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The proposed amendments to our CNMI Constitution includes HLI 17-1, to allow Pension Obligation Bonds (POBs).

I've written a fairly neutral evaluation of the proposal, posted it at MLSC's Day In Court Blog.

Having started my study of the subject with no pre-conceived notions and being open to the proposal, I'm surprised that I am now completely opposed to this amendment.

I've read a lot of what Bill Stewart has written on POBs and on the NMI Retirement Fund. I've also read news articles by proponents and checked a bit on other jurisdictions that use these.

THE NMIRF: I feel for the retirees and those still working but in the retirement system who have actually worked hard and given good service to the CNMI. They are at risk of losing their retirement because of the mismanagement of the Fund. Whether you blame the Fund managers directly or the Legislature for its faulty design of the system, or the Executive branch and autonomous agencies that have failed to pay their contributions as mandated by law, it's clear that the Fund is not adequate for the purpose of pensions for all those who are in the system--part of the DEFINED BENEFIT PLAN (DBP).

The problem will be limited in time, however, because new hires of the CNMI government are not in the system. They are now essentially on their own, with the option to create their own IRAs. Eventually, the last member of the NMIRF Defined Benefit Plan will die and the pension system will cease to exist.

In the meantime, however, the unfunded portion of the NMIRF's liability to its members can grow because some are still working for the government. As the government continues to fail to pay all that is needed to cover its contributions for such workers, the unfunded gap widens. As events cause inflation and other problems, the unfunded gap can widen. If the Fund loses on its market investments, the unfunded liability can grow. Even the miscalculation on the estimates of the liability--if retirees live longer than expected, for example--can mean the unfunded liability will grow.

The need to address this situation for those CNMI employees who have already retired as well as those still in the pipeline is critical. While there are and have been do-nothing employees who have gotten the benefits of the NMIRF, there are real people who have done their civil service honorably, too. The fiscal soundness of the NMIRF is important to each of these workers for their future. It is important to the CNMI for its integrity.

Nothing in my opposition to the proposed constitutional amendment denies my recognition of the importance of the CNMI in meeting its obligation to its retirees.

Pension Obligation Bonds: The problems I have with the POBs is that I think the benefits from POBs are significantly less than the costs. They will not fix the retirement fund problem completely, but they could bring the CNMI to the brink of bankruptcy and most certainly would weigh down the next two or three generations with staggering debt.

The proposal bandied about says $200million in POBs, but the constitutional amendment imposes no such limit. Anyway, the $200million figure would leave about 25% of the NMIRF liability still unfunded. And the pressure to use POBs for the rest would be great.

While the amount of the unfunded liability can be estimated right now, it can also grow. But more significantly, the constituitional amendment is written in terms of what the CNMI owes the NMIRF (not the real "unfunded liaibility" which is what the NMIRF owes its DBP members). There is no ceiling on what that debt can become. If the CNMI fails to pay again and again, that debt rises; and then there can be greater amounts of POBs. And the CNMI will owe so much on the POBs, and nothing will be protected.

In balancing the needs and ri