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PFA Authorizes Letter of Credit Backing Retro Pay

The V.I. Public Finance Authority authorized a $45 million standby letter of credit Saturday which will allow the V.I. government to send out checks Oct. 14 to thousands of past and current V.I. government employees owed retroactive wages. The unusual Saturday meeting was called because a meeting earlier in the week was canceled due to the weather and the deadline to get all the paperwork in place to send out checks next Thursday was coming up rapidly, Gov. John deJongh Jr. said at the meeting in Christiansted.

Over the years, several unions have negotiated wage and benefit increases with the government, then failed to receive the wage increases due to fiscal constraints. The total amount due is estimated by the government to be more than $250 million and
some estimate as high as $400 million.

The Legislature passed a bill sponsored by Sen. Carlton "Ital" Dowe to provide $45 million as a down payment toward past-due wage increases, funded from the insurance guaranty fund and secured with the letter of credit authorized Saturday. Each year, five percent of gross receipts tax paid on every insurance policy in the Virgin Islands is deposited into the fund; roughly $10 to 12 million a year. That pool of money that can be tapped into only if an insurance company registered to do business in the territory becomes insolvent and cannot pay its claims.

The government plans to use those funds, replacing them with the letter of credit, which will not be used unless an insurer goes belly up during the term of the letter of credit. The letter will expire and become void once the fund is refilled up to its legally mandated ceiling of $50 million.

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The PFA selected Banco Popular to contract the standby letter of credit. Banco Popular is charging 175 basis points (1.75 percent) to underwrite the letter of credit, plus another 25 basis points if there is a drawdown on the credit, said Finance Commissioner Angel Dawson. That comes out to roughly $788,000, he said.

PFA member Pablo O’Neill said a FirstBank bid came in for a lower amount, and asked why Banco Popular was selected. DeJongh said the legislation authorizing the PFA to issue the letter of credit required the lending institution to meet certain standards, which only Banco Popular met. The act, V.I. Act 6894, requires the lending institution be rated "investment grade" or better.

With the letter in place, on Thursday $36 million in retroactive wages will be deposited or mailed to 10,718 government workers, paying off roughly 16 percent of what is owed to each employee. It is less than the full amount borrowed from the Insurance Guaranty fund largely because a portion of the proceeds will go to cover the cost of the letter of credit and a larger portion will go to cover payments that would have been made to the Government Employee Retirement System if those higher wages had been paid from the outset.

The Division of Personnel website offers former government workers a detailed summary of their retroactive wages.

Voting yea were Dawson, deJongh, Dawson, Office of Management and Budget Director Debra Gottlieb and Pablo O’Neill. Keith O’Neale Jr. abstained.

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