House okays $60 million bond float • House clears way for CDA to secure fresh money for CIP projects
The House of Representatives yesterday set in motion an ambitious plan by the government to float some $60 million worth of bonds which proceeds will be used to match remaining federal construction grants under the Capital Improvement Projects.
House Bill 11-435 passed the House during its day-long session, allowing the Commonwealth Development Authority to enter into an interim financing of up to $30 million from any banking institution, the first step toward the proposed bond flotation.
The administration-sponsored measure now heads to the Senate for action before the governor can sign it into law. Once the bonds are sold, it will mean a public debt which must be repaid in 20 years.
Legislators are hoping to tap portion of the business gross revenue tax to pay back the debt at a favorable interest rate of 5 percent. At least $6 million will have to be set aside from these collections every year to meet the repayment terms of the bonds.
According to Rep. Karl T. Reyes, chair of the House Ways and Means Committee and proponent of the bill, the move will enable the Commonwealth to immediately match 702 Covenant funding and use the money for vital infrastructure projects.
He said the $30 million loan would then be paid by funds generated from the sale of bonds which the government anticipates to come within one to two years.
So far, the government has already raised nearly $42 million to meet the dollar-for-dollar matching obligations and will need at least $35 million to spend the remaining balance for a total of $77 million under its CIP share.
Washington will appropriate an equal amount of money as the CNMI comes up with the local funds under a bilateral agreement on the multi-year construction grants between 1996 to 2002.
“This is bigger amount and the bond agent is more interested in that,” Reyes told reporters after the morning session. “It will come by this year because we need it this year to commit local funds, otherwise we lose the federal matching.”
Alternative plan: Called the Capital Improvement Projects Bond Authorization Act of 1999, the measure is the only alternative by the island government at this time to immediately tap the $11 million annual federal assistance.
The Commonwealth has been behind in using the grants due to failure by the government to meet the matching requirement which has been blamed by local leaders to the worsening economic crisis here.
Under HB 11-435, CDA will be authorized to issue the bonds worth up to $60 million, as well as secure loan of up to $30 million to fund the projects contemplated in the bond issue.
Once the proceeds from the bond float have been realized, half of the money will be earmarked for the loan and the other half will be used to retire the government’s growing deficit.
“I want to see that amount go back to the General Fund for local CIP that we have expended to reduce the deficit and at the same time, return some money to CDA that has been given to us from 1994 up to now,” Reyes said.
Reyes estimated that at least $24 million will be the balance of the bond issue after paying the loan, and $9.7 million of which will go directly to the CDA account.
“This project is good only up to seven years, so CDA will recoup $9.7 million so that again they can come back and finance more low-cost CIP,” the representative said.
A request for proposal for a bond undertaker is expected to be issued once this legislative process is completed. This investment firm will help the CNMI sell the bonds and get a favorable triple “A” rating from investors, according to Reyes.
“We have to allot the BGRT to get favorable rating,” he said, adding that the next step would be to appropriate all of these funds for specific projects included under the CIP master plan.
Local efforts to allocate the CIP funds have come on the heels of a legislative proposal in the US Congress to slash half of the assistance to increase aid to Guam because of CNMI’s inability to use the money.
The Northern Marianas is reeling from its worst crisis in 50 years that has pulled down revenues in the past two years, making it difficult for the government to meet the CIP matching requirement.