Gov. Albert Bryan Jr. submitted new legislation this week giving lenders more protections, in hopes of persuading banks to loan the U.S. Virgin Islands government $60 million, secured by anticipated revenues.
Bryan first proposed the measure in March, as revenues began to dry up, cruise ships were canceled and the epidemic spread throughout the nation.
It is meant to fill the cash shortage while the territory awaits tax revenues and federal aid. The territory tried, unsuccessfully, to sell municipal bonds in 2017, making a smaller, shorter-term, regular bank loan one of the few options remaining for borrowing. This turned the territory’s ongoing fiscal issues into a more immediate crisis.
The Legislature approved the authorization but did not put in late changes requested by Government House that was aimed at assuaging the worries of lenders.
In May, Office of Management and Budget Director Jenifer O’Neal told senators lenders needed changes before they would sign off on the loan. She said the government had been negotiating with Banco Popular de Puerto Rico and FirstBank Puerto Rico, to issue revenue anticipation notes to provide an infusion of funds for authorized governmental operations. But the banks wanted things that needed legislative action.
“Those terms include the requirement for a statutory lien, a statutory waiver of sovereign immunity, the issuance of property taxes by June 1 and the pledging of income tax collections as a form of repayment,” O’Neal said.
Bryan’s new legislation repeals the first act entirely and replaces it with a new borrowing authorization to incorporate borrowing terms between the banks and the government for the funds.
According to Government House, Bryan’s new proposed measure will authorize the use of any available source of public funds to issue revenue anticipation notes for working capital to supplement government operations amid the downturn in revenue collections as a result of COVID-19.
In March, when Bryan initially sent the proposed legislation to the Senate, that while the public health and safety of the territory’s residents is his primary concern and the focus of the government’s response, it is also important to plan for the economic impact of the pandemic.
“The coronavirus has impacted the global, national and local economies substantially, and the Virgin Islands has, as a consequence, experienced and expects to continue to experience, among other economic factors, significant disruption to the travel and cruise tourism industry,” Bryan said at the time.
The proposed legislation also would authorize Bryan to negotiate the final terms of all borrowing vehicles approved by the legislation; to execute and deliver all documents and agreements necessary in connection with the borrowing; and pay all expenses associated with the borrowing.
The legislation also would require the Department of Finance to report to the Senate Finance Committee no later than 15 business days after drawing down the money, and provide information regarding the purpose for which the funds were used, as well as a description of the source of the repayment.
The interest rate on any revenue anticipation notes or bonds would not exceed six percent, and the maximum principal amount that can be borrowed is capped at $60 million.
This is not the first statutory lien legislation for the territory. In 2016, the U.S. Virgin Islands approved statutory liens giving lenders leverage to bypass the territory’s appropriations process and get paid first after Puerto Rico’s 2016 default and after lenders declined to buy USVI bonds in 2017. At the time, analysts publicly worried the USVI might go down the same path as Puerto Rico.