Sablan told Variety that CDA is projecting to have $1.3 million remaining in operating funds at the end of the current fiscal year.
He said with CDA’s Debt Relief Program, borrowers are coming forward to restructure their loans and avail of the program.
In CDA’s Feb. 4 meeting, it was reported that close to 20 borrowers were actively seeking to avail of the debt relief program in addition to the 33 borrowers who already subscribed to the program.
In the Feb. 26 Development Corporation Division board meeting, the need to explore ways to increase revenue was re-emphasized.
In his report, Stuart B. Smith, comptroller, CDA, stressed the need to increase revenues and cash flow.
“Even if CDA cuts expenses drastically the Commonwealth Development Authority will still be operating in the red,” Smith said.
For Smith, cutting of expenses is a part of the picture; however, he advised the agency to urgently ramp up efforts in generating revenues to keep the agency solvent.
In his Fund’s Availability Report, Smith is projecting to have about $1.3 million in funds available for operation at the end of the current fiscal year.
He, however, cautioned that if the agency continues to run deficits of $500,000 to $600,000 a year, then that $1.3 million will run dry within four years.
“Then we would not have money to operate. More effort should be spent on revenue. We can’t cut enough. Even if we cut all staff expenses we’d still be in the red,” said Smith.
He said the agency is exploring ideas to generate revenue and that Oscar Camacho, CDA loan manager, is at the helm of it. “It has to come from the loan side.”
Smith said the agency does not have a large enough revenue-generating loan portfolio to work with. “The problem we are facing now is that we don’t have that much to work with: the loan asset base is shrinking all the time. We figure that to cover a $500K annual deficit we need $25 million of new loans if at 2 percent. If we can find solid lending opportunities at rates closer to market, say 5 to 7 percent, then our new-loan needs would drop to about $10 million.”
He suggested that non-performing loans must be brought back into performing status, primarily via restructuring such in the Debt Relief Program.
He also suggested for loans that are beyond hope to package them into a portfolio and sell them to private investors such as was done by the U.S. government during the savings and loan crisis in the 1980s.
Merced “Marcie” Tomokane, Development Corporation Division board chairwoman, said the revolving fund is running empty. “The corpus of the fund is not revolving. Loans should be paid off and revolved to new borrowers.”
The agency is still working with an inordinate number of delinquent borrowers.
She said, “We even reduced the rate from 9 to 2 percent. We can’t go below 2 percent because we need to cover operating expenses.”
CDA is a self-funding agency and receives no funding from the CNMI government, so if it cannot run its business “in the black” it will fail just like any private-sector firm said the comptroller.
“Like the rest of the government, CDA is facing a crisis and must find solutions and not wait for a ‘magic bailout,’ ” he said.
In its Feb. 4 board meeting, CDA explored ways to cut back on expenses, with office rental one of the areas that could be reduced. The executive director was tasked by the board to study options, including CDA moving into vacant government offices or even constructing its own building.
According to CDA, over the years it has spent a considerable sum renting its offices, enough to have constructed and owned its own building.
However, given the current cash shortage, it may not be feasible to use “precious” resources to build CDA’s own building at this time.
Currently, the agency spends about $7,000 per month for rent for Saipan, Rota and Tinian offices, net of sublease of part of its Saipan office space. CDA shares the offices and costs for Rota and Tinian with Northern Marianas Housing Corp. as a cost reduction measure. According to the comptroller, rent is 7.5 percent, and payroll-related expenses two-thirds of the monthly expenses. Legal fees related to delinquent loans are also 5 percent of total expenditures.
CDA is also trying to turn foreclosed assets into cash.
In its previous board meeting, CDA announced the sale of Sunset Villa to Fidel Mendiola Jr. for $250,000.
CDA received $10,000 non-refundable deposit on Dec. 24, 2010 and expects to receive full payment within 90 days.
The Development Corporation Division is tasked to “initiate, stimulate, facilitate development of the economy” in the Northern Mariana Islands by making loans, loan guarantees, and financial, technical, and advisory assistance to the private sector in the CNMI.
As of Jan. 31, the net loan receivable portfolio, net of allowances, was $14.2 million, part of the $20.2 million in total DCD assets.
In CDA’s financial statement and independent auditor’s report, for the fiscal years ended 2009 and 2008, the net loans receivable portfolio was $12,857,958 and $13,189,715 respectively.
