E-FILED

Supreme Court Case No. CRQ14-001

IN THE SUPREME COURT OF GUAM

IN RE: REQUEST OF I MINA'TRENTAI DOS NALIHESLA TURAN GUAHANRELATIVE TO THE USE OF FUNDSFROM THE TAX REFUND EFFICIENT PA YMENT TRUST FUND

REQUEST FOR DECLARATORY JUDGMENT

(7 G.C.A.SECTION 4104)

RESPONSE BRIEF OF I MAGA'LAHEN GUAHAN

S AN D R A C R UZ M I LLE R

AR T H UR B . C LAR K

OFFICE OF THE GOVERNOR OF GUAMRicardo J. Bordallo Governor 's ComplexAdelup, Guam 96910Telephone: (671) 475-9370Facsimile: (671) 477-4826Attorneys for I Maga'lahen Gudhan

CERTIFICATE AS TO INTERESTED PARTIESRequired by Rule 13(j)(1)

SUPREME COURT OF GUAMSUPREME COURT CASE NO. CRQ14-001

IN RE: REQUEST OF I MINA'TRENTAI DOS NA LIHESLA TURAN GUAHANRELATIVE TO THE USE OF FUNDS FROM

THE TAX REFUND EFFICIENT PA YMENT TRUST FUND

The undersigned, counsel of record for Respondent I Maga'lahen Guahancertifies that the following have an interest in the outcome of this case:

(1) I Maga' lahen GuahanRespondent

(2) Benita A. ManglonaDirector, Department of Administration;

(3) John P. CamachoDirector, Department of Revenue & Taxation

(4) The Government of Guam

(5) The 32nd Guam LegislaturePetitioner

These representations are made to enable Justices of the Court to evaluatepossible recusal.

Dated: March 21, 2014.

OFFICE OF THE GOVERNOR OF GUAM

By /s/SANDRA CRUZ MILLERAttorney for I Maga' lahen Guahan

I

CERTIFICATE RE: JUSTICES

Required by Rule 13(j)(2)

SUPREME COURT OF GUAMSUPREME COURT CASE NO. CRQ14-001

IN RE: REQUEST OF I MINA 'TRENTAI DOS NA LIHESLA TURAN G UI4HANRELATIVE TO THE USE OF FUNDS FROM

THE TAX REFUND EFFICIENT PA YMENT TR UST FUND

There are no Justices who may have presided over any portion of the instant

case or any related proceeding in the court below or any Justices who may have

served as counsel of record or who may have provided legal advice to any party to

the proceeding and any interested parties listed in the CERTIFICATE AS TO

INTERESTED PARTIES filed together herewith pursuant to GRAP 13(j)(1).

Dated: March 21, 2014.

OFFICE OF THE GOVERNOR OF GUAM

By /s/SANDRA CRUZ MILLERAttorney for I Maga 'lahen Guahan

II

TABLE OF CONTENTS

1. STATEMENT OF JURISDICTION ...........................................................1

II . STATEMENT OF THE ISSUES .................................................................1

II I . STATEMENT OF THE CASE AND STANDARD OF REVIEW...........3

IV. STATEMENT OF FACTS ...........................................................................4

A. The Income Tax Refund Reserve Fund ................................................4B. The Income Tax Refund Efficient Payment Trust Fund .......................4C. The Interplay between the Trust Fund and the Refund Reserve Fund .5

V. SUMMARY O F ARG UMEN T ....................................................................5

A. Jurisdiction ...........................................................................................5B. Organicity .............................................................................................6C. The Legislature's Issues are Moot ........................................................6

VI. ARGU MENT .................................................................................................7

A. The Supreme Court Lacks Jurisdiction ................................................71. The Legislature's Request for Declaratory Judgment fails tosatisfy the jurisdictional requirements of 7 G.C.A. Section 4104 ........7

B. The Statutes Creating the Trust Fund and the Refund Reserve Fundare Inorganic and Void Ab Initio because they are "Manifestly Inapplicableor Incompatible" with the Internal Revenue Code ....................................... 15

1. The Legislature may not enact any law which conflicts with theInternal Revenue Code .......................................................................15

C. There has Been no "Undue Delay" and no Violation of Law .............221. The Administration has deposited more funds into the TrustFund than required by law . ................................................................222. The tax collection deposits in the Trust Fund may lawfully betransferred or escrowed by the Governor in order to manage theoperations and cash flow of the Government of Guam ......................26

VII. CONCLUSION/RELIEF SOUGHT ..........................................................36

TABLE OF AUTHORITIES

Cases:

Amerault v. Intelcom Support Servs., Inc., 2004 Guam 23 .....................................27

Bank of America v. Blaz, 539 F.2d 1226 (9th Cir. 1976) .......................................21

Bates v. United States, 522 U.S. 23 (1997) ............................................................26

Data Mgmt. Res., LLC v. Office of Pub. Accountability, 2013 Guam 27 (Guam

2013) .......................................................................................................................27

Daughtrey v. Carter, 584 F.2d 1050, 1057 (D.C. Cir. 1978) ................................. 10

Dean v. United States, 556 U.S. 568, 572 (Sup. Ct. 2009) ....................................27

Dorsey v. United States, 132 S. Ct. 2321; 183 L. Ed. 2d 250 (2012) ..................... 12

Goldston v. State of North Carolina, 683 S.E.2d 237 (N.C. 2009) ............30, 31, 32

Government of Guam v. Koster, 362 F.2d 248, 251 (9th Cir. 1966) ......................21

In Re: Request of 24th Guam Legislature, 2001 Guam 3 (Guam 2001) ....15, 16, 17

In Re: Request of Camacho, 2003 Guam 16 (Guam 2003) .......................................3

In Re: Request of Camacho, 2006 Guam 5 (Guam 2006) ........................................9

In re: Request of Gutierrez, 1996 Guam 4 (Guam 1996) .........................................8

In re. Request of Gutierrez, 2002 Guam 1 (Guam 2002) ......................3, 8, 9, 11,13

Maine State Hous. Auth. v. Depositors Trust Co., 278 A.2d 699 (Me. 1971) ........ 12

Paeste et. al. v. Government of Guam, CV 11-00008 (D. Ct. Guam) .....................24

Pangelinan v. Gutierrez, 2000 Guam 11 (Guam 2000) ...........................................3

Santos v. Camacho, 2008 WL 8602098 (D. Ct. Guam Apr. 23, 2008) ..................24

Simpao v. Gov't of Guam, 369 F. App'x 837 (9th Cir. 2010) ................................24

ii

Statutes:

5 G.C.A. § 4117 .......................................................................................................34

5 G.C.A. § 9242 ......................................................................................................34

5 G.C.A. § 22304(a) ...............................................................................................34

7 G.C.A. § 4104 ...................................................................1,2, 3, 5,7,8, 9,10, 13, 14

11 G.C.A. § 50103 .........................................................................4, 6, 24, 25, 29, 31

11 G.C.A. § 50105 .........................................................................................5, 23, 29

11 G.C.A. § 51102 .............................................................................5, 13, 23, 25, 28

11 G.C.A. § 51105 ...................................................................................................13

11 G.C.A. § 51107 ...................................................................................................13

26 U.S.C. § 931 .......................................................................................................16

26 U.S.C. §1324(a)(2)(E) ...........................................................................16,17,19

26 U.S.C. § 7803(a)(2) ......................................................................................17,17,18

26 U.S.C. §§ 9501-9511 ..........................................................................................20

31 U.S.C. § 1321 .....................................................................................................20

31 U.S.C. § 1323 .....................................................................................................20

48 U.S.C. § 1421 i(a) .................................................................................................15

48 U.S.C. § 1421i(b) ................................................................................................15

48 U.S.C. § 1421i(c) ..........................................................................................18,18,20

48 U.S.C. § 142li(d)(2) ...........................................................................................21

48 U.S.C. § 1421i(e) ................................................................................................15

48 U.S.C. § 1424-1 ....................................................................................................1

GUAM PUB. L. 22-140:IV:2(b) (1994); 11 G.C.A. Chapter 50 ..................................3

GUAM PUB. L. 26-74:2 (2002); 11 G.C.A. Chapter 51 ........................................4,4 ,2 4

iii

I. STATEMENT OF JURISDICTION.

Petitioner I Mina'Trentai Dos na Liheslaturan Guahan (Legislature) has

brought this Request for Declaratory Judgment before the Supreme Court of

Guam by invoking Section 1424-1 of the Organic Act of Guam and Title 7

Guam Code Annotated Section 4104.

Respondent I Maga'lahen Guahan (Governor) disagrees, however, that

jurisdiction is had, and instead submits that the Legislature has failed to meet the

threshold requirements for properly bringing an action for declaratory relief

before the Court. The substance of this jurisdictional issue shall be more fully

addressed and discussed infra.

II . STATEMENT OF THE ISSUES.

When the Legislature filed its Request for Declaratory Relief, its Prayer for

Relief identified four questions for the Court 's consideration. In its Opening

Brief, however, the Legislature narrowed this number down to two questions,

neither of which were one of the four identified in Prayer for Relief' The

t The Legislature's Opening Brief declares that there are "two basic issues"presented in this request for declaratory judgment, the first of which is, "Did the

Legislature properly exercise its Organic Act authority when it passed the

Income Tax Refund Reserve Fund?" This "basic issue" about the Income TaxRefund Reserve Fund stands in contrast to the Legislature's Request for

Declaratory Judgment and its Prayer for Relief which seek a declaration on four

1

Governor does not accept the Legislature's presentation of issues. Rather, it is

respectfully submitted that the questions presented in this matter are properly as

follows:

(1) Title 7 Guam Code Annotated Section 4104 permits the Legislature

to seek a declaratory judgment relative to its powers and duties only. Even then,

the issue must be such that its resolution through the normal process of law is

inappropriate as it would cause undue delay. Does the Supreme Court have

jurisdiction over the subject matter of this action for declaratory relief?

(2) The Organic Act mandates the application of the Internal Revenue

Code to the Guam Territorial Income Tax (GTIT). The Organic Act further

directs that the Governor of Guam shall have the same powers as the U.S.

Secretary of the Treasury with respect to the administration of the GTIT. Do the

laws establishing the Trust Fund and the Refund Reserve Fund violate the

Organic Act by circumventing the Internal Revenue Code and by infringing upon

the power and duties of the Governor to administer the GTIT?

(3) Title 11 G.C.A. Section 4104 provides that the Supreme Court may

only review questions the resolution of which through the "normal process of

questions, all of which primarily address the legality and procedures concernedwith the Income Tax Re fund Ef icient Payment Trust Fund Account.

2

law" will not cause undue delay. Given that it is undisputed by the Legislature

that tax refunds are being paid promptly, does there exist any "undue delay" as

required by Section 4104, or are the Legislature's issues moot?

III . STATEMENT OF THE CASE AND STANDARD OF REVIEW.

This is an action for declaratory relief brought to the attention of the Court

pursuant to its original, rather than appellate, jurisdiction under Title 7, Guam

Code Ann. Section 4104. Accordingly, all issues are decided de nova. In re

Request ofCama cho , 2003 Guam 16, ¶ 8 (Guam 2003).

Issues of statutory interpretation and the determination of whether

legislation is unconstitutional are questions of law. In re. Request of Gutierrez, ¶

2002 Guam 1, ¶ 8 (Guam 2002). The questions presented by the Governor, supra,

for the Court's determination involve the interpretation and application of both

local and federal law. These are legal questions properly within the Court's

authority to decide. In re Request of Camacho, 2003 Guam 16, ¶ 8

citing Pangelinan v. Gutierrez. 2000 Guam 11, ¶ 26 (Guam Supreme Court may

determine and interpret the provisions of the Organic Act).

IV. STATEMENT OF FACTS.

A. The Income Tax Refund Reserve Fund.

In 1994, Public Law 22-140:IV:2(b) established the Income Tax Refund

Reserve Fund. Now codified at 11 G.C.A. Chapter 50, Refund Reserve Fund was

3

established for the purpose of setting aside portions of income tax revenues so

that funds would be available to pay future tax refunds in a timely manner.

Under 11 G.C.A. Section 50103, the amount of income tax revenues to be

reserved is determined by a formula established annually by the Director of

Revenue and Taxation (DRT), in consultation with the Director of Administration

(DOA) and the Director of the Bureau of Budget and Management Research

(BBMR).

B. The Income Tax Refund Efficient Payment Trust Fund.

In 2002, Public Law 26-74:2 (codified at 11 G.C.A. Chapter 51)

established a second tax-related fund called the Income Tax Refund Efficient

Payment Trust Fund. The intent of the Trust fund is to provide an interest-

earning account into which a portion of tax collection receipts is deposited. 11

G.C.A. § 51102. The portion to be deposited into the Trust Fund is calculated by

a different formula than that used with the Refund Reserve Fund.

C. The Interplay between the Trust Fund and the Refund ReserveFund.

The Trust Fund and the Refund Reserve Fund together create a multistep

system for setting aside tax receipts and for paying out tax refunds. Under this

system, a portion of tax collection receipts is deposited into the Trust Fund and is

subsequently deposited into the Refund Reserve Fund. According to 11 G.C.A.

4

Section 51102, when tax refunds need to be paid, the Director of DRT makes a

written request to the Director of DOA to transfer money out of the Trust Fund

and shift it into the Refund Reserve Fund. Once there, 11 G.C.A. Section 50105

directs that refunds be issued to the taxpayer out of the Refund Reserve Fund.

V. SUMMARY OF ARGUMENT

A. Jurisdiction. As evidenced by its name, an action for declaratory

judgment is a procedural device to "declare" the validity or existence of a duty,

obligation, or power. To this end, Title 7 G.C.A. Section 4104, which governs

the authority of this Court to assume jurisdiction over declaratory judgment

actions, explicitly provides that either the Legislature or the Governor may seek

an opinion from this Court as to matters involving their respective duties and

powers only. No authority or jurisdiction lies to permit the Legislature to question

the operations of the Governor and the Executive Branch, or vice versa.

Moreover, under Section 4104, the extent of the Legislature's inquiry to the

Supreme Court is limited to the issues it approved by Resolution.

Declaratory relief is also inappropriate where there is no danger that could

not be addressed by the normal process of law. And when a question involves the

application of the Organic Act to a locally enacted income tax statute, a

"controversy in the constitutional sense" exists which requires that if jurisdiction

were to be had, then it appropriately lies with the District Court of Guam.

5

B. Organicity. The Supreme Court has held that until Guam de-links

from the Internal Revenue Code (I.R.C.) and promulgates its own tax code, the

I.R.C. applies to Guam by operation of the Organic Act. To the extent that a

local statute purports to regulate, change, or otherwise contradict the procedures

set forth in the I.R.C. for the handling of income tax collections or the processing

of tax refunds, then that local law is inorganic and void ab initio.

C. The Legislature's issues are moot. Assuming that 11 G.C.A.

Chapters 50 and 51 are Organic and the issues raised in the Legislature's Request

for Declaratory Judgment are within the jurisdiction of this Court to review, the

Administration has been timely paying tax returns during the entire period in

question (from January 2013), as required by I1 G.C.A. Section 50103, and has

not improperly withdrawn funds from the Trust Fund. Through December 31,

2013, the Administration has deposited into the Trust Fund all sums required by

law and, to that point, had even advanced the Trust Fund approximately $7

million more than required. None of the issues ra ised by the Legisla ture are

legally accurate, and all are factually moot.

6

VI . ARGUMENT

A. THE SUPREME COURT LACKS JURISDICTION.

1. The Legislature's Request for Declaratory Judgment fails tosatisfy the jurisdictional requirements of 7 G.C.A. Section 4104

This matter came before the Court through the Legislature's Request for

Declaratory Judgment . See, REQUEST FOR DECLARATORY JUDGMENT, CRQ14-

001 (Sup. Ct. Feb. 20, 2014). Exhibit A to that Request is a Reso lution passed by

the Legislature resolving to request for declaratory judgment from the Court. This

Court's power to render declaratory judgments is contained in Ti t le 7 G.C.A.

Section 4104. Though the section is familiar, it is worth examining again. It

states;

I Maga'lahen Guahan, in writing, or I Liheslaturan Guahan, byresolution, may request declaratory judgments from the Supreme Courtof Guam as to the interpretation of any law, federal or local, lyingwithin the jurisdiction of the courts of Guam to decide, and upon anyquestion affecting the powers and duties of I Maga'lahi and theoperation of the Executive Branch, or I Liheslaturan Guahan,respectively. The declaratory judgments may be issued only where it isa matter of great public interest and the normal process of law wouldcause undue delay. Such declaratory judgments shall not be availableto private parties. The Supreme Court of Guam shall, pursuant to itsrules and procedure, permit interested parties to be heard on thequestions presented and shall render its written judgment thereon.

7 G.C.A. § 4104 (emphasis added).

This Court will adhere to the jurisdictional grant made to it and respond, if

appropriate, to the Legislature ' s resolution. "[G]rants of original jurisdiction, as

7

over declaratory judgments in section 4104, should be read literally and construed

narrowly." In re Request of Governor Carl T.C. Gutierrez, Relative to the

Organicity and Constitutionality of Public Law 26-35, 2002 Guam 1, ¶ 12 (Guam

2002).

In its Request, the Legislature does not ask how a statute affects the

Legislature, rather it asks how the Executive Branch functions under those

Chapters. This is not a proper question under Guam's Declaratory Judgment

Statute.

"In order to invoke this court's jurisdiction pursuant to 7 GCA Section

4104, a party seeking declaratory judgment must satisfy the following three

requirements:

(1) the subject matter of the inquiry must be appropriate for section 4104review;

(2) the issue raised must be a matter of great public importance; and

(3) the issue must be such that its resolution through the normal process oflaw is inappropriate as it would cause undue delay."

In re Request of Governor Felix P. Camacho Relative to the Interpretation ofSection 11 of the Organic Act of Guam and the Education Facilities ConstructionInitiatives Act of 2001, 2006 Guam 5, ¶ 8 (Guam 2006.)

A failure to meet any one of these criterion deprives the Court of

jurisdiction. "Where the jurisdictional prerequisites of section 4104 are not met,

we lack authority to render a judgment on the question." In re: Request of

8

Governor Carl T.C. Gutierrez for a Declaratory Judgment as to the Organicity of

Guam Public Law 22-42 , 1996 Guam 4, ¶ 16 at fn. 6 (Guam 1996).

Here, the subject matter of the Legislature's inquiry is inappropriate for

review. It is simply inappropriate for one branch of government to ask this Court

to pass upon another branch's activities. "[T]he Governor is precluded from

obtaining review of questions under Section 4104 if those questions involve the

operation of another branch of government and that operation does not impinge

on the Governor 's powers and duties as set forth in the Organic Act." In re

Request of Governor Carl T.C. Gutierrez, Relative to the Organicity and

Constitutionality of Public Law 26-35, 2002 Guam 1 at ¶ 20.

In this Request, the Legislature does not ask how Chapters 50 and 51 affect

it, rather their impact upon the Executive branch. Section 4104 provides that

either the Governor or the Legislature: "may request declaratory judgments from

the Supreme Court of Guam as to the interpretation of any law, federal or local,

lying within the jurisdiction of the courts of Guam to decide, and upon any

question affecting the powers and duties of I Maga'lahi and the operation of the

Executive Branch, or I Liheslaturan Guahan, respectively." (Emphasis added).

9

The use of the word "respectively" in the statute, combined with the

Compiler's comments,2 makes clear that Section 4104 may only be used to

petition the Court concerning the exercise of the petitioning branch's powers. It

cannot be used to challenge and regulate another branch of government.

The Legislature's first Prayer for Relief avers that the Governor is usurping

the legislative prerogative to appropriate revenue by allegedly withdrawing funds

contrary from the Trust Fund contrary to law. Though that is not the case, even if

it were, generally, the mere failure to carry out a statute by an executive branch

does not implicate a separation of powers issue. "The failure or refusal of the

executive branch to execute accomplished legislation does not affect the legal

status of such legislation; . . . " Daughtrey v. Carter, 584 F.2d 1050, 1057 (D.C.

Cir. 1978). If, as appears to be the case, the only question being asked is whether

the Executive Branch is following a law, that question must be raised in a

mandamus action, not in a declaratory action before the Supreme Court.

Strict construction should be particularly applied with regard to section4104 because the statute is a means for parties to bypass the normal

2 "Note that the language permits the Governor to request opinions as the operation of the

Executive Branch, including questions involving separation of powers, and the Legislature torequest opinions on the operation of that Branch, but does not permit one Branch to requestopinions as to the operation of the other where that operation does not impinge on therequesting branch's operations. The purpose of this limitation is to avoid one branch trying toregulate the other through the courts." 11 G.C.A. § 4104 at COMPILER'S COMMENT.

10

processes of law. Issues regarding the constitutionality of a statue,whenever possible, ought be left to the normal processes of law. .. .

Furthermore, determining matters through a proceeding that bypasses thenormal litigation process fails to represent interests and protect rights aswould an interested party in a fully litigated case. The benefits of leavingmatters to be fully litigated by interested parties is demonstrated by thewell established `case or controversy' requirement. Given the above-mentioned policies and in light of the fact that our statute, unlike theadvisory opinion laws of other jurisdictions, permits binding judgments tobe issued, section 4104 should be construed as strictly and narrowly aspossible.

In re Request of Gutierrez, 2002 Guam 1, 1114-15 (citations omitted).

Moreover, throughout its argument in the Request for Declaratory

Judgment, the Legislature never once states that it has the authority to

"appropriate" tax refunds. Instead, it refers to the "provisioning" and

"prioritizing" of refunds, which are the accurate expressions for how tax refunds

have been set aside and kept separate from government appropriations in Guam's

public laws. See Request for Declaratory Judgment at ¶¶ 16, 22; see also Guam

P.L. 32-68, Ch. I, Section 2. It is only in its Request and Prayer for Relief that

the Legislature equates the provisioning of tax refunds with the power to

"appropriate." In fact, the Legislature has never expressly "appropriated" money

from the Trust Fund or Refund Reserve Fund for tax refunds. Id.

If tax refunds are in fact not appropriated, then the allegation that the

legislative prerogative to appropriate has been usurped is moot. However, if

11

Chapters 50 and 51 of T itle 11 constitute the appropriation of government

revenues, then these laws must be declared invalid as they have

unconstitutionally imposed appropriation requirements on future legislatures.

"One legislature cannot impose a legal obligation to appropriate money upon

succeeding legislatures. An attempt to do so would be invalid ... " Maine State

Hous. Auth. v. Depositors Trust Co., 278 A.2d 699, 707 (Me. 1971) (internal

citations omitted). Cf. Dorsey v. United States , 132 S. Ct. 2321, 2331, 183 L. Ed.

2d 250 (2012) ("[SJtatutes enacted by one Congress cannot bind a later

Congress, which remains free to repeal the earlier statute, to exempt the current

statute from the earlier statute, to modem the earlier statute, or to apply the

earlier statute but as modified. ")

The Legislature's second and third Prayers for Relief request the Court to

determine whether the Legislature has the power to enact Chapters 50 and 51.

This begs the question as to who or what event leads the Legislature to believe

that the creation of these funds has been challenged. Even by the Legislature's

own admissions, the funds have never been challenged by the current or former

administrations. The Legislature admits that the current administration not only

acknowledges the Trust Fund, but is actually depositing money into that fund.

REQUEST FOR DECLARATORY JUDGMENT at ¶ 17.

12

Thus, under the jurisdictional strictures of Section 4104, we are left with

what is essentially the Legislature's question in its second and third prayers: did

the Legislature enact valid legislation? Surely, there was never any intention to

encumber precious judicial resources on so generic a question absent any overt

challenge to the Legislature's powers and duties by another branch of the

government. Entertaining such a question will only establish the undesirable

precedent for future legislatures to bring declaratory actions to simply have this

Court retrospectively approve legislation, contrary to the intent of Section 4104.

Involvement by the courts also calls into question judicialindependence and invites the legislature and executive to pass on theresponsibility of independently assessing the constitutionality of theiracts.

Other courts authorized to issue advisory opinions uniformlyimpose a similar requirement, requiring that the question poseddirectly relate to the duties of the requesting authority presentlyawaiting performance, and that the action of the requesting authoritydepend on the advice rendered by the court.

The significance of this requirement is that it precludes [onebranch of government] from requesting a declaratory judgment on aquestion that only concerns another branch of the government ...

In re Request of Gutierrez, 2002 Guam 1, ¶¶ 13, 19-20 (citations omitted).

Ultimately, we are left with the Legisla ture's fourth Prayer for Relief:

"Does [sic] 11 G.C.A. §§ 51102, 51105 and 51107 restrict the corpus of the

13

Income Tax Refund Efficient Payment Trust Fund from transfer for any non-

income related purpose?"

Even assuming that it did, still the question being posited does not give this

Court jurisdiction under Section 4104. The Legislature is attempting to

manufacture a separation of powers doctrine to invoke this Court's jurisdiction.

The Governor acknowledges and affirms the application of the separation of

powers on Guam through the Organic Act. However, that doctrine is not

implicated in the actions alleged by the Legislature. As described in the

Legislature's Opening Brief, the separation of powers doctrine exists to prevent

the centralization of power. See, OPENING BRIEF at p. 6. Yet the Legislature has

nowhere alleged that the Governor is exercising appropriation power otherwise

reserved to the Legislature.

Consequently, it appears that the ultimate relief that the Legislature is

seeking is not to abate a challenge to its authority to enact legislation or to

appropriate money (because no such challenge has been asserted), or to request

an interpretation of a law as it applies to the prospective application of its powers

and duties, but to declare that the Governor is not following the law. For the

reasons stated above, such relief may not be sought under Section 4104.

14

B. THE STATUTES CREATING THE TRUST FUND AND THEREFUN D RESERVE FUN D ARE IN O RG AN IC AN D VO ID AB INITIOBECAUSE T H EY ARE "MAN IFEST LY INAPPL ICABLE O RINCOMPATIBLE" WITH THE INTERNAL REVENUE CODE.

1. The Legislature may not enact any law which conflicts with theInternal Revenue Code.

The income tax imposed in Guam and payable to the Government of Guam

is called the "Guam Territorial Income Tax" (GTIT). 48 U.S.C. § 1421i(b). The

GTIT is administered by application of the U.S. Internal Revenue Code (I.R.C.),

which is enforced in Guam in the same way that it is enforced in the United

States:

The income tax laws in force in the United States of America andthose which may hereafter be enacted shall be held to be likewise inforce in Guam....

48 U.S.C. §1421i(a); In re. The EIC Question, 2001 Guam 3, 12 (Guam 2001)

(the Organic Act imposes certain provisions of the I.R.C. as the income tax

applicable to Guam taxpayers.).

The I.R.C. is given effect through a substitution process called "mirroring."

Mirroring essentially requires that the word "Guam" be substituted for the words

"United States" wherever those terms appear in the Code. 48 U.S.C. § 142li(e).

As will be discussed, infra, other terms are ordered to be substituted as well.

Under certain conditions, Guam is authorized to de-link from the mirror

code and develop its own tax code to replace enforcement of the I.R.C.. See,

15

TAX REFORM ACT OF 1986, 26 U.S.C. § 931 at Note re: AUTHORITY OF

GUAM, AMERICAN SAMOA, AND THE NORTHERN MARIANA ISLANDS

TO ENACT REVENUE LAW; U.S. P.L. 99-514, § 1271. Until such time as

Guam de-links from the I.R.C. and promulgates its own tax code, the I.R.C.

governs , and the Guam Legislature has no power to enact any laws modifying or

departing from it.

In the case of In Re: Request of 24th Guam Legislature Relative to the

Application of the Earned Income Credit Program to Guam Taxpayers, 2001

Guam 3 (Guam 2001 ) ("The EIC Question"), the Court held:

[U]nless Guam de-links from the I.R.C. in accordance with the TaxReform act of 1986 or unless an I.R.C. provision is deemed"manifestly incompatible or inapplicable" with congressional intent,Guam tax officials are limited by section 1421i to rule-makingauthority affecting GTIT collection and enforcement, but may notsubstantively modify any tax law set forth in the LR. C.

The EIC Question , 2001 Guam 3, ¶ 24 (emphasis added).

With respect to tax refunds, federal law states that income tax refunds are

to be paid directly out of the national Treasury from amounts appropriated to the

Secretary of the Treasury:

§ 1324. Refund of Internal Revenue Collections. (a) Necessaryamounts are appropriated to the Secretary of the Treasury forrefunding internal revenue collections as provided by law, includingpayment of-

1) claims for prior fiscal years; and

16

(2) accounts arising under-(A) "Allowance or drawback (Internal Revenue)";(B) "Redemption of stamps (Internal Revenue)";(C) "Refunding legacy taxes , Act of March 30, 1928";(D) "Repayment of taxes on distilled spirits destroyed

by casualty"; and(E) "Refunds and payments of processing and related

taxes':

31 U.S.C. § 1324(a)(2)(E) (emphasis added); The EIC Question , 2001 Guam 3, ¶

4 (remarking that the practice in the United States is to pay ordinary tax refunds

out of the U.S. Treasury).

Pursuant to Section 1421(e) of the Organic Act, when it comes to income

tax, the Governor of Guam is substituted in and stands in the place of both the

Secretary of the Treasury and the Commissioner of the IRS. A review of the

I.R.C. reveals that the duties of the Commissioner of Internal Revenue are very

broad and discretionary. The powers granted to the Commissioner (and to the

Governor through the mirror code) include the power to "supervise the execution

and application" of the I.R.C. or related statues to which Guam is a party:

§ 7803. Commissioner of Internal Revenue; other officials.

(a) Commissioner of Internal Revenue.

(2) Duties. The Commissioner shall have such duties andpowers as the Secretary may prescribe, including the power to-

(A) administer, manage, conduct, direct, and supervise theexecution and application of the internal revenue laws or relatedstatutes and tax conventions to which the Un ited Smee-q Guam is aparty...

17

26 U.S.C. § 7803(a)(2) (emphasis added; mirroring applied).

Directly related to this is the mandate of the Organic Act itself which

grants the Governor exclusive administration of those funds and any others

related to the payment of income taxes:

(c) Enforcement of Tax. The administration andenforcement o f th e Guam Territorial Income Taxshall be performed by or under the supervision of theGovernor. Any function needful to the administrationand enforcement of the income tax laws in force inGuam pursuant to subsection (a) of this section shall beperformed by any officer or employee of thegovernment of Guam duly authorized by the Governor(either directly, or indirectly by one or moreredelegations of authority) to perform such function.

48 U.S.C. § 1421i(c) (emphasis added).

The Trust Fund and the Refund Reserve Fund are creatures of the

Legislature. The two funds relate to, and directly affect the, internal revenue laws

to which Guam is a party. Pursuant to Section 1421i(c) and Section 1421(e) of

the Organic Act, the Governor is the Tax Commissioner and has the exclusive

authority to direct and supervise the execution and application of the internal

revenue laws and the related Trust Fund/Refund Reserve Fund laws in order to

control the government's cash flow. The Governor's powers include the power to

move funds back and forth as necessary between the Trust Fund, the Refund

18

Reserve Fund, and other government accounts. To the extent that the laws

creating the Trust Fund or the Refund Reserve Fund purport to restrict or

interfere with the Governor's Organic Act authority, the laws are inorganic and

void ab initio.

The mirroring mandate of Organic Act Section 1421(e) additionally

requires that when necessary, other terms, language, and nomenclature shall be

substituted in order to effect the intent of the mirror tax code. In this regard, the

I.R.C. provides that tax refunds are ordinarily paid out of the U.S. Treasury from

funds appropriated by Congress. 26 U.S.C. 1324(a)(2)(E) ("Necessary amounts

are appropriated to the Secretary of the Treasury for refunding internal revenue

collections, . . .including payment of accounts arising under . . . refunds and

payments of processing and related taxes.'). Applying the minor code, I.R.C.

Section 1324(a)(E) means that the Governor is privileged to pay tax refunds out

of the Guam equivalent of the national Treasury, which is the General Fund.

There is no equivalent in the I.R.C. of anything even remotely similar to

the Trust Fund or the Refund Reserve Fund. By segregating tax collection

receipts into locked accounts away from the General Fund, and then restricting

control and use of the funds so that the Governor is unable to exercise the duties

of tax commissioner over them, the Trust Fund and the Refund Reserve Fund

violate the Organic Act and the mirror code because they create a "manifestly

19

inapplicable or incompatible" scheme that circumvents the General Fund and the

methodology established by the I.R.C. for the processing of tax refund payments.

The Trust Fund itself further violates the Organic Act. It is not one of the

many trust funds identified in, and authorized by, the I.R.C. or its related laws.

See e.g., 26 U.S.C. §§ 9501-9511; 31 U.S.C. § 1321, §1323. Further, of the trust

funds authorized, the only one which appropriates money for income tax refunds

is the trust fund established in 31 U.S.C. Section 1323(a) for the deposit of

certain Department of Justice fees. 31 U.S.C. § 1323(b). There is no

corresponding Guam trust fund that mirrors the DOJ fund in 31 U.S.C. 1323(a).

As such, the trust fund at issue here is contrary to the Organic Act and the

minor code because the I.R.C. does not allow anywhere in its voluminosity for

the establishment of a special account separate and apart from the General Fund

and which the Governor/Tax Commissioner/Secretary of the Treasury may not

direct or supervise. Section 1421i(c) of the Organic Act expressly confers that,

"[alny function needful to the administration and enforcement of the income tax

laws in force in Guam" shall be performed by the Governor or by his delegate.

Because a local law cannot trump the Organic Act, the authorization to perform

"any function needful to the administration" of the GTIT in Guam that is given to

the Governor under Section 1421i(c) means that the Governor can control and

manage the Trust Fund.

20

Until Guam de-links from the mirror code, the Legislature has no authority

to change or depart from the procedures set forth in the I.R.C.3 See, Bank of

America v. Blaz, 539 F.2d 1226 at p. 1227-1228 (9th Cir. 1976) (the Government

of Guam " is powerless to vary the federal income tax laws as applied to Guam,

except as permitted by Congress ." [emphasis added]); Government of Guam v.

Koster, 362 F.2d 248, 251 (9th Cir. 1966) (The United States Commissioner of

Internal Revenue may not prescribe any regulations which are not consistent with

the federal tax statutes or which add a restriction to a sta tute which is not

justified by the statutory language or the intent of Congress. Except to overcome

manifest inapplicability, or incompatibility with the general intent of section 31

[§ 1421i/ of the Organic Act, as am ended , Guam tax officials are similarly

limited." [emphasis added].

'Although the Legislature is powerless to deviate from the I.R.C., the Organic Act does allowthe Governor to promulgate rules and regulations consistent with I.R.S. regulations for theGTIT administration or collection of taxes. 48 U.S.C. § 1421i(d)(2) ("Needful rules andregulations not inconsistent with the regulations prescribed under section 7654(e) of theInternal Revenue Code of 1954 [26 U.S.C. § 7654(e)] for enforcement of the Guam TerritorialIncome Tax shall be prescribed by the Governor."); The EIC Question , 2001 Guam ¶ 25;Koster, 362 F.2d at 250-25 1.

21

C. THERE HAS BEEN NO "UNDUE DELAY" AND NO VIOLATIONO F LAW.

Should the Court resolve the jurisdictional threshold in favor of the

Legislature as to any or all of the questions raised by the Legislature, as shown

below, not only has the Administration been following the law during the period

raised in the Legislature's Request, the Administration has even deposited more

money than required by law.

1. The Administration has deposited more funds into the T ru stFund than required by law.

In its Request for Declaratory Judgment, the Legislature represents its

Request for Declaratory Judgment "centers on the ability of the Legislature to set

fiscal policy and to prioritize and ensure the prompt payment of tax refunds... "

Request for Declaratory Judgment at p. 4, ¶ 6. Interest ingly, in carrying the

banner of ensuring prompt tax refund payments, the Legislature at no time and

nowhere alleges that tax refunds are not being paid promptly. That is because not

only are tax refunds being paid promptly, they are being paid faster than they

ever have in over 20 years. DECLARATION OF BENITA MANGLONA at ¶ 24 (Sup.

Ct. Guam Mar. 21, 2014).

The Administration is currently, and has been consistently, paying income

tax refunds in a timely manner and its deposits into the Trust Fund have been

22

consistent with the law since January 2013. DECLARATION OF JOHN CAMACHO at

¶ 3 (Sup. Ct. Guam Mar. 21, 2014).

Section 51102 requires the Director of Administration to "deposit .. . a

portion of the tax payment received to be calculated by [a prescribed formula] ...

so that, at the end of the fiscal year, the total amount set aside in said budget for

income tax refunds, the earned income tax credit and advanced child tax credits

shall have been deposited in said Fund."

It appears from the Legislature's Request for Declaratory Judgment

whether the Administ ra t ion recognizes the requi rement to "deposi t " monies into

the Trust Fund is not in issue, as even admitted in the Request for Declaratory

Judgment . REQUEST FOR DECLARATORY JUDGMENT at ¶ 17; DECLARATION OF

BENITA MANGLONA at ¶ 19, 22.

Title 11 G.C.A. Section 51102 requires the deposits into the Trust Fund to

eventually be transferred into the Refund Reserve Fund to pay tax refunds: "The

funds deposited in the Trust Fund by the Director of Administration shall

immediately be transferred to the Income Tax Reserve Fund upon the written

request of the Tax Commissioner for payments made pursuant to § 50105. " The

Refund Reserve Fund may even be used to pay prior years' tax refunds:

"Notwithstanding any other provision of law, such cash receipts may be used to

pay for prior years' income tax refunds, earned income tax credits, and child tax

23

credits. " 11 G.C.A. § 50103 . This is also the plain language reading previously

adopted by the U.S. District Court of Guam even before this language became

express:

Chapters 50 and 51 of 11 G.C.A. sta te that funds therein can bespent on projected `income tax refunds, earned income tax credits,child tax credits [and] tax rebate relief....' 11 G.C.A. § 50105.Nowhere in the statutes does it state that the `projected' EIC that canbe paid is only for future years-'projected EIC payments' are still`projected EIC payments,' whether they are payments for 1995 or2005. In other words, unpaid EIC payments are `projected' if theyhave not been paid.

Santos v. Camacho, 2008 WL 8602098 (D. Guam Apr. 23, 2008) aff'd sub nom.

Simpao v. Gov't of Guam, 369 F. App'x 837 (9th Cir. 2010); see also, 11 G.C.A.

§ 50103, which only requires the accumulation of cash reserves sufficient to pay

projected income tax refunds "in a timely manner."4

Since the funds were established, the government has never had adequate

revenues to fund either the Trust Fund or, before that, the Refund Reserve Fund.

The government has failed to fully fund either fund until under the current

administration. GUAM P. L. 26-74 at Message of Gov. Carl T.C. Gutierrez

("These are not good economic times. What this [Refund Reserve Fund]

legislation means is that approximately $5 Million in cash would have to be set

4 Six months is considered timely per the District Court of Guam's holding in the case ofPaeste et. al. v. Government of Guam, CV 11-00008 (D. Ct. Guam), cited in Legislature'sOPENING BRIEF at ¶ 18.

24

aside ever month. With the short cash flow, this would impact on the payment of

vendors, payroll, retirement benefits, and other daily obligations of the

government. In fact, if this amount of cash each month has to be idle, further

cuts of government payments, and even payroll, will need to be made... The end

result is that this legislation further erodes flexibility of cash management.');

DECLARATION OF BENITA MANGLONA at ¶¶ 18, 19.

However, since January 2013, the government of Guam, for the first time

in over 20 years, has been timely paying tax returns as mandated by Section

50103. Tax Year 2013 was the very first year since its establishment in 2002 that

the Trust Fund was fully funded pursuant to 11 G.C.A. Section 51102. Guam

Public Law 31-233, the FY2013 Budget Act, required that $113 million be

deposited into the Trust Fund. However, $130 million was depos ited - $17

million more than was required by law. DECLARATION OF BENITA MANGLONA at

¶ 19.

The Legisla ture alleges in its Request that the Administrat ion deposi ted

only approximately $21 million of the approximately $25 million that should

have been deposited into the Trust Fund through December 2013, during which

t ime it is alleged that the Administration also withdrew approximately $12

million from the Trust Fund. REQUEST FOR DECLARATORY JUDGMENT at ¶ 17.

25

What the Legislature fails to bring to this Court's attention, however, is

that as of December 31, 2013, rather than being approximately $16 million short,

as the math in the Legislature's Request would suggest, all deposits required to be

made to the Trust Fund had been made-and then some. Since August 2013, the

General Fund has advanced monies to the Trust Fund, and has been in such a

posi tion ever since. DECLARATION OF BENITA MANGLONA at ¶ 20 . As of

December 31, 2013, the General Fund had advanced the Trust Fund

approximately $7 million more than was required by law. Id. at 12 1.

The Legislature would have the Court ignore the overarching intention of

Chapters 50 and 51-to ensure the timely payment of tax refunds-and believe

that recent returns of advances to the General Fund somehow violate the law. In

order to make this point with the Court, however, the Legislature has

disingenuously deviated from the express language of the statutes and inserted

additional words not therein contained, violating multiple cardinal rules of

statutory construction. There is nothing in the law prohibiting the return of

advanced money to the General Fund.

2. The tax collection deposits in the Trust Fund may lawfully betransferred or escrowed by the Governor in order to manage theoperations and cash flow of the Government of Guam.

As is generally the case, "[s]ta tutory interpretation always begins with the

language of the statute . The plain meaning will prevail where there is no clearly

26

stated legislative intent to the contrary. In determining legislative intent, a

statute should be read as a whole, and therefore, courts should construe each

section in conjunction with other sections. " See, Amerault v. Intelcom Support

Servs., Inc. , 2004 Guam 23 ¶ 14 (`In determining the plain meaning of a statutory

provision, we look to the meaning of the entire statutory scheme containing the

provision for guidance. ). " Data Mgmt. Res., LLC v. Office of Pub.

Accountability , 2013 Guam 27 ¶ 17 (some internal citations omitted).

Another cardinal rule of statutory construction prohibits the introduction of

words that do not appear within the statute itself. One still needs to be precise in

reading the actual words used in the legislation. "We start, as always, with the

language of the statute.... As we explained in Bates v. United States. 522 U.S.

23 (1997), in declining to infer [a] ...requirement into a statute, `we ordinarily

resist reading words or elements into a statute that do not appear on its face. ' Id.

at 29. " Dean v. United States, 556 U.S. 568, 572 (Sup. Ct. 2009).

Surprisingly, however, the Legislature has ignored both rules of

construction, and it has been patently imprecise in its reading of the Title 11

G.C.A. Chapter 50 and Chapter 51, framing the issue based on words not

contained in the statute itself. Instead of referring to or defining the words

27

pledge, " "expend" and "transfer authority, " which are words in the statute, the

Legislature uses the words "withdraw" and "divert, " 5 and confuses the

Governor's exercise of his "transfer authority" with a generic reference to the

"transfer" of funds in order to inaccurately frame the issue as one concerning

alleged unauthorized "withdrawals. "

Relying on the plain language doctrine, there is no restriction in Title 11

G.C.A. Chapters 50 and 51 against the "withdrawal" of funds-that word is

nowhere used in Chapters 50 and 51. In Chapter 51, there is also no express

restriction on the "expenditure" of the corpus of the fund, only on the

expenditure of the accrued interest in the Fund. See 11 G.C.A. §§ 55103 and

55105.6 Nonetheless, reading Chapters 50 and 51 in conjunction, Section 51102

authorizes the transfer from the Trust Fund into the Refund Reserve Fund,7 from

5 Legislature's REQUEST FOR DECLARATORY JUDGMENT at ¶ 1 5 (m o n ey a l le ge d t o h a ve b ee n"withdrawn/transferred/diverted"), ¶ 17 and ¶ 22 (money alleged to have been "withdrawnand/or transferred"), and ¶ 20 (allegations of potential future "withdrawal and irretrievableexpenditures").

6 Title 11 G.C .A. Sections 51103 and 55105 are specific to the expenditures of the accruedinterest in the Trust Fund, which is subject to legislative appropriation but the Legislature'sRequest for Declaratory Judgment also lacks any allegations that the Governor is expendingany of the interest, thus this, too, is presumably a moot issue.

7 After establishing the Chapter 51 Fund, which bears interest and from which the principal istransferred into the Chapter 50 Fund for the immediate payment of tax refunds, there has beenno need to continue what was essentially two Chapter 50 accounts: a savings account, whichwould only be acting as a pass-through, and a checking account. DOA now uses the checking

28

which the money is then "expended" to pay current and prior year tax returns (see

Section 50103), subject to the limitation set forth in Section 50105, which reads:

"Any and all expenditures from the Fund shall be for the payment of income tax

refunds, earned income tax credits, child tax credits, tax rebate relief and for no

other purpose. " A fatal deficiency in the Legislature's legal analysis stems from

its failure to apply the plain language doctrine to first define what is an

"expenditure. " It cannot be mechanically equated with a "withdrawal. "

The Administration acknowledges that in prior years and under prior

administrations, monies from the Trust Fund have been withdrawn or advanced,

to the General Fund to cover general fund obligations. Because prior

administrations had adopted this practice over 20 years, this is the situation that

was inherited by the current administration when it started in 201 1-presenting

an impossible situation to correct without a significant infusion of cash.

However, under this Administration, no Trust Fund deposits have been

advanced to the General Fund since August 2013. Instead, funds have been

advanced by the General Fund to the Trust Fund. Id.

account , which is used only for tax refund payments , as the Chapter 50 Fund . DECLARATION

OF BENITA MANGLONA a t ¶ 1 0 .

29

To decide whether the withdrawal of money from the Trust Fund violates

the law, we agree with the Legislature's assertion that the case of Goldston v.

State is particularly instructive in these proceedings. Had the Legislature more

closely read Goldston, it should have quickly ascertained the legal and plain

language distinction between a withdrawal and the exercise of transfer authority.

In Goldston, both the North Carolina legislature and governor withdrew money,

$120 million and $80 million, respectively, from a trust fund set up for a special

purpose into the general fund. As in the case before this Court, the "Plaintiffs

contend that `defendants violated fundamental principles of expenditures of

public money held in the trust fund. ' Plaintiffs argue that because the Trust Fund

is labeled a `trust fund,' North Carolina law prohibits use of money held in this

trust fund for any purposes other than those authorized when the trust was

formed. " Goldston , 683 S.E.2d at 242.

In addressing these allegations, the North Carolina court first clarified that

the fund in question was not a trust fund. " [TJhe Trust Fund lacks the indicia of

a trust. In creating a trust, a settlor deposits funds `in trust' to a trustee for the

benefit o f a third party, the beneficiary. The trustee is granted limited

discretionary powers over the spending of the funds and is subject to an

accounting and fiduciary duties. The legal relationships here lack these

elements. " Goldston, at 626. As previously discussed, supra, the Trust Fund at

30

issue here is similarly lacking the indicia for a trust because it, too, is not a true

"trust fund." See, e.g., 11 G.C.A. § 50103 (deposits may be used to pay prior

year refunds). 8

As to the North Carolina's legislature ' s transfer of funds from the trust into

the general fund, the court held:

Plaintiffs allege in their complaint that the General Assemblyviolated . . . our Constitution by diverting $125,000,000 from theTrust Fund to the General Fund on 1 July 2002. Statutorily this is anaccurate statement. An examination of the appropriations statutes

following this `diversion,' however, reveals that the General

Assembly has reimbursed or paid back to the Trust Fund the

$125,000,000 diverted in 2001. Plaintiffs attempted to illustrate thispayment history or `forgiveness' in their motions for judicial notice,. . . . An examination of these and subsequent statutes shows thatafter the balance of the $125,000,000 loan was `forgiven' in fiscalyear 2005-2006, the Legislature repaid the balance of the loan in fullin fiscal year 2006-2007. . . . Because the funds have been repaid,and the claim is moot, we affirm the trial court's summary judgmentorder [in the defendants' favor] as to the $125,000,000."

Goldston, 683 S.E.2d at p. 627 (internal citations omitted).

Contrasting the actions taken by the North Carolina legislature with that of

its governor, the court held:

8The fact that this is not a true trust fund is also significant in distinguishing the "corpus" ofthe fund. The authorization to use current deposits to pay prior year refunds forecloses anyinterpretation that the deposits by any particular taxpayer constitutes a specific trust res thatmust be set aside for the benefit of that same taxpayer.

31

The record is clear from which statutory appropriation the

$80,000,000 was transferred, but it is unclear to which statutoryappropriation these funds went. . . . It is obvious that the

appropriation statute was not followed in the transferring of the

$80,000,000. We hold that while the Governor may `escrow' the

Highway Trust Fund monies to prevent a deficit, he or she may nottransfer appropriated Highway Trust Fund monies without awaitingappropriate legislative authority from the General Assembly....

Section 5 of Executive Order 19 reads as follows: `The Office ofState Budget and Management may transfer, as necessary, fundsfrom the Highway Trust Fund Account for support o f General

Fund appropriation expenditures. ' This Order and the action of

Secretary Tolson in transferring $80,000,000 fails to effect any

economy. In fact, this action was the very antithesis of effecting aneconomy as it was explicitly intended to support General Fund

appropriation expenditures.

Goldston, 683 S.E.2d at pp. 635-636 (emphasis added).

In Goldston , "withdrawals" or "diversions" from a trust fund into the

general fund were clearly not considered "expenditures" of those funds, which

when repaid rendered the issue moot. However, the governor's attempt to

"transfer" money from one fund to another fund to support "general fund

appropriation expenditures" without any intent of reimbursement or repayment

constituted an exercise of that governor's transfer authority, which was deemed

unauthorized. Notably, he still could have withdrawn and transferred the money

into another fund to be held in escrow without violating the law.

32

It is apparent that Title 11 G.C.A. Chapters 50 and 51 follow the same

statutory framework applied in the North Carolina case. Like the legislature in

North Carolina, the Guam Executive Branch has advanced funds from the Trust

Fund to the General Fund, but has paid those advances back, thus rendering the

issue moot. Moreover, since August 2013, the Guam General Fund has now

advanced funds to the Trust Fund and was owed $7 million at the end of the

period in question.

Unlike the governor in North Carolina, the Governor of Guam has not

exercised his transfer authority to diminish the account balance of the Trust Fund

in order to increase the account balance of the General Fund.9 DECLARATION OF

BENITA MANGLONA at ¶ 23. All advances from one fund to the other have always

been tracked in both funds, respectively, resulting in no diminishment or,

significantly, "expenditure" of the Trust Fund corpus.

The distinction between an "expenditure" and an advance made prior to

expenditure or a reimbursement made after expenditure is elsewhere found in

Guam law. "No department or agency may make expenditure of any Federal

9 See GUAM P.L. 323-68, Ch. XIII, Sec. 13 ("General Fund Transfer Authority of I Maga'ldhenGuahan. Unless otherwise restricted or specifically allowed by this Act, for Fiscal Year 2014 IMaga'lbhen Guahan is authorized to transfer up to fifteen percent (15%) between Fiscal Year2014 General Fund Executive Branch appropriations in accordance with the General Fundappropriations allocated in the Appropriation Allocation Report in Section 22, Chapter XIII ofthis Act; ...")

33

funds regardless whether such funds are advanced prior to expenditure or as

reimbursement unless such expenditures are made pursuant to specific

appropriations of the Legislature. " 5 G.C.A. § 22304(a). Under Guam law,

funds may be "advanced" to a department without being considered an

expenditure. Similarly, advances and reimbursements into the Trust Fund do not

constitute fund "expenditures." The monies are expended only when paid out for

tax refunds . This is also consistent with basic accounting principles. The fact is

that money has never been withdrawn from the Trust Fund pursuant to the

Governor ' s transfer nor authority, nor is it even being alleged by the Legislature.

DECLARATION OF BENITA MANGLONA at ¶ 23.

Other instructive Guam law includes 5 G.C.A. § 9242 (" Any sums

authorized to be expended under this Chapter by any agency shall be a legal

charge against the funds of the agency. ") And in the case of the Trust Fund,

monies previously advanced to the General Fund are not considered legal charges

against the Trust Fund, thus not expenditures. See also 5 G.C.A. § 4117:

(f) Encumbrances means commitments related to unperformed(executory) contracts for goods and services, which are

generally evidenced by outstanding purchase orders, contractsand inter-departmental work requests. Encumbrances

reported at year end are reported as a reservation of fundbalance since they do not constitute expenditures or

liabilities.

34

(g) Expenditures means all amounts of money ... paid out orencumbered for payment by a Territorial agency other than forinvestment securities or as agent or trustee for other

governmental entities or private persons.

In summary, nothing in Chapters 50 and 51 restricts the Executive

Branch from withdrawing funds as advances. Since the creation of the

Trust Fund, no administration before the current administration has ever

fully repaid those advances. When the Administration took office, 20 years

of short-changing the Trust Fund and the Refund Reserve Fund made it

fiscally impossible to discontinue this practice without the infusion of cash.

Governor Calvo is the first governor in 20 years to fu lly fund the Trust

Fund, even now reversing the trend, with the General Fund having

advanced $7 million to the Trust Fund.10

Applying the plain language doctrine of statutory interpretation to the

issues presented by the Legislature, the conclusion should be that the law is

10 In fact, but for the Legislature, the government would have had enough to pay not only allprior 2010 Tax Year refunds but also the upcoming 2011 Tax Year refunds, and it would likelyhave remained in a positive position in future years. In September 2011, Governor Calvosubmitted Bill 1(3-S), which proposed floating a bond for $343 million, which would haveallowed the Trust Fund to pay all outstanding tax refunds and reserve $85 million more for thefuture 2012 Tax Year returns, thus completely removing the fund from cash flow limitations.However, even though the government eventually passed P.L. 31-126 and P.L. 31-196, andapproved the $343 million bond, the Legislature reduced the amount of the bond beingdedicated for tax refunds from $343 million to $198 million and $60 million, respectively; $85million less than what was proposed by the Governor for tax refunds.

35

plain on its face and it does not require further interpretation by this Court,

and that the current administration is not doing anything in contravention of

the law.

VII. CONCLUSION/RELIEF SOUGHT.

For the foregoing reasons, the Governor respectfully submits that the Court

must dismiss the Legislature's Request for Declaratory Judgment because

jurisdiction is lacking.

And, to the extent that declaratory relief is appropriate here, it is not for the

reasons or questions advanced by the Legislature. Rather, the laws enacting the

Trust Fund and the Refund Reserve Fund are manifestly inapplicable or

incompatible with the mirror tax code. Consequently, the Trust Fund and the

Refund Reserve Fund are inorganic and void ab initio.

Finally, even assuming that the two Funds were not inorganic, they violate

the doctrine of separation of powers because they interfere with the Governor's

executive prerogative to administer the government's budget and manage its cash

flow. In any event, there has also been no violation of the Trust Fund and Refund

Reserve Fund laws because no unlawful expenditures have been made. On the

contrary, deposits to the Trust Fund exceed the amounts required by law.

Additionally, any monies that were temporarily advanced to other accounts were

36

always paid back, thereby mooting any issues with respect to any withdrawals

from the Trust Fund.

Respectfully submitted this 21 s` day of March, 2014.

OFFICE OF THE GOVERNOR OF GUAM

By /s/SANDRA CRUZ MILLERARTHUR B. CLARKAttorneys for I Maga' lahen Guahan

37

CERTIFICATE OF COMPLIANCE WITH TYPE-VOLUME LIMITATION

Required by GRAP 16(a)(7)(D)

This brief complies with the type volume limitation of Rule 16(a)(7)(B)

because this brief contains no more than 16,500 words, including the parts of the

brief otherwise exempted from Rule 16(a)(7)(B)(

Dated: March 21, 2014.

)•

OFFICE OF THE GOVERNOR OF GUAM

By /s/SANDRA CRUZ MILLERAttorneys for I Maga' lahen Guahan

III

STATEMENT OF RELATED CASES

Required by GRAP 13(1)

There are no known cases related to the instant case that are pending before

or in this Court.

Dated: March 21, 2014.

OFFICE OF THE GOVERNOR OF GUAM

By /s/SANDRA CRUZ MILLERAttorneys for I Maga' lahen Guahan

IV

CERTIFICATE OF SERVICE

I hereby cert i fy tha t on Ma rch 21 , 2014 , I caus e d t o f i l e e l e c t ron i ca l l y t he

f o r e g o i n g RESPONSE BRIEF OF I MAGA'LAHEN G(LAHAN wi th t he Supreme Cour t

of Guam, together wi th i t s accompanying DECLARATION OF BENITA A.. MANGLONA

and DECLARATION OF JOHN P. CAMACHO.

I further certify that I caused to have an electronic copy and a hard copy of

the above-described document to be served on the following persons:

Attorney for 32nd Guam Legislature:John C. Terlaje

Law Office of John C. Terlaje194 Heman Cortez Ave., Ste. 216

Hagatna, Guam 96910E-Mail: John(a)terlaje.net

Office of the Attorney General of Guam:Shannon Joy Taitano

590 South Marine Corps. DriveITC Building, Suite 706Tamuning, Guam 96913

E-Mail: staitano@guamag.org

Dated: March 21, 2014.

OFFICE OF THE GOVERNOR OF GUAM

By /s/SANDRA CRUZ MILLERAttorneys for I Maga' lahen Gudhan

V