Unpaid government holidays or employee layoffs?
When presented with the two options Wednesday, senators agreed on protection for government workers, but said cutting eight days of holiday pay would soon have people rioting in the streets.
The initiative is projected to save the government more than $14 million in fiscal year 2010 — a sizeable chunk of change in the midst of a budget shortfall that’s expected to hit $250.7 million in FY 2009 and $253.7 million in FY 2010. Members of the governor’s financial team didn’t beat around the bush during budget overview hearings Wednesday when they said the territory is currently "mired" in a deep economic downturn that’s expected to get worse before it slowly begins to get better.
To bridge the gap, the government will float as much as $87 million in bonds and borrow as much as $250 million from public funds and local banks.
But even with the borrowing, the government will still be $12 million in the hole this fiscal year, balancing out $834.1 million in projected revenues with $846.1 million in expenses, including $3.4 million in appropriations that remain "available until expended."
All corners have been cut and pennies have been pinched across the board. Over the past few weeks, a majority of departments and agencies testifying before the Senate have come with reduced budget requests. A hiring freeze has been in place since last year.
So, now it’s crunch time, and along with implementing an attrition program that cut vacant positions, government holidays are now on the chopping block, according to Office and Management and Budget Director Debra Gottlieb.
Several senators immediately shot down the idea, but Gottlieb made it clear that it’s either unpaid holidays or reduced work weeks, furloughs or worse — employee layoffs. Cutting out the holiday pay is the less drastic approach to reducing personnel costs, which is estimated at $365.2 million for FY 2010, she added.
The government’s overall FY 2010 spending plan is about $1.2 billion — including $854.4 million in projected General Fund revenues, $108.9 million in other appropriated funds, $175.6 million in federal funds, $91.5 million in non-governmental funds and $27.9 million in other non-appropriated funds.
Along with personnel expenses, another $165.4 million in General Fund revenues is slated for fringe benefits, while $2.4 million would go toward capital outlays. The government’s supplies budget is $15.8 million, while $150.3 million would go toward the "other services and charges" category, which includes everything from professional services contracts to travel expenses. Utility costs are projected at $22.7 million.
General Fund revenues are projected to be a little higher in FY 2010 — an estimated $716.5 million in tax collections (which make up the General Fund operating budget) is combined with $84.9 million in contributions from other government funds and $210.3 million in other revenue sources, including $107.4 million from borrowing, $68.9 million in federal state fiscal stabilization funds, $33.3 million in tax rebates under the American Recovery and Reinvestment Act and a $700,000 contribution from the West Indian Co. Ltd.
The General Fund category also factors in a projected $90 million in real property taxes — the remainder of FY 2006 tax bills and all FY 2007 bills — that officials hope to bring in once the government’s longstanding court case is settled.
However, the General Fund budget is offset by $88 million in income tax refund payments, $56 million in debt service payments and $13.2 million for legally mandated transfers out to other funds.
The Big Economic Picture: FY 2009 and FY 2010
The economy is likely to worsen over the next few months of FY 2009, and is not expected show signs of improvement until FY 2010, Gottlieb said Wednesday. Since last November job losses have increased, unemployment claims are up, consumer spending continues to decline and construction projects have come to a halt.
During the first eight months of FY 2008, 578 jobs were lost in "virtually every major sector of the economy" — particularly in construction, professional and business services, wholesale trade and hotel/accommodations, she added. Since December 2007 — what’s pegged as the "official" start of the national recession — the territory’s overall unemployment rate has jumped from 6 percent to 7.7 percent in May 2009.
Government revenues collected in the first nine months of FY 2009 were 27 percent lower than what was collected over the same period in FY 2008, particularly in the areas of real property, corporate income, personal income and gross receipts taxes.
Most of the government’s attempts to stimulate the economy won’t take effect until next fiscal year, Gottlieb said.
Whose Fault Is It Really?
Financial team members have been painting a grim economic picture for months, so senators didn’t express surprise over the numbers presented during Wednesday’s hearing. But along with raising opposition to the unpaid holiday initiative, they questioned whether the government is doing as much as it can to cut costs, and if some old "inefficiencies" have finally come home to roost.
What’s being done to cut energy costs and if government vehicles aren’t being used as much, how much gas money is being saved, they asked. Why haven’t there been any proposals for generating new revenue — such as increasing taxes on items such as cigarettes and alcohol? And why, if there are unpaid property taxes dating back to the 1970’s, isn’t the government selling some of the land to settle the debts?
The latter suggestion was introduced Wednesday by Delbert Hewitt, chief of operations at the Lieutenant Governor’s Office, who said that utility companies cut off someone’s power or telephone service if payments are not made regularly and on time.
"I’m not saying that we should do that, but really, we’ve got to do something, otherwise we won’t be collecting anything," he said.
Since property tax collection operations were transferred from the Finance Department, the Lieutenant Governor’s Office has been able to collect about $9 million in delinquent property taxes, and expects to collect about $12 million more, Hewitt said. However, collection efforts have been stymied by "erroneous" records kept at Finance, which shows about $108 million in delinquent taxes.
"So far, we’ve gone through about $54 million of that, and what we found is that a lot of that money is not really delinquent," he said. And if everything was being done by the book, there shouldn’t be delinquent accounts dating back to 1974, Hewitt added.
Senators said that these "inefficiencies" should really be investigated during the ongoing budget process to weed out what processes are not working.
In the meantime, the government’s got to do whatever it can to "make it work," said Sen. Wayne James. Taking a page from his years of experience as a fashion designer, James brushed off opposition over the unpaid holiday initiative by saying that government employees won’t begin to understand the realities of the current economic condition until they stop getting their paychecks.
"What we do in bad economic times is not cry," he said. "We make mini-dresses instead."