Governor Palacios: CNMI finances ‘‘could be better’’ but administration reports progress on audits and collections

Governor Arnold I. Palacios told a joint session of the Northern Marianas Commonwealth Legislature that the commonwealth inherited ‘‘a large deficit’’ and that ‘‘the state of the Commonwealth could be better’’ but said his administration has taken steps to stabilize government finances.

Palacios said on taking office he found the government’s books ‘‘a mess’’ and a cumulative fiscal deficit that exceeded $500 million. He said a later single-audit process identified $104,000,000 in questioned costs and that prior administrations failed ‘‘to fully account for $36,300,000 in CARES funds, $93,000,000 in community disaster loan program funds and $481,000,000 in ARPA funds.’’

The governor described cost controls and enforcement actions taken by his administration: restricting departmental spending, limiting travel, reducing certain work hours, ending over 600 ARPA-funded employment contracts initiated by the previous administration, and launching a tax-collection task force. "We launched the collection task force to collect an estimated $120,000,000 in taxes owed to the people of the Commonwealth," he said.

Palacios and the secretary of finance reported concrete results: completion of long-overdue audits, collection of more than $14,000,000 in taxes, retirement of $16,000,000 owed to the government health insurer, restoration of regular cash transfers to agencies including the public school system and the Northern Marianas College, and a balanced budget by the end of fiscal year 2024. "By the end of fiscal year 2024 ... we finally achieved a balanced budget," the governor said.

Palacios warned that the fiscal year 2026 budget request totals roughly $243,000,000 while anticipated revenues are $147,000,000, leaving a projected gap of about $95,000,000 unless further measures are taken. He urged the legislature to consider tax reforms, updated fees, and better use of public assets to close that gap, acknowledging that such reforms "may be unpopular but ... are necessary and long overdue." He also called for continued cooperation with his administration to preserve pensions and services.

The secretary of the Department of Finance (identified in the address as Secretary Norita) told the joint session the department has strengthened internal controls, increased staff training, and improved federal reimbursements by decentralizing key processes. She said the department delivered more than 4,000 training hours across 30 professional training events and expects a citizen portal to streamline taxpayer compliance.

The address included no formal adoption of a new tax code or specific legislation; the governor framed the fiscal measures as administrative and policy priorities and requested legislative help in advancing reforms.

Palacios concluded the fiscal portion by urging continued collaboration between the executive and legislative branches to close the projected FY2026 gap and protect retirement and education funding.