U.S. TERRITORIES

Public Debt Outlook

Report to Congressional Committees

October 2017

GAO-18-160

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-18-160, a report to 

Congressional Committees 

October 2017

U.S. TERRITORIES 

Public Debt Outlook

What GAO Found

Puerto Rico: Between fiscal years 2005 and 2014, the latest figures available, 

Puerto Rico’s total public debt outstanding (public debt) grew from $39.2 billion

to $67.8 billion, reaching 66 percent of Gross Domestic Product (GDP). Despite 

some revenue growth, Puerto Rico’s net position was negative and declining 

during the period, reflecting its deteriorating financial position. Experts pointed to 

several factors as contributing to Puerto Rico’s high debt levels, and in 

September 2016 Puerto Rico missed up to $1.5 billion in debt payments. The 

outcome of the ongoing debt restructuring process will determine future debt 

repayment.

American Samoa: American Samoa’s public debt more than doubled in fiscal 

year 2015 to $69.5 million, but remained small relative to its economy, with a 

debt to GDP ratio of 10.9 percent. American Samoa’s debt was primarily used to 

fund infrastructure projects. Between fiscal years 2005 and 2015, revenues grew 

and the government’s net position was positive and generally improving. GAO 

previously reported that American Samoa relies heavily on the tuna processing 

and canning industry. Disruptions in this industry could affect its ability to repay 

debt.

Commonwealth of the Northern Mariana Islands (CNMI): CNMI’s public debt 

declined from $251.7 million to $144.7 million between fiscal years 2005 and 

2015, decreasing CNMI’s debt to GDP ratio to 16 percent. Most of CNMI’s debt 

was used to refinance prior debt and fund infrastructure projects. Despite 

revenue growth since fiscal year 2011, CNMI’s net position was negative and 

generally declining during the period. GAO previously reported that labor 

shortages may affect GDP. This could impede CNMI’s ability to repay debt in the 

future. 

Guam: Between fiscal years 2005 and 2015, Guam’s public debt more than 

doubled from almost $1 billion to $2.5 billion, with a debt to GDP ratio of 44 

percent for fiscal year 2015. Most of Guam’s debt was used to comply with 

federal requirements and court orders. Revenue grew during this period, and net 

position fluctuated significantly, with a negative balance in fiscal year 2015. 

Despite recent and expected economic growth, GAO found that large unfunded 

pension and other post-employment benefit (OPEB) liabilities may present a risk.

U.S. Virgin Islands (USVI): Between fiscal years 2005 and 2015, USVI’s public 

debt nearly doubled, reaching $2.6 billion and a debt to GDP ratio of 72 percent. 

Since 2010, most of USVI’s debt was used to fund general government 

operations. Revenue remained stagnant and net position was negative and 

declining during the period, reflecting a deteriorating financial position. While 

USVI holds a year’s worth of debt service payments in reserve, GAO found that 

economic uncertainty and looming government pension fund insolvency by 2023 

may hamper repayment. In early 2017, USVI was unable to access capital 

markets to issue new debt at favorable rates. Although the government adopted

a financial plan intended to reduce expenditures and increase revenue, the plan 

does not address USVI’s significant unfunded pension and OPEB liabilities and it 

is unclear whether the plan will produce the intended level of savings. 

View GAO-18-160. For more information, 

contact Susan J. Irving at (202) 512-6806 or 

irvings@gao.gov, or David Gootnick at (202) 

512-3149 or gootnickd@gao.gov.

Why GAO Did This Study

The United States has five territories:

Puerto Rico, American Samoa, CNMI, 

Guam, and USVI. The territories, like 

U.S. states in some cases, borrow 

through financial markets. Puerto Rico 

in particular has amassed large 

amounts of debt, and defaulted on 

billions of dollars of debt payments. In 

response to the fiscal crisis in Puerto 

Rico, Congress enacted and the 

President signed the Puerto Rico 

Oversight, Management, and 

Economic Stability Act (PROMESA) in 

June of 2016, which established an 

Oversight Board with broad powers of 

budgetary and financial control over 

Puerto Rico and requires GAO to study 

fiscal issues in all five U.S. territories.

In this report, for each territory for fiscal 

years 2005-2015, GAO examined (1)

trends in public debt and its 

composition, (2) trends in revenue and 

its composition, (3) the major reported 

drivers of the territory’s public debt, 

and (4) what is known about the ability 

of each territory to repay public debt. 

GAO analyzed the territories’ single 

audit reports; interviewed officials from 

the territories’ governments, ratings 

agencies, and subject matter experts;

and reviewed documents and prior 

GAO work.

What GAO Recommends

GAO is not making recommendations 

in this report. 
Page i GAO-18-160 U.S. Territories

Letter 1

Background 6

Puerto Rico 12

American Samoa 22

Commonwealth of the Northern Mariana Islands (CNMI) 30

Guam 38

United States Virgin Islands (USVI) 47

Agency Comments, Third Party Views, and our Evaluation 57

Appendix I Objectives, Scope, and Methodology 59

Appendix II Comments from the Government of Puerto Rico 64

Appendix III Comments from the Government of American Samoa 69

Appendix IV Comments from the Government of the Commonwealth 

of the Northern Mariana Islands 71

Appendix V Comments from the Government of Guam 73

Appendix VI Comments from the Government of the 

United States Virgin Islands 79

Appendix VII GAO Contacts and Staff Acknowledgments 82

Table

Table 1: Total Public Debt Outstanding Owed by Government 

Entities in Puerto Rico as a Percentage of Total Debt, 

Fiscal Year 2014 14

Contents
Page ii GAO-18-160 U.S. Territories

Figures

Figure 1: Map of the U.S. Territories 6

Figure 2: Puerto Rico’s Bonded Debt Outstanding as a 

Component of Total Public Debt Outstanding, Fiscal 

Years 2005-2014 13

Figure 3: Puerto Rico’s Public Debt Outstanding as a Share of 

Gross National Product (GNP), Fiscal Years 2005-2014 15

Figure 4: Puerto Rico’s Total Public Debt Outstanding Per Capita, 

Fiscal Years 2005-2014 16

Figure 5: Puerto Rico’s Revenue, Fiscal Years 2005-2014 17

Figure 6: Puerto Rico’s Estimated Debt Service vs. Debt Service 

Due, Fiscal Years 2018–2026 21

Figure 7: American Samoa’s Bonded Debt Outstanding as a 

Component of Total Public Debt Outstanding, Fiscal 

Years 2005-2015 23

Figure 8: American Samoa’s Public Debt Outstanding as a Share 

of Gross Domestic Product, Fiscal Years 2005-2015 24

Figure 9: American Samoa’s Public Debt Outstanding Per Capita, 

Fiscal Years 2005-2015 25

Figure 10: American Samoa’s Revenue, Fiscal Years 2005-2015 26

Figure 11: The Commonwealth of the Northern Mariana Islands’

Bonded Debt Outstanding as a Component of Total 

Public Debt Outstanding, Fiscal Years 2005-2015 31

Figure 12: The Commonwealth of the Northern Mariana Islands’

Public Debt Outstanding as a Share of Gross Domestic 

Product, Fiscal Years 2005-2015 32

Figure 13: The Commonwealth of the Northern Mariana Islands’

Public Debt Outstanding Per Capita, Fiscal Years 2005-

2015 33

Figure 14: The Commonwealth of the Northern Mariana Islands’

Revenue, Fiscal Years 2005-2015 34

Figure 15: Guam’s Bonded Debt Outstanding as a Component of 

Total Public Debt Outstanding, Fiscal Years 2005-2015 39

Figure 16: Guam’s Public Debt Outstanding as a Share of GDP, 

Fiscal Years 2005-2015 40

Figure 17: Guam’s Public Debt Outstanding Per Capita, Fiscal 

Years 2005-2015 41

Figure 18: Guam’s Revenue, Fiscal Years 2005-2015 42

Figure 19: U.S. Virgin Islands’ (USVI) Bonded Debt Outstanding 

as a Component of Total Public Debt Outstanding, Fiscal 

Years 2005-2015 48
Page iii GAO-18-160 U.S. Territories

Figure 20: U.S. Virgin Islands’ (USVI) Public Debt Outstanding as 

a Share of GDP, Fiscal Years 2005-2015 49

Figure 21: U.S. Virgin Islands’ (USVI) Public Debt Outstanding Per 

Capita, Fiscal Years 2005-2015 50

Figure 22: U.S. Virgin Islands’ (USVI) Revenue, Fiscal Years 

2005-2015 51

Abbreviations

CNMI Commonwealth of the Northern Mariana Islands

EITC Earned Income Tax Credit

GASB Governmental Accounting Standards Board

GDP Gross Domestic Product

GNP Gross National Product

OIA Office of Insular Affairs

OPEB Other Postemployment Benefits

PROMESA Puerto Rico Oversight, Management, and Economic 

Stability Act

USVI United States Virgin Islands

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Page 1 GAO-18-160 U.S. Territories

441 G St. N.W.

Washington, DC 20548

October 2, 2017

The Honorable Lisa Murkowski

Chairman

The Honorable Maria Cantwell

Ranking Member

Committee on Energy and Natural Resources

United States Senate

The Honorable Rob Bishop

Chairman

The Honorable Raul Grijalva

Ranking Member

Committee on Natural Resources

House of Representatives

The United States has five territories—Puerto Rico, American Samoa, the 

Commonwealth of the Northern Mariana Islands (CNMI), Guam, and the 

U.S. Virgin Islands (USVI)—that are permanently inhabited and have 

elected governors, territorial legislatures, and non-voting members in the 

U.S. House of Representatives. Local officials make budgetary decisions 

about borrowing and therefore the level of debt held by the public in each 

territory. These territories, like U.S. states in some cases, borrow through 

financial markets for long-term investments, such as infrastructure 

projects, or when their budgets are in deficit. The territories, like other 

borrowers, pay interest on their debt. Both the amounts borrowed and the 

interest rates determine the amount of interest spending. If unchecked, 

interest spending can absorb resources that could be used instead to 

provide government services. In extreme situations, borrowers might be 

unable to borrow at favorable rates if the market loses confidence in their 

ability to repay the debt.

Puerto Rico, in particular, has amassed large amounts of debt. In 

February 2014, Puerto Rico’s general obligation bonds were downgraded 

to speculative—noninvestment grade— by two ratings agencies, Fitch 

and Standard and Poor’s, and to the lowest rating of investment grade by 

Moody’s. Since August 2015, Puerto Rico has defaulted on up to $1.5 

billion in debt payments. In response to the crisis in Puerto Rico, 

Congress passed and the President signed the Puerto Rico Oversight, 

Letter
Page 2 GAO-18-160 U.S. Territories

Management, and Economic Stability Act (PROMESA) in June 2016. 1

PROMESA established a Financial Management and Oversight Board 

(Board) with broad powers of budgetary and financial control over Puerto 

Rico. PROMESA also requires us to study fiscal issues in the territories 

and periodically report on the public debt of each U.S. territory. 2

For Puerto Rico, American Samoa, CNMI, Guam, and USVI, this report 

describes (1) trends in public debt and its composition between fiscal 

years 2005 and 2015, (2) trends in revenue and its composition between 

fiscal years 2005 and 2015, (3) the major reported drivers of the territory’s 

public debt, and (4) what is known about the ability of the territory to 

repay public debt.

This report is organized by territory. Because of the wide variation 

amongst the territories, including differences in their sizes, populations, 

locations, and economies, it is important to consider each territory as a 

distinct entity.

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,3 hereinafter referred to as 

 1

Pub. L. No. 114-187, 130 Stat. 550 (June 30, 2016).

2

PROMESA also requires us to review conditions and actions that contributed to Puerto 

Rico’s levels of debt and how the federal government could prevent Puerto Rico or other 

territories from accumulating debt in the future. We will report the results of that review in 

a separate report later this year.

3

The Single Audit Act, as implemented by the Office of Management and Budget (OMB) 

Circular No. A-133, requires nonfederal entities that expend above a dollar threshold in 

federal awards in a fiscal year to have a single audit. For the years whose audited 

financial statements we reviewed, the applicable threshold was $500,000 or more. 

Beginning in fiscal year 2015, the threshold was raised to $750,000. Federal awards 

include grants, loans, loan guarantees, property, cooperative agreements, interest 

subsidies, insurance, food commodities, direct appropriations, other assistance, and 

federal cost-reimbursement contracts. Single audits are audits of the recipient 

organization—the government in the case of the territories—that focus on the recipient’s 

internal controls and its compliance with laws and regulations governing federal awards. 

As nonfederal entities expending more than $500,000 a year in federal awards, the 

territories are required to submit single audit reports. Recipient organizations are required 

by the act to submit their single audits reports to the Federal Audit Clearinghouse (FAC). 

The single audit reporting package sent to the FAC includes (1) the auditor’s reports; (2) 

the entity’s audited financial statements and related notes; (3) the schedule of 

expenditures of federal awards, related notes, and the auditor’s report on the schedule; (4) 

a schedule of findings and questioned costs; (5) reports on internal controls over financial 

reporting, and compliance with laws and regulations; and (6) a summary schedule of prior 

audit findings.
Page 3 GAO-18-160 U.S. Territories

the single audit reports, fiscal years 2005 through 20154 and analyzed 

data on public debt—specifically, bonds, loans, and notes for both the 

primary government and component units5

—for each of those years. In 

addition, we obtained and reviewed data on each of the territories’

revenue from the same single audit reports for each fiscal year for both 

the primary governments and component units. 6 Our analysis primarily 

focused on trends in general revenues 7 because the territories’ public 

debt is either explicitly or implicitly backed by general revenues. We also 

included total revenue—general revenues and program revenues 8

combined—in our analysis because it includes revenue generated by the 

territories’ component units and could be used to service debt payments.

For each territory, we obtained and reviewed the independent auditor’s 

report corresponding to each single audit and noted the type of opinion 

that was expressed on the financial statements and accompanying note 

 4

Puerto Rico provided consolidated audited financial statements instead of single audit 

reports and their consolidated financial statement for 2015 was not available as of July 

2017. Territory officials anticipate that it will be released by September 2017.

5

The primary government is generally comprised of governmental activities (generally 

financed with taxes and intergovernmental aid) and business-type activities (generally 

financed with charges for goods and services). Component units are legally separate 

entities for which a government is financially accountable. For the purposes of this report, 

references to total government activity and balances indicate both the primary government 

and component units.

6

Since the period covered in this report is fiscal years 2005 through 2015, it does not 

include any costs or other impacts of the 2017 hurricanes.

7

All tax revenues, including tax revenues that are dedicated to particular purposes, are 

reported in general revenues. Tax revenues represent the largest component of general 

revenues and include both derived tax revenues (resulting from assessments imposed on 

exchange transactions, such as income taxes and sales taxes) and imposed nonexchange revenues (resulting from assessments imposed on non-exchange transactions, 

such as property taxes and fines). General revenues also include unrestricted aid from 

other governments and investment earnings.

8

Program revenues are directly linked to functions or programs and include charges for 

services, as well as grants and contributions for specific functions and programs. While 

program revenues are generated by the associated functions or programs, such revenues 

are not always restricted to use in those functions or programs.
Page 4 GAO-18-160 U.S. Territories

disclosures. 9 With the exception of Puerto Rico each of the territories 

received modified opinions by auditors on one or more of the single audit 

reports included in our analysis. We reviewed each of these opinions and 

determined that despite the modified opinions the data we obtained from 

each of the single audit reports was reliable for the purpose of describing 

trends in debt and revenue and their composition for the fiscal years 

included in our analysis.

To determine the major reported drivers of public debt and what is known 

about the territories’ ability to repay, we interviewed officials from the 

territories’ governments, including officials from the Governors’ offices, 

departments of finance or treasury, and the agency responsible for 

issuing and marketing bonded debt. In addition, we interviewed 

representatives of the three rating agencies— Fitch, Moody’s and 

Standard and Poor’s—that provide credit ratings for the territories’

securities and an investment bank involved with underwriting the 

territories’ bonds. We also interviewed subject matter experts and officials 

at the Department of the Interior’s Office of Insular Affairs (OIA), which 

provides grant aid and technical assistance and support to the 

territories.10 In addition, we obtained and reviewed relevant 

documentation, reports, and analyses from the territorial governments 

and ratings agencies. We also obtained and reviewed information on 

territorial bond issuances from 2005 through 2015 from the Electronic 

Municipal Market Access (EMMA) database of the Municipal Securities 

Rulemaking Board, the primary regulator of the municipal securities 

market.

In addition, to determine what is known about the territories’ ability to 

repay public debt we analyzed common factors—identified through prior 

work, documents, and interviews with the three rating agencies—that 

indicate territories’ potential vulnerability to debt crises. These factors 

included 1) the extent to which territories consistently issued debt to fund 

 9

Auditors express unmodified opinions when the auditors conclude that the financial 

statements are presented fairly, in all material respects, in accordance with the applicable 

financial reporting framework. Auditors express modified opinions when (1) the auditors 

conclude that, based on the audit evidence obtained, the financial statements as a whole 

are materially misstated or (2) the auditors are unable to obtain sufficient appropriate audit 

evidence to conclude that the financial statements as a whole are free from material 

misstatement. A modified opinion can be expressed as a qualified opinion, an adverse 

opinion, or a disclaimer of opinion.

10OIA does not exercise any responsibilities in relation to Puerto Rico.
Page 5 GAO-18-160 U.S. Territories

general government operations, 2) the extent to which territories’

economies were vulnerable to shocks due to a heavy dependence on a 

single or limited industry, and 3) the extent to which territories faced large 

fiscal risks such as pension liabilities.

We conducted this performance audit from September 2016 to October 

2017 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.
Page 6 GAO-18-160 U.S. Territories

Figure 1: Map of the U.S. Territories

The territories of Puerto Rico and USVI are located southeast of Florida in 

the Caribbean Sea; American Samoa, CNMI, and Guam are located in 

the Pacific Ocean some 4,100 to 6,000 miles from the U.S. mainland. 

(See figure 1.) While the United States exercises sovereignty over the 

territories, each territory administers its local government functions 

through popularly elected governors and legislatures. American Samoa, 

CNMI, and Puerto Rico are self-governed under territorial constitutions; 

Guam and USVI have not adopted local constitutions and remain 

governed by Organic Acts enacted by Congress and signed by the 

Background

U.S. Territories
Page 7 GAO-18-160 U.S. Territories

President.11 Because the five jurisdictions are unincorporated territories, 

their residents—although they have many of the rights of citizens of the 

50 states—cannot vote in national elections and do not have voting 

representation in the final approval of legislation by the full Congress.

12

Puerto Rico, with about 3.5 million residents as of 2015, is the largest 

U.S. territory. Puerto Rico consists of a main island and several smaller 

ones—a total of 3,425 square miles. Puerto Rico’s economy entered a 

recession in the fourth quarter of 2006 and has continued to contract 

since then. According to the Bureau of Labor Statistics (BLS), Puerto Rico 

had an unemployment rate of 12 percent in August 2015. Congress 

passed PROMESA in June 2016. PROMESA temporarily prevented 

creditors from suing Puerto Rico over missed debt payments. PROMESA 

established a Financial Management and Oversight Board (Board) with 

broad powers of budgetary and financial control over Puerto Rico. In 

addition, it created procedures for adjusting debts accumulated by the 

Puerto Rico government and its component units. On May 3, 2017, after 

the termination of the original stay preventing creditors from suing the 

territory, the Board filed a petition under Title III of PROMESA beginning a 

broad-based debt restructuring process.

American Samoa, with a population estimated at 57,000 in 2015, lies 

about 2,600 miles southwest of Hawaii and consists of seven islands 

covering a land area of 76 square miles. The main island of Tutuila has 

little level land and is mostly rugged. Agricultural production on the island 

is limited by the scarcity of arable land, and tourism is impaired by the 

island’s remote location and lack of tourist-rated facilities. Most of 

American Samoa’s economic activity—primarily tuna canning—and 

government operations take place on Tutuila in the Pago Pago harbor 

area.

CNMI, with a population estimated at 52,100 in 2015, is located in the 

western Pacific Ocean, just north of Guam and 5,500 miles from the U.S. 

mainland. The territory is comprised of 14 islands with a total land area of 

183 square miles; most of its population resides on the island of Saipan, 

 11Organic acts are federal laws that serve as the constitution or basic charter of the 

territory, thereby conferring the powers of government upon a territory. The organic acts 

usually include a bill of rights and provide for the establishment of the territories’ tripartite 

government.

12An unincorporated territory is a U.S. territory to which Congress has determined that 

only selected parts of the U.S. Constitution apply.
Page 8 GAO-18-160 U.S. Territories

with additional residents on the islands of Rota and Tinian. Historically, 

CNMI’s economy has depended on garment manufacturing and tourism. 

After a decade of decline, by 2009 all of the garment factories had closed. 

The tourism industry declined from 2005 to 2011, but has rebounded 

since 2012.

Guam, with a population estimated at 162,000 in 2015, is located about 

50 miles south of the southernmost island of CNMI and has a total land 

area of 212 square miles. It has long been a strategic location for the U.S. 

military. Guam’s economy depends largely on U.S. military spending and 

tourism. As of 2014, the Department of Defense (DOD) controlled about 

27 percent of the island. Most of the military members and dependents 

are attached to one of the two major military installations on the island: 

U.S. Naval Base Guam, located on the southwestern side of the island at 

Apra Harbor, or Andersen Air Force Base in the north.

USVI, with a population estimated at 104,000 in 2015, is composed of 

three main islands—St. Croix, St. John, and St. Thomas—and many 

other surrounding islands, comprising 134 square miles. Most of the 

territory’s population resides in St. Thomas and St. Croix. Tourism is the 

primary industry in USVI followed by manufacturing, including rum 

distilling. In 2012, the Hovensa oil refinery on St. Croix, a joint venture 

between Hess Corporation and a Venezuelan state-owned oil company, 

shut down. The refinery was the largest private employer on the island.

Territorial governments issue debt securities and receive loans for a 

variety of purposes, including to finance long-term investments, such as 

infrastructure projects, and to fund government operating costs. For the 

purposes of this report, total public debt outstanding refers to the sum of 

bonds and other debt held by and payable to the public, as reported in the 

territories’ single audit reports. Bonds payable are marketable bonded 

debt securities issued by the territories’ primary governments or their 

component units and held by investors outside those governments. The 

primary government is generally comprised of governmental activities 

(generally financed with taxes and intergovernmental aid) and businesstype activities (generally financed with charges for goods and services). 

Component units are legally separate entities for which a government is 

financially accountable. For the purposes of this report, any reference to 

total government activity and balances includes both the primary 

government and component units. Other debt payable may include 

shorter term marketable notes and bills issued by territorial governments 

and held by investors outside those governments, non-marketable 

Public Debt and Revenue
Page 9 GAO-18-160 U.S. Territories

intragovernmental notes, notes held by local banks, federal loans, 

intragovernmental loans, and loans issued by local banks. Pension 

liabilities and other post-employment benefits (OPEB) 13 are not included 

in our definition of total public debt.

Marketable debt securities, primarily bonds with long-term maturities, are 

the main vehicle by which the territories access capital markets. Municipal 

bonds issued by all five territories have traditionally been attractive to 

investors because they are triple tax exempt; interest from the bonds is 

generally not subject to federal, state, and local income taxes regardless 

of an investor’s state of residence. There are several different types of 

marketable debt securities:

• General obligation bonds are bonds issued by territorial governments 

that are payable from the general funds of the issuer, although the 

precise source and priority of payment for general obligation bonds 

may vary considerably from issuer to issuer depending on applicable 

law. Most general obligation bonds are said to entail the full faith and 

credit (and in many cases the taxing power) of the issuer, depending 

on applicable law. In USVI, unlike in the other four territories in which 

general obligations bonds are backed by the full faith and credit of the 

government, debt issued by the primary government is either backed 

by 1) both a general obligation of the government and revenue from 

USVI’s gross receipts tax, or 2) revenue from the federal excise tax on 

rum rebated to the territory.

• Limited obligation bonds are bonds payable from specific taxes that 

are limited by law in rate or amount, while revenue bonds are payable 

from specific sources of revenue.

• Marketable notes differ from bonds in that they are short-term 

obligations of an issuer to repay a specified principal amount on a 

certain date, together with interest at a stated rate, usually payable 

from a defined source of anticipated revenues. Notes usually mature 

in 1 year or less, although notes of longer maturities are also issued.

Bonds and notes may be issued by both the territories’ primary 

governments and by their component units. Examples of the territories’

component units are USVI’s Water and Power Authority, Guam’s Airport 

 13OPEB are benefits other than pensions that governments provide to their retired 

employees. These benefits primarily involve health care benefits, but also may include life 

insurance, disability, and legal and other services.
Page 10 GAO-18-160 U.S. Territories

Authority, CNMI’s Ports Authority, and Puerto Rico’s Electric Power 

Authority.

Unlike the states, territories are prohibited from authorizing their 

component units to seek debt restructuring under Chapter 9 of the federal 

bankruptcy code, which can be used to extend the timeline for debt 

repayment, refinance debt, or reduce the principal or interest on existing 

debt.14

U.S. law restricts the territories’ authority to impose certain territorial 

taxes. Three territories—Guam, CNMI, and USVI—are required by U.S. 

law to have a mirror tax code. 15 In general this means that these 

territories must use the U.S. Internal Revenue Code (IRC) as their 

territorial income tax law. In contrast, American Samoa and Puerto Rico, 

which are not bound by a mirror tax code, have established and 

promulgated their own income tax regulations. Although Guam and CNMI 

are mirror-code jurisdictions, they are authorized under the Tax Reform 

Act of 1986 to delink from the IRC if certain conditions are met.16

Revenues are amounts that result from governments’ exercise of their 

sovereign power to tax or otherwise compel payment. Revenues also 

include income generated by the territories’ component units. While our 

analysis primarily focuses on trends in general revenues, we also include 

total revenue—general revenues and program revenues combined—in 

our analysis. In addition to general revenue levels, another measure of 

fiscal health is the net position for primary government activities, which 

represents the difference between the primary government’s assets 

(including the deferred outflows of resources) and the primary 

government’s liabilities (including the deferred inflows of resources). In 

other words, the net position for primary government activities reflects 

what the primary government would have left after satisfying its liabilities. 

A negative net position means that the primary government has more 

liabilities than assets. A decline in net position may indicate a 

deteriorating financial position. While our analysis primarily focuses on 

trends in the net position for the primary government, we also include 

certain information on trends in the total net position—primary 

 1411 U.S.C. §§ 101(40); 109(c).

1548 U.S.C. §§ 1397 (USVI); 1421i (Guam); 1801 note (CNMI).

16Pub. L. No. 99-514, §1271, 100 Stat. 2085, 2591–2592 (Oct. 22, 1986)
Page 11 GAO-18-160 U.S. Territories

government net position and component unit net position combined— for 

the government.

Fiscal risks refer to responsibilities, programs, and activities that may 

legally commit or create the expectation for future government spending. 

Fiscal risks may be explicit in that the government is legally required to 

fund the commitment, or implicit in that an exposure arises not from a 

legal commitment, but from current policy, past practices, or other factors 

that may create the expectation for future spending. Civilian pension 

benefits are typically an example of an explicit fiscal risk because the 

government has a legal commitment to pay pension benefits earned by 

current government employees who will receive benefits in the future and 

to pay retirees who currently receive benefits.
Page 12 GAO-18-160 U.S. Territories

Puerto Rico’s total public debt outstanding increased continuously 

between fiscal years 2005 and 2014. 17 (See figure 2.) Total public debt 

grew from $39.2 billion in fiscal year 2005 to $67.8 billion at the end of 

fiscal year 201418—an average rate of 6.3 percent per year.19 Bonded 

debt outstanding20—including mainly general obligation and revenue 

bonds—represented the majority of total public debt outstanding for all 

years. Bonded debt outstanding averaged 86 percent of total public debt 

between fiscal years 2005 and 2014, increasing from a total of $35 billion 

in fiscal year 2005 to $58.5 billion in fiscal year 2014. Puerto Rico’s 

Consolidated Audited Financial Report for fiscal year 2015 was not 

available as of June 2017. However, in the March 13, 2017, fiscal plan 

 17Since the period covered in this report ends with fiscal year 2015 or 2014 (for Puerto 

Rico), it does not include any cost or impacts from the 2017 hurricanes.

18In fiscal year 2014, 41 percent of Puerto Rico’s total public debt outstanding was issued 

by component units. 

19Our total public debt calculation differs from some other publicly available total debt 

calculations issued in recent years. For example, we calculated that Puerto Rico had 

$67.8 billion in debt as of June 30, 2014, which differs from the $71.9 billion in public 

sector debt reflected in the Series A General Obligation Bond Prospectus for 

approximately the same period. According to Puerto Rico government officials, the $71.9 

billion includes some debt that is not reported in the government-wide financial 

statements, the statements from which we obtained public debt information, such as $3.1 

billion in pension funding bonds issued by Puerto Rico’s Employees’ Retirement System. 

Other smaller differences in the calculations also exist, according to the Puerto Rico 

government officials, including adjustments made in the bond prospectus calculation to 

account for the Government Development Bank of Puerto Rico’s role as both a lender to 

the government and a debt issuer. 

20The total amount of bonded debt outstanding is the amount that remains unpaid by a 

territory as of a certain date. 

Puerto Rico

Puerto Rico’s Total Public 

Debt Increased by 73 

Percent and It Grew from 

47 to 66 Percent of GDP 

between Fiscal Years 

2005 and 2014

Total Public Debt Outstanding
Page 13 GAO-18-160 U.S. Territories

released by the Government of Puerto Rico, total public debt outstanding 

was listed as $74.3 billion as of February 2017.

Figure 2: Puerto Rico’s Bonded Debt Outstanding as a Component of Total Public 

Debt Outstanding, Fiscal Years 2005-2014

Note: Public debt outstanding includes debt issued by the primary government and component units 

as enumerated in the single audit reports.

As of fiscal year 2014, the primary government’s bonded debt outstanding 

was mainly comprised of revenue bonds. These accounted for $24.3 

billion of the $37.9 billion in total bonded debt. In contrast, between fiscal 

years 2005 and 2008, general obligation bonds represented the majority 

of the primary government’s bonded debt. In fiscal year 2009, the amount 

of revenue bonds outstanding tripled. The risks of general obligation 

bonds and revenue bonds are different. A revenue bond is secured by a 

specific revenue stream, identified in the bond contract, whereas a

general obligation bond is secured by the full taxing power of the 

government, but also reliant on the full faith and credit of the issuing 

government. Puerto Rico also issued notes between fiscal years 2005 

and 2014.
Page 14 GAO-18-160 U.S. Territories

Puerto Rico’s primary government and the three largest component 

units—the Puerto Rico Electric Power Authority (PREPA), the Puerto Rico 

Aqueduct and Sewage Authority (PRASA), and the Puerto Rico Highways 

and Transportation Authority (PRHTA)—owed the majority of Puerto 

Rico’s public debt outstanding in fiscal year 2014. (See table 1.) These 

component units mostly issued debt backed by their own resources, 

including the revenue generated from their operations. Other component 

units also held public debt in fiscal year 2014, including the Government 

Development Bank, State Insurance Fund Corporation and the Puerto 

Rico Trade and Export Company, among others. The primary 

government’s share of total public debt outstanding grew relative to debt 

owed by all of the component units from 44 percent in fiscal year 2005 to 

59 percent in fiscal year 2014.

Table 1: Total Public Debt Outstanding Owed by Government Entities in Puerto Rico as a Percentage of Total Debt, Fiscal 

Year 2014

Source: GAO analysis of Puerto Rico financial statements for fiscal year 2014 | GAO-18-160

Note: Percentages do not add up to 100 percent due to rounding.

Puerto Rico’s total public debt outstanding as a percentage of Gross 

Domestic Product (GDP) grew from 47 percent in fiscal year 2005 to 66 

percent in fiscal year 2014, and its ratio of total public debt outstanding to 

Gross National Product (GNP) grew from 71 percent of GNP in fiscal year 

2005 to 99 percent in fiscal year 2014.21 (See figure 3.) GDP measures 

the value of goods and services produced inside a country, or for the 

purpose of this report, a territory. In contrast, GNP measures the value of 

goods and services produced by its residents. GNP includes production 

from residents abroad and excludes production by foreign companies in a 

country. In Puerto Rico, GDP has consistently been greater than GNP, 

which means that production by foreign companies in Puerto Rico is 

larger than production by Puerto Rican residents in the territory and 

 21We do not present information on debt as a share of GNP for the other four territories. 

Government Entity Percent of Total Public Debt

Primary Government 59

PREPA (Puerto Rico Electric Power Authority) 14

PRASA (Puerto Rico Aqueduct and Sewer Authority) 7

PRHTA (Puerto Rico Highways and Transportation Authority) 7

Other component units 12

Public Debt as a Share of GDP 

and GNP
Page 15 GAO-18-160 U.S. Territories

abroad. For this reason, according to the U.S. Department of the 

Treasury, GNP is generally a more representative measure of Puerto 

Rico’s economic activity than GDP.

A July 2014 report by the Federal Reserve Bank of New York stated that 

debt to GNP ratios above just 60 percent can inhibit economic growth 

because they generally lead to higher financing costs and limit access to 

other sources of financing. 22 Puerto Rico’s share of total public debt 

outstanding to GNP has remained above 90 percent since 2010.

Figure 3: Puerto Rico’s Public Debt Outstanding as a Share of Gross National 

Product (GNP), Fiscal Years 2005-2014

Note: Public debt outstanding includes debt issued by the primary government and component units 

as enumerated in the single audit reports.

 22Federal Reserve Bank of New York, Update on the Competitiveness of Puerto Rico’s 

Economy (New York: July 31, 2014).
Page 16 GAO-18-160 U.S. Territories

Puerto Rico’s total public debt outstanding per capita has almost doubled 

since fiscal year 2005, rising from $10,000 per person in fiscal year 2005 

to $19,000 per person in fiscal year 2014. (See figure 4.)

Figure 4: Puerto Rico’s Total Public Debt Outstanding Per Capita, Fiscal Years 

2005-2014

Note: Public debt outstanding includes debt issued by the primary government and component units 

as enumerated in the single audit reports.

Puerto Rico’s general revenue fluctuated between fiscal years 2005 and 

2014, with lows around $11.6 billion between fiscal years 2008 and 2010 

and again in 2013. Puerto Rico’s general revenue in fiscal year 2014 was 

$13.8 billion, of which 75 percent or $10.3 billion was tax revenue. Most 

of the tax revenue for the same year was reported as income taxes (52 

percent of the total or $5.4 billion) and excise taxes (33 percent of the 

total or $3.4 billion.) Revenue in fiscal year 2014 increased by over $2 

billion from the prior year. The majority of this growth was due to 

increases in income and excise taxes. Puerto Rico’s total revenue (i.e. 

general revenue and program revenue combined) also fluctuated but 

grew slightly by 3 percent on average, per year, from $25.5 billion in fiscal 

year 2005 to $32.5 billion in fiscal year 2014. (See figure 5.)

Public Debt Per Capita

Despite Some Growth in 

General Revenue, Puerto 

Rico’s Net Position 

Declined between Fiscal 

Years 2005 and 2014
Page 17 GAO-18-160 U.S. Territories

Figure 5: Puerto Rico’s Revenue, Fiscal Years 2005-2014

Note: Revenue includes general revenue and program revenue generated by the primary government 

and component units as enumerated in the single audit reports. Tax revenue is part of general 

revenue.

Despite the growth in revenue in fiscal year 2014, Puerto Rico’s net 

position for the primary government as of fiscal year end 2014 was a 

negative $49.7 billion, declining from a negative $46.4 billion as of fiscal 

year end 2013. Moreover, despite the fluctuations in revenue between 

fiscal years 2005 and 2014, Puerto Rico’s net position for the primary 

government declined year over year from a negative $15.2 billion as of 

fiscal year end 2005 to a negative $49.7 billion as of fiscal year end 

2014. 23 Puerto Rico’s declining net position for the primary government 

reflects its deteriorating financial position. Further, the effect of Puerto 

Rico implementing Governmental Accounting Standards Board (GASB) 

 23The one exception to this trend occurred in fiscal year 2008 when Puerto Rico’s net 

position for the primary government improved modestly from a negative $17.7 billion as of 

fiscal year end 2007 to a negative $17.1 billion as of fiscal year end 2008.
Page 18 GAO-18-160 U.S. Territories

Statement No. 68, Accounting and Financial Reporting for Pensions —An 

Amendment of GASB Statement No. 27, is not yet known. GASB 

Statement No. 68 was in effect for fiscal years beginning after June 15, 

2014, and established standards for measuring and recognizing liabilities, 

deferred outflows of resources, and deferred inflows of resources related 

to pensions. For each of the other territories that implemented GASB 

Statement No. 68, implementing the statement resulted in the territory 

recognizing previously unrecognized net pension liabilities and, therefore, 

a decline in ending net position in the year of recognition.24

Puerto Rico’s total net position for the primary government and 

component units combined also declined year over year between fiscal 

years 2005 and 2014, from a positive $2.5 billion as of fiscal year end 

2005 to a negative $43.6 billion as of fiscal year end 2014.

Puerto Rico officials, representatives from ratings agencies that we spoke 

to, and publically available reports that we reviewed cited various major 

factors as contributors to Puerto Rico’s high debt levels. 25 The factors 

cited include the following:

• Public debt financing government operations: Ratings agency 

officials told us that Puerto Rico has long used public debt as a means 

to finance general government operations and indicated that debt has 

been used for this purpose in Puerto Rico since at least 2000. 

According to these officials, the sustained use of debt to finance 

general government operations is unusual when compared to states 

and was considered a “red flag” in the case of Puerto Rico. As Puerto 

Rico’s debt grew, the government found it increasingly difficult to meet 

other responsibilities, including paying tax returns, settling accounts 

payable, and fulfilling pension obligations. 26

 24Each of the territories use U.S. generally accepted accounting principles for government 

as prescribed by GASB as their financial reporting framework.

25As noted previously we will issue a separate report, as required by PROMESA, that will 

further describe the factors that reportedly led to Puerto Rico’s financial condition and 

levels of debt.

26In addition to total public debt described above, Puerto Rico’s primary government 

reported $14.6 billion in current pension liabilities and other post-employment benefit 

(OPEB) liabilities of $270 million. OPEBs are benefits other than pensions that 

governments provide to their retired employees. These benefits primarily involve health 

care benefits, but also may include life insurance, disability, and legal and other services.

Experts Identified Several 

Factors That Have 

Contributed to Puerto 

Rico’s High Debt Levels
Page 19 GAO-18-160 U.S. Territories

• Triple tax exempt status: Debt in Puerto Rico was attractive to 

investors for its triple tax exempt status. Over time, Puerto Rico’s 

primary government accumulated debt from investors without 

addressing its persistent deficits. According to the February 28, 2017, 

version of the Puerto Rico government’s fiscal plan, Puerto Rico’s 

capacity to issue debt at favorable rates postponed the 

implementation of fiscal reforms and controls necessary to balance 

Puerto Rico’s budget.

• Financial data limitations: A lack of comprehensive, timely, and 

accurate financial data from Puerto Rico may have limited the ability 

of some investors to anticipate or fully understand the economic crisis 

in the territory. For example, according to the Government of Puerto 

Rico’s February 28, 2017, version of the fiscal plan, audited financial 

statements for Puerto Rico were only issued on time three times from 

2005 to 2014. Audited financial statements are still currently pending 

for fiscal years 2015 and 2016. In addition, forecasts routinely 

overestimated revenue.

• Recession and outmigration: Recession and outmigration have 

resulted in reduced tax revenue. A recession in Puerto Rico began in 

2006 and continued through the period we reviewed. Outmigration 

also accelerated most years since 2005 as Puerto Ricans migrated to 

the U.S. mainland and elsewhere. According to U.S. Census Bureau 

estimates, Puerto Rico lost 14 percent of its population, more than 

550,000 individuals, between July 2009 and July 2016.

• 936 tax credit phase out: The phase out of the section 936 tax credit 

is often cited by Puerto Rico officials for its negative effect on Puerto 

Rico’s economy. Other experts said the effect was not as significant. 

In addition, in 2006, we reported that the expiration of the benefit did 

not ultimately lead to a reduction in income and value added. 27 A 

substantial share of production in Puerto Rico is carried out by U.S. 

multinational corporations, in part because of federal corporate 

income tax benefits, once available to firms located in Puerto Rico. 

Prior to 1994, certain U.S. corporations could claim the possessions 

tax credit under section 936 of the Internal Revenue Code (IRC). In 

general, the credit equaled the full amount of federal tax liability 

related to an eligible corporation’s income from its operations in a 

possession—including Puerto Rico—effectively making such income 

 27GAO, Puerto Rico: Fiscal Relations with the Federal Government and Economic Trends 

during the Phaseout of the Possessions Tax Credit, GAO-06-541 (Washington, D.C.: May 

19, 2006).
Page 20 GAO-18-160 U.S. Territories

tax-free. In 1993, caps were placed on the amount of possessions 

credits that corporations could earn. In 1996, the credit was repealed, 

although corporations that were existing credit claimants were eligible 

to claim credits through 2005. 28

Puerto Rico had missed up to $1.5 billion in debt service payments as of 

September 2016. Puerto Rico’s government is working with the Financial 

Management and Oversight Board (Board) to implement plans for longterm financial reform and to adjust debts accrued by both the primary 

government and public corporations. The Board has the power to approve 

or certify fiscal plans, budgets, voluntary agreements with bondholders, 

debt restructuring plans, and critical projects within Puerto Rico. As the 

first step in a process to adjust debts in Puerto Rico, the Board certified 

the current Governor’s fiscal plan in March 2017, which outlines 

strategies for financial reform.29 The fiscal plan includes estimates for 

how much each year can be allocated for debt payments, which average 

23 percent of total debt payments due for the years 2018 through 2026. 

(See figure 6.)

 28The possessions tax credit was criticized on the grounds that the associated revenue 

cost was high compared to the employment it generated, and because a large share of 

the benefits of the credit was not reaped by Puerto Rico residents. The Omnibus Budget 

Reconciliation Act of 1993 placed caps on the amounts of possessions credits that 

corporations could earn for tax years beginning in 1994 or later. Pub. L. No. 103-66, § 

13227, 107 Stat. 312, 489–494 (Aug. 10, 1993). The Small Business Job Protection Act of 

1996 repealed the possessions tax credit for taxable years beginning after 1995. Pub. L. 

No. 104-188, § 1601, 110 Stat. 1755, 1827–1833 (Aug. 20, 1996).

29Government of Puerto Rico, Fiscal Plan for Puerto Rico (San Juan: Mar. 13, 2017).

Outcomes of Restructuring 

Process Will Determine 

Outlook for Repayment of 

Debt
Page 21 GAO-18-160 U.S. Territories

Figure 6: Puerto Rico’s Estimated Debt Service vs. Debt Service Due, Fiscal Years 

2018–2026

On May 3, 2017, the Board filed an initial petition for restructuring Puerto 

Rico’s debt and pension liabilities. Puerto Rico’s ultimate liability for its 

outstanding debt will be determined based on the outcome of this process 

in federal court.
Page 22 GAO-18-160 U.S. Territories

American Samoa’s total public debt outstanding grew from $27 million in 

fiscal year 2005 to $69.5 million in fiscal year 2015. 30 Until fiscal year 

2015, the portion of American Samoa’s total public debt outstanding that 

was bonded debt outstanding was limited. (See figure 7.) In fiscal year 

2007, the territory paid off a general obligation bond that was issued in 

fiscal year 2000 to refinance prior debt. Between fiscal years 2008 and 

2014, American Samoa had no outstanding bonded public debt. In fiscal 

year 2015, American Samoa’s primary government issued a general 

obligation bond for about $55 million, and in January 2016 a second bond 

was issued for $23 million. Most of American Samoa’s bonded debt 

outstanding is scheduled to mature by 2035.

Between fiscal years 2005 and 2015, American Samoa’s loan balance 

was significantly greater than bonded debt outstanding for all years 

except fiscal year 2015. American Samoa’s loan balance consists of both 

loans from the U.S. government and intragovernmental loans, or loans 

between the territory’s primary government and component units. 

Between fiscal years 2005 and 2015, this included 1993 and 1994 

Federal Emergency Management Agency community disaster loans 

totaling $10.2 million and a 1999 Department of the Interior loan in the 

amount of $18.6 million. 31 In 2006 and 2007, the primary government also 

 30Territory officials told us two component units, the American Samoa Power Authority 

and the Lyndon B. Johnson Tropical Medical Center, are authorized to issue debt. 

However, debt issued by component units is not reflected in American Samoa’s 

government-wide single audit reports between fiscal years 2005 and 2015. 

31The Consolidated Appropriations Act, 2000, authorized the Secretary of the Interior to 

lend American Samoa up to $18.6 million at a 5.4 percent interest rate in exchange for an 

irrevocable assignment of the payments due to the territory under the Master Settlement 

Agreement with certain tobacco companies. Pub. L. No. 106-113, app. C, § 125, 113 Stat. 

1501, 1501A-160 to 1501A-164 (Nov. 29, 1999).

American Samoa

American Samoa’s Total 

Public Debt More Than 

Doubled and It Grew from 

5 to 11 Percent of GDP 

between Fiscal Years 

2005 and 2015

Total Public Debt Outstanding
Page 23 GAO-18-160 U.S. Territories

entered into two loan agreements with the government retirement fund, in 

the amounts of $10 million and $20 million, in part to finance 

infrastructure projects.

Figure 7: American Samoa’s Bonded Debt Outstanding as a Component of Total 

Public Debt Outstanding, Fiscal Years 2005-2015

Note: Public debt outstanding includes debt issued by the primary government and component units 

as enumerated in the single audit reports.
Page 24 GAO-18-160 U.S. Territories

American Samoa’s total public debt outstanding has remained small 

relative to its economy between fiscal years 2005 and 2015. During this 

period, American Samoa’s total public debt outstanding as a percentage 

of GDP was 5.3 percent in fiscal year 2005, reached a low of 4.4 percent 

in fiscal year 2014, and grew to 10.9 percent in fiscal year 2015. During 

this same period, bonded debt outstanding as a share of GDP was 1.3 

percent in fiscal year 2005, declined to 0.44 percent in fiscal year 2007 

and remained at 0 percent between fiscal years 2008 and 2014. The new 

bond issuance in fiscal year 2015 increased the share to 8.6 percent. 

(See figure 8.)

Figure 8: American Samoa’s Public Debt Outstanding as a Share of Gross Domestic 

Product, Fiscal Years 2005-2015

Note: Public debt outstanding includes debt issued by the primary government and component units 

as enumerated in the single audit reports.

Public Debt as a Share of GDP
Page 25 GAO-18-160 U.S. Territories

Total public debt per capita grew from $414 per person in fiscal year 2005

to $1,212.8 in fiscal year 2015. (See figure 9.)

Figure 9: American Samoa’s Public Debt Outstanding Per Capita, Fiscal Years 2005-

2015

Note: Public debt outstanding includes debt issued by the primary government and component units 

as enumerated in the single audit reports.

American Samoa’s general revenue fluctuated, but trended upward 

between fiscal years 2005 and 2015. American Samoa’s general revenue 

of $116.5 million in fiscal year 2015 represented a 20 percent increase 

over its revenue of $97.4 million in fiscal year 2005. Approximately 55 

percent of the general revenue earned by American Samoa during this 

period was comprised of tax revenue, and all of the tax revenue was from 

income and excise taxes. American Samoa’s total revenue (i.e. general 

revenue and program revenue combined) also fluctuated but trended 

upward between fiscal years 2005 and 2015. Its total revenue of $436.4 

million in fiscal year 2015 represented a 55 percent increase over its total 

revenue of $281.8 million in fiscal year 2005. According to territory 

officials, growth in revenue during this period can be attributed in part to 

Public Debt Per Capita

American Samoa’s 

General Revenue Grew 

and Net Position Was 

Positive and Generally 

Improving between Fiscal 

Years 2005 and 2015
Page 26 GAO-18-160 U.S. Territories

revenue generated by stimulus funding the territory received as part of 

the American Recovery and Reinvestment Act of 2009.32 (See figure 10.)

Figure 10: American Samoa’s Revenue, Fiscal Years 2005-2015

Note: Revenue includes general revenue and program revenue generated by the primary government 

and component units as enumerated in the single audit reports. Taxes are part of general revenue.

Along with the growth in revenue, American Samoa’s net position for the 

primary government was consistently positive and generally improving 

between fiscal years 2005 and 2014. American Samoa’s net position for 

the primary government generally improved year over year from a 

positive $217.7 million as of fiscal year end 2005 to a positive $291.9 as 

of fiscal year end 2014; it then declined to a positive $245.1 million as of 

fiscal year end 2015. American Samoa’s net position for the primary 

government as of fiscal year end 2014 is shown prior to restatement. In 

fiscal year 2015, American Samoa implemented GASB Statement No. 68 

and adjusted its beginning net position by $60.1 million, resulting in a 

 32Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
Page 27 GAO-18-160 U.S. Territories

restated net position as of fiscal year end 2014 of a positive $240.8 

million. The implementation of GASB Statement No. 68 resulted in the 

territory recognizing previously unrecognized net pension liabilities and, 

therefore, a decline in ending net position in the year of recognition.

American Samoa’s total net position for the primary government and 

component units combined was also consistently positive and generally 

improving between fiscal years 2005 and 2015. It increased from $317.9 

million as of fiscal year end 2005 to $450.2 million as of fiscal year end 

2015.

The territory has previously faced financial management challenges, 

including failures to meet revenue projections and deficiencies in 

forecasting expenditures. Territory officials said, however, that they are 

taking a number of steps to improve forecasting. In early 2015, officials 

convened a task force in Hawaii to develop a plan to improve the 

management of American Samoa’s finances. As part of the effort to 

improve forecasting, the plan requires the treasury and budget 

departments to meet on a monthly basis to reconcile actual revenues and 

expenditures and brief the Governor. If revenues are below projections, 

the Governor may instruct all government departments to reduce 

spending by an additional 5-10 percent. In addition, officials told us that 

the territory is planning to procure a contractor in fiscal year 2017 to help 

further improve its revenue and spending forecasts.

According to territory officials, American Samoa has never issued debt to 

fund government operating costs and does not intend to do so. Territory 

officials confirmed that the fiscal year 2015 and 2016 general obligation 

bonds were issued primarily to fund various infrastructure projects, 

including relocating airport fuel tanks, constructing an inter-island ferry, 

and establishing a territorial charter bank.

American Samoa’s 

Bonded Debt Was Issued 

Primarily to Fund 

Infrastructure Projects
Page 28 GAO-18-160 U.S. Territories

While American Samoa’s level of public debt is relatively low compared to 

other territories, we found that it faces significant economic vulnerabilities 

that may hamper its ability to repay that debt. According to territory 

officials and our prior work, American Samoa’s economy relies heavily on 

the tuna processing and canning industry. 33 In December 2016, we 

reported that canneries employed about 14 percent of American Samoa’s 

workforce in 2014. 34 Moreover, we found that the canneries provided a 

number of indirect benefits to other industries and the economy in 

American Samoa. For example, other businesses exist because of the 

canneries, such as the company that manufactures the cans. 

Maintenance for the canneries and for the vessels that supply the 

canneries also has brought business and jobs to the island. Cannery 

workers spend money at local establishments, such as restaurants and 

retail stores. Additionally, exported cannery products and delivery of 

materials to the canneries reduced the shipping cost of bringing other 

goods to American Samoa. We also reported that the tuna canning 

industry faces a number of challenges;35 in addition territory officials 

expressed concerns about federal policies that may hamper American 

Samoa’s tuna industry, such as scheduled minimum wage increases that 

increase labor costs for tuna canning in American Samoa relative to other 

locations, decreased access to fishing grounds in the Pacific due to 

environmental regulations, and potential erosion of the territory’s 

preferential trade status. In October 2016, one of the two companies with 

canning operations in American Samoa announced that it would 

indefinitely suspend its operations in the territory, and the other 

temporarily suspended operations twice during the same year. Changes 

 33 Qualifying American Samoa corporations have received a tax credit for U.S. corporate 

income taxes. While tax credits under section 936 of the IRC generally expired for taxable 

years beginning after December 31, 2005 credits for certain corporations in American 

Samoa were extended, subject to certain limitations. Corporations that were actively 

conducting business in American Samoa by 1995 and that elected Section 936 status in 

the last taxable year before January 1, 2006, could claim a section 30A tax credit for tax 

years 2006 and beyond. . To claim the credit for tax years beginning after January 1, 

2012, corporations must meet additional requirements, including the requirement that 

corporations have “qualified production activities income.” The American Samoa economic 

development credit has been extended to apply in tax years beginning before January 1, 

2017. 26 U.S.C. 30A note.

34GAO, American Samoa: Alternatives for Raising Minimum Wages to Keep Pace with the 

Cost of Living and Reach the Federal Level, GAO-17-83 (Washington, D.C.: Dec. 2, 

2016).

35GAO-17-83.

American Samoa Faces 

Economic Vulnerabilities 

That May Affect Its Ability 

to Repay Public Debt
Page 29 GAO-18-160 U.S. Territories

in American Samoa’s tuna industry have been important determinants of 

changes in its GDP, and additional disruptions in the industry would 

reduce revenue and hamper GDP growth, which, if severe enough, could 

impede the repayment of existing debt.

In part because of such challenges, Moody’s Investor Services assigned 

a noninvestment grade rating to the territory’s bonds in early 2016. 

According to the rating agency, this downgrade reflected concerns 

associated with the territory’s small and volatile economy, low income 

levels, weak financial position, and financial management challenges. 

Territory officials told us that the Puerto Rico debt crisis has affected their 

access to favorable rates in capital markets, and said that they currently 

do not have plans to issue any more bonded debt.
Page 30 GAO-18-160 U.S. Territories

CNMI’s total public debt outstanding declined from $251.7 million in fiscal 

year 2005 to $144.7 million in fiscal year 2015.36 (See figure 11.) During 

this time, CNMI’s primary government issued one general obligation bond 

in the amount of about $100.5 million in fiscal year 2007. This general 

obligation bond refinanced two prior bonds that were issued in fiscal 

years 2000 and 2003. Most of CNMI’s bonded debt outstanding is 

scheduled to mature in 2030 or later.

 36In fiscal year 2015, 38 percent of CNMI’s total public debt outstanding was issued by 

component units. 

Commonwealth of the 

Northern Mariana 

Islands (CNMI)

CNMI’s Total Public Debt 

Declined by $100 million, 

Decreasing to 16 Percent 

of GDP between Fiscal 

Years 2005 and 2015

Total Public Debt Outstanding
Page 31 GAO-18-160 U.S. Territories

Figure 11: The Commonwealth of the Northern Mariana Islands’ Bonded Debt 

Outstanding as a Component of Total Public Debt Outstanding, Fiscal Years 2005-

2015

Note: Public debt outstanding includes debt issued by the primary government and component units 

as enumerated in the single audit reports.

Between fiscal years 2005 and 2015, CNMI’s total public debt outstanding 

as a share of GDP grew from 23 percent in fiscal year 2005 to 26 percent 

in fiscal year 2007, and then declined to 16 percent in fiscal year 2015. 

Bonded debt outstanding as a share of GDP was 14 percent in both fiscal 

years 2005 and 2015, but reached 19 percent in fiscal year 2011. (See 

figure 12.)

Public Debt as a Share of GDP
Page 32 GAO-18-160 U.S. Territories

Figure 12: The Commonwealth of the Northern Mariana Islands’ Public Debt 

Outstanding as a Share of Gross Domestic Product, Fiscal Years 2005-2015

Note: Public debt outstanding includes debt issued by the primary government and component units 

as enumerated in the single audit reports.

CNMI’s total public debt outstanding per capita declined from about 

$4,199 per person in fiscal year 2007 to about $2,776 per person in fiscal 

year 2015. (See figure 13.)

Public Debt Per Capita
Page 33 GAO-18-160 U.S. Territories

Figure 13: The Commonwealth of the Northern Mariana Islands’ Public Debt 

Outstanding Per Capita, Fiscal Years 2005-2015

Note: Public debt outstanding includes debt issued by the primary government and component units 

as enumerated in the single audit reports.

CNMI’s general revenue fluctuated between fiscal years 2005 and 2015. 

General revenues declined by about 39 percent between fiscal years 

2005 and 2011, largely due to the decline in the territory’s garment 

industry. (See figure 14.) General revenues have steadily increased since 

fiscal year 2011, primarily as a result of growth in the tourism sector. 37

Data from the Marianas Visitor Authority show that the downward trend in 

Japanese visitors from 2013 to 2016 was offset by the growth in visitors 

 37Chinese visitors comprised 42 percent of CNMI’s tourist population in fiscal year 2016. 

Chinese visitors are permitted to be temporarily present in CNMI under the U.S. 

Department of Homeland Security’s (DHS) discretionary parole authority, according to 

DHS officials. DHS exercises parole authority to allow, on a case-by-case basis, eligible 

nationals of China to enter CNMI temporarily as tourists when there is significant public 

benefit. According to the CNMI government, if the exercise of the parole authority were 

discontinued CNMI would experience a significant decrease in its overall tourist arrivals, a 

shrinkage of its economy, a reduction in employment for U.S. citizens, and a loss in public 

revenues and the government’s ability to provide services to the population.

CNMI’s General Revenue 

Fluctuated and Net 

Position Was Generally 

Declining between Fiscal 

Years 2005 and 2015
Page 34 GAO-18-160 U.S. Territories

from China and South Korea.38 The tourist industry has also been 

boosted by the introduction of a new casino. In August 2014, the CNMI 

government entered into a casino license agreement to construct a 

development project that will include a hotel with a minimum of 2,004 

guest rooms and areas for gaming, food, retail, and entertainment, among 

other things. CNMI’s total revenue (i.e. general revenue and program 

revenue combined) also fluctuated between fiscal years 2005 and 2015. 

Total revenue reached a high of $635.7 million in fiscal year 2014 and 

then declined to $573.8 million in fiscal year 2015, which represented only 

a one percent increase over the fiscal year 2005 revenue of $567.9 

million.

Figure 14: The Commonwealth of the Northern Mariana Islands’ Revenue, Fiscal 

Years 2005-2015

Note: Revenue includes general revenue and program revenue generated by the primary government 

and component units as enumerated in the single audit reports. Taxes are part of general revenue.

 38GAO, Commonwealth of the Northern Mariana Islands: Implementation of Federal 

Minimum Wage and Immigration Laws, GAO-17-437 (Washington, D.C.: May 18, 2017).
Page 35 GAO-18-160 U.S. Territories

While general revenue fluctuated, dipping then rebounding between fiscal 

years 2005 and 2015, CNMI’s net position for the primary government 

has been negative and generally trending downward. Specifically, CNMI’s 

net position for the primary government declined from a negative $38.1 

million as of fiscal year end 2005 to a negative $215.4 million as of fiscal 

year end 2015.39 CNMI’s net position for the primary government has 

been negative by over $200 million for each fiscal year since 2010, but it 

showed a slight improvement between fiscal years 2011 and 2013 and in 

fiscal year 2015.

CNMI’s total net position for the primary government and component units 

combined fluctuated but generally remained stagnant, increasing slightly 

from $281.6 million as of fiscal year end 2005 to $284.8 million as of fiscal 

year end 2015.

CNMI’s Constitution prohibits public indebtedness for operating expenses 

of the CNMI government or its political subdivisions. 40 In addition, the 

territory’s legislature must approve any bond issuances and the value of 

any bonds issued cannot exceed 10 percent of the assessed value of real 

property within CNMI. In fiscal year 2007, the primary government of 

CNMI issued one general obligation bond to refinance two bonds 

originally issued in 2000 and 2003. Both the 2000 and 2003 bonds were 

issued to finance various infrastructure improvement projects. The 2003 

issuance was also used for a onetime payment to settle land claims for 

the appropriation of private lands for public use.

Component units in CNMI also issue debt. In 2007, the Commonwealth 

Ports Authority, which is responsible for operating, maintaining, and 

improving all airports and seaports in CNMI, issued a bond for about $7.2 

million. The proceeds of the bond were used in part to pay for 

improvements to seaport facilities at Saipan Harbor.

 39As reported in its fiscal year 2015 single audit report, CNMI received an adverse opinion 

on its governmental activities because it did not adopt GASB Statement No. 68 in fiscal 

year 2015. The amount has not been determined by which this departure from U.S. 

generally accepted accounting principles would have affected net position for its primary 

government as of fiscal year ends 2014 and 2015.

40CNMI Const., art. X, §§ 3, 4.

Between Fiscal Years 

2005 and 2015, CNMI 

Issued Public Debt to 

Refinance Prior Debt and 

to Fund Infrastructure 

Projects
Page 36 GAO-18-160 U.S. Territories

While CNMI’s economic outlook has improved, with GDP increasing 3 

years in a row since 2013, 41 we found that the territory faces growing 

labor shortages that may affect its ability to repay public debt in the future. 

In May 2017, we reported that CNMI’s economy relies heavily on a 

foreign workforce and foreign workers comprised a majority of the 

territory’s workforce in 2015. The Consolidated Natural Resources Act of 

2008, among other things, established federal control of CNMI 

immigration beginning in 2009. The act established a transition period 

with special provisions for foreign visitors, investors, and workers.42

Specifically, it required the U.S. Department of Homeland Security (DHS) 

to establish a temporary work permit program43 for foreign workers and to 

reduce annually the number of permits issued, reaching zero by the end 

of the transition period—now set to occur on December 31, 2019.44 We 

analyzed the economic effect of removing all permitted45 foreign workers 

from CNMI’s economy using the most recent GDP information available 

from calendar year 2015.46 Depending on assumptions made, with no 

permitted workers CNMI’s GDP in 2015 would have hypothetically 

declined by 26 to 62 percent.47 Planned reductions in permitted workers 

 41According to the Bureau of Economic Analysis CNMI’s real GDP grew by 3.5 percent in 

2015. 

42Pub. L. No. 110-229, § 702, 122 Stat. 754, 853-867 (May 8, 2008). The act refers to 

these individuals as nonimmigrant visitors, investors, or workers, but for the purpose of 

this report, we refer to them as foreign visitors, investors, or workers.

43The temporary work permit program established by DHS is the CNMI-Only Transitional 

Worker classification (CW-1) permits program. Under this program, foreign workers are 

able to obtain, through their employers, nonimmigrant CW-1 status that allows them to 

work in CNMI. Dependents of CW-1 nonimmigrants (spouses and minor children) are 

eligible for dependent of a CNMI-Only Transitional Worker (CW-2) status, which derives 

from and depends on the CW-1 worker’s status.

4448 U.S.C. § 1806(d)(2), as most recently amended by the Consolidated and Further 

Continuing Appropriations Act, 2015, Pub. L. No. 113-235, § 10, 128 Stat. 2130, 2134 

(Dec. 16, 2014).

45DHS deemed CW-1 status to be synonymous with “permit” referenced in the legislation. 

In this report “permitted” refers to CW-1 status.

46GAO-17-437. 

47The relationship between the production capability of an economy and the number of 

workers is a standard concept in economics. The quantity of labor, or number of workers, 

is a key factor in determining the quantity of goods and services that an economy can 

produce. For the U.S. economy, under certain assumptions, a 10 percent reduction in the 

number of all workers might be expected to cause a 7 percent decline in production, 

measured as GDP. See GAO-17-437 appendix V for our assumptions.

Despite Economic Growth, 

CNMI Faces Labor 

Shortages and Fiscal 

Risks That May Affect Its 

Ability to Repay Public 

Debt
Page 37 GAO-18-160 U.S. Territories

could worsen the effect on GDP going forward and hamper the territory’s 

ability to repay existing debt.

CNMI also has significant pension liabilities, but the exact amount of the 

net pension liability is not included in the territory’s most recent single 

audit report because the government has not complied with accounting 

standards that require it to do so. In 2013, a U.S. district court approved a 

settlement agreement with the territory’s government pension plan, which 

applied for bankruptcy in 2012. As part of the settlement, CNMI agreed to 

make minimum annual payments to the fund to allow members to receive 

75 percent of their full benefits. In addition to the settlement plan, CNMI 

appropriated $25 million of casino license fees to fund the restoration of 

the 25 percent reduction of the retirees’ and beneficiaries’ pensions, 

among other purposes.48 CNMI made one payment of $27 million and 

another payment of $19.4 million to the fund in fiscal year 2015. Territory 

officials told us they are planning to market a $45 million general 

obligation bond in 2017 to provide additional financing for the pension 

fund. They added, however, that they currently have no plans to issue 

debt for other purposes, such as infrastructure projects, because of 

uncertainty in the labor market.

In 2012, Moody’s Investor Services confirmed CNMI’s general obligation 

bond ratings as non-investment grade, which was downgraded in 2009. 

According to the rating agency, the 2012 rating was due to losses in the 

territory’s garment industry, consistent operating deficits, and increasing 

unfunded pension liabilities.

 48CNMI Pub. L. 18-56, § 2307(c)(1)(i) (July 11, 2014).
Page 38 GAO-18-160 U.S. Territories

Guam’s total public debt outstanding increased from almost $1 billion in 

fiscal year 2005 to $2.5 billion fiscal year 2015, with the majority of the 

increase occurring between fiscal years 2008 and 2015 when total 

outstanding public debt grew 13 percent on average per year. (See figure 

15.) In fiscal year 2015, 54 percent of Guam’s total public debt 

outstanding was issued by component units. Territory officials told us 

component unit debt is backed solely by the revenue component units 

generate and cannot be used to service debt issued by the primary 

government.

The majority of Guam’s total public debt is in the form of bonds. Bonded 

debt outstanding comprised between 93 and 97 percent of total public 

debt outstanding from fiscal years 2005 through 2015. Most of Guam’s 

bonded debt outstanding will mature in 2027 or afterwards. The 

remainder of Guam’s public debt outstanding between fiscal years 2005 

and 2015 was primarily comprised of notes and loans, including loans 

from the federal government.

Guam

Guam’s Total Public Debt 

More Than Doubled and It 

Grew from 24 to 44 

Percent of GDP between 

Fiscal Years 2005 and 

2015

Total Public Debt Outstanding
Page 39 GAO-18-160 U.S. Territories

Figure 15: Guam’s Bonded Debt Outstanding as a Component of Total Public Debt 

Outstanding, Fiscal Years 2005-2015

Note: Public debt outstanding includes debt issued by the primary government and component units 

as enumerated in the single audit reports.

Between fiscal years 2005 and 2015, Guam’s total public debt 

outstanding as a share of GDP increased from 24 percent to 44 percent, 

with bonded debt outstanding growing similarly from 22 percent of GDP to 

42 percent. (See figure 16.)

Public Debt as a Share of GDP
Page 40 GAO-18-160 U.S. Territories

Figure 16: Guam’s Public Debt Outstanding as a Share of GDP, Fiscal Years 2005-

2015

Note: Public debt outstanding includes debt issued by the primary government and component units 

as enumerated in the single audit reports.

Both total public debt and bonded public debt outstanding per capita more 

than doubled between fiscal years 2005 and 2015. Total public debt 

outstanding per capita rose from about $6,270 per person to $15,323 per 

person, while bonded public debt outstanding increased from $5,810 per 

person to $14,759 per person. (See figure 17.)

Public Debt Per Capita
Page 41 GAO-18-160 U.S. Territories

Figure 17: Guam’s Public Debt Outstanding Per Capita, Fiscal Years 2005-2015

Note: Public debt outstanding includes debt issued by the primary government and component units 

as enumerated in the single audit reports.

Guam’s general revenue grew by 6 percent on average, per year, 

between fiscal years 2005 and 2015, from $573.2 million to $862.7 

million. General revenue declined sharply in fiscal year 2006, recovered 

in fiscal year 2007, and then increased steadily through fiscal year 2015. 

According to territory officials, this increase in revenue can largely be 

attributed to economic development, with significant growth in tourism 

and new construction. A 2015 report to Guam’s bondholders noted that 

there was an increase in visitors to the island each month between 2014 

and 2015. The report attributed this increase to several factors, such as 

the expanded number of airline routes to Guam, the favorable exchange 

rate for Asian visitors, and the relative improvement of the overall global 

economy. 49 Guam’s total revenue, or general revenue and program 

 49Government of Guam, Continuing Disclosure Annual Report for the Fiscal Year Ended 

September 30th, 2015 (Guam: 2015). 

Guam’s General Revenue 

Grew and Net Position 

Fluctuated Significantly 

between Fiscal Years 

2005 and 2015
Page 42 GAO-18-160 U.S. Territories

revenue combined, also grew by 5 percent on average, per year, between 

fiscal years 2005 and 2015, from $1.4 billion to $2.2 billion. (See figure 

18.)

To project revenues, Guam officials use a model comprised of statistical 

weights that are calculated and assigned to each revenue source, which 

is derived from historical collections data from the prior fiscal years.

Figure 18: Guam’s Revenue, Fiscal Years 2005-2015

Note: Revenue includes general revenue and program revenue generated by the primary government 

and component units as enumerated in the single audit reports. Taxes are part of general revenue.

While revenue generally grew, Guam’s net position for the primary 

government fluctuated significantly between fiscal years 2005 and 2015. 

Since fiscal year end 2006, Guam’s net position for the primary 

government has been negative and trending downward. Specifically, 

Guam’s net position for the primary government declined from a positive 

$79.8 million as of fiscal year end 2005 to a negative $194.2 million as of 

fiscal year end 2012. Net position improved significantly and was positive 

in fiscal years 2013 and 2014, but then declined from a positive $174.4 
Page 43 GAO-18-160 U.S. Territories

million as of fiscal year end 2014 to a 10-year low of a negative $670.9 

million as of fiscal year end 2015. Guam’s net position for the primary 

government as of fiscal year end 2014 is shown prior to restatement. In 

fiscal year 2015, Guam implemented GASB Statement No. 68 and 

adjusted its beginning net position by $815.6 million, resulting in a 

restated net position as of fiscal year end 2014 of a negative $641.2 

million. The implementation of GASB Statement No. 68 resulted in the 

territory recognizing previously unrecognized net pension liabilities and, 

therefore, a decline in ending net position in the year of recognition.

Guam’s total net position for the primary government and component 

units combined also fluctuated significantly. Specifically, Guam’s total net 

position increased from a positive $788.8 million as of fiscal year end 

2012 to a 10-year high of positive $1.2 billion as of fiscal year end 2014. It 

declined to a 10-year low of positive $47.3 million as of fiscal year end 

2015 due to the implementation of GASB Statement No. 68.

According to territory officials, Guam’s bonded debt outstanding has 

primarily been used to comply with federal requirements and court 

orders. 50 Guam has issued debt in several cases when compelled to 

meet federal and territorial requirements. For example, since Guam 

adheres to the mirror tax code, the territory is required to fund the Earned 

Income Tax Credit (EITC) and is not reimbursed for this by the federal 

government. In June 2004, the territory agreed to pay $60 million over 9 

years in settlement of unpaid EITC refunds from 1996, and in September 

2006, the territory reached a new settlement replacing the 2004 

agreement in which it agreed to pay up to $90 million.

Moreover, in 2006, the Superior Court of Guam held that a territorial 

statutory provision51 required the retirement fund for government 

employees to pay past due annual lump sum Cost of Living (COLA) 

payments plus interest to eligible retirees and survivors. This resulted in 

an award of $123.5 million plus interest to those individuals. In response, 

Guam issued a general obligation bond in 2007 in the amount of $151.9 

million to finance these past due tax refunds and outstanding COLA 

settlement payments, as well as to refinance prior debt and help fund 

infrastructure projects. In 2009, it issued another general obligation bond 

 50This debt has also been used for infrastructure projects and to refinance prior debt.

514 Guam Code Ann. § 8137.1 (repealed in 1995).

Guam Has Used Public 

Debt to Meet Federal 

Requirements and Court 

Orders
Page 44 GAO-18-160 U.S. Territories

in the amount of $271 million for similar purposes. According to a Guam 

government report, the largest increase in the territory’s indebtedness 

occurred between fiscal year 2008 and fiscal year 2009, and was due in 

part to issuing bonds to pay for past due tax refunds and unpaid COLA 

expenses. 52 In Guam’s 2017 draft debt management policy, the Governor 

cited the administration’s commitment to ensuring that tax refunds will be 

paid on time and no later than 6 months after filing.

In addition, in February 2004 the U.S. Environmental Protection Agency 

(EPA) and the Department of Justice filed a consent decree in the U.S. 

District Court of Guam. 53 The consent decree set forth the settlement 

terms agreed to by the federal government and Guam settling a lawsuit 

alleging Guam violated the Clean Water Act. The consent decree 

included deadlines for opening a new landfill and adopting a dump 

closure plan. In response to a 2009 District Court order that Guam comply 

with the terms of the consent order, the territory chose to issue a $202.4 

million limited obligation bond to fund closing the Ordot dump and 

constructing a new landfill to meet the terms of the settlement agreement.

Guam also issued revenue bonds between fiscal years 2005 and 2015 to 

finance infrastructure projects. For example, in 2011 a revenue bond 

backed by hotel occupancy taxes was issued in the amount of $90.6 

million in part to fund the construction of a museum on the island and 

other projects to benefit Guam’s tourism industry. In addition, in 2013 

Guam’s Airport Authority issued $247 million in bonds that were used, in 

part, to fund airport enhancements.

As established under its Organic Act, Guam has the authority to issue 

bonds, but Guam’s public indebtedness is not authorized or allowed to 

exceed 10 percent of the aggregate tax valuation of property in the 

territory; tax valuation of property is currently set at 90 percent of 

appraised value of property. 54 The limit applies to both general obligation 

and limited obligation debt. In fiscal year 2007, to increase borrowing 

capacity to address a $524 million deficit, the government changed the 

 52Government of Guam Office of Public Accountability, Government of Guam Public Debt 

Report, Report No. 14-01 (Guam: April 2014). 

53Consent Decree, United States v. Guam, No. 1:02-cv-00022 (D. Guam 2004).

5448 U.S.C. § 1423a.
Page 45 GAO-18-160 U.S. Territories

percentage of appraised value which constitutes the assessed value. 55

The debt ceiling still limits the amount of public debt Guam can issue to 

10 percent of the aggregate tax valuation of property. However, in 

September 2007, Guam amended its statutory definition of assessed 

value from 35 percent of appraised property values to 70 percent.56 In 

May 2009, the definition tax valuation of property was again amended to 

90 percent of appraised property values. 57 This second increase was 

imposed so Guam could issue bonds to comply with the requirement to 

close the Ordot dump and open a new landfill. In fiscal year 2012, the 

government increased borrowing capacity a third time by amending the 

definition of assessed value to 100 percent of appraised value in order to 

fund past due tax refunds. 58 In fiscal year 2016, the statutory definition of 

assessed value was decreased back down to 90 percent of appraised 

value. 59

Despite economic growth, we found that Guam faces large fiscal risks 

related to unfunded pension liabilities and other post-employment benefits 

(OPEB) that, if unaddressed, may hamper its ability to repay existing debt 

and increase its need to issue debt. A number of factors may contribute to 

continued economic growth in Guam. Specifically, according to a 

government report, visitor arrivals to Guam are projected to continue 

increasing and higher room rates and occupancy are leading to continued 

hotel development. Moreover, the Marine Corps has plans to consolidate 

bases in Okinawa, Japan, and relocate 4,100 Marines to Guam. The 

Department of Defense (DOD) expects this relocation to Guam to occur 

between fiscal years 2022 and 2026. Officials from Guam predict that the 

military buildup will result in significant additional investment in Guam’s 

economy. In July 2016, DOD agreed to give Guam approximately $55.6 

million in grants to fund civilian water and wastewater projects linked to 

the military buildup; additional investments in the power infrastructure will 

also be funded by DOD. A 2014 study conducted by the Department of 

 55The U.S. Supreme Court held that “tax valuation” for purposes of Guam’s debt limitation 

means the value to which the tax rate is applied, or assessed valuation, and not appraised 

value. Limtiaco v. Camacho, 549 U.S. 483 (2007). 

56Guam Pub. L. 29-19, chap. X, § 5 (Sept. 29, 2007).

57Guam Pub. L. 30-7, § 12 (May 11, 2009).

58Guam Pub. L. 31-196, § 1(a) (Mar. 28, 2012).

59Guam Pub. L. 33-185, chap. XIV, § 2 (Sept. 10, 2016).

Despite Guam’s Recent 

and Expected Economic 

Growth, Growing Pension 

Fund Liabilities May 

Present a Risk
Page 46 GAO-18-160 U.S. Territories

the Navy on the effect of the military buildup on Guam’s economy 

concluded that it would increase civilian labor force demand, increase 

civilian labor force income, and increase tax revenues. 60

While it maintained Guam’s debt as investment grade as of 2017, the 

rating agency Standard and Poor’s expressed concern about Guam’s 

extremely high debt burden and vulnerability to economic changes in its 

tourism and military industries. In addition, Guam has large pension and 

OPEB liabilities that may stress current debt service payment 

arrangements if anticipated savings from changes to the government 

pension system are not realized. In fiscal year 2015, pension liabilities 

were $1.2 billion and OPEB liabilities were $2 billion, 22 and 37 percent of 

GDP, respectively. Territory officials told us that they have taken a variety 

of steps to address their unfunded pension and OPEB liabilities. In 1995, 

the government closed the defined benefit plan61 to new members with all 

new employees participating in a defined contribution plan, 62 which 

resulted in a decrease in accrued liabilities. To address insufficient 

savings by members in the defined contribution plan, the legislature 

created two new retirement plans in 2016.63 The government estimates 

that the new retirement plans could add an additional $173 million to the 

pension fund. Territory officials said the government is meeting its 

actuarial contributions on an annual basis and is on track to pay off the 

existing unfunded pension liability in approximately 15 years. 64

 60The Naval Facilities Engineering Command Pacific, Socioeconomic Impact Assessment 

Study: Guam and CNMI Military Relocation (Washington, D.C.: December 2014).

61A defined benefit plan promises a specified monthly benefit at retirement. The plan may 

state this promised benefit as an exact dollar amount, such as $100 per month at 

retirement. Or, more commonly, it may calculate a benefit through a plan formula that 

considers such factors as salary and service.

62A defined contribution plan does not promise a specific amount of benefits at retirement. 

In these plans, the employee, the employer, or both contribute to the employee’s 

individual account under the plan, sometimes at a set rate, such as 5 percent of earnings 

annually. These contributions generally are invested on the employee’s behalf. The 

employee will ultimately receive the balance in their account, which is based on 

contributions plus or minus investment gains or losses. The value of the account will 

fluctuate due to the changes in the value of the investments.

63Guam Pub. L. 33-186 (Sept. 14, 2016).

64We did not independently confirm this estimate. 
Page 47 GAO-18-160 U.S. Territories

Between fiscal years 2005 and 2015, 65 USVI’s total public debt 

outstanding grew by 84 percent, from $1.4 billion to $2.6 billion. 66 (See 

figure 19.) The sharpest increase was between fiscal years 2008 and 

2010. During this period, total public debt outstanding increased by about 

$800 million, and almost all of USVI’s public debt was in the form of 

bonds. Bonds issued by USVI’s primary government are either backed by 

1) both a general obligation of the government and a gross receipts tax, 

or 2) an excise tax on rum produced in USVI. 67 Bonds issued by 

component units are backed by their revenues. Approximately half of 

USVI’s bonded debt is backed by revenues generated from the excise tax 

placed on rum imports to the U.S. mainland. Both the primary government 

and component units issued notes and took out loans during this period. 

Most of USVI’s bonded debt outstanding is scheduled to mature in 2027 

or afterward.

 65Since the period covered in this report ends with fiscal year 2015 or 2014 (for Puerto 

Rico), it does not include any cost or impacts from the 2017 hurricanes.

66In fiscal year 2015, 15 percent of USVI’s total public debt outstanding was issued by 

component units.

67The excise tax is a federal tax collected by the U.S. Treasury. Proceeds from the tax on 

USVI-produced rum are refunded to the USVI government in accordance with a statutory 

formula. 26 U.S.C. § 7652. These rebated funds are known as matching funds and bonds 

backed by these funds are referred to as “matching fund bonds.” 

United States Virgin 

Islands (USVI)

USVI’s Total Public Debt 

Nearly Doubled and Grew 

from 32 to 72 Percent of 

GDP between Fiscal Years 

2005 and 2015

Total Public Debt Outstanding
Page 48 GAO-18-160 U.S. Territories

Figure 19: U.S. Virgin Islands’ (USVI) Bonded Debt Outstanding as a Component of 

Total Public Debt Outstanding, Fiscal Years 2005-2015

Note: Public debt outstanding includes debt issued by the primary government and component units 

as enumerated in the single audit reports.

USVI’s total public debt outstanding as a percentage of GDP doubled 

between fiscal years 2005 and 2015, growing from 34 percent to 72 

percent. The steepest increases were between 2008 and 2010, when 

total public debt outstanding as a percentage of GDP increased by 19 

percent, and between 2011 and 2014, when it increased by 16 percent. 

Total public debt outstanding as a share of GDP reached 72 percent in 

fiscal year 2015. Bonded debt outstanding was 63 percent of GDP in 

fiscal year 2015. (See figure 20.)

Public Debt as a Share of GDP
Page 49 GAO-18-160 U.S. Territories

Figure 20: U.S. Virgin Islands' (USVI) Public Debt Outstanding as a Share of GDP, 

Fiscal Years 2005-2015

Note: Public debt outstanding includes debt issued by the primary government and component units 

as enumerated in the single audit reports.

Total public debt outstanding per capita also increased during this period. 

It ranged from about $13,063 per person in fiscal year 2005 to about 

$25,739 per person in fiscal year 2015. (See figure 21.)

Public Debt Per Capita
Page 50 GAO-18-160 U.S. Territories

Figure 21: U.S. Virgin Islands (USVI) Public Debt Outstanding Per Capita, Fiscal 

Years 2005-2015

Note: Public debt outstanding includes debt issued by the primary government and component units 

as enumerated in the single audit reports.

USVI’s general revenue showed almost no growth in the 10-year period 

between fiscal years 2005 and 2015. USVI’s general revenue declined 

from fiscal years 2008 to 2009 due to the 2008 recession and operating 

losses at the Hovensa oil refinery, and rebounded in fiscal year 2010 as 

the economy recovered. General revenue decreased again from fiscal 

year 2010 to 2011. Between fiscal years 2011 and 2014 revenue 

increased again. Despite the increase, the fiscal year 2015 general 

revenue of $919.4 million was only about $43 million greater than that 

collected 10 years prior. In contrast USVI’s total revenue (i.e. general 

revenue and program revenue combined) grew slightly by 2 percent on 

average, per year, between fiscal years 2005 and 2015, from $1.6 billion 

to $1.9 billion. (See figure 22.)

USVI’s General Revenue 

Remained Stagnant and 

Net Position Was 

Generally Declining 

between Fiscal Years 

2005 and 2015
Page 51 GAO-18-160 U.S. Territories

Figure 22: U.S. Virgin Islands’ (USVI) Revenue, Fiscal Years 2005-2015

Note: Revenue includes general revenue and program revenue generated by the primary government 

and component units as enumerated in the single audit reports. Taxes are part of general revenue.

USVI has a statutory requirement that a team, composed of senior 

executives and legislative officials, meet at least twice a year to establish 

an official economic forecast of the territorial economy, including 

estimates of the following year’s revenue. 68 Territory officials 

acknowledged that in recent years actual revenues have been less than 

had been estimated, citing both adverse economic conditions and 

litigation that had blocked the collection of property taxes for several 

years. These officials said that a new estimation methodology has been 

devised which uses a weighted average of the prior 5 years of actual 

revenue.

USVI’s net position for the primary government declined year over year 

from a negative $215.0 million as of fiscal year end 2008 to a negative 

 682 V.I.C. § 20d.
Page 52 GAO-18-160 U.S. Territories

$1.5 billion as of fiscal year end 2014; continuing to decline to a negative 

$3.7 billion as of fiscal year end 2015.69 USVI’s net position for the 

primary government as of fiscal year end 2014 is shown prior to 

restatement implementing GASB Statement No. 68. In fiscal year 2015, 

USVI implemented GASB Statement No. 68 and adjusted its beginning 

net position by $2.0 billion, resulting in a restated net position as of fiscal 

year end 2014 of a negative $3.5 billion. The implementation of GASB 

Statement No. 68 resulted in the territory recognizing previously 

unrecognized net pension liabilities and, therefore, a decline in ending net 

position in the year of recognition. USVI’s declining net position for its 

primary government reflects its deteriorating financial position.

USVI’s total net position for the primary government and component units 

combined increased between fiscal year end 2005 and 2007; it then 

declined year over year from positive $490.9 million as of fiscal year end 

2008 to negative $3.6 billion as of fiscal year end 2015.

More than a third of USVI’s current bonded debt outstanding as of fiscal 

year 2015 was issued to fund government operating costs. Before that 

time bonded debt outstanding issued on behalf of the primary government 

was used either to refinance earlier bond issues; fund infrastructure 

projects such as improvements to schools, public safety facilities, and 

transportation infrastructure; or to assist privately-owned industrial 

enterprises, specifically construction at the Cruzan and Diageo rum 

distilleries and payment of a portion of the costs of sewage and solid 

waste disposal at the Hovensa oil refinery.

In the period following the recession of 2008, revenues declined and 

there were continuing demands for spending. In response, USVI issued 

debt for the purpose of financing regular government operating expenses. 

Between July 2010 and December 2014, USVI issued almost $850 million 

 69USVI’s net position for the primary government fluctuated between fiscal years 2005 and 

2007. As of fiscal year end 2005, USVI’s net position for the primary government was a 

negative $137.5 million. In fiscal years 2006 and 2007, USVI’s net position improved, 

resulting in year-end balances of negative $14.4 million and positive $36.2 million, 

respectively. However, USVI’s net position declined in fiscal year 2008 to a year-end 

balance of negative $215.0 million. 

Since 2010, USVI’s Public 

Debt Has Been Used 

Primarily for General 

Government Operations
Page 53 GAO-18-160 U.S. Territories

in bonds for this purpose with maturities ranging between 1 and 20 

years. 70

According to territory officials, several factors contributed to USVI’s 

increasing reliance on debt to fund government operations, including the 

recession of 2008, the 2012 closure of the Hovensa oil refinery, a decline 

in USVI’s share of worldwide rum sales, and a decline in visits from cruise 

ship passengers. According to a senior government official, the closure of 

the Hovensa refinery was particularly detrimental to the territory’s 

economy and resulted in the loss of 2,000 jobs on St. Croix and a 

significant decrease in revenue. As of April 2017, USVI’s unemployment 

rate was 10.3 percent.

USVI officials cited several federal requirements that contributed to 

USVI’s need to issue debt. Because USVI is part of the mirror tax code, 

officials noted that USVI is required to pay the EITC to its residents, but is 

not reimbursed for this by the federal government. In contrast, state 

governments do not pay EITC because it is a federal benefit administered 

through the federal tax code. 71 EPA directives for improving landfills and 

water projects and federal banking regulations that treat branches of U.S. 

banks placed in USVI as non-U.S. banks—thereby discouraging large 

banks from having branches in USVI—were also cited as reasons that 

USVI has issued debt.

USVI officials expressed confidence in the territory’s ability to repay public 

debt, but we found that large fiscal risks and exclusion from capital 

markets may hamper its ability to do so. USVI’s bonds are backed by the 

gross receipts tax on some individuals and entities doing business in 

USVI and by excise tax revenues collected by the federal government 

and remitted to USVI as required by statute.72 Officials said that revenues 

from the gross receipts tax and excise tax rebates—from which debt 

service payments are made—are monitored on a month-by-month basis. 

Also, officials cited as a protection against default the “lockbox” provisions 

 70During this period, two component units, the USVI Port Authority and USVI Water and 

Power Authority, issued $237 million in bonds for refinancing of previously issued debt 

and financing of capital projects.

71State residents also pay both federal income taxes and any state income taxes, unlike 

USVI residents.

7226 U.S.C. § 7652.

Economic Uncertainty and 

Large Fiscal Risks May 

Significantly Limit USVI’s 

Ability to Repay Public 

Debt
Page 54 GAO-18-160 U.S. Territories

that USVI has had contractually for some time and that were written into 

its statutes in 2016.73 According to these provisions, gross receipts tax 

and excise rebate revenue go directly to an escrow account in a New 

York bank, and the escrow agent makes debt service payments twice a 

year from the account; a year’s worth of payments is held in reserve at all 

times.

USVI officials expressed confidence that these provisions make it difficult 

for USVI to default on its debt payments. However, in a recent statement, 

Moody’s rating service said that these security provisions have not been 

tested in a stress scenario where the government faces a lack of funds to 

provide basic services. This observation was part of a statement issued 

by Moody’s in late January 2017 in which it announced it had 

downgraded USVI’s matching fund bonds (those backed by excise tax 

rebates) to noninvestment grade.74

Other rating agencies expressed similar concerns. For example, Standard 

& Poor’s cited 1) the government’s fiscal distress, as evidenced by its 

significant structural imbalance and continued reliance on deficit financing 

to fund operations; 2) revenue backed bond issues that have exhibited 

either declining or flat growth absent tax rate increases and are levied on 

a limited and concentrated base; 3) adequate, but substantially reduced, 

debt service coverage; and 4) a limited economy, concentrated in rum 

production, tourism, and government.

In late January 2017, USVI cancelled a new bond issuance it was 

attempting to market to provide additional financing for general 

government operations. The bond issuance was authorized by the USVI 

legislature in 2016, but according to a senior bank official involved in 

underwriting USVI bonds, delays in bringing the issuance to market, and 

the legislature’s delay in enacting so-called “sin taxes” on items such as 

beer, cigarettes, and liquor, reduced the chances of successfully 

marketing the bond issue to investors. By the time USVI made an effort to 

market the bonds in late 2016 and January 2017, the Puerto Rico debt 

crisis had increased investors’ concerns about USVI’s debt as well. The 

rating downgrades of existing USVI debt, while not the decisive factor 

 732016 V.I. Sess. Laws 7951, § 1(D) (Nov. 7, 2016).

74Moody’s action followed downgrading of USVI matching fund and gross receipt bonds 

by Standard & Poor’s in early December 2016 and was followed by a downgrading from 

Fitch in early January 2017.
Page 55 GAO-18-160 U.S. Territories

according to the bank official, did reinforce existing skepticism on the part 

of potential investors. Ultimately, the early 2017 bond issuance was not 

adequately subscribed and the offer failed. USVI effectively lost market 

access to new debt even at high interest rates.

In September 2016, the administration released its 5-year financial plan. 

The two major features of this plan were a reduction in government 

expenditures by limiting hiring and reducing non-personnel costs, and a 

proposal for increasing revenue through taxes on beer, rum, wine, 

brandy, sugar-laden carbonated beverages, and cigarettes, among other 

revenue generating measures. The legislature passed the tax increase 

bill, with some modification of the Governor’s proposal, in early March 

and the Governor signed it into law on March 22, 2017.

In the 5-year financial plan, the administration said that adopting austerity 

and tax measures would eliminate future deficits, which otherwise would 

amount to more than $130 million for each fiscal year between 2017 and 

2021. A senior USVI official expressed a belief that the level of 

consumption of cigarettes, for example, will remain at pretax levels 

despite the higher cost. However, due to elasticity of demand, an 

increase in the price of cigarettes could decrease cigarette consumption 

and therefore revenues. If the tax increases do not produce the 

anticipated level of revenue, and if USVI is not able to regain access to 

capital markets, it will place even more stress on the debt service 

arrangements currently in effect.

Moreover, the recent measures do not address the fiscal risk presented 

by unfunded pension liabilities and OPEB for government employees. 

USVI reported an unfunded pension liability of over $3 billion, which was 

83 percent of GDP in fiscal year 2015. 75 According to an independent 

consulting firm’s August 2016 report conducted for the USVI Government 

Employees Retirement System, the retirement fund will become insolvent 

in 2023 without adding financial resources and adjusting benefit levels. 76

Territory officials cited several reasons for the large unfunded pension 

and OPEB benefit liabilities. These include recent legislation that resulted 

 75This estimate was $1 billion greater than the estimate for the previous year, owing to a 

change in accounting standards reducing the discount rate used in preparing the liability 

estimate.

76Upon insolvency, the projected contributions are expected to cover only about half of the 

projected benefits and expenses.
Page 56 GAO-18-160 U.S. Territories

in more retirees eligible for pensions and a decline in the active USVI 

government workforce that resulted in a narrower ratio of retirees to 

workers, dropping from 6-to-1 in fiscal year 1982 to almost 1-to-1 in fiscal 

year 2015. In addition, officials told us that the most significant cause for 

the current condition of the retirement system is the primary government 

making contributions to the system below the amounts required by law. 77

Some measures have been taken to address the retirement fund’s 

impending insolvency, and other steps have been recommended. 

According to territory officials, USVI law changed in 2005, resulting in 

increased required pension contributions from all newly hired employees 

except for judges and legislators. In 2013, a Pension Reform Task Force 

(Task Force) recommended legislation that would 1) increase government 

and employee contributions towards pension benefits, 2) raise 

contribution rates for senators and judges, 3) reduce retiree current 

benefits by 10 percent, 4) increase the early retirement age from 50 to 55 

and the regular retirement age from 60 to 65, 5) limit cost of living 

increases, and 6) change the formula used to calculate benefits.

In October 2015, the Legislature enacted and the Governor signed 

legislation that raised retirement ages for some employees, changed the 

basis for determining pension levels to career earnings, and allowed the 

retirement system to invest funds in lower-rated securities.78 This did not, 

however, address most of the Task Force recommendations. Territory 

officials told us that the administration will put forward additional pension 

reform proposals in the near future, however it remains unclear what 

those reforms will entail and when they will take effect.

Moreover, territory officials told us that since 2011 the government has 

paid less than half of actual post-employment benefit costs, leaving an 

unpaid current obligation of $357 million as of fiscal year 2015. The 

unfunded liability for post-employment benefits, projecting anticipated 

future costs, was most recently calculated in October 2013; at that time it 

was just over $1 billion. USVI’s pension and OPEB obligations are 

 77In September 2015, the retirement system submitted an invoice to the primary 

government stating that of $2.67 billion in actuarially required employee contributions from 

1991 through 2015, the central government had paid $1.39 billion, leaving $1.28 billion 

unpaid. The primary government underpaid the full actuarial amount, but paid most of the 

amount through 2001; after that, the government paid half or less than half of the required 

amount, with less than 38 percent being paid between 2012 and 2015.

782016 V.I. Sess. Laws 7802, § 1(D) (Nov. 7, 2016).
Page 57 GAO-18-160 U.S. Territories

already contributing to the territory’s debt burden, and will likely continue 

to do so at an increasing rate. If unaddressed, they may place additional 

stress on the debt service arrangements currently in effect and hamper 

the territory’s ability to repay debt.

We provided a draft of this report for review to the U.S. Departments of 

the Interior and Treasury. We also provided, to the governments of Puerto 

Rico, American Samoa, the Commonwealth of the Northern Mariana 

Islands (CNMI), Guam, and the United States Virgin Islands (USVI), 

portions of the draft that were relevant to them. We received written 

comments from each of the five territories’ governments, which are 

reprinted in appendixes II, III, IV, V, and VI, respectively. We also 

received technical comments from American Samoa, Guam, USVI, and 

Treasury, which we incorporated as appropriate. We did not receive any 

comments from the Department of the Interior. In the letter from the 

Governor of Guam, the territory raised some issues, which we 

subsequently discussed in depth with territory officials. Following these 

discussions, we made modifications to the draft to provide additional 

context by broadening our coverage of revenue for Guam and for other 

territories, as applicable. We provide additional information about 

changes that we made or did not make at the end of Appendix V.

Agency Comments, 

Third Party Views,

and our Evaluation
Page 58 GAO-18-160 U.S. Territories

We will provide copies of this report to the Governor of each territory and 

the U.S. Secretaries of the Interior and Treasury. In addition, the report 

will be available at no charge on the GAO website at http://www.gao.gov. 

If you or your staffs have questions about this report, please contact 

Susan J. Irving at (202) 512-6806, or David Gootnick at (202) 512-3149. 

Contact points for our Offices of Congressional Relations and Public 

Affairs may be found on the last page of this report. GAO staff who made 

key contributions to this report are listed in appendix II.

Susan J. Irving

Director, Strategic Issues

David Gootnick

Director, International Affairs and Trade
Appendix I: Objectives, Scope, and 

Methodology

Page 59 GAO-18-160 U.S. Territories

Our objectives were, for each U.S. territory—Puerto Rico, American 

Samoa, the Commonwealth of the Northern Mariana Islands (CNMI), 

Guam and the U.S. Virgin Islands (USVI)— to describe: (1) trends in 

public debt and its composition between fiscal years 2005 and 2015, (2) 

trends in revenue and its composition between fiscal years 2005 and 

2015, (3) the major reported drivers of the territory’s public debt, and (4) 

what is known about the ability of the territory to repay public debt. 1

For the purposes of this report, total debt held by the public (public debt) 

refers to the sum of bonds payable and other debt payable as described 

in the audited financial statements included within the territories’ single 

audit reporting packages2

, hereinafter referred to as the single audit 

reports. Bonds payable are marketable bonded debt securities issued by 

territorial governments or their component units and held by investors 

outside those governments. Other debt payable may include marketable 

notes issued by territorial governments and held by investors outside 

those governments; non-marketable intragovernmental notes; and notes 

held by local banks, federal loans, intragovernmental loans, and loans 

issued by local banks. Pension liabilities and other post-employment 

benefits (OPEB) are not included in the definition of total public debt but 

are considered and discussed in the sections of the report that describe 

the territories’ ability to repay their public debt.

 1

Since the period covered by this performance audit is fiscal years 2005 through 2015, it 

does, it does not capture any costs or other impacts from the 2017 hurricanes.

2

The Single Audit Act, as implemented by Office of Management and Budget Circular No. 

A-133, requires nonfederal entities that expend above a dollar threshold in federal awards 

in a fiscal year to have a single audit. For the years whose audited financial statements we 

reviewed, the applicable threshold was $500,000 or more. Beginning in fiscal year 2015, 

the threshold was raised to $750,000. Federal awards include grants, loans, loan 

guarantees, property, cooperative agreements, interest subsidies, insurance, food 

commodities, direct appropriations, other assistance, and federal cost-reimbursement 

contracts. Single audits are audits of the recipient organization—the government in the 

case of the territories—that focus on the recipient’s internal controls and its compliance 

with laws and regulations governing federal awards. As nonfederal entities expending 

more than $750,000 a year in federal awards, the territories are required to submit single 

audit reports. Recipient organizations are required by the act to submit their single audits 

reports to the Federal Audit Clearinghouse (FAC).The single audit reporting package sent 

to the FAC includes (1) the auditor’s reports; (2) the entity’s audited financial statements 

and related notes; (3) the schedule of expenditures of federal awards, related notes, and 

the auditor’s report on the schedule; (4) a schedule of findings and questioned costs; (5) 

reports on internal controls over financial reporting, and compliance with laws and 

regulations; and (6) a summary schedule of prior audit findings.

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 60 GAO-18-160 U.S. Territories

To describe trends in public debt and its composition for each territory, we 

reviewed the territories’ single audit reports. These single audits are 

conducted each year by independent accounting firms in accordance with 

government accounting standards. We obtained single audits for 

American Samoa, CNMI, Guam, and USVI for fiscal years 2005 through 

2015. We also obtained and analyzed consolidated audited financial 

statements for Puerto Rico from the Commonwealth of Puerto Rico’s 

Treasury Department website for fiscal years 2005 through 2014. 3 For

each territory, we reviewed the independent auditor’s report 

corresponding to each single audit and noted the type of opinion that was 

expressed on the financial statements and accompanying note 

disclosures. 4 With the exception of Puerto Rico, each of the territories 

received modified opinions by auditors on one or more of the single audit 

reports included in our analysis. We reviewed each of these opinions and 

determined that despite the modified opinions the data we obtained from 

each of the single audit reports was reliable for the purpose of describing 

trends in debt and revenue and their composition for the fiscal years 

included in our analysis. 5

For each territory, we extracted information on public debt—specifically 

bonds, loans, and notes for both the primary government and component 

units—for each fiscal year and recorded the data on spreadsheets, which 

were then independently verified by other analysts. For American Samoa, 

CNMI, Guam, and USVI, we calculated debt per capita and debt as a 

percentage of nominal Gross Domestic Product (GDP) 6 using nominal 

GDP and population data from the U.S. Department of Commerce’s 

Bureau of Economic Analysis. For Puerto Rico, we obtained data on 

 3

Puerto Rico’s consolidated audited financial statement for 2015 was not available as of 

June 2017. Officials anticipated it would be released by September 2017. 

4

Auditors express unmodified opinions when the auditors conclude that the financial 

statements are presented fairly, in all material respects, in accordance with the applicable 

financial reporting framework. Auditors express modified opinions when (1) the auditors 

conclude that, based on the audit evidence obtained, the financial statements as a whole 

are materially misstated or (2) the auditors are unable to obtain sufficient appropriate audit 

evidence to conclude that the financial statements as a whole are free from material 

misstatement. A modified opinion can be expressed as a qualified opinion, an adverse

opinion, or a disclaimer of opinion.

5

Appropriateness is the measure of the quality of evidence that encompasses its 

relevance, validity, and reliability in providing support for findings and conclusions related 

to the audit objectives.

6

GDP was adjusted for fiscal years. 
Appendix I: Objectives, Scope, and 

Methodology

Page 61 GAO-18-160 U.S. Territories

Gross National Product (GNP) and nominal GDP from the 

Commonwealth of Puerto Rico Office of the Governor’s Planning Board7

and data on population from the U. S. Census Bureau.

To identify trends in revenue and its composition for each territory, we 

obtained and recorded information from the single audit reports on

general revenues.8 All tax revenues, including tax revenues that are 

dedicated to particular purposes, are reported in general revenues. Tax 

revenues represent the largest component of general revenues and 

include both derived tax revenues (resulting from assessments imposed 

on exchange transactions, such as income taxes and sales taxes) and 

imposed nonexchange revenues (resulting from assessments imposed on 

non-exchange transactions, such as property taxes and fines). General 

revenues also include other forms of revenue, such as unrestricted aid 

from other governments and investment earnings. Our analysis primarily 

focused on trends in general revenues because the territories’ public debt 

is either explicitly or implicitly backed by general revenues. We also 

included total revenue—general revenues and program revenues 9

combined—in our analysis because it reflects revenue generated by the 

territories’ component units and could be used to service debt payments.

In addition to general revenue levels, another measure of fiscal health is 

the net position for primary government activities, which represents the 

difference between the primary government’s assets (including the 

deferred outflows of resources) and the primary government’s liabilities 

(including the deferred inflows of resources). In other words, the net 

position for primary government activities reflects what the primary 

government would have left after satisfying its liabilities. A negative net 

position means that the primary government has more liabilities than 

assets. A decline in net position may be indicative of a deteriorating 

financial position. While our analysis primarily focuses on trends in the net 

position for the primary government, we also include certain information 

 7

We did not independently verify the accuracy of these data.

8

General revenue includes revenue generated by both the primary government and 

component units. 

9

Program revenues are directly linked to functions or programs and include charges for 

services, as well as grants and contributions for specific functions and programs. While 

program revenues are generated by the associated functions or programs, such revenues 

are not always restricted to use in those functions or programs.
Appendix I: Objectives, Scope, and 

Methodology

Page 62 GAO-18-160 U.S. Territories

on trends in the total net position for the primary government and 

component units combined.

To determine the major reported drivers of public debt and what is known 

about the territories’ ability to repay this debt, we interviewed officials from 

the territories’ governments, including officials from the Governors’

offices, departments of finance or treasury, and the agency responsible 

for issuing and marketing bonded debt. We also spoke to officials in 

territorial public audit offices. In addition, we interviewed representatives 

of the three rating agencies that provide credit ratings for the territories’

securities: Fitch, Moody’s, and Standard and Poor’s.

In addition, to determine what is known about the territories’ ability to 

repay public debt we analyzed common factors—identified through prior 

work, documents, and interviews with the three rating agencies—that 

indicate territories’ potential vulnerability to debt crises. These factors 

included 1) the extent to which territories consistently issued debt to fund 

general government operations, 2) the extent to which territories’

economies were vulnerable to shocks due to a heavy dependence on a 

single or limited industry, and 3) the extent to which territories faced large 

fiscal risks such as pension liabilities.

We also interviewed officials from the Department of the Interior’s Office 

of Insular Affairs, which provides grant aid and technical assistance and 

support to the territories, and the Pacific and Virgin Islands Training 

Initiatives, which provides training and technical assistance on fiscal 

management to the Pacific territories and USVI, and directs the 

preparation of an annual report on the fiscal condition of these territories. 

In addition, we spoke with subject matter experts on territorial debt, 

officials from an investment bank involved in underwriting the territories’

bonds, and officials from the three rating agencies that rate the 

marketability of the territories’ bonds.

We obtained and reviewed information on territorial bond issuances from 

fiscal years 2005 through 2015 from the Electronic Municipal Market 

Access (EMMA) database of the Municipal Securities Rulemaking Board, 

the primary regulator of the municipal securities market. We reviewed 

information from EMMA on bonds issued by the territories from fiscal 

years 2005 through 2015, including memoranda of offering for individual 

bond issuances.

We conducted this performance audit from September 2016 to October 

2017 in accordance with generally accepted government auditing 
Appendix I: Objectives, Scope, and 

Methodology

Page 63 GAO-18-160 U.S. Territories

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained for the purpose of addressing our audit 

objectives provides a reasonable basis for our findings and conclusions.
Appendix II: Comments from the Government 

of Puerto Rico

Page 64 GAO-18-160 U.S. Territories

Appendix II: Comments from the 

Government of Puerto Rico
Appendix II: Comments from the Government 

of Puerto Rico

Page 65 GAO-18-160 U.S. Territories
Appendix II: Comments from the Government 

of Puerto Rico

Page 66 GAO-18-160 U.S. Territories
Appendix II: Comments from the Government 

of Puerto Rico

Page 67 GAO-18-160 U.S. Territories
Appendix II: Comments from the Government 

of Puerto Rico

Page 68 GAO-18-160 U.S. Territories
Appendix III: Comments from the Government 

of American Samoa

Page 69 GAO-18-160 U.S. Territories

Appendix III: Comments from the 

Government of American Samoa
Appendix III: Comments from the Government 

of American Samoa

Page 70 GAO-18-160 U.S. Territories
Appendix IV: Comments from the Government 

of the Commonwealth of the Northern Mariana 

Islands

Page 71 GAO-18-160 U.S. Territories

Appendix IV: Comments from the 

Government of the Commonwealth of the 

Northern Mariana Islands
Appendix IV: Comments from the Government 

of the Commonwealth of the Northern Mariana 

Islands

Page 72 GAO-18-160 U.S. Territories
Appendix V: Comments from the Government of Guam

Page 73 GAO-18-160 U.S. Territories

Appendix V: Comments from the 

Government of Guam

See comment 2

See comment 1
Appendix V: Comments from the Government of Guam

Page 74 GAO-18-160 U.S. Territories

See comment 6

See comment 7

See comment 5

See comment 4

See comment 3
Appendix V: Comments from the Government of Guam

Page 75 GAO-18-160 U.S. Territories

See comment 8

See comment 10

See comment 9
Appendix V: Comments from the Government of Guam

Page 76 GAO-18-160 U.S. Territories

See comment 11
Appendix V: Comments from the Government 

of Guam

Page 77 GAO-18-160 U.S. Territories

The following are GAO’s comments on Guam’s letter that supplement the 

comments in the text.

GAO Comments

1. Our responses to Guam’s technical comments are not corrections. 

After reviewing Guam’s comments, we expanded the information 

provided on revenue and net position for all 5 territories. For example, 

for Guam, we included on pages 41 and 42 of this report, additional 

information on revenue where we combine primary government 

revenue and component unit revenue.

2. Since our objective was to provide the most comprehensive metric of 

total public debt, it would have been incorrect for us to exclude public 

enterprise and revenue bond debt in our measure.

3. We do not compare the relative public debt burdens of the territories 

in this report. Further, pension liabilities are not included in our 

definition of public debt. Our definition of total public debt does include 

component unit debt, which Guam excludes from the calculations 

presented in its response.

4. On pages 41 and 42 of this report we include both a measure of 

primary government revenue, and a measure of primary government 

revenue and component unit revenue combined; an “apples-toapples” comparison can be made to our total public debt figure, which 

includes component unit debt.

5. Our calculation of total public debt outstanding for Guam is the total of 

bonds payable and notes payable, both the current and noncurrent 

portions, and other debt as defined on page 8 of this report. Guam’s 

calculation of total public debt outstanding as shown in the table is all 

noncurrent liabilities except the net pension liability and results in a 

higher amount for fiscal year 2015 than our calculation. For bonds 

payable, our calculation includes both the current and noncurrent 

portions of bonds payable. Guam’s calculation of bonds payable as 

shown in the table only includes the noncurrent portion and results in 

a lower amount for fiscal year 2015 than our calculation. As a result of

these differences, our calculation of bonded debt outstanding as a 

percentage of total public debt outstanding for fiscal year 2015 is 

higher than Guam’s calculation.

6. As noted on page 42 of this report, while revenue generally grew, 

Guam’s net position for the primary government fluctuated

significantly between fiscal years 2005 and 2015. Since fiscal year 

end 2006, Guam’s net position for the primary government has been 
Appendix V: Comments from the Government 

of Guam

Page 78 GAO-18-160 U.S. Territories

negative and trending downward. Guam’s total net position for the 

primary government and component units also combined fluctuated 

significantly. On page 41 and 42 of this report, we explicitly note the 

increase in revenue, however in the long-term significant financial 

risks may outweigh any given year’s revenue increase.

7. Based on our methodology, which includes component unit debt, 

Guam’s total public debt outstanding was $2.5 billion for fiscal year 

2015.

8. We used total public debt outstanding, not solely tax-supported debt 

to calculate the debt-to-GDP ratio for all 5 territories. As reported on 

page 39 of this report, Guam’s debt to GDP ratio is 44 percent for total

public debt and 42 percent for bonded debt for fiscal year 2015. We 

do not rank the U.S. territories in this report.

9. The per capita amounts presented in the report are based on debt 

amounts from Guam’s fiscal year 2015 audit as reported in the single 

audit report. However, the debt amounts and population figure shown 

in the table differ from those used in our calculations. Total public debt 

and bonded public debt outstanding used in our per capita 

calculations are calculated as discussed in comment 5 above, which 

differ by about $7 million from the amounts cited in the table. In 

addition, the population figure used in our per capita calculations is on 

a fiscal year basis, which results in 161,500 for fiscal year 2015.

10. Pension liabilities are not included in our definition of public debt. The 

debt per capita numbers that we present in this report are based on 

total public debt. For Guam that figure for fiscal year 2015 was $2.5 

billion.

11. We disagree with Guam’s comment that the presentation in this report 

is negative. The final section in the discussion of Guam notes both the 

elements that may contribute to continued economic growth in Guam 

and the vulnerabilities and risks to the future: a high total debt burden 

and vulnerability to economic changes in its tourism and military 

industries. In addition, we note that Guam has large pension and 

other post-employment benefits liabilities that may stress current debt 

service payment arrangements if anticipated savings from changes to 

the government pension system are not realized.
Appendix VI: Comments from the Government of the United 

States Virgin Islands

Page 79 GAO-18-160 U.S. Territories

Appendix VI: Comments from the 

Government of the United States Virgin 

Islands
Appendix VI: Comments from the Government of the United 

States Virgin Islands

Page 80 GAO-18-160 U.S. Territories
Appendix VI: Comments from the Government of the United 

States Virgin Islands

Page 81 GAO-18-160 U.S. Territories
Appendix VII: GAO Contacts and Staff

Acknowledgments

Page 82 GAO-18-160 U.S. Territories

Susan J. Irving, (202) 512-6806, irvings@gao.gov

David Gootnick, (202) 512-3149, gootnickd@gao.gov

In addition to the contacts named above, Tara Carter, Assistant Director; 

Emil Friberg, Assistant Director; Divya Bali, Analyst-in-Charge; and 

Steven Berke, Karen Cassidy, and Eddie Uyekawa made significant 

contributions to this report. Dawn Simpson, Director; Nicole Burkart, 

Assistant Director; and J. Mark Yoder provided accounting expertise. Also 

contributing to this report were Pedro Almoguera, Jeffrey Arkin, Ann 

Czapiewski, John Hussey, Heather Krause, Donna Miller, Amy Radovich, 

Justin Snover, and A.J. Stephens.

Appendix VII: GAO Contacts and Staff 

Acknowledgments

GAO Contacts

Staff 

Acknowledgments

(101146)
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