Palacios submits $111.4M budget for FY 2025

Gov. Arnold I. Palacios submitted last Monday to the Legislature a proposed $111.4-million budget for the government and related agencies’ operations for fiscal year 2025, which is about $2.8 million less than the $114.2-million budget for FY 2024.

Palacios said the net estimated internal resources reported by the Department of Finance available for general appropriation for FY 2025 are $158,614,274, a 3% reduction from the current fiscal year budget.

He said of this total, $47,140,263 is set aside for special earmarks, the minimum annual payment to retirees, and payment of debt service obligations.

The governor said the net available resources for government operations, amounting to $111,474,011, are allocated among the Executive, Legislative, and Judicial branches, inclusive of the 25% for the Public School System.

The total projected revenues are $62.3 million from Business Gross Revenue Tax, $33.6 million from income taxes, $50.2 million other taxes, $9.5 million from fees, $1.4 million from charges for services, and $1.3 million for other revenue, or for a total of $158.6 million in identified gross budgetary resources.

Palacios said they will continue to monitor events and fiscal conditions that might affect the underlying assumptions and consideration of their proposed budget for FY 2025 and will inform the Legislature of any changes and proposed amendments as appropriate.

The governor stressed that it is critical that the Legislature consider new revenue-generating measures and pass them expeditiously so that they can be in a stronger position to deliver the public services that the people of the Commonwealth deserve.

He said in preparing this budget proposal, the administration has had to make difficult decisions that preserve essential services while also recognizing the need for prudent financial management.

“We understand the challenges we face. It is important that we work together strategically and collaboratively to face these head-on, not through band-aid fixes but through creative solutions and a firm commitment to long-term growth,” Palacios said.

He noted that the budget proposal includes reductions in areas where efficiencies can be achieved without substantially compromising the quality of services provided to the residents.

The governor said these cuts are necessary to ensure that the resources are allocated responsibly and consistent with the Commonwealth’s priorities.

Palacios noted that they will continue to examine collections through the third quarter of the current FY 2024 to evaluate trends across the different income categories.

He said collections for the current fiscal year already reflect a decrease in business gross revenue tax, income tax, and excise taxes, which comprise the bulk of the decline in revenues through the second quarter.

Palacios attributed the decline in excise tax revenue to a regional trend in reduced ocean freight transportation and corresponding local reductions in the volume of orders by businesses to resupply commodities.

He said these factors, which are also impacted by inflation and fuel costs, are just a few of the many factors they consider in projecting the revenues.

The governor said, however, BGRT and excise taxes are anticipated to increase as the CNMI’s infrastructure projects that include roads, schools, the college, renewable energy, and housing are currently in progress and will extend beyond FY 2025.

He added that military investments in the CNMI will only add to the expected growth of the construction industry.

Palacios said while they anticipate a slight increase in tourist arrivals in FY 2025 and while they are seeking modest recovery in source market arrivals, they are holding steady as they work to add other source markets.

He said the anticipated return of Hong Kong Airlines beginning April 2024 will increase visitor arrivals directly to the CNMI which will aid in restoring stability in the tourism economy.

The Marianas Visitors Authority has reported favorable data indicating that as of January 2024, tourist arrivals have climbed to 50% of pre-pandemic levels.

Palacios said MVA’s strategic partnerships, media coverage, and influencer collaboration have played a vital role in promoting the CNMI to source markets.

MVA’s FY 2025 tourist arrival forecast indicates an increase by 10% to just over 300,000 in total arrivals, account for new direct flights from Hong Kong Airlines and additional flights from Korea.

Palacios said the continuation of United Airlines direct flights from Tokyo-Narita supports the steady growth of the CNMI’s tourism industry.

“These are all positive indicators of a modest recovery,” he said.

Palacios said the following underlying assumptions and considerations are reflected in this budget submission:

– 25% to the Public School System.

– 70 hours’ bi-weekly work schedule at all branches.

– Restore active employee benefits to the department and activity budgets.

– Allocation of $6 million toward Medicaid payments.

– Allocation of $2.28 million for government utilities for the Executive, Legislative, and Judicial branches.

– Allocation of $250,000 each for the utilities of the municipalities of Tinian and Rota.

– Allocation of $2.3 million for the Office of the Mayor of Saipan’s personnel.

– Removal of non-essential vacant positions.

Palacios said the proposed budget calls for the continuation of the MVA Hotel Occupancy Tax earmark to sustain tourist marketing efforts and programs to grow the tourism industry.

He said allocation to the PSS was calculated at 25% of the net budgetary resources available, or $27.8 million.

However, the governor said they are still awaiting PSS’ submission of its FY 2025 proposed budget and discussions with PSS leadership are ongoing regarding the agency’s budgetary allocation to meet its mission and mandates.

Palacios said allocation to fund the mandatory match toward the Medicaid reimbursement program is reduced from $8.7 million to $6 million for FY 2025.

He said other sources of funding will need to be identified to ensure program benefits will continue prior to the exhaustion of this funding allocation.

On utilities, the governor said $2.9 million is allocated in this budget as an assurance of the government’s commitment to pay for its utilities consumption.

He said of this allocation, $400,000 is earmarked for the government’s annual payment of arrears as part of the installment plan agreed to by both Commonwealth Utilities Corp. and the CNMI government, including $250,000 each to the Office of the Mayor of Rota and Office of the Mayor of Tinian and Aguiguan for the payment of municipalities’ utilities.

Palacios said he has issued Directive 2024-004, directing all Executive Branch departments, offices, and agencies to transition their power utility billing to prepaid meters so energy consumption is effectively controlled and a reduction in the usage and costs of utilities is anticipated.

On medical referral, Palacios said this budget proposal allocates $800,000 of the total $8.6 million requested by the Commonwealth Healthcare Corp. for the operations and activities of the Health Network Program to defray the cost of medical care not available in the CNMI.