Improved finances net Guam an improved Moody's outlook

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Guam’s efforts to stabilize its financial position through a tax increase led Moody’s Investors Service to revise the outlook to stable from negative and affirm its junk issuer rating of Ba1.

Moody's also revised to stable from negative its outlooks for revenue bonds issued by Guam's port, power and water agencies. The Port Authority of Guam, the Guam Waterworks Authority and the Guam Power Authority are all rated Baa2, which Moody's affirmed.

“The outlook on Guam is stable, reflecting the financial discipline demonstrated by the government in recent years and the expectation that it will continue to improve liquidity and reduce its accumulated general fund deficit,” Moody’s analysts wrote.

Former Gov. Eddie Calvo had said the actions were needed to offset the loss of income tax revenues triggered by the federal tax cuts enacted in December 2017.

“Guam’s government offset the lost revenue in fiscal 2018 and bolstered its liquidity with a temporary increase in the business privilege tax, one-time revenues from a tax amnesty program, and spending cuts,” Moody’s analysts wrote. “It offset the lost revenue in the fiscal 2019 budget with a permanent extension of the increase in the business privilege tax and a continuation of most of the previously enacted spending cuts."

Calvo wrangled with the Legislature for months last year before they reached an agreement that included $39 million in spending cuts in addition to the tax increase.

Lou Leon Guerrero, the island's first female governor, and former head of the Bank of Guam, was elected to replace the termed-out Calvo in November.

The Ba1 issuer rating for Guam is equivalent to the rating Moody’s would assign to the general obligation debt of the government. It serves as a reference point for ratings on the revenue bonds of the territory’s enterprise authorities.

The Ba1 reflects Guam's “small and concentrated economy, significant accumulated general fund deficits and debt levels which, while below those of other territories, are significantly above US state medians,” Moody’s analysts wrote.

The ratings agency also cited the territory’s generally positive economic trends, good economic outlook, and a favorable pension funding situation for the rating.

Guam, approximately the same size as the District of Columbia, has a population of 162,500 and a gross domestic product of $5.9 billion in 2017, Moody’s wrote. The Pacific island is 3,800 miles west of Hawaii and about 1,500 miles south of Japan.

In September, S&P Global Ratings removed a credit watch with negative implications placed on Guam in March and affirmed its BB-minus long-term rating on Guam’s general obligation bonds and its B-plus long-term rating on certificates of participation.

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