[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
THE COMPACTS OF FREE ASSOCIATION AND LEGISLATIVE HEARING ON H.R. 2408, 
                        H.R. 3407 AND H.R. 4938

=======================================================================

                   OVERSIGHT AND LEGISLATIVE HEARING

                               before the

                         COMMITTEE ON RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                              July 17, 2002

                               __________

                           Serial No. 107-141

                               __________

           Printed for the use of the Committee on Resources



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                         COMMITTEE ON RESOURCES

                    JAMES V. HANSEN, Utah, Chairman
       NICK J. RAHALL II, West Virginia, Ranking Democrat Member

Don Young, Alaska,                   George Miller, California
  Vice Chairman                      Edward J. Markey, Massachusetts
W.J. ``Billy'' Tauzin, Louisiana     Dale E. Kildee, Michigan
Jim Saxton, New Jersey               Peter A. DeFazio, Oregon
Elton Gallegly, California           Eni F.H. Faleomavaega, American 
John J. Duncan, Jr., Tennessee           Samoa
Joel Hefley, Colorado                Neil Abercrombie, Hawaii
Wayne T. Gilchrest, Maryland         Solomon P. Ortiz, Texas
Ken Calvert, California              Frank Pallone, Jr., New Jersey
Scott McInnis, Colorado              Calvin M. Dooley, California
Richard W. Pombo, California         Robert A. Underwood, Guam
Barbara Cubin, Wyoming               Adam Smith, Washington
George Radanovich, California        Donna M. Christensen, Virgin 
Walter B. Jones, Jr., North              Islands
    Carolina                         Ron Kind, Wisconsin
Mac Thornberry, Texas                Jay Inslee, Washington
Chris Cannon, Utah                   Grace F. Napolitano, California
John E. Peterson, Pennsylvania       Tom Udall, New Mexico
Bob Schaffer, Colorado               Mark Udall, Colorado
Jim Gibbons, Nevada                  Rush D. Holt, New Jersey
Mark E. Souder, Indiana              Anibal Acevedo-Vila, Puerto Rico
Greg Walden, Oregon                  Hilda L. Solis, California
Michael K. Simpson, Idaho            Brad Carson, Oklahoma
Thomas G. Tancredo, Colorado         Betty McCollum, Minnesota
J.D. Hayworth, Arizona               Tim Holden, Pennsylvania
C.L. ``Butch'' Otter, Idaho
Tom Osborne, Nebraska
Jeff Flake, Arizona
Dennis R. Rehberg, Montana

                      Tim Stewart, Chief of Staff
           Lisa Pittman, Chief Counsel/Deputy Chief of Staff
                Steven T. Petersen, Deputy Chief Counsel
                    Michael S. Twinchek, Chief Clerk
                 James H. Zoia, Democrat Staff Director
               Jeffrey P. Petrich, Democrat Chief Counsel
                                 ------                                

                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on July 17, 2002....................................     1

Statement of Members:
    Bono, Hon. Mary, a Representative in Congress from the State 
      of California, Statement submitted for the record on H.R. 
      3407.......................................................    66
    Gallegly, Hon. Elton, , a Representative in Congress from the 
      State of California, Statement submitted for the record on 
      the Compacts of Free Association,..........................   109
    Hansen, Hon. James V., a Representative in Congress from the 
      State of Utah..............................................     2
        Prepared statement on H.R. 2408, H.R. 3407 and H.R. 4938.     2
    Osborne, Hon. Tom, a Representative in Congress from the 
      State of Nebraska, Prepared statement on H.R. 2408.........   109
    Rahall, Hon. Nick J. II, a Representative in Congress from 
      the State of West Virginia, Prepared statement on the 
      Compacts of Free Association...............................   110
    Thune, Hon. John R., a Representative in Congress from the 
      State of South Dakota, Prepared statement on H.R. 2408.....   111
    Underwood, Hon. Robert A., a Delegate in Congress from Guam..     3
        Prepared statement on the Compacts of Free Association...     4

Statement of Witnesses:
    Brookes, Peter T.R., Deputy Assistant Secretary for Asian and 
      Pacific Affairs, U.S. Department of Defense................     5
        Prepared statement on the Compacts of Free Association...     7
    Christian, Hon. Peter, Chief Negotiator, Joint Committee on 
      Compact Economic Negotiations, Government of the Federated 
      States of Micronesia.......................................    45
        Prepared statement on the Compacts of Free Association...    46
        Response to questions submitted for the record...........   114
    Cohen, David B., Deputy Assistant Secretary for Insular 
      Affairs, U.S. Department of the Interior...................     9
        Prepared statement on the Compacts of Free Association...    11
    Cournoyer, Robert, Tribal Vice Chair, Yankton Sioux Tribe, 
      Marty, South Dakota........................................    91
        Prepared statement on H.R. 2408..........................    92
    Keys John W. III, Commissioner, Bureau of Reclamation, U.S. 
      Department of the Interior.................................    73
        Prepared statement on H.R. 4938..........................    73
    Lawson, Michael L., Ph.D., Senior Associate, Morgan, Angel & 
      Associates, L.L.C..........................................    94
        Prepared statement on H.R. 2408..........................    96
    McCaleb, Hon. Neal A., Assistant Secretary, Indian Affairs, 
      U.S. Department of the Interior............................    68
        Prepared statement on H.R. 2408..........................    71
        Prepared statement on H.R. 3407..........................    69
    Minthorn, Les, Treasurer, Board of Trustees, Confederated 
      Tribes of the Umatilla Indian Reservation..................    76
        Prepared statement on H.R. 3407..........................    77
    Peralta, Alberto, Vice President, Wells Fargo Bank New 
      Mexico, N.A................................................    79
        Prepared statement on H.R. 3407..........................    80
    Short, Albert V., Director, Office of Compact Negotiations, 
      Bureau of East Asian and Pacific Affairs, U.S. Department 
      of State...................................................    15
        Prepared statement on the Compacts of Free Association...    16
        Response to questions submitted for the record...........   115
    Trudel, Roger, Chairman, Santee Sioux Tribe..................    83
        Prepared statement on H.R. 2408..........................    84
        Prepared statement on H.R. 4938..........................    89
    Westin, Susan S., Managing Director, International Affairs 
      and Trade, U.S. General Accounting Office..................    23
        Prepared statement on the Compacts of Free Association...    24
        Response to questions submitted for the record...........   117
    Zackios, Gerald M., Minister of Foreign Affairs, Republic of 
      the Marshall Islands.......................................    52
        Prepared statement on the Compacts of Free Association...    54
        Response to questions submitted for the record...........   117

Additional materials supplied:
    Loeak, Hon. Christopher J., Senator and Chairman, Kwajalein 
      Negotiation Commission, Statement submitted for the record 
      on the Compacts of Free Association........................   111
    Merski, Paul G., Chief Economist and Director of Federal Tax 
      Policy, Independent Community Bankers of America, Statement 
      submitted for the record on H.R. 3407......................    67


 OVERSIGHT HEARING ON THE COMPACTS OF FREE ASSOCIATION AND LEGISLATIVE 
HEARING ON H.R. 2408, TO PROVIDE EQUITABLE COMPENSATION TO THE YANKTON 
SIOUX TRIBE OF SOUTH DAKOTA AND THE SANTEE SIOUX TRIBE OF NEBRASKA FOR 
  THE LOSS OF VALUE OF CERTAIN LANDS. YANKTON SIOUX TRIBE AND SANTEE 
SIOUX TRIBE EQUITABLE COMPENSATION ACT; H.R. 3407, TO AMEND THE INDIAN 
 FINANCING ACT OF 1974 TO IMPROVE THE EFFECTIVENESS OF THE INDIAN LOAN 
GUARANTEE AND INSURANCE PROGRAM. INDIAN FINANCING ACT REFORM AMENDMENT; 
  AND H.R. 4938, TO DIRECT THE SECRETARY OF THE INTERIOR, THROUGH THE 
BUREAU OF RECLAMATION, TO CONDUCT A FEASIBILITY STUDY TO DETERMINE THE 
   MOST FEASIBLE METHOD OF DEVELOPING A SAFE AND ADEQUATE MUNICIPAL, 
   RURAL, AND INDUSTRIAL WATER SUPPLY FOR THE SANTEE SIOUX TRIBE OF 
                   NEBRASKA, AND FOR OTHER PURPOSES.

                              ----------                              


                        Wednesday, July 17, 2002

                     U.S. House of Representatives

                         Committee on Resources

                             Washington, DC

                              ----------                              

    The committee met, pursuant to call, at 2:03 p.m., in room 
1324, Longworth House Office Building, Hon. James V. Hansen 
(Chairman of the Committee) presiding.

  STATEMENT OF THE HON. JAMES V. HANSEN, A MEMBER OF CONGRESS 
                     FROM THE STATE OF UTAH

    The Chairman. Today we have a number of things going on and 
so members will be in and out throughout this hearing. We 
always have trouble with this room and our other room where we 
never have enough seats for everybody. Now, I am of the 
opinion, that there are not going to be members that are going 
to sit down there. So if you folks standing would like to take 
this bottom tier here, why don't you come up and take it. Now, 
if you would rather not, and if we are going to intimidate you 
and embarrass you, then stay where you are. But if you think 
you can handle it, come on up and take this lower tier here. We 
would be pleased.
    Senator, good to see you again.
    Today we are conducting an oversight hearing on the 
Compacts of Free Association and a legislative on hearing on 
three Native American bills. The Compact of Free Association 
outlines the United States relationship with the Federated 
States of Micronesia and the Republic of the Marshall Islands.
    The first bill the Committee will hear testimony on is H.R. 
3407, which Congresswoman Mary Bono introduced. This 
legislation seeks to amend the Indian Financing Act of 1974 to 
improve the effectiveness of the Indian loan guarantee and 
insurance program.
    The second bill we will hear is H.R. 2408. This bill 
introduced by Congressman Tom Osborne seeks to provide 
equitable compensation to the Yankton Sioux tribe of South 
Dakota and the Santee Sioux tribe of Nebraska for the loss of 
value of certain lands resulting from the Pick-Sloan Missouri 
River Basin Program.
    The last bill before the Committee is H.R. 4938, also 
introduced by Congressman Osborne. This legislation seeks to 
direct the Secretary of the Interior through the Bureau of 
Reclamation to conduct a feasibility study to determine the 
best method of developing a safe and adequate municipal rural 
and industrial water supply for the tribe.
    We look forward to hearing from all witnesses today. I 
would like to express special thanks to the tribal leaders and 
Compact negotiators for traveling such a long way to be with us 
at this hearing.
    [The prepared statement of Mr. Hansen follows:]

 Statement of Hon. James V. Hansen, a Representative in Congress from 
                           the State of Utah

    Today we are conducting an oversight hearing on the Compacts of 
Free Association and a legislative hearing on three Native American 
bills. The Compacts of Free Association outline the United States' 
relationship with the Federated States of Micronesia and the Republic 
of the Marshall Islands.
    The first bill the Committee will hear testimony on is H.R. 3407, 
which Congresswoman Mary Bono introduced. This legislation seeks to 
amend the Indian Financing Act of 1974 to improve the effectiveness of 
the Indian loan guarantee and insurance program. The second bill we 
will hear is H.R. 2408. This bill, introduced by Congressman Tom 
Osborne seeks to provide equitable compensation to the Yankton Sioux 
Tribe of South Dakota and the Santee Sioux Tribe of Nebraska for the 
loss of value of certain lands resulting from the Pick-Sloan Missouri 
River Basin program. The last bill before the Committee is H.R. 4938, 
also introduced by Congressman Osborne. This legislation seeks to 
direct the Secretary of the Interior, through the Bureau of 
Reclamation, to conduct a feasability study to determine the best 
method of developing a safe and adequate municipal, rural, and 
industrial water supply for the Tribe.
    We look forward to hearing from all the witnesses this morning. I 
would like to express special thanks to the tribal leaders and compact 
negotiators for traveling such a long way to be with us at this 
hearing.
                                 ______
                                 
    The Chairman. The ranking gentleman on this is Mr. 
Underwood from Guam, and we will now turn to Mr. Underwood for 
any opening statement he may have.

   STATEMENT OF THE HON. ROBERT A. UNDERWOOD, A DELEGATE TO 
                       CONGRESS FROM GUAM

    Mr. Underwood. Thank you, Mr. Chairman. And thank you for 
holding these very important hearings on the bills that you 
have outlined as well as most especially the hearing today on 
the Compacts of Free Association with the Republic of the 
Marshall Islands and the FSM. Considering that the Senate held 
a hearing last December, I am pleased that the House is also 
moving forward on reviewing the ongoing compacts.
    I would like to reiterate my strong statement, my strong 
support for the Compact Agreement. I believe it is in the 
national interest to ensure that we continue to strengthen our 
relationships with these two Freely Associated States by 
continuing U.S. financial assistance and by promoting economic 
self-sufficiency. I was pleased to help in hosting a briefing 
last Friday for Senate and House staff to hear firsthand from 
RMI and FSM officials on the importance of the Compact 
Agreement to their respective countries.
    When the U.S. first entered into the Compacts of Free 
Association in 1986, many of our Congressional colleagues who 
were themselves World War II veterans or Peace Corps. 
Volunteers in the Pacific were familiar with the history of the 
former U.S. Trust Territory and their strategic importance to 
this country. Now, nearly 20 years later, one of the greatest 
challenges we face seems to be the lack of institutional memory 
on the RMI and FSM among Congressional members and staff. This 
is why today's hearings and staff briefings are crucial.
    Given my home island's geographic proximity and economic 
and political interdependence with each of these two nations, I 
believe the Compacts have generally been beneficial to Guam, 
the region, and most especially U.S. national security in the 
Western Pacific. In the context of the ongoing negotiations, I 
know that there are issues of accountability, the nature of 
economic development, and the role of various Federal agencies 
and the implementation of the Compacts. However, we must always 
be mindful of the fundamental basis for the Compacts and the 
historical development in the region. We were and still are the 
primary force in the region's development; their economic 
difficulties or political setbacks, we have to examine our own 
historical record and influence.
    We have a fundamental obligation to adequately fund the 
Compacts, to ensure political stability, and most importantly 
to foster economic development. The fruits of our efforts will 
be enjoyed by Micronesians and Americans alike in the region. 
And we must also recognize that the economies of Guam, the 
Northern Mariana Islands and Hawaii are also enhanced by the 
economic assistance of the Compacts.
    Last, as we look at the issues of financial assistance and 
continuing Federal services, I want to say that the issue of 
migration should also be reviewed by Congress. It is 
frustrating sometimes for impacted jurisdictions like Guam to 
have to continually fight to secure Compact impact aid from the 
Office of Insular Affairs budget at the Interior Department 
since O I A's budget is very small to begin with. Any Compact 
agreement that leaves Congress must have a provision that would 
ensure that perhaps U.S. Department of Education, Health and 
Human Services be provided with the authority to provide 
Compact impact aid to affected U.S. jurisdictions. The U.S. 
Government should redouble its efforts to address the adverse 
impacts on the U.S. Areas of the Pacific.
    I look forward to working with members of the House 
Resources Committee and the International Relations Committee 
on these important issues, and I would like to acknowledge, 
again, the presence of so many friends here today.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Underwood follows:]

Statement of Hon. Robert A. Underwood, a Delegate to Congress from Guam

    Mr. Chairman, thank you for holding this important hearing today on 
the Compacts of Free Association with the Republic of the Marshall 
Islands and the Federated States of Micronesia. Considering that the 
Senate Energy and Natural Resources Committee held a hearing last 
December, I am pleased that the House is also moving forward on 
reviewing the ongoing Compact negotiations.
    I would like to reiterate my strong support for the Compact 
agreements. I believe that it is in the national interest to ensure 
that we continue to strengthen our relationships with these two Freely 
Associated States by continuing U.S. financial assistance and promoting 
economic self-sufficiency. I was pleased to help in hosting a briefing 
last Friday for Senate and House staff to hear first hand from RMI and 
FSM officials on the importance of the Compact agreements to their 
respective countries. I understand that the State Department has 
provided similar briefings.
    When the United States first entered into the Compact of Free 
Association in 1986, many of my Congressional colleagues who were World 
War II veterans or Peace Corps volunteers in the Pacific, were familiar 
with the history of the former U.S. trust territories and their 
strategic importance to our country. Now, nearly twenty year later, one 
of the greatest challenges we seem to face is the lack of institutional 
memory on the RMI and FSM among Congressional Members and staff. That 
is why today's hearings and staff briefings are crucial.
    Given Guam's geographical proximity and economic and political 
interdependence with each of these two nations, I believe that the 
Compacts of Free Association has been beneficial to Guam, the region 
and to U.S. national security in the Western Pacific. In the context of 
the ongoing negotiations, I know that the issues of accountability, the 
nature of economic development, the role of various federal agencies in 
the implementation of the compacts. However, we must always be mindful 
of the fundamental basis for the compacts and the historical 
development of the region. We were and still are the primary force in 
the region's development. If there are economic difficulties or 
political setbacks, we have to examine our own historical record and 
influence. We have a fundamental obligation to adequately fund the 
compacts, to ensure political stability and, most importantly, to 
foster economic development. The fruits of our efforts will be enjoyed 
by Micronesians and Americans alike in the region. We must recognize 
that the economies of Guam, the Commonwealth of the Northern Mariana 
Islands, and even Hawaii are enhanced by the economic assistance of the 
compacts.
    Lastly, as we look at the issues of financial assistance and 
continuing federal services for these nations, I simply want to say 
that the issue of migration should be reviewed by Congress. It is 
frustrating at times for impacted jurisdictions to have to fight to 
secure Compact Impact Aid from the Office of Insular Affair's budget at 
the Interior Department, particularly since OIA's budget is small to 
begin with. Any Compact agreement that leaves Congress must have a 
provision that would ensure that the Departments of Education and 
Health and Human Services, at a minimum, be provided with the authority 
to provide Compact Impact Aid to affected U.S. jurisdictions. The U.S. 
government should redouble its efforts to address the adverse impact on 
the U.S. areas of the Pacific.
    I look forward to working with the members of House Resources 
Committee and the International Relations Committee on these important 
issues.
                                 ______
                                 
    The Chairman. I will thank the gentleman.
    The gentleman from Nebraska, Mr. Osborne? Mr. Rehberg?
    If not, we are grateful for having you here at this time. 
And our first panel is Mr. Peter T.R. Brookes, Deputy Assistant 
Secretary for Asian and Pacific Affairs, Department of Defense; 
Mr. David B. Cohen, Deputy Assistant Secretary of Insular 
Affairs, Department of Interior; Albert V. Short, Chief Compact 
Negotiator, Bureau of East Asian and Pacific Affairs, 
Department of State; and Susan S. Westin, Managing Director of 
International Affairs and Trade, General Accounting Office.
    The Chairman. Now, folks, you see in front of you this 
little gizmo? It is just like a traffic light. The green means 
go, the yellow means wrap it up, and the red means stop. If you 
happen to go over a little bit, I normally would be happy to 
let you go a short time, but Mr. Osborne may gavel you down, I 
don't know. That is up to him. But we would appreciate it if 
you would kind of hold it in that time.
    And there is going to be votes coming up. We have been 
waiting for a vote on a very interesting amendment right now 
and a lot of things, so it is the in-and-out game. And we 
apologize to you, but that is the way it is played around here.
    With that, I will turn the gavel over to Mr. Osborne. And 
Mr. Brookes, we recognize you for 5 minutes.

 STATEMENT OF PETER T.R. BROOKES, DEPUTY ASSISTANT SECRETARY, 
        ASIAN AND PACIFIC AFFAIRS, DEPARTMENT OF DEFENSE

    Mr. Brookes. Thank you. Mr. Chairman and members of the 
Committee, thank you for the opportunity to present the 
Department of Defense's views on the Compact of Free 
Association and our security relationship with the Freely 
Associated States (FAS). The Department of Defense has a deep 
appreciation for the value of our relationship with the Freely 
Associated States. We cannot and should not forget the price 
paid by American servicemen in liberating these islands during 
World War II. During the cold war, these islands and the 
peoples also played a critical role in development of crucial 
U.S. defense programs. Even now, the FAS is playing an 
important role in development of U.S. Missile defenses, which 
will guard the U.S. and its allies and friends in the decades 
to come. Moreover, FAS citizens are also involved in the war of 
terrorism, serving alongside of American servicemen and women 
in the U.S. Armed Forces.
    Mr. Chairman, as you know, the U.S. has unique defense 
responsibilities to these sovereign nations under the Compact 
of Free Association. The Compact and subsequent agreements 
commit the United States to provide for the security and 
defense of the Freely Associated States in perpetuity. We are 
committed to defend these nations and their peoples from attack 
or threat of attack as ``the United States and citizens are 
defended.'' This is an obligation greater than the United 
States has assumed under any of its other mutual defense 
treaties.
    In return, the United States has the right for certain 
military uses and access, including Kwajalein Atoll, for 
missile testing and space operations, the right to deny access 
to the Freely Associated States to third countries, and the 
ability to block actions by the FAS governments that might be 
incompatible with U.S. defense authority and responsibilities. 
DoD believes that it is in our best interest to maintain the 
full range of military access, use, and security cooperation 
options that the Compact provides.
    The primary goal of the Compact and the assistance provided 
thereunder is to maintain our special relationship with the 
Freely Associated States while helping them to become 
economically self-sufficient. Continued Compact assistance will 
help preserve key U.S. national security interests while 
denying potentially hostile forces access to the region, and 
supporting the Freely Associated States' efforts to work toward 
their international goals. This is a win-win situation for both 
the United States and the Freely Associated States.
    In 1999, in preparation for the Compact of Free Association 
negotiations, the Department of Defense conducted a study to 
determine our defense and security-related interests in the 
Freely Associated States for the post 2001 era. The study 
looked at issues such as the need for continued access, current 
and future threats, and the roles that the Freely Associated 
States might play in future conflicts. The study found an 
important defense interest in continuing the use of the 
Kwajalein missile range and the facilities on Kwajalein Atoll. 
The requirements are missile defense, intercontinental 
ballistic missile, space operations and surveillance programs 
combined with the uniqueness of Kwajalein's location and 
infrastructure investment make renewal of the Compact in the 
best interests of the Department of Defense.
    The study also concluded that the defense rights contained 
in the current Compact should be retained. This year, a DoD 
reassessment determined that the study was, in fact, still 
valid.
    Mr. Chairman, it would be unwise to assume that the end of 
the cold war events or events since then have lessened the 
strategic importance of the Freely Associated States to U.S. 
national security interests. In fact, the 2001 Quadrennial 
Defense Review highlighted uncertainty as an important 
characteristic of the likely future security environment in 
Asia as well as the increasing importance of the region to our 
future.
    Further, unrest and points of potential military conflict 
continue to populate the Asian Pacific region. For instance, 
North Korea retains the offensive capability of inflicting 
massive damage on South Korea and U.S. forces stationed there 
and in the region.
    Regrettably, a peaceful resolution to Taiwan's future 
cannot be taken for granted. Territorial disputes in the South 
China Sea and Northeast Asia remain unresolved, and could serve 
as potential flashpoints. Indonesia's road toward democracy 
faces both opportunities and challenges. As we are all aware, 
terrorist groups are or have been present in many countries in 
Southeast Asia, including the Philippines, Malaysia and 
Singapore.
    Mr. Chairman, in conclusion it is our judgment that the 
current threats and future uncertainty make it essential that 
we continue the Compacts of Free Association and our associated 
defense rights contained therein. Thank you very much.
    Mr. Osborne. [presiding.] Thank you, Mr. Brookes.
    [The prepared statement of Mr. Brookes follows:]

Statement of Peter T.R. Brookes, Deputy Assistant Secretary of Defense 
  for Asian and Pacific Affairs, Office of the Assistant Secretary of 
   Defense for International Security Affairs, Department of Defense

    The Department of Defense has a deep appreciation of the value of 
our relationship with two of the Freely Associated States (FAS) the 
Republic of the Marshall Islands (RMI) and the Federated States of 
Micronesia (FSM). We cannot, and should not, forget the price paid by 
American servicemen in liberating these islands during World War II. 
During the Cold War, these islands and peoples also played a critical 
role in the development of crucial US defense programs. Even now, the 
FAS is playing an important role in the development of U.S. missile 
defenses that will guard the U.S. and its allies and friends in the 
decades to come. Moreover, FAS citizens are also involved in the war on 
terrorism, serving alongside American servicemen and women in the U.S. 
armed forces.
Defense relationship with the Freely Associated States (FAS)
    The U.S. has unique defense responsibilities to these sovereign 
nations under the terms of the Compact of Free Association. The Compact 
and subsequent agreements commit the United States to provide for the 
security and defense of the Freely Associated States in perpetuity. We 
are committed to defend these nations and their peoples from attack or 
threat of attack ``as the United States and its citizens are defended. 
This is an obligation greater than the United States has assumed under 
any of its mutual defense treaties. In return, the United States has 
the right to certain military uses and access, the right to deny access 
to third countries (``strategic denial'') and the ability to block 
actions by the FAS governments that might be incompatible with U.S. 
defense interests (the ``defense veto'').
    In the absence of the Compact, the Mutual Security Agreement (MSA) 
provides for U.S. defense obligations to the FAS, albeit at a slightly 
reduced level, and the denial of military access by third countries. 
The MSA is indefinite in duration and remains in force until terminated 
or amended. The rights of the defense veto and provisions for military 
access and use currently contained in the Compact, however, will 
terminate with the expiration of the Compact on 30 September 2003 
unless the Compact is extended. DoD believes that it is in our best 
interest to maintain the full range of military access, use, and 
security cooperation options and rights that the Compact provides.

    In addition, U.S. rights for access and use on Kwajalein Atoll were 
negotiated with the RMI under the Military Use and Operating Rights 
Agreement (MUORA) pursuant to, but separate from, the Compact. The 
MUORA had an original term of 15 years that was due to expire in 2001. 
Given the importance of the agreement to our operations on Kwajalein 
Atoll, the U.S. opted in 1999 to extend the MUORA for an additional 
term of 15 years to 2016. This extension allows continued U.S. access 
to, and use of, Kwajalein Atoll defense sites.
    While the use of Kwajalein can be extended under the MUORA separate 
from Compact negotiations, the two are nevertheless inextricably 
linked. The daily routine at the Kwajalein Missile Range and the 
facilities on Kwajalein Atoll depend upon a positive working 
relationship with the people of the Marshall Islands. Provisions in the 
Compact help provide the basis for U.S. support to the Marshallese 
people who provide much of the labor force on Kwajalein Atoll. The 
Compact therefore helps to maintain a positive local attitude toward 
U.S. facilities and operations on Kwajalein.
    The primary goal of the Compact and the assistance provided 
thereunder is to maintain our special relationship with the Freely 
Associated States while helping them to become economically self-
sufficient. In addition, continued Compact assistance will help 
preserve key U.S. national security interests while denying potentially 
hostile forces access to the region and supporting the Freely 
Associated States'' efforts to work toward their national goals.
DoD Study of Defense Interests in the FAS
    In 1999, in preparation for the Compact of Free Association 
negotiations, the Department of Defense conducted a study to determine 
our defense and security-related interests in the Freely Associated 
States for the post-2001 era. The study looked at issues such as the 
need for continued access, current and future threats, and the roles 
that the Freely Associated States might play in future conflicts. The 
study found an important defense interest in continuing the use of the 
Kwajalein Missile Range and the facilities on Kwajalein Atoll. The 
requirements of our missile defense, intercontinental ballistic 
missile, and space operations and surveillance programs, combined with 
the uniqueness of Kwajalein's location, and infrastructure investment 
make renewal of the Compact in the best interest of the Department of 
Defense. The study also concluded that the defense rights contained in 
the current Compact should be retained.
    This year DoD reviewed the 1999 study to ensure that its 
conclusions had not been affected by several key changes in the 
strategic environment since the study was completed. The DoD 
reassessment determined that the results of the study are, in fact, 
still valid.
The Quadrennial Defense Review
    The October 2001 Department of Defense Quadrennial Defense Review 
(QDR) recognized that Americans must prepare for a wider array of 
threats to our security at home and abroad than before. As evidenced by 
the terrorist attacks of September 11th, the future security 
environment will be characterized by uncertainty. The QDR's assessment 
of the global security environment acknowledges uncertainty about the 
potential sources of military threats, the conduct of war in the 
future, and the form that threats and attacks against the U.S. and 
American interests will take. While contending with uncertainty is a 
key challenge for U.S. defense policy and planning, maintaining the 
Compact will support our efforts to confront these current and future 
challenges in the Asia-Pacific region.
    The QDR identifies Asia as a region of tremendous importance that 
is gradually emerging as an area susceptible to large-scale military 
competition. It identifies an ``arc of instability'' stretching from 
the Middle East to Northeast Asia containing a volatile mix of rising 
and declining regional powers. Many of these states also field large 
militaries that possess or have the potential to develop or acquire 
weapons of mass destruction. The QDR also sees the possibility of the 
rise of a military competitor to the U.S. with a formidable resource 
base emerging in the region.
    Distances in the Asian theater are vast, and the density of U.S. 
basing and en route infrastructure is lower than in other critical 
regions. Moreover, the U.S. has less assurance of access to facilities 
in the Asia-Pacific region than in some other regions. The QDR, 
therefore, identifies the necessity of securing additional access and 
infrastructure agreements and developing military systems capable of 
sustained operations at great distances with minimal theater-based 
support.
    The QDR also calls for a reorientation of the U.S. military posture 
in Asia. The U.S. will continue to meet its defense and security 
commitments around the world by maintaining the ability to defeat 
aggression in two critical areas in overlapping timeframes. As this 
strategy and force planning approach is implemented, the U.S. will 
strengthen its forward deterrent posture. Over time, U.S. forces will 
be tailored to maintain favorable regional balances in concert with 
U.S. allies and friends with the aim of swiftly defeating attacks with 
only modest reinforcement.
    To this end, the U.S. Navy will increase aircraft carrier 
battlegroup presence in the Western Pacific and will explore options 
for homeporting an additional three to four surface combatants and 
several guided cruise missile submarines (SSGNs) in the region. The 
U.S. Air Force will develop plans to increase contingency basing in the 
Pacific and Indian Oceans and ensure sufficient en route infrastructure 
for refueling and logistics to support operations in the Western 
Pacific area and beyond. The Marine Corps will explore the feasibility 
of conducting training for littoral warfare in the Western Pacific.
    While it is too soon to say whether the FAS will be considered as 
candidates for increased U.S. access, basing, or operations, our rights 
under the Compact provide for sympathetic and prompt consideration by 
the FAS governments of any such request by the U.S. In this region of 
potential instability and conflict, the U.S. right of strategic denial 
and the defense veto under the Compact are significant. Strategic 
denial effectively creates a stable and secure zone across a broad 
swath of the Western Pacific in which we can deny military basing 
rights to any potentially hostile third country, as well as prevent 
other actions that might be incompatible with U.S. security interests.
Missile Defense
    Another important change since the 1999 study is President Bush's 
strong commitment to missile defense. The President took this step as 
part of a broader change in our defense and security policy to reflect 
new threats that we and our allies and friends face. As a result of the 
withdrawal from the Anti-Ballistic Missile Treaty we are now free to 
develop, test, and deploy effective defenses against missile attack by 
rogue states like North Korea, Iraq, and Iran--states that are 
investing a large percentage of their resources to develop weapons of 
mass destruction and offensive ballistic missiles.
    This growing threat to the U.S., our allies and friends is 
compounded by the fact that the states that are developing these terror 
weapons have close links to a variety of terrorist organizations. 
States or even non-state actors could launch missiles against the U.S. 
As the President said in this year's State of the Union address, we 
must not allow the world's most dangerous regimes to threaten us with 
the world's most dangerous weapons.
    The U.S. missile defense program is now executing an aggressive 
research, development, test, and evaluation (RDT&E) program focusing on 
a single integrated ballistic defense missile system designed to defend 
against ballistic missiles of all ranges and in all phases of flight. 
Although we have not identified specific tests beyond 2008, we envision 
that testing will continue well beyond the expiration of the current 
use agreement for the U.S. Army Kwajalein Atoll test site in 2016. 
Therefore, we anticipate that Kwajalein Atoll will remain a significant 
resource for future missile defense testing.
Conclusion
    It would be unwise to assume that the end of the Cold War or events 
since then have lessened the strategic importance of the FAS to U.S. 
national security interests, especially in light of the uncertainty 
that will characterize the future security environment in Asia. North 
Korea retains the offensive capability to inflict massive damage on 
South Korea and U.S. forces stationed there and elsewhere in the 
region. Regrettably, a peaceful resolution to Taiwan's future cannot be 
taken for granted. Territorial disputes in the South China Sea and 
Northeast Asia remain unresolved and could serve as potential 
flashpoints. Indonesia's road toward democracy faces both opportunities 
and challenges. Terrorist groups are, or have been, present in many 
countries in Southeast Asia including the Philippines, Malaysia and 
Singapore. These threats and uncertainties make it essential that we 
continue the Compact of Free Association and our associated defense 
rights.
                                 ______
                                 
    Mr. Osborne. Mr. Cohen.

   STATEMENT OF DAVID B. COHEN, DEPUTY ASSISTANT SECRETARY, 
            INSULAR AFFAIRS, DEPARTMENT OF INTERIOR

    Mr. Cohen. Thank you. Mr. Chairman and members of the 
Committee, I am David Cohen, Deputy Assistant Secretary of the 
Interior for Insular Affairs. It is we pleasure that I make my 
first appearance before you today to discuss proposed 
amendments to provisions of the Compact of Free Association 
with the Republic of the Marshall Islands and the Federated 
states of Micronesia.
    I will focus my comments on the fiscal and economic 
provisions found in Title 2 of the Compact. In particular, I 
will discuss how proposed amendments to these provisions are 
designed to address the very legitimate concerns that the 
General Accounting Office, the Department of the Interior, and 
others have raised with respect to the lack of accountability 
for Federal funds provided under the Compact.
    Over the 17-year life of Compact funding, it is expected 
that the U.S. will ultimately have paid a total of $1.04 
billion in direct grants to the RMI and 1.54 billion to the F 
SM. There have been few restrictions on these grants.
    Over the last several years, the G A O has issued a number 
of reports that have raised valid concerns about the 
effectiveness of the Federal assistance that has been provided 
under the Compact. We at the Department of the Interior have 
had similar concerns for quite some time.
    The Department of the Interior, and particularly the staff 
at the Office of Insular Affairs, has been greatly frustrated 
with not having the tools to properly administer or track 
Federal assistance in a manner that could reasonably ensure 
that such assistance is having the intended effect. Most 
importantly, we have been hampered by the fact that the Compact 
provides for large, loosely defined grants with no enforcement 
mechanisms to ensure the efficient and effective expenditure of 
funds. I am pleased that the U.S. proposal in this round of 
Compact negotiations has been very focused on addressing the 
concerns raised by the GAO, by the Department of the Interior, 
and by others.
    Specifically, the U.S. proposal is that direct financial 
assistance under the amended Compact and related agreements 
will be provided as follows:
    First, U.S. assistance will be in the form of annual 
performance-based sector grants for each of the following 
purposes: Education, health, private sector development, 
capacity building in the public sector, environmental 
protection, and public infrastructure.
    Second, the allocation of the sector grants for each state 
initially will be proposed by the applicable state but must be 
approved by a joint Committee of representatives of the U.S. 
and the applicable state. The majority of the members on each 
of these joint Committees will represent the U.S. Each joint 
Committee will be obligated to ensure that U.S. funds are 
allocated in a manner consistent with the goals and objectives 
of the Compact.
    In addition to approving the allocation of the sector 
grants, the joint Committee would review macroeconomic progress 
against defined goals and objectives, coordinate programmatic 
assistance from other donor countries and organizations, 
address issues raised in audits, review sector grant 
performance outcomes, budgets, and terms and conditions and 
evaluate progress with an eye to increasing the effectiveness 
of U.S. assistance.
    Third, the sector grants would be subject to terms and 
conditions similar to those applicable to grants provided to 
State and local governments in the U.S. These grants would 
include conditions and objective performance measures. Other 
special conditions or restrictions that may be imposed by the 
U.S. in appropriate circumstances include payment on a 
reimbursement basis, denial of authority to proceed to the next 
phase until there is acceptable performance, additional 
reporting, additional project monitoring, additional technical 
or management assistance, and additional prior approvals.
    Fourth, U.S. assistance would be subject to appropriate 
remedies for non-compliance including the withholding of 
assistance and the right to recover funds spent improperly.
    Fifth, the Department of the Interior has requested funding 
to hire eight additional full-time employees to ensure that 
such funds go to the prescribed sectors for approved purposes 
and according to express grant conditions.
    Finally, Mr. Chairman, I would like to address the very 
important question of the effect that migration from the RMI 
and FSM as authorized by the Compact has had on Hawaii, Guam, 
and the Northern Mariana Islands. Migrants have made important 
contributions to these states and territories, but have placed 
additional burdens on the local governments because of their 
utilization of services. The GAO reported significant outlays 
by Hawaii, Guam and the Northern Mariana Islands in aid of the 
migrants and their families. With this history in mind, we are 
working to address the impact of Compact migration. Primarily, 
we are looking at ways to provide compensation to the affected 
jurisdiction of Guam, Hawaii, and the Northern Mariana Islands 
to mitigate the impact of migration.
    Mr. Chairman, the Department of the Interior believes that 
when the U.S. comes to full agreement with our negotiating 
partners, we will have the means to ensure that future U.S. 
financial assistance will be spent in a manner that gives us a 
chance to achieve meaningful results. The Compact has already 
achieved its purpose in the geopolitical sphere, with districts 
of the former trust territory having successfully transformed 
themselves into sovereign states. We now have to duplicate that 
success in the economic arena by helping these states create 
conditions to eventually achieve true economic empowerment and 
self-reliance.
    Thank you, Mr. Chairman.
    Mr. Osborne. Thank you, Mr. Cohen.
    [The prepared statement of Mr. Cohen follows:]

  Statement of David B. Cohen, Deputy Assistant Secretary for Insular 
           Affairs, United States Department of the Interior

    Mr. Chairman and members of the Committee on Resources, I am David 
B. Cohen, Deputy Assistant Secretary of the Interior for Insular 
Affairs. It is with pleasure that I make my first appearance before you 
today to discuss this nation s negotiations regarding proposed 
amendments to the funding, program assistance, and other provisions of 
the Compact of Free Association (Compact) with the Republic of the 
Marshall Islands (the RMI) and the Federated States of Micronesia (the 
FSM).
    I will focus my comments on the fiscal and economic provisions 
found in Title Two of the Compact. In particular, I will discuss how 
proposed amendments to these provisions are designed to address the 
very legitimate concerns that the General Accounting Office (GAO), the 
Department of the Interior and others have raised with respect to the 
lack of accountability for federal funds provided under the Compact.

COMPACT DESCRIPTION
    Under the direction of the Interagency Group on Micronesia, chaired 
by the Department of State, the President s Personal Representative for 
Micronesian Status Negotiations negotiated the original Compact with 
representatives of what would become the RMI and the FSM. As a result 
of the Compact, these nations are commonly referred to as the ``freely 
associated states'' (FAS). The Compact was implemented in 1986. Palau 
also became a freely associated state through a subsequent Compact of 
Free Association, but I will use the term FAS to refer only to the 
original freely associated states of the RMI and the FSM.
    The documents that define the relationship between the United 
States and the FAS include: the Compact as negotiated; the numerous 
subsidiary agreements to the Compact; Public Law 99-239, through which 
the Congress approved the Compact; and other legislation subsequently 
enacted by the Congress.
    The Compact sets forth the elements of the relationship between the 
United States and each of the FAS in four titles: Governmental 
Relations, Economic Relations, Security and Defense Relations and 
General Provisions. However, the Governmental Relations and Economic 
Relations titles were substantially altered by the Congress during and 
after the approval process. Title One of the negotiated Compact 
(Governmental Relations) did not originally envision recognition of the 
FAS as fully independent nations in the international community. 
Shortly after the Compact was implemented in 1986, the Administration, 
in office at the time, proposed legislation, which Congress approved, 
upgrading diplomatic relations so that they conformed to the standards 
of the Geneva Convention.
    The role of the Department of the Interior is focused on Title Two 
Economic Relations--because the Congress, in section 105(b) (2) of 
Public Law 99-239, provided that all appropriations under the Compact 
must be made to the Secretary of the Interior. Congress also assigned 
responsibility to the Secretary of the Interior to coordinate and 
monitor United States domestic programs in the FAS.
    Title Two of the existing Compact deals with both financial 
assistance and program assistance.
    First, I will briefly describe financial assistance. Over the 
seventeen-year life of Compact funding, it is expected that the United 
States will ultimately have paid a total of $1.04 billion to the RMI 
and $1.54 billion to the FSM in direct financial assistance. These 
amounts exclude federal program assistance. Most of this financial 
assistance has been guaranteed by the full faith and credit of the 
United States. There have been few restrictions on the ability of each 
FAS to use this direct financial assistance; this approach was thought 
at the time to be consistent with each FAS's newly acquired rights of 
national sovereignty. One restriction, however, was a provision in the 
Compact requiring forty percent of the direct financial assistance 
under section 211 to be spent on capital development. Even this 
restriction was of questionable use because the requirement was over 
the life of the Compact, not annual; it did not include inflation 
adjustments even though such adjustments were identified with specific 
Compact provisions; and the definition of acceptable capital uses was 
extremely broad.
    Second, with respect to program assistance, under section 221(a), 
the United States agreed to provide the FAS with the services of the 
Weather Service, the Federal Emergency Management Agency, the Postal 
Service, the Federal Aviation Administration and the Civil Aeronautics 
Board (which was abolished prior to Compact implementation). While the 
costs of these services cannot be exactly determined until after they 
are rendered, the Department of the Interior has provided partial 
reimbursement to these agencies of nearly $100 million for their 
operations in the two countries.
    Section 224 of the Compact currently provides that additional 
United States program assistance may be extended from time to time by 
the Congress. The Congress has utilized its authority extensively. 
Section 105(h)(1) of the legislation approving the Compact (P.L. 99-
239) extended to the FAS the programs of the Legal Services 
Corporation, the Public Health Service and the Farmers Home 
Administration. The Compact legislation, in sections 102(a) and 103(a), 
extended law enforcement and illegal drug enforcement programs to the 
RMI and the FSM, and section 103 also extended agricultural and food 
programs and radiological health care to the RMI. Additionally, as 
partial compensation for the removal by Congress of tax and trade 
incentives that had been negotiated into the Compact, the Congress 
extended to the FAS, in section 111(a) of the Compact legislation, the 
programs of the Federal Deposit Insurance Corporation, the Small 
Business Administration, the Economic Development Administration, the 
Rural Electrification Administration, the Job Training Partnership Act, 
the Job Corps and the marine resource and tourism programs of the 
Department of Commerce. The Compact legislation in section 105(l) 
authorizes the following federal agencies to provide technical 
assistance (nonreimbursable) to the FAS: the Forest Service, the Soil 
Conservation Service, the Fish and Wildlife Service, the National 
Marine Fisheries Service, the United States Coast Guard and agencies 
providing assistance under the national Historic Preservation Act. 
Finally, all United States domestic programs originally scheduled for 
immediate termination upon implementation of the Compact were instead 
subject to a three-year phase-out under sections 105(c)(2) and 
105(i)(2) of the Compact legislation.
    This pattern of extending FAS eligibility for United States 
domestic programs and services under Compact section 224 has continued 
since the enactment of the legislation that originally approved the 
Compact. Under the terms of the Compact as originally negotiated, FAS 
citizens would have been eligible for Pell post-secondary education 
grants only for the first four years of the Compact; this four-year 
limitation was removed by Congress in legislation enacted in 1988. The 
FAS also were allowed to receive Department of Education programs 
through the Pacific Regional Education Laboratory.
    It is important to note that the Compact, as originally negotiated, 
anticipated that all United States domestic assistance programs would 
be terminated and the few remaining services would be budgeted under 
Compact section 221(a) through the Department of the Interior. When the 
Congress extended additional domestic assistance programs to the FAS, 
however, it did not direct that they be budgeted and administered 
through this unified appropriation to the Department of the Interior. 
They were instead budgeted and administered by each United States 
federal agency. These individual extensions by the Congress compromised 
the concept of a supervisory role for the Department of the Interior as 
stated in section 105(b)(3) of the legislation approving the Compact. 
This lack of budgeting through a unified appropriation for the FAS made 
it difficult to track such programs, and made it virtually impossible 
for the Department of the Interior to direct or even influence 
programatic decisions of other federal agencies. The GAO estimates that 
from 1987 through 2001, federal agencies have provided approximately 
$700 million in federal program benefits to the RMI and FSM.

GENERAL ACCOUNTING OFFICE ASSESSMENT
    Over the last several years, the GAO has issued a number of reports 
that have raised valid concerns about the effectiveness of the federal 
assistance that has been provided to the FAS under the Compact. We at 
the Department of the Interior have had similar concerns for quite some 
time. The Department of the Interior, and particularly the staff at the 
Office of Insular Affairs, has been greatly frustrated with not having 
the tools to properly administer or track federal assistance in a 
manner that could reasonably ensure that such assistance is having the 
intended effect. Most importantly, we have been hampered by the fact 
that the Compact provides for large, loosely-defined grants to be 
provided to the FAS, backed by the full faith and credit of the United 
States, and with no enforcement mechanism to ensure the efficient and 
effective expenditure of funds. I'm pleased that the United States' 
proposal in this round of Compact negotiations has been very focused on 
addressing the concerns raised by the GAO, by the Department of the 
Interior and by others.

ADDRESSING CONCERNS
    The Office of Insular Affairs has endured years of frustration with 
having been given an ill-defined mission with respect to the Compact 
and with not having the tools to do its job. Officials of the Office of 
Insular Affairs began insisting, prior to the current negotiations and 
before the issuance of the GAO reports, that the ``no strings 
attached'' grants of the original Compact be replaced by a program with 
clearly defined goals, clear and detailed terms and conditions, 
effective reporting and monitoring provisions and effective enforcement 
procedures, including the withholding of funds. The United States' 
proposal addresses these concerns.
    Specifically, the United States' proposal is that direct financial 
assistance to the FAS under the amended Compact and related agreements 
will be provided as follows:
    First, United States assistance will be in the form of annual, 
performance-based sector grants for each of the following purposes: 
education, health, private sector development, capacity building in the 
public sector, environment, and public infrastructure.
    Second, the allocation of the sector grants for each FAS initially 
will be proposed by the applicable FAS, but must be approved by a joint 
committee of representatives of the United States and the applicable 
FAS. The majority of the members on these joint committees will 
represent the United States. This joint committee will be obligated to 
ensure that United States funds are allocated in a manner consistent 
with the goals and objectives set forth in the Compact. In addition to 
approving the allocation of the sector grants, the joint committee 
would (1) review macroeconomic progress against FAS goals and 
objectives, (2) coordinate programatic assistance from other donor 
countries and organizations, (3) address issues raised in audits, (4) 
review sector grant performance outcomes, budgets, and terms and 
conditions and (5) evaluate progress with an eye to increasing the 
effectiveness of United States assistance.
    Third, the sector grants provided under the Compact would be 
subject, at a minimum, to terms and conditions similar to those 
applicable to grants provided by the federal government to state and 
local governments in the United States. The grants would include 
conditions and objective performance measures. A subsidiary fiscal 
procedures agreement would memorialize these procedures. Generally, 
grant terms and conditions will include conformance with plans, 
strategies, budgets, project specifications, architectural and 
engineering specifications and performance standards. Moreover, the 
United States may add requirements needed to achieve sector grant 
goals. Other special conditions or restrictions that may be imposed by 
the United States in appropriate circumstances include: (1) payment on 
a reimbursement basis, (2) denial of authority to proceed to the next 
phase of the grant until there is evidence of acceptable performance on 
the prior phase, (3) additional reporting, (4) additional project 
monitoring, (5) additional technical or management assistance and (6) 
additional prior approvals.
    Fourth, United States assistance would be subject to appropriate 
remedies for noncompliance with conditions and requirements, including 
the withholding of assistance and the right to recover funds spent 
improperly. Thus, if an FAS government failed to cooperate on the 
prosecution of an individual responsible for improprieties with respect 
to Compact funds, the United States would have the right to withhold 
funds from either the specific sectoral grant involved, or, if serious 
enough, all of the funding for the country involved.
    Fifth, United States assistance would be the subject of oversight 
by Department of the Interior officials. The Department has requested 
that the Congress appropriate funding to hire eight full-time employees 
who will analyze the spending of United States funds and ensure that 
such funds go to the prescribed sectors, for approved purposes, and 
according to express grant conditions.
    It is not our intention to micromanage the affairs of the RMI or 
the FSM. Our highest duty, however, is to ensure that the hard-earned 
money of the American taxpayer is not wasted and that RMI and FSM 
become self-reliant. The United States proposed amended Compact would 
not undermine the sovereignty or policy choices of the governments of 
the RMI and FSM within the sector grant framework. To the extent, 
however, that either government chooses to accept United States 
financial assistance pursuant to the Compact, we intend to impose 
conditions that are reasonably designed to ensure that our taxpayer 
dollars will achieve the intended results.
    On the related subject of federal program coordination, we are 
exploring within the Administration the establishment of a mechanism to 
clearly define the roles of federal agencies, including a requirement 
that those agencies providing program assistance report to the 
Departments of the Interior and State on relevant details of the 
programs they administer in the RMI and FSM.
    Finally, Mr. Chairman, I would like to address the very important 
question of the impact of FAS migration on Hawaii and those United 
States territories that have experienced a heavy influx of people from 
the FAS. Since the Compact became effective in 1986, thousands of 
citizens of the RMI and FSM have migrated to Hawaii, Guam and the 
Northern Mariana Islands. This migration has brought us many 
hardworking tax paying individuals who have contributed significantly 
to these American economies. At the same time, however, these migrants 
have placed additional burdens on the state and territorial governments 
because of their utilization of education, health and law enforcement 
services. Hawaii, Guam, and the Northern Mariana Islands annually 
report on these impacts of the Compact. The General Accounting Office 
reported significant outlays by Hawaii, Guam, and the Northern Mariana 
Islands in aid of the migrants and their families.
    With this history in mind, we are working to address the impact of 
FAS migration. We are considering three approaches to the issue. First, 
we are looking at ways to provide compensation to the affected 
jurisdictions of Guam, Hawaii, and the Northern Mariana Islands to 
mitigate the impact of migration. Second, we are working with the 
Compact negotiator to explore mechanisms to minimize the costs 
associated with migration, particularly including important 
Administration proposals for reform of the Compact to strengthen 
application of immigration laws. Third, the new financial assistance 
proposal is aimed at improving the health and education of potential 
migrants, which may reduce the volume and impact of migration.
    Mr. Chairman, the Department of the Interior believes that, when 
the United States comes to full agreement with our negotiating 
partners, we will have the means to ensure that future United States 
financial assistance to the Marshall Islands and the Federated States 
of Micronesia will be spent in a manner that gives us a chance to 
achieve meaningful results. The Compact has already achieved its 
purpose in the geopolitical sphere, with components of the former Trust 
Territory having successfully transformed themselves into sovereign 
countries. We now have to duplicate that success in the economic arena, 
by helping these countries create conditions to achieve true economic 
empowerment and self-reliance.
    The achievement of economic self-reliance will be not be easy for 
the isolated, resource-poor islands that make up these FAS. However, I 
am confident that the United States' proposal, with its creation of a 
trust fund, is adequate to meet our overall objective.
                                 ______
                                 
    The Chairman. Mr. Short.

STATEMENT OF ALBERT V. SHORT, CHIEF COMPACT NEGOTIATOR, BUREAU 
     OF EAST ASIAN AND PACIFIC AFFAIRS, DEPARTMENT OF STATE

    Mr. Short. Mr. Chairman, members of the Committee, thank 
you for this opportunity to testify on the Administration's 
progress in Compact negotiations with the Federated States with 
Micronesia (FSM) and the Republic of the Marshall Islands 
(RMI).
    Over the past 6 months, the U.S. has tabled language with 
both countries to amend the Compact of Free Association. The 
U.S. proposal reflects the following:
    First, the U.S. and the two Freely Associated States have 
reaffirmed their commitment to the special relationship of free 
association.
    Second, to end annual mandatory financial assistance from 
the United States after a period of 20 years and to replace 
these with trust fund arrangements.
    The RMI and the FSM have affirmed their commitment to an 
economic development strategy based on public sector 
accountability and private sector expansion, and to maintain 
mutually acceptable comprehensive development plans.
    Finally, the U.S., FSM, and RMI have agreed to continue 
their defense and security relationship. The U.S. 
Administration is now seeking final ad referendum agreement 
from the FSM and RMI on our financial and other Compact 
proposals in order to submit the amended Compact package with 
key subsidiary agreements to the Congress.
    The U.S. financial proposal. The U.S. proposes to extend 
economic assistance annually to the FSM and the RMI for a 
period of 20 years, and will establish trust funds to foster 
prudent financial management and to replace the annual grant 
funding after year 2023.
    These annual grants to the FSM and RMI will be targeted to 
sectors most in need of assistance, principally education, 
health, and infrastructure, and, in addition, the areas of 
capacity building the environment and private sector 
development.
    It should be noted that U.S. assistance to the RMI and the 
FSM will cease unless the amended Compact is approved and 
implemented by the Congress prior to 1 October 2003. That is 
the beginning of FY`04.
    With regard to the trust fund, we propose to establish 
trust funds for the FSM and RMI. These trust funds are designed 
to offset the loss of direct U.S. financial assistance after 
year 2023.
    Management and oversight. To bolster accountability, 
transparency, and oversight of U.S. Compact funding, the 
administration has proposed a planning and review mechanism to 
ensure that our assistance goes to those areas of the economy 
where the greatest need exists and are used most effectively. 
Reporting procedures are being clearly defined in a subsidiary 
agreement.
    The government of the United States, after consultation 
with the FSM and RMI, will attach grant terms and conditions to 
ensure that reasonable progress is being made toward 
established objective. The government of the United States may 
withhold funds for violation of grant terms and conditions, and 
both states will also be subject to the Single Audit Act.
    Where are we going? The United States has been successful 
in fostering a political transition from a trust territory 
administration to stable self-governing democracies. We now 
confront a critical challenge affecting the economic transition 
toward increased budgetary self-reliance. We believe the U.S. 
proposal now on the table is adequate to meet the objectives of 
Title 2 of the Compact, quote, ``to assist the RMI and FSM in 
their efforts to advance the economic self-sufficiency of their 
peoples.''
    Our goals in the Compact negotiations are, first of all, to 
maintain economic stability, to improve the education, health, 
and social conditions in the relative states, sustaining the 
political stability and close ties which we have developed, and 
last, assuring our strategic interests continue to be 
addressed. We recognize that too sharp a reduction in U.S. 
assistance at this time in their economic development could 
result in economic instability and other disruptions, and could 
encourage an increase in the level of migration to the United 
States. Thus, maintaining financial and other assistance will 
help to assure economic stability while the RMI and FSM 
continue to implement their development strategies.
    The Congress has requested several reports from the GAO, 
which address U.S. assistance to the FSM and the RMI. These 
reports have raised questions about the effectiveness of 
current U.S. assistance. We are working to assure the Congress 
that the U.S. proposal addresses the GAO concerns.
    Migration impact. The past 15 years has ushered in an era 
of increased impact on health, education, and welfare programs 
on the U.S. jurisdictions in the Pacific based on Micronesian 
migration. The Administration will address the need to 
reimburse U.S. jurisdictions for the added costs they bear in 
honoring our commitment on migration.
    In the wake of the September 11th attacks, we have proposed 
to amend certain aspects of the immigration provisions of the 
Compact.
    As I noted previously, the Administration hopes to complete 
these negotiations soon with the FSM and Marshals and to fund 
and to submit the necessary agreements to the Congress for 
their consideration, including key subsidiary agreements on 
fiscal procedures, the trust fund agreement, and the 
immigration provisions.
    In conclusion, let me assure you that we welcome this and 
every opportunity to keep this Committee informed of these 
negotiations as they come to a close. Just as importantly, we 
look forward to submitting the amended Compact of Free 
Association to the Congress for review and enactment into law 
by the commencement of fiscal year 2004. Thank you.
    [The prepared statement of Mr. Short follows:]

 Statement of Albert V. Short, U.S. Negotiator for the Compact of Free 
Association with the Federated States of Micronesia and the Republic of 
                          the Marshall Islands

    Mr. Chairman and Members of the Committee,
    Thank you for this opportunity to testify on the Administration's 
progress in Compact negotiations with the Federated States of 
Micronesia (FSM) and the Republic of the Marshall Islands (RMI).
    Over the past six months, the U.S. has tabled language with both 
countries to amend the Compact of Free Association. This effort began 
with Title Two (containing replacements for the expiring economic 
provisions of the Compact) followed by the remaining titles: Title One 
where several provisions deal with immigration, Title Three defining 
our defense and security relationship (which remains essentially 
unchanged), and Title Four setting out administrative, termination, and 
survivability provisions.
    The U.S. proposal reflects the basic approach laid out in previous 
testimony:
     The U.S. and the two freely associated states (FAS) have 
reaffirmed their commitment to the special relationship of free 
association, and to the end of annual mandatory financial assistance 
from the U.S. after a period of twenty years.
     The U.S. has affirmed its commitment to providing annual 
financial and program assistance (including contributions to a trust 
fund) to the FSM and RMI, for a period of twenty years, to support the 
efforts of these nations to promote economic advancement and budgetary 
self-reliance.
     The RMI and FSM have affirmed their commitment to an 
economic development strategy based on public sector accountability and 
private sector expansion, and to maintaining mutually acceptable 
comprehensive national development plans.
     The U.S., FSM and RMI have agreed to continue their 
defense and security relationship unchanged.
    The U.S. Administration is now seeking final ad referendum 
agreement from the FSM and RMI on our financial and other Compact 
proposals in order to submit the amended Compact package with key 
subsidiary agreements to Congress by the end of August.
U.S. Financial Proposal
    The U.S. Administration proposes to extend Title Two economic 
assistance annually to the FSM and RMI for a period of twenty years, 
commencing with $76 million for the FSM and $35.8 million for the RMI 
in U.S. FY-2004 (beginning on October 1, 2003) and providing declining 
annual assistance from these amounts through FY-2023, as described in 
Tab 1 to this statement. The annual decrements to annual assistance 
will be paid into the trust funds described below to foster prudent 
financial management and to safeguard the viability of the trust funds.
    The annual grants to the FSM and RMI will be targeted to sectors 
most in need of assistance: (a) education, (b) health, and (c) 
infrastructure. Other areas of special need include capacity building, 
the environment, and private sector development. The U.S. also proposes 
to provide an additional $4.1 million per year to the RMI for the 
special needs of Ebeye (the main island community housing the U.S. 
defense sites' Marshallese work force) and other Kwajalein atoll 
communities.
    The U.S. proposed to extend specific Federal services and programs 
to the FSM and RMI, with certain modifications, through fiscal year 
2023. It should be noted that this assistance, currently totaling 
approximately $35 million per annum, may be discontinued or amended at 
the discretion of the U.S. Congress.
    RMI assistance includes certain funds already agreed to under the 
U.S. Military Use and Operating Rights Agreement in connection with 
U.S. Defense Department use of defense sites at Kwajalein Atoll through 
FY-2016. We are discussing with the RMI a possible extension to the 
Military Use and Operating Rights Agreement.
    It should be noted that U.S. assistance to the RMI and FSM will 
cease unless the amended Compact is approved and implemented by 
Congress prior to October 1, 2003, the beginning of FY-2004.

Trust Fund
    We propose to establish general trust funds for the FSM and RMI. 
The trust fund is designed partially to offset the loss of direct U.S. 
financial assistance after FY-2023.
    The trust fund will receive a U.S. contribution of $16 million for 
the FSM and $7 million for the RMI in FY-2004 and increasing U.S. 
annual contributions from this amount as described in Tab 1 through FY-
2023. The U.S. offer on trust funding is conditioned on contributions 
of at least $30 million from each FAS. In addition, additional FAS and 
third-party contributions to the funds are anticipated.
Management and Oversight
    To bolster accountability, transparency, and oversight of U.S. 
Compact funding, the U.S. Administration has proposed a mechanism to 
review the use of Compact funds, including the trust funds, to ensure 
that they go to those areas of the economy where the greatest need 
exists and are used most effectively. Payment and reporting procedures 
are being clearly defined in a subsidiary agreement to be submitted to 
the U.S. Congress with the amended Compact language. To the extent 
applicable, these procedures will be based on the U.S. Federal Grants 
Management Common Rule.
    The U.S. Administration has proposed to create joint management 
committees for the FSM and RMI, each consisting of three U.S. members, 
including the Chair, and two FAS members. The Committees will assess 
the performance of the FSM and RMI governments using mutually agreed 
macroeconomic performance standards. The Committees will meet, as 
needed, each year to:
     review the single audits and annual report;
     evaluate progress made for each grant;
     discuss the coming fiscal year's grant;
     discuss any management problems associated with each 
grant; and
     discuss ways to respond to these problems and otherwise 
to increase the effectiveness of future U.S. assistance.
    The Government of the United States, after consultations with the 
FSM and RMI, will attach grant terms and conditions to ensure that 
reasonable progress is being made toward established objectives. The 
Government of the United States may withhold funds for violation of 
grant terms and conditions. Both FAS will also be subject to the Single 
Audit Act.
    In addition to periodic reporting, the FSM and RMI will submit 
annual reports on the use of U.S. financial assistance during the 
previous fiscal year and on the proposed use of U.S. financial 
assistance for the coming fiscal year. The report will include 
additional information needed to assess the performance of the economy 
and the effectiveness of U.S. assistance.
Additional Amendments to Title Two
    The U.S. Administration proposes to amend section 236 (the full 
faith and credit provision) of the Compact. The amendment will ensure a 
multi-year mandatory appropriation for Compact funding but not extend 
the ability to pledge or assign future Compact funding as a source for 
repaying debt, without specific prior approval of the U.S. Government.
    We also propose to extend the inflation indexation adjustment 
adopted in the previous Compact period (capped at 5 percent per annum) 
to the annual payments for the base grant and trust funds in the new 
twenty-year period. This indexation strikes the right balance to 
promote prudent financial management by the FSM and RMI while 
facilitating the transition to the termination of mandatory U.S. 
financial assistance in FY-2024.

Subsidiary Agreements
    The U.S. Government has tabled subsidiary agreements on specific 
services and programs involving:
     U.S. Postal Service (USPS)
     U.S. Federal Aviation Administration (FAA)
     Department of Transportation (DOT)
     Department of Defense Humanitarian Assistance Projects 
(CHAP)
     Telecommunications Services
     Federal Deposit Insurance Corporation (FSM only)
     Foreign Disaster Assistance
     Trust Fund
    In addition, the U.S. Government is considering amending the 
subsidiary agreements involving:
     National Weather Service
     Mutual Assistance in Law Enforcement Matters
     Status of Forces Agreement
     Fiscal Procedures Agreement

Where are we going?
    The U.S. has been successful in fostering a political transition 
from Trust Territory Administration to stable, self-governing 
democracies in the FSM and RMI. The Compact has also been successful in 
transforming the relationship between the United States and these 
island nations from one of trust territory administration to two of our 
closest bilateral relationships and staunchest friends in the United 
Nations. These achievements are solid and lasting, and one the 
American, FSM, and RMI peoples can be proud of.
    We now confront a critical challenge effecting the economic 
transition toward increased budgetary self-reliance. I believe the U.S. 
proposal is adequate to meet the objective of Title Two of the Compact: 
``to assist the RMI and FSM in their efforts to advance the economic 
self-sufficiency of their peoples.''

Goals of Compact Assistance
    The United States has strong interests in these countries that 
justify continued economic assistance. These interests include:
     Maintaining economic stability. In this regard, we 
believe the United States should continue its commitment to the 
economic strategies that the RMI and FSM have developed with the 
support of the United States, the Asian Development Bank (ADB), the 
International Monetary Fund, and our partners in the ADB Consultative 
Group, including Japan and Australia;
     Improving the health and social conditions of the people 
of the RMI and FSM.
     Sustaining the political stability and close ties which 
we have developed with these two emerging democracies; and
     Assuring that our strategic interests continue to be 
addressed.
    We recognize that too sharp a reduction in U.S. assistance at this 
stage of economic development of the RMI and the FSM could result in 
economic instability and other disruptions, and could encourage an 
increase in the level of migration to the United States by citizens of 
those countries. We continue to believe that maintaining substantial 
financial and other assistance will help to assure economic stability 
while the RMI and FSM continue to implement economic development and 
reform strategies.

Migration Impact
    The past fifteen years have ushered in an era of increased impact 
on the health, education, and welfare programs of U.S. jurisdictions in 
the Pacific because some migrants from the FSM and RMI have come with 
low work skills, poor health, and dependent children. The 
Administration will address the need to reimburse U.S. jurisdictions 
for the added costs they bear in honoring our commitment on migration 
to the FSM and RMI peoples. Every new arrival in our country imposes 
costs on our communities by drawing on social services. But, most 
arrivals also add to our economy and pay taxes that support those 
public services. Many FSM and RMI arrivals to the U.S. come with job 
skills, work hard like any American, spend money here, and pay U.S. 
taxes. Their contribution should not be ignored or forgotten in 
reaching an understanding of the impact of migration on U.S. 
jurisdictions.
    Just as importantly, these migratory flows follow established trade 
and business routes. U.S. business looms large in the trade and 
commerce of the FSM and RMI, earns money for many U.S. companies, and 
reinforces our special relationship.
    Section 104(e) of the Compact Act requires the President to report 
annually to Congress on the impact of the Compact. The annual reports 
and a recent GAO study document the substantial impact of FSM and RMI 
migration to the State of Hawaii, Guam, and the Commonwealth of the 
Northern Mariana Islands (CNMI). Of particular concern are migrants who 
have communicable diseases, criminal records, or are likely to become a 
public charge as a result of chronic health or other problems. These 
conditions are currently all grounds for inadmissibility to the United 
States under the Immigration and Nationality Act.
    One way to address the issue of Compact impact on Hawaii, Guam, and 
the CNMI is to increase the compensation to those jurisdictions for the 
negative impacts of migration, as authorized by section 104 of the 
Compact Act. This solution, while helpful, would not decrease the 
adverse impact of migration from the FSM and RMI. It would, instead, 
shift the cost burden to the U.S. Government.
    Compact impact can also be addressed, in part, through our plan to 
commit a substantial portion of future U.S. assistance through sector 
assistance to improve the general health and education of citizens of 
the FSM and the RMI. We believe that over time, improving the quality 
of life in the FSM and the RMI will reduce the incentives for citizens 
of those countries to migrate to the United States. Further, it would 
ensure that those persons who do migrate would be healthier and better 
educated, and therefore in a better position to contribute to the 
communities where they choose to live within the United States.
    In the wake of the September 11th attacks, we have proposed an 
amended section 141 of the Compact. This section provides that citizens 
of the RMI and FSM ``may enter into, lawfully engage in occupations, 
and establish residence as a nonimmigrant in the United States.'' We 
intend to establish that Micronesian entrants to the U.S. will have a 
FSM or RMI passport in an effort to halt the entry of inadmissible 
people who might seek to exploit this route of entry into the U.S. This 
and other immigration-related issues are the subject of ongoing talks 
with the FAS representatives.
    In conclusion, we are considering three new responses to the 
migration issue.
     First, we are looking at ways to provide compensation to 
Hawaii, Guam, and the CNMI for the negative impacts of migration, as 
authorized by section 104 of the Compact Act.
     Second, we have proposed various mechanisms for improving 
our ability to ensure on a timely basis that RMI and FSM migrants to 
the United States are eligible for admission.
     Third, we are committing a substantial portion of U.S. 
assistance during the second Compact term to improve the health and 
education of potential migrants from the FSM and RMI in order to reduce 
significantly Compact impact.
    As I noted at the beginning of my statement, the U.S. 
Administration hopes to complete its negotiations soon with the FSM and 
the RMI negotiating teams on the Compact language and appropriate 
funding levels. We also hope to wrap up, subject to final approval, 
several key subsidiary agreements including the trust fund agreement. 
In general, talks with both FAS are progressing well. We have had five 
negotiating sessions with the FSM, and three with the RMI. Upcoming 
rounds to conclude Compact funding and language issues should occur 
this August.

Conclusion
    Thank you for this opportunity to present the Administration's 
views on Compact negotiations. The U.S. proposal is the product of over 
two years of discussions with, and contains input from, U.S. officials 
representing dozens of agencies, members of Congress and their staffs, 
representatives of international financial institutions, as well as 
potential bilateral donors. In developing our proposal, we have also 
carefully considered the input of the FSM and RMI.
    In addition, Congress has requested several reports from the 
General Accounting Office (GAO) on U.S. assistance to the FSM and RMI. 
These reports have raised questions about the effectiveness of current 
U.S. assistance. We are working to assure the Congress that the U.S. 
proposal addresses the planning and management problems identified by 
the GAO.
    Let me assure you that we continue to welcome any and every 
opportunity to keep the Committee informed as these negotiations come 
to a close. Just as importantly, we look forward to submitting the 
amended Compact of Free Association to the Congress for review and 
enactment into law.
    Thank you.

    [GRAPHIC] [TIFF OMITTED] T0761.001
    
    Notes to Tab 1A:
    Grant funds are decremented by $.5 million per year, with the 
decremented funds going to the trust fund.
    Trust funds are increased by $.5 million per year, with these 
incremented funds coming from the grant account.
    An inflation adjustment will be applied similar to that in section 
217 of the current Compact to all except the Kwajalein impact 
assistance of $1.9 million per year.
    RMI to contribute funds, at least $35 million in addition to the 
U.S. contribution to the trust fund by FY-06.
    Grant and trust amounts do not account for other RMI or third party 
contributions. In FY-2016 through FY-2021, the RMI may contribute $3 
million per year to be matched by $1.5 million by the U.S. government, 
as stated within parentheses.
    Under Article X(4)(a) of the Military Use and Operating Rights 
Agreement (MUORA)--$7.1 million with inflation adjustment.
    Compact section 213 and Article X(4)(b) of the MUORA provides $1.9 
million per year not inflated.

[GRAPHIC] [TIFF OMITTED] T0761.002

    Notes to Tab 1B:1. Commencing in FY-2007, grant funds are 
decremented by $.8 million per year, with the decremented funds going 
to the trust fund.2. Commencing in FY-2007, trust funds are increased 
by $.8 million per year, with these incremented funds coming from the 
grant account.3. An inflation adjustment will be per the proposed 
section 217 of the draft Title II language.4. FSM to contribute funds 
(at least $30 million) in addition to the U.S. contribution to the 
trust fund in FY-04.5. Grant and trust fund amounts do not account for 
other FSM or third party contributions.
                                 ______
                                 
    Mr. Osborne. Thank you, Mr. Short.
    At this time, I would like to call on Congresswoman Bono. 
If you would care to appear before the Committee. I ask 
unanimous consent that following their testimony, the 
gentlewoman from California, Ms. Bono, be allowed to sit on the 
dais and participate in the hearing. Is there objection? 
Hearing none, so ordered. OK. Thank you, Mr. Short.
    At this time, we will have testimony from Ms. Westin.

STATEMENT OF SUSAN S. WESTIN, MANAGING DIRECTOR, INTERNATIONAL 
          AFFAIRS AND TRADE, GENERAL ACCOUNTING OFFICE

    Ms. Westin. Mr. Chairman, members of the Committee, thank 
you for inviting me to testify on the Compact of Free 
Association between the United States and the FSM and the RMI. 
Today, I will discuss our review of the current U.S. proposals 
to extend economic assistance to these countries. Specifically, 
I will discuss three topics: One, the potential cost of 
assistance to the U.S. government; two, the amount per capita 
assistance for the FSM and the RMI; and, three, the 
accountability measures that are in the proposals, and whether 
these proposed measures address past GAO recommendations.
    I must emphasize that all of the above issues are still 
under negotiation, and therefore, final Compact assistance 
levels and accountability measures could differ from those I 
will discuss today.
    Turning first to the potential cost of assistance. And I 
refer you to our chart. Under the most recent U.S. proposals to 
the FSM and the RMI, new Congressional authorizations of 
approximately $3.4 billion would be required for U.S. 
assistance over a period of 20 years beginning in fiscal year 
2004. The share of new authorizations to the FSM would be about 
2.2 billion, while the RMI would receive about 1.1 billion.
    This new assistance would be provided to each country in 
the form of annual grant funds, extended Federal services, 
including weather, aviation, and postal services, and 
contributions to a trust fund for each country.
    For the RMI, the U.S. proposal also includes funding to 
extend U.S. access to Kwajalein Atoll for U.S. military use 
from 2017 through 2023.
    In addition to new authorized funding, the U.S. Government 
will provide continuing program assistance amounting to an 
estimated $1.1 billion to the two countries over 20 years, and 
payments previously authorized of about 189 million for U.S. 
access to Kwajalein through 2016. If new and previous 
authorizations are combined, the total U.S. cost for all 
Compact-related assistance under the current U.S. proposals 
would amount to about $4.7 billion over 20 years, not including 
costs for administration and oversight that are currently 
unknown.
    Under the U.S. proposals, annual grant amounts to each 
country would be reduced over time, while annual U.S. 
contributions to the trust funds would increase by the grant 
reduction amount. The U.S. proposals are designed to build 
trust funds that earn a rate of return such that trust fund 
yields can replace grant funding in fiscal year 2024 once 
annual grant assistance expires.
    Second, on the issue of per capita grant assistance to the 
two countries, the decrease in grant funding combined with 
estimated FSM and RMI population growth would also result in 
falling per capita grant assistance over the funding period, 
particularly for the RMI. The real value of grants per capita 
to the FSM would decrease from $684 to $396 over 20 years. And 
these are estimated amounts. In the RMI, per capita grant 
assistance would fall from $623 to $242. In addition to grants, 
however, both countries would receive Federal programs and 
services, and the RMI would receive funding related to U.S. 
access to Kwajalein. So, what we have here is just talking 
about the grant assistance alone.
    As I previously mentioned, the U.S. proposals are designed 
to build trust funds that earn a rate of return such that trust 
fund yields can replace grant funding. We analyze the trust 
fund proposals to determine if the trust fund yields would 
replace grant funding as intended, assuming a 6 percent rate of 
return.
    According to our analysis, the U.S. proposal to the RMI 
would meet its goal while the U.S. proposal to the FSM would 
not. Moreover, at 6 percent, the U.S. proposal to the RMI would 
cover the estimated value of expiring Federal services while 
the U.S. proposal to the FSM clearly would not. At a 6 percent 
rate of return, neither proposed trust fund would generate 
surplus funds to serve as a buffer against years with low or 
negative trust fund yields.
    Turning to the third topic, the accountability measures and 
our past recommendations. The strengthened accountability 
measures in the current U.S. proposals have addressed many of 
our recommendations regarding future Compact assistance. To 
give one example, the proposals require that grants with 
typical grant conditions would be targeted to priority areas 
such as health, education, and infrastructure. Furthermore, the 
United States could withhold funds for violations of grant 
terms and conditions as we have recommended.
    However, not all of our recommendations have been 
addressed. For example, U.S. proposals for future assistance do 
not address our recommendation that consideration should be 
given to targeting future health and education funds in ways 
that effectively address specific adverse migration impact 
problems, such as communicable diseases identified by Guam, 
Hawaii, and the CNMI.
    As a final observation, I would note that specific details 
on how some key accountability provisions would be carried out 
are contained in separate agreements that remain in draft form 
or have not yet been released.
    Mr. Chairman, members, this competes my prepared statement. 
I would be happy to answer any questions.
    Mr. Osborne. Thank you very much, Ms. Westin.
    [The prepared statement of Ms. Westin follows:]

Statement of Susan S. Westin, Managing Director, International Affairs 
               and Trade, U.S. General Accounting Office

    Mr. Chairman and Members of the Committee:
    I am pleased to be here today to testify on the Compact of Free 
Association between the United States and the Pacific Island nations of 
the Federated States of Micronesia, or FSM, and the Republic of the 
Marshall Islands, or RMI. 1 In 1986, the United States 
entered into this Compact with the two countries after almost 40 years 
of administering the islands under the United Nations (U.N.) Trust 
Territory of the Pacific Islands. The Compact, which consists of 
separate international agreements with each country, has provided U.S. 
assistance to the FSM and the RMI in the form of direct funding as well 
as federal services and programs for more than 15 years. Further, the 
Compact allows for migration from both countries to the United States 
and establishes U.S. defense rights and obligations in the region. 
Provisions of the Compact that deal with economic assistance were 
scheduled to expire in 2001; however, they will remain in effect for up 
to 2 additional years while the United States and each nation 
renegotiate the affected provisions. 2
---------------------------------------------------------------------------
    \1\ The FSM had a population of about 107,000 in 2000, while the 
RMI had a population of 50,840 in 1999, according to each country's 
most recent census.
    \2\ Other Compact provisions are also due to expire in 2003 if not 
renegotiated and approved. These include (1) certain defense 
provisions, such as the requirement that the FSM and the RMI refrain 
from actions that the United States determines are incompatible with 
U.S. defense obligations (defense veto); and (2) federal services 
listed in the Compact.
---------------------------------------------------------------------------
    Today I will discuss our review of the current U.S. proposals to 
extend economic assistance to the FSM and the RMI. Specifically, I will 
discuss the potential cost of assistance to the U.S. government, the 
amount of per capita assistance for the FSM and the RMI, and the 
projected earnings of proposed trust funds. Further, I will identify 
accountability measures that are in the proposals and discuss whether 
the proposals address past GAO recommendations in this area. It is 
worth emphasizing that all of the above issues are still under 
negotiation, and therefore final Compact assistance levels and 
accountability measures could differ from those I will discuss today.

Summary
    Current U.S. proposals to the FSM and the RMI to renew expiring 
assistance would require the Congress to approve about $3.4 billion in 
new authorizations. 3 The proposals would provide decreasing 
levels of annual grant assistance over a 20-year term (2004 through 
2023). Simultaneously, the proposals would require building up a trust 
fund for each country with earnings that would replace grants once 
those grants expire. Per capita grant assistance would fall during the 
term of Compact assistance, particularly for the RMI. At the Department 
of State's assumed trust fund rate of return (6 percent), the RMI trust 
fund would cover expiring assistance at the 2023 level, while the FSM 
trust fund would not achieve this goal. Further, at this rate of 
return, neither trust fund would build up buffer funds that could be 
used during years of low or negative trust fund earnings.
---------------------------------------------------------------------------
    \3\ Our analysis is based on U.S. proposals submitted to the FSM 
and the RMI governments in May 2002.
---------------------------------------------------------------------------
    The U.S. proposals include strengthened accountability measures, 
though details of some key measures remain unknown. The proposals have 
addressed many, but not all, recommendations that we have made in our 
past reports regarding assistance accountability. For example, 
proposals call for grant terms and conditions and eliminate a pledge of 
``full faith and credit'' for funds. Proposals also allow for the 
withholding of funds and give the United States control over the annual 
consultation process and trust fund management. The details of grant 
and trust fund management will be addressed in separate agreements that 
remain in draft form or have not yet been released. Some of our 
recommendations, such as those calling for a review of program 
assistance and ways to specifically target health and education grants 
to address the adverse impact of migration, have not been addressed at 
this point.

Background
    In 1986, the United States and the FSM and the RMI entered into the 
Compact of Free Association. 4 This Compact represented a 
new phase of the unique and special relationship that has existed 
between the United States and these island areas since World War II. It 
also represented a continuation of U.S. rights and obligations first 
embodied in a U.N. trusteeship agreement that made the United States 
the Administering Authority of the Trust Territory of the Pacific 
Islands. 5 The Compact provided a framework for the United 
States to work toward achieving its three main goals (1) to secure 
self-government for the FSM and the RMI, (2) to assure certain national 
security rights for all the parties, and (3) to assist the FSM and the 
RMI in their efforts to advance economic development and self-
sufficiency. The first two goals have been met through the Compact and 
its related agreements. The third goal, advancing economic development 
and self-sufficiency, was to be accomplished primarily through U.S. 
direct financial payments (to be disbursed and monitored by the U.S. 
Department of the Interior) to the FSM and the RMI. However, economic 
self-sufficiency has not been achieved. Although total U.S. assistance 
(Compact direct funding as well as U.S. programs and services) as a 
percentage of total government revenue has fallen in both countries 
(particularly in the FSM), the two nations remain highly dependent on 
U.S. assistance. In 1998, U.S. funding accounted for 54 percent and 68 
percent of FSM and RMI total government revenues, respectively, 
according to our analysis. This assistance has maintained standards of 
living that are artificially higher than could be achieved in the 
absence of U.S. support. 6
---------------------------------------------------------------------------
    \4\ At the time that the Compact was negotiated, the United States 
was concerned about the use of the islands of the FSM and the RMI as 
``springboards for aggression'' against the United States, as they had 
been used in World War II, and the Cold War incarnation of this 
threat--the Soviet Union. In addition, the economic viability of both 
nations was uncertain at the time the Compact was negotiated.
    \5\ From 1947 to 1986, the United States administered this region 
under a trusteeship agreement that obligated it to foster the 
development of political institutions and move the Trust Territory 
toward self-government and promote economic, social, and education 
advancement. In addition, the agreement allowed the United States to 
establish military bases and station forces in the Trust Territory and 
close off areas for security reasons as part of its rights.
    \6\ The economic growth potential of these countries and their 
ability to generate revenue to replace U.S. assistance was limited by 
factors such as geographic isolation, limited natural resources, and 
the large and costly government structure that the United States 
established. Major donors (such as Australia) to Pacific Island nations 
expect that most of these countries will need assistance for the 
foreseeable future in order to achieve improvements in development. In 
addition, achieving economic self-sustainability is seen as a difficult 
challenge for many of these island nations and an unrealistic goal for 
others. See U.S. General Accounting Office, Foreign Assistance: Lessons 
Learned From Donors' Experiences in the Pacific Region, GAO-01-808 
(Washington, D.C.: Aug. 17, 2001).
---------------------------------------------------------------------------
    Another aspect of the special relationship between the FSM and the 
RMI and the United States involves the unique immigration rights that 
the Compact grants. Through the Compact, citizens of both nations are 
allowed to live and work in the United States as ``nonimmigrants'' and 
can stay for long periods of time, with few restrictions. 7 
Further, the Compact exempts FSM and RMI migrating citizens from 
meeting U.S. passport, visa, and labor certification requirements. 
Unlike economic assistance provisions, the Compact's migration 
provisions are not scheduled to expire in 2003. In recognition of the 
potential adverse impacts that Hawaii and nearby U.S. commonwealths and 
territories could face as a result of an influx in migrants, the 
Congress authorized Compact impact payments to address the financial 
impact of migrants on Guam, Hawaii, and the CNMI.
---------------------------------------------------------------------------
    \7\ Typically, nonimmigrants include those individuals who are in 
the United States temporarily as visitors, students, and workers.
---------------------------------------------------------------------------
    Finally, the Compact served as the vehicle to reach a full 
settlement of all compensation claims related to U.S. nuclear tests 
conducted on Marshallese atolls between 1946 and 1958. In a Compact-
related agreement, the U.S. government agreed to provide $150 million 
to create a trust fund. While the Compact and its related agreements 
represented the full settlement of all nuclear claims, it provided the 
RMI the right to submit a petition of ``changed circumstance'' to the 
U.S. Congress requesting additional compensation. The RMI government 
submitted such a petition in September 2000.

Current U.S. Compact Proposals Would Cost Billions and Create Trust 
        Funds
    Under the most recent (May 2002) U.S. proposals to the FSM and the 
RMI, new congressional authorizations of approximately $3.4 billion 
would be required for U.S. assistance over a period of 20 years (fiscal 
years 2004 through 2023). The share of new authorizations to the FSM 
would be about $2.3 billion, while the RMI would receive about $1.1 
billion (see table 1). This new assistance would be provided to each 
country in the form of annual grant funds, extended federal services 
(that have been provided under the original Compact but are due to 
expire in 2003), and contributions to a trust fund for each country. 
(Trust fund earnings would become available to the FSM and the RMI in 
fiscal year 2024 to replace expiring annual grants.) For the RMI, the 
U.S. proposal also includes funding to extend U.S. access to Kwajalein 
Atoll for U.S. military use from 2017 through 2023. In addition to new 
authorized funding, the U.S. government will provide (1) continuing 
program assistance amounting to an estimated $1.1 billion to the two 
countries over 20 years and (2) payments previously authorized of about 
$189 million for U.S. access to Kwajalein Atoll in the RMI through 
2016. 8 If new and previous authorizations are combined, the 
total U.S. cost for all Compact-related assistance under the current 
U.S. proposals would amount to about $4.7 billion over 20 years, not 
including costs for administration and oversight that are currently 
unknown.
---------------------------------------------------------------------------
    \8\ See U.S. General Accounting Office, Foreign Relations: 
Kwajalein Atoll Is the Key U.S. Defense Interest in Two Micronesian 
Nations, GAO-02-119 (Washington, D.C.: Jan. 22, 2002).

[GRAPHIC] [TIFF OMITTED] T0761.003

    Under the U.S. proposals, annual grant amounts to each country 
would be reduced over time, while annual U.S. contributions to the 
trust funds would increase by the grant reduction amount. Annual grant 
assistance to the FSM would fall from a real value of $76 million in 
fiscal year 2004 to a real value of $53.2 million in fiscal year 2023. 
9 Annual grant assistance to the RMI would fall from a real 
value of $33.9 million to a real value of $17.3 million over the same 
period. This decrease in grant funding, combined with FSM and RMI 
population growth, would also result in falling per capita grant 
assistance over the funding period--particularly for the RMI (see fig. 
1). The real value of grants per capita to the FSM would decrease from 
an estimated $684 in fiscal year 2004 to an estimated $396 in fiscal 
year 2023. 10 The real value of grants per capita to the RMI 
would fall from an estimated $623 in fiscal year 2004 to an estimated 
$242 in fiscal year 2023. 11 In addition to grants, however, 
both countries would receive federal programs and services, 
12 and the RMI would receive funding related to U.S. access 
to Kwajalein Atoll. 13
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    \9\ While new authorization figures are provided in current dollars 
so that total costs to the U.S. government can be identified, grant 
assistance is provided in fiscal year 2004 constant dollars for 
comparative purposes. In addition to the reduction in grants, the real 
value of grants would be eroded over time by a partial, rather than 
full, inflation adjustment.
    \10\ Our per capita calculations assume FSM and RMI migration and 
population growth rates that are at the same level as in recent years.
    \11\ The U.S. proposal to the RMI allocates $4.1 million of grant 
assistance in fiscal year 2004 to the island of Ebeye in Kwajalein 
Atoll. As such, grants per capita to residents of Ebeye would be higher 
than grants per capita to the rest of the RMI population.
    \12\ For fiscal year 2004, federal programs and services, excluding 
federal emergency management assistance, are estimated to be worth 
$36.4 million for the FSM and $16.5 million for the RMI.
    \13\ For fiscal year 2004, Kwajalein landowners would receive $16 
million, and the Kwajalein Atoll Development Authority would receive 
$1.9 million.

[GRAPHIC] [TIFF OMITTED] T0761.004

    The U.S. proposals are designed to build trust funds that earn a 
rate of return such that trust fund yields can replace grant funding in 
fiscal year 2024 once annual grant assistance expires. The current U.S. 
proposals do not address whether trust fund earnings should be 
sufficient to cover expiring federal services or create a surplus to 
act as a buffer against years with low or negative trust fund returns. 
At a 6 percent rate of return (the Department of State's assumed rate) 
the U.S. proposal to the RMI would meet its goal of creating a trust 
fund that yields earnings sufficient to replace expiring annual grants, 
while the U.S. proposal to the FSM would not cover expiring annual 
grant funding, according to our analysis. Moreover, at 6 percent, the 
U.S. proposal to the RMI would cover the estimated value of expiring 
federal services, while the U.S. proposal to the FSM clearly would not. 
At a 6 percent return, neither proposed trust fund would generate 
buffer funds. If an 8.2 percent average rate of return were realized, 
then the RMI trust fund would yield earnings sufficient to create a 
buffer, while the FSM trust fund would yield earnings sufficient to 
replace grants and expiring federal services. 14
---------------------------------------------------------------------------
    \14\ An 8.2 percent average rate of return is the expected rate of 
return for a fund with a mix of equities and fixed-income securities 
based on historical earnings in the stock market and projected 
government bond rates.
---------------------------------------------------------------------------

Current U.S. Proposals Contain Stronger Accountability Measures and 
        Address GAO Recommendations, Some Key Details Remain Unknown
    I now turn my attention to provisions in the current U.S. proposals 
designed to provide improved accountability over, and effectiveness of, 
U.S. assistance. This is an area where we have offered several 
recommendations in the past 2 years. As I discuss key proposed 
accountability measures, I will note whether our past recommendations 
have been addressed where relevant. In sum, many of our recommendations 
regarding future Compact assistance have been addressed with the 
introduction of strengthened accountability measures in the current 
U.S. proposals. However, specific details regarding how some key 
accountability provisions would be carried out will be contained in 
separate agreements that remain in draft form or have not yet been 
released.
    The following summary describes key accountability measures 
included in the U.S. proposals that address past GAO recommendations:
     The proposals require that grants would be targeted to 
priority areas such as health, education, and infrastructure. Further, 
grant conditions normally applicable to U.S. state and local 
governments would apply to each grant. 15 Such conditions 
could address areas such as procurement and financial management 
standards. U.S. proposals also state that the United States may 
withhold funds for violation of grant terms and conditions. We 
recommended in a 2000 report that the U.S. government negotiate 
provisions that would provide future Compact funding through specific 
grants with grant requirements attached and allow funds to be withheld 
for noncompliance with spending and oversight requirements. 
16 However, identification of specific grant terms and 
conditions, as well as procedures for implementing and monitoring 
grants and grant requirements and withholding funds, will be addressed 
in a separate agreement that has not yet been released.
---------------------------------------------------------------------------
    \15\ Grant conditions will be based, in large part, on the U.S. 
Federal Grants Management Common Rule, as set forth in revised Office 
of Management and Budget Circular A-102 (Washington, D.C.: Aug. 29, 
1997).
    \16\ See U.S. General Accounting Office, Foreign Assistance: U.S. 
Funds to Two Micronesian Nations Had Little Impact on Economic 
Development, GAO/NSIAD-00-216 (Washington, D.C.: Sept. 22, 2000) for a 
review of the first 12 years of direct Compact assistance.
---------------------------------------------------------------------------
     The U.S. proposals to the FSM and the RMI list numerous 
items for discussion at the annual consultations between the United 
States and the two countries. Specifically, the proposals require that 
consultations address single audits and annual reports; evaluate 
progress made for each grant; discuss the coming fiscal year's grant; 
discuss any management problems associated with each grant; and discuss 
ways to respond to problems and otherwise increase the effectiveness of 
future U.S. assistance. In the previously cited report, we recommended 
that the U.S. government negotiate an expanded agenda for future annual 
consultations. Further, the proposals give the United States control 
over the annual review process: The United States would appoint three 
members to the economic review board, including the chairman, while the 
FSM or the RMI would appoint two members.
     Recommendations from our 2000 report are being addressed 
regarding other issues. The U.S. proposals require U.S. approval before 
either country can pledge or issue future Compact funds as a source for 
repaying debt. The proposals also exclude a ``full faith and credit'' 
pledge that made it impracticable to withhold funds under the original 
Compact. In addition, the U.S. proposals provide specific uses for 
infrastructure projects and require that some funds be used for capital 
project maintenance.
    We also recommended that Interior ensure that appropriate resources 
are dedicated to monitoring future assistance. While the U.S. proposals 
to the two countries do not address this issue, an official from the 
Department of the Interior's Office of Insular Affairs has informed us 
that his office has tentative plans to post five staff in a new 
Honolulu office. Further, Interior plans to bring two new staff on 
board in Washington, D.C., to handle Compact issues, and to post one 
person to work in the RMI (one staff is already resident in the FSM). A 
Department of State official stated that the department intends to 
increase its Washington, D.C., staff and overseas contractor staff but 
does not have specific plans at this point.
    Trust fund management is an area where we have made no 
recommendations, but we have reported that well-designed trust funds 
can provide a sustainable source of assistance and reduce long-term aid 
dependence. 17 The U.S. proposals would grant the U.S. 
government control over trust fund management: The United States would 
appoint three trustees, including the chairman, to a board of trustees, 
while the FSM or the RMI would appoint two trustees. The U.S. Compact 
Negotiator has stated that U.S. control would continue even after 
grants have expired and trust fund earnings become available to the two 
countries; in his view, ``the only thing that changes in 20 years is 
the bank,'' and U.S. control should continue. He has also noted that it 
may be possible for the FSM and the RMI to assume control over trust 
fund management at some as yet undetermined point in the future.
---------------------------------------------------------------------------
    \17\ See GAO-01-808.
---------------------------------------------------------------------------
    Finally, while the departments of State and the Interior have 
addressed many of our recommendations, they have not implemented our 
accountability and effectiveness recommendations in some areas. For 
example, our recommendation that annual consultations include a 
discussion of the role of U.S. program assistance in economic 
development is not included in the U.S. proposals. Further, the 
departments of State and the Interior, in consultation with the 
relevant government agencies, have not reported on what program 
assistance should be continued and how the effectiveness and 
accountability of such assistance could be improved. 18 
Finally, U.S. proposals for future assistance do not address our 
recommendation that consideration should be given to targeting future 
health and education funds in ways that effectively address specific 
adverse migration impact problems, such as communicable diseases, 
identified by Guam, Hawaii, and the CNMI. 19
---------------------------------------------------------------------------
    \18\ See U.S. General Accounting Office, Foreign Assistance: 
Effectiveness and Accountability Problems Common in U.S. Programs to 
Assist Two Micronesian Nations, GAO-02-70 (Washington, D.C.: Jan. 22, 
2002) for an evaluation of 13 U.S. domestic programs, including the 
largest programs that the United States provides to the FSM and the 
RMI.
    \19\ See U.S. General Accounting Office, Foreign Relations: 
Migration From Micronesian Nations Has Had Significant Impact on Guam, 
Hawaii, and the Commonwealth of the Northern Mariana Islands, GAO-02-40 
(Washington, D.C.: Oct. 5, 2001).
---------------------------------------------------------------------------
Current U.S. Proposals Also Amend Nonexpiring Immigration Provisions
    I would also like to take just a moment to cite proposed U.S. 
changes to the Compact's immigration provisions. These provisions are 
not expiring but have been targeted by the Department of State as 
requiring changes. I believe it is worth noting these proposed changes 
because, to the extent that they could decrease migration rates (a 
shift whose likelihood is unclear at this point), our current per 
capita grant assistance figures are overstated. This is because our 
calculations assume migration rates that are similar to past history 
and so use lower population estimates than would be the case if 
migration slowed.
    Proposed U.S. language on immigration stresses that travel to the 
United States by FSM or RMI citizens is intended to be temporary; the 
Compact is not intended to provide a stepping-stone for permanent 
residence or citizenship in the United States. Proposed U.S. changes to 
the Compact immigration provisions include
     a new requirement for FSM and RMI visitors to carry a 
machine-readable passport;
     a new requirement that FSM and RMI citizens visiting the 
United States have a specific purpose for their term of stay--such as 
employment, school, or tourism - that is listed in the provisions 
(under the original Compact, a specific purpose is not required for FSM 
or RMI citizens to enter or remain in the United States);
     a statement that FSM or RMI children entering the United 
States for adoption purposes are not eligible to do so under the 
Compact, as they are intending immigrants;
     a restriction that naturalized FSM and RMI citizens are 
not eligible for entry into the United States unless they are an 
eligible spouse or dependent of an admissible Compact migrant (under 
the original Compact, naturalized citizens are allowed into the United 
States 5 years after they are naturalized so long as they are a 
resident in the FSM or the RMI during that time); and
     a new ability for the U.S. Attorney General to promulgate 
regulations that could limit the ability of FSM and RMI visitors in the 
United States to stay in the country beyond 6 months. 20
---------------------------------------------------------------------------
    \20\ Such regulations could take into account the ability of FSM or 
RMI citizens to support themselves and their immediate relatives. The 
option to reduce the ability of FSM and RMI visitors to stay in Guam 
and other U.S. territories was provided for in the original Compact. In 
2000, regulations were put in place that required Compact migrants to 
be self-supporting after 1 year on Guam or be subject to removal. When 
we met with Immigration and Naturalization Service officials, they 
informed us that enforcing this regulation would prove difficult, since 
they did not have the necessary enforcement resources.
---------------------------------------------------------------------------
    Mr. Chairman and Members of the Committee, this completes my 
prepared statement. I would be happy to respond to any questions you or 
other Members of the Committee may have at this time.
                                 ______
                                 
    Mr. Osborne. We have a vote coming up. I would suggest that 
possibly we entertain questions here for about 5 minutes, then 
we will adjourn and come back. So, I think Mr. Underwood is an 
expert in this area. I will ask a couple questions and then 
defer to him.
    First of all, for Mr. Brookes, how long will the United 
States require access to Kwajalein Atoll, and are there 
alternatives to the Atoll?
    Mr. Brookes. Mr. Chairman, as you know, under the existing 
military use and operating rights agreement with the RMI, DoD 
access and use of Kwajalein is guaranteed through the year 
2016. This was extended for 15 years in 1999 for the period 
2001 to 2016. As it is an important element of our missile 
defense program and our intercontinental ballistic missile 
program, it is reasonable to expect that DoD access and use 
will be required beyond that time, beyond the year 2016.
    However, at this time, it is not possible to foresee with 
any accuracy exactly how long DoD use will be required beyond 
then. We have proposed a 7-year extension to the existing use 
agreement in response to a RMI government proposal for a longer 
term agreement. There are alternatives to Kwajalein Atoll, but 
it is a question of time and money. The capital investment on 
Kwajalein would be hard and expensive to replicate elsewhere, 
but it is not impossible. The capabilities could be dispersed 
to other locations such as potentially Wake Island or the 
Pacific missile test range, but at an unspecified cost to the 
U.S. taxpayer. Withdrawal from the ABM treaty gives us greater 
flexibility in developing missile defense since we are now no 
longer restricted to testing only at Kwajalein, which we were 
under the ABM treaty.
    In sum, Kwajalein is an important national asset that would 
be costly and difficult to replace but not impossible.
    Mr. Osborne. Thank you very much, Mr. Brookes.
    I think in the interest of time and maybe level of 
involvement, I will defer at this point to Mr. Underwood for 
his questions.
    Mr. Underwood. Thank you very much, Mr. Chairman. And thank 
you very much for your testimonies these afternoon. I once 
asked General Shinseki if Kwajalein was absolutely vital, and 
he said it was irreplaceable. And I am just wondering whether 
today, as we speak, whether the Department of Defense has 
somewhat shifted in that point of view over time, or--because, 
in my estimation, I think it is still pretty much 
irreplaceable, particularly in terms of national missile 
defense.
    Mr. Brookes. Yes, sir. I am not familiar with the General's 
testimony or when that was. I think that the differentiation 
here that I would try to make is that replacing it in one place 
in itself would be extremely difficult, if not impossible. But 
we do have other test ranges. There is a western test range, we 
have an eastern test range. There is Barking Sands. That, 
potentially, with the changes in technology, that over time we 
could disperse the capabilities that are currently located in 
one place on Kwajalein Island elsewhere. That is my 
understanding. I wouldn't say that I am the absolute expert on 
it, but that is my understanding.
    Mr. Underwood. Thank you very much for that. And you know, 
as--obviously, as someone who has been involved in trying to 
understand our defense posture in the Pacific, it occurs to me 
that we really need to hone in on the value of the Marshall 
Islands as well as the Federated states of Micronesia. We don't 
want to go over all of this territory, 5 years or 10 years 
hence, in the way, for example, that we are now rethinking our 
relationship with the Philippines and understanding what the 
value of the Philippines is to this country. And I am certainly 
hopeful that we continue to keep that in mind.
    Mr. Cohen and Mr. Short, you know, your testimonies were 
obviously music to my ears, especially as you concluded talking 
about how we are going to finally include in here some kind of 
a funding stream or how we are going to take care of Guam. I 
also heard the CNMI in Hawaii, but I heard Guam more. So I just 
wanted to know, how do you envision that happening?
    Mr. Cohen. Congressman, I am actually going to defer to the 
negotiator; given the stage that we are at in process, I think 
that would be appropriate.
    Mr. Short. Sir, the first issue is that we will consult 
with the Congress in that regard. We intend to include in the 
package that is submitted to the Congress, the Compact 
amendment package a provision to address impact. We will be 
consulting further with you and other interested Members of the 
Congress on how best to structure that.
    Mr. Underwood. Well, I certainly have my own view of how we 
can best take care of that. So, at this point in time there is 
not a precise proposal for this, other than a commitment to 
ensure that it is addressed as we proceed with the finalization 
of these negotiations.
    Mr. Short. Yes, sir. That is correct.
    Mr. Cohen. Congressman, what we can tell you at this time, 
obviously the details of any sort of compensation package, you 
know, will follow and are being worked on. But what we can tell 
you is that we view this as a three-prong strategy. And, of 
course, strategy No. 1 is to improve conditions in the RMI and 
the FSM to decrease the incentive to migrate. Also, improving 
conditions will hopefully ensure that those citizens of the RMI 
and the FSM that do choose to migrate are less likely to be as 
burdensome to the local services as have been the previous 
migrants.
    And also, you know, we are looking at tightening up the 
migration--well, you know, the right to migrate of course, you 
know, is absolute inviolate. But as you know, they have taken a 
look at making sure that everyone who chooses to migrate 
actually has the right to do so, to make sure that we don't 
have problems in that regard as well.
    So, the financial component is perhaps the most important 
component, and the details of that will follow, but there are 
other prongs to this strategy as well.
    Mr. Underwood. Well, and certainly I appreciate that. You 
know, it is important to understand that the economic viability 
of these countries will actually benefit surrounding U.S. 
jurisdictions. So it is not just an issue of dealing with 
migration. Although, I would like to add that all Pacific 
peoples migrate and have been migrating, as my personal 
experience and your own, Mr. Cohen, have indicated; that we are 
all kind of, just by the nature of being Pacific peoples, we 
all migrate.
    In that context, I want to make sure that we understand 
each other fully. You know, the right to migrate is part of the 
Compacts. And I know that the two countries that we are talking 
about want to be mutually engaged in trying to ensure that 
whatever kind of new arrangements, or even, in my estimation, 
there is some old arrangements that haven't been fully 
enforced, either. Whatever arrangements that we seek to pursue, 
you know, involve some level of consultation with them.
    It is important to note that the economic viability of 
these countries is absolutely essential to a healthier stream 
of migration, and that the economies of all the islands, 
particularly in Micronesia, are very much interrelated and all 
of the things that are here are mutually beneficial for all 
involved.
    Mr. Osborne. I think probably I should interject here, Mr. 
Underwood.
    Mr. Underwood. Sure.
    Mr. Osborne. At this time we will go vote. Hold that 
thought, and you will have plenty of time to prepare for the 
answer. We will be back in probably 20 minutes. We have a 15-
minute vote, two 5-minute votes. And so we will be back in 
shortly.
    [Recess]
    Mr. Osborne. The Committee will come to order.
    Mr. Underwood had a question. You can answer it, and then 
we will move on.
    Mr. Underwood. Thank you, Mr. Chairman.
    I was asking a question about where we are at with 
discussion on immigration and any proposed changes. Mr. Short.
    Mr. Short. With regard to the immigration provisions of the 
Compact--and there is a further explanation in the long 
statement that was submitted for the record, first of all the 
Compact of Free Association provides for visa-free entry for 
Micronesian citizens to enter the United States for work and 
study and other purposes. There is no attempt to abridge that 
basic right. However, in light of 9/11 and just the passage of 
15 years experience, we feel it is useful to review certain 
aspects of the immigration provisions. Part of that concerns 
the use of passports and current technology with passports.
    I should note that the respective governments have agreed 
to many of these provisions. We will be holding discussions 
commencing on Friday this week with the senior representatives 
of the Federated States and the Marshall Islands delegation to 
address this issue.
    So there are some specific aspects of the immigration 
provision we want to look at. These will be incorporated into 
the document in a manner that is still to be determined that 
will preserve the basic rights of the Micronesian citizens to 
enter the United States for the purposes stated in the Compact 
but basically fine tune and regularize some of the implementing 
aspects of that.
    Mr. Osborne. Thank you. I believe the gentleman's time has 
expired. Mr. Otter.
    Mr. Otter. Thank you, Mr. Chairman.
    Mr. Chairman, are the mikes on? There we go.
    Mr. Brookes, could you summarize very briefly the 
Department of Defense's interest in the locations we are 
talking about here?
    Mr. Brookes. Yes, sir. I think I would say that the 
Department of Defense interests are as follows: One is the 
continued rights of strategic denial and defense veto, 
strategic denial being denying the basing access and use of a 
third country in the Freely Associated States, the defense veto 
being the right to veto policies, FAS policies, that are 
incompatible with U.S. security and defense role in the Freely 
Associated States.
    Following that, I think the Kwajalein Atoll missile range 
is where DoD has a very strong interest in continued, unimpeded 
operations there. As I mentioned, we do ICBM testing and 
missile defense testing as well as space operations and 
surveillance. Beyond that, I would say access by U.S. military 
forces for transit of overflight, occasional emergency use as 
well as possible contingency use of land areas, air fields and 
harbors.
    I think it is also important that the FAS support U.S. 
security policies in international fora such as the United 
Nations. I also think that the Freely Associated States' 
proximity to important certain sea lanes and air lanes are 
important to the United States.
    Finally, I would say their proximity to Southeast Asia as 
well as the U.S. military facilities in Guam are important and 
basic to defense interests.
    Mr. Otter. It is pretty obvious from that list it is a very 
strategic, very important effort that we are involved in right 
now; and it is probably worth every dime that we just talked 
about, Ms. Westin from the GAO and Mr. Short, that we are 
paying for it, right?
    Mr. Brookes. Yes, sir, we support the ongoing negotiations.
    Mr. Otter. You support the money that is going to be paid 
in favor of these services for these important aspects that you 
just outlined.
    Mr. Brookes. Yes, sir. I would ask Mr. Short to probably, 
you know, address this. But I think that we are--you know, we 
do have important strategic interests there and that we are 
paying fairly for the uses and rights that we have.
    Mr. Otter. So that brings me to my next question. We just 
came from the floor and voting on an absolute dismal effort by 
our own government, the Department of Interior specifically, in 
trying to overcome hundreds and maybe even longer than that, 
but a long time, the abuse of a trust. That was with the native 
Americans, and we find that we have no idea what it is going to 
cost us.
    So, given that history, given that performance or lack of 
performance, I would ask Mr. Short, I would also ask the GAO, 
why in Heaven's name--why don't we just pay the money that we 
owe and don't try to tell them how to set up an education 
system, where it seems like we have our own problems, set up 
the housing like we have our own problems? If these people are 
smart enough and if they are intelligent enough to negotiate a 
good treaty with us, why in Heaven's name aren't they smart 
enough to be the architects of their own destiny?
    Mr. Short.
    Mr. Short. Yes, sir. Well, they are; and they are the 
architects of their own destiny. We are dealing with sovereign 
states that develop their own budgets, have their own internal 
structure. We provide assistance to keep that structure afloat, 
and we are putting in place a regime that will provide 
oversight and accountability for those funds, much like the 
relationship that between a Federal and a State relationship. 
There will be accountability of where the funds are expended 
and the purposes for which they go, but the structure, the 
purposes, the goals will all be determined by the sovereign 
states.
    Mr. Otter. Mr. Short, one of the things that I was confused 
about is, Mr. Brookes calls it rent, you are calling it grants 
and in five or six cases here in your testimony I read where 
the grant can be denied, the grant can be withheld if certain 
performances aren't met. Yes, Ms. Westin, can you answer that?
    Ms. Westin. Yes, may I speak to that?
    I think that it is important to keep in mind that the 
Compact negotiations on economic assistance are not involving 
our defense rights. We have already taken up the option. The 
U.S. has to extend the use of Kwajalein through 2016, and all 
we are talking about is extending it for another 6 years to 
2017 through 2023.
    What we are talking about with the grants is economic 
assistance, and I think that it is important to have 
accountability provisions in there. My staff did a report 2 
years ago on which we looked at the economic development from 
the assistance the U.S. had given under the first 13 years of 
the Compact, and we did not find very much economic 
development. So I can understand your point of view, why don't 
we just give them the money, but from the General Accounting 
Office point of view, where accountability is important, I 
think that the recommendations that we have made about 
accountability of future compact funds are important.
    Mr. Otter. Well, you know, I might pursue that, but then 
that would be a different subject because, you know, it seems 
to me this isn't much different than the PILT funds that we 
have to fight over each and every year, no matter what the 
negotiations were.
    If this is this administration's idea of new federalism, I 
am a little disappointed. I don't think our track record is so 
good at taking care of our own house. Now, through forced 
negotiations and withholding of it is either rent or grants or 
it is or it isn't or these people are in charge of their own 
destiny or their not, I am just very, very skeptical of us 
trying to tell somebody else how to live with their own 
property, with their own cultures. We have just not done--we do 
not have a very good record of keeping our promises, whether 
they are negotiated and whether they are really--heavily relied 
on or not.
    I think it is--I would not be too excited about this, Mr. 
Chairman, but that is the end of my statement. I will not ask 
for a response to that. But, Mr. Short, you look anxious like 
you had like to give one. It could be a short answer.
    Mr. Short.I think the important point is, as I stated 
before, we are dealing with sovereign governments; and, as the 
GAO has pointed out, there are certain concerns that the United 
States has brought to the fore based on 15 years of experience. 
We are not trying to create an onerous or overbearing set of 
conditions, but we do need to account for the funds. The 
purpose, is to achieve a balance between sovereignty on one 
hand and accountability on the other hand. I think the 
mechanism that we are putting in place will do that.
    Mr. Osborne. Thank you, Mr. Short.
    Thank you, Mr. Otter.
    Mrs. Christensen.
    Mrs. Christensen. Thank you, Mr. Chairman.
    Let me welcome my panelists. I want to extend a special 
welcome to Deputy Assistant Secretary Cohen, who also has 
oversight responsibility for my territory, the U.S. Virgin 
Islands.
    I share some of my colleague's, Mr. Otter's, concern. And 
listening--I came in during Mr. Cohen's testimony and missed 
most of the first panelist's testimony, but when Mr. Cohen was 
talking about the lack of accountability, et cetera, I have to 
admit I was somewhat suspicious in light of the fact that Mr. 
Cohen also said that the Office of Insular Affairs also had 
lack of staff and lack of tools to monitor. That says to me 
that probably there was also not even sufficient staff or tools 
to provide the kind of technical assistance that is usually 
necessary to provide a better outcome. But I am just getting 
the GAO report, and I will look at that.
    I am not going to really ask that question, but I wanted to 
ask a question and probably direct it first to Ms. Westin, but 
anyone else can jump in.
    I work with the Black Caucus which does work with rural, 
small and minority organizations and minority-serving colleges 
and universities. We have been able to get special funding for 
some of those institutions to do research and provide different 
kinds of services and what we are finding is that, even though 
we have provided the funding, they don't have the 
infrastructure, the capacity to handle those grants; and, 
therefore, they are not able to get the grants or they have 
accountability and productivity problems. I wonder to what 
extent the GAO investigation found that some of these 
infrastructure deficiencies were responsible for what may be 
lacking in the outcomes that you had anticipated.
    Ms. Westin. We have done, as you know, a series of reports 
on the Compact assistance. In the first report that we put out 
looking at the impact of the economic assistance and what it 
had meant for economic development, we did have examples of 
money going to schools, hospitals, et cetera, where there were 
infrastructure problems, lack of textbooks, et cetera, and that 
did have an impact on education. But we also noted that the 
money had gone to set up the college in the Federated States of 
Micronesia.
    The countries also receive money in these areas from U.S. 
domestic programs such as Head Start and some of the other 
health and education programs; and in our report on looking at 
programs, we had recommended that the State Department and 
Interior coordinate responses from the agencies responsible for 
those programs to really look at the results of the programs. 
Because we did note problems on occasion for a domestic program 
trying to deliver the same type of service they might in the 
United States to a small, remote island country.
    The last thing that I did want to mention again, that in 
our report on the impact of migration, we made a recommendation 
to really look at targeting health and education benefits, 
whether it is through programs or whether it is through the 
grants to those problems that could perhaps have an impact both 
on the country and on those countries where people tended to 
migrate to. In other words, if you can make the population of 
FSM healthier or RMI healthier, whether they stay or whether 
they migrate to Guam, Hawaii, CNMI or the United States, either 
way people are winners.
    Mrs. Christensen. Mr. Cohen, it looked like you wanted to 
answer. Did you want to respond to my assumption that maybe you 
also didn't have the tools or staff to provide the technical 
assistance that might have been required as well?
    Mr. Cohen. Sure, Congresswoman. The lack of tools that we 
refer to, that I referred to in my testimony, really has two 
components to it. One, the Department of the Interior lacked 
the tools to ensure that our funds were spent wisely, primarily 
because the documentation, you know, the Compact agreement 
itself, the subsidiary agreements did not provide the tools. So 
that--
    Mrs. Christensen. The framework to make that determination.
    Mr. Cohen. Correct. There were no enforcement mechanisms. 
So even if my office were to determine that funds were not 
being spent wisely, there really wasn't very much that we could 
do. So we are trying to correct that problem by making the 
documents tighter by giving us more tools at our disposal to 
make sure that the funds that we are spending are achieving the 
results that we want them to achieve.
    The second component, as you pointed out, is a lack of 
staff. When we entered into these Compacts of Free Association, 
we really created an entirely new type of relationship that was 
very extensive in terms of the financial assistance that we 
provided. The Compacts were signed under certain assumptions, 
the main assumption being on the economic front that these 
large grants, essentially block grants, would replace 
programmatic assistance that the Freely Associated States had 
relied upon when they were part of the trust territory.
    As the relationship evolved, we kept the block grants, but 
Congress then started to authorize additional programs to be 
provided to the Freely Associated States; and you know there 
was real need to do that. But that made it a little more 
difficult for the Department of Interior to manage, because it 
was not clear whether those additional programs that came on 
board after the Compacts were originally signed were subject to 
our oversight and control. You know, there was always an 
ambiguity there. So we would like to solve that ambiguity, and 
we think we are going to solve it going forward.
    Then, finally, the lack of staff. We think it is very 
important that, if we are serious about oversight and making 
sure that Federal dollars are being spent wisely, that we have 
sufficient staff to do it. These new documents have in place 
very specific reporting and monitoring provisions and other 
accountability provisions, and we need the staff to actually 
implement those. So, you know, we are attacking this on at 
least three fronts and hope to make the situation a lot better 
than it was the first time around.
    Mr. Osborne. Thank you, Mr. Cohen.
    Mr. Faleomavaega.
    Mr. Faleomavaega. Thank you, Mr. Chairman.
    I certainly wish the best for Nebraska this coming fall. I 
still have one of my cousins playing for Nebraska, Mr. 
Chairman, and I hope he will be a help to the Corn Huskers.
    Mr. Osborne. All of your cousins have been very helpful.
    Mr. Faleomavaega. Thank you, Mr. Chairman.
    Mr. Chairman, for the record, I want to ask unanimous 
consent that I be placed as a cosponsor of H.R. 2408, as you 
had sponsored, Mr. Chairman.
    I also want to note to the record unanimous consent that I 
also become a cosponsor of H.R. 3407.
    Mr. Osborne. Without objection.
    Mr. Faleomavaega. Thank you for calling this hearing. It is 
long overdue.
    I just don't know exactly where to begin, except to first 
extend my personal welcome to Mr. Short, Mr. Cohen and Ms. 
Westin representing the GAO. I am probably one of the few 
Members, Mr. Chairman, that has been to the Marshalls, to 
Ebeye, to Truk, to Chuuk, to Yap, to Palau.
    I want to say that there is a gentleman's memory who served 
as a long-standing member of this Committee, we are talking 
about Federal programs knowingly, the real sense of vision, in 
seeing that the Micronesians be given assistance in these 
Federal programs, and that is the spirit of Phil Burton.
    Mr. Chairman, I don't know where to begin in terms of 
sharing with the members of our Committee, it is so difficult; 
and I just wish that every member of this Committee would go to 
Micronesia and see for themselves the kind of situation that 
these people have been subjected to, colonial administrations 
from the Japanese, the Germans; and during World War II I 
should say that we have become their colonial masters, 
certainly as a credit to our Nation in holding them in high 
esteem and establishing this unique relationship under a 
Compact of Free Association.
    We have some serious problems. And I still recall, 
reverberate the statement made by the great Henry Kissinger 
when we were at the height of the cold war, there are only 
90,000 of them. Who gives a damn?
    That was the kind of attitude that some of our leaders 
nationally had toward the Micronesians, which I personally 
resent and did not take as a compliment. These people did not 
even have schools. I could count on my fingers those that went 
to college or even graduated from high school when this thing 
started.
    I have even heard that our senior members of the 
administration who retired from high office have said that the 
$2 billion that we have expended for these people have been a 
total waste. I think that is a bunch of baloney.
    When you consider the fact that our multi-trillion-dollar 
nuclear testing program that was conducted in the Pacific and 
that these Marshalls--these people were subject directly to 
nuclear contamination with the 66 nuclear detonations that our 
government did to these people--and they didn't ask for much, 
and I don't think that they want to be considered as leeches or 
as coming here begging our government for help. With the $2.1 
trillion budget that we are discussing right now to suggest 
that the amount of money that we have expended for these people 
is far too much would, given the fact that these people have 
sacrificed their lives, their lives, and us expending money to 
win the cold war, as it was an integral part of our efforts, I 
think what these people have done in sacrificing their fortune, 
their property so that we could be successful in blasting those 
islands apart so that we could learn better how to vaporize 
other human beings in the name of democracy and so we could 
understand in the height of the cold war, to suggest that--
    I could still recall--Mr. Chairman, I have been to Rongelap 
and Utirik, and we detonated this hydrogen bomb that was 1,000 
times more powerful than the nuclear bombs that we exploded in 
Nagasaki and Hiroshima. Despite what our military leaders said 
about the wind drift, when the wind drifted right toward where 
these islanders were living--and to this day we still have not 
resolved the problem of them being subjected directly to 
nuclear contamination. We are still fumbling with the idea that 
we may be giving too much to these people.
    How much more can we ask from these people in giving their 
lives--is there an amount of monetary money that can be given 
to the life of any person subjected to these kinds of 
hardships? I submit Mr. Chairman, we have a long ways to go.
    We are debating the issue of native Americans. I tell you, 
I have said earlier, Mr. Chairman, that probably no other 
people in the world have been studied to death more than the 
people from the Pacific Island cultures. If I catch another 
anthropologist coming to my island, I am going to shoot him.
    I am sick and tired of being studied like specimens. I can 
just cite you right now the first Americans--oh, 70 Federal 
studies have been made. I hear now from our friends at the GAO 
that not much economic development has happened for the past 15 
years. How can you expect for 15 years in expending $2 billion 
that these people have hardly had a chance to establish a 
nucleus of professionals, accountants, teachers? It is so 
common here in America, but it is a tremendous hardship for 
those people to leave their villages and just to get an 
education, tremendous, tremendous problem of what they are 
constantly trying to face here.
    I could go on, Mr. Chairman, but I do have some questions 
that I hope that, even after this first round, I will be asking 
in the second round. I guess my time is over, Mr. Chairman. Can 
I ask at least one question?
    Mr. Osborne. The gentleman's time is up.
    Mr. Holt, do you care to yield or do you have questions of 
your own?
    Mr. Holt. I would be happy to yield to my friend.
    Mr. Faleomavaega. Thank you, Mr. Chairman.
    I want to ask Mr. Short if the proposed compact of renewal 
with the Marshall Islands, is this satisfactory to both the 
administration as well as to the Marshall Islands government?
    Mr. Short. Well, sir, I can't speak for the Marshall 
Islands. They will be up in a few minutes.
    We feel that the offer that we have put on the table 
addresses the assistance that is sufficient to fund activities 
in the Marshall Islands for the next 20 years under the grant 
procedure. Most important, we are interested in establishing a 
trust fund that at the end of that 20-year period will have a 
sufficient corpus to take the place of the annual 
appropriations; and that money needs to accrue for 20 years.
    We have agreed with the Marshall Islands government on the 
basic structure, that they will contribute an amount of money, 
$35 million, on the front end, we will make annual 
contributions. There are other activities in the trust such as 
third-party participation that we envisioned.
    Mr. Faleomavaega. Has the administration taken a position 
to cut a lot of these Federal grant programs for the Marshall 
Islands?
    Mr. Short. No, sir, we have not.
    Mr. Faleomavaega. Mr. Chairman, I will wait for the second 
round. Thank you.
    Mr. Holt. No further questions, Mr. Chairman.
    Mr. Osborne. Mr. Duncan.
    Mr. Duncan. I don't have any questions, although Mr. 
Faleomavaega told me that one of his cousins was getting ready 
to play for the University of Tennessee. I am sitting wondering 
how many cousins he has playing football.
    Mr. Faleomavaega. He happens to be the most sought-after 
lineman in the State of Hawaii. He decided to come to the 
University of Tennessee. Would you believe that? He loved the 
people there.
    Mr. Duncan. We are glad to have him. My people in east 
Tennessee have been studied a lot, too; and I understand what 
you mean.
    Mr. Osborne. Returning to the subject at hand, Mrs. 
Christensen.
    Mrs. Christensen. Thank you, Mr. Chairman.
    I did have two other questions. Hopefully, you could answer 
these quickly. Maybe to Mr. Cohen or whoever else might be 
better able to answer it, I am not sure who I should direct 
this to.
    Did I understand that at the end of the 20 years trust 
funds would be short for the FSM? And if so, what would--are 
there any proposals to address that gap or special programs or 
initiatives being planned to help the FSM be able to overcome 
that deficiency themselves? Is that what I understood to you 
say, Ms. Westin?
    Ms. Westin. I can answer the first part, that in our 
analysis, assuming a 6 percent rate of return, which was the 
same rate of return that the administration used in its 
analysis, the trust fund yield for the FSM would not cover the 
expiring annual grant assistance, that is correct.
    But to the second part about is there a proposal to deal 
with this, I will--
    Mrs. Christensen. Maybe someone else on the panel could 
answer that question.
    Mr. Short. In estimating the return on a trust fund, of 
course, you are making a lot of assumptions over 20 years, rate 
of return, over the 20 years and then rate of return even in 
the outyears.
    The proposal that we have on the table comes very close to 
replacing the grant assistance that would be available in year 
2023. Part of this gets to your assumptions on the inflation 
rate also, what inflation we are going to experience between 
now and 2023.
    Mrs. Christensen. OK. My last question is along the lines 
of the comments that were made by my colleague from American 
Samoa. Apparently, the answer to Congressman Underwood's 
question on the continued testing, continuation of the testing 
in Kwajalein after 2016 was yes. Shouldn't we be negotiating 
with the people of Kwajalein to address some of those harsh 
living conditions and other hardships and inequities that they 
now suffer as a part of the displacement from the atoll?
    I have been to Ebeye. I haven't been to the other ones. So 
I have seen some of those harsh conditions for myself. So I 
wanted to know what specific plans would be in place to address 
some of those hardships and inequities that they are suffering.
    Mr. Short. Yes, ma'am. I would be pleased to address this 
issue.
    In Kwajalien, the Island of Ebeye is the residence island 
where the majority of the Marshallese citizens reside. It 
represents approximately 25 percent of the population in the 
Marshall Islands, and it represents not only Kwajalein 
landowners and their descendants but also other people from the 
Marshall Islands who have gravitated to that location because 
of the economic opportunities associated with Kwajalein. So 25 
percent of the population in the Marshalls lives there. Thus, 
obviously, a healthy proportion of any of the resources of the 
Marshall Islands government will go to activities in and around 
Kwajalein; and I will let the Marshall Islands representatives 
get into more detail.
    The one area that we have earmarked funds in the grant area 
is directly to address conditions on Ebeye, and this is self-
serving. The United States has a facility there, and the 
comparison between the conditions on Ebeye and the conditions 
on Kwajalein are not favorable.
    We have dedicated, first of all, under the previous 
Compact, $1.9 million a year that was passed through the 
government to an organization on Kwajalein to address 
conditions on the island. It has not been effectively used, and 
we have asked the government of the Marshalls to basically 
recapture that money so it is auditable and goes where it 
should go.
    Further, we have dedicated $4.9 million a year directly to 
conditions on Ebeye. I should note that we deal with the 
government, and we help that government to effect change on 
Ebeye, not the landowners per se.
    It is the job of the government to, of course, work with 
its own people in its own sovereign area regarding conditions 
on Ebeye. So the total is basically $6 million a year dedicated 
to addressing conditions on Ebeye.
    When the government of Marshalls testifies, they can point 
out the actions that they have taken on their own in the last 
year or two to significantly impact the hospital, power, water 
and basic utility situation on Ebeye; and it has been very 
favorable.
    Mrs. Christensen. OK.
    Mr. Osborne. Thank you, Mr. Short.
    Just might mention to everyone there are six more panels to 
go. We want to make sure everybody gets a chance to ask their 
questions, but we do have to keep that in mind.
    Mr. Otter.
    Mr. Otter. Thank you, Mr. Chairman.
    Ms. Westin, just one question in response to a question 
that was asked by my colleague, Ms. Christensen. You said there 
was a return in investment on the trust fund of 6 percent per 
year.
    Ms. Westin. That was our assumption.
    Mr. Otter. That would not be enough then to create the same 
kind of revenue that they were getting after we amortized this 
newest contract that we are going into, is that right? Because 
it runs out that the new funds coming off plus the earnings 
coming off the trust would not match the revenue stream that we 
had been providing for the last 20 years, is that right?
    Ms. Westin. That is right. The way the proposal is 
structured is that there is an annual grant amount that goes 
for the next 20 years. That continually decreases over time as 
the contribution to the trust fund increases over time. 
Assuming a 6 percent rate of return, at the end of 20 years for 
the FSM the amount that can be taken out of the trust fund is 
not going to be enough to cover the lapsed grant assistance, 
the annual grant.
    Mr. Otter. If through these negotiations--if these economic 
development and social development and educational development 
and health development schemes work, why wouldn't the entire--
if they work, and I hope--we believe they will work, and in 20 
years why would that revenue stream from the trust fund be the 
sole source of income to provide the stability, the economic 
stability that we are looking to supply here?
    Ms. Westin. It would not be the sole supply of income. In 
the report that we did--
    Mr. Otter. Then let me ask you this question. How much of 
an additional revenue stream did you factor in for the economic 
development and for the other benefits that you are going to 
get from all these grants? Has the return on investment for the 
last 20 years for all this other structure that we are putting 
into place--
    Ms. Westin. That is not an analysis that we did. We do have 
information of the first 13 years of the Compact looking at the 
results of the money that we had given. We put out a report on 
that, and we did not find very much economic development.
    But let me be really clear on the analysis that we did. We 
were not saying that the trust fund at the end of the time--it 
wasn't GAO's assumption that this should cover the retiring 
annual grant stream, but that was the proposal of the trust 
fund. It is an exit strategy so that the United States does not 
keep giving annual appropriations and grant assistance after 20 
years.
    As we looked at other countries and terrorist funds they 
had set up, we had seen that these can be successful in 
providing not the total amount of revenue that a country needs 
but some.
    Mr. Otter. Well, I guess my concern certainly would be the 
stability that is provided and the general well-being of the 
people as we exit. But I would question--it seems like our 
attitude toward that is we are making all the decisions and 
getting them to do what we think is the right thing to do by 
whether or not we give them a grant or not. And part of the 
development of--part of our help and development ought to be 
them being stakeholders in where it is going, then being the 
designers of their system, not us.
    Because, as we leave, if they don't have buy-in on this, if 
they haven't been able to develop in their business acumen and 
their health acumen and their education acumen, if it is all 
endowed from us, it seems to me we are just going to leave 
these folks there no better off except with a piggy bank that 
may last a little while.
    I am not asking for a response to that. I guess it is maybe 
not as clear to me as it is to you. Thank you. Thank you, Mr. 
Chairman.
    Mr. Osborne. In the interest of time, those of you who have 
other questions we will just open it to the Committee.
    Mr. Faleomavaega, do you have any further?
    Mr. Faleomavaega. If you allow me just a couple of 
questions that I have, because I really, really--this is a 
very, very critical hearing. And I do respect the fact that we 
have other bills pending for a hearing. So I would really 
appreciate if you would allow me to ask these questions.
    Mr. Osborne. Certainly.
    Mr. Faleomavaega. Thank you, Mr. Chairman.
    Ms. Westin, you say the GAO couldn't find much economic 
development, I guess, in the course of the 13 years that you 
have done this audit study. What standard are you using to 
measure this so-called economic development? In my district, we 
don't even apply the minimum wages that we apply here in the 
United States. So I want to ask you, what standards are you 
using that there is not much economic development in these 
areas?
    Ms. Westin. We went to the RMI and the FSM, visited all 
states in the MSM, visited all the governments, looked at the--
what kind of documentation there was to use the money that the 
U.S. had given over the last 13 years at that point, asked for 
examples of where there had been economic development being--
went and visited businesses and whatever.
    Mr. Faleomavaega. Give me your bottom line.
    Ms. Westin. The bottom line, sir, is we could not find very 
many viable businesses that were still in business from the 
result of this U.S. assistance.
    Mr. Faleomavaega. You are suggesting here that we are not 
going to give more money because we couldn't find economic 
development.
    Ms. Westin. No. What we suggested was that we do support 
the idea that it not just be a check that is given but grant 
assistance where proposals have to be put in, terms and 
conditions put in and accountability measures in place; and I 
certainly share the hope of everybody that this will lead to 
viable economic development.
    Mr. Faleomavaega. Mr. Short, on the question of--two basic 
things in terms of this grant, the funding proposal, and I see 
two basic problems here, one with the operations that we give 
yearly to the government. But one problem that has really 
bothered me over the years is the compensation for the victims 
of nuclear contamination. I wanted to know what the 
administration's position is in reference to what kind of 
funding are we prepared to give to these victims, to these 
people. For the past 50 years we still have not resolved this 
issue.
    Mr. Short. Sir, the nuclear claims issue is not on the 
table right now. That is not in my mandate. But I will brief 
you on where we are.
    The Compact of Free Association, pursuant to section 177, 
established a claims--
    Mr. Faleomavaega. I understand.
    Mr. Short. The Marshall Islands government on behalf of its 
people have put together a proposal for so-called changed 
circumstances that indicates that they do not agree that the 
settlement under 177 is adequate. That was submitted to the 
Congress. Various Members of Congress have referred it to the 
President. The Department of State has established an inter-
agency group. We are reviewing that petition for changed 
circumstances, and we will respond to the Congress and to the 
RMI government.
    Mr. Faleomavaega. Thank you, Mr. Short.
    Ebeye, 8,000 people live on this little island, probably 
the most dense population per capita anywhere that I have 
known, even here in the United States. I guess this matter 
comes under the Marshallese government. It doesn't come under 
your jurisdiction, correct?
    Mr. Short. We are concerned about Ebeye simply because it 
represents such a large block of the Marshallese population and 
also because of the proximity to Kwajalein. But it is the 
responsibility of the Marshall Islands government.
    Mr. Faleomavaega. Do you consider the Kwajalein arrangement 
very critical as far as our missile defense program that is now 
being proposed by the administration?
    Mr. Brookes. Yes, we do. Kwajalein is an important national 
asset to national defense, our ICBM testing as well as 
operations.
    Mr. Osborne. Thank you.
    Mr. Underwood had a quick statement.
    Mr. Underwood. I wanted to thank everyone again on the 
panel for their testimony and to just take the time to point 
out that we do have a number of issues related to immigration 
which continue to be of concern not only in terms of the impact 
of migration.
    I just--well, maybe I will just take the opportunity to ask 
one final question. Do either of you, Mr. Cohen or Mr. Short--
and I know is there a neat separation between what is the 
immigration policy and rules and regulations that is possible 
for the 50 States as opposed to the territories in reference to 
the implementation of the Compacts. Do you know what is the 
existing status of the proposed FAS regulations?
    Mr. Short. In regard to the latter point, there is a draft 
regulation that has been commented on by all concerned. My 
understanding is that draft regulation is still at the INS and 
has not been published, and I don't believe they have a target 
date for publication.
    Mr. Osborne. Thank you, panel. I think we are going to have 
to move on to the next panel. We appreciate very much your 
coming and appreciate your testimony today.
    At this point, we will move on with Panel II.
    Mr. Osborne. We have the Honorable Peter Christian, Chief 
Negotiator for the Federated States of Micronesia, and we have 
Gerald Zackios, Compact Negotiator for the Republic of the 
Marshall Islands.
    Mr. Osborne. Gentleman, we appreciate your being here. Each 
one will have 5 minutes for an opening statement. The lights in 
front of you, when they hit red, you have had your 5 minutes, 
so we will appreciate your staying within the time constraints.
    We will start out with Mr. Christian.

 STATEMENT OF THE HONORABLE PETER CHRISTIAN, CHIEF NEGOTIATOR 
             FOR THE FEDERATED STATES OF MICRONESIA

    Mr. Christian. Thank you very much, Mr. Chairman, members 
of your Committee, and lady gentlewoman of the Committee, too, 
as well as the honorable members at the other table.
    Mr. Chairman, we from the Federated States are very 
grateful to you and the members of your Committee for affording 
the government of the Federated States of Micronesia to appear 
before you today to address issues regarding the ongoing 
negotiations between the Federated States of Micronesia and the 
U.S. Government.
    Before I continue, sir, I would like to express the 
appreciation of the government of and people of the Federated 
States of Micronesia to the United States for its prompt 
response to the recent landslides in Chuuk, in which over 50 of 
our citizens lost their lives, hundreds injured, and homes and 
food supplies destroyed. We thank you very much for that 
response.
    We would like to also take this opportunity to express the 
gratitude of our government and our people not only for the 
very considerate assistance which has been provided to us by 
the United States for the past 16 years, but also for the 
constant friendship you have extended to us.
    This has been an important contributing factor to our 
political, social and economic advancement during the Compact 
period.
    Mr. Chairman, I invite you and the Committee members' 
attention to the discussion in my written statement regarding 
the origins of the U.S.-FSM relationship that found expression 
in the Compact of Free Association. I stress the important fact 
that the Compact has been a success. It has enabled the 
establishment of a stable and democratic political system 
throughout a vast and strategically sensitive area in the 
Pacific and the Pacific Rim.
    The FSM has taken its place as a full participant in the 
international community and is a strong supporter of the United 
States foreign policy. The Compact has also facilitated 
tremendous economic progress in a relatively short time, having 
started from a very low point in that regard.
    Mr. Chairman, I was born in 1947, the first year of the 
trusteeship. I can testify with certainty that the FSM of today 
bears little resemblance to the impoverished, war-torn islands 
of my youth. During the past 16 years especially, rapid 
advancements in transportation and communication 
infrastructure, education, health care, and, yes, private 
sector development have transformed our society and our quality 
of life, despite the many obstacles that we face.
    Undeniably, sir, there have been mistakes and our journey 
toward economic self-reliance is far from over. Nevertheless, 
we feel that all parties who have been involved should feel 
justifiable pride in the accomplishments of the Compact's first 
16 years.
    Both the Federated States of Micronesia and the United 
States are determined in the amended Compact to reinforce those 
policies that have been successful and correct those which have 
not. Central to this approach is a shared desire for better 
administration, for transparency, better accountability in the 
management of Compact funds.
    Again, referring to my written statement, my purpose in 
going into some detail about the history of our renewed 
negotiations is twofold: First, of course to give you our 
perspective on the events that have brought us to where we 
stand today; second, to inform this Committee of the diligence 
that we have shown consistently throughout the negotiating 
process. I assure you that we will continue to work hard to 
arrive at a document that adequately serves the objectives of 
both sides. Still, it must be said that significant challenges 
remain to be overcome.
    Mr. Chairman, while the gap between the two assistance 
proposals has narrowed considerably in recent months through 
concessions made by both sides, we have not yet been able to 
agree to the offer of the United States. The ability of the 
Federated States of Micronesia to sustain and accelerate its 
economic progress over the next 20 years is, for us, a bottom 
line requirement. It is also a prerequisite to the successful 
implementation of the trust fund we have been speaking about.
    One of our greatest concerns, sir, at this stage, is the 
preservation of FSM eligibility for Federal programs and 
services. Continued extension of these programs to the 
Federated States has been a mutually shared intention of both 
sides since the start of the original Compact negotiations and 
has not changed over time. The economical calculations of both 
the Federated States and the United States negotiators are 
based on an assumed continuation of current levels of Federal 
programs and activities.
    However, we are alarmed by recent rumors or signs that the 
Congress may seek to remove our eligibility in certain critical 
areas such as health and education.
    We are already facing the loss of substantial Federal 
program components. For example, under the new U.S. proposal, 
we would no longer be eligible for FEMA. As we have seen in the 
tragic events that just took place in Chuuk, acts of God, or 
acts of nature if you will, now hold the potential to wipe out 
the investments of both the United States and the Federated 
States in the essential infrastructures of our islands.
    One of the aspects of the United States proposal most 
alarming to us is the move to amend a Compact provision that is 
not expiring; namely, the immigration section of Title I. 
Existing Compact privileges of free entry into the United 
States for FSM citizens to work, study and otherwise acquire 
useful skills has been a key element in the progress that we 
have made. We had expected that these negotiations would be 
limited to expiring provisions of the Compact, thus enabling a 
relatively speedy consideration and approval by both 
governments.
    Mr. Osborne. Excuse me, but we are about 2 minutes over. 
Are you about to wrap up? We need to move on with our next 
panelist.
    Mr. Christian. Mr. Chairman, I will end my testimony right 
there. Thank you very much for the time.
    [The prepared statement of Mr. Christian follows:]

  Statement of The Honorable Peter Christian, Chief Negotiator, Joint 
Committee on Compact Economic Negotiations, Government of the Federated 
                          States of Micronesia

    We are grateful to you, Mr. Chairman, and to the Committee Members, 
for affording the Government of the Federated States of Micronesia 
(FSM) this opportunity to appear and present our testimony regarding 
the negotiations between the FSM and the United States Government (US) 
to amend certain provisions of the Compact of Free Association, 
primarily those relating to financial and other assistance that are 
expiring, after fifteen years.
    First, we would like to take this opportunity to reiterate the 
gratitude of our Government and our people, not only for the very 
considerable assistance which has been provided to us by the United 
States for the past fifteen years, but also for the constant friendship 
you have extended to us. This has been an important contributing factor 
to our political, social and economic advancement during the Compact 
period. I am sure that I speak for every citizen of the FSM in saying 
that we are proud of our close association with the greatest Nation on 
earth. We are motivated in no small part by this association to 
maintain principles of freedom and democracy that we share with you.
    The US and the FSM share important historical ties in the western 
Pacific. The tragedies of World War II brought our two peoples 
together, with some of the fiercest battles of the war in the Pacific 
being fought on our soil. The experience of the war, and the tragic 
loss of so many American and Micronesian lives, vividly underscored the 
strategic value of our islands. At the time, some in the US Congress 
even went so far as to suggest that Micronesia should remain in US 
hands indefinitely. Given the historic anti-colonial attitude of the 
US, we were eventually designated as the only Strategic UN Trust 
Territory. Our sovereignty was never assumed by the United States. 
Under this arrangement, the US would maintain military control of the 
region while pledging a solemn commitment to the ``economic and social 
advancement of the inhabitants.''
    The early years of the Trust Territory were difficult for both 
sides. Early on, the US embraced what became known as the ``zoo 
theory,'' under which it believed a hands-off approach to the 
Micronesian people, thereby leaving us in a traditional subsistence 
environment, would be best for us. It soon became apparent that it was 
too late for that kind of thinking, and it amounted to economic neglect 
of the Micronesians. As a result little or no development took place, 
with basic services lacking and only rudimentary infrastructure in 
place. This would change in the mid-1960s with a sudden increase in the 
levels of assistance from the US, and also the first concrete steps 
toward the establishment of political institutions and eventual self-
governance. In 1979, the Constitution of the FSM was implemented and 
our nation was born.
    In 1986 the Trusteeship was terminated, and the US and FSM entered 
into a new relationship under the Compact of Free Association at the 
time the first of its kind in international affairs. The Compact 
recognized the FSM, the Republic of the Marshall Islands, and later 
Palau, as self-governing sovereign states in free association with the 
United States. These entities, to be termed the ``freely associated 
states,'' or FAS, would contribute to the peace and security in the 
central Pacific through the granting of certain defense and security 
rights to the US. In exchange, the US would promote the economic and 
social well-being of the Micronesian people through continuation of 
financial and other assistance. These arrangements served the US and 
the FAS well during the first fifteen years of the Compact, and, 
hopefully, will be reaffirmed and strengthened in the amended document 
currently under discussion.
    In most important respects, the first fifteen years of the Compact 
have been successful. Great strides have been made in improving 
economic and social conditions in the FSM and the quality of life of 
FSM citizens. A stable and democratic political system has been 
established in the FSM, determined solely through the will of its 
people. The FSM has taken its place as a full and active participant in 
the international community. As such, it has been a strong and 
consistent supporter of United States foreign policy, in its bilateral 
relations, regionally and at the United Nations. During the Compact 
period the central Pacific has remained peaceful, secure, and free of 
foreign interference, in marked contrast to its previous history and to 
developments elsewhere in the broader Asia-Pacific region.
    As with any new relationship, and as with any newly emerging 
developing country, mistakes were inevitable. Most that involved the 
Compact were remedied along the way through US/FSM consultations. Not 
once did either party resort to formal dispute resolution. Not once did 
the United States invoke the Compact defense veto against any FSM 
Government action. After about ten years and with the support of the 
Asian Development Bank, the FSM National and State governments carried 
out one of the most successful government reform and restructuring 
programs on record.
    Both the FSM and the US are determined in the amended Compact to 
reinforce those policies that have been successful and correct those 
which have not. Central to this approach is a shared desire for better 
administration, transparency and accountability in the management of 
Compact funding.
    This brings us to the negotiations over the past several years to 
continue this historic relationship. Negotiations on the original 
Compact began in 1969 and lasted 17 years. Of course, the talks this 
time are focused primarily on the expiring provisions. Nevertheless, it 
is a credit to all involved that these talks are nearing completion in 
less than three years.
    Even though the scope of the current renegotiation is much more 
limited than that of the original negotiations, many of the original 
principles and formulations have had to be reassessed in a 
substantially different post-Cold War international relations 
environment. Also, proper account has to be taken of technological 
innovations that were nearly unimaginable when the Compact was signed 
in 1986. Further, with fifteen years of history behind the two nations, 
both must now reinforce and build upon the positive accomplishments of 
the Compact while addressing the problems that have arisen.
    Still, it is understandable that some might ask why these talks 
have taken this long. Please allow me briefly to trace a history of the 
renegotiation process, which we hope will shed light on the reasons for 
the delays that have occurred.
    The FSM Joint Committee on Compact Economic Negotiations (JCN) was 
created by the FSM Congress in 1997, to begin preparations for the 
Compact negotiations which were mandated to begin in 1999. The JCN was 
formed a full two years before a similar agency was established by the 
US.
    During these first years, the FSM developed the mechanisms 
necessary to ensure proper representation by the FSM in the talks, and 
conducted extensive research into some of the major issues likely to 
arise in the renegotiation. Keys to this research were a comprehensive 
survey of the FSM's economic needs and the development of projections 
for the twenty years following the end of the current Compact. These 
figures have since been fine-tuned and examined by economists from the 
FSM, the US, and international organizations. They constitute a 
detailed and useful picture of the FSM's economic prospects, especially 
in the near future.
    At the opening round of negotiations, mandated by the Compact to be 
held in November 1999, the two sides agreed to four principles that 
would guide the work on a renewed Compact agreement. These were: a 
rededication to the goals of Title Two (economic provisions) and Title 
Three (security and defense provisions) of the Compact; commitment to 
completion of public sector reform and to private sector development in 
the FSM; and greater accountability for the use of Compact funds. This 
meeting accomplished its purpose as a forum to establish the broad 
constructs for the new agreement.
    The comprehensive FSM economic study that we mentioned before 
served as the basis for the FSM's original economic proposal put 
forward at the second round of talks in April 2000. In this document, 
the FSM proposed ongoing grant assistance for a period of twenty years, 
and the formation of a US-funded trust fund during the same period, 
which would provide a funding stream at the end of twenty years 
adequate to eliminate the need for further US grant assistance. This 
was accompanied by a macroeconomic strategic planning framework that 
was the result of a series of nationwide economic summits held in the 
FSM. The first FSM proposal called for a total of $84 million annually 
in grant funding along with annual $20 million trust fund 
contributions. We presumed at the time that the inflation adjustment 
and full faith and credit provisions were not expiring.
    Also at the second session, the FSM made a very important 
concession, agreeing in principle to the US proposal that grants would 
be specified in sectoral areas.
    Work continued in a series of technical meetings between the sides. 
The FSM waited, meanwhile, for the US reply to its economic proposal. 
The FSM proposed a third formal round to be held in Yap, in September 
2000, to receive the US counterproposal. The US agreed, and the FSM 
negotiators assembled in Yap, only to be notified from Washington that 
the US was not yet ready to present its counterproposal.
    Two months later, in November 2000, a US economic concept paper was 
presented in Washington. The FSM was gratified that the US had accepted 
the need for a trust fund and adopted other elements of the FSM 
proposal. Still, the financial gap between the two proposals was huge. 
The US proposed annual grants for fifteen years not twenty amounting to 
a grant level of $56 million per year and a trust fund contribution of 
$13 million per year, all without inflation adjustment. An additional 
$5 million in grant funding would be available if the FSM met a vague 
macroeconomic performance standard.
    In the FSM's view, this proposal, if accepted, quickly would lead 
to economic chaos and political instability in the FSM and would not 
result in anything resembling a viable trust fund at the end of the 
agreement. Further, the FSM viewed the US proposals regarding 
accountability as over-reaching, despite both parties' commitments to 
improvement in that area.
    In January, 2001, when the third round finally convened, it was not 
possible to narrow the gap between the FSM and US proposals, but the 
parties executed a Joint Statement of Principles, reiterating the four 
original principles and memorializing progress made up to that time. 
That statement is provided as an annex to our testimony. This statement 
expressed agreement on a sector grant approach and a trust fund.
    The FSM agreed to another series of technical discussions focusing 
on the US and FSM financial positions. In one such meeting, in April 
2001 in Honolulu, the FSM tabled a revised version of its original 
proposal, which now offered a $5 million reduction in our earlier 
request for grant funding, applying somewhat more optimistic 
assumptions about the future performance of the FSM economy. The key 
feature of the revised proposal was to establish an entirely new 
structure for accountability centered on a Joint (US/FSM) Economic 
Management Mechanism (``JEMM'') that would be supported by a full-time 
joint secretariat. The idea was to move beyond simple oversight, as 
embodied in the US counterproposal, to the principle of a proactive 
partnership for FSM economic development and accountability. The 
revised FSM proposal also specified an inflation adjustment formula and 
full faith and credit guarantee, as well as continuation of all federal 
programs.
    The longest delay in the negotiating process came about as the 
result of the uncertainty over the US Presidential results and the 
eventual change in administrations. A new negotiator was named in the 
fall of 2001, but the tragic events of September 11 resulted in still 
more delays.
    Finally, with the new negotiator in place, the US agreed to meet in 
a fourth formal round in Honolulu, last December. The meeting served to 
reaffirm key principles from past sessions as well as to outline the 
new US Administration's vision for the renegotiations. Additionally, 
the two sides agreed to an ambitious negotiating schedule with a view 
toward completing draft Compact amendments by the summer of 2002. The 
first agreed document of the negotiations, a subsidiary agreement on 
Civil Aviation Safety, was initialed ad referendum at the fourth round. 
Progress was also made on agreements relating to postal services, 
telecommunications, FDIC and US military civic and humanitarian 
assistance (CHAP).
    A full slate of technical meetings took place leading up to the 
fifth formal round in San Francisco in May 2002. During these meetings, 
the US and FSM discussed for the first time in detail the US recently-
proposed language for Title Two, regarding economic assistance. The new 
US proposal narrowed the gap between the sides substantially, offering 
an initial grant amount of $72 million annually, for a period of twenty 
years, and provided for sufficient trust fund contributions to ensure 
viability at the end of the period. Both were subject to partial 
inflation adjustment and a multi-year appropriation variation of full-
faith and credit. These contributions would, however, be conditioned on 
an initial FSM contribution to the fund of $30 million.
    In addition to detailed discussion of new US drafts for Title Two, 
the San Francisco round was marked by consideration of newly-proposed 
US draft language for Titles One, Three and Four. The two sides made 
significant progress on the former, initialing many sections. The 
latter, however, created a series of unexpected problems for the FSM, 
as the US draft proposed changes to important elements of the Compact 
that are not expiring, and are thus beyond the JCN's mandate to 
negotiate. The sides also initialed agreements related to the FDIC, 
postal services, and CHAP.
    Nearly continuous technical meetings have been held since the San 
Francisco Round, resulting in further progress on many fronts. We are 
currently in the process of reviewing the US draft agreements on 
telecommunications, law enforcement, and military use and operating 
rights. We are awaiting promised drafts on topics such as the trade 
provisions of Title Two, status of forces, and the US Weather Service. 
We have just provided to the US a proposed redraft of the existing 
agreement relating to economic regulation of civil aviation.
    In early 2002, the US announced that it was proposing changes to 
non-expiring provisions of the Compact in a number of areas, primarily 
immigration. As the JCN was not granted a mandate to discuss issues 
other than expiring provisions, we have been unable to negotiate these 
elements thus far in the process. We am pleased to report that a 
special negotiating body appointed by the President of the FSM to 
consider US proposals to amend non-expiring provisions of the Compact, 
will hold its first meetings with US representatives next week.
    That is where we stand today. It had been the mutual goal of both 
sides to approach the Committee today with an agreed document, and to 
outline the ways in which this will strengthen our bilateral 
relationship, enhance the economic development of the FSM and serve US 
security interests in the region. While we are not quite there yet, 
these remain our goals. I assure you that we are working hard to arrive 
at a document that adequately reflects these aspirations. Still, we 
cannot in good faith gloss over the significant challenges that remain 
in the talks.
    We are cognizant of the time constraints we face, and we think the 
record clearly shows that the FSM has, at every stage in the process, 
done its part to keep the discussions moving. The process has been 
subject to several unfortunate delays, and while these were beyond the 
ability of the FSM to control, and often beyond that of the US, they 
have placed us in a difficult situation with the deadline for 
Congressional consideration looming. That said, the issues remaining 
are too vital not to consider thoroughly.
    While the gap between the two assistance proposals has narrowed 
markedly, and we are appreciative of the US efforts in this regard, the 
ability of the FSM to sustain and accelerate its economic progress over 
the next twenty years is a bottom-line requirement. It is also a key to 
the successful implementation of the trust fund. We are told that the 
US negotiator has reached the limits of his authority in this regard, 
and we have looked for any conceivable way in which we could 
accommodate the figure we are currently offered.
    That problem, however, does not exist in a vacuum. Our position on 
the matter of financial assistance is complicated by a number of other 
unresolved issues with significant financial implications. Some of 
these, such as the still-emerging US Fiscal Procedures draft, are 
highly complex.
    As the documents now stand, in the first year of the proposed US 
draft, the FSM economy would need to absorb a $12 million reduction in 
grant assistance; repatriate migrants who would no longer be allowed 
unlimited stays in the US under the more restrictive immigration 
provisions; scramble to produce the initial $30 million trust fund 
contribution; adjust to a nearly incomprehensible series of new 
administrative procedures; bear, for the first time, the cost of audits 
required by the US at an estimated cost of $1 million annually; prepare 
for an increase in postal rates; and adjust to the new pay-as-you-go 
CHAP scheme, as opposed to the $1 million provided for the former Civic 
Action Teams.
    One of our greatest concerns at this stage is the preservation of 
FSM eligibility for federal programs and services. Extension of these 
to the FSM has been a mutually shared intention of both sides since the 
start of the original Compact negotiations, and has not changed over 
time. The economic calculations of both the FSM and the US negotiators 
are based on an assumed continuation of current levels of federal 
program activity. However, we are alarmed by recent signs that Congress 
may seek to remove eligibility in certain important program areas.
    Federal programs have always represented a critical portion of the 
overall Compact package, providing vital services and technical 
expertise which still cannot otherwise be funded by grants as currently 
offered by the US, or by local revenues. Given the proposed reduction 
in the levels of grant assistance, they will become even more important 
under the amended Compact. The FSM's health and education sectors are 
particularly reliant on eligibility for these programs. Any cutback 
would have a devastating effect. No matter how much the negotiators may 
agree that these programs should be continued, that is, of course, 
ultimately subject to the will of the US Congress. It is for these 
reasons that we seek to work with the Congress to address, in advance 
of adverse actions, any concerns you may have regarding our eligibility 
for these programs and to ensure that maximum benefit is derived from 
their provision. Believe me, we are not talking about ``double-
dipping'' here. Programs as currently provided are envisioned to be an 
integral part of the future Compact assistance package.
    Under the new US proposal, we would no longer be eligible for FEMA 
disaster assistance should it be required. Acts of God now hold the 
potential to wipe out the investments of both the US and FSM in the 
essential infrastructure of our islands. As we have seen in the tragic, 
storm-driven landslides that struck Chuuk just a few short days ago, 
killing more than fifty people, the FSM is not immune to these threats. 
With the scientific community pointing to an increase in the intensity, 
and possibly the frequency, of tropical storms, this loss of our only 
substantial disaster assistance channel could not come at a worse time. 
Given the substantial investment the US has made, and will continue to 
make in the FSM, the withdrawal of FEMA assistance at this time is 
difficult to understand.
    When one considers the effect of earlier reductions in grant 
assistance under the Compact step-down process, requiring adjustments 
far less than those now proposed, it is not difficult to see that the 
shock to the economy may be too great to recover from, even after 
twenty years. With one of the primary goals of the two sides being 
promotion of the private sector, this does not paint an attractive 
picture for local businessmen, and certainly not for outside investors.
    The earlier step downs prompted one of the most ambitious public 
sector restructuring efforts ever undertaken in the region, and 
eliminated twenty percent of government jobs. We would face the 
prospect of undergoing an even more severe restructuring, less than 
five years after the first.
    So yes, as some have said, the gap is ``only a few million dollars 
a year.'' But a ``few million dollars'' represents a large share of the 
FSM economy. And this cannot be considered in isolation, as one must 
examine the full slate of increased costs due to changes to other 
elements of the relationship proposed by the US. In all, the current US 
proposal falls short of meeting one of the key US objectives of the 
Compact the promotion of the economic self-sufficiency of the FSM.
    Outside of the financial provisions, there are a number of items 
remaining on the table which are not consistent with the FSM's status 
as a sovereign nation. The first is the provision calling for a grant 
of a permanent defense veto. Second, Section 234 of the US draft Title 
Two would provide an over-reaching law enforcement role for the US and 
would seek to institute intrusive measures such as the enforcement of 
US subpoena of documents and testimony of witnesses. Finally, many of 
the elements of the proposed Fiscal Procedures Agreement were developed 
from legislation applicable to US States, and are not found in other US 
aid arrangements. The FSM is not a US State or Territory, and does not 
have access to the resources that make those requirements workable in 
States and Territories.
    Looking at the situation purely as though this were a negotiation 
between equals, one can fairly say that both sides have shown movement 
and flexibility that has narrowed the remaining gaps. Without question, 
the US is offering the FSM a very large amount of assistance, for a 
long time. We are not ungrateful, nor are we just looking to squeeze 
the last dime out of the negotiating process. We think that our 
announced method and intention from the very beginning points in the 
opposite direction. We believe, Mr. Chairman, that at the end of a day 
which must come very soon, the US and the FSM will reach an agreement 
that is faithful to the common interests that we share interests that 
were first expressed in the original Compact, and again expressed 
repeatedly as the four principles guiding the present negotiations. 
With that in mind, now we both must carefully examine the current 
proposals to judge their impact on our shared aspirations for the 
social, political and economic future of Micronesia, and the 
maintenance of peace and security in the greater Pacific region.
    We look forward to responding to questions raised by the Committee 
on any aspect of the talks, and would be happy to provide a more 
detailed explanation of the issues of contention that remain in Titles 
One, Two, Three and Four, and with the Fiscal Procedures and Trust Fund 
Agreements.
    In closing, we wish to reiterate our thanks to the Committee for 
holding this important hearing and for inviting us to provide 
testimony. We would also like to express our appreciation to the US 
negotiating team for the constructive spirit in which they have viewed 
these negotiations, and we share the view that we will soon have an 
agreement of which both nations can be justifiably proud and one that 
should lead to speedy and affirmative Congressional approval.
    Thank you, Mr. Chairman.
                                 ______
                                 
    [An attachment to Mr. Christian's statement follows:]

                            Joint Statement

    The United States and the Federated States of Micronesia (FSM) 
reaffirm their special relationship, as reflected in the Compact of 
Free Association (Compact). This Joint Statement reaffirms the mutual 
desire of the FSM and the United States to reach an agreement regarding 
certain provisions of the Compact.
Reaffirmation of Principles
    1. The parties are jointly committed to continued security and 
defense relations as set forth in TITLE THREE of the Compact.
    2. The parties are jointly committed to the purpose of TITLE TWO of 
the Compact, which is to assist the Government of the FSM in its 
efforts to advance the economic self-sufficiency of the people of the 
FSM.
    3. The parties are jointly committed to public sector reform in the 
FSM and to promoting policies, measures and mechanisms that advance the 
development of the private sector in the FSM.
    4. The parties are jointly committed to more effective 
accountability under the Compact.
Economic Assistance
    1. The U.S. Administration remains committed, following the 
fifteenth anniversary of the effective date of the Compact, to the 
economic stability and well-being of the FSM. Accordingly, the United 
States intends to provide a substantial level of financial assistance 
to the FSM (in a manner that avoids disruptive step-downs), over a 
limited period of time. The terms and duration of such assistance would 
be the subject of a subsequent Agreement.
    2. The United States and the FSM propose that assistance from the 
United States would take three forms:
    A. Financial assistance, provided on the basis of sectoral grants, 
on terms that would ensure effective accountability, and an agreed-to 
degree of flexibility, in addressing sectoral needs from year-to-year. 
These terms would be set forth in the subsequent Agreement referred to;
    B. Annual contributions into a Trust Fund, the governance of which 
would be agreed by the United States and the FSM. This Trust Fund would 
be intended to meet the parties' mutual objective of terminating 
mandatory annual financial assistance from the United States to the 
FSM. To this end, contributions to the Trust Fund, from all donors, 
would be intended to build a corpus that could provide an annual income 
to the Government of the FSM following the termination of annual 
mandatory financial assistance from the Government of the United 
States. During the period in which the FSM would continue to receive 
such financial assistance, no portion of the corpus or earnings of the 
Trust Fund would be used.
    C. Subject to Congressional approval, appropriate U.S. Federal 
programs, services and technical assistance.
Undertakings by the Government of the FSM
    The Government of the FSM would:
    A. Continue its efforts to maximize assistance from other foreign 
sources and from multilateral entities, consistent with the Compact, 
including contributions to the Trust Fund;
    B. Continue its efforts to increase locally generated revenues; 
and
    C. Achieve and maintain compliance with accountability 
requirements specified in the Compact as it may be amended.

    Allen P. Stayman
    Special Negotiator

    Peter M. Christian
    Chief Negotiator

    Honolulu, Hawai'i
    January 11, 2001
                                 ______
                                 
    Mr. Osborne. Thank you. Mr. Zackios.

STATEMENT OF GERALD M. ZACKIOS, COMPACT NEGOTIATOR FOR REPUBLIC 
                    OF THE MARSHALL ISLANDS

    Mr. Zackios. Mr. Chairman, distinguished members of the 
House Committee on Resources, ladies and gentlemen. On behalf 
of President Kessai Note and the people and government of the 
Marshall Islands, I want to thank you for the opportunity to 
appear before you today. I want to reassure you that the RMI 
will continue to work with the United States in whatever way is 
necessary to reduce the threats of global terrorism.
    As strategic partners and allies of the United States, we 
stand with you in the war on terrorism and missile defense 
program.
    Before I get to the substance of my remarks, I would like 
to clarify that we are not engaged in an exercise to amend the 
entire Compact of Free Association. Our mandate is to extend 
the expiring provisions of titles II and III pursuant to the 
provisions of section 231 of the Compact.
    If we had followed the mandate of the Compact that 
instructs us to deal only with expiring provisions, I honestly 
believe we would have been much closer to a conclusion of title 
II today.
    I also note that if our mandate had been to amend the 
entire Compact, the RMI would have begun with section 177 
regarding the nuclear claims.
    Since my time is brief, please excuse me while I move 
directly to the topic of title II. Other issues of importance 
to our bilateral relationship are included in my written 
testimony.
    I want to thank the Congress and executive branch for 
working with the RMI to ensure the success of free association 
under the Compact. I strongly believe that the challenges that 
have occurred in our implementation of free association have 
been strongly outweighed by the mutual benefits of our 
relationship. I also want to let you know that I think the RMI 
and the U.S. are very close to concluding a title II agreement. 
We are actively engaged with the U.S. Chief Negotiator to 
remove the final stumbling blocks so we can reach consensus on 
an agreement.
    There are three specific topics I would like to touch upon: 
The base grant, the intergenerational trust fund, and improved 
fiscal accountability and management procedures.
    On the base grant, the title II agreement is structured in 
such a way that the RMI would be given a base grant to provide 
essential government services and infrastructure investments. 
The base grant will be supplemented by continuation of existing 
Federal programs and services and the extension of additional 
programs you have if agreed to by the administration and 
Congress. One significant difference that remains in our 
discussions with the United States regarding the base grant is 
the need to maintain the real value of Compact funds. Over the 
next 20 years, with the half a million dollar annual reduction 
proposed by the U.S., the value of the funding will decrease 
substantially at a much faster pace than we think we can 
generate other revenue or reduce budget costs. Thus, the RMI 
needs to have to adjust it fully for inflation.
    The intergenerational trust fund: A new component of title 
II economic assistance will be maintaining a trust fund to 
supplant U.S. assistance in the future. To demonstrate its 
commitment to the trust fund, the RMI has already put $18.5 
million into the fund. We plan to make substantial future 
inputs and are only potentially deterred from our contributions 
to the fund by crucial infrastructure needs, particularly the 
urgent need to repave the Majuro International Airport and to 
refurbish Majuro Hospital, the principal medical care facility 
of our nation.
    Mr. Chairman, the U.S. has made a proposal to contribute to 
the trust fund, and I am glad that we both agree that the trust 
fund is an appropriate mechanism to provide for post-title II 
budget stability, to invest in future generations and to 
eliminate our reliance on mandatory U.S. grant assistance.
    We do question, however, if the U.S. contribution along 
with the RMI contributions will be sufficient to provide a 
distribution in 2024 to succeed U.S. base grant assistance. If 
the U.S. contribution is adequate and has a full inflation 
adjustment, we will be in full agreement on the trust fund.
    Fiscal monitoring and accountability. From our standpoint, 
the RMI needs to reduce its reliance on external grant 
assistance. To do this, we need to ensure that funds allocated 
over the next 20 years are used effectively and the corpus of 
the trust fund reaches an adequate level.
    We have developed processes in this respect and have worked 
with the Asian Development Bank and the U.S. to improve 
planning, monitoring and accountability of our financial 
management system. We believe, Mr. Chairman, that the fiscal 
procedures agreement that will accompany our final agreement 
must be practical for the RMI and the United States and that it 
must construct fiscal procedures that are transparent and can 
be implemented by both sides.
    In conclusion, Mr. Chairman, I think Congress will be 
pleased by the agreement you will receive. The final agreement 
will increase the economic stability of the RMI and 
simultaneously create a mechanism for the RMI and the U.S. to 
jointly improve the RMI's financial management and monitoring 
systems.
    The RMI also established a viable mechanism to reduce our 
dependency on U.S. mandatory assistance in 2024. I am also 
excited that our new government agreement builds a joint 
mechanism to train Marshallese in fiscal management and to 
monitor the progress and performance of the trust fund and the 
use of Compact funds.
    While funding is of crucial importance, the RMI also needs 
the active involvement of the U.S. on the ground in the RMI to 
strengthen our capacity to achieve sustainable economic 
development.
    Thank you, Mr. Chairman. Please know that the RMI 
government remains fully committed to continuing the success of 
our mutually beneficial relationship and unique strategic 
alliance. Thank you.
    [The prepared statement of Mr. Zackios follows:]

 Statement of Gerald M. Zackios, Minister of Foreign Affairs, Republic 
                        of the Marshall Islands

    Mr. Chairman, Distinguished Members of the House Committee on 
Resources, Ladies and Gentlemen:
    I would like to begin my testimony by recognizing the wisdom of the 
American and Marshallese leaders who negotiated the Compact of Free 
Association. Even though none of us could have foreseen the end of the 
Cold War in 1985, they had the vision to realize that new dangers and 
new threats to peace would emerge even in a post-Cold War era. This is 
why a bipartisan consensus developed in Congress in support of 
strategic denial in perpetuity, rather than a period of years.
    Unfortunately, strategic planners in the Department of Defense back 
in the 1980's were right, the world is still a dangerous place a decade 
after the Cold War ended, and the Marshall Islands remains 
strategically vital because of its unique location and capabilities. We 
do not shrink from our role as a front line defender of democracy and 
strategic partner of the United States. We welcome this role and its 
accompanying challenges.
    We know the only thing more dangerous than standing with the U.S. 
led coalition against terrorism would be to hope that somehow we could 
stay out of harm's way because of our remote location. We learned the 
folly of that naive worldview during World War II and the Cold War arms 
race that brought the nuclear age to our homelands.
    Today we are realists, which is why the RMI was among the first 
nations to give its unconditional and unequivocal support to the U.S. 
leadership in the war on terrorism.
    The RMI is proud that no other nation in the world is more closely 
aligned with the U.S. militarily than the RMI. We are proud of the 
Marshallese men and women who serve in every branch of the U.S. armed 
forces, and we are proud hosts to the U.S. Government's missile defense 
systems development program on Kwajalein Atoll.
    I also want to begin my testimony by thanking the Congress and the 
Executive Branch of the United States Government for working with the 
RMI to ensure the success of free association under the Compact. I 
strongly believe that any burden that may be attributed to free 
association, and even the trusteeship period, are clearly outweighed by 
the mutual benefits of our relationship.
    Despite the successes of free association, I recognize that there 
are critics in the federal government. A few may even view free 
association as some sort of historical accident that is frustrating and 
inconvenient because it commingles domestic and international issues 
and programs. While some may wish to ``normalize'' our unusual 
bilateral relationship, we continue to find greater value in the 
special relations defined by the Compact than any other political 
status or relationship. I believe the Compact is a success because it 
simultaneously reflects the historical linkages between the U.S. and 
the RMI, including the previous need to terminate the trusteeship. The 
Compact also effectively creates a new model for bilateral relations 
that ensures benefits for both of our countries well into the future. 
Many of the benefits our nations receive from the Compact have only 
recently become evident, and others are yet to manifest. What is 
important now is to maintain and to build upon our success.
The Compact is a success.
    The Compact was born of optimism and commitment sustained in both 
the Carter and Reagan administrations. These administrations, along 
with Congress, understood that the most important purpose of the 
Compact was to transition the RMI from trusteeship to self-governance. 
The architects of the Compact were right, and their vision came true; 
the RMI has become a politically stable nation where democracy and 
human rights are respected, and where the rule of law is enshrined in 
our Constitution and effectively administered by our courts. I am proud 
of what the RMI has become--a nation that adopted a participatory 
democratic system of governance and which retains the strengths of our 
traditional culture.
    As a result of free association, the Marshall Islands has been 
transformed from a trusteeship to a democratic and stable nation--a 
nation that chooses to closely align itself with the United States and 
a nation that chooses to contribute to crucial U.S. strategic 
interests. The Compact has also enabled the Marshall Islands to begin 
recovery from decades of restricted development during the trusteeship. 
It has become something of a mantra to admit we made some mistakes in 
our economic development strategies. Without ingratitude for all that 
was done with the best of intentions, it can be argued, however, that 
we have made fewer mistakes in fifteen years under the Compact than the 
U.S. federal government made in its developmental program as 
Administering Authority during the last fifteen years of the 
trusteeship.
    We also are building mature political and economic relations with 
the U.S. and the rest of the world. For example, as a nation the RMI 
unequivocally supports human rights and self-determination; the RMI has 
chosen to build strong alliances with Taiwan and Israel, and other 
countries, as evident from the RMI's voting record at the United 
Nations.
    The transition from trusteeship to independence has been a 
difficult process. We expected the transition to present challenges and 
in some cases the process has proved even more difficult than expected. 
We need the continued involvement of the United States to meet these 
challenges and to fully realize the value of the investment our nations 
have made in the success of free association under the Compact. By 
addressing and working through our challenges, I believe the RMI will 
become a stronger and more resourceful nation.
The benefits outweigh the burdens.
    There is no question that some problem areas have resulted during 
the implementation of the Compact. These imperfections to do not 
detract from the success of the Compact, and in most cases provide an 
opportunity for the RMI to acknowledge its problems, learn from its 
mistakes, and make better choices in the future. This learning process 
is an integral part of development.
    An examination of the economic gains of the RMI provides the 
perfect example of how the RMI has had successes, and how the RMI has 
had to learn from its mistakes. The RMI has made major improvements in 
the quality and extent of the basic infrastructure that it inherited 
from the trusteeship especially in the areas of transportation, 
electricity, communications, water, and roads. We have also 
significantly reduced the size and cost of an excessively large public 
sector resulting from the trusteeship. The size of the Government was 
reduced by nearly one third between 1997-2000, and we are striving to 
create a professional public service that is both effective and 
efficient. We also have succeeded in attracting investment in fish 
processing, aquaculture, and in tourism.
    While we have made significant progress in developing our economy, 
the RMI has also made some misjudgments that have slowed our growth. 
For example, the previous administrations made Government investments 
in commercial enterprises that were not successful. The Note 
Administration has learned from these mistakes and our policy is to 
reduce Government investment and create an enabling environment for the 
development of our small, but growing private sector.
    Another area that has been difficult, but one where we have made 
significant progress, is the reform of our financial management and 
accountability systems. As you know, having strong financial systems 
and properly trained people to work them is a challenge in all 
countries. The General Accounting Office (GAO) has been extremely 
helpful in identifying problem areas in the RMI, problems that 
primarily resulted from the shortcomings in our fiscal and financial 
mechanisms. We have been working consistently with the Asian 
Development Bank to strengthen these systems and to minimize the 
opportunity for inappropriate use of government resources, including 
Compact funds.
    The other area where growth has been frustrating is our human 
development. While some progress has been made in the areas of health 
and education, such as the completion of the new Ebeye hospital and 
successful teacher training and vocational education programs, 
substantial deficits exist in these areas. As the GAO notes, the 
deficiencies in our public health and education may be one reason that 
some of our citizens are emigrating to the U.S. and its insular areas. 
We would like to work with you to strengthen the public health and 
education systems in the RMI so that our citizens can reach their full 
potential, including maximum participation in the economy, and to 
decrease the number of citizens seeking basic services in other 
locations.
    However, even with a healthy and educated population, emigration 
will still persist, as experienced in other island countries and a 
general occurrence in international development. We must face the 
reality that the RMI is an atoll economy with practical resource 
limitations that make emigration a necessary ``safety valve.''
    Again, I would like to note that the problems that have emerged 
with the Compact in no way detract from the overwhelming success of the 
Compact.
Title II.
    The RMI position is that it has made great progress on the 
negotiations for an effective and beneficial Title II package. We 
sincerely appreciate the efforts and consideration of the U.S. Chief 
Negotiator Al Short and his team. We believe we are moving much closer 
to a final package to be presented to Congress. If approved, the Title 
II package would maintain economic stability in the RMI, achieve 
budgetary self-reliance, strengthen our economy, and improve the 
opportunities available to Marshallese citizens. The RMI's goal for 
Title II is to establish fiscal stability and budget flexibility while 
simultaneously ensuring the long-term sustainability of our economy. We 
believe this is achievable and we have put fiscal incentives in place 
to help us meet our goals.
    The new Title II agreement is structured in such a way that the RMI 
will be given a base grant to provide basic government services and 
infrastructure investments. The base grant will be supplemented by the 
continuation of existing Federal programs and services, such as the 
current health and education programs the RMI receives, and the 
extension of additional programs if agreed to by the Administration and 
Congress. Federal programs and services are critically important 
because they provide essential technical resources that the RMI, given 
its size, does not have the capacity or ability to develop.
    We do not believe that access to these Federal programs and 
services are ``double dipping'' as some have portrayed. These programs 
and services are supplemental to other Compact funds. More importantly, 
these programs and services add valuable technical resources and 
expertise that the RMI simply does not have and would not be effective 
and efficient for the RMI to try to duplicate on such a small scale on 
its own.
    A new component of Title II economic assistance will be maintaining 
a trust fund to supplant annual U.S. assistance in the future. The U.S. 
will provide annual contributions to the Marshall Islands 
Intergenerational Trust Fund. This trust fund was implemented by the 
RMI in 2000 to provide for future generations by maintaining future 
fiscal stability during the post Title II era. Monies in our trust fund 
will be managed by a U.S.-based company and invested in the United 
States. The RMI is working closely with the Chief Negotiator's team to 
have a trust fund agreement that allows for the build-up of the trust 
fund as well as responsible access to the fund at the end of the 
proposed term of Title II.
    The U.S. has proposed a base grant of $29.8 annually, which will 
decrease by half a million dollars each year. In addition to the base 
grant, $4.1 million will be provided for the special needs of Ebeye, 
the community adjacent to the Ronald Reagan Missile Defense Testing 
Site on Kwajalein Atoll. The total annual grant assistance, including 
the funding for the special needs of Ebeye, ,is $33.9 million with a 
$.5 million reduction each year of the 20 year agreement. These funds 
will be allocated to the key sectors of education and health, for which 
we hope to double spending in the next three to five years, and also 
environment, capacity building, private sector development and 
infrastructure development and maintenance. In addition, the $1.9 
million available for Kwajalein impact as a result of U.S. military 
activities on the atoll will be treated as grant assistance if 
inflation adjustment is provided. This amount could increase if the 
United States extends its use of Kwajalein as is being contemplated.
    We believe the current base grant offer from the U.S can be 
improved to nearer the $36.6 million we requested. As you can see Mr. 
Chairman, we are not that far apart and we thank the Chief Negotiator 
for being responsive in working with us to accomplish our shared goals 
in these negotiations.
    One significant difference that we do have is in regard to 
maintaining the real value of the funds over the proposed period. Over 
the 20-year period, with the half million dollar annual reduction, the 
value of the funding will decrease substantially--at a much faster pace 
than we think we can generate other revenue or reduce budget costs. 
Thus, we are striving to have the funds adjusted fully for inflation. 
As you may know, Mr. Chairman, the current and proposed inflation 
formula in the Compact is only for a two-thirds inflation adjustment. 
We see no reason to maintain this formula and have found no real 
economic basis for such a reduced rate. We strongly believe that full 
inflation adjustment needs to be applied to the grant assistance 
otherwise our goal of fiscal stability is undermined from the outset.
    I should note that even with the full inflation adjustment, to meet 
the U.S. objective of reducing our budget reliance on Compact funds, 
the real value of the U.S. grant assistance would substantially decline 
over the 20 years on an overall and per capita basis. We should also 
take into consideration that given the remoteness of the RMI from major 
markets, inflation in the U.S. mainland, where most of our consumer and 
capital products and services originate, is often multiplied by the 
time these goods and services reach our shores. Thus, during 
inflationary periods, we usually receive a double or triple inflation 
impact that critically injures our economic performance and reduces 
living standards.
    For the trust fund, the U.S. has proposed a $7 million annual 
contribution, with the addition of the half million dollars annually 
deducted from the base grant. The U.S. has also proposed a $1.5 million 
bump up between 2016 and 2021 if the RMI provides a matching $3 million 
annually during these years. The RMI proposes to contribute $35 million 
of its own funds to start the trust fund in 2004. We have already set 
aside $18.5 million in 2002 for this purpose. We plan to set aside 
another $16.5 million in 2003, pending some crucial infrastructure 
needs that I will discuss in a few minutes.
    Mr. Chairman, the U.S. contribution offer is generous and I am glad 
that we both agree on the importance of the trust fund as a mechanism 
to provide for post Title II budget stability, invest in future 
generations, and eliminate our reliance on mandatory U.S. grant 
assistance. We do question if the U.S. contribution, along with the RMI 
contributions, will be sufficient to provide a distribution in 2024 to 
supplant U.S. base grant assistance. If the U.S. annual contribution 
was $8.5 million annually with the full inflation adjustment, we would 
be in full agreement on the trust fund.
    We also see the need to have a bilateral review periodically to 
review the trust fund's performance to determine if the trust fund is 
meeting the RMI-U.S. objective of supplanting U.S. economic assistance. 
I must say, Mr. Chairman, that we do see the trust fund as a viable 
mechanism to reduce our dependency on U.S. mandatory grant assistance 
in 2024. However, we should not shift the responsibility of the RMI-
U.S. economic and political relationship solely to a trust fund that is 
more responsive to market forces than the will of our governments' and 
people. We have real concerns, and the current U.S. financial situation 
is a much too real example, that the RMI may be left with a trust fund 
that is not sufficient to replace U.S. assistance. Just as the Compact 
has various assurances and reassurances for the United States on the 
political, economic and strategic relationship, we hope to have similar 
assurances that the trust fund will meet both sides' expectations and 
needs.
    As mentioned previously, the RMI has set aside funds for the trust 
fund. This money has come from delaying infrastructure development 
since we believe that the larger our investment to the trust fund in 
the early years, the less of a burden making such contributions will be 
in the future, and the funds will be allowed to grow. In the last few 
months, two infrastructure projects have become urgent:
    First, the Federal Aviation Administration has reported that the 
Majuro international airport needs to be repaved urgently. If it is not 
done in the immediate future, the airport will be shut down, therefore, 
closing the RMI's major link to the outside world. The cost of repaving 
is about $10 million of which the RMI has committed to contribute $2 
million.
    The second project is the refurbishing and expansion of the Majuro 
hospital, the principal medical facility for our nation. The Government 
of Japan prepared the project and has kindly agreed to finance part of 
these costs. The RMI does have some of its own funds available for this 
major investment to improve health care. However, we have a shortfall 
of about $6-7 million.
    As stated above, we want to commit to the $35 million initial RMI 
contribution. We want to be clear, however, that if we cannot find a 
source of funding for these two critical projects, such as from the 
United States, than we will have to reduce our initial investment in 
the trust fund accordingly.
    The RMI takes seriously the need for improved planning, monitoring 
and accountability of Compact funds as well as our domestically 
generated funds. We are currently establishing a new budget process and 
financial management system that will improve our technical and human 
resources for these purposes. The RMI has proposed to the U.S. the 
inclusion of Compact funds within our Medium Term Budget and Investment 
Framework that will show how the Compact funds are planned, allocated 
and used, including measuring results. We also plan on implementing a 
Performance Scorecard for sectors to transparently evaluate the 
accomplishments of each ministry. This approach is similar to the OMB's 
approach to departmental budgeting and performance reviews. 
Furthermore, we our working with the Chief Negotiator to establish a 
Joint Economic Review Board that will help to provide joint oversight 
of the Compact economic assistance.
    While the RMI is improving its financial management system to 
improve planning, monitoring and accountability, we strongly believe 
the Fiscal Procedures Agreement, as proposed, needs our joint attention 
to make it practical for the RMI and the United States. This is not 
only our view, but the view of other third parties, such as the Asian 
Development Bank. We are more than willing to work with the U.S. to 
help construct fiscal procedures that are transparent and can be 
implemented by BOTH sides. We are working with the U.S. Chief 
Negotiator and his team to create realistic and appropriate fiscal 
procedures. Let me state emphatically that we are not trying to reduce 
or deter the need for increased accountability and producing actual 
results. We, too, have learned from the past and we do not want 
mistakes repeated.
    To help establish such procedures, our Compact proposal asks that 
the U.S. government place at least two individuals in Majuro to help 
provide monitoring and to help establish Compact-related reporting 
procedures. We stand by this request and, since learning of the U.S. 
interests in depth, would like to add to this request so that there is 
a team of at least four individuals in Majuro during the first five 
years of the proposed term of the economic assistance and that two 
individual be in place thereafter. Such Department of Interior 
personnel will be essential to implement the new agreement for Compact 
funding including planning, monitoring, reporting, and training 
Marshallese to perform these functions. We would also hope to have a 
joint training program so that procedures are in place and followed 
according to the agreement. We believe that this is the only way that 
both governments can implement the new period of financial assistance 
from day one and make it work.
    Although we are generally pleased with the progress that has taken 
place in our Title II negotiations, we do not want see issues like 
concluding a viable and realistic fiscal procedures agreement, or 
proposed changes to the immigration provisions of the Compact derail 
the process.
Issues relevant to, but not included in Title II negotiations.
1. Immigration.
    From a Marshallese perspective, one of the most important benefits 
in the Compact is the right of citizens to enter, reside, join the 
military, work and go to school in the United States. For the first 15 
years of the Compact we have had one approach to immigration that 
everyone understood; Marshallese citizens entered the U.S. legally with 
a visa waiver privilege. It is a cornerstone to the concept and 
relationship of ``free association'' itself. The U.S. proposed this 
feature to make free association a viable alternative to territorial 
status with U.S. citizenship.
    In the past few years, the RMI has come to recognize that there are 
some problems resulting from the immigration provisions of the Compact. 
We do not want our citizens, for example, to overburden the public 
health and education systems in the areas where they migrate, primarily 
Hawaii and the U.S. mainland. I want to note here that we must be 
careful to acknowledge the positive impact that Marshallese citizens 
have on areas where they emigrate. Marshallese citizens pay taxes, 
spend their wages in the U.S., and take low-skilled jobs that are 
difficult to fill. Despite the positive contributions of Marshallese 
citizens, we are still prepared to talk to the U.S. about any 
overburdening of public services as a result of Marshallese emigration.
    The RMI has also grown increasingly concerned about the adoption of 
Marshallese children by U.S. citizens. Adoptions began to occur before 
the RMI had time to get protection measures in place to monitor the 
adoption procedures and to research adoptive families. The RMI had 
hoped to work with the U.S. Government to address this problem.
    Because the Compact provides Marshallese citizens with the right to 
enter the U.S., the RMI believes that any effort to alter existing 
provisions in the Compact must be done bilaterally with the consent of 
Congress. For almost a year the RMI has requested that the Department 
of State engage in bilateral discussions with us to find a solution to 
the immigration issue.
    Unfortunately, early in 2001 the Immigration and Naturalization 
Service (INS) unilaterally decided to change the legal procedures for 
entry into the U.S. without any consultation with the RMI. The RMI 
citizens subjected to unilateral actions of the INS have challenged the 
changes in Compact immigration procedures in the U.S. Immigration 
Court, and the courts have ruled that the RMI's legal position is 
correct in multiple cases.
    Recently the Department of State wrote to me to request that 
immigration provisions in Title I of the Compact be included in the 
scope of our negotiations on extension of Title II. We are grateful 
that the Department of State agrees with our suggestion to discuss 
immigration bilaterally. However, we do not feel that immigration 
provisions in Title I should be included in our discussions to extend 
Title II of the Compact.
    Title II negotiations are time sensitive because U.S. funding for 
programs will terminate shortly. We would like to begin bilateral 
discussions with the U.S. on immigration provisions. If we can reach 
agreement before Congress extends Title II then both sides would be 
happy, but the RMI does not want to hold Title II negotiations hostage 
to an agreement on Title I immigration issues. From our perspective, 
this would be like negotiating with a gun to our heads.
    In recent days we have opened what we believe may be a promising 
dialogue on immigration issues. The RMI is far more receptive to the 
reform of immigration procedures than the INS realizes, especially in 
matters that involve mutual security and anti-terrorism issues. If the 
State Department is now ready to engage in constructive talks we think 
the U.S. will be surprised by how forthcoming we will be as long as RMI 
interests in maintaining economic, social and family links between our 
nations is accommodated in a reasonable way consistent with security 
requirements.

2. Changed Circumstances.
    In 1982 the Reagan Administration reached agreement with the 
Republic of the Marshall Islands (RMI) on a full and final settlement 
of claims arising from the U.S. nuclear testing program in the Pacific. 
This settlement cleared the way for resolving the political status of 
the RMI by terminating the trusteeship and entering into free 
association under the terms of the Compact.
    The settlement agreement submitted to Congress by President Reagan 
included a ``Changed Circumstances'' provision authorizing the national 
government of the RMI to petition Congress if it believes developments 
since the settlement was approved render the compensation for damages 
and injuries from the testing program manifestly inadequate. This 
provision operates in tandem with provisions terminating pending claims 
cases in U.S. and RMI courts, and establishing a claims tribunal as an 
alternative adjudicative forum to ensure the adequacy of remedies and 
finality of the settlement. Congress approved the RMI nuclear claims 
settlement in 1985.
    In 2000 the RMI submitted a petition to Congress, also transmitted 
to President Clinton, alleging that changed circumstances render the 
settlement manifestly inadequate. The petition, which describes new 
information about the effects of the nuclear tests and cites awards of 
the claims tribunal created under U.S. and RMI law, was resubmitted to 
Congress on November 14, 2001, and transmitted to President Bush.
    It is unfortunate that the Congress and the RMI will make decisions 
on the renewal of expiring provisions of the Compact of Free 
Association without a comprehensive response to the RMI petition. We 
understand that federal departments and agencies with policy and 
program responsibilities under the settlement are examining the 
petition but a response will not be ready until after Compact 
renegotiations are complete. While the two issues of Compact renewal 
and the RMI petition are not linked in a conditional way, informed 
deliberations on both matters require an assessment of the issues 
raised in the petition. I would like to request, Mr. Chairman, an 
opportunity to discuss the issues in the changed circumstances petition 
with the Committee once the Administration's review of the petition is 
complete.

3. Kwajalein.
    The RMI and U.S. are currently engaged in discussions to consider 
extending the MOURA agreement. The RMI is working in close 
consultations with the landowners of Kwajalein during these 
discussions. The RMI remains committed to its strategic partnership 
with the United States and wants to renew provisions of Title III and 
remains strategically aligned with the U.S.
    We believe that it is in our mutual interest to agree to a long-
term extension for the use of Kwajalein at this time if at all 
possible. We feel confident that arrangements could provide the U.S. 
with appropriate terms given the uncertainties of the future while 
providing the RMI and stakeholders at Kwajalein Atoll with long-term 
stability and financial security for the future. In order to fully 
explore the possibilities for our future relationship as it concerns 
the U.S. defense site at Kwajalein, we ask that the U.S. Department of 
Defense consider supplementing authorized Office of Compact Negotiation 
budgets.

4. 177 Health Care Program.
    Currently, the 177 Agreement of the Compact of Free Association 
provides two different medical programs in response to medical needs 
resulting from the U.S. nuclear weapons testing program, the Department 
of Energy medical monitoring program and the 177 Health Care Program 
(HCP).
    The 177 Health Care Program is designed to provide primary, 
secondary and tertiary medical services to the people of Enewetak, 
Bikini, Rongelap and Utrik islands who were affected by the U.S. 
nuclear weapons testing program, and referrals from the Nuclear Claims 
Tribunal who have contracted radiogenic illnesses. The 177 Health Care 
Program's design was developed through the US Public Health Service 
(USPHS) in 1985, and is currently managed by Trinity Health 
International.
    Delivery of the health care proposed by the USPHS has been 
impossible because of limitations in funding. Unlike virtually every 
Compact program provided by the U.S. Government, there has never been 
an inflation adjustment to offset increasing costs of healthcare. 
During the 15 years that the program operated during the Compact 
funding remained level at $2 million a year although healthcare 
delivery costs increased by 10-15 percent a year. At the end of the 
fiscal year in 2001 the U.S. stopped providing funds for the 177 HCP 
altogether. Since that time, the Nuclear Claims Tribunal has maintained 
funding at the U.S. level for the first three-quarters of fiscal year 
2002. The Tribunal does not have sufficient funds to pay the awards of 
its claimants and should not have to fund the 177 HCP, but without the 
Tribunal's assistance the program would terminate.
    The 177 HCP has been a great frustration to the RMI since its 
inception because the Compact created the expectation that services 
would be provided, but inadequate resources and funding exist to 
accomplish what it was intended to do by the USPHS and the U.S. 
Congress. The 177 Health Care Program, with a budget of $2 million 
annually, has been grossly underfunded. Provision of tertiary care 
services (off island health care that cannot be provided in the RMI) 
has been grossly inadequate. Secondary health care (inpatient and 
hospital based healthcare) has been delegated to the current RMI 
hospital health system that is not equipped to provide the appropriate 
level of inpatient care for the 177 population. Tertiary (off island 
referrals) care is not made available for seven to ten months out of 
each year. Hence, the people of the 177 Health Care Program have been 
subjected to a substandard level of primary, secondary and tertiary 
healthcare services since the program's inception.
    The chart below illustrates what it would cost per person per month 
(PPPM) to achieve basic levels of primary, secondary and tertiary 
health care in the United States as compared to the 177 Health Care 
Program. These figures, calculated by Trinity Health International, are 
based on 1997 Health Care Dollars and do not reflect increased health 
care costs during the past five years.
[GRAPHIC] [TIFF OMITTED] T0761.005

    There are those in the U.S. Government who believe the inadequate 
financial resources of the 177 HCP is a result of over enrollment. 
According to Program Eligibility Determination Plan for the Four Atoll 
Health Care Program agreed to by the U.S. Government in 1985 it was 
determined that participation in the program would be based on land 
rights. Although this would increase the enrollment above the people 
who were directly exposed to fallout, the designers of the program 
recognized the health problems resulting from the resettlement of 
contaminated lands, and the failure to occupy land where people have 
land rights and access to local foods and a healthy way of life.
    The expenditures of the U.S. health care insurance companies and 
third party payers is based on the premise that appropriate primary, 
secondary, and tertiary healthcare services are available in close 
proximity to the patient. Because the health care system of the RMI is 
developing or lacking, many of the required primary and secondary 
healthcare services are inadequate and tertiary health care services 
must be purchased outside the RMI. If the medical care provided to the 
people who were affected by the U.S. nuclear weapons testing program is 
expected to meet U.S. standards of care, there are two options. One, 
the health services could be provided in the United States, i.e. 
treating the affected people on site in Hawaii, or two, the RMI health 
capacity could be upgraded to meet the need of the target population. 
The second goal is consistent with the objectives of the Compact.
    Investing in the RMI health infrastructure and supplementing the 
tertiary care budget is cost effective and will provide the best health 
care alternative to the nation for several reasons. First, such an 
approach would represent true development and capacity building of the 
health system and not mere health service delivery. Second, the economy 
of scale would result in the system being able to care for a greater 
number of affected people, on site, at a lesser cost. Third, all 
present and future generations affected by the U.S. nuclear weapons 
testing program and living in the RMI would receive appropriate health 
care within the local infrastructure. Finally, the health care delivery 
to all people living in the RMI would improve.
    The structure and design of the 177 and the DOE (prior to 1998) 
medical program fostered a victim and dependency mind set in the people 
it has served. The 177 program does not allow full community 
participation in health care promotion and has not positively affected 
the capacity for development or self-reliance in health. As such, the 
177 health service delivery programs have a great potential for 
promoting dependency. The 177 program perpetuates a model of health 
care that is destructive to the RMI and the people it serves.
    The ideal program should target development of a single system of 
healthcare that is capable of providing special services necessary to 
the populations affected by the U.S. nuclear weapons testing program. 
To this end, full integration of health programs for radiation affected 
peoples is essential. The affected communities should be partners in 
developing, implementing, and sustaining these programs.

    5. USDA supplemental food program for the 4 atolls.
    The final issue that I want to raise today, Mr. Chairman, is the 
U.S. Department of Agriculture (USDA) supplemental food program for the 
4 atolls. Access to safe and regular sources of food is difficult for 
the 4 atolls due to residual radiological contamination on their home 
islands and the resulting difficulties of securing food for the decades 
they have been displaced.
    Congress recognized the predicament of the 4 atolls by extending a 
USDA supplemental food program to the 4 atolls for three five-year 
increments during the Compact. As the administering agency of the 
supplemental food program, the USDA decides what foods to purchase, and 
which people will receive them. USDA then purchases the food and ships 
it to Majuro. The logistics of receiving the foods in Majuro and 
shipping them to the atoll communities has been cumbersome.
    The residual contamination of the environment and the displacement 
of communities caused by the testing program will continue 
indefinitely. Therefore, the RMI Government would like to request that 
the USDA supplemental food programs for the 4 atolls continue for the 
twenty-year duration contemplated in the Title II extension. We would 
prefer, however, that money to purchase supplemental foods be wired to 
Majuro so that the local communities can decide for themselves what 
foods they want to eat. The arrangement that we propose is consistent 
with the Compact's goal of local capacity building, and will stimulate 
the RMI's economy by purchasing goods from local storeowners.

Conclusion.
    In closing, I would like to reiterate what I stated at the outset: 
the Compact is a success and our goal in these current negotiations is 
to maintain and build upon that success while taking into account that 
some mistakes were made by both sides during the past sixteen years. As 
you can see from some of the bilateral issues raised today, there are 
matters outside of the expiring provisions of the Compact which need to 
be addressed by both governments in a timely and mutually satisfactory 
manner, but those issues must not distract us from our stated mandate 
of addressing the expiring provisions of economic assistance in Title 
II of the Compact. If our current Compact negotiations can proceed and 
stay focused on the matters that must be addressed at this time, I am 
confident that our governments can agree to a new package to be 
presented to the Congress in the near future to provide for a smooth 
transition into the next period of our relationship of free 
association.
    If, however, my government continues to be confronted with proposed 
amendments to non-expiring provisions of the Compact, matters outside 
of the scope of these negotiations, then I will not be able to assure 
that we can conclude a new economic assistance package under Title II 
in a timely manner.
    I remain optimistic that this will not be that case; that we will 
be able to conclude our current negotiations in relatively short order, 
and that we can address other bi-lateral issues on separate tracks with 
an equal sense of importance and weight. The RMI remains fully 
committed to the continuing success of the Compact and our mutually 
beneficial relationship of free association.
    Mr. Chairman, thank you very much for this opportunity to present 
our views before the Committee here today.
                                 ______
                                 
    Mr. Osborne. Thank you, Mr. Zackios. In the interest of 
time, the majority side is going to yield their time and we 
will have to definitely constrain our questions to the 5-minute 
limit. We will start with Mr. Underwood.
    Mr. Underwood. Thank you very much, Mr. Chairman, and thank 
you very much, Mr. Christian and Mr. Zackios, for your 
testimony and for the insights that you have given, especially 
in the extended statements into where we stand with the 
negotiations.
    I want to make sure that I understand exactly what are the 
issues that you think need clear attention and should be 
brought to the attention of the Committee, not in the spirit of 
upsetting the negotiations, because that is between sovereign 
countries. I do take time to note that everyone loves the trust 
fund idea and in fact everyone loves it so much everyone tells 
me they originated it. Every time they say you know, we 
proposed this. This is a great concept. But, of course, there 
are many other things attendant to it.
    As you pointed out, Mr. Christian, even though there may be 
a few million dollars apart at some point in time in the 
negotiations, in your testimony, in your written testimony at 
least, you point out this is absolutely critical to the success 
or failure of the entire enterprise, because for you it is a 
very critical amount.
    The two issues that I just want to give you a chance, but 
it seems to me, and correct me if I am wrong, other than the 
trust fund issues and other than the funding issues, is there 
an ongoing concern about the nature of the monitoring and the 
nature of the proposals being made in terms of monitoring the 
expenditures?
    You know, it used to be that they had a six star flag back 
here behind me in addition to all the other flags that are 
still there, and then it went down to a four star flag, and now 
that four star flag representing the FSM is no longer there. I 
am just wondering whether all the concern about monitoring is 
going in the wrong direction, from your point of view.
    Second, the issue of immigration, what is the actual rub 
there? Mr. Christian, perhaps you can go first.
    Mr. Christian. Mr. Chairman, thank you very much, Mr. 
Underwood. Let me first address the issue of immigration.
    First of all, we did not anticipate that we would continue 
to discuss the issue of immigration as it is an item that does 
not expire under the 15 year-- under the anniversary of the 15 
years of the Compact. We also have difficulty in light of this 
since the Compact of Free Association, the joint Committee 
created by Congress of Micronesia to the FSM Congress to 
address the renegotiation, did not grant this Committee 
authorization to discuss non-expiring compacts.
    What we have done then is recommend to the government that 
they establish a task force to be able to meet with the U.S. 
Government to discuss the issues of immigration.
    May I proceed to say that this task force has been 
constituted and they are prepared to begin meeting with the 
United States as soon as the United States is ready to do so.
    Mr. Underwood. Mr. Zackios.
    Mr. Zackios. Thank you, Congressman Underwood. If I may 
answer on the same issue, as I have stated, we are with the 
United States on the war on terror. I agree with Senator 
Christian that the issue of immigration is a fundamental 
premise of the Compact of Free Association between the United 
States and the FSM and Marshall Islands.
    Having said that, we are willing to work and we have 
started discussions with the U.S. on certain areas of the issue 
on immigration, including passports, adoptions and other 
issues. But it should be made clear that title I is not an 
expiring provision, as I have stated, and that the issue of 
people immigrating to the U.S. is very important to the 
Marshall Islands, and we feel we should not touch on that 
issue.
    Thank you.
    Mr. Christian. Mr. Chairman, may I elaborate a little more?
    Mr. Osborne. If you can do it in 5 seconds. We are going to 
have to move on.
    Mr. Christian. Thank you very much.
    Mr. Osborne. Ms. Christensen.
    Ms. Christensen. Thank you, Mr. Chairman. I am going to try 
to move quickly. My first question goes to both of you, and you 
can answer it as briefly as possible, and then I can get to my 
second one. I think both of you said in your statements that 
the free association has been a successful-- the compacts have 
been successful. As you now renegotiating this Compact, are you 
having any second thoughts? Does it still seem successful, the 
problems that are arising as you are renegotiating now this 
Compact?
    Mr. Zackios. If I may start, we still feel that the Compact 
is a success and we want to build on the success. As we have 
stated, we have been able to achieve a level of political 
stability and stable governments that are exercising democracy.
    Ms. Christensen. Let me ask you this way: The issue of 
sovereignty, do you feel that you are negotiating on an equal 
level here?
    Mr. Zackios. Congresswoman, I would suggest that it is 
difficult to see that, that we are negotiating at an equal 
level.
    Ms. Christensen. Mr. Christian?
    Mr. Christian. Madam, my problem is that if I said a few 
things that might hurt the other team, I might end up losing a 
few million dollars they have already given me.
    Ms. Christensen. I think I have the answer to my question. 
Thank you. But I wanted to stay with you, Mr. Christian. I 
wanted to first extend a welcome on behalf of the former 
Ambassador from the United States to Micronesia, who is now 
Congresswoman Dianne Watson, who could not be here due to 
another meeting that she could not get out of. I wanted to ask 
you, in your testimony you said outside of the financial 
provisions there was some other items that were not consistent 
with FSM's status as a sovereign nation. Would you like to just 
spend a minute on that just talking about those other issues?
    Mr. Christian. I think first and foremost is the injection 
of so many procedural procedures and rules to help us govern 
grants that have been given us under a negotiated agreement 
seems to defy the notion of sovereignty. We, however, accept 
and invite the United States Government's participation in the 
establishment of necessary controls by which we could proceed 
to function under the next 20 years' regime.
    We have started this process, and I would like to say that 
the United States negotiating team has treated us fairly well, 
as far as sitting across the table and being very respectful to 
each other. I think they recognize the sovereignty of both 
countries just as equally.
    However, that is lost in the process of initiating certain 
controls through the fiscal procedures agreement that the 
United States has proposed to us.
    Ms. Christensen. In the interest of time, and the fact we 
do have another panel, I will stop there. Thank you.
    Mr. Osborne. Mr. Faleomavaega.
    Mr. Faleomavaega. Thank you, Mr. Chairman. Our relationship 
with the FSM, the Marshalls and Palau is one of the most unique 
political relationships, and I say this to both our friends now 
on the Committee as well as to Mr. Zackios and Mr. Christian.
    When you mentioned, Mr. Christian, earlier about 
sovereignty and how this touches on the issue of strategic 
denial, do you both get the impression that my government and 
the Federal Government is anxious to get rid of you, like 20 
years from now, we just don't want to hear about you anymore? 
Do you get that impression from some of the leaders of my 
government in your current negotiations? Please be up front 
with us, because I really want to get to the bottom of this.
    Mr. Christian. Certainly it is my hope the U.S. Government 
is not trying to get rid of us. A few years ago the Federated 
States of Micronesia made a very important decision. We had to 
decide who to ally itself with, both politically and as a 
member of the international community. We decided to go with 
the Compact, to become allied to the United States. And this is 
simply a continuation of our previous relationship, however 
under a trust territory system.
    Mr. Faleomavaega. I have to get moving on this. Your sense 
is this Compact of Free Association concept is an evolving 
relationship. It is going to change in time. Supposing that the 
People's Republic of China wants to do a security agreement 
with FSM and when we talk about strategic denial, we are 
definitely going to have a say to that.
    There are about 100 submarines of the Chinese government 
running all over the world right now. You can't tell me the 
FSM, Marshalls and Palau is not a critical point of geography 
of this planet as far as these submarines, where they are, how 
they are going, and how this relates to the security interests 
of our country. I say this most sincerely, because I wanted to 
get your sense, if you feel that--let's be up front.
    When we negotiated this treaty in the 1970's, during the 
Carter administration, for years this continued because the 
attitude of the Department of Defense was take it or leave it. 
That was the reason why we had to continue negotiating, because 
that was our interest. The interest was strategic denial, not 
because of a love for the Micronesians. I sincerely hope this 
has evolved to a little more sane relationship and that we are 
working properly in every way to make sure that your needs are 
met as well as our needs.
    I just wanted to convey that to both of you gentleman. You 
currently qualify for the Asian Development Bank, World Bank 
and International Monetary Fund loans. Do you also qualify to 
receive aid from any other countries?
    Mr. Christian. Yes.
    Mr. Faleomavaega. You are pretty much free to do whatever 
you want to do as far as seeking economic assistance from other 
nations. My government has no problem with that.
    Mr. Christian. No.
    Mr. Faleomavaega. Thank you very much. The overall level of 
education, bottom line, gentleman, real quickly, where are we 
as far as educational level of our people in Micronesia? I 
know, Mr. Christian, you say we are making tremendous economic 
progress. What about education?
    Mr. Christian. We are making good progress, but we are not 
where we would like to be.
    Mr. Faleomavaega. Is it because of lack of funds?
    Mr. Christian. Both lack of funds and our inability to 
attract teachers qualified for our high schools and the College 
of Micronesia.
    Mr. Faleomavaega. Health, immigration and education are 
probably three of the most critical issues now pending in terms 
of your current negotiations with the administration.
    I might say I might be traveling with Congresswoman Watson 
to FSM and the Marshalls sometime next month. I look forward to 
meeting with you, Mr. Chairman. Thank you for your patience and 
kindness.
    Mr. Osborne. Thank you very much. I would like to thank the 
panelists. We appreciate your being here. We know you came a 
long way. We appreciate your testimony.
    We will move on with Panel IV at this time. That panel will 
consist of Neal McCaleb, Assistant Secretary of Indian Affairs, 
Department of the Interior, and also we are going to be calling 
the Honorable John Keys.
    If we can have everyone's attention, we are going to get 
started here fairly quickly. Due to scheduling restraints, Mrs. 
Bono is submitting her testimony for the record. I ask 
unanimous consent that her testimony be submitted for the 
record.
    [The prepared statement of Ms. Bono follows:]

Statement of The Honorable Mary Bono, a Representative in Congress from 
                        the State of California

    Thank you Mr. Osborne. I would also like to thank Chairman Hansen 
for the opportunity to testify before the Committee on my legislation, 
H.R. 3407, the ``Indian Financing Act Reform Amendment.'' I am 
enthusiastic that through this hearing today, the Committee will be 
able to seriously consider the strong role that this legislation will 
have in encouraging economic development on Native American lands.
    During the Nixon Administration, it became increasingly clear that 
the potential for economic improvements within tribal lands throughout 
the country could be realized. A crucial facet to allowing tribes to 
take their own initiative was providing legislation that would bring 
private capital into the hands of Indian tribes. With the enactment of 
the Indian Financing Act of 1974, Congress instituted the Indian Loan 
Guaranty and Insurance fund, which was a very beneficial step towards 
helping tribes to start small businesses on their reservations. In 
turn, this law allowed the Secretary of the Interior to insure and 
guaranty the repayment of small business loans to qualified Native 
American borrowers.
    In many instances, this created the first time that a Native 
American community could utilize loans that are issued by private 
lenders. Many tribes, as a result, were provided with not only 
financial assistance whereas previously it was difficult to secure 
financing, but were given an incentive for Native American-owned small 
businesses to invest substantially in their future.
    We have now seen the Indian Loan Guaranty and Insurance Fund grow 
over the past 28 years to now guarantee up to $75 million in annual 
lending to Native Americans, though the continued need in Indian 
economies is far above this amount. The ``Mortgage Finance News'' 
reports that for housing finance alone, there is $2.7 billion in pent-
up demand in the Indian community. The serious desire for Indian 
communities to expand their economic base is clearly being stunted.
    As you may know, Mr. Chairman, I was a former small business owner, 
and am thus aware of the many financial challenges a new enterprise 
faces in its first few years. Securing loans to finance a new business 
helps all individuals to realize their dream of economic opportunity 
and independence. I also understand, however, that we must work to 
minimize government small business intrusion, both on the regulatory 
and the fiscal level. H.R. 3407 serves this need by providing a clear 
uniformity in lending that does not currently exist.
    This legislation provides a strong path towards the expansion of 
tribal lending, as can be seen in the evolution of a similar loan 
guaranty program within the Small Business Administration (SBA). In 
particular, the passage of this legislation will help to encourage a 
stronger relationship between private lenders and the communities they 
assist. One of the important aspects of the SBA revolving loan program 
is the federal government's guarantee of full repayment of the loans 
should the loan default. Currently under the Bureau of Indian Affairs' 
(BIA) existing Indian Loan Guaranty and Insurance fund, a loan does not 
have this federal government guarantee, which is a disincentive for 
lenders to work with Native Americans looking to start their own 
business. H.R. 3407 will provide this notion of a guarantee of full 
repayment of the loans if a loan defaults.
    Further, smaller banks, such as Palm Desert National Bank and Palm 
Canyon National Bank in California's 44th Congressional district, which 
I represent, are not easily accessible for financing tribal economies 
because of the existing law. H.R. 3407 will allow for liquidity in the 
loan process that provides smaller banks and investors the opportunity 
to rid themselves of the burden that a 30 year loan can have on the 
capital that they have on hand. Further, currently the secondary market 
investors are not offered uniformity in the way that they are able to 
pool their loans and then sell of pieces of this pool. This tends to 
spread and minimize the risk of default among a number of investors. 
Thus we are able to help both smaller banking institutions as well as 
those tribes with lands in more rural areas of our country. Proper 
inclusion of a efficiently functioning secondary market is essential to 
an expansion of the current program that multiple tribes could enjoy.
    I am encouraged by the prospect of employing the principles of 
entrepreneurship that the Indian Financing Act Amendments of 2002 
offers to potential and current Native American small business owners. 
Only through the mutually beneficial relationship between the Interior 
Department, the private lending community, and tribal entrepreneurs, 
can we offer Native Americans the financial tools to help their tribal 
economies expand and flourish. Mr. Chairman, we continually witness the 
success that the SBA has had in selling guaranteed loans and the 
secondary market and I strongly believe this legislation could put us 
on a route to have the same impressive results.
    Serious consideration and passage of legislation such as H.R. 3407 
and S. 2017, its counterpart in the Senate, will further encourage the 
growth of small businesses that empowers tribes and excites development 
and substantive growth. It is my hope that this Committee will 
recognize the importance of this legislation being another key to 
allowing Native Americans across the country realize their potential to 
become increasingly self-sufficient and economically vibrant 
communities.
    I would like to thank both Mr. Hayworth and Mr. Kildee on this 
Committee for their support of this legislation as key Members of the 
House Native American Caucus. Finally, thank you Mr. Chairman for 
allowing me to testify today on the ``Indian Financing Act Reform 
Amendment.''
                                 ______
                                 
    Mr. Osborne. I also ask unanimous consent that a statement 
from the Independent Community Bankers of America be submitted 
for the record.
    [The information referred to follows:]

 Statement of Paul G. Merski, Chief Economist and Director of Federal 
 Tax Policy, On behalf of the Independent Community Bankers of America

    The Independent Community Bankers of America applauds Committee on 
Resources Chairman James Hansen and Ranking Member Nick Rahall for 
holding this important hearing on the Indian Financing Act Reform 
Amendment (H.R. 3407). The ICBA represents more than 5,000 community-
based financial institutions nationwide and our members provide a vital 
source of capital, credit and lending--especially throughout rural 
America and on many Native American lands. Community banks are 
independently owned and operated and are characterized by attention to 
customer service, and lending to small businesses, farmers, ranchers, 
and consumers. ICBA members alone hold more than $500 billion in 
insured deposits, $600 billion in assets and more than $365 billion in 
loans. They employ nearly 239,000 citizens in the communities they 
serve. Simply stated, our community banks are small businesses that 
serve the lending needs of small businesses in communities throughout 
America. Community banks are one of the key sources of credit and other 
financial services to small businesses--the most prolific job-creating 
sector of our economy. Small businesses employ sixty percent of the 
nation's workforce and have created two-thirds of all the net new jobs 
since 1970.
    While providing financial services for urban, suburban, and rural 
regions, forty percent of ICBA members are located in towns with a 
population of 2,500 or less, where adequate small business lending is 
critical to the local economy. We applaud Representative Mary Bono for 
introducing the Indian Financing Act Reform Amendment (H.R. 3407). This 
legislation would help facilitate a more effective secondary market for 
Native American small business loans and free up additional bank 
capital to make new loans. H.R. 3407 would help increase the use of 
Bureau of Indian Affairs guaranteed loans by lending banks who could 
more easily access a secondary market. This, in turn would provide more 
stable and sustainable funding for economic development on Native 
American lands.
    ICBA supports legislation that will enhance the liquidity of the 
current market for guaranteed loans to Indian borrowers. Currently, 
agencies like Fannie Mae, Freddie Mac, Farmer Mac, as well as the Small 
Business Administration facilitate the secondary loan market, provide a 
solid resale market for loans and boost the availability of lendable 
funds for community banks. Facilitation of an active secondary market 
for Native American lending programs is a viable means to increase 
lending and economic opportunities on Indian lands. The ICBA supports 
H.R. 3407 as an important step in facilitating much needed capital and 
lending into the economies of Indian communities served by our 
community bank members nationwide. In addition to promoting an 
effective secondary market for Native American loans, the legislation 
would clarify that good faith investors in Native American small 
business loans guaranteed by the Secretary of the Interior will receive 
appropriate payments through the pledge of the full faith and credit of 
the United States.
    Additionally, ICBA's members successfully utilize the existing SBA 
guaranteed lending programs to serve the credit needs of rural America 
and Native lands. ICBA is urging the Administration and members of 
Congress to accurately and adequately fund the successful Small 
Business Administration 7(a) and 504 loan programs. These SBA programs 
are widely used by many community banks to provide needed capital and 
credit to thousands of small businesses nationwide. Unfortunately, the 
Administration's Fiscal 2003 federal budget jeopardized the SBA's 7(a) 
Loan Guaranty Program. While ICBA estimates 7(a) loan demand could 
reach $11 to $12 billion, the Administration's proposed fiscal year 
2003 program level to support $4.85 billion in 7(a) loans is grossly 
out of sync with historic loan demand figures and current small 
business needs.
    As the economy gains strength climbing out of recession, we 
estimate the proposed fiscal year 2003 funding level for the SBA 7(a) 
program will afford only half the expected small business lending needs 
next year. Therefore, we urge the Bush Administration and Congress to 
restore adequate budget appropriations to support $12 billion in 7(a) 
lending in fiscal 2003. Providing needed capital resources to small 
businesses will help strengthen economic growth and foster much needed 
job creation. Thriving small businesses and a growing economy will in 
turn provide greater payroll and business income tax revenue back to 
the federal government.
    We appreciate the opportunity to express our views to the House 
Committee on Resources. The ICBA pledges to work with you to ensure our 
Nation's small businesses, particularly Native American businesses, 
have the access to capital and credit they need to invest, grow, and to 
provide jobs and continued economic growth. Both BIA and SBA lending 
programs help facilitate this critical small businesses lending. 
Fostering a secondary market for BIA guaranteed loans and fully funding 
SBA loan programs would go a long way in preserving a secure and 
competitive source of credit for small businesses and rural communities 
throughout our nation.
                                 ______
                                 
    Mr. Osborne. Due to time constraints, we are going to 
recognize Panel IV. They will now consist of Assistant 
Secretary McCaleb, who will testify on H.R. 3407 and H.R. 2408, 
and Commissioner Keys, who will testify on H.R. 4938 from the 
Department of Interior.
    I might just mention Mrs. Bono's bill is H.R. 3407, to 
amend the Indian Financing Act of 1974 to approve the 
effectiveness of the Indian loan guarantee and insurance 
program, Indian Financing Act reform amendment.
    So we appreciate you panelists being here today. We are 
sorry for the delay, but I am sure you will handle it well.
    So, Mr. McCaleb, we will start with you.

   STATEMENT OF NEAL A. McCALEB, ASSISTANT SECRETARY INDIAN 
              AFFAIRS, DEPARTMENT OF THE INTERIOR

    Mr. McCaleb. Thank you very much, Mr. Chairman, members of 
the Committee, for this opportunity to comment H.R. 3407, the 
amendments to the Indian Finance Act.
    As you know, or may know, I am an enthusiastic advocate for 
economic opportunities for Native Americans and Alaskan 
Natives, and I want to thank the Committee for this 
opportunity, for its support, for the needed change in the area 
of economic development for our people.
    The Indian Finance Act was originally passed in 1974 and 
the provision we are addressing today has to do with the loan 
guarantees. This particular provision of the act has been very 
successful. We have right now a loan portfolio of around $500 
million and just short of 1,000 different tribes and 
individuals are participating in this. It has made loans 
available in Indian Country to economic enterprise that would 
not have otherwise been there for a number of reasons.
    The particular bill provides for the creation, 
authorization and creation of a secondary market for these 
loans, much like the SBA's secondary market. We want to support 
that provision. We might have a few technical things we would 
like to discuss with the bill's author and the Committee as it 
progresses, but we certainly support the concept.
    I am not going to dwell on the issues of the different 
tribal and business successes we have had. It is part of my 
written testimony, which I have submitted. But the concept of 
the bill is a solid one and is the next natural step forward.
    I would say that in the last 3 years we have fully loaned 
out all the available money that is available by the 
appropriation, about $60 million a year against an 
appropriation of about $450,000. We think we can subscribe 
easily another $60 million each year with the appropriations to 
do that. I think a secondary market would help.
    This is a fairly small fund at this time. Although half a 
billion dollars is a lot of money in terms of a secondary 
market, it is not a large amount.
    I think I will just stop with that testimony there that 
sums up the support of the administration for this bill and 
answer any questions you may have.
    [The prepared statement of Mr. McCaleb follows:]

Statement of Neal A. McCaleb, Assistant Secretary-Indian Affairs, U.S> 
                Department of the Interior on H.R. 3407

    Good afternoon, Mr. Chairman and Members of the Committee. It is a 
pleasure to appear before you today. As you know, I am a staunch 
advocate for economic opportunities for American Indians and Alaska 
Natives, and I want to thank the Committee for its support of needed 
change in the area of economic development for our people.
    The Administration supports H.R. 3407, the ``Indian Financing Act 
Amendments of 2002,'' and would like to work with the bill's sponsor 
and the Committee to improve its provisions, including some technical 
Credit Reform issues.
The Indian Finance Act of 1974 (IFA)
    The Indian Financing Act of 1974 (Public Law 93-262), is the source 
of the authority for the Loan Guaranty, Insurance, and Interest Subsidy 
programs within the Bureau of Indian Affairs (BIA). The Congress 
envisioned two ways of encouraging commercial lenders to loan funds to 
Indian businesses that might otherwise be denied financing. The loan 
guaranty part of the program caught on with lenders, but the loan 
insurance aspect did not catch on in those early days. Times have 
changed however, and the BIA expects to reintroduce the insured loan 
features of the Act with the fiscal year 2003 appropriations bills that 
are pending final congressional action. There are now numerous, modest 
Indian business loan proposals that would make insured loans viable.
BIA Economic Development
    The BIA has provided significant economic development assistance to 
Indian tribes, tribal enterprises, Indian-owned corporations, 
partnerships and proprietorships through the Indian Financing Act of 
1974. The total active loan portfolio of direct loans and loan 
guarantees totals $470 million and is assisting 757 business entities. 
The loan purposes include business, mobile home housing, new housing 
construction, land acquisition, relending to tribal members, 
agriculture, educational, livestock, refinance, fishing, housing 
repair, protective advances, expert assistance, aquaculture and 
investment.
    In 2001, a $3.5 million dollar loan was guaranteed by the BIA for 
the purchase of Dynamic homes, L.L.C., a business that has 118 
employees. The Winnebago Tribe of Nebraska has controlling ownership of 
the business through its investment company, Ho-Chunk, Inc. The 
President of Ho-Chunk, Inc. is a member of the Tribe and a Harvard 
educated attorney, who is also one of the managers of Dynamic Homes, 
L.L.C.. The business manufactures modular homes which are sold through 
a dealer network. It manufactures preconstructed single-family and 
multifamily homes, and light commercial buildings. Auxiliary products 
include garages, wood basements, and retail sales of home building 
components. The Company markets its products within the States of Iowa, 
Minnesota, Nebraska, North Dakota, South Dakota, Wisconsin, and Wyoming 
principally through a network of approximately 65 independent factory 
authorized builders and dealers. The Company concentrates on high 
quality workmanship, unbeatable customer service, and a dealer and 
builder network that is provided the best information service, and 
training to match the right Dynamic Home product with the buyer. In 
2001 the Company generated over $13.6 million dollars in gross sales 
and paid $156,420 in taxes. The Company was also given a 3A1 rating by 
Dunn and Bradstreet last year.
    The BIA loan program has been instrumental in supporting the 
Nisqually Tribe's community development program over the past 15 years. 
The Tribe has utilized loan guarantees to leverage more than $8 million 
dollars of private and federal funds, and to complete seven major 
community development projects on the reservation. These projects have 
provided tribal members with employment, increased revenues to the 
Tribe, and helped build the capacity of the tribal organization. A 
guaranteed loan in 1998 to a construction company on the Salish and 
Kootenai Reservation has allowed it to bid on 500 projects, earn gross 
revenues of $4.7 million and generate a payroll of $1.2 million.
Outlook for Economic Development for Indian Tribes and Individual 
        Indians
    At present, the BIA's Program lacks the critical mass needed to 
create an active secondary market. However, I believe that the IFA can 
be amended to make the program amenable to an organized secondary 
market. We believe additional provisions added to the IFA would more 
readily accommodate a secondary market.
    The BIA has a concern with regard to some of the provisions of H.R. 
3407. Under the existing Program, the BIA reviews claims for loss 
before making payment, so that it is in the best possible position to 
withhold payment in cases of fraud or lender noncompliance. H.R. 3407 
would change that. Under the provisions of H.R. 3407 it appears that if 
a good faith purchaser of a secondary market interest in a guaranteed 
loan were to demand payment, the BIA would have no choice but to pay 
before the BIA would have a chance to fully examine any questionable 
element of the claim. This could require the BIA to sue to recover 
that.
    Thank you for the opportunity to present the views of the 
Administration on this legislation. I will be happy to take your 
questions.
                                 ______
                                 
    Mr. Osborne. Thank you.
    At this point I just have one question for you. In your 
estimation, is it feasible for the Department to create a 
secondary market for the BIA's loan guarantee program?
    Mr. McCaleb. Yes, I think it is feasible. I think it can be 
done. I think the demand for a secondary market is a little 
limited at this time until we have a bigger portfolio.
    Mr. Osborne. Thank you.
    Mrs. Christensen, any questions?
    Mrs. Christensen. I have no questions.
    Mr. Osborne. Mr. Faleomavaega?
    Mr. Faleomavaega. I want to welcome our Assistant Secretary 
for Indian Affairs, and certainly am very happy to hear the 
administration does support the provisions of the proposed bill 
and look forward in working with our Committee.
    Let's move this forward. Thank you very much.
    Mr. Osborne. Thank you very much.
    At this time, Mr. McCaleb, if you would care to testify on 
2408.
    Mr. McCaleb. Mr. Chairman, members of the Committee, H.R. 
2408 has to do with the Equitable Compensation Act for the 
Yankton Sioux Tribe and the Santee Sioux Tribe. I want to thank 
you, Mr. Chairman, for introducing this important bill that 
addresses the impacts to the Yankton Sioux Tribe and the Santee 
Sioux Tribe.
    As you may know, this is part and parcel of equitable 
adjustments that have been made for a number of tribes along 
the Missouri as a result of the Pick-Sloan Public Improvements 
Act, in which we built a number of mega-dams along the Missouri 
to control the flooding, starting back in the forties. As a 
result of that, we inundated a lot of Indian land along the 
route.
    We have already created an adjustment for the Fort Berthold 
affiliated Tribes, the three affiliated Tribes at Fort 
Berthold, and the Standing Rock Sioux. In addition, in South 
Dakota, we have similarly addressed the impacts on the Crow 
Creek Sioux Tribe and the Lower Brule Sioux Tribe. This 
particular bill would address the two remaining Tribes along 
the Missouri, the Yankton Sioux and the Santee Sioux.
    The provisions of the bill provide for a compensation to 
the Yankton Sioux of a little over $23 million for 2,851 acres 
inundated as a part of the Pick-Sloan projects, and to the 
Santee Sioux of $4.789 million for 593 acres inundated along 
the bottom lands of the Missouri in their area. We support this 
bill and recommend it.
    [The prepared statement of Mr. McCaleb follows:]

Statement of Neal A. McCaleb, Assistant Secretary-Indian Affairs, U.S. 
                Department of the Interior on H.R. 2408

    Good afternoon, Mr. Chairman and Members of the Committee. I am 
pleased to be here today to present the Administration's views on H.R. 
2408, the Yankton Sioux Tribe and Santee Sioux Tribe Equitable 
Compensation Act. I want to thank Representative Osborne for 
introducing this important bill that addresses impacts to the Yankton 
Sioux Tribe and the Santee Sioux Tribe of Nebraska resulting from the 
Pick-Sloan Missouri River Basin program and in particular the 
development of the Fort Randall and Gavins Point projects. If enacted, 
this bill would provide final compensation to the Tribes and extinguish 
their claims for damages caused by these projects.
    H.R. 2408 is a continuation of the United States' honorable efforts 
to correct inequities resulting from a regional Federal project which 
severely affected several Indian tribal homelands and resources along 
the Missouri River. In the early 1990's the United States addressed 
impacts to the Standing Rock Sioux Tribe and the Three Affiliated 
Tribes of the Fort Berthold Reservation. In 1996 and 1997, 
respectively, the Congress addressed the impacts to the Crow Creek 
Sioux Tribe and the Lower Brule Sioux Tribe. Thus, H.R. 2408 continues 
those efforts to address and mitigate the impacts that the Missouri 
River Basin Pick-Sloan Project has had on the remaining two Tribes, the 
Yankton Sioux Tribe and the Santee Sioux Tribe of Nebraska.
    The history of the Project is relatively well established. In 1944, 
the United States undertook the challenge to reduce flooding in the 
lower Missouri River Basin through the construction of monumental dams 
capable of harnessing the seasonal raging flows of the Missouri River. 
In addition, these dams could generate electrical power and needed 
hundreds of thousands of acres of land to serve as reservoirs for the 
storage of water over time to release as necessary. So great was the 
water resource that a whole regional economy grew from the electric 
power generated by these dams.
    The pre-project tribal economy, however, was based on working the 
rich wooded bottom lands along the Missouri River. These lands were 
flooded for the reservoir, and the Tribes have never seen the former 
economy again. In addition, the importance of cultural treasures lost 
to inundation is now well known. In the 1950's the Yankton Sioux Tribe 
and its affected tribal members received a total of $227,510 from the 
government for damages associated with the Fort Randall Project. Of 
this amount $121,210 was awarded them by the U.S. District Court for 
direct damages as the result of condemnation proceedings filed before 
the federal district court by the Army Corps of Engineers.
    Congress authorized the appropriation of an additional $106,500 in 
1954 to be available for relocating the Yankton Sioux tribal members 
who resided on tribal and allotted lands. Unfortunately, the Yankton 
Sioux Tribe did not receive any additional funding for a rehabilitation 
program. This bill proposes to provide the Yankton Sioux Tribe with an 
aggregate amount equal to $23,023,743 in additional compensation for 
the loss in value of 2,851.4 acres of land taken for the Fort Randall 
Dam and Reservoir.
    Information concerning the amount paid to the Santee Sioux Tribe of 
Nebraska condemnation settlement is not clear because the federal court 
docket records are missing from the U.S. District Court in the National 
Archives. It appears that the Tribe may have been paid $52,000 on the 
basis of the Tribe's 1955 agreement with the Army Corps of Engineers. 
We do not know when the settlement money may have been distributed to 
the individual landholders. Like the Yankton Sioux Tribe, the Santee 
Sioux Tribe of Nebraska did not receive any rehabilitation program 
funds. This bill proposes to provide the Santee Sioux Tribe with an 
aggregate amount equal to $4,789,010 in additional compensation for the 
loss value of 593.1 acres of land located near the Santee village.
    The Administration supports the effort to remedy the inequities 
caused by the aforementioned federal projects to the Yankton Sioux 
Tribe and the Santee Sioux Tribe of Nebraska. However, we recommend 
that Section 6(c)(4) be amended to add a new subparagraph (D) to 
include an annual report to the Secretary describing any expenditures 
of funds withdrawn. Our proposed amendment is as follows:
        ANNUAL REPORTS Each Tribe shall submit an annual report to the 
        Secretary describing any expenditures of funds withdrawn by 
        that Tribe under this Act.
    This concludes my testimony on H.R. 2408. I will be happy to 
respond to any questions you may have.
                                 ______
                                 
    Mr. Osborne. Thank you very much, Mr. McCaleb. I guess I 
have one question of you on this particular bill, and that is 
do you have a particular timetable for repayment of the Yankton 
and Santee Tribes?
    Mr. McCaleb. We think it ought to proceed with all 
deliberate haste since four other Tribes have already been 
compensated and not having the money means that opportunities 
are missed for these Tribes, so the sooner the better.
    Mr. Osborne. I certainly agree with you, but are we talking 
a year, or are we talking 2 weeks? Do you have any rough 
timeframe that we might look at here?
    Mr. McCaleb. Well, I think we would like to see it done 
within the year certainly.
    Mr. Osborne. All right.
    Mr. McCaleb. I think we would like to see--once the 
appropriation is made, I think it can be moved on with 
dispatch.
    Mr. Osborne. Is there any provision made for the lost time, 
like accrued interest or whatever, over a matter of years where 
these folks--I think they are the last people to receive any 
payment at all. Is there any compensation involved here?
    Mr. McCaleb. I think that compensation is included. I am 
not certain about this, Mr. Chairman, so I would rather not 
answer that, since I am not certain.
    Mr. Osborne. Fair enough. Mrs. Christensen?
    Mrs. Christensen. No questions.
    Mr. Osborne. Mr. Faleomavaega?
    Mr. Faleomavaega. Mr. Chairman, as I said earlier, I want 
to thank you for your leadership and initiative in introducing 
this legislation, and again I want to thank our good friend 
from the Interior Department, Assistant Secretary McCaleb, for 
the administration's position in support of this bill, and I 
sincerely hope we move this legislation as fast as possible so 
we can get it out before October. But I do want to thank you, 
Mr. Chairman, and thank Secretary McCaleb for his support of 
this legislation.
    Thank you.
    Mr. Osborne. Mr. McCaleb, we really appreciate your 
patience. I know you have waited for a couple of hours. So we 
will let you off the hook at this point if you need to go.
    At this point, Mr. Keys, we will hear from you.

    STATEMENT OF JOHN W. KEYS, III, COMMISSIONER, BUREAU OF 
            RECLAMATION, DEPARTMENT OF THE INTERIOR

    Mr. Keys. Mr. Chairman, it is a pleasure to be here. I am 
John Keys, Commissioner of the Bureau of Reclamation. It is a 
pleasure to be here and offer the administration's views on 
H.R. 4938, which directs the Secretary of Interior and 
Reclamation to conduct a feasibility study for municipal, rural 
and industrial water supplies needs for the Santee Sioux Tribe 
of Nebraska. H.R. 4938 authorizes the appropriation of $500,000 
to conduct this study.
    Reclamation has worked with the Santee Sioux Tribe on water 
supply issues since 1996. In fact, Reclamation published a 
water supply needs assessment report in 1997 that confirmed 
that the Santee Sioux Tribe's water supply is degraded and its 
distribution system is inadequate. Reclamation could, 
therefore, support H.R. 4938 with a modification.
    The administration supports the Tribe's initiative to 
develop a safe and reliable water supply system. Accordingly, 
we believe that the scope of the feasibility study should be 
limited to the Santee Sioux Reservation boundary. Once the 
feasibility study is completed, we can clearly assess and 
determine if it deserves further action.
    H.R. 4938 as written raises several long-term issues 
relating to funding and, more generally, clarification of the 
government's responsibility for rural water supply systems.
    Mr. Chairman, I appreciate your leadership and the Sioux 
Tribe's willingness to work with Reclamation to address the 
water supply needs of the reservation and for including us in 
the early stages of the project planning process. The early 
collaboration will ensure a quality planning document for us to 
consider.
    That concludes my testimony, and I would certainly stand 
for any questions you might have.
    [The prepared statement of Mr. Keys follows:]

      Statement of John W. Keys III, Commissioner, U.S. Bureau of 
                Reclamation, Department of the Interior

    My name is John Keys, I am the Commissioner of the Bureau of 
Reclamation. I am pleased to provide the Administration's views on H.R. 
4938 which directs the Secretary of the Interior (Secretary) to conduct 
a feasibility study for the municipal, rural and industrial water 
supply needs for the Santee Sioux Tribe of Nebraska and adjacent 
communities. H.R. 4938, authorizes the appropriation of $500,000 to 
carry out this study.
    The Bureau of Reclamation has worked with the Santee Sioux Tribe on 
water supply issues since 1996. In fact, Reclamation published a water 
supply needs assessment report in 1997 that confirmed that the Santee 
Sioux tribe's water supply is degraded and the water supply 
distribution system is inadequate. Reclamation could therefore support 
H.R. 4938 with a modification.
    The Administration supports the Tribe's initiative to develop a 
safe and reliable water supply system. However, we believe the scope of 
the feasibility study should be limited to the Santee Sioux 
Reservation. Once the feasibility study is completed, it would allow 
the Administration to clearly assess and ultimately determine if the 
situation merits further action. The feasibility study will be based on 
the existing Principles and Guidelines for Water and Land Resources 
Implementation Studies. This leaves the Secretary with considerable 
discretion in deciding whether to proceed with the actual project.
    The bill as written also raises issues related to funding, such as 
cost-share requirements of tribal and non-Indian communities and, more 
generally, Federal and non-federal government responsibility for rural 
water supply facilities.
    Mr. Chairman, I appreciate Congressman Osborne's and the Santee 
Sioux Tribe's willingness to work with Reclamation to address the water 
supply needs on the Reservation, and for including Reclamation in the 
early stages of the project planning process. This early collaboration 
will ensure a quality planning document providing linkage between a 
realistic assessment of needs, budget requirements, and scheduling.
    That concludes my testimony, I would be happy to answer any 
questions.
                                 ______
                                 
    Mr. Osborne. Thank you very much. What do you predict the 
actual cost of conducting the feasibility study will be?
    Mr. Keys. Mr. Chairman, we think we can do it for $500,000 
that is included in the proposed legislation.
    Mr. Osborne. Thank you. I guess the second question, your 
testimony suggests that the scope of the feasibility study 
should be limited to the Santee Sioux Reservation. With this 
suggestion in mind, what can be done for the surrounding 
communities?
    Mr. Keys. Mr. Chairman, to date the only people that have 
come forward with agreements to work with us are the Santee 
Sioux Tribe. Should other communities wish to participate, we 
would certainly be willing to talk to them about cooperative 
agreements, for the cost share agreements that are necessary 
for those off-reservation communities to be considered. We are 
certainly open to that and would be more than willing to talk 
with them.
    Mr. Osborne. Thank you very much, Mr. Keys. Do you expect 
on the feasibility study to go under $500,000, or do you have 
any thoughts?
    Mr. Keys. Mr. Chairman, $500,000 we think is a good 
estimate. The only concern we have is getting it done in 12 
months. We would prefer 18 months to get it done. But the 
$500,000 is a good estimate. We think we can stay within that. 
How much we come in under that, I think I would not hazard a 
guess.
    Mr. Osborne. Thank you. We think this is a critical project 
for that particular area and we appreciate it.
    With that, Mrs. Christensen?
    Mrs. Christensen. No questions. I am just happy to be able 
to support both bills. I have no questions at this time.
    Mr. Osborne. Thank you for staying, too.
    Mr. Faleomavaega.
    Mr. Faleomavaega. Mr. Chairman, I am beginning to believe 
you are a member of the Lakota Tribe. They are using the word 
Sioux. I have never been acclimated to use this word Sioux, 
because it is not really the true description of this great 
first American Tribe. They are actually Lakota. Sioux is a 
French word, and we have kind of adopted into it. I may be 
wrong, but maybe our next witness might straighten me out.
    Mr. Keys, I appreciate your testimony and support, the 
administration's support for the proposed bill. Talk about 
water supply. We are talking about how many of the first 
Americans of the Santee Tribe that is involved here?
    Mr. Keys. Mr. Chairman, I do not know how many of those 
people would receive water. We just know that it would provide 
an adequate supply to the reservation for the domestic and 
whatever municipal-industrial supplies they need.
    Mr. Faleomavaega. You mean, all this time they have never 
had adequate water? Obviously that is why we are having the 
proposal.
    Mr. Keys. In a lot of cases, that is absolutely the case.
    Mr. Faleomavaega. My gosh. But you don't know how many 
people are involved?
    Mr. Keys. I do not. We could certainly supply that number.
    Mr. Faleomavaega. This feasibility study of $500,000, is it 
sufficient to meet this need for the Tribe?
    Mr. Keys. Mr. Chairman, Mr. Faleomavaega, it would provide 
us the feasibility study to tell us the economic and 
engineering feasibility of providing the water supply system. 
So, yes, it is adequate to provide those plans and designs to 
be ready to come back to Congress for a construction 
authorization.
    Mr. Faleomavaega. What kind of water system are they being 
subjected to right now?
    Mr. Keys. Most of their system right now are for some 
wells. A lot of them are contaminated with nitrates, nitrogen 
and some forms of coliform.
    Mr. Faleomavaega. I suggest this is not just for the Santee 
Sioux, it is probably true for other Tribes as well?
    Mr. Keys. Yes, sir. There are a number of Tribes that we 
are working with on rural water supply systems already.
    Mr. Faleomavaega. I just want to make sure we have enough 
funding for the feasibility study. I mean, the suggestion that 
we do half a million dollars, maybe the study might require a 
little more, so that would make sure a one time shot, we don't 
want to do another study after this. This is my concern.
    Mr. Keys. Mr. Chairman, we have already done an appraisal 
level study. In 1996 to 1997 we did an appraisal level study. 
That gets us on the right plane. This one follows up and says 
these are the specific facilities that we should study in 
detail and then be ready to go ahead with the construction 
authorization.
    Mr. Faleomavaega. Come 16 months after that, there is going 
to be a water system?
    Mr. Keys. Mr. Chairman, the legislation says 12 months. We 
would prefer 18. But if 16 is what we get, that is what we will 
do.
    Mr. Faleomavaega. I will bargain for 12 months.
    Mr. Chairman, thank you. Again, I appreciate the 
administration support for this bill. I just want to make sure 
that there is sufficient funding and the time scale. I just 
don't believe it really needs 18 months to do the work. I think 
1 year is more than sufficient, but I am not an engineer. I am 
just saying I have seen other projects be done in a similar 
manner, but I don't believe it required 18 months to do it.
    Mr. Keys. We think the $500,000 is adequate. If we are only 
given 12 months, we will get it done in that time.
    Mr. Faleomavaega. Thank you very much, Mr. Commissioner. 
Thank you, Mr. Chairman.
    Mr. Osborne. Thank you very much, Mr. Keys. We will be 
working with you on the timetable. As you know, we will be 
communicating regularly. We really appreciate your coming. You 
have been a regular visitor over here. You have been very, very 
patient today. We appreciate your sticking around. So with 
that, we will dismiss you, unless you have some other comments.
    Mr. Keys. Mr. Chairman, it is a pleasure to be here. We 
look forward to working with you on the bill and getting a 
feasibility study done.
    Mr. Osborne. Thank you very much for coming.
    Mr. Osborne. At this time I would like to call the other 
panelists on Panel IV, Les Minthorn, Board of Trustees, 
Confederated Tribes of the Umatilla Indian Reservation, and 
Alberto Peralta, Vice President, Wells Fargo Bank.
    We will be continuing testimony on H.R. 3407. Mr. Minthorn, 
we will start with you.

  STATEMENT OF LES MINTHORN, BOARD OF TRUSTEES, CONFEDERATED 
           TRIBES OF THE UMATILLA INDIAN RESERVATION

    Mr. Minthorn. Thank you. I have a prepared statement here, 
but I prefer just to go through and hit the highlights that I 
earmarked on the testimony.
    Mr. Osborne. That will be fine.
    Mr. Minthorn. Primarily my mission here is just to express 
our support for the proposed legislation that would facilitate 
the sale of these loans to a secondary market. With that, I 
will just go through a brief summary of our experience with 
this program.
    In early 1969, our Tribe had a feasibility study done for 
our Reservation. Of course, it suggested a lot of economic 
development ventures, hotel, RV park, golf course, those kind 
of things on our Reservation. Throughout that period, until 
1994, I believe nothing really happened because of the 
relationship that we have with our land. It is held in trust, 
and not very many parcels were owned in fee, so because of that 
relationship between our government and our Tribe where most of 
our land was owned by our elders and was allotted, the Tribe 
had very little land of its own. All the wealth that was 
produced by the land was generated pretty much by the elders, 
because it was allotted to them and their heirs now.
    So during that timeframe, we had very little activity from 
an economic development standpoint, from 1969 to 1994.
    In the meantime, of course, we all know the Congress here, 
the Indian Finance Act of 1974 came on board and then later the 
self-Determination Act, and those were fine. We did a lot of 
contracting with the government and had some activities happen 
to us.
    In 1994, as you go through the statement that I have there, 
the Tribe implemented the provisions of the Indian Gaming 
Regulatory Act. We have a small, very modest facility on our 
Reservation that provided us with some seed money for other 
economics.
    Up until that point we had hardly any activity from an 
economic development standpoint happening, until the Indian 
Gaming Regulatory Act allowed some activities to take place on 
the Reservation.
    Well, prior to the casino, if you will, we had no 
relationship with any banking institution because of the lack 
of trust between the banking institution and the tribal 
government whose land was held in trust by the U.S. Government, 
which meant no collateral, which meant no means for the banking 
institution to come and seize property if we in fact defaulted.
    So without that relationship between the tribal government 
and the banking institutions on our geographical area, we had 
no relationship develop; as a result of that, no activity.
    In 1994, when the Indian Gaming Regulatory Act was passed, 
we had an opportunity then to try to utilize this Indian 
guaranteed loan program through the Bureau of Indian Affairs 
that was available. With that, we had at least a guarantee of 
$10 million to assist us with the development of this economic 
venture. As we went around the neighborhood in our own State 
and our own community, we had no banks willing to enter into 
this relationship with the government extending its full faith 
and credit for 90 cents of every dollar. We had no takers from 
the local banking institutions. As a matter of fact, the first 
bank that we had a relationship with was in New Mexico, not in 
the State of Oregon, not in the Pacific Northwest, but in New 
Mexico.
    So as a result of that, we were able to utilize the 
guaranteed loan program under the Indian Finance Act. Had we 
not had that vehicle, the opportunities to develop our 
Reservation going back to the old 1969 plan that was developed 
for us, chances are pretty good we would not have had this 
opportunity to develop that parcel of land for these economic 
ventures.
    So it was beneficial for us as a user of the program in 
that timeframe, going back to 1994, to use the Indian Financing 
Act and this loan guarantee program to get us to where we are 
now.
    We are probably now in a very short period one of the 
largest employers on the Reservation. The State of Oregon is 
the largest employer, and the Confederated Tribes is the second 
largest employer. So in our limited area, we have done a lot 
for the people of our Reservation with the limited amount of 
money, and it was all jump-started by the loan guarantee 
program that created the golf course, the RV park, the hotel, 
the cultural center and the casino.
    [The prepared statement of Mr. Minthorn follows:]

 Statement of Les Minthorn, Treasurer, Board of Trustees, Confederated 
               Tribes of the Umatilla Indian Reservation

    Good morning Mr. Chairman, my name is Les Minthorn and I am the 
Treasurer of the Board of Trustees, the governing body of the 
Confederated Tribes of the Umatilla Indian Reservation (CTUIR). It is a 
privilege and a pleasure for me to appear before the Committee today to 
testify in favor of H.R. 3407, legislation that will permit more tribes 
and individual Indians to take advantage of the BIA guaranteed loan 
program, as the CTUIR did, to achieve financial independence.
    The purpose of H.R. 3407 is to facilitate the sale of BIA 
guaranteed loans by the lending bank to the secondary market, along 
with transferring the guarantee of the United States to the purchaser 
of the loan. This will have the effect of permitting banks and other 
lending institutions participating in the BIA guaranteed loan program 
to make more such loans available to tribes and individual Indians. I 
will leave it to others with more experience in banking matters to 
address the mechanics of how H.R. 3407 facilitates the sale of such 
loans in the secondary market; I want to address the experience of the 
CTUIR with our BIA guaranteed loans as an indication of how the 
expansion of this loan program can benefit other tribes and individual 
Indians.
    On July 18, 2001, Assistant Secretary Neal McCaleb testified before 
the Senate Indian Affairs Committee on tribal good governance practices 
as they relate to economic development. In the course of his testimony, 
Mr. McCaleb made the following statement about the CTUIR:
        Another success story is told by the Confederated Tribes of the 
        Umatilla Indian Reservation located in rural northeast Oregon. 
        Their original economy was based upon agricultural and natural 
        resources, primarily fishing, grain and timber.
        Today the tribe has diversified into commercial developments 
        such as a trailer court, a grain elevator, the Wildhorse 
        Casino, a hotel, an RV park, a golf course, and a solid waste 
        transfer station.
        The tribe is now the second largest employer in Umatilla 
        County, following the State or Oregon. Their operating budget 
        has increased from $7.6 million to $94.2 million in the last 9 
        years.
    We appreciate the recognition and kind words by Assistant Secretary 
McCaleb. Our government and our people have worked hard for the modest 
success we have achieved. The growth in our Tribal budget in the past 
decade is due to two factors: First, the CTUIR has taken full advantage 
of the opportunity to contract for BIA and IHS programs under the 
Indian Self-Determination Act. Second, and much more importantly, the 
CTUIR has worked diligently to establish a diversified, self-sustaining 
Reservation economy. The BIA guaranteed loan program played a critical 
role in providing start-up financing for three Tribal enterprises that 
form the core of our economy.
    Prior to 1994, the CTUIR budget was derived almost exclusively from 
federal grants and contracts. Only a handful of jobs outside the Tribal 
government were available for Tribal members and other Reservation 
residents. The CTUIR had little Tribal income that it could allocate 
pursuant to Tribal priorities and without the strings attached to 
federal funds. We knew that governmental jobs and programs were not 
enough to increase employment opportunities and to improve the 
financial future for our Tribe and its members. Economic development 
was necessary to achieve these goals.
    The Umatilla Indian Reservation is bisected by Interstate 84 the 
major east/west highway from Portland to Boise. Because of our rural 
location, we knew our economy needed to take advantage of the freeway 
traffic. As far back as 1969, the CTUIR planned for the development of 
a destination resort at the base of the Blue Mountains offering a golf 
course, hotel, RV park, gas station and convenience store, and a Tribal 
museum. Those plans languished for 25 years because the CTUIR was 
unable to secure the necessary financing. But recently, with the 
assistance of the BIA guaranteed loan program, our dreams have become 
reality.
    In November, 1994, our small, temporary gaming facilitation opened, 
and in March, 1995, moved into our larger, permanent casino. To 
diversify our economic enterprises and to increase the amenities 
available to our casino patrons, we needed a hotel, RV park and golf 
course. Attracting financing for these enterprises posed a difficult 
challenge. The CTUIR had few resources and little it could pledge to 
secure repayment for loans for these enterprises. The fact that the 
enterprises were to be located on trust lands and were to be 
constructed and operated by a Tribe with no experience in such 
enterprise development or operation made our quest for financing 
especially difficult. In fact, we were only able to attract financing 
because of the BIA guaranteed loan program authorized under the Indian 
Finance Act of 1974.
    Working with the agency and regional BIA offices, we received a $10 
million loan guarantee. Pursuant to the loan guarantee, the United 
States guaranteed 90% of the loan and provided an interest rate subsidy 
to the Tribe to lower financing costs in the critical first three years 
of operations when our new enterprises were getting off the ground.
    If any member of the Committee believes that a Tribe with a BIA 
loan guarantee has the ability to get a bank loan for any enterprise, 
regardless of its feasibility, and on sweetheart terms, I am here to 
tell you your belief is mistaken. We worked with the First Security 
Bank of New Mexico on our loans and learned valuable lessons in the 
process leading to the negotiation and closing of the loan 
transactions. We conducted market feasibility studies for each financed 
enterprise, we were required to pledge the full faith credit of the 
CTUIR to secure repayment of the loans and had extensive negotiations 
on loan terms addressing the construction and management of the 
financed enterprises. In other words, while the BIA loan guarantee made 
bank financing available, it did not guarantee that we would get the 
loan. We were spared none of the rigors that other commercial borrowers 
are subjected to, which prepared the CTUIR for the realities of the 
loan and bond transactions that followed.
    While I was not a participant in these loan negotiations, present 
with me today is our Tribal Attorney, Dan Hester, who was. I am certain 
that Mr. Hester could explain in excruciating detail the process and 
terms associated with the loans if the Committee has any interest in 
exploring these issues further.
    The CTUIR BIA guaranteed loans closed in May (Hotel Loan) and 
December (Golf Course and RV Park Loan) of 1995. All three enterprises 
opened in 1996 and 1997. Later, the CTUIR financed and developed our 
Tribal museum and educational facility known as the Tamastslikt 
Cultural Institute, and have acquired and renovated the Arrowhead Truck 
Stop/Gas Station/Convenience Store to add to the enterprises and 
amenities of the Wildhorse Resort and to diversify our economic base 
and employment opportunities. Currently, the Wildhorse Resort, TCI and 
Arrowhead employ about 500 persons. Unemployment rates among CTUIR 
members and other enrolled Indians residing on the Umatilla Indian 
Reservation have been dramatically reduced from 37% to 17% since 
Wildhorse Resort opened. Many Tribal members who had gone away to be 
educated and stayed away to pursue employment opportunities that did 
not exist at home have returned to their Reservation homeland and to 
unprecedented job opportunities and salaries.
    Even before the introduction of H.R. 3407, the CTUIR did its part 
to free up BIA guaranteed loan resources. Taking advantage of our 
increased financial resources, our operating history of Wildhorse 
Resort enterprises, and an improved interest rate environment, the 
CTUIR issued taxable and tax-exempt bonds in 1999 to refinance the BIA 
guaranteed loans and other Tribal commercial loans. We have never 
missed a loan or bond payment. But I hasten to add that the loan 
guarantees were absolutely essential for the initial development of our 
projects. Bonds are difficult to obtain for projects that are just on 
the drawing board, and for which no operating history exists. It was 
loans, secured with the guaranteed backing of our trustee, that 
provided the critical initial financing for the Wildhorse projects that 
are a reality today.
    The experience of the CTUIR with the BIA guaranteed loan program is 
a real success story. The BIA guaranteed loan program made loans 
available to our Tribe that would not have been available without the 
guarantee of the United States. The CTUIR has seen its economic base 
expand to meet the needs of its people and to acquire the resources and 
expertise to explore other economic development and financing 
opportunities as our capability and resources permit. We have used this 
expertise in our pursuit of other economic development projects such as 
our proposed Wanapa natural gas-fired power plant, the expansion of our 
casino which is now nearly complete, the development of a Reservation 
grocery store and the development of housing to meet the needs of our 
growing Tribal membership.
    While the CTUIR does not foresee the need for future use of the BIA 
guaranteed loan program, our individual Tribal members may pursue 
financing for their business ventures, and so will other tribes hoping 
to break their dependence on governmental grants as the sole source of 
funding for tribal governmental programs and employment opportunities. 
Based on our experience with the BIA guaranteed loan program, and our 
embrace of Tribal economic self-sufficiency, the CTUIR expresses its 
support for H.R. 3407.
                                 ______
                                 
    The Chairman. Thank you very much for your testimony. If 
you can, when those red lights come on, that is the 5-minute 
mark. So we certainly appreciate you. You obviously are well 
acquainted with success.
    Mr. Peralta, would you go ahead with your testimony at this 
time?

 STATEMENT OF ALBERTO PERALTA, VICE PRESIDENT, WELLS FARGO BANK

    Mr. Peralta. Mr. Chairman and honorable members, my name is 
Alberto Peralta. I am here representing Wells Fargo. While I 
don't want this to be a commercial about Wells Fargo, I do want 
to say our interest is this: We are one of the largest lenders 
to tribal governments, to Native Americans, in the United 
States, and apart from that we are also the largest housing 
lender.
    We are in support of H.R. 3407 because we do think it is 
going to invite and attract more investors and, thus, more 
capital to various economic development plans that the Tribes 
have. In New Mexico, we have 21 Pueblos and Tribes. I 
personally know quite a few of the Governors there. We have 
conducted a number of educational seminars, a number of bank 
service seminars, almost all of them focused to a great degree 
on economic development. Any element of any component that 
would attract investors into this markets and help finance 
economic development projects is something that we perceive as 
being very good for the market.
    In my testimony I talk a little bit more about BIA 
guaranteed loans, how tough they are to finance, how large they 
could be. Some banks are not interested in them because they 
tie up a lot of capital. If they could then resell it, it 
brings more liquidity to the markets and more loans to Native 
American enterprises.
    Thank you, sir.
    [The prepared statement of Mr. Peralta follows:]

Statement of Alberto Peralta, Senior Vice President, Wells Fargo Bank, 
                               New Mexico

    My name is Alberto Peralta. I am a Senior Vice President of Wells 
Fargo Bank New Mexico, N.A.
    My primary responsibility at Wells Fargo is to provide commercial 
banking services (including loans, depository and other financial 
products) to the twenty-one New Mexico pueblos and tribes and to advise 
Native Americans in New Mexico about banking services.
    During 2002, Wells Fargo Bank New Mexico engaged in an active 
outreach program that included holding a number of free seminars for 
New Mexico's tribal leaders and members on residential loans, 
commercial loans, pension plans and investments. Additionally, I met 
personally with a number of tribal leaders to discuss opportunities 
available to the pueblos and tribes for economic development on their 
respective reservations.
    The outreach efforts of Wells Fargo Bank New Mexico are in addition 
to Wells Fargo's national initiatives to facilitate economic and 
residential development for Native Americans. Wells Fargo's Native 
American Banking Services Department, located in Phoenix, Arizona, is 
actively involved in providing banking services and financing projects 
in Indian country. Additionally, Wells Fargo Mortgage Company is the 
largest lender to Native American housing projects in the country.
    At Wells Fargo Bank, we are proud to be a part of economic 
development and providing financing for housing to Native Americans. I 
am also proud and pleased to be here today to represent Wells Fargo 
Bank and to testify in favor of passage of H.R. 3407.
    As a rule, commercial loans to New Mexico pueblos and tribes are 
either secured by cash collateral or are guaranteed by the Bureau of 
Indian Affairs under its Indian Financing Act guaranteed loan program. 
Often, we receive requests to finance start-up projects for pueblos and 
tribes who have done little or no prior economic development. In those 
cases, the tribes do not have adequate cash resources or other tangible 
assets to offer as collateral for loans, and the availability of the 
credit enhancement offered by the BIA loan guaranty program is 
critical. As a result, twenty-seven years after its passage, the Indian 
Financing Act of 1974 remains an essential component in the success of 
economic development projects in Indian country.
    In our experience, typical BIA-guaranteed loans are for amounts in 
excess of $1,000,000.00. Often they are two-to-three times that amount. 
The ability to sell BIA-guaranteed loans in a secondary market will 
allow banks to originate more loans to Native Americans because the 
banks will be able to sell all or part of the loans and replenish their 
liquidity so that they can lend again. As a result, banks will be more 
inclined to pursue the Native American lending market and thus provide 
much needed capital to Indian country, just as the SBA-guaranteed loan 
program and secondary market in home mortgages have generated 
additional capital for commercial loans and in home mortgages.
    H.R. 3407 provides for the ``incontestability'', or the ``full 
faith and credit'' of a BIA-guarantee for a secondary market investor, 
like the guarantees offered by the SBA-guaranteed loan program. This 
provision is critical because, based on our experience with other 
government guaranteed loan programs like SBA, we know that in order for 
secondary market investors to purchase guaranteed loans, investors must 
be confident that the guarantee will be paid without undue delay or 
without the risk that a subsequent event might invalidate the 
guarantee. Therefore, we encourage the Committee to use best efforts to 
ensure that these provisions in H.R. 3407 remain intact.
    We also encourage H.R. 3407 to require BIA to adopt clear, concise 
regulations as soon as possible to implement the secondary market 
program contemplated by H.R. 3407 and to make clear the responsibility 
of the originating lender after it sells a BIA-guaranteed loan in the 
secondary market. Delay will only serve to confuse and undermine the 
success of the entire BIA-guaranteed loan program and of its secondary 
market component. Therefore, we strongly support the provisions in H.R. 
3407 that require adoption of final regulations not later than 180 days 
after enactment of H.R. 3407.
    Thank you very much for the opportunity to appear before you today. 
I am happy to answer any questions that you have.
                                 ______
                                 
    The Chairman. Thank you very much for your testimony. We 
appreciate it.
    I guess I will start with you, Mr. Peralta. In your 
estimation, would the creation of a secondary market pose an 
increase in cost for securing funding to Indian businesses?
    Mr. Peralta. As I mentioned in my written testimony, I am 
hoping that it doesn't. I do not know for sure that it will or 
not. But if the costs are excessive, it becomes an impediment 
to using the program. I expect there will be some costs for it, 
but we have to manage those and keep them as low as possible to 
make sure that it doesn't have the reverse effect and scare 
away investors rather than attracting them.
    Mr. Osborne. Mr. Minthorn, you mentioned in your testimony 
that the Confederated Tribes of the Umatilla Indian Reservation 
do not foresee the need for future use of the BIA guaranteed 
loan program. If the proposed amendments to the Indian 
Financing Act are implemented, what benefits do you foresee in 
the creation of the secondary market to have an established, 
self-sustaining Indian enterprise?
    Mr. Minthorn. I am not sure that you got it correct.
    Mr. Osborne. I probably don't. I probably don't, but you 
probably can straighten it out.
    Mr. Minthorn. I believe that we will continue to use, if it 
is available, the loan guarantee program, because it did have a 
very huge impact on our operations as we have it right now. A 
lot of that had to do with capacity building. A lot of it had 
to do with putting fiscal management policies in place and 
developing what we heard earlier in the testimony here about 
capacity in the other panel and accountability.
    So we think that the future would bring more of these 
opportunities to the table and to go out with that loan 
guarantee program, we have other projects that we need this 
type of support to further our diversified economy, and we need 
that type of loan guarantee.
    Mr. Minthorn. Sometimes projects that are not on the table, 
at least in our community, it takes time for us to move to the 
next project. And so the timeframe 1994 until now, we just used 
that one loan program, the loan guarantee for the $10 million. 
We haven't had a second program. We think we have other 
projects that we would like to utilize the same program for.
    Mr. Osborne. Thank you very much. I gather then that you do 
plan to use the guaranteed loan program, and I am sorry if we 
misread your testimony.
    Mr. Minthorn. We have one application that is pending we 
haven't implemented.
    Mr. Osborne. OK. Thank you very much.
    Mrs. Christensen, anything further?
    Mr. Faleomavaega?
    Mr. Faleomavaega. Thank you, Mr. Chairman.
    I thank the members of our panel for their fine testimony. 
What an irony, Mr. Chairman. As I recall, years ago there was 
an Indian tribe that wanted to borrow money to start a casino 
operation, and none of the lenders in the community were 
willing to give them the money. So this Indian tribe had to go 
to a foreign investor to give them backup capital to start 
their operation.
    Well, this Indian tribe happens to be the Pequot Indian 
Tribe, whom I have had the privilege of visiting in 
Connecticut, now currently has the largest casino operation in 
the world, I think, grossing well over $600 million a year. And 
you know what, Mr. Chairman? Now everybody--lending 
institutions are jumping up to say, hey, borrow money from us. 
I mean, this is the kind of attitude that our country has had, 
especially from the private sector, even giving the Indians a 
chance to do this kind of a commercial development.
    Mr. Chairman, I am going to propose an amendment in our 
bill when it comes before the full Committee, and this is maybe 
a novel idea, Mr. Chairman.
    The fact that there is somewhere between 2 billion to $10 
billion that we can't even figure out how much we owe in Indian 
Trust Funds, the fact that the money is there--it is not the 
question of whether or not there is no money. The money is 
there, but we just couldn't calculate exactly how much. And 
perhaps maybe $2 billion could be given to be part of this 
trust--I mean, this guaranteed loan program. So that this is 
exactly the kind of thing that this gentleman is advocating. 
This thing has been in the books for 27 years, and the fact 
that there is money there, not taking away the integrity of the 
funds of who is really owed the money, but at least we could 
use the money for the benefit of our first Americans who really 
want to develop their commercial activities and be part of the 
private sector.
    I really believe that this bill is excellent, and I 
sincerely hope--I am going to develop this novel idea, Mr. 
Chairman, and definitely look forward to the full Committee 
hearing for a markup on this. And I want to thank our good 
friends and Wells Fargo for giving our first Americans a sense 
of trust, that they can be responsible for borrowing money to 
conduct their business activities. I really appreciate that. 
Thank you, Mr. Chairman.
    Mr. Osborne. Thank you very much.
    And thank you, gentlemen, for being here today. Appreciate 
your testimony.
    Mr. Osborne. And, with that, we will move on to panel five 
for consideration of H.R. 24O8. That would be Roger Trudel, 
Assistant Secretary of Indian Affairs--or, rather, Chairman of 
the Santee Sioux Tribe; Robert Cournoyer, Tribal Vice Chair, 
Yankton Sioux Tribe; and Michael Lawson, senior associate, 
Morgan, Angel & Associates.
    While they are getting seated, I will just mention that 
H.R. 2408 is a bill that is intended to provide equitable 
compensation to the Yankton Sioux Tribe of South Dakota and the 
Santee Sioux Tribe of Nebraska for the loss of value of certain 
lands, Yankton Sioux Tribe and Santee Sioux Tribe Equitable 
Compensation Act. And as has been mentioned some dams were 
built, some land was taken, and this is to compensate for that 
land.
    So, we appreciate all of you being here today, and we will 
start out with your testimony, Mr. Trudel.
    Mr. Faleomavaega. Would the Chairman yield?
    Mr. Osborne. Yes, sir.
    Mr. Faleomavaega. Mr. Chairman, I want to offer my 
apologies for not having the time to listen to our witnesses, 
but I have got a very important meeting. It means the life or 
the death of my tuna industry if I don't attend this meeting 
with the most able Chairman of the Ways and Means Committee, 
Mr. Bill Thomas. But I want to offer again my commendation and 
special thanks to you, Mr. Chairman, for chairing these 
hearings and these important bills that are now before our 
Committee for consideration.
    And, again, my apologies to our witnesses that I won't be 
able to listen to their testimony.
    Mr. Osborne. Well, thank you for being here as long as you 
have been.
    Mr. Faleomavaega. Thank you, Mr. Chairman.
    Mr. Osborne. All right. Mr. Trudel.

    STATEMENT OF ROGER TRUDEL, CHAIRMAN, SANTEE SIOUX TRIBE

    Mr. Trudel. Thank you, Congressman Osborne, and also 
Chairman, today, I guess, Chairman of the Committee.
    Mr. Osborne. Chairman for the day.
    Mr. Trudel. Chairman for the day.
    I have submitted written testimony on 2408, and just to 
maybe share a little history of the Santee Sioux Tribe for the 
record, the Santee Sioux Tribe is originally from Minnesota. 
The State of Minnesota was our traditional lands, as well as 
western Wisconsin, north central and northeastern Iowa, and 
southeastern South Dakota.
    In 1862, we had a conflict with the U.S. Government and was 
relocated to the State of--actually, to Crow Creek, South 
Dakota, first and then to Nebraska in about 1863, 1864. We had 
400-some men that were sentenced to hang at Mankato, Minnesota, 
and President Lincoln commuted the sentence of all but 38 of 
them. And so 38 of our relatives were hung at Mankato on 
December 26th, 1862. And as my good friends, the Winnebagos, I 
always like to remind them that we helped to get them kicked 
out of Minnesota, too. So, we have a Winnebago relative with us 
today that is doing an internship here with Congressman 
Bereuter.
    Anyway, when the dam, Gavins Point Dam, was put in in the 
early 1950's, the tribe lost approximately 400-some acres, not 
counting Niobrara River. With Niobrara Island, I think it was a 
total of about 1,000, 1,007 acres. There was some compensation 
at that time, but clearly not properly executed. And so this 
bill that your office, Congressman, yourself and your staff 
have assisted us with, you know, would bring equity to the 
Santee Sioux Tribe.
    The Santee Sioux Tribe is one of the more economically 
depressed areas in Nebraska, northeastern Nebraska. Our 
unemployment rate runs anywhere from 50 to 70 percent depending 
on what time of the year it is. We have a number of health 
disparities, a number of education disparities, and definitely 
a number of economic disparities. And we think this 
compensation claim would assist the tribe in long-term economic 
development, invested wisely. There is a plan that would be 
submitted to the Interior Department on how the funds would be 
utilized.
    We do hope that the Committee will seriously consider the 
needs of the Santee Sioux Tribe when this goes to full 
Committee. We respectfully request that--you know, that the 
funds would be available as soon as possible.
    With that, Mr. Chairman, I believe I would end my verbal 
testimony.
    [The prepared statement of Mr. Trudel follows:]

  Statement of Roger D. Trudel, Chairman of the Santee Sioux Tribe of 
                         Nebraska on H.R. 2408

    Mr. Chairman and members of the House Resources Committee, I am 
Chairman Roger Trudel of the Santee Sioux Tribe of Nebraska. The Santee 
Indian Reservation is located in northeast Nebraska and the Missouri 
River borders our reservation's northern boundary.
    I am pleased to appear before this committee to provide some views 
from the perspective of the Santee Sioux tribe in support of H.R. 2408 
and appreciate the Committee's consideration of this bill. Our tribe 
has worked closely with Congressman Tom Osborne, along with the entire 
Nebraska congressional delegation in both chambers of Congress to 
advance this legislation through the 107th Congress. We are grateful 
for their support on this matter, as well as the support of the South 
Dakota delegation on behalf of our brothers at the Yankton Sioux Tribe. 
I also want to commend the work of all the congressional staff who have 
worked so hard to get this legislation before this Committee today.
    The Santee Sioux Reservation was established as a permanent home 
for remnants of six Santee Sioux bands driven out of Minnesota 
following what is known as the ``Sioux Uprising of 1862.'' Our 
reservation was established by Executive Order signed by President 
Andrew Johnson on February 27, 1866.
    In 1944, the Congress enacted the Flood Control Act (58 Stat. 887), 
which authorized implementation of the Pick-Sloan Project for water 
management and hydroelectric power development in the Missouri River 
Basin. This plan included the construction of five main-stem dams along 
the Missouri River. Project purposes included flood control downstream, 
navigation, irrigation, the generation of hydropower, the provision of 
improved water supplies, and enhanced recreation. The U.S. Army Corps 
of Engineers, which constructed and operate the dams, estimates the 
projects' overall contribution to the national economy averages 
approximately $1.3 billion. The Gavins Point dam, which is the subject 
of my testimony, is erected between Yankton County, South Dakota and 
Knox County, Nebraska and is the farthest downstream and smallest of 
the six Missouri River dams.
    The Gavins Point project inundated 1007.22 acres of land within the 
Santee Sioux Indian Reservation. This represents nearly fifteen percent 
(15%) of the reservations total land base. Of that acreage, over half 
was valuable cropland.
    The Santee Sioux lands taken for the Gavins Point project were 
located just below the main settlement area of the Indian village of 
Santee. The bottomland was used by our tribal members for hunting, 
shelters for livestock, and the trees for lumber and fuel. The 
bottomlands provided a variety of plants used for ceremonial and 
medicinal purposes. The land taken also included productive agriculture 
land and pastureland. The Gavins Point project flooded a tribal farm 
which included cattle and hog confinement buildings, grazing land, and 
fields that were used for growing hay, oats and corn. That of course is 
now history; the tribal land taken is now underwater and unusable for 
any form of economic development or subsistence use. As a small tribe 
with a minimal land base, those lands taken by the floodwaters of the 
Gavins Point dam are a great loss to us and, to date, the Federal 
government has done nothing to address what the Santee Sioux Tribe 
feels was an unjust taking of tribal lands.
    Neither the Flood Control Act of 1944, nor any subsequent acts of 
Congress, specifically authorized the U.S. Army Corps of Engineers or 
the Bureau of Reclamation to condemn Santee Sioux tribal land for the 
Pick-Sloan projects. Nevertheless, our land was condemned and taken 
from us in the U.S. District Court. These condemnation proceedings 
resulted in compensation for our lands that was far less in value than 
that of other Missouri River tribes whose lands were taken by acts of 
Congress. The Court did not compensate the Tribe for its indirect 
damages, but merely provided payment for the appraised value of the 
land. Moreover, it was several years between the time the land was 
appraised and when the Tribe actually received any payment stemming 
from the Court's compensation order. The initial settlement did not 
take into account the inflation of property values within that period 
of time.
    The lands affected by the Pick-Sloan program were, by and large, 
Indian lands. The damage to each reservation was unique, depending on 
the acreage lost, the number of tribal members living in the impacted 
areas, and the value of the resources located on those lands. However, 
the result was the same at each reservation tribal communities and 
their economies were damaged or completely destroyed by the dam 
projects with little to no regard of the Federal government.
    In May of 1985, the Secretary of the Interior established the Joint 
Tribal Advisory Committee (JTAC) to assess the impacts of the Garrison 
and Oahe Dams on the Three Affiliated Tribes and the Standing Rock 
Sioux Tribe. Based on the findings and recommendations of JTAC, 
Congress enacted legislation to equitably compensate those tribes for 
their losses from Pick-Sloan.
    In 1992, the Congress enacted legislation acknowledging that the 
U.S. government did not justly compensate the tribes at Fort Berthold 
(Three Affiliated) and Standing Rock when it acquired their lands and 
that the tribes were entitled to additional compensation. (Pub. L. 102-
575, title XXXV, the Three Affiliated Sioux Tribes and Standing Rock 
Sioux Tribes Equitable Compensation Act, which provided development 
trust funds for these two reservations).
    In 1996, the Congress again acknowledged that the Indian tribes 
were not adequately compensated for their losses under the Pick-Sloan 
Project in passing Pub. L. 104-223, the Crow Creek Sioux Tribe 
Infrastructure Development Trust Fund Act, which provides for a 
development trust fund for the Crow Creek tribe for losses due to the 
construction of the Ft. Randall and Big Bend dams. Then again, in 1997, 
Congress passed Pub. L. 105-132, the Lower Brule Sioux Tribe 
Infrastructure Development Trust Fund Act, which also provided a 
development trust fund for the Lower Brule Sioux Tribe for similar 
losses.
    These four recovery funds were financed by an allocation of 25 
percent of the annual gross revenues collected by the Western Area 
Power Administration (WAPA) from the sale of hydroelectric power 
generated by the Pick-Sloan dams. The funds were established pursuant 
to the determination of the General Accounting Office (GAO) that impact 
to the tribes at the time of the land takings was significant, and the 
Congressional finding that ``the United States Government did not 
justly compensate [the] tribes when it acquired those lands.'' The 
105th Congress also considered legislation that would have established 
a Recovery Fund of $290 million for the Cheyenne River Sioux Tribe of 
South Dakota, which lost approximately 104,000 acres to the Oahe Dam 
project.
    The Fort Berthold, Cheyenne River, Standing Rock, Crow Creek and 
Lower Brule tribes all received initial settlements from Congress 
between 1948 and 1962 that included payment for direct property 
damages, severance damages (including the cost of relocation and 
reestablishment of affected tribal members) and rehabilitation for 
their entire reservations. In providing funds for rehabilitation, 
Congress recognized that the tribes as a whole and not just the tribal 
members within the taking areas were negatively affected by the loss of 
the bottomland environment and reservation infrastructure. Accordingly, 
congressional settlements with the five tribes between 1948 and 1962 
provided compensation for severance damages and rehabilitation that 
averaged 458 percent more than was paid for direct damages. The 
additional payment to the Standing Rock and Crow Creek Sioux Tribes was 
over 630 percent more than the amount awarded to them for direct 
damages.
    The Yankton and Santee Sioux Tribes were never provided the 
opportunity to receive compensation from Congress for their direct 
damages. Instead, as mentioned above, they received settlements for the 
appraised value of their property through condemnation proceedings in 
U.S. District Court. In 1954 Congress provided supplementary 
compensation to the Yankton Sioux for severance damages. This payment 
was distributed to some but not all of the tribal families affected 
nine years after their properties were condemned. In 1960, the Bureau 
of Indian Affairs conducted a comparative study of the experiences of 
six reservations impacted by Pick-Sloan dams. This investigation found 
that the average total damage payment per family within the taking area 
at Yankton was $5,605, whereas the payment averaged $16,680 on the 
other five reservations (Fort Berthold, Standing Rock, Cheyenne River, 
Crow Creek, and Lower Brule).
    The Santee Sioux also received payment for severance damages from 
the U.S. District Court in 1958. However, the additional severance 
compensation awarded the Yankton and Santee Sioux did not reflect the 
fact that their takings involved a greater proportion of agricultural 
land. Neither did it account for the inflation of property values 
between the time of taking and the time of settlement. The total 
compensation for the Yankton Sioux also failed to take into 
consideration the fact that the White Swan community was destroyed, 
dispersed and never replaced, whereas communities flooded on the other 
reservations impacted by Pick-Sloan projects were relocated and 
reestablished on higher ground. In addition, neither the Yankton nor 
the Santee Sioux was provided funds for rehabilitation, even though a 
large proportion of tribal members residing outside the taking area on 
both tribes' reservations were also impacted by the dam projects.
    By the enactment of these various development trust fund acts, 
Congress has established a strong precedent for settling tribal land 
takings claims by providing additional and equitable compensation in 
the form of development trust funds. However, Congress cannot declare a 
value on the loss of tribal tradition and cultural life along a free 
flowing river. So therefore, we must look to the cost of what can be 
measured. The tribe lost a total of 1,007.22 acres to the Gavins Point 
dam and reservoir. H.R. 2408 correctly identifies the Santee Sioux 
Tribe's loss of 593.10 acres near Santee village and appreciates the 
provision of $4,789,010 in compensation as a development trust fund for 
that taking. However, we also claim a loss of 414.12 acres on Niobrara 
Island, which was also taken under the Gavins Point Dam project.
    This additional loss of land is identified in Tribal histories as 
well as the April 1999 report titled: ``Historical Analysis of the 
Impact of Missouri River Pick-Sloan Dam Projects on the Yankton and 
Santee Sioux Indian Tribes,'' prepared for the Bureau of Reclamation by 
Dr. Michael L. Lawson of the Washington, DC based public policy firm of 
Morgan Angel & Associates. In addition to the funding called for under 
H.R. 2408, the Tribe also requests that Congress establish a recovery 
fund of $3,343,828 for compensation of the 414.12 lost acreage of 
Niobrara Island. These valuations are based on the per-acre amount 
established by the Lower Brule Recovery Fund plus an additional 
percentage for unpaid severance damages and/or rehabilitation.
    The Santee Sioux Tribe, in conjunction with the Yankton Sioux 
Tribe, would also request Congress to provide supplementary 
compensation totaling $42,456,581 for their Pick-Sloan damages. Based 
on the precedent of recovery funds established for the other four 
tribes, we also seek the establishment of a separate Recovery Fund for 
each of our Tribes to be funded by allocation of a proportion of the 
gross receipts deposited by the WAPA in the U.S. Treasury
    To this end, I feel that the Santee settlement claim and request is 
minimal in comparison to the others settlements passed under prior 
Congresses. Again, we appreciate the level of compensation H.R. 2408 
calls for, and consider it a good beginning to our being fully 
compensated for the unjust takings of tribal lands during the era of 
the Pick-Sloan projects. With the sponsorship of identical legislation 
(S. 434) in the United States Senate by majority leader Tom Daschle, we 
anticipate bi-partisan support in both chambers of Congress as well as 
eventual passage and Presidential enactment of this legislation this 
year.
    I have also attached a resolution from the National Congress of 
American Indians, representing the voice of over 250 federally 
recognized tribes in the United States in support of this legislation, 
which I request be placed in the Congressional Record along with this 
written statement.
    In conclusion, I again want to thank Rep. Osborne for sponsoring 
this legislation and the House Resources Committee for granting me this 
opportunity to present testimony on its behalf. Currently, unemployment 
rates are devastatingly high on my reservation, with little to no 
economic development opportunities available, due in large part to a 
lack of tribal finances to generate a sustainable economic base. The 
socio-economic needs of the Santee Sioux Tribe are great and passage of 
this legislation is critically important to the Tribe's goal of 
reversing decades of abject poverty. Therefore, I respectfully request 
this Committee to quickly pass this legislation and report H.R. 2408 to 
the House floor for further consideration.
    [An attachment to Mr. Trudel's statement follows:]

   THE NATIONAL CONGRESS OF AMERICAN INDIANS--RESOLUTION #BIS-02-030

Title: Support for H.R. 2408 / S. 434, the Yankton Sioux Tribe and 
        Santee Sioux Tribe Equitable Compensation Act
WHEREAS, we, the members of the National Congress of American Indians 
of the United States, invoking the divine blessing of the Creator upon 
our efforts and purposes, in order to preserve for ourselves and our 
descendants the inherent sovereign rights of our Indian nations, rights 
secured under Indian treaties and agreements with the United States, 
and all other rights and benefits to which we are entitled under the 
laws and Constitution of the United States, to enlighten the public 
toward a better understanding of the Indian people, to preserve Indian 
cultural values, and otherwise promote the health, safety and welfare 
of the Indian people, do hereby establish and submit the following 
resolution; and

WHEREAS, the National Congress of American Indians (NCAI) was 
established in 1944 and is the oldest and largest national organization 
of American Indian and Alaska Native tribal governments; and

WHEREAS, by carrying out the Pick-Sloan Missouri River Basin program 
approved by Congress under the Flood Control Act during the first half 
of the 20th Century to promote the general economic development of the 
United States by providing for irrigation above Sioux City, Iowa to 
protect urban and rural areas from devastating floods of the Missouri 
River, vast lands of the Yankton Sioux and Santee Sioux reservations 
along the Missouri River basin were forever lost; and

WHEREAS, these fertile, wooded bottom lands that were home to the 
Yankton and Santee Sioux Tribes, which would have been ideal for 
farming and agricultural use, were buried under billions of gallons of 
water impounded for the Fort Randall and Gavins Point projects as part 
of the Pick-Sloan program; and

WHEREAS, the Fort Randall project (including the Fort Randall Dam and 
Reservoir) overlies the western boundary of the Yankton Sioux Tribe 
Indian Reservation and the Gavins Point project (including the Gavins 
Point Dam and Reservoir) overlies the eastern boundary of the Santee 
Sioux Tribe; and

WHEREAS, the two projects greatly contribute to the economy of the 
United States by generating a substantial amount of hydropower and 
impounding a substantial quantity of water, yet the reservations of the 
Yankton Sioux Tribe and the Santee Sioux Tribe remain undeveloped; and

WHEREAS, the United States Army Corps of Engineers took the Indian 
lands used for the Fort Randall and Gavins Point projects by 
condemnation proceedings; and

WHEREAS, the Federal Government did not give the Yankton Sioux Tribe 
and the Santee Sioux Tribe an opportunity to receive compensation for 
direct damages from the Pick-Sloan program, even though the Federal 
Government gave Indian reservations upstream from the reservations of 
those Indian tribes such an opportunity; and

WHEREAS, the Yankton Sioux Tribe and the Santee Sioux Tribe did not 
receive just compensation for the taking of productive agricultural 
Indian lands through the condemnation; and

WHEREAS, the settlement agreement that the United States entered into 
with the Yankton Sioux Tribe and the Santee Sioux Tribe to provide 
compensation for the taking by condemnation did not take into account 
the increase in property values over the years between the date of 
taking and the date of settlement; and

WHEREAS, in addition to the financial compensation provided under the 
settlement agreements, H.R. 2408 and S. 434, introduced in the United 
States House of Representatives by Congressman Tom Osborne (R-3-NE) and 
in the United States Senate by Senator Tom Daschle (D-SD) call for the 
Yankton Sioux Tribe to receive an aggregate amount equal to $23,023,743 
for the loss value of 2,851.40 acres of Indian land taken for the Fort 
Randall Dam and Reservoir of the Pick-Sloan program and call for the 
Santee Sioux Tribe to receive an aggregate amount equal to $4,789,010 
for the loss value of 593.10 acres of Indian land located near the 
Santee village.

NOW THEREFORE BE IT RESOLVED that the National Congress of American 
Indians (NCAI) does hereby call upon the United States Congress to pass 
H.R. 2408 and for the U.S. Senate to pass S. 434, and thereby agree to 
a single legislative bill in the 107th Congress to be sent to the 
President for enactment.

BE IT FURTHER RESOLVED that the NCAI requests that if such legislation 
be sent to the President for enactment, that President Bush sign such 
legislation into law, thereby compensating the Yankton Sioux and Santee 
Sioux Tribes for such unjust takings of Indian lands.

BE IT FINALLY RESOLVED that this resolution shall be the policy of NCAI 
until it is withdrawn or modified by subsequent resolution.

CERTIFICATION
The foregoing resolution was adopted at the 2002 Mid-Year Session of 
the National Congress of American Indians, held at the Bismarck Civic 
Center, in Bismarck, North Dakota on June 16-19, 2002 with a quorum 
present.

Tex Hall, President

ATTEST:
Colleen Cawston, Recording Secretary

Adopted by the General Assembly during the 2002 Mid-Year Session of the 
National Congress of American Indians, held at the Bismarck Civic 
Center, in Bismarck, North Dakota on June 16-19, 2002.
                                 ______
                                 
    Mr. Osborne. You will be the only panelist on the next 
bill; so if you would care to give your testimony on H.R. 4938 
at this time, we would certainly accept it. Or would you rather 
wait until later?
    Mr. Trudel. As long as I am close to the mike, I will do it 
now.
    Mr. Osborne. There you go.
    Mr. UTrudel. Again, thank you, Chairman. The bill would 
provide for a rural study, rural water study on the 
reservation. The reservation is 12 by 17 miles in dimensions. 
Within the boundaries of the reservation, we have the Santee 
Community, which is the growth center of the Santee 
Reservation. Approximately 600-some people live in that 
community, tribal members and other Indian people, as well as 
some non-Indian people. And then we have a community of Lindy, 
Nebraska, which is within our boundaries. And I am not sure 
what Lindy's population is; I think somewhere around maybe 40 
or 50 people on a good day.
    And our plan, or what we envision as a rural water system 
is we have a number of non-Indian farmers that also reside 
within those 12-by-17-mile dimensions that we all share bad 
water. The cost of putting in an average well I think runs 
right now--and, of course, this is old information--somewhere 
around $9,000 to put an individual well in just to have bad 
water.
    So, we were hoping, with your assistance and with this 
bill, that, you know, the study could be conducted that it 
would be feasible to have a rural water system on the Santee 
Sioux Indian Reservation.
    There are also other communities in the--adjacent to the 
reservation that are interested in seeing this project go 
through and hope that somehow that they could benefit from 
this, and that is the Niobrara Community and Center Community, 
Center being the county seat of the county. Our reservation 
does run up to the main--First Street in Center.
    All have wished us good luck in bringing this bill to 
fruition. We believe the water is a major cause of the bad 
health of the people. As I mentioned before, we do have some 
health disparities. Good water is a blessing, I guess, you 
know, and unfortunately we are not blessed with good water. We 
believe that this study could bring good water to everybody on 
the reservation, regardless of whether they are tribal members 
or non-Indian members, residing within the boundaries of the 
reservation.
    We do believe that good water would help attract some 
economic development to the area, some commercial interests, 
and allow for further housing. We are restricted in where we 
can locate housing now, so that is why so many people live in 
the community of Santee as opposed to other areas of the 
reservation is because of the water situation.
    Again, we believe, as I said earlier, that good water is 
key to good health, and water to the Indian people is sacred. 
And, just for the record, I guess I want to close with this 
part, just saying that earlier a comment was made that you 
might be Lakota. We are hoping that maybe you are Dakota. We 
have three dialects, and we are the D, the D dialect.
    Mr. Osborne. I will be whatever you want, Roger.
    Mr. Trudel. Thank you.
    [The statement of Mr. Trudel follows:]

  Statement of Roger D. Trudel, Chairman of the Santee Sioux Tribe of 
                         Nebraska on H.R. 4938

    Good afternoon Mr. Chairman, and members of the House Resources 
Committee. I am Chairman Roger Trudel of the Santee Sioux Tribe of 
Nebraska, here today to present testimony in support of H.R. 4938, a 
bill that directs the Department of Interior's Bureau of Reclamation, 
to conduct a feasibility study on the development of a water supply 
system for the municipal, rural and industrial use of the Santee Sioux 
Tribe. I am pleased to be offered this opportunity to appear before 
this committee to provide some views from the perspective of the Santee 
Sioux tribe in support of H.R. 4938 and appreciate the Committee's 
consideration of this bill. Our tribe has worked closely with 
Congressman Tom Osborne, along with the entire Nebraska congressional 
delegation in both chambers of Congress to advance this legislation 
through the 107th Congress. We are grateful for their support on this 
matter. I also want to commend the work of all the congressional staff 
who have worked so hard to get this legislation before this Committee 
today.
    The reservation for the Santee Sioux Tribe was established via 
Executive Order in the mid-19th Century as a permanent home to the 
Eastern, or Santee division of the great Sioux nation, with our 
majority population historically affiliated with the Mdewakanton and 
Wahpekute peoples of the northern great plains. The Tribal governing 
body consists of an elected 12-member Tribal Council, representing 
nearly 2,500 enrolled members, with over 500 of those members, along 
with numerous other Sioux tribal members of Lakota, Dakota and Nakota 
decent, living on the Santee reservation in northern Nebraska along the 
banks of the Missouri River.
    In 1944, the Congress enacted the Flood Control Act (58 Stat. 887), 
which authorized implementation of the Pick-Sloan Project for water 
management and hydroelectric power development in the Missouri River 
Basin. This plan included the construction of five main-stem dams along 
the Missouri River, including the Gavins Point dam erected between 
Yankton County, South Dakota and Knox County, Nebraska, the farthest 
downstream and smallest of the six Missouri River dams. The Gavins 
Point project inundated 1007.22 acres of land within the Santee Sioux 
Indian Reservation. This represents nearly fifteen percent (15%) of the 
reservations total land base. The Santee Sioux lands taken for the 
Gavins Point project were located just below the main settlement area 
of the Indian village of Santee.
    The bottomland was used by our tribal members for hunting, shelters 
for livestock, and the trees for lumber and fuel. The bottomlands 
provided a variety of plants used for ceremonial and medicinal 
purposes. The land taken also included productive agriculture land and 
pastureland. The Gavins Point project flooded a tribal farm, which 
included cattle and hog confinement buildings, grazing land, and fields 
that were used for growing oats, corn and alfalfa hay. That of course 
is now history; the tribal land taken is now underwater and unusable 
for any form of economic development or subsistence use. As a small 
tribe with a minimal land base, those lands taken by the floodwaters of 
the Gavins Point dam are a great loss to us and, to date, the Federal 
government has done nothing to address what the Santee Sioux Tribe 
feels was an unjust taking of tribal lands. Moreover, the Tribe has 
suffered significant negative impacts to the reservation's ground water 
quality and water delivery system infrastructure stemming from the 
flooding of the Tribe's agricultural lands since the erection of the 
Gavins Point Dam. To date, the federal government has done nothing to 
reverse these negative impacts.
    Over the years, the Tribe has attempted to develop a sustainable 
economy through the creation of light industry, gaming, agriculture and 
other revenue-generating projects. However, the majority of investors 
interested in such projects quickly identify the lack of an adequate 
municipal infrastructure, including water delivery systems, electrical 
generation facilities, waste water treatment facilities and other 
municipalities on the reservation that most other areas of the state 
take for granted. This historical lack of municipal services have led 
to the demise of several revenue generating activities on the Tribe's 
lands that are critical in the overall development of a sustainable 
economy for the Santee Sioux Tribe.
    I wish to share with you just a quick overview of the socio-
economic detriments the individuals and families of the Santee Sioux 
reservation are currently experiencing because of our Tribe's inability 
to generate economic development interests on our reservation. The 
health status of residents within the Santee service area are some of 
the worst in the state, if not the entire nation. Unemployment runs as 
high as seventy-five percent (75%), especially in the winter months. 
The abject poverty that the lack of jobs for our labor forces creates, 
along with the absence of various community services that the federal 
government fails to provide as part of their treaty obligations and 
trust responsibilities to us, have taken a destructive toll on our 
families, with the most suffrage occurring within our child and elder 
populations. Conditions such as substandard housing, poor water 
quality, crowded living conditions and inadequate nutrition programs 
affect the vast majority of our members. Injuries, violence, infant 
diseases and mortality rates, diabetes, cardiovascular disease, cancer, 
alcoholism, drug abuse, high school dropout rates, teen pregnancy and 
suicide run rampant throughout our communities, far exceeding the 
highest, or lowest, apex indicators of the general U.S. population, 
depending on which is worst scale of measure.
    In general, the overall quality of life of our people is disastrous 
and directly correlated to conditions adversely affected by the 
deprivation of programs, services and lack of a healthy economy within 
the Tribe's service area. The socio-economic environment must be 
improved immediately if the statistical health and well being of the 
Santee Sioux people is to improve. I feel that the implementation of 
the water quality and delivery system study as called for under H.R. 
4938 is a step in that direction.
    I also wish to share with the Committee some of the economic 
development goals the Tribe has previously implemented, with limited 
success, as well as those goals that the Tribe continues to try and 
successfully develop. To date, the Santee Sioux Tribe has established a 
housing authority, a community facility center, a medical center, a 
utilities and resources commission, a recreation/vehicle park, a 
preschool and K-12 school, a community college, an industrial park, a 
3,500-acre tribal ranch and a yet to be profitable class II casino 
operation. Many of these entities are operated under various federally 
subsidized program funds and a few small grant awards. However, success 
of these operations could be dramatically improved with additional 
federal support, both monetary and programmatic, improved relations 
with state and local governments, and an overall increase in basic 
economic conditions on the reservation.
    Targeted areas of development include the expansion of the Tribe's 
health service program, an established legal infrastructure including a 
tribal law enforcement division and tribal court, the establishment of 
self-sufficient utilities infrastructures and resources management, 
improved tribal schools and education programs, expanded recreation and 
tourism facilities, alternative housing, an improved and expanded 
industrial park, and increased farming/ranching activities. By 
improving the economic tools to create sustainable development of the 
Santee reservation, the Tribe believes that more jobs for tribal and 
non-tribal members will be generated, along with an increase in the 
mean average income of the reservation population. In addition, 
increased jobs and salaries of those employed will best serve the 
Tribe's goals of reversing the litany of socio-economic detriments that 
our Indian people face on the Santee reservation today.
    In conclusion, I again want to thank Rep. Osborne for sponsoring 
this legislation and the House Resources Committee for granting me this 
opportunity to present testimony on its behalf. The socio-economic 
needs of the Santee Sioux Tribe are great and passage of this 
legislation is critically important to the Tribe's goal establishing a 
sustainable reservation economy. Respectfully, I urge this Committee to 
quickly pass this legislation and report H.R. 4938 to the floor of the 
U.S. House of Representatives for further consideration. In addition, I 
urge this Congress to pass this bill, request their colleagues in the 
United States Senate do the same and them urge the President of the 
United States to enact this legislation this year. This concludes my 
statement for the record and I look forward to any questions you may 
have.
                                 ______
                                 
    Mr. Osborne. Mr. Cournoyer.

STATEMENT OF ROBERT COURNOYER, TRIBAL VICE CHAIR, YANKTON SIOUX 
                             TRIBE

    Mr. Cournoyer. Thank you, Mr. Chairman, and members of the 
Committee, for the opportunity to speak on behalf of the 
Yankton Sioux Tribe. We are the Ihanktonwan Dakota Nation of 
South Dakota. We are located in the southeastern corner of 
South Dakota. I am the vice chairman of the Yankton Sioux 
Tribe, and today I have in the audience Miss Madonna Archambo, 
she is our chairwoman; And our tribal secretary, Ms. Rose Cook.
    In addition to Mr. Lawson and Mr. Trudel's testimony, we 
are here on behalf of the Missouri River Pick-Sloan Program and 
its impact on the Indian tribes. We will be offering testimony 
before the Committee on behalf of the Yankton Sioux Tribe. Dr. 
Lawson has done extensive research on the tribe's claim which 
serves as a basis for this legislation, H.R. 2408.
    First, let me express my sincere appreciation for the 
Committee's consideration of this bill. We have been working 
for several years now to relieve some of the past harm our 
tribe has suffered and bring equity to a settlement that was 
due our tribe as a result of the construction of the Fort 
Randall Dam on the Missouri River. Unfortunately, after 
hearings and markups in both the Senate and House, we ran out 
of time in 106th Congress to enact this legislation. We 
continue to have full support for this legislation from the 
South Dakota and Nebraska delegation.
    I am honored here today to speak for the Yankton Sioux 
Tribe in support of this legislation. I would like to request 
that the full text of my testimony be submitted for the record, 
and I will summarize a few important points regarding H.R. 
2408.
    Mr. Osborne. Without objection.
    Mr. Cournoyer. As with the case of several other dams built 
on the Missouri River, the construction of the Fort Randall Dam 
and the reservoir on the Missouri River destroyed an important 
part of the Yankton Sioux Tribe's traditional way of life. The 
Missouri River bottom lands were rich with game and plants used 
for our traditional foods. The plants were used for ceremonial 
purposes and medicinal purposes. The trees in the bottom lands 
were used for lumber and fuel. We not only lost tribal lands 
when the bottom lands were flooded, but much of our traditional 
way of life was taken from us at that time.
    Due to location of lands in southeastern South Dakota, our 
tribe lost acres and acres of rich, productive agricultural 
land, 3,260 acres total, due to construction of Fort Randall 
Dam and reservoir.
    In addition to the loss of our traditional ways of life and 
agricultural land, the community of White Swan was forced to be 
abandoned. It was the practice of the United States at that 
time to move Indian communities flooded by dam construction to 
higher ground and reestablish, but our tribal community of 
White Swan was not relocated. The families were disbursed 
elsewhere, and the community was never replaced. This was and 
still is a great loss to many of our people.
    My tribe and the Santee Sioux Tribe did not have the same 
opportunity to negotiate and obtain settlements by acts of 
Congress as other Missouri River tribes did. Our lands were 
taken by quick condemnation proceedings in district court. As a 
result, my tribe and the Santee Sioux Tribe have suffered 
greater inequities in the initial settlements of taken lands.
    Congress has enacted equitable compensation legislation for 
five other upstream Missouri River tribes whose losses were 
similar to ours. The first was enacted in 1992 during the 103rd 
Congress to the most recent in 2000, during the 106th Congress, 
with trust funds ranging from 27.5 million to, I think--I 
believe Cheyenne River received $290 million.
    Our bill is based on solid precedent and similar 
legislation. We are here today to seek the same consideration. 
The Yankton Sioux Tribe and Santee Sioux Tribes are two of the 
last remaining Missouri River Tribes that seek equitable 
consideration for the taking of our lands for the construction 
of these dams and reservoirs under the Pick-Sloan Act of the 
1950's.
    Like previous equitable compensation bills, our bill will 
provide the tribe an annual interest payment derived from a $23 
million trust fund established to compensate the tribe for its 
loss and bring some equity to the issue of the Pick-Sloan 
taking. The interest income will assist the tribe with its 
economic development needs and help strengthen cultural and 
social programs. This in turn will assist the tribe's move 
toward greater self-determination in tribal affairs.
    This bill directs our tribal council to develop a detailed 
plan as to how the interest payments will be used, and we have 
begun that process. Our tribal plan will include programs that 
will benefit all tribal members, our elders, and our young 
people. Most importantly, our tribal elders who have suffered 
firsthand support this bill. It will help heal some of the 
wounds our elders have experienced.
    Mr. Osborne. Thank you, Mr. Cournoyer. Your time has 
expired. And, so we appreciate your testimony.
    [The prepared statement of Mr. Cournoyer follows:]

Statement of Robert Cournoyer, Tribal Vice Chair, Yankton Sioux Tribe, 
                          Marty, South Dakota

    Mr. Chairman and members of the Indian Affairs Committee, my name 
is Robert Cournoyer, and I serve as the elected vice tribal Chair of 
the Yankton Sioux Tribe. Our land is located in southeastern South 
Dakota. The Missouri River borders the reservation's southern boundary.
    On behalf of the Yankton Sioux tribal membership, I would like to 
express my appreciation to you and the committee members for 
consideration of H.R. 2408, the Yankton Sioux Tribe and Santee Sioux 
Tribe of Nebraska Equitable Compensation Act. The Yankton tribe, 
through its representatives, has worked closely with Congressman 
Osborne's office and Congressman John Thune's office on this bill. We 
are grateful for their support and their staffs' guidance during this 
process.

BACKGROUND
    Our reservation was established by the Treaty of 1858 which 
provided our people with 430,405 acres of land along the Missouri 
River. As time passed our reservation was diminished by the Act of 
August 15, 1894, which opened up our reservation to non-Indian 
settlement. By the 1950's, when the Fort Randall dam was constructed, 
only 44,938 acres of Indian land remained in federal trust status.
    In 1944, the United States Congress enacted the Flood Control Act 
which authorized the construction of five dams along the Missouri River 
known as the Pick-Sloan Program. The primary purpose of the dams and 
reservoirs was flood control downstream. Other purposes were 
navigation, hydropower generation, providing water supplies, and 
recreation.
    The impact of the Pick-Sloan program was devastating to all the 
Missouri River tribes including the Yankton Sioux Tribe. The Fort 
Randall dam and reservoir inundated a large portion of the Yankton 
Sioux reservations bottom lands and rich productive agricultural lands. 
The Fort Randall project flooded 2,851 acres of Indian trust land 
within the Yankton Sioux reservation and required the relocation and 
resettlement of at least 20 families which was approximately 8 percent 
of the resident tribal population. Over the past fifty years, the tribe 
lost an additional 408 acres to stream bank erosion.
    The Missouri River bottom lands provided a traditional way of life 
for the Yankton Sioux that is now virtually lost. The bottom lands 
provided an abundance of game and plants for traditional food, plants 
for ceremonial and medicinal purposes, and plenty of trees for lumber 
and fuel. In addition to the loss of the bottom lands, the tribe lost 
acres and acres of productive agricultural land.

INUNDATION OF THE COMMUNITY OF WHITE SWAN
    The waters of the Missouri River completely inundated the 
traditional and self-sustaining community of White Swan, one of the 
tribe's major settlement areas. The White Swan families raised various 
livestock which took shelter in the timbered bottom lands or out 
buildings. The White Swan families sold surplus milk and eggs in the 
towns of Lake Andes or Wagner. The money received was generally used to 
purchase needed staples that were not cultivated from the rich soil in 
and around the community of White Swan. The community was very close 
knit and the families helped each other in many ways.
    While it was the practice of the United States to relocate flooded 
Indian communities flooded by the Pick-Sloan program to higher ground, 
the community of White Swan was not relocated or reestablished 
elsewhere. The White Swan families were simply dispersed elsewhere and 
the community was never replaced.

CONDEMNATION PROCEEDINGS
    Neither the Flood Control Act of 1944 nor any subsequent acts of 
congress specifically authorized the U. S. Army Corps of Engineers or 
the Bureau of Reclamation to condemn Sioux tribal land for Pick-Sloan 
projects. Unfortunately, the condemnation of Yankton Sioux tribal land 
was not challenged for a host of reasons.
    The condemnation proceedings in U.S. District Court resulted in 
settlements that did not provide adequate compensation to the Yankton 
Sioux Tribe. The tribe did not receive compensation for direct damages 
but rather a compensation for the appraised value of their property. 
The condemnation proceedings did not take into account the large 
proportion of productive agricultural land. Further, the settlement did 
not account for the inflation of property values between the time of 
taking and the time of settlement which was several years later. The 
average settlement payment on other Indian reservations whose land was 
taken by acts of congress was approximately $16,680 per family 
according to research documents, while the Yankton Sioux Tribe received 
$5,605 per family as a settlement for the land taken by the United 
States.

THE IMPORTANCE OF H.R. 2408 TO THE YANKTON SIOUX TRIBE
    H.R. 2408 provides that the Yankton Sioux Tribe, as compensation 
for past inequities, will receive annual interest payments from a $23 
million trust fund account in the U.S. Treasury. These funds will be 
used by the tribe for programs outlined in a tribal plan that will be 
developed by the tribal council with approval from the tribal 
membership. The funds will be used to promote greatly needed economic 
development on our Indian lands. The funds will be utilized to build 
and improve our infrastructure. And the funds will be used to further 
education, health, recreation and the social welfare needs of our 
people.
    The precedent is well established. Congress enacted equitable 
compensation settlement acts for the Standing Rock Sioux Tribe, Three 
Affiliated Tribes, Crow Creek Sioux Tribe and the Lower Brule Sioux 
Tribe. The 106th Congress passed legislation to equitably compensate 
the Cheyenne River Sioux Tribe for its taken land. The funding amount 
for the individual tribes vary due to the unique losses of each tribe. 
However, the funding mechanism is the same in all act and bills. Each 
act and bill provides a trust fund with the interest paid to the tribe 
to be used for economic development, education, culture and social 
programs.

CONCLUSION
    The Yankton Sioux Tribe, through its Business and Claims Committee, 
has worked on this legislation for several years. H.R. 2408 has been 
developed to provide equitable compensation for the taking of land and 
as an equitable settlement for the tribe's losses. H.R. 2408 is based 
on recent congressional precedent to provide compensation to Missouri 
River tribes impacted by Pick Sloan.
    Many of our tribal elders who experienced first hand the taking of 
tribal land and the removal have passed on. It has been long enough for 
a just and equitable resolution to the devastating impacts of the Pick-
Sloan program on our tribe.
    I respectfully urge the members of this Committee to report H.R. 
2408 out of the committee with a recommendation that it pass the full 
House.
                                 ______
                                 
    Mr. Osborne. And I guess in the interest of time we will go 
on with Dr. Lawson, and then we will ask a few questions. And 
so we will move on at this point. Thank you.

   STATEMENT OF MICHAEL L. LAWSON, Ph.D., SENIOR ASSOCIATE, 
                MORGAN, ANGEL & ASSOCIATES, LLC

    Mr. Lawson. Mr. Chairman and members of the Committee, I am 
grateful to have the opportunity to testify today on behalf of 
the Yankton Sioux Tribe and the Santee Sioux Tribe in support 
of H.R. 2408.
    I am an historian who first began studying the impact of 
Pick-Sloan dams on the Indian tribes along the Missouri River 
30 years ago when I was a graduate student at the University of 
Nebraska at Omaha. I subsequently wrote a book called Dammed 
Indians on the subject. Three years ago I also completed a 
special study of the impact of the Fort Randall and Garrison 
Dam projects on the Yankton and Santee Sioux Tribes. This study 
provided a more detailed analysis of these takings than had 
been included in my book.
    Brevity is the hardest challenge of all for an historian, 
but within the time allotted, I will try to summarize the 
essential findings of this study without repeating too much of 
what has already been stated to the Committee.
    The Yankton and Santee Sioux were among nine tribes whose 
lands were taken for Pick-Sloan projects on the Missouri River. 
Between 1948 and 1962, five of these tribes received initial 
settlements from Congress that included payments for direct 
property damages; severance damages, including relocation 
costs; and rehabilitation funds for their entire reservations. 
In providing funds for rehabilitation, Congress recognized that 
the tribes as a whole, and not just the tribal members within 
the taking areas, were affected negatively by the loss of 
bottom land environment and reservation infrastructure.
    Since 1992, Congress has also enacted legislation 
establishing additional recovery funds for these same five 
tribes. The Yankton and Santee Sioux tribes have not been 
provided the same opportunity to receive rehabilitation and 
recovery compensation from Congress.
    The Fort Randall Project flooded a substantial portion of 
some of the best agriculture and timbered lands within the 
Yankton Sioux Reservation in South Dakota and required the 
relocation and resettlement of at least 20 families, 
constituting approximately 8 percent of the resident tribal 
population of this in the late 1940's. Many families in 
addition to those who were relocated had been dependent upon 
the resources of those bottom lands for their subsistence.
    The Yankton Sioux Tribe and its affected tribal members 
received a total of only $227,000 from the government for the 
damages inflicted by the Fort Randall Project. Of this amount, 
121,000 was awarded them by the U.S. District Court for direct 
damages in 1950. At the urging of the Department of Interior, 
and despite the objections of the Department of Justice and the 
Department of the Army, Congress granted the Yankton Sioux 
Tribe an additional $106,000 for severance damages in 1954. 
This payment was distributed in 1956 to some, but not all, of 
the tribal families affected. This was 10 years after some of 
the properties had been condemned and 6 years after the last 
tribal members had been evicted.
    The Gavins Point Dam Project inundated approximately 8.5 
percent of the total land base of the Santee Indian Reservation 
in Nebraska. The tribe and at least 15 tribal members owned 
land within that taking area. It is not known precisely how 
many tribal members were forced to relocate because there were 
many residents who were not landowners. The Santee Sioux tribes 
taken from the Gavins Point Project were located just below the 
main settlement area of the Indian village of Santee, and were 
similar in many respects to those flooded in the White Swan 
area of the Yankton Reservation. There was considerably less 
timber, but enough other natural resources to help sustain the 
entire reservation and their traditional way of life.
    However, the impact of the taking was comparatively less 
traumatic at Santee, because most of the community remained 
intact, whereas the White Swan settlement was completely 
flooded and dispersed. The U.S. District Court awarded the 
Santee Sioux Tribe and its affected tribal members $52,000 for 
their damages in 1958. This award was based on a 1955 joint 
appraisal by both the Army and the Bureau of Indian Affairs. 
The settlement money was not distributed, however, until 1959, 
which was more than 4 years after the land had been flooded.
    The members of the Yankton and Santee Sioux Tribes have yet 
to receive their fair share of the multiple benefits that were 
supposed to be provided by the Pick-Sloan plan, although they 
have suffered a great deal as a result of its implementation. 
Neither have they received rehabilitation nor recovery 
compensation from Congress as have five other tribes impacted 
by the Pick-Sloan projects. This legislation seeks to remedy 
this inequitable situation, and I urge its passage.
    This concludes my remarks, and I would be happy to answer 
any questions you might have.
    Mr. Osborne. Thank you very much, Dr. Lawson. We appreciate 
it and appreciate your testimony.
    [The prepared statement of Mr. Lawson follows:]

Statement of Michael L. Lawson, Ph.D., Senior Associate, Morgan, Angel 
                          & Associates, L.L.C.

    Mr. Chairman and members of the Resources Committee, I am grateful 
to have the opportunity to testify today on behalf of the Yankton Sioux 
Tribe and the Santee Sioux Tribe in support of H.R. 2408.
    I am a historian and a senior associate with Morgan Angel & 
Associates, a public policy consulting firm here in Washington. I first 
began studying the impact of the Pick-Sloan dam projects on Indian 
tribes along the Missouri River thirty years ago when I was a graduate 
student at the University of Nebraska at Omaha. I wrote my doctoral 
dissertation at the University of New Mexico in 1978 on the impact of 
four of the Pick-Sloan mainstem dam projects on six Sioux reservations 
in North and South Dakota and Nebraska. The University of Oklahoma 
Press subsequently published this work as a book entitled Dammed 
Indians in 1982. A second, paperback edition, with a revised preface, 
was published in 1994.
    In my book, I explored in detail the development of the Pick-Sloan 
Plan and the negotiations that took place between the tribes and the 
Federal government. I measured the physical, aesthetic, cultural, and 
psychological damages the tribes suffered against the benefits they 
received and concluded that the critical losses far exceeded the 
minimal gains
    My research has been used in part to document and support all of 
the legislation that Congress has enacted since 1992 to provide 
additional compensation to Missouri River tribes for the loss of 
reservation resources and infrastructure caused by the Pick-Sloan dam 
projects. This has included the Three Affiliated Tribes of the Fort 
Berthold reservation and the Standing Rock, Lower Brule, Crow Creek and 
Cheyenne River Sioux Tribes. Three years ago, I completed a special 
study of the impact of the Fort Randall and Gavins Point dam projects 
on the Yankton and Santee Sioux tribes. This study provided a more 
detailed analysis of these takings than had been included in my book. 
What follows are the essential findings from this study.

I. The Pick-Sloan Plan, the Missouri River Tribes, and Congressional 
        Compensation
    In 1944 Congress enacted the Flood Control Act (58 Stat. 827), 
which authorized implementation of the Pick-Sloan Plan for water 
development in the Missouri River Basin. This plan included the 
construction of five massive earthen dams along the Missouri and 
incorporation of a sixth facility, the Fort Peck Dam in Montana, built 
on the river in the late 1930s. The U.S. Army Corps of Engineers, which 
constructed and operates the dams, estimates that the projects' overall 
annual contribution to the national economy averages $1.9 billion.
    Officially labeled the Missouri River Basin Development Program, 
the Pick-Sloan Plan caused more damage to Indian reservation lands than 
any other public works project in this nation. The six mainstem dam 
projects on the Missouri inundated over 550 square miles of Indian land 
and displaced more than 900 Indian families. Tributary dams impacted 
other reservations.
    Four of the dams constructed under the Pick-Sloan Plan (Fort 
Randall, Oahe, Big Bend, and Gavins Point) flooded approximately 
204,101 acres of Sioux land on the Standing Rock, Cheyenne River, Lower 
Brule, Crow Creek, Yankton, and Rosebud reservations in North and South 
Dakota and on the Santee Sioux reservation in Nebraska.
    The Missouri River tribes were told little about the Pick-Sloan 
Plan while it was being proposed, even though legal precedents, and in 
some cases treaty rights, provided that tribal land could not be taken 
without their consent. The portions of the Flood Control Act of 1944 
that authorized the Pick-Sloan Plan did not contain any language 
regarding the protection of tribal interests. Neither did it 
specifically authorize the taking of Indian trust land. Although the 
Bureau of Indian Affairs was fully aware of the potential impacts of 
the legislation, it made no effort either to keep tribal leaders 
informed or to object to the Army's proposals while they were being 
debated in Congress in 1944. The Indian Bureau did not inform the 
tribes of the damages they would suffer in a comprehensive way until 
1949. The legislation establishing the Pick-Sloan Plan also ignored the 
Indians' reserved water rights under the legal principle known as the 
Winters Doctrine.
    The Yankton and Santee Sioux Tribes seek an equitable settlement 
for uncompensated damages based on modern precedents established by 
Congress for five other Missouri River tribes impacted by Pick-Sloan. 
The Three Affiliated Tribes of Fort Berthold and Standing Rock Sioux 
Tribe Equitable Compensation Act of 1992 authorized capitalization of 
Recovery Funds of $149,200,000 for the Three Affiliated Tribes and 
$90,600,000 for the Standing Rock Sioux Tribe. The Three Affiliated 
Tribes of the Fort Berthold Reservation in North Dakota lost 175,716 
acres of land to the Garrison Dam project. The Standing Rock Sioux 
Tribe of North Dakota lost approximately 56,000 acres to the Oahe Dam 
project.
    The Crow Creek Sioux Tribe Infrastructure Development Trust Act of 
1996 established a $27.5 million Recovery Fund for the Crow Creek Sioux 
Tribe of South Dakota. The Lower Brule Sioux Tribe of South Dakota 
benefited from a $39.9 million Recovery Fund created by the Lower Brule 
Sioux Tribe Development Trust Fund Act of 1997. The Crow Creek Sioux 
Tribe and the Lower Brule Sioux Tribe lost 15,693 and 22,296 acres of 
land respectively to the Fort Randall and Big Bend Dam projects in 
South Dakota. In 2000, Congress awarded the Cheyenne River Sioux Tribe 
the largest tribal recovery settlement of all in regard to Pick-Sloan 
damages, $290,722,958. The Tribe lost 104,420 acres to the Oahe Dam.
    The Fort Berthold, Cheyenne River, Standing Rock, Crow Creek, and 
Lower Brule tribes all received initial settlements from Congress 
between 1948 and 1962 (totaling $352,129,794) that included payment for 
direct property damages, severance damages (including the cost of 
relocation and reestablishment of affected tribal members) and 
rehabilitation for their entire reservations. In providing funds for 
rehabilitation, Congress recognized that the tribes as a whole and not 
just the tribal members within the taking areas were affected 
negatively by the loss of the bottomland environment and reservation 
infrastructure. Accordingly, the initial congressional settlements with 
the five tribes between 1948 and 1962 provided compensation for 
severance damages and rehabilitation that averaged 458 percent more 
than was paid for direct damages. The additional payment to the 
Standing Rock and Crow Creek Sioux Tribes was over 630 percent more 
than the amount awarded to them for direct damages.
    The Yankton and Santee Sioux Tribes were not been provided with the 
same opportunity to receive compensation from Congress. Instead, they 
received settlements for the appraised value of their property through 
condemnation proceedings in U.S. District Court.

II. The Taking of Yankton Sioux Lands for the Fort Randall Dam Project
    The Fort Randall project flooded 2,851.40 acres of Indian trust 
land within the Yankton Sioux Reservation and required the relocation 
and resettlement of at least 20 families, constituting approximately 8 
percent of the resident tribal population. Reservoir waters completely 
inundated the traditional and self-sustaining community of White Swan, 
one of the four major settlement areas on the reservation. On the Crow 
Creek, Lower Brule, Cheyenne River, Standing Rock, and Fort Berthold 
reservations, communities affected by the Pick-Sloan dams were merely 
relocated to higher ground. However, the White Swan community was 
completed dissolved and its residents dispersed to whatever areas 
offered housing or land, including communities on other reservations.
    The acreage taken consisted of some of the best agricultural and 
timber lands on the reservation. Approximately one-third of the acreage 
was cropland, another third was timber or brush pasture land, and the 
remaining third was bottom meadow or upland pasturelands.
    Many families in addition to those who were relocated had been 
dependent upon the resources of these lands for their subsistence. Wood 
from the bottomlands was the primary source of fuel. A variety of crops 
were planted and harvested near the river. Hunting, trapping, and 
fishing within the area not only provided important sources of food, 
but were among the favorite recreational activities. The bottomlands 
were also filled with a generous supply of wild fruit, vegetables, 
herbs, and other useful plants, some of which were used for medicinal 
and traditional ceremonial purposes.
    The Fort Randall project also involved the relocation of at least 
509 gravesites, primarily from two church cemeteries. In accordance 
with Army regulations, it was the responsibility of the District 
Engineer to contract with private firms for the identification, 
relocation, and reburial of these remains. However, the Corps did not 
do an adequate job of supervising this work. Because the Corps of 
Engineers did not attempt to maintain good communications with the 
Tribe regarding its construction plans, it was not made aware of other 
isolated burials until it accidentally excavated two of them and dumped 
the remains into the dam embankment. The Army did such a poor job of 
locating and removing the burial sites that skeletal remains and 
caskets continue periodically to be unearthed by the cutting action of 
the Fort Randall reservoir (Lake Francis Case).
    Although the actual Fort Randall damsite was partially located on 
Indian land within the Yankton Sioux Reservation, the Corps of 
Engineers began construction on the site without the consent of either 
the Yankton Sioux Tribe or the Secretary of the Interior. The 
development of access routes to the site required rights-of-way across 
parcels of Indian land and the Army filed condemnation suits in U.S. 
District Court to obtain this access by right of eminent domain as 
early as 1946. The Army immediately filed condemnation petitions with 
the Court and obtained Declarations of Taking for the needed rights-of-
way and construction sites. These declarations gave the Corps immediate 
possession of the land
    The Army constructed a village to house the project's construction 
workers. Named Pickstown after General Lewis Pick, formulator of the 
Army's Pick Plan, this townsite was located east of the dam site within 
the boundaries of the Yankton Sioux Reservation. When completed, 
Pickstown included over 300 duplex housing units with garages, numerous 
dormitories, grade and high schools, a hospital and chapel, a theater 
and indoor and outdoor recreation facilities, and retail shops. The 
construction town stood in glaring contrast to the poor but proud 
Yankton reservation communities where 10 percent of the housing in 1950 
consisted of tents.
    The condemnation takings were accomplished by April 1948 and the 
Army began charging rent to tribal members who still wished to occupy 
the lands taken from them. This made staying on the land impossible for 
most former owners because: (1) the settlement amounts deposited by the 
Army with the District Court had not been distributed; and (2) the 
affected tribal members operated primarily in a subsistence economy 
(described in greater detail below) in which cash was scarcely used. 
These circumstances also meant that the affected tribal families were 
compelled to move from their homes without benefit of having money 
either to cover their moving expenses or to obtain other housing or 
land elsewhere.
    Neither the Yankton Sioux Tribe nor its affected tribal members 
were represented by private counsel in these condemnation cases. Nor 
does it appear that they made personal appearances at the hearings. 
Several tribal members later told the BIA they felt there was no other 
option but acceptance because they desperately needed the money to 
relocate and considered any protest to be futile.
    None of Yankton families impacted by the Fort Randall project were 
compensated for their relocation costs at the time of taking. The Army 
was not authorized to cover these expenses until 1952 when Congress 
enacted a statute mandating that landowners affected by military 
eminent domain takings be paid up to 25 percent of the appraised value 
of their property to cover moving costs. This law was of no help to the 
Yankton Sioux because it did not apply retroactively.
    Moving homes and other improvements proved to be expensive and many 
tribal members were not able to so because they either could not meet 
the cost or were not given enough time or both. Levi Archambeau, for 
example, lived with his wife and five children in a four-room house he 
had been born in on land within the taking area that he leased from the 
Tribe. Perhaps because he was not a landowner, the Army failed to serve 
him with a proper eviction notice. In a letter to Senator Francis Case, 
Archambeau claimed that that a Corps official came to his house and 
advised him that if he did not move it by 9:00 A.M. the next morning 
the Army would burn it down. ``They came at 4' O' Clock in the 
evening,'' he wrote, ``so it was burned.''
    Other families, though notified sufficiently, remained in a state 
of denial until the bitter end. The Garrett Hopkins family, for 
example, waited too long to salvage their house and only managed to 
retain the possessions they could fit into the family automobile. The 
removal also took place too late for the Army to do anything with the 
house, so it had to be abandoned. The swirling waters of the new 
reservoir quickly separated the house from its foundation and the 
Hopkins family watched from dry land as their home floated away.
    It proved difficult to buy or even lease land of the same quality 
as the bottomlands that had been evacuated. Those forced to relocate 
received little assistance in locating replacement homes comparable to 
what they had. The majority of people moved to Lake Andes or Marty, 
South Dakota. Many moved into a Lake Andes motel that had gone 
bankrupt. Several leased or purchased one or two-room tract houses that 
came to be called ``the Lake Andes shacks.'' One two-room house was 
occupied by 14 family members. Although they eventually received some 
reestablishment funds, several tribal members lived in this housing 
until they died. Others only left after a tornado destroyed many of the 
homes in the early 1960s.
    Most of the new locations to which tribal members moved lacked the 
water and timber resources of their former homes. Families previously 
engaged in truck farming or the sale of wild fruit or firewood 
experienced a sudden drop in income. Every family faced higher living 
costs after the move because of the necessity of purchasing water and 
fuel and paying rent and utility costs.
    Yankton families that did not have to move also felt the economic 
impact. Most of those who resided near the Missouri and its tributary 
streams were dependent on these sources for their domestic water 
supply. Because no provision was made for proper sewers at the 
construction settlement of Pickstown (see Map, page 15), its raw sewage 
was merely discharged into the Missouri. This situation made it 
hazardous to use untreated river water. In addition, creation of the 
Fort Randall Dam increased the amount of plankton in the Missouri, 
which made its water taste bad.
    An even greater proportion of Yankton tribal members was impacted 
by the loss of timber resources. Almost half of the resident families 
on the Yankton Sioux Reservation had depended on wood from the taking 
area as a fuel source for heating and cooking. Most collected driftwood 
along the river banks rather than cutting standing timber. In the 
process of stabilizing the Missouri the Fort Randall Dam eliminated 
most of the flow of driftwood. Yet the condemnation suits failed to 
include any valuation for either the utilitarian or commercial use of 
timber. The standing timber remaining on the reservation was too sparse 
or inaccessible to serve as a substitute source. The BIA estimated in 
1954 that the annual cost for replacement fuel sources was $15,000 or 
$120 per family for the 125 families that previously depended on 
driftwood or other timber from the White Swan area. Many families 
outside the taking area also gathered wild fruit from the bottomlands, 
particularly from Beebe Island, and hunted game in the area. Yet the 
Yankton Sioux Tribe was never compensated for these losses. The value 
of timber, wildlife habitat, and wild fruit products was never included 
in any reestablishment compensation paid to the Yankton Sioux Tribe or 
its members.

III. Previous Compensation Provided to the Yankton Sioux
    The Yankton Sioux Tribe and its affected tribal members received a 
total of only $227,510 from the Government for damages inflicted by the 
Fort Randall project. Of this amount, $121,210 was awarded them by the 
U.S. District Court for direct damages in 1950; the result of 
condemnation proceedings filed by the Army that violated the precedents 
of Federal law regarding the taking of tribal land. At the urging of 
the Department of the Interior, and despite the objections of the 
Department of Justice and the Department of the Army, Congress granted 
the Yankton Sioux Tribe an additional $106,500 for severance damages in 
1954. This payment was distributed in 1956 to some but not all of the 
tribal families affected. This was ten years after some of their 
properties had been condemned and six years after they had been 
evicted.
    The consensus among the Yankton Sioux is that the majority of 
families were much worse off after reestablishment than they had been 
before relocation. They were rapidly transformed from a subsistence to 
a cash economy. In the bottomlands there were not many items families 
needed to purchase. After relocation, however, many were forced for the 
first time to pay rent and utility bills for water and electricity (if 
they had it) or buy stove wood or heating oil from non-Indians. They 
had to purchase over-the-counter medicine instead of using home cures 
derived from wild plants, canned goods instead of canning their own, 
and meat, dairy products, and eggs instead of producing their own. This 
situation created much hardship for families not able to readily find a 
way to generate income.
    Relocation disrupted the lifestyle of all the families and 
contributed to the dysfunction of some. Whereas White Swan tribal 
members had previously enjoyed the agricultural pursuits and private 
space of allotted lands, now many were crowded together in town, often 
without room for even a small garden. Although the families made an 
effort to continue visiting each other, they gradually lost the 
cohesiveness that had characterized their former community. They were 
now scattered all over the reservation, and even outside of it, and 
some were farther away from churches and schools. Slowly they lost some 
of the spirituality and much of the connectedness they had known at 
White Swan. ``We lost more than our homes,'' observed former resident 
Louie Archambeau, now 61, ``We lost our way of living, a part of our 
culture. That is something we will never get back.'' The White Swan 
families had to adjust to a new and less accessible environment. Once 
that area was inundated, there was no other place like it within the 
reservation. Most of those who managed to obtain replacement land had 
less of it. They also had fewer livestock but faced greater costs for 
shelter, feed, and water. The net result was a rapid decline in 
agriculture on the reservation. As one former resident observed about 
the White Swan era: ``There were a lot of Indian farmers back in those 
days, now there are hardly any.''
    Hunting has continued to be good on the reservation, but fishing 
and trapping are far less prevalent. A common reaction to their forced 
relocation inland among many former White Swan residents has been a 
gradual aversion to fishing or even eating fish. While these people 
once enjoyed free access to the fish and wildlife of the bottomlands, 
hunting, fishing, and trapping are now heavily regulated by the State 
of South Dakota within the taking area of the Fort Randall Reservoir 
and by the Tribe within the Reservation. When one former White Swan 
resident tried to gather firewood down by the reservoir, he was also 
informed that those resources now belonged to the Army.
    In 1960 the BIA conducted a comparative study of the experiences of 
six Indian reservations, including Yankton, that were impacted by Pick-
Sloan dams on the main stem of the Missouri. This study found that the 
average total damage payment received per family within the taking area 
at Yankton was $5,605 whereas the payment per family averaged $16,680 
on the other five reservations. The reservation with the next lowest 
per family payment was Crow Creek at $10,363 while Fort Berthold 
families received the highest amount at $30,962. If these funds had 
been distributed on a per capita basis to all families resident on the 
reservations, the Yankton families would have received $485 while 
families on the other five reservations would have received an average 
of approximately $8,606. Again, Fort Berthold families would have 
received the most, a total of $24,184 each. This disparity between 
Yankton and the other reservations reflects the fact that Yankton was 
the only one of the six that did not receive additional rehabilitation 
funds. The Santee Sioux reservation was not included in this BIA 
analysis.
    It should be kept in mind that tribes from the other five 
reservations, including Fort Berthold, Standing Rock, Crow Creek, Lower 
Brule, and Cheyenne River have since 1992 received additional 
compensation from Congress. On the other hand, the Yankton Sioux still 
faired better than families on the Santee and Rosebud reservations who 
have yet to receive any legislative compensation.
    In addition to taking 2,851.40 acres of Yankton Sioux land through 
condemnation, the Fort Randall Dam project has also caused the erosion 
of more than 400 acres of prime reservation land adjoining the east 
bank of the Missouri. This riverbank erosion is a result of 
fluctuations in the water level caused by the construction and 
operation of the dam. However, this legislation (H.R. 2408) does not 
seek compensation for these erosion losses.

IV. The Taking of Santee Sioux Lands for the Gavins Point Dam Project
    In March 1952, three months before the gates of the Fort Randall 
Dam were closed the Corps of Engineers began construction of the Gavins 
Point Dam. The Gavins Point project straddled the boundary between 
Yankton County, South Dakota and Knox County, Nebraska, four miles 
above the town of Yankton, South Dakota.
    The Gavins Point dam project inundated 593.10 acres of land within 
the Santee Sioux Indian Reservation in Knox County, Nebraska. This lost 
acreage represented approximately 8.5 percent of the reservation's 
total land base of 6,951 acres. Of the total amount of Indian land 
condemned by the Army, the Santee Sioux Tribe owned approximately 223 
acres. Fifteen individual tribal members or their estates held the 
remaining 370 acres. The taking included 24 separate tracts of land 
ranging in size from 1 acre to 207.65 acres. It is not known precisely 
how many tribal members were forced to relocate.
    The Santee Sioux lands taken for the Gavins Point project were 
located just below the main settlement area of the Indian village of 
Santee, Nebraska. The bottomland environment of that area and the use 
that tribal members made of it was similar in many respects to that of 
White Swan. There was considerably less timber but enough other natural 
resources to help sustain the entire reservation. The impact of the 
taking was comparatively less traumatic at Santee because most of the 
community remained intact whereas the White Swan settlement was 
completely flooded and dispersed.
    The Santee taking area included the old farm established by the 
Santee Normal Training School to provide agricultural instruction and 
experience for its students. After the school was closed in 1938, the 
Tribe obtained possession of the farm. The property included a cattle 
and hog barn, grazing land, and fields for growing primarily hay, oats, 
and corn. At one time a boat dock was also maintained in this area. 
Families who did not have their own land were permitted to live and 
farm on the tribal tracts. Some families also farmed their individually 
held land, raising horses and chickens as well as cattle and hogs and 
growing mostly corn and potatoes. Other families lacked sufficient land 
to provide for much more than a homesite and perhaps a garden plot.
    The Santee village had more of a cash economy than did White Swan 
but subsistence activities and trading in goods or services instead of 
money were still common. For example, some women manufactured quilts 
with Sioux designs that they often traded for food. Most families lived 
in small frame houses that lacked electricity and plumbing and many did 
not have a motor vehicle. Several families from throughout the 
reservation depended upon the Missouri for their water supply. A tribal 
member named Lloyd James hauled barrels of river water in a two-horse 
wagon and distributed it in a wide area.
    The Santee bottomlands served as a shelter and feeding ground for 
many kinds of wildlife. Deer and rabbits were abundant year-round and 
numerous game birds wintered there each year. The unrestricted hunting 
and trapping of this game provided the Santee Sioux with an important 
source of food, income, and recreation. Unlike some Sioux bands, the 
Santee always fished for subsistence and fish was a part of their diet 
historically. Tribal members used both lines and spears to fish and 
some sold a part of their catch. Tribal members from throughout the 
reservation hunted in the bottomlands and trapped beaver, mink, and 
opossum.
    The gathering and preserving of wild fruits and vegetables was a 
traditional part of the culture of the Santee Sioux. The many herbs, 
roots, turnips, strawberries, plums, chokecherries, and other edible 
plants that grew in the bottomlands added variety and bulk to their 
diet. These plants were eaten raw, dried and stored for winter, made 
into soups, sauces, syrups, and jellies or mixed with other foods to 
add flavoring. A variety of plants were also used traditionally for 
ceremonial and medicinal purposes. The loss of these plants in the 
Santee bottomlands greatly reduced the reservation's natural food 
supply.
    Unlike their Yankton neighbors to the north, the Santee Sioux were 
given considerable advance warning that they might be impacted by the 
Gavins Point Dam. The BIA reported as early as June 1950 that the 
project would flood at least 500 acres of ``the best agricultural lands 
on the reservation.'' To its credit, the Corps invited the BIA to 
assist in the initial appraisal. This marked the first (and last) time 
in the history of the Army's taking of Indian land for the Pick-Sloan 
projects that it chose to cooperate with the BIA from the start and not 
conduct a separate appraisal.

V. Previous Compensation Provided to the Santee Sioux
    The available documentary record does not indicate precisely when 
the affected Santee Sioux families were forced to move. The extant 
documents do make it clear; however, that relocation took place long 
before payment was received for the property lost. The Corps had 
previously informed the BIA that the inundation of Santee lands was 
imminent in July 1955, but the U.S. District Court did not award 
compensation until early 1958. The Santee Sioux defendants were paid a 
total of $52,000 on the basis of the Tribe's 1955 agreement with the 
Corps. This meant that no allowance was made for the possible increase 
in property values between the BIA's 1955 appraisal and the 1958 
settlement. The settlement amounted to an average of $87.67 per acre 
for the affected landowners at Santee, as compared to the total 
settlement of $77.60 per acre for Yankton, including the congressional 
compensation.
    It is not known when the settlement money was distributed to 
individual tribal landholders, but the Santee Sioux Tribe did not 
receive a portion of the $17,527.90 awarded for the tribal tracts until 
September 1959, more than four years after the land was flooded. The 
Tribe attempted to use the money to develop recreational facilities 
that could take advantage of the tourism boom on Lake Lewis and Clark. 
However, the enterprise never succeeded. The BIA did not track the 
social and economic status of the affected families at Santee like it 
did at Yankton, Crow Creek, Lower Brule, Cheyenne River, Standing Rock, 
and Fort Berthold. Therefore, little is known about their condition 
after relocation. The available evidence suggests that the families 
were able to find replacement homes elsewhere within the village of 
Santee or at other locations on the reservation where they might have 
already held an interest in land or had the opportunity to purchase or 
lease other tracts. Judging from the experience of most Indian families 
impacted by the Pick-Sloan projects, it is reasonable to conclude that 
their situation was worse after relocation than it had been before.
    The compensation awarded the Yankton and Santee Sioux did not 
reflect the fact that their takings involved a greater proportion of 
agricultural land. Neither did it account for the inflation of property 
values between the time of taking and the time of settlement. The total 
compensation for the Yankton Sioux also failed to take into 
consideration the fact that the White Swan community was destroyed, 
dispersed, and never replaced, whereas communities flooded on the other 
reservations impacted by Pick-Sloan projects were relocated and 
reestablished on higher ground. In addition, neither the Yankton nor 
the Santee Sioux was provided funds for rehabilitation, even though a 
large proportion of tribal members residing outside the taking area on 
both tribes' reservations were also impacted by the dam projects.

VI. Conclusion: The Ultimate Cost to Benefit Ratio
    The Pick-Sloan main-stem projects have now been completed for 
several years. If the benefits that the Sioux tribes received from 
these massive projects are to be gauged, they should first be measured 
in terms of the purposes for which the dams were originally 
constructed. Assuming that the $30 billion Pick-Sloan Plan was truly 
designed to be beneficial to the people of the Missouri Basin, then it 
should be of equal benefit to those people, both Indian and non-Indian, 
who suffered the most as a result of its implementation. However, such 
is not the case.
    The U.S. Army Corps of Engineers and the Interior Department's 
Bureau of Reclamation designed their integrated water development 
program to provide flood control, irrigation, hydroelectric power, 
navigation, recreation, and numerous other benefits. An evaluation of 
their efforts at this juncture reveals that any measurable improvement 
in the lives of the Sioux people resulting from these projects has been 
slow in coming.
    The Army and the Interior Department succeeded in making long 
stretches of the Missouri system safe from the catastrophe of high 
floods. This is particularly true in the populous region between Kansas 
City and Sioux City. However, floods on the Sioux reservations were 
never as serious or as frequent as those in the lower basin, and the 
federal efforts have still not prevented the continuation of tributary 
inundations. What tribal members are more concerned with is that, in 
many places, the Corps of Engineers took far more land than was 
necessary to maintain the reservoirs at their maximum pool level. Yet, 
in other places the reservoir waters have infringed on land never 
purchased by the federal government. The fluctuation of the undulating 
waters has created a far greater hazard than any of the infrequent 
floods of the past.
    The stream-bank erosion caused by the reservoir waters has become a 
serious problem, as demonstrated by the loss of 428 acres of 
reservation land at Yankton since 1953. This erosion has led to the 
gradual reduction in size and productivity of a tribal irrigation farm. 
Shoreline conditions continually have been made unstable, and sediment 
deposits in the water have been much greater than expected. Fluctuation 
in the water levels have made it extremely difficult for the tribes to 
develop fully their shoreline land and resources. The cutting action of 
the water not only endangers tribal members and their livestock but has 
also caused the exposure of skeletal remains from unmarked graves along 
the shores. Since the Corps of Engineers did not accurately project 
reservoir boundary lines prior to inundation, water now often infringes 
on Indian property when at maximum pool level. Because the Army also 
refused tribal requests to build fences along the boundaries, Indian 
ranchers regularly suffer livestock losses, as their cattle either fall 
off the eroding banks or drift into the reservoirs in search of water.
    The raising of the water level by the dam projects has also caused 
frequent landslides. This is particularly true in the area of the 
Yankton Sioux Reservation adjacent to the Missouri River below the Fort 
Randall Dam. Landslides are triggered by both stream erosion along the 
banks and ground water flows through adjacent areas. The increased 
water level of the river has escalated the speed and pressure of ground 
water moving through the earth. The instability that stream erosion and 
increased ground water causes to the banks, hills and bluffs results in 
various kinds of landslides, including rockfalls, soilfalls, bedrock 
slumps and glides, soil slumps, slow earthflows, and mudflows. These 
landslides result in the destabilization of buildings and the gradual 
loss of grazing and cropland areas and create a hazard for both human 
beings and livestock.
    The instability of the earth caused by the Fort Randall project 
necessitated the relocation of a housing development of twenty-five 
homes and the Yankton Sioux tribal office complex at Greenwood, South 
Dakota. These buildings had to be moved because the shifting soil 
rocked them off their foundations.
    While the Pick-Sloan Plan has generally improved flood protection 
in the Missouri Basin, the advantage of this fact to the Sioux has been 
obscured by the present disadvantages of the reservoir projects. The 
benefits of flood control are outweighed by the damages that these 
people sustained in order to make these projects possible. The Indians 
did not have to forfeit their lives, but they certainly suffered 
greater losses from the human-caused inundations than they would have 
from any natural flood in their region.
    During the summer of 1993, prolonged torrential rains put the Pick-
Sloan facilities to their stiffest test yet. Record flooding was 
experienced along the lower Missouri from Nebraska City, Nebraska, to 
the river's mouth near St. Louis. There was also major flooding along 
the tributary Big Sioux River in northwestern Iowa and southeastern 
South Dakota. The Pick-Sloan mainstream reservoirs saved downstream 
communities from even worse flooding by capturing much of the runoff in 
Montana and the Dakotas. Yet all of Iowa and most of the counties in 
North Dakota, eastern South Dakota, southeastern Nebraska, and the 
upper two-thirds of Missouri suffered enough flood damage to be 
included within the designated federal disaster area. Several Indian 
reservations within the region were also ruled eligible for government 
disaster aid, including Yankton. Although hydrologists declared that 
the Great Deluge of 1993 was ``in excess of a 100-year flood,'' meaning 
that there is less than a one-in a-hundred chance that a similar 
disaster could happen in any given year, it caused everyone involved to 
question whether any amount of engineering and construction can provide 
absolute flood protection.
    The Pick-Sloan dam projects have actually created flood hazards in 
some areas. Near the Santee Sioux Reservation, for example, the Gavins 
Point project has increased the amount of silt deposited near the mouth 
of the Niobrara River. This obstructs the flow of the Niobrara and 
regularly causes flooding along a seven-mile stretch of Bazile Creek 
within the reservation. These inundations have impacted farms and 
ranches along the creek, some of which are owned by tribal members and 
others that are on tribal trust land. These tracts are gradually losing 
land each year as the water level increases; some parcels have lost up 
to 40 percent of their land base.
    Although the Pick-Sloan power plants have definitely increased the 
availability of electrical power in the Missouri Basin, they have not 
been a factor in actually increasing the use of electrical power by the 
Sioux tribes. The reservations lacked electrical power before 
construction of the Pick-Sloan projects primarily because their 
residents could not afford it rather than because it was unavailable. 
To this extent the steady increase in the use of electrical power by 
tribal members over the past four decades is more a result of the rise 
in the general economic level of the reservations than of the increased 
availability of electrical power. Affordability remained the most 
important factor as far as the Sioux were concerned. As late as the 
early 1980s, there were still many areas of the reservations that 
lacked electrical service because it was beyond economic capability. 
There is no evidence to show that Pick-Sloan provided the lower 
electrical rates its proponents promised, and the Federal Government 
has done little to make lower power rates available to the Sioux 
tribes.
    It was not until the 1980s that Congress and the executive branch 
made concessions to the Missouri River Sioux tribes regarding Pick-
Sloan hydropower. For the first time the Department of Energy 
acknowledged that, under Section 5 of the Flood Control Act of 1944, 
the tribes qualified as preferential low-cost power customers. 
Unfortunately, nearly all of this power had been allocated to non-
Indian municipalities and rural cooperatives. In 1982, however, 
Congress authorized the Departments of Energy and the Interior to make 
Pick-Sloan pumping power available for irrigation projects on the Lower 
Brule, Standing Rock, Cheyenne River, Crow Creek, and Omaha 
reservations. Irrigation projects on these tribal lands now qualify for 
the preferential rate of 2.5 mills for their pivots. The catch is that 
Congress did not provide for the construction of new transmission lines 
to these Indian projects, and the existing lines are now owned and 
controlled by Rural Electrification Administration cooperatives that 
cannot afford to give the tribes a reduced delivery rate. The result is 
that the tribes can pump water to their farmlands at the Pick-Sloan 
rate but first must pay a premium rate to get the water to their pumps. 
Despite these problems, a few Missouri River Sioux, including the 
Yankton Sioux Tribe, have experienced moderate success with irrigation 
projects since the1980s.
    The long and heated debate over the suitability and practicality of 
reclamation in the upper Missouri Basin has caused frustrating delays, 
serious cutbacks, and drastic revisions in the original Pick-Sloan 
irrigation plans. Consequently, the Bureau of Reclamation's two major 
projects in the Dakotas, the Garrison and Oahe diversion units, were 
halted by environmentalists and others who shifted their support to 
alternative water development programs. In 1964 Congress deauthorized 
most of the irrigation projects proposed for the Sioux reservation 
lands.
    The Reclamation Bureau determined that approximately 125,000 acres 
of the Sioux reservations are potentially irrigable, yet it remains to 
be seen if the tribes will ever be able to develop this potential. 
First, there is the critical question of whether extensive irrigated 
farming can ever be financially feasible for the tribes. Second, there 
is the question of how much of the reservation land is actually 
irrigable. In some places it has been discovered that neither the water 
nor the soil was of sufficient quality to make irrigation projects 
worthwhile.
    Under the body of law that developed from the Winters decision of 
1907, the Sioux have prior and paramount rights, for the purpose of 
irrigation, to all waters that flow either through or along the 
reservations. It has also been claimed that their rights include 
priority use of water for any other beneficial use, either at present 
or in the future. The actual extent of the Indians' reserved water 
rights beyond the purposes of irrigation, however, has never been 
judicially clarified.
    Despite the specific requirements of the law, the federal 
government has not made an effort to comply with the Winters Doctrine 
in regard to the Pick-Sloan Plan, and the Sioux Tribes have not 
attempted to have their rights protected through the process of 
judicial appeal. Because no effort has ever been made to accurately 
determine and quantify the precise water needs of the tribes, it is 
likely that their rights will continue to be ignored.
    The Flood Control Act of 1944, which authorized the Pick-Sloan 
Plan, provided that the irrigation of tribal lands and repayment for 
such projects would be ``in accordance with the laws relating to Indian 
lands. The Leavitt Act of 1932 established generous policies whereby 
payment of irrigation construction costs could be deferred by the 
tribes over a long period according to their repayment ability. To 
comply with these laws and the provisions of the Winters Doctrine, the 
Bureau of Reclamation should have fully recognized the Indians' rights 
and made an effort to quantify their water needs before committing any 
of the water under its control to other projects. Having guaranteed the 
priority of native rights, it should then have made plans to develop 
irrigation wherever feasible on the reservations, without regard to 
cost. Because this was not done, it is doubtful that the Sioux will 
ever realize the full benefits of irrigation.
    Residents of the upper Missouri Valley, including the Yankton and 
Santee Sioux Tribes, did not expect any navigation benefit from Pick-
Sloan, since its primary project was the development of a navigation 
channel by the Corps of Engineers from Kansas City to Sioux City. 
Neither did they anticipate any difficulty in navigating the Army's 
main-stem reservoirs. Yet, the nature of the clearing operations 
carried out by the Corps obstructed navigation on many of the Missouri 
River reservoirs by leaving trees, and sometimes buildings, standing 
above or just below water surfaces. These obstacles also interfered 
with recreational activities on the man-made lakes, another of the 
purposes for which the dams were created.
    Of all the benefits promised by Pick-Sloan, the most immediate and 
successful results have been realized in the areas of outdoor 
recreation and tourism. Each year millions of vacationers are drawn to 
the hundreds of public access areas developed along the reservoirs for 
swimming, boating, camping, and picnicking, but the primary attraction 
is fishing. State and federal wildlife agents have gradually succeeded 
in increasing both the number and variety of species through constant 
restocking, and fishing has become exceptionally good. Businesses 
catering to tourists and outdoor enthusiasts have thrived, and the 
Interior Department has considered making all six main stem reservoirs 
into a National Recreation Area.
    Most of the Sioux tribes have been unable to share significantly in 
the new prosperity of the river-based recreation boom and nearly all 
still lack tribally developed recreation areas for swimming, boating, 
and fishing. The Standing Rock and Crow Creek Sioux Tribes developed 
tourist complexes on their reservations in the early 1970s that 
eventually failed. These and several other Sioux reservations now have 
moderately successful casinos that also include hotels and restaurants. 
While some of these facilities have been built near the Pick-Sloan 
reservoirs, they thrive on the basis of high stakes gambling and not 
because of their proximity to good hunting and fishing.
    The Santee Sioux Tribe intended to use the money it received from 
the Gavins Point taking to purchase a small resort complex on fee land 
near Lake Lewis and Clark in 1960. The complex consisted of four 
cabins, a cafe, a store, and a service station. The Tribe wanted to 
refurbish and expand the existing facilities. The prospects seemed 
bright. The Corps of Engineers had reported that there were 1.3 million 
visitors to the reservoir in 1958 and the State of Nebraska had issued 
194,083 fishing licenses and 153,418 hunting licenses in the area 
during the same year. However, the BIA held control over expenditure of 
the money. After the Tribe filed a development plan, it waited five 
months for the BIA to approve the release of an initial $10,000. Then 
eight months later the BIA rejected the development plan and informed 
the Tribe that the additional funding it had requested from the 
agency's Revolving Credit Fund was not available. By then the 
opportunity had passed. During the nearly forty years that have elapsed 
since that time, the Santee Sioux Tribe have lacked the resources to 
develop a similar project that might allow them to exploit the 
recreational opportunities created by the Gavins Point project.
    By causing the depletion of the wildlife habitat, and the 
subsequent decline in good hunting, the Pick-Sloan dams have actually 
reduced the favored recreational activity of Sioux tribal members. 
However, the reduction in game has not prevented the trespassing of 
non-Indian sportsmen on the reservations and the regulation of their 
activities from becoming a serious problem. In 1993, in the case of 
South Dakota v. Bourland, the U.S. Supreme Court held that Congress, 
through the vehicle of Pick-Sloan settlement legislation, had abrogated 
the right of the Cheyenne River Sioux Tribe to regulate hunting and 
fishing by non-Indians within the taking area of the Oahe Dam project. 
Although recent legislation has restored portions of taking areas and 
transferred jurisdiction over recreational areas developed by the Corps 
of Engineers to the Cheyenne River and Lower Brule Sioux, the Bourland 
decision does not bode well for the other Missouri River tribes.
    The members of the Yankton and Santee Sioux Tribes have yet to 
receive, therefore, their fair share of the benefits that were supposed 
to be provided by the Pick-Sloan Plan, although they suffered a great 
deal as a result of its implementation. The saga of the Missouri River 
dams and their impact on the Sioux and other tribes of the Northern 
Plains region will continue well into the future. It will always be 
impossible to ignore or excuse the abuse of Native American rights that 
has characterized much of the history of Pick-Sloan. However, it is 
sincerely hoped that the federal government will provide corrective 
initiatives that might allow this historian to someday write a more 
optimistic conclusion to the episode as it pertains to the Yankton and 
Santee Sioux Tribes.
                                 ______
                                 
    [An attachment to Mr. Lawson's statement follows:]
    [GRAPHIC] [TIFF OMITTED] T0761.006
    



    Mr. Osborne. I have learned a little bit from you gentleman 
today. I knew a little bit before, but I know a lot more, and 
we certainly understand the story that you have to tell.
    I guess, first of all, Chairman Trudel, I would like to ask 
you a question about the water issue up there. Given that you 
do have nitrates and you do have bad water, did the dam itself, 
the backing up of the water, contribute to your problem, or is 
it just indigenous to the area?
    Mr. Trudel. I think it is a combination of one of the 
problems that we have with the dam--we met with the Corps of 
Engineers, I think, approximately about 15 years ago now, and 
the dam--the siltation on the dam was about 25 years ahead of 
schedule at that time. I think they had a 100-year siltation 
plan, and it is already into about the 50th year. So the 
siltation was about 25 years ahead of schedule.
    We have the Niobrara River, which feeds into the Missouri 
just above our reservation boundary, and which causes a lot of 
the siltation because it is an undammed and uncontrolled river, 
and I think it is under the Wild Rivers Protection Act, or 
whatever, now. And is a scenic river. Pardon me. And then we 
have Bazile Creek, which is a tributary on the reservation that 
runs completely through the reservation and empties into the 
Missouri.
    And where the mouth of the Bazile Creek is, the siltation 
that is built there has caused a reduced flow of Bazile Creek, 
which is causing the creek to spread. And that spreading 
problem is--you know, it is also eating up land, but it is also 
causing a rising water table in some of our rural areas.
    We have a number of homes along Bazile Creek whose wells 
are--as we sit here now, they are already being affected and 
will probably be out of use in a very short period of time. The 
nitrates have been detected in a lot of the outlying wells, and 
I don't think an exact cause has been provided to us on the 
reason for the high nitrate. I am thinking health service has 
done some investigation into it, although I don't think we have 
a report back.
    I know also that the Corps of Engineers did a grid on the 
siltation problem and what the damage is doing to our land, as 
it is today into Bazile Creek and the homes along that area. I 
know that some of the problems that we have had in recent years 
is, you know, the wells were flooded out. And I know a lot of 
things come with the floods, and I think maybe that is part of 
the nitrate problem, is when Bazile Creek did flood, it did 
flood out our main wells, and the wells were out of use for a 
number of months, and we were drinking Dakota Splash for a 
number of weeks there.
    Mr. Osborne. Well, thank you very much.
    Mr. Osborne. Just very quickly, Chairman Cournoyer, in your 
testimony, you mention that condemnation of the Yankton Sioux 
tribal land was not challenged for a variety of reasons. Could 
you please share with the Committee what some of those reasons 
were?
    Mr. Cournoyer. I think at that time, according to the 
history of the Yankton Sioux, we were kind of in a period where 
we were under the subagency of the--we were considered a 
subagency, and our fiduciary trust responsibility was taken up 
by the Rosebud Agency. We were in a period where we didn't have 
any formalized government at that time. But, you know, the 
tribe did meet; it had an annual meeting every year in August.
    So I think during that time they failed to come out and 
consult with the tribe, even though we were sort of an 
unincorporated tribe at that time because we were in a--I 
think--believe in the 1930's they had the Indian Reorganization 
Act. I am not sure if it was in 1932, but the Yankton Sioux 
Tribe did not go along with the--when they came to the Indian 
Reorganization Act through the history. So, we weren't 
considered an IRA tribe, and we didn't have formalized tribal 
government until the 1960's.
    So, in essence, the BIA should have been looking out for 
the trust responsibility of the tribe and came out and informed 
the tribe that these were happening. But in the history of this 
whole thing with the Pick-Sloan program, most tribes were not 
consulted with until after the fact that they were already 
building these tribes. And a lot of our people didn't 
understand what was going on at the time. So we had people that 
were in the White Swan community that didn't leave until the 
water was lapping at their porches. They were forced to leave.
    So it was--I believe that it was a letdown in trust 
responsibility of the BIA at that time, since we were--did not 
have formalized tribal government but, like I said, we did have 
an annual meeting once a year of all the tribal members for 
many, many years.
    So I believe that it was a culmination of a lot of things. 
But, still, I think that the BIA had the responsibility of 
coming out and informing the tribe of what was going on so.
    Mr. Osborne. Well, thank you. We will certainly try to 
rectify it.
    Mrs. Christensen, I want to thank you for staying. You have 
been very kind in doing so.
    Mrs. Christensen. Thank you. I know that some of our 
speakers, our panelists, have traveled to come here, and I also 
have some Native American heritage, so I feel that I have an 
obligation to be here.
    Mr. Osborne. Well, we appreciate it.
    We hope you understand that there is a Resources bill on 
the floor, Interior, and so a lot of the Committee members are 
over there on the floor today, and that has been our problem. 
And if you have no further questions, I will ask one question 
of Dr. Lawson, and it should be very brief.
    What percentage of the Pick-Sloan Program would you 
estimate the Fort Randall and Gavin Points Projects' economic 
contribution to be?
    Mr. Lawson. What portion? Would you restate that?
    Mr. Osborne. What percentage of the Pick-Sloan program 
would you estimate the Fort Randall and Gavins Point Projects 
will be in terms of economic contribution?
    Mr. Lawson. I haven't--I don't have the data to make a 
guess of that. You are asking what contribution the projects 
were?
    Mr. Osborne. Yes.
    Mr. Lawson. Well, they were among--the Gavins Point was the 
smallest--one of the smallest of the dams, but the Fort Randall 
was certainly one of the largest, and it provides billions of 
dollars a years in benefits to the whole northern plains in 
terms of flood control and primarily in hydroelectric power and 
also in the recreation benefits, particularly for Gavins Point 
Dam, since it is the closest of the Pick-Sloan dams, close to 
major population areas.
    Mr. Osborne. So, in essence, the payments being made are--
in view of the economic impact are relatively small.
    Mr. Lawson. They are relatively small. And certainly, you 
know, now it has been almost a half century that these people 
have gone without the benefits of having--you know, the 
multiple benefits that were supposed to be provided by the 
plan. It is--if you have a situation where they were supposed 
to flood these--flood the--create these reservoirs to improve 
water supplies in municipal areas--and it has throughout most 
of the Missouri Basin, but you still have a situation in Santee 
and at Yankton where you don't have good water sources. They 
don't get a portion of the hydroelectric power. They don't 
get--even for their irrigation projects. And they still have 
flooding on the reservation. So they don't--there is a 
negligible flood control benefit as well.
    Mr. Osborne. Well, we appreciate your testimony. We 
appreciate your being here today, and I can tell you that we 
will do everything we can to see to it that these two bills are 
passed and we have a favorable outcome.
    We greatly appreciate all the witnesses' participation in 
today's hearing, and this concludes the Committee's 
proceedings, and thank you very much.
    [Whereupon, at 5:30 p.m., the Committee was adjourned.]
    [Additional statements submitted for the record follow:]
    [Responses to questions submitted for the record follow:]

Statement of The Honorable Elton Gallegly, a Representative in Congress 
                      from the State of California

    Mr. Chairman, the General Accounting Office has issued a staggering 
report on how the governments of the Republic of the Marshall Islands 
and the Federated States of Micronesia mishandled federal dollars. U.S. 
taxpayer dollars were meant to provide basic human services to the 
people of these countries, such as education and housing. Instead, they 
were misused, and in some cases, stolen outright. Importantly, the GAO 
reported that U.S. federal agencies were unable to provide little 
oversight for these programs.
    The GAO studied thirteen U.S.-funded programs. Of these, nine 
suffered accountability problems. Five involved theft, fraud, or abuse 
of program funds.
    A few examples of theft and abuse include:
     $341,000 missing in Head Start funds. Program officials 
admit stealing $11,500 of those funds.
     the Minister of Education in the RMI used education grant 
funds meant for teacher training to travel to Paris for three weeks to 
attend a U.N. Conference; and ;
     low income rural housing assistance funds were provided 
to the FSM President and others who were clearly not economically 
disadvantaged.
    The vast majority of the U.S.-funded programs in the FSM and RMI 
are under the jurisdiction of the Department of Interior. The 
Department has said that it did not have adequate funds and authority 
to provide the personnel and oversight needed to ensure taxpayer funds 
were not misused. Specifically, the Department of Interior said that it 
did not have the authority to withhold funds from these governments if 
the funds were being misused.
    Mr. Chairman, not only have valuable federal resources been 
misused, the people of the RMI and FSM did not receive the basic 
services they were promised. It is my hope that in the negotiations of 
these compacts, we finally provide federal agencies with the authority 
needed to ensure that U.S. taxpayer dollars are used for their intended 
purpose.
                                 ______
                                 

 Statement of Hon. Tom Osborne, a Representative in Congress from the 
                           State of Nebraska

    I am pleased that today the Committee is taking up H.R. 2408, the 
Yankton and Santee Sioux Compensation Act, Today's hearing is the 
culmination of many years of work on the part of the Santee Sioux 
tribe, which I represent, and I am pleased that the Chairman of the 
Tribe, Roger Trudell, is here today to offer testimony on both bills.
    H.R. 2408 would provide long overdue compensation by establishing 
two trust funds to be used by the Santee Sioux and Yankton Sioux 
tribes. Specifically, this bill directs the US Treasury to deposit 
about $23 million into a special trust fund account for the Yankton 
Sioux and approximately $4.7 million for the Santee Sioux. The tribes 
would then be allowed to draw on the interest earned from the trust 
funds for economic and infrastructure development and other activities. 
The tribes would also be required to adopt economic development plans 
to account for the way in which these funds will be spent.
    This legislation is necessary because when the Federal Government 
built the dams on the upper reaches of the Missouri River under the 
Pick-Sloan Missouri River Basin program, the Yankton Sioux and Santee 
Sioux were not provided compensation for the taking of their land. 
While the dams were designed to promote general economic development in 
the region, provide for irrigation, and protect from flooding, their 
construction inundated productive agricultural and pastoral lands and 
the traditional homeland of the tribes. In the case of the Santee 
Sioux, the Gavins Point Dam permanently flooded about 600 acres of the 
tribe's land.
    H.R. 2408 is not without precedent. Over the past decade, Congress 
has passed three laws providing compensation to other tribes affected 
by the Pick-Sloan projects. Additional tribes were compensated in 1992, 
1996, and 1997. I believe it is only fair that we work to find a way to 
compensate the Yankton Sioux and Santee Sioux tribes.
    I am pleased that the Committee is hearing testimony on this 
legislation and want to welcome members of the Santee Sioux tribe and 
the Yankton Sioux tribe here today.
                                 ______
                                 

 Statement of Rep. Nick Rahall, a Representative in Congress from the 
                         State of West Virginia

    Thank you Mr. Chairman. I want to welcome both negotiators from the 
Republic of the Marshall Islands (RMI) and the Federated States of 
Micronesia (FSM), respectively - Foreign Minister Gerald Zackios and 
Senator Peter Christian. The Committee recognizes the distance you've 
had to travel to represent your countries before this Committee and we 
appreciate your being with us this afternoon.
    I want to extend my personal condolences to Senator Christian and 
to the people of the FSM. About two weeks ago, a tropical storm with 
torrential rains devastated the state of Chuuk (CHOOK), causing massive 
landslides. I am told that hundreds were injured, many are still 
missing, and the death toll is near 50.
    FEMA has been dispatched to provide emergency assistance to the 
people of the FSM and other disaster teams from Hawaii, Guam, and the 
Northern Marianas Islands have sent doctors and equipment. I know, as 
do the people of my district, the destruction and displacement that 
such downpours can cause to a community. Our prayers are with you as 
your islands and people recover from this tragedy.
    I see also that the U.S. is well represented here today. I welcome 
you as well and I look forward to the information you will provide to 
this Committee.
    I also look forward to hearing testimony on amendments to the 
Indian Financing Act and legislation affecting the Yankton and Santee 
Sioux tribes. I must also point out that I've requested in the past and 
I am requesting again that we schedule a hearing on an important piece 
of legislation sponsored by Mr. Moran from Virginia, H.R. 2345 dealing 
with recognizing Virginia tribes.
    This afternoon, the Committee hear an update on the progress of 
renegotiations of Title II of the Compacts of Free Association. For 
more than a year and half, representatives from the U.S. government, 
the RMI, and the FSM have been meeting to discuss the new terms of U.S. 
assistance that contribute greatly to the development of these two 
countries.
    During this same period, Congress requested that the GAO conduct 
various studies on the shortfalls and successes of the original Compact 
agreement. I think GAO's work has been valuable in pointing out 
weaknesses from both the FAS national governments and our own Federal 
government. I believe GAO's work has helped to ensure that 
Congressional concerns are addressed during the renegotiations.
    It is important for our negotiators to be mindful that the 
composition and attitude of this Congress is much different than when 
the first Compact was enacted. It is my sense that this Congress wants 
to see more accountability and greater economic growth from the RMI and 
FSM.
    We want to know that children are going to good schools, that 
adequate health care is available to your people, and that your 
workforce is educated. These are the underpinnings of a successful 
economy and a prosperous country. We want this to be achieved as part 
of our relationship with your nations.
    I don't expect to see funding levels at the rate of the original 
agreement. However, there should be thoughtful consideration that the 
renegotiated assistance will not hamper the economic development that 
these nations have achieved thus far.
    There are also other concerns of this Committee such as the impact 
of FAS citizens on the U.S. Territories of Guam and the Northern 
Marianas Islands, as well as the State of Hawaii. The Compact was very 
clear that it was not the intent of Congress to cause adverse 
consequences to these jurisdictions. Any resolution to this issue 
should include a process that can be used across the board to determine 
actual impact on a State or territory.
    The immigration privileges under the Compact are essential elements 
to the unique relationship between the U.S. and the FAS. The RMI and 
FSM are partners with us in our War on Terrorism and they understand 
more safeguards need to be in place to address our security concerns. 
Though the immigration provisions of the Compact are not being 
renegotiated, I encourage that any changes to improve immigration 
procedure be done mutually.
    I imagine the continued use of the Kwajalein (KWA-JA-LIN) missile 
range would be of great importance to this Administration and to the 
people of the RMI. If this is the case, then I would encourage that 
this be made clear by both parties. I recognize that the RMI's position 
on this issue is shaped in collaboration with landowners and I trust 
that the national government is making an earnest effort to represent 
their interests.
    Again thank you for appearing here this afternoon and I look 
forward to listening to your testimony.
                                 ______
                                 

  Statement of Hon. John Thune, a Representative in Congress from the 
                         State of South Dakota

    Mr. Chairman, I would like to thank you for holding this hearing to 
provide compensation to the Yankton and Santee Sioux Tribes for their 
loss of land in the building of the Pick Sloan water project along the 
Missouri River. I would also like to thank Congressman Osborne for 
introducing this important piece of legislation, of which I am proud to 
be a cosponsor.
    The Pick Sloan Missouri River program authorized in 1944 was 
implemented to ease downstream funding of the Missouri River, offer 
irrigation water for farmers and ranchers, and produce hydroelectric 
power.
    While the intentions of these projects proved to be fruitful for 
some, it is fair to say that the Pick Sloan program has negatively 
impacted the Yankton and Santee Sioux Tribes. Much of the land taken 
and destroyed to create the Ft. Randall and Gavins Point Dams and 
Reservoirs belonged to these tribes.
    H.R. 2408 would offer monetary compensation to these tribes for 
their lost and destroyed land along the Missouri River. These funds 
will be held in trust by the Department of Interior and will be 
released contingent upon a tribal plan. The Tribal plan will be 
designed to promote economic development, infrastructure, education, 
health care and social welfare for the Yankton and Santee Sioux Tribes.
    These funds will be a great benefit and are very much needed. As 
you know, Indian reservations are some of the poorest parts of our 
country, which are in definite need of finding some source of economic 
development and infrastructure to encourage and maintain that 
development. Also, Indian health care and education are sorely in need 
of improvement. I have made it a priority of mine to ensure that Native 
Americans receive the health care they deserve and the younger 
generations receive a quality education.
    I would like to note that this legislation is not the first time 
tribes will have been compensated for destroyed and lost land as a 
result of the Pick Sloan project. In my state alone, the Standing Rock, 
Lower Brule and Crow Creek Sioux Tribes have received compensation for 
land taken over by the Pick Sloan project. It is now time for the 
Yankton and Santee Sioux tribes to be compensated.
    I would also ask this Committee to move quickly on Marking-Up this 
legislation. Similar legislation to H.R. 2408 already passed this 
Committee in the 106th Congress, but failed to move to the House floor. 
I urge that quick action be taken on this legislation, so these tribes 
receive the compensation they truly deserve.
                                 ______
                                 

Statement Submitted by Senator Christopher J. Loeak, Chairman Kwajalein 
 Negotiation Commission (KNC) on behalf of Kwajalein Landowners to the 
                                Chairman

    My name is Christopher J. Loeak, Chairman of the Kwajalein 
Negotiation Commission. I appreciate the opportunity to present the 
views of the KNC today.
    Besides being Chairman of the KNC, I have substantial experience in 
government in the Republic of the Marshall Islands. I have been a 
Senator in the Nitijela representing the Atoll of Ailinglaplap since 
1985. I have also served as a Cabinet Minister from 1988 to 1997 as 
Minister of Justice, Education, Social Services, and other positions.
    I presently serve as Chairman of the Committee on Health, 
Education, and Social Affairs in the Nitijela. I am also a major 
landowner on Kwajalein Atoll.
    Mr. Chairman, I am honored to present the following statement on 
behalf of the people of Kwajalein and I would like to express my 
appreciation and sincere thanks to you and the members of this House 
Resources Committee for giving me the opportunity to do so.
               About the Kwajalein Negotiation Commission
    I represent the Kwajalein Negotiation Commission (KNC), an 
organization established in October 2001 by the people of Kwajalein to 
represent them in the ongoing Compact renegotiations. Although compact 
renegotiation discussions between the U.S. Government and the 
Government of the Republic of the Marshall Islands ((RMI) have been in 
progress for the past 12 months and are reportedly close to being 
finalized, no opportunity has been given to the KNC to directly 
participate in the deliberations. We have completed and presented to 
the RMI Government, a proposal for a 50-year comprehensive lease 
arrangement for Kwajalein, which we believe, takes into full account 
the requirements of both the United States Government and the Kwajalein 
population. We have requested the RMI Government to convey this 
proposal to the U.S. Government so that its timely incorporation into 
the proposed new Compact can be ensured.
    We have been provided an advance copy of the testimony submitted by 
the RMI for this hearing. Notwithstanding the statement in Minister 
Zackios's testimony that there have been ``close consultations'' 
between the RMI and the KNC regarding the future of Kwajalein, there in 
fact have been no meaningful discussions between us on this subject. We 
have made multiple proposals to the RMI regarding a joint approach to 
the Kwajalein issue, but at every instance our entreaties have been 
rejected. Accordingly, we now find it necessary and advisable to open 
direct channels of communication with the U.S. Congress and the 
Administration on this subject in order to make known our position with 
respect to our proposal for long-term U.S. access to Kwajalein as a 
military base.
            The Military Use and Operating Rights Agreement
    The current Military Use and Operating Rights Agreement (MUORA) 
governing Kwajalein expires in 2016. Any extension of the MUORA beyond 
that date requires the approval of the people of Kwajalein as 
stipulated by our Constitution. While we are aware of U.S. interest in 
a longer, more secure land use agreement for Kwajalein (negotiator 
Short has proposed to the RMI a seven year extension to the present 
MUORA, tied to a 20 year option), this matter has yet to be negotiated 
with the landowners. We believe that any new agreement that 
contemplates the use of Kwajalein beyond 2016 must be negotiated with 
full participation by the KNC, the duly chosen representatives of the 
people of Kwajalein. Moreover, we find Mr. Short's proposal 
unacceptable on its face.
    The people of Kwajalein have consistently expressed their 
commitment to providing the U.S. full access to Kwajalein and they 
hereby reaffirm this commitment. However, it is also their position 
that a piecemeal approach is not a satisfactory arrangement to either 
side. Our proposal for a 50-year lease will give the U.S. advantage of 
long-term security enabling substantial investments in its missile 
defense program while the people of Kwajalein will have the advantage 
of economic security. Short-term options do not provide either and in 
fact will leave our people in a state of suspended animation, severely 
limiting the ability of determining an appropriate development program 
for Kwajalein.
    The traditional leaders of Kwajalein have formed an unprecedented 
alliance to provide an opportunity for the U.S. to enter into a long-
term relationship guaranteeing secure and uninterrupted use of 
Kwajalein. The divisions within the local traditional leadership that 
marred the entry into the first Compact have been put aside in the 
interest of this relationship.

                     Why Renegotiate the MUORA Now?

1. The terms need to be re-visited.
    The first Compact was negotiated when RMI was still a territory. 
Many provisions were accepted by RMI in the interest of achieving self-
government as early as possible and sometimes to the detriment of its 
regional or individual island atoll interests. Agreements pertaining to 
Kwajalein, although not completely satisfactory, were accepted by 
Kwajalein people in this context. Indeed, in the plebiscite on the 
Compact in 1982, the people of Kwajalein overwhelmingly voted to reject 
adoption of the Compact (the Compact was nonetheless approved by the 
RMI by a close margin).
    In the past fifteen years we have learned the strengths and 
weaknesses of some of these agreements and are in a better position now 
to identify areas of needed improvement. We view this renewal period as 
the most opportune time to rectify the injustices carried over from the 
Trusteeship period and give new meaning to the long-term Free 
Association relationship between the U.S. and the RMI. From this 
experience we are able to propose more realistic programs to deal with 
the harsh living conditions that Kwajalein people now face as a result 
of their displacement to provide land to the U.S. military.

2. The need for certainty.
    Some argue that the U.S. already has rights to Kwajalein until 
2016. The people of Kwajalein honor that right. However, as other 
matters in the Compact are brought up for discussion or modification, 
it is only fitting that the most important component of that agreement, 
namely U.S. defense rights in the Marshall Islands, be revisited. We 
believe this exercise to be of mutual interest and benefit because it 
can eliminate those aspects of the first Compact that are unfair to the 
landowners while at the same time guarantee the long term access that 
the U.S. seeks. A mere extension would perpetuate the existing 
hardships and inequities and would ignore the lessons learned in the 
first fifteen years of the Compact. A careful study of KNC's proposal 
will reveal a well thought out and reasonable approach and a win-win 
situation that is good for both the U.S and Kwajalein people. Mr. 
Short's proposal perpetuates a state of uncertainty between the people 
of Kwajalein and the U.S. Government that is unacceptable.

3. Kwajalein Needs New Investment
    It is no secret that many in the U.S. Military believe that the 
Ronald Reagan Ballistic Missile Testing Site needs new investment if it 
is to support the needs of the missile defense program of the United 
States. Indeed, only recently Lieutenant General Ronald Kadish, head of 
the Missile Defense Agency, stated at a Pentagon briefing that 
Kwajalein needs a significant upgrade. He said that the missile test 
range, ``as complex as it is, and it is very complex to do these kind 
of tests at intercontinental ranges, is not where it needs to be in 
order to robustly test this system and make it more operationally 
realistic over time. It requires a major investment to upgrade.''
    Therefore, it is only logical that in determining the sufficiency 
of new investment in the Kwajalein base that the U.S. consider the 
terms of its access to that base. The KNC wishes for the U.S. to make 
these investments, but it is only fair to all concerned that these 
investments be made under a long-term arrangement for control of the 
facility. Indeed, the GAO has estimated that the U.S. Government has 
already invested over $ 4 billion on Kwajalein. Is it not fair to ask 
that new investment be made after consideration of the long-term 
arrangements for access to the facility? It is in the interests of the 
United States and the people of Kwajalein that these questions are 
raised and a long term plan, beyond 2016, be adopted, as these new 
investments are made.

4. Alternatively, a Transition to Repatriation.
    If on the other hand the U.S. prefers to close out the Kwajalein 
Reagan Test Site in 2016 then it should be prepared to discuss now the 
terms of that closure including resettlement, restoration and 
rehabilitation programs. Environmental clean up and the planting of 
crops will take several years and therefore planning and agreements 
cannot wait until 2016. It is the preference of the landowners that the 
U.S. remains in Kwajalein, keeping with our mutual defense agreement. 
However, should the U.S. plans demand otherwise, then we should all 
face up to that possibility by carefully and adequately planning for 
it.
                                Summary
    In conclusion, the leadership and people of Kwajalein wish to 
reaffirm their full support for the U.S. military activities in 
Kwajalein atoll and hope to continue their friendship and cooperation 
with the United States. At the same time, we are hopeful that through 
the Second Compact we will achieve a fair and just arrangement for the 
continued use of Kwajalein. We have formulated a Proposal as a basis 
for negotiations for leasing our land upon which a new MUORA can be 
concluded. We are prepared to actively participate in the negotiations. 
We attach particular importance to the current negotiations in view of 
the fact that in the first Compact we were not accorded the opportunity 
to realistically protect our interests. We thank the Committee for this 
opportunity and look forward to working with our negotiators to reach 
an agreement that will gain early approval by both the U.S. and the RMI 
in accordance with their Constitutional processes.
                                 ______
                                 

Questions for Hon. Peter Christian, Government of the Federated States 
                             of Micronesia

    1. Under the US Proposals, how would the FSM make grant proposals 
to the US Government? Would there be one grant at the national level 
that would then be divided out to the states or would each state submit 
a grant proposal?
    This issue is to be determined with the adoption of finalized 
Fiscal Procedures Agreement (FPA) and certain provisions of Compact 
Title II as amended. The draft FPA has been delayed and the FSM is now 
awaiting the proposed text from the US negotiating team. To maintain a 
distinct government-to-government relationship, the FSM anticipates 
submitting a compiled grant package on an annual (or multi-year) basis 
incorporating six sectors and apportionments across the five 
governments.

    2. The US proposal for a trust fund assumes that each nation will 
deposit funds, including the ``bump-up'' Compact grants for 2002 and 
2003 in the trust funds, with the RMI contributing $35 million and the 
FSM $30 million. How do these funds compare to your nation's bump-up 
and have these funds been set aside? (Ask both the FSM and RMI)
    The FSM will receive $33,276,240 in so-called bump-up funds during 
the two-year extension period. The US has set a $30 million deposit 
into the Trust Fund as a ``pre-condition'' for US contributions to the 
Trust Fund. Thus the $30 million requirement represents over 90 percent 
of the total bump-up funds.
    The FSM has expressed its commitment to deposit a significant sum 
into the Trust Fund at the outset of the renewed Compact arrangements. 
This contribution demonstrates a strong commitment to the concept of an 
adequately funded Trust Fund and to the ultimate achievement of 
financial self-reliance.
    Several governments determined to use a portion of bump-up funds to 
meet pressing needs during the two-year extension; at this time, the 
FSM governments have made appropriations and/or firm commitments 
totaling $26 million. This amount will be available for deposit early 
in fiscal year 2003.
    There is an ongoing effort to mobilize the remaining $4 million; 
however, this will be a challenge given the pressing need for, in 
particular, urgent infrastructure projects and disaster response and 
recovery efforts in at least two states.

    3. Does your government have a viable long-term planning process 
for economic development and private sector investment? (Ask both the 
FSM and RMI)
    Yes, the FSM National and State governments have a coherent and 
comprehensive economic policy framework in place. The current FSM 
Planning Framework is policy-driven and represents an evolution from 
the economic reform policies that have been in place since economic 
restructuring began in 1996. It consists of policies developed in an 
open, consultative, participatory manner by people from all four States 
and for every sector of the economy. The policies include specific 
measurable objectives and detailed strategies. The policies and 
strategies were developed for two reasons: firstly, to guide the 
overall operations, public investments, and policy-making of our 
national and four state governments. Second, the policies and 
strategies are an active response to mistakes made and lessons learned 
in early years of implementing the economic assistance provisions of 
the Compact.
    Two additional points are worth noting: The planning framework 
encourages and specifies the need to create and enact legislation to 
accelerate the growth of the FSM's private sector and to improve 
essential services for FSM citizens in support of a growing and 
increasingly modern economy. Also, the FSM Planning Framework provides 
the explicit basis for improving transparency, accountability, 
monitoring, reporting, and evaluation in the policy-making and economic 
management process.

    4. Does your country have the technical capabilities necessary to 
meet the terms of future assistance by the fall of 2003? For example, 
will your country be able to implement any grant conditions that may be 
applied in areas such as financial management standards or procurement? 
(Ask both the FSM and RMI)
    The change to renewed Compact economic assistance provisions will 
present financial and technical challenges. Even while awaiting the 
proposed text of the FPA, the FSM has commenced preparing for the new 
requirements. New and more highly trained personnel will need to be 
recruited or transferred to certain key financial management, 
infrastructure planning, sectoral project monitoring, statistics, and 
economic policy functions within the five governments. This process 
will take time and money and the FSM will be requesting a 3-5 year 
transition period to fully meet the proposed terms.

    5. What is your country's timetable for reaching an agreement with 
the U.S. State Department on amending the Compact and are you on track? 
(Ask both the FSM and the RMI)
    In the absence of secure Compact funding after September 30, 2003, 
delays in negotiations and/or approval by the US Congress present a 
grave danger to the economic and social stability of the FSM. The FSM 
has been negotiating in good faith since 1999 and continues to support 
an accelerated timetable to get mutually agreeable economic assistance 
package presented to the US Congress no later than September 30, 2002.

    6. We have reviewed the GAO reports that address the accountability 
issue. Do you agree with their conclusions? How can we do better in the 
future?
    The FSM had previously addressed the issues raised by the GAO in 
response to its draft reports. In the interest of a detailed response, 
we would refer the chairman to the FSM responses contained in the annex 
of each report.

    7. As noted in the GAO reports, there have been serious shortfalls 
and deficiencies in the provision of education and health services to 
the people of the FSM/RMI. What concret actions have you taken and what 
long-term plans do you have to address these problems?
    Again, these are complex issues and we would refer to our responses 
provided earlier to the GAO in connection with its findings. In brief, 
however, following is a summary of some of the main points and ways in 
which the FSM hopes to address shortcomings in these sectors in the 
future:
     The FSM concurred with the GAO's findings that health and 
education infrastructure is inadequate to meet the growing needs of a 
modern economy. The FSM Congress has, since 1999, dedicated fully 20 
percent of all national tax revenues to health and education 
infrastructure (approx. $4 million annually). This is in addition to 
core funding for these two sectors.
     The FSM has undertaken a Basic Social Services loan 
through the Asian Development Bank for the period fiscal year 2002-
2006. This first phase of this loan focuses financial and technical 
resources on improving the health and education delivery systems. The 
second phase of this loan focuses on improving financing mechanisms for 
the two sectors, including community support for primary schools and 
primary health care systems and fee-for services and health insurance. 
The loan also provides matching grant funds to improve primary school 
facilities.
     The overall economic policy framework has been enhanced 
with sector specific summits for educations and planning workshops at 
the national and state levels for health.
     It is critical that Congress Members realize the proposed 
grant funding is not designed to replace, or obviate the need for 
continuing US federal programs in health and education. There is no 
overlap or duplication involved. Were current programs to be 
discontinued, grant funding at the levels currently proposed by the US 
Administration would result in a virtual meltdown of the very health 
and education sectors we are seeking to improve
                                 ______
                                 

        Questions for Albert V. Short, U.S. Department of State

    Question:
    How will future funds under the renegotiated compact be withheld, 
particularly in the areas of health and education? For example, if 
schools in the FSM/RMI are not meeting grant conditions, what is the 
process for determining the amount and timing of funds to be withheld?
    Answer:
    The economic provisions in Title Two of the proposed Amended 
Compact and the proposed implementing agreements (in particular one on 
fiscal procedures) are drafted to improve accountability and 
transparency and give the United States remedies for noncompliance with 
the terms and conditions attached to U.S. assistance, including 
withholding assistance.
    We should note that funds would only be withheld if no other 
remedies would be sufficient to fix the problem. We expect to set goals 
and objectives, consult in advance with the RMI and FSM governments 
with regard to plans for expenditure of U.S. grant funds provided under 
the Amended Compact, and then work cooperatively to achieve those 
goals. Priority will be given to assistance to the Health Care and 
Education sectors. Any withholding of funds will only take place after 
extensive consultation with the respective governments. The withholding 
of funds would also be limited to the grant in question and could be 
restored when compliance is achieved.

    Question:
    What areas of disagreement, if any, exist at this point between the 
U.S. government and the governments of the FSM and the RMI regarding 
the proposed U.S. level and structure of assistance, or proposed 
accountability measures?
    Answer:
    Regarding the structure of assistance, the U.S. and the FAS have 
reached ad referendum agreement on a twenty-year grant regime and 
establishment of trust funds. Further, the funding will be targeted to 
funding key sectors: health, education, infrastructure, environment, 
private sector development and capacity building.
    We believe our funding proposals are adequate, and the FSM and RMI 
representatives have provided their views in their prepared statements 
and testimony.
    Both sides have agreed ad referendum to increased accountability, 
monitoring and disbursal standards, although we are still discussing 
the details regarding how these requirements will be implemented and 
consolidated.
    Regarding annual financial assistance, the U.S. has proposed annual 
assistance for 20 years that is only few million dollars below the FSM 
and RMI requests, but close to what the U. S. provided in the last year 
of the current Compact. At the same time, the U.S. is proposing 
substantial annual payments over the 20 years into a trust fund that 
would generate substantial support for the FSM and RMI after FY-2023 
when the annual grant payments come to an end.

    Question:
    As you know, timing is critical since funding for the FAS will end 
at end of fiscal year 03 unless an amended compact is approved and 
acted on by the Congress. The Committee is concerned that we do not 
have a final agreement to review before us today. What is your time 
line for finishing the negotiations between the U.S. and the Freely 
Associated States?
    Answer:
    The Administration's goal is to initial the Amended Compact package 
(including amendments to all four titles of the Compact, a fiscal 
procedures agreement, and trust fund agreement) by the end of August. 
We believe this is a reasonable goal and we can achieve it. Additional 
subsidiary agreements such as the telecommunications and other service 
agreements will follow.

    Question:
    Do the RMI and FSM have the ability to satisfactorily comply with 
the fiscal procedures submitted to you by the Department of Interior? 
(Ask State and Interior)
    Answer:
    We believe the FAS have the talent and systemic capabilities to 
provide the requisite financial management and oversight. To assist in 
ramping up the fiscal procedures system, we plan to initiate a dry run 
of the process several months before the beginning of FY-2004, the 
start of the Amended Compact period. This 'dry run' will entail visits 
and technical consultations by both sides.

    Question:
    The U.S. proposals for trust funds assume that each nation will 
deposit funds, including the ``bump-up'' Compact grants for 2002 and 
2003 in the trust funds, with the RMI contributing $35 million and the 
FSM $30 million. How do these funds compare to each nation's bump-up 
and have these funds been set aside?
    Answer:
    These initial trust fund contributions are comparable to the so-
called ``bump-up amounts.'' They are based on ability to contribute 
rather than the bump-up per se. Both FAS have agreed in concept to the 
up-front contributions.
    In order to help finance urgent requirements for hospital and 
airport runway projects, the RMI has requested that their contribution 
of $35 million be phased in, with $25 million in the first year of the 
Compact and $5 million following in each of the next two years. The 
U.S. has agreed ad referendum to this formulation.
    The FSM has agreed to a $30 million contribution. To address FSM's 
concerns, the U.S. adjusted the FSM's base grant, leaving it unchanged 
in the first three years of the Amended Compact, to permit the FSM to 
make its trust fund contribution in the first year (FY-2004).
                                 ______
                                 

                   Questions for Susan S. Westin, GAO

    1. Question: Do you believe the U.S. proposals sufficiently address 
GAO's past recommendations regarding increased accountability over 
future Compact assistance to the FSM and the RMI?
    Answer: The U.S. proposals address many key GAO recommendations by 
requiring, for example, that assistance be provided through specific 
grants with grant terms and conditions and allowing funds to be 
withheld for noncompliance with those terms and conditions. However, it 
is not possible at this point to determine how well proposal 
accountability measures could prove to be, given that many 
accountability details will be contained in separate agreements that 
remain in draft form or have not yet been released. Further, 
appropriate oversight resources must be made available, and government 
commitment to enforcing accountability provisions is necessary. 
Additionally, it is important to remember that the negotiations have 
not been finalized and that neither Compact country has yet agreed to 
U.S.-proposed accountability provisions.

    2. Question: Based on GAO's past work, what do you believe are the 
defense or strategic issues that the U.S. government should be 
considering as it negotiates new Compact assistance with the FSM and 
the RMI?
    Answer: The key U.S. defense interest in the region is access to 
Kwajalein Atoll in the RMI. From a strategic standpoint, the Department 
of Defense views the two countries as defense obligations (the U.S. 
government agreed under the Compact to defend the two countries from 
attack or threat of attack), not as defense assets. It is worth 
remembering that, unlike economic assistance, key U.S. defense rights 
under the Compact, such as strategic denial (the U.S. right to prevent 
access to the islands and their territorial waters by other countries) 
and access to Kwajalein Atoll, will not expire in 2003.

    3. Question: To what extent do the current U.S. proposals to extend 
Compact economic assistance differ from the terms of the original 
Compact?
    Answer: Unlike the original Compact, the current U.S. proposals 
emphasize sector grants, require specific grants terms and conditions, 
allow for the withholding of funds, call for greater administrative 
efforts on the part of all three governments, and include an ``exit 
strategy'' in that the U.S. government will no longer provide funding 
to the two countries at the end of 20 years (though it will still have 
a role to play in spending oversight).
    Regarding fiscal year 2004 economic assistance in the current U.S. 
proposals, the FSM would receive roughly 7 percent less in grants than 
it would have if the previous compact were extended at the same level 
of assistance. The RMI would receive roughly 17 percent more in grants. 
By fiscal year 2023, both countries would receive less money in grants 
relative to previous compact levels due to the decremented grant 
contribution. However, in addition to grants, the current proposals 
provide for U.S. contributions to each country's trust fund such that 
annual assistance would exceed previous compact levels.
                                 ______
                                 

   Questions for Gerald M. Zackios, Republic of the Marshall Islands

    1. Does your government have a viable long-term planning process 
for economic development and private sector investment? (Asked to both 
FSM and RMI)
    In the past, the RMI Government used its Office of Planning and 
Statistics to help prepare the 5-year development plans mandated by the 
current Compact. However, these plans proved ineffectual and there was 
little follow-up in their implementation by the RMI and the USG. Also, 
there was a noted gap between planning and policy making. In addition, 
the Asian Development Bank has helped to provide some medium term 
finance and economic strategy development. However, this was mainly 
done with the help of external consultants.
    Now, we are much advanced in putting in place two key components 
for viable long-term planning that, we hope, will compliment what we 
are negotiating for the next term of Title II. The first component is 
an Economic Policy, Planning and Statistics Office (EPPSO). The EPPSO 
is linked to the President's Office. It will take several existing 
units, such as the Office of Planning and Statistics and the Compact 
Negotiation Office, and streamline their activity into one unit. It 
will link the policy and development activities of each ministry and 
help to coordinate economic strategy formulation and monitor 
implementation. EPPSO will also provide necessary information inputs, 
such as statistics, to other Government units and the donor community, 
and will serve as the RMI secretariat for the RMI-U.S. Joint Economic 
Review Board that we have proposed in the new Title II.
    The second component is the establishment of a Medium Term Budget 
and Investment Framework (MTBIF). The MTBIF is really a hybrid of our 
former budget system with a new, more performance-oriented and medium 
term budget system that is directly linked to our overall and sector 
goals and objectives. This system is currently being put in place and 
is partially being applied for fiscal year 2003. The initial Framework 
is for 2001-2005 and will be adjusted annually on a rolling basis. 
However, the implementation of such a system, consisting of retraining 
our financial managers throughout the Government, strengthening our 
economic policy making capabilities, and installing new finance and 
other information systems, takes time. We hope that the United States 
is a partner and a supporter of our effort so we have a system that 
serves both our countries'' needs. Although we appreciate outside 
criticism, we think it'll be more constructive if this is followed up 
with ways to address the problems. As I have stated in my testimony, 
the RMI is committed to improve the accountability of all of the RMI's 
funds, not only Compact funds. We are also committed to improving the 
performance and returns on our investments.
    A further example of our increased emphasis on medium term economic 
and finance strategy formulation is our recent preparation of an 
Infrastructure Development and Maintenance Plan. We have taken a more 
realistic look at our infrastructure construction and maintenance needs 
within the limits of our expected funding from the Compact and other 
sources. We are currently putting in place the mechanisms to implement 
and monitor this plan.
    I would especially like to thank the Asian Development Bank and 
Office of Insular Affairs/DOI for their technical assistance to 
implement the above. I must note while we appreciate the assistance, 
our interest is to have these systems and processes done internally 
with trained Marshallese. We are currently on the road to accomplish 
this interest.

    2. Does your government envision renegotiating Title II of the 
Compact after expiration of the new 20-year term?
    Mr. Chairman, I honestly do not feel comfortable in predicting 
where all of us will be in 20 years time, how our country will develop, 
how our relationship will develop, and what will happen in our region. 
If you were to ask me this same question in 1986 when the Compact 
became effective, could anyone have predicted the fall of the Berlin 
Wall, the end of the Cold War, and the confrontation with a global 
terror network?
    The goal of our Government and each Marshallese is not to rely on 
U.S. grant assistance for generations to come. We do have a goal and an 
interest in providing for our own needs. While we have this goal, we do 
feel that our citizens should be compensated for resources provided to 
others, such as access to our land. This is a basic tenet of economic 
and business law.
    Our concern in 20 years time is two fold. First, while I have 
stated that we are supportive of the trust fund concept, we do not 
believe that the success of our future generations and the RMI-U.S. 
relationship should be solely based on a trust fund that is contingent 
on market mechanisms. I would be dishonest and irresponsible to accept 
the USG offer at this time and say that the amounts provided over the 
next twenty years will replace USG base grant funding at that time. The 
current situation within the U.S. financial markets bears this 
assertion all too timely and realistically. While we can forecast and 
analyze ad infinitum, can your government provide my government and our 
people with the assurance that the trust fund amount will be 
sufficient? If the trust fund does not provide the expected 
distribution, then what recourse does the RMI have?
    Thus, Mr. Chairman, we are struggling with the Administration to 
have language in the proposed Trust Fund Agreement for periodic reviews 
of the trust fund to insure that it is meeting the Title II objectives 
of the United States and the RMI and, that if it is not, both sides 
will consider the necessary remedies. Mr. Chairman, just as the U.S. is 
imposing restrictions and control on the Title II funding and receiving 
reassurances, it is only fair that the RMI receive the reassurance that 
the trust fund provides the necessary funding in 2024 and beyond.
    Secondly, I cannot predict what U.S. programs and services will be 
necessary over the next 20 years and post 2023. We, meaning my 
Government, and the U.S. Administration and Congress, must realize that 
we are an island nation with limited resources. No matter how much the 
USG or others invests in the RMI, we will still have limited natural 
and human resources and we will still be a remote destination. Thus, 
some U.S. programs and services may still be applicable. In a country 
of 50,000 individuals you must keep in mind that we are taking on the 
responsibilities of a full national government. Can we replicate the 
needed services provided by other countries in a cost effective and 
efficient manner? To a certain extent, yes. However, we must keep in 
mind that most island nations in the Pacific (and in the Caribbean) 
have links to larger countries that provide programs and services that 
the island nations do not have the resources to provide. If you look at 
the Pacific Island map, you can easily see these linkages. Australia, 
New Zealand, the UK, France, Japan and others still play an economic 
role in most Pacific Island nations as does the USG play a significant 
role in its commonwealth and territories. We should not be without such 
a relationship post 2023.
    Finally, we seriously hope that the United States does not see the 
Title II being negotiated as an ``exit strategy'' and the abandonment 
of a friend and ally to be left to its own limited resources. While we 
feel we have made some progress in the past 15 years and will achieve 
greater progress in the next 20 years, we hope the United States is a 
friend and ally who will stand with us as we stand with you.

    3. Does your country have the technical capabilities necessary to 
meet the terms of future assistance by the fall of 2003? For example, 
will your country be able to implement any grant conditions that may be 
applied in areas such as financial management standards or procurement? 
(Ask both the RMI and FSM)
    As stated in the answer to your first question, we are working 
diligently in strengthening our economic strategy formulation unit 
(EPPSO) and capabilities as well as reforming our finance 
administration and budget systems. We have taken steps as of this time 
in reference to implementing the MTBIF and are now working with 
specific ministries (mainly the Ministry of Education and the Ministry 
of Health our two largest ministries) in implementing the part of the 
MTBIF that links sector financing with performance-oriented 
measurement. We hope to have the system in place by fall 2003.
    We also hope to have the cooperation of the USG in working hand-in-
hand to insure that the system being put in place goes hand-in-hand 
with the Fiscal Procedures Agreement that is currently being 
negotiated. As mentioned, the Asian Development Bank and the Department 
of Interior are providing technical assistance to meet these needs and 
we are making a substantial investment on our own.
    We do hope that the United States understands that implementing 
such a new financial administration and accounting system, budget 
process and performance orientation will take several years to 
implement (at least 3 years). Such reform takes time even in the United 
States. We ask for your patience and future assistance as we make the 
necessary reforms.

    4. Aside from the U.S. lease payments for Kwajalein, do you know 
the total amount of U.S. dollars that come into the RMI economy because 
the location of the U.S. base is in your country? (If DAS Brookes is 
not asked)
    The U.S. Army Kwajalein Atoll (USAKA) defense installation is a 
significant contributor to our local economy it is estimated to be 
around 25% of our annual GDP. In terms of dollar amounts, USAKA 
contractors employ about 1400 Marshallese with a payroll of 
approximately $17 million per annum. This is out of a total national 
workforce of approximately 6500 people. In addition, the RMI collects 
about $2-3 million at a 5% rate in annual income tax revenues from the 
U.S. citizen employees of USAKA contractors. The USAKA command also 
provides humanitarian assistance, community out-reach programs, and 
excess military equipment that are valued at more than half a million 
dollars a year.

    5. The U.S. proposal for a trust fund assumes that each nation will 
deposit funds, including the ``bump-up'' Compact grants for 2002 and 
2003 in the trust funds, with the RMI contributing $35 million and the 
FSM $30 million. How do these funds compare to your nations bump-up and 
have these funds been set aside? (Ask both FSM and RMI)
    Our Government has established a Marshall Islands Intergenerational 
Trust Fund (MIITF) prior to our Compact negotiations and has set aside 
$18.5 this fiscal year and we hope to set aside $16.5 million in fiscal 
year 2003. While most of these funds are from what we consider the 
capital portion of the fiscal year 2002 and fiscal year 2003 Compact 
funding, the amount is supplemented by our own funds as well as loan 
funds from the Asian Development Bank.
    We are committed to contributing the $35 million in 2004. However, 
Mr. Chairman, as identified in my testimony and above, the RMI has 
taken the funds away from potential investment in the development and 
maintenance of our infrastructure. We have also shored-up our financial 
stability by paying off past investments and liabilities. Thus, with 
our keen interest to provide for future generations, we have not had 
the funds to invest in critical infrastructure projects and two 
projects have surfaced which we cannot delay any longer. The projects 
are for the resurfacing of the Majuro international airport and the 
reconstruction and refurbishment of the main hospital in Majuro. My 
Government has the choice to either: 1) dip into the trust fund set-
aside ($16.5 million) for fiscal year 2003; or 2) find financial 
assistance for these two projects, such as from the United States. To 
maintain our commitment to the trust fund, we hope that the United 
States would supplement our investments in these two projects.
    The Federal Aviation Administration informed us of the urgency of 
the resurfacing of the Majuro international airport earlier this year. 
We have tried to work with the FAA to find joint remedies but so far to 
no avail. The FAA has stated that the longer the resurfacing is 
delayed, the conditions will continue to deteriorate and may cause the 
termination of flights to and from Majuro. Mr. Chairman, it is not 
difficult to imagine what the closing of the airport will do to Majuro, 
our travel and commercial hub. Such an action will make our already 
remote island community more remote. The closing of the airport will 
not only reverberate throughout the RMI but also will negatively impact 
flights to/from the USAKA defense installation and to other flights 
westward and eastward to/from the Federated States of Micronesia, Guam, 
the CNMI and Palau. The FAA has estimated the resurfacing at about $10 
million. We are able to contribute $2 million of our own funds; thus, 
we are seeking $8 million in financial assistance.
    The Majuro hospital is the primary health care facility in the RMI. 
It has been in need of upgrading and refurbishment for some time. We 
have tried to do what we can with our own funding. The Japanese 
Government has provided a feasibility study for the project and will 
provide part of the project financing. We will also invest in the 
project; however, we still have a shortfall of $6-7 million.
    Thus, Mr. Chairman, we have a current financing need of $14-15 
million. If the United States can provide this funding assistance, we 
can commit to the $35 million contribution to the trust fund. If the 
United States does not help in this regard, then we will have no choice 
but to take the funding from our fiscal year 2003 trust fund set-aside 
amount and will not be able to commit to a $35 million initial 
contribution. If we do have to resort to this action, which we are very 
reluctant, then our trust fund will be in jeopardy and will be unable 
to come close to supplanting the Title II base grant in 2024.

    6. What is your country's timetable for reaching an agreement with 
the U.S. State Department on amending the Compact and are you on track? 
(Ask both the FSM and RMI)
    Mr. Chairman we are negotiating in the spirit of concluding an 
agreement as soon as possible. We have really started from scratch only 
having received rough drafts of Title II language and an initial 
financial offer early this year. We have only recently received rough 
drafts of the Fiscal Procedures Agreement and the Trust Fund Agreement. 
We are responding and negotiating in good faith, as, I believe, our 
U.S. counterparts will agree.
    We must keep in mind that what the Administration has proposed so 
far is a substantial change to the current Title II and its subsidiary 
agreements. As an example, Mr. Chairman, the Title II language is 
totally different along with the make-up and allocation of the 
financial assistance; the Fiscal Procedures Agreement instills 
planning, reporting and other requirements that are still being 
formulated and adjusted by the Administration as well as being 
negotiated with us; and there is the entirely new trust fund component. 
In addition, subsidiary agreements for specific U.S. programs and 
services are substantially different. For instance, the U.S. Postal 
Services wants to apply international rates and procedures. The 
Administration wants to replace FEMA with the USAID Office of U.S. 
Foreign Disaster Assistance a change we are not in favor as exemplified 
by a recent natural disaster in Chuuk State of the FSM.
    In brief, while we would like to conclude negotiations soonest, we 
do not have the resources of the State and Interior Departments to 
respond so quickly. We also must not rush through the negotiations and 
pick up the pieces later. The Title II we are negotiating will not only 
impact Marshallese over the next 20 years but our citizens for 
generations to come.
    At times, Mr. Chairman, I feel we are losing sight of the forest 
while viewing with a magnifying glass the trees. We do have a question 
of what the Unite States wants to see as its relationship and 
commitment to the RMI over the next 20 years? And, more importantly, 
what will be the relationship beyond 2023? We have not seen a clear 
answer to either question. It seems that the answers are for us to 
interpret or to read the tea leaves. In addition, Mr. Chairman, given 
our unique characteristics of a Freely Associated State, we wonder what 
is the United States'' true view of such a status and what it intends 
now and in the future?
    Last, Mr. Chairman, we do believe that if the Administration 
adhered to the intent of these negotiations, that is concentrate on 
Title II and the related subsidiary agreements, we would be much closer 
to a conclusion. However, we have been sidetracked by other issues 
brought up by the United States, such as immigration. The right of 
Marshallese to enter, live, work, and study in the United States as 
enshrined in the Compact is a core component of the relationship of 
``free association'' itself. Without these rights, Mr. Chairman, my 
Government would question whether there is a relationship of ``free 
association'' under the framework of the Compact.
    The Administration has tabled major and substantive amendments to 
these essential non-expiring provisions that would, if adopted, greatly 
diminish the rights of Marshallese to live, work and study in the 
United States. Nonetheless, my Government is attempting to engage the 
Administration in dealing with certain aspects of their immigration 
proposal in areas such as passport security and other immigration 
issues that would not impair fundamental rights under Section 141 of 
the Compact. We believe that these can be addressed without resorting 
to amending the substantive provisions of the Compact itself, and in 
fact have offered to meet and address these issues in such a manner 
over the course of the last several months. We are aware of the post 9-
11 security needs and concerns of the United States and are more than 
willing to work with the Administration to address these issues. As we 
are presently actively engaged with the Administration on immigration 
issues, we are hopeful that a mutually acceptable agreement can be 
reached, however, I would point out that having to engage the 
Administration on this issue at this time also poses a major 
distraction to concluding a new Title II.
    Finally, Mr. Chairman, I must report to you that the proposals 
tabled by the Administration during these negotiations go well beyond 
new Titles II and III, or even the non-expiring immigration provisions 
in Title I. Rather the administration has tabled proposals to amend the 
ENTIRE Compact, starting from the Preamble through the last provision 
of Title IV.
    Mr. Chairman, you earlier asked if it was my Government's intention 
to renegotiate the provisions of Title II after the expiration of the 
new twenty-year term. What my Government clearly did not intend was to 
engage in negotiations of the entire Compact at this time, and yet this 
is precisely what the Administration has proposed despite the fact that 
these provisions do not expire. While amending the entire Compact may 
be a fascinating intellectual exercise for lawyers, it is neither 
necessary nor appropriate, particularly in the context of our present 
negotiations concerning essential economic and security and defense 
provisions that will expire on September 30, 2003. If my Government 
were to consider amendments to the entire Compact, we would have most 
certainly included amendments to the Section 177 Agreement concerning 
settlement and compensation for claims resulting from the U.S. Nuclear 
Testing Program in the Marshall Islands.
    The point is that our governments have institutions and mechanisms 
that have been put in place over the course of the last sixteen years 
to deal with other Compact issues including provisions to amend the 
Compact itself. My Government is dedicated to working with the 
Administration on negotiating and concluding an agreement for a new 
Title II package to submit to the Congress, and believe that if both 
governments remain focused in this effort, a new agreement can be 
concluded in a timely manner.
    However, if the Administration continues to insist on negotiating 
matters and issues outside of the scope of these negotiations 
concerning non-expiring provisions of the Compact, I cannot promise we 
will be able to conclude agreements concerning the expiring economic 
and security and defense provisions of the Compact within the specified 
time frame.

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