[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.]

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