THE GovGuam Retirement Fund owes the retirees.
Some GovGuam agencies (for example GMH) have not always been paying their employees' withholdings into the GGRF. Thus, GovGuam owes the GGRF. GovGuam has borrowed more than $1 billion on the bond market, and owes the bondholders.
The GovGuam General Fund is running a deficit that keeps getting larger each year. It is in excess of $300 million per year, last I heard. The total debt carried by GovGuam is in excess of $1 billion, last I heard. The local GDP is about $2 billion with taxable real estate of $2 billion.
If Guam were a country, this would not be a bad debt-to-GDP ratio. However, Guam is not a country. Guam is a municipality in the U.S. For municipalities, debt is measured relative to the value of the taxable real estate in the municipality. The average in the U.S. is 10 percent debt-to-real estate. For GovGuam, that number is 50 percent. GovGuam has buried itself under a mountain of debt.
Eventually, GovGuam will exhaust its ability to borrow, after already borrowing from everyone that will lend. GovGuam will be forced into austerity, not by choice, but by the inability to borrow more. This has been tried in other countries, for example Greece, and the outcome is always bad.
My prediction is as follows: GovGuam will not be able to pay off its debt. When the bonds come due, GovGuam will default. When the GGRF runs out of money, there will be only minimal support from the GovGuam General Fund. Everyone involved will take losses, known in the business world as a "haircut."
The question is, How much of a haircut? Assuming no bailout from the Feds (Saipan wasn't bailed out), I am guessing the bondholders will get pennies on the dollar, and take a 90-plus percent haircut. The retirees under the defined benefits plan will probably take a 50 percent haircut, similar to what Saipan offered its retirees.
The defined contribution plan-people will not take a haircut. Their money is kept safe in the mainland. They are the only people that will come out of this intact. The defined benefits plan-people will envy them after the last card falls.
Phil Dauterman,
Barrigada
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Letter to the Editor 
GovGuam is drowning in debt
GovGuam is drowning in debt
GovGuam is drowning in debt
- Wednesday, 13 Jun 2012 03:00am
- LETTER TO THE EDITOR
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