Updated: Aug 3
The State of Yap is facing a potential government shutdown due to an impasse over the administration’s supplemental budget request.
The entire government stands to be sent home because the Office of Administrative Services (OAS) and Office of Planning and Budget’s budget division are at the center of a budget debate between the executive and legislative branches.
“If we’re forced to shut down the OAS,” Yap Gov. Henry Falan said, “the entire government will be unable to process the state payroll and all other financial transactions.”
Falan submitted the request to Speaker Vincent Figir on March 5.
During multiple public hearings in May and June, the chairs of the Yap State Legislature’s Committee on Finance and Committee on Government Health & Welfare raised legal questions that led to the questioning of the directors and deputy directors of the Department of Health Services, Office of the Attorney General and Office of Administrative Services, the main offices at the core of the controversy, while the drastic budget cut directly impacts the entire executive branch.
According to the law, the administration presents a line-item budget to the YSL every year for approval and enactment on Oct. 1. Once approved, the funds are managed according to the total funds assigned to each department, not by line item.
The committees said the budgets must be used as approved by line item in accordance with Yap’s budget and financial management laws.
Falan agreed that both laws need immediate review.
“It is vital that the legislature works with us to ensure that the government is not shut down and innocent employees are not sent home with no pay,” Falan said. “But the committees charged with handling the situation by the speaker appear to not fully grasp the necessity of acting quickly to ensure that these matters are resolved now.”
Several issues that emerged during the last few months have muddied the waters for the FY21 budget that was approved last October. Some date back to 2017 when decisions were made during the prior administration based on budget requests for FY18.
Falan inherited that budget when he came into office in January 2019.
“The legislature’s Committee on Finance agrees that it is not a question of not having the money,” Falan said. “The state has two trust funds to pull the money from in times of need. But my administration is being accused of making decisions that were not aligned with the constitution and laws of our state. Yet we’re conducting the business of the state as it has always been conducted.”
First, in the case of the attorney general’s office, Falan decided to combine the salaries of vacant positions into two to attract more qualified candidates for attorney general and assistant attorney general.
The law provides that the cabinet directors’ salaries cannot exceed the lieutenant governor’s salary that is set at $21,000.
An attorney in Palau informed Falan that entry-level law school graduates are paid $60,000 on that island nation and it would be impossible to find an experienced lawyer willing to work for the amount being offered by Yap.
“On July 28, all government employees were paid with the exception of the attorney general and assistant attorney general, who were not,” said Falan. “I am considering finding the money to send them back to their homes outside FSM.”
If Yap cannot recruit qualified lawyers for those positions at the salary established by law, Falan said he might be forced to close the office.
“This is not only unfair, it is unprofessional and it is debilitating to me when I have no legal counsel to conduct the work of that office,” Falan said.
“Is this what they really want? Perhaps it is. They have been undermining my administration from the start by taking away powers like this that are constitutionally and legally within the purview of the executive branch.”
Secondly, in 2020, the chief of staff at the hospital requested an increase in the doctors’ salaries in order to fill open positions for contractual doctors that were going unfilled due to non-competitive salaries. DHS was unable to compete in the marketplace for the talent they required at the salary levels they were offering, Falan informed the legislature.
The doctors on staff signed temporary contracts that expired in February 2021 while awaiting the YSL’s decision on their request for a salary increase. But their overtime and on-call remuneration were high and had tapped out the DHS’s FY21 budget due to the lack of doctors.
The legislature responded that a review of the situation was needed before they could move forward with the request.
And third on the list of YSL’s concerns is OAS and its finance office.
In 2017, the then-acting director of OAS discussed a plan with then governor, Tony Ganngiyan, to increase the salaries of personnel in the finance office the following fiscal year. The increase was approved by the governor and personnel office and activated in 2017 prior to the legislature’s approval of the FY18 budget.
However, OAS’s incremental funding request was not approved by the YSL in the line-item budgets presented to them over the next three fiscal years. As a result, employees in those two offices are being paid above the levels approved by the YSL. The legislature deemed the pay increases illegal.
Exacerbating the situation is the issue of available funds that were at the core of the FY21 budget hearings.
In the month leading up to the start of FY21, the YSL informed Falan that all successive budgets remained capped at the 2019 level for the next three years at least.
But by then, the Covid-19 pandemic had struck. Assuming that tax and other revenues would drop significantly when the border closed, the legislature slashed all budgets in half across the board and mandated the government to tighten its belt.
Falan’s administration subsequently revised the FY21 budget.
“We crossed off all open positions in each department; we looked at expected attrition due to retirement and other factors; we reviewed our requests for supplies and equipment and cut back where we could; we examined the agreements of contractual employees to determine when they would expire and what we might do with those positions when that occurred; and more,” Falan explained.
“After substantial consideration, discussion and internal review, we made adjustments that required very difficult decisions. No current employees would be affected other than restrictions on salary increases and promotions. We would need to watch our fixed and variable costs closely. But there would be no layoffs.”
The YSL approved the bare-bones FY21 budget.
In early March, with a clearer view of the closed border’s actual impact on the state’s revenues, Falan transmitted a supplemental budget request to the speaker “to implement some of the activities essential to government operations in fiscal 2021.”
The administration’s team determined that funds were sufficient to reinstate some of the budget cuts under local revenue and to fund essential activities.
Local revenues were subsidized by the U.S. and other sources for Covid relief.
“Not one penny of state money has been spent on Covid relief,” the governor assured the legislature.
In May, the governor submitted a supplemental budget of $556,250. Of that, $421,483 would be funded from local revenue and the remaining $134,767 would come from a Compact Health Sector grant that was approved by JEMCO and OIA and was awaiting drawdown to supplement the doctors’ salaries.
The amount of the supplement was still within the bounds of the 2019 budget cap.
The governor received a courtesy copy of the finance committee’s May 7 report that was addressed to Figir. Attached to the report was a revised bill noting the committee’s recommended changes based on their review of the governor’s proposed supplemental budget.
Surprised but pleased at receiving the committee report, a courtesy that is rarely if ever given to a governor, Falan informed his cabinet that the committee had approved only $33,619 of his supplemental request.
In rejecting the governor’s full budget request, the committee explained that vacancies and salary increases were “not recommended initially for FY21 annual budget funding.” But, they added, a review of the FY22 budget “may include considerations for funding recommendations for some of these personnel proposals.”
In other words, they were deemed new requests for the current year but could be proposed for the following year.
“They were not new requests,” Falan told his cabinet. “They were in our original FY20 budget. I do not understand why the committee interpreted them this way.”