Oct. 10, 2002 – What costs Virgin Islands taxpayers the most money — police services, the health system, or interest on the territory’s bonded debt?
The Police Department budget for Fiscal Year 2003 is $38 million.
That for the Health Department is $27.2 million.
The current annual interest on the bonded debt is about equal to those two amounts combined, approximately $65.6 million.
This figure is calculated from data published 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. It also can be accessed in any good-sized public library.
The $65.6 million is the interest — without any repayment of principal — on the territory’s $1 billion-plus bonded debt. (See "V.I. bonded debt soars to more than $1 billion".)
In terms of bond debt repayment, Mergent indicates that the territory is scheduled to repay about $27.2 million during 2002.
Thus, the territory's total bill this year for its bonds will be around $92.8 million.
The $65.6 million also does not include the interest on the recently floated $21.7 million in bonds against future tobacco revenues, which has not yet been reported by Mergent.
While Mergent does not publish dollar figures on interest owed, it does show the size of bonds, when they are due, and the interest rates for various time periods. Calculations based on those figures for the Virgin Islands make the current annual interest payment about $65.6 million.
On average, the V.I. bond issues cost a little over 6 percent a year. That's a relatively low rate — because the interest on the bonds is exempt from both U.S. and state income taxes, and because interest rates in general have been relatively low in recent years.
The territory's bonded debt is, in the words of Wall Street, "backloaded," with most principal repayments scheduled for the "out years" — the latter end of the repayment period — and with interest rates rising as the years pass. Many of the government officials who created these debts will be long gone when it comes time for the biggest bills to be paid.
In terms of debt repayment, Mergent indicates that the repayment figures will steadily rise from this year's $27.2 million until peaking at $57 million in the year 2021.
Note, however: The repayment of the bonded debt will peak in 2021 only if the territory does not borrow one more cent in the ensuing years. That would be two decades of fiscal restraint markedly different from the last few years, in which the territory's bonded debt has more than doubled, from $510,255,000 reported in Mergent at the end of 1997 to the current total (including the tobacco funds loan) of $1,069,664,000.
Along with principal repayments, the interest charges also are backloaded, to some extent. These charges rise with the passage of time, as the bonds issued by the V.I. Public Finance Authority in its Series 1999-A illustrate. This was the largest of the territory's bond issues, creating $299,880,000 in debt.
At first, for the relatively minor amount of money to be repaid in 2000 ($3.6 million), the interest rate was 4.20 percent. For the bonds in this series maturing in 2029, the rate is 6.125 percent; in that year, repayment of $21.1 million of the principal will be due.
The backloading of the bond issues contrasts with what families face when they take out a mortgage to buy a house. Typically the payment, both interest and principal, is fixed at the same dollar amount for the life of the mortgage, with the hope that inflation will make it easier to pay in the "out years," as compared to the initial ones. This system is not used for state and municipal bonds generally.
Bond repayment schedule
The V.I. government's bond repayment schedule over the next 27 years, excluding interest, looks like this:
Year – Principal
2002 – $27.2 million
2003 – $28.1 million
2004 – $29.6 million
2005 – $31.4 million
2006 – $29.3 million
2007 – $31.0 million
2008 – $97.7 million
2009 – $33.8 million
2010 – $35.7 million
2011 – $37.6 million
2012 – $39.8 million
2013 – $39.0 million
2014 – $41.2 million
2015 – $43.8 million
2016 – $46.2 million
2017 – $49.0 million
2018 – $47.9 million
2019 – $50.6 million
2020 – $52.3 million
2021 – $57.0 million
2022 – $34.4 million
2023 – $19.0 million
2024 – $45.7 million
2025 – $28.8 million
2026 – $19.8 million
2027 – $21.1 million
2028 – $22.4 million
2029 – $22.9 million
The figure for 2008 is significantly higher because the 1984 bond issue of the V.I. Public Works Acceleration Authority, according to Mergent, all matures in that year. Typically, the repayment of bond issues is spread over several years, but the document does not indicate that this is the case.
The repayment figures above do not include the recent tobacco bond issue and do not include any interest payments. They assume no new bond issues in the next 27 years. They also assume that the V.I. government will pay off all the bonds as they become due, rather than rolling them over for later payment. The calculations are exclusively for the territory’s bonded debt and do not cover at least $400 million in other, unbonded debts.
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