Jan. 18, 2008 — The governor's new property-tax bill would ultimately yield another $123 million in government revenues — enough to sustain the fiscal year 2008 budget — but if the bill doesn't pass the Legislature, allotments over the next few months could get pared down by about $50 million, experts said Friday.
This argument, presented by members of the governor's financial team duing a Committee of the Whole hearing, generated several concerns for minority senators, who questioned whether it would be "responsible" to pass a tax increase just to cover expenditures. Many suggested that the government instead send out FY 2006 property-tax bills at the 1998 tax rate and take more time to analyze the governor's bill, which sets up a multi-rate tax structure with four different property classes.
Minority leader Sen. Ronald E. Russell added that he will soon introduce a proposal that sets up a flat tax rate of .0040 for FY 2007 bills, with a second-tier rate structure tied to zoning designations for certain types of properties.
At past Senate meetings, fiscal team members have said that if the territory's current property-tax rate — in use since 1936 — continues to be applied against the new property valuations, the average bill for commercial owners would be about $4,406, while average residential owners would pay $1,900. Government revenues garnered from property-tax payments would amount to about $95.6 million.
Under the new proposal, new property-tax rates and classes are broken down as follows:
— unimproved non-commercial real property, to be taxed at a mill rate (tax per dollar of the assessed value) of 0.00495;
— residential real property to be taxed at a mill rate of 0.00377;
— commercial real property to be taxed at a mill rate of 0.00711; and
— time shares to be taxed at a mill rate of 0.01407.
If the new rates are approved and applied against new property-tax values, the average commercial owner would pay $3,739, while the average residential owner would pay $1,014. Coupled with payments from land and timeshare owners, government revenues garnered from property-tax payments from one billing cycle would amount to nearly $57 million and would jump to $123 million once FY 2007 payments come in.
"So people would ultimately be paying less than they would have to if everything remains the same," Nathan Simmonds — the governor's senior fiscal policy advisor — reminded senators Friday. He added that an increase in tax exemptions proposed in the bill would also mitigate the financial impact on "property owners of modest means whose bills appear to have simply imploded."
However, Simmonds said he does have concerns about revisions recently incorporated into the bill by members of the Senate's majority. Senate President Usie R. Richards said the changes clarify the definition of timeshare properties and how they should be taxed — along with reducing the exemptions given to beneficiaries of the Economic Development Commission's tax-incentive program. But Simmonds said the new language could pass on substantial increases to local homeowners who lease or rent out their property on a month-to-month basis.
Simmonds' statements were supported by testimony by representatives of the American Resort Development Association (ARDA), who stated that a 100-percent property-tax increase for timeshare owners would put a serious dent in the territory's tourism dollars.
"There are currently 13 timeshare resorts operating in the U.S. Virgin Islands," explained Keith Stephenson, ARDA director of legislative affairs. "These resorts offer approximately 1,071 individual units providing accommodations for more than 2,600 weeks. In lodging terms, this represents 185,000 room nights each year and a contribution of $15 million to this territory's economy."
While industry experts said they will offer amendments to the proposal calling for a 50-percent tax increase, senators were skeptical about another provision that would allow the proprietors of local timeshare holdings to do their own property-tax collecting and remit a single check to the V.I. government.
"This is my pet peeve," Richards said in response to the offer. "The government here has no mechanism in place to check on hotels to see if things like their occupancy rates match up — how are you going to manage to do it?"
Testimony provided by consultants for Bearing Point — the firm hired to conduct a court-mandated revaluation of the territory's commercial and residential properties — also raised the eyebrows of several senators, who questioned how the construction of multi-million dollar homes on islands like St. John would impact adjacent homeowners, whose properties are valued in the $300,000 range.
"It wouldn't — that's just a fact of life," said Bearing Point's Joseph Eckert, who explained that in conducting the revaluation, the company employed a "uniform model" that relates a property's sale price to characteristics such as age, size and condition. Eckert also said that the formula factors in a different inflation rate for different types of property.
"It's a very specific overall adjustment," he added. "So the value of one property is not necessarily going to drive up the cost of the one right next to it. There is no basis at all for St. John residents to say that they're being over-assessed."
Eckert's statements spurred a series of grunts and objections from the large group of St. John residents sitting in the audience. While some senators made moves to get representatives from the island to come onto the floor to testify, Richards said that all residents were invited to send letters to the Legislature detailing their objections or concerns.
"I don't believe this body would completely disenfranchise the people from St. John," Sen. Louis P. Hill said. "Where is the St. John senator? Where is the person who's supposed to be representing St. John?"
Earlier in the meeting, Senator-at-Large Carmen Wesselhoft questioned why St. John was being assessed separately from St. Thomas, when the two islands usually constitute one district. St. Thomas' lower values, she said, could significantly mitigate the tax increase for the St. John, whose values are skyrocketing.
Not so, Simmonds said.
"What your home was worth 10 years ago is not the same as today," he said. "It's just a fact of life. So values have increased for many homes throughout the territory. Notwithstanding the fact that the rate, through this bill, has been lowered, some of the taxes will increase — that's just how it is."
While majority senators are expected to introduce some clarifying amendments to the bill, it is unclear which way the vote will go when proposal comes up for a vote during next week's full legislative session.
Coming back after an hour lunch break, senators spent about four hours — from 4:30 to 8:30 p.m. — discussing two bills that call for a one-year freeze on levelized energy-adjustment clause (LEAC) rates and give the government eight months to pay off its outstanding utility bills using $25 million in available cash reserves (money in the bank).
Throughout the afternoon session, testifiers made themselves clear on two points: any freeze on the LEAC would bankrupt the V.I. Water and Power Authority because of a steady increase on fuel rates, and the government currently does not have $25 million on hand to make a lump-sum payment to WAPA.
However, the government is still committed to taking care of its approximately $18 million debt to the utility and will sit down to work on a payment proposal, said Office of Management and Budget Director Debra Gottlieb. Documents provided by OMB indicate the government — after taking out for various encumbrances, allotments and prior-year appropriations — has about $11.4 million in available cash resources.
WAP
A officials also offered some short- and long-term solutions to the mounting energy crisis, which includes the installation of waste-heat-recovery boilers on both St. Thomas and St. Croix, repairing and maintaining the utility's aging equipment and bringing alternative-energy sources into the territory.
Both bills are also expected to come up for a final vote during next week's full Senate session.
Present during Friday's meeting were Sens. Liston Davis, Juan Figueroa-Serville, Neville James, Norman Jn Baptiste, Hill, Shawn-Michael Malone, Terrence "Positive" Nelson, Basil Ottley Jr., Russell, Richards, James A. Weber III, Wesselhoft, Celestino A. White Sr. and Alvin L. Williams.
Back Talk Share your reaction to this news with other Source readers. Please include headline, your name and city and state/country or island where you reside.
