Compact of Free Association: Proposed U.S. Assistance to Palau for Fiscal Years 2011- 2024

The Compact of Free Association between the United States and the Republic of Palau, which entered into force in 1994, provided for several types of assistance aimed at promoting Palau's self-sufficiency and economic advancement. Included were 15 years of direct assistance to the Palau government; contributions to a trust fund meant to provide Palau $15 million each year in fiscal years 2010 through 2044; construction of a road system, known as the Compact Road; and federal services such as postal, weather, and aviation. U.S. agencies also provided discretionary federal programs related to health, education, and infrastructure. In 2008, GAO projected that total assistance in fiscal years 1994 though 2009 would exceed $852 million. In September 2010, the United States and Palau signed an agreement (the Agreement) that would, among other things, provide for additional assistance to Palau beginning in fiscal year 2011 and modify its trust fund. A bill, now pending, was introduced in the Senate on February 14, 2011, to approve the Agreement and appropriate funds to implement it. In this testimony, GAO updates a June 2011 testimony on (1) the Agreement's provisions for economic assistance to Palau, (2) its impact on the trust fund's likelihood of sustaining scheduled payments through fiscal year 2044, and (3) the projected role of U.S. assistance in Palau government revenues. GAO reviewed the Agreement; examined Palau's recent single audit reports and budget projections; and assessed trust fund balances and disbursement plans.