HAGÅTÑA (The Guam Daily Post) — One thing that managed to withstand the onslaught of Typhoon Mawar was the government of Guam’s credit rating.
That’s according to a recent credit rating report issued by Moody’s Investor Service. Bond ratings issued earlier this year held up even after Mawar, along with the local government’s “positive outlook,” which means that ratings may be able to improve later.
Bonds are essentially loans taken out by public entities. Better ratings generally mean better interest rates and less money paid over time – in the case of GovGuam, that’s less tax money shelled out by island residents.
The Moody’s report notes the government of Guam has bonds issued in the following amounts:
• $22.3 million in general obligation bonds, backed by the full faith and credit of GovGuam.
• $63.8 million in “certificates of participation,” basically stakes on lease payments to GovGuam sold to investors.
• $58.9 million in hotel occupancy bonds.
• $277.6 million in business tax bonds.
All bonds are rated Ba1, except for the Ba2-rated certificates of participation. Bonds rated Ba are “judged to have speculative elements” and are “subject to substantial credit risk,” according to Moody’s.
GovGuam has an overall Ba1 issuer rating.
‘Investment grade’
Gov. Lou Leon Guerrero and her fiscal team put the goal for the local bond rating at “investment grade” back in 2021, which would be about one step above the current rating.
The local economy’s reliance on tourism and the island’s exposure to environmental disasters factor into that score, according to the most recently issued credit report from the agency. Long-term liabilities – the island still has a retirement obligation north of $2 billion – also are factors.
“Minimal, but improving” in available cash is a positive contributor to the rating, as is the “substantial federal government assistance and significant military construction activity on the island, which provides stability to government finances and the territory’s economy,” the report stated.
Guam’s improving financial trajectory was what led to the positive outlook from Moody’s. Raters looked specifically to the general fund, GovGuam’s main operational account, which, under the Leon Guerrero-Tenorio administration, was able to get out from under a deficit that was once in the hundreds of millions of dollars.
“We expect those trends to continue, even with the passage of Typhoon Mawar just north of the territory at the end of May,” the report stated.
As usual, expected federal money also added to the outlook, as “significant federal recovery aid will also be made available to Guam that will mitigate the short-lived slowdown in revenue and is expected to fully cover storm-related expenditures.”
The expectation that federal money will buoy the local government’s spending seems to match up with projections from local public finance heads.
Tourism
Visitor arrivals, though low before the storm, are expected to rebound once post-Mawar cleanup is finished, the report stated. But a slower-than-expected recovery could have been a bad sign for the island’s fiscal picture.
Adelup issued a statement last Friday, touting the administration’s fiscal responsibility.
According to the news release, the governor’s fiscal team made a case to Moody’s, based on the higher-than-projected individual and business tax collections throughout most of the year, including hotel occupancy tax collections.
“Moody’s affirmation of our collective general fund ratings and positive outlook is a direct result of our administration’s laser focus on fiscal discipline. All the hard decisions we’ve made to date have secured the financial viability of the government of Guam,” the governor said in a statement.
“With this report, Moody’s recognizes our commitment to maintaining our finances, even in the most challenging of times, including weathering of a three-year-long global pandemic, economic inflation and, most recently, Category 4 Typhoon Mawar.”
Tourists pose for a photo at Gov. Joseph Flores Memorial Park at Ypao Beach in Tumon on May 14, 2023.
