WASHINGTON, D.C.—In a move to avoid any future financial crisis the Government Accountability Office, the investigative arm of Congress, is beginning a review of public debt in the Commonwealth of the Northern Mariana Islands and other U.S. insular areas. The review is required by PROMESA, legislation enacted last year to address the debt crisis in the Commonwealth of Puerto Rico.
“GAO will report on how much each insular government owes and on their ability to pay their debt,” said Delegate Gregorio Kilili C. Sablan (Ind-MP). “It will be an objective review of the debt situation that the public in the Marianas and other insular areas can rely on.”
PROMESA, the Puerto Rico Oversight, Management, and Economic Stability Act, addressed Puerto Rico’s inability to meet its bond obligations by setting up an oversight board with broad powers over government finances. Puerto Rico owed some $77 billion at the time the law was enacted.
Early drafts of PROMESA could have applied generally to all the U.S. insular areas, but Sablan worked to limit the law to Puerto Rico alone.
“In drafting PROMESA we had to be very careful to keep out any breach of local self-government enshrined in the Marianas Covenant,” said Sablan. “And we were successful, I think, at protecting the Covenant.”
“We did include the one provision, however, that requires a report to Congress on debt held by insular governments. We want to avoid a situation in which the Marianas or any other insular area faces the kind of fiscal crisis that we see right now in Puerto Rico.
“GAO has already begun data collection in the Marianas to contribute to the PROMESA report and is working well with the Commonwealth government, I understand,” Sablan added.
PROMESA requires the Government Accountability Office to report to Congress on territorial debt by June 30, 2017, and every two years thereafter.
On Feb. 8, Susan J. Irving, director of Strategic Issues at GAO, wrote to Sablan laying out the scope of the first report.
“We will review each territory’s single audit reports for the last 10 years (FY2005-2015),” Irving said, “and analyze bond prospectuses for each territory’s debt issuances for the same period.
“In addition, we will use internal controls criteria to assess whether the territories have sufficient data and information to determine their ability to repay their public debt and take notice of potential future debt crises.”
Irving spelled out four objectives that align with the requirements of PROMESA:
1. Examine trends in public debt and its composition between fiscal years 2005-2015 and future public debt projections.
2. Examine trends in revenue and its composition between fiscal years 2005-2015 and future revenue projections.
3. Report on the drivers of public debt and their relative impact, including the effects of federal and territorial laws, mandates, rules, and regulations.
4. Review the ability of each territory to repay its public debt.
“I am hopeful that the GAO study will give Congress—and, just as importantly, the public and local leaders in the Marianas—an accurate picture of the Commonwealth’s debt and the risks it may pose,” Sablan said. “I am also looking forward to ideas about what can be done to ensure that the local government can continue to provide essential services to our residents and can avoid the kind of debt crisis that the government of Puerto Rico is still facing.” (PR)