Sept. 10, 2001 – The governor's Fiscal Year 2002 budget "is built on shifting sand," the League of Women Voters has concluded after analyzing the proposal, particularly its anticipated $28 million increase in revenues with no change in the tax structure.
That increase "is based only on [a projected] increase in individual income taxes," the league said in a statement, and there are compelling reasons to believe that such a projection is not realistic.
Gov. Charles W. Turnbull announced in June that the government would receive a previously unanticipated windfall of about $100 million in tax revenues for the current fiscal year, which ends Sept. 30. On July 16, six weeks late, he submitted his proposed FY 2002 budget — increased to $551 million from last year's $429.6 million.
In June, the governor sought from the Legislature and got — from the majority bloc — approval to spend another $100 million this fiscal year for unionized government employees' step increases, school repairs and increased health-insurance premiums. In July, Turnbull sought the supplemental appropriation of another $47.2 million, which the Legislature upped to $64.5 million and the governor with vetoes trimmed back to about $55.6 million.
In his proposed 2002 budget, Turnbull indicated he is counting on an upswing in the local economy to fund the increased expenditures projected for FY 2002, although the national economy has taken a downturn this year.
The proposed budget "appears on the surface to be able to meet most of its needs," the league said in a statement released Friday. "But that rosy picture" of Fiscal Year 2002 revenues "is like the pink evening clouds of the Virgin Islands that quickly fade away as the sun sets."
At a Senate Finance Committee hearing on Aug. 22, Ira Mills, director of the Office of Management and Budget, said administration initiatives had created an "improved environment poised for private-sector investment." As "proof of the economic revitalization of the territory" he cited the planned Botany Bay Resort development, "estimated at $200 million." Although civic and environmental groups are on record as opposing that not-yet-approved project, Mills said he felt the potential development should be included in private-sector projections.
At that same meeting, the Internal Revenue Bureau director, Louis Willis, estimated total revenues for the current fiscal year at $488, up from $447.4 million in FY 2000. He said a record high $404.2 million had been received as of July. Government officials have attributed the increase in revenue to a small number of wealthy individuals' income taxes.
Mills also told the Senate committee that government initiatives are expected to attract new investment in addition to about $200 million in public-sector project financing and more than $900 million in private-sector spending projects "either ongoing or slated to begin in Fiscal Years 2001 and 2002." He did not give specifics.
However, at an Aug. 11 LWV meeting, Mills provided statistics that put the government's current accumulated deficit and other obligations at $592.2 million. He gave the breakdown as $286.8 million in back pay owed government workers, $227.7 million in accumulated deficit from FY 1999, $62.1 million owed vendors, and $15.6 million owed as income-tax refunds. The income-tax figure did not take into account the 2001 tax credits due under President George W. Bush's plan to stimulate the national economy; Mills has estimated the government's liability for those payments at $9 million and has said they will be given as a credit when Virgin Islanders file their 2001 income-tax returns next year. On the mainland, the U.S. Treasury began sending out checks for the credits in July.
In its Friday statement, the LWV also cited Willis as having said at the Aug. 11 meeting that the federally mandated Earned-Income Credit due lower-income taxpayers has been paid through calendar year 2000 "as unfunded, unbudgeted tax refunds averaging $13 million per year and has exceeded $90 million total over the last seven years." The statement said the league supports Willis's position "that unfunded federally imposed obligations such as the Earned-Income Credit must not continue to drain the treasury of the Virgin Islands." The statement noted that the mandated payment "was, once again, not included" in the governor's FY 2002 budget.
Also it said, the budget includes $6 million for prior-year obligations to vendors and others that actually amount to about $40 million. That is the amount remaining after partial payment this year of the $62.1 million in obligations cited by Mills at the Aug. 11 meeting, including money owed the Water and Power Authority and some vendors.
The LWV further stated that 2002 budget also omits any provision for:
– $197 million in loans and interest owed the Federal Emergency Management Agency.
– $286.8 million — the figure cited by Mills — owed government workers in retroactive salary increases.
– $37 million claimed in court action for administrative costs by the Government Employees Retirement System.
– $23 million liability resulting from early retirement laws and subsequent amendments.
– A Reserve or Contingency Fund.
The league noted that the administration is seeking to have the FEMA debts forgiven and that negotiations may reduce the retroactive liability, but — since neither is a done deal — questioned whether the budget "is truly in balance."
The LWV statement also questioned how realistic it is to project collecting "a minimum of 31 percent" of the $90 million in individual income tax that is receivable. And, it said, "what assurances does the government have" that this year's anticipated $100 million tax windfall "is not a one-time occurrence?"
Stating that the government's personnel attrition plan was "repealed in its entirety through the supplement budget" passed recently, "opening the potential for indiscriminate hiring," the league further noted that in addition to salaries, the government is responsible for fringe benefits that add another 33 percent to base pay.
It also noted that the government has continued to absorb increased health-insurance premium costs for both employees and retirees. The FY 2002 budget contains $12 million for such increased costs for workers and $8.1 million for retirees. With a new health-insurance contract in negotiation, the league said, FY 2002 could be "the time to begin a 50-50 cost-sharing of this responsibility."
The governor's budget includes one new revenue-generating measure: the imposition of a $10 "motor vehicle disposal" fee that would be a surcharge to the annual registration fee. The money is entirely earmarked for the Anti-Litter and Beautification Fund, to pay for disposing of abandoned vehicles. Assuming there are approximately 40,000 motor vehicles registered in the territory, that would generate about $400,000.
