U.S. Government Accountability Office Reviews CNMI Debt Levels
Federal agency hopes to avoid another Puerto Rico-style financial crisis
By Jon Perez
SAIPAN, CNMI (Saipan Tribune, Feb. 17, 2017) – The U.S. Government Accountability Office is currently reviewing the CNMI’s public debt with the goal of avoiding another Puerto Rico, which is suffering from an ongoing financial crisis since 2005.
Three other U.S. territories—American Samoa, Guam, and the U.S. Virgin Islands—are also included in the review.
In 2013, the CNMI had a $354.7-million long-term debt. That amount now stands at $471,758,182, with $88,840,077 owed to bonds payable, while claims and other judgments stand at $43,682,326.
There is also an $11,583,616 debt to component units—the Commonwealth Healthcare Corp., Commonwealth Utilities Corp., Public School System, and the Marianas Public Lands Trust. The CNMI’s 2014 fiscal year audit report also reported $58.7 million in unpaid claims while the government’s recorded liability with the Settlement Fund is at $227,749,160.
Puerto Rico has an outstanding debt of more than $70 billion, earning it the moniker of being the Greece of North America.
In 2014 the big three of U.S. credit rating agencies—Fitch, Moody’s, and Standard & Poor’s—gave Puerto Rico’s government a non-investment grade.
The current GAO review is required under Public Law 114-187 or the Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA, that was signed by former President Barack Obama on June 30, 2016. Puerto Rico owed $77 billion when Obama signed the law. It established an oversight board to assist Puerto Rico in managing its government finances.
Delegate Gregorio Kilili C. Sablan (Ind-MP) said the GAO report would focus on how much each insular government owes and their ability to pay their debt.
“It will be an objective review of the debt situation that the public in the Marianas and other insular areas can rely on,” he said.
Sablan said that early drafts of PROMESA could have generally applied to all U.S. territories but congressional leadership focused the law only on Puerto Rico.
“In drafting PROMESA we had to be very careful to keep out any breach of local self-government enshrined in the Marianas Covenant. And we were successful, I think, at protecting the Covenant.”
“We did include the one provision, however, that requires a report to Congress on debt held by insular governments. We want to avoid a situation in which the Marianas or any other insular area faces the kind of fiscal crisis that we see right now in Puerto Rico.”
Sablan added GAO had been collecting data in the CNMI that will be included in the PROMESA report. They are also working closely with the Commonwealth government. GAO’s deadline is on June 30 and will be conducting similar reports every after two years.
Sablan said that GAO Strategic Issues director Susan J. Irving wrote to him last Feb. 8 to lay out the report’s scope.
“We will review each territory’s single audit reports for the last 10 years (fiscal years 2005-2015) and analyze bond prospectuses for each territory’s debt issuances for the same period. In addition, we will use internal controls criteria to assess whether the territories have sufficient data and information to determine their ability to repay their public debt and take notice of potential future debt crises,” said Irving in the letter to Sablan.
Examining the trends in public debt and its composition between fiscal years 2005-2015 and future public debt projections; examining trends in revenue and its composition between fiscal years 2005-2015 and future revenue projections; reporting on the drivers of public debt and their relative impact, including the effects of federal and territorial laws, mandates, rules, and regulations; and reviewing the ability of each territory to repay its public debt are GAO’s objectives.
Sablan said GAO’s study would give Congress, and the CNMI’s government and public an “accurate picture of the Commonwealth’s debt and the risks it may pose. I’m also looking forward to ideas about what can be done to ensure that the local government can continue to provide essential services to our residents and can avoid the kind of debt crisis that the government of Puerto Rico is still facing.”
Early this month, Sablan also met with GAO officials Dr. Emil Friberg and Dr. David Gootnick where he was updated on the fieldwork done by the federal agency’s team in the CNMI on the issues related to the minimum wage increase and the foreign guest worker program.
GAO report’s expected release is sometime in April and the results would help the ongoing discussions of finding long-term solutions in the CNMI’s labor needs.
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