Inos: Pension obligation bond on hold

Gov. Eloy S. Inos disclosed to Saipan Tribune that his administration will not push through with its initial plan to float a multimillion pension obligation bond to cover the anticipated depletion of the settlement trust fund.

The decision to put the plan aside was a result of the infusion of new monies in the government through the anticipated casino investment.

The Pension Obligation Act of 2013 authorizes the government to float up to $200 million in bonds to address the looming exhaustion of the retirement program’s funds by 2019.

The Inos administration, in collaboration with the Commonwealth Development Authority, had targeted to float bonds to the tune of $60 million, $80 million, or $120 million. The POB Act was later amended to allow the use of gross receipt taxes to repay the bonds.

Unlike revenue bonds, POBs are taxable and command higher interest rates. CDA has confirmed that it is aiming for a higher credit rating so the proposed POB float will get a lower interest rate.

However, with the passage of the casino law, the administration’s direction on the pension obligation bond has changed.

“It’s essentially on hold. Why do we have to proceed with it if we have to pay interest expense when the casino will give us the funds without interest expense?” the governor told Saipan Tribune during the graduation rites at Saipan Southern High School Tuesday night.

“We’re not looking at anything at this point [on POB] because we have no plans on moving forward with it, unless we lose the opportunity to provide the revenues from casino and integrated resource development,” Inos added.

The governor’s decision to hold the POB plan has apparently yet to be disclosed to the administration’s partner, CDA.

CDA executive director Manuel Sablan earlier told Saipan Tribune that except for the final amount on how much will be floated, everything is set.

Sablan even pointed out that from the initial target of floating $60 million to $80 million in pension obligation bond, the CNMI is expected to revise the target figure to a much lower POB as a result of the infusion of new monies to the economy, alluding to the casino.

“Initially, we’re thinking of $60 [million] to $80 million POB. But we don’t know now because there’s significant improvement in the CNMI’s revenues. There’s projected cash flow coming in from casinos that would impact the need to float the bond,” he said.

Obviously, Sablan said, the CNMI may lower the initial target for the POB. But as to the final amount to be floated, the CDA chief admits that all depends on the will of the governor.

“It’s not the CDA who will determine the final amount but the governor. We’re hopeful that in next couple of weeks, we would be able to sit down with him and basically give us some inkling,” said Sablan.

He added that the framework is there. “We have an underwriter, bond counsel, and investment adviser. All these mechanics are in place so once we get the go signal from the governor…we’re ready to move,” said Sablan.

When asked if there remains an “urgency” to move with the POB, Sablan cited the condition of the retirement program’s corpus, which was forecast to be depleted in five years. The government, he said, can address the health insurance and recovery of retirees’ pension cuts issues by utilizing internal revenues for now, but POB can address the long-term need of the pension agency’s liability to members.

As to the possibility of floating the POB within the fiscal year 2014, Sablan is unsure.

“But it can happen anytime. It could also be a one-time float or multi-year float,” he told Saipan Tribune.

Last Tuesday, Inos emphasized: “It’s not a question of how much, but do we proceed [with this POB].”