A Saipan senator is proposing to the governor a financial strategy that will bring the CNMI government an immediate cash infusion based on a massive amount of taxes owed.
Celina Roberto Babauta wants Arnold Palacios to procure a third party to purchase from the government the $121 million taxpayers and employers owe the CNMI government. And a collection agency owner, who has three decades of experience in government debt collections believes the proposal will work.
“I urge you to explore the potential of factoring, with or without recourse, to address the collection of outstanding tax receivables,” Ms. Babauta wrote last week to Mr. Palacios. “This approach could provide an immediate influx of revenue to address pressing needs while simultaneously streamlining the collection process.”
[Note: Part of that estimated $121 million tax receivable is about $30 million Ms. Babauta estimates that employers owe the CNMI government “in employee quarterly withholdings that were not remitted by employers, some dating back as far as 10 years.” The senator also is unsure what percentage of that $121 million would be considered “uncollectible,” a determination she advises the governor that his administration should immediately pursue]
Adam Barone, in an article for Investopedia wrote, “A factor is an intermediary agent that provides cash or financing to companies by purchasing their accounts receivables.” Basically, Ms. Babauta wants the governor to issue a request for proposals for a qualified company – a “factor” – to purchase all or some of the $121 million debt (accounts receivables) owed by taxpayers and employers to the CNMI government at a discount. That company – or factor – will then be able to go after those who owe taxes to the CNMI government and collect on those debts.
Fe Valencia-Ovalles, who owns Guam Marianas Collection Agency, said the proposal should be implemented as soon as possible considering how some debts mature past a certain collection deadline.
“This proposal should work and must be done soon to avoid the risk of getting these delinquent accounts on a Past Statute of Limitation(PSL) category,” she wrote to Kandit after reviewing Ms. Babauta’s letter.
Guam Marianas Collection Agency has been in business in Guam, Saipan, and the Philippines for the past 29 years. The company has experience collecting debts for government agencies in Guam. According to Ms. Valencia-Ovalles’ email reply to Kandit, her company would not be the factor company that would compete for any such contract, but would “work with the prospective factor in the event one is selected. Our company shall be able to offer full collection services within the confines of the Fair Debt Practice Collection Act that applies to both Guam and the CNMI.”
The senator described two types of factoring services, both of which would yield immediate cash infusion for the CNMI government, which is woefully cash strapped and reeling from a massive deficit left by Mr. Palacios’ predecessor, Ralph Torres. For perspective, the estimated tax receivables surpass the government’s General Fund budget for this fiscal year.
The first type is factoring with recourse. In this case, the factor will purchase the $121 million tax receivables at a discount, but the CNMI government retains the risk of non-payment. In this case, Ms. Babauta wrote, “If the factor is unable to collect the debt from the taxpayer, the government may be required to repurchase the receivable.”
The other type is factoring without recourse, the senator wrote. In this case, the factor gets a bigger discount, which means the CNMI government gets a smaller upfront cash infusion. “The factor purchases the receivables at a deeper discount, but the government is not responsible for any uncollected debts,” Ms. Babauta wrote to the governor.
The governor’s de facto communications director, Frankie Eliptico, said he will be discussing the proposal with the governor and will provide his thoughts.
The senator said neither she nor her family members stand to benefit from any company that could conceivably qualify to be a factor.