Guam’s Federal Public Debt Report Highlights Ahead of Challenges | Editorials
In fiscal year 2021, even with tourist arrivals stagnating for months at the height of the COVID-19 pandemic, future financial challenges for the government of Guam, including its ability to pay creditors, have been obscured by the flow of cash assistance from the federal government. government.
Income tax collection has increased – even when the paychecks of more than 28,000 people have disappeared or been significantly reduced – during closings and closings of businesses. But the increase was largely temporary. The unemployment checks that thousands of Guamanians received were taxable beyond a certain threshold, so it looked like Guam’s government coffers were fine, at least temporarily, and it looked like people were going to agree. with their income.
But the reality has not yet penetrated. Unemployment benefits, which have paid nearly $ 1 billion to island households and the local government fund for more than a year, will end in less than two months.
In the best-case scenario, tourist arrivals will only total 130,000 tourists by the end of fiscal 2021, up from 1.6 million the year before the pandemic. But for now, GovGuam’s revenue picture still looks good, with June revenue exceeding expectations, and that’s also largely because the federal government has provided over $ 1 billion in aid to the government. local government in addition to unemployment funds.
End of federal aid in the event of a pandemic
However, the federal government is no longer expected to inject massive new amounts of pandemic cash assistance into state and territory governments – like GovGuam – once the local government uses what remains of the existing funding authorized by federal law.
We know that GovGuam still has around $ 600 million to spend, but half of that is expected to be used to start construction of a “medical campus” including a new Guam Memorial Hospital as well as new mental health and health facilities. public health.
When that $ 600 million is used up, GovGuam likely won’t see another massive infusion of funds from the federal government for a very long time.
The losses in tourism income – if prolonged – could soon test GovGuam’s ability to juggle money to pay its massive wage bill, continue government services at the level they are currently provided, and pay all of its money. creditors on time.
GovGuam doesn’t really have the funds for the rainy days, at least not of the scale needed to cover most of its expenses and pay off its debts if tourism continues on a slow and heavy rebound that could last for a few years.
Guam is grappling with significant public debt.
In a new report released by the U.S. Government Accountability Office, Guam’s total public debt stock remained constant at around $ 2.6 billion between fiscal years 2017 and 2019.
Guam’s total public debt stock as a percentage of GDP declined slightly from 44% to 42% of the island’s economy between fiscal years 2017 and 2019. The decrease would have been a good development, except that the figures date from before the pandemic. GovGuam’s public debt can be broken down to $ 16,048 for every man, woman and child in Guam in fiscal 2019, a slight drop from $ 16,106 two years earlier.
There is also the GovGuam pension and other post-employment benefit obligations for GovGuam retirees.
“While Guam’s public debt has remained constant, a decline in tourism and continued pension liabilities present fiscal risks,” according to GAO, which released a report on the state of public debt in Guam, Marianas. North, American Samoa, US Virgin Islands and Puerto. Rico. The report is required every two years after Puerto Rico’s local government fails to pay its creditors and goes bankrupt.
Guam tourism accounted for 34% of jobs
According to the GAO report, prior to the pandemic, tourism was “Guam’s biggest industry” and accounted for 34% of total employment. GovGuam officials said GAO tourism generated nearly $ 2.5 billion per year and $ 260 million in tax revenue before COVID-19.
The decline in tourism due to COVID-19 and pension liabilities are fiscal risks facing the government of Guam, according to the report.
GovGuam told GAO that the increase in construction activity stemming from military expansion projects had “somehow offset the decline in tourism.” There are more than $ 1 billion in active construction projects underway due to military build-up, GAO said, citing local officials.
Guam’s net pension liabilities reached $ 1.5 billion in fiscal 2019, which represented about 24% of Guam’s total economic output that year, but local officials told GAO that the local government was still on track to eliminate the funding gap by 2033, as required by Guam. law. In addition to the Government of Guam’s liability for local government retiree pensions, it also faces $ 1.9 billion in other post-government employee benefit liabilities as of fiscal 2019. Together, the Guam’s net pension and post-employment obligations accounted for 54% of the island’s gross. domestic product that year.
Despite the slowdown in tourism, GovGuam appears to have managed its public debt payments well – due to federal aid in the event of a pandemic. Some government agencies, such as the AB Won Pat Guam International Airport Authority, have received direct federal cash to help pay off its bond debt.
But now what? Federal funds to help mitigate the impact of the pandemic will dry up, and the $ 2.5 billion a year tourism economy has not really rebounded.
The development of aquaculture and agriculture as well as inviting foreign companies to come to Guam to resolve their differences are some of the ideas that GovGuam is working on to boost economic activity, but realistically these plans are not expected to make up for losses from tourism in the next year or two or so.
Maybe it’s time to rethink the Guam government’s $ 2 billion a year budget. But the public has been told – more than once – that there is no need to reduce GovGuam’s payroll, which is its biggest expense.
Guam’s government budget and spending continues at levels that belies the crunch of the island’s No.1 economic engine.
When will reality sink?