Sen. Manglona questions austerity measure

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SENATOR Paul A. Manglona on Monday said Gov. Ralph DLG Torres’ implementation of a 64-hour work schedule for the executive branch may be based on “unreliable financial information.”

Sen. Paul A. Manglona delivers his remarks during the miscellaneous part of the Senate session on Monday. Also in photo is Sen. Teresita Santos.  Photo by Emmanuel T. Erediano

Manglona, the lone minority member in the Senate, said he believes that the governor is not telling them everything they need to know.

He said the governor “should stop making drastic decisions without really having factual and reliable financial information in his possession.”

He added, “Today, here we are again, being faced with another agonizing and disturbing déjà vu encounter — re-implementing the bi-weekly government work schedule austerity. Only this time, it will be a harrowing 16-hour cut for our government employees.”

He said “our austerity experience in 2010 with a similar 16-hour cut was very painful and devastating to everyone. In addition to our 16-hour cut, there were unpaid holidays and payless paydays. Medical referral was almost non-existent, and our lone hospital was constantly running out of pharmaceutical supplies. Our schoolchildren were going to classes without textbooks. Department of Public Safety had very few working vehicles with little to no money for fuel. Many homes were foreclosed, and cars were repossessed. One of the most difficult of all was our experience of losing our government retirement program. These are painful experiences showing that the consequences of uncontrolled government expenditures and deficit accumulations can be catastrophic,” the senator said.

Manglona said he has many concerns, one of which are the “inconsistencies” in the governor’s announcements.

He noted that Finance Secretary David Atalig, in his Feb. 3 letter to the governor, recommended a 72-hour bi-weekly work schedule. Then just after four days, Manglona added, the governor made it 64 hours.

The senator noted that since last year, he has been asking the Torres administration for “factual information pertaining to several financial matters” including the casino business gross receipt taxes, the exclusive casino license fee, the report from the Development Plan Advisory Committee, the Marianas Public Land Trust loan, Federal Emergency Management Administration assistance, and the $20 million annual casino community benefit fund.

Manglona said he has not received any response from the administration.

“We can all blame Super Typhoon Yutu, but even one year before that we already knew we had a $25 million deficit in FY 2018. We can also now blame the coronavirus [outbreak], but even before this, we already knew we had about $90 million in FY 2019 government deficit spending,” he added.

He said the Legislature “was misled into thinking we were on our way back to fiscal normalcy.”

“In fact, the governor himself rescinded the 72-hour work schedule just two months ago when he should have already known that the first quarter revenue projection was short by more than $4 million. Obviously, the governor was working with inaccurate financial figures, which led to a premature lifting of the austerity measure last November,” he said.

Manglona reiterated that “reliable factual information such as realistic current revenue estimates, true cost of government operations, deficit reduction schedule, strict financial controls, and honest assessment of program impact play a significant role in the Legislature’s review and readjustment of the budget law.”

Emergency power

For his part, Senate Vice President Jude U. Hofschneider believes that the governor can use his emergency power to implement across-the-board cuts in light of the expected decline in government revenue.

In an interview during a break from Senate session on Monday, Hofschneider, who chairs the Senate Committee in Fiscal Affairs, said the Legislature does not have to amend Public Law 21-8 or the fiscal year 2020 budget in light of the $48.3 million decrease in projected government revenue.

“The governor can use his emergency power. He can just notify us. The governor is now exercising his authority, so we don’t have to amend the budget law,” Hofschneider added.

He said the Senate Fiscal Affairs Committee is meeting constantly to try to find ways to minimize the “very severe” impact of the novel coronavirus outbreak on the islands’ tourism-based economy.

The governor has informed the lawmakers about his administration’s decision to implement a 64-hour work schedule for executive branch employees beginning March 15, as a result of the 28.3 percent cut in the fiscal year budget. From $233.2 million, the government’s revenue projection went down to $184.8 million.

Of this amount, the administration said, $106.7 million is allotted for government operations.

The retirees’ pensions, however, will remain intact, including the 25 percent benefit payments that are not required by the Settlement Agreement.

Hofschneider said the Legislature also has to figure out “how we can sustain government operations as we move forward and despite the anticipated drastic cuts in government revenue due to the coronavirus outbreak.”

Where is the casino revenue?

In his remarks on Monday, Senator Manglona said the administration should tell the Legislature “exactly why there has been a drastic decrease in casino business gross receipt taxes.”

Manglona noted that in FY 2016, Imperial Pacific International paid approximately $41 million; in FY 2017, $68 million; in FY 2018, $44 million; and in 2019, $41,000 only.

“We now read in the papers that a settlement of $18 million was reached by IPI and our Division of Revenue and Taxation. But the Finance secretary, in his Feb. 3 letter to the governor did not factor these newly paid taxes into the general fund collection estimates.”

According to Manglona, “This is $18 million that we can count against the government’s current obligations. We also need to ask them how much we can expect in FY 2020 projection as well as for future years, based on their new understanding of our tax laws.”

Finance, he added, should inform lawmakers if the casino BGRT funds are being “intermingled with CNMI general fund revenues, and are being used as part of [the government’s] cash flow management.”

“If this is true,” Manglona said, “wouldn’t this put the payment of the retirees’ 25 percent pension at severe risk since the first $22 million of annual CBGRT is earmarked and continuously appropriated for the retirement pension obligations pursuant to PL 20-10?”

Manglona said he “cannot overemphasize the need to stop this practice of fund intermingling at Department of Finance. Under the newly signed appropriation law, P.L. 21-10, the amount of $10,502,570 from this source was appropriated for Settlement Fund, CHCC, MVA, NMC, PSS, and Super Typhoon Yutu’s outstanding vendor payments. If the Department of Finance’s commingling is not stopped, these critical agencies will soon find out that their share of the appropriation is not available.”

Politicking again

Asked for comment, Press secretary Kevin Bautista issued the following statement:

“The senator once again fails to understand the gravity of our unanticipated economic circumstances. The administration’s decision to implement the 64-hour work schedule was based on an accurate and realistic estimate of the revenue loss of $48.3 million due to the novel coronavirus outbreak. This is taking into account the full loss of Chinese tourists for the rest of FY 2020. Once the outbreak is contained, international economic analysts project that there will be pent-up demand for travel, so we remain hopeful that our tourism market rebounds quicker than what we have conservatively set in order to protect the health of our residents.

“The Department of Finance has monitored our cash flow and revenue streams closely since the outbreak started, so we have the most accurate numbers in order to make a decision that protects our health, while keeping public services open. The senator has no basis for calling out the governor’s budgetary decision when we have communicated with the Legislature before this announcement was made and ensuring that accurate projections will justify the decision.

“The original estimate by the Department of Finance last week projected a 72-hour work schedule, but then due to the outside factors affecting our economy, the revenue loss was projected to be larger after the World Health Organization classified the outbreak as a global health emergency, which effectively shut down our second largest market altogether. Finance then made the correct changes responsibly to project a 64-hour work schedule, which is the best option available without sending government employees home on furlough and protecting our retirees’ pensions.

“The senator continues to politicize the economic downturn, by bringing up the deficit issues once again. The persistent deficit spending on medical referral, which, to be clear, happens every year, because of the various needs of our community, places the administration in a position of either exceeding the statutory appropriation or denying essential healthcare services to our people.

“While this administration and the Medical Referral Office are continuing the hard work of instituting changes to reduce overall costs associated with off-island treatment of critical conditions, deficits will continue to grow unless the Legislature puts in the statutory changes needed to cut down on medical referral’s spending control, which is mandated to take care of the varying needs of our critically ill patients.

“Regarding IPI, the Division of Revenue and Tax and IPI have already come to a settlement agreement on its taxes, so the enforcement mechanism has remained. We continue to work with the Casino Commission in enforcing the rules. IPI must maintain its viability, but it also has to meet our business requirements. At a time when we need economic development for both the short and long terms, we need to ensure the viability of all of our businesses so they can turn their success into government revenue.

“To Senator Manglona who continues to politicize the current financial situation, it is crucial to the advancement of our islands to be truthful in the assessment of responsibility. As Governor Torres has stated, as leaders in the government, we all share in the responsibility to ensure the allocation of resources and the provision of services for the needs of our people. Financial recovery will be implemented once this outbreak is contained.

“It’s easy for the senator (who has been in the Legislature for decades and hasn’t held an executive position to deal with these decisions) to throw rocks from the sidelines. Politics and blame are helpful to his cause in the short-term, but real leaders take time to ensure accuracy in its revenue projection, maintain public services and retirees’ pensions, and prioritize the public health of our islands. Governor Torres and Lt. Governor Palacios will continue to do this difficult, but important work.”

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