PHOENIX - Puerto Rico, the U.S. Virgin Islands, and Guam all face out-sized debt burdens relative to their gross domestic products, and each of the U.S. territories faces a repayment challenge, the Government Accountability Office found.

The GAO report, released Oct. 2, details the debt situations of U.S. overseas territories from fiscal years 2005-2015 and provides brief commentary on their outlooks. The U.S. has five such territories: Puerto Rico, the U.S. Virgin Islands (USVI), Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands (CNMI). GAO said it analyzed the territories’ single audit reports, interviewed officials from the territories’ governments, ratings agencies, and subject matter experts, and reviewed documents and prior GAO work.

Puerto Rico’s public debt exploded in the decade the report covers, from $39.2 billion to $67.8 billion, reaching 66% of the island’s GDP. Even after some revenue growth in that period, Puerto Rico’s overall financial position deteriorated, leading to its eventual default on billions of dollars of bonds.

Experts and officials interviewed by the GAO blamed several factors, including the use of debt to finance regular government operations, poor disclosure leading to investors being unaware of the extent of the fiscal crisis in the territory, the appeal of territorial debt being exempt from federal, state, and local taxation for investors in all states, as well as recession and population decline.

Puerto Rico’s long-term trajectory is dependent on the restructuring process underway through the Financial Management and Oversight Board, the GAO said.

USVI’s public debt nearly doubled in the GAO report’s time frame, reaching $2.6 billion and a debt to GDP ratio of 72% .

“While USVI holds a year’s worth of debt service payments in reserve, GAO found that economic uncertainty and looming government pension fund insolvency by 2023 may hamper repayment,” the GAO report said.

USVI’s $3 billion unfunded pension liability is particularly challenging.

“Although the government adopted a financial plan intended to reduce expenditures and increase revenue, the plan does not address USVI’s significant unfunded pension and OPEB liabilities and it is unclear whether the plan will produce the intended level of savings,” the GAO found.

Between fiscal years 2005 and 2015, Guam’s debt load grew to $2.5 billion from almost $1 billion, increasing the debt to GDP ratio to 44%. Guam has primarily issued bonds to pay for government-mandated payments such as the earned income tax credit, the GAO found. While Guam’s economy has generally been trending positively, it is also dealing with pension problems that could be a concern over time, the GAO found.

“Guam has large pension and OPEB liabilities that may stress current debt service payment arrangements if anticipated savings from changes to the government pension system are not realized,” the GAO said. “In fiscal year 2015, pension liabilities were $1.2 billion and OPEB liabilities were $2 billion, 22% and 37% of GDP, respectively.”

American Samoa and CNMI both carry much smaller debt burdens than the other territories. While American Samoa’s debt doubled over the years covered by the report, it was still under $70 million and represented less than 11% of GDP. CNMI’s public debt declined from $251.7 million to $144.7 million over the 10 years, a debt to GDP ratio of 16%.

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Kyle Glazier

Kyle Glazier

Kyle Glazier is the Deputy Washington Bureau Chief of The Bond Buyer. He covers securities law, regulation, and enforcement.