Palau Compact of Free Association Implementation Act

Title I: Implementation of Compact of Free Association with Palau - Authorizes the entry into force of the Compact of Free Association between the United States and Palau (the Compact), subject to its approval by referendum and freedom from legal challenge.

Directs the Department of the Interior to develop a plan for an anti-drug program in Palau. Requires the President to negotiate an agreement with Palau to implement such plan.

Directs the President, upon request of the Government of Palau, to provide appropriate technical assistance to the public auditor or special prosecutor.

Prohibits using funds appropriated for assistance to Palau to satisfy any obligation or expense incurred by Palau prior to November 14, 1986, with respect to contracts or debts related to electrical generating plants or related facilities which have not been specifically authorized by the Congress in advance, with exceptions.

Directs the chief officer of any agency conducting annual audits of assistance provided to the Federated States of Micronesia and the Marshall Islands to certify such audits.

Declares that the Compact does not restrict the President from requesting additional funding or consenting to an extension concerning the use by the United States of privately owned lands in Palau as defense sites.

Directs the Secretary of the Interior to station at least one professional staff person in each of the offices of the U.S. in Palau, Micronesia, and the Marshall Islands to provide Federal program coordination and assistance.

Makes funding available to carry out this title and for assistance to the Palau central health facility, prison, and offices of public auditor and special prosecutor. Authorizes the President to negotiate an agreement with the Government of Palau which shall provide the following: (1) $28,000,000 shall be provided to Palau upon entry into force of the Compact; (2) Palau shall pay to the United States, on or before the 15th anniversary of the effective date of the Compact, the net economic costs of providing such funds; and (3) automatic payment to the United States if Palau has not paid such amount by the 15th anniversary of the effective date of the Compact.

Amends the Act approving the Compact to provide that the authorizations for transition purposes shall decline over the first through third fiscal years after the Compact's effective date (under current law, FY 1987 through 1989).

Title II: Insular Areas Matters - Authorizes the President to negotiate agreements to provide that: (1) the United States shall carry out certain provisions of the Controlled Substances Act for the lawful distribution of controlled substances in the freely associated states; and (2) such states which maintain voluntary systems to report annual estimates of narcotics needs to the International Narcotics Control Board and which impose import controls on narcotic drugs consistent with the Single Convention on Narcotic Drugs, 1961 shall be eligible for U.S. exports of such drugs in the same manner as countries meeting certain requirements of the Controlled Substances Act.

Designates the Northern Marianas College as a depository to receive U.S. Government publications.

Amends the Revised Organic Act of the Virgin Islands to repeal requirements for the locations of courts for the Virgin Islands.

Amends the Military Construction Authorization Act, 1981 to increase the maximum percentage of monetary consideration received by Guam from the sale of certain lands conveyed to it by the Secretary of the Navy that is deductible as reasonable development costs from sale proceeds required to be paid to the United States.

Authorizes additional appropriations to the Secretary of the Army for the design and construction of the Nanpil hydropower project.

Makes a technical amendment to the Compact of Free Association between the United States and the Government of Palau.

Amends the Omnibus Crime Control and Safe Streets Act of 1968 to consider American Samoa and the Northern Mariana Islands as one state for purposes of receiving drug control grants and to set percentages for the allocations of such grants.

Authorizes appropriations to the Secretary of the Interior for prison construction and renovation in the Virgin Islands.

Exempts real property owned by the Northern Mariana Islands in the capital of the United States and used by the Resident Representative from assessment and taxation.