The Special Cost of Living Economic Task Force met last Friday restarting a legislative committee that hasn’t met in three years to study the inflationary impacts and make recommendations for future cost-of-living adjustments on government of Guam retirees.

The enactment of Public Law No. 38-111 revised the leadership structure of the task force while keeping its original purpose, passing the chairperson role to the legislative oversight chairperson of retirement. That person being Sen. Telo Taitague.

Guam Department of Labor Chief Economist Gary Hiles said the general concept for evaluating the adequacy of retirement income is that it should be at least 70% of retirement earnings. GovGuam’s retirees meet that general ruling, but because of inflation their income’s buying power would continue to decline each year as prices rise.

He said data from the Federal Reserve Bank of Minneapolis shows that the buying power of initial amount of $25,000 would decline to only $14,788 in 20 years at a very modest rate.

The Federal Reserve’s target inflation rate of 2% annually, however the rate as of August sits well above at 3.4%.

“With higher inflation rates, the decline in purchasing power would be much more severe, potentially eliminating more than half of real inflation adjusted income,” Hiles said. “This is especially harmful for the elderly who experience higher medical costs and may not be able to work to earn additional income.”

Hiles said a cost-of-living adjustment is needed to keep retirees’ real income from deteriorating as they age. GovGuam COLA payments have been “far exceeded” by inflation and created tremendous liability, he added.

Rosanne Jones, professor of economics and dean of the School of Business and Public Administration at the University of Guam, said it’s the purview of the government to ensure that retirees who have lost buying power to be able to continue have the dollar value and spending capability during their retirement.

Those deficiencies could be mitigated by making retirement fund contributions be paid over the work life of the retiree into an inflation adjusted retirement fund that could pay them out versus using the General Fund.

Additionally, during periods of high inflation, the COLA percentage could be capped as to limit inflation cost exposure. This would also reduce or eliminate the need for increase in General Fund appropriations for supplemental discretionary COLA payments, Hiles said.

‘We don’t know’

Since the inception of the legislation back in 1988, Legislative Office of Finance and Budget Director Stephen Guerrero said there’s no “clear-cut” way to address COLA.

“The annual budget itself is a law that says we pay COLA with a specific amount. How that amount is determined, we don’t know,” he said. That’s the reason why the task force was formed, he added.

Government of Guam Retirement Fund Director Paula Blas echoed this saying that the amount is arbitrary.

“They don’t have a formula of how it’s actually based,” Blas said.

“Like pulling rabbit out of a hat,” Taitague said.

Jones said she has concerns about what data the task force will use determine the adjustment.

Guam’s consumer price index is much different that the U.S., she said, the task force should try and gather its own CPI or find some kind of proxy to base the adjustments going forward.

One of the biggest drivers of prices on Guam is energy costs, Jones said.

“I’d be looking to getting a handle on the cost of fuel as kind of one main source for inflation that happens on this island,” she said. Global fuel prices are compounded within Guam’s price markets