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«Compacts of Free Association with the Federated States of Micronesia and the Republic of the Marshall Islands For Fiscal Year 2005 Table of Contents ...»

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In addition to over $17 million of unused public infrastructure funding carried-over from fiscal year 2004, JEMCO allocated another $17 million for infrastructure improvements and maintenance in the FSM in fiscal year 2005. At the time that funding was allocated in August 2004, JEMCO had not concurred with FSM’s Infrastructure Development Plan. The concurrence came on March 11, 2005, during a special JEMCO meeting but only insofar as the plan involved the use of Compact infrastructure sector funds for projects within the priorities established in the Fiscal Procedures Agreement.

In May 2005, the FSM National Government signed a contract with a professional architectural and engineering design firm to provide the FSM with expertise in managing the formulation and implementation of Compact funded infrastructure projects. In late May, OIA granted $34,368,276 to the FSM for the Public Infrastructure sector grant.

Once again, due to internal differences between the FSM National Government and the state governments regarding the process of project implementation and the inability to demonstrate how the funding will be managed in a unified comprehensive method, no funds were approved for expenditure in fiscal year 2005. The entire un-obligated balance remains available, in addition to the funds provided for infrastructure in fiscal year 2006.

Public Sector Capacity Building The FSM received $11,662,846 for the capacity building sector, an amount that represented 15.4 percent of all direct financial assistance for fiscal year 2004. This was a proportionately larger amount than intended or foreseen by the negotiators of the amended Compact but necessitated by the FSM's apparent lack of local revenue to cover a range of government operations. From the outset, under the amended Compact, the U.S. delegates to JEMCO made clear that the purpose of this grant was to build capacity in certain key functional areas, such as accounting, financial management, budgeting, auditing, and law enforcement. They were concerned about the possibility that the grant might be used to maintain pre-existing capacity, or, worse, that it might be used as a general operating subsidy for government.

Notwithstanding the foregoing concerns, all parties recognized that the FSM did not initially have sufficient local revenue to support certain key public sector functions, and that preventing the FSM from using public sector capacity grant money to fund preexisting operating expenses might result in a reduction in capacity in crucial areas.

JEMCO agreed to allow certain pre-existing operating expenses in core functional areas to be initially funded from the public sector capacity building grant subject to a 5-year phase-out period.

To date the FSM has maintained its targeted phase-out schedule. The grant for fiscal year 2005 was $7,786,238. Although the grant supported a sprinkling of true capacity building initiatives, these uses have not been well articulated by the FSM states and there is no short-term or medium-term plan to guide how the sector grant should be best used.


The FSM received an allocation of $2,389,951 for its environment sector. The grant continued to fund government operations rather than environmental projects. Each State received funding for an Environmental Protection Agency or similar agency with a like mission. Financial assistance also supported marine and forestry conservation efforts.

Public education programs were a part of all programs funded under this sector.

The lack of national goals for the environment sector continued to hamper the evaluation of performance progress. Each state established its own strategic focus at the agency or office level and activities failed to reach overarching national goals for the sector.

However, most program officials agree that the top three environmental concerns in the FSM are drinking water quality, wastewater management, and solid waste control.

Conservation and resource management activities are also considered priorities by program officials. In the coming year, the FSM will focus on developing performance measures to reflect national environmental priorities.

Private Sector Development The FSM received an allocation of $4,038,910 for its private sector development sector grant. This amount funded the basic operations of a number of different agencies to increase tourism, promote agriculture, and support small businesses.

The FSM continues to lack national performance goals for the private sector development grant and this affected the ability to assess progress over the grant year. Each state established its own strategic focus at the agency level and reported on activities that failed to reach overarching national goals for the sector. For the most part, it was difficult to gauge performance, but there were major accomplishments within each funded agency. For example, the Chuuk Small Business Development Center conducted over 120 counseling and training sessions with small business owners and also helped business owners to secure over $175,000 in loans. The Pohnpei Visitor’s Bureau helped coordinate tourism activities on the island for the crew of the U.S.S. Fitzgerald.

During the next fiscal year, the FSM will work to develop sector-wide goals. It is expected that this activity will assist the FSM to develop a budget that more closely reflects the intended objectives for private sector development.

Department of the Interior Discretionary Grants The FSM continues to be eligible for the discretionary grant programs of the Office of Insular Affairs (OIA) of the Department of the Interior. Although the amended Compact provides significant operational support in health and education and provides funds for capacity building, the government still has special short-term needs that can be effectively addressed by OIA’s programs.

In fiscal year 2005, the OIA provided $811,000 in operations and maintenance grants for infrastructure covering repairs, training, equipment purchases, and expert consulting services.

Fiscal Year 2005 Allocations for the RMI and Uses The following is a breakdown of grant allocations to the RMI by sector and a listing and

distribution of public sector infrastructure project funding:

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Using the 2004 population estimate from the RMI’s 1999 Census, the Marshall Islands spent a total of $132 of its Compact health dollars on each person in 2005 and for infrastructure, $285 per person. The per capita spending on education was $1,031.4 Education During fiscal year 2005, the RMI used Compact funds to meet the following seven key

education goals:

1. Increase the number of early childhood enrollees;

2. Establish a quality primary education system;

3. Promote school attendance by all students;

4. Provide a quality secondary education system;

Education per capita expenditure data is from public primary and secondary school enrollment data for the school year 2003-2004. During that year, the schools enrolled 9,889 students.

5. Increase success rates among post-secondary students;

6. Provide scholarships to qualified students; and

7. Improve the coordination between schools and vocational education.

The RMI Ministry of Education (MOE) continued the second year of universal kindergarten classes. Kindergarten coaches and teachers received additional training on teaching skills, especially literacy skills, e.g., phonics. The MOE continued training all elementary teachers on language arts and math performance standards. The standards served as the basis for creating a national test for 8th graders. Two task forces were created to address teacher absenteeism and student truancy. A textbook committee was established to improve the evaluation and selection of textbooks and other curricular materials. The first-ever test of English language literacy was given to over 1,000 teachers, 63 percent of whom failed. Summer intensive English language institutes were held and the College of the Marshall Islands (CMI) is offering ongoing English literacy courses to MOE staff. At the close of 2004-2005 school year, the MOE submitted baseline data on 17 indicators of educational performance that will be collected and compared annually.

The CMI continued its slow, steady progress toward meeting significant accreditation issues of the Western Association of Schools and Colleges (WASC). While not yet off "show cause" status, WASC allowed an unprecedented two additional 6-month extensions, showing evidence of their recognition that improvements are underway. In addition to revising all academic programs, completing phase 1 of a facilities master plan, making significant facilities repairs, establishing three student computer labs, and revising staff hiring and retention policies, CMI also hired a new college president.

Fiscal year 2005 Supplemental Education Grant funding to the RMI contributed to the seven goals cited. The grant award was released late in the fiscal year due to logistics issues regarding the transfer of funds from the U.S. Department of Education to the Department of the Interior.


The Ministry of Health received an allocation for fiscal year 2005 that was approximately $1 million less than the previous year. The reduced $4,887,889 sector level grant proposed by the Government of the RMI, was a major contributor to the modest 25 percent increase in the health budget (all revenue sources combined) since targeted financial assistance began under the amended Compact.

Compact funds provided approximately 40 percent of the total dollars available for health care. Although primary health care is the focus of the Ministry’s strategic mission and viewed as the principal means to improve health status, funding has not followed policy.

In fiscal year 2005, hospital-based outlays continued to outpace those for public health, prevention, and outer island primary care services because of the need to improve hospital operations and diagnostic and treatment capacities to decrease the reliance on tertiary medical referrals. The RMI targeted an additional $2,894,500 in infrastructure funding for equipment purchases for Majuro and Ebeye hospitals, facilities maintenance, and dispensary renovation.

The findings of a comprehensive assessment of the dispensary system that JEMFAC required in fiscal year 2005 also emphasize the disparity between policy and budget priorities. Transportation and communication problems and shortfalls in staffing, equipment, pharmaceuticals, supplies, and facility maintenance were commonplace before the amended Compact period began, and continue to be issues. Only 45 of the RMI’s 62 health centers and dispensaries were open in fiscal year 2004. Personnel shortages had closed ten facilities and approximately ten more were non-functional because of serious renovation and refurbishment needs. Although the Ministry of Health trained additional health assistants in 2004 and reopened most of its facilities in 2005, the RMI deferred dispensary construction work to fiscal year 2006.

The Government of Japan funded the construction of a new Majuro hospital annex that will house administration, laboratories, and public health, dental and outpatient services.

Once the annex is open in December 2005, reconstruction of the existing facility will commence. The renovation will focus on the wards, operating theaters, and hospital support areas. Equipment and furniture purchases and additional personnel will be required, and this will likely stall the Ministry’s intent to redirect funding to prevention and primary care in the near future.

In September, a fire completely destroyed a section of the Majuro Hospital that housed the supply room. RMI officials estimated a loss of nearly $1 million in uninsured drugs and medical supplies. Outside donations of drugs and funding assistance helped lessen the effect on patient care but restocking needs continue. Construction crews were diverted from other Compact infrastructure projects for the emergency repair and reconstruction of the facility.

The health sector continued to be a leader in implementing performance budgeting and monitoring in the RMI. The Ministry of Health developed a “performance matrix” to facilitate the collection and tracking of baseline data and annual progress. During 2005, efforts focused on determining the “measurability” quotient of the outcomes; establishing timing targets; and reevaluating and revising selected outcomes to isolate and track progress in such strategic areas as hospital improvements and the delivery of preventive services and primary health care on Ebeye. The identification of baseline data is incomplete but continued attention given to this area in fiscal year 2006, along with the development of clearer linkages between outcomes and health status indicators, will undoubtedly help in the evaluation of funding use and effectiveness.

Public Infrastructure

The RMI allocated $13.45 million for infrastructure improvements and maintenance in fiscal year 2005. This allocation is consistent with their policy that at least 30 percent of all annual United States Compact financial assistance be directed toward infrastructure development. To guide project selection, the RMI continues to utilize a comprehensive Infrastructure Development and Maintenance Program with complete project descriptions, timelines, financial requirements and measurable project indicators.

Education is the priority sector targeted by Compact infrastructure assistance and has also received the largest portion (78 percent) of infrastructure development and maintenance funding over the past two years.

RMI Infrastructure Development and Maintenance Program projects that are listed below are for the Health and Education sectors with fiscal year 2004 and fiscal year 2005

funding. Projects include construction, maintenance, and purchasing of equipment:

–  –  –

Activities: Formwork and props to upper floor removed. Carpentry work on upper floor done. Electrical cable installed.

Quality of Workmanship: Good.

Comments: Progress is slow. Windows doors and flooring materials held up on PMO ship. Furniture contract awarded.

–  –  –

Activities: Project completed.

Quality of Workmanship: Excellent.

Project Constraints: None.

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