Bi-partisan commission approves fiscal plan
FOR IMMEDIATE RELEASE
May 8, 2012
The Governor’s fiscal commission today reviewed a plan that will curtail spending, raise revenues, restructure the retirement fund debt, and support economic development initiatives. The commission approved the plan unanimously this morning.
The full name of the fiscal commission is the Fiscal Responsibility & Tax Refunds Commission. The Governor created it last year by executive order.
The plan, which is a component of a larger fiscal strategy, was mandated by Public Law 31-76. That was the public law authorizing the first bond, which paid for most of the prior year tax refunds last December. P.L. 31-76 said that the Governor could pursue two series of bonds. It said that the fiscal commission had to meet and approve a fiscal plan before the second bond is sold.
The plan was no longer required with the passage of Bill No. 414, authorizing the Series B bond. This is the bond the Governor is pursuing now to pay for about half of the 2011 tax refunds that are due this year.
“We didn’t have to do this plan or make any presentations, but we worked hard on it and wanted to show good faith to the legislature to allay some of their concerns,” Governor Eddie Baza Calvo said. “We wanted to show the public that we are on solid footing.”
These are the main points of the report:
1. Annual overstatement of revenues and understatement of expenditures have caused the government, in years past, to use money meant for tax refunds to pay for operations. It created a huge deficit, mostly made up of tax refunds. Therefore, the administration had to continuously implement several unpopular austerity measures starting with the rollback of the Hay plan. The commission agreed with the recommendation to continue cost cutting, revenue enhancement, charge of appropriate fees, and economic development initiatives.
2. Because of good fiscal management, millions have been deposited into the tax refunds account for the first time ever. That money, actual cash, is being held in a bank account in trust to pay for the 2012 tax refunds when they become due next year. This is how the government should have been operating for years.
3. A full analysis of all GovGuam’s debt revealed that the government’s business privilege tax revenues could sustain the bond debt service 14 times over. The government also is in a good position to afford other types of debt service.
4. The contribution rate to pay down the retirement fund’s unfunded liability in the next 19 years is too high. The taxpayers currently pay 30.76 percent of payroll costs to the unfunded liability. The commission agreed with the recommendation to prevent increasing of benefits, to conduct an experience study every three years, and to extend the amortization period by 10 years.
DRFR Plan Presentation to FRTRC – 5-1.8.12
The approved plan is attached. The presentation on the plan also is attached for your convenience.
Deficit Reduction and Fiscal Reform Plan as approved by FRTRC
Please call Natalie Quinata at 488-6013 for more information.
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