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OFFICE OF THE GOVERNOR
PRESS RELEASE
(for immediate release – Friday, December 17, 2008)
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Gov. Togiola writes to Congress, supports Territory’s tax incentive package
(UTULEI) – Governor Togiola Tulafono over the past several weeks has sent to Congressional leaders a request for American Samoa to be included in any economic recovery legislation that is considered in the near future.
Governor Togiola said a second stimulus package has been talked about on Capitol Hill, and he does not want American Samoa to miss out on any opportunity for American Samoa’s tax incentive package to be passed by the Congress.
American Samoa’s tax incentive package, H.R. 1916 was introduced by Congressman Faleomavaega Eni in this most recent session of Congress on April 18, 2007. The tax incentive amends the US Internal Revenue Code to expand and extend for ten years, the American Samoa economic development credit. The credit would apply to all qualified domestic corporations, not just the two local canneries.
“We are most grateful to Congressman Faleomavaega for his critical assistance with this package,” said Governor Togiola.
While the details of a second stimulus are not available, there is much talk about some legislative enactment to slow the economic deterioration that is happening in the U.S. and globally.
“I would be remiss if this opportunity were to get by us for passage of this important piece of legislation that would help us to move forward with our economic development,” said Governor Togiola. “The bottom line is that American Samoa’s efforts at economic development have to be aligned with federal initiatives in order to maximize opportunities for the Territory. We are committed to making this a reality for our island home.”
Letters to Congressional leaders were sent to (text of letter below):
Senator Daniel K. Inouye (D-HI) – Chairman, Committee on Appropriations
Senator Jeff Bingaman (D-NM) – Chairman, Committee on Natural Resources
Senator Max Baucus (D-MT) – Chairman, Committee on Finance
Representative Charles B. Rangel (D-NY) – Chairman, Committee on Ways and Means
Representative Nick Rahall (D-WV) – Chairman, Committee on Natural Resources
Representative David R. Obey (D-WI) – Chairman, Committee on Appropriations
Representative Nancy Pelosi (D-CA) – Speaker of the House
TEXT OF LETTER TO CONGRESSIONAL LEADERSHIP
December 10, 2008
Subject: Economic Recovery, Job Creation, and Investment in American Samoa
Dear Mr. Chairman:
As Congress drafts an economic recovery initiative, I on behalf of the Government and people of American Samoa ask that our territory not be overlooked.
I. Current Economic Conditions in American Samoa.
Past congressional inadvertence towards American Samoa is in large measure due to the fact that neither the Bureau of Labor Statistics nor the Census Bureau collects timely economic data on our territory. Regular data collection provides Congress with ample details on labor, employer, and household conditions in the 50 States, the District of Columbia, Puerto Rico, and the Virgin Islands. But lack of such data for American Samoa leaves Congress and the federal Departments unaware of the impact that the nationwide economic crisis has on our territory.
American Samoa also struggles as the rest of the country is facing lower revenues, job cuts, budget shortfalls, and postponed capital improvements. To a far greater degree than in the rest of the country, however, the economic crisis threatens very basic economic development in the territory.
In 2006 when economic conditions in the nation and territory were reasonably strong, the Department of Interior reported that per capita gross domestic production (GDP) in American Samoa amounted to $9,041. This was 22.8% of the national average. All the other territories in 2006 enjoyed a higher per capita GDP than American Samoa – $13,350 per capita GDP in the Commonwealth of the Northern Mariana Islands, $22,661 on Guam, and $25,815 in the Virgin Islands. By another measure of economic development, per capita income in American Samoa in 2006 was the lowest of the territories and only one-fourth that of the United States.
The Federal Government had effected a policy for territorial self-government in American Samoa only in the 1970s. Since 1977 the Territory has elected its own governor. With territorial self-government, American Samoa sought to transform its subsistence economy with road, airport, health care, and school improvements. The territory since then has made significant progress.
Despite the progress, the Department of Labor’s January 25, 2008 report to Congress states that the territory’s economy is still small, developing, and fragile. In hearings before the Senate committee on the territories, the Department of Interior reported that “American Samoa has the narrowest economic base” of the four territories. To document this point, the Department noted that the per capita GDP in American Samoa still ranks far below the other territories.
Although federal funds have played a significant role in the territory, the per capita rate of federal expenditures in American Samoa is half that for the rest of the country. Consequently, long-term economic development in the territory depends on the private sector for job creation and investment.
To that end the Federal Government had previously provided trade and tax incentives for American Samoa. The seafood canning industry developed with support from quota and tariff incentives as well as tax credits. A recent Department of Interior-funded study found that the fish canning industry is now the mainstay of the territory’s economy. The two canneries in American Samoa directly employ half of the territory’s entire workforce directly and indirectly.
The growth of the fish canning industry has boosted employment and spurred development in the territory. But such a heavy reliance on two canneries is not economically sound, and my Administration with assistance from the Department of Interior has pursued every opportunity to diversify the territory’s economy. The territorial government has actively promoted investment opportunities in agriculture, fisheries, tourism, call centers, electronic information processing, and an international fiber optic cable connection. If American call centers can operate in India and Guatemala, they should certainly be able to operate in American Samoa.
But investment and job creation in American Samoa have been deterred by inconsistent federal policy towards our territory. The economic situation in American Samoa has also worsened, and the national economic crisis now creates added problems for the local economy.
These economic problems drastically impact American Samoa, because: (1) The territory has a large number of subsistence workers who cannot find paid employment. (2) 88% of all farms in the territory operate on a subsistence basis. (3) Despite a large out-migration of American Samoans to the 50 States, the territory still has a young population that is growing three times faster than the national growth rate. (4) Recent employment gains in the territory have occurred mainly in low wage sectors. Even in the low-wage sectors, the territory is at a competitive disadvantage to the Philippines, Thailand, as well as in other countries of the South Pacific where wages are a fraction of the mandated federal minimum wage in American Samoa.
II. Inconsistent Federal Policy Towards American Samoa.
To implement a policy of global trade expansion, the United States negotiated a series of trade agreements. These agreements will reduce and soon end the quota and tariff provisions for American Samoan products. The loss of trade incentives renders the existing cannery operations in American Samoa less economical.
In addition, as part of a budget offset measure, Congress repealed the possession tax credit that had stimulated investments in American Samoa. The subsequent reports of the Government Accountability Office and Joint Committee on Taxation Staff have noted the adverse consequences for American Samoa. As a result, Congress temporarily delayed full repeal of the tax credit. The temporary delay assists only the two cannery operations that had previously qualified for the credit.
The limited credit extension does not cover new business ventures in the territory. Efforts to diversity the economic base through new enterprises in American Samoa have been crippled. Federal tax and trade policies have thus been changed without advance consideration of the consequences to the territory.
Furthermore, as the Department of Labor reported to Congress, recent legislation in 2007 mandating annual increases of the minimum wage in American Samoa creates another impediment for the territory’s economic development. Previously recognizing that the territory’s economic level is far below that of the 50 States, Congress had established the federal minimum wage rate in American Samoa proportionate to its level of development. Under a procedure that had been applied to Puerto Rico and the Virgin Islands, Congress adjusted the minimum wage in American Samoa administratively every two years to reflect the territory’s economic progress. Such adjustments therefore were economically sustainable for the territory. The biennial adjustments over time would raise the minimum wage in American Samoa to parity with the regular federal rate as had occurred in other territories.
However, in Public Law 110-28, the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act of 2007, Congress changed this policy. Increasing the regular federal rate nationwide, Congress also mandated an immediate 50 cent raise in the hourly minimum wage rate for American Samoa as of July 24, 2007. An additional 50-cent increase is mandated every year thereafter until the minimum wage in the territory matches the new federal rate of $7.25. This minimum wage hike for American Samoa, like the tariff and tax changes, was inserted in the rush to enact the larger legislation without assessing the impact on the territory.
That legislation did call for an after-the-fact review of the consequences. The Department of Labor has subsequently submitted a dire assessment to Congress. The Department illustrates the impact in a telling way. In light of the relative level of economic development in American Samoa, the total wage increase mandated for American Samoa is equivalent to imposing a $16.50 federal minimum wage rate on the States. The economic and political fall-out of such a drastic hike for the United States’ economy is obvious. The territory must now contend with these consequences.
III. Economic Recovery Proposal.
As earlier mentioned, federal policy had provided an incentive in the tax code for economic development in the territories. Later, to offset tax expenditures in other areas, Congress repealed this section 936 possession tax credit and provided a temporary economic activity credit as a transitional phase-out. After enacting the repeal, Congress requested the Joint Committee on Taxation to evaluate the tax and economic policy implications of ending the incentive. Congress also requested the Government Accountability Office to analyze the economic impact of federal tax policy on the territories. The two studies were submitted to Congress in 2006. To secure time to review the studies and the legislative options, Congress subsequently delayed the full repeal of the tax credit for American Samoa through 2007.
To gain more time to evaluate this matter, Congress in section 309, Title II, of the Emergency Economic Stabilization Act of 2008, Public Law 110-343, temporarily extended the economic development credit for American Samoa through 2009. As the committee reports explained, “[I]t is important to encourage investment in American Samoa. With the expiration of the possession tax credit, the American Samoa economic development credit is an appropriate temporary provision while Congress considers long-term tax policy toward the U.S. possessions.”
In the current economy, American Samoa is unable to foster its economic development without federal support. The Government of American Samoa therefore requests enactment of a federal economic development tax program in line with past jobs and investment initiatives. The proposal has been introduced in the House of Representative by our Congressman Eni Faleomavaega as H.R. 1916. It extends the present section economic activity credit for a longer period so that businesses can make plans and undertake investments. And it makes the credit available for all business ventures so as to encourage economic diversification in American Samoa.
I would greatly appreciate your consideration of including the proposal as part of the national economic recovery program. The proposed economic development tax incentive will greatly assist employment and investment in American Samoa.
IV. Conclusion.
The Governmental Accountability Office in 1985 and again in 1994 had called attention to the lack of a clearly defined and coordinated federal policy for American Samoa’s economic development. In its 2006 and 2007 reports, GAO repeatedly stressed the need for policy and program coordination. Neither has occurred. In fact the changes to the federal minimum wage, tariff and trade preferences, and tax incentive described above, have been major setbacks. These changes with the current economic crisis now threaten basic levels of economic development in American Samoa.
The House of Representatives has been sensitive to the ramifications which federal tax policy change has on American Samoa. It has extended the existing economic development credit for American Samoa on a temporary basis in order for Congress to assess conditions in the territory more fully. On behalf of the people of American Samoa, I wish to express appreciation for your past support.
With the present economic crisis, I urgently request action on an investment and jobs creation program. Such a national program should also address the economic conditions in the territories, particularly, American Samoa. Recovery legislation will help us cope with the current economic difficulties and thus secure future growth.
I am available to discuss this important issue with you at your convenience.
Sincerely,
TOGIOLA T.A. TULAFONO
Governor of American Samoa
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