Leveraging of Compact impact aid possible but…
The Department of the Interior said the Babauta administration can use its annual Compact impact funding assistance to float a bond. However, any revenue earned from this can only be used to finance the immediate needs of the CNMI government and cannot be used to retire deficits accrued prior to the signing of the Compact Impact Agreement this year.
This was the short answer to Gov. Juan N. Babauta’s two-phased question to the Department of the Interior over the use of the Compact impact funds. The governor had asked: One, if it’s possible to leverage the funds to float a bond; and second, if the money raised could be used to retire the CNMI government’s deficit, now amounting to over $101 million.
Interior Deputy Assistant Secretary for Insular Affairs David B. Cohen said he had communicated with Washington D.C. officials yesterday at 4am local time (1pm Eastern time) to discuss the legal aspect of the request. He also said that he notified the governor of the result of his inquiry yesterday morning.
“We believe that to leverage the Compact impact funds is possible but statutes does not allow that it be used to pay past debts prior to the signing of the agreement,” said Cohen.
The CNMI and Interior Secretary Gale Norton signed the $5.1 million Compact impact funds in Jan. 2004.
Cohen is optimistic that the decision by the DOI would still indirectly help the Babauta administration in overcoming its deficit. He explained that, by using the Compact impact funds to address the pressing needs of the health, education, police, and other upfront necessities and Capital Improvement Projects, more local funds could be freed up to retire the government deficits gradually.
“We have to understand that this is a new law and it is restricted and formatted in such a way. But the recommendation we get creates all sorts of possibilities that would free up some funds from the government,” the official explained.
He attributed the positive response of the Interior Department to Babauta’s cooperation with the federal government as he made every effort to work with the U.S. government on issues like labor, immigration, and other issues in the CNMI.
The Compact legislation provides that $30 million will be divided each year for the next 20 years among the Northern Marianas, Guam, Hawaii and American Samoa to help those jurisdictions deal with the effects of migration from the Federated States of Micronesia, Palau and the Marshall Islands, commonly known as the freely associated states.
The funds are to be divided proportionally among the jurisdictions on the basis of the number of people in each jurisdiction who migrated from the freely associated states after 1986, when the original Compact went into effect. Minor children of such migrants are also counted.
Babauta earlier proposed to use the Compact funds as collateral to retire the government deficit.
The Department of Finance had said that, as of February this year, the government’s cumulative deficit has reached $99.38 million and it would hit $101 million in a couple of months as fees and expenses associated with the government’s medical referral program and professional services paid by the Department of Public Health would cost an additional $1 million by the end of June.
Of the February figure, over $77 million represents the Retirement Fund’s unfunded liabilities.
