Election year proclamations questionable

Under the gubernatorial leadership of Juan N. Babauta, there has been an increase in the government deficit since he took office in January 2002 until now. The increase in deficit has risen from just under $100 million to over $115 million. What spurred the deficit from 2002 through 2004 was attributable to deficit spending, i.e., spending more than what you collect, on the part of the Babauta administration.

The Public Auditor’s report of August 2004 indicated that there were deficits incurred by the CNMI government for consecutive fiscal years and that 2003 would also incur a deficit. In August 2003, Babauta told the media that “the CNMI is close to achieving what has never been done for several years now—a balanced budget”. Babauta’s proclamation was clearly in conflict with the report submitted by the OPA.

The Tribune ran a story recently discussing Juan Babauta’s request to the Legislature to pass a “balanced budget” for FY 2006. The governor asked the Legislature to pass a balanced budget but appears to not want to change the $226 million budget incorporating an Integrated Fiscal Plan, which increases fees across the board.

The irony is that the projected collection of revenues for FY 2006 is in the vicinity of around $206 million and $20 million less than the $226 million budget Babauta is advocating. Despite this rather large discrepancy, Babauta still insists that the Legislature pass a balanced budget that reflects what he desires.

The governor appears to not understand that you can’t have a balanced budget when the amount that you are projected to collect is less than what you plan to spend for that particular fiscal year. Like a well-read journalist I know said, “One plus one is two and not twenty-two.”

Expecting the Legislature to pass the $226 million budget would mean tacking another $20 million onto the staggering deficit that is in excess of $115 million! Increasing the deficit will continually hurt the financial disposition of the CNMI down the road.

Recently, the Babauta administration proclaimed that “they expect to end the FY 2005 without incurring a deficit.” Press secretary Peter Callaghan told the media that the collection will exceed “$213 million this fiscal year.” If this proclamation reflects the truth, then the OPA and/or a reputable accounting firm like Deloitte, Touche & Tohmatsu should substantiate that it is.

The Bank of Hawaii Economic report for 2003 indicated that from 1999 through 2002 there was a decrease in terms of collection of revenues as well as taxes. The report indicated that this trend in the reduction of revenues and taxes would likely continue.

Even if the trend in reduction of revenues and taxes did not persist for fiscal years 2003 through 2004, the fact of the matter is that “overspending” of what was collected took place. This resulted in a deficit for consecutive fiscal years under Babauta’s gubernatorial leadership and the current level of debt is in excess of $115 million.

Finance Secretary Fermin Atalig recently proclaimed that the collection of revenues and taxes have increased since 2003. What Atalig did not proclaim was that due to “overspending” by Babauta, the supposed increases in revenues and taxes were effectively negated. As a matter of fact, it made fiscal matters worse by increasing the government deficit significantly more for two fiscal years in row.

Just recently Atalig told the media that the government collected $189 million as of July 2005, an increase of $12 million over the $177 million collected the same time in FY 2004. Although he did not identify the source of the increases, he noted that they were attributable to “increased economic activities.” What are these activities? And if there have been increased economic activities, then why is the CNMI government cash-strapped and unable to pay the outstanding balance of $4.4 million to CUC and bring the Retirement Fund up to speed in terms of being current? Moreover, if the collections are robust, then why is Dr. Inos constantly bringing up the salient fact that PSS has yet to receive $1.5 million owed them for the past two years?

Atalig also told the media that “if you look at the figures, we are getting more revenues, the economy is moving, unlike what are detractors are saying”. He went on to say that, “There will be no deficit. We are collecting”.

Notwithstanding the apparent fact the revenues from the garment industry have declined significantly from nearly $3 million a month to less than $2 million a month since the onset of 2005, Atalig proclaimed that the government is collecting more than previous fiscal years and that there will be no deficit for FY 2005. There is no correlation between collecting more and not having a deficit, unless you are “spending less” to allow the collections and expenditures to be awash.

The collections of revenues and taxes will not mean anything if the expenditure levels exceed the amount that is collected. If the collection of revenues and taxes allowed the CNMI government to not incur a deficit for FY 2005, then the Office of the Public Auditor, as well as reputable accounting firms like Deloitte, Touche & Tohmatsu, should verify and confirm that this is actually the case.

On Aug. 16, the Tribune ran a story that discussed a payment of $6.4 million was paid to CUC in order to keep the lights on. Sen. Pete Reyes challenged this action and asked the Babauta administration to submit a report that money was not diverted from other programs to CUC illegally.

If deficits did not take place for FY 2002-2004, then why was CUC, the Retirement Fund, PSS, and the Department of Public Health not funded consistently? If the funds existed, then all of these agencies should have been funded adequately.

During August, Rep. David Apatang submitted an appropriation bill for $10 million regarding the fuel surcharge. The Babauta administration discounted the bill and described it as “an election year prank being played on voters.”

What is interesting to note is that from 2002 until August 2005, Babauta did not exercise his fiduciary responsibility and paid the CUC consistently the $18 million owed in fuel costs. And now in the fourth year of his governorship, he announced in mid-August that an additional $6.4 million was forwarded to CUC to offset what is owed.

That Babauta is making this fiscal gesture during an election year patronizes the island community, as well as shows how desperate he is to demonstrate that he is handling the monies in the public coffers with careful discretion.

It is one thing to proclaim to the island community facts and figures regarding funds that come from the tax dollars of the residents of the CNMI, and another thing to proclaim facts and figures and substantiate the validity and legitimacy of what is proclaimed to the electorate of the CNMI.

The question that needs to be posed is: When is the governor going to come clean with the electorate about the true fiscal situation of the government for nearly four years and own up to the fact that he is the sole individual responsible for the financial quagmire the CNMI is currently embedded in and struggling to get out?

Dr. Jesus D. Camacho
Delano, California