolls, the RMI
is especially susceptible to unusually high tides, wave action, and
tropical storms and typhoons that are endemic to our part of the world.
Adequate disaster assistance should be viewed by both the RMI and U.S.
governments not only in humanitarian terms, but also as an insurance
policy against catastrophic damage to essential infrastructure and
Compact investments.
The new disaster assistance agreement will create a new structure
for dealing with future natural disasters in the RMI. First, the new
agreement provides that the United States Agency for International
Development (USAID) will be responsible for initial disaster response
and coordinating U.S. disaster assistance efforts in the RMI. Second,
the agreement allows for the implementation of Section 211(e) of the
Compact, as amended, the Disaster Assistance Emergency Fund. Third, and
most important, the new agreement provides for the continuation of the
availability of FEMA resources under the Robert T. Stafford Disaster
Relief and Emergency Assistance Act in cases where other resources are
not adequate to deal with the damages caused by a disaster.
The RMI supports the new agreement and looks forward to working
with appropriate U.S. Government officials in its implementation.
S. 1830 also clarifies that that the services of the Legal Services
Corporation will continue to be available to RMI citizens residing in
the United States. Although the RMI has understood that this was always
the case, we appreciate clarifying the issue.
The proposed legislation also contains a series of technical
amendments consisting of clerical corrections, conforming changes, and
updating U.S. statutory references in the Compact, as amended, and the
Compact of Free Association Amendments Act of 2003. The RMI concurs
with these technical amendments.
As I noted in the beginning of my testimony, S. 1830 basically
deals with one of several issues that were not addressed when Congress
enacted the Compact, as amended, in 2003. I would, therefore like to
take this opportunity to raise a few other issues of concern to the RMI
and request that these issues be addressed in the pending legislation.
The first issue I would like to raise concerns the Supplemental
Education Grant provided in Section 105(f)(1)(B)(iii) of the Compact of
Free Association Amendments Act of 2003. These funds are provided to
replace funding from certain federal programs that had previously been
available to the RMI and represent an essential part of the RMI's
emphasis on education and improving the educational outcomes of its
citizens under the Compact, as amended.
Presently this funding is dependent on annual appropriations of
Congress, as it was not appropriated for the twenty-year term of the
economic assistance provisions of the Compact, as amended. To date,
there has been a series of problems with making this funding available
to the RMI that has caused significant hardship to the RMI Ministry of
Education and to the national government, which has been compelled to
use its own limited general revenues to fund some of these programs.
Nonetheless, these programs are now moving forward and will be
integrated with the RMI's education system. For example, funding which
had previously gone to the Head Start Program is now being used to
establish a nationwide kindergarten program in the RMI.
There remains the risk, however, that these funds may not be
appropriated in the future, which could have devastating consequences
to the RMI's education system. Since both the U.S. and RMI governments
have agreed to make education a priority under the Compact, as amended,
it is important that this funding be stable and predictable in the
future. We believe that this legislation provides an appropriate
vehicle to remedy this glitch in the Compact by ensuring that the
Supplemental Education Grants have the same certainty as other Compact
assistance.
Mr. Chairman, we would request that your Committee work with the
Appropriations Committee and the Administration to make the current
discretionary appropriations mandatory as is the case with other annual
funding under the Compact, as amended, including the Compact Impact
funding provided to Guam, the CNMI, and Hawaii.
Mr. Chairman, my government and the people of the Republic are
grateful for the leadership of this committee in conducting a hearing
earlier this year on the legacy of the U.S. nuclear testing program in
the Marshall Islands. We also appreciate the assistance and support
that you and other members of the Committee have demonstrated in
beginning a follow-on dialogue--in conjunction with the relevant
federal agencies--on several issues related to the testing program that
pose enduring problems for us. Some of these issues may be able to be
resolved administratively, some will require new authorizations and
appropriations, and some may simply require additional clarifying
legislation. We are ready to work through each of these issues with
your committee and the relevant agencies, and would encourage your
continued leadership in moving this process forward as expeditiously as
possible.
An example of one issue that might be solved through clarifying
legislation is the Energy Employees Occupational Illness Compensation
Program Act that was enacted to cover workers at various sites included
the Pacific Test Site. While the intention, we understand, was to
include the residents of the Trust Territory who represented the
majority of the workers, a narrow reading of the statute has excluded
them because they were citizens of the Trust Territory--not the United
States--although the United States was the Administering Authority.
Similarly, we understand that there are some who have expressed
concerns that the transfer of functions from the old Defense Nuclear
Agency to the Department of Energy may need some clarification. The RMI
government would also like to ask this Committee whether clarifying
assignment for the monitoring of the integrity of the Runit dome on
Enewetak Atoll could be considered a technical matter. Although a
formal transfer of responsibility for monitoring the dome never took
place when DNA ceased to exist, we believe that existing language gives
DOE the discretion to monitor the dome and provide assurances to the
community resettled adjacent to the dome that their health is not
adversely affected by their proximity to the storage site. Nonetheless,
we believe clarifying language would be useful.
All of these issues were deferred at the request of the United
States negotiators when the Compact was being renegotiated.
Consequently, although some are, in our judgment, purely technical,
they are not encompassed by this legislation and will otherwise need
subsequent review and action by your Committee.
Once again Mr. Chairman, I would like to take this opportunity to
thank you on behalf of the government and people of the RMI for all of
the assistance, understanding, and support that you and other members
have provided to the RMI over the years. The RMI looks forward to
working with you, other committee members, and committee staff on
addressing these and other issues that were left unresolved with the
passage of the Compact of Free Association Amendments Act of 2003.
Thank you very much.
______
Statement of Hon. Craig W. Barshinger, Senator At Large,
26th Legislature, United States Virgin Islands
Mr. Chairman, the United States Virgin Islands economy has grown
since 1936, and even begun to prosper. Now the 1936 law which was
appropriate in 1936 is poised to cause grievous hardship to residents
of the U.S. Virgin Islands. The burden would fall particularly to
lifelong residents of the Virgin Islands, who are our culture bearers,
and who are often retired and live on a modest, fixed income.
Your affirmative support of S.1829, offered by the Honorable
Delegate to Congress Donna M. Christensen of the United States Virgin
Islands, will allow the Virgin Islands the freedom to do what any State
in the Union can do: to choose a method of taxation that raises the
money necessary for public services; which distributes the burden of
the taxation fairly and justly; and which preserves the cultural and
social fabric.
A recent ruling in District Court by Judge Thomas. K. Moore found
that under the 1936 law, all exemptions, be they agricultural,
homestead, or any other special use, is not permitted. All real
property must be taxed at the same rate. Period.
By your support of S. 1829 you will repeal the crippling,
anachronistic 1936 law and restore to the Virgin Islands the ability to
choose a system of taxation that takes all factors into account.
That is all you need do to solve this grave problem.
The need for the Delegate's bill is not abstract. If the Virgin
Islands is forced to operate under the shadow of the 1936 law, native
Virgin Islanders will be forced from their homes. This would occur in
the follow scenario: A Virgin Islander has been living a simple home
for decades on land that has become very valuable due to skyrocketing
land prices, particularly on the island of St. John.
The Virgin Islander has been able to afford her $600 annual tax
bill, with the help of the $250 homestead exemption. The $2 Million
house built next door five years ago has not been factored in, to date.
As a result of Judge Moore's ruling, next year her tax bill will jump
to $5,000. Living on social security alone, the Virgin Islander will be
forced to leave the home she has lived in for decades.
Clearly, this would be a tragedy that must not be allowed.
In another perspective, Agriculture in the Virgin Islands,
particularly the island of St. Croix, will whither and die in the
shadow of the 1936 law. Agriculture exemptions will be gone, and it
farmers will simply loose their land, unable to withstand the
astronomical tax increase.
Clearly, this is another tragedy that must not be allowed.
You can avoid these and dozens of other tragic blows to the Virgin
Islands. Vote to repeal the 1936 law.
There is an emergency path for survival, if we remain under the
1936 law: I have a bill that would abolish the real property tax
altogether, and replace that revenue stream with an Improvement tax. In
essence, land would no longer be taxed. Improvements would be taxed.
This provides protection from the devastating effects of someone
building a $2 million home adjacent to a $100,000 home; as well it
provides protection for agricultural land. This is an emergency
measure. Our options for survival are severely limited.
I ask for your affirmative vote. My office has begun formulating a
plan that will give to the U.S. Virgin Islands a uniform method for
taxing real property that takes economic, legal, social, and cultural
factors into account. We continue to consult with our constituents to
arrive at a solution everyone can live with, and thrive with. From
California to Florida, states have dealt with the crises similar to
what the United States Virgin Islands faces today. We will draw from
these successes, and formulate a Virgin Islands solution. On behalf of
the People of the United States Virgin Islands, I thank you for your
affirmative vote on bill S. 1829.
Thank you.
______
Statement of the Government of the U.S. Virgin Islands, on S. 1829
The Government of the Virgin Islands (``Government'') hereby states
its support of S. 1829, a bill introduced by Chairman Pete Domenici and
Ranking Minority Member Jeff Bingaman of the Committee on Energy and
Natural Resources to repeal a deadweight provision of law enacted by
Congress in 1936 in furtherance of a legislative objective long since
relegated to the dust bins of a bygone colonial era.
S. 1829 would repeal a 1936 statute, codified in Sections 1401
through 1401(e) of Title 48, which limits the authority of the Virgin
Islands legislature to assess and collect real property taxes in the
Territory. These limitations were originally enacted to address tax
policies of the Danish-era municipal councils which favored land
speculation by large landowners and discouraged investment in
productive uses of land, thus depriving the local government of needed
revenues. The need for such federal limitations, however, was
superseded by the enactment by Congress of the Revised Organic Act of
the Virgin Islands of 1954, as amended (``Revised Organic Act''), which
abolished the municipal councils and created a comprehensive system of
local government with sufficient legislative powers to resolve local
property tax issues without federal intervention. Indeed, the courts
have held that the Revised Organic Act repealed by implication all
prior federal statutes limiting local self-governance inconsistent with
the powers conferred by the 1954 Act. Until a recent federal court
decision, the Government believed that the 1936 statute had been
effectively repealed.
Pursuant to its duly delegated legislative authority under the
Revised Organic Act, the Legislature of the Virgin Islands has, over
the years since 1954, enacted a comprehensive scheme of property tax
laws, including provisions modeled on state and local laws in the
United States which are designed in part to encourage economic
development and to protect residential homeowners from spiraling
property taxes caused by surging property values. The U.S. Court of
Appeals for the Third Circuit last year upheld a series of orders by
the District Court of the Virgin Islands--based in large measure on the
1936 statute which requires uniform taxation without regard to
classification or use of property--which impedes the power of the
Government to establish its own property tax policies and undermines
its authority to legislate in an area traditionally reserved for state
and local governments. If not now repealed by Congress, the 1936
statute will hinder the exercise of the Government's power, as
conferred by the Revised Organic Act, to assess, administer and collect
real property taxes in the Virgin Islands. Indeed, by precluding
classification of property by use and requiring a uniform rate of tax
between residential and commercial property, the 1936 statute puts at
risk long-standing Government policies designed to develop the economy,
promote social welfare, and protect homeownership in the Virgin
Islands.
Accordingly, the Government respectfully submits that the 1936
statute has long outlived its original purpose and now interferes with
the Government's ability to perform a basic governmental function.
Because the assessment and collection of property taxes is
fundamentally a local government issue with no federal impact, and
because no other State, Territory or Commonwealth is subject to such
federal restrictions, the 1936 status must be repealed as a
dysfunctional reminder of a bygone colonial era.
i. background
A. Congress Initially Provided Limited Autonomy to the Virgin Islands
Municipal Councils
Upon the acquisition of the Virgin Islands by purchase from Denmark
in 1917, the U.S. Government administered the Territory through a
succession of Governors appointed first by the Secretary of the Navy
and, after 1931, by the Secretary of the Interior.\1\ The United States
also continued in force the role of the Danish-era Municipal Councils
for the Municipality of St. Thomas-St. John and the Municipality of St.
Croix. The Municipal Councils had, from Danish times, limited authority
to legislate on matters of local government, including the taxation of
real property.
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\1\ In 1931, the President of the United States transferred
jurisdiction of the Virgin Islands from the Department of the Navy to
the Department of the Interior. See Exec. Order No. 5566, available in
2 Proclamations and Executive Orders: Herbert Hoover 792-93 (1974).
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In providing for the governance of the Islands, Congress by statute
``continued the force and effect of all local laws imposing taxes, so
far as compatible with the change in sovereignty, until Congress
provided otherwise.'' (Act of March 3, 1917, 39 Stat. 1132). Pursuant
to this Congressional statute, the Danish laws providing for the
assessment of real property taxes in the Municipality of St. Thomas and
St. John remained in force until 1922, when they were repealed. See
Ricardo v. Ambrose, 211 F.2d 212, 215 (3d Cir. 1954). In the
Municipality of St. Croix, however, the Danish property tax laws
remained in effect until 1936. See id. at 216.
By 1936, it became clear that the real property tax laws in the two
municipalities were insufficient to generate adequate revenue for the
Territory, and were thus ``unsatisfactory.'' Id. at 216. The tax system
implemented in 1922 by the Municipal Council for St. Thomas and St.
John included ``separate classifications of cultivated land, pasture
land and bush land.'' Id. Uncultivated land was taxed at the lowest
rate, thus ``penaliz[ing] the cultivation of land and tend[ing] to keep
it idle and in the hands of a few landowners.'' Id. The 1917 Danish tax
laws governing St. Croix were ``equally unsatisfactory.'' Id. Because
``[r]ecommendations by the [appointed] Governor to the Colonial
Councils to enact improved tax laws brought no action,'' id., the
Governor of the Virgin Islands and the United States Department of
Interior petitioned Congress to enact legislation designed to encourage
the productive use of land and to generate additional revenue for the
local government. Ricardo v. Ambrose, 110 F. Supp. 716, 718 (D.V.I.
1953), aff'd, 211 F.2d 212 (3d Cir. 1954). See also S. Rep. No. 74-
1973, at 1-6 (1936).
In response to that request, Congress reluctantly intervened and
imposed on the Virgin Islands a uniform system of property tax
valuation to be used throughout the Virgin Islands. (Act of May 26,
1936, ch. 450, 49 Stat. 1372, codified at 48 U.S.C. Sec. Sec. 1401-
1401(e).) In doing so, Congress stated that ``[i]t is the policy of
Congress to equalize and more equitably to distribute existing taxes on
real property in the Virgin Islands of the United States and to reduce
the burden of taxation now imposed on land in productive use in such
islands.'' 48 U.S.C. Sec. 1401. In particular, Section 2 of the Act of
May 26, 1936, codified at 48 U.S.C. Sec. 1401(a) (the ``1936 Real
Property Tax Limitation''), required all taxes on real property in the
Virgin Islands to be computed on the basis of ``actual value'' and at
the same rate, regardless of the classification of the land or the use
to which it was put:
For the calendar year 1936 and for all succeeding years all
taxes on real property in the Virgin Islands shall be computed
on the basis of the actual value of such property and the rate
in each municipality of such islands shall be the same for all
real property subject to taxation in such municipality whether
or not such property is in cultivation and regardless of the
use to which such property is put.
48 U.S.C. Sec. 1401(a) (emphasis added).\2\ As further
explained in the legislative history, the motivating purpose of
this provision was to provide the Virgin Islands with more tax
revenue. See S. Rep. No. 74-1973, at 2, 4, 6 (1936).
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\2\ The relevant provisions of the Act of May 26, 1936, as codified
in Title 48, are set forth below:
Section 1401. Equalization of taxes on real property;
declaration of policy: It is the policy of Congress to equalize
and more equitably to distribute existing taxes on real
property in the Virgin Islands of the United States and to
reduce the burden of taxation now imposed on land in productive
use in such islands.
Section 1401(a). Valuation of real property for assessment;
uniformity of rates: For the calendar year 1936 and for all
succeeding years all taxes on real property in the Virgin
Islands shall be computed on the basis of the actual value of
such property and the rate in each municipality of such islands
shall be the same for all real property subject to taxation in
such municipality whether or not such property is in
cultivation and regardless of the use to which such property is
put.
Section 1401(b). Rate of tax in absence of local laws;
regulations by President for assessment and collection pending
adoption of local laws: Until local tax laws conforming to the
requirements of sections 1401 to 1401(e) of this title are in
effect in a municipality the tax on real property in such
municipality for any calendar year shall be at the rate of 1.25
per centum of the assessed value. If the legislative authority
of a municipality failed to enact laws for the levy,
assessment, collection, or enforcement of any tax imposed under
authority of said sections, within three months of May 26,
1936, the President shall prescribe regulations for the levy,
assessment, collection, and enforcement of such tax, which
shall be in effect until the legislative authority of such
municipality shall make regulations for such purposes.
Section 1401(c). Depository: All taxes so levied and
collected shall be deposited in the municipal treasury of the
municipality in which such taxes are collected.
Section 1401(d). Omitted
Section 1401(e). Exemptions from taxation; authority of
municipalities to alter, amend, or repeal existing laws:
Nothing in sections 1401 to 1401(e) of this title shall be
construed as altering, amending, or repealing exemptions from
taxation, existing on May 26, 1936, of property used for
educational, charitable, or religious purposes. Subject to the
provisions of said sections, the legislative authority of the
respective municipalities is empowered to alter, amend, or
repeal, subject to the approval of the Governor, any law
imposing taxes on real and personal property on May 26, 1936.
Barely one month after it passed the 1936 Real Property Tax
Limitation, Congress enacted the Organic Act of June 22, 1936 (``1936
Organic Act'') to ``provid[e] a complete government--including a
Legislative Assembly'' for the Virgin Islands. Granville-Smith v.
Granville-Smith, 349 U.S. 1, 7 (1955). After almost two decades,
however, it became clear that the government empowered by the 1936
Organic Act was ``unnecessarily cumbersome and inefficient,'' and
required further restructuring to enable the Virgin Islands to govern
themselves. Virgo Corp. v. Paiewonsky, 384 F.2d 569, 576 (3d Cir.
1967). Such inefficiency was not surprising since the 1936 Organic Act
was ``based in no small part on the old Danish colonial system in the
islands, which was evolved before the days of modern communication.''
Id. (quoting S. Rep. No. 83-1271, at 1, 2 (1954), reprinted in 1954
U.S.C.C.A.N. 2585, 2585-86.).
B. Congress Delegated Increased Authority to the Virgin Islands
Legislature in the Revised Organic Act of 1954, Which
Effectively Repealed the 1936 Organic Act, including the 1936
Real Property Tax Limitation
Congress enacted the Revised Organic Act of 1954 to address the
deficiencies of the 1936 Organic Act. See 68 Stat. 497, 48 U.S.C.
Sec. Sec. 1541-1645. ``The Revised Organic Act of 1954 declared the
Virgin Islands to be an unincorporated territory, and completely
reorganized its government, abolishing the two existing municipalities
with their separate municipal councils and joint legislative assembly,
and creating a single territorial government with a single
legislature.'' Virgo Corp. v. Paiewonsky, 384 F.2d 569, 576 (3d Cir.
1967). The Revised Organic Act thus provided ``a greater degree of
autonomy, economic as well as political, to the people of the Virgin
Islands,'' Virgo Corp., 384 F.2d at 576 (citation omitted), including
``the power to pass legislation having `local application,' Granville-
Smith, 349 U.S. at 9. To effect this broad grant of autonomy, the
Revised Organic Act specifically abrogated all ``laws of the United
States applicable to the Virgin Islands on July 22, 1954'' that were
inconsistent with the Act and its amendments. 48 U.S.C. Sec. 1574(c).
The Third Circuit (which has jurisdiction to hear appeals from the
District Court of the Virgin Islands) construed Sec. 1574(c) to repeal
virtually the entire Organic Act of 1936:
It is, of course, clear that those provisions of the Act of
1936 which were inconsistent with provisions of the Revised
Organic Act were repealed by implication by the latter Act. It
is equally true, we believe, that those provisions of the old
Act which dealt with and limited the powers of organs of the
former municipalities, such as the municipal councils, fell
with the abolition of the organs of government to which they
related.
Virgo Corp., 384 F.2d at 577 (emphasis added). The Court of Appeals
explained that adherence to outdated laws from 1936 would unduly
``shackle'' the new Legislature with laws that pertained to, and
restricted, the abolished municipal councils:
There is no reason to believe that the Congress, which was
intent on providing a greater degree of autonomy to the people
of the territory through a newly created territorial
legislature, intended to shackle that legislature with
restrictions which had been placed in 1936 upon the municipal
councils as the direct successors of the old Danish colonial
councils but which the Congress had omitted from the revised
Act.
Id.
The Revised Organic Act thus not only addressed the problems
inherent in the 1936 Organic Act, it also repealed the statutory scheme
providing federal oversight of local real property matters, including
the Real Property Tax Limitation in Sec. 1401(a). Section 1401(a)--
enacted by Congress one month before the repealed Organic Act of 1936--
similarly stems from a bygone era when Congress' guidance was deemed
necessary to remedy what was perceived to be a deficient colonial
legislative system.
The legislative history of the Revised Organic Act further
emphasizes that Congress essentially ``started from scratch'' in
creating this ``new organic act'' or ``basic contract'' for the
citizens of the Virgin Islands:
The purpose of S. 3378 is to provide a new organic act, or
basic charter of civil government, for the people of the Virgin
Islands of the United States. The present act dates from 1936
and is based in no small part on the old Danish colonial system
in the islands, which was evolved before the days of modern
communication. Substantial changes, political and economical,
have taken place in the Virgin Islands in the 18 years since
the first somewhat makeshift organic legislation was put
together, and under modern conditions the 1936 law is proving
unnecessarily cumbersome and inefficient as well as expensive
for the mainland taxpayers.
S. 3378 would eliminate much of this wasteful duplication in
governments and governmental services, thus affording the
islands more efficient and more truly representative
government. At the same time, it would give a greater degree of
autonomy, economic as well as political, to the people of the
Virgin Islands.
Id. at 576 (emphases added) (quoting S. Rep. No. 83-1271, at 1, 2
(1954), reprinted in 1954 U.S.C.C.A.N. 2585, 2586). In crafting an
entirely new ``contract'' for the citizens of the Virgin Islands,
Congress plainly intended that the legislative power of the local
government over purely local matters, such as the taxation of real
property, not be constrained by federal limitations intended for a
different era. The 1936 Real Property Limitation in Sec. 1401(a), like
other inconsistent provisions of the 1936 Organic Act, was effectively
abrogated by the Revised Organic Act and eventually replaced by locally
enacted property tax laws. See 33 V.I.C. Sec. 2402 et seq.\3\
---------------------------------------------------------------------------
\3\ In Revised Organic Act of 1954 Sec. 8(e), Congress directed the
Secretary of the Department of the Interior to arrange for the
preparation of the Virgin Islands Code to constitute ``a consolidation,
codification and revision of the local ordinances in force in the
Virgin Islands.'' 68 Stat. 500, repealed by Act of Oct. 19, 1982, Pub.
L. No. 97-357, Title III, Sec. 305, 96 Stat. 1709. Subtitle 2 of Title
33 of this Virgin Islands Code prepared by the Code Advisory Committee
created by Secretary of the Department of Interior in 1955, submitted
by the Federally-appointed Governor, and enacted by the VI Legislature
on May 16, 1957, superseded the Act of May 26, 1936, and created the
purely local property tax system presently set forth in Title 33 of the
Virgin Islands Code.
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C. Subsequent Amendments to the Revised Organic Act Provided the Virgin
Islands with Greater Autonomy and Self-Government, Further
Diminishing the Need for Federal Limitation on the Legislative
Powers of the Government
The Revised Organic Act has been amended by Congress on several
occasions, each time with the purpose of further expanding the autonomy
of the Virgin Islands in a manner that is clearly inconsistent with the
1936 Real Property Tax Limitation and the 1936 Organic Act. In 1958,
Congress, reacting to the ruling of the Supreme Court in Granville-
Smith that narrowly construed the Virgin Islands' legislative authority
under the 1954 mandate, expanded the Virgin Islands' legislative
charter to include ``all rightful subjects of legislation not
inconsistent with this chapter or the laws of the United States made
applicable to the Virgin Islands.'' Virgin Islands Revised Organic Act-
Amendments, Pub. L. No. 85-851 Sec. 2, 72 Stat. 1094 (1958) (codified
at 48 U.S.C. Sec. 1574(a)). This amendment ``broaden[ed] the
legislative power of the Virgin Islands to cover `the ordinary area of
sovereign legislative power' limited only by the provisions of the
Revised Organic Act and the laws of the United States made applicable
to the Virgin Islands.'' Virgo Corp., 384 F.2d at 579 (quoting S. Rep.
No. 85-2267, 85th at 2 (1958), reprinted in 1958 U.S.C.C.A.N. 4334,
4335) (emphasis added).\4\
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\4\ The Third Circuit in Virgo Corporation further explained that
the phrase ``laws of the United States made applicable to the Virgin
Islands'' in Sec. 1574(a) merely refers to ``those federal statutes
applicable to the United States generally which, either by their own
terms or by other legislation, are also made applicable to the Virgin
Islands.'' 384 F.2d at 579. This phrase, therefore, cannot be read as
preserving Sec. 1401(a).
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With this amendment, Congress expressly delegated areas of
``sovereign legislative power'' that traditionally fall beyond the
scope of federal law, including issues of real property assessment and
taxation, to the Legislature of the Virgin Islands. Cf. Nat'l Private
Truck Council, Inc. v. Okla. Tax Comm'n, 515 U.S. 582, 586 (1995) (``We
have long recognized that principles of federalism and comity generally
counsel that courts should adopt a hands-off approach with respect to
state tax administration.''); Fair Assessment in Real Estate Ass'n,
Inc. v. NcNary, 454 U.S. 100, 116 (1981) (holding that principles of
comity bar taxpayers from challenging ``the validity of state tax
systems in federal courts''). Thus, there is no basis to conclude that
Congress intended to preserve the 1936 Real Property Tax Limitation in
Sec. 1401(a)--a real property assessment law intended to remedy
specific problems with land productivity and tax revenues associated
with the Danish era municipal councils that had long since been
resolved--at the same time it intended to broaden the Legislature's
power to cover ``the ordinary area of sovereign legislative power.''
Rather, the 1958 amendment rendered clear Congress' intent to remove
the ``shackle[s]'' imposed during the colonial era and similar outdated
federal statutes that restricted or otherwise limited local self-
government.
Since 1958, Congress has continued to expand and refine the
authority of the Virgin Islands Government to legislate its own
affairs. Notably, in 1968, Congress passed the Elective Governor Act,
Pub. L. No. 90-496, 82 Stat. 837 (1968), which authorized the popular
election of the Virgin Islands governor, and eliminated the authority
of the President to veto local legislation. In addition, Congress in
1984 ``set in motion a restructuring of the Virgin Islands judicial
system,'' Callwood v. Enos, 230 F.3d 627, 631 (3d Cir. 2000), by
statutorily limiting the jurisdiction of the Virgin Islands District
Court to ``general original jurisdiction in all causes in the Virgin
Islands the jurisdiction over which is not then vested by local law in
the local courts of the Virgin Islands.'' 48 U.S.C. Sec. 1612(b)
(emphasis added).\5\ By this statute, Congress delegated to the
Legislature of the Virgin Islands ``the power to vest jurisdiction over
local actions exclusively in the local courts.'' Callwood, 230 F.3d at
631 (emphasis added); see also Brow v. Farrelly, 994 F.2d 1027, 1035
(3d Cir. 1993) (confirming that Congress' ``ultimate intention was to
divest the Virgin Islands District Court of jurisdiction over local
causes of action'') (citation omitted). Pursuant to this authority, the
Legislature enacted 4 V.I. Code Ann. Sec. 76(a), which, as of October
1, 1991, required ``all civil actions that are based on local law and
that do not satisfy diversity jurisdiction requirements [to be] brought
in the Territorial Court of the Virgin Islands, with a few exceptions''
not relevant here. Callwood, 230 F.3d at 631. In 1994, the Legislature
also vested the Territorial Court with exclusive jurisdiction over all
local crimes that do not relate to federal crimes. Id.; see also 48
U.S.C. Sec. 1612(c); 4 V.I. Code Ann. Sec. 76(b).
---------------------------------------------------------------------------
\5\ 48 U.S.C. Sec. 1612(a) ``affirmatively bestows on the District
Court of the Virgin Islands the entire jurisdiction of a District Court
of the United States.'' Walker v. Gov't of the V.I., 230 F.3d 82, 86
(3d Cir. 2000).
---------------------------------------------------------------------------
The current federal statutory scheme for self-governance in the
Virgin Islands has thus evolved significantly over the years and is a
far cry from its nascent state in 1936--when Congress was asked to
intervene in the local affairs of the Virgin Islands because the
Territory was perceived, at that time, to be incapable of proper self-
governance:
The Territory of the Virgin Islands is a body politic. While
not sovereign, in the true sense of that term, the Revised
Organic Act has conferred upon it attributes of autonomy
similar to those of a sovereign government or a state.
Gov't of the V.I. v. Bryan, 818 F.2d 1069, 1072 (3d Cir.
1987) (emphasis added) (citation omitted); see also Water Isle
Hotel and Beach Club, Ltd. v. Kon Tiki St. Thomas, Inc., 795
F.2d 325, 327 (3d Cir. 1986) (``Congress has steadily increased
the scope of self-government granted to the Virgin Islands.'');
Harris v. Boreham, 233 F.2d 110, 113 (3d Cir. 1956) (holding
that ``aim of Congress'' was to delegate ``full power of local
self-determination''). There is absolutely no reason to believe
that throughout the process of granting the Virgin Islands
increasing autonomy--including the establishment of a
Territorial judicial system with exclusive jurisdiction over
local issues--that Congress simultaneously intended to limit
the legislative authority of the Virgin Islands by extending
the shelf-life of an anachronistic statute intended to address
the detritus of the Danish colonial system.\6\
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\6\ The Third Circuit explained that, with limited exceptions not
applicable here, Congress intended that all pre-Revised Organic Act of
1954 statutes be repealed:
We think . . . that in conferring upon the people of the
Virgin Islands a new and up-to-date charter of government
the Congress could not have intended at the same time to
impose upon them the well-nigh impossible task of sorting
out those provisions of the old Act which were so
inconsistent with the new Act as to be repealed by it from
those provisions of the old Act which were to remain in
force because they were not sufficiently inconsistent with
the new law. The very fact that the Act of 1954 is
described in its title as `An Act to revise the Organic Act
of the Virgin Islands of the United States' and in its
first section as the `Revised Organic Act of the Virgin
Islands' indicates that it was intended to supersede and
take the place of the Organic Act of 1936 and not merely to
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amend or repeal portions of it.
Virgo Corp., 384 F.2d at 577 (emphases added) (footnotes omitted).
ii. the berne decision and the need for legislative redress
In enacting the 1936 Real Property Tax Limitation, Congress also
required the two Municipal Councils to enact local laws in conformance
with the federal statute. Congress further provided that, if the
Municipal Councils failed to enact such provisions within three months
of the date of enactment of the 1936 Real Property Tax Limitation, the
President of the United States shall issue interim regulations
governing the property tax system in the Virgin Islands. When the
Municipality of St. Thomas-St. John did not follow the action of the
Municipality of St. Croix, President Roosevelt prescribed regulations
for the levy, assessment, collection and enforcement of real property
taxes in the Municipality of St. Thomas and St. John. These regulations
remained in force until 1955, when the First Legislature of the Virgin
Islands, organized under the authority of the Revised Organic Act, re-
enacted the regulations and made them applicable throughout the Virgin
Islands.
Since that time, the Legislature of the Virgin Islands has
enacted, and periodically amended, a comprehensive system for
the assessment and collection of real property taxes in the
Territory. See 33 V.I.C. Sec. 2202 et. seq. In doing so, the
Legislature has acted, in a manner similar to the legislative
enactments of other state and local governments in the United
States, to protect homeowners from spiraling property tax
assessments by imposing a ceiling on the increase in the
assessment of residential real property in any assessment
period.\7\ That ceiling has now been held by the U.S. District
Court for the Virgin Islands to violate the judicially revived
1936 Real Property Tax Limitation. Berne Corp. v. Gov't of the
Virgin Islands, 262 F. Supp. 540 (D. V.I. 2003), aff'd 2004 WL
1443889 (3d Cir. June 28, 2004). The effect of the decision
unfairly limits the Virgin Islands--alone among other State,
Territorial and local governments--in its ability to protect
homeowners from rapidly rising property values. This problem is
particularly acute on St. John, where recent development has
resulted in significant increases in property values. Without
the ability to cap the increase in assessments or to utilize
similar tax policies commonly used by other jurisdictions, the
1936 Real Property Tax Limitation revived by the Berne decision
may price land and homeownership beyond the reach of many
Virgin Islanders.
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\7\ 33 V.I.C. Sec. 2202(a) provides in relevant point:
(a) The tax assessor shall at least once every five (5)
years, upon actual view, value and assess all noncommercial
property subject to taxation in the Virgin Islands. Provided,
however that the tax assessor shall not increase the valuation
and assessment of noncommercial property more than 10% over the
previous valuation and assessment except in the following
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cases:
(i) Where there has been an improvement to the
subject real property subsequent to the previous
valuation and assessment. Provided, however, that there
shall be no increase over the 1987 assessed valuation
except where there have been improvements which exceed
$50,000.
(ii) Where there has been an improvement to the
improvement, which occurred subsequent to the previous
valuation and assessment. Provided, however, that there
shall be no increase over the 1987 assessed valuation
except where there have been improvements which exceed
$50,000.
(iii) Where the subject real property has been sold
subsequent to the previous valuation and assessment.
In addition, the Legislature has acted in other ways to encourage
economic development and agricultural production in the Territory. In
the exercise of its duly conferred legislative authority, the
Government has created enterprise zones with partial tax exemptions, as
well as a 95 percent exemption for farmland designed to encourage
agricultural production and greater self-sufficiency in the Territory.
The Government has also created certain homestead exemptions, including
special exemptions for the elderly and veterans. By breathing new life
into the 1936 Real Property Tax Limitation, the Berne decision also
calls into question the lawfulness of these legislative enactments
involving purely local policy choices.
Indeed, many jurisdictions in the United States assess and tax real
property differentially based on the classification of real property,
generally with the purpose of encouraging economic development, or
easing the burden on homeownership. See e.g., Exhibit A, letter from
Huff Wilkes describing New York City real property assessment system.
Such exercise of legislative authority in the furtherance of a
legitimate and articulated public policy goal in the Virgin Islands,
however, is now barred by the decision of the District Court.
Interestingly, in affirming the decision of the District Court, the
Third Circuit Court of Appeals did not expressly rule on the issue of
whether the 1936 Real Property Tax Limitation had been repealed by the
Revised Organic Act.
The Congress must now clarify, through express action, that the
anomalous 1936 Real Property Tax Limitation was repealed by the Revised
Organic Act, and allow the Legislature of the Virgin Islands to
continue to legislate for the public good on all rightful matters of
local self-government. The taxation of real property is a purely local,
not a federal issue. Neither is it a local issue that requires
arbitrary federal restrictions applicable to no other State or
Territory or Commonwealth.
The Government submits that the District Court improperly intruded
on duly conferred local authority when it instructed the Government to
restructure its real property taxation system based on an anomalous
statute intended for a different era. The Government asks only that it
be accorded the same powers and respect accorded to all other States,
Territories and Commonwealths. Accordingly, the Government respectfully
requests that Congress expressly repeal the 1936 Real Property Tax
Limitation in Sec. 1401(a) and favorably report S. 1829.
<all>