MPLT to House: Initiatives seeking to help Fund may do harm than good

After testifying before a special House panel to review measures seeking to help the Retirement Fund, the Marianas Public Land Trust wrote two separate formal position papers urging the House to give serious considerations to two Senate initiatives which they say “may do harm than good” and would make land lease interest income funds unavailable for other important programs and needs, among other things.

MPLT chair Alvaro A. Santos, in two letters to House Speaker Eli Cabrera (R-Saipan), listed its specific concerns on Senate President Paul Manglona’s (Ind-Rota) Senate Legislative Initiatives 17-13 SS1 SD1 and 17-14 SD1.

“In the Trustees’ view, the better policy and fiscal choice is to disallow consideration of SLI 17-13 by the voters as it is not in the best interest of the CNMI,” Santos told the House speaker.

For SLI 17-14, Santos said while MPLT trustees respect and understand that this is a policy decision of the Legislature, MPLT “experience counsels against such an approach of tying up the interest income for such an extended and unknown term.”

Santos said if allowed, SLI 17-14 will committee the interest income funds of $2 million every year to service a $300 million—tying up the funds from future appropriations.

“Clearly the interest income is far short of what is required to satisfy the unfunded liability. This begs the question of when, if ever, the interest income funds will be available again for appropriation for important programs and needs of the Commonwealth,” he added.

Both Jan. 11 and 12 letters caution the House against the negative impacts that the two initiatives would have not only on MPLT but the general fund and the whole CNMI as well, although it recognized that it would be a “policy decision” on the part of the Legislature.

Rep. Teresita Santos (Ind-Rota), chair of the House Special Committee on Retirement Fund, told Saipan Tribune yesterday that the panel “will certainly include” in its discussion the recommendations of MPLT with regards to SLI 17-13 and SLI 17-14 during their next meeting.

SLI 17-13 allows the Department of Public Lands to retain fee simple title over four CNMI golf course properties, but directs that the income and any leases of these golf courses be authorized and directed to the Fund.

MPLT remits interest income from investment of net land lease proceeds from DPL to the Legislature for appropriation.

In December 2011, for example, MPLT remitted some $2 million to the general fund pursuant to Article XI Section 6(d) of the Constitution.

But none of this money was appropriated toward the Fund to pay the unfunded liability or employer contributions due but were instead used for other programs, MPLT’s Santos said.

“In MPLT’s view, reducing the land lease funds to MPLT for investment would result in a drastic and dramatic reduction in potential interest income distribution to the general fund,” MPLT’s Santos told Cabrera.

The total current aggregate income from these golf course leases are less than $300,000 a year. If one deducts 30 percent for DPL operations, the net payment to the Fund would be $210,000 at the most.

Coral Ocean Point and Lao Lao Bay leases, for example, are only about $100,000 each a year.

Alvaro Santos said this can be compared to the $2 million that MPLT would be able to remit and perhaps a greater sum with the continued provisions of the Constitution in effect.

The MPLT chair said unfortunately, if approved, SLI 17-13 actually results in less potential funds to the Fund when compared to the interest income MPLT could generate for appropriation.

“In the Trustees’ view, the better policy and fiscal choice is to disallow consideration of SLI 17-13 by the voters as it is not in the best interest of the CNMI,” MPLT’s Santos told the House speaker.

MPLT also said that while SLI 17-13 allows 30 percent to be set aside for DPL operations cost, there is no restriction for the Fund from using the funds for its operational needs.

The Fund pays out some $71 million annually in benefits. MPLT said the Fund is using the pension corpus and thus continues to be depleted. It said the Fund would clearly use, as it does now, all funds to continue to pay out retirement pension since there is no other source.

“This begs the question of how $210,000 per annum can possibly satisfy the pension benefits due of approximately $71 million. Clearly the numbers do not suffice to remedy this dire situation,” MPLT’s Santos said.

SLI 17-13 says once the employer contributions and all unfunded liabilities are paid, then the money received by the Fund shall be repaid by the central government to MPLT.

Santos said this provision is both “unrealistic and unreasonable” in its scope and expectation.

“If the central government cannot pay the NMI Retirement Fund the current employer contribution amount of $300 million and unfunded liability of $700 million, then surely MPLT could not expect to be repaid millions of dollars in that same respect,” Santos said.

He added that MPLT trustees submit that their experience suggest that SLI 17-13 as proposed “does not help the NMI Retirement Fund but may do harm than good.”

SLI 17-14, meanwhile, directs that MPLT remit the interest income from its investments to the Fund. The proposed amendment would apply beginning the fiscal year after the loan to the Commonwealth Utilities Corp. is paid in full pursuant to Public Law 17-7.

Santos pointed out three major concerns on the initiative, including the fact that any and all of the estimated $2 million a year to be remitted to the Fund as proposed would allow the Fund to use such interest income from MPLT for staff, administrative and operational needs.

Second, a quarterly distribution results in a net overall lost of interest income. MPLT suggests that the process remain where the interest income would be remitted at the end of the fiscal year.

Third, MPLT is concerned with the scenario where the Fund pension plan collapses and the constitutional provision, if amended, would remain.

“This result is that MPLT would not be able to maintain those interest income received for further investment and would be held in an account until resolved. This does not result in more income for distribution—it will cause less income for distribution,” Santos added.