“NO good deed goes unpunished.” This idiom conveys the idea even when we do something with the best of intentions, it doesn’t always guarantee that the outcome will be positive. Despite initial efforts to do good the recipients of the good intentions may find themselves facing unanticipated challenges, resentment or ingratitude. This is certainly true of the disaster grants awarded to the CNMI by the U.S. Department of Commerce, Economic Development Administration, Seattle Regional Office.
Typhoon Yutu wreaked tremendous damage in the CNMI in August 2019, with estimates of over $600 million in damage. This disaster immediately brought an abrupt end to the primary income of the islands, tourism. In the immediate aftermath, the CNMI government was forced to rely on their own resources and wait for federal assistance. The local Red Cross and other on island relief agencies provided initial assistance and FEMA arrived shortly thereafter to help with recovery. The government was faced with the daunting task of the cleanup, plus scrambling to find funding to continue essential services such as water, power and sewage, salaries for police and other first responders, all with no viable income. Unlike mainland communities impacted by disasters, the CNMI is isolated and any assistance has to cross thousands of miles of ocean. The neighboring island of Guam sent volunteers as did the military stationed on Guam.
U.S. Public Law 99-239 established the U.S. Compact Agreement of Free Association to provide economic assistance, defense agreements, and other benefits to the Pacific nations in exchange for U.S. defense rights and certain operating rights in these nations. It’s a complex arrangement that has significant impacts on populations, services, and costs in various ways that impact the mutual interests of the island nations and the U.S. Therefore, the expeditious recovery of the CNMI infrastructure, and economic recovery of the CNMI is beneficial to the U.S. Department of Defense to protect the U.S. interests from the potential adversaries in the region (example China).
A full year later, in 2019, the president issued a disaster proclamation that included the CNMI as well as California, Hawaii, and other western states impacted by recent disasters. The Department of Commerce, EDA, SRO was tasked with providing disaster assistance for those communities within their jurisdiction, which includes the CNMI. The SRO had a disaster allocation of about $190 million. The allocation of the disaster funding is competitive and within the SRO there was considerable discussion of how to make the biggest impact with the funding available. Some senior staff favored sending much of the funding to California to areas impacted by wild fires, such as Paradise, California. Others favored providing the CNMI with a larger portion of the funding, because the devastation was near total for the small island nation. The reasoning was that while disaster impacts are always serious with long lasting impacts, California is a large economy with multiple resources and much better equipped to provide assistance to their impacted communities. The CNMI, being isolated with no access to a broader support community, was in a much more precarious situation. Therefore, several grant applications totaling about $100 million were proposed for the CNMI. In the ensuing months contentious arguments within the SRO came to the final approval meetings and twice the CNMI funding was denied and twice the regional director, A. Leonard Smith, overruled the review committee findings and approved the CNMI funding. Eventually, the headquarters office in D.C. for EDA became involved and was the final authority on the allocation of the funds. The CNMI had prepared an extensive and comprehensive justification for the grants, and produced a short video by Chris Nelson, narrated by Bob Coldeen, that visually demonstrated the impact of Typhoon Yutu and the path forward to revitalize the CNMI economy. The end result were the awards in 2021 of nine disaster grants with 100% federal funding for the following projects:
• 07-01-07128, Commonwealth Utilities Corp, MP
• 07-79-07506, Commonwealth Utilities Corp, MP
• 07-79-07542, N Marianas College WDTC, MP (Nursing and Business Development Center)
• 07-79-07543, N Marianas Tech, MP (Workforce Training Center with Equipment)
• 07-79-07562, CNMI Office of the Governor, MP
• 07-79-07631, CNMI Office of Governor, MP (Sports Complex and Cultural Center)
• 07-79-07645, CNMI Dept of Finance, MP (New Finance building, equipment and software)
• 07-79-07667, N Marianas College CRED, MP (Workforce Development and Training Center)
• 07-79-07769, CNMI Public School Syst, MP (Technical Training Program)
The grants were all approved with the proviso of phased disbursement. This simply means that as the grantee incurred legitimate costs to implement the grant scope of work the EDA would review and approve the expenses and the grantee would be paid immediately and then pay the vendors. The reasoning was that extra ordinary circumstances for impacted communities with little to no resources, require extra ordinary consideration. Mr. Smith had long endorsed this interpretation of phased disbursement for over 40 years. This procedure is a departure from the normal EDA policy for public works grants of not paying for incurred costs up front and instead reimbursing the grantee after they paid their vendors. In addition, no EDA funds are normally reimbursed until the grantee has awarded the construction contracts.
In my seven years working for EDA in the SRO I managed over 200 construction grants and the majority were managed under the policy of reimbursement for expenses paid by the grantee upfront. Only about a dozen grants qualified for the phased disbursement policy. The CNMI easily qualified for this policy.
Unfortunately, Mr. Smith retired soon after the approval of the disaster grants, ending 45 years of federal service, mostly with EDA. In the interim, senior SRO staff became acting regional directors. For unknown reasons, they reneged on the phased disbursement policy and insisted the CNMI pay upfront costs and seek reimbursement. Instead of honoring the phased disbursement provision, they determined to use a “phased reimbursement,” which made no sense. Obviously, with $100 million in disaster grants requiring upfront costs for designs and other expenses the CNMI could not immediately proceed as their economy was essentially dead in the water.
When the new, permanent Seattle regional director was selected, Sheba Person-Whitley, there was some hope that she would honor the phased disbursement policy of her predecessor. She made a visit to the islands and was advised of the dire straits of the CNMI and the hope the EDA grants would be a catalyst to revive the economy. Unfortunately, she followed the lead of the acting regional directors and in a letter dated, Sept. 14, 2023:
“… SRO understands that the CNMI has been hit hard by multiple disasters in recent years, has been struggling to meet staff payroll, and has seen a large drop in tax collection due to lack of spending driven by high inflation.
“However, since the initial denial of reimbursement for unpaid costs, EDA has been encouraged to see the CNMI’s efforts to facilitate financing of several of the EDA projects (07-79-07645, 07-79-07631, 07-79-07562, 07-79-07506, 07-79-07806) per the email from Ms. Tracy Norita, Acting Secretary of Finance, CNMI Dept of Finance, dated August 9, 2023. The CNMI is seeking financing from the Marianas Public Land Trust (MPLT) for a $20 million line of credit.
“This financing would provide the much-needed local funds to pay the cost of project payments as required by EDA in order to request reimbursement of grant funds. To support these efforts, the SRO provided the necessary EDA grant information requested by the MPLT in a memo dated Aug. 24, 2023.
“Since the award of these grants, SRO has also been encouraged to see that approximately $4.8 million in costs across three of the grants (07-79-07645, 07-79-07562, 07-79-07506) has been reimbursed consistent with the SRO’s standard practice regarding reimbursement of construction projects with evidence of payment.
“In light of these steps to meet SRO’s standard practice regarding reimbursement of construction projects, the request for SRO to provide reimbursement for incurred, unpaid costs on seven federally funded grants that were awarded to help the CNMI recover from Super Typhoon Yutu is again denied…” Highlight added.
This letter was written two years after the award of the disaster grants and she praised the CNMI for being able to spend less than 15% of the disaster funds, in spite of the bureaucratic hurdles put up by her office. The CNMI has been forced to concentrate on projects they deem most effective, such as the Garapan Revitalization Project, the central tourist spot on the island, and proceed piecemeal on design work on the other grants. In the meantime, inflation and loss of revenue continues to erode the value of the initial disaster funding.
In another letter dated May 26, 2023 she made the suggestion as follows:
“SRO understands the devastation from the COVID-19 pandemic and rampant inflation and offers as one potential solution that the CNMI obtain a loan to help cover the necessary cash flow for the current grants. Many grant recipients use some form of financing (loans, bond revenue or internal accounting procedures as may be permitted) to help temporarily cover expenses until reimbursement. Any charged interest on a loan is an allowable expense under the grant award.”
The CNMI has struggled with minimal resources to get designs started on the grants, but can only do minimal work. To suggest the CNMI get a “loan” to cover upfront costs for a 100% federally funded disaster program, then to deduct those expenses from the grant amount is ludicrous. Furthermore, to further justify denial for phased disbursement she states in the May 26, 2023 letter:
“In addition to reviewing this request for consistency with SRO’s standard practice regarding reimbursement, an assessment of current grant performance, single audit findings, and on-going reimbursements on CNMI grants were taken into consideration.”
This statement is akin to telling a drowning person, that you can throw him a life preserver, but he has to swim over to get it first. In regards to her reference to the outstanding audit findings, Grant No. 07-79-07645 for the Department of Finance is specifically to design and construct a new Finance center complete with modern accounting tools. Typhoon Yutu destroyed financial records and equipment hampering record keeping, retrieval and any expeditious audit efforts.
These letters are discouraging and appears to reflects a lack of appreciation for the current economic status of the CNMI. She appears to forget the disaster funds were made available to the CNMI by Congress apart from the normal EDA public works annual appropriation. To reiterate, the funds were to address extra ordinary circumstances, and should be spent as expeditiously as possible, under the original phased disbursement agreement. In my time at EDA, I never had any issue with phased disbursement grants, but had plenty of problems with grants where the grantee had cost sharing with EDA. In several instances, the grantee share became unavailable, legal issues would prevent the funds from being available or other issues would necessitate termination of the grants. Hence, it made sense to only reimburse on actual approved up-front costs.
The Palacios administration proposed a workaround solution to the EDA requirements by requesting MPLT to provide a bridge loan to pay the grant expenses upfront and then use the EDA reimbursement as a revolving fund to get the grants designed and constructed. The deadline for the completion of the grants is in 2025, so time is critical to complete designs, bid construction and do the actual work. However, the MPLT funding requires CNMI Legislature approval and after a year this approval has yet to be given.
As a former resident of the CNMI and a retired employee of the EDA, I was part of the group that prepared the disaster grant applications and followed them through to final approval. It has been frustrating to witness the bureaucratic hurdles placed upon the CNMI. The stated role of by the Department of Commerce for the EDA is not being met with these grants.
“EDA’s flexible programs and structure enable nimble operations and allow for innovation and responsiveness to changing economic needs and conditions faced by its local and state government partners…”
These projects should be under construction and near completion but continue to languish. The current CNMI administration has tried their best to get funding for the upfront costs and has had some success, but the disaster awards are very large and without the MPLT loan it is unlikely the grants will be designed and constructed in the remaining time.
The author is a former EDA employee, and resident of the CNMI.
