Compact of Free Association
Proposed U.S. Assistance to Palau and Its Likely Impact Gao ID: GAO-11-559T June 16, 2011The Compact of Free Association between the United States and the Republic of Palau, which entered into force in 1994, provided for several types of assistance aimed at promoting Palau's self-sufficiency and economic advancement. Included were 15 years of direct assistance to the Palau government; contributions to a trust fund meant to provide Palau $15 million each year from 2010 through 2044; construction of a road system, known as the Compact Road; and federal services such as postal, weather, and aviation. U.S. agencies also provided discretionary federal programs related to health, education, and infrastructure. In 2008, GAO projected total assistance from 1994 though 2009 would exceed $852 million. In September 2010, the United States and Palau signed an agreement (the Agreement) that would, among other things, provide for additional assistance to Palau and modify its trust fund. This statement describes (1) the Agreement's provisions for economic assistance to Palau, (2) its impact on the trust fund's likelihood of sustaining scheduled payments through 2044, and (3) the projected role of U.S. assistance in Palau government revenues. GAO reviewed the Agreement; examined Palau's recent single audit reports and budget projections; and assessed trust fund balances and disbursement plans under various assumptions and investment returns.
The Agreement would provide steadily decreasing assistance totaling approximately $215 million from 2011 through 2024. This would include the following: (1) direct economic assistance ($107.5 million) for government operations, (2) infrastructure project grants ($40 million) to build mutually agreed projects, (3) infrastructure maintenance fund ($28 million) for maintaining the Compact Road, Palau's primary airport, and certain other major U.S.- funded projects, (4) fiscal consolidation fund ($10 million) to assist Palau in debt reduction, and (5) trust fund contributions ($30.25 million) in addition to the $70 million contributed under the compact. Under the Agreement, the United States would contribute to the trust fund from 2013 through 2023, and Palau would delay its withdrawals by $89 million from 2010 through 2023. GAO projects that with these changes the fund would have a 90 percent likelihood of sustaining payments through 2044, versus 25 percent without these changes. Estimates prepared for the Palau government project declining reliance on U.S. assistance under the Agreement--from 28 percent of government revenue in 2011 to under 2 percent in 2024--and growing reliance on trust fund withdrawals and domestic revenues. The estimates show trust fund withdrawals rising from 5 percent to 24 percent, and domestic revenues rising from 40 to 59 percent, of total government revenue. According to the estimates, U.S. assistance from 2011 though 2024 would total $427 million, with discretionary federal programs accounting for about half of that amount.
GAO-11-559T, Compact of Free Association: Proposed U.S. Assistance to Palau and Its Likely Impact
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United States Government Accountability Office:
GAO:
Testimony:
Before the Committee on Energy and Natural Resources, U.S. Senate:
For Release on Delivery:
Expected at 10:30 a.m. EDT:
Thursday, June 16, 2011:
Compact of Free Association:
Proposed U.S. Assistance to Palau and Its Likely Impact:
Statement of David Gootnick, Director:
International Affairs and Trade:
GAO-11-559T:
GAO Highlights:
Highlights of GAO-11-559T, a testimony before the Committee on Energy
and Natural Resources, U.S. Senate
Why GAO Did This Study:
The Compact of Free Association between the United States and the
Republic of Palau, which entered into force in 1994, provided for
several types of assistance aimed at promoting Palau‘s self-
sufficiency and economic advancement. Included were 15 years of direct
assistance to the Palau government; contributions to a trust fund
meant to provide Palau $15 million each year from 2010 through 2044;
construction of a road system, known as the Compact Road; and federal
services such as postal, weather, and aviation. U.S. agencies also
provided discretionary federal programs related to health, education,
and infrastructure. In 2008, GAO projected total assistance from 1994
though 2009 would exceed $852 million.
In September 2010, the United States and Palau signed an agreement
(the Agreement) that would, among other things, provide for additional
assistance to Palau and modify its trust fund.
This statement describes (1) the Agreement‘s provisions for economic
assistance to Palau, (2) its impact on the trust fund‘s likelihood of
sustaining scheduled payments through 2044, and (3) the projected role
of U.S. assistance in Palau government revenues. GAO reviewed the
Agreement; examined Palau‘s recent single audit reports and budget
projections; and assessed trust fund balances and disbursement plans
under various assumptions and investment returns.
What GAO Found:
The Agreement would provide steadily decreasing assistance totaling
approximately $215 million from 2011 through 2024 (see figure). This
would include the following:
* direct economic assistance ($107.5 million) for government
operations,
* infrastructure project grants ($40 million) to build mutually agreed
projects,
* infrastructure maintenance fund ($28 million) for maintaining the
Compact Road, Palau‘s primary airport, and certain other major U.S.-
funded projects,
* fiscal consolidation fund ($10 million) to assist Palau in debt
reduction, and,
* trust fund contributions ($30.25 million) in addition to the $70
million contributed under the compact.
Figure: Assistance to Palau Specified in the Agreement:
[Refer to PDF for image: stacked vertical bar graph]
Fiscal year: 2011;
Direct economic assistance: $13 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $8 million;
Fiscal consolidation fund: $5 million;
Trust fund contributions: $0.
Fiscal year: 2012;
Direct economic assistance: $12.75 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $8 million;
Fiscal consolidation fund: $5 million;
Trust fund contributions: $0.
Fiscal year: 2013;
Direct economic assistance: $12.5 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $8 million;
Fiscal consolidation fund: $0;
Trust fund contributions: $3 million.
Fiscal year: 2014;
Direct economic assistance: $12 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $6 million;
Fiscal consolidation fund: $0;
Trust fund contributions: $3 million.
Fiscal year: 2015;
Direct economic assistance: $11.5 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $5 million;
Fiscal consolidation fund: $0;
Trust fund contributions: $3 million.
Fiscal year: 2016;
Direct economic assistance: $10 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $5 million;
Fiscal consolidation fund: $0;
Trust fund contributions: $3 million.
Fiscal year: 2017;
Direct economic assistance: $8.5 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $0;
Fiscal consolidation fund: $0;
Trust fund contributions: $3 million.
Fiscal year: 2018;
Direct economic assistance: $7.25 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $0;
Fiscal consolidation fund: $0;
Trust fund contributions: $3 million.
Fiscal year: 2019;
Direct economic assistance: $6 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $0;
Fiscal consolidation fund: $0;
Trust fund contributions: $3 million.
Fiscal year: 2020;
Direct economic assistance: $5 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $0;
Fiscal consolidation fund: $0;
Trust fund contributions: $3 million.
Fiscal year: 2021;
Direct economic assistance: $4 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $0;
Fiscal consolidation fund: $0;
Trust fund contributions: $3 million.
Fiscal year: 2022;
Direct economic assistance: $3 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $0;
Fiscal consolidation fund: $0;
Trust fund contributions: $3 million.
Fiscal year: 2023;
Direct economic assistance: $2 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $0;
Fiscal consolidation fund: $0;
Trust fund contributions: $0.25 million.
Fiscal year: 2024;
Direct economic assistance: $0;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $0;
Fiscal consolidation fund: $0;
Trust fund contributions: $0.
Source: GAO analysis of the Agreement between the Government of the
United States of America and the Government of the Republic of Palau
Following the Compact of Free Association Section 432 Review.
[End of figure]
Under the Agreement, the United States would contribute to the trust
fund from 2013 through 2023, and Palau would delay its withdrawals by
$89 million from 2010 through 2023. GAO projects that with these
changes the fund would have a 90 percent likelihood of sustaining
payments through 2044, versus 25 percent without these changes.
Estimates prepared for the Palau government project declining reliance
on U.S. assistance under the Agreement”from 28 percent of government
revenue in 2011 to 2 percent in 2024”and growing reliance on trust
fund withdrawals and domestic revenues. The estimates show trust fund
withdrawals rising from 5 percent to 24 percent, and domestic revenues
rising from 40 to 59 percent, of total government revenue. According
to the estimates, U.S. assistance from 2011 though 2024 would total
$427 million, with discretionary federal programs accounting for about
half.
View [hyperlink, http://www.gao.gov/products/GAO-11-559T] or key
components. For more information, contact David Gootnick at (202) 512-
3149 or gootnickd@gao.gov.
[End of section]
Chairman Bingaman, Ranking Member Murkowski, and Members of the
Committee:
I am pleased to be here today to discuss the September 2010 agreement
between the U.S. and Palau governments.[Footnote 1] The Compact of
Free Association between the Government of the United States and the
Government of the Republic of Palau, which entered into force in
October 1994, provided for several types of assistance aimed at
promoting Palau's economic advancement and eventual self-sufficiency.
[Footnote 2] In addition to establishing Palauan sovereignty and U.S.-
Palau security and defense arrangements, the compact provided economic
assistance to Palau.[Footnote 3] This assistance comprised, among
other things, direct economic assistance for 15 years to the Palau
government; the establishment of a trust fund intended to provide
Palau $15 million annually from 2010 through 2044; investments in
infrastructure, including a major road; and the provision of federal
services, such as postal, weather, and aviation. The compact also
established a basis for U.S. agencies to provide discretionary federal
programs related to health, education, and infrastructure. In June
2008, we projected that U.S. assistance to Palau from 1995 through
2009 would exceed $852 million, with assistance under the compact
accounting for about 68 percent and assistance through discretionary
programs accounting for about 31 percent.[Footnote 4] We also
reported, in 2008, that the likelihood of the Palau trust fund being
able to sustain the planned payments through 2044 was uncertain.
The September 2010 agreement between the U.S. and Palau governments
(the Agreement) followed a formal review of the compact's terms
required 15 years after it entered into force.[Footnote 5] Provisions
of the Agreement would, among other things, extend economic assistance
to Palau beyond the original 15 years and modify trust fund
arrangements. A bill now pending before the U.S. Senate would approve
the Agreement and appropriate funds to implement it.[Footnote 6]
My statement today describes (1) the extension of economic assistance
to Palau as outlined in the Agreement, (2) the impact that this
assistance would have on the Palau trust fund's sustainability, and
(3) the projected role of U.S. assistance in Palau government revenues.
For this statement, we reviewed the Agreement, assessed trust fund
balances and disbursement plans under various assumptions and
investment returns, and examined single audit reports and budget
estimates prepared for the Palau government. We determined that these
data were sufficiently reliable for the purposes of our review. We
conducted our work from February to June 2011 in accordance with all
sections of GAO's Quality Assurance Framework that are relevant to our
objectives. The framework requires that we plan and perform the
engagement to obtain sufficient and appropriate evidence to meet our
stated objectives and to discuss any limitations in our work. We
believe that the information and data obtained, and the analysis we
conducted, provide a reasonable basis for any findings and conclusions.
Background:
Palau consists of 8 main islands and more than 250 smaller islands
with a total land area of roughly 190 square miles, located
approximately 500 miles southeast of the Philippines. About 20,000
people live in Palau, concentrated largely in one urban center around
the city of Koror, and more than one-quarter of the population is non-
Palauan.[Footnote 7] Palau's economy is heavily dependent on its
tourism sector and on foreign aid from the United States, Japan, and
Taiwan.[Footnote 8] Similar to many small island economies, Palau's
public sector spending represents a significant percentage of its
gross domestic product (GDP).[Footnote 9]
U.S. relations with Palau began when American forces liberated the
islands near the end of World War II. In 1947, the United Nations
assigned the United States administering authority over the Trust
Territory of the Pacific Islands, which included what are now the
Federated States of Micronesia, the Republic of the Marshall Islands,
the Commonwealth of the Northern Mariana Islands, and Palau. Palau
adopted its own constitution in 1981. The governments of the United
States and Palau concluded a Compact of Free Association in 1986; the
compact entered into force on October 1, 1994. The Department of the
Interior's (Interior) Office of Insular Affairs (OIA) has primary
responsibility for monitoring and coordinating all U.S. assistance to
Palau, and the Department of State (State) is responsible for
government-to-government relations.
Key provisions of the compact and its subsidiary agreements address
the sovereignty of Palau, types and amounts of U.S. assistance,
security and defense authorities, and periodic reviews of compact
terms. Table 1 summarizes key provisions of the Palau compact and
related subsidiary agreements.
Table 1: Key Provisions of Palau Compact of Free Association and
Subsidiary Agreements:
Compact section: Title one: Government Relations; Description of key
provisions:
Sovereignty: Established Palau as a self-governing nation with the
capacity to conduct its own foreign affairs;
Immigration privileges: Provided Palauan citizens with certain
immigration privileges, such as the rights to work and live in the
United States indefinitely and to enter the United States without a
visa or passport. This privilege remains in effect as long as the
compact agreement is not amended by mutual agreement or mutually or
unilaterally terminated.
Compact section: Title two: Economic Relations; Description of key
provisions:
Compact direct assistance: Established 15-year term of budgetary
support for Palau, beginning on compact's effective date. This support
included direct assistance for current account operations and
maintenance and for specific needs such as energy production, capital
improvement projects, health, and education;
Trust fund: Required the United States to contribute to a trust fund
for Palau;
Compact Road: Required the United States to construct a road system
(the Compact Road)[A];
Compact federal services: Required the United States to make available
certain federal services and related programs to Palau, such as
postal, weather, and aviation. The compact subsidiary agreement
implementing such services was in force until Oct. 1, 2009[B];
Accountability for compact funds: Required Palau to report on its use
of compact funds and required U.S. government, in consultation with
Palau, to implement procedures for periodic audit of all grants and
other assistance.
Compact section: Title three: Security and Defense Relations;
Description of key provisions:
U.S. authority for security and defense matters: Established that the
United States has full authority and responsibility for security and
defense matters in or relating to Palau, would take action to meet the
danger of an attack on Palau, and may conduct activities on land,
water, and airspace as necessary;
Strategic denial: Foreclosed Palau to the military of any nation
except the United States, unless they are invited by the United States
and under the control of the U.S. armed forces;
U.S. defense sites and operating rights: Established that the United
States may establish land and sea defense sites in Palau and has
certain military operating rights. The subsidiary agreement
implementing this provision provides the United States exclusive use
of certain land adjoining the airport and certain submerged land in
Malakal Harbor and remains in effect through 2044;
Service in the armed forces: Established eligibility of Palau citizens
to serve in the U.S. armed forces;
The provisions on U.S. authority for security and defense matters,
U.S. defense sites and operating rights, and service in the armed
forces remain in effect unless the compact is terminated by mutual
agreement or, if the compact is unilaterally terminated, until October
1, 2044, and thereafter as mutually agreed. The strategic denial
provision remains in effect through 2044 and thereafter until
terminated or otherwise amended by mutual consent.
Compact section: Title four: General Provisions; Description of key
provisions: Established general provisions regarding approval and
effective date of the compact, conference and dispute resolution
procedures, and compact termination procedures. Required reviews of
its terms on the 15th, 30th, and 40th anniversaries of the compact's
entry into force--that is, in 2009, 2024, and 2034, respectively.
Source: GAO analysis of the Compact of Free Association between the
Government of the United States and the Government of the Republic of
Palau.
Notes: The compact's subsidiary agreements relate to specific titles
of the compact; in many cases, they contain implementing details of
compact provisions.
[A] The compact called for the United States to build the Compact Road
according to mutually agreed specifications before Oct. 1, 2000. The
road was completed and turned over to Palau on Oct. 1, 2007. See GAO-
08-732, Appendix V, for more information.
[B] Federal Programs and Services Agreement Concluded Pursuant to
Article II of Title Two and Section 232 of the Compact of Free
Association, which took effect in 1995, established the legal status
of programs and related services, federal agencies, U.S. contractors,
and personnel of U.S. agencies implementing both compact federal
services and discretionary federal programs in Palau. Under this
agreement, the United States Postal Service (USPS) conveys mail
between the United States and Palau and offers other services such as
Priority MailŪ, Collect on Delivery (COD), and USPS Domestic Money
Orders. Palau maintains its own postal service for internal mail
delivery. Under this agreement, the National Weather Service (NWS)
reimburses Palau for the cost of operating its weather station in
Palau, which performs upper air observations twice daily and as
requested for the purpose of Palau's airport operations and the
tracking of cyclones that may impact other U.S. territories such as
Guam; and the Federal Aviation Administration (FAA) provides aviation
services to Palau, including en-route air traffic control from the
mainland United States, flight inspection of airport navigation aids,
and technical assistance and training.
[End of table]
In addition to the U.S. assistance provided under the compact, U.S.
agencies--Education, HHS, and Interior, among others--provide
discretionary federal programs in Palau as authorized by U.S.
legislation[Footnote 10] and with appropriations from Congress. (See
appendix II for a complete listing of these programs in Palau.)
In our 2008 report, we projected that from 1995 through 2009, U.S.
assistance to Palau would exceed $852 million, with economic
assistance provided under the compact accounting for 68 percent and
discretionary federal programs accounting for 31 percent of this total
(see figure 1).[Footnote 11]
Figure 1: Projected U.S. Assistance Provided to Palau in 1995-2009:
[Refer to PDF for image: pie-chart]
Discretionary Federal Programs: 31% ($266.7 million);
Assistance Provided by the Compact:
Compact direct assistance: 40% ($341 million);
Compact road: 17% ($149 million);
Compact trust fund contributions: 8% ($70 million);
Compact federal services: 3% ($25.3 million);
Total: $852 million.
Source: GAO analysis.
Notes:
All years are fiscal (Oct. 1 - Sept. 30) and all dollar amounts are in
current (i.e., nominal) dollars.
Numbers may not add to 100 percent due to rounding.
Amounts shown for compact direct assistance, compact trust fund
contributions, and Compact Road are based on Interior's Office of
Insular Affairs' actual and estimated payments to Palau for 1995-2009,
as reported in its budget justification to Congress for 2009.
Amount shown for compact federal services is based on GAO estimates of
past expenditures by the NWS, USPS, and the FAA.
Amount shown for estimated discretionary federal programs is the sum
of (1) U.S. agency program expenditures as reported in single audits
for 1995-2006 for the Palau national government and for 1997-2006 for
the Palau Community Action Agency and the Palau Community College, (2)
GAO estimates of U.S. agency program expenditures for 2007-2009, and
(3) GAO estimates of DOD Civic Action Team costs for 1995-2009.
Estimated and projected federal program expenditures do not include
the value of U.S. loans to Palau. For more information, see GAO-08-732.
[End of figure]
Agreement Would Extend U.S. Assistance for 15 Years, Decreasing
Annually:
The September 2010 Agreement between the U.S. and Palau governments
would extend assistance to Palau to 2024 but steadily reduce the
annual amount provided. The Agreement would also extend the authority
and framework for U.S. agencies to continue compact federal services
and discretionary federal programs.[Footnote 12]
Assistance to Palau Would Decline through 2024:
Key provisions of the Agreement would include, among others, extending
direct economic assistance to Palau; providing for further investments
in infrastructure; establishing a fiscal consolidation fund; and
making changes to the trust fund. U.S. assistance to Palau under the
Agreement would total approximately $215 million from 2011 through
2024.[Footnote 13] The pending legislation would authorize and
appropriate funds to Interior for this assistance.[Footnote 14]
* Direct economic assistance ($107.5 million). The Agreement provides
for direct assistance--budgetary support for government operations and
specific needs such as administration of justice and public safety,
health, and education--of $13 million in 2011, declining to $2 million
by 2023. The Agreement also calls for the U.S. and Palau governments
to establish a five-member Advisory Group to provide annual
recommendations and timelines for economic, financial, and management
reforms. The Advisory Group must report on Palau's progress in
implementing these or other reforms, prior to annual U.S.-Palau
economic consultations.[Footnote 15] These consultations are to review
Palau's progress in achieving reforms[Footnote 16] such as
improvements in fiscal management, reducing the public sector
workforce and salaries, reducing government subsidization of
utilities, and tax reform. If the U.S. government determines that
Palau has not made significant progress in implementing meaningful
reforms, direct assistance payments may be delayed until the U.S.
government determines that Palau has made sufficient progress.
* Infrastructure projects ($40 million). The Agreement mandates U.S.
infrastructure project grants to Palau for mutually agreed
infrastructure projects--$8 million in 2011 through 2013, $6 million
in 2014, and $5 million in both 2015 and 2016. The Agreement requires
Palau to provide a detailed project budget and certified scope of work
for any projects receiving these funds.
* Infrastructure maintenance fund ($28 million). The Agreement
stipulates that the United States make contributions to a fund to be
used for maintenance of U.S.-financed major capital improvement
projects, including the Compact Road and Airai International Airport.
[Footnote 17] From 2011 through 2024, the U.S. government will
contribute $2 million annually, and the Palau government will
contribute $600,000 annually to the fund.[Footnote 18]
* Fiscal consolidation fund ($10 million). The Agreement states that
the United States shall provide grants of $5 million each in 2011 and
2012, respectively, to help the Palau government reduce its debts.
Unless agreed to in writing by the U.S. government, these grants
cannot be used to pay any entity owned or controlled by a member of
the government or his or her family, or any entity from which a member
of the government derives income. U.S. creditors must receive
priority, and the government of Palau must report quarterly on the use
of the grants until they are expended.
* Trust fund ($30.25 million). The Agreement provides for the United
States to contribute $30.25 million to the fund from 2013 through
2023. The government of Palau will reduce its previously scheduled
withdrawals from the fund by $89 million.[Footnote 19] From 2024
through 2044, Palau can withdraw up to $15 million annually, as
originally scheduled. Moneys from the trust fund account cannot be
spent on state block grants, operations of the office of the President
of Palau, the Olibiil Era Kelulau (Palau National Congress), or the
Palau Judiciary. Palau must use $15 million of the combined total of
the trust fund disbursements and direct economic assistance
exclusively for education, health, and the administration of justice
and public safety.
* Annual U.S. assistance to Palau under the Agreement would decline
from roughly $28 million in 2011 to $2 million in 2024. Figure 2
details the timeline and composition of assistance outlined in the
Agreement.
Figure 2: U.S. Assistance to Palau for 2011-2024, as Outlined in the
Agreement:
[Refer to PDF for image: stacked vertical bar graph]
Fiscal year: 2011;
Direct economic assistance: $13 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $8 million;
Fiscal consolidation fund: $5 million;
Trust fund contributions: $0.
Fiscal year: 2012;
Direct economic assistance: $12.75 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $8 million;
Fiscal consolidation fund: $5 million;
Trust fund contributions: $0.
Fiscal year: 2013;
Direct economic assistance: $12.5 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $8 million;
Fiscal consolidation fund: $0;
Trust fund contributions: $3 million.
Fiscal year: 2014;
Direct economic assistance: $12 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $6 million;
Fiscal consolidation fund: $0;
Trust fund contributions: $3 million.
Fiscal year: 2015;
Direct economic assistance: $11.5 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $5 million;
Fiscal consolidation fund: $0;
Trust fund contributions: $3 million.
Fiscal year: 2016;
Direct economic assistance: $10 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $5 million;
Fiscal consolidation fund: $0;
Trust fund contributions: $3 million.
Fiscal year: 2017;
Direct economic assistance: $8.5 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $0;
Fiscal consolidation fund: $0;
Trust fund contributions: $3 million.
Fiscal year: 2018;
Direct economic assistance: $7.25 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $0;
Fiscal consolidation fund: $0;
Trust fund contributions: $3 million.
Fiscal year: 2019;
Direct economic assistance: $6 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $0;
Fiscal consolidation fund: $0;
Trust fund contributions: $3 million.
Fiscal year: 2020;
Direct economic assistance: $5 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $0;
Fiscal consolidation fund: $0;
Trust fund contributions: $3 million.
Fiscal year: 2021;
Direct economic assistance: $4 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $0;
Fiscal consolidation fund: $0;
Trust fund contributions: $3 million.
Fiscal year: 2022;
Direct economic assistance: $3 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $0;
Fiscal consolidation fund: $0;
Trust fund contributions: $3 million.
Fiscal year: 2023;
Direct economic assistance: $2 million;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $0;
Fiscal consolidation fund: $0;
Trust fund contributions: $0.25 million.
Fiscal year: 2024;
Direct economic assistance: $0;
Infrastructure maintenance fund: $2 million;
Infrastructure project grants: $0;
Fiscal consolidation fund: $0;
Trust fund contributions: $0.
Source: GAO analysis of the Agreement between the Government of the
United States of America and the Government of the Republic of Palau
Following the Compact of Free Association Section 432 Review.
Note: Compact federal services and discretionary federal programs are
not included in this analysis.
[End of figure]
Agreement Would Continue Compact Federal Services and Extend Framework
for Discretionary Federal Programs:
The Agreement would extend the authority for the provision of compact
federal services and discretionary programs in Palau.
* Federal services. The Agreement would amend the compact's subsidiary
agreements regarding federal services. The proposed legislation
implementing the Agreement would authorize annual appropriations for
weather and aviation services. The proposed legislation would also
authorize appropriations of $1.5 million to Interior for 2011 through
2024, to subsidize postal services to Palau, the Republic of the
Marshall Islands, and the Federated States of Micronesia.
* Federal discretionary programs. The Agreement would extend the
framework for U.S. agencies to provide discretionary federal programs
to Palau and the implementation of these programs is contingent on
annual appropriations to those agencies. The implementing legislation
would extend the eligibility of the people, government, and
institutions of Palau for certain discretionary programs, including
special education and Pell grants.
Agreement Provisions Would Significantly Improve Prospects for Palau
Trust Fund:
The addition of $30.25 million in U.S. contributions and the delay of
$89 million in Palau withdrawals through 2023, as provided by the
Agreement, would improve the fund's prospects for sustaining scheduled
payments through 2044. At the end of 2010, the fund had a balance of
nearly $160 million. Under the Agreement, the trust fund would need a
4.9 percent annual return to yield the proposed withdrawals from 2011
through 2044. This rate is well below the 8.2 percent return it earned
from its inception to December 31, 2010.[Footnote 20] Figure 3 shows
projected trust fund balances in 2011 through 2044 under the
Agreement, with varying rates of return.
Figure 3: Projected Palau Trust Fund Balance under the Agreement, with
Varying Rates of Return, 2011-2044:
[Refer to PDF for image: multiple line graph]
Fiscal year: 2011;
8.2% (return earned by trust fund from inception to Dec. 2010):
$165.46 million;
4.9% (return needed to sustain the trust fund through 2044): $161.63
million;
6.3% (return needed to grow in perpetuity): $163.28 million.
Fiscal year: 2012;
8.2% (return earned by trust fund from inception to Dec. 2010):
$176.74 million;
4.9% (return needed to sustain the trust fund through 2044): $167.37
million;
6.3% (return needed to grow in perpetuity): $171.36 million.
Fiscal year: 2013;
8.2% (return earned by trust fund from inception to Dec. 2010):
$188.93 million;
4.9% (return needed to sustain the trust fund through 2044): $173.39
million;
6.3% (return needed to grow in perpetuity): $179.95 million.
Fiscal year: 2014;
8.2% (return earned by trust fund from inception to Dec. 2010):
$201.86 million;
4.9% (return needed to sustain the trust fund through 2044): $179.44
million;
6.3% (return needed to grow in perpetuity): $188.83 million.
Fiscal year: 2015;
8.2% (return earned by trust fund from inception to Dec. 2010):
$215.58 million;
4.9% (return needed to sustain the trust fund through 2044): $185.54
million;
6.3% (return needed to grow in perpetuity): $198 million.
Fiscal year: 2016;
8.2% (return earned by trust fund from inception to Dec. 2010):
$229.12 million;
4.9% (return needed to sustain the trust fund through 2044): $190.65
million;
6.3% (return needed to grow in perpetuity): $206.46 million.
Fiscal year: 2017;
8.2% (return earned by trust fund from inception to Dec. 2010):
$242.48 million;
4.9% (return needed to sustain the trust fund through 2044): $194.74
million;
6.3% (return needed to grow in perpetuity): $214.17 million.
Fiscal year: 2018;
8.2% (return earned by trust fund from inception to Dec. 2010):
$255.89 million;
4.9% (return needed to sustain the trust fund through 2044): $198.02
million;
6.3% (return needed to grow in perpetuity): $221.35 million.
Fiscal year: 2019;
8.2% (return earned by trust fund from inception to Dec. 2010):
$269.36 million;
4.9% (return needed to sustain the trust fund through 2044): $200.43
million;
6.3% (return needed to grow in perpetuity): $227.94 million.
Fiscal year: 2020;
8.2% (return earned by trust fund from inception to Dec. 2010):
$283.41 million;
4.9% (return needed to sustain the trust fund through 2044): $202.45
million;
6.3% (return needed to grow in perpetuity): $234.44 million.
Fiscal year: 2021;
8.2% (return earned by trust fund from inception to Dec. 2010):
$298.08 million;
4.9% (return needed to sustain the trust fund through 2044): $204.06
million;
6.3% (return needed to grow in perpetuity): $240.83 million.
Fiscal year: 2022;
8.2% (return earned by trust fund from inception to Dec. 2010):
$310.16 million;
4.9% (return needed to sustain the trust fund through 2044): $201.97
million;
6.3% (return needed to grow in perpetuity): $243.85 million.
Fiscal year: 2023;
8.2% (return earned by trust fund from inception to Dec. 2010):
$321.95 million;
4.9% (return needed to sustain the trust fund through 2044): $198.52
million;
6.3% (return needed to grow in perpetuity): $245.79 million.
Fiscal year: 2024;
8.2% (return earned by trust fund from inception to Dec. 2010):
$332.63 million;
4.9% (return needed to sustain the trust fund through 2044): $192.87
million;
6.3% (return needed to grow in perpetuity): $245.8 million.
Fiscal year: 2025;
8.2% (return earned by trust fund from inception to Dec. 2010):
$344.17 million;
4.9% (return needed to sustain the trust fund through 2044): $186.94
million;
6.3% (return needed to grow in perpetuity): $245.81 million.
Fiscal year: 2026;
8.2% (return earned by trust fund from inception to Dec. 2010):
$356.66 million;
4.9% (return needed to sustain the trust fund through 2044): $180.73
million;
6.3% (return needed to grow in perpetuity): $245.82 million.
Fiscal year: 2027;
8.2% (return earned by trust fund from inception to Dec. 2010):
$370.16 million;
4.9% (return needed to sustain the trust fund through 2044): $174.21
million;
6.3% (return needed to grow in perpetuity): $245.83 million.
Fiscal year: 2028;
8.2% (return earned by trust fund from inception to Dec. 2010):
$384.75 million;
4.9% (return needed to sustain the trust fund through 2044): $167.38
million;
6.3% (return needed to grow in perpetuity): $245.84 million.
Fiscal year: 2029;
8.2% (return earned by trust fund from inception to Dec. 2010):
$400.53 million;
4.9% (return needed to sustain the trust fund through 2044): $160.22
million;
6.3% (return needed to grow in perpetuity): $245.85 million.
Fiscal year: 2030;
8.2% (return earned by trust fund from inception to Dec. 2010):
$417.59 million;
4.9% (return needed to sustain the trust fund through 2044): $152.71
million;
6.3% (return needed to grow in perpetuity): $245.86 million.
Fiscal year: 2031;
8.2% (return earned by trust fund from inception to Dec. 2010):
$436.03;
4.9% (return needed to sustain the trust fund through 2044): $144.84;
6.3% (return needed to grow in perpetuity): $245.88.
Fiscal year: 2032;
8.2% (return earned by trust fund from inception to Dec. 2010):
$455.97 million;
4.9% (return needed to sustain the trust fund through 2044): $136.58
million;
6.3% (return needed to grow in perpetuity): $245.89 million.
Fiscal year: 2033;
8.2% (return earned by trust fund from inception to Dec. 2010):
$477.53 million;
4.9% (return needed to sustain the trust fund through 2044): $127.93
million;
6.3% (return needed to grow in perpetuity): $245.91 million.
Fiscal year: 2034;
8.2% (return earned by trust fund from inception to Dec. 2010):
$500.83 million;
4.9% (return needed to sustain the trust fund through 2044): $118.86
million;
6.3% (return needed to grow in perpetuity): $245.92 million.
Fiscal year: 2035;
8.2% (return earned by trust fund from inception to Dec. 2010):
$526.03 million;
4.9% (return needed to sustain the trust fund through 2044): $109.35
million;
6.3% (return needed to grow in perpetuity): $245.94 million.
Fiscal year: 2036;
8.2% (return earned by trust fund from inception to Dec. 2010):
$553.28 million;
4.9% (return needed to sustain the trust fund through 2044): $99.37
million;
6.3% (return needed to grow in perpetuity): $245.96 million.
Fiscal year: 2037;
8.2% (return earned by trust fund from inception to Dec. 2010):
$582.73 million;
4.9% (return needed to sustain the trust fund through 2044): $88.92
million;
6.3% (return needed to grow in perpetuity): $245.98 million.
Fiscal year: 2038;
8.2% (return earned by trust fund from inception to Dec. 2010):
$614.58;
4.9% (return needed to sustain the trust fund through 2044): $77.95;
6.3% (return needed to grow in perpetuity): $246.
Fiscal year: 2039;
8.2% (return earned by trust fund from inception to Dec. 2010):
$649.01 million;
4.9% (return needed to sustain the trust fund through 2044): $66.46
million;
6.3% (return needed to grow in perpetuity): $246.02 million.
Fiscal year: 2040;
8.2% (return earned by trust fund from inception to Dec. 2010):
$686.24 million;
4.9% (return needed to sustain the trust fund through 2044): $54.41
million;
6.3% (return needed to grow in perpetuity): $246.05 million.
Fiscal year: 2041;
8.2% (return earned by trust fund from inception to Dec. 2010):
$726.48 million;
4.9% (return needed to sustain the trust fund through 2044): $41.77
million;
6.3% (return needed to grow in perpetuity): $246.07 million.
Fiscal year: 2042;
8.2% (return earned by trust fund from inception to Dec. 2010): $770
million;
4.9% (return needed to sustain the trust fund through 2044): $28.53
million;
6.3% (return needed to grow in perpetuity): $246.1 million.
Fiscal year: 2043;
8.2% (return earned by trust fund from inception to Dec. 2010):
$817.04 million;
4.9% (return needed to sustain the trust fund through 2044): $14.64
million;
6.3% (return needed to grow in perpetuity): $246.13 million.
Fiscal year: 2044;
8.2% (return earned by trust fund from inception to Dec. 2010): $867.9
million;
4.9% (return needed to sustain the trust fund through 2044): $0.08
million;
6.3% (return needed to grow in perpetuity): $246.16 million.
Source: GAO analysis.
Note: The analysis shown is based on the fund's balance as of Dec. 31,
2010, and assumes that the Agreement's provisions related to the trust
fund--including additional U.S. contributions and reduced Palau
withdrawals through 2023--are approved.
[End of figure]
The additional contributions and reduced withdrawals scheduled in the
Agreement would also make the trust fund a more reliable source of
revenue under conditions of market volatility. With these changes, the
trust fund would have an approximately 90 percent probability of
sustaining payments through 2044. In comparison, the fund had a 25
percent probability, at the end of 2010, of sustaining the $15 million
annual withdrawals scheduled under the compact through 2044.[Footnote
21]
Figure 4 compares the trust fund's probability of sustaining the
proposed withdrawals under the terms outlined in the Agreement with
its probability of sustaining the withdrawals scheduled under the
compact.
Figure 4: Probability That Palau Trust Fund Will Sustain Scheduled
Withdrawals under Two Scenarios:
[Refer PDF for image: multiple line graph]
Fiscal year: 2011;
Projection based on new contributions and new withdrawal schedule:
100%;
Projection based on no new contributions and old withdrawal schedule:
100%.
Fiscal year: 2012;
Projection based on new contributions and new withdrawal schedule:
100%;
Projection based on no new contributions and old withdrawal schedule:
100%.
Fiscal year: 2013;
Projection based on new contributions and new withdrawal schedule:
100%;
Projection based on no new contributions and old withdrawal schedule:
100%.
Fiscal year: 2014;
Projection based on new contributions and new withdrawal schedule:
100%;
Projection based on no new contributions and old withdrawal schedule:
100%.
Fiscal year: 2015;
Projection based on new contributions and new withdrawal schedule:
100%;
Projection based on no new contributions and old withdrawal schedule:
100%.
Fiscal year: 2016;
Projection based on new contributions and new withdrawal schedule:
100%;
Projection based on no new contributions and old withdrawal schedule:
100%.
Fiscal year: 2017;
Projection based on new contributions and new withdrawal schedule:
100%;
Projection based on no new contributions and old withdrawal schedule:
100%.
Fiscal year: 2018;
Projection based on new contributions and new withdrawal schedule:
100%;
Projection based on no new contributions and old withdrawal schedule:
100%.
Fiscal year: 2019;
Projection based on new contributions and new withdrawal schedule:
100%;
Projection based on no new contributions and old withdrawal schedule:
100%.
Fiscal year: 2020;
Projection based on new contributions and new withdrawal schedule:
100%;
Projection based on no new contributions and old withdrawal schedule:
99%.
Fiscal year: 2021;
Projection based on new contributions and new withdrawal schedule:
100%;
Projection based on no new contributions and old withdrawal schedule:
97%.
Fiscal year: 2022;
Projection based on new contributions and new withdrawal schedule:
100%;
Projection based on no new contributions and old withdrawal schedule:
93%.
Fiscal year: 2023;
Projection based on new contributions and new withdrawal schedule:
100%;
Projection based on no new contributions and old withdrawal schedule:
89%.
Fiscal year: 2024;
Projection based on new contributions and new withdrawal schedule:
100%;
Projection based on no new contributions and old withdrawal schedule:
83%.
Fiscal year: 2025;
Projection based on new contributions and new withdrawal schedule:
100%;
Projection based on no new contributions and old withdrawal schedule:
77%.
Fiscal year: 2026;
Projection based on new contributions and new withdrawal schedule:
100%;
Projection based on no new contributions and old withdrawal schedule:
72%.
Fiscal year: 2027;
Projection based on new contributions and new withdrawal schedule:
100%;
Projection based on no new contributions and old withdrawal schedule:
66%.
Fiscal year: 2028;
Projection based on new contributions and new withdrawal schedule:
100%;
Projection based on no new contributions and old withdrawal schedule:
61%.
Fiscal year: 2029;
Projection based on new contributions and new withdrawal schedule:
100%;
Projection based on no new contributions and old withdrawal schedule:
56%.
Fiscal year: 2030;
Projection based on new contributions and new withdrawal schedule: 99%;
Projection based on no new contributions and old withdrawal schedule:
52%.
Fiscal year: 2031;
Projection based on new contributions and new withdrawal schedule: 99%;
Projection based on no new contributions and old withdrawal schedule:
48%.
Fiscal year: 2032;
Projection based on new contributions and new withdrawal schedule: 98%;
Projection based on no new contributions and old withdrawal schedule:
45%.
Fiscal year: 2033;
Projection based on new contributions and new withdrawal schedule: 98%;
Projection based on no new contributions and old withdrawal schedule:
42%.
Fiscal year: 2034;
Projection based on new contributions and new withdrawal schedule: 97%;
Projection based on no new contributions and old withdrawal schedule:
39%.
Fiscal year: 2035;
Projection based on new contributions and new withdrawal schedule: 96%;
Projection based on no new contributions and old withdrawal schedule:
37%.
Fiscal year: 2036;
Projection based on new contributions and new withdrawal schedule: 96%;
Projection based on no new contributions and old withdrawal schedule:
35%.
Fiscal year: 2037;
Projection based on new contributions and new withdrawal schedule: 95%;
Projection based on no new contributions and old withdrawal schedule:
33%.
Fiscal year: 2038;
Projection based on new contributions and new withdrawal schedule: 94%;
Projection based on no new contributions and old withdrawal schedule:
32%.
Fiscal year: 2039;
Projection based on new contributions and new withdrawal schedule: 93%;
Projection based on no new contributions and old withdrawal schedule:
30%.
Fiscal year: 2040;
Projection based on new contributions and new withdrawal schedule: 92%;
Projection based on no new contributions and old withdrawal schedule:
29%.
Fiscal year: 2041;
Projection based on new contributions and new withdrawal schedule: 91%;
Projection based on no new contributions and old withdrawal schedule:
28%.
Fiscal year: 2042;
Projection based on new contributions and new withdrawal schedule: 91%;
Projection based on no new contributions and old withdrawal schedule:
27%.
Fiscal year: 2023;
Projection based on new contributions and new withdrawal schedule: 90%;
Projection based on no new contributions and old withdrawal schedule:
26%.
Fiscal year: 2044;
Projection based on new contributions and new withdrawal schedule: 89%;
Projection based on no new contributions and old withdrawal schedule:
25%.
Source: GAO analysis.
Notes:
This figure depicts results from 10,000 trial runs. For each run, the
returns of each asset class are randomly drawn from a distribution
based on the historical returns. The account balances and the
withdrawal amount from the trust fund are then calculated based on the
returns and the withdrawal schedule. The probability of the trust
fund's being able to disburse the scheduled amount is then generated
from a distribution of 10,000 disbursements each year.
This figure's upper line shows the probability that the trust fund
will sustain scheduled withdrawals under the Agreement's provisions of
(1) annual U.S. contributions of $3 million from 2013 through 2022 and
$250,000 in 2023 and (2) annual Palau withdrawals of $5 million in
2011, gradually increasing to $13 million in 2023, and $15 million
from 2024 through 2044. The figure's lower line shows the probability
that the trust fund will sustain scheduled payments under the
compact's provision of $15 million annual withdrawals through 2044.
[End of figure]
Estimates Prepared for Palau Project Declining Reliance on U.S.
Assistance under the Agreement:
Estimates prepared for the government of Palau project that Palau's
reliance on U.S. assistance provided under the Agreement will decline,
while its reliance on trust fund withdrawals and domestic revenue will
increase.[Footnote 22] These estimates show U.S. assistance, as
provided under the Agreement, declining from 28 percent of government
revenue in 2011 to under 2 percent of government revenue in 2024. The
estimates also show Palau's trust fund withdrawals growing from 5
percent of government revenue in 2011 to 12 percent in 2024. In
addition, the estimates indicate that Palau's domestic revenue will
rise from 40 percent of all government revenues in 2011 to 59 percent
in 2024.[Footnote 23] Finally, the estimates prepared for Palau
project a relatively steady reliance on U.S. discretionary federal
programs, ranging from 12 percent of all government revenues in 2011
to 14 percent in 2024. The estimates assume that discretionary federal
programs will grow at the rate of inflation; however, discretionary
programs are subject to annual appropriations and may not increase
over time.
Figure 5 shows the types and amounts of Palau's estimated revenues for
2011 and 2024.
Figure 5: Estimated Palau Government Revenues for 2011 and 2024:
[Refer to PDF for image: stacked vertical bar graph]
Fiscal year: 2011;
Domestic revenue: $40.3 million;
Other donor assistance: $15.1 million;
Discretionary federal programs: $12.5 million;
Assistance provided by the Agreement: $28 million;
Trust fund withdrawal: $5 million.
Fiscal year: 2024;
Domestic revenue: $75.8 million;
Other donor assistance: $18.5 million;
Discretionary federal programs: $18.2 million;
Assistance provided by the Agreement: $2 million;
Trust fund withdrawal: $15 million;.
Source: GAO analysis and estimates prepared for the Government of
Palau.
Notes:
The years shown were chosen to illustrate the trend in Palau's
revenues from 2011, when the terms proposed by the Agreement would
begin, through 2024, when assistance provided by the Agreement would
expire.
Federal services were not included in the estimates prepared for Palau.
"Trust fund withdrawal" includes the maximum withdrawal for 2011 and
2024 as specified in the Agreement.
"Assistance provided by the Agreement" includes all funding specified
in the Agreement.
"Discretionary federal programs" includes estimates prepared for the
government of Palau for program funding and grants from U.S. agencies
in 2011 and 2024.
"Other donor assistance" includes estimates for assistance from other
foreign donors for 2011 and 2024.
"Domestic revenue" includes estimates of taxes and fees to be
collected by the Palau government in 2011 and 2024.
[End of figure]
Estimates Prepared for Palau Project Discretionary Program Funding as
Half of U.S. Assistance:
The estimates prepared for the government of Palau project that U.S.
assistance to Palau from 2011 through 2024, including discretionary
federal programs, will total approximately $427 million. The estimates
further project that discretionary programs will account for nearly
half of U.S. assistance through 2024, with assistance amounts
specified in the Agreement accounting for the other half. (See fig.
6.) In contrast, in 2008, we estimated discretionary program funding
accounted for less than one-third of total U.S. assistance to Palau in
1995 through 2009.
Figure 6: U.S. Assistance to Palau in 2011-2024 as Estimated for Palau
and as Provided under the Agreement:
[Refer to PDF for image: pie-chart]
Projected discretionary federal programs as estimated for Palau
government: $211.7 million; 50%;
Assistance to be provided under the Agreement:
Fiscal consolidation fund: $10.0 million; 2%;
Infrastructure maintenance fund: $28.0 million; 7%;
Trust fund contributions: $30.25 million; 7%;
Infrastructure project grants: $40.0 million; 9%;
Direct economic assistance: $107.5 million; 25%;
Total: $427.45 million.
Source: GAO analysis of the Agreement between the Government of the
United States of America and the Government of the Republic of Palau
Following the Compact of Free Association Section 432 Review,
estimates prepared for the Government of Palau.
Notes:
The analysis depicted is based on the estimates prepared for the
government of Palau and on the Agreement's provisions. This analysis
does not include federal services, which are not addressed in the
estimate prepared for Palau and generally are not specified in the
Agreement.
"Discretionary federal programs" includes all funds appropriated to
federal agencies for assistance to Palau. The discretionary federal
program estimates prepared for the government of Palau include annual
adjustments for inflation, but not for population growth, from 2009
through 2024. Although the Agreement does not fund discretionary
federal programs, it extends authority for U.S. agencies to provide
them in Palau subject to annual appropriations.
[End of figure]
Chairman Bingaman, Ranking Member Murkowski, and Members of the
Committee, this completes my prepared statement. I would be happy to
respond to any questions you may have at this time.
GAO Contact and Staff Acknowledgments:
For further information about this statement, please contact David
Gootnick at (202) 512-3149 or gootnickd@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this statement. Staff making key contributions to
this statement were Emil Friberg, Assistant Director; Ming Chen; Brian
Hackney; Reid Lowe; and Grace Lui. Benjamin Bolitzer; Joyce Evans;
Mattias Fenton; Farahnaaz Khakoo; Jeremy Sebest; Cynthia Taylor; and
Anu Mittal provided technical assistance.
[End of section]
Appendix I: U.S. Assistance to Palau Provided Under the Compact and
Outlined in the Agreement:
Table 2 illustrates the assistance provided to Palau under the compact
from 1995 through 2009. Table 3 illustrates the assistance proposed in
the Agreement from 2011 through 2024.
Table 2: Past Compact Assistance Provided to Palau:
Types of assistance: Direct assistance;
1995: $126.5 million;
1996: $23.5 million;
1997: $22.4 million;
1998: $21.2 million;
1999: $13.6 million;
2000: $13.6 million;
2001: $13.8 million;
2002: $13.9 million;
2003: $14.1 million;
2004: $14.1 million;
2005: $12.7 million;
2006: $12.8 million;
2007: $12.9 million;
2008: $13.0 million;
2009: $13.1 million;
Total: $341.1 million.
Types of assistance: Infrastructure;
1995: $53.0 million;
1996: 0;
1997: $96.0 million;
1998: 0;
1999: 0;
2000: 0;
2001: 0;
2002: 0;
2003: 0;
2004: 0;
2005: 0;
2006: 0;
2007: 0;
2008: 0;
2009: 0;
Total: $149.0 million.
Types of assistance: Trust fund contributions;
1995: $66.0 million;
1996: 0;
1997: $4.0 million;
1998: 0;
1999: 0;
2000: 0;
2001: 0;
2002: 0;
2003: 0;
2004: 0;
2005: 0;
2006: 0;
2007: 0;
2008: 0;
2009: 0;
Total: $70.0 million.
Types of assistance: Total;
1995: $245.5 million;
1996: $23.5 million;
1997: $122.4 million;
1998: $21.2 million;
1999: $13.6 million;
2000: $13.6 million;
2001: $13.8 million;
2002: $13.9 million;
2003: $14.1 million;
2004: $14.1 million;
2005: $12.7 million;
2006: $12.8 million;
2007: $12.9 million;
2008: $13.0 million;
2009: $13.1 million;
Total: $560.1 million.
Source: GAO analysis of the Interior OIA Budget Justifications and
Performance Information fiscal year 2012.
[End of table]
Table 3: Proposed Assistance in the Agreement:
Types of assistance: Trust fund contributions;
2011: $0;
2012: $0;
2013: $3.00 million;
2014: $3.00 million;
2015: $3.00 million;
2016: $3.00 million;
2017: $3.00 million;
2018: $3.00 million;
2019: $3.00 million;
2020: $3.00 million;
2021: $3.00 million;
2022: $3.00 million;
2023: $0.25 million;
2024: $$0;
Total: $30.25 million.
Types of assistance: Infrastructure maintenance fund;
2011: $2.00 million;
2012: $2.00 million;
2013: $2.00 million;
2014: $2.00 million;
2015: $2.00 million;
2016: $2.00 million;
2017: $2.00 million;
2018: $2.00 million;
2019: $2.00 million;
2020: $2.00 million;
2021: $2.00 million;
2022: $2.00 million;
2023: $2.00 million;
2024: $2.00 million;
Total: $28.00 million.
Types of assistance: Infrastructure project grants;
2011: $8.00 million;
2012: $8.00 million;
2013: $8.00 million;
2014: $6.00 million;
2015: $5.00 million;
2016: $5.00 million;
2017: $0;
2018: $0;
2019: $0;
2020: $0;
2021: $0;
2022: $0;
2023: $0;
2024: $0;
Total: $40.00 million.
Types of assistance: Fiscal consolidation fund;
2011: $5.00 million;
2012: $5.00 million;
2013: $0;
2014: $0;
2015: $0;
2016: $0;
2017: $0;
2018: $0;
2019: $0;
2020: $0;
2021: $0;
2022: $0;
2023: $0;
2024: $0;
Total: $10.00 million.
Types of assistance: Direct economic assistance;
2011: $13.00 million;
2012: $12.75 million;
2013: $12.50 million;
2014: $12.00 million;
2015: $11.50 million;
2016: $10.00 million;
2017: $8.50 million;
2018: $7.25 million;
2019: $6.00 million;
2020: $5.00 million;
2021: $4.00 million;
2022: $3.00 million;
2023: $2.00 million;
2024: $0;
Total: $107.50 million.
Types of assistance: Total;
2011: $28.00 million;
2012: $27.75 million;
2013: $25.50 million;
2014: $23.00 million;
2015: $21.50 million;
2016: $20.00 million;
2017: $13.50 million;
2018: $12.25 million;
2019: $11.00 million;
2020: $10.00 million;
2021: $9.00 million;
2022: $8.00 million;
2023: $4.25 million;
2024: $2.00 million;
Total: $215.75 million.
[End of table]
Source: GAO analysis of the Agreement between the U.S. government and
the government of the Republic of Palau following the Compact of Free
Association Section 432 review.
[End of section]
Appendix II: U.S. Discretionary Program Funds Expended in 2009:
Table 4 lists discretionary U.S. federal program funds expended by the
Palau national government, the Palau Community College, and the Palau
Community Action Agency, as reported in the organizations' single
audit reports for 2009.
Table 4: U.S. Federal Program Expenditure in Palau as Reported in the
2009 Single Audit Reports:
U.S. agency: Agriculture;
Federal program: Cooperative Forestry Assistance;
2009 expenditure: $155,422.
U.S. agency: Agriculture;
Federal program: Community Facilities Loans and Grants;
2009 expenditure: $124,745.
U.S. agency: Agriculture;
Federal program: Unknown;
2009 expenditure: $1,604.
U.S. agency: Commerce;
Federal program: Special Oceanic and Atmospheric Projects;
2009 expenditure: $306,485.
U.S. agency: Commerce;
Federal program: Unallied Management Projects;
2009 expenditure: $1.
U.S. agency: Education;
Federal program: Pell Grant;
2009 expenditure: $2,250,348.
U.S. agency: Education;
Federal program: Freely Associated States-Education Grant Program;
2009 expenditure: $1,309,324.
U.S. agency: Education;
Federal program: Special Education-Grants to States;
2009 expenditure: $859,119.
U.S. agency: Education;
Federal program: Upward Bound Program;
2009 expenditure: $315,164.
U.S. agency: Education;
Federal program: Talent Search;
2009 expenditure: 204,406.
U.S. agency: Education;
Federal program: Upward Bound Math and Science;
2009 expenditure: $198,998.
U.S. agency: Education;
Federal program: Gaining Early Awareness and Readiness for
Undergraduate Programs;
2009 expenditure: $198,205.
U.S. agency: Education;
Federal program: Student Support Services Program;
2009 expenditure: $189,771.
U.S. agency: Education;
Federal program: Special Education-Grants to States;
2009 expenditure: $122,755.
U.S. agency: Education;
Federal program: Federal Work-Study;
2009 expenditure: $109,923.
U.S. agency: Education;
Federal program: Academic Competitiveness Grant;
2009 expenditure: $78,346.
U.S. agency: Education;
Federal program: Supplemental Educational Opportunity Grant;
2009 expenditure: $52,600.
U.S. agency: Education;
Federal program: Byrd Honors Scholarships;
2009 expenditure: $46,500.
U.S. agency: Education;
Federal program: Adult Education-State Grant Program;
2009 expenditure: $29,038.
U.S. agency: HHS;
Federal program: Head Start;
2009 expenditure: $1,670,508.
U.S. agency: HHS;
Federal program: CDC and Prevention-Investigations & Technical
Assistance;
2009 expenditure: $976,068.
U.S. agency: HHS;
Federal program: Consolidated Health Centers;
2009 expenditure: $564,525.
U.S. agency: HHS;
Federal program: Substance Abuse and Mental Health Services-Projects
of Regional and National Significance;
2009 expenditure: $431,171.
U.S. agency: HHS;
Federal program: National Bioterrorism Hospital Preparedness Program;
2009 expenditure: $387,003.
U.S. agency: HHS;
Federal program: Public Health Emergency Preparedness;
2009 expenditure: $343,717.
U.S. agency: HHS;
Federal program: Epidemiologic Research Studies of AIDS and HIV
Infection in Selected Population Groups;
2009 expenditure: $260,367.
U.S. agency: HHS;
Federal program: Material and Child Health Federal Consolidated
Programs;
2009 expenditure: $201,257.
U.S. agency: HHS;
Federal program: Family Planning-Services;
2009 expenditure: $171,235.
U.S. agency: HHS;
Federal program: Maternal and Child Health Services Block Grant to the
States;
2009 expenditure: $149,718.
U.S. agency: HHS;
Federal program: Project Grants and Cooperative Agreements for
Tuberculosis Control Programs;
2009 expenditure: $116,313.
U.S. agency: HHS;
Federal program: Immunization Grants;
2009 expenditure: $113,372.
U.S. agency: HHS;
Federal program: Block Grants for Prevention and Treatment of
Substance Abuse;
2009 expenditure: $111,340.
U.S. agency: HHS;
Federal program: Universal Newborn Hearing Screening;
2009 expenditure: $95,591.
U.S. agency: HHS;
Federal program: DEH-PHCI;
2009 expenditure: $72,266.
U.S. agency: HHS;
Federal program: Cooperative Agreements to Support Comprehensive
School Health Programs to Prevent the Spread of HIV and Other
Important Health Problems;
2009 expenditure: $67,785.
U.S. agency: HHS;
Federal program: Basic/Core Area Health and Education Center;
2009 expenditure: $62,506.
U.S. agency: HHS;
Federal program: Block Grants for Community Mental Health Services;
2009 expenditure: $58,245.
U.S. agency: HHS;
Federal program: Consolidated Knowledge Development and Application
(KD&A) Program;
2009 expenditure: $55,430.
U.S. agency: HHS;
Federal program: Preventive Health Services - STD Control Grants;
2009 expenditure: $48,079.
U.S. agency: HHS;
Federal program: Cooperative Agreements for State-Based Diabetes
Control Programs and Evaluation and Surveillance Systems;
2009 expenditure: $44,845.
U.S. agency: HHS;
Federal program: HIV Care Grants;
2009 expenditure: $38,249.
U.S. agency: HHS;
Federal program: ARRA-Grants to Health Center Programs;
2009 expenditure: $20,990.
U.S. agency: HHS;
Federal program: HIV/Aids Surveillance;
2009 expenditure: $19,372.
U.S. agency: HHS;
Federal program: Preventive Health and Health Services Block Grant;
2009 expenditure: $17,375.
U.S. agency: HHS;
Federal program: Drug Free Communities Support Program Grants;
2009 expenditure: 12,759.
U.S. agency: HHS;
Federal program: Civil Rights and Privacy Rule Compliance Activities;
2009 expenditure: $12,620.
U.S. agency: Interior;
Federal program: Social, Economic and Political Development of the
Territories;
2009 expenditure: $628,346.
U.S. agency: Interior;
Federal program: Historical Preservation-Grants in Aid;
2009 expenditure: $254,436.
U.S. agency: Justice;
Federal program: Juvenile Justice and Delinquency Prevention-
Allocation to States;
2009 expenditure: $1.
U.S. agency: Labor;
Federal program: ARRA WIA Dislocated Workers Program;
2009 expenditure: $128,027.
U.S. agency: Labor;
Federal program: WIA Dislocated Workers Program;
2009 expenditure: $118,574.
U.S. agency: Labor;
Federal program: ARRA WIA Youth Activities;
2009 expenditure: $81,112.
U.S. agency: Labor;
Federal program: WIA Adult Program;
2009 expenditure: $63,241.
U.S. agency: Labor;
Federal program: WIA Youth Activities;
2009 expenditure: $62,637.
U.S. agency: Labor;
Federal program: ARRA WIA Adult Program;
2009 expenditure: $49,162.
U.S. agency: Transportation;
Federal program: Airport Improvement Program;
2009 expenditure: $4,309,960.
U.S. agency: Total;
2009 expenditure: $18,370,956.
Source: GAO analysis of Republic of Palau National Government
Independent Auditor's Reports on Internal Control and on Compliance
Year Ended September 30, 2009; Palau Community College Comprehensive
Annual Financial Report Fiscal Year Ended September 30, 2009; and
Palau Community Action Agency Report on the Audit of Financial
Statements in Accordance with OMB Circular A-133 Year Ended September
30, 2009.
Note: HHS is the Department of Health and Human Services.
[End of table]
[End of section]
Footnotes:
[1] The Agreement between the Government of the United States of
America and the Government of the Republic of Palau Following the
Compact of Free Association Section 432 Review, Sept. 3, 2010.
[2] See Proclamation 6726, Placing into Full Force and Effect the
Compact of Free Association with the Republic of Palau, 59 Fed. Reg.
49777 (Sept. 27, 1994). Congress approved the Compact of Free
Association in Public Law 99-658 of Nov. 14, 1986, and Public Law 101-
219 of Dec. 12, 1989. The grant funds specified by the compact are
backed by the full faith and credit of the U.S. government.
[3] Unless otherwise noted, all years cited are fiscal years (Oct. 1-
Sept. 30). In addition, all dollar amounts in this report are in
current (i.e., nominal) dollars.
[4] GAO, Compact of Free Association: Palau's Use of and
Accountability for U.S. Assistance and Prospects for Economic Self
Sufficiency, [hyperlink, http://www.gao.gov/products/GAO-08-732]
(Washington, D.C.: June 10, 2008).
[5] Section 432 of the compact provides for the U.S. and Palau
governments to formally review the terms of the compact and its
related agreements and to consider the overall nature and development
of their relationship, on the 15th, 30th, and 40th anniversaries of
the compact's effective date. The governments are to consider the
operating requirements of the government of Palau and its progress in
meeting the development objectives set forth in section 231(a) of the
compact. The terms of the compact shall remain in force until
otherwise amended or terminated pursuant to title four of the compact.
[6] The pending bill, Senate Bill 343, amends Title I of Public Law 99-
658; approves the results of the 15-year review of the compact,
including the Agreement; and appropriates funds for the purposes of
the amended Public Law 99-658 for fiscal years ending on or before
Sept. 30, 2024, to carry out the agreements resulting from the review.
[7] Palau's private sector relies heavily on foreign workers, mostly
from the Philippines. We reported in 2008 that, since 1994, foreign
workers, as registered with Palau's Social Security Office, have grown
to account for half of Palau's total labor force. Because many of
these foreign workers send wage income back to their home nations, in
2005 the annual net outflow of remittances from Palau equaled an
estimated 5.5 percent of its GDP.
[8] The International Monetary Fund (IMF) projected that in 2010,
Palau's GDP was an estimated $218 million and reported that Palau's
GDP per capita was about $10,500. Business and tourist arrivals were
projected to be 78,000 in 2010. See IMF, Republic of Palau Staff
Report for the Article IV Consultation (Apr. 12, 2010).
[9] According to the IMF, in 2010, Palau's public sector spending was
projected at approximately 42 percent of its GDP.
[10] The compact's federal programs and services agreement,
establishing the legislative framework for the provision of
discretionary federal programs in Palau, was in force until Oct. 1,
2009. These services continued under program authority in 2010 and
2011.
[11] [hyperlink, http://www.gao.gov/products/GAO-08-732].
[12] Other provisions in the Agreement would define reporting and
auditing requirements and passport requirements. The Agreement would
require that, by 2018, Palau resolve all deficiencies identified in
annual single audit reports, which are required by the Compact's
fiscal procedures agreement, such that no single audit report
recommendations or deficiencies dating from before 2016 remain. In
addition, the Agreement alters the entry procedures for citizens of
Palau visiting the United States, requiring them to present a valid
machine-readable passport to travel to the United States.
[13] The compact provided for direct assistance to Palau only through
2009. Since then, Interior's 2010 annual budget provided $13.25
million for direct assistance to Palau and other agencies provided
additional funds. For 2011, Interior provides $13 million in direct
assistance. For 2012, Interior's Budget Justification proposes $29.25
million in direct assistance, while the Agreement provides for $27.75
million.
[14] The pending implementing legislation would also extend the
authority, and authorize appropriations, for the provision of compact
federal services in Palau. However, the proposed legislation does not
appropriate funds for compact federal services.
[15] The Agreement requires that Palau undertake economic,
legislative, financial, and management reforms giving due
consideration to those identified by the IMF; the Asian Development
Bank; and other creditable institutions, organizations, or
professional firms.
[16] The compact requires that the United States and Palau consult
annually regarding Palau's economic activities and progress in the
previous year, as described in a report that Palau must submit each
year. Our 2008 report noted that Palau had met reporting conditions
associated with direct assistance but that, contrary to compact
requirements, the bilateral economic consultations had not occurred on
an annual basis; and had been informal and resulted in no written
records. See [hyperlink, http://www.gao.gov/products/GAO-08-732].
[17] In 2008, we reported that Palau and U.S. officials had expressed
concerns about Palau's ability to maintain the Compact Road in a
condition that would allow for the desired economic development. We
also reported that Palau made initial efforts to maintain the road,
but at levels that would cause the road to deteriorate over time and
would not provide the economic development benefits envisioned for the
people of Palau. See [hyperlink,
http://www.gao.gov/products/GAO-08-732].
[18] Under the compact, Palau owes the United States a total of $3
million. Under the Agreement, Palau would deposit $3 million in the
infrastructure maintenance fund but not expend it. Any future income
derived from the $3 million must be used exclusively for the
maintenance of the Compact Road.
[19] Under the Agreement, Palau would withdraw $5 million annually
through 2013 and gradually increase its maximum withdrawal from $5.25
million in 2014 to $13 million in 2023.
[20] All rates of return on the trust fund are net of fees and
commissions unless otherwise noted.
[21] The probability of the fund's sustaining $15 million annual
payments through 2044 under the original compact terms has diminished
since 2008, when we determined that the probability was 46 percent.
See [hyperlink, http://www.gao.gov/products/GAO-08-732].
[22] The government of Palau provided fiscal projections through 2024
to the Senate Committee on Energy and Natural Resources in January
2011. The estimates were prepared by an independent economist retained
by the government of Palau.
[23] In March 2011, the IMF reported that Palau government revenues as
a percentage of GDP are below average for island nations in the
Pacific. The report cited opportunities for increased tax revenues by
eliminating the gross revenue tax, replacing it with a corporate
income tax, introducing a Value Added Tax, and increasing the level of
taxation on high earners. The IMF also noted that Palau could reform
its civil service to decrease wage expenditures. See IMF, Staff Visit
to Republic of Palau-Concluding Statement of the IMF Mission (Mar. 8,
2011)
[End of section]
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