By Troy Torres
(Tumon, Guam) If you're running low on cash, don't count on your 2019 tax refund happening soon. If you're a rich tobacco distributor with last names that may rhyme with Parvo and Jimmy Choo, don't worry about your tax liability. The Leon Guerrero administration is turning the story of Robin Hood upside down so that pipe-smoking King John can get his grubby metaphorical hands on what little the poor have left - hope.
In every year of former Gov. Eddie Calvo's terms as governor except his first year, he began paying tax refunds in February. It now is March 4, and Gov. Lou Leon Guerrero is stuck paying refunds filed on September 7 last year.
As a matter of fact, according to the latest filed Income Tax Refund Status Report run on January 2, 2020, GovGuam still owes 5,641 people a prior year tax refund, and isn't even done processing refunds for 4,460 more for tax years 2006 through 2018.
There has been no report filed for January 2020, which would indicate how many 2019 returns have been filed and processed, at least until January 31, 2020.
So what's the hold up? Cash flow, of course. But why? Well, there are a number of factors contributing to strained cash flow. The first of course, is the growing amount of non-discretionary spending; cash obligations like payroll, debt service, remittances to the Retirement Fund, court orders, etc.
The second strain on cash flow is the warped sense of fiscal priorities exhibited by both the administration and the Legislature.
But it's the third strain on cash flow where the difference can be made: More than $100 million in tax breaks, tax credits, and the non-collection of taxes from huge companies owned by the bigwig politically-connected families of this island. Of those bigwig family corporations, at least two owe tens of millions of dollars in tobacco taxes.
Both are connected to the administration.
In her annual state of the island address last week, Ms. Leon Guerrero mentioned an effort to collect some $5 million in overdue taxes. That's odd, because the pricetag in taxes owed by the Calvo family alone for MidPac's tax liability was already neutered from a figure estimated between $50 million and $90 million down to some $17 million during the final leg of the Calvo administration.
The MidPac tobacco tax liability became the subject of a public audit after another tobacco distributor noticed that his company showed up in government reports as having the highest tax liability for tobacco sales. Knowing that MidPac had the market share of tobacco sales because of the brands it distributes exclusively, the competitor made the reporting discrepancy known to certain public officials.
The audit led to news stories on the matter, proposed tax policy by then-Sen. Michael San Nicolas that would ensure the collection of taxes through a cigarette tax stamp, and even a criminal investigation into the matter.
According to a former MidPac employee, he and a team of employees were tasked by MidPac management to destroy five containers of financial documents supporting MidPac's true tax liability in 2018. Kandit attempted to get a response to the allegations from MidPac, but our calls went unanswered.
According to that former employee, one of MidPac's managers is Christine Baleto, the former director of the Department of Administration. Prior to her political appointment, Ms. Baleto also was in charge of another Calvo company - Market Wholesale, and served on the board of directors of the seaport. On a side note, Ms. Baleto was one of the four board members at the time involved in the conspiracy against the Port 7 workers fired in the biggest political witch hunt in the history of the government of Guam.
Ms. Baleto was privy to the inner workings of both the Calvo administration, and the financial management of the government. But she's not the only government financial manager turned Calvo employee over the years.
The Calvos have made a habit of siphoning the most knowledgeable financial managers throughout the government into their empire, and it would seem this family has done so for very strategic reasons.
Leading into the Calvo administration, Calvo's Insurance picked up former budget director Paul Leon Guerrero. Calvo Enterprises hired former budget director Joe Rivera. Andres Jordanou, the former administrator of the Guam Economic Development Authority, also was hired.
As late as last year, Mr. Leon Guerrero appears in public documents lobbying the Guam Legislature for changes in the insurance laws regarding the third-largest contract in the government - the health insurance contract. This follows eight years of bid rigging by the Calvo administration in favor of Calvo's Insurance.
This also follows years of protests from the Calvos and the rest of the insurance industry against the removal of a law allowing insurance companies to skate on upward of $25 million in taxes. Every time a brave lawmaker suggested removing the tax break, the people whispering 'sense' into senators's ears in closed-door consultations by the so-called experts were those whose financial prowess in government was most respected. Luckily for the insurance industry, those trusted financial wizards now work for them.
But $25 million is no drop in the bucket in a $1 billion operation. That money could bring every single overdue tax refund - processed and unprocessed - for prior tax years into the hands of the taxpayers who overpaid right now if that cash was available.
In Gov. Leon Guerrero's plan for aggressive tax collection, she envisions a process and a level of diligence that will collect some $5 million from individual and corporate income tax filers who have not had the ability to pay in previous years. And while that effort is noble and necessary, why are they the people singled out, especially when at least two tax payers with close ties to the Leon Guerrero administration had millions in their tax liability forgiven?
According to the Fiscal Year 2020 budget, most of the taxes needed to cover the cost of government come from three categories. The largest piece of the tax pie is the $314 million in business privilege taxes that all the non-special industries without special interest statutory exemptions pay. More than $246 million in taxes will be yanked straight out of the paychecks of Guam's workers. Another $246 million will be paid into special funds. By comparison, the individual and corporate income tax payments for this fiscal year amount to $70 million and $85 million, respectively, across all industries that actually pay taxes (several industries have qualifying certificate abatements from corporate income tax as well - that's a whole other story).
Of the special funds category, the second-largest segment of tax collections comes from the tax of one item - tobacco. According to the budget, the government is anticipated to collect $41.5 million in taxes from the sale of cigarettes, cigars, smokeless tobacco, etc.
Not only is that amount grossly understated, according to an audit, but there are companies in that industry that owe tens of millions of dollars in tobacco taxes. The delta between actual collection of these taxes over the period that is averaged in the budget process in order to anticipate current year projections and the actual amounts owed is as wide as the hemispheric trek between the global position of Joanne Brown's left hip and her right.
There are at least two companies that could solve a great deal of the government's fiscal problem - overdue tax refunds included - if they simply were made to pay their taxes. Why won't the Leon Guerrero administration do anything about it?
Why doesn't the Department of Revenue and Taxation clamp down on this tax liability, knowing just how valuable this singular tax collection will be for the rest of the government of Guam? Perhaps this has something to do with yet another financial wizard, who came from their ranks, and now is working within the Calvo empire: Artemio Ilagan, the former director of DRT, and formerly the Commissioner of Banking and Insurance.
While the protection of the Calvos during the Calvo administration makes sense in a world of GovGuam corporate corruption, DRT loyalty to its former boss hardly makes sense in the failure to go after such a miscarriage of justice as everyone else has to suffer through the financial malaise. To understand better the Leon Guerrero administration's reluctance to pursue the tax debt and instead to go after the smaller fish in the sea, one need only examine Ms. Leon Guerrero's willingness to forgive the tax debt of cronies and the fact that her family is married into another tobacco distributorship - Ambros. Is it possible this is the second company in the same boat (albeit smaller) the Calvos are in?
And then there's the issue of DRT's unwillingness to enforce the provisions of the 2017 law by then-Sen. Michael San Nicolas, that require DRT to assess the cigarette tax on every pack of cigarettes that is imported, a stamp placed on each pack to prove the payment of taxes before the cigarette packs even hit the store shelves.
According to Mr. San Nicolas in media interviews in early 2018, the passage of his law caused a bump in cigarette tax collections of $500,000 monthly, or a $6 million collection of previously-eroded revenue before the tax stamp act was even implemented.
The tax stamp never was enforced in Mr. Calvo's final months in office. And for all her rhetoric during the campaign for governor is 2018, Ms. Leon Guerrero has yet to enforce this law, either. Of all the efforts to collect taxes due to the Guam treasury, the enforcement of Mr. San Nicolas's P.L. 77-34 is the easiest way to collect what the audit estimates to be tens of millions of dollars in special fund revenue currently bleeding through the dishonesty of at least some of the companies in the tobacco industry on Guam.
But it isn't just DRT and the Governor's Office that bear the burden of this failure of fiscal policy to collect what rightfully belongs to the people of Guam and, indeed, bring in this money that can fix what creditors have called the structural imbalance of the General Fund.
On November 29, 2019, a Thai court fined Philip Morris $40 million for underreporting to Thai customs the number of cigarettes it was exporting into Thailand. The public prosecutor there originally filed criminal charges against seven of Philip Morris's employees in Thailand, but those charges were dropped following the fine.
It was a watershed moment for the global crackdown on the tobacco industry's efforts to skate on taxes wherever their cigarettes are marketed and sold. If Philip Morris could do it, what makes any of us think Guam's tobacco companies are beyond this reproach?
Attorney General Leevin Camacho, who has made the prosecution of tax evasion a hallmark of his tenure as Guam's chief legal officer, has a real opportunity to focus efforts on the enforcement of the San Nicolas statute and to plug this massive erosion of revenue.
In layman's terms, if our local justice system would plug these leaks - since it is abundantly apparent the political system won't go near it - our attorney general can force the tobacco companies to pay its true tax liability that would provide enough money to get tax refunds paid on time within a two to four year period of restraint.
So much of the financial machinations of the government of Guam is hidden behind the veil of tax privacy that it is impossible to retrieve or report data on tax liability without breaking the law. This much is known, though: tens of millions are owed in tobacco taxes. Gov. Leon Guerrero only wants to collect some $5 million in total overdue taxes. The Calvos alone had an audited tax liability exponentially more than $5 million. And the Shimizu family, which owns a tobacco distribution, is married into the Leon Guerrero family.
Meanwhile, if you don't have any of those names, or if you're not In, don't count on your tax refund being anywhere near a priority. Actually, you probably aren't even waiting for one.