GAO report warns of ASG's ability to repay debt

Cites further disruptions in cannery operations
fili@samoanews.com

“Total public debt per capita grew from $414 per person in fiscal year 2005 to $1,212.80 in fiscal year 2015,” according to the US Government Accountability Office, which also notes that any additional disruption in the local cannery industry will impact the government’s ability to repay its debt.

The 88-page GAO’s “U.S Territories - Public Debt Outlook” report publicly released Monday afternoon, also states that while American Samoa’s general revenue fluctuated, it trended upward between fiscal years 2005 and 2015.

GAO’s Public Affairs managing director Charles Young told Samoa News in August that the comprehensive review for the five territories’ public debt is mandated under provision of the federal Puerto Rico Oversight, Management, and Economic Stability Act.

“For each of the territories,” he said, “GAO will report on trends in public debt and revenue for fiscal years 2005-2015. GAO will also look at the major reported drivers of the debt and what is known about the territories’ ability to repay.”

PUBLIC DEBT

American Samoa’s total public debt outstanding grew from $27 million in fiscal year 2005 to $69.5 million in fiscal year 2015, according to the GAO.

It explained that in FY 2007, the territory paid off a general obligation bond that was issued in FY 2000 to refinance prior debt. Between FY 2008 and 2014, American Samoa had no outstanding bonded public debt.

Then in FY 2015, the government issued a general obligation bond for about $55 million, and in January 2016 a second bond was issued for $23 million, says the GAO, referring to the bonds series issued by the American Samoa Economic Development Authority.

“Most of American Samoa’s bonded debt outstanding is scheduled to mature by 2035,” according to the report.

Territorial officials confirmed that the FY 2015 and 2016 general obligation bonds were issued primarily to fund various infrastructure projects, including relocating airport fuel tanks, constructing an inter-island ferry, and establishing a territorial charter bank.

Gov. Lolo Matalasi Moliga had informed GAO in August this year that the “American Samoa Government’s Debt Structure is the direct result of limited options available to access venture capital to build our economic development infrastructure”. Additionally, the issuance of bonds is a difficult pathway to access “because of our weak economy”. (See Samoa News Aug. 18th edition for details of Lolo’s letter, which is also included in the GAO report.)

In its report, GAO said that between FY 2005 and 2015, American Samoa’s loan balance was significantly greater than bonded debt outstanding for all years except FY 2015. Additionally, American Samoa’s loan balance consists of both loans from the U.S. government and intra-governmental loans, or loans between the territory’s primary government and component units (such as the Retirement Fund.)

The two federal government loans are from the US Federal Emergency Management Agency community disaster loans totaling $10.2 million in 1993 and 1994, and a 1999 Department of the Interior loan of $18.6 million (which has been referred to by ASG as the tobacco loan, where American Samoa gave up its rights to the national Master Settlement Agreement with certain tobacco companies in exchange for a lump sum loan of up to $18.6 million, and all proceeds from the tobacco settlement goes directly to DOI to repay the loan).

Inter government loans: In 2006 and 2007, the government also entered into two loan agreements with the government retirement fund, in the amounts of $10 million and $20 million, in part to finance infrastructure projects. (Samoa News notes that these two loans were paid off with ASEDA bonds proceeds).

“American Samoa’s total public debt outstanding has remained small, relative to its economy between fiscal years 2005 and 2015,” the GAO notes.

GENERAL REVENUE

GAO explained that general revenue fluctuated, but trended upward between FY 2005 and 2015. For example, general revenue of $116.5 million in FY 2015 represented a 20% increase over revenues of $97.4 million in FY 2005.

Additionally, approximately 55% of general revenue earned during this period comprised tax revenues all of which came from income and excise taxes.

Total revenue — i.e. general revenue and program revenue combined — also fluctuated but trended upward between the same period.

ECONOMIC VULNERABILITIES

“While American Samoa’s level of public debt is relatively low compared to other territories, we found that it faces significant economic vulnerabilities that may hamper its ability to repay that debt,” according to the report, which noted that American Samoa’s economy relies heavily on the tuna processing and canning industry, which provides indirect benefits to other industries and the territory's economy.

This same industry has faced many challenges and territorial officials have expressed concerns about federal policies that may hamper the tuna industry, such as federally mandated minimum wage increases and a decrease in fishing grounds.

Last December, Samoa Tuna Processors Inc., indefinitely suspended its operations in the territory, and StarKist Samoa temporarily suspended operations twice, late last year.

“Changes in American Samoa’s tuna industry have been important determinants of changes in its GDP (Gross Domestic Product), and additional disruptions in the industry would reduce revenue and hamper GDP growth, which, if severe enough, could impede the repayment of existing debt,” the GAO points out. (Samoa News will report on other details from the GAO report in future editions.)

OTHER TERRITORIES

A summary of what GAO found for the other territories:

•     Between FY 2005 and 2014, Puerto Rico’s total public debt outstanding (public debt) grew from $39.2 billion to $67.8 billion. Despite some revenue growth, Puerto Rico’s net position was negative and declining during the period, reflecting its deteriorating financial position.

•     CNMI’s public debt declined from $251.7 million to $144.7 million between FY 2005 and 2015. Most of CNMI’s debt was used to refinance prior debt and fund infrastructure projects.

•     Between FY 2005 and 2015, Guam’s public debt more than doubled from almost $1 billion to $2.5 billion. Most of Guam’s debt was used to comply with federal requirements and court orders.

•     U.S. Virgin Islands’ public debt between FY 2005 and 2015 nearly doubled, reaching $2.6 billion. Since 2010, most of USVI’s debt was used to fund general government operations.

Comment Here