Defense Spending Cuts 2013: Guam Faces Economic Uncertainty As Sequester Lingers

It's the farthest U.S. territory from the mainland, inhabited by just 160,000 people. Yet the tiny Pacific island is feeling, more than many states, the effect of sequestration, the automatic $85 billion budget cuts that took effect on March 1. 

That's because the heavily militarized island, home to a large Air Force base and other Navy and Marines facilities, and essential to America’s strategic military realignment in the Asia-Pacific region, depends on the government for the vast majority of its economy.

Guam is a $4.6 billion economy, according to 2010 data from Bureau of Economic Analysis. Two-third of it, or 2.9 billion, is government spending, mostly federal.   

The island is still rebounding from a hit last year when its biggest economic drivers, the military and tourism, encountered major setbacks. The 2011 tsunami that struck Japan, where many tourists to Guam are from, sent the island’s visitor arrival numbers down by 3 percent, according to a report by First Hawaiian Bank. And the past recession and present budget woes faced by the U.S. have stalled a military buildup that would have pumped billions into the local economy, created job opportunities and brought in new tax revenues.

Now, Congress’ failure to prevent the 2013 sequester that took effect March 1 could burden the cash-strapped local government, which is still struggling to pay millions in tax refunds. The cash crunch may also force the Defense Department to rethink a long-awaited, expensive Marine relocation from the Japanese island of Okinawa to Guam.  The military is looking to relocate about 5,000 Marines to Guam, far fewer than the 8,600 initially planned.

“Clearly this year the sequester could slow down the economy and thus tourism,” said Michael O'Hanlon, a senior fellow at the Brookings Institution who specializes in defense and foreign policy. “Also it could affect military spending rates for operations. It could certainly affect base realignment and construction plans.”

“Any loss of federal funding will have a negative impact on an economy as small as Guam’s compared to the states,” said Troy Torres, director of communications at the Office of the Governor of Guam. “Unfortunately, we do not yet have a full picture of how sequestration will affect Guam. Gov. [Eddie] Calvo recently was in the nation’s capital to get some answers. The federal government had answers for the states, but the insular areas were not given this same courtesy.”

The sequester, a provision specified in the Budget Control Act of 2011, aims to reduce the nation’s deficit by $1.2 trillion in 10 years. It was meant to be a policy so unappealing that both Democrats and Republicans would be forced to come to a budgetary agreement to stop it. But lawmakers let it happen anyway.

Before sequestration took effect, the White House released a state-by-state impact of the automatic spending cuts on jobs and the middle class, in an effort to increase public pressure on Congress to cut a deal. Hawaii, the closest state to Guam, for example, will lose about $4.7 million in funding for education, putting teachers and aides at risk of losing jobs. Approximately 20,000 Defense Department employees in the state are set to be furloughed, leading to a total reduction of $134 million in gross pay, according to the White House. 

While Guam's leaders wait for such specifics, the Calvo administration said Joint Region Marianas Commander, Rear Adm. Tilghman Payne, has kept in contact and warned of potential local impacts.

“Joint Region Marianas is still considering several alternatives and their impacts and are diligently identifying areas where they and we can mitigate,” said Mark Calvo, the governor’s special assistant for military affairs and infrastructure.

Not everyone is completely in the dark.

The Guam Department of Public Health and Social Services, or DPHSS, has already been informed that the Supplemental Nutrition Assistance Program, or SNAP, which is commonly called food stamps, is exempt, as is the case on the mainland. And like in mainland states , the Women, Infants, and Children program could see some impact.

The National WIC Association has estimated that approximately 600,000 participants would be cut from the program this year because of sequestration. By the association's estimate the law would cut about 500 caseloads in Guam. Overall, these reductions will lead to fewer participants being served and longer wait times for appointments, according to information released by the national agency.

“The Division of Public Welfare was informed that if sequestration were to be in effect, all federal programs, including the Childcare Care Development Fund program, would be affected with an estimated reduction of 7.8 percent,” said Bertha Taijeron, program coordinator at Guam DPHSS.

As for the military on Guam, sequestration could lead to the closing of Naval Base Guam’s back gate and Naval Hospital Guest/Visitor Pass Center.

“Discussions between the commander and the governor on other impacts being evaluated include an agreement to assist in covering gaps in existing mutual aid services,” Mark Calvo said, noting that details will be released days and weeks ahead.

Naval Base Guam has a mutual aid agreement with Guam Fire Department that keeps emergency services available at all times. This helps the local government, which at times has an ambulance shortage, respond to emergencies that exceed local resources.

According to the U.S. Navy’s website, Naval Base Guam responded to more than 150 medical mutual aids last year.

“We have only begun to assess the implications of sequestration and the continuing resolution,” said Lt. Matt Knight, the public affairs officer for Joint Region Marianas. “However, we cannot specify the potential impact of these actions to Guam at this time.”

Knight said there has been no official furlough notification as yet or a length of time. If furloughs are to be implemented it would require giving employees a 30-day notice. He added that the Defense Department is planning to implement furloughs across the department that may be as much as 176 hours (or 22 workdays) until the end of the fiscal year.

“Guam is climbing out of a financial abyss we've been wallowing in for two decades,” Torres said. “Our economy has been relatively stable, and we need to continue seeing growth on top of stability. The problems in the federal government, if they affect Guam, will be an unnecessary burden.”