Guam's tax cut is a credit negative, rating agency says

By Pacific Island Times News Staff

The 38th Guam Legislature's move to cut the business privilege tax is a credit negative, according to Moody's Ratings.

Moody's has assigned a rating of Baa3 to Guam's general obligation and business privilege tax bonds, with a stable outlook, following an upgrade to investment grade in January 2024. Obligations rated Baa are judged to be medium grade and subject to moderate credit risk.

Senators last week voted to override Gov. Lou Leon Guerrero's veto of Bill 44-38, the government of Guam's spending appropriations act for fiscal 2026.

The measure, which is now a public law, cuts the BPT to 4.5 percent effective Oct. 1 , and then to 4 percent the following year.

Moodys noted that the BPT reduction will cut roughly $80 million in annual revenues at a time when Guam Memorial Hospital continues to post operating losses approaching $65 million per year. Moody’s described the rollback as credit negative, noting it heightens risks to Guam’s overall financial position.

While Moody’s did not formally downgrade Guam’s rating yet, Leon Guerrero said the agency’s comment served as "a warning signal—a 'yellow light' that often precedes a downgrade."

“Our administration has worked hard to bring stability, budget surpluses, and stronger financial management to Guam,” the governor said.

“But Moody’s rating agency comment confirms what we have said all along: approving the rollback of the BPT—even before it has actually decreased—sends a dangerous message to the markets."

She said the tax cut weakens Guam's long-term credit standing and drives up the cost of borrowing for every project.

"That is reckless, irresponsible, and risks the future of our people’s quality of life, protecting the few at the expense of the whole," she added.

The BPT rate was raised from 4 percent to 5 percent in 2018 as a stopgap to bridge the funding shortfall created by the federal tax cut policy during President Donald Trump's first term.

Several attempts to roll back the BPT rate have failed until this year.

Before the override vote, the governor warned the legislature of the tax cut's potential impact on Guam's credit position.

“This was a chance to hit the brakes and protect Guam’s credit,” the governor said. “Instead, the Republican leadership sped past the yellow light, racing toward another fiscal cliff with yet another BPT reduction next year. That is reckless and irresponsible leadership. And it is the people of Guam who will pay the price in higher borrowing costs, fewer resources for health care, and more strain on our families.”

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