Legislature receives “Tax Refunds & Fiscal Stabilization Solutions Act of 2011”
The Governor is proposing a biennial budget, which couples as an instrument to fund services and to pay its bills. It includes a very conservative budget for the next two years, and the payment of all past-due tax refunds by the end of this year. Measures to streamline operations to ensure the government never finds itself in this situation in the foreseeable future already are underway, with a policy enacted today in the Executive Branch.
The budget is premised upon two baselines: the bills it owes to the people of Guam and others, and the funding levels needed to provide the best possible services to the people of Guam over the next two years. We begin with a full understanding of the burgeoning budget deficit and the structural imbalance of the General Fund.
$348 Million Deficit; 20 Years of Borrowing Money from the People
As of September 30, 2010, the government was expected to reach an enormous $348 million deficit. A deficit of this size is unmanageable. $280 million of this deficit is what the government owes to the people of Guam in tax refunds, EITC, child tax credits and Make Work Pay tax credits, and provides for tax year 2010. The government will continuously borrow money from the people of Guam if nothing is done to fix this problem. If the status quo remains, even if spending is reined in, refunds will continue being two to three years late. This also does not include what this deficit does to the ability of government to manage cash and provide the services the growing population needs.
How We Got to This Point
The deficit was created by the continuous use of tax refunds to pay for government operations. The government had to do this because actual revenue collections for Fiscal Years 2009 and 2010 consistently fell well short of the adopted revenue projections. The government also was able to operate by interfund borrowings, a practice frowned upon by investors and creditors. This has been necessary in order to ensure cash was available every two weeks for payroll, and to pay court-ordered mandates. The practice of funding government operations by using the cash meant for tax refunds has been going on for 20 years. The government also was able to survive by underfunding its mandates or not funding some mandates at all. These mandates are services the people of Guam have been needing for years in order to provide sound education, adequate healthcare, safe neighborhoods and social services.
How We Will Get Ourselves Out of This Vicious Cycle; Customer Service Policy
The process of stabilizing government finances and fixing the structural imbalance already is underway. The first component, streamlining, is being addressed by a new customer service policy. In a nutshell, the Governor recognizes that most government workers provide invaluable and efficient service to the people. He also recognizes, as you do, that there are a select few government workers who do not subscribe to a standard of excellence in customer service. Rather than laying off employees wholesale, this new Customer Service Policy orders directors to streamline the workforce by prioritizing the discipline of government workers who do not provide adequate customer service.
The second part is the collection of more revenues. As it stands, this government needs more critical professionals, such as teachers, public safety officers, health care providers, social workers and more to meet the growing needs of the growing population. Aside from streamlining, we must collect revenue levels to meet these demands. We will not raise taxes. Proposals for revenue enhancements are underway and will be submitted later.
The third part is the transferring of the deficit into long-term debt by a $344 million bond. This bond will pay for tax refunds and other obligations of the government. It will wipe the slate clean and allow the government to focus its efforts on the future and on stringent and meaningful fiscal policies. More importantly, it will infuse up to $344 million into the economy at a time when the people need it most. It transfers the borrowing from the people to the bank.
How We Will Ensure We Are Never Back Here Again
Part of this plan places money meant for tax refunds in each fiscal year moving forward in trust. The government will be forced to pay this amount as a condition of the budget process. Two percent also will be reserved in the event revenues fall below projections.
The Governor will continue holding the line on spending, hiring, travel, etc. Revenue projections in this proposal are forecasted at a conservative rate.
The biennial budget lays the groundwork for the metamorphosis of government budgeting into a performance-based model. By Fiscal Year 2014, the government will begin to shift its budget methodology to a form of budgeting that relates government expenditures to results and fosters strategic planning and accountability.
This Is Why You Can Trust Governor Calvo to Hold the Line on Fiscal Responsibility
Every time you placed Governor Calvo in control of finances, he never let you down. Then-Senator Calvo lead the government through the Fiscal Year 2007 and Fiscal Year 2008 budgets. Those budgets were the gems of the past decade. They ended in surplus revenues.
Summary of the Biennial Budget:
Keeping with our promise of governing in a new direction, we are proposing:
1. A biennial budget plan that affords this government the opportunity to plan.
2. Fiscal Year 2012 gross revenue projections of $677.4 million. This is based on conservative rates that do not include federally-unfunded military buildup activities.
3. Fiscal Year 2012 appropriations of $561.1 million to fund government services. Priority is given to public schools, colleges, public health, the hospital and public safety agencies.
4. Fiscal Year 2012 provisions for tax refunds in the amount of $105 million for Fiscal Year 2012 tax refunds alone.
5. A Fiscal Year 2012 reserve of two percent of revenues, amounting to $11.2 million set aside for deficit elimination.
6. Fiscal Year 2013 gross revenue projections of $693.7 million. This is based on conservative rates that do not include federally-unfunded military buildup activities.
7. Fiscal Year 2013 appropriations of $573.2 million to fund government services. Priority is given to public schools, colleges, public health, the hospital and public safety agencies.
8. Fiscal Year 2013 provisions for tax refunds in the amount of $109 million for Fiscal Year 2013 tax refunds alone.
9. A Fiscal Year 2013 reserve of two percent of revenues, amounting to $11.5 million set aside for deficit elimination.
10. A $344 million bond proposal to pay all past due tax refunds by the end of this year, to eliminate almost all of the deficit, and to erase the cash shortfall.
Not included in this biennial budget plan is:
1. Revenue enhancements to begin addressing the structural imbalance of the General Fund caused by the systemic underfunding of mandates. These enhancements will be presented at a later date. 2. A streamlining initiative, based on customer service, which already is underway within the Executive Branch.
4.7.11 Customer Service Policy
4.8.11 Budget Message TV & Audio
4.8.11 Budget Transmittal Letter
