Compliance with feds and Commonwealth Constitution

The Jobs and Growth Tax Reconciliation Act of 2003 (JGTRRA 03) was passed by the U.S. Congress and signed into law by President Bush on May 28, 2003.The CNMI was granted approval to receive approximately $10 million, i.e., $5 million for fiscal years 2003 and 2004.The funds came to the CNMI by way of the U.S. Treasury and went straight to Gov. Juan Babauta’s office. Since there was no “official budget” approved for FY 2003 by the CNMI 13th Legislature, according to Rep. Heinz Hofschneider, the funds regarding the La Fiesta Mall acquisition from the JGTRRA 03 were apparently handled by the governor’s office and both houses of the CNMI Legislature were not able to deliberate and make any decisions regarding how much and if the funds should be granted to NMC.

According to the U.S. Treasury, the JGTRRA 03 appropriations could be spent on “improving job training, education, health care, transportation and infrastructure, law enforcement, public safety, or for maintaining essential government services.”

One of the provisions of the abovementioned legislation states that “in order to receive funding, the entities would have to submit “a certification” to the Secretary of the Treasury” outlining where the funding would be utilized. Since the funds appropriated were public and the island community has a right to know through the “Open Government Act”, can Governor Babauta reveal publicly the certification submitted to the U.S. Treasury Department outlining where the funding would be utilized?

If this required certification was in fact formulated by the governor’s office, did the CNMI Legislature review and sign off to approve where the funds would be spent? If this certification was never produced and submitted to the Secretary of the U.S. Treasury, then was the governor remiss in adhering to the JGTRRA 03 provisions?

Along with requiring a bona fide certification signed by the Governor and CMNI Legislature, the JGTRRA 03 stipulated that the state in receipt of the appropriations from the federal government “could only use the funds provided under a payment made for types of expenditures permitted under the most recently approved budget for the state”. Was any of the $10 million of appropriations included in the budgets for fiscal year 2003 and 2004 and did both houses of the CMNI Legislature approve the expenditures? If the $10 million received for FY 2002-2003 and FY 2003-2004 remained in the governor’s office and did not get placed before both houses of the Legislature for their approval as to where it should be utilized, then there might be questions raised as to whether there was a violation of public policy because the funds were handled by the governor’s office and subsequently not submitted to the Legislature for review and approval.

In retrospect, you will recall that the NMC Board of Regents approved the purchase of the La Fiesta Mall for the Pacific Gateway project in July 2002 immediately following the hiring of Kenneth Wright to be NMC president. Approximately one year later in August 2003, the BOR chair Vince Seman officially signed the documents for the college regarding the purchase of the La Fiesta Mall physical structure and leasing of the property that the mall is built on. On the day of the signing, it was announced that a $2 million down payment on the $7.5 million dollar transaction would be made. The $2 million came from Governor Babauta’s office and was from the $10 million JGTTRA O3 appropriations. The use of $2 million was clearly not officially approved by both houses of the CNMI Legislature and the question is: “Was it inappropriate to submit the funding to NMC without inclusion into the budget and subsequent approval of both houses?”

Approximately two months later, Governor Babauta forwarded another $1.5 million in October 2003 to the NMC BOR to consummate the $7.5 million transaction. As with the abovementioned $2 million from Governor Babauta’s office, these funds were never included in the CNMI budget for both houses to review and subsequently approve for expenditure.

Along with adhering to the provisions of the JGTTRA 03, it is extremely important to look at the language of the Commonwealth Constitution concomitantly. The areas that need to be looked at carefully are within Article X (Taxation and Public Finance). Specifically, Section 3 and 4 are pertinent. Section 3 (Public Debt Authorization) states, “public debt may not be authorized or incurred without the affirmative vote of two-thirds of the members in each house of the Legislature.”

When the NMC BOR chair officially signed off on the La Fiesta transaction in August 2003 and established a $4 million dollar debt regarding the leasing of the property without the prior approval of two-thirds of the members of both houses of the Legislature, the issue of the public debt generated by NMC and Governor Babauta being illicit was brought to the public’s attention by the former CMNI Representative Stanley Torres.

Section 4 (Public Debt Limitation) of the Commonwealth Constitution states that “Public indebtedness other than bonds or other obligations of the government payable solely from the revenues derived from a public improvement or undertaking may not be authorized in excess of 10 percent of the aggregate assessed valuation of the real property within the Commonwealth. In addition, it stipulates that “public indebtedness may not be authorized for operating expenses of the commonwealth government or its political divisions.”

The “lease” of the La Fiesta Mall property for $200,000 plus interest a year ($6.9 million for 20 years) is an expense necessary to allow La Fiesta to remain open as a structure. And since it is necessary to keep it “operating” (without the lease, NMC could not operate it), it would fall under the umbrella of “operating expenses.” If this is the case, then Section 4 of the Commonwealth Constitution was violated by both NMC and the governor.

The recent questions raised by Saipan Rep. Arnold Palacios regarding the use of Tobacco Funds for something other than health promotion and education awareness are pertinent simply because there is clearly “no connection” or “relevance” to substantiate taking monetary resources out of a fund that by law should be eradicating tobacco-related health problems that people in the CNMI might be trying to mitigate, e.g., cancer. The lawmaker indicated that House Resolution 14-20 clearly spells out “that the tobacco control fund can only be used for health promotion and awareness.”

Notwithstanding the fact that Rep. Justo Quitugua, chair of the House Education Committee, indicated recently that nearly $1 million of the Tobacco Control Fund was appropriated to the hospital and that the funds to the hospital would not be negatively impacted by any allocation to NMC, the question that needs to be raised is: “Why deplete a fund that is designed for a specific purpose, i.e., to eradicate serious health problems, because there is a wanton desire by the governor and NMC BOR to keep open and operate the La Fiesta Mall that is not able to offer any academic programs whatsoever to the students of the CNMI desiring to pursue higher education?”

Higher education is vitally important for the CNMI and so is health. If the practice of going after funding from government sources that are designated by law for specific purposes continues, then the potential for litigation from people who are denied attention because the funds were diverted to another entity is strong because the money is considered “public funds” and regulations pertaining to the use of these funds must be adhered to.

The issues involving whether the “limitation provision” from the JGTRRA O3 was not adhered to because the $3.5 million funding was not placed in the CNMI budget and subsequently approved by the Legislature; as well as the $4 million plus interest debt ($6.9 million after 20 years) that was established from the $7.5 million transaction was not officially approved by both houses of the Legislature prior to it being created, elicits the following question: “Was the transaction involving the La Fiesta Mall and Pacific Gateway project legitimate and legal?” If the provisions of the provisions for the JTGRRA 03 and Commonwealth Constitution have been violated, then it would appear that the arrangement involving the NMC Board of Regents and the proprietors should be nullified simply because it was in noncompliance with provisions established by the feds and CNMI.

Dr. Jesus D. Camacho
Delano, California