‘A perfect financial storm’

Gov. Benigno R. Fitial’s 40-minute State of the Commonwealth Address yesterday talked about a “perfect financial storm” in the past three years that stymied his goal of economic recovery when he came into office in 2006. But he said he is not about to give up, calling for stability and continuity of leadership, six months before the gubernatorial elections.

As in last year, Fitial had strong words for the Legislature, which he partly blamed for three of four challenges that he said led to the “perfect financial storm” besides the global economic downturn—a budget crisis, a power crisis, and federalization.

Only 24 of the 29 members of the 16th Legislature were present at the SOCA, held in the House of Representatives chamber at the Honorable Jesus P. Mafnas Memorial Building on Capital Hill.

“Given the significant economic harm presented by federalization, I am disappointed that more members of our Legislature did not get behind our efforts to oppose federalization and support our 903 lawsuit,” he told the much smaller crowd.

He said the federalization of the CNMI’s immigration and minimum wage rates is “probably our greatest economic challenge today.”

Fitial also expressed regret that Delegate Gregorio “Kilili” C. Sablan, who was off island during the SOCA, did not join him in supporting the immediate suspension of further increases in the CNMI’s minimum wage pending an objective evaluation.

The CNMI’s minimum wage is now $4.55 an hour, after another 50-cent increase on May 26 as required by federal law. The 50-cent increase will kick in every year until the CNMI’s minimum wage reaches the federal wage floor of $7.25 an hour.

In his address, Fitial said the budget was passed five months into Fiscal Year 2009 and was achieved through a legislative override.

He said Moody’s Investor Service recently downgraded the CNMI’s bond rating because of the untimely passage of the FY 2009 budget.

“More importantly, the budget was passed without the necessary austerity measures to cope with dwindling government collections. I again take this opportunity to call on the Legislature to pass needed austerity holidays to deal with our current budget challenge,” Fitial said.

Rep. Ray N. Yumul, chairman of the House Ways and Means Committee, said in an interview later that they will work hard to pass the budget on time for FY 2010.

The 16th Legislature also overrode a measure that forced the Commonwealth Utilities Corp. to charge below cost at a time of record high oil prices, but lawmakers themselves later amended the policy.

Fitial said his administration’s efforts to privatize CUC have failed due to an Office of the Public Auditor decision and differences with the Legislature.

The governor said the Retirement Fund lawsuit presents a further challenge.

“I urge all parties to suspend litigation and engage in good faith mediation to resolve these issues. Ultimately, we need to grow the economy to offer more resources for retirees,” he said.

The Retirement Fund sued the government over non-payment of employer contributions to the pension system. The amount has so far reached over $215 million.

Fitial also called on the Legislature to “quickly pass an omnibus reform bill to protect the Retirement Fund,” and to adopt a legislative initiative to authorize a pension obligation bond with voter approval.

“I am ready to sign these reforms into law to protect our retirees,” the governor said.

Retirement Fund board of trustees chair Juan T. Guerrero, who was in the House of Representatives chamber, shook his head a bit when the governor addressed the issues of the pension system. Guerrero had said the parties in the lawsuit are “way past” the negotiation period.

Gloomy details of the CNMI economy cast a pall on the occasion, with the governor failing to garner any applause even when he announced that tax refunds and rebates will be released in about three weeks and that 150 homestead lots will be distributed on Rota by the end of the week.

Except for two minor microphone mishaps and a short break to drink water, the governor’s address went uninterrupted.

It was only after Fitial finished his address at exactly 11am that the crowd clapped. Those who were in the House of Representatives lobby stood up to applaud.

The governor misspoke the amount of revenue loss faced by the CNMI when it loses access to Russian and Chinese tourists as a result of federalization. He said more than $1 million, instead of $100 million.

Federalization, he said, also harms the Tinian gaming industry, and puts the islands’ emerging education and education-tourism industry at risk. Except for IT&E, all call center development plans, along with telemedicine operation, have been halted because of federalization, he said.

“Investors are concerned. To this day, we have yet to see the draft regulations for foreign workers and foreign investors; and our Commerce Department reports a noticeable decrease in the number of investor visa applications and renewals,” he said, adding that there is no evidence that the U.S. Department of Homeland Security will be ready to protect the CNMI’s borders by Nov. 28, 2009.

Press secretary Charles P. Reyes Jr. said the governor’s address was prepared through collaboration between him, Fitial, Inos, CUC executive director Tony Muna, and special counsel Howard Willens.

Unlike previous years, the governor didn’t start his SOCA with a moment of silence to honor the CNMI’s fallen soldiers.

When he reached the podium, he immediately addressed Senate President Pete P. Reyes, House Speaker Arnold I. Palacios and the people of the CNMI.

“Over the past three years, the Commonwealth essentially faced the perfect financial storm,” he said.

Fitial said he came into office in 2006 after two major developments in 2005: the new World Trade Organization rules that took effect in January 2005 and the pullout of Japan Airlines that gravely affected the CNMI’s garment and tourism industries.

These resulted in substantial revenue losses for the government, which Fitial said was “a bloated, deficit-ridden” one that his administration inherited in 2006.

“But we took action. We dramatically reduced costs,” he said.

He talked about the budget crisis, the aggressive cost-cutting measures his administration has taken, the abolition of the Marianas Public Lands Authority and replacing it with a “more accountable” Department of Public Lands under the Executive Branch, and the protection of public services despite nearly $100 million in cuts from the government operating budget.

He said he is “constantly amazed by the perpetual mass hiring myth,” saying the government has gone from an operating budget of $213 million to $160 million. He noted a 13.5 percent or 247 drop in the number of government employees—from 1,810 on Jan. 21, 2006, to 1,563 on March 24 this year.

Fitial said his administration weathered the perfect financial storm, and indirectly asked people to allow him and Inos to continue their leadership.

The governor made no mention of his former lieutenant governor, Timothy P. Villagomez, who was convicted of corruption by a federal jury on April 24.

“In moments like these, we cannot overemphasize the necessity of stability and continuity of leadership,” Fitial said. “Lt. Gov. Eloy S. Inos and I still have much work to be done. We have more challenges to meet and more opportunities to pursue, including federal stimulus funding and the much anticipated regional military buildup,” he said.

Despite the economic problems, Fitial said the CNMI still has promising Korean investments to realize, including the completion of the Kumho Asiana Lao Lao Bay Resort, the Flame Sako Resort & Spa project, and the Neo Gold Wings Paradise casino-resort project, which is scheduled to break ground on Tinian in June.

“We are looking forward to the investment commitment of Allegiance Capital and the planned Saipan shipyard project to take advantage of military buildup opportunities and create jobs for our residents,” he said.

In Fitial’s first SOCA in 2006, he said the government is broke. In 2007, he said the government is “still broke” and “better times” will take some time. Last year, he blamed the Legislature for the power crisis.

The Constitution requires the governor to report at least annually to the Legislature regarding the affairs of the CNMI and new measures that are necessary or desirable for the islands.