First of two parts
Aug. 19, 2003 – A strong chief financial officer, an integrated financial management system, true competitive bidding, the cooperation of unions, and swift action could save the Virgin Islands from a financial control board, according to two experts appearing at the behest of Delegate Donna M. Christensen Sunday evening on WTJX-TV.
Furthermore, failure to implement these things could land the V.I. government in bankruptcy, receivership, or outside control. At least that is the warning given by Congresswoman Eleanor Holmes Norton, who was actively involved in helping structure the control board that took over the Washington, D.C., local government in 1995.
"It was very Draconian," Norton said.
Layoffs, outsourcing, and cutting back on hours and salaries were the order of the day. "Our workers suffered terribly," she said. "If the Virgin Islands is going to do something, they need to do it before it gets to this point."
In order for such efforts to work, Norton said, the unions would have to cooperate. In the District of Columbia scenario, she said, "the union folks took it in the gut."
Up to now, and despite all kinds of dire warnings, Gov. Charles W. Turnbull has been unwilling to consider cutting payroll or hours, and the unions representing government workers have strongly denounced suggestions that such steps be taken.
The only concession the governor had made, after all 15 senators called on him to roll back hefty pay raises given last year to hundreds of unclassified employees, was to institute a six-month reduction of those workers' pay by 2 to 10 percent, depending on salary level.
Christensen has been on top of at least two of the other potential solutions, however. In January she wrote to Turnbull asking for his support in "calling upon the federal government to pay for the implementation of a comprehensive financial and accounting system." Such a system is something that both Norton and Larry Wilson, principal in Washington accounting firm of Thompson, Cobb and Brazilio, agreed is key to solving the territory's financial problems.
An integrated financial management system allows for complete transparency in spending.
In favor of a chief financial officer
Christensen said on Tuesday that she also favors the hiring of an independent chief financial officer for the territory and that she has secured the governor's approval of an integrated financial management system — two steps in the right direction, according to Sunday's panelists.
In March, Turnbull wrote back to Christensen saying that her suggestion had been "well received" and asking her to assist in setting up a meeting with David Cohen, the Interior Department's deputy assistant secretary for insular affairs.
The delegate also is taking action to get legislation in place that would create a new position in the territory of chief financial officer.
"We think a chief financial officer is the way to go," Christensen told the Source on Tuesday. The CFO would be appointed by the governor but not tied to the governor's term of office, similar to the V.I. inspector general.
Norton had stressed the importance of an independent CFO, saying the person in the position "can't tell the truth if he knows his job is on the line."
She said on Sunday's night taped show: "Do it now so Congress won't have to do it for you."
Norton said the de-politicized CFO can make the hard decisions that politicians — especially those who must be re-elected every two years, as with the members of the Legislature — won't make. With a strong, empowered CFO in place in the federal district, she said, "overspending was just not allowed."
And the integrated financial management system will keep spending transparent.
Wilson, in an interview with the Source on Tuesday, agreed. He also said such a system needs to also be in place in the procurement process — and soon.
The five-year plan three years later
Wilson elaborated on his emphasis from Sunday's show that it is time to start implementing the five year plan. "I have read it," he said of the Five Year Operating and Strategic Financial Plan delivered to the governor by his Economic Recovery Task Force in April of 2000. "It has good things in it."
But the problem as Wilson sees it is: "There's no indication that anything is being done. Considering that it's a five-year plan, produced in 2000, we now need a two-year plan."
Wilson was optimistic that with a strong CFO, changes in procurement processes and a new financial management system, things could be turned around in two years.
He also emphasized the importance of automating and reconciling the payroll process "time and attendance."
"First, clean up the payroll system to know who you have as employees — live bodies," he said. "I can almost bet you are paying people who are retired — or dead."
In the Virgin Islands, it also is possible to be paying personnel who are not at their jobs. In the mid-'80s it was uncovered that government employees were clocking in and out daily and collecting paychecks while working other jobs or running their own businesses.
Wilson said the standard that is saved in other jurisdictions when payrolls are reconciled is between 2.5 and 10 percent of payroll costs. In the Virgin Islands, he said, that could mean recovery of anywhere between $7 million and $35 million a year just on payroll costs.
Another area where Wilson said change could save the government substantial money is in the procurement of goods and services. Automation and centralization are again the answer, he said.
"When governments are able to know how much of any commodity they are buying … they get better buying power," he said. And when you automate and streamline systems, "you are also able to have meaningful relationships with your suppliers." It boils down, he said, to "how you go about buying stuff."
Wilson offered a rule of thumb in the procurement field that he called the 80-20 rule: "Eighty percent of your people are working on things that total up to 20 percent of spending. Conversely, 20 percent are working on what amounts to 80 percent of spending."
When a study was done after procurement processes had been revamped in Atlanta, he said, the city saved $19 million on $623 million in spending.
As far as competitive bidding, Wilson said the two biggest challenges are emergency procurement and sole-sourcing. His recommendation: "Shore up the language" of the laws on competitive bidding, and "enforce" them.
On Sunday, Norton was less than optimistic about politicians making the hard decisions in the Virgin Islands. "With one-third of the population on the payroll, who is going to cut that payroll?" she wondered.
She added that it is particularly hard to make such cuts in a bad economy. And, she noted, "You have problems that we didn't even begin to have. You have hurricanes."
Norton said, "When you get into the kind of trouble the Virgin Islands is in" economically, verging on possible insolvency, sometimes outside intervention becomes the only option.
"Let me warn the governor and the Legislature," she said. If that happens, "You will lose a part of your power."
As of Tuesday Christensen said though there was considerable interest in the show coming from the public, only two public officials had expressed interest. Sens. Ronald Russell and Luther Renee had called her office for copies of the tape.
The half-hour program produced by WTJX in cooperation with Christensen is to be aired again at 6:30 p.m. Thursday.
Next: What does insolvency mean in the Virgin Islands?
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