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FEDS EYEING ACCOUNTABILITY, SELF-SUFFICIENCY

Feb. 3, 2004 – Officials of the Interior Department's Office of Insular Affairs have put the Virgin Islands and the other insular U.S. territories on notice that when it comes to program funding for fiscal year 2005, financial accountability and increasing self-sufficiency are the names of the game.
A release from the Office of Insular Affairs on Monday stated that President Bush's proposed FY 2005 budget for programs administered by the office is $384 million — $78.9 million in current funding and $305.1 million in permanent funding that reflects long-term commitments made to Pacific insular areas and guaranteed in law.
The proposed current funding includes a $1 million increase "to strengthen core performance measurement and program assessment activities," the release stated.
According to David Cohen, the Interior Department's deputy assistant secretary for insular affairs, the budget "aims to fulfill U.S. responsibilities to the insular areas while promoting sound financial management practices in the insular governments, increasing economic development and self-sufficiency, and increasing federal responsiveness to the unique needs of island communities."
The Office of Insular Affairs is the executive branch liaison organization with American Samoa, Guam, the Northern Marianas and the Virgin Islands. The OIA also works with the three freely associated areas — the Federated States of Micronesia, Republic of the Marshall Islands and Republic of Palau.
The proposed budget reflects recent amendments to the Compacts of Free Association for the Marshall Islands and Micronesia that guarantee financial assistance for the next 20 years while substantially increasing accountability requirements and imposing a cooperative system of performance review.
"Financial accountability is fundamental to the success of the insular governments in improving their economic situation," Cohen said. Internal assessments by OIA, the General Accounting Office and the Interior Department's Office of Inspector General "have noted the linkage between poor accountability and poor economic improvement," the release stated.
"The financial crises in both the U.S. Virgin Islands and American Samoa have led to the implementation of memoranda of agreement between the department and the local governments, implementing mechanisms for improved financial management and long-term fiscal recovery plans," it said.
David Heggestad, director of budget and grants management for the Office of Insular Affairs, said on Tuesday that the reference with regard to the Virgin Islands was to the memorandum of understanding signed in October 1999 by Gov. Charles W. Turnbull and President Clinton's Interior Secretary, Bruce Babbitt.
The MOU required the V.I. government to carry out a financial recovery program to eliminate long-term debt and achieve a balanced budget. "The MOU is still in force," Heggestad noted Tuesday.
An audit conducted by Interior's Office of Inspector General in November 2002 gave the territory mixed reviews for its level of compliance with the agreement. The audit found that the government had substantially achieved five of the standards set forth in the MOU and that four of the 13 financial performance standards were fully met. (See "MOU compliance audit: successes, shortcomings".)
The audit report said the V.I. government's performance had led to a somewhat improved financial condition, but that full assessment of the success of efforts to balance the fiscal year 2003 budget would not be possible until audited financial statements for FY 2003 were completed.
FY 2003 turned out to be a disastrous year, fiscally, with the government eventually borrowing $100 million against anticipated bond revenues in order to issue income-tax refunds and pay vendors.
The OIA release stated that program funding is aimed at helping the insular governments assume an increasing share of the financial responsibility for priority operational and capital needs. "The proposed funding will be used by OIA to support integrated budget and performance decision-making for capital, and [for] technical assistance projects where small amounts of federal funding can be leveraged to increase economic development in the U.S. territories," it said.
Other than impact aid, the release stated, funding for the territories is included in the federal Assistance to Territories appropriation. The total FY 2005 funding proposed for such assistance is $72.9 million, a decrease of $2.8 million from FY 2004. Officials attributed the drop to one-time increases this year in funding for projects in the Northern Marianas and technical assistance needs.
The proposed federal budget includes mandatory funding of $27.7 million for capital investment in the U.S. territories and $15.6 million in technical assistance funding.

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