Gov. Albert Bryan Jr. on Tuesday sent down a legislative proposal developed through collaboration between his office and the 34th Legislature to restore solvency to the Government Employees’ Retirement System, Government House reported.
The legislation will allow for the refinancing and restructuring of a significant portion of the debt of the government of the Virgin Islands at current market interest rates, to free up critically needed revenues to stabilize the GERS, according to a news release that Government House issued Tuesday evening announcing the proposal.
It is the third time the governor has floated a bailout plan.
In September 2020, the Senate narrowly passed in an 8-6 vote a heavily amended bill from the governor that sought to refinance the government’s bond debt at today’s lower interest rates, secured by the roughly $200 million it receives each year in federal alcohol excise tax revenues.
Those revenues, from rum produced in the territory and sold on the mainland, would have been placed under the control of a separate entity known as a Special Purpose Vehicle, or SPV, which would have been charged with selling the rights to the rum monies.
However, the measure was derailed when an action for preliminary injunction was filed in V.I. Superior Court on Sept. 22, 2020, by The Russell Law Firm of St. Croix on behalf of the Government Retirees United for Fairness, or GRUFF, and government retiree Hugh Clarke. The plaintiffs claimed that an amendment to Bryan’s bill violated the Revised Organic Act of 1954.
The injunction was dismissed with prejudice on Sept. 28, 2020, by Judge Douglas Brady, meaning the plaintiffs may not file again on the same merits, but it was too late to salvage the bond deal.
In December 2020, senators voted 10-5 against a bill to refinance the debt through a Matching Fund Securitization Corporation. Some senators at the time compared it to a homeowner refinancing their home at a lower interest rate, while others did not like that analogy for the complicated government financial procedure.
This time around, the Bryan administration has taken an admittedly more collaborative approach.
The GERS is forecast to become insolvent within the next few years, and the proposed legislation should finally address a problem that has vexed the territory for years, Tuesday’s release stated.
In his transmittal letter to Senate President Donna Frett-Gregory, Bryan indicated his pleasure that “the legislation has been developed in collaboration with the members of the Senate’s Subcommittee on GERS, as well as consultation with GERS and its actuary, and represents a real opportunity for us all to move past the perpetual fears of what might come next should the long-predicted GERS insolvency become a reality.”
“It is my hope that the Legislative branch, Executive branch and GERS can collaboratively and cooperatively work on this matter to benefit the Retirement System and the overall economic life of the People of the Virgin Islands and its Government,” the governor wrote.
Of concern in driving this renewed effort at refinancing and lowering the government’s debt is the fact that GERS is nearing insolvency and the GERS actuary, Segal and Company, has projected the GERS will be insolvent by October 2024 or sooner, the release stated.
The Board of Trustees has warned that the insolvency of the GERS will necessitate substantial reductions in retiree benefits. Should the GERS become insolvent, retirement payments to retirees will be the responsibility of the government of the Virgin Islands, placing significant new funding burdens on the General Fund, according to the transmittal letter.
As with previously proposed transactions, the use and pledging of the Matching Fund Receipts from the United States Treasury will be used as the financial base for the transaction.
The legislation creates a new entity called the “Matching Fund Special Purpose Securitization Corporation,” which will be a legally created entity separate from the government, according to Government House.
That corporation will issue bonds to enable the Public Finance Authority to restructure the outstanding Matching Fund Bonds issued by the PFA in order to free up resources to be applied to the restoration of solvency to GERS without having to reduce benefits, the release stated.
The legislation enables the opportunity to increase revenues that can be dedicated to the GERS through the issuance of a GERS Bond by the PFA or other entity as an in-kind contribution to the GERS.
Segal and Company has determined that so long as the Matching Fund Receipts remain, at least, at their current levels, the foregoing proposed issuance of the GERS Bond would provide financial stability and liquidity to the GERS and avoid reductions of retiree benefits, according to the release.
“This legislation incorporates our unified efforts to bring relief to the GERS and peace of mind to the retirees and government employees who rely on and will soon rely on our pension system for their livelihoods,” Bryan wrote.
Referencing the need to meet favorable timing of the marketplace and the need to implement measures to avoid benefits reductions, Bryan wrote, “I respectfully ask the Thirty-Fourth Legislature to take up consideration of this matter as expeditiously as possible. I will make all necessary financial, investment and legal advisory persons available for presenting and explaining the legislation and the Transaction to the Legislature.”