Lt. Gov. Osbert Potter, acting as governor while Gov. Kenneth Mapp is traveling, on Thursday vetoed two bills. The bills would have broadened the ways tax revenues can be used to finance hotel construction and renovation and put statutory liens on V.I. government revenues to secure private construction lending, this week.
He also vetoed a pension reform measure and a change to voting laws, while approving several other measures.
In a letter to Senate President Myron Jackson, Potter said the language putting a lien on public money for loans for private development projects is “inadequate to create an enforceable statutory lien under the Federal Bankruptcy Code.”
One of the bills, Bill 32-0137, would have expanded Tax Increment Finance benefits to use future tax revenues to pay for purely private projects.
TIF financing pledges the future increase in tax revenues, the incremental difference between what sort of taxes, especially property taxes, that are paid on a property and the expected increase in tax revenue that results from developing the property, as security for loans to pay for that development.
First enacted during Gov. John deJongh Jr.’s administration, this sort of TIF financing was used to pay for government infrastructure for the shopping center that houses St. Croix’s Home Depot. The idea is to bootstrap development without directly paying out of government coffers, by pledging only tax revenues that would not exist without the development. The V.I. law only allows the financing for government-owned infrastructure.
The proposed legislation, sponsored by Sens. Kurt Vialet (D-STT) Marvin Blyden (D-STT), Neville James (D-STX) and Novelle Francis (D-STX) would expand this financing to private buildings, and from only new construction to include “repair or remodeling.”
It expands the sources that can be used to secure the financing to include casino receipts and hotel occupancy tax revenues, in addition to the property taxes and gross receipts taxes already allowed.
Mapp vetoed similar similar legislation in 2016, saying it would give “the owners of the hotel and casino at Caravelle Hotel access to pledge government revenues to fund its capital investment requirement.”
At the time, slot machine operator VIGL had announced plans to build new hotel rooms to meet its casino license requirement at the Caravelle Hotel. The U.S. Virgin Islands legalized casino gambling as a way to incentivize hotel development on underdeveloped St. Croix. Developers must build or renovate 75 rooms for the license type the Caravelle holds.
Recently, VIGL announced it will not be building any hotel rooms after all but has instead bought the King Christian Hotel and Company Street Hotel in Christiansted and plans to remodel enough rooms to meet the license requirement. (See Related Links: “Instead of Building Rooms, VIGL Buys Two Hotels.”)
This new version of the legislation would also change V.I. law to allow TIF financing for remodeling hotel rooms.
VIGL has not announced plans to use this tax-financing program and did not testify at the August committee hearing on the legislation.
The new version of the bill also places a statutory lien on the tax revenues, so the hotel’s lenders would have an enforceable lien on the tax revenues.
Separately from its hotel operations, VIGL is planning to make major renovations to the territory’s two horse racing tracks in exchange for the franchise on running the horse races and the right to place slot machine parlors at the tracks. The territory changed its casino laws to accommodate that plan in December 2016.
The other bill, Bill 32-0136, would make changes to the territory’s Hotel Development tax benefit program largely pointed at enhancing the security for a potential lender. Under existing law, enacted in 2011, a hotel developer can have the Public Finance Authority set up a trust fund into which its casino and hotel occupancy taxes will go. Those funds can be used to pay off loans incurred to build the hotel.
The proposed changes would have allowed the tax money to be paid to a trustee or a trustee’s agent, bypassing the PFA. It would have also created a statutory lien on the funds, in principle preventing the V.I. government from doing anything else with the funds. Potter’s concern was that the language was not adequate to make that lien enforceable.
Potter also vetoed a bill repealing a 1996 law and a 2001 law that allow many V.I. government workers to retire, start taking a Government Employee Retirement System pension, then return to work for the government while continuing to receive their pension and not contributing to the pension system.
“While I believe that it is absolutely necessary for us to address the GERS unfunded liability, we must do so in a manner that is clear and designed to adequately address the issues plaguing the GERS,” Potter wrote.
The pension plan is massively underfunded and projected to liquidate its entire trust fund by 2023 and possibly as early as 2020. The problems are due to numerous past unfunded benefit increases, a reluctance on the part of the Legislature and GERS to increase employee pension contributions enough to make the plan solvent and an increasing ratio of retirees to employees who pay into the system. The vetoed changes would have some impact on the plan’s solvency and the amount of ongoing funding available to pay pensions once the trust fund is exhausted.
Potter also vetoed a measure giving the supervisor of elections, with the approval of the board of elections, the power to set early voting times and dates.
“The measure simply does not ensure that voters are provided some certainty for early voting,” Potter wrote in his letter to Jackson.