Will the retirees’ financial resources wind up a CUC ‘money pot’? Let’s hope not

[B][I]First of a two-part series[/I][/B]

I can certainly understand the chairman of the Fund’s concern over the condition of the power situation on Saipan and his desire to help the people, he is truly a fine man and a friend—and friends can disagree, (I hope). In my judgment as a result of his position his primary and overriding concern, dedication and due diligence along with that of the full Board of Trustees should be to preserve the solvency of the retirees’ assets and let the government worry about CUC. I really can’t see where investing in CUC will contribute toward that end.

After all CUC is a mess the government alone created as a result of years of neglect and lack of independent supervision not unlike the damaged it is now causing the Retirement Fund. In my opinion a Fund investment in CUC is not a good investment. To the contrary, it would be a very poor investment particularly at this time—and perhaps at anytime. I’ll provide more on basic fiduciary responsibilities in part 2 of this series for those interested.

To raise money for CUC’s rehabilitation which I acknowledge is needed, the government has assets it could sell off to provide financing for CUC’s new generators and to pay off CUC’s current debt of $ 215 million of which I suspect much has already been spent for fuel and the resulting smoke up the stack—money—now “gone with the wind”, so to speak. It’s a debt the retirees should not be expected to pay under any circumstances. If the government is so desperate it could sell off Capitol and Navy Hill housing which do not earn any revenue to my knowledge. The government could also privatize the air and sea port. If the government sold those assets it would have money to solve CUC’s problems. But we all know that will never happen.

The Fund’s chair was quoted in this paper (Aug. 22) as stating “the CUC is a good opportunity for the Retirement Fund to invest in because it is a monopoly.” A monopoly it certainly is—a good investment it is not. The fact that it is a monopoly didn’t help it before—what would then be different with the CUC monopoly when financed with retirees’ invested money? I’ll tell you—no difference. The only monopoly resulting would be “Monopoly money” on the Fund’s return on investment.

Not all organizations that are monopolies fare well, and CUC is a classic example. With no competition to keep it efficient and its management accountable, the utility was run into the ground. There is nothing that would make me think that with a massive injection of retirees’ money that its performance would improve. My dear sweet granny said, “You can’t teach an old dog new tricks.” As for the opinion of this economist regarding the Fund’s interest in considering investing in CUC I think it would be disastrous for the member’s future retirement security which is already being seriously undermined by the Legislature and the central government. Frankly, the two branches are doing everything possible to “dump” the Fund. If you don’t believe that look at the record. Then if you still don’t believe it—I have some old shoes I would like to sell you.

There are several reasons for not investing in CUC which should be obvious to everyone familiar with the incompetence, waste, inefficiency and alleged criminal activity of certain individuals associated with the organization. The latter alone if true is a great pity and a huge disappointment.

Many of these concerns have been described in some of my essays which have appeared in this column and can be reviewed in the Tribune archives (see below). Others have appeared elsewhere in the local media and need not be repeated here—but one viewpoint that has rarely been discussed is the possibility that the provision of reliable and sustained power for Saipan may simply never be cost effective and may well have to be continually subsidized by the government just as other physical, medical and educational infrastructure is subsidized, if not directly by the NMI then by the U.S. government. If history is the measure—then it’s true. At any rate, a thorough, unbiased economic assessment of this very real possibility should be undertaken so the community will know once and for all. To my knowledge this issue has never before been examined from this perspective.

It may be that the “economies of scale” for a reasonable “livable” consumer power rate may never be attainable from the use of fossil fuels without a subsidy at least in the foreseeable future in terms of achieving full cost recovery. The average residential rate in the United States for electric power generated from all fuel sources is 8.9 cents per kwh (World Almanac, 2007). Obviously, the cost of fuel delivery to the islands must be included in the cost of power generation.

Certainly the NMI rate is likely to never be as low as the U.S. average without a subsidy—and not a subsidy provided by the retirees.

Certainly until this evaluation is known—in my judgment none of the retirees’ money should be invested in CUC and, indeed, perhaps never. I believe that such a move on the part of the Fund’s Board of Trustees should funds be invested in the utility could result in law suits against each and every one of the Trustees for neglect in the exercise of their fiduciary duty. There are many laws governing the abuse of such duty particularly when ample evidence is readily available justifying to any reasonable observer that no such investment should have ever been undertaken. More about this in Part 2 of this series.

The reader may recall such a law suit came very close to being filed about two years ago when the government wanted to borrow (raid) $40 million from the Fund for CUC. I simply fail to see the justification for using the savings of retirees to “bailout” an entity of the government whose own decisions brought it to financial ruin.

Do Fund Trustees fail to see the obvious that history may well repeat itself? Indeed, there is every indication that it will repeat itself to the detriment of retirees and their dependents and their future financial security should the Fund either loan or invest in CUC. A blind person could even see the disaster.

I can assure the Trustees that there will be many retirees outraged at a proposal to invest in CUC. If the Trustees doubt this let them canvass the membership—which certainly should be done in any event. While the involvement of the members is not essential when “off-island” money managers are involved in the international market for buying and selling investment instruments—about which the average pensioner has no, or very limited immediate knowledge, however, making an investment in CUC—about which all retirees are only too familiar—is an entirely different situation—a horse of a different
color as they say.

[B][I]To be continued.[/I][/B] [I]Editor’s Note: Previous articles concerning the Retirement Fund and other subjects are available on line in the Saipan Tribune’s archives and can be accessed by entering the author’s name—William Stewart—in the paper’s search bar.[/I]