Statement of Thomas Bussanich Acting Director Office of Insular affairs, Department of the Interior Before the Senate Committee on Energy and Natural Resources, Subcommittee on Insular Affairs Regarding The Implementation of the Compact of Free Association with the Republic of the Marshall Islands September 25, 2007 Mr. Chairman and members of the Committee on Energy and Natural Resources, thank you for the opportunity to discuss the implementation of the amended Compact of Free Association with the Republic of the Marshall Islands (RMI) and S. 1756 dealing with Marshall Islands nuclear issues. Implementation of the RMI Compact of Free Association In 2003, the U.S. Government approved the amended Compact with the Republic of the Marshall Islands, providing a total of $1.5 billion in assistance from 2004 through 2023. The amended Compact's 20 years of grant assistance is intended to assist the RMI government promote the economic advancement and budgetary self-reliance of its people. Under the amended Compact, U.S. grant funding decreases annually, paired with increasing contributions to a trust fund established for the RMI; earnings from the trust fund are intended to provide a source of revenue for the government of the RMI when the grants expire in 2023. In addition, the annual grant funding is partially adjusted for inflation. The amended Compact requires the RMI to target funding to six development sectors--education, health, the environment, public sector capacity building, private sector development, and infrastructure, with priority given to education and health. The amended Compact also provides for a Supplemental Education Grant, which takes the place of certain domestic grants once offered through the Department of Education, the Department of Health and Human Services and the Department of Labor. The Office of Insular Affairs is responsible for administering and monitoring the grants. The amended Compact's subsidiary fiscal procedures agreement requires the RMI government to monitor the day-to-day operations of sector grants and activities, submit periodic performance reports and financial statements, and ensure annual financial and compliance audits. In addition, the Compact and fiscal procedures agreement require the U.S.-RMI Joint Economic Management and Financial Accountability Committee (JEMFAC) to (1) meet at least once annually to evaluate the progress of the RMI in achieving the objectives specified in their development plans; (2) approve grant allocations; (3) review required annual reports; (4) identify problems; and (5) recommend ways to increase the effectiveness of Compact grant assistance. The RMI is also required to conduct annual audits within the meaning of the Single Audit Act for an independent review of its financial position. We believe that the amended Compact of Free Association with the Republic of the Marshall Islands is a promising work in progress. Although many challenges remain for the RMI government to grow its economy and to get better performance from the government services that are supported by the Compact, the RMI has been a solid partner with the United States in making the Compact work. The RMI leadership has made a determined effort to adhere both to the letter and the spirit of the agreement, and is committed to the success of the agreement it negotiated. Since implementation of the amended Compact in fiscal year 2004, the RMI has focused its Compact resources on the three highest priorities, infrastructure, education and health care. Over $52.2 million, approximately 39% of all sector grant funding, has been dedicated to improved infrastructure. The result is best seen in education, where 82 new classrooms serving over 1,700 students are in use, and additional classrooms that will house a total of 4,000 students will be in use at the end of this year. Fully one third of RMI students will be in new classrooms at the end of the 2008 school year. In coming years, $5 million will be invested annually in physical improvements at the College of the Marshall Islands. These improvements will help the college retain its accreditation. Since fiscal year 2004, the RMI has dedicated 34% of Compact funds to education and 21% to its health care system. The RMI has chosen to use only limited amounts of Compact funding for the environment, public sector capacity building and private sector development sectors. This allocation reflects the priorities of the RMI government and of the amended Compact; JEMFAC has concurred with this RMI decision. The allocations may change in any future year, although allocations to the infrastructure sector must be at least 30% of an annual Compact assistance and priority must be given to education and health care. The allocation of Compact funding has been appropriate in the short term. However, growing gaps in the capacity of the RMI government suggest that it might be prudent to shift some Compact resources to public sector capacity building. The GAO has concluded that capacity limitations have affected the RMI's ability to ensure the effective use of grant funds. We agree with this conclusion. The RMI has made strong efforts to institutionalize performance management in its government, and is allocating $300,000 in fiscal year 2008 Compact funds to Public Sector Capacity Building. However, the RMI still lacks the capacity to adequately measure progress because education and health sector baseline data is not adequate and performance reporting is incomplete. Capacity restraints also affect the government's ability to collect and analyze economic data and plan for the future of declining Compact revenues. The fiscal and economic futures of the RMI are issues of concern to the United States members of the JEMFAC. The RMI economy is growing, but on the fragile basis of increased public sector spending. There has been an unsustainable increase in government employment and its accompanying wage bill. The RMI reports a 23 % increase in national government employment in the past three years. Payroll costs jumped from $26.4 million in fiscal year 2004 to $30.1 million in fiscal year 2006. This has taken place at the same time as the RMI has shown annual operating deficits in its general fund. The increase in employment, again according to the RMI government, has not been accompanied by an increase in the effectiveness of government services. The ability to make this internal assessment speaks well of the RMI government, but we hope that the RMI leadership will focus on the need to manage the public payroll in a manner that accounts for the coming decrements in Compact funding. The Compact does not operate in a vacuum, and its overall success will be greatly enhanced or diminished by the circumstances of the RMI economy. The opening of a new tuna loining plant in Majuro has the potential to create 600 private sector jobs. Japan Air Lines has also begun a series of special charter flights that may have long-term benefits for the tourism sector. Even with these successes, the RMI still has obstacles to economic development: its geographic isolation, inadequate infrastructure, lack of a skilled workforce and an out-dated business climate. The theory of the Compact is that improvements in health and education will create a better workforce at home and more remittances from abroad, and that these factors, together with improved infrastructure, will provide a foundation for long-term private sector economic development. In the short term, we believe that there is a need for the RMI to take action to improve the business climate, including tax, land and foreign investment reforms. The United States intends to enhance our trade dialogue with the Republic of the Marshall Islands and other Pacific Island nations. Although the United States through its JEMFAC membership may inquire about and promote change, the decisions to make these important changes lie with the Marshall Islands government. An important element of the United States financial assistance under the Compact is the trust fund established to contribute a source of revenue to the government for the RMI when annual sector grants cease after 2023, to be used for the same purposes as the annual sector grants were. As of June 30, 2007, the market value of total assets of the Trust Fund for the People of the Republic of the Marshall Islands was $83.2 million. Of that amount, $64.3 million represented contributions of governments, including $31.8 million from the United States, $30 million from the RMI and $2.5 million from Taiwan. The return on assets during the current fiscal year is 10.3 percent Since Goldman Sachs began managing the Trust Fund assets as investment manager on November 14, 2005, the Fund's investments gained $12.0 million through June 30, 2007. The assets have been invested in a mix of United States public equity and realty funds, international equity funds, and fixed income funds. The Trust Fund Committee is also investigating whether securitization of the future U.S. contributions to the Trust Fund would increase the ultimate 2023 value of the fund, and has issued an RFP for a study of its potential benefits and risks. Securitization would permit the Trust Fund to invest with a longer time horizon by bringing forward the United States contributions scheduled for later years. If deemed advantageous, a change in the Compact law would be necessary in order to permit implementation of a securitization program. The Joint Economic Management and Financial Accountability Committee met recently in Honolulu. The meetings were productive and resulted in the allocation of Compact funding for fiscal year 2008. In the next fiscal year, the RMI will dedicate $11.3 million to education, $6.5 million to health, $11.8 million to infrastructure, $300 thousand to public sector capacity building and $5.6 million for assistance to Kwajalein atoll communities. In summary, the Republic of the Marshalls Islands faces very serious challenges, but we are pleased with the mutual respect and cooperative manner is which our two countries are working to implement the Compact and address those challenges. S. 1756 S. 1756 would deal with several issues that stem from United States nuclear testing that took place in the 1950s. Section 2 – Continued Monitoring on Runit Islands Section 2 would require the Department of Energy to survey radiological conditions on Runit Island every four years, and report to the House and Senate authorizing committees. The partial clean-up of Enewetak Atoll in the late 1970's resulted in the creation of an above-ground nuclear waste storage site, a dome, at Runit Island. Inside Runit dome are over one 110,000 cubic yards of radioactive material scraped from other parts of Enewetak Atoll. The United States and the Republic of the Marshall Islands settled all claims, past, present and future of the Government, citizens and nationals of the Republic of the Marshall Islands which are based upon, arise out of, or are in any way related to the Nuclear Testing Program. Article VII of the agreement subsidiary to section 177 of the 1986 Compact of Free Association relieved the United States of all responsibility for controlling "the utilization of areas in the Marshall Islands affected by the Nuclear Testing Program" and placed that responsibility solely with the Marshall Islands Government. Nevertheless, Runit dome has remained for many years a point of friction in the otherwise mutually agreeable, bilateral relationship between the governments of the Marshall Islands and United States. Representatives of the Marshall Islands have raised questions regarding Runit Island including (1) the safety of land, water and marine life, (2) the radiological condition of the northern part of the island, and (3) the structural integrity of the dome. At present, the Department of Energy has a plan in place to conduct a visual engineering survey of Runit Dome in May of 2008. Such a survey is expected to become a routine part of DOE's field work. Under the Compact of Free Association Act, DOE provides technical support in environmental measurement to four atolls (Enewetak, Bikini, Rongelap and Utrik) within the Republic of the Marshall Islands. The Marshallese, with their advisors, set all goals and conduct all remedial actions. DOE takes environmental measurements before and after remedial actions to see if goals were achieved. DOE may offer suggestions for remedial actions at the request of the Republic of the Marshall Islands. Current funding limits the scope of DOE work to resettlement activities; Runit Island will not be resettled and is off-limits to residents of the Marshall Islands. The Administration believes that current and future plans for surveying Runit dome and aiding the Government of the Marshall Islands in its assessment of conditions at Runit Island are sufficient to monitor safety. The Administration, therefore, opposes enactment of section 2 of S. 1756. Section 3 – Clarification of Eligibility under EEOICPA Section 3 deals with the eligibility of former citizens of the Trust Territory of the Pacific Islands for the Energy Employees Occupational Illness Compensation Program Act (EEOICPA). In the 1950s, the United States government hired citizens of the Trust Territory, which was administered by the United States, to clean up ground-zero locations in Bikini and Enewetak Atolls and to collect soil and other samples from contaminated areas in the Marshall Islands. These individuals cannot receive EEOICPA benefits because the language of the statute does not overcome the presumption against extraterritorial application of American law. The United States used both United States citizens and Trust Territory citizens (who were under the aegis of the United States), for work that sustained a program that was crucial for national security. At present, the former Trust Territory citizen workers are being denied EEOICPA benefits because the language of the statute does not overcome the presumption against extraterritorial application of American law. Section 3 is intended to place the former Trust Territory citizen workers on an equal footing with United States citizen workers. The Administration is still reviewing section 3 of S. 1756, and its implication that compensation would be provided to a subset of DOE workers even though section 177 of the Compact and its implementing agreement provided for the full and final resolution of all claims arising from the Marshall Islands nuclear testing program. In addition, the Department of Labor notes that there are some drafting issues, particularly with respect to the bill's offset provisions. Section 4 – Four Atoll Health Care Program Section 4 would appropriate funds for the Four Atoll Health Care Program. The Congress established the Four Atoll Health Care Program in the early 1970s to provide health care for people who resided on the nuclear-affected atolls of Enewetak, Bikini, Rongelap and Utrik. When the original Compact of Free Association came into force in 1986, the Four Atoll program was funded for fifteen years under the Compact section 177 subsidiary agreement and ended in 2001 in accordance with the terms of that agreement. In January of 2005, the State Department submitted the Administration's evaluation of RMI's submission of a request, among other things, for an enhanced primary, secondary and tertiary health care system to serve the entire RMI population for 50 years under Article IX of the agreement subsidiary to Section 177 on the basis of “changed circumstances.” The Administration's report concluded that there was no legal basis for considering additional payments. In both fiscal years 2005 and 2006, Congress added $1 million in appropriations for the Four Atoll program. Section 4 would create a permanent 17-year appropriation for the program (from 2007 through 2023). Additionally, it would fund the program annually at $2 million, inflation adjusted. The Administration does not support a permanent appropriation of $2 million for this program. As noted previously, the Administration determined in 2005 that there was no basis in the Compact section 177 subsidiary agreement for considering additional claims. Furthermore, as previously noted in this testimony, the United States is currently committed to spend over $1.5 billion in direct assistance and trust fund contributions in the RMI over the next 20 years, and the area remains eligible for a number of categorical and competitive public health grant programs administered by the U.S. Department of Health and Human Services in the same way as U.S. states and territories. Section 5 – Assessment of Health Care Needs of the Marshall Islands. Section 5 would mandate that the Secretary of the Interior commission an assessment and report by the National Academy of Sciences (NAS) of the health impacts of United States nuclear testing conducted in the Marshall Islands. The Administration believes that this assessment is not necessary, given that on January 4, 2005, the State Department submitted the results of an Administration evaluation that carefully and methodically reviewed existing scientific studies of the impact of nuclear testing in the Marshall Islands. The Administration believes that previous studies have adequately answered questions relating to the impacts of nuclear testing as they relate to additional claims for damage resulting from the nuclear testing program, and does not support the commissioning of additional studies at this time. Mr. Chairman and members of the subcommittee, this completes my prepared statement. I will be happy to respond to any questions you may have at this time.