The Senate Finance Committee on Thursday narrowly advanced Gov. Albert Bryan Jr.’s bill that aims to bail out the Government Employees’ Retirement System by securitizing the territory’s Matching Fund debt. The bill would create a special-purpose entity charged with the responsibility of selling the rights to as much as $200 million per year in federal alcohol excise tax revenues.
At Thursday’s hearing – a continuation of a special session held on Tuesday – senators circulated but did not vote on, an amendment in the nature of a substitute that some said would make them more comfortable with the bill. As written, the legislation places the newly formed corporation, often referred to as a special-purpose vehicle or entity, out of V.I. government purview.
Sen. Donna Frett-Gregory expressed concern about the corporation, saying the special-purpose vehicle, which is a legal entity created to isolate the government from financial risk, “doesn’t report to the public” and is “outside versus inside the Virgin Islands government.”
“Not to oversimplify things, but what we are doing here is replacing higher interest rates with lower interest rates,” said Richard Tortora, president of Capital Market Advisors, a firm that advises the Public Finance Authority. “The only way we are able to do that is via the creation of this new entity because the Government of the Virgin Islands or Public Finance Authority doesn’t currently have the investment-grade ratings and doesn’t have market access. So, we have to create a new entity if we want to take advantage of current market conditions.”
Tortora added that by doing so, there would be $85 million in additional cash flow in each of the next fiscal years, and then seven additional years of positive cash flow savings before dissavings 11 years out.
Tortora said the plan would be to refinance the bonds at or before the 10-year mark to mitigate any dissavings in the subsequent years.
Several senators were not convinced by the plan, which reflected in the vote. Three senators – Marvin Blyden, Allison DeGazon and Frett-Gregory – voted to move the bill forward. Two senators – Dwayne DeGraff and Oakland Benta – opposed the bill. Sens. Janelle Sarauw and Kurt Vialet abstained from voting.
“I think the concern by creating this special-purpose vehicle … is that somehow the government is losing something,” the Public Finance Authority’s Director of Finance and Administration Nathan Simmonds said. “But to me, the government is in a better position because you are removing the obligation to the bonds from the books of the government. The revenue that you are receiving is the same amount of revenue, even more revenue because under the structure the revenue first goes to the trustee and the trustee takes out the debt service. The government only gets the residual. And that residual will be increased, so you have increased cash flow and you remove the debt.”
The formation of the special-purpose entity was not the only concern expressed by senators, however. Some also said they were wary of a three-member board for the new corporation, one seat of which the governor would take while the other two would be governor-appointed.
Amendments proposed by Sens. Novelle Francis Jr., Sarauw and Frett-Gregory sought to address the board make-up. The amendment in the nature of a substitute calls for a five-member board, of which four members must be private citizens with at least seven years executive or board experience in banking, accounting or finance. The members cannot be current officers, employees or directors of any government entity unless three years removed.
The very divided committee ultimately forwarded the legislation to the Rules and Judiciary Committee, and if voted on favorably there it will move into full session for final approval by the Legislature.
Some senators remained opposed to the bill as written, including Benta, who called the bill “criminal,” and said it is akin to “dissolving the Public Finance Authority.”
Immediately after the Finance Committee adjourned, a special session was called to vote on the proposed amendments. Senators needed more time to review the amendments, however, so the session was recessed until Friday at 10 a.m.