Meeting in special session on Tuesday the V.I. Senate did not approve a newly revamped version of Gov. Albert Bryan Jr.’s securitization proposal, instead, sending it to the Finance Committee for further consideration.
The proposal would create a semi-autonomous government-owned corporation and allow the government to sell it the rights to as much as $200 million per year in federal alcohol excise tax revenues.
The excise tax revenue is remitted by Congress to the territory each year. At Tuesday’s session, witnesses for the proposal said creating the entity would generate a cash infusion large enough to bail out the Government Employees’ Retirement System, or at least slow down the rate at which it is approaching insolvency. The proposal also could accumulate funds for additional projects, its supporters testified.
The Senate rejected the measure on Dec. 8 by a vote of 10 to 5, but during Tuesday’s session, 14 senators voted to have the Finance Committee review it. Sen. Janelle Sarauw was absent from the vote.
During the Dec. 8 hearing senators voiced concerns over the fiscally complicated endeavor, including the lack of language in the measure specifying savings would go towards the retirement system, general disbelief that the measure could truly bail out GERS and the feeling that the next generation of U.S. Virgin Islanders would be burdened if the legislation passed.
Proponents of the Measure
The Senate’s previous concerns had been taken into account in the newly revamped legislation, according to Richard Tortora, president of Capital Markets Advisors LLC, a firm that acts as a municipal advisor to the Virgin Islands Public Finance Authority.
If the new measure is passed, Tortora said, there would still be “results in a reduction in the government’s overall debt and increased savings for the benefit of the people of the Virgin Islands.”
Under the revised structure, Tortora said, the transaction would refinance existing debt for savings by selling new bonds through an investment grade-rated entity at interest rates significantly lower than current rates paid on the PFA’s outstanding Matching Fund Bonds.
Potentially, these new rates would be far lower than what the PFA could reasonably achieve if attempting to sell the refinancing bonds on its own, Tortora said.
“The PFA was last in the market in 2017 and was unsuccessful in its efforts to sell debt. This newly structured transaction will result in reduced principal and interest payments in each of the next 20 years that the refinancing bonds will be outstanding,” Tortora said.
To settle the senators’ nerves about adding debt onto the backs of future generations, the new structure would not increase principal and interest payments in later years. Instead, there would be reduced principal and interest payments in each of the next 20 years and the term of the new bonds would not exceed the term of the existing PFA Matching Fund debt.
“A successful pricing of the refinancing bonds will mark an important milestone in the government’s financial history,” Tortora said. “The government’s return to the capital markets would not be possible without the creation of the Matching Fund Securitization Corporation. It will not only allow the government to significantly reduce its future interest payments on the new refinancing bonds, it will also provide a mechanism for the government to gain access into the market again in the future.”
Director of the Office of Management and Budget Jenifer O’Neal said the measure pending approval by Senate was a rare “opportunity for the people of the Virgin Islands that may not exist for very long.”
The measure would reduce the $950 million in outstanding bonds to $818 million and lower debt service payments of $226 million for the government over the 20-year term of the bonds, O’Neal said. If it reduces the debt, O’Neal said, it would improve the government’s credit profile.
“With this perspective in mind, doing nothing and not taking advantage of this opportunity are simply not options that we feel would be in the best interest of the government or the people of the Virgin Islands,” O’Neal said.
Senate President Novelle Francis Jr. said while the credit rating given by the top three rating agencies are undoubtedly important, new information brought to senators’ attention on Wednesday caused them all to hold off on voting on the measure.
“At present, this bill does not satisfy the very important threshold of comprehensive financial accountability and requires further analysis and amendments in order to best protect the people and the future of the Virgin Islands,” Francis said.
Despite the government’s poor credit rating, Francis said the Senate had been made aware of a parcel deal in which the Authority had floated almost $1.4 billion in bonds.
Additionally, Francis said the Senate was “concerned about the new finding” that revealed “methods utilized for commercial mortgage backed by the security of collateralized loan obligation notes that led to civil penalties of over $1 million – which certainly merits investigation and analysis.”
Speaking for the full body, Francis said the bill, as constructed, was not the path forward.
“This is about considering all angles in the legislation that have far-reaching impacts on the present and future of this territory,” Francis said.
The legislation has now been sent to the Finance Committee for continued review.