Audit Shows Guam Government Owes More Than $1 Billion

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Governor Eddie Calvo declared financial crisis ‘over’

By Mark-Alexander Pieper

HAGÅTÑA, Guam (Pacific Daily News, July 2, 2013) – The government of Guam and the taxpayers who support it are more than $1 billion in debt.

Its long-term debt rose 44-percent in fiscal 2012, to $1.08 billion, from $754 million in fiscal 2011, according to an independent audit performed by Deloitte & Touche LLC. The report was released by the governor's office on Sunday.

Two years ago, ratings agency Standard & Poor's gave the local government the worst possible score, of 4, in the category of "debt and liability" because of its high taxpayer-supported debt, according to Pacific Daily News files.

The debt at the time was $772 million.

Gov. Eddie Calvo last week met with representatives of the ratings agency, receiving a favorable response to what the government has been doing, as he said his plans to repair the government's finances are taking root.

Calvo has declared GovGuam's financial crisis over as the audit showed a cash surplus of $30.1 million -- an increase of $333.3 million from the prior year fund deficit of $303.1 million.

The difference is borrowed money, according to the audit -- $358.2 million in bonds.

"We stopped ourselves from drowning and we're on a boat, but the waters are still turbulent," Calvo said yesterday.

Calvo said the additional loans, while driving up the island's long-term debt, were needed to immediately pay off obligations with high interest rates that were compounding.

"We had obligations that were due and payable now, and interest, because it was not structured, was compounding on a monthly and annual basis," Calvo said yesterday.

"If you look at the past 20 years, on average the interest was at 6 percent, but it was compounding because bills weren't being paid, tax refunds weren't being paid for three or four years. So we restructured that to long-term debt at a very favorable interest rate that was fixed at 4.6 and 4.9 percent."

Debt service

The restructuring of the past debt through the new bonds saves the local government about $4 million per year, according to the Guam Economic Development Authority (GEDA).

The repayment from the most recent borrowing efforts kicks in next fiscal year.

The government's existing debt payments will increase by $8.5 million next fiscal year, $17.1 million the following year and $23.8 million in fiscal 2017.

Annual debt payments from that point will be about $85 million until the bonds are paid off in 2042, according to a report by the economic agency.

The governor has used the bond money primarily to pay past due income tax refunds as well as other debts, related to lawsuits, and legal obligations, such as merit bonuses.

The local government also has been keeping current with paying 2012 tax refunds. So far it has paid off about $70.1 million this calendar year, in roughly $20 million increments every few months. Calvo said it is more efficient to process the refunds in batch payments.

GovGuam typically owes between $105 million to $120 million in tax refunds a year.

Calvo said the government is using money from the current fiscal year to pay refunds, but it needs to reach the point where it pays refunds using money set aside during past years.

He said each budget he submits to lawmakers will have money set aside to pay refunds.

Another surplus

Calvo said he's expecting another surplus at the end of the current fiscal year, in part because of a mandated 2-percent allotment reserve and an additional 15-percent spending reserve he instituted on top of that for the executive branch agencies.

Calvo also said some 200 government employees resigned, retired or were terminated -- and their positions remained vacant.

The governor's office hasn't provided a list of those vacancies, despite several requests by the newspaper.

Calvo said the budget reserves have saved money because many agencies have found ways to make do with less money.

The government is going through its budgeting process this summer.

When asked if the administration -- which is working on a revision to the budget request it submitted to lawmakers in January -- would lower its request for agencies that can operate with less, Calvo was noncommittal.

He said he would once again implement a reserve of 15 percent or more, regardless of how much is appropriated to agencies.

"It's not only a management tool but it's the smart thing to do because only God knows the future," Calvo said.

Those austerity measures, along with the local government accurately projecting revenue and appropriately budgeting it, are positive signs and have helped with the improved outlook of GovGuam, according to the audit.

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