Palacios and Babauta work on financial solution for Commonwealth government

A yet-to-be-tapped resource to the Commonwealth government is mapping out a financial strategy that proposes to:

• Relieve the biweekly bleeding of cash to the CNMI Settlement Fund and pay off that debt as a current liability
• Settle the hospital’s debt to the utilities
• Provide capital needs to the ports for economic development

The subsequent improvement in cash flow conceivably will allow Gov. Arnold Palacios to restore government worker hours to the full 80-hour pay period, assist the medical referral program, and provide the breathing room for further financial reforms, according to Sen. Celina Roberto Babauta, who was the official who raised Barclays Capital’s existing relationship with the government to the new Palacios administration.

Barclays Capital, one of the largest investment banks in the world, has been a financial advisor to CEDA for decades. Two of its senior officials, who both are experienced and familiar with the governments and economies of the CNMI and Guam – Sean Keatts and Jane LePham, wrote a position paper that was reviewed by Mr. Palacios, Lt. Gov. David Apatang, Attorney General Edward Manibusan, Sen. Celina Roberto Babauta, and Rep. Blas Jonathan Attao in mid-May.

Essentially, Barclays is proposing the CNMI government consolidate its largest current liabilities into long-term debt that does not affect the general obligations of the General Fund. Former Guam Gov. Eddie Calvo used the same Barclays strategy in 2011. The financing scheme led to the ending of the once-nearly-$500 million General Fund deficit just three years into Mr. Calvo’s term, followed by the strongest economy Guam had seen since the 1980s.

The consolidation, according to the paper, would be in the form of a revenue bond, which would pledge a portion of business gross revenue taxes as the payback source. Thus, the financing mechanism would not be considered a general obligation of the Commonwealth government.

Barclays, which has had a longstanding agreement in place with the Commonwealth government through CEDA, has proposed to assist the government with like solutions when the Torres administration was racking up deficits year after year. The previous administration never entertained the solutions.

Babauta urged Palacios to seek Barclays’ advice

The invitation for Barclays’ proposal followed the Commonwealth Utilities Corporation’s April 19, 2023 notice of disconnection to the Commonwealth Healthcare Corporation, which owes tens of millions in utilities bills and penalties to CUC. Gov. Palacios contacted Sen. Celina Roberto Babauta that day for advice on financial solutions to avert a hospital disconnection.

Ms. Babauta arranged for a conference call with investment attorney Roy Koegen in New York. “We contacted Mr. Koegen because of his extensive experience working with Barclays International and arranged for a conference call the very next day,” Ms. Babauta said.

Barclays offers private and overseas banking, credit and investment solutions to its clients through Barclays Bank PLC and its subsidiary companies. The conference call was attended by Mr. Palacios, Ms. Babauta and Deputy Attorney General Lillian Tenorio, according to Babauta.

In the conference call, information pertaining to the utility debt of CHCC to CUC, as well as other critical financial information was exchanged with Mr. Koegen, who then brought the matters to Barclays’ attention.

CEDA executive director Manny Sablan was impressed with the recommendations made by Barclays saying, “This financial strategy should be used as a boiler plate moving forward.”

Mr. Keatts worked with former Gov. Calvo’s senior economic advisor at the time, Henry Taitano, to design the Guam strategy in 2011. Ms. LePham was a junior member of the Barclays team assigned to the Guam strategy at the time.

“I am happy to help resolve the financial woes that plague our government and in whatever other capacity I am needed in. I am here for the people of the Commonwealth,” Ms. Babauta said.

If successful, she said, the financial strategy will:

1. Provide the cash flow the executive branch needs to keep the government solvent;
2. Stabilize government finances and reduce interest costs accumulating with the current liabilities to allow the Palacios administration to manage operations, rather than putting out the daily fires it inherited from the financial bust of the Torres administration;
3. Realize cost savings and industry value; and
4. Encourage economic growth.

Ms. Babauta has said she has no financial or filial ties to Barclays or any of its associates or contractors, as either an investor, or customer.