H.L.I. 17-1 will authorize the government to borrow money to pay its obligations to the retirees and members of the Retirement Fund with proceeds from pension obligation bonds, or POBs.
H.L.I. 16-13 will not allow any increase in retirement benefits until all government obligations to the Fund have been satisfied or the system is fully funded.
In an e-mail yesterday, Retirement Fund Administrator Richard Villagomez thanked all those who have decided to vote yes on the two initiatives.
As for those who are undecided or leaning toward voting no, “we hope this message helps clarify why we encourage you to vote yes on the two initiatives,” he said.
Noting that all the four candidates for U.S. delegate support these initiatives, Villagomez said the CNMI Constitution limits the government from incurring public debt.
The debt that is allowed, he said, is limited to no more than 10 percent of the aggregate assessed value of real property in the CNMI which are public lands.
Voting yes on H.L.I. 17-1 will merely authorize the CNMI to issue pension obligation bonds so that when the opportunity arises the CNMI can take advantage of the situation, he added.
He said the CNMI government will not automatically be obligated to borrow right away.
Amending the Constitution, he said, is a long process “so if we wait until the opportunity arises to then try to amend it, it might be too late.”
Villagomez said the CNMI will not be taking on additional debt once H.L.I. 17-1 is ratified.
He said the debt already exists in the form of unfunded liabilities and required employer contributions that the CNMI government owes the Fund.
“You and I as taxpayers are already paying for it. The issuance of POBs will not be additional debt but rather it will be a refinancing of an existing debt. As we are all aware, refinancing makes sense when it reduces your overall payments,” Villagomez said.
The CNMI, he recalled, had issued bonds before for various reasons including infrastructure improvement and land compensation. The payment on these bonds, he said, is current.
Villagomez explained that unlike other bonds where the proceeds can be used for a variety of reasons, pension obligation bonds “are specific in the use of proceeds in that it can only be used for the purpose intended.”
This purpose, he said, is to “refinance” the unfunded liability of a pension fund which is a key factor that the bond underwriter will take into consideration. The underwriter will make it a condition that all proceeds from the pension obligation bond be deposited to the Fund.
This, he said, will improve the Fund’s financial condition and ability to continue meeting its obligation to retired civil servants and future retirees.
Villagomez said the CNMI government will issue the bonds and make payments, not the Retirement Fund.
The bond underwriters, he added, will likely require collateral to secure the POBs.
However, Villagomez said, the assets held by the Fund in trust for beneficiaries “cannot and will not be used as collateral.”
“In no instance has a POB ever been secured by the assets of the pension fund. Furthermore, the employees’ contributions will not be used to repay the POB. These monies will continue to be directly deposited to the Fund,” he said.
H.L.I. 16-13, for its part, is a safeguard to ensure that the CNMI government does not abuse the authority of floating the pension obligation bonds, he added.
This initiative, he said, will disallow additional benefits without independent funding sources.
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