TAO audit of FY25 budget finds shortfall due to overly optimistic revenue projections

Pago Pago, AMERICAN SAMOA — The Territorial Audit Office conducted an audit of American Samoa’s Fiscal Year 2025 (FY25) Local budget at the request of Governor Pulaalii N. Pula. 

Dated July 14, 2025, Mike Edmonds, Territorial Auditor, noted that the audit was requested in response to an analysis indicating that annualized first-quarter revenues were estimated to be about $55 million below the Local Budgeted Revenues of $165,907,000. Also, the Auditor noted that tax revenue shortfalls are primarily the result of overly optimistic budget projections, based on revenue surges and one-time revenues from prior years.

According to the summary of the 35-page report, the primary objective of this audit was to determine whether local revenues and expenditures would meet budgeted projections. The report includes an executive summary and the audit report. 

The key findings of the report are as follows:

•        The TAO projects that FY25 local revenues will be more than $42 million below budgeted revenues, or approximately 25 percent below the budgeted revenues of $165,907,000.

•        Corporate tax, Individual Income, and Excise Tax revenues are projected to be more than $42 million below budget; Other budgeted revenues are projected to be slightly above budget, primarily due to interest received on unused ARPA funds. 

•        Tax revenue and other revenue shortfalls are primarily the result of overly optimistic budget projections, based on revenue surges and one-time revenues from prior years. 

•        General Fund expenditures for FY25 are estimated to be approximately $117 million, which is $12.78 million below the budget.

•         Although they could not project Special Programs spending, ASG spent $11.5 million of the $36.2 million budgeted in less than the first six months of FY25. ASG has historically spent about 86 percent of the Special Programs budget. If this historical spending continues, ASG would pay about $31.2 million on Special Programs. Thus, ASG’s local spending would total about $148.3 million, or about $24.6 million more than the projected local revenues.

The auditor noted that they identified other issues while conducting the audit. 

“For instance, we found ASG has not been setting aside excise tax revenues intended for student financial aid and school maintenance as the Legislature intended. “We also found that ASG spent a significant portion of the $38.7 million in Other Expenses during FY23 on construction or construction-related projects. 

“Finally, we found Special Program monies were used for other than their earmarked purposes, without obtaining Legislative approval.” 

The Audit report noted that the government’s budget for all taxes was “overly optimistic”. 

The proposed tax revenues for FY25 are projected to be $123.6 million, which is 20 percent higher than the FY24 budget of $103.2 million. This amount is also nearly $52 million more than the $72.04 million approved by the Legislature three years earlier in FY22, representing a 72 percent increase.

The proposed FY25 budget highlights several factors contributing to this rise in tax revenues: "The post-pandemic recovery continues to gain momentum, supported by federal aid and strong local collections that have boosted our economy. A significant portion of the increase can be attributed to a surge in corporate, excise, and individual tax collections."

Although Corporate Tax revenues significantly increased in FY22 and FY23, this trend did not continue in FY24, and it remains uncertain for FY25.

In FY23, Corporate Tax revenues surged to $46.3 million, marking a 216 percent increase from FY22 revenues of $21.4 million. This sharp rise in FY23 revenues was likely driven by various stimulus measures from the US, which boosted consumer spending and consequently Corporate Tax revenues. However, the increase did not persist into FY24, where Corporate Tax revenues are estimated to drop to $22.67 million, which is only $1.2 million more than the FY22 revenues.

The auditor reported that the revenues from Individual Income Tax are expected to be approximately $34.13 million, which is $17.07 million less than the budgeted amount of $51.2 million.

Similar to Corporate Tax revenues, Individual Income Tax revenues saw a significant increase in FY22 and FY23, largely due to nearly $50 million in one-time payments received from the IRS.

In FY22, the American Samoa Government (ASG) received over $20 million from the IRS, and nearly $30 million in FY23. Although formal documentation of these transactions has not yet been received, Treasury officials and ASG’s external auditors have indicated that these were indeed one-time payments resulting from negotiations with the IRS concerning money owed to ASG from prior years.

As of March 31, 2025, the ASG has not received any one-time payments for FY24 or FY25; as a result, TAO did not factor any one-time revenues into their projections for Individual Income Tax.

The government’s projections for Excise Tax revenues have been overly optimistic, despite relatively consistent collections from FY22 to FY24. During this period, Excise Tax revenues averaged $28.85 million, with annual collections ranging from $27.55 million to $30.14 million. Given this consistent revenue range, the projected budget figure of $34.1 million appears unrealistic.

Moreover, the four-year average for Excise Tax revenues includes funds earmarked for student financial aid and school maintenance that have not been utilized as intended.

In 2018, the Legislature authorized an eight percent excise tax on items excluding beer, alcohol, tobacco, petroleum products, sodas, motor vehicles, firearms, ammunition, and construction materials, with the purpose of funding student financial aid and school repairs and maintenance. The laws governing the distribution of these revenues have changed multiple times.

The most recent legislation stipulates that all revenues collected under this section should be allocated as follows: 50 percent to the General Fund, 25 percent to ASEDA 2018 Bonds, $1,000,000 for student financial aid, and the remainder for school maintenance.

Unfortunately, ASG has not used these funds as directed by the Legislature.

Instead of reserving the funds for student financial aid and school maintenance, ASG has treated these excise tax revenues as discretionary General Fund revenues, disregarding their intended purpose.

For instance, in FY24, ASG received $18,277,846 from the eight percent Excise Tax. According to the legislation, $9,139,122 should have been allocated to the General Fund, $4,569,355 should have been used to pay off the ASEDA 2018 Bonds, $1,000,000 should have been set aside for student financial aid, and the remaining $3,569,355 should have been spent on school maintenance.

However, ASG allocated approximately $13,708,477 to the General Fund and $4,569,355 to the ASEDA 2018 Bonds, but did not reserve any funds for student financial aid or school maintenance. As a result, ASG’s FY24 General Fund revenues from the Excise Tax include $4,569,355 that should have been restricted for those specified purposes, as mandated by law. 

In projecting FY25 Excise Tax revenues, we based our estimates on FY24 Excise Tax revenues of $28,984,071, less the $4,569,355 that should be allocated for financial aid and school maintenance. Consequently, our projection for FY25 Excise Tax revenues is $24,414,716.

To ensure that the eight percent Excise Tax revenues are utilized as intended by the Legislature for student financial aid and school maintenance, ASG should establish special revenue funds.

These funds should account for the revenues and expenses related to student financial aid and school maintenance. The funds collected for these purposes should be held in these special revenue accounts and spent exclusively on the objectives specified in the legislation.

The audit report contains nine recommendations aimed at addressing the issues identified within. Due to time constraints, the Audit Office released the audit report without an official response from the Administration. 

Samoa News will continue to report on other aspects of the audit report in later editions.