COMPACTS OF FREE ASSOCIATION: Trust Funds for Micronesia and the Marshall Islands Are Unlikely to Fully Replace Expiring U.S. Annual Grant Assistance

grants and programs, including several that are scheduled to end in 2023. In fiscal year 2016, U.S. compact sector grants and supplemental education grants supported a third of the FSM's expenditures and a quarter of the RMI's. Agreements providing U.S. aviation, disaster relief, postal, weather, and other programs and services are scheduled to end in 2024, but some U.S. agencies may provide programs and services similar to those in the agreements under other authorities. The FSM and RMI compact trust funds face risks and may not provide disbursements in some future years. GAO projected a 41 percent likelihood that the FSM compact trust fund would be unable to provide any disbursement in 1 or more years in fiscal years 2024 through 2033, with the likelihood increasing to 92 percent in 2054 through 2063. GAO projected a 15 percent likelihood that the RMI compact trust fund would be unable to provide any disbursement in 1 or more years in fiscal years 2024 through 2033, with the likelihood increasing to 56 percent in 2054 through 2063. Potential strategies such as reduced trust fund disbursements would reduce or eliminate the risk of years with no disbursement. The FSM and RMI are independent countries with a population of approximately 102,000 and 54,000, respectively. The FSM is a federation of four semiautonomous states, with a GDP per capita of about $3,200 in 2016. The RMI's 2016 population was approximately 54,000, with a GDP per capita of about $3,600. The RMI's most recent census, in 2011, found that approximately three-quarters of the population lived in Majuro, the nation's capital, and on the island of Ebeye in the Kwajalein Atoll. The U.S. Department of the Interior (Interior) has not yet implemented the actions GAO recommended to prepare for the 2023 transition to trust fund income. The trust fund committees have not developed distribution policies, required by the agreements, which could assist the countries in planning for the transition to trust fund income. The committees have not developed the required fiscal procedures for oversight of disbursements or addressed differences between the timing of their annual determinations of the disbursement amounts and the FSM's and RMI's annual budget cycles. The FSM and RMI compact trust funds are intended to provide an annual source of revenue after the compact sector grants are scheduled to end in 2023. However, the trust funds face risks and may not provide disbursements in some future years. GAO made three recommendations to Interior regarding each country's trust fund to address trust fund disbursement risks. Interior concurred with GAO's recommendations and discussed actions in response at subsequent trust fund committee meetings, with implementation targeted for 2023.