Mapp On State Of Territory: ‘We Have To Make Tough Decisions If We Want To Survive’

ST. THOMAS — Governor Kenneth Mapp said on talk radio here on Tuesday that the territory’s financial condition demands difficult choices relative to government spending, stating that the territory’s survival depends on its ability to live within its means.

“We’re just at a point where we simply have to make the tough decisions if we want to survive,” the governor said. “Liken it to you in the community that have your family, if you’re a two parent or one parent household and somebody gets laid off or your hours get reduced. Or if you’re operating a business and the season goes off and the revenue is lower, you’ve got to make changes to survive because you can’t just spend the way that you normally spend; you can’t do the things that you normally do, so you must make the adjustments in order to remain balanced.”

The governor’s frank assessment of the territory’s condition comes at a critical time for the U.S. Virgin Islands, with residents seeking bluntness from its government relative to the islands’ true financial state. The government has been unable to access the capital market since January, and the ratings agencies have continued to downgrade the territory’s bonds, which are already at junk status. For his part, Mr. Mapp said the tough decisions have come through sizable cuts in the administration’s 2018 budget.

“It’s about the total Virgin Islands community, it’s about sustaining jobs, sustaining the level of services, growing the economy and creating opportunities for the people of the Virgin Islands,” Mr. Mapp said on WSTA, 1340 AM. He said the cuts were not to punish any one person or department.

Before being rejected by the bond market in January, the government had for years sought to bridge its annual structural deficit of over $100 million through annual borrowing. In 2016, it was able to skip the market because of the $220 million windfall from the Limetree Bay transaction, but with monies from the landmark deal already expended, the government has been relying on aggressive tax collection efforts to make ends meet. The situation is so dire that Office of Management and Budget Director, Nellon Bowry, told lawmakers during a budget hearing on Tuesday that he had to return funds that had already been allocated to a department back to the general fund for operational purposes, after being notified by Public Finance Authority Director and Dept. of Finance Commissioner, Valdamier Collens. If he had not taken the action, government operations would have possibly halted.

In its latest downgrade, Standard and Poor’s assessment was dire: “Although the territory adopted the five-year economic growth plan in March, it has continued to deal with liquidity pressures without access the capital market. Current liquidity levels are about three days’ cash, augmented in part by a significant amount of payables which continues to grow, and estimates show the territory could be facing a negative cash balance by the end of August without any additional cash flow management initiatives, which we believe leaves USVI vulnerable to a total depletion of cash before the end of the current fiscal year,” said S&P Global Ratings credit analyst Oladunni Ososami.

Even so, Governor Kenneth Mapp takes pride in pointing out that the territory, unlike Puerto Rico — whose financial calamity the USVI is being judged on — the U.S. Virgin Islands has never defaulted on its loans.

Mr. Mapp is correct, but as the ratings agencies point out, although the USVI through legislation signed into law, has placed liens on its bonds — which means even if the territory were to file for bankruptcy, bondholders would ostensibly be paid before the territory could satisfy even essential needs —  the new mechanism has not been tested in a stress scenario.

For example, if the territory were to arrive at a point of such financial distress that it had to choose between paying public servants — among them teachers, firefighters, police officers, and others — and its bondholders, who would the government choose to pay?

Puerto Rico on many occasions chose to pay its people. The commonwealth of over 3 million now has an oversight board, dubbed Puerto Rico Oversight Management and Economic Stability Act (PROMESA), which was enacted by Congress in 2016. The law shelters Puerto Rico from creditor lawsuits while it seeks to reduce its debt as its financial crisis compounds. Creditors believe the USVI would receive the same federal protection as its neighbor — both U.S. territories — if placed in a similar position.

“These security provisions have not been tested in a stress scenario where the government faces a severe lack of funds to provide basic services and we believe they do not protect bondholders in the event that the government is forced to restructure its debt,” said ratings firm Moody’s in January.

Correction: August 23, 2017

A previous version of this article stated that the governor’s remarks were made on Wednesday, when they were actually made on Tuesday. We’ve updated the story to reflect the correct information.