Casino law’s proposed changes try to cure CNMI funding woes

Gov. Eloy S. Inos spelled out 12 sets of agreed-upon changes to the now five-day-old Saipan casino law, all of them contained in yesterday’s pre-filed amendment bill, from tax rebate restoration to cuts in tax benefits for the exclusive casino licensee, 25-percent pension cut restoration, payment of interest on retirement contribution withdrawals, lower utility rates and land compensation payments. The amendment bill is likely to pass the House of Representatives as early as today and the Senate, as early as Thursday. 
If all goes well as planned, the governor could have the amendment bill on his desk before the week’s end.

But while the 16-page amendment bill tries to cure many of the CNMI’s funding problems involving medical, retirement, and utility services, the Legislature and the administration’s handling of the bill still raises questions and concerns from the public, including a lack of public hearing for a bill of this nature.

House floor leader Ralph Demapan (Cov-Saipan), author of the casino bill that became law on March 21, pre-filed yesterday House Bill 18-182 that would amend Public Law 18-38.

“This is a much improved legislation that takes into account the concerns of the public. The proposed amendments are very straightforward and clarify ambiguities. Again, I will respectfully ask my colleagues to allow this bill to be placed on calendar during Wednesday’s session,” Demapan told Saipan Tribune.

The governor, meanwhile, said he signed HB 18-179, HD4 into PL 18-38 “with reservation.”

“Although there are some shortcomings in this bill, the assurances that you have provided as to the adoption of agreed upon amendments will address these issues,” the governor told the Legislature in his transmittal letter dated March 21 but was actually sent to the Legislature only yesterday afternoon.

Inos said with the agreed-upon amendments, the revised bill will provide a “long-term solution to many community problems.”

He cited, for example, the required $2-billion investment in building new hotels and tourist facilities, and millions more in the expansion of roads, utilities, and services.

“These investments will provide the economic foundation for both the immediate and long-term expansion of the Commonwealth as a major tourist destination in Micronesia,” Inos said, adding that these changes will create thousands of jobs, increased wages, job training, demand for private property, and creation of business opportunities.

Demapan’s amendment bill takes into account the changes proposed by House and Senate members, the governor, the business community and other members of the public.

Ed Propst, a concerned citizen, said yesterday there are still lingering questions on the manner in which the casino bill and the amendment bill are being rushed. Propst urges community members to comment on the bill in this afternoon’s House session and ask questions, since the bill is not likely to be referred to committee or undergo public hearing.

“Another question is, who is this casino investor the CNMI leaders met with in Hong Kong? Whatever happened to the promise of transparency in government?” Propst said in a phone interview.

In this afternoon’s House session, Demapan will formally introduce the amendment bill. He will then ask his colleagues to have the bill placed on the calendar for action.

Tinian mayor’s requests

Tinian Mayor Ramon Dela Cruz, meanwhile, asked the House and Senate yesterday to consider an amendment that would “ensure that the law is completely severed from casino or gaming operations” on Tinian and Rota “in any way, shape or form.”

“With that done, both Houses can openly and freely discuss the issue of casino gaming on Saipan without worrying about interference from those members of the Legislature from either Tinian or Rota who support casino gaming on Saipan,” the Tinian mayor told House Speaker Joseph Deleon Guerrero (Ind-Saipan) and Senate President Ralph Torres (R-Saipan).

The House speaker will have his leadership meeting this morning, while the Senate president convened a leadership meeting yesterday afternoon.

Senate Fiscal Affairs committee chair Jovita Taimanao (Ind-Rota) scheduled public hearings on the casino amendment bill from but there is no telling whether the measure would even be referred to her committee once HB 18-182 reaches the Senate.

In a separate letter to the governor also yesterday, the Tinian mayor again reminded Inos and Lt. Gov. Jude U. Hofschneider to push forward with developing the Tinian West Field International Airport.

“For the sake of the people of Tinian who signed the Covenant with the hope of equal treatment, and for the people of Saipan who will continue to receive the bulk of the revenues created by casino gaming on Tinian, I ask you to step forward and make direct flights to Tinian a reality before the November election,” the mayor told the governor.

Tax benefits

HB 18-182 clarifies and restores the tax rebate offset structure for CNMI taxpayers, which was among the major concerns raised by lawmakers themselves, the Saipan Chamber of Commerce, and other community members.

The bill also cuts the proposed tax benefits to be given to the exclusive casino license holder.

The original bill that became PL 18-38 gives the exclusive casino licensee a rebate offset amount of 100 percent of the gross gaming revenue.

In the amendment bill, the exclusive casino license’s rebate offset for “non-gaming revenue” is similar to that provided to other taxpayers who are not free trade zone licensees. For example, if the rebate base is over $20,000 but not over $100,000, the rebate amount is $18,000 plus 70 percent of the rebate base.

Moreover, for the casino gaming revenue, the rebate offset amount is 100 percent of the income tax imposed on net gaming revenue “taxable income up to $15 million.”

For casino net gaming revenue taxable income in excess of $15 million, the rebate offset is the same as those for other taxpayers.

Saipan Chamber of Commerce president Alex Sablan earlier questioned the original bill’s 100 percent tax rebate of the exclusive casino licensee’s gross gaming revenue, “when the overall true benefit” is already “exclusivity.”

Timelines, payments

As agreed upon, the exclusive casino license term is reduced from 80 years to 40 years to comply with the NMI Constitution’s land provisions.

The amendment bill provides for the co-existence and establishment of electronic gaming.

Again, with the exemption of electronic gaming, no new additional poker, pachinko and similar amusement machine license will be issued or allowed to operate outside casinos a year after the casino law’s signing.

The amendment bill gives interested investors more time to pay a nonrefundable $1 million application fee—from 15 days to 30 days of the bill’s signing.

The application must be submitted to the Commonwealth Lottery Commission, and the fee must be deposited with the Commonwealth Treasury.

Payment or deposit in an independent escrow account of $30 million—representing the first and now the “fifth” instead of the “third” annual license fee of $15 million each—is to be made within 45 days from the bill’s signing instead of 15 days.

Another proposed change is the $15 million annual license fee which can now be adjusted—upward—every five years based on the cumulative change in the consumer price index that the Department of Commerce develops for Saipan for the previous five years.

The $15 million annual license fee, however, cannot be reduced, under the amendment bill.

Business plan, penalties

The investor will also have up to 45 days after the amendment bill is signed into law to submit an acceptable business plan to the Commonwealth Lottery Commission.

Under HB 18-182, the business plan must provide a timeline and cost breakdown that specifically shows how and when the applicant will comply with the requirements of the minimum initial investment.

The investor’s required minimum investment is still $2 billion.

However, the amendment bill said this is only an initial minimum investment, and should include a casino and a resort with a minimum of 2,000 guest rooms. These should be built from the ground up.

HB 18-182 increases the penalties for violation of the bill’s provisions to a felony classification and fines up to $100,000.

The amendment bill also lowers the age limit from 21 to 18 for individuals allowed to the casino gaming areas.

Where will funds be used?

The amendment bill provides for an annual $2 million payment each for Rota and Tinian from the license fees. But that amount will be used only to restore the 25 percent cut in pension and benefits for these senatorial districts’ retirees.

In the $30 million in license fees that will be received in the first year, $26 million will be paid upfront to Saipan.

Of this amount, $25 million will be to restore Saipan retirees’ 25 percent pension cut and $1 million to be allocated to the Saipan and Northern Islands Legislative Delegation for their appropriation.

A PL 17-82 Interest Account shall also be established, to be used to pay the interest to active members who terminated their membership in the Defined Benefit plan under Public Law 17-82 as amended by PL 18-2. The interest is to be paid proportionately on a semi-annual basis until all members have been paid.

The law states that $11 million of the annual license fees received in the years after the first year will go to Saipan for the 25 percent pension cut restoration ($10 million), and $1 million for SNILD’s appropriation.

This is a general election year in the CNMI.

The $1 million nonrefundable application fee will be reserved for the commission’s operation, personnel, and all other expenses for the first year.

Other uses

The amendment bill also spells out the disposition of gross revenue tax from the Saipan casino industry.

After interest has been fully paid to all members who terminated their DB membership, the Finance secretary has to establish a LEAC Rate Subsidy Account, and money will be used primarily to subsidize the LEAC rate for Commonwealth Utilities Corp. customers. This will help reduce CUC customers’ utility rates.

Gross revenue taxes will also be used to provide subsidy for the Commonwealth Healthcare Corp. to help address costs associated with medically indigent patients.

They will also be used to subsidize the CNMI Medical Referral Program.

Lastly, gross revenue taxes will also be used to pay land compensation judgments and other land taking.

What if?

The amendment bill says in the event that an exclusive casino license is not issued within 90 days of the bill becoming law, the commission shall establish new application procedures.

HB 18-182 reduces the $75,000 annual compensation to commissioners to $40,000 for the first year of the commission’s existence.

After the first year, commissioners will be compensated at the hourly rate of $20 for official commission meetings attended.

Not an easy task

The governor, in his transmittal to the Legislature, said a significant shift in the economy will also bring challenges “and we must adopt a careful approach in balancing economic development with the need to protect our island environment and indigenous culture.”

“This will not be an easy task. There will be a great demand for immediate development. We must ensure that we take a long-term perspective on projects to ensure that it balances economic benefits and impact on our environment and cultural identify,” he added.