Senators voted a second time Thursday to authorize the Public Finance Authority to borrow $247 million to keep the government running. The same bill included a "statutory lien" on gross receipts tax revenues and federal alcohol excise tax revenues remitted to the territory, aimed at increasing the security for lenders.
The V.I. government will put local gross receipts tax revenues under the power of a special, bank-appointed trustee and federal excise tax revenues will go directly to the trustee, to pay off interest and principal on V.I. bonds, before any remaining funds will go to the territory’s coffers.
The Senate approved the borrowing in late September, passing its own alternative bill to one proposed by Gov. Kenneth Mapp. The Senate bill eliminated $249 million for new capital projects, citing concerns about the explosive borrowing level. Several senators pointed to $147 million in capital funding already borrowed that has been waiting to be spent for nearly two years.
The bill approved in September authorized borrowing about $247 million, with $116 million for government operating expenses; $100 million to the Government Employees Retirement System; and the rest for the V.I. Waste Management Authority and partial payment on past due utility bills.
Mapp vetoed the Senate version, saying it did not include the statutory lien provision, making it more difficult and more expensive to borrow. He also said the Senate version included provisions to refinance existing loans, which was no longer practical because the territory’s recent credit downgrades made borrowing more expensive.
On Monday, Mapp called a special session for Thursday, asking the Senate to approve a new version of the bill, with the statutory lien provisions added and the restructuring provisions removed. Mapp’s new bill, approved Thursday, keeps the Senate’s borrowing amounts.
Before the vote, senators heard from Finance Commissioner Valdamier Collens.
“What is the need for the statutory lien?” Senate President Neville James asked.
Collens said, “Without the grant of the requested statutory liens, the Fitch Rating will be lowered two notches to B plus and the marketability of such bonds by the underwriter will be in serious jeopardy.”
James asked, “How does it affect the flexibility in terms of going back to the market?”
Collens said, “Statutory liens eliminate the risk of bankruptcy and strengthens contractual relationships that are already in place. Statutory liens are the best practices in this situation." Collens also said the statutory liens are becoming very common at the state level.
Sen. Clifford Graham asked what the difference in cost for borrowing would be with and without the statutory liens.
Collens said it would be "about 50 basis points … or between half a percent to 1 percent."
"On millions of dollars, it’s a lot of money over 20 years," Collens added.
Sen. Tregenza Roach said he was concerned about placing the liens not just on this bond authorization but also on past bonds and all future bonds.
“I don’t see any cutoff point for the statutory lien, whether the financial condition improves or worsens, and that concerns me. Commissioner Collens stated that statutory lien is commonplace. However, it is also attached to bankruptcy. We need to consider the retroactive affect and how it will impact the territory in the future," Roach said.
Sen. Jean Forde asked, “If this bill is approved, will there be rubber stamping of the governor’s capital projects?”
Collens said, “This bill is not about working capital. It is strictly about bonds."
“What is the true financial picture of the government?” James asked.
Collens said, “The economy is measured by bare cash on hands. Right now the government is on a $800 million budget and the cash on hands fluctuates." As of Thursday, he said the territory had seven days worth of cash "and that is not a very good financial position to be in,"
Sen. Kurt Vialet said the number of days is not much different than at other times recently and criticized Mapp for generating too much concern about the fiscal situation.
"I am disappointed that individuals are using language that is scaring the public into believing that the government will not be able to make payroll by the end of November," Vialet said.
Asked what the remaining debt capacity of the territory is, Collens said, "Currently we have a combined capacity of about $860 million, of which approximately $500 million is coming from the GRT (gross receipts taxes) and the remaining capacity of about $360 million is coming from the matching fund."
The term "matching fund" refers to federal alcohol excise taxes remitted to the territory.
The debt capacity figures seem to be somewhat fluid. In September, Andre Wright of Standard International Group, a financial advisor to the Public Finance Authority, testified to the Senate Finance Committee that the government had about $730 million in remaining debt capacity for direct, general obligation debt.
Collens estimated the figure at about $400 million during 2015 hearings on the impending collapse of the Government Employee Retirement System. Wright said in September that the territory also had another $700 million in capacity for debt financed by federal alcohol excise taxes remitted to the territory.
Senators amended the bill to create a separate line item, specifying that $15 million of the borrowed funds be used to pay income tax refunds.
They approved another amendment requiring the territory’s two hospitals use at least 30 percent of the $25 million allotted to them to pay past-due utility bills.
Voting to approve the bill were Forde, Graham, James, Vialet, Sens. Novelle Francis, Kenneth Gittens, Justin Harrigan, Myron Jackson, Almando "Rocky" Liburd, Nereida "Nellie" Rivera-O’Reilly and Sammuel Sanes. Voting no were Roach and Sen. Janette Millin Young.