The actuarial rate is 37.39 percent, but the government can pay 11 percent only.
The governor also proposes to reduce “All Other” funds for nonessential services by 20 percent, which the senator described as a “generalization.”
“But note that the target is operational funds and not personnel. The governor’s proposal seeks to fund the economy through employment, not through providing basic services,” said Pangelinan, D-Saipan and chairwoman of the Senate Fiscal Affairs Committee.
The governor at the same time pledged to “limit personnel hiring for essential services only,” but the senator said “this has proven to be not an accurate statement.”
Rising deficit
If a new budget is not passed into law on Oct. 1, the start of FY 2010, Pangelinan said the default law for the employer contribution will be P.L. 15-126, which sets the rate at 18 percent.
“Even if this percentage is observed and the law upheld, the deficit will continue to rise,” she said.
“Contributing less than the full actuarially determined employer contribution rate will create a deficit at the end of FY 2010. No word spin about operating deficits vs. fiscal deficits will change this.”
The governor’s FY 2010 budget identifies $162.82 million in projected revenues.
Of this amount, $4.65 million is earmarked for transfer to other funds — tobacco control, solid waste and the Commonwealth Utilities Corp.’s debt to the Marianas Public Land Trust. An additional $7.67 million is for debt service.
This leaves $150.5 million for general government operations, but Pangelinan said the actual figure will be $147.3 million.
The CNMI’s share of the federal Compact-Impact aid, she added, will be $3.2 million less in FY 2010 because of the drop in the population of Freely Associated State citizens hosted by the Northern Marianas.
Unidentified
In her analysis of the governor’s cover letter for his budget proposal, Pangelinan said although the administration assumes the CNMI will get $15 million in federal stimulus funds, she can only account for $8 million of this amount.
She likewise noted that in FY 2009, $7.35 million was the projected collections from labor and immigration fees. These will cease to be collected once federal immigration law takes effect in November.
In his cover letter, however, the governor said the revenue loss will be “approximately $7.6 million.”
“That leaves $250,000 unidentified,” Pangelinan said. “There may not be enough detail in the budget proposal revenue reports to specifically identify the $250,000 balance.”
The senator said it appears that there are “extra funds” at the end of FY 2009 on Sept. 30.
“This means they are not being used in FY 2009, the year in which they were/are generated. Why are funds…not fully utilized…particularly when the [employer contribution to the Retirement Fund] is being underfunded?”
Worst case scenario
Pangelinan urged her colleagues to prepare for a court ruling mandating the government to pay a 37.39 employer contribution rate.
The Retirement Fund has won its lawsuit against the cash-strapped government and the local trial court is now determining the payment terms.
Pangelinan earlier said that if the court orders the government to pay the actuarial rate, 1,079, or some 25 percent of government employees, will lose their jobs.
Even if the governor’s austerity measures are implemented, she added, 578 will still be jobless.
Other budget issues
Pangelinan’s analysis included a review of other problematic budgetary issues:
• FY 2008 Cover Over Settlement
She said lawmakers have yet to see the audited financial statement for FY 2008. Deficit spending occurred in this fiscal year, but the administration said it was paid by $17 million in cover over funds from the federal government.
Pangelinan wants to see a detailed accounting of these funds’ source and uses. “It is also important to understand where the deficit spending occurred…in order to avoid this happening in the future.”
• MPLT Interest to CUC
For FYs 2009 and 2010, the Legislature appropriated $1.7 million each year of the interest generated by MPLT — normally remitted to the general fund — sending it to CUC instead.
But Pangelinan said the governor’s revenue estimates “raise questions about the actual amount of interest MPLT is generating.”
“The interest has been a little over $2 million in FYs 2007 and 2008 then suddenly, when a law is passed to send $1.7 million of it to CUC for two years, the estimate drops to exactly $1.7 million. Is MPLT’s investment generating more interest than $1.7 million? If there are additional funds anticipated then they need to be added to the revenue estimates.”
• Independent Contracts
Pangelinan said hiring individuals under independent contracts is one way to circumvent the full-time employee ceiling set by the budget.
“Excessive professional fees…are a flag to watch for,” she added. “The Legislature may want to consider language that specifies an independent contractor equates to an FTE.”
• Austerity Measures
Pangelinan described them as “controversial, hard to monitor and implement, inherently unfair to the lower paid employees and extraordinarily skewed to protect some of the most well paid.”
She acknowledged, however, that “there are times when it is better to have part of a job than to have no job at all.”
She said the government, “by default or design,” has not conducted an appraisal of the performance of its departments and agencies, “where costs vs. benefits to the public are weighed and changes made accordingly.”
The Legislature may want to question the value and performance of programs and departments, Pangelinan said.
“Perhaps there are some whose mission is over; some who spend money to exist but ultimately do not provide critical services to the public.”
There are two provisions from laws enacted in 1987 and 1988 that can help the government control personnel costs, she said.
1 CMC § 8135 states that except for public education and public health, any FTE position vacant for more than 180 days is eliminated.
1 CMC § 8252 provides for an orderly and uniform reduction of government salaries, exempt those of critical public education, public health and public safety personnel.
Pangelinan said these provisions are from previous appropriation laws and should be added to the FY 2010 budget bill.
• Enforcement of FY 2009 budget law
According to the senator, a preliminary review of the governor’s FY 2010 budget proposal shows that while the current budget law, P.L. 16-32, “mandates that certain categories of spending be assigned a business unit number, this has not occurred.”
• Suspension of Earmarked Funds
“The can of worms created by the current practice of [suspending earmarked funds] makes accurate tracking nearly impossible,” Pangelinan said. “Eliminating earmarks and therefore the need to suspend them would eliminate the confusion, controversy and lack of accountability they are surrounded with.”
She added, “Apparently because of the difficulties in tracking, the tendency seems to be to over-appropriate the funds…ultimately shortchanging intended recipients, changing the earmark’s targeting and digressing from the original purposes, only to have the situation exacerbated by suspension of the earmarks to fund government operations.”
• Tobacco Control Fund
Pangelinan said the estimated revenues from this fund are not enough to cover the appropriations made from it.
“It appears that the FY 2009 funds [amounting to $1.225 million] from the Tobacco Control Fund are already over appropriated.”
Pangelinan said her review of these and other budget issue will continue.
