Along with meeting government payroll for November and December, the Legislature's recent approval of $300 million in bonds will help pay off debts to vendors and tax payers.
Senators who supported the bond issue say that once residents receive their payments, the ensuing spending will stimulate the economy. But opponents of the plan, including St. Croix Chamber of Commerce President Noel Loftus, contend that the short-term gains the bonds will reap pale in comparison to the long-term costs.
And, Loftus said, a $106 million loan taken out in early 1998 by former Gov. Roy Schneider to pay vendors and tax returns didn’t invigorate the economy as promised by the administration.
"We tracked it and it didn’t even make a blip," Loftus said. "It didn’t even turn the economy for a week. People used (the payments) to pay off bills and set it aside."
While he did concede that paying tax refunds and vendors this time around may have an impact on the economy, Loftus said it won’t keep the shrinking private sector from withering further.
"The citizens and vendors are entitled to getting paid," he said. "But it’s being done in a vacuum. It (payments) will have no upward spike on the economy. It will merely slow it from going down."
Loftus’ counterpart at the St. Thomas-St. John Chamber of Commerce, John deJongh Jr., said he isn’t against the bond bill as long as Gov. Charles W. Turnbull’s administration comes through with an economic recovery plan early next year.
"I think there has been enough rhetoric on what our problems are," deJongh said. "I’m confident that we have to come up with a plan. If we don’t, we’ll never get consumer confidence back."
DeJongh is chairman of the Economic Recovery Task Force, of which Loftus is a member. But Loftus said the administration’s lack of a well-articulated economic recovery plan is keeping government employees who are still fearful of layoffs from spending money. That reluctance to spend will, in turn, be felt by the government in a decrease of gross receipts taxes, he said.
"I agree 100 percent with Noel Loftus that we need a plan," deJongh said.
Loftus said Turnbull’s hesitancy to trim the government payroll while borrowing money to keep it running at least through the end of the year reinforces to him that, at least fiscally, not much has changed from the prior administration.
Schneider’s loan of $106 million saw $64 million go toward paying tax refunds and $42 million to pay vendor debts.
Turnbull originally asked the Legislature for the authority to borrow $130 million. But on Oct. 12, senators voted 12-3 to amend the governor’s bill to authorize the Public Finance Authority to issue up to $300 million in bonds to fund a working capital loan.
Some $136 million will go toward tax refunds; $46 million to pay vendors; $30 million for bonding services and escrow; $30 million to pay Banco Popular; and $15 million to pay the government retirement fund.
The balance will cover the costs of floating the bonds plus the approximately $40 million payroll shortfall the government would have faced on Nov. 18. Administration officials warned of thousands of layoffs had the bond bill not been approved.
DeJongh said the longstanding debts for tax refunds and vendor payments have been sapping the government financially. He pointed out that interest on the bond will be lower than what the government must pay on the approximately $100 million it owes taxpayers.
"Somehow we had to get rid of the accumulated deficit," deJongh said. "The only way we’re going to get rid of those is through some type of financing."
Despite covering the short-term problem of meeting payroll for November and December, Loftus said that without seriously cutting the ranks of government employees, the administration will again face shortfalls.
"By January we’ll be broke again," he said, adding that the government will have to pay $20 million a year for the bonds. "The price of this bond is the payroll for 500 government employees."
Loftus speculated that in order to meet the next payroll crisis, the administration will sell a portion of the V.I. Water and Power Authority.
"The numbers are staggering," he said. "It is business as usual and the man on the street knows it.
"It will continue until everything is borrowed or sold."
