The current legislature cut the Business Privilege Tax (BPT) by 0.5%, costing the government about $40, for this fiscal year. If the law does not change, the BPT will be cut a further 0.5%, which means revenue will have decreased about $80 million. Eliminating that much revenue from the government of Guam sacrifices good fiscal policy to benefit a few big businesses.
In 2018, the Guam Legislature permanently raised the BPT to 5%. It was raised to address a general fund shortfall caused by the Trump Tax Cuts, which remain largely in effect. Since raising the BPT, the government’s finances improved, tax refunds were paid faster, reserves rose, many instances of direct relief were provided to working families and even businesses, and government salaries were made more competitive.
BPT should be restored to at least 5% and kept at that level indefinitely for five main reasons. First, we must provide more permanent relief to the needy, including adults who are unable to work. Second, we need to fund critical infrastructure. Third, we need to reinvest in economic growth. Fourth, we need adequate reserves to deal with unforeseen issues. Fifth, government spending acts to stabilize the level of economic activity, so funding the first three priorities would make Guam’s economy more resilient against potential headwinds.
Guam is not a poor economy, but too many of our people are deprived of their basic needs.
Directing more money into Medicaid will allow public health to raise the income eligibility for Medicaid, which can provide health care to many people who do not qualify for Medicaid today. I believe we should fund Medicaid well past the point where we can get additional federal matching funds, so we can ensure almost all pregnant women, infants, and children will have health care. We must also increase the eligibility and the amount of cash benefits given to low-income elderly and disabled people. Over the years, wages and costs have risen, making cash benefits available to fewer and fewer and what those benefits can provide has gone down and down. That has shifted the cost of the elderly and the infirm from the government to their families, which is an unfair burden. Inflation in the last few years have eroded the salaries of government merit employees, as well, although that issue is less acute.
In recent years, our public schools have reached a critical condition after years of under-funding. The future of our children relies on our ability to provide a good education in good schools, so we need the funding to turn our schools around. As the Guam Memorial Hospital (GMH) reaches the end of its useful life, the need for repairs has become more urgent. We need adequate revenue to fund repairs to our only public hospital, and, ultimately, to fund its successor facility. Finally, with the damage of typhoons like Sinlaku and Bavi, we need funding to repair damage to shoreline infrastructure.
Currently, Guam’s economy is doing well in some sectors, while others are being left behind. For example, the tourism sector has not yet recovered as many of us hoped it would. We should be funding projects and initiatives that can help revitalize tourism, as well as supporting other opportunities to diversify the economy.
The other day, the author of the BPT rollback outlined that the current level of the General Fund’s unassigned fund balance is about $40 million, but that the Government Finance Officers Association recommend that not less than 2 months of regular general fund operating revenues should be maintained as an unrestricted budgetary fund balance. This comes to roughly $200 million. We have recent experience that should demonstrate the importance of having a more liquid general fund. This last year, the government faced a number of emergency needs, including repairs at GMH, the potential need to step in to fund SNAP benefits, two major typhoons, Sinlaku and Bavi, and financial challenges at the Guam International Airport Authority due to a decline in flight-related revenue. These recent experiences underscore the importance of adequate reserves, which can only be built up with a significant surplus.
Providing for working families, building infrastructure, and reinvesting in economic growth are justified by their outcomes, but keeping that kind of expenditure funded has a positive side-effect for the community: economic stability. Increases in government spending tends to increase the output of the economy, even aside from the usefulness of the specific expenditure.
I believe many of these priorities would be difficult if not impossible to address on an ongoing basis without restoring and preserving the 5% BPT. I know the vast majority of the people of Guam understand that the BPT cut was not for them, nor does it have any appreciable effect on their quality of life, except to deprive them of the quality government services they deserve.
GuamMinimumWage.org 