Government Of Guam Debt Jumps To $1.57 Billion

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Obligations up 54% since 2008, per capita debt $9,800

By Mar-Vic Cagurangan

HAGÅTÑA, Guam (Marianas Variety Guam, April 24, 2014) – The government of Guam's debt stood at $1.57 billion in 2013, posting a 54 percent jump from $1.02 billion in 2008, according to an Office of Public Accountability audit released yesterday.

The debt figure indicates that each Guam resident's share of public liabilities is approximately $9,800, accounting for a more than 11 percent increase from $8,810 in 2012 – the highest debt-per-capita among the insular governments.

But Troy Torres, communications director at the governor's office, said Guam's debt-per-capita is not as high compared to the states, where each American has a share of $53,000 of the national government's $16 trillion debt.

"One other consideration is that Guamanians do not shoulder the burden of the national debt," Torres said. "Guam's debt-per-capita is far less than that alone."

The OPA calculated that GovGuam's tab for servicing the debt climbed 93.5 percent, from $41.4 million in 2008 to $80.1 million a year.

"Based on present outstanding debt, the annual debt service requirements will vary each year due to the capitalization of interest and deferment of principal payments, and will increase to $106.9 million by fiscal year 2018," the OPA said.

The debt service level this year is pegged at $86 million and will climb to $111.6 million next year. The figure will drop to $93.1 million in 2016, and go up to $99.76 million in 2017.

The audit found that debt subject to the $1.11 billion debt ceiling in 2013 nearly quadrupled, showing a 273 percent increase from $296.9 million in 2008.

The Organic Act limits public indebtedness to 10 percent of the assessed value for property tax, where assessed value is calculated as a percentage of appraised value.

GovGuam has raised the debt ceiling by redefining the calculation of assessed value three times through public laws – from 35 percent to 70 percent in 2007; from 70 percent to 90 percent in 2009; and from 90 percent to 100 percent in 2012.

"As the debt ceiling was increased from 2007 to 2012, GovGuam issued bonds and loans backed by the full faith or guarantee of GovGuam, to the point of nearly maximizing its debt limit," the OPA said.

Based on year-to-year comparison, the largest increase was between 2008 and 2009 when the debt subject to the debt ceiling jumped 148 percent from $296.9 million to $736.2 million.

Auditors attributed the debt increase in 2009 to the issuances of bonds to pay for the Layon landfill construction and Ordot Dump closure, payment of the prior year’s unpaid cost of living allowances, and past-due tax refunds.

In 2012, the government issued more debt-bloating bonds to shrink the remaining public deficit driven by short-term liabilities such as past-due tax refunds, COLA payments and retirement contributions.

As a result, primary government liabilities sank from $690 million in 2011 to $447.6 million in 2012, and further went down to $309.5 million in 2013 due to the decrease in provision for tax refunds and COLA liability.

But the OPA noted that the administration's debt-restructuring strategy simply protracted the liability payments.

"Although these short-term obligations decreased, GovGuam's long-term debt and its associated debt service requirements will remain for the next 30 years," the OPA said.

The Calvo administration views the OPA report from another window, seeing it as a myth buster.

Torres said the OPA report "finally dispelled the myth that public debt increased during the Calvo-Tenorio administration."

"The debt has decreased since Gov. (Eddie) Calvo came to office," Torres said in a statement. "GovGuam's credit rating improved due to the current administration's improved fiscal management practices and enhanced cash flow monitoring."

Torres also noted that a majority of the debt increase was recorded between 2008 and 2009, well before Calvo came into office.

"Guam's debt, while below the IMF (International Monetary Fund) benchmark and made more manageable under this administration, still is high," Torres said.

He said the administration's fiscal policies have resulted in better cash flow and full payments of owed tax refunds by "moving the debt from the people to the bank."

"The administration has squared away nearly $700 million in liabilities to Guamanians and GovGuam employees," Torres said.

The administration's debt restructuring relieves GovGuam's cash flow to allow for smaller payments in early years.

The OPA agreed that deferring principal payments and capitalizing interest gives GovGuam time to grow the economy to have sufficient revenues for full debt service payments in later periods.

However, the OPA said, such strategy "translates to higher repayment costs over the life of the debt. These methods add to the long-term cost of the issuance and are, to a limited degree, indicative of cash flow problems."

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