AG: CUC subcommittee expenses illegal; board expenses balloon to nearly $50K

Public law prohibits the Commonwealth Utilities Corp. from paying board members for personnel subcommittee meetings—regardless if the payment is characterized as compensation or as an honorarium, says the CNMI Office of the Attorney General.

The OAG was responding to a request from CUC for an opinion on whether board members could be paid for committee meetings.

“The short answer, as you can see, is…no,” CUC counsel James Sirok told board members on Thursday.

When Saipan Tribune first broke the story in July, the CUC board had outspent by $17,704 its year-to-date budget of $24,925 nine months into the fiscal year.

The board’s budget for the entire fiscal year is $33,300. As of last Friday, its expenses stood at $49,566.79, according to the latest breakdown of expenses.

On Friday, four board members—Albert Taitano, Eric San Nicolas, Joe Torres, and Adelina Roberto—returned the checks they got for last week’s meetings to offset the honorariums that they shouldn’t have been paid, after being informed the day prior of the AG’s opinion.

Between May and July, the board held eight meetings; several of these were committee meetings.

Since July, they continued to meet. On Friday, they included their personnel committee meeting within their regular monthly board meeting agenda.

They held a two-day meeting last week, starting Thursday.

One item discussed last Friday was an “Internal Financial Cost Savings Strategy.” It’s unclear if this includes cost-cuts for the board. That item was deferred.

Board treasurer Joe Torres on Thursday asked Sirok if an opinion of a previous attorney general “supersedes” another attorney general.

Sirok said the opinion Torres was referring to was issued in 2002. But the “restriction” to payments—via a public law—was enacted in 2006.

“The opinion cannot cover that,” Sirok said. Public law supersedes the previous AG’s opinion.

“So the only way that this can change is to amend that law again?” Torres asked. Sirok confirmed this.

Torres then told board members, “So let’s work on amending this law…”

Sirok went on to explain, per the OAG letter, that the Legislature enacted this law because there were abuses going on.

“They specifically enacted this to make sure that it was clear that there wouldn’t be compensation for committee meetings,” Sirok said.

He said government compensation law doesn’t use the term “honorarium,” which CUC board members were paid for.

Compensation and honorarium are two different things, Sirok said. Board members cannot get honorariums in place of compensation.

“In essence, you would be compensating yourself. The honorarium would be compensation,” Sirok further explained.

The AG’s opinon

In their formal opinion, deputy attorney general Lillian Tenorio wrote that part of the longstanding confusion over whether board members may receive payments stems from whether an honorarium is a form of compensation.

“This issue arises frequently in tax law, where ordinary compensation is a form of income, but an honorarium is a purely voluntary payment and is excluded from income as a gift,” she wrote.

Whether a payment is a gift or compensation depends on the intent of the payor. If a payment is made out of a “detached and disinterested generosity,” it is a gift. But if a payment is made out of the “incentive of anticipated benefit,” or it is “in return for services rendered,” it is compensation, Tenorio explained.

She said based on the facts, payment to a board member for attendance at a subcommittee meeting is not a gift.

The board members are not a “disinterested” party; they are the governing body of CUC.

“Any so-called honorarium would be a transfer of CUC’s funds to themselves,” Tenorio wrote.

“Likewise, if a member is paid for attendance at a committee meeting, the payment is made ‘in return of services rendered,’ and cannot be a gift. Therefore, because an honorarium must be a gift, a payment of board member for attendance at a meeting is not an honorarium.”

In short, the AG concludes that payment for attendance at a committee meeting is compensation, not an honorarium, and is prohibited by law.

Disband personnel committee?

The AG states that in requesting their advice, CUC noted that the personnel committee meets frequently to hold administrative hearings, and that the committee believes it should be compensated for spending so much time on personnel matters.

But Tenorio wrote that the personnel committee is not created by statute; it is a creation of the CUC board.

“If the personnel committee’s procedures are cumbersome and result in members spending significant time on personnel matters, the board of directors should consider issuing new regulations modifying personnel procedures or even shrinking the personnel committee.”

“Perhaps, the board should consider eliminating the personnel committee altogether and transferring its functions to a hearing office within CUC,” Tenorio concludes.