DUE to a potential withdrawal of charter services and the possible closure of major tourism-related businesses, acting Finance Secretary Bernardita C. Palacios anticipates a “substantial adverse effect” on the CNMI government’s revenue collections.
However, a pension obligation bond has made “additional budgetary resources available” for appropriation, according to Gov. Arnold I. Palacios, who submitted on Friday a proposed revision of the fiscal year 2025 budget, identifying over $22 million for the restoration of government employees’ 80-hour work period, the payment of the retirees’ 25% benefits, and additional funds for the Legislature.
Sharp decline
In a memorandum, the acting Finance secretary told the governor that the potential withdrawal of charter services, particularly those from key airlines like Jeju Air, and the possible closure of major conglomerate establishments that play a vital role in the local tourism industry are expected to have a significant impact on the tourism sector.
It has been reported that T-Galleria will shut down its Garapan shopping center and its store at the Francisco C. Ada/Saipan International Airport.
These developments, acting Secretary Palacios said, “could lead to a sharp decline in tourist arrivals, affecting not only hotel bookings and transportation services but also local businesses that rely on tourism-related spending.”
As a result, she said, “we anticipate a substantial adverse effect on revenue collections, particularly in sectors, such as retail, hospitality, and transportation, which are critical to the overall economic performance of the CNMI.”
Tourist arrivals and hotel occupancy rates have not yet returned to pre-pandemic levels.
The acting Finance secretary said that as the department “moves forward with data collection and analysis,” they will continue to “refine our projections, and an updated revenue forecast will be provided once sufficient information has been compiled. This will allow Finance to accurately project the financial implications of the [newly approved construction] surtax [measure] and the withdrawal of charter services and how [these] will contribute to the overall fiscal outlook for the CNMI.”
The revised revenue projection does not include the recent enactment of Public Law 23-31, which imposes a 3% surtax on gross revenues from nonresidential construction projects with a $350,000 income threshold.
Finance said it is “in the process of promulgating rules and regulations necessary to carry out the intent of the new tax bill as part of the implementation process.”
Budget revision
On Friday, the governor submitted to Speaker Edmund S. Villagomez and Senate President Dennis C. Mendiola a proposed revision of the FY 2025 budget with an additional $22,042,275 available for appropriation.
He said the Commonwealth government has decided to address its “acute short-term cash flow challenges” by floating a pension obligation bond, adding that his administration “thoroughly explored several options to find the best value for the CNMI.”
He said his administration concluded that the Bank of Guam offered the best option for a pension obligation bond, “with a much lower interest rate.” He said over $30 million in bond proceeds were transferred directly by the Bank of Guam to the NMI Settlement Fund for the required FY 2025 minimum annual payment of the retirees’ 75% pension benefit.
The governor said the “payment of debt service with the pension obligation bond thus makes additional budgetary resources available.”
He asked lawmakers to support his decision to restore government work hours “in a fiscally responsible manner.”
He said the restoration of full hours through the end of calendar year 2024 was supported with sources outside general fund appropriations, referring to American Rescue Plan Act funds.
However, he said, the funds to support the restoration of work hours will require the Legislature’s approval to continue into 2025.
The governor provided the Legislature a copy of a draft bill to amend the budget act to appropriate identified funds amounting to $22,042,275 for the following purposes:
1) $14,814,483 for the restoration of work hours to 100% for active employees across all instrumentalities.
2) $6,627,792 for the payment of 25% of the retirees’ pension benefits.
3) $600,000 for additional allocations to House and Senate members and the restoration of operational funds for the Legislative Bureau.
The governor said the proposed budget revision excludes construction surtax collections that may be realized from the enactment of P.L. 23-21.
He said Finance will soon promulgate the rules and regulations for the new tax law’s implementation.
“I am confident the process will move swiftly, allowing the government to collect during this period enabling us with collection data to reasonably forecast this new revenue source,” the governor said.
He said there is a need to be “very cautious” due to “events surfacing around us, such as the recent announcement of Jeju Air pulling back charters and a potential closure of a conglomerate establishment,” which “is a signal of more challenges ahead in our tourism economy.”
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