Governor proposes tax hike

Gov. Arnold I. Palacios is proposing that the Legislature implement a tax hike to keep essential government services in operation.

Recently, Palacios wrote to all branches of government stating that the CNMI saw a revenue shortfall of about $3 million for fiscal year 2024.

Palacios, in his letter, proposed the need for a tax hike to help in generating more revenue for the CNMI.

When asked about this, Palacios said although tax hikes are generally not supported, it might be exactly what the CNMI needs to keep essential government services open.

“Nobody supports tax hikes. We haven’t had any adjustments in our tax rates for 30-40 years. It’s a tricky thing, it’s very sensitive because no matter what it is, nobody wants to see a tax hike. But we need to balance the services that needs to be provided. Now, if revenue is not there, we need to cut services and right now I believe we are at the level with essential services where we can’t afford to cut anymore so we have to make those different types of adjustments,” he said.

Palacios said he can only propose the idea, but it must go through the legislative process.

“The proposal is to increase the revenue through changing the [tax] rates. I can only propose that, but it needs to go through the legislative process. If that doesn’t go through, I have to make other adjustments accordingly,” he said.

According to Saipan Tribune archives, the Department of Finance’s third quarter report has reflected an over $3-million revenue shortfall for fiscal year 2024 which will result in a reduced budget across the board for all government entities.

In a letter to Senate President Edith Deleon Guerrero (D-Saipan) and House Speaker Edmund S. Villagomez (Ind-Saipan), Palacios stated that due to Finance Secretary Tracy B. Norita’s third quarter report (which indicated a $3.4-million revenue shortfall in the current fiscal year), there will be a budget reduction across the board for the current fiscal year.

Specifically, in her quarterly report to the Legislature last week, Norita said the cumulative revenue forecast for the first three quarters of the year was $124 million, but the actual collection was only $120.5 million.

The third quarter of the fiscal is from April 1 to June 30, 2024 and the current fiscal year ends on Sept. 30, 2024.

“Although collections in the remaining months of the fiscal year may offset these shortfalls, it would be prudent to initiate a conservative reduction in the budget authority to mitigate the anticipated fiscal year-end deficit,” said Palacios.

In his letter, Palacios said pursuant to 1 CMC Section 7604©(4) (or the Planning and Budgeting Act), he is mandating an immediate proportionate reduction in the allotment authority of all branches, offices, departments, agencies, and instrumentalities of the Commonwealth which are subject to appropriations.

“The effect of this reduction will be reflected in the budget authority remaining for the fiscal year,” he said.

The Office of Management and Budget has revised the remaining budget allotments from August to September 2024, amounting to $16.6 million.

“The proportionate reduction will result in a total budgetary decrease of over $2.3 million or 2.15%. This cut will offset the third quarter lapses of over $1.2 million as of June 30, 2024, as reported by Finance,” he said.

Palacios said this reduced budget allocation will have an impact on government operations and services.

“However, the current financial condition of the CNMI requires that we quickly realign government spending with available resources. To meet this challenge, it is imperative that agencies and activities examine their operations and identify areas where they may be reduced or eliminated altogether, while we maintain the reduced work week at 70 hours,” he said.

That’s when Palacios first suggested to lawmakers to pass tax-hike measures.

“This administration is committed to collaborating with the Legislature to increase government revenue and avoid further fiscal challenges. We must work together to enact measures that will both protect the livelihoods of our government employees as well as the critical services upon which our entire community depends,” Palacios said.

Gov. Arnold I. Palacios