Changes To Guam Tax Break Program Under

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Pacific Islands Development Program, East-West Center With Support From Center for Pacific Islands Studies, University of Hawai‘i

Officials question automatic renewal for insurance companies

By Mark-Alexander Pieper

HAGÅTÑA, Guam (Pacific Daily News, May 24, 2013) – Guam Economic Development Authority (GEDA) representatives met with senators Wednesday to begin hashing out changes to the island's qualifying certificate (QC) program.

The program, which gives tax breaks to businesses, had a big hand in growing industry on Guam, but government officials believe it needs to be changed, especially with respect to how it applies to the local insurance industry.

Among the issues GEDA officials want addressed is the automatic renewal of qualifying certificates for insurers.

The 20-year insurance QCs renew automatically for another 20 years as long as the companies are in good standing.

Four captive insurance companies on Guam hold qualifying certificates, as do seven domestic insurance companies.

Most of the qualifying certificates issued to Guam insurers expire between 2017 and 2020, so now is the time to change the program, said Sen. Dennis Rodriguez, D-Dededo.

"We're getting legal to look into it," said Rodriguez, who intends to have legislation ready to address the issues within the next two months.

"The initial 20 years is what we have to honor, but we are looking now to see that if we remove that industry from the list of eligible industries whether it would cease now after that initial 20 years."

Sen. Frank Aguon, D-Yona, who is one of three current senators who in 1996 voted to include insurers in the QC program, said it is time to revisit the issue.

Gov. Eddie Calvo, in his weekly column, published in today's Pacific Daily News, also supports changing the law so insurers pay taxes.

Calvo, whose family owns Calvo's Insurance, said his family knows that he never has been "one to dole out special favors or tolerate special interests."

"Why should insurance companies -- including the one my family owns -- have a tax exemption that was meant to attract outside captive insurers?" Calvo wrote.

Calvo said that was the purpose of Rodriguez's original version of Bill 20-32 -- one he said made " all the sense in the world" to him.

Rodriguez chose to pull that bill from April's legislative session after local insurers objected to it.

The original version of the bill proposed to levy a 4 percent tax or "assessment fee" on all health care insurance premiums paid in Guam for the coverage of company employees and their dependents. The tax projected to raise about $8.5 million a year to create a fund to help the hospital pay its debts and construct a new urgent care clinic.

But local insurers objected and said if it were to become law, the fee would be passed on to consumers. An economic analysis of the impact showed it could cost residents with health insurance upwards of $370 per year in additional premiums.

Rodriguez yesterday had a public hearing for a substitute version of the bill. Instead of generating nearly $9 million for the hospital from the insurance industry, its new funding source -- fees and income from gaming machines -- may garner about $3 million.

The program has cost the local government at least $120 million in rebated gross receipts taxes for the insurance industry alone in the 16 years since the law took effect.

The insurance industry has created 156 jobs during that time, according to statistics from the economic development agency.

GEDA in 1996 testified against extending tax breaks to local insurers, saying the government would lose $8.2 million per year in gross receipts taxes.

Lawmakers at the time decided to include local insurers in the QC program to protect the local industry.

Part of the idea, the bill's author, then Sen. Joe T. San Agustin, said at the time, was that the cost of insurance for consumers was so high that giving tax breaks to insurers could lower or stabilize rates.

That's exactly what happened, Calvo's SelectCare Health Plan Manager Frank Campillo said yesterday.

The tax breaks have helped keep local insurers in business and saved consumers thousands of dollars, he said.

He said on average a family of four pays about $800 in premiums per month. That means a family of four saves about $32 per month, or roughly $384 per year, because of the tax breaks to insurers, he said.

Rodriguez isn't so sure that's the case. "It hasn't resulted in anything. Since that time, our insurance rates keep going up," Rodriguez said.

Tina Garcia, GEDA's business development and marketing manager, said the community has benefited from providing the QC program to insurers, but it is difficult to quantify because GEDA isn't able to access their tax documents to find out how much is being rebated.

Rodriguez's legislative committee and GEDA have requested a breakdown from the Department of Revenue and Taxation so they can assess the impact.

Sen. Aguon said lawmakers in 1996 were working to help create a new industry on Guam by making it enticing for insurers to do business on Guam.

"So it partially accomplished what the objective was, in that funds from the local economy that would have otherwise diverted off island stayed on Guam, so that's a positive," he said.

"I think we need to recognize what industries on Guam are mature. And, if they are mature, can we as a community continue to afford to rebate or abate 100 percent of your property taxes, corporate taxes, corporate dividends? If it's a mature industry, the answer is no."

Speaker Judith Won Pat, D-Inarajan, who also voted for the law in 1996, said there was no way of knowing for certain the plan to spark new industry would work.

"We need to make sure it is doing what it is supposed to do and if it's not we need to kind of step back and make some adjustments, ... there are some loopholes."

Lawmakers could consider changing the law so that instead of an automatic renewal at 100 percent, mature industries could get a new QC, with a lower rebate -- "maybe 50 percent," Aguon said.

"We need to revisit the program to find areas where we can reduce allowances, but not take it away completely," Aguon said, because Guam still needs to be seen as business-friendly.

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