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TURNBULL PLAN: TRY ANEW ON TAXES, CUT WORK WEEK

Aug. 29, 2003 – Gov. Charles W. Turnbull released his proposed $557.7 million Fiscal Year 2004 budget on Friday — and his plan to balance it with some of the same tax increases and additions that the Senate Finance Committee soundly rejected in June.
The plan also calls for cutting back on government costs by going to a 36-hour work week for public employees and instituting an additional 2 percent reduction in personnel spending.
Turnbull and members of his cabinet met with the news media on Friday afternoon, following a private morning meeting with the five senators who accepted his invitation to an overview presentation on his proposed budget.
At the press conference the governor reiterated his opposition to laying off government workers and also said he is adamantly against the naming of an independent chief financial officer and/or a financial control board to oversee efforts to get the territory out of its fiscal crisis.
The rundown of projected revenue increases and expenditure decreases for FY 2004 given by Turnbull and his financial team seems to set the scene for a replay of the clash earlier this summer between Government House and the Legislature, unless the lawmakers do an abrupt about face.
The Finance Committee on June 5 eviscerated the tax enhancement portion of Turnbull's "fiscal recovery package," killing more than $80 million of his proposed $95 million in revenues from new and increased taxes. (See "Finance axes gross receipts tax increase".) Turnbull is asking the Senate to approve the same, or variations on, tax increases it vehemently rejected in the face of strong public outcry.
In the face of proposals for fiscal constraints made public recently, Turnbull said on Friday that he will not sanction a separate control board. Sen. Lorraine Berry is drafting legislation to create such an entity.
Delegate Donna M. Christensen, meanwhile, has said she will offer legislation this fall for the designation of a chief financial officer for the territory, to be nominated by the governor and approved by the Legislature, but to operate independently, with a term staggered from that of a current administration.
Berry did not return calls for comment Friday afternoon.
Turnbull was adamant. "In our meeting with the senators and the cabinet this morning, I emphasized we will be our own financial control board," he said at the press conference. "The executive branch will be our own, and we have asked the Legislature to be its own, so we can police ourselves. And I have asked the Legislature not to pass appropriations for which there is no money. I have told my cabinet to be its own control board."
In sum, he said, "We can expect a joint effort of control boards in the Virgin Islands."
Layoffs still not an option
As far as increasing taxes, he said: "We considered all other options, and brought back these taxes reluctantly. Nobody wants them; we don't want them, but it is necessary to do this." His words, although less heated, reflected his comments at the press conference he called on June 6, the day after the Finance Committee slashed his earlier tax proposals. See "Turnbull defends his fiscal plan, raps Senate".
The governor said on Friday that he has made the "tough choices." "We're trying our best for our people," he said. "The hard choice is to lay off government workers. We have done everything else we could to avoid that," he said, once again stating that putting public employees out of work would be counterproductive.
He said, echoing previous statements, that since V.I. workers cannot simply "go to the next city or state" and find work, it is better to keep them employed. "If we lay off workers, we have to provide for them, anyhow," he said.
Turnbull turned to Ira Mills, director of the Office of Management and Budget, to explain the nuts and bolts of the administration's FY 2004 plan.
Quoting from an FY2004 "Budget Preview," Mills cited what he said were the most recent available figures for FY 2003:
– Revenues to July of $432 million.
– Expenditures to July of $487.8 million.
– Actual deficit to July of $55.8 million.
– Projected deficit to Sept. 30 (after borrowing $100 million) of $16.5 million.
The government's projected revenues for FY 2004 without changes in the tax structure fall short of projected expenditures by $90.7 million. Mills listed the following as new expenditures:
– $10.7 million in debt service for the Hurricane Marilyn federal Community Disaster Loan.
– $15 million in projected debt service for the forthcoming 2003 bond issue.
– $8 million in startup costs for the proposed Waste Management Authority.
– $7.9 million to cover child tax credit increases.
– $ 4.6 million to cover a reduction in capital gains tax.
– $6.5 million to cover a reduction in taxable dividends.
– $800,000 to cover increased qualifications for the earned income tax credit.
The $235 million bond issue the Legislature approved in July is to be repaid from gross receipts taxes. Mills said on Aug. 22 that the government would have to find ways to reduce spending and increase revenues if it expects to make up for the losses in the General Fund owing to gross receipts taxes being used for the debt service on a new round of borrowing.
Taxes re-sought, revised and newly proposed
The taxes the governor now proposes include some apparent attempts at compromise. He's seeking to increase the gross receipts tax to 4.25 percent from the current 4 percent. He earlier sought to have it raised to 4.75 percent. And he's asking for a rental car surcharge of $2.50, half of what he sought earlier.
But he's still looking for a graduated stamp tax on real estate sales, and a 2 percent surcharge atop the current 8 percent hotel room tax. For a breakdown of the earlier tax proposals and how the Senate responded to them, see "What's been proposed, amended and approved".
While Turnbull said repeatedly on Friday that he was "reluctant" to have to impose more taxes, he added a new one which is likely to draw fire from the public and private sectors alike — a 10 percent surcharge on individual income taxes. Mills noted that the tax is similar to a surcharge imposed on corporate income taxes.
Louis Willis, Internal Revenue Bureau director, said the surcharge would be applied to an individual's tax obligation. It was not clear whether the 10 percent would be automatically deducted from payrolls or would be payable at the deadline for filing tax returns.
How the budget would be balanced
The administration had previously projected "net revenues" of $520.4 million for FY 2004. It is now, in addition, projected the following revenues from the tax increases and additions proposed:
– $850,000 from a graduated real estate stamp tax.
– $6 million from an increased gross receipts tax.
– $24 million from the individual income tax surcharge.
– $1.75 million from the 2 percent hotel room tax surcharge.
– $ 750,000 from the $2.50 auto rental surcharge.
– $ 500,000 from increased administrative fees (previously authorized).
– $ 960,000 from the excise tax on value in excess of $1,000 of items imported for personal use (previously enacted).
– $1.7 million from fees on cargo containers brought into the territory (previously enacted).
– $ 108,000 from increased marriage license fees (previously enacted).
– $ 125,000 from an increased tire tax (previously enacted).
– $ 13,000 from increased firearms licence fees (previously enacted).
– $ 500,000 from increased moving violations fees.
These new revenues added to the earlier
projected net revenues would give a total of $557.7 million.
Previously, the administration had projected total FY 2004 expenditures of $587.6 million. The governor's budget is based on the following projected cutbacks in spending:
– $ 26.6 million from going to a 36-hour work week.
– $6.4 million from the change to 65/35 sharing of health insurance costs (previously enacted) by the government and its employees, respectively
– $9.7 million from a 2 percent reduction in personnel costs.
. The projected savings to be realized from the three areas would bring the total expenditures down to $557.7 million — in other words, a balanced budget.
The $557.7 budget the governor is proposing is $10 million less than the FY 2003 budget that was adopted last year.
Turnbull hastened to say the 36-hour week would not apply to his cabinet or to himself. "We won't get that — we sometimes work 20 hours a day," he said.
Some questions and answers
Attorney General Iver Stridiron was asked if the administration envisions any of the targets of the new taxes — rental car companies, for instance — challenging them in court. He said there would be no problem for the government because once the Legislature approves a measure and the governor signs it, it becomes law.
Asked whether child-support payments would be reduced because of lower wages, Stridiron said they would have to be.
Willis said that while a 36-hour work week represents a 10 percent cut in hours, that doesn't necessarily translate to 10 percent less in income tax collections. He said, however, that less would be collected in taxes.
Asked if there is a backup plan, should the taxes once again be voted down, Turnbull replied: "Yes. We will have to send people home."
The proposed FY 2004 budget now goes before the Senate Finance Committee. The governor by law is to submit his budget by May 31 of each year, but this year he said he would not do so until the Senate acted on his proposed fiscal recovery package. Sen. Adlah "Foncie" Donastorg, Finance Committee chair, then proceeded to hold budget hearings for the government's various departments, offices and agencies to present their own appropriations requests.
Those hearings were concluded a week ago except for the traditional overview from the administration's top financial officials. The overview hearings had been set for this week, but Donastorg agreed to Turnbull's request last week to delay them after Aug. 31, by which time, the governor said, the Senate would have his budget.
Donastorg rescheduled the overview hearings for Sept. 23 and 24. After the committee marks up the budget, it will to the full Senate. The fiscal year ends on Sept. 30. If no new budget is in place at that time, funding is to continue at the FY 2003 level. Many agency heads testified at their budget hearings that they have yet to receive their allotments for the fourth quarter of the current fiscal year, which began July 1.
The five senators attending Turnbull's Friday morning meeting were Lorraine Berry, Roosevelt David, Shawn-Michael Malone, David Jones and Ronald Russell.
Donastorg, Norman Jn Baptiste, Usie Richards and Celestino A. White Sr. had said publicly that they would not attend. Others were either off-island or at a St. Croix committee meeting. See "Senators split on governor's budget 'overview'".)

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