With Puerto Rico effectively declaring bankruptcy in May to reduce its more than $70 billion of public debt, concerns are being raised that the United States Virgin Islands and other US territories could soon follow suit.
The New York Times published an article on Sunday detailing the USVI’s fiscal woes, which have worsened since its bonds were downgraded to junk-bond levels, forcing the territory to cancel a planned public offering in January.
According to the Times, the USVI has some $6.5 billion in public debt. With a population around 100,000 versus the roughly 3.47 million people who live in Puerto Rico, the USVI’s public debt per capita is more than three times higher than its neighbour to the west.
USVI Governor Kenneth Mapp insists that his government will not default on its obligations, the Times reported.
Mr. Mapp has reportedly enacted measures to increase revenues, including higher taxes on alcohol, cigarettes and soft drinks; a new tax on Airbnb rentals; and the hiring of collection agents to go after delinquent property and income taxes.
The USVI also recently secured $18 million in new federal funds for health care, according to the Times.
However, the USVI and other US territories could be hurt by recent legislation passed by Congress to mitigate Puerto Rico’s struggles.
Puerto Rico was not allowed to declare bankruptcy until it received a de facto exception under the PR Oversight, Management and Economic Stability Act — a law passed by Congress last year that contains certain Chapter Nine bankruptcy provisions that allow the island territory to effectively declare bankruptcy, according to the Times.
Now, investors are worried that Congress could pass similar legislation for other territories, making them hesitant to purchase bonds from those jurisdictions.
“That innocuous provision, when sent to the bond market, said, ‘Here’s an escape valve for your debt obligations,’” Mr. Mapp said of the legislation for Puerto Rico, according to the Times. “That changed the whole paradigm.”
Along with the USVI, other territories such as Guam, American Samoa and the Northern Mariana Islands have also reportedly struggled with public debt.
According to the Times, American Samoa’s struggles have worsened since December, when one of the territory’s largest employers, a tuna cannery, closed after being required to pay the federal minimum wage.
The Northern Mariana Islands has also been drawing down its retirees’ pensions to pay its debts.
“Even Guam, which enjoys the economic benefit of several large American military installations, has been having qualms about its debt after Puerto Rico’s default,” the Times reported.
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