Calvo's financial house of cards

Two bills introduced at the Calvo administration’s request tell me the governor’s financial house of cards may be getting ready to tumble, forcing Guam to follow Puerto Rico into the black hole of federal receivership.

Bill 59 seeks to amend Guam Law on the bonds secured by Business Privilege Tax collections, by adding the words “shall be secured by a statutory lien on all tax revenues.” This clause similar to the one that allowed Puerto Rico’s creditors to force the government to close 130 schools, laying off thousands of teachers and administrative personnel, to make bond payments.

This bill is not in the bests interests of Guam taxpayers. We agreed to specific terms and conditions when we borrowed the money. We already received and spent the money, so there is no reason for us to amend the terms and conditions to give the bond holders an even better deal, unless they are willing to give Guam taxpayers a better deal. It’s only fair.

We should request, as a condition for approving the higher degree of bond security, a reduction of one percentage point on the different bond’s interest rates and make them retroactive. Having difference applied to the principle amounts will reduce the monthly payments, allowing Guam taxpayers to also benefit from a change in the terms and conditions.

Unless bondholders are willing to do this, there is no reason for taxpayers to give bondholders that have payments guaranteed only by Business Privilege Tax collections, a way to reach deep into the General Fund if Business Privilege Tax collections fall below the level needed to make full payments.

Government of Guam agencies are continually threatened with having their utilities cut off for non-payment as GPA and GWA to enforce to their bond covenants. Do we really want to give Business Privilege Tax bondholders the power to force the governor to shut down a third of the schools on Guam (and) lay off teachers and staff to make bond payments?

Gov. Eddie Calvo held a press conference announcing his intention to get legislative approval to execute a tax and revenue anticipation note. In other words, he wants to use the government equivalent of a payday loan to pay tax refunds.

There is a major problem with this. The government of Guam has an operating deficit of $120 million to $180 million dollars, and tax collections for 2017 are behind projections.

Tax and revenue anticipation notes are traditionally used by financially stable governments. The government of Guam is not financially stable, and we have all heard the horror stories of what happens to people that fall behind on payday loan payments.

If the government of Guam hasn’t been able to set aside excess tax collections to pay refunds promptly, where is it going to get the money to pay back the $100 million tax and revenue anticipation note in less than a year, and set aside excess tax collections to pay 2018 tax refunds without having to take out another payday loan?

• Most government of Guam departments are behind on paying vendors. Recently the governor borrowed $45 million dollars (with the passage of Bill 340-33) to pay $20 million of vendor arrears for GMH.
• The Guam Department of Education, Guam Community College and the University of Guam still haven’t received their full allotments for 2016, and are being forced to use the 2017 allotments they have received so far to pay their 2016 invoices. 
• The governor recently pulled back his support for the military buildup that formed the basis for issuing nearly a half billion dollars of taxpayer guaranteed bonds.

Do these examples sound like the actions of a financially stable government?

We already have federal financial managers supervising DOE and the Guam Solid Waste Authority. Are we ready to have presidential appointees counter signing every government of Guam check?

The administration claims these actions are necessary to be able to pay tax refunds in days instead of months. But when we look at the risk of giving bondholders on Wall Street the power to close Guam schools to protect their payments,  I think taxpayers will better off waiting a few months for their District Court-mandated tax refunds than taking on the additional financial risks these two bills carry.

Ken Leon-Guerrero is spokesman for Guam Citizens for Public Accountability.

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This article originally appeared on Pacific Daily News: Calvo's financial house of cards