Regardless of the legal merits, if U.S. District court comes down on the side of unions suing to overturn temporary government employee pay cuts, hundreds of public employees could quickly lose their jobs because of insufficient funds to pay their salaries, according to Government House.
The V.I. government has been struggling with declining tax revenues ever since the worldwide financial crisis hit in 2008, but until this year, it had been able to get by with the help of federal stimulus funds and bonds anticipating excise tax revenues from the Diageo and Cruzan Rum distilleries on St. Croix. Those stop-gaps dried up this year, leaving a large hole in the budget.
The 8 percent cut for all government employees making more than $26,000 per year was passed by the Legislature in June, and signed by Gov. John deJongh Jr. to avoid impending layoffs due to insufficient funds. The act also included other cost-cutting and tax-increasing measures that have not proven as controversial.
While the cuts were proposed by the Legislature as an alternative to administration proposals to increase gross receipts taxes, eliminate nine paid holidays, and other measures, deJongh said in a statement Monday, he believes the across-the-board cuts were a fair approach.
However, the measure was challenged by several labor unions, who argued in a hearing a week ago before District Court Chief Judge Curtis Gomez that the pay cut is in violation of their labor agreement, federal law, and the U.S. Constitution. Gomez has yet to issue his ruling in the case.
Without addressing the legal arguments, deJongh said Monday, if the pay cut is reversed, an already severe fiscal crunch will be made abruptly worse, forcing massive layoffs.
“There is no doubt that to dismiss hundreds, possibly more than a thousand public workers, will be another blow to our economy. More Virgin Islanders will depend on unemployment insurance and social services that are all already stretched thin from budget cuts, while contributing less to the overall economy,” deJongh said.
“Unfortunately, if the legal process bars us from following through on this measure, there will have to be dire consequences,” he added.
The territory’s unemployment rate already stands at 9.7 percent, which Government House described as "an alarmingly high number that is stretching services and reducing income tax revenues."
If Gomez finds the pay cut act cannot legally be implemented, and the decision is upheld on appeal, the government will owe almost $30 million it does not have. In light of that number, deJongh said he will have little choice but to make the decision to terminate many employees. Government spending on education, law enforcement, and social services has already been seriously trimmed, and there is no more room to defund critical services, deJongh said.
“The labor unions who filed suit have every right to seek relief. We have presented our case, and in the end, I hope the Virgin Islands can avoid hundreds more joining the ranks of the unemployed,” deJongh said.
In July, after the Legislature passed the pay cut, but before it was signed into law, the St. Croix Police Benevolent Association and St. Croix Law Enforcement Supervisors Union filed suit against the V.I. Government, seeking an injunction to stop the pay cut. More unions filed suit, including the St. Croix Federation of Teachers, United Steelworkers, St. Thomas Federation of Teachers, V.I. State Nurses Association, and the Seafarers International Union. The St. Thomas chapter of the International Association of Firefighters filed to join the suit too, but their suit was dismissed in November. All the suits have been joined into one case.
Gomez denied the unions’ request for a temporary restraining order against the pay cut in August. Several unions pushed instead for a preliminary injunction, but have not been successful to date.
All plaintiffs argue the pay-cut act, aka the Economic Stability Act, violates the U.S. Revised Organic Act of 1954’s (the territory’s equivalent to a constitution until there is such a document) requirement that no law impair otherwise binding contracts because the pay cut violate the unions’ collective bargaining agreements. Several suits argue, too, the act was enacted improperly because it was not presented by the governor to the Legislature, citing passages of V.I. law which require the governor to submit an annual budget and the Legislature to act upon the budget.
In its response, the V.I. government argues the U.S. Constitution’s prohibition against laws impairing contracts specifically applies to states and not territories like the U.S. Virgin Islands. Also, in federal and V.I. law, the inviolability of contracts has always been limited and tempered. V.I. law states collective bargaining is limited by "the paramount right of the citizens of this Territory to keep inviolate the guarantees for their health, safety and welfare." Federal courts have ruled the public welfare trumps collective bargaining when the two conflict, according to the government’s court filings.
As a result, the government argues the unions would have to show not only that their contracts were substantially impaired, but also that the pay cut did not serve a legitimate public purpose and was not reasonable and necessary. The fiscal crisis was a legitimate public purpose and the lack of viable alternatives that avert mass layoffs make the cuts reasonable and necessary, and the unions have not made a case to the contrary, the government argued in its filings.
The government argues the complaints about how the pay cut was enacted should be dismissed because the law does not give private parties such as the unions standing to sue.