GREETINGS from Guam. We understand from the S & P Web site that you were involved in your firm’s recent evaluation and reporting on the financial situation of the Government of Guam. In this regard, we would like to bring to your attention some recent events that we believe are very important to your ongoing review of Guam’s public finances.
Guam’s Governor Felix Camacho has announced that he and others from Guam are scheduled to meet with S & P representatives in the near future to discuss, among other things, GovGuam’s financial condition and creditworthiness. He will use these contacts to attempt to convince S & P to lift the recently imposed credit watch with negative implications status. You should know that a majority of Guam taxpayers (75 percent according to a recent unofficial poll) are in opposition to further GovGuam borrowing in credit markets, with the exception of revenue bond financing.
GovGuam has a long history of deficit spending, and has now finally and inevitably reached the end of the line as a creditworthy entity. As you are aware, the governor was recently forced to seek a short term, emergency loan from a local Guam bank in order to meet government employee payroll obligations. To secure this loan, the governor pledged federal tax revenue payments expected to be transferred by the federal government under Section 30 of the Internal Revenue Code, just before the end of the current fiscal year.
These anticipated Section 30 revenues had previously been included in fiscal year 2007 GovGuam revenue estimates. The funds will no longer be available for fiscal 2007 government appropriation based on previous budgetary understandings, as they have now been committed to retire this short-term loan.
An April 2007 United States Supreme Court ruling overturned local court rulings relative to the interpretation of the debt limit and bonding authorization provisions of the federal Organic Act of Guam, effectively reducing by about two-thirds the administration’s previous view of that limitation. That opinion identified the GovGuam public debt limit as 10 percent of real property assessed value, or approximately $396 million.
A March 2003 Guam Economic Development and Commerce Agency presentation to the Guam Legislature pegged Guam’s public debt at that time as $378 million. The debt has increased substantially since then and includes, among other items, huge sums for delinquent individual and corporate tax refunds, a $90 million federal court judgment in favor of Earned Income Tax Credit claimants and a fundamentally unpayable $123 million Cost of Living Adjustment, or COLA, local court judgment in favor of GovGuam retirees. The EITC judgment is payable from the General Fund under Guam’s ‘mirror image’ tax system, and COLA on Guam is also paid to government retirees from General Fund revenues, not GovGuam Retirement Fund assets.
GovGuam also currently faces very large expenditures to meet two consent decrees entered into to settle environmental law enforcement litigation actions brought by the federal government regarding (i) closure of Guam’s existing, pestilential solid waste facility and construction of a modern, environmentally secure landfill and (ii) an agreement involving Guam’s water utility.
The landfill upgrade costs are estimated to be over $70 million. Reconstruction cost of Guam’s failing, publicly owned potable water and wastewater distribution, collection and disposal systems is estimated at $225 million.
Immediately following the release of the recent Supreme Court debt limit ruling, Governor Camacho asked the Guam Legislature to elevate Guam’s public debt limit by raising the real property assessed valuation percentage and decreasing the rate levy. This proposal would artificially increase Guam’s purported borrowing power without providing for any increased property tax revenues to pay for new debt. The Supreme Court ruling anticipated such fiscal sleight of hand tactics, noting that such action would raise “the specter of mischief” by GovGuam officials.
Accurate financial information is deliberately hard to come by, but we estimate current GovGuam debt to be in the range of $550 million to $600 million, exclusive of the impact of the two federal consent decrees. On April 17, Guam’s public auditor acknowledged on local talk radio that, under generally accepted accounting standards, she believes that current GovGuam public debt exceeds the Organic Act of Guam statutory limit.
In spite of a statutory requirement for complete triennial real estate appraisals, there has been none accomplished since 1993, at the height of Guam’s long-past real estate boom caused by Japan’s now deflated “bubble economy.” The administration has consistently refused to conduct such periodic appraisals in order to maintain an artificially high property valuation and associated borrowing limit, regardless of the incontrovertible fact that real estate values on Guam are substantially lower than in 1993, particularly for commercial and tourist industry properties.
You should be aware that a group of Guam taxpayers, including the undersigned, are in the process of preparing a lawsuit to be filed in U.S. District Court to require the governor to initiate the long-overdue real property valuation and assessment process, in order to clearly establish the current and accurate real estate valuations needed to support GovGuam’s public borrowing authority.
We also expect that any new initiative to incur additional public debt based on current assessments, before a new appraisal process is completed, will also bring litigation from concerned taxpayers.
Having long experience with GovGuam’s political culture and policy, we suspect that there will inevitably be public debt information not adequately identified, addressed or explained by GovGuam representatives. As concerned Guam taxpayers, we respectfully request that you exercise extreme care in evaluating Governor Camacho’s presentation of Guam’s current financial situation. Take nothing at face value. Ask the hard questions raised by this message.
We also encourage you to contact the Guam public auditor to acquire her views on current debt amounts and related limits, given her recent public assertion that she believes that GovGuam public debt now exceeds statutory Organic Act of Guam limits.
Thank you for the opportunity to express our concerns about GovGuam’s current public debt situation and other local fiscal policy matters. If you would like more specific information on matters relating to this message, or have any other questions, please contact the undersigned immediately.

ARNOLD E. DAVIS
Yigo, Guam
THOMAS E. SHELDON
Yigo, Guam