March 23, 2018

Hagåtña — While Public Law 34-87 required a reduction in General Funds of $30 million, the fiscal realignment plan had to cut deeper.

The federal Tax Cuts and Jobs Act of 2017 reduced revenues by $67 million for this fiscal year. However, the new public law increases revenues by an approximate $25 million.

“We knew going into this that reductions would have to be made,” Governor Calvo stated. “My administration committed to reducing costs when we started this conversation with the Legislature.

Most line agencies already have cost-cutting measures in place so they were prepared for this eventuality, through a general hiring freeze, not filling vacancies, and not extending LTAs, among other actions. A consequence of not hiring personnel means improvements that had been planned for some services will not be executed. Additionally, the 2% General Fund reserves will not be remitted.

“We’ve submitted the plan requested by the Legislature. Now we will begin to look at what we can unwind in terms of some of the measures we were forced to take as a result of the revenue shortfall,” the Governor stated. He noted that the 32-hour workweek that Adelup had started this past pay period will continue for the foreseeable future in addition to other cost reductions.

The Department of Education has committed to reducing their budget by about $12M, which we appreciate. Other areas of education also will see reductions. The Judiciary announced a few weeks ago, the steps it was taking to reduce expenditures by more than $3 million.

In January, the Bureau of Budget & Management Research sent a circular to all government agencies that receive General Funds advising of the need to reduce spending.

DEPARTMENT FY2018 Budget FRP Budget
Legislature $8.97M $8.07M
Judiciary $34.70M $31.39M
Public Defender $4.34M $4.25M
University of Guam $35.08M $32.04M
Guam Community College $19.75M $18.04M
Guam Memorial Hospital $2.77M $2.77M
Mayors’ Council $788,931K $720,581K
Office of Public Accountability $1.40M $1.28M
Department of Education $225.82M $213.50M
Office of the Attorney General $16.25M $14.85M
Executive Branch Operations $200.82M $193.78M

Fiscal Realignment Plan – Frequently Asked Questions (FAQs)

Q. Why are we in this financial crisis? 
A. Recently passed federal tax cuts, intended to stimulate the U.S. economy, had an immediate adverse affect on the Government of Guam’s revenue stream by $67M. If forced only to cut costs, without raising revenue, the Government of Guam would have faced payless paydays and furloughs- affecting local business sales and bleeding into the economy.

Q. Why didn’t we prepare for it? 
A. The federal tax cuts were passed into law approximately 14 weeks ago. It wasn’t until January that federal tax tables were released and the Government of Guam understood the impact it would have on the revenue stream. Once it was known, the Governor’s fiscal team took steps, within their control, to contain costs and control expenditures.

Q. How much does the Governor’s Fiscal Realignment Plan Cut? 
A. As required by P.L. 34-87 the Fiscal Realignment Plan cuts $30 M from agencies and departments who received General Fund appropriations

Q. Where are the cuts being made? 
A. Primarily in operational areas such as reducing contractual expenditures and eliminating the filling of vacant but funded positions.

Q. If it does not require approval by the legislature, why is it being submitted in bill form? 
A. The requirement of the Fiscal Realignment Plan to be submitted in Bill form is mandated by law.

Q. Are the cuts deep enough? 
A. Yes, the cuts coupled with the $24.6 M in new Business Privilege Tax receipts beginning in mid May will restore most, but not all, of the funding originally authorized in the Fiscal Year 2018 budget.

Q. Which branches and agencies will the cuts affect? 
A. While all government branches are affected and will need to reduce government expenditures significantly for the balance of the fiscal year, the Government agencies most affected by the cuts are those who rely on local government revenue from the General Fund to operate.

Q. How do the cuts in the realignment plan affect government services? 
A. Government services should be restored to normal levels within a short period of time, this assumes the increase in the Business Privilege Tax and the implementation of the Sales Tax in October remain unchanged.

Q. Is reorganization being looked at? 
A. As Speaker BJ Cruz has pointed out, reorganization alone will not achieve the significant cuts required for the balance of the fiscal year. That being said, the immediate focus of the Administration is government financial stability, which will take time. . Once this has been achieved, the administration will begin looking to government efficiencies that can be accomplished through reorganization.

Q. When will government services cut be restored (i.e. fire stations, police stations, recreational facilities, renewing limited term)? 
A. Because the Legislature took so long to act, every passing day required the government to go deeper into cuts. Now that we have the roadmap from the recently passed law, we can start revisiting the cuts made and begin drawing up plans to restore services- with public safety, health and education as the priority.

Q. Is the Administration continuing the furlough process? 
A. Yes. At this time, the Governor, Lt. Governor, their senior staff and cabinet will maintain a voluntary 32-hour work week or 20% pay cut. Until we have a better understanding of government cash flow in the upcoming weeks, it is only prudent that the government-wide furlough process will continue moving forward. Should government revenue not meet projections, the furlough process can be used as a tool. The Governor and Lt. Governor want to make it very clear that they will do everything in their power not to touch the paychecks or job security of government employees.

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