Hofschneider, R-Saipan, is one of the sponsors of the legislative initiative that will reduce the size of government and issue $200 million in pension obligation bonds to pay the government’s obligations to the Retirement Fund.
“We need to pass it,” he said in an interview, referring to the House version of Senate Legislative Initiative 16-10.
The House Ways and Means Committee earlier “merged” S.L.I. 16-10, introduced by Sen. Maria T. Pangelinan, D-Saipan, with Hofschneider’s similar proposal, H.L.I. 16-12, and recommended its passage.
In an interview, Hofschneider said S.L.I. 16-10 remains on the House calendar, and will be discussed on the floor once the cost benefit analysis is completed.
“We want taxpayers to know what this proposal will cost them,” he said. “We can’t just authorize a public debt and tell the people how much they’ll pay for it. And we also need to educate the people about the specifics of this initiative.”
A proposal to amend the CNMI Constitution, a legislative initiative must be approved by at least three-fourths of the members of each house of the Legislature present and voting. It doesn’t require the governor’s signature and, once passed, will be placed on the ballot to allow voters to either ratify or reject it.
“We need to pay the Retirement Fund to prevent its collapse,” Hofschneider said.
S.L.I. 16-10 will allow eligible government employees to retire and receive a severance package.
Hofschneider projects a $5 million annual savings from these vacated positions, which can no longer be filled.
“That $5 million will go to bond payments,” the lawmaker said.
The initiative also prohibits the government from creating new retirement benefits until the CNMI has paid the bond.
“We want to assure lenders that we can pay them,” Hofschneider said.
He admitted, however, that banking and other lending institutions are “not really willing to lend money” because of the global recession.
“The CNMI can’t borrow on its own — our bond rating will be phenomenally bad, and this is why we also need the federal government to guarantee our bond.”
According to Hofschneider, the CNMI, in the 1980s, pledged its seven-year federal funding for capital improvement projects amounting to over $140 million to float a bond.
“The U.S. Congress OK’d it and so we got the bond,” he said. “Now with the help of [Congressional Delegate Gregorio C. Sablan] in Washington, D.C. we can ask the federal government to provide its guarantee to the $200 million bond. All we need is federal backing.”
Inaction, he said, is not an option.
“Some people are quick with the gun — they want this proposal killed. But I hope they will study it first. We’re not going to give away money — we’re cutting the size of government, paying its debt to the Retirement Fund and saving our pension system.”
He added, “Let’s stop playing politics. That’s what caused all this mess. We saddled the Retirement Fund with unfunded obligations and now we can’t pay our employer contribution. We cannot control the global economy, but what we can do is to clean up our own mess — take responsibility for it and do something.”
The alternative is to “wait until the 11th hour when the Retirement Fund can no longer pay the retirees.”
“And what do we tell them? ‘Sorry, we can’t meet our obligations to you because we’re broke’? Someone will take us to court to seek remedy and the court will mandate this government to either sell its assets and properties, lay off government employees or raise taxes to pay what we owe the retirees.”
He estimates that the Retirement Fund pays retirees $70 million in annual pensions.
“That’s almost half of the government’s projected revenues [for fiscal year 2009],” Hofschneider said. “Can you imagine the tax increase that we have to impose on businesses and other taxpayers if the court mandates that we pay the government’s debt to the Retirement Fund?”
The CNMI government owes the Retirement Fund approximately $193 million. The Fund’s unfunded liability is roughly $500 million.
According to the House Ways and Means Committee, some 2,800 retirees and 4,595 active members “do or will rely on the Fund for financial security.”
“This is a huge problem,” Hofschneider said. “We need to tell the people the truth — they need to know what’s in store for all of us if we don’t act now. Hard choices have to be made. Doing nothing will make it worse.”
