“Borrow and Spend” Results In Drop In VI Bond Credit Rating
Increased Borrowing, Uncollected Taxes, GERS And Retro Obligations Trigger Market Pushback
Maybe the Governor will finally get the message that “borrow and spend” is not the answer to the fiscal crisis in the Virgin Islands.
The USVI’s Government Obligation (GO) bond rating has been downgraded by Fitch, one of three major national credit rating agencies for corporate and municipal bonds (the other two are Moody’s and Standard & Poor’s.). The new rating places these bonds, some $600,000, at the “BB” level, classifying them in the “junk” bond category. But even more revealing and troubling is that,  according to this report, some $556.2 million in bonds issued by the VI Public Finance Authority are rated as “BBB-,” just one level above “junk bond” status. (Bond Rating Chart Attached)
The report specifically cites the “severe erosion of the territory’s finances in fiscal years (FY) 2009 and 2010,” and points to the recent borrowing of $250 million for operating gaps as another blow to the Territory’s fiscal health. (the full BusinessWire news release is attached)
“The borrowing adds further to the burden of the USVI’s liabilities, including outstanding debt and unaddressed employee and retiree obligations,” the report says.
And he wants to borrow another $100 million? The Legislature shouldn’t even consider it.
After months of doublespeak from the government financial agencies, this report gives a clear and frightening view of the financial ill-health of the VI.
“The territory’s longstanding fiscal challenges have worsened in the current downturn given sharp cyclical revenue declines, prolonged, unresolved property tax litigation, high fixed cost burdens, and difficulty in reducing expenditures,” it states.
And while the report acknowledges that future revenues from the recent Diageo and Cruzan rum deals “may” help stabilize the situation, it warns that continuing to borrow against uncertain future revenues will not increase the market’s comfort level concerning the Territory’s financial health.
The following summary from Fitch sheds some light on how the financial practices of the past two years have contributed to the downward spiral beyond the effects of the global recession.
- Revenue growth prior to the recession was largely absorbed by base spending increases, particularly for personnel and fringe benefits.
- Â FY 2008 appropriations, at $873 million, were 19% over the level two years earlier and $77 million higher than available resources.
- Appropriations remained at $849 million in FY 2009 despite plunging revenues, with the USVI relying mainly on $100 million of a $250 million line of credit, $43 million in transfers and other internal cash resources to cover spending needs.
- FY 2010 appropriations, projected at about $858 million, are approximately $300 million higher than available resources; the gap is expected to be closed by accessing the remaining $150 million line of credit, $93 million in monetization of property tax collections tied up in litigation, $57 million in federal stimulus, and further allotment cuts.
Interest on the line of credit is secured by gross receipts taxes, with repayment linked to future revenue gains from matching funds tied to the expansion of rum distilling on St. Croix
Other significant issues include:
- Debt service including matching funds bonds totals $107 million in FY 2010, equal to 5.3% of revenues including matching funds.
- Persistent underfunding has led to a large pension liability, with an estimated FY 2008 funding ratio of 53.6%; resulting in a $1.5 billion shortfall.
- Negotiated but unpaid salary increases over the last two decades, the burden of which has been estimated at $272 million.
The report concludes that while the USVI will be able to manage in the near term that action must be taken to stabilize costs or future revenues will be spent before they are made.
Anonymous: It seems like you have a problem with MAPP gender;therefore, you need to go look for him and ask the question. It looks like you want to make this very serious election a personal one for you. Electorate do not get side track with this kind of thinking. Stay focus with the issues and the candidate that have the best solutions for the problems.
As a woman what I have a problem with are men that are married and have children out side of that marriage, and men that have children that do not take care of them, that is what I will be thinking about before I vote this time.
What is going on with our LT GOV Francis, is he having such a good time living the good life, that he dose not care what the GOV dose to us? he is just as bad not saying noting, its best that he took the money and spent it himself.
Turnbull had gender issues. This is the reason why he could not focus on the problems with the economy. He was a poor leader and he allowed crooks in government to rob the treasury.
The only reason Turnbull got reelected in 2002, dispite his questionable leadership skills, is because there were six people who were running against him, but none of them really stood out. The only candidate that came close to beating him was, ironically, our future governor, John P. deJongh.
If we had given Donastorg the chance in 2006 we would not be in the mess we are in now. Donastorg will set things right.
Annonymous,
What do you mean Turnbull had gender issues? I would like to know what was being insinuated. I am just asking and wondering because if its what I think you are saying; doesn’t many others have gender issues if this is the case? Can we have an open discussion here guys? I think this can be a healthy discussion considering the circumstances surrounding the Virgin Islands future.
‘Dennis’,leave it alone.Why go down that road when there are so many relevant issues open for discussion? ‘Anonymous’should be ashamed of himself/herself for that unbecoming statement and we need not dignify it by entertaing him/her in meaningless banter.
……..make that ‘by entertaining’.
Anonymous 10:18
I don’t have a clue what candidates you are talking about. But as a woman, I am glad to that when a man and his wife come to a mutual agreement and decide to separate they still remain to be the best of friends.
On the other hand “others” are trying to portray this wonderful all American family when the truth is that neither husband or wife can stand each other and both have their own “friends”. I sure you can guess who I am speaking of.
As for the “other” gender issues, leave that in the hands of the Almighty Heavenly Father.