Koror State Government is seeking a $25M loan from Asian Development Bank (ADB) to help offset its expected budget shortfall in the next three (3) years.
After adopting a conservative budget of $12M in January in anticipation of potential impact of COVID-19, Koror State Government is seeing much greater decline in income than it had earlier predicted.
“At the end of September (3rd quarter), we collected only 45% of revenue that we expected to receive this year,” stated Koror Finance Director Kevin Chin. Of the $7.4M revenue they projected for this year, over $6M was to come from tourism revenue.
This means that Koror State will need about $5M from somewhere else fund the revenue shortfall this year.
“We expect much less income next year due to nearly zero tourists expected. At least in January and February of this 2020 we still had some tourists, which is why we were able to collected 45% of projected revenue,” said Legislator Kyonori Tellames, Chairman, Committee on Ways and Means.
“Our operating budget this year is around $10M, not including the budget for capital improvement projects (CIPs),” added Chairman Tellames. Of this amount, little over $6M is funded by direct tourism revenue such as rock island tour fees, jellyfish lake fees, boat registration and other related tourism fees.
Legislator Tellames said that they anticipate that tourism will not rebound in 2021 and in 2022, and that the $25M loan will be used to balance the budget. $5M for this year, $10M for 2021 and $10M for 2022.
“We expect the revenue to drop in other areas too that are indirectly related to tourism such as business license fees due business closures,” added Tellames.
Asked about the reported $21 million in Koror State accounts, Finance Director Chin said that the money is not all reserve fund.
Chin said that of the reported $21M, $5M is obligated funds for non-lapsing CIP projects, while $3.5M is reserve fund and $2M an Emergency Fund that can only be tapped through a state of emergency declaration. The remaining $11.5M include all ongoing projects and operations.
“The answer to the question, why are we looking for a loan when we have $21M available is this, we can’t use up all available funds and then if things don’t improve, be left with no options. We are in the same situation as the national government. We have some money here but we look for funds in case situation gets worse. We can’t wait until next year to look for money because there is no guarantee that there will be money available then,” said Ways & Means Chairman Tellames.
Tellames also said that cost cutting measures are being implemented. “Governor and Speaker have said that we wait and not implement the CIP projects. Governor is implementing other cost cutting measures such as fuel control and others. And of course there is no travel so that is another savings.”
Asked what options will be available to it if Koror State does not get the loan, Legislator Tellames said that it will be left with very limited choices. Most likely scenario will be to lay off people. “Payroll is our biggest expense and we will have very limited option but to lay off people,” he said.
To obtain a loan of over $2m dollars, require approval of the OEK. So far, Koror State has made its presentation to the Senate while it is working on the loan application.
Koror State is the largest government entity outside of the national government employing over 300 people. Nearly 80% of Palau’s entire population resides in Koror State.