This is the luncheon speech that economist Dr. Richard W. Moore presented at the recent Economic Summit.
Introduction
Gov. Charles Turnbull, the Virgin Islands Legislature, our federal government partners and the territory's private sector have identified actions to be taken immediately to head off our public and many private enterprises from bankruptcy.
Hence, this is not a conference or symposium to reveal/celebrate or congratulate. It should and probably cannot be more than a town meeting to draw a line in the sand to separate dilettantes from those with dedicated resolve to:
— Immediately show evidence of decreased expenditure in government.
— Eliminate payless paydays for vendors by making at least partial periodic payments on what is owed to them. The many Virgin Islands family businesses that sell products and services to our government have already experienced payless paydays.
— Develop a financing tool or mechanism to bring V.I. government employees with retroactive wage payments current. Those government employees without a wage increase in seven or eight years have, just like vendors, partially financed this deficit with an approximate 20 percent decrease in their standard of living. However, these people can no longer afford to lend their foregone lifestyle to our government.
— Provide private-sector support to implement these and other measures to stop the bleeding in this cancerous patient and stimulate immediate attractive opportunities for new investment.
— Demonstrate unity to anyone outside our community; i.e. the Department of Interior, U.S. Congress and all those interested in investing in this territory.
We are certainly not here to develop another economic development plan. They've been produced regularly since as far back as:
— 1862, from a reference I received from Dr. Orville Kean, president of the University of the Virgin Islands. It was then that a Mr. Simmons wrote a water-management plan for St. Thomas because of a drought. But, it apparently soon rained, because this plan was never implemented.
— 1932, after then President Hoover's trip to the territory followed by the Brown report on how to revive this Caribbean poorhouse. But, because of soon to follow federal initiatives and construction of the submarine base in St. Thomas, it was never implemented.
— 1979, when, under Gov. Juan Luis, Dr. Orville Kean, then with the V.I. Department of Commerce, authored the Economic Policy Guidelines to manage economic growth that seemed to have gotten out of control. But, it was not implemented because a severe recession in 1982 silenced no-growth proponents and everyone celebrated the dramatic economic growth that took place from 1984-89.
— 1991, when Gov. Farrelly commissioned the Guidelines for Development of a Long-Range Comprehensive Plan following the management by objective paradigm and asked me, as director of the Bureau of Economic Research, to use $250,000 of Department of the Interior funding to develop an Overall Economic Development Program (OEDP).
We interviewed hundreds of V.I. residents and summarized their input into seven goals, 100 objectives and hundreds of small step action strategies to manage the growth of an economy injured by the first hurricane in 50 years, a U.S. recession and the failure of two of the territory's major air carriers. But, these were not implemented because the $1.0 billion Hess Oil Virgin Islands Corp.'s construction of a catalytic cracking facility infused so much money into our economy that it appeared to be running smoothly.
— 1993, when under Lt. Gov. Derek Hodge, the St. Croix Economic Development Task Force recommendations were submitted. But, this was not implemented because a new administration was elected the following November.
No, we do not appear to need another macroeconomic development plan. Our challenge is to implement the strategies we have enumerated in this Economic Summit.
In the context of implementing an action plan, we all must recognize the special circumstances of each island.
As I am making this presentation to you on St. Croix today, I'll focus on its special circumstances; advantages and disadvantages. The following variables are updated every 30 days and are the most important to watch.
— Employment. Contrary to St .Thomas/St. John, employment growth in St. Croix has not been as dynamic. In St. Thomas/St. John, employment grew in a fairly stable fashion from 20,195 in 1979 to about 28,000 in 1994 and decreased to 26,000 in 1998.
On St. Croix, employment equaled about 18,000 in 1979 and grew to 23,700 in 1993 and has since fallen to a level below that of 1979; 17,790. Without the HOVIC project in 1991, employment on St. Croix has only varied by 15 percent for the past 20 years. On St. Thomas/St. John, the level has varied by more than 30 percent.
— Air Arrivals. In 1979, St. Croix had more visitor air arrivals than now. From 1980 to 1989, visitor air arrivals grew by more than 80 percent, from about 110,000 to more than 190,000 per year. However, since then, this number has declined to about 140,000 in 1998.
— Room Nights Occupied (RNO). This measures the demand for hotel space and is much more informative than the average occupancy rate. St. Croix had approximately 350,000 room nights occupied in 1988 or less than the value for St .Thomas/St. John. For St. Croix, RNO have generally declined steadily in the past 12 year to 177,000 in 1998.
— Open low cost space. St. Croix has a much greater amount of level and otherwise unrestricted open space than St. Thomas/St. John.
— Lower fuel costs. Because of Hovensa, St. Croix has much lower gasoline and diesel fuel costs than St.Thomas/St. John or any other island in the region for that matter.
Implementation
We've collected a tremendous amount of data, set goals, objectives and strategies. Although that doesn't mean we should stop evaluating and generating in this area, it is no longer the focus of our initiative. We are now in position to take steps to end our economic crisis and know that economic growth is the only short-term cure.
From outside our system, the design and execution of an implementation plan is now our task. In this case the word plan is correct, as we must follow it to completion.
In our economic revitalization program, the goals we've established imply a set of objectives that are all determined by individual strategies. The process of implementation involves successful completion of these strategies; all of which must be determined to be feasible.
For example, the elimination of three local holidays, privatization of WAPA line repair and tax reform are all examples of implementable strategies. However, we must be on guard, as many variables influence the success of implementation. They include, but are not limited to, the interests affected, the extent of change, the location from which decisions are made and the identity of those doing the implementation.
In our case, location does matter. If it appears all decisions for St. Croix are being made in St. Thomas, the impact of such is well known to us all.
The lenses through which participants in the process view implementation are also critical. Four categories are relevant and elements associated with them are important to watch out for and should be carefully considered.
— Technical. Those with data, technical advice as employees or on contract can fall into the trap of sharing what their client may want to hear, whether correct or not. In particular, advisers from outside the territory with only a professional stake in the quality of advice are particularly susceptible to this phenomenon.
— Bureaucratic. Employees in organizations impacted by the implementation process may have a greater interest in how it effects their careers than in the outcome of the implementation process.
— Political. In democracies, voters are most often targeted to be told what they want to hear.
— External. Outside organizations, such as the Department of Interior and the
U.S. Congress, will have their own perspective or viewpoint from which to evaluate the implementation process.
To implement our economic revitalization program, we will use three types or forms of implementation.
— Legislative/Regulatory implementation. To implement expansion of our duty-free list of commodities or undertake a tax reform, we must use legislation or regulation.
— Organizational implementation. In this case, we will establish, reform, re-organize or terminate some organization. Examples include the organization around which we negotiate with government employee unions, our licensing and permitting systems, the Industrial Development Commission and a public/private sector Tourism Board.
— Action implementation. This type of implementation comes in the form of projects or programs.
Projects: These generally involve an activity in a specific location. Each project has a clear beginning and end. The best example here is the Public Finance Authority's capital construction projects.
Programs: These are related activities implemented over a longer period or are simply open-ended and not necessarily implemented in one place. Establishing a stronger student performance program in the V.I. Department of Education or revising the Industrial Development Commission's industrial promotion programs are examples.
The Final Product
The product from implementing our economic revitalization strategy will not be government-centered. After the administration establishes a system of re-organized management of our fiscal accounts, no new dollars will appear. That will only occur when an extra dollar is invested in a V.I. productive enterprise that returns an extra dollar of profit. From those transactions, a 4 percent gross receipts tax and an approximate 20 percent effective corporate income tax will be collected in addition to locally generated purchases and locally paid wages. Sustainable economic growth through profitable investment is the only secure path toward our economic health.
Doing what will help how much?
Ira Mills, acting Budget director, has outlined very clearly the state of our current and capital account deficits. In sum, we have a current account deficit of approximately $385 million, necessary loans (Federal Emergency Management Administration and Y2K) equal to $221 million and other obligations of $402 million for a total current account debt of $1.008 billion.
On our capital account, we recenlty borrowed $541.8 million, with an annual repayment of approximately $40 million, or the full amount of the expected cover over of rum excise taxes through the year 2026.
Elements of strategies under consideration are shown below. Understanding the impact of these actions is important, so as to control expectations. The examples that follow are hypothetical and not exhaustive because we are at such an early stage.
$96.0 million: spending by the Public Finance Authority. This expenditure will increase the capacity of the economy to produce future profits.
$200.0 million: financed by some mechanism to bring government workers' salaries current.
$200 million: forgiveness of the FEMA loan.
$100.0 million: impact of reducing government payroll by 25 percent over the next five years.
$200 million: financed to cancel intra-government contributions and prior year deficits and obligations.
Federal Relations
Our relations with the federal government matter a great deal because the U.S. Virgin Islands is administered by the Department of Interior. In 1994, the following was sent to Secretary Bruce Babbit, Department of the Interior, by the GAO as part of their assessment of federal relations with the territories concerning economic development issues. It is presented to show that even as recently as 1994, the effort to integrate federal programs to support economic development was in disarray. A contemporary evaluation of these linkages to show progress since that time is certainly in order.
"U.S. policy overall is to support the economic development of the insular areas. However, the U.S. government has no specific objectives for its development programs; no clear overall strategy to achieve its goals; and no formal mechanism for coordinating the activities of the numerous federal agencies with programs in the islands. While the Department of Commerce reported that U.S. direct federal expenditures or obligations in the insular areas included in our review totaled about $1.5 billion in fiscal year 1992, the U.S. government has no consolidated data on federal spending on economic development in the insular areas.
"The secretary of the Interior has proposed establishing an interagency committee that would coordinate federal policy and activities. We believe an interagency group focusing on policy, strategy, and U.S. government coordination could play an important role in helping to improve economic conditions in the insular areas and U.S. government management of resources provided to the areas." (U.S. Insular Areas: Development Strategy and Better Coordination Among U.S. Agencies Are Needed [letter report, 02/07/94, GAO/NSIAD-94-621])
A Revenue Proposal
I want to take this opportunity to introduce one idea for enhancing revenue, with recommendation that it be among those considered as the V.I. Economic Revitalization program is developed.
The federal government has auctioned portions of the Virgin Islands radio frequency bandwidth above 1.9 Ghz for telephony service. By this is meant that to operate what is popularly known as Personal Communications Services (PCS) in the Virgin Islands, a firm must bid and pay the federal government that sum. The same process has or is occurring all over the U.S.
Thus far a series of six bands have been identified and auctioned. The rights to utilize these frequencies in the radio band over the Virgin Islands has been sold by the federal government. As of one year ago, the following was correct.
A band – AT&T Wireless – $56,899,000 – 30 MHz – This band covers both the V.I. and Puerto Rico.
B band – Centennial Cellular – $54,672,000 – 30 MHz – This band covers both the V.I. and Puerto Rico.
C band – Windkeeper – $7,857,750 – 30 MHz – Covers only the V.I.
D band – SprintCom – $841,000 – 10 MHz – Covers only the V.I.
E band – Vitelcom – $953,000 – 10 MHz – Covers only the V.I.
F band – Westel, LP – $699,750 – 10 MHz – Covers only the V.I.
The total amount bid for payment equals $121,922,500. A significant proportion of this amount allows the bidder to operate over Puerto Rico as well. On a population proportion basis, the Virgin Islands' share of this total equals approximately $15.1 million.
The point is that the federal government receives these funds and actually receives more because the economy is developed and maintained by the people of the Virgin Islands. Hence, a good argument could be made that the Virgin Islands people are fully responsible for the commercial value of wireless telecommunication services and should, therefore, receive the funds bid for use of these frequencies.
The analogy is similar to the rum excise tax, in that Virgin Islanders produce the rum and the more Virgin Islands rum that is shipped to the U.S., the more rum excise tax we receive. In the same manner, the more we develop our economy, the more valuable these frequencies become. With skillful negotiation, it may be possible to get a one-time infusion of funds from this source.
Conclusion
I'll conclude with remarks about leadership in our community in that each of us has an opportunity to use our own leadership skill to advance solutions to these fiscal problems.
Leadership is not telling/ordering you what to do or how to do it. More correctly, "Leadership is the use of skills at your disposal to help a group meet its adaptive challenge." Put another way, it is the use of your skill to help a group do what it is supposed to do.
There may be and certainly have been designated authorities in our community who have styled themselves as leaders when in point of f
act they led us with confidence and skill to do something we probably shouldn't have done. In those cases, this "leader" did not exercise skill to help us meet our adaptive challenge.
Even for those of us without authority, the use of our skill to help our community meet the adaptive challenges we face is possible and important. In his presentation to us earlier, Gov. Turnbull, our designated authority and the person we all identify as our leader, spoke of other leaders in our community, such as John de Jongh Jr. and Noel Loftus of the Chambers of Commerce. He is depending on them to assist in leading our community through these challenging times.
During and following this conference, we all have an opportunity to help our community do what it needs to do in order to avoid fiscal and financial disaster. Success in the challenge will transform us into a community of leaders.
