Guam – In San Francisco Tuesday, Governor Eddie Calvo briefed the ratings agency Standard and Poors on the improved financial condition of the Government of Guam.
The aim of the update to S&P was to improve GovGuam’s Bond ratings which would lower the cost of borrowing.
The Governor’s Office issued a release detailing the Governor’s pitch to S&P.
Among the highlights:
* GovGuam’s deficit has been eliminated and replaced with a surplus
* in just the past 2 years, the trend of negative cash balances has been reversed to a positive and healthy cash flow
* GovGuam agencies have much-more robust operations and are able to still provide services because of tighter budgetary practices and increased training
* The outlook for Guam’s economy is bright
The release quotes Governor Calvo as saying: “We’ve dramatically improved finances and, thus, the ability of the government to function, serve our people, and make good on our debt commitments … This is why the future of the government of Guam looks brighter and brighter.”
READ the release from Governor Calvo below:
“The government of Guam has more vigor and is more stable. We’ve dramatically improved finances and, thus, the ability of the government to function, serve our people, and make good on our debt commitments. This took vigilance to our promises and plans to cut costs, raise revenues, and pay old bills. That was our game plan, and we stuck to it. That’s why we’ve succeeded. This is why the future of the government of Guam looks brighter and brighter.”
– Governor Eddie Baza Calvo
Fiscal Team Gives S&P Periodic Review of Finances, Pushes for Better GO Bond Ratings:
The Governor and his fiscal team gave Standard & Poors an update on GovGuam’s significantly-improved financial position. The update took place in San Francisco. The Governor is seeking an upgrade to Guam’s existing general obligations bonds. An upgrade may result in millions of dollars in savings over the life of these bonds. Standard & Poors is a rating agency that has the authority and credibility to upgrade bond ratings. Investors use these bond ratings to assign interest rates to bonds. The lower the interest rate, the less we pay in annual repayments on the bonds.
The main reasons the Governor gave S&P to improve bond ratings:
* We eliminated the deficit and replaced it with a surplus
* In two short years, we reversed the trend of negative cash balances to positive and healthy cash flow
* GovGuam agencies have much-more robust operations, able to provide services because of tight budgetary practices and increased training
* The outlook for Guam’s economy is bright
Revenue Collections are Exceeding Conservative Projections for Two Years in a Row, as Planned:
The Governor reported that for the first time since Fiscal Year 2008, GovGuam will report an annual budget surplus in Fiscal Year 2012. Part of the reason for this surplus is that revenue collections in FY2012 exceeded projections. More significantly, FY2012 marks the first time since FY1991 that GovGuam will have no overall deficit, an accomplishment made possible by the payment of tax refunds through deficit financing, coupled with better revenue collections, and tighter spending controls.
The Other Side of the Fiscal Equation: Spending Control and Cuts Got Us to Where We’re at:
The Governor reviewed the consistent story he has told to S&P over the last two years about the administration’s unilateral effort to improve finances: spending cuts. These spending cuts and controls took GovGuam from a cash crisis to a period of fiscal challenges, and now to a new era of strengthening fiscal health. These are the spending controls and cuts implemented since coming to office, which had a significant effect on either the bottom line, or changing attitudes about fiscal management throughout GovGuam:
* Spending controls began when the Calvo Tenorio administration created the government’s first cash flow model as soon as Calvo & Tenorio took office.
* The cash flow model allowed the administration to plan wisely the spending of cash based on important daily, weekly, biweekly, and monthly milestones, such as payroll, bond payments, etc.
* The Governor suspended the Hay plan in early 2011. This saved over $13 million annually and kept GovGuam from a payless payday and bankruptcy in the second quarter of FY2011.
* The Governor, Lieutenant Governor, their senior staff and Cabinet members took a 10 percent pay cut to demonstrate their personal commitment to improving fiscal health. The savings from the pay cuts went to paying past-due tax refunds.
* The Governor suspended increments, improving cash flow by millions at a critical time in cash management.
* The Governor implemented a critical cash management tool – the 15 percent reserve, which turned the tide in government spending habits that have lingered for decades. This 15 percent reserve forced agencies to cut unnecessary spending and reverse the trend of years of overspending in many government agencies. It also taught GovGuam an important lesson: plan for worst-case scenarios, and anticipate that budgeted revenue levels may not materialize. Spending less will ensure no deficit spending if the revenues don’t materialize.
* The 15 percent reserve led to massive attrition in the line agencies. Hundreds of GovGuam employees either resigned, retired, or were terminated from service since the Governor took office. Of these, about 200 positions were not filled, leading to millions in savings.
The Payment of Debts and Liabilities:
The Governor also reported to S&P that the improved fiscal condition has allowed GovGuam to make good on its promises and obligations:
* Aging of vendor payables have decreased dramatically from $100 million in vendor debt taking 180 days to beyond one year to pay, to $19 million in vendor debt now within the standard 90 days from invoice. (This is in the line agencies, where the Governor has direct supervision)
* All past-due tax refunds have been paid for the first time in two decades, and all current-due refunds are being paid well within legal time frames
Increments have been restored and paid to GovGuam employees in the line agencies.
* The once-necessary two-percent reserve for deficit elimination now will be used to phase in the Hay study plan for GovGuam compensation to be closer to market rates
* Accumulated liabilities such as meritorious bonuses and promised compensation that have never been paid are now being paid
Training of GovGuam Workforce Improves Efficiency In Operations, Morale:
The Governor told the S&P officials about the series of training workshops and conferences the administration has provided for GovGuam employees. Much of the training has been in customer service, procurement, human resources, and budgetary issues, including the conversion to performance-based management. This should provide a level of comfort to investors that the improvements to GovGuam’s fiscal and management position will continue well beyond Governor Calvo’s tenure. The administration is taking thoughtful steps to bolster the GovGuam workforce by providing the systematic training to sustain these improvements.
The Governor highlighted the state of Guam’s economy as another reason the ratings agency can be confident in the island’s future:
* The Korean tourist market is growing, and expected to post a record-breaking year with 200,000 Korean arrivals by September.
* Despite the significant weakening of the Japanese Yen (making it more expensive for Japanese citizens to travel and tour United States markets), more Japanese tourists are coming to Guam and spending more money.
* The Russian market is growing and growing, causing unexpected growth in other feeder markets, such as car rentals, real estate, and condominium rentals.
* We are pushing hard for a China visa waiver program. Despite the absence of this program, our marketing efforts in China have led to growth in tourist arrivals from mainland China.
* Our problem is hotel room inventory. We do not have enough hotel rooms to accommodate all the tourists who want to come to Guam. Many are being turned away. The hotel industry is responding with major construction ongoing at this time.
* Part of the sustained effort to improve tourism is the development of conference rooms and a larger ballroom to allow for convention-type events. This will attract larger groups to travel to Guam from Asia.
* The legislature, led by Sen. Michael Limtiaco, is promoting ‘bed and breakfast’ ventures to attract and accommodate more tourists, especially from Russia.
* Though the Senate has remained an obstacle to the forward movement of the military buildup, about $7.5 million in MAMIZU money is being spent for architectural and engineering work on military buildup projects. Though this is a token amount compared to the overall price of the buildup, it is a telltale sign of progress on the horizon on the long-awaited buildup.