The U.S. Virgin Islands Senate and governor are struggling over what form a planned speculative grade bond should take.
The wrangling takes place in the aftermath of Pres. Obama's signature of the Puerto Rico Oversight, Management, and Economic Stability Act and of Moody's downgrade of the Virgin Islands' senior matching fund bonds to B1, both on June 30. On Aug. 22 Fitch Ratings downgraded the Virgin Island bonds to BB and the territory's gross receipts tax bonds to BB.
According to Fitch, the islands had $1.92 billion of debt outstanding as of Aug. 22. The islands' Water and Power Authority has additional debt.
As of early July Virgin Islands Gov. Kenneth Mapp was planning to sell a $1 billion bond. Mapp has responded to the islands' bonds trading at elevated yields on the secondary market by scaling down the size of the bond.
The legislature has passed a measure to sell a $274 million bond. The proceeds would be split between $100 million for the islands' pension system, which has been underfunded by $1.4 billion, and $174 million to cover an operating deficit.
Mapp wants a bond that would cover some capital spending needs on the island.
On Oct. 21 the legislature decided to not approve a bill for a capital spending bond. The legislature "decided that more time was necessary to determine the high priority capital projects that the territory should fund via the anticipated bond issuance," said Senate Pres. Neville James. "It's not a matter of if we're going to support an authorization, but more like when, what for, and how much."
In response to the Senate's actions Mapp said he would veto the proposed bond. He said he had a variety of concerns over the current bond bill, including issues about what the bill specified to be in and out of the bond. For one thing, he opposes the $100 million borrowing for the Government Employment Retirement System.
Mapp is expected to call for a special legislative session to consider the bond, said Fitch Ratings senior director Marcy Block.
Last month the Government Employment Retirement System filed a motion in federal court to force the islands' government to follow a 32-year-old consent decree requiring it to fully fund its pensions.
"Under the GASB 67 standard for pension systems, GERS maintains assets sufficient to cover only 19.6% of projected liabilities as of Sept. 30, 2015 and reports a depletion date in fiscal 2013," Block wrote in August.
The motion was filed in a case dating to 1981. A consent judgement in 1984 was modified in 1994. It ordered the government to make full actuarially required payments within 30 days of their due date.
The pension system filed the motion on Sept. 23 against Virgin Islands commissioner of finance Valdamier Collens and the government of the Virgin Islands. In the motion, the system called for the federal court to find the defendants guilty of contempt of court for not following the consent judgement. The pension system also asked the court to compel the defendants to comply with the consent judgement.
