Budget comes down •Revenue may fall still further down as garment fees take tumble

With the island economy showing no signs of improvement, Gov. Pedro P. Tenorio plans to reduce the appropriation level that will usher the new millennium, cutting back 2 percent to $206 million the proposed budget for FY 2000 from the current spending package.

But some skeptics say anticipated revenues to be collected in the next fiscal year are unrealistic considering the expected decline in user fees the garment industry will pitch in to the local coffers.

According to garment representatives, the slowdown in production could go beyond initial estimate of 25 percent because of the sharp drop in orders from US buyers worried over the $1 billion class action lawsuit. The decline in orders is also expected to trigger massive job cuts in the sector.

In 1998 direct taxes paid by apparel makers to the island government represented a record of 23.5 percent of the total operational budget of the Commonwealth. On top of this, the garment industry provided 53 percent of the revenues of the ports authority and 20 percent of the utilities corporation.

Overall, the proposed budget cut reflects a 15 percent reduction in spending limit from original projections of $242 million approved by the Legislature in September. But continuing decline in revenue collections had forced Tenorio to adjust downward the budgetary resource projections to $210 million, or a 13.4 percent decrease.

Bulk of the decline in revenues, administration officials explained, will come from poker license fees, which under a new law, must be shared between the central and local governments.

According to Tenorio, a lower appropriation will allow his administration to meet a constitutional requirement for a balanced budge and keep the deficit from rising.

“The constitution requires that we submit a balanced budget. It’s necessary that we spend according to our revenue collections,” Tenorio said in an interview, as he pressed government agencies to “submit very conservative budget requests” in light of the worsening financial woes.

Tenorio also warned that he may have to further slash quarterly allotments for the remaining two quarters of FY 1999 if resource projections continue to go south. Cash collections that would come in March would determine whether additional cuts will be implemented, he said

“By then we know how much we’re going to collect. If we found that the trend continues then we have to reduce allotment advise before the end of third quarter or early period of the fourth quarter,” Tenorio said.

The proposed spending level is part of a package of measures the administration has put in place to deal with the economic crisis haunting the CNMI since late 1997 when a currency crunch struck Asia, once home to some of the fastest growing economies in the world. Japan and South Korea, two of the region’s economic giants hardest hit by the financial fallout, used to be the Commonwealth’s key providers of tourists and fresh capital.

The region-wide financial fallout has plunged the islands into its worst economic crisis in nearly 50 years, pulling down revenue collections and forcing establishments out of business.

Revenues collected during the first quarter of FY 1999 had dropped from year-ago figures. Excise taxes from perfume, cosmetics and leather goods – the favorite gift items purchased by tourists – decreased during the same period due to a downtrend in the tourism industry and changing buying habits of the once high-spending Japanese visitors.

Taxes generated from perfume sales plunged 39 percent from $91,000 to $56,000, while cosmetics dropped to $95,000 from $145,000, or 35 percent decline. Revenues from retail sales of leather goods slightly slid to $153,000 from $155,00 during the period.

Hotel occupancy tax took a $1 million dive from $2.2, or a 46 percent drop, compared to the same period last year, while excise taxes from cigarettes declined 44 percent.

After inheriting a nearly bankrupt government, Tenorio put in place a package of austerity measures to deal with shrinking cash resources which include, among others, elimination of non-essential positions, cutback in overtime, freeze hiring, and ban on off-island travels.