Here are the highlights from the House session held on Monday, July 13, 2009:

 

 

At their most recent session on July 9, the Senate had passed the concurrent resolution with an amendment that deleted the House provision earmarking $1,690,000 of anticipated revenues for FY 2010 for the Retirement Fund (30% of the Hotel Occupancy Tax and 20% of the Alcoholic Beverage Container Tax as required by 1 CMC Section 8365). 

 

At the session I expressed my deep disappointment with the Senate's action.  The earmark of the aforementioned revenues for the Retirement Fund is already required by law and has been ignored and suspended by the Legislature for years.  Moreover, the imperative to remit those revenues to the Fund was recently reinforced by a court judgment.  I pointed out that $1.6M is merely a fraction of the $231M total court judgment, which itself is a fraction of the total unfunded liability of the Fund.  That we cannot at this stage in the budget process commit to setting aside even that amount showed extremely bad faith, and did not bode well for the Fund.  I did not understand the Senate's rationale, and therefore could not endorse the amended resolution.   

 

Ways and Means Chair Ray Yumul and Speaker Arnold Palacios both said that they shared the same disappointment, but that in the spirit of compromise with the Senate they were willing to wait for the budget process to reinsert the government's obligations to the Retirement Fund.  Speaker Palacios asked Rep. Yumul if the committee was willing to ensure that the $1.6M would indeed be allocated to the Retirement Fund in the budget process.  Rep. Yumul said he could not promise that but added that it would be proposed for the members to consider.      

 

In the end, 11 members voted yes to this resolution: Reps. Dave Apatang, Oscar Babauta, Diego Benavente, Joseph Deleon Guerrero, Ray Tebuteb, Edwin Aldan, Ray Yumul, Frank Dela Cruz, Stanley Torres, Ray Palacios, and Arnold Palacios.  Four members voted no: Reps. Joseph Camacho, Ed Salas, Heinz Hofschneider, and myself.  Five members were absent: Reps. Justo Quitugua, Rosemond Santos, Ralph Torres, Vic Hocog, and Joseph Reyes.

 

 

During the discussion of this initiative, I said that I continued to be troubled at the unwillingness of the Legislature to hold a single public hearing on such a major proposal to authorize the issuance of potentially hundreds of millions in public debt to pay for years of past neglect of this government's responsibilities to the Retirement Fund.  I further remarked that as recently as the 15th Legislature, in passing the legislation that would become Public Law 15-70, the leaders of the CNMI had recognized that "[t]he adversity created by a nearly $500,000,000 unfunded liability precludes the Commonwealth from entering the bond market at other than an exorbitant interest rate."  A pension obligation bond would likely end up costing the Commonwealth taxpayers more in the long wrong, if investment returns do not exceed the amount that we borrow, and if we factor in these likely "exorbitant interest rates" – saddling my generation and my children's generation with massive debt for years to come.  If we are willing to reduce the size of government and also willing to burden taxpayers with the cost of years of government neglect in order to rescue the Retirement Fund, as this initiative suggests, then we should refocus our energies not on an initiative that may not pass, and would be likely to cost the CNMI more even if it does pass, but on a rational and sensible plan to downsize government and consider other options for remitting badly-needed funds to the Retirement Fund, including selling off assets and raising taxes.

         

Rep. Heinz Hofschneider, who was the author of one of the original versions of the initiative, urged the members to support the initiative.  He said that the initiative provided a plan to rescue the  Retirement Fund — not "the" plan, he said, but a plan, an option, should it be authorized by the people of the Commonwealth, and should it become available to the next administration to exercise.  He acknowledged that now is not an appropriate time to enter into the bond market, and further acknowledged that the CNMI government has a few "demerits" against it that would make our attempts to borrow money a challenge.  He also said that our responsibility, and the responsibility of the Election Office, would be to educate the community on the pros and cons of the initiative so that voters can make well-informed decisions.  Rep. Hofschneider later introduced an amendment to cap the total amount that could be borrowed at $200M, which the members accepted.  (The previous version of the bill set the cap at the total actuarially determined unfunded liability, which now exceeds $500M.)     

 

Vice Speaker Joseph Deleon Guerrero then added that I was free to introduce legislation to raise taxes or to downsize government if I thought such legislation would offer a better solution, and further asked why I would vote against the pension obligation bond initiative just because I thought that other options should be considered.    

 

In response to Rep. Hofschneider's comments, I said that without a cost benefit analysis, or a risk assessment, or a clear strategy to pay back what we borrow, the pension obligation bond initiative is not a "plan" but an "idea," and that the CNMI government indeed has numerous demerits against it that make our consideration of more public debt seem totally illogical, including: 1) CPA's existing airport and seaport bonds presently on shaky ground; 2) the government's continuing failure to pay employer contributions even now, even at the 11% rate; 3) two stipulated orders against CUC that will undoubtedly cost the government millions to address in the coming years; 4) numerous other debts and judgments against the government that have gone ignored for many years; 5) an unwillingness to commit even $1.6M from the Alcoholic Beverage Container and Hotel Occupancy Taxes for FY 2010, only a fraction of the $231M judgment, which itself is only a fraction of the total unfunded liability; and 6) a bill presently on House calendar, even in the midst of this fiscal crisis, which seeks to increase benefits for retirees who re-employ with the government.  I could have gone on, but stopped there.  

 

In response to the Vice Speaker's comments, I disagreed that the "solution" to the Retirement Fund crisis is more legislation or more public debt, and said that this government should instead start paying the employer contributions and commence negotiations with the Retirement Fund to work out a payment agreement to address the $231M judgment.      

 

In the end, the initiative passed with 12 members voting yes and 3 members voting no.  Reps. Heinz Hofschneider, Dave Apatang, Diego Benavente, Stanley Torres, Ray Palacios, Arnold Palacios, Ray Tebuteb, Ray Yumul, Edwin Aldan, Oscar Babauta, Joseph Deleon Guerrero, and Frank Dela Cruz voted yes.  Reps. Ed Salas, Joe Camacho, and I voted no.  Reps. Rosemond Santos, Joe Reyes, Ralph Torres, Vic Hocog, and Justo Quitugua were absent. 

 

Because it was amended, the initiative now heads back to the Senate for approval.

 

Attached in this email is Rep. Ed Salas's statement explaining why he voted no to this initiative.

 

 

All 13 members voted yes to this bill, myself included.  Seven members were absent:  Reps. Justo Quitugua, Joseph Reyes, Rosemond Santos, Vic Hocog, Edwin Aldan, Ralph Torres, and Ray Yumul. 

 

The bill now heads to the Governor for signature.