S&P: Even Higher GovGuam Rating Possible


Guam – Despite the financial meltdown in Europe and the bleak U.S. economy, international ratings agency Standard & Poors has a brighter outlook for Guam’s economy.

The agency’s confidence includes tourism, the military buildup and employment on Guam. Confidence in the pledge source for the tax refund bonds, the Business Privilege Tax, also leads S&P to discuss the possibility of an even higher credit rating on the bond from the A rating with a stable outlook the agency gave yesterday:

 “Rating upside over the next two years is possible to the extent annual BPT revenues demonstrate greater resilience through economic cycles and in response to other one-time events, or to the extent the overall base of pledged revenues broaden and diversifies, providing additional credit cushion and reducing concentration risks,” S&P states in its recently and publicly-published report on the bonds.

 In the report, S&P discusses in detail the strength of Guam’s BPT and how those buying these bonds can feel secure in their investment. The report affirms what Governor Eddie Baza Calvo and his fiscal team repeatedly assured the legislature – that, even in the worst of times, the BPT is a stable revenue source that will most likely grow, even without the military buildup.

“BPT revenues have proven to be less volatile historically than (Hotel Occupancy Tax) revenues,” The S&P report states. “The stable outlook reflects our anticipation of good BPT performance over the next two years, notwithstanding our anticipation, as we believe history has demonstrated, of occasional declines in BPT revenues given various risks facing the island (economic/tourism, weather-related, and epidemics).” (emphasis added)

 After the Bond: Paying the Balance of Tax Refunds (TY2010 & 2011)

“People have been waiting so long for this to happen, I just wish it would have happened sooner rather than waiting through all the commotion that happened about the bond,” Governor Calvo said. “We went to senators with a good plan to pay off all the tax refunds, but unfortunately, we only got part of it. I hope these ratings show senators that we know what we’re doing; that we are making wise financial decisions if and when we decide to go for a second series to pay the rest of the refunds.”

 The administration repeatedly presented data and tried to explain to senators how a single-series bond to pay for all tax refunds and COLA through Tax Year 2010 and into Tax Year 2011 would be financially sound. Senators instead opted to fund refunds only through part of Tax Year 2010. This is a problem because Tax Year 2011 tax refunds will become due as soon as the first person files a return this coming January, leaving the rest of Tax Year 2010 refunds behind.

 “We’re cutting costs and changing government so we can catch up with more refunds even after the bonds,” Governor Calvo said. “The legislature should have just let us do it all at once so that people don’t have to wait any longer. We’ll see where we are in January, as the law tells us, and we’ll decide on a second series then. I just hope the leadership doesn’t throw up more roadblocks.”

 Some senators argued that the government of Guam would be unable to repay the bond, or that services would suffer because of the bond. Some also said the administration was depending too greatly on revenues predicted from the military buildup.

 The Military Buildup, Tourism & Guam’s Economy

Administration officials repeatedly explained the stability of BPT and the Governor’s fiscal policies that are restoring structural balance to the government. The military buildup wasn’t even factored into the baseline projections.

 S&P confirmed this:

 “Although not built into projections (for 3% annual BPT growth), we believe the pending military expansion on Guam may bode well for the island’s economy and more specifically HOT in the coming years,” the S&P report states.

 Standard & Poor’s understands “Guam stands to gain as many as 9,182 U.S. Marines and 9,000 dependents from Okinawa, Japan, over the next five to 10 years.” The report indicates the U.S. and Japanese governments “have made a $10.27 billion commitment to this end.”

 The ratings agency also is confident in tourism, stating in its report, “we anticipate that a recent expansion in air service could serve to increase the number of visitors to the island and, in turn, BPT revenues.” The report lists the added new flights to Guam from Continental, Jin Air, Delta, Korean Air and Fly Guam.

 By contrast from the opinions of the bond’s opponents in the legislature, S&P writes, “In our opinion, Guam’s economy performed relatively well recently.”