Federal Report: CNMI Faces Dire Financial Problems

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Interior Department says reducing deficit will be difficult, painful

By Haidee V. Eugenio

SAIPAN, CNMI (Saipan Tribune, Nov. 1, 2012) – A U.S. Department of the Interior report says the Northern Marianas confronts a "potentially catastrophic fiscal problem," the root causes of which have long been known-yet needed actions to put the government on a "sustainable fiscal course" would take more than just work hour cuts, turning a health department into a corporation, and rejoining the U.S. Social Security System.

"A risky emergency landing is preferred to an uncontrolled crash landing," the report says, as it asks the Commonwealth of the Northern Mariana Islands (CNMI) to consider actions that are unpleasant yet would have a more appealing end result.

The Interior-commissioned CNMI financial assessment report, presented by Interior Assistant Secretary for Insular Affairs Tony Babauta to Gov. Benigno R. Fitial and other stakeholders the past few days, says the government should attend to three broad goals while providing essential services.

These are: Close the gap between current revenues and current expenses; fund a deficit reduction schedule; and observe strict financial controls.

"Under the circumstances, striving to reduce the Commonwealth's accumulated deficits through a rational readjustment of expectations and service priorities will be both difficult and painful. As we see it, however, the alternative would be worse-potentially involving a haphazard loss of ability to provide fundamental government services," the report says.

It says given a deficit of over $300 million, more than twice the current annual revenues, it appears that financial controls "have broken down in the CNMI."

"Other than an extra budget item to apply the debt owed to the retirement fund, the CNMI has not made provisions to retire prior year deficits nor to establish an emergency reserve," it says.

Fitial said his administration has a deficit reduction plan.

Press secretary Angel Demapan echoed this yesterday, saying that this "involves setting aside surplus funds and reserving them in an effort to reduce the government's cumulative deficit."

Demapan said the administration is still reviewing the report but said it "should be noted that the bulk of the over $300 million cumulative deficit is the unpaid obligations to the NMI Retirement Fund."

He added that once the governor and Lt. Gov. Eloy S. Inos complete their review, "further comment will be forthcoming."

Priorities

The report says policymakers should prioritize program spending to assure that citizens continue to receive a basic level of essential services.

For example, the Interior report determined that elected officials-mayors and councils, the Legislature, the governor and lieutenant governor-account for 12.4 percent of the general fund budget in fiscal year 2012.

This is almost equivalent to 13.2 percent for public order and safety. This is also higher than the 9.1 percent for health, the 7.3 percent for economic development, utilities at 4.7 percent, justice at 3.8 percent, or disaster and emergency management at 0.4 percent.

The bulk or 34.1 percent of the general fund budget remains for education.

Recommendations

Douglas Brennan, president of the Saipan Chamber of Commerce, said yesterday that the Chamber is "acutely aware of the cumulative general fund deficit of over $300 million."

"More important than how that translates into job loss and less consumer spending for small businesses in the CNMI is how the government will address the issue through a deficit reduction plan," Brennan told Saipan Tribune.

As a stakeholder in the CNMI, the Chamber received a copy of the Office of Insular Affairs (OIA) funded report. The Chamber is the largest business organization in the CNMI with over 150 members.

Brennan said the Chamber met with OIA's Babauta twice to discuss the report.

"Those meetings were extremely beneficial. The Chamber conveyed strategy on how best to address revenue generation through projects needing federal administrative support, which would in turn rebuild a private sector tax base," Brennan added.

The figures in the report are not new yet the recommendations, especially coming from the Interior, are worth considering, some stakeholders told Saipan Tribune.

These include making sure that the annual budget accommodates known, fixed assets such as utilities and retirement at a "realistic level of spending to which managers can be held accountable."

They also include developing a program evaluation data that will facilitate setting budget priorities based on evidence of relative public benefits instead of across-the-aboard strategies that can lead to insufficient support and unintended waste.

Interior's Babauta presented also presented the report to other government officials, the Saipan Chamber of Commerce, the Marianas Visitors Authority, the Hotel Association of the Northern Mariana Islands, students, and other stakeholders.

The report, prepared for the CNMI governor by Deborah Milks and Roger Black under contract to the Graduate School USA, presents factual information that point out potentially profitable avenues of further policy development.

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