Virgin Islands' proposed budget doesn’t address pension problem
U.S. Virgin Islands Gov. Albert Bryan Jr. proposed a fiscal year 2020 budget that doesn’t address what credit analysts have called the islands’ “extremely large” pension underfunding problem.
As of March 2018 the Government Employees Retirement System projected that it would run out of money in late 2020 or early 2021. It reported in August 2016 the system had a funded ratio of 27.7%.
In January 2018 Moody’s Investors Service said that as of Sept. 30, 2016, the island’s government had a net pension liability under Generally Accepted Accounting Principles of $4.6 billion, which it described as “extremely large.”
The islands’ government and the island public water and power utility have more than $2 billion in debt outstanding, all of it rated in the C-range, deep in the speculative category. The islands are still recovering after two Category 5 hurricanes devastated the infrastructure in 2017.
In October 2018 a Moody’s analyst said that the islands hadn’t had a structurally balanced budget in about 10 years.
Bryan is proposing the government allot $7 million “to continue to pay outstanding employer obligations for retiring employees.” This would be 0.8% of the proposed General Fund spending of $817.8 million.
“My administration will work tirelessly with [the retirement system] and other stakeholders on a strategic plan to address the unfunded liability of the pension system,” Bryan said in a budget message.
In a letter with the budget, Office of Management and Budget Director Designee Jenifer O’Neil listed several future sources of budget pressure. “The corporate income tax is inherently volatile and will invariably decline once the disaster recovery spending ends…. There is currently no significant ongoing funding stream to pay for new capital investments in facilities.” Both hospitals continue to struggle with revenue shortages, she said, which hinder their ability to pay their bills and provide effective care.
Finally, she said the retirement system “continues to hemorrhage and is in need of reform legislation. We continue to seek answers to what is actually owed to the system by the government of the Virgin Islands for unfunded employer obligations.”
Bryan’s proposed General Fund spending would be a decrease of $39 million from the fiscal year 2019 budget. Bryan is also proposing spending $216.3 million of federal funds and $69.1 million for debt service outside of the allotment for debt in the General Fund. These last two figures are in addition to the $817.8 million.
The islands’ fiscal year starts on Oct. 1. The Virgin Islands Senate will consider the budget this summer.
The budget includes $75 million to pay tax refunds for refund obligations for tax years 2016, 2017, and 2018. The governor said this should cover the government’s refund obligations for the years except for those who haven’t filed claims and for those claims that are subject to audit. The budget is the first to include a “budget stabilization fund,” which will be $5 million.