Puerto Rico and Guam are both colonies of the US. They have different trajectories as one is quite large compared to the other, one is in the Caribbean, the other in the Pacific. One is considered formally a colony by the UN, the other is not. But they tend to be viewed in the same way, as pathetic, dependent, incompetent and corrupt islands, barely staying afloat in a sea of American benevolence. The more active or progressive sense of solidarity is largely absent, as it is something that cannot directly be derived from the frameworks of colonial power, although it does make use of those connections and histories in a critical sense.
A case in point are these article which talk about Puerto Rico and Guam in the context of debt.
Puerto Rico bankruptcy 'a teachable moment' for Guam
by Gaynor Daleno
May 5, 2017
The Guam Daily Post
"We, too, are in a debt hole and what we do with our shovel is completely up to us." – Speaker Benjamin Cruz
Puerto Rico has filed for bankruptcy protection from creditors, which made its financial disaster the largest failure for a government bond borrower, according to Reuters and other international reports.
And it offers a cautionary tale for Guam, said Speaker Benjamin Cruz.
"Puerto Rico's troubles provide a teachable moment for Guam," he said.
"The question is whether or not we can learn its lessons," he said in a statement. "Puerto Rico found itself in a hole, and didn't realize it should stop digging, until it was too late," the speaker said. "We, too, are in a debt hole and what we do with our shovel is completely up to us."
Guam's debt has been around $1.1 billion, or less than 2 percent of Puerto Rico's $70 billion bond debt, but the island has a smaller economic base of 160,000 people, compared with that of Puerto Rico, which has close to 3.6 million people. Guam's credit limit is less than $300 million close to hitting the ceiling, according to a previous GovGuam report.
Gov. Eddie Calvo's administration has said GovGuam will never seek the kind of protection Puerto Rico sought from the federal bankruptcy court, said governor's spokeswoman Oyaol Ngirairikl.
However, Guam already has been affected by Puerto Rico's financial troubles, even before the bankruptcy.
Last month, bond investors asked GovGuam to pass into law an added layer of protection that the local government wouldn't use federal bankruptcy law as a shield from creditors, the way Puerto Rico did.
A sticky point for investors is the Puerto Rico Oversight, Management, and Economic Stability Act.
The mechanism that allows for Puerto Rico to file for bankruptcy also mentions all United States territories, including Guam, American Samoa, the Commonwealth of the Northern Mariana Islands and the U.S. Virgin Islands.
"Although the government of Guam believes that further act of Congress would be required beyond PROMESA for Guam to avail itself of the protection of bankruptcy, the existence has been a source of investor concern," according to the Guam legislation, which is meant to allay the fear of investors.
Puerto Rico's bankruptcy could loom over legislation that will be up for a public hearing this morning in the Guam Legislature.
The governor's $75M proposal
The governor's bill proposes borrowing $75 million, through a line of credit, to pay for tax refunds for this year, and he hopes to do so by the end of the month if the Legislature authorizes him to borrow.
However, Cruz has stated concerns about the borrowing because it would place an automatic lien on Section 30 funds, which are primarily income tax payments from military personnel and federal civilian workers in Guam. The Section 30 funds could no longer be counted in next year's GovGuam budget, and that funding shortfall could cause massive furloughs or the layoff of more almost 1,000 people, the speaker has warned.
The governor's office, however, has said the speaker is wrong, that there won't be layoffs or job losses because the tax refunds are an obligation that would eat into the local government budget anyway.
However, another Section 30 funding complication has come up because the new federal law that authorizes payment of war reparations for World War II victims of Japanese atrocities in Guam would also come from the same funding pot.
"The Bankruptcy Lessons Offered by a Guam Cousin, Puerto Rico"
The Guam Daily Post
May 5, 2017
Guam's U.S. territory cousin, Puerto Rico, has filed for bankruptcy protection from its creditors, which Reuters reported may be the biggest failure-to-pay case ever in the $3.8 trillion U.S. municipal bond market.
Although it was not immediately clear just how much of Puerto Rico's $70 billion of debt would be included in the bankruptcy filing, the case is sure to dwarf Detroit's insolvency in 2013, according to Reuters and other international news agencies.
Guam's debt has hovered around $1.1 billion, or less than 2 percent of Puerto Rico's $70 billion, but the island has a smaller economic base of 160,000 people, compared with the size of Puerto Rico, which has close to 3.6 million people.
Gov. Eddie Calvo's administration has said GovGuam will never seek the kind of protection Puerto Rico sought from the federal bankruptcy court to hold creditors at bay, but Guam already is affected by Puerto Rico's financial troubles.
Last month, bond investors asked GovGuam to pass into law an added layer of protection that GovGuam wouldn't use federal bankruptcy law as a shield from creditors, the way Puerto Rico did.
A particularly sticky point for investors is the Puerto Rico Oversight, Management, and Economic Stability Act, which has created concern as to Guam's financial position in the bond market.
The mechanism that allows for Puerto Rico to file for bankruptcy under PROMESA also mentions all United States territories, including Guam, American Samoa, the Commonwealth of the Northern Mariana Islands and the U.S. Virgin Islands.
"Although the government of Guam believes that further act of Congress would be required beyond PROMESA for Guam to avail itself of the protection of bankruptcy, the existence has been a source of investor concern," according to the Guam legislation meant to allay the fear of investors.
While the administration has said, and reiterated yesterday through governor's spokewoman Oyaol Ngirairikl, that the local government will never use the bankruptcy protection, the investors' request for an additional layer of legal protection does signal investors' jitters.
And if investors are jittery about lending to territory governments like Guam, that means borrowing could become more difficult, or more costly to repay, or both.
In light of the lesson offered by the Puerto Rico example, GovGuam should put the brakes on more borrowing.
GovGuam already is in debt by almost $1.1 billion, and that's just for debts that are subject to the debt ceiling. There are additional debts that are creatively called "municipal leases," which were a mechanism to build island public schools using borrowed money from developers or their financial backers.
Regardless of the borrowing name, GovGuam should probably stop borrowing.
As of last count, GovGuam's debt ceiling was less than $300 million from getting maxed out.
That's not a lot of borrowing capacity for a government that budgets to spend at least twice that amount every year.
"Second Thoughts on Bill 73/1 (1-S)"
by Ken Leon Guerrero
Letter to the Editor
Guam Daily Post
May 1, 2017
For the past two years, the governor has been crying wolf in an effort to borrow money to hide the fact his administration has consistently miscalculated the cost of operations for the government of Guam, and is technically "bankrupt." With this bill, he wants taxpayers to bail out his administration.
I do not see how Bill 73/1 (1S) qualifies for special treatment as there is no declared state of emergency. As far as I can tell by reading applicable laws, the desire by the governor to pay tax refunds in days instead of months does not qualify as a justifiable "financial emergency."
I am concerned that entertaining Bill 73/1 (1S) as written appears to be in direct violation of the 34th Legislature’s Standing Rules. Specifically Rule 6.01 (b) 2 which states:
- No bill shall be introduced or considered which authorizes public debt to fund the operations of any agency, instrumentality, or public corporation.
Based on my calculations, the current government debt is in excess of $12,000 per person – $1,400 higher than the level that forced Puerto Rico to beg the president and U.S. Congress for assistance. And, we see how well that is working out for them, as the Federal Control Board recommends closing 75 percent of government agencies.
Guam’s actual per-person deficit levels may actually be much higher, but we won’t know until we get the audit reports for 2016. But the fact the governor wants to have taxpayers pay themselves their own 2016 refunds out of borrowed money (with principle and interest also to be paid by taxpayers, instead of paying refunds out of excess tax collections) tells me GovGuam financial operations for fiscal 2017 are heading for another deficit.
I am appalled by the lack of a comprehensive and certified financial impact statement attached to this bill, because a simple math exercise tells me this passing this bill will have significant negative impacts on government of Guam.
Just looking at the tax refund issue and not the entire financial operations of the government of Guam, the numbers do not add up to a good decision:
• 2016 tax refunds due: $145 million
• Amount paid to date: $41 million
• Refund balance due: $104 million
• TRAN – admin fee: $67.5 million
• Remaining Balance Due: $ 36.5 million
That amount will have to be paid out of the General Fund, since the $70 million in Section 30 funds will be required by law to be used to repay the TRAN loan. An additional $5 million of expenditures from the General Fund will be required to complete repayment of the TRAN loan.
This process doesn’t save taxpayers any money. In fact, GovGuam will be making total General Fund expenditures of $41.5 million for the TRAN loan. And this number does not even include the interest charge.
Three TRAN loans will cost taxpayers $124.5 million plus interest to refund excess tax collections for tax years 2016, 2017 and 2018.
The fees for the three TRAN loans will cost taxpayers $ 22.5 million. So much for the governor’s claim that the TRAN loans will not cost taxpayers a cent.
For the past three years, the governor has consistently erred on his revenue projections and based his spending on "Pie in the sky" financial revenue forecasts. And since the governor and his management team have refused to face reality and do the hard things necessary to live within the government’s actual revenue stream, they are asking taxpayers to bear the entire burden of their financial mismanagement activities.
In my opinion, passing Bill 73/1 (1-S) could trigger a debt bomb financial crisis that results in the presidential appointment of members to a Federal Control Board to manage the financial operations of GovGuam.
I sincerely hope all the senators who campaigned on bringing financial stability to the government of Guam keep their promise to the people and hold this bill in committee until such time as the governor provides a financial impact statement that proves beyond all shadow of doubt, executing a series of TRAN notes is the financially prudent thing to do.
Based on the actions of the governor’s financial team to date, I don’t believe they will be able to provide such a document that will pass review by independent financial experts, but I am willing to let them prove me wrong.
"Guam hosts investors' meeting to distance itself from image of Puerto Rico, Virgin Islands
by Gaynor Daleno
The Guam Daily Post
February 25, 2017
With Puerto Rico’s bond-borrowing reputation shot, and the U.S. Virgin Islands bond status downgraded, the government of Guam hosted investment bankers and representatives of bond investors at the luxury Dusit Thani Guam Resort Wednesday and Thursday to show the island’s economy has lots of bright spots on the horizon.
Guam Visitors Bureau President and Chief Executive Nate Denight, whose agency recently announced record-high visitor arrivals that topped 1.5 million last year, was one of the featured speakers.
Yesterday, the multibillion-dollar Marine Corps base project, the island’s first large-scale solar farm and power, water and wastewater plant projects were showcased.
The two-day event was called "Invest Guam," and was held with the support of the brand names in investment banking, including Barclays, Citi, Orrick, Jefferies, Morgan Stanley, RBC Capital Markets and Wells Fargo Securities, as well as the Bank of Guam.
Participants of the conference were also given a chance to take field trips to show the military’s strong presence in Guam, including to Andersen Air Force Base and the Navy base.
Guam’s need to show the island's economy to the investment world followed the financial crisis in Puerto Rico, which has led Congress to enact legislation last year that has shaken bond investors’ confidence in some of the U.S. territories’ ability to repay debt.
Guam, the 'shining star of the territories'
As Puerto Rico stumbles through record-setting defaults and the U.S. Virgin Islands contends with a building fiscal crisis, Guam is being penalized by investors, through a rate change, even though it has kept an investment-grade rating, according to BloombergMarkets in a report Feb. 9.
The Virgin Islands since December has twice delayed a bond sale that it was counting on to help pay bills, and last month Moody’s Investors Service said it may cut American Samoa deeper into junk bond status, in part because of the economic hit caused by the closing of a tuna-packing plant, according to BloombergMarkets.
But Guam has so far avoided falling into junk-bond status, according to BloombergMarkets.
Ken Kurtz, an analyst with Moody’s called Guam the "shining star of the territories," because the island is "not on the edge of a cash crisis like the Virgin Islands is."
However, in a recent rating of the Guam airport agency’s bond debt, Moody’s stated that while tourism in Guam has continued a positive trend last year, a long-term decline in Japanese tourist arrivals could downgrade the airport’s standing before bond holders.