Fund supports bond to settle CNMI govt’s debt

The NMI Retirement Fund has favored a proposal to allow the CNMI government to borrow whatever amount is needed to pay its debt to the pension agency.

The House of Representatives is currently considering two separate legislative initiatives for a pension obligation bond. One version, proposed by Rep. Heinz Hofschneider, calls for a $200-million debt to pay the government’s pension obligation. Another proposal, sponsored by Rep. Joseph Deleon Guerrero, does not set a specific dollar amount, stating only that the bond must not exceed what the government owes the Retirement Fund.

Mark Aguon, administrator of the NMI Retirement Fund, said the agency supports the second proposal because it “foresightedly leaves the amount necessary to be issued open.”

According to the Retirement Fund, as of Sept. 30, 2007, the CNMI government owed the pension program $132 million in employer contributions, excluding penalties and interest.

Aguon said that interest and penalties continue to accumulate. He added that the principal obligation itself continues to accrue because the government has not been able to pay any amount of the required bi-weekly payments.

He added that Deleon Guerrero’s proposal is good because it specifies where the proceeds of the bonds are to be deposited, thus removing any possibility of the money being diverted to other purposes.

While Hofschneider’s proposal also addresses the government’s obligation to Retirement Fund, the proposed $200-million may be insufficient by the time the initiative becomes law, Aguon said.

He also commended Hofschneider’s proposal to gradually reduce the number of government employees until personnel costs are brought down to 60 percent of the government’s budget.

Currently, personnel costs comprise about 75 percent to 80 percent of the government’s total budget.

“This is an interesting and comprehensive concept. Essentially, it caps the government’s labor cost at 60 percent. Personnel costs are the root of the problem with the accumulation of annual deficit. This provision reduces this carryover effect over time. The Fund supports the general idea of this proposition, yet is more specifically interested in the (cap provision),” Aguon said.

Hofschneider’s initiative also proposes to prohibit the Legislature from adding on benefits until the pension program is fully funded.

Legislative initiatives have to be passed by the affirmative vote of three-fourths of the members of each house present and voting. The governor cannot veto legislative initiatives, which are proposals to amend the Constitution. Once passed by the Legislature, initiatives are placed on the ballot for ratification.