Violation imperils NMI airports

Pete Reyes

Commonwealth Ports Authority board member Pete P. Reyes said Thursday that the 1% Office of the Public Auditor fee issue must be resolved immediately as this makes CPA violate federal grant assurances that may lead to a sanction and possibility of closure of CPA’s airports.

Speaking on behalf of the CPA during the House of Representatives’ session on Rota, Reyes pushed for the passage of House Bill 22-102 to exempt public corporations and autonomous agencies from paying the 1% OPA fee.

He said the purpose of the bill is to amend the existing law by providing flexibility to autonomous agencies like CPA such that it is able to comply with both CNMI law and its federal grant assurances.

“The bill is fair. It provides OPA a path forward by allowing it to charge reasonable fees for services actually rendered. Should OPA one day provide service to CPA, CPA would gladly pay OPA the reasonable value of the service,” Reyes said.

House Speaker Edmund S. Villagomez (Ind-Saipan), who is the main author of the bill, stated in the legislation that the exemption provides financial relief to the autonomous agencies and public corporations that do not utilize the audit services of the OPA in the first place.

Villagomez said an additional concern for CPA is that the OPA fee, as a general charge imposed upon CPA annually, constitutes revenue diversion from CPA that would violate federal entitlement or discretionary grant conditions or jeopardize such grants for airport and seaport improvements.

Public Auditor Kina N. Peter has opposed the bill, saying the proposed legislation not only would exempt some agencies from paying 1% of their budget to CPA but would also forgive a $40 million debt owed the CNMI government.

Peter said this will also negatively affect the OPA’s ability to function independently as required by law.

Reyes told the lawmakers Thursday that in November 2015, CPA wrote to the Office of the Attorney General regarding CPA’s position and a proposal on its liability for fees due to the Public Auditor.

Reyes said the law requires CPA to pay either 1% of its total operation budget from sources other than legislative appropriations or an amount determined by another formula as agreed upon by OPA and the agency, whichever is greater.

He said in that 2015 letter to the OAG, CPA noted the inequity that law imposes on CPA. For example, he said, CPA not only pays for its own independent audit as required by its bond indenture but OPA uses independent audit to meet its statutory requirement.

He said one of those statutory requirements which can be found in the law requires that OPA transmit an annual report that includes a financial audit of each agency to the governor and to the presiding officers of each Houses.

“As you all likely know, OPA uses CPA’s independent audit to meet that statutory requirement,” Reyes said.

He said OPA later turns around and seeks payment from CPA.

He said on top of that, the payment of OPA’s request often amount to twice what OPA pays each independent auditor. Despite that inquiry, Reyes said, CPA has sought to bridge the gap and offer to pay OPA .01% of its total operation budget to put this issue to bed.

The director said that, in January 2016, CPA received a response from the OAG, in which the AG indicated that the gap could not be bridged unless the Legislature enacts an equitable exemption to the auditing fee.

He said the AG noted that if CPA and OPA could reach a mutually acceptable payment, then the OAG would not object.

Reyes said that, in November 2017, CPA received a letter from OPA that stated that the amount is owed the CNMI general fund and not OPA.

He said OPA’s letter also stated that it could not agree to CPA’s offer of .01% of its total operation budget because it was prohibited by law to do so.

Reyes said that in 2020, CPA received a request to submit comments to a Senate bill, which was essentially a previous version of the current House Bill 22-102.

In those comments, CPA stated it has refrained from remitting the 1%, not only because the remittance would be inequitable, but also because it violates CPA’s federal grant assurances. Reyes pointed out that this grant assurances are essential requirement placed on CPA by its federal grantors in exchange for federal funds.

He said the specific grant assurances that he is referring to prohibits CPA from paying more than the value of services received, and also mandates the use of the rest of airport revenue for general economic development activities.

Reyes said requiring CPA pay the 1% to OPA or the general fund would violate this assurances.

“And as I alluded to earlier, if CPA violates this grant assurances, then the people of the CNMI, and I repeat, the people of the CNMI will be faced with the very real possibility that their airports will be closed and unable to operate,” he said, adding that that is why passage of the bill is critical.

The director said the Federal Aviation Administration has indicated that this issue needs to be resolved immediately. He said FAA provided a deadline of June 16, 2022 to resolve the matter.

“For that reason, I call upon this body to keep the airports’ operable by passing this bill,” Reyes said.

He said FAA’s letter he was referring to is dated May 16, 2022, and was sent by Gordon Wong, who is the FAA airport district office manager overseeing the CNMI.

He said FAA’s letter states that the 1% fee may be considered revenue diversion.

Reyes said FAA indicated that airport revenue must be used for operation maintenance and capital improvement of CPA airports.

He said revenue diversion could lead to placing CPA in non-compliance and leads to sanction.

Reyes said CPA may pay for its required service but the cost for service must be appropriately calculated and documented for costs only related to CPA.