Report: Prelim numbers show $86M ARPA deficit

Virginia Villagomez

The transition team’s preliminary reconciliation has determined that the CNMI received $481.8 million in American Rescue Plan Act funds but, as of Dec. 27, 2022, it has been overspent and overcommitted and has a deficit of $86 million.

According to a 2022 transition report on the Department of Finance submitted last Jan. 4 by transition department/agency team leader Virginia C. Villagomez to the Palacios-Apatang administration, the deficit was in general caused by unallocated expenditures related to special grants assistance (ARPA Section 602.A) and government operations (ARPA Section 602.C).

Villagomez added that ARPA was used to fund disaster-related expenditures pending reimbursement amounting to approximately $48.7 million.

Upon reimbursements, the ARPA deficit will be reduced to $37.4 million, she said.

Among the recommendations of the transition report are to discontinue the 25% additional retiree pension payment until the government stabilizes its current financial state, and initiate a revision to the ARPA spending plan with U.S. Treasury.

Villagomez was assisted in preparing the report by then-representative and now Sen. Corina L. Magofna (Ind-Saipan), Ryan Camacho, Emma Perez, Tiara Evangelista, Tony Reyes, Eli Cabrera, Ezra Yumul, and Eleanor Alinas.

The initial transition report focused largely on the overall financial health of the CNMI and its major financial program(s).

Finding that the government’s financial situation is dire, the transition team report stated that the months and years ahead will not be without hardship.

The report noted that the consequences of the overspending have been delayed but can no longer be avoided.

The government has neither the funds nor the means to sustain current levels of programs, employment, and services.

As the full extent of the financial shortfall will take time to ascertain, recommendations, however, are critical steps that can be taken immediately, the transition report said.

Among these recommendations is to conduct a full reconciliation of the ARPA and general fund expenditures, including validation of imported payables.

Other recommendations are to aggressively process federal reimbursements and drawdowns to reduce ARPA and general fund deficit, implement best practices to improve record-keeping and standardize processes for more accurate financial tracking and reporting, and review all outstanding contracts to reduce ARPA-funded obligations.

The transition team also recommended the following:

Enforce fiscal and budgetary controls to prevent deficit spending from the general fund and other funding sources.

Collaborate with the Office of Management & Budget to revise the Fiscal Year 2023 budget. The budget should consider a reduction in overall costs and restructure of services to reflect funding available.

Complete Munis implementation for full functionality by shifting resources back to the central government.

Train and develop Munis super-users to conduct hands-on training and troubleshooting for all departments and agencies.

Restore budget controls within Munis to prevent uncontrolled spending beyond limitations of appropriations.

Mandate ethics training within the first 100 days in office to all departments and agencies.

Reconvene the Fiscal Summit Team to develop a fiscal strategic plan to identify the goals and objectives of the CNMI, create action plans that prioritize and assign agency tasks, and execute where financial and other resources can be directed.

Reconvene the Governor’s Single Audit Committee to expedite the completion of the Single Audit for fiscal years 2021 and 2022.

Implement cost-cutting measures such as restricting government travel to federally funded programs that are pre-approved and authorized by the grantor agency.

The report noted that the CNMI has been in deficit spending in the last four years and that can be attributed to the numerous natural disasters affecting the Commonwealth such as typhoons and the COVID-19 pandemic.

The CNMI was fortunate to receive a multitude of federal aid through U.S. congressional appropriations and direct grants from federal partners to provide relief and recovery from major disastrous events.

However, the report said, the test of the CNMI’s agility to spend federal dollars critical to recovery and economy is a reflection of the Commonwealth’s financial history’s extremes in financial windfalls (e.g. casino licenses), which prevented the CNMI from exhibiting stable financial growth and sustainability.

In fiscal year 2021 alone, the CNMI had federal cash receipts totaling $611 million from the Federal Emergency Management Agency, the Coronavirus Aid, Relief, and Economic Security Act, and ARPA funding. These capital infusions were an important factor in the CNMI’s recovering economy from multiple disasters, including the pandemic; however, expenditure priorities achieved neither fiscal growth nor sustainability, the report said.

As of Dec. 28, 2022, the accounts payable aging report reflects $28.7 million in outstanding debt, of which $12.4 million is current, $3.1 million are in the 30-60 days owed, $5.4 million are in the 60-90 days owed, and $7.9 million are beyond 90+ days outstanding invoices for payment.

The accounts payable aging report is a list of the CNMI’s current debt to its vendors for payment of goods and services provided.

The Department of Finance FY 2022 annual report shows general fund expenditures exceeding allotments, causing a deficit of $37.8 million.

The deficit is largely from law enforcement overtime incurred by the Department of Public Safety, Department of Fire and Emergency Medical Services, Department of Corrections, and the Department of Finance’s Customs Services responding to the pandemic.

On the good news front, revenue collections for the first quarter of fiscal year 2023 exceeded estimated resources by 11% displaying a modest recovery in the local economy. Increased collections are attributed to the increase in business gross revenues.

These increases, however, are being used to cover underallocated personnel costs and prior year obligations to unpaid vendors.

Although collections exceeded projections in the first quarter, the current approved budget pursuant to Public Law 22-22 only accounts for 80% of personnel costs, while the remaining 20% is funded by ARPA.

With the ARPA fund in deficit, the unbalanced budget forced cost-shared employees to be shouldered by the general fund.

A revision of the budget is necessary to resolve the unbalanced funding and restructure services accordingly, thus maintaining government operations by doing more with less.

Based on the approved budget (P.L. 22-22), the estimated biweekly payroll for all employees and all programs is at $4.7 million, according to the report.