State of the Commonwealth Address

Editor’s Note: The following is the official text of the State of the Commonwealth Address that Gov. Benigno R. Fitial delivered in front of the Legislature on April 21, 2006, at the Multi-Purpose Center in Susupe. The governor inserted some changes and other comments during the actual delivery of the speech.

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My dear people of the Northern Mariana Islands:

The reports of the Lt. Governor and the Washington Representative reflect the intelligence and enthusiasm that they have brought to this administration. We work together as a team and I am very appreciative of their contributions to the welfare of the Commonwealth.

My assignment today is to set forth the basic facts regarding the serious financial crisis facing this community: (1) what we found when this administration took office; (2) what immediate steps we took; (3) what additional steps are needed in the near term; and (4) what we need to do longer term.

What did we find?

When Lt. Governor Villagomez and I took office, this is what we found:
* Falling revenues
* Rising costs
* 640 additional government employees
* More garment factory closings
* An unrealistic budget
* A sick economy

Our ability to deal with these issues is complicated—and burdened—by the long history of budgetary deficits in the Commonwealth. We cannot look for short-term solutions to these problems. We must confront the overriding challenge of our addiction to deficit financing.

Looking back two decades—1986—we can see clearly how our current situation evolved. A chart of the amount of our deficit from year to year shows the Commonwealth had a relatively small manageable deficit in 1986 and 1987. Then the Commonwealth did have a surplus for a few years in the late 1980s and early 1990s. These were the years when we were still reaping the benefits of the economic boom of the 1980s. But the downward trend of our deficit for the last decade is clear. A few efforts were made at deficit reduction in the 1990s. But then things went quickly downhill.

The Commonwealth has operated with a surplus in only four years of the last 20. The most recent year of no cumulative budget deficit was 1993. The most recent year of no annual budget deficit was 2000.

The deficit has grown from $48.8 million in 1998 to $108 million in 2005. The increase in the deficit has been relentless in recent years. Bigger, bigger, and bigger cumulative deficits appeared every year. It is time to stop this growth in the deficit. I cannot overemphasize the burden of the $108 million deficit we inherited.

And there is more. In order to have a realistic picture of where we stand today, it is necessary to look at the other obligations of the Commonwealth government. This government has to recognize certain categories of reserves—or unliquidated obligations of the government. When these items are taken into account, the cumulative deficit of the Commonwealth is $155 million.

We had no choice but to take a hard look at the budget for the 2006 fiscal year. Remember that the fiscal year began back on Oct. 1, 2005. We immediately realized that this administration could not possibly operate with the $213 million annual budget under the continuing resolution of the Legislature. When we examined the previous administration’s proposed budget of $206 million for 2006, we concluded that it too was unrealistic.

The revenues that we could reasonably project for this fiscal year were lower than had been originally projected. Almost all sources of our operating revenues have been affected adversely. To some extent, these revised projections were required because of the recent decision of Japan Airlines to withdraw service from the CNMI. Also, these figures had to take into account the recent—and anticipated—decision in the number of operating garment factories.

Based on these calculations, we concluded that the Commonwealth could anticipate revenues of no more than $198.5 million during fiscal year 2006. This was the amount that the Commonwealth would have for its government operations and public services during the remainder of the year.

But here was the important question: Can we pay the bills every month? We have to look at the quarterly and monthly allocation. With a budget shrunk down to $198 million, the monthly allocation is now only $16.5 million.

But then we discovered that we could not proceed on this basis because of the expenditures of the previous administration during the first quarter of this fiscal year. The monthly expenditures for the last three months of calendar 2005 were far in excess of the anticipated revenues of the Commonwealth—even under the $213 million contained in the continuing resolution. The expenditures for these three months totaled about $60 million. The expenditures continued at this same pace for January 2006, with most of these commitments made before this administration took office on Jan. 9, 2006. As a result, we concluded that the Commonwealth government only had about $117 million to spend for the rest of the current fiscal year.

So now, with only $117 million for the remaining eight months of this fiscal year—we have only $14.62 million per month. The numbers are stark. The challenge is enormous.

What have we done

Let me turn now to what we have done since the inauguration.

I am very proud of the Cabinet that I have assembled. They are doing a fine job with very limited resources. They truly understand the CNMI’s financial situation. I make it a point to meet with my Cabinet every week. At virtually every Cabinet meeting, I remind them to cut costs within their departments.

To successfully overcome our financial and economic problems, all Commonwealth agencies must share the same financial goals and objectives. We realize that our mission would fail without the close cooperation of all government offices.

Although we are from different political parties, I am proud of my close working relationship with our Resident Representative to the United States, Mr. Pete A. Tenorio, who is doing an outstanding job representing the CNMI in Washington, D.C. Representative Tenorio understands our issues and this administration is committed to allowing our Resident Representative to do his job without undue political interference from home.

As a result of our administration’s good working relationship with the 15th Legislature, we have passed five Commonwealth-wide bills into law as well as a number of local bills. We secured full reprogramming authority to meet payroll obligations and keep CUC running. We abolished the Marianas Public Lands Authority and replaced it with a far more accountable Department of Public Lands, consistent with constitutional requirements. We did away with employment contract buyouts or golden parachutes reminiscent of the excesses of corporate America. We supported vocational training at NMC to help promote local employment. And we finally, after all of these years, delivered a holiday in honor of Dr. Martin Luther King Jr. at no additional cost to our government.

I attach special importance to making certain that the people of Rota and Tinian are not neglected. In previous years Rota and Tinian may not always have received the attention they deserve. I make it a point to visit Rota or Tinian every Saturday at my own personal expense, because I believe it is vitally important to unify our entire Commonwealth in facing our current crisis.

I have also reactivated the Governor’s Council, a constitutional body comprised of all our island mayors and our Carolinian Affairs Office. I value the advise of these experienced political leaders, who bring to my attention the special needs of their constituents.

To be successful in our efforts, we must be open and transparent in dealing with the media. We must be forthcoming and ready to answer questions. This is why my administration schedules weekly press conferences and radio interviews. We want the people to have the information we use to make sound decisions, so that they can support our goals for the Commonwealth.

Faced with our updated assessment of the 2006 budget, we moved quickly to reduce costs. We significantly restricted travel expenses. We curtailed government vehicles purchases and leases. We cut phone lines and government cell phones. And we made absolutely sure that our government employees fell within the salary cap mandated by law.

We promptly established a joint financial management committee comprised of the financial managers of the Legislature and our administration. This includes the Secretary of Finance, the Special Assistant for the Office of Management and Budget, the Senate Fiscal Affairs Committee chair, and the House Committee on Ways & Means chair. In this time of crisis, it is essential that the two branches of government work together—across party lines and recognizing their joint obligation to find solutions to the Commonwealth’s financial difficulties.

This spirit of cooperation was reflected in the Legislature’s prompt adoption of reprogramming legislation. This action acknowledged the grim state of our financial affairs and the Governor’s need for discretionary authority to take action necessary to continue to meet the government’s payroll obligations.

These early steps have been successful in showing the way to operate under the drastically revised budget limitations for this fiscal year. Remember, I said that with only $117 million in revenues available for the next eight months, we could only spend $14.62 [million] per month if we want to avoid more deficits. The actions we have taken thus far have reduced monthly expenditures from a high of nearly $21 million at the end of 2005, to $18 million in February, and $16.8 million in March. We are confident that the month of April will show a further decrease in spending as a result of our new policies and determination to enforce them.

What are we doing now?

Now let’s talk about what we are doing at the present time.

Our current efforts are necessarily directed to reducing government personnel costs. We have to do this because if you look at our operating budget distribution, you see that these costs amount to about 75 percent of total government costs.

As part of this program, we are planning to reduce government employment costs by making government more efficient, renegotiating contracts with excepted service employees, and strictly controlling overtime and other premium payments. We have already reduced by 90 the number of employees on the job in the few months since December, and I expect more reductions may be justified as a result of some of the other measures under consideration.

We have initiatives to make the Executive Branch more efficient. In order to increase fairness and improve overall supervision of the Commonwealth’s employees, we are moving the Office of Personnel Management to be under the jurisdiction of the Civil Service Commission.

It is important that all of the Commonwealth’s autonomous agencies play a constructive role in achieving the financial and economic goals of this administration. Because of widespread public concerns, we moved promptly to abolish Marianas Public Lands Authority and replace it with a new Department of Public Lands under the Executive Branch. With several new members, I am confident that the Marianas Public Land Trust will be more effectively managed and, sooner rather than later, begin to contribute much needed funds to the general revenues available for appropriation by the Legislature.

I am trying to bring all of our autonomous agencies together in alignment with the financial and economic goals of our administration. These agencies include CDA, CPA, MVA, and the Retirement Fund. I urge these agencies and their officials to work with this administration and look for means within their areas of responsibility to address our financial crisis.

Aligning our government under the same financial objectives means that different Commonwealth agencies should not become mired in costly inter-agency litigation. The Lt. Governor and I do not believe in litigation among government agencies working for the same taxpayers. We believe in consultation, mediation, and negotiation—not litigation.

What I propose to do this year

Here is what I propose to do during the remainder of this year.

I have instructed the Office of Personnel Management to obtain an independent and comprehensive desk audit of all position in the Commonwealth government. Doing this kind of “bottom up” analysis is the only fair way to assess the needs of the Commonwealth in future years in terms of number and classification of jobs and the appropriate salary levels.

During the remainder of this fiscal year we will be enforcing very tough measures to reduce the deficit, which is currently projected to be $37.5 million. We need to get the deficit down to as near zero as humanly possible.

We will seek to reverse the CUC utility reserve fund. As the Lt. Governor reported, within 60 days the general fund will not be burdened with paying for CUC’s fuel costs.

We will seek legislation to effect an employer contribution holiday for the general fund only. The general fund is the guarantor of the fund and remains obligated to repay those funds. Having this holiday will not affect the benefits of the retirees in any way. They are covered. They will get 100 percent of their benefits.

We will reprogram the fiscal year 2006 deficit reserve to address the current year shortfall.

Wage reductions are at the end of my list. The wage reduction legislation pending in the Legislature is intended to be a temporary measure to help the Commonwealth survive this current crisis. I recommend that the legislation make clear that its provisions will expire at the end of this fiscal year. I cannot reduce the deficit sufficiently if we do not take this step. This will not totally eliminate the $37.5 million shortfall for this year, but we must not let a big deficit this year add to our cumulative deficit.

We will present a balanced budget by May 1 as a result of cost-saving measures. These proposed actions will be detailed in our budget presentation when we deliver it to the Legislature. We look forward to public hearings on the proposed budget and careful consideration by the Legislature.

We will support the private sector in building the economy. We do not intend to ask more from the private sector by raising business taxes. More sales will lead to more taxes. Not more taxes on sales.

I have stressed on every possible occasion that this Commonwealth is, and intends to remain, a community that welcomes serious and responsible investors. This message is having results. We see signs that investor confidence is rising. Duty Free Shoppers may be expanding, investing as much as $20 million in the next few years.

Although capital improvement projects are important in terms of developing our local infrastructure, they are not the long-term solution to our economic ills. The long-term solution has to come from constantly replenishing and profitable private investments. With this goal in mind, we will make every effort to treat all businesses fairly and to help them succeed in our market.

This is why I am working very closely with the private sector to address the needs of our economy. I have special investment advisors for different markets, including Korea, China, India, Pakistan, and the United States. I have established a special, all-volunteer private sector group to advise me on policies designed to spur economic growth. I meet regularly with the Strategic Economic Development Council and consider their suggestions carefully.

We are striving to make it easier for all legitimate businesses to operate in the Commonwealth. Our Department of Commerce has just opened a One Start Licensing Center in the Joeten DanDan building. From this new office, business applicants will be able to take care of a variety of business licensing requirements: alcohol, beverage, and tobacco control licenses, weights and measures licenses, as well as banking, insurance foreign investment, and taxicab licenses, along with general business licenses. From this new office, investors and developers can also address their various government permitting needs. We have finally established a “One Start” permitting center.

To secure more flight capacity and lower the cost of doing business, we are looking for alternative sources of fuel from Korea, Russia, and the Philippines. As you know, top executives of Petron recently visited the Commonwealth, and their visit was promising.

As I said at my inauguration, one of our main priorities is to revive our Japanese tourism industry. Although Japanese tourist arrivals dropped 21 percent in February compared to the same month last year, we continue to be bullish on Japan, a growing economy. It is encouraging that former Japanese Congressman Saburo Tsukamoto paid the CNMI a visit at my invitation and pledged to help bring back Japanese investments. And I’m very proud of securing additional Northwest flights during one of my visits to Japan. We are working hard to secure more visitors from Japan. I have offered my own family land in Marpi to build a memorial in honor of Emperor Akihito’s recent visit to the Commonwealth. We want to build a temple and another Japanese memorial in honor of World War II casualties.

This administration is working to fully implement zoning in Garapan and throughout the island. I’ve met regularly with our zoning board, and they understand that we are committed to making Saipan a more attractive place for tourists and residents alike. We are cleaning up western Garapan, making it more friendly to families and tourists.

We can also take satisfaction in the potential of the Tinian gaming industry. Although Tinian had legalized gaming for years, not much has happened with the Tinian gaming industry until quite recently. Boosted by our supportive administration, investors and developers are now flocking to Tinian. We have the Bridge Investment Group, the Cordish Group, and Marianas Resort Development Company joining the Tinian Dynasty. MRDC just broke ground on Tinian this month, shortly after we signed a memorandum of understanding.

We are also looking at a promising military contribution to the economy on Tinian, as U.S. military personnel move to the Marianas from Okinawa and Japan. More military exercises may be conducted on Tinian, boosting commercial opportunities for the island.

We expect another economic boost from the education industry. We believe educational institutions from China, Korea, Japan, and Hong Kong will establish schools here. I emphasize, however, that we are strictly looking at private investments, not CNMI government-related investments like the failed Gateway project. The education industry can succeed with private investments and the right regulatory environment that will advance the industry while also protecting consumers.

So far we have been talking primarily about economic issues. In the State of the Commonwealth Address, it is customary to talk about education, health care, and the environment, among other issues. I regret not being able to share my views on these important subjects.

But this is no ordinary State of the Commonwealth Address. Our government is in financial crisis.

We didn’t create this crisis. But we are going to fix it.

Thank you!

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Fitial is the governor of the Commonwealth of the Northern Mariana Islands.