The CNMI gubernatorial leadership: 1978-2004

Third of five parts

FROM 1988 THROUGH 1998

The comment from the Office of the Secretary for the Department of Finance stated that, “The CNMI’s governmental activities’ decrease in net assets represents a 35.2 percent decrease from the prior year. The results indicate that the CNMI’s financial condition, as a whole, significantly declined from the prior year. Moreover, the Office of the Secretary for Finance indicated that at Sept. 30, 2002, the General Fund reported an unreserved fund balance deficit of $104,436,714, which is an increase of 18.7 percent from the prior year. Furthermore, during four of the past six fiscal years, i.e., FY 1997 through 2002, the CNMI government incurred expenditures in excess of its revenue collections. It has been reported that Fiscal Year 2003 will also reflect a deficit.

In the report generated by the Office of the Public Auditor, it stated that as of Sept. 30, 2002, the deficit totaled $80,921,000, but that the unreserved fund balance totaled a negative $104,437,000, which is in tandem with what the CNMI Finance Secretary revealed in his report.

The OPA report also indicated that the weaknesses in the CNMI government’s financial condition are also reflected in the changes to its overall assets and liabilities as reported by the auditor. In FY 1997, the audited General Fund liabilities totaled $92,367,000. This amount increased in FY 2002 to $152,085,000, a 65-percent increase. Correspondingly, related assets increased from $56,898,000 in FY 1997 to $71,163,000 in FY 2002, a 25-percent increase. This imbalance directly relates to the continuing deficit spending.

The OPA report also brought out that the CNMI Constitution forbids the CNMI Government from borrowing funds for operational purposes. As detailed in the audit, the accumulated deficit was funded by the nonpayment of obligations to other government entities, most notably the Retirement Fund and the Rebate Trust Fund. The future ability to repay these related entities, under conventional accounting methodology, relies on the CNMI Government’s ability to develop future surpluses in the General Fund.

Moreover, the General Fund is the government’s primary operating fund. As such, it is the major indicator of the overall financial condition of the CNMI Government. The reappearance of deficits in FYs 2001 and 2002 after two years of modest surpluses is indicative of the continued slowdown in the general and difficulty in reducing General Fund expenditures.

The areas of major concern that the OPA Executive Summary highlighted involved general obligation bonds, pension liabilities, and unpaid medical claims.

The first area discussed the repayment of existing general obligation bonds that will require increased funding, reducing the funds available to other programs. For FY 2002, bond repayment totaled nearly $6 million. The projected increase for FY 2003 was just over $8 million. For FY 2004 it will increase even more because of the increase for the repayment of the $40 million Land Compensation Bond.

The second area discussed pension liabilities that are unfunded by $488,693,000 and at some future time at least a portion of the unfunded liability will need to be funded.

The third area discussed the estimated $24 million in medical claims that are unpaid. This amount as a contingency to the Government Health Insurance Program is guaranteed by the General Fund. And the fourth and final area of concern involves the weakness that exists in the proper reporting of accounts receivables, i.e., Federal Grant receivables may be misstated, which could lead to an increase in recorded expenditures, which in turn would lead to an increase in the deficit.

The abovementioned information divulged in the financial documents that were produced by the Office of the Secretary for the CNMI Department of Finance and the Office of the Public Auditor for the CNMI contradicts what Juan N. Babauta said in his State of the Commonwealth Address on April 30, 2004. In that speech, Babauta told the island community and 14th Legislature that, “Today, the state of our Commonwealth continues to improve. It’s better than last year and getting better everyday.” It has clearly not gotten better everyday and the numbers that have been depicted in the reports from the CNMI Department of Finance, Office of the Public Auditor, and Bank of Hawaii economic reports from 1995 through 2003 substantiate that things have in fact deteriorated in terms of financial growth and stability.

To be continued.

Dr. Jesus D. Camacho
Delano, California