After hours of vehement opposition testimony from the business community, the Senate Finance Committee voted again Wednesday to send forward tax increases aimed at reassuring markets and raising revenue to pay government salaries and keep schools and fire stations open.
Members of the business community testified they believed increasing taxes on tobacco and alcohol would cause tourists to go elsewhere and greatly reduce their revenues. Some argued the government needed to do more to cut expenses first and needs to fight corruption. Others argued there were potentially other ways to generate as much or more revenue, although no data was presented to show this.
The five senators in the committee who voted in support of the bills all said they did not like to raise taxes but that the territory was in a serious bind, due to past borrowing, a structural deficit, credit downgrades and the failure of the government’s attempt at selling bonds on Jan. 11.
The committee amended and approved the same bills Jan. 31, but a local V.I. paper asserted the vote was invalid because there was not enough notice for the meeting.
“We are in the middle of a civics lesson in the Virgin Islands,” Sen. Neville James said, adding that the committee took action on Jan. 31 “and a number of things have happened and today at some point I am going to ask for a reconsideration … so that the process is not questioned.”
He said the Legislature held the bills in December to give more time for the business community to weigh in but, “I notice our desire then to not rush and act on the legislation … apparently has no value because we are being told we are rushing.”
Sen. Kurt Vialet, the committee chair, said he believes opponents “are looking at (these bills) through the wrong lens; as a tax … and not realizing there is a bigger picture we are looking at, with our recent credit downgrades and structural deficit.”
He spoke about protesters outside the Legislature on St. Thomas that morning, holding signs saying to cut government perks and lavish spending.
“The senators present totally agree and I have personally told the governor that the proposed taxes … it is harder getting the measure passed because of the behavior of executive branch,” Vialet said.
“Do I agree there was no reason to buy ceremonial vehicles? I agree. Do I agree we need to control the salaries of commissioners? I agree. It seems people forget this same body had a stalemate (with the governor) for six months over commissioners salaries,” Vialet said.
But he said that those facts did not change the fundamental reality that unless the territory brings more revenue online very quickly, the government’s situation would continue to get worse.
Vialet said he agreed with protesters that the territory needs to revamp its economic development tax break programs, its permitting and its licensing processes.
“But despite the fact that throughout the community all you hear about is the governor’s lavish spending, it does not erase the fact that we have a $100 million structural deficit,” Vialet said.
I know there is nobody in the Virgin Islands that wants to have less services. We can’t do without teachers. We can’t do without nurses. We can’t do without the people who pick up our garbage every single day. And when we think we can, we are moving in the wrong direction,” he said.
Vialet said that while some have suggested legalizing and taxing marijuana could help, it cannot help right away, as it would take several years to craft and put in place all the necessary regulations. He pointed to tax breaks for video production approved in 2015. (See: Senate Passes New Tax Breaks For Film and Video in related links below)
“It has taken over two years to write the regulations for a simple act … so we can legalize it today but it is going to take five years to write the regulations,” he said.
Sen. Nereida “Nellie” Rivera-O’Reilly said “we need to avoid a financial calamity.”
“It is easy to vote no and easy to oppose everything. I have been on both sides. What becomes difficult is when you have to stand firm and make decisions you know will not be loved,” she said.
She also said that the territory could lose autonomy if it does not act.
“We were told recently by someone in the financial sector that the day we run out of cash is the day we become automatically under the jurisdiction of a financial oversight board,” she said.
Sen. Janette Millin Young, who is not a member of the committee, spoke against the measure and questioned whether the financial crisis was as severe as claimed.
“You can’t come here every two weeks and tell me we have $6 million in cash on hand … because we don’t know … . We hear we are running out of money every day. The sky is falling every day,” Millin Young said.
“When you ask me to increase taxes I have to on principle say no,” she said.
Millin Young has been very consistent on both disputing the truth of executive branch claims of fiscal crisis and opposing tax increases for her entire tenure as a legislator. Others, including Rivera-O’Reilly and James, questioned the previous administration’s raising of alarms over budget crises but have shifted in their views more recently. (See Related links below)
Finance Commissioner Valdamier Collens testified the Senate’s amended versions of the governor’s proposals would raise $13 million less per year than the governor’s versions, and would not set aside money for backpay for union workers affected by 8 percent pay cuts in 2011 and 2012.
“There is no other source” to pay those employees, he said. But because it does not set aside that money, its net impact is only $3 million less than the original proposals, which Collens said was “a reasonable compromise.”
He said the Finance Department projects the new versions of the measures will generate $25.5 million per year.
If both bills are approved, the Bureau of Internal Revenue will assess timeshare owners the existing hotel room occupancy tax of 12.5 percent and repeal the former timeshare occupancy tax. It will also assess a $25 per day fee for timeshare units.
Excise taxes on foreign and domestic beer will increase from $2.08 and $1.55 per case, respectively, to $6.08 and $5; and cigarettes, from the current 45 percent to 45 percent plus $8 per cartoon;sodas will see a new tax of $0.36 per case plus half a cent per fluid ounce. Liquor and wine will go up from the current per case and per gallon fees to 10 percent of their value.
Real estate taxes will not go up, but those claiming exemptions will not be able to reduce their property tax bills to less than $360. There is an exemption to the new floor for those whose incomes are less than $30,000 per year or $50,000 per year for a family. If the tax bill is already less than $360, without exemptions, the tax bill will be unchanged. The law applies only to taxpayers claiming exemptions.
Voting for both bills were Vialet, Rivera-O’Reilly, James, Sens. Marvin Blyden and Brian Smith. Voting no were Sens. Tregenza Roach and Dwayne DeGraff. The bills are scheduled to be heard in the Rules and Judiciary Committee on Feb. 23.