Babauta’s gubernatorial leadership in the last 3 years

By Dr. Jesus D. Camacho

According to the Bank of Hawaii Economic Report of 2003 for the CNMI, the total taxes and revenues have been steadily declining since the year 2000. In 2000, about $185,000 in total taxes were collected; in 2001 about $178,500; and in 2002 about $166,750. In three years, there has been roughly a 10 percent drop in the overall collection of total taxes for the CNMI government.

Regarding the total revenues collected by the CNMI government, about $228,827 were collected in 2000; $219,628 in 2001; and $199,713 in 2002. As with taxes, the total revenues collected fell about 10 percent over a three-year span of time.

The two key areas noted in the BOH report that negatively impacted the total taxes and revenues collected by the CNMI government were the business sector, i.e., garment industry and retail businesses, as well as the drop in the number and level of spending of tourists who come to visit the CNMI.

With respect to the total amount of expenditures and transfers, the CNMI government spent a total of $222,040 in 2000; $237,282 in 2001; and $304,905 in 2002. The percentage increase of total expenditures from 2000 through FY 2002 was 27 percent over a period of three years. The expenditures for FY 2003 and FY 2004 exceeded the amount of revenues that the CNMI took in and therefore the trend of “deficit spending” has been consistent for the past three years under Babauta’s gubernatorial leadership.

As far as the overall deficit for the CNMI government is concerned, the total deficit recorded for 2000 was $69,454; $87,949 in 2001; $99,514 for 2002; and $104,436 for 2003. The deficit spending that occurred in FY 2004 would bring the overall deficit in the vicinity of around $110 million. Over the past three years, there has been an increase in the overall deficit of 15 percent.

According to the independent auditing report of Deloitte, Touche, & Tohmatsu submitted in October 2003, the deficit generated at the end of FY 2002, which ended on Sept. 30, 2002 for the CNMI, was 18.7 percent increase from the prior year. In addition, the report indicated that the $2.9 million of additional revenues were offset with $3.2 million of additional expenditures. So with the reserves being spent, the deficit was increased, as opposed to being reduced. The firm’s report also highlighted the reduction of “net assets” of $14.3 million, which was 35.2 percent lower than for FY 2001.

A report released by the Office of the Public Auditor in August 2004 concluded that: “During four of the past six fiscal years, i.e., from FY 1997 through FY 2002, the CNMI government incurred expenditures in excess of its revenue collections. Fiscal Year 2003 will also reflect a deficit.”

The report also stated that, “The reappearance of deficits and deficit spending in FY 2001 and 2002 after two years of modest surpluses, is indicative of the continued slowdown in the general economy and difficulty in reducing general fund expenditures.”

A “continuing resolution” means that whenever the Legislature fails to enact a budget for a given fiscal year, the government will use the last budget enacted as the operating budget level.

On Oct. 1, 2001 and one month prior to Juan Nekai Babauta winning the gubernatorial ticket in November 2001, the government was operating on a “continuing resolution.” Subsequent to Babauta inauguration in January 2002, there were debates between the 13th Legislature and the governor as to what the budget level should be.

In July 2002, Heinz S. Hofschneider, Speaker of the House for the 13th Legislature, told the media when queried about Gov. Babauta’s insistence to have a budget over anticipated revenue collection. His response was, “So what gives the Legislature the reason to pass a $213 million spending plan which is $30 million off the mark? If we do that, then we are complicit to licensing deficit spending.”

On Sept. 11, 2002, the budget submitted by the 13th Legislature to Gov. Babauta for FY 2003, was signed into law. The last time a budget was passed was by the 11th Legislature in 1999 that reflected approximately $249 million.

The government has been operating with a “continuing resolution” for two of the three fiscal years under Babauta’s gubernatorial leadership. And should the FY 2006 budget does not get signed before it commences on Oct. 1, 2005, then the governor’s track record in terms of continuing resolutions will be three during his four years in office.

Every approved budget that has been worked on, approved, and submitted by the members of both chambers of the CNMI Legislature, other than the one signed for FY 2003, has been “vetoed” by Babauta simply because the budgetary levels that the representatives and senators thought were realistic and congruent with the anticipated collection of revenues were substantially less than the budgetary levels, e.g., $228 million, the governor desired.

Since the vetoes by the governor have effectively not allowed a government budget to be officially signed into law, the CNMI government has been operating under the “continuing resolution” since the last budget was signed prior to the onset of FY 2003 which began on Oct. 1, 2002.

Since 2003, Gov. Babauta has pushed for his “Integrated Fiscal Plan” which will effectively reduce rebates to the residents of the island community by 10 percent and generate $3.4 million; increase user fees from an industry that has been crippled by the recent General Agreement of Tariffs and Trade and generate $5.9 million; increase nonresident worker’s fees and generate $3.1 million; and increase taxes for all hotels and generate $500,000.

The grand total of “$13 million” of additional taxes and fees Gov. Babauta wants to place on the individuals and businesses of the island community is included in the $228 million budget that he has been pushing for since FY 2003.

Rep. Hofschneider told the media in 2003 that the House would not support the IFP submitted by Gov. Babauta. Notwithstanding the fact the Speaker and the members of the Legislature have made it abundantly clear that the “people” of the island community should not have to shoulder any additional increases in taxes and fees, Babauta has been adamant about pushing and getting his proposal incorporated into the CNMI budget.

Members of the 14th Legislature have not been totally receptive to the increases in taxes and fees under Babauta’s IFP. The budgets that have been approved by the 14th Legislature did not include all of the provisions of the IFP. The reluctance of the Legislature to concede to Babauta’s unrealistic budgetary requests has made the relationship between the governor and the elected members of both chambers somewhat tenuous.

In August 2002, Gov. Babauta told the media that “he would go ahead and go over the budget ceiling without the blessings of the lower chamber.” The consequence of going over the budget ceiling would clearly add more onto the existing deficit of the CNMI, which is over $100 million at the present time.

A balanced budget for a government reflects the total expenditures matching the total revenues projected for the fiscal year. If the expenditures exceed the amount of funds that are collected, then you essentially have “deficit spending.” When a government engages in deficit spending, the debt level or “deficit” is increased and the financial stability and/or solvency of the government becomes threatened.

In August 2003, Gov. Babauta told the island community that the CNMI was close to achieving what has never been done for several years now—“a balanced budget.” There has never been a “balanced budget” under the gubernatorial leadership of Juan N. Babauta and this can be substantiated with the abovementioned figures regarding budgets and deficits.

In November 2003, the House questioned Babauta’s proclamation that the “budget is balanced” citing the outstanding payments to the Retirement Fund, as well as being in arrears with the Department of Health, as well as the Public School System.

In November 2003, Gov. Babauta told the media that “education has bright economic promise that will rake in millions for the Commonwealth.” In lieu of the millions being raked in for the Commonwealth, there has been a squandering of millions to the tune of $4.6 million on a failed Pacific Gateway project and La Fiesta white elephant that has done virtually nothing for higher education in the CNMI.

Several months prior to the November 2001 gubernatorial election in the CNMI when Juan Babauta was campaigning for governor, he told the media, “We need to start luring in good investors, not just fly-by-night ones.” The Saipan University debacle was a prime example of a fly-by-night investor that was a far cry from being considered a “good investor” and legitimate institution of higher education.

The Babauta/Benavente campaign in 2001 voiced aggressiveness in terms of creating business opportunities and helping the island community with an “education initiative,” as well as in areas regarding health care and social services.

What Babauta did not mention on the campaign trail in 2001 was that the expense of providing services, i.e., increasing taxes and fees, would end up being absorbed by the residents of the island community. It is paradoxical to tell the people that they will need to pay for the very help you want to give to them.

When Gov. Babauta was inaugurated in January 2002, he told the island community that he would take care of the health and welfare issues confronting the residents. Since Babauta has been governor, the Department of Health has been operating in a “deficit mode” and in serious need of $6 million for important repairs, maintenance, and supplies. The overall process of providing adequate health care has been strained due to the lack of some much-needed monetary resources.

If the DPH does not receive the funding they need, then Dr. James U. Hofschneider and his staff will not be able to provide adequate health care services for all residents that need and expect it from the CNMI government.

In April 2004, Gov. Babauta told the media, “It’s better than last year and getting better everyday.” Where and what is the governor referring to? He can’t be talking about the government deficit, higher education, and/or the less than robust economy as a result of the drop off in overall taxes and revenues collected and the economic blow from the GATT on the garment industry?

In May 2004, a desperate governor confronted with the reality that the total deficit for the government had climbed to a staggering $110 million, asked the Deputy Assistant Secretary for the Interior, David Cohen, if Compact Impact Funds (CIF) could be utilized to pare down the humongous deficit. Cohen’s response to Babauta was, “The funds can only be used for education, health care, and social services.”

In September 2004, Babauta submitted a $226 million budget for FY 2005, which included his IFP. The House only approved $212.7 million and rejected the administration’s $13 million IFP provision.

In December 2004, both chambers of the Legislature endorsed $218 million for the FY 2005 budget, which was highlighted by a $4.1 million appropriation for salary adjustments of government employees.

In December 2004, Gov. Babauta told the media that the “economy is on the up a lot. Things are looking very positive in the next year [2005] due to the sudden sprouting of businesses all over the island.” If this is really happening in the CNMI, then why has the overall Gross Business Revenue been on the decline over the past three years?

In December 2004, Babauta told the island community there is “no money” to pay the Marina Builder Marine Revitalization Corp. the $5.46 million it owes from a judgment granted by the CNMI Superior Court. Babauta said that things were getting better everyday in April 2004. If that is the case, then some of the $5.46 million could be paid to MBMRC.

In December 2004, Babauta made an announcement that he will commit to the PSS a total of $20 million over the next five years ($5 million) a year. At the time, he did not mention any commitment of CIF to the DPH or social services, which are in need of funding just as much as PSS.

In January 2005, Babauta vetoed the budget for FY 2005 from the Legislature for $217.7 million because it did not include the $13 million of tax and fee increases stipulated in his Integrated Fiscal Plan. He accused the Legislature of submitting a budget with “errors and accounting tricks” and told them that the increases were necessary to provide services for the island community.

The budget that Babauta vetoed for FY 2005 recently incorporated merit increases for government employees. The irony of Babauta’s veto is that he turned right around and approved exceeding the “salary caps” of two physicians in the CNMI within several weeks of the budget veto.

During the first week of January 2005, Gov. Babauta told the media that it “would be busier and more productive days lie ahead with prospects for 2005 looking promising.” Again, who is he referring to when he talks about “being busy” and where are these promising business prospects and large numbers of tourists from Japan, Korea, and China that are supposed to enhance the CNMI economy and make the island community flourish?

In February 2005, Dr. Rita Inos, Commissioner for PSS, reminded Gov. Babauta of the $1.2 million needed to pay vendors. She also stated that she was surprised to hear about a report issued by Finance Secretary Fermin Atalig stating that approximately $2.8 million had been remitted to PSS for the arrears it incurred for 2004. Her response to the report was, “There was never any money transferred to PSS.” The situation with the finance secretary and the funds for PSS is a classic case of “smoke and mirrors.”

In March 2005, Deputy Assistant Secretary for the Interior Cohen announced to the media that CIF funds of $5.1 million were approved for the CNMI. Since the funds have already been committed to PSS by Babauta, the $6 million that the DPH desperately needs and funding necessary to provide the island residents much needed social services will need to receive funding assistance elsewhere.

And the question that Dr. Hofschneider needs to consider posing to the governor regarding funding for DPH should be, “Where is elsewhere?”

What Juan Nekai Babauta has told the island community and what has actually transpired over the past three years do not match up and appear to be incongruent. And since what he has told the electorate could be challenged with facts and figures, then the governor will need to sit down and do some serious soul searching and think about how he will define the word “credibility” to the electorate when he is out on the campaign trail, trying to convince the voters that he should be elected CNMI governor for a second term.