Governor’s Fiscal Responsibility Affirms Bond Ratings
Standard & Poor’s affirmed both Governor Eddie Baza Calvo’s fiscal policy direction and the credit ratings assigned to the government’s General Obligation bonds.
“This administration has made it clear: we will get our financial house in order. That means tough decisions. That means an unwavering commitment to fiscal responsibility,” Governor Calvo said. “I’m pleased our bond raters agree Guam is going in the right direction.”
Given the enormous fiscal pressure inherited by the Calvo Administration, and contentious debate over the government’s cash crisis, this affirmation is welcomed news and a positive step in the right direction towards fiscal stability.
S&P reviewed the Government of Guam’s General Obligation bonds (GO bonds) and the Government of Guam’s Series 2010A Certificates of Participation (COP’s; John F. Kennedy High School Project) affirming both the GO rating at “B+/Stable Outlook” and the COP’s rating at “B/Stable.”
The report praises Governor Calvo several times. S&P specifically cited the following:
“The government, under the administration of Governor Eddie Calvo, has put fiscal discipline at the forefront, with key fiscal policy objectives of deficit elimination, cost containment, and revenue generation. Governor Calvo’s first executive order directed all department heads to identify and recommend cost-cutting measures, identify revenue enhancements. also noteworthy, the Governor, early in his term, rescinded a previous executive order for across-the-board pay increases, known as the Hay Study, in an attempt to improve fiscal stability.”
S&P went on to state, “To further reinforce the executive branch’s expenditure controls, the government has implemented tighter monitoring of expenditures to control or delay disbursements and thus stay within budgeted levels.”
Additional positive feedback includes:
– The 2013 biennial budget’s proposal to adopt performance-based budgeting, in which expenditures are tied to results
– Projections for FY2012 and FY 2013 are relatively more conservative as compared to previous years
– S&P praised the staff at the Bureau of Budget and Management Research noting, “staff updates revenues and expenditures monthly and is adept at revising revenue projections”.
S&P attributed its Stable Outlook to “Guam’s increased political willingness under Governor Calvo to establish a long-term plan to improve its financial position, including addressing its history of annual budget imbalances and its significant long-term liabilities.”
The rating agency mentioned concerns about Guam’s “very large general fund deficit position, long-term liabilities, and operating cash flow pressures,” including:
– The general fund deficit grew an additional $84 million in fiscal year 2010
– Of the $84 million general fund deficit in fiscal 2010, $53.2 million, or almost two-thirds of the deficit, was due to operational (revenue) shortfalls, with $13 million due to unbudgeted expenditures.
– Revenue and expenditure assumptions in recent budgets tend to be somewhat aggressive and not entirely based on reality, which makes budget management difficult
“There’s a long road ahead of us, but we’re headed there,” Governor Calvo said. “These problems didn’t happen overnight, so they won’t be solved overnight. This administration will continue going in the right direction–the direction that uses your money wisely.”
“S&P’s analytical factors of Guam’s GO bonds resulted in a composite rating of “BBB” which is associated with investment grade, however, given our unfunded pension liability and other factors, S&P has assigned our GO’s a rating level below that investment grade threshold. The Calvo Administration is currently working on a comprehensive fiscal stability plan which will address the overriding factors S&P cites with a goal of once again obtaining an investment grade rating of our GO bonds,” Guam Economic Development Authority Administrator Karl Pangelinan said.

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