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Good afternoon, Subcommittee.

Mr. Chairman and members of the

I thank you for asking me to be here today to express my views on the budget request for the United States Virgin Islands for Fiscal Year 1989.

Before I get to the specifics of the budget, I want to give you a bit of a progress report on the state of the Territory of the Virgin Islands.

One year ago, when I had had a scant three-month experience as the newly-elected Governor of the United States Virgin Islands, I appeared before this Subcommittee to testify on the Fiscal Year 1988 budget. I told you that the Government of the Virgin Islands was in a deplorable state; that it was $80 million in debt; that it could not run programs or deliver services with credibility, much less efficiency: I even said

and I quote myself In short, it's a mess.

I'm happy to say that my message to you today is not nearly gloomy.

Last June, I signed into law a sweeping reorganization plan for the Executive Branch of the Virgin Islands Government, a plan which I began working on even before I took the Oath of office. I told the Legislature that I considered the Reorganization the first step on the road to recovery. With the cooperation of the Legislature and broad support from the public, Executive agencies, programs and functions were consolidated and steamlined, always with the twin goals of efficiency and economy in the delivery of services to our people.

In September of 1987, I was able to report to the Legislature that the territory's economy was healthy and that Government revenues were up, that the Government was in a position to pay its employees their retroactive pay increases, and that we could complete the fiscal year with the inherited deficit eliminated.

That is the positive side of the picture -- and it is also the reason for the dilemma we Virgin Islands find our selves in today.

Earlier this year, Delegate de Lugo invited me to testify before his Subcommittee on Insular and Inernational Affairs on President Reagan's Fiscal Year 1989 budget proposals as they pertain to the United States Virgin Islands.

There wasn't much to testify about: the budget proposed $1.1 million for water distribution projects in the Virgin Islands. PERIOD.

In test imony before Delegate de Lugo's Subcommittee, the Department of the Interior spokesman stated that the economies of the territories are "exceptionally strong", that the Virgin Islands economy is expanding rapidly, that tourism is accelerating its upward movement, that we have a relatively low unemployment rate (an inaccurate statement, by the way), and that we had paid off the accumulated Government debt my Administration inherited.

We don't have time today to debate whether the economies of the territories are truly "exceptionally strong", to explore the fragility of a tourism-based economy, or to detail the reasons for elimnination of the Government's debt.

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But it is seems to me that we are the victims of our own hard work and good intentions. The state of the Virgin Islands is indeed much improved from where we were one year ago. But, Mr. Chairman, we have worked long and hard during this past year to get where we are today and it is discouraging to be ignored simply because we have worked so hard to help ourselves.

Having said all of this, I want to give my unequivocal support to the proposals contained in the report of the Committee on Interior and Insular Affairs of the House of Representatives to the Committee on the Budget.

The Committee's report impacts on the United States Virgin Islands in two major areas: drug abuse control and water system improvements.

I was astounded that the President's budget did not include funds for the Virgin Islands for drug control. The Committee report notes that "The U.S. insular areas are, in a very real sense, the nation's insular borders in the Caribbean and the Pacific. Drug traffickers know this and have used the Virgin Islands (and other insular areas) for transshipment of deadly narcotics from other countries to the U.S. mainland. One of the consequences of this activity has been an increase in local drug abuse in insular areas. Drug-related crime has pushed violent crime rates in the Virgin Islands to levels many times higher than the national average.

So, Mr. Chairman and members of this Subcommittee, I cannot emphasize too strongly that the drug problem in the Virgin Islands is stagger ing -- and it is two-fold.

On one hand, the report speaks of transshipment of deadly narcotics to the mainland. We have hundreds of miles of shoreline and dozens of beaches in the Virgin Islands where boats can land. There is one

Coast Guard vessel stationed in the Virgin Islands to patrol our waters. Because of our limited financial resources, we cannot adequately staff and equip our Narcotics Strike Force and related Department of Police units.

Thus, the narcotics flow through the islands and they end up on the streets here in Washington, D.C., and in the towns and cities of your home districts.

The second aspect of our drug problem is what it is doing to the Virgin Islands people. When the narcotics pass through the islands, the debris from the trade falls on our streets and into the hands of our people. It has been suggested that I could walk three blocks in any direction from Government House in Charlotte Amalie and make a buy of crack or cocaine or marijuana.

There is no question that a large percentage of our violent crimes are caused by per sons on drugs or that the escalating number of burglaries and robberies are committed by people trying to get money to buy drugs.

$2.5 million was appropriated by the Federal Government in Fiscal Year 1988, with an additional authorization of $1.5 million by the Congress, for drug abuse control in the Virgin Islands. These monies are contingent upon the preparation of a three-year plan for the control, prevention, and treatment of narcotics abuse. I appointed the Virgin Islands Drug Policy Board, consisting of the Attorney General, the Commissioners of Police, Education, Health, and Human Services, the Chief Judge of the United States District Court, the United States District Attorney, and the Presiding Judge of the Territorial Court to prepare the plan. That plan has been submitted to the federal Drug Policy Board and to this Subcommitee.

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It is a good plan carefully thought out and designed to help us get a handle on the problem. It involves programs and initiatives in law enforcement, treatment, testing, prevention, and information and education.

I can't stress too strongly the urgency for releasing the $2.5 million already appropriated for the Virgin Islands for drug abuse control or for the inclusion of an additional $1.5 million in the FY 1989 budget.

I also want to inject the thought that a three-year plan is not going to get rid of the narcotics mess. Government Federal, state, territorial, and local is going to be grappling with this problem for years to come.

Mr. Chairman, I also support the appropriation of $3.1 million for renovation of water transmission lines on St. Thomas and St. Croix. In order to accurately assess our needs in the Virgin Islands, studies of the water storage and distribution systems were performed by the CH2M Hill for the Department of Public Works and the Virgin Islands Water and Power Author ity. These studies documented what we already knew -- that serious deficiencies exist in the water storage and distribution systems and that several rehabilitation projects should be undertaken to upgrade, repair and safeguard the facilities. The price tag was for tens of millions of dollars.

In response to a request from the Department of Interior that I provide a realistic assessment of our needs for capital improvements in our water storage and distribution systems, last August I wrote to Kittie Baier, then Acting Assistant Secretary of the Office of Territorial and International Affairs, detailing what we felt were our "bare-bones" needs to rehabilitate the system. The cost of these "bare-bones" needs came to $9,140,000.

Subsequently, I was informed that available funding would be far less than what is actually needed. In response, I prepared a drastically reduced funding request which came to $2.7 million. Although I was painfully aware that the $2.7 million fell far short of our real needs, I made the pared-down funding request in good faith and with the reasonable assumption that the Department was attempting to balance budgetary realities with our very real needs.

So, Mr. Chairman and members of this Subcommittee, you can understand why I was flabbergasted to learn that the Department is asking for only $1.1 million to deal with our water problems. You can also unde stand why I wholeheartedly support the House Committee's figure of $3.1 million.

I appreciate the opportunity to appear before this Subcommittee. I thank you for your attention and I will answer any questions you might have.

COMMENDATION ON VI DEFICIT REDUCTION Mr. MURTHA. Governor, I commend you on the phenomenal job that you have done. I wish you would for the record, send us information on how you were able to reduce that deficit so quickly be cause it would be of great interest to this Committee and maybe it would help some of these other territories. And it may even be helpful to us in trying to get rid of our deficit which is a little bit larger and more burdensome.

Mr. FARRELLY. I would be pleased to do that, Mr. Chairman. (CLERK'S NOTE.—The information requested was not provided.]

VIRGIN ISLANDS DRUG PROGRAM FUNDING

Mr. MURTHA. Have they ever sent you the two boats that you were supposed to receive that they seized in the drug interdiction effort?

Mr. FARRELLY. No. We never got them. I think one that was among the two seized was reclaimed, I believe, because of improper seizure. So, we are still looking

Mr. MURTHA. You not only got shorted on the drug interdiction money, you didn't get the boats.

Mr. FARRELLY. We didn't get the boats. And that is critical. In fact, I spoke to the Department of Transportation yesterday to persuade them not to do anything with the Coast Guard cutter Point White Horn because if that were so, we would have nothing with which to fight drug traffic.

Mr. MURTHA. Well, Governor, with that impressive testimony, I'll stick my neck out and say we will have that drug money for you. We'll make sure that is appropriated in your budget because we are darned impressed by what you have done.

Mr. FARRELLY. Thank you, sir.

Mr. MURTHA. I'll make sure everybody on this Committee gets a full report of it, and I appreciate what you have done in coming before the Committee. Thank you very much.

Mr. FARRELLY. We will appreciate your help on it on behalf of the people of the Virgin Islands.

Mr. MURTHA. We appreciate the work you have done in behalf of the United States. Thank you very much.

Mr. FARRELLY. Thank you, sir.
Mr. DE LUGO. Thank you, Mr. Chairman.

TUESDAY, APRIL 26, 1988.

THE NORTHERN MARIANA ISLANDS

WITNESSES PEDRO A. TENORIO, LIEUTENANT GOVERNOR ELOY INOS, DIRECTOR OF

FINANCE JAMES RIPPLE, SPECIAL ASSISTANT FOR PLANNING AND BUDGET AF. FAIRS Mr. MURTHA. The Northern Mariana Islands?

INTRODUCTION OF CNMI OFFICIALS

Mr. MURTHA. Are you Lieutenant Governor Tenorio?
Mr. TENORIO. Yes, sir.

Mr. MURTHA. If you will identify your colleagues here for the record.

Mr. TENORIO. Thank you, Mr. Chairman. On my left is Mr. Eloy Inos. He is the Director of Finance for our government, and to my right, Mr. James Ripple, who is the Special Assistant for Planning and Budget Affairs.

Mr. MURTHA. Your entire statement will appear in the record. If you will summarize it for the Committee.

Mr. TENORIO. Yes, Mr. Chairman. Thank you very much for the opportunity to appear in this hearing this year.

As you said, we have already submitted our long statement for the record, and I will attempt to summarize here and highlight some of the issues.

First, we support the Administration's submission of the Fiscal Year 1989 budget for the Northern Marianas which was the amount from the multi-year financial assistance enacted into U.S. Public Law 99-396. This amount covered $15 million for operations of the government and $25.1 million for capital improvement. We supported the submission, as I indicated.

Also, I want to report, Mr. Chairman, that the seven year fiscal development and socioeconomic plan is being developed now by the government, and we expect to complete the project and submit it to Congress and the Department of the Interior by August. This particular plan outlines the detailed manner in which the funds being appropriated for the next seven years would be expended for capital development programs.

CNMI SHORELINE/WATER IMPROVEMENT NEEDS Mr. Chairman, we are here also to request the support of the Committee in the appropriation of the $14 million which was authorized by Public Law 99-662 under the Water Resource Conservation, Development and Infrastructure Improvement Act of 1986. This money is needed to deepen the entrance channel and the basin of the Saipan Harbor, a commercial port that acts as the main transshipment and shipping harbor for the commonwealth. The commonwealth government will be expending $12.5 million be ginning this year to make improvements on the shore-side facilities. We are asking the U.S. Government to provide us with the funds for the offshore improvements, which is dredging. That amount, as I said, was already authorized by Public Law 99-662.

Also, Mr. Chairman, we would like to ask the indulgence and support of the Committee to consider appropriating some funds for water improvement programs. Several years ago about $4 million was appropriated out of the $15 million authorized under the previ. ous statute. The balance is about $10 million. We are requesting that a portion of those funds be made available to continue the ongoing projects that were started in prior years.

We have obligated all of the $4 million that was appropriated to us several years ago and mostly for detail design and engineering of major transmission and distribution systems on the Island of

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