Impact of garment slowdown on govt revenue probed

The Babauta administration has formed a fact-finding committee to assess the impact the projected downsizing within the garment industry will have on the government’s budget and operations.

Led by Lt. Gov. Diego T. Benavente, the fact-finding mission begins its visit to major factory owners this week. This comes amid the recent closure of two factories on the island on the heels of the lifting of quota restrictions worldwide on Jan. 1 this year.

“We want to get a real assessment of the factories’ outlook. The lieutenant governor will be meeting with them face to face to find out how they are affected by the new rules [quota lifting] that have been in effect for two months,” said press secretary Peter A. Callaghan in an interview yesterday.

This way, he said the government would be able to have a better grasp of its budget projections in view of the anticipated decline in garment user fee collections during the fiscal year.

The government, which had projected to earn a total of $218 million in fiscal year 2005, earns an average of $30 million a year in user fees.

Under a worst-case scenario, Callaghan said, the government would lose some $6 million.

“Worst-case initial projection indicated we’d lose $6 million in user fee revenues, but you’ve got to remember that, if people start to go home, the impact of all these workers on our infrastructure is such that it could be a break-even situation. You’ve fewer people in hospital, fewer people using all the services,” said Callaghan.

The garment industry paid $2.08 million in user fees in February 2005 to the CNMI government. There hasn’t been a month over $3 million since July 2002.

The Saipan Garment Manufacturers Association said it expects this trend to continue, with sales expected to drop by as much as 25 percent to 50 percent by year’s end.

“This would represent a user fee drop of anywhere between $5 million to $10 million for the year depending upon market trends, factory closure, U.S. administration limiting China’s export capacity and any change in the tariff treatment for the U.S. insular areas,” said SGMA executive director Richard A. Pierce.

The Saipan garment industry accounts for nearly a third of CNMI government revenue, and employs 15,000 in the factories, while supporting another 7,000 jobs in service support companies and the local government.

The Babauta administration, however, does not expect a 50-percent decline in factory operations, nor a massive departure of factories this year, said information officer Callaghan.

In fact, he said, some factories are still hiring and getting transfers.

“If all the factories move out, that wouldn’t be a good situation…but we don’t anticipate that, neither do they. We don’t hear from the industry that they are closing down. That’s not their projections. Their projections are some downsizing, some reshuffling of workers,” he said.

He cited that La Mode and Sako Corp., for instance, have some sewing lines open.

He conceded that the reduced activity was not considered when the government made its budget projected for FY 2005.

“When projecting a budget in April 2004, it’s hard to say what’s going to happen in 2005. Nobody really knew if the U.S. garment manufacturers were going to be successful in their lobbying efforts. …Now it’s the reason why the lieutenant governor is visiting factories this week,” he said.

He said the fact-finding work would take place in a couple of weeks.

“We’d know their projections for this year. Once completed, we would have an accurate picture of how that’s going to affect the fiscal year 2005 budget,” said Callaghan.

Meantime, he said the government projects to see improved tourism performance this year, in view of the newly signed Approved Destination Status agreement with China.

At the same time, the education industry “is about ready to blossom” with the presence of investors wanting to develop education programs on Saipan.