Dec. 18, 2003 – Public Finance Authority and other administration officials were jubilant at a press conference on Wednesday announcing the successful completion of a $268 million bond offering conceived last spring as the lynchpin of the governor's economic recovery plan to see the Virgin Islands out of its fiscal crisis.
The intended uses for the bond proceeds are reason for the public to be pleased as well, but there also are causes for continuing concern about the territory's fiscal health.
The first and largest chunk of the proceeds will go to repay the $100 million bridge loan secured in September from Banco Popular and FirstBank to cover the government's income-tax refund and vendor obligations. The government has been paying an interest rate of 3.25 percent on the loan, according to Kenneth Mapp, PFA director of finance and administration.
Officials said on Wednesday that another $141.5 million will go for 36 capital projects — including $27 million for the repair and renovation of government buildings, $16.5 million for two new wastewater treatment plants, $15 million for school repairs and renovations, $11 million for Frederiksted economic revitalization programs and $5 million — arranged at the last minute — for emergency road repairs necessitated by November's heavy rains and flooding.
Mapp said the cost to the government of issuing the bonds came to about $13.5 million. The government paid about $9 million of the bond money for insurance on the bonds, and this will save the territory about $23 million in debt-service costs, he said, so the government is realizing a net savings of some $14 million by purchasing the insurance. The government is incurring a cost of $16 million in additional debt service from gross receipts tax revenues, he said
The Legislature authorized a $235 million bond issue in July, earmarking $100 million for tax refunds and vendor payments. At a ceremony in September marking the closing on the bridge loan, Louis Willis, Internal Revenue Service director, said the government would be sending out $46 million in tax refunds by the end of this year. Ira Mills, Office of Management and Budget director, said the Water and Power Authority was at the top of the list for vendor payments.
Mapp said at Wednesday's press conference that the success of the bond sale confirmed the faith some leaders placed in the governor when he called for approval of the $235 million borrowing plan last spring.
The Series 2003 V.I. Gross Receipts Tax Bonds sold in 39 minutes, government officials said. Gov. Charles W. Turnbull called the relatively quick turnaround and an upgrade in the territory's bond rating by Standard & Poor's Ratings Services signs of "increased confidence in the financial affairs of the territory."
Turnbull, who as governor chairs the PFA board, credited the rating upgrade for spurring interest in the issue on the bond market.
Standard & Poor's recently upgraded the rating for the PFA's outstanding gross receipts tax and general obligation loan note bonds to BBB from BBB-minus. But it also expressed some reservations about the government's financial affairs.
"The upgrade reflects a historical track record of good coverage since this type of debt was first sold in 1999, and good revenue growth" based on revenue data available through 2001, a research report prepared by S&P and published on Nov. 20 stated.
Other factors taken into consideration in the upgrade, it said, were a "lock-box collection mechanism" for the daily segregation of gross receipts revenues, strong administrative oversight "with quarterly verification of gross receipts tax revenues by an independent auditor," and "the broad-based nature of the tax."
At the press conference, Mapp commended the governor "for taking the Virgin Islands from a point in 1999 when we were not producing audited financial statements to a point where we are producing them timely." He said the administration's providing of "information and fiscal management and discipline" enabled the government to float the 30-year bonds beginning at an interest rate of 2 percent and ending at a fixed rate of 5.25 percent. "That's a significant achievement over a limited period of time," he said.
However, the S&P report noted "the currently distressed financial position of the territory" and that "the release of audited financial statements lags more than a year after the close of the fiscal year." The audited statement for FY 2002 is expected to be completed in early 2004, it said, and it is known that "the events of Sept. 11, 2001, caused some economic disruptions, causing a decline in the 2002 gross receipts tax revenue collections over 2001 collections."
On the other hand, the report stated, "tax revenue growth in 2003 led to the highest historical collected levels of $100.7 million." The report's conclusion was that "the stable outlook reflects Standard & Poor's Ratings Services' anticipation that gross receipts tax revenue collections will continue at or above the current levels."
Noting that "General Fund finances continue to be distressed," the report said the upgrade to a BBB rating "is based on the tax and lock-box mechanism."
The S&P report also noted that the territory owes the Federal Emergency Management Agency $127 million from a loan incurred after Hurricane Marilyn, that debt service on the loan is about $21 million a year, and that FEMA as a result has a first lien on all General Fund revenues.
The debt "is expected to be forgiven," the report stated. "However, should the federal government call this loan and attach gross receipts tax revenue, historical revenues shows a sound ability to cover the Series 2003 and 1999A bonds, including projected debt service on the Series 2003 bonds."
In addition to the new bond issue — borrowing that must be repaid by the year 2033 — the PFA borrowed $300 million on the bond market in 1999 that is due in the year 2029.
According to DAC Bond, the government's bond counsel for the issuance, the V.I. government's general obligation bonded indebtedness now stands at some $562 million.
Turnbull said on Wednesday that this week's bond issue closing, which took place on St. Thomas, was the first ever in the Virgin Islands. "All Virgin Islanders should be proud of this significant achievement," he said.
However, former Lt. Gov. Derek Hodge verified on Thursday afternoon that the closing was not the first in the territory. In October 1994, he said, the PFA's $29.6 million development program revenue bond issue closed at Government House on St. Croix. Those bonds were secured by matching-fund notes backed by the Rum-Rebate Matching Fund.
Mapp said in a telephone conversation Thursday afternoon that he didn't have any recollection of the 1994 bonds and didn't think any bond issue had closed in the territory before this week.
Turnbull announced at the press conference that out of the bond proceeds his administration also would undertake housing community upgrades, public safety initiatives and "improvements to our public parks, beaches and recreational facilities."
A question about whether any of the money would go toward the acquisition of a particular beach went unanswered. Attorney General Iver Stridiron said last week that Mapp was in New York seeking to draw $2.3 million from the territory's bond accounts so the government could begin proceedings to acquire Lindqvist Beach on St. Thomas by eminent domain. At the press conference, neither Mapp nor Turnbull would confirm that this had taken place.
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