Court decision won’t solve U.S. Virgin Islands’ pension issues

Bonds

A recent court decision will provide nothing more than a temporary boost to the U.S. Virgin Islands, Moody’s Investors Service said.

The United States Court of Appeals for the First Circuit determined in mid-April the government wasn’t responsible for $43 million in interest and fees, after a lower court ruled the USVI had topay over $60 million immediately to its pension system.

On Tuesday Moody’s said the decision was a credit positive for the islands’ government but that it won’t address the pension system’s liabilities. Moody’s estimates an adjusted net pension liability of $5.3 billion.

Moody’s Investors Service said a court decision on the U.S. Virgin Islands pensions will not stop the system from running out of money in fiscal year 2024.

Bloomberg News

By comparison, the fiscal year 2020 general fund budget was $865 million.

While the appeals court gave the government relief from the $43 million in interest and fees, it ruled the government would have to pay the balance of the $60 million.

Moody’s Senior Credit Officer Thomas Aaron and Managing Director Timothy Blake said the decision “does little to alter the looming insolvency of the Government Employees Retirement System within the next several years. The USVI almost certainly cannot afford to pay pensions directly to retirees if GERS depletes its assets and likely cannot politically cut benefits while paying debt in full to bondholders, meaning a GERS insolvency is highly likely to drive a debt default and restructuring.”

Unless there is an unexpected infusion of cash or reduction of benefits before then, Moody’s projects GERS will run out of assets in fiscal year 2024, which starts on Sept. 1, 2023.

Relying on its current statutory contribution and active member contributions, Moody’s estimates the government would then have to cut member payments by about 50%.

As of April 1, 2019, the USVI had $716 million in general obligation debt, most of it in bonds. It also had $1.04 billion in matching fund bond debt. These figures are derived from the approved FY2020 budget. They exclude the debt of the Water and Power Authority.

The Virgin Islands governor’s spokesman, the director of the Office of Management and Budget, and the USVI Legislature’s Committee on Finance chairman didn’t immediately respond to a request for a comment.

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