Currently not making improvements: How the CNMI administration responds to challenges

Live from Saipan By Zaldy Dandan

Saipan — At an economic forum hosted by the Saipan Chamber of Commerce more than two years ago, local economist Matthew Deleon Guerrero gave a presentation on the CNMI’s economic conditions. His assessment? The short answer: dismal. The long answer: painfully dismal.

Economic development, he said, is hard.

You know what’s just as hard? Governing. And it’s particularly hard in a place where the economy is in the tank.

In June, the U.S. Government Accountability Office issued its latest report on the debt outlook of Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa and the CNMI.

According to the GAO, some of the common challenges the U.S. territories face include: 1) the location of the islands, which leads to a high cost of energy and imported goods; 2) increasing vulnerability to frequent and severe episodes of extreme weather; 3) undiversified economies based on few industries with limited job opportunities; and 4) outmigration and population loss.

 There was no mention of the federal laws and rules that are making it harder for the territories to diversify their economies, attract new industries or create more jobs.

But the report provided the following interesting data:

• As of June 30, 2022, Puerto Rico’s total public debt outstanding was $52.8 billion, or 47 percent of gross domestic product. “Negotiations and litigation to restructure the electric utility debt are ongoing, and the utility has been struggling to make its pension payments in the meantime.”

• In Guam, as of Sept. 30, 2023, total public debt outstanding was $2.5 billion. “2023 GDP data are not available, but the fiscal year 2022 total public debt was $2.6 billion, about 38 percent of GDP. Its tourism industry has not returned to pre-Covid-19 levels, but U.S. military investment is bolstering the economy.”

• In the U.S. Virgin Islands, as of Sept. 30, 2021, “total public debt outstanding was more than $2.2 billion, or 50 percent of GDP. The USVI’s electric utility faces critical financial and operational problems, which create challenges for residents and can inhibit economic development.

• In American Samoa, as of Sept. 30, 2023, “total public debt outstanding was $145.4 million. While 2023 GDP data are not available, the fiscal year 2022 total public debt was $152.4 million, about 18 percent of GDP. Its continued economic reliance on a single tuna cannery presents risks.”

• In the Northern Mariana Islands, as of Sept. 30, 2021, total public debt outstanding was $121.1 million, about 13 percent of GDP, the lowest debt-to-GDP ratio among the territories reviewed. However, the CNMI’s tourism-reliant economy “has limited prospects for recovery and growth,” and its “challenges to meeting its financial obligations have worsened.”

What has been the CNMI administration’s response to these challenges?

It has repeatedly urged the legislature to pass tax hike measures, but despite administration allies holding a majority in both the Senate and the House of Representatives, the only tax hike bill they managed to pass last year targeted non-housing construction projects (mostly federally funded) with a revenue threshold of $350,000.

 The administration urged lawmakers to propose “revenue-generating” measures, while proposing a budget increase of over $20 million for the next fiscal year.

As I write this, there is still no sign that the Republican-led White House and Congress—despite their push for budget cuts—will approve the CNMI’s over $400 million bailout request.    

Meanwhile, the CNMI administration has assured government employees—the islands’ largest voting bloc—that work-hour cuts will not be re-imposed.

So how could the CNMI government meet its obligations?

According to the GAO, the CNMI has “incurred more debt to cover its fiscal year 2025 pension contributions and officials told us they are working to reestablish access to capital markets because they seek to issue bonds to cover the fiscal year 2026 pension contributions.

CNMI reported a net pension liability of $440.8 million, about 49 percent of GDP. CNMI has struggled to fund its pension plan. In November 2024, the territory obtained a $51 million bank loan to make required contributions that year and pay the remaining balance on its prior pension loan.”

By the way, the CNMI government is not obligated to pay 100 percent of its retirees’ pension. But again, like government employees, government retirees here are a major, and vocal, voting bloc.

To recap: any effort to raise taxes, reduce government work hours or cut pension payments is politically problematic if not doomed. But relying on massive federal assistance that is unlikely to materialize cannot be the basis of a government budget. So what other option is left for the CNMI leadership?

Borrowing more money.

From the GAO report:

“CNMI officials told us they are working to reestablish access to capital markets and seek to issue bonds to cover the government’s minimum pension contribution for fiscal year 2026. Officials stated that while they aim to issue bonds by September, issuance in January 2026 is more likely, as the CNMI does not have an active credit rating and must first issue its audited financial statements for fiscal years 2022 and 2023. Moody’s withdrew its Ba3 credit rating for the government of CNMI in April 2020.”

A Ba3 credit rating is “a long-term bond rating…that indicates the debt instrument or issuer is speculative and below investment grade. It is considered a  ‘junk bond’ rating, meaning the bond carries a higher risk of default compared to investment-grade bonds but is at the higher end of the speculative grade spectrum.”

The GAO added, “CNMI officials told us that the territory’s fiscal condition is very dire.”

Now they tell us.

Zaldy Dandan is the editor of the CNMI’s oldest — and only remaining — newspaper, Marianas Variety. His fourth book, “If He Isn’t Insane Then He Should Be: Stories & Poems from Saipan,” is available on amazon.com/.

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