GOVERNOR Arnold I. Palacios is requesting the Marianas Public Land Trust for a line of credit in the amount of $20 million, to cover the reimbursable costs of the initial stage of federally funded capital improvement projects.
Prior to his letter on Monday, the governor, Speaker Edmund S. Villagomez and Senate President Edith Deleon Guerrero met with MPLT Chairman Phillip Mendiola-Long and other trustees to discuss the “significant financial pressures” the CNMI is facing, “due to a slow economic recovery and the past administration’s indiscriminate spending” of American Rescue Plan Act funds.
Palacios said his administration has been forced to cut government programs and operations, which “have led us to request for MPLT’s assistance.”
In particular, the governor is asking for a $20 million line of credit and a lower interest rate.
In a financial statement prepared by Ernst & Young, (CNMI), Inc., MPLT reported $10,735,942 in receivables from the CNMI government, at an interest rate of 7% per annum.
In 2019, the CNMI government borrowed $15 million from MPLT for the “extraordinary expenses” incurred following Super Typhoon Yutu which devastated southern Saipan and Tinian.
The loan payments come from the future interest due to the CNMI government. Instead of MPLT distributing the interest to the government’s general fund on an annual basis, it will remain in MPLT’s investment portfolio as additional capital infusion that will generate more interest for the land trust.
There are other entities, government and private companies, from which MPLT collects loan payments but at a rate of 5% per annum. One of them is the Commonwealth Healthcare Corp. which has to pay MPLT the remaining balance of $679,204 by Oct. 31, 2023.
Recently, the past MPLT board approved a loan for Tinian Shipping Service, Inc., at 5% interest rate per annum, due on Sept. 1, 2032, with monthly principal and interest payments in the amount of $14,831.
These loans are part of MPLT’s diversified local investment portfolio, for which it allows “for a prudent rate of return.”
In the meeting with the MPLT trustees, Governor Palacios brought up the possibility of lowering the interest rate for the central government’s existing loan with MPLT, “backed by a guaranteed repayment source from the Trust’s own annual distributions to the general fund.”
“A lower interest rate would ease the debt service required of the government in this challenging fiscal environment and would still be earning sufficient interest when taking into account the current investment climate and the projected rates of return of alternative investments,” the governor told Mendiola-Long.
Challenging situation
The governor informed MPLT that the CNMI has several capital improvement projects throughout the three main islands that are funded on a reimbursable basis by federal grants administered by the U.S. Economic Development Administration, the U.S. Environmental Protection Agency and other federal agencies.
“Because of our challenging financial situation, the administration is requesting MPLT to consider offering a $20 million line of credit to provide the Commonwealth a type of bridge financing or advances to cover the costs of the initial stages of construction,” the governor said.
He said it is expected that these advances will be reimbursed in less than 30 days after the federal agency reimburses the CNMI government for such costs.
The governor said “we expect this line of credit to be utilized for various projects scheduled to begin simultaneously, which is the reason for the large initial $20 million request.”
He said the line of credit will be necessary for approximately five to seven years while infrastructure and other projects are under construction.
The governor assured MPLT that the proposal he presents “will provide safe, local investment opportunities that not only helps current beneficiaries of the Trust fund but future generations as well.”
