Nov. 25, 2008 — As the U.S. economy continues to tank, local officials are trying to stave off a full-blown economic recession by investing in a long-range capital-improvement plan that would put some cash back on the street, create hundreds of jobs and stimulate business activity, according to members of the governor's financial team.
But for the plan to move forward, the Senate must give the Public Finance Authority (PFA) the green light on a proposal recently submitted by Gov. John deJongh Jr., which authorizes the issuance of up to $400 million in new gross-receipts tax bonds to finance a variety of infrastructure and development projects.
"While we have been able to mitigate the loss of airline traffic and witness some stability in our cruise-ship traffic, we have a hotel industry that is experiencing lower advance bookings, possible layoffs of personnel and reduced work hours," said Nathan Simmonds, the governor's senior policy advisor, during a Committee of the Whole Meeting on Tuesday. "Additionally, our construction sector is experiencing very little private-development activity. It is in this environment that aggressive governmental intervention designed to stimulate economic development and activity is essential, and we request your affirmative support for the legislation before you."
The bonds will finance, among other things, about $103 million in education projects — such as the construction of new schools across the territory — $100 million in Waste Management projects, and about $61 million for other government projects, including affordable housing, tourism and agriculture initiatives. Another $28 million would also go toward law-enforcement projects, including upgrades to police and prison facilities.
"Based on the approximately $240 million of construction projects funded through this legislation — and excluding the approximately $100 million that will fund equipment and land acquisition — this capital-investment program is estimated to create 265 new full-time jobs and increase wages in the territory by more than $100 million," Simmonds said. "Governmental tax receipts are also projected to increase by $60 million over the six years of the plan. In sum, the capital-investment program will create a total economic impact of $672 million at exactly the time when an economic-stimulus and job-creation program is most urgently needed."
The authorization provides nearly $341 million for essential projects and allows some wiggle room to cover the cost of issuing the bonds. Not all of the bonds will be issued right away, however.
"The projects set forth in the legislation will be implemented over a period of years," Simmonds said. "Certain of the projects will be fully funded by the first issuance of bonds. The first series of bonds will be issued to begin project design and development and to commence construction. Future series of bonds will be issued to complete the construction."
About $125 million worth of bonds is expected to be issued during this first phase.
Phasing out the projects would also assure the government doesn't tie up money on initiatives that aren't ready to proceed, Simmonds added. The bond issue is also expected to complement a new federal economic-stimulus package that will soon appear before Congress, Simmonds said.
Trying to assuage senators' concerns about whether it would be prudent for the government to issue bonds during the current economic crisis, Simmonds said that access to the bond market has opened up within the last two months.
"Today, on a day-to-day basis, there are opportunities for governments to return to the market to raise badly needed capital and at rates that are steadily improving relative to our traditional municipal benchmarks," Simmonds said.
But senators were not convinced Tuesday, with some saying that it might be better to have the incoming 28th legislature deal with the proposal. Its member take their oath of office in January. Though financial team members said it's not likely the first set of bonds would be issued before the start of the year, they also explained that a full authorization from the senate is needed immediately so the government doesn't miss any opportunities that would allow it to access the financial markets.
Authorizations for other bond issues have been granted in the past, but the PFA has not yet issued the bonds, other senators said. They referenced a recent bill calling for the issuance of up to $600 million in pension-obligation bonds needed to bail out the local retirement system.
But if the bonds had been issued right away, the retirement system would have lost about $200 million due to "uncertainties in the U.S. financial markets," Simmonds said. The government will move ahead with issuing the pension-obligation bonds once the markets have stabilized, he said.
Senators said they needed clarification on some of the government's proposed projects, and were upset that no representatives from any department other than Public Works attended Tuesday's meeting. Public works has about $25 million worth of projects, including transportation-improvement projects and road repairs, which would be funded by the new bond proceeds.
While the need for the proposed road projects might be great, the Legislature already appropriated about $4 million for repairs that are still pending, Senate President Usie R. Richards said Tuesday. About $1.9 million from the St. Croix Capital Imprpvement Fund has already been allocated for projects that have not yet been completed, while the remaining money has yet to be released by the Office of Management and Budget, he said.
The Committee of the Whole could not vote Tuesday because it only meets to hear testimony. But the governor's proposal will be considered during a full legislative session next month.
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