Instead of taking immediate action on Gov. Albert Bryan Jr.’s bill to create a new funding source for the Government Employees’ Retirement System, an unconvinced V.I. Senate moved the measure to the Finance Committee for a hearing at 11 a.m. on Thursday.
The bill proposes securitizing the territory’s Matching Fund debt by creating a corporation that would operate as a government instrumentality with the responsibility of selling the rights of as much as $200 million per year in federal alcohol excise tax revenues. The 34-page piece of legislation is intended to create an influx of cash in hopes of bailing out the failing Government Employees’ Retirement System, and potentially create cash flow for future projects.
In his Monday news conference, the governor asked that senators act quickly on the measure.
But lawmakers expressed only moderate support during Tuesday’s special session requested by the governor and handed the legislation over to the Finance Committee for further review.
Testifiers said the crumbling pension system has become an urgent matter. Multiple plans have been put in front of the Legislature, each claiming to resolve the system’s substantial fiscal problem.
In April, legislators heard a proposal for a 20-year plan to rescue the system but would include cutting retirees’ monthly checks by 44 percent.
The governor also attempted to tackle the financial conundrum through expanding cannabis laws and directing taxes on that crop to the retirement pension system. Senators gave that proposal a cool reception in June.
Now there is additional pressure and a reignited sense of urgency, fueled by Department of Finance Commissioner Kirk Callwood’s observation that the territory faces an Oct. 1 debt payment.
“If we can get to the finish line for this particular structure before then, we can save upward of $75 million or the debt service we would normally pay. That is the immediate urgency for this. This structure is somewhat a function of the market as well. Right now, we are in difficult times with COVID … We’re in a great rate environment for issuing,” Callwood said.
Because rates fluctuate, Callwood said rates might shoot up if a cure for COVID-19 is found.
“This is why we have to strike while the iron is hot,” he said.
If the legislation passes, it places the territory back into the bond market after an 11-year hiatus.
Richard Tortora, president of Capital Market Advisors LLC, said the current market is “at or very near historic lows.”
Because of the purported need for quick action, a three-member board, consisting of the governor and two governor-appointed nominees, was proposed instead of a five-member board.
Miles Plaskett, a partner at Duane Morris LLP, said the benefit of a three-member board is flexibility, “to be able to move quickly and take advantage of the environment. It just would take longer to put [together] a five-member board … and get the work done in the time period we have.”
Robert Gordon, a lawyer and partner in the New York office of Jenner & Block LLP, was not as convinced as other testifiers that the legislation was a good idea and testified against it, often suggesting a term deemed taboo by senators – restructuring.
But restructuring the entirety of the government’s financial operations is exactly what Gordon proposed the Virgin Islands do.
“As a starting point, it is critical to acknowledge the basic fact that the USVI is in dire financial condition. With just over 100,000 residents, it has approximately $2.4 billion of public bond debt, approximately $4 billion of underfunding obligations to GERS, a Water and Power Authority in need of a massive overhaul and modernization, hospitals that are still recovering from the 2017 hurricanes and an economy that needs significant reinvestment and diversification. Meanwhile, USVI has shown the effects of insufficient revenues and cash reserves and crushing debt,” Gordon said.
Not only did Gordon testify against the legislation, but he also said “it would be terribly harmful to the USVI and its citizens.”
Calling it a “piecemeal” approach, Gordon said the proposal would mean when the government runs out of money and is forced to restructure, it will look for debt relief from only the remaining government creditors and not the bondholders. He did not believe the reduced debt payments for the next three years would do much to “shore up the GERS underfunding” and would not ensure the territory’s access to capital markets in the future.
Senators were concerned.
Sen. Alicia Barnes said that all the talks of “high finance” was likely to be “over people’s heads” and asked finance officials if something could be issued to the public that would make the information digestible for the residents of the Virgin Islands.
Tortora said a cost-benefit analysis would be provided to the public that would ensure the benefit to the Virgin Islands by passing the legislation would be easily understood.
Present for the hearing were Sens. Barnes, Novelle Francis Jr., Myron Jackson, Oakland Benta, Marvin Blyden, Allison DeGazon, Dwayne DeGraff, Donna Frett-Gregory, Stedmann Hodge Jr., Javan James Sr., Janelle Sarauw, Athneil Thomas and Kurt Vialet.
Sen. Kenneth Gittens and Steven Payne Sr. were absent.