Gov. Kenneth Mapp has called a special session of the Legislature for Tuesday to consider legislation increasing taxes on alcohol, tobacco and soda, which the administration is describing as part of a five-year deficit-reduction plan. [Five Year Plan]
The Senate was already holding a session that day to consider other bills and an array of board and commission nominees.
In a statement from Government House, administration officials emphasized that the new taxes and tax increases would be on "non-essential commodities and areas of the economy that can contribute more without increasing the cost of living to V.I. residents."
Items such as food, medicine, clothing and the essential components of raising a family or operating a business in the territory will not be affected by this proposed legislation. Mapp said the legislation would try to gain revenue largely from visitors to the territory
"By making modest increases to items such as beer, alcohol, cigarettes and carbonated beverages, revenue contributed to the territory will come from nonessential items," officials said in a statement. Government House asserts the changes are expected to generate about $300 million dollars over the next five years.
Mapp said the taxes seek what he believes is “a reasonable contribution” from visitors to maintain infrastructure and to preserve the environment which they enjoy.
“It is important to emphasize that the new revenues we are seeking are not from the usual source – the business community or the backs of the working people and retirees of the Virgin Islands. Simply put, this bill seeks a reasonable contribution from the visitors to our shores and a slight burden on our business community to collect these revenues," Mapp said in the statement.
The tax increases in this legislation are a component of a larger plan that relies heavily on optimistic projections for large increases in the number of companies the territory can attract to set up offices in the territory in exchange for V.I. Economic Development Authority tax breaks. Mapp officials project the deficit can be eliminated by 2021 with the plan’s combination of tax increases, increased VIEDA revenues and a boost in overall economic development.
The territory is facing ongoing structural deficits of $170 million per year, in a roughly $1 billion annual budget. In March, the government enacted pay raises adding about $30 million per year to the structural deficit. The administration proposed a $426 million borrowing package in September, including operating funds and new capital projects. The Legislature approved a smaller, $247 million plan that eliminated the capital projects for now. (See Related Links below)
Mapp’s proposal would also establish a separate account to pay government employees who won a recent court appeal concerning emergency eight percent pay cuts imposed in 2011 amid the budget deficit that year. In November, the Third Circuit Court of Appeals ruled the 2011 pay cut violated the U.S. Constitution’s contracts clause, overturning a 2012 District Court decision upholding the legislation causing the pay cuts. [Third Circuit Order on 2011 V.I. Pay Cuts]
The ruling, by a three-judge panel, sends the case back for reconsideration by U.S. District Court in the Virgin Islands. The ruling affects an ongoing arbitration between the government and several unions, but it does not automatically mandate that the government pay the lost wages.