Floating $60-$70M to finance $174.3M deficit proposed

Should the government be allowed to borrow money to finance the CNMI’s $174.3 million deficit?

This question may be posed to voters in next year’s midterm election, with leaders believing it is time that the CNMI reconsider the constitutional ban on deficit financing.

In an interview Friday, public auditor Michael Sablan said there is a growing belief within the public and private sectors that the government should be allowed to incur debt to finance at least a portion of the CNMI’s deficit.

At $174.3 million as of the end of fiscal year 2005, the deficit has been accumulating over the past 15 years. This includes money owed by government to the NMI Retirement Fund, vendors, and taxpayers with overdue rebates.

According to Sablan, a bond of $60-$70 million should be adequate to pay the vendors and taxpayers, and sustain the Retirement Fund.

“I have offered [the Office of the Public Auditor’s] services not to advocate this proposal, but to pose the question to the voters. Deficit financing is worth considering, but we should let the people decide. If this passes, this is their debt,” Sablan said.

He added that OPA would not support deficit financing unless it is tied in with financial reform measures.

The first thing that should be addressed is the government’s budgeting practice, he said. Historically, the CNMI government has been averaging one budget every four years. “The lack of a timely budget is a recipe for financial failure. You can’t manage your resources without a budget,” he said.

One option, he said, is to set a constitutional budget deadline. In many states, the governor’s spending plan becomes law if no budget is passed by a certain date. “This forces the administration, lawmakers, and the agencies to learn to compromise,” Sablan said.

Another option is to implement a multi-year budgeting system, which will require government agencies to look beyond one fiscal year and anticipate long term needs. Having a two- or three-year budgeting system in the CNMI, according to Sablan, would have prevented past and present funding problems with regard to operating new infrastructure projects such as the landfill, adult prison project, and hospital wing.

The CNMI also needs an independent commission to project revenues, Sablan said. “Over the last 15 years, the CNMI’s revenue projections have been artificially high. Accordingly, we spent on a high level. If you do that, you have a deficit.”

An independent commission, composed of government officials, economists and representatives from the banking, hotel, construction, retail and other industries, can provide a more scientific projection, he added.In addition, Sablan proposed a “rainy day” fund, or an emergency reserve fund to cover future shortfalls. Revenues are transferred to this account until the fund reaches a certain level, which is usually equivalent to one quarter’s budget allotment. “We can decide on the level and protect it in the Constitution, so that we don’t go scrambling around when times are hard. It is also important to have the discipline not to raid it,” he said.

Lastly, financial reform measures should include a financial gatekeeper initiative—or a system to ensure that taxpayer funds are managed properly at the agency level.

This initiative, Sablan said, should cover all government employees who have a direct hand at collecting and disbursing funds. These include comptrollers, budget officers, federal grants officers, treasurers, and procurement officers.

The proposal is to set strict qualification requirements for these financial gatekeepers, insulate them from political influence by giving them terms that do not end with that of the appointing authority, and impose severe personal liability if they violate public trust.