Good politics, bad economics
THE governor’s Jan. 17 letter to the Legislature’s presiding officers serves as an update to the CNMI government’s FY 2025 budget. It is a peculiar letter. On one hand, the governor noted the government’s “acute short-term cash flow challenges”; on the other hand, he made no mention of the need to cut costs. Instead, he spoke about restoring government workforce hours “in a fiscally responsible manner.” This is akin to saying, “let’s burn down the house safely.”
To be sure, catering to the islands’ largest voting bloc — government employees — makes perfect political sense. But is it fiscally responsible?
In 2023, after the governor imposed the work-hour cut austerity measure on “non-critical” employees, did the government, with its so many redundant offices, become “less efficient”? Were “crucial public services” negatively affected? Did ordinary taxpayers notice anything different? The governor announced the end of the austerity measure during the early-voting period on Oct. 31, five days before the midterm election. He held a media conference for the special occasion. With him were his legislative allies, who were running for office. The governor said the election had nothing to do with his decision. Sure. He did not disclose that ARPA funds — which the administration and its supporters earlier said were “already depleted” — would fund the restoration of the work hours. “Transparency” took a backseat until after the election.
Now we ask the governor: Why take out a loan to restore the work hours of non-critical employees when tourist arrivals and hotel occupancy rates are still nowhere near their pre-pandemic levels? How can that be considered “fiscally responsible”?
According to an appropriation bill drafted by the administration and submitted to the Legislature, restoring the work hours of government employees would increase their “spending power” and the “demand for goods and commodities, circulating to businesses and leading to an increase in economic activity and ultimately in tax revenues.”
But the primary reason for the decline in the CNMI’s tourism-based economy — and consequently in the government’s tax revenue collection — is that tourist arrivals remain low. This is why the local economy was already struggling even before the governor reduced the work hours of government employees.
You know what could truly increase the CNMI’s economic activity and tax revenues without incurring a $30 million loan? More tourist arrivals.
Everything’s on the chopping block — except government spending
ON Capital Hill, the 2020 Fiscal Response Summit and its cost-cutting recommendations are no longer a topic of discussion. The governor once described the recommendations as “something that our Commonwealth should have” implemented “a long time ago.” He also once said that as far as the government budget was concerned “everything’s on the chopping block,” and that businesses should not be penalized with higher taxes for the government’s misappropriation of public funds.
But that was then. Today, the government continues to hire new employees, and recently, the governor signed a construction tax measure that he believes will help the government “collect more.”
In Aug. 2024, when asked by a senator if she was confident that their projected revenue numbers could be collected once the construction tax bill was enacted, the Finance secretary admitted that “these are just high-level assumptions,” and that “there are so many factors” that could affect a construction project. “What would give us more confidence is the actual passage of the legislation and actual collections and then, from there, we would have a real basis to forecast,” she said with refreshing honesty.
But what if the projections are not met? It is likely that the administration and its legislative allies will continue to push for more tax hikes. Higher tax rates do not necessarily lead to higher tax collections, but they allow the government to project “additional revenue” and maintain a level of spending that does not reflect its actual collections.
In other words, it allows them to kick the can down the road until the governor’s hoped-for federal cavalry arrives, preferably before the next election.
Again, all this may be “good” politics, but it’s definitely not fiscal responsibility.
