[Congressional Record (Bound Edition), Volume 149 (2003), Part 16]
[Extensions of Remarks]
[Pages 22182-22184]
[From the U.S. Government Publishing Office, www.gpo.gov]




                     COST ESTIMATE FOR H.J. RES. 63

                                 ______
                                 

                         HON. RICHARD W. POMBO

                             of california

                    in the house of representatives

                      Tuesday, September 16, 2003

  Mr. POMBO. Mr. Speaker, I request that the attached cost estimate for 
H.J. Res. 63, the Compact of Free Association Amendments Act of 2003, 
be submitted for the Record under General Leave.

                                                    U.S. Congress,


                                  Congressional Budget Office,

                               Washington, DC, September 15, 2003.
     Hon. Richard W. Pombo,
     Chairman, Committee on Resources, House of Representatives, 
         Washington, DC.
       Dear Mr. Chairman: The Congressional Budget Office has 
     prepared the enclosed estimate for H.J. Res. 63, the Compact 
     of Free Association Amendments Act of 2003.
       If you wish further details on this estimate, we will be 
     pleased to provide them. The CBO staff contact is Matthew 
     Pickford, who can be reached at 226-2860.
           Sincerely,
                                                Robert A. Sunshine
                               (For Douglas Holtz-Eakin, Director.
       Enclosure
     H.J. Res. 63--Compact of Free Association Amendments Act of 
         2003
       Summary: H.J. Res. 63 would amend the Compact of Free 
     Association Act of 1988 and subsidiary agreements between the 
     United States and the Republic of the Marshall Islands (RMI) 
     and the Federated States of Micronesia (FSM). The compacts 
     with RMI and FSM, together with the subsidiary agreements, 
     govern the political, economic, and military relationship 
     between the United States and these two freely associated 
     states. Although the compact does not expire, certain 
     provisions that authorized federal funding for RMI and FSM 
     expired in 2001. The compact provides that expired provisions 
     be extended until 2003 if negotiations to renew the compact 
     had not concluded by 2001.
       H.J. Res. 63 would provide financial assistance for RMI and 
     FSM for the next 20 years. The legislation would make several 
     changes to the compact to increase monitoring of financial 
     assistance, create a joint oversight committee, and establish 
     trust funds to provide funds to RMI and FSM beyond 2023. H.J. 
     Des. 63 also would provide $30 million a year for costs 
     related to the migration of RMI and FSM nationals to other 
     jurisdictions and about $31 million annually for additional 
     education grants for RMI and FSM.
       Consistent with the baseline construction rules in the 
     Balanced Budget and Emergency Deficit Control Act, CBO's 
     baseline assumes

[[Page 22183]]

     that direct spending; for grants to RMI and FSM will continue 
     over the 2004-2013 period-beyond the scheduled expiration 
     date-at an average annual cost of $157 million a year. We 
     estimate that enacting this legislation would increase direct 
     spending by around $680 million above the amounts assumed in 
     our baseline projections over the 2004-2013 period.
       In addition, the legislation would extend the authority to 
     appropriate funds for certain federal services for RMI and 
     FSM for the next 20 years, for grants to pay for costs 
     related to the migration of RMI and FSM nationals to other 
     jurisdictions, and for costs associated with medical debt 
     referral claims. Assuming the appropriation of the necessary 
     amounts, CBO estimates that implementing these provisions of 
     H.J. Res. 63 would cost $850 million over the 2004-2013 
     period.
       H.J. Res. 63 contains an intergovernmental mandate as 
     defined in the Unfunded Mandates Reform Act (UMRA), but 
     relative to current law, that mandate would impose no costs 
     on state, local, or tribal governments. The resolution 
     contains no private-sector mandates as defined in UMRA.
       Estimated cost to the Federal Government: The estimated 
     budgetary impact of H.J. Res. 63 is shown in the following 
     table. The costs of this legislation fall within budget 
     function 800 (general government).

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                    By fiscal year, in millions of dollars--
                                                     ---------------------------------------------------------------------------------------------------
                                                        2004      2005      2006      2007      2008      2009      2010      2011      2012      2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     DIRECT SPENDING
 
Baseline Spending for Compact of Free Association
 Under Current Law:
    Estimated Budget Authority......................       156       156       156       156       156       156       158       158       158       158
    Estimated Outlays...............................       156       156       156       156       156       156       158       158       158       158
Proposed Changes:
    Estimated Budget Authority......................        57        59        62        65        67        70        71        74        77        80
    Estimated Outlays...............................        57        59        62        65        67        70        71        74        77        80
Spending for Compact of Free Association Under H.J.
 Res. 63:
    Estimated Budget Authority......................       213       215       218       221       223       226       229       232       235       238
    Estimated Outlays...............................       213       215       218       221       223       226       229       232       235       238
 
                                                      CHANGES IN SPENDING SUBJECT TO APPROPRIATION
 
Federal Program Services for RMI and FSM:
    Estimated Authorization Level...................        60        61        62        64        65        66        68        69        70        72
    Estimated Outlays...............................        45        61        62        63        65        66        67        69        70        71
Education Formula Grant Programs:
    Estimated Authorization Level...................       -13       -13       -14       -14       -14       -14       -15       -15       -15       -16
    Estimated Outlays...............................        -1        -9       -13       -13       -14       -14       -14       -15       -l5       -15
Compact Expenses:
    Estimated Authorization Level...................        30        31        31        32        32        33        34        34        35        36
    Estimated Outlays...............................        30        31        31        32        32        33        34        34        35        36
Medical Referral Claims:
    Estimated Authorization Level...................         4         0         0         0         0         0         0         0         0         0
    Estimated Outlays...............................         4         0         0         0         0         0         0         0         0         0
Total Changes:
    Estimated Authorization Level...................        81        79        80        82        83        85        87        88        90        92
    Estimated Outlays...............................        78        82        81        82        83        85        87        88        90        92
--------------------------------------------------------------------------------------------------------------------------------------------------------

       Basis of estimate: For this estimate, CBO assumes that the 
     legislation will be enacted near the start of fiscal year 
     2004, that the necessary amounts will be appropriated for 
     each fiscal year, and that outlays will occur at the 
     historical rate for grants to RMI and FSM.
     Direct spending
       H.J. Res. 63 would authorize and appropriate federal funds 
     for economic assistance to RMI and FSM over the 2004-2023 
     period. Grant assistance would be aimed at needs for 
     education, health, infrastructure, private-sector 
     development, and the environment. In addition, the resolution 
     would establish trust funds for RMI and FSM involving annual 
     contributions for 20 years by RMI, FSM, and the federal 
     government. Those trust funds are aimed at providing funds to 
     RMI and FSM after federal grant assistance expires under the 
     bill in 2023.
       CBO estimates that direct spending authorized by this 
     legislation would total $2.3 billion over the 2004-2013 
     period. However, consistent with the Balanced Budget and 
     Emergency Deficit Control Act, which specifies that certain 
     expiring provisions should be assumed to continue for budget 
     projection purposes, CBO's baseline includes budget authority 
     and outlays for payments to RMI and FSM totaling $1.6 billion 
     over the 2004-2013 period. Thus, we estimate that H.J. Res. 
     63 would provide an increase in direct spending of about $680 
     million above the baseline over the 10-year period. The 
     following paragraphs discuss the financial assistance that 
     would be provided by this legislation.
       Republic of the Marshall Islands. Over the 2004-2013 
     period, H.J. Res. 63 would provide RMI with grants of $356 
     million, $99 million in trust fund contributions, $160 
     million for U.S. defense operations on the Kwajalein Atoll, 
     $20 million to compensate the Kwajalein landholders and RMI 
     for the use of its territory by the U.S. military, and $14 
     million for agricultural programs.
       Federated States of Micronesia. Over the 2004-2013 period, 
     H.J. Res. 63 would provide FSM with grants of $793 million 
     and $195 million in trust fund contributions.
       General Assistance. The legislation would provide $30 
     million a year for health, education, social, and 
     infrastructure costs associated with the migration of RMI and 
     FSM nationals to Hawaii, Guam, American Samoa, and the 
     Commonwealth of the Northern Mariana Islands (CNMI). This 
     general assistance would cost $300 million over the 2004-2013 
     period.
       Education. H.J. Res. 63 would make RMI and FSM ineligible 
     to receive grants under any appropriated formula grant 
     programs administered by the Secretary of Education. In place 
     of those grants, the legislation would provide $29 million 
     adjusted annually for inflation, or a total of $313 million 
     over the 2004-2013 period, for education assistance.
       Debt Forgiveness. Section 104 would allow the President--at 
     the request of the Governors of Guam and the CNMI--to reduce, 
     waive, or release all or part of any amounts owed by the 
     respective governments to the United States. This authority 
     would expire in February 2005. Based on information from the 
     Office of Insular Affairs, Guam, and the CNMI, CBO estimates 
     that the amount of outstanding debt owed to the United States 
     by Guam and the CNMI is approximately $160 million. This 
     amount consists of debts owed by Guam for telephone 
     infrastructure improvements, disaster assistance, water 
     consumption, and the construction of student housing. Based 
     on information from the Office of Insular Affairs and the 
     Office of Management and Budget, CBO has no expectation that 
     this debt forgiveness authority would be exercised. If any 
     changes were made to a federal loan using this authority, 
     such as the $105 million loan to the Guam Telephone Authority 
     from the Department of Agriculture for telephone 
     infrastructure improvements, the cost would be recorded in 
     the year that the change was effective, pursuant to the 
     Federal Credit Reform Act, and could exceed $100 million. No 
     costs for debt forgiveness are included in this cost 
     estimate.
       Other Programs and Services. H.J. Res. 63 also would 
     continue to make available services currently provided by the 
     U.S. Postal Service (USPS) and Federal Deposit Insurance 
     Corporation (FDIC). Spending by these agencies is generally 
     not subject to the annual appropriations process. Based on 
     information from the Office of Insular Affairs, CBO expects 
     that mail service to RMI and FSM costs USPS approximately $1 
     million annually; this cost is reimbursed by the Department 
     of the Interior, subject to the availability of 
     appropriations. In addition, CBO expects costs to the FDIC 
     for continuing to insure deposits in the Bank of the 
     Federated States of Micronesia would be offset by fees 
     assessed on the industry, resulting in no net cost to the 
     federal government.
     Spending subject to appropriation
       Federal Programs and Services for RMI and FSM. H.J. Res. 63 
     would specifically extend the authority to continue services 
     to RMI and FSM provided by the National Weather Service, the 
     Federal Aviation Administration, the Departments of 
     Transportation and Homeland Security, and the Agency for 
     International Development. Based on information from the 
     Departments of State and the Interior, and the General 
     Accounting Office (GAO), CBO estimates that continuing those 
     programs for RMI and FSM would cost approximately $10 million 
     annually, assuming appropriation of the necessary amounts.
       Other federal agencies currently providing programs and 
     services to RMI and FSM include the Departments of Labor, 
     Education, Agriculture, and Health and Human Services. Most 
     of this assistance is provided through those agencies' annual 
     appropriations. Based on information from GAO and the 
     Departments of State, the Interior, and Education, CBO 
     estimates that these other

[[Page 22184]]

     programs and services for RMI and FSM currently cost about 
     $50 million a year. Section 109 authorizes appropriations to 
     continue federal services and programs to RMI and FSM, so 
     these costs are included in this estimate.
       Education Formula Grant Programs. H.J. Res. 63 would make 
     RMI and FSM ineligible to receive grants under any formula 
     grant program administered by the Secretary of Education. 
     Based on information from the Department of Education, CBO 
     estimates that RMI and FSM received about $13 million under 
     discretionary formula grant programs in 2003. Assuming future 
     appropriation acts discontinue such funding for RMI and FSM, 
     this provision would reduce costs by an estimated $133 
     million over the next 10 years, including adjustments for 
     anticipated inflation.
       Compact Expenses. The legislation would authorize the 
     appropriation of such sums as are necessary through 2023 for 
     grants to Hawaii, Guam, American Samoa, and CNMI as a result 
     of increased demands for health, education, social, and 
     infrastructure services associated with the migration of RMI 
     and FSM nationals to these areas. Based on information from 
     the GAO, Hawaii, Guam, American Samoa, and CNMI, CBO 
     estimates that the increased demands resulting from the 
     migration of RMI and FSM nationals cost these areas 
     approximately $60 million annually. Hence, CBO estimates that 
     implementing this provision would cost an average of $33 
     million annually, or $328 million over the 2004-2013 period, 
     in addition to the $30 million in annual general assistance 
     payments.
       Medical Referral Claims. FMS and RMI nationals are 
     sometimes diagnosed with health conditions that cannot be 
     treated at their local hospitals. In such cases, patients may 
     be referred to hospitals in Hawaii, Guam, CNMI, or American 
     Samoa for treatment. The cost of treatment at hospitals in 
     other jurisdictions can exceed the insurance payment from RMI 
     and FSM nationals. H.J. Res. 63 would authorize the 
     appropriation of such sums as are necessary to compensate 
     hospitals outside RMI and FSM for the cost of services 
     provided to referred RMI and FSM nationals that have not been 
     reimbursed prior to October 1, 2003. Based on information 
     from the embassies of RMI and FSM, CBO estimates this 
     provision would cost $4 million in fiscal year 2004, subject 
     to the appropriation of the necessary amounts.
       Estimated Impact on state, local, and tribal governments: 
     H.J. Res 63 contains an intergovernmental mandate as defined 
     in UMRA because it would explicitly prohibit states from 
     taxing revenue generated by the trust funds established in 
     the legislation and from treating the funds as anything other 
     than a nonprofit corporation. Since the trust funds do not 
     currently exist, this provision would not affect state 
     budgets relative to current law and the threshold established 
     in UMRA ($59 million in 2003, adjusted inflation) would not 
     be exceeded.
       If H.J. Res. 63 were enacted, affected jurisdictions, 
     including; Hawaii, Guam, American Samoa, and the Commonwealth 
     of the Northern Mariana Islands, would continue to incur 
     costs for services to migrants; however, such costs would not 
     be the result of enforceable duties imposed by the federal 
     government. The joint resolution would provide $30 million 
     per year and would authorize the appropriation of additional 
     sums as may be necessary to offset the impacts of migrants on 
     social services and infrastructure of affected jurisdictions.
       H.J. Res. 63 also would require affected jurisdictions to 
     report each year on the impact of the compact; the costs of 
     complying with the requirement would be funded from the $30 
     million in general assistance. As defined by UMRA, such a 
     requirement is not a mandate because it is a condition for 
     receiving federal assistance. Further, the joint resolution 
     would authorize the President to forgive certain debts owed 
     to the United States by Guam and the Mariana Islands.
       Estimated Impact on the Private Sector: H.J. Res. 63 
     contains no private-sector mandates as defined in UMRA.
       Previous CBO Estimates: On September 15, 2003, CBO 
     transmitted a revised cost estimate for H.J. Res. 63 as 
     reported by the House Committee on International Relations on 
     September 4, 2003, and an estimate for H.J. Res. 63 as 
     ordered reported by the House Committee on the Judiciary on 
     September 10, 2003. All three versions of this legislation 
     would amend the Compact of Free Association. The versions 
     approved by the Committees on International Relations and the 
     Judiciary are identical. In contrast, the version of H.J. 
     Res. 63 approved by the Committee on Resources would provide 
     significantly more funding for RMI and FSM. Our estimates for 
     the different versions of the legislation reflect those 
     differences.
       Estimate prepared by: Federal Costs: Matthew Pickford (226-
     2860) and Donna Wong (226-2820); Impact on State, Local, and 
     Tribal Governments: Sarah Puro (225-3220); and Impact on the 
     Private Sector: Paige Piper/Bach (226-2940).
       Estimate approved by: Peter H. Fontaine, Deputy Assistant 
     Director for Budget Analysis.

                          ____________________