Gov Claims deficit is largely “a paper deficit”.
Via Media Release
PRELIMINARY AUDIT NEWS: Bills paid last year caused a largely paper deficit in FY14
Last fiscal year
GovGuam paid for bills and incurred debt that were unbudgeted last fiscal year1. This means – despite the more-than-expected revenues and underspending in other areas – there will be a deficit for FY14 – a large part of which is attributable to the timing of the expenditure recordation (creating a paper deficit). GovGuam also incurred new debt that wasn’t paid in FY14, causing part of the deficit. Some of those debts were paid this fiscal year.
Current fiscal year
The Department of Administration is tracking a surplus for the current (2015)
fiscal year. Over the past four years, Governor Calvo embarked on an aggressive financial program to pay down the half-a-billion dollars in debt left to his administration. All tax refunds – the majority of the debt – now are on track and on time. All retirement contributions debt is paid. Over 95 percent of GovGuam’s debt to its own employees has been satisfied. Vendor payments are generally and regularly within the standard 90-day window. Few liabilities remain (aside from structured bond debt) to employees and to claimants of condemned land.
Transparency & cooperation ahead of budget talks
The Department of Administration is continuing to work on the Fiscal 2014 financial report, which is due in June. DOA is releasing this information early in the spirit of transparency and cooperation with the Legislature, which soon will be addressing the FY 2016 budget. Since the figures are unaudited, there is a strong possibility that the numbers will change.
There were unbudgeted items and timing differences based on accounting standards in the recognition of revenues and expenditures causing the total paper/fund balance deficit of $65.3 million. With the exception of the Solid Waste debt service, these are one-time costs, which we won’t see again. The Solid Waste debt service issue is something the administration is trying to correct in court.
Here are the bills that were paid:
DOE Operational & ARRA Expenditures
The largest amount is the American Recovery and Reinvestment Act funds. There was $60 million given to Guam Department of Education in 2011 that wasn’t spent
1 FY 2014 (Oct. 1, 2013 – Sept. 30, 2014)
before the federal government’s deadline. The administration and the Legislature had to help the Department of Education. Of that amount, $21 million still sat in the trust account and was expended in Fiscal 2014. The recognition of this expense is a timing difference, creating what, in essence, is a paper deficit. There’s an additional $5 million, which is due to operational expenses partially related to the delay in Real Property Tax revaluation.
Capitalized Interest for Bonds:
Slightly similar to the ARRA reported above, this is a situation where the cash is sitting in a trust account but has to be reported, adding $8.6 million to that paper deficit.
Law Enforcement Officers
There were additional items that weren’t fully budgeted that led to a deficit, including the payment to law enforcement officers that was promised in 2009. The 32nd Guam Legislature approved the expenditure, something we agreed was a long outstanding obligation. We paid law enforcement officers approximately $25 million in Fiscal year 2014. Of that amount, $12.9 million was not budgeted.
Solid Waste Debt Service
In Fiscal 2014, the Legislature approved reimbursement of $12 million from the Solid Waste Operations Fund. Actual reimbursement only amounted to $2 million resulting in an unbudgeted shortfall of $10 million.
Guam Memorial Hospital Authority
The Legislature, through Public Law 32-68, introduced by the late Sen. Ben Pangelinan, required the administration to use the 2 percent reserve for the hospital. This created a one-time expenditure that created a $7.8 million unfunded item for Fiscal 2014.
Below is a breakdown:
Unbudgeted Shortfalls/Timing Differences
DOE Operational/ARRA: Law Enforcement Pay:
Capitalized Interest for Bonds: GMH:
$26M $12.9 $10M $8.6M $7.8M
What this means for Fiscal 2015
Tax refunds will still be paid on time
While finances are better, GovGuam agencies and branches still have to be
fiscally responsible and control spending
Economic growth – fueled by larger tourism capacity and stronger foreign
investment that we attract – will continue
The military buildup will cause greater economic growth and a stronger fiscal
position in the government.