Fiscal discipline, flexibility key for Guam, Moody's says

Guam's latest proposed budget was hailed by analysts who said its approach should be copied by other U.S. territories.

Gov. Lourdes Leon Guerrero proposed a 5.9% bigger general fund budget for fiscal 2025 days after Moody's Investors Service raised the territory's general obligation bonds to investment grade (Baa3) from speculative grade (Ba1); the first time in 22 years a rating agency had given the GOs an investment grade rating.

"The budget and its presentation show sets Guam apart from the other major territorial credits," said Muni Credit News Publisher Joseph Krist. "Yes, Guam has an advantage in terms of its strategic defense role, but it's approach to its finances and reporting is something for the other territories to emulate. There's a reason Guam is investment grade and the others are not."

While the territory's revenue performance will back growth, Moody's Investors Service Senior Analyst Pisei Chea said, "fiscal discipline and flexibility will be key to maintaining the government's credit quality in the event of an economic downturn."

The territory's revenues were "strong," he said, especially its income and business privilege taxes.

The upgrade was a "momentous event," Guerrero and Lt. Gov. Joshua Tenorio said in a letter to the Guam Senate. "Moody's was also impressed with the soon to be launched new Financial Management System."

The officials thanked "the legislature for continually authorizing more money annually into the rainy-day fund."

The governor's proposed general fund estimates revenues of $902.7 million and expenditures of $860.4 million, both up 5.9% from the levels expected in the current fiscal year.

After running general fund deficits for at least five fiscal years through fiscal 2020, the territory ended the year with positive balances each year since and the proposed budget projects a $2.6 million balance at the end of fiscal 2025. 

The budget sets aside 2% of revenue for a rainy-day fund, which currently totals about 4.6% of general fund revenue. The government plans to raise it from the current $42.8 million to $50 million to $60 million.

Total operating spending, which includes general fund, special fund, and federal matching fund spending, is estimated at $1.264 billion, including $93 million in debt service payments.

Under Guam's constitution the Senate has until the end of August to act on the budget.

S&P Global Ratings rates the GO bonds BB-minus.