GUAM – Over half a billion dollars designated for the Guam military buildup from Japan this year will take a while to reach the local economy, even though a new special bonds law is now in place to finance it.
When Parliament passed budget financing legislation last Friday to finally pay for Japan’s 2011 national budget, the gears were set for pumping another 53.2 billion yen into buildup construction projects meant to prepare Guam for the transfer of Marines from Okinawa.
At least two big obstacles will prevent an immediate inflow of the money to Guam, however. The U.S., Japan and Guam must first finalize a plan that guarantees Japan recovers the money designated for utilities projects. Secondly, Congress must send a clear signal that the U.S. will – despite America’s crippling debt crisis — pay for its part of the security alliance’s Asia-Pacific realignment.
For now, that new money, equal to U.S. $693.7 million by the current exchange rate, will be transferred to two holding places via the Japan Ministry of Defense: to a trust fund account administered by the U.S. Department of Defense, and to the Japan Bank for International Cooperation.
Military Construction Projects
The trust fund, an interest-earning account established by the Duncan Hunter National Defense Authorization Act of 2009, supports military construction projects paid directly in cash by Japan. The U.S. Navy allocates the so-called “Mamizu” money from the account to Naval Facilities Engineering Command, Pacific, which then can start the procurement process.
Of the $833.8 million already paid into the trust fund by Japan in previous fiscal years, the Navy has only awarded $50 million for Marines-related design and $89.7 million for site improvements, clearing, utilities, roadways and other improvements needed in advance of building construction. Japan is set to grow the account by another 14.9 billion yen this year, or U.S. $194 million — money intended to pay for two buildings at Finegayan, one for Base Administration and another for Marine Logistics Group Administration.
Another 37 billion yen in Japan’s 2011 appropriations is earmarked for utilities loans from the Japan Bank. JBIC will loan about $420 million to Guam Waterworks Authority to pay for critical upgrades to the wastewater system for northern Guam and the Finegayan area.
But nothing will happen until the three governments agree on a financing structure for the loan. Japan has stipulated that the loan go through a third-party Special Purpose Entity, which would design, construct and operate the new wastewater system and secure Japan’s ability to recover 100 percent of its investment. The Navy would be a customer of Guam’s new wastewater system, paying usage rates designed to cover the loan’s debt service.
The improved system will bring the Northern District Wastewater Treatment Plant, which currently fails to meet even primary treatment standards and U.S. Environmental Protection Agency regulations, to secondary treatment levels. Until then, the overstressed system cannot handle any new development in the region, a major obstacle to breaking ground on the planned Marine base at Finegayan.
Another pre-building imperative at Finegayan is the installation of a new aquifer-friendly fresh water system, owned by the Navy but designed to also serve the surrounding civilian neighborhoods. According to a GBN interview with then-commanding officer of NAVFAC Marianas Capt. Peter Lynch in May, the Navy expects Japan’s 2011 budget to include a separate $120 million JBIC loan to the U.S. Department of Defense for the new water system.
While construction is underway on new aviation capabilities at Andersen Air Force Base and shore embarkation facilities at Naval Base Apra Harbor, the same will not be true for a long time yet at Finegayan, where the Marines’ housing, administration and quality of life facilities will be located.
The joint venture of Hensel Phelps-Granite Construction got the green light on Aug. 11 to start Phase One Utilities and Site Improvements at Andersen and Apra Harbor only, as the Navy chose to defer the Finegayan options on the contract.
In light of the nation’s budget worries, the Hensel Phelps award was an unexpected display of confidence by the Navy at a moment when the future of defense spending has turned foggy at best. For the first time ever, the U.S. encumbered its ally’s money for a relocation construction project. But the three governments must continue to chip away at the hurdles that remain to starting construction at Finegayan.
Japan’s 2011 appropriation will bring total money in the bank for the buildup to $2.02 billion. That includes $494.7 million from the U.S. since fiscal year 2008 and $1.5 billion from Japan since fiscal year 2009. The House and Senate are debating another $155 million in the U.S. 2012 budget, $77 million of which would facilitate the U.S.-funded portion of fresh water utilities at Finegayan.
While the buildup bank account is clearly in the black, however, Japan-funded projects remain constrained as they must be synchronized with U.S.-funded projects whose purse strings have lately been tightened by America’s debt crisis and the threat of deep Defense budget cuts.
Congress’s deficit cutting may force the Department of Defense to rethink some of its most critical strategies, including military force posture initiatives like the $17.4 billion Marine relocation to Guam. Though few experts believe the U.S. can afford to compromise its alliance with Japan and its forward military presence in an increasingly unstable Asia, no one can say how the Pentagon can satisfy the worst case scenario “doomsday mechanism” in the new debt ceiling law without compromising military capability.
The first official step towards a slower buildup however came months before Washington brought the nation to the brink of default on its debt.
Japan and the U.S. together agreed last June to drop the original 2014 deadline for the Marine transfer, largely because a new Marine air base in Okinawa to replace the one in Futenma required more time. Newly elected Prime Minister Yoshihiko Noda vowed on Monday to move forward with the bilateral agreement and the new air base, but he’ll have to balance this with larger national issues ranging from disaster recovery and reconstruction to the yen crisis and economic troubles.
In June, then-forward director of the Joint Guam Program Office John Jackson predicted a drop from the originally expected “billion dollar threshold of construction every year to hundreds of millions of dollars every year.” Now, given America’s debt crisis and the fact that the Navy has only awarded $320 million in relocation contracts since January 2010, even five hundred million a year may yet be a stretch.
For now, a flatter rise in construction tempo is already in play and it will be a while before the Pentagon gets any clarity on budget cuts and what they might mean for Guam.
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