Pago Pago, AMERICAN SAMOA — Unable to get specific answers to questions dealing with the American Samoa Economic Development Authority’s 2018 bond series sale and tax exempt status of the bond being in default, Rep. Larry Sanitoa, on behalf of his Tualauta constituents and others, plan to take legal action soon.

In a July 22nd letter, Sanitoa wrote — on behalf of his constituents — to Missouri-based George K. Baum & Company (GKB) seeking “clarification of the tax-exempt status” of the 2018 bond series, saying his Tualauta County, along with the rest of the Territory, will be responsible for the Bond’s debt service through 2038.

“They are also concerned about the American Samoa Government’s level of indebtedness which stands at approximately 25% of the gross domestic product GDP,” he said, noting that the US Government Accountability Office (GAO) raised similar concerns in its 2019 update of the US Territories Public Debt Outlook - which didn’t included the 2018 bond. (See Samoa News July 1st edition for details of the GAO report.)

“There are serious doubts about the legality of this bond issue. We believe the statute delegating debt authority to ASEDA is unconstitutional,” Sanitoa wrote, and pointed to Article II, Section 24 of American Samoa’s Constitution.

He explained that most of the un-appropriated bond proceeds went to purchase the American Samoa spur of the Hawaiki Cable and pay for infrastructure related to it. “We feel there are significant irregularities with these transactions,” he continued.

First, Sanitoa explained that the American Samoa Telecommunications Authority (ASTCA) sold the spur to the American Samoa Government Employees’ Retirement Fund (ASGERF) on December 6, 2017 through a Point-to-Point IRU and Leaseback Agreement for $17,000,000 — a substantial discount from $29,750,000

Furthermore, ASTCA paid Hawaiki but the spur is no longer owned by ASG but by ASGERF.

“Next, the business case for the spur rests almost entirely upon sales of bandwidth to neighboring Pacific island countries,” he explained. “ASTCA has been tasked with this responsibility.”

Sanitoa said ASGERF’s ownership of the spur “has raised a regulatory issue” since the Cable Landing License was issued by the FCC to ASTCA. According to the lawmaker, he had written a letter in June last year to the FCC chairman, seeking clarification of the issue.

He said the disputed ownership of the spur would deter any prudent potential subscriber outside the Territory from purchasing capacity. Sanitoa believes the resolution of this matter could result in the FCC mandating ASTCA to purchase the spur from ASGERF. “Such a transaction would be tantamount to ASTCA purchasing the spur twice, at which point the financial viability of the spur would truly be in doubt,” he said.

Sanitoa said these “irregularities, and in particular the ownership of the spur, creates tremendous jeopardy.”

“Most notably, the tax-exempt status of the Series 2018 Bond is placed at risk since it no longer funds an infrastructure asset. The ramifications of this situation to my constituents and the Territory could be staggering if it results in the bond being called,” he said.

GKB general counsel, Eric J. Gervais, in a half-page response letter dated Aug. 19th to Sanitoa wrote, “Unfortunately, GKB is not a law firm and cannot provide you the legal advice you seek.”

However, the letter notes that at the time the 2018 bond series was issued, Gilmore & Bell P.C was the legal counsel for ASEDA and an opinion was issued that the bonds were “validly issued and tax exempt.”

In a statement issued Monday this week, Sanitoa said that since January this year, “some of us have been requesting a comprehensive report” on the 2018 bond. “Unfortunately, limited information was provided”, he said, adding that he then wrote to GKB with some specific questions on the status of the bond.

Sanitoa thanked Senate President Gaoteote Tofau Palaie and Sen. Magalei Logovi’i for taking the initiative to amend certain provisions of the ASEDA law, which gives the Fono the final say in the spending of future bond sale proceeds. (See Samoa News Aug. 30th edition regarding the changes to ASEDA law.)

According to Sanitoa, “There is a great deal of uncertainty on whether the administration will actually support such amendments.”

Therefore, “We will be filing a Complaint for Declaratory Judgment this week against the ASEDA on the constitutional ground and budgetary laws,” he said.  “We feel this is necessary due to the financial burden the bonds place on our taxpayers and especially our future generations.”