By: L.N Reklai
KOROR — The Senate halved and passed President Surangel Whipps Jr.’s supplemental budget, cutting off proposed increases to Palau’s consulates overseas, and transmitted the reduced budget bill to the House of Delegates for deliberation.
On a radio talk show on May 16, President Whipps said that the Senate action cutting funding for Palau’s overseas consulates was irresponsible. “Our relationship with the outside world is very important to us. It provides other sources of funds for us. We need to be responsible,” replied Whipps, responding to the Senate’s action.
President Whipps objected to the Senate Committee on Ways & Means and Financial Matters report, saying that he had a meeting with the Senate before submitting the supplemental budget and explained what was in the budget. He rejected the Senate Committee’s statements that the Fund Availability Analysis (FAA) was not clear, saying that FAA is a projection, while the Senate was also in receipt of the quarterly financial report, which clearly showed how much money was spent and how much was available.
Introduced by President Surangel Whipps Jr., Senate Bill No. 12-25 aims to authorize additional appropriations for general operations and capital improvements, as well as to rectify previous funding missteps, particularly related to the Compact Review Agreement (CRA). However, the Committee’s report emphasized that the supplemental budget is not an appropriate vehicle for addressing far-reaching budgetary matters that should be debated and decided during the regular budget process.
“The nature of supplemental budgets often results in a rushed process,” the Committee stated. “Major budget adjustments should generally be considered as part of the annual budget review, not in a rushed manner as part of a supplemental budget.”
Breach of Compact Agreement
One of the central issues highlighted in the Senate report concerns an improper use of approximately $2 million from the CRA Debt Consolidation Fund to service loans from institutions not sanctioned by the agreement. These payments, made to MICB Housing Development and ICBA PIA Debt in FY 2024, violated provisions that strictly limit such funds to loans from the Asian Development Bank and the Government of Taiwan.
Whipps said that the error was due to the unclear interpretation of the newly signed Compact Review Agreement and that the United States had clarified what the CRA Debt Consolidation Fund can be used for and had informed Palau to re-allocate the funds.
Questionable Revenue Projections
The Senate also questioned the accuracy and transparency of the Funds Availability Analysis (FAA) used to justify the supplemental spending. The FAA anticipates $74 million in local revenue and proposes drawing $8.7 million from the Cyclical Reserve Fund. But the Committee found discrepancies between the FAA and known fund balances, warning that acting on these assumptions could “create a significant budget deficit.”
“Our Committee does not believe it can draw $7.35 million from the Cyclical Reserve Fund, as proposed,” the report stated. “This fund serves as the Republic’s financial safety net during emergencies. Draining it without certainty about replenishment is fiscally irresponsible.”
Again, Whipps contested the Senate position, alleging that perhaps they (Senators) don’t know how to read or understand the financial information provided.
Large Foreign Expenditures and Prioritization Issues
Another point of contention is the administration’s proposal to spend $5.8 million—borrowed from the Asian Development Bank—on purchasing an embassy in Tokyo. While framed as a real estate investment, the Committee expressed skepticism about the timing, value, and strategic merit of such an expense.
“Borrowing from the ADB is intended to build capacity within Palau,” the Committee wrote. “Spending nearly $6 million abroad, especially without clear cost-benefit analysis, diverts critical resources from more pressing domestic priorities.”
The Senate is instead calling for reconsideration of this proposal during the FY 2026 annual budget process, allowing for more thorough vetting.
Local Priorities: Health, Education, and Energy
While urging fiscal restraint, the Senate did support some of the proposed supplemental items, especially those aligned with domestic priorities. These include increased funding for the Ministry of Education, the Lifeline Subsidy Program, and preparations for the 2025 Pacific Mini Games.
However, the Committee strongly opposed a $300,000 cut to the Residential Electricity Subsidy. “This is simply unacceptable,” the report stated. “With rising utility costs and stagnant wages, cutting support to households would disproportionately impact the most vulnerable, including seniors and families with children.”
Whipps said the Senate should not interfere with PPUC, but rather help it. He added that they have lost the lawsuit, and now they are trying to legislate what they lost.
Policy Reforms Urged
The Senate Committee urged structural fiscal reforms. It recommended that future budget cycles include detailed disclosures of Palau’s short-, medium-, and long-term financial obligations, as well as measures to ensure timely audits.
Conclusion
The Committee’s overarching message is clear: supplemental budgets should not serve as a workaround for comprehensive fiscal planning.
“The budget bill still has to pass the House before it gets to me,” expressed Whipps, saying there is still hope .”