(March 17, 2014 – Hagåtña) In preparation for the year’s budget process, Vice Speaker Benjamin J.F. Cruz has called on the Guam Economic Development Authority to produce information provided to Standard & Poor’s (S&P) Rating Agency in the last three years, to include all documents and presentation materials submitted to represent the government’s budget management, economic profile, debts and liabilities.
“As we begin this year’s budget preparations, I issued this Freedom of Information Act (FOIA) request because every time I turn around, the Calvo administration is spending money on political priorities never accounted for in the budgets he signs,” said Cruz, who transmitted the FOIA request to GEDA administrator Henry J. Taitano earlier today.
In a government-wide audit report for FY 2012, Deloitte & Touche LLP (D&T) has made similar findings, stating that the government‘s $790.7 million in unrestricted net deficiency in FY 2012(1) is a result of “long-term commitments that are greater than currently available resources”(2), and further elaborating that “GovGuam did not include in past budgets the full amounts needed to finance future liabilities arising from outstanding bonds payable, capital lease obligations and other loans as well as to pay for closure and post closure costs of the Ordot Dump, and unused employee leave balances.”(3)
In October 2013 S&P raised its long-term rating to ‘BB-’ from ‘B+’, three steps below investment grade, on the Government of Guam general obligations bonds, much to the fanfare of the Calvo administration. However, according to the rating agency, while it considers in its analysis material information that provides relevant context or influences financial management, its assessment of financial practices is based “primarily on the existence and implementation of management practices, and not necessarily the results achieved by such practices”(4)—many of which, in Guam’s case, were implemented by Governor Calvo at the start of his term and have since been reversed in advance of the 2014 election cycle.
“With millions of dollars in clandestine tax credits, bonuses and sweetheart deals exiting our treasury,” said Cruz, whose FOIA requests last month exposed the resumption of a long-dormant tax credit for land program, “I want to know what financial representations the administration has made on our behalf, and what these representations have committed us to in future budgets.”
S&P’s general disclaimer also states that it “undertakes no duty of due diligence or independent verification of any information it receives”(5) as a part of its rating services.
Since the release of the FY2012 audit report last year, the administration has continued to boast a strong cash position using the $30.1-million surplus for FY 2012 as proof, albeit failing to acknowledge that this “positive change in fund balance was attributed primarily to proceeds of $358.2 million from the issuance of bonds,”(6) as D&T found in its FY 2012 analysis.
“Taking credit for a $30-million surplus of borrowed money is a lot like gloating over finally getting the power reconnected on payday; while Adelup claims it can walk on financial water, Guam’s future generations are those who are in danger of drowning in over two billion dollars of debt,” warned Cruz, referring to the government’s total outstanding debt, as indicated in prior independent audit reports, that has ballooned from $1.84 billion in FY 2011(7) to an alarming $2.13 billion in FY 2012(8), since Governor Calvo took office four years ago. “Short-term fixes leading up to an election year never fix long-term problems.”
Among Guam’s many long-term problems is the mounting debt service on bonds and lease payments (see Table 1) that has currently grown from $59.4 million in 2012 to $74.9 million in 2014, and will reach $99.7 million in 2015, according to figures reported in GEDA’s long-term debt abstract issued March 2013(9).
Another issue in the horizon is the narrowing debt margin due to substantial increases in public indebtedness from bonds issued since the current administration took over in 2010. In GEDA’s latest long-term debt abstract release in March 2013, the total public debt subject to the 10 percent assessed value limitation is reported at $1.1 billion, with only $29.1 million available for future borrowing(9).
While outlook currently remains dim for future Guamanians who will be incapable of raising the funds necessary for infrastructure such as schools and roads through new borrowing, Cruz has introduced a comprehensive public-private partnership bill earlier in the legislative term that will allow future taxpayers to meet Guam’s needs without the addition of traditional debt. Introduced in January 2013 to mobilize private resources for the purpose of financing the construction, operation and maintenance of infrastructure and development projects typically financed and undertaken by the government, Bill No. 3-32 (LS) is being revived by a number of local business leaders and public professionals.
Referenced documents are linked below. For more information, please call the Office of the Vice Speaker at 477-2520 or 687-7567.
1 2 3 Deloitte & Touche LLP. Government of Guam Basic Financial Statements, Additional Information, and Independent Auditors Report – Year Ended September 30, 2012: A Financial Analysis of GovGuam as a Whole, p. 5 (2013). <http://www.guamopa.org/docs/GovGuam_fs12.pdf>
4 Standard & Poor’s Financial Services LLC. U.S. Public Finance: Financial Management Assessment, (2006). <http://www.standardandpoors.com/prot/ratings/articles/en/us/?articleType=HTML&assetID=1245353533578>
5 Standard & Poor’s Financial Services LLC. Disclaimers and Regulatory Disclosures.
6 Deloitte & Touche LLP. Government of Guam Basic Financial Statements, Additional Information, and Independent Auditors Report – Year Ended September 30, 2012: Financial Analysis of GovGuam Funds, p. 10 (2013). <http://www.guamopa.org/docs/GovGuam_fs12.pdf>
7 Deloitte & Touche LLP. Government of Guam Basic Financial Statements, Additional Information, and Independent Auditors Report – Year Ended September 30, 2011: Other Supplementary Information (Schedule of Outstanding Debt), p. 207 (2012). <http://www.guamopa.org/docs/GovGuam_fs11.pdf>
8 Deloitte & Touche LLP. Government of Guam Basic Financial Statements, Additional Information, and Independent Auditors Report – Year Ended September 30, 2012: Other Supplementary Information (Schedule of Outstanding Debt), p. 211 (2013). <http://www.guamopa.org/docs/GovGuam_fs12.pdf>
9 Guam Economic Development Authority. Government of Guam Long-term Debt Abstract (March 2013). <http://www.investguam.com/pdf/2013/public-finance-program/debt-abstract-march-2013.pdf>