Both island governors feel they have to borrow money — it's $235 million in the Virgin Islands and $246 million in Guam. That's just one of the many parallels between these two U.S. territories as they face near-identical fiscal crises. In addition:
– Both territories were acquired by the United States primarily for their strategic significance at the time — the Virgin Islands 85 years ago and Guam 20 years before that.
– Both currently have populations of 100,000-plus.
– Both rely heavily on tourism (Guam's trade is largely with Japan).
– Neither does much in the way of manufacturing, farming or commercial fishing.
– Both have overstaffed governments, and both are in financial jams.
But there are differences.
First, Guam's unicameral legislature has just voted 12-2 for legislation requested by Gov. Felix Camacho that would permit Guam to try to borrow the $246 million, while the V.I. Senate has been opposed to a bond issue.
Second, Guam's governor says that, so far this year, he has arranged for "more than 700 people voluntarily leaving government service," according to the Pacific Daily News. Some of them haven't actually left their jobs yet, but the breakdown of how they are being separated shows that the governor of Guam is really trying to shrink his public work force.
While the details from this distance are scarce, and some of the employee-separation strategies may be expensive, Camacho has told the Pacific Daily News that four different sets of departures are completed or expected:
– 370 people have left the government service. (This category probably includes a number of patronage employees fired when Camacho, a Republican, replaced his Democratic predecessor in January.)
– 34 have already retired.
– 52 have been moved from locally funded to federally funded positions.
– 250 are waiting to retire once bond financing is finalized. (Bond proceeds presumably will include some exit payments for this group.)
In addition:
– 400 workers are apparently due to be laid off as some government activities are privatized. Many of the affected employees are expected to go to work for the private-sector providers of what were previously government services. (It is not clear that this represents a real savings.)
– 200 territorial government positions remain vacant.
Guam's governor has promised to cut spending by $40 million this year — and by another $100 million next year.
Meanwhile, speaking of reducing the government payroll, it is likely that neither island government has followed a frankly devious layoff strategy that I proposed while working at the U.S. Department of the Interior a few years ago. It is based on an obscure federal program, the differential funding of unemployment benefits for laid-off government workers.
The feds pick up all the unemployment benefits for workers whose jobs they fund, while the territories pay for the benefits for their own ex-employees. Meanwhile, the territorial unemployment compensation trust funds relate to private-sector workers.
So why not begin the inevitable layoffs in the two island governments with federally funded workers, and then replace them with people transferred from locally funded positions? The individual federal agencies (Labor, Health and Human Services, etc.) would then be obliged to pay the unemployment benefits for the laid-off workers as well as the salaries of those hired to replace the prior workers.
The feds might object, of course. But, on the other hand, they might accept it as a back-handed way of getting a little federal money to the islands without calling it a bail-out and without needing to go through the congressional budgetary process. (Funds for compensating laid-off federally funded workers already are in the budget.)
There is a useful precedent. The Defense Department plans to lease a fleet of aerial tankers (for in-flight refueling) from Boeing rather than buy them. A columnist in The Washington Post of June 26 suggested that this is a smoke screen for a subsidy to Boeing, a major firm that has fallen on hard times recently.
Why not smaller, similar devious federal subsidies for the Virgin Islands and Guam?
Editor's note: David S. North, a semi-retired former federal employee living in the Washington, D.C., area, reports and writes frequently for the Source on government affairs and economics.
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