‘Unprecedented financial crisis’

Gov. Arnold I. Palacios and Lt. Gov. David M. Apatang hold a news briefing in the Office of the Governor’s conference room yesterday afternoon. Also in the photo are some lawmakers, acting Department of Finance secretary Tracy B. Norita, next to Apatang, and Office of Management and Budget acting special assistant Virginia C. Villagomez, third from left. (FERDIE DE LA TORRE)

Gov. Arnold I. Palacios and Lt. Gov. David M. Apatang said yesterday that the misappropriation, abuse, and waste of public funds by the Torres administration have led to an unprecedented government financial crisis that will have a multi-year impact on the CNMI.

Appearing at a news briefing in the Office of the Governor, Palacios said the financial crisis will also potentially impact the CNMI government’s ability to receive future federal funds or retain the trust of federal grantor agencies.

“I have not seen in all my years this level of misappropriation, misuse, and abuse of public funds in the history of the Commonwealth,” he said in discussing the CNMI’s state of fiscal affairs and the steps the administration is taking to address the matter.

Palacios disclosed that they have formed a Finance and Budget Strategy Group composed of representatives from the Department of Finance, the Office of Management and Budget, and the Legislature that is helping lead the comprehensive review of financial records, reconciliation, and identification of containment measures that will be implemented to sustain government operations.

Lt. Gov. David M. Apatang said they have been working on these issues for days; sometimes they don’t even even have lunch in trying to put these things together so they can validate everything.

“Again, this is not a final,” Apatang said, adding that they are still continuing to look into government finances.

“Until we come up with the actual figures and all of that, we’re still working with the [Office of Management and] Budget and [Department of ] Finance and our team, and the Legislature, so we’ll be informing you as to what’s going on,” he said.

Among lawmakers who attended the news briefing at Palacios’ invitation were Senate President Edith E. DeLeon Guerrero (D-Saipan) and House of Representatives Speaker Edmund S. Villagomez (Ind-Saipan).

Palacios disclosed they met yesterday with the Office of the Public Auditor, where they submitted their transition reports for them to look at and validate. “And if necessary, make the recommendations whether to the Legislature or to the attorney general, or to myself,” he added.

Palacios said he also submitted the transition reports to the Office of the Attorney General.

Palacios said he does not want to create chaos in the community, but that they will work hard to get the Commonwealth out of this situation and to keep the government running.

Only two years ago or a year and a half ago, the Commonwealth was in a much better position, Palacios said, because of the federal government’s assistance to all states and U.S territories due to the COVID-19 pandemic.

Palacios said they are not only looking at the expenditures but also the cost-cutting measures that are going to be implemented under these circumstances.

Palacios said the news briefing was supposed to be held late last week, but they postponed it until yesterday as they needed to do more work. He said they’ve finally got the transition reports and they will be compiling the complete report and make it available to everyone in the media.

Since the first revelation of the dire financial strait that the Commonwealth government is in today, Palacios said that nothing much has changed.

“Nothing has changed from last week. We are trying our very best,” he said.

Palacios was referring to the 2022 transition report on the Department of Finance in which a preliminary reconciliation has determined that the CNMI received $481.8 million in American Rescue Plan Act funds, but as of Dec. 27, 2022, it has overspent and has a deficit of $86 million.

ARPA was used to fund disaster-related expenditures pending reimbursements amounting to approximately $48.7 million. Upon reimbursements, the ARPA deficit will be reduced to $37.4 million, the transition report states.

Palacios stated at the press briefing that the Legislature is also involved to validate the points that were raised in the transition teams’ reports, especially in the financials.

“The numbers are kind of a moving target right now. But let us be clear about this. We’re still in dire straits. That number is not going to change significantly to a point where we can say that we can save jobs or programs,” Palacios pointed out.

The governor said that spending levels this past year have exceeded sustainable levels and, if not curbed and corrected, will threaten the efficient and effective delivery of public services.

Palacios noted that their team is actively and continuously working to assess and measure how extensive and deep is the financial hole the CNMI finds itself in.

He noted that the fiscal year 2020 audit is still in the final stages of being completed, the FY 2021 audit process has not begun, and the FY 2022 audit process still needs to be commenced.

He said the records and information that have been provided by the previous administration to transition teams are still being validated.

Palacios said the migration of financial date into the Munis system needs to be completed so that it can generate accurate and reliable reports.

He said the blueprint to economic recovery is not without hardship and financial sacrifices.

“But we have faced other daunting challenges before as a Commonwealth and we are working diligently to place the Commonwealth back on a sustainable, realistic path to economic recovery,” Palacios said.

He said the administration is also seeking assistance, support, and cooperation from all levels of government, including federal agencies, like the U.S. Department of the Interior.

The governor said the administration will also be reaching out to grantor agencies and, in fact, has already reached out to certain agencies, and is working with federal and local regulatory agencies so that infrastructure projects can move forward at full speed.

“This injection of infrastructure funds will help bolster and stimulate economic activity,” he said.

Although cost-cutting measures are inevitable, Palacios said they are looking at all areas of expenditures like nonfederal travel, vehicle leases, purchase contracts, and other areas.

“We will prioritize the immediate implementation of those that have minimal disruption to peoples’ lives and livelihoods,” he said.

The governor said they want to emphasize that those responsible for any inappropriate, illegal, and unethical activities—especially those with management authority over public funds—will be held accountable.

Palacios said they want to emphasize that rebuilding trust in the government cannot be done without being transparent about the CNMI’s situation and the challenges that lie ahead.

“That is why we will continue to update the people about their government, their public funds, and the CNMI’s fiscal state of affairs as we continue to learn more from audits, from in-depth analyses of financial records currently being conducted throughout the CNMI government, and from other ongoing activities that will shed even more light on our finances,” he said.

Acting Finance secretary Tracy B. Norita said that, as reported in the findings of the Department of Finance Transition Team, unprecedented levels of overspending have led the government on a path where current levels of programs, employment, and services cannot be sustained.

She said the government has relied on the general fund and the American Rescue Plan Act funds for its operational expenses in the past two years.

Norita said their work in validating and verifying financial records is complicated by the incomplete and ongoing migration of the government’s financials from the JD Edwards to the TylerMunis (Munis system) and, as a result, the system is unable to generate timely, reliable reports that could have contributed to date-informed decision making.

She said the deficit was exacerbated because the controls that had been put in place in Munis to prevent departments and agencies from overspending were disabled, which then allowed for uncontrolled and unauthorized expenditures across all agencies.

Norita said a Governor’s Response Team has been formed to review and validate the recommendations of the Finance Transition Report, review recommended cost containment measures to determine what will be implemented, and to propose recommended measures to avoid disruption of government operations.

She said they will also help the government carry out the other recommendations identified in the transition report, including a revised spending plan with the U.S. Treasury, review all outstanding contracts to reduce ARPA-funded obligations, among other things.