Shunned from bond market, US Virgin Islands faces cash crisis
ST. CROIX, V.I.: For a glimpse at the precarious financial health of this Caribbean island, visit its public hospital.
Pipes underneath the emergency room collapsed in May, causing waste water to back up through the drains.
Now workers and visitors – even patients – use portable toilets set up on the sidewalk.
The hospital doesn’t have the cash for new plumbing.
For years the US Virgin Islands funded essential public services with help from Wall Street.
Investors lined up to purchase its triple-tax-exempt bonds, a form of debt free from municipal, state and federal taxes.
Now the borrowing window has slammed shut.
Trouble in neighbouring Puerto Rico, which recently filed for a form of bankruptcy after a string of debt defaults, has investors worried that the US Virgin Islands might be next. With just over 100,000 inhabitants, the protectorate now owes north of US$2 billion to bondholders and creditors.
That’s the biggest per capita debt load of any US territory or state – more than US$19,000 for every man, woman and child scattered across the island chain of St. Croix, St. Thomas and St. John.
The territory is on the hook for billions more in unfunded pension and healthcare obligations.
“We have a government that we can’t afford, and now all of it is converging,” said Holland Redfield, a former six-term US Virgin Islands senator who hosts a radio talk show about politics in the territory.
“We’re getting to the point where we may have a potential meltdown.” Ratings agencies have downgraded the islands’ credit ratings deep into junk territory.
With the US Virgin Islands shut out of the credit markets after a failed January bond issue, officials are scrambling to stabilize its finances after years of taking on debt to plug yawning budget holes. The government proposes to slash public spending by 10 per cent.
It recently hiked taxes on liquor, cigarettes, sugary drinks and vacation timeshares. And it has threatened to auction homes and businesses of property-tax deadbeats.
Governor Kenneth Mapp is quick to reassure bondholders that they get first crack at one of the territory’s largest funding sources: rum taxes. The money pays debt service before heading to government coffers, a protection called a lockbox.
The US Virgin Islands has “never been late on a payment, much less defaulted on a bond or loan agreement,” Mapp said during his State of the Territory address in January.
But how these islands will recover from years of budget deficits and a severe liquidity crisis remains to be seen.
The territory lost its single-largest private employer five years ago when a refinery shut down.
Gross domestic product has declined by almost one-third since 2008. At times this year the government was operating with just two days’ cash on hand. Locals live with pitted roads, crumbling schools, electricity outages and deteriorating medical care.
At the Juan F. Luis Hospital and Medical Center, plumbing troubles are just the beginning.
Doctors have stopped performing some vital procedures, including implanting pacemakers and heart defibrillators, because the facility can’t pay suppliers for the devices, officials say.
“We have gone from bad to worse, and the patients are the ones who are suffering,” said Dr. Kendall Griffith, an interventional cardiologist who recently left the island to take a job in a Georgia hospital.
“It’s forcing physicians to make hard decisions.” Before Puerto Rico imploded under US$70 billion in debt and US$50 billion of unfunded pension liabilities, few in Washington noticed troubles brewing in the other inhabited US territories of American Samoa, Guam, the Northern Mariana Islands and the US Virgin Islands. — Reuters