By Gina Tabonares
Variety News Staff

(1st of a Series)

WHILE other places believe in the saying that “there’s money in garbage,” Guam thinks otherwise as it needs money to resolve its mounting garbage problem.
An audit report made by Georgetown Consulting Group or GCG revealed that the current SWM of the Department of public works is incapable of billing, collecting and managing waste management rate revenues which has resulted in outstanding receivables uncollected from commercial and residential haulers.
The Connecticut-based GCG was contracted by the local government to conduct a study on GovGuam’s inability to meet the requirements of the Consent Decree.
Under the Consent Decree, GovGuam is required to close the Ordot Dump by October 2007 and construct and operate a new landfill on a stipulated court schedule.
With an estimated capital cost of mandated projects in the range of $90 - $100 million, GCG said that the SWM billing and collection system will not effectively help the local government comply with the Consent Decree.
The consulting firm report stated that the SWM revenues couldn’t keep up with normal business practices that would assure investors in the required capital program associated with compliance with the Consent Decree.
The audit report said that 80 percent of the gross balances of the collectible debts both from commercial and residential areas is equal to almost two year’s worth of revenues, making collection of more than $11 million difficult, if not impossible.
Based on the account information provided by the Department of Administration, of the $3.3 million outstanding receivables for large commercial customers, $1.7 million was for receivables in excess of 120 days.
During an onsite review, the audit firm learned that within the large balance of accounts receivable in excess of 120 days $1.3 million was due from one provider — Commercial Sanitation Systems.
This commercial hauler is the employer of the dumpsite workers who have been indicted for fraud and bribery related to dumping at the Ordot facility.
The audit group also expressed concern that receivables were allowed to reach the current magnitude. They stated that the Ordot facility should have penalized the private haulers with large outstanding debts by not providing access until they have paid their bills or until some arrangements had been made to pay off the large balances.
While the large commercial collection ratio was about 96 percent on an actual basis, the residential collection ratio was only 50 percent. The audit report stated that the latter may have showed an improvement, however, it is terrible and unfair to half of the customers to support the entire residential population for waste collection.
The audit firm added that the level of collection could not support bond financing or any other form of financing.
Indecisive
The GCG also observed that GovGuam’s two-year effort to obtain special activity bond financing has been marred by indecision and a lack of urgency and leadership to address operational and organizational problems that have frustrated the financial advisors tasked to assist the local government in securing private financing.
In its Dec. 5, 2006 letter to PUC, DPW informed GovGuam of their intention to solicit private interest in financing the construction and operation of the Consent Decree projects.
GovGuam’s Dec. 15, 2006 response in the Consent Decree stated: “Some legislators appear to prefer private financing for the Layon Landfill development”, even though GEDCA’s advisor recommends a revenue bond as the more economical solution to the local government and the ratepayers.
Under PUC’s order, DPW must obtain their approval for private or bond financing before it obtains the funding necessary for Consent Decree compliance.
As of January 5, 2007, the audit report stated GovGuam has not petitioned PUC to review and approve any financing for Consent Decree compliance.
There is also a compelling need for the legislative and executive branches to promptly secure the financing but no such request has been received by PUC as of the date of the audit report.
In the Landfill Financial Plan made by Duenas & Associates and Ernst & Young, LLP in October 2004, a conclusion was reached to use the private activity bond.
The private activity bond, according to the audit group, is dependent on the Governor of Guam and the Guam Legislature.
No net benefit
The audit group contacted the SWM financial advisor and the potential bond underwriters to check whether GovGuam is under consideration.
UBS and Bank of America indicated to the audit firm that bond financing and project structure with them would have to show a net benefit over the following benefits that bond financing would offer.
Among the benefits they mentioned were benefits arising from the issuance providing tax free interest to investors; potential additional charges by the private investor to offset the risks of assuming a privatized structure; potential loss of control of operations assuming a privatized structure; potential requests for a GovGuam guarantee of payment given SWM’s poor history of billing and collection; potential delays in gearing up for an alternate project structure, the means of financing and potential consideration of the amount privately financed as being GovGuam debt in any financial evaluation.
The audit group, however, failed to provide further recommendations on private financing saying that they are not aware of the basis on which the alternative is being considered.