Wednesday, November 18, 2009

Guam buildup tab: $2.9B

Guam buildup tab: $2.9B

By Amritha Alladi • Pacific Daily News • November 17, 2009

The government of Guam has trimmed its projected, overall cost for multi-year projects associated with a bigger population stemming from the military buildup from $6.1 billion to $2.9 billion, according to a recently released report by the U.S. Government Accountability Office.

However, GovGuam officials said yesterday that there is still uncertainty as to how those projects will be paid for, and there are ongoing discussions with Department of Defense officials to figure out how the DOD and the local government will share the costs.

The U.S. GAO report, released Friday in Washington, D.C., suggests the local government may be able to borrow some money from the bond market and pay it back with tax collections and other revenue resulting from the anticipated economic growth from the buildup -- but local officials are not partial to taking on buildup-related debt.

Local officials said they shouldn't have to pick up the tab for projects that wouldn't be necessary if the buildup weren't happening in the first place.

"Guam's ability to finance needed infrastructure projects could improve because of enhanced local economic conditions as the military buildup continues ... An increase in military and federal civilian employees on Guam stemming from the buildup may be a potential source of additional revenue," the report states.

But Bertha Duenas, director of the Bureau of Budget and Management Research, said Guam shouldn't be asked to borrow money for local projects associated with the buildup.

"Why is Guam going to be saddled with a loan to deliver what the military imposed upon us involuntarily?" Duenas asked. "We don't even know that we will have the sufficient debt limit to go into any more borrowing for the buildup."

Aulii Limtiaco, a financial consultant for the Guam Economic Development Authority, said certain GovGuam agencies that generate their own revenue still have room to borrow. For example, the Guam Power Authority, or the Guam Waterworks Authority, can pledge future revenue as a source of repayment if either agency does take on additional bond debt. In the case of the Department of Public Works, future federal highway grants can be used as a repayment to bond investors, Limtiaco said.

"These types of borrowings typically do not apply to the debt ceiling," she said of autonomous agencies that have their own cash flow.

Debt ceiling

GovGuam's debt ceiling is one of the "challenges" Guam faces in financing buildup-related projects, according to the GAO report.

"There are a few bond issues that mature in 2012, and that may free up some capacity," Limtiaco said. She added that the local government does not currently have much more borrowing capacity.

Sen. Jim Espaldon said he found it a "real insult" that the local government is being asked to borrow money for these projects at all.

"We are kind of nearing the debt ceiling in terms of our ability to (borrow through general) obligation bonds," Espaldon said. "When we start talking about water and sewer needs, pipes to be put in, I don't think (the federal government) has been much help along those lines for grants."

GovGuam's proposed roadway improvements alone amount to $1.5 billion, according to the GAO report.

Public Works Director Larry Perez said his office has been meeting with military officials weekly to discuss, on a case-by-case basis, which project improvements are driven primarily by needs presented by the buildup, and which ones would have been included as part of the DPW plans for improvements regardless of the buildup.

"We will go to the bond market for normal, organic growth," Perez said. He, too, said he didn't think it was right for Guam residents to pay for infrastructure impacts caused by the military.

The military buildup is expected to cause Guam's population to see growth in five years what it would normally take 20 years or longer to occur without the buildup, according to a previously released study for GovGuam to predict future mass transportation infrastructure.

"What normally would have taken 20 years ... (the military is) basically telling us to do now," Perez said.

For example, DPW wouldn't have planned to make drastic changes to Route 3, which sees little congestion or traffic, without the need posed by the buildup, Perez said.

Perez said there are road projects that already have federal funding commitments, including:

# $20 million a year though the Territorial Highway Program;

# $48 million from the Fiscal 2010 Defense Authorization Act for defense access road projects; and

# about $74 million in stimulus funds for other road projects.

The Port Authority of Guam, meanwhile, will receive $48 million under President Obama's economic stimulus funding.

But infrastructure improvements -- even if they are designed for military buildup-related growth -- will ultimately help boost the island's economy overall, said Carl Peterson, financial advisor at Money Resources Inc.

He said GovGuam can take on loans with the help of the federal government, and the interest can be paid with taxes, just as the GAO report suggests. With more people working and using local services, according to Peterson, more people will also pay taxes and other GovGuam fees for the services, so the local government can recoup some of the investments in infrastructure projects.

Thus, GovGuam officials should consider the military buildup projects as opportunities to generate revenue through taxes by implementing user fees for services, Peterson said.

"This is a bonanza for GovGuam and for the island," Peterson said of the buildup's economic gains.

"The biggest beneficiary will be the government, as long as they use it for services."

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