AFTER RECALL OF PROPOSAL House approves $60M bond float

To deal with concerns of potential bond investors, the House of Representatives yesterday recalled from the governor and then amended a measure that will set into motion an ambitious government plan to loan up to $60 million for its infrastructure projects.

Rep. Karl T. Reyes, chair of the House Ways and Means Committee and proponent of the bill, said the change would allow the CNMI to issue bonds in one or more series rather than a one-shot deal that is likely to be more costly in the end.

The amendment will also help convince investment firms to buy the bonds as the Commonwealth Development Authority, lead agency for the financing scheme, will be permitted to pledge additional security in terms of repayment ability of the island government.

“It could take years but if we stay with just one series, meaning sell it between now and the end of the year,” Reyes told reporters, “then this is a concern of the bond agents because they might be more expensive.”

The representative attributed this fear to the Y2K hype which might damage computer records relating to the proposed bond float. “I don’t know why is that, but in the States everything is being done by electronics,” he said.

Reyes, however, eased worries that this move may delay implementation of the capital improvement projects, the main beneficiaries of the bond sale.

“The timing of the project is not affected because we still have to come up with a list of all the CIP which will be given the exact amount for each of the project,” he said.

Yesterday’s unanimous vote on Reyes’ bill marked the second time the legislation was discussed in the House. Last June, members passed the same measure as part of the local efforts to match remaining federal construction grants under Covenant 702 assistance.

House Bill 11-435, pending with Gov. Pedro P. Tenorio for more than a month prior to its recall, seeks to empower CDA to enter into an interim financing for up to $30 million loan from any banking institution in a first step towards the proposed bond flotation.

The administration-sponsored measure now heads to the Senate again for action before the governor can sign it into law. Once the bonds are sold, it will mean a public debt for the people which must be repaid in 20 years.

BGRT revenues: As a form of security to bond investors, Reyes said they would tap portion of the business gross revenue tax to pay back the debt at an 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.

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.

Called the Capital Improvement Projects Bond Authorization Act of 1999, the measure is the only alternative available to the island government at this time to raise local resources to immediately tap the $11 million annual federal assistance.

The island has been behind in utilizing 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.

Meanwhile, the House also passed the Senate amendment to the legislation granting spending powers to Commissioner Rita H. Inos over the nearly $30 million set aside by the government for Public School System’s infrastructure plans.

The bill is now awaiting the governor’s signature.