V.I. Budget Crisis, Part 18: Honesty Makes the Best Policy

(Image from Alabama Public Radio)
(Image from Alabama Public Radio)

Early in 2017, the U.S. Virgin Islands was facing massive structural deficits, fast-rising debt, multiple ratings downgrades, an inability to borrow and no clear path to solvency. Hurricanes Irma and Maria have made the situation dramatically worse, with the V.I. government projecting a loss of $1.5 billion in revenues over the next three years.

If the V.I. government and Congress do not step up and take difficult, serious steps quickly, the unfilled budget shortfalls will play out painfully and chaotically. The more quickly, coherently and decisively the V.I. government and Congress act, the softer the landing will be.

Highlighting these facts is not just wallowing in doom and gloom, with no point but to wail and tear our hair in despair. They have policy implications.

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For example, the Legislature enacted a “statutory lien” last year, putting federal rum revenues out of its hands and into a third party, to reassure lenders they will be paid first. Right now, the Legislature is considering putting the same statutory liens onto tax revenues to secure private loans to private hotels for renovations. (See: “Senate Considers Making Taxpayer Financing of Hotels More Generous.”)

With the territory anticipating big forced cuts to critical services like schools and with lenders looking at V.I. finances and balking even before the storms took another $1.5 billion in revenue away, is it worthwhile to tie our hands to please lenders who are not going to lend and who we cannot pay without even harsher cuts? Making decisions like that is what senators are paid for.

Graph of primary revenue sources, historical data from 2004-2017 and projected revenues for 2018 to 2020. (Data compiled by Bill Kossler from historical V.I. budgetary data and data presented by Budget Director Nellon Bowry at the Dec. 5, 2017 V.I. Legislature Finance Committee hearing)
Graph of primary revenue sources, historical data from 2004-2017 and projected revenues for 2018 to 2020. (Data compiled by Bill Kossler from historical V.I. budgetary data and data presented by Budget Director Nellon Bowry at the Dec. 5, 2017 V.I. Legislature Finance Committee hearing)

The government can also take action to control where the pain is inflicted. But will it? For example, Mapp’s budget assumed the Legislature would pass legislation increasing government employee contributions for the territory’s generous government employee and retiree health insurance plans. It would save the government $21 million this year alone. That is roughly the same as the Legislature’s entire budget or 10 percent of the Education Department budget. Senators have shown no interest in passing that legislation. If the Legislature hides from making these choices in hopes of not angering government employees, that $21 million will have to be made up by cutting spending on something else – such as police or schools.

Graph of total General Fund and total net tax revenues, with historical data from 2004-2017 and projected revenues for 2018 to 2020. (Data compiled by Bill Kossler from historical V.I. budgetary data and data presented by Budget Director Nellon Bowry at the Dec. 5, 2017 V.I. Legislature Finance Committee hearing)
Graph of total General Fund and total net tax revenues, with historical data from 2004-2017 and projected revenues for 2018 to 2020. (Data compiled by Bill Kossler from historical V.I. budgetary data and data presented by Budget Director Nellon Bowry at the Dec. 5, 2017 V.I. Legislature Finance Committee hearing)

The Senate mandates the government pension system give out at least $1 million in Christmas “bonuses” in the form of cash gifts of a few hundred dollars to every government retiree. It is a statutory mandate, so the Legislature would have to publicly vote to change the law to stop it. No senator will take responsibility for denying retirees a couple of hundred extra bucks as a late Christmas gift this year. So on Dec. 20, the Government Employee Retirement System announced the bonuses will be paid on Jan. 22. Those same retirees will still cease getting full pension checks, possibly as soon as 2020. But at least they get a small bonus now.

V.I. senators have on occasion justified spending despite deficits by pointing to the technical source of money and saying there is money in that account. For example, with the “bonuses,” the money “comes from” the V.I. Lottery. That dodge is an illusion. The total amount of money in hand is not changed by how the Legislature chops and dices it up. If you were short on rent but there was money in a Christmas savings account, would you buy a nice present and tell the landlord you only spent the Christmas present money not the rent money?

 

Next: Part 19 – Congress Can Still Do a Lot, But If Not – Brace For Impact

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1 COMMENT

  1. The senate can set an example by voting to reduce their size from 15 to 9 members with a corresponding 40% decrease in budget. The people of the Virgin Islands voted overwhelmingly in favor of this move in a referendum several years ago. What are they waiting for, their pensions to kick in? How about some leadership for once.

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