GAO report cites local fiscal risks including “significant pension liabilities”
Pago Pago, AMERICAN SAMOA — “Continued reliance on a single industry and significant pension liabilities remain fiscal risks in American Samoa,” so declared the US Government Accountability Office (GAO) in its US Territories Public Debt Outlook — 2021 Update, released yesterday to the US Congress and also made public.
The “single industry” referred to by GAO is the tuna cannery. And Gov. Lemanu Peleti Palepoi Sialega Mauga tells GAO that the territory is working collaboratively with the tuna cannery to address challenges facing its operations.
The governor’s response letter to the GAO draft report (before it was made final) also highlights the importance of funding provided to the territory by the American Rescue Plan Act and the territory’s commitment to sound financial management.
Provisions of a 2016 federal law require GAO to review the public debt of the five US territories every two-years. In the 2021 report, GAO said it updates trends in public debt and its composition; trends in revenue and its composition, and in overall financial condition; and the fiscal risk factors that affect each territory’s ability to repay public debt.
GAO analyzed the territories’ single audit reports for fiscal years 2017, 2018, and 2019, as available; reviewed relevant documentation and analyses; and interviewed officials from the territories’ governments, federal agencies, and industry groups.
According to GAO analysis, American Samoa’s total public debt outstanding grew from $122.2 million in fiscal year 2017 to $235.6 million in fiscal year 2019, representing an increase of 93 percent.
In FY 2019, 57% of American Samoa’s public debt was owed by the primary government and 43% was owed by component units.
In December 2018, a series of general revenue bonds were issued totaling about $50.3 million. The proceeds from these bonds were used to fund major infrastructure projects for the government that were in its long term plans, including construction of a new building for the territorial legislature and expanding broadband and telecommunications services in the territory.
In May this year, American Samoa refunded bonds issued in 2015 and 2016 at lower interest rates, “yielding savings for the territory”. (Samoa News notes that this bond is referred to as the 2021 bond series.)
American Samoa’s total public debt outstanding as a share of Gross Domestic Product (GDP) increased from 19% in FY 2017 to 37% in FY 2019. Total public debt outstanding per capita also increased from $2,082 in fiscal year 2017 to $4,121 in fiscal year 2019, according to GAO
SINGLE INDUSTRY RELIANCE
“American Samoa’s public debt has grown and the territory continues to face fiscal risks, such as a reliance on a single industry and significant pension liabilities,” GAO points out, noting that the territory’s economy continues to rely heavily on the tuna processing and canning industry, with currently only one cannery operating — referring to StarKist Samoa.
GAO said the COVID-19 pandemic had a positive impact on the territory’s tuna canning and processing industry — which comprised 14% of employment in American Samoa as of 2018 — due to the increased demand for canned tuna during the early stages of the pandemic.
“The cannery in American Samoa reported a 10% production increase and a 5% employment increase, as of September 2020. According to territory officials, the cannery is considering expanding production in American Samoa, which could result in 200 to 300 new jobs,” said GAO.
While the industry has fared well during the COVID-19 pandemic, GAO said potential future disruptions could hurt American Samoa’s fiscal condition, and thereby hamper its future ability to repay growing public debt.
GAO said it reported in June last year that closure of the remaining tuna cannery would result in a loss of 2,000 jobs in American Samoa.
The report also noted that ASG continues its efforts to diversify the economy by expanding the territory’s broadband and telecommunications infrastructure, including a $30 million investment in an international high- capacity underwater fiber optic cable.
The fiber optic cable referred to by GAO is Hawaiki cable and some of the revenues from the 2018 bond series were used in part to build its telecommunications and broadband industry.
GAO report quotes territorial officials saying, “American Samoa aspires to become a telecommunications hub through the sale of bandwidth to other countries in the region.”
“Territory officials also told us they are attempting to develop American Samoa’s tourism industry. As part of this effort, a hotel in Pago Pago Harbor is being redeveloped and the international airport and various tourist sites are being upgraded,” GAO said.
In FY 2019, GAO said American Samoa reported a combined net pension liability for the primary government and components units of $140.5 million, which was 22% of GDP that year.
“Officials told us they plan to allocate a portion of any profits from telecommunications operations to the pension system,” according to GAO, which points out that in May, Moody’s Investors Service revised American Samoa’s rating outlook to stable from negative, reflecting American Samoa’s improved financial position resulting from governance improvements, the government’s better financial discipline, and significant federal support received in response to the COVID-19 pandemic.
Samoa News will report tomorrow on the governor’s full response to GAO and other issues.