The State of the Economy and Fiscal Affairs in the U.S. Territories

Testimony presented to the Committee on Energy and Natural Resources, United States Senate

by

Felix Perez Camacho
Governor of Guam

Mr. Chairman and Members of the Committee, thank you for inviting me to participate in your hearing on the state of the economy and fiscal affairs in the Pacific Island Territories, specifically the island of Guam.  My name is Felix Perez Camacho, Governor of Guam.  My testimony today is to present to you the current state of our economy and what the future holds for our great island as we enter a period of prosperity.

Mr. Chairman, I would like to express my appreciation to you and to the members of the Committee for holding this hearing to better understand the needs and concerns of the Pacific Island Territories on this most important issue for the people of Guam and our Pacific Island brothers and sisters.

I stand before you less than a week after my annual report on the State of the Island of Guam.  It offered a synopsis of where we’ve been, what we had to overcome, how far we’ve gone and, most importantly, where we are headed.  As I told my people and as I share with you here on Capitol Hill, the State of our island is growing stronger.

Guam is expected, absent major adverse disturbances, to continue its recovery and expansion of economic activities in Fiscal Years 2006 and 2007 as it has in each fiscal year following the depressed level of FY 2002. Given the number of private, federal defense and government of Guam construction projects already planned, permitted and contracted it is likely that the pace of the economic expansion will continue to accelerate.

Economic activities and tax revenues are anticipated to continue to recover so that by FY 2007 these levels will more closely approach those achieved in FY 2001 prior to being severely impacted by the repercussions of the terrorist events of September 11, 2001, subsequent super typhoons and other national and global events.

Guam’s Chief Economist reports to me that the economy definitely is trending toward pre-9-11 strength, ending a half-decade of decline and offering hope to my people, who have worked so hard to overcome the challenges that came at the dawn of the Twenty-first Century.

I must premise the following details with an overview of Guam’s economic structure.  Our visitor industry accounts for more than 60 percent of total activity with our strongest markets pegged on the Japan and Korea outbound traveler.  Our second largest industry is the military, accounting for more than 30 percent of activity.  Other industries include telecommunications, retail, service, construction, aviation and more.

At the bottom of the recession in early 2003 when I came to office, all industries were in decline, the War on Terror and the storms kept tourists away and federal and military relations were strained.

The recovery from the depressed level of FY 2002 was initially fueled by a combination of a gradual but significant rebound in tourist arrival numbers and by substantial federal typhoon assistance in a variety of forms including temporary employment and reconstruction assistance as well as private insurance payments. As activity has stabilized, further economic growth is being paced by other sources of financial stimulus.

Substantial capital investment commitments are in place for private businesses, Government of Guam and Federal Government projects. The simultaneous combination of increasing public and private capital investment and construction, expanding defense personnel numbers in addition to modestly increasing tourist arrivals, increasing civilian employment, consumer and investor confidence and spending is the catalyst for continuing expansion.

While a number of large defense activities and infrastructure improvements are under consideration or being planned for Guam, the realization and timing of the implementation of these projects is cause for substantial uncertainty and variability in the estimates of growth levels in the coming years. As decisions on these activities are finalized and projects scheduled, there will be a better ability in the future to produce more precise forecasts.

Various economic indicators are showing that the Guam economy continues to recover and simultaneously is expanding.  Building Permits provide an important leading economic indicator of the type and level of construction activities planned and likely to occur as well as the type of activities and employment which may occur in the buildings once completed. The dollar value of building permits in 2005 at $168 million is a 36 percent increase from 2004, the highest level since 2000. The value of total permits increased by more than seventy-five percent over the last three years. Both residential construction permits and Government of Guam projects have nearly doubled from FY 2004 to FY 2005.

Government of Guam projects planned or scheduled will infuse hundreds of millions of dollars into the local economy and provide for the construction of new schools, senior centers, public safety buildings, health centers, an expanded runway at the International Airport, the closure of the old landfill and the opening of a new one, an overhaul to the water and wastewater systems and major renovations to the power system.  These improvements, while adding to the demand for more jobs in construction and other technical fields, also help to improve Guam’s quality of life.

Federal Government construction projects on military bases are not included in the building permit data. In lieu of this, construction budgets and projects contracted provide important indicators of future construction. About $100 million in construction projects are planned by the Air Force over the next two years. A contract has been awarded for $29 million for the construction of a new Department of Defense high school and Elementary & Middle school. A contract for wharf improvements at U.S. Naval Station Guam exceeding $10 million dollars has also been awarded.

The planned relocation of up to 7,000 Marines from the III Marine Expeditionary Force in Okinawa to Guam will have a major impact on our economy. The costs and timing of this relocation and related activities has not yet been fully outlined as plan details are being discussed between the U.S. and Japanese governments. Pacific Air Forces has committed to basing a Global Strike Task Force (GSTF) on Andersen AFB. It is estimated that approximately three thousand additional military, civilian and contractor personnel would be based at Andersen AFB as a result. The action would begin in 2007 with facility construction projects and be completed around 2016, at a cost of more than $2 billion.
 
Major renovations to and expansion within the visitor industry is the result of visitor arrival numbers jumping to levels not seen since 1997 and increased spending per tourist.  Real estate transactions also have doubled over the past three years and the median sale price of a home is at its highest levels since data tracking began in 1999.

To place the Guam economy into perspective and to show how significant improvements are affecting my people, I want to turn your attention to the workforce situation.  From the December reporting period the month before I came to office until the last reporting period in 2005, more than 3,700 private sector jobs have been added to the workforce – a 10 percent increase to the job market!  Weekly earnings in eight of 13 reporting industries also have increased over the same period and the pace of the economic expansion is such that our industries are concerned about the availability of a skilled workforce to meet growing job demands.  Local labor officials are networking with the private sector and U.S. Immigration authorities to address the anticipated shortfall.

Summary

Mr. Chairman and members of the Committee, Guam has rose to the challenge of building our island from the chaos and destruction of its darkest moments following natural disaster and man-made despair; but there is so much more that is being done to ensure that Guam stays on a course to prosperity.  Together as a people, we have achieved so much and, together, we are poised to bring our island into a period of unprecedented prosperity.  I share your values, your priorities and your concerns as leaders of our great Nation and today, I ask you to stand with the people of Guam as we take our island to new heights and build a greater Guam better and stronger than we’ve ever seen.

Thank you for your attention. I welcome any questions.