Public Law No. 19-67

CBL 19-116 NINETEENTH CONGRESS OF THE FEDERATED STATES OF MICRONESIA THIRD REGULAR SESSION, 2016 CONGRESSIONAL BILL NO. 19-103 P.C. NO. 19-288 PUBLIC LAW NO. 19-67 AN ACT To amend sections 1202, 1204, 1211, 1213, 1214, 1215, 1216, 1217 and 1222 of title 55 of the Code of the Federated States of Micronesia (Annotated), as amended by Public Laws Nos. 18-74 and 18-119, to update and improve the functionality of the FSM Trust Fund, and for other purposes. BE IT ENACTED BY THE CONGRESS OF THE FEDERATED STATES OF MICRONESIA: Section 1. Section 1202 of title 55 of the Code of the 1 Federated States of Micronesia (Annotated), as amended by Public 2 Law No. 18-74, is hereby further amended to read as follows: 3 "Section 1202. Definitions. Unless otherwise 4 specified or clear from the context, words and 5 phrases used in this chapter shall have the following 6 meanings: 7 (1) 'Baseline Funding' means the balance of the FSM 8 Trust Fund on January 1, 2016 not including the 9 balances of the State Sub-Accounts; 10 (2) 'Board' means the Board of Trustees of the Fund 11 appointed pursuant to section 1208 of this title; 12 (3) 'Contributing government' means the government of 13 any State of the FSM or the National Government once 14 such government has made a contribution of funds to the 15 State Sub-Account’s; 16 (4) 'FSM' means the sovereign nation of the 17 Federated States of Micronesia; 18 CONGRESSIONAL BILL NO. 19-103 P.C. NO. 19-288 PUBLIC LAW NO. 19-67 2 of 13 (5) 'Financial year' means the fiscal year of the 1 Fund, which shall be the twelve-month period ending on 2 the last day of each December; 3 (6) 'Fiscal year' means the fiscal year of the 4 National Government; 5 (7) 'Fund' means the FSM Trust Fund created by this 6 chapter, including the accounts therein; 7 (8) 'Fund custodians' means the one or more firms 8 selected by the Board to assume responsibility for 9 the physical possession of the Fund assets or 10 evidences of assets; 11 (9) 'Fund managers' means one or more firms 12 selected by the Board to manage the investment and 13 reinvestment of the Fund's resources; 14 (10) 'Fund returns' means the returns accruing to 15 the Fund by way of income generated from the Fund's 16 resources and the capital appreciation of those 17 resources; 18 (11) ‘General Fund’ means the General Fund of the 19 Federated States of Micronesia, into which all 20 revenues raised pursuant to the tax laws and other 21 revenue laws shall be deposited. 22 (12) 'National Government' means the National 23 Government of the FSM; 24 (13) 'Other participating government' means a State 25 CONGRESSIONAL BILL NO. 19-103 P.C. NO. 19-288 PUBLIC LAW NO. 19-67 3 of 13 government of the FSM; 1 (14) 'Real value' means the value of contributions to 2 the Fund adjusted annually at the beginning of the 3 financial year in the same percentage as the United 4 States Bureau of Labor Statistics Consumer Price Index 5 for All Urban Consumers All Items, United States City 6 Average of the previous 12 months; and 7 (15) 'Reinvestment' means the process whereby Fund 8 returns, whether in the form of income or appreciation, 9 become part of the capital of the Fund.” 10 Section 2. Section 1204 of title 55 of the Code of 11 the Federated States of Micronesia (Annotated), is hereby 12 amended to read as follows: 13 “Section 1204. Purpose. 14 (1) The purpose of the Account A and Account B 15 portion of the Fund is to create a disciplined 16 approach to ensure the protection of the Fund’s Real 17 Value into perpetuity while providing a sustainable 18 source to supplement the needs of the General Fund. 19 Specifically, the accounts shall: 20 (a) assist the National Government and other 21 participating governments to achieve greater financial 22 autonomy in the management of their recurrent budgets; 23 CONGRESSIONAL BILL NO. 19-103 P.C. NO. 19-288 PUBLIC LAW NO. 19-67 4 of 13 (b) enable the FSM at all levels of government 1 to meet long-term maintenance and operating costs of 2 social and economic infrastructure; and 3 (c) enable the FSM at all levels of government 4 to improve existing levels of social and economic 5 infrastructure. 6 (2) The purpose of the State Sub-Account’s A and B 7 of the Fund are distinct and defined in section 1217 of 8 this chapter.” 9 Section 3. Section 1211 of title 55 of the Code of the 10 Federated States of Micronesia (Annotated), is hereby amended to 11 read as follows: 12 “Section 1211. Contributions to the Fund. 13 (1) Contributions to Account A. 14 (a) A contribution to the Fund may be in the 15 form of a grant or, with the agreement of a majority of 16 all trustees, in the form of an unsecured loan which 17 bears interest (or its equivalent) at a rate no greater 18 than three percent (3%) and is otherwise cost-free. 19 (b) The Fund may refuse a contribution if it 20 considers that it would not be in the interest of the 21 Fund or the FSM to accept it. The Fund shall notify 22 Congress of the nature, amount, source and terms of any 23 contribution that it has decided to accept or refuse, 24 whereupon the Fund may conditionally accept or refuse 25 CONGRESSIONAL BILL NO. 19-103 P.C. NO. 19-288 PUBLIC LAW NO. 19-67 5 of 13 the contribution. Acceptance or refusal shall become 1 final no earlier than 180 days after notice to Congress, 2 unless Congress directs by law otherwise. 3 (c) The Fund shall not issue negotiable or 4 transferable obligations evidencing indebtedness for 5 any loan. 6 (d) Contributions shall be made for the 7 purpose of the Fund without further restriction as to 8 use, except such restrictions as Congress may provide by 9 law. Except for repayment of loans, contributions 10 shall not be refunded to contributors. 11 (e) A contribution to the Fund shall not in 12 and of itself constitute or imply any commitment by the 13 contributor to make any further contribution to the 14 Fund. 15 (2) Contributions to the State Sub-Account’s A and B 16 of the Fund are outlined in section 1217 of this chapter 17 and excluded from the provisions above.” 18 Section 4. Section 1213 of title 55 of the Code of the 19 Federated States of Micronesia (Annotated), as amended by Public 20 Law No.18-119, is hereby further amended to read as follows: 21 “Section 1213. Accounts. 22 (1) The Fund shall be divided into Account A and 23 Account B. 24 (2) All contributions to the Fund shall be deposited 25 CONGRESSIONAL BILL NO. 19-103 P.C. NO. 19-288 PUBLIC LAW NO. 19-67 6 of 13 to Account A. Thereafter, the Board shall ensure that a 1 portion of the Fund returns in each financial year is 2 reinvested at the end of that financial year as capital 3 of Account A, such portion being the amount necessary to 4 maintain the opening balance of Account A's capital for 5 the following financial year at the real value of all 6 contributions to the Fund minus all principal repayments 7 made on loans to the Fund. 8 (3) If shortfalls are incurred when the Fund’s 9 investment return net of expenses was insufficient to 10 maintain Account A’s Real Value, such shortfalls shall 11 be made up via a transfer from Account B or via future 12 withholdings of transfers into Account B. Transfers into 13 Account B shall be suspended until such shortfalls are 14 reduced to zero. 15 (4) All contributions to the Fund shall be deposited 16 within 90 days from the date of appropriation. The 17 Secretary of Finance and Administration shall submit 18 proof of deposit and a balance statement to the Congress 19 of the Federated States of Micronesia within the next 10 20 business days from the deposit. 21 (5) Repayment of loans to the Fund and payment of the 22 expenses of the Fund shall be made from Account A. The 23 amount, if any, of Fund returns in each financial year 24 which remains after such repayment of loans and payment 25 CONGRESSIONAL BILL NO. 19-103 P.C. NO. 19-288 PUBLIC LAW NO. 19-67 7 of 13 of expenses, and after reinvestment in accordance with 1 subsection (2) of this section, shall be transferred to 2 Account B. Except as provided in this subsection or 3 upon termination of the Fund, no funds may ever be 4 removed from Account A. 5 (6) Account B shall consist of funds transferred from 6 Account A and the returns therefrom while in Account 7 B. Funds in Account B may be distributed to the 8 National Government in accordance with section 1214 of 9 this chapter or transferred to Account A in accordance 10 with section 1213 (3) and section 1215 of this 11 chapter. Except as provided in this subsection or upon 12 termination of the Fund, no funds may ever be removed 13 from Account B. 14 (7) It is anticipated that funds in Account A will be 15 placed in longer term, higher yielding investments than 16 are funds in Account B.” 17 Section 5. Section 1214 of title 55 of the Code of 18 the Federated States of Micronesia (Annotated), is hereby 19 amended to read as follows: 20 “Section 1214. Distributions to National Government. 21 (1) At the end of each financial year the Board 22 shall determine the maximum amount of funds available 23 for distribution to the National Government in the 24 following fiscal year. Such amount shall be the lesser 25 CONGRESSIONAL BILL NO. 19-103 P.C. NO. 19-288 PUBLIC LAW NO. 19-67 8 of 13 of 5 percent of the average total Fund balances of the 5 1 previous financial years (inclusive) or the entire 2 balances of Account B. For the years 2017, 2018, 2019, 3 2020, and 2021, the average shall be calculated with the 4 available number of years since 2016. For the purposes 5 of this calculation, the balances of the State Sub-6 Accounts are calculated separately and subject to 7 provisions in section 1217 of this chapter. 8 (2) In order to enable the National Government to 9 prepare its annual budget and estimates for the next 10 fiscal year, by January 30 of each year the Board shall 11 inform the National Government of the maximum amount of 12 funds available for distribution in the next fiscal 13 year. 14 (3) The Board shall distribute to the National 15 Government each fiscal year the maximum amount of funds 16 available for distribution or such lesser amount as the 17 National Government may specify. The distribution shall 18 be made at such times and in such proportions as the 19 National Government and the Board agrees. 20 (4) Notwithstanding the foregoing, no funds shall be 21 distributed to the National Government prior to October 22 1, 2023. 23 (5) Funds distributed to the National Government 24 shall be deposited in the General Fund of the FSM for 25 CONGRESSIONAL BILL NO. 19-103 P.C. NO. 19-288 PUBLIC LAW NO. 19-67 9 of 13 appropriation and expenditure consistent with the 1 purposes of the Fund. Such appropriation and 2 expenditure may, but need not, include transfers to 3 other levels of government in the FSM for their use in 4 ways consistent with the purposes of the Fund. 5 (6) This section may apply to the State Sub-Account’s 6 A and B with additional provisions defined in section 7 1217 of this title.” 8 Section 6. Section 1215 of title 55 of the Code of the 9 Federated States of Micronesia (Annotated), is hereby amended to 10 read as follows: 11 “Section 1215. Transfers to Account A. 12 (1) Transfers from Account B. 13 (a) The Board shall transfer funds from Account 14 B to Account A to the extent necessary to make up any 15 shortfall of funds in Account A needed for 16 reinvestment, repayment of loans to the Fund, payment 17 of the expenses of the Fund, and to maintain the Real 18 Value of Account A, pursuant to section 1213 of this 19 chapter. 20 (b) The Board may transfer to Account A any 21 funds in Account B in excess of an amount equal to the 22 sum of all funds transferred from Account A to Account B 23 during the five most recent financial years. Such a 24 transfer may only occur at the end of a financial year 25 CONGRESSIONAL BILL NO. 19-103 P.C. NO. 19-288 PUBLIC LAW NO. 19-67 10 of 13 and after there have been at least five financial years 1 in which funds were in fact transferred from Account A 2 to Account B. Funds transferred to Account A pursuant 3 to this subsection shall be deemed to be additional 4 contributions to the Fund. 5 (2) State Sub-Account’s A and B of the Fund may 6 be subject to the provisions above after certain 7 conditions are met as defined in section 1217 of this 8 chapter.” 9 Section 7. Section 1216 of title 55 of the Code of the 10 Federated States of Micronesia (Annotated), is hereby amended to 11 read as follows: 12 “Section 1216. Miscellaneous restrictions. 13 (1) Except as provided in subsection 1211(a) of this 14 chapter, the Fund shall not borrow money. 15 (2) The Fund shall not be used to guaranty the debt 16 of another person or entity. 17 (3) The Fund shall not invest more than 40 percent 18 in non-U.S. securities or instruments denominated in 19 currencies other than the U.S. dollar except as prudent 20 and necessary to avoid exchange rate risks on loans 21 which must be repaid in a currency other than the US 22 dollar.” 23 CONGRESSIONAL BILL NO. 19-103 P.C. NO. 19-288 PUBLIC LAW NO. 19-67 11 of 13 Section 8. Section 1217 of title 55 of the Code of the 1 Federated States of Micronesia (Annotated), as amended by Public 2 Law No. 18-74, is hereby further amended to read as follows: 3 "Section 1217. Other participating government accounts. 4 (1) There are hereby-created State Sub-A accounts, 5 including A and B sub-accounts, for each of the States 6 of the Federated States of Micronesia; with the 7 condition that the State Sub-Account A for each 8 individual state must meet an initial threshold balance 9 of $2,000,000 USD, independent of the balance of the 10 other state’s Sub-Account A, before establishing a State 11 Sub-Account B for that state. 12 (2) Any donor, including the State and Foreign 13 Governments may make contributions to a State Sub-A 14 account or Sub-A accounts. 15 (3) National Government contributions to State sub-16 accounts shall only be to the long-term, Sub-A account A 17 of that state or states. 18 (4) Contributions to a State Sub-A account made by 19 the National Government shall remain the property of the 20 National Government unless conditions are met for 21 transfers to Sub-Account B, with the relevant State 22 being the beneficiary of the proceeds subject to the 23 conditions of the A account B. Contributions made by the 24 National Government to a State Sub-A account shall not 25 CONGRESSIONAL BILL NO. 19-103 P.C. NO. 19-288 PUBLIC LAW NO. 19-67 12 of 13 be withdrawn or disbursed except to cover the 1 compensation and expenses of the Fund managers and 2 custodians in carrying out their duties in 3 administration of the Fund in accordance with sections 4 1212 and 1213. 5 (5) State Sub-A accounts shall be subject to this 6 chapter and shall be managed and administered in the 7 same manner as the National Government Accounts A and 8 B except that distributable funds or assets shall be 9 made available to the other participating governments 10 rather than the National Government. 11 (6) States may withdraw their own contributions to 12 their States Sub-A account A and contributions made on 13 their behalf by NGO’s and other donors if allowed under 14 the terms of the contribution, beginning October 1, 15 2023. 16 (7) In the event that a state meets the initial 17 threshold requirement to establish a State Sub-Account B 18 under (1) above, States may withdraw from their State 19 Sub-A account B beginning October 1, 2023. Fund 20 expenses shall be prorated between the accounts of 21 different governments in proportion to their relative 22 share of the total Fund." 23 CONGRESSIONAL BILL NO. 19-103 P.C. NO. 19-288 PUBLIC LAW NO. 19-67 13 of 13 Section 9. Section 1222 of title 55 of the Code of the 1 Federated States of Micronesia (Annotated), is hereby deleted to 2 in its entirety: 3 Section 10. This act shall become law upon approval by the 4 President of the Federated States of Micronesia or upon its 5 becoming law without such approval. 6 7 8 9 March 04 , 2016 10 11 12 13 /s/ Peter M. Christian 14 Peter M. Christian President 15 Federated States of Micronesia 16 17 18 19 20 21 22 23 24 25