St. Croix business man, iconoclastic economist and potential 2018 gubernatorial candidate Warren Mosler is suggesting the V.I. government try issuing a type of bond he devised several years ago, secured not by tax revenues but by highly transferrable V.I. tax credits. According to Mosler, this would make the bonds extremely secure, allowing the territory to borrow – and refinance its existing $2 billion-plus in debt – at much lower interest rates.
In a phone interview Friday, Mosler acknowledged that no one has sold bonds of this sort to date. But he is confident they could be sold and said the territory has nothing to lose by the effort.
“Mosler bonds are identical to our current tax free municipal bonds, with one exception. With Mosler bonds, the standard default clause in the bond indenture that begins with ‘In the event of default…’ is replaced with the following: “In the event of nonpayment this bond becomes a USVI tax credit that is freely transferable and continues to accrue interest, and can be used for payment of any and all taxes due to the USVI,” Mosler said in a statement Friday.
“This eliminates an investor’s default risk, allowing the Mosler bonds to be issued and sold at less than half the interest rates currently faced by the USVI,” he said.
According to Mosler, these bonds would not have reserve requirements.
Mosler and another economist originally proposed the concept for the Greek government when that nation was suffering a fiscal collapse. News reports indicate they were proposed for Ireland as well. Neither country ultimately elected to go that route.
The Virgin Islands government attempted to sell bonds secured by federal excise tax revenues in January but could not find sufficient buyers, amid worries the territory is relying too heavily on continued, expanding borrowing to pay its current bills.
Asked why these “Mosler bonds” are more secure than bonds secured by federal excise taxes, Mosler said “these bonds can’t default.”
While other bonds ultimately rely on someone to pay the bond holder, with the transferrable tax credits incorporated in his concept, a bond holder can get payment from anyone who owes the V.I. government taxes, so that in the unlikely event of nonpayment, they can still recoup all or nearly all of their investment, he said.
He suggested the territory could refinance its current debt at lower rates. Asked how he knew the rates would be lower, without existing Mosler bonds to compare rates with, he said he used to be a banker, was familiar with banking and had spoken bankers about the concept. Ultimately, the perception that the bonds are extremely secure would mean lower interest rates, according to Mosler.
The territory currently has a little more than $2 billion in outstanding debt. In Fiscal Year 2016, it paid debt service of $180 million. The bonds would be secured by potential tax revenues. FY2016 total corporate income tax receipts were $64 million; property taxes were $56 million; and gross receipts taxes for every taxpaying business in the territory were $56 million.
Asked who could use sufficient tax credits to pay off a billion or more in bonds, Mosler pointed to personal income tax revenues, which were $338 million in 2016. Asked how a bond holder would sell tax credits to tens of thousands of individual taxpayers, Mosler said a bank could use the tax credits and would not have to sell them.
Once a taxpayer writes a check to the government, “the check has to clear. The clearing agent debits one account and credits another account,” he said. So the bank ultimately credits the government. Instead of crediting the government on your behalf, it would instead notify the government it was applying the funds to the transferrable tax credit, according to Mosler.
Asked how that would clear the taxpayer’s debt, if the taxpayer is not purchasing the tax credit but is the one who owes the government, Mosler said that once a person writes a check to the bank, it is the bank that now owes the funds to the government, and the bonds are structured so that the credits are completely transferrable.
“It is as transferrable as a $20 bill,” he said.
“The government acknowledges the bank has paid. … The bill is paid by tax credit,” Mosler said.
Asked why other struggling states and municipalities, such as the city of Detroit, which went bankrupt in 2013, or Puerto Rico, which has been taken over by a federal oversight board, have not tried Mosler bonds, Mosler said he had spoken to Puerto Rico but not Detroit. He said he has a meeting in Puerto Rico on March 2.
“Puerto Rico might do it. They called me back. Our government hasn’t responded,” Mosler said.
This bond structure has never been used anywhere to date, Mosler confirmed.
Aside from financial analysis and advice, Mosler has invested in large tracts of land on St. Croix and has purchased a custom-built ferry that he hopes to soon start running on a nonexclusive route between St. Croix and St. Thomas. Asked about the Public Services Commission approval, he said he is not seeking an exclusive franchise. V.I. law gives the PSC power to regulate ferry services that seek an exclusive franchise.
The vessel has had its final sea trial, which went well, he said. He is awaiting notice of final approval from the Coast Guard, which he said could come at any time. The vessel, designed to provide a smooth ride and use less fuel than larger, faster vessels. It is much less expensive than other ferries because it is smaller and lighter and should cost about $55 per passenger and take about two hours to run the route, according to Mosler.
Mosler recently announced he is considering running for V.I. governor, and Friday he said he has received a lot of positive feedback. Mosler has run for several offices in the past. He ran for V.I. delegate to Congress in 2006, and in 2012 and ran to represent Connecticut in the U.S. Senate in 2010 as an independent, garnering 1 percent of the vote.
In the 2012 V.I. election, Mosler received 17 percent of the vote, coming in fourth out of five candidates. He questioned the results, sending a letter asking for an investigation into the election, because he claimed, citing an unidentified poll, that there was more support for himself than the vote tally indicated.
“Two external surveys reported Donna Christensen receiving well under 50 percent of the vote and also reported I was receiving over 40 percent of the vote,” Mosler wrote in his petition for an “investigation.”
Aside from anonymous polls showing him losing, Mosler referred to “anecdotal evidence from employers speaking to employees” and “informal exit polling at all of the St. Croix polls.”
Mosler also says he had “reports from insiders at the machine vote counting indicated they were reading 43 percent for Donna and 37 percent for me shortly before the official results were reported.”
But the tally was updated repeatedly on election night and distributed to media and others outside elections offices at multiple times, and the frequent tally updates did not show Mosler that close behind Christensen at any point.