Oct. 10, 2007 — It's time for the government to start paying off some of its debts, says Sen. Carlton "Ital" Dowe, who has been working on a bill to pay part of the nearly $400 million in retroactive wages owed to government employees.
"Starting the process is key here," Dowe said Wednesday. "We've talked about paying off these wages for a long time, but no one has come forward with a plan to get it done. This can be the first step in the process."
Dowe's bill, co-sponsored by Sens. Usie R. Richards and Celestino A. White Sr., has two components. First, it sets up mechanisms that would enable the Public Finance Authority to take on the role of managing the government's investment portfolio. Dowe explained that several government entities — including central government departments and semi-autonomous agencies such as the V.I. Water and Power Authority — currently have close to $330.1 million available in investment earnings or bond proceeds.
Much of that money, he said, is channeled through investment firms or money managers that charge at least a one-percent investment fee or reap handsome commissions after stock or bond transactions. The territory would be able to retain thousands of dollars annually if agencies get together and pool their financial resources, then allow the PFA — an entity set up to raise revenue and capital for the government — to manage the investments, Dowe explained.
"The rate of return on the government's investments will also be greater if we pool our resources," Dowe said. "For example, if an agency hires an outside firm to manage a $20 million investment portfolio, that agency would have to pay an annual investment fee of 1.5 percent. Through the PFA, the investment fee on the same portfolio would only be 0.1 percent, which would amount to $200,000 in savings for the government each year."
Half of the savings will be deposited into the General Fund, while the rest will cover the PFA's administrative costs, the bill says.
Dowe made it clear that money tied to bond contracts or endowment funds would not be included in the investment pool. However, if the bill is passed, several government agencies — including WAPA, the West Indian Co. Ltd., V.I. Port Authority, University of the Virgin Islands and Economic Development Authority — would be mandated by law to participate in the new investment program.
With a larger cadre of financial resources at its fingertips, the PFA can also begin implementing new initiatives, such as a security-lending program, Dowe added.
"In this instance, the PFA would essentially function like a bank, and entities would have to pay a fee to use the money," he said.
In both cases, the PFA does not get to keep any returns made on investments, Dowe explained.
The bill also makes some changes to the PFA's structure and requires that the agency's executive director have experience in financial management, including the handling of stocks, bonds and other types of investments. The starting salary for the position will be at least $150,000 a year, Dowe said.
Plans to address the retroactive wages are included in the second part of the bill.
Each year, five percent of the gross premium receipts tax that is paid on every insurance policy in the Virgin Islands is deposited into the government's insurance guaranty fund, a pool of money used in the event of a natural disaster. The fund generates about $16 million a year, Dowe said, and has been capped at $50 million.
While the bill does not eliminate the fund's cap, it does allow a large chunk of the money to be used for paying off retroactive wages, and authorizes the PFA to obtain a $45 million letter of credit with any FDIC-insured lending institution in the territory.
"This letter of credit is basically an insurance policy," Dowe said. "What happens is that the PFA will go to the bank and negotiate the terms and conditions of the letter of credit. We will use the $45 million from the fund to begin paying off the retro, and in the event of a disaster, the bank will guarantee that the money we used will still be there if we need it."
The insurance guarantee fund is only tapped when insurance companies registered to do business in the territory do not have enough money to cover claims filed after a natural disaster. If that does not happen, Dowe said, the fund will continue to generate money each year, and the government will soon be able to replenish the borrowed $45 million.
The letter of credit will be canceled once money deposited into the fund hits the $50 million mark.
At least $5 million will stay in the fund, Dowe said, and will be used, in part, to cover outstanding claims incurred after hurricanes Hugo and Marilyn.
The bill also authorizes the governor to establish a Retroactive Wage Commission, a group of experts who will work to determine how much is owed in retroactive wages, and to whom the money will be going. A $500,000 appropriation included in the bill will go toward paying for the commission's personnel costs and office expenses.
The bill is in the final stages of the drafting process and could pop up for consideration on a Senate committee agenda later this month, Dowe said.
"If all goes well, I hope to have the bill passed (by the full Senate body) by the end of the year," he added. "At the end of the day, we have to see that if we pool our resources, we're going to be stronger as a government. And the time has come to get away from the process of going to a third party to get to the investments. We can do it right here, in house, and save ourselves a lot more money."
Editor's note: Based on information provided by Sen. Carlton Dowe and the office of the Legislature's legal counsel the Source initially reported that a percentage of the real property taxes collected each island is deposited annually into the government's insurance guaranty fund. The the fund is actually subsidized by a premium receipts tax paid on every insurance policy in the Virgin Islands.
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