Accountability: Progress, Challenges, and a Call to Protect the Public Auditor's Offices

Keynote Speech of David B. Cohen, Deputy Assistant Secretary of the Interior, Joint Meeting of the Association of Pacific Islands Public Auditors and the Island Government Finance Officers’ Association, Honolulu, Hawaii, December 6, 2007.

Good morning. When I spoke before the Island Government Finance Officers’ Association on Tuesday, I noted that Priority 1 for the Department of the Interior’s Office of Insular Affairs is promoting private sector economic development in the islands, and Priority 1-A is ensuring accountability for public funds—particularly the Federal financial assistance provided to the islands by my office and others. On Tuesday, I spoke about Priority 1. Today, I will speak about Priority 1-A.

We say over and over again that accountability is one of OIA’s two top priorities, and we have backed up our words with deeds. For example:

• We worked with our colleagues in the Marshall Islands and the Federated States of Micronesia to negotiate a detailed, comprehensive accountability program for funds provided under the Compacts of Free Association.
• As part of our effort to implement the Compacts, we have established an office here in Honolulu dedicated to ensuring that there is accountability for Compact funds. We have also added personnel in the freely associated states for that purpose.
• We have revamped the way that we allocate Capital Improvement Project funds, instituting a competitive process that rewards good fiscal management.
• We have established the position of Accountability Policy Specialist at our headquarters in Washington, D.C.
• We have a longstanding contract with the USDA Graduate School to provide training for island officials, with an emphasis on financial management and improving compliance with the Single Audit Act.
• We have sponsored numerous conferences, workshops and training programs involving officials from the islands and our colleagues at other Federal agencies.
• We fund training for public auditors, including programs that enable personnel from the islands to work and train at various Interior Inspector General offices.
• We have revised our criteria for granting technical assistance to focus primarily on our top two priorities, including promoting accountability.
• We have greatly increased coordination with other Federal agencies to focus on improving the administration of Federal grant programs in the territories and freely associated states.
• We completely revamped OIA’s Financial Assistance Manual for the first time in a decade.

Our efforts, together with the hard work of our colleagues from the islands and our Federal colleagues, have yielded positive results. When I took office in 2002, not a single one of the 11 nations, states and territories that we serve was submitting timely or clean Single Audits. Today, the record on timeliness is almost exactly the opposite: only one of our 11 jurisdictions is not current with its Single Audits. In addition, Palau’s Single Audits have been timely and clean for the past three years, Pohnpei’s have been timely and clean for the past two years, and Kosrae became the newest member of the “Timely and Clean Club” this past year. Pohnpei is in a club of its own, having completed Single Audits for the past two years that were timely, clean and with no questioned costs. Pohnpei will soon be the rule and not the exception, and just as we all worked together to turn the situation around with regard to timeliness of audits, we will do the same with regard to cleanliness.

Although we very much value our positive relationships with our colleagues in the islands, we have taken tough action when tough action was called for. We have been forced to withhold grant assistance on a number of occasions. We hate to do that, because our grants fund important programs in health, education and other crucial areas. We recognize, however, that it is better to withhold funds and preserve them for future use than to release funds into an insecure environment, risking that they will never be properly used to address the needs of the people.

We have excellent working relationships with the governments of almost all of our island communities. This enables us to work through some very difficult issues. A while back, we made the very difficult decision to put American Samoa on high risk status. We imposed a very high bar to have that status lifted: Two consecutive timely and clean Single Audits, two consecutive balanced budgets, and sufficient progress on American Samoa’s fiscal reform plan. The plan was adopted pursuant to a Memorandum of Agreement for fiscal reform that I signed with the late Governor Tauese Sunia. Governor Togiola Tulafono has embraced these conditions as a challenge and an opportunity for his government to greatly improve its ability to serve the people of American Samoa. He wants American Samoa to meet those conditions and in so doing become a model for fiscal management in the islands. For our part, we have responded with substantial technical assistance to help American Samoa develop the tools and skills necessary to effectively manage its government finances.

In Kosrae, we have supported a process, involving the new government of Kosrae, the new government of the Federated States of Micronesia and the USDA Graduate School, to address an urgent fiscal crisis. With financial assistance from our office and the FSM National Government, Governor Robert Weilbacher, his team and the Kosrae legislature have taken painful and courageous steps to restore that state to fiscal health.

We are working with FSM President Manny Mori and Governor Wesley Simina to support a similar fiscal recovery plan that is being developed for Chuuk. We had previously worked with the Chuuk State Government and the FSM National Government to establish the Chuuk Financial Control Commission to review and certify all transactions involving Compact funds. OIA has placed a full time accountant in Chuuk to ensure compliance.

All of us working together have made significant progress to improve accountability and fiscal management in the islands. We have a tremendous way to go, however, before the overall performance of the islands in fiscal management could be called acceptable.

I am proud of the progress that we have made together to improve accountability because we have done so in the face of daunting challenges. Each of our insular areas has small populations and educational systems that range from significantly below to very far below mainland standards. The best and brightest often have to leave the islands to find decent job opportunities. As a result of all of these factors, each of the insular areas has a severe shortage of the type of educated talent that is necessary to ensure good fiscal management. As you can tell by looking around this room, there are many educated and talented people in the islands. There just are not yet enough of them.

In the islands, talent pool shortages cannot be solved by attracting people over from the next town or the next county. The islands have to shore up deficiencies in critical skill areas by enticing people to travel thousands of miles from home. The islands typically do not have the resources to provide a sufficient financial incentive to entice talented people to do this.
Almost all of the insular areas are made up of multiple islands, in some cases in the hundreds or thousands. This creates the additional challenge of providing essential government services to people on several islands, some of them remote. It requires duplication and makes it harder to achieve economies of scale. All of this further drains resources that are needed to attract good talent.

I do not offer these observations as excuses. However, we cannot do our jobs effectively if we do not have a proper understanding of the challenges that we face.

Are some of the islands’ fiscal management problems caused by corruption? Of course, but there is corruption all over the world, including on the U.S. mainland. The corruption that exists in the islands only makes it harder for the islands to address the challenges that I have just described.

For all of these reasons, it has taken a great deal of work by all of us to achieve the accountability gains that we have achieved in recent years, and it will take a tremendous amount of additional work to raise ourselves up collectively to an acceptable level. We are committed to doing that work.

One thing is clear: Our efforts cannot succeed unless each of our island communities has a strong, active, independent, conscientious, properly staffed and properly funded public auditor’s office. The management of public funds is a complicated business, and regular, impartial review of our work is essential to ensure that good value is received for the people’s money.

OIA has taken steps to encourage each of the island governments to strengthen their public auditor’s offices. For example, we rate each of your public auditor’s offices and use that in our determination of the amount of grant funding that various jurisdictions will receive.

To be frank, however, I am not satisfied. None of us should be satisfied. We still have jurisdictions that have not had a qualified public auditor in place for an unacceptably long period of time. We still have public auditor’s offices that do not have the staff or budget to do an effective job. We still have public auditor’s offices that are too vulnerable to political retaliation.
Protecting the auditors is always a challenge. The problem is that auditors routinely have to be critical of those who have control over their budgets, personnel decisions and other important matters. And, speaking for the finance officers’ side of the room, there is not one of us, myself included, that has not been ticked off from time to time by the work of an auditor. The problem is that each of us has a tendency to believe that we are perfect, and that anyone with the gall to suggest otherwise obviously does not know what they are talking about. Or perhaps they are criticizing us out of irrational hatred or jealousy. Why would they be jealous of us? Because, as noted earlier, we are perfect. Most of us, however, are able to take a deep breath and get beyond those sentiments. Once we do so, it becomes easier to appreciate the way in which the auditors keep us on our toes and help us to do a better job of serving the people. And just as we are not really perfect, auditors are not perfect either. However, their imperfect attempts to do their job are essential to our ability to improve in our imperfect attempts to do our job.

Earlier, we notified each of your governments that the failure to have a public auditor’s office meeting minimal standards would eventually result in a loss of eligibility for OIA technical assistance funds. Today, I would like to start a process where we all work together to flesh out that concept. I would like all of us—finance offices, public auditor’s offices, the USDA Graduate School, Interior’s Inspector General’s Office, OIA—to work together to craft clear, objective and reasonable standards that must be met in order to ensure continued eligibility for technical assistance funds. The objective will be to ensure that public auditor’s offices are protected in their independence and are properly funded and properly staffed with qualified people, starting from the very top. We will work together to establish reasonable time frames and reasonable procedures. We have no desire to cut off technical assistance funds simply because a public auditor’s office is not perfect, or does not meet the “gold standard” in terms of budget and staffing. We simply want to ensure that public auditor’s offices are not allowed to fall so far as to become irrelevant, unable to perform their role in any significant fashion. Sadly, that has occurred in at least some of our jurisdictions, and that is the problem that we must work together to address.

We are about to spend an entire day together, and hopefully I have given us something to talk about. To the extent that our agenda is too crowded to make significant progress on this topic today, let us resolve to carry on this conversation by email and other means as we work toward our objective.

The process that I have proposed today will be an important step in our effort to improve accountability for public funds in the islands. We should be proud of the progress that we have made to date, and continue to be committed to making progress in the future. We will definitely continue to make progress as long as we remember why we are here: To make life better for the people of the islands.

Thank you.

Getting in the Way of Prosperity: The Seven Deadly Sins

Keynote Address by David B. Cohen, Deputy Assistant Secretary of the Interior, Annual Conference of the Island Government Finance Officers’ Association, Honolulu, Hawaii, December 4, 2007.

Thank you for inviting me to speak. As always, it is an honor to be here with you. Ever since I took this job in June 2002, we have been consistent in expressing the top two priorities for the Office of Insular Affairs. Priority 1 is helping the insular areas promote private sector economic development. Priority 1-A is promoting accountability, particularly for the Federal financial assistance that we provide for the islands. Normally, when I speak before this group, I speak about Priority 1-A. There is an obvious relationship between Priority 1-A—promoting accountability—and your jobs as government finance officers. Today I would like to speak about Priority 1, because I believe that there is also an important relationship between your jobs and the urgent need to promote private sector economic development in the islands.

Why have we made private sector economic development Priority 1? The reason is that in most of the insular area economies, there is an unsustainable imbalance between the public and private sectors. In a healthy economy, a strong private sector creates jobs and generates income and wealth, which can be taxed at a reasonable rate to fund essential services for the public. The private sector dominates the economy. In many island economies, this model is turned on its head: The economy is dominated by the public sector. Since the public sector generally is a consumer and not a producer of wealth, this type of economy can only be sustained with outside subsidy. I have referred to these island economies as being “upside down in the middle of the ocean”. These economies will have to get right side up in order to get their heads above water.

Many island economies have evolved in this manner for several reasons. For one thing, island communities—and small island communities in particular—face unique barriers to private sector economic development. These communities tend to have small populations, few resources and remote locations. That means that they are heavily dependent upon transportation systems to bring people and goods to and from their islands, and that transportation is likely to be significantly more expensive than it is in more populated areas. This, in turn, tends to make everything else on the island more expensive. The cost of doing business is therefore high.
Many island communities are subject to destructive weather patterns, and in the salty ocean air, the climate often corrodes what it does not destroy.

There are cultural and historical forces in play here as well. Pacific cultures, for example, are sharing cultures. The philosophy is “what we have today, we share today”. Pacific cultures do not have the selfish gene that triggers the generation of wealth in a free market economy. Sharing is a virtue and selfishness a vice, but enlightened self-interest has proven to a useful tool to enable societies to achieve a comfortable standard of living.

Ironically, the Pacific virtue of sharing, when combined with outside financial assistance, has helped to create the bloated public sectors that we see today in many island communities. The island instinct is to share financial assistance from donors in much the same way that food is shared. Since donors generally do not allow island governments to allocate their aid to people in the form of cash, they tend to allocate the aid in the form of public sector jobs. More aid tends to result in more government jobs. Since the Department of the Interior’s Office of Insular Affairs provides more aid to the Pacific islands than any other U.S. agency by far, we have been, inadvertently, the greatest U.S. contributor to this phenomenon.

The result is not only an oversized public sector, but also a public sector mindset where government jobs are deemed to be provided for the benefit of the recipients rather than for the benefit of the public. The public sector budget is not oriented to provide public service, but rather to provide public jobs. This means that the public as a whole tends not to receive good value for public expenditures, and donors tend to get frustrated when we attempt to measure the performance of our assistance.

In many island communities, outside subsidies and other distortive policies tend to make government jobs significantly higher paying than private sector jobs. This tends to encourage the islands’ best and brightest to aspire to public sector employment and look down on private sector employment. In some islands communities, the overwhelming majority of the indigenous workforce is employed by the local government and the lower-paying private sector jobs are filled almost exclusively by foreigners. These communities become two-tiered societies where a largely unproductive local government workforce is kept afloat by outside subsidies and outside labor. This type of arrangement, besides being economically unsustainable, can create tension within the society and give rise to a sense of dependence and helplessness in the indigenous population.

These problems tend to exacerbate themselves in a vicious cycle. A society that cannot sustain itself without outside subsidy generally cannot afford to invest in education, health, infrastructure and other essential building blocks of a strong and prosperous society. This lack of essential investment tends to weaken the private sector, sending the most talented locals overseas in search of opportunity and making the community more and more dependent on imported labor willing to work for lower wages.

These problems do not exist only in the islands. Small island communities are particularly vulnerable to them, however. These problems can be overcome by intelligent policy, strong leadership and a commitment to good governance. Overcoming these problems requires the development and maintenance of a business climate that enables business to create jobs, to foster prosperity and to assume its natural role as the engine that drives the economy.
That is where all of you come in. All of you are responsible for executing policy, and as any sports fan knows, good execution typically is the difference between success and failure. However, most of you also have sufficient stature within your local governments to have an important influence on the formulation of policy, and not merely its execution. When your respective governments consider reforms designed to improve the business climate, you are likely to be involved in the discussion. You might even be the driving force behind the discussion. With so many things beyond your control, it is all the more important for you as government leaders in small island societies to act with wisdom and political courage to address the things that you can control. Small island societies can successfully transcend their limitations, but there is little room for error.

One of the problems that I have observed with the relationship between the public and private sector in insular area economies is an inability of the public sector to get out of the way. That does not mean that island governments should abandon their duty to regulate business in a reasonable manner. It simply means that in some cases, government actions and failures to act needlessly obstruct economic progress. I have come up with a list of Seven Deadly Sins that could cause island governments needlessly to get in the way of the economic advancement of their own societies.

I will introduce the First Deadly Sin by noting something that most of us love about the islands: the unhurried pace. I remember overhearing a Samoan man and a Mexican man talking to each other about their respective cultures. The Mexican man said, “Mexicans are a hard-working people. New immigrants come to the U.S. and take jobs that Americans won’t take. In successive generations, they work themselves up from the working class to the middle class and beyond. Still, with some of my people some of the time, there’s this culture of ‘mañana’—tomorrow. What needs to get done can wait until tomorrow.”

The Samoan guy said, “Yeah, I think I know what you mean. In the islands, we always say ‘fai fai lemu’.”

The Mexican guy asked: “What’s that?”

The Samoan guy responded: “Well, I think it’s like your ‘mañana’, except without the sense of urgency.”

I remember hearing Willie Kostka, a Pohnpeian who heads a conservation NGO in Micronesia, poke good-natured at his fellow islanders. He said, “Haoles come to the islands and they see young men standing around and they think that islanders are lazy. We’re not lazy. We’re just patient.”

Well, the First Deadly Sin on my list of seven what I will politely call the Sin of Patience. Patience is indeed a virtue, unless one becomes excessively and discourteously patient with other people’s time. In business, time is money, and when government officials fail to act responsively in a timely fashion, it can drive away potential investment. Businesses greatly value a bureaucracy’s ability to process permits and licenses expeditiously and to respond quickly to inquiries and requests.

The Second Deadly Sin is the Sin of Complication. Needlessly complicated, protracted, redundant and even contradictory permitting, licensing and other regulatory procedures discourage the formation and retention of businesses.

The Third Deadly Sin is the Sin of Competitiveness. This sin occurs when the government sees a private company succeeding in a new type of business and decides that jumping into that business would be a good way to support its bloated public payroll. This is likely to result in both the private company and the government ultimately failing at the business. The private company is likely to fail because the government will not compete fairly. The government will fail because governments are notoriously bad at running businesses. The best way for a government to generate revenue from a profitable business is for it to get out of its way and tax it—reasonably.

The Fourth Deadly Sin is the Sin of Opaqueness. Government procedures should be transparent in order to inspire the confidence and full participation of the private sector. If good companies cannot be satisfied that they will be competing on a level playing field, they will stay away and the community will miss out on the capital, technology, know-how and economic activity that good companies can bring to the islands.

The Fifth Deadly Sin is the Sin of Favoritism. Favoritism comes in many varieties, including nepotism, where one favors one’s family; cronyism, where one favors one’s friends; xenophobia, where one favors one’s countrymen, and self-dealing, where one favors oneself. By creating an uneven playing field, it scares away businesses that can bring good things to the islands.

The Sixth Deadly Sin is the Sin of Fickleness. Businesses value consistency more than anything else. There is nothing more frustrating than policies that constantly lurch back and forth, to and fro, with the political wind.

The Seventh Deadly Sin is the Sin of Arbitrariness. Decisions made by government officials should be based upon objective standards applied consistently. Government leaders who retain too much discretionary power are in a position to benefit themselves at the expense of their constituents. It is best not to leave government leaders with too much discretionary power, as it is a strong invitation to abuse.

These sins are committed by government officials all around the world, not merely in the islands. They are certainly committed all across the United States by Republicans and Democrats alike. As I noted earlier, however, small island communities have a very narrow margin of error, and hence it is all the more imperative to avoid these sins. Those who commit the sins of Lust, Gluttony, Greed, Sloth, Wrath, Envy and Pride should seek forgiveness from God. Government officials who commit the sins of Patience, Complication, Competitiveness, Opaqueness, Favoritism, Fickleness and Arbitrariness should seek forgiveness from their own people.We all know that island communities face many challenges. It is important to remember that these challenges can be overcome. They can only be overcome, however, if government leaders do everything in their power to discharge their duties with the highest degree of skill, judgment, integrity and vision. Given everything that is at stake for the people of the islands, to do anything less than that would be a sin.

Thank you.

Guam's Military Expansion Must be Good for Guam and Good for the Neighborhood

Remarks of David B. Cohen, Deputy Assistant Secretary of the Interior for Insular Affairs, Public Policy Institute Distinguished Speaker Series, College of the Marshall Islands, Majuro, Republic of the Marshall Islands, November 30, 2007.

Yokwe. It’s a pleasure to be back in the Marshall Islands. Before I launch into the topic that I was invited here to speak about, I would like to offer a few remarks about the forum itself: the new Public Policy Institute of the College of the Marshall Islands.

To me, the fact that the College of the Marshall Islands has established the Public Policy Institute is a sign of the tremendous progress that this institution has made in a very short period of time. Three short years ago, this college was on the verge of losing its accreditation from the Western Association of Schools and Colleges, which would have almost certainly required it to close its doors. Closing the doors to this college would in turn have closed the door on the future to countless young Marshall Islanders for generations to come, depriving this country of its almost exclusive source of locally trained teachers, nurses and other professionals.
In the Fall of 2004, we convened an emergency task force that included the college, the Government of the Marshall Islands, my office, the good offices of the U.S. Ambassador, the Pacific Post-Secondary Education Council, and others. I personally attended the first meeting of the task force here in Majuro in October 2004, and we helped the College put itself on the road to recovery. A crucial component of that plan was an ambitious capital improvement plan to shore up deficiencies in the Colleges aging campus. The Nitijela approved a plan to provide $3 million annually to support this plan with Compact funds and funds from other sources. I had the pleasure of touring this campus earlier today and must say that I am astounded by the progress that has been made thus far and by the progress that is on the way. I toured the site of the future lab school for elementary and junior high school students here in Uliga who were forced to abandon their decrepit and unsafe former school site. This exciting plan will leverage resources in a manner that will simultaneously improve elementary and post-secondary education in the Marshall Islands.

Another urgent priority for our emergency task force was to find effective leadership for the College. A few months after our initial meeting, the College’s Board of Regents was preparing to offer the job to Wilson Hess, who had very impressive credentials as a college president in Maine. I happened to be in Majuro during Mr. Hess’s first visit to the Marshall Islands. He attended a Chamber of Commerce luncheon at which I spoke. I directed a few remarks to Mr. Hess. I essentially said that Mr. Hess, as a statesider, might soon be asked to consider moving his family thousands of miles away to a remote atoll in the middle of the Pacific. That would be a very difficult decision to make. I pointed out to Mr. Hess that in that room with us on that day were a number of bright, talented former statesiders who had made that very same decision and decided to make these islands their home forever. If I recall correctly, former statesiders in the room on that day included Al Fowler, Jack Niedenthal, Jerry Kramer, Giff Johnson, and many others. And I said to Mr. Hess, that if you want to know what’s so special about these islands that would inspire someone from the states to give up everything on the mainland and make this place their home, ask these people. And he did. And I don’t know what they told him, but whatever it was must have been compelling because he’s been here doing a great job for the past two years.

Three years ago, this College was grasping for a miracle just so it could keep the lights on. Today, with the Public Policy Institute, it has shown that it is no longer focused on merely surviving, but is actively seeking to make a contribution to the intellectual life of the Pacific. I don’t know if my speech tonight will advance that objective, but I believe that it’s inspiring that the College has put itself in the position to host such a program. I am very exciting about all of the wonderful things that this College will be able to do, all of the contributions that it will be able to make to this community, when it finally frees itself of the last vestiges of its academic sanction. I am confident that it will do so in the near future, and thank everyone who played a role in making it happen.

I’ve been invited to the Marshall Islands to speak about something that is planned to occur almost 2,000 miles away from here: the military buildup in Guam. That isn’t so strange when you consider the cultural, political and transportation links between the two Micronesian island communities, which are likely to cause events in Guam to be felt here in the Marshalls. That is especially true given the magnitude of what is planned to happen in Guam.
The title of my remarks tonight is “Guam’s Military Expansion Must be Good for Guam and Good for the Neighborhood.” This is a quote from my boss, Secretary of the Interior Dirk Kempthorne.

The Department of Defense is planning to transfer approximately 8,000 Marines and 9,000 family members from Okinawa to Guam at a cost of more than $10 billion. This cost will be shared between the U.S. Government and the Government of Japan. The existing U.S. Navy and U.S. Air Force bases on Guam will also undergo improvements costing additional billions of dollars.

The Department of the Interior has a great interest in these developments. The Department has two responsibilities that connect us to the realignment of Pacific forces. First, the Department of the Interior is responsible for generally administering the Federal Government’s relationship with the United States territories, and for administering the financial assistance that the U.S. provides to the freely associated states, including the Republic of the Marshall Islands, under the Compacts of Free Association. Second, the Department of the Interior chairs the Interagency Group on Insular Areas, which is tasked with coordinating Federal policy with respect to the U.S. territories.

The Interagency Group on Insular Areas, or “IGIA”, was re-established by President Bush on May 8, 2003 when he signed Executive Order No. 13299. The President designated the Secretary of the Interior as the presiding officer of the IGIA, and the Secretary of the Interior has offered the services of the IGIA to the Department of Defense to help coordinate Federal agency participation in this important base realignment project. In this regard, the IGIA has established a Working Group on Guam Military Expansion to address issues related to the military buildup. In addition to Defense and Interior, the Working Group includes the Departments of State, Agriculture, Health and Human Services, Labor, Justice, Transportation, Housing and Urban Development, Education, Veterans Affairs, Navy, the Small Business Administration, Office of Management and Budget, and others. We view the Guam relocation as a project of the Federal Government, not merely the Department of Defense. We are also working closely with the Government of Guam and Guam’s Delegate to the U.S. House of Representatives, and will be working closely with the leaders of other island communities as well.

The Department of the Navy has established the Joint Guam Program Office, or “JGPO”, to coordinate the planning and implementation of the buildup. JGPO is led by Retired Marine Corps General David Bice, who reports to the Assistant Secretary of the Navy for Installations and Environment, B.J. Penn. I work very closely with General Bice on the interagency coordination effort within the Federal Government and on coordination between the Federal Government and the Government of Guam.

General Bice and I host quarterly meetings of the Interagency Task Force, which was formed specifically to identify and address the impacts of the buildup on Guam. The most recent Interagency Task Force Forum was held last week at the Pentagon, and was attended by a delegation from Guam led by Governor Felix Camacho. The Interagency Task Force includes five subgroups that focus on (1) labor and workforce issues, (2) civilian infrastructure needs, (3) health and human services requirements, (4) the environment, and (5) socio-economic issues. Each of these subgroups has been working hard with the Government of Guam to identify issues that we will need to address in order to the buildup to proceed smoothly, and to develop strategies to address those issues. As we have become immersed in these issues, one thing has become abundantly clear to all of the participants: we all have a great deal of work to do.
I would like to speak in a little more detail on labor and workforce issues, since these issues present a potential opportunity for the people of the Marshall Islands.

The relocation of Marines from Okinawa will require the construction of a new U.S. Marine Corps base and other facilities to accommodate 8,000 Marines and 9,000 family members. It is anticipated that such construction will require 12,000 to 15,000 skilled construction workers. Currently, the number of journeyman construction workers that are labor-eligible on Guam is limited. It is estimated that 75 percent of such workers will have to come from outside of Guam.

Where will these workers come from? The fifty states could in theory provide all of Guam’s labor needs. However, because of Guam’s great distance from Hawaii and the U.S. mainland, we have not counted on being able to rely upon labor from the fifty states. Hawaii is by far the closest state to Guam, and its construction industry has been kept very busy recently. If construction workers in Hawaii can find all the work they need in Hawaii, it would be difficult to entice them to Guam. This is especially true because the pay scale on Guam is generally lower than that in Hawaii and the other U.S. states. It will be interesting to see whether the sub-prime mortgage issues that the U.S. economy has been dealing with lately will significantly dampen the availability of credit for commercial construction projects in Hawaii and the Western U.S., including Las Vegas. If this happens, and we hope that it doesn’t, it could result in a significant downturn in construction activity in the fifty states. This, in turn, could motivate more skilled construction workers from the fifty states to consider opportunities in Guam.

Other potential sources of labor for the Guam buildup exist in nearby Asian and Pacific nations, particularly the Philippines. I’m excluding the Marshall Islands and the other freely associated states here, as I will discuss them in a moment. These Asian and Pacific nations collectively, and in many cases individually, have more than enough skilled construction workers to satisfy all of Guam’s needs. Workers from these nations, however, require H-2B visas in order to work on Guam. H-2B visas allow the importation of temporary workers to the U.S. for temporary jobs, and nationally only 66,000 of them are issued annually. The Guam requirement for construction workers alone is approximately 20 percent of this nationwide cap. Clearly, without a change in the law, our ability to get the needed construction labor from these Asian and Pacific nations—again, excluding the freely associated states—will be very limited.

Well, such a change in the law has indeed been proposed. H.R. 3079, legislation that would federalize the immigration system of the Commonwealth of the Northern Mariana Islands, was recently approved by the U.S. House of Representatives Committee on Natural Resources. The version of the bill reported out of committee would exempt Guam from the national cap on H-2B visas, allowing Guam to bring in all of the construction workers that could be demonstrated to be necessary for the military buildup or other projects. The passage of this legislation in its current form is not yet certain. For one thing, the companion bill in the Senate, S. 1634, does not currently include the H-2B visa cap exemption for Guam. Also, the current CNMI administration is funding a vigorous lobbying effort to defeat H.R. 3079, notwithstanding the fact that it would offer the CNMI and Guam unprecedented flexibility within the U.S. system to bring in the workers, tourists and other visitors necessary to build a strong economy. An earlier lobbying effort by the CNMI government in the late 1990’s and early 2000’s resulted in the House defeating a CNMI immigration federalization bill that had been unanimously passed by the Senate. It should be noted, however, that circumstances are drastically different this time around.

The last potential source of labor that I will discuss is the one of most interest to most of you in my audience today: Citizens of the U.S. territories and the freely associated states, including the Marshall Islands. Although there are many legal and cultural distinctions between citizens of the territories and those of the freely associated states, I will discuss them together for two reasons. First, citizens from both the territories and the freely associated states can travel to and work in Guam without obtaining a visa. Second, the number of skilled construction workers from both the territories—especially the nearby Pacific territories—and the freely associated states is rather limited, giving rise to the challenge to train these potential workers as quickly as possible in order to avail of their access advantage for living and working in Guam.

That access advantage may effectively be erased if H2-B visa caps are lifted for Guam. Opportunities for newly skilled laborers from the freely associated states and territories could also be diminished if a downturn in the U.S. construction industry were to attract a higher-than-expected number of experienced construction workers from the U.S. mainland to Guam. In any event, however, if a significant number of workers from the freely associated states could become qualified for skilled construction jobs in Guam, it would be good for the freely associated states and good for the U.S.

As you know, the Compacts of Free Association allow citizens of the freely associated states to travel to the U.S., including its territories, without a visa and stay indefinitely to work, study or simply live. Guam has always received a significant number of migrants from the freely associated states, although most have been from Chuuk, other parts of the Federated States of Micronesia, and Palau. If you look at a map of the U.S.-affiliated Micronesian islands, the Marshall Islands are situated in the northeast corner, poised like an arrow pointing up at Hawaii and beyond to the U.S. mainland. The Compact migration patterns of the Marshallese have traditionally followed that arrow.

Officials from Hawaii have long complained that Compact migration puts a strain on their local resources for social services, law enforcement and infrastructure. For our part, my office has consistently pointed out that Hawaii receives a great deal of benefit from the Compact, and that many Marshallese migrants are contributing to the dynamism of Hawaii’s economy. Also, millions of dollars are paid each year to Kwajalein landowners for the right to use the U.S. Army base in Kwajalein, and it is logical to assume that a significant share of that money ends up in Hawaii. Still, it is true that Hawaii receives a significant number of migrants from the Marshalls and other freely associated states that may not yet have the skills to be net contributors to the economy. For that reason, my office is committed to provide $600 million over 20 years in “Compact Impact” grants to Hawaii, Guam and other Pacific territories that receive migrants from the freely associated states.

It is important to note that “Compact Impact” grants should not stigmatize communities from the freely associated states as being burdens on the states and territories to which they migrate. Thousands of Marshallese, for example, have migrated to Arkansas and Missouri to work for Tysons and other companies. There has been no outcry from those states that the Federal Government should provide them with “Compact Impact” grants. To be fair to Hawaii and Guam, however, Marshallese travel the great distance to Arkansas or Missouri for one reason only: to work. These Marshallese workers are net economic contributors to the communities in which they live. Most citizens of the freely associated states who migrate to Guam or Hawaii also do so to work, but because of the proximity of these places to the freely associated states, they could also be expected to attract a higher proportion, as compared to the U.S. mainland, of citizens who are not yet ready to be net economic contributors. If we could help some of these migrants and potential migrants to acquire the skills necessary to participate in the Guam military buildup, we would simultaneously be furthering a number of objectives. We would reduce the pressure on Hawaii and Guam to address the needs of migrants who do not yet have the skills to be net economic contributors. We would provide citizens of the freely associated states with skills which could be converted into good jobs, which in turn could take pressure off of the social service budgets of their home countries and the places to which they migrate, and create more income for their home countries in the form of remittances. And, not incidentally, it would help us find the labor necessary to implement the Guam military buildup.

Keep in mind that the job opportunities on Guam will not be limited to those 15,000 or so skilled construction jobs. The needs of Guam’s current population have already overrun the capacity of its civilian infrastructure, which will have to be significantly improved and expanded in connection with the military buildup and the population increase that will come with it. That population increase is estimated to be 35,000 to 40,000 people or more, an increase of over 20 percent, mostly civilians. All of these new people will need places to live, places to shop, places to dine, products and services to buy, roads to travel on, utilities to serve them. All of these needs will give rise to business opportunities and job opportunities. These people will also need places to visit for a change of pace, and many nearby island communities will be waiting to fill that need. Majuro is only a four-hour direct flight from Guam.

In order for the Marshall Islands and other island communities to be able to take advantage of this potential increase in tourism, they will have to make the commitment to make their islands pleasant destinations for tourists. Natural beauty is not enough. Tourists today expect good service, good amenities, good logistics, good infrastructure and an overall pleasant experience. In order to achieve all of this, the private sector, not bureaucrats, will have to take the lead. However, the private sector must be supported from the highest levels of government, which must be absolutely commit itself to provide a business climate that will enable the private sector to effectively develop the tourist economy. I have said in the past that Pacific economies are “upside down in the middle of the ocean,” with bloated governments suffocating the private sector rather than strong private sectors leading economic growth. For Pacific economies seeking to capitalize upon opportunities in the region, this model simply won’t do.

A number of citizens of the Marshall Islands and other freely associated states already have the skills to participate in the economic activity that is expected to be generated on Guam or otherwise from Guam, including tourism opportunities. Many more, however, will need to be trained. Clyde Bishop, U.S. Ambassador to the Marshall Islands, has stressed the need for this type of training. We don’t have much time, however. The construction required for the location of Marines is scheduled to start in 2010 and finish in 2014. Since it typically takes an apprenticeship of three to five years to qualify as a journeyman in one of the construction crafts, the time available to train people from scratch is extremely limited. Keep in mind, however, that Guam’s economy will generate opportunities other than those for journeyman construction workers, and there should be plenty of opportunity left over after the people of Guam have been properly taken care of. And in any event, training for the citizens of the freely associated states will be beneficial to the freely associated states and to the U.S. regardless of whether that training is ultimately put to use in Guam, in Hawaii, on the U.S. mainland or back at home.
We’ve been contemplating these issues in Washington, in consultation with our colleagues from the islands. We’re looking at training programs that could be implemented in Guam, the Northern Mariana Islands, Hawaii and the freely associated states. We’re discussing eight-week boot camps that could provide some training for unskilled labor. We’re discussing apprenticeship programs. We’re looking at how the private sector can help. We’re discussing the existing capabilities of the community colleges in the region, and how we can help to expand those capabilities. We’re looking at possible Federal funding sources, although the Federal Government cannot do this alone. The U.S. Departments of Labor and Education are looking at their resources, and my office will almost certainly assist the training effort with technical assistance grants. We can also use funding provided under the Compacts of Free Association, provided that the governments of the Marshall Islands and the Federated States of Micronesia believe, as I hope they do believe, that this is a high enough priority.

We’re still in the process of figuring out who can bring what to the table, and it will take a great deal of communication between the Federal Government and the islands in order to get this right. The colleges are our natural partners in this endeavor, and we need your help to figure out how we can leverage our resources with your resources, expertise and commitment in order to get the most out of our efforts. Those of our partners who are willing to bring the most to the table are likely to get the most out of it, and the people of the islands will benefit.

In June, I had the pleasure of accompanying my boss, Secretary of the Interior Dirk Kempthorne, on a tour of the U.S.-affiliated Pacific islands. Assistant Secretary of the Navy B.J. Penn was with us as well. Our tour included stops in Kwajalein, Ebeye, and here in Majuro. Everywhere we went, people wanted to know about the Guam military buildup. And everywhere we went, Secretary Kempthorne stressed the need to ensure that Guam’s military buildup is “good for Guam and good for the neighborhood.” To remove any doubt, the “neighborhood”, as Secretary Kempthorne envisions it, includes the entire U.S.-affiliated Pacific, and certainly the Marshall Islands. If the project is planned and implemented properly, Secretary Kempthorne’s vision will indeed come to pass, and the military expansion on Guam will be good for this entire neighborhood.

In order for us to realize this positive scenario, we will have to do our homework. We will have to identify critical path items and potential bottlenecks, and find ways to ensure that we address our challenges in a timely fashion. We don’t have all of the answers yet, but we have begun in earnest the task of identifying issues and developing solutions. This effort will take a great deal of collaboration among the Federal Government, the Government of Guam, the people of Guam, the private sector and peoples of the islands, including the Marshall Islands and the other freely associated states. With its central role in providing support to the islands, the Department of the Interior is prepared to do its part to make sure that this massive endeavor is good for Guam, good for the neighborhood, and good for the United States of America.

Kommol tata.

Unlocking the Value of Real Estate in Micronesia

Keynote Speech of David B. Cohen, Deputy Assistant Secretary of the Interior for Insular Affairs, Fourth Micronesia Real Estate Investment Conference, Guam, September 28, 2007.

Hafa Adai, ladies and gentlemen. Thank you for inviting me to be here with you today. I believe that most of you are familiar with the U.S. Department of the Interior’s role in Micronesia and in other island communities. For those of you who don’t know, the Secretary of the Interior generally administers the U.S. Government’s relationship with its territories, specifically Guam, American Samoa, the U.S. Virgin Islands and the Commonwealth of the Northern Mariana Islands. He also administers the financial assistance we provide to the nations in free association with the U.S., namely the Marshall Islands, the Federated States of Micronesia and Palau, under the Compacts of Free Association. Those duties are delegated to me and my staff in the Office of Insular Affairs. OIA has an annual budget of $430 million, most of which is provided to the Pacific in the form of grants. Five of the seven jurisdictions that we are responsible for are in Micronesia.

Our top priority for the islands is private sector economic development, and the showcase event for our efforts in that regard this year will be our fourth Conference on Business Opportunities in the Islands, which will be held right here on Guam on October 8 and 9. I hope to see all of you at our Conference, which will be held at the Hyatt Regency. The Conference will offer an excellent opportunity to learn about business opportunities throughout the U.S. insular areas, including but not limited to those related to the Guam military buildup. It will also offer an excellent opportunity to meet the people you need to meet, in both government and the private sector, to pursue those opportunities.

The theme of my talk is “Unlocking the Value of Real Estate in Micronesia”. We’re all aware of exciting developments here on Guam. I’ll touch on those, but I also want to talk about the rest of the region. In most parts of Micronesia, unlocking the value of real estate will require reform of policies relating to real property. As we will discuss, some of these policies are deeply rooted in culture, and we must all respect the fact that it will be for the indigenous people of Micronesia to decide how best to harmonize their economic aspirations with their respect and reverence for their own culture. We can point out the economic costs and benefits of those policy choices, but we must respect that those policy choices are for the people of the Micronesian region to make.
Let’s start our tour of Micronesia here in Guam. We all know about the planned relocation of 8,000 U.S. Marines and 9,000 of their dependents from Okinawa to Guam. The cost of the relocation will exceed $10 billion, and will include the construction of a new military base. The existing military facilities on Guam, including Naval Base Guam and Andersen Air Force Base, will require complementary upgrades that will cost in the billions of dollars. One of the upshots of all of this is that the total population of Guam is likely to increase by over 35,000, or more than 20 percent. Some will come because they were ordered to come, but many will come voluntarily because of the economic opportunities that will be generated by the buildup. Most of these new people will be civilians. These people will need places to live, places to shop, places to dine. They will need utility service, and places to dispose of all of the solid waste that they will generate. All of this will have important implications for the real estate market on Guam. Demand for real property will increase significantly, and the last time I checked, the supply of real property on Guam has not increased. We can therefore expect significant upward pressure on real property values, some of which is likely already reflected in the market in anticipation of events to come.The other major driver of Guam’s economy is tourism, and much of the recent real estate activity on Guam has been driven by tourism. Japan’s Ken Corp., in particular, has been very active, with its recent $73 million purchase of the Hilton Guam Resort and Spa adding to an impressive stable that now includes the Hyatt Regency Guam, the Pacific Islands Club, the Sheraton Laguna Resort, the Santa Fe and the Country Club of the Pacific. All of these acquisitions have occurred since May 2005. Ken Corp. and/or its affiliates reportedly now own over 40 percent of the major oceanfront hotel rooms in Guam. This is a clearly a vote of confidence in Guam’s future, a display of optimism that may becontagious. With so much of Guam’s tourism infrastructure under its control, Ken Corp. now has the ability to significantly redefine Guam’s image in the eyes of the international traveling public. It has the incentive, and has shown the inclination, to move Guam’s tourism industry up-market. It has the ability to market Guam’s new image in Asia, and this should benefit not only Ken Corp. but its competitors in Guam as well. The pressure on room rates in Guam is now upward, not downward. Ken Corp. has a network of well-heeled potential travelers from its properties in Japan, which are largely high-end residences for ex pats. If Ken Corp. has the ability to convince a significant number of these ex pats to vacation in Guam, it will be good for Ken Corp. and good for Guam.

The Northern Mariana Islands, as we all know, is currently suffering through difficult economic times. The tourism market is still recovering from the cessation of scheduled service from Japan Airlines in 2005. That decision was implemented just four months after the visit of the Emperor and Empress of Japan to Saipan brought the natural beauty of that island to millions of Japanese television sets, providing what would have been, under other circumstances, a tremendous marketing boost to Saipan in its efforts to attract Japanese tourists. Instead, the JAL pullout resulted in a sharp drop in tourism and left the Hotel Nikko, owned by a JAL affiliate, in a state of limbo. The hotel, which is in need of renovation, is reportedly offering deep discounts to Japanese tour operators. This in turn is putting downward pressure on room rates in Saipan.
We see, however, some parties making significant real estate bets on the CNMI’s future. At least one of these parties has the ability to influence whether its bet will pay off, and that’s good news for the CNMI. KUMHO Asiana is seeking a 40-year lease so that it can operate the Lao Lao Bay Golf Resort on Saipan, and reportedly plans to develop a resort next to the golf course. This investment cannot succeed without a steady flow of tourists to the CNMI. Fortunately for KUMHO Asiana, it owns an airline. Its airline, Asiana Airlines, has recently stepped up service between Korea and Saipan. The Saipan World Resort is also now in Korean hands, and recently underwent a major renovation that included the addition of a large water park. The Korean bet on Saipan, backed up with the ability to bring more tourists there, is an important source of hope for the CNMI’s future.

There is a great deal of hope in Palau. Tomorrow, I travel to Palau to dedicate the Compact Road, which was funded by my office for approximately $150 million. The road will open up Babeldaob, which is Palau’s largest island the second largest island in Micronesia after Guam, to significant economic development for the first time. Palau recently moved its capital to Babeldaob. The new capital complex in Melekeok sits high atop a hill overlooking the ocean. Even with the new Compact Road, it is a significant commute from the population center in Koror. It is clear that they are going to have to develop a new community near the new capital complex. Everything I just said about the expected new residents of Guam applies equally to the people who will need to live near the new capital of Palau. They’re going to need places to live. They’re going to need places to shop. They’re going to need places to dine. They’re going to need utilities. The Compact Road will also open up tourism development opportunities that never existed before.

In fact, the entire region has something to look forward to as Guam prepares to welcome tens of thousands of new residents. As beautiful as Guam is, these new residents are likely going to want to get off the island every now and then. As Guam becomes more fast-paced and urban, places like Yap, Chuuk, Pohnpei, Kosrae and the Marshall Islands could provide Guam’s new residents with an opportunity to relax in an environment of pristine natural beauty. Since Guam serves as the air transportation hub for the region, all of these places, in addition to Palau and the CNMI, are readily accessible from Guam. There is now a greater potential for resort development in these areas.

That’s pretty much the backdrop. But before you go rushing out to make real estate investments throughout Micronesia, you might want to listen to the rest of my speech. I don’t intend to discourage anyone from investing in Micronesia; quite the contrary. But it is important for investors to have a strong idea of the issues that must be addressed in order to invest successfully in the region.

The first thing you need to know about investing in land in Micronesia is that there isn’t much of it. The name “Micronesia”, as many of you know, is derived from the Greek words for “small islands”. If you add up all of the land area of Guam, the CNMI, Palau, the Marshall Islands and all four states of the Federated States of Micronesia, you end up with a grand total of 910 square miles. That’s significantly smaller than Rhode Island, the smallest State in the Union, which weighs in at a relatively hefty 1214 square miles. We’re standing on the largest piece of real estate in all of Micronesia, the island of Guam.

The second thing you need to know about investing in real estate in Micronesia is that there is a strong cultural underpinning to all matters affecting land. Land is sacred throughout Micronesia, as it is throughout the Pacific islands. In Micronesia, one’s identity is deeply tied to one’s land. With its ability to produce food and medicine, land is seen as a source of life. This is why the idea of losing one’s land carries a deep sense of emotional loss that is akin to the loss of life. Micronesian culture, like other island cultures, emphasizes sharing. Land is therefore generally held communally, passed down from generation to generation by blood ties and administered by traditional leaders in accordance with the culture.

Generally, in Micronesian cultures, the concept of alienating one’s land to aliens is, well, alien. In most places outside of Guam, it is not possible for non-indigenous people to own real property. In the Northern Mariana Islands, for example, Article 12 of the CNMI Constitution restricts the acquisition of permanent and long-term interests in real property in the Commonwealth to persons of Northern Marianas descent. In 2011, persons of Northern Marianas descent—that is, the indigenous Chamorros and Carolinians of the CNMI—will have the opportunity to vote on whether this policy should be retained, abolished or perhaps modified. In the meantime, non-locals can acquire leasehold interests in real property for terms of up to 55 years.

Throughout Micronesia, with the exception of Guam, real estate investment by off-islanders is generally done through long-term leasehold arrangements. The basic limit on lease terms varies from jurisdiction to jurisdiction. In general, however, to state the obvious, restrictions on alienation affect the risk profiles and economics of real estate transactions throughout Micronesia. Restrictions on alienation tend to discourage investment by limiting the time horizon in which the investor can get a proper return on an investment, by limiting options for financing and by limiting exit strategy options. Restrictions on alienation also reduce the ability of indigenous landowners to realize the full economic value of their real property, by limiting the market in which a landowner can sell real property interests and reducing demand of outsiders for real estate investment. This is not to say that alienation restrictions are bad policy, particularly in light of the cultural reasons for having them. This is merely to point out that alienation restrictions have an economic cost and tend to dampen—not eliminate, but dampen—real estate investment activity. Real estate investors understand that no environment is perfect, and are adept at figuring out how to make an investment worthwhile notwithstanding particular challenges that may exist in any particular jurisdiction.

In addition to the maximum term of the lease, there are a number of other things that an outside investor would want to know before making a real estate investment in most parts of Micronesia: What happens to the improvements after the lease expires? Are there reliable ways of ensuring that the lessor has clear title to the property? Are there strong regulatory and judicial institutions that can be relied upon enforce rights to the property, if necessary? Can financing be obtained on the security of a leasehold interest in real property? Are there procedures in place that would give lenders the comfort they need to provide financing, including the ability to foreclose upon and alienate real property interests in an event of default? Are there reliable institutions to enforce the rights of lenders? Are there foreign investment laws or other laws that impact what types of investment that outsiders can make, and how they should to structure those investments? Can outsiders do business directly, or do they need local partners? How do real estate restrictions affect the range of exit strategies?

The answers to these important questions vary from jurisdiction to jurisdiction. Indeed, in addition to differences among the CNMI, Palau, the Marshall Islands and FSM on matters of real property law, each of the four states of the FSM—Pohnpei, Chuuk, Yap and Kosrae—establishes its own real property laws and there is significant variance from state to state. I won’t attempt to answer all of these questions for each jurisdiction now, but you can obtain helpful information from our website (www.doi.gov/oia), from the Asian Development Bank and from the jurisdictions themselves. The most important form of due diligence, however, is to consult with banks, attorneys and other professionals who are actually operating in these jurisdictions. They are the ones that can give you the best idea of how the legal and institutional framework really works in practice, and whether there are tried and tested workarounds that can be used to address particular challenges.

Throughout Micronesia, policymakers are taking a fresh look at real property laws. A parade of consultants, including some funded by my office, has advised them on the economic costs of their current policies, and suggested ways in which Micronesian societies might better unlock the economic value of their precious land in ways that are consistent with their culture. Thus, throughout Micronesia, legislators have recently considered and in many cases adopted proposals to increase maximum lease terms, to establish or strengthen land registration systems, to expand the ability of outsiders to invest in land and to strengthen the institutional framework in ways that would encourage financing and investment. For many of these policymakers, land issues trigger deep-seated concerns that are difficult for outsiders to fully understand.

One of the concerns that we hear expressed over and over again is that “We don’t want to become another Waikiki.” The first reaction of some outsiders might be to laugh and respond that “There’s no danger that you will ever become another Waikiki.” But if one takes the time to understand what a Pacific Islander means when he says this, one can appreciate and respect the concern. When people throughout the Pacific say that they don’t want their island to become another Waikiki, they’re not necessarily suggesting that their island is about to be overrun by several million tourists from around the world each year. Pacific Islanders look at the Waikiki experience through the perspective of the Native Hawaiians, and see it as a symbol—rightly or wrongly—of the loss of one’s land, the loss of one’s culture, the loss of one’s language, the loss of one’s identity; of making outsiders rich at the expense of the indigenous people. Reasonable people can debate whether this is best way to interpret the history of Waikiki’s development, but it is certainly an impression that is widely held and deeply felt throughout the Pacific. Outside investors should be respectful of these concerns and the culture that underlies them, and should be prepared to address these concerns.

Policies affecting real estate investment in Micronesia are in a period of flux. Some places in Micronesia have policies and environments that are less than ideal for real estate investors, but that would not necessarily preclude a successful venture if one goes in with a full knowledge of the circumstances and a clear sense of how to work around imperfections in the system. Could policy reform relating to land issues bring more prosperity to Micronesia, and more opportunity for outside investors? Undoubtedly, but it is up to each society and each culture to strike the balance that it chooses to strike between culture and prosperity, or to find the best way to harmonize the two.

Micronesians understand that change is necessary. No culture is cast in stone. Christianity, for example, was alien to the Pacific until the 19th Century; today, it is a fundamental part of most Pacific cultures. We should always remember, however, that a culture exists to serve the needs of the people, not the other way around. A culture that does not adapt to the changing needs of the people becomes irrelevant over time, leaving the people with the choice of abandoning their culture or following it into irrelevance. People therefore do tend to adapt and evolve their cultures over time, but at a pace and in a manner of their own choosing. How much of the value of real estate in Micronesia will be unlocked in the foreseeable future will be determined by Micronesians themselves, and that is as it should be. Even today, there are plenty of excellent real estate opportunities in Micronesia beyond Guam. Even though the value of real estate in Micronesia is not, to again follow the theme of my remarks, completely unlocked, astute investors can still find ways to open the door in ways that will benefit themselves and benefit Micronesia.

Si Yu’us Ma’ase.

Accountability, Sovereignty and "Typhoon JEMCO"

Keynote Speech, U.S. Deputy Assistant Secretary of the Interior David B. Cohen, Annual Congress of the South Pacific Association of Supreme Audit Institutions in Saipan, Commonwealth of the Northern Mariana Islands, May 22, 2006.

Good afternoon. It's an honor to be here. I've given my remarks the working title of "Accountability, Sovereignty and Typhoon JEMCO," and I hope it will all make sense by the time I finish.

It's very generous of you to have invited me to speak here, given that my office is often the subject of the types of audits that your offices perform. You could say that I'm one of your victims. Perhaps you'd like to rethink your decision to offer me the microphone.

Actually, you have nothing to worry about. I know that the auditor always gets the last word. If I were foolish enough to get up here and badmouth auditors, I'm sure that GAO would shortly thereafter issue a report entitled "Incompetent Leadership of Office of Insular Affairs Threatens to Sink Islands."

In all seriousness, my good-natured teasing aside, I have no desire to badmouth auditors. I fully support what you do, and believe that your mission is absolutely crucial to the development of the islands. I pay you this compliment out of admiration, not fear...although the fear certainly helps.

Before I go on, perhaps I should introduce my office, the U.S. Department of the Interior's Office of Insular Affairs, to those of you who are not familiar with it. The Office of Insular Affairs provides more aid to the Pacific islands than any other agency of the U.S. Government-by a very large margin. On behalf of the Secretary of the Interior, the Office of Insular Affairs generally administers the U.S. Government's relationship with its territories with the exception of Puerto Rico. The Office of Insular Affairs also administers the financial assistance that the U.S. provides to the nations in "free association" with the U.S.-the Republic of the Marshall Islands, the Federated States of Micronesia and the Republic of Palau-under the Compacts of Free Association.

The Office of Insular Affairs has an annual budget of over 425 million U.S. dollars, the large majority of which is provided to the Pacific. We provide financial assistance to eight jurisdictions, including the State of Hawaii. Seven of these eight jurisdictions are in the Pacific. The Office of Insular Affairs is the dominant player in the U.S. financial assistance program for the Pacific islands.

The Office of Insular Affairs' top two areas of focus for the islands are promoting private sector economic development and promoting accountability. As auditors, you have an important role to play not only in promoting accountability, but also in helping to create the conditions necessary for private sector economic development.

We at the Office of Insular Affairs have a unique role that frequently requires us to explain the islands to Washington and to explain Washington to the islands. Sometimes we feel like we're talking out of both sides of our mouths.

In Washington, for example, we try to make sure that people appreciate the serious challenges that the islands face in order to improve their fiscal management. The insular areas have small, isolated populations and have very limited means to train accountants, financial managers and substantive program experts. Locals generally have to leave the island to get these skills, and once they do, they're more likely to find opportunities worthy of their qualifications off-island. When you're in the middle of the ocean, you can't just bring people in from the next county or the next state the way that small stateside communities can. In order to induce qualified professionals to relocate from thousands of miles away, insular area governments generally have to offer compensation packages that are way out of proportion to what the local economy can typically support. Even then, turnover for off-island recruits is very high. For isolated island nations and territories, providing for good fiscal management can itself be a fiscal challenge for a cash-strapped government. The only solution in the long term is for island governments to develop more home-grown talent, but we need to get through the short term in order to make it to the long term.

In Washington, I'm sure that many people feel that my office is filled with bleeding-heart apologists for the islands that are willing to excuse almost anything. In the islands, on the other hand, I'm sure that many people feel that my office is filled with rigid, insensitive, bullying bureaucrats who get pleasure from inflicting pain and suffering on the islands. Because in the islands, we don't encourage excuses. Even if we might have personal sympathy for the challenges that the islands face, we cannot allow that to stand in the way of our obligation to protect U.S. taxpayer funds. By doing our job, we can help ensure that the people of the islands receive the benefits that they are supposed to receive.

One of our greatest accountability challenges is our effort to implement Compact II. For those of you who don't know, "Compact II" refers to the 20-year financial assistance packages that the U.S. provides to the Republic of the Marshall Islands and the Federated States of Micronesia, respectively, under 2003 amendments to the Compacts of Free Association. Even though this is a particular case, I believe that the issues it raises are relevant to all of us.

The RMI and the FSM, of course, were once part of the United Nations Trust Territory of the Pacific Islands, which the U.S. administered in the decades following World War II. It eventually became apparent that the residents of the Trust Territory were ready to take charge of their own destiny but still faced serious challenges of economic development. The founding leaders of the RMI, FSM and Palau negotiated an arrangement with the U.S. whereby they would become sovereign nations in "free association" with the U.S. Under this unique status, the U.S. would receive, among other things, the right to deny other foreign powers military access to the land and waters of these nations. The people of the freely associated states, as these nations came to be known, would receive, among other things, the right to migrate indefinitely to the U.S. without a visa, the right to benefit from several U.S. domestic programs, and long-term financial assistance packages. All of these provisions were spelled out in bilateral agreements known as Compacts of Free Association.

The RMI and the FSM entered the Compact era in 1986, and Palau followed in 1994. The original financial assistance package under the RMI and FSM Compacts was to have lasted 15 years, but was eventually extended for two additional years while a new financial assistance package was being negotiated. During the 17 years of "Compact I," as we now call it, the U.S. provided over $1.5 billion to the FSM and over $1 billion to the RMI.

The negotiation of Compact II for the RMI and the FSM provided a good opportunity to evaluate Compact I. The first Compact period was remarkably successful in allowing the people of the RMI and the FSM to develop strong, stable democratic systems. Since the Compact was an arrangement that had never been tried before, however, it is not surprising that the experience of the first 17 years would suggest areas where improvements could be made. The Government Accountability Office made a number of suggestions to improve accountability for Compact funds, and hence improve health, education and economic opportunity for the people of the freely associated states.

Under Compact I, the legislatures of the RMI and FSM were given wide latitude to spend Compact funds as they saw fit. Compact II, which will provide roughly $3.5 billion to the RMI and FSM over 20 years, incorporates a number of reforms that were designed to ensure that Compact funds would be spent more effectively. These reforms include:

• Targeted funding, in which grants are provided to six high-priority sectors only;
• Medium- and long-term planning to guide Compact funding;
• Comprehensive reporting requirements and performance measurement;
• Remedies for non-compliance; and
• Increased oversight.

Another major reform is the creation of bilateral joint committees with the authority to, among other things, approve the allocation of Compact grants, review and approve plans and impose appropriate conditions on Compact funding. For the U.S.-RMI Compact, this body is known as the Joint Economic Management and Financial Accountability Committee, or "JEMFAC." For the U.S.-FSM Compact, this board is known as the Joint Economic Management Committee, or "JEMCO." Three of the five members of JEMFAC and JEMCO, respectively, are appointed by the U.S. I am the Chairman of both JEMFAC and JEMCO. I don't recall how I got these assignments…or what horrible sin I committed to deserve them. They must have stuck me with these jobs at some meeting that I missed.

I am, of course, kidding. I am honored to be Chairman of JEMFAC and JEMCO. I am well aware that the decisions of JEMFAC and JEMCO will have a major impact on the quality of life in the region for generations to come. I take these responsibilities very seriously, and am committed to doing the best job that I can do. I know that all members of both committees, be they from the RMI, the FSM or the U.S., feel the same way. Let me make it clear, however, that I am not speaking today on behalf of either committee or in my capacity as a member of either committee.

JEMCO is responsible for approving over $79 million in grants for the FSM each year. This dwarfs the FSM's local tax revenue, which GAO estimated to be only $29 million in 2005. JEMFAC is responsible for approving over $35 million in grants for the RMI each year, as compared to an estimated $22 million in local tax revenue. This illustrates how much power the joint committees have in the FSM and the RMI, respectively.

I point this out not to brag, but to highlight a dilemma: The unelected joint committees have ultimate authority over a much larger share of public revenue in both the RMI and the FSM than do the elected legislatures. Is this an ideal situation? Of course not. Is there a reasonable alternative? In the short run, I believe that the answer is no, for reasons that I will explain. In the long run, if we manage Compact grants effectively, we can hopefully maximize the ability of the RMI and the FSM to generate local revenues and hence reduce the importance of the joint committees. I realize that there is a great distance to travel, but the members of the joint committees must do everything in our power to reduce our own power as rapidly as possible.
The joint committees have a great deal of responsibility, and hence have an obligation to act with a great deal of responsibility. I believe that we do. Every year, the joint committees review massive budget documents that are submitted by the RMI and the FSM, respectively. When we review these budgets, we do not ask whether these are the budgets that we would have come up with had we been starting from scratch. We simply ask whether these budgets are consistent with the letter and spirit of the Compact, and whether they are reasonably likely to further the objectives of the Compact so that we can achieve the progress that needs to occur by the end of the 20-year grant period. The answer to these questions is "yes," we defer to the RMI and FSM governments and approve the budgets. This is what we do the overwhelming majority of the time. Occasionally we make tweaks, especially when we identify major problems that are not adequately addressed in the budget. We only do this to the extent we believe necessary to ensure that our Compact expenditures will improve health, education and economic opportunity in the manner that we all intend.

So far, Compact implementation has proceeded relatively smoothly in the RMI, although we still need to do more to ensure that the RMI is on the path to achieving sufficient economic advancement and budgetary self-reliance.

I believe that we are making excellent progress in the FSM as well, although the FSM poses some inherent challenges that the RMI does not pose. The FSM is a loose confederation of four powerful state governments that represent islands with different languages and cultures. The dynamics among the states and between the states and the national government give rise to logistical complexities that can complicate our efforts to implement the Compact. The geographical dispersion of the FSM's many islands exacerbates these complications.
The unique challenges of the FSM are nobody's fault. They simply are. And we have to deal with them. Let me say that dedicated public servants from the FSM National Government and all four state governments are working extremely hard under very difficult circumstances to make the Compact work, and we appreciate their efforts very much.

I believe that the complexities that I mentioned are at the root of some of the frustrations that some in the FSM have expressed with JEMCO's efforts to implement the Compact. I believe that there is strong support for what we are trying to do with JEMCO, and that support will grow stronger as we continue to explain our activities and objectives. However, some who have criticized JEMCO have done so rather vociferously. Let me explain the joking reference to "Typhoon JEMCO" in the title of these remarks. I recently sat down with one of the most respected founding fathers of the FSM. I had an excellent discussion with this person, whom I will not name, about how we were working collaboratively with our FSM colleagues to try to improve the quality of life in the FSM. And we also discussed how some in the FSM had been so critical of JEMCO. He told me the story of Typhoon Jean, which hit the islands really bad back in the 1960s. The typhoon was so destructive that it affected the quality of life of the people long after it was over. For years and years after Typhoon Jean struck, people blamed it for everything. If someone got sick, he would blame it on Jean. If there was a bad crop, they would blame it on Jean. If someone lost his job, he would blame it on Jean. Whatever misfortune they encountered, they would blame it on Jean. And this very wise gentleman told me that for some people, JEMCO had become like Jean-not because of JEMCO's destructive power, but because of the determination of a few people to blame it for everything. And I say, thank goodness that JEMCO has come along so we can finally give that poor old lady Jean a rest. Typhoon Jean has now been replaced by "Typhoon JEMCO."

I am not making light of criticisms that some have leveled against JEMCO, especially by legislators who see JEMCO as eclipsing their power. They raise legitimate points that deserve to be answered. They claim that because Compact funds so dominate the FSM's public revenues, JEMCO must defer to the wishes of the legislatures or else the sovereignty of the FSM will be undermined. And they claim that JEMCO has not been sufficiently deferential to the will of the legislature.

With the greatest of respect, I would offer this response: For last year's annual meeting, JEMCO reviewed a budget submission that included over 20,000 line items. Out of those 20,000 line items, do you know how many the U.S. and the FSM members were unable to reach unanimous agreement on at that meeting? One. One out of over 20,000. I realize that it is human nature to fixate on the one time we say no and ignore the over 20,000 times we say yes, but we need to maintain our sense of perspective.

And let me take a minute to explain the one time we said no. The U.S. members of JEMCO pushed to set aside $2.5 million for textbooks, because, after consulting with FSM education officials, we came to the conclusion that this was necessary to address a crisis where FSM schoolchildren did not have proper educational materials. For example, one state only had enough textbooks to equip 17 percent of its students at the very most. Many of the history books used in this state could not provide any information to the students about their own nation, because the books were published in 1970-before the FSM became a nation. Over 40 schools in this state, covering almost 5,000 students, had NO textbooks. None. Zero. The other states also had severe textbook shortages.

The FSM representatives said that they had better ways to spend this money than to set aside $2.5 million for textbooks. We had a very thorough and respectful discussion. We kept asking the simple question: How can students learn with no textbooks, and if we don't address this emergency now, is there not a risk that the children of the FSM will fall so far behind that they will never catch up? We listened carefully to the answers, but did not hear, in our judgment, a convincing explanation of how the proposed budget would address this crisis. Perhaps our judgment was wrong, but each of us was bound to follow our own best judgment. We recognize that we can never match the caring that the FSM's leaders have for their own people or the knowledge that they have of their own country's needs. We therefore give them a strong benefit of the doubt. But the benefit of the doubt does not mean that we should approve proposals that still do not make sense to us after we have received a thorough explanation. In this case, we simply failed to get on the same page in spite the best good faith efforts of all parties to do so. That happens sometimes.

I agree that the U.S. members of JEMCO should not be micromanagers. But nor should we be potted plants. We have an obligation to exercise our independent judgment to help ensure that the Compact will be successful. Compact II would never have passed the U.S. Congress had it not included all of the accountability reforms. It is now our duty to implement those reforms. Do we have an obligation to give careful and respectful consideration to the views expressed by the FSM's elected leaders? Absolutely, and we do. Should our failures to achieve consensus be the exception rather than the rule? Yes, and they are. But at the end of the day, each member of JEMCO-whether from the U.S. or the FSM-has a duty to vote according to his conscience. The U.S. members have an obligation to the American taxpayer to ensure that Compact money is spent wisely to benefit the people of these islands.

Some, especially in this roomful of auditors, may criticize us from the other direction: Are we not disapproving enough? Are we giving too much deference to the FSM government? My response is that our excellent record of achieving consensus is a result of the hard work that people from both countries put in all year round. We try to identify issues early and work them out before they reach JEMCO. We communicate extensively with one another at every stage of the process. We have a similar excellent working relationship with the RMI. This is a testament to the excellent partnership that we have with both countries.

To those legislators that complain that the joint committees have too much power, I say, "I hear you." But if you view JEMCO or JEMFAC as a threat to your sovereignty, you're focusing on the symptom and not the disease. The real problem is excessive reliance on outside grants. As long as our grants our involved, we will have an obligation to exercise proper oversight. Some have tried to argue that because Compact funds are the dominant source of revenue for the FSM, they can no longer be thought of as mere grants and should not be managed as grants. I would respectfully respond that the Compact quite clearly provides to the contrary. The fact that Compact funds are important to the FSM does not negate the fact that their effective use is also very important to the U.S. That is why the Compact requires an active oversight role for both the U.S. and the FSM.

The good news is that Compact funds, if invested wisely, should help reduce reliance on outside grants over time. That's why it's so important to use grants not for today's consumption, but for tomorrow's foundation. This is true not only of Compact grants, but of grants that are provided to every recipient represented in this room. If we invest now to ensure that the people of the islands are healthy and educated, that they have proper infrastructure, and that the business climate attracts opportunity rather than chases it away, then these islands will eventually be able to take genuine control of their own destiny. We must view grants not as a source of dependence, but as a means to independence. The overwhelming majority of our colleagues from the RMI and FSM with whom we work on a day-to-day basis understand this. They are committed not to fighting the Compact, but to making the Compact work for them to build a better future. And we are their willing partners in that endeavor.

They say that this generation plants the tree so that the next generation can enjoy the shade. With every penny that we spend, we must ask ourselves: How will this make life better for the next generation?

A while back, I came up with a phrase that I think describes many Pacific island economies: "Upside down in the middle of the ocean." A healthy economy is driven by a strong and diverse private sector, which the public sector can tax at reasonable levels to provide essential services for the people. Many Pacific economies are dominated by the public sector, with a small private sector that is largely dependent on government contracts and favors. This type of economy is upside down, and cannot survive without outside subsidy. And I would suggest that the middle of the ocean, where most Pacific islands are, is the worst place to be upside down. It is important to use aid not to subsidize and perpetuate the upside down economies of the Pacific, but to help them get their heads above water.

I don't have to tell you what a crucial role that auditors play in all of this. Make sure we're spending the money wisely. Make sure that we're spending it accordingly to a plan that will build a better future for the people of the islands. And if we're not doing that, then do what you do best: Humiliate us. Write stink about us in your reports. Make us look stupid. You're very good at humiliating us. That's why we love you-because you remind us of our parents.
And just a thought: While we appreciate being told everything we did wrong a year after the fact, wouldn't it be better if you could actually catch us before we mess up? Some people compare auditors to people who arrive on the battlefield after the battle is over to bayonet the wounded. I don't say that, mind you; I'm just reporting what I've heard from certain ignorant people with bad attitudes. But here's what I will say: The only thing better than good information is good information that arrives in time for you to use it. And to give credit where credit is due, both GAO and the Department of the Interior's Office of the Inspector General have done an excellent job lately in getting us extremely useful constructive suggestions early and often. We greatly appreciate it, it helps us do our job better, and it is resulting in money being used more effectively to serve the needs of real people. So thank you, GAO and OIG, for your willingness to bayonet us before we enter the battlefield.

I appreciate your having taken the time to listen, and thank you for being patient with my good-natured teasing. I sincerely appreciate the honor of being asked to speak before you, and I sincerely appreciate the work that you do. Thank you, and enjoy the rest of the conference.

Education in the Pacific: "Finish Your Tatoo"

Keynote Speech by David B. Cohen, U.S. Deputy Assistant Secretary of the Interior, Pacific Education Conference, Majuro, Republic of the Marshall Islands, July 12, 2005.

Iakwe, Alii, Aloha, Hafa Adai, Kaselehlia, Len wo, Mogethin, Ran annim, Talofa and Tirow.

It's quite an honor to be here. You know, I don't think I've ever spoken in front of so many teachers. And I have to say it's making me a little nervous. It's giving me a flashback to my childhood. I feel like I have to give an oral report and you're all grading me. But instead of giving my oral report in front of one teacher, which is bad enough, I have to give my report to over a thousand teachers. That's a thousand times as scary. I'm so nervous right now that all I want to do is skip this class, sneak off to the Boy's Room and smoke a cigarette. Not that I ever did that when I was really in school....

I have to tell you that I really admire the job that you do, out there on the front lines. There are so many challenges that we face. We have a long way to go to catch up to the rest of the world in terms of educational achievement, and we don't have the resources that we need.
I think that the greatest challenge that we face is making sure that people throughout the islands understand the value of education. Everybody says they value education, WE say we value education, but I'm afraid that too many of our people don't really understand the importance of education, not enough to truly value it. The people in this gathering, we understand what's at stake.

Let's talk about what's at stake. I had the honor of being the commencement speaker at Northern Marianas College recently. What I told the graduates there is a fitting message for students throughout the Pacific. I told them that they live on a small island, but they also live in a great big world. Like it or not, we live in an interconnected global economy, where those who are educated will get farther and farther ahead, and those who are not will get further and further behind. The Pacific, as a whole, is already far behind, and sadly, it is not catching up.
They say now that the world is flat, and with the internet, improved telecommunications and reduced trade barriers, everyone is basically competing with everyone else, no matter where they live. John Donne said that No Man is an Island. But in today's interconnected world, it's even fair to say that No Island is an Island. There's no place to hide from the competitive pressures of the world economy, not even on a remote island like Majuro, Rongalap, Kosrae, Pohnpei, Weno, Yap, Babeldaub, Rota, Guam or Tutuila.

Those of us who understand what's at stake have a moral duty to educate our people about the true importance of education. And if there are cultural barriers to doing so, then maybe we have to think about transforming the culture.

Speaking of culture, I think we can learn a lot by observing how different cultures do things. I think I'm uniquely well suited to observe different cultures: One of my parents is Samoan, one of my parents is Jewish, my wife is Indian, and I'm related by blood or marriage to Tongans, Filipinos, African Americans, Asian Americans, Arabs, Jews, Christians, Hindus and Muslims. For those of you who know me, if you're wondering why I'm always walking around looking confused, that's why.

I know this is a sensitive subject, but I think it's important to look at cultures around the world not in a judgmental way, but to try to figure out what some cultures do right about educating their children to move forward. My cousin, who was raised in American Samoa, went to college in California. His roommate was Asian, and he was really struck by the fact that when his roommate was studying for his finals, the roommate's parents came over to cook for him so he could concentrate on his studies. In most Pacific cultures, the children always serve the parents, and here the parents were serving the children so that the children could succeed academically.
It's something for us to think about. In this flat, competitive world, our children are competing with cultures that are doing whatever it takes to allow their children to succeed, including reversing our notion of the traditional roles between parent and child.

Again, we all say that we value education, but do we really value it in the way that other cultures do? Another one of my relatives was saving money to put himself through college. Shortly before he was planning to start college, his father took a chiefly title. The father had a ceremony, a saofa'i, in Samoa, and the son gave all of his college money for the ceremony. The son ended up never going to college. The son demonstrated his love for his father by giving up all of his college money. Forgive me for saying this, but I wish that the father had demonstrated his love for his son by refusing to accept it.

I realize that what I'm saying is almost sacrilegious to some people, and I don't mean to offend anyone. But maybe we have to at least consider new ideas in order to move forward.
Here's a cultural example from all the way in Africa. In Uganda, the World Bank discovered that only 13% of aid funds that were allocated for schools ever reached the schools. About a fifth of the money that was meant for teachers' salaries was taken by "ghost workers." These findings were published by the schools and the local newspapers. The parents were outraged and demanded action. As a result, a few years later, 80-90% of the money was reaching the schools, which is still too little, but quite an improvement. The schools were receiving $18 million more per year than they were receiving before.

When I read about that story from Uganda, I thought to myself: Could that type of thing happen in the Pacific? Could parental outrage about ghost employees and misspent aid funds result in more money finding its way into the classroom? This reminded me of a situation that we found in Chuuk, where we went to investigate how our Compact funds were being spent. What we found there were schools that apparently had ghost employees-not to mention ghost teachers, ghost textbooks, ghost desks, ghost chairs, ghost school supplies, ghost cafeterias and ghost lunches. I don't know if these were schools or haunted houses.

Now let me hasten to add that this problem isn't isolated to Chuuk, but Chuuk is where we happened to do a detailed investigation. We will do others. Let me also stress that when we brought this to the attention of the FSM National Government, they were as outraged as we were. I recently visited the new Governor of Chuuk, who has also pledged his support to ensure that Compact funds are properly spent in Chuuk. In nations like the FSM that consist of thousands of remote islands, it's impossible for the government to be everywhere at all times. That's why we have to take strong, decisive action whenever we find a problem. Speaking for the U.S. Government, we have ZERO TOLERANCE for the waste, fraud or abuse of funds that are supposed to be used to educate the children of the islands. I know we have counterparts in the FSM National Government and Chuuk State who feel the same way.

But let's get back to my question: As things stand today, is it likely that parental outrage can result in positive change for education in the Pacific? Outrage isn't something that we always do very well in the Pacific. Sure, some of the Native Hawaiian activists know how to get outraged, and some of the Chamorro activists in Guam are pretty good at getting outraged, but in between, there is a kind of cultural passivity, and also a healthy respect for authority, that might prevent the type of parental response that happened in Uganda from happening here. Also, there's not enough of a press. Where would these findings be published? Would anyone read them? Would anyone challenge authority, and demand that their children's schools get the money that was meant for them?

Maybe that would not happen, but on the other hand, maybe it would happen, or could happen. For one thing, the coconut wireless works very well. And there are signs that a healthy press is starting to develop in parts of Micronesia that have not had a press in the past. You're lucky to have The Marshall Islands Journal here, by the way. And we have seen encouraging signs lately that public outrage-not noisy demonstrations, but a kind of quiet outrage that can travel through the villages-has thwarted politicians that have attempted to abuse their power. So I believe that there is hope after all.

Notwithstanding some questions I raise about culture, I recognize that culture is our ally. When I spoke at the Northern Marianas College graduation, trying to encourage students who had just earned a two-year degree to go on to complete their bachelor's degree, I found that the analogy that really hit home was the analogy of a Samoan tattoo, or a pe'a.

I told the students that an education was like a Samoan tattoo, and I gave them three reasons why:

a. First: An education, like a tattoo, stays with you for the rest of your life.

b. Secondly: Getting an education, like getting a tattoo, can often be a painful experience.

c. And the third reason why getting an education is like getting a tattoo: If you start it, and don't finish it, IT'S VERY SHAMEFUL.

Now, I had used that analogy when I spoke at the college graduation in American Samoa, and of course everyone got it. In Samoa, they have a disparaging term for someone who quits before his tattoo is finished: a pe'a mutu, or broken tattoo. It's a mark of shame.

When I decided to use this tattoo analogy in my Northern Marianas College graduation speech, I wasn't sure if it would strike the same chord. I realize that Micronesians also have a tradition of tattoos, but I didn't know if the analogy would register in Saipan in the same way that it registered in Samoa. I was pleased to find, however, that that was the one thing that the students in Saipan really remembered about my speech. A number of people have told me that since my speech there, associate degree graduates have been going around telling each other, "Hey man, you need to finish your tattoo."

Now, I don't mean to offend anyone in the audience that did not finish their education-or their tattoo, for that matter. I'm just trying to make people feel that they must, as a matter of cultural pride, finish their education. And remember, the world is flat, and we're competing with cultures that are almost fanatically committed to education. In some cultures, parents find a way to get their children educated, period. They do not let anything get in the way of their children graduating college-not lack of money, not illness, not weddings, not funerals. In fact, in these cultures, the only funeral that might excuse a student not graduating college is the funeral of the student himself.

I don't want to finish this speech without sharing some thoughts about how each and every person in this audience can make a positive impact on education in the Pacific. For this, I sought out the advice of Joann Morris, the education expert from our Honolulu office. We hired her from PREL, actually.

Joann told me that I could inspire the audience by talking about this wonderful book that she had just read called The Tipping Point. I told her, "Joann, I have not read The Tipping Point." She said, "Don't worry, I'll tell you everything about it that you need to know."
And I wondered: Isn't that a little like trying to b.s. your way through a Book Report, when you've really only seen the movie? The last thing I want to do is try that in an audience full of a thousand teachers, because you guys are experts at figuring out when a student is b.s.'ing and hasn't really read the book. I still remember the book report I handed in when I was in school about The Great Gatsby by F. Scott Fitzgerald. I got an "F." And I couldn't figure out why, because my report went into great and eloquent detail about how Robert Redford did this, and Mia Farrow did that. To this day, I cannot figure out how my teacher knew that I didn't really read the book. You guys must have ESP.

In any event, Joann tried to explain to me the important concepts of The Tipping Point. She told me: "In order to make an important idea spread, you have to make it contagious." I said, "What do you mean by contagious?" So she gave me an example: "If you get up when you make your speech and you start yawning, soon everyone in the audience will unconsciously start yawning too. Yawning is contagious." And I said: "Listen, Joann, I do not need to resort to cheap tricks like that. If I want to get everyone yawning, all I have to do is give my speech. It happens every time I give a speech." And she said, "No, no, you're missing the point."

Well, after repeated attempts, I think Joann finally got through to me. So here, before an audience of a thousand teachers, it is my pleasure to present my book report on The Tipping Point, by Malcolm Gladwell.

I said earlier that it's the moral obligation of each and every one of us here to spread the idea that education must be raised to paramount importance throughout the Pacific. How can this book help us do that? Well, the author cites key elements needed to make an idea take hold, which I'd like to share with you. One that is significant to us as Pacific Islanders is the importance of personal interaction. Gladwell refers to three personality types that are key to spreading a new idea, concept or behavior.

He refers to Connectors. Those are the individuals in our communities who know everybody, who have wide social circles, and who have the ability to bring together a wide range of people. If you share a new idea with a Connector, he or she will know exactly who to tell to spread the word even further. In your home community, who do you know who is a Connector? How can you get these Connectors involved in improving education? If you engage them, they will carry your message to the furthest parts of your island.

A second personality type is the Maven. These people are information gatherers. They love to have the latest information and to pass it on to others. They may not be as socially outgoing as Connectors, but they love to share information. Think for a moment of the Mavens, the information-gatherers in your home community. How can you get them involved in gathering and sharing information about the needs of your educational community? If they possess all the relevant data, have them speak on your behalf or write articles in the newspaper, if you have one. Share that information.

The third type of natural pollinators of new ideas are the Salespeople. These individuals are adept at persuading others. Salespeople make convincing arguments for needed change. They start and sustain social epidemics. Who in your community are the Salespeople? How can you engage these personality types in rallying the community or the legislature to bring positive change to your school system?

We all know people who are one of these three personality types: Connectors, Mavens, and Salespeople. Seek them out and engage them in your educational pursuits. You should see your efforts multiply through their innate behaviors.

Malcolm Gladwell also provides direction about how to ensure our educational (or other) message reaches as many people as possible. We need to be mindful of three rules.
The first is the Law of the Few. This rule means that it takes just a few committed people to create change. It refers also to the three social personalities cited earlier. Just think of the change that could happen if you gathered together those three key personally types: social connectors, information gatherers and sharers, and salespeople. Seek these people out and get them as committed to education as you are.

The second rule is the Stickiness Factor. The Stickiness Factor means that messages must be memorable. Think of a current advertising slogan: "I just saved a bunch of money on my car insurance by switching to GEICO"; "What happens in Vegas, stays in Vegas." Advertisers know how to make a message "sticky". If people aren't getting our educational message, maybe it isn't impactful enough. Maybe we need to make small changes in our presentation that can make a big difference. We want our message to be irresistible and move people to action. And if I may, how's this for a sticky message: "Hey man, you need to finish your tattoo."
The third rule is the Power of Context. That rule refers to the environment in which our idea, product, message or behavior is operating. We know that ideas or strategies that might work on the mainland U.S. will not automatically work here in the Pacific. We must tailor our ideas and reforms to our community context.

As you move forward to improve education, remember that a few well-placed people (the Connectors, Mavens and Salespeople); a simple yet well-thought out, "sticky" idea; and a respect for our unique Pacific context can create major change.

Too often, we think that we are limited in what we can do because our Pacific populations are small, our human and financial resources are few, and our communities are isolated. However, in his book Malcolm Gladwell clearly indicates through numerous examples that a small number of critical people and small but significant changes to an idea, product, message or behavior can be infectious and spread, until the Tipping Point is reached and dramatic change can occur.
And how will we know when we've reached the Tipping Point? Well here's a thought: I mentioned before that the U.S. Government has Zero Tolerance for the waste, fraud or abuse of education funds for the islands. I also said that we have counterparts in the FSM National Government, and I believe in the Chuuk State Government, that feel the same way. I suggest that we will have reached the Tipping Point when we can say that all of the parents have Zero Tolerance for the squandering of their children's education money-the parents of Chuuk, parents throughout the FSM, parents in Palau, parents in the Northern Marianas, parents in Guam, parents in American Samoa, parents in Hawaii, parents here in the Marshalls and throughout the Pacific. And we will have reached the Tipping Point when we can say that parents throughout the Pacific are as committed to their children's education as parents in Singapore and Japan, and that parents have Zero Tolerance for landowners who take back school property out of greed, for teachers who don't show up, and for children who don't graduate. The day that we can say all of that, ladies and gentlemen, is the day that we can say that we've finished our tattoo.

Thank you, G-d bless you and have a wonderful conference. Kommol tata.