The purchasers of the American Samoa Economic Development Authority general obligation revenue bonds want to make sure their investment is secure. At the Electronic Municipal Market Access website where the bond covenants are public information, a section is devoted to the correspondence between ASEDA and the bondholders.

(It can be found at: https://emma.msrb.org/IssueView/IssueDetails.aspx?id=ER372842 — the section tab is labeled, “continuing disclosure”)

Looking at the correspondence records one has to ask a question:

Has ASEDA been 100% truthful in their answers to the bondholder inquiries, or, perhaps, overly optimistic in their assessment of American Samoa’s economic future?

Taking a look at the correspondence between ASEDA and the bondholders it should be noted that in many ways the over exuberant economic development projections on ASEDA’s part are somewhat meaningless. ASEDA has enough earmarked excise tax revenue to meet the bond payments. 

However, the bondholders’ risk goes out to year 2035. Their queries seek assurance on the growth of the private sector and its ability to pay taxes and fees which stream into the ASG treasury since the American Samoa Government’s financial capacity to meet payments is dependent on this .

The question is whether ASEDA has provided the bondholders with accurate and reliable information about the state of the current and future local economy.

CORRESPONDENCE

On December 12, 2016 ASEDA responded to a series of questions presented by the bondholders.

Q: Has there been any material change in the leading employers (private and public) in the territory over the past year?

ASEDA: From 2010 to date, ASG employment numbers have decreased 7%, tuna cannery employment increased 100%. 

A multi-food processing plant, being spearheaded by AVM Engineering, is slated to begin construction in January 2017 and operation (sic) in early 2018; employing about 50 employees during the construction phase and 700 when operations begin.

All of the ASEDA answers beg more information.

For example, ASG may have decreased their employment and their payroll dollar amounts — however according to the ASG Treasury Department Accomplishment Report for 2013-2016 from 2012 to 2016, the data shows a “slight” fluctuation, but payrolls were within the same range — that’s around $4Mil per payroll, 26 times a year.

More importantly, what the report does show — and not mentioned by ASEDA in its reply to bondholders — is that a large percentage of local revenue is going to pay for personnel costs. What once was an almost 50-50 (local-grant) split has now become around 65% of local funds to 35% of grant money. “The burden of payroll has steadily been moved to local funds from grants,” the report says. And, Treasury points out that there is an “alarming concern” over the dispersion between local and federal funds.

As far as tuna cannery employment figures, there is reasonable doubt to the accuracy of the ASEDA statement.

StarKist employs well over 2,000 people. Samoa Tuna Processors never reached that figure when they were in production. A 100% employment increase seems more than twice the actual employment figure.

ASEDA’s reply concerning AVM Engineering was written in December of 2016 less than a month before the proposed construction start up of AVM Engineering’s “Multi Food Processing Plant”.

In February 2017 — Samoa News reported that the director of the Department of Commerce, Keniseli Lafaele, told senators during his confirmation hearing that AVM was looking for new investors as their old ones had withdrawn, and this happened after the groundbreaking ceremony had already taken place.

Lafaele said at the time, “The truth is; it’s very difficult to attract investors to invest in American Samoa, due to among other things transportation, and international trade agreements between the US and other countries.”

Flash forward: Asked at last Friday’s news conference for an update on the AVM project, Gov. Lolo Matalasi Moliga said a company official recently left the territory after making the “same promise” made six months ago. He didn’t elaborate further, but said he's hopeful that when the official returns before the end of the year, the project will start moving forward.

Lolo said he has informed the DOC director that after this year, if nothing has materialized on this project, “we might as well forget it”. The governor noted that it seems like AVM is still having difficulties securing investors.

Lafaele, on the other hand, says containers of the construction materials for the plant are on island and that AVM has decided to go ahead and start the project, and describes the food processing plant project as a “work in progress”.

Another question:

Forgetting for a moment that Samoa Tuna Processors had already laid off 800 employees prior to the ASEDA response to bondholder queries, the bondholders asked:

Q: How do you expect those persons (STP) laid-off to sustain themselves?

ASEDA:  As pointed out earlier, we expect to re-train all these individuals so they can transition into other employment opportunities These individuals will be paid the minimum wage of $5 dollars per hour. Others may be able to find gainful employment at StarKist or some other workplace.

Q:  Will the StarKist plant hire them?

ASEDA:  We anticipate that StarKist will hire some of them when it completes its expanded Cold Storage Facility, which also improves the economics for residual services offered to the fishing vessels off-loading their catches in American Samoa.

To date, StarKist has not decided where to build its cold storage facility as ASG has denied it the site alongside their plant next to the Shipyard wharf. ASG offered an alternative site across the street, which presents logistical problems of moving fish and exposing the raw product to quality control issues. The cold storage facility at the old STP site is now being touted by the Administration — however StarKist has not said if it’s considering it.

ASEDA’s opening remarks to the bondholders’ queries were marked with optimism and assuredness. They boldly announced that ASG accounting procedures and financial management had reached a new level of professional propriety.

ASEDA response to investor questions:

CONTINUING DISCLOSURE FY 2016 FOURTH QUARTER ASEDA

“One of the biggest challenges of our administration has been not just to reform how we do business here in American Samoa, but also how we do business with the US Government and the outside world in general. Perhaps the most gratifying accomplishment of the current administration was working with our Financial Professions including Lewis Young, Robertson & Burningham Inc., George K. Baum & Company, and Ballard Spahr LLP to do a complete audit of our accounts and our accounting procedures in order to undeniably prove we had brought about true positive reform to American Samoa. ASEDA will forever be indebted to our financial team of Lewis Young and GKB for trusting us enough to give us a chance, and pledge to continue to earn that trust, and that of the bond investors.”

The optimism expressed by ASEDA in December of 2016 waned significantly by the time the Moss Adams 2016 ASG financial audit was published. In the notes to the final report Moss Adams filed “qualified” statements for the general fund, the grant fund and the American Samoa Medical Authority.

“We were unable to obtain sufficient audit evidence for the recorded amount of income tax receivables of $18 million in the general fund within the balance sheet.”

“We were unable to obtain sufficient audit evidence for the recorded amount of income tax receivables of $4.6 million in the grant fund within the balance sheet.”

“We were unable to obtain sufficient audit evidence for the recorded amount of income tax receivables of $7.9 million and $11.6 net patient services at the American Samoa Medical Authority in the patient fund within the balance sheet.”

Further coverage of bondholders’ questions and ASEDA’s responses will be reported — look for “Just Asking…”