AT the end of his first 100 days in office in April 1994, Democratic Gov. Froilan Cruz “Lang” Tenorio reported to the public that the CNMI government was facing a budget deficit of up to $42 million (worth about $83.9 million today). He said the “next step was figuring out what to do about it, and with action by the Legislature, we’ll soon start getting this terrible burden off the back of our people.” However, he added: “Change isn’t easy, and that’s why politicians spend much more time talking about it than implementing it.”
In an editorial that Variety published in the same issue, Governor Lang said his administration would overhaul the CNMI’s “obsolete” tax system which, he said, “has not had any major changes since 1982.” The system, he added, “was set up to serve the needs of a young Commonwealth with a small population, low average household income, and shortages of labor and investment capital.” Since then, he said, the local economy had improved tremendously. (In 1994, Bank of Hawaii’s economist told Variety that the CNMI economy would “experience a big leap this year.”)
Citing the constitutional requirement to “liquidate” the deficit, Governor Lang then cut to the chase. “We need to raise more money,” he said, “and changing our tax system is the only way to do it.” He said his proposal would reduce the rebate for most people. “There will still be a substantial rebate — it just won’t be as big as it has been,” he added. He said business taxes would increase but they “will still be the lowest in any U.S. jurisdiction.” As for excise taxes, he said they were “small” and would be increased. But “once the deficit is liquidated, the excise taxes will be reduced.”
It was a controversial tax proposal and Republicans outnumbered Democrats in both houses of the Legislature, but it was passed and signed into law in January 1995.
From 1995 to 1997, tourist arrivals grew rapidly. Some expressed concern — yes, concern — that annual arrivals would soon reach one million. Was the CNMI ready? they asked. Meanwhile, garment factories were thriving and providing significant government revenue. The CNMI government was awash with cash.
To quote American historian David Lowenthal, the past is a foreign country. And yet in a way, the CNMI is “back” in 1982 based on how Governor Lang described it: the islands, once again, have a small population, low average household income, and shortages of labor and investment capital. Any fee or tax increase proposal in this economy would be unwise. But apparently not to many politicians.
Some of them say “it is important to curtail expenses,” and that tax hikes would “hurt” the people. Then they passed — unanimously — a budget bill whose amount is $6 million higher than FY 2022’s while increasing taxes on tobacco and sweetened sugar beverages. In this economy.
Incidentally, in passing their version of the budget bill, some House members complained about “the administration’s decision to zero-out the operations for the entire government [so] we have to look for funding to try to restore… funds for the departments.”
So how exactly do they define “curtail” and “expenses”?
One of the lawmakers was quoted as saying: “It appears that right now, the only way to increase government revenue is to impose taxes.”
Of course not. Higher tax rates do not necessarily result in higher collections — especially during an economic downturn. Tourism, the islands’ only industry, is still a shadow of its old self. The economy and the population are shrinking and may shrink further.
In 2010, when the economy was also down, but not as much as it is today, a local business leader pointed out that even though the CNMI government lacked funding it was still overspending.
“He said the government should not be exempt from painful cost-cutting measures as is the case now in the private sector which has reduced benefits, work hours, wages, or terminated employees because of the economic depression in the CNMI.
“ ‘Cost-cutting is painful for employers, and it is painful for employees when it impacts their salaries. Unfortunately, it is a fact of life when business is bad. The Commonwealth government should not be exempt from this reality. Government employees are not alone in feeling the pain of budget reductions. The government should reduce its expenditures to an amount less than or equal to its revenues.’ ”
Twelve years later, to quote Led Zeppelin, the song remains the same.
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