Members of the Government Employees Retirement System board of trustees are again discussing whether to potentially lift a moratorium on alternative investments to develop parcels of land on St. Thomas and St. Croix.
Trustee Ronald Russell said during Thursday’s board meeting that as chairman of the Development Committee, he met with other members to figure out ways the government’s pension plan can earn additional revenue.
“We expect to proceed expeditiously with whatever proposal might come to us so that the system could realize some kind of benefit from that undeveloped land,” Russell said.
GERS purchased 120 acres of land at Estates Hoffman and Nullyberg on St. Thomas in 2006 and purchased 170 acres of land at Estate Coakley Bay on St. Croix in 2010.
“These purchases were made primarily as a real estate investment for our members,” and preliminary plans for development had been in discussion, according to information on the GERS website.
Russell said the committee had not been active, and he wants to revive efforts to develop the parcels as an investment.
GERS owns other pieces of developed real estate, including Havensight Mall and the GERS complex on St. Thomas, and a St. Croix complex and property in Estate Orange Grove that houses the Casino Control Commission.
Russell told GERS Administrator Austin Nibbs that “we need to remove the moratorium on development,” and “we want to remove that resolution or have it declared overruled, and I want to do this at this meeting at the appropriate time so we don’t have a block on development for the system.”
Given the influx of $157 million from the special purpose vehicle that restructured outstanding matching fund bonds issued by the Public Finance Authority, Russell said they should act now.
“We have money coming in and we need to utilize all the resources for the system and that might involve development of property and other things,” Russell said.
Russell previously made a motion to lift the moratorium at the August 25 meeting, but received support only from Trustee Andre Dorsey. Trustees Dwane Callwood, Vincent Liger, Leona Smith, and Nellon Bowry voted against it, and Trustee Michael McDonald was absent at the August meeting, and Thursday’s meeting.
The practice of using government pension funds to make commercial loans prompted a 2016 report by Inspector General Steven van Beverhoudt, which found the board had made risky, unmonitored, and illegal alternative investments.
Nibbs responded at a press conference at the time and defended the deals, saying that “all investments have risk.”
One alternative investment into a “viatical” could stand to lose $42 million, but Nibbs said that figure is “miniscule” compared to the $1.3 billion the government failed to pay into the system.
A viatical settlement is the sale of a life insurance policy to a third party for more than its cash surrender value but less than the net death benefit.
“There’s risk in every investment that is made, but there was a lot of negativity out there in the press from a lot of places and members and politicians alike who were just knocking GERS for one bad investment which is subjected to a loss of $42 million,” Nibbs said at the time.
Another investment involved an $11 million loan from GERS to the failed West Bay supermarket on St. Thomas, which van Beverhoudt found had not been properly managed, and at least $480,850 was “diverted for unauthorized purposes,”
But Nibbs has pointed to the Carambola Beach Resort as a much-maligned investment that eventually turned a profit.
GERS closed on a $15 million loan to the resort in 2009, and took over the property in 2012 after the owners defaulted on the loan. GERS received $17.1 million in insurance settlement proceeds after hurricanes Irma and Maria seriously damaged the resort in 2017, and sold it for $10.4 million in 2019, reaping a profit of $12 million over the appraised value of $15 million.
Russell said Thursday that he believes V.I. Delegate to Congress Stacey Plaskett when she said she is confident Congress will pass tax extender legislation before the end of the year, and they should start making new investments in real estate development.
The special purpose vehicle was touted as the best hope of saving GERS from insolvency, but it utilizes funding through the rum cover-over rate, which was structured at a $13.25 per proof gallon. That rate expired in December 2021, but Plaskett said in August she anticipates it will be retroactively increased to the $13.25 needed to fund GERS.
“So, I would feel that we have that coming some time this year, and lifting a moratorium, depending on what the other trustees feel, is necessary,” Russell said, before asking to hear from Bowry.
The former Office of Management and Budget Director, Bowry said the board should be cautious.
“My take on it is that I don’t agree for a blanket lifting at this point, I don’t think we’re sufficiently out of the woods,” Bowry said.
“If there’s a project that has promise and makes sense, then I won’t object for us to move ahead with that,” Bowry said. “Once the case is made and we can vet it properly and you know, feel comfortable — as comfortably as you could feel, given the fact that it’s an alternative investment that carries higher risk. A level of risk that we need to weigh.”
Liger agreed, and said there have been several ideas for what to do with the vacant properties, “but none of them have been done yet. So, I just feel that before we lift any moratorium we should decide exactly what we’re doing, and if it’s a good idea, I would support it, sure.”
A real estate expert should analyze the costs and benefits of developing the properties, “to have a sense, given the current market, given the real estate that we have, given the economic times, what would be the highest and best use for those particular assets,” Bowry said.
Bowry said the board should only accept proposals “that are consistent with that analysis, so we don’t just fall for the first thing that comes our way.”
Smith agreed with Bowry that she would support a review of development proposals, “project by project, and then we can go from there,” rather than lifting the moratorium entirely.
Chairman Callwood also agreed with Bowry, and said the board needs to first determine how they want the land to be developed, “then I have no problems with hearing proposals that are along the same direction.”
After determining a plan, “I have no problem removing the moratorium with respect to those two undeveloped properties once we know what we would like to do with it,” he added.
Russell said they would discuss it at the next committee meeting, and withdrew his suggestion to lift the moratorium at Thursday’s meeting.
At another point during Thursday’s meeting, Russell asked Nibbs if plan members have been pulling their money out of the system.
Nibbs said some have, but “we are trying to convince members now, since the monies have come in. We have to be frank with them, let them understand we’re still not out of the woods as yet. There’s going to be a period of time when if nothing is done to additional funds coming in, the system could experience no assets,” around 2035.
Nibbs also highlighted two major semiautonomous agencies that are behind on contributions to the pension system, including the V.I. Water and Power Authority, which owes $10.75 million as of Feb. 28, including $10.5 million in outstanding employer contributions, and $219,976 in employee contributions and fees.
Schneider Hospital also has $1.1 million in debt to the system, including $721,371 in employer contributions and $349,299 in employee contributions, minus deductions in membership and fees, for a total outstanding contribution of just over $1 million, Nibbs said.