May 22, 2003 – The administration's proposals set before the Senate in its special session on Thursday include authorization for the Public Finance Authority to issue bonds, notes or other instruments of indebtedness in the amount of $235 million, and to pledge the territory's gross receipts tax revenues as security.
The bill to authorize the borrowing earmarks as much as $210 million of the $235 million:
– Up to $100 million to "finance working capital obligations."
– Up to $80 million to finance the construction of a 250-room hotel on St. Croix, which the government would manage "through a nationally recognized major hotel brand facility."
– Up to $20 million to "finance private economic development initiatives" on St. Croix.
– Up to $10 million to provide credit enhancement for the financing of the long-planned Carifest theme park on West Indian Co. property adjacent to the cruise ship dock on St. Thomas.
The bill provides for the establishment of a Gross Receipts Taxes Special Escrow Account in which tax revenues would be deposited, except for the first $250,000 collected each year, which by law goes into the Moderate Income Housing Fund. It also provides for the government to continue granting gross receipts tax exemptions to Economic Development Commission beneficiaries, as long as the practice does not bring any given year's estimated gross receipts taxes below 150 percent of the maximum scheduled payments of principal and interest on all outstanding bonds, notes or other evidences of indebtedness secured by a pledge of those taxes.
A separate bill would increase the gross receipts tax itself to 4.75 percent from the current 4 percent.
The new borrowing would follow the government's issuance in November 1999 of $300 million in general obligation bonds.
As of last fall, the territory's annual interest payments on bonded debt were coming to about $65.6 million, based on state and municipal bonds data published in 2001 by Mergent, the successor to Moody's, the long-established financial reporting organization. The information is public record, with funding allocated in the V.I. government's annual budget and documented in its financial statements.
Mergent reported that the Virgin Islands was scheduled to pay about $27.2 million in bond retirement last year, meaning the territory's total bill for its bonds came to about nearly $93 million.
Current repayment figures to rise through 2021
Because the V.I. bond borrowing has most of the principal repayments scheduled for the latter end of the repayment period, the repayment figures will steadily rise from last year's $27.2 million until peaking at $57 million in the year 2021. For more information, including what would have been the territory's current bond repayment schedule through 2029 had there been no further borrowing (there has been), see "Bond debt interest costing V.I. $65M this year".
The territory's bond indebtedness more than doubled in the space of four years. Moody's showed bonded debt in 1998 of a little over $510 million. Mergent's 2001 report showed $1.05 billion in issued and outstanding bonds; adding to this a bond issue of $21.7 million floated last year against future tobacco revenues gave a total of $1.07 billion.
The primary borrower is the Public Finance Authority. Moody's in 1998 reported the PFA's bonded debt at $238.4 million, and Mergent in 2001 showed it to be $735.9 million.
Also cited in the 2001 report were more than $312 million in bonds issued by other V.I. agencies — $28 million by the Housing Authority, $25.1 million by the Port Authority (which in January closed on a new $35.4 million bond issue for the Crown Bay development), nearly $65 million by the Public Works Department, $25 million by the University of the Virgin Islands, $155.1 million by the Water and Power Authority (which just completed another $70 million bond issue) and $13.9 million under a special Hurricane Hugo tax.
The territory's long-term financial obligations also include money owed the federal government and the Government Employees Retirement System, raises owed government employees, and past-due vendor payments. As of last August, $386 million was owed in retroactive pay increases to classified government workers, perhaps as much as $100 million of it to teachers, and an estimated $50 million or more was owed to vendors.
PFA bonds not rated by financial services
The PFA bonds are not rated by national rating agencies such as Standard and Poor's, Moody's and Fitch. Last week, the WAPA board was heartened to hear that with its recent $70 bond issuance, WAPA had maintained a BBB rating from both Fitch and Standard and Poor's and a Baa3 rating from Moody's. It was the first time in the utility's history that it received "investment grade" ratings from three major agencies.
Although the ratings were the lowest the agencies offer above what Wall Street calls the "junk bond" level, they indicate that WAPA's bonds are probably viewed as "much better than those of the V.I. government," a close observer of the territory's borrowing stated.
"The V.I. government's bonds are not rated at all, meaning that the Virgin Islands has not paid for ratings — probably because of fear that they will be ruled to be junk bonds," the observer said. "You get no rating by avoiding a rating; there is no other way."
The Five-Year Operating and Strategic Financial Plan submitted to the governor by his Economic Recovery Task Force in April 2000 projected that if the government continued business as usual, it would within four years — that is, in 2003 — be facing a deficit of $114.5 million.
On April 24, Gov. Charles W. Turnbull announced in a Government House release that the territory was looking at a shortfall of $100 million for the fiscal year ending Sept. 30 — a figure subsequently revised to $115 million.

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