Update: Economic outlook for AS in FY 2013 remains positive
The American Samoa Government’s deficit in the last fiscal year increased to $10 million due to the $3 million “bail-out” for the “beleaguered” LBJ Medical Center facing financial woes, according to independent auditors, who believe the economic outlook for the territory in the current fiscal year “remains positive” with changes made by the Lolo Administration.
These are some of the issues cited by the Seattle-based independent firm of Moss Adams LLP in its audit of the Financial Statements of ASG for fiscal year 2012 that ended Sept. 30, 2012.
Under the subheading “Economic Factors” the auditors say FY 2012 “marked a turning point in American Samoa’s long-fought road to recovery from the triple blows of the Great Recess," — the Sept. 29, 2009 earthquake and tsunami and the closure of the COS Samoa Packing cannery the next day.
They quoted the late U.S President John F. Kennedy's saying: “a rising tide lifts all boats," and added that in 2012, Kennedy’s “words still rang true as the rising tide of the American economy reached the distant shores of American Samoa.”
Auditors explained that tax revenues for the first time in five years reached their pre-recession levels, indicating that the private sector was clearly on the rebound, and cites new developments up to this year.
For example, Tri Marine International opened this year at its Samoa Tuna Processors plant in Atu’u, a state-of-the art cold storage facility, while the company’s cannery operations is expected to begin next year.
Additionally, the American Samoa Visitor’s Bureau had continued efforts in FY 2012 to promote the territory “as America’s undiscovered Jewel of the South Pacific” and brought nearly 20 cruise ships with over 45,000 crew members and passengers to the territory.
FY 2012 also marked the first full year of operations of the Ronald Reagan Marine Railways Shipyard under the management and operation of the government, and the shipyard “had continued success as a fully self-funded entity.”
Despite the positive development, auditors noted there were some “financial speed-bumps” such as the LBJ Medical Center’s ongoing struggle to deal with an unsustainable cost structure that resulted in emergency legislation in FY 2012 to provide $3 million as “bail-out” from ASG.
According to the auditors, this move “increased ASG’s ending deficit balance from $7 million to $10 million."
Noting, the funding source of the bail-out is the Workmen’s Compensation Account and is to be repaid with the 2% wage tax paid by wage earners, and that once the loan is repaid, all future proceeds goes to LBJ to fund its operation, the auditors say this “will put a further strain on ASG’s tenuous cash flow.”
The auditors also pointed out that last November, Bank of Hawai’i announced it was closing down operations in American Samoa this year, “sending shock waves through the local economy.”
BoH ended up only closing down its Tafuna branch earlier this year in March, with the closure of its Utulei branch delayed until mid-March next year, following pleas from Gov. Lolo Matalasi Moliga, Congressman Faleomavaega Eni and others locally and off-island.
The new administration moved quickly to secure a new financial institution to replace BoH. (Community Bank of Amerika Samoa is currently seeking federal regulatory approval to set up a bank in the territory).
Auditors say the economic outlook for FY 2013 going forward “remains positive,” adding that the Lolo Administration took office in January this year “and with it a new direction” in which the governor “set a bold agenda focused on spurring economic development, improving the quality and efficiency of government services, and marshaling the resources necessary to restore the Territory’s crumbling infrastructure.”
In addition, the governor put in place a new LBJ board, which in turn brought a new management team to return the “beleaguered hospital to solvency,” the auditors said.
Finally, they added, the new administration took steps in FY 2013 to address the “government’s perennial year-end deficits and cash flow difficulties” and the “centerpiece” of the plan involves the implementation of the Gross Receipt Tax (GRT) proposal that will provide for lower tax rates — assessed on gross receipts rather than income — and to be applied on all business entities.
(The GRT was first presented during a cabinet meeting two weeks ago and this is phase one of the five phases involved. The governor has not yet given his endorsement of this proposal but the Treasury Department has been asked to seek public input.)
The auditors made clear the GRT is a long-term solution that will take time to fully implement, but once implemented, it will allow the government to fully invest in the territory’s infrastructure, healthcare system and villages.
In the interim, say the auditors, the administration is actively pursuing plans to acquire additional funding through bond initiatives that will enable the government to address its more immediate cash needs in order to pay down its debts and legal obligations and in so doing, eliminate its deficit position.
As previously reported by Samoa News, the bond proposal was cited in a letter by the governor to the Fono leadership saying he has moved to reconstitute the America Samoa Economic Development Authority (ASEDA), while he looks to bonds as a revenue stream for major local projects that can’t be funded through ordinary government income sources.
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