Corporate tax incentives. Government health insurance reform. Government pay hike rollback. In lieu of the Calvo administration’s tax hike proposal, senators have offered these alternatives to rescue the government from revenue plunge resulting from federal tax reforms.
Gov. Eddie Calvo is proposing an emergency temporary increase in business privilege tax from 4 percent to 6 percent to make up for the projected $47.9 million decrease in tax revenue as a result of President Trump’s federal tax reform. The BPT increase would be passed on to consumers, who ultimately will shoulder the impact of this additional tax.
Mike San Nicolas Benjamin Cruz James Espaldon
Instead of burdening the consumers, Sen. Michael San Nicolas said Guam needs to tap a new source of revenue.
His legislation, Bill 246-34, proposes to create a tax rebate of up to 75 percent for American companies that would seek the option the option of repatriating billions of dollars in overseas profits to take advantage of lower tax rates under the federal tax reform.
The rebate would be offered to companies that would choose to pass those profits through and pay taxes to Guam.
“Guam is unique as a jurisdiction in the United States as federal corporate income taxes are levied by and paid to the local government instead of the federal IRS,” San Nicolas said.
The congressional candidate said the rebate could attract the tax revenues of those profits of foreign subsidiaries of U.S. corporations by creating an even greater tax incentive for them to pass through Guam.
"This bill tells the largest corporations in America that if they pay their federal taxes in Guam, we'll give you a 75 percent discount,” San
Nicolas said. “This has no negative consequences to our people, is a practice upheld by the federal court system, and provides the relief we are seeking in these tough economic times. If we can just get one percent of our goal we will bring in as much as $358 million.”
Guam has the ability to rebate federal taxes, including the corporate income tax, under Public Law 8-80 signed into law by then-Governor Manuel Guerrero in 1965. At the time the United States Congress had one year to nullify the law, or else consent to the law would be implied, as per federal law - the Organic Act.
“Guam is unique as a jurisdiction in the United States as federal corporate income taxes are levied by and paid to the local government instead of the federal IRS,” San Nicolas said.
"This is another example of how we can effectively use federal law to benefit our local people. Since 1977, the federal courts have granted us this authority and with Bill 246-34 we will put President Trump's Tax Cuts and Jobs Act to work for our people," San Nicolas said.
Sen. James Espaldon’s Bill 243-34 seeks public savings by mandating certain changes to the Government of Guam Group Health Insurance Program that would streamline the process and result in lesser costs to the government of Guam, without compromising the quality of GovGuam health insurance.
This bill, he said, could bring savings of $3.4 million to GovGuam. Currently, the legislative and judicial branches of government may choose to enter into separate health insurance contracts for their employees or choose to remain with the executive branch health insurance contract.
If the legislative and judicial branches of government choose to go with the executive branch health insurance contract, Bill 243-34 (COR) would require that written concurrence be received by the executive department on or before March 1. “The government of Guam health insurance proposal is developed between mid-February and mid-April. Mandating that all entities under the executive department remain as part of the group health insurance and establishing the March 1 deadline for participation by the legislative and judicial branches locks in prospective enrolees for better rate development by the responding health insurance companies,” Espaldon said. Bill 243-34 also requires that all retirees and survivors enrolled in Medicare Parts A and B who select Class I or Class II be now enrolled in the Retiree Supplemental Plan (RSP). At present, all participation in the RSP is on a voluntary basis but the GovGuam Health Insurance Negotiating Team has been advised by its legal counsel that the statute must be changed to mandate required enrollment in the RSP.
Many retirees and their survivors enroll in the PPO1500 and become over-subscribed at great expense to the government. Espaldon said that by mandating enrollment in the RSP, the government’s contributions for Class I and Class II will be reduced, on average, by $255.14 per pay period or $6,123.36 annually and $518.79 per pay period or $12,450.96 annually respectively per subscriber.
As of January 2018, 399 retirees/survivors are enrolled in Medicare PPO1500 Class I while 79 retirees/survivors are enrolled in PPO 1500 Class II. If all of these subscribers are migrated to the RSP, Espaldon said the potential savings to GovGuam could be $2,443,220.64 ($6,123.36 X 399) for Class I and $983,625.84 ($12,450.96 X 79) for Class II, or a grand total of $3,416,846.48 annually.
Bill 243-34 also mandates that the government of Guam contribution for retired employees and survivors shall not exceed three times the lowest premium for a single active employee. The bill also mandates that the current level of government contribution be maintained.
“Health insurance is just one area where we can streamline things and realize some savings for the government of Guam. We must look at all other savings options or revenue-enhancing measures in the days ahead,” Espaldon said.
Speaker Benjamin Cruz said his Bill 244-34, titled “Fiscal Stabilization Act of 2018” would roll back all salary increases under the Competitive Wage Act of 2014 for both classified and unclassified employees; reduce the budgets of the Office of the Governor, the Legislature, and the Office of Finance and Budget; and raise the Business Privilege Tax by 1 percent beginning April 1, 2018 until January 2020.
“I know that people are angry, wondering how we got here in the first place, and worried about what might happen next. This choice is painful medicine but without it, the patient may die on the table,” said Cruz.
In addition to the initial round of cost reductions at each agency level totaling $17 million, Cruz’s proposal would save an approximate $10 million for the government of Guam through rollbacks in Fiscal Year 2018.
To do this, Bill 244-34 would cut back all salary increases resulting from the Competitive Wage Act of 2014 until March 1, 2019 for all positions within every branch of government, including all government of Guam departments, bureaus, agencies, sub entities, public corporations, and mayoral offices. The measure would further reduce the budgets of both the Guam Legislature, the Office of Finance and Budget, and the Office of the Governor by 10% and place a moratorium on reclassifications and above-step recruitment, with an exception for teachers and licensed and allied health care professionals.
“I’m asking government employees to understand that a temporary pay cut is better than no pay at all,” said Cruz.
In conjunction with the cuts, Cruz’s bill proposes to raise the BPT from 4 percent to 5 percent—yielding an approximate $25 million for Fiscal Year 2018 and $59 million for Fiscal Year 2019.
While the appropriations chair has been an outspoken advocate of voter approval on all locally-enacted tax increases—including increases he has proposed—in addition to the impending financial crisis, Cruz highlights the Attorney General of Guam’s recent opinion which invalidates the referendum statute. As a result, Bill No. 244-34 would repeal the referendum requirement.
“I’m repealing the tax referendum statute because it’s time that the Legislature is honest with itself,” said Cruz. “Either we accept the law and follow it, or we repeal it—acknowledging that, if even the Attorney General won’t enforce it, no one will.”
“Drafting this bill hurt. But this community is in a $67 million hole jeopardizing basic community services at every level of our government,” said Cruz. “Without immediate action to responsibly cut costs and raise revenue, the Ship of State will sink, and our island’s economy will go with it.”
Another bill has been in the Legislature to equip the governor with the tools necessary to prioritize, reorganize, and stabilize our government without raising taxes. Sen. Frank Aguon, Jr. Bill 247-34 establishing education, health and public safety as the top priorities of the government, allowing significant reductions in spending and prioritizing government programs.
“Ultimately, reorganization and reforms will turn into savings and growth overtime. Every tax dollar collected by the government was generated by private-sector economic activity; and responsible stewardship of these taxpayer dollars is the central-component of this measure. Bill 247 provides a framework that allows the governor to take immediate action on excessive spending, including deficit reduction, spending restraint, and regulatory reform.” Frank Aguon Jr.
Bill 247-34 simplifies the multitude of statutes, rules, regulations and policies that have proliferated over the years, the primary effect of which has made reorganization difficult. The Act authorizes the Governor to implement necessary measures by means of an executive order. The executive orders must be consistent with the merit system, provide employees’ and the public’s right to be heard and recognizes the employees’ right to due process and right to representation under the Public Employee-Management Relations Act of Guam, where applicable.
“It may be said that government leaders are doing everything they can to find a solution, but perhaps the state of our government requires a complete overhaul. Bill 247 provides the tools for the governor to do just that.”