"Most of the principle officers of Kosrae were shocked by our own findings of their financial status," FSM official says."

March 21, 2007

The Kaselehlie Press

TOFOL, Kosrae - New Governor Robert Weilbacher has inherited a mess. The reason: a massive debt created by the former Administration that has left the state barely able to make payroll.

The national government is now scrambling to manage the financial meltdown of the second of four state governments, following on the heels of a Chuuk bailout. A February 24th Summary Report to the President's Task Force on Financial Recovery and Reform for Kosrae paints a "bleak financial situation" now and in the foreseeable future. "The State's financial difficulties are encompassing and of serious nature," the report states off the top. Inaction, the report concludes further, could lead to "potentially severe consequences."

FSM President Joseph Urusemal, his Cabinet, and members of the FSM Congress have met with state leaders to hash out the grim financial woes that have come to light: $1.5 million needed just to make payroll and meet other basic needs of government operations for the next six months; $1.5 million in accounts payable owed by the state; a recently legislated appropriation to increase government salaries by 8% with no money to back it up; a local revenue fund that is empty; fully seven government departments/ branches that must use a tapped out local revenue fund to pay for operations, with two more slated to join.

On March 8th Weilbacher made a trip to Pohnpei to see President Urusemal - like Chuuk Governor Wesley Simina before him - to ask the FSM for financial help; nearly $3 million worth, as Weilbacher stated, "that is urgently needed to make payroll and meet basic services" for the remainder of this fiscal year.

In a brief interview, Weilbacher had this to say: "I want us to change how we operate. Change the way we think about government." He added, "What I propose to do is auction off our vehicles. First, it sets a good example for people to see - to know that we are serious in what we are doing here - and two, we don't have the money to spend on fuel."

Weilbacher said that the habits of the prior Administration would not be duplicated under his watch. "Less complaining and more compliance," he said. "That's what the problem was in the past," Weilbacher added. "There was always resistance to JEMCO mandates and the requirements of the second Compact on the use of funds. That is going to change starting now." To back this statement up, Weilbacher has reportedly slashed the slew of special assistants that the former administration had on the payroll, trimming the Governor's Office staff numbers considerably for fiscal year 2008. Weilbacher has also taken the nearly unheard of step of reducing the public expenditures on his own position by removing the line items for travel, and a government vehicle (and its maintenance and fuel costs).

Asked if he realized the stupendous scope of the monetary deficit on the island while running - and ultimately succeeding - for the Governorship, Weilbacher kept his composure while stating bluntly that he did not actually know the true magnitude of the problem, but that he certainly observed what he thought were the suspicious actions of an outgoing Administration in the waning days of power.

"Just the way they were doing things. I knew something was wrong…especially toward the end. It's like they were in a hurry to spend money," he said. After a few silent moments, "I knew there was a deficit. But I did not know the magnitude…Everything was absolutely used up. There was not even a transition fund," added Weilbacher, noting dryly that his own transition team has to "buy their own snacks" for their frequent meetings.

According to one of Weilbacher's financial advisors, the President and his Cabinet have acted quickly to assist. President Urusemal and key Cabinet members have in principal agreed to request the FSM Congress - in its upcoming Special Session beginning in the last week of March - to appropriate about $1.5 million in the form of "an interest free loan with a grace period of two years" to the State in order to cover "the cash needs for the last two quarters of this fiscal year."

Much of this would go toward making payroll for the state's government employees, the financial advisor suggested. Otherwise, he said, the remaining $1.5 million - much of which is in the form of debts the State must pay out to vendors and other creditors - still needs to be found.

International donors, other governments - China was mentioned - the Asian Development Bank, and even unspent funds allocated for Congressional projects on the island, will be sources considered to bail out the massive debts of the state, this advisor stated by way of email. In return, the FSM has recommended a freeze in hiring, stoppage of nearly all travel by government workers, a reduction in working hours, the imposition of higher tax rates, the creation of a rainy day fund, allocation of funds to only revenue generating programs and activities, and the enforcement of balanced annual budgets.

Weilbacher, a man with a calm, open, and confident presence who has assembled a group of diverse advisers, has recommended that the State reduce its cabinet-level departments from seven to four. Although it may not significantly reduce the number of government employees, it is, he states, a start. Weilbacher expects the rest of the government to follow suit: both the Judiciary, and more importantly, the Legislature.

"(Chief Justice) Aliksa will go along with any plans in reduction," said Weilbacher in an interview late at night, visibly spent. "We've talked about reducing the number of senators also. I think it will be a disservice if they don't come along and do their part."

A five page report, entitled, "Kosrae State Financial Request", given to President Urusemal and his Cabinet with a date of February 20, 2007 - three days before Weilbacher's Inauguration - was submitted by State Speaker Lyndon Jackson, in his temporary capacity as Acting Governor.

"On behalf of the Kosrae State Leadership, I am pleased to transmit herewith a request for financial assistance to support operation and stabilization of the Kosrae State Government," Speaker Jackson's cover letter states. "Kosrae State has been experiencing concurrent financial difficulties since the beginning of the Amended Compact in 2004," the ensuing report states, leading into the "two major contributing factors" to the current financial deficit. Kosrae's financial woes, the Leadership claimed, is "a structural government deficit problem created by adjustments in the Amended Compact funding scheme," and furthermore, due to "a cash flow problem created by low revenue collections and long, outstanding reimbursement receivables from US Federal agencies, loans, and the FSM National Government."

The report also blamed the "restrictions and heightened controls made by the…Compact's Joint Economic Management Committee" for the "State's chronic cash flow problem." Asked what he thought of the tenor of a request that appears recalcitrant and attempts to paint a story of uncontrollable forces and foreign restrictions as the primary causes of Kosrae's financial troubles, Weilbacher paused momentarily.

"I had nothing to do with that report. That was written by their people," Weilbacher stated. He moved on quickly to other matters. "The point is that we have to clean up the way we do things now. I want us to get beyond this attitude of always complaining…They were at fault and those are some things that we want to change. We have a new philosophy."

The report does note "the continued over-appropriation of local revenue sources and a reluctance to reduce the size or activities of government" as a contributing factor, and closes with the conviction that a "reduction in government size and expenditures will be pursued."

The report culminates with an admonishment of the culture of corruption: "There are significant amounts of money spent that have never been accounted for. This situation must be reversed. Financial mismanagement and malfeasance should not be tolerated and must be prosecuted."

As Governor Weilbacher returned to Kosrae on March 9th (a short trip, he explained, despite the President's insistence that he stay longer, because "I can't afford to stay away…I need to be on the island now") with just a few family members seeing him off, he cut a figure at once burdened with a massive legacy of debt, and at the same time with the responsibility to provide a living wage to nearly all of the families on Kosrae; to make it better. He said, before going into the security clearance, that he felt confidence after his meetings and communications with U.S. and Chinese diplomatic personnel of a desire to help Kosrae dig itself out of a very big hole.

He agreed with the statement the night before that despite the huge challenges, things could hardly get much worse. As one of the members of his Transition Committee, quite knowledgeable with the deep financial crunch of the government, stated, "The previous Administration and Legislature had a lot of fun spending and now it is time to pay the piper."

One thing is certain: Kosrae is going to need all the help it can get. And then some.