Government House, St. Croix
Bryan administration officials on Monday told lawmakers that the government desperately needs a $60 million revenue anticipation note (RAN), split equally between FirstBank and Banco Popular, if it is to continue making payroll and meeting other government obligations.
But the terms required by the banks, both of which deem the loan a high risk venture, call for legislative action. A previous bill approved by the Senate authorized the governor to seek $120 million. However, the banks would only agree to $60 million, and language in that measure was opposed by FEMA, including using federal grants to pay for the loan, and having a general obligation pledge of repayment from the government of the Virgin Islands. As part of the agreement that saw FEMA providing hundreds of millions of dollars in Community Disaster Loans to the territory following Hurricanes Irma and Maria, FEMA must first grant its approval before the local government could secure additional borrowing.
The banks are calling for the territory to waive its sovereign immunity, along with restricting litigation or other actions that could be brought against the banks by the GVI for attempting to enforce the statutes of the bond if the government were to default.
The term sheet also sees the banks securing statutory liens on the government's three main tax streams — Property Taxes, Income Taxes and Gross Receipt Taxes.
"As you are aware, the government has a biweekly payroll of approximately $20 million. Even with these difficult times caused by the COVID-19 pandemic, coupled with our inability to collect excise taxes and the tax-filing deadline being moved to July 15, we have still been able to meet the Government’s payroll and other mandatory obligations. However, our ability to meet subsequent payrolls is not guaranteed," said Jenifer O'Neal, director of the Office of Management and Budget. "Passage of this bill will allow for the loan to close by the end of July and should enable us to meet the three pay periods that we have in July, as well as becoming current on outstanding allotment releases for mandatory expenses that the government has to vendors and other operating costs that affect the public and private sector communities, and thereby the quality of life of our residents."
Senators agreed that the funds are needed, but they had two overriding issues: they questioned the government's collections effort, and argued that the terms of the loan were draconian.
Senator Marvin Blyden described the term sheet as being "excessive," and he wasn't pleased that the "whole government" was being obligated "for such a limited amount of funds." Asked whether the government had pursued other lending institutions, Nathan Simmonds, director of finance at the Public Finance Authority, said, "We have explored other funding opportunities, however we were not successful."
The government will be obligated to pay $5 million monthly for 12 months with a 5.5 percent interest rate, resulting in a profit of $3.3 million for the banks on top of the loan repayment of $60 million. There may be other fees involved as well.
Senators Janelle Sarauw and Alicia Barnes questioned whether the measure should even be considered a revenue anticipation note when the very purpose of the loan is to meet revenue shortfall. "We have a tendency to undertake certain financing that deviate from classical definition or intent," Ms. Barnes said.
Ms. Barnes, displeased with the term sheet, sought to learn the government's total deposits — including cash and other assets such as CDs and special accounts — stored in the local banks. Kirk Callwood, Dept. of Finance commissioner and PFA director, said he was not certain of the amount, but said it exceeded $60 million.
"I love negotiating from a position of strength," Ms. Barnes said. "And so if we have cash deposits and other liquid assets in our local lending institutions, why are we allowing for these draconian-type measures and restrictions to be imposed upon us? What is the level of negotiating strength are we exerting during this process?" Ms. Barnes said banking reform is needed in the territory.
Senator Myron Jackson pointed out that the previous approval by the Senate authorized the funds for exclusive use to offset government shortfalls as a result of the coronavirus pandemic. However, the administration removed the "exclusive" language from the latest measure.
"I think the long and short is we don't want the money to be used for purposes not outlined by the fiscal year 2020 budget," said Senator Kurt Vialet, chair of the powerful Committee on Finance in which Monday's hearing was held. "We don't just want it to be squandered. It is to be utilized to offset what we are not able to collect to be able to meet the confines of the fiscal year 2020 budget."
Mr. Vialet then pivoted to the term sheet being required by the banks. He too, like Ms. Barnes and others, expressed displeasure with language the senators saw as harsh.
"I think what a lot of the members (senators) are really discussing and bringing up is the fact that we have relationships with financial institutions and then we have this measure that acts as if we have no investments in their institutions, when we have millions of dollars at Banco Popular and Firstbank," Mr. Vialet said. "But then you come with this draconian language like there's an intent for the government of the Virgin Islands not to pay."
The government of the Virgin Islands has never defaulted on its financial covenants, Ms. O'Neal confirmed after being asked by Mr. Vialet.
Mr. Vialet said the territory was being lumped with Puerto Rico under the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), which is a federal law created after the island commonwealth defaulted on its debt obligations. "They want to treat the Virgin Islands like we have not made good on all of our payments," he said.
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