San Nicolas: GovGuam bond offerings need more scrutiny

Congressman Michael San Nicolas (PNC file photo)

Congressman Michael San Nicolas on Friday said the island’s officials must work harder at examining government bond offerings to ensure that Guam gets the best deal in the market and is not shortchanged.

San Nicolas made the comment during an online informational session conducted by the Municipal Securities Rulemaking Board (MSRB) with participating local lawmakers on the process and practices of accessing the municipal bond market.

According to San Nicolas, it’s very important for Guam’s lawmakers to really have a bird’s eye view of what happens after GovGuam closes a debt or bond float.

“Because what happens afterward really plays a significant role in how much we’re going to really be paying at the end of the day. So many factors come into play when it comes to the cost of issuing debt, not only in terms of fees and the various charges that are associated with that but also in the interest rates that we finally are ultimately responsible for paying with respect to debt,” San Nicolas said.

For example, San Nicolas said that if GovGuam were to float a $1 billion bond and it overpays by even just .20 percent in the interest rate environment, that would already amount to about $2 million in added interest expense every single year.

“And if you multiply that over the life of the bonds that we usually float, which are about 30-year bonds, we’re talking about $16 million in added interest expense. So it’s so important for the legislature to be able to understand how bond issues work and how those final costs actually play into the commitments that we’re making to taxpayers and the people of Guam because $60 million is $60 million dollars. And if there’s anything that we can do, from a policy perspective or from an oversight perspective, to help drive down those costs that are associated with going into the bond market, we’re talking about having tens of millions of dollars that we can get back,” the Guam congressman said.

San Nicolas cited as an example a Guam Waterworks bond float in 2020 during which San Nicolas said GovGuam paid $1.1 million more, with the total amounting to $35 million over the 30-year life of the bond.

During the briefing, San Nicolas also disclosed that although Guam has had the same bond counsel for a very long time, on the municipal advisory part, Guam has never used a licensed municipal advisor in any of its bond offerings.

San Nicolas said this is important because the municipal advisor has the fiduciary duty to inform GovGuam whether it’s getting a good deal or not and that actually being licensed under the MSRB is important because it is basically a test that one needs to take and pass to prove that you are able to understand the concepts of securities.

He added that in the Guam Economic Development Authority (GEDA), the agency that handles GovGuam bond floats, there is also no staffer licensed with the MSRB.