Crises on multiple fronts

In fiscal year 2022 the Commonwealth spent beyond its appropriated general fund budget by approximately $38 million, based on numbers provided by the Department of Finance, according to Gov. Arnold I. Palacios.

In his testimony before the U.S. Senate Energy and Natural Resources Committee on the “State of the U.S. Territories” last Thursday, Palacios also revealed that the Office of the Governor alone overspent its entire general fund budget for the year by over $1.4 million just in the first quarter of fiscal year 2023.

He said the CNMI is grappling with crises on multiple fronts: a government is fiscal disarray; an economy still struggling from the impacts of COVID-19 and several unprecedented typhoon disasters that preceded the pandemic; an unstable environment for businesses and workers; dilapidated infrastructure and systems that are underprepared for the climate crisis; and a shrinking population as citizens leave the islands for greener pastures.

Palacios said preliminary assessments indicate that the Commonwealth has exhausted and overcommitted the more than $480 million received through the American Rescue Plan Act, with excess obligations totaling an estimated $86 million.

Palacios said his administration is still assessing the extent of the government’s fiscal woes.

Arnold I. Palacios

“But what is clear is that the current predicament cannot only be blamed on external forces—the impacts of the COVID-19 pandemic, for example, or the typhoon disasters before that,” he said.

Over the past seven years, the CNMI has received significant federal resources aimed at helping the community build back stronger from adversity, “but we are not stronger today,” he said.

Instead, Palacios said, the CNMI is facing fiscal calamity “because of years of egregious misappropriation, waste, and abuse of both federal and Commonwealth resources with very little oversight and accountability.”

The governor noted that his administration has already begun making painful cuts. In the first weeks of his administration, he said he and Lt. Gov. David M. Apatang have issued notices of termination to hundreds of government employees who were funded at unsustainable levels through federal funds infused through the American Rescue Plan Act.

Palacios said they are now preparing to submit to the Legislature a drastically revised budget for the remainder of the fiscal year, and they expect further reductions in the government’s workforce as well as other areas of government operations in the coming weeks.

He said they have also placed high priority on increasing oversight and accountability for federal and local funds.

The governor said his administration has sought assistance from the CNMI Attorney General, the Office of the Public Auditor, and the U.S. Department of Justice in investigating and holding accountable those responsible for the misuse and abuse of public funds.

Palacios said he has additionally requested federal technical assistance in conducting forensic audits of the Commonwealth’s federal and local accounts.

He said they seek federal assistance in building a robust financial management system that is tailored to the Commonwealth’s needs, and in bolstering local capacity to monitor the government’s finances, conduct audits, and enforce collections.

“My aim is to ensure that the systems are in place to deter and detect the kinds of abuses of public funds that were rampant in our recent past, and improve stewardship and accountability for these funds to secure our future,” Palacios said.

He said congressionally approved financial aid packages like the CARES Act and ARPA provided the CNMI much needed funding to respond to the pandemic and mitigate its devastating effects. Unfortunately and embarrassingly, Palacios said, much of these funds were squandered by the previous Commonwealth administration.

These funds, he pointed out, were supposed to go to critical infrastructure and essential public services, support business retention and jobs, stave off a fiscal cliff, and keep the CNMI afloat for at least three years until 2024.

“Now, in 2023, we are free-falling from a fiscal cliff that came two years too soon—in our already crippled island economy. Inflation has only worsened our situation,” the governor said.