Let's look at who in the Virgin Islands gets how much money out of Washington, D.C., institutions, dealing only with published information.
When the major V.I. officials (the governor, the legislature, the delegate) visit major D.C. institutions (the White House, Congress, the Interior Department), the results are fragmentary, at best.
The massive presidential budget provided $1 million in financial technical assistance for the territory; that was it. Earlier, there had been $750,000 from the Agriculture Department for real estate development, $5.4 million for public works last year when the governor signed an agreement with Interior, and a few million each year in rum taxes.
But when a relatively minor V.I. institution (Virgin Islands Telephone Corp.) visits a truly obscure entity (the Rural Telephone Finance Cooperative — RTFC), Jeffrey Prosser, according to The Wall Street Journal, came away with close to half a billion dollars in an attractive loan arrangement.
While there may be an element of apples and oranges here, it does raise some interesting questions: First, why is Prosser so much more skilled at accessing government money than the governor? And second, what is the RTFC, and why is it so fond of Vitelco?
Prosser, whatever else The Wall Street Journal and others say about him, is clearly good at what he does. He's knowledgeable, skilled in human relations, supported by clever lawyers and accountants, and full of a single-minded drive. He evidently knows exactly what to do to obtain money from the people on the other side of the table — and he does it.
The V.I. government presumably knows what it has to do to secure serious help from the feds — increase tax collections and decrease government expenditures. But it is unwilling to take either of these steps, so no substantial financial relief comes from Washington.
That much is pretty self-evident, but what the RTFC is, and why it acts so kindly toward the local phone company is bit more complex.
The first part of the question is the more easily answered. The cooperative historically grew out of the progressive movement in the American Midwest — the farmers and small-town people who many years ago politically backed the Greenback Party and the Lafollete Progressive Party (in vain) but also set up a sturdy set of local cooperatives to bring electric power and telephone lines to small towns and farms that were being ignored by the big utilities.
During and after the New Deal the Agriculture Department helped these organizations with loans and technical assistance.
A few years ago, the rural phone companies, having watched the success of a similar organization founded by the rural power companies (the National Rural Utilities Cooperative Finance Corp., of NRUCFC), created the RTFC as a mutual-assistance, non-profit entity, presumably with the encouragement of the Agriculture Department. The resulting entity is a free-standing, non-profit organization based in Herndon, Va., near the District of Columbia. It is not part of the federal government. Its members include both cooperative and corporate rural phone companies.
What the RTFC does is borrow money in the markets, through NRUCFC, at one set of rates and then lends money to its members at a slightly higher set of rates. The difference in the rates supports the RTFC staff. The phone companies use the money for improving and expanding their services, and for acquisitions. In some rural areas on the mainland, the local phone co-ops also run the local cable television systems and have prospered accordingly. But why RTFC's strong commitment to Vitelco? The Wall Street Journal says Vitelco is the RTFC's largest single loan recipient.
An RTFC spokesman would not comment on the terms of any individual loan, but he did send me some published material that was helpful. It tended to support estimate by The Wall Street Journal of the size of the RTFC loan to the phone company.
On May 31, 1998, the RTFC's loans in the U.S. Virgin Islands, all presumably to Vitelco, totaled $213,615,015. The next-largest jurisdiction in terms of total loans was the state of Texas, with $111,019,050 outstanding — presumably owed collectively by various entities.
One year later, the loans to the U.S. Virgin Islands had increased to $376,408,629 — again more loans than to any other jurisdiction, with Texas again next with $261,632,181.
While the Virgin Islands probably has no more than one-tenth of one percent of America's rural population as defined by RTFC, as of May 31, 1999, the islands had nearly 13.9 percent of the outstanding loans. And, according to the Journal, that loan balance is now much larger.
Why should any financial institution put such a large percentage of its loans in a single firm in a far-off and impoverished jurisdiction? And, perhaps more to the point, why would it invest so much in an institution in such a place that has such an interesting history that the Journal spent more than six months investigating it?
I could get no substantive responses from the RTFC spokesman. However, I speculate that the following factors played some part in the "let's lend to Vitelco" decisions:
– Sense of invulnerability: Working as it does with a series of squeaky-clean rural co-ops, RTFC reported in both of its most recent annual reports that it had no non-performing (i.e. bad) loans, and it used a pretty tight description of such loans. No bad loans in a portfolio of $2.5 billion is remarkable for any financial institution.
– Prosser's very real skills: As noted earlier, Jeffrey Prosser is good at what he does.
– Member of the club: Vitelco was not an outsider seeking financial support, as it would have been had it sought money from, say, the Bank of America. Vitelco was and is a full-fledged member of the RTFC, which certainly worked in its favor.
– Inequity at the bargaining table: Although I was not in the room at the time, and although I assume an equitable distribution of IQ's at the table, I suspect from everything written that the urban financial skills, assertiveness and maybe the sharp elbows were pretty thoroughly concentrated on one side of the table.
As a result, the RTFC has a portfolio of loans tilted to a single telephone company in a single not-very-rich jurisdiction. I hope, for all concerned, that we do not start reading about non-performing loans in the future annual reports of the Rural Telephone Finance Corp.
Editor's note: David North, of Arlington, Va., writes frequently about governmental finances.
