By David J. John, managing director of ASC Trust LLC and chairman of the board of the Guam Economic Development Authority

David J. John

In preparing to write my annual feature, I like to read my prior articles to see what was going on in past years and compare them against the current back drop. When I read my 2023 article, I realized I could have submitted the same article for this year and called it a day. As in 2023, construction dominated, tourism had yet to recover from COVID, wholesale/resale was a mixed bag, labor was an issue, housing was becoming unaffordable, and our government institutions were broken.

Sarcasm aside, the parallels of the sentiment of the business leaders we spoke to are uncanny.

Construction continues to lead

The specific data is changing every day, so I am not even going to attempt to discuss individual projects in detail. However, the industry continues to break records with no end in sight. The construction of Marine Corps Base Camp Blaz is in full swing with over 45 projects actively under way at the base at a combined price tag of $1.1 billion in fiscal 2024 ($680 million U.S. funded projects and $430 million Japan funded).

In addition to Camp Blas, there are several other military construction projects underway to include various upgrades and expansion to runways, hangers and buildings to support air operations at Andersen Air Force Base.

Naval Base Guam is undergoing enhancements to operational facilities, piers, and housing to support the Navy’s increased presence.

The U.S. Missile Defense Agency, along with the U.S. Army has sought $1.5 billion in the fiscal 2024 budget to begin the planning, construction and operation of Guam’s missile defense capabilities.

Outside the fence, Guam’s utilities are undergoing massive improvements to their systems. The Guam Power Authority is in the final stages of its 198-megawatt combined cycle combustion turbine power plant, which when finished will allow the island to retire Cabras 1&2 and return the island to a stable power system with a promised reduced operating expense to the islands consumers.

The Guam Waterworks Authority has begun work on its $400 million upgrade to the island’s water system as part of the consent decree with the federal government. Unfortunately, unlike GPA’s project, this project is estimated to increase water costs by on or about 70% within the next five years.  No that is not a typo — 70%.

The Department of Public Works continues to improve the island’s primary road network with a series of road paving and widening projects to include the much-anticipated Ypao road’s connection to San Vitores Road in Tumon. Designs are almost complete for what is being touted as Guam’s largest road project of all time: a 17-mile stretch running from Naval Base Guam to Marine Corps Base Camp Blaz in Dededo.

Wholesale/retail is a mixed bag

Wholesale and retail numbers are mixed. While the widespread supply disruptions brought on by COVID have mostly gone away and top line numbers have been solid, inflation and labor shortages continue to put a lot of pressure on margins.  Consumer spending, while stable, is shifting to be more cost conscious.  Expect these trends to continue for the coming year.

Housing

Between construction costs and financing, housing is officially unaffordable for mid- to lower-income earners and first-time buyers.  According to Siska Hutapea, the median price of a single-family dwelling on Guam is currently $420,300 and up 56% ($269,450) from just six years ago. If the actual cost of housing isn’t bad enough, interest rates on mortgages have increased from 3.1% in 2020 to on or around 6.5%, further making it difficult for many families to get into a home.

There is a rule used in budgeting called the Housing Income Ratio Rule. With this rule, housing costs should not make up more than 28% of an owner’s gross income. According to the 2020 Island Areas Census, median household income in Guam was $58,289. If we increase this average to $65,000 to reflect inflation, 28% of $65,000 is $18,200 or roughly $1,500 a month that should go to housing under a healthy ratio. The problem is the monthly debt services on a 30-year fixed, 6.5% interest mortgage would be approximately $2,200 (or 46% of gross income) and this does not even take into consideration typhoon insurance and the need to put 20% down, requiring a $83,000 down payment.

Addressing Guam’s housing crisis amidst rising construction costs

The skyrocketing cost of construction on Guam, a largely unintended consequence of the military buildup, has created significant challenges. These rising costs have not only strained the island’s workforce but have also forced families and much-needed workers to relocate to the United States.

While proper planning could have mitigated this situation, there is still hope.The Naval Facilities Engineering and Systems Command Pacific has issued a Request for Information seeking innovative housing solutions for 1,000 to 4,000 new units. This is a crucial step in addressing the housing shortage facing the U.S. military on Guam.

By exploring innovative construction concepts and ideas, the military is creating an opportunity for the industry to consider alternative approaches, such as prefab and modular construction, and shared infrastructure. These strategies, if implemented effectively under the One Guam policy, could lead to long-term reductions in housing costs for the entire island.

Gov. Lourdes A. Leon Guerrero’s newly established Attaining Housing Commission can play a pivotal role in leveraging this opportunity. This commission, comprised of representatives from various GovGuam agencies, will meet quarterly to make recommendations focused on addressing Guam’s housing needs. By working together, we can find solutions to this pressing issue and ensure a more sustainable future for Guam.

New opportunities ahead

In addition to new housing opportunities, looking over the horizon, there are several opportunities coming that, if done right, could be complete game changers for the island.

Singaporean F-15SG Aircraft to base at Andersen Air Force Base

Andersen Air Force Base is preparing to accommodate up to 12 Singaporean F-15SG aircraft and provide training facilities for their pilots. The construction of a new base within the existing base is expected to span three to seven years, encompassing 209 acres and including an aircraft hangar, maintenance and utilities buildings, and fuel systems.

Guam should capitalize on this new relationship with Singapore by pursuing direct flights and investment opportunities. Establishing direct air routes could attract U.S. companies to base Asian personnel on the island, a longstanding goal of Guam’s political leaders dating back to the Gutierrez Administration.

New additive manufacturing center planned for Guam

In February, the Applied Science & Technology Research Organization of America or ASTRO America, in partnership with the Leon Guerrero Administration and the U.S. Navy Strategic Submarine Command, announced plans to establish an additive manufacturing technology and workforce education center on Guam. This initiative is part of the governor’s efforts to diversify the island’s economy.

The new center is designed to serve a dual purpose: advancing national security and supporting economic development on Guam. By developing a skilled workforce in key STEM (Science, Technology, Engineering, and Mathematics) careers, the center aims to contribute to both these goals.

Pacific shipyard hub

In further ship repair news, in response to a 2023 Congressional Research Service report on Guam’s readiness, the U.S. Navy has announced plans to significantly bolster its naval infrastructure on the island. Through Pearl Harbor Naval Shipyard, the Navy will invest in building additional ship repair facilities, including a new dry dock in Apra Harbor. This expansion aims to support increased surface ship and submarine operations in the Pacific region.

When fully operational in 2025, the PHNS is expected to hire more than 570 new personnel, including 170 civilians and 400 military personnel, to staff a new shipyard detachment on Guam. Many of these positions, with salaries exceeding $113,000, require expertise in the nuclear field.

This expansion is anticipated to increase demand for services from Guam’s existing shipyards, reinforcing the island’s position as a Pacific shipyard hub. Leaders of local shipyards have expressed optimism about the project’s potential to boost their businesses and contribute to Guam’s economic growth.

Data, data, data

Guam’s strategic location is not only good for the military, but it is also attractive for undersea cables landing.  Guam currently has 11 cables making Guam a Pacific Hub. To land the cables, Guam currently has five landing stations operated by AT&T (Tanguisson and Tumon Bay Stations), GTA (Piti and GNC Stations), and Tata (Tata Piti Station), with a sixth to be energized early next year by GTA (Alupang Station) in East Hagatna.

In addition to the current cables, in January, Google announced plans for the central Pacific Connect initiative, which will deliver two new intra-Pacific cables — Bulikula and Halaihai — to the island.  Building on the South Pacific Connect initiative announced in last year, the central Pacific Connect initiative will create a ring between Guam, French Polynesia and Fiji. This ring will include pre-positioned branching units that will allow other countries and territories of Oceania to take advantage of the reliability and resilience resulting from the initiative.  Once operational, Bulikula and Halaihai will join Guam’s existing subsea cable portfolio accelerating the island’s position as a growing gateway for international connectivity.

While subsea cable connectivity benefits the community in the form of latency and speed to consumers and businesses, for Guam to truly benefit, we need brick-and-mortar businesses — data centers.

Currently Guam has four data centers, one operated by Tata and ITE each, and two operated by GTA, with a fifth and largest data center, the Alupang operated by GTA coming online in 2025. At 31,000 square feet, the 4-megawatt Alupang center will be a game changer.  In addition to being twice as large as the current largest data center GNC 92MW, also operated by GTA, the center will be capable of housing up to six subsea cables and it will be a Tier 3 center.  The first in Guam.

Guam’s path to economic transformation: beyond infrastructure

While sectors like housing, additive manufacturing, ship repair, subsea cables, and data centers offer promising opportunities for Guam’s long-term economic growth, we must not overlook the critical foundations that are essential for our island’s success. Our schools, parks, and government hospital are in dire need of improvement, and our business permitting processes are cumbersome and hinder development.

The challenges we face are systemic, not individual. Gov. Leon Guerrero’s recent response to my criticism of an individual running one of her agencies highlighted the complexities of managing a government organization. She emphasized the difficulty of firing underperforming employees and the bureaucratic hurdles of procurement processes, which often lead to protests.

This systemic dysfunction is a departure from the ideal of meritocracy envisioned by Teddy Roosevelt. Our civil service system has evolved into one that protects mediocrity, hindering the advancement of those who demonstrate merit. The procurement system is equally problematic, creating significant challenges for businesses.

To address these issues, we must consider privatizing as many government services as possible. The success of GTA, a for-profit enterprise, and the GNTF Tennis Center and FIFA soccer fields, both non-profit organizations, demonstrates the potential of privatization.

As a community, we must urge our elected officials to explore this path. By privatizing certain government services, we can improve efficiency, reduce costs, and create opportunities for private sector innovation. This will not only enhance our economy but also improve the quality of life for Guam’s residents.

The house is on fire

Fixing Guam’s government services is a long-term venture, that will require a lot of political capital and good will. But there is one crisis we cannot kick down the road, and that is our tourism crisis. Our tourism industry is on the verge of collapse. For four straight years, tourism businesses have suffered relentless losses, with many on the brink of shutting down for good. If you think this is hyperbole, talk to any hotel owner or drive down to Tumon and count the tourists on the sidewalks — and then look at the vacant, struggling businesses around them.

Tumon Sands Plaza storefronts are vacant. Once-thriving attractions like Atlantis Submarine and Ride the Ducks have shuttered due to a lack of customers. Hotels like the Pacific Star have closed, while others, like the Sante Fe, are converting to military use. At least 8,000 jobs have already been lost, with thousands more at imminent risk.

The influx of federal spending has obscured the problem, but it won’t last forever. We are either willfully ignorant or blissfully unaware that tourism is dying a slow, painful death. If we don’t act immediately, we risk becoming a one-legged economy, entirely dependent on Washington D.C.

In 2019, tourism was the lifeblood of Guam’s economy, generating $2.4 billion in revenue, supporting 23,100 jobs, and contributing $253 million in tax revenues. Then COVID hit, and everything stopped. While the world has since recovered, Guam remains stuck. PKF Hospitality Consultants, engaged to assess Guam’s tourism sector, found in its draft report that “Global tourism has made a full recovery while Guam is floundering. With the window of opportunity for recovery rapidly closing, it is imperative for Guam to address its problems head-on.” PKF further noted, “(We are) surprised by the lack of urgency and priority that tourism receives, despite its critical role as one of the top economic drivers of the local economy.”

Guam’s tourism recovery lags far behind

Guam’s tourism recovery remains one of the worst in the world. Arrivals from Japan are still 70% below 2019 levels, and Korean arrivals are down over 50% — despite the full recovery of the Korean market.

The decline in Korean tourism is particularly concerning. While the Korean won has depreciated by only 15% compared to 2019, and many other Korean travel destinations are thriving, Guam’s market share from Japan has plummeted by 59%. This is the worst performance among major tourist destinations, compared to the U.S. mainland’s 16% decline.

The issue is not solely about currency exchange rates. Guam’s tourism product, its positioning, and its marketing efforts have failed to resonate with the evolving consumer. This decline has a substantial economic impact, resulting in over $1 billion in lost economic activity and $100 million in missing tax revenue. These funds could have been used to support government operations, a new hospital, and other essential projects.

Tourism: The foundation of our standard of living

Tourism is more than just an industry; it’s the cornerstone of our standard of living. When I arrived on Guam in 1991, it was considered a challenging assignment for federal workers. Today, it’s one of the most sought-after postings outside the continental United States, thanks to the economic benefits, job opportunities, and improved quality of life brought by tourism.

However, we’ve become complacent. We assumed that tourism would automatically rebound after the pandemic with minimal effort. This was a mistake. The world has changed, and so has the tourism landscape. In 2019, 70% of Guam’s visitors came through travel agents; now, 70% are independent travelers, and the traditional travel agent model has largely disappeared.

To revitalize our tourism industry, we need a fundamental shift in our approach. A concerted effort, involving both the private and public sectors, is essential to reignite tourism on Guam. If we fail to act decisively, the tourism industry as we know it may cease to exist.

Reinvesting in Tumon for a stronger tourism future

We must redirect the Tourist Attraction Fund and Hotel Occupancy Tax to their intended purpose: revitalizing Tumon. This once-vibrant district has been neglected for far too long.

With increasing regional competition, Guam needs to significantly enhance its tourism product. We must move beyond the “cheap and cheerful” image and reposition ourselves as a destination of choice.

PKF Hospitality Consultants recommends shifting towards a more aspirational destination, emphasizing culture, cuisine, and attractions. Without a comprehensive recovery strategy, Guam risks being left behind in the global tourism industry, missing out on enormous economic opportunities. A unified branding approach is essential but requires substantial investment.

A unified approach to tourism recovery

Gov. Leon Guerrero has acknowledged the need for a comprehensive effort to revitalize Guam’s tourism industry. She is establishing a Tourism Recovery Task Force, comprised of leading tourism experts and community stakeholders.

As an immediate step, the task force should implement an Urgent Tactical Triage Plan to halt the decline in market share and stabilize the tourism sector. This plan could potentially utilize American Rescue Plan funds allocated for COVID-19 recovery.

The recovery plan will seek industry support through measures such as campaign rates, upgrades, and special offers like, “Stay 4 nights, get the 5th free.” Tax incentives can encourage reinvestment in capital improvements by hotels and operators, while a HOT bond can provide funding for product enhancements.

Furthermore, we should reinstate the GVB Research department to ensure data-driven decision-making. PKF highlighted the outdated and flawed data sources currently available, emphasizing the critical importance of accurate data in guiding tourism strategies.

Following this immediate action, a Comprehensive Strategic Repositioning Plan should be developed to transform Guam from a “close and cheap” destination into a world-class destination renowned for its rich Chamoru culture, high-quality accommodations, excellent cuisine, and unique attractions.

The Tourism Recovery Task Force should be a public-private partnership, involving industry experts, the Guam Visitors Bureau, and elected officials. As suggested by PKF, a true partnership centered around the interests of all stakeholders is essential to achieving our aspirational goals for Guam’s tourism industry.

Investing in tourism: Securing Guam’s future

The message is clear: investing in tourism is an investment in our future. We cannot afford to take a short-sighted approach. The time for action is now, before the current decline becomes the new normal. Guam’s future prosperity depends on it.