April 21, 2007 — The government's financial structure is "a house of cards" that has left the territory about $3 billion in debt, Gov. John deJongh Jr. said over the weekend at the League of Women Voters' annual meeting on St. Thomas.
"I came to this job with a background in finance, and frankly, as bad as I imagined the situation might be, what Greg Francis and I have found is far worse," he said, much to the surprise of several in the audience.
DeJongh, the featured speaker during this year's event, broke the figure down into several different categories, including:
— $520 million in public debt owed to institutional investors and used to fund critical public infrastructure projects;
— $580 million in public debt issued during the late 1990s and 2000 to fund operating deficits;
— a $1.2 billion unfunded liability currently plaguing the Government Employees Retirement System;
— about $400 million owed in retroactive pay to government employees; and
— almost $200 million in "hidden deficits" that the government has carried forward from year to year.
Included in the $200 million-figure is about $40 to $60 million in unpaid vendor invoices, approximately $60 million worth of unfunded appropriations and more than $60 million in encumbrances (claims on cash that carry forward each year), deJongh explained.
Additional pension benefits given to GERS beneficiaries are also compounding the debt, he added, since previous administrations and senators have failed, over the years, to fund the required employer contributions into the system or significantly pay down on the unfunded liability.
"Successive administrations had built a mountain of debts, and a house of cards," deJongh said. "However, what is worse than the numbers is the climate of denial, the culture of acceptance, as though it is okay that our house is in disarray, as though it is the best that we should expect. Perhaps worse than those who benignly accept as inevitable the current state of affairs are those who claim that we were solvent and in good shape, that we have a lot of cash in the bank — notwithstanding the fact that the claims on that cash are many times the amount in the bank."
That means that a large chunk of the nearly $300 million in surplus revenues carried over from the past three fiscal years have "pretty much" been obligated, covering the cost of various government expenses, he said.
The government's continuous failure to fully fund financial obligations has also, inevitably, had an impact on the territory's revenue stream, resulting in an annual deficit of about $100 million, deJongh added.
"In my opinion, it is time for this game to stop," he told the group. "We must bring all of the parties to our financial situation to the table and address the issue that we face. Because if we don’t, our plans to improve public safety, to address education, to fund access to health care and to address our environment will be but another charade …. This is a moment of challenge to our territory, where individual interests and special interests must give way to public interest and community interest, and so I am going to need your help."
In the meantime, the new administration has formulated a series of plans designed to pull the local government out of its dire financial position — including, among other things, presenting a budget for the 2008 fiscal year that fully funds pension and other outstanding obligations.
While the issuance of pension-obligation bonds may not be the first step in the process, they have not been ruled out as an option to pay down on the unfunded liability, deJongh added. In the interim, however, the governor said he plans to utilize a portion of the $40 million set aside in this year's budget to cover unpaid government contributions to the retirement system.
Other plans include:
— imposing a cap on pension benefits and other changes designed to bring the retirement system up to date with its financial obligations;
— committing any excess internal revenue matching funds (rum revenues) to pay off pension obligations;
— trying to resolve the issue of retroactive pay by instituting changes in local labor laws and making sure negotiated wages are fair, affordable and paid in a timely manner; and
— working with local labor unions to settle the amount owed in retroactive pay.
"I am not asking for unilateral changes here, but am offering real value for real value," he added. "I am offering to secure our employees' future, and am asking that the unions — who represent our workers as well as our citizens — support the enactment of changes to how we do business together that will help secure our community’s future."
While startled by deJongh's financial report, several League members said they were also impressed with his honesty and suggested that a copy of the presentation be sent to members of the Legislature.
"I thank the governor for no rhetoric," said Norma Levin, one of the League's founding members and past president. "There was lots of information given here, and we don't usually get that."
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