Babauta sole-sources lobbyist contracts

Gov. Juan N. Babauta sole-sourced two lobbyist contracts and authorized the payment of nearly $200,000 in the last two years in hopes of recovering over $100 million in cover-over taxes from the federal government.

At the same time, the Governor’s Office is currently working on a third contract with the same firm on the same subject.

This came out even as the administration is still faced with the same problem: the retrieval of some $100 million in cover-over funds, which refers to the unremitted taxes, duties, and fees collected by the U.S. government from CNMI residents in the past 10 to 12 years.

Documents showed that Babauta entered a $100,000 contract with Washington D.C.-based Daryl Owen Associates in Dec. 2003 and another $90,000 contract in July 2004.

Owen and his associate, Jim Berne, who had completed the first two contracts with Babauta, are now retained by Washington Rep. Pedro A. Tenorio on a $15,000 monthly fee.

Owen is the same consultant who brokered by contract between the CNMI and Softsky Inc. for the minting of the World Trade Center commemorative coins, whose sale has been stopped by a New York court after accusations of fraudulent advertising.

The two consultants arrived on island Monday and will be here until Friday this week, partly to join the ongoing fact-finding mission of visiting U.S. Senate Energy Committee staff members Allen Stayman and Josh Johnson.

The first contract awarded to Daryl Owen Associates included $100,000 for legal services-tax projects payable in $15,000 a month, with a $45,000 retainer.

The contract required the consultant to clarify the intent of the Covenant with respect to those categories of taxes subject to cover-over, obtain an accounting of funds pursuant to Covenant section 703 (b), secure a definition of inhabitant which eliminates use of the term ‘bona fide resident’, and secure federal funds in settlement of the cover-over obligation.

Documents showed that the $100,000 contract expired in April 2004.

In June 2004, Babauta executed another contract with the same firm, this time at $90,000, which had the same work scope as the first one. The second contract was set to expire in Nov. 2004.

Owen’s previous contract entitled him to receive a $400,000 as success fee if the CNMI is able to collect from the federal government over $6.5 million in cover-over taxes.

Press secretary Peter A. Callaghan said the administration is inclined to hire the consultancy firm for the third time on the same subject.

“We do plan to sign a third contract,” said Callaghan.

In a separate interview, Babauta said that the cover-over issue “is very important to us.” He said that this is one of the issues that need immediate congressional action.

“We need to get those legislation moving,” he said.

He disclosed that a Senate bill on the recovery of cover-over tax actually passed the U.S. Senate last year but failed to make it to the House before the last Congress adjourned.

He noted that, with the help of Owen Associates, the CNMI has managed to recover a total of $1.2 million in cover-over taxes. He said this is a good return given the cost.

“Well, when you invest $100,000 and get $1.3 million, I think you can make your own conclusion,” he told reporters.

Callaghan said the $1.2 million was “the result of their firm’s [Owen’s] making Congress aware of the cover-over due the CNMI.”

He said the amount represents “current payment,” and not prior payments, which amounts to an estimated $100 million. The recovery of the prior years’ payments would be the focus now.

Cover-over refers to the implementation of U.S. Public Law 94-241, which requires the federal government to pay the CNMI the proceeds of all taxes, duties, and fees collected by the U.S. from CNMI residents, with exception of Social Security.

The administration said that over the years, CNMI soldiers and federal employees in the CNMI have forked out tax obligations that should have been channeled to local coffers.