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    Monday, August 20, 2018-5:32:11P.M.

     

     

     

     

     

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CDA wants Public Law 20-33 amended

COMMONWEALTH Development Authority Executive Director Manny Sablan urged lawmakers to amend Public Law 20-33 so it can protect the pension obligation bonds and the retirees.

Sablan on Tuesday met with members of the Senate Committee on Fiscal Affairs headed by Sen. Jude Hofschneider to discuss his concerns regarding P.L. 20-33 which creates two revolving accounts: the Settlement Fund Revolving Fund Account and the Bond Payment Revolving Account, which are both separate from the General Fund account.

The law was enacted in December 2017 but has not been implemented.

Manny SablanManny Sablan

Sablan told the senators that the law does not include any provisions pertaining to the pension obligation bonds or POB, adding that CDA did not get the opportunity to comment on the bill before it was signed into law.

Sablan said the law will affect CDA’s ability to market and get the best rating for the POB.

CDA is authorized to float bonds backed by taxes on gross revenues.

Sablan said all pledged taxes and revenues must be deposited directly in a special trust account, without prior deposit in the general fund or any other fund of the commonwealth, until the balance in the special trust account is at least equal to the debt service due or to become due on the bonds during the next succeeding 12 months.

Public Law 20-33 mandates specific amounts of taxes collected that will be deposited each fiscal year: $45 million for 2018; $44 million for 2019; $43 million for 2020; $41 million for 2022; $40 million for 2023; and $39 million for 2024. These funds will  go to the Settlement Fund to satisfy the government’s obligation to the retirees.

After the annual payment amount is satisfied, the the collected taxes “shall be deposited in the Bond Payment Revolving Account to pay the annual payment of $5,151,500  for the 2007A Bond and $3,331,375 for the 2007B Bond.”

Prior to the establishment of the casino on Saipan, a $110 million bond was supposed to be floated for the Retirement Fund.

Now that the government is collecting casino tax payments and other additional revenue, the proposed bond amount has been reduced to $45 million which will pay for the government’s FY 2018 Settlement Fund obligation.

But CDA said  since the FY 2018 Settlement Fund annual payment is already budgeted in the government’s FY 2018 budget, the proposed bond will be for the FY 2019 Settlement Fund obligation.

CDA said the payment structure of the POB is for the gross receipt tax collected under 4 CMC Section 1301 to go first to pay the POB debt and any excess funds are to be appropriated for other purposes.

But CDA said under Public Law 20-33, the first $52,482,875 of the gross revenues are earmarked in FY 2019 for the two revolving accounts.

Sablan said for CDA to achieve the lowest bond interest rate, the POB payment account must have a source of funding.

He added that to issue bonds that are marketable, the first $45 million for the Settlement Fund must not be “trapped.”

He said there is already enough money for the Settlement Fund and the POB. “It is important to put the POB in a favorable position because it is difficult to market the POB without a secured payment source,” he added.

In Sablan’s discussions with the senators on Tuesday, it was recommended that two stages must be in place to float the POB. One is to secure the payment of the bond with the gross revenue tax as the funding source; and two, the existing bond can refund the bond and get a higher rating.

CDA believes this will open the gate for future bond floats at favorable interest rates.

The senators agreed that to resolve the issues raised by CDA, they must hold a dialog with the governor, the House Committee on Ways and Means and the attorney general.

 “We are trying to look at ways to make sure that when we float the $45 million bond we get the highest rating,” Sablan said “Right now, the law is not clear and it’s hard to float the bonds. The legal counsel will look into it and we will come back for more discussions until we can come up with a better solution that will address our concerns.”

Sen. Sixto Igisomar, in a separate interview, said CDA “believes that [P.L. 20-33] gives priority to the payments to the Settlement Fund which is in conflict with the prior agreement that the payment for  bonds must be the priority so that investors are comfortable with the bonds’ good rating. Mr. Sablan has asked us to review the law and see how we can ensure that it is not doing what he thinks it is doing which is removing the priority away from the bonds.”

Igisomar said “it’s just a matter of having more discussions so we can insert some good language to protect the bonds and the retirees.”