[House Report 106-337]
[From the U.S. Government Publishing Office]
106th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 106-337
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TO PROVIDE GREATER FISCAL AUTONOMY FOR THE VIRGIN ISLANDS
_______
September 27, 1999.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Young of Alaska, from the Committee on Resources, submitted the
following
R E P O R T
[To accompany H.R. 2841]
The Committee on Resources, to whom was referred the bill
(H.R. 2841) to amend the Revised Organic Act of the Virgin
Islands to provide for greater fiscal autonomy consistent with
other United States jurisdictions, and for other purposes,
having considered the same, report favorably thereon without
amendment and recommend that the bill do pass.
Purpose of the Bill
The purpose of H.R. 2841 is to amend the Revised Organic
Act of the Virgin Islands to provide for greater fiscal
autonomy consistent with other United States jurisdictions.
Background and Need for Legislation
America's Caribbean territory of the Virgin Islands has a
dire financial situation; it is nearing bankruptcy and requires
drastic measures to insure solvency. One significant way to
reduce the size of the Virgin Islands' annual deficit is to
lower the cost of borrowing funds for capital improvements and
necessary government operations. This reduction can be
accomplished by the restructuring of the Virgin Islands debt
with lower interest rates and through different bonding
procedures. Financial restructuring is expected to save
millions of dollars each year if Congress provides for this
type of bonding authority.
The Virgin Islands must complete a $100 million financing
by the end of September 1999 (the close of its fiscal year) to
generate sufficient working capital to meet currently due
obligations and to provide sufficient cash reserves to operate
its government while its deficit reduction and budget
initiatives take effect. This fiscal action is part of the
Virgin Islands' financial restructuring and fiscal recovery
plan. The $100 million financing ideally would be completed as
a single borrowing transaction, either under the Virgin
Islands' general obligation authority, set forth at 48 U.S.C.
Sec. 1574(b)(ii)(A), or under its so-called ``matching fund''
bond authority, set forth at 48 U.S.C. Sec. 1574a(a). However,
because of the accidents of history, the Virgin Islands can use
neither its general obligation authority nor its ``matching
fund'' authority alone to complete the necessary financing.
Unlike other jurisdictions--including Puerto Rico and Guam--the
general obligation authority contained in the Virgin Islands
Revised Organic Act (48 U.S.C. Sec. 1541 et seq.) can be used
only for specific and limited capital purposes, not including
working capital. While the Virgin Islands' ``matching fund''
authority, in contrast, can be used issue bonds ``for any
purpose authorized by the Virgin Islands Legislature,'' the
previous Virgin Islands administration exhausted the
Government's capacity to borrow further under this authority
when it consolidated all of the Islands' debt (including all of
its general obligation debt) in a 1998 bond issue.
Since the Virgin Islands' general obligation authority (now
basically unencumbered and debt-free) cannot be used to finance
working capital, the Islands will be required--unless Congress
acts expeditiously to provide the same ``public purpose''
general obligation authority as other U.S. territorial
jurisdictions--to complete a complicated and costly two-step
financing. In the absence of such legislation, the Virgin
Islands will incur extraordinary costs in excess of $5 million
to complete the complicated two-step financing.
To avoid these unnecessary costs, the Virgin Islands has
asked Congress to amend the Revised Organic Act, consistent
with the authority commonly enjoyed by other U.S. territorial
governments and by individual States, to provide that its
general obligation authority may be used for ``any public
purpose authorized by the Virgin Islands Legislature'' and to
make other technical or clarifying amendments.
The leaders of the Virgin Islands have acknowledged their
willingness to condition the requested increased fiscal
autonomy by Congress with compliance with fiscal and management
reforms. Government leaders have publicly committed to adhere
to specific financial accountability and performance standards
established by the federal government and the Virgin Islands.
Matters relating to bonding authority are generally defined
by state or territorial constitutions and law. However, as the
Virgin Islands has not yet adopted a constitution as authorized
by Congress, the underlying federal law--the Revised Organic
Act of the Virgin Islands--provides the Islands' bonding
authority. The current federal organic act for the Virgin
Islands is outdated and does not permit the flexibility needed
for the territory to take advantage of current financial
bonding practices enjoyed by other states and territories.
Congress can change the organic act to give the Virgin Islands
this same state-like fiscal autonomy to help it solve the
current financial emergency while, it is hoped, not undermining
the Islands' responsibility for constitutional self-government.
Section-by-Section Analysis
Section 1. Greater Fiscal Autonomy
Section 1 amends Section 8 of the Revised Organic Act of
the Virgin Islands to clarify that the Virgin Islands may issue
negotiable general obligation bonds or other evidence of
indebtedness, and change the purposes for which bonds can be
used from specific uses [``to construct, improve, extend,
better, repair, reconstruct, acquire, and equip hospitals,
schools, libraries, gymnasia, athletic fields, sewers, sewage-
disposal plants, and water systems''] to those ``for any public
purposes authorized by the legislature''. In addition, Section
1 eliminates the bonding payment requirement of ``payable
semiannually'' to permit repayment schedules at different
increments.
In addition, Section 8(b)(ii)(B) of the Revised Organic Act
of the Virgin Islands is repealed as unnecessary as it states
that the proceeds of the bonds or other obligations shall be
expended only for the public improvements listed in the
preceding section. The specific list of public improvements has
now been changed to any public purpose authorized by the
legislature. Section 8(b)(ii)(C) of the Revised Organic Act of
the Virgin Islands is redesignated as Section 8(b)(ii)(B).
Finally, Section 1(d) of Public Law 94-392, which authorized
the Virgin Islands issuance of bonds, is eliminated as it is
now redundant.
Section 2. Agreement
The Secretary of the Interior is authorized to enter into
an agreement with the Governor of the Virgin Islands
establishing mutually agreed financial accountability and
performance standards for the fiscal operations of the
Government of the Virgin Islands. The Secretary is directed to
forward a copy of the agreement to the Committee on Resources
of the House of Representatives and the Committee on Energy and
Natural Resources of the Senate.
Section 3. Effective Dates
Instruments of indebtedness issued by the Government of the
Virgin Islands after the date of enactment of H.R. 2841 are
subject to the amendments to the Revised Organic Act of the
Virgin Islands made by Section 1 of the bill. However, if there
is no agreement between the Secretary of Interior and the
Governor of the Virgin Islands establishing mutually agreed
financial accountability and performance standards for the
fiscal operations of the Government of the Virgin Islands on or
before December 31, 1999, the amendments shall not apply to any
bonds or debt instruments issued on or after January 1, 2000.
In addition, the Committee intends that these amendments to
the Revised Organic Act of the Virgin Islands are not intended
to modify the internal revenue laws. Thus, the bonds authorized
by this bill must comply with subsection (c) of section 149 of
the Internal Revenue Code of 1986 (which requires the new bonds
to comply with the appropriate requirements of the Internal
Revenue Code).
Committee Action
H.R. 2841 was introduced on September 13, 1999, by Delegate
Donna Christensen (D-VI), and cosponsored by Congressman Don
Young (R-AK), Chairman of the Committee on Resources, and
Congressman George Miller (D-CA), the Ranking Democrat of that
Committee. The bill was referred to the Committee on Resources.
On September 22, 1999, the Resources Committee met to consider
the bill. No amendments were offered and the bill was ordered
favorably reported to the House of Representatives by voice
vote.
Committee Oversight Findings and Recommendations
Regarding clause 2(b)(1) of rule X and clause 3(c)(1) of
rule XIII of the Rules of the House of Representatives, the
Committee on Resources' oversight findings and recommendations
are reflected in the body of this report.
Constitutional Authority Statement
Article IV, section 3 of the Constitution of the United
States grants Congress the authority to enact this bill.
Compliance With House Rule XIII
1. Cost of Legislation. Clause 3(d)(2) of rule XIII of the
Rules of the House of Representatives requires an estimate and
a comparison by the Committee of the costs which would be
incurred in carrying out this bill. However, clause 3(d)(3)(B)
of that rule provides that this requirement does not apply when
the Committee has included in its report a timely submitted
cost estimate of the bill prepared by the Director of the
Congressional Budget Office under section 402 of the
Congressional Budget Act of 1974. At the time of the filing of
this report, the Congressional Budget Office had not completed
its cost estimate for the bill. The Committee believes that
enactment of H.R. 2841 would have little impact on the federal
budget. The only federal costs involved--the Secretary of the
Interior's negotiation and ratification of the agreement with
the Virgin Islands authorized under Section 2 of the bill--
should be minimal.
2. Congressional Budget Act. As required by clause 3(c)(2)
of rule XIII of the Rules of the House of Representatives and
section 308(a) of the Congressional Budget Act of 1974, this
bill does not contain any new budget authority, spending
authority, credit authority, or an increase or decrease in
revenues or tax expenditures.
3. Government Reform Oversight Findings. Under clause
3(c)(4) of rule XIII of the Rules of the House of
Representatives, the Committee has received no report of
oversight findings and recommendations from the Committee on
Government Reform on this bill.
4. Congressional Budget Office Cost Estimate. Under clause
3(c)(3) of rule XIII of the Rules of the House of
Representatives and section 403 of the Congressional Budget Act
of 1974, the Committee has not received the cost estimate for
this bill from the Director of the Congressional Budget Office.
However, the Committee will publish the cost estimate in the
Congressional Record when it is received.
Compliance With Public Law 104-4
This bill contains no unfunded mandates.
Preemption of State, Local or Tribal Law
This bill is not intended to preempt any State, local or
tribal law.
Changes in Existing Law Made by the Bill
Changes in existing law made by the bill are shown as follows
(existing law proposed to be omitted is enclosed in black
brackets, new matter is printed in italic, existing law in
which no change is proposed is shown in roman):
SECTION 8 OF THE REVISED ORGANIC ACT OF THE VIRGIN ISLANDS
Sec. 8. (a) * * *
(b)(i) * * *
(ii)(A) Subject to the provisions of this paragraph (ii), the
legislature of the government of the Virgin Islands may cause
to be issued such negotiable general obligation bonds or other
evidence of indebtedness, including but not limited to notes in
anticipation of the collection of taxes or revenues, as it may
deem necessary and advisable [to construct, improve, extend,
better, repair, reconstruct, acquire, and equip hospitals,
schools, libraries, gymnasia, athletic fields, sewers, sewage-
disposal plants, and water systems: Provided, That no public]
for any public purpose authorized by the legislature: Provided,
That no such indebtedness of the Virgin Islands shall be
incurred in excess of 10 per centum of the aggregate assessed
valuation of the taxable real property in the Virgin Islands.
Bonds issued pursuant to this paragraph (ii) shall bear such
date or dates, may be in such denominations, may mature in such
amounts and at such time or times, not exceeding thirty years
from the date thereof, may be payable at such place or places,
may be sold at either public or private sale, may be redeemable
(either with or without premium) or nonredeemable, may carry
such registration privileges as to either principal and
interest, or principal only, and may be executed by such
officers and in such manner, as shall be prescribed by the
legislature of the government of the Virgin Islands. In case
any of the officers whose signatures appear on the bonds or
coupons shall cease to be such officers before delivery of such
bonds, such signature, whether manual or facsimile, shall
nevertheless be valid and sufficient for all purposes, the same
as if such officers had remained in office until such delivery.
The bonds so issued shall bear interest at a rate not to exceed
that specified by the legislature [and payable semiannually.
All such bonds shall be sold for not less than the principal
amount thereof plus accrued interest]. All bonds issued by the
government of the Virgin Islands, including specifically
interest thereon, shall be exempt from taxation by the
Government of the United States, or by the government of the
Virgin Islands or any political subdivision thereof, or by any
State, territory, or possession or by any political subdivision
of any State, territory, or possession, or by the District of
Columbia.
[(B) The proceeds of the bond issues or other obligations
herein authorized shall be expended only for the public
improvements set forth in the preceding subparagraph, or for
the reduction of the debt created by such bond issue or
obligation, unless otherwise authorized by the Congress.]
[(C)] (B) Bonds or other obligations issued pursuant to this
paragraph (ii) shall not be a debt of the United States, nor
shall the United States be liable thereon.
* * * * * * *
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SECTION 1 OF THE ACT OF AUGUST 19, 1976
AN ACT To authorize the government of the Virgin Islands to issue bonds
in anticipation of revenue receipts and to authorize the guarantee of
such bonds by the United States under specified conditions, and for
other purposes.
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled, That (a) in
addition to the authority conferred by section 8(b) of the
Revised Organic Act of the Virgin Islands (48 U.S.C. 1574(b)),
the legislature of the government of the Virgin Islands is
authorized to cause to be issued bonds or other obligations of
such government in anticipation of revenues to be received
under section 28(b) of such Act (26 U.S.C. 7652). The proceeds
of such bonds or other obligations may be used for any purpose
authorized by an act of the legislature. The legislature of the
government of the Virgin Islands may initiate, by majority vote
of the members, a binding referendum vote to approve or
disapprove the amount of any such bond or other obligation and/
or any purpose for which such bond or other obligation is
authorized.
* * * * * * *
[(d) The legislature of the Government of the Virgin Islands
may cause to be issued notes in anticipation of the collection
of the taxes and revenues for the current fiscal year. Such
notes shall mature and be paid within one year from the date
they are issued. No extension of such notes shall be valid and
no additional notes shall be issued under this section until
all notes issued during a preceding year shall have been paid.]
* * * * * * *