Governor Lou Leon Guerrero said her administration appreciates the ratings given by both Moody’s and Standard and Poor’s on Guam’s $30 million general obligation bonds, Series 2019, which will be used to fund the construction of a new cell at the Layon Landfill.
Moody’s Investors Service has assigned a Ba1 rating to the bonds, with a stable outlook. Ba1 is the highest rung of Moody’s speculative-grade rating. Obligations rated Ba1 are judged to have speculative elements and are subject to substantial credit risk. But according to Adelup, the Moody’s rating is the highest rating on Guam’s GO bonds since 2002.
According to Moody’s, the Ba1 rating reflects the stabilization of GovGuam’s financial position as a result of actions taken to offset the loss of income tax revenues triggered by federal tax cuts enacted in December 2017.
On the other hand, Moody’s stated that the rating also takes into consideration Guam’s small and concentrated economy as well as significant accumulated general fund deficits and debt levels which, while below those of other territories, are still significantly above US state medians.
Generally, positive economic trends and a good economic outlook, and a favorable pension funding situation are also reflected in the rating, Moody’s said.
According to Moody’s, the outlook for GovGuam is stable, reflecting the financial discipline demonstrated by the government in recent years and the expectation that it will continue to improve liquidity and reduce its accumulated general fund deficit.
However, factors that could lead to a bond downgrade include a return to recurring operating deficits in the general fund and/or a weakening of liquidity; a return to deficit financings; and an increase in debt levels.
On the other hand, factors that could lead to an upgrade include a notable improvement in general fund financial performance, including the restoration of positive fund balances without the use of deficit financings as well as expansion and diversification of the economy.
“Fiscal discipline is the top priority of my administration. The positive rating from Moody’s indicates recognition of the progress we are making and continue to work on daily. The efforts of my entire Fiscal Discipline Team is to stabilize government finances, reducing and eventually eliminating the deficit while at the same time creating cash reserves through the establishment of a Rainy Day Fund,” the governor said in reaction to the release of the Moody’s rating.
Meanwhile, credit rating agency Standard & Poor’s (S&P) rated Guam bonds with a stable outlook with a BB- rating.
According to S&P, “The stable outlook reflects the government of Guam’s slightly improved financial profile, albeit with a deficit in fiscal 2018, and commitment to improving operations and setting aside reserve funds as part of its proposed fiscal 2020 budget. Multiple years of structural balance along with continued improvement in GovGuam’s accumulated general fund deficit and improved liquidity may lead to a higher
However, both rating agencies acknowledge the challenges GovGuam continues to face with the federal Tax Cuts and Jobs Act impacts.
“We appreciate the positive ratings by both Moody’s and S&P. I am excited that we are one step closer to taking full control of Guam’s Solid Waste Collection and Disposal program which has been under Federal Receivership for over a decade without having to raise tipping fees and with no need to draw on the General Fund,” the governor said.
GAO gives update on Guam’s debt
Meanwhile, the U.S. Government Accountability Office (GAO), in its 2019 update on U.S. territories’ public debt outlook, reported that Guam’s debt increased significantly during a 10-year span.
According to GAO, Guam’s debt increased from 24 to 44 percent of GDP between fiscal years 2005 and 2015, including large pension liabilities, that, if unaddressed, may hamper repayment.
Since fiscal year 2015, GAO said the major drivers of Guam’s new public debt issued by Guam’s primary government and its component units have been refinancing existing debt—originally issued to comply with federal requirements and court orders as well as funding infrastructure projects.