Replace “pipe dreams” with realistic and pragmatic decisions for NMC

Recently, Galvin Guerrero, a member of the NMC Board of Regents and chair of the finance and fiscal management committee, asserted that the La Fiesta Mall was recognized as an “asset” and the consensus was that the board wants to retain it. Furthermore, Guerrero described it as “kind of a pipe dream” and that there were concerns about the short time of 19 years remaining on the lease agreement. In addition, Guerrero indicated that there was an issue of figuring out a way to extend the lease and making it a more permanent investment.

Let us review just how much capital is necessary to maintain and keep the La Fiesta Mall open and operating as a non-functional campus. For one year it will cost $600,000 ($50,000 a month) in terms of operating the facility. For the span of the lease arrangement of 20 years, the total outlay of capital necessary to operate the facility will be approximately $12 million ($600,000 X 20 years).

The total cost payback on the current outstanding balance of $4 million with interest to “lease” the property from the proprietors of the land—some of the proprietors are Governor Babauta’s family—the La Fiesta sits on over a 20-year period will be approximately $6.9 million, i.e., $200,000 plus interest X 20 years. The total capital outlay needed to operate and lease the property until 2024 will be approximately $18.9 million ($12 million for operating expenses and $6.9 to lease the property).

For the sake of illustration, let us factor in the $9 million ($6 million for renovation and $3 million for classroom equipment) the BOR indicated would be necessary to make La Fiesta Mall a functional campus and compute the fiscal obligation for a 20-year note if these funds are borrowed.

The total cost payback on $9 million plus interest would be approximately $15.5 million. If you add the abovementioned operating and lease total of $18.9 million to the total cost payback of $15.5 million, you will get a grand total of $34.4 million that the college will be obligated to pay on an ongoing basis for the next 20 years until the year 2024.

And if the lease on the land for La Fiesta mall is approved by the BOR to be extended for another 10 years beyond the end of the current lease arrangement which terminates in 2024, i.e., until 2034, the total capital outlay that will be necessary to operate the facility and lease the property will be approximately $51.6 million ($34.4 million + $17.2 million). To extend it 20 years beyond the first 20-year lease, it will cost approximately $68.8 million ($34.4 million + $34.4 million).

There are no monetary resources in the NMC fiscal coffers and the college is currently besieged with a major budgetary deficit of nearly $2 million going into FY 2004-2005, as well as accreditation with WASC is hanging in the balance; yet, according to Galvin Guerrero, the NMC BOR is discussing trying to find a way to extend the “lease arrangement” to make it a more permanent investment.

The only thing permanent about the La Fiesta Mall investment is that the college has to pay the operating expenses of $600,000 a year and the people who own the property every year $200,000 plus interest for the next 20 years, which collectively comes to approximately $18.9 million; and the NMC BOR has yet to reveal a business plan showing the CNMI Legislature, as well as the entire island community, just how these financial obligations will be taken cared within legal parameters.

Since the La Fiesta Mall has not realized any positive return on the investment of any of the $4.6 million in funds that have been expended thus far ($3.5 million taken from the $10 million of approved appropriations for the CNMI for FY 2003 and 2004 from the Jobs and Growth Tax Relief Reconciliation Act of 2003 and/or the Tobacco fund collected in the CNMI) since the official signing of the transaction by the then NMC board chair Vince Seman in 2003, and it does not a appear to begin generating any monetary return anytime soon, then it is time to take a hard look at making some immediate and prudent decisions that will effectively remove the college from being in a deficit mode, as well as being in good stead in terms of accreditation with WASC.

The only people who are benefiting overall from the La Fiesta Mall “pipe dream” transaction that was conducted between Gov. Juan Babauta and the members he appointed to the NMC Board of Regents are the people who own the property the La Fiesta Mall sits on. The students, faculty, and staff have not benefited one iota from the La Fiesta Mall. The people who have been negatively impacted the most, of course, were the 11 staff members who were terminated from their positions because of the initiation of “a reorganization plan” that the former NMC president believed would save the institution money and effectively remove the menacing budgetary deficit that had plagued the college for two fiscal years. And since the college did not save any funds and the deficit still exists, the question as to whether their termination was justified and with cause must be posed.

As a matter of fact, the transaction involving the La Fiesta Mall has jeopardized the stability of higher education at NMC. This can be substantiated by the recent warnings issued by WASC and their concerns over issues involving fiscal stability and the ability to maintain and sustain offering academic programs, e.g., Elementary Education program.

If the NMC BOR makes the decision to sub-lease the mall to interested prospects, the question that needs to be posed is: “Will the amount given to NMC for sub-leasing exceed the nearly $1 million needed every year for the next 20 years? If the answer to that question is no, then to entertain the idea of sub-leasing is a waste of precious time and energy.

Lucio Tan, the Filipino beer and tobacco magnate, was recently queried by the media about the La Fiesta Mall and he stated: “Obviously, there’s only one hotel next to it and I don’t think there’s enough foot traffic there to have it function really as a mall.” If Tan’s position on the mall is not very optimistic, then why would Tony Deleon Guerrero, NMC president, believe that there is potential that Mr. Tan might want to take over the mall?

If Mr. Tan should make a decision to take charge of the La Fiesta facility, will he pay a sub-leasing price that will exceed the total cost to operate the mall ($600,000) and pay the note of $200,000 plus interest on the outstanding balance of $4 million owed for the leasing arrangement with the land owners of La Fiesta (nearly $1 million per annum)? If not, then the college will continually remain in a deficit mode and the pressure of trying to maintain accreditation with WASC will probably continue to increase.

Because the college is without current or reserve funds to take care of the fiscal responsibility of operating and adequately maintaining the lease payment on the property, it is now time for the NMC BOR to come to grips with reality and dispense with “pipe dreams” that will destroy the stability for higher education in the CNMI now and in the future.

To put forth a concerted effort to extend the leasing arrangement, to make it a more permanent investment as Galvin Guerrero put it, will send the college into a monetary tailspin that will have a tremendous negative impact on the stability of higher education in the CNMI. Moreover, to contemplate prolonging a situation that will require much more funding that the institution clearly does not possess reflects a “fantasy pipe dream” that is far from realistic and pragmatic.

Dr. Jesus D. Camacho
Delano, California