Updated: See Editor’s Note below. For the past several years, much of the University of the Virgin Islands’ Research and Technology Park budget has been going to pay off a multimillion dollar arbitration award to one of its clients receiving tax breaks, new RTPark Executive Director Gillian Marcelle revealed during Senate budget hearings Tuesday.
Marcelle requested $1 million in operational funding for the tech park, which was intended to generate tax revenue and create jobs, and she suggested it may need funding for some time to come.
Gov. Kenneth Mapp’s proposed Fiscal Year 2016 budget does not include funding for the RTPark.
First planned back in 2001, the RTPark is an economic-development initiative of the university’s designed to take advantage of the territory’s capacity to carry gigantic amounts of fiber optic data. One of two sets of major data-trunk cables landing on St. Croix, the Level 3 Communications cables, carry the bulk of all communications in and out of the Virgin Islands and most Latin American telecommunication traffic to the U.S. mainland.
But the core of the RTPark is a tax incentive program for technology companies, which may be located anywhere in the territory. In exchange for tax breaks, companies work with UVI in a variety of ways, from endowing annual scholarships and hiring interns to financing or providing professional expertise for technology-oriented classes at the university.
The RTPark’s "commercial revenue" consists of the fees it charges clients in exchange for tax break agreements.
"The RTPark was designed to be a revenue-generating instrument; however, regrettably for its entire lifecycle to date, its overall expenditures have exceeded funds from commercial revenues and other sources," Marcelle told the Senate Finance Committee.
Though she requested a $1 million appropriation for operating expenses, Marcelle said she and the rest of the staff at the RTPark "fully understand that under the fiscal constraints facing the government, it may be difficult to approve an authorization."
Several senators raised concerns about the ongoing appropriation requests from an entity that was supposed to generate revenue.
Sen. Nereida "Nellie" Rivera-O’Reilly pointed to a $1.43 million loan from UVI on the RTPark’s books, listed for a settlement with a client, and asked how Marcelle could ask for a million dollar appropriation.
Marcelle said the loan "is related to a payment for a settlement related to a longstanding arbitration that, of course, predates my standing in this position." She did not say what client it was.
UVI President David Hall said that before Marcelle came on the job, former RTPark Director David Zumwalt had concerns "about the perceived noncompliance of a tenant."
Hall said the RTPark board and Zumwalt tried to get the client to comply with the terms of its confidential, negotiated agreement but were unsuccessful and Zumwalt recommended terminating the company’s RTPark tax breaks.
"The board, with the advice of counsel, followed the recommendation," and terminated the agreement, but the agreement allowed arbitration and the arbitrators found damages against the RTPark "because the client was out of the park," Hall said.
There was no discussion of what the nature of the alleged damages were. However, being "out" of the RTPark means having to pay normal taxes, without RTPark tax breaks, which costs more than not paying taxes.
Hall said it was a five-year loan at 7 percent interest.
Sen. Clifford Graham, the Finance Committee chairman, asked how many clients the RTPark would need to break even and no longer need taxpayer assistance. "Is 50 enough?" Graham asked.
Marcelle said, "Thankfully it is not the number but the kinds of agreements. If you have 50 clients but you are not collecting the revenue from them, you can say you have 50 clients but that is not gong to really help."
With the arbitration award on its books, it is "going to be very difficult … without other kinds of injections, so we can meet our operational activities. But the overall health of the RTPark requires financial restructuring," she said.
Marcelle presented the proposed total RTPark FY16 budget of $2.34 million, a 2 percent decrease from the year before. That includes a request for $1 million from the V.I. Government and $1.23 million in "commercial revenues" generated by fees it charges in exchange for the tax breaks it gives.
The park has 30 clients now and hopes to have 33 by the end of the fiscal year, she said.
Salaries, wages and benefits for the RTPark come to $750,000 for the year. Marcelle said it has three employees; herself, Denise Kurg and Carole Jackson.
The RTPark requested $1.2 million in FY15 but there was no appropriation. While the Legislature appropriated $400,000 in 2014, there was a budget shortfall and that funding was never allotted.
Hall also presented UVI’s FY 2016 proposed General Fund budget of $29.5 million, unchanged from the year before.
No votes were taken at the information gathering hearing.
Update: After this story was first published, former RTPark Director David Zumwalt contacted the Source to say the recommendation for termination originated from RTPark’s counsel, not from himself. "While I indeed supported the action, as of course did the Board, the characterization that it originated from me is incorrect. I would not ordinarily believe that a simple misstatement during testimony should give cause for correction, but inasmuch as the public might conclude that I’d set in motion a chain of events ending in an arbitration award and settlement, please know that the decision to terminate originated with the Board, under the advice of counsel," Zumwalt said in an email.