Tax credit laws have allowed for immense public benefit for over half the history of the Guam Legislature
“I always want to give credit where credit is due. In this case, tax credit credit goes to senators from both side of the aisle, going all the way back to 1977, for a program that has helped shape the island in many ways. Some of these senators who’ve authored and voted for these laws, have been attacking our administration for honoring the credits they told us to issue. That’s okay with me. That’s just politics. It’s an election year, and we’ll probably have to weather more of this kind of thing. But for me, again, from the Executive Branch to the Legislative Branch, I extend the Olive Branch. Thank you, senators, for these laws.” – Governor Eddie Baza Calvo
Governor Calvo thanks current and former senators, both Democrat & Republican, for their foresight in authorizing ways and means for governors to get things done. The tax credit programs they mandated throughout the years are excellent financial management and development tools. Because of these programs, Guam now has some world-class sports facilities, workforce development incentives, a new high school (this summer), the upcoming modernization of all public schools, and the ability to pay down debt.
How senators from both sides embraced good fiscal policy
Here are those public laws that authorized – and in some cases, mandated – the use of tax credits as payment for various developments and services. We note the year the law passed and the main sponsors of each piece of legislation. By their names are the marks (D) for Democrat and (R) for Republican. This shows how these programs truly have garnered bi-partisan support over a period longer than half the history of the Guam Legislature.
Guam’s tax credit laws, and the senators who made them possible:
- Guam Raceway Park: P.L. 24-141 (1998) by former Sens. Larry Kasperbauer (R), Willy Flores (D), and Tony Lamorena (R)
- Paseo Stadium (rehabilitation, development & maintenance): P.L. 26-166 (2003) by former Sens. Mark Charfauros (D) and Larry Kasperbauer (R), and Sen. Ben Pangelinan (D)
- Guam Football Association’s soccer fields & training grounds in Dededo: P.L. 27-85 (2004) by Sens. Ben Pangelinan (D) and Tina Muna Barnes (D), and former Sen. Lou Leon Guerrero (D)
- Public school sports facilities: P.L. 27-114 (2004) by Sen. Ben Pangelinan (D), and former Sens. Carmen Fernandez (D) and Toni Sanford (D)
- Outdoor multi-purpose sports complex at UOG: P.L. 27-130 (2004) by former Sens. Lou Leon Guerrero (D), Jesse Lujan (R), and John Quinata (D)
- Incentives for businesses to train and hire apprentices for workforce development: P.L. 28-142 (2006) by former Sen. Eddie Baza Calvo (R), the late Speaker Tony Unpingco (R), and former Sen. Mark Forbes (R)
- MIP offsets: P.L. 28-150 (2006) by former Sen. Eddie Baza Calvo (R)
- Tiyan (CoreTech) school facilities: P.L. 30-27 (2009) by Speaker Judi Won Pat (D), and Sens. Tom Ada (D) and Frank Aguon, Jr. (D)
- $100M in school renovations and modernization: P.L. 31-229 (2012) by former Sen. Judi Guthertz (D) and Sen. Aline Yamashita (R)
- Development of Lada Estates: P.L. 31-282 (2012) by Sens. Tina Muna Barnes (D), (Speaker) Judi Won Pat (D), and Rory Respicio
- Renovation, rehabilitation, or construction of public schools: P.L. 32-121 (2014) by Speaker Judi Won Pat (D), and Sens. Tina Muna Barnes (D) and Aline Yamashita (R)
- Compensation of fair market value to people whose lands were taken by the government, and the government has failed to compensate them with cash payment: P.L. 14-69 (1977): by former Sen. Eddie Duenas (R), and the late Sens. Ernesto Espaldon (R) and (Speaker) Tony Unpingco (R)
Addressing senators’ concerns about tax credits causing cash flow problems
Over the past two weeks, some Democrat senators have alleged that the application of tax credits will jeopardize government services and operations. First, the tax credits don’t jeopardize services and operations; bad financial management and the failure of government in the past to pay down debt (or for the Legislature to set aside the funding to pay down debt) is what jeopardizes these things. Second, the Executive Branch doesn’t have a choice but to issue the tax credits that are taken by the former landowners; the Legislature mandated this entitlement and didn’t give the Governor an option. But, more importantly, the issuance of tax credits is not jeopardizing services and operations.
Director of Administration Benita Manglona, whose agency is responsible for cash management, reported at the legislative oversight hearing Thursday that cash flow is sustainable. Every assurance Manglona has made before the Legislature since January 2011 has been proven accurate, from the cash crisis in early 2011 to the lowering of the health insurance contract, and from tax refunds to the government’s other outstanding liabilities.
Vice speaker’s question
On March 10, the legislative vice speaker issued a release, stating, “[E]very dollar in the current year budget has already been earmarked for education, health, safety, and General Government Operations. Put simply, how much money should our government take from students at the Department of Education, just because the administration has chosen to prioritize one obligation of government over another?”
Answer to the vice speaker’s question
There is no money being taken from DOE or any other agency because of the honoring of the Legislature’s tax credits (that, once again, are mandated by the Legislature and are an entitlement until the Legislature revokes them). This is a misunderstood look at how tax credits affect the government’s finances, and the classic difference between cash accounting and budgeting.
Even the critics recognized that tax credits work, especially during the hard times
The Legislature (Vice Speaker Cruz and Sen. Pangelinan included) has, itself, recognized how tax credits – managed well – will not jeopardize services. As a matter of fact, the Legislature has placed it on the record their belief that tax credits perform a public benefit for the good of the community, especially when the government is financially-strapped. The following is directly quoted from the legislative intent of Public Law 30-37, authored by Speaker Won Pat and Sens. Tom Ada and Frank Aguon, Jr.:
“I Liheslatura further finds that the government of Guam is financially strapped and may not be able to afford payments for a lease to temporarily house the JFK High School community while construction is being conducted on the new permanent campus. It is, therefore, the intent of I Liheslatura to authorize tax credits to a lessor who is willing to provide for property and a facility conducive for a school environment for JFK High School free of charge.”
FOR THE RECORD: We do not condone spending sprees using tax credits just because they’ve been managed well thus far. The mandate of too many tax credits will constrict cash management. We advise senators to exercise caution when considering this financial tool.
Will tax credits hurt us right now?
Sen. Pangelinan, Sen. Rory Respicio, and Vice Speaker Cruz all have raised concerns about tax credits being honored at this time. This is a time when the government of Guam is deficit-free for the first time in two decades. We are in a new era of paid-on-time tax refunds. Vendor payables are within a standard time frame for payment once invoices are received at DOA. Thousands of GovGuam employees received pay raises, and millions in other payments owed to them for over 20 years. Public schools are receiving new learning devices and hundreds of millions in renovations. The list of investments indicating sound financial management goes on.
In contrast, we note the following:
1. Millions of dollars in tax credits were authorized by the Legislature in four different laws (all authored by or voted on by Sens. Pangelinan and Respicio) in 2003 and 2004. This was when GovGuam had a $314 million deficit, GovGuam employees had to endure a 32-hour workweek that the Legislature mandated, and the people of Guam were meant to suffer through a 50 percent increase in the Gross Receipts Tax.
2. The Legislature authorized the use of tax credits to lease (with an option to purchase) the CoreTech facility in Tiyan for school facilities in 2009. This was when GovGuam had a $265 million deficit, and owed taxpayers $254 million in tax refunds.
3. As recent as two months ago, the Legislature authorized $100 million in tax credits for the modernization of public schools. This is sister legislation to its previous authorization of $100 million for the same benefit back in 2012. This is over 300 percent above the total debt due to the former Layon landowners, and nearly nine times the amount of tax credits issued to the claimants.
4. This year, the Legislature’s mandate caused the application of $13 million in tax credits to the Layon former landowners, with $3 million redeemed. This total is far less than the ones mentioned above. And this was done in a year when the General Fund deficit is gone, 96 percent of all old bills (liabilities) left for Gov. Calvo to pay down have been paid down, and cash flow is, well, flowing for the first time in anyone’s recollection.
Obviously, the Legislature has very recently recognized that the issuance of tax credits does not place a heavy burden on the GovGuam bank account, but actually benefits the public interest. To place this in common-sense perspective, how could tax credits have a negative effect now (when the deficit is gone), if it worked when GovGuam owed hundreds of millions to the people? The answer is ‘cash management.’ It is an executive function. It is one we work hard every day to do quite well.
“Si Yu’os ma’ase to senators for their tax credit programs. As we lead by example, it’s important that we shake off the frustration of the old adage of politicians who want us to ‘do as they say, not as they do.’ The best way to do that is to embrace them for what they’ve done right.” – Governor Calvo