Pay delays due to insufficient funds

Haidee V. Eugenio




For the first time in the history of the Commonwealth of the Northern Mariana Islands (CNMI), most government employees and officials— including the governor, lawmakers, judges and justices—didn’t receive their pay on time due to insufficient funds. 
“This is the worst since I joined the government in 1986. We never had this problem before,” said Republican Representative Joseph Palacios, who recommends raising taxes and business license fees to generate more government revenue. June 18, 2010 would go down in CNMI’s history as the first so-called payless payday for most public servants in this United States territory.
Two days earlier, on June 16, also marked the first time that a CNMI acting governor, Eloy S. Inos, invoked his constitutional authority to call for an emergency back-to-back session of the Senate and House of Representatives on June 17 to pass a bill allowing the governor to reprogramme up to US$10 million in Fiscal Year 2011 for payroll and payment of utility bills.
Within a three-hour period, the Senate and House passed a landmark bill which the governor signed into law immediately.
Despite the swift action on the reprogramming of power bill, the process of identifying and transferring reprogrammed funds took more than a day and thus missed the June 18 payroll. 
It was not only until June 21 when the Commonwealth Development Authority remitted US$1.9 million to the central government that the governor ordered the release of most government paychecks.
The government spends some US$3 million for the salaries of its over 3,000 employees, excluding some 1,000 in the Public Schools System whose salaries are not taken from the general fund.
Inos, a former finance secretary, said the government had only some US$1.5 million in the treasury—just enough to cover the salaries of those in critical positions such as doctors, nurses, police officers, firefighters and corrections officers on June 18.
Government employees whose salaries are funded by the US federal government also received their paychecks on time.
“The day of reckoning has arrived,” Inos said, as he convened an emergency Cabinet meeting to announce a delay in the release of paychecks. 
Inos became acting governor when Governor Benigno R. Fitial went to the Philippines for a brief medical treatment.
The Fitial administration still insists on cutting work hours—from 80 to 70 per pay period—to lower government spending.
It entices foreign investors to set up business in the CNMI which now relies only on the tourism industry after the complete demise of the garment industry in 2009.
Karl T. Reyes, a banking consultant and a former lawmaker who chaired the Ways and Mean Committee, said the CNMI government has never had a massive payless payday until June 2010, making this one of the—if not the—worst financial situation the Commonwealth has found itself in.
“I have long been suggesting to the government to reduce its tax rebate which is so generous, and implement sales tax and property tax,” Reyes told ISLANDS BUSINESS. 
Reyes is also a former administrator of the NMI Retirement Fund.

Death of garment industry
CNMI government revenues have been on a steady decline in at least the last 10 years.
From over US$220 million 10 years ago in 2000, government revenue has been declining year after year until it reached only US$137 million the current fiscal year. In FY2011, the projected government revenue slipped further down to US$132 million.
This is because the CNMI has not been able to recover from any of the external and internal factors that caused its financial problems—from the Asian economic crisis of the late ‘90s which hit the CNMI to the impact of the 9/11 attacks, SARS, the pullout of Japan Airlines flights in 2005, the currency woes of its two major tourism markets of Japan and Korea, and most of all, the death of its once US$1 billion-a-year garment industry.
The last of the CNMI’s garment factories closed in the first quarter of 2009.
The CNMI garment industry produced clothing for global brands such as Tommy Hilfiger, Calvin Klein, Gap, Levi’s, Abercrombie and Fitch, Polo Ralph Lauren, Ann Taylor, and Liz Claiborne.
Of the four US territories, it was only the CNMI that experienced an economic contraction between 2002 and 2007, according to a US report on the territory’s first gross domestic product data. 
GDP represents the total value of goods and services produced by a country or territory.
The US Department of Commerce Bureau of Economic Analysis said the CNMI’s real or inflated-adjusted GDP decreased at an average annual rate of 4.2 percent between 2002 and 2007. The total amount of products and services produced in CNMI in 2002 was US$1.32 billion, and steadily declined since then until it reached only US$962 million in 2007.
Guam’s GDP grew at an average of 1.8 percent, while American Samoa increased at an average of 0.4 percent between 2002 and 2007. 
The US Virgin Islands also posted an annual average GDP growth of 2.9 percent in the same period.
“It doesn’t hurt to listen. Had some lawmakers listened to the administration’s request to pass an austerity measure to cut government spending, we won’t have ended up this way,” Representative Ray Palacios told local media when a payless payday was already looming.
He was echoing the Fitial administration’s mantra—reduce work hours by 10 every pay period or one hour a day to curtail government spending.
The projected revenue is only US$137 million for the current fiscal year, but the spending level is at US$160 million because of high costs of medical referrals and utility bills. 
Representative Ramon Basa, chairman of the House Ways and Means Committee, said the delayed salary speaks of the severity of the CNMI government’s financial problem which lawmakers who voted against his austerity bill should have thought about. But the opposition Republican Party said the Covenant Party-led administration keeps on hiring unnecessary personnel despite the need to cut costs. 
The Republican Senate President Paul A. Manglona said while the Senate did not agree on the work hour cuts, it proposed to raise business license and fees.
The House and the Senate didn’t agree on each other’s version of the austerity bill which would only cover FY2010, which ends on September 31. Both houses had yet to agree on a compromise austerity bill when government coffers dried out and it could no longer pay its employees.

Blame game
The executive branch warned that the Legislature’s failure to pass a timely and balanced budget for FY2011, which begins October 1, would effectively shut down the government.
The governor’s 2011 proposed budget of US$132 million already includes austerity measures the Senate has rejected.
House Minority Leader Diego Benavente, also a Republican, said it’s “negligent” and “irresponsible” on the part of the Fitial administration to wait until at least a few days before a payday to tell the Legislature about the gravity of the situation.
The Fitial administration said it had been telling the Legislature about the possibility of payless paydays since the start of the fiscal year and that’s why it had been urging lawmakers to pass an austerity bill to cut work hours.
Benavente, a former lieutenant governor, said the Legislature should not be blamed for the defeat of the austerity bill. 
He said had the Fitial administration reduced the quarterly allotment at the start of FY2010, and not waited until after two quarters had already passed, the financial situation won’t be this severe.
“Many government employees in CNMI live paycheck to paycheck. And that means there may not be food on the table for days (when their salaries are delayed),” Benavente said, adding that the Legislature swiftly passed the reprogramming bill thinking that people would get their paychecks on time but this didn’t happen.
To this date, CNMI has yet to come up with a plan that’s workable and agreeable to all branches of government to ensure a payless payday won’t happen again. The delayed salary also came at a time when the government was forced to make its utilities payments to the Commonwealth Utilities Corp. current, for its power, water and sewer services.
CNMI is also grappling with labor and immigration issues, less than a year after its immigration was placed under US federal control.
But while many government employees are disappointed with having delayed salaries, others like 46-year-old Juan Camacho, a community worker, are thankful that they at least still have their jobs.
“A few days of delay is nothing, compared to losing your job,” the father of three said.