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'Austere' Budget Calls for Funding Cuts, New Taxes

June 1, 2004 – Gov. Charles W. Turnbull outlined at a Tuesday afternoon press conference what he had described Monday as a "tight" executive branch budget for fiscal year 2005. In a release sent out later in the day from Government House, he termed the budget "very austere."
His spending proposal for the year beginning Oct. 1 will entail "some pain and difficulties" for the departments and agencies suffering cuts, but "there is no other choice," the governor said.
Turnbull said he has reduced funding for vacant positions by as much as 40 percent in some cases, for a savings of $9.3 million. He also had called for reducing appropriations for departments and agencies by as much as 5 percent from FY 2004 levels, for a savings of $16.2 million.
As much as possible, he said, "we have tried to minimize reductions to education, police, fire, health, hospitals, human services and public works." But with these departments and agencies together accounting for more than 60 percent of the budget, it "was not possible to avoid them sustaining some cuts," he said.
Turnbull is asking the Legislature for lump-sum budgets again, as opposed to line-item appropriations. This has become an annual bone of contention, with senators wanting the ability to exercise more control over department spending and the administration not wanting them to have that oversight.
At a Water and Power Authority board meeting last week, Alberto Bruno-Vega, executive director, said he would ask the Legislature to make each agency's appropriation for utility costs a line item in its FY2005 budget. That way, the money could not be spent for anything else.
The central government currently owes WAPA $7.9 million, Nellon Bowry, the authority's new chief financial officer, told the board.
Turnbull said on Tuesday that his proposal accomplishes the reductions despite the need to increase funding for some critical needs and to provide for certain costs not included in the FY 2004 budget. These include:
– $1.7 million for upgrading the financial management system.
– $5 million for reimbursement to the Payroll Fund.
– $4.9 million for the property tax assessment project.
– $4 million increase in debt service costs for the 2003 bonds.
– $10 million for payment on the Hurricane Marilyn Community Disaster Loan.
Turnbull said notwithstanding these increases, "we have reduced the level of appropriations." He said his spending plan "is net of income tax refunds of $58 million, statutorily mandated transfers of $9.4 million and $51 million in debt service costs."
The governor said revenues for FY 2005 are expected to decrease. Individual income-tax collections are projected to increase by $20 million and stamp taxes to increase by $3.5 million over FY2004, but most other taxes will be relatively stable except for real property taxes, which are projected to decrease by $16.5 million.
Louis Willis, Internal Revenue Bureau director, speaking after the press conference, said the April 2005 collection of $112 million was the best month the IRB has ever had. He also said that 96 percent of all 2002 income-tax refunds have been sent out, as have about 55 percent of those for 2003.
In FY 2005, only one year's property tax bills will be due. The delay last year in sending out the 2002 commercial property tax bills resulted in the collection of two bills in FY 2004.
Also, Turnbull said, because he will not be able to utilize the $30 million letter of credit from the Insurance Guaranty Fund utilized to support the FY 2004 budget, that will mean $30 million less in revenues. A $5 million federal government grant under the federal tax relief act also is no longer available, he said.
Contributions from other funds into the General Fund are projected to decrease by some $25 million, Turnbull said, primarily due to a decrease from the Internal Revenue Matching Fund as a result of additional debt service costs.
After the press conference, Ira Mills, director of the Office of Management and Budget, said the Source was incorrect in reporting on Monday that the FY 2005 budget was handed over to a security guard late Saturday night at the Legislature. It was, in fact, delivered to a member of Senate President David Jones' staff, by prior arrangement, Mills said.
New Tax Proposals
Because the projected decreases in revenues total more than $70 million, Turnbull said, he is proposing the following new taxes, which are projected to generate $9 million:
– A $3-per-night "environmental tax" on hotel rooms, to be paid by hotel guests. It is projected to generate $3 million.
– A $3 monthly charge on cellular phones, projected to generate $1.8 million.
– A $50 annual personal property tax on private vehicles including motorcycles, recreational vehicles, boats, and other water and pleasure craft; and a $75 annual charge for commercial conveyances. In total, these are projected to general $4.2 million.
At the press conference, the governor did not elaborate on how the taxes would be regulated or collected. News media representatives present were provided CDs containing the entire budget but no printed versions. The Source will provide a more extensive report on the overall budget on Wednesday.
At a Senate hearing last week, Licensing and Consumer Affairs Commissioner Andrew Rutnik and Sen. Louis Hill were highly critical of the lack of regulation in the cellular phone industry. Hill said he is drafting legislation to create an agency to protect consumers. (See "PSC, Phone Company Take Flak at Senate Hearing".)
Although Turnbull said he had no "other choice" in recommending the budget cuts, it is likely that the Legislature will find much "other choice" when it considers the tax proposals. A year ago, the Senate rejected most of the new and increased taxes the governor had called for as part of his "fiscal recovery package." It is highly doubtful that any lawmaker would support new or increased taxes with the fall elections looming.

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