June 26, 2003 – Members of Gov. Charles W. Turnbull's financial team painted another grim picture of the territory's fiscal situation on Tuesday in urging the Senate Finance Committee to approve the governor's proposal to borrow $235 million on the bond market.
It took two tries, but the committee at the end of the day gave the governor what he wanted. It approved the measure 4-1 with only the committee chair, Sen. Adlah "Foncie" Donastorg, in opposition, and sent it to the Rules Committee.
The first motion to approve the bill, made by Sen. Roosevelt David, failed with Sens. Norman Jn Baptiste, Donastorg, Louis Hill and Ronald Russell voting against and David and Sen. Luther Renee voting in favor. However, after continued debate the committee reversed itself on a motion by Russell, with Sens. David, Hill, Renee and Russell in favor, Donastorg opposed and Baptiste off the floor during the vote.
The bill calls for spending $100 million of the bond issue to finance working capital operations, $80 million to develop a 250-room resort on St. Croix, $20 million to finance private economic development initiatives on St. Croix, and $10 million to finance the Carifest theme park on St. Thomas.
With the V.I. government facing a deficit currently estimated by the administration at $152 million for the fiscal year ending Sept. 30, Turnbull's financial officers said, borrowing the money is the best way to get the territory out of the red.
"While we agree that borrowing for working capital purposes is less than ideal and not sustainable in the long run, the alternatives of massive tax increases and/or layoffs of government workers is even less desirable," Nathan Simmonds, director of the Office of Fiscal and Economic Recovery Implementation, said in his testimony.
"In order for us to meet our payroll in the month of June, including today's payroll, we have deferred the payment of income tax refunds and delayed payments to vendors," he said.
"However, we cannot continue to do this, as it only postpones the inevitable by pushing the problem into future months," Simmonds said. "Without a substantial infusion of cash, eventually the cash shortfall will result in payless paydays."
It is important to pay vendors in order to "ensure their continued viability," he said. And payment of more than $50 million owed in tax refunds, he said, would "put money into the economy" and "eliminate costly interest expense."
Senators raised concerns about the bond proposal, many seeking an answer to the question of whether borrowing is the best way to deal with the deficit. Meanwhile, according to a knowledgeable source, federal authorities have discussed the possibility of a financial control board to run the territory's fiscal affairs temporarily.
Sen. Lorraine Berry, a non-committee member who attended Thursday's hearing, made it known this week that she has asked the federal government for technical and financial help setting up such a board. (See "Berry seeks U.S. backing for financial board".)
"The fiscal situation is frightening," David, a staunch supporter of borrowing, said. Referring to the prospect of payless paydays, he added: "I am not going to be Pontius Pilate with blood on my hands."
Sen. Carlton Dowe, another non-member of the Finance Committee, expressed concern that money from a bond issue might only be used to pay bills. "The issue to me is simple: whether we borrow or we don't, and what are the implications if we don't," he said. "I'm willing to borrow; however, it must be tied to some capital development."
Answering senators' questions concerning the 250-room hotel, Kenneth Mapp, Public Finance Authority director of finance and administration, said the government is not going to get into the hotel business but will undertake a "real estate trust investment."
The hotel's physical assets "willl be owned by the people of the Virgin Islands, but the management, training, control and operation of the facility will be driven solely by a nationally recognized brand at four-star, four-diamond rating," Mapp said. "It is through this bill that the governor is making good on his promise to build St. Croix as a true tourist destination, with its own brand identity."
Currently, Mapp said, St. Croix has 430 near-first-class or first-class rooms but only 146 can be marginally considered branded rooms — those of Best Western and the Divi. This, he said, compares to 7,600 first-class room in Jamaica, 5,600 in Puerto Rico, 3,700 in Aruba, 3,500 in the Dominican Republic, 2,100 in St. Lucia, 2,000 on St. Thomas/St. John and 1,500 in St. Martin.
A major chain hotel will attract tourists, Mapp said. "Given the limited number of rooms and the lack of recognizable brands, St. Croix remains at an extreme disadvantage at positioning itself as a viable tourist destination," he said.
During the hearing, no mention was made of the letter sent by all 15 senators on June 3 calling on the governor to rescind the millions of dollars in hefty pay raises he gave hundreds of classified employees last year (See "Cancel executive order pay hikes, Senate says".)
The governor's comeback was an offer to reduce the salaries of those making over $40,000 by 2 percent to 10 percent on a sliding scale for the last six months of this year. The pay raises proposed by the governor last year averaged 24 percent for upper-level personnel and 20 percent for mid-level employees.
Russell asked whether the administration had considered cutting salaries of unionized employees under contract provisions. Simmonds said such a move has been considered but would come about only if the government could not borrow.
Meanwhile, the administration is continuing to put new people on the payroll. Twenty-five individuals have been hired this month alone, according to a Personnel Division report, and more than 390 have been added to the payroll since November. (See "271 executive branch hires in November-April".)
Among the June hires were two groundskeepers for the Education Department and a school crossing guard.
"That's alarming," Donastorg said. "You can't say that the government is broke and turn around and be hiring. You cannot in one breath say one thing and do the other. If there's a hiring freeze, there's a hiring freeze."
Ira Mills, director of the Office of Management and Budget, tried to justify the hirings, saying that many were for the Police, Health and Human Services Departments and were for essential positions. He was not entirely successful.
"The spending levels we have cannot continue," Hill insisted. He said that borrowing is not a long-term solution because the government will just end up in the same situation in the future.
Committee members present were Sens. Baptiste, David, Donastorg, Hill, Renee and Russell. Sen. Shawn-Michael was excused. Non-committee members attending the hearing were Senate President David Jones and Sens. Berry, Dowe, Raymond "Usie" Richards and Celestino White.
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