In a special session Tuesday, the Legislature voted to approve spending $13.9 million for a settlement with the IRS over use of some 2006 tax exempt bond revenues and to authorize the governor to refinance up to $90 million in government debt at lower interest rates.

The Legislature sent a bill to appropriate an initial $5 million for litigation with Hovensa to the Finance Committee to be considered through the normal legislative process. The first two items faced looming deadlines, after which the cost to the V.I. government and taxpayers would have increased, while the Hovensa litigation financing may be needed in the upcoming year, but there is no immediately approaching deadline.

The Hovensa bill arises from the 30th Legislature’s vote against ratification of the proposed Fourth Amendment Agreement that would have governed the sale of the St. Croix refinery. Attorney General Vincent Frazer said the government is ready to litigate for the territory, but once that path is taken, it must be funded until it is over, he said. And Hovensa can drag things out for years if it wants.

For example, once litigation begins, Hovensa may file for bankruptcy, which "will bring the litigation to a halt and put it under the auspices of the federal bankruptcy judge," Frazer said. "The bankruptcy judge will determine whether we can go forward with the lawsuit during the bankruptcy proceedings or not, considering the effects on the other creditors. This brings on another level of complexity to the engagement. Another set of specialized lawyers and experts and litigation expenses," he said, estimating the suit would ultimately cost "more than $18 million."

Sen. Judi Buckley asked if there was still any chance for mediation rather than litigation. "Yes, if both parties are willing that can be done," Frazer said.

Sen. Alicia "Chucky" Hansen made the question of litigation one of V.I. patriotism and strength. She suggested local attorneys volunteer their time to help avoid the expense of litigation. And she said she would support every effort to help with the litigation.

"I don’t like to fight weak,” she said, adding later, “We want them to know we are willing to fight them to the bitter end."

"I appreciate all that Senator Hansen said," Frazer said. But before litigation, he always sits down with the client to explain what is involved and to “make sure the client is prepared for what is involved, because you cannot start the case and pull out a few months later when you decide you don’t have the money to pay for expert fees," he said.

"My staff is prepared to begin litigation but I am saying that, as we prepare, we understand that the $5 million is just a start. Because once we start down that road, we have to keep filling the tank with gas, no pun intended," Frazer said.

Sen. Clifford Graham, who chairs the Finance Committee, said he is "in support of the $5 million" to fund litigation. "But let us take care of that through the budget," he said, pointing out that the funding is being requested for the upcoming Fiscal Year 2014, and budget hearings for that year are nearing their end now.

Voting to send the litigation appropriation to the Finance Committee were Graham, Buckley, Sens. Craig Barshinger, Diane Capehart, Donald Cole, Kenneth Gittens, Myron Jackson, Shawn-Michael Malone, Terrence "Positive" Nelson, Clarence Payne, Sammuel Sanes and Janette Millin Young. Voting nay were Hansen, Sens. Nereida "Nellie" Rivera-O’Reilly and Tregenza Roach.

The Legislature passed the other two bills. One authorizes a $13.6 million settlement with the IRS over disputes about whether tax exempt bonds were improperly refinanced by the territory.

In March of 2012, the IRS initiated a random audit of those 2006 bonds and determined the government had revenues that year that should have been used to retire 1999 bonds, instead of using the 2006 funds, which were tax exempt and only for working capital, Finance Commissioner Angel Dawson testified.

The IRS originally took the view that the entire $219.5 million in principal from the 2006 bonds was tainted, but in light of economic constraints, agreed to a settlement of $13.6 million, Dawson said. That sum is calculated assuming a settlement date before Aug. 27, after which interest will begin to accrue, he said. Funding would come first from a recently authorized $40 million line of credit the government is about to finalize but would be replaced as soon as possible by government bonds, he said.

The body also voted to authorize the government to refinance up to $90 million in existing bonds at lower rates. This should save about $23.9 million per year, Dawson said.

But if the restructuring is not final before Sept. 30, the FY14 savings will be reduced, because the government makes payments on Oct. 1 and April 1, and would have to make the October payments at the higher interest rate, he said.

Fourteen of the 15 senators voted in favor of the bond refinancing bill and the IRS settlement authorization, with Gittens voting against.