Northern Mariana Islands
Dealing With The Deficit
Strategies To Salvage The Budget
How does the CNMI deal with an accumulative deficit of $174 million when the commonwealth Constitution prohibits the government from borrowing funds to pay for operations?
Public Auditor Mike S. Sablan says there are several options: lower expenses by cutting programs and services to within available resources; increase taxes to raise revenues; or finance the deficit by floating bonds, taking out loans; or a combination of the three.
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The law specifies that the deficit must be wiped off the books within two years. In 2005 alone, the deficit was $30 million, the largest in any single year of any administration within the last 20 years, according to Sablan.
The commonwealth government made several attempts to reduce expenses to reduce the deficit, mostly by not paying its utility bills and failing to make government employee contributions to the CNMI Retirement Fund. As a result, unfunded liabilities to the fund have reached $550 million. The government also stretched out payments to private vendors.
But what the CNMI hasn’t done is finance the deficit through the issuance of bonds, a common practice in many U.S. states, Sablan told Pacific Magazine.
“The argument can be made that financing of the deficit is not incurring additional debt but refinancing an existing one. But the government cannot ignore its obligation and responsibility to pay its bills,” Sablan points out. “This is a question that needs to be presented to the people.”
The public auditor says the people should be presented with that question again in a referendum on whether to float bonds to pay for the deficit, which includes expenses for government operations and pay vendors.
“This question is not in lieu of the need to reduce expenses or increase some taxes,” Sablan says. “But it needs to be considered as a compliment to continue to reduce expenses. Sablan emphasizes he will not support borrowing money to pay for the deficit unless “major structural reforms are implemented to correct the mistakes made during the past 20 years.”
Another issue that needs to be considered is the passage of multi-year budgets that look beyond one year. The other suggestion from Sablan is that a commission be formed to make budget projections independently.
Another idea Sablan has is to establish what he calls “financial gatekeepers,” officials who are tasked with collecting revenues that are identified and protected. His office has identified at least 15 offices that could serve as financial gates.
“It’s time that we start implementing major reforms in this government. We need some control,” the public auditor warns.
