The Crown Bay dredging project hit a stumbling block Wednesday as members of the Virgin Islands Port Authority board of directors questioned whether they had sufficient revenues to finance it.
The dredging has been requested by various cruise lines that visit St. Thomas. The project would deepen the area north of the Crown Bay pier and would ultimately allow the harbor to accommodate more ships.
The cruise line industry has requested the project be completed in October 2014. If it is, the island expects to see 27 additional cruise ships that season.
The authority intends to issue a bond to pay for the project.
Board member Allison Petrus first raised concern about the authority’s ability to service the additional debt the bond would create after hearing a report on VIPA’s finances that showed a continual rise in costs with no corresponding increase in revenues.
“Are we going to have the capacity for this borrowing when the time comes if this trend continues?” he asked.
Gordon Finch, head of the finance committee, initially said he did not believe it would be a problem. He said the measure of the authority’s capacity to accept new debt was its net revenues compared to the sum of money it must pay to service all of its debts.
Finch said he did not know what the current ratio was, but he believed the revenues of VIPA’s marine division were between 300 and 400 percent of their debt liabilities.
VIPA finance advisor Justin Moorhead interjected, saying that figure was dated. He said the authority previously enjoyed that large a buffer, but the years of rising costs and flat revenues had shrunk the ratio down to just 155 percent in 2011.
This revelation caused immediate concern amongst many of the board members.
“There’s no sense in talking about this huge project that the cruise line wants when we can’t even justify to ourselves, let alone the bond rating agencies, that we even have the ability [to finance it],” Finch said.
“I want to go through a very rigorous analysis of what exactly is our ability to cover debt on the marine side,” he continued. “I want to see calculations.”
The issue will be revisited at the VIPA board meeting in November.
Even if the authority is able to finance the project, there is a chance it will not be completed on time. Earlier in the meeting, Finch laid out a dire timeline for what needed to be accomplished in order to hit the October 2014 deadline.
He estimated the dredging itself would take between one year and 15 months. That means the authority would need to have its permits and financing in place by this coming summer, less than one year away.
At present, VIPA still has not completed a scope of work for the project that is necessary for the permits or received an estimate to tell them how much they may need to borrow.
Dale Gregory, director of engineering, reported that he had been in meetings with representatives of the cruise lines to identify exactly what they need from the project.
The individual cruise lines had different requests, but Gregory said he was guiding his current planning based on the proposal presented by Royal Caribbean Cruises, which calls for a “turning basin” 440 meters in diameter north of the Crown Point pier as well as the dredging of the Gregory East channel to a depth of 11 meters (it is currently 10 meters deep).
Gregory said he was currently negotiating with Royal Caribbean to shift the location of the proposed basin away from Water Island to preserve some coral reefs located there.
Finch and Chairman Robert O’Connor expressed a desire to have the plans vetted by an independent third party to ensure the scope of the project was truly necessary.
The authority must also have its bond rating reinstated by Standard and Poor’s before it can move forward with issuing a bond. The authority allowed its rating to lapse after its last bond offering in 2003 (it was, at that time, BBB+).
The authority is gathering financial information from the past several years to prove to S&P that their previous bond rating is still warranted. Once the rating is reinstated, the authority can ask for a fresh rating on its new bond.
Moorhead warned that the process of reinstating the previous rating would not be completed overnight.
“I do not believe they (S&P) will see this as a priority item given the fact that it lapsed and we allowed it to lapse,” he said. “But I don’t think they’re going to ignore it.”
He said it was possible that the process could be completed by the end of the year.
In other business, the board approved the extension of leases for Skagway Jewelry at Crown Bay, Banco Popular at the Cyril E. King Airport, the Department of Public Works at the Austin “Babe” Monsanto Marine Terminal, and Crowley Caribbean Services at Crown Bay Landfill-Cargo.
The board voted to allow Millennium Racing Incorporated to make alterations to the Costa Java and Crown Bay Gaming and Sports Lounge on the condition that they pay a fee leveled against them for recently hosting an event on the pier outside of their lease area.
The board also approved a measure to renew its airport liability coverage, which was set to lapse at the end of the month.