The Guam Senate's vote to cut taxes on businesses is a credit negative, Moody's Ratings said.
Moody's rates Guam's general obligation and business privilege tax bonds Baa3 with stable outlooks
The Senate approved the two-part cut to the territory's business privilege tax earlier this week as part of a vote to override Gov. Lourdes "Lou" Leon Guerrero's budget for fiscal year 2026, which started Thursday.
The Senate voted to reduce the tax rate to 4.5% from 5% in fiscal 2026 and to 4% in fiscal 2027. The governor wanted to keep it at the 5% rate.
The tax cut in fiscal 2026 is expected to cost the territory's government about 4% of its total general revenue or $40 million, Moody's said Friday. The cut to the second year would roughly double the impact.
"Although the business privilege tax rate rollback does not lead to a structural imbalance for the general fund, it is still credit negative considering all of Guam's operations, including enterprise operations, and especially Guam Memorial Hospital – the only public hospital and one of only two civilian hospitals in the territory," Moody's said Tuesday.
"GMH has growing annual operating deficits, even with ongoing financial support from Guam's general fund," Moody's said. "Increasing operating deficits at GMH would hurt the government's budgetary balance should additional general resources be needed."
Guerrero vetoed the Senate's budget in early September to preserve the 5% rate, with the goal of using the preserved funds for the hospital.
Earlier this week Guerrero, a Democrat, sent out a statement urging the Senate not to override her veto and announcing Moody's had said it would be credit negative. That same day the Senate voted 11 to 4, primarily from the support of Republicans, to override the veto.
Senate Finance Chair Chris Duenas, who voted in favor of the override, told The Bond Buyer "I stood firm in ensuring that this budget not only funds our core services at record levels but also gives back to the very businesses that have kept our economy afloat… This overridden budget law gives the governor more funding than any administration has ever had to operate the executive branch."
Early this week the governor sent a bill to the legislature to draw $40 million from Guam's general fund balance to be used for the hospital's vendor payables, insurance coverage for staff and parts of the capital improvement plan. The legislature approved the bill.
This $40 million is outside of the approved fiscal 2026 budget. The general fund balance was recently reported to be $200 million, said Lester Carlson, director of the Guam Bureau of Budget and Management Research.
The $40 million contribution "is not a fiscally responsible way to fund critical needs and we cannot sustain this moving forward," Carlson said. "It is like looking in every nook and cranny for funds as opposed to having the ability to have sufficient funds through the revenues contained in the annual budget. This is why we strongly disagree with the legislative majority permanently reducing the business privilege tax."
Guam's general fund has been performing well and through August was $74 million ahead of budget, Moody's said. The rollback of the BPT to 4% does not affect the pledge of revenues that repays the BPT bonds, it said.
S&P Global Ratings rates the island's GO bonds speculative grade BB-minus and its BPT bonds BB, and
