Aug. 6, 2002 – Faced with the fiscal blows dealt by Sept. 11, the stock market, corporate scandals and what some are calling another recession in the making in the United States, most state governments are tightening their belts gearing up for Fiscal Year 2003.
The Virgin Islands government is responding to these fiscal realities and those uniquely its own by planning greater spending than ever before. The FY 2003 budget proposed by Gov. Charles W. Turnbull, at $567.7 million, represents a $16.7 million increase in spending over his request for FY 2002, and a whopping $138.1 million over his FY 2001 proposal.
Meanwhile, the V.I. government has given out hundreds of thousands of dollars in retroactive pay raises to unclassified employees.
Most states and territories have cautiously re-examined their budget projections, which changed dramatically in the aftermath of the September terrorist attacks.
In his presentation of the budget at the end of May, the governor said he is counting on improved tax collections and numerous intergovernmental fund transfers to balance his budget. It estimates 2003 income taxes at $314.5 million, up from actual collections of $303 million in 2001. The projected increase is all in individual income taxes; in fact, the administration projects a drop in corporate income tax revenues, from $32.8 million in 2001 to a projected $28.5 million in 2003.
Turnbull said he anticipates a significant rise in real property tax collections, projecting revenues of $62.4 million in 2003; the government collected $50.7 million in 2001. He is projecting the collection of another $8 million in delinquent property tax accounts; no delinquent collections were recorded for 2001.
Last Wednesday, Ira Mills, director of the Office of Management and Budget, told the Senate Finance Committee that the government's Fiscal Year 2002 revenues likely will fall at least $40 to $50 million short of last year's projections.
Louis Willis, director of the Internal Revenue Bureau, said he anticipates revenue shortfalls of $2.5 million, or 17 percent, in excise taxes; $3 million in corporate taxes; $3 million, or 4 percent, in gross receipts taxes; and $500,000 in individual income taxes. The only upside he reported was an expected increase of $2.3 million, or 14 percent, in real property taxes.
The uncertainty surrounding the due date for FY 2001 commercial real property taxes further complicates the picture, Mills said. The closer to the end of the year that residential and commercial property taxes come due, "the riskier will be the available resources to cover the projected obligations in this fiscal year," he said.
Mills cautioned, "The revised resource estimates for FY 2002 must now guide revised spending levels for the remainder of the fiscal year. A downward adjustment must now be prudently made. We have begun to assess the distribution of this across departments and agencies, and must do it for all branches, as well."
Turnbull's FY 2003 budget package contains a bill authorizing the budget director to take from the miscellaneous section of the budget up to $4 million for each government department and agency to pay for employee salary increases. Other provisions would take $5 million from the Insurance Guarantee Fund — the territory's hedge against insurance collapse — for general operating expenses; defer the transfer of $2 million into the St. Croix Capital Improvement Fund from the Internal Revenue Matching Fund because the money is needed for long-term debt service; and take $575,000 from the Tourism Revolving Fund — consisting of hotel room taxes that by law are earmarked for tourism advertising — and divide it up among the territory's three carnival celebrations.
Retro checks for unclassified employees
Meantime, the government paid out $668,126 in retroactive wages to unclassified employees two weeks ago in just one cycle of retro checks for the pay period ending July 13. There was a previous cycle, according to an informed source, and there are other pay runs scheduled to follow.
Mills collected $13,852 for that period. His assistant Claudette Farrington, former IRB director, received $10,728. Bernice Turnbull, Finance commissioner, got $13,852. And Willis collected $14,622.
Karen Andrews, chief negotiator in the government's Office of Collective Bargaining, told the Senate Finance Committee on July 17 that the government has had little success in retiring the $368 million it owes unionized employees in retroactive pay. She told the committee there was "no plan" at the moment to address the situation. The debt has accrued over the last decade.
Last fall, the governor touted what became popularly referred to as the government's $100 million windfall, a huge tax infusion purportedly to come from two major taxpayers. The Senate couldn't spend it fast enough, even after Sept. 11 decimated travel and tourism worldwide. In a Senate session soon after the Sept. 11 attacks, Sen. Alicia "Chucky" Hansen proposed sending $10 million to the City of New York to aid in its recovery, and to let them know the V.I. cares, she said at the time.
The Senate has continued to appropriate money for myriad purposes throughout FY 2002, many of which Turnbull has line-item vetoed, telling the lawmakers repeatedly that while some of their projects may be worth while, the funds don't exist.
In its final session on the $551 million FY 2002 budget last September, the Senates also overrode nearly $2.8 million in line-item vetoes of supplemental FY 2001 appropriations.
Budget belt-tightening across the nation
According to a fiscal survey of states by the National Governors Association and the National Association of State Budget Officers released in May, "While estimated FY 2002 budget figures reflect general fund spending increases of 2 percent, governors' proposals for FY 2003 reflect only 1.4 percent growth. This represents the lowest state general fund spending since 1983."
The 1.4 percent figure includes one-time spending from surplus funds, and transfers into budget stabilization funds and other reserve funds. The V.I. government historically has never adopted the concept of saving for a rainy day, although Sen. Norman Jn Baptiste last year took a stab at it with Bill No. 24-0078, signed into law as Act 6428.
It states: "Ten percent of revenues in excess of previous year collection shall be deposited into an interest-bearing contingency account to mitigate a downturn in the economy. Monies in this fund shall not be expended without prior legislative approval."
Turnbull signed the legislation last August, and it now rests with the Office of Management and Budget. What is the status of the account? An OMB spokesperson said on Monday that the office was "investigating" the account; no answer was received by late Tuesday.
According to the national fiscal survey report, balancing FY2002 budgets has challenged nearly every state. Since it is difficult to increase taxes midway through a fiscal year, the most relied-on strategy has been cutting enacted budgets. Thirty-nine states were forced to reduce their FY 2002 budgets by a total of approximately $15 billion, the study found.
Since FY 2002 budgets were enacted last spring, the survey report said, 40 states have had to battle budget shortfalls that total nearly $40 billion. Because state revenue growth generally lags the end of a recession by as much as 12 to 18 months, state fiscal woes are expected to continue in FY 2003.
Aside from budget cuts, states have an arsenal of other tools at their disposal for closing budget gaps. So does the Virgin Islands, but it hasn't fully utilized any of them.
Twenty-six states used across-the-board cuts, the survey report stated, while 22 states used rainy-day funds, 11 states laid off employees; three states offered early retirement and several states initiated hiring freezes and stuck to them.
The survey data reflect actual FY2001 stat
istics, the estimated FY 2002 figures and recommended FY 2003 figures. Based on data collected last winter, the figures show increasingly tight fiscal conditions in the states.
Driving budgetary expenditures
The 24th Legislature earlier this year leased 31 sport utility vehicles, or SUV's, from Caribbean Auto Mart. The vehicles will cost taxpayers $680,168 over a three-year period when the lease is up, according to a report published in The Avis.
The Office of the Governor has a fleet of 19 vehicles –11 on St. Thomas, five on St. Croix and three on St. John. Many of them also SUV's, they comprise:
St. Thomas:
– Governor – 1996 Lincoln Town Car and 2002 Ford Expedition
– Administrator – 1997 Jeep Cherokee
– Public Relations – 1997 Jeep Cherokee
– Governor's Confidential Assistant – 1998 Jeep Cherokee
– Messenger/Special Assistant – 1997 Jeep Cherokee
– Security – 2000 Ford Explorer
– Chief of Staff Driver – 2001 Chevrolet Blazer
– Deputy Chief/Messenger – 2001 Chevrolet Malibu
– Maintenance Worker – 2002 Chevrolet S-10
– Administrator Assistant – 2002 Chevrolet Blazer
St. Croix:
– Governor – 1993 Oldsmobile Elite
– Administrator – 2000 Chevrolet Impala
– Assistant Administrator – 2001 Chevrolet Blazer
– Special Assistant to Administrator – 1997 Chevrolet Lumina
– Government Security/Driver – 2000 Chevrolet Suburban
St. John:
– Governor – 1992 Chevrolet Caprice
– Administrator 1995 Mitsubishi Montero
– Administrator 2002 Chevrolet Blazer.
An office of austerity and generosity
Alric Simmonds, Turnbull's chief of staff, told the Senate Finance Committee last month that "austere measures" have been put in place in the Office of the Governor, including a decrease in staff. He cited a reduction in staff by three, from 91 employees in FY 2002 at a cost of $4.4 million to 89 employees in FY 2003, at a cost of $3.8 million, for a savings of $529,000.
The overall FY 2003 budget request of $7.2 million for the Office of the Governor represents an increase of $287,212, or 4.2 percent, over FY 2002. Simmonds said the increase covers $150,000 for the January 2003 inauguration, $100,000 for the transition after the November elections, and $37,212 for special receptions.
Although collectively less than last year, salaries within this budget bear individual scrutiny. Of the 87 current employees, three are "executive chauffeurs" with a combined yearly salary of $144,000. On St. Thomas, Haran Penn makes $58,000 and Conrad Brathwaite makes $34,000. On St. Croix, Elroy Edwards makes $52,000.
Penn was making $28,000 before an increase granted by Turnbull in May raised his salary 107 percent. Confidential assistant Horace Brooks was making $45,000 until Turnbull gave him a raise to $58,000 at the same time. Brooks subsequently received another $7,000 boost and now gets $65,000. Penn has been on the government payroll since 1982; Brooks was hired in 1999 when Turnbull came into office. Both make more than twice the salary for starting teachers in the territory — $25,789 for those with a bachelor's degree and $27,825 for those with a master's.
Simmonds said the office keeps costs down by monitoring travel, controlling overtime and using cellular telephones to eliminate excess phone line charges. Commenting on Penn's raise, Turnbull said it would cost more in overtime to pay the chauffeur at his old salary than he is getting at his new flat $58,000. Penn's former salary would have put him at about $13.50 an hour; overtime figured at time and a half would be about $20 an hour. At that rate, he would have to work about 1,500 hours of overtime, or nearly 30 hours a week, to make the equivalent of the $30,000 raise.
Privatization as policy, and in practice
Turnbull stated in his FY 2003 budget request that his administration is "continuing to implement the initiatives contained in the Five Year Operating and Strategic Financial Plan, which will transfer some services to the private sector, further reducing the government's structural deficit and long-term debt."
Mills said in a July a31 Finance Committee hearing that two significant pieces of legislation forwarded with the 2003 budget request were the transfer of the East End Family Health Center to St. Thomas East End Medical Center Corp., and of the Frederiksted Health Center/Ingeborg Nesbitt Clinic to Frederiksted Health Care Inc., both private not-for-profits institutions. Officials have said that as not-for-profits, the entities would be able to quality for federal funding that would not be available to them as government-run agencies.
Other than the move to privatize the two medical clinics, the government has done little to transfer public services to the private sector. James O 'Bryan, Turnbull's public affairs assistant, said Tuesday that school construction and road clearing contracts have been handed over to private companies. He said he would have to contact Nathan Simmonds, director of the governor's Office of Fiscal and Economic Recovery Implementation, for more information.
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