The report accompanying these financial statements was issued by BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of BDO International Limited, a UK company limited by guarantee. Government of the United States Virgin Islands Management’s Discussion and Analysis, Financial Statements (with Independent Auditor’s Report Thereon) and Required Supplementary Information Year Ended September 30, 2015     Government of the United States Virgin Islands Management’s Discussion and Analysis, Financial Statements (with Independent Auditor’s Report Thereon) and Required Supplementary Information Year Ended September 30, 2015 Government of the United States Virgin Islands Contents   3 Independent Auditor’s Report 4-10 Management’s Discussion and Analysis 11-20 Basic Financial Statements Government-wide Financial Statements: Statement of Net Position 21-22 Statement of Activities 23-24 Fund Financial Statements: Balance Sheet – Governmental Funds 25 Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds 26 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities – Governmental Funds 27 Statement of Net Position – Proprietary Funds 28 Statement of Revenues, Expenses, and Changes in Fund Net Position (Deficit) – Proprietary Funds 29 Statement of Cash Flows – Proprietary Funds 30 Statement of Fiduciary Net Position – Fiduciary Funds 31 Statement of Changes in Fiduciary Net Position – Fiduciary Funds 32 Notes to Basic Financial Statements 33-120 Required Supplementary Information Schedule of Funding Progress 121 Schedule of Contributions 122 Schedule of Changes in the Government’s Net Pension Liability and Related Ratios 123 Schedule of Revenues and Expenditures – Budget and Actual Budgetary Basis – General Fund 124 Notes to Schedule of Revenues and Expenditures – Budget and Actual Budgetary Basis – General Fund 125-126     BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. 4 Tel: 703-893-0600 Fax: 703-893-2766 www.bdo.com 8401 Greensboro Drive, Suite 800 McLean, VA 22102    Independent Auditor’s Report       To the Honorable Governor of the Government of the United States Virgin Islands   Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely-presented component units, each major fund, and the aggregate remaining fund information of the Government of the United States Virgin Islands (the Government), as of and for the year ended September 30, 2015, and the related notes to the financial statements, which collectively comprise the Government’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the following funds and/or component units:  The Virgin Islands Housing Authority (VIHA), Virgin Islands Public Television System (VIPTS), Virgin Islands Economic Development Authority (VIEDA), Virgin Islands Waste Management Authority (VIWMA), University of the Virgin Islands Research and Technology Park Corporation (RTPark), Magens Bay Authority (MBA), Virgin Islands Government Hospital and Health Facilities Corporation (Roy L. Schneider Hospital and Governor Juan F. Luis Hospital and Medical Center), and the Virgin Islands Housing Finance Authority (VIHFA), discretely-presented component units, which collectively represent 32.3%, 67.0%, and 35.8%, respectively, of the assets, net position, and revenues of the Aggregate Discretely-Presented Component Units.  The Virgin Islands Lottery (V.I. Lottery), a nonmajor enterprise fund, which represents 0.4% and 10.0%, respectively, of the assets and revenues/additions of the Aggregate Remaining Fund Information, and 4.4% and 33.0%, respectively, of the assets and revenues of the Business-Type Activities. The V.I. Lottery net deficit represents $20.0 million of the $1.3 billion net position/fund balance of the Aggregate Remaining Fund Information.     5  The Employees’ Retirement System of the Government of the Virgin Islands (GERS), a fiduciary component unit (pension trust fund), which represents 89.1%, 78.0%, and 51.3%, respectively, of the assets, net position/fund balance, and revenues of the Aggregate Remaining Fund Information.  The Virgin Islands Public Finance Authority (PFA), a blended component unit which represents 24.3% and 23.8%, respectively of the assets and revenues of the Governmental Activities; 90.8% and 16.6%, respectively of the assets and revenues of the Business-Type Activities; 100% of the assets, net position/fund balance, and revenues of the West Indian Company; 100% of the assets, net position/fund balance, and revenues of the Virgin Islands Next Generation Network (viNGN); 89% and 83%, respectively, of the assets and net position/fund balance of the Public Finance Authority Debt Service Fund; 100% of the assets, net position/fund balance, and revenues of the Public Finance Authority Capital Projects Fund; and 1.7%, .3%, and 2.4%, respectively, of the assets, net position/fund balance, and revenues of the Aggregate Remaining Fund Information. Those financial statements were audited by other auditors whose reports have been furnished to us, and our opinions, insofar as they relate to the amounts included for the activities, funds, and component units indicated above, are based solely on the reports of other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The financial statements of the Virgin Islands Government Hospital and Health Facilities Corporation (Roy L. Schneider Hospital and Governor Juan F. Luis Hospital and Medical Center) were not audited in accordance with Government Auditing Standards. Because of the matters described in the Basis for Disclaimer of Opinion paragraph, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the Business-Type Activities, Unemployment Insurance-Enterprise Fund, and the Aggregate Remaining Fund Information. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion.     6 An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Except for the matters described in the Basis for Disclaimer of Opinion on the Business-Type Activities, Unemployment Insurance-Enterprise Fund, and the Aggregate Remaining Fund Information paragraphs, we believe that the audit evidence we and other auditors have obtained is sufficient and appropriate to provide a basis for our audit opinions. Summary of Opinions Opinion Unit Type of Opinion Governmental Activities Qualified Business-Type Activities Disclaimer General Fund Qualified Debt Service Fund Qualified Capital Projects Fund Unmodified Federal Grants Fund Qualified West Indian Company-Enterprise Fund Unmodified Unemployment Insurance-Enterprise Fund Disclaimer viNGN-Enterprise Fund Unqualified Aggregate Remaining Fund Information Disclaimer Aggregate Discretely-Presented Component Units Qualified Basis for Qualified Opinion on Governmental Activities The Government did not maintain the requisite documentation to support its accrued retroactive liability and its net capital assets as of and for the year ended September 30, 2015. As such, we were unable to determine whether adjustments to these balances were required in the Governmental Activities. Basis for Qualified Opinion on General Fund, Debt Service Fund, Federal Grants Fund and on Governmental Activities The Government did not maintain the requisite documentation to support its income tax receivables, tax refunds payables, and revenues in the amounts of $129.7 million, $70.6 million, and $539 million, respectively, as of and for the year ended September 30, 2015. As a result, we were unable to obtain sufficient audit evidence to determine whether adjustments to these balances were required in the General Fund, Debt Service Fund, and in the Governmental Activities. The Government did not maintain the requisite documentation to support its determination as to the sufficiency of the design and operation of key controls surrounding the environment in which Medicaid claims are processed. As such, we were unable to determine whether adjustments were required in the General Fund and in the Governmental Activities.     7 The Government did not maintain the requisite documentation to support its due from federal government and federal grants and contributions revenue in the amount of $17.3 million and $182.3 million, respectively as of and for the year ended September 30, 2015. As a result, we were unable to obtain sufficient audit evidence to determine whether adjustments to these balances were required in the Federal Grants Fund and in the Governmental Activities. Basis for Qualified Opinion on Aggregate Discretely-Presented Component Units The reports of other auditors on the 2015 financial statements of VIPTS and VIWMA, discretely- presented component units, were qualified because the auditors were unable to obtain sufficient audit evidence to determine whether capital assets of $2.9 million and $92.5 million at each respective component unit, were fairly stated. The report of other auditors on the 2015 financial statements of VIPTS, a discretely presented component unit, was also qualified because VIPTS did not report a net pension liability, pension expense as actuarially determined, and related deferred inflows and outflows of resources, if any, in accordance with accounting principles generally accepted in the United States of America. The report of other auditors on the 2015 financial statements of RTPark, a discretely-presented component unit, was qualified because the auditors were unable to obtain sufficient audit evidence to determine whether the equity interest in each of its tenant’s companies was fairly stated. The value of these tenant equity interests is not included in the financial statements. The financial statements of the University of the Virgin Islands (the University), have not been audited, and we were not engaged to audit the University’s financial statements as part of our audit of the Government’s basic financial statements. The University’s financial activities are included in the Government’s basic financial statements as a discretely-presented component unit and represent 9.5%, 12.4%, and 9.5% of the assets, net position, and revenues, respectively, of the Aggregate Discretely-Presented Component Units. Qualified Opinion In our opinion, based on our audit and the reports of other auditors, except for the possible effects of the matters described in the Basis for Qualified Opinion paragraphs above, the financial statements referred to above present fairly, in all material respects, the financial position of the Governmental Activities, the General Fund, the Debt Service Fund, the Federal Grants Fund, and the Aggregate Discretely-Presented Component Units of the Government of the United States Virgin Islands as of September 30, 2015, and the respective changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.     8 Basis for Disclaimer of Opinion on Business-Type Activities and on Aggregate Remaining Fund Information The basic financial statements do not include a liability for medical malpractice claims in the reciprocal insurance fund (a non-major enterprise fund) and, accordingly, the Government has not recorded an expense for the current period change in that liability. The Government’s records do not permit it, nor is it practical to extend our auditing procedures sufficiently to determine the extent by which the Business-Type Activities and Aggregate Remaining Fund Information as of and for the year ended September 30, 2015, may have been affected by this condition. Basis for Disclaimer Opinion on Unemployment Insurance-Enterprise Fund and on Business- Type Activities The Government’s records were not available or contained incomplete information. As such, the records do not permit it, nor is it practical to extend our auditing procedures sufficiently to determine the extent by which the Unemployment Insurance-Enterprise Fund and Business- Type Activities as of and for the year ended September 30, 2015, may have been affected by this condition. Basis for Disclaimer Opinion on the Aggregate Remaining Fund Information The report of other auditors on the 2015 financial statements of GERS, a fiduciary component unit (pension trust fund), was qualified because GERS maintained investments in a limited partnership valued at $26.4 million whose fair value has been estimated in the absence of a readily determinable fair value. GERS’ estimate was based on information provided by the general partner of the limited partnership. The effect on the financial statements, as a result of GERS’ inability to document its procedures for determining fair value of the investment was not determinable. Disclaimer of Opinion Because of the significance of the matters discussed in the Basis for Disclaimer Opinion paragraphs above, we and other auditors have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the financial statements of the Business-Type Activities, the Unemployment Insurance-Enterprise Fund, and on the Aggregate Remaining Fund Information of the Government of the United States Virgin Islands. Accordingly, we do not express an opinion on these financial statements. Unmodified Opinions In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of each major fund, other than the General Fund, the Debt Service Fund, the Federal Grants Fund, and the Unemployment Insurance-Enterprise Fund of the Government of the United States Virgin Islands, as of September 30, 2015, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.     9 Emphasis of Matters As discussed in Note 15 to the financial statements, the Government reported an unrestricted net deficit in Governmental Activities and in the General Fund. Management’s plans regarding those matters are also described in Note 15. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter. Also as discussed in Note 17, in 2015, the Government adopted Governmental Accounting Standards Board Statement (GASB) No. 68, Accounting and Financial Reporting for Pensions—an amendment of GASB Statement No. 27, as amended by GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date—an amendment of GASB Statement No. 68. As further discussed in Note 17, certain adjustments were applied to restate beginning net position and fund balance. Our opinion, based on our audit and the reports of other auditors, is not modified with respect to this matter. Required Supplementary Information Accounting principles generally accepted in the United States of America require that management’s discussion and analysis and the schedules of funding progress, employer contributions, changes in the Government’s net pension liability and related ratios, and revenue and expenditures – budget and actual – budgetary basis – General Fund on pages 11 through 20 and 121 through 126, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We and other auditors have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Management has omitted the budgetary comparison information for the Federal Grants Fund that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information.     10 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated June 27, 2016, on our consideration of the Government’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Government’s internal control over financial reporting and compliance. June 27, 2016   Management’s Discussion and Analysis   Government of the United States Virgin Islands Management’s Discussion and Analysis     11 Introduction The following management’s discussion and analysis presents an overview of the financial position and activities of the Government of the United States Virgin Islands (the Government) as of and for the fiscal years ended September 30, 2015 and 2014. Government-wide Financial Statements The government-wide financial statements are designed to present an overall picture of the financial position of the Government. These statements consist of the statement of net position and the statement of activities, which are prepared using the economic resources measurement focus and the accrual basis of accounting. This means that current year’s revenue and expenses are included regardless of when cash is received or paid, producing a view of financial position and changes in financial position similar to that presented by most private-sector companies. The statement of net position combines and consolidates the Government’s current financial resources with capital assets and long-term obligations. Both of the above-mentioned financial statements have separate sections for three different types of the Government programs or activities. These three types of activities are as follows: Governmental Activities – The activities in this section are mostly supported by taxes and intergovernmental revenue (federal grants). Most services normally associated with the primary government fall into this category, including general government, public safety, health, public housing and welfare, education, transportation and communication, and culture and recreation. Business-Type Activities – These functions normally are intended to recover all or a significant portion of their costs through user fees and charges to external users of goods and services. These business-type activities of the Government include the operations of the: (i) the West Indian Company (WICO), (ii) the Unemployment Insurance program, and (iii) viNGN, Inc. dba Virgin Islands Next Generation Network (viNGN). These programs operate with minimal assistance from the governmental activities of the Government. Discretely Presented Component Units – These are operations for which the Government has financial accountability even though they have certain independent qualities as well. For the most part, these entities operate similar to private sector businesses and the business-type activities described above. The Government’s discretely presented component units are presented in two categories, major and non-major. This separation is determined by the relative size of the entities’ assets, liabilities, revenue, and expenses in relation to the total of all component units.               Government of the United States Virgin Islands Management’s Discussion and Analysis     12 Fund Financial Statements Fund financial statements focus on the most significant (or major) funds of the Government. A fund is a separate accounting entity with a self-balancing set of accounts. The Government uses funds to keep track of sources of funding and spending related to specific activities. The Government uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. A major fund is a fund whose revenue, expenditures or expenses, assets, or liabilities (excluding extraordinary items) are at least 10% of the corresponding totals for all governmental or enterprise funds and at least 5% of the aggregate amount for all governmental and enterprise funds for the same item. The General Fund is always considered a major fund. In addition to funds that meet the major fund criteria, any other governmental or enterprise fund that the Government believes is particularly important to the financial statements may be reported as a major fund. All of the funds of the Government are divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental Funds   Governmental funds are accounted for using the modified accrual basis of accounting, which measures cash and other assets that can be readily converted to cash. The governmental funds statements provide a detailed short-term view of the general governmental operations and the basic services provided. The reconciliation following the fund financial statements explains the differences between the governmental activities, reported in the government- wide financial statements, and the governmental funds’ financial statements. The General Fund, the PFA Debt Service Fund, the PFA Capital Projects Fund and the Federal Grants Fund are reported as major governmental funds. The General Fund is the Government’s primary operating fund. It accounts for all financial resources of the Government, except those required to be accounted for in another fund. The PFA Debt Service Fund accounts for the resources accumulated, and payments made, for principal and interest on long-term general obligation debt issued by the PFA on behalf of the Government. The PFA Capital Projects Fund accounts for bond proceeds of debt issued by the PFA on behalf of the Government. The bond proceeds have been designated for certain necessary public safety and capital development projects which are accounted for in this fund. The Federal Grants Fund accounts for proceeds and federal payments that are legally restricted for expenditures for federally specified purposes. The governmental fund activities are reported in a separate balance sheet and statement of revenues, expenditures, and changes in fund balances. Additionally, the Government presents a reconciliation of the statement of revenues, expenditures, and change in fund balances, to the statement of activities. Government of the United States Virgin Islands Management’s Discussion and Analysis     13 Proprietary Funds   Services provided to outside (nongovernmental) customers are reported in enterprise funds. Enterprise funds are accounted for using the economic resources measurement focus and the accrual basis of accounting. These are the same business-type activities reported in the government-wide financial statements. The West Indian Company (WICO) Fund, the Unemployment Insurance Fund, and viNGN are major proprietary funds. The WICO Fund accounts for the activities of WICO, which owns a port facility including a cruise ship pier, and manages a shopping mall complex on the island of St. Thomas. The Unemployment Insurance Fund is a federally mandated program to manage unemployment insurance. The viNGN Fund accounts for the activities of viNGN, which designs, develops and manages a middle mile wholesale fiber optic network in order to make available reliable high speed internet connections to retail internet service providers. The proprietary fund activities are reported in a separate statement of net position, statement of revenues, expenditures, and changes in net position and statement of cash flows. Fiduciary Funds   The fiduciary activities are reported in a separate statement of fiduciary net position and a statement of changes in fiduciary net position. Financial Analysis of the Primary Government Total assets and deferred outflows of resources of the Government as of September 30, 2015 and 2014 were approximately $2.1 billion and $1.9 billion, respectfully. Total liabilities were approximately $5.8 and $5.5 billion, as of September 30, 2015 and 2014. As of September 30, 2015, the Government’s net position was a deficit balance of $3.7 billion that consisted of $264 million invested in capital assets, net of related debt; $251 million restricted by statute or other legal requirements that were not available to finance day-to-day operations of the Government; and an unrestricted net deficit of $4.3 billion. As of September 30, 2014, the Government’s net deficit of $3.5 billion consisted of $354 million invested in capital assets, net of related debt; $254 million restricted by statute or other legal requirements that were not available to finance day-to-day operations of the Government; and an unrestricted net deficit of $4.1 billion. Government of the United States Virgin Islands Management’s Discussion and Analysis     14 For the fiscal year ended September 30, 2015, the Government earned program and general revenue amounting to $1.1 billion and reported expenses of $1.4 billion, resulting in an increase in net deficit of approximately $233 million. For the fiscal year ended September 30, 2014, the PG earned program and general revenue amounting to $1.4 billion and reported expenses of $1.3 billion, resulting in a decrease in net deficit of approximately $42 million. Overall, revenue decreased by approximately $170 million in fiscal year 2015, when compared to fiscal year 2014, mainly due to decreases in tax revenues of $142 million, and decreases in grants and contributions of $53 million, offset by increases in interest and other revenue of $29 million and charges for services of $7 million. Overall expenses increased in fiscal year 2015 by $84 million when compared to fiscal year 2014, mainly due to decreases in general government expenditures of $41 million, and increases in health expenditures of $27 million, offset by decreases in education expenditures of $4 million. A summary of net position and changes in net position for the primary government follows (expressed in thousands): Governmental Activities Business-Type Activities Total September 30, 2015 2014 2015 2014 2015 2014 (As restated) (As restated) Assets and Deferred Outflows Current assets $ 886,651 $ 909,779 $ 30,762 $ 34,035 $ 917,413 $ 943,814 Internal balances 42,586 39,407 (42,586) (39,407) - - Capital assets 798,577 821,033 131,885 135,272 930,462 956,305 Other assets 5,051 5,059 1,092 1,003 6,143 6,062 Deferred outflows of resources 242,106 9,880 - - 242,106 9,880 Total assets and deferred outflows 1,974,971 1,785,158 121,153 130,903 2,096,124 1,916,061 Liabilities and Deferred Inflows Long-term debt outstanding 5,029,592 4,783,526 62,516 53,276 5,092,108 4,836,802 Other liabilities 648,816 528,075 93,892 99,100 742,708 627,175 Deferred Inflow of resources 434 - - - 434 - Total liabilities 5,678,842 5,311,601 156,408 152,376 5,835,250 5,463,977 Net Position Net investment in capital assets 204,175 247,208 59,840 106,754 264,015 353,962 Restricted 244,290 244,463 6,293 9,973 250,583 254,436 Unrestricted (deficit) (4,152,336) (4,018,114) (101,388) (138,200) (4,253,724) (4,156,314) Total net position (deficit) $ (3,703,871) $ (3,526,443) $ (35,255) $ (21,473) $ (3,739,126) $ (3,547,916) Government of the United States Virgin Islands Management’s Discussion and Analysis     15 Governmental Activities Business-Type Activities Total September 30, 2015 2014 2015 2014 2015 2014 (As restated) (As restated) Revenue Program revenue: Charges for services $ 24,323 $ 17,587 $ 56,336 $ 50,085 $ 80,659 $ 67,672 Operating grants and contributions 190,743 244,208 711 5,274 191,454 249,482 Capital grants and contributions 14,139 24,653 5,041 19,898 19,180 44,551 General revenue: Taxes 822,344 963,861 - - 822,344 963,861 Interest and other 71,013 40,964 4,400 17,489 75,413 58,453 Other general revenue 1,963 2,318 - - 1,963 2,318 Total revenue 1,124,525 1,293,591 66,488 92,746 1,191,013 1,386,337 Expenses General government 634,644 593,659 - - 634,644 593,659 Public safety 65,771 63,933 - - 65,771 63,933 Health 71,155 44,049 - - 71,155 44,049 Public housing and welfare 187,284 173,897 - - 187,284 173,897 Education 235,515 231,774 - - 235,515 231,774 Transportation and communication 45,584 51,899 - - 45,584 51,899 Culture and recreation 9,049 7,948 - - 9,049 7,948 Interest on long-term debt 107,961 107,322 - - 107,961 107,322 Unemployment insurance - - 16,523 20,997 16,523 20,997 West Indian Company - - 11,865 10,963 11,865 10,963 Workmen’s compensation - - 9,489 10,205 9,489 10,205 Virgin Islands Lottery - - 19,533 17,779 19,533 17,779 viNGN - - 9,810 9,265 9,810 9,265 Other - - 14,490 9,001 14,490 9,001 Total expenses 1,356,963 1,274,481 81,710 78,210 1,438,673 1,352,691 Changes in net position (deficit) before transfers (232,438) 19,110 (15,222) 14,536 (247,660) 33,646 Transfers (1,000) (5,300) 1,000 5,300 - - Change in net position (deficit) (233,438) 13,810 (14,222) 19,836 (247,660) 33,646 Net position (deficit), beginning of year, as restated (3,470,433) (3,484,243) (21,033) (40,869) (3,491,466) (3,525,112) Net position (deficit), end of year $ (3,703,871) $ (3,470,443) $ (35,255) $ (21,033) $ (3,739,126) $ (3,491,466) Government of the United States Virgin Islands Management’s Discussion and Analysis     16 The Virgin Islands Office of Management and Budget of the Government prepares an annual executive budget subject to approval by the Governor and the Legislature of the Virgin Islands. The executive budget is prepared on a budgetary basis similar to the cash basis of accounting. The executive budget includes only those funds that are subject to appropriation by law. More information regarding budgetary procedures is provided in the Required Supplementary Information accompanying the basic financial statements. A summary of the budgetary report for the General Fund of the Government, included on page 124 of the financial statements, follows (expressed in thousands): September 30, 2015 Original Budget Amended Budget Actual Variance Total revenues $ 619,226 $ 619,226 $ 686,956 $ 67,730 Total expenditures 876,211 904,371 837,929 66,442 Deficiency of revenues Over expenditures (256,985) (285,145) (150,973) 1,288 Other financing sources, net 88,170 88,170 187,422 99,252 Excess (deficiency) of revenues and net other financing sources over expenditures $ (168,815) $ (196,975) $ 36,449 $ 100,540 For fiscal year 2015, the General Fund realized a favorable budgetary variance of $101 million mainly due to an increase in other financing sources of $99 million and an operating excess of revenues over expenditures of $1 million. Other financing sources increased mainly due to the issuance of the Series 2015 Note, amounting to $40 million, and the issuance of the Series 2014 E Notes, amounting to $40 million. The General fund realized a positive revenue variance of $68 million mainly due to the assessment of two years of property taxes (2015 and 2014) during the fiscal year. The General Fund realized a favorable expenditure variance of $66 million due to decreases in expenditures from budgeted amounts.   Capital Assets Capital assets additions during fiscal year 2015 amounted to $31.2 million for governmental activities and $5.6 million for business-type activities. Capital assets additions during fiscal year 2014 amounted to $54.2 million for governmental activities and $39 million for business-type activities. Government of the United States Virgin Islands Management’s Discussion and Analysis     17 The Government’s capital assets include land, land improvements, buildings, building improvements, machinery and equipment, infrastructure, construction in progress, and intangibles as follows (expressed in thousands): Governmental Activities Business-Type Activities Total September 30, 2015 2014 2015 2014 2015 2014 (As restated) (As restated) Land and improvements $ 202,286 $ 202,558 $ 5,526 $ 5,526 $ 207,812 $ 208,084 Building and improvements 500,764 463,451 79,414 77,109 580,178 540,560 Machinery and equipment 191,610 175,066 76,130 57,060 267,740 232,126 Infrastructure 313,472 252,744 - - 314,472 252,744 Intangibles - - 20,974 20,929 20,974 20,929 Construction in progress 70,279 159,410 5,113 21,218 75,392 180,628 Total capital assets 1,278,411 1,253,229 187,157 181,842 1,465,568 1,435,071 Less accumulated depreciation (479,834) (442,882) (55,272) (46,571) (535,106) (489,453) Total capital assets, net $ 798,577 $ 810,347 $ 131,885 $ 135,271 $ 930,462 $ 945,618 Note 9 provides detailed information regarding the capital assets of the primary government and the component units of the Government. Debt Administration The Government issues both general obligation bonds and revenue bonds. The Revised Organic Act [48 U.S.C. Section 1574 (b)(ii)] restricts the principal amount of general obligation debt that the Government may issue to no greater than 10% of the aggregate assessed valuation of taxable real property in the U.S. Virgin Islands. Following is a summary of bonds outstanding as of September 30, 2015 (expressed in millions): Bond Payable Maturity Rates (%) Balance 2014 Series D Revenue Bonds 2033 6.03 $ 5,765 2014 Series C Revenue Bonds 2044 4.50-5.00 247,050 2014 Series A Revenue Bonds 2034 5.00 49,640 2013 Series B Revenue Refunding Bonds 2024 3.00 – 5.00 51,365 2013 Series A Revenue Refunding Bonds 2024 5.00 – 5.25 36,000 2012 Series C Revenue Bonds 2042 3.00 – 5.00 33,445 2012 Series A & B Revenue & Refunding Bonds 2032 2.25 – 5.25 206,900 2012 Series A Revenue Bonds 2032 4.00 – 5.00 141,840 2010 Series A & B Revenue Bonds 2029 4.00 – 5.25 392,840 2009 Series A Revenue Bonds (Cruzan) 2039 3.00 – 6.00 36,245 2009 Series A-1, B & C Revenue and Refunding Bonds 2039 3.00 – 5.00 344,770 2009 Series A Revenue Bonds (Diageo) 2037 6.00 – 6.75 241,670 2006 Series A Revenue Bonds 2029 3 50 – 5.00 202,955 2006 Series A, B, C & D Tobacco Turbo and Capital Appreciation Bonds 2035 6.00 – 8.00 7,290 2001 Series A Tobacco Bonds 2031 4.62 – 5.13 9,520 Total bonds outstanding 2,007,295 Plus (less): Bonds premium 52,403 Bonds discount (2,913) Bonds accretion 6,153 Net bonds outstanding $ 2,062,938 Government of the United States Virgin Islands Management’s Discussion and Analysis     18 Note 10 provides detailed information regarding all bonds of the PG. In fiscal year 2015, the Government issued the (1) 2014 Series D Bonds in the amount of $5.8 million to fund certain capital projects, and (2) the 2014 Series C Bonds in the amount of $247 million to refund the 2003 Series A Bonds and to fund certain capital projects. In fiscal year 2014, the Government issued the (1) 2014 Series A (Working Capital) Revenue Bonds in the amount of $49.6 million, and (2) the 2013 Series B Revenue Refunding Bonds, in the amount of $51.3 million, for the refunding of a portion of the 2004 series A Bonds. During fiscal year 2014, the Government also borrowed $11.1 million from the U.S. Treasury to fund deficits in the Virgin Islands Unemployment Trust Fund. The Government made bond principal payments on outstanding general and special revenue bonds amounting to $293.9 million during fiscal year 2015 and $99 million during fiscal year 2014. The Government’s bonds secured by pledged rum excise taxes (matching funds) carry insured ratings of “BBB-” from Fitch Ratings and “Baa2” from Moody’s Investors Service, respectively as of the date of this report. The Government’s bonds secured by gross receipts taxes carry insured ratings of “BBB” from Fitch Ratings. On February 12, 2013, Moody’s Investors Service withdrew its ratings of the Government’s gross receipts tax debt, primarily due to the depletion of GAAP-basis general fund reserves. Bond ratings reflect only the respective views of the rating agencies and an explanation of the significance of each rating may be obtained from the respective rating agency. Other Liabilities of the Primary Government Other long-term outstanding liabilities of the Government include the following (expressed in millions): September 30, 2015 2014 (As restated) Accrued compensated absences $ 32 $ 38 Retroactive union arbitration 195 195 Litigation 24 11 Post-employment benefits 357 319 Landfill closure and post closure costs 84 95 Workers compensation 32 27 Total other liabilities $ 724 $ 685 Government of the United States Virgin Islands Management’s Discussion and Analysis     19 Economic Condition and Outlook The Government promotes fiscal sustainability through a combination of revenue initiatives and budgetary restraints on expenditures. Revenue Initiatives The Government has implemented several initiatives to create jobs, stimulate economic growth and promote fiscal sustainability including: continued promotion of tourism through national advertising, increases in local tax rates, compliance initiatives to ensure voluntary tax filing requirements are met, and outreach to national and foreign investors. In December 2015, the Government negotiated an operating agreement for an oil terminal facility on the island of St. Croix, resulting in new tax revenue streams, and a payment to the Government of $220 million. The Government continues to promote its high-tech broadband capabilities, educated workforce and tax incentive programs to management, technology and tourism-related industries. Budgetary Control of Expenditures The Government has experienced an increase in carry-forward liabilities from prior fiscal years mainly due to landfill closure costs, post-employment benefits for retirees, and net pension liabilities in connection with the Government’s defined benefit pension plan. The Government also has carry-forward liabilities due to unpaid retroactive salary increases that accumulated following Hurricanes Hugo, Marilyn and Bertha in the years of 1990 through 1998. At September 30, 2015 and 2014, long-term liabilities for pension and other post-employment benefits to retired government employees amounted to $2.3 billion and $2.1 billion. The Government’s defined benefit pension plan was 27% funded as of September 30, 2014. Based on actuarial projections, the plan may not be able to meet its responsibilities by the year 2025. A Pension Reform Joint Task Force has provided recommendations to the Legislature to (1) increase the retirement age of Government workers, (2) restructure plan benefits, and (3) no longer allow retirees to both work and collect benefits from the Government. During fiscal year 2015, the Legislature increased the contribution rates of the Government by 3% and the contribution rates of participants in the plan by 1% phased in over three years (3% in total). Deficit Reduction Measures In fiscal years 2015 and 2014, the Government reported an unrestricted net deficit of $4.3 billion and $4.1 billion, respectively. The Government has implemented a number of deficit reducing measures including: (1) withholding of local gross receipts taxes on Government invoice payments; (2) increasing local taxes such as property tax assessments on time-shares, gross receipts taxes and hotel taxes; (3) exerting greater control of expenditures through the budgetary process; and (4) increasing collection efforts for amounts due to the Government from taxpayers. Government of the United States Virgin Islands Management’s Discussion and Analysis     20 Contacting the Government’s Financial Management This financial report is designed to provide the Government’s citizens, taxpayers, customers, and creditors with a general overview of the Government’s finances. If you have questions about this report, or need additional financial information, contact the Government of the United States Virgin Islands, Department of Finance, No. 2314 Kronprindsens Gade, St. Thomas, VI 00802.   Basic Financial Statements Governmental Business-type Component Activities Activities Total Units Assets Cash and cash equivalents 148,397 $ 18,736 $ 167,133 $ 84,461 $ Investments 508,464 1,642 510,106 11,321 Receivables, net 207,862 4,091 211,953 50,090 Internal balances 42,586 (42,586) – – Due from federal government 17,312 – 17,312 8,552 Due from component units 4,616 – 4,616 – Due from primary government – – – 58,743 Inventories – – – 30,478 Prepayments and other assets – – – 21,800 Restricted: Cash and cash equivalents – 6,293 6,293 80,809 Investments – – – 106,459 Other – – – 27,238 Capital assets, net 798,577 131,885 930,462 1,028,499 Notes receivable – – – 11,477 Other assets 5,051 1,092 6,143 47,530 Total assets 1,732,865 121,153 1,854,018 1,567,457 Deferred Outflows of Resources Deferred amounts related to pension 232,974 – 232,974 76,073 Deferred charge on bond refundings 9,132 – 9,132 5,683 Derivative instruments – – – 72 Total deferred outflows of resources 242,106 – 242,106 81,828 Total assets and deferred outflows of resources 1,974,971 $ 121,153 $ 2,096,124 $ 1,649,285 $ See accompanying notes to financial statements. Government of the United States Virgin Islands Statement of Net Position (in thousands) September 30, 2015 Primary Government 21 Governmental Business-type Component Activities Activities Total Units Liabilities Accounts payable and accrued liabilities 118,422 $ 7,257 $ 125,679 $ 228,017 $ Tax refunds payable 70,607 – 70,607 – Unemployment insurance benefits – 12,219 12,219 – Customer deposits – – – 27,198 Due to primary government – – – 4,616 Due to component units 36,507 – 36,507 12,271 Due to federal government – – – 5,260 Interest payable 51,946 – 51,946 6,515 Unearned revenues 209,415 805 210,220 16,316 Other current liabilities – – 26,159 Noncurrent liabilities: Due within one year: Line of credit payable – – – 25,375 Notes payable 62,920 72,766 135,686 6,252 Bonds payable 78,344 – 78,344 16,588 Other liabilities 20,655 845 21,500 3,574 Due in more than one year: Line of credit payable – – – 2,253 Notes payable 50,430 31,308 81,738 83,083 Bonds payable 1,984,594 – 1,984,594 286,664 Net pension liability 2,323,163 – 2,323,163 682,855 Other liabilities 671,405 31,208 702,613 87,801 Total liabilities 5,678,408 156,408 5,834,816 1,520,797 Deferred Inflows of Resources Deferred amounts related to pension 434 - 434 22,957 Total deferred inflows of resources 434 - 434 22,957 Total liabilities and deferred inflows of resources 5,678,842 156,408 5,835,250 1,543,754 Net Position: Net investment in capital assets 204,175 $ 59,840 $ 264,015 $ 757,291 $ Restricted: Unemployment insurance – 3,826 3,826 – Debt service 243,980 – 243,980 – Capital projects 256 – 256 – Federal projects 54 – 54 – Other purposes – 2,467 2,467 238,240 Unrestricted (deficit) (4,152,336) (101,388) (4,253,724) (890,000) Total net position (deficit) (3,703,871) $ (35,255) $ (3,739,126) $ 105,531 $ See accompanying notes to financial statements. Government of the United States Virgin Islands (in thousands) September 30, 2015 Primary Government Statement of Net Position 22 Operating Capital Charges for Grants and Grants and Governmental Business-type Component Expenses Services Contributions Contributions Activities Activities Total Units Functions: Primary government: Governmental activities: General government 634,644 $ 20,543 $ 26,407 $ 1,687 $ (586,007) $ – $ (586,007) $ – $ Public safety 65,771 478 2,714 – (62,579) – (62,579) – Health 71,155 66 18,644 – (52,445) – (52,445) – Public housing and welfare 187,284 754 97,261 – (89,269) – (89,269) – Education 235,515 397 38,943 – (196,175) – (196,175) – Transportation and communication 45,584 618 6,774 12,452 (25,740) – (25,740) – Culture and recreation 9,049 1,467 – – (7,582) – (7,582) – Interest on long-term debt 107,961 – – – (107,961) – (107,961) – Total governmental activities 1,356,963 24,323 190,743 14,139 (1,127,758) – (1,127,758) – Business-type activities: West Indian Company 11,865 9,502 – – – (2,363) (2,363) – Unemployment Insurance 16,523 11,328 592 – – (4,603) (4,603) – Workers compensation 9,489 6,245 – – – (3,244) (3,244) – Virgin Islands Lottery 19,533 18,247 – – – (1,286) (1,286) – viNGN 9,810 2,565 – 5,041 – (2,204) (2,204) – Other 14,490 8,449 119 – – (5,922) (5,922) – Total business-type activities 81,710 56,336 711 5,041 – (19,622) (19,622) – Total primary government 1,438,673 $ 80,659 $ 191,454 $ 19,180 $ (1,127,758) $ (19,622) $ (1,147,380) $ – $ Component units: Virgin Islands Housing Authority 48,003 $ 6,168 $ 39,222 $ 3,985 $ – $ – $ – $ 1,372 $ Virgin Islands Port Authority 63,475 53,086 – 6,554 – – – (3,835) Virgin Islands Water and Power Authority: Electric System 306,152 270,310 – 7,306 – – – (28,536) Water System 37,186 33,103 – 29 – – – (4,054) Virgin Islands Government Hospital and Health Facilities Corporation: Roy L. Schneider Hospital 96,675 49,362 26,525 2,480 – – – (18,308) Juan F. Luis Hospital 85,978 49,460 31,440 – – – – (5,078) University of the Virgin Islands (unaudited) 87,486 49,911 20,367 4,692 – – – (12,516) Other component units 74,637 12,192 47,201 3,499 – – – (11,745) Total component units 799,592 $ 523,592 $ 164,755 $ 28,545 $ – $ – $ – $ (82,700) $ Total primary government and component units (1,127,758) $ (19,622) $ (1,147,380) $ (82,700) $ See accompanying notes to financial statements. Government of the United States Virgin Islands (in thousands) Year Ended September 30, 2015 Primary Government Changes in Net Position Net Revenue (Expense) and Program Revenues Statement of Activities 23 Governmental Business-type Component Activities Activities Total Units General revenues: Taxes 822,344 $ - $ 822,344 $ - $ Interest and other 71,013 4,400 75,413 19,690 Tobacco settlement rights 1,963 – 1,963 – Transfers – internal activities of primary government (1,000) 1,000 – – Total general revenue 894,320 5,400 899,720 19,690 Changes in net position (233,438) (14,222) (247,660) (63,010) Net position (deficit), beginning of year, as restated (3,470,433) (21,033) (3,491,466) 168,541 Net position (deficit), end of year (3,703,871) $ (35,255) $ (3,739,126) $ 105,531 $ See accompanying notes to financial statements. Primary Government Year Ended September 30, 2015 Government of the United States Virgin Islands (in thousands) Net Revenue (Expense) and Changes in Net Position Statement of Activities 24 PFA PFA Debt Capital Federal Other Total General Service Projects Grants Governmental Governmental Assets Cash and cash equivalents 36,761 $ 8,104 $ 27,341 $ – $ 76,191 $ 148,397 $ Investments 116,967 336,012 50,392 - 5,093 508,464 Receivables: Taxes, net 163,743 42,430 – - – 206,173 Other 9 – – - 120 129 Due from federal government - - - 17,312 - 17,312 Due from: Other funds 23,650 – 34,546 - 22,724 80,920 Component units, net 4,616 – – - – 4,616 Total assets 345,746 $ 386,546 $ 112,279 $ 17,312 $ 104,128 $ 966,011 $ Liabilities Accounts payable and accrued liabilities 79,972 $ – $ 274 $ 26,145 $ 12,031 $ 118,422 $ Tax refunds payable 70,607 – – – – 70,607 Due to federal government – – – – – – Unearned revenue 96,920 108,995 – – 3,500 209,415 Due to: Other funds 20,834 – – - 17,500 38,334 Component units 32,885 – 3,475 - 147 36,507 Total liabilities 301,218 108,995 3,749 26,145 33,178 473,285 Deferred Inflows of Resources Unavailable revenues 103,338 33,571 – – – 136,909 Total liabilities and deferred inflows of resources 404,556 142,566 3,749 26,145 33,178 610,194 Fund balances: Restricted – 243,980 108,530 44,865 397,375 Committed 14,687 – – – 50,165 64,852 Assigned 576 – – – 109,250 109,826 Unassigned (74,073) – – (8,833) (133,330) (216,236) Total (deficit) fund balances (58,810) 243,980 108,530 (8,833) 70,950 355,817 Total liabilities, deferred inflows resources and fund balances 345,746 $ 386,546 $ 112,279 $ 17,312 $ 104,128 $ Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. 798,577 Expenditures identified as related to a future period are recognized as a prepaid asset in the statement of net position. 5,051 Deferred costs of refunding bonds are not financial resources, and are therefore not reported in the funds. 9,132 Other long-term assets, primarily taxes receivable, will not be available to pay for current period expenditures and, therefore, are deferred in the funds. 138,469 Deferred outflows of resources of pension amounts are not current financial resources, and these are not included in the funds. 232,540 Interest on long-term debt is not accrued in the funds, but rather is recognized as an expenditure when due. (51,946) Long-term pension liabilities are not due and payable in the current period, and therefore are not reported in the funds (2,323,163) Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the funds. (2,868,348) Net position (deficit) of governmental activities (3,703,871) $ See accompanying notes to financial statements. Government of the United States Virgin Islands (in thousands) September 30, 2015 Balance Sheet - Governmental Funds 25 PFA PFA Debt Capital Federal Other Total General Service Projects Grants Governmental Governmental Revenues: Taxes 621,801 $ 256,149 $ 2,414 $ – $ 21,203 $ 901,567 $ Federal grants and contributions 10,919 – – 182,323 11,640 204,882 Charges for services 10,903 – – – 13,420 24,323 Tobacco settlement rights – – – – 2,082 2,082 Interest and other 43,333 3,762 17 – 23,901 71,013 Total revenues 686,956 259,911 2,431 182,323 72,246 1,203,867 Expenditures: Current: General government 474,913 363 2,299 32,125 35,182 544,882 Public safety 57,343 – – 2,868 12 60,223 Health 45,313 – – 20,582 (273) 65,622 Public housing and welfare 59,822 – – 115,593 587 176,002 Education 174,675 – – 38,480 1,709 214,864 Transportation and communication 18,564 – – 5,822 8,776 33,162 Culture and recreation 7,299 – – – 106 7,405 Capital outlays 6,022 – 6,446 12,776 6,081 31,325 Debt service: Principal 1,121 294,641 2,632 – 1,500 299,894 Interest 316 103,392 162 – 2,301 106,171 Bond issuance costs 1,569 5,847 – – – 7,416 Total expenditures 846,957 404,243 11,539 228,246 55,981 1,546,966 Excess (deficiency) of revenue over expenditures (160,001) (144,332) (9,108) (45,923) 16,265 (343,099) Other financing sources (uses): Bonds issued – 685 30,580 – – 31,265 Refunding bonds issued – 221,550 – – – 221,550 Payment to refunded bond escrow agent – (1,959) – – – (1,959) Loans issued 80,000 – – – – 80,000 Bond premiums – 13,991 – – – 13,991 Transfers from other funds 113,302 3,102 1,100 – 6,748 124,252 Transfers to other funds (4,443) (95,714) (4,054) (19,941) (1,100) (125,252) Total other financing sources (uses), net 188,859 141,655 27,626 (19,941) 5,648 343,847 Net change in fund balances 28,858 (2,677) 18,518 (65,864) 21,913 748 Fund (deficit) balance, beginning of year (87,668) 246,657 90,012 57,031 49,037 355,069 Fund (deficit) balance, end of year (58,810) $ 243,980 $ 108,530 $ (8,833) $ 70,950 $ 355,817 $ See accompanying notes to financial statements. Government of the United States Virgin Islands (in thousands) Year Ended September 30, 2015 Statement of Revenues, Expenditures, and Changes in Fund Balances − Governmental Funds 26 Year Ended September 30, 2015 Net change in fund balances – total governmental funds 748 $ Government funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current year. (5,865) Tax revenue in the statement of activities, which do not provide current financial resources, are not reported as revenue in the funds. (79,342) The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of the governmental funds. This is the amount by which debt repayments of $299.9 million exceeds the loan and bond proceeds of $332.8 million. (32,921) Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. This is the amount by which the decrease in certain liabilities reported in the statement of net position of the previous year decreased expenses reported in the statement of activities that do not require the use of current financial resources. (33,393) Some expenses reported as prepaid assets in the statement of net position in the current year are recognized as expenses in the following year in the statement of activities. (8) Bond premiums and discounts are reported as other financing sources and uses in the governmental funds when the bonds are issued, and are capitalized and amortized in the government-wide financial statements. This amount represents additional net interest expense reported in the statement of activities related to the amortization of premiums, discounts, deferred charges on bond refunding, and accreted interest on capital appreciation bonds during the current year. (7,133) Certain interest reported in the statement of activities does not require the use of current financial resources and therefore is not reported as expenditures in the governmental funds. This amount represents the increase in interest payable reported in the statement of net position. (978) Certain pension expense reported in the statement of activities does not require the use of current financial resources and therefore is not reported as expenditures in the governmental funds. This amount represents the increase in pension liabilities for the allocable share of pension expense reported in the statement of net position. (74,546) Change in net position of governmental activities (233,438) $ See accompanying notes to financial statements. Government of the United States Virgin Islands (in thousands) Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities – Governmental Funds 27 West Indian Unemployment Other Company Insurance viNGN Enterprise Totals Assets Current assets: Cash and cash equivalents 3,949 $ 889 $ 4,652 $ 9,246 $ 18,736 $ Investments – – 1,642 1,642 Receivables, net: Premiums receivable – 1,070 – – 1,070 Other receivables 1,760 – 603 658 3,021 Due from other funds – – – 300 300 Other assets 628 – 341 123 1,092 Total current assets 6,337 1,959 5,596 11,969 25,861 Noncurrent assets: Restricted cash and cash equivalents 2,467 3,826 – – 6,293 Capital assets 44,099 – 79,859 7,927 131,885 Total noncurrent assets 46,566 3,826 79,859 7,927 138,178 Total assets 52,903 $ 5,785 $ 85,455 $ 19,896 $ 164,039 $ Liabilities Current liabilities: Accounts payable and accrued liabilities 957 $ - $ 1,543 $ 4,757 $ 7,257 $ Due to other funds 5,950 – 34,222 2,714 42,886 Unemployment insurance benefits – 12,219 – – 12,219 Workers compensation – – – 845 845 Unearned revenues – – 173 632 805 Loan payable to U.S. Treasury – 72,196 – – 72,196 Loans payable related to capital assets 570 – – – 570 Total current liabilities 7,477 84,415 35,938 8,948 136,778 Noncurrent liabilities: Workers compensation – – – 31,208 31,208 Loans payable related to capital assets 31,308 – – – 31,308 Total noncurrent liabilities 31,308 – – 31,208 62,516 Total liabilities 38,785 $ 84,415 $ 35,938 $ 40,156 $ 199,294 $ Net Position Net investment in capital assets 12,221 $ - $ 39,692 $ 7,927 $ 59,840 $ Restricted 2,467 3,826 – – 6,293 Unrestricted (deficit) (570) (82,456) 9,825 (28,187) (101,388) Total net position (deficit) 14,118 $ (78,630) $ 49,517 $ (20,260) $ (35,255) $ See accompanying notes to financial statements. Government of the United States Virgin Islands (in thousands) September 30, 2015 Business-type Activities – Enterprise Funds Statement of Net Position – Proprietary Funds 28 West Indian Unemployment Other Company Insurance viNGN Enterprise Totals Operating revenues: Charges for services 9,502 $ 11,328 $ 2,565 $ 32,941 $ 56,336 $ Operating expenses: Cost of services 6,978 16,523 5,895 41,530 70,926 Amortization – – 741 – 741 Depreciation 2,822 – 3,174 1,982 7,978 Total operating expenses 9,800 16,523 9,810 43,512 79,645 Operating loss (298) (5,195) (7,245) (10,571) (23,309) Non-operating revenues (expenses): Federal grants – 592 5,041 119 5,752 Interest and other income 536 115 12 3,737 4,400 Interest expense (2,065) – – – (2,065) Total non-operating revenues (expenses), net (1,529) 707 5,053 3,856 8,087 Loss before operating transfers (1,827) (4,488) (2,192) (6,715) (15,222) Transfers from other funds – – – 1,000 1,000 Change in net position (1,827) (4,488) (2,192) (5,715) (14,222) Net position (deficit), beginning of year 15,945 (74,142) 51,709 (14,545) (21,033) Net position (deficit), end of year 14,118 $ (78,630) $ 49,517 $ (20,260) $ (35,255) $ See accompanying notes to financial statements. Government of the United States Virgin Islands (in thousands) Business-type Activities – Enterprise Funds Year Ended September 30, 2015 Statement of Revenues, Expenses, and Changes in Net Position − Proprietary Funds 29 West Indian Unemployment Other Company Insurance viNGN Enterprise Totals Cash flows from operating activities Receipts from customers and users 10,379 $ 12,874 $ 2,165 $ 33,908 $ 59,326 $ Payments to beneficiaries, suppliers and employees (6,533) (12,451) (9,547) (37,303) (65,834) Net cash provided by (used in) operating activities 3,846 423 (7,382) (3,395) (6,508) Cash flows from noncapital financing activities Other income – 115 – 4,067 4,182 Transfers in (out) to other funds (150) – 1,000 850 Federal grants – 592 4,029 119 4,740 Net cash (used in) provided by noncapital financing activiti (150) 707 4,029 5,186 9,772 Cash flows from capital and related financing activities Acquisition and construction of capital assets (2,728) – (2,795) – (5,523) Disposal of capital assets – – – – Transfers in (out) to other funds – – 2,500 – 2,500 Federal grants – – 2,988 – 2,988 Issuance of debt 3,750 – – – 3,750 Principal paid on debt issuances (390) (4,752) – – (5,142) Interest paid on debt issuances (1,929) – – – (1,929) Net cash used in capital and related financing activities (1,297) (4,752) 2,693 – (3,356) Cash flows from investing activities Interest on investments 6 – 12 – 18 Sale of investments – – 237 237 Net cash provided by investing activities 6 – 12 237 255 Net increase (decrease) in cash and cash equivalents 2,405 (3,622) (648) 2,028 163 Cash and cash equivalents, beginning of year 4,011 8,337 5,300 7,218 24,866 Cash and cash equivalents, end of year 6,416 $ 4,715 $ 4,652 $ 9,246 $ 25,029 $ Reconciliation of operating loss to net cash provided by (used in) operating activities Operating loss (298) $ (5,195) $ (7,245) $ (10,571) $ (23,309) $ Adjustments to reconcile operating loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,822 – 3,915 1,982 8,719 Proceeds from settlement 250 – – – 250 Other income 979 – – – 979 Change in assets and liabilities: Receivables, net (255) 1,547 (395) 482 1,379 Due from other funds – – – 439 439 Deferred revenue – – – 46 46 Other assets 58 – (137) (10) (89) Accounts payable and accrued liabilities (260) – (3,520) (814) (4,594) Unemployment insurance benefits – 4,071 – – 4,071 Workers compensation – – – 4,922 4,922 Due to other funds 550 – – 129 679 Net cash provided by (used in) operating activities 3,846 $ 423 $ (7,382) $ (3,395) $ (6,508) $ Reconciliation of cash and cash equivalents to the statement of net assets Cash and cash equivalents – current 3,949 $ 889 $ 4,652 $ 9,246 $ 18,736 $ Cash and cash equivalents – restricted 2,467 3,826 – – 6,293 Total cash and cash equivalents, end of year 6,416 $ 4,715 $ 4,652 $ 9,246 $ 25,029 $ See accompanying notes to financial statements. Government of the United States Virgin Islands (in thousands) Business-type Activities – Enterprise Funds Year Ended September 30, 2015 Statement of Cash Flows − Proprietary Funds 30 Pension Trust Agency September 30, 2015 Fund Funds Assets Cash and cash equivalents: Unrestricted 72,019 $ 2,792 $ Restricted 26 – Investments: Certificate of deposits – 4,667 Cash collateral received under securities lending transactions 65,199 – U.S. Government and agency obligations 19,743 – Corporate obligations 18,246 – Foreign bonds an government obligations – – Common stock - U.S. 169,925 – Mortgage and asset backed securities 29,315 – Mutual funds 377,954 – Investment loans 26,613 – Real estate investment trust 2,058 – Limited partnerships 46,640 – Real estate 72,886 – Receivables, net: Loans and advances 159,218 – Accrued interest 3,209 – Other 575 – Other assets 8,602 – Total assets 1,072,228 $ 7,459 $ Liabilities Accounts payable and accrued liabilities - $ 7,459 $ Benefits in process of payment 3,987 – Unsettled securities purchased 455 – Securities lending collateral 65,199 – Other liabilities 11,546 – Total liabilities 81,187 7,459 Net position restricted for pension benefits 991,041 $ – $ See accompanying notes to financial statements. (in thousands) Statement of Fiduciary Net Position – Fiduciary Funds Government of the United States Virgin Islands 31 Pension Trust Year Ended September 30, 2015 Fund Additions: Contributions: Employer 72,288 $ Plan members 36,245 Total contributions 108,533 Investment income: Net appreciation of fair value of investments (14,295) Interest, dividends, and other, net 22,019 Rental income, net of related expenses 1,482 Total investment income 9,206 Less investment expense 4,238 4,968 Other income 1,161 Total additions 114,662 Deductions: Benefits paid 246,072 Refunds of contributions 4,038 Administrative and operational expenses 16,402 Total deductions 266,512 Change in net position (151,850) Net position restricted for pension benefits, beginning of year, as restated 1,142,891 Net position restricted for pension benefits, end of year 991,041 $ See accompanying notes to financial statements. (in thousands) Statement of Changes in Fiduciary Net Position - Fiduciary Funds Government of the United States Virgin Islands 32 Government of the United States Virgin Islands Notes to Basic Financial Statements     33 1. Summary of Significant Accounting Policies The Government of the United States Virgin Islands (the Government) is an unincorporated organized territory of the United States of America. The powers of the Government are derived from and set forth in the Revised Organic Act of 1954, as amended. The Government assumes responsibility for public safety, health, public housing and welfare, education, transportation and communication, and culture and recreation. The accompanying basic financial statements of the Government have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as prescribed by the Governmental Accounting Standards Board (GASB). The accompanying basic financial statements have been prepared primarily from accounts maintained by the Department of Finance of the Government. Additional data has been derived from reports prepared by other departments, agencies, and public corporations based on independent or subsidiary accounting systems maintained by them. Financial Reporting Entity The Government follows the provisions of GAAP. These standards require that the Government’s financial reporting entity be defined according to specific criteria. According to the standard, for financial reporting purposes, the Government is a primary government (PG). The PG includes all Government departments, agencies, boards, and organizations that are not legally separate. In addition to the PG, the financial reporting entity includes blended and discretely presented component units. Component units include all legally separate organizations for which the Government’s elected officials are financially accountable and organizations for which the nature and significance of their relationship with the PG are such that exclusion would cause the reporting entity’s financial statements to be misleading. The criteria used to define financial accountability include: (i) if an organization is fiscally dependent on, and there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the PG, (ii) a government board appointed by a higher level of government, or (iii) a jointly appointed board. The financial statements of the following component units are included in the financial reporting entity either as blended or as discretely presented component units in accordance with GAAP: (a) Blended Component Units The following public benefit corporations, while legally separate from the Government, meet the criteria to be reported as part of the PG because they provide services entirely or almost entirely to the Government: Government of the United States Virgin Islands Notes to Basic Financial Statements     34 Virgin Islands Public Finance Authority (PFA) PFA was created as a public corporation and autonomous governmental instrumentality by Act No. 5365, the Government Capital Improvement Act of 1988, with the purpose of aiding the Government in the performance of its fiscal duties and in effectively carrying out its governmental responsibility of raising capital for essential public projects. Under the enabling legislation, PFA has the power, among other matters, to borrow money and issue bonds and to lend the proceeds of its bonds to the Government or any governmental instrumentality. The powers of PFA are exercised by a board of directors consisting of the Governor (Chairperson), the Commissioner of Finance, the Director of the Office of Management and Budget, and two representatives of the private sector appointed by the Governor with the advice and consent of the Legislature (the Legislature). PFA activities are blended within the PG because it is so intertwined with the Government that, in substance, they are the same. The PFA funds are reported as major funds, with the exception of the PFA Special Revenue Fund, which is included in the other aggregate remaining fund information. PFA’s blended component units, the West Indian Company (WICO) and Virgin Islands Next Generation Network (viNGN) are presented as a major enterprise funds and King’s Alley Management, Inc., is included in other nonmajor enterprise funds in the Government’s basic financial statements. Tobacco Settlement Financing Corporation (TSFC) TSFC was created in September 2001 under Act No. 6428 as a separate and independent corporation of the Government to purchase the rights, title, and interest in tobacco settlement litigation awards and to issue revenue bonds supported by the tobacco settlement rights. The responsibility for the operations of TSFC is vested in a board of directors composed of three Government officials appointed by the Governor and two private citizens. The activities of TSFC are limited to activities conducted on behalf of the Government. The TSFC is reported in the other aggregate remaining fund information. Complete audited financial statements of the PFA and TSFC blended component units can be obtained directly by contacting their respective administrative offices: Administrative Offices of Blended Component Units Virgin Islands Public Finance Authority 32-33 Kongens Gade, Government Hill St. Thomas, VI 00802 Tobacco Settlement Financing Corporation 32-33 Kongens Gade, Government Hill St. Thomas, VI 00802 Government of the United States Virgin Islands Notes to Basic Financial Statements     35 (b) Discretely Presented Component Units The following component units, as required by GAAP are discretely presented in the basic financial statements because of the nature of the services they provide and the Government’s ability to impose its will. The component units are reported in a separate column to emphasize that they are legally separate from the PG and governed by separate boards. Major Component Units Virgin Islands Housing Authority (VIHA) VIHA was created as a body corporate and politic constituting a public corporation and autonomous governmental instrumentality by Act No. 903 on June 18, 1962, with the purpose of providing housing for low and moderate income families residing in the U.S. Virgin Islands. From June 1962 through August 2003, the powers of VIHA were exercised by a board of commissioners consisting of seven members. In August 2003, the U.S. Department of Housing and Urban Development (HUD) determined that because of the severity of compliance violations, VIHA was declared to be in substantial default of its annual contributions contract (ACC) dated July 12, 1996 with HUD. VIHA was placed in receivership and HUD assumed control of all assets, projects, and programs. On May 30, 2014, the HUD receivership ended, and management of VIHA was returned to the board of trustees appointed by the PG. An executive director is appointed by VIHA’s Board to manage the day-to-day operations. Virgin Islands Port Authority (VIPA) VIPA was created as a body corporate and politic constituting a public corporation and autonomous government instrumentality by Act No. 2375 on December 23, 1968, with the purposes of owning, operating, and managing air and marine terminals. The powers of VIPA are exercised by a board of governors consisting of the Commissioner of Economic Development and Agriculture (Chairperson), the Attorney General, the Commissioner of Public Works, the Director of the Small Business Development Agency, and five other persons appointed by the Governor with the advice and consent of the Legislature. Virgin Islands Water and Power Authority (WAPA) WAPA was created as a body corporate and politic constituting a public corporation and autonomous governmental instrumentality by Act No. 1248 on August 13, 1964, with the purpose of operating the water production and electric generation plants in the U.S. Virgin Islands. The powers of WAPA are exercised by a governing board consisting of nine members, all appointed by the Governor with the advice and consent of the Legislature, from which three are heads of cabinet-level executive departments or agencies and six other persons, who are nominated by the Legislature. WAPA is required by its bond resolutions to maintain separate audited financial statements for each system (the Electric and Water Systems). Government of the United States Virgin Islands Notes to Basic Financial Statements     36 Virgin Islands Government Hospital and Health Facilities Corporation (VIGHHFC) VIGHHFC was created by Act No. 6012 on August 23, 1994 and became active on May 1, 1999, with the purpose of providing healthcare services and hospital facilities to the people of the U. S. Virgin Islands. The powers of VIGHHFC are exercised by a board of directors consisting of 15 members as follows: the Director of the Office of Management and Budget, the Commissioner of Finance, and 13 other members appointed by the Governor with the advice and consent of the Legislature. The VIGHHFC is composed of the Roy L. Schneider Hospital located in St. Thomas and the Juan F. Luis Hospital and Medical Center located in St. Croix. Both entities issue separate audited financial statements. The Roy L. Schneider Hospital’s financial statements include its component units: the Myra Keating Smith Community Health Center (Health Center) of St. John and the Charlotte Kimelman Cancer Institute (Cancer Institute) on St. Thomas. The Health Center and Cancer Institute are legally separated organizations for which the Roy L. Schneider Hospital is financially accountable. The Juan F. Luis Hospital and Medical Center’s financial statements include its component unit: the Virgin Islands Cardiac Center at the Governor Juan F. Luis Hospital and Medical Center Foundation, Inc. (VICC Foundation). VICC Foundation is a legally separate nonprofit corporation for which the Juan F. Luis Hospital and Medical Center is financially accountable. University of the Virgin Islands (the University) The University was organized as an instrumentality of the Government under Act No. 852 on March 16, 1962, in accordance with Section 16(a) of the Revised Organic Act of 1954, as amended. The purpose of the University is the stimulation and utilization of the intellectual resources of the people of the U.S. Virgin Islands and the development of a center of higher education. The powers of the University are exercised by a board of trustees consisting of 17 members as follows: Chairman of the Board of Education, Commissioner of Education, and the President of the University, all serving as members ex-officio, 9 other members appointed by the Governor with the advice and consent of the Legislature, two other members elected by the board of trustees, one representative of the student body, one alumnus of the University, and another representative of the teaching faculty. The University was not organized as a self-sustaining entity and therefore receives substantial financial and other support from the Government.   The University’s financial statements include its blended component units: The Foundation for the University of the Virgin Islands and The Reichhold Center Foundation. The Foundation for the University of the Virgin Islands is a nonprofit corporation whose purpose is to assist and support the University in accomplishing its charitable and educational mission. The Reichhold Center Foundation is a nonprofit corporation that supports the arts and provides financial assistance in operating the Reichhold Center for the Arts on the St. Thomas campus of the University.   Government of the United States Virgin Islands Notes to Basic Financial Statements     37 Virgin Islands Economic Development Authority (EDA) EDA was created by Act No. 6390 on December 21, 2000 as a body corporate and politic constituting a public corporation and semiautonomous instrumentality of the Government. EDA was created as an umbrella authority to assume, integrate, and unify the functions of the Economic Development Commission, the Small Business Development Agency, the Government Development Bank, and the Virgin Islands Industrial Development Park Corporation. The powers of EDA are exercised by a board of directors consisting of the members of the Virgin Islands Economic Development Commission, the Director of the Virgin Islands’ Bureau of Internal Revenue, and five members not employed by the Government, but appointed by the Governor with the advice and consent of the Legislature. Magens Bay Authority (MBA) MBA was created as a corporate instrumentality by Act No. 2085 on December 20, 1967, with the purpose of acquiring, improving, and operating parks and beaches. The powers of MBA are exercised by a board of directors consisting of the Governor and six members initially appointed by the Governor. The board of directors is responsible for the appointment and reappointment of subsequent board members except that the Governor, with the advice and consent of the Legislature may, by appointment, fill any vacancy on the board of directors remaining unfilled for sixty days. Virgin Islands Housing Finance Authority (VIHFA) VIHFA was created as a body corporate and politic constituting a public corporation and autonomous governmental instrumentality of the Government by Act No. 4636 on October 20, 1981, with the purpose of stimulating low and moderate-income housing construction and home ownership through the issuance of revenue bonds to obtain funds to be used for low-interest mortgage loans to qualified purchasers of low and moderate-income housing. On October 31, 2008, VIHFA established the Virgin Islands Housing Management, Inc. (VIHM), a wholly-owned nonprofit subsidiary for the purpose of managing VIHFA’s rental properties. The financial statements of VIHM are separately issued, and not blended into the PG. The powers of VIHFA are exercised by a board of directors consisting of the Commissioner of the Department of Housing, Parks, and Recreation (the Chairman), the Director of the Office of Management and Budget, and three persons not employed by the Government appointed by the Governor with advice and consent of the Legislature. Virgin Islands Public Television System (VIPTS) VIPTS was created as a body corporate and politic constituting a public corporation and autonomous instrumentality by Act No. 2364 on November 15, 1968, with the purpose of advancing the general welfare, education, cultural development, and awareness of public affairs of all the population of the U.S. Virgin Islands as well as to provide an effective supplement to the in-school education of children.     Government of the United States Virgin Islands Notes to Basic Financial Statements     38 The powers of VIPTS are exercised by a board of directors consisting of the Commissioner of Education, the Chairman of the Board of Education, three members appointed by the President of the Legislature, and four members, not more than two of whom should be employed by the Government and appointed by the Governor with the advice and consent of the Legislature.   In addition, the Director of the Office of Management and Budget, the President of the University of the Virgin Islands, and the General Manager of VIPTS are ex-officio members of the board who are not entitled to vote. Virgin Islands Waste Management Authority (VIWMA) VIWMA was established as a nonprofit, public, autonomous instrumentality of the Government by Act No. 6638 and approved by the Governor of the Virgin Islands on January 23, 2004. VIWMA provides environmentally sound management for the collection and disposal of solid waste in the Territory, including operation and closure of landfills and wastewater collection, treatment and disposal. VIWMA is governed by a Board of Directors consisting of seven members. University of the Virgin Islands Research and Technology Park Corporation (RTPark) RTPark was established as a public, autonomous instrumentality of the Government by Act 6502 on February 21, 2002, as amended, by Act 6725, the Protected Cell Amendments Act of 2005. RTPark was organized for internet commerce and technology, providing an enabling environment for research, development, business incubation and technology-driven businesses. RTPark is governed by a Board of Directors consisting of seven members, including the Chairman of the Board of Trustees of the University, the President of the University, two trustees selected from among the Board of Trustees of the University, and three members selected by the Governor. Complete audited financial statements of the discretely presented component units can be obtained directly by contacting their administrative offices: Administrative Offices Virgin Islands Housing Authority 402 Estate Anna’s Retreat PO Box 7668 St. Thomas, VI 00801 Virgin Islands Port Authority PO Box 301707 St. Thomas, VI 00803 Virgin Islands Water and Power Authority PO Box 1450 St. Thomas, VI 00804 Government of the United States Virgin Islands Notes to Basic Financial Statements     39 Virgin Islands Government Hospital and Health Facilities Corporation 9048 Sugar Estate St. Thomas, VI 00802 University of the Virgin Islands 2 John Brewer’s Bay St. Thomas, VI 00802 Virgin Islands Economic Development Authority Nisky Shopping Center, Suite 620 St. Thomas, VI 00802 Magens Bay Authority PO Box 10583 St. Thomas, VI 00801 Virgin Islands Housing Finance Authority 3202 Demarara Frenchtown Plaza, Suite 200 St. Thomas, VI 00802 Virgin Islands Public Television System PO Box 7879 St. Thomas, VI 00801 Virgin Islands Waste Management Authority #1 La Grande Princesse, Suite BL1 Christiansted, VI 00820 University of the Virgin Islands Research and Technology Park Corporation RR1 Box 10000 Kingshill, St. Croix, VI 00850-9781 All financial statements of the discretely presented component units have a fiscal year-end of September 30, 2015, except for WAPA and VIHA that have a year-end of June 30, 2015 and December 31, 2014, respectively. Government of the United States Virgin Islands Notes to Basic Financial Statements     40 (c) Fiduciary Component Unit The following public benefit corporation is legally separate from the Government, meets the definition of a blended component unit, and is presented in the fund financial statements along with other fiduciary funds of the Government. Fiduciary funds are not reported in the government-wide financial statements. Employees’ Retirement System of the Government of the Virgin Islands (GERS) GERS was created as an independent and separate agency of the Government with the purpose of administering the Government’s, and component units, single-employer defined- benefit pension plan. GERS was established on October 1, 1959. The responsibility for the operation of GERS is vested in a board of trustees composed of seven members appointed by the Governor with the advice and consent of the Legislature. Employee and employer contributions to GERS are recognized as additions to net position held in trust for employees’ pension benefits in the period in which employee services are performed, except for contributions pursuant to the Early Retirement Act of 1994, which are recorded as the cash is received. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan, except for benefits pursuant to sections 8(a) and 8(b) of the Early Retirement Act of 1994, which are recorded when the subsidy provided by the Government is receivable and payable. Complete audited financial statements of this component unit can be obtained directly by contacting its administrative office: Employees’ Retirement System of the Government of the Virgin Islands 3438 Kronprindsens Gade St. Thomas, Virgin Islands 00802 Government-wide and Fund Financial Statements The government-wide financial statements (that is, the statement of net position and the statement of activities) report information on all of the non-fiduciary activities of the PG and its component units. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenue, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the PG is reported separately from certain legally separate component units for which the PG is financially accountable. The statement of net position presents the reporting entities’ non-fiduciary assets and liabilities, with the difference reported as net position. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenue. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include (i) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and (ii) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenue. Government of the United States Virgin Islands Notes to Basic Financial Statements     41 Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (a) Government-wide Financial Statements The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting in conformity with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board. Revenues are recorded when earned, and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows.   Property taxes are recognized as revenue in the year for which they are levied. Grants and similar items are recognized as revenue when eligibility requirements have been met. (b) Governmental Fund Financial Statements The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenue is recognized when it is both measurable and available. Revenues are considered to be available when they become susceptible to accrual and are collected within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the Government considers most revenue to be available if collected within 90 days of the end of the current fiscal year-end. Specifically, gross receipts taxes, property taxes, and income taxes are considered to be available if collected within 30, 60, and 90 days, respectively, after the end of the current fiscal year-end. Grant revenue is considered to be available if collected within the 12 months after the end of the current fiscal year-end. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service and pension expenditures are recorded only when payment is due. Income taxes, gross receipts taxes, real property taxes, and grant funding are all considered to be susceptible to accrual and so have been recognized as revenue of the current fiscal period to the extent they are considered available. All other revenue items are considered to be measurable and available only when cash is received by the Government. (c) Proprietary Funds, Fiduciary Funds, and Discretely Presented Component Units Financial Statements The financial statements of the proprietary funds, fiduciary funds, and discretely presented component units are reported using the economic resources measurement focus and the accrual basis of accounting, similar to the government-wide financial statements described above. Government of the United States Virgin Islands Notes to Basic Financial Statements     42 Proprietary funds distinguish operating revenue and expenses from non-operating items. Operating revenue and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. Fund Accounting The Government reports its financial position and results of operations in funds, which are considered separate accounting entities. The operations of each fund are accounted for within a set of self-balancing accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with legal, financial, and contractual provisions. GAAP, establishes criteria (percentage of the assets, liabilities, revenue, or expenditures/expenses of either fund category or the governmental and enterprise funds combined) for the determination of major funds. Indirect costs are automatically allocated and reported in the program expense for each fund. Non-major funds are combined in a single column in the fund financial statements. The Government reports the following major funds: (a) Governmental Funds The Government reports the following major governmental funds:  General Fund – The general fund is the Government’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund.  PFA Debt Service Fund – The PFA debt service fund accounts for the resources accumulated, and payments made, for principal and interest on long-term general obligation debt issued by PFA on behalf of the Government.  PFA Capital Projects Fund – The PFA capital projects fund accounts for bond proceeds of debt issued by the PFA on behalf of the Government. The bond proceeds have been designated for certain necessary public safety and capital development projects which are accounted for in this fund.  Federal Grants Fund - The federal grants fund accounts for proceeds and payments that are restricted to expenditures for specified purposes. (b) Proprietary Funds These funds account for those activities for which the intent of management is to recover, primarily through user charges, the cost of providing goods or services to the general public. The Government reports the following major proprietary funds:  West Indian Company – WICO, a blended component unit of PFA, accounts for the activities of a cruise ship pier and shopping mall complex on the island of St. Thomas. Government of the United States Virgin Islands Notes to Basic Financial Statements     43  Unemployment Insurance Fund – The unemployment insurance fund accounts for the collection of unemployment premiums from employers in the U.S. Virgin Islands, and the payment of unemployment benefits to eligible unemployed recipients.  Virgin Islands Next Generation Network (viNGN) Fund – The viNGN fund accounts for the management of a middle mile wholesale fiber optic network providing reliable high speed internet access to retail internet service providers and public infrastructure stewards.   (c) Fiduciary Funds Fiduciary funds are used to account for assets held by the Government in a trustee capacity, or as an agent for individuals, private organizations, and other governmental units. The following are the Government’s fiduciary funds:  Pension Trust Fund – The pension trust fund accounts for the activities of GERS, which accumulates resources for pension benefit payments to qualified employees.  Agency Fund – The agency fund is custodial in nature (assets equal liabilities) and does not involve measurement of the results of operations. Cash and Cash Equivalents The Government follows the practice of pooling cash. The balance in the pooled cash accounts is available to meet current operating requirements and any excess is invested in various interest-bearing accounts and time deposits with eligible depository institutions. Cash equivalents of the proprietary funds and discretely presented component units consist of demand accounts, money market accounts, certificates of deposit with maturities of not more than 90 days from the date of acquisition, short-term U.S. government and its agencies’ obligations, and repurchase agreements with a U.S. commercial bank maturing within three months and collateralized by U.S. government obligations. Cash and cash equivalents of the discretely presented component units are maintained in separate bank accounts from those of the PG, in their own names. By law, banks, or trust companies designated as depositories of public funds of the Government are to maintain corporate surety bonds or pledge collateral satisfactory to the Commissioner of Finance to secure all governmental funds deposited. Investments The PG and its component units follow the provisions of GAAP which establishes and modifies the following disclosure requirements related to investment risks: credit risk (including custodial credit risk and concentrations of credit risk), interest rate risk, and foreign currency risk. Government of the United States Virgin Islands Notes to Basic Financial Statements     44 Investment Policies Investment policies of the PG, its blended component units, major funds, and major component units are as follows:  Primary Government Investment Policies – Title 33, Chapter 117 of the Virgin Islands Code (V.I. Code) authorizes the Government to invest in U.S. Government and its agencies’ obligations, mortgage-backed securities, repurchase agreements, commercial paper, local government obligations, and corporate debt and equity obligations.  As of September 30, 2015, the General Fund, the Virgin Islands Lottery, a non-major governmental fund, and an agency fund had invested in certificates of deposit with two local banks. Investments are reported at fair value at September 30, 2015.  PFA Investment Policies – Investments of the PFA are reported at fair value. Various bond resolutions of the PFA restrict investments to direct obligations of the U.S. Government, Territories, possessions and states, specific bank obligations, investment agreements or similar funding agreements, shares or other interests in mutual funds, trusts or investment companies, corporate commercial paper, and money market portfolios consisting of any of the foregoing. The PFA has retained investment managers and investments are held in trust by a commercial bank on behalf of the PFA. The PFA handles investments for two major governmental funds of the Government: the PFA Debt Service Fund and the PFA Capital Projects Fund.  Tobacco Settlement Financing Corporation Investment Policies – Various bond resolutions of this blended component unit restrict investments to direct obligations of the U.S. Government, Territories, possessions and states, specific bank obligations, investment agreements or similar funding agreements, shares or other interests in mutual funds, trusts or investment companies, corporate commercial paper, and money market portfolios consisting of any of the foregoing. TSFC has retained investment managers and investments are held in trust by a commercial bank on behalf of the TSFC. Investments are reported at fair value in the non-major governmental fund of the Government.  West Indian Company Investment Policies – This blended business-type major fund of the Government maintains an investment policy that 1) limits investments in bonds to a maximum remaining maturity of 30 years (or estimated average life on mortgage-backed issues), 2) limits fixed income securities to a maximum of 40% and a minimum of 30% of the overall assets of the WICO portfolio, 3) limits corporate bond exposure to 45% of the fixed income portfolio, and 4) has no provision which limits or restricts investments in U.S. Government Treasury or Agency issues. WICO reports investments at fair value. Government of the United States Virgin Islands Notes to Basic Financial Statements     45  Pension Trust Fund Investment Policies – The board of trustees of GERS has enacted policies that limit investments in certain investment categories and provide requirements for the institutions with which investment transactions may be entered into. Under those policies, GERS may invest in U.S. Government and agencies obligations, bonds or notes of any state, territory or possession of the United States, municipal bonds and obligations, foreign bonds, bonds of domestic railroad corporations, public utility bonds, industrial corporate bonds or trust certificates, common and preferred shares of foreign and domestic corporations, mutual funds, mortgage or personal loans to  GERS members or retirees, and mortgage and asset- backed securities. Investments in bonds are subject to rating restrictions of BBB and may not exceed 2% of the portfolio. Investments in stock of a single corporation may not exceed 1% of the market value of the fund, or exceed 1% of the outstanding stock of the corporation. The aggregate amount of investments in stock may not exceed 60% of the market value of total investments of GERS. Investment in foreign stock should be limited to 10% of the market value of the total investments of GERS. Any investment of 20% or more of the aggregate value of the portfolio must be approved by two-thirds of the membership of the board of trustees. The investments are administered by several professional investment managers and are held in trust by a commercial bank on behalf of GERS. Investments in equity securities in the GERS pension trust fund are reported at quoted market values. Shares of mutual funds are reported at the net asset value of shares held by GERS at year-end. Purchases and sales are recorded on a trade-date basis. Realized gains and losses on securities are determined by the average cost method. GERS is authorized to invest in life settlement policy contract investments provided the investment is in a group of life insurance policies, with a minimum number of 100 measured lives; the face value of any single policy investment does not exceed $5.0 million or 2% of the aggregate face value of policy investments, and; the aggregate face value on any individual life does not exceed the greater of $10.0 million or 1% of the aggregate face value of policies purchased as investments by GERS. As of September 30, 2015, GERS had invested $50 million in the limited partnership Attilanus, a company that purchases senior life insurance policies for individuals age 65 and older with an average life expectancy of 5 to 7 years. The partnership agreement is effective through December 31, 2017, and may be extended for an additional two year period. Limited partners are not permitted to withdraw funds from the partnership. The value of the investment, net of returns of capital of $8.2 million, was $18.2 million at September 30, 2015. On July 18, 2012, GERS executed a loan agreement with Attilanus. Under the terms of the agreement, a credit facility of $10 million was made available to meet on-going premium costs and other expenses. The terms of the credit facility require interest payments at a rate of 15% per annum, and principal payments reduce the future amount available. The entire loan principal and accrued and unpaid interest is to be repaid at the termination of the credit facility on July 10, 2017. As of September 30, 2015, the outstanding balance of the credit facility was $13 million. Government of the United States Virgin Islands Notes to Basic Financial Statements     46 In December 4, 2009, GERS executed a loan agreement with Seaborne Virgin Islands, Inc., a seaplane service operating on the islands of St. Croix and St. Thomas. The agreement provided for a first lien term loan of $1.3 million at an initial interest rate of 8.25%, and a senior secured convertible loan of $2 million at an interest rate of 14.5%, secured by real and personal property of Seaborne Airlines, the unconditional guarantee of Coastal Airways, Inc., the parent company of Seaborne, and all of the issued and outstanding stock of Seaborne. On September 20, 2012, the parties agreed to an amendment/modification to the loan agreement and term note and provided for the modification of the convertible note. The original principal indebtedness of the term note was amended and restated to be $2.3 million with an interest rate of 6.25% per annum for the unpaid principal of the term note. The original principal indebtedness of the convertible note was amended and restated to be $1 million. The interest accrues at the rate of 8.25% per annum payable quarterly in arrears until the maturity date. The note may be prepaid in whole or in part with a prepayment penalty of $300 thousand. On December 8, 2009, GERS executed a loan agreement with Carambola Northwest, LLC (Carambola), a condominium, hotel and golf resort on the island of St. Croix. The five year term loan in the amount of $15 million is collateralized with all real property holdings of Carambola, with an interest rate of 10.5% per annum. Carambola subsequently went into default on the loan agreement. On May 11, 2013, GERS exercised its rights under the loan agreement and executed a preliminary Disposition Agreement with Carambola assuming management and ownership of the resort complex. As of September 30, 2015, the complex had an appraised value of $8 million. On September 24, 2013, GERS entered into a loan agreement with KAZI Foods of the Virgin Islands in the amount of $6 million at an interest rate of 6.25%, and a maturity date of October 23, 2023. At September 30, 2015, the outstanding principal balance on the loan is $6 million. GERS has also invested in Havensight Mall, a shopping and pier complex on the island of St. Thomas. The property is reported at the fair market value of $41 million. GERS owns administrative facilities on the islands of St. Thomas and St. Croix. Portions of the facilities are leased to government agencies and commercial tenants, and portions of the facilities are utilized for GERS operations. The investment is reported at historical cost, net of accumulated depreciation, in the amount of $23.9 million as of September 30, 2015.  WAPA and VIPA Investment Policies – These major component units are authorized under bond resolutions and the V.I. Code to invest in open accounts, time deposits, certificates of deposit, repurchase agreements, obligations of the U.S. government, and obligations of any state within the United States, mutual funds, and corporate commercial paper. Investments are reported at fair value. Government of the United States Virgin Islands Notes to Basic Financial Statements     47  University Investment Policies – The board of trustees of this major component unit is responsible for the management of the University’s investments which consist of U.S. Government securities and securities backed by the U.S. Government or its agencies and instrumentalities, common and preferred stocks, and mutual funds. The University is in the process of finalizing a formal investment policy for review and approval by the board of trustees. The University’s component unit, Foundation for the University of the Virgin Islands, issued an investment policy in February 2013. The members of the board of trustees of the Reichhold Center Foundation are responsible for their specific investment policy.  VIGHHFC Investment Policies – The board of trustees of this major component unit have not developed a formal investment policy. At September 30, 2015, investments consisted of a 40% interest in a U.S. Virgin Islands corporation that provides radiology services at Juan F. Luis Hospital and Medical Center. The investment in the U.S. Virgin Islands Corporation is accounted for under the equity method and was reported without value at September 30, 2015.  VIHA Investment Policies – This major component unit is required by the U.S. Department of Housing and Urban Development (HUD) to invest excess funds in obligations of the United States, certificates of deposit, or any other federally insured investment. HUD requires that deposits be fully collateralized at all times, and may be held by an unaffiliated bank or trust company for the account of the VIHA. Receivables Taxes receivable represent amounts owed by taxpayers for individual and corporate income taxes, gross receipts taxes, excise taxes, hotel occupancy taxes, and real property taxes. Federal government receivables represent amounts owed to the Government for reimbursement of expenditures incurred pursuant to federally funded programs. Accounts receivable are reported net of estimated allowances for uncollectible amounts, which are determined, based upon past collection experience and current economic conditions. Subject to the provisions of the V.I. Code, and subject to rules and regulations prescribed by the board of trustees of GERS, members of GERS previously had the right to obtain loans from GERS to finance a home, automobile, or other personal needs. The maximum mortgage loan that could be granted to members who have been contributing to GERS for at least five years is $250,000. The loan program was suspended indefinitely in August, 2015. Under the loan program previously offered by GERS, the interest rate on new first mortgages was 5% for loans payable in 1 to 15 years and 5.75% for loans payable over 15 years and on second mortgages, 6% for loans payable in 1 to 15 years and 6.75% for loans payable in over 15 years. Members were also allowed to borrow up to $50,000, at 5% interest rate to purchase land and members who had contributed to GERS for at least five years were able to borrow up to $18,000 for the purchase of an automobile. The interest rate previously offered on auto loans changed periodically, but was never below 8%, with a maximum term of five years. Government of the United States Virgin Islands Notes to Basic Financial Statements     48 The loan program previously offered by GERS also allowed active members to borrow up to 75% of their contributions paid into GERS to a maximum borrowing of $50,000 as a personal loan. The interest rate previously offered on personal loans was 8% for the year. Retired members could qualify for personal loans up to $50,000 at the same interest rate as active members; and, effective March 25, 2014 retirees were allowed to refinance their loans regardless of the outstanding balance. All loans previously offered had a mandatory credit life insurance. Member loans in GERS are valued at the outstanding loan principal balance less an allowance for estimated loan losses. The accounts receivable from non-governmental customers of the discretely presented component units are net of estimated uncollectible amounts. These receivables arise primarily from service charges to users. Accounts receivable from the PG and other component units that arise from service charges do not have significant allowances for uncollectible accounts. Interfund and Intra-entity Transactions The Government has the following types of transactions among funds:  Interfund Transfers – Legally required transfers are reported as interfund transfers in (out) when incurred. Transfers between the PG and its blended component units are reported as interfund transfers, except for transfers within the same fund type.  Intra-entity Transactions – These are transactions between the PG and its component units, and among the component units. Similarly, receivables and payables between the PG and its blended component units are reported as amounts due from (to) other funds. Transfers between the PG and discretely presented component units (and among those component units) are reported separately as revenue and expenses or expenditures. Amounts owed to and from discretely presented component units by the PG are reported separately from interfund payables and receivables as due from (to) component units, net of allowance for estimated uncollectible amounts. Restricted Assets Restricted assets in the PG and discretely presented component units are set aside primarily for the payment of bonds, notes, construction funds, unemployment benefits, and other specific purposes. Capital Assets Capital assets, which include land, land improvements, buildings, building improvements, machinery and equipment, construction in progress, intangibles and infrastructure assets are reported in the applicable governmental, business-type activities, and component unit columns in the government-wide financial statements as well as in the applicable proprietary funds reported in the fund financial statements. Government of the United States Virgin Islands Notes to Basic Financial Statements     49 The PG defines capital assets as assets that have an initial, individual cost and useful lives of: (i) $5,000 for personal property with a useful life of five years; (ii) $50,000 for buildings and building improvements with estimated useful lives of 40 and 20 years, respectively; (iii) $100,000 for land improvements with an estimated useful life of 20 years; (iv) $200,000 for intangibles with estimated useful lives between 2 and 15 years and (v) $200,000 for infrastructure with an estimated useful life of 30 years. The value of all land acquired is capitalized. Capital assets purchased or acquired are carried at historical cost or normal cost. The normal costing method to estimate cost based on replacement cost indexed by a reciprocal factor of the price increase from the appraisal date to the actual or estimated acquisition date was used to estimate the historical cost of certain land, buildings, and building improvements because invoices and similar documentation was no longer available in certain instances. Donated capital assets are recorded at fair value at the time of donation. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest costs are capitalized during the construction period only for business-type activities and proprietary component units. The costs of routine maintenance and repairs that do not add value to the assets or materially extend asset lives are expensed as incurred. Capital assets utilized in the governmental funds are recorded as expenditures in the governmental fund financial statements. Depreciation expense is recorded in the government-wide financial statements, as well as the proprietary funds and component units’ financial statements. Capital assets of the PG, excluding land and construction in progress, are depreciated on the straight-line method over the assets’ estimated useful lives. The estimated useful lives of capital assets reported by the component units are (i) 7 to 50 years for buildings and building improvements; (ii) 20 to 40 years for airports and marine terminals; and (iii) 3 to 20 years for vehicles and equipment. Deferred Outflows/Inflows of Resources In addition to assets, the statement of net position reports a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The Government has two items for financial reporting in this category, as follows:  Deferred charges on refunding reported in the government-wide statement of net position. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt.  Deferred amounts related to pension represent unrecognized items not yet charged to pension expense and contributions from the employer after the measurement date but before the end of the employer’s reporting period. Government of the United States Virgin Islands Notes to Basic Financial Statements     50 In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The Government has two items for financial reporting in this category, as follows:  Modified accrual basis of accounting - Unavailable revenues qualify for reporting in this category. The item, unavailable revenues, is reported only in the governmental funds’ balance sheet. The governmental funds report unavailable revenues from three sources: property taxes, gross receipts taxes and income taxes. These amounts are deferred and recognized as an inflows of resources in the period that the amounts become available.  Deferred amounts related to pension consist of the unamortized portion of the net difference between projected and actual earnings on pension plan investments, changes in assumptions and other differences between expected and actual experience. Tax Refunds Payable During the calendar year, the Government collects individual income taxes through withholdings and payments from taxpayers. As of September 30th, the Government estimates the amount owed to taxpayers for overpayments during the first nine months of the calendar year. These estimated amounts and the actual tax refunds claimed for prior years but not paid at year-end are recorded as tax refunds payable and as a reduction of tax revenue. Compensated Absences The vacation policy of the Government provides for the accumulation of four, six, or eight hours for each full biweekly pay period depending on the time of entry into government service. At the beginning of each calendar year, vacation leave is limited to 480 hours (60 days). However, the excess of 480 hours is considered by GERS for service credit towards the employees’ retirement. This vacation policy does not apply to professional educational personnel of the Virgin Islands Department of Education, who receive compensation during the school breaks. Upon retirement, an employee receives compensation for unused vacation leave at the employee’s base pay rate. Employees accumulate sick leave at a rate of four hours for each full biweekly pay period up to a maximum of 180 days. Separated employees do not receive payment for unused sick leave; therefore, a provision for accumulated sick leave is not required. Compensated absences accumulation policies for the blended component units and discretely presented component units vary from entity to entity, depending upon negotiated bargaining agreements and other factors agreed upon between the management of these entities and its employees. Government of the United States Virgin Islands Notes to Basic Financial Statements     51 Long-term Liabilities The liabilities reported in the government-wide financial statements include the Government’s bonds, long-term notes, pension liabilities and other long-term liabilities including: accrued compensated absences, retroactive union arbitration, litigation, landfill closure and post closure costs, postemployment benefit workers and compensation claims. Bond premiums, discounts, and amounts deferred on capital appreciation bonds are amortized over the life of the bonds using the straight line method. Bonds payable are reported net of the applicable bond premiums and discounts. Issuance costs are reported as expenses in the year incurred. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Net Position Net position is reported in three categories:  Net Investment in Capital Assets – This consists of capital assets, net of accumulated depreciation and amortization, and reduced by outstanding balances for bonds, notes, and other debt that are attributed to the acquisition, construction, or improvement of those assets. Debt pertaining to significant unspent debt proceeds are not included in the calculation of invested in capital assets, net of related debt. The unspent portion of the debt is presented, net of the related debt, as restricted for capital projects.  Restricted Net Position – These result when constraints placed on the use of assets are either externally imposed by creditors, grantors, contributors, and the like, or imposed by law through constitutional provisions or enabling legislation.  Unrestricted Net Position – These consist of assets (deficit) which do not meet the definition of the two preceding categories. Unrestricted assets often are designated to indicate that management does not consider them to be available for general operations. Unrestricted assets often have constraints on resources that are imposed by management, but can be removed or modified. When both restricted and unrestricted resources are available for use, generally it is the Government’s policy to use restricted resources first, then the unrestricted resources, as needed.         Government of the United States Virgin Islands Notes to Basic Financial Statements     52 Fund Balance  GAAP provides a hierarchy of classifications based primarily on the extent to which the Government is bound to honor constraints on the specific purposes for which amounts in funds may be spent. Following are the fund classifications:  Restricted Fund Balance – Fund balances constrained by externally imposed constraints such as constitutional provisions, laws and regulations, debt covenants and grantors. The Government’s policy is to consider restricted amounts to have been spent first when expenditures are incurred for which both restricted and unassigned fund balances are available.  Committed Fund Balance – Fund balances subject to constraints imposed by the Government’s highest level of decision making authority including legislation enacted by the Legislature of the Virgin Islands, and resolutions or ordinances enacted by Government elected regulatory boards and authorities. Committed fund balances may be modified or rescinded by enacted legislation, or amendment of resolutions or ordinances.  Assigned Fund Balance – Fund balances subject to budgetary constraints of the Legislature, the Office of Management and Budget, or authorizing boards of the Government, that are not restricted or committed. Budgetary authority of the Office of Management and Budget is provided by Title 2, Sections 22, 23, 26 and 27 VIC, and Executive Order No. 371-1997. The Government’s policy is to expend assigned or committed amounts, before unassigned amounts, when an expenditure is incurred.  Unassigned Fund Balance – Unassigned fund balance is the residual classification for the General Fund. This classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed or assigned to specific purposes within the General Fund. Residual deficit of the Federal Grants Fund is also reported as unassigned fund balance.  Nonspendable Fund Balance – The nonspendable fund balance classification includes amounts that cannot be spent because they are either (a) not in spendable form (such as inventories or prepaid amounts), or (b) legally or contractually required to be maintained intact (such as a permanent endowment fund). Government of the United States Virgin Islands Notes to Basic Financial Statements     53 Risk Management With some exceptions, the Government does not carry general casualty or liability insurance coverage on its properties or the acts of its employees, relying instead on self-insurance and/or statutory liability limitations. However, as a result of an agreement with the Federal Emergency Management Agency (FEMA), with respect to properties and structures damaged by Hurricane Hugo and repaired with federal disaster assistance funds, the Government has obtained insurance for certain hospitals, schools, and other insurable public buildings that were repaired with such federal assistance. The Government purchases commercial insurance covering physical losses or damages against its property. The limit of liability for all risks, excluding earthquake, windstorm, and flood, is $1 million for each and every occurrence except for windstorm and flood losses, which has a $45 million limit. For physical losses arising from earthquake, the insurance policy has a limit of $100 million for each and every occurrence and in the annual aggregate. Adoption of Accounting Pronouncements GASB has issued the following statements that the Government and its component units have adopted for the current year: GASB Statement Number Adoption Required in Fiscal Year 68 Accounting and Financial Reporting for Pensions 2015 69 Government Combinations and Disposals of Government Operations 2015 71 Pension Transition for Contributions Made Subsequent to the Measurement 2015 Date Government of the United States Virgin Islands Notes to Basic Financial Statements     54 GASB has issued the following statements that the Government or its component units have not yet adopted. The Government is currently evaluating the impact of these statements. GASB Statement Number Adoption Required in Fiscal Year 72 Fair Value Measurement and Application 2016 73 Accounting and Financial Reporting for Pension and Related Assets That are Not within the Scope of GASB 68, and Amendments to Certain Provisions of GASB Statements 67 and 68 2017 74 Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans 2017 77 Tax Abatement Disclosures 2017 78 Pensions Provided Through Certain Multiple-Employer Defined Benefit 2017 Pension Plans 79 Certain External Investment Pools and Pool Participants 2016 80 Blending Requirements for Certain Component Units—an Amendment of 2017 GASB Statement No.14 81 Irrevocable Split-Interest Agreements 2018 82 Pension-Issues—an Amendment of GASB Statements No. 67, No. 68 & No. 73 2018 Government of the United States Virgin Islands Notes to Basic Financial Statements     55 2. Component Units    The basic financial statements include the financial statements of the following discretely presented component units:  Virgin Islands Housing Authority  Virgin Islands Port Authority  Virgin Islands Water and Power Authority  Virgin Islands Government Hospital and Health Facilities Corporation  University of the Virgin Islands  Virgin Islands Economic Development Authority  Magens Bay Authority  Virgin Islands Housing Finance Authority  Virgin Islands Public Television System  Virgin Islands Waste Management Authority  University of the Virgin Islands Research and Technology Park Corporation Government of the United States Virgin Islands Notes to Basic Financial Statements     56 Condensed financial information as of September 30, 2015, of all discretely presented component units follows (expressed in thousands): Virgin Islands Water and Power Authority Hospital and Health Facilities Corporation Virgin Islands Housing Authority Virgin Islands Port Authority Electric System Water System Roy L. Schneider Hospital Juan F. Luis Hospital University of the Virgin Islands (Unaudited) Other Component Units Total Component Units Assets and deferred outflows Current assets $ 26,896 $ 22,734 $ 66,343 $ 8,391 $ 12,532 $ 17,486 $ 10,719 $ 21,914 $ 187,015 Due from primary government - - 45,573 7,177 - - 542 5,451 58,743 Due from federal government 1,237 3,183 - – 390 - 3,041 701 8,552 Restricted assets 468 36,272 58,635 9,596 436 211 60,027 48,861 214,506 Capital assets, net 66,724 240,108 330,358 64,935 49,834 37,332 71,552 167,656 1,028,499 Other noncurrent assets 6,598 600 11,837 - 123 - 10,793 40,191 70,142 Deferred outflows of resources - 10,327 26,127 5,420 11,518 8,063 11,841 8,532 81,828 Total assets and deferred outflows of resources 101,923 313,224 538,873 95,519 74,833 63,092 168,515 293,306 1,649,285 Liabilities and deferred inflows Current liabilities 4,486 16,685 188,491 10,301 35,786 67,418 7,458 21,324 351,949 Due to primary government - - - – 4,616 - – – 4,616 Due to federal government - - 4,142 – - 1,118 – – 5,260 Bonds payable - 49,076 230,492 7,096 – - – – 286,664 Notes payable 870 - 502 – – - 76,815 4,896 83,083 Line of credit payable - - 2,253 - - - – – 2,253 Other noncurrent liabilities 12,104 - 43,179 18,342 – 551 3,403 10,221 87,800 Unearned income 1,075 - - – – – 4,261 10,980 16,316 Pension liabilities - 93,299 216,473 45,027 112,421 78,255 63,175 74,206 682,856 Deferred inflows of resources - 513 - – 10,601 11,403 365 75 22,957 Total liabilities and deferred inflows of resources 18,535 159,573 685,532 80,766 163,424 158,745 155,477 121,702 1,543,754 Net position (deficit): Net investment in capital assets 63,002 211,367 195,826 56,170 49,834 35,907 (7,292) 152,477 757,291 Restricted 6,970 36,873 49,238 8,819 436 211 74,578 61,115 238,240 Unrestricted (deficit) 13,416 (94,589) (391,723) (50,236) (138,861) (131,771) (54,248) (41,988) (890,000) Total net position (deficit) $ 83,388 $ 153,651 $ (146,659) $ 14,753 $ (88,591) $ (95,653) $ 13,038 $ 171,604 $ 105,531 Government of the United States Virgin Islands Notes to Basic Financial Statements     57 Program revenue Operating Capital Total Charges for Grants and Grants and Component Information on Statements of Activities Expenses Services Contributions Contributions Units Virgin Islands Housing Authority $ 48,003 $ 6,168 $ 39,222 $ 3,985 $ 1,372 Virgin Islands Port Authority 63,475 53,086 – 6,554 (3,835) Virgin Islands Water and Power Authority: Electric System 306,152 270,310 – 7,306 (28,536) Water System 37,186 33,103 – 29 (4,054) Virgin Islands Government Hospital and Health Facilities Corporation: Roy L. Schneider Hospital 96,675 49,362 26,525 2,480 (18,308) Juan F. Luis Hospital 85,978 49,460 31,440 - (5,078) University of the Virgin Islands (Unaudited) 87,486 49,911 20,367 4,692 (12,516) Other component units 74,637 12,192 47,201 3,499 (11,745) Total activities $ 799,592 $ 523,592 $ 164,755 $ 28,545 (82,700) General revenue: Interest and other 19,690 Changes in net position (63,010) Net position, beginning of year (as restated) 168,541 Net position, end of year $ 105,531 The due to component units of $36.5 million and due from component units of $4.6 million differ due to the difference in fiscal year ends for WAPA (June 30) and VIHA (December 31). 3. Cash and Cash Equivalents Primary Government At September 30, 2015, the PG reported $167.1 million in unrestricted cash and cash equivalents, and $6.3 million in restricted cash and cash equivalents. All of the PG’s bank balances were fully collateralized. Pension Trust Fund GERS considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. At September 30, 2015, GERS held $72 million in cash and cash equivalents consisting of: $27 million in money market accounts, $30.2 million in operational accounts and $14.8 million in certificates of deposits with maturity time less than 90 days. Component Units At September 30, 2015, discretely presented component units held $84.4 million in unrestricted cash and cash equivalents and $80.8 million in restricted cash and cash equivalents, of which $3 million was not insured, bonded or collateralized as required for public funds of the Government. Government of the United States Virgin Islands Notes to Basic Financial Statements     58 4. Investments Primary Government Following is a summary of the investments of the PG, categorized by investment type and maturity as of September 30, 2015 (expressed in thousands): Maturity (in years) Fair Value Less Than 1 Year 1 to 5 Years Over 5 Years Investments with contractual maturities Certificates of deposit $ 1,653 $ 1,653 $ - $ - Portfolio investments Commercial paper 39,423 39,149 274 - U.S. Government agencies & notes 3,052 3,052 - - Total investments with contractual maturities 44,128 $ 43,854 $ 274 $ - Investments without contractual maturities Money market & mutual funds 465,978 Total primary government investments $ 510,106 Interest Rate Risk – Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The PG does not have a formal investment policy that limits investment maturities as a means of managing such exposure. As a means of keeping the interest rate risk low, virtually all investments held by the PG are short-term in nature. Credit Risk – The authorizing legislation of the PG does not limit investments by credit rating categories. Authorizing legislation does limit the investment choices of the PG to direct obligations or obligations guaranteed by the United States, obligations of states, territories, possessions and commonwealths of the United States, obligations of international banking institutions, repurchase agreements, investment contracts, certificates of deposit, guaranteed investment contracts, shares in mutual funds, investment companies, corporate commercial paper, money market portfolio investments, and investment pools. At September 30, 2015, the PG’s investments in money market funds were rated AAAm by Standard & Poor’s, and Aaa-mf by Moody’s Investor Service. The PG’s investments in commercial securities were rated A-1+ by Standard & Poor’s, and P-1 by Moody’s Investor Services. The PG’s investments in U.S. government agencies were rated A-1 by Standard & Poor’s and P-1 by Moody’s Investor Services. Concentration of Credit Risk – The PG places no limit on the amount that may be invested in one issuer. At September 30, 2015, more than 5% of the PG’s investments were invested in: Goldman Financial Square Money Market #524 (56.99%), Federated Government Obligation #5 (19.83%), and Invesco Treasury #1930 (10.15%). Government of the United States Virgin Islands Notes to Basic Financial Statements     59 Custodial Credit Risk – The PG does not have a custodial risk policy. The custodial credit risk for investments is the risk that, in the event of the failure of a depository financial institution or other counterparty, the PG will not be able to recover the value of an investment or collateral securities that are in the possession of an outside party. At September 30, 2015, $448.5 million of investments were held in the name of The Bank of New York Trust Company, N.A, as trustee for the Government. Pension Trust Fund Following is a summary of the investments of the pension trust fund, categorized by investment type and maturity, as of September 30, 2015 (expressed in thousands): Maturity (in years) Fair Value Less Than 1 Year 1 to 5 Years 6 to 10 Years More than 10 Years No Stated Maturity Investments with contractual maturities U.S. government and agency obligations $ 595 $ – $ 595 $ – $ – $ – U.S. Treasury notes 11,386 307 6,683 4,396 – – U.S. Treasury bonds 5,430 – 2,477 – 2,953 – Municipals 2,332 – 218 339 1,775 – Mutual funds 377,954 – – – – 377,954 Corporate obligations 18,246 328 5,923 5,438 6,557 – Mortgage and asset backed securities 29,315 – 3,553 1,689 24,073 – Investment loan 26,613 – 15,816 10,797 – – Total investments with contractual maturities 471,871 $ 635 $ 35,265 $ 22,659 $ 35,358 $ 377,954 Investments without contractual maturities Equity Securities Common stocks - U.S. 169,925 Real Estate Investments Real estate investment trusts 2,058 Havensight Mall - U.S. Virgin Islands 41,000 Renaissance Carambola Beach Resort 8,000 GERS Complex - U.S. Virgin Islands 23,886 Limited partnerships 46,640 Securities lending short-term collateral investment pool 65,199 Total pension trust fund investments $ 828,579 Interest Rate Risk – Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. GERS does not have a specific policy to manage interest rate risk, but requires investment managers to diversify by issue, maturity, sector, coupon, and geography. Investment managers retained by GERS follow specific investment guidelines and are evaluated against specific market benchmarks that represent their investment style. Any exemption from general guidelines requires approval from GERS’ board of trustees. Government of the United States Virgin Islands Notes to Basic Financial Statements     60 Credit Risk – GERS investment policy is designed to minimize credit risk by restricting authorized investments to only those investments permitted by statute, subject to certain additional limitations. These additional limitations consist of prohibitions against investments in derivative securities, options, futures or short positions. GERS investment policy allows investments in mortgage pass- through securities. The credit ratings of GERS debt and equity securities at September 30, 2015 (expressed in thousands) include: Amount Rating U.S. government and agency obligations $ 595 Not Available U.S. Treasury bonds 4,519 Not Available U.S. Treasury bonds 911 Not Available U.S. Treasury notes 6,453 Not Available U.S. Treasury notes 4,933 Not Available Corporate obligations 323 AAA Corporate obligations 596 AA+ Corporate obligations 721 AA Corporate obligations 316 AA- Corporate obligations 629 A+ Corporate obligations 1,587 A Corporate obligations 4,407 A- Corporate obligations 6,437 BBB+ Corporate obligations 2,873 BBB Corporate obligations 285 BBB- Corporate obligations 72 Not Available Municipals 840 AAA Municipals 339 AA+ Municipals 561 AA Municipals 592 A Mortgage and asset backed securities 5,036 AAA Mortgage and asset backed securities 271 AA+ Mortgage and asset backed securities 772 AA Mortgage and asset backed securities 580 AA- Mortgage and asset backed securities 339 A+ Mortgage and asset backed securities 544 A- Mortgage and asset backed securities 21,773 Not Available Common stocks - U.S. 169,925 Not Rated Real estate investment trust 2,058 Not Rated Real estate holdings – U.S. Virgin Islands 72,886 Not Rated Investment loans 26,613 Not Rated Limited partnership 46,640 Not Rated Securities lending short-term collateral investment pool 65,198 Not Rated Mutual funds 377,955 Not Rated Total investments $ 828,579 Government of the United States Virgin Islands Notes to Basic Financial Statements     61 Concentration of Credit Risk – Concentration of credit risk is the risk of loss attributed to the magnitude of GERS’ investments in a single issuer of securities. GERS’ investment policy establishes limitations on portfolio composition by investment type to limit its exposure to concentration of credit risk. There are no investments in any one issuer that represent 5% or more of total investments. Custodial Credit Risk – The custodial credit risk for investments is the risk that, in the event of the failure of a depository financial institution or other counterparty, GERS will not be able to recover the value of an investment or collateral securities that are in the possession of an outside party. The entire investment portfolio of GERS was held with a single third-party custodian as of September 30, 2015. Cash collateral held for securities lending transactions is invested in a collective investment pool maintained by the securities lending agent. Foreign Currency Risk – Foreign currency risk is the risk of holding investments in foreign currencies and the risk that those foreign currencies may devalue. GERS has no general investment policy with respect to foreign currency risk. As of September 30, 2015, all foreign investments were repatriated to other funds. Risks associated with foreign exchange contracts include the movement in the value of foreign currency relative to the U.S. dollar and the ability of the counterparty to perform in accordance with the terms of the contract. Changes in the market value of open and closed forward contracts are recorded with interest, dividends, and other income or losses reported at fair value. During the fiscal year ended September 30, 2015, GERS did not engage in any forward currency exchange contracts gain. Securities Lending Transactions – The Government’s statutes permit GERS to participate in securities lending transactions, and GERS has, via a securities lending authorization agreement (the Agreement), authorized State Street Bank and Trust Company (the Custodian) to lend its securities to broker-dealers and banks pursuant to a form of loan agreement. Lent securities are collateralized with cash, securities issued or guaranteed by the U.S. government, or irrevocable bank letters of credit. GERS does not have the ability to pledge or sell collateral securities delivered absent a borrower default. No restrictions were imposed during 2015 as to the amount of loans the Custodian can make on behalf of GERS. Under the terms of the Agreement the Custodian must indemnify the Government for losses attributable to violations by the Custodian under the “standard of care” clause described in the Agreement. There were no such violations during fiscal year 2015, or losses resulting from the default of the borrowers or the Custodian. Loans are generally terminable on demand. The collateral received shall, (i) in the case of loaned securities denominated in U.S. dollars or whose primary trading market is located in the U.S. or sovereign debt issued by foreign governments, have a market value of 102% of the market value of the loaned securities, (ii) in the case of loaned securities which are not denominated in U.S. dollars or whose primary trading market is not located in the United States, have a market value of 105% of the market value of the loaned securities, or (iii) have a higher value as may be applicable in the jurisdiction in which the loaned securities are customarily traded. Such collateral should be kept, at a minimum, at 100% of the market value of the security for all borrowers throughout the outstanding period of the loans. Government of the United States Virgin Islands Notes to Basic Financial Statements     62 At September 30, 2015, approximately $78 million of U.S. government and agency securities, fixed income, and equity corporate securities were on loan. The cash collateral received with a corresponding liability of an equal amount is recorded in the statement of fiduciary net position. The cash collateral received on each loan was invested, together with the cash collateral of other lenders, in a collective investment pool. As of September 30, 2015, such investment pool had a weighted average maturity of 31 days and an average expected maturity of 100 days. Because the loans were terminable on demand, their duration did not generally match the duration of the investments made with cash collateral. Component Unit Investments  Following is a summary of the investments of the component units, categorized by investment type and maturity as of September 30, 2015 (expressed in thousands): Maturity (in years) Fair Value Less Than 1 Year 1 to 5 Years 6 to 10 Years More than 10 Years Investments with contractual maturities Certificates of deposit $ 7,591 $ 6,805 $ 186 $ – $ 600 Corporate bonds 60 20 40 – - U.S. Government agencies and notes 44,279 44,279 - – – Total investments with contractual maturities 51,930 $ 51,104 $ 226 $ – $ 600 Investments without contractual maturities Common stock 9,279 Mutual funds 787 Corporate bonds 3,626 Other investments 52,158 Total component unit investments $ 117,780 Interest Rate Risk – Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The component units of the Government have not established formal policies which limit investment maturities as a means of managing such exposure and have some exposure to interest rate risk. Credit Risk and Concentration of Credit Risk – The authorizing legislation of the component units does not limit investments by credit rating categories. Authorizing legislation limits the investment choices of the component units, as described in Note 1. Custodial Credit Risk – The component units of the Government do not have custodial credit risk policies. The custodial credit risk for investments is the risk that, in the event of the failure of a depository financial institution or other counterparty, the component units will not be able to recover the value of an investment or collateral securities that are in the possession of an outside party.   Government of the United States Virgin Islands Notes to Basic Financial Statements     63 5. Receivables Primary Government Receivables for governmental funds at September 30, 2015, consist of the following (expressed in thousands): General PFA Debt Service Other Governmental Total Income taxes $ 203,915 $ – $ – $ 203,915 Real property taxes 143,816 – – 143,816 Hotel occupancy taxes 3,478 – – 3,478 Excise taxes 34,783 - – 34,783 Gross receipts taxes – 161,282 - 161,282 Gross receivables 385,992 161,282 - 547,274 Less allowance for doubtful accounts (222,249) (118,852) - (341,101) Taxes receivables, net 163,743 42,430 - 206,173 Other 9 – 120 129 Tobacco settlement rights and other (unaudited) 1,560 Total $ 207,862 Tax Receivables The Naval Appropriations Act created a separate tax structure for the U.S. Virgin Islands that mirrors the Internal Revenue Code of 1986, as amended. Income taxes are due from every corporation, partnership, individual, association, estate, or trust that meets the filing requirements of the U.S. Internal Revenue Code. A U.S. taxpayer who is a permanent resident of the U.S. Virgin Islands satisfies his Virgin Islands income tax obligations by filing his return with and paying income taxes to the Government. Bona fide residents of the Virgin Islands are taxed by the Virgin Islands on their world-wide income. A nonresident of the U.S. Virgin Islands pays income taxes on his U.S. Virgin Islands source income to the Government. The revenue is recognized in the general fund in the fiscal period for which the income tax return was filed. The revenue from income tax withholding and estimated payments are recognized in the general fund as collected, net of estimated tax refunds. Corporate income taxes are due by the 15th day of the third month following the close of the fiscal year and become delinquent if not paid on or before the due date. Partnership and trust income taxes are due by April 15 of the following year for which the income tax was levied. Trust income taxes must be paid by the tax filing date. Property taxes are assessed each calendar year on all taxable real property located in the U.S. Virgin Islands. The receivable is recognized, net of estimated uncollectable amounts, in the general fund in the fiscal period for which the tax was assessed. Government of the United States Virgin Islands Notes to Basic Financial Statements     64 The revenue is recognized in the general fund in the fiscal period for which the property tax is levied, provided the tax is collected within 60 days subsequent to fiscal year-end, unless the facts justify a period greater than 60 days. Receivables collected after that period, are recorded as unavailable property tax revenue. The Office of the Tax Assessor is responsible for the assessment of all taxable real property. Noncommercial real property subject to taxation is reassessed once every five years and commercial real property subject to taxation is reassessed biannually. The Tax Assessor prepares an annual assessment roll and schedule of collections for each parcel of real property that is used by The Office of the Tax Collector, as the basis for issuing tax bills to all taxpayers in the U.S. Virgin Islands. Property taxes are to be levied by May 15 of each year in the name of the record owner on January 15 of the same year. The taxes are due on June 30 and become delinquent if not paid by August 31. For businesses with gross receipts of $225,000 per annum or less, gross receipts taxes are levied on an annual basis based on the amount of gross receipts in excess of $9,000 per month. Businesses with annual gross receipts of more than $225,000 are levied on a monthly basis, based on all gross receipts, with no $9,000 per month exemption. The current gross receipts tax rate is 5.0%. Monthly gross receipts tax filings are due within 30 calendar days following the last day of the calendar month collected. Annual gross receipts tax filings are due within 30 calendar days following the last day of the calendar year. Other Receivables In addition to tax receivables, the PG receives tobacco settlement right payments in connection with a Master Settlement Agreement entered into with certain participating cigarette manufacturers. Under the terms of the agreement, the U.S. Virgin Islands receives .0173593% of annual payments made under the agreement. As of September 30, 2015, the PG reported a receivable of $1.6 million for tobacco settlement right payments. On November 14, 2011, the PG entered into a loan agreement on behalf of GERS in the amount of $13 million, at an interest rate of 4.91% and a maturity date of December 15, 2016. The security for the loan was pledged property tax receipts for tax years prior to, and including, 2005. At September 30, 2015, the outstanding balance of the loan was $5.8 million, and pledged property tax receipts were sufficient to meet debt service payments. Government of the United States Virgin Islands Notes to Basic Financial Statements     65 Component Unit and Pension Trust Fund Component unit receivables at September 30, 2015, consist of the following (expressed in thousands): Utility service charges $ 19,081 Port fees 3,101 Students 2,079 Patients 19,109 Other 6,720 Total $ 50,090 6. Unavailable Revenues The components of unavailable revenues of the general fund and PFA debt service fund as of September 30, 2015, consist of the following (expressed in thousands): General Fund PFA Debt Service Property tax $ 31,281 $ - Income tax 72,057 - Gross receipts tax - 33,571 Total $ 103,338 $ 33,571 7. Interfund Transfers Interfund transfers for the year ended September 30, 2015, consist of the following (expressed in thousands): Transfers to General PFA Debt Service PFA Capital Projects Federal Grants Other Governmental Total General $ – $ 92,261 $ 1,100 $ 19,941 $ – $ 113,302 PFA Debt Service 148 – 2,954 - - 3,102 PFA Capital Projects - - - - 1,100 1,100 Other governmental 3,295 3,453 - - - 6,748 Other business-type 1,000 – - - - 1,000 Total $ 4,443 $ 95,714 $ 4,054 $ 19,941 $ 1,100 $ 125,252 Government of the United States Virgin Islands Notes to Basic Financial Statements     66 Interfund transfers constitute the transfer of resources from the fund that receives the resources to the fund that utilizes them. The most significant transfers to the general fund from other governmental funds included a $92.2 million transfer from the PFA Debt Service Fund (a major governmental fund) representing gross receipt tax revenue in excess of bond debt service requirements, a $1.1 million transfer from the PFA Capital Projects Fund, representing reprogrammed investment income, and a $19.9 million transfer from the Federal Grants Fund (a major governmental fund) representing reimbursement from Medicaid and. Significant transfers made from the General Fund include a transfer of $1 million to the Bureau of Motor Vehicles Fund (a non-major business-type fund), $2 million to the St. Croix Capital Improvement Fund (a non-major governmental fund) and a transfer of $1 million to the Crisis Intervention Fund (a non-major governmental fund). Significant transfers from the PFA Debt Service Fund included a transfer of $3.4 million to the PFA Operating Fund (a non-major governmental fund), representing interest earned from unexpended bond proceeds. Due From/To Other Funds Due from/to other funds General PFA Capital Projects Other Governmental Other Business Type Total General $ – $ – $ 20,534 $ 300 $ 20,834 Other governmental 17,500 – – – 17,500 Total Governmental Funds 17,500 – 20,534 300 38,334 West Indian Company 5,950 – - - 5,950 viNGN 34,222 34,222 Other enterprise 200 324 2,190 – 2,714 Total Enterprise Funds 6,150 34,546 2,190 - 42,886 Total $ 23,650 $ 34,546 $ 22,724 $ 300 $ 81,220 The due from (to) other funds includes the following amounts due from the general fund: $4.9 million due to the emergency molasses fund (a non-major governmental fund) for unpaid appropriations, $3.5 million due to the PFA special revenue fund for unpaid matching funds, and $1.3 million due to the elected governor retirement fund. The due to the General Fund is mainly composed of $14.3 million due from the District Street Lighting Fund (a non-major governmental fund) and $2.7 million owed from the bond proceeds fund (a non-major governmental fund) to the general fund. The due to other governmental funds includes $10 million due to the St. Croix Capital Improvement Fund from the General Fund for capital improvement projects, $893 thousand due from the Virgin Islands Lottery to the Pharmaceutical Assistance to the Aged Fund and $977 thousand due from the Virgin Islands Lottery to the Virgin Islands Educational Initiative Fund consisting primarily of 15% of revenue derived from lottery games under contract between the Virgin Islands Lottery and private contractors be transferred to these funds. Government of the United States Virgin Islands Notes to Basic Financial Statements     67 Contributions from the Virgin Islands Lottery (a non-major enterprise fund) amounted to $1.8 million, which represented contributions to the Virgin Islands Educational Initiative Fund (a non- major governmental fund) of $977 thousand, and a contribution to the Pharmaceutical Assistance to the Aged Fund (a non-major governmental fund) of 893 thousand. The due to PFA Capital Projects funds includes $34.2 million due from the Virgin Islands Next Generation Network (viNGN), a major business-type fund in connection with start-up costs in connection with the broadband project. 8. Restricted Assets    Primary Government Restricted assets of proprietary funds and business-type activities as of September 30, 2015, include cash and cash equivalents as follows (expressed in thousands): Unemployment insurance funds $ 3,826 WICO debt service funds 2,467 Total $ 6,293 Component Units Restricted assets of component units as of September 30, 2015, include cash and cash equivalents, investments, and receivables as follows (expressed in thousands): Cash and cash equivalents: Debt service and sinking fund requirements $ 27,312 Endowment funds 122 HUD project funds 468 Revolving loan funds 21,153 Construction funds 26,587 Renewal and replacement funds 1,263 Other 3,904 Total 80,809 Investments: Debt service and sinking fund requirements 27,640 Construction funds 1,675 Endowment funds 55,113 Renewal and replacement funds 14,444 Revolving loan funds 7,067 Other 520 Total 106,459 Other: Pledged funds 27,238 Total $ 214,506 Government of the United States Virgin Islands Notes to Basic Financial Statements     68 9. Capital Assets Primary Government Capital assets activity for governmental activities for the year ended September 30, 2015, is summarized as follows (expressed in thousands): Beginning Balance, as restated Additions Transfers/ Adjustment Disposals Ending Balance Capital assets not being depreciated: Land $ 195,323 $ 175 $ (252) $ - $ 195,246 Construction in progress 159,410 25,403 (114,534) - 70,279 Total capital assets not being depreciated 354,733 25,578 (114,786) - 265,525 Capital assets being depreciated: Land improvements 7,235 - (195) - 7,040 Infrastructure 252,744 - 60,728 - 313,472 Buildings and improvements 463,451 814 36,499 - 500,764 Machinery and equipment 175,066 4,933 11,611 - 191,610 Total capital assets being depreciated 898,496 5,747 108,643 - 1,012,886 Less accumulated depreciation for: Land improvements (4,107) (266) - - (4,373) Infrastructure (84,345) (10,457) - - (94,802) Buildings and improvements (213,064) (14,902) - - (227,966) Machinery and equipment (141,366) (11,327) - - (152,693) Total accumulated depreciation (442,882) (36,952) - - (479,834) Total capital assets being depreciated, net 455,614 (31,205) 108,643 - 533,052 Governmental activities capital assets, net $ 810,347 $ (5,627) $ (6,143) $ - $ 798,577 Government of the United States Virgin Islands Notes to Basic Financial Statements     69 Capital assets activity for business-type activities for the year ended September 30, 2015, is summarized as follows (expressed in thousands): Beginning Balance Additions Transfers Disposals Ending Balance Capital assets not being depreciated: Land $ 5,178 $ - $ - $ – $ 5,178 Construction in progress 21,218 4,977 (21,082) - 5,113 Total capital assets not being depreciated 26,396 4,977 (21,082) - 10,291 Capital assets being depreciated: Land improvements 348 – – – 348 Buildings and improvements 77,109 274 2,031 – 79,414 Machinery and equipment 57,060 355 18,733 (18) 76,130 Intangibles 20,929 - 45 – 20,974 Total capital assets being depreciated 155,446 629 20,809 (18) 176,866 Less accumulated amortization and depreciation for: Land improvements (342) - - – (342) Buildings and improvements (33,886) (1,416) (53) – (35,355) Machinery and equipment (7,914) (6,561) (1,527) 18 (15,984) Intangibles (4,429) (742) 1,580 – (3,591) Total accumulated amortization and depreciation (46,571) (8,719) - 18 (55,272) Total capital assets being amortized and depreciated, net 108,875 (8,090) 20,809 - 121,594 Business-type activities capital assets, net $ 135,271 $ (3,113) $ (273) $ - $ 131,885 Depreciation and amortization expense is charged to functions of the PG for the year ended September 30, 2015, as follows (expressed in thousands): Governmental activities: General government $ 15,068 Public safety 1,935 Health 1,054 Education 5,470 Public housing and welfare 512 Culture and recreation 594 Transportation and communication 12,319 Total $ 36,952 Business-type activities: WICO – depreciation $ 2,822 viNGN - depreciation 3,915 Other enterprise funds 1,982 Total $ 8,719 Government of the United States Virgin Islands Notes to Basic Financial Statements     70 Component Units Capital assets activity for discretely presented component units for the year ended September 30, 2015, is summarized as follows (expressed in thousands): Beginning Balance (as restated) Additions Transfers Disposals Ending Balance Capital assets not being depreciated: Land $ 101,997 $ 193 $ 2,878 $ (719) $ 104,349 Construction in progress 89,735 51,881 (37,722) (294) 103,600 Total capital assets not being depreciated 191,732 52,074 (34,844) (1,013) 207,949 Capital assets being depreciated: Buildings and improvements 1,814,674 11,042 28,864 (3,735) 1,850,845 Airport and marine terminal facilities 150,369 - 4,771 - 155,140 Personal property and equipment 142,362 12,066 1,095 (2,843) 152,680 Intangible assets 2,919 - - - 2,919 Total capital assets being depreciated 2,110,324 23,108 34,730 (6,578) 2,161,584 Less accumulated depreciation for: Buildings and improvements (1,066,644) (44,128) - 187 (1,110,585) Airport and marine terminal facilities (121,039) (5,026) - - (126,065) Personal property and equipment (98,512) (7,593) - 3,548 (102,557) Intangible assets (1,632) (195) - - (1,827) Total accumulated depreciation (1,287,827) (56,942) - 3,735 (1,341,034) Total capital assets being depreciated, net 822,497 (33,834) 34,730 (2,843) 820,550 Component unit capital assets, net $ 1,014,229 $ 18,240 $ (114) $ (3,856) $ 1,028,499 Depreciation expense charged by each component unit for the year ended September 30, 2015, is as follows (expressed in thousands): Virgin Islands Housing Authority $ 7,059 Virgin Islands Port Authority 17,179 Virgin Islands Water and Power Authority: Electric System 10,771 Water System 3,597 Virgin Islands Government Hospital and Health Facilities Corporation: Roy L. Schneider Hospital 3,519 Juan F. Luis Hospital 3,931 University of the Virgin Islands (unaudited) 3,022 Other component units 7,864 Total $ 56,942 Government of the United States Virgin Islands Notes to Basic Financial Statements     71 10. Long-Term Liabilities The change in long-term bonds and loans for governmental activities is as follows for the year ended September 30, 2015 (expressed in thousands): Beginning Balance, as restated Additions Reductions Ending Balance Due Within One Year Due Thereafter Bond Payable Matching (Excise Tax) Bonds 2013 Series B Revenue and Refunding Bonds $ 51,365 $ - $ - $ 51,365 $ 5,070 $ 46,295 2013 Series A Revenue and Refunding Bonds 36,000 - - 36,000 2,210 33,790 2012 Series A Revenue Bonds 142,640 - (800) 141,840 825 141,015 2010 Series A & B Revenue Bonds 394,995 - (2,155) 392,840 2,270 390,570 2009 Series A Revenue Bonds (Cruzan) 36,885 - (640) 36,245 670 35,575 2009 Series A1, A2, B & C Revenue and Refunding Bonds 371,230 - (26,460) 344,770 27,955 316,815 2009 Series A Revenue Bonds (Diageo) 245,960 - (4,290) 241,670 4,575 237,095 2004 Series A Revenue Bonds 4,405 - (4,405) - - – Total 1,283,480 - (38,750) 1,244,730 43,575 1,201,155 Gross Receipts Tax Bonds 2014 Series D Revenue Bonds - 5,765 - 5,765 165 5,600 2014 Series C Revenue Bonds - 247,050 - 247,050 4,555 242,495 2014 Series A Revenue Bonds 49,640 - - 49,640 1,480 48,160 2012 Series A & B Revenue and Refunding 218,345 - (11,445) 206,900 12,400 194,500 2012 Series C Revenue Bonds 35,115 - (1,670) 33,445 1,720 31,725 2006 Series A Revenue Bonds 205,970 - (3,015) 202,955 3,125 199,830 2003 Series A Revenue Bonds 237,500 - (237,500) - - - Total 746,570 252,815 (253,630) 745,755 23,445 722,310 Tobacco Settlement Bonds (Unaudited) 2006 Series A, B, C & D Tobacco Turbo and Capital Appreciation Bonds 7,290 - - 7,290 - 7,290 2001 Series A Tobacco Bonds 11,020 - (1,500) 9,520 80 9,440 Total 18,310 - (1,500) 16,810 80 16,730 Total bonds payable 2,048,360 252,815 (293,880) 2,007,295 67,100 1,940,195 Plus (less): Bonds premium 45,148 13,991 (6,736) 52,403 5,312 47,091 Bonds discount (3,137) - 224 (2,913) (221) (2,692) Bonds accretion 5,206 947 - 6,153 6,153 – Total bonds payable, net 2,095,577 267,753 (300,392) 2,062,938 78,344 1,984,594     Government of the United States Virgin Islands Notes to Basic Financial Statements     72 Beginning Balance, as restated Additions Reductions Ending Balance Due Within One Year Due Thereafter Loans Payable Series 2015A Note – 40,000 – 40,000 19,130 20,870 Series 2014E Note – 40,000 – 40,000 40,000 - Series 2014B Note 14,000 - (2,000) 12,000 2,000 10,000 Series 2013A Note 4,248 - (1,733) 2,515 1,515 1,000 Series 2012A Note 13,280 - (261) 13,019 275 12,744 Series 2011B Note 6,937 - (1,121) 5,816 - 5,816 Series 2009 Note 899 - (899) - - – Total loans payable 39,364 80,000 (6,014) 113,350 62,920 50,430 Total governmental bonds and loans payable $ 2,134,941 $ 347,753 $ (306,406) $ 2,176,288 $ 141,264 $ 2,035,024 The change in other long-term liabilities for governmental activities is as follows for the year ended September 30, 2015 (expressed in thousands): Beginning Balance Additions Reductions Ending Balance Due Within One Year Due Thereafter Accrued compensated absences $ 37,891 $ - $ (5,693) $ 32,198 $ 5,582 $ 26,616 Retroactive union arbitration 195,286 - - 195,286 - 195,286 Litigation 11,012 16,839 (4,052) 23,799 15,073 8,726 Landfill closure and post closure cost 95,422 2,942 (14,811) 83,553 - 83,553 Post-employment benefit 319,056 38,168 - 357,224 - 357,224 Total $ 658,667 $ 57,949 $ (24,556) $ 692,060 $ 20,655 $ 671,405 Accrued compensated absences, retroactive union arbitration, litigation, landfill closure and post- closure costs, and post-employment benefits to retirees such as health insurance, are generally expected to be liquidated with resources derived from the general fund. At September 30, 2015, the primary government reported a net pension liability of $2.3 billion for its proportionate share of the net defined benefit pension liability administered by GERS. The net pension liability is valued as of September 30, 2014, determined by an actuarial valuation as of that date. The change in pension liabilities for governmental activities is as follows for the year ended September 30, 2015 (expressed in thousands): Beginning Balance, as restated Additions Reductions Ending Balance Due Within One Year Due Thereafter Net pension liability $ 2,064,822 $ 311,497 $ (53,156) $ 2,323,163 $ - $ 2,323,163 Total $ 2,064,822 $ 311,497 $ (53,156) $ 2,323,163 $ - $ 2,323,163 Government of the United States Virgin Islands Notes to Basic Financial Statements     73 Changes in long-term liabilities for business-type activities are as follows for the year ended September 30, 2015 (expressed in thousands): Beginning Balance Additions Reductions Ending Balance Due Within One Year Due Thereafter Workers compensation claims $ 27,131 $ 8,201 $ (3,279) $ 32,053 $ 845 $ 31,208 Loan payable – U.S. Treasury 76,948 - (4,752) 72,196 72,196 - Note payable – WICO 28,518 3,750 (390) 31,878 570 31,308 Total $ 132,597 $ 11,951 $ (8,421) $ 136,127 $ 73,611 $ 62,516 Debt Margin Pursuant to 48 U.S.C. Section 1574(b)(i) of the Revised Organic Act, the Government may issue revenue bonds for public improvements or undertakings authorized by an act of the Legislature, without limitation as to principal amount. Such revenue bonds are payable solely from the revenue directly derived from and attributable to such public improvements or undertakings. Pursuant to 48 U.S.C. Section 1574(b)(ii), the Government is authorized to issue general obligation bonds for any public purpose provided that no such indebtedness is in excess of 10% of the aggregate assessed valuation of the taxable real property in the U.S. Virgin Islands. In addition, pursuant to 48 U.S.C. Section 1574(a) (Public Law 94-932), the U.S. Virgin Islands is authorized to cause to be issued bonds or other obligations in anticipation of the matching funds to be received from the federal government pursuant to 26 U.S.C. Section 7652(b)(3). There is no legal limit on the value of bonds that the Government may issue pursuant to 48 U.S.C. Section 1574(a). The Legislature of the U.S. Virgin Islands must authorize all bond issuances. PFA is authorized to issue bonds for the purpose of financing any project or for the purpose authorized by the Legislature. Given that PFA’s powers to issue bonds are derived from 48 U.S.C. Section 1574(b), the bonds issued by PFA are subject to the limitations of said 48 U.S.C. Section 1574(b). On August 23, 1999, the Legislature amended the V.I. Code to add a Mandatory Balanced Budget Provision. Such provisions, specifically Title 2 of the V.I. Code Section 256, provide that the amount of debt of the Government existing on October 1, 2000 shall be the debt limit of the Government, exclusive of bond principal and interest that may become due. The debt limit specified under Title 2 of the V.I. Code Section 256 does not include bonds authorized by law for which a specific source of revenue is identified and committed to retiring those bonds. As used in Title 2 of the V.I. Code Section 256, the term “debt” means the total accumulated unpaid obligations that are due and payable, including unpaid income tax refunds, amounts owed to vendors, and current year unpaid debt service obligations, if any. As used in the statute, the term “debt” does not include that portion of principal or interest on bonds that is not yet due and payable. Government of the United States Virgin Islands Notes to Basic Financial Statements     74 Bonds Payable Bonds payable outstanding at September 30, 2015, are comprised of the following (expressed in thousands): Maturity Rates (%) Balance Matching (Excise) Tax Bonds 2013 Series B Revenue and Refunding Bonds 2024 3.00 - 5.00 $ 51,365 2013 Series A Revenue and Refunding Bonds 2024 5.00 - 5.25 36,000 2012 Series A Revenue Bonds 2032 4.00 - 5.00 141,840 2010 Series A & B Revenue Bonds 2029 4.00 - 5.25 392,840 2009 Series A Revenue Bonds (Cruzan) 2039 3.00 - 6.00 36,245 2009 Series A1, A2, B & C Revenue and Refunding Bonds 2039 3.00 - 5.00 344,770 2009 Series A Revenue Bonds (Diageo) 2037 6.00 - 6.75 241,670 Total 1,244,730 Gross Receipts Tax Bonds 2014 Series D Revenue Bonds 2033 6.03 5,765 2014 Series C Revenue and Refunding Bonds 2044 4.50 – 5.00 247,050 2014 Series A Revenue Bonds 2034 5.00 49,640 2012 Series A & B Revenue and Refunding Bonds 2032 2.25 - 5.25 206,900 2012 Series C Revenue Bonds 2042 3.00 - 5.00 33,445 2006 Series A Revenue Bonds 2029 3.50 - 5.00 202,955 Total 745,755 Tobacco Settlement Bonds (Unaudited) 2006 Series A, B, C & D Tobacco Turbo and Capital Appreciation Bonds 2035 6.00 – 8.00 7,290 2001 Series A Tobacco Bonds 2031 4.62 – 5.13 9,520 Total 16,810 Total bonds payable $ 2,007,295 Plus (Less): Bonds premium $ 52,403 Bonds discount (2,913) Bonds accretion 6,153 Total bonds payable, net $ 2,062,938 Government of the United States Virgin Islands Notes to Basic Financial Statements     75 Matching (Excise) Tax Bonds The matching funds pledged for the payment of the bonds consist of annual advance payments received from the U.S. Department of the Treasury of excise taxes imposed and collected under the Internal Revenue laws of the United States on rum products produced in the U.S. Virgin Islands and exported to the United States from the Virgin Islands. The amount required to be remitted to the Government by the U.S. Department of the Treasury is an amount no greater than the total amount of local revenue (primarily taxes) collected by the Government in each fiscal year. As a result, the term “matching fund revenue” is used to denote these payments. Amounts to be received by the Government from federal rum excise tax are deposited directly into trust accounts in accordance with the Indenture of Trust for bond debt service payments. The amounts to be received are subject to adjustment for the amount of local revenue actually collected by the U.S. Department of the Treasury during such year. Prepayments of matching fund revenue are recorded as deferred revenue in the accompanying statement of net position, and recognized as income in the subsequent fiscal year. The rate of federal rum excise tax is determined by Congress. In November 1999, Congress increased the federal rum excise tax rate from $10.50 to $13.25 per proof gallon. Since then, Congress has extended the higher rate eight times. Under the Protecting Americans from Tax Hikes Act of 2015, the rate was extended through December 31, 2016. 2013 Series B Revenue and Refunding Bonds On October 17, 2013, PFA issued the 2013 Series B Revenue and Refunding Bonds (the 2013 Series B Bonds), the proceeds of which amounted to $51.4 million. The Government has pledged matching funds, described above, for the timely payment of the principal and interest on the 2013 Series B Bonds. The 2013 Series B Bonds bear interest at rates ranging from 3.00% to 5.00%, and mature on October 1, 2024. The bonds were issued to: (i) refund a portion of the 2004 Series A Bonds amounting to $48.3 million, (ii) fund the debt service requirements of the bond issuance, and (iii) pay the costs of issuing the bonds. The 2013 Series B Bonds maturing on October 1, in the years 2018 and 2024 are subject to mandatory sinking fund redemptions at a redemption price equal to 100% of the principal amount thereof, plus interest accrued to the date of redemption. 2013 Series A Revenue and Refunding Bonds On September 19, 2013, PFA issued the 2013 Series A Revenue and Refunding Bonds (the 2013 Series A Bonds), the proceeds of which amounted to $36 million. The Government has pledged matching funds, described above, for the timely payment of the principal and interest on the 2013 Series A Bonds. The 2013 Series A Bonds bear interest at rates ranging from 5.00% to 5.25%, and mature on October 1, 2018 to October 1, 2024. The bonds were issued to: (i) provide a partial advance refunding of the 2004 Series A Bonds amounting to $14.7 million, provide a partial advance refunding of the 2009 Series A-1 Bonds amounting to $1.6 million, and provide a partial advance refunding of the 2009 Series B Bonds amounting to $16.7 million, (ii) fund the debt service requirements of the bond issuance, and (iii) pay the costs of issuing the bonds. The advance refunding resulted in a net present value economic gain of $4.2 million. Government of the United States Virgin Islands Notes to Basic Financial Statements     76 The 2013 Series A Bonds maturing on October 1, in the years 2018 and 2024 are subject to mandatory sinking fund redemptions at a redemption price equal to 100% of the principal amount thereof, plus interest accrued to the date of redemption beginning October 1, 2015. 2012 Series A Revenue Bonds On September 7, 2012, PFA issued the 2012 Series A Revenue Bonds (the 2012 Series A Bonds), the proceeds of which amounted to $142.6 million. The Government has pledged matching funds, described above, for the timely payment of the principal and interest on the 2012 Series A Revenue Bonds. The 2012 Series A Bonds bear interest at rates ranging from 4.00% to 5.00%, and mature from 2022 to 2032. The bonds were issued to: (i) provide working capital to the PG to finance various operating expenses, (ii) fund the debt service requirements of the bond issuance, and (iii) pay the costs of issuing the bonds. The 2012 Series A Bonds maturing on October 1, in the years 2022, 2027, and 2032 are subject to mandatory sinking fund redemptions at a redemption price equal to 100% of the principal amount thereof, plus interest accrued to the date of redemption. 2010 Series A & B Revenue Bonds On July 8, 2010, PFA issued the 2010 Series A & B Revenue Bonds, the proceeds of which amounted to $399.05 million. The Government has pledged matching funds for the timely payment of the principal and interest on the 2010 Series A & B Revenue Bonds. The 2010 Series A Bonds, amounting to $305 million, bear interest at rates ranging from 4.00% to 5.00% mature from 2012 to 2029. The 2010 Series B Bonds, amounting to $94.05 million, bear interest at rates ranging from 4.25% to 5.25% and mature from 2020 to 2029. The bonds were issued to: (i) to finance various operating expenses of the primary government, (ii) refinance a portion of the outstanding Series 2009 B1 and B2 Notes, (iii) fund the debt service requirements of the bond issuance, and (iv) to pay the costs of issuing the bonds. The 2010 Series A Bonds maturing on October 1, in the years 2020, 2025, and 2029 are subject to mandatory sinking fund redemptions at a redemption price equal to 100% of the principal amount thereof, plus interest accrued to the date of redemption. The 2010 Series B Bonds maturing on October 1, in the years 2025 and 2029 are subject to mandatory sinking fund redemptions at a redemption price equal to 100% of the principal amount thereof, plus interest accrued to the date of redemption. 2009 Series A Revenue Bonds (Cruzan) On December 17, 2009, PFA issued the 2009 Series A Revenue Bonds (the Cruzan Bonds) amounting to $39.19 million. The Government has pledged matching funds generated from the sale of Cruzan rum products for the timely payment of the principal and interest of the Cruzan Bonds. The Cruzan Bonds bear interest at rates ranging from 3.00% to 6.00% and mature from 2010 to 2039. The proceeds of the Cruzan Bonds were used to: (i) finance the costs of a wastewater treatment facility and renovations at the Cruzan VIRIL, Ltd. (Cruzan) rum distillery on the island of St. Croix, (ii) fund debt service reserve accounts and (iii) pay the costs of issuing the bonds. Government of the United States Virgin Islands Notes to Basic Financial Statements     77 The bonds maturing October 1, 2039 are subject to mandatory sinking fund redemptions beginning October 1, 2020, at a redemption price equal to 100% of the principal amount plus interest accrued to the date of redemption. In association with the issuance of the Cruzan Bonds, PFA entered into an agreement with Cruzan VIRIL, Ltd. (Cruzan) on October 6, 2009. Provisions of the agreement call for payments of excess matching funds, after debt service, debt service reserve, and sinking fund redemption payments, to the Government and Cruzan of 60%-80%, and 54%-60% respectively. Excess matching fund payments to Cruzan amounted to $30.6 million, $40.3 million and $44.9 million for the years ended September 30, 2015, 2014 and 2013. 2009 Series A1, A2, B & C Revenue and Refunding Bonds On October 1, 2009, PFA issued the 2009 Series A1, A2, B & C Revenue and Refunding Bonds, the proceeds of which amounted to $458.84 million. The Government has pledged matching funds for the timely payment of principal and interest on the 2009 Series A1, A2, B & C Revenue and Refunding Bonds. The 2009 Series A1 Bonds amounted to $86.35 million. The 2009 Series A1 Bonds bear interest at rates ranging from 3.00% to 5.00% and mature from 2010 to 2039. The Series A1 Bonds were issued to: (i) fund certain capital projects, (ii) fund debt service reserve accounts, and (iii) pay certain costs of issuing the bonds. The 2009 Series A2 Bonds amounted to $8.65 million. The 2009 Series A2 Bonds bear an interest rate of 3.00% and mature from 2010 to 2011. The Series A2 Bonds were issued to: (i) fund certain capital projects, (ii) fund debt service reserve accounts and (iii) pay certain costs of issuing the bonds. The 2009 Series B Bonds amounted to $266.33 million, bear an interest rate of 5.00%, and mature from 2010 to 2025. The 2009 Series B Bonds were issued to: (i) current refund the 1998 Series A Bonds, (ii) fund debt service reserve accounts, and (iii) pay certain costs of issuing the bonds. The 2009 Series C Bonds amounted to $97.51 million, bear an interest rate of 5.00% and mature from 2010 to 2022. The 2009 Series C Bonds were issued to: (i) current refund the 1998 Series E Revenue and Refunding Bonds, (ii) fund debt service reserve accounts, and (iii) pay certain costs of issuing the bonds. The 2009 Series A1, B & C Bonds are subject to optional sinking fund installment redemptions beginning October 1, 2019 at a redemption price equal to 100% of the principal amount, plus interest accrued, to the date of redemption. 2009 Series A Revenue Bonds (Diageo) On July 9, 2009, PFA issued the 2009 Series A Bonds (the Diageo Bonds) amounting to $250 million. The Diageo Bonds mature from 2013 to 2037 at interest rates ranging from 6.00% to 6.75%. The proceeds of the bonds were issued to: (i) provide a grant to Diageo USVI, Inc. (the producer of Captain Morgan rum products) to construct a rum distillery and warehouse on the island of St. Croix, (ii) to redeem the Subordinated Revenue Bond Anticipation Notes Series 2009A issued to finance preliminary costs of the Diageo construction project, (iii) to fund debt service reserve accounts, and (iv) to finance capitalized interest and costs associated with the issuance of the bonds. Government of the United States Virgin Islands Notes to Basic Financial Statements     78 The PG has pledged matching funds generated from the sale of Captain Morgan rum products for the timely payment of the principal and interest on the Diageo Bonds. The Diageo Bonds maturing on or after October 1, 2020 are subject to optional redemption on or after October 1, 2019, at a redemption price equal to 100% of the principal amount thereof, plus interest accrued to the date of redemption. In association with the issuance of the Diageo Bonds, the Government entered into an agreement with Diageo USVI, Inc. on June 17, 2008. Provisions of the agreement call for payments of excess matching funds, after debt service, debt service reserve, and sinking fund redemption payments to Diageo of 49.5% - 57%. To provide marketing support payments, production incentive payments, continuation of molasses subsidies and other tax incentives to attract Diageo USVI, Inc. as part of the rum industry in the U.S. Virgin Islands. Marketing and incentive payments to Diageo USVI, Inc. amounted to $27.1 million, $39.5 million and $39.1 million for the years ended September 30, 2015, 2014 and 2013. 2004 Series A Revenue Bonds On December 1, 2004, PFA issued the 2004 Series A Revenue Bonds (the 2004 Series A Bonds), the proceeds of which amounted to $94 million. The Government has pledged the Matching Fund Revenues to the timely payment of principal and interest on the 2004 Series A Bonds. The bonds bear interest at 4.00% to 5.25% and mature from 2005 to 2024. The proceeds of the bonds were issued to: (i) finance the planning, development, constructing, renovating, and equipping of wastewater treatment facilities and collection systems on St. Thomas and St. Croix, (ii) finance the repairs, renovations, and construction of solid waste facilities in the Territory, (iii) finance the repair and construction of public roads in the Territory, (iv) provide start-up capital for the Virgin Islands Waste Management Authority, (v) fund the 2004 Series A Senior Lien Debt Service Reserve Subaccount, and (vi) pay certain costs of issuing the Series 2004 A Bonds. The 2004 Series A Bonds are not subject to optional redemption prior to October 1, 2014. On September 19, 2013, PFA issued the Series 2013A Bonds to partially refund the 2004 A Series Bonds for principal payments due October 1, 2013, 2017 and 2018 amounting to $14.7 million. On October 17, 2013, PFA issued the Series 2013B Bonds to advance refund the remaining outstanding bonds of the 2004 Series A Bonds amounting to $44.1 million. As of September 30, 2015, the 2004 Series A Bonds had been fully redeemed. Gross Receipts Tax Bonds 2014 Series D Revenue Bonds On December 3, 2014, PFA issued the 2014 Series D Revenue Bonds (the 2014 Series D Bonds), the proceeds of which amounted to $5.8 million. The Government has pledged gross receipts taxes for the timely payment of the principal and interest on the 2014 Series D Bonds, subject to the annual moderate income housing fund deposit as well as prior liens or pledges. The 2014 Series D Bonds bear interest at the rate of 6.03% and mature from 2015 to 2033. The bonds were issued to: (i) fund certain capital projects, (ii) fund the debt service requirements of the bond issuance, and (iii) pay the costs of issuing the bonds. Government of the United States Virgin Islands Notes to Basic Financial Statements     79 The 2014 Series D Bonds are subject to optional redemption prior to maturity in whole or in part, in a minimum amount of $100 thousand at a redemption price equal to the make-whole redemption price which is the greater of 100% of the principal amount to be redeemed or the sum of the present values of the remaining scheduled payments of principal and interest assuming a 360-day year consisting of twelve 30-day months at the Treasury Rate on the date of redemption as published in the Federal Reserve Statistical Release H.15 (519). 2014 Series C Revenue and Refunding Bonds On November 14, 2014, PFA issued the 2014 Series C Revenue Refunding Bonds (the 2014 Series C Bonds), the proceeds of which amounted to $247 million. The Government has pledged gross receipts taxes for the timely payment of the principal and interest on the 2014 Series C Bonds. The 2014 Series C Bonds bear interest at rates ranging from 4.50% to 5.00%, and mature on October 1, 2044. The bonds were issued to: (i) refund the 2003 Series A Bonds amounting to $233.3 million, (ii) finance certain capital projects amounting to $25.5 million, (iii) fund the debt service requirements of the bond issuance, and (iv) pay the costs of issuing the bonds. The current refunding of the Series 2003A Bonds resulted in a net present value economic gain of $9.6 million. The proceeds of the 2014 Series C Bonds related to the refunding were placed in a trust to provide for all future debt service payments on the 2016 to 2034 maturities of the Series 2003 A Bonds. Approximately, $235 million of the bond proceeds were deposited in the escrow fund account. On December 1, 2014, the 2003 A Bonds were defeased through the exercise of call redemptions. The 2014 Series C Bonds maturing on October 1, in the years 2030 and 2039 are subject to mandatory sinking fund redemptions at a redemption price equal to 100% of the principal amount thereof, plus interest accrued to the date of redemption. 2014 Series A Revenue Bonds On September 5, 2014, PFA issued the 2014 Series A Revenue Bonds (the 2014 Series A Bonds), the proceeds of which amounted to $49.6 million. The Government has pledged gross receipts taxes for the timely payment of the principal and interest on the 2014 Series A Revenue Bonds. The 2014 Series A Bonds bear interest at 5.00%, and mature from 2015 to 2034. The bonds were issued to: (i) provide working capital to the Government to finance various operating expenses (ii) fund the debt service requirements of the bond issuance, and (iii) pay the costs of issuing the bonds. 2012 Series A & B Revenue and Refunding On November 20, 2012, PFA issued the 2012 Series A & B Revenue and Refunding Bonds, the proceeds of which amounted to $228.8 million. The Government has pledged gross receipts taxes, for the timely payment of the principal and interest on the 2012 Series A & B Revenue and Refunding Bonds. The 2012 Series A Bonds, amounting to $197 million, bear interest at rates ranging from 2.25% to 5.00% mature from 2017 to 2032. The 2012 Series B Bonds, amounting to $31.7 million, bear interest at the rate of 5.25% and mature in 2027. The Series 2012 A Bonds were issued to: (i) refund the 1999 Series A Bonds, (ii) repay the Series 2010 A1 and 2010 A2 Notes, (iii) fund the debt service requirements of the bond issuance, and (iv) pay the costs of issuing the bonds. Government of the United States Virgin Islands Notes to Basic Financial Statements     80 The 2012 Series A Bonds maturing on October 1, in the years 2017, 2022 and 2032 are subject to mandatory sinking fund redemptions at a redemption price equal to 100% of the principal amount thereof, plus interest accrued to the date of redemption. The current refunding of the Series 1999 A Bonds resulted in an economic gain of net present value savings of $7.7 million. The Series 2012 B Bonds were issued to: (i) refinance the Series 2011 A Note (ii) fund the debt service requirements of the bond issuance, and (iii) pay the costs of issuing the bonds. The 2012 Series B Bonds maturing on October 1, 2027 are subject to mandatory sinking fund redemptions at a redemption price equal to 100% of the principal amount thereof, plus interest accrued to the date of redemption. 2012 Series C Revenue Bonds On December 19, 2012, PFA issued the 2012 Series C Revenue Bonds (the 2012 Series C Bonds), the proceeds of which amounted to $35.15 million. The Government has pledged gross receipts taxes, for the timely payment of the principal and interest on the 2012 Series C Bonds. The 2012 Series C Bonds, bear interest at rates ranging from 3.00% to 5.00% and mature from 2017 to 2042. The Series 2012 C Bonds were issued to: (i) finance certain operating expenses and other obligation of the Government (ii) fund the debt service requirements of the bond issuance, and (iii) pay the costs of issuing the bonds. The 2012 Series C Bonds maturing on October 1, in the years 2017, 2030 and 2042 are subject to mandatory sinking fund redemptions at a redemption price equal to 100% of the principal amount thereof, plus interest accrued to the date of redemption. 2006 Series A Revenue Bonds On September 28, 2006, PFA issued the 2006 Series A Revenue Bonds (the 2006 Series A Bonds), the proceeds of which amounted to $219.5 million. The Government has pledged gross receipts tax revenues for the timely payment of the principal and interest on the 2006 Series Bonds. The 2006 Series Bonds bear interest at 3.50% to 5.00% and mature from 2007 to 2029. The proceeds of the bonds were issued to: (i) advance refund a portion of the Series 1999A Revenue Bonds, (ii) pay the cost of a termination fee in connection with an outstanding swap option agreement, (iii) fund certain capital projects, (iv) fund debt service reserve accounts, (v) pay certain costs of issuing the Series 2006 Bonds, and (vi) fund a net payment reserve account for a new swap agreement in connection with the refunding. The 2006 Series Bonds maturing on or before October 1, 2016 are not subject to optional redemption. The advance refunding of the 2020 through 2029 maturities of the 1999 Series A Bonds was made in order to obtain lower interest rates. The economic gain obtained by this advance refunding is the difference between the present value of old debt service requirements and the new debt service. This refunding resulted in a debt service saving of approximately $40.8 million and an economic gain of approximately $25.6 million. The proceeds of the 2006 Series Bonds related to the refunding were placed in a trust account to provide for all future debt service payments on the 2020 through 2029 maturities of the 1999 Series A Bonds. Approximately $180 million in funds were deposited into the Escrow Fund accounts. At September 30, 2015, $66.8 million of the defeased 1999 Bonds remained outstanding. Government of the United States Virgin Islands Notes to Basic Financial Statements     81 2003 Series A Revenue Bonds On December 17, 2003, PFA issued the Series 2003 A Revenue Bonds (the 2003 Series A Bonds), the proceeds of which amounted to approximately $268 million. The Government has pledged gross receipts taxes for the timely payment of the principal and interest on the Series 2003 A Revenue Bonds. The bonds were issued to: (i) repay the Government outstanding Revenue Bond Anticipation Notes, Series 2003, (ii) fund certain necessary public safety and other public sector capital development projects, (iii) fund debt service accounts for the bond issuance, and (iv) to pay certain costs of issuing the bonds. The bond bears interest at 4% - 5.25% and matures from 2005 to 2033. The Series 2003 A Bonds are not subject to optional redemption prior to October 1, 2014. On November 14 2014, PFA issued the 2014 Series C Bonds to current refund the remaining outstanding bonds of the 2003 Series A Bonds amounting to $237.5 million. As of September 30, 2015, the 2003 A Series Bonds has been fully redeemed. Tobacco Settlement Bonds 2006 Series A, B, C & D Tobacco Turbo and Capital Appreciation Bonds On March 15, 2006, the Tobacco Settlement Financing Corporation (TSFC) issued the 2006 Tobacco Settlement Asset-Backed Bonds, Subordinated Series 2006 A, B, C & D Turbo and Capital Appreciation Bonds amounting to $48.1 million, with an issue value of $7.3 million (net of accretion of $40.8 million). The bonds are secured and payable from collections including all Tobacco Settlement Revenues to be received by TSFC, reserves, amounts held in other accounts established by the indenture and TSFC’s rights under the purchase agreement. The proceeds have been used for the purpose of (i) financing several capital hospital and health development projects for the benefit of the Virgin Islands and its residents, (ii) pay certain costs of issuance relating to the Series 2006 Bonds, and (iii) fund operating costs. Interest on the Series 2006 Tobacco Settlement Asset-Backed Bonds is not paid currently, but accretes from the date of delivery, compounded every May 15 and November 15, commencing May 15, 2006 through the final maturity date of May 15, 2035. Interest yields on the Bonds range from 6.25% to 7.63%. The series are subject to early redemption at accreted value beginning May 15, 2023, provided that the 2001 Tobacco Settlement Asset-Backed Series A Bonds have been paid in full. 2001 Series A Tobacco Bonds On November 20, 2001, TSFC issued the 2001 Tobacco Settlement Asset-Backed Series A Bonds amounting to $23.7 million of the aggregate principal. The proceeds were used for the purpose of (i) purchasing all rights, title, and interest in certain litigation awards under the master settlement agreement (MSA) entered into by participating cigarette manufacturers, (ii) issuance of Tobacco Settlement Asset-Backed Bonds to pay the purchase price for the rights, and (iii) to provide funds for hospital and healthcare projects in the U.S. Virgin Islands. Interest on the 2001 bonds is payable semiannually each May and November 15 for the term bonds amounting to $15.5 million and convertible capital appreciation bonds amounting to $8.2 million, with a nominal value of $6.2 million. Government of the United States Virgin Islands Notes to Basic Financial Statements     82 The convertible capital appreciation bonds accrete interest prior to November 15, 2007 and accrue interest subsequent to that date. Interest on the capital appreciation bonds will compound on May 15th and November 15th. The 2001 Series A Tobacco Bonds payable at September 30, 2015 amounted to $9.52 million. Under early redemption provisions, any MSA payments exceeding annual debt service requirements of the 2001 Series A Tobacco Bonds must be applied to early redemption of principal. MSA payments and interest earnings on the trust funds during the year ended September 30, 2015, resulted in a turbo redemption of $1.5 million on May 15, 2015. Advance Refunding/Defeasances On June 15, 1992, PFA issued the Series 1992 Revenue Bonds. The proceeds of the Series 1992 Revenue Bonds were placed in an irrevocable trust to provide for all future debt service payments on the Series 1989 Revenue Bonds. At September 30, 2015, $7.9 million of the defeased bonds were outstanding. Assets held by irrevocable trusts for refunding of prior outstanding debt and the corresponding liabilities are not included in the Government’s basic financial statements. On May 1, 1998, PFA issued the 1998 Series A and B Bonds to advance refund previously issued bonds to obtain lower interest rates. The proceeds of the 1998 Series A and B Bonds were placed in an irrevocable trust account to provide for all future debt service payments on the Highway Revenue Bonds Series 1989, Series 1991, Series 1992, Series 1993, and Series 1994 Bonds. At September 30, 2015, none of the above-mentioned defeased bonds were outstanding. On November 16, 1999, PFA issued the 1999 Series A Revenue Bonds amounting to $299.9 million. These bonds were issued to (i) pay certain working capital obligations of the Government, (ii) repay the Government outstanding tax and revenue anticipation notes, (iii) fund the Series debt service accounts, and (iv) finance certain costs of issuing the bonds. On September 28, 2006, PFA advance refunded a portion of the 1999 Bonds with maturity dates of October 1, 2020 to October 1, 2029 totaling $162.9 million. The proceeds of the refunding were placed in a trust account to provide for all future debt service payments on the 2020 through 2029 maturities of the bonds. Approximately $180 million was deposited with the refunding bond escrow agent to fund the Escrow Fund accounts. At September 30, 2015, $66.8 million of the defeased 1999 Series A Revenue Bonds remain outstanding. On December 14, 2012, PFA current refunded the Series 1999 A Bonds with maturity dates of October 1, 2013 to October 1, 2020 totaling $66.8 million with the issuance of the Series 2012A Revenue and Refunding Bonds. The current refunding of the Series 1999 A Bonds resulted in an economic gain of net present value savings of $7.7 million. Government of the United States Virgin Islands Notes to Basic Financial Statements     83 Future debt service requirements for bonds for which matching funds have been pledged are as follows (expressed in thousands): Governmental Activities – Matching Fund Bonds Revenue Bonds Series 2009 A (Diageo) Revenue Bonds Series 2009 A-1 Revenue Bonds Series 2009 B Revenue Bonds Series 2009 C Revenue Bonds Series 2009 A (Cruzan) Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Maturity Year: 2016 $ 4,575 $ 16,048 $ 1,705 $ 3,773 $ 18,505 $ 9,409 $ 7,745 $ 3,244 $ 670 $ 2,122 2017 4,890 15,729 1,770 3,710 19,450 8,460 8,040 2,850 705 2,087 2018 5,235 15,387 1,840 3,639 20,450 7,462 8,440 2,438 740 2,051 2019 5,600 15,022 1,915 3,563 21,500 6,414 8,860 2,005 780 2,013 2020 5,990 14,630 2,000 3,481 22,600 5,311 9,145 1,555 820 1,973 2021-2025 36,730 66,380 11,525 15,872 86,410 12,043 26,530 1,958 4,900 9,059 2026-2030 51,150 51,952 14,705 12,693 8,510 213 - - 6,625 7,343 2031-2035 71,485 31,618 18,885 8,515 - - - - 8,940 5,025 2036-2040 56,015 5,842 24,240 3,151 - - - - 12,065 1,897 Total $ 241,670 $ 232,608 $ 78,585 $ 58,397 $ 197,425 $ 49,312 $ 68,760 $ 14,050 $ 36,245 $ 33,570 Governmental Activities – Matching Fund Bonds Revenue Bonds Series 2010 A Revenue Bonds Series 2010 B Revenue Bonds Series 2012 A Revenue Bonds Series 2013 A Revenue Bonds Series 2013 B Total Matching Bond Activities Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Maturity Year: 2016 $ 2,270 $ 14,883 $ - $ 4,833 $ 825 $ 6,995 $ 2,210 $ 1,774 $ 5,070 $ 2,338 $ 43,575 $ 65,419 2017 2,395 14,766 - 4,833 850 6,962 2,320 1,662 5,250 2,157 45,670 63,216 2018 2,520 14,643 - 4,834 900 6,927 7,555 1,415 - 2,052 47,680 60,848 2019 2,660 14,514 - 4,834 950 6,890 7,905 1,028 - 2,052 50,170 58,335 2020 2,800 14,377 - 4,834 1,000 6,850 2,335 770 6,035 1,901 52,725 55,682 2021-2025 61,670 65,458 26,340 22,513 6,200 33,537 13,675 1,847 35,010 4,548 308,990 233,215 2026-2030 224,475 30,074 67,710 9,243 8,500 31,766 - - - - 381,675 143,284 2031-2035 - - - - 122,615 9,401 - - - - 221,925 54,559 2036-2040 – - - - – - - – - - 92,320 10,890 Total $ 298,790 $ 168,715 $ 94,050 $ 55,924 $ 141,840 $ 109,328 $ 36,000 $ 8,496 $ 51,365 $ 15,048 $1,244,730 $ 745,448 Government of the United States Virgin Islands Notes to Basic Financial Statements     84 Future debt service requirements for bonds for which gross receipts taxes have been pledged are as follows (expressed in thousands): Governmental Activities – Gross Receipts Tax Bonds Revenue Bonds Series 2006 A Revenue Bonds Series 2012 A Revenue Bonds Series 2012 B Revenue Bonds Series 2012 C Principal Interest Principal Interest Principal Interest Principal Interest Maturity Year: 2016 $ 3,125 $ 9,748 $ 10,815 $ 7,590 $ 1,585 $ 1,471 $ 1,720 $ 1,540 2017 3,240 9,589 11,110 7,344 1,670 1,385 1,775 1,488 2018 3,360 9,424 11,415 7,090 1,765 1,295 1,820 1,434 2019 3,485 9,252 11,835 6,725 1,855 1,200 1,600 1,367 2020 3,615 9,075 12,380 6,241 1,955 1,100 1,685 1,284 2021-2025 84,735 35,336 17,545 28,827 11,490 3,798 6,470 5,200 2026-2030 101395 12,306 53,940 19,865 8,485 684 2,635 4,278 2031-2035 - – 49,055 3,765 - - 4,685 3,403 2036-2040 - – - - - - 6,385 1,998 2041-2045 - – - - - - 4,670 358 Total $ 202,955 $ 94,730 $ 178,095 $ 87,447 $ 28,805 $ 10,933 $ 33,445 $ 22,350 Governmental Activities – Gross Receipts Tax Bonds Revenue Bonds Series 2014 A Revenue Bonds Series 2014 C Revenue Bonds Series 2014 D Total Gross Receipts Tax Bonds Principal Interest Principal Interest Principal Interest Principal Interest Maturity Year: 2016 $ 1,480 $ 1,480 $ 4,555 $ 12,180 $ 165 $ 343 $ 23,445 $ 34,352 2017 1,560 1,560 4,995 11,941 175 332 24,525 33,639 2018 1,635 1,635 5,240 11,685 190 321 25,425 32,884 2019 1,720 1,720 5,510 11,416 200 310 26,205 31,990 2020 1,810 1,810 5,790 11,134 215 297 27,450 30,941 2021-2025 10,535 10,535 33,585 50,912 1,280 1,270 165,640 135,878 2026-2030 13,530 13,530 36,430 42,173 1,730 819 218,145 93,655 2031-2035 17,370 17,370 132,615 17,953 1,810 226 205,535 42,717 2036-2040 - - 6,535 3,503 - - 12,920 5,501 2041-2045 - - 11,795 1,599 - - 16,465 1,957 Total $ 49,640 $ 49,640 $ 247,050 $ 174,496 $ 5,765 $ 3,918 $ 745,755 $ 443,514 Government of the United States Virgin Islands Notes to Basic Financial Statements     85 Future debt service requirements for bonds for which tobacco settlement revenues have been pledged are as follows (expressed in thousands): Year Principal Interest 2016 $ - $ 550 2017 - 550 2018 - 550 2019 - 550 2020 - 550 2021-2025 1,475 2,159 2026-2030 - 2,011 2031-2035 8,045 805 2036-2040 7,290 - Plus future accretion 6,153 - Total $ 22,963 $ 7,725 Loans Payable Series 2015A Note On September 25, 2015, PFA issued the Series 2015 Real Property Tax Revenue Anticipation Note (Series 2015A Note) amounting to $40 million. The Government has pledged tax year 2015 property taxes for the timely payment of the Series 2015A Note, with a subordinate lien on gross receipts taxes. The Series 2015A Note bears interest at Wall Street Journal Prime Rate plus 50 basis points. As of September 30, 2015, this rate was 3.75%. The Series 2015A Note will be repaid in equal principal payments of $1.74 million over a 24 month period. The Series 2015A Note was issued to: (i) to finance certain operating expenses of the PG, and (ii) to fund certain costs of issuing the Series 2015A Note. Future debt service requirements for the Series 2015A Note are as follows (expressed in thousands): Year Principal Interest 2016 $ 19,130 $ 1,105 2017 20,870 424 $ 40,000 $ 1,529 Series 2014E Note On August 20, 2015, PFA issued the Series 2014E-2 Subordinate Lien Revenue Anticipation Note (Series 2014E-2 Note) amounting to $20 million. The Government has pledged gross receipts taxes for the timely payment of the Series 2014E-2 Note. The Series 2014E-2 Note bears interest at 6.0% and the Note was fully repaid on January 8, 2016. The Series 2014E-2 Note was issued to: (i) finance certain operating expenses of the Government, and (ii) fund certain costs of issuing the Series 2014E-2 Note. Government of the United States Virgin Islands Notes to Basic Financial Statements     86 On December 18, 2014, PFA issued the Series 2014E-1 Subordinate Lien Revenue Anticipation Note (Series 2014E-1 Note) amounting to $20 million. The Government has pledged gross receipts taxes for the timely payment of the Series 2014E-1 Note. The Series 2014E-1 Note bears interest at 6.0% and the Note was fully repaid on January 8, 2016. The Series 2014E-1 Note was issued to: (i) finance certain operating expenses of the Government, and (ii) fund certain costs of issuing the Series 2014E-1 Note. Future debt service requirements for the Series 2014E Notes are as follows (expressed in thousands): Year Principal Interest 2016 $ 40,000 $ 660 $ 40,000 $ 660 Series 2014B Note On September 12, 2014, PFA issued the Series 2014B Gross Receipts Taxes Subordinate Loan Note (Series 2014B Note) amounting to $14 million. The Government has pledged gross receipts taxes for the timely payment of the Series 2014B Note. The Series 2014B Note bears interest at the 90- day LIBOR rate with 375 basis points. As of September 30, 2015, this rate was 4.08%. The Series 2014B Note will be repaid in equal principal payments of $167 thousand over an 84 month period. The Series 2014B Note was issued to: (i) to finance certain operating expenses of the PG, and (ii) to fund certain costs of issuing the Series 2014B Note. Future debt service requirements for the Series 2014B Note are as follows (expressed in thousands): Year Principal Interest 2016 $ 2,000 $ 449 2017 2,000 371 2018 2,000 289 2019 2,000 207 2020 2,000 126 Thereafter 2,000 44 $ 12,000 $ 1,486 Government of the United States Virgin Islands Notes to Basic Financial Statements     87 Series 2013A Note On May 14, 2013, PFA issued the Series 2013A Subordinate Lien Revenue Note “Series 2013A Note” amounting to $6.7 million. The Government has pledged gross receipts taxes for the timely payment of the Series 2013A Note. Two draws have been made on the Series 2013A Note: $2.66 million was drawn on May 16, 2013 (the Series 2013A-1 drawing) and $2.77 million was drawn on September 12, 2014 (the Series 2013A-2 drawing). The Series 2013A Note bears interest at the 90 day Libor rate plus 375 points to be paid in thirty-six (36) monthly payments. As of September 30, 2015, the LIBOR 90 day interest rate plus 375 points was 4.08%. The Series 2013A-1 and A-2 drawings were issued to: (i) finance the acquisition of a fleet of police vehicles for the PG, and (ii) to fund certain costs of issuing the Series 2013A Note. Future debt service requirements for the Series 2013A Notes are as follows (expressed in thousands): Year Principal 2016 $ 1,515 2017 1,000 $ 2,515 Series 2012A Note On October 1, 2012, PFA entered into the Series 2012A Tax Increment Revenue Term Loan Note (the Series 2012A Notes) in the amount of $13.7 million. The Series 2012A Notes were issued as part of a Term Loan Note Conversion of the Series 2009A Notes which were issued to provide a loan to the PG (the Series 2009A Tax Increment Revenue Loan Note) to finance the developmental costs of a shopping complex on the island of St. Croix. The Series 2012A Notes are a term loan with twenty quarterly payments (five years) based on a twenty-five (25) year amortization schedule, with a final payment on October 1, 2018. The Notes bear interest of 300 points above the J.P. Morgan Chase Prime Rate, or 6.25%, whichever is higher. As of September 30, 2015, PFA had $13.02 million in outstanding Series 2012A Notes. Future debt service requirements for the Series 2012A Notes are as follows (expressed in thousands): Year Principal Interest 2016 $ 275 $ 821 2017 295 801 2018 12,449 199 $ 13,019 $ 1,821 Government of the United States Virgin Islands Notes to Basic Financial Statements     88 Series 2011B Note On November 14, 2011, PFA entered into the 2011 Property Tax Revenue Anticipation Note (the Series 2011B Note) in the amount of $13 million. The proceeds were used to pay incentive payments to government employees who elected to retire early under Act No. 7261 the “Economic Stability Act”, as amended by Acts No. 7270 and 7307. The Series 2011B Note is a general obligation of the PG, secured by a first priority lien on real property taxes levied for tax years up to and including tax year 2005. Also, the PG has pledged a third subordinate lien on the gross receipts taxes, along with all fines, interest, penalties and other charges related to gross receipts taxes. Interest on the Series 2011B Note accrues monthly at the rate of 4.91% until the Series 2011B Note reaches maturity on December 15, 2016. On that date, the Series 2011B Note will convert to a two year term loan. As of September 30, 2015, the outstanding amount of the Series 2011B Note is $5.8 million. Future debt service requirements for the Series 2011B Note are as follows (expressed in thousands): Year Principal Interest 2016 $ - $ 285 2017 5,816 32 $ 5,816 $ 317 Series 2009 Note On February 12, 2009, PFA issued the Subordinate Lien Revenue Bond Anticipation Notes (Series 2009 Notes), in the amount of $8 million. The Government has pledged gross receipts taxes for the timely payment of the Series 2009 Notes. The Series 2009 Notes initially had an interest rate of 4.75% and a due date of February 1, 2010. PFA elected a conversion of the Series 2009 Notes to term notes with principal and interest payable semi-annually on February 1 and August 1, at an interest rate of 5.40% and a maturity date of August 1, 2015. The proceeds of the Series 2009 Notes were issued: (i) to finance the purchase and installation of 911 emergency communication equipment for the Virgin Islands Police Department and (ii) to pay certain costs of issuing the Series 2009 Notes. The Series 2009 Notes were defeased on February 2, 2015. Unemployment Trust Fund Loan In August 2009, the territory reserve balance of the Unemployment Trust Fund (UTF) became inadequate to cover expenditures for unemployment compensation (UC) benefits. UC benefits are an entitlement program administered through the U.S. Treasury, and the PG is legally liable to pay benefits even if the UTF becomes insolvent. As of September 30, 2015, the PG owed $72.2 million to the U.S. Treasury. The American Recovery and Reinvestment Act of 2009 (P.L. 111-5 Section 2004) temporarily waived interest payments on UTF loans through September 30, 2012. After that date, the loan became subject to interest at federal rates of 2.3874% for the 2014 calendar year, and 2.3385% for the 2015 calendar year. During 2015, the PG paid $1.75 million in interest to the U.S. Treasury on the UTF loans. Government of the United States Virgin Islands Notes to Basic Financial Statements     89 WICO Loan On October 18, 2013, WICO entered into a refinancing loan agreement with Banco Popular de Puerto Rico amounting to $28.5 million (WICO loan). Under the terms of the refinancing agreement WICO pledged: (i) operating revenues arising from the ship’s agent business, and (ii) real property and improvements referred to as the “WICO Dock” including bulkhead and wharf, warehouses, office buildings, maintenance buildings and other facilities. The purpose of the WICO loan is to: (i) repay the existing loan with the bank amounting to $21.2 million, (ii) finance the construction and expansion of the WICO Dock and ship berthing facilities to accommodate larger cruise ships, and (iii) to fund costs associated with the issuance of the WICO loan. The WICO loan bears interest at 6.18%, and requires only interest payments during the first twelve months from the date of closing on the loan. Thereafter, the loan shall be repaid in fifty-nine (59) monthly installment payments of $187 thousand, with a sixtieth (60), final payment of outstanding principal. On November 12, 2014, WICO finalized an interim financing agreement to procure a loan with Banco Popular de Puerto Rico. The agreement provides for a loan in the amount of $3.75 million bearing interest at 6.75% per annum. The loan has an interest-only period of twelve (12) months from the issue date. Additionally, the payments are based on a twenty-five (25) year amortization, with a final maturity in six (6) years. This interim financing provides funding for a new pier on the island of St. Thomas. Future debt service requirements for the WICO loan are as follows (expressed in thousands). Year Principal Interest 2016 $ 569 $ 1,974 2017 616 1,937 2018 656 1,898 2019 698 1,856 2020 743 1,811 2021 - 2025 4,494 8,274 2026 - 2030 6,134 6,633 2031 - 2035 8,375 4,393 2036 - 2040 9,521 1,378 Thereafter 72 1 Total $ 31,878 $ 30,155 Government of the United States Virgin Islands Notes to Basic Financial Statements     90 Standby Credit Facility Under Title 22, Chapter 10 of the VIC, the Virgin Islands Insurance Guaranty Fund is required to maintain a minimum balance of $50 million for claimant payments in the event of a failure of an insurance carrier. On February 10, 2012, legislation was enacted authorizing a reduction in the minimum balance to be held by the Virgin Islands Insurance Guaranty Fund from $50 million to $10 million until September 30, 2015. That legislation was amended on August 9, 2013, to authorize the PG to issue bonds or notes of up to $40 million on behalf of the Insurance Guaranty Fund, if necessary for claimant payments. The authorization will terminate on the earlier of (i) the date that funds on deposit in the Insurance Guaranty Fund equal $50 million dollars, or (ii) March 31, 2019. Component Units – Bonds Payable Bonds payable of discretely presented component units are those liabilities that are paid out of resources pledged by such entities. Bonds payable, outstanding at September 30, 2015, are as follows (expressed in thousands): Bonds Payable Maturity Interest Rate (%) Balance Virgin Islands Water and Power Authority (Electric System): Revenue bonds of 2012 2025 4.00 - 6.06 $ 63,135 Revenue bonds of 2010 2035 4.00 - 6.85 66,540 Revenue bonds of 2007 2031 4.50 - 5.00 57,585 Revenue bonds of 2003 2028 4.00 – 5.00 50,930 Virgin Islands Water and Power Authority (Water System): Revenue bonds of 1998 2017 5.5 10,435 Virgin Islands Port Authority: Series A Revenue bonds of 2014 2033 4.00 – 5.00 28,465 Series B Revenue bonds of 2014 2011 3.00 – 5.00 14,375 Series C Revenue bonds of 2014 2025 2.00 – 5.00 3,920 Subtotal 295,385 Plus unamortized premium 7,910 Less unamortized discount (43) Bonds payable, net 303,252 Less amount due within one year (16,588) Bonds payable, due in more than one year $ 286,664 Government of the United States Virgin Islands Notes to Basic Financial Statements     91 Following is a schedule of changes in bonds payable, loans payable and other long-term liabilities for discretely presented component units for fiscal year ended September 30, 2015 (expressed in thousands): Beginning Balance Additions Reductions Ending Balance Amounts Due With One Year Due Thereafter Bonds payable: Virgin Islands Water and Power Authority: Electric System $ 252,276 $ – $ (10,775) $ 241,502 $ 11,010 $ 230,492 Water System 13,494 – (3,103) 10,391 3,295 7,096 Virgin Islands Port Authority 26,097 53,906 (28,644) 51,359 2,283 49,076 Total 291,867 53,906 (42,522) 303,252 16,588 286,664 Notes payable: Virgin Islands Economic Development Authority 366 – (23) 343 25 318 Virgin Islands Water and Power Authority: Electric System 5,873 – (2,617) 3,256 2,754 502 Virgin Islands Housing Authority 1,555 – (250) 1,305 435 870 Virgin Islands Port Authority - 1,965 (1,333) 632 632 - Virgin Islands Housing Finance Authority 1,262 – (80) 1,182 79 1,103 UVI's Research & Technology Park 2,442 1,500 (168) 3,774 299 3,475 University of the Virgin Islands (unaudited) 55,821 24,969 (1,947) 78,843 2,028 76,815 Total 67,319 28,434 (6,418) 89,335 6,252 83,083 Line of credit payable: Virgin Islands Water and Power Authority: Electric System 25,128 - – 25,128 22,875 2,253 Water System 2,500 – - 2,500 2,500 - Roy L. Schneider Hospital 750 - (750) - – - Total 28,378 - (750) 25,375 22,875 2,253 Government of the United States Virgin Islands Notes to Basic Financial Statements   92 Beginning Balance Additions Reductions Ending Balance Amounts Due With One Year Due Thereafter Other long-term liabilities: University of the Virgin Islands (unaudited) 4,775 26 (147) 4,654 1,251 3,403 Virgin Islands Housing Authority 13,305 4,739 (2,688) 15,356 3,251 12,105 Virgin Islands Water and Power Authority: Electric System 36,774 6,404 – 43,178 – 43,178 Water System 8,022 907 – 8,929 – 8,929 Virgin Islands Port Authority 1,725 - (900) 825 825 - Economic Development Authority 869 12 (83) 798 52 746 Juan F. Luis Hospital 37 1,768 (381) 1,424 874 550 Virgin Islands Waste Management Authority 1,631 742 (434) 1,939 691 1,248 Virgin Islands Housing Finance Authority 7,978 443 - 8,421 193 8,228 Total $ 75,116 $ 15,041 $ (4,633) $ 85,524 $ 7,137 $ 78,387 Virgin Islands Water and Power Authority – Electric System Revenue Bonds of 2012 In May 2012, the Electric System of WAPA issued: (i) 2012A Electric System Revenues Refunding Bonds amounting to $17.3 million; (ii) 2013B Electric System Subordinated Revenue Bonds amounting to $19.7 million; and (iii) 2013C Electric System Subordinated Revenue Bonds amounting to $32.1 million. The proceeds of the Series 2013A Bonds were used to refund the Electric System Revenue Refunding Bonds, Series 1998 and pay certain costs of issuances of the Series 2013A Bonds. The proceeds of the Series 2013B Bonds were used to refinance a portion of the Electric System Term Loan, make a deposit into the Subordinated Debt Service Reserve Fund sufficient to satisfy the Series 2013B Subordinated Debt Service Fund Requirement and pay certain costs of issuance of the Series 2013B Bonds. The proceeds of the Series 2013C Bonds were used to refinance all or a portion of the Electric System Working Capital Lines of Credit and Overdraft Credit Facility, make a deposit into the Series 2013C Subordinated Debt Service Reserve Fund sufficient to satisfy the Subordinated Debt Service Reserve Fund Requirement and pay certain costs of issuance of the Series 2013C Bonds. Revenue Bonds of 2010 In March 2010, the Electric System of WAPA issued the $39 million 2010A Electric System Revenue Refunding Bonds; the $9 million 2010B Electric System Revenue Bonds; and the $37 million 2010C Electric System Revenue Refunding Bonds. The proceeds of the Series 2010A Bonds were used to: i) to fund a portion of the cost of certain capital expenditures, Series 1998, and ii) pay certain costs of issuance of the Series 2010A Bonds. The proceeds of the Series 2010B and 2010C Bonds were used to: i) finance certain capital expenditures temporarily funded through draws on a line of credit ($9 million) and, ii) to make certain deposits into the Debt Service Revenue Fund sufficient to satisfy the Debt Service Reserve Fund requirement. The proceeds of the three series were also used to pay certain costs of issuance of the 2010A, 2010B, and 2010C Revenue and Refunding Bonds. Government of the United States Virgin Islands Notes to Basic Financial Statements   93 Revenue Bonds of 2007 In June 2007, the Electric System of WAPA issued the $57.6 million 2007A Electric System Subordinated Revenue Bonds, to pay certain costs of issuance of the bonds, make certain required deposits to the Subordinated Debt Service Fund to finance the costs of certain capital improvements, refinance capital improvements funded through draws on a Line of Credit and to reinstall a $10 million Line of Credit. Revenue Bonds of 2003 In June 2003, the Electric System of WAPA issued the Electric System Revenue Bonds, Series 2003, amounting to $69.9 million. The proceeds from the bonds were used to finance capital improvements, repay $18 million of then outstanding lines-of-credit, cover underwriters’ costs, and establish a debt service fund. The Series 2003 Bonds maturing on or after July 1, 2023 are subject to redemption prior to their stated maturity date, at the option of the Electric System, on or after July 1, 2013, as a whole or in part at any time, at a redemption price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption. Under the terms of the Bond Resolution relating to the Electric System Revenue and Refunding Bonds, payment of the principal and interest is secured by an irrevocable lien on the Electric System’s net revenue, (exclusive of any funds that may be established pursuant to the Bond Resolution for certain specified purposes), including the investments and income, if any, thereof. Under the General Resolution, the Authority is required to maintain a Debt Service coverage ratio at least equal to 1.25 times (125%) the principal of and interest on all Outstanding Senior Bonds for the current and each future fiscal year (the Senior Coverage). Under the Electric System Subordinated Revenue Bond Resolution, adopted by the Authority on May 17, 2007, as amended and supplemented (the Subordinated Bond Resolution), the Authority must satisfy the Debt Service coverage ratio of the General Resolution for the Senior Bonds, must maintain a Subordinated Debt Service coverage ratio at least equal to 1.15 times (115%) the principal of and interest on all Outstanding Bonds (the Senior and Subordinate Coverage) and all Outstanding Subordinated Bonds for the current and each future fiscal year, and must maintain at least 1.0 times (100%) the Maximum Aggregate Debt Service for each such fiscal year (total debt coverage). For the year ended June 30, 2015, the Electric System’s Debt Service Coverage ratio was 1.16 for total Debt Coverage. Section 606(2) of the Resolution provides that if the Authority fails to achieve such 1.00 coverage in a particular year, the Electric System must “take whatever steps it can to produce the amount of net electric revenues required in the following fiscal year …” Section 701 (3) of the Resolution relates to covenant defaults and makes them an event of default if such covenant default continues for 60 days after notice unless the Electric System is proceeding with diligence to cure such default. The Electric System believes it is taking such steps currently to ensure future compliance with the ratio, including filing of a request for increased rates. The Electric System Revenue Bonds are subject to mandatory redemption if (i) any significant part of the Electric System was damaged, destroyed, taken, or condemned, or (ii) any for-profit nongovernmental investor shall acquire an ownership interest in some or all of the assets of the Electric System. Government of the United States Virgin Islands Notes to Basic Financial Statements   94 Virgin Islands Water and Power Authority – Water System In June 1998, the Water System of WAPA issued $110.9 million of 1998 Series A Electric System Revenue and Refunding Bonds. The proceeds from the bonds, and approximately $14 million in funds from the existing debt service and debt service funds, were used to repay outstanding line- of-credit balances, to provide for approximately $30 million in funds for the construction of certain capital projects, and to pay underwriters discount and issuance costs of approximately $1.7 million. The remaining proceeds were used to purchase direct obligations of the U.S. government which were placed in an irrevocable trust with an escrow agent to provide all future debt service on the remaining $69 million principal amount of the 1991 Series A Electric System Revenue Bonds. In December 1998, the Water System of WAPA issued the 1998 Water System Revenue and Refunding Bonds amounting to $44.2 million. The proceeds from the bonds were used to repay the 1990 Series A Water System Revenue Bonds at a redemption price of 100% and to refund the 1992 Series B Water System Revenue Bonds, repay outstanding lines of credit balances, pay underwriters’ costs, provide funding for a Renewal and Replacement Reserve Fund, and to purchase obligations of the United States Government, which were placed in an irrevocable trust with an escrow agent to provide all future debt service on the remaining principal amount of the 1992 Series B Bonds. Payment of principal and interest of the 1998 Series Bonds is secured by an irrevocable lien on the Water System’s net revenues (exclusive of any funds that may be established pursuant to the Bond Resolution for certain other specified purposes) and funds established under the Bond Resolution, including investment securities. To provide additional security, the Water System has conveyed to the bond trustee, a subordinate lien and security interest in the Water System’s General Fund. The Water System is also required to make deposits in a debt service reserve fund in accordance with the Bond Resolution. The Water System’s Bond Resolution requires the Water System under Section 606(1), for as long as the bonds are outstanding, to establish rates “... so that in each fiscal year the net water revenues shall at all times be at least 1.25 the aggregate debt service requirement for such fiscal year.” For the years ended June 30, 2015 and 2014, the Water System’s Debt Service Coverage ratio was 1.65 and 1.65, respectively. Section 606(2) of the Resolution provides that if the Water System fails to achieve such 1.25 coverage in a particular year, the Water System must “take whatever steps it can to produce the amount of net water revenues required in the following fiscal year ....” Section 701(3) of the Resolution relates to covenant defaults and makes them an event of default if such covenant default continues for 60 days after notice unless the Water System is proceeding with diligence to cure such default. The management of the Water System advises it is taking necessary steps to ensure future compliance with debt coverage ratios. The 1998 Series Bonds maturing on or after July 1, 2010 are subject to redemption prior to their stated maturity date, at the option of the Water System, as a whole or in part at any time, at a redemption price of 101% through June 30, 2010 and 100% thereafter. The Water System Revenue Bonds are subject to mandatory redemption if (i) any significant part of the water system shall be damaged, destroyed, taken, or condemned or (ii) any for-profit non-governmental investor shall acquire an ownership interest in some or all assets of the Water System. Government of the United States Virgin Islands Notes to Basic Financial Statements   95 Virgin Islands Port Authority In October 2014, the VIPA issued three series of 2014 Series Marine Revenue Bonds A, B & C amounting to $48.6 million, with an average interest rate of 4.70%. A portion of the proceeds was used to refund the outstanding bond series 2003 A and C amounting to $24.5 million, which include accrued interest as of the redemption date for October 27, 2014. The proceeds from the issuance of the 2014 Series used in the refunding were deposited in an escrow account, held by the Trustee on behalf of the holders of the refunded bonds, and applied to such redemption contemporaneously with the issuance of the Series 2014 Bonds. As a result, the 2003 A & C Bonds were paid off and were removed from the Authority’s books. The 2003 Series B Marine Revenue Bonds were paid off using the Marine Division’s surplus funds. As a result of the refunding, the Authority reduced its total debt service requirement by $1.7 million, which resulted in an economic gain (difference between the present value of the debt service payments on the old and new debt) of $2.4 million. In addition, the Authority recognized a deferred charge on debt refunding amounting to $.4 million. The proceeds of the 2014 Bonds, together with certain other available funds of the Authority, will be used for: (i) refunding $24.5 million in 2003 Series A Marine Revenue bonds and pay off the 2003 Series bonds; (ii) for the financing of various capital projects; (iii) to fund a deposit to the debt service fund; (iv) to fund a deposit to the operation, maintenance, renewal and replacement reserve account; and (v) to pay the cost of issuance of the 2014 Bonds. The 2014 bonds issued by VIPA contain certain bond indentures. The bonds’ indentures contain certain account restrictions and funding covenants to cover interest, debt service, maintenance and other costs specified in the corresponding indentures. Management believes that the Authority has established the aforementioned required accounts and has complied with the contribution requirements with respect to the bonds. In addition, it is management’s opinion that the Authority has complied with limitations and restrictions imposed by the indentures. The bonds’ indentures also specify certain debt service coverage requirements determined from Net Available Revenues (as defined) of the Authority’s Marine Division. The provisions of each of the bonds’ indentures require that rates and fees charged for the use of each facility generate enough revenues to pay all operation and maintenance expenses, exclusive of depreciation and certain non-cash charges, of the respective facilities plus (a) at least 125% of the principal and interest, and redemption account sinking fund deposit requirements of each of the bonds becoming due during such year, (b) the amount of the debt service reserve fund deposit requirement for such period, (c) the deposit required to the Renewal and Replacement Fund and (d) the amount of the capital improvements appropriation for such period. University of the Virgin Islands (Unaudited) In June 2011, the University of the Virgin Islands entered into two capital project loan agreements (loan agreements) in the amounts of $44 million and $16 million, with Rice Capital Access Program, LLC. The purpose of the capital project loans was to: (i) advance refund the University’s 1999 Series A Bonds and 2004 Series A Bonds, and (ii) to pay for construction costs of a 100 bed student residence facility and other construction improvement costs of facilities on the St. Thomas and St. Croix campuses. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the old outstanding bonds of approximately $4.5 million and an economic gain of $6.8 million. Government of the United States Virgin Islands Notes to Basic Financial Statements   96 Virgin Islands Housing Finance Authority In August 1998, VIHFA issued the 1998 Revenue Bonds Series A in the amount of $3 million, and on March 1, 1995, VIHFA issued the 1995 Revenue Bonds Series A in the amount of $6.2 million, for the purpose of building single-family housing. The indenture agreements for the bonds require the VIHFA to deposit with the trustee the full amount of the bond proceeds, to purchase Government National Mortgage Association (GNMA) certificates. The servicer is obligated to pay the principal and interest due on the GNMA certificates to the trustee in an amount equal to the scheduled principal and interest payments of the underlying mortgages. All mortgage loans issued by the VIHFA must be originated by the participants and secured by a first priority mortgage lien on the applicable single-family residences. Future debt requirements for discretely presented component units’ bonds payable with fixed maturities are as follows (expressed in thousands): Year Principal Interest Total 2016 $ 16,525 $ 14,405 $ 30,930 2017 17,335 13,596 30,931 2018 18,190 12,742 30,932 2019 15,385 11,633 27,018 2020 70,265 39,728 109,993 2021-2025 104,205 39,733 143,938 2026-2030 45,800 6,978 52,778 2031-2035 7,680 517 8,197 Total 295,385 $ 139,332 $ 434,717 Plus unamortized premium 7,910 Less unamortized discount (43) Bonds payable, net $ 303,252 Component Units – Notes Payable In November 2008, the Electric System of WAPA obtained general obligation notes from First Bank in the amount of $40 million at an interest rate of 5.5% (the “Notes”), the proceeds of which were used to finance outstanding invoices from HOVENSA. The Notes were issued based on a five year amortization, but with a balloon payment in three years. In October 2008, pursuant to Amended Order No. 05/2009 in Docket No. 289, the PSC ordered (i) the principal and interest payments on the Notes to be recognized for recovery through the LEAC billing factor for the Electric System and the Water System commencing in November 2008, of which 82.5%, or $7.6 million annually, has been allocated to the Electric System and 17.5%, or $1.6 million annually to the Water System, and (ii) the collection of the fuel costs recoverable balance to be reduced by the principal amount of the Notes. Pursuant to the Guaranty of the Government for the benefit of First Bank, dated November 13, 2008 (the General Obligation Guaranty), which was authorized by the Legislature in Act 7028, the Government agreed to guarantee the payment of the principal and interest on the Notes. Government of the United States Virgin Islands Notes to Basic Financial Statements   97 In October 2010, the Electric System of WAPA petitioned the commission for approval of a refinancing of the $40 million term loan. Through Order #16/2011 issued by the PSC in December 2010, the loan was approved. On December 22, 2010, the term-loan was refinanced at an interest rate of 5.25%. The term loan was refinanced based on a new five year amortization but with a balloon payment in three years. In June 2012, the Electric System of WAPA petitioned the Commission for the approval of a refinancing of the remaining balance of the term loan following the Series 2012 Bond issue. Through Order # 27/2012 issued by the PSC in July, 2012, the loan was approved. The term loan was refinanced at an interest rate of 5.50% and final maturity on April 2016. The new allocation of the principal and interest payments of the Notes to be recognized for recovery through the LEAC billing factor for the Electric System is 30% and 70% for the Water System. As of June 30, 2015, the outstanding balance on the Notes was $3.2 million. In February 2013, RTPark obtained a $3,000,000 loan from a member. A portion of the loan proceeds were used to repay a previous loan from UVI to complete construction on the 64 West Center. This loan has a 6.75% interest rate and is payable over 15 years. Principal payments were not due on the loan until April 2014. The loan is secured by all of RTPark’s tangible and intangible property. During the Fiscal year 2015, UVI entered into two capital project loan agreements fo rthe medical school with HBCU under Series 2015 3-1 and Series 2015 3-2. UVI also entered into a loan agreement with First Bank of Puerto Rico for a Medical School Loan. A variable rate was assigned to all the loans As of September 30, 2015, the outstanding balance on the noted was $78.8 million. 11. General Tax Revenue   For the year ended September 30, 2015, general tax revenue of the PG consisted of the following (expressed in thousands): General PFA Debt Service PFA Capital Projects Other Governmental Total Income taxes $ 356,264 $ - $ - $ - $ 356,264 Real property taxes 82,140 - - 9,027 91,167 Gross receipts taxes 1,090 154,520 2,414 250 158,274 Excise taxes 127,853 101,629 - 4,938 234,420 Other taxes 54,454 - - 6,988 61,442 $ 621,801 $ 256,149 $ 2,414 $ 21,203 901,567 Tax revenue not recognized on the full accrual basis (79,223) Total tax revenue – government-wide $ 822,344 Government of the United States Virgin Islands Notes to Basic Financial Statements   98 12. Governmental Fund Balances Following is a detail of the aggregated fund balances presented in the Balance Sheet – Governmental Funds as of September 30, 2015 (expressed in thousands): General PFA Debt Service PFA Capital Projects Federal Funds Other Governmental Total Restricted for: Debt service $ – $ 243,980 $ – $ – $ – $ 243,980 Capital projects – – 108,530 - – 108,530 General government – – – - 28,045 28,045 Health - - - - 4,095 4,095 Public housing and welfare - - - - 7,678 7,678 Education - - - - 1,427 1,427 Transportation and communication - - - - 3,611 3,611 Culture and recreation - - - - 8 8 Total – 243,980 108,530 - 44,864 397,374 Committed to: General government 14,483 – – – 36,534 51,017 Public housing and welfare – – – – 313 313 Transportation and communication – – – – 12,984 12,984 Culture and recreation 204 – – – 334 538 Total 14,687 – – – 50,165 64,852 Assigned to: General government 576 – – – 84,053 84,629 Public safety – – – – 1,186 1,186 Health – – – – 2,541 2,541 Public housing and welfare – – – – 4,742 4,742 Education – – – – 8,495 8,495 Transportation and communication – – – – 7,530 7,530 Culture and recreation – – – – 703 703 Total 576 – – – 109,250 109,826 Unassigned (74,073) – – (8,833) (133,329) (216,235) Total Fund Balances $ (58,810) $ 243,980 $ 108,530 $ (8,833) $ 70,950 $ 355,817 The assigned fund balance includes approximately $40.6 million in unexpended encumbrances. Encumbrances are utilized to determine commitments related to unperformed (executor) contracts for goods and services, and to prevent the over-spending of an appropriation. Government of the United States Virgin Islands Notes to Basic Financial Statements   99 13. Commitments and Contingencies Primary Government Collective Bargaining Agreements The current labor relations environment of the Government is defined by 13 distinct labor organizations subject to approximately 38 collective bargaining agreements. Nine bargaining units are without collective bargaining agreements. As specific disciplines are not grouped under a single pay plan, it is common to have clerical and nonprofessional workers in different departments throughout the Government, represented by different unions. Of the approximately 9,200 government workers, including employees of the executive branch of the Government, approximately 6,900 belong to unions. The present collective bargaining statute requires binding arbitration for certain classified employees in the event of an impasse during salary negotiations between the Government and any union. Under this process, each side chooses an arbitrator and a third impartial arbitrator is selected by the chosen arbitrators. The arbitration panel investigates and reviews the issues in dispute and renders a final and binding decision. As of September 30, 2015, the Government has contractual liabilities for retroactive union arbitration salary increases estimated at $195.3 million accruing from fiscal years 1993 through 2010, as established by the Virgin Islands Retroactive Wage Commission. Under Title 24, Section 374(h) of the V.I. Code, the PG may not make any payments of retroactive salaries until there is an appropriation of funds by the Legislature. Federal Assistance Programs The Government receives financial assistance from the federal government in the form of loans, grants, and entitlements. Monetary and nonmonetary federal financial assistance to governmental funds amounted to approximately $247.8 million and $56.5 million, respectively, for the year ended September 30, 2015. Receipt of grants and loss reimbursements is generally conditioned upon compliance with terms and conditions of the grant agreements and applicable federal regulations, including the expenditure of resources for eligible purposes. Substantially all grants are subject to audit under United States Office of Management and Budget (OMB) Circular A-133. Disallowances as a result of these audits may become liabilities of the Government. Management of the Government believes that the future outcome of any changes in federal financial assistance programs will not have a material adverse effect on the basic financial statements. Compliance Agreement U.S. Department of Education On September 23, 2002, the Government entered into a three-year compliance agreement with the U.S. Department of Education requiring that the Government develop integrated and systemic solutions to problems in managing its federally funded education programs. Government of the United States Virgin Islands Notes to Basic Financial Statements   100 The compliance agreement focuses on the areas of program design and evaluation, financial management, human capital, and property management and procurement. The compliance agreement expired on September 23, 2005. On August 22, 2006, the PG entered into a contract with a third-party fiduciary to administer U.S. Department of Education grants. The terms and conditions of the original compliance agreement have been extended until the Government is in full compliance with the agreement. Legal Proceedings and Litigation Claims The Government is a defendant in numerous legal proceedings pertaining to matters incidental to the performance of routine governmental operations. Under Title 33, Section 3411(c) of the V.I. Code, no judgment shall be awarded against the Government in excess of $25,000 for tort claims filed under Government statutes. In cases involving several survivors, each award must be construed separately for purposes of applying the limitation upon recovery imposed by the Tort Claims Act. Under Title 27, Section 166(e) of the V.I. Code, the Government’s waiver of immunity is expanded to $250,000 for medical malpractice actions, including actions for wrongful death based on malpractice. Under certain circumstances, as provided in Title 33, Section 3414 of the V.I. Code, the Government may assume the payment of a judgment entered against an officer or employee who acted reasonably and within the scope of his employment. The Government may pay up to a maximum amount of $100,000 of the settlement. With respect to pending and threatened litigation, the Government has accrued a provision for legal claims and judgments of approximately $23.8 million for awarded and anticipated unfavorable judgments as of September 30, 2015. Management believes that any liability in excess of amounts recorded will not have a material effect on the basic financial statements. Changes in the reported provision for legal claims during September 30, 2015, resulted from the following activity (expressed in thousands): Beginning Balance at October 1, 2014 New Claims Claims Payments and Changes in Estimates Ending Balance at September 30, 2015 Provision for legal claims $ 11,012 $ 16,839 $ (4,052) $ 23,799 The breakdown of the provision for legal claims at September 30, 2015, is as follows (expressed in thousands): Governmental activities Current portion of provision for legal claims $ 15,073 Long-term portion of provision for legal claims 8,726 $ 23,799 Government of the United States Virgin Islands Notes to Basic Financial Statements   101 Property Tax Assessments As of September 2002, the Government was a defendant in a lawsuit regarding the assessment of property taxes. Under the lawsuit, taxpayers asserted that properties should be assessed at actual value in accordance with the Organic Act of 1933. The U.S. District Court agreed with the plaintiffs and, in May 2003, imposed an injunction on the collection of real property taxes at values higher than the 1998 assessed value. The Government complied with the Court order to develop a plan to implement the new valuation method. This resulted in a delay in the issuance of property tax assessments. The 2015 and 2014 property tax assessments were issued in August, 2015 and March, 2015, respectfully. Landfill Closure and Post-Closure Costs Federal laws and regulations, including the Clean Air Act, 42 U.S.C. § 7401 et seq. (CAA), and regulations promulgated thereunder, including the federal standards set forth in 40 C.F.R. Part 62, Subpart GGG (Federal Plan), and the National Emission Standards for Hazardous Air Pollutants for Municipal Landfill Maximum Achievable Control Technology, set forth in 40 C.F.R. Part 63, Subpart AAAA (Landfill MACT), and the Solid Waste Disposal Act, 42 U.S.C. § 6901 et seq. (RCRA), and regulations promulgated thereunder, including federal municipal solid waste landfill operating, closure, and post-closure criteria set forth in 40 C.F.R. Part 258, and three EPA administrative orders issued pursuant to RCRA § 7003(a), 42 U.S.C. § 6973(a), and Territorial laws and regulations, including V.I. Code Title 19, Chapter 56 (Solid and Hazardous Waste Management), Title 12, Chapter 9 (Air Pollution Control), and Title 12, Chapter 21 (Virgin Islands Coastal Zone Management), and regulations promulgated thereunder, require the Government to construct and operate certain environmental control systems and otherwise comply with certain requirements during operation of each of its landfill sites, properly close the site (including placement of a final landfill cover) when the landfill (or portion thereof) stops accepting waste, and perform certain post-closure maintenance and monitoring functions at the site for 30 years following closure. Compliance costs during the operational phase will be paid prior to closure. Although closure and post-closure costs will be paid only near or after the date that the landfill stops accepting waste, the Government reports a portion of these closure and post-closure care costs as an operating expense in each period based on landfill capacity used as of each balance sheet date. The $83.6 million reported as landfill compliance, closure, and post-closure care liability at September 30, 2015, represents the cumulative amount reported to date based on the use of the estimated capacity of each landfill. The Government will recognize the remaining estimated cost of closure and post-closure care as the remaining estimated capacities are filled. These amounts are based on what it would cost to perform all closure and post-closure care as of September 30, 2015. The estimated used capacity and expected closure of each of the Government landfills is as follows: Landfill Estimated Used capacity Estimated Closure date Bovoni 98% 2016 Anguilla 97% Closed Susannaberg 100% Closed Government of the United States Virgin Islands Notes to Basic Financial Statements   102 The actual cost to perform closure and post-closure may be higher due to inflation, changes in technology, or changes in regulations. The Government is required by state and federal laws and regulations to make annual contributions to a trust to finance closure and post-closure care. The Government began making annual contributions to a trust in fiscal year 2007 to finance closure and post-closure costs. The Government expects that future inflation costs will be paid from interest earnings on these annual contributions and other financing measures. However, if interest earnings and financing measures should prove to be inadequate, or additional post-closure care requirements are determined due to changes in technology or applicable laws or regulations, these costs may need to be covered by charges to future landfill users. Wastewater Treatment Plant Consent Decree Since 1985, the Government has been subject to a consent decree issued by the Virgin Islands District Court, governing the operation of its wastewater treatment plants. The consent decree was amended in 1996 and further modified with the 2002 Stipulation to the Amended Consent Decree (the Stipulation) to establish deadlines for the construction of new secondary treatment facilities, including the replacement of the existing St. Croix and Airport Lagoon (Charlotte Amalie) wastewater treatment plants. The Stipulation requires that the new St. Croix wastewater treatment plants be completed by the end of 2006 and the new Charlotte Amalie wastewater treatment plants be completed by the end of 2007. The cost of both facilities was estimated at approximately $50 million. In January 2004, the Government’s Legislature authorized the creation of the VIWMA for the purpose of meeting environmental requirements of waste treatment in the U.S. Virgin Islands. On December 2004, the PFA issued revenue bonds amounting to $94 million for the purpose of constructing and rehabilitating wastewater treatment plants. The treatment facilities were completed in July 2007 and January 2008 at a cost of approximately $27 million and $29 million for the St. Croix and the St. Thomas treatment facilities, respectfully. The Stipulation also establishes certain interim deadlines and performance standards that must be met by the Government pending completion of the new facilities. In addition, the Stipulation establishes specified penalties for violation of any of the deadlines or performance standards set forth therein. As of the date of the basic financial statements, the Government is current on all of its outstanding obligations pursuant to the stipulation. Memorandum of Understanding - EPA On August 21, 2002, the Government and the United States Environmental Protection Agency (EPA) entered into a memorandum of understanding documenting the EPA’s agreement to support the renewal of the Territorial Pollutant Discharge Elimination System (TPDES) permit for its St. Croix distillery operations provided that the Government make certain funding available to (1) conduct treatability studies regarding the Virgin Islands Rum Industries, Ltd. (Cruzan Rum) effluent and the means to mitigate its potential environmental effects in the vicinity of the discharge, (2) identify practicable, available, reliable, and cost-effective potential mitigation measures, and (3) implement (or assist in the implementation of) such mitigation measures in the event such measures are determined by the Virgin Islands Department of Planning and Natural Resources after consultation with EPA to be necessary and appropriate. Government of the United States Virgin Islands Notes to Basic Financial Statements   103 Pursuant to the memorandum of understanding, the Government’s obligation to fund such activities is limited to $6 million in the aggregate, commencing on October 13, 2003. Subsequently the Government entered into a three year contract with a locally licensed environmental consulting firm to facilitate the Government’s commitments with the memorandum of understanding with the EPA. At the conclusion of the MOU treatability study period, the PG agreed to reissue the TPDES permit to Cruzan Rum in 2008 with the requirement that the rum distillery design and construct a treatment facility for the rum distillery effluent within three years. PFA issued the Series 2009 Cruzan Bonds to fund the treatment facility which is currently operating under a 2013 TPDES permit. Workers’ Compensation Liability The Government is exposed to risk of loss related to workers’ compensation claims. The Government is self-insured for this risk. Self-insured risk liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. Because actual claims liabilities depend upon such complex factors as inflation, changes in legal doctrines, and damage awards, the process used in computing claims liabilities does not necessarily result in an exact amount. Claims liabilities are reevaluated periodically to take into consideration recently settled claims, the frequency of claims, and other economic and social factors. Changes in the claims liability amount in fiscal year 2015, as recorded in the Government Insurance Fund are as follows (expressed in thousands): Claims payable, beginning of year $ 27,131 Incurred claims and changes in estimates 8,201 Payments for claims and adjustments expenses (3,279) Claims payable, end of year $ 32,053 The Government continues to carry commercial insurance for all other risks of loss. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years. Bond Credit Ratings On February 12, 2013, Moody’s Investors Service withdrew the ratings on the U.S. Virgin Islands general obligation gross receipts tax debt, issued through PFA, due to the lack of sufficient financial and operating information, and the late issuance of audited financial statements. On October 9, 2014, Fitch Ratings affirmed a BBB rating for general obligation gross receipts tax debt of the PFA. On August 13, 2015 Fitch downgraded the U.S. Virgin Islands matching fund bonds from a BBB rating to a BBB- rating due to revised consumption trends which have resulted in reduced production of rum products. Government of the United States Virgin Islands Notes to Basic Financial Statements   104 Pension Reform Joint Task Force In response to a recommendation in a September 27, 2011 audit report from the Office of the Inspector General, U.S. Department of Interior, the PG formed the Pension Reform Joint Task Force (the Task Force) to address the declining fiscal condition of the Government Employees Retirement System. The Office of the Inspector General’s audit report had concluded that, due to insufficient contribution levels, and an unbalanced ratio of active to retired members, the retirement system of the U.S. Virgin Islands may default within 14 to 19 years. More recent actuarial reports indicate that the system may default by the year 2025. The Task Force has submitted recommendations to the Legislature to: (i) increase government and employee contributions towards pension benefits, (ii) raise contribution rates for senators and judges, (iii) reduce retiree current benefits by 10 percent, (iv) increase the early retirement age from 50 to 55 and the regular retirement age from 60 to 65, (vi) limit the cost of living increase, and (vii) change the formula used to calculate benefits. The Task Force continues to work with the Legislature, and hearings were held at the Legislature in May 2014 and March 2015. On February 5, 2015, GERS increased employee contribution rates by 1% to be implemented over a three year period and to be effective for three years. PG contributions increased by 3% from 17.5% to 20.5% for the next five years. Component Units In September 1989, WAPA Electric facilities were damaged by Hurricane Hugo. WAPA reconstructed the facilities with proceeds from insurance and FEMA. Subsequent to the receipt of funds, FEMA de-obligated approximately $7.9 million in questioned costs. Approximately $2.6 million of these questioned costs related to an oil spill that was subsequently settled with FEMA. During 1998, WAPA submitted a second appeal for $4.4 million of the remaining questioned costs, and agreed to refund approximately $900 thousand of questioned costs to FEMA. During 1999, FEMA denied the second appeal and formally closed the disaster claim. WAPA has recorded a liability for $4.1 million related to the questioned costs. FEMA has not made a formal request for repayment of the funds. In October 2008, WAPA Electric facilities on the island of St. Croix were damaged by Hurricane Omar. WAPA expended $2.7 million for storm cleanup and system restoration through June 2010. The Territory was declared a federal disaster after the hurricane and is eligible for reimbursement of 75% of what was expended according to the category of the damage. WAPA Electric has recorded a receivable from FEMA through the Office of Management and Budget – Public Assistance (OMB-PA) amounting to approximately $1.2 million. In August 2010, WAPA Electric facilities were damaged by Hurricane Earl. WAPA has expended over $2 million for storm clean-up and restoration, which was completed in October 2010. The Territory was declared a Federal disaster area after the Hurricane and is eligible for reimbursement of 75% - 80% of what was expended according to the category damage. WAPA recorded a receivable of $1.1 million from FEMA through the Virgin Islands Territorial Emergency Management Agency (VITEMA) Public Assistance Program as of June 30, 2014. Government of the United States Virgin Islands Notes to Basic Financial Statements   105 WAPA has signed purchase power agreements with several companies to integrate a combined 18MW of solar electricity into the WAPA’s electrical grid system. The agreements are for between 20 and 25 years, expiring between 2022 and 2027. WAPA will not own the solar assets, but will be able to purchase solar generated electricity at contracted rates. In July 2013, the Governing Board of WAPA voted unanimously to approve an agreement between WAPA and the Vitol Group to build new infrastructure, convert existing turbines, as well as store and supply fuel for propane-based power generation. The project is designed to reduce the WAPA’s fuel costs by 30% and therefore intended to allow for significant savings to the WAPA’s rate payers. The project budgeted costs of approximately $90 million are to be paid upfront by Vitol Group. In November 2014, the project budget was revised to $150.0 million. WAPA will have the right to use the power generation facilities and obligation to repay the majority of the ultimate project costs fronted by Vitol based on a 10 years amortization schedule (with the option to complete payment in 7 years) to be finalized once the project has reached substantial completion, which includes construction and successful testing. The project has revised targeted completion dates in fiscal year 2016. On September 30, 2011, WAPA Electric entered into a Memorandum of Agreement (MOA) with viNGN, Inc., a Virgin Islands corporation and wholly owned subsidiary of the PFA. The MOA terms call for WAPA Electric to provide in-kind contributions in connection with a federal grant received by viNGN, Inc. The in-kind contributions consist of the use of certain facilities, equipment and communications infrastructure. The total in-kind match value budgeted by WAPA was $15.2 million. The term of the MOA is twenty-five (25) years upon execution, with two additional twenty-five (25) year terms unless either party provides a written notice of non-renewal not less than twelve (12) months, but no sooner than twenty-four (24) months prior to the expiration of the original term or any additional term. In 2011, the Water System of WAPA entered into two agreements with a private company to build, operate and maintain two reverse osmosis facilities, one on St. Croix and one on St. Thomas, and sell the water from the facilities to WAPA. The agreements both have 20-year terms expiring through 2032. The amounts paid by the Water System to Seven Seas Corporation under the agreements were $7.9 million and $7.4 million for 2015 and 2014, respectively. In 2002, the Federal Aviation Administration (FAA) conducted an on-site wildlife evaluation of the Anguilla Landfill, which is located next to the St. Croix airport. The FAA determined that the landfill posed an environmental and navigational threat to the airport due to flocks of birds that reside in the landfill area. The FAA stated it may require VIPA to repay $9.3 million in federal grants and has refused further discretionary grants for the airport until VIPA shows progress toward closing the landfill. The matter was mitigated in fiscal year 2013, and VIPA is now eligible for grants. In 2004, the Anguilla Landfill was transferred to the jurisdiction of the WMA. WMA subsequently entered into a consent decree with EPA, extending the closure date of the landfill to the year 2020, while diverting incoming solid waste to a newly constructed transfer station. Under the consent decree, WMA must pay penalties of $50 thousand in installment of $12.5 thousand for the years ending September 30, 2012 through 2016. The $50 thousand was paid in fiscal year 2014 by WMA. Government of the United States Virgin Islands Notes to Basic Financial Statements   106 As of September 30, 2015 the Government and WMA have accrued stipulated penalties associated with the consent decree of $8.9 million. The Government has recorded a liability of $5.9 million related to the stipulated penalties as of September 30, 2015. The Governor Juan F. Luis Hospital and Medical Center owns a 40% interest in a radiology practice that operates within the hospital. The radiology practice pays rent to the hospital and the hospital pays for services to hospital patients. As of September 30, 2015, the hospital owed the radiology practice $8.5 million. Various discretely presented component units are presently defendants or codefendants in various lawsuits. The financial managers of the component units have advised the PG that any adverse outcome involving a material claim is expected to be substantially covered by insurance. Government property is exempt from lien, levy, or sale as a result of any judgment under the V.I. Code. 14. Retirement Systems Effective October 1, 2014, the Government implemented the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27, as amended by GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date – an amendment of GASB Statement No. 68. Following is a description of the pension plan and accounting for pension expense, liabilities, and deferred outflows of resources. Plan Description and Benefits Full time employees of the Government are members of GERS, a single-employer, defined benefit pension plan (the plan) established as of October 1, 1959 Title 3, Chapter 27 of the V.I. Code to provide retirement, death, and disability benefits. Benefits may be extended to beneficiaries of plan members. The plan covers all employees of the Government except employees compensated on a contract fee basis, casual, per diem or provisional and part time employees who work less than 20 hours per week. Persons over the age of 55 may opt out of the plan by providing formal notification to the plan. Vesting of benefits occurs after 10 years of service. Benefits may be extended to beneficiaries of plan members. There are two tiers within the plan: Tier I: Employees hired prior to September 30, 2005 Tier II: Employees hired on or after October 1, 2005 Regular employees who have completed 30 years of credited service or have attained age 60 with at least 10 years of credited service are eligible for a full service retirement annuity. Members who are considered “safety employees” as defined in the Code are eligible for full retirement benefits when they have earned at least 20 years of service or have reached the age of 55 with at least 10 years of credited service. Regular and safety employees who have attained age 50 with at least 10 years of credited service may elect to retire early with a reduced benefit. Government of the United States Virgin Islands Notes to Basic Financial Statements   107 The monthly annuity benefit payment is determined by applying a stipulated benefit ratio to the member’s average compensation. Average compensation for Tier I members is determined by averaging the five highest years of credited service within the last ten years of service, subject to the maximum salary limitations in effect during such service. Average compensation for Tier II members is determined by averaging the most recent five years of credited service within the last ten years of service, subject to the maximum salary limitations in effect during the service. The maximum annual salary that can be used in this computation is $65,000, except for senators and judges, whose annual salary is used. GERS is a blended component unit included in the financial reporting entity and is presented as a pension trust fund of the PG. GERS issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to Employees’ Retirement System of the Government of the Virgin Islands, 3438 Kronprindsens Gade, St. Thomas, Virgin Islands 00802. Contribution Information Contributions to GERS are established by the Board of Trustees of GERS. The Government’s required contribution for Tier I and Tier II members through December 31, 2014 was 17.5% of the member’s annual salary. Effective January 1, 2015, the Government’s required contribution was increased to 20.5% of the Tier I and Tier II member’s annual salary. Effective January 1, 2015, Tier I member contributions increased by 1% to 9% of annual salary for regular employees, and will increase an additional 1% on January 1, 2016 and January 1, 2017. Member contributions for Tier I senators will increase 1% to 10% on January 1, 2015, and will increase an additional 1% on January 1, 2016 and January 1, 2017. Member contributions for Tier I judges will increase by 1% to 12% on January 1, 2015, and will increase an additional 1% on January 1, 2016 and January 1, 2017. Member contributions for safety (hazardous employees) will increase by 1% to 11% on January 1, 2015, and will increase an additional 1% on January 1, 2016 and January 1, 2017. Effective February 5, 2015, Tier II member contributions increased by 1% to: 9.5% of annual salary for regular employees, and will increase an additional 1% on January 1, 2016 and January 1, 2017. Member contributions for Tier II senators will increase 3% to 14% on February 5, 2015. Member contributions for Tier II judges will increase by 3% to 14% on February 5, 2015. Member contributions for safety (hazardous employees) will increase by 1% to 11.625% on February 5, 2015, and will increase an additional 1% on January 1, 2016 and January 1, 2017. Prior to June 29, 2000, member contributions were refundable without interest upon withdrawal from employment before retirement. Effective July 1, 2009, GERS Board of Trustees approved an effective annual interest rate on refunded contributions of 2% per annum. Net Pension Liability The net pension liability of the Plan is measured as of September 30, 2014, and the total pension liability for the Plan used to calculate the net pension liability was determined by an actuarial valuation as of October 1, 2014. Government of the United States Virgin Islands Notes to Basic Financial Statements   108 For the year ended September 30, 2015, the Government recognized $74 million of pension expense, inclusive of amortization of deferred outflows of pension related items. Given the limited historical information provided to the Government by GERS, it was not practical for the Government to determine the amounts of all applicable deferred inflows of resources and deferred outflows of resources related to pensions. As such, and consistent with GASB Statement No. 71, the Government recognized a beginning deferred outflows of resources only for its pension contributions made subsequent to the measurement date of the beginning net pension liability but before the start of the plan’s fiscal year. No other beginning balances for other deferred outflows of resources and deferred inflows of resources related to pensions have been recognized. Following is a schedule of deferred outflows and deferred inflows allocated to the Government in the computation of net pension liability (expressed in thousands): Governmental Funds Deferred Outflows Deferred Inflows Difference between expected and actual experience $ 27,989 $ - Net difference between projected and actual investment earnings on pension plan investments 21,515 - Changes in assumptions 188,213 - Changes in proportion and differences between contributions and proportional share of contributions 6,973 23,392 Contributions made subsequent to measurement date* 64,357 - Total deferred outflows and inflows of resources $ 309,047 $ 23,392 The table above does not include deferred outflows and deferred inflows for certain component units that did not adopt GASB 68. Amounts reported as deferred outflows and inflows, exclusive of contributions made after the measurement date, will be recognized in pension expense as follows: Year Ending September 30: Net Deferred Outflows 2016 $ 55,325 2017 55,325 2018 55,325 2019 55,323 Total deferred net outflows of resources $ 221,298 Government of the United States Virgin Islands Notes to Basic Financial Statements   109 Actuarial Assumptions Actuarial assumptions used in the computation of pension liability and deferred outflows and inflows of resources were as follows: Valuation date: October 1, 2014 Measurement date: September 30, 2014 Inflation rate: 2.85% Salary Increases: 4.00% including inflation Investment rate of return: 4.42% net of pension plan investment expense, including inflation Mortality rates: RP-2000 Healthy Annuitant Mortality Table set forward 2 years. Funding method: Entry Age Normal Cost using the level percent of salary funding method. Investment Rate of Return The long-term expected rate of return of 7.5% on pension plan investments was determined using the building-block method in which best-estimate ranges of expected future real rates of returns (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan’s target asset allocation as of the measurement date of September 30, 2014, are summarized in the following table: Asset Class Target Allocation Long-Term Expected Real Rate Of Inflows Domestic equity 45% 6.99% International equity 10% 7.49% Fixed income 40% 2.59% Alternatives 5% 4.29% Total 100% Government of the United States Virgin Islands Notes to Basic Financial Statements   110 Discount Rate The discount rate used to measure total pension liability was 4.42% as of September 30, 2014 and 4.87% as of September 30, 2013. The projection of cash flows used to determine the discount rate assumed plan member contributions will be made at the current contribution rate, including the increases in the employee contribution rates effective January 1, 2015, 2016 and 2017. Using the above assumptions, GERS fiduciary net position is not projected to be available to make all projected future benefit payments to current plan members. The plan’s long-term expected rate of return on pension plan investments of 7.5% was applied to all periods of projected benefit payments that are covered by projected assets. For periods where projected future benefit payments are not covered by projected assets, the yield on a 20-year AA Municipal Bond Index was applied. As of September 30, 2014, that rate was 4.11%. The discount rate to measure the total pension liability as of September 30, 2013 (the measurement date for fiscal year ended September 30, 2014), was developed using the same method as described above, but a 20-Year AA Municipal Bond Index of 4.53% as of September 30, 2013 was applied to those periods where projected benefit payments were not covered by projected assets. Changes in the Net Pension Liability (Expressed in thousands) Increase (Decrease) Total Pension Liability (a) Plan Fiduciary Net Position (b) Net Pension Liability (a) – (b) Balances at September 30, 2014 $ 3,982,567 $ 1,252,509 $ 2,730,058 Changes for the year: Service cost 65,275 - 65,275 Interest 191,114 - 191,114 Change in assumptions 241,527 - 241,527 Change in contributions rates (40,422) - (40,422) Differences between expected and actual experience 35,918 - 35,918 Contributions - employer - 68,299 (68,299) Contributions – employee - 34,020 (34,020) Net investment income - 50,427 (50,427) Benefit payments, including refunds of employee contribution (247,070) (247,070) - Administrative expense - (18,868) 18,868 Other changes - 3,574 (3,574) Net changes 246,342 (109,618) 355,960 Balance at September 30, 2015 $ 4,228,909 $ 1,142,891 $ 3,086,018 Certain component units with a combined net pension liability proportionate share of $80 million did not adopt GASB 68 for the year ended September 30, 2015. Government of the United States Virgin Islands Notes to Basic Financial Statements   111 Sensitivity of Proportionate Share of the Net Pension Liability t1o Changes in the Discount Rate Following is a schedule of net pension liability for the Government calculated using the discount rate of 4.42%, as well as what the net pension liability would be if it were calculated using a discount rate that is one percentage point lower (3.42%) or one percentage point higher (5.42%) than the current rate (expressed in thousands): Allocable Share for Primary Government 1% Decrease (3.42%) Current Discount (4.42%) 1% Increase (5.42%) Net pension liability $ 3,583,207 $ 3,086,018 $ 2,665,638 Early Retirement Incentive Program In August 1994, legislation providing an early retirement incentive was passed. The legislation was subsequently amended on October 13, 1994, December 30, 1994, and December 5, 1995. Among other matters, the legislation allows a member of GERS who has a combined aggregate number of years of credited service plus number of years of age, equal to at least 75 years as of the date of the legislation, to retire without reduction of annuity. Members, who have attained the age of 50 with at least 10 but less than 30 years of credited service, may add an additional 3 years to their age for this computation. Members with 30 years of service or who can retire without penalty under the V.I. Code shall have their average compensation increased by 4 percentage points. For each employee electing to retire pursuant to Section 8(a) of the Early Retirement Act of 1994 (the Act), the Government contributes to GERS, on a quarterly basis, an amount equal to the employer and employee contributions that would have been made until the employee reached the age of 62 had the employee not elected to retire under this provision. For employees electing to retire under Section 8(b) of the Act, the Government contributes to GERS a sum equal to the additional contribution the employer and employee would have made had the employee received a salary 4% higher during the three years used to compute the employee’s average compensation figure, plus a sum of $5,000. Based on this calculation, the amount due to GERS was $26.9 million as of September 30, 2015, of which $26.9 million had been remitted to GERS. The actuaries of GERS have determined that the specific funding provided under the Act is inadequate to cover the costs of the program. GERS is seeking to recover any unfunded costs of the program under a newly enacted provision of the retirement law, which provides that the Government will compensate GERS for the costs of any special early retirement program. Government of the United States Virgin Islands Notes to Basic Financial Statements   112 Postemployment Benefits In addition to the pension benefits described, the Government provides other postemployment benefits (OPEB) of healthcare, prescription, dental and life insurance coverage. These benefits are provided in accordance with Title 3, Chapter 25, Subchapter VIII of the V.I. Code as part of a cost-sharing, multiple employer defined benefit OPEB plan, in which all component units of the PG participate and contribute. All employees who retire from government service after attaining age 55 with at least 30 years of service; except for policemen and firemen who can retire with at least 20 years of service, are eligible for these benefits. Based on census data included in the October 1, 2013 actuarial valuation of OPEB, approximately 7,862 active employees, 7,869 service retirees, 2,051 spouses of service and disability retirees covered for medical and dental benefits, 295 disability retirees, and 215 deferred vested (i.e., non-retired employees who have already terminated employment with the PG, but who are eligible for medical and life insurance benefits when they subsequently reach the qualifying age) meet the eligibility requirements of OPEB. Healthcare, prescription and dental insurance is provided through negotiated contracts with private insurance companies. Participants in the plan may elect coverage for their spouses and dependent children. Participants are required to contribute 35% of medical, prescription and dental premiums. Effective October 1, 2013, separate medical premiums for non-Medicare retirees and Medicare retirees are being used to determine contribution requirements, instead of a premium blended with active costs. Retirees of UVI that participate in the 403(b) retirement plan may obtain coverage on a fully contributory basis. Life insurance is offered to retirees on a fully contributory basis. The contribution requirements of plan members and the PG are legislated within the V.I. Code, and may be amended, by the Virgin Islands Legislature. The plan is a non-funded pay-as-you-go plan, and expenditures are paid as they become due. For the years ended September 30, 2015 and 2014, the Legislature budgeted, and paid, $37.4 and 48.9 million for retiree health insurance payments. The PG’s postemployment benefit cost is calculated on the annual required contribution of the PG, an amount actuarially determined. The first actuarial valuation was prepared as of October 1, 2007, in accordance with provisions of GASB Statement 45— Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, and has been updated by the actuarial consultant on October 1, 2009, 2011 and 2013. Prior to the implementation of GASB Statement 45, the PG did not report an OPEB obligation. The annual required contribution represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year, and amortize any unfunded actuarial liabilities over a period not to exceed an open thirty (30) year period. Government of the United States Virgin Islands Notes to Basic Financial Statements   113 Annual OPEB Cost and Net OPEB Obligation The following table shows the components of the PG’s annual postemployment benefits cost, percentage of OPEB costs contributed, and the net OPEB obligation (expressed in thousands): Fiscal Year Ended Annual OPEB Cost Percentage of Annual OPEB Cost Contributed Net OPEB Obligation 9/30/2011 $ 89,962 35.06% $ 201,423 9/30/2012 $ 80,322 45.65% $ 245,079 9/30/2013 $ 71,176 43.95% $ 284,974 9/30/2014 $ 65,247 47.77% $ 319,056 9/30/2015 $ 67,713 43.63% $ 357,224 Annual OPEB Cost and Net Postemployment Benefit Obligation The following table shows the components of the PG’s annual postemployment benefits cost for the fiscal year ended September 30, 2015, and the changes in the net estimated obligation for future payments of benefits (expressed in thousands): Annual required contribution $ 68,344 Interest on underfunded OPEB obligation 11,167 Adjustment to underfunded OPEB obligation (11,798) Annual OPEB cost 67,713 Employer contributions (29,545) Change in the net OPEB obligation $ 38,168 Net OPEB obligation - beginning of year $ 319,056 Change in the net OPEB obligation 38,168 Net OPEB obligation - end of year $ 357,224 Actuarial Accrued Liability and Funding Status Actuarial Valuation Date October 1, 2013 Actuarial Accrued Liability (AAL) $ 1,015,109 Unfunded AAL $ 1,015,109 Funded Ratio 0% The PG’s obligation to provide health insurance to retirees is an unfunded plan. The actuarial valuation of the amount required to fund the plan involves estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Estimated annual required contributions are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. Government of the United States Virgin Islands Notes to Basic Financial Statements   114 Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members), and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the PG and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short term volatility in actuarial accrued liabilities, and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the first actuarial valuation dated October 1, 2007, liabilities at October 1, 2008 were rolled back to October 1, 2007. In subsequent valuation reports, actual benefit payments were used for the fiscal years ended September 30, 2009 through 2015. Covered health care and dental care expenses were assumed to increase in future years based on the claims experience for fiscal years 2014 and 2015, and a trend assumption beginning at 7.5% for pre-Medicare retirees, 6.5% for post-Medicare retirees, 6.5% for dental benefits, and grading down to an ultimate rate of 4.5% in fiscal year 2021 and after. The entry age normal actuarial cost method with costs on a level percentage of payroll basis was used to determine the annual required cost of OPEB benefits to retirees. Amortization is over an open thirty (30) year period as a level percentage of payroll. Payroll growth is assumed to be 3% per year for purposes of amortization. This method is consistent with the cost method used by GERS and typically produces the most level annual required contribution each subsequent year as a percentage of payroll. The normal cost was rolled back using the ultimate trend rate. A discount rate of 3.5% per annum was used, compounded annually. The valuation assumed that the annual unit cost per covered individual (i.e., retiree or spouse) for medical, prescription drugs and dental care for the fiscal year ended September 30, 2015, was $7,166, $1,547 and $200 for retirees under age 65; and $999, $1,578 and $200 for retirees over age 65. The normal cost reflects the average age of the covered population and is based on claims experience for the fiscal years ended September 30, 2014 and 2015, with a two-thirds weighting applied to the more recent year. Combined experience and a combined cost were used for the pre-65 and post-65 populations. A composite cost was developed for retirees and spouses by combining their claim experience. Dependent children claims were included in developing the composite retiree and spouse cost. Costs were adjusted to reflect the anticipated lag in claim payment. An administrative loading was added as well. WICO Employee Retirement Plan The WICO Employee Retirement Plan (the Plan) is a defined contribution retirement and savings plan sponsored by the Company, covering the Company’s employees not governed by a collectible bargaining agreement. The Plan is administered by Weber Shapiro & Co. LLP. Under the provisions of the Plan, the employees must contribute at least 3% of their gross compensation and may contribute up to 7% of their compensation. The Company matches 3% of the employees’ contribution plus a non-elective distribution at the discretion of the Company, which is divided among eligible employees, proportionate to compensation. Government of the United States Virgin Islands Notes to Basic Financial Statements   115 Required contributions to the pension and savings plan made and charged to operations were approximately $119,000 for the year ended September 30, 2015. Total contributions made to the Plan by the covered employees during 2015 amounted to $125,700. The Company does not offer other post-retirement benefits to its employees. University TIAA-CREF Defined-Contribution Plan The University has two retirement plans in which all eligible employees are required to participate, the Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF) and GERS. The TIAA-CREF is a defined-contribution pension plan covering participating, full-time faculty members and other exempt employees, under which the contributions, including employees’ contributions, are used to purchase annuities. There are no unfunded past service costs, and vested benefits are equal to the annuities purchased under TIAA- CREF. Total contributions made by the University to TIAA-CREF and GERS participant accounts amounted to $2.3 million (unaudited) and $1.5 million (unaudited), respectively for the fiscal year ending September 30, 2015. 15. Liquidity Governmental Activities At September 30, 2015, the Government reported an unrestricted net deficit in governmental activities amounting to $4 billion. The net deficit resulted from: 1) the 2008 financial markets collapse and subsequent recession resulting in a reduction in income tax revenue and increase in unemployment, 2) increases in costs of operations, and 3) the negative effect of certain Internal Revenue Service regulations resulting in a reduction of economic development companies operating in the Territory. For the year ended September 30, 2015, the Government has implemented a new accounting standard (GASB Statement No. 68) which requires the reporting of pension liabilities and pension expense based on actuarial computations of those amounts. As a result of this new accounting standard, the Government has included long-term pension liabilities amounting to $2.3 billion in the current fiscal year, and has reported additional pension expense of $75 million. Following is a summary of the Government’s unrestricted net deficit for governmental activities for fiscal years 2011 through 2015: Fiscal Year Governmental Unrestricted Net Deficit (Increase)/ Decrease 2011 $ (1,630,549) $ (221,948) 2012 (1,697,066) (66,517) 2013 (1,837,805) (140,739) 2014 (1,484,069) 353,736 2015 (3,470,433) (1,986,364) Government of the United States Virgin Islands Notes to Basic Financial Statements   116 The Government has initiated specific actions to improve its liquidity and future cash flows. The Government established the Office of Economic Opportunity to generate jobs, to promote energy efficient appliances and automobiles, and to improve infrastructure. The Government has also legislated increases in local taxes such as the gross receipts taxes and hotel taxes. General Fund At September 30, 2015, the Government reported a fund deficit in the General Fund of $58.8 million. This fund deficit balance represents a decrease in the General Fund balance of $28.9 million from the preceding fiscal year, mainly due to the issuance of working capital loans to offset deficits resulting from expenditures exceeding revenues. Following is a summary of the General Fund balance for fiscal years 2015, 2014 and 2013: Fiscal Year Committed Assigned Unassigned Total 2013 $ 27,314 $ - $ (120,026) $ (92,712) 2014 12,126 - (99,794) (87,668) 2015 14,687 576 (74,073) (58,810) 16. Fund Deficit The following non-major funds have a net fund deficit as of September 30, 2015 (in thousands): Governmental Funds Rural Library Extension $ 572 Water & Electric System Projects $ 1,698 Employment Security Administration 2,302 Sewer System Fund 175 Federally Aided Education Program 9,597 District Potable Water Fund 4,962 Air & Water Pollution Control 7,314 Paternity And Child Support 11,872 Virgin Islands Planning Board Projects 3,000 District Street Light Fund 15,478 Highway Safety 4,600 Virgin Islands Law Enforcement 4,658 Virgin Islands Energy Office 3,655 Forensic Science 74 Virgin Islands National Guard Federal Vocational Rehabilitation 1,848 and State Agreement 2,760 Hurricane Hugo Insurance Claims 3,908 Food Stamp Welfare Virgin Islands Army National Guard 2,266 Federal Programs/Department 2,434 Emergency Drought Relief 163 Conservation 4,272 Outdoor Recreation Program 32 Federal Aided Community Action Agency 187 Narcotics Strike Force Forfeiture 2 Commission On Aging 50 Small Business Development Elementary/Secondary Education 19 Administration Managerial And Job Training Partnership 8,614 Technical Assistance 8 Act Of 1983-1984 Juvenile Detention Center Fund Civil Defense Protection 849 Non-Lapsing 14 Health Information Council Assistance 18 Natural Resource Reclamation 2,205 Drug Education Training Program 123 Section 12 Bond Proceeds 31,449 Federal Health Program Not On Federal Road Fund 6,330 Letter Of Credit System 489 Major Repair And Improvement 58 Boating Safety Program 584 Fishery and Wildlife Projects 33 Net fund deficit $ 138,672 Government of the United States Virgin Islands Notes to Basic Financial Statements   117 Proprietary Funds Frederiksted Small Business Fund $ 164 Altona Community Development Fund 3 Housing Construction Revolving 7,653 Emergency Housing Fund 82 Virgin Islands ID Registration Fund 4 Virgin Islands Lottery 2,996 Consumer Protection Fund 200 Virgin Islands Housing Finance Authority 2,898 Homestead and Home Revolving Fund 344 Net fund deficit $ 14,344 17. Restatements to Beginning Net Position (Deficit) Governmental Activities - Statement of Net Position Beginning unrestricted net position of governmental activities in the government-wide financial statements was restated as follows (expressed in thousands): Net Position (Deficit) Governmental Activities As Previously Reported Adjustments As Restated Unrestricted net deficit $ (1,442,988) $ (2,027,445) $ (3,470,433) Adjustments to the unrestricted net deficit are mainly due to $2.015 billion in connection with the implementation of GASB Statement No. 68 (GASB 68), Accounting and Financial Reporting for Pensions. The primary objective of this Statement is to improve accounting and financial reporting for pensions. This Statement establishes standards for measuring and recognizing liabilities, deferred outflows of resources, deferred inflows of resources, and pension expenditures. The Statement requires the pension liability to be measured as the portion of the present value of projected benefit payments to be provided through the pension plan. The pension liability measurement date under GASB 68 is one year prior to the financial statements (the measurement date). The adjustment represents the estimated liability as of September 30, 2013, reflected in the opening net deficit of governmental activities as of September 30, 2014. Additional adjustments were made by the Government to adjust for certain capital assets as of September 30, 2014 and to account for changes in the amortization method of bond premiums and discounts to the effective interest method. Government of the United States Virgin Islands Notes to Basic Financial Statements   118 Component Units Beginning net position of certain discretely presented component units was restated to correct account balances reported in prior years as follows (expressed in thousands); these adjustments were primarily related to the adoption of GASB 68. Beginning Net Position Component Unit As Previously Reported Adjustments As Restated Virgin Islands Housing Authority $ 81,912 $ - $ 81,912 Virgin Islands Port Authority 236,603 (83,337) 153,266 Virgin Islands Water and Power Authority: Electric System 45,195 (163,907) (118,712) Water System 52,889 (34,094) 18,795 Virgin Islands Government Hospital and Health Facilities Corporation: Roy L. Schneider Hospital 39,429 (110,511) (71,082) Juan F. Luis Hospital (8,573) (82,002) (90,575) University of the Virgin Islands (unaudited) 78,788 (56,516) 22,272 Other component units 239,526 (66,861) 172,665 Net position $ 765,769 $ (597,228) $ 168,541 18. Subsequent Events Primary Government On November 26, 2015, PFA extended an irrevocable standby letter of credit in favor of Delta Airlines, Inc. amounting to $650 thousand with First Bank Puerto Rico through November 26, 2016. The letter of credit was established under a Revenue Guarantee Agreement (Agreement) between Delta Airlines, Inc. and the U.S. Virgin Islands of Tourism as part of an agreement for Delta Airlines, Inc. to continue flights to the island of St. Croix. On December 1, 2015, the United States District Court of the Virgin Islands, Bankruptcy Division, St. Croix, Virgin Islands, approved a purchase agreement for the sale of the HOVENSA oil refinery and related facilities located in St. Croix to ArcLight Capital Partners (ArcLight). The HOVENSA facility had been closed since 2012. As part of the agreement the Government and HOVENSA closed certain lawsuits for the payment of income tax refunds amounting to $236 million for tax years 2006, 2007 and 2008 and settled an ongoing lawsuit related to an outstanding settlement agreement for $43.5 million due to natural resource damages. Government of the United States Virgin Islands Notes to Basic Financial Statements   119 Also on December 1, 2015, the PG entered into an operating agreement with Limetree Bay Terminals, LLC (Limetree), a wholly-owned affiliate of ArcLight, agreeing to lease the former HOVENSA, Inc. oil refining facility for a twenty-five (25) year term, with a fifteen (15) year extension term and to refurbish, operate and explore expansion of the oil terminal, investing $125 million within the first two years. Limetree made a payment of $90 million to HOVENSA, Inc. for the existing facility, and $30 million to wind down the site. Limetree agreed to make an upfront payment to the PG amounting to $220 million upon entering the agreement, as well as $15 million in other payments In addition, the buyer agreed to provide $15 million in electric supply at the request of the PG. The buyer receives exemptions from taxes as part of the agreement, and agrees to pay variable terminal payments of 10% of terminal revenues due on the last day of each quarter. On December 14, 2015, PFA issued the Series 2015 Federal Highway Grant Anticipation Revenue Bonds (Series 2015 Bonds) amounting to $89.9 million. The Government has pledged federal highway grant revenues and certain transportation trust fund revenues for the timely payment of the Series 2015 Bonds. The Series 2015 Bonds bear interest at rates from 3.0% to 5.0% with payments due on March 1st and September 1st and principal payments due on September 1st a final maturity on September 1, 2033. The Series 2015 Note was issued to: (i) to finance certain operating expenses of the PG, (ii) to fund certain costs of issuing the Series 2015 Note and (iii) to establish certain debt service accounts in connection with the Series 2015 Note. On December 18, 2015, an additional $20 million was drawn from the Series 2014 E Notes (Virgin Islands Gross Receipts Tax Loan Notes), bringing the total withdrawn to $60 million. On January 8, 2016, $50 million of the outstanding balance was repaid. On December 18, 2015, Congress enacted the Protecting Americans from Tax Hikes Act of 2015. This Act legislated an extension of the (matching funds) rum excise tax cover over rate of $13.25 per proof gallon through December 31, 2016. On March 2, 2016, WICO received a non-revolving line of credit and conversion to commercial term loan with Banco Popular in the amount of $11.6 million. The loan proceeds will be utilized to assist in completion of the cruise ship dock construction and other renovations. On April 14, 2016, PFA and the Government entered into a settlement agreement with three professional firms that provided services in connection with the Series 2006 arbitrage payment obligations. The Government paid $13.64 million in connection with an IRS audit of the arbitrage liability in a prior year. Under the terms of the settlement agreement, the professional firms paid $8.1 million to settle the litigation. Component Units On May 18, 2016, the Electric System of WAPA presented testimony before the Legislature of the Virgin Islands in support of Bill no 31-0256, which proposes to lower the interest on customer deposits from 4.75% compounded annually to the average interest rates offered by banks. On May 13, 2016, the Electric System of WAPA completed all filing requirements to draw down funds on the Rural Utilities Services loan program. It is anticipated that funds will be released to WAPA in June 2016. Government of the United States Virgin Islands Notes to Basic Financial Statements   120 On March 31, 2016, Moody’s Investor’s Services placed on review for downgrade the WAPA Electric’s Baa3 Electric System revenue bonds rating and the Ba1 electric system subordinated revenue bonds rating. On June 6, 2016, Moody’s Investor Services further downgraded the Electric System revenue bond rating to Ba2 from Baa3, and the electric system subordinated revenue bond rating to Ba3 from Ba1. On November 30, 2015, the Water and Power Authority Electric System’s Governing Board authorized the Authority to file a petition with the Commission for permanent rates for the Electric System. On December 2015 the Authority file for such rate increase before the Commission. On May 13. 2016, the Authority filed for an emergency interim Electric System base rate relief in the form of a cash reserve. On November 30, 2015, the Water and Power Authority Water System Governing Board authorized the Authority to file a petition with the Commission for permanent base rates for the Water System. On July 30, 2015 the Legislature of the Virgin Islands through Act 774 officially changed the name of the Virgin Islands Public Television System to the Virgin Islands Public Broadcasting System. The change is effective November 2015. In June 2016, GERS received $7 million from the Internal Revenue Matching Funds as stipulated under Act No. 7261 Section 13 (Bill No. 29-0123). Management’s Evaluation Management has evaluated any events or transactions occurring after September 30, 2015, the statement of net position date through June 27, 2016, the date the financial statements were available to be issued, and noted that there have been no additional events or transactions which would require adjustments to or disclosure in the Government’s financial statements for the year ended September 30, 2015.         Required Supplementary Information Government of the United States Virgin Islands Schedule of Funding Progress   121 Postemployment Benefits Other Than Pensions (b) Unfunded (c) UAAL as a (a) actuarial Actuarial (d) (e) percentage Actuarial Actuarial accrued accrued Funded Annual of covered valuation value of liability liability Ratio covered payroll Date Assets (UAAL) (a)+(b) (a)/(c) Payroll (b)/(e) 10/1/2007 $ – $ 976,455,000 $ 976,455,000 – N/A N/A 10/1/2009 $ – $ 1,069,562,000 $ 1,069,562,000 – $418,467,000 255.59% 10/1/2011 $ – $ 1,133,327,000 $ 1,133,327,000 – $403,389,000 280.95% 10/1/2013 $ – $ 982,484,000 $ 982,484,000 – $298,873,000 240.55% Additional Note Disclosure - Annual OPEB Cost and Net OPEB Obligation Fiscal Year Ended Annual OPEB Cost Percentage of Annual OPEB Cost Contributed Net OPEB Obligation 9/30/2008 $ 78,185,000 40.36% $ 46,629,000 9/30/2009 $ 82,004,000 42.34% $ 93,195,000 9/30/2010 $ 85,946,000 42.89% $ 143,002,000 9/30/2011 $ 89,962,000 35.06% $ 201,423,000 9/30/2012 $ 80,322,000 45.65% $ 245,079,000 9/30/2013 $ 71,176,000 43.95% $ 284,974,000 9/30/2014 $ 65,247,000 47.77% $ 319,056,000 9/30/2015 $ 67,713,000 43.63% $ 357,224,000 Government of the United States Virgin Islands Schedule of Contributions   122 September 30, 2015 Actuarially required contributions $ 200,089,791 Contributions in relation to actuarially required contributions 64,325,068 Contribution deficiency (excess) $ 135,764,723 Covered-employee payroll $ 355,603,633 Plan fiduciary net position as a percentage of the total pension liability 27.26% This schedule is intended to show a 10-year trend. Additional years will be reported as they become available. The amounts presented for each fiscal year is as of the latest fiscal year. Government of the United States Virgin Islands Schedule of Changes in the Government’s Net Pension Liability and Related Ratios   123 September 30, 2015 Total pension liability Service cost $ 65,274,936 Interest 191,113,749 Changes of benefit terms (40,421,809) Differences between expected and actual experience 35,917,905 Changes of assumptions 241,527,329 Benefit payments, including refunds of employee contributions (247,069,503) Net change in total pension liability 246,342,607 Total pension liability – beginning 3,982,566,780 Total pension liability – ending (a) $ 4,228,909,387 Plan fiduciary net position Contributions – employer 68,298,617 Contributions – employee 34,020,107 Net investment income 50,426,921 Benefit payments, including refunds of employee contributions (247,069,503) Administrative expenses (18,867,491) Other 3,573,611 Net change in plan fiduciary net position (109,617,738) Plan fiduciary net position – beginning 1,252,509,113 Plan fiduciary net position – ending (b) 1,142,891,375 Net pension liability – ending (a) – (b) $ 3,086,018,012 Plan fiduciary net position as a percentage of the total pension liability 27.26% Covered-employee payroll $ 355,603,633 Net pension liability as percentage of covered-employee payroll 867.83% This schedule is intended to show a 10-year trend. Additional years will be reported as they become available. The amounts presented for each fiscal year are as of the measurement date (September 30 of the previous year). Original Revised Budget Budget Actual Variance Revenues: Taxes 459,170 $ 459,170 $ 621,801 $ 162,631 $ Federal grants and contributions – – 10,919 10,919 Charges for services 13,998 13,998 10,903 (3,095) Interest and other 146,058 146,058 43,333 (102,725) Total revenues 619,226 619,226 686,956 67,730 Expenditures: Current: General government 410,914 412,339 474,913 (62,574) Public safety 105,329 105,329 57,343 47,986 Health 71,129 88,555 45,313 43,242 Public housing and welfare 71,023 78,964 59,822 19,142 Education 163,976 165,276 174,675 (9,399) Transportation and communication 32,881 32,884 18,564 14,320 Culture and recreation 20,959 21,024 7,299 13,725 Total expenditures 876,211 904,371 837,929 66,442 Deficiency of revenues over expenditures (256,985) (285,145) (150,973) 1,288 Other financing sources (uses): Bonds issued – – – – Loans issued – – 80,000 80,000 Debt service: Principal – – (1,121) (1,121) Interest – – (316) (316) Transfers from other funds 90,252 90,252 113,302 23,050 Transfer to other funds (2,082) (2,082) (4,443) (2,361) Total other financing sources, net 88,170 88,170 187,422 99,252 Excess (deficiency) of revenues and net other financing sources over expenditures (168,815) $ (196,975) $ 36,449 $ 100,540 $ See accompanying notes to the Schedule. Schedule of Revenues and Expenditures – Budget and Actual Government of the United States Virgin Islands (in thousands) Year Ended September 30, 2015 Budgetary Basis − General Fund 124 Government of the United States Virgin Islands Notes to Schedule of Revenues and Expenditures - Budget and Actual Budgetary Basis – General Fund     125 1. Budgetary Process and Control The V.I. Code requires the Governor to submit an annual balanced executive budget to be adopted by the Legislature for the ensuing fiscal year. The Governor is required by law to submit to the Legislature the annual balanced executive budget no later than May 30. The annual balanced executive budget is prepared on a GAAP basis, except for encumbrances, which are reported as expenditures for budget reporting purposes, by the Virgin Islands Office of Management and Budget (OMB) working in conjunction with other Government offices and agencies. If the annual executive budget has not been approved before the commencement of any fiscal year, then the appropriations for the preceding fiscal year, insofar as they may be applicable, are automatically deemed re-appropriated item by item. The annual balanced executive budget, which includes those funds of the Government subject to appropriation pursuant to law, is composed of all proposed expenditures and estimated revenue for the Government. The Legislature enacts the annual executive budget through passage of lump-sum appropriations for each department. The Legislature may add, change, or delete any items in the annual executive budget proposed by the Governor. Upon passage by the Legislature, the annual executive budget is submitted to the Governor, who may veto the budget partially or in its entirety and return it to the Legislature with his objections. A veto by the Governor can be overridden only by a two-thirds majority of all members of the Legislature. The Legislature is obligated by law to pass a final annual executive budget no later than September 30, the last day of the fiscal year. Supplemental budgetary appropriations bills that are signed into law may be created during the year without the identification of a specific revenue source to finance them. In August 1999, the Legislature enacted the Financial Accountability Act (Act No. 6289). The purpose of the Financial Accountability Act is to require by law that the budget of the Government be balanced each year, and the appropriations in each fiscal year not exceed a verifiable revenue source. Once the budget has been enacted, fiscal control over expenditures made pursuant thereto is exercised by the Governor through the Director of OMB. During any fiscal year in which the resources available to the Government are not sufficient to cover the appropriations approved for such year, the Governor, through the Director of OMB, may take administrative measures to reduce expenditures. The Governor may also make recommendations to the Legislature for new taxes or any other necessary action to meet the estimated deficiency. Budgetary control is exercised at the department level through an allotment process. Encumbrances and expenditures cannot exceed total allotment amounts. The Government’s department heads may make transfers of appropriations within the department. Appropriation transfers between departments and supplemental appropriations require executive and legislative branch approval. Unencumbered and unexpended appropriations, not designated, lapse at fiscal year-end. Also, encumbrances are established at fiscal year-end to pay certain expenditures for travel and utility costs payable against current year appropriation authority, but to be expended in the subsequent year. Government of the United States Virgin Islands Notes to Schedule of Revenues and Expenditures - Budget and Actual Budgetary Basis – General Fund     126 2. Budget/GAAP Reconciliation The following schedule presents a comparison of the general fund legally adopted budget with actual data on a budgetary basis. Because accounting principles applied for purposes of developing data on a budgetary basis differ significantly from those used to present financial statements in conformity with GAAP, a reconciliation of timing and entity difference in the excess (deficiency) of revenue and net other financing sources over expenditures for the year ended September 30, 2015, is presented below (expressed in thousands): Excess of revenues and net other financing sources over expenditures $ 100,540 Entity difference – deficiency of revenues and net other financing over expenditures – activities with budgets not legally adopted 71,682 Excess of revenues and net other financing sources over expenditures – GAAP basis (net change in fund balance) $ 28,858 Controls over spending in special revenue funds and non-appropriated funds are maintained at the Department of Finance by use of budgets and available resources (revenues). The Government makes appropriations to authorize expenditures for various capital projects. Budgets for capital projects normally remain available until completion of the project unless modified or rescinded.