Tax bill-induced fiscal troubles land Guam a negative outlook

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The Guam budget shortfall created by the federal tax bill resulted in a negative outlook for the Pacific territory.

Moody’s Investors Service changed the outlooks for Guam's issuer rating and the Guam Waterworks Authority to negative from stable Tuesday, a week after S&P Global Ratings took a similar action.

Guam's issuer rating is a junk-level Ba1, while Guam Waterworks Authority's $500 million in wastewater system revenue bonds are investment-grade Baa2.


On March 5, S&P placed Guam’s $10 million in outstanding general obligation bonds, rated BB-minus, and $177 million in COPs, rated B-plus, on negative ratings watch.

Guam's individual and corporate tax rates are tied directly to federal tax rates, and rate cuts in the Tax Cut and Jobs Act reduced the territory's revenue significantly.

The Guam legislature’s Office of Finance and Budget estimates that the government will experience a $67 million shortfall in tax revenues over the remaining six months of the fiscal year.

Gov. Eddie Calvo’s efforts to get lawmakers to pass a business tax bill failed and a plan to reduce the work week for government workers to 32 hours appears likely.

“While the government has enacted some spending cuts to offset the shortfall, it has not yet adopted tax increases needed to close the budget gap completely,” Moody’s analysts wrote. “Moreover, as tax withholdings have come in short of budgeted amounts, the government’s liquidity has deteriorated rapidly.”

Moody’s said its issuer rating for GovGuam is equivalent to the rating it would assign to general obligation bonds and serves as a reference point for the ratings on the revenue bonds of the territory’s enterprise authorities: Guam Waterworks Authority, Guam Power Authority and the A.B. Won Pat International Airport Authority.

The negative outlook for Guam Waterworks Authority “reflects the recent weakening of the Government of Guam's finances and liquidity, and the possibility that, although authority revenues are separate and distinct from the government's general fund revenues, further deterioration on the part of government could pressure the authority's finances,” Moody’s wrote.

GovGuam’s Ba1 issuer rating “reflects Guam’s small and concentrated economy; weak general fund finances; and debt levels, while below those of other territories, are significantly above U.S. state medians,” according to Moody's.

The territory also has generally positive economic trends, a good economic outlook and a favorable pension funding situation, Moody’s wrote.

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