Home Breaking News V.I. Budget Crisis Part 17: Federal Help Is Coming, But Not Enough

V.I. Budget Crisis Part 17: Federal Help Is Coming, But Not Enough

Graph of total General Fund and total net tax revenues, with historical data from 2004-2017 and projected revenues for 2018 to 2020. (Data compiled by Bill Kossler from historical V.I. budgetary data and data presented by Budget Director Nellon Bowry at the Dec. 5, 2017 V.I. Legislature Finance Committee hearing)

 

Early in 2017, the U.S. Virgin Islands was facing massive structural deficits, fast-rising debt, multiple ratings downgrades, an inability to borrow and no clear path to solvency. Hurricanes Irma and Maria have made the situation dramatically worse, with the V.I. government projecting a loss of $1.5 billion in revenues over the next three years.

If the V.I. government and Congress do not step up and take difficult, serious steps quickly, the unfilled budget shortfalls will play out painfully and chaotically. The more quickly, coherently and decisively the V.I. government and Congress act, the softer the landing will be.

Parts 1-15 (See “Related Links, below) of this series tried to look at what got the territory into its budget crisis and what might help get it out, concluding true recovery would take both disciplined reforms at home and focused congressional action. The final four segments look at how things stand in the wake of this year’s two devastating hurricanes.

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The federal government is helping a lot, providing hundreds of millions of dollars both for rebuilding and in loans to help the government weather the loss of revenue. But what is on the table is not nearly enough.

Congress recently approved up to $4.9 billion in disaster assistance loans to the USVI and Puerto Rico, as part of a larger disaster appropriation that also includes some funding for cleanup and rebuilding in the territories.

Puerto Rico has requested $4.1 billion and Mapp has requested $500 million, potentially leaving up to another $300 million available. The loans are a godsend, with an expected low interest rate of less than 3 percent; far less than the USVI would pay if it could actually get the loans from the private sector, which it cannot.

The territory is asking for $371 million immediately, with $250 million to prop up this year’s budget and the rest going to WAPA and the two hospitals.

But that still leaves the territory $203 million short to meet Mapp’s proposed budget for Fiscal Year 2018, Bowry told senators Dec. 5. It is $284.1 million below the FY 2017 spending levels. No one has yet proposed any way to make up that shortfall. After hearing this news, the Finance Committee recessed to await the closing of the disaster loan and updated information. (See: Fed Disaster Loans Not Nearly Enough to Fill V.I. Budget Gap, Budget Director Says)

For perspective, the Education Department is by far the biggest single V.I. government expense at $156 million in local funding for 2018. Closing all the schools and laying off every employee would not close that gap. You would have to close the police department and lay off every police officer too. Any cuts may be spread around, but the other agencies are much smaller.

All local funds in the FY 2018 budget were projected at $838 million when Mapp submitted his budget in July. After paying debt service, there is well under $800 million. A $200 million cut is more than 25 percent of all local funds. So if the pain is spread evenly across all agencies, Education would be cut by more than $38 million to less than $118 million. During budget hearings in August, Education projected to spend $133 million just on wages, salaries, payroll taxes and benefits. If the schools could skip every single other expense, from supplies to electricity, they would still have to lay off employees or reduce pay to make those cuts.

The Education Department already took a $10 million cut and Human Services a $6 million cut over last year, with the Police Department and Bureau of Corrections taking big hits too in this year’s budget, before the storms hit.

What will happen if school funding is cut by such a dramatic amount? There is already a shortage of teachers, which many attribute to poor pay. What happens if Human Services is cut by another $10 million? The police department? Do we sharply cut the Fire Department? What happens if there is a fire?

Cuts of this magnitude will affect many people in many ways.

Next: Part 18 – Honesty Makes the Best Policy

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