That is the question
THE administration seems to believe — or it wants us to believe — that federally funded capital improvement projects can help revive the sputtering local economy. In the past, however, every time the local economy took off it was because of a significant increase in tourist arrivals and/or the entry of new major investments.
When Covid-19 restrictions were imposed on the CNMI and pretty much the rest of the world, the Commonwealth managed to prevent financial chaos thanks to almost half-a-billion dollars of federal assistance. For two years, government austerity measures were shelved, additional government employees were hired, pay raises were approved and federally funded dole outs were implemented.
Today, most of Uncle Sam’s money has been spent or obligated already, but tourism is still down compared to the pre-pandemic period. Many businesses are either downsizing or shutting down, and not a few residents have already left the CNMI or are planning to do so. The administration’s “solution,” however, is not to reduce spending that the government cannot afford, but to squeeze more taxes from struggling businesses, consumers and other taxpayers while begging for whatever bones the feds are willing to throw to us.
Meanwhile, the CNMI government must meet payroll every two weeks. It must make timely payments to the Settlement Fund. It must make at least some payments to its hapless vendors and CUC. It must fund medical referrals. It must continue paying the retirees’ 25%, but the funding for that is good until August only. Then what? Besides CEDA, whose barrel should be scraped this time? Even if the administration’s tax hikes are passed, everything would still depend on the actual collections. Who is to say that the targeted “cash cows” would not make the necessary adjustments to somewhat reduce their tax obligations? Consumers can buy less of the items that are taxed more or switch to less costly items. Businesses can further reduce their workforce or operations. The end result could be less instead of more tax revenue.
Then what?
Catch-22, if you will
SOME officials assume that ongoing and future construction projects would be like rain in the financial desert that is the CNMI today. They may want to re-read what the Saipan Chamber of Commerce and HANMI stated in their joint letter to the islands’ leaders six months ago:
“It is critical…to note the difference between tourism spending and government spending, such as those provided through federal grants. When a visitor chooses to spend his or her dollars it can go to a range of businesses across sectors — services, restaurants, hotels, amusements, etc. These components of the visitor’s expenditure rely on each other for revenue and resources to support employment. Thousands of local residents have built experience and careers within these fields. Turning off the source of revenue that provides for these businesses and individuals is not replaced by government spending which finds itself largely within the construction and professional services industries.” (Our italics.)
The chamber and HANMI likewise advised CNMI leaders that “increased taxation will not address the underlying issues at hand [i.e., the soaring costs of government] and there are neither practical nor tangible options for recovery outside of improving our visitor arrival numbers.”
This should be beyond dispute. But the main problem for the administration and lawmakers is, as usual, not economics, but politics. The primary question for many of them, as usual, is their election day prospects in a jurisdiction where a vast majority of voters are government employees and retirees.
