The V.I. Government will set aside $1 million from any available funds to pay outside legal specialists to help sue Hovensa for the $40 million the refinery is not paying on a court settlement, if legislation approved in committee Tuesday is enacted by the Legislature.
In January, Gov. Kenneth Mapp announced the administration would take Hovensa and its parent companies to court to get the $40 million owed the territory from a recent environmental settlement that Hovensa is “holding hostage.” Mapp said he planned to seek this $1 million in his state of the territory address that month.
The settlement is Hovensa’s share of cleanup costs of a leak the refinery reported back in 1982 and has been cleaning up ever since. The USVI government eventually settled the suit for $43.5 million, with $3.5 million received at the settlement signing and the remaining $40 million coming after the sale of the refinery or by Dec. 31, 2014 – whichever came first.
But the refinery did not sell and Hovensa has announced it plans to use the $40 million to close and mothball the facility.
The government issued a breach of settlement notice to Hess and PDVSA and began legal foreclosure proceedings on the refinery. The underlying land belongs to the government already.
While the territory is suing Hovensa, Hovensa’s parent companies are both suing the territory for $237 million they claims it is owed in back taxes.
Hovensa’s owners are claiming large losses in 2008. But the V.I. Internal Revenue Bureau asserts Hovensa underpaid 2008 taxes, disallowing a number of large deductions focused on a small number of executives paid multimillion-dollar salaries. HOVIC and PDVSA dispute the legal basis and timeliness of IRB’s actions, saying, in part, that the statute of limitations expired on adjustments on 2008 returns before IRB rejected the deductions. (See Related Links below)
Mapp proposed legislation authorizing an appropriation from the Insurance Guaranty Fund.
Sens. Marvin Blyden and Neville James proposed an alternative bill appropriating the sum from any available funds.
Acting Finance Commissioner Valdamier Collens said the administration had authority to use funds in the Insurance Guaranty Fund as long as there was at least $10 million in the fund, but was asking for legislative approval for the sake of transparency, and also because the appropriation would increase the current budget shortfall by $1 million.
The Insurance Guaranty Fund is a government fund to insure insurance companies, so residents do not pay insurance premiums and then find themselves “without a net” if the insurance company folds. Each year, 5 percent of gross receipts tax paid on every insurance policy in the Virgin Islands is deposited into the fund, roughly $15 million to $20 million per year, until it reaches $50 million.
That pool of money can normally be tapped into only if an insurance company registered to do business in the territory becomes insolvent and cannot pay its claims. Since that is a very rare occurrence, the government has periodically tapped into the funds, replacing them with a letter of credit.
In 2011 the Legislature decreased the threshold for the territory’s Insurance Guaranty Fund from $50 million down to $10 million. That expires Sept. 30, 2015.
Collens said he "fully understands" that insurance companies would "prefer it remained a backstop," but said using the funds in this fashion "is fully authorized in the law."
The fund has $14.9 million in it right now, so that $4.9 million is available for use, if necessary, Collens said.
Blyden and Sen. Tregenza Roach both said the statutory limit used to be $50 million.
Roach asked, "Does anyone have an opinion as to the adequacy of that $10 million" to ensure the security of insurance in the territory?
Acting Management and Budget Director Nellon Bowry, "My opinion is the $10 million is not adequate and when times are better we should probably increase it."
"I’m not sure if $50 million is the correct figure, but $10 million is insufficient in my own mind," Bowry said.
Roach said he agreed.
Voting to send the bill on to the Rules and Judiciary Committee for further consideration were Blyden, Roach, Sens. Kurt Vialet, Sammuel Sanes, Terrence "Positive" Nelson and Clifford Graham. Sen. Myron Jackson was absent.
