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DeJongh Calls Special Session On Hovensa, PFA Bonds

Gov. John deJongh Jr. called a special session of the 30th Legislature to convene next week to consider a $5 million appropriation for initial Hovensa litigation, along with bonding authority for government cash flow and funds to settle an IRS dispute.

In a letter sent Thursday to Senate President Shawn-Michael Malone, deJongh requested the special session for Tuesday. Included with the letter are three bills enacting the appropriations. The bills can be seen here: Bond Authorization Bill, IRS Settlement Bill, and the Hovensa Appropriation.

“Rest assured that this is not a one-time funding requirement,” deJongh said in his letter to Malone. “Our best estimate at this time indicates that this process could stretch over seven years and cost in excess of $15 million. This is a path I did not want for us, but it is clear that we have no choice but to pursue it.”

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. Voting against ratification were Sens. Terence "Positive" Nelson, Nereida "Nellie" Rivera-O’Reilly, Alicia "Chucky" Hansen, Diane Capehart, Kenneth Gittens, Shawn-Michael Malone, Janette Millin Young, Tregenza Roach, Myron Jackson, Clifford Graham and Clarence Payne III. Voting in favor of the Fourth Amendment Agreement were Sens. Sammuel Sanes, Judi Buckley and Donald Cole. At-large Senator Craig Barshinger was absent.

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The proposed 2014 Executive Budget currently includes $26.15 million of cash-flow relief to be derived from restructuring and refunding some outstanding PFA bonds. In order to reduce the fiscal year 2014 budget deficit, the proposed bill authorizes the restructuring of some of the government’s outstanding Matching Fund Revenue Bonds.

DeJongh’s letter and the legislation refer to revenue refunding bonds, which are bonds that pay off older, existing bonds before their final maturity date, generally to take advantage of reduced interest rates. This restructuring must be completed prior to the end of 2013 for the savings to be available by 2014, according to Government House.

The final bill authorizes a $13.6 million settlement with the IRS over disputes about whether tax exempt bonds were improperly refinanced by the territory.

The dispute relates to an IRS audit in connection with two series of bonds that were issued as federally tax-exempt debentures and comprised new money capital project financing, according to Government House.

DeJongh said in his letter that the V.I. government has corroborated the IRS’ conclusion that based upon the territory’s publicly available audited financial statements for the period in question, there were surplus amounts available that should have been applied to retire the Series 1999 Bonds and were instead refunded with the proceeds of the Series 2006 Bonds.

The original determination on the part of the IRS was that the entire $219.4 million aggregate principal amount of the Series 2006 Bonds was tainted by the inappropriate issuance of the advance refunding bonds.

“We have succeeded in persuading the IRS not to take such a drastic position,” instead settling at $13.6 million.

“The IRS has agreed to a remedy that will protect the investors while still making the U.S. Treasury whole with respect of these Bonds,” deJongh wrote.

The IRS settlement bill seeks to finance the costs of the settlement through an appropriation from the General Fund and by issuing bonds to repay the General Fund.

In calculating the negotiated settlement amount, the IRS assumed a settlement date no later than Aug. 27, after which time interest will begin to accrue, according to Government House.

Under the Revised Organic Act of 1954, the U.S. statute defining the powers of the V.I. government pending the enactment of a territorial constitution, the governor can call special sessions of the legislature "at any time when in his opinion the public interest may require it," and may set the agenda for such special sessions.

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