June 26, 2006 – Economic growth in the manufacturing, construction and tourism industries, along with an increase in tax collections, will produce enough revenue to sustain the $749 million executive budget, government officials said at a Finance Committee meeting on Monday.
Of the projected revenue, $668 million will come from taxes, $12 million from various government fees, $96 million in contributions from other funds and $1 million from independent agencies, officials said. The total will be offset by $48 million worth of deductions for debt service, financing costs and transfers out of government funds.
This year's budget is approximately $22 million more than what was appropriated for Fiscal Year 2006 – which includes a $611 million executive budget and two supplemental budgets totaling $116 million.
Despite the increase in revenues, however, members of the government's financial team urged senators to demonstrate fiscal restraint as budget season moves forward, since increasing fuel prices and the loss of Economic Development Commission businesses throughout the territory could temper projected revenues.
"Because these factors will keep pressure on the economy, it is absolutely critical that public policy ensures that the Virgin Islands remain attractive for businesses to locate and invest," said Ira Mills, Office of Management and Budget director.
During his presentation, Mills added that various capital projects are under way to ensure investment in the local economy, including the construction of two new sewage treatment plants (one on St. Thomas and one on St. Croix), the completion of the Cardiac Care Center at the Juan F. Luis Hospital, renovations to Fort Christian and emergency road repairs territorywide, among other things.
In response to questioning from senators, however, Mills said that approximately $150 million worth of capital improvement projects are still pending.
Mills said other projects developed through the private sector "make it clear that the V.I. is viewed as a very good investment market." He said that in addition to economic growth and "record revenues," FY 2006 brought reduced unemployment, salary increases and "general improvement throughout in our quality of life."
Certain appropriations included in the FY 2007 budget will also add to the local infrastructure, Mills said. He explained that the budget "most significantly" appropriates $30 million to address the unfunded liability plaguing the Government Employees Retirement System, $47.4 million to the Police Department (bringing the total number of uniformed officers up to 500) and $20.1 million for salary increases already negotiated for classified employees.
Mills explained that the government's GERS task force is also working on creating a rating structure for the entire government, which would "enhance" the government's ability to obtain AAA bond insurance, yield more money in returns, and reduce the cost of issuing pension obligation bonds to cover the remaining cost of the unfunded liability.
Enabling legislation to establish a "Rainy Day Fund" is also critical, he said, and would receive annual appropriations of $5 million – at a minimum – and up to 10 percent of projected revenues during any given fiscal year.
Furthermore, Mills stated that money appropriated for the implementation of the government's new Enterprise Resource Planning System – which replaces the current financial management system – would improve the accountability of government departments and agencies by allowing continuous "real time access" to all financial figures.
He said the implementation of performance based budgeting for all departments and agencies during the budget process would allow the government to "link" government performance to appropriations.
During a recent interview, Mills explained that OMB is currently in the process of establishing "baselines" – or standard appropriation figures for each department and agency. Once the figures are put in place, he said, the government could appropriate and allot based an agency's performance during the previous fiscal year.
"How they perform would determine how much above or below the baseline that department or agency would receive," Mills said.
Despite Mills' presentation, however, senators said they had various concerns about this year's budget, and objected to Mill's call for lump-sum appropriations, which, he said, would give government departments and agencies more flexibility with funding should an emergency arise.
"What most of us don't realize is that most of the money appropriated is already tied to personnel and fringe costs," Mills said. "The lump-sum budget would only allow the departments and agencies to reprogram a small portion of their money to address various critical needs."
Sen. Terrence Nelson, however, disagreed. "I don't believe lump-sum budgets should be awarded to an administration that's on its way out," he said. "It gives the impression that you all could just go spending willy-nilly."
Others, such as Sen. Louis P. Hill, said the executive branch should also be looking at ways to curb government expenditures, and should look at reprogramming unused funds for capital improvement projects. Hill also advocated that moving departments and agencies serving similar functions into one "government complex" would cut down on rent, improve connectivity and reduce utility costs.
Expanding the economy – especially on St. Croix – was also a concern for senators, who said that unemployment rates in the territory have not improved, but rather remained the same. "Young people looking for jobs don't even want to go the Labor Department anymore because they know it's not going to do them any good," said Sen. Norman Jn Baptiste. "And we're also hurting because some of the big employers are only hiring people from the mainland instead of local residents."
When asked about strategies to improve the economy, Lauritz Mills, lead investigator of the Bureau of Economic Research, said that the government should invest more in education for government workers. Nathan Simmonds, the director of fiscal and economic recovery and implementation for the government, added that focusing more on EDC companies and the financial services sector would create more jobs and revenue for the government.
In other news, senators unanimously approved two appropriation transfers in the amount of $46,948.35 and $30,335 to the V.I. Election System. The transfers will cover the cost of stipends paid to Election's board members.
Present during Monday's hearing were Sens. Lorraine L. Berry, Roosevelt C. David, Liston Davis, Pedro "Pete" Encarnacion, Juan Figueroa-Serville, Hill, Neville James, and Nelson.
Sen. Usie R. Richards was absent.
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