Plummeting tax revenues continue to worsen the V.I. Government’s cash flow, but with federal stimulus funding beginning to take effect and new bond debt poised to start flowing, 2010 revenues are expected to remain stable according to Government House, ending the freefall but leaving finances tight.
Wrapping up 2010 budget hearings Tuesday, Gov. John deJongh Jr.’s financial team gave the Senate Budget Committee slightly modified 2010 revenue projections and briefed it on major changes to the 2009 fiscal outlook.
For the current fiscal year ending Sept. 30, revenue projections are reduced to $807.3 million, down from earlier projections of $834.1 million, Management and Budget Director Debra Gottlieb told the committee. As a result, the general fund is experiencing a larger than expected cash flow shortfall this year of $38.8 million. This sum is not the deficit, which is much larger, but the shortfall remaining after taking into account all the expected short term revenues from a $250 million borrowing bill passed in July.
The borrowing bill was meant to plug the holes in the budget caused by recession-impacted revenues, but revenues fell even further than expected. According to figures provided by Gottlieb, in 2008 the territory took in $433.2 million in individual income taxes, but only $343.4 million is projected for 2009, a decline of nearly $90 million. Even more dramatic, corporate income tax revenues were $176.7 million in 2008 but are now projected at $52.6 million for 2009, a one-year decline of $124 million.
The biggest contributor to the immediate shortfall is a decline in payroll tax. New projections show individual income tax revenue likely to come in at $343.4 million, a decrease of $22.4 million from earlier projections, while corporate income tax projections decreased by $300,000 to $52.6 million.
The cash crunch has delayed a small percentage of income tax returns and caused the government to hold off on paying some vendors as it prioritizes expenses and works to ensure core expenses such as payroll and debt service continue to be paid on time.
"We are getting calls all the time from people with small appropriations saying they were supposed to get money and haven’t," said Sen. Craig Barshinger, one of several senators asking how the government is deciding whom to pay.
"We do allotments … based on the availability of funds and we know despite our borrowing, there is about $38 million our resources will not address," Gottlieb said.
Ever-increasing spending has had an effect too, she said. "While OMB is controlling spending by monitoring and adjusting the allotment process, new appropriations have been added and these appropriations have increased the obligations of the government."
To try to partially bridge the gap, the administration has cut some departments by two percent, is continuing a limited hiring freeze, shedding government employees through attrition, as well as using stimulus funding wherever possible and by borrowing, she said.
Sens. Neville James, Nereida "Nellie" Rivera-O’Reilly, Sammuel Sanes and others said they were concerned about the long-term viability of massive borrowing to make the budget.
"Do you really think in 2010, things will be so different we will not have to go out and borrow again?" asked Sen. Wayne James.
"We think [it will be] marginally better," said Nathan Simmonds, senior policy advisor to deJongh. "We expect a slight upswing in the next year, based on the economic forecasts."
Simmonds cited stimulus funding, $87 million in new Public Finance Authority bonds for capital projects, the start of construction on the Diageo distillery on St. Croix, the anticipated start of work on a new Island Crossings shopping center on St. Croix and an improved global economic outlook as reasons to be optimistic the worst may be over.
But revenues will still grow only marginally, he said.
"We are still going to be borrowing in 2010 and we will be asking for additional borrowing ability of $100 million in addition to the $250 million in place now," he said.
Looking at the upcoming budget year, 2010 estimated revenues have been revised upward from $854.4 million to $860.2 million, Gottlieb said. These projections rely upon real property tax collections from past years, which have not been collected pending resolution of two lawsuits, she said.
Real property tax collection projections were increased by $29 million over initial projections to $119 million for 2010.
"The government plans to reissue the rest of 2006 property tax bills and issue both 2007 and 2008 property tax issues, subject to resolution of the legal issues," Gottlieb said.
By comparison, 2008 property tax revenues were $26 million and in 2009 are projected at $30 million.
The government’s overall spending plan is about $1.2 billion, including all appropriated, non-appropriated, borrowed and federal funds.
No votes were taken at the budget oversight hearing. Present were: Barshinger, O’Reilly, Sanes, Neville James, Wayne James, Sens. Carlton "Ital" Dowe and Terrence "Positive" Nelson.
