GOVERNMENT OF THE VIRGIN ISLANDS 2025 BUDGET ESTIMATES Revenue Taxes Grants Other Revenue 381,889,678 3,213,270 25,860,252 Total Revenue Fund Contributions Environmental Protection & Tourism Improv. Fu Miscellaneous Purpose Fund Transportation Network Improvement Fund Contingency Fund (2,897,367) (1,690,400) (1,290,005) (1,000,000) Total Fund Contributions Recurrent Expenditure Employee Compensation Goods and Services Interest Subsidies Grants Social Benefits Property and Other Expenses Total Recurrent Expenditure Recurrent Surplus/Deficit Debt Service Principal Repayments Subtotal Surplus/Deficit Recurrent Financing Consolidated Fund Environmental Protection & Tourism Improv. Fur Total Recurrent Financing Capital Expenditure Development Projects Capital Acquisitions Total Capital Expenditure Capital Financing New Loan Facility Development Fund Transportation Network Improvement Fund Existing Loan (CDB, RRL) Consolidated Fund Total Capital Financing 410,963,200 (6,877,771) (182,395,444) (94,582,998) (6,208,400) (411,000) (92,914,963) (26,117,624) (9,099,171) (411,729,600) (7,644,171) (14,758,600) (22,402,771) 20,605,371 1,797,400 22,402,771 0) (54,507,600) (8,433,800) (62,941,400) 29,020,000 18,714,600 1,250,000 5,230,100 8,726,700 62,941,400 The Virgin Islands Consortium GERS Plans Jan. 1, 2025 Contribution Increase Amid Threat of Future Insolvency Despite financial gains, GERS faces potential, temporary insolvency by 2037-2039; employer contributions to rise by $13 million annually starting in 2025 1. Government Published On September 05, 2024 05:10 AM Beginning January 1, 2025, the Government Employees' Retirement System will increase employer contributions from the current 23.5% to 26.5% in what GERS officials say is an effort to address potential future shortfalls. While GERS is on much better footing than it was two years ago, officials say pre-emptive action must be taken to stave off the threat of a brief period of future insolvency, blaming shortfalls and reduced rum cover-over funding. “The GERS will be facing the very real possibility of a temporary insolvency occurring between the years 2037 and 2039,” reported CEO and administrator Angel Dawson. Shortfalls and a reduced rum cover-over rate threaten the System. “The Government of the Virgin Islands and other employees within the GERS plan will be billed accordingly,” said Mr. Dawson, estimating the expected net increase at approximately $13 million. According to Mr. Dawson, the new charge “will have a very positive effect on the outlook of the GERS,” even if the shortfall on the matching rum cover-over funds continues. Senator Donna Frett-Gregory, aware that such a move would affect the FY2025 budgets that have already been submitted, wondered whether any conversations were held with the executive branch on that decision. “This should be a more communicative and collaborative approach,” she said, though clarifying that the Legislature can appropriate more funds based on revenue projections. “We will have to determine what will be on the downside in order to accommodate this request.” Mr. Dawson respond, “It is my understanding that the Office of Management and Budget was well aware of the need to include that funding in this year's budget." Still, Senator Alma Francis Heyliger admitted that she was “paranoid” as GERS had been granted authority “over a section of the general fund, because you literally could change it at any whim.” Meanwhile, despite the possibility of temporary insolvency, GERS has recorded several major wins that have positively positioned the System, according to the CEO. Mr. Dawson described the resumption of the limited personal loan program as a “bright spot” and as a “glimmer of hope for many in our community.” Under the loan program, GERS had allocated $10 million in personal loans per district to be disbursed in increments of up to $10,000. According to Mr. Dawson on Tuesday, the St. Thomas/St. John district had already accessed 996 loans worth $9,711,244 or 97%, while members in St. Croix had applied for 1,034 loans totaling $9,994,665 or 99.5% of the allocation. “The more than $19.7 million in loans processed has resulted in approximately $59 million of new and much needed economic stimulation within this economy,” Mr. Dawson noted. In other positive updates, GERS is now accepting debit and credit card payments and has reduced the number of paper cheque payments to retirees to less than 1%. The system is also completing, and in some cases initiating several capital projects intended to bolster their existing infrastructure. The pension system will celebrate its 65th anniversary on October 1st. “I can report to you that it will not be retiring anytime soon, and that was not, not always assured,” announced a gleeful Dawson. He apprised lawmakers that for the first time in 29 years, the GERS recorded a positive net cash flow in the fiscal year ending September 30th, 2024. “Due to this positive net cash flow and positive investment performance, the market value of assets increased from $400 million on September 30th, 2022 to $455 million on September 30th, 2023,” he reported. The market value of assets further increased to $524 million by July 31st, 2024. “This represents an increase of 31% in less than two years,” Mr. Dawson explained, renewing a longstanding request from GERS to rescind Act 6233. The elimination of that statute would allow the Legislature to “resume funding the GERS annual $15 million administrative expenses, as it did previously.” According to Mr. Dawson, doing so would be considered a “good return on your investment,” and would help strengthen the agency’s portfolio even further. However, Senator Frett-Gregory quickly reminded him of current revenue challenges. “You've asked before, and we've gotten in trouble...We've worked really hard in the 33rd and the 34th Legislature to get this bill passed, and it will be very unfortunate if we slide back into remission,” she noted. Absent the desired legislative support, GERS is working to hold its own. “We know that we cannot just count on great market returns. We know that we cannot just come and ask you for money,” Mr. Dawson said. He told Senator Ray Fonseca that the system is doing all in its power to “maximize our own earning potential.” That includes further developments to its 14-acre Haven Sight property. As of August 15, 2024, GERS continues to manage a high volume of retiree benefits. For the retiree payroll on August 15, GERS disbursed benefits to 8,770 retirees and beneficiaries. Between October 1, 2023, and August 15, 2024, the system saw 278 new retirees added to the payroll, while 268 deceased retirees were removed. During the same period, the total benefits paid out amounted to $235,685,905.93, with the average monthly disbursement exceeding $22 million. As of mid-August, the active membership within the system stood at 8,992 employees, with 6,259 from the central government and 2,733 from semi-autonomous agencies. The current ratio of active employees to retirees is 1.02:1, highlighting the near parity between the workforce and those drawing from the retirement system. GERS's portfolio composition included the following assets as of July 31, 2024: e Domestic Equity Assets: $202 million e International Equity Assets: $So million e Domestic Fined Income Assets: $136 million e Alternative Investment Assets (Private Equity - Limited Partnership): $6.6 million e Cash: $5.6 million e Other Alternative Investments (real estate, local investments, and member loans): $84.0 million The total retirement system aggregate performance for the 1-vear period was 13.6 percent, while the fiscal vear-to-date (FYTD) performance reached 10.7 percent. \F Case LW GERS Board Nominee Proposes Strategies to Prevent Retirement System Insolvency Recommendations from Tahmin Clarke include balancing retiree needs, snhancing investment oversight, and pursuing short- and long-term solutions to address the funding shortfall 1, Gers Z. Published On Deeetiber 16. 297406724 AYA Sahmin Clarke, Governor Albert Bryan's nominee to the Government Panployees’ Ketirement System Board of Trustees for the SL Thomas district, impressed mnernbers A the Committee on Rules and Judiciary on Thursday with his recommendations to avert the threat of insolvency for the system. Describing himself as 4 “product of this community,” Mr, Clarke was pleased to take on what he deemed a “critical role” as a member of the GERS Board, He told Jawmakers that recent reflections on his life had prompted him to “take stack of sy wont ritvations to “niery.” Mr, Clarke said that he “realized that 1 ould do more to continue to drive progress in the community that has helped raise me.” He called the nomination exoting, saying, that the mission of the GERS “intersects both my desire to give back 2s wel) 2s my broad expertise in finance, but aloo explicit accomplishments in the area f portfolio thaniayement,” With over 25 years of experience on Wall Street and a significant background in strateyic communications, Mr, Clarke was confident in his abilities to get the job done. He indicated plans for the first 90 days on the job, including first developing an understanding GERS's operations, and fostering strong working relationships before beooming “active in making recommendations and sharing ideas,” Nonetheless, he used Thursday's meeting as an opportunity to highlight 2 host of recommendations, several of which centered on pulling the GERS from the impending threat of insolvency, According to Mr. Clarke, there exists a critical need to “balance the needs of the organization versus the needs of the individual retires,” He raixd the issue Of the opportunity cost associated with the GERS loan program, which currently lends at an UH interest rate, On several occasions throughout the meeting, he referenced oonnparative personal loans that accrue interest of up to 25%, Though he applauded the government’s efforts to save the system from becoming insolvent in 2024, the nominee warned that “there's still a funding shortfall that will needs ty be addresses in the coming years.” Referencing his background in portfolio management, Mr, Carke strongly suggested the need for more oversight of GERS’s investments, intending to “make sure we're generating the right returns on investment.” The suggestion piqued the interest of Senator Marise James, who asked for his interpretation of “alternative investment projects.” Currently, GERS manages several plots of real estate, including the Havensite Mall, but for Mr. Clarke, “the illiquidity of that market makes it hard tor us to be dynamic and flexible in changing our investment strategy,” He explained that many pension funds in other states own gold and other such assets, not necessarily real estate, Hf the GERS is to continue investing in real estate, it will require “a higher rate of return for those projects than we would traditionally get from equity investment,” the nominee explained, Quelling her briefly held reservations, Mr, Clarke told Sen, James that “if we're thinking about the long-term benefits for all of the plan participants, and want to make sure that we're solvent, we have to make sure that we're taking calculated risk to fill that gap,” In November, the GERS delayed plans to increase the employer contribution to the GERS until the commencement of the next fiscal year, It’s an income generation method that Mr. Clarke expressed is “not ideal,” but still valid, If no interventions are made, the GERS is projected to become temporarily insolvent by 2032. “It will have to be a collaborative effort between both the GERS and the Legislature, specifically in combination with the governor's office, as to how to resolve that,” Mr. Clarke advised. “There needs to be substantive discussions and hard truths talked about in terms of how we get there.” Mr. Clarke suggested that “the best approach is to continue to tind short-term fixes...while you search for long-term solutions to fix the structural issues of the System,” Lawmakers listened intently to his recommendations, described as “candid” by Senator Carla Joseph, before voting in confirmation of his nomination, Senator Franklin Johnson considered Mr. Clarke a “needle in a haystack” and commended him for his willingness to “help to fix the Virgin Islands, especially in this turmoil that we're in with GERS,” Tre Vi Cansorturr il Tapayes Spend Nea 12 Vor Dollars Ses fea for 15 Senators “- ST. THOMAS — With 2 2017 aucet S $19 mili, Te Legsat= S Fe Vron isarcs, wih ft 15 PASS, as Some otter as aa SF pe ret ee a te Se terys fravca CONGO” "a6 ares & 2 oes port, acorarc 1 Dee. SF France Coomissore: Vacane Coles ACB TE Qe! 6 weds wey 0 re oe ss wie asre Beso wtet Corea Cere> Vas as ores "at bss Sat 6, He, suey Cervera ore tenance. Te qoserimert 460 werts © a seme pre ae researc unit onres trans te qwears wey crore Fors Di Sf while fron isaies “ae w5Et Frosf Sess 9 te est Se Fe arrow t Pass experirg $e tertary &am 15% 2 Tore zor Be ure SF Sa evens —2 epeget G_ Con, 2 repose Fors ee i eerssert & i — Hees = vral'y 1 movetert and ifSe tak on he mafia. Homes, wth te bord wartet efuerag to oper its fliers te te fron isards, wreath s srusgire wh 2 sruturd fot of soot $110 mili — ard mith Vr. Vago lara aot te peste “sure SF eeret svce ad fe trowsire J SOs — ISI) resterts “ave ores tak S catuore Fe wrrte of sets 2 rears cutang costs SOI Grg ta Serae Wester Maro oor, te 32-6 Legsatre’s 2017 buticet & $19 milion. Out SF oa wrt, $11.70 ges Gren eros ce arualy, with te Sevate preside t’s Sine, lowes by Te MaKe Fa, coe GE te mos alers. Te 13 regular seraors eve SFI arily (oe STDIN every to wears) cach for ter FC, 2 mst te Oss Aa S Eas 2 SOE, 26 well ze tee! ard suniies, RIG to Ve. ase. Te covores ta te sade serosa aed tes SAS 92S. 4 BABE Ie Se ad Dat SF STS ID (SOI every twin (e+, Wile Te eae pert eee eS ro zon tom He $19 million budcet of SIL ILL, & $1 IO LID every tye yor 6 Crys 24e Me. I Ae nee Is Cosgts mn te pase S 2 refeerdue to "“SOIE GEASS, BO wee Te wes gree, *e Codd sappert, but Mr. lackson did rot "LITE "OTE ASS. 6 GG eryiar, onere, Fe wetais- trash which sexctors recesve ther alictmerts. “itegn 0) yor Tare prasad Aidrets, we must col attention to the actions S arvaprty S te wus S FES Legare oS te Virgn Isards,” Mr. Jackson wrote. “The trike (es Ce giia txts $a we teste tn peter \egdatve ditties was revised zs a result of BW NG, 25-T145, what was a On Sette Le, WIG, ad sored by the President an PIES 6, TI 6 atin one te retain whechy al seretors receive an equal base BAMe*. Bl We, TES tere At No. 6992 on Ot: 17, DI. bt No. $792 became Have lruzry 9, 2957." WAYS3 DEE EZ $714 ion every IK) yors pat to tard ears Sic, ad 2 total of tosply TH ln every +98 yrs 0 fd te Legdcture (His retudes the seratory alotmerts). Ot 7 ewes we weg Wt Ve, Vago, meters ff tes adrmiristration and private sector en officials in search for ways to grow revenue while cutting costs, missing in the discussion is the idea of cutbacks on the legislative branch of government. Meanwhile, the territory's financial demise comes closer by the day. Mr. Collens has projected a shortfall of $60 million by the end of this fiscal year, starting with an $11 million shortfall at the end of January without a line of credit and working capital from the sale of bonds, something that becomes more difficult with every downgrade; ratings firm Fitch last week downgraded two of the territory's bonds, while giving both a negative outlook. Other bonds, to include Gross Receipt Tax and Rum Cover-Over Bonds are already at or near junk status. Mr. Collens and Standard International Group financial consultant, Andre Wright, who advises the government, noted that even statutory lien legislation, debt service guarantee funds, and an unblemished record of timely debt service payments have failed to attract enough buyers of VI Government bonds to bridge the current deficit. Moreover, First Bank has imposed new conditions on government access to its remaining line of credit, Government House says. “A rejection of the identification of new and immediate revenues to the territory, particularly to satisfy the financial markets that we’re moving out of structural deficits, would be a decision equal to saying that we would be cutting 11 to 14 percent of the budget for the Government of the Virgin Islands,” said Mr. Mapp. “That $110 million removal from the current budget of $787 million, I am not prepared to stand before the community and say this is exactly what that means, but I do not believe that there could be any person in this territory that believes that the removal of $110 million from the operating budget of the Government of the Virgin Islands, would not be an action that is painless.” Ratings firm Fitch cited its increased concerns about the territory's liquidity following its difficulty in securing market access for a planned working capital borrowing. Fitch says it believes the USVI’s failure to date in securing sufficient market access for their planned offering of $219.23 million matching fund revenue bonds, series 2016A (senior lien) and 2016B (subordinate lien), raises concern regarding both the USVI’s ability to access financial markets for their debt offerings as well as the USVI’s ability to fund current operations and obligations from a severely strained cash position. Proceeds from the 2016A and 2016B bond offerings were to be applied to funding fiscal 2017 operations of the USVI in addition to other uses. Fitch also highlighted the uncertain nature of the sin tax measure that Mr. Mapp said the bond market demanded before the U.S. Virgin Islands could gain access to funding. And while the governor said the bond market had reacted positively to the five-year economic growth plan measure — assuring residents that once the measure was passed, access to the market would be once more open to the territory — Fitch did not ascertain in its release that that was the case. The ratings firm said the negative watch placed on the IDR and dedicated tax bonds will be resolved based on Fitch’s assessment of the USVI’s liquidity position and its ability to complete a working capital financing. Failure to sell the planned bonds and the increased liquidity strain that would result would be expected to trigger a rating downgrade. Fitch further believes that the territory’s current challenge in accessing the market for its debt obligations exacerbates concerns about the USVI’s strained liquidity. The sale was originally planned for August 2016 to provide cash flow for the current fiscal year which began on Oct. 1, 2016. The extended delay in receiving the expected $147 million in working capital that was to be provided by bond proceeds, $116 million of which is to be applied to funding general government operations (out of the approximately $900 million General Fund budget), is expected by Fitch to further weaken the government's liquidity position in fiscal 2017. The ratings firm also learned that investors have indicated an interest in the governor of the USVI delivering an irrevocable, rather than the annual, instruction letter to the U.S. Department of Interior for the U.S. Treasury to remit the rum cover-over advance payment to the trustee for the bonds. The revised instruction letter has been delivered by the governor to the DOI, according to Fitch.