'The State of Our Island is Promising'

Following is the full text of Gov. Lou Leon Guerrero's State of the Island Address on April 11, 2019 delivered before the 35th Guam Legislature at Congress Building in Hagatna.

To the First Gentleman and my gentleman, Jeff Cook; to Lieutenant Governor Josh Tenorio; Madame Speaker and members of the 35th Guam Legislature; Madame Chief Justice; Attorney General Camacho; Public Auditor Cruz; honored guests; Admiral Chatfield; members of the Diplomatic Corps; and my dear People of Guam … Hafa Ådai and Good Evening.

It is indeed my highest honor to come before you, as Guam’s first Maga’håga, to report on the present situation of our government - to speak plainly and truthfully - as we continue to deliver on our bold pledge to rebuild a government that is fair, safe, compassionate and prosperous for our people.

Our island is in a period of transition - a time of change and a time of renewal. Our people need to be confident that their Governor is making decisions to keep our finances stable and to prepare for the future. Our island needs to know that hope and opportunity for families and our future generations are always on our minds and that whatever conditions the Leon Guerrero-Tenorio Administration inherited, we are moving forward, charting a course with innovation, modernization, transparency, accountability and excellence in government service.

We can measure the current state of our island by how much trust people have in their leaders. We can measure the state of our island by how safe people feel - in their homes, on their streets, and in their daily activities. We can measure it by how many people have access to quality, affordable health care. And we can measure the state of our island by the opportunities we create to help people improve their lives.

The state of our island is what I am able to affirm today and it is this: We are here now, and the State of Our Island is Promising.

Lieutenant Governor Josh and I acknowledged that the first step to effective governance begins with placing the right people into the right positions and ensuring leadership that you can trust. Our Cabinet Members and Senior Staff are some of the most talented and diverse individuals committed to serving our government agencies. Beginning with our Chief of Staff, Tony Babauta, our Deputy Chief of Staff Jon Junior Calvo, our Cabinet Members and Senior Staff -

please stand and be recognized. -- Your work is critical to the services we provide as a government and Lieutenant Governor Josh and I are thankful you have chosen to be a part of our “Familian Gubetno.” Also, I have restored a fair increment process in order to recognize the often thankless but excellent jobs that many of our government employees perform for our people on a daily basis.

Since taking office nearly a hundred days ago, we have assembled an effective and highly experienced Fiscal Discipline Team to re-ignite fiscal responsibility and fairness with regard to the manner in which our government collects taxes. This team is led by our Chief Advisor on Fiscal Discipline, Bertha Duenas, and includes Department of Revenue and Taxation Director Dafne Shimizu, Bureau of Budget Management and Research Director Lester Carlson, Department of Administration Director Ed Birn, and Guam Economic Development Authority Director Melanie Mendiola. We began a full assessment of public assets, liabilities, revenues, and operational expenses, and focused on collecting current taxes owed to GovGuam.

Additionally, we are working closely with Attorney General Leevin Camacho in dedicating tax attorneys to pursue uncollected taxes to the fullest extent of the law. We are also committed to allocating the resources and technology needed at Rev and Tax to support this effort. I have said time and again that when everyone plays by the same set of rules and is held to the same set of standards, fairness is achieved.

I want to commend Senator Joe San Agustin, chair of the Legislature’s Office of Finance and Budget, and Speaker Tina Muna-Barnes, for honoring my request to refrain from new legislation that would negatively impact our current revenue sources and affect funding for health and education. I am grateful to all 15 senators of the 35th Guam Legislature for honoring this request.

As stated in my inaugural address, I have ordered a daily reporting of our government’s cash flow and I continue to monitor these reports regularly. These reports aren’t just numbers in front of me. They tell a story of where we are today and what we can expect in the days and weeks ahead. I am encouraged that recent reports signal a financial outlook that is promising. My fiscal discipline team reports that we are currently collecting within budgeted estimates. We continue to closely monitor fluctuations, especially in the area of income tax, which has been impacted by the changes brought on by the federal Tax Cuts Jobs Act of 2017.

Part of our cash flow process includes the timely issuance of tax refunds. Up to this point, we have already paid out nearly five million dollars in tax refunds. We will continue to issue your refunds in a timely manner, because these are your taxpayer dollars.

I also met with our bondholders from Standard and Poors and Moodys and laid out our vision for the government’s financial well-being. As a former banker, I spoke their language. I provided our investors with the assurances they need to continue placing their trust and their money in our

Guam investment bonds. I believe they have confidence in our commitment to fiscal discipline and I anticipate having a strong collaborative relationship with them over the coming years.

Because of our sound fiscal policies, Guam will continue to have a strong credit reputation in the Capital Market.

Fiscal discipline will be the hallmark of our Administration. In all that we do, we will always strive to be worthy stewards of the public trust people expect of their leaders. Toward this effort, in our FY 2020 budget proposal, we are committed to setting aside two percent of General Fund revenues, placing us on a responsible path toward eliminating our deficit and addressing the long-standing problems that have led to our cash flow challenges. This change will allow us to set aside cash reserves through deposits into the long dormant Rainy Day Fund, building up to a reserve of 10% of our General Fund average spending over a three-year period. It will provide, for the first time, the building of a cash reserve for unplanned and unforeseen events. This reserve will also improve our government’s credit and bond ratings for future financing of capital and infrastructure improvements.

In order to fully address GovGuam’s financial situation, we must be strong in addressing the unfunded federal mandates that create a huge hole in our pockets - including the Compacts of Free Association Act, Earned Income Tax Credit and Medicaid benefits.

The people of the Micronesian islands have always been united through, and not separated by the Pacific Ocean. So we welcome our fellow brothers and sisters from our “Blue Continent” to our home. Yet the Compacts of Free Association Act has led to an increased demand on our local services and infrastructure, and Congress has refused to cover the costs of this burden on our government.

We have identified a total of $1.4 billion locally funded Compact Impact costs incurred from fiscal years 2004 through 2018. Our claims for the total annual amounts have been partially rejected because the federal government tells us our calculations do not meet the standards set by the U.S. General Accountability Office. In order to meet these standards, my administration is working with Governor Ige of Hawaii to be sure that the formula we utilize to report our costs is accurate and universal to both our jurisdictions. The bottom line is that we need to be smarter when working with the federal government and that begins under my watch.

Earned Income Tax Credit is the second-largest unfunded federal mandate we face, second only to Compact Impact. While the 50 individual states are reimbursed by the federal government for their EITC payments, GovGuam is forced to pay out these tax reimbursements locally, from our General Fund. In the last 16 years, our EITC payments have increased from 11 percent of total tax refunds paid to 43 percent of all tax reimbursements. I spoke with Trump administration officials about this unfunded mandate while I was in Washington D.C. and I continue to make

our case with them on this issue. I also look forward to working with our Congressional Delegate Mike San Nicolas to resolve this inequity.

Another unequal federally funded mandate for Guam is Medicaid. In the states, Medicaid has an open-ended financing structure. In Guam and the other U.S. Territories, Medicaid is essentially a block grant with an annual ceiling. We stand to lose $61 million dollars of these Medicaid funds that expire in September of this year. I am working closely with House Speaker Nancy Pelosi and acting Secretary of the Interior David Bernhardt to not only extend this deadline, but also to have Guam be treated equitably with regard to its calculation. As I have said before, we need to be stronger and louder in our arguments to Congress for fair and equitable treatment with regard to these unfunded federal mandates.

The loss of federal funds due to procurement challenges has been an issue for our local government. My executive order reactivating the Procurement Policy Office will provide for a more efficient process by allowing GovGuam agencies to procure goods and services in a timely and productive manner. This office will recommend changes to procurement procedures and laws. Goods and services procured with federal grant money will now be assisted by the Bureau of Statistics and Plans, led by Tyrone Taitano. I also look forward to working with Senator Sabina Perez’ committee in order to streamline and modernize our procurement process. Issuing these executive orders is just one of the ways in which our administration is already making a difference for the people of our island.