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No tax increase needed for Senate's LBJ funding plans

Senate President Gaoteote Tofau Palaie has outlined five “alternative approaches” to address LBJ Medical Center’s financial woes, and the measures will be formally considered by the Senate when the Fono convenes next month for the 3rd Regular Session of the 32nd Legislature.

In a Dec. 12 letter to Gov. Togiola Tulafono, the Senate president says the measures provide “certain immediate and long-term financial assistance” for LBJ  “none of which would require a tax increase during these difficult economic times”.


LBJ has stated that ASG failed to provide in fiscal year 2011 some $2.5 million in required subsidy and to cover this shortfall, Gaoteote says a $3 million appropriation bill would be introduced using excess funds in the Workmen’s Compensation Account as the funding source.

“The ASG contribution rate to the fund is much greater than necessary to cover ASG worker’s compensation actual liability payments and a balance of $4 million has built up in the Bank of Hawai’i account through April 2011,” Gaoteote explained.

He said the fund grows by about $100,000 a month and a recent report covering a seven-month period in FY 2011 (through April) shows ASG paid out some $283,000 in compensation claims.

“I suspect the current balance in the account has increased substantially,” he said. “This bill will provide an immediate cash infusion for the hospital at no additional cost to the taxpayers and, possibly, allow [LBJ]  to provide the necessary match for FY-2011 Medicaid funds, thereby doubling the cash injection,” he said.


According to the Senate president, a finding in several past ASG Single Audit Reports concerns the absence of an actuarial study and recommendation necessary to establish a proper ASG contribution rate to cover ASG’s Workmen’s Compensation liability.

The Senate intends to address this finding by providing for an actuary study, he said.

“It is anticipated that the results of such a study will result in a contribution rate less than presently being made. The resulting difference would be appropriated to sustain LBJ,” he said.


Gaoteote says the Senate intends to introduce a bill to appropriate the $4.9 million surplus from FY 2011 as reported by ASG Treasurer Magalei Logovi’i in the 4th quarter performance for the hospital.

In an Oct. 21 letter that accompanied the performance report, the Treasurer stated a  surplus for the General Fund of $6.9 million and, when other Cash Pool funds in the negative are added, a surplus of $4.9 was forecast, he said.

The final amount appropriated would be for all “lapsed” funds from FY 2011 insofar as they cannot be expended until re-appropriated by the Fono, in accordance with local law, he said.


Also to be introduced in January is a measure that seeks to reduce the American Samoa Government contribution rate to the ASG Employees Retirement fund (ASGERF) from 8% to at least 6.71% of total payroll — if not lower — per the finding of the ASGERF actuary’s report for FY 2010 and earmarking the difference for direct deposit to LBJ.

The overage in the contribution rate is also seen in ASG’s Financial Statements submitted for the FY 2010 audit, said Gaoteote, who provided copies of past audits of the Fund to support this recommendation.

“This measure will provide a sustained income stream for the hospital and will not require a tax increase,” he said. “The percentage can be adjusted annually or semi-annually depending on ASGERF liabilities and actuary reports.”


The Senate also plans to re-appropriate $1 million  from Insurance Proceeds Account for the hospital, said Gaoteote, who added that it was revealed during FY 2012 budget hearing that $1.9 million remains in this account, which is overseen by the Territorial Office of Fiscal Reform (TOFR).

The governor had informed the Fono that this account was being used to provide local matching funds for Federal Emergency Management Agency (FEMA) funded projects following the 2009 earthquake and tsunami.


“I trust this outline will provide greater insight to the Senate’s thinking and intended approach and, with your support of these measures, we can avoid placing additional burdens on an already stressed economy and people struggling to stretch each dollar,” Gaoteote wrote.

He also points out that even if the hospital proceeds with its rate increase, it will not produce any significant immediate cash infusion for operations. 

“I would urge that we, collectively, approach our Congressional Delegate and DOI requesting, despite uncertainties existing with the federal budget, that the [LBJ] operations grant be given priority and is fully funded as soon as possible,” he added.