Calvo vetoes sales tax repeal, warns overriders of fiscal cliff

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Gov. Eddie Calvo vetoes Bill No. 262-34, Sen. Michael San Nicolas's sales tax repeal bill, on Friday.

“I’m not going to be picky about it, find an alternative”

Guam – As expected, Gov. Eddie Calvo has vetoed Sen. Michael San Nicolas’s sales tax repeal bill. The executive rejection came down Friday. But anticipating a legislative override of his veto in the near future, Calvo admonished lawmakers to offer viable alternatives to avoid a major financial crisis this fall if senators still decide they don’t want a sales tax and then reject Calvo’s veto with the ten votes needed for the override. The tax repeal bill passed the unicameral body by a ‘veto-proof’ vote of 11 to 4 on July 2.

The Governor’s Office called reporters to a late morning press conference Friday on the impending FY19 budget crisis. While Calvo defended his administration’s handling of the island’s finances and economy for the last seven and a half years, the governor’s final fiscal year at the helm of revenue and spending could be his toughest yet.

Facing a $120 million to $160 million Fiscal Year 2019 shortfall due to the Trump Tax Cuts, and emphasizing the fact that the overwhelming majority of the local government’s budget is eaten up by critical health, education and safety services, Calvo challenged senators to work with him on enhancing revenues and cutting expenditures on an FY19 spending plan that Legislative Appropriations Chairman BJ Cruz hopes to have in place by summer’s end.

Holding the line on what he believes are much-needed revenues, within the first ten minutes of his news conference the governor was vetoing Sen. Michael San Nicolas’s Bill No. 262-34, a measure that would repeal the two percent sales tax on goods and services.

“So, the laundry list of financial resources, I’m not going to be picky about it, but if it’s their [senators’] wish that it’s not a sales tax, then I think it’s important and incumbent on them to then find another alternative,” Calvo said.  “As far as I’m concerned, if my resources stand, then there is no crisis, because we still have time to avert it. So, with that… a big capital V-E-T-O,” Calvo said as he vetoed the legislation with his pen.

Calvo said the new sales tax law, passed in March but not slated to kick in till October and intended to shore up general fund, hospital and education shortfalls, is a linchpin of stability approaching the next budget cycle.

But the need for a sales tax was perceived before several senators wound up changing their minds about it when it was discovered that tens of millions of dollars had been left uncollected and at least 40 employment positions left unfilled by the Dept. of Revenue and Taxation.

“Unfortunately, most recently, a change of heart, again, led by Sen. San Nicolas, Senator Frank Aguon, and Senator Rodriguez—and others who have other motives, other than stabilizing this government and to continue to allow us to grow this economy—they passed this bill [Bill No. 262-34], 11-to-4.”

But San Nicolas and others see recent revenue collection efforts, such as liquid fuel tax hikes and the sales tax, as undue burdens on the poor and working class, while certain business owners have refused to pay certain taxes altogether.

Speaking for his ant-tax-hike coalition on Friday, San Nicolas told PNC that the legislative majority stood ready to hold the line. “We will do our duty,” he wrote. “Arrangements for an override are underway to spare our people of this sales tax burden.”

Cruz originally voted against the sales tax repeal and Aguon voted for it.

But by a curious turn of events that played out late Friday afternoon, it was Speaker and Appropriations Chairman Cruz who was rushing the override while Aguon was pulling back the reigns.

A procedural issue raised by Aguon prevented the override after Cruz hastily called regular session within two hours’ notice in order to put the override on the floor for vote.

The notice appeared in news media email caches at 2:13 Friday afternoon.

“Håfa adai! I Liheslaturan Guåhan will be called into Session today, Friday, July 13, 2018 at 4:00 PM in the Speaker Antonio R. Unpingco Legislative Session Hall, Guam Congress Building,” it read.

While the law allows for emergency session, it requires a written reason, and the Speaker did not declare an emergency, nor did he provide a reason for calling session.

5 GCA, 8180 reads in part:

The call and notice shall specify the time and place of the special meeting and the business to be transacted. No other business shall be considered at such meetings by the public agency. The five (5) days notice and the forty-eight (48) hours notice may be waived in the event of an emergency certified to in writing by a public agency.

The quick call to session forced the cancellation of a four o’clock public hearing on two Aguon bills to require tighter accountability on the issuance Chamorro Land Trust leases.

Aguon showed up with all 14 colleagues, but  shut down proceedings no sooner than they’d started.

“My question is, ‘what’s the nature of the emergency, and if, in fact, it has been presented in writing?'” Aguon asked.

“The  session was called under the authority of the speaker for a two hours’ notice for a session, and there is no need for…” Cruz  said before Aguon cut him off.

“Mr. Speaker, if I could complete my point of order. In 5 GCA, Section 8108, regarding calling up an emergency, must be certified in writing by a public agency.

“What is the certified emergency for calling this particular session and having to forego properly notified public hearings on legislation the public could have attended and provided testimony?” Aguon asked.

“There is no hearing that’s going to be held. This is a session with one item on the agenda — the override of Bill 262,” Cruz said.

“Mr. Speaker, there was a previously scheduled hearing at 4:00 p.m., to discuss several pieces of legislation — that was properly notified. But it comes back, Mr. Speaker, to the question, ‘what is the certified emergency as it applies to this, the session, and the scheduled agenda?” Aguon asked.

“The emergency is to determine whether or not we have enough money to put a budget together,” Cruz said.

“My question, again, and my point of order, is ‘what is the certified emergency, when, in fact, this body still has ample time to be able to discuss, formulate, and present a budget to the chief executive within the time period I have alluded  to. So, Mr. Speaker, I would like to request a response.”

“This body was met on two hours’ notice, but if you insist on a written notice for emergency, I will write a written reason for the emergency and call a session after that,” Cruz said. “Thank you, I guess this session is adjourned.”

Meanwhile, Calvo insists the situation will only grow worse the longer the shortfall’s solution is delayed. Cruz’s immediate call to session following Calvo’s veto may have only hastened the override, but it would also have forced the legislature to consider Cruz’s proposals for further revenue enhancements or deep cuts to the government’s evolving FY19 operating budget.

“Even if they override my veto, it will not be felt by Government of Guam until the next fiscal year,” Calvo said.  “October first—if they continue in this direction—will be the day that those legislators, those senators that have decided to run this course and move in this direction, they will drive this government bus and this island economy off the cliff.”

Calvo lauded Sens. Wil Castro  (R), Tommy Morrison (R),  Louise Muna (R), and BJ Cruz (D) for being the only four senators to vote against the sales tax repeal and “looking at the consequences of the acts of the other senators.”

Gov. Calvo also attempted to reason with the majority of lawmakers who voted for San Nicolas’s repeal, referring to some  of them as reckless and others as inexperienced freshmen.

“So there’s still time,” he said. “I’m imploring them to do whatever they can to reconsider their vote on this measure introduced by Sen. San Nicolas. And if it does come up for an override attempt, that there will be sufficient votes necessary to sustain my veto. If not, then [they] must enter a duty; it is their responsibility as leaders to come up with an alternative plan.”

Yet, Cruz has already offered two spending plans: a “responsible” budget and a “reckless” one. The first is based on Cruz’s newly proposed revenue enhancement legislation, including (A) Bill No. 314-34 to raise the hotel occupancy tax from 11 percent to 15 percent, and (B) Bill No. 315-34 to increase the business privilege tax from five to five and a half percent. Together the two bills would cover as much as $105 million of the projected total shortfall. The second is based on slashing, burning and cutting government costs to the bone, by no less than $145 million.

“So we have one of two choices,” Chairman Cruz said to Pacific News Center on Friday. “Either appropriate $145 million less, or we find additional revenue to make up for it. And that decision is not mine alone. That decision takes at least eight people in this body to approve any of the revenue-generating bills.”