Gov. Kenneth Mapp has called the Legislature into special session for Thursday to amend and approve a bond bill he has vetoed, Government House announced.
In a statement, Mapp said the new bill is needed urgently so the government can borrow to finance government operations in November and beyond.
In September, Mapp submitted an extensive borrowing bill that called for $249 million for new capital projects, $147 million in working capital to keep the government up and running and another $30 million to help the Waste Management Authority close the territory’s two landfills. Mapp’s financial team presented the borrowing as part of a five-year plan they hoped would reduce the territory’s $170 million per year structural deficit.
Mapp’s proposal included a statutory lien on the territory’s annual federal grant of alcohol excise tax revenue, which the administration argued was necessary in order to borrow at a decent rate. That action would take the excise tax funds out of V.I. hands, making it more likely that borrowers would get paid first, no matter what the state of the territory’s finances.
In August, the Fitch ratings agency downgraded $1.24 billion in V.I. debt and threatened to downgrade it further if the territory did not enact the statutory lien. Fitch cited Puerto Rico’s financial crisis and federal legislation that could potentially result in lenders taking a partial loss as one reason it now has a heightened concern about V.I. debt. (See Related Links below.)
The idea of a statutory lien was first raised by Sen. Kurt Vialet during a July Finance Committee hearing, after Finance Commissioner Valdamier Collens told the committee that rating agency Moody’s Investor Services was asking the government for an irrevocable letter of instruction to secure the excise tax revenues. Collens said a statutory lien "would make it even stronger."
The Legislature ultimately passed its own version of the borrowing bill, which did not include the new capital borrowing or the statutory lien. The bill approved in September included $236 million in new borrowing, with $25 million divided between the territory’s two struggling public hospitals, $6 million for the VIWMA’s operating expenses, $116 million for the V.I. government’s operating expenses to balance the FY17 budget, and $100 million for what Graham termed a "down payment" on the $2 billion-plus GERS unfunded liability. It did not include statutory liens.
Mapp vetoed that bill, saying the government needs the statutory lien provisions in order to borrow.
The new liens are "imperative" to lender Morgan Stanley, and the Fitch ratings agency would improve the territory’s rating by two notches if they are put in place, Mapp said in a letter to Senate President Neville James. Without the liens, the government’s bond ratings may be lowered, which would drive the cost of borrowing higher, according to Mapp.
Mapp is proposing a new bill which includes the statutory liens, proposes new capital project borrowing and eliminates reference to restructuring existing debt. Because of the territory’s bond downgrades, restructuring debt will not save any money.
In his transmittal letter to James, Mapp describes the government’s liquidity as “approaching a perilous condition.” Without enough working capital, he says, there is no guarantee there will be enough money to support Government operations in November, he said.