Struggling with a hurricane-damaged economy, high debt, and lack of access to the debt markets, the Virgin Islands legislature has decided to continue to operate for the rest of this fiscal year on last fiscal year’s budget.
After Hurricanes Maria and Irma both hit the islands as severe Category 5 storms in September, the government was in crisis mode. The island’s fiscal year was to begin on Oct. 1. Gov. Kenneth Mapp and the legislature initially decided to postpone adopting a fiscal year 2017-2018 budget and simply operate on the previous fiscal year’s budget.
On Wednesday the legislature and the Mapp administration decided to continue this practice through the rest of the fiscal year.
“After the passage of hurricanes Irma and Maria, [Virgin Islands] Department of Finance, [Virgin Islands] Office of Management and Budget, and [Virgin Islands] Bureau of Internal Revenue have directed significant resources to revenue projection,” the Virgin Islands Committee of Finance said in a press statement. “This effort has proven to be extremely challenging due to the fluctuations in revenue streams affected by unemployment, mass exodus of residents, reduction in hotel rooms and the influx of significant federal spending within the territory.”
Rather than continuing the effort, Vialet said it was more practical to simply use the previous year’s budget. “This approach will allow us to continue monitoring revenues while focusing our attention on mandates as spelled out in the [United States government] ‘Bipartisan Budget Act of 2018’ and preparing for the fiscal year 2019 budget cycle which is feverishly upon us,” said Finance Committee chairman Kurt Vialet.
In December the legislature believed it was facing a 36% shortfall of revenue compared with expenditures in the current fiscal year, even if a $300 million federal disaster loan was assumed.
At this point the government plans to borrow a total of $211 million from the federal government this fiscal year.
“The US Virgin Islands’ government’s failure to adopt a budget for fiscal 2018 and its difficulties in drawing down the federal loans demonstrate the severity of the financial and liquidity crises which drove our most recent rating action,” said Ken Kurtz, senior vice president at Moody’s Investors Service.
On Jan. 31 Moody’s downgraded the islands’ senior matching fund (rum tax) bonds to Caa2 from Caa1, subordinate matching fund bonds to Caa3 from Caa1, and third-lien Diageo and Cruzan matching fund bonds to Caa3 from Caa2. Moody’s has a negative outlook on the ratings. Moody’s doesn’t rate the islands’ gross receipts tax bonds.
S&P Global Ratings and Fitch Ratings withdrew their bond ratings this past year after the Mapp administration stopped providing updated fiscal information to the agencies.
The Virgin Islands and its Water and Power Authority together have more than $2 billion in bonds outstanding.