Aug. 15, 2006 – The operations of the Public Finance Authority came under heavy scrutiny during the first round of budget hearings Tuesday, as senators questioned Kent Bernier Sr., the PFA's interim executive director, about the structure of the Authority's board, the status of ongoing capital improvement projects and the government's total indebtedness as a result of various bond issues.
In an effort to bring more transparency to the functions of the PFA, senators also addressed the powers granted to the PFA's board, salaries earned by authority members and whether contracts awarded by the authority have gone through a competitive bidding process.
During the meeting, Bernier and financial advisor Larry Sole from Bank of America Securities, put many of these concerns to rest by giving an account of the Authority's budget, a summary of key capital improvement projects and a breakdown of the government's general obligation debt, which totals nearly $543.7 million.
The PFA's capital projects technician Brian Turnbull also gave a summary of 19 of the Authority's ongoing capital improvement projects, including the revitalization of Frederiksted and renovations to the King's Alley Hotel on St. Croix, along with the development of a new library on St. Thomas and repairs to Estate Catherineberg, the governor's residence. Of the projects discussed during the meeting, only one – the Frederiksted revitalization project – had not been put out to bid.
Other projects, such as those financed on behalf of the Department of Education, have master agreements executed with various contractors through the PFA. Turnbull explained that Education currently has a capital improvements budget of $12 million and has a master agreement with Caribbean Professional Consultants Inc. to complete repairs, improvements and renovations at approximately 20 schools throughout the territory.
Senators seemed impressed with the scope of some of the proposed projects and developments – including the first phase of the Frederiksted Revitalization project, which is projected to cost $17.9 million. However, some also had concerns about the fact that the PFA both finances and manages many of the projects.
"The PFA board never intended to extend our powers to this degree," Bernier said in response to the concern. "But there were times when we had earmarked funds, and they ended up just sitting there because the departments and agencies were not moving on it. So we decided to move forward with some of these projects as quickly as possible, so we could yield a better return on some of our investments."
After Bernier added that the PFA expanded its duties to stay "globally competitive," senators also took the opportunity to ask Authority officials about future plans, including the demolition of the Paul E. Joseph Stadium on St. Croix and the establishment of an overall bond rating for the V.I. government.
Responding to the need for more money to finance the reconstruction of the stadium, Bernier said the PFA is prioritizing its activities, and is currently working on securing a pension obligation bond to help address the over $1 billion unfunded liability plaguing the Government Employees Retirement System. While the PFA has already contributed $1.5 million to fund repairs to the Paul E. Joseph Stadium, additional money will not be forthcoming until some of the Authority's priorities are taken care of, he said.
However, taking steps toward eliminating the government's debt, including the unfunded liability, would allow the territory to secure its own rating structure, Bernier said, explaining that bonds floated through the Authority or other government agencies are currently rated independently.
At a Senate meeting held last month, Office of Management and Budget Director Ira Mills said a government rating structure would enhance its ability to obtain AAA bond insurance, yield more money in returns and reduce the cost of issuing the pension obligation bond.
Getting back to subject of the meeting, which was the budget, Bernier briefly outlined the Authority's finances and projected expenses for Fiscal Year 2007. He said the PFA's total operating budget – which is funded through revenues generated by the Authority – is $3.7 million, with approximately $560,000 earmarked for personnel costs, and the remaining $3.1 million earmarked for professional service contracts, accounting and auditing services, financial advisors, tax attorneys and legal advisors, among other things.
Rum tax revenues remitted to the territory by the federal government cover debt service payments on bond issues, totaling $88.4 million annually. Bernier said rum revenues total approximately $78 million each year.
Present during Tuesday's meeting were Sens. Roosevelt C. David, Pedro "Pete" Encarnacion, Juan Figueroa-Serville, Louis P. Hill, Norman Jn Baptiste, Neville James and Terrence Nelson.
Sen. Usie R. Richards was absent.
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