$75 million ‘cash advance’ could shrink

HEARING: Dozens of people came out for the Tax and Revenue Anticipation Note bill hearing in the Governor's Conference Room at Adelup on April 26. David Castro/The Guam Daily Post

An alternative to the governor's $75 million "cash advance" proposal for tax refunds would cut the amount by almost half and delay the release of tax refund checks by a few months.

And a nearly 20-year-old law that says voters should have a say, before the government of Guam could take on debt above $25 million, shouldn't be waived for this proposed borrowing, according to Speaker Benjamin Cruz's proposed substitute legislation.

Cruz also questioned, in a letter telling Vice Speaker Therese Terlaje he's substituting the governor's proposal, whether the proposed borrowing is being "used to mask the effects of overspending."

Cruz's version would reduce the amount that will be borrowed from $75 million to $40 million.

Section 30 funds

The governor proposed offering a federal funding source, called "Section 30," as an automatic lien, or automatic backup repayment, in the event GovGuam doesn't have enough money to repay the proposed $75 million tax-refund borrowing.

However, the Section 30 amount for the proposed automatic lien won't be anywhere near $75 million.

Guam Delegate Madeleine Bordallo wrote to the speaker's office on Saturday, Guam time, that any Section 30 funds above the $68.6 million threshold would go toward war reparations. War reparations are payments the federal government authorized last year, using Section 30 funds above a certain threshold.

Last Friday, the governor's office stated $120 million was the war reparations threshold.

But Bordallo's recent letter stated she clarified with the Department of the Interior the threshold is $68.6 million, so any Section 30 money above that lower amount would go to war reparations, and not for any tax-refund borrowing lien.

Cruz is calling senators to a special session at 10 a.m. today to discuss the proposed changes to the borrowing legislation, including:

  • Changing the time frame for the borrowing from this month to, at the earliest, the beginning of fiscal year 2018, which is Oct. 1 this year;
  • Limiting the borrowing to a one-time occurrence, for fiscal 2018 only, rather than the governor's proposed "cash-advance" pay-and-borrow strategy each year, over three years. The proposed substitute borrowing legislation will limit the interest rate to 3 percent for just one year. Two additional years of borrowing under the governor's proposal would have allowed for the lender to raise the interest rate to 4 percent on the second year and 5 percent on the third year; and
  • Removing language that could raise GovGuam's debt ceiling.

$40M upper limit

The proposed language to put an automatic lien on GovGuam's Section 30 funds as a guarantee for repayment will stick, as the governor proposed, but the lien will be limited to no more than $40 million. Section 30 funds are money provided by the federal government from income tax payments of military personnel and retirees, as well as immigration fees and passport fees, among other sources of revenue.

Cruz had earlier expressed concern that by allowing the executive branch to borrow $75 million for tax refunds this month, and allowing the creditors an automatic lien on Section 30 funds, GovGuam could be restricted from using a big chunk of Section 30 funds for other critical government operations when the new fiscal year arrives.

Delaying the borrowing to Oct. 1 eases the concern that the same Section 30 funds could be budgeted twice, in a period of a few months.

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