Public Finance Authority approves $13.6 million IRS settlement
Published: August 22, 2013
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ST. THOMAS - At its regular monthly meeting Wednesday, the V.I. Public Finance Authority gave the final go-ahead for three resolutions stemming from actions taken by the V.I. Legislature during its special session on Tuesday, including formally approving a $13.6 million settlement payout to the IRS.
The settlement arose from a random IRS audit last year of a series of tax-exempt bonds the Public Finance Authority issued on Sept. 28, 2006, in the amount of $219,490,000.
The IRS found that a portion of the Series 2006 bonds - $80 million that went for the refunding of some long-term working capital bonds originally issued in 1999 - violated regulations and was issued in an amount that overburdened the tax-exempt bond market, according to testimony during Tuesday's Senate session.
At its meeting Wednesday, the Public Finance Authority also approved a PFA bond restructuring and refunding move to help close an anticipated gap in the Fiscal Year 2014 budget.
The Senate had approved the bond restructuring during its session Tuesday.
On Wednesday, the Public Finance Authority approved $90 million in Revenue Refunding bonds to refund and restructure 2004 and 2009 series bonds for a more favorable interest rate.
Although the authorization is for $90 million, the anticipated size of the transaction will be about $75 million, according to Public Finance Authority Executive Director Angel Dawson Jr.
The refunding and restructuring of old bonds will yield an anticipated debt service savings of $23.9 million that will be applied to a projected $26.1 million deficit for Fiscal Year 2014, according to Dawson.
The third resolution the Public Finance Authority approved is for a $40 million line of credit to help the government's cash flow. The authority is opening a line of credit with FirstBank to help "smooth out" the budget for Fiscal Year 2013 and 2014, Dawson said. It is not a traditional loan, and the money will be available as needed to cover any shortfall until Sept. 30, and then it will have to be repaid.
The Public Finance Authority will need to remain paid off on the line of credit for several weeks, and then the funds can be used again for Fiscal Year 2014.
According to the legislation, the line of credit will carry a flat interest rate of 6 percent.