Federal Government Denies Territory’s Low-Interest Loan Drawdown. “We Failed The Additional Bonds Test,” PFA Director Says

ST. THOMAS — One of Governor Kenneth Mapp’s talking points of what he has deemed his administration’s success in the hurricane recovery effort, is pointing to federal dollars being made available following the storms. In his last State of the Territory Address, Mr. Mapp spoke of some $250 million through a community disaster loan (C.D.L.) that he said was approved by the federal government.

But during a Committee on Finance hearing held at the Earl B. Ottley Legislative Hall on Tuesday, Public Finance Authority Director, Valdamier Collens, revealed that the federal government has so far only released $85 million to the government, which was based on the “full faith in credit of the Government of the Virgin Islands.”

When the government sought a further drawdown in December through the Gross Receipt Tax bonds, the U.S. Treasury refused to make the funds available, citing the government’s low projection in future revenues.

“It’s all dependent on whether we can give the U.S. treasury and FEMA a first-lien position on any of the loans that we’ve requested,” Mr. Collens, who also serves as the commissioner of the Dept. of Finance, told lawmakers at the Earl B. Ottley Legislature. “The first loan that we did for $85 million was solely based on full faith in credit of the Government of the Virgin Islands. But as you know, and as I’ve communicated, the U.S. treasury and FEMA seeks a first-lien, first priority position as it relates to any future loans. We failed the additional bonds test at the time of our initial request in December under the GRT [Gross Receipt Taxes] because of the projection of revenues.”

When debates about accepting the community disaster loan of up to $500 million were ongoing, senators expressed concerns about giving the federal government payment priority over its current debtors. But in the end, they passed the C.D.L. “At the end of the day, you have to put bread on the table; this is the critical hour,” Senator Myron Jackson told The Consortium in December, even as he held on to his belief that the federal government had dug a trench for the USVI. “It’s like they dig a hole and you got to jump in it. It’s not even a hole; they put us in a trench,” he said.

Mr. Collens said since the Gross Receipt Tax bonds option was refused by the federal government, the Mapp administration would now move to a more secure offering in the Matching Fund Revenue bonds, or revenues remitted to the G.V.I. based on the amount of taxes collected on rums produced in the territory and sold in the U.S.

But the move carries a lot of risk. Since the U.S. Treasury seeks first-lien priority, it places the territory’s current bondholders in an unfamiliar position that risks upending a decades-long relationship with the firms that have held the territory’s debt — over $2 billion currently. It also risks lawsuits, as the move would seemingly go against a law that was approved and signed into law in 2016, that placed a lien on all the territory’s bonds — future and retroactive — giving bondholders payment priority even if the territory were to file for bankruptcy.

Mr. Collens said a C.D.L. through the Matching Fund Revenue bonds could be about $100 million, but not more than $200 million. Yet even if the government were to secure $200 million from the U.S. Treasury, it would bring the total in low-interest loans to $285 million, which is way less than the $800 million that Mr. Mapp said the territory has access to.

And while the $285 million would help with the current budget deficit, it does not address the 2018 budget shortfall of nearly $300 million. And since the government has been rejected by the bond market, the shortfall cannot be bridged with private borrowing, either.

The governor, speaking in a recent interview with The Consortium, mentioned the hundreds of millions available to the territory through the C.D.L.; he did not reveal that the government was denied a drawdown in December.

Though the hearing was held to receive updates from Mapp administration officials relative hurricane recovery-related contracts, the revelation by Mr. Collens was major in that it shed light on the government’s financial condition.

As for the $85 million that FEMA released, $65 million was used to fund government operations, $27 million of which was used for salaries and fringe benefits; $8 million for past-due government contributions to the Government Employees Retirement System, and another $9 million for owed healthcare premiums.