The U.S. Virgin Islands government is seeking approval of tax raises and spending cuts in advance of a planned $426 million bond sale.
Gov. Kenneth Mapp has introduced a bill for a $396 million bond to the island's Senate. The bond is planned to be sold this fall. According to local press accounts, the governor also anticipates a $30 million bond to support changes to two waste landfills.
A confidential draft Virgin Islands government five year financial plan dated Sept. 15 shows that, without any changes in revenue measures or spending, the government anticipates operating deficits between $130 million and $140 million from fiscal year 2017 to fiscal year 2021. In response the government is proposing a wide array of revenue and spending initiatives.
If they were all implemented the government expects it would have operating deficits of $0.8 million in fiscal 2017, $14.3 million in fiscal 2018, and $13.8 million in fiscal 2019. These would be followed by surpluses of $50 million in fiscal 2020 and $77.5 million in fiscal 2021.
Among the governor's proposed revenue initiatives would be an increase in the marine terminal user's tax (adding $7 million in annual revenue), a new internet gross receipts tax ($5.1 million annually), an increase in cigarette taxes ($6.9 million a year), and an increase in beer taxes ($12.8 million annually). It would approve applications for economic development commission benefits. While the governor doesn't have an estimate of the revenue benefit of this, he seems to suggest that it would produce at least $25 million annually.
To cut spending, the governor is proposing reductions in hiring, insurance, and health insurance costs.
The government's fiscal year starts on Nov. 1 and any tax raises or spending cuts wouldn't start before then.
In the five year plan, the governor indicates the government plan to take out a $55 million working capital loan and a $55 million draw on a line of credit. Further, $147 million of the $396 million bond's revenues are expected to be used for operating expenses, according to the governor's proposed bill. Of this $147 million, the central government would take $116 million, a local hospital and a local medical center would use $25 million, and the Virgin Islands Management Authority would spend $6 million.
The government plans to use the balance of the $396 million bond for capital projects.
According to the bill presented to the Senate, which could be amended, the bond is to offer interest rates no higher than 9.5% and a term of no more than 30 years. Morgan Stanley confirmed Friday it will be the lead underwriter.
The draft bill says the bond will be sold as either: a matching fund revenue bond, paid back with a portion of taxes on the sale of rum in the 50 states that the federal government sends to the Virgin Islands; or a gross receipts taxes bond, paid back from a government sales tax.
The gross receipts tax bond is rated BB by Fitch Ratings. The most senior lien matching fund bond is rated B1 by Moody's Investor's Service and BB by Fitch Ratings.
