ST THOMAS, USVI -- Governor John de Jongh has called for a special session of the US Virgin Islands legislature to convene next week to consider three important and urgent proposals, including one that will fund a multi-million dollar response to the closure of the HOVENSA oil refinery.
Governor John de Jongh
In a letter to Senate President Shawn-Michael Malone, the governor requested the special session on Tuesday, August 20, to bring to the floor bills that authorize the Virgin Islands Public Finance Authority (PFA) to issue Revenue Refunding Bonds for cash flow relief in 2014, finance a settlement agreement with the Internal Revenue Service in connection with the audit of PFA Revenue Bonds, and to appropriate $5 million to the Department of Justice to fund legal, financial, and industry expert advice and representation that will be needed to litigate against HOVENSA in the coming year.
The HOVENSA bill arises from the legislature’s vote against ratification of the proposed fourth amendment agreement that would have governed the sale of the St Croix refinery.
“Rest assured that this is not a one-time funding requirement,” de Jongh wrote Malone about the $5 million appropriation. “Our best estimate at this time indicates that this process could stretch over 7 years and cost in excess of $15 million. This is a path I did not want for us, but it is clear that we have no choice but to pursue it.”
The proposed 2014 Executive Budget currently includes $26.151 million of cash flow relief to be derived from restructuring and refunding some outstanding PFA bonds. In order to reduce the fiscal year 2014 budget deficit, the proposed bill authorizes the issuance of a series of bonds to achieve certain savings through the restructuring of selected maturities of outstanding Matching Fund Revenue Bonds. This restructuring must be completed prior to the end of 2013 for the savings to be available by 2014.
The final bill relates to an IRS audit in connection with two series of bonds that were issued as federally tax-exempt debentures and comprised new money capital project financing. The IRS concluded, and the US Virgin Islands government has corroborated, that based upon the territory’s publicly available audited financial statements for the period in question, there were surplus amounts available that should have been applied to retire the Series 1999 Bonds and were instead refunded with the proceeds of the Series 2006 Bonds.
The original determination on the part of the IRS was that the entire $219,490,000 aggregate principal amount of the Series 2006 Bonds was tainted by the inappropriate issuance of the advance refunding bonds.
“We have succeeded in persuading the IRS not to take such a drastic position,” de Jongh wrote, stating that the government has worked with the tax agency to reduce the amount needed to settle the dispute to $13,635,104.
“The IRS has agreed to a remedy that will protect the investors while still making the US Treasury whole with respect of these Bonds,” de Jongh wrote.
The bill seeks legislative authorization to finance the costs of the settlement through an appropriation from the General Fund and also the issuance of taxable bonds, notes or other evidence of indebtedness to be secured by either Matching Fund Revenues or Gross Receipts Taxes for the refinancing of such initial payment of the Settlement Amount and repayment to the General Fund.
The IRS calculated the negotiated settlement amount assuming a settlement date no later than August 27, 2013, after which time interest will begin to accrue.
“The Authority and this Administration have engaged legal counsel and are actively pursuing legal action to seek recovery against any responsible parties to offset payment of such Settlement Amount. Any recovery would be applied to the repayment of the borrowing being sought,” de Jongh wrote.