Report: Make deep cuts; Torres already spent money meant to fund the government through September

Former Gov. Ralph Torres left a government in such financial chaos, that major cost cuts – which could affect personnel and may include the discontinuation of the 25 percent additional retiree pension payment – may be instituted in order for the Commonwealth government to survive the current fiscal year. This is according to a report sent to the Commonwealth’s new governor, who has not yet announced whether to accept any of the recommendations finance professionals are making to him.

There are no more federal funds to pay Commonwealth government employees, according to a transition committee report sent to the new Gov. Arnold Palacios. According to the budget law, Public Law 22-22, 20 percent of personnel costs throughout the executive branch were to be funded by funds given to the CNMI from the American Rescue Plan Act (ARPA) this Fiscal Year 2023.

“As of December 27, 2022, the transition team’s preliminary reconciliation has determined that although the CNMI received $481.8 million in ARPA funds, the ARPA fund is overspent and overcommitted and stands at a deficit of $86 million,” the Department of Finance 2022 Transition Report for Gov. Palacios and Lt. Gov. David Apatang states.

With the ARPA fund in deficit, according to the report, the government has been forced to shoulder government paychecks by using the General Fund – the government’s main local funding source.

But that fund is in deficit as well. “The Department of Finance FY 2022 Annual Report shows General Fund expenditures exceeding allotments causing a deficit of $37.8 million,” the report states, adding that the deficit for the last fiscal year is attributable mainly to unbudgeted overtime to law enforcement divisions of the government.

The accumulated deficit reportedly stands at more than $314 million, all of which was created during the Ralph Torres administration. “For the last four years, the CNMI has been in deficit spending,” the report states. This, despite massive amounts of federal funding that should have more than offset the cost of government services and obligations.

“In fiscal year 2021 alone, the CNMI had federal cash receipts totaling $611 million from FEMA CARES Act, and ARPA funding,” the report states. This does not even begin to include the windfall of revenues in the early days of the now-defunct big casino.

The report leaves the question open as to where and how the government will pay for paychecks throughout the remainder of the fiscal year, which ends on September 30.

“The government’s financial situation is dire,” the report states. “The months and years ahead will not be without hardship. The consequences of the overspending have been delayed but can no longer be avoided. The government has neither the funds nor the means to sustain current levels of programs, employment, and services. The full extent of the financial shortfall will take time to ascertain, however, the following recommendations are critical steps that can be taken immediately.”

Among the 16 recommendations the transition team made are the discontinuation of the 25 percent additional retiree pension payment, cost cutting that includes restricting government travel, a revision of the budget that may lead to severe personnel cuts, and the review of ARPA-funded contracts “to reduce ARPA funded obligations.”

Mr. Palacios, in an interview Monday evening with Kandit, briefed our viewers on the untenable financial situation his predecessor handed to him. The level of “pillaging and plundering” of the Commonwealth’s resources, particularly since Mr. Torres lost by a landslide to Mr. Palacios, he said must be investigated. He also said “some people need to go to jail,” referring to those involved in the corrupt practices that led to the misspending of federal funds.