Monday, April 21, 2014

VIDEO: Pangelinan Questions $60M Core Tech Lease, and Its $125M Option to Buy

Guam News - Guam News

Guam - On June second of  last year then Governor's legal counsel James Canto sent a letter to Core Tech President Ho Eun advising him that GovGuam's lease agreement with Core Tech would be terminated, effective immediately, on June 2.


The letter also advises Core Tech that GovGuam would vacate the facility on or before September 30th, because "there are no funds available to operate such a school in the near future."

Read Canto's June 2 letter terminating the Core Tech lease

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That decision to terminate however was rescinded, even though there are still no funds available to pay for leasing Core Tech's temporary Tiyan  campus. 

Instead, GovGuam has signed a lease agreement promising to provide $5.145 million dollars in tax credits to Core Tech every year from now until 2024.

READ the amended GovGuam Lease Agreement with Option to Purchase HERE (scroll down to Exhibit B to see the annual $5M payment required if option to purchase is exercised).

Its a deal opposed by Appropriations Committee Chair Senator Ben Pangelinan who points out that tax credits given to Core Tech must now be subtracted from the tax revenues that budget planners had expected Core Tech would be paying into the General Fund.

The Senator explains:

"A credit is, Core Tech owes the Government of Guam. And lets say it owes taxes of  $10 million dollars based on its gross revenues and so it pays a monthly GRT based on its collections. We figured that in, and that's part of our revenue number. So what Core Tech will do is 'We will not pay the Government of Guam that tax. So the Government of Guam is not going to get it. So it is a deduction on the revenue side which means we're going to be short."

The agreement commits GovGuam to provide that $5 million annual tax credit for the next 12 years, until 2024 which would total $60 million dollars for the life of the lease.

Pangelinan said the effect would be a reduction in GovGuam revenues of $60 million dollars."Think of what we could do in terms of repairs to DOE facilities with $60 million dollars."

However that figure would more than double, if GovGuam exercises the option to buy in this revised lease agreement.

The purchase price is listed as $43.5 million dollars. But when interest is factored in over the course of  25 years of payments, the actual price to buy these former barracks built by the Navy 50 years ago would climb to $125 million dollars.

And at a time when a 30 year fixed rate mortgage for a home can be had for under 4%, this revised lease agreement would require GovGuam to obtain its loan from Core Tech at an interest rate of 7.1%.

"The option to buy is strange. Very strange, very one sided, because now there is an option to purchase. Core Tech must finance the purchase at 7.19%" said Pangelinan. "So it means that if we exercise that option of $45 million dollars to buy industrial property and 50 year old barracks, that means that we will end up paying $125 million dollars."

This deal was signed on December 30th  by Governor Calvo and Core Tech President Eun, signed before safety and health inspections had been completed; signed even before the Guam Education Board had given its consent for the move of Untalan to Tiyan.

And its a binding agreement for at least the next 12 years. The right of termination which was included in the original lease agreement has been removed in this revised deal.

"There is no early termination," said Pangelinan. "Again,  it is so one-sided that it is almost as if Core Tech was negotiating with itself."