$1B suit scares garment buyers

Finance officials may have to further slash the government’s spending package for the rest of FY 1999 after garment manufacturers warned of a 25 percent plunge in user fees they pitch in to the local coffers as a result of reduced orders from apparel buyers.

The decline is expected to bring down to $36 million the total user fee collections anticipated for the current fiscal year which is $5.1 million lower than original projections.

The anticipated reduction in user fee is tied to the $1 billion class lawsuit filed against US retailers and garment factories for alleged mistreatment of Asian workers in CNMI that has sent jitters to the industry.

Leaders of the garment sector say a big number of their buyers from the mainland have cut down orders following the filing of the class suits in San Francisco, Los Angeles and Saipan last month by human rights groups.

Michael S. Sablan, special advisor on budget and finance to Gov. Pedro P. Tenorio, said yesterday an analysis of the potential impact of the decline in user fees is being prepared to determine whether the $216 million would have to be adjusted downward or not.

“The recent filing of the lawsuit…was not part of the variables that were taken into consideration when the FY 1999 projections were prepared,” Sablan said in an interview. “We’re concerned about its impact on our revenue collections going forward.”

Based on the $216 million revenues the government is hoping to generate to finance its operations for the current fiscal year, $41.1 million, or roughly a quarter of the total local funds, are expected to come from user fee collections.

User fee is the amount equivalent to 3.7 percent of the total gross value of finished garment products shipped to the United States by local apparel makers.

In 1998, combined gross income of garment manufacturers in the Northern Marianas topped $1 billion, making the industry the single biggest provider of revenues to the financially-troubled government.

Actual user fee collections in the first quarter of FY 1999 jumped 30.6 percent to $9.9 million from the same period last year, an increase reflective of the new user fee rates put in place in July. The amount was 9.1 percent above projected user fee collections for that period.

Every quarter, the government is hoping to raise approximately $9 million from user fees alone.

According to Sablan, a wide-ranging review of the impact of the 25 percent reduction in garment shipment, activities and other taxes related to the industry is underway to determine the whole projections.

“Based on that and based on revenue collections from other sectors, we will make a recommendation whether to adjust or not the total revenue collections for the balance of this fiscal year,” Sablan said.

In November, the governor lowered to $216 million the commonwealth’s spending plan because of the 13.4 percent anticipated drop in revenue collections as a result of economic slowdown.

CNMI is largely dependent on tourism for revenues, but the financial upheaval in Asia, the commonwealth’s main market, has thinned visitor arrivals and forced closures of tourist-related business establishments.

To cope with declining cash collections, Tenorio has put in place a package of cost-cutting steps and is seriously considering expanding the austerity measures that may include pay cuts.