GAO-21-508, U.S. Territories: Public Debt Outlook – 2021 Update
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United States Government Accountability Office Report to Congressional Committees June 2021 U.S. TERRITORIES Public Debt Outlook – 2021 Update GAO-21-508 June 2021 U.S. TERRITORIES Public Debt Outlook – 2021 Update Highlights of GAO-21-508, a report to congressional committees Why GAO Did This Study What GAO Found The five permanently inhabited U.S. Commonwealth of Puerto Rico (Puerto Rico): Puerto Rico remains in default. territories–Puerto Rico, USVI, It has finalized three debt restructuring agreements or settlements to date, American Samoa, CNMI, and Guam– pursuant to three distinct legal approaches, and it is using one of these borrow through financial markets. approaches to restructure additional debt. Puerto Rico’s total public debt Puerto Rico, in particular, has outstanding as a share of Gross National Product increased slightly from 93 to 95 amassed large amounts of debt, and percent between fiscal years 2016 and 2017, the most recent year for which began to default on debt payments in audited financial data are available. Puerto Rico’s total revenue remained 2015. In 2017, hurricanes caused consistent between fiscal years 2016 and 2017 at about $30.0 billion and the widespread damage in Puerto Rico territory operated with a $3.1 billion deficit in fiscal year 2017. Puerto Rico’s and USVI. Further, in 2018, American future capacity for debt repayment depends primarily on the outcomes of the Samoa, CNMI, and Guam experienced typhoons and cyclones. The effects of ongoing debt restructuring process, its ability to generate sustained economic the COVID-19 pandemic on the growth, and the disbursement of federal funding. territories’ economies is not yet fully American Samoa: American Samoa’s total public debt outstanding as a share of known. Gross Domestic Product (GDP) increased from 19 to 37 percent between fiscal In June 2016, Congress passed and years 2017 and 2019. This increase was partially due to a series of general the President signed the Puerto Rico revenue bonds issued in late 2018 to fund infrastructure projects. During this Oversight, Management, and period, American Samoa’s yearly total revenue fluctuated but was 24 percent Economic Stability Act. It contains a higher in fiscal year 2019 compared to fiscal year 2017, and the territory had a provision for GAO to review the public surplus of $34.0 million in fiscal year 2019. Continued reliance on a single debt of the five territories every 2 industry and significant pension liabilities remain fiscal risks in American Samoa. years. Commonwealth of the Northern Mariana Islands (CNMI): CNMI’s total public In this report, for each of the five debt outstanding as a share of GDP remained constant at about 8 percent territories, GAO updates (1) trends in between fiscal years 2017 and 2019. During this period, CNMI’s yearly total public debt and its composition; (2) revenue fluctuated but was 27 percent higher in fiscal year 2019 compared to trends in revenue and its composition, fiscal year 2017, and the territory had a deficit of $33.3 million in fiscal year 2019. and in overall financial condition; and Worsening economic conditions and significant pension liabilities may affect (3) the fiscal risk factors that affect CNMI’s future debt repayment capacity. COVID-19 has hurt tourism, CNMI’s each territory’s ability to repay public primary industry. debt. GAO analyzed the territories’ single audit reports for fiscal years Guam: Guam’s total public debt outstanding as a share of GDP decreased 2017, 2018, and 2019, as available; slightly from 44 to 42 percent between fiscal years 2017 and 2019. Guam’s total reviewed relevant documentation and revenue increased 7 percent during this period and the territory had a surplus of analyses; and interviewed officials from $112.6 million in fiscal year 2019. Guam faces fiscal risks such as COVID-19’s the territories’ governments, federal negative impact on tourism, Guam’s primary industry, and significant pension agencies, and industry groups. liabilities. United States Virgin Islands (USVI): USVI’s total public debt outstanding as a share of GDP increased slightly from 68 to 69 percent of GDP between fiscal years 2016 and 2018, the most recent year for which audited financial data are available. During this period, USVI’s yearly total revenue fluctuated but was 36 percent higher in fiscal year 2018 compared to fiscal year 2016, and the territory had a deficit of $29.4 million in fiscal year 2018. USVI’s capacity for future debt repayment may be affected by its ability to create economic growth and its ability to manage its pension liabilities and address the pending insolvency of its public View GAO-21-508. For more information, pension system. USVI’s ability to create economic growth may be hampered by contact Yvonne D. Jones at (202) 512-6806 or the adverse impact of COVID-19 on tourism, USVI’s primary industry. [email protected] or David Gootnick at (202) 512-3149 or [email protected] United States Government Accountability Office Contents Letter 1 Background 3 Commonwealth of Puerto Rico (Puerto Rico) 10 American Samoa 17 Commonwealth of the Northern Mariana Islands (CNMI) 21 Guam 26 United States Virgin Islands (USVI) 29 Agency Comments, Third Party Views, and Our Evaluation 32 Appendix I Objectives, Scope, and Methodology 34 Appendix II Comments from the Government of Puerto Rico 36 Appendix III Comments from the Government of American Samoa 42 Appendix IV Comments from the Government of the Commonwealth of the Northern Mariana Islands 44 Appendix V Comments from the Government of Guam 46 Appendix VI GAO Contacts and Staff Acknowledgments 48 Page i GAO-21-508 U.S. Territories Abbreviations BEA Bureau of Economic Analysis CNMI Commonwealth of the Northern Mariana Islands COFINA Puerto Rico Sales Tax Financing Corporation COVID-19 Coronavirus Disease 2019 FAC Federal Audit Clearinghouse FOMB Financial Oversight and Management Board for Puerto Rico GASB Governmental Accounting Standards Board GDB Government Development Bank for Puerto Rico GDP Gross Domestic Product GNP Gross National Product OIA U.S. Department of Interior Office of Insular Affairs OPEB Other post-employment benefits PROMESA Puerto Rico Oversight, Management, and Economic Stability Act USVI United States Virgin Islands This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. Page ii GAO-21-508 U.S. Territories Letter 441 G St. N.W. Washington, DC 20548 June 30, 2021 The Honorable Joe Manchin Chairman The Honorable John Barrasso Ranking Member Committee on Energy and Natural Resources United States Senate The Honorable Raúl Grijalva Chairman The Honorable Bruce Westerman Ranking Member Committee on Natural Resources House of Representatives The five permanently inhabited U.S. territories—the Commonwealth of Puerto Rico (Puerto Rico), American Samoa, the Commonwealth of the Northern Mariana Islands (CNMI), Guam, and the United States Virgin Islands (USVI)—like U.S. states in some cases, borrow through financial markets. Some of them have amassed large amounts of debt, including Puerto Rico, which has been in default since 2015. A few of the territories are single industry economies and some rely heavily on tourism. All the territories are vulnerable to natural disasters such as hurricanes, typhoons, and earthquakes, which can cause long- term damage to infrastructure and the economy. In 2020, the Coronavirus Disease 2019 (COVID-19) pandemic placed additional financial pressures on the territories’ already strained economies. A worsening fiscal condition in any of the territories can necessitate federal assistance, including through federal programs that support territory residents. In June 2016, Congress passed and the President signed the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), which contains a provision for us to review the public debt of each U.S. territory every 2 years.1 We issued our first report on the territories’ public debt in October 2017 and our second report in June 2019, reporting on trends in 1Pub. L. No. 114-187, § 411, 130 Stat. 549, 594–595 (2016). Page 1 GAO-21-508 U.S. Territories public debt between fiscal years 2005 and 2017.2 For the five territories, this report updates information from our prior reports on (1) trends in public debt and its composition; (2) trends in revenue and its composition, and in overall financial condition; and (3) the fiscal risk factors that affect each territory’s ability to repay public debt. To describe trends in each territory’s public debt, revenue, and composition, we reviewed the audited financial statements included within each territory’s single audit reporting package for the most recent fiscal years available as of May 5, 2021.3 For American Samoa, CNMI, and Guam, single audits were available for 2018 and 2019. For USVI, single audits were available for 2017 and 2018. Puerto Rico provided audited financial statements for 2017. The information we present on the debt, revenues, and expenses is limited because we were unable to obtain timely audited financial statements from all territories for fiscal years 2018 and 2019. We analyzed data on public debt—specifically, bonds, loans, and notes for both the primary government and component units—for those years.4 To determine the fiscal risk factors that affect each territory’s ability to repay, we interviewed officials from each of the territorial governments, including departments of finance or treasury, and the agency responsible for issuing and marketing bonded debt. We also interviewed officials at the Department of the Interior’s Office of Insular Affairs (OIA).