Gov. Albert Bryan Jr.’s administration is planning about 30 percent cuts in expenditures for Fiscal Year 2020, the governor’s finance team told lawmakers Tuesday, presenting a reduction of more than half a billion dollars compared with the Fiscal Year 2019 budget.
The reduced budget is in part bracing for a correction in what Bryan described as a “temporary economy” driven by post-disaster recovery.
“We are doing things differently because we are different,” said Office of Management and Budget Director Jenifer O’Neal, who led the finance team’s budget overview testimony at the Senate Finance Committee Hearing in the Earl B. Ottley Legislative Hall on St. Thomas.
O’Neal echoed Bryan’s budget message, that projected revenues in the Fiscal Year 2020 budget already factor in the post-storm surge in economic activity, and that the numbers can only be maintained by presenting a conservative budget.
The Fiscal Year 2020 budget totals $1.27 billion, roughly $540 million less than last fiscal year’s $1.81 billion expenditures. Of that amount, roughly $817 million comes from the General Fund, about $216 million from federal funds and $87.9 million from other appropriated funds.
Lawmakers, however, worry about where the fat is being cut in the significantly reduced budget. While a large drop in federal funds accounts for $510 million in the $540-million decline in the overall budget, the central government still reflects a roughly $16 million reduction in spite of the salary increases folded into the proposed budget.
According to O’Neal, the administration eliminated a number of vacancies across agencies that were never filled, resulting in the smaller budget.
“We have reduced the number of vacancies in the previous budget,” O’Neal explained. “We have only budgeted just over 700 positions in the 2020 budget, which is lower than what it has been, so that’s one area that we have reduced.”
Sen. Donna Frett-Gregory raised concerns about the effects of shrinking personnel on the Government Employees Retirement System, which currently presents a 1-1 ratio of active personnel to retirees, far below the ideal 3-1 ratio, Frett-Gregory said. The retirement system, which faces a $3 billion unfunded liability, serves roughly 8,760 retirees and pensioners and approximately 9,368 active members.
“What is the central government doing about that 1-1 ratio issue? Because we can’t have salary increases and then begin to shrink positions because then we’re not growing our government. And we’re not going to grow our government, we’re going to have a compounding issue, because that’s not the only issue with GERS,” Gregory said.
O’Neal could not immediately provide the number of positions zeroed out in total or in each of the agencies. She added that roughly $3 million has been set aside for critically needed positions, not all of which may be needed to fund critical hires, she said.
Tax Revenues and Refunds
Individual taxes remain the territory’s largest revenue generator, accounting for 53 percent of the the $817.9 million total projected revenues, O’Neal said. President Donald Trump’s Tax Cuts and Jobs Act, however, added some volatility to the equation which Internal Revenue Bureau Director Joel Lee said he cannot yet accurately quantify. While individual taxes are projected to flatten out, corporate income taxes are expected to increase by 26 percent, gross receipts taxes by 19 percent.
The government also expects revenues to rise beyond its initial projections with the increased spending in hurricane recovery and major hotels scheduled to reopen within FY 2020, including the Ritz-Carlton and Carambola.
The proposed budget also includes an estimated $11 million in excise tax revenues, which reflects only the sin tax portion covered under the excise tax, until the court-ordered halt in excise taxes has been reversed, something that O’Neal said the government will win in court.
According to Lee, collecting outstanding taxes remains his agency’s focus, but aggressively pursuing this “money in the hand” requires reconciling the numbers. Sen. Allison Degazon (D-STX) said she expected a more detailed plan from the tax collection chief.
“There is a plan,” Lee responded. “Unfortunately, there are steps I have to take giving the taxpayers their due process as well … As we march forward a lot of the numbers I am seeing are true numbers, but I have to make sure they are correct.”
The 2020 budget includes $75 million for tax refunds for approximately 6,000 taxpayers who filed returns in tax year 2016 and are not under audit. The amount would also address taxes filed through April 12, 2017, that are not under audit. Lee said once the Department of Finance has available funds, the agency sends a list of names and refund amounts to IRB, which sends out the refunds based on filing date.
According to O’Neal, newly negotiated salary increases and executive orders mandating the increase of minimum government wages to $27,000 annually contribute to as much as a three percent in projected expenditure growth for the territory through 2025. The Fiscal Year 2020 budget, however, has set aside roughly $41 million, partly to fund $20.8 million in negotiated increases from the Mapp administration and the salary increases from Executive Orders 483-018 and 485-018, both of which amount to roughly $9 million in increased costs, O’Neal said.
Chief Negotiator Joss Springette told lawmakers that eight collective bargaining units are still at the negotiating table. O’Neal said the proposed budget reflects $4 million dollars for additional salary increases that may arise from those negotiations. If more funds are needed, O’Neal said the government also has the ability to dip into its “rainy day fund,” the $5 million Budget Stabilization Fund that currently contains only $1 million.
Other Budget Highlights
The FY 2020 budgets also sets aside $7.1 million in funding for mental health services in the Department of Health. The amount would assist individuals with mental illness who are in, or at risk of entering, the justice system. This funding is separate from the legislated construction of a long-term mental health facility, and its accompanying in-patient and outpatient services, on St. Croix.
The budget also distributes $22 million each to Schneider Regional Medical Center on St. Thomas and the Gov. Juan F. Luis Hospital on St. Croix. When asked why Schneider Hospital received the same amount while also running the Myrah Keating Community Health Center on St. John, O’Neal said Schneider actually received a slight bump in its annual allocation.
According to O’Neal, the government is also aggressively moving on long-overdue capital improvement projects, including some dating back to 2014. This move involves allocations of $3 million for the Raphune Hill Road improvements and $12.2 million for Turpentine Road Bridge approaches on St. Thomas. Some $670,800 is also set aside for West Airport Road, and $740,329 for repairs to Whim Road on St. Croix.
The Fiscal Year 2020 Budget can be accessed here.