The Senate Finance Committee on Monday worked on details for a potential $60 million lending agreement, with FirstBank Puerto Rico and Banco Popular de Puerto Rico, to fund specific governmental operations and alleviate revenue losses brought about from the novel coronavirus.
Gov. Albert Bryan Jr. requested the revenue-anticipation note, which would be set at a 5.5 percent interest rate to be repaid in 12 months.
Under the bill, the money would create working capital helping the government avoid employee layoffs, pay obligations and meet the fiscal year 2020 operating expenses.
Sen. Kurt Vialet said the bill could be ready for a vote by Thursday, but during Monday’s hearing, senators told government finance officials that they weren’t happy with the loan terms, and urged them to push for “fair banking treatment,” something Vialet said the territory wasn’t experiencing.
Public Finance Authority Administration and Finance Director Nathan Simmonds said the two banks were asking for $2.5 million each to be set aside as a debt service reserve. The banks also wanted the government to waive its right to sovereign immunity, under which the government would be immune from lawsuits.
However, the lawmakers were told by the legislative legal counsel that there is no sovereign immunity for the government to waive, and the stipulation is in contravention of the Revised Organic Acts; the government can already both sue and be sued.
Office of Management and Budget Director Jenifer O’Neal said because of concerns raised by the Federal Emergency Management Agency and U.S. Treasury during the banking negotiations, two items have also been removed from the proposed transaction. The items removed were terms that pledged federal grant funds as a source of repayment, and a general obligation pledge of the Government of the Virgin Islands. With these adjustments O’Neal said she anticipates FEMA and the U.S. Treasury will give final approval, as required by the existing Community Disaster Loan agreement.
Vialet argued that the additional measure and language used made it seem as though the financial institutions did not trust the USVI government to pay its debts.
“They act like we have no investment into their institution when we have millions of dollars in Banco Popular and FirstBank, but they come with this draconian language like there is an intent for the Government of the Virgin Islands not to pay,” he said.
When pressed by Vialet, Public Finance Authority Executive Director Kirk Callwood Sr. and O’Neal said within the working relationship between the banking institutions and the government, the government has never defaulted on a loan, made a late payment or not paid back rent.
Part of the “security package” the banks are requesting is a statutory lien that has been set as a precedent in 2016 with regards to a gross receipts tax enhancement.
“The banks … have seen it as a very significant feature of the security package they want,” Public Finance Authority’s Bond Counsel Roger Bagley said.
But Vialet said it was as if the banks needed all these security measures because they believe the government wouldn’t make good on all the payments.
“We have millions of dollars in those accounts. There must be some leverage to us having those monies in their accounts. For them to be acting like we are an outside entity that is not well invested in them is really crazy … Maybe the push back argument needs to be, you work with us or we take all our money out of your bank, and we put it someplace else that doesn’t have these draconian measures,” Vialet said.
Callwood said a large piece of the additional safety measures the banks were putting into the loan had to do with the government’s current market rating, as well as the current state of the market as a whole, both of which have taken a heavy hit due to COVID-19.
O’Neal said, terms aside, the government will have a tough time making its biweekly $20 million payroll in the coming months without a loan.
O’Neal said the coffers only hold enough for the next July 2 payroll, and the government is working on the July 15 payroll. If tax collections come in on July 15 there will be enough for the last payday in July. Beyond that, a loan will be needed, she said.
The committee did not make a final decision about the loan during Monday’s hearing, but the committee plans to review it again this week.
All committee members – Sens. Vialet, Janelle Sarauw, Marvin Blyden, Oakland Benta, Allison DeGazon, Dwayne DeGraff and Donna Frett-Gregory – were present for the hearing.