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The report accompanying these financial statements was issued by BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of BDO International Limited, a UK company limited by guarantee. Government of the United States Virgin Islands Management’s Discussion and Analysis, Financial Statements (with Independent Auditor’s Report Thereon) and Required Supplementary Information Year Ended September 30, 2020 Government of the United States Virgin Islands Management’s Discussion and Analysis, Financial Statements (with Independent Auditor’s Report Thereon) and Required Supplementary Information Year Ended September 30, 2020 Government of the United States Virgin Islands Contents 2 Independent Auditor's Report 3-8 Management’s Discussion and Analysis 9-21 Basic Financial Statements Government-wide Financial Statements Statement of Net Position 22-23 Statement of Activities 24-25 Fund Financial Statements Balance Sheet – Governmental Funds 26 Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds 27 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities – Governmental Funds 28 Statement of Net Position – Proprietary Funds 29 Statement of Revenues, Expenses, and Changes in Net Position - Proprietary Funds 30 Statement of Cash Flows – Proprietary Funds 31-32 Statement of Fiduciary Net Position 33 Statement of Changes in Fiduciary Net Position 34 Notes to Basic Financial Statements 35-144 Required Supplementary Information Schedule of Changes in Total Other Postemployment Benefits (OPEB) 145 Liability and Related Ratios Notes to Required Supplementary Information – OPEB 146 Schedule of Net Pension Liability 147 Schedule of Pension Contributions 148 Schedule of Revenues and Expenditures – Budget and Actual Budgetary Basis – General Fund 149 Notes to Schedule of Revenues and Expenditures – Budget and Actual Budgetary Basis – General Fund 150-151 BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. 3 Tel: 301-354-2500 Fax: 301-354-2501 www.bdo.com 12505 Park Potomac Ave, Suite 700 Potomac, MD 20854 Independent Auditor’s Report To the Honorable Governor of the Government of the United States Virgin Islands Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the Government of the United States Virgin Islands (the Government), as of and for the year ended September 30, 2020, and the related notes to the financial statements, which collectively comprise the Government’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements. Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the following funds and/or component units:  The Virgin Islands Housing Authority (VIHA), Virgin Islands Economic Development Authority (VIEDA), Virgin Islands Waste Management Authority (VIWMA), Magens Bay Authority (MBA), Virgin Islands Government Hospital and Health Facilities Corporation (Roy L. Schneider Hospital and Governor Juan F. Luis Hospital and Medical Center), Virgin Islands Public Broadcasting System (VIPBS), and Virgin Islands Housing Finance Authority (VIHFA), discretely-presented component units, which collectively represent 35.9%, (60.3)%, and 42.7%, respectively, of the assets, net position (deficit), and revenues of the Aggregate Discretely-Presented Component Units.  The Virgin Islands Lottery (V.I. Lottery), a nonmajor enterprise fund, which represents 2.0% and 4.0%, respectively, of the assets and revenues of the Aggregate Remaining Fund Information, and 16.1% and 11.9%, respectively, of the assets and revenues of the Business-Type Activities.  Government Employees’ Retirement System of the U.S. Virgin Islands (GERS), a fiduciary component unit (pension trust fund), which represents 69.0%, 83.9%, and 48.4%, respectively, of the assets, net position/fund balance, and revenues/additions of the Aggregate Remaining Fund Information. 4 Those financial statements were audited by other auditors whose reports have been furnished to us, and our opinions, insofar as they relate to the amounts included for the activities, funds, and component units indicated above, are based solely on the reports of other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. Because of the matters described in the Basis for Disclaimer of Opinion paragraph, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the Business-Type Activities, the Aggregate Remaining Fund Information, Unemployment Insurance-Enterprise Fund, and the Aggregate Discretely Presented Component Units. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Except for the matters described in the Basis for Disclaimer of Opinion on the Business-Type Activities, the Aggregate Remaining Fund Information, Unemployment Insurance-Enterprise Fund, and the Aggregate Discretely Presented Component Units paragraphs, we believe that the audit evidence we and other auditors have obtained is sufficient and appropriate to provide a basis for our audit opinions. Summary of Opinions Opinion Unit Type of Opinion Governmental Activities Qualified Business-Type Activities Disclaimer General Fund Qualified Debt Service Fund Unmodified Capital Projects Fund Unmodified Federal Grants Fund Qualified The West Indian Company Limited-Enterprise Fund Unmodified Unemployment Insurance-Enterprise Fund Disclaimer viNGN, INC.-Enterprise Fund Unmodified Government Insurance-Enterprise Fund Unmodified Aggregate Remaining Fund Information Disclaimer Aggregate Discretely Presented Component Units Disclaimer 5 Basis for Qualified Opinion on Governmental Activities The Government did not maintain the requisite documentation to support its accrued retroactive liability as of and for the year ended September 30, 2020. As such, we are unable to determine whether adjustments were required in the Governmental Activities. Further, the Government’s notes to the basic financial statements do not include the necessary information under Governmental Accounting Standards Board, Statement No. 77, Tax Abatement Disclosures. In our opinion, disclosure of this information is required by accounting principles generally accepted in the United States of America. Basis for Qualified Opinion on Governmental Activities, General Fund, and Federal Grants Fund The Government did not maintain the requisite documentation to support its determination as to the sufficiency of the design and operation of key controls surrounding the environment in which Medicaid claims are processed. As such, we were unable to determine whether adjustments were required in the General Fund, Federal Grants Fund, and Governmental Activities. The Government did not maintain the requisite documentation to support its due from federal government and federal grants and contributions revenues in the amount of $51.4 million as of the year ended September 30, 2020. As a result, we were unable to obtain sufficient audit evidence to determine whether adjustments were required in the Federal Grants Fund and Governmental Activities. Qualified Opinion In our opinion, except for the effects of the matters described in the Basis for Qualified Opinion paragraphs above, the financial statements referred to above present fairly, in all material respects, the financial position of the Governmental Activities, General Fund, and Federal Grants Fund of the Government of the United States Virgin Islands as of September 30, 2020, and the respective changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Basis for Disclaimer of Opinion on Business-Type Activities and Aggregate Remaining Fund Information The basic financial statements do not include a liability for medical malpractice claims in the reciprocal insurance fund (a non-major enterprise fund) and, accordingly, the Government has not recorded an expense for the current period change in that liability. The Government’s records do not permit it, nor is it practical to extend our auditing procedures sufficiently to determine the extent by which the Business-Type Activities and Aggregate Remaining Fund Information as of and for the year ended September 30, 2020, may have been affected by this condition. 6 Basis for Disclaimer of Opinion on Unemployment Insurance-Enterprise Fund and Business- Type Activities The Government’s records were not available or contained incomplete information. As such, the records do not permit it, nor is it practical to extend our auditing procedures sufficiently to determine the extent by which the Unemployment Insurance-Enterprise Fund and Business-Type Activities as of and for the year ended September 30, 2020, may have been affected by this condition. Basis for Disclaimer of Opinion on Aggregate Discretely Presented Component Units The financial statements of the University of the Virgin Islands Research and Technology Park Corporation (RTPark) and Virgin Islands Port Authority (VIPA), have not been audited, and we were not engaged to audit RTPark’s or VIPA’s financial statements as part of our audit of the Government’s basic financial statements. RTPark’s financial activities for the year ended September 30, 2020, are not included in the Government’s basic financial statements. VIPA’s financial activities are included in the Government’s basic financial statements and represent 10.4%, 36.5%, and 6.8% of the assets, net position, and revenues, respectively, of the Aggregate Discretely Presented Component Units. The Government’s notes to the basic financial statements do not discretely present, VIHFA, a major component unit. In our opinion, the discrete disclosure of this information is required by accounting principles generally accepted in the United States of America. The report of other auditors on the 2020 financial statements of VIWMA, a discretely presented component unit, was qualified because the auditors were unable to obtain sufficient audit evidence to determine whether grants receivable, capital assets, grants revenue, depreciation, and certain expenditures were properly classified. Accordingly, the auditors were unable to determine whether adjustments were required. The report of other auditors on the 2020 financial statements of MBA, a discretely presented component unit, was qualified because MBA does not report net pension liability, pension expense, related deferred inflows and outflows of resources, if any, the required financial statements disclosures, and the required supplementary information as required by accounting principles generally accepted in the United States of America. Disclaimer of Opinion Based on our audit and the reports of other auditors, because of the significance of the matters discussed in the Basis for Disclaimer Opinion paragraphs above, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the financial statements of the Business-Type Activities, the Aggregate Remaining Fund Information, Unemployment Insurance-Enterprise Fund, and the Aggregate Discretely Presented Component Units of the Government of the United States Virgin Islands. Accordingly, we do not express an opinion on these financial statements. 7 Unmodified Opinions In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of each major fund, other than the General Fund, Federal Grants Fund, and Unemployment Insurance- Enterprise Fund of the Government of the United States Virgin Islands as of September 30, 2020, and the respective changes in financial position and, where applicable cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter The accompanying financial statements have been prepared assuming the Government will continue as a going concern. As discussed in Note 17 to the financial statements, the Government reported an unrestricted net deficit in Governmental Activities and in the General Fund that raise substantial doubt about its ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding those matters are also described in Note 17. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that management’s discussion and analysis and the schedules of changes in total other postemployment benefits (OPEB) liability and related ratios and notes to required supplementary information – OPEB, net pension liability, pension contributions, and revenue and expenditures – budget and actual budgetary basis – General Fund on pages 9 through 21 and 145 through 151, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We and other auditors have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. 8 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated May 31, 2023, on our consideration of the Government’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Government’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Government’s internal control over financial reporting and compliance. May 31, 2023 Management’s Discussion and Analysis Government of the United States Virgin Islands Management’s Discussion and Analysis 9 Introduction The following management’s discussion and analysis presents an overview of the financial position and activities of the Government of the United States Virgin Islands (the Government) as of and for the fiscal years ended September 30, 2020 and 2019. Government-wide Financial Statements The government-wide financial statements are designed to present an overall picture of the financial position of the Government. These statements consist of the statement of net position and the statement of activities, which are prepared using the economic resources measurement focus and the accrual basis of accounting. This means that current year’s revenues and expenses are included regardless of when cash is received or paid, producing a view of financial position and changes in financial position like that presented by most private-sector companies. The statement of net position combines and consolidates the Government’s current financial resources with capital assets and long-term obligations. Both above-mentioned financial statements have separate sections for three different types of the Government’s programs or activities. These three types of activities are as follows: Governmental Activities – The activities in this section are mostly supported by taxes and intergovernmental revenues (federal grants). Most services normally associated with the primary government fall into this category, including general government, public safety, health, public housing and welfare, education, transportation and communication, and culture and recreation. Business-Type Activities – These functions normally are intended to recover all or a significant portion of their costs through user fees and charges to external users of goods and services. These business-type activities of the Government include the operations of the: (i) The West Indian Company (WICO); (ii) the unemployment insurance program; (iii) viNGN, INC. dba Virgin Islands Next Generation Network (viNGN), and (iv) Government Insurance Fund (GIF). These programs operate with minimal assistance from the governmental activities of the Government. Discretely Presented Component Units – These are operations for which the Government has financial accountability even though they have certain independent qualities as well. For the most part, these entities operate like private sector businesses and the business-type activities described above. The Government’s discretely presented component units are presented in two categories, major and nonmajor. This separation is determined by the relative size of the entities’ assets, liabilities, revenue, and expenses in relation to the total of all component units. Fund Financial Statements Fund financial statements focus on the most significant (or major) funds of the Government. A fund is a separate accounting entity with a self-balancing set of accounts. The Government uses funds to keep track of sources of funding and spending related to specific activities. The Government uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Government of the United States Virgin Islands Management’s Discussion and Analysis 10 A major fund is a fund whose revenues, expenditures or expenses, assets, or liabilities (excluding extraordinary items) are at least 10.0% of the corresponding totals for all governmental or enterprise funds and at least 5.0% of the aggregate amount for all governmental and enterprise funds for the same item. The general fund is always considered a major fund. In addition to funds that meet the major fund criteria, any other governmental or enterprise fund that the Government believes is particularly important to the financial statements may be reported as a major fund. The funds of the Government are divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental Funds   Governmental funds are accounted for using the modified accrual basis of accounting, which measures cash and other assets that can be readily converted to cash. The governmental funds’ statements provide a detailed short-term view of the general governmental operations and the basic services provided. The reconciliation following the fund financial statements explains the differences between the governmental activities, reported in the government-wide financial statements and the governmental funds’ financial statements. The General Fund, the PFA Debt Service Fund, the PFA Capital Projects Fund, and the Federal Grants Fund are reported as major governmental funds. The General Fund is the Government’s primary operating fund. It accounts for all financial resources of the Government, except those required to be accounted for in another fund. The PFA Debt Service Fund accounts for the resources accumulated, and payments made, for principal and interest on long-term general obligation debt issued by the Virgin Islands Public Finance Authority (PFA) on behalf of the Government. The PFA Capital Projects Fund accounts for bond proceeds of debt issued by the Virgin Islands Public Finance Authority on behalf of the Government. The bond proceeds have been designated for certain necessary public safety and capital development projects which are accounted for in this fund. The Federal Grants Fund accounts for proceeds and federal payments that are legally restricted for expenditures for federally specified purposes. The governmental fund activities are reported in a separate balance sheet and statement of revenues, expenditures, and changes in fund balances. Additionally, the Government presents a reconciliation of the statement of revenues, expenditures, and change in fund balances, to the statement of activities. Proprietary Funds   Services provided to outside (nongovernmental) customers are reported in enterprise funds. Enterprise funds are accounted for using the economic resources measurement focus and the accrual basis of accounting. These are the same business-type activities reported in the government-wide financial statements. Government of the United States Virgin Islands Management’s Discussion and Analysis 11 The West Indian Company (WICO), the Unemployment Insurance Fund, viNGN, and the Government Insurance Fund are major proprietary funds. The WICO fund accounts for the activities of WICO, which owns a port facility including a cruise ship pier and manages a shopping mall complex on the island of St. Thomas. The Unemployment Insurance Fund is a federally mandated program to manage unemployment insurance. The viNGN fund accounts for the activities of viNGN, which designs, develops and manages a middle mile wholesale fiber optic network in order to make available reliable high-speed internet connections to retail internet service providers. The Government Insurance Fund (GIF) provides insurance protection for workers in the U.S. Virgin Islands in the event of job accidents. The proprietary fund activities are reported in a separate statement of net position, statement of revenues, expenses, and changes in net position, and statement of cash flows. Fiduciary Funds The fiduciary activities are reported in a separate statement of fiduciary net position and a statement of changes in fiduciary net position. Financial Analysis of the Government as a Whole The Government faces the challenge of maintaining fiscal sustainability and promoting economic growth while rebuilding from the two Category 5 hurricanes in September 2017. To promote fiscal sustainability, the Government retained an international firm to develop short and long-range cash management strategies, identify federal recovery grants, implement a recovery website, and assist with federal reporting of recovery grants. The Government has also retained the services of a national engineering firm to lead the reconstruction effort in the U.S. Virgin Islands and provide oversight of FEMA Hazard Mitigation and HUD Community Disaster grants. In September 2021, the Government received $304.0 million in hurricane relief with the passage of the “Extending Government Funding and Delivering Emergency Assistance Act” resulting in the forgiveness of Community Disaster Loans (CDLs) to states and territories. In October 2021, the U.S. Virgin Islands Recovery Leader’s Summit reported $11.3 billion in construction projects underway or planned for the Territory. The Government has also been challenged by the COVID-19 pandemic that began in the current fiscal year. With the passage of “No Sail Orders” (NSOs) by the Centers for Disease Control and Prevention in March 2020, cruise ship arrivals did not begin again until September 2021. The loss of hotel rooms and cruise ship tourism was offset by an increase in air arrivals and Airbnb tourism. The Virgin Islands Bureau of Economic Research reported a 96.7% increase in air visitor arrivals from January 2020 to December 2021. Investment interest in the Territory remains strong with the opening of hotels and campgrounds, and a 16.7% increase in leisure and hospitality employment through April 2022. Government of the United States Virgin Islands Management’s Discussion and Analysis 12 The Government regained access to capital markets in April 2022 with the issuance of the Series 2022A and Series 2022B securitized bonds in the amount of $952.8 million. The bonds were rated “BBB” by Kroll Bond Rating Agency. In June 2022, WICO issued private placement bonds amounting to $52.6 million to qualified private investors. Financial Analysis of the Primary Government Total assets and deferred outflows of resources of the Government as of September 30, 2020, and 2019, were approximately $3.7 billion and $2.8 billion, respectively. Total liabilities and deferred inflows were approximately $8.8 billion and $7.9 billion, respectively, over the same period. Liabilities exceed assets mainly due to unfunded pension and postemployment benefits such as health insurance due to retired Government employees amounting to $5.0 billion and $4.0 billion at September 30, 2020 and 2019. On September 30, 2020, the Government’s net deficit of $5.2 billion consisted of a $529.0 million net investment in capital assets; $307.4 million restricted by statute or other legal requirements that were not available to finance day-to-day operations; and an unrestricted net deficit of $6.0 billion. On September 30, 2019, the Government’s net deficit of $5.1 billion consisted of a $470.1 million net investment in capital assets; $318.0 million restricted by statute or other legal requirements that were not available to finance day-to-day operations; and an unrestricted net deficit of $5.9 billion. For the fiscal year ended September 30, 2020, the primary government earned program and general revenue amounting to $2.3 billion and reported expenses of $2.4 billion, resulting in an increase in net deficit of approximately $100.2 million. For the fiscal year ended September 30, 2019, the primary government earned program and general revenue amounting to $2.1 billion and reported expenses of $2.3 billion resulting in an increase in net deficit of approximately $190.5 million. Overall, revenue increased in fiscal 2020 by approximately $217.0 million, when compared to fiscal 2019, mainly due to an increase in tax revenue of $213.0 million, an increase in COVID federal assistance of $103.0 million, an increase in interest and other of $20.0 million, and an increase in payment in lieu of taxes of $2.0 million, offset by a decrease in federal operating and capital grant revenues of $116.0 million, and a decrease in charges for services of $5.0 million. Overall expenses increased in fiscal 2020 by $129.0 million when compared to fiscal 2019, mainly due to increase in general government of $11.0 million, increase in public housing and welfare of $74.0 million, increase in education, transportation and communication of $6.0 million, increase in unemployment insurance benefits paid of $80.0 million, and offset by a decrease in health and public safety of $11.0 million, a decrease in interest expense of $7.0 million, and a decrease in Government Insurance (workers’ compensation) expense of $25.0 million. Government of the United States Virgin Islands Management’s Discussion and Analysis 13 A summary of net position and changes in net position for the primary government follows (expressed in thousands): Governmental Activities Business-Type Activities Total September 30, 2020 2019 2020 2019 2020 2019 Assets and Deferred Outflows Current assets $ 1,365,820 $ 1,121,899 $ 43,233 $ 53,108 $ 1,409,053 $ 1,175,007 Internal balances 47,661 47,778 (47,661) (47,778) - - Capital assets 958,128 915,789 113,109 120,655 1,071,237 1,036,444 Other assets 5,530 7,876 815 1,221 6,345 9,097 Deferred outflows of resources 1,178,917 624,460 - - 1,178,917 624,460 Total assets and deferred outflows 3,556,056 2,717,802 109,496 127,206 3,665,552 2,845,008 Liabilities and Deferred Inflows Long-term liabilities 7,205,871 6,337,149 93,042 95,825 7,298,913 6,432,974 Other liabilities 1,026,970 927,582 101,921 93,076 1,128,891 1,020,658 Deferred inflows of resources 417,671 471,141 - - 417,671 471,141 Total liabilities and deferred inflows 8,650,512 7,735,872 194,963 188,901 8,845,475 7,924,773 Net Position Net investment in capital assets 494,921 428,130 34,048 42,025 528,969 470,155 Restricted 299,896 305,431 7,476 12,560 307,372 317,991 Unrestricted deficit (5,889,273) (5,751,631) (126,991) (116,280) (6,016,264) (5,867,911) Total net deficit $ (5,094,456) $ (5,018,070) $ (85,467) $ (61,695) $ (5,179,923) $ (5,079,765) Government of the United States Virgin Islands Management’s Discussion and Analysis 14 Governmental Activities Business-Type Activities Total September 30, 2020 2019 2020 2019 2020 2019 Revenues Program revenue: Charges for services $ 25,581 $ 29,471 $ 68,603 $ 69,842 $ 94,184 $ 99,313 Operating grants and contributions 672,008 841,630 53,936 7,547 725,944 849,177 Capital grants and contributions 33,087 25,945 489 - 33,576 25,945 General revenue: Taxes 1,201,659 989,050 - - 1,201,659 989,050 Interest and other 103,323 84,529 7,923 7,185 111,246 91,714 COVID relief financial assistance 103,423 - - - 103,423 - Payment in lieu of taxes 11,917 9,984 - - 11,917 9,984 Tobacco settlement rights 1,184 1,135 - - 1,184 1,135 Total revenues 2,152,182 1,981,744 130,951 84,574 2,283,133 2,066,318 Expenses General government 1,275,293 1,264,313 - - 1,275,293 1,264,313 Public safety 106,615 112,824 - - 106,615 112,824 Health 67,957 72,636 - - 67,957 72,636 Public housing and welfare 274,216 200,103 - - 274,216 200,103 Education 341,228 339,986 - - 341,228 339,986 Transportation and communication 57,706 53,037 - - 57,706 53,037 Culture and recreation 9,593 9,512 - - 9,593 9,512 Interest on long-term debt 94,960 101,683 - - 94,960 101,683 The West Indian Company - - 12,802 11,097 12,802 11,097 Unemployment insurance - - 95,262 15,736 95,262 15,736 viNGN - - 10,263 9,588 10,263 9,588 Government insurance - - 5,794 30,339 5,794 30,339 Other - - 33,743 35,795 33,743 35,795 Total expenses 2,227,568 2,154,094 157,864 102,555 2,385,432 2,256,649 Changes in net position (deficit) before transfers and special item (75,386) (172,350) (26,913) (17,981) (102,299) (190,331) Transfers (1,000) (1,000) 1,000 1,000 - - Special item – insurance recoveries on capital assets - 672 2,141 5,258 2,141 5,930 Special item – loss on sale of capital assets - (6,099) - - - (6,099) Changes in net deficit (76,386) (178,777) (23,772) (11,723) (100,158) (190,500) Net deficit, beginning of year (5,018,070) (4,839,293) (61,695) (49,972) (5,079,765) (4,889,265) Net deficit, end of year $ (5,094,456) $ (5,018,070) $ (85,467) $ (61,695) $ (5,179,923) $ (5,079,765) Government of the United States Virgin Islands Management’s Discussion and Analysis 15 Financial Analysis of the Government’s Funds Governmental Funds The focus of governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the Government’s financing requirements. In particular, the unassigned fund balance/deficit may serve as a useful measure of a government’s net resources available, or not available, for discretionary use as they represent the portion of the fund balances which has not yet been limited to use for a particular purpose by either an external party of the primary Government. On September 30, 2020, the Government’s governmental funds reported a combined fund balance of $374.2 million, an increase of $55.7 million when compared to the prior year combined fund balance of $318.5 million. Approximately $293.1 million of this amount consists of unassigned fund balance deficits representing expenditures in governmental funds that exceeded discretionary funds available. The remaining fund balances are either restricted, committed, or assigned to indicate that it is: i) restricted for particular purposes ($472.4 million), ii) committed for particular purposes ($45.5 million), or iii) assigned for particular purposes ($149.4 million). The General Fund is the chief operating fund of the primary Government. On September 30, 2020, the unassigned fund deficit of the General Fund was $11.0 million while the total fund balance of the General Fund was $21.8 million. The fund balance of the General Fund increased by $115.9 million when compared to the prior year fund deficit of $94.1 million. This increase was mainly due to an increase in General Fund revenues of $89.0 million, an increase in transfers from other funds of $30.7 million, an increase in transfers to other funds of $2.2 million, a decrease in General Fund expenditures of $87.8 million, a reduction in bonds issued of $17.8 million and proceeds from the sale of assets in the prior year of $18.3 million. The PFA Debt Service Fund accounts for the resources accumulated, and payments made, for principal and interest on long-term general obligation debt issued by PFA on behalf of the Government. On September 30, 2020, the restricted fund balance of the PFA Debt Service Fund was $299.6 million, a decrease of $5.5 million from the prior fiscal year fund balance of $305.2 million. This decrease is mainly due to an increase in tax revenue of $15.5 million, an increase in expenditures of $19.3 million, a decrease in transfers from other funds of $3.3 million, an increase in transfers to other funds of $34.9 million, and an increase in direct borrowings and placements of $13.6 million. The PFA Capital Projects Fund accounts for bond proceeds issued by PFA that have been designated for certain necessary public safety and capital development projects. On September 30, 2020, the restricted fund balance of the PFA Capital Projects Fund was $107.5 million, a decrease of $29.2 million from the prior fiscal year fund balance of $136.7 million. The decrease was due to an increase in capital outlays of $10.6 million, an increase in general government expenditures of $4.1 million, a decrease in interest and other revenue of $1.7 million, and an increase in transfers from other funds of $4.1 million. The Federal Grants Fund accounts for proceeds and payments that are restricted to expenditures for specified purposes. On September 30, 2020, the fund deficit of the Federal Grants Fund increased by $17.5 million to $148.0 million from the prior year fund deficit of $130.5 million. The increase was due to federal grant expenditures exceeding federal grant revenues. Government of the United States Virgin Islands Management’s Discussion and Analysis 16 Proprietary Funds The focus of proprietary funds is to report the same functions presented as business-type activities in the government-wide financial statements. Proprietary fund financial statements provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for The West Indian Company, Ltd (WICO), Unemployment Insurance Fund, the Virgin Islands Next Generation Network (viNGN), and the Government Insurance Fund (GIF) as these funds are considered to be major funds. On September 30, 2020, the primary Government’s proprietary funds reported a combined net deficit of $85.5 million, an increase of $23.8 million when compared to the prior year combined net deficit of $61.7 million. The deficit is the result of an unrestricted deficit in the proprietary funds ($127.0 million) offset by net investment in capital assets ($34.0 million) and restricted net position ($7.5 million). WICO owns a port facility including a cruise ship pier and manages certain parcels of land and warehouses on the island of St. Thomas. On September 30, 2020, the net deficit of WICO was $2.9 million, a decrease of $7.0 million from the prior fiscal year. This decrease was mainly due to an operating loss of $4.4 million and a decrease in insurance recoveries of $4.0 million. The Unemployment Insurance Fund is a federally mandated program to manage unemployment insurance. On September 30, 2020, the net deficit of the fund was $69.6 million, an increase in deficit of $11.9 million from the prior fiscal year. The increase is mainly due to an increase in unemployment claims due to the COVID-19 pandemic. viNGN designs, develops, and manages a middle mile wholesale fiber optic network in order to make available reliable high-speed interest connections to retail internet service providers. On September 30, 2020, viNGN, reported net position of $24.0 million, a decrease of $4.2 million from the prior fiscal year. This decrease was mainly due to an operating loss of $6.6 million offset by insurance recoveries of $2.1 million and grant revenues of $255,000. The Government Insurance Fund (GIF) provides insurance protection for workers in the U.S. Virgin Islands in the event of job accidents. On September 30, 2020, the net deficit of the fund was $55.1 million, a decrease of $3.1 million from the prior year. This decrease was mainly due to a decrease in the actuarial valuation of insurance claims as of September 30, 2020. General Fund Budgetary Highlights The Virgin Islands Office of Management and Budget prepares an annual executive budget subject to approval by the Governor and the Legislature of the Virgin Islands. The executive budget is prepared on a budgetary basis that is like the cash basis of accounting. The executive budget includes only those funds that are subject to appropriation by law. More information regarding budgetary procedures is provided in the Required Supplementary Information accompanying the basic financial statements. Government of the United States Virgin Islands Management’s Discussion and Analysis 17 A summary of the budgetary report for the General Fund of the Government, included on page 149 of the financial statements, follows (expressed in thousands): September 30, 2020 Original Budget Amended Budget Actual Variance Total revenues $ 955,732 $ 955,732 $ 1,006,916 $ 51,184 Total expenditures 768,036 780,926 721,807 59,119 (Deficiency) excess of revenues over expenditures 187,696 174,806 285,109 110,303 Other financing sources (uses), net (46,790) (131,526) (138,511) (6,985) Excess (deficiency) of revenues and net other financing sources over expenditures $ 140,906 $ 43,280 $ 146,598 $ 103,318 For fiscal year 2020, the General Fund realized a favorable budgetary variance of $103.3 million mainly due to a favorable revenue variance of $51.2 million and a favorable expenditure variance of $59.1 million. The General Fund realized a favorable revenue variance of $51.2 million mainly due to tax revenues exceeding budgeted amounts by $123.2 million, charges for services revenues being under budget by $58.7 million, and interest and other revenues being under budget by $35.7 million during the fiscal year. The General Fund realized a favorable expenditures variance of $59.1 million due to spending efficiencies when compared to budgeted amounts. Capital Assets Capital assets additions during fiscal year 2020 amounted to $91.9 million for governmental activities and $1.7 million for business-type activities, net of adjustments. Capital assets additions during fiscal year 2019 amounted to $246.7 million for governmental activities and $2.6 million for business-type activities, net of adjustments. The Government’s capital assets include land, land improvements, buildings, building improvements, machinery and equipment, infrastructure, construction in progress, and intangibles, as follows (expressed in thousands): Governmental Activities Business-Type Activities Total September 30, 2020 2019 2020 2019 2020 2019 Land and land improvements $ 227,474 $ 227,252 $ 5,854 $ 5,526 $ 233,328 $ 232,778 Building and improvements 648,659 639,584 90,513 89,904 739,172 729,488 Machinery and equipment 241,416 221,390 80,631 79,729 322,047 301,119 Infrastructure 190,628 169,993 - - 190,628 169,993 Intangible assets - - 30,774 30,774 30,774 30,774 Construction in progress 174,532 134,813 5,758 5,974 180,290 140,787 Total capital assets 1,482,709 1,393,032 213,530 211,907 1,696,239 1,604,939 Less accumulated depreciation (524,581) (477,243) (100,421) (91,252) (625,002) (568,495) Total capital assets, net $ 958,128 $ 915,789 $ 113,109 $ 120,655 $ 1,071,237 $ 1,036,444 Government of the United States Virgin Islands Management’s Discussion and Analysis 18 Note 9 provides detailed information regarding the capital assets of the primary government and the component units of the Government. Debt Administration (General Obligation and Revenue Bonds) The Government issues both general obligation bonds and revenue bonds. The Revised Organic Act [48 U.S.C. Section 1574 (b)(ii)] restricts the principal amount of general obligation debt that the Government may issue to no greater than 10.0% of the aggregate assessed valuation of taxable real property in the U.S. Virgin Islands. Following is a summary of bonds outstanding as of September 30, 2020, (expressed in thousands): Bond Issue Maturity Rates (%) Balance 2019 Series A TIF Revenue and Refunding Direct Placement Bonds 2029 6.88 $ 11,587 2018 Series A Revenue Bonds 2022 - 2037 U.S. Treasury 206,295 2015 Series Federal Highway Bonds 2016 - 2033 3.00-5.00 71,140 2014 Series D Revenue Bonds 2015 - 2033 6.03 4,820 2014 Series C Revenue and Refunding Bonds 2015 - 2044 4.50-5.00 220,960 2014 Series A Revenue Bonds 2015 - 2034 5.00 41,435 2013 Series B Revenue Refunding Bonds 2015 - 2024 3.00 – 5.00 35,010 2013 Series A Revenue Refunding Bonds 2018 - 2024 5.00 – 5.25 13,675 2012 Series C Revenue Bonds 2017 - 2042 3.00 – 5.00 24,845 2012 Series A & B Revenue & Refunding Bonds 2017 - 2032 2.25 – 5.25 140,515 2012 Series A Revenue Bonds 2022 - 2032 4.00 – 5.00 137,315 2010 Series A & B Revenue Bonds 2012 - 2029 4.00 – 5.25 380,195 2009 Series A Revenue Bonds (Cruzan) 2010 - 2039 3.00 – 6.00 32,530 2009 Series A 1, A 2, B & C Revenue and Refunding Bonds 2010 - 2039 3.00 – 5.00 190,805 2009 Series A Revenue Bonds (Diageo) 2014 - 2037 6.00 – 6.75 215,380 2006 Series A Revenue Bonds 2007 - 2029 3 50 – 5.00 186,130 2006 Series A, B, C & D Turbo Capital Appreciation Bonds 2036 6.00 – 8.00 7,290 2001 Series Tobacco Bonds 2031 4.62 – 5.13 3,470 Total bonds outstanding 1,923,397 Plus (less): Bonds premium 35,499 Bonds discount (1,846) Bonds accretion 11,300 Net bonds outstanding $ 1,968,350 Note 10 provides detailed information regarding all bonds of the primary government. The Government made bond principal payments on outstanding general and special revenue bonds amounting to $85.5 million during fiscal year 2020 and $80.8 million during fiscal year 2019. In December 2019, Standard & Poor’s Global Ratings revised its outlook from negative to stable and affirmed its A rating on the outstanding Series 2015A grant anticipation bonds (GARVEE bonds). In October 2021, Moody’s Investors Service affirmed the Territory’s Caa3 issuer rating and stable outlook, as well as the Caa2 rating on Matching Fund Senior Lien Bonds, and Caa3 rating on other Matching Fund Bonds. Government of the United States Virgin Islands Management’s Discussion and Analysis 19 Other Liabilities of the Primary Government Other long-term outstanding liabilities of the Government include the following (expressed in thousands): September 30, 2020 2019 Governmental activities: Accrued compensated absences $ 44,467 $ 39,042 Retroactive union arbitration 195,286 195,286 Litigation 18,058 21,220 Landfill closure and post closure costs 109,409 110,708 Business-type activities: Workers’ compensation 57,927 59,458 Compensated absences 1,286 1,990 Loan payable – U.S. Treasury 69,083 63,375 Refundable advance - WICO 464 - Loan payable - WICO 42,255 41,826 Total other liabilities $ 538,235 $ 532,905 Net Pension Liabilities The Government has implemented the provisions of Governmental Accounting Standards Board Statement (GASB) No. 68, Accounting and Financial Reporting for Pensions—an amendment of GASB Statement No. 27, as amended by GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date—an amendment of GASB Statement No. 68 and GASB Statement No. 82, Pension Issues—an amendment of GASB Statements No. 67, No. 68, and No. 73. Following is the net pension liability reported in fiscal years 2020 and 2019 (expressed in thousands): September 30, 2020 2019 Net pension liability $ 4,194,852 $ 3,246,789 Net Other Postemployment Benefit (OPEB) Liabilities The Government has implemented the provisions of Governmental Accounting Standards Board Statement (GASB) No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. This standard requires the reporting and disclosure of costs and liabilities associated with postemployment benefits provided to retirees of the Government and ten (10) of the Government’s component units under a special funding arrangement. Following is the net OPEB liability reported in fiscal years 2020 and 2019 (expressed in thousands): September 30, 2020 2019 Net OPEB liability $ 786,756 $ 774,507 Government of the United States Virgin Islands Management’s Discussion and Analysis 20 Significant Currently-Known Facts The Government promotes fiscal sustainability through economic development, compliance initiatives, and budgetary restraints on expenditures. The Government is also working with non- governmental organizations and Federal partners as part of its recovery efforts following the 2017 hurricanes and the COVID-19 pandemic. Revenue and Compliance Initiatives The Government has implemented several initiatives to create jobs, stimulate economic growth, and promote fiscal sustainability including promotion of airline travel tourism through national advertising, introducing legislation for the legal sale of cannabis for medical purposes, compliance initiatives to ensure voluntary tax filing requirements are met, and outreach to national and foreign investors. The Government continues to promote its high-tech broadband capabilities, educated workforce, and tax incentive programs available in the U.S. Virgin Islands to management, technology, and tourism-related industries. The Territory continues to work with federal recovery partners including the Federal Emergency Management Agency (FEMA), U.S. Department of Housing and Urban Development (HUD), Federal Highway Administration (FHWA), and other agencies to establish a multi-year, multi-billion recovery plan building resiliency in managing climate change and fiscal sustainability. Budgetary Control of Expenditures The Government has experienced an increase in carry-forward liabilities from prior fiscal years mainly due to landfill closure costs, postemployment benefits for retirees, and net pension liabilities in connection with the Government’s defined benefit pension plan. The Government also has carry- forward liabilities due to unpaid retroactive salary increases that accumulated following Hurricanes Hugo, Marilyn, and Bertha in the years of 1990 through 1998. At September 30, 2020 and 2019, long- term liabilities for pension and other postemployment benefits to retired government employees amounted to $5.0 billion and $4.0 billion, respectively. The Government’s defined benefit pension plan was 11.32% and 15.56% funded as of the measurement dates of September 30, 2020 and 2019, respectively. Based on actuarial projections, the plan may not be able to meet its responsibilities by fiscal year 2024. A Pension Reform Joint Task Force has provided recommendations to the Legislature of the Virgin Islands to (i) increase the retirement age of Government workers; (ii) restructure plan benefits; and (iii) to no longer allow retirees to both work and collect benefits from the Government. The retirement system increased the contribution rates of participating employers by 1.0% per year over the three fiscal years 2015, 2016, and 2017 and at September 30, 2018, the employer contribution rate was 20.5%. In December 2019, the employer rate was increased by 3.0% bringing the contribution rate to 23.5% effective January 1, 2020. In February 2022, the Legislature of the Virgin Islands passed Act 8540, authorizing the creation of the Matching Fund Special Purpose Securitization Corporation to purchase the Matching Fund Receipts from the Government, restructure the existing matching fund bond debt, and to free up resources to provide annual funding for the Government Employees’ Retirement System of the U.S. Virgin Islands (GERS) through the GERS Funding Note established with PFA. Government of the United States Virgin Islands Management’s Discussion and Analysis 21 The Matching Fund Securitization Bonds Series 2022A and Series 2022B were issued in April 2022 in the amount of $952.8 million, and an initial payment was made to GERS in the amount of $89.2 million. In October 2022, a second payment was made to GERS of $158.0 million. Coronavirus COVID-19 Pandemic In December 2019, a novel strain of coronavirus, known as COVID-19, was reported which quickly spread around the globe, including the United States and its Territories. In March 2020, the Governor of the U.S. Virgin Islands declared a state of emergency due to COVID-19. In April 2020, the U.S. Virgin Islands was declared a major disaster area by the President of the United States of America. The Presidential declaration enables the Territory to receive federal funding for emergency protective measures, including direct federal assistance. Through March 2023, federal grants and assistance received by the primary government related to COVID-19 amounted to $880.6 million. Federal grants and assistance received by component units of the Government amounted to $82.6 million. Contacting the Government’s Financial Management This financial report is designed to provide the Government’s citizens, taxpayers, customers, and creditors with a general overview of the Government’s finances. If you have questions about this report, or need additional financial information, contact the Government of the United States Virgin Islands, Department of Finance, No. 2314 Kronprindsens Gade, St. Thomas, VI 00802.     Basic Financial Statements Assets Cash and cash equivalents 327,535 $ 30,870 $ 358,405 $ 121,835 $ Investments, at fair value 623,536 1,674 625,210 21,331 Receivables, net 228,877 2,775 231,652 634,748 Internal balances 47,661 (47,661) - - Due from Federal government 51,440 438 51,878 104,997 Due from component units 122,764 - 122,764 88 Due from primary government - - - 36,665 Inventories - - - 21,804 Prepayments and other assets - - - 26,879 Restricted: Cash and cash equivalents - 7,476 7,476 102,581 Investments - - - 107,708 Other - - - 18,254 Capital assets, net 958,128 113,109 1,071,237 2,142,011 Notes receivable 11,668 - 11,668 10,608 Other assets 5,530 815 6,345 64,000 Total assets 2,377,139 109,496 2,486,635 3,413,509 Deferred Outflows of Resources Deferred amounts related to pension 1,156,719 - 1,156,719 316,524 Deferred charges on bond refunding 4,961 - 4,961 7,470 Deferred amounts related to OPEB 17,237 - 17,237 557 Total deferred outflows of resources 1,178,917 – 1,178,917 324,551 Total assets and deferred outflows of resources 3,556,056 $ 109,496 $ 3,665,552 $ 3,738,060 $ See accompanying notes to financial statements. Component Units Government of the United States Virgin Islands Statement of Net Position (in thousands) September 30, 2020 Primary Government Governmental Activities Business-type Activities Total 22 Liabilities Accounts payable and accrued liabilities 413,983 $ 11,316 $ 425,299 $ 1,119,190 $ Tax refunds payable 105,635 - 105,635 - Unemployment insurance benefits – 3,257 3,257 - Customer deposits – - – 30,051 Due to primary government – - – 131,091 Due to component units 29,883 - 29,883 4 Due to Federal government – - – 4,142 Interest payable 43,021 - 43,021 12,634 Refundable advance 39,147 464 39,611 - Other current liabilities: Unearned revenues 272,950 9,375 282,325 28,724 Line of credit – - - 37,001 Loans and notes payable 4,165 69,841 74,006 1,844 Bonds payable 99,932 - 99,932 33,645 Other liabilities 18,254 7,668 25,922 32,510 Noncurrent liabilities: Loans and notes payable 1,743 41,497 43,240 33,361 Bonds payable 1,868,418 - 1,868,418 407,366 Net pension liability 4,194,852 - 4,194,852 1,090,412 Other postemployment benefits liability (OPEB) 786,756 - 786,756 115,808 Interest payable 5,136 - 5,136 - Unearned revenues – - - 11,197 Other liabilities 348,966 51,545 400,511 141,360 Total liabilities 8,232,841 194,963 8,427,804 3,230,340 Deferred Inflows of Resources Deferred amounts related to pension 341,574 - 341,574 209,352 Deferred amounts related to OPEB 76,097 - 76,097 20,414 Lease payments received in advance - - - 1,148 Total liabilities and deferred inflows of resources 8,650,512 $ 194,963 $ 8,845,475 $ 3,461,254 $ Net Position (Deficit) Net investment in capital assets 494,921 $ 34,048 $ 528,969 $ 1,715,182 $ Restricted: Unemployment insurance – 455 455 – Debt service 299,637 3,973 303,610 – Capital projects 259 3,048 3,307 – Other purposes – - – 154,257 Unrestricted deficit (5,889,273) (126,991) (6,016,264) (1,592,633) Total net position (deficit) (5,094,456) $ (85,467) $ (5,179,923) $ 276,806 $ See accompanying notes to financial statements. Government of the United States Virgin Islands (in thousands) September 30, 2020 Primary Government Statement of Net Position (continued) Governmental Activities Business-type Activities Total Component Units 23 Total Functions: Primary government: Governmental activities: General government 1,275,293 $ 23,943 $ 427,189 $ 12,263 $ (811,898) $ - $ (811,898) $ - $ Public safety 106,615 341 4,726 - (101,548) - (101,548) - Health 67,957 483 21,397 - (46,077) - (46,077) - Public housing and welfare 274,216 357 177,765 - (96,094) - (96,094) - Education 341,228 - 36,352 - (304,876) - (304,876) - Transportation and communication 57,706 376 4,579 20,824 (31,927) - (31,927) - Culture and recreation 9,593 81 - - (9,512) - (9,512) - Interest on long-term debt 94,960 - - - (94,960) - (94,960) - Total governmental activities 2,227,568 25,581 672,008 33,087 (1,496,892) - (1,496,892) Business-type activities: WICO 12,802 5,441 - 234 - (7,127) (7,127) - Unemployment insurance 95,262 29,226 53,935 - - (12,101) (12,101) - viNGN 10,263 3,627 - 255 - (6,381) (6,381) - Government Insurance 5,794 8,863 - - - 3,069 3,069 - Other 33,743 21,446 1 - - (12,296) (12,296) - Total business-type activities 157,864 68,603 53,936 489 - (34,836) (34,836) - Total primary government 2,385,432 $ 94,184 $ 725,944 $ 33,576 $ (1,496,892) $ (34,836) $ (1,531,728) $ – $ Component units: Virgin Islands Housing Authority 56,895 $ 4,593 $ 41,858 $ 2,626 $ - $ - $ - $ (7,818) $ Virgin Islands Port Authority* 82,123 47,096 491 19,994 - - - (14,542) Virgin Islands Water and Power Authority: Electric System 279,072 248,514 - 133,304 - - - 102,746 Water System 29,254 32,466 - 5,683 - - - 8,895 Virgin Islands Government Hospital and Health Facilities Corporation: Roy L. Schneider Hospital 93,894 47,437 37,355 170 - - - (8,932) Juan F. Luis Hospital 103,038 43,317 28,211 32,001 - - - 491 University of the Virgin Islands 104,030 12,521 78,844 4,543 - - - (8,122) Other component units* 177,420 9,778 192,102 - - - - 24,460 Total component units 925,726 $ 445,722 $ 378,861 $ 198,321 $ - $ - $ - $ 97,178 $ Total primary government and component units 97,178 $ *Virgin Islands Port Authority and University of the Virgin Islands Research and Technology Park Corporation (unaudited) See accompanying notes to financial statements. Operating Grants and Contributions Charges for Services Government of the United States Virgin Islands (in thousands) Year Ended September 30, 2020 Program Revenues Statement of Activities Business-type Activities Governmental Activities Net Revenue (Expense) and Changes in Net Position Primary Government Capital Grants and Contributions Component Units Expenses 24 Component Units General revenue: Taxes 1,201,659 $ - $ 1,201,659 $ - $ Payment in lieu of taxes 11,917 - 11,917 - Interest and other 103,323 7,923 111,246 10,780 Tobacco settlement rights 1,184 - 1,184 - COVID-19 pandemic relief assistance 103,423 - 103,423 - Special item - insurance recoveries on capital assets, net - 2,141 2,141 1,913 Transfers – internal activities of primary government (1,000) 1,000 - - Total general revenue and other items 1,420,506 11,064 1,431,570 12,693 Changes in net position (deficit) (76,386) (23,772) (100,158) 109,871 Net position (deficit), beginning of year, as restated (5,018,070) (61,695) (5,079,765) 166,935 Net position (deficit), end of year (5,094,456) $ (85,467) $ (5,179,923) $ 276,806 $ See accompanying notes to financial statements. Primary Government Year Ended September 30, 2020 Government of the United States Virgin Islands (in thousands) Net Revenue (Expense) and Changes in Net Position Statement of Activities Total Business-type Activities Governmental Activities 25 Assets Cash and cash equivalents 135,144 $ 16,332 $ 21,878 $ - $ 154,181 $ 327,535 $ Investments, at fair value 184,703 377,634 56,145 - 5,054 623,536 Receivables: Taxes, net 187,712 40,116 - - - 227,828 Other 27 - - - 119 146 Due from Federal government - - - 51,440 - 51,440 Due from: Other funds 76,421 - 37,128 - 36,129 149,678 Component units, net 113,889 - - - 8,875 122,764 Total assets 697,896 434,082 115,151 51,440 204,358 1,502,927 Liabilities Accounts payable and accrued liabilities 207,506 - 5,913 177,568 22,996 413,983 Tax refunds payable 105,635 - - - - 105,635 Refundable advance - - - - 39,147 39,147 Unearned revenues 161,126 108,324 - - 3,500 272,950 Due to: Other funds 34,754 - - 21,889 45,374 102,017 Component units 28,116 - 1,763 - 4 29,883 Total liabilities 537,137 108,324 7,676 199,457 111,021 963,615 Deferred Inflows of Resources Unavailable revenues 138,992 26,121 - - - 165,113 Total liabilities and deferred inflows of resources 676,129 134,445 7,676 199,457 111,021 1,128,728 Fund balances (deficit) Restricted - 299,637 107,475 63,512 1,845 472,469 Committed 31,374 - - - 14,096 45,470 Assigned 1,425 - - - 147,940 149,365 Unassigned (11,032) - - (211,529) (70,544) (293,105) Total fund balances (deficit) 21,767 299,637 107,475 (148,017) 93,337 374,199 Total liabilities, deferred inflows of resources, and fund balances (deficit) 697,896 $ 434,082 $ 115,151 $ 51,440 $ 204,358 $ Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and therefore, are not reported in the funds. 958,128 Expenditures identified as related to a future period are recognized as a prepaid asset in the statement of net position. 5,530 Note receivable related to the sale of capital assets therefore, not reported in the funds. 11,668 Deferred costs of refunding bonds are not financial resources and are therefore, not reported in the funds. 4,961 Other long-term assets, primarily taxes receivable, will not be available to pay for current period expenditures and therefore, are deferred in the funds. 166,016 Deferred outflows and inflows of resources of pension and postemployment benefit liabilities are not current financial resources and therefore, are not included in the funds. 756,285 Interest on long-term debt is not accrued in the funds, but rather is recognized as an expenditure when due. (48,157) Long-term pension liabilities are not due and payable in the current period and therefore, are not reported in the funds. (4,194,852) Long-term postemployment benefit liabilities are not due and payable in the current period and therefore, are not reported in the funds. (786,756) Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore, are not reported in the funds. (2,341,478) Net deficit of governmental activities (5,094,456) $ See accompanying notes to financial statements. Other Governmental Government of the United States Virgin Islands September 30, 2020 Balance Sheet - Governmental Funds General PFA Debt Service PFA Capital Projects Federal Grants (in thousands) Total Governmental 26 PFA PFA Debt Capital Federal General Service Projects Grants Revenues Taxes 740,680 $ 357,958 $ - $ - $ 17,603 $ 1,116,241 $ Payment in lieu of taxes 11,917 - - - - 11,917 Federal grants and contributions 22,411 7,569 - 657,581 17,534 705,095 COVID-19 pandemic relief assistance - - - - 103,423 103,423 Charges for services 12,924 - - - 12,657 25,581 Tobacco settlement rights - - - - 1,127 1,127 Interest and other 67,814 8,883 922 380 24,239 102,238 Total revenues 855,746 374,410 922 657,961 176,583 2,065,622 Expenditures Current: General government 562,548 1,828 4,447 399,745 149,508 1,118,076 Public safety 60,928 - - 4,393 387 65,708 Health 28,122 - - 16,857 1,058 46,037 Public housing and welfare 47,982 - - 193,059 2,445 243,486 Education 171,786 - - 32,309 5,307 209,402 Transportation and communication 20,396 - - 7,975 13,970 42,341 Culture and recreation 5,599 - - - - 5,599 Capital outlays 18,485 - 29,853 21,135 22,897 92,370 Debt service: Principal - 99,488 - - 1,045 100,533 Interest - 98,062 - - 226 98,288 Debt issuance costs - 690 - - - 690 Total expenditures 915,846 200,068 34,300 675,473 196,843 2,022,530 Excess (deficiency) of revenue over expenditures (60,100) 174,342 (33,378) (17,512) (20,260) 43,092 Other financing sources (uses) Direct borrowings and placements - 13,593 - - - 13,593 Transfers from other funds 189,555 224 4,140 - 12,386 206,305 Transfers to other funds (13,606) (193,695) - - (4) (207,305) Total other financing sources (uses), net 175,949 (179,878) 4,140 - 12,382 12,593 Net change in fund balances 115,849 (5,536) (29,238) (17,512) (7,878) 55,685 Fund balances (deficit), beginning of year (94,082) 305,173 136,713 (130,505) 101,215 318,514 Fund balances (deficit), end of year 21,767 $ 299,637 $ 107,475 $ (148,017) $ 93,337 $ 374,199 $ See accompanying notes to financial statements. Government of the United States Virgin Islands (in thousands) Year Ended September 30, 2020 Statement of Revenues, Expenditures, and Changes in Fund Balances − Governmental Funds Other Governmental Total Governmental 27 Year Ended September 30, 2020 Net change in fund balances – total governmental funds 55,685 $ Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation, impairment loss, and disposals in the current year. 42,339 Income from note receivable interest not producing current resources. 1,085 Tax revenue in the statement of activities, which provide current financial resources, are reported as revenue in the funds. 85,475 The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of the governmental funds. This is the amount by which loan proceeds of $13.6 million is less than debt repayments of $100.5 million. 86,940 Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. This is the amount by which the increase in certain liabilities reported in the statement of net position of the previous year increased expenses reported in the statement of activities that do not require the use of current financial resources. (964) Some expenses reported as prepaid assets in the statement of net position in the current year are recognized as expenses in the following year in the statement of activities. (2,346) Bond premiums and discounts are reported as other financing sources and uses in the governmental funds when the bonds are issued, and are capitalized and amortized in the government-wide financial statements. This amount represents additional net interest expense reported in the statement of activities related to the amortization of premiums, discounts, deferred refunding, and accreted interest on capital appreciation bonds during the current year. 2,852 Certain pension expense reported in the statement of activities does not require the use of current financial resources and therefore is not reported as expenditures in the governmental funds. This amount represents the increase in pension liabilities for the allocable share of pension expense reported in the statement of net position. (344,042) Certain OPEB expense reported in the statement of activities does not require the use of current financial resources and therefore is not reported as expenditures in the governmental funds. This amount represents the increase in OPEB liabilities for the allocable share of OPEB expense reported in the statement of net position. (7,540) Certain interest reported in the statement of activities does not require the use of current financial resources and therefore is not reported as expenditures in the governmental funds. This amount represents the decrease in interest payable reported in the statement of net position. 4,130 Change in net deficit of governmental activities (76,386) $ See accompanying notes to financial statements. Government of the United States Virgin Islands Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities – Governmental Funds (in thousands) 28 WICO viNGN Total Assets Current assets: Cash and cash equivalents 2,482 $ 1,057 $ 1,765 $ 4,992 $ 20,574 $ 30,870 $ Investments, at fair value - - - - 1,674 1,674 Receivables, net: Grants receivable 233 - 205 - - 438 Premiums receivable - 1,276 - - - 1,276 Other receivables 239 - 645 - 615 1,499 Due from other funds - - - - 300 300 Other assets 423 - 266 - 126 815 Total current assets 3,377 2,333 2,881 4,992 23,289 36,872 Noncurrent assets: Restricted cash and cash equivalents 7,021 455 - - - 7,476 Other noncurrent receivables - - - - - - Capital assets 40,149 - 58,281 22 14,657 113,109 Total noncurrent assets 47,170 455 58,281 22 14,657 120,585 Total assets 50,547 $ 2,788 $ 61,162 $ 5,014 $ 37,946 $ 157,457 $ Liabilities Current liabilities: Accounts payable and accrued liabilities 756 $ - $ 344 $ 1,682 $ 8,534 $ 11,316 $ Due to other funds 8,661 - 36,804 - 2,496 47,961 Unemployment insurance benefits - 3,257 - - - 3,257 Workers' compensation - - - 7,625 - 7,625 Loan payable to U.S. Treasury - 69,083 - - - 69,083 Refundable advance 464 - - - - 464 Unearned revenue - - - 523 8,852 9,375 Compensated absences payable 43 - - - - 43 Loans payable related to capital assets 758 - - - - 758 Total current liabilities 10,682 72,340 37,148 9,830 19,882 149,882 Noncurrent liabilities: Workers' compensation - - - 50,302 - 50,302 Compensated absences payable 1,243 - - - - 1,243 Loans payable related to capital assets 41,497 - - - - 41,497 Total noncurrent liabilities 42,740 - - 50,302 - 93,042 Total liabilities 53,422 $ 72,340 $ 37,148 $ 60,132 $ 19,882 $ 242,924 $ Net Position (Deficit) Net investment in capital assets (2,106) $ - $ $21,476 22 $ 14,656 $ 34,048 $ Restricted: Unemployment insurance - 455 - - - 455 Debt service 3,973 - - - - 3,973 Capital projects 3,048 - - - - 3,048 Unrestricted (deficit) (7,790) (70,007) 2,538 (55,140) 3,408 (126,991) Total net position (deficit) (2,875) $ (69,552) $ 24,014 $ (55,118) $ 18,064 $ (85,467) $ See accompanying notes to financial statements. September 30, 2020 Business-type Activities Government of the United States Virgin Islands Statement of Net Position – Proprietary Funds (in thousands) Unemployment Insurance Government Insurance Other Enterprise 29 WICO viNGN Operating revenues Charges for services 5,441 $ 29,226 $ 3,627 $ 8,863 $ 21,446 $ 68,603 $ Operating expenses Cost of services 6,693 95,262 5,685 5,794 32,281 145,715 Depreciation and amortization 3,185 - 4,578 - 1,462 9,225 Total operating expenses 9,878 95,262 10,263 5,794 33,743 154,940 Operating (loss) income (4,437) (66,036) (6,636) 3,069 (12,297) (86,337) Non-operating revenues (expenses) Grants revenue 234 53,935 255 - 1 54,425 Interest and other income 78 214 5 - 7,626 7,923 Payment in lieu of taxes (700) - - - - (700) Interest expense (2,224) - - - - (2,224) Total non-operating (expenses) revenues, net (2,612) 54,149 260 - 7,627 59,424 (Loss) income before operating transfers and special item (7,049) (11,887) (6,376) 3,069 (4,670) (26,913) Transfers from other funds - - - - 1,000 1,000 Insurance recoveries - - 2,141 - - 2,141 Change in net position (7,049) (11,887) (4,235) 3,069 (3,670) (23,772) Net position (deficit), beginning of year 4,174 (57,665) 28,249 (58,187) 21,734 (61,695) Net position (deficit), end of year (2,875) $ (69,552) $ 24,014 $ (55,118) $ 18,064 $ (85,467) $ See accompanying notes to financial statements. Year Ended September 30, 2020 Business-type Activities (in thousands) Statement of Revenues, Expenses, and Changes in Net Position − Proprietary Funds Government of the United States Virgin Islands Unemployment Insurance Government Insurance Other Enterprise Total 30 Unemployment Other WICO viNGN Enterprise Total Cash flows from operating activities Cash received from customers and users 7,574 $ 29,227 $ 3,663 $ 8,863 $ 21,260 $ 70,587 $ Cash paid to beneficiaries and suppliers (2,986) (95,262) (2,930) (7,397) (31,049) (139,624) Cash paid to employees (4,006) - (2,547) - - (6,553) Net cash provided by (used in) operating activities 582 (66,035) (1,814) 1,466 (9,789) (75,590) Cash flows from noncapital financing activities Other income - 214 - - 7,626 7,840 Transfer from other funds - - - - 1,000 1,000 Federal grants 118 53,935 49 - 1 54,103 Contribution to the Government (51) - - - - (51) Issuance of debt - 12,142 - - - 12,142 Principal paid on debt issuances, including interest - (6,434) - - - (6,434) Net cash provided by noncapital financing activities 67 59,857 49 - 8,627 68,600 Cash flows from capital and related financing activities Acquisition and construction of capital assets (691) - (96) (22) (871) (1,680) Proceeds from sale of capital assets 4 - - - - 4 Proceeds from insurance recoveries - - 2,141 - - 2,141 Proceeds from refundable advance 464 - - - - 464 Principal payments on direct borrowing from a bank (498) - - - - (498) Interest paid (1,297) - - - - (1,297) Net cash provided by (used in) capital and related financing activities (2,018) - 2,045 (22) (871) (866) Cash flows from investing activities Interest income 12 - 5 - - 17 Purchase of investments - - - - (6) (6) Net cash provided by (used in) investing activities 12 - 5 - (6) 11 Net increase (decrease) in cash and cash equivalents (1,357) (6,178) 285 1,444 (2,039) (7,845) Cash and cash equivalents, beginning of year 10,860 7,690 1,480 3,548 22,613 46,191 Cash and cash equivalents, end of year 9,503 $ 1,512 $ 1,765 $ 4,992 $ 20,574 $ 38,346 $ Reconciliation of operating (loss) income to net cash provided by (used in) operating activities Operating (loss) income (4,437) $ (66,036) $ (6,636) $ 3,069 $ (12,297) $ (86,337) $ Adjustments to reconcile operating (loss) income to net cash provided by (used in) operating activities: Depreciation and amortization 3,185 - 4,578 - 1,462 9,225 Other income 65 - - - - 65 Bad debt expense - - 128 - - 128 Provision for doubtful accounts 645 - - - - 645 Change in operating assets and liabilities: Receivables, net 1,713 1 (92) - 250 1,872 Other accounts receivable (289) - - - - (289) Unearned revenue - - - - (436) (436) Other assets 358 - 129 - (82) 405 Accounts payable and accrued liabilities 47 - 79 (72) 2,079 2,133 Compensated absences payable (705) - - - - (705) Workers' compensation - - - (1,531) - (1,531) Due to other funds - - - - (765) (765) Net cash provided by (used in) operating activities 582 $ (66,035) $ (1,814) $ 1,466 $ (9,789) $ (75,590) $ See accompanying notes to financial statements. Year Ended September 30, 2020 Business-type Activities (in thousands) Statement of Cash Flows − Proprietary Funds Government of the United States Virgin Islands Insurance Government Insurance 31 Unemployment WICO viNGN Total Reconciliation of cash and cash equivalents to the statement of net position Cash and cash equivalents – current 2,482 $ 1,057 $ 1,765 $ 4,992 $ 20,574 $ 30,870 $ Cash and cash equivalents – restricted 7,021 455 - - - 7,476 Total cash and cash equivalents, end of year 9,503 $ 1,512 $ 1,765 $ 4,992 $ 20,574 $ 38,346 $ See accompanying notes to financial statements. Year Ended September 30, 2020 Insurance Enterprise Government of the United States Virgin Islands Statement of Cash Flows − Proprietary Funds (continued) (in thousands) Business-type Activities Other Government Insurance 32 Pension September 30, 2020 Trust Assets Cash and cash equivalents: Unrestricted 73,318 $ 34,555 $ Restricted 18 Investments, at fair value: Certificate of deposits - 1,904 Cash collateral received under securities lending transactions 447 - U.S. Government and agency obligations 19,263 - Corporate obligations 29,157 - Mortgage and asset backed securities 34,977 - Commingled and mutual funds 327,080 - Limited partnerships 12,477 - Real estate 66,119 - Stock lending collateral 1,257 - Receivables, net: Loans and advances 34,014 - Accrued interest 1,390 - Due from other agencies of the Government 7,393 - Other assets 12,754 - Total assets 619,664 $ 36,459 $ Liabilities Accounts payable and accrued liabilities - $ 36,459 $ Benefits in process of payment 3,366 - Securities lending collateral 1,257 - Other liabilities 32,501 - Total liabilities 37,124 36,459 Net position restricted for pension benefits 582,540 $ - $ See accompanying notes to financial statements. Government of the United States Virgin Islands (in thousands) Statement of Fiduciary Net Position Agency 33 Pension Year Ended September 30, 2020 Trust Additions Contributions: Employer 100,422 $ Plan members 50,861 Total contributions 151,283 Investment income: Net appreciation of fair value of investments 27,280 Interest, dividends, and other, net 8,866 Real estate – net rental income 2,394 Total investment income 38,540 Less investment expense 446 Investment income, net 38,094 Other income 3,643 Total additions 193,020 Deductions Benefits paid 265,605 Refunds of contributions 8,307 Administrative and operational expenses 14,688 Total deductions 288,600 Change in net position (95,580) Net position restricted for pension benefits, beginning of year 678,120 Net position restricted for pension benefits, end of year 582,540 $ See accompanying notes to financial statements. Government of the United States Virgin Islands (in thousands) Statement of Changes in Fiduciary Net Position 34 Government of the United States Virgin Islands Notes to Basic Financial Statements 35 1. Summary of Significant Accounting Policies The Government of the United States Virgin Islands (the Government) is an unincorporated organized territory of the United States of America. The powers of the Government are derived from and set forth in the Revised Organic Act of 1954, as amended. The Government assumes responsibility for public safety, health, public housing and welfare, education, transportation and communication, and culture and recreation. The accompanying basic financial statements of the Government have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as prescribed by the Governmental Accounting Standards Board (GASB). The accompanying basic financial statements have been prepared primarily from accounts maintained by the Department of Finance of the Government. Additional data has been derived from reports prepared by other departments, agencies, and public corporations based on independent or subsidiary accounting systems maintained by them. Financial Reporting Entity For financial reporting purposes, the Government is a primary government (PG). The PG includes all Government departments, agencies, boards, and organizations that are not legally separate. In addition to the PG, the financial reporting entity includes blended and discretely presented component units. Component units include all legally separate organizations for which the Government’s elected officials are financially accountable and organizations for which the nature and significance of their relationship with the PG are such that exclusion would cause the reporting entity’s financial statements to be misleading. The criteria used to define financial accountability include: (i) if an organization is fiscally dependent on, and there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the PG, (ii) a government board appointed by a higher level of government, or (iii) a jointly appointed board. The financial statements of the following component units are included in the financial reporting entity either as blended or as discretely presented component units in accordance with GAAP: (a) Blended Component Units   The following public benefit corporations, while legally separate from the Government, meet the criteria to be reported as part of the PG because they provide services entirely or almost entirely to the Government: Virgin Islands Public Finance Authority (PFA) PFA was created as a public corporation and autonomous governmental instrumentality by Act No. 5365, the Government Capital Improvement Act of 1988, with the purpose of aiding the Government in the performance of its fiscal duties and in effectively carrying out its governmental responsibility of raising capital for essential public projects. Under the enabling legislation, PFA has the power, among other matters, to borrow money and issue bonds and to lend the proceeds of its bonds to the Government or any governmental instrumentality. Government of the United States Virgin Islands Notes to Basic Financial Statements 36 The powers of PFA are exercised by a board of directors consisting of the Governor (Chairperson), the Commissioner of Finance, the Director of the Virgin Islands Office of Management and Budget, and two representatives of the private sector appointed by the Governor with the advice and consent of the Legislature of the Virgin Islands (the Legislature). PFA activities are blended within the PG and are reported as major funds, except for PFA Special Revenue Fund. PFA’s blended component units, The West Indian Company Limited (WICO) and viNGN, INC. d/b/a Virgin Islands Next Generation Network (viNGN) are presented as major proprietary funds while King’s Alley Management, Inc. and Lonesome Dove Petroleum, Inc. are included in other nonmajor proprietary funds in the Government’s basic financial statements. Tobacco Settlement Financing Corporation (TSFC) TSFC was created in September 2001 under Act No. 6428 as a separate and independent corporation of the Government to purchase the rights, title, and interest in tobacco settlement litigation awards and to issue revenue bonds supported by the tobacco settlement rights. The responsibility for the operations of TSFC is vested in a board of directors composed of three members: the Governor and two independent members – one appointed by the Governor and one appointed by the president of the Legislature. The activities of TSFC are limited to activities conducted on behalf of the Government. The TSFC is reported in the other governmental funds. Complete audited financial statements of PFA and TSFC blended component units can be obtained directly by contacting their respective administrative offices: Administrative Offices of Blended Component Units Virgin Islands Public Finance Authority 5033 Kongens Gade, Government Hill St. Thomas, VI 00802 Tobacco Settlement Financing Corporation 5033 Kongens Gade, Government Hill St. Thomas, VI 00802 (b) Discretely Presented Component Units The following component units, as required by GAAP are discretely presented in the basic financial statements because of the nature of the services they provide and the Government’s ability to impose its will. The component units are reported in a separate column to emphasize that they are legally separate from the PG and governed by separate boards. Government of the United States Virgin Islands Notes to Basic Financial Statements 37 (c) Major Component Units Virgin Islands Housing Authority (VIHA) VIHA was created as a public corporation and autonomous governmental instrumentality by Act No. 903 on June 18, 1962, with the purpose of providing housing for low and moderate-income families residing in the U.S. Virgin Islands. The majority of VIHA funding is through two contractual agreements with the U.S. Department of Housing and Urban Development (HUD). VIHA is required to make payments in lieu of taxes to the PG when residual receipts are available, and whereby the PG agrees to provide municipal services and continue the tax-exempt status of VIHA projects. VIHA is governed by a board of commissioners. The governing board is autonomous and responsible to HUD. An executive director is appointed by VIHA’s Board to manage the day-to-day operations. Virgin Islands Port Authority (VIPA) VIPA was created as a public corporation and autonomous government instrumentality by Act No. 2375 on December 23, 1968, with the purposes of owning, operating, and managing air and marine terminals of the U.S. Virgin Islands. The powers of VIPA are exercised by a board of governors consisting of the Commissioner of Economic Development and Agriculture (Chairperson), the Attorney General, the Commissioner of Public Works, the Director of the Small Business Development Agency, and five other persons appointed by the Governor with the advice and consent of the Legislature. Virgin Islands Water and Power Authority (WAPA) WAPA was created as a public corporation and autonomous governmental instrumentality by Act No. 1248 on August 13, 1964, with the purpose of operating the water production and electric generation plants in the U.S. Virgin Islands. The powers of WAPA are exercised by a governing board consisting of nine members, all appointed by the Governor with the advice and consent of the Legislature, from which three are heads of cabinet-level executive departments or agencies and six other persons, who are nominated by the Legislature. WAPA is required by its bond resolutions to maintain separate audited financial statements for each system (the Electric and Water Systems). Virgin Islands Government Hospital and Health Facilities Corporation (VIGHHFC) VIGHHFC was created by Act No. 6012 on August 23, 1994, and became active on May 1, 1999, with the purpose of providing healthcare services and hospital facilities to the people of the U. S. Virgin Islands. The powers of VIGHHFC are exercised by a board of directors consisting of 15 members as follows: the Director of the Virgin Islands Office of Management and Budget, the Commissioner of Finance, and 13 other members appointed by the Governor with the advice and consent of the Legislature. The VIGHHFC is composed of the Schneider Regional Medical Center located in St. Thomas, the Governor Juan F. Luis Hospital and Medical Center located in St. Croix, and the Schneider Regional Medical Center Foundation (the Foundation). The hospitals issue separately audited financial statements. The Schneider Regional Medical Center’s financial statements include its component units: the Myra Keating Smith Community Health Center (Health Center) of St. John and the Charlotte Kimelman Cancer Institute (Cancer Institute) on St. Thomas. The Cancer Institute has remained closed following the 2017 hurricanes. The Health Center and Cancer Institute are legally separate organizations for which the Roy L. Schneider Hospital is financially accountable. Government of the United States Virgin Islands Notes to Basic Financial Statements 38 The Foundation is a legally separate nonprofit corporation for which the Schneider Regional Medical Center is financially accountable. The Juan F. Luis Hospital and Medical Center’s financial statements include its component unit: Virgin Islands Cardiac Center at the Governor Juan F. Luis Hospital and Medical Center, Inc. (VICC Foundation). VICC Foundation is a legally separate nonprofit corporation for which the Juan F. Luis Hospital and Medical Center is financially accountable. University of the Virgin Islands (the University) The University was organized as an instrumentality of the Government under Act No. 852 on March 16, 1962, in accordance with Section 16(a) of the Revised Organic Act of 1954, as amended. The University is a higher education institution that offers four-year liberal arts degree and master’s degree programs and associates degrees in arts and occupational programs. The powers of the University are exercised by a board of trustees consisting of 17 members as follows: Chairman of the Board of Education, Commissioner of Education, and the President of the University, all serving as members ex-officio, 9 other members appointed by the Governor with the advice and consent of the Legislature, two other members elected by the board of trustees, one representative of the student body, one alumnus of the University, and another representative of the teaching faculty. The University was not organized as a self-sustaining entity and therefore receives financial and other support from the Government. The University’s financial statements include a blended and discretely presented component unit, the Foundation for the University of the Virgin Islands. This organization operates as a nonprofit corporation whose purpose is to assist and support the University in accomplishing its charitable and educational mission. The Foundation for the Reichhold Center for the Arts is also a discretely presented component unit of the University that supports the arts and provides financial assistance in operating an entertainment complex on the St. Thomas campus of the University. The complex has remained closed following the 2017 hurricanes. (d) Other Component Units (Nonmajor) Virgin Islands Economic Development Authority (EDA) EDA was created by Act No. 6390 on December 21, 2000, as a public corporation and semiautonomous instrumentality of the Government. EDA was created as an umbrella authority of the Economic Development Commission, the Small Business Development Agency, the Government Development Bank, and the Virgin Islands Industrial Development Park Corporation. The powers of EDA are exercised by a board of directors consisting of the members of the Virgin Islands Economic Development Commission, the Director of the Virgin Islands Bureau of Internal Revenue, and five members not employed by the Government, but appointed by the Governor with the advice and consent of the Legislature. Magens Bay Authority (MBA) MBA was created as a corporate instrumentality by Act No. 2085 on December 20, 1967, with the purpose of acquiring, improving, and operating parks and beaches. The powers of MBA are exercised by a board of directors consisting of the Governor and six members initially appointed by the Governor. The board of directors is responsible for the appointment and reappointment of subsequent board members except that the Governor, with the advice and consent of the Legislature may, by appointment, fill any vacancy on the board of directors remaining unfilled for sixty days. Government of the United States Virgin Islands Notes to Basic Financial Statements 39 Virgin Islands Housing Finance Authority (VIHFA) VIHFA was created as a public corporation and autonomous governmental instrumentality by Act No. 4636 on October 20, 1981, with the purpose of stimulating low and moderate-income housing construction and home ownership through the issuance of revenue bonds to provide low-interest mortgage loans to qualified purchasers of low and moderate-income housing. On October 31, 2008, VIHFA established the Virgin Islands Housing Management, Inc. (VIHM), a wholly owned nonprofit subsidiary that manages VIHFA’s rental properties. The financial statements of VIHM are separately issued, and not blended into the PG. The powers of VIHFA are exercised by a board of directors consisting of the Commissioner of the Department of Housing, Parks, and Recreation (the Chairman), the Director of the Virgin Islands Office of Management and Budget, and three persons not employed by the Government appointed by the Governor with advice and consent of the Legislature. Virgin Islands Public Broadcasting System (VIPBS) VIPBS was created as a public corporation and autonomous instrumentality by Act No. 2364 on November 15, 1968, with the purpose of advancing the general welfare, education, cultural development, and awareness of public affairs of the population of the U.S. Virgin Islands as well as to provide an effective supplement to the in-school education of children. The powers of VIPBS are exercised by a board of directors consisting of the Commissioner of Education, the Chairman of the Board of Education, three members appointed by the President of the Legislature, and four members, not more than two of whom should be employed by the Government and appointed by the Governor with the advice and consent of the Legislature. In addition, the Director of the Virgin Islands Office of Management and Budget, the President of the University of the Virgin Islands, and the General Manager of VIPBS are ex-officio members of the board who are not entitled to vote. Virgin Islands Waste Management Authority (VIWMA) VIWMA was established as an autonomous instrumentality of the Government by Act No. 6638 and approved by the Governor of the Virgin Islands on January 23, 2004. VIWMA provides environmentally sound management for the collection and disposal of solid waste in the Territory, including operation and closure of landfills and wastewater collection, treatment, and disposal. VIWMA is governed by a Board of Directors consisting of seven members. University of the Virgin Islands Research and Technology Park Corporation (RTPark) RTPark was established as an autonomous instrumentality of the Government by Act 6502 on February 21, 2002, as amended, by Act 6725, the Protected Cell Amendments Act of 2005. RTPark was organized for internet commerce and technology, providing an enabling environment for research, development, business incubation and technology-driven businesses. RTPark is governed by a Board of Directors consisting of seven members, including the Chairman of the Board of Trustees of the University, the President of the University, two trustees selected from among the Board of Trustees of the University, and three members selected by the Governor. Government of the United States Virgin Islands Notes to Basic Financial Statements 40 Complete audited financial statements of the discretely presented component units can be obtained directly by contacting their administrative offices: Administrative Offices Virgin Islands Housing Authority 9900 Estate Thomas St. Thomas, VI 00802 Virgin Islands Port Authority P.O. Box 301707 St. Thomas, VI 00803 Virgin Islands Water and Power Authority P.O. Box 1450 St. Thomas, VI 00804 Virgin Islands Government Hospital and Health Facilities Corporation 9048 Sugar Estate St. Thomas, VI 00802 University of the Virgin Islands #2 John Brewer’s Bay St. Thomas, VI 00802-9990 Virgin Islands Economic Development Authority 8000 Nisky Shopping Center, Suite 620 St. Thomas, VI 00802 Magens Bay Authority P.O. Box 10583 St. Thomas, VI 00801 Virgin Islands Housing Finance Authority 3202 Demarara Frenchtown Plaza, Suite 200 St. Thomas, VI 00802 Virgin Islands Public Broadcasting System P.O. Box 7879 St. Thomas, VI 00801 Virgin Islands Waste Management Authority 1 A&B Demarara St. Thomas, VI 00802 University of the Virgin Islands Research and Technology Park Corporation 64 West Palm Drive Kingshill, St. Croix, VI 00850-9781 Government of the United States Virgin Islands Notes to Basic Financial Statements 41 All financial statements of the discretely presented component units have a fiscal year end of September 30, 2020, except for WAPA and VIHA which have a fiscal year-end of June 30, 2020, and December 31, 2019, respectively. (e) Fiduciary Component Unit The following public benefit corporation is legally separate from the Government, meets the definition of a blended component unit, and is presented in the fund financial statements along with other fiduciary funds of the Government. Fiduciary funds are not reported in the government- wide financial statements. Government Employees’ Retirement System of the U.S. Virgin Islands (GERS) GERS was created as an independent and separate agency of the Government with the purpose of administering the Government’s and the component units’ cost-sharing, multi-employer defined benefit pension plan. GERS was established on October 1, 1959. The responsibility for the operation of GERS is vested in a board of trustees composed of seven members appointed by the Governor with the advice and consent of the Legislature. Employee and employer contributions to GERS are recognized as additions to net position held in trust for employees’ pension benefits in the period in which employee services are performed, except for contributions pursuant to the Early Retirement Act of 1994, which are recorded as the cash is received. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan, except for benefits pursuant to sections 8(a) and 8(b) of the Early Retirement Act of 1994, which are recorded when the subsidy provided by the Government is receivable and payable. Complete audited financial statements of this component unit can be obtained directly by contacting its administrative office: Government Employees’ Retirement System of the U.S. Virgin Islands 3438 Kronprindsens Gade St. Thomas, VI 00802 Government of the United States Virgin Islands Notes to Basic Financial Statements 42 Government-wide and Fund Financial Statements The government-wide financial statements (that is, the statement of net position and the statement of activities) report information on all the non-fiduciary activities of the PG and its component units. The effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenue, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the PG is reported separately from certain legally separate component units for which the PG is financially accountable. The statement of net position presents the reporting entities’ non-fiduciary assets, deferred outflows of resources, liabilities, and deferred inflows of resources, with the difference reported as net position. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenue. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include (i) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and (ii) grants and contributions that are restricted to meeting the operational or capital requirements of a function or segment. Taxes and other items are not included among program revenues and are appropriately reported instead, as general revenue. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (a) Government-wide Financial Statements The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting in conformity with GAAP as prescribed by the GASB. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenue in the year for which they are levied. Grants and similar items are recognized as revenue when eligibility requirements have been met. (b) Governmental Fund Financial Statements The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenue is recognized when it is both measurable and available. Revenues are deemed available when they become susceptible to accrual and are collected within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the Government considers most revenue to be available if collected within 90 days of the end of the current fiscal year-end. Specifically, gross receipts taxes, real property taxes, and income taxes are deemed available if collected within 30, 60, and 90 days, respectively, after the end of the current fiscal year-end. Government of the United States Virgin Islands Notes to Basic Financial Statements 43 Grant revenue is deemed available if collected within the 12 months after the end of the current fiscal year-end. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, compensated absences, debt service, other postemployment benefits and pension expenditures are recorded only when payment is due. Income taxes, gross receipts taxes, real property taxes, and grant funding are all considered to be susceptible to accrual and have been recognized as revenue of the current fiscal period to the extent they are considered available. All other revenue items are deemed measurable and available only when cash is received by the Government. (c) Proprietary Funds, Fiduciary Funds, and Discretely Presented Component Units Financial Statements The financial statements of the proprietary funds, fiduciary funds, and discretely presented component units are reported using the economic resources measurement focus and the accrual basis of accounting also used in the government-wide financial statements described above. Proprietary funds distinguish operating revenue and expenses from non-operating items. Operating revenue and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. Fund Accounting The Government reports its financial position and results of operations in funds, which are considered separate accounting entities. The operations of each fund are accounted for within a set of self-balancing accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with legal, financial, and contractual provisions. Generally accepted governmental accounting principles establish criteria (percentage of the assets, liabilities, revenue, or expenditures/expenses of either fund category or the governmental and enterprise funds combined) for the determination of major funds. Indirect costs are automatically allocated and reported in the program expense for each fund. Non-major funds are combined in a single column in the fund financial statements. The Government reports the following major funds: (a) Governmental Funds The Government reports the following major governmental funds:  General Fund – The general fund is the Government’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund.  PFA Debt Service Fund – PFA debt service fund accounts for the resources accumulated, and payments made, for principal and interest on long-term general obligation debt issued by PFA on behalf of the Government. Government of the United States Virgin Islands Notes to Basic Financial Statements 44  PFA Capital Projects Fund – PFA capital projects fund accounts for bond proceeds of debt issued by PFA on behalf of the Government. The bond proceeds have been designated for certain necessary public safety and capital development projects which are accounted for in this fund.  Federal Grants Fund - The federal grants fund accounts for proceeds and payments that are restricted to expenditures for specified purposes. (b) Proprietary Funds These funds account for those activities for which the intent of management is to recover, primarily through user charges, the cost of providing goods or services to the public. The Government reports the following major proprietary funds:  The West Indian Company Limited – WICO, a blended component unit of PFA, accounts for the activities of a cruise ship pier and shopping mall complex on the island of St. Thomas.  Unemployment Insurance Fund – The unemployment insurance fund accounts for the collection of unemployment premiums from employers in the U.S. Virgin Islands, and the payment of unemployment benefits to eligible unemployed recipients.  viNGN, INC. d/b/a as Virgin Islands Next Generation Network – viNGN, a blended component unit of PFA, accounts for the management of a middle mile wholesale fiber optic network providing reliable high-speed internet access to retail internet service providers and public infrastructure stewards.  Government Insurance Fund – GIF provides insurance protection for workers in the U.S. Virgin Islands in the event of job accidents. (c) Fiduciary Funds Fiduciary funds are used to account for assets held by the Government in a trustee capacity, or as an agent for individuals, private organizations, and other governmental units. The following are the Government’s fiduciary funds:  Pension Trust Fund – The pension trust fund accounts for the activities of GERS, an independent and separate agency of the Government, responsible for the proper operation of the Government’s defined benefit pension plan.  Agency Fund – The agency fund is custodial in nature and does not involve measurement of the results of operations. Cash and Cash Equivalents The Government follows the practice of pooling cash. The balance in the pooled cash accounts is available to meet current operating requirements and any excess is invested in various interest-bearing accounts and time deposits with eligible depository institutions. Government of the United States Virgin Islands Notes to Basic Financial Statements 45 Cash equivalents of the proprietary funds and discretely presented component units consist of demand accounts, money market accounts, certificates of deposit with maturities of not more than 90 days from the date of acquisition, money market funds, short-term U.S. government and its agencies’ obligations, and repurchase agreements with a U.S. commercial bank maturing within three months. Cash and cash equivalents of the discretely presented component units are maintained in separate bank accounts from those of the PG, in their own names. By law, banks, or trust companies designated as depositories of public funds of the Government are to maintain corporate surety bonds or pledge collateral satisfactory to the Commissioner of Finance to secure all governmental funds deposited. As of September 30, 2020, the Government had $305.0 million in collateral with Banco Popular de Puerto Rico consisting of U.S. Treasury Notes, FNMA, GNMA, and FHLB MULOC securities and $438.4 million in collateral with First Bank consisting of municipal letters of credit, GNMA, and deposits insured by FDIC coverage. For the purpose of the statement of cash flows, cash and cash equivalents are defined to be cash on hand, demand deposits, restricted cash and investments, and highly liquid investments with a maturity of three months or less from the date of purchase. For financial statement presentation purposes, cash and cash equivalents are shown as cash and investments and restricted cash and investments. Investments The PG and its component units follow the provisions of GAAP which establishes and modifies the following disclosure requirements related to investment risks: credit risk (including custodial credit risk and concentrations of credit risk), interest rate risk, and foreign currency risk. Investment policies of the PG, its blended component units, major funds, and major component units are as follows:  Primary Government Investment Policies – Title 33, Chapter 117 of the Virgin Islands Code (V.I. Code) authorizes the Government to invest in U.S. Government and its agencies’ obligations, mortgage-backed securities, repurchase agreements, commercial paper, local government obligations, and corporate debt and equity obligations. As of September 30, 2020, the General Fund, the Virgin Islands Lottery, and an agency fund had invested in certificates of deposit with two local banks. Investments are reported at fair value as of September 30, 2020.  PFA Investment Policies – Investments of PFA are reported at fair value. Various bond resolutions of PFA restrict investments to direct obligations of the U.S. Government, territories, possessions and states, specific bank obligations, investment agreements or similar funding agreements, shares or other interests in mutual funds, trusts or investment companies, corporate commercial paper, and money market portfolios consisting of any of the foregoing. PFA has retained investment managers and investments are held in trust by a commercial bank on behalf of PFA. PFA handles investments for two major governmental funds of the Government: PFA Debt Service Fund and PFA Capital Projects Fund. Government of the United States Virgin Islands Notes to Basic Financial Statements 46  Tobacco Settlement Financing Corporation Investment Policies – Various bond resolutions of this blended component unit restrict investments to direct obligations of the U.S. Government, territories, possessions and states, specific bank obligations, investment agreements or similar funding agreements, shares or other interests in mutual funds, trusts or investment companies, corporate commercial paper, and money market portfolios consisting of any of the foregoing. TSFC has retained investment managers and investments are held in trust by a commercial bank on behalf of the TSFC. Investments are reported at fair value in the non-major governmental fund of the Government.  VIHA Investment Policies – This major component unit is required by the U.S. Department of Housing and Urban Development (HUD) to invest excess funds in obligations of the United States, certificates of deposit, or any other federally insured investment. HUD requires that deposits be fully collateralized and may be held by an unaffiliated bank or trust company for the account of the VIHA.  WAPA and VIPA Investment Policies – These major component units are authorized under bond resolutions and the V.I. Code to invest in open accounts, time deposits, non-negotiable certificates of deposit, repurchase agreements, obligations of the U.S. government, and obligations of any state within the United States, mutual funds, and corporate commercial paper. Investments are reported at fair value.  VIGHHFC Investment Policies – The board of trustees of this major component unit has not developed a formal investment policy.  University Investment Policies – The board of trustees of this major component unit is responsible for the management of the University’s investments and establishes an investment policy, which is carried out by the Vice President for Administration and Finance. The University and its component unit, the Foundation for the Reichhold Center of the Arts have a formal investment policy approved by their corresponding board of trustees, which contains a requisite section on addressing risks. The University’s investments are included in the Foundation for the University of the Virgin Islands’ investment portfolio for management and investment purposes.  Pension Trust Fund Investment Policies – The board of trustees of GERS has enacted policies that limit investments in certain investment categories and provide requirements for the institutions managing investments. Under those policies, GERS may invest in U.S. Government and agencies obligations, bonds or notes of any state, territory or possession of the United States, municipal bonds and obligations, foreign bonds, bonds of domestic railroad corporations, public utility bonds, industrial corporate bonds or trust certificates, common and preferred shares of foreign and domestic corporations, mutual funds, mortgage or personal loans to GERS members or retirees, and mortgage and asset-backed securities. Investments in bonds are subject to rating restrictions of BBB and may not exceed 2.0% of the GERS investment portfolio. Investments in stock of a single corporation may not exceed 1.0% of the market value of the fund or exceed 1.0% of the outstanding stock of the corporation. The aggregate of investments in stock may not exceed 60.0% of the market value of total investments of GERS. Investment in foreign stock should be limited to 10.0% of the market value of the total investments of GERS. Any investment of 20.0% or more of the aggregate value of the portfolio must be approved by two-thirds of the membership of the board of trustees. Government of the United States Virgin Islands Notes to Basic Financial Statements 47 The investments are administered by several professional investment managers and are held in trust by a commercial bank on behalf of GERS. Investments in equity securities in the GERS pension trust fund are reported at quoted market values. Shares of mutual funds are reported at the net asset value of shares held by GERS at year-end. Purchases and sales are recorded on a trade-date basis. Realized gains and losses on securities are determined by the average cost method. GERS is authorized to provide loans to businesses approved by the Board of Trustees as alternative investments. On September 24, 2013, GERS entered into a loan agreement with KAZI Foods of the Virgin Islands, Inc. in the amount of $6.0 million at an interest rate of 6.25%, and a maturity date of October 23, 2023. On July 31, 2020, KAZI Foods of the Virgin Islands, Inc. paid off the outstanding principal balance of $2.8 million. On June 30, 2014, GERS entered into a construction loan agreement with V.I. Finest Foods, LLC in the principal amount of up to $8.2 million at an interest rate of 6.4%, an interest only period of 17 months and a fully amortizing period of 103 consecutive months. The loan was subsequently modified on May 24, 2016, to provide an increase in the principal amount of the loan of an amount up to $11.0 million and extending the maturity date of March 31, 2025. On March 5, 2020, the V.I. Finest Foods, LLC loan was sold to the University of the Virgin Islands. At September 30, 2020, there is no outstanding principal balance on the loan. GERS has also invested in Havensight Mall, a shopping and pier complex on the island of St. Thomas with an appraised value of $41.0 million as of September 30, 2020. GERS also invested in two funds of the Mesirow limited partnership. The funds reported a fair market value of $12.5 million as of September 30, 2020. GERS owns administrative facilities on the islands of St. Thomas and St. Croix. Portions of the facilities are leased to government agencies and commercial tenants, and portions of the facilities are utilized for GERS operations. The investment in leased real estate is reported at its appraised value, and the portion used for GERS operations is reported at depreciated cost. The amount of $24.9 million was reported net of depreciation at September 30, 2020. Receivables Taxes receivable represent amounts owed by taxpayers for individual and corporate income taxes, gross receipts taxes, excise taxes, hotel occupancy taxes, and real property taxes. Federal government receivables represent amounts owed to the Government for reimbursement of expenditures/expenses incurred pursuant to federally funded programs. Accounts receivables are reported net of estimated allowances for uncollectible amounts, which are determined, based upon past collection experience and current economic conditions. The accounts receivable from non-governmental customers of the discretely presented component units are net of estimated uncollectible amounts. These receivables arise primarily from service charges to users. Government of the United States Virgin Islands Notes to Basic Financial Statements 48 Interfund and Intra-Entity Transactions The Government has the following types of transactions among funds:  Interfund Transfers – Legally required transfers are reported as interfund transfers in (out) when incurred. Transfers between the PG and its blended component units are reported as interfund transfers, except for transfers within the same fund type.  Intra-entity Transactions – These are transactions between the PG and its discretely presented component units, and among the component units. Similarly, receivables and payables between the PG and its blended component units are reported as amounts due from (to) other funds. Transfers between the PG and discretely presented component units (and among those component units) are reported separately as revenue and expenses or expenditures. Amounts owed to and from discretely presented component units by the PG are reported separately from interfund payables and receivables as due from (to) component units, net of allowance for estimated uncollectible amounts. Restricted Assets Restricted assets in the PG and discretely presented component units are set aside primarily for the payment of bonds, notes, construction funds, unemployment benefits, and other specific purposes. Capital Assets Capital assets, which include land, land improvements, buildings, building improvements, machinery and equipment, construction in progress, intangibles and infrastructure assets are reported in the applicable governmental, business-type activities, and component unit columns in the government-wide financial statements as well as in the applicable proprietary funds reported in the fund financial statements. The PG defines capital assets as assets that have an initial, individual cost and useful lives of: (i) $5,000 for personal property with a useful life of five years; (ii) $50,000 for buildings and building improvements with estimated useful lives of 40 and 20 years, respectively; (iii) $100,000 for land improvements with an estimated useful life of 20 years; (iv) $200,000 for intangibles with estimated useful lives between 2 and 15 years; and (v) $200,000 for infrastructure with an estimated useful life of 30 years. All costs of acquiring land are capitalized. Capital assets purchased or acquired are carried at historical cost or normal cost. The normal costing method to estimate cost based on replacement cost indexed by a reciprocal factor of the price increase from the appraisal date to the actual or estimated acquisition date was used to estimate the historical cost of certain land, buildings, and building improvements because invoices and similar documentation was no longer available in certain instances. Donated capital assets are recorded at fair value at the time of donation. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest costs are capitalized during the construction period only for business-type activities and proprietary component units. The costs of routine maintenance and repairs that do not add value to the assets or materially extend asset lives are expensed as incurred. Government of the United States Virgin Islands Notes to Basic Financial Statements 49 Capital assets utilized in the governmental funds are recorded as expenditures in the governmental fund financial statements. Depreciation expense is recorded in the government-wide financial statements, as well as the proprietary funds and component units’ financial statements. Capital assets of the PG, excluding land and construction in progress, are depreciated on the straight-line method over the assets’ estimated useful lives. The estimated useful lives of capital assets reported by the component units are (i) 4 to 50 years for buildings and building improvements; (ii) 20 to 40 years for airports and marine terminals; (iii) 40 to 100 years for water transmission and distribution mains; (iv) 2 to 75 years for intangible assets; and (v) 3 to 25 years for vehicles and equipment. The PG and its component units review the carrying value of their capital assets to determine if circumstances exist indicating impairment. If facts or circumstances support the possibility of impairment, management follows the guidance in GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries. If impairment is indicated, an adjustment is made to the carrying value of the capital assets. Deferred Outflows/Inflows of Resources In addition to assets, the statement of net position reports a separate section for deferred outflows of resources. This separate financial statement element represents consumption of the net position that applies to future period(s) and is not recognized as an outflow of resources (expense/expenditure) until the future date occurs. The Government has three items for financial reporting in this category, as follows:  Deferred amounts related to pension consist of the unamortized portion of the difference between expected and actual experience, net difference between projected and actual earnings on pension plan investments, changes in assumptions, and changes in proportion and differences between contributions and proportional share of contributions, and contributions made after measurement date.  Deferred charges on refunding reported in the government-wide statement of net position. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt.  Deferred amounts related to other postemployment benefits consisting of net differences between expected and actual experience and changes in assumptions. In addition to liabilities, the statement of net position reports a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of net position that applies to a future period(s) and is not recognized as an inflow of resources (revenue) until that time. Government of the United States Virgin Islands Notes to Basic Financial Statements 50 The Government has three items for financial reporting in this category, as follows:  Deferred amounts related to pension consist of the unamortized portion of the difference between expected and actual experience, changes in assumptions, and changes in proportion and differences between contributions and proportional share of contributions.  Deferred amounts related to other postemployment benefits consisting of the unamortized portion of the expected and actual experience and changes in assumptions.  Modified accrual basis of accounting - Unavailable revenues qualify for reporting in this category. The item, unavailable revenues, is reported only in the governmental funds’ balance sheet. The governmental funds report unavailable revenues from three sources: property taxes, gross receipts taxes, and income taxes. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. Tax Refunds Payable During the calendar year, the Government collects individual income taxes through withholdings and payments from taxpayers. On September 30th, the Government estimates the amount owed to taxpayers for overpayments during the first nine months of the calendar year. These estimated amounts and the actual tax refunds claimed for prior years but not paid at year-end are recorded as tax refunds payable and as a reduction of tax revenue. Compensated Absences The vacation policy of the Government provides for the accumulation of four, six, or eight hours for each full biweekly pay period depending on the time of entry into government service. At the beginning of each calendar year, vacation leave is limited to 480 hours (60 days). However, the excess of 480 hours is considered by GERS for service credit towards the employees’ retirement. This vacation policy does not apply to professional educational personnel of the Virgin Islands Department of Education, who receive compensation during the school breaks. Upon retirement, an employee receives compensation for unused vacation leave at the employee’s base pay rate. Employees accumulate sick leave at a rate of four hours for each full biweekly pay period up to a maximum of 180 days. Separated employees do not receive payment for unused sick leave; therefore, a provision for accumulated sick leave is not required. Compensated absences accumulation policies for the blended component units and discretely presented component units vary from entity to entity, depending upon negotiated bargaining agreements and other factors agreed upon between the management of these entities and its employees. Government of the United States Virgin Islands Notes to Basic Financial Statements 51 Long-term Liabilities The liabilities reported in the government-wide financial statements include the Government’s bonds, long-term notes, direct borrowings and placements, pension liabilities, and other long-term liabilities including accrued compensated absences, retroactive union arbitration, litigation, landfill closure and post closure costs, postemployment benefits, and workers compensation claims. Bond premiums, discounts, and amounts deferred on capital appreciation bonds are amortized over the life of the bonds using the effective interest method. Bonds are reported net of the applicable bond premiums and discounts. Issuance costs are reported as expenses in the year incurred. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs are reported as debt service expenditures. Net Position Net position is reported in three categories:  Net Investment in Capital Assets – This consists of capital assets, net of accumulated depreciation and amortization, and reduced by outstanding balances for bonds, notes, and other debt that are attributed to the acquisition, construction, or improvement of those assets. Debt pertaining to significant unspent debt proceeds are not included in the calculation of invested in capital assets, net of related debt. The unspent portion of the debt is presented, net of the related debt, as restricted for capital projects.  Restricted Net Position – Constraints placed on the use of assets are either externally imposed by creditors, grantors, contributors, and the like, or imposed by law through constitutional provisions or enabling legislation.  Unrestricted Net Position – These consist of assets which do not meet the definition of the two preceding categories. When both restricted and unrestricted resources are available for use, generally it is the Government’s policy to use restricted resources first, then the unrestricted resources, as needed. Fund Balance GAAP provides a hierarchy of classifications based primarily on the extent to which the Government is bound to honor constraints on the specific purposes for which amounts in funds may be spent. Following are the fund classifications:  Restricted Fund Balance – Fund balances constrained by externally imposed constraints such as constitutional provisions, laws and regulations, debt covenants, and grantors. The Government’s policy is to consider restricted amounts to have been spent first when expenditures are incurred for which both restricted and unassigned fund balances are available. Government of the United States Virgin Islands Notes to Basic Financial Statements 52  Committed Fund Balance – Fund balances subject to constraints imposed by the Government’s highest level of decision-making authority including legislation enacted by the Legislature of the Virgin Islands and resolutions or ordinances enacted by Government elected regulatory boards and authorities. Committed fund balances may be modified or rescinded by enacted legislation, or amendment of resolutions or ordinances.  Assigned Fund Balance – Fund balances subject to budgetary constraints of the Legislature of the Virgin Islands, the Virgin Islands Office of Management and Budget, or authorizing boards of the Government, that are not restricted or committed. Budgetary authority of the Virgin Islands Office of Management and Budget is provided by Title 2, Sections 22, 23, 26 and 27 VIC, and Executive Order No. 371-1997. The Government’s policy is to expend assigned or committed amounts, before unassigned amounts, when an expenditure is incurred.  Unassigned Fund Balance – Unassigned fund balance is the residual classification for the General Fund. This classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the General Fund. The residual deficit of the Federal Grants Fund and other governmental funds are also reported as unassigned fund balance. Risk Management With some exceptions, the Government does not carry general liability insurance coverage on its properties or the acts of its employees, relying instead on self-insurance and/or statutory liability limitations. The Government purchases commercial insurance for physical losses or damages against its property. The limit of liability for all risks, excluding earthquake, windstorm, and flood, is $1.0 million for each occurrence except for windstorm and flood losses, which has a $45.0 million limit. For physical losses arising from earthquake, the insurance policy has a limit of $100.0 million for each occurrence and in the annual aggregate. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, deferred outflows of resources, liabilities, and deferred inflows of resources and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures/expenses during the reporting period. Actual results could differ from those estimates. Adoption of Accounting Pronouncements In November 2016, GASB issued Statement No. 83, Certain Asset Retirement Obligations. This Statement addresses accounting and financial reporting for certain asset retirement obligations (AROs). An ARO is a legally enforceable liability associated with the retirement of a tangible capital asset. The requirements of this Statement are effective for the Government’s financial statements for the year ended September 30, 2020. The Government has evaluated this Statement and has determined there is no impact on the financial statements, as it does not own any types of tangible capital assets which have a legal obligation to perform future asset retirement activities. Government of the United States Virgin Islands Notes to Basic Financial Statements 53 In March 2018, GASB issued Statement No. 88, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements. This Statement improves consistency in the information that is disclosed in notes to the financial statements related to debt, including direct borrowings and direct placements and it provides additional essential information about debt to the user of the financial statements. The requirements of this Statement are effective for the Government’s financial statements for the year ended September 30, 2020. The Government has evaluated this Statement and has included the required information in Note 10. Following are statements issued by GASB that are effective in future years. In light of the COVID-19 pandemic, on May 8, 2020, the GASB issued Statement No. 95, Postponement of the Effective Dates of Certain Authoritative Guidance, to provide relief to governments. This Statement, which was effective upon issuance, postpones the effective dates of certain provisions in these upcoming pronouncements for one year, except for GASB Statement No. 87 which is postponed for eighteen months. Certain provisions of GASB Statement No. 92 are excluded from GASB Statement No. 95. along with provisions in GASB Statement No. 93 related to lease modifications. GASB Statement No. Adoption Effective in Fiscal Year (as Revised) 84 Fiduciary Activities 2021 87 Leases 2022 89 Accounting for Interest Cost Incurred Before the End of a Construction Period 2022 90 Majority Equity Interests – An Amendment of GASB Statements No. 14 and No. 61 2021 91 Conduit Debt Obligations 2023 92 Omnibus 2020 2022 93 Replacement of Interbank Offered Rates 2022 96 Subscription-Based Information Technology Arrangements 2023 97 Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans – an amendment of GASB Statements No. 14 and No. 84, and a supersession of GASB Statement No. 32 2022 Following are statements issued by GASB that are effective in the immediate future years as based on the original effective dates. GASB Statement No. Adoption Effective in Fiscal Year 94 Public-Private and Public-Public Partnerships and Availability Payment Arrangements 2023 98 The Annual Comprehensive Financial Report 2022 99 Omnibus 2022 2023 Government of the United States Virgin Islands Notes to Basic Financial Statements 54 Earlier application of all standards is permitted to the extent specified in each pronouncement as originally issued. The Government is currently evaluating the impact of these statements. 2. Component Units The basic financial statements include the financial statements of the following discretely presented component units: Major Component Units  Virgin Islands Housing Authority  Virgin Islands Port Authority (unaudited)  Virgin Islands Water and Power Authority  Virgin Islands Government Hospital and Health Facilities Corporation  University of the Virgin Islands Other Component Units (Nonmajor)  Virgin Islands Economic Development Authority  Magens Bay Authority  Virgin Islands Housing Finance Authority  Virgin Islands Public Broadcasting System  Virgin Islands Waste Management Authority  University of the Virgin Islands Research and Technology Park Corporation (unaudited) Government of the United States Virgin Islands Notes to Basic Financial Statements 55 Condensed financial information as of September 30, 2020, of all discretely presented component units follows (expressed in thousands): Virgin Islands Water and Power Authority Hospital and Health Facilities Corporation Virgin Islands Housing Authority Virgin Islands Port Authority* Electric System Water System Schneider Regional Medical Juan F. Luis Hospital University of the Virgin Islands Other Component Units* Total Component Units Assets and deferred outflows Current assets $ 35,038 $ 26,665 $ 66,686 $ 7,926 $ 27,412 $ 19,081 $ 33,535 $ 610,342 $ 826,685 Due from primary government - - 11,310 3,164 - 1,302 - 20,889 36,665 Due from Federal government - 10,586 76,894 326 248 591 6,486 9,866 104,997 Restricted assets 517 22,230 68,370 1,811 1,332 3,065 73,607 57,611 228,543 Capital assets, net 49,902 285,286 1,353,163 75,717 35,442 98,675 77,608 166,218 2,142,011 Other noncurrent assets 6,201 - 28,306 - 693 - - 39,408 74,608 Deferred outflows of resources 20,458 44,639 59,964 12,138 42,526 81,796 29,777 33,253 324,551 Total assets and deferred outflows of resources 112,116 389,406 1,664,693 101,082 107,653 204,510 221,013 937,587 3,738,060 Liabilities and deferred inflows Current liabilities 2,485 38,775 604,066 (69,420) 32,835 90,698 12,459 583,705 1,295,603 Due to primary government - - 14,990 - 23,446 42,000 - 50,655 131,091 Due to Federal government - - 4,142 - - - - - 4,142 Bonds payable - long-term - 33,119 228,730 75,000 - - 70,517 - 407,366 Notes payable - long-term - - - - - - 23,572 9,789 33,361 Pension liabilities 78,657 166,348 239,526 49,059 153,062 197,173 87,160 119,427 1,090,412 Other postemployment benefits 25,665 24,605 44,427 9,100 - - 12,011 - 115,808 Other noncurrent liabilities 542 1,197 122,583 - - - 5,576 11,462 141,360 Unearned revenues - long-term - - - - - - - 11,197 11,197 Deferred inflows of resources 19,258 24,425 82,052 16,806 33,114 16,869 20,066 18,324 230,914 Total liabilities and deferred inflows of resources 126,607 288,469 1,340,516 80,545 242,457 346,740 231,361 804,559 3,461,254 Net position (deficit): Net investment in capital assets 49,640 280,814 1,072,116 75,717 35,442 67,058 (10,993) 145,388 1,715,182 Restricted 418 22,230 31,969 - 3,890 102 30,928 64,720 154,257 Unrestricted deficit (64,549) (202,107) (779,908) (55,180) (174,136) (209,390) (30,283) (77,080) (1,592,633) Total net position (deficit) $ (14,491) $ 100,937 $ 324,177 $ 20,537 $ (134,804) $ (142,230) $ (10,348) $ 133,028 $ 276,806 *Virgin Islands Port Authority and University of the Virgin Islands Research and Technology Park Corporation (unaudited) Government of the United States Virgin Islands Notes to Basic Financial Statements 56 Program revenue Information on Statement of Activities Expenses Charges for Services Operating Grants and Contributions Capital Grants and Contributions Total Component Units Virgin Islands Port Authority* $ 82,123 $ 47,096 $ 491 $ 19,994 $ (14,542) Virgin Islands Housing Authority 56,895 4,593 41,858 2,626 (7,818) Virgin Islands Water and Power Authority: Electric System 279,072 248,514 - 133,304 102,746 Water System 29,254 32,466 - 5,683 8,895 Virgin Islands Government Hospital and Health Facilities Corporation: Roy L. Schneider Hospital 93,894 47,437 37,355 170 (8,932) Juan F. Luis Hospital 103,038 43,317 28,211 32,001 491 University of the Virgin Islands 104,030 12,521 78,844 4,543 (8,122) Other component units* 177,420 9,778 192,102 - 24,460 Total activities $ 925,726 $ 445,722 $ 378,861 $ 198,321 $ 97,178 General revenue: Interest and other $ 10,780 Insurance recoveries 1,913 Changes in net position 109,871 Net position, beginning of year, as restated 166,935 Net position, end of year $ 276,806 *Virgin Islands Port Authority and University of the Virgin Islands Research and Technology Park Corporation (unaudited) The summary of due to/due from primary government and component units is as follows (expressed in thousands): Due from PG/ Due to PG/ Component Units Component Units Governmental funds: General fund $ 113,889 $ 28,116 PFA capital projects - 1,763 Other governmental funds 8,875 4 Discretely presented component units: WAPA – Electric System 11,310 14,990 WAPA – Water System 3,164 - Hospital and Health Facilities Corporation 1,302 65,446 Other component units* 20,889 50,655 $ 159,429 $ 160,974 *Virgin Islands Port Authority and University of the Virgin Islands Research and Technology Park Corporation (unaudited) The amounts reported as due to/due from the Government and the discretely presented component units may not agree due to reporting on different fiscal year-ends. Government of the United States Virgin Islands Notes to Basic Financial Statements 57 3. Cash and Cash Equivalents Primary Government As of September 30, 2020, the PG reported $358.4 million in unrestricted cash and cash equivalents and $7.5 million in restricted cash and cash equivalents. All bank balances were fully collateralized, except for $6.0 million held in various bank accounts for WICO that exceeded FDIC coverage. Pension Trust Fund GERS considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. On September 30, 2020, GERS held $73.3 million in cash and cash equivalents consisting of: $46.8 million in money market accounts and $26.5 million in operational accounts. Component Units As of September 30, 2020, discretely presented component units held $121.8 million in unrestricted cash and cash equivalents and $102.6 million in restricted cash and cash equivalents. Bank balances that were not insured or collateralized amounted to $50.5 million. 4. Investments Fair Value Measurements The Government categorizes the fair market measurements of its investments within the fair value hierarchy established by GAAP. GASB Statement No. 72, Fair Value Measurement and Application, provides the framework for measuring fair value by establishing a three-level fair value hierarchy that describes inputs that are used to measure assets and liabilities as follows: Level 1: Inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets that a government can access at the measurement date. Level 2: Inputs are other than quotes prices included within Level 1 that are observable for an asset or liability, which are either directly or indirectly observable. Level 3: Inputs are significant unobservable inputs. The fair value hierarchy gives the highest priority to Level 1 and the lowest priority to Level 3 inputs. If a price for an identical asset is not observable, a government may evaluate fair market value using another valuation technique that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs. If the fair value of an asset is measured using inputs from more than one level of the fair market value hierarchy, the measurement is based on the lowest level input that is significant to the entire measurement. Government of the United States Virgin Islands Notes to Basic Financial Statements 58 The following section describes the valuation technique methodologies the Government is using to measure assets at fair value: Level 1: Investments classified within Level 1 are valued based on quotes obtained from active public exchanges or reported on the national market and are stated at the last reported sales price on the day of valuation. Fair value of exchange-traded contracts is based upon exchange settlement prices. Level 2: Investments classified within Level 2 are valued by pricing vendors using outside data. In determining the fair value of the investments, the pricing vendors use a market approach and pricing spreads based on the credit risk of the issuer, maturity, current yield, and other terms and conditions of each security. The commercial paper, certificates of deposit, U.S. government, agency and state obligations, U.S. Treasury notes, debt securities are classified as Level 2 instruments as their fair value is based on quoted values stated by the bank’s mark-to-market estimate using a stated fixed rate. The interest rate is observable at commonly quoted indexes for the full term of the instruments. Level 3: Investments in limited partnerships and private debt/direct lending are classified within Level 3 of the fair value hierarchy. Given the absence of market quotations, fair value is estimated using the information provided by the investment managers or general partners. The values are based on estimates that require varying degrees of judgment and, for the fund of funds investments, are primarily based on financial data supplied by the investment managers of the underlying funds. Individual holdings within alternative investments may include instruments in both nonmarketable and market-traded securities. Nonmarketable securities may include equity in private companies, real estate, thinly traded securities, and other investment vehicles. While these financial instruments contain varying degrees of risk, the Government’s exposure with respect to each such investment is limited to carrying amount (fair value as described above). Assets using net asset value per share as fair value are not required to be categorized using the fair value hierarchy levels. As of September 30, 2020, the PG’s investments also include a non-negotiable certificate of deposit, which is not subject to the fair value hierarchy. Government of the United States Virgin Islands Notes to Basic Financial Statements 59 Primary Government Following are the investments of the PG categorized within the three-level fair value hierarchy: (In thousands) September 30, 2020 Level 1 Level 2 Level 3 Money market funds $ 530,940 $ 530,940 $ - $ - Investments with contractual maturities: Certificates of deposit 1,686 - 1,686 - U.S. government, agency, and state obligations 75,139 - 75,139 - Portfolio investments: Commercial paper 7,166 - 7,166 - Subtotal 614,931 $ 530,940 $ 83,991 $ - Investments, at cost: Non-negotiable certificate of deposit 10,257 Others 22 Total $ 625,210 Following is a summary of the investments of the PG categorized by investment type and weighted average maturity, as of September 30, 2020, (expressed in thousands): Maturity (in years) Fair Value Less Than 1 Year 1 to 5 Years Over 5 Years Investments with contractual maturities Certificates of deposit $ 1,686 $ 1,686 $ - $ - U.S. government, agency, and state obligations 75,139 27,098 18,958 29,083 Portfolio investments Commercial paper 7,166 6,982 - 184 Other investments 22 22 - - Total investments with contractual maturities 84,013 $ 35,788 $ 18,958 $ 29,267 Investments without contractual maturities Money market funds 530,940 Certificates of deposit 10,257 Total $ 625,210 Interest Rate Risk – Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The PG does not have a formal investment policy that limits investment maturities as a means of managing such exposure and has some exposure to interest rate risk. Government of the United States Virgin Islands Notes to Basic Financial Statements 60 Credit Risk – The authorizing legislation of the PG does not limit investments by credit rating categories. Authorizing legislation does limit the investment choices of the PG to direct obligations or obligations guaranteed by the United States, obligations of states, territories, possessions and commonwealths of the United States, obligations of international banking institutions, repurchase agreements, investment contracts, certificates of deposit, guaranteed investment contracts, shares in mutual funds, investment companies, corporate commercial paper, money market portfolio investments, and investment pools. As of September 30, 2020, the PG’s investments in money market funds were rated AAA by Standard & Poor’s and Aaa- and Aaa by Moody’s Investors Service. The PG’s investments in commercial paper in the amount of $7.2 million were not rated by Standard & Poor’s or by Moody’s Investors Service. The PG’s investments in government, agency and state obligations were rated AA- to AAA by Standard & Poor’s and Aa2 to Aaa by Moody’s Investors Service. The PG’s investments in certificates of deposit in the amount of $11.9 million were not rated by Moody’s Investor Services or by Standard & Poor’s. Concentration of Credit Risk – The PG places no limit on the amount that may be invested in one issuer. As of September 30, 2020, more than 5.0% of the PG’s investments were invested in: Goldman Financial Square Money Market #524 (60.8%), Federated Government Obligation Money Market #5, (20.0%), and State of California municipal bonds (6.4%). Custodial Credit Risk – The PG does not have a custodial risk policy. The custodial credit risk for investments is the risk that, in the event of the failure of a depository financial institution or other counterparty, the PG will not be able to recover the value of an investment or collateral securities that are in the possession of an outside party. As of September 30, 2020, $613.3 million of investments were held in the name of the Bank of New York Trust Company, N.A, as trustee for the Government. Government of the United States Virgin Islands Notes to Basic Financial Statements 61 Pension Trust Fund Following are the investments of the Pension Trust Fund categorized within the three-level fair value hierarchy: (In thousands) September 30, 2020 Level 1 Level 2 Level 3 Debt securities: Government agency obligations $ 18,247 $ - $ 18,247 $ - Municipal obligations 1,463 - 1,463 - Corporate bond 29,157 - 29,157 - Asset-backed securities 8,639 - 8,639 - Collateralized mortgage obligations 8,229 - 8,229 - Commercial mortgaged-backed securities 2,115 - 2,115 - Residential mortgaged-backed securities 15,994 - 15,994 - Limited partnerships: Private equity funds 12,477 - - 12,477 Private lending 34,014 - - 34,014 Real estate/other real assets 66,119 - - 66,119 Subtotal 196,454 $ - $ 83,844 $ 112,610 Investment, as cost: Money market funds 46,797 Investments measured at net asset value (NAV): Commingled equity funds 108,156 Commingled bond funds 218,924 Securities lending collateral fund 1,257 Total $ 571,588 Pension trust funds investments which are measured at NAV per share, or equivalent are presented in the table below (expressed in thousands): Fair Value Unfunded Commitments Redemption Frequency Redemption Notice Period Investments measured at net asset value (NAV): Commingled equity funds $ 108,156 $ - Daily 1 – 15 days Commingled bond funds 218,924 - Daily 2 – 10 days Securities lending collateral fund 1,257 - Daily None Total $ 328,337 $ - Commingled equity and bond funds - This type includes seven commingled funds that invest in publicly traded domestic and global stocks and domestic and global fixed income securities. The fair values of the investments in this type have been determined using the NAV per share (or its equivalent) of the investments. The total commingled funds can be liquidated daily. The underlying securities within the commingled funds carry a recurring fair value measurement Level 2. There are no unfunded commitments to commingled funds as of September 30, 2020. Government of the United States Virgin Islands Notes to Basic Financial Statements 62 Securities lending collateral - GERS’ custodian is the agent in lending GERS’ securities for collateral and investments which are in a commingled fund. Following is a summary of the investments of the pension trust fund, categorized by investment type and weighted average maturity, as of September 30, 2020, (expressed in thousands): Maturity (in years) Fair Value Less Than 1 Year 1 to 5 Years 6 to 10 Years More than 10 Years No Stated Maturity Investments with contractual maturities Commingled mutual funds $ 327,080 $ - $ - $ - $ - $ 327,080 Corporate obligations 29,157 - 9,677 8,075 11,405 - Mortgage and asset backed securities 34,977 - 6,889 3,076 25,012 - Municipals 1,463 - 193 436 834 - Limited partnerships 12,477 - - - - 12,477 U.S. government and agency obligations 612 612 - - - - U.S. Treasury bonds 6,023 - - - 6,023 - U.S. Treasury notes 11,165 - 10,581 584 - - Total investments with contractual maturities 422,954 $ 612 $ 27,340 $ 12,171 $ 43,274 $ 339,557 Investments without contractual maturities Money market funds 46,797 Real estate investments: Havensight Mall - U.S. Virgin Islands 41,000 GERS Complex - U.S. Virgin Islands 24,927 Other real estate 192 Debt lending - member loans 34,014 Securities lending short-term collateral investment pool 1,257 Securities collateral investment value 447 Total $ 571,588 Interest Rate Risk – Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. GERS does not have a specific policy to manage interest rate risk, but requires investment managers to diversify by issue, maturity, sector, coupon, and geography. Investment managers retained by GERS follow specific investment guidelines and are evaluated against specific market benchmarks that represent their investment style. Any exemption from general guidelines requires approval from GERS’ board of trustees. Credit Risk – The GERS investment policy is designed to minimize credit risk by restricting authorized investments to only those investments permitted by statute, subject to certain additional limitations. These additional limitations consist of prohibitions against investments in derivative securities, options, futures, or short positions. The investment policy allows investments in mortgage pass-through securities. Government of the United States Virgin Islands Notes to Basic Financial Statements 63 The credit ratings of GERS’ debt securities as of September 30, 2020, include (expressed in thousands): Standard & Poor’s Global Ratings Moody’s Investors Service Fair Value Credit Ratings Fair Value Credit Ratings Corporate obligations $ 2,110 A $ - - Corporate obligations 3,833 A- - - Corporate obligations 8,207 BBB+ - - Corporate obligations 9,125 BBB - - Corporate obligations 5,874 BBB- - - Corporate obligations 8 Not Available 8 Not Available Corporate obligations - - 316 A1 Corporate obligations - - 2,447 A2 Corporate obligations - - 4,143 A3 Corporate obligations - - 7,003 Baa1 Corporate obligations - - 8,541 Baa2 Corporate obligations - - 6,376 Baa3 Corporate obligations - - 323 Aa3 Mortgage and asset backed securities 5,928 AAA - Mortgage and asset backed securities 29,049 Not Available - Mortgage and asset backed securities - - 9,987 Aaa Mortgage and asset backed securities - - 508 Aa1 Mortgage and asset backed securities - - 24,482 Not Available Commingled and mutual funds 327,080 Not Rated 327,080 Not Available Total $ 391,214 $ 391,214 Concentration of Credit Risk – Concentration of credit risk is the risk of loss attributed to the magnitude of GERS’ investments in a single issuer of securities. GERS’ investment policy establishes limitations on portfolio composition by investment type to limit its exposure to concentration of credit risk. As of September 30, 2020, there are no investments in any one issuer that represent 5.0% or more of total investments. Custodial Credit Risk – The custodial credit risk for investments is the risk that, in the event of the failure of a depository financial institution or other counterparty, GERS will not be able to recover the value of an investment or collateral securities that are in the possession of an outside party. Other than underlying securities on loans secured by noncash collateral, GERS’ entire investment portfolio was held with a single third-party custodian in GERS’ name as of September 30, 2020. As of September 30, 2020, GERS had no underlying securities on loan secured by noncash collateral. Cash collateral held for securities lending transactions is invested in a collective investment pool maintained by the securities lending agent. Foreign Currency Risk – Foreign currency risk is the risk of holding investments in foreign currencies and the risk that those foreign currencies may devalue. GERS has no general investment policy with respect to foreign currency risk. Government of the United States Virgin Islands Notes to Basic Financial Statements 64 Risks associated with foreign exchange contracts include the movement in the value of foreign currency relative to the U.S. dollar and the ability of the counterparty to perform in accordance with the terms of the contract. Changes in the market value of open and closed forward contracts are recorded with interest, dividends, and other income or losses reported at fair value. During the fiscal year ended September 30, 2020, GERS did not engage in any foreign currency exchange contracts. Securities Lending Transactions – The Government’s statutes permit GERS to participate in securities lending transactions, and GERS has, via a securities lending authorization agreement (the Agreement), authorized State Street Bank and Trust Company (the Custodian) to lend its securities to broker-dealers and banks pursuant to a form of a loan agreement. Lent securities are collateralized with cash, securities issued or guaranteed by the U.S. government, or irrevocable bank letters of credit. GERS does not have the ability to pledge or sell collateral securities delivered absent a borrower default. No restrictions were imposed during 2020 as to the amount of loans the Custodian can make on behalf of GERS. Under the terms of the Agreement, the Custodian must indemnify the Government for losses attributable to violations by the Custodian under the “standard of care” clause described in the Agreement. There were no such violations during fiscal year 2020, or losses resulting from the default of the borrowers or the Custodian. Loans are generally terminable on demand. The collateral received shall, (i) in the case of loaned securities denominated in U.S. dollars or whose primary trading market is located in the U.S. or sovereign debt issued by foreign governments, have a market value of 102.0% of the market value of the loaned securities; (ii) in the case of loaned securities which are not denominated in U.S. dollars or whose primary trading market is not located in the United States, have a market value of 105.0% of the market value of the loaned securities; or (iii) have a higher value as may be applicable in the jurisdiction in which the loaned securities are customarily traded. Such collateral should be kept, at a minimum, at 100.0% of the market value of the security for all borrowers throughout the outstanding period of the loans. As of September 30, 2020, GERS had no credit risk exposure to borrowers because the amounts GERS owed the borrowers exceeded the amounts the borrowers owed GERS. The following represents the balances relating to the securities lending transactions as of September 30, 2020: Underlying Securities Cash Collateral Investment Value Securities Collateral Investment Value Lent for Cash Collateral: Corporate bonds $ 371,038 $ 379,480 $ - U.S. government and agency obligation 850,297 - - Lent for Securities Collateral: U.S. government and agency obligation 425,993 877,763 446,832 Total $ 1,647,328 $ 1,257,243 $ 446,832 Government of the United States Virgin Islands Notes to Basic Financial Statements 65 Component Units Following are the investments of the discretely presented component units categorized within the fair value hierarchy: (In thousands) September 30, 2020 Level 1 Level 2 Level 3 Investments, at fair value: U.S. Government agencies and notes $ 35,121 $ 35,121 $ - $ - Common stocks 12,810 12,810 - - Corporate bonds 4,582 - 4,582 - Mutual funds 292 292 - - Subtotal 52,805 $ 48,223 $ 4,582 $ - Investments, at cost: Certificate of deposits 14,976 Investments measured at net asset value (NAV): Alternative investments 61,258 Total* $ 129,039 *Virgin Islands Port Authority and University of the Virgin Islands Research and Technology Park Corporation (unaudited) Following is a summary of the investments of the discretely presented component units, categorized by investment type, and weighted average maturity, as of September 30, 2020, (expressed in thousands): Maturity (in years) Fair Value Less Than 1 Year 1 to 5 Years 6 to 10 Years More than 10 Years Investments with contractual maturities Certificates of deposit $ 14,976 $ 8,961 $ 6,015 $ - $ - U.S. Government agencies and notes 35,121 35,121 - - - Total investments with contractual maturities 50,097 $ 44,082 $ 6,015 $ - $ - Investments without contractual maturities Common stock 12,810 Mutual funds 292 Corporate bonds 4,582 Other investments 61,258 Total* $ 129,039 *Virgin Islands Port Authority and University of the Virgin Islands Research and Technology Park Corporation (unaudited) Interest Rate Risk – Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The component units of the Government have not established formal policies which limit investment maturities as a means of managing such exposure and have some exposure to interest rate risk. Government of the United States Virgin Islands Notes to Basic Financial Statements 66 Credit Risk and Concentration of Credit Risk – The authorizing legislation of the component units does not limit investments by credit rating categories. Authorizing legislation limits the investment choices of the component units, as described in Note 1. Custodial Credit Risk – The custodial credit risk for investments is the risk that, in the event of the failure of a depository financial institution or other counterparty, the component units will not be able to recover the value of an investment or collateral securities that are in the possession of an outside party. The component units of the Government do not have custodial credit risk policies. Agency Fund At September 30, 2020, the agency fund had $1.9 million invested in certificates of deposit. They are classified as Level 2 instruments as their fair value is based on quoted values stated by the bank’s mark-to-market estimate using a stated fixed rate. The interest rate is observable at commonly quoted indexes for the full term of the instruments. 5. Receivables Primary Government Receivables for governmental funds on September 30, 2020, consist of the following (expressed in thousands): General PFA Debt Service Other Governmental Total Income taxes $ 279,174 $ - $ - $ 279,174 Real property taxes 123,642 - - 123,642 Hotel occupancy taxes 5,461 - - 5,461 Excise taxes 191 - - 191 Gross receipts taxes - 261,725 - 261,725 Subtotal 408,468 261,725 - 670,193 Less allowance for doubtful accounts (220,756) (221,609) - (442,365) Taxes receivables, net 187,712 40,116 - 227,828 Other $ 27 $ - $ 119 146 Tobacco settlement rights 903 Total $ 228,877 (a) Tax Receivables The Naval Appropriations Act created a separate tax structure for the U.S. Virgin Islands that mirrors the Internal Revenue Code (IRC) of 1986, as amended. Income taxes are due from every corporation, partnership, individual, association, estate, or trust that meets the filing requirements of the U.S. Internal Revenue Code. A U.S. taxpayer who is a permanent resident of the U.S. Virgin Islands satisfies his/her Virgin Islands income tax obligations by filing his/her return with and paying income taxes to the Government. Government of the United States Virgin Islands Notes to Basic Financial Statements 67 Bona fide residents of the U.S. Virgin Islands are taxed on their world-wide income. A nonresident of the U.S. Virgin Islands pays income taxes on his/her U.S. Virgin Islands source income. The revenue is recognized in the General Fund in the fiscal period for which the income tax return was filed. The revenue from income tax withholding and estimated payments are recognized in the General Fund as collected, net of estimated tax refunds. Subchapter S and C corporate income tax returns are due by the 15th day of the fourth month following the close of the calendar year and become delinquent if not paid on or before the due date. Partnership income taxes are due by April 15 of the following year and trust income taxes are due by April 15 of the following year for which the income tax was levied. Trust income taxes must be paid by the tax filing date. For the tax year ended December 31, 2020, the income tax filing dates for individuals, businesses, and trust tax filings (and certain other tax filings) were extended to May 17, 2021, through pandemic relief provisions of the Internal Revenue Service (IRS) due to COVID-19. Property taxes are assessed each calendar year on all taxable real property located in the U.S. Virgin Islands. The receivable is recognized, net of estimated uncollectable amounts, in the General Fund in the fiscal period for which the tax is assessed. The revenue is recognized in the General Fund in the fiscal period for which the property tax is levied, provided the tax is collected within 60 days after fiscal year-end, unless the facts justify a period greater than 60 days. Receivables collected after that period, are recorded as unavailable property tax revenue. The Office of the Tax Assessor is responsible for the assessment of all taxable real property. Noncommercial real property subject to taxation is reassessed once every five years and commercial real property subject to taxation is reassessed biannually. The Tax Assessor prepares an annual assessment roll and schedule of collections for each parcel of real property that is used by The Office of the Tax Collector, as the basis for issuing tax bills to all taxpayers in the U.S. Virgin Islands. Property taxes are to be levied by May 15 of each year in the name of the record owner on January 15 of the same year. The taxes are due on June 30 and become delinquent if not paid by August 31. For businesses with gross receipts of $225,000 per annum or less, gross receipts taxes are levied on an annual basis based on the amount by which gross receipts exceed $9,000 per month. Businesses with annual gross receipts of more than $225,000 are levied monthly with no $9,000 per month exemption. The gross receipts tax rate is 5.0% of sales and service revenue. Monthly gross receipts tax filings are due within 30 calendar days following the last day of the calendar month collected. Annual gross receipts tax filings are due within 30 calendar days following the last day of the calendar year. (b) Other Receivables In addition to tax receivables, the PG receives tobacco settlement right payments in connection with a Master Settlement Agreement with certain participating cigarette manufacturers. Under the terms of the agreement, the U.S. Virgin Islands receives .0173593% of annual payments made under the agreement. As of September 30, 2020, the PG reported a receivable of $903,000 for tobacco settlement right payments as included in the accompanying statement of net position. Government of the United States Virgin Islands Notes to Basic Financial Statements 68 Component Units Receivables for the discretely presented component units on September 30, 2020, consist of the following (expressed in thousands): Utility service charges $ 32,326 Patients 17,108 Students 6,075 Port fees* 4,139 Other* 575,100 Total $ 634,748 *Virgin Islands Port Authority and University of the Virgin Islands Research and Technology Park Corporation (unaudited) Pension Trust Fund Loans and advances to members of GERS at September 30, 2020, consist of the following (expressed in thousands): Personal loans $ 30,610 Mortgage loans 5,176 Less allowance for losses (1,772) Total $ 34,014 (c) Notes Receivable On July 30, 2018, the Government under an amended Terminal agreement entered into a 10-year nontransferable promissory note receivable with Limetree Bay Terminals, LLC (Limetree) for $10.0 million secured by a purchase money lien on land, buildings, and other properties at the terminal in St. Croix. The note maturity is November 30, 2028, with an interest rate of 10.0% due on June 30 and December 31 of each year, beginning June 30, 2019. Prior to the restart of the refinery, the interest is to be added to the principal amount due. At September 30, 2020, principal and interest amounted to $11.7 million. 6. Unavailable Revenues The components of unavailable revenues of the General Fund and PFA Debt Service Fund as of September 30, 2020, consist of the following (expressed in thousands): General PFA Debt Service Total Property taxes $ 20,647 $ - $ 20,647 Income taxes 118,345 - 118,345 Gross receipts taxes - 26,121 26,121 Total $ 138,992 $ 26,121 $ 165,113 Government of the United States Virgin Islands Notes to Basic Financial Statements 69 7. Interfund Transfers Interfund transfers (from/to) for the year ended September 30, 2020, consist of the following (expressed in thousands): General PFA Debt Service Other Governmental Total General $ - $ 189,555 $ - $ 189,555 PFA Debt Service 220 - 4 224 PFA Capital Projects - 4,140 - 4,140 Other governmental 12,386 - - 12,386 Other business-type 1,000 - - 1,000 Total $ 13,606 $ 193,695 $ 4 $ 207,305 Interfund transfers constitute the transfer of resources from the fund that receives the resources to the fund that utilizes them. The most significant transfer to the General Fund included a $190.0 million transfer from PFA Debt Service Fund (a major governmental fund) representing gross receipt tax revenues available after bond debt service requirements. Significant transfers made from the General Fund include a transfer of $5.0 million to PFA Special Revenue Fund (a non-major governmental fund); a transfer of $2.0 million to the St. Croix Capital Improvement Fund (a non-major governmental fund); a transfer of $1.0 million to Bureau of Motor Vehicles (a non-major business-type fund); and a transfer of $1.0 million to the Crisis Intervention Fund (a non-major governmental fund); a transfer of $3.8 million to the Community Facilities Trust Fund (a non-major governmental fund). The PFA Debt Service Fund (a major governmental fund) made a transfer of $4.1 million to PFA Capital Projects Fund (a major governmental fund). Due From/To Other Funds General PFA Capital Projects Other Governmental Other Enterprise Total General $ - $ - $ 34,454 $ 300 $ 34,754 Federal 21,889 - - - 21,889 Other governmental 45,374 - - - 45,374 Total Governmental Funds 67,263 - 34,454 300 102,017 WICO 8,661 - - - 8,661 viNGN - 36,804 - - 36,804 Other enterprise 497 324 1,675 - 2,496 Total Proprietary Funds 9,158 37,128 1,675 - 47,961 Total $ 76,421 $ 37,128 $ 36,129 $ 300 $ 149,978 Government of the United States Virgin Islands Notes to Basic Financial Statements 70 The due from/to other funds includes the following amounts the General Fund owes to other funds: $18.0 million to St. Croix Capital Improvement Fund (a non-major governmental fund) for capital improvement projects; $5.0 million due to the Emergency Molasses Fund (a non-major governmental fund) for unpaid appropriations; $3.5 million due to PFA special revenue fund (a non-major governmental fund) for unpaid budget from gross receipts; and $1.8 million due to the Elected Governor Retirement Fund (a non-major governmental fund). The amount due from other funds reported by the General Fund is mainly composed of $42.2 million due from the District Street Lighting Fund (a non-major governmental fund); $21.9 million due from the Federal Fund (a major governmental fund); $2.7 million from the Bond Proceeds Fund (a non- major governmental fund); and $8.7 million due from WICO (a major business-type fund). The due to PFA Capital Projects funds includes $36.8 million due from the Virgin Islands Next Generation Network (viNGN), a major business-type fund in connection with start-up costs of the broadband project. The amount due to other governmental funds by the other enterprise includes $648,000 due from the Virgin Islands Lottery to the Pharmaceutical Assistance to the Aged Fund; and $732,000 due from the Virgin Islands Lottery to the Virgin Islands Educational Initiative Fund consisting primarily of 15.0% of revenue derived from lottery games under contract between the Virgin Islands Lottery and private contractors be transferred to these funds. 8. Restricted Assets Primary Government Restricted assets of proprietary funds and business-type activities as of September 30, 2020, include cash and cash equivalents as follows (expressed in thousands): Unemployment insurance funds $ 455 WICO debt service funds 7,021 Total $ 7,476 These funds were restricted to repay loans payable to the U.S. Treasury, WICO debt service, and insurance recovery funds restricted by loan covenants. Government of the United States Virgin Islands Notes to Basic Financial Statements 71 Component Units Restricted assets of discretely presented component units as of September 30, 2020, include cash and cash equivalents, investments, and receivables as follows (expressed in thousands): Cash and cash equivalents: Debt service and sinking fund requirements $ 50,644 Endowment funds 7,326 HUD project funds 517 Revolving loan funds 28,288 Construction funds 8,134 Renewal and replacement funds 519 Other 7,153 Total 102,581 Investments: Debt service and sinking fund requirements 27,192 Construction funds 766 Endowment funds 66,281 Renewal and replacement funds 5,356 Revolving loan funds 6,306 Other 1,807 Total 107,708 Other: Pledged funds 18,254 Total* $ 228,543 *Virgin Islands Port Authority and University of the Virgin Islands Research and Technology Park Corporation (unaudited) Government of the United States Virgin Islands Notes to Basic Financial Statements 72 9. Capital Assets Primary Government Capital assets activity for governmental activities for the year ended September 30, 2020, is summarized as follows (expressed in thousands): Beginning Balance Additions Transfers/ Adjustment Impairment/ Disposals Ending Balance Capital assets not being depreciated: Land $ 215,400 $ - $ - $ - $ 215,400 Construction in progress 134,813 70,569 (29,379) (1,471) 174,532 Total capital assets not being depreciated 350,213 70,569 (29,379) (1,471) 389,932 Capital assets being depreciated and amortized: Land improvements 11,852 - 222 - 12,074 Infrastructure 169,993 1,815 18,820 - 190,628 Buildings and improvements 639,584 942 8,133 - 648,659 Machinery and equipment 221,390 18,615 2,204 (793) 241,416 Total capital assets being depreciated and amortized 1,042,819 21,372 29,379 (793) 1,092,777 Less accumulated depreciation and amortization for: Land improvements (5,559) (489) - - (6,048) Infrastructure (48,088) (5,901) - - (53,989) Buildings and improvements (230,588) (30,087) - - (260,675) Machinery and equipment (193,008) (11,654) - 793 (203,869) Total accumulated depreciation and amortization (477,243) (48,131) - 793 (524,581) Total capital assets being depreciated and amortized, net 565,576 (26,759) 29,379 - 568,196 Total Governmental activities capital assets, net $ 915,789 $ 43,810 $ - $ (1,471) $ 958,128 Depreciation and amortization expense are charged to functions of the PG’s governmental activities for the year ended September 30, 2020, as follows (expressed in thousands): General government $ 12,554 Public safety 1,769 Health 3,114 Education 23,825 Public housing and welfare 525 Culture and recreation 325 Transportation and communication 6,019 Total $ 48,131 Government of the United States Virgin Islands Notes to Basic Financial Statements 73 Capital assets activity for business-type activities for the year ended September 30, 2020, is summarized as follows (expressed in thousands): Beginning Balance Additions Transfers/ Adjustment Impairment/ Disposals Ending Balance Capital assets not being depreciated: Land $ 5,178 $ - $ - $ - $ 5,178 Construction in progress 5,974 974 (1,190) - 5,758 Total capital assets not being depreciated 11,152 974 (1,190) - 10,936 Capital assets being depreciated and amortized: Land improvements 348 - 328 - 676 Buildings and improvements 89,904 61 548 - 90,513 Machinery and equipment 79,729 646 314 (58) 80,631 Intangible assets 30,774 - - - 30,774 Total capital assets being depreciated and amortized 200,755 707 1,190 (58) 202,594 Less accumulated depreciation and amortization for: Land improvements (344) (30) - - (374) Buildings and improvements (51,192) (3,619) - - (54,811) Machinery and equipment (31,587) (4,562) - 56 (36,093) Intangible assets (8,129) (1,014) - - (9,143) Total accumulated depreciation and amortization (91,252) (9,225) - 56 (100,421) Total capital assets being depreciated and amortized, net 109,503 (8,518) 1,190 (2) 102,173 Total Business-type activities capital assets, net $ 120,655 $ (7,544) $ - $ (2) $ 113,109 Depreciation and amortization expense are charged to business-type activities for the year ended September 30, 2020, as follows (expressed in thousands) WICO $ 3,185 viNGN 4,578 Other enterprise funds 1,462 Total $ 9,225 Government of the United States Virgin Islands Notes to Basic Financial Statements 74 Component Units Capital assets activity for discretely presented component units for the year ended September 30, 2020, is summarized as follows (expressed in thousands): Beginning Balance Additions Transfers Impairment/ Disposals Ending Balance* Capital assets not being depreciated: Land $ 123,704 $ 109 $ 1,148 $ - $ 124,961 Construction in progress 587,845 245,000 (73,116) (5,025) 754,704 Total capital assets not being depreciated 711,549 245,109 (71,968) (5,025) 879,665 Capital assets being depreciated and amortized: Buildings and improvements 2,185,425 21,456 62,693 (12) 2,269,562 Airport and marine terminal facilities 185,759 - 4,202 - 189,961 Personal property and equipment 128,503 10,480 5,073 (1,094) 142,962 Intangible assets 2,919 - - - 2,919 Total capital assets being depreciated and amortized 2,502,606 31,936 71,968 (1,106) 2,605,404 Less accumulated depreciation and amortization for: Buildings and improvements (1,016,204) (62,490) - - (1,078,694) Airport and marine terminal facilities (150,371) (6,618) - - (156,989) Personal property and equipment (99,974) (6,211) - 1,221 (104,964) Intangible assets (2,216) (195) - - (2,411) Total accumulated depreciation and amortization (1,268,765) (75,514) - 1,221 (1,343,058) Total capital assets being depreciated and amortized, net 1,233,841 (43,578) 71,968 115 1,262,346 Total component units capital assets, net $ 1,945,390 $ 201,531 $ - $ (4,910) $ 2,142,011 * Virgin Islands Port Authority and University of the Virgin Islands Research and Technology Park Corporation (unaudited) Depreciation and amortization expense charged by each component unit for the year ended September 30, 2020, is as follows (expressed in thousands): Virgin Islands Housing Authority $ 7,509 Virgin Islands Port Authority* 17,658 Virgin Islands Water and Power Authority: Electric System 31,981 Water System 1,525 Virgin Islands Government Hospital and Health Facilities Corporation: Schneider Regional Medical Center 3,848 Governor Juan F. Luis Hospital 1,782 University of the Virgin Islands 2,359 Other component units* 8,852 Total $ 75,514 *Virgin Islands Port Authority and University of the Virgin Islands Research and Technology Park Corporation (unaudited) Government of the United States Virgin Islands Notes to Basic Financial Statements 75 Hurricanes Irma and Maria On September 6 and 19, 2017, the U.S. Virgin Islands were struck by two Category 5 hurricanes. The extent and severity of the storms was unprecedented and resulted in catastrophic damage to the Territory. The PG and its component units suffered losses to office buildings and educational facilities, roads, infrastructure, and various machineries and equipment. The PG had purchased commercial insurance to cover its risk of loss from destruction of assets and realized insurance recoveries during the fiscal year ended September 30, 2020, of $2.1 million which is reported as a special item in the accompanying financial statements. Actual repairs to damaged capital assets are expected to far exceed the calculated impairment losses. Any insurance recoveries received have been used to offset the impairment losses, in accordance with the guidelines of GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries. 10. Long-Term Liabilities Primary Government The change in long-term bonds and loans for governmental activities is as follows for the year ended September 30, 2020, (expressed in thousands): Beginning Balance Additions Reductions Ending Balance Due Within One Year Due Thereafter Matching Funds Revenue Bonds Series 2013 B Revenue and Refunding Bonds $ 41,045 $ - $ 6,035 $ 35,010 $ 6,335 $ 28,675 Series 2013 A Revenue and Refunding Bonds 16,010 - 2,335 13,675 2,460 11,215 Series 2012 A Revenue Bonds 138,315 - 1,000 137,315 1,100 136,215 Series 2010 A and B Revenue Bonds 382,995 - 2,800 380,195 4,005 376,190 Series 2009 A Revenue Bonds (Cruzan) 33,350 - 820 32,530 865 31,665 Series 2009 A 1, A 2, B and C Revenue and Refunding Bonds 224,550 - 33,745 190,805 34,265 156,540 Series 2009 A Revenue Bonds (Diageo) 221,370 - 5,990 215,380 6,405 208,975 Total 1,057,635 - 52,725 1,004,910 55,435 949,475 Gross Receipts Revenue Bonds Series 2018 A Revenue Bonds 206,295 - - 206,295 - 206,295 Series 2014 D Revenue Bonds 5,035 - 215 4,820 225 4,595 Series 2014 C Revenue and Refunding Bonds 226,750 - 5,790 220,960 6,065 214,895 Series 2014 A Revenue Bonds 43,245 - 1,810 41,435 1,900 39,535 Series 2012 A and B Revenue and Refunding Bonds 154,850 - 14,335 140,515 2,865 137,650 Series 2012 C Revenue Bonds 26,530 - 1,685 24,845 1,770 23,075 Series 2006 A Revenue Bonds 189,745 - 3,615 186,130 15,865 170,265 Total 852,450 - 27,450 825,000 28,690 796,310 Government of the United States Virgin Islands Notes to Basic Financial Statements 76 Beginning Balance Additions Reductions Ending Balance Due Within One Year Due Thereafter Tobacco Settlement Bonds Series 2006 A, B, C and D Turbo Capital Appreciation Bonds 7,290 - - 7,290 - 7,290 Series 2001 Tobacco Bonds 4,515 - 1,045 3,470 - 3,470 Total 11,805 - 1,045 10,760 - 10,760 Federal-Aid Highway Bonds Series 2015 Bonds 74,965 - 3,825 71,140 4,015 67,125 Other Direct Placement Bonds or Borrowings Series 2019 A TIF Revenue and Refunding Bonds - 12,000 413 11,587 492 11,095 Total 1,996,855 12,000 85,458 1,923,397 88,632 1,834,765 Plus (less): Bonds premium 40,526 - 5,027 35,499 - 35,499 Bonds discount (2,051) - (205) (1,846) - (1,846) Bonds accretion 10,132 1,168 - 11,300 11,300 - Total bonds payable, net $ 2,045,462 $ 13,168 $ 90,280 $ 1,968,350 $ 99,932 $ 1,868,418 Notes 2019 A TIF Project Developer Note $ - $ 1,593 $ - $ 1,593 $ 28 $ 1,565 Series 2016 A Notes 4,451 - 2,136 2,315 2,137 178 Series 2014 B Revenue Notes 4,000 - 2,000 2,000 2,000 - 2012 A TIF Notes 10,939 - 10,939 - - - Total notes payable 19,390 1,593 15,075 5,908 4,165 1,743 Total governmental activities bonds and notes payable $ 2,064,852 $ 14,761 $ 105,355 $ 1,974,258 $ 104,097 $ 1,870,161 The change in other long-term liabilities for governmental activities is as follows for the year ended September 30, 2020, (expressed in thousands): Beginning Balance Additions Reductions Ending Balance Due Within One Year Due Thereafter Accrued compensated absences $ 39,042 $ 5,425 $ - $ 44,467 $ 13,245 $ 31,222 Retroactive union arbitration 195,286 - - 195,286 - 195,286 Litigation 21,220 387 3,549 18,058 5,009 13,049 Landfill closure and post closure 110,708 - 1,299 109,409 - 109,409 Total $ 366,256 $ 5,812 $ 4,848 $ 367,220 $ 18,254 $ 348,966 Accrued compensated absences, retroactive union arbitration, litigation, landfill closure and post- closure costs are generally expected to be liquidated with resources derived from the General Fund. On September 30, 2020, the PG reported an other postemployment benefits (OPEB) liability to retirees such as health insurance, of $786.8 million. The OPEB liability is valued as of October 1, 2019, determined by an actuarial valuation as of that date. Government of the United States Virgin Islands Notes to Basic Financial Statements 77 The change in the OPEB liability for governmental activities is as follows for the year ended September 30, 2020, (expressed in thousands): Beginning Balance Additions Reductions Ending Balance Due Within One Year Due Thereafter OPEB liability $ 774,507 $ 12,249 $ - $ 786,756 $ - $ 786,756 As of September 30, 2020, the PG reported a net pension liability of $4.2 billion for its proportionate share of the net defined benefit pension liability administered by GERS. The net pension liability is valued as of September 30, 2019, determined by an actuarial valuation as of that date. The change in the pension liability for governmental activities is as follows for the year ended September 30, 2020, (expressed in thousands): Beginning Balance Additions Reductions Ending Balance Due Within One Year Due Thereafter Net pension liability $ 3,246,789 $ 948,063 $ - $ 4,194,852 $ - $ 4,194,852 The changes in long-term liabilities for business-type activities are as follows for the year ended September 30, 2020, (expressed in thousands): Beginning Balance Additions Reductions Ending Balance Due Within One Year Due Thereafter Workers’ compensation claims $ 59,458 $ 4,494 $ 6,025 $ 57,927 $ 7,625 $ 50,302 Loan payable – U.S. Treasury 63,375 12,143 6,435 69,083 69,083 - Compensated absences - WICO 1,990 497 1,201 1,286 43 1,243 Refundable advance - WICO - 464 - 464 464 - Loan payable – WICO 41,826 927 498 42,255 758 41,497 Total $ 166,649 $ 18,525 $ 14,159 $ 171,015 $ 77,973 $ 93,042 Debt Margin Pursuant to 48 U.S.C. Section 1574(b)(i) of the Revised Organic Act, the Government may issue revenue bonds for public improvements or undertakings authorized by an act of the Legislature of the Virgin Islands, without limitation as to principal amount. Such revenue bonds are payable solely from the revenue directly derived from and attributable to such public improvements or undertakings. Pursuant to 48 U.S.C. Section 1574(b)(ii), the Government is authorized to issue general obligation bonds for any public purpose provided that no such indebtedness is more than 10.0% of the aggregate assessed valuation of the taxable real property in the U.S. Virgin Islands. Government of the United States Virgin Islands Notes to Basic Financial Statements 78 In addition, pursuant to 48 U.S.C. Section 1574(a) (Public Law 94-932), the U.S. Virgin Islands is authorized to issue bonds or other obligations in anticipation of the matching funds to be received from the Federal government pursuant to 26 U.S.C. Section 7652(b)(3). There is no legal limit on the value of bonds that the Government may issue pursuant to 48 U.S.C. Section 1574(a). The Legislature of the Virgin Islands must authorize all bond issuances. PFA is authorized to issue bonds for financing any project or for the purpose authorized by the Legislature of the Virgin Islands. Given that PFA’s powers to issue bonds are derived from 48 U.S.C. Section 1574(b), the bonds issued by PFA are subject to the limitations of said 48 U.S.C. Section 1574(b). On August 23, 1999, the Legislature of the Virgin Islands amended the V.I. Code to add a Mandatory Balanced Budget Provision. Such provisions, specifically Title 2 of the V.I. Code Section 256, provide that the amount of debt of the Government existing on October 1, 2000, shall be the debt limit of the Government, exclusive of bond principal and interest that may become due. The debt limit specified under Title 2 of the V.I. Code Section 256 does not include bonds authorized by law for which a specific source of revenue is identified and committed to retiring those bonds. As used in Title 2 of the V.I. Code Section 256, the term “debt” means the total accumulated unpaid obligations that are due and payable, including unpaid income tax refunds, amounts owed to vendors, and current year unpaid debt service obligations, if any. As used in the statute, the term “debt” does not include that portion of principal or interest on bonds that is not yet due and payable. (a) Bonds Payable Bonds payable outstanding on September 30, 2020, are comprised of the following (expressed in thousands): Maturity Interest Rate (%) Balance Matching Funds Revenue Bonds Series 2013 B Revenue and Refunding Bonds 2015 - 2024 3.00 - 5.00 $ 35,010 Series 2013 A Revenue and Refunding Bonds 2018 - 2024 5.00 - 5.25 13,675 Series 2012 A Revenue Bonds 2022 - 2032 4.00 - 5.00 137,315 Series 2010 A and B Revenue Bonds 2012 - 2029 4.00 - 5.25 380,195 Series 2009 A Revenue Bonds (Cruzan) 2010 - 2039 3.00 - 6.00 32,530 Series 2009 A 1, A 2, B and C Revenue and Refunding Bonds 2010 - 2039 3.00 - 5.00 190,805 Series 2009 A Revenue Bonds (Diageo) 2014 - 2037 6.00 - 6.75 215,380 Total 1,004,910 Gross Receipts Revenue Bonds Series 2018 A Revenue Bonds 2022 - 2037 U.S. Treasury 206,295 Series 2014 D Revenue Bonds 2015 - 2033 6.03 4,820 Series 2014 C Revenue and Refunding Bonds 2015 - 2044 4.50 – 5.00 220,960 Series 2014 A Revenue Bonds 2015 - 2034 5.00 41,435 Series 2012 A and B Revenue and Refunding Bonds 2017 - 2032 2.25 - 5.25 140,515 Series 2012 C Revenue Bonds 2017 - 2042 3.00 - 5.00 24,845 Series 2006 A Revenue Bonds 2007 - 2029 3.50 - 5.00 186,130 Total 825,000 Government of the United States Virgin Islands Notes to Basic Financial Statements 79 Maturity Interest Rate (%) Balance Tobacco Settlement Bonds 2006 Series A, B, C & D Turbo Capital Appreciation Bonds 2036 6.00 – 8.00 7,290 2001 Series Tobacco Bonds 2031 4.62 – 5.13 3,470 Total 10,760 Federal-Aid Highway Bonds Series 2015 Bonds 2016 - 2033 3.00 – 5.00 71,140 Other Direct Placement Bonds or Borrowings Series 2019 A TIF Revenue and Refunding Bonds 2029 6.88 11,587 Total bonds payable 1,911,810 Plus (Less): Bonds premium 35,499 Bonds discount (1,846) Bonds accretion 11,300 Total bonds payable, net $ 1,968,350 Matching Funds Revenue Bonds Series 2013 B Revenue and Refunding Bonds On October 17, 2013, PFA issued the Series 2013 B Revenue and Refunding Bonds, the proceeds of which amounted to $51,365,000. These bonds are secured by a pledge of Matching Fund Revenues, which includes certain funds established under the original indenture, the Eighth Supplemental Indenture, and the Series 2013B Loan Notes issued by the Government. The proceeds were loaned to the Government under the same terms as the bonds. The bonds are limited special obligations of PFA. The Series 2013 B Bonds were issued to: (i) refund a portion of the Series 2004 A Bonds, (ii) fund the Series 2013 B Subordinate Lien Debt Service Reserve Account, and (iii) finance certain costs of issuance of the Series 2013 B Bonds. The Series 2013 B Bonds mature from 2015 to 2024 at an interest rate of 3.0% to 5.0%. The proceeds of the Series 2013 B Revenue and Refunding Bonds were placed in an irrevocable trust to provide for future debt service payments on the Series 2004 A. On October 1, 2014, the outstanding principal of the Series 2004 A Bonds was defeased through a call redemption amounting to $58,835,000. Interest on the Series 2013 B Revenue and Refunding Bonds is payable semi-annually on April 1 and October 1, and principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2013 B Revenue and Refunding Bonds. The principal and interest payments on October 1 are funded by the Matching Fund Revenues, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by the Matching Fund Revenues. The Series 2013 B Revenue and Refunding Bonds are not redeemable at the option of PFA. Government of the United States Virgin Islands Notes to Basic Financial Statements 80 Series 2013 A Revenue and Refunding Bonds On September 19, 2013, PFA issued the Series 2013 A Revenue and Refunding Bonds, the proceeds of which amounted to $36,000,000. These bonds are secured by a pledge of Matching Fund Revenues, which includes certain funds established under the original indenture, the Eighth Supplemental Indenture and the Series 2013 A Loan Notes issued by the Government. The proceeds were loaned to the Government under the same terms as the bonds. The bonds are limited special obligations of PFA. The Series 2013 A Bonds were issued to: (i) refund a portion of the Series 2004 A Bonds, Series 2009 A1 Bonds, and Series 2009 B Bonds, (ii) fund the Series 2013 A Subordinate Lien Debt Service Reserve Account, and (iii) finance certain costs of issuance of the Series 2013 A Bonds. The Series 2013 A Bonds mature from 2018 to 2024 at an interest rate of 5.0% to 5.3%. The proceeds of the Series 2013 A Revenue and Refunding Bonds were placed in an irrevocable trust to provide for future debt service payments on the Series 2004 A, Series 2009 A1, and Series 2009 B Bonds. The economic gain obtained by this advance refunding is the difference between the present value of old debt service requirements and the new debt service. This refunding resulted in a deferred loss of approximately $10.9 million and an economic loss of approximately $1.5 million. Interest on the Series 2013 A Revenue and Refunding Bonds is payable semi-annually on April 1 and October 1, and principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2013 A Revenue and Refunding Bonds. The principal and interest payments on October 1 are funded by the Matching Fund Revenues, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by the Matching Fund Revenues. The Series 2013 A Revenue and Refunding Bonds are not redeemable at the option of PFA. Series 2012 A Revenue Bonds On September 7, 2012, PFA issued the Series 2012 A Revenue Bonds, the proceeds of which amounted to $142,640,000. These bonds are secured by a pledge of Matching Fund Revenues, which includes certain funds established under the original indenture, the Seventh Supplemental Indenture and the Series 2012 Loan Notes issued by the Government. The proceeds were loaned to the Government under the same terms as the bonds. The bonds are limited special obligations of PFA. The Series 2012 A Bonds were issued to: (i) finance various operating expenses and other obligations of the Government, (ii) fund the Series 2012 A Subordinate Lien Debt Service Reserve Account, and (iii) finance certain costs of issuance of the Series 2012 A Bonds. The Series 2012 A Bonds mature from 2022 to 2032 at an interest rate of 4.0% to 5.0%. Interest on the Series 2012 A Revenue Bonds is payable semi-annually on April 1 and October 1, and principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2012 A Revenue Bonds. The principal and interest payments on October 1 are funded by the Matching Fund Revenues, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by the Matching Fund Revenues. Government of the United States Virgin Islands Notes to Basic Financial Statements 81 The Series 2012 A Revenue Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2012 A Revenue Bonds Price October 1, 2023, and thereafter 100% Series 2010 A and B Revenue Bonds On July 8, 2010, PFA issued the Series 2010 A and B Revenue Bonds, the proceeds of which amounted to $399,050,000. These bonds are secured by a pledge of Matching Fund Revenues, which includes certain funds established under the original indenture, the Sixth Supplemental Indenture and the Series 2010 Loan Notes issued by the Government. The proceeds were loaned to the Government under the same terms as the bonds. The bonds are limited special obligations of PFA. The Series 2010 A Bonds were issued to: (i) finance various operating expenses of the Government, (ii) refinance a portion of the outstanding Series 2009 B1 and B2 Notes, (iii) fund the Series 2010 A Subordinate Lien Debt Service Reserve Account, and (iv) finance certain costs of issuance of the Series 2010 A Bonds. The Series 2010 B Bonds were issued to: (i) refinance a portion of the outstanding Series 2009 B1 and B2 Notes, (ii) fund the Series 2010 B Subordinate Lien Debt Service Reserve Account, and (iii) finance certain costs of issuance of the Series 2010 B Bonds. The Series 2010 A Bonds amount to $305,000,000 and mature from 2012 to 2029 at an interest rate of 4.0% to 5.0%. The Series 2010 B Bonds amount to $94,050,000 and mature from 2020 to 2029 at an interest rate of 4.3% to 5.3%. Interest on the Series 2010 A and B Revenue Bonds is payable semi-annually on April 1 and October 1, and principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2010 A and B Revenue Bonds. The principal and interest payments on October 1 are funded by the Matching Fund Revenues, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by the Matching Fund Revenues. The Series 2010 A and B Revenue Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2010 A and B Revenue Bonds Price October 1, 2021, and thereafter 100% Series 2009 A Revenue Bonds (Cruzan) On December 17, 2009, PFA issued the Series 2009 A Revenue Bonds (Cruzan), amounting to $39,190,000, to finance the costs of the development, acquisition, construction, and installation of a wastewater treatment facility and to fund certain preliminary costs of the alteration, upgrade, expansion, and renovation of the Cruzan distillery on St. Croix, to establish debt service reserves, and to finance costs of issuance of the 2009 A Bonds. Government of the United States Virgin Islands Notes to Basic Financial Statements 82 These bonds are special limited obligations of PFA payable from and secured by a pledge of the Cruzan Trust estate which includes certain funds established under the Subordinated Indenture and the First Supplemental Subordinate Indenture of Trust. The bonds bear interest at 3.0% to 6.0% and mature from 2010 to 2039 and are subject to an optional redemption price equal to 100% of the principal amount thereof, plus interest accrued to the date fixed for redemption. In association with the Series 2009 A Revenue Bonds, PFA entered into an agreement with Cruzan VIRIL, Ltd. (Cruzan), on October 6, 2009. Provisions of the agreement call for payments of excess matching funds, after debt service, debt service reserve, and sinking fund redemption payments, to the Government and Cruzan of 60.0% - 80.0% and 54.0% - 60.0%, respectively. Interest on the Series 2009 A Revenue Bonds (Cruzan) is payable semi-annually on April 1 and October 1, and principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2009 A Revenue Bonds. The principal and interest payments on October 1 are funded by the Matching Fund Revenues, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by the Matching Fund Revenues. The Series 2009 A Revenue Bonds (Cruzan) maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2009 A Revenue Bonds (Cruzan) Price October 1, 2019, and thereafter 100% Series 2009 A 1, A 2, B and C Revenue and Refunding Bonds On October 1, 2009, PFA issued the Series 2009 A 1, A 2, B, and C Revenue and Refunding Bonds, the proceeds of which amounted to $458,840,000. These bonds are secured by a pledge of Matching Fund Revenues, which includes certain funds established under the original indenture, the Fourth Supplemental Indenture and the Series 2009 Loan Notes issued by the Government. The proceeds were loaned to the Government under the same terms as the bonds. The bonds are limited special obligations of PFA. The Series 2009 A 1 and A 2 Revenue and Refunding Bonds were issued to: (i) finance various capital projects of the Government, (ii) fund the Series 2009 A Senior Lien Debt Service Reserve Account, and (iii) finance certain costs of issuance of the Series 2009 A 1 and A 2 Revenue and Refunding Bonds. The Series 2009 A 1 Revenue and Refunding Bonds amounted to $86,350,000 and mature from 2010 to 2039 at interest rates from 3.0% to 5.0%. The Series 2009 A 2 Revenue and Refunding Bonds amount to $8,650,000 and mature from 2010 to 2011 at an interest rate of 3.0%. The Series 2009 B Revenue and Refunding Bonds were issued to: (i) refund the Series 1998 A Revenue and Refunding Bonds (Senior Lien/Refunding Bonds), (ii) fund the Series 2009 B Senior Lien Debt Service Reserve Account, and (iii) finance certain costs of issuance of the Series 2009 B Revenue and Refunding Bonds. The Series 2009 B Revenue and Refunding Bonds amount to $266,330,000 and mature from 2010 to 2025 at an interest rate of 5.0%. Government of the United States Virgin Islands Notes to Basic Financial Statements 83 The Series 2009 C Revenue and Refunding Bonds were issued to: (i) refund the Series 1998 E Revenue and Refunding Bonds (Subordinate Lien/Capital Program Bonds), (ii) fund the Series 2009 C Subordinate Lien Debt Service Reserve Account, and (iii) finance certain costs of issuance of the Series 2009 C Revenue and Refunding Bonds. The Series 2009 C Revenue and Refunding Bonds amounted to $97,510,000 and mature from 2010 to 2022 at an interest rate of 5.0%. The Series 2009 C Revenue and Refunding Bonds are subject to optional redemption by PFA on or after October 1, 2019, at redemption price of 100% of the principal amount thereof, plus interest accrued to the date fixed for redemption. Interest on the Series 2009 A 1, A 2, B and C Revenue and Refunding Bonds is payable semi-annually on April 1 and October 1, and principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2009 A 1, A 2, B and C Revenue and Refunding Bonds. The principal and interest payments on October 1 are funded by the Matching Fund Revenues, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by the Matching Fund Revenues. The Series 2009 A 1, A 2, B and C Revenue and Refunding Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2009 A 1, A 2, B and C Revenue and Refunding Bonds Price October 1, 2019, and thereafter 100% Series 2009 A Revenue Bonds (Diageo) On July 9, 2009, PFA issued the Series 2009 A Revenue Bonds (Diageo), the proceeds of which amounted to $250,000,000. These bonds are secured by a pledge of Diageo Matching Fund Revenues (Matching Funds generated from the sale of Captain Morgan rum products), which includes certain funds established under the original indenture, the Third Supplemental Indenture, and the 2009 Matching Fund Loan Note – Diageo Project, Series A issued by the Government. The bonds bear interest at 6.0% to 6.8% and mature from 2014 to 2037. The proceeds were loaned to the Government under the same terms as the bonds. The bonds are limited special obligations of PFA. The bonds were issued to: (i) provide a grant to Diageo USVI, Inc. (Diageo USVI) to finance the costs of the acquisition, design, development, construction, and equipping of a rum production and maturation warehouse facility to be located on St. Croix (the Diageo Project) (ii) redeem the Subordinated Revenue Bond Anticipation Notes (Virgin Islands Matching Fund Loan Notes – Diageo Project) Series 2009 A issued to finance preliminary costs of the Diageo Project (iii) fund the Series 2009 A Senior Lien Debt Service Reserve Account, (iv) pay capitalized interest on the Series 2009 A Revenue Bonds, and (v) finance certain costs of issuance of the Series 2009 A Revenue Bonds. The Series 2009 A Bonds maturing on or after October 1, 2020, shall be subject to optional redemption on or after October 1, 2019, at a redemption price equal to 100% of the principal amount thereof, plus interest accrued to the date fixed for redemption. Government of the United States Virgin Islands Notes to Basic Financial Statements 84 In association with the Series 2009 A Revenue Bonds, PFA entered into an agreement with Diageo USVI on June 17, 2008. Provisions of the agreement call for payments of excess matching funds, after debt service, debt service reserve, and sinking fund redemption payments, to Diageo of 49.5% - 57.0%. Interest on the Series 2009 A Revenue Bonds (Diageo) is payable semi-annually on April 1 and October 1, and principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2009 A Revenue Bonds. The principal and interest payments on October 1 are funded by the Matching Fund Revenues, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by the Matching Fund Revenues. The Series 2009 A Revenue Bonds (Diageo) maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2009 A Revenue Bonds (Diageo) Price October 1, 2020, and thereafter 100% Pledged Funds, Covenants, and Collateral The Government has pledged the Matching Funds Revenues to the timely payment of principal and interest on the Series 2013 B Revenue and Refunding Bonds, Series 2013 A Revenue and Refunding Bonds, Series 2012 A Revenue Bonds, Series 2010 A and B Revenue Bonds, Series 2009 A Revenue Bonds (Cruzan), the Series 2009 A 1, A 2, B and C Revenue and Refunding Bonds, and the Series 2009 A Revenue Bonds (Diageo). Thus, all amounts to be received by the Government from federal rum excise tax are deposited directly in a trust account from which the Bonds are paid in accordance with the Indenture of Trust. The Secretary of the U.S. Department of Treasury makes annually, certain transfers to the Government of substantially all excise taxes imposed and collected under the internal revenue laws of the United States in any fiscal year on certain products produced in the U.S. Virgin Islands (primarily rum) and exported to the United States from the U.S. Virgin Islands. The amount required to be remitted to the Government by the Secretary of the Treasury is an amount no greater than the total amount of local revenues (primarily taxes) collected by the Government in each fiscal year. The term “matching fund revenues” is used to denote these payments. Estimated prepayments of matching fund revenues are made to the Government prior to the beginning of each fiscal year, subject to adjustment for local revenue collected by the U.S. Department of Treasury during such year. Such adjustments are made to the estimated prepayments for a subsequent fiscal year. In fiscal year 2020, pledged matching rum excise tax revenues represented 41.2% of total rum excise revenues. Payments of Matching Fund Revenue Bonds principal and interest from matching rum excise tax revenues amounted to $52.7 million and $54.5 million, respectively. Also see Note 17. Government of the United States Virgin Islands Notes to Basic Financial Statements 85 Gross Receipts Revenue Bonds Series 2018 A Revenue Bonds On July 1, 2018, PFA issued the Series 2018 A Revenue Bonds to the Federal Emergency Management Agency (FEMA). The bonds secure certain Community Disaster Loans (CDLs) drawn following Hurricanes Irma and Maria in the U.S. Virgin Islands in September 2017. These bonds are secured by the pledge of gross receipts tax revenue. The Series 2018 A Revenue Bonds were issued to (i) finance essential functions of the Government’s operations following the hurricanes in the amount of $145.0 million, (ii) finance the operations of the Roy L. Schneider Hospital on the island of St. Thomas in the amount of $28.0 million, (iii) finance the operations of Governor Juan F. Luis Hospital and Medical Center on the island of St. Croix in the amount of $42.0 million, and (iv) fund certain debt service reserve requirements of the bond issuance. The bonds are subject to optional redemption by PFA at any time at a redemption price of 100% of the principal amount thereof, plus interest accrued through the redemption date. Interest payments commence October 1, 2019, with interest-only payments through October 1, 2022, calculated on a 360-day year consisting of twelve 30-day months. The Series 2018 A bonds mature in 2037 and deferred interest payments mature in 2038. Interest accruing during the deferral period, from the date of each drawdown through September 30, 2019, bear interest beginning October 1, 2019, equal to the draws on the loan. Also see Note 19. Semi-annual interest and principal payments are due April 1 and October 1. The Government may request cancellation of the repayment of the CDLs if certain financial conditions exist three fiscal years following the date of the disaster. Interest on the Series 2018 A Revenue Bonds is payable semi-annually on April 1 and October 1, and the principal is payable commencing October 1, 2022. The Government is responsible for all principal and interest payments on the Series 2018 A Revenue Bonds. The principal and interest payments on October 1 are funded by pledged Gross Receipts Taxes and determined and deposited into the debt service reserve accounts, which are also funded by Gross Receipts Taxes. The Series 2018 A Revenue Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2018 A Revenue Bonds Price Any time prior to maturity 100% Series 2014 D Revenue Bonds On December 3, 2014, PFA issued the Series 2014 D Revenue Bonds, the proceeds of which amounted to $5,765,000. These bonds are secured by the pledge of gross receipts tax revenues, subject to the annual moderate-income housing fund deposit as well as any prior liens or pledges. The Series 2014 D Revenue Bonds were issued to (i) finance certain costs associated with the broadband expansion program, (ii) fund the debt service reserve of the Series 2014 D Bonds in an amount necessary to meet debt service requirements, and (iii) pay the costs of issuance related to the Series 2014 D Bonds accounts. The Series 2014 D Bonds mature in 2033 at an interest rate of 6.03%. Government of the United States Virgin Islands Notes to Basic Financial Statements 86 Interest on the Series 2014 D Revenue Bonds is payable semi-annually on April 1 and October 1, and the principal is payable in total on October 1, 2033. The Government is responsible for all principal and interest payments on the Series 2014 D Revenue Bonds. The principal and interest payments on October 1 are funded by Gross Receipts Taxes, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by Gross Receipts Taxes. The Series 2014 D Revenue Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2014 D Revenue Bonds Price Any time prior to maturity 100% Make-Whole Redemption Price Series 2014 C Revenue and Refunding Bonds On November 14, 2014, PFA issued the Series 2014 C Revenue and Refunding Bonds, the proceeds of which amounted to $247,050,000. These bonds are secured by the pledge of gross receipts tax revenues, subject to the annual moderate-income housing fund deposit as well as any prior liens or pledges. The Series 2014 C Revenue and Refunding Bonds were issued to (i) refund the outstanding Series 2003 A Bonds, (ii) finance all or a portion of the costs of certain capital projects, and (iii) pay the costs of issuance related to the Series 2014 C Bonds. The Series 2014 C Bonds mature from 2015 to 2044 at an interest rate of 4.5% to 5.0%. The proceeds of the Series 2014 C Bonds related to the refunding were placed in a trust account to provide for all future debt service payments on the 2016 to 2034 maturities of the Series 2003 A Bonds. Approximately $235,249,196 of bond proceeds were deposited into the Escrow Fund accounts. On December 1, 2014, the Series 2003 A bonds were defeased through the exercise of call redemptions. Interest on the Series 2014 C Revenue and Refunding Bonds is payable semi-annually on April 1 and October 1, and the principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2014 C Revenue and Refunding Bonds. The principal and interest payments on October 1 are funded by Gross Receipts Taxes, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by Gross Receipts Taxes. The Series 2014 C Revenue and Refunding Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2014 C Revenue and Refunding Bonds Price October 1, 2024, and thereafter 100% Government of the United States Virgin Islands Notes to Basic Financial Statements 87 Series 2014 A Revenue Bonds On September 5, 2014, PFA issued the Series 2014 A Revenue Bonds, the proceeds of which amounted to $49,640,000. These bonds are secured by the pledge of gross receipts tax revenues and are subject to the annual moderate-income housing fund deposit as well as any prior liens or pledges. The bonds were issued to (i) finance all or a portion of the costs of certain capital projects, as authorized by the Virgin Islands Legislature in 2013 V.I. Act 7499, as amended by 2014 V.I. Act 7631 as further amended by 2014 V.I. Act 7637 and approved by PFA by resolution, (ii) fund the Debt Service Reserve account in an amount necessary to meet the Debt Service Reserve Requirement, and (iii) pay the costs and expenses of issuing and delivering the Series 2014 A Bonds. The Series 2014 A Revenue Bonds mature from 2015 to 2034 at an interest rate of 5.0%. Interest on the Series 2014 A Revenue Bonds is payable semi-annually on April 1 and October 1, and the principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2014 A Revenue Bonds. The principal and interest payments on October 1 are funded by Gross Receipts Taxes, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by Gross Receipts Taxes. The Series 2014 A Revenue Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2014 A Revenue Bonds Price October 1, 2024, and thereafter 100% Series 2012 A and B Revenue and Refunding Bonds On November 20, 2012, PFA issued the Series 2012 A and B Revenue and Refunding Bonds, the proceeds of which amounted to $228,805,000. These bonds are secured by the pledge of gross receipts tax revenues, subject to the annual moderate-income housing fund deposit as well as any prior liens or pledges. The Series 2012 A Revenue and Refunding Bonds were issued to (i) refund the outstanding Series 1999 A Bonds, (ii) refund the outstanding 2010 A1 and A2 Notes, (iii) pay the costs and expenses of issuing and delivering the Series 2012 A Revenue and Refunding Bonds, and (iv) fund the Debt Service Reserve account in an amount necessary to meet the Debt Service Reserve requirement related to the Series 2012 A Revenue and Refunding Bonds. The Series 2012 A Bonds mature from 2017 to 2032 at an interest rate of 2.3% to 5.0%. The Series 2012 B Revenue and Refunding Bonds were issued to (i) refinance the outstanding 2011 A Notes, which initially financed the Broadband Project, (ii) pay the costs and expenses of issuing and delivering the Series 2012 B Revenue and Refunding Bonds, and (iii) fund the Debt Service Reserve account in an amount necessary to meet the Debt Service Reserve requirement related to the Series 2012 B Revenue and Refunding Bonds. The Series 2012 B Revenue and Refunding Bonds mature in 2027 at an interest rate of 5.3%. Government of the United States Virgin Islands Notes to Basic Financial Statements 88 The refunding of the Series 1999 A Bonds, on November 20, 2012, was made to obtain lower interest rates. The economic gain obtained by this current refunding is the difference between the present value of old debt service requirements and the new debt service. This refunding resulted in a debt service saving of approximately $11.9 million and an economic gain of approximately $7.7 million. Interest on the Series 2012 A and B Revenue and Refunding Bonds is payable semi-annually on April 1 and October 1, and the principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2012 A and B Revenue and Refunding Bonds. The principal and interest payments on October 1 are funded by Gross Receipts Taxes, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by Gross Receipts Taxes. The 2012 Series A and B Revenue and Refunding Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2012 A and B Revenue and Refunding Bonds Price October 1, 2032 (Series 2012 A) 100% October 1, 2027 (Series 2012 B) Make-Whole Redemption Price Series 2012 C Revenue Bonds On December 19, 2012, PFA issued the Series 2012 C Revenue Bonds, the proceeds of which amounted to $35,115,000. These bonds are secured by the pledge of gross receipts tax revenues and are subject to the annual moderate-income housing fund deposit as well as any prior liens or pledges. The bonds were issued to (i) provide a loan to the Government to be used to finance certain operating expenses and other obligations of the Government, (ii) fund capitalized interest on a portion of the Series 2012 C Bonds, and (iii) pay the costs and expenses of issuing and delivering the Series 2012 C Bonds. The Series 2012 C Revenue Bonds mature from 2017 to 2042 at an interest rate of 3.0% to 5.0%. Interest on the Series 2012 C Revenue Bonds is payable semi-annually on April 1 and October 1, and the principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2012 C Revenue Bonds. The principal and interest payments on October 1 are funded by Gross Receipts Taxes, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by Gross Receipts Taxes. The Series 2012 C Revenue Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2012 C Revenue Bonds Price October 1, 2030, and thereafter 100% Government of the United States Virgin Islands Notes to Basic Financial Statements 89 Series 2006 A Revenue Bonds On September 28, 2006, PFA issued the Series 2006 A Revenue Bonds, the proceeds of which amounted to $219,490,000. These bonds are secured by a pledge of the Trust estate, which includes certain funds established under the original Indenture, the Seventh Supplemental Indenture and the 2006 Gross Receipts Taxes Loan Note, Series issued by the Government. The proceeds were loaned to the Government under the same terms as the Bonds. The bonds are limited special obligations of PFA. The bonds bear interest at 3.5% to 5.0% and mature from 2007 to 2029. The proceeds of the bonds were issued to: (i) refund a portion of PFA’s Revenue Bonds, Series 1999 A, (ii) pay the cost of a termination fee in connection with an outstanding swap option agreement, (iii) fund certain capital projects, (iv) fund the Debt Service Reserve Account, (v) pay certain costs of issuing the Series 2006 A Revenue Bonds and (vi) fund a net payment reserve account for a new swap agreement. The Series 2006 A Revenue Bonds maturing on or before October 1, 2016, are not subject to optional redemption. The advance refunding of the 2024 and 2029 maturities of the Series 1999 A Bonds was made to obtain lower interest rates. The economic gain obtained by this advance refunding is the difference between the present value of old debt service requirements and the new debt service. This refunding resulted in a debt service saving of approximately $40.8 million and an economic gain of approximately $25.6 million. The proceeds of the Series 2006 A Revenue Bonds related to the refunding were placed in a trust account to provide for all future debt service payments on the 2024 to 2029 maturities of the Series 1999 A Bonds. Approximately $175,125,168 of funds was deposited into the Escrow Fund accounts. On September 30, 2017, the Series 1999A Revenue Bonds were fully defeased. Interest on the Series 2006 A Revenue Bonds is payable semi-annually on April 1 and October 1, and principal is payable annually on October 1. The Government is responsible for all principal and interest payments on the Series 2006 A Revenue Bonds. The principal and interest payments on October 1 are funded by Gross Receipts taxes, and the required investment to meet the April 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by Gross Receipts taxes. The Series 2006 A Revenue Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2006 A Revenue Bonds Price October 1, 2016, and thereafter 100% Pledged Funds, Covenants, and Collateral The Government has pledged Gross Receipts Taxes subject to the annual moderate income housing fund deposit and the TIF special escrow agreement, as well as any prior lien or pledge, to the timely payment of the principal and interest on the Series 2018 A Revenue Bonds, Series 2016 A Notes, Series 2014 D Revenue Bonds, Series 2014 C Revenue and Refunding Bonds, Series 2014 B Revenue Notes, Series 2014 A Revenue Bonds, Series 2012 C Revenue Bonds, Series 2012 A and B Revenue and Refunding Bonds, and the Series 2006 A Revenue Bonds. Government of the United States Virgin Islands Notes to Basic Financial Statements 90 The Government has contracted an independent certified public accounting firm to provide quarterly verification of gross receipts deposits made to the collecting agent, in accordance with bond covenants. In fiscal year 2020, pledged gross receipts tax revenues represented 30.2% of total gross receipt tax revenues. Payment of Gross Receipts Revenue Bonds and Notes principal and interest from pledged gross receipts taxes amounted to $42.9 million and $33.9 million, respectively. Also see Note 17. Tobacco Settlement Bonds 2006 Series A, B, C & D Turbo Capital Appreciation Bonds On March 15, 2006, TSFC issued the 2006 Tobacco Settlement Financing Corporation Asset-Backed Bonds, Subordinated Series 2006 (Turbo Capital Appreciation Bonds) amounting to $48,145,000, with an issue value of $7,290,009 net of accretion of $40,854,991. The bonds are secured and payable from collections including all Tobacco Settlement Revenues to be received by TSFC, reserves, and amounts held in other accounts established by the indenture and TSFC’s rights under the purchase agreement. The proceeds have been used for the purpose of (i) to finance several capital, hospital, and health development projects for the benefit of the U.S. Virgin Islands and its residents, (ii) to pay certain costs of issuing the Series 2006 Bonds, and (iii) to fund operating costs associated with the Series 2006 Bonds. Interest on the Series 2006 Bonds is not paid currently but accretes from the date of delivery, compounded every May 15 and November 15, commencing May 15, 2006, and is paid at maturity or upon prior redemption, provided however that the 2001 Series Bonds have been paid in full. 2001 Series Tobacco Bonds On November 20, 2001, TSFC issued the 2001 Tobacco Settlement Financing Corporation Asset- Backed Bonds (Term and Capital Appreciation Bonds) amounting to $23,685,000, with an issue value of $21,709,862 net of accretion of $1,975,138. The bonds are secured and payable from collections including all Tobacco Settlement Revenues to be received by TSFC, reserves, and amounts held in other accounts established by the indenture, and TSFC’s rights under the purchase agreement. The proceeds have been used for the purpose of (i) purchasing all rights, title, and interest in certain litigation awards under the MSA entered into by participating cigarette manufacturers, (ii) issuing Tobacco Settlement Asset-Backed Bonds to pay the purchase price for the rights, and (iii) providing funds for hospital and healthcare projects in the U.S. Virgin Islands. Interest on the Series 2001 Bonds is payable semi-annually on each May and November 15, beginning with May 2002 for the Term Bonds. The Corporation is responsible for all principal and interest payments on the bonds. The convertible Capital Appreciation Bonds will accrete interest prior to November 15, 2007, and will accrue interest after that date. Interest will compound on May 15 and November 15. Government of the United States Virgin Islands Notes to Basic Financial Statements 91 Federal-Aid Highway Bonds On December 15, 2015, PFA issued the Series 2015 Federal-Aid Highway Bonds (the Series 2015 Bonds), the proceeds of which amounted to $89,880,000. These bonds are secured by a lien on a security interest in, the Trust Estate, which includes, all rights and interests in (i) the Federal Highway Grant Revenues, (ii) subject to the limitations set forth in the Indenture, the Transportation Trust Fund and the Pledged Transportation Trust Fund Revenues, (iii) the amounts on deposit in certain funds and accounts created under the Indenture, including Debt Service Reserve Fund and (iv) the Loan Agreement and the Loan Note. The bonds are limited special obligations of PFA. The Series 2015 Bonds were issued to (i) finance costs of certain highway capital projects, (ii) establish debt service reserves, and (iii) pay the costs of issuance related to the Series 2015 Bonds. The Series 2015 Bonds mature from 2016 to 2033 at an interest rate of 3.0% to 5.0%. Interest on the Series 2015 Bonds is payable semi-annually on March 1 and September 1, and principal is payable annually on September 1. The Government is responsible for all principal and interest payments on the Series 2015 Bonds. The principal and interest payments on September 1 are funded by the Federal Highway Grant Revenues, and the required investment to meet the March 1 interest payment is determined and deposited into the debt service reserve accounts, which is also funded by the Federal Highway Grant Revenues. The Series 2015 Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount, as follows: Series 2015 Bonds Price September 1, 2025, and thereafter 100% Pledged Funds, Covenants, and Collateral The Government has pledged the Federal Highway Grant Revenues to the timely payment of principal and interest on the Series 2015 Bonds. The Federal Highway Administration’s Puerto Rico Division and the Government’s Department of Public Works and PFA, have entered into a Memorandum of Understanding, dated December 9, 2015, documenting the procedures, roles, and responsibilities for (i) programming and authorizing the Approved Projects, (ii) supervising the construction of the Approved Projects, (iii) paying debt service on the Bonds and other Bond Related Charges, and (iv) establishing the funding, transfer, and disbursement process for the proceeds of the Bonds. Also see Note 17. Other Direct Placement Bonds or Borrowings On November 14, 2019, PFA issued the Series 2019 A TIF Revenue and Refunding bonds with a local bank in the amount of $12.0 million. The proceeds of the bonds were used to: (i) defease the Series 2012 A TIF Notes with outstanding principal of approximately $11.0 million and accrued interest of $104,000, (ii) make a settlement payment to the developer of the Island Crossings Shopping Center, (iii) fund certain debt service reserves and (iv) pay the costs of the issuance. The Series 2019 A Bonds bear an interest rate of 6.9% over a term of 10 years. Government of the United States Virgin Islands Notes to Basic Financial Statements 92 Interest on the Series 2019 A TIF Revenue and Refunding Bonds is payable monthly, and the principal is payable commencing December 1, 2019. The Government is responsible for all principal and interest payments on the Series 2019 A Bonds. The monthly principal and interest payments are funded by pledged Gross Receipts Taxes. The Series 2019 A TIF Revenue and Refunding Bonds maturing after the dates below are redeemable at the option of PFA, at prescribed redemption prices expressed as a percentage of the principal amount as follows: Series 2019 A TIF Revenue and Refunding Bonds Price December 1, 2019, and thereafter 100% Pledged Funds, Covenants, and Collateral The Government has pledged the Gross Receipts Taxes of the TIF Developer Project subject to the annual moderate income housing fund deposit, as well as any prior lien or pledge, to the timely payment of the principal and interest on the Series 2019 A TIF Revenue and Refunding Bonds. The Government has contracted an independent certified public accounting firm to provide quarterly verification of gross receipts deposits made to the collecting agent, in accordance with bond covenants. The Tax Increment Revenue Loan Agreement entered into with the Government and Trustee in connection with the issuance of the Series 2019 A TIF Revenue and Refunding Bonds requires a Debt Service Coverage Ratio (DSCR) of 1.25 determined on an annual basis (before October 31st of each fiscal year). The ratio is the Islands Crossings Incremental Revenues together with any ground lease payments divided by the total amount of annual principal and interest payments on the Series 2019 A TIF Revenue and Refunding Bonds. PFA is required to maintain a Loan to Value Ratio (LTV) of no more than 65.0%. In any fiscal year in which the LTV shall exceed 65.0%, the DSCR shall be 1.35, and, upon certification thereof by the TIF Calculation Agent, any amounts then available in the Surplus Account may be made first to interest and then to principal due on the 2019 A TIF Project Developer Note. No payments may be made on the 2019 A TIF Project Developer Note until the DSCR and LTV requirements have been met. For the year ended September 30, 2020, the DSCR amounted to 1.92 and the LTV was 50.0%, meeting the requirements of the Tax Increment Revenue Loan Agreement. To provide additional security for the payment of the principal and interest due on the Series 2019 A Bonds, the TIF Project Developer has entered into the Purchaser Collateral Documents for the benefit of the lender, to further secure the payment of the Bonds. During the time that the Series 2019 A Bonds are outstanding, the Economic Development Authority shall obtain an independent report on the financial statements of the Island Crossings Project, determining if the incremental pledged funds are equal to estimates, and if the Island Crossings Project is economically viable for the repayment of the Series 2019 A TIF Revenue and Refunding Bonds. The bonds contain a provision that in an event of default, the lender may at any time declare the entire balance of the Series 2019 A Bond and any indebtedness of PFA to the lender to be due and payable, whereupon the same shall become immediately due and payable without presentment, demand, protest, or notice. Also see Note 17. Government of the United States Virgin Islands Notes to Basic Financial Statements 93 Future debt service requirements for bonds for which matching funds have been pledged are as follows (expressed in thousands): Governmental Activities – Matching Funds Revenue Bonds 2009 Series A Revenue Bonds (Diageo) 2009 Series A 1 & A 2 Revenue and Refunding Bonds 2009 Series B Revenue and Refunding Bonds 2009 Series C Revenue and Refunding Bonds 2009 Series A Revenue Bonds (Cruzan) Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Maturity Year: 2021 $ 6,405 $ 14,216 $ 2,090 $ 3,388 $ 23,760 $ 4,152 $ 8,415 $ 1,116 $ 865 $ 1,926 2022 6,845 13,777 2,195 3,286 24,975 2,934 10,345 647 920 1,872 2023 7,315 13,308 2,300 3,179 9,650 2,068 7,770 194 975 1,815 2024 7,815 12,807 2,410 3,068 1,275 1,795 - - 1,040 1,755 2025 8,350 12,271 2,530 2,951 26,750 1,094 - - 1,100 1,691 2026-2030 51,150 51,952 14,705 12,693 8,510 213 - - 6,625 7,343 2031-2035 71,485 31,618 18,885 8,515 - - - - 8,940 5,025 2036-2039 56,015 5,842 24,240 3,151 - - - - 12,065 1,897 Total $ 215,380 $ 155,791 $ 69,355 $ 40,231 $ 94,920 $ 12,256 $ 26,530 $ 1,957 $ 32,530 $ 23,324 Governmental Activities – Matching Funds Revenue Bonds 2010 Series A Revenue Bonds 2010 Series B Revenue Bonds 2012 Series A Revenue Bonds 2013 Series A Revenue and Refunding Bonds 2013 Series B Revenue and Refunding Bonds Total Matching Funds Revenue Bonds Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Maturity Year: 2021 $ 2,955 $ 14,233 $ 1,050 $ 4,811 $ 1,100 $ 6,809 $ 2,460 $ 646 $ 6,335 $ 1,592 $ 55,435 $ 52,889 2022 3,115 14,082 - 4,789 1,150 6,765 2,590 515 6,655 1,267 58,790 49,934 2023 19,890 13,507 2,705 4,721 1,250 6,715 2,725 377 6,985 926 61,565 46,810 2024 29,795 12,264 11,010 4,378 1,300 6,658 2,875 231 7,330 569 64,850 43,525 2025 5,915 11,372 11,575 3,814 1,400 6,591 3,025 78 7,705 193 68,350 40,055 2026-2030 224,475 30,074 67,710 9,243 8,500 31,766 - - - - 381,675 143,284 2031-2035 - - - - 122,615 9,401 - - - - 221,925 54,559 2036-2039 - - - - - - - - - - 92,320 10,890 Total $ 286,145 $ 95,532 $ 94,050 $ 31,756 $ 137,315 $ 74,705 $ 13,675 $ 1,847 $ 35,010 $ 4,547 $ 1,004,910 $ 441,946 Government of the United States Virgin Islands Notes to Basic Financial Statements 94 Future debt service requirements for bonds for which gross receipts taxes have been pledged are as follows (expressed in thousands): Governmental Activities – Gross Receipts Revenue Bonds 2006 Series A Revenue Bonds 2012 Series A Revenue and Refunding Bonds 2012 Series B Revenue and Refunding Bonds 2012 Series C Revenue Bonds 2014 Series A Revenue Bonds 2014 Series C Revenue and Refunding Bonds Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Maturity Year: 2021 $ 15,865 $ 8,667 $ 800 $ 5,977 $ 2,065 $ 995 $ 1,770 $ 1,198 $ 1,900 $ 2,024 $ 6,065 $ 10,838 2022 16,295 7,942 1,140 5,939 2,175 883 1,860 1,107 2,000 1,927 6,385 10,526 2023 16,895 7,113 1,430 5,887 2,290 766 1,955 1,012 2,100 1,824 6,705 10,199 2024 17,515 6,253 6,780 5,689 2,415 642 430 952 2,210 1,717 7,045 9,855 2025 18,165 5,361 7,395 5,335 2,545 512 455 930 2,325 1,603 7,385 9,494 2026-2030 101,395 12,306 53,940 19,865 8,485 684 2,635 4,278 13,530 6,102 36,430 42,173 2031-2035 - - 49,055 3,765 - - 4,685 3,403 17,370 2,258 132,615 17,953 2036-2040 - - - - - - 6,385 1,998 - - 6,535 3,503 2041-2044 - - - - - - 4,670 358 - - 11,795 1,599 Total $ 186,130 $ 47,642 $ 120,540 $ 52,457 $ 19,975 $ 4,482 $ 24,845 $ 15,236 $ 41,435 $ 17,455 $ 220,960 $ 116,140 Governmental Activities – Gross Receipts Revenue Bonds 2014 Series D Revenue Bonds 2018 Series A-1 Revenue Bonds 2018 Series A-2 Revenue Bonds 2018 Series A-3 Revenue Bonds Total Gross Receipts Revenue Bonds Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Maturity Year: 2021 $ 225 $ 284 $ - $ - $ - $ - $ - $ - $ 28,690 $ 29,983 2022 240 270 - 4,189 - 573 - 1,245 30,095 34,601 2023 255 255 2,983 6,655 430 877 2,033 1,820 37,076 36,408 2024 270 239 3,125 5,364 493 736 2,171 1,342 42,454 32,789 2025 290 222 4,564 3,870 690 527 2,402 1,084 46,216 28,938 2026-2030 1,730 819 27,309 17,152 3,524 2,330 10,024 4,470 259,002 110,179 2031-2035 1,810 226 54,795 12,460 7,186 1,715 14,384 2,876 281,900 44,656 2036-2040 - - 52,224 2,454 6,972 339 10,986 537 83,102 8,831 2041-2044 - - - - - - - - 16,465 1,957 Total $ 4,820 $ 2,315 $ 145,000 $ 52,144 $ 19,295 $ 7,097 $ 42,000 $ 13,374 $ 825,000 $ 328,342 Government of the United States Virgin Islands Notes to Basic Financial Statements 95 Future debt service requirements for bonds for which tobacco settlement revenues have been pledged are as follows (expressed in thousands): Principal Interest Maturity Year: 2021 $ - $ 174 2022 - 174 2023 - 174 2024 - 173 2025 - 173 2026-2030 - 868 2031-2035 3,470 173 2036 7,290 - Plus, future accretion 11,300 - Total $ 22,060 $ 1,909 Future debt service requirements for bonds for which federal-aid highway grant revenues have been pledged are as follows (expressed in thousands): Principal Interest Maturity Year: 2021 $ 4,015 $ 3,557 2022 4,220 3,356 2023 4,430 3,146 2024 4,650 2,924 2025 4,880 2,691 2026-2030 28,320 9,542 2031-2033 20,625 2,096 Total $ 71,140 $ 27,312 Future debt service requirements for other direct placement bonds or borrowings for which gross receipts taxes have been pledged are as follows (expressed in thousands): Principal Interest Maturity Year: 2021 $ 492 $ 792 2022 528 759 2023 566 719 2024 604 680 2025 650 634 2026-2030 8,747 2,102 Total $ 11,587 $ 5,686 Government of the United States Virgin Islands Notes to Basic Financial Statements 96 (b) Loans and Notes Payable 2019 A TIF Project Developer Note On November 14, 2019, PFA issued the Series 2019 A TIF Project Developer Note. As part of the Tax Increment Financing Agreement entered into in 2009, the TIF Project Developer was entitled to a fee in the amount of $3.4 million to be paid through a non-transferable special limited obligation of PFA secured by a subordinate pledge of the Island Crossings incremental revenues collected under a special escrow agreement. The TIF Project Developer Note was issued in the amount of $1.6 million, with a maturity date of November 1, 2049 to pay the remaining balance of the Project Developer fee. Interest on the Project Developer bonds is 8.5% with payments made annually on October 1 over a thirty (30) year term. The first payment will be due on October 1, 2020. The 2019 A TIF Project Developer Note was issued under the Tax Increment Revenue Loan Agreement dated November 1, 2019, between the Government, PFA, and Trustee. Under the Tax Increment Revenue Loan Agreement, the Note may not be transferred to secure payment of the Series 2019 A TIF Revenue and Refunding Bonds (Series 2019 A Bonds). In the event the Series 2019 A Bonds are prepaid, the 2019 A TIF Project Developer Note shall also be prepaid in the same proportion as the Series 2019 A Bonds. Future debt service requirements for the 2019A TIF Project Developer Note are as follows (expressed in thousands): Principal Interest Maturity Year: 2021 $ 28 $ 119 2022 14 133 2023 15 132 2024 16 131 2025 18 129 2026-2030 113 621 2031-2035 170 564 2036-2040 256 478 2041-2045 385 349 2046-2050 578 156 Total $ 1,593 $ 2,812 2016 A Notes On October 1, 2016, PFA issued two Subordinate Lien Revenue Notes, Series 2016 A (Virgin Islands Gross Receipts Taxes Loan Notes-Emergency First Responder Project), collectively the “Series 2016 A Notes” in an aggregate amount of up to $10,000,000 to: (i) finance the acquisition of public safety vehicles and related equipment (the Series 2016A-1 Project), and (ii) to finance certain consulting services for the improvement of public safety and security in the U.S. Virgin Islands, (the Series 2016A-2 Project), and (iii) to pay certain costs incidental to the issuance of the Series 2016 A Notes. The Series 2016 A Notes mature in 2021 with variable interest rates based on the 90-day London Inter-bank Offered Rate (LIBOR) plus 375 basis points. Government of the United States Virgin Islands Notes to Basic Financial Statements 97 The Series 2016 A Notes are subject to prepayment by PFA in whole or in part at any time upon 100% payment of the outstanding principal plus interest accrued to the prepayment date. As of September 30, 2020, the outstanding balance was $2.3 million. As security for the payment of principal and interest on the Series 2016 A Notes, the Government has pledged and assigned the gross receipts taxes collected by the Government subject and subordinate to the lien on such taxes and revenues in favor of the holder of outstanding bonds and to the Required Annual Moderate Income Housing Deposit. The Government covenants to provide to PFA within 180 calendar days of the end of each fiscal year a financial report summarizing annual receipts and transfers of gross receipts taxes and substitute revenues. Future debt service requirements for the 2016 A Notes are as follows (expressed in thousands): Principal Interest Maturity Year: 2021 $ 2,137 $ 65 2022 178 1 Total $ 2,315 $ 66 2014 B Revenue Notes On September 12, 2014, PFA issued the Subordinate Lien Revenue Notes, Series 2014 B (Virgin Islands Gross Receipts Taxes Loan Note) in the aggregate amount of $14,000,000 (the 2014 B Revenue Notes). The proceeds of the Series 2014 B Revenue Notes were loaned to the Government under the same terms, for the purposes of (i) financing general obligations of the Government and (ii) paying certain costs of issuing the 2014 B Notes. Principal is payable in eighty-four (84) consecutive monthly principal installments commencing on November 1, 2014. Interest is assessed at 375 points above the 90-day LIBOR rate. As of September 30, 2020, the outstanding balance was $2.0 million. As security for the payment of principal and interest on the Series 2014 B Revenue Notes, the Government has pledged and assigned the gross receipts taxes collected by the Government subject and subordinate to the lien on such taxes and revenues in favor of the holders of the outstanding bonds and to the Required Annual Moderate Income Housing Deposit. The Government covenants to provide to PFA within 180 calendar days of the end of each fiscal year a financial report summarizing annual receipts and transfers of gross receipts taxes and substitute revenues. Future debt service requirements for the 2014 B Revenue Notes are as follows (expressed in thousands): Principal Interest Maturity Year: 2021 $ 2,000 $ 43 Total $ 2,000 $ 43 Government of the United States Virgin Islands Notes to Basic Financial Statements 98 2012 A TIF Notes On September 25, 2009, PFA entered into a Bond Anticipation Note Purchase Agreement with a local bank. Under the terms of the Note Purchase Agreement, the bank will purchase up to $15,700,000 in federally taxable Bond Anticipation Notes (the 2009 A TIF Notes) issued by PFA. The purpose of the Series 2009 A TIF Notes is to provide a loan to the Government (the Series 2009 A Tax Increment Revenue Loan Note) to finance the development of a shopping complex on the island of St. Croix. The financing is provided under Tax Increment Financing legislation enacted in October 2008 by the Government. Both the 2009 A TIF Notes and the Series 2009 Tax Increment Revenue Loan Note have a term of three years, maturing on October 1, 2015, with interest of 300 points above the J.P. Morgan Chase Prime Rate or 6.3%, whichever is higher. On September 24, 2012, PFA authorized an extension of the maturity date on the Series 2009 A TIF Notes, from October 1, 2015, to October 1, 2017, which was then converted to the Series 2012 A term loan note (the 2012 A TIF Notes). PFA sold $13,700,000 in 2012 A TIF Notes to the local bank and loaned that amount to the Government. The Government has pledged Island Crossings Incremental Tax Revenue and proceeds of the anticipated Tax Increment Revenue Bond Anticipation Note to the timely payment of the principal and interest on the 2012 A TIF Notes. In November 2019, PFA issued the 2019 Series A TIF Revenue and Refunding Bonds to defease the 2012 A TIF Notes. (c) Loan Payable – U.S. Treasury In August 2009, the Territory reserve balance of the Unemployment Trust Fund (UTF) became inadequate to cover expenditures for unemployment compensation (UC) benefits. UC benefits are an entitlement program administered through the U.S. Treasury and the PG is legally liable to pay benefits even if the UTF becomes insolvent. As of September 30, 2020, the PG owed $69.1 million to the U.S. Treasury. States and territories with outstanding loans from the UTF must repay them fully by the November 10 following the second consecutive January 1 on which the state or territory has an outstanding loan. If a state or territory does not repay a UTF loan by November 10 of the second year, it becomes subject to a reduction in the amount of state unemployment tax credit applied against the federal unemployment tax beginning with the preceding January 1 until it repays the loan fully. For calendar year 2020, federal unemployment tax rates increased by 3.0% due to outstanding UTF loans. The UTF loan was not subject to interest during fiscal year 2020, due to a temporary suspension on the accrual of interest on federal loans to pay unemployment benefits and a waiver of interest payments through December 2020 provided by the Families First Coronavirus Response Act. During the year ended September 30, 2020, the PG borrowed $12.1 million from the UTF. (d) Loan Payable – The West Indian Company Limited In July 2017, WICO consolidated various loans with Banco Popular de Puerto Rico (the Bank) in the amount of $42,697,836 at a fixed interest rate of 5.3% per annum, amortized on a 25-year term with a final maturity date of July 2022. Upon maturity, should WICO stay in compliance with the current terms of the loan, it may refinance the loan for a term not to exceed twenty (20) years, subject to new terms and conditions. Government of the United States Virgin Islands Notes to Basic Financial Statements 99 WICO may prepay the loan, however there is a prepayment penalty of 2.0% of the outstanding principal of the loan. Security and collateral for the loan include a first-priority security interest in WICO’s assets, a pledge of WICO’s revenues and the unlimited continuing repayment guarantee from PFA in event of default. The loan contains a provision that in an event of default, the Bank may by written notice to WICO (i) immediately terminate the commitments of the Bank, and (ii) declare the principal and interest accrued on the loan due and payable. WICO must also maintain insurance on its facilities at full replacement cost value and business interruption insurance equal to one year’s net revenues. WICO is required to pay all payments in lieu of taxes (PILOT) to the PG. In May 2020, WICO was notified by the Bank that monthly payments on the outstanding loan payable would be deferred for 90 days as a result of the COVID-19 pandemic. In September 2020, an additional 90-day moratorium was granted to WICO with regular repayments resuming in November 2020. WICO is required to maintain a Debt Service Reserve Fund (DSR) with the Bank in the amount of $3.1 million. WICO is also required to maintain a Debt Service Coverage Ratio Reserve (DSCR) with an amount equal to the shortfall, if any, between WICO’s earnings before interest, taxes, depreciation, and amortization (EBITDA) and WICO’s required annual DSCR, so that net revenues are not less than 1.25 times annual debt service payments. WICO is also required to maintain a Fixed Coverage Ratio (FCR) of 1.10 times EBITDA divided by the current portion of long-term debt (CPLTD) plus interest expense, PILOT, maintenance, and capital expenses. WICO may not declare dividends during the term of the loan, and no additional equity interests may be granted without the lender’s approval. The loan agreement also requires WICO to deliver the year-end audited financial statements within 180 days of its fiscal year end. For the year ended September 30, 2020, WICO was in compliance with the DSR requirement but it was not in compliance with the DSCR, FCR, and reporting requirements. The loan agreement considers any noncompliance of the covenants as default. However, as discussed in Note 19, WICO issued certain bonds, the proceeds of which were utilized to prepay the outstanding loan balance and WICO entered into loan termination, pledge termination, and guaranty termination agreements with the Bank, documenting the close of the loan payable. Future principal payments on the WICO loan are as follows (expressed in thousands): Principal Interest Total Maturity Year: 2021 $ 758 $ 2,237 $ 2,995 2022 41,497 1,983 43,480 Total $ 42,255 $ 4,220 $ 46,475 (e) Insurance Guaranty Fund Minimum Balance Requirement Under Title 22, Chapter 10 of the V.I. Code, the Virgin Islands Insurance Guaranty Fund is required to maintain a minimum balance of $50.0 million for claimant payments in the event of a failure of an insurance carrier. On February 10, 2012, legislation was enacted authorizing a reduction in the minimum balance to be held by the Virgin Islands Insurance Guaranty Fund from $50.0 million to $10.0 million. Government of the United States Virgin Islands Notes to Basic Financial Statements 100 In October 2019, the Legislature of the Virgin Islands increased the minimum balance to $20.0 million through September 30, 2020. Effective September 30, 2020, in the event the balance in the Insurance Guaranty Fund equals or exceeds $20.0 million, amounts in excess thereof shall be deposited, at the direction of the Commissioner of Finance, into the General Fund. Component Units Bonds payable of discretely presented component units are those liabilities that are paid out of resources pledged by such entities. Bonds payable reported at September 30, 2020, are as follows (expressed in thousands): Maturity Interest Rate (%) Balance* Bonds Payable Virgin Islands Water and Power Authority (Electric System): Bond Anticipation Note of 2018 B 2020 5.50 $ 33,960 Bond Anticipation Note of 2018 C 2033 2.38 – 2.90 17,500 Bond Anticipation Note of 2017 A 2020 10.00 14,765 Revenue Bonds of 2012 2025 4.00 - 6.06 40,535 Revenue Bonds of 2010 2035 5.00 - 6.85 43,415 Revenue Bonds of 2007 A 2031 5.00 57,585 Revenue Bonds of 2003 2028 4.00 – 5.00 36,355 Rural Utilities Service Note 2035 1.62 11,332 Virgin Islands Water and Power Authority (Water System): Revenue Bonds of 2018 2033 2.30 – 2.90 75,000 University of the Virgin Islands: Series A 2011-2 Bonds 2034 3.48 31,990 Series A 2019-7 Bonds 2049 2.27 30,134 Series A 2019-8 Bonds 2049 2.27 10,113 Virgin Islands Port Authority*: Series A Revenue Bonds of 2014 2033 4.00 – 5.00 18,925 Series B Revenue Bonds of 2014 2044 3.00 – 5.00 11,660 Series C Revenue Bonds of 2014 2025 2.00 – 5.00 3,920 Subtotal 437,189 Plus, unamortized premium 3,822 Bonds payable, net 441,011 Less amount due within one year (33,645) Bonds payable, due in more than one year $ 407,366 *Unaudited Government of the United States Virgin Islands Notes to Basic Financial Statements 101 The changes in bonds payable for discretely presented component units are as follows for the year ended September 30, 2020 (expressed in thousands): Beginning Balance Additions Reductions Ending Balance Due Within One Year Due Thereafter Virgin Islands Water and Power Authority: Electric System $ 271,539 $ - $ 13,719 $ 257,820 $ 29,090 $ 228,730 Water System 75,000 - - 75,000 - 75,000 University of the Virgin Islands 58,374 40,575 26,712 72,237 1,720 70,517 Virgin Islands Port Authority* 39,153 - 3,199 35,954 2,835 33,119 Total $ 444,066 $ 40,575 $ 43,630 $ 441,011 $ 33,645 $ 407,366 *Unaudited The changes in notes payable, line of credit payable, and other long-term liabilities for discretely presented component units are as follows for the year ended September 30, 2020 (expressed in thousands): Beginning Balance Additions Reductions Ending Balance Due Within One Year Due Thereafter Notes payable Virgin Islands Port Authority* $ 881 $ 6,088 $ 5,809 $ 1,160 $ 1,160 $ - University of the Virgin Islands 23,817 - 120 23,697 126 23,571 Other component units* 10,454 - 106 10,348 558 9,790 Total $ 35,152 $ 6,088 $ 6,035 $ 35,205 $ 1,844 $ 33,361 *Virgin Islands Port Authority and University of the Virgin Islands Research and Technology Park Corporation (unaudited) Line of credit payable Virgin Islands Water and Power Authority: Electric System $ 27,322 $ 5,940 $ - $ 33,262 $ 33,262 $ - Water System 2,522 217 - 2,739 2,739 - Virgin Islands Waste Management Authority 2,500 - 1,500 1,000 1,000 - Total $ 32,344 $ 6,157 $ 1,500 $ 37,001 $ 37,001 $ - Government of the United States Virgin Islands Notes to Basic Financial Statements 102 Beginning Balance Additions Reductions Ending Balance Due Within One Year Due Thereafter Other long-term liabilities: Virgin Islands Housing Authority $ 3,345 $ 1,013 $ 2,044 $ 2,314 $ 1,771 $ 543 Virgin Islands Port Authority* 3,638 - 756 2,882 1,685 1,197 Virgin Islands Water and Power Authority: Electric System 145,686 - 10,662 135,024 12,441 122,583 Water System 4,232 - 2,258 1,974 1,974 - Hospital and Health Facilities Corporation: Schneider Regional Medical 3,583 531 - 4,114 4,114 - Juan F. Luis Hospital 8,554 - - 8,554 8,554 - University of the Virgin Islands 4,681 1,401 210 5,872 297 5,575 Other component units* 12,476 860 200 13,136 1,674 11,462 Total $ 186,195 $ 3,805 $ 16,130 $ 173,870 $ 32,510 $ 141,360 *Virgin Islands Port Authority and University of the Virgin Islands Research and Technology Park Corporation (unaudited) (a) Bonds Payable Virgin Islands Water and Power Authority – Electric System Bond Anticipation Note of 2018 B & 2018 On November 14, 2018, the Electric System’s Board authorized the refinancing of the Series 2016 A Subordinated Bond Anticipation Notes (BANs) with its Series 2018 B Senior BANs in the principal amount of $33.9 million. The Streetlight conversion project is approximately 60.3% completed and all lights and solar panels are expected to be installed by August 2020. Also see Note 19. On November 28, 2018, the Electric System’s Board authorized the issuance of Bond Anticipation Notes in a principal amount not to exceed $30.0 million, the Series 2018 C Bond Anticipation Notes. The 2018 C BANs were being issued to evidence the debt in respect of a Community Disaster Loan made by United States of America, acting through FEMA. The form of the Series 2018 C BANs allows for multiple draws by the Electric System. During the year ended June 30, 2019, the Electric System drew down $17.5 million to provide additional working capital for fuel invoices, payroll, and other critical operating expenses. No additional draws were made in fiscal year 2020. The rate on the BANs was 2.4% to 2.9%, maturing July 1, 2033. Also see Note 19. Virgin Islands Water and Power Authority – Electric System Bond Anticipation Note of 2017 In August 2017, the Electric System closed on financing for $14.8 million as part of the authorized $85.0 million BANs (Series 2017 A BAN) to fund startup costs for the acquisition and construction of six high efficiency power generating units. The funding provides for (i) the design, engineering, procurement, construction, startup, and testing of the new power generating units (ii) the financing of two centralized control rooms and operational centers on the islands of St. Thomas and St. Croix, (iii) financing of capitalized interest, and (iv) payment of costs of issuance. The rate on the BANs was 10.0%, maturing July 1, 2020. As such, on July 1, 2020, the Series 2017 A BANs with an outstanding par value of $14.8 million were retired utilizing fuel taxes and debt service funds already on deposit with the Trustee. Government of the United States Virgin Islands Notes to Basic Financial Statements 103 Virgin Islands Water and Power Authority – Electric System Revenue Bonds of 2012 In May 2012, the Electric System issued $69.1 million in bonds made up as, $17.4 million in 2012 A Electric System Revenue Refunding Bonds, $19.7 million in 2012 B Electric System Subordinated Revenue Bonds, and $32.0 million in 2012 C Electric System Subordinated Revenue Bonds. The proceeds of the Series 2012 A Bonds were used to (i) refund the Electric System’s Electric System Revenue Refunding Bonds, Series 1998 and (ii) pay certain costs of issuance of the Series 2012 A Bonds. The proceeds of the Series 2012 B Bonds were used to (i) refinance a portion of the Electric System’s Electric System Term Loan, (ii) make a deposit into the Subordinated Debt Service Reserve Fund sufficient to satisfy the Series 2012 B Subordinated Debt Service Reserve Fund Requirement, and (iii) pay certain costs of issuance of the Series 2012 B Bonds. The proceeds of the Series 2012 C Bonds were used to (i) refinance all or a portion of the Electric System Working Capital Lines of Credit and Overdraft Credit Facility, (ii) make a deposit into the Series 2012 C Subordinated Debt Service Reserve Fund sufficient to satisfy the Subordinated Debt Service Reserve Fund Requirement, and (iii) pay certain costs of issuance of the Series 2012 C Bonds. Virgin Islands Water and Power Authority – Electric System Revenue Bonds of 2010 In March 2010, the Electric System issued $85.3 million in bonds made up as, $39.1 million in 2010 A Electric System Revenue Refunding Bonds, $8.9 million in 2010 B Electric System Revenue Bonds, and $37.3 million in 2010 C Electric System Revenue Bonds. The proceeds of the Series 2010 A Bonds were used to refund a portion of the Electric System Revenue Refunding Bonds, Series 1998. The proceeds of the Series 2010 B Bonds were used to finance certain capital expenditures temporarily funded through draws on a line of credit ($9.0 million) and to make certain deposits into the Debt Service Revenue Fund sufficient to satisfy the Debt Service Reserve Fund requirement. The proceeds of the Series 2010 C Bonds were used to fund a portion of the costs of certain capital improvements to the Electric System and to make certain deposits into the Debt Service Revenue Fund sufficient to satisfy the Debt Service Revenue Fund Requirement. The proceeds of the three series were also used to pay certain costs of issuance of the 2010 A, 2010 B, and 2010 C Bonds. Virgin Islands Water and Power Authority – Electric System Revenue Bonds of 2007 In June 2007, the Electric System issued $57.6 million in 2007 A Electric System Subordinated Revenue Bonds. The proceeds of the Series 2007 A Bonds were used to (i) finance costs of certain capital improvements, (ii) refinance certain costs of capital improvements funded through draws on a line of credit and reinstallation of $10.0 million to the line of credit allocable to the Electric System, (iii) make certain required deposits to the subordinated Debt Service Reserve Fund, and (iv) pay certain costs of issuance of the Series 2007 A Bonds. Virgin Islands Water and Power Authority – Electric System Revenue Bonds of 2003 In June 2003, the Electric System issued $69.9 million in Electric System Revenue Bonds, Series 2003. The proceeds from the bonds were used to finance capital improvements, repay $18.0 million of then outstanding lines of credit, cover underwriters’ costs, and establish a debt service fund. The Series 2003 Bonds maturing on or after July 1, 2013, shall be subject to redemption prior to their stated maturity date, at the option of the Electric System, on or after July 1, 2013, as a whole or in part at any time, at a redemption price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption. Government of the United States Virgin Islands Notes to Basic Financial Statements 104 Virgin Islands Water and Power Authority – Electric System Rural Utilities Service (RUS) Note In November 2015, the Electric System obtained a term loan with the RUS in the principal amount of $13.0 million. The proceeds of the loan were used to finance the acquisition and installation of an automated metering system and other costs related thereto. Under the terms of the Bond Resolution relating to the Electric System Revenue and Refunding Bonds, payment of the principal and interest is secured by an irrevocable lien on WAPA’s net revenues (exclusive of any funds which may be established pursuant to the Bond Resolution for certain other specified purposes), including the investments and income, if any, thereof. Under the General Resolution, WAPA is required to maintain a Debt Service coverage ratio of at least equal to 1.25 times the principal and interest on all Outstanding Senior Bonds for the current and each future fiscal year (the Senior Coverage). Under the Electric System Subordinated Revenue Bond Resolution, adopted by WAPA on May 17, 2007, as amended and supplemented (the Subordinated Bond Resolution), WAPA must satisfy the Debt Service coverage ratio of the General Resolution for the Senior Bonds, must maintain a Subordinated Debt Service coverage ratio at least equal to 1.15 times the principal of and interest on all Outstanding Bonds (the Senior and Subordinate Coverage) and all Outstanding Subordinated Bonds for the current and each future fiscal year, and must maintain at least 1.00 times the Maximum Aggregate Debt Service for each such fiscal year (total debt coverage). WAPA’s net electric revenues for the fiscal year ended 2020, yielded the following coverage ratios: Requirement Ratio Senior Coverage 125% 400% Senior and Subordinate Coverage 115% 270% Total Debt Coverage 100% 120% The Electric System Revenue Bonds are subject to mandatory redemption if (i) any significant part of the Electric System shall be damaged, destroyed, taken, or condemned or (ii) any for-profit, nongovernmental investor shall acquire an ownership interest in some or all the assets of the Electric System. Virgin Islands Water and Power Authority – Water System Revenue Bonds of 2018 In November 2017, in order to fund its working capital needs in the aftermath of Hurricanes Irma and Maria, the Water System obtained $31.0 million under the Community Disaster Loan program administered by FEMA. In March 2018, the Water System entered into another loan for $44.0 million and refinanced the existing $31.0 million for a combined loan of $75.0 million, secured as a first lien of the Water System’s revenues. The proceeds of these loans were used to provide working capital mostly for fuel invoices, payroll, and other critical operating expenses. While the loan is reflected under the Water System, the payment of principal and interest is subject to an intercompany agreement whereby 17.0% will be allocated to the Water System and 83.0% to the Electric System. The interest rate varies with each draw-down, ranging from 2.3% to 2.9%. The first interest payment is due July 1, 2021, with subsequent payments due semiannually. The first principal payment is due July 1, 2022, with subsequent payments due semiannually. Also see Note 19. Government of the United States Virgin Islands Notes to Basic Financial Statements 105 As a result of the disruption to the Water System’s operations from Hurricanes Irma and Maria, the Water System did not comply with certain reporting requirements. However, as per the Water System’s bond resolutions and loan agreements, this does not constitute an event of default and the Water System continues to work diligently to monitor such requirements. University of the Virgin Islands – Series A Bonds In June 2011, the University entered into two capital project loan agreements under the U.S. Department of Education’s Historically Black College and University (HBCU) Capital Financing Program for various capital projects. Under these loan agreements, the University was authorized to drawdown advances up to $44.0 million under the Series A 2011-2 Bonds and up to $16.0 million under the Series A 2011-3 Bonds. The Series A 2011-2 Bonds have maturity dates through August 1, 2034, and the Series A 2011-3 Bonds have maturity dates through August 1, 2040. Interest payments are due in February and August. Interest on the Series A 2011-2 Bonds is calculated at 3.5% and interest on the Series A 2011-3 Bonds is variable and calculated from the date of each advance using the long-term U.S. Treasury Rate on that day. In February 2015, the University obtained an additional HBCU capital loan agreement, the Series A 2015-1 Bonds, for a maximum loan amount of $19.0 million to finance various capital projects, and stated to mature on February 1, 2045. In November 2019, the University entered into an additional HBCU capital loan agreement, the Series A 2019-7 Bonds, for a maximum loan amount of $32.0 million. The proceeds from the Series A 2019-7 Bonds were utilized to refund the outstanding Bond Series A 2011-3 and Series A 2015-1. As a result, the Series A 2011-3 and Series A 2015-1 Bonds were fully paid off and the University recognized a deferred charge on debt refunding amounting to $3.5 million. Also, in November 2019, the University entered into a second HBCU capital loan agreement, the Series A 2019-8 Bonds, for a maximum loan amount of $15.0 million on which the University drew down $10.1 million for capital projects. Interest on these 2019 Bonds is variable and calculated from the date of each advance at a variable, adjustable, or floating rate. The interest rate was 2.3% as of September 30, 2020 and is paid semi-annually. During August 2020, the University's Series A 2011-2 and Series A 2019-7 Bonds were modified under the “Coronavirus Aid, Relief, and Economic Security (CARES)” Act to defer principal and interest payments retroactively to October 1, 2019. During the deferment period, the University was not required to make periodic installments of both principal and interest as required. Additionally, because of this provision, approximately $3.0 million of principal and interest payments made during fiscal year 2020 were refunded to the University during fiscal year 2021. The University’s bonds contain a provision that in the event of default, the Secretary of Education may exercise its option to declare any funds which have been provided to the borrower, and interest accrued to the debt, be immediately payable in full. The bond agreements contain certain affirmative and negative covenants, of which the University, except as noted, was in compliance with at year-end. The agreements require the University to deliver audited financial statements within 180 days after the end of its fiscal year. As a result of the disruption to the University’s operations from Hurricanes Irma and Maria along with the impact of the COVID-19 global pandemic, the lender has granted the University a waiver from this requirement for the year ended September 30, 2020. Government of the United States Virgin Islands Notes to Basic Financial Statements 106 Virgin Islands Port Authority – Series A, B, and C Revenue Bonds of 2014 (unaudited) In October 2014, VIPA issued the 2014 Series Revenue Bonds A, B & C amounting to $48.6 million, with an average interest rate of 4.7%. A portion of the proceeds was used to refund the outstanding bond series 2003 A and C amounting to $24.5 million, which included accrued interest as of the redemption date for October 27, 2014. The proceeds from the issuance of the 2014 Series used in the refunding were deposited in an escrow account, held by the Trustee on behalf of the holders of the refunded bonds, and applied to such redemption contemporaneously with the issuance of the Series 2014 Bonds. As a result, the 2003 A & C Bonds were paid off. The 2003 Series B Marine Revenue Bonds were also paid off. VIPA reduced its total debt service requirement by $1.7 million, which resulted in an economic gain (difference between the present value of the debt service payments on the old and new debt) of $2.4 million. In addition, VIPA recognized a deferred charge on debt refunding amounting to $0.4 million. The proceeds of the 2014 Bonds, together with certain other available funds of VIPA, were used for: (i) refunding $24.5 million in 2003 Series A Marine Revenue bonds and pay off the 2003 Series bonds; (ii) for the financing of various capital projects; (iii) to fund a deposit to the debt service fund; (iv) to fund a deposit to the operation, maintenance, renewal and replacement reserve account; and (v) to pay the cost of issuance of the 2014 Bonds. The 2014 bonds issued by VIPA contain certain bond indentures. The bonds’ indentures contain certain account restrictions and funding covenants to cover interest, debt service, maintenance and other costs specified in the corresponding indentures. The bonds’ indentures also specify certain debt service coverage requirements determined from Net Available Revenues (as defined) of the Marine Division. Future debt service requirements for discretely presented component units’ bonds payable are as follows (expressed in thousands): Principal Interest Maturity Year: 2021 $ 64,770 $ 14,847 2022 19,417 18,686 2023 24,817 16,654 2024 27,942 13,061 2025 28,679 11,872 2026-2030 126,225 41,711 2031-2035 95,116 16,555 2036-2040 22,328 5,086 2041-2045 15,899 2,342 2046-2049 11,996 577 Total 437,189 $ 141,391 Plus, unamortized premium 3,822 Bonds payable, net $ 441,011 Government of the United States Virgin Islands Notes to Basic Financial Statements 107 (b) Notes Payable Virgin Islands Port Authority (unaudited) In April 2020, VIPA obtained a short-term note for $5.3 million with interest at a 4.6% annual rate. This note has a 9-month maturity and is due December 2020. This note was used to finance VIPA’s insurance premiums. The outstanding balance of $1.2 million was paid off in December 2020. University of the Virgin Islands In 1994, the University was advanced a mortgage note payable by the U.S. Department of Education with a maximum principal of $2.2 million. The note is payable in semi-annual installments of $75,000, including interest, over a term of 30 years and bears interest at an annual rate of 5.5%. The note is secured by a general obligation of the Government of the U.S. Virgin Islands. In September 2018, the University extended its loan agreement with First Bank for $30.0 million to assist in establishing a School of Medicine. Initially, the loan was a non-revolving line of credit and converted into a general obligation note “Series 2018”. The note bears interest at the JP Morgan Chase Prime Rate plus 70 basis points, subject to a minimum interest rate of 3.95% each month thereafter until payment of the principal on or before September 2021. Also see Note 19. The general obligation note payable with First Bank requires the University to deliver audited financial statements within 90 days after the end of its fiscal year and maintain a minimum Debt Service Coverage Ratio (DSCR) of 1.25. The lender has granted the University a waiver from the reporting requirement for the year ended September 30, 2020. The University was not in compliance with the DSCR as of September 30, 2020. The agreement considers any noncompliance of the covenants as default. However, as of report date and as further discussed in Note 19, the University repaid the outstanding balance thereby, documenting the close of the general obligation note. UVI Research and Technology Park Corporation (unaudited) In February 2013, RTPark obtained a $3.0 million loan from a member. A portion of the loan proceeds was used to repay a previous loan from the University to complete construction on 64 West Center. This loan has a 6.8% interest rate and is payable over 15 years. The loan is secured by RTPark’s tangible and intangible property. In March 2015, RTPark settled an on-going dispute with a member through arbitration for $1.5 million. RTPark obtained a $1.5 million loan from the Foundation of the University to pay the settlement amount. The loan is payable over 7 years at a 5.0% interest rate. In June 2016, RT Park entered into $1.2 million notes payable arrangement with the University for repayment of administrative expenses incurred prior to 2014. The notes payable have a 2.4% interest rate and are payable over six years. Interest is deferred on the note until May 31, 2023. Government of the United States Virgin Islands Notes to Basic Financial Statements 108 (c) Line of Credit Payable Virgin Islands Water and Power Authority As of June 30, 2020, the Electric System of WAPA has available bank lines of credit for $13.0 million for capital projects and $20.0 million for working capital purposes. In addition, the Electric system has an unused credit facility reimbursement note for $1.0 million. Interest on amounts borrowed is payable quarterly at a variable interest rate of prime plus 0.50%, or 90-day London Interbank Offered Rate (LIBOR) plus 3.5-4.5%. The Electric System has the option to select the variable interest rate to utilize for any borrowings on these notes. At June 30, 2020, there was $33.3 million outstanding under the lines of credit. The lines were extended to have a maturity of July 2022. Furthermore, there are certain financial reporting covenants that the Electric System must comply with. The agreements require the Electric System to deliver audited financial statements within 180 days after the end of its fiscal year. The banks have granted the Electric System a waiver from this requirement for the fiscal year ended June 30, 2020. As of June 30, 2020, the Water System of WAPA has available bank lines of credit of $2.3 million. Interest on amounts borrowed is payable quarterly at a variable interest rate of prime plus 0.5%, or the 90-day London Inter-Bank Offer Rate (LIBOR) plus 4.5%. The Water System has the option to select the variable interest rate to utilize for any borrowings on these notes. At June 30, 2020, there was $2.7 million outstanding under the lines of credit. The lines were extended to have a maturity of July 2022. Furthermore, there are certain financial reporting covenants that the Water System must comply with. The agreements require the Water System to deliver audited financial statements within 180 days after the end of its fiscal year. The banks have granted the Water System a waiver from this requirement for the year ended June 30, 2020. Virgin Islands Waste Management Authority On December 31, 2018, VIWMA entered into a secured credit agreement (Agreement) consisting of a $4.0 million revolving credit facility. The maturity date of the Agreement is every 12 months. The Agreement was established to supplement any delays in receiving monthly and quarterly allotments from the Government and reimbursements for allowable expenses related to federal programs. The Agreement is secured by certificates of deposit in the amount of $4.0 million, which have been assigned to the bank and are available at all times to be held as collateral for the repayment of outstanding loan balances and related costs. The credit facility bears an interest rate of 2.5% per annum. The Agreement contains various customary representations, warranties, and covenants by VIWMA. VIWMA believes it was in substantial compliance with the various covenants as of September 30, 2020. 11. Refundable Advance The PG received an advance of $74.8 million from the U.S. Department of Treasury as part of the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” During fiscal year 2020, the PG incurred expenditures of $35.7 million for eligible program activities, including subawards and payroll disbursements and has reflected the unspent balance of $39.1 million as a refundable advance. Government of the United States Virgin Islands Notes to Basic Financial Statements 109 12. General Tax Revenue For the year ended September 30, 2020, general tax revenue of the PG consisted of the following (expressed in thousands): General PFA Debt Service Other Governmental Total Income taxes $ 479,294 $ - $ - $ 479,294 Real property taxes 46,149 - 6,491 52,640 Gross receipts taxes 5,000 249,550 250 254,800 Excise taxes 152,429 108,408 4,559 265,396 Other taxes 57,808 - 6,303 64,111 $ 740,680 $ 357,958 $ 17,603 Tax revenue recognized on the full accrual basis 85,418 Total tax revenue – government-wide $ 1,201,659 Government of the United States Virgin Islands Notes to Basic Financial Statements 110 13. Governmental Fund Balances Following is a detail of the aggregated fund balances presented in the Balance Sheet – Governmental Funds as of September 30, 2020, (expressed in thousands): General PFA Debt Service PFA Capital Projects Federal Grants Other Governmental Total Restricted for: Debt service $ - $ 299,637 $ - $ - $ - $ 299,637 Capital projects - - 107,475 - - 107,475 General government - - - 63,512 (12,948) 50,564 Health - - - - 3,832 3,832 Public housing and welfare - - - - 5,708 5,708 Transportation and communication - - - - 5,245 5,245 Culture and recreation - - - - 8 8 Total - 299,637 107,475 63,512 1,845 472,469 Committed to: General government 31,374 - - - - 31,374 Public safety - - - - 17 17 Public housing and welfare - - - - 177 177 Transportation and communication - - - - 13,575 13,575 Culture and recreation - - - - 327 327 Total 31,374 - - - 14,096 45,470 Assigned to: General government 1,425 - - - 122,705 124,130 Public safety - - - - 1,560 1,560 Health - - - - 5,676 5,676 Public housing and welfare - - - - 7,071 7,071 Education - - - - - - Transportation and communication - - - - 9,732 9,732 Culture and recreation - - - - 1,196 1,196 Total $ 1,425 $ - $ - $ - $ 147,940 $ 149,365 Unassigned $ (11,032) $ - $ - $ (211,529) $ (70,544) $ (293,105) Total Funds Balances $ 21,767 $ 299,637 $ 107,475 $ (148,017) $ 93,337 $ 374,199 The committed and assigned fund balances include approximately $194.8 million in unexpended encumbrances. Encumbrances are utilized to determine commitments related to unperformed (executor) contracts for goods and services and to prevent the over-spending of an appropriation. Government of the United States Virgin Islands Notes to Basic Financial Statements 111 14. Commitments and Contingencies Primary Government (a) Collective Bargaining Agreements Currently, the Government has union contracts with thirteen (13) distinct labor organizations representing government employees in various bargaining units. Collectively, these bargaining units have approximately thirty-six (36) collective bargaining agreements in existence. Nine (9) bargaining units have not negotiated a collective bargaining agreement with the Government. Employees in the various bargaining units are not under a single pay plan. Consequently, it is common to have employees performing the same classification of work in different departments and agencies. Of the approximately 6,500 government workers, approximately 4,300 are union members. U.S. Virgin Islands statutes governing bargaining with unions requires arbitration in the event an impasse is reached in negotiations. Under this process, each side chooses an arbitrator, and a third impartial arbitrator is selected by the chosen arbitrators. The arbitration panel investigates and reviews the issues in dispute and renders a final and binding decision. As of September 30, 2020, the Government has contractual liabilities for retroactive union arbitration salary payments estimated at $195.3 million accruing from fiscal years 1993 through 2010, as established by the Virgin Islands Retroactive Wage Commission. Under Title 24, Section 374(h) of the V.I. Code, the PG may not make any payments of retroactive salaries until there is an appropriation of funds by the Legislature of the Virgin Islands. (b) Federal Assistance Programs The Government receives financial assistance from the Federal government in the form of loans, grants, and entitlements. Monetary and nonmonetary federal financial assistance to governmental funds amounted to approximately $612.6 million and $62.8 million, respectively, for the year ended September 30, 2020. Receipt of grants and loss reimbursements is generally conditioned upon compliance with terms and conditions of the grant agreements and applicable federal regulations, including the expenditure of resources for eligible purposes. Substantially all grants are subject to audit under U.S. Office of Management and Budget’s Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Disallowances because of these audits may become liabilities of the Government. The Government is also a recipient of disaster recovery funds as a result of the September 2017 hurricanes. Audits of disaster recovery funds may continue for decades, and federal reimbursements may be required to be repaid because of federal audits. Also see Note 19. Management of the Government believes that the future outcome of any changes in federal financial assistance programs will not have a material adverse effect on the basic financial statements. Government of the United States Virgin Islands Notes to Basic Financial Statements 112 (c) U.S. Department of Education Special Conditions Since 2006, in accordance with special conditions imposed by the U.S. Department of Education (USED), the Government has contracted with a third-party fiduciary agent to ensure that the Government manages and administers USED grants in accordance with applicable federal and financial management requirements. The special conditions also require the Government to submit quarterly reports on progress in improving all aspects of the fiscal management of federal education grants. The U.S. Virgin Islands has implemented a Self-Contained Model known as the Federal Grants Specialized Processing Unit to address the special conditions and as the approach for reassuming management of the grant funds. (d) U.S. Department of Labor Designation On February 3, 2017, the Virgin Islands Department of Labor was placed on high-risk grantee status by the U.S. Department of Labor. High-risk grantee status is an administrative designation used by federal agencies to indicate unsatisfactory performance in the management of federal grants. Management is currently working with the U.S. Department of Labor to implement corrective action. (e) Legal Proceedings and Litigation Claims The Government is a defendant in numerous legal proceedings pertaining to matters incidental to the performance of routine governmental operations. Under Title 33, Section 3411(c) of the V.I. Code, no judgment shall be awarded against the Government that exceeds $25,000 for tort claims filed under Government statutes. In cases involving several survivors, each award must be construed separately for purposes of applying the limitation upon recovery imposed by the Tort Claims Act. Under Title 27, Section 166(e) of the V.I. Code, the Government’s waiver of immunity is expanded to $250,000 for medical malpractice actions, including actions for wrongful death based on malpractice. Under certain circumstances, as provided in Title 33, Section 3414 of the V.I. Code, the Government may assume the payment of a judgment entered against an officer or employee who acted reasonably and within the scope of his/her employment. The Government may pay up to a maximum amount of $100,000 of the settlement. With respect to pending and threatened litigation, the Government has accrued a provision for legal claims and judgments of approximately $18.1 million for awarded and anticipated unfavorable judgments as of September 30, 2020. Changes in the reported provision for legal claims during September 30, 2020, resulted from the following activity (expressed in thousands): Beginning Balance at October 1, 2019 New Claims Claims Payments and Changes in Estimates Ending Balance on September 30, 2020 Provision for legal claims $ 21,220 $ 387 $ (3,549) $ 18,058 Government of the United States Virgin Islands Notes to Basic Financial Statements 113 The breakdown of the provision for legal claims on September 30, 2020, as reflected in governmental activities, is as follows (expressed in thousands): Current portion $ 5,009 Long-term portion 13,049 $ 18,058 (f) Landfill Closure and Post-Closure Costs Federal laws and regulations, including the Clean Air Act, 42 U.S.C. § 7401 et seq. (CAA), and regulations promulgated thereunder, including the federal standards set forth in 40 C.F.R. Part 62, Subpart GGG (Federal Plan), and the National Emission Standards for Hazardous Air Pollutants for Municipal Landfill Maximum Achievable Control Technology, set forth in 40 C.F.R. Part 63, Subpart AAAA (Landfill MACT), and the Solid Waste Disposal Act, 42 U.S.C. § 6901 et seq. (RCRA), and regulations promulgated thereunder, including federal municipal solid waste landfill operating, closure, and post-closure criteria set forth in 40 C.F.R. Part 258, and three EPA administrative orders issued pursuant to RCRA § 7003(a), 42 U.S.C. § 6973(a), and Territorial laws and regulations, including V.I. Code Title 19, Chapter 56 (Solid and Hazardous Waste Management), Title 12, Chapter 9 (Air Pollution Control), and Title 12, Chapter 21 (Virgin Islands Coastal Zone Management), and regulations promulgated thereunder, require the Government to construct and operate certain environmental control systems and otherwise comply with certain requirements during operation of each of its landfill sites, properly close the site (including placement of a final landfill cover) when the landfill (or portion thereof) stops accepting waste, and perform certain post-closure maintenance and monitoring functions at the site for 30 years following closure. Compliance costs during the operational phase will be paid prior to closure. Although closure and post-closure costs will be paid only near or after the date that the landfill stops accepting waste, the Government reports a portion of these closure and post-closure care costs as an operating expense in each period based on landfill capacity used as of each statement of net position date. The $109.4 million reported as landfill compliance, closure, and post-closure care liability on September 30, 2020, represents the cumulative amount reported to date based on the use of the estimated capacity of each landfill. The Government will recognize the remaining estimated cost of closure and post-closure care as the remaining estimated capacities are filled. These amounts are based on what it would cost to perform all closure and post-closure care as of September 30, 2020. The estimated used capacity and expected closure of each of the Government’s landfills is as follows: Landfill Estimated Used Capacity Estimated Closure Date Bovoni 99% 2022 Anguilla 97% 2021 Susannaberg 100% Closed The actual cost to perform closure and post-closure may be higher due to inflation, changes in technology, or changes in regulations. The Government is required by state and federal laws and regulations to make annual contributions to a trust to finance closure and post-closure care. Government of the United States Virgin Islands Notes to Basic Financial Statements 114 The Government began making annual contributions to a trust in fiscal year 2007 to finance closure and post-closure costs. The Government expects that future inflation costs will be paid from interest earnings on these annual contributions and other financing measures. However, if interest earnings and financing measures should prove to be inadequate, or additional post-closure care requirements are determined due to changes in technology or applicable laws or regulations, these costs may need to be recovered through charges to future landfill users. (g) Wastewater Treatment Plant Consent Decree Since 1985, the Government has been subject to a consent decree issued by the Virgin Islands District Court, governing the operation of its wastewater treatment plants. The consent decree was amended in 1996 and further modified with the 2002 Stipulation to the Amended Consent Decree (the Stipulation) to establish deadlines for the construction of new secondary treatment facilities, including the replacement of the existing St. Croix and Airport Lagoon (Charlotte Amalie) wastewater treatment plants. The Stipulation required that the new St. Croix wastewater treatment plants be completed by the end of 2006 and the new Charlotte Amalie wastewater treatment plants be completed by the end of 2007. The cost of both facilities was estimated at approximately $50.0 million. In January 2004, the Government’s Legislature authorized the creation of the VIWMA for the purpose of meeting environmental requirements of wastewater treatment in the U.S. Virgin Islands. On December 2004, PFA issued revenue bonds amounting to $94.0 million for the purpose of constructing and rehabilitating wastewater treatment plants. The treatment facilities were completed in July 2007 and January 2008 at a cost of approximately $27.0 million and $29.0 million for the St. Croix and the St. Thomas treatment facilities, respectfully. The Stipulation also establishes specified penalties for violation of any of the deadlines or performance standards set forth therein. As of the date of the basic financial statements, the Government is current on all its outstanding obligations pursuant to the Stipulation. (h) Memorandum of Understanding – EPA On August 21, 2002, the Government and the U.S. Environmental Protection Agency (EPA) entered into a memorandum of understanding documenting the EPA’s agreement to support the renewal of the Territorial Pollutant Discharge Elimination System (TPDES) permit for its St. Croix distillery operations provided that the Government make certain funding available to (i) conduct treatability studies regarding the Virgin Islands Rum Industries, Ltd. (Cruzan Rum) effluent and the means to mitigate its potential environmental effects in the vicinity of the discharge; (ii) identify practicable, available, reliable, and cost-effective potential mitigation measures; and (iii) implement (or assist in the implementation of) such mitigation measures in the event such measures are determined by the Virgin Islands Department of Planning and Natural Resources after consultation with EPA to be necessary and appropriate. Pursuant to the memorandum of understanding, the Government’s obligation to fund such activities is limited to $6.0 million in the aggregate, commencing on October 13, 2003. Subsequently, the Government entered into a three-year contract with a locally licensed environmental consulting firm to facilitate the Government’s commitments with the memorandum of understanding with the EPA. Government of the United States Virgin Islands Notes to Basic Financial Statements 115 At the conclusion of the MOU treatability study period, the PG agreed to reissue the TPDES permit to Cruzan Rum in 2008 with the requirement that the rum distillery design and construct a treatment facility for the rum distillery effluent within three years. PFA issued the Series 2009 Cruzan Bonds to fund the treatment facility which is currently operating under a 2013 TPDES permit. (i) Workers’ Compensation Liability The Government is exposed to risk of loss related to workers’ compensation claims. The Government is self-insured for this risk. Self-insured risk liabilities are reported when it is probable that a loss has occurred, and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. Because actual claims liabilities depend upon such complex factors as inflation, changes in legal doctrines, and damage awards, the process used in computing claims liabilities does not necessarily result in an exact amount. Claims liabilities are reevaluated periodically to take into consideration recently settled claims, the frequency of claims, and other economic and social factors. Changes in the workers’ compensation liability amount in fiscal year 2020, as recorded in the Government Insurance Fund, are as follows (expressed in thousands): September 30, Claims payable, beginning of year $ 59,458 Incurred claims and changes in estimates 4,494 Payments for claims and adjustments expenses (6,025) Claims payable, end of year $ 57,927 (j) Bond Credit Ratings In August 2017, Fitch Ratings downgraded the Matching Funds Revenue and Gross Receipts Revenue debt to B from BB-. In the same month, the Government stopped providing information to Standard & Poor’s necessary to evaluate the Government’s liquidity, and that rating agency withdrew its credit ratings for the U.S. Virgin Islands in October 2017. In January 2018, Moody’s Investors Service Ratings downgraded the Matching Funds Revenue Bonds as follows: Senior Lien Bonds to Caa2 from Caa1; Subordinate Lien Bonds to Caa3 from Caa1; Subordinated Indenture (Diageo) Bonds to Caa3 from Caa2; and Subordinated Indenture (Cruzan) Bonds to Caa3 from Caa2. The downgrade in rating was due to the insolvency of the Territory’s pension system and the projected economic effect of Hurricanes Irma and Maria. In December 2019, Standard & Poor’s Global Ratings revised its outlook from negative to stable and affirmed its A rating on the outstanding grant anticipation revenue bonds (Series 2015 bonds). In January 2020 and October 2021, Moody’s Investors Service confirmed as “stable” the Caa3 rating of the Government’s bonds. Government of the United States Virgin Islands Notes to Basic Financial Statements 116 (k) Operating Agreement – Limetree Bay Terminals, LLC In January 2012, Hess Oil Virgin Islands Corporation (Hess Oil) announced that it would close its oil refinery on the island of St. Croix and the facility would serve as a storage terminal. The company amended tax returns for the three years before the closing, and a legal dispute arose with the Government over amounts due to, or from, the company in connection with the amended returns and other requirements of Hess Oil’s agreement with the Government. On December 1, 2015, the Government settled its dispute with Hess Oil. The company agreed to transfer to the Government 330 acres of land near the oil terminal (estimated value $21.0 million), 130 housing units at the oil terminal (estimated value $27.0 million), and a vocational school and a community center (both estimated at a value of $1.0 million) for a payment in lieu of taxes (PILOT) valued at $50.0 million. On December 1, 2015, the Government entered into an operating agreement with the new operator of the oil terminal, Limetree Bay Terminals, LLC (Limetree). Limetree agreed to investigate refurbishing and reopening the terminal, with an investment of $125.0 million. In December 2015, Limetree paid $220.0 million as a payment in lieu of taxes, $9.0 million as a reimbursement for contingent claims, and agreed to invest $6.0 million in the construction of a bitumen tank at the facility. As part of the operating agreement, Limetree receives exemption from property taxes, income taxes, and local taxes. Limetree will be subject to a concession payment of 10.0% of terminal revenues. Should the oil refinery reopen, Limetree will be required to pay concession fees of 17.5% of refinery income to the Government on a quarterly basis. If there is a change in the control of Limetree, the Government is to receive 10.0% of the transaction value of the exchange, not to be less than $25.5 million. In December 2018, Limetree obtained $1.3 billion in financing to reopen the oil refinery operation. Upon closing, the Government received $40.0 million in short-term financing and $30.0 million in payment for the 130 housing units, vocational school, and community center at the oil refinery. Also see Note 19. (l) Professional Services for Recovery Efforts In November 2017, PFA entered into a professional services contract on behalf of the primary Government. The purpose of the contract was to coordinate recovery efforts with FEMA and other federal agencies following the two Category 5 hurricanes in September 2017. The initial contract provided for annual compensation not to exceed $5.0 million, a term of five years from November 30, 2017, and provisions for the parties to extend the contract in two-year increments by mutual agreement. In February 2018, the contract was amended to revise the scope of work and increase the compensation of the contract to $10.0 million annually, retroactive to November 2017. In August 2018, a second amendment was added containing provisions required by federal regulations for the Community Development Block Grants – Disaster Relief Program. In December 2018, a third amendment was added to retroactively increase the annual compensation to $16.0 million through November 30, 2018. The temporary increase of $6.0 million was due to the Government’s aggressive campaign to identify, assess, secure, and manage a larger percentage of the available resources and funding from FEMA and other federal agencies, through November 30, 2018. Effective December 1, 2018, the contract was returned to an annual amount of $10.0 million. Government of the United States Virgin Islands Notes to Basic Financial Statements 117 Also, in November 2017 and on behalf of the Government, PFA entered into a second professional services contract to coordinate recovery efforts. The competitive bid contract was for a term of five (5) years following the effective date of the contract and may be extended in two (2) two-year increments for a maximum term of nine (9) years. Compensation under the agreement was capped at $15.0 million annually including out-of-pocket expenses. In April 2018, the contract was amended to increase the compensation amount to $50.0 million annually, retroactive to November 2017. The increase is described in the amendment as due to an increase in the demands of the Government’s aggressive campaign to identify, access, secure and manage a larger percentage of the available federal resources and funding from FEMA and other federal agencies. In September 2018, the contract was amended a second time to increase the compensation amount to $80.0 million annually, retroactive to November 30, 2017. The increase is described in the amendment as due to the exhaustion of the $50.0 million, and the continuing aggressive campaign to obtain federal funding following the hurricanes. In December 2018, the contract was amended a third time to increase the contract amount temporarily to $85.0 million through November 30, 2018. Effective December 1, 2018, the contract amount returned to the $80.0 million as specified in the second amendment. As of September 30, 2020, the amount due to the disaster recovery consultants related to these contracts was $113.9 million. Also see Note 19. On May 4, 2018, PFA entered into Memorandums of Understanding (MOU) with WAPA and with VIHFA, autonomous instrumentalities of the Government for disaster recovery consulting. The MOUs terminate at the expiration of the contract between PFA and the disaster recovery consultants. Invoices from the disaster recovery consultants are received by PFA, provided to WAPA and VIHFA for approval, and remitted back to PFA for submittal to federal grantors and payment. (m) Molasses Subsidy Fund The Government maintains a program, established pursuant to law, in which it provides a subsidy to stabilize the cost of molasses to the U.S. Virgin Islands rum producers to ensure the competitive pricing of rum produced in the U.S. Virgin Islands. The effect of the molasses payments is to maintain the competitive position of the U.S. Virgin Islands rum producers relative to the rum producers in other countries in which local molasses supplies are readily available. The molasses subsidy is administered by the Commissioner of Finance through the establishment of a legislatively mandated Molasses Subsidy Fund. In the event of a deficiency in the Molasses Subsidy Fund, the Commissioner of Finance could seek legislative appropriation of additional funds, as required, from the Legislature of the Virgin Islands. The Legislature, however, is not obligated to appropriate such amounts. Notwithstanding the Government’s past financial difficulties, the Legislature of the Virgin Islands has not yet waived or reduced the Molasses subsidy. If such an event should occur, the rum producers could experience a decrease in their operations, and therefore result in a reduction of the federal excise taxes returned to the Government by the United States Government. On December 18, 2015, Congress retroactively extended the $13.25 per proof gallon rum excise tax rate from January 1, 2015 through December 31, 2016, with the Protecting Americans from Tax Hikes (PATH) Act. The Tax Cuts and Jobs Act passed by Congress in December 2017 retroactively extended the $13.25 per proof gallon rum excise tax rate from January 1, 2017 to December 31, 2021. In line with this Act, the $13.25 per proof gallon rate ended on December 31, 2021, and the original $10.50 rate went back into effect on January 1, 2022. Government of the United States Virgin Islands Notes to Basic Financial Statements 118 Pension Trust Fund (a) Pension Reform In response to a recommendation in a September 27, 2011, audit report from the Office of the Inspector General and U.S. Department of Interior, the PG formed a Pension Reform Joint Task Force (the Task Force) to address the declining fiscal condition of the GERS. The Office of the Inspector General’s audit report had concluded that, due to insufficient contribution levels and an unbalanced ratio of active to retired members, the retirement system of the U.S. Virgin Islands may default as soon as the years 2024-2025. The Task Force has submitted recommendations to the Legislature of the Virgin Islands to: (i) increase government and employee contributions towards pension benefits; (ii) raise contribution rates for senators and judges; (iii) reduce retiree current benefits by 10.0%; (iv) increase the early retirement age from fifty (50) to fifty-five (55) and the regular retirement age from sixty (60) to sixty-five (65); (v) limit the cost-of-living increase; and (vi) change the formula used to calculate benefits. On February 5, 2015, GERS increased employee contribution rates by 1.0% to be implemented over a three-year period, and increased employer rates from 17.5% to 20.5%. On January 1, 2020, GERS increased employer contributions to the pension plan by 3.0% from 20.5% to 23.5%. In March 2016, the Office of the Virgin Islands Inspector General issued a report on the alternative investment program administered by GERS. The report concluded that the non-traditional investments of the retirement system were subject to higher risks than other GERS assets. In September 2016, GERS sponsored a public summit to present projections of investment returns and future benefit payments for the system. The actuarial valuation and review of the pension plan as of October 1, 2019, projected the assets of GERS may be depleted by October 2024 and GERS may be unable to pay full benefits at an earlier date. Also see Note 19. Component Units (a) Virgin Islands Waste Management Authority On October 26, 2016, the VIWMA entered into a Memorandum of Understanding (MOU), to comply with a September 28, 2016, order by the District Court to establish a Landfill/Solid Waste Remediate Fund (the Fund) to pay for urgent projects at the landfills required under Consent Decrees entered into with the U.S. Environmental Protection Agency. The order by the District Court stipulates that the Fund be managed by the VIWMA through a separately established escrow account in the amount of $3.1 million, and that all landfill projects be completed on or before September 30, 2018. As of September 30, 2020, the amount remaining in the escrow account was $418,000. (b) Virgin Islands Water and Power Authority – Electric System In connection with certain FEMA overpayments related to the 1989 Hurricane Hugo, the Electric System recorded a liability of $4.1 million as of June 30, 2020. Currently FEMA and its subrecipient, the PG, do not have a mechanism for recovering overpayment of disaster-related funds. Government of the United States Virgin Islands Notes to Basic Financial Statements 119 FEMA has not made a request for repayment of the funds and in the Electric System’s management’s opinion, the matter will not have a material effect on the Electric System’s changes in financial position or cash flows. In October 2008, the Electric facilities were impacted by Hurricane Omar. Most of the damage was inflicted to the electric distribution system on the island of St. Croix with minimal damage on St. Thomas, St. John, and Water Island. The Electric System expended $2.7 million for storm cleanup and system restoration as of June 2010. The Territory was declared a federal disaster after the hurricane and was eligible for reimbursement of 75.0% of what was expended according to the category of the damage. As of June 30, 2020, the Electric System has recorded a grant receivable from FEMA amounting to approximately $1.0 million. In August 2010, the Electric facilities were damaged by Hurricane Earl. The damage was inflicted on the electric distribution system on all of the islands of the Territory. The Electric System expended over $2.0 million for storm clean-up and restoration, which was completed by the end of October 2010. The Territory was declared a federal disaster area after the hurricane and was eligible for reimbursement of 75.0% - 80.0% of what was expended according to the category of damage. As of June 30, 2020, the Electric System has recorded a grant receivable from FEMA amounting to approximately $1.3 million. In the aftermath of Hurricanes Irma and Maria in September 2017, catastrophic damage to the Electric System rendered 90.0% of the system destroyed. The Electric System had purchased commercial insurance to cover the risk of loss from destruction of assets. The commercial insurance carried a $5.0 million deductible per event. The transmission and distribution system which sustained the most damage is not covered under this policy. Initially, the Electric System did not file a claim as the estimated damage to insurable assets was less than the $5.0 million deductible. However, on September 6, 2019, the Electric System filed suit against the insurers for damages related to the storms, including compensatory and punitive damages. As of the date of the basic financial statements, the resolution of the suit remains pending. In 2012, the Electric System leased a temporary 22-megawatt mobile power plant for $14.6 million for eighteen (18) months through October 2013. The lease has since been reevaluated and extended for short term periods (between 2 to 12 months) with the final extension through December 31, 2020. Also in May 2019, another temporary unit was leased from a different vendor for an initial period of 104 weeks and starting in June 2020, an additional unit was leased for a period of two (2) years. Total lease payments for the fiscal year ended June 30, 2020 was $11.7 million. WAPA has signed purchase power agreements with several companies to integrate a combined 18- megawatt of solar electricity into the Electric System’s electrical grid system. The agreements expire between 2022 and 2027. WAPA will not own the solar assets but will be able to purchase solar generated electricity at contracted rates. In April 2020, the Electric System amended its Memorandum of Agreement (MOA) with viNGN, another instrumentality of the PG. As part of the original agreement, exclusive use of certain underground fiber and infrastructure owned by the Electric System was provided for use by viNGN. Following Hurricanes Irma and Maria, the Electric System obtained federal funding for the hardening of its infrastructure. Government of the United States Virgin Islands Notes to Basic Financial Statements 120 The MOA was amended to provide viNGN a continuous and exclusive right to use future telecommunications fiber and spare underground or subsea conduit owned by the Electric System. (c) Virgin Islands Water and Power Authority – Water System In 2011, the Water System of WAPA entered into two agreements with Seven Seas Corporation to build, operate, and maintain two reverse osmosis facilities, one on St. Croix and one on St. Thomas, and sell the water from the facilities to WAPA. The agreements both have twenty (20) year terms expiring through 2032. The amount paid to Seven Seas Corporation by the Water System for the fiscal year ended June 30, 2020, amounted to $9.9 million. (d) Virgin Islands Port Authority (unaudited) The Federal Aviation Administration (FAA) conducted an onsite wildlife evaluation of the landfill, nearby airport, and surrounding area of the Anguilla Landfill of St. Croix. Flocks of birds nesting at the landfill had created environmental and navigational concerns at the Henry E. Rohlsen airport. FAA threatened to force VIPA to repay federal grants amounting to $9.3 million if remediation steps were not taken. The landfill is under the jurisdiction of the VIWMA. VIPA and VIWMA proposed a compliance and mitigation plan in 2013 which was accepted by FAA and VIPA is eligible for FAA grants. (e) Governor Juan F. Luis Hospital and Medical Center The Governor Juan F. Luis Hospital and Medical Center previously held an equity ownership with a radiology practice within the hospital. The radiology practice paid rent to the hospital and the hospital paid for service to hospital patients. As of September 30, 2020, the hospital owed the radiology practice $8.6 million in unpaid invoices for hospital patients. (f) Other Various discretely presented component units are presently defendants or codefendants in various lawsuits. The financial managers of the component units have advised the PG that any adverse outcome involving a material claim is expected to be substantially covered by insurance. Government property is exempt from lien, levy, or sale due to court judgments under the V.I. Code. Global Pandemic In March 2020, the Governor of the U.S. Virgin Islands declared a state of emergency due to the coronavirus pandemic known as COVID-19. The state of emergency was approved by the President of the United States under the provisions of the Stafford Act and the National Emergencies Act. A Federally approved state of emergency activates federal assistance to states in the form of financial, logistical, and technical assistance. The state of emergency also activates other emergency response protocols and systems to protect citizenry such as stay-at-home orders, travel restrictions, and social distancing requirements. As the emergency measures are eased, management continues to actively monitor the evolving impact of the COVID-19 outbreak on its financial condition, including the duration of the closings, speed of recovery, and impact on demand. Management further continues to identify and implement various additional mitigation efforts to minimize the impact on results of operations, financial position, and liquidity. Government of the United States Virgin Islands Notes to Basic Financial Statements 121 Also, in March 2020, the President of the United States signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, appropriated funds for the Coronavirus Relief Fund to be used to make payments for specified uses to state, territorial, local, and tribal governments. For the fiscal year ended September 30, 2020, the Government reported $103.4 million as an other item in the accompanying Statement of Activities. Also see Note 19. 15. Retirement Systems Primary Government Following is a description of the pension plan and accounting for pension expense, liabilities, and deferred outflows/inflows of resources. As required, the Government follows the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27, as amended by GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date – an amendment of GASB Statement No. 68 and GASB Statement No. 82, Pension Issues – an amendment of GASB Statements No. 67, No. 68, and No. 73. (a) Plan Description and Benefits Full time employees of the Government are members of Government Employees’ Retirement System of the U.S. Virgin Islands (GERS), a cost sharing, multiple-employer, defined benefit pension plan (the plan) established as of October 1, 1959, Title 3, Chapter 27 of the V.I. Code to provide retirement, death, and disability benefits. Benefits may be extended to beneficiaries of plan members. The plan covers all employees of the Government except employees compensated on a contract fee basis, casual, per diem or provisional and part time employees who work less than twenty (20) hours per week. Persons over the age of fifty-five (55) may opt out of the plan by providing formal notification to the plan. Vesting of benefits occurs after ten (10) years of service. There are two tiers within the plan: Tier 1: Employees hired prior to September 30, 2005 Tier 2: Employees hired on or after October 1, 2005 Regular Tier 1 employees who have completed thirty (30) years of credited service or have attained age sixty (60) with at least ten (10) years of credited service are eligible for a full-service retirement annuity. Regular Tier 2 employees who have attained age sixty-five (65) with at least ten (10) years of service are eligible for a full-service retirement annuity. Members who are considered "safety employees " as defined in the Code are eligible for full-service retirement benefits under Tier 1 when they have earned at least twenty (20) years of government service or have reached the age of fifty-five (55) with at least ten (10) years of credited service. Under Tier 2, safety employees are eligible for full retirement when they have earned at least twenty-five (25) years of government service and have reached age fifty-eight (58) or have reached age (60) with at least ten (10) years of service. Government of the United States Virgin Islands Notes to Basic Financial Statements 122 Members of the Legislature of the Virgin Islands and Judges may receive a retirement annuity when they have attained age fifty (50) and upon completion of six (6) years of credited service as a member of the legislature or at any age with at least twenty (20) years of service. Judges are eligible for full retirement benefits when they have attained age fifty (50) and have completed six (6) years of service. The monthly annuity benefit payment is determined by applying a stipulated benefit ratio to the member’s average compensation. Average compensation for regular and safety Tier 1 members is determined by averaging the five highest years of credited service within the last ten years of service, subject to the maximum salary limitations in effect during such service. Average compensation for regular and safety Tier 2 members is based on career average salary, subject to the maximum salary limitations in effect during the service. The maximum annual salary that can be used in this computation for regular and safety employees is $65,000. For members of the Legislature of the Virgin Islands and Judges, the average compensation varies based on the year of service. In 1995, the Early Retirement Incentive Training and Promotion Act was amended by the Legislature of the Virgin Islands to allow a member with a combined aggregate number of years of service and age of at least seventy-five (75) years to retire without a reduction in their annuity. Early retirement benefits provided under the Act vary depending upon age of retirement, type of employment, and credited years of service. GERS is a separate and independent agency that is included for financial reporting purposes as a blended pension trust fund of the PG. GERS issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to the Government Employees’ Retirement System of the U.S. Virgin Islands, 3438 Kronprindsens Gade, St. Thomas, Virgin Islands 00802. (b) Funding and Contribution Policy Contributions to GERS are established by the Board of Trustees of GERS. The Government’s required contribution for Tier 1 and Tier 2 members was 20.5% of the member’s annual salary during the fiscal year ended September 30, 2019, and effective January 1, 2020, the Government’s required contribution increased to 23.5% of the Tier 1 and Tier 2 member’s annual salary. Employee contribution rates (as a percentage of payroll) were as follows during fiscal year 2020: Tier 1 Tier 2 Regular Employees 11.0% 11.5% Public Safety Employees 13.0% 13.625% Members of the Legislature 12.0% 14.0% Judges 15.0% 15.0% Government of the United States Virgin Islands Notes to Basic Financial Statements 123 The defined benefit pension plan administered by GERS, and the PG have a fiscal year that ends on September 30th. The following time frames are used to measure and report the PG’s pension liability: Valuation Date: October 1, 2019 Measurement Date: September 30, 2019 Measurement Period: October 1, 2018 – September 30, 2019 The PG is considered an employer of the plan with a proportionate share of 78.9300% as of September 30, 2019, which was an increase of 1.1213% from its proportionate share measured as of September 30, 2018. The PG’s percentage was estimated by management based on the average of each employer’s contributions during the period October 1, 2014, through September 30, 2019. The PG’s proportionate share of employer contributions recognized by GERS was $72.3 million for the plan’s fiscal year ended September 30, 2019. (c) Pension Liabilities, Expense, and Deferred Outflows/Inflows of Resources As of September 30, 2020, the actuarially calculated net pension liability of the PG was $4.2 billion. The net pension liability is measured as of September 30, 2019, and the total pension liability is actuarially computed as of October 1, 2019. For the year ended September 30, 2020, the Government recognized $344.0 million of pension expense, inclusive of amortization of deferred outflows and inflows of pension related items. Following is a schedule of deferred outflows and deferred inflows allocated to the Government in the computation of the net pension liability for the year ended September 30, 2020, (expressed in thousands): Governmental Activities Deferred Outflows Deferred Inflows Difference between expected and actual experience $ 51,758 $ 1,943 Net difference between projected and actual investment earnings on pension plan investments 2,379 - Changes in assumptions 929,993 335,004 Changes in proportion and differences between contributions and proportional share of contributions 100,288 4,627 Contributions made after measurement date 72,301 - Total $ 1,156,719 $ 341,574 Amounts reported as deferred outflows and deferred inflows, exclusive of contributions made after the measurement date, will be recognized in pension expense as follows (expressed in thousands): Year Ending September 30, 2021 $ 264,965 2022 140,823 2023 142,285 2024 76,426 2025 118,345 Total $ 742,844 Government of the United States Virgin Islands Notes to Basic Financial Statements 124 (d) Actuarial Assumptions A summary of the actuarial assumptions and methods used to calculate the total pension liability as of the measurement date on September 30, 2019, is provided below. Refer to the October 1, 2019, actuarial valuation report for a complete description of all other assumptions, which can be found on GERS’ website. Inflation Rate 2.50% Salary Increases 3.25% including inflation Actuarial Cost Method Entry age normal Expected Rate of Return 4.00% Municipal Bond Yield 2.66% Discount Rate 2.67% Mortality Table RP-2014 Blue Collar The demographic assumptions for the 2019 actuarial valuation are based on the results of an actuarial experience study for the period October 1, 2011 through September 30, 2015, with the net investment return assumption updated for the October 1, 2019, valuation. (e) Investment Rate of Return The long-term expected rate of return of 4.00% on pension plan investments was determined using the building-block method in which best-estimate ranges of expected future real rates of returns (expected returns, net of pension plan investment expense, and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan’s target asset allocation as of the measurement date of September 30, 2019, are summarized in the following table: Asset Class Target Allocation Long-Term Expected Real Rate of Return Domestic equity 9% 6.23% Fixed income 60% 0.98% Real Estate 10% 4.33% Cash 12% 0.48% Private Equities (Alternatives) 9% 10.23% Total 100% Government of the United States Virgin Islands Notes to Basic Financial Statements 125 (f) Discount Rate The discount rate used to measure total pension liability was 2.67% as of September 30, 2019, which was a decrease of 1.58% from the discount rate of 4.25% as of September 30, 2018. The projection of cash flows used to determine the discount rate assumed plan member contributions will be made at the current contribution rate, including the future increases in the employee contribution rates legislated. Using the above assumptions, GERS fiduciary net position is not projected to be available to make all projected future benefit payments to current plan members. Therefore, the plan’s long-term expected rate of return on pension plan investments of 4.00% was applied to all periods of projected benefit payments that are covered by projected assets. For periods where projected future benefit payments are not covered by projected assets, the yield on a twenty (20) year AA Municipal Bond Index was applied. As of September 30, 2019, that rate was 2.66%. (g) Sensitivity of Proportionate Share of the Net Pension Liability to Changes in the Discount Rate Following is a schedule of net pension liability for the Government calculated using the discount rate of 2.67%, as well as what the net pension liability would be if it were calculated using a discount rate that is one percentage point lower or one percentage point higher than the current rate for the year ended September 30, 2020, (expressed in thousands): 1.00% Decrease (1.67%) Current Discount (2.67%) 1.00% Increase (3.67%) Net pension liability $ 4,867,101 $ 4,194,852 $ 3,643,863 (h) Early Retirement Incentive Program In August 1994, legislation providing an early retirement incentive was passed. The legislation was subsequently amended on October 13, 1994, December 30, 1994, and December 5, 1995. Among other matters, the legislation allows a member of GERS who has a combined aggregate number of years of credited service plus number of years of age, equal to at least seventy-five (75) years as of the date of the legislation, to retire without reduction of annuity. Members, who have attained the age of fifty (50) with at least ten (10) but less than thirty (30) years of credited service, may add an additional three (3) years to their age for this computation. Members with thirty (30) years of service or who can retire without penalty under the V.I. Code shall have their average compensation increased by 4 percentage points. For each employee electing to retire pursuant to Section 8(a) of the Early Retirement Act of 1994 (the Act), the Government contributes to GERS, on a quarterly basis, an amount equal to the employer and employee contributions that would have been made until the employee reached the age of 62 had the employee not elected to retire under this provision. For employees electing to retire under Section 8(b) of the Act, the Government contributes to GERS a sum equal to the additional contribution the employer and employee would have made had the employee received a salary 4.0% higher during the three years used to compute the employee’s average compensation figure, plus a sum of $5,000. Government of the United States Virgin Islands Notes to Basic Financial Statements 126 Based on this calculation, the amount due to GERS was $26.9 million and has been remitted to GERS. The actuaries of GERS have determined that the specific funding provided under the Act is inadequate to cover the costs of the program. GERS is seeking to recover any unfunded costs of the program under a newly enacted provision of the retirement law, which provides that the Government will compensate GERS for the costs of any special early retirement program. Also see Note 19. (i) Additional Information Regarding the Pension Plan To obtain additional information regarding the pension plan, requests for information may be submitted to GERS at www.usvigers.com. Actuarial reports of GERS are available at http://www.usvigers.com/Benefits/ActuarialReport.aspx. Detailed information about the pension plan’s fiduciary net position is available in the separately issued GERS audited financial statements available at www.usvigers.com/Reports/Audited FinancialReports.aspx. WICO Employee Retirement Plan WICO sponsors a defined contribution retirement and savings plan (the Plan) for its employees. Under the provisions of the Plan, employees must contribute at least 3.0% of their gross compensation but may also contribute up to 7.0%. WICO matches 3.0% of the employees’ contribution plus a non-elective distribution at the discretion of WICO, which is divided among eligible employees, proportionate to compensation. Required contributions to the pension and savings plan made and charged to operations were approximately $124,000 for the year ended September 30, 2020. WICO does not offer other post-retirement benefits to its employees. viNGN Employee Retirement Plan viNGN sponsors a defined contribution retirement plan for its employees. Employees who receive a salary of at least $5,000 are eligible to participate in the plan. viNGN matches the employee’s contribution up to a maximum of 2.0% of the eligible employee’s compensation. viNGN contributed $31,000 in matching employer contributions for the year ended September 30, 2020. viNGN does not offer other post-retirement benefits to its employees. University TIAA-CREF Defined-Contribution Plan The University has two retirement plans in which all eligible employees are required to participate, the Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF) and GERS. The TIAA-CREF is a defined-contribution pension plan covering participating, full-time faculty members and other exempt employees, under which the contributions, including employees’ contributions, are used to purchase annuities. There are no unfunded past service costs, and vested benefits are equal to the annuities purchased under TIAA-CREF. The University’s Board of Trustees administers, establishes, and amends benefit provisions of TIAA-CREF. The University is required to contribute 14.5% of the annual covered payroll. The University’s contribution to TIAA-CREF amounted to $3.0 million for the year ended September 30, 2020. Government of the United States Virgin Islands Notes to Basic Financial Statements 127 16. Other Postemployment Benefits Primary Government In addition to the pension benefits described above, the Government provides other postemployment benefits (OPEB) of healthcare, prescription, dental and life insurance coverage. These benefits are provided in accordance with Title 3, Chapter 25, Subchapter VIII of the V.I. Code as part of a multiple employer defined benefit OPEB plan, in which most component units of the PG participate and contribute. All employees who retire from government service after attaining age fifty-five (55) with at least thirty (30) years of service, except for policemen and firemen who can retire with at least twenty (20) years of service, are eligible for these benefits. As required, the Government follows the provisions of GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. This standard requires the reporting and disclosure of costs and liabilities associated with postemployment benefits provided to retirees of the Government, its component units, and certain eligible nonpublic corporations, other than pensions. (a) Plan Description and Benefits The Health Insurance Board of Trustees of the PG (the Board) administers the defined benefit health and life insurance plan for eligible active and retired employees of the PG, the component units of the Government, and certain nonpublic corporations that receive allotments from the PG. The Board determines the eligibility criteria of the plan and recommends insurance contracts to the Legislature of the Virgin Islands. The Group Health Insurance Office of the Division of Personnel maintains the accounting and personnel records for the health and life insurance plan. Eligible retired employees visit the Group Health Insurance Office within 30 days following retirement and complete a new insurance enrollment form. An eligible retiree is one that retires through the Government Employees Retirement System (GERS) or who is placed on disability and is eligible for retirement benefits. The Government’s OPEB plan is a multiple employer defined benefit plan created in accordance with Title 3, Ch. 25, Subchapter VIII of the Virgin Islands Code. The plan is pay as-you-go; no assets have been accumulated in a trust that meets the criteria in paragraph 4 of GASB Statement No.75, and expenses are paid as they come due. There are five participating employers in the plan: the primary Government, University of the Virgin Islands, Virgin Islands Port Authority, East End Medical Center, and Frederiksted Health Care, Inc. The primary Government has a special funding arrangement with the following component units: VI Lottery, Magens Bay Authority, GERS, VI Economic Development Authority, VI Waste Management Authority, VI Housing Finance Authority, Juan Luis Hospital and Medical Center, Roy L. Schneider Medical Center, VI Public Finance Authority, and the VI Public Broadcasting System. Under the special funding arrangement, the primary Government pays 100% of the employer costs. Retirees participate in the same health benefit programs as active employees until reaching Medicare eligibility. After attaining Medicare eligibility, retirees participate in a Medicare Advantage prescription drug plan and an AARP Supplemental Plan. Four types of health plans were offered to eligible participants during the fiscal year:  Group health and life insurance coverage through the Cigna Health and Life Insurance Company Government of the United States Virgin Islands Notes to Basic Financial Statements 128  Group life and accidental death and dismemberment through ALIC Life Insurance Company  Medicare Advantage and AARP Medicare Supplement through United Healthcare Insurance  Vision care through Standard Insurance Company (b) Contributions Contribution percentages are enacted by the Legislature of the Virgin Islands based on recommendations of the Board. Changes in percentages are implemented by the Division of Personnel. Active and retired employees are responsible for 35.0% of the cost of group insurance costs. The employee share is withheld from salaries or pension benefits. Retirees receive a noncontributory life insurance benefit of $5,000 and may elect to increase this coverage to $75,000 at their own expense. (c) Employees Covered by the Plan As of the valuation date of October 1, 2019, the following employees were covered by the Government’s postemployment benefits plan: Primary Government Component Units Total Active employees 7,945 750 8,695 Retired employees 7,755 147 7,902 Deferred vested retirees 102 6 108 Disability retirees 301 9 310 Total 16,103 912 17,015 Primary Government 14,516 Component units included in Primary Government’s OPEB expense under special funding arrangement 1,587 Total 16,103 (d) OPEB Liability The PG’s proportionate share of the total liability was 95.335% as of October 1, 2019, which was a decrease of 0.136% from its proportionate share measured as of October 1, 2018. The PG’s percentage was determined based on its respective census information provided to the actuary. The PG’s total OPEB liability amounted to $786.8 million which includes the PG’s share of the component unit liabilities under the special funding arrangement of $57.8 million. Following is the total OPEB liability at September 30, 2020 (expressed in thousands): Primary Government $ 786,756 Component units 36,616 Total $ 823,372 Government of the United States Virgin Islands Notes to Basic Financial Statements 129 (e) Actuarial Assumptions The postemployment benefit plan is an unfunded plan. An actuarial valuation was conducted of the amount required to fund the plan, involving assumptions about the probability of the occurrence of events in the future. Actuarial assumptions used in the computation of the total OPEB liability are as follows: Valuation date: October 1, 2019 Measurement date: October 1, 2019 Report date: September 30, 2020 Actuarial cost method: Entry Age Normal Cost Method Amortization method: Recognition Period of 6 Years Salary increases: Payroll Growth of 3.25% per year Discount rate: Beginning of Year Rate of 3.64% End of Year Rate of 3.58% S&P Municipal Bond 20-Year High Grade Rate Index as of September 30, 2019 Healthcare cost trend rates: Pre-Medicare Increases of 6.00% in 2020 to 4.50% in 2023 Medicare Increases of 5.00% in 2020 to 4.50% in 2023 Dental Increases of 5.00% in 2020 to 4.50% in 2023 Inflation: 2.25% Implicit Rate in Healthcare Trend Analysis Retirees share of costs: 35.0% of Medical and Dental Premiums and Noncontributory Life Insurance Coverage. Retirees of UVI 403(b) plan pay 100.0% of coverage Mortality: RP-2014 Blue Collar Mortality Generational Table Adjusted 110.0% with Scale MP-2015 for Healthy Lives For Disability Retirees, RP-2014 Disabled Mortality Generational Table Adjusted 125.0% with Scale MP-2015 Marital status: Assumed 50.0% of Future Male Retirees and 25.0% of Future Female Retirees Cover Spouses in Retirement Husbands Assumed to be 3 Years Older Than Spouse Subsidized Coverage of Spouses and Dependents Ceases Upon Death Actuarial Experience Study: The actuarial assumptions used in the October 1, 2019, valuation are based on the results of an actuarial experience study for the period October 1, 2011 - September 30, 2015 Government of the United States Virgin Islands Notes to Basic Financial Statements 130 (f) Change in Assumptions The discount rate changed from 3.64% in the prior valuation to 3.58% as of September 30, 2019. (g) Changes in Total OPEB Liability Following are the components of the change in the proportionate OPEB liability for the year ended September 30, 2020 (expressed in thousands): Primary Government Component Units Total Beginning balances $ 774,507 $ 34,431 $ 808,938 Changes for the year: Service cost 25,358 1,672 27,030 Interest 28,548 1,301 29,849 Changes in assumptions or other input (10,216) (47) (10,263) Expected benefit payments (31,441) (741) (32,182) Net changes 12,249 2,185 14,434 Ending balances $ 786,756 $ 36,616 $ 823,372 Primary Government $ 728,977 Component Units included in Primary Government’s OPEB liability under special funding arrangement 57,779 Total OPEB Liability on September 30, 2020 $ 786,756 (h) OPEB Expense, Deferred Inflows of Resources, and Deferred Outflows of Resources For the fiscal year ended September 30, 2020, the OPEB expense of the PG amounted to $39.0 million as follows (expressed in thousands): Primary Government Component Units Total Service cost $ 25,358 $ 1,672 $ 27,030 Interest on total OPEB liability and net cash flow 28,548 1,301 29,849 Current period effect of change in assumptions (14,926) (655) (15,581) Total OPEB Expense $ 38,980 $ 2,318 $ 41,298 Primary Government $ 34,480 Component Units included in Primary Government’s OPEB expense under special funding arrangement 4,500 Total OPEB Expense $ 38,980 Government of the United States Virgin Islands Notes to Basic Financial Statements 131 As of September 30, 2020, the PG reported deferred outflows of resources related to OPEB as follows (expressed in thousands): Primary Government Component Units Total Changes in assumptions $ 14,134 $ 187 $ 14,321 Difference between expected and actual experience 3,103 644 3,747 Total $ 17,237 $ 831 $ 18,068 Primary Government $ 13,238 Component Units included in Primary Government’s deferred outflows of resources under special funding arrangement 3,999 Total $ 17,237 Amounts reported as deferred outflows of resources related to OPEB will be recognized in OPEB expense as follows (expressed in thousands): Year Ending September 30, Primary Government Component Units Total 2021 $ 3,283 $ 158 $ 3,441 2022 3,283 158 3,441 2023 3,283 158 3,441 2024 3,283 158 3,441 2025 3,284 159 3,443 2026 and after 821 40 861 Total $ 17,237 $ 831 $ 18,068 As of September 30, 2020, the PG reported deferred inflows of resources related to OPEB as follows (expressed in thousands): Primary Government Component Units Total Changes in assumptions $ 50,278 $ 2,453 $ 52,731 Difference between expected and actual experience 25,819 870 26,689 Total $ 76,097 $ 3,323 $ 79,420 Primary Government $ 67,138 Component Units included in Primary Government’s deferred inflows of resources under special funding arrangement 8,959 Total $ 76,097 Government of the United States Virgin Islands Notes to Basic Financial Statements 132 Amounts reported as deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows (expressed in thousands): Year Ending September 30, Primary Government Component Units Total 2021 $ 18,209 $ 813 $ 19,022 2022 18,209 813 19,022 2023 18,209 813 19,022 2024 13,291 576 13,867 2025 6,950 266 7,216 2026 and after 1,229 42 1,271 Total $ 76,097 $ 3,323 $ 79,420 (i) Sensitivity of OPEB Liability to Changes in the Discount Rate The following sensitivity analysis shows the impact to the total OPEB liability if the discount rate was one percentage point higher or one percentage point lower than the current discount rate (expressed in thousands): 1.00% Decrease (2.58%) Current Discount (3.58%) 1.00% Increase (4.58%) Primary Government $ 905,157 $ 786,756 $ 690,893 Component Units 42,725 36,616 31,697 Total OPEB Liability $ 947,882 $ 823,372 $ 722,590 (j) Sensitivity of OPEB Liability to Changes in the Healthcare Cost Trend Rates The following sensitivity analysis shows the impact of the total OPEB liability if the healthcare cost trend rates were one percentage point higher or one percentage point lower than the current healthcare cost trend rate (expressed in thousands): 1.00% Decrease - Health Cost Trend Rate (5.00%) Current Health Cost Trend Rate (6.00%) 1.00% Increase - Health Cost Trend rate (7.00%) Primary Government $ 683,603 $ 786,756 $ 917,723 Component Units 31,067 36,616 43,740 Total OPEB Liability $ 714,670 $ 823,372 $ 961,463 Component Units Other OPEB Plans WAPA offers a medical, dental, and vision benefit plan, and reported a net OPEB liability of $53.5 million, deferred outflows of resources of $0.6 million, and deferred inflows of resources of $11.9 million as of June 30, 2020. VIHA offers certain health care benefits including healthcare and prescription drug, dental, vision and life insurance to qualified retired employees and their dependents. VIHA reported a net OPEB obligation of $25.7 million as of December 31, 2019. Government of the United States Virgin Islands Notes to Basic Financial Statements 133 17. Liquidity and Management’s Plan Primary Government On September 30, 2020, the Government reported a total net deficit in governmental activities amounting to $5.1 billion. The net deficit is mainly due to the adoption of accounting standards that required the reporting of pension and other post-employment liabilities and related expenses based on actuarial computations. Following is a summary of the Government’s unrestricted net deficit for governmental activities for fiscal years 2018 through 2020: Fiscal Year Governmental Unrestricted Net Deficit (Increase)/ Decrease 2018 $ (5,352,571) $ (555,470) 2019 (5,751,631) (399,060) 2020 (5,889,273) (137,642) General Fund Following is a summary of the General Fund balance (deficit). On September 30, 2020, the Government reported a fund balance in the General Fund of $21.8 million. This fund balance represents an increase of $115.9 million from the preceding fiscal year. Fiscal Year Committed Assigned Unassigned Total 2018 $ 30,669 $ 1,001 $ (72,428) $ (40,758) 2019 20,270 716 (115,068) (94,082) 2020 31,374 1,425 (11,032) 21,767 Government of the United States Virgin Islands Notes to Basic Financial Statements 134 Non-major Funds The following non-major funds have a net fund deficit as of September 30, 2020, (expressed in thousands): Governmental Funds Rural Library Extension $ 572 Water & Electric System Projects $ 1,698 Employment Security Administration 2,114 Sewer System Fund 175 Federally Aided Education Program 9,599 District Potable Water Fund 4,962 Air & Water Pollution Control 7,084 Paternity and Child Support 11,200 Virgin Islands Planning Board Projects 3,000 District Street Light Fund 47,998 Highway Safety 4,600 Virgin Islands Law Enforcement 3,964 Virgin Islands Energy Office 3,655 Forensic Science 74 Virgin Islands National Guard Federal Vocational Rehabilitation 1,848 and State Agreement 2,760 Hurricane Hugo Insurance Claims 3,908 Food Stamp Welfare 2,434 Virgin Islands Army National Guard 2,266 Federal Programs/Department Emergency Drought Relief 145 Conservation 3,912 Outdoor Recreation Program 32 Federal Aided Community Action Agency 187 Section 12 Bond Proceeds 24,547 Commission on Aging 50 Road Fund 6,330 Elementary/Secondary Education 19 Major Repair and Improvement 58 Job Training Partnership Technical Assistance 8 Act of 1983-1984 8,614 Juvenile Detention Center Fund Civil Defense Protection 849 Non-Lapsing 14 Health Information Council Assistance 18 Natural Resource Reclamation 2,205 Drug Education Training Program 123 Boating Safety Program 584 Federal Health Program Not on Federal Fishery and Wildlife Projects 27 Letter of Credit System 489 The Motorcycle Safety Ed. Prog. 27 Net fund deficit $ 162,149 Proprietary Funds Frederiksted Small Business Fund $ 164 Altona Community Development Fund 3 Housing Construction Revolving 7,653 Emergency Housing Fund 82 Virgin Islands ID Registration Fund 20 Virgin Islands Elections Fund 190 Consumer Protection Fund 200 Virgin Islands Housing Finance Authority 2,898 Homestead and Home Revolving Fund 344 Net fund deficit $ 11,554 The Government expects structural deficits following the 2017 hurricanes to be offset by the economic activity related to construction and federal recovery assistance. The post-hurricane construction economy is strong as residents replace damaged property along with the influx of federal workers and construction firms. Government of the United States Virgin Islands Notes to Basic Financial Statements 135 Airbnb properties have increased to replace hotel rooms damaged by the storms. The Government has successfully negotiated the direct withholding of hotel tax by Airbnb. The Government has experienced an increase in tax collections reported by the Virgin Islands Bureau of Internal Revenue. The Government has also continued to receive its annual matching fund rum excise tax advance from the U.S. Department of Interior. The Government expects to receive approximately $8.0 billion in federal assistance through fiscal year 2025 and an additional $1.6 billion in COVID-19 pandemic assistance. The Government has also participated in FEMA’s Community Disaster Loans (CDL) program. The CDL program provides operational funding for local governments to continue to operate after a substantial revenue loss (greater than 5.0%) caused by a disaster. The term of the CDL loans is five (5) years and can be extended to ten (10) years. The Government’s ability to access the CDL facility allowed it to remain current in its obligations. The Government has pledged gross receipts taxes for the timely payment of the CDLs and entered into a bond agreement with FEMA in July 2018. Also see Note 19. The Government has also been the recipient of insurance recoveries and private donations. The Government has certain revenues pledged for debt service on various bonds and notes. To date, revenues pledged for debt service have not been significantly impacted by the economic effect of the hurricanes or the pandemic. As of September 30, 2020, all payments on the bonds and notes have been made as required and the Government is in compliance with all related covenants; however, as a result of the disruption to the Government’s operations from Hurricanes Irma and Maria along with the impact of the COVID- 19 global pandemic, the Government did not comply with certain reporting requirements. As per the Government’s bonds’ indentures and notes and loan agreements, this noncompliance event does not constitute an event of default and the Government continues to work diligently to monitor such requirements. Other significant liabilities of the Government, mainly consisting of benefits due to the Government’s workforce and landfill closure costs, represent obligations of the Government that do not require the use of current resources. Business-Type Activities (a) WICO WICO is a component unit of PFA. WICO is in a negative working capital position as of September 30, 2020, due to legislation requiring WICO to remit $700,000 annually to the primary Government as a payment in lieu of taxes (PILOT). On June 14, 2018, the Legislature of the Virgin Islands passed Act 8053, to accept the transfer of a historic property located in Estate Catherineberg, from WICO to the Government as a public decorative art museum, as part of a negotiated settlement of the amount due. The passage of Act 8053, authorizing the Government to purchase Estate Catherineberg provides relief to WICO. Although WICO will continue to pay for the maintenance of Estate Catherineberg, the expenses will now reduce the outstanding PILOT balance. Government of the United States Virgin Islands Notes to Basic Financial Statements 136 Further, in March 2020, the Centers for Disease Control and Prevention (CDC) issued a No Sail Order (Order) for cruise ships as a result of the global COVID-19 pandemic. WICO derives a material portion of its revenue from servicing cruise ships owned by established cruise lines. As a result of the Order and state of emergency, WICO announced a temporary closure of its port. WICO’s fee for services revenue for fiscal year 2020 was severely impacted due to this pause in cruise operations. As the emergency measures are eased, WICO management continues to actively monitor the evolving impact of the COVID-19 outbreak on its financial condition, including the duration of the closings, speed of recovery, and impact on demand. WICO plans coordination with local agencies and stakeholders to prepare and present the U.S. Virgin Islands as a COVID-19 prepared destination. WICO Management further continues to identify and implement various additional mitigation efforts to minimize the impact on results of operations, financial position, and liquidity. Also see Note 19. (b) viNGN viNGN is also a component unit of PFA. The start-up of viNGN was funded by a loan advance from PFA amounting to $36.8 million. As of September 30, 2020, no repayments of the loan advance have been made by viNGN. Component Units (a) Virgin Islands Water and Power Authority – Electric System Management of the Electric System (the System) has been attempting to stabilize and solidify its financial condition following significant structural damage related to the September 2017 hurricanes. As of June 30, 2020, the Electric System reported a net deficit in working capital. Management of the Electric System has developed a twelve-month plan to focus on key initiatives as outlined below: i. Despite its financial challenges, the Electric System is benefitting from significant investment of federal funds in infrastructure projects. For example, federal funding is modernizing the Transmission & Distribution (T&D) infrastructure as it is migrating the system to underground infrastructure where feasible. ii. In areas when undergrounding is not viable, the T&D system is being hardened by the installation of composite poles that can withstand higher winds. iii. Placing new, more efficient generation in service on St. Thomas and St. Croix. iv. The installation of additional solar capacity on St. Croix. v. The acquisition of generation that is currently leased to avoid ongoing monthly lease expenses. vi. Focus on improving processes and procedures with the objective of improving customer service, billing, and collections. Improving customer service and increasing collections is expected to reduce operating costs and improve cash flow. Government of the United States Virgin Islands Notes to Basic Financial Statements 137 (c) University of the Virgin Islands The University has been financially challenged and its situation was exacerbated by global events. Further, the University is not organized as a self-sustaining entity and is highly dependent on funding from the Government to repay and fund its obligations. Approximately 35.0% of the University’s total revenues are derived from the Government’s appropriations. To date, local appropriations for funding the University’s programs have not been significantly impacted by the Government’s financial condition and it is unknown what impact, if any, the Government’s financial condition will have on the University. The management team is focused on its plan for the immediate future which includes exploration of alternative revenue sources, reduction of operating expenses, and investment of federal funds. (d) Virgin Islands Government Hospital and Health Facilities Corporation The Schneider Regional Medical Center on St. Thomas and the Juan F. Luis Hospital and Medical Center incurred significant structural damages related to the September 2017 hurricanes. The full impact of the hurricanes continues to be evaluated as the hospitals seek grants and federal assistance to continue operations. As of September 30, 2020, the Schneider Regional Medical Center’s current liabilities exceeded current assets, including $4.1 million owed to the PG. The hospital is economically dependent on the continued financial support of the PG. In fiscal year 2020, tax appropriations from the PG amounted to $25.2 million and other noncapital grants and contributions amounted to $12.2 million. Management of Schneider Regional Medical Center is implementing efforts to improve financial stability by closely monitoring cash flow. This includes multiple internal initiatives and development of external partnerships with industry expertise to improve operational efficiencies, evaluate charge capture and pricing improvements, reduce accounts receivable collection time, and evaluate Medicare reimbursement options and opportunities, while improving the patient experience. As of September 30, 2020, the Juan F. Luis Hospital and Medical Center’s current liabilities exceeded current assets by $69.7 million. The hospital reported an unrestricted net deficit in net position of $209.4 million. The hospital is economically dependent on the continued financial support of the PG. Management of Juan F. Luis Hospital and Medical Center is considering several alternatives for mitigating liquidity conditions. These include an infusion of capital through several options including internal hospital operations, patient accounts receivable leveraging, affiliation or management agreements with larger hospital systems, and negotiations with vendors on past due accounts. Management of Juan F. Luis Hospital and Medical Center is also developing plans for cost containment, seeking concessions from vendors, and seeking an increase in financial support from the Government. Government of the United States Virgin Islands Notes to Basic Financial Statements 138 (e) Government Employees’ Retirement System of the U.S. Virgin Islands As of September 30, 2020, the fiduciary net position of GERS amounting to $582.5 million represents only 9.0% of the plan’s actuarially determined total pension liability of $5.9 billion at September 30, 2019, the measurement date. Employer contributions were significantly less than actuarially determined amounts for fiscal year 2020. (f) Virgin Islands Housing Finance Authority As of September 30, 2020, VIHFA has recorded substantial receivables from the Federal government amounting to $564.8 million. Receipt of grant funds is generally conditioned on compliance with the grantor’s terms and agreements and applicable federal regulations. Any disallowance of these cost could become liabilities for the Authority. Also, VIHFA is indebted to contractors and vendors for significantly all of the expected payments from the Federal government. 18. Adjustments to Component Unit Financial Statements The September 30, 2019 stand-alone financial statements of the Virgin Islands Port Authority and Virgin Islands Housing Authority have been adjusted in the accompanying aggregate discretely presented component units as follows (expressed in thousands): Net Position Component Unit As Previously Reported Adjustments As Adjusted Virgin Islands Port Authority* $ 85,670 $ 27,308 $ 112,978 Virgin Islands Housing Authority (6,831) 41 (6,790) *Unaudited 19. Subsequent Events Primary Government (a) Hurricane Recovery Through qualification for substantial federal disaster assistance from FEMA and other federal agencies, the Government and its component units have made significant progress towards restoring their assets which were damaged by Hurricanes Irma and Maria in September 2017. To close potential shortfalls and to serve returning citizens, the Government continues to work closely with federal agencies, to maximize its recovery from all available sources, subject to any sub-limits and retentions. Through March 2023, federal assistance awarded to the Territory included $4.8 billion in FEMA Public Assistance grants, $65.9 million in Federal Highway grants, $138.4 million in FEMA Hazard Mitigation grants, and $1.1 billion in Community Development Block Grants. Other federal grants awarded by various federal agencies amounted to $212.0 million, for a total of approximately $6.2 billion. Government of the United States Virgin Islands Notes to Basic Financial Statements 139 The Government has received notices from FEMA of potential debt as a result of audits related to the Public Assistance Grant Program awards for fiscal years 2018 and 2019. In response to the notices, both in February 2021 and January 2023, the Government exercised its option to appeal and provided additional clarification and documentation. As of March 2023, FEMA has questioned costs of $42.1 million. The questioned costs are in the process of being reviewed by FEMA and until the appeal review is completed, questioned costs identified do not represent final monies owed to FEMA. Management believes that any such claims or actions by FEMA will be resolved and will not have a material impact to the awards or the financial position of the Government. (b) Contractual Agreements - Professional Services for Recovery Efforts Subsequent to September 30, 2020, and through September 30, 2022, PFA reported outstanding invoices from the two professional consulting services firms amounting to $93.9 million and $3.7 million respectively. Invoices submitted by the consultants are reviewed by PFA and submitted to the Government, Office of Disaster Recovery, the Virgin Islands Housing Finance Authority, or Virgin Islands Water and Power Authority for approval. Upon completion of the review and approval process, invoices are then submitted for reimbursement to the appropriate Federal grantor. (c) Global Pandemic Sailing Orders In October 2020, the CDC replaced its No Sail Order with the Conditional Sailing Order. New phases of the Conditional Sailing Order were issued in April and May of 2021 and cruise operations resumed in the United States and Territories in June 2021 with cruise lines returning to the Territory’s ports in September 2021. The Conditional Sailing Order expired on January 15, 2022. (d) Economic Relief Legislation To address issues related to the continuance of the global coronavirus pandemic, in December 2020, “The Consolidated Appropriations (CA) Act” was passed. The CA Act among other things, provided for an extension of time to spend any CARES Act funds until December 31, 2021, and provided additional COVID assistance to states and territories, including unemployment assistance, funds for higher education, testing, contact tracing and mitigation of COVID, food stamps, and rental assistance programs. The funds will be distributed in two tranches, with 50.0% delivered no later than 60 days from the date of enactment, and the remainder delivered no earlier than one year later. The U.S. Treasury Department may withhold up to half of the Territory’s allocation for as long as twelve (12) months based on the unemployment rate and the submission of an updated certification of funding needs. Awards to territories under the Act are allocated based on the territory’s share of the combined total population of all territories as determined by the U.S. Census Bureau. In March 2021, “The American Rescue Plan (ARP) Act of 2021” was signed into law. The ARP Act builds on previously enacted aid measures to aid states, counties, cities, and tribal governments to cover increased expenditures, replenish lost revenue and mitigate economic harm from the COVID- 19 pandemic. State and local government recipients may use the funds to cover costs through December 31, 2024. Government of the United States Virgin Islands Notes to Basic Financial Statements 140 Through March 2023, federal grants and assistance received by the PG related to COVID-19 amounted to $880.6 million. Federal grants and assistance received by component units of the Government amounted to $82.6 million. On September 30, 2021, repayments of the Community Disaster Loans issued by FEMA after the 2017 Hurricanes were cancelled when Congress passed the Extending Government Funding and Delivering Emergency Assistance Act (P.L. 117-43) and on October 8, 2021, FEMA notified the Government of the cancellation of its $148.9 million CDL, cancellation of the $42.8 million CDL to Juan F. Luis Hospital and Medical Center, cancellation of the $19.8 million CDL to Schneider Regional Medical Center, and cancellation of the $92.5 million CDL to WAPA. In November 2021, “The Infrastructure Investment and Jobs (IIJ) Act” was signed into Law. i. Through the Territorial Highway Program, the U.S. Virgin Islands would expect to receive more than $95.0 million over five years to rebuild its roads and bridges. The U.S. Virgin Islands can also compete for $7.5 billion in funding over five years for major projects that will deliver substantial economic benefits to communities. ii. Based on formula funding alone, the U.S. Virgin Islands would expect to receive nearly $30.0 million over five years to improve public transportation options across the islands. iii. The Territory will receive a minimum allocation of $25.0 million to help improve broadband service and to promote broadband adoption and affordability. iv. Based on historical formula funding levels, the U.S. Virgin Islands will expect to receive $2.5 million to protect against cyberattacks and the Territory will also benefit from the bill’s historic $3.5 billion national investment in weatherization which will reduce energy costs for families. v. Based on the traditional revolving fund formula, the U.S. Virgin Islands will expect to receive more than $45.0 million over five years to improve water infrastructure in the region and ensure that clean, safe drinking water is a right in all communities. vi. Airports in the U.S. Virgin Islands would receive approximately $30.0 million for infrastructure development over five years. The Government and its component units continue to examine the impact that the IIJ Act may have on their operations. (e) Injunction on Collection of Excise Taxes Lifted In December 2020, the District Court determined that the Government may begin collecting excise taxes, lifting an injunction previously imposed by the Third Circuit Court of Appeals. (f) Closing and Auction of Limetree Bay Refinery, LLC In February 2021, the Limetree Bay Refinery, LLC (oil refinery) opened but experienced several flaring events. Flaring events are caused by machinery operating under high pressure and the release of oil droplets into the atmosphere. In April 2021, the U.S. Environmental Protection Agency (EPA) issued a Notice of Violation, and in May 2021 ordered a 60-day plant closing. In June 2021, the oil refinery announced the indefinite closing of its facility on the island of St. Croix and the layoff of 271 plant employees. In July 2021, the oil refinery filed for bankruptcy. Auctions of the refinery were held in November and December 2021 and a bid of $62.0 million was accepted from Port Hamilton Refining and Transportation, the new owner of the oil refinery. Government of the United States Virgin Islands Notes to Basic Financial Statements 141 In October 2022, the EPA raised concerns regarding hazardous substances stored at the oil refinery and in December 2022, the EPA ordered the removal of thousands of pounds of chemicals from the oil refinery before the refinery could recommence operations. The closing of the oil refinery has impacted the operations of Limetree Bay Terminals, LLC, an affiliated company operating an oil storage facility on the island of St. Croix. In September 2021, Limetree Bay Terminals, LLC announced that the company experienced a decrease in operations and laid of several employees following the closing of the oil refinery. Management believes this instance, if any, should not materially affect the Government’s financial position. (g) Other In August 2021, the Legislature of the Virgin Islands enacted Act 8469 allowing the restoration of Government wages that were reduced in 2011-2013 by 8.0%. Wage reductions were a cost-cutting measure due to the economic downturn following the 2008 recession. Repayments to restore the wage reductions began in November 2021 with a payout of approximately $50.0 million to the affected workers. In December 2022, a settlement was announced between the Attorney General of the U.S. Virgin Islands, an estate, and related entities. The settlement could potentially reach $105.0 million plus one-half of the proceeds from the sale of certain property. Component Units (a) Matching Fund Special Purpose Securitization Corporation In February 2022, the Legislature of the Virgin Islands passed Act 8540 authorizing the formation of the Matching Fund Special Purpose Securitization Corporation (Securitization Corporation or the Corporation). The Corporation was formed to (i) purchase the Government’s right, title, and interest in the Matching Fund Receipts, (ii) refund or refinance existing matching bonds held by PFA through the issuance of securitized bonds, and (iii) to free up funds of the Government to provide financial stability and liquidity to GERS. The Corporation is a special purpose, independent and autonomous public corporation with a board of five members, four private members, and the Governor of the U.S. Virgin Islands. In April 2022, the Corporation issued the Series 2022A Bonds in the amount of $930.3 million and the Series 2022B Bonds in the amount of $22.5 million. The proceeds of the Securitization Bonds were used to: (i) purchase from the PG, the Matching Fund Receipts to be received from the U.S. Treasury and the related rights, (ii) pay capitalized interest on the bonds, (iii) establish certain debt service reserves and establish certain residual receipts, and (iv) pay the costs of issuing the bonds. The Corporation has no taxing power, and the Securitization Bonds are payable solely from the Matching Fund Receipts and certain other collateral pledged under the indenture for the issuance. The Series 2022A Bonds were issued at an interest rate of 5.0% with interest payable on April 1st and October 1st, and principal amounts due beginning October 1, 2025 through October 1, 2039. The Series 2022B Bonds were issued at an interest rate of 6.0%, with interest payable on April 1st and October 1st, and the principal amount due on October 1, 2025. Government of the United States Virgin Islands Notes to Basic Financial Statements 142 (b) Virgin Islands Public Finance Authority In December 2020, PFA entered into the Series 2020 A Virgin Islands Tax Revenue/Subordinate Lien Gross Receipts Taxes Lines of Credit with two local banks in the amount of $60.0 million. Under the terms of the lines of credit, drawdowns were restricted to mandatory operating costs of the Government as authorized in legislatively enacted budgets. No draws were taken under the lines of credit, and they expired in March 2021. In February 2022, PFA launched a tender offer to purchase $165.7 million of certain outstanding matching fund revenue bonds. PFA accepted $124.6 million tendered, and the purchase was completed in April 2022. In April 2022, PFA also refunded $766.1 million of matching fund bonds outstanding with a settlement date of April 25, 2022. Funding for these transactions was provided by the Matching Fund Special Purpose Securitization Corporation. In March 2022, PFA sold the King’s Alley Hotel and adjoining property in the amount of $3.7 million. The King’s Alley Hotel was managed by King’s Alley Management, Inc. (KAMI), a wholly owned subsidiary of PFA, which acquired the property through foreclosure. The adjoining property was purchased by PFA in 2011 and consisted of a vacant lot with historical structures. In April 2022, PFA made a payment to GERS in the amount of $89.2 million in connection with the issuance of the Series 2022A and 2022B Bonds issued by the Securitization Corporation. The Virgin Islands Act No. 8540 authorized the GERS Funding Note as an in-kind contribution to GERS secured by a portion of the residual receipts received by the Government in connection with the sale of Matching Fund Rights to the Securitization Corporation. The GERS funding amount is computed as follows: $158.0 million of Matching Fund Receipts less debt service on the Series 2022A and Series 2022B securitized matching fund bonds and required payments under the trust indenture for the Series 2022A and 2022B bonds. As a condition of the GERS Funding Note, GERS released all pending claims, including outstanding employer contributions, and dismissed pending litigation against the Government. (c) Virgin Islands Water and Power Authority In October 2020, WAPA and the beneficial owners of the Series 2018 B Senior BANs, entered into an agreement to re-issue new BANs, the Series 2020A, and extend the maturity date to no later than July 1, 2022. The U.S. Department of Housing and Urban Development (HUD), through its Community Development Block Grant-Disaster Recovery (CDBG-DR) program, has obligated $84.2 million to WAPA for the Harley Expansion Project. The project will add 36-megawatts of generation (plus battery storage) to the Randolph Harley Power Plant on St. Thomas. Additionally as of April 2023, WAPA has been approved for approximately $87.9 million in local cost match funding from HUD for the Public Assistance Grant Program along with $104.3 million in ARP Act grant funding. In April 2023, the Legislature of the Virgin Islands approved Bill 35-0070 authorizing the Governor to establish a line of credit in the maximum amount of $100.0 million to provide for the disbursement of funds needed to advance disaster related recovery projects that are reimbursable through federal funding and other disaster-related projects and provide funding to advance payment of $45.0 million towards the buyout of the infrastructure agreement between WAPA and a major vendor, and the acquisition of Liquefied Petroleum Gas facilities. Government of the United States Virgin Islands Notes to Basic Financial Statements 143 (d) Virgin Islands Port Authority (unaudited) In September 2020, VIPA closed on a loan with Banco Popular for a secured line of credit for $7.0 million to be used for operations due to a shortfall in its marine revenues. As of March 2023, VIPA has drawn $6.0 million on the line of credit. In September 2021, VIPA and Royal Caribbean Group (RCG) entered into a Memorandum of Understanding (MOU) to revitalize the U.S. Virgin Islands cruise industry with a commitment from RCG to develop infrastructure and attractions. The MOU is a recommitment from RCG to extend its existing 10-year pier use agreement for preferential berthing at VIPA’s cruise facilities. VIPA will align with RCG to expand its pier to accommodate the berthing of Icon and Quantum class ships and the development of a third berth. (e) University of the Virgin Islands Section 706 of the CA Act directs the Secretary of Education to repay, for each institution of higher education that is a participant in the Historically Black College and University (HBCU) Capital Financing Program, the institution’s outstanding balance of principal, interest, and fees on the disbursed loan amounts on closed loan agreements as of December 27, 2020. This repayment by the Secretary of Education also applies to closed loan agreements related to deferments for public and private HBCUs under the CARES Act. In March 2021, approximately $62.0 million of the University’s debt was cancelled through the Capital Financing Program. In November 2021, the University repaid in full its general obligation note with First Bank in the amount of $23.2 million. In March 2023, the University received an alert notification from the U.S. Department of Education for lack of submission of various annual reports which may result in, amongst other things, provisional certification and placement on a heightened cash monitoring payment method. The University continues to diligently monitor such requirements as it continues to recover from the disruption to its operations from Hurricanes Irma and Maria along with the impact of the COVID-19 global pandemic. In April 2023, the Legislature of the U.S. Virgin Islands approved the conveyance of a tract of land on St. Thomas to the University by the Virgin Islands Port Authority, in exchange for the University’s conveyance to the Virgin Islands Port Authority of a similar sized parcel of land, also on St. Thomas. The land swap is deemed more applicable to the intended use of the parcels by both entities. (f) Virgin Islands Government Hospital and Health Facilities Corporation Subsequent to the year ended September 30, 2020, the Governor Juan F. Luis Hospital and Medical Center negotiated a settlement and the Government paid $4.7 million related to a vendor payable on behalf of the hospital. The Territorial Hospital Redevelopment Team was formed by the VIGHHFC to manage capital projects funded from governmental sources on behalf of the Governor Juan F. Luis Hospital and Medical Center and Schneider Regional Medical Center (the Districts). These projects are a result of the multi-phased, multi-year rebuild of the Districts’ facilities as a result of damage sustained by the hurricanes in September 2017. Government of the United States Virgin Islands Notes to Basic Financial Statements 144 VIGHHFC through the Territorial Hospital Redevelopment Team contracts with third parties and the projects will be funded from sources outside of the Districts’ operating activities. (g) The West Indian Company Limited In May 2021, WICO applied for and received loan proceeds of approximately $717,000 under the Paycheck Protection Program. In November 2021, WICO was awarded a $4.0 million subgrant from the Government as part of the ARP Act. The grant period ranges from November 2021 to November 2023 and provides funding to assist with costs associated with re-starting the cruise sector, including employee-related costs. In March 2022, WICO was granted an additional moratorium on the outstanding loan payable Agreement with Banco Popular de Puerto Rico (the Bank). This third moratorium agreement deferred monthly payments for the 90-day period ranging from February 2022 through April 2022. Moratorium payments, if not paid sooner, are due in full on the maturity date of the loan in July 2022. In June 2022, WICO prepaid the loan, including outstanding moratorium payments, in the amount of $41.4 million. WICO also paid accrued interest of $265,626 and a prepayment penalty of $122,335. WICO entered into loan termination, pledge termination, and guaranty termination agreements with the Bank, documenting the close of the loan payable. Also, in June 2022, WICO issued the Port Facilities Revenue Bonds, Series 2022A and Series 2022B. The Series 2022 Bonds were issued at a nominal value of $52.6 million and a discounted value of $51.6 million. The Series 2022A and 2022B Bonds are privately placed and offered exclusively to qualified institutional buyers and were not required to be registered under the Securities Act, or any state securities laws. The bonds are limited obligations of WICO and are not the debts or guarantees of PFA or the Government. The Series 2022 Bonds were issued to: (i) prepay the Bank loan, (ii) fund a capitalized interest fund in an amount equal to interest accrued through December 31, 2022, (iii) fund the debt service reserve fund, (iv) finance certain capital improvements to docks, wharves, and ancillary facilities, (v) acquire a twenty-foot skiff for port operations, and (vi) pay certain costs of issuing the bonds. The Series 2022 Bonds are due from October 1, 2032 to April 1, 2052, with interest rates ranging between 5.9% to 6.5%. Interest is payable semiannually in April and October, commencing October 1, 2022. Management’s Evaluation Management has evaluated events and transactions occurring after September 30, 2020, the statement of net position date, and through May 31, 2023, the date the financial statements were available to be issued and noted that there have been no additional events or transactions which would require adjustments to or disclosure in the Government’s financial statements for the year ended September 30, 2020. Required Supplementary Information Government of the United States Virgin Islands Schedule of Changes in Total OPEB Liability and Related Ratios 145 This schedule is intended to show a 10-year trend. Additional years will be reported as they become available. Measurement year ended September 30, 2020 2019 2018 Primary Government Primary Government Primary Government Total OPEB Liability: Service cost $ 25,358 $ 26,147 $ 28,216 Interest 28,548 26,623 23,904 Difference between expected/actual experience (27,043) - - Changes in assumptions or other inputs 16,827 (31,772) (53,422) Expected benefit payments (31,441) (29,864) (28,280) Net Change in Total OPEB Liability 12,249 (8,866) (29,582) Total OPEB Liability – Beginning of Fiscal Year 774,507 783,373 812,955 Total OPEB Liability – End of Fiscal Year $ 786,756 $ 774,507 $ 783,373 Covered Payroll $ 350,528 $ 350,409 $ 323,158 Total OPEB Liability as a Percentage of Covered Payroll 224.45% 221.03% 242.41% Government of the United States Virgin Islands Notes to Required Supplementary Information - OPEB 146 1. Other Postemployment Benefits The Government does not have assets accumulated in a trust that meets the criteria of Paragraph 4 of GASB Statement No. 75 to pay related benefits. The Primary Government, by statute, pays 100.0% of the employer cost-share of the postemployment health, dental, and life insurance of the retirees of the following semi-autonomous agencies: 1) Government Employees’ Retirement System of the of the U.S. Virgin Islands, 2) Virgin Islands Economic Development Authority, 3) Virgin Islands Housing Finance Authority, 4) Juan F. Luis Hospital & Medical Center, 5) Magens Bay Authority, 6) Virgin Islands Public Broadcasting System, 7) Roy L. Schneider Hospital, and 8) Virgin Islands Waste Management Authority. The Primary Government also reports the OPEB liabilities associated with these benefits. The discount rate changed from 3.64% for the opening balance as of September 30, 2019, to the discount rate of 3.58% for the ending balance as of September 30, 2020. This change resulted in an increase in total OPEB liability. The base mortality tables and mortality improvement sales were updated to RP-2014 Blue Collar Mortality table (110.0% adjustment) projected forward using the MP-2015 scale. Future participation in the retiree health plan is projected to be 85.0%. Government of the United States Virgin Islands Schedule of Net Pension Liability 147 September 30, (in thousands) 2020 2019 2018 2017 2016 2015 Primary Government’s proportion of the NPL 78.9300% 77.8087% 76.5852% 76.4171% 75.2916% 75.2803% Primary Government’s proportionate share of the NPL $ 4,194,852 $ 3,246,789 $ 3,354,768 $ 3,535,517 $ 3,065,617 $ 2,323,163 Primary Government’s covered payroll $ 310,758 $ 309,998 $ 307,132 $ 300,909 $ 277,091 $ 267,698 Primary Government’s proportionate share of the NPL as a percentage of its covered payroll 1,350% 1,047% 1,092% 1,175% 1,106% 686% Plan fiduciary net position as a percentage of the total pension liability 11.32% 15.56% 16.18% 16.54% 19.58% 27.26% This schedule is intended to show a 10-year trend. Additional years will be reported as they become available. The amounts presented for each fiscal year are as of the measurement date (September 30 of the previous year). Government of the United States Virgin Islands Schedule of Pension Contributions 148 September 30, (in thousands) 2020 2019 2018 2017 2016 2015 Primary Government’s actuarially required contributions $ 289,507 $ 215,937 $ 205,052 $ 191,481 $ 186,089 $ 150,628 Primary Government’s contributions in relation to the actuarially required contributions $ 72,301 $ 84,005 $ 77,840 $ 61,759 $ 68,291 $ 64,357 Contribution deficiency $ 217,206 $ 131,932 $ 127,212 $ 129,722 $ 117,798 $ 86,271 Primary Government’s covered payroll $ 325,000 $ 310,758 $ 309,998 $ 307,132 $ 300,909 $ 277,091 Contributions as a percentage of covered payroll 22.25% 27.03% 25.11% 20.11% 22.69% 23.23% This schedule is intended to show a 10-year trend. Additional years will be reported as they become available. The amounts presented for each fiscal year are as of the latest fiscal year. Revenues Taxes 751,327 $ 751,327 $ 874,526 $ 123,199 $ Federal grants and contributions - - 22,411 22,411 Charges for services 69,316 69,316 10,626 (58,690) Interest and other 135,089 135,089 99,353 (35,736) Total revenues 955,732 955,732 1,006,916 51,184 Expenditures Current: General government 404,345 415,552 375,011 40,541 Public safety 63,411 63,411 62,634 777 Health, public housing and welfare 89,783 89,823 82,549 7,274 Education 167,668 169,239 175,653 (6,414) Transportation and communication 24,205 24,205 20,259 3,946 Culture and recreation 18,624 18,696 5,701 12,995 Total expenditures 768,036 780,926 721,807 59,119 Excess of revenues over expenditures 187,696 174,806 285,109 110,303 Other financing sources (uses) Transfers from other funds 58,200 58,200 38,580 (19,620) Transfers to other funds (70,700) (70,700) (74,272) (3,572) Transfers to component units (34,290) (119,026) (102,819) 16,207 Total other financing uses, net (46,790) (131,526) (138,511) (6,985) Excess of revenues and net other financing uses over expenditures 140,906 $ 43,280 $ 146,598 $ 103,318 $ See accompanying notes to the Schedule. Schedule of Revenues and Expenditures – Budget and Actual Government of the United States Virgin Islands (in thousands) Year Ended September 30, 2020 Budgetary Basis − General Fund Original Budget Revised Budget Actual Variance 149 Government of the United States Virgin Islands Notes to Schedule of Revenues and Expenditures - Budget and Actual Budgetary Basis – General Fund 150 1. Budgetary Process and Control The V.I. Code requires the Governor to submit an annual balanced executive budget to be adopted by the Legislature of the Virgin Islands (the Legislature) for the ensuing fiscal year. The Governor is required by law to submit to the Legislature the annual balanced executive budget no later than May 30. The annual balanced executive budget is prepared on a budgetary basis. If the annual executive budget has not been approved before the commencement of any fiscal year, then the appropriations for the preceding fiscal year, insofar as they may be applicable, are automatically deemed re-appropriated item by item. The annual balanced executive budget, which includes those funds of the Government subject to appropriation pursuant to law, is composed of all proposed expenditures and estimated revenue for the Government. The Legislature enacts the annual executive budget through passage of lump-sum appropriations for each department. The Legislature may add, change, or delete any items in the annual executive budget proposed by the Governor. Upon passage by the Legislature, the annual executive budget is submitted to the Governor, who may veto the budget partially or in its entirety and return it to the Legislature with his objections. A veto by the Governor can be overridden only by a two-thirds majority of all members of the Legislature. The Legislature is obligated by law to pass a final annual executive budget no later than September 30, the last day of the fiscal year. Supplemental budgetary appropriations bills that are signed into law may be created during the year without the identification of a specific revenue source to finance them. In August 1999, the Legislature enacted the Financial Accountability Act (Act No. 6289). The purpose of the Financial Accountability Act is to require by law that the budget of the Government be balanced each year, and the appropriations in each fiscal year not exceed a verifiable revenue source. Once the budget has been enacted, fiscal control over expenditures made pursuant thereto is exercised by the Governor through the Director of the Virgin Islands Office of Management and Budget (OMB). During any fiscal year in which the resources available to the Government are not sufficient to cover the appropriations approved for such year, the Governor, through the Director of OMB, may take administrative measures to reduce expenditures. The Governor may also make recommendations to the Legislature for new taxes or any other necessary action to meet the estimated deficiency. Budgetary control is exercised at the department level through an allotment process. Encumbrances and expenditures cannot exceed total allotment amounts. The Government’s department heads may make transfers of appropriations within the department. Appropriation transfers between departments and supplemental appropriations require executive and legislative branch approval. Unencumbered and unexpended appropriations, not designated, lapse at fiscal year-end. Also, encumbrances are established at fiscal year-end to pay certain expenditures for travel and utility costs payable against current year appropriation authority, but to be expended in the subsequent year. Government of the United States Virgin Islands Notes to Schedule of Revenues and Expenditures - Budget and Actual Budgetary Basis – General Fund 151 2. Budget/GAAP Reconciliation The following schedule presents a comparison of the General Fund legally adopted budget with actual data on a budgetary basis. Because accounting principles applied for purposes of developing data on a budgetary basis differ significantly from those used to present financial statements in conformity with GAAP, a reconciliation of timing and entity difference of the excess (deficiency) of revenue and net other financing sources over expenditures for the year ended September 30, 2020, is presented below (expressed in thousands): Excess of revenues and net other financing uses over expenditures $ 103,318 Entity difference – excess of revenues and net other financing uses over expenditures – activities with budgets not legally adopted 12,531 Excess of revenues and net other financing uses over expenditures – GAAP basis (net change in fund balance) $ 115,849 Controls over spending in special revenue funds and non-appropriated funds are maintained at the Department of Finance by use of budgets and available resources (revenues). The Government makes appropriations to authorize expenditures for various capital projects. Budgets for capital projects normally remain available until completion of the project unless modified or rescinded.