New bill would “refinance” retirement loan
Senate President Gaoteote Palaie Tofau is the sponsor of a Senate bill which seeks to refinance $2 million under the current $20 million loan from the ASG Employees Retirement Fund to fund operations of the LBJ Medical Center.
The $20 million loan was signed into law in 2007 to fund local capital improvement projects and amended the following year to add more local projects such as the 10th Festival of Pacific Arts and the undersea fiber optic cable project.
According to the new Senate bill’s preamble, providing adequate health care for the people of the territory is a necessity and priority, and to meet that priority, the financial condition of the medical center must be stabilized.
It has been determined that through diligent repayment, the balance of the ASG’s $20 million loan from the Retirement Fund “has been reduced to an amount which would allow for refinancing of the loan to obtain additional proceeds for operations” for LBJ and such refinancing can be accomplished with the necessity of increasing the credit limit for debt that can be extended by the Retirement Fund to ASG, the bill states.
Retirement Fund board chairman Aleki Sene Sr. told a House hearing last week on the Administration bill to loan $8 million from the retirement fund for LBJ, that based on retirement office figures, the government can only loan up to $6.7 million. (This administration bill is yet to be introduced in the Senate.) He also said at the time, that they would prefer the $20 million loan be paid in full, before extending further credit.
A provision under the $20 million loan law states that interest and principal payments on the loan authorized in this section shall be amortized over a ten-year term and payments made quarterly.
The Senate bill adds a new provision, which states: “Provided that the loan term may be extended consistent with terms of any refinancing of the loan, if necessary.”
The bill also states that the governor, or his designee, is authorized to negotiate with the Retirement Fund board refinancing of the loan for an additional principal amount of $2 million plus loan costs, upon the same terms and conditions as set forth under the current $20 million and existing loan agreements, with the exception that the repayment term of the loan may be extended, if necessary, and if a more favorable interest rate than 7.5% can be obtained, then such lower interest rate may be obtained on a fixed-rate basis.
Moreover, the refinanced loan agreement shall provide that the $2 million loan proceeds shall be disbursed directly onto the separate account of the LBJ hospital.
Additionally, the pledge of the Full Faith and Credit of ASG, existing security and security interests pledged under the $20 million loan and the sources of funding to repay the $20 million loan shall apply to and remain in effect for the refinancing of the $2 million loan.
(The $20 million loan is repaid through a previous hike in import taxes for beer, alcohol, tobacco products and Customs Entry Declaration Forms Processing Fee. All ASG assets are used as collateral for the loan.)
According to the Senate bill, five days after the closing of the loan refinancing, the governor or his designee shall provide copies of all loan documents, including promissory notes, loan agreements, security agreements and security interest to the Fono for both the original loan and the refinanced loan.
The ASG Treasurer shall provide loan status reports from time to time as requested by the Legislature.
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