The chairman of the U.S. Virgin Islands Senate Finance Committee said he opposes the governor’s proposed $1 billion bond refunding that was withdrawn earlier this fall after deal participants said an initial 3.75% interest rate cap inhibited its ability to get done.
In late September, the islands’ government came to the verge of doing the $1 billion refunding but the government withdrew the offering just before the planned pricing. Senate Finance Committee Chairman Kurt Vialet said the underwriter had found that it couldn’t sell the bond at the Senate's 3.75% capped rate and chose to withdraw the deal. By contrast, the government’s financial advisor said the government withdrew the bond because of a last-minute legal challenge to it.
On Wednesday, Vialet said Gov. Albert Bryan Jr. was trying to get the Senate to approve the exact same bond refunding but without an interest rate cap. “The bill is worse than the last,” Vialet said. “Removing the interest rate leaves it wide open.”
A spokesman for the governor said, "We do not have any intention of refunding the bonds at interest rates that exceed the current interest rates, but our experience in the first attempt tells us to focus on our savings target, not an interest rate target
"We are trying to achieve a maximum level of savings on debt service," the spokesman said.
The Senate will have a special session on the bond refunding on Tuesday, Dec. 8.
The governor is trying to get the Senate to trust him on the bond, and Vialet said, “I don’t think a responsible government works on trust.”
A consultant to the governor has said his government will have to cut pension payments by 42% effective Jan. 1 unless some other source of funding is found. The Virgin Islands has about $3.35 billion of net pension liabilities.
Vialet said the pension system doesn’t have the authority to cut annuities. He said the Senate is looking at revenue streams to shore up the pension system. He said the Senate might take action to assure these streams next week.
The government passed an excise tax on certain imported items about two years ago but a lawsuit postponed collections. A court recently ruled in the government’s favor and the government plans to start collecting the tax soon, Vialet said.
This should generate about $45 million to $50 million per year, he said. Vialet said he expects most or all of the money to go to the pension system.
The U.S. Virgin Islands has a total of $2.11 billion of bond debt, according to a Preliminary Offical Statement for the September refunding bond. This figure excludes the Water and Power Authority's bond debt, which totals about $178 million.
