Guam Tips Into Fiscal Crisis

The US territories just can’t seem to catch a break these days.

Guam’s economy is nowhere near as destabilized as that of its Caribbean counterparts Puerto Rico and the US Virgin Islands, though growth has slowed in the past couple of years and was only a tepid 0.4% in 2016. Typically, however, the economy had been growing about 2%-3% on average since 2003, a vastly superior record when compared with the economically depressed territories of Puerto Rico and the US Virgin Islands.

Still, despite the relative prosperity in Guam, the government there has had a spending problem for some time. In the past, Guam’s government debt has been seen as healthy due to its link to the US and the presumption that Washington would never permit a US territory to default, which allowed Guam to borrow at very favorable rates.

With the default of Puerto Rico and the establishment of PROMESA, however, the ratings agencies such as Standard & Poor’s learned that territorial government debt could no longer be certain to be guaranteed by the US federal government. That meant many territories had to be rated on their own merits, essentially treating them as independent entities rather than as a part of the US.

Unsurprisingly, Guam’s debt looks much less safe when viewed on its own without an implicit US government guarantee. This led to serious ratings downgrades by the ratings agencies; in December 2016, for example, Fitch Ratings gave Guam’s bonds a huge downgrade into junk status.

Because of these downgrades the government’s borrowing costs went way up. The island muddled along through 2017, but then the Trump tax cuts were passed. The government of Guam had been essentially living “paycheck to paycheck” after the ratings downgrades, but once Trump reduced taxes and thus the island’s tax revenues, they tipped over into a full blown crisis:

The government of Guam faces challenges meeting payroll and might have a tougher time paying debts, so credit rating business Standard & Poor’s has placed GovGuam under a “credit watch,” with a potential for a rating downgrade if the situation goes further downhill.

“The fiscal stress is due to an estimated $67 million decrease in General Fund revenue for fiscal 2018 due to the effect of The Tax Cuts and Jobs Act of 2017 … signed into law by President Trump on Dec. 22, 2017,” Standard & Poor’s stated in a report made public Tuesday.

While GovGuam’s cash crisis is attributed primarily to the federal tax cuts, which have resulted in reduced tax collections by the local government, Standard & Poor’s also noted Guam’s history of spending beyond its means.

Standard & Poor’s acknowledged the local government has stated “it might be difficult to meet payroll in May 2018,” and that its ability to meet payroll in subsequent months also is uncertain.

The $67 million budget hole has sent Governor Eddie Calvo scrambling to find a solution. He has attempted to pass a series of bills as quick fixes, but they have all been voted down by the local legislature. The latest bill was a tax increase on certain businesses operating within Guam, but this was also defeated in the Senate.

The government has engaged in a frantic cost cutting exercise, which has so far involved a hiring freeze, the firing of some contractors, ending overtime, and a reduction in the hours of all government employees in the executive branch. This has so far yielded $30 million in savings, which is not enough to cover Guam’s budget shortfall.

Unable to get any legislation approved, Calvo is warning of further cuts. One thing in particular that stood out at me was his plan to turn on only half the island’s streetlights at night to save on power costs.

While Guam has a long way to go before they’re as bad off as Puerto Rico, it’s still disheartening to see another US territory slipping into a financial crisis which is largely of its own making.


Written by Doomberg

I am Doomberg, one of the original founding members of Sparta Report, and have been here since the beginning. I am an insatiable news junkie and enjoy reading and writing about the US territories, the Caribbean, video games, smartphones, and of course conservative politics in general.

I also really like pictures of gas stations and claim full responsibility for the silly gas station motif. I'm presently trapped behind enemy lines in a blue state with no hope of escape! The ride never ends.

Leave a Reply


Revoke Walmart and Dick’s Federal Firearms License!

George W Bush Slams Trump and Supporters

Barack Obama Repeats False Claim of 18 School Shootings This Year