Guam – Standard & Poor’s has increased its credit rating for the Government of Guam from B+ to BB-, although that is still three steps below investment grade.
Bloomberg quotes a San Francisco-based S&P analyst Paul Dyson as saying that “The rating action reflects our view of the government’s improved financial management practices, including improved transparency, stricter fiscal discipline and enhanced cash flow monitoring procedures and capabilities.”
The report states that even though the BB- rating is a “junk” rating, its better than the recent downgrade of Puerto Rico’s debt.
S&P explains that Guam’s improved rating reflects their view that GovGuam’s financial management practices have improved. The S&P report cites, improved transparency, stricter fiscal discipline and enhanced cash flow monitoring.
Governor Calvo told PNC News that he is pleased with the upgrade. He said all GovGuam employees and his fiscal management team deserve the credit.
In addition, S&P says the outlook on Guam’s general-obligation debt is stable, “based on a view that ‘tourism and the economy are likely to improve during the next two years, benefiting Guam and providing it with opportunities to improve its financial position.'”
Following the news, the Governor’s Office issued a release highlighting the positive remarks in the S&P report.
READ the release from Governor Calvo below:
Rating Upgrade Translation: Calvo’s Fiscal Policies On Right Track
Earlier this morning we released news of the historic upgrade of Guam’s credit rating by Standard & Poor’s. We went from a ‘B+’ to a ‘BB-‘ with a stable outlook. This is two notches below an ‘A’ rating.
We could explain how this all came to be, however, we decided it’s best to just allow the report to speak for itself. Here are excerpts from the report:
“The rating action reflects our view of the government’s improved financial management practices, including improved transparency, stricter fiscal discipline, and enhanced cash flow monitoring procedures and capabilities.”
Direct quotes on how GovGuam improved its fiscal position, and what it means for taxpayers
“These improvements, when taken in conjunction with generally positive-trending revenue, positive cash flow, and success in cost containment over fiscal years 2012 and 2013, have resulted in an improved liquidity position in the past several months.”
“Although financial challenges remain, we believe this recent track record is likely sustainable into fiscal 2014 and beyond, as the government’s five-year financial forecast likewise indicates.”
“Governor Eddie Calvo took office in January 2011, facing the task of reducing the government’s more than $336 million general fund deficit stemming from several years of operating deficits, poor financial controls, and aggressive budget assumptions as well as from economic and weather-related impacts. Under the governor’s direction, the government assembled a fiscal stabilization plan that made fiscal discipline the highest priority. The plan included several objectives, such as improved budgeting practices, more realistic cash flow projections, stricter cost controls, revenue enhancement, governmental reorganization for improved efficiencies, and economic development.”
“More important, general fund revenue grew while expenses shrank, reducing the general fund operating deficit before transfers and one-time items to $57 million from $125 million in fiscal 2011.”
“Because of the successful implementation of Governor Calvo’s fiscal stabilization plan, the government has been able to stay current with tax refunds, paying out $138 million in fiscal 2013.”
“In addition, because of its improved financial condition, the government announced in June 2013 that it plans to reinstate across-the-board pay increases (known as the Hay Plan) and provide legally mandated 40% pay adjustments for public safety officers whose pay had been frozen since fiscal 2011.”
“Based on the analytical factors we evaluate for U.S. states and territories, on a four-point scale on which ‘1’ is the strongest, we have assigned Guam a composite score of ‘3.1’ — an improvement from the previous ‘3.3’.”
Direct quotes on the outlook for Guam and her economy because of the fiscal position
“The stable outlook reflects our anticipation that tourism and the economy are likely to improve during the next two years, benefiting Guam and providing it with opportunities to improve its financial position.”
“The stable outlook also reflects our assessment of Guam’s increased political willingness under Governor Calvo to continue the positive momentum realized in recent years to improve Guam’s fiscal position.”
Direct quotes on GovGuam’s financial management efforts
“We characterize Guam’s financial management practices as “good” under our financial management assessment (FMA) methodology, an improvement from the previous assessment of “adequate.” An FMA of “good” indicates our view that practices exist in most areas, although not all may be formalized or regularly monitored by governance officials.”
“The Governor’s Fiscal Policy Committee (FPC) meets weekly to discuss the government’s current and future cash position and to track revenue, and the process focuses on monitoring financial and economic events that have direct and indirect bearing on government revenue collections, operating expenditures, and overall financial stability. Several models are used to accomplish this, and most models are updated monthly.”
“Guam has several reserve policies in place to set aside reserves over the course of the fiscal year and to prevent overspending, and cash balances have improved compared with fiscal years 2012 and 2013.”
Direct quotes on budget management practices
“[T]he government has made considerable progress since Governor Calvo took office in January 2011 in paying down long-term liabilities such as unpaid tax refunds and past-due cost-of-living adjustments, among other liabilities.”
“We also note that Guam has made significant efforts improve its budget situation, with several reserve policies or designations in place to prevent overspending and to build reserves, and several strategies developed to enhance revenue and control spending.”
“Assuming no change to the government’s revenue and tax structure, real improvement in the government’s budget situation relies heavily on even stricter cost controls, stronger economic growth, and revenue diversification so that general fund balances can experience healthy, consistent growth. Recent data suggests that this is possible, as tourism trends have improved and military spending continues.”
“On a four-point scale on which ‘1’ is strongest, Standard & Poor’s has assigned a ‘2.5’ score to Guam’s financial management.”
Direct quotes on budgetary performance
“We continue to believe that, to avoid additional general fund deficits in future years and absent an unanticipated surge in revenue, Guam must practice an even greater level of budget discipline. Given the island’s exposure to various events beyond its control (e.g., weather-related and economic) and rising obligations, nondiscretionary spending must be monitored, and reserves set aside rather than used. We believe, however, that the likelihood for this to occur is greater now than it has been for several years, given the current administration’s improved financial management.”
Direct quotes on liquidity
“Although cash flow challenges remain given contingent obligations, rising debt service requirements, and pay increase reinstatements, we believe that Guam’s liquidity position and cash flow management have improved.”