FOR IMMEDIATE RELEASE
October 25, 2011
An independent study released today by the University of Guam shows that the administration’s pursuit of a Limited Obligation Bond is the more financially viable avenue to pay over due tax refunds, COLA class action lawsuit cases and health insurance premiums for fiscal year 2012.
The study satisfies provisions under Public Law 31-76 requiring an “independent financial and cost-benefit analysis to determine the more favorable financing for the government.”
“Based upon the summary and our preliminary findings, the Limited Obligation Bond we’re pursuing is not any more credit negative than a General Obligation Bond,” said Senior Policy Advisor Arthur Clark. “We believe the report satisfies the requirement under PL 31-76 and the administration intends to move forward now with issuing a Limited Obligation Bond and we’re hoping to see ratings by the end of the week, as scheduled.”
The Calvo Tenorio administration’s preliminary findings of the study show:
- A Limited Obligation Bond would likely have a higher bond rating than a General Obligation Bond.
- A Limited Obligation Bond would have a lower cost of issuance than a General Obligation Bond.
- The 6.5 percent interest rate limit imposed by PL 31-76 is more likely to be achieved by a Limited Obligation Bond than a General Obligation Bond due to the expected rating differences.
- The bond will provide an orderly and scheduled means to settle existing obligations such as tax refunds.
- A Limited Obligation bond backed by Business Privilege Tax would likely receive an investment grade rating.
- The basis for this was that the Hotel Occupancy Tax bonds issued in March received a BBB+ rating.
- The Business Privilege Tax has a broader and more stable revenue base than the Hotel Occupancy Tax.
- The report was unable to conclude that an issuance of the preferred Limited Obligation Bond would have credit negative impact.
The study was conducted by a team of finance and economics professionals from the University of Guam.
Contact Natalie Quinata at 475-9213 or 488-6013 for more information.