NMI’s bond rating under review

Lt. Gov. Eloy S. Inos said yesterday that the government will take “corrective actions” and help improve the economy to ensure that Moody’s Investors Service will not downgrade the CNMI’s B2 bond rating for its Series 2003A General Obligation Bonds that is currently under review.

“We haven’t been downgraded…they put us on watch essentially, which means that if the condition deteriorates, we might get a less favorable rating and that surely will affect our ability to get favorable rates whenever we issue future bonds,” Inos told reporters after signing a proclamation yesterday morning declaring May 21 to 28 Memorial Week.

A downgrade of the CNMI’s bond rating would mean that the Commonwealth would have more difficulty issuing bonds, such as a pension obligation bond that the Fitial administration and some lawmakers have been advocating to help pay for the government’s outstanding employer contributions to the NMI Retirement Fund.

Inos said the issue is also more about turning the economy around.

“The task of everyone is to try to reverse that and see if we can improve the economy [which] is really more of the issue here,” he added.

On May 4, Moody’s Investors Service announced that it has placed under review the CNMI’s B2 rating Series 2003A General Obligation Bonds, affecting $1.7 million in outstanding debt.

Moody’s said the placement of the rating on review “is prompted by the lack of sufficient current financial and operating information.”

“If the information is not obtained within the next 60 days, we will take appropriate rating action, which could include the withdrawal or lowering of the rating,” Moody’s said.

Inos, a former Finance secretary and currently overseeing government finances, said the administration’s objective is to try to overcome everything “that created that scenario and a lot of it also have to do with the way the bond rating folks see our future economy and if it doesn’t look like we’re going to turn this thing around, then I’m afraid…we’ll probably get an unfavorable rating, meaning downgrading our existing [bond rating].”

Inos also said that some $280 million of the cumulative unreserved fund deficit of $336.9 million is the government’s unpaid employer contribution to the NMI Retirement Fund, while the rest—almost $57 million—is the operating deficit that Inos said has accumulated “since day 1.”

Deficit is a combination of overspending and revenue shortfall.

Inos said the deficit accumulated from one administration to another.

A Deloitt report states that the 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.

Inos said retiring the operational deficit hinges on the availability of cash.

“A lot of those are contracts that have been obligated that haven’t been paid. We need to take a look at those contracts and manage them appropriately. Talk to vendors and deal with vendors so that we can do some payment plans and so forth. Again without additional resources we can only stretch whatever resources we have right now and that involves making arrangements with creditors so that we can pay them down based on available funds,” he added.

Inos said the administration is cognizant of the constitutional provision requiring the retirement of deficit during the second consecutive fiscal year following the year. But he said all administrations have violated this constitutional provision.

“Obviously at some point we are going to have to stop rolling the deficit and just pay whatever we owe, and we’ll be in the black but we’re not in the clear. The needs certainly exceed the resources and so we’re trying to balance that out. It’s a difficult task but we do our best,” he added.

Deloitte released last week an independent audit report showing that 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. The report says there’s not much recovery in sight for fiscal year 2011.

Inos, at the same time, called for a meeting with lawmakers this morning to discuss ways to address the crises plaguing the NMI Retirement Fund.

The Fund filed for Chapter 11 bankruptcy last month, the first public pension agency on U.S. soil to seek bankruptcy protection.