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Summit discusses government deficit, need for more budget cuts

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AT the closing plenary session of the Fiscal Response Summit on Tuesday, the CNMI government presented a strategy for addressing fiscal year 2020’s projected $65 million shortfall. Without action, the CNMI government was on course to increase its accumulated budget to $150 million at the end of the fiscal year.

The online summit, which was attended by nearly 50 representatives from the public and private sectors, convened under the guidance of Washington D.C.-based non-profit Graduate School USA or GSU, a financial management services provider funded by the Department of the Interior.

GSU recommended that the CNMI government reduce its FY 2020 budget by $65 million through enacting “a broad range of fiscal policy options” falling under four categories: expenditure reductions, revenue enhancements, re-allocation of public funds, and financing options that may involve seeking federal support.

According to GSU economic advisor Kevin O’Keefe, the summit produced a pathway forward that would involve the termination or furloughing of at least 600 government employees, adding that the number of job losses “could be higher if their salaries are lower than average.” He said that approximately 400 employees had already received furlough notices.

Secretary of Finance David Atalig estimated that around 4,000 people worked for the CNMI government before the cuts began, and that the majority of job loss will occur in the executive branch.

Atalig said summit attendees also requested that legislators review the necessity of constitutionally mandated or legally mandated government offices such as Women’s Affairs, Indigenous Affairs, Carolinian Affairs, Military Affairs, and Veterans Affairs.

Atalig said furloughed and terminated government employees will be able to avail themselves of several federal aid programs including Medicaid, the Nutrition Assistance Program, and Pandemic Unemployment Assistance.

“Those will help them for at least the next six to nine months,” he told Variety. “It gives them [time] to seek employment elsewhere or compete for any available positions that may be announced in the government or in the private sector.”

Summit participants shared plans to increase revenue by both creating new taxes — including a sales tax, luxury sales tax, and sugary drink tax — and increasing existent taxes including those for tobacco and alcohol.

As for the 25% cuts to the CNMI government retiree’s pension payments, the fiscal summit working groups suggested reallocating the $15 million annual casino license fee to the retiree pension fund.

In addition, it was suggested that the administration of medical referrals be shifted from the Office of the Governor to the Commonwealth Healthcare Corp.

Finance Secretary David Atalig said the medical referral system has been systematically under-budgeted for years, partly because adjusting the government’s annual budget to include the $15-20 million that the program actually costs would require the government to cut jobs and funding for other popular programs.

“No one wants to make that hard decision of cutting people’s budgets,” he said. “It’s hard to cut when the economy is good and it’s even harder when it’s not good.”

“But the Fiscal Response Summit laid it all out on the table,” he added.

Summit attendee and CPA board chair Kimberlyn King-Hinds said the meeting was “a step in the right direction.”

“It was really healthy, actually,” she continued, “in terms of people having different opinions and just putting their ideas on the table. I love the fact that everybody was incredibly respectful of differing opinions.”

The total fiscal response plan for FY 2020 would save the CNMI $74.7 million, $9.9 million more than this year’s projected deficit. O’Keefe approved of the $10 million “cushion” because “some of the items may not be collectible or achievable exactly by FY 2020.”

While the Fiscal Response Summit focused primarily on the challenges of FY 2020, many of its solutions would not take effect until FY 2021, which was on track to produce an annual deficit of $85.2 million. FY 2022 was projected to produce an annual deficit of $36.9 million.

However, if all actions outlined in the Fiscal Response Summit’s suggestions were put forward and maintained, the deficits anticipated for FY 2021 and FY 2022 would be overshot by a significant margin; FY 2021 would recover $132 million and FY 2022 would recover $92.5 million. All together, the summit’s path forward was projected to yield about $112.5 million of surplus from 2020 to 2022, and — given that the CNMI’s accumulated deficit was $94 million at the start of the fiscal year — would hoist the government out of the red for the first time in decades.

That said, Secretary Atalig was hesitant to promise that the changes advocated for by the summit attendees would be able to be implemented in the time allotted. 

“I think we’ll start seeing an impact in the new fiscal year,” he said. “It’s rather hard to just implement these changes right away. There’s some legislation that needs to be passed, and we need to get larger input from the community, especially when one of the agreements was to implement a sales tax.”

November 2020 pssnewsletter

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