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HomeNewsArchivesGovernor's Fiscal Team Says Spending Will Be Matched by Revenues

Governor's Fiscal Team Says Spending Will Be Matched by Revenues

July 15, 2005 — Increased revenues and economic growth in the territory were cited Thursday as the justification for the $611.6 million in projected spending contained in the Executive Budget for FY 2006, as Office of Management and Budget Director Ira Mills spoke before the Senate Committee on Finance. The 2006 budget is $45.5 million more than the budget of FY 2005.
"The U.S. Virgin Islands economy has made some strides back to economic health and is on a path to moderate expansion," Mills said. "The gross territorial product is estimated to have grown by three percent in 2004, led by business investment, tourism and consumer spending."
Mills added that improvement in the U.S. economy, low interest rates, and federal tax cuts also helped to fuel growth in these sectors, with an upturn in tourism and financial services activity specifically contributing to an increase in V.I. revenues.
Mills, accompanied at Thursday's budget hearing by the administration's fiscal team, said that this trend is expected to continue despite obstacles such as increasing oil prices and concerns with the Economic Development Program.
"The economy's growth will be tempered by a pending EDC ruling, and a decrease in consumer spending because of high interest rates," Lauritz Mills, director of the Bureau of Economic Research, said. "But the economy will continue to grow slowly…supported by strong tourism and private sector development projects."
Some of these projects — a $400 million desulphurization unit for Hovensa and a $9.3 million Red Hook Terminal building — that have been in the budget in previous years, drew concern from senators.
"These are multi-year projects," Mills said. "They will impact more that one fiscal year."
Other capital projects expected to drive the economy are the $150 million Yacht Haven project, and a $63 million Sapphire Beach recreational center.
Tourism
According to the Bureau of Economic Research, an increase in both air and ship passengers will lead to significant revenues for the V.I. government.
"For the first half of FY 2005, total visitor arrivals have increased 5.8 percent from FY 2004. There were 365, 245 air visitors and 1,246,295 cruise passengers," Lauritz Mills said.
The bureau projected that visitor arrivals will peak at 2.7 million by the end of FY 2005, and 2.8 million in FY 2006.

Manufacturing
Testimony on a struggling manufacturing sector, due to high unit costs and increased competition, raised concerns for senators regarding employee retention within the territory.
"There's a definite outsourcing of manufacturing companies in St. Croix," Sen. Juan Figueroa-Serville said, adding that these companies are attracted to cheap labor opportunities in countries such as China and India.
"Until an international wage standard is implemented, it will be hard for the V.I. to be competitive in this area," Figueroa-Serville said. "It is even more difficult because the current Bush administration is not implementing a policy to encourage these firms to stay on U.S. soil."
When asked about what is being done to attract more companies to the V.I., fiscal team members said that they are working on a comprehensive plan to improve the situation and that the revenues generated within the tourism industry will help to supplement any losses within the sector.
Additionally, Ira Mills said that the territory's rum and petroleum exports have increased as a result of higher production levels, higher commodity prices, and increased demand.
The number of jobs within this sector has also grown within the fiscal year, primarily within the oil industry.
"There should be continued improvement in this area during the year with increased efforts by the University of the Virgin Islands Technology Park, and the V.I. Port Authority to attract new industries to the territory," Mills said.
Construction
While lagging in project completion and employment rates in 2003 and 2004, Ira Mills said that the construction sector has shown slow signs of growth for FY 2005.
"Construction is expected to be strong over the next year, supported by major hotel and casino construction; the upgrade and extension of roads, housing and seaports; and the development of commercial and residential properties," Lauritz Mills said.
Mills added that the construction of Hovensa's desulphurization unit will create 400 jobs, while the Yacht Haven Hotel and Marina project will add 120 jobs to the private sector. Projects such as Grand Bay Condominiums on St. John and Sapphire Beach Development on St. Thomas will also create additional construction opportunities.
Lauritz Mills was questioned extensively by senators after mentioning two development projects on St. Croix — the re-construction of Carambola resorts and Golden Gaming/Golden resorts.
Sen. Norman Jn Baptiste informed Mills that Golden Gaming was being sued by environmentalists, and Sen. Usie Richards said that Carambola would be unable to apply for a casino license at this time.
Mills said that she would have to look into those matters.
On another construction-related note, Sen. Louis P. Hill directed questions relating to the personal concerns of construction workers to Louis Willis, director of the Bureau of Internal Revenue. Hill said that workers want to know how their employers are being monitored in respect to paying all their taxes.
"We don't have to go to the construction sites to monitor these things," Willis responded. "We monitor every employment in the territory—I have all the information at my fingertips."
Willis also stated that any employees concerned with such tax issues should come down to his office and talk to him personally.
"That is an unacceptable answer," Hill said, noting Willis didn't answer his question.
Financial Services and Real Estate
"The financial services sector was one of the most vibrant in the past year," Ira Mills said. Mills added that jobs for the first quarter of FY 2005 averaged 2,533 — an increase of 5.7 percent over the corresponding period in FY 2004.
Mills also related concerns that rising interest rates, as well as uncertainty surrounding the EDC program might cause investors in this sector to become more averse to risk.
"The strength of this sector in 2006 is dependent on the federal monetary policy and importantly, on the outcome of the Jobs Act. We continue our efforts in moving with the Treasury and Interior Departments, as well as with Congress to develop rules and regulations that are fair and reasonable," Ira Mills said.
From this testimony, Jn Baptiste questioned Willis on Memorandums of Understanding established between the Internal Revenue Service and the local Internal Revenue Bureau regarding issues with EDC companies.
"What happens if an EDC company makes a deposit into our local treasury in error," Jn Baptiste asked. "Are we supposed to reimburse them for those monies?"
Willis said that because of conditions established within the memorandums, the government would not be responsible for repaying the EDC company in the event of an error. However, to date, the MOUs have not been released to the public.
Public and Private Sector Employment
While private sector growth has continued to climb, jobs within the public sector have decreased due to administrative efforts to reduce local government jobs through attrition, retirement, and the elimination of vacant positions, Ira Mills said.
Ira Mills added that the territory's "civilian unemployment rate" has continued to fall, and now averages 7.4 percent for FY 2005.
Revenue Projections
The OMB director projected that revenues coming into the government would be equal to the amount need to cover government
costs for FY 2006.
"General Fund net taxes and revenues are projected at $578.7 for FY 2006, and $77.5 million in contributions from other local funding sources. These amounts are reduced by $44.6 million in transfers out mainly for debt service, for a net total General fund of $611.6 million," Mills said.
Willis, at the request of Jn Baptiste, provided the amounts of revenue generated from various tax increases. These are:
–$30 million in individual income taxes;
–$1.8 million in excise taxes;
–$12 million in gross receipt taxes;
–$16 million in corporate income taxes;
–$1.8 million in hotel room taxes;
–$117,000 in vehicle taxes.
Budget Breakdown
Ira Mills said that the $611.6 will be enough to cover all branches of government for FY 2006, with amounts distributed as follows:
–$42.2 million for the Judicial and Legislative branches;
— $441.8 million to be divided among the various executive branch departments and agencies;
— $27.6 million for the University of the Virgin Islands;
–$99.4 million for miscellaneous items such as insurance coverage on government-owned buildings, improvements to the functioning of the EDA, payroll reimbursements, health insurance coverage for retirees and funding for various non-profit organizations;
–$182.8 million for Education;
–$60.7 million for Public Safety;
–$60.8 million for Public Housing and Welfare;
–$74.5 million for the support of health services, including amounts added for hospitals and the building of new cancer and cardiac units.
Mills said that Gov. Charles W. Turnbull added a technical amendment to the budget calling for an increase of $206,360 for Homeland Security operations, and $300,000 to cover UVI's rising utility costs.
The Senate Finance Committee also approved the transfer of two allocations at Mills' request: $2.1 million will go to the Education Department in order to cover summer maintenance costs and bus transport systems, while $1.3 million will go to the Department of Human Services for adolescent services and retirement homes.
From the fiscal team, testimony was also given by Commissioner of Finance Bernice A. Turnbull; Roy Martin, tax assessor; and Nathan Simmonds, director of Fiscal and Economic Recovery and Implementation.
Present for the Finance Committee were Sens. Lorraine L. Berry, Roosevelt David, Liston Davis, Adlah "Foncie" Donastorg, Figueroa-Serville, Hill, Neville James, Jn Baptiste, Shawn-Michael Malone, Terrence "Positive" Nelson, Richards, and Celestino A. White Sr.

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