Analysis Paper Guam

The purpose of this paper is to provide a discussion on the Government of Guam “guava’s” economy and budget, and an analysis of CAFE and the overall financial health of the island. The CAFE is for the fiscal year ended September 30, 2012. Guam: ‘Verge America’s day begins” Inviting beaches, elegant hotels, great bargains, and unique culture are just among the many attractions the beautiful island of Guam has to offer. A mere 214 square miles, Guam is the biggest, most diversely populated and well developed land of the Marinas Islands as well as the Micronesian region.

The island’s population as of July 2013 is approximately 160,378 and is expected to increase by 0. 3% consecutively. This unincorporated U. S. Territory is located 900 miles north of the equator in the Western Pacific and is nearby to many Asian countries including Japan, Korea, Philippines, Honking, China and Taiwan. The close proximity to the equator brings an all-year round warm weather with a daytime temperature average at OFF and nighttime at 65-750 F, which is very appealing to tourists. Travelers from the U. S. Mainland would have to cross the International Dateline to get to Guam where a new ay in the U. S. S first experienced, hence its popular motto: “Where America’s Day Begins. ” Economy Gum’s economy is directly impacted by tourism and IS. S. Military spending. Tourism arrivals have increased from 1. 17 million in 2010 to 1. 27 million in 2012. In 2013, Guam had another solid growth year for tourism, with 1 ,334 million visitors, a level not seen since 1996-97. Chart 1 below depicts Gum’s visitor arrivals from 1990-2013. In CM 5, the long-awaited military realignment is anticipated to occur that will relocate five thousand (5,000) U. S. Marines and one-thousand three endured (1 ,300) dependents to Guam from Okinawa, Japan.

Reports outside the CAFE stated that U. S. Government budget continue to post challenges affecting the overall federal spending in Guam in fiscal year 2013. Chart 2 shows military contract spending in Guam from 2000-14. Chart 2: IIS Federal, Military Contract Spending in Guam Gum’s Budget Guava’s annual budget has been prepared on a basis that differs from governmental GAP. Actual amounts in the accompanying budgetary comparison statements are presented on a budgetary basis, which includes outstanding encumbrances as a budgetary expenditure. Encumbrance accounting is used to account for governmental funds.

In the fiscal year ended September 30, 201 2, actual revenues collected of $604. 2 million (including operating transfers in) exceeded the budgeted amounts of $595 million primarily because of better business privilege tax collections and federal income tax collections. The budget for Executive Branch operations had a 534. 3 million increase in appropriations between the original and final amended budget, which was primarily attributable to an increase in appropriations authorized by Public Law 31-76 funded by proceeds from the issuance of business privilege tax bonds.

Moreover, budgetary expenditures (including operating transfers out) of $653 million were lower than authorized appropriations of $677. 5 million due primarily to continuing appropriations for Guam Memorial Hospital Authority capital project expenditures of $9. 7 million, interest payments associated with debt service of $8. 6 million in addition to miscellaneous continuing appropriations. The over-expenditures were also due to the non- appropriated expenditures that have not been funded by the legislative authorization including merit bonus of $9. Million, Lad Estates Court judgment of $2. Million and other miscellaneous expenditures of $5. 5 million relating to billings, attorney fees and alike. Gum’s Revenue Guava’s major revenues from governmental activities come from local sourced tax revenues and federal grants, which comprises of 56. 9% and 34. 3% respectively, of the total revenues for fiscal year 2012. Charges for services provided 7. 2% of the total revenues. Graph 1 and 2 below show the major components of revenue of Guava’s governmental activities. Graph Guava’s Revenue Sources For the Years Ended September 30, 2012

Graph 2 From fiscal year 2011, Guava’s expenses increase by $63. 3 million (or 6%). During the fiscal year 2012, expenses for governmental activities Were $1. 11 billion and were funded in part by $464. 8 million in program revenues and $654. 3 million in taxes and other general revenues. Guava’s largest expenses were for public education and public health, which comprises of 29. 2% and 22. 8% respectively, of the total expenses for the fiscal year 2012. Other expenses included in the overall costs of governmental activities include unallocated interest expense ($65. 3), community services ($25. Lion), transportation expenses ($26. 9 million), and culture and recreation ($24. 3 million), economic development ($16. 5 million). Graph 3 and 4 show a comparison of the major components of cost of governmental activities for fiscal years 2012 and 2011. Graph 3 Graph 4 Guava’s Cost of Governmental Activities Gum’s General Fund Guava has two kinds of funds, governmental funds and fiduciary funds. Governmental funds report most of Guava’s basic services which focus on the inflow and outflow of those funds and the balances left at the year that are available for spending.

These funds are reported using modified accrual counting, which measures cash and all other financial assets that can readily be converted to cash. For the fiscal year 2012, the General Fund reported expenditures (including transfers out) of $684. 5 million, a decrease of $24. 2 million or 3. 4% from fiscal year 2011 expenditures and transfers out. At September 30, 201 2, the General Fund reported a cumulative fund balance of $30. 1 million, which is an increase of $333. 3 from the prior year fund deficit of $303. 1 million.

The decrease in the total fund deficit is primarily attributable to proceeds from bonds issuance of $358. 2 million. Moreover, public education consumes the most general government resources. Guam Department of Education (EDGE), formerly known as the Guam Public School System, is one of the funds that comprise Guava’s General Fund. Within that, Department of Education Operations fund was created by Public Law 28-68 to account for local appropriations to cover the operational expenses of the EDGE and any use associated with the EDGE.

Public education net expenses increase by $65. 4 million (36. 1 %) from the previous fiscal year 2011. These expenses make up 33% of the general fund total expenditures for the fiscal year 2012. Furthermore, Guava has elected to add EDGE Federal Grants Assistance Fund, a special revenue fund that accounts for all activities of U. S. Special federal assistance grants and contracts utilized by Guava to finance education. Quality of Gum’s CAFE In terms of quality of the report, Guam has successfully prepared a CAFE in conformity with the GABS 34 requirements.

In a press release on February 1 1, 2014, the Office of the Governor proudly announced that the Government of Finance Officers Association (GOOF) has awarded Guam the Certificate of Achievement for Excellence in Financial Reporting, the highest award for uncial transparency. Gum’s Financial Health One way to measure Guava’s financial health is by looking at its net assets reported in the two government-wide statements report, and how they have changed. The largest portion of Guava’s net assets ($449. Million) reflect its investment in capital assets such as land, infrastructure, buildings, and equipment, less any related debt used to acquire those assets that is still outstanding. An additional portion of Guava’s net asset ($146. 7) represents resources that are restricted to the purpose they can be used for. Further, in the same fiscal year, Guava’s unrestricted net deficiency decreases by 39. 5 million or 1 from the prior year unrestricted net deficiency. The overall net deficiency of the primary government decreased by $4. 9 million compared to prior year’s net deficiency decrease of $49. Million. This result indicates that Guava’s financial condition as a whole has improved compared to the prior year. Below is the condensed summary of Net Deficiency with comparable balances for fiscal year 2011 Notes to financial statements Guava’s CAFE notes to financial statements discuss its long-term obligations. Disclosure about long-term liabilities in the notes is presumed to be useful information to users such as creditors, potential creditors, and other users of financial reports that have interests in assessing the governments requirements for future debt service expenditures.

Guava’s long-term debts include general obligation bonds, limited obligation bonds, long-term notes and capital leases, and long-term liabilities to other governmental entities. Long-term obligations financed by component units are recorded as liabilities in the discretely presented component unit’s column. Guava’s debt ceiling limitation must not exceed 10% of the aggregate tax value (assessed value) of property in Guam, which is $1 VI 39,464,853 as of September 30, 2011.

Total debt outstanding subject to the debt ceiling limitation as of September 30, 201 2 is $1 , 1 27, 179,659. Conclusion Gum’s submission of CAFE for the Fiscal Year 2012 is quite historical for the region. Being the first in any U. S. Territory to submit a CAFE, Guam is confident that it is ahead of the curve in fiscal responsibility among the insular areas. Winning its first Certificate of Achievement for Excellence in Financial Reporting for fiscal year 201 2 reaffirms the key components its administration stood for; transparency, accountability, and fiscal responsibility.

Further, Gum’s overall economic performance throughout Fiscal Year 201 2 remains stable with moderate economic growth expected to level off in Fiscal 201 3 and 2014. Growth is subjective to new investment opportunities and on how well regional market economies serve tourism in the region and the incremental investments made for military buildup in the region Moreover, information presented in the CAP indicates that Gum’s focus is o restructure its debt and addressing its current obligation on a disciplined and timely basis.

Also, in line with its long-term financial planning, Guam is also focused on economic strengthening and development as well as aggressive tax enforcement to ensure economic growth and fiscal sustainability. While financial uncertainties are on the fiscal horizon, the anticipated increase in tourist arrivals and military buildup makes Guam optimistic for positive effect on revenue that will enhance the island’s overall financial sustainability in the years to come.