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Senators, Administration Fight Over Responsibility to Balance Budget

Senators took great offense at administration officials’ suggestions they had not addressed urgent crises with the Government Employees Retirement System, the budget and the V.I. Waste Management Authority during a budget wrap-up hearing Wednesday.

With Fiscal Year 2015 budget hearings for all executive agencies completed, Management and Budget Director Debra Gottlieb and the rest of the governor’s financial team appeared before the Senate Finance Committee to give the latest revenue projections and spending updates. But Gottlieb spent much of the time talking about FY14, saying there is still a $74 million shortfall that will soon bite hard if not addressed.

"Despite being assured by some" senators that the Legislature would work with the administration and "(d)espite the six meetings the administration has had with members of this Legislature" during which various initiatives to increase revenues were discussed, with one partial exception [Act 7637], "this Legislature has not yet approved legislation that fully addresses the Fiscal Year 2014 projected cash flow shortfall by either increasing … revenue collections or reducing … expenditures," Gottlieb said. Meanwhile there are only 28 days left in the fiscal year, she said.

Gottlieb said the Legislature has failed to act on several critical matters submitted for its consideration that affect the territory’s financial situation, including:
– Workers Compensation reform, increasing the rate of employer contribution, so the V.I. Government stops going into debt with the federal government to pay employer obligations;
– pension reforms needed to address GERS’s $1.7 billion unfunded liability and prevent the system from collapsing in less than a decade;
– legislation so the 8 percent government pay cut imposed in 2011 by the Legislature does not create an unfunded retroactive pay problem;
– consolidating the territory’s hospitals into a single, unified system;
– changing the current 65/35 percent government employee health insurance cost sharing to a 60/40 split, to save money;
– finding the millions needed to close landfills and bring the V.I. Waste Management Authority into compliance with federal mandates. (The administration submitted bond legislation, which the Legislature tabled. Related Links below);
– approving a "structurally balanced budget";
– funding for work on the Paul E. Joseph stadium in Frederiksted;
– and authorization for tens of millions of dollars in federal grant anticipation.

The most recent economic data show the local economy "continues to be challenging," Gottlieb said. But there is good news, she added, with both air and cruise passenger arrivals increasing over the previous year, increased corporate income tax collections and a slowly improving economy. As a result, the amount of borrowing necessary to make ends meet has decreased over the last three years, she said.

The most current FY14 revenue projections show $723 million in total revenues available for appropriation. Real property tax revenues were reduced because only 2013 bills will have been issued before the end of the fiscal year, instead of the two anticipated.

The 2014 bills had also been expected, which would have brought property tax collections up to date for the first time in more than a decade. Property tax collections were postponed for a number of years due to a lawsuit filed in 2000, contesting the way properties were valued. That case was settled in January 2011, paving the way for multiple-year billings.

The 2009 tax bills were issued in February of 2012 and the 2010 bills in July of that year, each for roughly $50 million. The Tax Assessor’s Office issued 2011 and 2012 bills in 2013.

While the Legislature authorized $50 million in new borrowing in July, (see Related Links below), only $14 million of that goes to help reduce the budget deficit and the rest to other important needs, Gottlieb said.

There has been a $35.4 million increase in corporate income tax revenue, "which offsets a reduction of $20 million and an amount of $10 million for the revenue discovery and enhancement program," Gottlieb said.

Since the 2014 budget was passed, its appropriation level now totals $797 million, she said.

Several senators objected to Gottlieb’s statement that the Legislature had not addressed the budget crisis, the GERS crisis, Waste Management’s needs, nor acted on the administration’s proposals.

"We acted on it," said Sen. Janette Millin Young. "We just did not do what you wanted us to do," she said.

On June 20, the Legislature permanently tabled a $100 million long-term bond bill requested by Gov. John deJongh Jr. to fill the territory’s budget shortfall (see Related Links below), replacing it with legislation authorizing a very short-term bank loan of $50 million.

The tabled legislation would have authorized $23.8 million to help with closing the territory’s landfills, bringing the proposed new bond debt to more than $98 million. And it would have authorized $70,000,000 for transportation projects on St. Croix’s Melvin Evans Highway and St. Thomas’ Veterans Drive. But this would be funded with Grant Anticipation Revenue Bonds, in advance of future federal funding, and would not affect the annual budget.

The Legislature’s bill, sponsored by seven senators, instead authorizes the government "to re-issue a working capital loan in the amount of $50 million prior to the end of FY 2014." It says the "notes must mature no later than 270 days after issuance," meaning the full loan must be repaid in less than one year. Since there is already a severe budget shortagno mechanism to repay the loan exists, so the Legislature passed subsequent emergency legislation, allowing the government to convert the loan to long-term bonds

It authorized emergency funding for Gov. Juan F. Luis Hospital, Schneider Regional Medical Center and the Bureau of Corrections. But it does not include any GARVEE bond authorization, funding for the V.I. Waste Management Authority, or enough budget support to balance the FY14 budget.

Millin Young defended the Legislature’s inaction on administration recommendations to reform the government pension system. "I believe one of the major reasons pension reform hasn’t been implemented is because it would take money out of people’s pockets," she said.

She also said the Legislature had indeed made proposals, "such as on Internet gambling. We are proposing these ideas for you but we seem to get a lot of criticism, a lot of ‘can’t," Millin Young said.

The senator was referring to a bill, sponsored by Sen. Nereida "Nellie" Rivera-O’Reilly, rescinding a 2001 V.I. law naming two specific companies authorized as "master service providers" for online gambling so the two companies would compete with all comers for a pool of master service provider licenses. DeJongh vetoed it, saying it "terminates certain vested rights to already awarded franchises and would cause the territory to retreat backwards to start the process anew."

Neither the existing nor proposed change to the law was projected to generate significant revenue immediately that would impact the 2014 or 2015 budgets.

"This Legislature has been very strong on offering alternatives," said Sen. Craig Barshinger, objecting to criticism of the Legislature. "What we are told is the governor doesn’t want to implement it and vetoes it and the Legislature passes it over his objections and it doesn’t get executed," he said. "One of the most obvious examples is villas that don’t pay hotel tax. That’s $10 million to $20 million a year," Barshinger said.

Gottlieb said she disagreed with the example, saying Internal Revenue Bureau Director Claudette Watson-Anderson very recently testified at length about their collection efforts and that there simply is not anything remotely close to $10 million left uncollected. (See IRB Getting 14 Percent Budget Increase to Help Collect Revenue in Related Links below)

Watson-Anderson gave similar testimony at several senate hearings.

Barshinger and others also criticized the administration for asking the Legislature to balance the budget.

"It is disappointing to be presented an unbalanced budget and I don’t think there should be any confusion over who should present a balanced budget," he said. "Coming to the Legislature and asking us to balance your budget is not something the Organic Act allows, is it?" he asked.

"First of all, what I submitted was balanced," Gottlieb said. Revenue projections are inherently estimates, subject to change and more appropriations were made over the course of the year, she said. "And there is no requirement to submit a balanced budget in the Organic Act. We have a difference of opinion on that," she said.

The federal Revised Organic Act of 1954 acts as the territory’s constitution until such a time as it approves a constitution for itself that conforms to the U.S. Constitution and U.S. law, or secedes from the United States. It says the governor "shall submit at the opening of each regular session of the legislature a message on the state of the Virgin Islands and a budget of estimated receipts and expenditures, which shall be the basis of the appropriation bills for the ensuing fiscal year." It does not contain a provision about balance.

Title II of the V.I. Code, the title dealing with the Legislature, has a section entitled "Mandatory balanced budget requirement." However, the text of the law only says that budgets cannot exceed the average of the prior two year’s revenue totals: "prior to each fiscal year, and before enactment of the budget of the Government of the Virgin Islands, the Legislature shall adopt, by law, a statement of the average of the prior two years’ "Revenues" or "Verifiable receipts" which has been certified by the governor, shall be the total appropriations permitted in the upcoming fiscal year budget."

No votes were taken at the information-gathering hearing. At its conclusion, Graham said the committee would hear budget testimony from semi-autonomous agencies like the University of the Virgin Islands next week. Then there will be a week of budget markup, where the committee amends the existing 2015 budget bills. After that will be a legislative session to act on the budget bills.

Committee members present included O’Reilly, Graham, Sens. Kenneth Gittens, Myron Jackson and Terrence "Positive" Nelson. Non-committee members Millin Young, Barshinger and Sen. Tregenza Roach also attended. Sens. Clarence Payne and Judi Buckley were absent.

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