OFFICERS of the government, and citizens of our Commonwealth, I come before you to report on where we have been over the past year and where I see us going over the course of the next year.
But before I do that, I want to speak to you directly about what I know is troubling many of you. You are disappointed in your Governor, and you think I should have done better. I too am disappointed. I have made mistakes. I acknowledge that.
I did not see soon enough how devastating the economic forces blowing down on us would be. I was too optimistic that we would get enough help from the federal government to dig out of this economic black hole we are in.
I made errors of judgment and made decisions that turned out poorly because they were not based on enough reliable information. I trusted people who could not perform what they promised. I also have, at times, blamed people for things they could not have avoided.
I want you to know that I have thought deeply and carefully about my own mistakes, and I am determined that I will not repeat them. Very bad economic times cause heavy pressures. But there are no easy ways out. We have to fall back on our strength as a people and gradually, steadily work toward better times.
I want to share with you a few promising signs of the beginning of economic recovery.
Just last month, the Hotel Association of the Northern Mariana Islands reported a hotel occupancy rate of 74.53 percent; a 9 percent increase over the previous year.
The E-Land Group has presented a development plan to revitalize the Coral Ocean Point Hotel and the Palms Hotel in 2013. The plan by E-Land is to focus on high value tourists, and they plan to upgrade the facilities at both locations to target this sector of the tourist market. This renovation will add significant construction jobs in 2013 and increase the number of high quality accommodations. Because of our economic situation, developers proceed slowly and cautiously. We have other developers who are considering similar activities in 2013 which would further increase the available construction jobs and tourist facilities. It takes a great deal of time and effort to arrive at development plans that are realistic and that we can support. I think we will see some progress on this front this year.
Our very important tourism market in Japan is still burdened by the after-effects of the tsunami and the long-lasting economic slowdown. I do not expect recovery in this market next year. But we have long-standing friendships in Japan, and there are reliable indications we will see a very modest improvement in the number of Japanese tourists in 2013 and better numbers a few years out.
However, we have reaped economic benefits from our Korean tourists. I am truly grateful to the Kumho Asiana Group for making major investments in our islands since acquiring the LaoLao Bay Golf Resort in 2007, investing more than $50 Million and adding much appreciated passenger air service flights to the CNMI. They expect to fly to the CNMI with 18 flights during the summer of 2013 and 18 flights during the winter season.
When I saw a promising future for our tourism industry to expand in the Korean market, I made several trips to Korea to work closely with Kumho and other Korean executives to strongly encourage them to take the chance of investing in the CNMI. Surely enough, Kumho Asiana saw opportunity where other airline carrier saw crisis, and they strategically invested when the market was down, in anticipation of the eventual turnaround that we expected to realize, in due course, by staying the course. Our annual Korean arrivals have even surpassed those of Guam and this has brought more Korean hotel investment when we needed it most.
The Marianas Visitors Authority has worked hard to gain a steady growth in Chinese tourists in the past year. The projected long-term growth of the Chinese economy bodes well for the Commonwealth. China now has the largest outbound market in the world. It is said that the Chinese economy will surpass that of the U.S. in the next decade or two and as the benefits of this economy filters into the population; we expect tourism to continue growing significantly. Our ability to offer the visa waiver program places us in a very advantageous position.
From the beginning, I saw that the Chinese tourism market was emerging exponentially. That is why I exerted all efforts to travel to key cities in China and to work closely with the owners of the Tinian Dynasty, Century Tours and Tan Holdings to make a strong push to steer Chinese tourists to the Northern Marianas.
Saipan is now second only to Australia and Phuket, Thailand in terms of popularity and increased visitor rates for Chinese travelers. Bali and the Maldives trail behind Saipan.
Today, as a result of these efforts, we have just added three wide body charter flights, with a maximum of 300 passengers per flight, for our Chinese tourism market. And as result of this anticipated growth from the China market, DFS Saipan is poised to undertake renovations at the main Galleria shopping center.
For that reason, the role of independent carriers and charters is crucial in the development of new markets. Establishment of new air services is expensive and entails significant risks so investors proceed cautiously. We will not experience growth in tourism unless we have available flights and seats at competitive prices. This will serve as our engine for growth and development of the Chinese markets. Our goal for 2013 is to establish two new daily flights to China that would provide us with the opportunity of a quarter of a million new tourists per year in coming years. Chinese tourists have the ability to travel anywhere in the world. The fact that CNMI ranks high on their list of preferred destination is certainly welcomed news and we must not lose sight of this opportunity for economic growth.
The Russian market remains small for us, and it is relatively expensive to develop. However, we have continued to make prudent investments in expanding our presence there. We had a small increase in Russian tourists this past year, and we expect this increase to be matched in the coming year.
Although I am very pleased about the growth in the number of tourists, I am reminded that we need to do more at home to clean our house and improve our tourism product. Last year, the Marianas Visitors Authority, with support from the Office of Insular Affairs took on a major survey of more than 2,300 tourists. The feedback from tourists of more than five nationalities told us that we need to find ways to ensure visitor safety, care for our environment and care for our existing tourist sites. They also told us that they want to see our destination refreshed from time to time and for this, we need to re-invest in new ways to share our ecotourism sites and our cultural heritage sites, such as our beloved, but under-interpreted latte stones. Yes, I want to do more to meet the expectations of our visitors and this is something we must partner in with the private sector. We cannot simply wait for tourists to arrive and not make continued efforts to improve what we share with them.
At the forefront, I will work closely with hotel owners to address the need of upgrading and renovating the hotels. This needs to be done in order for us to increase the quality and rates of rooms so that in turn, we can realize increased revenues.
I am delighted to report that just this holiday season, we experienced a major lack of hotel rooms for our tourists. At the peak of the season, our major hotels reported a shortage of more than 100 hotel rooms. To address this problem, we will work with interested investors to revive defunct hotels like Plumeria Resort and Riviera Resort to add more rooms to our inventory. If we can achieve these efforts, I believe we can return to the level of 650,000 visitor arrivals between 2014 and 2015.
Priorities for 2013
Now let me turn to what I would like to do in 2013 in other areas. One of the mistakes I have made in the past was not to pay enough attention to transparency in government. I tried to consult widely, but sometimes I thought I had to act quickly in order to secure a benefit for the Commonwealth. Acting without transparency decreases confidence in the government. I want you to know what I am planning, and I invite input from any and all of our citizens.
First, I want to report that we are not going to eliminate government jobs or require reductions in hours in 2013. I know that some of you view our government as too big and having unnecessary employees. I do not see it that way. We need to provide our citizens with the core government services, even in hard times, and we have made our operations much more efficient. That is not to say everything is perfect; but we have made steady progress.
I will also evaluate the members of my Cabinet in an effort to ensure that each department is adequately delivering quality services to the people. I believe that when the government is being run effectively and efficiently, this will be a key component in our efforts to turn our economy around.
Since I came to office in 2006, we have gone from an operational budget of $213 million down to $112 million today. We have cut where we had to, but in the past year, the central government has returned to a forty-hour work week. We exercised sound financial management to avoid implementing mass layoffs within our government workforce. Yes, we successfully achieved this in the face of $100 million in reduced operational expenses. Certainly, that is a feat unprecedented elsewhere and within our government.
We expect that finances will continue to be restricted in 2013, so we must continue to be vigilant in our expenditures. However, at this point in time, we do not see a need for a reduction in hours or layoffs in 2013.
Next I want to report on two transportation projects we have identified for 2013. Our objective is to expand the transportation connections within our economy and to expand the transportation connections between the economies of the Commonwealth and Guam. Economic analysis indicates that we can achieve additional economic activity this way.
There is significant federal support available for efficient local public transportation, and many states in the U.S. have capitalized on this to improve their economies. During 2013 we will do an initial feasibility analysis for the establishment of a government-sponsored local bus system. The establishment of a regularly scheduled bus system would provide an inexpensive transportation system that would provide regular transportation to meet everyday needs of going to work, school, shopping, and tourism. The development of a simple cost-effective government bus system would supplement car ownership and provide an alternative for those who do not own their own vehicle. It could be easily implemented on the island of Saipan where most areas can be served by a simple routing system.
We have also identified an inter-island ferry service with Guam as a way to lower the costs of goods and expand secondary tourism from Guam. We are exploring a viable ferry system that can provide a low-cost sustainable passenger and cargo system. If we could expand the transportation system connecting these two economies, we would provide a significant economic stimulus. This is a complex undertaking which must be planned carefully, but federal funds are available that could subsidize this operation. In 2013, we are taking the first step in this endeavor by carefully identifying costs, revenues and available federal resources that form the economic foundation of this system.
Now let me turn to the very important subject of our health care. The Commonwealth healthcare system will continue to face challenges in 2013, but I think we are headed in the right direction. The HealthTech study that was completed in 2012 identified important shortcomings in the current structure of our health care system. These inefficiencies have developed over a long period and have resulted in a system that is unaffordable and ineffective. Efforts are well under way for CHC to structure itself correctly to achieve maximum efficiency.
Our goal is to provide United States mainland quality care that fits within our budgetary limits, or as we refer to it – a "Long-term Sustainable Healthcare Model." This will require us to consider carefully the services to be provided and then ensure that they are provided in the most cost-effective manner. This will not be an easy task as medical care is expensive and we have limitations on the amount of available revenue.
The current arrangement with the United States Department of Health and Human Services is providing short-term assistance and is sincerely appreciated. In 2013 we need to move quickly to develop our long-term model. It is our objective to work with federal government experts to develop this model and begin to implement it during 2013.
I will talk next about the problems with the retirement system that continue to harm the well-being of our Commonwealth. One of the main issues confronting us is the unfunded liabilities associated with the retirement system, and this problem will continue in 2013. The Retirement Fund problem is the result of years of legislation that created unfunded liabilities, and this problem has reached a point of crisis.
There is no one solution to this problem. Resolution of this matter can be achieved in steps that narrow and clarify the liabilities. I believe that adoption of P.L. 17-82 is an important step in this process because it allows current employees to withdraw their contributed portion while at the same time reducing the overall liability of the fund. This process will allow us to reduce the total liability and clarify the amount of the unfunded liability.
For this reason, I do not accept the position of the trustee ad litem, Mr. Razzano, and I do not think that his process protects the interests of either the retirees or current employees.
We need to bring resolution to the retirement fund issue this year, and I believe that the first step is to allow for voluntary withdrawal by current employees as a means of reducing and clarifying the liability at issue.
I want to be clear that no one has proposed abandoning our commitment to the existing retirees. Instead, what is proposed is a reduction in the overall liability, quantification of the exact amount of the remaining liability and then development of a financial plan to meet our obligations to these retirees.
I realize that retirement benefits are a serious issue to the families in our community that are dependent on these benefits. However, we also must realize that the prior structure could not be sustained, and we need to develop a plan that balances the obligations, needs, and resources of our small economy. I want to reiterate that I understand the importance of these issues to the current retirees, and we will minimize the adverse effects on them in everything we do with the retirement system.
I also think it is important to press our cause in the U.S. Congress for long-term unemployment benefits and full social security benefits without requiring additional financial sacrifices by the Commonwealth. The rate and extent of our economic decline is far greater than that experienced anywhere else under the U.S. flag, and these measures would be effective in helping us recover.
Commonwealth Utilities Corporation
Next I will talk about the Commonwealth Utilities Corporation. CUC has been a continuing point of frustration over the last decade. But there have been some significant improvements. It wasn't long ago that the island of Saipan was crippled with a complete breakdown in power generation with power limited to a few hours a day. This had a devastating effect on business and households. It was only by placing CUC under emergency authority were we able to bring in temporary generators that enabled us time to rebuild the aging electrical system. Through this effort we have restored a reliable power system although it is still an antiquated structure based on outdated technologies.
One of the largest impediments to expansion of our economy is the high utility rates. Every resident is expressing frustration with the high cost of power and every single business that has closed cites utility costs as one of the principal reasons. These high power rates are reflective of the inefficiencies of the current power generation system and the high cost of diesel fuel. We do not have any ready way out of either of these limitations.
In 2013, we will continue to invest in CUC as our resources will allow, and we will continue to consider alternatives to diesel power. A recent study by the National Renewable Energy Laboratory identifies that the Commonwealth has signs of the availability of geothermal energy. If we can develop geothermal energy we could achieve significant reduction in our utility costs and this would directly benefit both households and businesses. In order clarify this potential we will complete our examination of the development of geothermal energy in 2013, and we are hopeful for positive results.
One would think that I, as Governor, can easily move resources to address Commonwealth problems. But that is not the case. My experience is that often legal restrictions, cross currents in the legislature where there are legitimate differences of opinion, and federal government considerations prevent quick action. An example of this is the effort to bring in alternative energy sources, a subject close to my heart, where we have been stymied by political and economic forces.
I readily admit that I am not without faults, and when I took this position as your Governor, I resolved myself to deal with the toughest issues of the day. The key issues all involve matters where we were striving to address long-standing problems of our community. An example of this is the power plant agreement, which I entered into in order to entice the construction of a shipyard rebuilding facility. If constructed, this facility would provide at least 1,000 highly paid jobs that would revive and expand our economy. I will admit that the realization of this opportunity to significantly expand our employment base while simultaneously providing a more efficient replacement of our aged power plant inspired me to act in an expeditious manner. In retrospect there should have been more public involvement, and for this I do sincerely apologize.
After further examination by the new Attorney General, Joey San Nicolas, it has been found that the prior position of his office that this contract was proper was in error. Therefore, the agreement is void and unenforceable. I apologize for the turmoil that this endeavor caused, but Attorney General San Nicolas’ latest position will allow for a full examination of the merits of this proposal and the need to address the long-term power needs of our community.
There are no arguments that the current power generation system is costly and reaching the end of its life expectancy. This is why we must find alternatives to this system if we wish to lower costs and attract new industries to the CNMI. These were the two objectives I was seeking to address in this endeavor.
Before leaving this area of my report, I want to point out a significant achievement of the Commonwealth Utilities Corporation over the past year in the continued expansion of water service. Through the efforts of the Water Task Force there has been a great expansion of water service and quality in the past year, and in 2013 I believe that we will achieve the goal of 24 hour service throughout the island of Saipan.
To sum up, we made some progress in 2012. Important economic factors improved a bit. We are not out of this economic recession by any means, but in 2013 we will see our economy notch up another rung. We are very focused on the basics: tourism, jobs, clarification of retirement obligations, and continued improvement in health care and utility services. The tasks we have established for 2013 are significant, and this approach contributes to the foundation for long-term sustainable growth.
Serious economic stress always causes disagreements and discord because people are hurting and discouraged. We have suffered the most serious economic harm of any place under the U.S. flag, largely due to economic forces in Japan, the U.S., and world trade conditions we had no part in shaping. As a result, our stresses have been very high. These stresses are reflected in our politics, in our connections with the federal government, and even in our dealings with one another.
The outlook for 2013 is better. Our economy can make progress in getting past this deep, deep recession. I will improve my own methods including more consultation and transparency. I know this is important to all of you, and I am determined to do better in these regards. I think we all have to realize that very divisive politics and litigation holds us back. I need to do more to accommodate my political colleagues and to make sure I communicate with our citizens. I believe we can work together very productively in 2013 despite our past differences. We live in beautiful islands, and we have a strong, generous cultural heritage. We can steady our economy and achieve progress that will benefit us all.