“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.
And SENATOR’S, we do not need an additional $100 million to add to the deficit. Especially when we continue to add to the payroll political new hires!
Are you listening or do we need to boot all of you come November? Or better yet, in September?
Well so much for this myth around securing our future.
Here’s the fact of the matter – we’re going to have to face the fact that we have to CUT GOVERNMENT SPENDING, and like it or not, that is going to mean layoffs of Government employees, for a start, and the significant reduction of any and all unnecessary expenditures. Quickly.
That means cars, travel, meetings at Frenchman’s Reef and the Palm Court, all of it. Now. Enough.
I know nobody wants to hear this and I’ll be amazed if any candidate for any office will speak the words, but the fact is that no matter who gets elected come November, unless something is done quickly, their first official act will be massive layoff because there’s no way we can go into yet another fiscal year adding to this huge deficit. And the biggest chunk of any budget is personnel and benefits. If we don’t do something, the system will collapse.
Note to Senators – Don’t even think about more borrowing. Tell Hill and Dowe and the rest of those deJongh syncophants to stuff it. This is beyond irresponsible. The fantasy must end.
Good points, CIT…..
Let’s add ‘consultants’ to the list. Must be millions in pay outs since we continue to hire or appoint personnel that will not do their job or are not equipped to do the very job they were hired to do.
Include all the boards of political do nothings on eliminating the consultants as well. The PSC, WAPA, VIWMA , HOSPITAL boards would save us $30 million a year! WAPA alone cost us over $6 million to vet Alpine, and we are not through yet. Who will not by the way, ever put up anything on the islands. Add to that defending the numerous law suits that are being filed WE, the rate payers will have to pay. Admit you were wrong.
It is also time to admit we don’t have the money to pay over staffed agencies/departments and start the lay-offs like every other RESPONSIBLE government is doing, in the Caribbean and in the US.
Who are we kidding here? What is the daily tally up to now? $2.5 million a day to run the government for a population of 110,000?
And for heaven’s sake, stop the new hiring deJongh!
Another huge governmental expense which needs to be sinificantly reduced is that of RENTAL of office space.Whatever happened to the idea of a government owned complex for St.Thomas and St.X?
Wasn’t land purchased on STT in the early 80s for that purpose?
Millions of dollars a year is being wasted in this one area alone.MILLIONS.
…..OOOOOOOPS,the word is ‘significantly’.
Cell phones would be a great start. The amounts I see for cell phone bills. Inter island travel , try conference calls. Rent too much rent! Right now DPNR pays for a office in St John over $4000.00 a month and only three employees are working there.
We need a MAPP 2010. He’s the man strong enough to weather the storm. Others like the so-call dark horse ain’t brave, because they should have come out long ago. We don’t need anyone sitting back waiting to see what the political climate is like. We need you to step up now. I admire Mapp because he knows it going to be a tough road ahead and he is willing to come out early to show that he is with us through the long haul. I don’t need any candidate who just sucking up and as much information from other candidates to come out using their stuff. The man for the job is already on the job so to speak.
What has Mapp said he will do to cut expenses? Will he do the tough thing and lay off government workers?
No one gets my vote until they outline a plan. No more false empty words. We need to have the hard truth/facts as to what they will do to trim the budget NOW and NOT after they are in office and do the same thing……hire their cronies, live large, and waste the taxpayers money. We also need to know WHO they will put in for commissioners, directors, board appointees.
No more graft for a vote.
Gravy Train, that’s a very good idea! In order for these politicians to get the message, we really need to drive out some of them in September, starting with the executive branch. Who’s with us?
There is also a responsibility on the part of the electorate as far as all this spending goes: all too often I hear people supporting candidates who they expect to give them something in retunr – be it a job, contract, etc….
We need to move out of the “what’s-in-it-for-me” mentality!
@ Had Enough
Maybe you need to approach him yourself and ask these questions. He is willing to sit one on one with anyone who wants him to answer their questions or concerns. Call 692-MAPP at head quarters in Loraine Shopping Center and arrange a small group or 1 & 1 meeting.
Where in LaReine Shopping Center is it located? More importantly, does he have a St. Thomas office yet?
Near Totally Kids & Eagles Fashion not hard to find we saw Vincent Fraiser and several of dewolf administration people driving by Saturday.
LOL.
Mr. Springer, who are you supporting for governor? You appear to be hedging your support between Donastorg and Mapp. Don’t be like the typical politician and try to think your going to play us as we get closer to the election season. We’ve got our eyes on every move and everybody. Including You.
It is none of your business who anyone is supporting. Do you also have eyes in the voting booth? You people are incredible! Mr. Springer, please don’t indulge them. Your support and vote are your business!
Ha! ha! ha!
I can do better! Therefore, I will write in my name for whatever position I choose.
As a business person with a business that is now thriving due to more cruise ships to St.Croix and outside workers from Hovensa, who do you think I’ll vote to be governor in 2010? The lies and mudslinging by the opposition can never influence my vote. My vote is for progress and unity. We are 1 territory, 1 people, 1 vision and the #1 force. Yes we will do better, together as #1 in the territory.
No, the machines will not be rigged. So, do not start to use this as an excuse for being the #1 losers in the race. The race has started and Mapp is outnumbered from the start. Empty, desperate barrels make the most noise and throw the most mud.There are more silent, but confident barrels. We have no desire to squeak and bawl. We are true to the game. In the end, we will cheer loudly and laugh best!
Anonymous: It seems like you have a problem with MAPP, but one thing for sure you cannot keep a good man down. You can keep the thiefing and lying Governor. Tell me who was responsible for cruise ships returning to St. Croix? Why is it so urgent that Governor deJongh have to be given another four(4) years? I guess their more in the mortar besides the pestle.
Mapp is the man? What is his mate’s gender?
You should go ask Mapp or one of his campaign workers.