Calvo calls draft budget ‘deadly anarchy and chaos’

File Photo. Gov. Calvo gathers with his fiscal management team during a press conference at Adelup.

Democrats: ‘the emptiest barrel makes the loudest noise’

Guam – Nope! It wasn’t easy to admit, but Gov. Calvo confessed to PNC that he would have signed lawmakers’ controversial 18.2 percent hotel occupancy tax increase into law if he’d been convinced it would’ve helped cover a multimillion-dollar FY19 spending gap without causing too much damage to the visitor industry. He revealed his willingness to do so during a press conference he called right when senators were resuming their emergency budget session late Monday morning.

His meeting with reporters at Adelup happened right after his office had announced that the Governor would be extending the deadline for his Tax Amnesty Program by 30 days to give debtors a little more time to get financing together and avoid Treasury Division penalties.

But since senators voted that same morning to retain $18.5 million in funding for a package of amendments that dares to rely on a quarter of the collectible Tax Amnesty debt in order to balance the FY19 budget, the governor may not have to worry about signing any more new taxes into law before his administration draws to a close next January.

Posturing for posterity

It is hoped that somewhere amid the legacies of the governor and two thirds of senators who are not running for reelection—as well as the futures of those legislators either retiring or advancing their careers—that a compromise can be reached.

After dropping their own hotel occupancy tax increase from the draft budget on Friday, following blowback from the visitor industry, by Monday morning senators were still wrestling with the uncertain prospect of collecting at least 24.9 percent of the $73 million in past due taxes deemed collectible by Rev & Tax Director John Camacho last week. That’s the $18.5 million necessary to balance the current iteration of the FY19 budget. And that specific figure is the culmination of a package of amendments  first introduced by Sen. Michael San Nicolas last Friday.

These amendments could be a way to close the FY19 revenue gap between October 1 of this year and September 30 of next and spread the responsibility over outgoing and incoming administrations to get the job done. The packet of budget amendments ties the $18.5 million in appropriated revenue to the notion that unpaid taxes will be paid. And, even if they aren’t, San Nicolas is certain a safety net of resources entrusted to the governor’s care is already in place.

The bold and the brazen

Without apology on Monday San Nicolas formally proposed dropping the Governor’s Office general fund appropriation from $6 million down to $1.3 million, with the balance to be picked up by a special allocation called a Supplemental Appropriation Revenue (SAR) Fund, pegged to the $18.5 million. And senators overwhelmingly approved the move by a ratio of 11 to 3.

“Next amendment is the amendment to the Office of the Governor,” San Nicolas told colleagues during a one-hour late morning stretch of the marathon emergency budget session at the Guam Congress Building in Hagatna. “We amend down the general fund number from $6 million down to $1.5 million, and we make up the difference with the Supplemental Appropriations Revenue Fund of $4.5 million.” That $4.5 million is a portion of the $18.5 million. San Nicolas’s collection of budget amendments also reduces general fund appropriations to the Dept. of Revenue and Taxation and Dept. of Administration.

It didn’t take the Calvo Administration long to realize what was already swiftly afoot, and the Governor’s Office quickly called an 11:00 a.m. press conference at Adelup.

Hellfire and brimstone

“I hate to tell you folks that this is a ghost revenue source,” Calvo said. “It’s phantom. It’s something that’s never been done by any Legislature, as far as I’m concerned, in the history of Guam’s process of budgeting.”

Pronouncing that senators are “paving a road to chaos,” an early evening press release from the Governor’s Office echoed the sentiments of the morning news conference:

The Democrat majority at the Legislature cannot be allowed to run this government into the ground, which is the path they’re on right now with some of the uneducated decisions they’re making.

“For all intents and purposes, the government will shut down,” the Governor told reporters this morning.

Governor Calvo is drawing the line at the irresponsible act of tying appropriations for Adelup, the Department of Administration and Department of Revenue and Taxation.

To the casual observer, it may appear that the fight between the Calvo Administration and a majority of legislators hinges on the difference between the way things have always been done and a perceived demand for doing them differently. But it might also be argued that the majority of senators in the 34th Legislature and the Calvo Administration simply don’t see eye to eye on budget management, much less budget policy.

“I think when we’re looking at the SAR Fund, which is any revenue that’s identified and collected above and beyond the projected revenue of that fiscal year, should really be directed toward the supplemental appropriation fund,” Sen. Frank Aguon (D) said during ensuing session Monday. “I guess this is neither here nor there—only because it’s not being applied—but the Tax Amnesty collections, Mr. Speaker, should’ve gone into the SAR fund,” Aguon said.

Aguon suggested that any such recovered revenues should have been immediately earmarked to help Guam Memorial Hospital meet obligations and help Simon Sanchez High School hire the engineering assistance it requires for the planning and construction of its replacement campus.

Wrapping their heads around the revenue

Even so, before the call to vote on San Nicolas’s amendment, several senators struggled to come to grips with election year political realities that make any new tax bitterly unpopular, that characterize further budget reductions as cuts to the bone, and that make reliance on tax debts as a revenue source feel a little too much like quicksand.

“If we believe this money can be collected, then we should do away with all taxes and just put the whole $73 million down to supplement the budget,” Sen. Telena Nelson (D) said. “And so here we are now addressing all these amendments to directly fund agencies, [and] we don’t even know if this money can and will be collected.”

“When we looked at the SAR Fund when I was a staffer, even not too long ago, we’ve seen that fund fluctuate,” Sen. Tommy Morrison (R) said. “And the way…it was used…[was] mainly to supplement critical areas within our government specific to health insurance—along [those] lines. It was never tied to operations of the agencies. And that’s where…my concern [lies].”

A little guidance, please

Pressing for evidence that the San Nicolas amendments would be fiscally sound, Vice Speaker Therese Terlaje (D) quizzed Appropriations Chairman BJ Cruz (D) on whether he’d gotten any feedback from the Dept. of Revenue and Taxation since the San Nicolas amendments were presented late last week.

“I just wanted to ask if you’ve received any input from Department of Revenue and Taxation since our discussions last week on these amendments, or did they have any input or comment, or not?” Terlaje asked.

“No, I have not,” Cruz said.

“Does the Office of Finance and Budget support this—if it’s feasible?” Terlaje asked. “Do we know the collection rate right now? I calculated a 25 percent collection rate.”

“This is not the same as the collection rate for any year,” Cruz said. “These are uncollected amounts and it becomes harder. You know that when…people just pay, as they should, that’s an easy collection. But trying to collect on delinquent ones is [a] completely different formula and a different percentage.”

Sen. Tom Ada (D) expanded on the concern. “There’s really no incentive on the part of the current administration, who’s on its way out, to aggressively collect on the SAR to make sure that the incoming administration will have funds available to operate with for the remainder of the fiscal year,” he said.

Sen. Morrison cautioned his colleagues that they were merely guessing if San Nicolas’s approach might work, and that while he lauded San Nicolas’s creativity, he wasn’t sure whether his fellow senators were creating a good incentive or a bad one by tying operations to the SAR. Morrison also suggested it would be difficult for departments and agencies to continue marking milestones with improved operations and services , much less for emergencies to be met, if they don’t have more sure-fire funding sources to back them up.

The turning point

Nevertheless, San Nicolas was able to convince enough colleagues otherwise. He reminded them that between the Governor’s transfer authority and access to Compact-Impact funds on the one hand and palpable campaign-season demand for more stringent collection methods on the other, the use of the new SAR fund to plug the $18.5 million budget hole can and will work.

Despite concerns that the current administration might drag its feet on collections, Gov. Calvo insisted all day Monday that he, his staff, and cabinet care about getting the budget right by identifying reliable funding sources and that doing so is a matter of extreme urgency.

Although his methods are starkly different from Calvo’s, San Nicolas remains confident the funding chasm can be closed with mutual support among elected officials led by a governor and tax commissioner who may be likelier to aggressively collect on receivables, judging from the pool of contenders who say they will.

“Today is our opportunity to make a policy statement that everybody who’s campaigning that they’re going to collect, now is your opportunity to do so and for the benefit of the people of Guam, so our taxes don’t go up,” he said.

All bark or all bite?

But the Governor isn’t buying any of it. “The direction the Guam Legislature is headed can only lead to anarchy and chaos,” Calvo said. “There is lack of comprehension to what they’re doing. What they’re doing is deadly. You can’t eviscerate a Governor’s office, Rev and Tax, and DOA – and expect every other agency to somehow not feel the consequences. This is mean-spirited. They didn’t touch the Judiciary of Guam, because of their respect for the other branch.”

True to form, the  Democratic Party of Guam responded in kind:

The emptiest barrel makes the loudest noise. A bipartisan group of lawmakers is working to pass a responsible budget. That task requires us to work together, which isn’t easy when so few people trust anything coming out of Adelup these days. 

The Legislature does not exist to rubber stamp Governor Calvo’s agenda. That’s how checks and balances work. The Calvo-Tenorio Administration achieved record revenues, received record borrowing—and spent it all. That’s why we are here now—dealing with a financial storm everyone could see coming but them.

As for responsibility, when those at Adelup remove the plank in their eye, their Party can complain about the speck in ours.

Session resumes Tuesday morning at 10:00.