CPA under state of emergency

Gov. Benigno R. Fitial declared the Commonwealth Ports Authority under a state of emergency yesterday to deflect any legal issues that might arise from his takeover of the autonomous agency.

The state of emergency legally allows the governor to assume direct control of CPA immediately.

This follows the executive order that the governor issued Monday to abolish the CPA board of directors, which had been unable to muster a quorum and act on urgent measures to save CPA from further financial damage.

The executive order alone does not allow Fitial to take over the ports authority until the Legislature has been given 60 days to look at—and possibly, amend or void—the governor’s action.

With the state of emergency, the governor can now start running the ports authority. He can also use central government funds on CPA and take personnel actions at the airports and seaports.

“We want to make sure we’re doing everything under the law,” said press secretary Charles P. Reyes Jr.

CPA is nearing a technical default on the 1998 indenture on its airport revenue bonds. If the default occurs, CPA could be forced to pay the entire principal and interest of the bonds immediately. Bank of Guam, which serves as the bond trustee, could also issue a default notice and take over the Saipan International Airport.

Such a default would also have a negative impact on the CNMI government’s overall ability to borrow money. Proposals are pending in the Legislature to float a bond to pay for the government’s debts to the NMI Retirement Fund.

“[This state of emergency] declaration is necessary to ensure that a CPA technical default does not have a cumulative impact on the CNMI economy, which has been in constant and prolonged downward trend as shown, among other examples, by the closure of several businesses, the withdrawal of Japan Airlines from CNMI service, the decline in tourism, and the persistent rise in fuel and electricity costs,” the governor said.

Using his state of emergency powers, Fitial yesterday issued several directives raising CPA rates, imposing austerity measures, and ending the incentive program for airlines flying to the Northern Marianas.

On March 1, 1998, CPA entered into a $20 million airport revenue bond indenture agreement with Bank of Guam as the bond trustee. This agreement requires CPA to make timely payments and to maintain a 1.25 revenue-to-bond payment ratio at all times in the duration of the bond. In other words, for every $1 owed on the bond, CPA must have $1.25 of net revenue in reserve.

CPA, which still owes $17 million, has been making punctual payments. But it has failed to meet the required debt ratio of 1.25.

In a recent report, CPA’s acting comptroller said that first quarter losses from the airline incentive program have totaled $1.2 million. If the Airline Incentive Program is continued and rate increases are not increased, CPA’s projected total deficit will be at least $3.4 million. By eliminating the airline incentive program alone, the acting comptroller projects a $1.97-million reduction in losses.