[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]




                       H.J.RES. 63 AND H.R. 2522

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

                          LEGISLATIVE HEARING

                               before the

                         COMMITTEE ON RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                        Thursday, July 10, 2003

                               __________

                           Serial No. 108-38

                               __________

           Printed for the use of the Committee on Resources



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                         COMMITTEE ON RESOURCES

                 RICHARD W. POMBO, California, Chairman
       NICK J. RAHALL II, West Virginia, Ranking Democrat Member

Don Young, Alaska                    Dale E. Kildee, Michigan
W.J. ``Billy'' Tauzin, Louisiana     Eni F.H. Faleomavaega, American 
Jim Saxton, New Jersey                   Samoa
Elton Gallegly, California           Neil Abercrombie, Hawaii
John J. Duncan, Jr., Tennessee       Solomon P. Ortiz, Texas
Wayne T. Gilchrest, Maryland         Frank Pallone, Jr., New Jersey
Ken Calvert, California              Calvin M. Dooley, California
Scott McInnis, Colorado              Donna M. Christensen, Virgin 
Barbara Cubin, Wyoming                   Islands
George Radanovich, California        Ron Kind, Wisconsin
Walter B. Jones, Jr., North          Jay Inslee, Washington
    Carolina                         Grace F. Napolitano, California
Chris Cannon, Utah                   Tom Udall, New Mexico
John E. Peterson, Pennsylvania       Mark Udall, Colorado
Jim Gibbons, Nevada,                 Anibal Acevedo-Vila, Puerto Rico
  Vice Chairman                      Brad Carson, Oklahoma
Mark E. Souder, Indiana              Raul M. Grijalva, Arizona
Greg Walden, Oregon                  Dennis A. Cardoza, California
Thomas G. Tancredo, Colorado         Madeleine Z. Bordallo, Guam
J.D. Hayworth, Arizona               George Miller, California
Tom Osborne, Nebraska                Edward J. Markey, Massachusetts
Jeff Flake, Arizona                  Ruben Hinojosa, Texas
Dennis R. Rehberg, Montana           Ciro D. Rodriguez, Texas
Rick Renzi, Arizona                  Joe Baca, California
Tom Cole, Oklahoma                   Betty McCollum, Minnesota
Stevan Pearce, New Mexico
Rob Bishop, Utah
Devin Nunes, California
Randy Neugebauer, Texas

                     Steven J. Ding, Chief of Staff
                      Lisa Pittman, Chief Counsel
                 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 10, 2003....................................     1

Statement of Members:
    Abercrombie, Hon. Neil, a Representative in Congress from the 
      State of Hawaii............................................    12
        Prepared statement of....................................    12
    Bordallo, Hon. Madeleine Z., a Delegate to Congress from 
      Guam, Oral statement on H.J.Res. 63........................    13
        Prepared statement on H.J.Res. 63........................    13
        Oral statement on H.R. 2522..............................    81
        Prepared statement on H.R. 2522..........................    84
    Case, Hon. Ed, a Representative in Congress from the State of 
      Hawaii.....................................................    14
        Prepared statement of....................................    16
    Faleomavaega, Eni F.H., a Delegate to Congress from American 
      Samoa......................................................    10
        Prepared statement of....................................    11
    Gallegly, Hon. Elton, a Representative in Congress from the 
      State of California, Prepared statement of.................    42
    Pallone, Hon. Frank, Jr., a Representative in Congress from 
      the State of New Jersey, Prepared statement of.............    76
    Pombo, Hon. Richard W., a Representative in Congress from the 
      State of California........................................     1
        Prepared statement of....................................     3
    Rahall, Hon. Nick J., II, a Representative in Congress from 
      the State of West Virginia.................................     4
        Prepared statement of....................................     5

Statement of Witnesses:
    Camacho, Hon. Felix P., Governor of Guam.....................    95
        Prepared statement of....................................   100
    Christian, Senator Peter M., Chief Negotiator, Federated 
      States of Micronesia.......................................    56
        Prepared statement of....................................    58
        Response to a question submitted for the record..........   121
    Cohen, David, Deputy Assistant Secretary for Insular Affairs, 
      U.S. Department of the Interior............................    19
        Prepared statement of....................................    21
    Pangelinan, Hon. Vicente, Speaker, I Liheslaturan Guahan.....   103
        Prepared statement of....................................   109
    Pula, Nickolao, Director, Office of Insular Affairs, U.S. 
      Department of the Interior.................................    77
        Prepared statement of....................................    79
    Short, Albert V., Negotiator of the Compact of Free 
      Association, U.S. Department of State......................    24
        Prepared statement of....................................    26
    Westin, Susan, Managing Director-International Affairs and 
      Trade, U.S. General Accounting Office......................    30
        Prepared statement of....................................    32
        Response to questions submitted for the record...........   122
    Zackios, Gerald, Minister of Foreign Affairs, Government of 
      the Republic of the Marshall Islands.......................    61
        Prepared statement of....................................    63
Additional materials supplied:
    Lingle, Hon. Linda, Governor, State of Hawaii, Letter 
      submitted for the record...................................   120
    Loeak, Hon. Christopher J., Chairman, Kwajalein Negotiation 
      Commission.................................................     6

 
                       H.J. RES. 63 AND H.R. 2522

                              ----------                              


                        Thursday, July 10, 2003

                     U.S. House of Representatives

                         Committee on Resources

                             Washington, DC

                              ----------                              

    The Committee met, pursuant to notice, at 9:36 a.m., in 
room 1324, Longworth House Office Building, Hon. Richard W. 
Pombo, Chairman of the Committee, presiding.
    Present: Representatives Pombo, Gallegly, Calvert, Cubin, 
Rehberg, Rahall, Faleomavaega, Abercrombie, Pallone, 
Christensen, Udall of New Mexico, and Bordallo.

    STATEMENT OF HON. RICHARD W. POMBO, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    The Chairman. The Committee is meeting today to hear 
testimony on H.J.Res. 63, a bill to approve the Compact of Free 
Association, as amended, between the Government of the United 
States of America and the Government of the Federated States of 
Micronesia, and the Compact of Free Association, as amended, 
between the Government of the United States of America and the 
Government of the Republic of the Marshall Islands, and 
otherwise to amend P.L. 99-239 and to appropriate for the 
purposes of the amended P.L. 99-239 for fiscal years ending on 
or before September 30, 2003; and H.R. 2522, to amend the 
Organic Act of Guam to authorize the Secretary of Interior to 
reduce, release, or waive amounts owed by the Government of 
Guam to the United States to offset unreimbursed compact impact 
expenses.
    Under Rule 4(g) of the Committee rules, any oral opening 
statements at hearings are limited to the Chairman and the 
Ranking Minority Member. This will allow us to hear from our 
witnesses sooner and help members keep their schedules. 
Therefore, if other members have statements, they can be 
included in the hearing record under unanimous consent.
    On behalf of the full Committee, I would like to welcome 
everyone in attendance today and especially our witnesses. We 
are fortunate to have with us today experts who have been 
directly involved throughout the process of negotiating the 
Compact of Free Association, including both administration 
representatives and our friends from the island countries that 
will be directly affected by any formal legislation. This panel 
will truly be representative of the numerous parties that have 
been working for years toward a formal agreement on a compact.
    Our full Committee hearing today will focus on the 
documents that were recently submitted to Congress regarding 
the Compacts of Free Association with the Federated States of 
Micronesia and the Republic of the Marshall Islands, which have 
been introduced as H.J.Res. 63. We will also directly address 
concerns that our countries are expressing as a result of their 
experiences with the effects of the Compact.
    For over 50 years, the United States has enjoyed a very 
unique relationship with the citizens of Micronesia and the 
Marshall Islands. In 1984, President Ronald Reagan proposed a 
new status for the Trust Territories of the Pacific through 
negotiated Compacts of Free Association. After having status as 
a United Nations Trust Territory for many years, in 1986, these 
islands chose to become sovereign states. In fact, this large 
territory comprises around 2,000 islands over three million 
square miles of ocean. During the period after World War II, 
the United States had a continual interest in working with FSM 
and the RMI, including everything from nuclear testing to a 
missile test range that continues to operate in the Marshall 
Islands.
    Starting in 1986, when Congress passed the Compact Act, we 
made the agreement to strive to continue to maintain both 
economic and political stability in this region, including 
working to advance economic self-reliance in these islands. It 
is encouraging to see the mutually beneficial results that have 
come from the original Compact. The U.S. has truly moved from 
merely a trust administrator with these islands to our work 
with them being one of the United States' closest bilateral 
relationships.
    Unfortunately, the original Compact was also somewhat 
disappointing in some aspects of the economic progress that 
resulted. In general, the U.S. provided a large amount of 
funding to the Freely Associated States without any sort of 
effective payment structure that was closely monitored. The 
result was a lack of proper development in multiple arenas and 
mismanagement of funds that, in part, led to the current 
shortcomings that exist in health care and education.
    There have also been some unintended consequences as a 
result of P.L. 99-239, of which many are seen in the 
neighboring countries. The original Compact provided the 
citizens of FSM and RMI to travel freely and live throughout 
the Pacific. As a result, these migration rights coupled with 
continued difficult economic opportunities, thousands of 
migrants are living in areas like Guam, Hawaii, and the 
Commonwealth of the Northern Mariana Islands.
    Living with the lack of proper health care and educational 
options mentioned earlier, this is what many migrants sought 
when moving from the FSM or RMI. Now the island areas are 
experiencing a migration impact of what they have calculated to 
be hundreds of millions of dollars since 1986, when the 
original Compact was enacted.
    It is encouraging to see that this new legislation will 
provide a mandatory funding level of $15 million for 20 years 
to address the issue. The amended Compact will also enable us 
to see a more direct and accurate accounting of this trend, as 
it requires the President to report and make recommendations 
annually to Congress.
    Some countries have argued that this simply is not enough 
funding. Guam, for example, which lies relatively close to the 
RMI and FSM, has seen and felt this migration more than other 
countries. Through 2001, the U.S. Government has provided 
approximately $41 million in impact compensation for Guam. 
Unfortunately, though, this funding has not been used in the 
areas of health and education, where it is needed most.
    It is intended that the amended Compacts' provisions 
regarding targeted grants and accountability will begin to 
encourage many citizens to remain in the FSM and RMI. Our 
hearing today should enable us to judge the scope of our 
current problems, as well as see the potential for the help in 
the amended Compact given U.S. budgetary constraints.
    My hope is today that our witnesses can explain how the 
newly negotiated Compact will work to advance the goals of 
economic self-reliance that truly help those living in the FSM 
and RMI while maintaining necessary U.S. security interests. 
Our friends in the FSM and RMI, with whom we have worked for 
nearly 60 years now, will also hopefully be able to explain how 
this new Compact will ensure their economic and political 
viability for years to come.
    Our hearing and future work is also hastened by the need to 
act quickly to ensure that this negotiated Compact can move 
forward. If not, on September 30 of this year, important 
components of this agreement will expire. The work of many 
people, including that of the U.S., the FSM, and RMI, should be 
applauded and this Committee appreciates the time spent by 
these individuals and their willingness to now work with 
Congress to move forward.
    [The prepared statement of Chairman Pombo follows:]

Statement of Hon. Richard Pombo, a Representative in Congress from the 
                          State of California

    The hearing will come to order. Good morning.
    On behalf of the full Committee, I would like to welcome everyone 
in attendance today and specifically our witnesses. We are fortunate to 
have with us today experts who have been directly involved throughout 
the process of negotiating the Compact of Free Association, including 
both Administration representatives and our friends from the island 
countries that will be directly affected by any formal legislation. 
This panel will truly be represenative of the numerous parties that 
have been working for years toward a formal agreement on the Compact.
    Our full Committee hearing today will focus on the documents that 
were recently submitted to Congress regarding the Compacts of Free 
Association with the Federated States of Micronesia and the Republic of 
the Marshall Islands, which have been introduced as H. J. Res. 63. We 
will also directly address concerns that other countries are expressing 
as a result of their experiences with the effects of the Compact.
    For over 50 years, the United States has enjoyed a very unique 
relationship with citizens of Micronesia and the Marshall Islands. In 
1984, President Ronald Reagan proposed a new status for the trust 
territories of the Pacific through negotiated Compacts of Free 
Association. After having status as a United Nations Trust Territory 
for many years, in 1986, these islands chose to become sovereign 
states. In fact, this large territory comprises around 2,000 islands 
over 3 million square miles of ocean. During the period after World War 
II, the United States had a continual interest in working with the FSM 
and the RMI, including everything from nuclear testing to a missle test 
range that continues to operate in the Marshall Islands.
    Starting in 1986, when Congress passed ``The Compact Act,'' we made 
the agreement to strive to continue to maintain both economic and 
politically stability in this region, including working to advance 
economic self-reliance in these islands.
    It is encouraging to see the mutually beneficial results that have 
come from the original Compact. The U.S. has truly moved from merely a 
trust administrator with these islands to our work with them being one 
of the United States' closest bilateral relationships.
    Unfortunately, the original Compact was also somewhat disappointing 
in some aspects of the economic progress that resulted. In general, the 
U.S. provided a large amount of funding to the Freely Associated States 
without any sort of effective payment structure that was closely 
monitored. The result was a lack of proper development in multiple 
arenas, and mismanagement of funds that in part led to the current 
shortcomings that exist in health care and education.
    There have also been some unintended consequences as a result of 
P.L. 99-239, of which many are seen in neighboring countries. The 
original Compact provided the citizens of the FSM and RMI to travel 
freely and live throughout the Pacific. As a result, these migration 
rights coupled with continued difficult economic opportunities, 
thousands of migrants are living in areas like Guam, Hawaii, and the 
Commonwealth of the Northern Mariana Islands.
    Living with the lack of proper health care and educational options 
mentioned earlier, this is what many migrants sought when moving from 
the FSM or RMI. Now the island areas are experiencing a migration 
impact of what they have calculated to be in the hundreds of millions 
of dollars since 1986, when the original Compact was enacted. It is 
encouraging to see that this new legislation will provide a mandatory 
funding level of $15 million for twenty years to address this issue. 
The amended Compact will also enable us to see a more direct and 
accurate accounting of this trend, as it requires the President to 
report and make recommendations annually to Congress.
    Some countries have argued this is simply not enough funding, 
though. Guam, for example, which lies relatively close to the RMI and 
FSM has seen and felt this migration more than other countries. Through 
2001, the U.S. Government has provided approximately $41 million in 
impact compensation for Guam. Unfortunately, though, this funding has 
not been used in the areas of health and education, where it is needed 
most.
    It is intended that the amended Compacts' provisions regarding 
targeted grants and accountability will begin to encourage many 
citizens to remain in the FSM and RMI. Our hearing today should enable 
us to judge the scope of our current problems as well as see the 
potential for help in the amended Compact given U.S. budgetary 
constraints.
    My hope is today that our witnesses can explain how the newly 
negotiated Compact will work to advance the goals of economic self-
reliance that truly help those living in the FSM and the RMI while 
maintaining necessary U.S. security interests. Our friends in the FSM 
and the RMI, with whom we've worked for nearly sixty years now, will 
also hopefully be able to explain how this new Compact will ensure 
their economic and political viability for years to come.
    Our hearing and future work is also hastened by the need to act 
quickly to ensure this negotiated Compact can move forward. If not, on 
September 30 of this year, important components of this agreement will 
expire. The work of many people, including that of the U.S., the FSM 
and the RMI should be applauded and this Committee appreciates the time 
spent by these individuals and their willingness to now work with 
Congress to move forward.
    I thank the witnesses for coming and look forward to their 
testimony.
                                 ______
                                 
    The Chairman. I would like to now recognize the Ranking 
Member of the full Committee, Mr. Rahall.

  STATEMENT OF HON. NICK RAHALL, A REPRESENTATIVE IN CONGRESS 
                FROM THE STATE OF WEST VIRGINIA

    Mr. Rahall. Thank you, Mr. Chairman. Mr. Chairman, I do 
express my gratitude to all the witnesses who have traveled so 
far today to attend this hearing on the reauthorizing of the 
Compacts of Free Association between our government and those 
of the Republic of the Marshall Islands and the Federated 
States of Micronesia. It is also appropriate to thank the 
negotiating teams from each country for their diligence in 
pursuing this agreement.
    I also welcome the Governor of Guam and the Speaker of 
Guam's Legislature. Both are here to testify on our colleague's 
bill which addresses Compact impact issues affecting Guam.
    The majority of this Committee's activity involves the 
stewardship of this nation's natural resources, our forests, 
parks, fisheries, water, and minerals. As we consider 
legislation affecting our resources, it is also our job to 
translate to the American people how these issues improve or 
degrade their quality of life and what our actions mean to 
future generations of Americans.
    In addition to protecting our resources, this Committee has 
had an historical charge of promoting the emergence of U.S. 
territories to Statehood, Native American tribes to independent 
governance, and former trust territories to nationhood. The 
means to achieve these sorts of political freedoms have not 
always encompassed the best of decisions, nor have they been 
painless in terms of concessions needed by one party or 
another. However, we should keep in mind that this is a process 
of political and economic evolution based on close historical 
ties.
    In this regard, the relationship between the U.S. and the 
RMI and FSM historically was steeped in defense issues. With 
the enactment of the original Compacts, we supposedly moved 
from those considerations to values for a more modern political 
economy, opportunities for self-sufficiency, accountability, 
independence, and partnership.
    The reality is, however, that the U.S. continues to have 
strategic defense interests in mind. Our world today is so much 
more fragmented than it was during the cold war. Then, our 
adversary was known. We knew where they were. We knew what they 
were doing, and we needed to be sure there was no expanse on 
our part. Today, we contend with threats of nuclear 
proliferation in Asia and the movement of terrorism through the 
back yards of our Asian allies. It is often difficult to 
pinpoint where the hostilities will arise. As such, our need to 
continue our defense relationships with the FMI and FSM remains 
prominent.
    We do, however, need to simultaneously move forward and 
buildupon the first successful 15 years of our Compact 
relationship, and toward that end, I look forward to hearing 
the testimony of our witnesses today and I am interested in 
learning what the successes of our Compact relationship have 
been to date, how the renegotiated Compact addresses some of 
Congress's concerns and the solutions that have been agreed 
upon by all parties.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Rahall follows:]

Statement of Hon. Nick J. Rahall, II, a Representative in Congress from 
                       the State of West Virginia

    Mr. Chairman, I would like to express my gratitude to all the 
witnesses who have traveled, some at great distances, to attend this 
hearing on reauthorizing the Compacts of Free Association between our 
government and those of the Republic of the Marshall Islands and the 
Federated States of Micronesia.
    It is also appropriate to thank the negotiating teams from each 
country for their diligence in pursuing this agreement.
    Let me also welcome the Governor of Guam, and the Speaker of Guam's 
Legislature. Both are here to testify on our colleague's bill which 
addresses Compact impact issues affecting Guam.
    The majority of this Committee's activity involves the stewardship 
of this Nation's natural resources--our forests, parks, fisheries, 
water and minerals. As we consider legislation affecting our resources, 
it's also our job to translate to the American people how these issues 
improve or degrade their quality of life and what our actions mean to 
future generations of Americans.
    In addition to protecting our resources, this Committee has had a 
historical charge of promoting the emergence of U.S. Territories to 
Statehood, Native American tribes to independent governments, and 
former Trust Territories to nationhood.
    The means to achieve these sorts of political freedoms have not 
always encompassed the best of decisions, nor have they been painless 
in terms of concessions needed by one party or another. However, we 
should keep in mind that this is a process of political and economic 
evolution based on close historical ties.
    In this regard, the relationship between the United States and the 
RMI and FSM historically was steeped in defense issues.
    With the enactment of the original Compacts, we supposedly moved 
from those considerations to values for a modern political economy--
opportunity, self-sufficiency, accountability, independence, and 
partnership.
    The reality is, however, that the U.S. continues to have strategic 
defense interests in mind.
    Our world today is so much more fragmented than it was during the 
Cold War. Then, our adversary was known--we knew where they were, we 
knew what they were doing, and we needed to be sure there was no 
expanse on their part.
    Today, we contend with threats of nuclear proliferation in Asia and 
the movement of terrorism through the backyards or our Asian allies. It 
is often difficult to pinpoint where the hostilities will arise, as 
such, our need to continue our defense relationship with the RMI and 
FSM remains prominent.
    We do, however, need to simultaneously move forward and build upon 
the first successful fifteen years of our Compact relationship.
    Toward that end, I look forward to examining the testimony of our 
witnesses. I am interested in learning what the successes of our 
Compact relationship have been to date, how the renegotiated Compact 
addresses some of Congress's concerns, and the solutions that have been 
agreed upon by all parties.
    Thank you.
                                 ______
                                 
    The Chairman. Thank you.
    After having the opportunity with Mr. Abercrombie to do a 
teleconference with a number of folks from his home State, I 
had requested and have received a report on the impact on 
Hawaii and I would like at this time to have that included, by 
unanimous consent, have that report included in the record.
    [NOTE: The report submitted for the record by Mr. 
Abercrombie has been retained in the Committee's official 
files.]
    Mr. Rahall. Mr. Chairman, I ask unanimous consent also to 
have submitted for the record the statement by Senator Chris 
Loeak, who is the Chairman of the KNC, on behalf of the 
Kwajalein land owners.
    The Chairman. Without objection.
    Mr. Rahall. Thank you.
    [The prepared statement of Mr. Loeak follows:]

  Statement submitted for the record by Senator Christopher J. Loeak, 
  Chairman, Kwajalein Negotiation Commission, on Behalf of Kwajalein 
                               Landowners

    My name is Christopher J. Loeak, Chairman of the Kwajalein 
Negotiation Commission. I appreciate the opportunity to present the 
views of the KNC today.
    Recently I submitted testimony to the House International Relations 
Committee regarding the views of the KNC on the proposed agreement 
between the United States and the RMI with respect to a new Military 
Use and Operating Rights Agreement. I append that statement to the one 
that I submit to you today.
    The position of the KNC on the proposed MUORA can be summarized by 
the following points:
     The compensation amounts for landowners of Kwajalein are 
insufficient to provide for the long-term benefit of the people of 
Kwajalein. The amount of compensation for the people of Kwajalein must 
be at least $19.1 million in 2004 fully indexed for inflation.
     The term of the agreement is insufficient and must be 
made longer to adequately plan for the use of Kwajalein for our people. 
Although the U.S. portrays this agreement as an agreement of over 50 
years duration, it only guarantees use of Kwajalein for seven years 
beyond 2016. Thus the agreement is only a 7-year extension with a 
series of 1-year options to terminate, leaving the landowners in a 
state of suspended animation for years to come. This term is far worse 
than the present 15-year term in the present MUORA.
     The Landowners will not sign a new Land Use Agreement 
until and unless acceptable changes are made to the MUORA to address 
these deficiencies. The 7-year extension of the MUORA as proposed is 
legally insufficient and cannot be implemented.
    Thank you for this opportunity and you can be sure that we will 
pursue every opportunity to reach an acceptable agreement through the 
constitutional processes of our respective governments.
                                 ______
                                 

    Statement submitted by Senator Christopher J. Loeak, Chairman, 
  Kwajalein Negotiation Commission, on Behalf of Kwajalein Landowners

    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 been a Senator in the 
Nitijela representing the Atoll of Ailinglaplap since 1985.
    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 
International Relations 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 Compact renegotiations. The KNC is an 
unprecedented alliance of the traditional leaders of Kwajalein whose 
purpose is 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. As you know, compact renegotiation 
discussions between the U.S. Government and the Government of the 
Republic of the Marshall Islands (RMI) were finalized in January of 
this year.
    The fast 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. The Kwajalein people in 
this context accepted agreements pertaining to Kwajalein, even though 
the agreements were not completely satisfactory to the people. 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).
    The KNC was formed in large part in order to adequately represent 
the interests of the people in this regard to ensure that any agreement 
reached would be equitable and in the interests of the people at large.
    Part of the Compact agreement reached in January of this year 
between the RMI and the U.S. Government included a new agreement on the 
Military Use and Operating Rights Agreement, otherwise known as the 
MUORA. The KNC opposes the new agreement as presently structured and we 
are asking Congress to either change the agreement to include 
additional compensation for landowners or postpone approval of the 
MUORA until a satisfactory agreement can be reached between all the 
parties.

            THE MILITARY USE AND OPERATING RIGHTS AGREEMENT

    The current Military Use and Operating Rights Agreement (MUORA) 
governing Kwajalein expires in 2016. Some argue that the U.S. already 
has rights to Kwajalein until 2016 and therefore no new agreement 
should be negotiated before expiration of that agreement. The people of 
Kwajalein honor the right of the U.S. to Kwajalein until 2016. 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.
    Any extension of the MUORA beyond 2016 requires the approval of the 
people of Kwajalein as stipulated by our Constitution. Moreover, any 
change to the MUORA that would extend the use of Kwajalein by the 
United States beyond 2016 requires that a new Land Use Agreement 
(``LUA'') be implemented between the RMI and Kwajalein Landowners. 
Accordingly, the new MUORA agreement cannot be implemented without a 
new LUA.
    The KNC rejects the notion that the execution of a new LUA is 
exclusively an internal matter between the national government of the 
RMI and the landowners of Kwajalein. Although we understand that it is 
the position of the United States that the U.S. negotiates ``sovereign 
to sovereign'' and that it must respect the nationally recognized and 
duly chosen representatives of the people of the RMI, the United States 
always takes into account the practical considerations that exist in a 
country when implementing new agreements. For example, in 1982 the U.S. 
required that the original LUA be implemented before the U.S. 
Government agreed to the present MUORA in force between our 
governments.
    The point has been made that if the people of Kwajalein have an 
issue with the MUORA we should take it up with our own government in 
the RMI and that we do not have standing to petition the Congress for 
changes to the agreement. This type of thinking is not credible and 
belies the reality of the process in which we are all now engaged. The 
RMI in fact is petitioning the Congress for changes to the new Compact 
in the areas of infrastructure, inflation, FEMA and other areas. In 
1982, Congress legislated changes to the negotiated Compact that 
increased coverage for the RMI on programs related to FEMA, Education, 
and other items. The issue of increased compensation to Kwajalein is 
but one in a number of issues to be addressed by the Congress.
    The United States and the RMI recognized the importance of securing 
the participation of the KNC in the negotiations when we were invited 
to participate in several negotiating sessions between the U.S. and the 
RMI. However, when the meaningful bargaining began between the parties, 
the KNC was excluded from negotiations. The reasons for this exclusion 
are unclear to us. We were left with the proposition of ``take it or 
leave it''. Accordingly, we have made it absolutely clear that we will 
not support execution of a new LUA until such time as the new MUORA 
reflects a fair and equitable deal for the people of Kwajalein.

            THE INADEQUACIES OF THE RECENTLY ANNOUNCED MUORA

The term
    The KNC opposes the recently announced MUORA proposal because it 
does not adequately provide for the long-term needs of the people of 
Kwajalein. When these negotiations started, the KNC proposed a 50-year 
long-term lease of Kwajalein. We believe that a 50-year commitment on 
behalf of both of our governments is in our mutual self-interests. 
However, the new MUORA falls short of this commitment. While the new 
MUORA purports to be a 50-year extension from 2017 until 2066, with a 
possible 20-year extension beyond that, in reality the new MUORA is a 
7-year extension, since the U.S. can exercise a termination notice in 
2016 that could terminate the MUORA by 2023. After 2023, the agreement 
is essentially a year-to-year lease, since the termination notice right 
can be exercised in any year after 2016. Accordingly, the KNC, on 
behalf of the people of Kwajalein, must consider the social and 
financial implications of a termination of the MUORA at a date as soon 
as 2023, notwithstanding that the U.S. has falsely described this lease 
as long-term.
    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 would 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 compensation amounts
    When the KNC joined negotiations with the RMI and the U.S. in the 
early fall of 2002, the RMI and the KNC proposed a joint package based 
upon an 8-point comprehensive formula that addressed the totality of 
programs that affect the use of Kwajalein by the U.S. Included in the 
proposal were provisions dealing with the MUORA Term, Kwajalein 
Landowners Compensation, Taxation, a Kwajalein Landowners Trust Fund, 
Kwajalein Impact funding, Ebeye Special Needs, Early Termination, and 
the SOFA. These items were linked together and the adequacy of funding 
for one of the provisions affected the adequacy of funding for the 
other.
    With respect to the Kwajalein Landowner Compensation amount, the 
Kwajalein Landowners proposed a funding index supported by economic and 
population indexes that were intended to reflect the inflation indexed 
value of the compensation amounts in the original MUORA supplemented by 
population growth. This amount, $19.1 million in 2004, was economically 
supported and justified by data.
    In the negotiations, one-by-one the United States whittled away at 
the 8-point proposal and isolated each part of the package so that the 
negotiations appeared to be progressing towards agreement upon items of 
the package without respecting the interplay between theprovisions 
themselves. For instance, the proposal to allow the FM to tax 
expatriate workers at Kwajalein at the prevailing national rate of 
taxation (an increase from 5% to 12%) was intended to ameliorate a tax 
subsidy to the U.S., while at the same time, providing a means of 
providing a growth-oriented revenue source to the RMI for landowner 
funding. Notwithstanding this basic right of national sovereignty, the 
U.S. rejected any increase in taxation amounts, even to the national 
rate, depriving the RMI government of its most effective means of 
raising revenue to pay for the welfare of its people. We know of no 
other example where the United States enjoys such a tax subsidy to the 
disparity and detriment of another country. And this agreement locks in 
this subsidy for the entirety of the term of the MUORA!
    At the same time, the U.S. offered amounts for landowner 
compensation that were below inflation adjusted amounts and were 
offered without economic rational or justification other than that they 
were above what is presently offered in the present MUORA. In the final 
offer by the U.S., a $15 million base was offered beginning in 2004 as 
landowner compensation. On an inflation basis, this amount represents a 
degradation of 60% of the value that the landowner's compensation 
amount achieved in 1979. Accordingly, it was no surprise that the KNC 
rejected the U.S. offer on Landowner funding as inadequate, 
particularly since the U.S. would not offer an alternative means of 
achieving landowner compensation through taxation.

The lack of a Landowner's Trust Fund
    A basic tenet of the philosophy of the landowners in formulating 
their proposal for a long-term lease of Kwajalein was that the term and 
the amount of funding for landowner's compensation be sufficient to 
provide for the long-term needs of the people of Kwajalein. The U.S. 
government states that the new MUORA is a billion-plus deal that will 
last until 2086. But as I have already described, the agreement is 
actually a short-term extension until 2023 with the possibility that 
the U.S. may decide to stay longer. In effect it is an agreement until 
2023 with a series of rolling annual 1-year options to terminate if and 
when the U.S. chooses to leave after 2023.
    Under these circumstances, the landowners are concerned that the 
compensation amounts provided in the new MUORA be sufficient that a 
corpus of funds be retained that would provide annual income to 
landowners sufficient to replace the compensation payment if and when 
the U.S. departs. At the $19.1 million level (in 2004), the landowners 
offered to voluntarily contribute 10% of the annual compensation amount 
into a trust fund for this purpose. This amount was to be matched by a 
contribution from the RMI through tax receipts.
    The present MUORA offer does not meet the objectives of the people 
of Kwajalein in this regard and must be rejected as insufficient to pay 
for our long-term needs.
    As we have stated time and again, the people of Kwajalein are 
committed to long-term access to Kwajalein on the basis of an equitable 
arrangement between both parties. If the U.S. and the people of 
Kwajalein cannot reach an acceptable arrangement at this time, however, 
we would prefer to postpone our discussion related to extension of the 
lease beyond 2016 to another time. It is far preferable to us to delay 
our talks to the alternative of having to debate a deal that we 
consider is unfair and inequitable and which cannot be implemented. Put 
another way, the present circumstances will breed division and 
opposition in our country.
    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, re-
adaptation, and rehabilitation. Environmental clean up and the planting 
of crops will take at least 7 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 
changes to the new MUORA we will achieve a fair and just arrangement 
for the continued use of Kwajalein. We have formulated several 
alternatives as a basis for changing the new MUORA that can lead to 
implementation of a new LUA. Indeed, there are many inconsistencies, 
other than the Kwajalein land use issue, contained in the draft compact 
which may very well justify delaying the approval of this agreement for 
one year. This would allow time for both sides to resolve differences 
which if allowed to remain in present form will only foment division 
within our country and undermine the foundation of our unique 
relationship. I make these observations not only as a Kwajalein 
landowner but also as a member of the Nitijela. 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.
                                 ______
                                 
    The Chairman. At this time, I would like to recognize Mr. 
Faleomavaega for his testimony on this issue.

STATEMENT OF HON. ENI F.H. FALEOMAVAEGA, A DELEGATE TO CONGRESS 
                      FROM AMERICAN SAMOA

    Mr. Faleomavaega. Mr. Chairman, I want to thank you and the 
distinguished Ranking Member of our Committee for your eloquent 
statements. I am not going to repeat myself in terms of the 
historical context we find ourselves in this morning at this 
hearing. I am very, very happy that we are able to call this 
hearing and invite witnesses from both the administration and 
our friends from Micronesia to testify.
    Mr. Chairman, these agreements that we are now going to be 
discussing in the Compact extends financial assistance from the 
United States, implements changes in the administration of 
grants, and establishes trust funds for the Republic of the 
Marshall Islands and the Federated States of Micronesia. 
However, there are certain issues about which, in my humble 
opinion, Mr. Chairman, the Republic of the Marshall Islands and 
the Federated States of Micronesia have expressed serious 
concerns regarding the Compact proposal.
    I support the Marshall Islands and the FSM's determination 
and dedication of building a self-sufficient government and 
economy and I recognize their need for assistance. People of 
the Marshall Islands, as we know, have suffered and continue to 
suffer long-lasting life-altering effects as a result of our 
testing program, both from our missile program, and our nuclear 
weapons testing from 1946 to 1958.
    Mr. Chairman, as I speak this morning, I need to remind my 
colleagues that there are well over 500 Micronesians from the 
FSM and the Republic of the Marshall Islands who currently 
serve with pride and dignity in our Armed Services. As I speak, 
I think of Specialist Olario Bromares, a proud member of the 
Army's 82nd Airborne, who was seriously injured in Baghdad and 
now is fighting for his life. He lost his arm and is without 
any legs, seriously wounded by shrapnel.
    I just wanted to make that emphasis, Mr. Chairman, with my 
colleagues. Sometimes I get the impression that we think that 
we are giving this as a form of welfare payments or 
entitlements to these people, and I submit respectfully, Mr. 
Chairman, that this is not the case. I am very, very concerned 
with the question of Federal assistance programs that we seem 
to be now not in the mood in providing for our friends in 
Micronesia. I am concerned as to why we are not giving the full 
inflation clause to the negotiation. I am concerned why the 
FEMA program is not extended to our Micronesian friends. I am 
concerned about the Kwajalein land lease agreement that is not 
in place. I am also concerned about the nuclear claims that 
have been going on now for the last 15 years and our government 
has given these Micronesian people the run-around and not given 
them proper assistance and medical attention.
    With that, Mr. Chairman, it is my intention to introduce an 
amendment or a series of amendments to the Compact to take 
corrective action in some of these areas that I am very 
seriously concerned about. With that, Mr. Chairman, I thank you 
for allowing me to say this, and I will ask unanimous consent 
that the full text of my statement be made part of the record. 
Thank you, Mr. Chairman.
    [The prepared statement of Mr. Faleomavaega follows:]

   Statement of The Honorable Eni F. H. Faleomavaega, a Delegate to 
                      Congress from American Samoa

    Mr. Chairman, the Compact of Free Association was entered into in 
1986 by the Marshall Islands and the Federated States of Micronesia 
with the United States. By entering into this agreement, the RMI and 
FMS became Freely Associated States, which allied them with the United 
States while allowing them to remain sovereign states. Objectives of 
the Compact include democratic self-government, economic development, 
self-sufficiency through assistance from the United States. Portions of 
the Compact expired in October 2001 and we are here today to honor our 
pledge to the people of RMI and FSM to assist them in maintaining a 
democratic government and principles and enable them to sustain 
economic development and self-sufficiency.
    On April 30, 2003 and May 15, 2003 the Republic of the Marshall 
Islands and the Federated States of Micronesia signed agreements with 
the United States to amend certain provisions of the Compact. These 
agreements were a result of diligent work by all parties. The amended 
Compact extends financial assistance from the United States, implements 
changes in the administration of grants, and establishes trust funds 
for the RMI and FSM.
    However, there remain a few issues with which the RMI and FSM have 
expressed concerns regarding the Compact. These include the rate of 
inflation, the continued need for access to U.S. federal education 
programs, continued development of infrastructure, continued 
eligibility for FEMA disaster relief and hazard mitigation programs, 
immigration, and economic tax incentives.
    I support the RMI and FSM's determination and dedication to 
building a self-sufficient government and economy and recognize their 
need for our assistance. The RMI and FSM have a long history with the 
U.S. which includes testing of nuclear weapons testing from 1946-1958. 
Testing which continues to impact the people of the RMI and FSM.
    The people of the RMI and FSM have suffered and continue to suffer 
long lasting and life altering effects as a result of our testing and 
it is my hope that as members of this Committee we will consider the 
needs of these people as we listen to their remaining issues regarding 
the amended Compact.
    I would like to thank the Chairman and Ranking Member for their 
support in this matter I urge my colleagues to continue to support the 
efforts of the RMI and FSM to be a self-governing and self-sufficient 
people.
                                 ______
                                 
    The Chairman. Mr. Abercrombie?

    STATEMENT OF HON. NEIL ABERCROMBIE, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF HAWAII

    Mr. Abercrombie. Thank you very much, Mr. Chairman. I most 
especially thank you for your opening statement and the 
inclusion of the report into the record.
    In the interest of time, could I have your permission and 
the consent of the Committee to submit a statement which will 
go over some of the issues raised by my good friend from 
American Samoa as well as those raised by you and Mr. Rahall?
    The Chairman. Without objection. Thank you.
    [The prepared statement of Mr. Abercrombie follows:]

   Statement of The Honorable Neil Abercrombie, a Representative in 
                   Congress from the State of Hawaii

    For the past 17 years, the United States has had a successful 
relationship with the Freely Associated States (FAS). The Federated 
States of Micronesia (FSM) and the Republic of the Marshall Islands 
(RMI) have been able to transition from a United Nations trusteeship to 
sovereign governments. At the same time, the United States has had its 
security and defense interests in the Pacific fulfilled. I believe that 
the renewal of the Compacts of Free Association, a formality in the 
continuation of our relationship, is in the best interest of all.
    I have no doubt that the relationship between our governments will 
continue to be productive and mutually beneficial. My concern lies with 
the relationship between the United States and the individual states 
and territories affected by the Compacts.
    The Compacts allow FSM and RMI citizens to freely enter the U.S. 
and its territories to live, seek an education, obtain healthcare and 
find employment. For FSM or RMI citizens who need complex medical 
treatment or seek higher educational opportunities unavailable in their 
country, the ability to enter the U.S. is critical. Due to the 
proximity of the State of Hawaii to these Pacific Island nations and 
our familiar island lifestyle, our State welcomes many FSM and RMI 
citizens. While many Compact migrants become productive residents of 
the state and add to the unique diversity of Hawaii, there are 
quantifiable costs, totaling $140 million over the last six years, 
borne by the State.
    The Personal Responsibility and Work Opportunities Reconciliation 
Act of 1996 determined that Compact migrants were no longer eligible 
for federal means tested public benefits: Medicare, Medicaid, the State 
Children's Health Insurance Program (SCHIP), and Temporary Assistance 
for Needy Families. As a result, the affected states and territories 
have shouldered the responsibility of providing public benefits to 
Compact migrants with little assistance from the federal government. 
Hawaii, Guam and the Commonwealth of the Northern Mariana Islands, have 
all incurred significant costs as a result of the Compacts in the areas 
of health, education and social services.
    For 2002, Hawaii expended more than $32 million in assistance to 
Compact migrants. The biggest impact has been on our education system. 
Last year, the number of Compact migrants increased by 32 percent in 
the primary and secondary school systems. This influx of students 
increased our public school system costs by at least $18 million for 
the 2002-2003 academic year. The $18 million figure is based on the 
cost of educating the average student, so it does not include 
additional costs for the special education and the English as a Second 
Language needs of two-thirds of the Compact migrant students. Nor does 
it account for lost revenue to the University of Hawaii for allowing 
Compact migrants to pay in-state tuition and fees.
    Compact migrants also enter the U.S. with complex medical problems 
and communicable diseases. These costs have strained our medical 
system, especially after the 1996 welfare reform laws which made 
compact migrants ineligible for Medicaid, Medicare and SCHIP. The State 
of Hawaii and its hospitals have incurred more than $13 million in 
unreimbursed costs by treating compact migrants in the last five years. 
This burden increases with every passing year as more and more migrants 
enter the state.
    I could continue to detail the monetary costs borne by the State of 
Hawaii but a lengthy report has been submitted for the record with 
specific details on what departments and agencies are impacted. These 
expenditures cannot continue to go uncompensated. I realize that the 
Administration has proposed $15 million in annual funding to be 
distributed for compact impact aid. I appreciate the recognition of 
this serious problem and the willingness to provide some recompense. 
Unfortunately, this amount is proposed to be shared proportionately by 
Hawaii, Guam, CNMI, and American Samoa. This $15 million proposal is 
less than Hawaii's annual education costs alone and it is wholly 
inadequate to support the needs of Compact migrants in the impacted 
areas.
    Congress must fund the Compacts sufficiently so that impacted 
states and territories can be fully reimbursed for all expenses 
incurred as a result of the Compacts. As a signatory to the Compacts of 
Free Association, the United States, not the State of Hawaii, must bear 
its costs.
    In closing, I would like to reiterate my support for the 
reauthorization of the Compacts and a continued relationship between 
the United States and the FAS. However, I must stress the magnitude of 
the effects felt by the State of Hawaii and the affected territories. I 
sincerely hope that this Committee will work with the Administration to 
address these problems and find a solution agreeable to everyone.
                                 ______
                                 
    The Chairman. Ms. Bordallo?

STATEMENT OF HON. MADELEINE Z. BORDALLO, A DELEGATE TO CONGRESS 
                   FROM GUAM, ON H.J.RES. 63

    Ms. Bordallo. Thank you, Mr. Chairman. I will have my 
statement submitted for the record.
    The Chairman. Without objection.
    [The prepared statement of Ms. Bordallo on H.J.Res. 63 
follows:]

 Statement of Hon. Madeleine Z. Bordallo, a Delegate to Congress from 
                          Guam, on H.J.Res. 63

    Chairman Pombo, Ranking Member Rahall, and Members of the 
Committee:
    I strongly support the renewal of the Compact agreements and the 
continued economic assistance to the Compact States. Guam is the 
closest American neighbor to the Federated States of Micronesia and the 
Republic of the Marshall Islands, and we have seen the progress that 
the Freely Associated States (FAS) have made under their respective 
Compact agreements. As we review the record of accomplishments under 
the fifteen year agreement, we should also weigh the issues and 
concerns that have been raised regarding economic and social 
development.
    One of the major concerns for Guam remains the reimbursement of 
costs incurred by Guam due to the Compact. With the proposed renewal of 
the unrestricted migration provisions, the time to appropriately 
address this issue is now. The Government of Guam has incurred 
significant costs over the past seventeen years due to this migration, 
and we have been inadequately reimbursed by the Federal Government. The 
immigration policy should go hand in hand with an adequate 
reimbursement policy for Compact-impact costs. I ask my colleagues for 
their support in providing for an improved process for redressing the 
adverse financial consequences of the immigration provisions. These 
improvements are needed if we are to adequately address these issues as 
a part of the Compact law reauthorization
    I have other concerns regarding the changes that the Administration 
has proposed and I would seek clarification on how these changes would 
improve the economic viability of the Freely Associated States. I am 
concerned about proposed changes to participation in disaster 
assistance programs under the Stafford Act, and changes to 
participation in other Federal grant programs. Will these changes 
contribute to the future well being of the Compact States, or are these 
changes driven by budget constraints? Is there an overall policy which 
defines which Federal programs are appropriate for the Compact States, 
or is this an issue that is defined on a program by program basis? As 
the Congressional review process goes forward, I hope these questions 
will be answered and that these concerns will be addressed.
    Finally, I am interested in how Compact assistance will be 
administered and whether new measures intended to increase 
accountability will work. Guam's experience with the Compact-impact 
issue is a warning that we have to be on guard against the law of 
unintended consequences because it may be very difficult to foresee how 
policies made in Washington work in the islands. If experience is the 
guide, then Guam's experience has been that Compact issues are nearly 
impossible to revisit if we do not get this right the first time.
                                 ______
                                 
    The Chairman. Now, I would like to introduce our first 
panel. I would like to welcome my colleague, the gentleman from 
Hawaii, Congressman Ed Case, to our hearing toady about how the 
original Compact Act has affected his State.

 STATEMENT OF HON. ED CASE, A REPRESENTATIVE IN CONGRESS FROM 
                      THE STATE OF HAWAII

    Mr. Case. Chair Pombo, Ranking Member Rahall, members of 
the Resources Committee, especially my Pacific Caucus over 
here, it is a pleasure to see my senior colleague from Hawaii 
as well as my friends from Samoa and Guam. Aloha. Thank you 
very much for the opportunity to provide full support for the 
Compacts of Free Association with the Freely Associated States. 
I also have my written testimony and I would like to ask 
unanimous consent to have it inserted into the record, Chair, 
and simply summarize for you this morning for the sake of time.
    The Chairman. Without objection.
    Mr. Case. Thank you very much. As I said, our feelings in 
Hawaii are in full support of the Compacts, but my purpose this 
morning is to express some concerns to this Committee and to 
request this Committee's assistance in taking actions that deal 
with the consequences of the Compacts upon Hawaii and other 
affected jurisdictions, primarily Guam and Saipan.
    We in Hawaii have really a unique position in this story. 
We, of course, have a unique status in the Pacific. We are our 
country's central presence in the Pacific and we are proud of 
that presence and welcome the responsibility that comes with it 
to advance our country's interest in the Pacific.
    At the same time, we enjoy a unique cultural-historical 
relationship with our brothers and sisters in the Pacific, the 
island nations of the Pacific, and we are also proud to be able 
to advance their interests as part of the commonwealth of the 
entire Pacific, if I can put it that way. And in this case, the 
Compacts serve us in both instances.
    Our support for the Compacts comes from two basic reasons. 
First of all, the Compacts are integral to our country's 
interests in the Pacific, and those interests are to promote 
economic self-sufficiency, to promote political stability, and 
to assure the common security of the Pacific on behalf of all. 
From the perspective of the Pacific nations, the Compacts are 
integral to the continued development of their countries, and 
in that spirit, we in Hawaii, and I believe I speak for all of 
the peoples that I represent in Hawaii, we support these 
Compacts and we want to advance them.
    However, as has already been noted, there are consequences 
to the Compacts that fall disproportionately upon some U.S. 
jurisdictions, Hawaii, Guam, and Saipan being the primary 
three.
    The basic principle of the Compacts is that in return for 
certain interests granted to the Freely Associated States, they 
are entitled to immigrate into our country virtually without 
any restrictions, and as a result, they do, in fact, immigrate 
greatly and increasingly to Hawaii and other jurisdictions. 
Now, Hawaii and those jurisdictions where that immigration 
occurs bear certain increased burdens as a result of that 
immigration. They fall across the spectrum, but particularly in 
education, health, and human services.
    When a community of Marshallese, for example, sets up on 
the Big Island of Hawaii, which I represent, and those members 
of the community, their children, go to school at Honokaa High 
School, which is a rural high school on the Big Island, and 
they incur certain obligations in that high school in servicing 
that community that are related, for example, to English as a 
Second Language, that is an impact upon the State of Hawaii as 
a result of immigration. When those communities have unique 
health problems, communicable diseases, for example, those 
diseases are addressed through the Hawaii State health service, 
and that is an impact on the State of Hawaii, and that is 
repeated in other areas, as well.
    That is why the issue of Compact impact aid is so important 
to Hawaii and the other jurisdictions. Our estimates are that 
Hawaii has borne about, has seen about $100 million worth of 
impact from immigration from the FAS since 1986 and it has seen 
only about $10 million in Federal impact aid.
    The testimony I believe you referred to earlier is 
testimony from the Government of Hawaii, which estimates that 
in 2002 alone, the impact upon Hawaii was somewhere in the 
range of $32 million, not including unreimbursed costs to 
private health care providers. Some of the figures really 
demonstrate what is happening. We have seen a 32 percent 
increase in education impact, a 20 percent increase in health-
related impact, a 20 percent increase in human services-related 
impact.
    So when we see that this Compact, these Compacts as 
negotiated by the administration, as presented to this 
Committee, incorporate only $15 million in impact aid for all 
of the jurisdictions that are affected, we ask the question, 
first of all, what exactly is the basis for that calculation of 
$15 million, and there is, in fact, I don't believe, any 
realistic calculable basis for it, No. 1. No. 2, it is woefully 
inadequate to address the needs of all of the jurisdictions, 
much less the needs simply of Hawaii.
    So the first and foremost point that I would make to this 
Committee is that $15 million is not going to do it in terms of 
addressing the impacts of the Compacts upon the jurisdictions 
that are most affected, Hawaii, Guam, and Saipan, and we very 
much appreciate the Committee's assistance in communicating 
that, asking the questions that relate to that, and increasing 
that amount.
    Now, if we are not going to do it from that perspective, 
then there clearly are alternatives to address Compact impacts 
upon these jurisdictions. We can, for example, expand Federal 
eligibility requirements for those programs that are not 
currently under Federal law applicable to immigrants from the 
Freely Associated States. Later today, I will be introducing, 
along with some of my colleagues here on the Committee, a bill 
which seeks to provide just that, to provide that in these 
jurisdictions, and for that matter, throughout our country, 
Freely Associated States citizens living in our country are 
eligible for aspects that they are not currently, whether they 
be Medicaid, food stamps, or treatment in DOD medical 
facilities.
    On the bigger picture, though, I think what is lacking, 
really, despite the best wishes, the best intentions of many 
people, is an overall coordinated effort in our Federal 
Government over how exactly we are going to mesh all of these 
various interests, whether they be military, whether they be 
political, whether they be social.
    I will give you just one example that I have seen from my 
Committee on Education and the Workforce, a Committee that I am 
very proud and happy to sit on. In the last few weeks, as we 
have reauthorized or proposed reauthorization of key programs 
such as special education, IDEA, and Head Start, we have seen a 
move in that Committee to strip away eligibility for the FAS 
citizens from those programs, whereas they were previously 
eligible for those programs. Now, in seeking to fight that 
restriction, I asked the question, why, and there is no reason 
why. In fact, the State Department has said that the Compacts 
were not intended to replace the benefits granted to these 
citizens on behalf of those Federal programs.
    So clearly, what we have is really a lack of coordination 
and a lack of a big picture approach to addressing not only the 
issues that my colleague from Samoa talked about, but also the 
issues of the impacts upon our country, including my 
jurisdiction, of the Freely Associated States immigration, or 
the impacts within those States themselves.
    So in conclusion, I want to say once again what I have said 
three times, I think, already. My State of Hawaii is proud to 
stand in support, full support, of the continuation of these 
Compacts. It is the right thing to do. It is what we want to 
do. It is what we should do. But we also ask the Committee's 
help in understanding that there are significant impacts upon 
the State of Hawaii and others from the Compacts, and to ask 
this Committee's assistance in rectifying those impacts and 
addressing them in a fair manner.
    Thank you very much.
    The Chairman. Thank you. I thank the gentleman for his 
testimony.
    [The prepared statement of Mr. Case follows:]

   Statement of Hon. Ed Case, a Representative in Congress from the 
                            State of Hawaii

    Chairman Pombo, Ranking Member Rahall, and members of the House 
Resources Committee, good morning and aloha!
    I appreciate the opportunity to testify today in support of 
H.J.Res. 63, legislation reauthorizing expiring provisions of the 
Compact of Free Association with the Federated States of Micronesia and 
the Republic of the Marshall Islands, with concerns on implementation.
    I commend Chairman Pombo and Representative Rahall for their 
leadership on this issue. Within the short time-frame given Congress to 
consider these recently-submitted agreements, I am glad that the 
Committee has expeditiously scheduled today's hearing, following on the 
heels of the House International Relations Committee hearing.
    At the outset, let me say that I fully support our country's 
continued recognition of the strategic importance of the Freely 
Associated States to our national security interests in the Western 
Pacific Region, and the special relationships our countries have shared 
based on the U.N. trusteeship system as well as mutual respect and 
friendship.
    It should come as no surprise that my State of Hawaii continues to 
have great interest in U.S. policy toward these areas given our 
geographic proximity and close ties in the Pacific, and thus continues 
its historic support of the Compacts of Free Association. Having said 
that, however, we continue also our historic concerns with the U.S. 
government's administration and coordination of Federal assistance and 
policy toward Micronesia, and especially the issue of Compact Impact 
Aid to Hawaii and other affected U.S. jurisdictions.

Accountability.
    There have been countless reports, including from GAO, which have 
recognized the need for greater accountability over Federal assistance 
in Micronesia. There is a specific need for the Federal Government to 
hold accountable the Department of Interior and other Federal agencies 
on how they oversee Compact funds. I am, therefore, pleased that the 
current amendments to the Compact seek to strengthen reporting and 
monitoring measures to improve accountability.

Coordination of Federal Policy.
    I share the concerns of many over the coordination of U.S. policy 
toward the FSM and RMI. Our national policy is to advance economic 
self-reliance, maintain economic and political stability, and maintain 
continued access to Kwajalein Missile Test Range. There is an apparent 
disconnect between Federal agencies on the coordination of this Federal 
policy toward the FSM and RMI. While there has been a lot of effort on 
the part of the State and Interior Departments on the Compact 
renegotiations, notably, no concerted effort and affirmative position 
has been taken by the Administration on the eligibility of citizens of 
the Freely Associated States in important Federal educational and other 
social programs during the reauthorization of many of these Federal 
programs.
    As a member of the House Education and Workforce Committee, for 
example, I have witnessed firsthand the arbitrary exclusion of FAS 
citizens from the reauthorization of the Individuals with Disabilities 
Education Act (IDEA) and Head Start, even after pleas by myself and 
others on the Committee who recognize the importance of these programs 
to those communities. These actions are contrary to the State 
Department's recent position which made clear that the intent of the 
renegotiated Compacts is not to replace existing programs authorized by 
Congress as part of the U.S. assistance program. Essentially, I believe 
that much more needs to be done by the Administration to support 
Congressional allies who advance U.S. policy in this crucial region. 
Otherwise, all of the goodwill and efforts of the renegotiated Compacts 
will be offset by the consequences of decreases in educational and 
social funds that FAS citizens currently receive from the Federal 
Government under separate statutes.
    This issue is important to Hawaii and our country for two reasons. 
First, I believe it is the right thing to do for the FAS and our 
national policy. Second, any disruption in our efforts to promote 
economic self-sufficiency and improved educational and health systems 
in Micronesia will potentially lead to even more migration of FAS 
citizens to the United States, particularly Hawaii, Guam and the 
Commonwealth of the Northern Mariana Islands, due to the strain on the 
education and health services of these countries to provide these basic 
governmental services.

Compact Impact Aid.
    Continued migration from these countries to the United States 
brings me to the issue of Compact Impact Aid. The Administration has 
proposed, as part of H.J.Res. 36, $15 million in Compact Impact Aid to 
be collectively shared by affected U.S. jurisdictions, which are 
primarily Hawaii, Guam, and the CNMI. This level of assistance is 
completely inadequate, given the actual costs that all of our 
jurisdictions have incurred since 1986. Moreover, the Administration 
has provided no clear justification on where it even came up with the 
$15 million figure. In fact, in recent years, the Department of 
Interior has reported that supportable ``best estimates'' in 1997 for 
fiscal impact costs in our jurisdictions are over $30 million annually.
    While Hawaii has spent more than $100 million on state benefits to 
FAS citizens since 1986, it has received less than $10 million in 
Compact Impact Aid from the Federal Government. In 2002 alone, Governor 
Linda Lingle of Hawaii estimates, Hawaii has spent over $32 million in 
assistance for FAS citizens, most on educational costs. $18 million was 
spent for primary and secondary education for the academic year 2002-
2003, a 32% increase from the year before. The second highest impact is 
in health care costs. The State Department of Human Services has spent 
$4.5 million in financial assistance and $6.7 million in medical 
assistance--a 20% increase in services from the previous year. These 
amounts do not take into account the $15 million that is annually spent 
by private hospitals in Hawaii with no debt relief.
    While Administration officials repeatedly say that the $15 million 
proposed should be considered the annual ``minimum'' amount the Federal 
Government will be provided, its record in assuring adequate Compact 
Impact to Hawaii since 1986 is wanting. Moreover, given the fact that 
the Office of Insular Affairs office budget is one of the smaller 
budgets at the Interior Department, I am not optimistic that Hawaii and 
other affected jurisdictions will be successful in securing additional 
amounts annually in the appropriations process without the full support 
of the entire Executive Branch.
    I have repeatedly said that since our costs are primarily in the 
field of education and health care, then other Federal agencies, 
particularly the Departments of Education and Health and Human 
Services, should be part of an overall Federal and Compact Impact 
assistance strategy and program. The easiest route, of course, would be 
to simply increase the Compact proposal of $15 million to at least $35 
million in mandatory spending. In that way, areas affected will not 
have to fight annually in the appropriations process.
    Other ways to ameliorate Compact Impact costs include making FAS 
citizens eligible for key Federal social programs that will offset the 
costs borne by our jurisdictions and providing our jurisdictions with 
the clear authority to receive other Federal assistance and make 
referrals to DOD medical facilities. I am asking that this Committee 
give priority consideration to legislation I am introducing today with 
my colleagues which gives the Administration other alternative ways to 
provide assistance to our areas.
    Our legislative proposal does the following:
     Increases Compact Assistance from $15 to $35 million
     Includes FAS citizens in the Medicaid program
     Includes FAS citizens in the Food Stamp Program
     Allows Hawaii and other jurisdictions to refer FAS 
citizens to DOD medical facilities
     Includes Hawaii and other U.S. jurisdictions in the 
communicable diseases program; and
     Continues medical debt relief authority for the FSM and 
RMI
    In closing, Mr. Chairman, I want to reiterate my support and, I 
believe, the support of my state for the Compacts, but also the great 
importance of Compact Impact Aid to Hawaii. The Hawaii Congressional 
delegation, our local political leaders, and service providers in 
Hawaii view the renegotiated Compact agreements as the best window of 
opportunity to address Compact Impact Aid. Apart from the support of 
Governor Lingle, the Hawaii State Legislature has passed House and 
Senate resolutions seeking Federal assistance as well to help our 
state. Our private hospitals and educational school system also share 
our concern.
    I look forward to working with the Members of this Committee on all 
of these issues as H.J.Res. 63 moves forward. Mahalo!
                                 ______
                                 
    The Chairman. Are there any questions of Mr. Case? Thank 
you very much.
    Mr. Rahall. I don't have any questions, but I do want to 
commend the gentleman from Hawaii in his first term for being 
such an effective leader on this issue and representing not 
only Hawaii but those members of the Compact Association as 
effectively as he does.
    Mr. Case. Thank you very much.
    The Chairman. Mr. Faleomavaega?
    Mr. Faleomavaega. Mr. Chairman, I, too, would like to join 
my colleague from West Virginia in commending the gentleman 
from Hawaii for his eloquent statement.
    I would also like to share with our colleagues in the 
Committee and with my good friend, Mr. Case, kind of like an 
institutional memory that in my understanding 30 years ago, 
there were provisions in the Compact that were agreed upon 
because of the bipartisanship support that members of this 
Committee had given not only to the previous administration, 
especially the various social assistance programs that were 
absolutely necessary, because these governments, the RMI, 
Republic of the Marshall Islands, and the Federated States of 
Micronesia, had nothing to begin with. They had no 
infrastructure. They had no educational system to begin with. 
They had nothing.
    But to now expect these programs to be cut unilaterally 
without even any real set of documentation as to whether or not 
these programs are still essentially needed, I believe, Mr. 
Chairman, and I want to share this concern with my good friend 
from Hawaii, that this cannot be acceptable.
    Thank you, Mr. Chairman.
    Mr. Case. Thank you.
    The Chairman. Thank you.
    Ms. Bordallo?
    Ms. Bordallo. Thank you very much, Chairman. I would also 
like to go on record to thank my colleague, Mr. Case, for his 
comments in support of our Micronesian neighbors. Thank you.
    Mr. Case. Thank you.
    The Chairman. Thank you.
    I would like to call up our second panel, Mr. David Cohen, 
Mr. Albert Short, and Susan Westin, if you can approach the 
witness table. Before you sit down, if I could have you stand 
and raise your right hand.
    Do you solemnly swear or affirm under the penalty of 
perjury that the statements made and the responses given will 
be the whole truth and nothing but the truth, so help you, God?
    Mr. Cohen. I do.
    Mr. Short. I do.
    Ms. Westin. I do.
    The Chairman. Let the record show they answered in the 
affirmative.
    Thank you very much for being here. I know that a number of 
you are on time constraints this morning, but I do appreciate 
you joining us for our hearing this morning.
    Mr. Cohen, we are going to begin with you on your 
testimony. If you are ready, you can begin.

   STATEMENT OF DAVID COHEN, DEPUTY ASSISTANT SECRETARY FOR 
        INSULAR AFFAIRS, U.S. DEPARTMENT OF THE INTERIOR

    Mr. Cohen. Thank you, Mr. Chairman, and thank you for 
arranging the schedule to accommodate my time constraints.
    Mr. Chairman and members of the Committee, I am pleased to 
appear before you today to discuss the administration's 
proposed legislation to amend the Compacts of Free Association 
with the Republic of the Marshall Islands and the Federated 
States of Micronesia. Over the 17-year life of the Compact, the 
U.S. will have paid a total of $1.04 billion in direct 
financial assistance to the RMI and $1.54 billion to the FSM. 
There have been few restrictions on this aid.
    The GAO has issued a number of reports that have raised 
concerns about the effectiveness of Compact assistance. We at 
Interior have had similar concerns for quite some time. Our 
desire for better accountability has been frustrated by the 
fact that the current Compact provides for large, loosely 
defined grants with no express enforcement mechanisms.
    I am pleased that the U.S., the RMI, and the FSM have 
designed a completely new system to ensure that Compact funds 
are used productively. The system, which features targeted 
funding, performance measurement, increased oversight, and 
remedies as a last resort, is explained in greater detail in my 
written statement. In order to implement this new program, we 
are assembling a Compact oversight team based on the Pacific.
    I would also like to address the impact that migration from 
the RMI, FSM, and Palau has had on Hawaii, Guam, the Northern 
Mariana Islands, and American Samoa, as Congressman Case has 
just addressed. We are requesting $15 million in annual 
mandatory funding to these jurisdictions to mitigate the impact 
of migration. We believe, however, that the first line of 
defense against this impact is the financial assistance that we 
will provide to the Freely Associated States under the amended 
Compact. The amended Compact is designed to address the 
problems that, according to a GAO report, drive people to 
migrate--inadequate health care, inadequate education, 
inadequate economic opportunity.
    We don't pretend that the amended Compact will bring 
migration to a halt, but we sincerely hope that the people of 
the Freely Associated States, including those who choose to 
migrate, will, as a result of our new targeted assistance 
program, be healthier and better educated and, hence, more 
likely to be net contributors to whatever community in which 
they choose to live.
    I offer a few observations. First, when we talk about 
accountability, we are not talking about making sovereign 
states accountable to the U.S. Accountability refers to the 
collective accountability that all three governments have to 
both the people of the islands and the American taxpayer. All 
three governments have a collective responsibility to ensure 
that the American taxpayers' money will not be wasted and, just 
as importantly, a collective responsibility to deliver on our 
promise to help the people of the islands to improve their 
quality of life.
    Some might interpret our new accountability program as an 
admission that the original Compact has been a failure. Nothing 
could be further from the truth. The Compact has been a 
tremendous success. America's former trust territory wards have 
emerged as free, vibrant, sovereign democracies. These nations 
have become America's most loyal allies in the world. Cynics 
say that this loyalty has been purchased with Compact aid, but 
no amount of money could buy the type of loyalty that leads so 
many of these islands' finest sons and daughters to serve 
proudly and honorably in the U.S. military.
    I am very happy that the Congressman from American Samoa 
made a special mention of 82nd Airborne Army Specialist Olario 
Bromares, who I would also like to acknowledge. He is from 
Pohnpei, and as we sit here, Mr. Chairman, he is lying in 
Walter Reed Army Hospital. He was gravely wounded in the attack 
in Baghdad, as the Congressman has already mentioned. He has 
lost both legs and an arm. We all pray for Olario's recovery 
and we thank him so much for the tremendous courage that he has 
shown in the service of our country.
    As illustrated by the inspiring valor of Olario Bromares 
and other men and women from the Freely Associated States, 
there is clearly a heartfelt bond between Americans and the 
people of these islands. The Compact has only made it stronger. 
We Americans value this bond.
    As for criticism of the original Compact, it is important 
to remember that that document invented a comprehensive new 
kind of international relationship that was completely untested 
at the time. It should surprise no one and shame no one that 
with the wisdom of 17 years of experience, the parties can find 
opportunities to improve the Compact. The U.S. and the Freely 
Associated States are committed to embracing those 
opportunities, working together as partners to ensure that the 
promise of these Compacts is fully realized for all the people 
of the islands. Thank you.
    The Chairman. Thank you.
    [The prepared statement of Mr. Cohen follows:]

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

    Mr. Chairman and members of the House Committee on Resources, I am 
David B. Cohen, Deputy Assistant Secretary of the Interior for Insular 
Affairs. I am pleased to appear before you today to discuss H. J. Res. 
63, the Administration's proposal for legislation that would approve 
amendments to the Compact of Free Association with the Republic of the 
Marshall Islands (RMI) and the Federated States of Micronesia (FSM), 
which I will collectively refer to as the freely associated states or 
FAS. These amendments will, among other things, split the current 
Compact, which is a single, tri-lateral agreement among the United 
States, the RMI and the FSM, into two bi-lateral Compacts between the 
United States and the RMI and between the United States and the FSM, 
respectively.
    I will focus my comments on the fiscal and economic provisions of 
the Compacts and the Fiscal Procedures Agreements, which are subsidiary 
agreements to the respective Compacts. 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 current 
Compact.
BACKGROUND
    Over the 17-year life of Compact financial assistance, it is 
expected that the United States will ultimately have paid a total of 
$1.04 billion in directs grants to the RMI and $1.54 billion to the 
FSM. There have been few restrictions on these grants.
    Over the last several years, the GAO has issued a number of reports 
that have raised concerns about the effectiveness of Federal assistance 
that has been provided under the Compact. We at the department of the 
Interior have had similar concerns for quite some time; particularly 
officials in the Office of Insular Affairs, who have been greatly 
frustrated with the lack of tools properly to administer or track 
Federal assistance in a manner that could reasonably ensure that such 
assistance is having its intended effect. Most importantly, we have 
been hampered by the fact that the current Compact provides for large, 
loosely defined grants with no express enforcement mechanisms to ensure 
the efficient and effective expenditure of funds.
    I am pleased that, in negotiating the provisions of the amended 
Compacts, the United States and its negotiating partners, the RMI and 
FSM, have sought to address the concerns raised by the GAO, the 
Department of the Interior and others.
ACCOUNTABILITY PROVISIONS
    We have designed a completely new system to ensure that Compact 
funds are used productively. First, we will target our funding. Compact 
funds will be available for the following six high-priority sectors 
only:
     Health
     Education
     Public Infrastructure
     Environmental Protection
     Private Sector Development
     Public Sector Capacity Building
    Special emphasis will be given to health and education. The 
respective Compacts and the related Fiscal Procedures Agreements 
describe the types of activities that are eligible for funding under 
each of these sectors. This will enable us to ensure that Compact funds 
are used exclusively for what the U.S. and our FAS partners have 
jointly identified as high-priority activities.
    Second, the U.S. and its FAS partners will work together to control 
Compact budgets, including the allocation of funds among the six 
sectors, to ensure that the objectives of the Compact are being 
properly pursued. The process will work as follows: Each year, the RMI 
and FSM will propose their respective Compact budgets. Those proposals 
must be approved by bilateral joint committees--a U.S.-RMI joint 
committee for the RMI Compact and a U.S.-FSM joint committee for the 
FSM Compact. Each joint committee will include three members from the 
U.S. and two from the applicable freely associated state. The joint 
committees will ensure that the Compact budgets conform to the letter 
and spirit of the respective Compacts.
    Third, we will require planning to ensure that Compact budgets 
further medium- and long-term goals and objectives. Each FAS will be 
required to prepare and periodically update various plans, which will 
be subject to the approval of the applicable joint committee. The 
Compact budgets will be expected to be consistent with these plans.
    Fourth, we will give oversight personnel at the Department of the 
Interior the tools to protect against waste, fraud and abuse. The 
sector grants will be subject to terms and conditions similar to those 
applicable to Federal grants provided to state and local governments in 
the United States. The provisions designed to protect Compact funds 
include:
     The right of the U.S. to unilaterally impose certain 
special conditions, including additional reports, monitoring and prior 
approvals, in the event that a grantee has a history of unsatisfactory 
performance or is not financially stable.
     The right of the U.S. to withhold payments or suspend or 
terminate grants under certain conditions.
     The requirement that the FAS be subject to annual audits, 
and the right of the U.S. to conduct specific audits as it deems 
necessary.
     The right of the U.S. to have full access to all relevant 
FAS records.
     The requirement that the FAS follow procurement 
provisions designed to ensure competition, transparency and the 
avoidance of conflicts.
     The obligation of the FAS to fully cooperate with any 
U.S. investigation into the misuse of Compact funds.
    We do not intend to make these tools the focus of our 
accountability program. We understand that the key to a successful 
accountability program is a continued strong relationship with our FAS 
partners, so that we can work together to ensure that the Compact funds 
benefit the people that they are intended to benefit. We also 
understand, however, that it is difficult to predict what will happen 
over a 20-year period, and it would be imprudent for us to not have the 
tools necessary to protect the American taxpayers' investment to 
improve life in the FAS.
    The provisions described above will help us to ensure that the 
Compact funds reach their intended destination. But it will be of 
little good if the Compact funds reach their intended destination but 
do not have the intended effect. That is why, as the fifth prong of our 
new accountability program, we will apply performance standards and 
measures to each Compact grant. The joint committees will be 
responsible for applying appropriate performance standards and measures 
and evaluating performance on the basis thereof.
    Sixth, we will provide for strong minimum standards for each FAS's 
financial management systems, and we will help them to meet these 
standards with technical assistance provided by my office and with the 
public sector capacity development grant.
    Seventh, we will provide for detailed reporting, so that the U.S. 
and its FAS partners can track progress and identify any areas of 
concern.
    Finally, the Department of the Interior is in the process of 
assembling a Compact oversight team based in the Pacific. We are hiring 
eight additional full-time employees who will focus exclusively on 
monitoring and oversight of Compact financial assistance and 
coordination with other Federal agencies providing program assistance 
to the FAS.
    Additionally, Mr. Chairman, I would like to address the very 
important question of the impact that migration from the RMI, FSM and 
Palau, as authorized by the current Compacts, has had on Hawaii, Guam, 
the Northern Mariana Islands and American Samoa. Migrants have made 
important contributions to Hawaii and the territories, but have placed 
additional burdens on the local governments because of their 
utilization of services. The GAO reported significant outlays by these 
United States jurisdictions in aid of migrants and their families. With 
this history in mind, the legislation before you today includes $15 
million in annual mandatory funding as a contribution to these United 
States jurisdictions to mitigate the impact of migration.
    While this $15 million will be applied directly to address the 
impact of migration on United States jurisdictions, the financial 
assistance that we will provide to the FAS under the amended Compact is 
really the first line of defense against this impact. The GAO found 
that migration from the FAS is motivated mainly by the lack of proper 
education, health care and economic opportunity. The amended Compact is 
designed to address the problems that drive people to migrate: The 
targeted funding gives priority to health and education and also 
supports activities that are designed to promote economic development. 
We do not pretend that the amended Compact will bring migration to a 
halt, but we sincerely hope that the people of the FAS, including those 
who choose to migrate, will, as a result of our new targeted assistance 
program, be healthier and better educated and hence more likely to be 
net contributors to whatever community in which they choose to live. 
Thus, the legislation seeks to improve the conditions that lead to 
migration from the FAS and ameliorate the effects of migration to the 
United States when it occurs.
OBSERVATIONS
    Now that I have described our new program, Mr. Chairman, I would 
appreciate the opportunity to offer a few observations.
    My first point is that when we talk about accountability, we are 
not talking about making the sovereign freely associated states 
accountable to the U.S. ``Accountability'' refers to the collective 
accountability that all three governments share both to the people of 
the islands and to the American taxpayer. All three governments have a 
collective responsibility to ensure that the American taxpayer's money 
will not be wasted, and, just as importantly, a collective 
responsibility to ensure that we deliver on our promise to help the 
people of the islands to improve their quality of life.
    Although there will always be some who are initially resistant to 
change, there is widespread support in all three governments for the 
new accountability provisions. In fact, some of the most enthusiastic 
supporters are government ``line managers'' in the RMI and the FSM--
those with the day-to-day responsibility for delivering public services 
to the people. These managers have endured years of frustration, 
struggling to keep essential programs going while knowing that a more 
productive allocation of Compact funds could have made their jobs 
easier.
    A few have expressed concern that the new accountability provisions 
are harsh, and that the FAS are not equipped to comply with them. We 
disagree. The new provisions include standard remedies for waste, fraud 
and abuse. These remedies are the same ones to which state and local 
governments in the United States are subject when they receive grants 
from the Federal Government. The RMI and FSM have had considerable 
experience with numerous United States Federal programs and these same 
remedies. I stress again, however, that the key to our accountability 
program is not the remedies that could conceivably be exercised in the 
worst case scenario, but the strong, cooperative relationship that we 
have with our partners in the islands.
    In order to strengthen their ability to comply with the new 
requirements, the FAS may use Compact funds for appropriate training, 
software, equipment and guidance. For example, Compact funds could be 
used to purchase financial management systems, to provide training and 
hands-on guidance for local personnel or to supplement local personnel 
with outside experts.
    The bottom line, Mr. Chairman, is that all three governments want 
to ensure that the people of the RMI and FSM receive the full benefit 
of the Compact assistance program. We can only achieve this with a 
strong accountability program. The U.S. cannot do it alone: We could 
not place sufficient personnel on the ground to properly do this job 
all by ourselves without seriously interfering with the sovereign 
governmental operations of our FAS partners, conjuring unfortunate 
images of a return to the old Trust Territory days. The FAS cannot do 
it alone: They are still in the process of developing the capacity to 
fully protect against the possibility of waste, fraud and abuse, and to 
properly measure the effectiveness of Compact-funded activities. All 
parties recognize that we need to work together to achieve the 
objectives that we all share.
BUILDING ON SUCCESS
    Some might interpret our new accountability program as an admission 
that the original Compact has been a failure. Nothing could be further 
from the truth. The Compact has been a tremendous success. America's 
former Trust Territory wards have emerged as free, vibrant, sovereign 
democracies. The United States has achieved its strategic objective of 
denying other powers control over vast areas of the Pacific. The freely 
associated states have benefited from the United States defense 
umbrella, and their people enjoy the right to live, work and study in 
the United States. Significantly, these nations have become America's 
most loyal allies in the world.
    Cynics say that this loyalty has been purchased with Compact aid. 
No amount of money, however, could purchase the type of loyalty that 
leads so many of these islands' finest sons and daughters to serve 
proudly and honorably in the United States military, risking their 
lives to protect the freedom of all Americans. Mr. Chairman, at this 
moment, 82nd Airborne Army Specialist Hilario Bermanis from Pohnpei 
lies in Walter Reed Army Hospital after being gravely wounded in a 
grenade attack in South Baghdad. He has lost both legs and an arm. We 
all pray for Hilario's recovery, and we thank him so much for the 
tremendous courage that he has shown in the service of our country. As 
illustrated by the inspiring valor of Hilario Bermanis and other men 
and women from the freely associated states, there is clearly a 
heartfelt bond between Americans and the people of these islands. The 
Compact has only made it stronger. We Americans value this bond.
    As for criticism of the original Compact, it is important to 
remember that that document invented a comprehensive new kind of 
international relationship that was completely untested at the time. It 
should surprise no one, and shame no one, that with the wisdom of 17 
years of experience, the parties can think of ways to improve the 
Compact. The financial assistance and accountability provisions of the 
original Compact provide some opportunities for improvement. The United 
States and the freely associated states are committed to embracing 
those opportunities--working together, as partners, to ensure that the 
promise of these Compacts is fully realized for all of the people of 
the islands.
                                 ______
                                 
    The Chairman. I would like to now recognize Mr. Albert 
Short, who was the chief negotiator of the Compact.

  STATEMENT OF ALBERT V. SHORT, NEGOTIATOR FOR THE COMPACT OF 
           FREE ASSOCIATION, U.S. DEPARTMENT OF STATE

    Mr. Short. Mr. Chairman, members of the Committee, thank 
you for this opportunity to testify on a Compact of Free 
Association with the Federated States of Micronesia and the 
Republic of the Marshall Islands.
    First of all, the original Compact. The Compact of Free 
Association with the FSM and RMI established a political 
relationship that is ongoing. The original 15-year Compact 
funding authorization for both nations, however, ended in 
Fiscal Year 2001 with an extension through September 30 of this 
year. The original Compact successfully met its main goal of 
providing for a stable transition from United Nations 
trusteeship to sovereign self-government for these two nations. 
At the same time, the Compact protected U.S. security, 
maritime, and commercial interests in the Pacific by our 
assumption of defense responsibilities for this vast sea and 
airspace--this also included Palau--and ensured access to 
important Department of Defense sites at Kwajalein Atoll in the 
Marshall Islands.
    The original Compact was successful in transforming the 
relationship between these islands and the United States to one 
of our closest bilateral relationships, which, as you mentioned 
this morning, Mr. Chairman.
    The current Compact assistance. The U.S. currently provides 
assistance in three ways: Financial assistance under the 
Compact, Federal programs and services under the Compact, and 
Federal programs apart from the Compact. The U.S. currently 
provides about $160 million annually in financially assistance 
to these two nations, 80 percent from the Compact and 20 
percent from other Federal agencies, such as the Departments of 
Education, Health and Human Services, Labor, and Agriculture.
    Reasons to continue Compact assistance. The United States 
has strong interests in these countries that justify continued 
economic assistance. These interests include advancing the 
economic self-reliance; improving health, education, and social 
conditions; sustaining the political stability and close ties 
which have developed; and assuring our strategic interests 
continue to be secured, including access to the important 
defense sites at Kwajalein Atoll.
    The economic assistance. The administration recognizes that 
too sharp a reduction in U.S. assistance at this stage of 
economic development could result in economic instability and 
other disruptions and could encourage an increase in the level 
of migration under the Compact to the United States. The 
Compact, as amended, will continue economic assistance from 
Fiscal Year 2004 through Fiscal Year 2023. Furthermore, the 
economic package includes annual contributions to trust funds 
that will provide an ongoing source of revenue when the grant 
assistance ends in 2023. Federal service and program assistance 
also continues, unless otherwise provided by the Congress.
    Compact funding. Compact funding will ensure economic and 
social stability and a smooth transition in 2024 when the trust 
funds become a source of revenue. These amounts are partially 
adjusted for inflation at the same rate as the original 
Compact.
    The President's 2004 budget includes the funding, $165.4 
million for Fiscal Year 2004, for the first year of the amended 
Compact, but we also need the authorization for these funds, 
which is the Compact Act that we are now addressing. The 
administration is putting in place an effective accountability 
mechanism, which has been discussed by Mr. Cohen.
    The Kwajalein Military Use and Operating Rights Agreement. 
As part of the amended Compact, the United States and the 
Republic of the Marshall Islands agreed to a long-term 
extension of the MUORA, or Military Use and Operating Rights 
Agreement, for our ballistic missile defense test site at 
Kwajalein. This extension could run to 2066 and beyond, and Mr. 
Lawless in the Department of Defense has submitted written 
testimony on our use of Kwajalein and the security and defense 
aspects of the Compact.
    Immigration. Based on our experience to date, as well as in 
the wake of the September 11 attack, we reexamined the 
immigration provisions of the existing Compact. These 
provisions provide that the RMI and FSM citizens ``may enter 
into, lawfully engage in occupations, and establish residence 
as non-immigrants in the United States.''
    The amended Compact will, first of all, require FAS 
citizens to use machine-readable passports. Second, institute 
child adoption visa procedures. Further, implement visa entry 
procedures for naturalized FAS citizens. It will preclude 
passport sales and similar programs and will make explicit the 
inherent U.S. authority to regulate the terms and conditions of 
an FSM or RMI citizen's admission and stay in the United States 
and its territories. It also removes the annual requirement for 
an EAD, or Employment Authorization Document, which has been a 
troublesome administrative requirement on FSM and Marshall's 
migrants, and substitute a multi-year authorization.
    Mr. Chairman, in conclusion, thank you for this opportunity 
to present the administration's views on the Compact we have 
signed with the FSM and the RMI. Let me assure you, we welcome 
any and every opportunity to keep the Committee informed of 
your deliberations as you proceed on this legislation. Thank 
you.
    The Chairman. Thank you.
    [The prepared statement of Mr. Short follows:]

   Statement of Albert V. Short, Negotiator for the Compact of Free 
             Association, United States Department of State

    Thank you for this opportunity to testify on the recently submitted 
Compact Act of Free Association with the Federated States of Micronesia 
(FSM) and with the Republic of the Marshall Islands (RMI).

The Original Compact
    The original 15 years of Compact funding authorization for the FSM 
and RMI ended in Fiscal Year 2001. The Compact provisions provided an 
extension for up to two years through September 30, 2003, as long as 
Compact negotiations progressed. The original Compact successfully met 
its main goal of providing for a stable transition from United Nations 
Trusteeship to sovereign self-government for the FSM and RMI. At the 
same time, the Compact protected U.S. security, maritime, and 
commercial interests in the Pacific by assuming defense 
responsibilities for the vast sea and air space of the Freely 
Associated States (FAS) including Palau--and by ensuring access to 
important defense sites operated by the Department of Defense on 
Kwajalein Atoll in the Marshall Islands.
    The original Compact was also successful in transforming the 
relationship between these islands and the United States into one of 
our closest bilateral relationships. We now number the FSM and RMI 
among our staunchest friends in the United Nations. These achievements 
are solid and lasting, and the American and FAS peoples can be justly 
proud of them.

Current Compact Assistance
    The U.S. currently provides assistance to the FSM and RMI in three 
ways: through financial assistance under the Compact; through programs 
and services that are included in the Compact, such as the services and 
related programs of the U.S. Weather Service, the Postal Service, and 
the Federal Aviation Administration; and through programs apart from 
the Compact that are funded, as Congress sees fit, by other Federal 
agencies. The U.S. currently provides about $160 million annually in 
financial assistance to the FSM and RMI, 80 percent from the Compact 
and 20 percent from other Federal agencies outside of the Compact, such 
as the Departments of Education, Health and Human Services, Labor, and 
Agriculture.
    The past seventeen years have witnessed recurring problems stemming 
from the lack of accountability and the sometimes ineffective use of 
Compact Funds. Therefore, a principal task of the recently signed 
agreements to amend the Compact is to improve the effectiveness and 
accountability of these funds. Moreover, we have agreed to put an 
increasing percentage of the annual U.S. Compact assistance into a 
trust fund that will provide an ongoing source of revenue to the two 
countries when annual payments by the United States end in 2023.

Reasons to Continue Compact Assistance
    The United States has strong interests in these countries that 
justify continued economic assistance under the Compact through Fiscal 
Year 2023 and the contributions to the trust fund, provided this 
assistance is structured and managed as proposed. These interests 
include:
     Advancing economic self-reliance. (In this regard, the 
United States will 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, education, 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;
     Ensuring that our strategic interests continue to be 
secured, including access to our important defense sites on the 
Kwajalein Atoll;
     Putting in place and contributing to a trust fund that 
will provide an ongoing source of revenue when annual payments by the 
United States end in 2023;
     Strengthening immigration provisions in the wake of the 
September 11th attacks and addressing various problems that have arisen 
since the Compact was first approved by the U.S. Congress; and
     Mitigating the impact of immigration under the Compact on 
Hawaii, Guam, the Commonwealth of the Northern Mariana Islands, and 
American Samoa.

Economic Assistance
    The Administration recognizes 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 immigration under the Compact to 
the United States by citizens of those countries. We continue to 
believe that providing substantial financial and other assistance under 
the Compact will help to ensure economic stability while the RMI and 
FSM continue to implement economic development and reform strategies.
    The Compact, as amended, provides for continued economic assistance 
from Fiscal Year 2004 through Fiscal Year 2023. Furthermore, the 
economic package provides for annual contributions to a trust fund that 
will provide an ongoing source of revenue, to be used for the same 
purposes as the previous grant assistance when the annual grant 
assistance ends in Fiscal Year 2023. Federal services and program 
assistance also continues, if provided by Congress.

Compact Funding
    Compact funding will ensure economic and social stability and a 
smooth transition to Fiscal Year 2024 when annual payments from the 
U.S. will have terminated and the trust fund becomes a source of 
revenue.
     Beginning in Fiscal Year 2007, the FSM sector grants 
decrease by $800,000 per year through Fiscal Year 2023, with this 
decrease added to the trust fund.
     The RMI will receive $30.5 million in sectoral grants, 
$5.2 million for Kwajalein impact, and $7 million for its trust fund 
annually beginning in Fiscal Year 2004.
     Beginning in Fiscal Year 2005, the RMI sectoral grants 
decrease by $500,000 per year through Fiscal Year 2023, with this 
decrement added to the trust fund.
     These amounts are partially adjusted for inflation: two-
thirds of the implicit price deflator will be applied as in the 
original Compact period.
     Under the Compact, as amended, the U.S. contributions to 
the trust funds are conditioned on the FSM contributing at least $30 
million to the FSM trust fund prior to September 30, 2004 and the RMI 
contributing at least $25 million to the RMI trust fund on the 
effective date of the Trust Fund Agreement or October 1, 2003, 
whichever is later, and $2.5 million prior to October 1, 2004 and 
another $2.5 million prior to October 1, 2005.
     Under the Compact, grant assistance will be used for six 
sectors, with priorities in the education and health sectors and tied 
to specific outcomes and purposes and monitored by the Department of 
the Interior.
     Misuse of Compact funds can lead to withholding of funds 
until the problem is resolved. The FSM and the RMI have agreed to 
cooperate with the United States on criminal investigations regarding 
misuse of funds, if necessary.
    The Administration is putting in place an effective accountability 
mechanism with respect to future U.S. economic assistance to the FSM 
and the RMI under the Compact. Economic assistance will no longer be 
made available through transfers that co-mingle U.S. funds with local 
funds, thereby rendering it difficult to track and monitor their use. 
Instead, future funds under the Compact will be provided through 
targeted, sectoral assistance, each with a clearly defined scope and 
objectives.
    In the amended Compacts, the FSM, RMI, and U.S. have agreed that 
any future grant assistance will be used in six sectors:
     health,
     education,
     infrastructure,
     private sector development,
     public sector capacity building, and
     the environment.
    Built into each sectoral grant will be regular planning, 
monitoring, and reporting requirements. The amended Compacts also 
provide the necessary authority and resources to ensure effective 
oversight and reasonable progress toward the agreed objectives.

Trust Fund
    A major element of the new Compact provisions is the termination of 
annual mandatory payments to the FSM and the RMI at the end of Fiscal 
Year 2023--and the establishment of a trust fund to provide an ongoing 
source of revenue starting in Fiscal Year 2024. In its earlier 
proposals to the U.S., both the FSM and RMI anticipated the U.S. 
interest in the termination of mandatory annual financial assistance by 
proposing that the U.S. capitalize a trust fund over the next term of 
Compact assistance. Under the amended Compact, the Administration has 
agreed that annual U.S. financial assistance will terminate at the end 
of Fiscal Year 2024, and thereafter the trust fund will provide an 
ongoing source of revenue. Congress has previously authorized and 
funded the use of similar trust funds, including one established under 
the Compact with the Republic of Palau, and several established in the 
Marshall Islands as compensation for the U.S. nuclear weapons testing 
program.
Federal Services and Program Assistance
    With a few notable exceptions, Federal program coordination and 
oversight of Compact Funds has been ineffective. We are committed to 
putting in place a more effective system of coordinating and monitoring 
that assistance during the amended Compact period.

Kwajalein MUORA Extension
    As part of the amended Compact, the United States and the Republic 
of the Marshall Islands have agreed to a long-term extension of the 
Military Use and Operating Rights Agreement (MUORA) for the Ronald 
Reagan Ballistic Missile Defense Test Site on Kwajalein Atoll. The 
Reagan Test Site (RTS) serves a key role in research, development, test 
and evaluation for the Administration's high-priority missile defense 
and space programs.
    Although the current Military Use and Operating Rights Agreement 
covering U.S. use of these defense sites runs through 2016, in November 
2001, RMI President Note reaffirmed the RMI's willingness to consider a 
long-term extension of U.S. use of Kwajalein Atoll for our defense 
needs. Subsequently, the RMI Government proposed that the ongoing 
negotiations to amend the Compact of Free Association provided a 
convenient forum to consider amendments extending the Military Use and 
Operating Rights Agreement. Following consultations with the Department 
of Defense, the Administration decided to pursue such an extension, if 
agreement could be concluded on acceptable terms, and negotiations on 
this issue would not delay our efforts to obtain agreement on 
amendments to the Compact.
    Sections 211 and 212 of Title Two of the Compact, as amended, and 
the MUORA, as amended, provide for the following:
     The parties agree to extend the MUORA for a period of 
fifty years from 2016 (the current expiration date) to 2066, with a 
U.S. option to extend it for an additional twenty years to Fiscal Year 
2086.
     To achieve the flexibility necessary to permit the long-
term extension of the agreement, the two sides agreed to a schedule of 
early termination payments if the United States chooses to leave 
Kwajalein before the end of the agreement. This outcome could be 
exercised anytime after 2023, on advance notice of at least seven 
years.
     As Compensation:
     These agreements establish a new series of Kwajalein 
payments beginning in Fiscal Year 2004 (October 1, 2003) at a level of 
$15 million per year (increased from the current $11.3 million) with a 
further increase to a new base of $18 million in 2014. The United 
States Government is obligated in any case to make payments through 
Fiscal Year 2023, and thereafter, depending on whether it chooses to 
continue its use of Kwajalein Atoll. The RMI has assured us that it 
will endeavor to ensure that payments to landowners are distributed 
more equitably than they have been in the past in a manner consistent 
with Marshallese custom and tradition.
     The U.S. will continue paying the $1.9 million per year 
in Kwajalein impact money established in the current agreement. 
However, beginning in Fiscal Year 2004, this payment, which has not 
previously been adjusted for inflation, will be subject to the 
provisions of the new Compact Fiscal Procedures Agreement, will be 
indexed for inflation based on the formula established in the amended 
Compact, and emphasis will be on addressing the special needs of the 
Kwajalein landowners most affected by the United States presence on 
Kwajalein.
     Pursuant to the Compact, U.S. Army Kwajalein Atoll 
(USAKA) has developed, in cooperation with the RMI Environmental 
Protection Authority, a strong set of environmental standards and a 
formal process to review these standards annually and report to both 
governments. To promote a greater RMI capability for independent 
analysis of the Survey's findings and conclusions, the U.S. will 
provide an annual grant of $200,000 to support increased participation 
of the GRMI EPA in the Survey.
    For some years now, overcrowding on the Kwajalein island of Ebeye, 
where most of the Marshallese work force supporting the defense sites 
lives, has created an unmet series of special infrastructure needs for 
the Marshallese Communities on Ebeye and some other islands of the 
Kwajalein Atoll. This agreement will address these needs in the 
following way:
     First, the U.S. and the RMI have agreed that $3.1 million 
per year of the RMI grant funding will go towards meeting the special 
infrastructure and development needs of the Marshallese communities on 
Kwajalein Atoll. In 2014, this funding will increase to $5.1 million 
per year. These funds are indexed according to the Compact Title Two 
formula.
     Second, considering the $1.9 million impact funding 
mentioned above, which is specified by the Compact to offset the impact 
of U.S. defense activities on Kwajalein Atoll, together with the Ebeye 
special needs funding, $5 million per year (increasing to $7 million in 
2014), all of which will be focused on improving the quality of life of 
the Marshallese communities on Kwajalein, starting October 1, 2004.
    In sum, the Administration feels that extending the MUORA, in 
concert with the provisions of the amended Compact, will promote the 
economic stability and opportunity of the RMI for the indefinite 
future.

Immigration
    Based on our mixed experience since the Compact took effect, as 
well as in the wake of the September 11th attack, we have reexamined 
the immigration provisions of the existing Compact. Section 141(a) 
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'' without regard to certain grounds of inadmissibility 
under the Immigration and Nationality Act (INA). Our examination and 
the subsequent negotiations concluded that the immigration provisions 
should be amended to:
     Require FAS citizens seeking admission under the Compact 
to use passports.
     Clarify that immigrant visa procedures, rather than 
Compact nonimmigrant admission, are necessary and appropriate for child 
adoption cases.
     Limit Compact entry privileges of naturalized FAS 
citizens to a greater degree.
     Preclude use of passport sales and similar programs from 
serving as a means for persons from countries other than the FSM and 
the RMI to obtain visa-free admission privileges under the Compact.
     Make more explicit the authority of the Government of the 
United States to regulate the terms and conditions of FSM or RMI 
citizens' admission and stay in the United States, including its 
territories and possessions.
     Make explicit that the INA applies in full to persons 
seeking admission to, or the right to remain in, the United States 
pursuant to the Compact.
     Provide Compact admission privileges to the immediate 
relatives of FAS citizens in U.S. military service, whether or not the 
relatives are FAS citizens.
     Streamline the documentation that FAS citizens may use as 
evidence of work authorization in the United States.
    Under the Compact, as amended, the United States will now require 
passports for FSM and RMI citizens seeking admission as nonimmigrants 
to the United States. Further, naturalized citizens of the FSM and RMI 
will, with certain limited exceptions, now be ineligible for visa-free 
admission to the United States. In addition, the Compact, as amended, 
provides other safeguards to prevent the admission under the Compact of 
persons from other countries who might seek to exploit the visa-free 
immigration privileges intended for the citizen population of the FAS. 
It addresses explicitly the problem of passport sales and other 
naturalization schemes designed to provide visa-free admission 
privileges to persons from countries other than the FSM and the RMI 
under the Compact. The Compact, as amended, also provides express 
safeguards for FSM and RMI children who are coming to the United States 
permanently pursuant to an adoption, or for the purpose of adoption, by 
requiring that those children possess an immigrant visa. This clarifies 
the existing U.S. interpretation of the Compact, and brings the 
provisions relating to the Freely Associated States into harmony with 
that pertaining to children from other countries concerning child 
adoptions and protections available to adopted children.

Impact
    Section 104(e)(2) of the existing and amended Compact statutes 
requires the President to report annually to Congress on the impact of 
the Compact. A recent GAO study documents the substantial impact of FAS 
migration to the State of Hawaii, Guam, and the Commonwealth of the 
Northern Mariana Islands (CNMI). The amended Compact and other proposed 
amendments to the Compact Act address the migratory impact issue in 
three ways:
     First, we will provide $15 million per year of direct 
compensation to Hawaii, Guam, American Samoa, and the CNMI for the 
negative impacts of migration.
     Second, the amended Compacts strengthen immigration 
provisions to improve our ability to regulate RMI and FSM migrants who 
are eligible for admission.
     Third, the amended Compacts focus on areas such as 
improving the health and education of, and private sector jobs for, 
potential migrants, thereby reducing the impact of migration under the 
Compact.
    The annual impact funding of $15 million will be:
     a mandatory appropriation for twenty years.
     allocated based on a pro rata formula reflecting a 
periodic census of Micronesians living in Hawaii, Guam, American Samoa, 
and the CNMI.

Palau
    The Compact of Free Association between the United States and Palau 
is not up for review at this time. We believe, however, that it makes 
sense for us to bring the immigration, labor and trade provisions of 
the Palau Compact into line with those agreed with the RMI and FSM. In 
addition, Palau has sought a change to the communications provision to 
make its telecommunications carrier eligible to participate in the 
National Exchange Carriers Association and the Universal Services 
Support Fund. Negotiations are underway on these issues. If we reach 
agreement, the Administration will submit these amendments to the 
Congress.

Conclusion
    Thank you for this opportunity to present the Administration's 
views on the Compact Act with the FSM and RMI. Let me assure you that 
we welcome any and every opportunity to keep the Committee informed as 
your deliberations proceed on the Compact Act.
                                 ______
                                 
    The Chairman. Ms. Westin?

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

    Ms. Westin. Mr. Chairman and members of the Subcommittee, I 
am pleased to be here today to testify on the Compacts of Free 
Association that the United States recently signed with the FSM 
and the RMI. I will just summarize and ask that my written 
statement become part of the record.
    Specifically, I will discuss three main topics: One, the 
potential cost to the U.S. Government; two, changes to both the 
structure and levels of future assistance; and three, changes 
in accountability addressed in the amended Compacts and related 
agreements.
    Turning to the first topic, the potential cost of the 
amended Compacts, the amended Compacts of Free Association with 
the FSM and the RMI to renew expiring assistance would require 
about $3.5 billion in funding over the next 20 years, with a 
total possible authorization through 2086 of $6.6 billion from 
the U.S. Congress. These dollar amounts include estimated 
inflation.
    I direct your attention to the chart that we have here. It 
is also in the beginning of our statement. The share of new 
authorizations to the FSM would be about $2.3 billion and would 
end after Fiscal Year 2023. The share of authorizations to the 
RMI would be about $1.2 billion for the first 20 years. Further 
funding of $3.1 billion for the remainder of the period 
corresponds to extended grants to Kwajalein and payments 
related to U.S. military use of land at Kwajalein.
    This new authorized funding would be provided to each 
country in the form of annual grants targeted to priority 
areas, contributions to a trust fund for each country such that 
trust fund earnings would replace annual grants beginning in 
Fiscal Year 2024, payments the U.S. Government makes through 
the RMI Government to Kwajalein landowners to compensate them 
for the U.S. use of their lands for defense sites, and an 
extension of Federal services that have been provided under the 
original Compact but are due to expire in Fiscal Year 2003.
    Further, the administration is proposing to provide $15 
million annually for Hawaii, Guam, and the Northern Mariana 
Islands for the costs associated with FSM and RMI citizens who 
migrate to those areas. This would cost an additional $300 
million over the 20-year period.
    Turning to the second topic, changes in the structure and 
levels of funding, under the U.S. proposals, annual grant 
amounts to each country would be reduced each year in order to 
encourage budgetary self-reliance and transition the countries 
from receiving annual U.S. grant funding to receiving annual 
trust fund earnings beginning in 2024. This decreasing grant 
funding combined with FSM and RMI population growth would 
result in falling per capital grant assistance over the funding 
period, particularly for the RMI. You can see that on the chart 
we have here. It is also on page eight of our testimony.
    The reduction in real per capita funding over the next 20 
years is a continuation of the decreasing amount of available 
grant funds that the FSM and the RMI had during the 17 years of 
prior Compact assistance.
    The amended Compacts were designed to build trust funds 
that, beginning in Fiscal Year 2024, yield annual earnings to 
replace grant assistance that ends in 2023. Our analysis shows 
that the trust funds may be insufficient to replace expiring 
grants, depending on assumptions about the rate of return on 
the trust funds.
    Finally, I will discuss provisions in the amended Compacts 
designed to provide improved accountability over U.S. 
assistance. This is an area where we have offered several 
recommendations in past years. Most of our recommendations 
regarding future Compact assistance have been addressed with 
the introduction of strengthened accountability measures in the 
signed amended Compacts and related agreements. Let me give 
four examples.
    One, the amended Compacts would require that grants be 
targeted to priority areas such as health, education, the 
environment, and public infrastructure, including funding for 
maintenance.
    Two, grant conditions normally applicable to U.S. State and 
local governments would apply to each grant.
    Three, the United States could withhold payments if either 
country fails to comply with grant terms and conditions.
    And four, joint economic management Committees with each 
country would be established.
    I must emphasize, however, that the successful 
implementation of the many new accountability provisions will 
require a sustained commitment, including resources, by the 
three governments to fulfill their new roles and 
responsibilities.
    Mr. Chairman, this completes my prepared statement and I 
would be happy to respond to questions.
    The Chairman. Thank you very much.
    [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 the FSM, and the Republic of the 
Marshall Islands, or the 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 Trust Territory 
of the Pacific Islands. The Compact 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 almost 17 years. Further, the Compact 
establishes U.S. defense rights and obligations in the region and 
allows for migration from both countries to the United States. 
Provisions of the Compact that address economic assistance were 
scheduled to expire in 2001; however, they can remain and have remained 
in effect while the United States and each nation renegotiated 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 late 2003 if 
not renewed. 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 
(the defense veto) and (2) Federal services listed in the Compact.
---------------------------------------------------------------------------
    Today I will discuss our review of the amended Compacts and related 
agreements that the United States signed with the FSM and the RMI in 
May and April of 2003, respectively. (According to a Department of 
State official, while the original Compact was one document that 
applied to both the FSM and the RMI, the Compact that has been amended 
is now a separate Compact with each nation.) Specifically, I will 
discuss changes to levels and structure of future assistance, including 
the potential cost to the U.S. government. Further, I will comment on 
changes in accountability and other key issues addressed in the amended 
Compacts and related agreements.

                                Summary

    The amended Compacts of Free Association with the FSM and the RMI 
to renew expiring assistance would require about $3.5 billion in 
funding over the next 20 years with a total possible authorization 
through 2086 of $6.6 billion from the U.S. Congress. 3 The 
amended Compacts would provide decreasing levels of annual assistance 
over a 20-year term (2004-2023) in order to encourage budgetary self-
reliance. Simultaneously, the Compacts would require building up a 
trust fund (with contributions that would increase annually) for each 
country to generate annual earnings that would replace the grants that 
end in 2023. Per capita grant assistance would fall over the 20-year 
period, particularly for the RMI. At an assumed trust fund rate of 
return of 6 percent, in 2024 the RMI trust fund would cover expiring 
grant assistance, while the FSM trust fund would be insufficient to 
replace grants. By the year 2040, however, RMI trust fund returns also 
would be unable to replace grant funding.
---------------------------------------------------------------------------
    \3\ Although the amended Compacts have been signed by the U.S., 
FSM, and RMI governments, they have not been approved by the 
legislature of any country. Therefore, in our testimony we describe the 
amended Compacts' requirements and potential impact in a conditional 
manner in recognition that the Compacts have not yet been enacted. The 
total possible cost to renew expiring assistance in Fiscal Year 2004 
U.S. dollars would be $3.8 billion on the basis of the Congressional 
Budget Office's forecasted inflation rate.
---------------------------------------------------------------------------
    The amended Compacts include many strengthened reporting and 
monitoring measures that could improve accountability if diligently 
implemented. The amended Compacts and related agreements have addressed 
most of the recommendations that we have made in past reports regarding 
assistance accountability. For example, assistance would be provided 
through grants targeted to priority areas, such as health and 
education, and with specific terms and conditions attached. Annual 
reporting and consultation requirements would be expanded, and funds 
could be withheld for noncompliance with Compact terms and conditions. 
However, the successful implementation of the many new accountability 
provisions will require a sustained commitment and appropriate 
resources from the United States, the FSM, and the RMI.
    The amended Compacts address other key issues. One key change to 
Compact defense provisions would occur--U.S. military access to 
Kwajalein Atoll in the RMI could be extended from 2016 to 2086. This 
extension would cost $3.4 billion of the total possible authorization 
of $6.6 billion. Further, amended Compact provisions on immigration 
have been strengthened. FSM and RMI citizens entering the United States 
would need to carry a passport, and regulations could be promulgated 
that would impose time limits and other conditions on admission to the 
United States for these citizens.

                               Background

    The 1986 Compact of Free Association between the United States, the 
FSM, and the RMI provided a framework for the United States to work 
toward achieving its three main goals: (1) to secure self-government 
for the FSM and the RMI, (2) to assist the FSM and the RMI in their 
efforts to advance economic development and self-sufficiency, and (3) 
to ensure certain national security rights for all of the parties. The 
first goal has been met. The FSM and the RMI are independent nations 
and are members of international organizations such as the United 
Nations.
    The second goal of the Compact--advancing economic development and 
self-sufficiency for both countries--was to be accomplished primarily 
through U.S. direct financial payments (to be disbursed and monitored 
by the U.S. Department of the Interior) to the FSM and the RMI. For 
1987 through 2003, U.S. assistance to the FSM and the RMI to support 
economic development is estimated, on the basis of Interior data, to be 
about $2.1 billion. 4 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. funds. U.S. direct assistance 
has maintained standards of living that are higher than could be 
achieved in the absence of U.S. support. Further, the U.S., FSM, and 
RMI governments provided little accountability over Compact 
expenditures.
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    \4\ The cost of prior assistance in Fiscal Year 2004 U.S. dollars 
was $2.6 billion. This estimate does not include payments for Compact-
authorized Federal services or U.S. military use of Kwajalein Atoll 
land, nor does it include investment development funds provided under 
section 111 of Public Law 99-239. Additionally, 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 with 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, which the U.S. executive branch is still reviewing.
---------------------------------------------------------------------------
    The third goal of the Compact--securing national security rights 
for all parties--has been achieved. The Compact obligates the United 
States to defend the FSM and the RMI against an attack or the threat of 
attack in the same way it would defend its own citizens. The Compact 
also provides the United States with the right of ``strategic denial,'' 
the ability to prevent access to the islands and their territorial 
waters by the military personnel of other countries or the use of the 
islands for military purposes. In addition, the Compact grants the 
United States a ``defense veto.'' Finally, through a Compact-related 
agreement, the United States secured continued access to military 
facilities on Kwajalein Atoll in the RMI through 2016. 5 In 
a previous report, we identified Kwajalein Atoll as the key U.S. 
defense interest in the two countries. 6 Of these rights, 
only the defense veto is due to expire in 2003 if not renewed.
---------------------------------------------------------------------------
    \5\ U.S. access to Kwajalein Atoll is established through the U.S.-
RMI Military Use and Operating Rights Agreement (MUORA). Funding 
provided for U.S. military access to Kwajalein for the years 1987 to 
2003 is estimated, on the basis of Interior data, to be $64 million for 
development assistance and $144 million for the RMI government to 
compensate landowners for U.S. use of their lands.
    \6\ 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).
---------------------------------------------------------------------------
    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 original 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 exempted FSM and RMI 
citizens from meeting U.S. passport, visa, and labor certification 
requirements when entering the United States. In recognition of the 
potential adverse impacts that Hawaii and nearby U.S. commonwealths and 
territories could face as a result of an influx of FSM and RMI 
citizens, the Congress authorized Compact impact payments to address 
the financial impact of these nonimmigrants on Guam, Hawaii, and the 
Commonwealth of the Northern Mariana Islands (CNMI). 8 By 
1998, more than 13,000 FSM and RMI citizens had made use of the Compact 
immigration provisions and were living in the three areas. The 
governments of the three locations have provided the U.S. government 
with annual Compact nonimmigrant impact estimates; for example, in 2000 
the total estimated impact for the three areas was $58.2 million. In 
that year, Guam received $7.58 million in impact funding, while the 
other two areas received no funding. 9
---------------------------------------------------------------------------
    \7\ Typically, nonimmigrants include those individuals who are in 
the United States temporarily as visitors, students, or workers.
    \8\ Payments were also authorized for American Samoa, but impact 
compensation has not been sought.
    \9\ 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).
---------------------------------------------------------------------------
    In the fall of 1999, the United States and the two Pacific Island 
nations began negotiating economic assistance and defense provisions of 
the Compact that were due to expire. Immigration issues were also 
addressed. According to the Department of State, the aims of the 
amended Compacts are to (1) continue economic assistance to advance 
self-reliance, while improving accountability and effectiveness; (2) 
continue the defense relationship, including a 50-year lease extension 
(beyond 2016) of U.S. military access to Kwajalein Atoll in the RMI; 
(3) strengthen immigration provisions; and (4) provide assistance to 
lessen the impact of Micronesian migration on Hawaii, Guam, and the 
CNMI.

      Amended Compacts Would Alter Assistance Levels and Structure

    Under the amended Compacts with the FSM and the RMI, new 
congressional authorizations of approximately $3.5 billion in funding 
would be required over the next 20 years, with a total possible 
authorization through 2086 of $6.6 billion. Economic assistance would 
be provided to the two countries for 20 years--from 2004 through 2023--
with all subsequent funding directed to the RMI for continued U.S. 
access to military facilities in that country. Under the U.S. 
proposals, annual grant amounts to each country would be reduced each 
year in order to encourage budgetary self-reliance and transition the 
countries from receiving annual U.S. grant funding to receiving annual 
trust fund earnings. 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. If 
the trust funds established in the amended Compacts earn a 6 percent 
rate of return, the FSM trust fund would be insufficient to replace 
expiring annual grants. The RMI trust fund would replace grants in 
Fiscal Year 2024 but would become insufficient for this purpose by 
Fiscal Year 2040.

Amended Compacts Could Cost the U.S. Government $6.6 Billion
    Under the amended Compacts with the FSM and the RMI, new 
congressional authorizations of approximately $6.6 billion could be 
required for U.S. payments from fiscal years 2004 to 2086, of which 
$3.5 billion would be required for the first 20 years of the Compacts 
(see table 1). The share of new authorizations to the FSM would be 
about $2.3 billion and would end after Fiscal Year 2023. The share of 
new authorizations to the RMI would be about $1.2 billion for the first 
20 years, with about $300 million related to extending U.S. military 
access to Kwajalein Atoll through 2023. Further funding of $3.1 billion 
for the remainder of the period corresponds to extended grants to 
Kwajalein and payments related to U.S. military use of land at 
Kwajalein Atoll. 10 The cost of this $6.6 billion new 
authorization, expressed in Fiscal Year 2004 U.S. dollars, would be 
$3.8 billion.
---------------------------------------------------------------------------
    \10\ U.S. access to Kwajalein Atoll in the RMI has already been 
secured through 2016 through a Compact-related agreement. The amended 
Compact with the RMI extends this funding to 2066, with an additional 
20-year optional lease extension at that point.
---------------------------------------------------------------------------
    This new authorized funding would be provided to each country in 
the form of (1) annual grant funds targeted to priority areas (such as 
health, education, and infrastructure); (2) contributions to a trust 
fund for each country such that trust fund earnings would become 
available to the FSM and the RMI in Fiscal Year 2024 to replace 
expiring annual grants; (3) payments the U.S. government makes to the 
RMI government that the RMI transfers to Kwajalein landowners to 
compensate them for the U.S. use of their lands for defense sites; and 
(4) an extension of Federal services that have been provided under the 
original Compact but are due to expire in Fiscal Year 2003.

[GRAPHIC] [TIFF OMITTED] T8192.001


Amended Compacts Would Reduce U.S. Grant Support Annually
    Under the U.S. proposals, annual grant amounts to each country 
would be reduced each year in order to encourage budgetary self-
reliance and transition the countries from receiving annual U.S. grant 
funding to receiving annual trust fund earnings. Thus, the amended 
Compacts increase annual U.S. contributions to the trust funds each 
year by the grant reduction amount. 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). Using published U.S. Census 
population growth rate projections for the two countries, the real 
value of grants per capita to the FSM would begin at an estimated $687 
in Fiscal Year 2004 and would further decrease over the course of the 
Compact to $476 in Fiscal Year 2023. The real value of grants per 
capita to the RMI would begin at an estimated $627 in Fiscal Year 2004 
and would further decrease to an estimated $303 in Fiscal Year 2023. 
The reduction in real per capita funding over the next 20 years is a 
continuation of the decreasing amount of available grant funds (in real 
terms) that the FSM and the RMI had during the 17 years of prior 
Compact assistance.

[GRAPHIC] [TIFF OMITTED] T8192.002


    The decline in annual grant assistance could impact FSM and RMI 
government budget and service provision, employment prospects, 
migration, and the overall gross domestic product (GDP) outlook, though 
the immediate effect is likely to differ between the two countries. For 
example, the FSM is likely to experience fiscal pressures in 2004, when 
the value of Compact grant assistance drops in real terms by 8 percent 
relative to the 2001 level (a reduction equal to 3 percent of GDP). 
11 For the RMI, however, the proposed level of Compact grant 
assistance in 2004 would actually be 8 percent higher in real terms 
than the 2001 level (an increase equal to 3 percent of GDP). According 
to the RMI, this increase would likely be allocated largely to the 
infrastructure investment budget and would provide a substantial 
stimulus to the economy in the first years of the new Compact.
---------------------------------------------------------------------------
    \11\ The level of grant assistance in 2001 was converted into 
Fiscal Year 2004 dollars for comparison purposes.
---------------------------------------------------------------------------
Trust Funds May Be Insufficient to Replace Expiring Grants
    The amended Compacts were designed to build trust funds that, 
beginning in Fiscal Year 2024, yield annual earnings to replace grant 
assistance that ends in 2023. Both the FSM and the RMI are required to 
provide an initial contribution to their respective trust funds of $30 
million. In designing the trust funds, the Department of State assumed 
that the trust fund would earn a 6 percent rate of return. 
12 The amended Compacts do not address whether trust fund 
earnings should be sufficient to cover expiring Federal services, but 
they do create a structure that sets aside earnings above 6 percent, 
should they occur, that could act as a buffer against years with low or 
negative trust fund returns. Importantly, whether the estimated value 
of the proposed trust funds would be sufficient to replace grants or 
create a buffer account would depend on the rate of return that is 
realized. 13
---------------------------------------------------------------------------
    \12\ The State Department chose a 6 percent return in order to 
reflect a conservative investment strategy. This rate of return can be 
compared with the current average forecasted return for long-term U.S. 
government bonds of 5.8 percent by the Congressional Budget Office.
    \13\ This analysis does not take into account volatile or negative 
returns. The sufficiency of either the FSM or the RMI trust fund to 
replace grants has not been tested under conditions of market 
volatility.
---------------------------------------------------------------------------
     If the trust funds earn a 6 percent rate of return, then 
the FSM trust fund would yield a return of $57 million in Fiscal Year 
2023, an amount insufficient to replace expiring grants by an estimated 
value of $27 million. The RMI trust fund would yield a return of $33 
million in Fiscal Year 2023, an estimated $5 million above the amount 
required to replace grants in Fiscal Year 2024. Nevertheless, the RMI 
trust fund would become insufficient for replacing grant funding by 
Fiscal Year 2040.
     If the trust funds are comprised of both stocks (60 
percent of the portfolio) and long-term government bonds (40 percent of 
the portfolio) such that the forecasted average return is around 7.9 
percent, then both trust funds would yield returns sufficient to 
replace expiring grants and to create a buffer account. However, while 
the RMI trust fund should continue to grow in perpetuity, the FSM trust 
fund would eventually deplete the buffer account and fail to replace 
grant funding by Fiscal Year 2048.

 Amended Compacts Have Stregthened Accountability Over U.S. Assistance

    I will now discuss provisions in the amended Compacts designed to 
provide improved accountability over, and effectiveness of, U.S. 
assistance. This is an area where we have offered several 
recommendations in past years, as we have found accountability over 
past assistance to be lacking. 14 In sum, most of our 
recommendations regarding future Compact assistance have been addressed 
with the introduction of strengthened accountability measures in the 
signed amended Compacts and related agreements. I must emphasize, 
however, that the extent to which these provisions will ultimately 
provide increased accountability over, and effectiveness of, future 
U.S. assistance will depend upon how diligently the provisions are 
implemented and monitored by all governments.
---------------------------------------------------------------------------
    \14\ 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 following summary describes key accountability measures 
included in the amended Compacts and related agreements:
     The amended Compacts would require that grants be 
targeted to priority areas such as health, education, the environment, 
and public infrastructure. In both countries, 5 percent of the amount 
dedicated to infrastructure, combined with a matching amount from the 
island governments, would be placed in an infrastructure maintenance 
fund.
     Compact-related agreements with both countries (the so-
called ``fiscal procedures agreements'') would establish a joint 
economic management committee for the FSM and the RMI that would meet 
at least once annually. The duties of the committees would include (1) 
reviewing planning documents and evaluating island government progress 
to foster economic advancement and budgetary self-reliance; (2) 
consulting with program and service providers and other bilateral and 
multilateral partners to coordinate or monitor the use of development 
assistance; (3) reviewing audits; (4) reviewing performance outcomes in 
relation to the previous year's grant funding level, terms, and 
conditions; and (5) reviewing and approving grant allocations (which 
would be binding) and performance objectives for the upcoming year. 
Further, the fiscal procedures agreements would give the United States 
control over the annual review process: The United States would appoint 
three government members to each committee, including the chairman, 
while the FSM or the RMI would appoint two government members.
     Grant conditions normally applicable to U.S. state and 
local governments would apply to each grant. General terms and 
conditions for the grants would include conformance to plans, 
strategies, budgets, project specifications, architectural and 
engineering specifications, and performance standards. Other special 
conditions or restrictions could be attached to grants as necessary.
     The United States could withhold payments if either 
country fails to comply with grant terms and conditions. In addition, 
funds could be withheld if the FSM or RMI governments do not cooperate 
in U.S. investigations regarding whether Compact funds have been used 
for purposes other than those set forth in the amended Compacts.
     The fiscal procedures agreements would require numerous 
reporting requirements for the two countries. For example, each country 
must prepare strategic planning documents that are updated regularly, 
annual budgets that propose sector expenditures and performance 
measures, annual reports to the U.S. President regarding the use of 
assistance, quarterly and annual financial reports, and quarterly grant 
performance reports.
     The amended Compacts' trust fund management agreements 
would grant the U.S. government control over trust fund management: The 
United States would appoint three members, including the chairman, to a 
committee to administer the trust funds, while the FSM or the RMI would 
appoint two members. After the initial 20 years, the trust fund 
committee would remain the same, unless otherwise agreed by the 
original parties.
    The fiscal procedures agreements would require the joint economic 
management committees to consult with program providers in order to 
coordinate future U.S. assistance. However, we have seen no evidence 
demonstrating that an overall assessment of the appropriateness, 
effectiveness, and oversight of U.S. programs has been conducted, as we 
recommended. 15
---------------------------------------------------------------------------
    \15\ This recommendation was included in 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).
---------------------------------------------------------------------------
    The successful implementation of the many new accountability 
provisions will require a sustained commitment by the three governments 
to fulfill their new roles and responsibilities. Appropriate resources 
from the United States, the FSM, and the RMI represent one form of this 
commitment. While the amended Compacts do not address staffing issues, 
officials from Interior's Office of Insular Affairs have informed us 
that their office intends to post six staff in a new Honolulu office. 
Further, an Interior official noted that his office has brought one new 
staff on board in Washington, D.C., and intends to post one person to 
work in the RMI (one staff is already resident in the FSM). We have not 
conducted an assessment of Interior's staffing plan and rationale and 
cannot comment on the adequacy of the plan or whether it represents 
sufficient resources in the right location.

                Amended Compacts Address Other Key Areas

U.S. Military Access to Kwajalein Atoll Could Be Extended Until 2086
    The most significant defense-related change in the amended Compacts 
is the extension of U.S. military access to Kwajalein Atoll in the RMI. 
16 While the U.S. government had already secured access to 
Kwajalein until 2016 through the 1986 MUORA, the newly revised MUORA 
would grant the United States access until 2066, with an option to 
extend for an additional 20 years to 2086. According to a Department of 
Defense (DOD) official, recent DOD assessments have envisioned that 
access to Kwajalein would be needed well beyond 2016. He stated that 
DOD has not undertaken any further review of the topic, and none is 
currently planned. This official also stated that, given the high 
priority accorded to missile defense programs and to enhancing space 
operations and capabilities by the current administration, and the 
inability to project the likely improvement in key technologies beyond 
2023, the need to extend the MUORA beyond 2016 is persuasive. He also 
emphasized that the U.S. government has flexibility in that it can end 
its use of Kwajalein Atoll any time after 2023 by giving advance notice 
of 7 years and making a termination payment.
---------------------------------------------------------------------------
    \16\ A few expiring provisions would be extended indefinitely in 
the amended Compacts. The ``defense veto'' has been extended. In 
addition, the ability of FSM and RMI citizens to volunteer to serve in 
the U.S. military would be extended.
---------------------------------------------------------------------------
    We have estimated that the total cost of this extension would be 
$3.4 billion (to cover years 2017 through 2086). 17 The 
majority of this funding ($2.3 billion) would be provided by the RMI 
government to Kwajalein Atoll landowners, while the remainder ($1.1 
billion) would be used for development and impact on Kwajalein Atoll. 
According to a State Department official, there are approximately 80 
landowners. Four landowners receive one-third of the annual payment, 
which is based on acreage owned. This landowner funding (along with all 
other Kwajalein-related funds) through 2023 would not be provided by 
DOD but would instead continue as an Interior appropriation. 
Departmental responsibility for authorization and appropriation for 
Kwajalein-related funding beyond 2023 has not been determined according 
to the Department of State. Of note, the Kwajalein Atoll landowners 
have not yet agreed to sign an amended land-use agreement with the RMI 
government to extend U.S. access to Kwajalein beyond 2016 at the 
funding levels established in the amended Compact.
---------------------------------------------------------------------------
    \17\ Our figure of $3.4 billion is adjusted for inflation.
---------------------------------------------------------------------------
Amended Compacts Would Strengthen Immigration Provisions
    While the original Compact's immigration provisions are not 
expiring, the Department of State targeted them as requiring changes. 
The amended Compacts would strengthen the immigration provisions of the 
Compact by adding new restrictions and expressly applying the 
provisions of the Immigration and Nationality Act of 1952, as amended 
(P.L. 82-414) to Compact nonimmigrants. 18 There are several 
new immigration provisions in the amended Compacts that differ from 
those contained in the original Compact. For example, Compact 
nonimmigrants would now be required to carry a valid passport in order 
to be admitted into the United States. Further, children coming to the 
United States for the purpose of adoption would not be admissible under 
the amended Compacts. Instead, these children would have to apply for 
admission to the United States under the general immigration 
requirements for adopted children. In addition, the Attorney General 
would have the authority to issue regulations that specify the time and 
conditions of a Compact nonimmigrant's admission into the United States 
(under the original Compact, regulations could be promulgated to 
establish limitations on Compact nonimmigrants in U.S. territories or 
possessions).
---------------------------------------------------------------------------
    \18\ As noted in the background section, FSM and RMI citizens who 
enter the United States are legally classified as ``nonimmigrants --
that is, individuals who are in the United States temporarily as 
visitors, students, or workers.
---------------------------------------------------------------------------
    In addition, the implementing legislation for the amended Compacts 
would provide $15 million annually for U.S. locations that experience 
costs associated with Compact nonimmigrants. This amount would not be 
adjusted for inflation, would be in effect for fiscal years 2004 
through 2023, and would total $300 million. Allocation of these funds 
between locations such as Hawaii, Guam, and the CNMI would be based on 
the number of qualified nonimmigrants in each location.
    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.
                                 ______
                                 
    The Chairman. I thank the entire panel for your testimony. 
In the interest of time, I am going to waive my questioning for 
the moment and I would like to recognize Mr. Faleomavaega.
    Mr. Faleomavaega. Thank you, Mr. Chairman. If I could offer 
a humble suggestion, Mr. Chairman, because of Mr. Cohen's time, 
we would like to focus our line of questions to Mr. Cohen 
because he has another important meeting, if that is all right, 
and we will then defer or delay our questioning Mr. Short and 
Ms. Westin to a later point in time, if that is all right with 
you.
    The Chairman. We will have ample time to question the other 
witnesses.
    Mr. Faleomavaega. Thank you, Mr. Chairman. I would be 
remiss, Mr. Chairman, if I do not also recognize the presence 
of one of our distinguished national leaders representing the 
great State of Louisiana, the honorable Senator from Louisiana, 
Bennett Johnston, who is here with us. Again, this is part of 
the institutional memory, Mr. Chairman, that this gentleman, 
Senator Johnston, played a key role in so many of these issues 
that were discussed when the first Compact came into view, not 
only in this Committee, but as well as in the Senate, and I 
want to certainly offer my commendations to Senator Johnston 
for his tremendous help that he has given in solving some of 
these serious issues and problems that we faced concerning 
Micronesia.
    I want to thank Mr. Cohen for his eloquent statement, as 
always, and certainly commend him for the tremendous work that 
he is trying to do, indeed, not only with the insular areas of 
the Pacific but also in the Virgin Islands, as well.
    Mr. Cohen, you had indicated that there should be some 
sense of a collective accountability. I am very, very concerned 
about this new mechanism that has been devised in this special 
Committee composed of the three U.S. representatives and two 
Micronesian representatives. I get the strong impression that 
this is going to be the organizing or the comptroller that is 
going to be literally--I mean, you might as well not have these 
island governments. Maybe let this Committee of five be running 
the operations, if they are going to be having to make 
decisions of whether or not they get the funds or to see that 
the accountability is provided. I am very, very concerned about 
this and I certainly would appreciate your comment on this.
    Mr. Cohen. Thank you, Mr. Congressman, and thank you for 
your comments, as well. There have been some concerns about the 
joint Committees and some of those concerns have been based on 
incorrect information.
    For example, there was a notion floating around that the 
joint Committees would have the authority to approve the 
national budgets of the RMI and the FSM and that simply isn't 
true. The joint Committees only have the authority to approve 
the allocations of Compact funds, so I would like to make that 
clear.
    The role of the joint Committee is not to substitute its 
judgment for the judgment of the sovereign governments of the 
RMI and the FSM. The way the process will work, the RMI and FSM 
national governments will propose budgets to the joint 
Committee. It is not the role of the joint Committee to usurp 
the prerogative of the national governments by reallocating 
funds. It is the role of the joint Committee to make sure that 
the proposed budgets are consistent with the letter and spirit 
of the compact and also that they pay attention to the 
performance measures, the information that we have gotten from 
the performance measures, so that the U.S. taxpayers' 
investment in the Compact has a chance of succeeding. But it 
is--
    Mr. Faleomavaega. I am sorry, because my time is running 
out, Mr. Cohen, here is my problem. Again, with all due respect 
to the Department of the Interior, we can't even keep an 
accounting of the trust funds for the American Indians. I am 
wondering if the Department of the Interior has the expertise 
that could provide for this special Committee of accountability 
to the RMI and the FSM. I am concerned, again, how this is 
going to operate in a way that we maintain the integrity of 
these governments to function.
    I would like to think that these governments are in 
partnership with our government and not us telling them what to 
do in every instance and how to spend the money, and if the 
money is not accounted for, this Committee is going to say you 
cannot spend any more, because this is the impression that I 
get of this Committee.
    Mr. Cohen. I appreciate that concern, Congressman. My first 
point is that the joint Committee does not just include the 
Department of Interior. In fact, the executive branch has not 
yet finalized the rules under which the U.S. delegation will be 
selected. I think it is likely that Interior will have a 
representative but will also have representatives from other 
agencies of the Federal Government.
    We are adding resources in order to provide oversight and 
to staff the U.S. delegation to the joint Committee. We are 
adding eight full-time employees whose job it will be--a main 
part of their job will be to staff this Committee. So we are 
adding the expertise we need.
    Mr. Faleomavaega. Thank you, Mr. Chairman. I am sorry. My 
time is up.
    The Chairman. Ms. Bordallo?
    Ms. Bordallo. Thank you, Mr. Chairman. In the interest of 
time, I know Mr. Cohen has another engagement, so I would like 
to address my two questions to him.
    Mr. Secretary, in the past Compact, Chuuk State received 
about 37 percent of the Compact funding even though they 
account for one-half of the FSM population. Schools and health 
care in Chuuk was underfunded, from my understanding, and the 
result has been substantial migration to Guam, where migrant 
families have had a serious impact on Guam Memorial Hospital 
and our public schools. They make up more than 10 percent of 
the school children.
    What is Interior's objective for allocating grant 
assistance among the FSM states? Will education funds be fairly 
distributed based on a per capita formula? In other words, will 
Chuuk get its fair share?
    Mr. Cohen. Thank you, Congresswoman, and that is a very 
good question and it is a very sensitive issue, as you can 
imagine, because we do treat our counterparts in the Freely 
Associated States as partners and we respect their national 
sovereignty, and hence, it is very delicate for us to get 
involved in the allocations that are made by the FSM national 
government.
    We trust that the FSM national government will make proper, 
equitable allocations among the states, and to the extent that 
allocations are out of whack, to the extent that they violate 
the letter and spirit of the Compact or they jeopardize the 
ability of our Compact investment in these islands to succeed, 
then I think it is appropriate for the joint Committees, which 
would not just include interior, to step in. But we have to 
give due deference to the prerogative of the national 
government of the FSM to allocate among the States.
    Ms. Bordallo. Thank you. That answers my questions.
    Also, in 2001, the GAO recommended that future Compact 
funds be directed to address specific Compact migrant impact on 
Guam, Hawaii, and the CNMI. Will Interior work with Guam 
Memorial Hospital to make sure that the specific health care 
being sought at public expense in Guam is provided in the FSM?
    Mr. Cohen. We will certainly work with the Government of 
Guam--I am sorry, could you please repeat the question? I want 
to make sure I understood--
    Ms. Bordallo. OK. The GAO recommended that future Compact 
funds be directed to address specific Compact migrant impact on 
Guam, Hawaii, and the CNMI. Will Interior work with Guam 
Memorial Hospital to make sure that the specific health care 
being sought at public expense in Guam is provided in the FSM?
    Mr. Cohen. We will certainly work with Guam to award its 
share of our Compact impact funds on a grants basis so that the 
process will enable the Government of Guam to set its own 
priorities, including making sure that the GMH is properly 
compensated to the extent that we have resources available.
    One thing I would like to point out is that under the 
current system, all Compact impact funds to Guam have to be 
used for infrastructure projects, which doesn't make much 
sense, and we are changing that. We are allowing these funds to 
be used unrestricted for impact services.
    Ms. Bordallo. Thank you. Thank you, Mr. Chairman.
    The Chairman. We have a vote on the floor, but I want to 
quickly recognize Mr. Gallegly.
    Mr. Gallegly. Thank you very much, Mr. Chairman. For the 
record, I just ask unanimous consent that I place an opening 
statement in the record.
    The Chairman. Without objection.
    [The prepared statement of Mr. Gallegly follows:]

Statement of Hon. Elton Gallegly, a Representative in Congress from the 
                          State of California

    I will be brief, Mr. Chairman.
    I am pleased to have this opportunity to discuss the importance of 
the special relationship between the Republic of the Marshall Islands 
and the Federated States of Micronesia under the Compacts of Free 
Association.
    It is important to note that the Republic of the Marshall Islands 
and the Federated States of Micronesia have been critical components in 
our nation's defense for the last fifty years. I know the importance of 
these nations firsthand--my district alone has two military bases that 
have a symbiotic relationship with the Ronald Reagan Ballistic Missile 
Test Site on the Kwajalein Atoll in the Marshalls.
    Vandenberg Air Force Base in northern Santa Barbara County and the 
Point Mugu Naval Air Station in Southern Ventura County both coordinate 
with Kwajalein in developing a missile defense shield. Rockets are 
routinely launched from Vandenberg, while interceptors are launched 
from Kwajalein. Tracking of both missiles and interceptors takes place 
at the Point Mugu Naval Air Station, which can fly P-3's equipped with 
high-powered cameras back and forth to Kwajelein.
    I am pleased that Sections 211 and 212 of Title Two of the Compact 
includes an extension of the U.S. Army's use of Kwajalein to 2066, with 
an option to extend it to 2086. The critical testing performed there 
will someday give the U.S. the capability to intercept incoming 
missiles from rogue states such as North Korea.
    I am also pleased to have this forum today to focus on issues that 
are still yet to be fully addressed in the Compact, such as the 
permissive entrance provisions of the Compact for Micronesians and the 
Marshallese, which continue to act as an under funded mandate that has 
had a particularly negative fiscal impact on Guam, Hawaii and the 
Northern Mariana Islands. Legislation I have introduced with the 
gentlelady from Guam, Mrs. Bordallo--the Compact Impact Assistance 
Act--gives the Secretary of Interior the flexibility to forgive Guam 
debt in exchange for the U.S. not paying continued compensation to Guam 
for migration impacts under the Compact. I believe this is an 
innovative approach to this ongoing problem.
    In addition, I still have concerns regarding the radiological 
effects of nuclear testing on the atolls in the Marshalls and 
Micronesia. I believe it is important for the United States to live up 
to its commitments to the island residents who have been affected by 
this testing. For this reason, I have joined with my colleague, Mr. 
Faleomavaega, in introducing legislation to transfer a decommissioned 
NOAA vessel to the government of the atoll of Utrok in the Marshalls. 
This ship will allow for radiological monitoring, resettlement and 
rehabilitation of the residents of the Utrok Atoll. It is my hope that 
the committee consider this legislation in the near future. I thank the 
Chairman, and yield.
                                 ______
                                 
    Mr. Gallegly. I would like to take this opportunity and ask 
my colleagues to join with me in welcoming a very dear friend 
of mine, a member that served on this Committee when I first 
came here back in the mid-1980's, the highest-ranking military 
officer in the Marine Corps, General Ben Blaz, former 
Congressman from Guam. Ben, thank you for being here this 
morning.
    [Applause.]
    Mr. Gallegly. Mr. Chairman, in the interest of time, I will 
just place this statement in the record.
    The Chairman. We are going to temporarily recess the 
Committee so that the members can take a vote, and when we 
return, obviously, I will give Mr. Gallegly an opportunity to 
ask his questions.
    The Committee will stand in recess.
    [Recess.]
    The Chairman. I am going to call the hearing back to order. 
If I could have everybody take their seats, please.
    Thank you. I would like to recognize Mrs. Christensen for 
her questions.
    Mrs. Christensen. Thank you, Mr. Chairman. I apologize for 
having to step out to attend another function temporarily, so I 
hope that my questions are not repetitive.
    There is a $7 million shortfall in what the FSM had 
requested, or their analysis had come up with as to what their 
budgetary requirements would be annually. It really takes it 
down to about $12 million, as I understand, a $12 million 
deficit from their original calculation. Was there a problem 
with the analysis that brought them to the, I think it was--
well, to the figure that they had proposed in negotiations?
    Mr. Short. The U.S. is prepared to provide and has agreed 
in the signed Compact to provide $76 million a year in the 
first year, Fiscal Year 2004, and $16 million a year in the 
trust, and with other small amounts, a total of $92.7 million a 
year to the Federated States of Micronesia. Now, that $76 
million is below the requested number by the FSM for their 
annual grant assistance.
    Mrs. Christensen. Was it a problem with their--I understand 
that they underwent a very thorough and relatively long 
analysis to come up with that figure. Was there a problem with 
their analysis? Why is there a difference?
    Mr. Short. The number 76 is what the administration was 
willing to support, and we recognize that in any analysis, 
especially in the area of capital improvements, that the 
requirements are significant and almost open-ended. We felt 
that we came as close as we could. And also, in the process of 
negotiations with the FSM, there were tradeoffs between the 
amount of resources to put into the trust fund on an annual 
basis and the decrements and the amount that would go to the 
grant. So there was a process of negotiation with the FSM as to 
the allocation between the trust fund amount on an annual 
basis, the grant, and the decrements that would be taken out of 
that annual grant assistance.
    Mrs. Christensen. As I understand it, there are several 
goals that were identified in the renegotiation of the Compact. 
The administration feels that the sums that you are willing to 
provide are adequate to allow and support the meeting of the 
goals that you have jointly identified?
    Mr. Short. Yes, ma'am.
    Mrs. Christensen. I have one other question. I am sorry, I 
didn't have a chance to get through all of your testimony. I 
represent the U.S. Virgin Islands. We have had our share of 
hurricanes and FEMA has been very important to us. I understand 
that FEMA will not be available--the resources of FEMA would 
not be available under the current renegotiated contract, and 
in place of that, what has been discussed is a mechanism to 
deal with hurricanes or typhoons, as the case might be. What is 
being put in its place?
    Mr. Short. Disaster response will be covered by the Office 
of Foreign Disaster Assistance, which is an element of the U.S. 
Agency for International Development. This is the same 
organization that has been in place in Palau since its Compact 
came into effect.
    Mrs. Christensen. Just one other question, and just a 
process sort of a question. I understand that on certain issues 
as the negotiations took place that there may have been times 
when the administration would say, let Congress handle that, 
and other times where the administration would prescribe what 
would take place in a certain instance. Because of different 
approaches to different issues that may be in some cases, like 
perhaps Leave No Child Behind, FSM and Micronesia may not have 
received adequate treatment under certain programs.
    What is the process, or is it that once the negotiations 
start, that you expect Congress to decide on every issue, or is 
it the administration, and when certain programs are developed 
here, initiatives are started here, that we should go ahead and 
make sure that the FSM and Micronesia are included?
    Mr. Short. Ma'am, I mentioned this briefly in my testimony.
    Mrs. Christensen. I am sorry. I wasn't--
    Mr. Short. The Compact provides assistance basically in 
three routes: Grant assistance under the Compact; Federal 
programs and services that are enumerated in the Compact, such 
as the Weather Service, Postal, and so on and so forth; and 
recognizes that the Congress has in the past provided for 
various Federal programs, the education programs, for example, 
that you are addressing.
    So the Compact does not provide for those programs. They 
have been separately provided for pursuant to individual Acts 
of the Congress and they stand or are modified or deleted based 
on Congressional action.
    In this case, the history of the last couple of years has 
been that there has been various education programs where--
previous applicable to the FAS--where they have been stricken, 
and one case was brought up here on the Americans with 
Disabilities and then there is the Pell Grant program that is 
up next year.
    Mrs. Christensen. So is--
    Mr. Short. So the administration--OK. I was not charged to 
renegotiate those programs because they are outside the context 
of the Compact. And also, I should note that in formulating 
Title II of the economic assistance in the Compact, we did not 
take into effect what might happen in the future with regard to 
deletion of those programs.
    Mrs. Christensen. Thank you, Mr. Chairman.
    The Chairman. If I could just briefly follow up on this 
line of questioning, the Compact was not--during your 
negotiations, it was not intended to deal with the educational 
grants?
    Mr. Short. That is correct. Yes, sir.
    The Chairman. At no time has the educational grants been 
included in the Compact or the negotiations. That was a 
separate issue?
    Mr. Short. Exactly. In fact, it was not a negotiated issue. 
It was simply a case where the Congress in enacting various 
pieces of legislation has made them applicable to the Freely 
Associated States on a case-by-case basis.
    The Chairman. So--
    Mr. Short. One thing that perhaps would be useful, sir, the 
administration put together a policy regarding the relationship 
between certain U.S. Federal programs and the Compact in 
response to a question from the Senate. Perhaps I could submit 
that for the record and it would be useful to delineate the 
administration's position on the relationship between Federal 
programs and the Compact activities.
    The Chairman. I think that would be very helpful as we move 
forward with this legislation, to have that, so thank you.
    Mr. Short. OK.
    The Chairman. Ms. Westin?
    Ms. Westin. I just wanted to add, to make sure that there 
is not confusion between using the word ``grants'' and then 
talking about the programs, like Pell Grants and Head Start and 
special education, the amended Compact does talk about that the 
grant funds will be targeted to priority areas, including 
education. But as Mr. Short has said, these were not intended 
to replace monies that the countries have in the past been 
eligible and have received under the Pell Grant program, under 
Head Start, under special education.
    I don't have exact figures, but we did look a little bit at 
the impact of Pell Grants on both countries and they depend 
heavily for their higher education on the Pell Grants. It is a 
major source of funding for the colleges in both the FSM and 
the RMI, and the loss of this funding could possibly result in 
the collapse of both colleges.
    The Chairman. That is a somewhat troubling statement. I 
believe that the purpose, or at least one of the purposes of 
this Compact, is the economic development and economic 
sufficiency in these areas. Education is a very big part of 
that. I don't know if you are prepared to answer this question, 
Mr. Short, but if we were to end that, can you give the 
Committee an idea as to what the impact would be on the 
educational system?
    Mr. Short. Yes, I can. This is on the loss of Federal 
programs outside the context of the Compact. I think it is 
clear that loss of eligibility, especially for the Department 
of Education funds, may mean that the RMI and FSM will either 
have to focus more Compact funds in those areas, either turn to 
local resources, or simply do less in that area. I mean, those 
are the options.
    The Chairman. OK. Let me stop you right there. To put more 
Compact monies into those areas in order to maintain it would 
mean that it would be taken away from areas that you felt were 
important--
    Mr. Short. Yes, sir.
    The Chairman. --because--
    Mr. Short. Other areas such as health, environment, 
infrastructure development.
    The Chairman. So they are areas that you felt were 
important enough in your negotiations that you included dollars 
to cover that?
    Mr. Short. Yes.
    The Chairman. The other option being that they do nothing 
and the system collapses?
    Mr. Short. That is correct.
    The Chairman. Which destroys the other parts of the 
Compact.
    Mr. Short. Precisely.
    Mr. Abercrombie. Mr. Chairman, would you yield a moment?
    The Chairman. I would be happy to yield to my friend.
    Mr. Abercrombie. Mr. Short or Ms. Westin, I am not really 
asking you to give a definitive statement on this or even 
necessarily to respond by way of observation, but my thought 
would be that should something of what you are speaking of with 
the Chairman now take place, I have an idea what would happen. 
The immigration out of these countries would accelerate and we 
would find Guam and Hawaii and the West Coast of the United 
States or other enclaves of citizens of these nations--the 
acceleration would take place and the impact on Guam, on Hawaii 
and other areas, I would say California probably more likely 
than anything else, would be considerable.
    Is that an unreasonable thought that might take place 
should there be, for example, a collapse in the college, as you 
characterize it, Ms. Westin? If they would collapse, don't you 
think people would then leave?
    Ms. Westin. When we did our report on immigration that came 
out, I believe a little over a year ago, we noted three reasons 
for the immigration, basically, were for education services, 
for health services, and for lack of jobs, essentially, and 
that is why we talked about having a focus on money going to 
health and education, which is structured in the new Compact.
    Mr. Abercrombie. I understand.
    Ms. Westin. But Mr. Short is very correct in saying that 
these other Federal programs were not dealt with by 
negotiations in the Compact.
    Mr. Abercrombie. I understand that.
    Ms. Westin. That is outside the realm of those 
negotiations.
    Mr. Abercrombie. I understand, but you understand the 
thrust of the Chairman's approach here in his questioning. It 
is clear what he is driving at, right?
    Ms. Westin. That you have to take into account that if they 
lose these funds from programs where they have had the 
eligibility and received many, many dollars in the past, it 
will have an impact. It will have an impact on education, and 
as I said, that is one of the three things, educational 
opportunities, that we found was a driver of immigration.
    Mr. Abercrombie. And by definition, then could undermine 
the whole object of the Compact in the first place.
    The Chairman. Reclaiming my time, I would just tell my 
friend from Hawaii that if you look at this scenario playing 
out, what you end up with is those parents that value education 
the most, those students that value education the most, will be 
the ones that encourage their kids to come to Hawaii or come to 
California and get their education. The chances are they won't 
go back at that point because they will get a job and get 
married and everything wherever they go. I think the long-term 
impact of following through on this path would be devastating. 
I think it is something that we had better address in the 
future.
    I am going to--Mr. Abercrombie, did you have questions? I 
will recognize you on your own time.
    Mr. Abercrombie. Thank you very much, Mr. Chairman. In some 
respects, what we just talked about covers what I wanted to 
deal with. But so we are absolutely clear on the record, if 
both of you recall, Mr. Cohen's phrase was, to the extent we 
have resources available, was his response--I believe it was 
his exact words--with regard to meeting whether it was grants 
or whether it was payments with regard to health care, et 
cetera, elsewhere.
    I guess this really should go to Ms. Westin, then. Ms. 
Westin, if we were to accept the idea that even if the Compact 
as negotiated by Mr. Short and his colleagues were to be 
implemented in terms of this bill in every respect, is it 
likely that there would, in your judgment, to the degree you 
feel you can give a judgment or give an observation, is it 
likely that there would continue to be an impact in Guam and 
Hawaii and elsewhere with regard to education, health care, and 
other services now currently being provided? Is that impact 
likely to continue?
    Ms. Westin. I think that there is likely to continue to be 
an impact, but the thrust of the structure of the amended 
Compacts was to have the grants going to the priority areas 
like education, like health, and like infrastructure, 
environment, all of these, hopefully providing better 
education, for better health services in the islands, and the 
possibility of jobs--
    Mr. Abercrombie. Yes, I understand completely--
    Ms. Westin. --or at least economic development, with the 
idea, then, that that would lessen the reasons for--
    Mr. Abercrombie. No, I understand that--
    Ms. Westin. --for citizens wanting to immigrate.
    Mr. Abercrombie. And maybe my question isn't fair to you as 
a result. I understand that completely, but if I understood 
your testimony correctly and if I understand what Mr. Cohen and 
Mr. Short testified to, as well, the amount of money that is 
going is not substantially different than that which has been 
invested so far, isn't that correct?
    Mr. Short. Roughly, yes, that is correct. Perhaps the 
difference will be on the emphasis.
    Mr. Abercrombie. I know. I don't want to--
    Mr. Short. Total dollar value is about equivalent to the 
past.
    Mr. Abercrombie. OK, but this is my--I am going into the 
end of my third decade in elective office, in public office, 
and I know all about emphasis, but I will tell you, it comes 
down to money. It is always money. Money doesn't talk, it 
screams.
    If it is the same amount of money, you can have all the 
good will in the world in terms of your advisory Committee and 
all the best intentions in the world, but my guess is, Mr. 
Chairman, that that exodus for health are, for education, et 
cetera, is going to continue. There may be some marginal gain, 
there may be some retention of people, or people may want to 
come back a little bit more than they may otherwise. But that 
is where the difficulty, I think, for us is.
    And at a minimum, even if that succeeds, Ms. Westin, would 
you--you haven't had a chance to see, I think, in front of you 
in writing the studies from Hawaii. You may have had the chance 
to see that from Guam. I don't know if that material has been 
provided to you.
    Ms. Westin. Not the new ones, no.
    Mr. Abercrombie. OK. But there, we are talking about--I 
will just cite you, and if you will accept for conversation's 
sake that my figures are fairly accurate--that where Hawaii is 
concerned, we are dealing with probably roughly $30 to $35 
million a year in impact that can be reasonably accounted for 
through the Department of Education, through the Department of 
Health, and again, if you will take my word for it, this has 
been pretty well documented in the material submitted to us by 
the State of Hawaii and has become part of the record today.
    Would you agree that it is likely that even with the best 
outcome from the new Compact, and as Mr. Short puts it, the 
reemphasis or change of emphasis or a little more concentration 
on accountability, that if we are spending $30 to $35 million 
now, that that is likely to continue for a good portion of the 
next decade, so that when we authorize this bill, that it is 
reasonable for some of us to hope that the numbers might change 
with regard to the $15 million? Yes?
    Ms. Westin. Well, as you know, directing to talk about what 
might be likely in the future is always uncomfortable for 
somebody from GAO--
    Mr. Abercrombie. Of course.
    Ms. Westin. --who tends to deal with the past. I don't--
    Mr. Abercrombie. I said we are having a conversation here. 
I am not holding you to anything hard and fast.
    Ms. Westin. Oh, OK.
    [Laughter.]
    Mr. Abercrombie. I am relying on your professionalism and 
your experience as to whether my proposition to you is a 
reasonable one.
    Ms. Westin. I would not see any--
    Mr. Abercrombie. Excuse me--in the context of us trying to 
have to put legislation forward, because we are also 
speculating on the future. But that is what we do for a living.
    Ms. Westin. Right. I don't think that you would see an 
immediate impact in the change of immigration. Education and 
health services improving could have an impact over time, but 
you are not going to see an immediate impact.
    I think you would see the more immediate impact on 
education if, for example, the eligibility for Pell Grants was 
not extended once it expires, because there, we have seen how 
much of the budgets of the colleges of the two countries depend 
on Pell Grant money, and that is why I made my statement that 
it is certainly a possibility that the colleges would collapse 
without the eligibility of Pell Grants any further.
    Whether it would lead to, in the next five or 6 years, an 
increase in immigration to the three areas, it is a little hard 
to speculate on that. But I think that Hawaii, Guam, and the 
Northern Mariana Islands will continue to feel the impact of 
the migration out of the two countries.
    Mr. Abercrombie. Let me just ask one other thing fairly 
quickly. Again, I am asking just to give an educated guess on 
this. Again, if the money stays the same in terms of 
investment, regardless of the reemphasis, if you are dealing 
with situations like cancer in a child's life, the likelihood 
of increasing the facilities, the sophistication of the 
hospital facilities, increasing the numbers of physicians that 
may have specialties to deal with things like cancer in 
children.
    Again, isn't it likely that people who find themselves in 
situations requiring specialized health care are likely to 
continue to have to go to Guam or to Hawaii or elsewhere in 
order to receive those services? Isn't it unlikely under the 
present investment protocols that there will be significant 
increase either in personnel or in facilities to handle 
specialized health problems?
    Mr. Short. Congressman, let me just address that in one 
context. When you deal with impact in Hawaii, especially in the 
medical area, you deal with it really in two areas. One are 
individuals from the Marshall Islands who are referred there by 
the government for specialty-type care. The other are 
Micronesian migrants who are residing in, for example, Hawaii, 
who seek medical attention locally and don't have any coverage 
or are not referred by the government.
    Mr. Abercrombie. Yes.
    Mr. Short. The Government of the Marshall Islands, for 
example, has, I believe, brought up to currency all their 
accounts with the hospitals in Hawaii and they recognize that 
they have limited capabilities and they do have to refer, and 
this might be a question you want to direct to either of the 
Micronesian testifiers that will be coming on behind us. But 
there will continue to be acute needs that can't be met in both 
jurisdictions where people would be referred. But when referred 
by the government, the government undertakes the reimbursement, 
and most of your impact on medical is for people who are 
residing in Hawaii and who have no coverage.
    Mr. Abercrombie. Thank you very much.
    The Chairman. I thank the gentleman.
    Any further questions for this panel? The gentlelady from 
Guam?
    Ms. Bordallo. Thank you, Mr. Chairman. I would like to 
follow up on our Chairman's questions on FEMA, the elimination 
of the FEMA program, and also Dr. Christensen. What will 
happen, what will the impact be on infrastructure improvements 
in the islands? Most of these, and, in fact, all of them, the 
infrastructure has been built with Federal monies, so I am just 
wondering, how will they be able to improve it, keep it 
maintained?
    Mr. Short. With the existing FEMA program, there is a 
matching program whereby if public facilities are destroyed or 
damaged, they can be replaced on a matching basis. The Office 
of Foreign Disaster Assistance in the Department of State does 
not provide that coverage. So there is a gap in the coverage 
from the current coverage to the future.
    Ms. Bordallo. My next question is for Ms. Westin. What will 
the impact on the standard of living in the FSM and the RMI 
under the amended Compacts, which decrease grant assistance 
annually? Is there evidence that economic growth will be 
sufficient each year to absorb the loss of U.S. funds?
    Ms. Westin. In small island economies, economic growth is 
always a challenge, and as you know, we looked at the first 15 
years of the Compact to see what kind of economic development 
there had been as a result of Compact money and found that 
there hadn't been too much as a result of the Compact money.
    Ms. Bordallo. But now you are decreasing it annually.
    Ms. Westin. But now it will be decreasing annually, and 
also you have to remember that the structure of the assistance 
has changed. So as the payments and the grant assistance goes 
down, the contributions to the trust fund goes up. So although 
it is about the same amount of money, the structure of the 
assistance is changing over the next 20 years.
    I think there have been--probably the best studies have 
been done by the Asian Development Bank in terms of talking 
about the economic development prospects for these two 
countries. But it is difficult for island nations of limited 
resources. They are not too close to heavily populated areas 
where they might be able to expand tourism to a great extent. 
So it is--
    Ms. Bordallo. So you feel this is--
    Ms. Westin. --difficult to talk about economic development.
    Ms. Bordallo. You feel this is a sound plan?
    Ms. Westin. Do I feel the Compact is a sound plan?
    Ms. Bordallo. Yes.
    Ms. Westin. What we looked at was to really see what kind 
of accountability provisions they put in and really to develop 
the cost. But we at GAO didn't negotiate the compact, nor have 
we really assessed it as to whether this will be a successful 
thing.
    Ms. Bordallo. In answer to my question, then, in your own 
personal assessment, do you feel it is a sound plan?
    Ms. Westin. I don't have any reason to say that it is not a 
sound plan. But I do think that economic development will 
continue to be difficult for these countries.
    Ms. Bordallo. Mr. Short--I have one other question, Mr. 
Chairman. Without an agreement between Kwajalein landowners and 
the RMI government for access beyond 2016, what is the value of 
the Compact extension for Kwajalein use and what happens to the 
increased funds for Kwajalein access through 2016 if a land use 
agreement is not struck by October 1, 2003? Are the payments 
made?
    Mr. Short. Let me put that in context. When we deal with 
foreign military access and rights, we deal government to 
government, as in this case or any other nation in the world. 
So we have dealt with the Marshall Islands Government on the 
extension of the Kwajalein facility lease.
    We have a present lease that runs through 2016, as you 
indicated. There is an agreement between the Government of the 
Marshall Islands and the affected landowners called the land 
use agreement whereby the pass the money through on their own 
formula. We deal government to government. The Marshall Islands 
Government has signed this arrangement and they are committed 
to providing us access at the facility. We expect that they 
will, in turn, deal with the landowners and work out any 
relationship that is needed there regarding the land use 
agreement.
    Ms. Bordallo. All right, thank you. Thank you, Mr. 
Chairman.
    The Chairman. I thank the gentlelady.
    The gentleman from Puerto Rico, do you have any questions? 
The gentleman from Arizona? No questions? The gentleman from 
Washington? No questions? Mr. Faleomavaega?
    Mr. Faleomavaega. Thank you, Mr. Chairman. As I had 
indicated earlier, Mr. Chairman, I do have some very serious 
concerns with some of the provisions or nonexistence of some of 
the things that I had hoped for that would be part of the 
proposed Compact. I certainly don't envy Mr. Short and the 
several-month period that he has had to conduct such a 
difficult task of negotiating this proposed Compact that is now 
before us.
    I note also with interest, Mr. Chairman, and I want to ask 
Mr. Short and Ms. Westin, because there seems to be a very 
serious timetable effect, that if this Compact is not approved 
before October of this year, I get the very strong impression 
that these people are going to be without funds. Has the 
administration developed an ``option B'' perhaps that if this 
Compact is not approved before October of this year, where do 
we go from here?
    Mr. Short. Sir, I think we have the pieces in place to 
achieve our objective, which is to put a compact in place by 1 
October. The President's budget that is presently being 
considered on the appropriations side includes the full 2004 
funding, the amended Compact of Free Association, and we have 
introduced the bill and it is being actively considered in both 
Houses. We are on a very tight time schedule, but we feel we 
can close by the end of September. There might be some sort of 
savings situation that we would have to address in September, 
but so far, the assurances from both sides of the Hill have 
been that we think we can move it in the time that we have 
remaining. I do admit that it is a very short fuse.
    Mr. Faleomavaega. I like the assurances, Mr. Short, but 
that still doesn't answer my question. If this Compact is not 
approved before October of this year, where do we go from here 
as far as the funding? Is there some mechanism, some continuous 
resolution, or will the administration support some legislation 
to the effect of continuing the current funding levels for 
these, for RMI and FSM in the event that the Compact may not be 
approved before October of this year?
    Mr. Short. It is possible that if we do not achieve the 1 
October objective that there would be a contingency put in 
place as a place saver until a Compact is approved.
    Mr. Faleomavaega. So the administration is prepared for 
that contingency?
    Mr. Short. Yes, sir.
    Mr. Faleomavaega. --I mean, we don't know, but I would feel 
very comfortable, if some of the concerns that were raised here 
will be corrected before then, and will be approved in the 
Compact.
    Ms. Westin, again, I appreciate your testimony, as always. 
We have had the opportunity of testifying before the 
International Relations Committee, of which I am a member, so 
now we are having a double dose of this, so I appreciate your 
patience, along with Mr. Short, as we continue this dialog.
    You mentioned, Ms. Westin, that according to the GAO 
review, there is a distinction between Federal grants and 
programs and I wanted to ask you if you could submit for the 
record the listing of all Federal grants and Federal programs 
that the current Compact provides for FSM as well as RMI. Would 
you be able to do that for us?
    Ms. Westin. Yes. We will be able to that.
    Mr. Faleomavaega. OK.
    Ms. Westin. Can I check 1 second with my colleague?
    Mr. Faleomavaega. Please.
    Ms. Westin. We wouldn't have something that is absolutely 
current, but we did put out a pretty large programs report 
within the last 18 months. Would that be suitable?
    Mr. Faleomavaega. The sooner the better, if I could get 
that information. I would really appreciate it, Ms. Westin.
    Ms. Westin. Sir, having the work that we have completed, 
would that meet your needs, even though it is not current right 
up to today?
    Mr. Faleomavaega. Just a simple listing--especially of the 
major grants and the major programs.
    Ms. Westin. Yes, we have that.
    Mr. Faleomavaega. OK. I would appreciate that. And also, a 
listing of what the proposed Compact will not provide in terms 
of Federal grants and Federal programs. I would appreciate if 
you could help me on that, Ms. Westin.
    Ms. Westin. Well, the Compact itself doesn't provide for 
many of the Federal programs that have been provided in the 
past. We don't have real direct knowledge of what may or may 
not be included. I think that is action that is being 
undertaken in other Committees now.
    Mr. Faleomavaega. That is OK. I will proceed with that.
    Ms. Westin, on the Federated States of Micronesia and the 
Marshall Islands budgets, what percentage of the annual budgets 
that they have comes from the local revenue stream of 
collection? And also, I would be interested to know what 
percentage comes from the Federal Government. Do we have that 
on hand as part of the GAO review?
    Ms. Westin. We had those figures exactly when we put out a 
report 2 years ago. I think it is now in the neighborhood of 
about 50 percent, 50 percent from local revenues--
    Mr. Faleomavaega. Is Federal?
    Ms. Westin. --50 percent from--
    Mr. Faleomavaega. Oh, 50 percent is the local revenue? All 
right. And is there also an accounting of how much the FSM and 
RMI receive from foreign or regional organizations like ADB and 
the others? Do you have an accounting for that?
    Ms. Westin. I do. I don't have those figures with me. Can I 
provide them to you?
    Mr. Faleomavaega. Please. You mentioned also, Ms. Westin, 
you say that economic development is difficult for both of 
these island governments. At the same time, we are making a 
proposal to decrease the funding of the 20-year period. This 
doesn't strike me as a common sense approach in helping 
economic development for both the FSM and RMI. Am I getting 
something wrong here, or can you help me with this? I mean, I 
get the impression there is definitely a need for economic 
development. Shouldn't we also then be in the process of 
increasing the assistance, if necessary, for the next 20-year 
period?
    Ms. Westin. Well, I think one type of assistance that is 
structured into the Compact that I really expect will be 
increasing will be the technical assistance, because as Mr. 
Cohen talked about the Committees, one of the things that I 
heard from both governments when I visited the islands was that 
they really do need technical assistance in the help of looking 
at grants, making sure that it is a good grant proposal, that 
the money is well spent, and then this is what you would expect 
then would really lead to economic development.
    Mr. Faleomavaega. Following Mr. Abercrombie's line of 
questioning earlier, Ms. Westin, what is the minimum wage per 
capita income right now in the RMI and the Federated States of 
Micronesia? Isn't it $1.50 an hour or something like that, or 
$3,500 per annum?
    Ms. Westin. It might be that the next panel would be able 
to have those figures exactly.
    Mr. Faleomavaega. I had hoped that maybe it was part of 
your GAO review.
    Ms. Westin. No--
    Mr. Faleomavaega. It is not in there?
    Ms. Westin. --I don't think I have those figures exactly 
right now.
    Mr. Faleomavaega. OK. So we don't even know what the per 
capita income is for the RMI and the FSM. Shall we let the 
others testify on the next panel?
    Ms. Westin. It is about $1,100, $1,200 a year.
    Mr. Faleomavaega. Eleven or $1,200? What was it before, 15 
years ago? I am curious. I am trying to get some sense of 
continuity here, what had we done 15 years ago? To say that we 
have made a lot of improvements now but that we are going to 
decrease the funding for these people, and yet there is no real 
substantive change to say that there is really an economic 
progress going on with these two entities. This is where I am 
very concerned, and I would appreciate your comment on that, 
Ms. Westin, if I am wrong in my observations on this.
    Ms. Westin. I would be happy to provide for you the exact 
figures. I don't have them with me right now. But again, what I 
could say is that I think the new Compact with these joint 
management Committees will help provide technical assistance 
which should, I think, help to see that the money that is 
provided through these grants will be well spent and, we hope, 
lead to--move toward economic self-sufficiency. But part of 
that is that the development of the trust funds, so as the 
grants are discontinued, there will be money available every 
year from the trust funds.
    Mr. Faleomavaega. The problem that I have, Mr. Chairman, 
and also want to share again with Mr. Short and Ms. Westin, 
there has been some suggestion that this has been a miracle 
success in terms of what we have done in the last 15 years in 
dealing with the FSM and RMI. I would beg to differ with that 
opinion. We have made a failure.
    I am talking about the nuclear problems that these people 
were subjected to in our nuclear testing program in the 1950's 
that we still have not provided adequate, not only medical 
treatment, not even compensation for the 300 or 400 Marshallese 
that were directly subjected to nuclear radiation when the 
Bravo shot took effect in 1954, 1,000 times more powerful than 
the nuclear bombs that we dropped at Hiroshima and Nagasaki. We 
still have not resolved that issue with the Marshallese people, 
and that, to me, is not a success. That is a total failure.
    There is still a very serious problem that we have in 
dealing with the landowners and the lease agreements in dealing 
with the Kwajalein, which to me is a multi-billion dollar 
operation that we currently have on that island, and again, we 
have not come to a fruitful conclusion to that basis of 
negotiating, not only with the landowners but even with the 
Marshallese government.
    And I am very concerned, Mr. Short, in terms of some of the 
information that has been brought to my attention in the 
negotiation process. When our friends from the FSM and RMI said 
we want to negotiate, they said, no, we can't. I am not 
authorized. It is not in the agenda. It is not in my program. 
So where is this partnership and a sense of fairness that there 
was a sense of comity and understanding, but the way that we 
seem to--this is not just this administration, to be sure. This 
is also both Democratic and Republican administrations. We have 
not dealt with these people in a fair and equitable way. I am 
sorry to say that.
    Thank you, Mr. Chairman.
    Mr. Calvert. [Presiding.] I thank the gentleman.
    Mr. Udall, do you have a question? We are going to real 
quickly go through this so we can get to our next panel. Mr. 
Udall, you are recognized.
    Mr. Udall of New Mexico. Just a couple of quick questions 
here. Thank you both for coming.
    Concerning the elimination of the FAS access to FEMA 
programs, how will their ineligibility impact the potential 
loss to infrastructure improvements that were built with 
Federal money? And then, second, will this not ultimately put 
at risk the investments we are making to improve their 
infrastructure?
    Mr. Short. That definitely is a gap in the coverage. The 
Office of Foreign Disaster Assistance provides disaster 
response but does not provide for the coverage that has been 
provided under FEMA, which included the matching, basically, 
asset and capital replacement.
    Mr. Udall of New Mexico. Thank you. I yield back, Mr. 
Chairman. Thank you.
    Mr. Calvert. I thank the gentleman.
    Mrs. Christensen, you are recognized.
    Mrs. Christensen. Thank you, Mr. Chairman. I have one 
question that arises also out of the concern of the funding and 
the adequacy of funding.
    It is my understanding that only a partial inflation 
adjustment is included in the Compact, both for grant 
assistance and also for military use and the operating rights 
agreement. Why is it that it is only a partial?
    Mr. Short. The previous Compact--
    Mrs. Christensen. Especially in light of the fact that you 
are underfunding based on their analysis of the needs. There is 
loss through Federal grant programs. Why are we only using a 
partial adjustment?
    Mr. Short. The present Compact that is in place today and 
has been in effect for 17 years provides a formula that is two-
thirds of the implicit price deflator, capped at 7 percent. The 
average over the last 17 years has been about one or 2 percent. 
It was higher in the earlier years. It has been rather much 
lower more recently.
    The same formulation was carried forward on the amended 
Compact. That is, two-thirds of the implicit price deflator, 
capped at 5 percent rather than seven. That is simply the 
formulation that the administration proposed that addresses but 
does not totally address the impact of inflation.
    Mrs. Christensen. It just seems to me that that partial 
adjustment, in light of everything else, is not consistent. I 
understand that in the trust, there is a full cost, full 
inflation adjustment. It is something I think we need to look 
at, as well.
    Mr. Calvert. I thank the gentlelady.
    I think the gentlelady from Puerto Rico has one additional 
question, and then we will move on.
    Ms. Bordallo. From Guam.
    Mr. Calvert. Excuse me, Guam. Excuse me. I am sorry.
    Ms. Bordallo. Thank you, Mr. Chairman.
    Mr. Calvert. The gentlelady is recognized.
    Ms. Bordallo. Ms. Westin, the immigration trends, have you 
taken that into account at all? For example, what percent of 
the FSM and RMI populations are under 16 years of age now and 
is there a trend that we can foresee in the future?
    Ms. Westin. I don't have those figures in front of me, but 
I am sure we could get them for you. We took immigration into 
account when we looked at trying to determine what the per 
capita assistance would be over time in terms of looking at 
population growth, and that included immigration projections.
    Ms. Bordallo. I see. I am just thinking, Mr. Chairman, 
because you know young people now, and particularly if 
economically these islands are not doing well, certainly they 
will look for bigger and better things. I just wondered if you 
had taken that into account. Thank you, Mr. Chairman.
    Mr. Faleomavaega. Would the Chairman yield?
    Mr. Calvert. The gentleman is recognized.
    Mr. Faleomavaega. Just an observation, Mr. Chairman, that I 
am sorry that there is no representative here from the 
Department of Defense to testify. I believe that this is one of 
the most critical issues relative to the Compact of 
negotiations simply because we have to face the reality, what 
is our national interest? What do we really have there that 
causes us to negotiate and to have this unique political 
relationship with these Pacific island governments?
    And simply, the bottom line is strategic. The fact that the 
multi-billion-dollar presence that we have there in the 
facility at Kwajalein missile testing gives it even a greater 
sense of urgency. I think the President's hope that we will go 
back again and testing our missile capabilities program, I 
sincerely hope the President is not going to undertake another 
nuclear testing program because that is a very serious concern.
    I don't know if my good friend Ben Blaz is still in the 
audience, but I am reminded of two things that always seem to 
strike me as something that I hope that my colleagues in the 
Committee and the Congress will always seem to bear and 
understand and appreciate. At the height of the cold war, the 
problems, Micronesia offered tremendous, tremendous aid and 
assistance to our national security. Without those nuclear 
testings, nuclear bombs that we exploded in the Marshalls, I 
don't think we would have achieved the success during the cold 
war. And yet, in return, we have failed to give proper 
assistance and education and economic assistance to the people 
of the Marshall Islands.
    I will always remember what Henry Kissinger said about 
Micronesia. There are only 90,000 of them. Who gives a damn? 
That is the kind of attitude that really disturbs me in our 
government, and this is the attitude that we have displayed 
toward the people of Micronesia.
    And Ben Blaz, I always will remember what General Blaz said 
in this Committee. Sometimes those of our fellow Americans, 
even our friends from Micronesia, because of the sacrifices 
they make in defense of our nation, and Ben Blaz always says, 
we are equal in war but not in peace.
    Thank you, Mr. Chairman.
    Mr. Calvert. I thank the gentleman.
    Just one comment. I am on the Armed Services Committee. I 
don't believe that--I think the days of above-ground testing 
are over, so I don't think the people of the Marshall Islands 
have that to fear.
    With that, there are no additional questions for this 
panel. This panel is excused. We thank you for your attendance 
here today.
    Mr. Calvert. Now, we will recognize our next panel, Mr. 
Peter Christian from FSM and Mr. Gerald Zackios from the RMI, 
if you will please come forward.
    If both the gentlemen would please rise and raise your 
right hand and repeat after me--gentlemen, Mr. Christian and 
Mr. Zackios, it is a tradition of this Committee to swear in 
our witnesses, so if you would please rise, we would appreciate 
it. Please raise your right arm.
    Do you solemnly swear or affirm under the penalty of 
perjury that the statements made and the responses given will 
be the whole truth, nothing but the truth, so help you, God?
    Mr. Christian. I do.
    Mr. Zackios. I do.
    Mr. Calvert. Thank you. Both witnesses answered in the 
affirmative. We would now like to thank the witnesses for their 
attendance and I would now recognize Mr. Peter Christian from 
the FSM for his testimony. We are attempting to stay within our 
5-minute rule. Certainly, all of your testimony will be entered 
into the record and we appreciate your attendance and you are 
recognized. Thank you.

    STATEMENT OF THE HON. SENATOR PETER M. CHRISTIAN, CHIEF 
           NEGOTIATOR, FEDERATED STATES OF MICRONESIA

    Mr. Christian. Thank you very much, Congressman Calvert. I 
say aloha to the other gentlemen to your left. Good morning.
    Mr. Chairman, it is my honor again to be called to appear 
before this Committee to provide the testimony of my government 
on behalf of the people of the Federated States of Micronesia. 
Our written statement on the pertinent issues we wish to 
discuss with this Committee has been submitted earlier, and in 
it, the Committee will find some detailed explanation of our 
outstanding concerns.
    We are also prepared, in case the Committee wishes, to meet 
with any member of your staff to answer some questions that may 
be required of us. We have a full contingency of people here 
with all the answers, Mr. Chairman, and I am sure they will be 
happy to meet with your staff to bring them up to date on our 
positions on those concerns that we will very shortly list.
    Mr. Chairman and honorable Members of Congress, this 
morning, my testimony will simply attempt to guide our 
attention to the list that I will submit to you now. The 
administration is aware of our intention to bring these before 
Congress and these items are those unresolved issues on the 
date that we signed the document agreeing that that could be 
submitted to Congress for consideration. At that particular 
time, there were some issues that were not resolved between the 
United States team and the Federated States of Micronesia 
negotiations team.
    I would like to highlight those points. One is the $7 
million shortfall that we have been speaking about for the past 
12 months. Second is the concept of the decremented grants. 
Third is the inflation adjustment, which has been touched upon 
earlier by the witnesses here and also the panel. Fourth, the 
continued FSM eligibility for Federal programs. Fifth, the 
reinstatement of FEMA. And sixth, tax and trade provisions.
    Mr. Chairman, in addition to the items above, I must point 
out to the Committee, in case it does not already know, some 
elements of the draft legislation which were not part of the 
agreed-to proposed Compact amendment. In reviewing the 
administration's proposed changes, we found at least three 
major problems for which we also seek Congress's help in making 
adjustments.
    These include the unilateral decision by the administration 
to take $250,000 from Compact grants to implement United States 
policy on machine-readable passports. Two, the imposition of a 
1-year deadline for FSM to develop and to implement an 
immigrant screening program. Third, the unilateral decision by 
the administration to change Compact language mandating 
programs as currently provided by the current Compact. This 
change, I would like to add, Mr. Chairman, concerns provision 
of compensatory Federal programs approved by Congress in 1986 
as partial offset of loss of tax and trade benefits, previously 
agreed to by the administration and approved by the Congress.
    I would like at this time, Mr. Chairman, if you will, to 
touch on a question posed by the gentlelady from Guam. The 
question was, is the Compact a sound document? We believe, sir, 
that the Compact is a sound document and we believe that it 
will be a more sound document if the adjustments we seek before 
this Committee can be accommodated. However, I regret to say 
that the sound document meets with a problem in the fiscal 
procedures developed by the Interior, by the administration, in 
their hope to help us implement the Compact provisions.
    In addition, Mr. Chairman, we would like to propose that 
your Committee recommend to Congress that the Compact 
legislation before you be changed to include a provision for a 
3-year comprehensive Congressional review of the health of the 
FSM economy, mostly to examine whether a need then exists 
requiring review and adjustment.
    In conclusion, Mr. Chairman and members, we solicit the 
Committee's careful review of our concerns raised and we 
further request the Committee's favorable recommendation on the 
adjustments.
    Finally, Mr. Chairman, we respectfully urge Congress to act 
favorably on the Compact legislation.
    At the last time I was here, Mr. Chairman, I was called out 
before my statement was over, so I have decided to make it very 
short this time and thank you very much again for allowing me 
to appear on behalf of my people to solicit your support. Thank 
you very much.
    Mr. Calvert. We thank the gentleman for his testimony.
    [The prepared statement of Mr. Christian follows:]

 Statement of Hon. Senator Peter Christian, Speaker of the Congress of 
 the Federated States of Micronesia and Chief Negotiator of the Joint 
               Committee on Compact Economic Negotiations

    Mr. Chairman,
    I have the honor to appear before you today on behalf of the 
Federated States of Micronesia, and wish to thank you and the Members 
of your Committee for holding this important and timely hearing on a 
matter of utmost importance to my nation.
    Mr. Chairman, the negotiations on the Compact amendments have 
evolved considerably since the last hearing held by your Committee in 
July 2002. We have now concluded negotiations with the Administration 
on a package of Compact amendments. We joined the U.S. in signing these 
agreements in May of this year, and look forward to working with 
Members and staff to address concerns we have regarding the proposed 
legislation now before you so that Congress may pass this important 
legislation on a timely basis.
    We stand at an important juncture in the special relationship 
between our nations. The Compact as it is to be amended, intends to 
further our mutual commitment to preserve the peace and stability of 
the central Pacific, and to promote the continued development of the 
FSM on a sustainable basis. Mr. Chairman, these documents will 
profoundly affect the fate of the Micronesian people and the security 
and stability of the region for the next twenty years and beyond.
    The sectoral approach to grant assistance in the new agreement is a 
marked change from past practice. As such it will require 
implementation adjustments by both sides. Nonetheless, it provides the 
best mechanism for reaching our mutual goals and will direct assistance 
to where it is needed most.
    Similarly, we welcome and are committed to implementing new 
accountability and oversight requirements. It is no secret that there 
have been mistakes on both sides under the original Compact. While we 
were not always in agreement with the tone and findings of the GAO's 
reports during the past several years, we are thankful to the Congress 
for undertaking this important initiative and shedding light on 
deficiencies. Their work assisted both the U.S. and FSM negotiators in 
addressing these issues in the amendment documents.
    At the outset of the talks, the FSM proposed the notion of a joint 
committee to oversee implementation of the Compact. This proposal was 
welcomed by the US, and ultimately took the form of the proposed Joint 
Economic Management Committee (JEMCO). The JEMCO will consist of 
representatives from the U.S. and FSM, with a U.S. majority, and will 
meet regularly to identify any problems in Compact implementation and 
develop prompt and cooperative responses. This approach certainly adds 
to the measures available to make proportional and selective 
interventions to ensure effective implementation of the amended 
Compact; however, and most importantly, the JEMCO provides a mechanism 
for constructive, consultative and consistent dialogue that was missing 
in the past.
    We appreciate the generous nature of the U.S. proposal. However, 
there remain certain provisions of the Administration's proposal that 
cause the FSM serious concern. Unless addressed by the U.S. Congress 
during the approval process, these problems hold the potential to 
unravel the carefully-woven fabric of the Compact package. And that 
package, Mr. Chairman, was designed in close consultation with 
professional economists and adopted by the FSM leadership to achieve 
our mutual goal of ultimate self-reliance.
    First and foremost, our concerns center on the level of economic 
assistance over the next twenty years. Beginning in 1997, the FSM began 
work on constructing a comprehensive economic analysis of its needs 
over the next twenty years. This analysis was at the core of our 
original economic proposal made in 1999, which called for economic 
assistance at the level of $84 million annually over the next twenty 
years. Six months later, the U.S. responded with an initial offer of 
$61 million annually that fell far short of our annual needs and 
disastrously short of creating a Trust Fund sufficient to secure 
stability at the end of the period. After further analysis of ongoing 
macroeconomic trends, the FSM was able to lower its minimum required 
figure by $5 million annually. Still, the U.S. proposal as reflected in 
the legislation before you falls $7 million annually short of that 
level.
    The FSM demonstrated that such a marked reduction in current levels 
of assistance would threaten the viability of the nation from the 
outset. The rationale for the economic package was to provide economic 
stability throughout the twenty year period, while allowing for a 
gradual reduction in the level of the FSM's reliance on annual 
assistance as the economy grows. On numerous occasions we presented our 
economic reasoning to the U.S. negotiator, and at no time were they met 
with countering arguments. Neither has there ever been any dispute with 
the analysis or the anticipated outcomes based on economic modeling. 
Instead, we were told that the U.S. assistance proposal was simply the 
maximum that the U.S. could offer--in essence, the result of a 
political decision rather than being based on sound and responsible 
economic analysis.
    Fortunately, and through the hard work of negotiators on both 
sides, we were able to bridge the gap to the point where we could agree 
on submitting the document for Congressional consideration. However the 
sum of the annual grant and Trust Fund contributions still falls $7 
million short on an annual basis of what we identified as the absolute 
minimum required for the FSM economy to achieve our mutual goals. Those 
being, among others, to gradually improve economic vitality and living 
standards during the next twenty years and to have a sufficiently 
funded Trust Fund to achieve self-reliance.
    In addition to the effects of the initial proposed reduction in 
grant funding in 2004, the FSM is facing significant pressures placed 
on the economy by the need to raise the necessary $30 million trust 
fund contribution and by the reduction in government capacity due to 
new restrictions on the funds. Quite frankly, the potential for 
economic instability exists. The $7 million in additional annual 
funding requested by the FSM may not seem like much in the overall 
scheme of the Compact or relative to the U.S. foreign assistance 
budget, but it is critical to the health of the FSM's economy, the 
well-being of our people, and to the future of our nation.
    The adequacy of the Trust Fund is also a profoundly important 
aspect of our long-term development strategy as it gives our people and 
potential investors a sense of hope and confidence in a sustainable 
future. In considering the legislative package as submitted, the U.S. 
Congress should take note of the stated Compact goals and determine 
whether the funding levels and mechanisms can produce the desired 
result, making such adjustments as it may deem necessary.
    There are several other aspects of the Compact proposals that are 
troublesome from our point of view. First, there is the inadequacy of 
the inflation adjustment. This involves two separate issues--the 
formula to calculate the annual adjustment and the base year for 
adjustment. The FSM seeks the assistance of the Congress in restoring 
full inflation adjustment and adjusting the base year to 2002, the last 
year of original Compact funding.
    Another area of great concern to the FSM is the loss of FEMA 
disaster relief assistance. Without reinstatement of this important 
benefit by the U.S. Congress, the substantial investment made by the 
US, and pledged for the next twenty years, is placed in jeopardy. As 
the proposed amendments now stand, storms or other natural disasters--a 
statistical certainty--hold the potential to irreparably damage the 
social and economic infrastructure upon which our nation's growth 
prospects rely.
    Similar to the FEMA issue, we are very concerned by threats to the 
continuation of important and successful Federal programs under the 
Compact as amended. Throughout the negotiations, the Administration has 
stated that it was not their desire to preempt the Congress on these 
important issues. At the same time, Congress has at times (such as in 
the ``No Child Left Behind Act'') called upon the negotiators to decide 
the matter. In many areas this has resulted in essential Federal 
programs extended to the FSM possibly falling through the cracks and no 
longer being made available to support our development efforts. Again, 
loss of complementary programs presents a further threat to near-term 
stability and reduces the chances to achieve even our modest economic 
growth projections.
    The U.S. negotiator has since clarified the Administration's 
position on the matter, stating that calculations of the U.S. 
assistance offer were made based upon the assumption that Federal 
programs would continue at their current levels. We hope that Congress, 
in its wisdom, will take note of this important statement and act to 
ensure the continuation of invaluable programs to the FSM, such as 
those under NCLBA, IDEA, Head Start, Pell Grants, and others.
    Mr. Chairman, during our lengthy negotiations we sought to address 
non-financial methods in which the U.S. could enhance the FSM's growth 
prospects for the future. We seek to maintain and modernize tax and 
trade provisions that will enhance the economic linkages between our 
two nations. Specifically we wish to work with Members to redress the 
elimination of reference to certain tax provisions in the legislation 
before you by ensuring that the original intent of those tax provisions 
will be maintained. In order to support private sector development and 
to foster private investment, we would like the U.S. Congress to 
consider enhancing the trade provisions available to the FSM. The scope 
for trade preferences has narrowed and the prevailing conditions have 
changed since the Compact was first drafted; however, we believe both 
our special relationship of Free Association and the clear intent of 
the proposed twenty year package provide sufficient justification for 
the FSM to gain access to modernized trade privileges.
    The proposal before you includes changes to the non-expiring 
immigration provisions of the Compact. These changes have been made at 
the insistence of the Administration. While the FSM agreed to discuss, 
and did discuss, in good faith and on a bilateral basis, specific 
issues of concern as to our citizen's entry and residence in the United 
States, we would not have amended the Compact to accomplish the result 
of our discussions. The FSM fully understands the U.S. concerns over 
security, and we support the U.S. in all its positions against 
terrorism and transnational crime. But the FSM and our citizens are not 
a threat to the United States. We have never sold passports to foreign 
nationals; we do not naturalize foreign citizens; we do not facilitate 
the adoption of our children to ``baby brokers.'' We do agree with the 
U.S. that passports should be required of our citizens, and we are 
willing to accommodate the expressed interest in the FSM's use of the 
latest technology to reduce the risk of passport fraud. The FSM wants 
to do its part to assist the U.S. in its important task of securing the 
peace and in securing its borders.
    Mr. Chairman, allow me to turn to elements of the legislation that 
are not part of the proposed Compact amendments. We wish the Committee 
to be aware that the FSM had no part in the drafting of these Compact 
Act proposals by the Administration. We were assured that any changes 
from the existing language in PL 99-239, would be solely to update 
existing language. When we finally had the opportunity to review the 
proposal transmitted by the Administration, we found that the changes 
went far beyond a simple ``updating.'' We identified at least three 
major problems for which we seek adjustments by the Congress.
    First there is the issue of transition to a machine-readable 
passport scheme. This is a concept to which the FSM has repeatedly 
pledged its support. However, we find it quite alarming that the 
Administration has seen fit, unilaterally, without prior notice, to set 
aside $250,000 or more from the Compact's capacity-building assistance 
for this purpose. It is alarming for many reasons--the fact that 
budgets are in the process of being developed on the negotiated 
package, the fact that the sector is currently under-funded even before 
these changes, and for the precedent it sets for future Administration 
action without consultation.
    Second, and similar to the first, is that the Administration 
insists on mandating the FSM's development of a more effective 
immigrant screening system. We are given just one year to do this. 
Again, the FSM has repeatedly agreed to undertake steps to implement 
such systems. However, and by all reasonable estimates, it is an 
extremely complex and expensive undertaking. With multiple court 
systems, four states, and a decentralized judicial system, it is 
unlikely this effort could be concluded in just one year. Under the 
Administration's unilateral proposal, FSM failure to meet this 
arbitrary deadline would result in withholding of Compact assistance. 
Such a punitive provision is unnecessary and unjustified considering 
our mutual interest in pursuing this objective.
    Third, there is the matter of changes to the language concerning 
provision of compensatory Federal programs. In 1986, Congress initiated 
and passed this language in order to mandate these programs, and 
funding, to the FSM as partial compensation for loss of tax and trade 
benefits agreed to by the Administration but eliminated by Congress 
prior to passage. Unexpectedly, the Administration now has proposed to 
alter the language of the compensatory provisions to make them optional 
for the U.S. agencies. The FSM requests that the Congress restore the 
original language consistent with the original Congressional intent.
    Mr. Chairman, I have highlighted a number of problems and 
uncertainties posed by the Compact amendments and the Compact Act 
proposals. We would like to propose the Congress include in its 
legislation a provision for a three-year comprehensive Congressional 
review of the health of the FSM economy, to examine whether, in light 
of experience, a need then exists for further adjustments beyond those 
that now may be made.
    In conclusion, Mr. Chairman, the U.S. and the FSM, acting together, 
have drawn upon the lessons of the original Compact in an attempt to 
develop a document that will further the mutual interests of both 
nations. With the help of the U.S. Congress in addressing our concerns 
about the legislation before you, we can arrive at an agreement that 
ensures the continued viability of a nation and the well-being of its 
people, and that maintains the peace and security of this critical 
region of the world.
    Both the U.S. and the FSM can be rightly proud of the unique bonds 
we have forged in the Compact period. We hope to be equally proud of 
the course that will be set for the next 20 years and beyond. We urge 
Congress to act favorably on the Compact legislation, and to make the 
adjustments necessary to ensure a solid foundation for the future.
    I thank you, Mr. Chairman.
                                 ______
                                 
    Mr. Calvert. Next, we have Mr. Gerald Zackios from the RMI. 
Mr. Zackios, you are recognized.

 STATEMENT OF GERALD M. ZACKIOS, MINISTER OF FOREIGN AFFAIRS, 
       GOVERNMENT OF THE REPUBLIC OF THE MARSHALL ISLANDS

    Mr. Zackios. Thank you, Mr. Chairman. Before I proceed with 
my testimony this morning, if I may respectfully request that 
the record be open for submission of a joint statement by the 
people of the four atolls affected by the nuclear testing 
program.
    Mr. Calvert. Without objection, so ordered.
    Mr. Zackios. Mr. Chairman, on behalf of the people of the 
Republic of the Marshall Islands, RMI, I want to express our 
gratitude to you and this Committee for its review of the 
proposed legislation to sustain the success of free association 
between our governments.
    The special and unique history between our two countries 
extend from World War II, when Marshallese scouts assisted U.S. 
soldiers advancing across the Pacific. The testing of 67 atomic 
and thermonuclear warheads from 1946 to 1958 tied our fate to 
yours.
    As the closest of U.S. allies, we have provided land and 
sea rights at Kwajalein Atoll since the 1960's to support U.S. 
missile defense programs. Today, Marshallese citizens are 
serving in the U.S. Armed Forces in Operation Iraqi Freedom, as 
they did in the liberation of Kuwait in 1991.
    The RMI Government respectfully requests that Congress 
approve the negotiated agreements. My government will also be 
seeking early approval of the agreements by the Nitijela, or 
national parliament. President Note and his cabinet believe the 
agreements will provide the continuity and stability that is 
imperative in our bilateral relationship.
    While we support our agreements, several outstanding issues 
remain. Before summarizing these issues, Mr. Chairman, I ask 
that the Committee first hear our basis for how we see the 
Compact's grant assistance, commitments, and obligations.
    As a first principle, the Compact is not a grant handout or 
a foreign aid program. It is an alliance closer than NATO, in 
which the RMI continues to support U.S. leadership in the 
preservation of international peace and security. It is a two-
way relationship, a real partnership.
    We are not just asking for more. We are asking for Congress 
to fine-tune the amended Compact so that it does endure for the 
benefit of both parties. The RMI now and in the future is 
obligated not to erode its unique security and defense 
commitments that include the defense veto, third country denial 
of use of air, land, and sea space, and the eligibility of 
Marshallese to join and be drafted into the U.S. Armed Forces. 
On the other side of the equation, we hope that the U.S. does 
not allow its commitments to the RMI on economic assistance, 
immigration, and Federal programs to erode.
    The unresolved issues include, first, a full inflation 
adjustment for Compact funds so that the grant assistance and 
compensation provided by the Compact does not lose real value 
and fully supports the Compact's mutual commitments. We do not 
know why a partial adjustment is mandated unless the United 
States has the intention of deflating the grant assistance and 
compensation and, thus, our budget and economy.
    While we can achieve more revenue generation and cut budget 
costs to fill this increasing gap, we do it with such a rapid 
decline in the funding. A full inflation adjustment would 
reduce this gap and make fiscal stability more manageable. The 
full inflation adjustment for the trust fund contributions 
would make this funding mechanism for the post-2023 period more 
viable to meet its long-term obligations.
    For Kwajalein landowner compensation under the Military Use 
and Operating Rights Agreement, MUORA, with only a partial 
inflation adjustment, the landowners give to the U.S. 
Government a rebate annually and that multiples the longer 
MUORA is in effect.
    Second, we seek the continuation of Federal education 
programs and services that are an integral part of the RMI's 
education system. If these programs and services were removed, 
we will severely injure the delivery of education in the RMI as 
well as limit education opportunities for Marshallese youth. As 
it stands now, we are losing eligibility under the No Child 
Left Behind Act as well as other programs, including Pell 
Grants in 2004.
    Mr. Chairman, both our governments have made education a 
key priority sector for Compact grant assistance. However, if 
Federal programs and services are eliminated, the added 
investments we plan to make will not have an impact. More 
specifically, if the Pell Grant program is not continued, the 
College of the Marshall Islands would be in a critical position 
and post-secondary education would be unattainable for almost 
all Marshallese.
    Third, we ask for Congressional support to assist the 
repaving of the Majuro International Airport so U.S. commercial 
air services and military access is maintained for this sole 
international air link for the RMI and a crucial link for the 
Micronesian region.
    Fourth, we urge and we seek continuing eligibility for FEMA 
disaster and rehabilitation assistance, especially since most 
of our infrastructure has and will continue to be built using 
Compact funds and since our low-lying atoll environment is 
highly susceptible to natural disasters. This assistance has 
been seldom used, but has proven critical in times of need.
    Fifth, in order to finally realize the long-term objectives 
and goals of the RMI Government as well as the Kwajalein 
landowners, it is imperative that the early termination 
provisions of the MUORA be modified to ensure that the United 
States does not vacate Kwajalein earlier than 2030. Such an 
extension, which is only 7 years past the current earliest 
termination date, would help the landowners buildup their own 
trust fund and it would provide incentives to make viable the 
RMI and U.S. investment for medium- and long-term. An example 
of this is the current discussion for a fiber optic cable 
project that involves the RMI and U.S. Army's base and missile 
defense program.
    Sixth, the RMI Government petitioned the Congress under the 
Compact ``changed circumstances'' petition in September of 2000 
and updated it in November of 2001. Congress has yet not 
responded to the RMI's petition for additional compensation 
contemplated by the settlement agreement. To move forward, we 
ask that this Committee schedule a hearing focusing on the 
nuclear claims issues. Also, Congress requested the 
administration review the RMI's petition over a year ago and we 
understand that there still is no definite date for its 
completion and release.
    Meanwhile, Marshallese who were directly exposed to the 
nuclear tests continue to die from cancers and leukemia without 
ever receiving full compensation for their injuries. Moreover, 
entire communities continue to live in exile from their 
homelands to this day. Confronting and resolving these issues 
should not be put off any longer and we believe solutions are 
possible.
    The final issue, Mr. Chairman, concerns the Compact Act. We 
were not provided the opportunity to address our concerns 
resulting from the administration's unilateral changes. While 
our main issues are in our submitted testimony, we were taken 
aback by the changes that were made without consultation and 
not in the spirit of the Compact agreements we had 
painstakingly negotiated. I hope we can resolve several of the 
key issues changed in the Act.
    Mr. Chairman, my government endorses the Compact's amended 
Compact accountability provisions. We firmly believe just as 
the U.S. Government must be accountable to its taxpayers for 
Compact funds, my government must be accountable to its 
citizens for spending Compact funds and our own resources. We 
are currently working closely with the U.S. Department of 
Interior in applying the fiscal procedures agreement and we 
welcome their support and cooperation.
    Mr. Chairman, I realize our issues together may sound 
overwhelming to you and other members. I believe that, 
together, we can address these issues in a timely manner. We 
have come a long way in our relationship. The issues identified 
are to move our relationship forward so we both step into the 
future together. We are striving for a Compact that serves both 
our needs while giving us both the tools to meet our 
obligations. I look forward to working with you and your staff 
so our common interests are achieved and we conclude the 
amended Compact in both our legislatures. Thank you.
    Mr. Calvert. I thank the gentleman.
    [The prepared statement of Mr. Zackios follows:]

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

    On behalf of the people and the Government of the Republic of the 
Marshall Islands (RMI), I want to express our gratitude to this 
Committee for its oversight and review on behalf of the U.S. House of 
Representatives of agreements and proposed legislation to sustain the 
success of free association between our governments. The agreements 
that have been signed by our governments to renew expiring provisions 
of the Compact, and to adapt some of its provisions to our evolving 
alliance amid new realities, were negotiated in a spirit of friendship 
and respect. Consistent with the special and unique history and 
features of our bilateral alliance, both the RMI and U.S. negotiators 
have consulted regularly with the Members and staff of this and other 
Committees of the U.S. Congress regarding the progress of our 
negotiation process.
    This special and unique history between our two countries extends 
from World War II when Marshallese scouts assisted U.S. soldiers as 
they advanced across the Pacific through to the testing of 67 atomic 
and thermonuclear warheads from 1946-1958, to the continuous provision 
of land and sea at Kwajalein Atoll since the 1960s and the continued 
cutting edge advancements made there for U.S. missile defense. Today, 
Marshallese citizens are serving in the U.S. Armed Forces, with many 
having participated in Operation Iraqi Freedom. We are proud that our 
citizens are serving not only because it is a Compact provision but 
also because we share the same ideals as the United States: the pursuit 
of life, liberty and happiness and our real experience in democratic 
governance and freedom.
    The RMI Government fully supports and respectfully requests that 
Congress approve the negotiated agreements. My government is also 
seeking early approval of the agreements by the Nitijela, our national 
parliament. President Note and his Cabinet believe the agreements will 
provide the continuity and stability that is imperative in our 
bilateral relationship with the United States, thereby also enabling 
the RMI to continue, domestically and internationally, to support the 
political, social and economic development of our people.
    As we can now see how free association has evolved over the last 17 
years of the Compact, we have come to realize that the bilateral 
relationship that was constructed during the late 1970s and to the mid-
1980s has more than survived the test of time. The agreement and 
relationship has evolved to changing circumstances--circumstances 
within the global and regional context; circumstances and priorities 
within the United States; and circumstances and challenges within the 
RMI. Some will concentrate on the weaknesses of the past years, 
however, the strengths and accomplishments of our relationship, and the 
Compact that embodies this relationship, far outweigh the weaknesses. 
If not, we would not be here today discussing the acceptance of 
amendments to the Compact.
    Mr. Chairman, as you and the Committee members know, we have 
negotiated an agreement that adjusts the Compact to today's world and 
today's needs and tries to set a realistic framework for the future. 
The main components of this agreement are the renewal of the Compact's 
economic provisions that contain several new or revised elements. Most 
notable is the introduction of a trust fund and a more practical and 
transparent accountability framework; a renewal of our mutual security 
and defense relations which set forth obligations that remain 
unprecedented in U.S. bilateral relations with any other country; 
revised immigration policies and procedures that address U.S. security 
and other concerns but maintain the right for Marshallese to live, work 
and learn in the United States; and, while not expiring, an amended 
Military Use and Operating Rights Agreement that continues the use of 
Kwajalein Atoll for the U.S. Army beyond 2016 with the potential to 
remain until 2086.
    Mr. Chairman, we have painstakingly negotiated these elements with 
the U.S. Administration over the last 2 years. We thank U.S. Compact 
Negotiator Al Short and the Administration for their constant pursuit 
of an agreement and we thank them for their patience in working with us 
to address our concerns, our hopes, and our belief in the future of our 
relationship.
    While we stand by what was negotiated, there remain several 
outstanding issues that the Administration could not respond to or 
changes that were made without consultation. My government hopes and 
expects that all pending issues between our nations can and will be 
addressed in the same spirit of trust, justice, and partnership that 
produced the amendments to the Compact agreements. We believe 
outstanding issues can be resolved positively in a way that preserves 
and further improves our relationship.
    We do not see the Compact as a grant hand-out or a foreign aid 
program as the underpinning of our relationship. To the contrary, we 
strongly believe that we have provided and continue to provide the 
United States with our very limited land, our vast air space and sea 
area, and even our people--past, present, and future--through the 
historical and present security and defense relationship, including the 
sacrifices we have and continue to endure because of these commitments. 
In our view, it is a two-way relationship, a real partnership. Thus, 
when the Congress addresses our remaining issues, we hope that you view 
them in this context.
    We are not asking for ``more'' just to supplement what we 
negotiated with the Administration. We are asking Congress to fine tune 
the Compact, as amended, so that it does endure for the benefit of both 
parties. The RMI has not and in the future is obligated not to erode 
its unique security and defense commitments that include: the defense 
veto; third-country denial; use of air, land and sea space; and the 
eligibility of Marshallese to join the U.S. Armed Forces. On the other 
side of the equation, we hope that the U.S. commitments to the RMI on 
the economic, immigration and certain eligibility for Federal programs 
do not erode.
    The unresolved pending issues include: 1) a full inflation 
adjustment for Compact funds so that the grant assistance and 
compensation provided by the Compact does not lose real value and fully 
compensates the RMI and its citizens for its continued support and 
commitments of the Compact's provisions; 2) the continuation of Federal 
education programs and services that are an integral part of the RMI's 
education system and, if removed, would severely injure the delivery of 
education in the RMI as well as limit education opportunities for 
Marshallese youth; 3) Congressional support to assist the repaving of 
the Majuro international airport so U.S. commercial air service and 
military access is maintained for the sole international air link for 
the RMI and a crucial link for the Micronesian region; 4) continued 
eligibility for FEMA disaster and rehabilitation assistance especially 
since most of our infrastructure has been and will continue to be built 
using Compact funding and since our low-lying atoll environment is 
highly susceptible to natural disasters; 5) Congressional support for a 
Kwajalein landowner trust fund; and 6) Congressional consideration of 
nuclear claims issues arising from the U.S. nuclear weapons testing 
program.
    In reference to these issues, I am submitting with this statement 
several issue papers that summarize where continued agreement is 
required. If I may, Mr. Chairman, the following is a summary of our 
views on the crucial elements of these issues.
Full Inflation Adjustment
    Most of the current Compact agreement's economic assistance has a 
partial inflation adjustment (2/3rds of the Gross National Product 
Implicit Price Deflator). Since the grant assistance was only partially 
inflation adjusted and there were substantial step-downs (by $4 million 
in 1992 and $3 million in 1997), our economy suffered severe economic 
shocks during these step-downs. The economic growth and budget cuts 
that were expected materialized to some degree but not at the expected 
levels.
    For the Compact, as amended, we have agreed with the Administration 
to have the annual grant assistance decremented by $500,000 annually 
with the decremented amount being added annually to the trust fund's 
annual contribution. While this decremented amount is a large 
percentage of our annual grant, and grows as a proportion of the grant 
annually, we agreed to such a large decrement because without it, our 
trust fund would not be viable for the post 2023 era. In addition, we 
are committed to contribute $30 million between now and fiscal year 
05--this amounts to about 30 percent of our current annual budget. We 
consciously made a medium term sacrifice to save for future 
generations.
    While we fully believe in the decremented approach and the 
reduction of our grant assistance because of this conscious sacrifice, 
we cannot understand why the grant assistance must lose value to 
inflation. Since most of our goods for our import-reliant economy are 
from the United States, and the U.S. dollar is the official currency of 
the RMI, we not only import U.S. inflation but also the added 
inflation-affected costs of shipping and handling.
    The only answer we can come up with for the U.S. inflation policy 
is that the United States wishes to deflate our economy by having the 
funding lose its real value. The U.S. Government has not provided a 
reason--past or present--of why only a partial inflation adjustment is 
applied. We have suffered in the past for this error and we hope not to 
suffer again. It is, to us, ironic that the Administration has agreed 
to allow the distributions from the Compact trust fund (post 2023 when 
annual grant assistance is to end) to equal the annual grant assistance 
plus full inflation.
    There are many statements within the U.S. government and my 
government about achieving ``economic advancement and budgetary self-
reliance'' via the Compact grant assistance. Rather than deal with a 
generic objective, we have concentrated on budgetary self-reliance as 
meaning long term fiscal stability as our goal for the Compact's 
economic assistance and post grant assistance era. Why? During the 
current Compact we have put in place the components of democratic 
governance and a free society. Even given our belt tightening and some 
economic growth, we realize that to have properly funded government 
functions and the related trained human resources, our fiscal situation 
requires an input from an outside source. We see the main source as 
being the Compact's grant assistance until 2023 and the trust fund 
distribution thereafter.
    The problem is that with the annual decrement and the loss of the 
grant funding to inflation, we can fill this growing funding gap in the 
short term but we cannot do it continuously. The gap just grows at too 
rapid a pace and we cannot fill it by such large increases in revenue 
generation or budget cuts. Thus, our request to apply the full 
inflation adjustment. With this minimal added amount to the grant 
funding and trust fund contributions we believe we can maintain fiscal 
stability as well as have a strengthened Compact trust fund that will 
insure that fiscal and economic stability will occur.
    For the funding provided under the Military Use and Operating 
Rights Agreement (MUORA), the same argument applies with a twist: the 
Kwajalein landowners are providing their very limited land for use of 
the Ronald Reagan Missile Test Site at Kwajalein Atoll. Why should the 
payments under the MUORA only be partially inflation adjusted? With 
only a partial adjustment, the landowners are really giving the U.S. 
Government a rebate on their access to Kwajalein. This rebate will 
multiply as the new MUORA is extended to 2023 and can go as long as 
2086. In effect, the longer the MUORA is extended, the more money 
landowners will lose in terms of the real value of the funding provided 
and the larger the bargain to the U.S. for access
    As I have said above, the RMI commitments do not erode under the 
Compact and, thus, the U.S. commitments should not erode.
The Importance of Federal Education Programs and Services
    Federal education programs and services have proven to be critical 
in educating young Marshallese and opening doors to those who go on to 
post-secondary education. Our country has significantly benefited from 
these programs and services and, I believe, the United States has 
benefited also. Just as an example, most of our Compact and Embassy 
team, as well as most of the people in my Ministry, have benefited in 
an extraordinary way from a U.S Federal education program, with the 
most critical being the Pell Grant program. If these doors are shut, 
our mutual objectives for economic advancement and budget self-reliance 
will be severely impacted.
    The importance of these programs is not only in terms of financing, 
but even more critically in terms of technical expertise, methods and 
approaches as well as access to educational institutions.
    The RMI Government has made a firm and conscious decision to apply 
the largest portion of Compact grant assistance to the education 
sector. For Fiscal Years 2004-2006 about $10 million will be aimed at 
the education sector annually, in addition to domestic resources and in 
addition to targeted infrastructure spending on education facilities. 
The Federal programs are identified to provide critical programs and 
services for which the RMI does not have the funding or capabilities, 
on its own, to provide. Thus, if the RMI loses its eligibility for the 
education program funding, the Compact funding will merely replace 
funding and programs once provided by the Federal education programs. 
These programs are in crucial areas, such as Elementary and Secondary 
Education, Head Start, Special Education, Bilingual Education, and 
Vocational Education. The elimination of the Pell Grant program would 
have more catastrophic impacts such as critically destabilizing the 
College of the Marshall Islands (a U.S. land grant institution) as well 
as closing higher education opportunities in the United States.
    Mr. Chairman, we have sought support from the U.S. Compact 
Negotiator on this issue. He has kindly informed us, through a letter 
to the Senate Energy Committee of the Administration's position: the 
Compact's Title Two grant assistance was not negotiated on the basis of 
replacing funding for U.S. Federal programs and services.
    I kindly request that we work with your committee and other related 
committees to continue RMI eligibility for these crucial education 
programs and services. If we do not have the U.S. Government's support 
on this issue, I believe that the Compact's emphasis placed on 
education by the Administration during negotiations will be lost during 
the new term of the Compact, as amended. We simply cannot replace what 
would be lost from these programs and services.
Federal Emergency Management Assistance (FEMA) Eligibility
    The current Compact provides for RMI eligibility for FEMA's 
disaster rehabilitation and hazard mitigation assistance as well as a 
disaster preparedness annual grant. Under the Compact, as amended, FEMA 
will provide the disaster preparedness annual grant but the U.S. Agency 
for International Development's Office of Foreign Disaster Assistance 
will provide the disaster relief assistance. No hazard mitigation or 
rehabilitation services will be available. The U.S. will provide 
$200,000 annually for a disaster relief fund under the Compact, which 
will assist our capacity to deal with small-scale disasters, but will 
certainly not help in the case of a catastrophic disaster.
    FEMA program eligibility is critical for the RMI given the 
vulnerability of the RMI to high impact natural disasters, such as 
typhoons, tropical storms, wave action and drought. The RMI's natural 
environment is characterized by low lying atolls scattered throughout 
the Western Pacific ocean with an average of 6 feet above sea level, a 
total land area of 71 square miles, limited fresh water supplies, and 
remoteness from major metropolitan centers with the closest being 
Hawaii at 2,500 miles away.
    FEMA has provided significant disaster rehabilitation and hazard 
mitigation assistance during the Compact's current term. Without FEMA, 
the RMI would be in a precarious position financially and more 
susceptible to natural disasters. The OFDA program is provided to all 
foreign countries but does not have FEMA's disaster relief and hazard 
mitigation programs.
    Finally, we note that most of the RMI's essential infrastructure 
has been built with the use of U.S. grant assistance and this will 
continue to be the case under the new Title Two Compact provisions for 
public infrastructure. Given the large U.S. investment in the public 
infrastructure of the RMI, it follows that measures should be taken to 
protect these investments.
    Mr. Chairman, we ask that the RMI continue to be eligible for 
FEMA's disaster rehabilitation and hazard mitigation assistance. There 
is no question that these programs have proven most critical for our 
country.
Majuro International Airport Repaving
    The RMI has an urgent infrastructure need to repave the Majuro 
international airport. The U.S. Federal Aviation Administration 
identified this urgent need in early 2002. Since that time, the RMI has 
performed an engineering feasibility study and attempted to find 
project funding sources. The cost is estimated at $10-12 million.
    My government did look at using Compact ``bump-up'' funds in Fiscal 
Year 2002 and Fiscal Year 2003 to fund the project. However, given our 
commitment for the Compact trust fund's start-up amount of $30 million, 
we had to set aside most Compact Fiscal Year 2002 and Fiscal Year 2003 
infrastructure and ``bump-up'' funding for this Trust Fund 
contribution. Finding an extra $10-12 million in a total budget of 
about $100 million was not possible.
    We have run out of financing options and the airport is now in 
danger of being shut down. Two U.S. carriers service the airport: 
Continental and Aloha airlines. It is also the home for Air Marshall 
Islands- the only airline that provides intra-RMI services. If 
Continental and Aloha must stop services, the RMI will be physically 
cut off from Hawaii and Guam and will disrupt service throughout 
Micronesia as well as prevent commercial flights to the Ronald Reagan 
Missile Test Site at Kwajalein Atoll. In addition to commercial 
flights, U.S. military flights land, transit and refuel in Majuro for 
flights to/from Kwajalein as well as for trans-Pacific flights.
    Mr. Chairman, we would like to work with you and the Committee to 
address this immediate need. If we are not successful in finding a 
funding source, we will have to dip into our trust fund set-aside and, 
thus, we will not meet our obligation under the Compact. We do want to 
meet this obligation since without the RMI initial contribution, the 
Compact trust fund will undoubtedly be inadequate.
Extension of the Military Use and Operating Rights Agreement for 
        Kwjalein Atoll
    The RMI Government and the Kwajalein landowners will be negotiating 
an amended Land Use Agreement to reflect the negotiated terms and 
conditions of the extended MUORA, which allows the U.S. access to 
Kwajalein to at least 2023 with the potential to remain until 2086. The 
U.S. can terminate use at any time after 2023 as long as it provides a 
7-year notice. The Kwajalein landowner trust fund was a proposal by the 
landowners to help insure an income stream once the U.S. does terminate 
use, especially if termination occurs between the years 2023-2030.
    The trust fund initiative for the Kwajalein landowners is 
consistent with the MUORA and is well supported by precedent and other 
aspects of the RMI-U.S. relationship. Trust funds for the atolls of 
Rongelap, Bikini, Enewatak, Utrik and the Nuclear Claims Trust Fund, 
under Section 177 of the Compact, have been established by the United 
States to provide for the long-term economic and social benefit of RMI 
citizens impacted by U.S. nuclear testing.
    The requested funding for the initial capitalization of the 
Kwajalein landowner trust fund is $20 million. The landowners have 
committed to additional self-financing of the trust fund on an annual 
basis if this one-time appropriation is provided. If early U.S. 
termination were to occur, projections indicate that with a $20 million 
initial capitalization, plus the landowners' contributions in addition 
to early termination payments by the U.S. as agreed to in the 
negotiated MUORA, the Kwajalein landowner trust fund corpus would reach 
above $150 million in 2023, the earliest the U.S. can vacate Kwajalein. 
With such a corpus, the landowners will be able to replace the annual 
rent payments for about 10 years, which would allow a reasonable 
timeframe for the landowners to transition into an alternative use and/
or resettlement of their lands on Kwajalein.
    If, however, such a request cannot be met by the U.S. Government at 
this time, the RMI Government requests that Congress, at the very 
least, allow for the extension of the MUORA early termination clause to 
2030, thereby giving assurance that the U.S. will use Kwajalein for a 
sufficient length of time to achieve the long-term objectives of the 
RMI and the Kwajalein landowners.
    Such an early termination clause will not only help Kwajalein 
landowners but also RMI and U.S. Army long-term initiatives. For 
instance, the RMI and the U.S. Army, with the Federated States of 
Micronesia (FSM), are currently preparing a project to extend a fiber 
optic cable from Guam to Pohnpei, Majuro and Kwajalein (to the Ronald 
Reagan Missile Test Site). The benefits for the U.S. Army's operations 
are obvious as well as the commercial opportunities for the RMI and 
FSM. Such a project will surely enhance and illustrate the cooperation 
between the U.S., RMI and FSM. The extension of the U.S. Army's 
definite presence until 2030 will make this project more commercially 
viable.
Nuclear Claims Issues Arising from the U.S. Nuclear Weapons Testing 
        Program
    One major issue of commitment in the Compact that was not addressed 
during our negotiations regarding amendments to the Compact is the U.S. 
nuclear testing legacy and those categories of claims that remain 
unresolved under the terms of Section 177 of the Compact, as amended, 
and the Section 177 Agreement. Although Section 177 of the Compact as 
amended and the Section 177 Agreement remain in full force and effect, 
we were informed early in our negotiations that the U.S. Compact 
negotiator lacked authority to deal with unresolved issues related to 
the effects of the U.S. nuclear testing program in the Northern 
Marshall Islands.
    The reason given to us for this lack of authority was that the 
nuclear issues were under the jurisdiction of Congress by virtue of the 
``Changed Circumstances' provisions of Article IX of the Section 177 
Agreement. The RMI Government filed a petition under this provision 
with the U.S. Congress in September 2000, and updated it in November, 
2001.
    The problem that has arisen, as the attached issue paper regarding 
the nuclear test legacy explains, is that the U.S. Congress has not 
responded to the RMI's petition for additional compensation to be 
provided through the political process contemplated by the settlement 
agreement.
    Unfortunately, the issues involved are many and complex. They 
include government taking of private property without just 
compensation; important new information regarding the effects of 
radiation on human health; and the clean up and restoration of 
radiologically contaminated lands.
    The RMI understands that responding to the RMI's petition for 
additional compensation in the political process may be difficult, 
which is why the RMI is proposing that the awards of the RMI Nuclear 
Clams Tribunal (NCT) be returned to the legal process on the basis of a 
limited grant of jurisdiction to review, and reject or certify the 
awards of the NCT, based on U.S. standards of adequate compensation.
    In order to move forward, we would ask that this Committee schedule 
a hearing focusing on the nuclear claims issues as soon as possible. 
Congress had requested that the Administration review the RMI's 
petition over one year ago and we understand that there still is no 
definite date for its completion and release. Meanwhile, Marshallese 
who were directly exposed to the nuclear tests continue to die from 
serious cancers and leukemias without ever receiving full compensation 
for their injuries. Moreover, entire communities continue to live in 
exile from their homelands to this day. Confronting and resolving these 
issues should not be put off any longer.
Other Issues
    The Administration provided my government with a copy of the 
amended Compact Act on June 20th, just before the amended Compact was 
sent to Congress. We were not provided the opportunity to address any 
of our concerns resulting from the Administration's unilateral changes.
    In some instances, such as Section 104(b), these changes 
unilaterally amend the economic assistance and immigration provisions 
that we just concluded with the Administration. These issues have been 
difficult and contentious at times during our negotiations and to see 
the Administration making substantive changes to the Compact in this 
manner is wrong.
    Moreover, in other instances, these changes affect the substance 
and intent of provisions inserted by Congress, in its wisdom, during 
the first Compact approval process. Below are several items we wish 
Congress to address by re-inserting its original Compact language.
    Section 103(e)(3) makes reference to Articles X and XI of the 
Section 177 Agreement regarding claims, yet fails to point out actions 
taken by the RMI Government under Article IX of the same agreement to 
seek additional compensation, based on the U.S. commitment to provide 
adequate compensation under the terms of the claims settlement 
implemented pursuant to Section 177 of the Compact, as amended. Given 
that U.S. negotiators claimed a lack of authority to address unresolved 
nuclear-related concerns in Compact negotiations, the RMI Government 
believes it would be only fair to return to Congress's original 
language in this section. If the Administration wishes to advance a 
legal interpretation of Section 177 or provisions of the agreement 
implementing U.S. commitments to settle nuclear claims, the time and 
place to do that would be in a hearing and in legislation on the 
nuclear claims issue. The attempt to introduce this disputed legal 
interpretation into legislation approving agreements that do not 
address the nuclear claims issue, because the Administration refused to 
discuss the issues, is not a proper way to proceed.
    Section 103(f)(2) should be clarified to provide that essential 
agricultural and food programs shall be continued to the affected atoll 
communities. While additional food supplement programs will be needed 
to support resettlement of contaminated islands once radiological clean 
up has progressed and safety standards have been satisfied, these 
nutritional programs are a moral obligation of the U.S. to ensure a 
minimum level of food assistance to both dislocated and resettling 
populations for the foreseeable future. We doubt that anyone familiar 
with the hardships and living conditions of the nuclear affected 
peoples would dispute the need for these programs to be extended as an 
on-going U.S. responsibility. This legislation presents the best 
opportunity that may arise before the current authorization for these 
programs expires for Congress to extend the USDA food program for at 
least another five years.
    Under the current Compact and its Compact Act, Congress included 
Compensatory Adjustments (Section 108) that were provided for 
Congress's revision of the tax and trade provisions of Title Two, 
Economic Assistance. The Congress provided, under Section 108(a) that 
certain commercial U.S. programs ``shall be made available.'' The 
Administration has now changed the RMI's eligibility for these programs 
to ``are authorized to be made available.'' The programs include: the 
Small Business Administration, Economic Development Administration, 
Rural Utilities Service (formerly the Rural Electrification 
Administration); the programs and services of the Department of Labor 
under the Workforce Investment Act of 1998; the FDIC, and the programs 
and services of the Department of Commerce relating to tourism and to 
marine resources development.
    The RMI sees this as a significant downgrade of eligibility and 
application of these programs. Your Committee should note that the 
trade provisions of the amended Compact are the same, restricting RMI 
exports in certain products. Congress should restore its original 
language in the new Section 108(a) (formerly Section 111(a)) to include 
all of the programs listed in Section 111(a) or their successors and to 
require that these programs ``shall be made available'' as provided by 
Congress in the original Compact Act.
    This comment also relates to the amended Compact's Section 108(b). 
In the current Compact Act, the Congress allowed up to $20 million to 
be authorized for compensation for any adverse impact of the Compact's 
tax and trade provisions. The RMI did apply for this compensation but 
the request did not pass the Administration's review. As you can 
imagine by reading the section, it is extremely difficult to prove such 
a negative impact. The result is that no funds have been disbursed to 
the RMI or FSM under this Compact provision.
    The amended Compact Act sets a time limit to submit such an impact 
report or request by September 30, 2004 and for impacts only suffered 
from 1987-2003. We do not think this just. If the trade provisions were 
improved, we would understand, but, they are not.
    Mr. Chairman, we ask that your committee review this provision so 
that: 1) impact can be claimed for the new Compact term, if 
appropriate; 2) that the deadline for submission for any such claim be 
submitted by September 30, 2023, the end of the amended Compact's Title 
Two; and 3) transparent guidelines and an evaluation process and 
requirements are defined so that it is something practical, not a 
nebulous, subjective process.
Conclusion
    Last, Mr. Chairman, I would like to comment on the accountability 
mechanisms negotiated for the amended Compact's term, and thereafter in 
regard to the Compact trust fund. We stand by and fully support the 
Fiscal Procedures and the Trust Fund Agreements. We firmly believe just 
as the U.S. government must be accountable to its taxpayers for Compact 
funds, my government must be accountable to its citizens for spending 
Compact funds and our own resources.
    In fact, Mr. Chairman, we initiated steps on our own last year 
during our budget process and have begun allocating Compact assistance 
in the key sectors. The priorities are clear in our Medium Term Budget 
and Investment Framework. These are education, infrastructure 
development and maintenance, health and environment. We are currently 
working closely with the U.S. Department of Interior in applying the 
Fiscal Procedures Agreement and we welcome their support and 
cooperation.
    My only word of caution is that what we are developing is a new 
budget and fiscal management system that resounds throughout our public 
service. As in the United States, applying performance-based budgeting 
and other requirements at a Federal, state or local level does not 
occur overnight. We are instituting a step-by-step process. I hope both 
sides have patience as well as perseverance. We need assistance and 
support to help us apply these new requirements, not people looking 
over our shoulder and pointing fingers. With the cooperation we have 
received so far, my government is encouraged, progress is being made, 
and we feel we are doing it right.
    Mr. Chairman, I realize our issues, together, may sound 
overwhelming to you and other Committee members. I believe that, 
together, we can address these issues in a timely manner. As I have 
said early on in my statement, we have come a long way in our 
relationship. The issues identified are to move our relationship 
forward so we both step into the future together and that we have an 
enduring Compact that serves both our needs while giving us both the 
tools to meet our obligations.
    Mr. Chairman, after departing Washington, I will return to Majuro 
where I look forward to presenting the Compact, as amended, to our 
legislature, the Nitijela. The sooner we can come to agreement on the 
above issues, the faster we can have the amended Compact passed through 
our legislative process.
    I look forward to working with you and your staff so our common 
interests are achieved.
    Kommol Tata.
    [Attachments to Mr. Zackios' statement have been retained in the 
Committee's official files.]
                                 ______
                                 
    Mr. Calvert. I have had the pleasure of visiting both 
Micronesia and the Marshall Islands and certainly recognize the 
strategic importance of that certain part of the South Pacific, 
which is certainly a large area, and especially the importance 
of Kwajalein at this time, as we try and endeavor to move 
toward a workable strategic missile defense system for this 
country and our allies.
    For the record, what is the population at this date of both 
your respective island states? I guess the gentleman from 
Micronesia first.
    Mr. Christian. The estimated current population of 
Micronesia is about 134,000 people.
    Mr. Calvert. A hundred-and-thirty-four-thousand people. And 
what is the rate of growth in Micronesia now, approximately?
    Mr. Christian. Mr. Chairman, I apologize. I am a Member of 
Congress. I don't know that answer.
    [Laughter.]
    Mr. Christian. There are people back here who may be able 
to help. That is why, Mr. Chairman, I offered that after the--
    Mr. Calvert. The record will be open, so certainly that 
information will be--
    Mr. Christian. Thank you very much, sir.
    Mr. Calvert. The gentleman from the Marshall Islands?
    Mr. Zackios. Thank you, Mr. Chairman. In the Marshall 
Islands, there is over 50,000-plus people with an extra over 
10,000 situated in the United States. The second question, Mr. 
Chairman?
    Mr. Calvert. The approximate rate of growth.
    Mr. Zackios. We have one of the highest growth rates around 
the world, but I think it is in the area of two or 3 percent.
    Mr. Calvert. Two to 3 percent. Obviously, when I visited 
the Marshall Islands and we spent some time discussing the 
impact of nuclear testing in that region over, as you 
mentioned, the period of 1946 to 1958, the incidence of cancer, 
leukemia, has that statistically obviously been followed over 
the last number of years, the last 50 years, and have you seen 
any noticeable decline in the younger populations or getting 
into more of the norm rate, or is it still above average?
    Mr. Zackios. Mr. Chairman, as I requested for a joint 
statement by the four atolls, I think they will be in a 
position to address that question much better. But I believe 
over the years, we have seen an increase in the rate of cancers 
among our population.
    Mr. Calvert. So you have seen an increase even with the 
younger population of cancer and leukemia, or--
    Mr. Zackios. Yes.
    Mr. Calvert. You submitted your report for the record. We 
will take a look at that.
    The gentlelady from Guam?
    Ms. Bordallo. Thank you very much. First, I want to thank 
Senator Christian and Minister Zackios for being here with us 
today. Certainly, I agree with their statements that 
accountability is very important as we go forward.
    I want to ask you both a question. Does the FSM and the RMI 
support compensation for Compact impact, for the affected U.S. 
State of Hawaii, Guam, and the CNMI?
    Mr. Zackios. Mr. Chairman, the Compact speaks to the issue 
itself. The Compact itself speaks to that issue, and certainly 
we from the FSM support the compensation to be made to any area 
affected by our current migration to those areas, particularly 
to the Territory of Guam, CNMI, and the State of Hawaii.
    Ms. Bordallo. Thank you.
    Mr. Christian. Thank you, Madam Congresswoman. I think I 
answered that question a year ago in a similar hearing. I 
stated that we do support the Compact impact provisions on the 
premise that such assistance is not taken from assistance as 
provided to the FAS states.
    Ms. Bordallo. Thank you. I also, Mr. Chairman, would like 
to welcome to the hearing from the FSM, Ambassador Jesse 
Marehalau, and from the RMI, Ambassador Banny de Brum, who are 
with us in the audience. I would like to welcome them, as well. 
Thank you, Mr. Chairman.
    Mr. Calvert. I thank the gentlelady.
    Mrs. Christensen?
    Mrs. Christensen. Thank you, Mr. Chairman. I would like to 
welcome both of the panelists this morning also.
    I think it was in the testimony of Senator Christian that 
he talked about a $30 million contribution. Is that yours?
    Mr. Christian. I believe that is in our submitted 
testimony.
    Mrs. Christensen. How do you propose to raise that $30 
million and do you foresee any problems in meeting the level of 
contribution that you are required to make?
    Mr. Christian. I am informed by the Secretary of Finance 
and Administration, who is in the gallery this afternoon, that 
as of this date, we have $26 million raised toward the trust 
fund.
    Mrs. Christensen. Thank you. Mr. Zackios, could you tell us 
a little--the question about the less-than-full adjustment for 
inflation came from reading your testimony. Could you just 
elaborate for us a bit on the impact that the less-than-full 
adjustment would have?
    Mr. Zackios. Thank you, Congresswoman. As you have already 
alluded to, I have addressed the issue of the inflation or the 
effect of a two-thirds inflation as opposed to a full inflation 
in our written testimony. As we see, we have made a conscious 
decision to agree to the amounts of decrements that will go 
into the establishment of the trust fund and we see that over a 
number of years, that this decrement does take place with a 
two-thirds inflation. It does certainly create a widening gap 
that would be too rapid for us to raise the new revenues or 
even with budget cuts to address.
    In fact, we see the numbers for this period in terms of the 
grant assistance would be around $57 million if we were--the 
difference between the two-thirds and the full inflation on 
grant assistance alone. For the Kwajalein payments, it would be 
around $26 million and $19 million for the trust fund.
    Mrs. Christensen. Thank you. I am going to ask this 
question to both of you. I had asked the question about the 
loss of FEMA and I would like you to tell me, how do you see 
its replacement with the disaster assistance under USAID? Is 
that--do you foresee that as being adequate and a suitable 
replacement for FEMA in light of--I know of the devastation and 
the issues around hurricanes and typhoons.
    Mr. Christian. Mr. Chairman, if I may, if we thought, 
Madam, that the substitution of that particular program would 
fully handle what we need to be handled under a FEMA program, 
we would not be asking for FEMA.
    Mrs. Christensen. Would you like to also respond on this, 
too?
    Mr. Zackios. I would like to say that we do welcome the 
Office of Foreign Disaster Assistance as being part of the 
Compact, as amended, but it does not seek to replace the very 
important programs, such as rehabilitation, that FEMA does 
provide. OFDA does not do rehabilitation programs in cases of 
disaster. Thank you.
    Mrs. Christensen. Thank you, Mr. Chairman.
    Mr. Calvert. The Chair now recognizes Mr. Faleomavaega.
    Mr. Faleomavaega. Thank you, Mr. Chairman. I certainly want 
to commend both gentlemen for their fine statements, especially 
my good friend, Senator Peter Christian, whom I have not seen 
in years. I want to offer my personal welcome to him for being 
here, and the Foreign Minister of the Republic of the Marshall 
Islands, Mr. Zackios, and thank him, as well, for his 
statement.
    I would like to also offer my congratulations to Senator 
Christian who I understand is going to be the new Speaker of 
the Parliament of the Federated States of Micronesia, and if I 
may, Speaker Christian, convey my personal regards. Believe it 
or not, I do have relatives in the FSM. Vice President Killion, 
Mr. Speaker, is Samoan. He is not Micronesian. Please convey to 
him my personal regards and I hope some day that I will have an 
opportunity to meet with him and the members of the family.
    Mr. Speaker, you mentioned that the Compact is a sound 
document but it could be more sound. In other words, it is not 
sound.
    [Laughter.]
    Mr. Faleomavaega. I am trying to follow up on your thought 
here that while I notice that both of you have advocated 
strongly that the Compacts be approved, that at the same time, 
you expressed some very serious concerns about some of these 
provisions. So it seems to me that we are not on equal terms 
here. I mean, do you think that if these are serious issues, 
they should continue to be under negotiations and not be what I 
sense is a rushed effort to get this thing done before the 
Fiscal Year 2004 starts this fall.
    I just wanted to ask Speaker Christian, why are we in so 
much of a rush? I mean, are the people going to starve if we 
don't approve this thing by October of this year?
    Mr. Christian. Mr. Chairman, may I--I believe, gentlemen, 
ladies, that at one point in our discussions, we had suggested 
about the possibility of a continuing resolution or some kind 
of a carry-over funding by the United States so that we could 
continue to discuss, especially touch on those matters and 
close the cap on those particular points that I pointed out 
earlier. It was made clear to us that this would not be the 
case, that the United States wishes to submit this document to 
the U.S. Congress now, for its action now. So we did, along the 
lines of your own thoughts and concern, felt that it was 
important for us to continue discussing those issues that have 
not been fully covered.
    Mr. Faleomavaega. Under the provisions, and I know that 
there are four states which make up the Federated States of 
Micronesia, specifically, what is the population of Chuuk, the 
State of Chuuk?
    Mr. Christian. Chuuk is about--since I am not from there, I 
will guess--
    Mr. Faleomavaega. I am from Chuuk, but I forgot the 
population.
    Mr. Christian. --about 51,000 to 53,000.
    Mr. Faleomavaega. It is the most populous of the states.
    Mr. Christian. Most populous.
    Mr. Faleomavaega. And Pohnpei?
    Mr. Christian. Pohnpei is about 34,000, with the rest being 
spread over Yap and Kosrae. Kosrae has about 7,000 to 8,000. 
The Lieutenant Governor of Kosrae is in my back, so if he has a 
problem with that number, it could yell.
    [Laughter.]
    Mr. Christian. But may I, Mr. Chairman--
    Mr. Faleomavaega. Please.
    Mr. Christian. --touch on the reasons why we probably have 
the answers figured this way. You see, there are other people 
in our backs this afternoon, this morning, and it makes it 
difficult for us to completely tell us how we feel about the 
Compact. We don't want to chance losing another million dollars 
here or there because we have said something that some of the 
witnesses may not like.
    Mr. Faleomavaega. Well, Mr. Speaker, I want to offer my 
fullest assurance to you that I don't believe that my good 
friends in the administration are of the opinion that you have 
just expressed. In good faith, I would like to say that this is 
not the case. So please, if you do not express with total 
honesty and candor the situation as it will affect the lives of 
the future of the good people of the Federated States of 
Micronesia, then it is going to be difficult for us as members 
of this Committee to make the proper decisions that will be 
helpful not only to our government, but as well as to the 
people of FSM as well as RMI.
    So please feel free to express yourself honestly. I don't 
think Mr. Short feels that way. So be honest and come forward, 
and if there were disagreements, we want to know about it. This 
is what democracy is all about. I am sure that this is not an 
issue of national security or discussions of negotiations that 
were top secret that members of this Committee could not be 
privy to, to have knowledge of. I would hope that, Mr. Speaker, 
that you don't feel that way. So be free and feel open to share 
with us your concerns and the problems.
    Again, I have taken your statement, hopefully not out of 
context, but as I heard it clearly from what you said, it is a 
sound document, but it is not sound enough, or it needs to be 
more sound, which tells me that there are still a lot of 
serious issues that you have not completed in your negotiations 
with our government, or my government, if you will. So please, 
I want you to feel free to express your thoughts on this.
    The State of Yap, there are how many people there, 
approximately?
    Mr. Christian. About 17 million.
    Mr. Faleomavaega. Seventeen million?
    [Laughter.]
    Mr. Christian. Oh, I am thinking--I am beginning to think 
in terms of how much money we need to ask of you.
    [Laughter.]
    Mr. Christian. Seventeen thousand, sir.
    Mr. Faleomavaega. Mr. Speaker, it is my understanding, 
among the four states, that the State of Yap is probably the 
prime example of what good management and administration. How 
they were able to develop their economy with the funding that 
they receive from the central government in such a way that it 
is an example not only to other states, but certainly to 
other--to the rest of the region in the Pacific. Here again, 
just in general understanding of this, what is the per capita 
income there in FSM, basically? On the average, how much does a 
person in FSM make a year?
    Mr. Christian. Could I turn around?
    Mr. Faleomavaega. I think it is critical to know this, 
because we are talking about economic assistance. If you have 
your expert, if it is all right, Mr. Chairman--
    Mr. Calvert. Without objection.
    Mr. Faleomavaega. Why don't you have our friend who is the 
expert there--
    Mr. Christian. About $1,800, the young lady says.
    Mr. Faleomavaega. It is $1,800 per capita income at FSM?
    Mr. Christian. Yes.
    Mr. Faleomavaega. OK. What about the standard of living?
    Mr. Christian. The standard of living, sir, I believe that 
that is the focal point of the whole Compact of Free 
Association as first envisioned by those who got together to 
create this document. This Compact of Free Association is 
supposed to be the instrument by which the standard of living 
is improved in the Micronesian Islands.
    There was a question earlier on migration. Mr. Chairman, 
migration will continue to occur as long as the economic 
development of the islands are not raised to a level where 
people can return from overseas to find meaningful and gainful 
employment in Micronesia.
    The statement that the reason why Micronesians or any 
Pacific Islander migrate to a metropolitan area is because of 
health and education may be true, but not totally true. The 
real root of this migration is to look for economic development 
for certain advancement. So even if we improve the health and 
education in Micronesia, in this regard, the improvement of the 
economic development, you will continue to see a migration of 
people who are smart and very healthy but could not find 
gainful employment in the islands.
    Mr. Faleomavaega. To Foreign Minister Zackios, probably no 
other group in the Pacific, in my humble opinion, besides 
French Polynesia, the people, or those of us who have come from 
the Pacific region have experienced in a most unfortunate way 
the problems of how the superpowers and the more industrialized 
countries have exposed us to this whole problem of nuclear 
testing. To say that what the Marshallese people have had to 
endure for the past 50 years and what we have not done to not 
only compensate the Marshallese who were directly subjected to 
nuclear contamination, but the fact that also that the Marshall 
Islands Government, in association with the Kwajalein missile 
range, where our government to this day still operates a multi-
, and I think the dollar value of the Federal Government's 
structural facility that we now have at the Kwajalein missile 
range, Mr. Chairman, I believe it is somewhere between $4 to 
$10 billion. And your willingness to, at least those who are 
landowners who are willing to put this forth to help provide 
the best possible security for the United States, that 
certainly needs to be brought not only for the record, but as a 
remembrance for the members of this Committee.
    You mentioned that there are some serious issues that have 
not been resolved in this proposed Compact. As also Speaker 
Christian alluded to earlier, what do you suggest, given the 
fact that some of these issues are serious enough that have not 
yet been settled, do you consider that they should still be 
subject to formal negotiations with the United States or should 
we just kind of say we hold this as a subsidiary form of 
negotiation? I am concerned about this.
    Mr. Zackios. Thank you, Congressman. In light of the 
Compact as negotiated, we feel we have negotiated a document in 
good faith. However, there are, as I have raised in my 
testimony, issues that still remain unresolved and those take a 
twofold approach. One is with having negotiated and concluded a 
document, the administration then proceeds to unilaterally make 
changes to pertinent provisions that were negotiated by both 
parties.
    The second is that there are those outstanding issues that 
we were unable to get conclusion in our negotiations with the 
administration and I have listed those in my written testimony 
before the Committee.
    I would like to go back a little bit and touch on the issue 
of the Compact and why you made reference to it is a sound 
document. But I would like to say that if this document is not 
resolved, I think it creates a position of difficulty for us in 
the Marshall Islands and in the approval process.
    Having said that, I see that we, on these important issues, 
and I take it that you are making reference to Kwajalein and 
the changed circumstances petition that we have submitted. As I 
stated, we have submitted a changed circumstances petition to 
Congress in 2000 and updated it in 2001. We have not heard any 
reply on this changed circumstances petition, and, therefore, I 
have to ask that we make another hearing on specifically--
    Mr. Faleomavaega. My time is really going and I appreciate 
the Chairman's patience. Here is my bottom-line question to 
both of you gentlemen. Are these issues serious enough that you 
honestly believe that the proposed Compact ought to be returned 
in a way that you need to continue to negotiate these aspects 
of the Compact that you feel very strongly about that is not in 
agreement with your government's position? It is like saying, 
well, we are getting a half-a-loaf of bread, at least better 
than nothing, but at the same time, it is so unfair.
    It seems that the parties were not negotiating in good 
faith. It seems that you were suggesting that there was a lot 
of duress and undue influence in the way this whole thing has 
been negotiated. And if I am wrong in that observation to both 
of you gentlemen, please tell me that I am wrong.
    Mr. Zackios. I would answer that question in this way. If 
these issues are not resolved by the Congress, we would have 
great difficulty in passing this piece of legislation within 
our national parliament.
    Mr. Faleomavaega. Thank you, Mr. Chairman. Thank you to 
both gentlemen.
    Mr. Rehberg. [Presiding.] Thank you. Are there additional 
questions from the Committee? Seeing none--
    Mr. Faleomavaega. Mr. Chairman, I want to apologize. I 
forgot to ask unanimous consent that the statement of my good 
friend, Mr. Pallone, be made part of the record, unless if he 
does have some questions he may want to raise.
    Mr. Rehberg. Without objection.
    Mr. Faleomavaega. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Pallone follows:]

  Statement of the Honorable Frank Pallone, Jr., a Representative in 
                 Congress from the State of New Jersey

    I am pleased that we are meeting today to hear about the Compacts 
of Free Association with the Federated States of Micronesia and the 
Republic of the Marshall Islands (RMI), and the effect of these 
Compacts upon Guam.
    I understand that time is of the essence with respect to the 
reauthorization of the Compacts, due to their impending expiration. 
These Compacts have been very useful to both the island nations and to 
the United States, and I look forward to passage of the 
reauthorization.
    While I realize that this is not a controversial document, I have 
been informed that there are several items that may need to be 
addressed in an amendment to the Compact after the negotiations have 
concluded. These include FEMA eligibility, access to U.S. education 
programs such as Head Start, and the Nuclear Claims issue.
    From 1946-1958, the Marshall Islands were the site of 67 
atmospheric and atomic thermonuclear weapons tests. Of course these 
tests had an immediate and lasting effect upon the health of the Island 
citizens, as well as upon their environment. To address the need for 
``just and adequate'' compensation for these effects upon RMI citizens, 
the original Compact established a Nuclear Claims Tribunal (NCT) as an 
adjudicative forum to ensure the adequacy of nuclear claim settlements.
    The RMI submitted a ``Changed Circumstances'' petition to Congress 
in 2000, according to a provision in the original 1986 Compact, which 
alleges new information about the effects of nuclear testing on the 
Marshall Islands. The petition requests funding that would enable the 
NCT to fully pay all claims and to provide for medical infrastructure 
and services. Although House and Senate Members have requested a review 
of the petition from the State Department, that review has still not 
been provided.
    Again, I hope that we can rapidly move HJ Res 63 out of committee 
so that we can continue our relationship with the RMI in a mutually 
beneficial manner. However, I hope that we can hold another hearing 
after the Compact negotiations to address this issue of the Changed 
Circumstances petition. Thank you.
                                 ______
                                 
    Mr. Rehberg. Mr. Zackios, we are also hopeful that we will 
soon receive the report from the administration regarding the 
changed circumstances petition so that Congress can better 
decide how to progress.
    I thank the witnesses for their valuable testimony and the 
members for their questions. The members of the Committee may 
have some additional questions for the witnesses and we will 
ask you to respond to those in writing. The hearing record will 
be open for these responses.H.R. 2522
    Mr. Rehberg. Panel No. 4 is next, consisting of Nik Pula, 
the Director of the Office of Insular Affairs, who will testify 
on H.R. 2522.
    Mr. Pula, before you sit down, we have a standard oath of 
office that I would like you to recite with me, as well, 
please. Please raise your right hand.
    Do you solemnly swear or affirm under the penalty of 
perjury that the statements made and the responses given will 
be the whole truth and nothing but the truth, so help you, God?
    Mr. Pula. I do.
    Mr. Rehberg. Thank you very much.
    The Chairman now recognizes Mr. Nik Pula.

STATEMENT OF NIKOLAO PULA, DIRECTOR, OFFICE OF INSULAR AFFAIRS, 
                U.S. DEPARTMENT OF THE INTERIOR

    Mr. Pula. Mr. Chairman, I will submit my full statement for 
the record--
    Mr. Rehberg. Without objection.
    Mr. Pula. --and I will summarize my remarks.
    Mr. Chairman and members of the House Committee, I am 
pleased to appear before you today to discuss H.R. 2522. The 
economic and fiscal situation in Guam is dire. Entering office 
in January 2003, Governor Felix Camacho inherited a fiscal 
crisis that took root in the mid-1990's. Government of Guam 
revenue has shrunk from $660 million in 1996 to $340 million in 
2003. Employment has shrunk by 5,000 since 1999, and annual 
deficits are ballooning to over $200 million by the end of 
2003.
    Against this economic backdrop, the legislative intent of 
this bill would be to forgive debt as an offset against costs 
of migration from the Freely Associated States.
    The impact of the Compact was included in Section 104 of 
the Compact Act in 1986. It states that, I quote, ``The 
Congress will act sympathetically and expeditiously to redress 
those adverse consequences,'' and it also provides an 
authorization of funds. Representatives of Guam and other 
eligible jurisdictions often note that these appropriations 
have not fully compensated for amounts expended on behalf of 
FAS migrants.
    The goal of Guam officials in H.R. 2522 is to offset 
accrued cost associated with the impact of the Compact against 
debts owed by Guam. Action to achieve this goal can be 
indirect, such as asking the Secretary of the Interior to 
intervene under authority proposed in H.R. 2522, or direct, 
such as dealing with individual agencies that hold debt or 
requesting appropriations.
    We in the Department of the Interior sympathize with the 
leaders of Guam as they struggle to reconcile current needs 
with past policies and actions. The question is how to proceed 
in dealing with Guam's debt.
    H.R. 2522 would give the Secretary of the Interior complete 
discretionary authority to abolish debt owed to another 
Department or agency. These Departments or agencies may have no 
parts in the decision. Such unprecedented authority would put 
the Secretary in an untenable position. Relations between 
Interior and other Federal Departments or agencies could be 
damaged to such an extent that other Interior missions could be 
significantly impaired. Such action could have a severe fiscal 
effect on an individual agency and have impacts on the overall 
Federal budget.
    The only situation where the Secretary's authority would 
have any meaning would be where the affected agency was 
unwilling to forgive the debt. It is precisely in that 
situation where no Secretary of the Interior would likely be 
willing to exercise such authority that would be granted in 
this bill over the objections of another Department or agency. 
H.R. 2522 would, therefore, not have its intended effect 
because of the unlikelihood that authority granted would ever 
be exercised.
    The mere fact that the authority exists could have a very 
harmful effect on Guam. Federal agencies might be extremely 
reluctant to extend essential credit to Guam, knowing that 
there was a possibility that the debt could be forgiven by the 
Secretary of the Interior without the creditor's consent. H.R. 
2522 could thus result in Guam being denied access to credit in 
time of its most dire need.
    While the funding suggests a connection between debts 
forgiven and cost of migration, the operative Subsection B of 
Section 2 does not limit the forgiving of Guam debt but is 
open-ended.
    For these reasons, the Department of the Interior opposes 
the enactment of H.R. 2522. It is worth noting that Compact 
legislation H.J.Res. 63 would, for the first time, provide a 
mandatory annual appropriation to defray impact costs. This new 
program on the part of the administration will provide $300 
million over 20 years. The administration proposal would 
provide welcome relief for Guam, Hawaii, and the Northern 
Mariana Islands.
    Guam might consider a more direct approach to these debt 
problems, such as approaching individual agencies for relief 
under the agency's authority. Another avenue could be the 
utilization of the Interagency Group on Insular Areas, which 
was created on May 8 when President Bush signed Executive Order 
13299. Our first interagency organizational meeting is taking 
place today. We would be glad to place this issue of debt on 
the group's agenda.
    We look forward to working with the leaders of Guam in an 
effort to help Guam address its financial challenges. Thank 
you.
    Mr. Rehberg. Thank you.
    [The prepared statement of Mr. Pula follows:]

    Statement of Nikolao Pula, Director, Office of Insular Affairs, 
                    U.S. Department of the Interior

    Mr. Chairman and members of the House Committee on Resources, I am 
Nikolao Pula, Director of the Office of Insular Affairs in the 
Department of the Interior. I am pleased to appear before you today to 
discuss H.R. 2522, entitled ``Compact Impact Reconciliation Act.'' 
While we understand the fiscal plight of the Government of Guam and 
want to assist, a more appropriate forum for addressing the issues 
raised in the bill may be the new Interagency Group on Insular Areas 
(IGIA), established by President Bush. The IGIA could consider in more 
depth the opinions and authorities of all agencies affected by the 
bill.

                          ECONOMIC BACKGROUND

    The economic and fiscal situation on Guam is dire. Entering office 
in January 2003, Governor Felix Camacho inherited a fiscal crisis that 
took root in the mid 1990s. The Asian economic crisis struck hard at 
Guam's tourism industry, which is responsible for 60 percent of Guam's 
economy. At the same time, the Federal Government was closing or 
consolidating United States military bases, with direct effect on the 
Navy and Air Force bases on Guam. Government of Guam revenue shrunk 
from $660 million in 1996 to $340 million in 2003. Employment on the 
island has shrunk by 5,000 since 1999.
    Spending reductions by the Government of Guam have not kept pace 
with revenue reductions. The result is that annual deficits are 
ballooning from $74 million in 1996 to $123.1 million in 2002 to over 
$200 million by the end 2003.
    Faced with the unenviable task of bringing government expenditures 
in line with severely reduced revenue, Governor Camacho is implementing 
an austerity program, including a cut in work hours for many government 
employees from 40 hours per week to 32 hours.

                           COSTS OF MIGRATION

    Against this is the economic backdrop, the apparent legislative 
intent of H.R. 2522 would be to forgive debt owed by Guam to various 
Federal agencies as an offset against costs borne by Guam as a result 
of migration from the freely associated states (FAS).
    One congressional initiative in 1986, the provision entitled 
``Impact of the Compact on U.S. areas,'' was included in subsection (c) 
of section 104 of Public Law 99-239.
    Paragraph (4) of the subsection, entitled the ``Commitment of 
Congress to redress adverse consequences,'' states that ``...the 
Congress will act sympathetically and expeditiously to redress those 
adverse consequences.'' Paragraph (6) authorized the appropriation of 
funds ``to cover costs, if any, incurred by the State of Hawaii, the 
territories of Guam and American Samoa, and the Commonwealth of the 
Northern Mariana Islands resulting from any increased demands placed on 
educational and social services by immigrants from the Marshall Islands 
and the Federated States of Micronesia.''
    Based on this congressional authorization, the Congress has 
followed-up with various appropriations over the years as contributions 
toward the costs, borne by Hawaii and the territories, of the migration 
of citizens of the freely associated states. Representatives of Guam 
and other eligible jurisdictions often note that these appropriations 
by the Congress have not fully compensated for amounts expended on 
behalf of FAS migrants.

                       INDIRECT VS. DIRECT ACTION

    The goal of Guam officials in H.R. 2522 is to offset accrued cost 
associated with the impact of the Compact against debts owed by Guam. 
Action to achieve this goal can be indirect, such as asking the 
Secretary of the Interior to intervene under authority proposed in H.R. 
2522, or direct, such as dealing with individual agencies that hold 
debt or requesting appropriations.
Indirect Action
    Subsection (b) of section 2 of H.R. 2522 would authorize the 
Secretary of the Interior to ``reduce, release, or waive all or part of 
any amounts owed by the Government of Guam (or its autonomous agencies 
or instrumentalities) to any department, agency, independent agency, 
office, or instrumentality of the United States.'' Among other debts 
that would be eligible for action by the Secretary, the bill 
specifically identifies $9 million owed to the Department of the Navy, 
$3 million owed to the Department of Education, $40 million owed to the 
Department of Homeland Security, and $105 million owed to the 
Department of Agriculture.
    We in the Department of the Interior fully understand the difficult 
financial choices that Guam faces. We sympathize with the leaders of 
Guam as they struggle to reconcile current needs with past policies and 
actions. The question is how to proceed in dealing with Guam's debt.
    H.R. 2522 would give the Secretary of the Interior complete 
discretionary authority to abolish debt owed to another department or 
agency. These departments or agencies may have no part in the decision. 
Such unprecedented authority would put the Secretary in an untenable 
position. Relations between Interior and other Federal departments or 
agencies could be damaged to such an extent that other Interior 
missions, outside the realm of the territories, could be significantly 
impaired. Such action could have a severe fiscal effect on an 
individual agency or an unacceptable effect on the overall Federal 
budget.
    As a practical matter, there would be no need for the Secretary to 
exercise such authority, given that the debt could be dealt with 
directly by the affected agency to the extent of its legal authority. 
The only situation where the Secretary's authority would have any 
meaning would be where the affected agency was unwilling to forgive the 
debt. It is precisely in that situation where no Secretary of the 
Interior would likely be willing to exercise the authority that would 
be granted in this bill over the objections of another department or 
agency. H.R. 2522 would therefore not have its intended effect, because 
of the very remote possibility that the authority granted therein would 
be exercised in any situation where such exercise would matter.
    Although the Secretary of the Interior would be unlikely to 
exercise the authority granted in H.R. 2522 in a meaningful fashion, 
the mere fact that the authority exists could have a very harmful 
effect on Guam. Federal agencies might be extremely reluctant to extend 
essential credit to Guam, knowing that there was a possibility that the 
debt could be forgiven by the Secretary of the Interior without the 
creditor's consent. H.R. 2522 could thus result in Guam being denied 
access to credit in time of its most dire need.
    The title of the bill and a number of the findings suggest a 
connection between debts forgiven and costs associated with the 
migration by citizens of the freely associated states to Guam. However, 
the operative subsection (b) of section 2 does not limit the forgiving 
of Guam debt to some determinable amount of impact on from migration. 
The authorization is open ended, with no reference to the impact of 
migration.
    For these reasons, the Department of the Interior opposes enactment 
of H.R. 2522.
    It is worth noting that Compact legislation (H. J. Res. 63) 
currently before the Congress would, for the first time, provide a 
mandatory annual appropriation of $15 million to defray costs 
associated with the migration of individuals from the freely associated 
states to Hawaii, Guam, the Northern Mariana Islands and American 
Samoa. This new program effort on the part of the Administration would 
provide more than $300 million over 20 years to address the effects of 
Compact migration. This is a significant departure from unreliable ad 
hoc appropriations of past years. The Administration's proposal would 
provide welcome relief for the jurisdictions most heavily affected by 
the migration of Micronesians--Guam, Hawaii and the Northern Mariana 
Islands.

Direct Action
    Guam might consider a more direct approach to these debt problems. 
Guam could approach the agencies listed in paragraph (7) of the 
findings. Given its severe financial crisis, Guam might qualify for 
relief under the authority of an individual agency. The Office of 
Insular Affairs would be glad to assist Guam in exploring the 
possibility for debt relief with the relevant agencies.
    On May 8, President Bush signed Executive Order 13299 creating the 
Interagency Group on Insular Areas. Our first interagency 
organizational meeting is taking place today. We would be glad to place 
the issue of debt on the group's agenda. We look forward to working 
with the leaders of Guam in an effort to help Guam address its 
financial challenges.
                                 ______
                                 
    Mr. Rehberg. The Chair will now recognize Ms. Bordallo for 
an opening statement.

STATEMENT OF HON. MADELEINE Z. BORDALLO, A DELEGATE TO CONGRESS 
                    FROM GUAM, ON H.R. 2522

    Ms. Bordallo. Thank you very much, Mr. Chairman and members 
of the Committee. I thank you for being here for such a long 
morning. I want to thank you and, of course, Chairman Pombo and 
Ranking Member Rahall for holding this hearing today on H.R. 
2522 and for their gracious invitation to Governor Felix 
Camacho and Speaker Ben Pangelinan to testify.
    I would like to first say Hafa Adai to the Governor and the 
Speaker and to our guests from Guam who have traveled 10,000 
miles to be here for this important hearing. We welcome them 
and we look forward to hearing their views.
    I also want to acknowledge former Congressman Ben Blaz, my 
good friend, who honored us with his presence and who was 
instrumental in working with the first Compact of Free 
Association back in 1986.
    I am also pleased that the Governor of the Commonwealth of 
the Northern Mariana Islands, the Honorable Juan Babauta, had 
attended this hearing earlier and he has expressed to me his 
interest in the Committee's work on the Compact.
    Today, Mr. Chairman, is a remarkable day for the Committee 
because we had the rare privilege earlier of receiving 
testimony on the renegotiated Compacts of Free Association and 
now we are considering my bill, H.R. 2522, that addresses 
Compact impact issues for Guam. I am very grateful for the 
support for H.R. 2522 from its original cosponsors, Mr. Rahall, 
Mr. Gallegly, Mr. Faleomavaega, Mr. Rehberg, Mr. Abercrombie, 
and Mr. Case. Si Yu'os Ma'ase and thanks to all of you for 
helping Guam with this issue by lending your early support to 
the bill.
    I would also like to acknowledge the testimonies and the 
statements that the Chair has placed into the record from the 
interested parties on Guam, notably from the Senators of the 
Guam legislature, the Mayors Council of Guam, the Guam 
Waterworks Authority, the Guam Recovery Coordination Office, 
the Guam Telephone Authority, the Guam Chamber of Commerce, and 
interestd citizens.
    H.R. 2522, the Compact Impact Reconciliation Act, is 
informally referred to as a debt relief bill for Guam. That may 
be a matter of perspective, and perspective is what separates 
Guam from the Federal Government on many issues. From our 
viewpoint, H.R. 2522 is debt relief for the Federal Government 
for a debt owed to Guam from an unfulfilled promise, and that 
is why the words ``reconciliation act'' were carefully chosen 
for the title of this bill. In common usage here in Congress, 
we understand what budget reconciliation means, and I am 
confident that Governor Camacho and Speaker Pangelinan will 
make the compelling case for us regarding Guam's economic 
situation and the reasons why this bill would be enormously 
helpful to Guam.
    The time to resolve the Compact impact issue is upon us. We 
are at the end of the first 17-year authorization for the 
Compacts, and with the amendments that have been suggested, we 
are looking to a new 20-year authorization. In order to go 
forward, we should address the remaining issues surrounding the 
adverse impact of the Compact on Guam and other affected 
jurisdictions.
    Guam has been impacted, Mr. Chairman, more significantly 
than any other jurisdiction. Our geography places us closest to 
the islands in the Freely Associated States, and I do have a 
handout here of a map showing our close proximity to the other 
islands. All members should have this map. I think it was 
distributed.
    [The map submitted by Ms. Bordallo follows:] 

    [GRAPHIC] [TIFF OMITTED] T8192.003
    

    Ms. Bordallo. In 1986, Congress stated that these adverse 
consequences would be reimbursed by Compact impact assistance, 
and as we now know, the full reimbursement has never been 
realized, and we assert with some assurance from the General 
Accounting Office and a previous report by Ernst and Young that 
the unreimbursed costs are approximately $187 million. Again, I 
have a chart showing the monies that had been spent by the 
Government of Guam and what has been the Federal reimbursement.
    [The chart submitted by Ms. Bordallo follows:] 
    [GRAPHIC] [TIFF OMITTED] T8192.004
    
    [GRAPHIC] [TIFF OMITTED] T8192.005
    

    Ms. Bordallo. H.R. 2522 is a means to resolving this debt, 
to starting fresh, and to giving Guam a much needed economic 
boost. We are also introducing a bill later today that would 
address the Compact impact reimbursement mechanism for the next 
20 years so that we avoid the great disparity between costs and 
reimbursement. Together, these proposals will set us on the 
right course for the next 20 years.
    Mr. Chairman, the U.S. Government made a promise to Guam 17 
years ago that the adverse consequences of the Compacts which 
the Federal Government negotiated would not be left to Guam to 
shoulder alone. Guam simply does not have the resources to bear 
the costs of the impact of immigration to Guam.
    In our island communities, honor is an important virtue and 
one's word, one's commitment to do something, is a matter of 
honor. The United States has kept its word to the Federated 
States of Micronesia, the Republic of the Marshall Islands, and 
the Republic of Palau, by providing the assistance that was 
promised to them in the Compacts. Are we no less worthy of 
honor? Are commitments made to us meaningless? Let us move 
forward together with a united purpose in renewing the Compacts 
and let us reconcile this debt. Let us put to rest this issue 
that causes great hardship on Guam and that causes us to view 
the Compact renewal with some skepticism and suspicion.
    As we close out the first 17 years of the Compact, Guam is 
here today to say, wait a minute. There is a debt to reconcile 
and will the United States honor its commitment to the 
Territory of Guam?
    Thank you, Mr. Chairman.
    [The prepared statement of Ms. Bordallo on H.R. 2522 
follows:]

 Statement of Hon. Madeleine Z. Bordallo, a Delegate to Congress from 
                           Guam, on H.R. 2522

    Chairman Pombo, Ranking Member Rahall, and Members of the 
Committee:
    Thank you for holding this hearing today on H.R. 2522 and for your 
gracious invitation to Governor Felix Camacho and Speaker Ben 
Pangelinan to testify. I would like to first say Hafa Adai to the 
Governor and Speaker and to our guests from Guam who have traveled 
10,000 miles to be here today for this important hearing--we welcome 
them and we look forward to hearing their views.
    I also want to acknowledge former Congressman Ben Blaz, my good 
friend, who has honored us with his presence and who was instrumental 
in working to implement the first Compact of Free Association back in 
1986 when he served on this Committee.
    I am pleased that the Governor of the Commonwealth of the Northern 
Mariana Islands, the Honorable Juan Babauta, had attended this hearing 
earlier on the compact legislation, and he has expressed to me his 
interest in the Committee's work on the Compact and the changes to 
Compact-impact provisions which also affects the Northern Marianas.
    Today is a remarkable day for the Committee because we had the rare 
privilege earlier of receiving testimony on the re-negotiated Compacts 
of Free Association and now we are considering my bill, H.R. 2522, that 
addresses Compact-impact issues for Guam. I am very grateful for the 
support for H.R. 2522 from its original co-sponsors, Mr. Rahall, Mr. 
Gallegly, Mr. Faleomavaega, Mr. Rehberg, Mr.Abercrombie, and Mr. Case. 
Si Yu os Ma ase (thank you) to all of you for helping Guam with this 
issue by lending your early support to the bill.
    I would also like to acknowledge the testimonies and statements 
that the Chair has placed into the record from interested parties on 
Guam, notably from Senators of the Guam Legislature, the Mayors Council 
of Guam, the Guam Waterworks Authority, the Guam Recovery Coordination 
Office, the Guam Telephone Authority, the Guam Chamber of Commerce, and 
interested citizens.
    H.R. 2522, the Compact-Impact Reconciliation Act, is informally 
referred to as a debt relief bill for Guam. That may be a matter of 
perspective, and perspective is what separates Guam from the Federal 
Government on many issues. From our viewpoint, H.R. 2522 is debt relief 
for the Federal Government, for a debt owed to Guam from an unfulfilled 
promise. That is why the words ``Reconciliation Act'' were carefully 
chosen in the title of this bill--in common usage here in Congress, we 
understand what budget reconciliation means.
    I am confident that Governor Camacho and Speaker Pangelinan will 
make the compelling case for us regarding Guam's economic situation and 
the reasons why this bill would be enormously helpful to Guam. The time 
to resolve the Compact-impact issue is upon us. We are at the end of 
the first seventeen year authorization for the Compacts, and with the 
amendments that have been suggested, we are looking to a new twenty 
year authorization. In order to go forward, we should address the 
remaining issues surrounding the adverse impact of the Compact on Guam 
and other affected jurisdictions.
    Guam has been impacted more significantly than any other 
jurisdiction. Our geography places us closest to most of the islands in 
the Freely Associated States. All Members should have a map before them 
that illustrates this point. In 1986, Congress stated that these 
adverse consequences would be reimbursed by Compact-impact assistance. 
As we now know, the full reimbursement has never been realized, and we 
assert, with some assurance from the General Accounting Office and a 
previous report by Ernst and Young, that the unreimbursed costs are 
approximately $187 million. All Members should also have a chart before 
them that reports the impact estimates over the years, as well as the 
reimbursement figures that Congress has provided from time to time in 
appropriations, and finally, in red figures, the outstanding 
discrepancies between the two.
    H.R. 2522 is a means to resolving this debt, to starting fresh, and 
to giving Guam a much needed economic boost. We are also introducing a 
bill later today that would address the Compact-impact reimbursement 
mechanism for the next twenty years so that we avoid the great 
disparity between costs and reimbursement. Together, these proposals 
would set us on the right course for the next twenty years.
    Mr. Chairman, the United States Government made a promise to Guam 
seventeen years ago that the adverse consequences of the Compacts which 
the Federal Government negotiated would not be left to Guam to shoulder 
alone. Guam simply does not have the resources to bear the costs of the 
impact of immigration to Guam. In our island communities, honor is an 
important virtue--and one's word, one's commitment to do something, is 
a matter of honor. The United States has kept its word to the Federated 
States of Micronesia, the Republic of the Marshall Islands, and the 
Republic of Palau by providing the assistance that was promised to them 
in the Compacts. Are we no less worthy of honor? Are commitments made 
to us meaningless?
    Let us move forward together with a united purpose in renewing the 
Compacts, and let's reconcile the debt. Let's put to rest this issue 
that causes great hardship on Guam and that causes us to view the 
Compact renewal with some skepticism and suspicion. As we close out the 
first seventeen years of the Compact, Guam is here today to say, ``Wait 
a minute...there is a debt to reconcile. Will the United States honor 
its commitment to Guam?''
                                 ______
                                 
    Mr. Rehberg. Thank you.
    Questions from the Committee? The Chair recognizes Mr. 
Abercrombie.
    Mr. Abercrombie. Thank you, Mr. Chairman.
    Mr. Pula, aloha.
    Mr. Pula. Aloha.
    Mr. Abercrombie. Going to your testimony, this is about 
money. The bottom line, this is about money. You were here 
before when I said before, it is all well and good to talk 
about intentions, but it comes down to money. Is it your 
testimony--does your testimony represent the position of the 
Bush administration that the appropriate forum for addressing 
this issue is this Interagency Group in Insular Areas?
    Mr. Pula. In my testimony, I say that is one of the 
avenues, Congressman. I think--
    Mr. Abercrombie. Do they have any authority to make 
recommendations to this Committee with regard to money?
    Mr. Pula. The--
    Mr. Abercrombie. That you do not have?
    Mr. Pula. I think the idea there, Congressman, is for the 
Federal agencies to come together and the administration and 
have a forum where they can discuss some of the issues that are 
related to the insular areas. I was referring in my testimony 
back to the H.J.Res., the bill that we had discussed earlier 
where the Compact impact funds of $300 million for the next 20 
years is addressed, and--
    Mr. Abercrombie. I know. That is just before your testimony 
on page three of direct action. But surely you would not 
contend to the Committee that the $15 million even remotely 
approaches the existing impact, let alone that which might come 
at a future time should some of these payments from some of 
these agencies not be forthcoming if the bill passed in its 
present form.
    Mr. Pula. No, I am not saying that, Congressman.
    Mr. Abercrombie. So, I mean, aside from being exercise--
wouldn't it be an exercise in futility?
    Mr. Pula. To respond--
    Mr. Abercrombie. In other words, Mr. Pula, I guess what I 
am asking you, if you are opposed to this, if the 
administration is opposed to it, they should just say so and 
let it go and not throw out something, $15 million over the 
next 20 years, $300 million. Three-hundred-million dollars, 
maybe that would take care of 10 years of what is being spent 
in Hawaii right now, let alone the rest of it. I mean, if you 
folks are opposed to it, I understand that. I might not like it 
or agree with it, but just say so.
    Mr. Pula. I believe I said so--
    Mr. Abercrombie. I know, but your point, though, is that 
there are all these other things to take into consideration as 
if that is resolving the issue. That doesn't do us any good. It 
really doesn't. It pushes me toward the idea that we simply 
have to get to the money part of it and resolve that one way or 
the other.
    The reason I asked this about the position, is the 
Secretary, or is the present administration opposed to an 
authorization number in excess of $15 million?
    Mr. Pula. Is the administration opposed to a number--
    Mr. Abercrombie. Yes. In other words, what has been 
negotiated is $15 million. If this Committee sets the figure at 
$30 or $40 or $115 million, is the administration opposed to 
that?
    Mr. Pula. I am not at liberty to say that we are not--
    Mr. Abercrombie. Could you inquire?
    Mr. Pula. We could inquire.
    Mr. Abercrombie. And could you make the answer to that 
available, because that is what this is going to come down to. 
I am just trying--
    Mr. Pula. I understand.
    Mr. Abercrombie. I am not trying to waste your time. I am 
not trying to trick you or give you a bad time, because believe 
me, that is what this is going to come down to. The discussion 
in this Committee--and we are not going to try to rewrite 
negotiations or anything of that nature. We are not going to 
try and second-guess all the work that has been done here. On 
the contrary, I think I know the Chairman as well as anybody on 
the Committee. I expect what he is going to do is make a 
recommendation that if we accept the terms and conditions of 
this negotiation as manifest in the Compact proposal, then we 
must finance it accordingly. As sure as I am talking to you 
now, I know that that is what he is going to take into account.
    Now, whether we can do it or not, I don't know. That 
remains a point. So my question to you, as the representative 
of the administration, and my sincere solicitation of you is 
that if the Committee determines that another number should be 
used in furtherance of the terms and conditions of the Compact 
proposal, would the administration find that acceptable?
    Mr. Pula. I can respond by saying that the administration 
will probably have to consider it based on its budget 
constraints and, you know--
    Mr. Abercrombie. Well, so do we.
    Mr. Pula. --that would be as the blessing. But at this 
time, I am not at liberty to say.
    Mr. Abercrombie. OK.
    Mr. Rehberg. The gentleman's time has expired. If somebody 
else would like--Mr. Pallone?
    Mr. Pallone. Thank you. First of all, let me say that I 
agree with Mr. Abercrombie and I don't really understand the 
opposition to the legislation. But it seems to me that the 
problem that Guam faces and that, you know, I guess Hawaii and 
other places face is the fact that you have people immigrating 
from some of the other nations, Micronesia, whatever, and when 
they immigrate and they become--there is a certain cost to 
either the State of Hawaii or the Government of Guam when they 
use services, and increasingly, that is a problem in terms of 
the amount because there are more people coming and it is more 
and more difficult for Guam and Hawaii to bear the expenses, 
particularly with the economy being the way it is.
    Now, a big part of that is health care related and using, I 
guess, the public hospital in Guam or similar facilities in 
Hawaii, and I just wanted to ask, and we have this problem in 
other areas, as well. We had a hearing yesterday, Mr. 
Faleomavaega was the Ranking Member, on Native American issues. 
I have seen the same thing with some of the Indian nations 
where there has been immigration from Mexico and people use the 
hospital on the Indian reservations and there is no 
reimbursement from the Federal Government.
    The suggestion has been made that the Federal Government 
should simply provide coverage through Medicaid and Medicaid 
reimbursement to Guam or to the State of Hawaii when these 
individuals come there and use the health facilities. Has the 
administration taken a position on that, simply covering these 
people through Medicaid and providing funding through Medicaid?
    Mr. Pula. I would have to say, I don't speak for the other 
agencies. That deals more directly, like HHS. So just a short 
answer, I don't think we have considered that.
    Mr. Pallone. Well, could we get a written response, 
perhaps, through the Chairman? It would seem to me that one way 
of alleviating the burden is to have these people covered by 
Medicaid and have either Guam or Hawaii or both reimbursed in 
that fashion. And if you could get, through the Chairman, if I 
could ask that there be a written response to that from the 
Department--
    Mr. Rehberg. Yes, you may.
    Mr. Pallone. --I would appreciate it. Thank you.
    Mr. Pula. We will do so.
    Mr. Pallone. Thank you. Then I wondered, obviously, the 
administration is opposed to the bill to utilize the debt 
reconciliation as a means to address the issue of Compact 
impact. What do you then propose and support in terms of 
addressing this issue that my colleagues are bringing up with 
this legislation?
    Mr. Pula. I would just like to clarify something, sir, and 
I appreciate the question. The administration is opposing to 
the authorities that would be given to the Secretary of 
Interior to forgive debts of other agencies that the Secretary 
of Interior doesn't have jurisdiction over. But we are not--I 
understand that Compact impact is a longstanding issue, and I 
don't speak for previous administrations or my predecessors.
    However, I said this administration, this is the first time 
that they have put down mandatory funding of $15 million. 
Granted, it is way below the sums and amounts of reports that 
are presented to the administration and to Congress by the 
three jurisdictions, but I can honestly say that we are not 
objecting to that.
    Mr. Pallone. Well, what are you proposing to do for the 
difference? I mean, you said there is 15, but also you also 
acknowledge that there is a lot more out there that has to be 
dealt with. What are you proposing to do for the rest?
    Mr. Pula. I think that is something that we want to work 
with Congress. Originally, the law in 1986--
    Mr. Pallone. No, I understand, but, I mean, you are saying 
you don't like this bill. You have got to give us some idea 
about what you do like or what you want to do to address the 
problem.
    Mr. Pula. Well, I would go back to what Congressman 
Abercrombie said. It boils down to resources. With the limited 
constraints and budgets--
    Mr. Pallone. So essentially, you are saying you are not 
going to do anything beyond the 15.
    Mr. Pula. Well, that is something that Congress can do 
something about.
    Mr. Pallone. So you want us to appropriate the difference?
    Mr. Pula. Well, we certainly can't appropriate.
    Mr. Pallone. But the Department doesn't have any 
suggestions itself, in other words?
    Mr. Pula. I am only authorized to say that we already 
have--this administration has $15 million for the next 20 
years.
    Mr. Pallone. OK. Thank you.
    Mr. Rehberg. Mrs. Christensen?
    Mrs. Christensen. Thank you, Mr. Chairman. I, too, want to 
take this opportunity before I ask my question to welcome Mr. 
Pula, but also to welcome Governor Camacho and to congratulate 
my colleague from Guam, Congresswoman Bordallo, for her hard 
work and dedication in sponsoring H.R. 2522, which would create 
a framework for addressing the long-existing problem of 
inadequate reimbursement to the Government of Guam for Compact 
migration impact expenses. And so I look forward to working 
with my colleague and you, Mr. Chairman, to move this 
legislation through the House.
    I guess I have one question. You talk about the indirect 
way of dealing with the debt and the direct way. You know that 
we had a Hurricane Hugo debt that was forgiven through a 
process that was developed with FEMA. But this is different. In 
our case, the Office of Insular Affairs was very supportive and 
worked with us with FEMA to develop a formula whereby we could 
forgive that debt. But this is different.
    This is a situation where Congress said that we will 
compensate Guam for the adverse impact of the Compact and 
migration, and don't you see this as a different situation, and 
looking at the huge discrepancy between what Guam has expended, 
the debt that they have gotten into and the paltry 
reimbursement that they have received, don't you see this as 
being different?
    I would just add that when the territories owe any agency 
of the Federal Government, it doesn't make any difference which 
one, say we owe Treasury some money--I will just say that one--
money going from EPA to our EPA would be taken, no question, no 
notification. It doesn't matter that it was a different agency 
that that money was coming from and going to. It is taken.
    So let me go back to the question. This is different. Don't 
you see this as being different? This is Congress said, we are 
going to compensate Guam. There is a huge discrepancy here, and 
shouldn't we treat this differently than, for example, the way 
that we would classify Hurricane Hugo?
    Mr. Pula. I understand the question. I think Congress said 
that they provide authorization. It didn't say it will provide 
appropriation. Therefore, there is no appropriation.
    Now, just to go back to your question with the comparison 
of the Virgin Islands FEMA situation, of the forgiveness of 
their loan versus Guam's situation, I don't see any difference 
in terms of FEMA's program. I see the difference in the content 
of this bill, trying to forgive the debts of Guam based on the 
migration of Freely Associated States. And I think I don't want 
to mix apples and oranges and say--I definitely don't have 
FEMA's authorization to say, OK, we will go ahead and forgive 
Guam of that loan. I guess we will have to deal with FEMA and 
their authorizations and their regulations or whatever they 
have.
    Mrs. Christensen. But that is what I was saying. Ours is 
different and we dealt with it in the direct way with the 
agency to which we had owed the money and you were very 
supportive and we relied on your support to find the correct 
formula and get that done. This is different.
    Mr. Pula. Yes, we are supportive of all the insular areas 
when they come to the Secretary and we, on their behalf, we 
wear the hat of advocating to other Federal agencies--
    Mrs. Christensen. This bill asks Congress to grant the 
authority to the Secretary of Interior to waive, and I see this 
as being a completely different process because of the 
commitment that we made to Guam. Well, I guess I was trying to 
get you to agree that it should take a different process and 
the indirect way that is suggested in this bill is appropriate 
given the fact that money is owed. I mean, this is a 
reconciliation of debt.
    Mr. Pula. I understand.
    Mrs. Christensen. The Federal Government owes Guam. Guam 
owes the Federal Government a lot less. This is a 
reconciliation. Wouldn't you agree that this is a different 
approach to what we have had to go through?
    Mr. Pula. I can say that Congress can do whatever Congress 
wants to do and we will try to execute the law that Congress 
passes.
    Mrs. Christensen. Thank you. My time is up, Mr. Chairman.
    Mr. Rehberg. Thank you. I'd like to point out to the 
Committee members that there will be an opportunity for a round 
two.
    Ms. Bordallo?
    Ms. Bordallo. Thank you, Mr. Chairman. I just have one 
short question to Mr. Pula. I want to thank you for coming here 
to testify. I realize that Section 2(b) of the bill dictates 
pretty much what you have to say here today, but you have left 
the door open and have agreed that there should be some debt 
relief, isn't that correct in assuming that?
    Mr. Pula. I guess that is my personal opinion.
    Ms. Bordallo. That is right. And I want to say, we are 
focusing on Guam here, but my colleague, Mr. Abercrombie, too, 
Hawaii is owed millions of dollars, as well as the CNMI. So we 
are all pretty much in the same situation.
    But you have said here emphatically that you don't have any 
plan to reconcile the U.S. debt to Guam and Hawaii and CNMI, 
isn't that correct?
    Mr. Pula. We work cooperatively, as you know, with the 
territories when they come to our office and we try to do 
everything in our power within the constraints of the 
administration to assist our insular areas. So I don't want to 
be on the record saying that we don't have any plans. As a 
matter of fact, the Governor will meet with our office, Deputy 
Assistant David Cohen, today to discuss some of the things that 
could help Guam and provide some technical assistance with the 
situation that is--
    Ms. Bordallo. Let me ask you this. You do agree, then, that 
this debt exists?
    Mr. Pula. Oh, the debt exists on the authorization, not on 
the appropriation.
    Ms. Bordallo. All right. I just want to thank you. I 
realize it is a difficult position to be in, but, you know, it 
has come to the point now where the Federal Government has 
promised us over the years. I was a member, five-term Senator 
in the Guam legislature, and I remember at the time going 
through the same dialog. Promises were made and the debt is 
mounting and mounting. Certainly, during these times, economic 
times on Guam, we could surely try to relieve some of our debts 
to the Federal Government. We thought this was a good idea.
    I just want to thank you again. Thank you very much for 
appearing.
    Mr. Pula. You're welcome.
    Mr. Rehberg. Thank you. Mr. Faleomavaega?
    Mr. Faleomavaega. Thank you, Mr. Chairman. I want to 
initially offer my apologies for not taking the initiative to 
introduce our witness before the Committee who happens not only 
to be my constituent, and I say is a relative, but I certainly 
want to commend him for--
    Mr. Abercrombie. Mr. Chairman, I think for purposes of 
disclosure, the delegate should indicate that from what I have 
been able to gather, everybody is his cousin.
    [Laughter.]
    Mr. Rehberg. Mr. Abercrombie, I was going to say exactly 
the same thing.
    [Laughter.]
    Mr. Rehberg. I traveled with him to Samoa and I have never 
met so many cousins in my life.
    [Laughter.]
    Mr. Faleomavaega. Well, I do want to personally welcome Mr. 
Pula this morning, or this afternoon, in our Committee.
    Mr. Pula. Thank you.
    Mr. Faleomavaega. I know he is doing a tough job here in 
answering some very excellent questions from my colleagues.
    Initially, I want to say also, if Mr. Abercrombie needs 
some additional time, I would be more than happy to yield.
    We have got a problem. I believe it was two or 3 years ago 
that we forgave the country of Jordan $500 million in debts 
owed to our government. We did the same thing for several other 
foreign nations. We are doing it to this day.
    Mr. Pula. I just want to remind the Congressman that the 
State Department was here before, on the bill before. Maybe 
these questions should have been asked then. They were the ones 
negotiating the Compact impact.
    Mr. Faleomavaega. But Mr. Pula, we are all Americans.
    Mr. Pula. OK.
    Mr. Faleomavaega. See, this is my point. People or 
countries who will spit in our face, we were willing to give 
$500 million in debt forgiveness to these foreign countries. 
And here, we are talking about true blue Americans.
    The problem here is not even a debt. We are just simply 
discussing the fact that the good lady from Guam is saying, our 
Federal Government owes the Territory of Guam some $187 million 
since the implementation of this Compact on Compact impact aid, 
and I can't find a more reasonable way of saying that I think 
the Federal Government owes the Territory of Guam. In other 
words, what would they have done with the $187 million? They 
would not be in a deficit, in the serious financial situation 
as they are now.
    I cannot help but to commend the gentlelady from Guam for 
bringing this to the attention not only of the Committee, but 
certainly to the Members of Congress in realizing that it is 
such a reasonable proposed legislation and I totally approve 
the proposed legislation, by the way.
    You mentioned, Nik, that you don't have the authority to 
say otherwise in terms of the questions that we raised here, 
but do you agree that the concept is quite firm. These are not 
some figures that the good lady from Guam has just picked out 
of thin air. This is proven by way of record and audits or 
whatever financial research, the study that was done of this 
since 1986, that Guam has had to expend over $187 million to 
provide for the needs of our Micronesian brothers and sisters 
who have had to migrate to Guam for educational, health, and 
whatever reasons.
    Can't we see some sense to this? Because the Department of 
the Interior is the lead agency for the insular areas, would it 
be unreasonable to suggest that the Secretary of the Interior 
should have first shot or the primary person in the President's 
cabinet saying, all of you other agencies, the Department of 
the Navy, the Department of Agriculture, the Homeland Security, 
this is my turf. Our government owes Guam $187 million and they 
should be forgiven this debt.
    Mr. Pula. Thank you, Congressman, for the question. As of 
right now, I had mentioned, alluded in my testimony that that 
is what the Secretary of the Interior is actually at right now, 
having this interagency group, a first organizational meeting 
with the Federal agencies over at the White House, to kind of 
tell the agencies why the President signed this Executive 
Order. We hope that we will bring some of these issues before 
our sister agencies in the administration and address it there.
    Mr. Faleomavaega. In reference to what you said earlier 
about the interagency group, and I want to publicly express my 
appreciation for the President and the White House for inviting 
me and the good ladies from the Virgin Islands and Guam to 
witness this historical signing ceremony at the White House. I 
certainly appreciate the President's consideration that this is 
not a partisan issue.
    But as you had mentioned about the interagency group, and 
following up on what Congressman Abercrombie had alluded to 
earlier, procedurally, and this is certainly within the 
prerogative of the President to organize and to do this 
interagency group, as you may, does this mean that before 
anything is done in reference to the insular areas, it has to 
go through this interagency group before we get some answers 
from the administration? Can you help us exactly how the 
interagency is going to function with reference to what 
Congressman Abercrombie was concerned about?
    Mr. Pula. OK, and I want to go back--
    Mr. Faleomavaega. Because it seems that we are putting 
another layer of bureaucracy again and not going right to the 
meat of things and saying this is either it or no or what.
    Mr. Pula. OK. I would be happy to respond. The notion and 
the idea behind the interagency group is for the 
administration, with all the Federal agencies, to come together 
and discuss issues regarding the insular areas. I don't think 
it is in any way everything has to funnel through that 
interagency. It is another forum where we can present the 
issues of the areas to our sister agencies so that we can 
better coordinate, communicate, and have a comprehensive idea 
to attack some of the problems.
    Mr. Faleomavaega. My time is running, Mr. Pula. Would you 
say that right now, at this moment, if the good Governor of 
Guam is conducting consultations with the Secretary if the 
Interior to seriously consider the proposed legislation that we 
are very hopeful that at some point in time later the 
administration will be supportive of this--this is not as if 
Guam is asking for additional funding. This is just simply to 
reimburse or to give us the money back so that we can pay some 
of the debts and obligations that we currently have. I can't 
see this to be so unreasonable.
    I really would plead with you to please take the message 
back to Secretary Norton and to the administration, this bill 
is absolutely sound. There is no reason why we cannot do this 
for the government of Guam.
    And again, my good friend, the gentlelady from Guam, I 
thank her for her initiative in proposing this legislation and 
I sincerely hope that there will be a change of heart on the 
part of the administration to support this bill.
    Thank you, Mr. Chairman.
    Mr. Rehberg. Mr. Abercrombie?
    Mr. Abercrombie. Just one last point. Mr. Pula, the 
interagency group is under the jurisdiction of the Department 
of the Interior, right?
    Mr. Pula. It has the authorization of the White House.
    Mr. Abercrombie. I beg your pardon?
    Mr. Pula. The Secretary of the Interior is the chairperson 
of the--
    Mr. Abercrombie. Of the group. So it still comes back to 
the Department of the Interior. The bill speaks about the 
Secretary of the Interior making these decisions. So you say 
the more appropriate forum for discussion of this is the 
Interagency Council, but the interagency group still is under 
the Secretary of the Interior.
    Mr. Pula. Thank you. Well, I would like to kind of follow 
up on that Congressman. Let us take an example. Let us say Guam 
owes FEMA, you know, X amount of dollars and the Secretary of 
Interior could not just forgive the debt from FEMA.
    Mr. Abercrombie. I understand that is what you are 
maintaining, but you are suggesting to us, the Department is 
suggesting to us the more appropriate forum, and, in fact, that 
is your exact word, if I am not mistaken, a more appropriate 
forum for addressing the issues raised is the interagency 
group, but the interagency group is under the jurisdiction of 
the Secretary of the Interior. So it is going to go back to the 
Secretary of the Interior anyway, and if the Secretary's 
position is that they are opposed to this bill, then to go 
through the interagency discussion, I am not sure advances 
anything other than to retard the Committee's ability to come 
to a swift conclusion.
    Mr. Pula. Well--
    Mr. Abercrombie. That is all. I appreciate the suggestion, 
but I am not sure it is efficacious for the business of the 
Committee. What I would hope is that you would keep in mind as 
you go back to discuss this, whether with the interagency group 
or not, and with the Secretary, that the delegates' position 
with respect to debt relief is something that is well 
established with other countries and areas, Africa. I think we 
will be able to provide for the Chairman very quickly the 
amount of debt relief that has taken place in other areas.
    And the reason I would hope, again, that the Secretary 
might reconsider and the Bush administration might reconsider 
whether this is an appropriate way of dealing with it where 
Guam is concerned or other insular areas, should a similar 
situation take place, as opposed to Hawaii, is because Hawaii, 
after all, is a State, and I recognize that the same kind of 
consideration couldn't be given to another State. Even though 
the problems may be the same, the solution for them has to take 
a different context. I understand that.
    But where insular areas are concerned, maybe this debt 
relief thing is a kind of unique, or shows an initiative that 
has some particular insight that maybe has escaped some of us 
before. Just because it is unique doesn't mean that it needs to 
be resisted. It may provide a way of dealing with it for the 
administration that simply hasn't been thought of before and 
might be appropriate in the Guam instance and, perhaps, the 
Northern Marianas and so on, and might be appropriate only in 
those circumstances. I don't think it is being put forward as a 
universal solution, but it might provide some relief upon 
reconsideration by the administration that hadn't really been 
taken into account before, given the context of debt relief in 
other situations.
    Mr. Faleomavaega. Will the gentleman yield?
    Mr. Abercrombie. Yes, of course.
    Mr. Faleomavaega. Just for the benefit of my colleagues, 
because I serve on the International Relations Committee, the 
administration has announced a $3 billion aid package to 
Pakistan. In addition to that, Pakistan owes our government 
$2.3 billion. The administration plans to cancel $379 million 
of debt. Why is it that we seem to be harder on ourselves in 
trying to correct some of these inequities than we are with 
foreign countries that would spit in our face or other areas 
where there was never any real sense of continued support with 
some of the policies of what we stand for in other parts?
    And I realize, Mr. Pula, maybe I should have directed this 
question to Mr. Short while he was here, but I hope that you 
understand the concerns that we face here.
    Mr. Pula. Yes, sir.
    Mr. Faleomavaega. This is an American territory. American 
citizens bleed and die in the wars that we fight. And here, the 
fact of this $187 million debt that our government owes to the 
Territory of Guam, and yet we are unwilling to find a solution 
and to see that there is a reconciliation that be taken in 
place in the proposed bill.
    Mr. Rehberg. The gentleman's time has expired.
    Mr. Faleomavaega. But anyway, I want to thank the gentleman 
for yielding and thank you, Mr. Chairman, and I want to thank 
Mr. Pula for his testimony.
    Mr. Pula. Thank you.
    Mr. Rehberg. Mrs. Christensen?
    Mrs. Christensen. Thank you. Just one follow-up to my 
previous question, and I, too, want to thank Mr. Pula for 
having us invited to the White House and for really reviving 
the IGIA. But that is not to say that I agree with the 
approach, either.
    Guam is looking at a very severe financial crisis right now 
and I don't see, while they themselves would agree that 
management of money has a role, it is not entirely of their own 
fault. They had to deal with the Japan economic crisis, SARS 
war, and a lot, and typhoons. So this crisis is not entirely of 
their own making. I am assuming that the Office of Insular 
Affairs is seeking ways to support Guam addressing the crisis.
    Mr. Pula. You assume correctly.
    Mrs. Christensen. OK. Now, in that context, looking at 
that, don't you see this in the context of their need to 
resolve their financial crisis, and doesn't that put this H.R. 
2522 in another light, as a way that the office would assist 
them in this, and if not, what specifically is the Office of 
Insular Affairs proposing for Guam in terms of help?
    Mr. Pula. Just a quick answer. The Office of Insular 
Affairs, like I mentioned earlier, we will be meeting with the 
Governor and discuss the concerns with Guam and will do what we 
can within our power to assist. Should the Congress pass this 
resolution, the administration will deal with it accordingly.
    Mrs. Christensen. Thank you.
    Mr. Rehberg. Ms. Bordallo? Seeing no other questions from 
the Committee members, I thank the panelist.
    Again, as I mentioned, the members of the Committee may 
have some additional questions for you and we will ask that you 
respond in writing. The hearing record will be held open for 
these responses.
    Mr. Pula. Thank you.
    Mr. Rehberg. Thank you.
    Mr. Pula. Thank you, Mr. Chairman.
    Mr. Rehberg. Panel No. 5, which consists of two witnesses. 
If you would please come up, and before you sit down, I will 
administer the oath. Please raise your right hand and repeat 
after me.
    Do you solemnly swear or affirm under the penalty of 
perjury that the statements made and the responses given will 
be the whole truth and nothing but the truth, so help you, God?
    Mr. Camacho. I do.
    Mr. Pangelinan. I do.
    Mr. Rehberg. Note that the witnesses answered in the 
affirmative.
    The Chairman now recognizes the Governor of Guam, Mr. Felix 
Camacho, and Mr. Vicente Pangelinan. Mr. Camacho, welcome.

              STATEMENT OF HON. FELIX P. CAMACHO, 
                        GOVERNOR OF GUAM

    Mr. Camacho. Good morning, Mr. Chairman and members of the 
House Committee on Resources. I am Felix Camacho, Governor of 
Guam. It is a great pleasure and distinct honor to make my 
first appearance before Congress today to testify on H.R. 2522, 
introduced by Guam's delegate to Congress, Congresswoman 
Madeleine Bordallo, on behalf of the people of Guam.
    As fellow Americans and America's Westernmost gateway, the 
people of Guam have proven their patriotism and loyalty to the 
principles of democracy that make this nation great. Ours is a 
long history of defending those principles. Our sons and 
daughters have consistently boasted the highest per capita 
enlistment into our Armed Forces.
    Ours was the only piece of American soil occupied during 
World War II, for two-and-a-half years, from December 8, 1941, 
to July 21, 1944. As bombs fell on Pearl Harbor, they fell on 
Guam, followed by invasion and occupation. Battles for Guam and 
other parts of the Northern Marianas were among the bloodiest 
of the war. Our parents and grandparents fought gallantly to 
defend our piece of America against invasion, and during untold 
atrocities, starvation, and death. Concentration camps at 
Manengon and other interior sites were established by the 29th 
Division of Japan's army. Six-hundred Chamorus were officially 
executed. Some were beheaded due to the local people's 3-year 
patriotic efforts to successfully feed and hide the last 
remaining U.S. Navy radioman, George Tweed, from capture during 
occupation. In defiance of their occupiers, our people coined a 
song so telling of our deep patriotism, ``Uncle Sam, Won't You 
Please Come Back to Guam?''
    A simple visit to the War in the Pacific National Memorial 
Park tells the tale of the true cost of the war on our people. 
Upon a haunting crescent-shaped wall, you can see the thousands 
of names of Americans and our Chamorro people who lost their 
lives and those who survived, standing up in the face of 
tyranny for the democracy and the country that they so loved. 
You will see the names of men like Pedro Cruz, Vicente 
Chargualaf, Ramon Camacho, who defended their island and their 
nation and mounted a brave but futile defense of Government 
House against overwhelming Japanese forces. You will find the 
name of Beatrice Emsley, a woman who was nearly beheaded by 
Japanese troops during the occupation. She survived and lived 
to testify before this great Congress about the atrocities of 
war on Guam. She recently passed away.
    Our people have sacrificed for many years, including the 
Vietnam War, where our young Chamorro soldiers had one of the 
highest per capita death rates in that conflict. My father, the 
late Governor Carlos Camacho, was the only Governor in the 
United States to visit our soldiers in Vietnam during two 
successive Christmases to ensure that the sons of Guam knew 
that their people supported their efforts during that conflict.
    More recently, Guam played a major role as a refueling 
point for bombers flying to the Gulf War and as the first 
staging area for Kurdish refugees, and we stand ready to serve 
our nation as she needs us. Time and again, Guam has borne the 
great responsibility of being American, proudly and with 
unwavering patriotism.
    Today, I come before you representing the people of Guam in 
support of H.R. 2522, or similar legislation, to bring balance 
to a commitment that our nation made to the Freely Associated 
States and to your fellow Americans on Guam. While we recognize 
our responsibilities as Americans to provide a beacon of 
freedom and hope for those who seek to participate in our great 
democracy, Guam is, unfortunately, not in the financial 
position to carry out this duty without further assistance.
    I wish I could appear before you to deliver the message 
that Guam can carry this burden alone. I cannot. I wish I could 
tell you that the Government of Guam stands ready to fulfill 
its commitment on behalf of our great nation, but we cannot do 
so without your assistance.
    Like every State and territory in this nation, Guam has 
been affected by a changing world economy, one that has caused 
a serious contraction in our local economy and has left us with 
the enormous responsibility of providing for our citizenry with 
ever-dwindling resources. Guam's unemployment rate prior to the 
devastation of super-typhoon Pongsona on December 8 of 2002 was 
at 11.4 percent. Our government revenues have decreased by more 
than 40 percent in the last 2 years.
    As we stand at our airport welcoming Compact citizens, we 
watch as our own local residents leave our island to pursue 
better opportunities in the mainland. Guam is--we are 
experiencing a ``brain drain'' similar to that of the 1970's, 
which severely limited our intellectual and technical ability 
to support economic diversity.
    We have an economy in the midst of its longest and deepest 
recession, and recovering from that destruction of Guam's most 
damaging super-typhoon in 26 years. Super-typhoon Pongsona 
caused nearly one-quarter of a billion dollars in damage, more 
than seven times as much per capita as any in our nation, a 
national record we would rather not have. Our per capita costs 
for recovery from these storms is $1,599. To put this in 
perspective, the nation's highest per capita cost for a 
disaster prior to Pongsona on Guam was the Northridge 
earthquake in California. The per capita cost for that disaster 
was $211.
    It damaged every one of Guam's 35 public schools. It 
crippled our utilities. It caused mandatory gas rationing. Two-
thousand-two was indeed a disastrous year for our island. 
Several months before the super-typhoon, we were hit by Typhoon 
Chata'an, which caused massive damage. We were finally on a 
road to recovery when Pongsona came around. We must not forget 
the earthquake that year, which knocked out power lines, 
bridges, and other critical infrastructure.
    These natural disasters, coupled with an economic recession 
mirroring the Asian economic crisis that has been with us for 
10 years, has unfortunately led our people into the worst 
economic times in the history of our island. Despite our 
hardships, the people of Guam continue to do our part to uphold 
our nation's Compact with the Freely Associated States. But 
given our dire situation, we are less and less capable of doing 
so without causing great harm to our local community.
    While Guam, the CNMI, and even Hawaii have been active 
participants in the Compact negotiations from its initial 
negotiations in 1969, or at any time since, we have all 
accepted our roles in its implementation. Upon enactment of 
U.S. Public Law 99-239, the people of Guam have embraced 
residents of FSM and the Republic of the Marshalls and the 
Republic of Palau who have migrated to our island, providing 
them with essential services, from education and health care to 
public assistance and economic support, and we have done so 
with limited support from the Federal Government.
    Guam continues to provide the children from the FAS with 
public education, even though we lost some $10 million annually 
with the opening of the Department of Defense schools on Guam. 
We continue to assist their underprivileged, even though we are 
limited by a funding cap of $4.86 million placed on Guam's 
Federal public assistance programs, while the impact of Compact 
residents in 2002 alone was $12.1 million. We continue to care 
for their sick and elderly through Guam's local medically 
indigent program, as they do not qualify for Federal Medicaid. 
Our only public hospital continues to bear the cost, which last 
year eclipsed $7.8 million, to care for 6,729 of their sick, 
even though they could not afford the cost of health care.
    All three branches of Guam's government fulfill their 
collective responsibility to uphold the Compact our nation 
negotiated. We do so not so much because we are legally 
required to do so, but because it is the very American ideal of 
equality that we embrace.
    In the past, other Guam leaders have appeared before this 
Committee, taking the position that more must be done to 
properly compensate the impact of the Compact of Free 
Association on our island. The basis of that claim was Section 
104 of Public Law 99-239, which states, ``In approving the 
Compact, it is not the intent of Congress to cause any adverse 
consequences for the United States territories and 
commonwealths or State of Hawaii.'' Further, as stated in H.R. 
2522, Congress provided that if any adverse consequences to 
Guam resulted from the implementation of the Compact, Congress 
would act sympathetically and expeditiously to redress those 
adverse consequences, and every leader who has appeared before 
this body has asked for that compensation.
    This lack of Federal funding has always placed us in an 
awkwardly adversarial relationship, forcing the Federal 
Government to defend its own position, just as Guam has been 
forced to speak to the realities of the Compact's impact on our 
people.
    Today, in the spirit of unity and bipartisanship, 
Congresswoman Bordallo and I offer a different approach, a 
commitment to work with the Federal Government to bring balance 
to our desire to uphold the ideals of our great democracy and 
to do so within the bounds of our local economic realities.
    Since assuming office in January of this year, my 
administration has worked closely with the Department of 
Interior, more specifically with the Office of Insular Affairs. 
We have developed a strong cooperative relationship that 
reflects a mutual respect for the duties of each. I personally 
met with Secretary Norton and have spent a significant amount 
of time with the Deputy Assistant Secretary for Insular 
Affairs, David Cohen, on many outstanding issues on Guam. We 
are coming to a resolution on many of those, including prior 
inefficiencies of the Government of Guam, to correct concerns 
raised by the DOI Inspector General's audits.
    And at home, my administration has taken major steps, 
unprecedented, strides at controlling the cot of government and 
bringing it back in line with the meager revenues that we have. 
We have acted decisively to avoid payless paydays and a 
governmentwide shutdown. We have been forced to make the 
difficult choice to reduce hours and consolidate services and 
outsource to lower the costs of government. We have reduced the 
work week to 32 hours, implemented governmentwide furloughs, 
reduced benefits packages, eliminated the practice of double-
dipping, those who work in government and collecting GovGuam 
retirement pensions, as well.
    We have restricted overtime, implemented a plan to 
outsource government services, and expedited the construction 
of CIP projects to inject millions into our shrinking economy. 
We are in the process of reducing the number of government 
agencies from 52 down to only 12, which will reduce our payroll 
by more than 1,000 government employees by the end of the 
fiscal year. We have begun aggressive tax collections and 
audits and we are now working with the Department of Interior 
to bring Federal agents to assist in these efforts.
    I believe that my administration has shown our commitment 
to work with the Department of Interior to resolve many issues 
that have in the past been ignored or inadequately addressed. I 
am confident that we can build on the respect and cooperation 
we have forged over the past 7 months to bring mutually 
beneficial resolution to the issues addresed in H.R. 2522, or 
similar legislation. Measures like these will assist our island 
and our government in staying afloat during these difficult 
times. Through measures like H.R. 2522, we will be able to work 
directly with the Department of Interior on an issue that they 
know better than any Federal entity, the effect of Compact 
migration on the insular areas.
    I could sit before you and cite various provisions of the 
Compact of Free Association Act of 1985 and the General 
Accounting Office's findings that support Guam's case on the 
need for additional funding. However, your Committee has more 
intimate knowledge of those provisions and findings than I 
could ever expect to enhance.
    What I will offer through my testimony today is a 
commitment of the government and the people of Guam to work 
through the enactment of measures like H.R. 2522 with the 
Department of Interior to bring much needed balance to the 
level of impact the Compact has had on our people, through a 
balancing of the books, a reconciliation of debt between the 
Government of Guam and the Federal Government, debts we owe and 
are owed. H.R. 2522, or similar legislation, would allow us the 
opportunity to honor both debts in a just and fair manner.
    My commitment is, with Congress's blessings, to offer my 
full support to the Department of Interior to provide timely 
and accurate reporting on the Compact's impact and progress, 
with the ultimate goal of ensuring that all participants, the 
U.S. Government, the people of the Freely Associated States, 
and the people of Guam all benefit from this relationship.
    We simply ask that the people of Guam have fulfilled their 
commitment to the Compact, that the Federal Government do its 
part in ensuring that the people, the faithful U.S. citizens, 
are fully protected from the impact of the Federal Government's 
agreement with the Freely Associated States.
    The people of the Freely Associated States will continue to 
be welcomed members of our democratic society. We will continue 
to encourage their participation in our community and we will 
provide, as we are capable, the full extent of our social 
services to them as full-fledged members of Guam's community. 
We simply ask for your support in providing a mechanism for our 
people to bring about equity and balance to the process.
    As proud Americans, the people of Guam continue to support 
our nation's mandates. As proud Americans, we embrace our 
responsibilities of freedom and democracy. However, we ask for 
greater latitude to adjust to the complexities of this unique 
and very American relationship with the people of the Freely 
Associated States.
    I thank Madam Bordallo, Congresswoman, for her work in 
drafting H.R. 2522. I thank the good Chairman and members of 
this Committee for providing a venue for voicing our support 
for this bill. And I hope that the members of this Congress 
will allow the people of Guam the opportunity to work with the 
Department of Interior to rectify imbalances that were created 
long before either of us assumed our roles of leadership.
    I thank you, si yu'os ma'ase, and God bless America.
    Mrs. Cubin. [Presiding.] Thank you, Governor. I would like 
to apologize for the confusion in the beginning of your 
testimony when I came in. As you know, we have a lot of 
business on the floor and that is where other members are. I 
thank you very much for your testimony.
    [The prepared statement of Mr. Camacho follows:]

          Statement of Hon. Felix P. Camacho, Governor of Guam

    Good morning and Hafa adai Chairman Pombo and members of the House 
Committee on Resources. I am Felix Camacho, Governor of Guam. It is a 
great pleasure and distinct honor to make my first appearance before 
Congress today, to testify on H.R. 2522, introduced by Guam's own 
Delegate to Congress, Ms. Madeleine Bordallo, on behalf of the people 
of Guam.
    As fellow Americans and America's westernmost gateway, the people 
of Guam have proven their patriotism and loyalty to the principles of 
democracy that make this nation great. Ours is a long history of 
defending those principles.
    Our sons and daughters have consistently boasted the highest per 
capita enlistment into our armed forces. Ours was the only piece of 
American soil occupied during World War II for two and a half years, 
from December 8, 1941 to July 21, 1944. As bombs fell on Pearl Harbor, 
they fell on Guam--followed by invasion and occupation. Battles for 
Guam and other parts of the Northern Marianas were among the bloodiest 
of the war. Our parents and grandparents fought gallantly to defend our 
piece of America against invasion--enduring untold atrocities, 
starvation and death. Concentration camps at Manengon and other 
interior sites were established by the 29th Division of Japan's Army. 
Six hundred Chamorus were officially executed. Some were beheaded due 
to the local people's 3-year patriotic efforts to successfully feed and 
hide the last remaining U.S. Navy radioman, George Tweed, from capture 
during occupation. In defiance of their occupiers, our people coined a 
song so telling of our deep patriotism... Uncle Sam, Won't You Please 
Come Back to Guam.
    A simple visit to War in the Pacific National Memorial Park Park 
tells the tale of the true cost of the war on our people. Upon a 
haunting crescent-shaped wall, you can see the thousands of names of 
Americans and our Chamorro people who lost their lives and those who 
survived standing up in the face of tyranny for the democracy and the 
country that they so loved. You will see the names of men like Pedro 
Cruz, Vicente Chargualaf and Ramon Camacho who defended their island 
and their Nation and mounted a brave but futile defense of Government 
House against overwhelming Japanese forces. You will find the name of 
Beatrice Emsley, a woman who was nearly beheaded by Japanese troops 
during the occupation. She survived, and lived to testify before this 
great Congress about the atrocities of war on Guam. She recently passed 
away.
    Our people have sacrificed for many wars... including the Vietnam 
War, where our young Chamorro soldiers had one of the highest per 
capita death rates in that conflict.
    My father, the late Governor Carlos G. Camacho was the only 
Governor in the United States to visit our soldiers in Vietnam during 
two consecutive Christmases, to ensure that the sons of Guam knew that 
their people supported their efforts during that conflict.
    More recently, Guam played a major role as a refueling point for 
bombers flying to the Gulf War and as the first staging area for 
Kurdish refugees. And we stand ready to serve our Nation, as she needs 
us.
    Time and again, Guam has borne the great responsibility of being 
American, proudly and with unwavering patriotism.
    Today, I come before you, representing the people of Guam, in 
support of H.R. 2522, or similar legislation, to bring balance to a 
commitment that our nation made to the Freely Associated States and to 
your fellow Americans on Guam. While we recognize our responsibilities 
as Americans to provide a beacon of freedom and hope for those who seek 
to participate in our great democracy, Guam is, unfortunately, not in 
the financial position to carry out this duty without further 
assistance.
    I wish I could appear before you to deliver the message that Guam 
can carry this burden alone... I cannot. I wish I could tell you that 
the government of Guam stands ready to fulfill this commitment on 
behalf of our great nation... but we cannot do so without your 
assistance.
    Like every state and territory in this nation, Guam has been 
affected by a changing world economy, one that has caused a serious 
contraction in our local economy and has left us with the enormous 
responsibility of providing for our citizenry with ever dwindling 
resources. Guam's unemployment rate prior to the devastation of Super 
Typhoon Pongsonga on December 8, 2002, was at 11.4 percent. Our 
Government revenues have decreased by more than 40% in the last two 
years.
    As we stand at our airport welcoming compact citizens, we watch as 
our own local residents leave our island to pursue better opportunities 
here in the mainland. Guam is experiencing a ``brain drain'' similar to 
that of the 1970s, which severely limited our intellectual and 
technical ability to support economic diversity.
    We have an economy in the midst of its longest and deepest 
recession--and recovering from the destruction of Guam's most damaging 
super typhoon in 26 years.
    Super Typhoon Pongsona caused nearly one-quarter of a billion 
dollars in damage--more than seven times as much per capita as any in 
our nation--a national record we would rather not have. Our per capita 
cost for recovery from these storms is $1,599.03. To put this in 
perspective, the Nation's highest per capita cost for a disaster, prior 
to Pongsona on Guam, was the Northridge Earthquake in California. The 
per capita cost for that disaster was $211.
    It damaged every one of Guam's 35 public schools. It crippled our 
utilities. It caused mandatory gas rationing. 2002 was indeed a 
disastrous year for our island--several months before the super typhoon 
we were hit by Typhoon Chata an--which caused massive damage. We were 
finally on our road to recovery when Pongsonga came around. We must not 
forget the earthquake that year'' which knocked down power lines, 
bridges and other critical infrastructure. These natural disasters--
coupled with an economic recession mirroring the Asian economic crisis 
that has been with us for 10 years--has unfortunately led our people 
into the worst economic times in the history of our island.
    Despite our hardships, the people of Guam continue to do our part 
to uphold our Nation's Compact with the Freely Associated States--but 
given our dire situation we are less and less capable of doing so 
without causing greater harm to our local community.
    While Guam, the CNMI and even Hawaii have not been active 
participants in the Compact negotiations, from its initial negotiations 
in 1969 or at any time since, we have all accepted our roles in its 
implementation. Upon the enactment of U.S. Public Law 99-239, the 
people of Guam have embraced residents of the Federated States of 
Micronesia and the Republic of the Marshall Islands who have migrated 
to our island, providing them with essential services, from education 
and healthcare to public assistance and economic support. And we have 
done so with limited support from the Federal Government.
    Guam continues to provide children from the FAS with public 
education even though we lost some $10 million annually with the 
opening of DODEA schools on Guam. We continue to assist their 
underprivileged even though we are limited by a funding cap of $4.86 
million placed on Guam's Federal public assistance programs, while the 
impact of Compact residents in 2002 alone was $12.1 million. We 
continue to care for their sick and elderly through Guam's local 
medically indigent program, as they do not qualify for Federal 
Medicaid. Our only public hospital continues to bear the costs, which 
last year eclipsed $7.8 million, to care for 6,729 of their sick, even 
when they could not afford the cost of healthcare.
    All three branches of Guam's government fulfill their collective 
responsibility to uphold the Compact our nation negotiated. We do so--
not so much because we are legally required to do so--but because it is 
the very American ideal of equality that we embrace.
    In the past, other Guam leaders have appeared before this Committee 
taking the position that more must be done to properly compensate the 
impact of the Compact of Free Association on our island. The basis of 
that claim was Section 104 of Public Law 99-239, which states ``In 
approving the Compact, it is not the intent of Congress to cause any 
adverse consequences for the United States territories and 
commonwealths or the State of Hawaii.'' Further, as stated in H.R. 
2522, ``Congress provided that if any adverse consequences to Guam 
resulted from the implementation of the Compact, Congress would act 
sympathetically and expeditiously to redress those adverse 
consequences.'' And every leader who has appeared before this body has 
asked for that compensation.
    This lack of Federal funding has always placed us in an awkwardly 
adversarial relationship, forcing the Federal Government to defend its 
own position, just as Guam has been forced to speak to the realties of 
the Compact's impact on our people.
    Today, in the spirit of unity and bipartisanship, Congresswoman 
Bordallo and I offer a different approach: a commitment to work with 
the Federal Government to bring balance to our desire to uphold the 
ideals of our great democracy and to do so within the bounds of our 
local economic realities.
    Since assuming office on January 6th of this year, my 
Administration has been working closely with the Department of Interior 
and more specifically with the Office of Insular Affairs. We have 
developed a strong, cooperative relationship that reflects a mutual 
respect for the duties of each. I have personally met with Secretary 
Norton and spent a significant amount of time with Deputy Assistant 
Secretary for Insular Affairs, David Cohen, on many outstanding issues 
on Guam. We are coming to resolution on many of those, including prior 
inefficiencies of the government of Guam to correct concerns raised by 
the DOI Inspector General's audits.
    Back at home, my Administration has taken major--unprecedented--
strides at controlling the cost of government and bringing it back in 
line with the meager revenues we have. We have acted decisively to 
avoid payless paydays and a government-wide shutdown. We have been 
forced to make the difficult choice to reduce hours... consolidate 
services... and outsource... to lower the cost of government. We have 
reduced the workweek to 32-hours, implemented government-wide 
furloughs, reduced benefit packages, eliminated the practice of double-
dippers--those working in government and collecting GovGuam Retirement 
pensions as well.
    We've restricted overtime, implemented a plan to outsource 
government services and expedited the construction of CIP projects to 
inject millions into our shrinking economy. We are in the process of 
reducing the number of government agencies from 52 down to only 12, 
which will reduce our payroll by more than 1,000 government employees 
by the end of this fiscal year. We have begun aggressive tax 
collections and audits... and we are now working with the Department of 
Interior to bring Federal agents to assist in these efforts.
    I believe that my Administration has shown our commitment to work 
with the Department of Interior to resolve many issues that have, in 
the past, been ignored or inadequately addressed. I am confident that 
we can build on the respect and cooperation we have forged over the 
past seven months to bring mutually beneficial resolution to the issues 
addressed in H.R. 2522, or similar legislation. Measures like these 
will assist our island and our government in staying afloat during 
these difficult times.
    Through measures like H.R. 2522, we will be able to work directly 
with the Department of Interior on an issue that they know better than 
any other Federal entity'' the affect of Compact migration on the 
insular areas.
    I could sit before you and cite the various provisions of the 
Compact of Free Association Act of 1985 and the General Accounting 
Office's findings that support Guam's case on the need for additional 
funding. However, your Committee has more intimate knowledge of those 
provisions and findings than I could ever expect to enhance.
    What I will offer through my testimony today is a commitment of the 
government and people of Guam to work, through the enactment of 
measures like H.R. 2522, with the Department of Interior to bring much 
needed balance to the level of impact the Compact has had on our 
people, through a balancing of the books... a reconciliation of debt 
between the government of Guam and the Federal Government. Debts we owe 
and are owed. H.R. 2522, or similar legislation, would allow us the 
opportunity to honor both debts in a just and fair manner.
    My commitment is--with Congress's blessing--to offer my full 
support to the Department of Interior to provide timely and accurate 
reporting on the Compact's impact and progress, with the ultimate goal 
of ensuring that all participants--the United States government, the 
people of the Freely Associated States and the people of Guam--all 
benefit from this relationship.
    We simply ask that as the people of Guam have fulfilled their 
commitment to the Compact, that the Federal Government do its part in 
ensuring that the people--faithful U.S. citizens--are fully protected 
from the impact of the Federal Government's agreement with the Freely 
Associated States.
    The people of the Freely Associated States will continue to be 
welcomed members of our democratic society. We will continue to 
encourage their participation in our community and we will provide, as 
we are capable, the full extent of our social services to them as full-
fledged members of Guam's community. We simply ask for your support in 
providing a mechanism for our people to bring about equity and balance 
to the process.
    As proud Americans, the people of Guam continue to support our 
nation's mandates. As proud Americans, we embrace our responsibilities 
of freedom and democracy. However,
    we ask for greater latitude to adjust to the complexities of this 
unique and very American relationship with the people of the Freely 
Associated States.
    I thank Ms. Bordallo for her work in drafting H.R. 2522. I thank 
the good Chairman and the members of this committee for providing a 
venue for voicing our support for this bill. And I hope that the 
members of this Congress will allow the people of Guam the opportunity 
to work with the Department of Interior to rectify imbalances that were 
created long before either of us assumed our roles of leadership.
    Thank you. Si Yu'os Ma'ase. And God bless America.
                                 ______
                                 
    Mrs. Cubin. At this time, I would like to recognize the 
Honorable Vicente Pangelinan and welcome your testimony.

    STATEMENT OF HON. VICENTE (BEN) C. PANGELINAN, SPEAKER, 
                      LEGISLATURE OF GUAM

    Mr. Pangelinan. Thank you very much. Hafa adai, Madam 
Chairman and members of the Committee. It is with great esteem 
and highest honor and six plane changes and four time zones 
later that I appear before you and the Committee to present my 
strong support for H.R. 2522.
    For the record, I would also wish to present the 27th Guam 
Legislature's Resolution 52, unanimously supporting H.R. 2522.
    Mrs. Cubin. With unanimous consent, that will be entered in 
the record. Hearing no objection, so ordered.
    Mr. Pangelinan. Thank you.
    [The resolution of the Legislature of Guam follows:] 
    [GRAPHIC] [TIFF OMITTED] T8192.006
    
    [GRAPHIC] [TIFF OMITTED] T8192.007
    

    Mr. Pangelinan. H.R. 2522 is an act to amend the Organic 
Act of Guam to authorize the Secretary of Interior to reduce, 
release, or waive amounts owed by the Government of Guam to the 
Federal Government to offset unreimbursed Compact impact 
expenses.
    Since the passage of the Compact of Free Association 17 
years ago, Guam has fulfilled a promise made by the United 
States to the Freely Associated States of Micronesia. The 
United States opened the doors to America to their citizens, 
and they came to Guam searching for better health, education, 
and economic opportunities. They came and stayed, availing 
themselves of the services and resources that we provided for 
all. We knew that it was costing us to provide and take care of 
our own neighbors and America's newest partners in the Pacific, 
but we, as good neighbors, welcomed them, and we were assured 
and reassured by the provisions of the Compact, U.S. Public Law 
99-239, that the United States knew this and provided for the 
mitigation of the effects.
    Congress, with great foresight, foresaw the consequences 
migration would have on our small island. Congress clearly 
stated that in approving the Compact, it is not the intent of 
Congress to cause any adverse consequences for the United 
States territories and commonwealths or the State of Hawaii. In 
clearly stating its intent, I commend Congress for being able 
to see around the corners and include provisions to address the 
integration of these FAS citizens into our communities and the 
strain it places on our limited resources. It tasked the 
President to report to Congress with respect to the impact of 
the Compact of the United States territories, and then later, 
it allowed the Governors to submit these reports directly to 
Congress for its consideration and action.
    We are not coming to Congress with empty pockets and open 
hands, asking for Congress to fill them, without justification 
or authority. We have fulfilled Congress's promise to our 
newest Pacific partners and we appear here today asking that 
Congress fulfills its commitment to its territories, and in 
this specific instance, our home, Guam.
    In Public Law 99-239, the Compact of Free Association, 
Congress was declaratory in its commitment to redress adverse 
consequences. It stated, ``If any adverse consequences to the 
United States territories and commonwealths and the State of 
Hawaii result from the implementation of the Compact of Free 
Association, the Congress will act sympathetically and 
expeditiously to redress these adverse consequences.''
    We appear here today without shame, not seeking charity, 
but seeking the grace of Congress and its honorable members. 
With H.R. 2522, Guam is not asking for special treatment with 
regards to repayment of Federal funds. In this case, Guam is 
both a lender and a borrower. We only seek an equitable 
repayment plan. It is estimated that the Federal Government has 
yet to reimburse Guam more than $150 million in Compact impact 
expenses through Fiscal Year 2003, which is about 80 percent of 
the total impact costs.
    Guam has met the commitment the United States made in the 
Compacts of Free Association and we will continue to honor them 
as long as they are in effect and as long as our resources 
permit. This is our duty as Americans and our sincere desire to 
continually advance our nation's interests in the Western 
Pacific. Guam has honored these pledges in good faith, despite 
our absence from direct participation in Compact negotiations 
regarding migration and despite the stress the migration places 
on our finances.
    Years of increasing Compact immigration have contributed to 
the debilitation of our local government service upon which all 
of our people rely. Among the many systems operated by the 
Government of Guam, public education and the public health care 
system, cornerstones of any government, have absorbed the 
hardest impact. Our public schools are overcrowded and linger 
in disrepair. Our only civilian hospital as of Fiscal Year 2001 
was owed $21 million by FAS citizens. Many of our public 
services are already spread thin by other factors and they are 
spread even more thinly by the effects and demands placed upon 
them by Compact migration.
    H.R. 2522 should not be seen as an indicator that Guam 
cannot properly manage our responsibilities. On the contrary, 
we have been vigilantly mindful of our obligations. It is 
precisely this mindfulness that has brought us here today. We 
have been fulfilling our obligations to the U.S. Government and 
we expect nothing less than likewise from the U.S. Government.
    The financial considerations that bring us before this 
Committee today are largely due to circumstances that have not 
befallen other communities. In the past decade, Guam has been 
subjected to several highly destructive typhoons and 
earthquakes. Furthermore, because our small economy is highly 
dependent on tourism, the effects of the Asian economic crisis, 
September 11, and the recent SARS scares have drastically 
affected island business. Compact migration is only one of a 
list of factors beyond Guam's control that adversely impact our 
economy and ability to pay our debt to the Federal Government. 
In short, the money that we could have used to repay these 
debts to the Federal Government have been used for disaster 
recovery, economic recovery, and Compact impact.
    As we struggle to repay our Federal obligations, we have no 
choice but to burden our citizens. This comes in the form of 
increased costs for services and higher taxes on our local 
population in order to continue essential services to everyone 
living on Guam. If we were to receive full reimbursement for 
Compact impact as foreseen by Congress in 1986 when it passed 
the Compacts, we can reduce this burden to our people.
    H.R. 2522 is not a way for Guam to wash its hands of the 
spirit of the Compact of Free Association. Rather, Guam, in 
every way an integral member of its Western Pacific 
neighborhood, and the success of our island neighbors 
represents the success of the region as a whole. Compact 
migration does have some positive effects on Guam's economy. 
Citizens of Freely Associated States who reside on Guam 
contribute to the island's economy in terms of employment and 
taxes. Still, many migrants from the FAS who live on Guam 
continue to liver under poverty level, though. Moreover, 
additional population did not bring a corresponding expansion 
to our economy. As a result, more people have had to share the 
same level of services.
    Guam recognizes that as the hub of Micronesia, it must take 
the lead in promoting greater economic prosperity for the 
region. However, this cannot occur if Guam is hindered by the 
diversion of limited resources to Compact obligations without 
prompt and proper compensation.
    In reports submitted to the Federal Government in the area 
of education, an area specifically identified qualifying for 
compensation, we find over 3,500 students of FAS citizens 
enrolled in Guam's public schools during Fiscal Year 2000-2001.
    Once upon a time, the Federal Government paid the local 
school system the cost of educating military and other Federal 
dependents attending schools. It calculated and paid a per 
pupil cost of approximately $4,000 per pupil. This is the cost 
that the Federal Government accepted and remitted to the local 
government as the cost impact for providing education to each 
child. If we are to use this Federally accepted cost to 
calculate the impact on our educational system on FAS children, 
Guam should have received over $14 million in that year alone 
for education alone.
    The costs are just as extraordinary for the other areas, 
public health and other social services. Our prison impact is 
over $5 million. Police services are over $11 million. And 
health and welfare totals over $64 million over the life of the 
Compact.
    We ask that Congress recognize the increased demands on the 
limited resources that we have shared with Freely Associated 
citizens on behalf of the United States. As Congress so 
righteously embedded in Public Law 99-239, providing for 
Compact impact costs, it stated, ``There are hereby authorized 
to be appropriated for fiscal years beginning after September 
30, 1985, such sums as may be necessary to cover the costs, if 
any, incurred by the State of Hawaii, the Territories of Guam 
and American Samoa, and the Commonwealth of the Northern 
Mariana Islands resulting from increased demand placed on 
educational and social services by immigrants from the Marshall 
Islands and the Federated States of Micronesia.''
    We are now at a time when the United States and the Freely 
Associated States are reauthorizing the Compact and it is our 
fortune to avail ourselves of a path not taken in H.R. 2522.
    One of my favorite poems is ``The Road Not Taken,'' by 
Robert Frost, the nation's Poet Laureate, bestowed that title 
by President John F. Kennedy. It speaks about coming upon a 
fork in the road and deciding to take one road over the other, 
and how once we set upon one path, time and circumstances 
prevent us from ever having the opportunity to return to that 
fork and change paths.
    In addressing the Compact impact reimbursement, Congress 
has set upon a path over the last 17 years. Today, H.R. 2522 
gives us an opportunity to set upon a different path, for we 
know the path we have traveled over the last 17 years has not 
done right for the United States territories and commonwealths 
and the State of Hawaii. Seldom is one presented such an 
opportunity, and when fortune embraces one with such, he must 
take what he has learned from his first choice when returning 
to that fork in the road and setting upon the road not taken. 
Today, let us at this fork in the road embark upon the road not 
taken, take on H.R. 2522, and we will all be better for it.
    Once again, on behalf of the 27th Guam Legislature, I am in 
full support of H.R. 2522 and I thank you again for the 
opportunity to present our position.
    [The prepared statement of Mr. Pangelinan follows:]

        Statement of The Honorable Vicente Pangelinan, Speaker, 
                          Legislature of Guam

    Hafa adai, Mr. Chairman. It is with great esteem and high regard 
that I appear before you and the Committee to present my strong support 
for H.R. 2522.
    H.R. 2522 is an act to amend the Organic Act of Guam to authorize 
the Secretary of the Interior to reduce, release, or waive amounts owed 
by the Government of Guam to the Federal Government to offset un-
reimbursed Compact impact expenses.
    I want to present to the Committee Legislative Resolution 52 
unanimously passed by the 27th Guam Legislature in full support of H.R. 
2522.
    For the past 17 years, Guam has fulfilled a promise made by the 
United States to the Freely Associated States of Micronesia, by 
providing health, educational and economic opportunities to its 
citizens.
    With the provision for open immigration and habitual residency 
granted to FAS citizens in the United States, Congress with its 
foresight recognized that the choice most attractive to these new 
members of the American umbrella in the Pacific was the migration to 
the closest American community, such as Guam. It also foresaw the 
consequences migration would have on our small island. Congress clearly 
stated that ``in approving the compact, it is not the intent of 
Congress to cause any adverse consequences for the Unites States 
territories and Commonwealths or the State of Hawaii.''
    In clearly stating its intent, I commend Congress for being able to 
``see around corners'' and include provisions to address the 
integration of these FAS citizens into our communities and strain it 
places on our limited resources. It tasked the President to report to 
Congress with respect to the impact of the Compact on the United States 
territories and Commonwealths and on the State of Hawaii. It later 
allowed the Governors to submit these reports directly to the Congress 
for its consideration and action.
    It has been 17 years since we since we have walked the path of 
political and economic development with our neighboring freely 
associated states. While progress has come slowly in the development of 
local opportunities in these states, Guam and our sister Pacific 
American communities, the Commonwealth of the Northern Marianas and 
Hawaii, have attracted the migrating citizens seeking education, health 
and economic advancement for themselves and their families. And we have 
supported and paid for their opportunities, paid for them with our 
limited resources.
    We are not coming to Congress with empty pockets and open hands 
asking for Congress to fill them without justification or authority. As 
we have fulfilled Congress' promise to its newest Pacific partners, we 
appear here today to ask that Congress fulfills its commitment to its 
territories, and in this specific instance, our home, Guam.
    In U.S. P.L. 99-239, the Compact of Free Association, Congress was 
declaratory in its commitment to redress adverse consequences. It 
stated ``...if any adverse consequences to the United States 
territories and commonwealth and the State of Hawaii result from the 
implementation of the Compact of Free Association, the Congress will 
act sympathetically and expeditiously to redress those adverse 
consequences.''
    We appear here today, without shame, not seeking charity but 
seeking the grace of Congress and its honorable members. With H.R. 
2522, Guam is not asking for special treatment with regard to repayment 
of Federal funds. In this case, Guam is both a lender and a borrower; 
we only seek an equitable repayment plan. It is estimated that the 
Federal Government has yet to reimburse Guam for more than 
$150,000,000.00 in Compact impact expenses through Fiscal Year 2003, 
which is about 80% of the total impact costs.
    Guam has implemented the commitment of the United States in the 
Compacts of Free Association, and we will continue to honor them as 
long as they are in effect and as long as our resources permit. This is 
our duty as Americans and our sincere desire to continually advance our 
nation's interests in the Western Pacific. Guam has honored these 
pledges in good faith, despite our absence from direct participation in 
Compact negotiations regarding migration and despite the stress this 
migration places on our finances.
    H.R. 2522 will help Guam recover the costs that have accumulated 
since the implementation of the Compacts of Free Association, which 
allowed unrestricted migration to the United States from the Federated 
States of Micronesia and the Republic of the Marshall Islands. Guam has 
been disproportionately impacted by the influx of immigrants resulting 
from the Compact of Free Association, due to its physical proximity to 
those newly-established sovereignties.
    Years of increasing Compact immigration have contributed to the 
debilitation of our local government services upon which all of our 
people rely. Among the many systems operated by the government of Guam, 
public education and the public health care system--cornerstones of any 
government--have absorbed the hardest impact. Our public schools are 
overcrowded and linger in disrepair. Our only civilian hospital as of 
Fiscal Year 2001 was owed $21 million by FAS citizens. Many of our 
public services are already spread thin by other factors and they are 
spread even more thinly by the effects of demands placed upon them by 
the compact migration.
    At this point, the offsetting of costs, instead of direct 
reimbursement, appears to be a more realistic and immediate Compact 
impact relief for Guam. Guam has not received the entire amounts it has 
been submitting to the Federal Government for Compact impact 
reimbursement for 17 years, and likely will not be receiving those 
amounts in the near future. Guam, like the rest of the United States 
and the Federal Government itself, in recent years has had to operate 
with decreased revenues. Indeed, Interior officials have indicated in 
the past that budgetary pressures have been one of the reasons that 
Compact impact funding for Guam has remained inadequate. Consequently, 
Guam may not be able to expect a full reimbursement of Compact impact 
costs. At the same time, Guam will encounter challenges in finding a 
way to repay its obligations to the Federal Government. From our cash-
strapped standpoint, this indirect approach is more attractive than 
receiving a partial reimbursement or no reimbursement at all.
    H.R. 2522 should not be seen as an indicator that Guam cannot 
properly manage our responsibilities. On the contrary, we have been 
vigilantly mindful of our obligations--it is precisely this mindfulness 
that brought us here today. We have been fulfilling our obligations to 
the United States government, and we expect nothing less than likewise 
from the United States government.
    The financial conditions that bring us before this Committee today 
were largely due to circumstances that befall other communities. In the 
past decade, Guam has been subjected to several highly destructive 
typhoons and earthquakes. Furthermore, because our small economy is 
highly dependent upon tourism, the effects of the Asian economic 
crisis, September 11, and the recent SARS scare have drastically 
affected the island's businesses. Compact migration is only one of a 
list of factors beyond Guam's control that adversely impact our economy 
and ability to pay our debt to the Federal Government. In short, the 
money that could have been used to repay these debts to the Federal 
Government have had to be used for disaster recovery, economic 
recovery, and Compact impact.
    As we seek to meet to repay our Federal obligations, we have no 
choice but to burden our citizens. These come in the form of increased 
cost for services and higher taxes on our local population in order to 
continue essential services to everyone living on Guam. If we were to 
receive full reimbursement for compact impact as foreseen by Congress 
in 1986, when it passed the compacts, we can reduce this burden to our 
people.
    H.R. 2522 is not a way for Guam to wash its hands clean of the 
spirit of the Compacts of Free Association. Rather, Guam is in every 
way an integral member of its Western Pacific neighborhood, and the 
success of our island neighbors represents the success of the region as 
whole. Compact migration does have some positive effects on Guam's 
economy. Citizens of the freely associated states who reside on Guam 
contribute to the island's economy in terms of employment and taxes. 
Still, many migrants from the FAS who live on Guam continue to live 
under the poverty level. Moreover, the additional population did not 
bring with it a corresponding expansion in our economy. As a result, 
more people have had to share the same level of services. Guam 
recognizes that as the hub of Micronesia, it must take the lead in 
promoting greater economic prosperity for the region. However, this 
cannot occur if Guam is hindered by the diversion of its limited 
resources to Compact obligations without proper and prompt 
compensation.
    In reports submitted to the Federal Government in the area of 
education, specifically identified as an area of impact that qualifies 
for compensation, we find 3,530 children of FAS citizens enrolled in 
the local public schools during school year 2000-2001.
    Once upon a time, the Federal Government paid the local school 
system the cost of educating military and other Federal dependents 
attending the local schools. It calculated and paid a per pupil cost of 
approximately $4,017.00. This is the cost that the Federal Government 
accepted and remitted to the local government as the cost impact for 
providing education to each child. If we are to use this Federally 
accepted cost to calculate the impact on our education system of FAS 
children, Guam should have received $14,180,010.00 in that year in 
compact impact for education alone.
    The costs are just as extraordinary for the areas of public health 
and other social services. Our prison impact is over $5,000,000.00. 
Police services are over $11,000,000.00, and health and welfare totals 
over $64,000,000.00 over the current life of the compact.
    We ask that Congress recognize the increased demands on the limited 
resources that we have shared with freely associated citizens on behalf 
of the United States. As Congress so righteously embedded in U.S. 
P.L.99-239, providing for the impact costs, ``there are hereby 
authorized to be appropriated for fiscal years beginning after 
September 30, 1985 such sums as may be necessary to cover the costs, if 
any incurred by the State of Hawaii, the territories of Guam and 
American Samoa, and the Commonwealth of the Northern Mariana Islands 
resulting from increased demands placed on educational and social 
services by immigrants from the Marshall Islands and the Federated 
States of Micronesia.''
    We are now at the time when the United States and the Freely 
Associated States are reauthorizing the compact and it is our fortune 
to avail ourselves of a path not taken in H.R. 2522.
    One of my favorite poems is ``The Road Not Taken'', by Robert 
Frost, the nation's poet laureate bestowed the title by President John 
F. Kennedy. It speaks about coming upon a fork in the road and deciding 
to take one road over the other and how once we set upon one path, time 
and circumstances prevent us from ever having the opportunity to return 
to the fork and change paths.
    In addressing the compact impact reimbursement, Congress had set us 
upon a path over the last 17 years. Today H.R. 2522 gives us an 
opportunity to set upon a different path. Seldom is one presented such 
an opportunity and when fortune graces one with such, he must take what 
he has learned from his first choice, when returning to the fork in the 
road and setting anew upon the road not taken. Today, let us at this 
fork in the road, embark upon the road not taken and we will all be 
better for it.
    Once again, on behalf of the 27th Guam Legislature, I am in full 
support of H.R. 2522, and I thank you once again for this opportunity 
to present our position.
                                 ______
                                 
    Mrs. Cubin. Thank you, Mr. Speaker and Governor for coming 
four time zones, did you say?
    Mr. Camacho. Yes, ma'am.
    Mrs. Cubin. I know that is a hard thing to do.
    We will start our questioning. I would like to recognize 
Mr. Faleomavaega to begin questioning.
    Mr. Faleomavaega. Madam Chairman, I appreciate the 
courtesy, but I would like to defer to my good friend, the good 
lady from Guam, the chief sponsor of this legislation. I would 
certainly like to give her the opportunity to ask questions at 
this time. Thank you.
    Ms. Bordallo. Thank you very much to my colleague for 
extending that courtesy to me.
    I would like to direct a question to the Governor. The 
Department of Interior suggested an alternative direct 
approach. Guam recently tried this direct approach in resolving 
a $9 million debt to the U.S. Navy for the use of water. Could 
you enlighten the Committee on how the Navy responded to debt 
relief and how the $9 million debt has now come for us to raise 
water rates. Could you explain that?
    Mr. Camacho. From what I understand, the Combined 
Commission on Utilities had worked with the Department of the 
Navy in settlement. There is a long-term commitment to pay this 
over the period of, I believe, the next 10 years, and that 
would be paid by increasing the water rates that our residents 
would have to bear again. So it would be basically a rate 
increase to be spread out over a number of years and then 
payment of this debt. So I do know that this amount is one of 
the items that you have listed in your bill here, and so--
    Ms. Bordallo. Governor, let me also add to that, did the 
Secretary of Interior ever intervene to try to assist us with 
this?
    Mr. Camacho. Directly, no.
    Ms. Bordallo. I just bring this up to the Committee because 
this is one of the debt reliefs we are asking for in this bill, 
and that is the monies owed for the use of water, monies owed 
to the U.S. Navy. So I just wanted to clarify that.
    Again, here we are, now committed to pay this, and we, in 
turn, will have to raise the water rates, another tremendous 
problem for the people of our community. So I just wanted to 
point that out.
    Thank you, Madam Chairwoman.
    Mr. Camacho. If I may add, Congresswoman--
    Ms. Bordallo. Yes.
    Mr. Camacho. --what makes it such an interesting twist, 
again, is that this is, of course, a resource. Water, which is 
collected from the only surface lake on Guam, which is 
administered or controlled by the government and distributed to 
our local population. So it is a resource from Guam which is 
then distributed to our people, and yet we have to pay for it.
    Ms. Bordallo. Thank you, Governor.
    Mrs. Cubin. I would like to just ask a few questions. It 
doesn't seem like too much that when two parties enter a 
contract that both parties keep their commitments to that 
contract. Certainly, I think that the government ought to do 
what it says for Guam and I would like to see this legislation 
move forward.
    I would like to ask you, Mr. Speaker, how much money does 
Guam currently owe the Federal Government in general?
    Mr. Pangelinan. In general, if you take a look at what is 
outlined in the bill, those are both from the general fund and 
the different Departments and agencies. In addition, there is a 
debt owing to the Bureau of Prisons for housing our prisoners 
of about $3.5 million. In addition to that, a new loan was 
signed by the University of Guam for the construction of a new 
College of Business and Public Administration amounting to 
about $13.5 million.
    If you take that plus what is outlined in the bill, you are 
looking at about $180 million, maybe somewhere in that 
neighborhood, of debt that is owed, the majority and the bulk 
of that being our U.S. loans to the Guam Telephone Authority in 
the early years of upgrading our telephone system.
    Mrs. Cubin. Thank you. If we should be able to waive the 
debt as would be made possible by H.R. 2522, how can Guam work 
with the FAS to ensure that debts of these amounts don't 
continue?
    Mr. Pangelinan. I think that is something that the 
Department of Interior is going to be challenged to do. They 
have developed this new scheme, I understand, with regards to 
trying to target the grants of the Compact into targeted areas 
that they think has lured these FAS citizens to the islands.
    I tell you, the quickest way to keep them home is develop 
an economy there that pays a living wage in a Western economy. 
The imposition of the Compact into Micronesia has resulted in 
the change in the lifestyle of the countries, and they have 
moved from a subsistence economy to a Western economy over the 
last years and this has placed some demands on them with 
regards to a money economy.
    To support that, you have to have livable, wage-paying 
jobs, and absent the development of economic opportunities and 
that, we will continue to have migration of these Compact 
citizens, looking for economic opportunities so that they can 
provide better health care and better education for their 
children.
    Mrs. Cubin. So, Governor, do you think the amended Compact 
will have the strong effect in the future in lessening the 
influx of migrants if Guam sees the economic development, that 
they will seek to--
    Mr. Camacho. Most definitely. I echo the comments made by 
the good speaker. If I may liken Guam to a big city in America, 
the only difference is that here, if there is a need for any 
opportunities, let us say from a rural area, you hop in your 
car and go across the State and into the city and look for job 
opportunities. Well, in Micronesia, you hop on a plane and you 
come to Guam and that is where you look for opportunities in 
health and education and welfare and improvement of your 
lifestyle.
    In answer to your earlier question about what can be done 
to provide some kind of relief, there are, for example, caps 
that are placed on our Medicaid or Medicare systems of roughly 
below $5 million. We obviously service a lot of--provide 
medical care to many of the FAS residents that are on Guam. If 
for some reason or other we could lift the caps that are there 
and maybe not have these residents apply toward our limited 
resources or the caps available, that is one way of doing it.
    But I think a very comprehensive approach would also be to 
work with the respective governments of FAS and their island 
governments in the way of preventative health care, for 
example, in the way of strengthening, also, their education 
system. We have spent tremendous amounts of resource on Guam 
with the children that come with English language speaking 
courses, just the very basic courses to get them started in our 
school system.
    But I would like to take an approach in working with the 
leadership of FAS as we come together as brothers and sisters 
to find ways to work together, and in the way of education, in 
health and education and also public safety and indoctrination 
or ways of working with them, we can find some relief. But it 
is going to be with a cooperative effort as we approach things, 
moving down the line, that the impact could be lessened. But 
ultimately, just as it would apply on Guam, if we can provide 
for economic stimulus, if we can provide for opportunities for 
the residents to stay on their respective islands, because that 
is where the opportunities are, that can lessen the amount of 
immigration outside into areas like Guam and Hawaii.
    Mrs. Cubin. Thank you. The Chair now recognizes Mrs. 
Christensen for questioning.
    Mrs. Christensen. Thank you. I guess I would ask just one 
question. Governor, I want to commend you on what you reported 
in your testimony on the measures that you have taken so far to 
deal with the economic situation in Guam. I am going to send a 
copy, if you don't mind, home to my Governor with some 
suggestions.
    [Laughter.]
    Mr. Camacho. We have a cooperative legislature, too.
    Mrs. Christensen. Yes. That is very helpful. Maybe I will 
send a copy to our legislature, too.
    [Laughter.]
    Mrs. Christensen. But I am really concerned because I think 
you have done, as I said, you have done a lot. I wonder if this 
bill doesn't get passed and you receive the assistance that you 
would get through this, are there other sources of income, of 
revenue, that you can look to? I shudder to think what happens 
in the face of not having this bill pass, what happens in the 
case of the school system and health care delivery system that 
have been so impacted by the immigration. So do you have--what 
would happen if we are not able to pass this H.R. 2522?
    Mr. Camacho. What happens is, as we are looking, there 
would probably have to be more managed care. In other words, 
the type of care we are providing right now to the medically 
indigent, the poor on island, both for local and non-residents, 
is pretty much an unlimited type of coverage. In fact, it 
provides more coverage than those who are on paid plans. So 
there would have to be some control on the level or type of 
service granted. But we have to be sensitive to the fact that 
many of these individuals or people do not have the capacity or 
can avail themselves to any type of insurance program.
    We are going to have to focus more and more, again, on, as 
I have mentioned, preventative health care, but for the 
immediate financial needs, there really is no other source, 
other than to drive the economy even more so to the point where 
we can't afford to pay for more of these services. But we are 
in a real bind right now and it only means that more and more 
of our public assistance programs are strained and the ability 
to provide adequate health care and education and public safety 
are, again, strained and limited.
    Mrs. Christensen. And it will affect the entire Guamian 
population. The strain on the services will cause problems for 
everyone on Guam.
    Mr. Camacho. Absolutely. There is no way around the impact. 
It is there. Again, we continue to play our role and are 
supportive as we welcome all people into our island, but we are 
also sensitive to the fact that it does take away from 
providing for our own people.
    We, by law, cannot turn anybody away in our hospitals, nor 
can we turn anyone away from our public health system. The 
greatest impact, of course, are from those that do not have the 
capacity or the ability to pay for such services. But we 
continue, again, with the policymaking body of the legislature 
and the leadership of the Speaker to do what we can in 
providing for our people.
    Mrs. Christensen. We commend both of you for the efforts 
that you have put forward to make sure that everyone living in 
Guam receives a basic level of services, whether they are 
natives of Guam or whether they have immigrated there. Thank 
you.
    Mr. Camacho. Thank you.
    Mrs. Christensen. Thank you, Madam Chair.
    Mrs. Cubin. Thank you. I would now like to recognize Mr. 
Faleomavaega.
    Mr. Faleomavaega. Thank you, Madam Chairwoman. I first 
would like to thank you for extending the time allotted to the 
distinguished Governor and our Speaker for their statements. I 
cannot agree with you more, given the fact that these gentleman 
have traveled such long distances. They at least should be 
given that courtesy of presenting their statements the way they 
did and I thank you for that.
    Having lived and having visited Guam several times, I feel 
like I am at home and I want to offer my personal welcome to 
the good Governor Camacho and my good friend Ben Pangelinan for 
being here this afternoon and for their testimony. And I want 
to say, Governor Camacho, that was a very moving and most 
profound statement that I have ever heard as a member of this 
Committee in expressing the serious needs that are confronted 
now by the Government of Guam and the good people of Guam and I 
just want to say that.
    And my friend Ben, I am so happy to see you. You haven't 
lost much weight, but that is all right.
    [Laughter.]
    Mr. Faleomavaega. You must have good--
    Mrs. Cubin. Neither have I.
    [Laughter.]
    Mr. Faleomavaega. I want to ask Governor Camacho and also 
Speaker Pangelinan, the proposed Compact, there is a provision 
in there that directs the Governors of Guam and Hawaii, NMI, to 
submit a report to the President with reference to the effect 
of immigration to these localities. Apparently, there are some 
serious problems in the way that this was done in this 
provision of the proposed Compact. Do you agree with this? Were 
you made aware that this was the proposal that was going to be 
put in the proposed Compact?
    Mr. Pangelinan. No, we were not. We passed a local law that 
would allow us observation status, self-appointed observation 
status of the Guam legislature. But, of course, the Federal 
Government did not respond positively to that. Really, since we 
were most impacted--
    Mr. Faleomavaega. What I meant in my question is this 
provision which required the yearly reporting--
    Mr. Pangelinan. Right.
    Mr. Faleomavaega. --on this impact has now been stricken. 
It is not in the proposed Compact. This provision or this 
requirement is no longer in the proposed Compact.
    Mr. Pangelinan. That is correct.
    Mr. Faleomavaega. And I was wondering, were you made aware 
of this change?
    Mr. Pangelinan. No, not made aware.
    Mr. Faleomavaega. And do you agree with this proposed 
change?
    Mr. Pangelinan. No. I think that there should be some 
methodology and mechanism for the territories to express and 
document the impact that migration has on the territories and 
the State of Hawaii.
    Mr. Camacho. And I also believe that without information, 
without accurate data, then it would be difficult for the 
territories to make their case in requesting for additional 
funding. So it is absolutely interesting.
    Congressman, may I just make one clarification and ask you 
a question. I know that when we were before the President, he 
couldn't pronounce your name, so you introduced yourself as 
John Wayne.
    [Laughter.]
    Mr. Faleomavaega. Madam Chair, I want to share this little 
experience.
    [Laughter.]
    Mr. Faleomavaega. The President was so kind to invite us to 
the signing of the founding of the interagency group at the 
White House, and as he did, he introduced the good Governor and 
introduced Congresswoman Bordallo and also Congresswoman 
Christensen. And when he came to my name, he stood there in 
total silence for about 10 seconds.
    [Laughter.]
    Mr. Faleomavaega. He looked at me and still was in silence.
    [Laughter.]
    Mr. Faleomavaega. So I just yelled out amidst some 200 
Asian-Pacific Americans in that whole hall and I said, ``Just 
call me John Wayne, Mr. President.''
    [Laughter.]
    Mr. Faleomavaega. And for that, I said he owes me a round 
of golf for not being able to pronounce my name. Yes, I do 
remember that, Governor.
    Mr. Camacho. And I want to thank you for continuing to 
fight for the territories.
    Mr. Faleomavaega. You mentioned about this typhoon, and I 
also experienced what it means to go through a typhoon, Madam 
Chair, in Guam, believe it or not. The typhoon that I was 
exposed to was only 150 miles an hour. You talk about a 
whistling wind, Madam Chair. You will never experience such an 
awful experience of going through a typhoon.
    I want to ask Governor Camacho, this Typhoon Pongsona, how 
many miles per hour was that typhoon?
    Mr. Camacho. I believe it was recorded at up to 180 miles 
an hour.
    Mr. Faleomavaega. Almost 200 miles an hour.
    Mr. Camacho. Yes, and gusting up to almost 200, I believe.
    Mr. Faleomavaega. See, west of the date line, it is called 
a hurricane, but when it comes to those of us in the Pacific, 
it is called a typhoon. It has the same effect. And also, the 
Chata'an typhoon, how many miles an hour was that typhoon?
    Mr. Camacho. I think that was sustained about 150 miles an 
hour, sustained winds, but again, it may gust up to 180 or 
more.
    Mr. Faleomavaega. I want to commend Speaker Pangelinan for 
being the senior poet here on the Committee. I also enjoy 
reading some of the poems by Robert Frost. You had mentioned 
about ``The Road Not Taken.'' I want to share a little 
experience with my good friend Ben here that, actually, this 
road has been taken and has been taken several years, several 
times, as I had expressed earlier, Madam Chair.
    A couple of years ago, I said I served on the International 
Relations Committee, our government by the stroke of the pen, 
the President forgave $500 million in debt to Jordan. And now, 
as I speak, Madam Chair, in our dealings with our good friends 
from Pakistan, we are offering a $3 billion package aid to the 
Government of Pakistan. And in addition to that, Pakistan owes 
us some $2.4 billion and we are forgiving Pakistan $379 
million.
    So this is not a road as if we have never taken before, Mr. 
Speaker. We have taken the road before. Now, the entities may 
not be the same, but I would think, I would think that of all 
the people that we ought to be giving some sense of a priority, 
it should be our own people, our own government, our States, 
our territories.
    And again, as both the Speaker and the Governor have 
eloquently stated, this is not something as if they are asking 
for handouts. This is an expenditure that the Guam government 
has simply taken and all they are simply saying, asking the 
Congress and the government, please, reimburse us for the 
expenditures that we have taken in taking care of our 
Micronesian brothers and sisters, and that is basically the 
situation.
    I want to ask the Governor and Speaker Pangelinan, what is 
your opinion of the administration's position on this bill? 
Obviously, they are against it, but I would like to ask what 
your opinion is. Can you think of some other creative ways to 
convince my good friend Mr. Pula and Mr. Cohen and Secretary 
Norton that this issue should be taken to the cabinet meeting 
in such a way that the Department of the Interior, as the lead 
agency for the insular areas, that this reconciliation bill 
should have the administration's stamp of approval? Governor?
    Mr. Camacho. Well, I certainly will be meeting with David 
Cohen and the group there. I understand they have taken a 
position, and basically, again, they feel that it is a matter 
of jurisdiction with them as to whether or not they can speak 
to the release of any obligation from any respective Department 
or agency to that of the Government of Guam. I can certainly 
respect that position.
    But I believe there is still an avenue of negotiation, as 
they mentioned. Should this not prevail, then we could perhaps 
work directly with the respective agencies or Departments 
within the administration with the endorsement and support of 
Department of Interior as an alternative way of addressing each 
of the respective debts or obligations that we have.
    But again, I think in so doing, we must continue to make 
the case that the reasoning behind this is, of course, to 
offset any debt or obligation that the United States may have 
in the way of living up to its obligation to the territory for 
the costs of Compact impact on Guam.
    Mr. Faleomavaega. You know, President Truman had on his 
desk a little phrase saying, ``The buck stops here.'' I can 
understand the agencies are constantly fighting among 
themselves, who has jurisdiction. This goes on all the time. 
But don't you think that this should have the President's 
personal attention? Wouldn't it be nice to see that the 
President directs these Federal agencies, this is the way it is 
going to go?
    Mr. Pangelinan. I agree and--
    Mr. Faleomavaega. Do you think that this will be the 
solution to the problem that we are seeing here?
    Mr. Pangelinan. I agree. You know, if the Secretary of 
Interior feels that they don't have the jurisdictional 
authority to do so, perhaps the bill should just be changed and 
say, the President shall direct the Secretary of Interior to 
offset these amounts.
    And on the issue of the road not taken, I agree with you. 
It has just never been taken for loyal Americans. It has been 
taken for people who have opposed us in the international 
arena. It has been taken for people who charge us air landing 
rights when we have to prosecute a war for the protection of 
our country on terrorism and the abolishment of terrorism 
around the world. I remember reading where Turkey was 
negotiating with the United States $200 million in aid in order 
to have their planes land, while they were taking off and 
landing every single day in Guam at Anderson Air Force Base.
    Mr. Faleomavaega. Mr. Speaker, if I might interrupt you, 
the Turkish people got smart.
    Mr. Pangelinan. Yes.
    Mr. Faleomavaega. You see, the last time, we made all 
promises to Turkey during the Gulf War--
    Mr. Pangelinan. I remember.
    Mr. Faleomavaega. --we never--
    Mr. Pangelinan. Paid up.
    Mr. Faleomavaega. --we never fulfilled our promises. So the 
Turkish people and the government said, hey, I want something 
in writing, and that is the problem that we face with Guam.
    You made a very interesting statement, Mr. Speaker, about 
why not change the bill just to say that the President 
directs--
    Mr. Pangelinan. The Secretary of Interior.
    Mr. Faleomavaega. No, not even the Secretary of Interior, 
the appropriate Federal agencies to forgive these debts.
    Mr. Pangelinan. I would be certainly pleased with that, I 
am sure as well as the good author of that change.
    Mr. Faleomavaega. Again, I want to offer my fondest 
thoughts to the Governor and the Speaker and my good friend, 
the gentlelady from Guam, for proposing this legislation that I 
sincerely hope, Madam Chair, that it will pass the Committee 
and it will pass the House and it should pass the Congress. 
Thank you, Madam Chair.
    Mrs. Cubin. Ms. Bordallo?
    Ms. Bordallo. Thank you very much. It has been a long 
morning and now we are into the afternoon. I want to thank you, 
Madam Chairwoman Cubin, and, of course, our acting Ranking 
Member here, Eni Faleomavaega. And I want in particular to 
thank the Governor of Guam, the Honorable Felix Camacho, and 
our Speaker, the Honorable Ben Pangelinan, for traveling over 
10,000 miles to be here. And certainly for our two top island 
leaders to come all of this way, and knowing the economic 
situation and the monies involved, to travel this distance to 
testify, you understand, Madam Chairwoman, the serious economic 
situation and the need for this legislation to go forward.
    I want to point out, too, that I am so very proud to say 
this is truly a bipartisan effort. I feel that every citizen on 
Guam, if they could all travel here, would be here to testify 
on behalf of this particular bill, particularly when we are 
currently laying off people in our government, cutting their 
hours.
    I will say that I took note of Governor Camacho's comments 
during his speech and he mentioned, while we are welcoming our 
Micronesian brothers and sisters, we are saying farewell to our 
own people because they cannot find work, the banks are taking 
over their homes, and it is a truly sad situation. So I just 
wanted to point that out and to extend a very warm thanks to 
both of you.
    Madam Chairman, without objection, I would like to enter 
several testimonies for the record.
    Mrs. Cubin. Hearing none, so ordered.
    [NOTE: The information submitted for the record by Ms. 
Bordallo has been retained in the Committee's official files.]
    Ms. Bordallo. Thank you very much.
    Mrs. Cubin. I would like to thank the witnesses for their 
valuable testimony and the members for their questions.
    The members of the Committee may have some additional 
questions for the panel and we will ask that you respond to 
these in writing. The hearing record will be held open for 
these responses, and we thank you for that.
    If there is no other business before the Committee, then 
the Committee is now adjourned.
    Mr. Camacho. Thank you very much.
    [Whereupon, at 1:57 p.m., the Committee was adjourned.]


    [Additional material submitted for the record follows:]

    [A letter submitted for the record by Hon. Linda Lingle, 
Governor, State of Hawaii, follows:]

[GRAPHIC] [TIFF OMITTED] T8192.008

[GRAPHIC] [TIFF OMITTED] T8192.009


    [Responses to questions submitted for the record follow:]

Response by Senator Peter Christian, Federated States of Micronesia, to 
                  a Question Submitted for the Record

Question from Hon. Ken Calvert

    What is the rate of population growth in the Federated States of 
Micronesia and what is the standard of living like throughout the four 
states?

    The 2000 census indicated a population growth rate of 0.3 percent 
over the preceding census conducted in 1994. The growth rate has 
declined significantly since a peak in the mid-1980s, and today is the 
lowest in the region.
    The standard of living varies widely from state-to-state, and 
between the main urban areas and the outer islands (where 20 percent of 
the total population resides). It is important to recognize that these 
were subsistence economies only slightly more than 50 years ago, and 
these traditional patterns continue to dominate in the outer islands.
    Conditions in the main urban areas are comparable with mid-tier 
developing countries. However, there is a narrower gap between the rich 
and poor than one might expect to find in most developing countries due 
to the system of familial and community ``safety nets'' that provide a 
basic standard of living for nearly everyone.
    The infrastructure is reasonably well developed. Most areas have 
good electricity and communications access. Access to clean water and 
sanitation is often a problem in many areas, particularly in the 
outlying villages and the outer islands. The greatest infrastructure 
challenges are in the areas of health and education. There is a severe 
shortage of adequate clinics and schools throughout the country. Many 
facilities date to the early days of the Trusteeship or even earlier. 
The harsh climate has taken its toll on these buildings, many of which 
were not constructed from appropriate materials. As a result services 
have suffered.
    Like most small island developing countries, the FSM has few 
exploitable natural resources and suffers constraints due to factors 
such as distance from markets. Efforts to develop the FSM's tourism 
industry began to bear fruit in the late 1990s and early 2000s, but has 
suffered a severe setback in recent years due to September 11 and SARs-
related reductions in travel.
    For these reasons, the FSM remains heavily reliant on assistance 
from its primary development partner, the United States. Reductions in 
levels of financial and program assistance invariably manifest 
themselves in the standard of living, often immediately and 
dramatically. It is for this reason first and foremost that the FSM 
government has expressed its concern over the adequacy of financial 
assistance under the proposed Compact amendments.
                                 ______
                                 

Response by Susan Westin, U.S. General Accounting Office, to Questions 
                        Submitted for the Record

Question from Mr. Rahall
    How will annual economic assistance under the new proposed Compact 
term maintain its real value with both an annual decrement and a 
partial inflation adjustment? How would the real value be affected if a 
full inflation adjustment is used? Has GAO examined this issue?

    Through the amended Compacts, the United States provides the FSM 
and the RMI with annual grants targeted to priority areas (such as 
health, education, and infrastructure), audit assistance, and disaster 
assistance; contributions to a trust fund; and certain Federal 
services. Annual grant amounts to each country would be reduced each 
year as U.S. contributions to the trust funds increase each year by the 
grant reduction amount.
    Under the amended Compacts, U.S. payments are adjusted for 
inflation at two-thirds of the percentage change in the U.S. gross 
domestic product implicit price deflator. With this adjustment and the 
Congressional Budget Office's forecasted inflation rate, grants for 
priority areas to the FSM increase from $76.7 million in 2004 to $82.8 
million in 2023. The real value of the FSM grants falls over the time 
period, from $76.7 million in 2004 to $55 million in 2023, expressed in 
2004 U.S. dollars. Grants for priority areas to the RMI increase from 
$33.8 million in 2004 to $36.5 million in 2023. The real value of the 
RMI grants falls over the time period, from $33.8 million in 2004 to 
$24.2 million in 2023, expressed in 2004 U.S. dollars.
    If U.S. payments under the amended Compacts were fully adjusted for 
inflation the grant amounts increase more in current dollars and 
decline less in real, 2004 U.S. dollars. Grants for priority areas to 
the FSM increase from $76.7 million in 2004 to $94.7 million in 2023. 
The real value of the FSM grants falls over the time period, from $76.7 
million in 2004 to $62.9 million in 2023, expressed in 2004 U.S. 
dollars. Grants for priority areas to the RMI increase from $33.8 
million in 2004 to $41.5 million in 2023. The real value of the RMI 
grants falls over the time period, from $33.8 million in 2004 to $27.6 
million in 2023, expressed in 2004 U.S. dollars.

Question from Ms. Bordallo
    Other than U.S. assistance, what level of assistance does the FSM 
and the RMI receive from other governments? Has assistance from other 
governments increased or decreased in the recent past?

    GAO conducted a review of donors' experiences in the Pacific region 
that was published in August 2001. The review used annual assistance 
development assistance statistics from 1987 through 1999 as reported by 
the Development Assistance Committee of the Organization for Economic 
Cooperation and Development (OECD). For the FSM and the RMI, GAO also 
included data from annual financial audits to establish the level of 
U.S. assistance data. For the most recent 5-year period that we 
examined, 1995-1999, U.S. assistance accounted for 87 percent of total 
assistance from all OECD donors to the FSM and 78 percent of total 
assistance from all OECD donors to the RMI. Non-U.S. assistance over 
the 5 years amounted to $81 million to the FSM and $72 million to the 
RMI. Key donors to the FSM and the RMI included the United States, the 
Asian Development Bank, and Japan. Over the 5-year period, non-U.S. 
assistance to both countries fluctuated. [The OECD database does not 
report assistance provided by China and Taiwan because they are not 
members of the OECD's Development Assistance Committee. Despite our 
attempts to collect data from China and Taiwan, these countries were 
unwilling to provide the information. Further, assistance from these 
nations may not be fully reflected in the FSM and RMI financial 
audits.]

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