Government can’t spend money the economy doesn’t have

Live from Saipan By Zaldy Dandan

Saipan — The governor of the Commonwealth of the Northern Mariana Islands has submitted a fiscal year 2027 budget that includes a report from his revenue council. The council consists of 10 government officials and one businessman.

The proposed budget amounts to $157.7 million, reflecting the projected general fund revenues, of which only $101.9 million will be available for government appropriation. The rest is allocated to fixed obligations such as earmarks, debt service and settlement commitments totaling $55.8 million. In FY 2026, the government’s projected revenue sources totaled $162.45 million, of which $138.93 million was available for appropriation.

To better understand the depth of the CNMI’s financial woes, remember that then-Gov. Ralph DLG Torres signed a $258 million budget for FY 2019, which would be worth about $339 million today.

For FY 2027, Gov. David M. Apatang’s revenue council proposes, among other things, the passage of revenue-generation legislation in an attempt to “fix” the government’s financial condition.

Raise revenue for what? To maintain an unsustainable, sprawling and oversized government.

Many politicians and government officials like to talk about “sustainability” and “self-reliance” every chance they get. They also speak of “attacking the root cause” of every problem—even super typhoons—but not the government’s perennial insolvency.

The government spends more than it can collect, a problem that becomes even more obvious whenever the economy tanks due to factors beyond the CNMI’s control, such as natural disasters, global pandemics, wars and onerous one-size-fits-all federal rules and mandates.

Let’s repeat that: overspending is the government’s default mode. But when the bill comes due, many politicians, and even voters themselves, cling to the belief that electing the “right leaders” and passing the “right laws” can somehow “solve” what is plainly a basic arithmetic problem: 1 - 1 = 0. Many politicians and voters prefer to believe that, somehow, 1 - 1 = 11.

So the “solution” becomes “raising revenue” the way pickpockets, burglars and robbers raise revenue: by taking other people’s money, including from those already struggling in a poor economy battered by a catastrophic typhoon.

Whenever one reads the latest government financial report, it seems as though the government is the only entity reeling from the bad economy, not businesses and taxpayers, just the government.

Sadly, politicians who dare tell voters the hard truth will almost always lose to politicians who talk about the “suffering” of the people and the need to “serve” them by increasing or at least maintaining unsustainable government spending.

As usual, there appears to be little meaningful support among voters for putting the government on a diet, which is not surprising given that many are government employees or are related to them. So the CNMI remains stuck with the usual “solutions”: revenue-generation legislation, “diversification,” improved tax collection, pleas for more federal assistance and the other proposals repeatedly mentioned whenever the Commonwealth falls into economic distress.

In this election season, many politicians may believe they have no choice but to raise taxes and fees. They should be reminded of the possible unintended consequences of such measures: higher prices, lower sales, reduced work hours, job losses and lower tax collections. These are the exact opposite of what proponents of tax and fee hikes hope to achieve.

To be sure, pursuing new industries and investments, finding ways to revive tourism and advancing other sensible economic initiatives are worthwhile goals, but their benefits will take time to materialize. What the government can do right now is cut costs where politically feasible and build public support for additional austerity measures, including those recommended during the 2020 Fiscal Response Summit. These include reducing the size of the legislature and consolidating government departments, divisions, offices and other agencies.

At the same time, the government must prioritize spending. It should avoid filling vacant positions whenever possible; transfer employees to federally funded programs when feasible; reduce professional service expenses; and implement a government-wide power and water conservation program with publicly announced targets.

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Most importantly, the government must avoid causing further harm to the private sector. As the revenue council has pointed out, the business community pays the Business Gross Revenue Tax, which generates approximately 43 percent of total government operating revenues. (Income taxes account for 23 percent. Excise taxes contribute 13 percent. Hotel occupancy tax represents 3 percent. These four categories form the core of operational funding.”

In the end, the CNMI’s main problem is not a lack of revenue, but excessive spending. New taxes, federal aid and optimistic projections cannot indefinitely support a government that spends more than the economy can realistically afford. Sooner or later, math wins.

This is not an original insight. Many politicians know it. But as former European Commission President Jean-Claude Juncker once said: “We all know what should be done; we just don’t know how to get elected afterward.”

 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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