The Government Employees’ Retirement System board of trustees, meeting Friday, voted to support proposed legislation creating a Special Purpose Vehicle meant to save the system from imminent insolvency.
The bill is slated to go before the Senate’s Committee of the Whole for consideration on Monday.
The legislation – on its fourth iteration since it was first proposed by Gov. Albert Bryan Jr. in December 2019 – would allow for the refinancing and restructuring of a significant portion of government debt at current market interest rates to free up critically needed revenues to stabilize GERS, according to Government House.
It would do so through the creation of a new entity – a Matching Fund Special Purpose Securitization Corporation, separate from the government – using money the federal government remits to the USVI each year from excise taxes collected on the sale of alcohol manufactured in the territory and sold on the mainland.
According to the most recent bill sponsored by Senators Kurt Vialet and Donna Frett-Gregory, bonds issued through the SPV would fund GERS with anywhere from $82 million to $140 million per year for the first 20 years, while the debt service is paid on refunding the bonds, and $158 million each year for the remaining 10 years, board Chairman Nellon Bowry told his fellow members Friday.
Without any action, the retirement system is forecast to become insolvent by October 2024 or sooner, according to GERS actuary Segal and Company. That would necessitate substantial reductions in retiree benefits, which would become the responsibility of the government of the U.S. Virgin Islands and put a significant burden on the general fund.
Both Bowry and GERS Administrator Austin Nibbs are to testify before the Senate Monday regarding the legislation and made clear Friday that they want to be able to say the board is unified in its support.
“I can’t imagine, as a board, that we have any objection to the funding that’s proposed,” said Bowry, who said the governor’s financial advisor and the actuaries agree that the money generated by the SPV will be sufficient to fund GERS over the next 30 years. The funding for fiscal year 2022 also will satisfy $25 million in outstanding government debt to GERS that has been the subject of litigation in V.I. District Court, he said.
However, support for the measure was halting, finally coming after more than 90 minutes of discussion in a vote with three yeas – Bowry, Andre Dorsey, and Ronald Russell – and one abstention – Dwane Callwood. Members Leona Smith, Vincent Liger, and Michael McDonald were absent.
Dorsey voiced concern that there is no plan B if the SPV fails – for example if a catastrophe hits the rum industry and funding dries up, he said – and that the debt service to other bonds does not take money away from GERS.
“We still need a plan B. We are putting all our eggs in one basket,” he said. “Right now, we have a plan A,” said Bowry.
While the GERS board has no jurisdiction over how bonds are issued, attorney Cathy Smith said Bowry and Nibbs can suggest in their testimony before the Senate on Monday that if new bonds are floated, the money should go to GERS.
Russell – whose law firm represented the Government Retirees United for Fairness in filing an action for preliminary injunction in Superior Court when the Senate narrowly passed a Bryan bailout plan in September 2020, ultimately derailing the measure – at first said he would not support the latest legislation.
Among his concerns is language in the bill stating that any shortfalls in funding would carry over until they are satisfied and that the legislation does not seem to account for inflation.
“$158 million now is not going to be worth $158 million in 10 years … and we still have to pay out to retirees,” said Russell, who asked why an SPV is even necessary when the government could just fund GERS by dedicating the rum cover over money.
Dorsey also flinched at the idea of rolling over shortfalls. “That’s how we got in this predicament,” he said.
Both he and Russell also questioned why the funding is capped at $158 million if the SPV might produce more – in effect, a backup plan that would give GERS a cushion during lean years. “We could at least be in a position of strength,” said Dorsey.
“This is like a cash cow situation, and our system is in need of cash,” said Dorsey. “I think all that difference needs to come in. The system is full of money right now – more money coming in than people to fill the jobs,” he said, speaking of the billions in federal hurricane disaster and COVID-19 recovery funding allotted to the territory.
“The government has other responsibilities than GERS,” said Nibbs.
Bowry said the actuarial formula shows that the money will be sufficient to fund the system for the next 30 years. For the first 20, GERS will receive $158 million minus the debt service on refunding the bonds, and after 20 years, they will be paid, and GERS will receive the full $158 million, he said.
Additionally, the Senate is likely to pass the legislation, with or without the GERS board’s support, Bowry said.
“We have an election coming up, and nobody has a fix. This is the closest thing we have to a fix,” he said.
Monday’s Committee of the Whole legislative session will be held starting at 10 a.m. in the Earle B. Ottley Legislative Hall on St. Thomas.
Editor’s Note: This story has been corrected to reflect that the legislation is on its fourth iteration and was first proposed by Gov. Albert Bryan Jr. in December 2019.