Recent concerns surrounding the U.S. Virgin Islands’ growing debt has led some to wonder whether the territory might soon face bankruptcy issues similar the city of Detroit, Michigan.
Detroit filed for Chapter 9 bankruptcy on July 18, 2013, and was declared eligible on December 3 of the same year. The municipal bankruptcy filing was the largest in U.S. history, with debt reaching an estimated $18.5 billion — or $25,660 per resident. Reactions to this decision were mixed, with some claiming that it was the only course of action and others arguing that the decision was premature. Detroit is currently in the process of determining which of its assets belong to the city outright and can be monetized to settle creditor claims.
The U.S. Virgin Islands has been in significant debt for nearly 30 years, according to some sources. Currently, the territory’s combined debt of $1.74 billion (composed of bond market debt and retirement system unfunded liability) works out to be $29,965 per resident—higher than that of Detroit.
In addition, the Government owes another $300 million in retroactive salary increases previously promised to its employees in the 1990s. However, the issue of retroactive salary increases is controversial — some government officials, who claim that the obligation to pay only exists if the government has enough money, have disputed the increase. If these retroactive increases are factored into the amount owed, the total per-capita debt goes up to $32,578 per resident.
While the government of the Virgin Islands borrowed $120 million in 2012 to be used as working capital over the next few years, the administration has announced that it will not take out any more loans. At the same time, the territory is experiencing a $40 million deficit in this year’s budget.
Although the territorial government has been in debt for decades, some have attributed the drastic borrowing increase in recent years to the global economic recession. Between 2008 and 2009 the Government’s General Fund revenues dropped by about 37 percent. However, there are also concerns that the recession aggravated an existing problem, one that is unlikely to resolve itself unless the Government acts soon to live more within its means.
The financial issues facing the U.S. Virgin Islands government are substantial, and it will be interesting to see how the territory handles them in the years to come.
BoltNagi is a well-respected and established law firm serving clients throughout the U.S. Virgin Islands.