Hearings and Business Meetings
October 25, 2005
SD-366 Energy Committee Hearing Room 10:00 AM
Mr. Nikolao Pula
Director of the Office of Insular Affairs, U.S. Department of the Interior
NIKOLAO I. PULA
ACTING DEPUTY ASSISTANT SECRETARY OF THE INTERIOR FOR INSULAR AFFAIRS
SENATE COMMITTEE ON ENERGY AND NATURAL RESOURCES
S. 1829 – THE REPEAL OF VIRGIN ISLANDS PROPERTY TAX PROVISIONS
S. 1831 – NORTHERN MARIANA ISLANDS SUBMERGED LANDS AND SETTLEMENT OF CLAIMS ARISING PURSUANT TO THE NORTHERN MARIANA ISLANDS COVENANT
October 25, 2005
Mr. Chairman and Members of the Committee on Energy and Natural Resources, I am pleased to appear before you today to discuss S. 1829 and S. 1831. I am Nikolao Pula, Acting Deputy Assistant Secretary of the Interior for Insular Affairs.
S. 1829 would repeal sections 1 through 6 of the 1936 Organic Act of the Virgin Islands of the United States, which deal with property taxation in the territory. In 2003, the Fourth Circuit Court of Appeals held that the property tax provisions in the 1936 Organic Act, requiring market valuation, were still in effect despite enactment of the Revised Organic Act of 1954. This decision has had the effect of invalidating local Virgin Islands’ statutes that give property tax exemptions to residents such as veterans and seniors.
In a rapidly escalating real estate market, people on limited incomes, including many veterans and seniors, can be forced from their homes due to an inability to pay the increased levies. Adverse social consequences can follow.
For decades, the Department of the Interior has sponsored or backed measures that increase self-government for the territories. S. 1829 advances Virgin Islands citizens’ self-government, consistent with Departmental policy. Additionally, it is my understanding that there is no Federal regulation of property taxation in any other state or territory under the American flag.
S. 1829 would return control of the property tax to the Government of the Virgin Islands, and property taxes would be levied as they were prior to the Fourth Circuit’s decision. The Administration supports enactment of S. 1829.
S. 1831 deals with two subjects: submerged lands and the settlement of claims arising pursuant to the Covenant to Establish a Commonwealth of the Northern Mariana Islands in Political Union with the United States of America.
Section 1 of S. 1831 would give the Commonwealth of the Northern Mariana Islands (CNMI) authority over its submerged lands from mean high tide seaward to three geographical miles distant from its coast lines.
It has been the position of the Federal Government that United States submerged lands around the Northern Mariana Islands did not transfer to the CNMI when the Covenant came into force. This position was validated in Ninth Circuit Court of Appeals opinion in the case of the Commonwealth of the Northern Mariana Islands v. the United States of America. One consequence of this decision is that CNMI law enforcement personnel lack jurisdiction in the territorial waters surrounding the islands of the CNMI without a grant from the Federal Government.
At present, the CNMI is the only United States territory that does not have title to the submerged lands in that portion of the United States territorial sea that is three miles distant from the coastlines of the CNMI’s islands. It is appropriate that the CNMI be given the same authority as her sister territories.
It should be noted that the language of section 1 is similar, but not identical, to the language of the 1974 territorial submerged lands act applicable to Guam, the Virgin Islands and American Samoa. The differences appear to be attributable to the fact that the CNMI provisions would be a later enactment. We assume that the intent of the bill is to give the CNMI the same benefits in its submerged lands as its sister territories enjoy in their submerged lands. If this is the case, it would be helpful, for those who will later interpret the statute, to include language in S. 1831 stating that, as a general rule, the submerged lands statute is intended to be applied in a consistent manner to each of the four territories, unless, of course, there is a specific and express exception for one of the territories.
The Administration, therefore, supports enactment of section 1 of S. 1831, provided that language is added regarding consistent interpretation.
Section 2 of S. 1831 would permit the Secretary of the Interior to settle claims of the CNMI arising pursuant to the CNMI Covenant. This authority would be activated by a request by the Governor of the CNMI.
On a number of occasions over the past quarter of a century, the Federal Government and the CNMI have sought accommodation on a variety issues and disputes through the formal process of appointing representatives provided for in section 902 of the Covenant. In addition to this formal process, and on a separate track, the CNMI has sought to have the Department of the Interior help resolve issues with other Federal agencies.
The Administration does not support the enactment of section 2 of S. 1831 because it does not believe that the creation of an additional formal mechanism with its attendant costs, as described in the bill, is necessary.
Although we were not specifically invited to speak with regard to the compact-related amendments in S. 1830, with your indulgence, I would like to raise one issue that is not considered in the bill.
The Compact of Free Association Amendments Act of 2003, contemplated the creation of separate trust funds for the peoples Republic of the Marshall Islands and the Federated States of Micronesia. It is anticipated that after the year 2023, the trust proceeds will be the source of substantial funds that will help sustain their respective governments. To aid in building corpus, both Compacts provide that their respective trust funds shall not be subject to Federal or state taxes. Another provision requires that the trust funds to be incorporated in the District of Columbia. Because the District of Columbia is neither a state nor the Federal government, the intended tax free status of the trust fund has been called into question.
The Administration, therefore, requests that the following new section be added to S. 1830:
Sec. __. CLARIFICATION OF TAX-FREE STATUS OF TRUST FUNDS. In the U.S.–RMI Compact, the U.S.-FSM Compact, and their respective trust fund subsidiary agreements, for the purposes of taxation by the United States or its subsidiary jurisdictions, the word “state” means “state, territory, or the District of Columbia”.
Such an amendment would insure that full effect will be given to the intended tax free status of the trust funds.