New Coverage: Guam Heads Into New Fiscal Year With Governor, Legislature at Odds Over Budgeting Practices as Typhoon Recovery Continues

Relevant Documents:
Fiscal Year 2024 Budget
Governor’s Letter
Audited Financials (FY 2021)
Unaudited Disclosures (FY 2021)
Unaudited Disclosures (FY 2022)
Long-Term Debt Abstract (March 2023)
Official Statements (Primary Government):






Issue Pages (Primary Government):






Guam Gov. Lourdes Leon Guerrero is concerned that Guam’s fiscal year 2024 budget, set to take effect on Oct. 1, contains provisions that run counter to sound fiscal policy and could undermine the U.S. territory’s standing in the municipal bond market.

The territory, which most recently reported roughly $2.5 billion in long-term debt across the primary government and public instrumentalities, is dealing with challenges resulting from natural disasters after Typhoon Mawar lashed the island in May, knocking out power and water to its 170,000 residents who include about 11,600 U.S. Department of Defense service members and civilian employees. Guam’s important tourism industry was also severely affected by the Covid-19 pandemic but is on the rebound.

The FY 2024 appropriations measure, Substitute Bill 26-37, now Law No. 37-42, contemplates $1.168 billion in total revenue, including $812.3 million in general fund revenue available for appropriation, $211.5 million in special fund revenue and $145.1 million in federal matching grants-in-aid revenue. The budget bill cleared the Legislature on Aug. 30 and lapsed into law after the governor did not take action to either veto or enact the measure.

Leon Guerro, in a Sept. 11 letter to Guam Sen. Therese Terlaje, who serves as speaker of the unicameral Legislature, stated that the budget as passed adopts “realistic revenue projections” and line agency budgets. However, the governor asserted that certain provisions of the bill “must be corrected immediately to ensure the continued viability of our government’s finances.”

The issues red-flagged by Leon Guerrero include the “fiscally unsound” depletion of the rainy day fund, a continued “misguided” use of prior fiscal year excess revenue and “improper use” of the executive branch appropriation.

Leon Guerrero stated a commitment to implementing the budget “to the extent funds are available” but urged the Legislature to “observe policies and practices necessary to maintain our government’s healthy financial state.” Attempts to reach Terlaje regarding the potential for the Legislature to amend the budget to address the governor’s concerns were not successful.

President Joe Biden has authorized the federal cost-share for the Typhoon Mawar major disaster declaration to be increased to 90% of total eligible costs from 75% for all categories of public assistance, hazard mitigation and the other needs assistance portion of the individual assistance program.

A Federal Emergency Management Agency spokesperson told Reorg on Tuesday, Sept. 26, that estimates for public assistance and other aid to the Guam government are still being assessed and that FEMA has approved more than $68.3 million in relief through its individual and household program, or IHP.

An initial loss estimate reported by Guam’s commercial sector reached nearly $112 million, according to the Guam government. In recent ratings reports, Moody’s has cited estimates of $25 million in damages to Guam Power Authority facilities and $10 million to $15 million in capital costs associated with the typhoon at A.B. Won Pat International Airport.

Meanwhile, the Guam Waterworks Authority, or GWA, is in line for a substantial rate increase for FY 2024 as it looks to ensure funding for capital projects, lift its 1.3x debt service coverage ratio, or DSCR, and add to its rate stabilization fund. The 16.7% rate increase approved by the Guam Public Utilities Commission this week was less than the 27% increase sought by the GWA in part to make up for deferred rate adjustments in prior years, according to territorial press reports.

In a separate development this week, Leon Guerrero announced approval by the U.S. District Court for the District of Columbia of a partial consent decree through which the United States has agreed to pay $48.9 million to resolve the territory’s claims regarding past costs incurred in the cleanup of the Ordot Dump. The governor called Judge Jia Cobb’s approval of the agreement a “significant victory” for the territory but said “serious concerns” remain regarding liability for future costs associated with the site.

Budget Issues

The governor’s letter first points to the budget’s use of the rainy day fund for recovery and response efforts in the wake of Typhoon Mawar, which caused extensive damages and knocked out utilities for the island’s roughly 170,500 residents in May. A law enacted on May 31 authorized the governor to use up to $50 million from the general fund for emergency expenses to respond to the typhoon. The letter states that the budget “threatens to interfere with these efforts, and endangers our island’s fiscal stability” by amending the May 31 statute to authorize the use of the rainy day fund for typhoon expenses instead of the general fund.

Stating that the rainy day fund is projected to have only $40 million as of Oct. 1 and that the Legislature was aware of that balance during the budget session, the governor says the Legislature’s “confounding” use of the fund for typhoon relief essentially authorizes “checks it knew full well could not be cashed.”

Despite the typhoon-related expenses, Leon Guerrero states that the government’s finances remain stable and that operations can continue without resorting to the rainy day fund. Tapping the rainy day fund “unnecessarily” during a period of demonstrable growth and recorded surpluses “imperils our improved standing in the financial market,” according to the governor.

The governor adds that the practice “sends the wrong message” to investors and creditors and “undermines” the government’s ability to take advantage of what she characterized as the “current favorable interest rate environment” of the bond market as Guam moves forward with various financing plans.

“Ultimately, this amendment places our government’s hard-earned financial strength in doubtful range, and its precious collateral value at risk,” Leon Guerrero states, calling on the Legislature to repeal the relevant section of the budget to again fund typhoon response out of the general fund and “save” the rainy day fund, as statutorily intended, for “potential future catastrophic events,” including “extreme economic crises, such as a recession, when revenues take an unexpected and rapid decline.”

Turning to concerns about “improper” appropriations from prior-year excess general fund revenue, Leon Guerrero urges the Legislature to refrain from this “misguided practice” to ensure fiscal stability “for
decades to come.”

The budget law contains over a dozen appropriations from the audited excess general fund revenue and unassigned fund balances for FY 2022, totaling more than $19 million, according to Leon Guerrero. The governor adds that tracking indicates that the appropriations may outstrip potentially available FY 2022 fund balances that were already “over-appropriated” from the combination of appropriations contained in the current FY 2023 budget and subsequent appropriations passed throughout this fiscal year that utilize the same fund source.

The Legislature’s continued attempt to appropriate from this “depleted source” results in over $19 million of “phantom” appropriations that are “effectively empty promises” to the affected government entities and programs, according to the governor.

Leon Guerrero states that her administration has implemented policies and practices, based on a generally accepted accounting principles, or GAAP, modified accrual basis, “that eliminated a deficit that plagued our government for decades” and resulted in the general fund’s current “healthy position.” The governor asserts that the Legislature is effectively deficit-budgeting, and “[i]f left unabated, this practice will land our government right back in a deficit position.”

The governor’s letter also flags the planned payment of merit bonuses owed to active and retired government employees from 2010 to the present, stating that the budget does not contain an appropriation but rather purports to direct payment of these bonuses from the FY 2024 executive branch agency appropriations. The budget requests submitted by agencies for the coming fiscal year did not account for payment of these prior-year obligations, adds Leon Guerrero. If the Legislature intends to pay merit bonuses to employees for exemplary work earned and recognized in prior years, it should appropriate from an available funding source for that purpose, says the letter.

Guam Debt

The FY 2024 budget allocates a total of $93.3 million to debt service continuing appropriations for payments on business privilege tax bonds, Guam Department of Education bonds, section 30 bonds, general obligation bonds and hotel occupancy tax, or HOT, bonds for the primary government. Section 30 of the Organic Act of Guam requires that all customs duties and federal income taxes and fees collected on Guam be deposited into the Guam treasury.

The U.S. territory’s long-term debt also includes bonds issued by public instrumentalities outside of the primary government, referred to in the government’s reporting as component units, including the Guam Power Authority, Guam International Airport Authority and Guam Waterworks Authority, or GWA.

An unaudited debt stack from a March 2023 long-term debt abstract by the Guam Economic Development Authority reflects outstanding indebtedness of $2.492 billion for the primary government and the component units as of March 31.

This figure includes $24.9 million in general obligation bonds and $891.2 million in limited obligation bonds for the primary government, $202.6 million in other loans and certificates of participation, or COPs, and $1.373 billion in component unit bonds, as reflected in the following schedule:


The total indebtedness of $2.492 billion as of March 31 represents a decrease from $2.806 billion as of Sept. 30, 2022, as set forth in the following table from an unaudited disclosure posted to EMMA. The difference is substantially attributable to the exclusion from the March 31 table of a line item for Series 2022A bonds for the A.B. Won Pat International Airport Authority that was included in the September 2022 table and reflected $257.6 million in outstanding principal:


The reported $2.806 billion outstanding as of Sept. 30, 2022, represents an increase of approximately $131 million over the $2.675 billion reported as of the conclusion of the fiscal year ended Sept. 30, 2021, the last fiscal year for which audited financial statements are available. The following chart of indebtedness for FY 2021 was included in an unaudited disclosure posted to EMMA approximately three weeks before the issuance of the government’s FY 2021 audited financials:


In a notice posted to EMMA on Sept. 18, the Guam government, or GovGuam, says that it expects to issue its FY 2022 audited financial statements by Saturday, Sept. 30. The notice states that the financials have been delayed by work disruptions caused by Typhoon Mawar and additional audit procedures being completed by Ernst & Young as auditors for the primary government and most of the component units.

The U.S. Government Accountability Office’s latest biennial update on the public debt outlook for U.S. territories included the following chart of the composition of Guam’s outstanding public debt as of the end of FY 2021:

The GAO update stems from a provision in PROMESA requiring examinations of territorial debt every two years, including Guam, Puerto Rico, the U.S. Virgin Islands, American Samoa and the Northern Mariana Islands. The latest GAO report, published June 30, follows a June 2021 outlook, a June 2019 outlook and an initial October 2017 outlook.

According to the GAO’s analysis of Guam’s FY 2021 audited financial statements, the roughly $2.6 billion in public debt outstanding was about 43% of Guam’s gross domestic product, or GDP, of $6.1 billion. Guam’s inflation-adjusted GDP declined by almost 2% annually from FY 2016 to FY 2021, according to the GAO, which added that the drop was driven by the decrease in tourism due to Covid-19.

“However, Guam’s economy is showing signs of recovery,” the GAO finds, noting that the recent opening of the third U.S. military base on the island is expected to stimulate economic growth.

The GAO’s analysis states that in FY 2021, Guam’s primary government “reported a $2.8 billion liability for both net pension and other postemployment benefits, such as health care and life insurance,” while Guam’s component units “reported a $1.4 billion liability for net pension and other postemployment benefits.” These liabilities collectively represented 68% of GDP as of Sept. 30, 2021, according to the GAO.

The GAO reported that annual contributions to the territory’s pension fund are based on actuarial recommendations and that Guam officials “expect the pension to be fully funded by 2034 (i.e., the pension fund assets will be equal to or greater than the estimated liability).” According to the report, the government “makes other postemployment benefit payments as they are due.”

In mid-June, Moody’s affirmed the GovGuam’s Ba1 issuer rating, Ba1 general obligation rating, Ba2 COPs rating, Ba1 HOT bonds rating and Ba1 business privilege tax, or BPT, bonds rating. Moody’s also affirmed Guam’s positive outlook. Moody’s noted that Guam’s Ba1 general obligation rating is the same as the territory’s issuer rating given the government’s pledge of its full faith and credit and broad revenue base to repay the bonds.

The Ba1 issuer rating reflects the territory’s “small and concentrated economy that is heavily reliant on international tourism; a minimal, but improving, available fund balance; and very high total long-term liabilities and fixed costs,” according to Moody’s.

The rating also incorporates “substantial federal government assistance and significant military construction activity on the island, which provides stability to government finances and the territory’s economy,” says Moody’s, adding that the island “also faces above-average environmental exposures, especially typhoon risk and sea level rise,” reflected in its E-4 environmental issuer profile score.

This month, Moody’s confirmed the Baa2 revenue bond ratings and stable outlooks on $478 million in Guam Power Authority debt and $192 million in Antonio B. Won Pat International Airport Authority debt. Both ratings had been placed on review for downgrade after Guam was struck by Typhoon Mawar in late May. In June, Moody’s revised the outlook on GWA to negative from stable and affirmed the Baa2 ratings on GWA's roughly $624 million of outstanding water and wastewater revenue bonds.

In December 2021, Standard & Poor’s Global Ratings revised its outlook to stable from negative on GovGuam’s GO debt and affirmed its BB- long-term rating on the bonds. At the same time, S&P revised its outlook to stable from negative on GovGuam’s appropriation-backed COPs and affirmed its B+ rating on the COPs. S&P also revised its outlook to stable from negative on the BB long-term rating on GovGuam’s BPT and section 30 revenues bonds “that have a close linkage to the obligor.”

Partial Consent Decree

The partial consent decree establishes that payment is to be made within 120 days. The Ordot Dump was built by the U.S. Navy in the 1940s, and Guam and the U.S. government have been disputing cleanup costs for decades. The U.S. Environmental Protection Agency initially filed a complaint against Guam for Clean Water Act violations at the site that was resolved in a 2004 consent decree requiring Guam to pay a civil penalty and to take certain actions at the dump.

The settlement announced Tuesday stems from a lawsuit Guam filed against the United States in 2017 under the cost-recovery and contribution provisions of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, or CERCLA. While the lower courts had determined that Guam’s CERCLA claims were time-barred, the Supreme Court agreed to review the case, and in a May 24, 2021, decision found that Guam can pursue its lawsuit against the U.S. government to recoup Ordot Dump cleanup costs.

Earlier this month, the EPA announced that the Navy completed a 2011 federal facilities compliance agreement through which it invested $130 million over 12 years to carry out significant upgrades to the Apra Harbor wastewater treatment plant and related sewer system and water plant. The compliance agreement, dating from 2011, addressed the EPA’s finding of National Pollutant Discharge Elimination System program violations identified in 2008.