Pago Pago, AMERICAN SAMOA — What many in the community have been saying, the US Government Accountability Office (GAO) has confirmed — it has found that American Samoa “continues to face fiscal risks that may affect repayment of public debt, such as a reliance on the tuna canning and processing industry and significant pension liabilities.”

GAO’s finding is outlined in the “US Territories, Public Debt Outlook 2019 Update” 78-page report — made public last Friday — to US congressional committees, as a follow up to its US territories public debt report issued October 2017 covering public debts for the insular areas between fiscal years 2005 and 2015.

Provision of the 2016 federal Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) mandates GAO to conduct the public debt review of each of the five territories every two years and submit a report to the US Congress.

In its 2017 report, GAO said American Samoa’s debt remained small, relative to the size of its economy, between fiscal years 2005 and 2015, increasing from 5% to 11% of the gross domestic product (GDP). GAO reported — at the time — that disruptions in the tuna processing and canning industry could affect its ability to repay debt.

In the 2019 update report, GAO points out that American Samoa’s total public debt outstanding grew from $85.9 million in fiscal year 2015 to $122.2 million in fiscal year 2017, an increase of 42%. It explained that in FY 2017, the majority of American Samoa’s public debt was owed by the primary government.

“Total public debt outstanding as a share of GDP increased from 13% in fiscal year 2015 to 19% in fiscal year 2017,” it says. “Total public debt outstanding per capita increased from $1,482.20 in fiscal year 2015 to $2,081.90 in fiscal year 2017.”

According to GAO, the increase in debt was due largely to a single bond issued in January 2016 for $23 million to fund various infrastructure projects, which remains the major driver of American Samoa’s public debt.

Then in December 2018 the territory issued a series of general revenue bonds totaling $50.3 million, and the proceeds were used to fund infrastructure projects, including constructing a new Fono building and expanding broadband and telecommunications services in the territory.

“Territory government officials told us the intent of this expansion is to diversify American Samoa’s economy by making the territory a regional telecommunications hub,” GAO said. (Samoa News notes that the broadband referred to in the report is the Hawaiki cable.)

GAO noted that in November 2018, Moody’s rating company “affirmed American Samoa’s non-investment grade rating and assigned” the same rating to its 2018 bond series (as in the previous bonds), citing the territory’s reliance on substantial assistance from the federal government, low income levels, and financial management challenges. (See Samoa News Nov. 29, 2018 edition for details on Moody’s rating).

GENERAL REVENUE

GAO reported that the territory’s total revenue — i.e. general revenue and program revenue combined — decreased slightly from $436.4 million in FY 2015 to $418.3 million in FY 2017, a decrease of 4%.

According to GAO, the territory general revenue increased 14% from $116.5 million in FY 2015 to $132.8 million in FY 2016 and “subsequently decreased” to $116.6 million in FY 2017, a total increase of less than one percent during this time period.

Between FYs 2015 and 2017, income and excise taxes combined represented an average of 56% of general revenue. Income and excise tax collection decreased by 9.6%, or $6.8 million, between FYs 2015 and 2017.

“This decrease was mainly driven by income tax collection, which declined by 23%, or $10.5 million, within the same period,” GAO explained.

Additionally, American Samoa operated with a deficit of $24.1 million in FY 2017 — third deficit since FY 2005. While total revenue declined, GAO said government expenses increased by 5%, or from $420.7 million to $442.4 million between FYs 2015 and 2017.

“Of total government expenses in fiscal year 2017, $281.0 million was spent by the primary government, while $161.4 million was spent by the government’s various component units,” said GAO. “Education was one of largest categories of primary government spending.”

CONTINUED FISCAL RISKS

GAO tells the US Congress that the territory’s “public debt has grown, and the territory continues to face fiscal risks that may affect repayment, such as a reliance on a single industry and significant pension liabilities.”

The report says StarKist is the only cannery in operation, and the territory’s economy relies heavily on the tuna processing and canning industry.

“Officials told us that federal laws, such as the Clean Water Act and a minimum wage increase, may hamper the long-term sustainability of the industry,” said GAO. “The closure of the remaining cannery, without economic growth elsewhere in the economy, may further reduce revenues available for repaying outstanding debt.

In FY 2017, ASG reported a net pension liability for the primary government and components units of $213.1 million, which was 33% of GDP that year, according to GAO, which points out in a footnote that, “According to territory officials, the unfunded pension liability has decreased since reaching a low in 2016. When a pension is unfunded, it does not have enough assets to cover its liabilities.”

“If the territory is unable to make annual contributions to the pension fund, then the fund’s condition may continue to deteriorate,” GAO notes. “According to territory officials, the government is exploring options to reduce the unfunded pension liability, including increasing the employee and employer contribution rates over a period of 3 years.”

Samoa News will report in tomorrow’s edition, Lt. Gov. Lemanu Sialega Palepoi Mauga’s response to GAO.

(Samoa News notes that the current administration has continued to tell the Fono it has closed the last two years (2017 and 2018) in the ‘black’. The GAO debt report, however, indicates that this is not the case — at least for year 2017 — which it reports: “operated with a deficit of $24.1 million in FY 2017.”)