On Tuesday, Dec. 28, Gov. Albert Bryan Jr. sent down a legislative proposal developed through collaboration between his office and the 34th Legislature to restore solvency to the Government Employees’ Retirement System (GERS).
The legislation will allow for the refinancing and restructuring of a significant portion of the debt of the Government of the Virgin Islands (GVI) at current market interest rates, to free up critically needed revenues to stabilize the GERS. The GERS is forecast to become insolvent within the next few years, and the proposed legislation should finally address a problem that has vexed the territory for years.
In his transmittal letter to Senate President Donna Frett-Gregory, the governor indicated his pleasure that “the legislation has been developed in collaboration with the members of the Senate’s Subcommittee on GERS, as well as consultation with GERS and its actuary, and represents a real opportunity for us all to move past the perpetual fears of what might come next should the long-predicted GERS insolvency become a reality.”
“It is my hope that the legislative branch, executive branch and GERS can collaboratively and cooperatively work on this matter to benefit the retirement system and the overall economic life of the people of the Virgin Islands and its government,” Bryan wrote.
Of concern in driving this renewed effort at refinancing and lowering the government’s debt is the fact that GERS is nearing insolvency, and the GERS actuary, Segal and Company, has projected the GERS will be insolvent by October 2024 or sooner.
The board of trustees has warned that the insolvency of the GERS will necessitate substantial reductions in retiree benefits. Should the GERS become insolvent, retirement payments to retirees will be the responsibility of the Government of the Virgin Islands, placing significant new funding burdens on the general fund, according to the transmittal letter.
As with previously proposed transactions, the use and pledging of the Matching Fund Receipts from the United States Treasury will be used as the financial base for the transaction.
The legislation creates a new entity called the “Matching Fund Special Purpose Securitization Corporation,” which will be a legally created entity separate from the government.
That corporation will issue bonds to enable the Public Finance Authority (PFA) to restructure the outstanding matching fund bonds issued by the Public Finance Authority in order to free up resources to be applied to the restoration of solvency to GERS without having to reduce benefits.
The legislation enables the opportunity to increase revenues that can be dedicated to the GERS through the issuance of a GERS bond by the PFA or another entity as an in-kind contribution to the GERS.
Segal and Company has determined that so long as the matching fund receipts remain, at least at their current levels, the foregoing proposed issuance of the GERS bond would provide financial stability and liquidity to the GERS and avoid reductions of retiree benefits.
“This legislation incorporates our unified efforts to bring relief to the GERS and peace of mind to the retirees and government employees who rely on and will soon rely on our pension system for their livelihoods,” Bryan wrote.
Referencing the need to meet favorable timing of the marketplace and the need to implement measures to avoid benefits reductions, the Governor wrote:
“I respectfully ask the Thirty-Fourth Legislature to take up consideration of this matter as expeditiously as possible. I will make all necessary financial, investment and legal advisory persons available for presenting and explaining the legislation and the transaction to the Legislature.”
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I think that this still results in a reduction promised to the Virgin Islands Government Retirement Service beneficiaries in the near future. I think this creates a situation in which a secondary complementary currency would become a useful partial solution.
The value of the United States dollar is ultimately based on its ability to be exchanged for taxes and fees owed to the federal government. The United States Virgin Islands has a mirror arrangement with the United States federal Internal Revenue Service such that federal taxes and fees are returned to the territory. This enables the territory to reduce the taxes it collects from classes of people and corporations as an incentive.
This same feature could be used to compensate U.S.V.I. residents and companies owed money by the Virgin Islands Government. Instead of having pension payments reduced VIGERS beneficiaries could receive most in United States dollars U.$. and the rest in transferable tax credits which could be the basis for United States Virgin Islands dollars U.$.V.I.
This new secondary complementary currency could be in the form of paper which could be a limited edition collectible for tourists and residents. The majority could be in digital form on a smart phone app serviced by Viya. Viya’s sister company Guyana Telephone already has a digital currency platform programmed for both Guyanese and American dollars. The same program could be used to provide a dual currency platform for the American and Virgin Islands dollar.
Another problem that the territory has that creation of a pool of money easier to use in the United States Virgin Islands than the mainland could help solve is the outflow of money. Virgin Islands goods and service purveyors are more likely to accept payment which could at worst be used to pay fees and taxes.
Someone seeking to buy say a used car or appliance would be incentivised to buy a used renovated unit locally instead of bringing it in from the mainland. In an ideal situation a great many goods and service purveyors would accept U$VI and the currency would turn over many times before being used to pay the government.