PHOENIX - Guam is looking to issue short-term debt to pay tax refunds to its citizens.

Guam Gov. Eddie Baza Calvo has called a special legislative session to begin April 28 so that Senators for the U.S. territory can consider legislation to authorize tax and revenue anticipation notes in each of the next three fiscal years, allowing the government to make its estimated $100 million of refund payments on time. The amount would be capped at $75 million of principal outstanding at any one time.

Guam Gov. Eddie Baza Calvo
Guam Governor's Office

Baza Calvo originally attempted to get the legislation through the normal legislative process, but a processing error delayed its introduction and necessitated the special session so the TRANs could be authorized in time to pay the refunds on May 31.

Baza Calvo made his case in a public relations push directly to the people of Guam, along with letters to the legislature calling the session and to Sen. Michael San Nicholas, a Democrat who has opposed issuing new debt.

Guam, a Pacific island with a population of about 160,000, has the most debt of any U.S. territory after Puerto Rico and has had its revenue bonds cut to junk status in recent months. Baza Calvo said that issuing the TRANs would not be like issuing new debt and would likely actually save the government money in the end.

“I am aware of your public opposition to the proposed solution we found that will pay refunds immediately upon processing and end up saving the government money,” the governor wrote to the senator. “Given your opposition to borrowing, I can understand why your initial reaction would be to oppose this bill. But I assure you, if you give some time and effort to researching this solution, you will see that all your concerns thankfully are without merit.

“Our solution is not a bond at all,” the letter continued. “It does not have a payback period of 30 years. In household terms, this is closer to the difference between an installment loan and a revolving line of credit. Every penny used throughout the year must be paid by Sept. 30 of the same fiscal year. The reason financial institutions allow this line of credit to many cities, counties, and states at such a low interest rate is simple: the payback source is what the government freed up by paying the program upfront with this tax and revenue anticipation note. All this TRAN does is it front loads the payment of tax refunds at the start of the year, instead of making the payments as cash comes in scattered points throughout the calendar.”

The interest would be capped at 3% for notes issued in fiscal 2017, 4% for fiscal 2018, and 5% for fiscal 2019. Baza Calvo said that because Guam has to pay interest on refund payments made late, the TRAN solution could save the government money, perhaps around $1 million, assuming a late payment interest rate slightly north of 4% on half the refund claims.

The legislation has been introduced as of Thursday and will be considered when the session begins. When and if the bill becomes law, the TRAN issuance would still need to be approved by the Guam Economic Development Authority board.

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Kyle Glazier

Kyle Glazier

Kyle Glazier is a reporter covering market trends, infrastructure, and the Far West region for The Bond Buyer.