VIEWPOINT: “GuvGuam Financials – A Decade In Perspective” by Bertha Duenas


Guam – The following is a VIEWPOINT perspective provided to PNC News by Bertha Duenas, the former Director of the Bureau of Budget and Management under the Camacho Administration.

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VIEWPOINT – by Bertha Duenas

Over the past decade, the government of Guam dealt with what may conceivably go down in history as some of the greatest challenges of its time.  This writing is an attempt to put into perspective the material facts of this unprecedented decade of struggles and successes.

To appreciate the magnitude of the challenge and how we got here, we first need to reflect back on the previous 10 years (1993-2002).  In January 2003, the Camacho Administration took on a $225 million General Fund deficit and the aftermath of a tumultuous decade that saw the Asian economic crisis of the 90’s, the attack on America, the SARS threat, the Bush Jobs Relief Act, and several natural disasters in between, to include Super Typhoon Pongsona, less than 30 days before taking office.  In the ten (10) years preceding the new Administration, over $230 million was lost from the revenue stream supporting critical government services brought on by a myriad of regional and national events affecting Guam’s tourism industry.   

Overcome by events largely beyond its control, General Fund revenues plummeted from $551 million in FY 1993, to an all time low of $320 million by the end of FY 2002.  Fortunately, the cumulative deficit remained manageable during that period fluctuating within $100 million with the help of a $115 million Deficit Bond in 1995.  But by fiscal years 2001 and 2002, the back-to-back events of the attack on America and Supertyphoon Pongsona dealt another major setback upon Guam’s recovering tourism economy.  In fact, seventy percent (70%) or $161 million of the $230 million in lost revenues spanning a decade was recorded in 2001 and 2002.  With this as a backdrop, an economy on its knees was ceremoniously handed over to the incoming Administration to revive, stabilize, and place back on a sustainable path.  

In the years that followed and through bipartisan efforts, the legislative and executive branches adopted major initiatives as part of its overall plan of finance.  Early in 2003, public law adjusted gross receipts taxes from 4% to 6% which over 13 months provided the government with nearly $70 million in much needed cash flow reprieve.  That same year, a special tax collection task force was activated and over the next four years their efforts recorded collections of over $150 million in tax receivables.   

However, these initiatives were insufficient to offset the revenue losses of the past decade as the situation was further exacerbated by the lingering effects of the Bush Jobs Relief Act of 2003, increasing demands for public service, mounting unfunded mandates, and other inflationary factors, such as the progressive increase in retirement contribution rates upon a $320 million public sector payroll.  This dismal picture we would find was further aggravated by the market collapse in the fall of 2008 and the global recession that followed.

Inevitably the tide of opposing demands overcame a recovering economy and the deficit grew to $524 million by the end of 2006.  However, this deficit number included 41% or $213 million directly attributed to the Cost of Living Allowance judgment for retirees ($123 million) and the Earned Income Tax Credit settlement of 2004 ($90 million).   

As if these weren’t enough, more challenges were brewing in federal court.  Guam’s long-standing violations of the Clean Water Act finally led to a Court-ordered receivership for Guam’s solid waste management operations in 2008 at a price tag of $202 million.  In addition, years of non-compliance to the terms of a permanent injunction placed upon the Department of Mental Health and Substance Abuse and the Department of Integrated Services for Developmental Disabilities forced a federal management team takeover and subsequently Court-ordered payments of nearly $16 million of which $12.2 million in “unbudgeted” payments are becoming due in FY 2011.

Work continued on revenue enhancements and several new initiatives were implemented to include tax amnesties, the repeal of the Visible GRT, amendments to the Dave Santos Act, and adjustments to various department fees and charges.  These combined with pre-military buildup construction activities restored some $60 million in lost revenues back into the economy between 2007 and 2009.   

The following chart depicts revenues over seventeen (17) years showing manageable fluctuations between 1994 and 1998, followed by a steady decline until the plunge in 2002.  Afterwards recovery seemed to be on track until the market meltdown in 2008, the global recession that followed, and the Obama “Make Work Pay Credit” stimulus impact on withholding taxes.

Over more than a decade of fiscal quagmire, the government kept on its parallel path to better manage dwindling resources.  Austerity measures became permanent policy expanding to include self-imposed reserves and the Administration managed to slow down the deficit growth without compromising critical services. As a direct result of these efforts and sound fiscal policies, the financials began showing reverse trends and by 2007 Guam recorded two (2) consecutive years of surplus of $14 million and $86 million in 2007 and 2008, respectively.  These improvements were further highlighted as Guam acquired, for the first time in its history, the distinction of having achieved an unqualified opinion with its financial audit. This status was also sustained over the next two (2) consecutive fiscal periods (2008 and 2009).

GENERAL FUND          FY 02                      FY 03               FY 04               FY 05               FY 06                 FY 07             FY 08             FY 09
Surplus (Deficit)          (124,650,893)      (88,890,973)        529,187        (30,392,488)    (175,674,428)   13,961,883      86,379,789     150,137,564

Ending Fund Balance  (225,231,369)      (314,122,342)   (313,593,155)  (348,403,932)  (524,078,360)  (510,116,477)  (415,514,934) (265,377,370)

[Source:  Government of Guam Audited Financial Statements ]

In 2008, backed by these improvements and a resolve to continue the path towards fiscal recovery, Guam made its case to ratings giant Standard and Poors in October 2008, and shortly thereafter received an upgrade of its general obligation bonds from ‘B’ to ‘B+’, with a stable outlook.  The upgrade was based on what the ratings giant viewed as improved financial performance as the direct result of greater political consensus to enhance revenues and control expenditure growth.

The government’s financial position was finally recognized as having been stabilized after a decade-long deterioration.  The rating agency specifically recognized that, for the first time, a structurally balanced budget was passed in FY 2009, which included authorization for funding some of its long-term liabilities with a general obligation debt.   

Over the next few months, with the bond rating upgrade and a bond authorization the product of bipartisan efforts, Guam made its way to market in June 2009 and made a case which resonated with investors and now has taken its place in history as the largest historical combined sale of Guam debt.  Guam simultaneously secured two bond financings totally $438 million, tied to each other by a Federal District Court mandate and a Legislative mandate.

The Federal District Court Order required funding for the new landfill by June 30, 2009 and the Guam Legislature mandated that the GO (Deficit) bonds be sold prior to, or at the same time, as the LO Section 30 (Landfill) bonds.  As a result, the marketing strategy for both deals included institutional investor road show conference calls and face-to-face meetings with potential investors and subsequently, both deals were priced and closed on the same day, at a rate no one predicted possible.  The 2009 General Obligation (Deficit) bonds closed at a coupon range of 5.75-7.00% and the 2009 Limited Obligation (Landfill) bonds closed at a coupon range of 5.00-5.75%.  

The financings overcame a challenging market environment nationally in the high yield sector as well as a volatile political environment locally.  The bond issues were the first large “low” to “non-investment” grade category bonds priced in the market that year.  The general obligation financing revived the high yield market after almost a year of very little to no activity.  The deal remains, to date, one of the largest, if not the largest, non-investment grade transaction issued since the market fallout in September 2008.   The deal’s success demonstrates solutions for an issuer with financial challenges and very limited financing options and the positive results of innovative bond structuring and proactive marketing.

The general obligation bonds were issued for the purpose of paying General Fund liabilities including the Cost of Living Allowance, income tax refunds, retirement contributions, and other critical operating and capital needs and were secured by the pledge of the full faith and credit of the government.  The Section 30 limited obligation bonds were issued to provide funding for the construction of a new landfill and closure of the Ordot dump per a Federal Court Order driven by strict deadlines following a USEPA Consent Decree for violations of the Clean Water Act.   

Meantime, the Governor and Legislature continued its efforts in further improving Guam’s overall financial condition.  The Fiscal Year 2009 budget helped to solidify fiscal controls as a policy for the future.  These were specifically recognized by Standard and Poors in its memorandum on Guam’s general obligation rating affirmation in August 2010.  Some of these include the reinstated allotment control over the Department of Education which secured Executive control over 80% of general fund expenditures, previously only 44% and the 98% spending cap on budgeted revenues which would ensure the systematic reduction of the accumulated deficit.   

Even prior to these mandates being in place, the General Fund had already recorded a deficit reduction of $14 million in 2007 and $95 million in 2008.  Another $150 million reduction was recorded in FY 2009, due primarily to the deficit bond financing that year.  At the close of FY 2009  the General Fund deficit was at $265 million, another 36% reduction, in spite of the fiscal morass that dominated the decade,  Today General Fund revenues have reached the mid-90’s levels and Guam is now poised for unprecedented growth with the military buildup.  Positive construction, employment, real estate, and visitor trends all point to strong General Fund revenue trends over the next five to seven years.

Governor Camacho’s Deficit Elimination Plan, officially transmitted to the Legislature in 2007, included four components:

(1) expenditure control,
(2) revenue enhancements,
(3) deficit financing,
(4) economic stimulus.   

These accounts show that all components of the Plan were effectively achieved during his Administration and its goals had a direct impact on the improved financial performance of the government to date.

The following summarizes the challenges of the past two decades and the solution and accomplishments over the same period by the Camacho Administration.


* Asian economic crisis of the 90’s
* Attack on America in 2001
* SARS threat in 2003-2004
* Bush Jobs Relief Act of 2003
* Natural disasters in the 90’s (Typhoons Russ, Yuri, Omar, Paka, Pongsona)
* $231 million revenue loss (1993-2002)
* $225 million General Fund deficit carried over from 2002
* COLA Judgment ($123 million)
* EITC Settlement ($ 90 million)
* Market collapse in 2008
* Global recession
* Solid Waste Receivership in 2008 at a price tag of $202 million.
* Mental Health Permanent Injunction at a price tag of $16 million


* Revenue enhancements
* Aggressive tax collections
* Budgetary controls; self-imposed reserves
* Improved overall financial performance
* First-ever clean audit (unqualified opinion) in 2007 & for 3 consecutive years (2007-2009)
* General Obligation bond rating upgrade
* Historic combined sale of Guam debt ($438 million) at a coupon range of 5.00-7.00%
* Closure of Ordot dump & building of a new Landfill / compliance to consent decree
* Paid down over $400 million in long-standing liabilities (Refunds, COLA, EITC)
* Recorded $100 million in surplus for 2 consecutive years (2007 & 2008)
* Recorded $259 million deficit reduction for 3 consecutive years (2007-2009)


Guam continues to demonstrate strengths that include a stable political environment, improved financial reporting and budgetary controls, structural balance and deficit reduction, strong general fund trends, and exciting growth potential in its tourism and military economy.  However, it is cautioned that the military buildup will add incremental costs for providing government services to permanent and temporary residents during the buildup stages and GovGuam is currently not in a position to support this ramp up without external support.   

Unless solid numbers and timelines are better identified for meaningful analysis and strategic plans are put in place as a blueprint for sustainability after the peak, Guam will no doubt be further burdened throughout the process and create more uncertainties after the anomaly subsides.  It is already heavily leveraged and nearly maximized in its debt capacity, therefore, unprepared and unable to pay for additional demands the buildup will bring upon its operational infrastructure, much less its capital infrastructure!  The immediate months are crucial to securing the unknowns for more informed policy decisions that will set the pace and path towards a sustainable outcome, long after the buildup has past!