Lawmakers caution against $120M bond float

A new target of $120 million pension obligation bond to be floated is drawing a lukewarm response this early from lawmakers who are urging the Inos administration and the Commonwealth Development Authority to “proceed with caution.” Some said they are more inclined to support the governor’s original plan of $60 million to $80 million bond float.

This, as the House of Representatives is poised to act this afternoon on a bill amending the pension obligation law or Public Law 18-12 and allow the use of gross receipt taxes as pledge to the debt service, among other things. The new target of $120 million is still within the “up to $300 million limit” allowed by the POB law.

Rep. Tony Sablan (Ind-Saipan) said it’s not because the CNMI can afford to float a $120 million bond, that it should proceed with it, considering that the islands are just starting to recover economically and one major factor beyond the CNMI’s control can easily weaken the tourism industry once again.

“I would be more comfortable in the numbers between $80 million and $120 million. Maybe $100 million is more reasonable,” Sablan told Saipan Tribune. “It’s too short of a period to feel totally comfortable. We don’t know if this economic recovery will continue as we’d like to, so we should proceed with caution. We should be more conservative with the numbers.”

Rep. Ralph Yumul (Ind-Saipan) separately said “it would not be in the best interest of our people to float a pension obligation bond at this point in time,” saying that “it would cost us approximately $99 million in interest alone should we float it for 15 years just so we can keep up with our obligations to the settlement fund.”

“So in essence we are just delaying the inevitable of what is owed. We have other obligations like CUC [Commonwealth Utilities Corp.] and other outstanding debt, 2007a/b bonds, so we can’t afford another bond,” he said.

Yumul added that lawmakers’ questions about the pension obligation bond were not answered during yesterday’s meeting of the House Ways and Means Committee with Finance Secretary Larrisa Larson. Finance briefed lawmakers about the fiscal year 2013 revenues and spending, but members also got a chance to ask about other topics such as the POB and tax amnesty.

Rep. George Camacho (Ind-Saipan) said it “all boils down to the sacrifices we are willing to commit in order to pay it back.”

“Any obligation floated is and becomes public debt…Obviously, less bond floated is good. But will that be sufficient to sustain the retirement fund program? Eventually, at the end, we will have to make sacrifices paying the bond back—sacrifices, including public service. It becomes a matter of priorities,” Camacho added.

Rep. Antonio Benavente (Ind-Saipan) also said the government should not move on with a $120 million bond float “because when something happens beyond our control, we don’t know if we can really afford repayment.”

“I personally prefer $60 million to $70 million because that’s the gross receipt tax we’re projecting to collect,” he said.

Benavente said in the meeting with the Finance secretary, there remained unanswered questions. For example, if a $120 million pension obligation bond is floated, “will that pay for the annual minimum guaranteed government payment to the settlement fund until it’s exhausted?” or “will the government still set aside $20 million in the annual budget and take the remaining amount needed like $7 million for FY 2015, from the POB?”

Sablan, meanwhile, said the House will once again take up a POB law amendment bill this afternoon. It was debated last week but was not acted on.

“We will move on that because that bill is important in the ongoing process. Without that bill, we might not be able to get the best possible deal. The bill would pledge gross revenue tax, as security for repayment. What we need to do, when CDA is ready to present to the administration, everybody could have a chance to share their concerns,” he added.

Rep. Mario Taitano’s (Ind-Saipan) House Bill 18-71 remains on calendar, but another of his bill, HB 18-70, already passed the House last week to amend the Commonwealth Development Authority Act of 1984 to allow issuance of bonds other than general obligation bonds at a time when the CNMI is preparing to float a pension obligation bond.

Press secretary Angel Demapan said the $120 million target is not a final figure.

The government has been trying to meet its pension obligations such as the annual payment to the settlement fund, the restoration of the 25 percent cut in pension, return of the retirement fund contribution interest, and health and life insurance premium payment while its budget is only $123.4 million.