Why doesn’t NMIRF declare bankruptcy and be done with it?

By WILLIAM H. STEWART
Special to the Saipan Tribune

Unless you are a retiree living in a tree at Michael Jackson’s Neverland, you must be aware by now that the central government wants to get out of its retirement plan. It’s doubtful if any government spokesperson will come right out and say that but, after all is said and done, that’s really what it comes down to.

Since 1994, the government has consistently failed to meet its employer contribution in full. As the Fund administrator was recently quoted in the Saipan Tribune as stating, “If we declare bankruptcy, we close and the federal government comes in.”

In my judgment it might be a good idea to file for bankruptcy, let the federal government take over and appoint a receiver and then let he or she run it—or close it down, liquidate—and be done with it. The imbroglio has gone on long enough with nothing accomplished but a lot of talk and the rapid diminishment of Fund resources.

The government is never going to pay what it owes and proof of that is the request to write off its debt of $124 million in current unfunded liability and the request to suspend its employer’s contribution and also its request for the Fund to purchase $40 million in revenue bonds for a CUC “bailout.” It’s as if the government wants the retirees to subsidized the electric consumption of everyone else on island. If you are a retiree and agree the Fund should loan the money, I have a bunch of stuff in the backyard I want to sell you.

I remember in 1987 billionaire Bill Millard, founder of Computerland, got up at a Chamber meeting at the Hyatt and offered to buy CUC. Why wasn’t it sold then if the government was so anxious to privatize the utility? I’ll tell you why: it wasn’t the “dog” then that it is today.

About a month ago (March 15) it was reported that the Fund had to sell a portion of its home loan portfolio to a private bank to raise $3 million in cash for distribution to members. This was really bad news. Two weeks later, a Fund official was quoted in the Tribune as having been told by the administration that, citing lack of funds, it would only pay for its own obligation in employer’s contribution, but not the central government’s arrears totaling $85.5 million. Now apparently even that has changed. As reported in the Tribune (May 20) the administration’s proposed “Defined Benefit Plan Rescue and Reform Act” would not only suspend the employer’s contribution entirely, but would require the Fund to write off a $124 million current unfunded liability and purchase $40 million revenue bonds to fund CUC.

This could be the death knell to the Fund according to the administrators and they should certainly know if anyone does. Think about it—then there would be no Retirement Fund functioning for CUC to pay back the loan. Payments would be made to the court-appointed receiver but it wouldn’t do the Fund any good as it would be out of business. At that point a private buyer might be more likely to purchase CUC, whereupon one wonders what would happen to the proceeds of the sale. I guess the money would go into the general fund for allocation. If the above scenario were to actually happen, one thing is absolutely certain—power rates would be increased by the new private owners to first recover their newly purchased investment and then to earn sufficient profit to pay dividends to the new owners. I wonder who they might be? Any private owner would have a monopoly on the generation, transmission and rate setting. Without some form of public service commission to establish rate perimeters, no telling what the electric bills would be per kilowatt hour—certainly much more than at present and probably more than 22 cents per kwh or double the present charge for metered residential users. No doubt about it. If any new private owner can’t make money, why would they want it in the first place?

I’m a proponent of private enterprise and capitalism—but a utility is different from pure private enterprise because it is a monopoly. Those that are privately owned are closely governed by public service agencies (PSA). These agencies approve the rate structure of the electricity, which the utility sells. Many approve the rates charged based on a cost plus return on investment (profit). Considering the increasing cost of fuel, we will all be on the edge of a razor regardless of who owns the utility. I suggest the following for consideration: that the government fund the engine repair and make the necessary upgrades from a loan from the Asian Development Bank or the World Bank assuming the Feds permit it. If not, borrow the money from the U.S. government. Or perhaps the Chinese—they know how to do things right that last a long time. Look at the Wall! The Chinese may take awhile to get it done, but it will be finished eventually. As they say, “the longest journey begins with the first step.”

In my judgment the first step for the CNMI government to consider is to keep its CUC “step-child”, fix it up, increase the kilowatt hour rate to meet the expense of operation and sell the power at cost and forget making a profit, (something it’s already familiar with) It can then consider the power it provides will sustain the economy that generates the revenue to operate the government. In that way the government earns its “disguised profit” by keeping the lights on and a little money is left in people’s pockets. And there is no need for creating a PSA to monitor the utility rates as the voters would serve in that capacity.

Meanwhile, look at the government’s track record and its source and application of revenue. Considering the huge sums of money that have been available to the central government from all sources, is it any wonder people question its wise use of money spent in recent years? Consider such purchases as the San Roque shopping mall; the many unpaid vendors, (previously unpaid CUC fuel oil purchases in particular); “blackouts” and “generator blow-outs” as a result of failure to adequately maintain equipment, a largely useless potable water transmission system and on and on. For 35 years the government has failed to deliver potable water on a 24-hour basis. I’ve worked in Third World countries in Africa that have a better water system than Saipan—and they paid for it themselves.

Let’s just briefly examine the huge sums of money that has been available to the central government in recent years against the backdrop of not meeting its financial obligation to the Retirement Fund; failure to provide adequate hospital facilities; failure to pay a variety of payments to vendors and on and on—and ask the question, where has it all gone?

During the 16-year period from 1986 to 2001, the latest figures available to me reveal the total reported internally generated revenue from all sources was $2.5 billion or an average of $156.2 million per year. That’s income from the business gross revenue tax; personal and corporate income tax, user fees, hotel room tax and other revenue sources. Additionally, the islands have been the beneficiary of massive amounts of U.S. taxpayer funds over the past 25 years.

In terms of only Covenant funds and special program grants, the islands have received $569.5 million between 1978 and 2002 for an annual average of $22.8 million. This does not include the myriad of federal “U.S. grantor agency program funds” that I estimate are equal to another $500 million if not more. Thus, approximately $1.69.5 billion in federal contributions has been available (and spent) by the government over the period. This was money that the CNMI did not have to earn through its economy but might be said to have been “free money.” Add this amount to the above internally generated revenue. Where did it all go to leave the islands practically bankrupt today?

As far as I’m aware the issue of bringing suit against the central government has been discussed as far back as January 25, 2003, according an article in the Saipan Tribune. Whether the Fund’s board of trustees decides to finally file a lawsuit against the central government for failure to meet its financial obligation in an effort to collect what is due the Fund and its thousands of members—or instead decides to petition for bankruptcy in the federal court—it will be interesting to learn if federal jurisdiction would also extend to the following (as yet unsubstantiated situations).

For those U. S. citizens employed by the CNMI government on federally funded projects whose salary or portion thereof was provided by a federal grant—if such individuals contributed a portion of their deducted income and then it was withheld from the Retirement Fund account—could the U. S. government conceivably have a jurisdictional interest in such Fund proceeds and their accountability?

Secondly, a determination should be made if part of the Fund’s financial shortfall is a direct result of the central government’s diversion by previous administrations of employer contribution funds in order to comply with the previous requirement of the U.S. Department of Interior to match ”dollar for dollar” CIP project costs. A requirement that may have ultimately resulted in the central government’s failure to adhere to its obligation to retirees? If this did in fact occur, what might the legal ramifications be, if any?

These are interesting questions that could have far reaching consequences. Some sage once observed that an area has to be incredibly wealthy to support a democratic form of government because of the great waste that is inherent in the process. If self-government has been a learning process—it sure as hell been expensive.

(William H. Stewart is an economist, historian, and military cartographer.)