If you’ve been following the news over the past nine months or more, you likely know about the serious debt crisis facing Puerto Rico—and efforts by the United States federal government to address it. This begs a natural question: could the same thing happen here in the U.S. Virgin Islands?
That was the subject of a recent lecture led by Legislature of the Virgin Islands Vice President Janette Millin Young, who says she aims to better understand Puerto Rico’s debt problems so that the Territory can avoid similar issues to that of Puerto Rico. Several other senators attended the lecture, as well.
According to economist Dr. Carlos Colon de Armas, who spoke at the event, Puerto Rico’s debt crisis stems mostly from excessive spending. He also noted that the Puerto Rico’s debt is only about 16% of its annual budget, pointing to some chronic problems with how the government spends money. In fact, he went as far as to say that Puerto Rico would not have such major problems paying back its debt if it were to reign in its spending.
After the event, Sen. Millin Young said that she and her colleagues gained a much greater understanding of the core economic and political issues leading to Puerto Rico’s current financial situation. It’s worth noting that Senator Millin Young chairs the Legislature’s important Committee on Economic Development, Agriculture and Planning.
According to Millin Young, the U.S. Virgin Islands faces similar fiscal challenges as Puerto Rico, and she believes that the Government of the Virgin Islands can learn some lessons from the woes of its sister territory.
This event, which took place in mid-August, comes at a time when the Government of the Virgin Islands is looking for solutions to recent credit and tax-exempt bond downgrades from credit agencies Fitch and Moody’s. Although there are a number of reasons for these downgrades, one of the most pressing issues has been the potential for U.S. insular territories such as the U.S. Virgin Islands to restructure their debt in the future.
That’s what has happened with the July passage of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), which gave Puerto Rico the ability to file for Chapter 9 “super bankruptcy.” Investors now worry that this ability will be given to other U.S. territories, making it difficult and more expensive for the Government of the Virgin Islands to issue float bonds to help cover its debt. At this time, the Territory’s projected shortfall for FY 2017 is about $110 million—significant, but a far cry from Puerto Rico that is facing a fiscal gap of $28 billion over the next five years in the absence of any policy changes.
At the very least, with Puerto Rico in dire straits, it’s promising that Senator Millin Young has led a discussion on examining ways for the U.S. Virgin Islands to avoid similar problems in the years ahead.
Attorney Tom Bolt is Chair of the Government Relations Practice Group at BoltNagi, a respected and well-established corporate planning law firm serving businesses and organizations throughout the U.S. Virgin Islands.