Two bills approved in committee Tuesday would reduce V.I. government revenues next year – one by up to $200 million and the other up to $8 million – if enacted into law. Meanwhile, the government is facing a $40 million deficit this year.
To avoid catastrophic abrupt cuts and defaults later in the year, spending must be reduced immediately, Gov. John deJongh Jr. said back in January in his annual state of the territory address. Spending has not been reduced in the four months since. (See related links below)
One of the bills, sponsored by Sen. Alicia "Chucky" Hansen, would allow V.I. taxpayers to deduct any amount owed to them by the V.I. government or any of its semi-autonomous entities, such as the territory’s two hospitals or University of the Virgin Islands, from their property tax, gross receipts tax and excise tax bills. The amount that can be offset is capped at $1.2 million per taxpayer. [Bill 30-0125]
Introducing the bill, Hansen emphasized that this would mean current and former V.I. government employees who are owed "retro" could deduct what they are owed from their taxes due. By "retro," Hansen was referring to money due government employees from periods in the past when the government agreed to salary increases but did not have the money to pay the increases it agreed to pay.
“How can we be pressuring people to pay when, in some cases, the government may owe them more than they owe the government?" Hansen said in support of her bill when she first introduced it last October.
Finance Commissioner Angel Dawson and Internal Revenue Bureau Director Claudette Watson-Anderson testified against the bill, as they did last year.
"The biggest issue is retroactive pay," Dawson said. "It is nearly certain that everyone due retro will ask for all of it the first year. Again we are talking about in excess of $200 million.”
Dawson said that without some “reasonable limitation” on an annual basis, “you will have a situation in the first year that could cripple the government."
Finance Committee Chairman Clifford Graham asked Dawson, "Would you support it if there were an annual cap?"
"It would start a discussion," Dawson said. "The bigger issue is how do you balance the budget once you eliminate those revenue sources from the table," he added.
Graham said he would support the bill but he would seek an amendment to cap the annual amount to reduce the impact on the budget.
Sen. Nereida "Nellie" Rivera-O’Reilly asked Dawson if he could support any version of the bill. Dawson said he could not support it "unless money were found for a lump sum payment" of retro. "Just find something to replace ($200 million) with or reduce your expenditures accordingly," he said.
Dawson said another problem is that the legislation holds the central government and ultimately taxpayers generally responsible for debts of semi-autonomous institutions that it does not control.
Sen. Terrence "Positive" Nelson later proposed an amendment, which the committee adopted, removing semi-autonomous agencies from the bill.
Voting to send the bill, as amended, to the Rules and Judiciary Committee were Nelson, O’Reilly and Graham. Sen. Judi Buckley abstained. Sens. Donald Cole, Myron Jackson and Clarence Payne were absent.
The committee also approved another bill from Hansen reducing gross receipts taxes from the current 5 percent to 4.5 percent – the level it was until 2012 when it was increased to help deal with a budget shortfall. [Bill 30-0271] Hansen argued that small businesses are suffering, especially with high energy costs.
Watson-Anderson and Legislative Post Auditor Jose George both said the change would be likely to reduce revenues roughly in proportion to the size of the cut – representing roughly $8 million at current projections for the upcoming year, according to the IRB director.
Watson-Anderson said she would have had more information, but no one from the government was invited to testify on the bill so she did not collect data and prepare testimony in advance.
Casino Control Commission Chairwoman Violet Ann Golden testified in support of the bill, saying any reduction in gross receipts taxes for small businesses, particularly on St. Croix, “are welcomed.”
The committee voted to hold the bill, then later voted to reconsider it and passed it out of committee. Voting to hold the bill were Buckley, Jackson, O’Reilly and Graham. Absent were Cole, Nelson and Payne. Later, voting in favor of the same bill were Buckley, Jackson, Nelson and O’Reilly. Graham voted no. Payne and Cole were absent.
