Office of Management and Budget Director Debra Gottlieb gave a budget crash-course at the annual League of Women Voters meeting Saturday, emphasizing financial resilience and urging the community to get involved in the budget process.
Gottlieb, who was invited as the guest speaker for this year’s league meeting, encapsulated the territory’s budget situation to an audience of 30 in her presentation, “V.I. Budget: Challenges and Strategies.”
Gottlieb said that since 2007, the territory has taken financial blows that it has managed to absorb so far, but which led to the current financial situation. These include a 70-percent drop in corporate income taxes and the 2008 global financial crisis that dropped territorial revenues by 31 percent. The manufacturing sector also crumbled because of global factors, culminating in the 2012 closure of the Hovensa refinery. The tourism industry has not yet recovered to pre-recession levels, she added.
“The combined loss of Hovensa, EDC beneficiaries and tourism-related expenditures in the territory has increased reliance in the territorial government and the continued provision of services and economic sustainability,” said Gottlieb.
Long-Term and Short-Term Solutions
Gottlieb enumerated long-term economic strategies of the deJongh administration, including a business regulation that is more friendly to new businesses, the use of ARRA funds to construct the viNGN technological infrastructure, revitalizing public infrastructure, working with airline and cruise ships to promote the Virgin Islands as a tourist destination, and expanding the rum industry.
As for the territory’s more immediate problems, mainly the $40 million projected shortfall by the end of the fiscal year, there is a push for reduced spending on the government’s energy consumption, travel and telecommunication expenses, but particularly in its largest area of expenditure: personnel.
“Long gone are the days when a vacancy was automatically refilled,” Gottlieb said. "Here are the days when one employee is now tasked with carrying the load performed by more than one person.”
Revenue collection has become a focal point of the government’s budget activities, making it more reliant on the Internal Revenue Bureau and the Lieutenant Governor’s Real Property Tax Division.
According to Gottlieb, noncompliance and underreporting of business and personal income, or tax evasion, is hurting revenue generation, and the public is starting to notice.
“The public’s tolerance for those who do not pay their fair share is diminishing,” said Gottlieb. “After all, tax collection, along with federal grant funds, are essential in funding the community wants and keeping the government operational.”
Financial Resilience, Not Just Sustainability
Gottlieb made a distinction between a financially sustainable system, which she described as “balanced but potentially brittle,” and a resilient system, which is “survivable and capable of thriving even under conditions of adversity.”
“Financial resiliency is our goal, because financial sustainability is not enough and will not ensure the ongoing financial health of the territory,” she said.
The main characteristics of a resilient system, Gottlieb said, include diversity, redundancy, decentralization, transparency, collaboration, flexibility, foresight and, notably, failing gracefully.
“When problems arise, we need to examine them, not cover them up,” she explained. “Share what the cause of the problem is and work collaboratively towards a solution.”
In order to achieve financial resilience, the territory needs to work on financial initiatives such as diversifying its revenue base, eliminating the structural deficit and reorganizing dysfunctional governmental units. It also need to address the problem of unfunded mandates and cease to utilize short-term solutions to address long-term problems.
League of Women Voters member Helen Gjessing brought up the financially-strapped Government Employees Retirement System as an example of an unfunded mandate. Gottlieb agreed, saying that is what happens when the problem is ignored. Nonetheless, saving the retirement system, she said, would require some unpopular decisions.
“It’s going to require sacrifice of all the participants, including retirees,” she said. “We’re not going to save the system if we don’t reduce the benefits. We’re just not going to. We push off the demise but it will collapse without that.”
When Gjessing asked what could be done to stop those who create unfunded mandates from causing the problem in the first place, Gottlieb said informed election of leaders is a must.
“We really need to take a closer look at the people that we elect,” she said. “It’s not a popularity contest. I ask myself, ‘Are they aware of some of the decisions that they will have to address?’ I don’t know.”
Ultimately, Gottlieb said, the community needs to be more involved in the budget process, through Senate hearings or just by sharing ideas on solutions.
“More community outreach and engagement can ensure the continuity of financial planning and related services,” she said. “I am surprised that more people are not involved. The truth of the matter is people don’t get involved until it affects us personally.”
The League of Women Voters also honored Gjessing, a long-time, active member who is moving off island, and presented the following 2014-2016 officers:
President: Gwen Moolenar
Vice-president: Phyllis Wallace
Treasurer: Margaret Quetel
Secretary: Ginny Dargan
Deyce E. Singleton
St. Croix Unit Leader:
Tanisha Bailey Roka
St. Thomas Unit Leaders: