Open letter to Rep. Francisco M Borja

Editor’s Note: Rep. Francisco M. Borja is chairman of the House Committee on Resources, Economic Development and Programs in the 18th CNMI Legislature.

Dear Chairman Borja: The leadership of the 12th Saipan and Northern Islands Municipal Council is happy to provide comments to House Legislative Initiative 18-05 and Senate Legislative Initiative 18-02. Both proposals attempt to amend existing terms on public and private land lease terms.

HLI 18-05 proposes “[t]o amend Article 11, Section 5(c) [of the NMI Constitution] to increase the maximum term of a lease of public lands [to] 99 years” and to continue “to require legislative approval where the leased lands consists of more than five hectares.”

On the other hand, SLI 18-02 “propose(s) constitutional amendment to Article 12, Section 3 and Section 5 of the CNMI Constitution to extend the term of leaseholds from 55 to 99 years and to change the definition of corporations permitting minority interests by persons not of Northern Marianas descent.”

At the outset, neither HLI 18-05 nor SLI 18-02 presents background information by way of a committee report to explain the rationale for the proposals, or for that matter, provide a cost-benefit analysis at least.

Providing background information for any proposal, especially major changes to existing policies, is critical. Making fundamental changes to governing core principles on public or private land belonging to persons of Northern Marianas descent is no different from passing a casino bill without the benefit of a public hearing, cost-benefit analysis, or thorough discussion, subjecting the legislation to impartial research study. It is important that the Legislature first undertake a formal assessment on the impact of Article 8, Section 805 of the Covenant and applying a heightened level of scrutiny to public or NMD lands based on the following issues: 1. Is land ownership still an enduring feature of the local CNMI culture and tradition? 2. If so, to what extent have the people been protected from “exploitation” by unscrupulous real property transactions? 3. Has the protection embedded in the Covenant and CNMI Constitution contributed significantly to the economic advancement of the local people? 4. Has this safeguard mechanism impacted the goal of self-sufficiency as it was envisioned in the Covenant?

Unlike the existing provision in Article 11, Section 5(c) requiring legislative review and approval of public land leasehold of more than five hectares on the first leasehold interest of 25 years and a second legislative review on any lease term extension of additional 15 years from the base lease, HLI 18-05 limits legislative review and approval on public land lease until 99 years later after approval of a public land lease or a private land lease, for that matter. The proposed lease term change not only escapes compliance scrutiny but also valuation of public (HLI 18-05) and private land (SLI 18-02) by 44 years based on the proposed extension.

Moreover, HLI 18-05 would violate strict standards of fiduciary care required by the public land co-trustees. The CNMI Supreme Court in Department of Public Land v. CNMI (2010 MP 14) defined “fiduciary duty” as “a duty to act for someone else’s benefit, while subordinating one’s personal interest to that of the other person. It is the highest standard of duty imposed by law.” The court buttressed its position further in saying that “courts should strictly scrutinize the actions of the government, holding it to the same strict standards applicable to private trustees.” Like the state agency in the Office of Hawaiian Affairs, the CNMI dual public land agency in DPL and MPLT as co-trustees of public land also assumes a land trust obligation for its people of Northern Marianas descent vested in its own Constitution and assigned this duty to DPL to which strict standards of fiduciary care apply.

As an alternative, the council would rather take a cautionary approach based on the position that instead of extending public land leasehold interest from 40 years to 99 years, the CNMI could still preserve the existing 25-year basic leasehold structure with a 15-year extension option on public land, subject to a one-time lessee negotiated right of refusal for a total of 40 years on existing reversionary interests with stipulated improvements on existing (not new) facilities. This restructuring approach not only preserves the existing fundamental public land policy benefiting NMDs and maintains the present facilities. This proviso would also encourage development of unused leased public land. Restructuring also benefits the lessee through opportunity cost savings and extended cost recovery of amortized base investments not limited to a combination of incentives subject for negotiation during the renewal process. This creative approach would revitalize and spur secondary investments in existing facilities in the Commonwealth, especially on Tinian and Rota, including Pagan. Such change would also help in reviving the real estate market benefiting landowners, real estate brokers, investors, secondary market financing, attorneys, accountants, and the local revenue generation and local jobs. Restructuring leasehold interest in public lands would provide a stable secondary market environment for secondary financing, secondary investment, banking and other secondary multiplier economic wealth and job creations.

The same restructuring concept could be applied to private land lease term in SLI 18-02. Instead of a direct change in term from 55 to 99 years as proposed in HLI 18-02, the suggested approach with public lands lease term above could similarly be applied, whereby the lessee is provided a one-time lessee negotiated right of refusal of 25 years on existing reversionary interests subject to stipulated improvements on existing (not new) facilities. Applying the restructuring model will eliminate the likely developments of sham corporations formed for purposes of owning land in the CNMI that are reserved for NMDs. The application and effect of SLI 18-02 would change real property ownership by corporations at 100 percent NMDs directors under the existing law by allowing the so-called 51 percent stock ownership of a single individual and 49 percent corporation or any derivative combination thereof the legal capacity to own land in the CNMI protected in Article 12 and applicable section in the Covenant. This approach is unnecessary at best and a surreptitious way of circumventing the existing protection on NMDs at worst, and therefore should not replace the present ability of legitimate CNMI domiciled corporations to own land in the CNMI.

The suggested restructuring approach described above on public lands comports Rota Sen. Victor Hocog’s amended legislation to include the Northern Islands that was not initially part of the 2000 CNMI Free Trade Zone, referenced in Public Law 18-16 (2013), a law “designed to stimulate and facilitate economic growth and development” in the Northern Islands (Pagan), in furtherance of the creation of a comprehensive and enduring free trade zone designations on Saipan, Tinian, Rota and the Northern Islands.

Ultimately, the legislature should begin considering re-examining the selection criteria to be a member of the Marianas Public Land Trustees, by immediately assigning or vesting responsibility for appointment to the justices of the Supreme Court. This will take the politics out of the NMD corporation and operate based strictly on fiduciary duty and care for the beneficiaries, the people of Northern Marianas descent, collective owners of public lands in the CNMI. The trustee appointment should be for a term of 10 years based on qualifying selection criteria, such as those with business, investment and finance, strategic planning and policy setting, etc.

The significance of the above concern is framed in a 2010 CNMI Supreme Court decision on Department of Public Land v. CNMI (2010 MP 14, para 31).

The framers of the Constitution made clear the importance of land to the people of the Commonwealth: land is the only significant asset that the people of the Commonwealth have. There are no substantial mineral resources; there is no large manufacturing enterprise capable of sustaining large numbers or people; there is no valuable location on important trade routes. Given the lack of other resources of economic development, the framers set up a constitutional institution to take advantage of the Commonwealth’s most valuable asset—land—for the benefit of the people of Northern Marianas descent. That institution is the Public Land Trust. If the Legislature, in a moment of economic distress, can redirect the moneys generated from the public lands away from the Trust, the Trust will not only be defunded but it will also cease to serve the constitutional functions for which it was created.

HLI 18-05, as it stands, would run afoul with the constitutional provision governing the disposition of public lands. In addition to commercial leasing, DPL is constitutionally obligated to manage a homestead program from the same public land inventory. If DPL is allowed to lease for a single 99-year lease term much of the public land as proposed, in order to maximize the economic value of the trust and its beneficiaries, then little, if any, land would be left for homesteads. The suspension of the homestead program on Saipan, for instance, due a dwindling supply of land clearly points to how the framers of the CNMI Constitution would not have planned for commercial leasing over the beneficiaries of the trust not having access to homesteads.

In other words, HLI 18-05, like the earlier HLI 18-06 the council filed written comments on, is a simple proposal but calls for in-depth examination, notwithstanding it being an exceedingly simple but fundamental permanent change in the existing fundamental policy governing public lands collectively belonging to persons of Northern Marianas descent in the Commonwealth of the Northern Mariana Islands pursuant to the NMI Constitution.

If passed, HLI 18-05 would infringe upon, implicate, and practically effect an unintended transfer of public land ownership interests now presently belonging collectively to persons of NMD, and give public lands to foreign-money interests. These are vested inter-generational ancestral real properties ownership rights and interests collectively owned by persons of NMD since pre-latte period to “discovery,” post-war period, and now as a self-governing Commonwealth of the Northern Mariana Islands, and enshrined in the Covenant, the NMI Constitution, enabling local statutes, and the customs and traditions of the people of the land.

Section 805 of the Covenant clearly states that “notwithstanding the other provisions of this Covenant, or those provisions of the [U.S.] Constitution, treatises or laws of the United States applicable to the Northern Mariana islands, the Government of the Northern Mariana Islands, in view of the ownership of land for the culture and tradition of the people of the Northern Islands, and in order to protect them against exploitation and to promote their economic advancement and self-sufficiency, will regulate the alienation of permanent and long-term interests in real property so as to restrict the acquisition of such interests to persons of Northern Mariana islands descent” and “regulate the extent to which a person may own or hold land which is now public land.”

This specific provision in the Covenant is embraced by both the U.S. and the CNMI, as incorporated in the NMI Constitution in 1978 and has since remained the beacon for the NMDs that leaders were privileged to have had the duty and honor to faithfully uphold their solemn oath then and without any compelling reason for the present leaders to now denigrate, or worse, to remove Article 12 on land alienation which unambiguously comports with Section 805 of the Covenant.

SLI 18-02 proposes two constitutional amendments to Article 12: Section 3 and Section 5. Not only will Section 3 extend the term of leaseholds from 55 to 99 years, but Section 5 will change the definition of corporations permitting minority interests by persons not of Northern Marianas descent.

Amending Section 5 and Section 6 in the Constitution would not increase business activities or improve the local investment environment as imagined by proponents of HLI 18-05 and SLI 18-02 for the simple reality that, while the CNMI appears to think of itself in isolation, it is very much part of and affected by global events, such as the slumping global economy and the tightened transnational financing for real estate and related overseas development. When the world economy was robust then, transnational overseas development financing of real estate was too, for instance, not because of the CNMI’s 55-year lease term. Or for that matter, the CNMI’s proposed 99-year term that would be an incentive. This theory flies in the face of a better option that is already in place in the CNMI: a fee ownership for non-NMDs already available in the CNMI on condominium investment constructed on private land above the first floor. Perhaps, this needs to be revisited to find out whether it is working or not.

On the other hand, manipulating the Article 12 restriction by enabling a corporate entity consisting of NMD and non-NMD owners to own land completely undermines and compromises the fundamental principle undergirding the fundamental provisions of the Covenant and the implementing provisions of the CNMI Constitution.

It may be worth as a reminder also that Article 18 Section 5 (c), a subsection later added to the NMI Constitution (1999) defines ‘voters’ as used in subsection 5(a) above shall be limited to eligible voters under Article 7 who are also (underscored) persons of Northern Marianas descent as described in Article 12, Section 4, and the term ‘votes cast’ as used in subsection 5(b) shall mean the votes cast by such voters.” This means that any issue on NMD land or related issue(s) is reserved for NMDs to decide, not a buy-and-sell commodity available on the streets at home or abroad.

The proposed permanent change in fundamental NMD land policy will permanently alter the fiduciary management of public lands for homesteading and commercial development, and de-prioritize the timely development, allocation, and distribution of public lands for homesteading directly benefiting persons of Northern Marianas descent.

Accordingly, the leadership of the 12th Saipan and Northern Islands Municipal Council respectfully urges serious consideration in making perfecting amendments to HLI 18-05 under the restructuring scheme outlined above.

Ramon B. Camacho
Chairman, 12th Saipan and Northern Islands Municipal Council