PALIKIR, POHNPEI. September 20, 2023– After nine years of allocating its share of amended Compact funding to the states, the Twenty Third Congress, today passed Congressional Act 23-19 to re-establish the National Government’s share through modification of the distribution formula for the 2023 Amended Compact funding.
In anticipation of the new Constitutional Amendments and in preparation for the 2023 Amended Compact, CA 23-19 called for the modification of the distribution formula for amended Compact funds to allow the National Government a ten-percent (10%) share; centralize the Compact Infrastructure sector grants within the Department of Transportation, Communications and Infrastructure; and to establish transitional provisions for the amended compact portions of the Budget for Fiscal Year 2024.
The first part of the Act would modify the Amended Compact distribution formula to re-establish the National Government’s share from zero percent (0%) to ten percent (10%). The distribution formula for Compact Two had provided the National Government with the following percentage of Compact funds: for FY 2005 and FY 2006 - 8.65%; from FY 2007 to 2013 - 10%; for FY 2014 - 5.%, and for the past nine years from FY 2015 to current FY 2023, the National Government’s share has been zero percent (0.0%).
The amendment is necessitated by the new Constitutional amendment requirement that 50% percent of the local revenue from fishing agreements be retained by the National Government and the other 50% to be divided among the States.
Historically, local revenue from fishing agreements has funded the National Government operations, the National Public Auditor, national agencies, boards, authorities and commissions, in addition to providing grants, subsidies, contributions to capital and human resource development needs for the Nation. With half of the local revenues from fishing agreements removed, the National Government is unable to assist those programs and functions across the nation reliant on funding from National Government. It is necessary therefore to increase the National Government share of available Compact funds from zero percent (0%) to ten percent (10%).
Accordingly, the amended Compact proposed distribution formula beginning FY 2024, would be as follows: Chuuk – 38.00%, Kosrae – 10.89%, Pohnpei – 25.31%, Yap – 15.80%, National Government – 10%.
It was noted that 10% share to the National Government reflects additional costs that will be borne by the National Government under the 2023 Amended Compact. Funding that was historically provided for the National Department of Education under Supplemental Education grants and excluded from the distribution formula is now part of the Education Compact Sector and subject to the distribution formula.
The National Government will also be responsible for appropriating funds for the Single Audit, either from its share of Compact Funds or domestic revenue. Finally, there will be substantial extra costs associated with the enhanced reporting and compliance requirementsrelating to the infrastructure projects.
The 2023 Amended Compact also includes various compliance requirements, enhanced performance and financial reporting on the infrastructure projects along with the hiring of a third-party for the reporting. To ensure compliance with the requirements relating to infrastructure projects, CA 23-19 further called for the centralization of the Compact Infrastructure Funds for the national and four state governments within the Department of Transportation, Communications and Infrastructure (TC&I).
As such, each State Government’s infrastructure budgets would be “moved to and consolidated with the National Government’s for purposes of the Plan for the Division of Annual Economic Assistance. Infrastructure Sector Grants shall then be retained by the National Government and managed by the Department of Transportation, Communications & Infrastructure, and released as sub-grants to the States, on a project-by-project basis.”
Finally, in recognition of certain lapse dates, CA 23-19 called for transitional provisions for FY 2024 to include adjustment of dates for certain internal fiscal procedures for compact implementation along with revised Compact planning estimates and revised Compact budget request, among others.
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