CNMI governor seeks tax hikes; blames previous administration for fiscal mess

Arnold Palacios/Photo courtesy of the Office of the CNMI Governor

By Mar-Vic Cagurangan

Amid stagnant tourism and a sluggish economy, Northern Marianas Gov. Arnold Palacios is seeking tax adjustments to help rebuild the government's finances, which he said are still struggling to pick up from the previous administration's disastrous mismanagement.

In his State of the Commonwealth Address on Thursday, Palacios called on the 24th CNMI Legislature to “enact tax reforms that will improve fairness and

 compliance.”

The governor proposed updating government fees “to reflect current needs and actual service costs” and to better utilize public assets. 

“Yes, these reforms may be unpopular, but they are necessary and long overdue,” Palacios said in his speech themed "Making the Commonwealth

Better."

He acknowledged that his goal to make "our government finances better" faces challenges.

"I have no illusions about how hard that will be because the budget requests we received from government agencies totaled $243 million, when only $147 million is anticipated in revenues," he said, warning that the looming $95 million shortfall would result in funding cuts for education, retirees and medical referrals.

Palacios assumed office in 2023 after beating Gov. Ralph Torres in the 2022 election. He was Torres’ lieutenant governor, but their political relations fell apart toward the latter part of their term. Palacios distanced himself from Torres amid the growing allegations of corruption against the then-governor.

Palacios said his administration is still cleaning up the financial mess left by his predecessor, who left office with an empty coffer and a half-billion-dollar deficit.

“They stripped our finances bare, leaving behind

nothing but deficits, a long list of questionable expenses and long-delayed audits with severe material

weaknesses and deficiencies,” the governor said.

Palacios said his administration inherited a $580 million deficit—including $36 million that racked up in just one year before his administration came into office—resulting from questionable expenses.

“When we finally initiated a long-delayed single audit, we confirmed that material weaknesses and 

significant deficiencies added up to $104 million in 

questioned costs,” Palacios said.

He said the previous administration failed to fully account for $36.3 million in CARES Funds, $93.7 million from the Community Disaster Loan program, and $481 million from the American Rescue Plan Act.

Torres, who survived an impeachment attempt during his term, faced local and federal investigations over the questionable use of the Covid-19 funds from the U.S. government.

Audit found, among others, a sole-source contract for  $1 million, or almost

 $5,000 a day, to sanitize the multi-purpose center; $1.7 million for a horse

course; and a sole-source contract of $5 million paid to a well-connected

businessman for personal protective equipment that was never used or needed.

“With a ballooning deficit and all these questionable expenses,  is it any wonder

that when we came into office, the government’s audits were three years behind?” Palacios said.

He said the previous administration’s fund mismanagement has jeopardized the CNMI’s federal grants and federally funded programs. 

Palacios said his two-year-old administration is trying to rebuild the commonwealth by avoiding the “mistakes of the past with quick fixes” and focusing “on long-term solutions that will benefit everyone, not just a select few.”

“In short, the State of the Commonwealth could be better, but it is also getting better because we are making it better,” the governor said.

He said his administration has “developed and executed a very clear plan” to stabilize government finances, starting with cost-cutting, implementing austerity measures and increasing tax collection, setting a target of $120 million.

“As a result of these efforts, we have been able to cut costs, improve revenue

collections, and rectify financial mismanagement,” Palacios said.

“None of this was easy. And we still have a long way to go. But, as you can see, 

despite the financial devastation caused by the previous administration, we came in, we cleaned up the mess, and we got our financial house back in order.”

In response to critics' call for shrinking the government, Palacios said, "I get it. The CNMI government is one of the largest employers on the islands."

However, he urged critics to stop "picking on the hard-working public servants who work in our government. They deserve better."

"Our municipal and public works men and women are out there almost every day, including weekends, cutting grass, picking up trash and keeping our islands beautiful," the governor said.

"Our law enforcement officers and firemen risk their lives each and every time they respond to a 911 call. Our healthcare professionals literally save lives every day in our hospital and clinics."