Adelup: Converting the Tax Refunds Owed Into a Bond is Cheapest Way to Pay the Existing Debt

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Guam -With the Special Session called to re-consider the Governor’s $343 million dollar tax refund bond deadlocked, Adelup is continuing its effort to convince the undecided that the Governor’s Bond is best.

The latest release from the Governor’s office makes the argument that the tax refund debt is already a debt that is costing GovGuam interest that will eventually have to be paid off and the cheapest way to settle this debt is convert it into a bond.

READ the Governor’s Office release in FULL below:

Calvo Bond Is Cheapest Bond; The Debt Is Already a Debt

Some senators have said the Governor’s bond will create new debt that future generations will be burdened with. That argument is 20 years too late. There’s already a debt. The $358 million in tax refunds due by 2012 is a debt, make no mistake about that. And it’s accruing interest at an average rate far more expensive than the Governor’s bond proposal. Out of the three options – no bond, discount bond, or the Calvo bond – the Calvo bond actually is the cheapest. Even if you place the ‘compromise’ $260 million bond Sen. Respicio suggested, the Calvo bond is still the cheapest. By the way, the 4% interest rate on tax refunds is misleading. Interest is based on an IRS scale. The average rate is actually 6.27% – over 30 years. That turns out to be billions more than the 5.5% we are proposing.

Here are a few points to consider:

1. All refunds with Calvo bond over 30 years = $714 million
2. All refunds with ‘compromise’ $260M bond over 30 years = $1 billion
3. All refunds with $180M Discount bond over 30 years = $1.6 billion
4. All refunds without a bond over 30 years = $1.9 billion

Aside from the Governor’s bond, the other bond proposal will leave a balance of unpaid refunds. This balance will accrue interest if it is not paid. This chart plots out how much the government will owe in tax refunds & interest in 30 years after taking out the Governor’s bond, the $180M bond, the $260M bond, or no bond at all:

When you add the principal and interest of each bond, this is how much the tax refunds debt will cost in each scenario: