$336.9M deficit in FY 2010

Now for more bad news: The CNMI government’s unreserved fund deficit ballooned by $36.1 million or 12 percent in a 12-month period, bringing the total to $336.9 million by the end of fiscal year 2010 compared to $300.8 million in fiscal year 2009, according to an independent audit of government finances.

The newly released Deloitte independent audit report says there’s not much recovery in sight for fiscal year 2011.

The unreserved fund deficit of $336.9 million in fiscal year 2010 is much more than the government’s fiscal year 2012 budget of $102 million.

“The local economy, still slowed by the effects of a drop in tourism and the loss of the garment industry, has continued to follow a trend of decreasing revenues. The prospects for fiscal year 2011 appear similar, with not much recovery in sight,” says the report, a copy of which was obtained by Saipan Tribune from the Office of the Public Auditor yesterday.

The Deloitte report is addressed to Gov. Benigno R. Fitial.

The audit says the CNMI general fund deficit is in large part the result of underfunding of employer retirement contributions and related penalties totaling $246.5 million as of Sept. 30, 2010.

It says various laws and other austerity measures, including reduced work hours, a hiring freeze, stringent review of non-personnel expenditures and reduced budget allotments are being implemented to reduce expenditures.

The Fitial administration continues to implement 16-hour work cut biweekly and unpaid legal holidays, even as its public pension agency sought bankruptcy protection and the public hospital teeters on the brink of shutting down.

“Management believes that actions presently being taken to revise the CNMI’s operating requirements…provide the opportunity for the CNMI to commence the process of reducing the abovementioned general fund deficit position,” it says.

If there’s a bit of good news, at least the general fund unreserved deficit increased by only $36.1 million in fiscal year 2010, lower than the increase of $44.6 million in 2009 and $38.1 million in 2008. These were all under the Fitial administration.

The independent audit report also says economic factors continue to play a large role in developing the tax and other revenue budgets for the CNMI’s general fund.

With the steady increase in deficit and no funds set aside to retire it, past and present administrations have been violating the NMI Constitution.

Article 10 Section 6 of the NMI Constitution says the government shall retire the deficit during the second consecutive fiscal year following the year.

For the fiscal year ending Sept. 30, 2010, the CNMI’s total net deficiency increased by $56 million, bringing it to $220.2 million. This marks an increase of some 34.1 percent at the beginning of the year, the Deloitte report says.

Total revenues for fiscal eyar 2010 were $260 million, but total expenses were $316 million, resulting in the $56 million increase in net deficiency.

Government expenses included those recorded for payments made or due to autonomous agencies and were funded in part by program revenues of $144.6 million, further funded with taxes and other general revenues totaling $115.4 million.

For budgetary reporting purposes, general fund actual revenues were lower than final estimates by $2.5 million or 1.7 percent.

Reported actual expenditures also exceeded final estimated appropriations by $24 million or 14.7 percent.

These amounts do not include transfers to and from other funds, nor does it include receipt or use of long-term debt proceeds.

House Ways and Means Committee chair Ray Basa (Cov-Saipan) said he has been looking forward to this 2010 audit report, which he said could help his committee work on the 2013 budget.

The House and the Senate have capped the 2013 budget at $102 million, as submitted by the governor. On Tuesday afternoon, the Senate concurred with the House budget cap by adopting House Concurrent Resolution 17-4.

Basa said the “biggest challenge” is finding money for the Commonwealth Healthcare Corp. CHC officials asked for a $10 million government subsidy in 2013, but the governor only offered $2.5 million.

“Now that the Senate passed the concurrent resolution, Ways and Means can start deliberating on the budget,” Basa said in an interview at his office. The budget hearings continue today.

Senate President Paul Manglona (Ind-Rota), for his part, said the government needs to enforce its tax laws and collect taxes instead of raising taxes. He said this is difficult because the Fitial administration could not even hire a director for Finance’s Revenue and Taxation Division.

“We’re in such a bad shape, yet we allow people and businesses to not pay their taxes. If the government goes after companies not paying taxes, they will start paying taxes,” he added.

Based on preliminary, unaudited figure reported by the Fitial administration, the cumulative deficit would be $370 million by the end of fiscal year 2011, including the $25.8 million budget deficit in fiscal year 2011 alone.

Budget deficit is a combination of overspending and revenue shortfall.