Guam governor accepts budget while criticizing it

Guam Gov. Lourdes Leon Guerrero let a Senate-passed $1.168 billion budget go into law without her signature, despite her concerns about use of a rainy-day fund, executive branch appropriation and “phantom” revenues.

The Senate passed the budget on Aug. 30, with nine Democrats voting in favor and six Republicans voting against.

Leon Guerrero, a Democrat, sent a letter to Senate Speaker Therese Terlaje on Monday saying she would let the budget become law but laid out several concerns with it. “The budget act adopts realistic revenue projections and line agency budgets, and funds important initiatives, including law enforcement recruitment, the new General Pay Plan, and retirees’ health, dental and life insurance.”

“However … certain provisions in the bill must be corrected immediately to ensure the continued viability of our government’s finances,” Leon Guerrero said.

In May the Senate and the governor passed a law allowing the use of up to $50 million from the general fund for addressing the effects of Typhoon Mawar, a strong typhoon that hit the island on May 24. The governor said part of the just-adopted budget shifts the revenue for this to a rainy-day fund from the general fund.

Since it is expected the rainy-day fund will only have $40 million as of the start of the fiscal year on Oct. 1, the Senate has “essentially authoriz[ed] checks it knew full well could not be cashed,” the governor said.

Further, the rainy-day fund was created for “events threatening immediate survival during a state of emergency,” such as extreme economic crises. They should only be used for natural disasters “as a last resort, when no other funding is available,” she said. Guam’s finances have remained stable after Mawar. Using the rainy-day fund “imperils our improved standing in the financial market.”

 The governor said even before this possible draw, the rainy-day fund was small compared to those of other jurisdictions and that it had taken years to develop that small amount.

Leon Guerrero called on the Senate to repeal the section of the budget act pulling money from the rainy-day fund.

On a second topic, she said the budget improperly directs payment of past-due merit bonuses for active and retired government employees out of the executive branch budget. Since many of the employees were not in the executive branch, that branch should not pay their bonuses. The Senate cannot interfere with the “executive branch’s power to allocate resources for the proper fulfillment of its duty to execute the law” the governor said.

The governor said the Senate should find other sources of money to pay the bonuses.

Lastly, the governor said there were “phantom” appropriations of $19 million of nonexistent fiscal 2022 money. If there were any excess from that fiscal year, they were already appropriated in fiscal 2023, she said.

She said the Senate is continuing to allocate funds from prior-year budgets before an audit of the year is completed, showing how much money from that year is available. “If left unabated, this practice will land our government right back in a deficit position.”

Senate Minority Leader Frank Blas Jr. told The Bond Buyer earlier drafts of the budget were OK until the last few days of August. Then the Democratic members of the Senate undid Republican efforts to reign in spending, he said.

With healthy revenues recently, Blas said he had hoped the Mawar disaster would have made the legislators careful about spending too much. He had hoped the government could have reverted the island’s business privilege tax to 4% from 5% but it didn’t.

While the economy is growing, this is partly due to the federal military buildup in Guam and that should not be counted on to continue indefinitely, Blas said. Money should have been set aside for paying debt to vendors, employees, and for the rainy-day fund.

The approved fiscal budget was for $909.2 million in total general fund revenue, compared to $809.9 million in fiscal 2022. The totals after setting aside money for tax refunds is $852 million for the coming fiscal year and was $747 million for the ending fiscal year. The budget anticipates $211.5 million of special fund revenue and $145.1 million of federal matching grants-in-aid.

The biggest expenditures from the general fund are $220.8 million for education, $65.5 million for the Department of Public Health and Human Services, and $43.1 million for the Police Department. There is also $70.8 million of debt service planned.

Guam’s general obligation bonds are rated Ba1 by Moody’s Investors Service and BB-minus by S&P Global Ratings. Its special tax bonds are rated Ba1 by Moody’s. Its business privilege tax bonds are rated BB by S&P.