$271,070,000 Government of Guam General Obligation Bonds 2009 Series A

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1 NEW ISSUE FULL BOOK-ENTRY RATING: S&P B+ In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Government, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, nor is it included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel is also of the opinion that interest on the Bonds is exempt from income taxation by any state, territory or possession of the United States or any political subdivision of any of them. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See TAX MATTERS herein. Dated: Date of Delivery $271,070,000 Government of Guam General Obligation Bonds 2009 Series A Due: November 15, as shown below This official statement contains information relating to the offering and sale of the Government of Guam General Obligation Bonds, 2009 Series A (the Bonds ). The Bonds will be issued as fully registered bonds in book-entry form only, and will be initially issued and registered in the name of Cede & Co., as nominee for The Depository Trust Company ( DTC ), New York, New York. Interest on the Bonds will be due and payable semiannually on May 15 and November 15 of each year, commencing November 15, The Bonds will be issued in denominations of $5,000 principal amount or any integral multiple thereof. Payments of principal of, Redemption Price, if applicable, and interest on the Bonds are to be made to purchasers by DTC through the DTC participants. See BOOK-ENTRY SYSTEM herein. Purchasers will not receive certificates representing their interest in the Bonds. The Bonds are subject to redemption prior to maturity, as described herein. See THE BONDS Redemption herein. The Bonds are authorized to be issued pursuant to Section of Title 5 of the Guam Code Annotated, as amended (collectively, the Bond Act ), and a Certificate of the Governor of Guam, dated as of June 1, 2009 (the Certificate ). The issuance and sale of the Bonds have been approved by the Guam Economic Development Authority and the Guam Legislature. See THE BONDS Authority for the Bonds herein. The Bonds are being issued by the Government of Guam (the Government ) for the purpose of paying: (i) certain expenses of the Government; (ii) capitalized interest to and including September 30, 2010; and (iii) expenses incurred in connection with the issuance of the Bonds. See PLAN OF FINANCE herein. The Government is offering the Bonds and its Government of Guam Limited Obligation (Section 30) Bonds, Series 2009A (the 2009 Section 30 Bonds ), at the same time, and the Bonds and the 2009 Section 30 Bonds are to be sold and issued simultaneously, with the issuance of each being conditioned on the issuance of the other. THE BONDS CONSTITUTE THE VALID AND LEGALLY BINDING GENERAL OBLIGATIONS OF THE GOVERNMENT. THE GOVERNMENT PLEDGES ITS FULL FAITH AND CREDIT FOR THE PUNCTUAL PAYMENT OF PRINCIPAL OF AND INTEREST ON THE BONDS. SEE SECURITY AND SOURCES OF PAYMENT FOR THE BONDS HEREIN. AN INVESTMENT IN THE BONDS INVOLVES CERTAIN RISKS, INCLUDING THOSE DESCRIBED HEREIN UNDER THE HEADINGS INTRODUCTION, SECURITY AND SOURCES OF PAYMENT FOR THE BONDS, GUAM FINANCIAL OPERATIONS AND CERTAIN INVESTMENT CONSIDERATIONS, IN APPENDIX A, AND ELSEWHERE IN THIS OFFICIAL STATEMENT. THIS COVER PAGE CONTAINS INFORMATION FOR REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. MATURITY DATES, AMOUNTS, INTEREST RATES AND PRICES OR YIELDS $18,055, % Term Bonds Due November 15, 2014 Yield 6.20% CUSIP 40065B CL5 $23,995, % Term Bonds Due November 15, 2019 Yield 6.40% CUSIP 40065B CM3 $77,775, % Term Bonds Due November 15, 2029 Yield 7.00% CUSIP 40065B CN1 $151,245, % Term Bonds Due November 15, 2039 Yield 7.18% CUSIP 40065B CP6 CUSIP numbers have been assigned by an organization not affiliated with the Government and are included solely for the convenience of the public. Neither the Government nor the Underwriters take any responsibility for the accuracy of such numbers. The Bonds will be offered when, as and if issued by the Government and received by the Underwriters, subject to the approval of validity of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Government. Certain matters will be passed on for the Government by the Attorney General of Guam, and for the Underwriters by their counsel, McCorriston Miller Mukai MacKinnon LLP, Honolulu, Hawaii. The Bonds, in book-entry form, will be available for delivery through DTC in New York, New York, on or about June 18, Dated: June 3, 2009 Citi Piper Jaffray & Co.

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3 TABLE OF CONTENTS INTRODUCTION... 1 Other Information... 2 PLAN OF FINANCE... 2 General... 2 Sources and Uses of Funds... 3 Contingent Closing... 3 THE BONDS... 3 Authority for the Bonds... 3 Description of the Bonds... 3 Redemption... 4 Annual Debt Service... 8 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS... 9 General... 9 Funds... 9 Additional Bonds GUAM FINANCIAL OPERATIONS Budgetary Process Audited Financial Statements Major Sources of General Fund Revenues Major Expense Categories of General Fund Retirement Fund and Other Post-Employment Benefits Fiscal Year 2009 Budget and General Fund Revenue Update Existing and Authorized Indebtedness Investment Policies of the Government Receivership of the Solid Waste Management Division of the Guam Department of Public Works Pending Litigation CERTAIN INVESTMENT CONSIDERATIONS General Impact of Tourism and U.S. Military Presence Typhoons and Earthquakes Contingent Closing BOOK-ENTRY SYSTEM TAX MATTERS LITIGATION LEGAL MATTERS CONTINUING DISCLOSURE RATING MISCELLANEOUS Financial Advisor Underwriting Additional Information APPENDIX A Certain Demographic and Economic Information Regarding the Territory of Guam...A-1 APPENDIX B-1 Government of Guam General Fund Audited Financial Statements for the Fiscal Year Ended September 30, B1-1 APPENDIX B-2 Government of Guam Government-wide Audited Financial Statements for the Fiscal Year Ended September 30, 2007, as Restated... B2-1 APPENDIX C Proposed Form of Bond Counsel Opinion... C-1 APPENDIX D Summary of Certain Provisions of the Certificate...D-1 APPENDIX E Form of Continuing Disclosure Certificate... E-1

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5 FELIX P. CAMACHO Governor MICHAEL W. CRUZ, M.D. Lieutenant Governor ALICIA G. LIMTIACO Attorney General JUDITH T. WON PAT Speaker, Guam Legislature GUAM ECONOMIC DEVELOPMENT AUTHORITY ANTHONY C. BLAZ Administrator SPECIAL SERVICES Trustee Bank of Guam Hagåtña, Guam Bond Counsel Orrick, Herrington & Sutcliffe LLP San Francisco, California Paying Agent U.S. Bank National Association Los Angeles, California Financial Advisor Pacific Public Finance Group LLC Walnut Creek, California

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7 NO DEALER, BROKER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED BY THE GOVERNMENT OR THE UNDERWRITERS TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN AS CONTAINED IN THIS OFFICIAL STATEMENT, AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE GOVERNMENT OR THE UNDERWRITERS. THIS OFFICIAL STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE BONDS, NOR SHALL THERE BE ANY SALE OF THE BONDS BY ANY PERSON, IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSONS TO MAKE SUCH OFFER, SOLICITATION OR SALE. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. NEITHER THE DELIVERY OF THIS OFFICIAL STATEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE GOVERNMENT SINCE THE DATE HEREOF. THIS OFFICIAL STATEMENT IS NOT TO BE CONSTRUED AS A CONTRACT WITH THE PURCHASERS OF THE BONDS. THE INFORMATION AND EXPRESSIONS OF OPINION CONTAINED IN THIS OFFICIAL STATEMENT ARE SUBJECT TO CHANGE WITHOUT NOTICE. STATEMENTS CONTAINED HEREIN WHICH INVOLVE ESTIMATES, FORECASTS OR MATTERS OF OPINION, WHETHER OR NOT EXPRESSLY SO DESCRIBED HEREIN, ARE INTENDED SOLELY AS SUCH AND ARE NOT TO BE CONSTRUED AS REPRESENTATIONS OF FACT OR REPRESENTATIONS THAT THE ESTIMATES WILL BE REALIZED. THIS OFFICIAL STATEMENT HAS BEEN DEEMED FINAL AS OF ITS DATE BY THE GOVERNMENT PURSUANT TO RULE 15c2-12 OF THE SECURITIES AND EXCHANGE COMMISSION PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE GOVERNMENT HAS ALSO UNDERTAKEN TO PROVIDE CONTINUING DISCLOSURE ON CERTAIN MATTERS, INCLUDING ANNUAL FINANCIAL INFORMATION AND SPECIFIC MATERIAL EVENTS, AS MORE FULLY DESCRIBED HEREIN. SEE CONTINUING DISCLOSURE HEREIN. THE UNDERWRITERS HAVE PROVIDED THE FOLLOWING SENTENCE FOR INCLUSION IN THIS OFFICIAL STATEMENT: THE UNDERWRITERS HAVE REVIEWED THE INFORMATION IN THIS OFFICIAL STATEMENT IN ACCORDANCE WITH, AND AS PART OF, THEIR RESPECTIVE RESPONSIBILITIES TO INVESTORS UNDER THE FEDERAL SECURITIES LAWS AS APPLIED TO THE FACTS AND CIRCUMSTANCES OF THIS TRANSACTION, BUT THE UNDERWRITERS DO NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT, NOR HAVE THEY BEEN REGISTERED UNDER THE SECURITIES LAWS OF ANY STATE.

8 CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, project, anticipate, budget or similar words. Such forward-looking statements include, among others, statements found under CERTAIN DEMOGRAPHIC, ECONOMIC AND FINANCIAL INFORMATION REGARDING THE TERRITORY OF GUAM in Appendix A. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVES KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS, WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE GOVERNMENT DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN CHANGES OCCUR TO ITS EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED.

9 $271,070,000 GOVERNMENT OF GUAM GENERAL OBLIGATION BONDS, 2009 SERIES A INTRODUCTION This Official Statement, which includes the cover page and appendices hereto, provides information in connection with the offering and sale of the Government of Guam General Obligation Bonds, 2009 Series A (the Bonds ) in the aggregate principal amount of $271,070,000. The Bonds are being issued by the Government of Guam (the Government ) for the purpose of paying: (i) certain expenses of the Government; (ii) capitalized interest to and including September 30, 2010; and (iii) expenses incurred in connection with the issuance of the Bonds. See PLAN OF FINANCE herein. The Bonds are authorized to be issued pursuant to Section of Title 5 of the Guam Code Annotated, as amended (the Bond Act ), and a Certificate of the Governor of Guam, dated as of June 1, 2009 (the Certificate ). The issuance and sale of the Bonds have been approved by the Guam Economic Development Authority ( GEDA ) pursuant to Resolution No adopted on October 3, 2008 and Resolution No adopted on May 12, See THE BONDS Authority for the Bonds herein. Under the Certificate, the Governor of Guam (the Governor ) has appointed Bank of Guam as trustee (the Trustee ) and depositary (the Depositary ) for the Bonds and U.S. Bank National Association as paying agent (the Paying Agent ) and registrar for the Bonds. The Bonds constitute the valid and legally binding general obligations of the Government. The Government pledges its full faith and credit for the punctual payment of principal of and interest on the Bonds. See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS herein. The Bond Act authorizes the issuance of one or more series of general obligation bonds of the Government, including the Bonds, in the principal amount necessary to provide net proceeds sufficient to pay the approximately $236 million of expenses of the Government authorized under the Bond Act. See PLAN OF FINANCE herein. The Government is offering the Bonds and its Government of Guam Limited Obligation (Section 30) Bonds, Series 2009A (the 2009 Section 30 Bonds ), at the same time, and the Bonds and the 2009 Section 30 Bonds are to be sold and issued simultaneously, with the issuance of each being conditioned on the issuance of the other. See GUAM FINANCIAL OPERATIONS Existing and Authorized Indebtedness and Receivership of the Solid Waste Management Division of the Guam Department of Public Works herein. Certain demographic, economic and financial information regarding the Territory of Guam is included herein under GUAM FINANCIAL OPERATIONS and in Appendix A hereto. The audited financial statements of the Government s General Fund for the Fiscal Year ended September 30, 2008 are included in Appendix B-1 hereto, and the audited Governmentwide financial statements for the Fiscal Year ended September 30, 2007 are included in Appendix B-2 hereto. See GUAM FINANCIAL OPERATIONS Audited Financial 1

10 Statements. The Fiscal Year 2008 General Fund audited financial statements included in Appendix B-1 show a deficit in the Government s General Fund of $415.5 million as of September 30, Reference should be made to the audited financial statements included in Appendix B for a complete understanding of the information provided therein. The Government has covenanted for the benefit of bondholders (including beneficial owners of the Bonds) to provide certain financial information and operating data relating to the Government (the Annual Report ) by not later than 270 days following the end of the Government s fiscal year (which currently ends September 30), and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by the Government with each Nationally Recognized Municipal Securities Information Repository (and with the appropriate state information depository, if any). Notices of material events will be filed by the Government with Nationally Recognized Municipal Securities Information Repositories or with the Municipal Securities Rulemaking Board (and with the appropriate state information depository, if any). See FORM OF CONTINUING DISCLOSURE CERTIFICATE in Appendix E. These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. The summaries and descriptions of documents, statutes and constitutional provisions referred to herein do not purport to be comprehensive or definitive, and are qualified in their entirety by reference to each such document, statute and constitutional provision. The purchase of the Bonds involves certain investment risks that are described throughout this Official Statement. Accordingly, each prospective purchaser of the Bonds should make an independent evaluation of all of the information presented in this Official Statement in order to make an informed investment decision. General PLAN OF FINANCE The proceeds of the Bonds will be used to pay certain expenses of the Government and the costs of issuance of the Bonds. The Bond Act authorizes the issuance of general obligation bonds of the Government in one or more series in the principal amount necessary to provide net proceeds sufficient to pay the following expenses, in the following order of priority: (1) approximately $92 million to permanently discharge the obligations of the government incurred pursuant to the settlement agreement entered into between the Government of Guam and certain retired former Government employees as ordered by the judgment in case known as Rios v. Camacho; (2) approximately $112 million to pay a portion of past due individual and corporate income tax refunds owed by the Government; (3) approximately $11 million to fund certain capital improvements for the Guam Memorial Hospital ( GMH ), including the expansion and renovation of the emergency room, the modernization of the main electrical distribution system and two elevators, and the enclosure of additional space for the coronary and intensive care units; 2

11 and (4) approximately $22 million to pay past-due contributions to the Government of Guam Retirement Fund on behalf of the Guam Memorial Hospital and the Guam Public School System. All such expenses are expected to be fully funded with the net proceeds of the Bonds. Sources and Uses of Funds The following table sets forth the anticipated sources and uses of funds pertaining to the Bonds. Sources of Funds: Principal Amount of Bonds $271,070, Original Issue Discount (6,557,948.10) Total Sources $264,512, Uses of Funds: Deposit to Proceeds Fund $236,000, Deposit to Bond Fund (1) 23,504, Deposit to Costs of Issuance Account (2) 5,008, Total Uses $264,512, (1) Constitutes capitalized interest on the Bonds to and including September 30, (2) Includes Underwriters discount and other miscellaneous fees and expenses. Contingent Closing The Government is offering the Bonds and its 2009 Section 30 Bonds at the same time, and the Bonds and the 2009 Section 30 Bonds are to be sold and issued simultaneously, with the issuance of each being conditioned on the issuance of the other. THE BONDS Authority for the Bonds The Bonds are authorized to be issued pursuant to the Bond Act. The issuance and sale of the Bonds have been approved by the Guam Legislature (the Legislature ) pursuant to subsection (m) of the Bond Act and by GEDA pursuant to Resolution No adopted on October 2, 2008 and Resolution No adopted on May 12, The Bonds are issued under and pursuant to the Certificate. The Bond Act provides that Bonds may be issued to pay certain expenses of the Government, to fund capitalized interest on the Bonds for a period ending not later than 30 months after their issuance, and to pay certain expenses incurred in connection with the issuance of the Bonds. Description of the Bonds The Bonds, designated as the Government of Guam General Obligation Bonds, 2009 Series A are being issued in the aggregate principal amount of $271,070,000 and will be dated their date of delivery. The Bonds bear interest at the rates and mature on the dates and in the amounts set forth on the cover page hereof. The Bonds will be issued in fully registered form in the denominations of $5,000 and any integral multiple thereof. 3

12 Interest on the Bonds is payable on May 15 and November 15 of each year (each, an Interest Payment Date ), commencing November 15, 2009, and at maturity or prior redemption thereof. Interest will accrue on the Bonds on the basis of a 360-day year comprised of twelve 30-day months. Each Bond will bear interest from the latest of: (i) its initial date of delivery, (ii) the most recent Interest Payment Date to which interest has been paid thereon or duly provided for, or (iii) if the date of authentication of such Bond is after a record date but prior to the immediately succeeding Interest Payment Date, the Interest Payment Date immediately succeeding such date of authentication. The record date for the Bonds will be the first day (whether or not a Business Day) of the month preceding the Interest Payment Date. The Bonds will be issued in book-entry form only and will be registered in the name of a nominee of The Depository Trust Company ( DTC ), which will act as securities depository for the Bonds. Investors may purchase Bonds in book-entry form only. Beneficial Owners of the Bonds will not receive certificates representing their ownership interests in the Bonds purchased. The Government will make payments of principal and interest on the Bonds to DTC, and DTC is to distribute such payments to its Direct Participants. Disbursement of such payments to Beneficial Owners of the Bonds is the responsibility of DTC s Direct and Indirect Participants and not the Government. See BOOK-ENTRY SYSTEM. Redemption Optional Redemption. At the option of the Government, the Bonds maturing after November 15, 2019 are subject to redemption prior to their respective stated maturities, at the option of the Government, from any source of available funds, on any date on or after November 15, 2019, as a whole, or in part, by lot, at a Redemption Price equal to the principal amount thereof to be redeemed plus interest accrued thereon to the date fixed for redemption. The Government may only exercise its option to redeem Bonds maturing after November 15, 2019 by depositing certain federal securities, as described in the Certificate, with the Trustee before notice of redemption is given, which securities must be sufficient in amount and mature in timely manner to provide for such redemption. Mandatory Sinking Account Redemption. The Bonds maturing on November 15, 2014 are subject to redemption prior to their respective stated maturity, in part, by lot, on November 15 of each year commencing November 15, 2010, from Mandatory Sinking Account Payments at a redemption price equal to their principal amount, plus interest accrued thereon to the date fixed for redemption, without premium, in the years and in the amounts set forth in the following table: Year Amount 2010 $3,220, ,405, ,600, ,805, ,025,000 Final maturity. The Bonds maturing on November 15, 2019 are subject to redemption prior to their respective stated maturity, in part, by lot, on November 15 of each year commencing November 15, 2015, from Mandatory Sinking Account Payments at a redemption price equal to 4

13 their principal amount, plus interest accrued thereon to the date fixed for redemption, without premium, in the years and in the amounts set forth in the following table: Year Amount 2015 $4,255, ,510, ,785, ,070, ,375,000 Final maturity. The Bonds maturing on November 15, 2029 are subject to redemption prior to their respective stated maturity, in part, by lot, on November 15 of each year commencing November 15, 2020, from Mandatory Sinking Account Payments at a redemption price equal to their principal amount, plus interest accrued thereon to the date fixed for redemption, without premium, in the years and in the amounts set forth in the following table: Year Amount 2020 $ 5,695, ,080, ,490, ,930, ,395, ,895, ,430, ,000, ,605, ,255,000 Final maturity. 5

14 The Bonds maturing on November 15, 2039 are subject to redemption prior to their respective stated maturity, in part, by lot, on November 15 of each year commencing November 15, 2030, from Mandatory Sinking Account Payments at a redemption price equal to their principal amount, plus interest accrued thereon to the date fixed for redemption, without premium, in the years and in the amounts set forth in the following table: Year Amount 2030 $10,945, ,715, ,530, ,410, ,350, ,355, ,430, ,575, ,810, ,125,000 Final maturity. At any time prior to the date on which notice of such redemption is given, the Trustee, upon the Request of the Government, will apply moneys in the Bond Fund, in an amount not in excess of such Mandatory Sinking Account Payment, to the purchase of the applicable Term Bonds at public or private sale, as and when and at such prices (including brokerage and other charges) as are specified in such Request, except that the purchase price (excluding accrued interest) may not exceed the price that would be payable for such Bonds upon redemption by application of such Mandatory Sinking Account Payment. If less than all of the Term Bonds of any maturity are to be redeemed other than by application of Mandatory Sinking Account Payments, the remaining Mandatory Sinking Account Payments for that maturity will in the aggregate be reduced by the same amount as the amount of Term Bonds so redeemed, and the amount of the reduction of each such Mandatory Sinking Account Payment will be determined by Request of the Government. Selection of Bonds. If less than all of the Bonds of any maturity are to be redeemed, the amount of each maturity of the Bonds to be redeemed will be determined by the Government, and the Bonds of such maturity to be redeemed will be selected by the Paying Agent by lot in such manner as the Paying Agent may determine. For purposes of such selection, Bonds will be deemed to be composed of $5,000 portions, and any such portion may be separately redeemed. Notice of Redemption. The Paying Agent is required to give notice of redemption not less than 30 nor more than 60 days prior to the date fixed for redemption, by first class mail to each of the registered owners of any Bonds designated for redemption at their respective addresses as shown on the registration books of the Paying Agent on the date the Bonds to be redeemed are selected. As long as the book-entry system is in effect with respect to the Bonds, any redemption notice shall be given to DTC as Owner of the Bonds. Each notice of redemption is required to state, among other things, the date fixed for redemption, the place or places of redemption, the maturities to be redeemed, and, if less than all of any such maturity, the numbers of the Bonds of such maturity to be redeemed and, in the case 6

15 of Bonds to be redeemed in part only, the respective portions of the principal amount or Mandatory Sinking Account Payment thereof to be redeemed. The notice is also required to state that on said date there will become due and payable on each of said Bonds the Redemption Price thereof or of said specified portion of the principal thereof in the case of a Bond to be redeemed in part only, together with interest accrued thereon to the redemption date, and that from and after such redemption date interest thereon shall cease to accrue. The notice must also require that such Bonds be surrendered, with a written instrument of transfer duly executed by the registered owner thereof or by such registered owner s attorney duly authorized in writing. Each notice will also state the CUSIP number, date of issue and interest rate on each Bond, or portion thereof, to be redeemed, and shall include the redemption agent name and address with contact person and telephone number. Any failure to provide a redemption notice or any defect in such notice will not affect the validity of the redemption. See SUMMARY OF CERTAIN PROVISIONS OF THE CERTIFICATE Notice of Redemption in Appendix D. Effect of Redemption. Notice of redemption having been duly given, and moneys being held by the Trustee or any Paying Agent for payment of the redemption price of, and interest accrued to the redemption date on, the Bonds (or portions thereof) so called for redemption, such Bonds, on the redemption date designated in such notice, will become due and payable at the redemption price specified in such notice plus interest accrued thereon to the date fixed for redemption, interest on the Bonds so called for redemption will cease to accrue, said Bonds (or portions thereof) will cease to be entitled to any benefit or security under the Certificate, and the Holders of said Bonds will have no rights in respect thereof except to receive payment of said Redemption Price and accrued interest. Upon surrender of any Bond redeemed in part only, the Government will execute, and the Paying Agent will authenticate and deliver to the registered owner thereof, a new Bond or Bonds of authorized denominations, and of the same maturity and tenor, equal in aggregate principal amount to the unredeemed portion of the Bond surrendered. 7

16 Annual Debt Service Table 1 summarizes the annual debt service requirements for the Bonds and the other general obligations of the Government. TABLE 1 Period Ending November 15 Government of Guam Annual General Obligation Debt Service Schedule 2009 Series A Outstanding Obligations (1) Principal Interest Total (2) Total (2) 2009 $ 18,277, $ 7,478,554 $ 7,478,554 $ 25,756, ,281,386 $3,220,000 18,314,825 21,534,825 39,816, ,281,374 3,405,000 18,129,675 21,534,675 39,816, ,322,334 3,600,000 17,933,888 21,533,888 36,856, ,795,443 3,805,000 17,726,888 21,531,888 34,327, ,797,480 4,025,000 17,508,100 21,533,100 34,330, ,793,090 4,255,000 17,276,663 21,531,663 34,324, ,792,900 4,510,000 17,021,363 21,531,363 34,324, ,796,100 4,785,000 16,750,763 21,535,763 34,331, ,796,880 5,070,000 16,463,663 21,533,663 34,330, ,794,700 5,375,000 16,159,463 21,534,463 34,329, ,798,700 5,695,000 15,836,963 21,531,963 34,330, ,795,200 6,080,000 15,452,550 21,532,550 34,327, ,793,950 6,490,000 15,042,150 21,532,150 34,326, ,799,200 6,930,000 14,604,075 21,534,075 34,333, ,794,950 7,395,000 14,136,300 21,531,300 34,326, ,793,100 7,895,000 13,637,138 21,532,138 34,325, ,799,850 8,430,000 13,104,225 21,534,225 34,334, ,793,919 9,000,000 12,535,200 21,535,200 34,329, ,795,050 9,605,000 11,927,700 21,532,700 34,327, ,797,375 10,255,000 11,279,363 21,534,363 34,331, ,803,438 10,945,000 10,587,150 21,532,150 34,335, ,791,925 11,715,000 9,821,000 21,536,000 34,327, ,797,575 12,530,000 9,000,950 21,530,950 34,328, ,793,288 13,410,000 8,123,850 21,533,850 34,327, ,798,275 14,350,000 7,185,150 21,535,150 34,333, ,795,700 15,355,000 6,180,650 21,535,650 34,331, ,794,513 16,430,000 5,105,800 21,535,800 34,330, ,793,138 17,575,000 3,955,700 21,530,700 34,323, ,810,000 2,725,450 21,535,450 21,535, ,125,000 1,408,750 21,533,750 21,533,750 TOTAL (2) $390,058,629 $271,070,000 $382,413,954 $653,483,954 $1,043,542,583 (1) For the period from 2009 to 2012, includes loans incurred in 2002 and 2008 that are secured by a pledge of Section 30 Revenues but are still subject to the full faith and credit of the Government. Does not include a loan incurred in 2009, which is expected to be prepaid using proceeds of the 2009 Section 30 Bonds. See GUAM FINANCIAL OPERATIONS Existing and Authorized Indebtedness. Assumes interest rate on 2002 loan of 8%. (2) Totals may not add due to rounding. 8

17 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS General The Bonds constitute the valid and legally binding general obligations of the Government. The Government pledges its full faith and credit for the punctual payment of principal and interest of the Bonds. On or before the fifth day of each calendar month, beginning with the month of October 2009, the Government shall deposit into the Bond Fund held by the Trustee an amount equal to the amount necessary to increase the amount in the Bond Fund to the aggregate amount for all outstanding Bonds of all unpaid interest, principal and Mandatory Sinking Account Payments which shall be required to have been transferred to the Bond Fund under the following transfer requirement rules: (i) the amount of interest payable on each Bond on a current uncompounded basis on any Interest Payment Date shall be transferred in equal monthly amounts over the Interest Accrual Period for such Bond ending on such Interest Payment Date; (ii) the amount of interest payable on each Bond on a deferred compounded basis on any Interest Payment Date shall be transferred in equal monthly amounts over the Principal Payment Period for such Bond ending on the maturity date for such Bond; (iii) the amount of the principal of each Bond shall be transferred in equal monthly amounts over the Principal Payment Period for such Bond ending on the maturity date for such Bond; and (iv) the amount of each Mandatory Sinking Account Payment for Bonds shall be transferred in equal monthly amounts over the Principal Payment Period for such Bonds ending on the date such Mandatory Sinking Account Payment is due. On or prior to the fifth Business Day preceding each Interest Payment Date, the Trustee shall notify the Government of the amount, if any, by which the aggregate amount of interest and principal to be paid on the Bonds on such date exceeds the aggregate amount on deposit in the Bond Fund and available to make such payments. On or prior to the third Business Day preceding such Interest Payment Date, the Government shall deposit with the Trustee an amount equal to the amount of such deficiency. In the event that on the third Business Day preceding any Interest Payment Date, the aggregate amount of interest and principal to be paid on the Bonds on such date exceeds the aggregate amount on deposit in the Bond Fund and available to make such payments, the Depositary upon the direction of the Trustee shall transfer to the Bond Fund the amount of such deficiency by withdrawing said amount from the Proceeds Fund. Funds The following funds and accounts are established under the Certificate: Proceeds Fund Moneys on deposit in the Proceeds Fund will be disbursed by the Depositary for the payment of the expenses of the Government to be funded from Bond proceeds and the costs associated with the issuance of the Bonds, and, to the extent necessary, to fund any deficiency in the Bond Fund to pay principal of, mandatory sinking account payments for and interest on the Bonds. Costs of Issuance Account Moneys on deposit in the Costs of Issuance Account will be disbursed by the Depositary for the payment of the costs associated with the issuance of the Bonds. Bond Fund The Trustee shall apply moneys on deposit in this Fund solely for the purposes of (1) paying interest on the Bonds as it shall become due and payable, (2) paying the 9

18 principal of the Serial Bonds when due and payable and (3) purchasing, redeeming or paying at maturity the Term Bonds as provided in the Certificate. Rebate Fund The Trustee shall hold in trust all moneys deposited in the Rebate Fund, to the extent required to satisfy the Rebate Requirement (as defined in the Tax Certificate), for payment to the United States of America, and the Trustee shall disburse such moneys in accordance with the Certificate and the Tax Certificate. In the event such moneys exceed the Rebate Requirement, the Government may direct the Trustee to transfer such excess moneys to the Bond Fund. Additional Bonds Section 11 of the Organic Act provides that no public indebtedness of the Government shall be authorized or allowed in excess of ten percent of the aggregate tax valuation of the property in Guam. On March 27, 2007, the Supreme Court of the United States issued its decision in the case of Limtiaco v. Camacho, which, among other things, interpreted aggregate tax valuation to mean the assessed valuation (i.e., the amount upon which the property tax rate is levied, as opposed to appraised value). At the time, the assessed valuation of property in Guam was defined by Guam statutes to mean 35% of the property s appraised value, as ascertained by the Guam assessor. Guam s property taxation statutes have since been amended so that assessed value is now defined as 90% of appraised value, with related amendments to property tax rates so that revenue impacts were neutral. The aggregate tax valuation of the property of Guam as of December 2008 was approximately $8.646 billion, and the public indebtedness of the Government as of May 1, 2009 was approximately $319.3 million, which results in approximately $545.3 million of additional public debt that currently may be incurred by the Government. Guam statutes generally require that any general obligation bond of the Government in excess of $25,000,000 be approved by the voters of Guam in a referendum held during a general election. The Bond Act states that, notwithstanding such statutory provisions, the issuance of the Bonds is not subject to the approval of the voters of Guam. GUAM FINANCIAL OPERATIONS Budgetary Process The Governor is required by law to direct the preparation and administration of the Executive Budget for the Government on an annual basis. The Executive Budget represents the Governor s financial proposal with recommended priorities for allocating resources. The budget for the Government is developed through a four-phase process: formulation ( Formulation Phase ); adoption ( Adoption Phase ); execution ( Execution Phase ); and audit ( Audit Phase ). With the exception of the Adoption Phase, the Bureau of Budget and Management Research (the Bureau ) is the administrative entity responsible for carrying out the four phases of the budget cycle. During the Formulation Phase, the economic forecast and the program and financial plans are prepared for the various departments. Economic data and statistics are utilized in developing projected revenues for the upcoming fiscal year. Once revenues have been projected, a budget call is distributed to all the line agencies. This process starts when the Bureau issues guidelines 10

19 to each line agency in the preparation and development of their respective budgets. The Formulation Phase culminates in the transmittal of the Program and Financial Plan (Executive Budget) to the Legislature accompanied by the Governor s budget message. The Adoption Phase includes the legislative review of individual department and agency budgets, the hearing process, revisions or adjustments at mark-up sessions and final passage of the General Appropriations Bill by the Legislature and its enactment into law by the Governor. The Execution Phase begins once the General Appropriations Bill is signed into law. Department and agency allotment schedules are prepared based on appropriated amounts and projected cash receipts. Review of program appropriation is conducted to ensure that planned expenditures are consistent with the Governor s goals and objectives and the General Appropriations Bill. Monthly releases of allotments are performed by the Bureau for normal operational requirements. The releases are coordinated with cash flow statements prepared by the Department of Administration to ensure that adequate cash resources are available to cover all allotment releases. Additionally, all major fiscal transactions (personnel actions, travel, contracts) are required to be approved by the Bureau to ensure that program actions are consistent with the General Appropriations Bill. This review of major fiscal transactions occurs on a daily basis and is done continuously throughout the fiscal year. The Bureau, in coordination with the chief financial officer of each governmental agency, is responsible for the budget s execution within the approved expenditure plan. In the event of revenue shortfalls, the Government may institute various measures which include the implementation of various cost containment policies, reprioritization of programs and the withholding or rescinding of allotment releases. In addition, Public Law mandates the Bureau to modify or withhold planned expenditures at any time during the appropriation period if the Bureau finds that such expenditures are greater than those necessary to execute the programs at the level authorized by the Governor and the Legislature or that anticipated receipts and/or appropriated funds will be insufficient to meet the authorized expenditure levels. Revenue shortfalls are determined by the Bureau by analysis of monthly revenue statements prepared by the Department of Administration. The 2009 Budget Act requires that the Bureau perform a revenue tracking exercise by comparing actual revenues collected for the month as well as year to date. The results of this tracking exercise are then reported to the Legislature and posted on the Bureau s website along with the official projections for the same period. A penalty of 20% reduction in salary is imposed on the director, deputy director and chief financial officer of any agency that does not comply with these requirements. The monthly revenue statements are countersigned by the Directors of the Bureau, the Department of Administration, and the Department of Revenue and Taxation. The daily review of major financial transactions by the Bureau described above is performed to achieve two objectives: (i) to ensure that authorized program objectives are being met and (ii) to ensure that adequate appropriations and cash resources are available to cover the expenditures. Failure to meet both of these objectives will automatically result in disapproval of the proposed action and may also result in the impoundment of previously released allotments. Only the Governor has the power of executive override. The Audit Phase identifies potential program deficiencies in order to improve program performance. During the Audit Phase, all financial transactions, accounts and reports are examined to determine compliance with applicable laws and regulations, to assure economic use of resources, and to enhance achievement of goals and objectives. 11

20 Audited Financial Statements The audited financial statements of the Government s General Fund for the Fiscal Year ended September 30, 2008 are included in Appendix B-1 hereto. Generally, the Governmentwide audited financial statements for a given fiscal year are not available until approximately nine months after the close of the fiscal year. The audited Government-wide financial statements for the Fiscal Year ended September 30, 2008 are not yet available for inclusion herein because the Fiscal Year 2008 audited financial statements of certain component units of the Government have not yet been released. Therefore, the audited Government-wide financial statements for the Fiscal Year ended September 30, 2007 are included in Appendix B-2 hereto. Reference should be made to the audited financial statements included in Appendix B for a complete understanding of the information provided therein. Major Sources of General Fund Revenues The General Fund is the fund into which all Guam revenues, not otherwise restricted by statute, are deposited and from which appropriations are made. The Government is the only taxing authority in Guam. There are no separate municipal, county, school district or improvement district taxes. General Fund revenues have fluctuated in the recent past due to external factors affecting Guam s economy but have generally been trending upward since Fiscal Year During Fiscal Year 2008, total General Fund revenue collections amounted to $513,190,329, or a 0.3% decrease as compared to Fiscal Year General Fund revenues for Fiscal Year 2007 were $514,772,944, an increase of 18.9% from Fiscal Year The increase is attributed to increases in major revenue categories due to the temporary implementation of a tax amnesty program, certain amendments to business privilege tax laws and implementation of additional government charges and fees. In addition, the Government received additional Section 30 revenues (as defined below in this section) in Fiscal Year 2007 due to adjustments for prior years. General Fund revenues for Fiscal Year 2006 declined slightly to $432,833,839, a 1.4% decrease from Fiscal Year General Fund revenues for Fiscal Year 2005 were $439,068,910, a 7.3% increase from the Fiscal Year 2004 General Fund revenues of $409,044,328. The increase is attributed to the Government s improved financial management, the recovery of Guam s economy, typhoon recovery redevelopment and increased military activity. As described in Table 2, the two primary sources of General Fund revenues are tax revenues and federal contributions. Tax revenues are comprised of income taxes and business privilege taxes (formerly known as gross receipts taxes), which accounted for approximately 49.5% and 36.2% of total General Fund revenues, respectively, during Fiscal Year Real property tax revenues are required to be deposited in the Territorial Educational Facilities ( T.E.F. ) Fund which is not a part of the General Fund. However, moneys in the T.E.F. Fund are required to be used to reimburse the General Fund for payments of debt service on general obligation bonds of the Government, including the Bonds. Unaudited real property tax revenues totaled approximately $20.3 million in Fiscal Year The Legislature is responsible for setting business privilege tax rates which have remained at the current level of 4.0% for nearly ten years, with the exception of a period of time between February 2003 and March 2004 when the business privilege tax rate was increased from 4.0% to 6.0% under P.L and then amended back to 4.0% under P.L The Government levies the business privilege tax on a broad base of services and goods, including 12

21 the sale of tangible personal property and the provision of professional services; however, wholesale businesses are exempt from the business privilege tax. Banks and lending institutions are taxed on net annual income. In addition, under P.L , as amended by P.L , certain small businesses with gross annual income under $50,000 were granted exemption from the business privilege tax on the first $40,000 of annual revenues. There are no limitations on business privilege tax rates. Under the Organic Act, the Territorial Income Tax Code mirrors the United States Internal Revenue Code. As a result, the income tax laws in force in the United States are deemed to impose a separate Territorial income tax on residents of Guam payable to the Government. During each Fiscal Year, the Government collects individual and corporate income taxes through withholdings and payments from taxpayers. At the end of each Fiscal Year, the Government estimates the amount owed to taxpayers for overpayments. These estimated amounts, together with the actual tax refunds claimed for prior years but not yet paid are recorded as tax refunds payable and a reduction of tax revenues. At the end of Fiscal Year 2008, the Government recorded unpaid tax refunds in the amount of approximately $277.9 million, including interest payable to taxpayers for unpaid prior year tax refunds, approximately $112 million of which is expected to be paid with proceeds of authorized but unissued general obligation bonds of the Government. The Government of Guam levies taxes on real property at a fixed rate of seven-seventyseconds percent (7/72%) of the assessed value and levies taxes on improvements to real property at a fixed rate of seven-eighteenths percent (7/18%) of the assessed value of the improvements. By statute, all real property and improvements are assessed at 90% of appraised value. Although Guam statutes require a triennial update to the appraised value of all taxable property in Guam, the last updated appraisal of all taxable property was completed in October The Guam Department of Revenue and Taxation has selected a vendor to assist it with conducting an appraisal of real property of Guam pursuant to Guam statutes. A comprehensive tax map is under development and is expected to be completed in the third quarter of The Government is seeking grant funding for the remaining component of the appraisal, namely a computer system that will capture real-time property appraisal and sale data. In each year during which no such appraisal occurs, the assessor is required to update the valuation of all taxable property, taking into account new improvements or additions to the property and any change in use, damage, destruction or removal of improvements from the property. Such updated appraisals are required to be certified to the Board of Equalization not later than September 1 of each year, whereupon they are made available for public inspection and application by the assessee to the Board of Equalization for equalization or reduction through October 15 of each year. The updated appraisals are then certified to the tax collector on or before October 31 of each year. Federal contributions represent the second largest source of General Fund revenues and in Fiscal Year 2008 accounted for approximately 8.8% of General Fund revenues. Such revenues are comprised primarily of amounts paid to the Government by the United States of America pursuant to Section 30 of the Organic Act of Guam, 48 U.S.C h ( Section 30 revenues ). Section 30 revenues include all amounts received by or on behalf of the Government as proceeds of customs duties and federal income taxes derived from Guam, the proceeds of all taxes collected under the internal revenue laws of the United States on articles produced in Guam and transported to the United States, its Territories, or possessions, or consumed in Guam, and the proceeds of any other taxes which may be levied by Congress on the inhabitants of Guam 13

22 (including, but not limited to, compensation paid to members of the Armed Forces and pensions paid to retired civilian and military employees of the United States, or their survivors, who are residents of, or who are domiciled in, Guam), and all quarantine, passport, immigration and naturalization fees collected in Guam, and such other taxes as may be collected pursuant to Section 30 of the Organic Act, and held in account for the Government. See Existing and Authorized Indebtedness below and CERTAIN DEMOGRAPHIC AND ECONOMIC INFORMATION REGARDING THE TERRITORY OF GUAM Section 30 Revenues in Appendix A. Section 30 revenues are pledged by the Government to repay certain currentlyoutstanding obligations of the Government, will be pledged to repay the 2009 Section 30 Bonds, and in the future may be pledged to the repayment of additional debt obligations incurred by the Government. Outstanding and future obligations secured by pledges of Section 30 revenues, including the 2009 Section 30 Bonds, are herein referred to as Section 30 Obligations. See Existing and Authorized Indebtedness below for certain information regarding such Section 30 Obligations. Table 2 sets forth the source and amounts of revenue for the General Fund for Fiscal Years 2004 through Major Expense Categories of General Fund Table 2 also describes the overall increase in General Fund expenditures and transfers out during the past five years, as well as the major expenditure categories. Expenditures of General Fund revenues are made pursuant to appropriation laws. The two largest expenditure categories, public education and protection of life and property (primarily, police, fire and corrections), accounted for 42% and 16% of total General Fund expenditures in Fiscal Year 2008, respectively. 14

23 TABLE 2 Summary of Major Categories of General Fund Revenues and Expenditures Fiscal Years Restated REVENUES: Taxes $325,485,978 $371,957,590 $355,662,195 $426,273,257 $443,042,946 Licenses, fees and permits 2,282,224 1,540,974 1,602,292 4,266,783 5,593,716 Use of money and property 192, , , ,883 2,472,737 Federal contributions (1) 62,501,258 54,564,785 59,038,070 74,723,572 45,329,450 Guam Public School System 13,108,820 6,371,485 9,253,984 1,431,526 2,831,209 Contributions from component units 2,133,054 2,027,291 1,858,360 2,196,244 10,372,580 Other 3,340,743 2,246,801 4,928,227 5,153,679 3,547,691 Total revenues 409,044, ,068, ,833, ,772, ,190,329 EXPENDITURES: General government 30,331,015 35,311,558 35,489,129 44,028,134 44,997,050 Protection of life and property 60,403,905 63,364,624 67,831,681 72,835,830 72,957,261 Public health 11,312,177 10,689,479 10,375,570 10,048,877 10,008,749 Community services 4,070,115 4,570,794 5,624,108 5,560,277 6,417,038 Recreation 3,582,525 3,365,121 3,656,981 3,627,354 3,320,910 Individual and collective rights 10,391,511 10,491,057 9,748,511 11,821,676 12,483,687 Transportation 1,438,035 1,432,274 38, Public education 146,005, ,393, ,188, ,394, ,085,436 Environmental protection Economic development 3,117,728 3,033,206 3,224,862 3,473,362 3,611,857 Transfer to persons - 4,549,010 1,405, Payments to autonomous agencies 52,671,585 45,759,783 38,624,577 42,416,416 47,338,542 Miscellaneous appropriations - 989, , , ,974 Interest and other charges 2,146,092 4,007,524 7,519,313 12,769,396 17,309,639 Retirees healthcare premiums - 6,628,490 4,769,883 7,645,574 19,769,458 Debt service payments (2) 41,680,077 43,045,931 25,976,166 23,730,641 22,702,010 Total expenditures 367,150, ,631, ,976, ,545, ,173,611 Excess of revenues over expenditures 41,893,846 27,437,342 42,857,149 93,227,173 59,016,718 OTHER FINANCING SOURCES (USES): Proceeds from refunded bonds issued ,935,000 Proceeds from issuance of long-term debt ,800,000 Discount on refunded bonds issued (5,639,246) Payment to refunded bond escrow agent (73,664,587) Net transfers out (3) (59,204,449) (62,233,694) (70,057,600) (99,066,800) (72,291,886) Total other financing sources (uses), net (59,204,449) (62,233,694) (70,057,600) (99,066,800) 14,139,281 SPECIAL ITEMS, NET 17,993,424 - (153,580,231) 17,154,697 13,223,789 Net change in fund deficit 682,821 (34,796,352) (180,780,682) 11,315,070 86,379,788 Fund deficit at beginning of year (298,315,580) (297,632,759) (332,429,111) (513,209,793) (501,894,723) Fund deficit at end of year $(297,632,759) $(332,429,111) $(513,209,793) $(501,894,723) $(415,514,935) (1) Federal contributions consist primarily of Section 30 revenues. See Existing and Authorized Indebtedness below for certain information regarding Section 30 Obligations secured by pledges of Section 30 revenues. (2) Includes debt service on outstanding Section 30 Obligations. See Existing and Authorized Indebtedness below. (3) Net transfers out consist primarily of transfers to the Federal Grants Fund, the Unified Courts of Guam Operations Fund, the Supplemental Annuity Benefits Fund, and the Medically Indigent Program Payment Revolving Fund. Source: Audited Financial Statements, Government of Guam, as restated, for fiscal year ended September 30, 2007 and Audited Financial Statements, Government of Guam General Fund, for the fiscal year ended September 30, Restatement: The restatement of the 2007 financial statements was due to the recognition of an additional liability within the 2007 General Fund financial statements of $3 million as well as the combining of certain funds previously reported separately from the General Fund. The impact of this combination has resulted in the restatement of certain balances for the fiscal year 2004 through 2006 presentations. 15

24 Retirement Fund and Other Post-Employment Benefits The Retirement Fund provides retirement annuities and other payments to retired Government employees and their dependents. Although the retirement plan has historically been a defined benefit plan, all new Government employees hired after September 30, 1995 are instead participants in a defined contribution retirement plan. Based on the September 30, 2007 actuarial valuation, the Retirement Fund had an unfunded accrued liability of $1.233 billion, for accrued benefits of $2.682 billion. The Government recorded contributions of approximately $94.6 million to the Retirement Fund in Fiscal Year 2008, including $83.2 million for the defined benefit plan and $11.5 million for the defined contribution plan. The Retirement Fund ended Fiscal Year 2008 with a negative 14.8% return on its defined benefit plan investments and a $273.4 million decrease in its investment portfolio overall. In addition, the Retirement Fund liquidated $60.7 million in investments during Fiscal Year 2008 because monthly payments to defined benefit retirees were more than the monthly contributions received from active members. Based on the September 30, 2007 actuarial valuation, the actuarially determined contribution rate for Fiscal Year 2009 is currently 26.02% of payroll, but this rate is expected to be in the range of 30% when the 2008 actuarial valuation is completed. However, the Government has funded a lower contribution rate of 25.20% for Fiscal Year 2009, based in part on Section 3 of Public Law No , which provides that the Government s employer contribution rate to the Retirement Fund will increase over a five-year period, beginning with Fiscal Year 2007, until it reaches the actuarial recommended contribution rate. The Government s agencies are responsible for remitting employer and member contributions directly to the Retirement Fund. At the end of Fiscal Year 2008, the Retirement Fund had employer contributions receivable of approximately $14.0 million, member contributions receivable of approximately $6.4 million, and interest and penalties receivable of approximately $10.1 million. A significant portion of these contributions receivable represent contributions from the Guam Public School System ( GPSS ) and the Guam Memorial Hospital Authority ( GMHA ). Public Law as amended by Public Law requires the General Fund to remit interest-only payments monthly to the Retirement Fund for these receivables from GPSS and GMHA. Such payments will continue until the outstanding balances are fully paid; however, if the obligations are not fully paid by July 2015, payment responsibility will return to GPSS and GMHA. A portion of the proceeds of the Bonds will be used to pay such outstanding balances. See PLAN OF FINANCE. In 1988, Public Law 19-19, as codified in 4 G.C.A. Section , required the Government to pay an annual lump-sum cost of living allowance ( COLA ) to retirees and survivors on the first retirement payday after July 1 of each year. In 1993, a Government retiree filed a class action suit in the Superior Court of Guam on behalf of 4,877 retirees and survivors, alleging that they were being denied such COLA benefits. The Governor and the Retirement Fund submitted to the Court their respective calculations of the COLA owed. In October 2006, the Court ordered the Retirement Fund to revise its COLA calculation, resulting in an award of $123,580,231 to the COLA class. Public Law 25-72, passed in 1999, requires the payment of supplemental annuity and COLA benefits to retirees and specifies that these payments are to be vested, limited-duration benefits to be provided by the Retirement Fund. Such benefits are to be actuarially funded over a twenty-year amortization period through an increase in contributions. The Retirement Fund 16

25 initially recorded these benefit payments as a receivable in the amount of $137,200,000 and has reduced this receivable by a portion of employer contributions received. As of September 30, 2008, the receivable recorded by the Retirement Fund amounted to approximately $78.1 million. The Government also makes certain expenditures for post-employment benefits annually through the budget appropriation process. While the Government is of the opinion that these post-employment benefits are not statutorily required and are not legal entitlements, and therefore Governmental Accounting Standards Board ( GASB ) Statement No. 45 is not applicable, nevertheless an actuarial evaluation as of October 1, 2007 was made indicating an actuarial accrued liability of $1,635,223,000 for the Government and its component units should GASB Statement No. 45 apply. Fiscal Year 2009 Budget and General Fund Revenue Update The Fiscal Year 2009 Budget Act (the 2009 Budget ) was approved by the Legislature and signed by the Acting Governor of Guam on September 30, The 2009 Budget provides for total projected General Fund revenue of $520.7 million, of which $468.1 million is derived from fees and taxes and $48.4 million is derived from federal sources, including Section 30 revenues. Income tax revenues are projected to total $267.2 million, while business privilege tax revenue is projected to reach $196.1 million. The 2009 Budget provides for total General Fund appropriations of $520.7 million to include advance appropriations made in Fiscal Year Preliminary reports indicate that actual General Fund revenue collections for the first six months of Fiscal Year 2009 were approximately $238.4 million, a 3.8% increase over General Fund revenues collected during the same time period in Fiscal Year These revenues included $120.1 million of income tax revenues (net of a $41.3 million provision for income tax refunds) and $94.5 million of business privilege tax revenues. Income tax revenues and business privilege tax revenues, which collectively represent 85% of the total General Fund revenues, showed increased collections during the first six months of Fiscal Year 2009 of 4% and 5%, respectively, compared to the same period in Fiscal Year The 2009 Budget contains certain financial and deficit recovery measures, including a spending cap of 98% of the adopted revenues beginning Fiscal Year 2010, the issuance of the Bonds to reduce the existing deficit, and certain limitations on hiring within the executive branch of the Government and certain instrumentalities of the Government. The 2009 Budget Act restores the Bureau of Budget and Management Research s allotment control over the Guam Public School System, whose appropriations represent 32% of the total General Fund appropriations, and provides full transfer authority to the Governor between executive branch appropriations, with the exception of the Department of Law, the University of Guam, and the Guam Community College, with respect to which transfers are limited to 10% of total appropriations. The 2009 Budget provides for a lump sum General Fund appropriation of $135.4 million for thirty executive line agencies which represents 26% of the total General Fund budget. The 2009 Budget requires that the Director of the Bureau of Budget and Management Research, in collaboration with the Director of Revenue and Taxation and the Director of Administration, prepare monthly reports of revenue collected and funds spent or encumbered during each month of the fiscal year. If revenues are tracking below projected revenues for the fiscal year, the Bureau of Budget and Management Research is required to adjust and sequester an amount of the remaining allotments for expenditures that is equal to the percentage of 17

26 shortfall of actual revenues relative to projected revenues. In addition, those same Directors are to determine at the close of each fiscal quarter whether actual revenues collected for that quarter are consistent with the projected revenues for the fiscal year. If the Directors determine that projected fiscal year revenues, based on actual revenues collected, are three percent (3%) or more less than revenue projections adopted by the annual budget act, the Governor is required to submit to the Legislature a fiscal realignment plan that is to address the revenue disparity. The fiscal realignment plan may include, but is not limited to, cost-containment and austerity measures, governmental reorganization plans and other such actions. The 2009 Budget mandates penalties for failure to comply with deadlines set by the Bureau of Budget and Management Research towards the development and implementation of performance-based budgeting by September 30, 2009 for the Department of Administration, the Bureau of Budget and Management Research, the Department of Revenue and Taxation, the Department of Public Works, the Department of Parks and Recreation, the Department of Land Management, the Department of Agriculture, the Bureau of Statistics and Plans, and the central operations of Guam Public School System. In addition, the 2009 Budget requires that appropriate employees of the respective agencies attend all performance-based budgeting workshops and training opportunities offered by the Government. Existing and Authorized Indebtedness The outstanding long-term indebtedness of the Government and its autonomous agencies is set forth in Table 3. Only general obligation and limited obligation indebtedness are considered to be public indebtedness the incurrence of which is limited by the provisions the Organic Act. Limited obligation and revenue bond indebtedness are payable from a particular source of revenues and are not secured by a pledge of the full faith and credit of the Government. See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Additional Bonds. 18

27 Description of Indebtedness TABLE 3 Government of Guam Outstanding Debt As of May 1, 2009 Aggregate Outstanding Principal Amount Final Maturity (Fiscal Year ending September 30) General Obligation Bonds and Other General Obligation Indebtedness Guam General Obligation Bonds, 1993 Series A $ 37,280, Government of Guam Loan (2002) (P.L ) (1) 5,023, Guam General Obligation Bonds, 2007 Series A 151,935, Government of Guam Loan (2008) (P.L ) (1) 11,876, Government of Guam Loan (2009) (P.L and ) (1)(2) 20,103, Subtotal $ 226,219,344 Limited Obligation Bonds and Other Limited Obligation Indebtedness Limited Obligation Infrastructure Improvement Bonds, 1997 Series A (3) $36,345, Limited Obligation (Section 30) Bonds, 2001 Series A (4) 27,210, Limited Obligation Highway Refunding Bonds, 2001 Series A (5) 16,510, University of Guam Rural Development Loan (2003) (P.L ) (6) 13,036, Subtotal $ 93,101,725 Revenue Bonds and Other Indebtedness Guam Power Authority Revenue Bonds, 1993 Series A $ 70,175, Guam Power Authority Revenue Bonds, 1999 Series A 317,883, Guam Airport Authority General Revenue Bonds, 2003 Series 180,960, Guam Waterworks Authority Water and Wastewater System Revenue Bonds, Series ,310, Guam Housing and Urban Renewal Authority Loan 1,457, Guam Housing Corporation, Various Notes and Loans 5,673, Guam Housing Corporation Mortgage-Backed Revenue Bonds, Series ,160, Judicial Building Fund Revenue Note (2006) (P.L & 28-68) 9,450, Guam Education Financing Foundation Certificates of Participation (7) 68,205, Guam Economic Development Authority Multifamily Mortgage Revenue Bonds, 1985, Series C-1 & C-2 7,465, Guam Economic Development Authority Tobacco Settlement Asset- Backed Bonds, Series 2007A and Series 2007B 32,250, Subtotal $ 797,990,109 Total Indebtedness $1,117,311,178 (1) Although Section 30 revenues are also pledged to these loans on a basis subordinate to the pledge securing the 2009 Section 30 Bonds, they are subject to the full faith and credit of the Government and are therefore classified herein as general obligation debt. (2) Expected to be prepaid with proceeds of the 2009 Section 30 Bonds. (3) Payable primarily from transient occupancy taxes. (4) Secured by and payable primarily from Section 30 revenues. (5) Payable primarily from liquid fuel taxes and vehicle registration and license fees. (6) Payable primarily from mass transit automotive surcharges. (7) Payable primarily from Compact Impact Funds (funds appropriated by the U.S. government to mitigate the impact on Guam of the Covenants of Free Association of the Republic of the Marshall Islands and the Federated States of Micronesia); lease payments due in relating to $14,015,000 of Certificates are payable from the General Fund, subject to annual appropriation by the Government. Source: Guam Economic Development Authority. 19

28 The Bond Act authorizes the issuance of the Bonds in one or more series in the principal amount necessary to provide net proceeds sufficient to pay certain expenses of the Government. See PLAN OF FINANCE. As indicated on Table 3 above, Section 30 Obligations, issued as general obligation loans and limited obligation bonds, are currently outstanding in the aggregate principal amount of $44,110,469, not including the 2009 Loan expected to be prepaid with proceeds of the 2009 Section 30 Bonds. Section 30 Obligations are secured by pledges of Section 30 revenues. See Major Sources of General Fund Revenues above for a discussion of the Government s Section 30 revenues. Pursuant to such pledges, Section 30 revenues are required to be used first to pay debt service on Section 30 Obligations, and only the Section 30 revenues remaining after such payments are available for other General Fund expenditures, including expenditures for debt service on general obligation bonds such as the Bonds. In addition, pursuant to Article 8 of Division 2 of Chapter 51 of the Guam Code Annotated, as amended, the Legislature has authorized the issuance of up to $202,425,000 aggregate principal amount of 2009 Section 30 Bonds to fund the costs of constructing the New Landfill and the closure of the Ordot Dump as described under Receivership of the Solid Waste Management Division of the Guam Department of Public Works below. The 2009 Section 30 Bonds are to be issued concurrently with the Bonds and as additional Section 30 Obligations, secured by Section 30 revenues. It is the Government s intention to use tipping fees and other revenues from the New Landfill to reimburse the General Fund for Section 30 revenues used to pay debt service on 2009 Section 30 Bonds that fund the costs of the New Landfill. However, no assurance can be given as to whether the revenues of the new Landfill will be sufficient to reimburse the General Fund for such payments. Various factors, including the construction of any competing solid waste disposal facility on the island or any decision by a major landfill customer or customers to dispose of solid waste through other means, could adversely affect such reimbursement of the General Fund. Historically, the Government has used a portion of the Section 30 revenues to pay debt service on the Section 30 Obligations. Beginning in Fiscal Year 2010, debt service payments (net of capitalized interest) on Section 30 Obligations, including the 2009 Section 30 Bonds to be issued concurrently with the Bonds but excluding the 2009 loan to be refinanced by the 2009 Section 30 Bonds, are expected to increase to approximately $22 million in Fiscal Year 2010 and Fiscal Year During and after Fiscal Year 2013 (after the maturity of the currently outstanding Section 30 Obligations), such debt service payments are expected to be approximately $15.4 million annually. Investment Policies of the Government The investment of Government funds is restricted by statute. The Director of Administration must determine whether any portion of the money in the General Fund is not necessary for immediate use. Any moneys in the General Fund or special funds of the Treasury of Guam in excess of 120% of the monthly disbursements made from the General Fund for the immediately preceding 12-month period may be declared available for investment. Following the determination of the Director of Administration, the Governor may then designate moneys as available to be invested in United States bonds, United States interest-bearing notes or other United States obligations, and to the extent insured by the FSLIC, in shares or investment certificates of any savings and loan association organized under the laws of Guam which is an 20

29 insured institution as defined in Title IV of the National Housing Act and has been approved by the Director of Administration. Deposits or investment certificates insured by the FDIC or FSLIC do not require further security. In order to receive or retain other types of deposits, an eligible institution must place with the Government, as security for such deposits: (i) United States Treasury notes or bonds or those for which the faith and credit of the United States are pledged for the payment of principal and interest, (ii) any evidence of indebtedness of the Government, (iii) investment certificates of the Federal Home Loan Bank, or (iv) other securities approved by the Director of Administration and the Governor, each in an amount in value at least 110% of the amount of moneys deposited with the institution. The Department of Administration prepares quarterly projections of the cash sources and requirements of the General Fund as well as daily cash flow resources and requirements reports and weekly and month-end cash and investments reports. During the last twelve months, most of the unrestricted moneys available for payment of General Fund liabilities have been invested in savings and checking accounts. The Government has no investments in derivative products. Receivership of the Solid Waste Management Division of the Guam Department of Public Works The approximately 47-acre solid waste disposal facility in the Village of Ordot (the Ordot Dump ) is currently Guam s only site for the disposal by the general public of solid waste. Since 1950, the Ordot Dump has been operated as a municipal solid waste disposal facility by the Guam Department of Public Works (the DPW ). In 1986 and thereafter, the United States Environmental Protection Agency (the EPA ) issued a series of administrative orders directing the DPW to cease the discharge of leachate from the Ordot Dump in violation of the federal Clean Water Act. A Consent Decree between the Government and the EPA, approved by the United States District Court of Guam (the District Court ) in 2004, provides timelines for the Government to plan, finance and execute the construction of a new landfill (the New Landfill ) and the closure of the Ordot Dump (collectively, the Consent Decree Projects ). In March 2008, the District Court determined that efforts made by the Government to identify a source of financing for the Consent Decree Projects did not meet the milestones required under the Consent Decree and appointed Gershman, Brickner & Bratton, Inc., a solid waste management consultant firm, as receiver (the Receiver ) of the Solid Waste Management Division of the DPW (the SWMD ). The Receiver was given full power and authority to enforce the terms of the Consent Decree and assume all of the responsibilities, functions, duties, powers and authority of the SWMD and any and all departments or other divisions of the DPW insofar as they affect the Government s compliance with the Consent Decree, including all authority required for the complete management and control of the Consent Decree Projects. The Government is responsible for providing the moneys necessary to pay the costs of the Consent Decree Projects. In October 2008, based on the Receiver s quarterly reports, the District Court ordered the Government to present a satisfactory plan of finance for the Consent Decree Projects. In December 2008, after finding the Government s initial plan finance to be unacceptable, the District Court ordered the Government to provide $20 million in initial funding by January 5, 2009, and the Government incurred a loan from the Bank of Guam in order to comply with that order. In February 2009, after also finding a revised plan of finance filed by the Government to 21

30 be unacceptable, the District Court ordered the Government to make weekly payments of approximately $993,000 beginning on March 1, 2009 to provide for costs of the New Landfill. The District Court indicated that it would suspend the weekly payments were the Government to take specified steps toward the financing of the Consent Decree Projects. After an initial period of noncompliance pending the filing of a third plan of finance that the District Court also found to be unacceptable, the District Court found the Government to be in civil contempt, whereupon the Government commenced the weekly payments as ordered. Upon application by the Government, the District Court suspended the weekly payments on April 14, 2009, subject to the requirement that Government must obtain at least $120 million in debt funding for the Consent Decree Projects by June 30, 2009, failing which the weekly payments would be reinstated and the Government would be required, by July 6, 2009, to deposit $10,930,700, the full amount of the suspended deposits. The order suspending the payments permits the Government to acquire the remaining $40 million in funding for the Consent Decree Projects in a phased approach no later than June 30, The Government is offering the Bonds and the 2009 Section 30 Bonds at the same time, and the Bonds and the 2009 Section 30 Bonds are to be sold and issued simultaneously, with the issuance of each being conditioned on the issuance of the other. The issuance and sale of the 2009 Section 30 Bonds will provide all $160 million of the requisite debt funding for the Consent Decree Projects. Pending Litigation One lawsuit is currently pending against the Government in the Superior Court of Guam regarding the planned construction of a solid waste incinerator: Guam Resource Recovery Partners v. Department of Public Works and Government of Guam (the GRRP Lawsuit ). The GRRP Lawsuit is a breach of contract claim, and the total award currently sought by the plaintiffs is $10,704,000. The GRRP Lawsuit has been stayed by the Superior Court of Guam pending a final decision by the Guam Supreme Court with respect to a petition for rehearing of the case Pangelinan v. Camacho, 2008 Guam 4, in which the Guam Supreme Court invalidated the contract at issue in the GRRP Lawsuit. The Government cannot predict the outcome of the GRRP Lawsuit or what financial impact, if any, it will have on the Government. A second lawsuit is pending against the Government in the Superior Court of Guam regarding planned infrastructure improvements to the Lada Estates housing development: Maeda v. Government of Guam (the Maeda Lawsuit ). The Maeda Lawsuit is a breach of contract claim, and the total award currently sought by the plaintiff is approximately $10 million. The Government cannot predict the outcome of the Maeda Lawsuit or what financial impact, if any, it will have on the Government. CERTAIN INVESTMENT CONSIDERATIONS In considering the matters set forth in this Official Statement, prospective investors should carefully review all investment considerations set forth throughout this Official Statement, and should specifically consider certain risks associated with the Bonds. There follows a discussion of some, but not necessarily all, of the possible considerations and risks which should be carefully evaluated by prospective purchasers of the Bonds prior to purchasing any Bonds. The following discussion of investment considerations does not necessarily reflect 22

31 the relative importance of the various topics discussed. The Bonds may not be suitable investments for all persons. Prospective purchasers of the Bonds are advised to consider the following factors, among others, and to review the other information in this Official Statement, including the Appendices hereto, in evaluating the Bonds. Prospective purchasers should be able to evaluate the risks and merits of an investment in the Bonds and should confer with their own legal and financial advisors before considering a purchase of the Bonds. Any one or more of the considerations discussed and others could lead to a decrease in the market value and/or the liquidity of the Bonds. General Guam s economy is largely based on tourism and the U.S. military presence, both of which are dependent on world economic, social and political events. Although Guam has had a structural General Fund deficit in each of Fiscal Years 2002 through 2006 and a cumulative General Fund deficit of $513.2 million as of September 30, 2006, in Fiscal Years 2007 and 2008, the General Fund experienced a structural surplus, resulting in a reduction in the General Fund deficit to approximately $415.5 million. See GUAM FINANCIAL OPERATIONS. As of October 1, 2007, the Government also had an unfunded accrued retirement fund liability of $1.233 billion, for accrued benefits of $2.682 billion. See GUAM FINANCIAL OPERATIONS Retirement Fund and Other Post-Employment Benefits. Impact of Tourism and U.S. Military Presence Tourism, particularly from Japan, where approximately 74.5% of visitors to Guam originated in 2008, represents a significant share of the economic activity on Guam. Historically, the tourism industry, both worldwide and on Guam, has correlated closely with the state of the world's economies and levels of real disposable income. Also, currency exchange rates, trade balances, political relationships, and conflicts within and between countries are increasingly important influences on tourism. A weak economy, war, epidemic outbreaks, or the threat of terrorist activity, among other influences that are beyond the Government s control, can adversely affect the tourism industry. Economic conditions in Japan and throughout the Pacific Rim, and the resulting effect on overseas travel from these countries, are a major determinant of tourism on Guam. The Japanese government has encouraged international travel as a means of reducing its trade surplus and Guam has benefited directly from this policy. Any change in the policy could affect Government revenues. In the event of a significant downturn in tourism, including a downturn related to Japanese economic conditions or social policies, the Government could likely suffer a reduction in revenues. A decrease in tourism could in turn result in reduced employment levels as well as reduced tax revenues from hotels and other related tourist facilities. See DEMOGRAPHIC AND ECONOMIC INFORMATION Tourism Industry in Appendix A. The U.S. military presence also affects economic activity on Guam in various ways, both directly, through individuals demand for commercial, construction and other services, and indirectly, through Section 30 revenues. In addition, expansions in the U.S. military presence, such as the expansions planned for the next 10 years, can have a direct, positive impact on the Guam economy by creating jobs in construction and related fields, increasing demand for services and attracting visitors. Economic, geopolitical, and other influences which are beyond the Government s control might result in a decision by the U.S. military to reduce its existing presence on Guam or forego some or all of the planned enhancements to its presence on Guam. 23

32 In the event that the U.S. military changes its current plans with respect to staffing and other strategic improvements on Guam, expected benefits may not be realized and the economy could be adversely affected. In the event that the U.S. military elects to reduce or eliminate its presence on Guam, the economy could decline and the Government could likely experience a reduction in revenues. See DEMOGRAPHIC AND ECONOMIC INFORMATION Military Activity and Future Role of the Military on Guam in Appendix A. It is expected that as a result of the anticipated relocation of Marines from Okinawa, Japan, to Guam, Guam will see up to $2.4 billion of additional construction activity in each of Fiscal Years , compared to Guam s historic capacity of approximately $800 million of construction activity per fiscal year. Although Guam s construction industry does have some time to develop its capacity in anticipation of this marked increase in activity, it is possible that much of the work will be awarded to outside developers and project managers. Although their presence will have indirect benefits for the Guam economy in the short term, the long-term benefits would not be as great as they would be if the work is largely completed by local firms. See DEMOGRAPHIC AND ECONOMIC INFORMATION Future Role of the Military on Guam in Appendix A. Typhoons and Earthquakes Because of its location on the southern end of the Marianas island chain, Guam is exposed to periodic typhoons, super typhoons and earthquakes. Typhoons have caused significant damage to facilities and infrastructure on Guam including its water and electric systems. Although the United States Federal Emergency Management Agency ( FEMA ) makes disaster relief assistance available after significant typhoon or earthquake damage, there can be no assurance that future typhoons and/or earthquakes will not cause significant damage on Guam, or that FEMA will provide disaster relief assistance if significant damage is experienced. There can also be no assurance that, even with FEMA assistance, damage that results from future typhoons or earthquakes will not adversely affect the Guam economy. Contingent Closing The Government is offering the Bonds and its 2009 Section 30 Bonds, at the same time, and the Bonds and the 2009 Section 30 Bonds are to be sold and issued simultaneously, with the issuance of each being conditioned on the issuance of the other. If, for any reason, the issuance of the 2009 Section 30 Bonds does not close on the date of issuance scheduled for the Bonds, there can be no issuance of the Bonds described herein. BOOK-ENTRY SYSTEM THE INFORMATION IN THIS SECTION CONCERNING DTC AND DTC S BOOK-ENTRY SYSTEM HAS BEEN OBTAINED FROM SOURCES THAT THE GOVERNMENT BELIEVES TO BE RELIABLE, BUT THE GOVERNMENT TAKES NO RESPONSIBILITY FOR THE ACCURACY OR COMPLETENESS THEREOF. THE GOVERNMENT CANNOT AND DOES NOT GIVE ANY ASSURANCES THAT DTC, DTC PARTICIPANTS OR INDIRECT PARTICIPANTS WILL DISTRIBUTE TO THE BENEFICIAL OWNERS (A) PAYMENTS OF INTEREST AND PRINCIPAL WITH RESPECT TO THE BONDS, (B) CERTIFICATES REPRESENTING OWNERSHIP INTEREST IN OR OTHER CONFIRMATION OF OWNERSHIP 24

33 INTEREST IN THE BONDS, OR (C) REDEMPTION OR OTHER NOTICES SENT TO DTC OR CEDE & CO., ITS NOMINEE, AS THE REGISTERED OWNER OF THE BONDS, OR THAT THEY WILL SO DO ON A TIMELY BASIS OR THAT DTC, DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS WILL ACT IN THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. THE CURRENT RULES APPLICABLE TO DTC ARE ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION AND THE CURRENT PROCEDURES OF DTC TO BE FOLLOWED IN DEALING WITH DTC PARTICIPANTS ARE ON FILE WITH DTC. The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has Standard & Poor s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. 25

34 Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of the Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Paying Agent and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Government as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the Government or Paying Agent, on the payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC or its nominee, the Paying Agent, or the Government, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Government or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and 26

35 disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Government or the Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The Government may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the Government believes to be reliable, but the Government takes no responsibility for the accuracy thereof. TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Government ( Bond Counsel ), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the Code ). Bond Counsel is of the further opinion that interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, nor is it included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel is also of the opinion that interest on the Bonds is exempt from income taxation by any state, territory or possession of the United States or any political subdivision of any of them. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix C hereto. To the extent the issue price of any maturity of the Bonds is less than the amount to be paid at maturity of such Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Bonds), the difference constitutes original issue discount, the accrual of which, to the extent properly allocable to each owner thereof, is treated as interest on the Bonds which is excluded from gross income for federal income tax purposes and is exempt from income taxation by any state, territory or possession of the United States or any political subdivision of any of them. For this purpose, the issue price of a particular maturity of the Bonds is the first price at which a substantial amount of such maturity of the Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Bonds accrues daily over the term to maturity of such Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Bonds. Beneficial Owners of the Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of Beneficial Owners who do not purchase such Bonds in the 27

36 original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public. Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) ( Premium Bonds ) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Beneficial Owner s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The Government has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel s attention after the date of issuance of the Bonds may adversely affect the value of, or the tax status of interest on, the Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Although Bond Counsel is of the opinion that interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from income taxation by any state, territory or possession of the United States or any political subdivision of any of them, the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may otherwise affect a Beneficial Owner s federal, state or local tax liability. The nature and extent of these other tax consequences depend upon the particular tax status of the Beneficial Owner or the Beneficial Owner s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. Future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such future legislative proposals, clarification of the Code or court decisions may also affect the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel s judgment as to the 28

37 proper treatment of the Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service ( IRS ) or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the Government, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The Government has covenanted, however, to comply with the requirements of the Code. Bond Counsel s engagement with respect to the Bonds ends with the issuance of the Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the Government or the Beneficial Owners regarding the tax-exempt status of the Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the Government and its appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the Government legitimately disagrees may not be practicable. Any action of the IRS, including but not limited to selection of the Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Bonds, and may cause the Government or the Beneficial Owners to incur significant expense. LITIGATION No litigation is pending or threatened concerning the validity of the Bonds and a certificate to that effect will be furnished on behalf of the Government at the time of the original delivery of the Bonds. The Government is not aware of any litigation pending or threatened questioning the political existence of the Government or contesting the Government s ability to levy and collect any tax revenues currently levied or collected or contesting the Government s ability to issue the Bonds. LEGAL MATTERS The validity of the Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel. A complete copy of the proposed form of Bond Counsel opinion is contained in Appendix C hereto. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain matters pertaining to the Bonds will be passed upon for the Government by the Attorney General of Guam and for the Underwriters by McCorriston Miller Mukai MacKinnon LLP, Honolulu, Hawaii. CONTINUING DISCLOSURE The Government has covenanted that it will comply with and carry out all of the provisions of each Continuing Disclosure Certificate relating to disclosure of annual financial information and notices of certain events executed by the Government as of the date of issuance and delivery of the Bonds, as it may be amended from time to time in accordance with the terms 29

38 thereof. See INTRODUCTION herein and FORM OF CONTINUING DISCLOSURE CERTIFICATE in Appendix E. Certain annual reports with respect to the Government s outstanding bonds were not filed during the most recent five fiscal years or, if filed, were not filed with reference to the appropriate CUSIP number. The Government did not file any annual reports with respect to its Limited Obligation (Section 30) Bonds, 2001 Series A, although the Government did provide certain financial reports with respect to such bonds to the trustee and insurer for such bonds as required by the indenture for such bonds. As of the date hereof, all outstanding reports for the most recent five fiscal years have been filed (or re-filed with reference to the appropriate CUSIP number). The Government will engage a consultant to assist it in complying with its ongoing annual reporting requirements in the future. RATING Standard & Poor s has assigned the Bonds a rating of B+. The rating on the Bonds expresses only the view of the rating agency and is not a recommendation to buy, sell or hold the Bonds. There is no assurance that such rating will continue for any given period of time or that it will not be revised, either downward or upward, or withdrawn entirely by the rating agency, if in its judgment, circumstances so warrant. The Government and the Trustee undertake no responsibility either to notify the Owners of the Bonds of any revision or withdrawal of the rating or to oppose any such revision or withdrawal. Any such downward revision or withdrawal may have an adverse effect on the market price of the Bonds. MISCELLANEOUS Financial Advisor The Government has retained the services of Pacific Public Finance Group LLC, Walnut Creek, California, as Financial Advisor in connection with the sale of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement. Certain fees of the Financial Advisor with regard to the issuance of the Bonds are contingent upon the issuance and delivery of the Bonds. Underwriting Citigroup Global Markets Inc. and Piper Jaffray & Co. (the Underwriters ) have agreed, pursuant to a purchase contract between the Government and the Underwriters, to purchase all of the Bonds for a purchase price of $261,447,509.44, which represents the par amount of the Bonds ($271,070,000.00), less an original issue discount of $6,557,948.10, and less an underwriters discount of $3,064, The purchase contract related to the Bonds provides that the Underwriters will purchase all of the Bonds if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the purchase contract, the approval of certain legal matters by bond counsel and certain other conditions. 30

39 Additional Information The purpose of this Official Statement is to supply information to prospective buyers of the Bonds. Quotations from and summaries and explanations of the Bonds, the Certificate, the provisions of the Organic Act and the Bond Act, and other statutes and documents referenced herein, do not purport to be complete, and reference is made to said documents, constitutional provisions and statutes for full and complete statements of their provisions. The attached Appendices are integral parts of this Official Statement and should be read in their entirety. The capitalized terms used in this Official Statement shall have the meanings ascribed to them in the text or in Appendix D. The Government has reviewed the information contained herein and has approved all such information for use in this Official Statement. The execution and delivery of this Official Statement have been duly authorized by the Government. GOVERNMENT OF GUAM By: /s/ Felix P. Camacho Governor 31

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41 APPENDIX A CERTAIN DEMOGRAPHIC AND ECONOMIC INFORMATION REGARDING THE TERRITORY OF GUAM Guam is the westernmost territory of the United States of America, as well as the largest and southernmost island of the Marianas archipelago, and the largest of the 2,000 islands in Micronesia. Located at 13 degrees north latitude, 144 degrees east longitude, the island is about 30 miles long and varies in points from four to nine miles wide. The island encompasses a total land area of approximately 212 square miles, and is located approximately 6,000 miles southwest of San Francisco, 3,700 miles west-southwest of Honolulu, 1,500 miles southeast of Tokyo, 2,100 miles southeast of Hong Kong, 1,500 miles east of Manila, and 3,100 miles northwest of Sydney. The Marianas Trench, the deepest known ocean depth (-39,198 ft.), is located northeast of Guam. Guam s population as of July 2009 was estimated by the U.S. Central Intelligence Agency to be 178,430. Despite the island s relatively small size, its strategic location in the Western Pacific has historically made it a desirable property for the world s superpowers. The indigenous Chamorro people first came in contact with Europeans, when Ferdinand Magellan landed at Guam s Umatac Bay, in Miguel Lopez de Legazpi claimed the island for Spain in Spanish colonization of Guam began in 1668 and lasted until the end of the Spanish-American War in As outlined in the Treaty of Paris, the island was ceded to the United States along with Cuba, Puerto Rico, and the Philippines. Guam has since remained under U.S. administration, except for two and a half years of Japanese occupation during World War II. On July 21, 1944, American occupation forces recaptured Guam and reestablished the naval government. In 1950, the U.S. Congress passed the Organic Act of Guam, granting the Chamorro people American citizenship and establishing a civilian government. The Government today consists of three branches: Executive, Legislative and Judicial. A governor elected at large every four years heads the Executive Branch. The Government maintains a staff of approximately 11,350 persons under the direction of the Governor and his department heads. The unicameral legislature is composed of 15 senators elected at large every two years. The Judiciary Branch consists of the Superior Court of Guam, the court of general trial jurisdiction, and the Supreme Court of Guam, the court of highest appeal, established in Guam also has one Federal District Court and an elected representative to the U.S. House of Representatives, who has voting power in the House committees and subcommittees of which he or she is a member and limited voting authority on the floor of the House. Guam s current political status is a territory of the United States governed by the Organic Act. In January 1984, the 17 th Guam Legislature created an eight-member Commission on Self- Determination to pursue an improved relationship with the federal government as a Commonwealth. The Guam Commonwealth Act, H.R. 100, would grant Guam greater authority over its internal affairs and ensure the right of self-determination for the Chamorro people of Guam. This draft act was developed on Guam and approved in two plebiscites by the people of Guam in 1987, and introduced in the 105 th U.S. Congress in Most people on Guam view Commonwealth status as a forward step that would allow Guam to progress further politically, socially, and economically. The key components of the Guam Commonwealth Act are mutual A-1

42 consent, Chamorro self-determination, and local control of immigration. Ultimate Constitutional authority for the territory rests with the U.S. Congress, and Guam continues to seek clear answers from Congress to its Commonwealth proposal. Tourism revenues and, to a growing extent, U.S. federal and military spending contribute to the island s economy. The island s proximity to every major city in Asia and the South Pacific greatly contributes to the diversity of the island s population and the visitor industry. This geographic advantage also provides U.S. military operations with significant flexibility compared to other locations in the Pacific and Asia. Guam has one international airport, the Antonio B. Won Pat International Air Terminal, operated by the Guam International Airport Authority, an autonomous agency of the Government. The airport is centrally located in Guam s business district on an 1,800 acre parcel and has 768,000 square feet of terminal space along with numerous hangars, maintenance facilities, warehouse space, storage facilities, office space, and expansive ground areas. According to data published by Airports Council International (ACI), as of 2005 the airport was the 15th largest international gateway in the United States. Most food and goods are imported, 75% of which are from the U.S. mainland. Guam s commercial port is entry point for 95% of all goods entering Guam. Situated within Apra Harbor, a natural lagoon enclosed by a submerged coral bank and barrier reef, the port also serves as a transshipment center for Micronesia with more than 20 cargo ships outbound monthly. Operated by the Port Authority of Guam, an autonomous agency of the Government, the port receives over 160,000 twenty-foot-equivalent containers, 5,000,000 barrels of fuel, up to 100 fuel tanker port calls and 27,000 passengers annually. Geography and Climate DEMOGRAPHIC AND ECONOMIC INFORMATION The island of Guam was formed by an uplift of undersea volcanoes. It is surrounded by coral reefs near the shore and is comprised of two distinct areas of about equal size. The northern part of the island is a high coralline limestone plateau rising up 850 feet above sea level. It contains the northern water lens which is the main source of fresh water on the island. The southern region is mountainous with elevations of 700 to 1,200 feet above sea level. Apra Harbor, one of the largest protected deep-water harbors in the world, is located on the western side of the island. Guam s climate is pleasantly warm year-round. The mean annual temperature is 85 degrees Fahrenheit. The general temperature ranges from the low 70s to mid 80s. Annual rainfall averages 85 inches in the western coastal area to 110 inches in the highest mountain locations in the south. Three quarters of the total annual rainfall occurs between the months of June and December. Like other Pacific islands, Guam is periodically subject to typhoons and tropical storms. From 1962 to date, the eyes of twelve of these storms passed directly over or just south of the island. Seven of these typhoons caused damage great enough to result in federal disaster relief: Super Typhoon Karen in 1962, Typhoon Pamela in 1976, Typhoon Russ in 1990, Super Typhoon Omar in 1992, Super Typhoon Paka in 1997, and Typhoon Chata an and Super A-2

43 Typhoon Pongsona in Building codes enacted in 1978 require all new construction to be designed to tolerate wind velocities of 155 mph. Due to its location near the Marianas Trench, the island also occasionally experiences seismic activity. Other than a major earthquake of 8.1 magnitude on August 8, 1993, no recent earthquakes have caused significant damage to the island. Economic Indicators Population Guam s residents originate from all parts of the Asia-Pacific region in addition to the U.S. mainland. In addition to Guam s indigenous Chamorro people, who comprise approximately 47% of the population, large numbers of mainland Americans, Filipinos, Chinese, Japanese, and Koreans constitute the bulk of the island s population. There are also substantial numbers of Micronesian islanders, Vietnamese and East Indians. The island s diverse population makes it one of the most cosmopolitan communities in the Western Pacific. According to the 2000 U.S. Census, Guam s 2000 population estimate was 154,805. This represents a 16.3% increase over the 1990 U.S. Census tabulation of 133,152, which was in turn a 26% increase over the 1980 population of 105,979. Guam s 2009 population is estimated to be 178,430. Approximately 75% of the workforce is employed in the private sector, with the remainder in government, both local and federal. The island s individual and household income have fairly equal distributions, as compared to other nations, islands, or territories in a similar stage of economic development. Guam currently has 40 public schools, 24 private schools, four Department of Defense schools, one community college and one university. Guam Public School System secured financing in late 2006 for the construction of four additional public schools and possible renovation of one existing public school. Three of the new schools opened for the school year, and the remaining school, an elementary school, is scheduled for completion in July Both Guam Community College and the University of Guam are accredited by the Western Association of Schools and Colleges. The University of Guam is the only accredited four-year institution of higher learning in the western Pacific, and it offers graduate programs in select areas of study. Approximately 31,000 students attend Guam s schools (excluding Guam Community College and the University of Guam). Employment From 2003 to 2006, total employment on Guam within the private and public sectors remained relatively stable. During 2007, private sector employment increased in anticipation of upcoming military expansions, while public sector employment declined slightly. The largest private sector increase was in the construction industry (1,240 jobs or 28%) due to a number of projects that were underway. The services sector increased by 450 jobs, due in part to increased retail trade employment associated with the opening of the restaurant Ruby Tuesday and The Home Depot, a major home improvement store. A-3

44 Employment on Guam during 2008 increased in both the private sector (by 410 jobs) and the public sector (by 80 jobs) relative to The most significant changes were 840 new jobs in construction, 110 new jobs in finance, insurance and real estate, a 510-job contraction in retail trade, 160 new federal jobs, and a decline by 80 in Government of Guam jobs. The distribution of civilian employment in Guam, based on payrolls, from 2004 to 2008 is listed by industry in Table A-1. Excluded from the civilian employment estimates in Table A-1 are self-employed individuals, proprietors and unpaid family workers. The payroll survey in Table A-1 includes all civilian personnel on payroll, including multiple jobholders counted at each place of employment, and nonresident alien workers. TABLE A-1 Civilian Employment (1) As of December 31, Private sector: Agriculture Construction 4,810 4,460 4,380 5,620 6,460 Manufacturing 1,560 1,660 1,640 1,660 1,700 Transportation & public utilities 4,610 4,970 5,000 4,810 4,820 Wholesale trade 1,800 1,880 2,070 2,110 2,060 Retail trade 12,560 12,360 12,010 12,050 11,540 Finance, insurance, and real estate 2,370 2,540 2,450 2,450 2,560 Services 14,510 15,190 15,820 16,270 16,240 Total private 42,480 43,230 43,660 45,320 45,730 Public sector: Federal government 3,310 3,230 3,460 3,600 3,760 Guam government (2) 11,610 11,540 11,740 11,430 11,350 Total public 14,920 14,770 15,200 15,030 15,110 Total Payroll Employment 57,400 58,000 58,860 60,350 60,840 (1) Data includes both full-time and part-time employees who worked during any part of the pay period, temporary alien workers and employees under 16 years of age. Data are based upon the number of paychecks issued by employers. Dual and multiple jobholders are counted once for each job held. Proprietors, unpaid family workers, domestic servants and military active duty personnel are excluded. (2) Includes temporary contractual employees, autonomous agencies, Agency for Human Resources Development Disaster Recovery, and senior/youth employment programs. Source: Current Employment Report, Department of Labor, Government of Guam. A-4

45 Table A-2 shows the top 15 private employers on Guam and number of employees. TABLE A-2 Top 15 Private Employers on Guam 2008 Number of Employer (and Type of Enterprise) Employees 1. Continental Micronesia (airline) 1, Calvo Enterprises, Inc. (insurance, various) 1, DZSP 21 LLC (Navy base operations support) DaVinci-RP operating Lessee Inc. (hotel) Triple J Enterprises, Inc. (automotive, various) Black Construction Corp. (construction) Hilton Resort and Spa (hotel) Pacific Islands Club Guam (hotel) InterPacific Resort Corp. (hotel) Bank of Guam (financial services) Hotel Nikko Guam (hotel) Joeten Enterprises (retail) TakeCare Insurance Co. Inc. (insurance) Guam Shipyard (ship repair) Dick Pacific Construction Micronesia (construction) 289 Total 8,478 Source: Guam Business Magazine 2008 Top Companies. A-5

46 Unemployment The Government surveys and reports employment and unemployment separately. Guam s unemployment was 8.3% as of September 2007, the date for which the most recent information is available. Table A-3 lists unemployment statistics for March 2004 to September Differences in the employment figures in Table A-1 and Table A-3 arise as a result of differences in the surveys coverage and exclusions. The household survey in Table A-3 excludes civilians living within military installations or in military housing, and employees under the age of 16 years. (1) TABLE A-3 Unemployment Statistics (1) Number Unemployment As of (2) Total Labor Force Unemployed Rate (%) Mar ,520 4, Dec ,130 4, Mar ,940 4, Sept ,450 4, Sept (3) 63,600 5, Data include civilian noninstitutional population 16 years of age and older, but exclude nonimmigrant aliens and civilians living within military installations or in military housing. Individuals with one or more jobs or dual jobs are counted once. (2) Dates as of which data are provided reflect reported data available from the Bureau of Labor Statistics (BLS). (3) Most recent available information. Source: Guam Department of Labor, Bureau of Labor Statistics. Construction Guam s construction industry is generally measured by the number and value of building permits. Building permits constitute an important economic indicator of the type and level of construction activities planned as well as corresponding employment increases once the buildings are completed. A-6

47 Table A-4 lists the dollar value of the construction permits issued during Fiscal Years 2004 to Values given include permits for new construction and additions. TABLE A-4 Building and Construction Permits (Dollars in Thousands) Residential $36,380 $43,883 $63,755 $96,610 $69,689 Commercial & Industrial 30,446 24,063 34,412 34,187 17,821 Government 20,537 58,764 61,116 38,943 55,298 Hotels 6,000 1,705 6,760 55,825 3,070 Condominiums 1,169 2,750 3,549 7,210 22,417 Apartments & Dormitories 1, ,093 5,784 13,360 Other 25,153 33,380 21,694 81,422 28,639 Total $120,707 $165,072 $195,379 $319,981 $210,295 Source: Department of Public Works. The American military presence on Guam is likely to result in an increase in construction projects in upcoming years. The planned relocation of approximately 8,000 Marines and 9,000 military dependents from Okinawa, Japan, to Guam by 2014 is expected to have a major impact, including over $15 billion of facilities upgrades, new construction and infrastructure expenditures and explains in large measure the rapid growth in permits issued in recent years. In addition, the Army, Air Force and Navy have plans to build various facilities on Guam in the next few years. Facility construction needs are estimated to be $500 million through 2016 at Andersen Air Force Base. Various Navy projects have also been awarded. See Future Role of the Military on Guam. Over $100 million in hotel renovation projects were completed in 2007 and 2008, including at the Hilton Guam Resort and Spa, Pacific Islands Club, Guam Marriott Resort, Hotel Nikko Guam, Royal Orchid Guam and Sheraton Laguna Guam Hotel. The Bayview 5, a planned 400-room, 30-story hotel tower, is under construction and expected to be completed in June In addition, the Guam Aurora Resort Villa and Spa is performing various renovations including luxury villas, family suites, 148 deluxe rooms and a wedding chapel. The expansion of the Hyatt Regency Hotel facilities is ongoing. A new 14-acre Tumon Beachfront resort is expected to be completed by Tracts of private, affordable housing, upscale gated communities and million-dollar ocean-vista homes are under construction. Housing developments under construction include Talo Verde Estates in Upper Tumon, Ironwood Estates in Dededo, Villa Pacita in Yigo, Quintas del Mar and Pago Bay Resort in Yona. In addition, ground has broken on the Emerald Oceanview Park Verace Guam, which is expected to include two 15-story and two 18-story condominium towers and 20 villas. A-7

48 A new shopping center is planned for Mangilao, and the new Tumon Shopping Center is expected to be completed in Ongoing Government construction projects include $150 million of airport capital improvements, including runway expansion and taxiway projects to accommodate expanded air service, long-haul flights to the U.S. mainland and projected passenger and cargo increases, demolition of former naval housing and noise insulation, an estimated $159.7 million to fund the closure of the Ordot Dump and the opening of a new landfill facility, and $195 million of capital improvement projects for the Port Authority of Guam master plan. Guam Waterworks Authority has also undertaken $30 million in capital improvement projects and plans to pursue approximately $300 million in capital improvement projects over a three year period. Finally, the Department of Public Works' 2030 Guam Transportation Plan provides for $70 million of projects to be funded in 2008 and over $160 million in projects to be given federal funds from 2008 through Business Activity Table A-5 reflects the Government s business privilege tax collections for Fiscal Years 2003 through Business privilege tax collections for a given fiscal year may not directly reflect gross business receipts in the prior fiscal year because businesses sometimes file late or multi-year business privilege tax returns. Generally, collections have increased from 2003 to 2008 due to expansion of existing military facilities and upgrades to a number of local hotels to accommodate increased demand for high-end rooms. The increase in collections for 2004 reflects a temporary increase in the business privilege tax from 4% to 6% from April 2003 through April TABLE A-5 Government of Guam Business Privilege Tax Collections Fiscal Years Business Privilege Year Tax Collections 2003 $156,095, ,610, ,081, ,386, ,745, ,795,875 Source: Government of Guam Audited Financial Statements for Fiscal Years ; Government of Guam General Fund Audited Financial Statements for Fiscal Year During the first six months of Fiscal Year 2009, business privilege tax collections were approximately $96.5 million, a 5.2% increase relative to collections of approximately $89.7 million during the first six months of Fiscal Year A-8

49 Section 30 Revenues Section 30 revenues include all amounts received by or on behalf of the Government as proceeds of customs duties and federal income taxes derived from Guam, the proceeds of all taxes collected under the internal revenue laws of the United States on articles produced in Guam and transported to the United States, its Territories, or possessions, or consumed in Guam, and the proceeds of any other taxes which may be levied by Congress on the inhabitants of Guam (including, but not limited to, compensation paid to members of the Armed Forces and pensions paid to retired civilian and military employees of the United States, or their survivors, who are residents of, or who are domiciled in, Guam), and all quarantine, passport, immigration and naturalization fees collected in Guam, and such other taxes as may be collected pursuant to Section 30 of the Organic Act, and held in account for the Government. The Government s right to receive Section 30 revenues is dependent upon Section 30 of the Organic Act, which is subject to amendment or revocation by an act of the U.S. Congress. Because Section 30 revenues are derived from income tax withholding, these revenues are also affected by workforce reductions and wage levels. The income of Guam residents who are not employed by the United States is currently exempt from federal income taxation and therefore does not currently contribute to Section 30 revenues. Section 30 revenues include all proceeds of customs duties derived from Guam, although the United States government does not currently impose any such duties. Table A-6 shows a summary of the two major components of Section 30 revenues and total Section 30 revenues for Fiscal Years 2002 through TABLE A-6 SUMMARY OF SECTION 30 REVENUES Fiscal Years Fiscal Year Total Income Tax Portion Total Fee Portion Total Section 30 Revenues 2002 $55,402,681 $1,098,970 $56,501, ,086,988 1,354,173 46,441, ,725,960 1,888,488 33,614, ,291,551 1,859,415 53,150, ,824,861 2,586,410 59,411, ,085,097 2,818,955 75,904, ,225,229 3,188,759 43,413, ,869,372 (1) 3,316,310 (2) 42,185,682 (2) (1) Unaudited. (2) Projected. Source: Internal Department of Revenue & Taxation/Bureau of Budget & Management Research statements. The Government has incurred various obligations secured by Section 30 revenues. See GUAM FINANCIAL OPERATIONS Existing and Authorized Indebtedness in the forepart of the Official Statement. A-9

50 The Income Tax Portion of the Section 30 Revenues Each fiscal quarter, the federal agencies and departments that collect Section 30 revenues as federal income taxes (the Income Tax Portion ) send a report to the Internal Revenue Service ( IRS ), which then submits a letter to the U.S. Department of the Interior, Office of Insular Affairs (the OIA ), containing the amount of federal income taxes in its general ledger certifications and an additional amount for Section 30 Department of Defense active duty military personnel claiming Guam as their Home of Record (state of legal residence) for the respective tax year. This certification process is closed annually after the fourth quarterly report. There are approximately 20 federal agencies and departments that collect the Income Tax Portion of the Section 30 revenues. The mechanism by which the Income Tax Portion of Section 30 revenues is currently transferred to the Government is as follows: In mid-september of each year, the Governor of Guam submits to the Deputy Assistant Secretary of the OIA an advance request, estimating the amount of the Section 30 revenues expected to be collected by the United States during the period from October 1 of such year to September 30 of the following year. The OIA reviews the estimate and adjusts the figure by the difference between the previous year s advance estimate and actual general ledger certification, then includes an additional amount for Section 30 Department of Defense active duty military personnel claiming Guam as their Home of Record as certified two years prior, both as received by the OIA from the IRS. On or before October 1, the OIA is required to transfer directly to the Government (or the bond trustee designated by the Government) an amount equal to the Government s estimate of the Income Tax Portion of Section 30 revenues, as adjusted by the OIA. The United States government advances the Income Tax Portion of Section 30 revenues annually in a single payment (less any overpayment or together with any underpayment made in previous years). If the Government determines that the requested Income Tax Portion of Section 30 Revenues was underestimated, after the advance request is submitted, it submits a request for supplemental amounts. Likewise, when the OIA determines that the requested Income Tax Portion of Section 30 revenues was overestimated, it makes an adjustment for overprovision in the next fiscal year unless otherwise agreed upon by the Government and the OIA. A-10

51 Table A-7 shows the amounts requested by the Government for the Income Tax Portion of Section 30 Revenues, annual advances to the Government for such Section 30 revenues, adjustments for overprovision and supplemental payments, all for Fiscal Years 2000 through TABLE A-7 SCHEDULE OF INCOME TAX PORTION OF SECTION 30 ADVANCE REQUESTS AND REVENUES RECEIVED Fiscal Years Fiscal Year Advance Requested Advance Granted Adjustment for Overprovision Supplemental Amounts Total Received 2000 (1) $41,066,018 $40,989,338 $10,227,725 $51,217, (2) 42,069,630 56,277,092 56,277, ,649,611 55,402,681 55,402, ,110,130 45,086,988 45,086, ,389,014 31,725,960 31,725, ,291,551 51,291,551 51,291, ,824,861 56,824,861 56,824, ,416,032 57,416,032 $(5,506,684) (3) 21,175,749 (4) 73,085, ,937,321 43,937,321 (5,506,684) (3) 1,794,592 (6) 40,225, (5) 44,376,056 44,376,056 (5,506,684) (3) 38,869,372 (1) Records from the Trustee and Department of Interior show that $40.9 million was received and do not indicate supplemental amounts, however, year-end financials for Fiscal Year 2000 show that the Government received an additional $10.2 million during the year. (2) Due to an error on the transmittal from Department of Interior, the Government subsequently returned $50,000 to the Department of Interior. (3) Reduction due to over-claims in Fiscal Years 2003 and 2004 of approximately $16.5 million. This amount is being deducted in equal installments from payments for Fiscal Years 2007 to (4) IRS retroactive adjustment on the Office of Personnel Management retirees from 1984 to (5) Unaudited numbers. (6) IRS retroactive adjustment on total certification from IRS versus total monies received. Source: Internal Department of Revenue & Taxation/Bureau of Budget & Management Research statements. Fee Portion of Section 30 Revenues Federal immigration and naturalization fees and passport fees collected from Guam residents currently comprise the Fee Portion of the Section 30 revenues. Such fees are established and revised from time to time pursuant to federal regulations promulgated by the relevant federal agency. Immigration and naturalization fees are collected by the U.S. Department of Homeland Security and, by federal regulation, are remitted to the Guam treasury in the case of applicants residing in Guam. Such fees vary in amount from $2 to $2,850 and include, among others, the $290 green card application fee and the $320 nonimmigrant worker petition fee. Immigration and naturalization fees are re-evaluated and adjusted periodically by the Department of A-11

52 Homeland Security. The most recent fee adjustment, effective July 30, 2007, increased application and petition fees, on average, by approximately 66 percent. Passport fees are established by the U.S. Department of State and currently vary in amount, up to $100 per transaction. Such fees are collected on Guam by the Department of Revenue and Taxation and remitted to the Guam treasury. Table A-8 summarizes the major categories of the Fee Portion of Section 30 revenues collected on Guam during Fiscal Years 2002 through TABLE A-8 SUMMARY OF MAJOR CATEGORIES OF FEE PORTION OF SECTION 30 REVENUES Fiscal Years Fiscal Year Passport Fees Immigration and Naturalization Fees Total Fees 2002 $ 783,505 $ 315,465 $1,098, ,002, ,358 (1) 1,354, ,112, ,241 (2) 1,888, ,254, ,284 1,859, ,277,015 1,309,395 2,586, ,670,933 1,148,022 2,818, ,552,318 1,636,441 (3) 3,188, (4) 1,614,411 1,701,899 3,316,310 (1) Reflects fee reductions in effect from January 24 to February 26, 2003 and fee increases effective February 27, (2) Reflects fee increases effective April 30, (3) Reflects fee increases effective July 30, (4) Projected numbers. Source: Internal Department of Revenue & Taxation/Bureau of Budget & Management Research statements. Tourism Industry Tourism has represented the primary source of income for Guam s economy for over twenty-five years. Visitor arrivals rose to over 1,000,000 travelers for the first time in 1994 and have remained near or above that level ever since. A-12

53 Table A-9 sets forth the annual number of visitors to Guam from 2004 through March In 2004, Guam s visitor arrivals were strong and grew in saw a small decline in visitor arrivals, with a marginal increase in Arrivals for 2008 declined due to the global recession. Year end arrivals for 2009 are currently projected by Guam Visitors Bureau to decline by 4% compared to TABLE A-9 Annual Visitor Arrivals to Guam Percentage Year Visitor Arrivals Increase/(Decrease) ,159, ,227, % ,211,674 (1.3) ,225, ,140,499 (6.9) YTD 2009 (1) 291, (1) Through March Arrivals represent a decline of 8.6% relative to the same time period in Source: Guam Visitors Bureau. The following Table A-10 is a comparison of cumulative visitor arrivals by month to Guam for 2004 through March TABLE A-10 Cumulative Visitor Arrivals to Guam by Month January 101, , , , ,100 97,958 February 213, , , , , ,029 March 311, , , , , ,444 April 390, , , , ,898 May 477, , , , ,388 June 564, , , , ,270 July 667, , , , ,103 August 780, , , , ,391 September 881, , , , ,280 October 967,579 1,025,468 1,012,011 1,024, ,090 November 1,058,734 1,124,909 1,108,396 1,121,240 1,053,058 December 1,159,881 1,227,587 1,211,674 1,225,323 1,140,499 Source: Guam Visitors Bureau. A-13

54 Key Visitor Markets The origin of visitors to Guam diversified during the 1990 s and has remained diverse in recent years. The great majority of visitors to Guam originate from Japan. Guam is one of only four markets worldwide that attracts nearly one million Japanese tourists per year. In 2008, Japan accounted for 74% of visitors by air to Guam. The next largest tourist markets were Korea (9.6%), the U.S./Hawaii (4.6%), Taiwan (1.9%), and the Commonwealth of the Northern Mariana Islands (1.5%). The Guam Visitors Bureau is aggressively marketing to grow the Korean, Taiwan, Hong Kong and China markets, as a more diversified visitor base will shield Guam s economy from fluctuations in the Japanese economy Table A-11 is a comparison of annual visitor arrivals to Guam by country from 2004 to TABLE A-11 Annual Visitor Arrivals by Country Arrivals Percent of Total Arrivals Percent of Total Arrivals Percent of Total Arrivals Percent of Total Arrivals Percent of Total Japan 906, % 955, % 952, % 932, % 849, % Korea 89, , , , , Taiwan 24, , , , , U.S./Hawaii 46, , , , , CNMI (1) 19, , , , , Micronesia (2) 13, , , , , Philippines 7, , , , , Australia 2, , , , , Canada Europe 1, , , , , Hong Kong 5, , , , , Nauru Thailand China P.R.C , , , Vietnam Others 3, , , , , Total Air 1,120, % 1,184, % 1,183, % 1,180, % 1,091, % Total Sea 39, , , , , Total Air & Sea 1,159, % 1,227, % 1,211, % 1,225, % 1,140, % (1) Commonwealth of the Northern Mariana Islands. (2) Figures for Micronesia reflect visitor arrivals from Palau, the Federated States of Micronesia and the Republic of the Marshall Islands. Source: Guam Visitors Bureau. A-14

55 Table A-12 highlights the percentage change in annual visitor arrivals to Guam by country from 2004 to TABLE A-12 Percentage Change in Annual Visitor Arrivals by Country %Change from %Chang e from % Change from %Change from 2007 Japan 906, , % 952,687 (0.3)% 932,175 (2.2)% 849,831 (8.8)% Korea 89, , , , ,548 (9.9) Taiwan 24,157 23,386 (3.2) 16,729 (28.5) 21, , U.S./Hawaii 46,159 45,859 (0.6) 44,226 (5.1) 48, , CNMI (1) 19,419 18,042 (7.0) 17,813 (1.3) 17,661 (0.9) 17,429 (1.3) Micronesia (2) 13,016 12,648 (2.7) 12,047 (9.4) 12, , Philippines 7,066 7,051 (0.2) 8, , , Australia 2,913 2,546 (12.6) 2,328 (8.6) 2, ,340 (2.1) Canada (15.5) Europe 1,511 1,750 (15.8) 1,382 (21.0) 1, ,557 (0.5) Hong Kong 5,156 4,518 (12.4) 6, , ,270 (31.4) Nauru 14 5 (64.0) (43.5) Thailand (37.0) (5.0) China P.R.C , , , Vietnam (50.0) (33.3) Others 3, (11.9) 3, , ,799 (1.2) Total Air 1,120,676 1,184, % 1,183,943 (0.1)% 1.180,845 (0.3)% 1,091,907 (7.5)% Total Sea 39,205 42, ,731 (35.0) 44, , Total Air & Sea 1,159,881 1,227, % 1,211,674 (1.3)% 1,225, % 1,140,499 (6.9)% (1) Commonwealth of the Northern Mariana Islands (2) Figures for Micronesia reflect visitor arrivals from Palau, the Federated States of Micronesia and the Republic of the Marshall Islands. Source: Guam Visitors Bureau. Airlines and Hotels Nine international passenger airlines (Continental Airlines, JAL, Northwest Airlines, Korean Air, All Nippon, China Airlines, Philippine Airlines, Freedom Air and Asia Pacific Airlines) currently serve the Antonio B. Won Pat Guam International Airport, the sole commercial airport on Guam. These airlines serve 21 international destinations and over 3,000,000 passengers a year. Continental Micronesia, a wholly owned subsidiary of Continental Airlines, maintains a major hub on Guam servicing destinations in Micronesia, Hawaii, Japan, East Asia and Australia. Tumon Bay, located on Guam s northwest coast, is the heart of Guam s tourist industry. The hotels that line Tumon Bay provide lodging to the majority of visitors to Guam. During the 1990s and early 2000s, Guam s inventory of hotel rooms increased over 100%, with substantial A-15

56 growth in the number of hotel rooms occurring from 1991 to 1993 and from 1995 to There are 31 hotels in Guam, including many notable international hotel operators, with an inventory of over 8,000 rooms. Guam s annual weighted hotel occupancy rate improved from 60% in 2006 to 68% in The weighted hotel occupancy rate dropped slightly to 64% in 2008, however the weighted average room rate increased by 3.6% to $114, as compared to $110 in Table A-13 lists the top fifteen hotel operators and the number of rooms as of March TABLE A-13 Top Fifteen Hotel Operations in Guam As of March 2009 Hotel/Resort Year Opened Location Number of Rooms Pacific Islands Club 1980 Tumon 809 Hilton Guam Resort and Spa 1972 Tumon 748 Outrigger Guam Resort 1999 Tumon 628 Leo Palace Hotel 1993 Yona 624 Hotel Nikko Guam 1992 Tumon 510 Guam Plaza Hotel 1983 Tumon 505 Hyatt Regency Guam 1994 Tumon 474 Guam Marriot Resort 1987 Tumon 467 Onward Beach Resort 1992 Tamuning 455 Guam Fiesta Resort 2005 Tumon 434 Westin Resort Guam 1996 Tumon 432 Sheraton Laguna Guam Hotel 2007 Tamuning 311 Holiday Resort Guam 1996 Tumon 251 Royal Orchid 2000 Tumon 200 Ohana Oceanview Guam 2002 Tumon 187 Total 7,035 Source: Guam Visitors Bureau. A-16

57 In addition to visitor arrivals, the hotel occupancy tax is also a measure frequently referred to in assessing the strength of Guam s tourism industry. Table A-14 lists the hotel occupancy taxes collected for Fiscal Years 2003 through Collections of the hotel occupancy tax have increased in each year since TABLE A-14 Hotel Occupancy Taxes Collected Fiscal Years Fiscal Year Taxes Collected 2003 $13,116, ,674, ,946, ,787, ,233, ,111,688 Source: Tourist Attraction Fund Audited Financial Statements for Fiscal Years 2003 to Military Activity Military Personnel Military personnel figures rise and fall as dictated by world events and the U.S. response to these events. Recent world events have increased recognition of Guam s strategic military value that will result in increasing military presence in Guam and its contribution to the Guam economy. Following the events of September 11, 2001, the U.S. started to redistribute its forces in the Pacific and reassess the role that Guam can play in the region. Tensions between China and Taiwan and India and Pakistan, North Korean threats, and containment of the Abu Sayaf in the Philippines increase Guam s importance as a location from which the U.S. can deter or preempt aggression and maintain peace. The lack of transparency in China s defense expenditures also creates significant concerns. A strong U.S. presence in the Pacific also demonstrates active support for Japan, Australia and other Pacific Rim allies. Guam is uniquely positioned geographically to constitute an extended homeland defense perimeter, protecting the U.S. west coast and Hawaii from acts of aggression. Military bases on Guam can support forward deployed capabilities in Asia and allow rapid response to any threat to stability of the Asian region or to the U.S. A-17

58 The map below shows Guam s location in the Pacific and relative distances between major cities in the Pacific Rim. Although the number of active duty military personnel is expected to grow substantially over the next five to seven years, there is already a significant existing U.S. military presence on Guam. The U.S. Air Force has stationed 62 conventional air-launched cruise missiles and the 613th Contingency Response Squadron (110 personnel) at Andersen Air Force Base (Andersen AFB) and has recently completed construction of its newest aircraft maintenance hanger for B-2 stealth bombers at a cost of over $32 million. The Navy has home-ported three fast attack submarines in Guam: the USS Corpus Christi, the USS Houston and the USS Buffalo. In addition, recent reports indicate that the Navy is considering forward deploying several of its nuclear-powered ballistic submarines to Guam. If current U.S. military plans come to fruition, Guam will experience an increase of over 30,000 active duty military and dependent personnel and almost 20,000 Department of Defense civil service and dependent personnel in the next five to seven years, which will reverse previous military downsizing trends. A-18

59 The table below lists active duty military personnel on Guam from 2004 through TABLE A-15 Active Duty Military Personnel on Guam Year Navy Air Force Army Marines Coast Guard Total ,922 1, , ,085 1, , ,867 1, , ,718 1, , ,584 1, ,331 Source: Guam State Data Center, Bureau of Statistics and Plans. Table A-16 below depicts military dependents on Guam from 2004 through (1) TABLE A-16 Military Dependents on Guam Year Navy Air Force Army Marines Coast Guard Total ,191 2, , ,829 2,104 1, , ,829 1,893 1, , ,774 1,941 1, , (1) N/A N/A N/A N/A N/A 5,848 Detailed data not yet available for Sources: Guam State Data Center, Bureau of Statistics and Plans. A-19

60 As displayed by Table A-17, the number of civil service personnel on Guam was relatively steady from 2004 to From 2006 to 2007, the number of military civil service personnel on Guam increased by approximately 10%. For 2008, military civil service personnel (both local and stateside hire) also increased by over 10%. TABLE A-17 Military Civil Service Personnel on Guam Year Non- Appropriated Fund Personnel Local Hire Stateside Hire Total , , , , , , , , ,121 1, ,708 Sources: Guam State Data Center, Bureau of Statistics and Plans. In general, reductions of active-duty military personnel are accompanied by an increase in the number of Army and Air National Guardsmen and Reservists. These personnel perform vital services for the nation and for Guam but their numbers have yet to offset the loss of active duty personnel. Army National Guard TABLE A-18 Guardsmen and Reservists in Guam Fiscal Years Air National Guard Coast Guard Reserve Air Force Reserve Fiscal Years Army Reserve Navy Reserve (2) Total N/A 1, N/A 1, N/A 2, N/A 2, (1) N/A N/A N/A N/A N/A 2007 (1) 1, N/A N/A 75 N/A 2008 (1) 1, N/A N/A 110 N/A (1) (2) Complete data not available for 2006 through Navy Reserve Unit established in Sources: Communications with Guard and Reserve Units. A-20

61 Military Expenditures Table A-19 provides a breakdown of military salaries expended on the island during Fiscal Years 2003 through Total salaries, except for inactive military, increased during this time period as a result of the increased military activity in Asia and the Middle East. TABLE A-19 Department of Defense Expenditures on Guam Active Duty and Civilian Military Salaries Fiscal Years (Dollars in Thousands) Fiscal Year Active Military Inactive Military Civil Service Employees (1) Coast Guard Employees Total Salaries 2003 $205,366 $19,103 $35,616 $142 $260, ,570 20,533 38, , ,239 23,544 55, , ,475 18,986 56, , ,521 11,290 58, ,341 (1) Reflects impact of impact of Navy and Air Force competitive sourcing and base closure activities. Source: Consolidated Federal Funds Report, Bureau of the Census. An increase in Department of Defense procurement contracts results from the loss of civil service personnel. As the private sector carries out functions previously performed predominantly by civil service personnel, federal spending under procurement contracts generally increases. Fiscal Year 2003 saw a spike in procurement contracts due to repairs undertaken by the military in the wake of Super Typhoon Pongsona, which hit Guam in TABLE A-20 Department of Defense Procurement Contracts for Guam Fiscal Years (Dollars in Thousands) Department of Fiscal Year Defense Procurement 2003 $509, , , , ,849 Source: Consolidated Federal Funds Report, Bureau of the Census. GEDA maintains a database of contracts awarded by the Department of Defense for Guam as reported on various military websites. This database indicates that almost $330 million A-21

62 of contracts were awarded in Fiscal Year 2005, over $334 million were awarded in Fiscal Year 2006; over $351 million were awarded in Fiscal Year 2007; approximately $476 million were awarded in Fiscal Year 2008; and approximately $430 million have been awarded to date for Fiscal Year Since not all Department of Defense contract awards are reported on the source websites, it is believed that the database maintained by GEDA understates total contract awards for these years. The federal government publishes federal transactions for work performed in Guam in its website located at USAspending.gov. The chart below indicates that from Fiscal Year 2000 to Fiscal Year 2008, the federal government paid an average of $410 million per year to private companies for work performed in Guam. Almost half of this amount is paid to local companies (i.e., companies that list a Guam vendor address). The expectation is that payments will significantly increase thereafter as a result of the increased military presence on Guam. Federal Transactions with Off-Island and Guam Companies Paid by Federal Government Millions $600 $500 $400 $300 $200 $100 $ Fiscal Years Total Paid - All Companies Paid to Guam Companies Source: USAspending.gov compiled by the Guam Economic Development Authority. A-22

63 The graph below shows participation in federal transactions for work performed in Guam by large and small businesses from Guam, as well as non-guam off-island businesses. Guam businesses are obtaining a significant share of federal contractual work. Dollars Obligated Millions $600 $400 $200 $0 Guam Large and Small Businesses Fiscal Years Small Guam Businesses Large Guam Businesses Non-Guam Businesses Source: USAspending.gov compiled by the Guam Economic Development Authority. Future Role of the Military on Guam Optimism over the future growth of the U.S. military presence on Guam is seen in Congressional authorizations for appropriations for military construction projects, as depicted in Table A-21 below. Steady growth in such authorizations is evident from Fiscal Year 2004 to Fiscal Year Although the Fiscal Year 2009 request indicates a reduction in military construction project appropriations if approved by Congress, it is expected that significant construction funding will be made available in Fiscal Year 2010 and beyond. On May 7, 2009, the Office of Management and Budget released details with respect to President Barack Obama s proposed federal budget for Fiscal Year The proposed budget includes $787 million in military construction projects for Guam. See Proposed Fiscal Year 2010 Budget below. TABLE A-21 U.S. Military Construction Appropriations Authorized for Guam Fiscal Years (Dollars in Thousands) Total Year Appropriations 2004 $ 53, , , , , ,100 Source: Guam Economic Development Authority. A-23

64 As a further sign of commitment to Guam, the American Recovery and Reinvestment Act of 2009 ( ARRA ) appropriated over $43 million for military projects on Guam as follows: TABLE A-22 ARRA Appropriations for Military Projects on Guam Project Name Location Cost Repair and Modernize Bachelor Quarters Camp Covington, Naval $6,791,000 Building 581 & 584 Base Guam Repair and Modernize Bachelor Quarters Camp Covington, Naval 4,849,000 Building 580 Base Guam Repair and Modernize Bachelor Quarters Camp Covington, Naval 3,777,000 Building 579 Base Guam Repair Santa Rosa Water Tank Andersen AFB 323,000 Construct By-Pass Line at Santa Rosa Tank Andersen AFB 645,000 Repair Waterline from Santa Rosa Tank to Back Andersen AFB 3,227,000 Gate Repair Waterline from Wells 5-9 to Santa Rosa Andersen AFB 4,303,000 Tank Repair Crumm Ave From Kenny Ave to Bonins Andersen AFB 188,000 Blvd Repair Taxiway B Hardstands (S72, S74, S76) Andersen AFB 807,000 Repair Center Ramp Hardstands, Ph 2 Andersen AFB 1,936,000 Repair Center Ramp Hardstands, Ph 3 Andersen AFB 1,936,000 Repair Center Ramp Hardstands, Ph 4 Andersen AFB 1,936,000 Repair Center Ramp Hardstands, Ph 5 Andersen AFB 1,936,000 Repair Center Ramp Hardstands, Ph 6 Andersen AFB 1,936,000 Repair South Ramp 5 and Taxiway B Andersen AFB 2,151,000 Hardstands (S58 to S70) Repair Taxiway C, Phase 4 (Between Taxiways Andersen AFB 6,239,000 J and K Resurface Parking Lot Naval Hospital 305,000 Modernize Urology/Orthopedics Suite Naval Hospital 456,000 Modernize Wing B2 Space Endoscopy Suite Naval Hospital 173,000 Total $43,914,000 Source: ARRA 2009 Department of Defense Expenditure Plan, March 20, For the next 10 years, Guam s economy is expected to benefit from a sizable commitment by the federal government to expand the American military presence on Guam, and construction payrolls are expected to grow rapidly as the military upgrades facilities and supporting infrastructure. Government Accountability Office Report , dated June 2008, discusses the impact of Department of Defense force structure and basing initiatives on 20 stateside installations expected to show net growth over Fiscal Years 2006 to Compared to those stateside installations also experiencing growth, Guam is ranked among the top five areas by percentage increases in active duty and dependent populations, and ranked third by growth in number of military personnel. A-24

65 The Guam Bureau of Statistics and Plans estimates as of September 2008 show that by 2014, the number of active-duty military personnel on Guam will be approximately 25,900, and the number of dependents on Guam will be 19,140. Income tax and business privilege tax revenue from the military and private companies are anticipated to increase substantially as a result of these construction activities. Military expansions and other planned military activities on Guam include the following: U.S. Marine Corps Relocation from Okinawa. In 2002, the U.S. and Japan commenced a Defense Policy Review Initiative ( DPRI ) to transform their existing alliance. In October 2005, the two nations entered into an Alliance Transformation and Realignment Agreement, a wide-ranging plan for the realignment of U.S. military forces in Japan. This agreement and subsequent negotiations have resulted in a plan to move more than 8,000 U.S. Marines and 9,000 military dependents from Okinawa to Guam from 2010 to Of the $10.27 billion total cost of the relocation, Japan is to provide $6.09 billion for operational facilities, barracks, quality-oflife amenities, new family housing and utilities, and the U.S. is to provide $4.18 billion to construct operational facilities, barracks and quality-of-life improvements, and off-base infrastructure and highways. The required Environmental Impact Statement for the relocation of Marines to Guam is underway and is expected to be completed in January The DPRI was reaffirmed on February 17, 2009 through the execution of the Agreement Between the Government of Japan and the Government of the United States of America Concerning the Implementation of the Relocation of the III Marine Expeditionary Force Personnel and Their Dependents from Okinawa to Guam, which was endorsed by the Japanese Diet on May 13, Decisions as to what other forces will accompany these Marines, when the forces will be moved, where they will be based and other implementing details are being worked out by the U.S. Pacific Command and the U.S. and Japanese governments, but it is possible that the Marines will be accompanied by significant numbers of additional forces including possible maneuver forces that would form the basis of a new Littoral Warfighting Center. Beddown of Training and Support Initiatives at Northwest Field, Andersen AFB. Headquarters Pacific Air Forces has completed an environmental impact assessment for the reactivation of Northwest Field of Andersen AFB as a training area for combat engineers, security forces and combat communication units. This initiative is estimated to bring in approximately 4,500 active duty trainees to Guam on an annual basis. Expenditures of $200 - $300 million commenced in Fiscal Year 2006 and are projected through and beyond Fiscal Year 2011 for creating an expeditionary combat support and training campus composed of heavy construction engineers, combat communications, security forces and combat skills training. A federal appropriation of $12.5 million toward the costs of the Northwest Field infrastructure was authorized under the Fiscal Year 2007 National Defense Authorization Act. Construction of utilities, facilities, roads and other improvements is slated for completion over a six year period, which began in Fiscal Year An additional $15.8 million appropriation was authorized for Fiscal Year 2008, and a $10.6 million appropriation for various Air Force projects was approved for Fiscal Year Establishment and Operation of an Intelligence, Surveillance, Reconnaissance, and Strike Capability, Andersen AFB. Headquarters Pacific Air Forces has developed a final A-25

66 environmental impact statement proposing to base a Global Strike Task Force on Andersen AFB, adding an intelligence, surveillance, reconnaissance, strike and aerial refueling capability to the base. The proposed action would base three Global Hawk unmanned aerial intelligence, surveillance and reconnaissance aircraft and 12 refueling aircraft at the base, as well as the rotation of 48 fighter and six bomber aircraft to Andersen AFB from bases in the 50 states. It is estimated that approximately 2,630 additional military, civilian and contractor personnel and 1,450 dependents would be permanently based at Andersen AFB as well. This action would result in facility construction, addition, and alteration projects to support basing and operation. The basing action began in 2007 with facility construction projects and is planned for completion in 2016, at an estimated cost of over $200 million. A federal appropriation of $52.8 million has already been authorized for construction of a Global Hawk Maintenance and Operations Facility under the Fiscal Year 2007 National Defense Authorization Act. Forward Deployment of Navy Ships. The U.S. has projected expenditures of $187 - $241 million for various wharf improvements through Fiscal Year 2009, including improvements for accommodating transient nuclear aircraft carriers and their escorts, High-Speed Vessels, Littoral Combat Ships and new supply and ammunition vessels. A federal appropriation of approximately $30 million has already been authorized for wharf improvements under the Fiscal Year 2007 National Defense Authorization Act, as well as approximately $100 million for related construction of new housing. Appropriations of $275 million have been authorized for Fiscal Year 2008 for additional Navy projects including wharf, utilities, housing and other quality of life improvements, while $168.5 million of appropriations was approved for various Navy projects for Fiscal Year These projects are expected to increase the Navy population by 5,650 active duty military and dependents. Army Ballistic Missile Defense System. A U.S. Army Air Defense Battalion is expected to be assigned to Guam and would require the construction of operational facilities and housing. The cost of establishing this capability on Guam has not yet been determined. Approximately 630 active duty personnel and 950 dependents are expected to be assigned to Guam to support this capability. The Army Ballistic Missile Defense System is incorporated in the environmental impact statement being developed for the relocation of Marines to Guam. Proposed Fiscal Year 2010 Budget. On May 7, 2009, the Office of Management and Budget released details with respect to President Barack Obama s proposed federal budget for Fiscal Year The proposed budget includes $787 million in military construction projects for Guam. The funding targets infrastructure projects to support the expansion of the American military s presence in Guam. Such projects include $48 million in defense access roads funding which, if appropriated, would be used to improve the haul and access road network on Guam. Another notable project is a proposal from the Department of Defense to spend $259 million on the construction of a modern naval hospital. A-26

67 This increased military activity is expected to sustain and grow the Guam economy in the years to come. The chart below depicts projected construction on Guam resulting from the relocation of Marines to Guam for Fiscal Years 2007 to Source: Presentation by General Bice, Joint Guam Program Office, at the Guam Industry Forum, March 6-8, A-27