April 25, 2003 – The only thing surprising about Gov. Charles W. Turnbull's declaration Thursday that the territory is facing bankruptcy is that he made it at all.
Although the handwriting has long been on the wall, those at Government House had publicly turned a blind eye. Finance Commissioner Bernice Turnbull sounded the alarm last December, when she said the territory was facing a "fiscal crisis," a "cash-flow problem," but she declined to elaborate and later said her comment had been taken out of context.
The governor himself, in January's State of the Territory address, acknowledged "short-term pressures on our cash reserves and on our cash-flow situation" that he said "will require corrective action to avoid more serious financial consequences." Then he added that "a cash-flow problem is not the same as a full-blown fiscal crisis, such as the government experienced in 1999, when my administration first assumed office. We are not facing bankruptcy or payless paydays or a federal takeover. The rudiments of our economy remain strong."
And that was the last that the governor had said publicly about the territory's finances.
If you want to go back to the 2000 State of the Territory address, delivered at the end of the governor's first year in office, you'll find this comment: "We have staved off financial collapse by cutting unnecessary expenditures, increasing our revenues, securing major new federal assistance and imposing fiscal discipline … Today, we have a plan for financial and economic recovery."
In that same address, Turnbull said that when he first took office in 1999, "the structural deficit in the General Fund was approaching one hundred million dollars."
In this year's address, he referred back to the start of that first term in office: "Fours years ago, we faced a litany of ills … The economy was stagnant, revenues were falling, deficits were climbing, tax refunds and vendor payments were unpaid, negotiated salary increases for hard-working government employees were unmet, and we faced the specter of bankruptcy and a possible federal takeover. The foundation for a broad-based recovery was no accident. It was painstakingly laid as a result of the changes and policies we consciously and deliberately put in place."
January 13: 'Steady financial progress'
He said in January that audits showed the government ending Fiscal Year 1999 with a General Fund deficit of about $50 million, "half of the projected amount at the time we initiated stringent spending controls and launched a number of revenue-enhancement measures." The FY 2000 audit showed a General Fund deficit of $8 million, he said, and the 2001 audit showed a General Fund surplus of $35 million. He said while he anticipated that the yet-to-come 2002 audit would "show some slippage, it is undeniable that we are making steady financial progress."
Further, he said, "revenues are positioned to increase to record levels in the coming fiscal year. Thus concerns about the so-called $100 million 'windfall' collected in FY 2001 were misplaced. There was no one-time 'windfall.' Rather, as a result of our disciplined tax-collection efforts and the success of our reinvigorated Economic Development Commission (EDC) program, the $100 million increase has been built into our revenue base."
And he said that "new industry has been responsible for much of the record increase in revenues during the last two years."
In October 1999 Turnbull signed a memorandum of understanding with then Secretary of the Interior Bruce Babbitt addressing fiscal accountability and laying out a plan to restore the V.I. economy. It called for the government to cut its budget by reducing payroll, eliminating five paid government holidays, trimming department spending and reforming labor relations laws. It stated that the deficits of recent years had been aggravated significantly by "collective bargaining agreements whereby [V.I. government] employees enjoy greater bargaining rights than those enjoyed by federal employees."
On Jan. 28 of this year, Ira Mills, Office of Management and Budget director, said at a Senate Committee of the Whole session that FY 2002 revenues totaled $476.1 million. For the current fiscal year, he stated: "The revenue update for FY2003 indicated that collections are now projected at $532.7 million against current appropriations of $587.7 million. In other words, if all appropriations were to be paid, it would result in a deficit of $54.9 million."
At a Senate Finance Committee meeting later that same day, Sen. Almando "Rocky" Liburd asked the Internal Revenue Bureau director, Louis Willis, how the government was dealing with the crisis. He asked Bernice Turnbull what had become of the FY 2001 $35 million surplus. "Does it exist?" he asked. "Where are we today?"
The Finance commissioner said the General Fund had $18.7 million at the moment, and that government payroll every two weeks is $14.2 million. When Liburd asked whether there was a contingency plan to meet payroll, she said the administration's financial team was meeting every week to try to figure out how to get by, going over "day-to-day" finances.
Willis echoed her comments: "The honest truth is, every day we have to look." He added, "I don't know how we are keeping afloat, but we are." (See "Dec. 12 assessment: 'Cash at an all-time low'".)
April 24: a 'projected deficit' of $100 million-plus
Now, the governor says the "projected deficit" exceeds $100 million — topping the $98 million figure he cited four years ago as having inherited from the previous administration.
The Senate minority has been clamoring since January for a Committee of the Whole meeting to take testimony on the government's murky finances.
Sen. Adlah "Foncie" Donastorg, who chairs the Finance Committee, said Friday that as far as he knows, no date has been set for such a session. He said he would bow to holding a Committee of the Whole meeting instead of a Finance Committee meeting, so that the body could go into full session on the spot, if necessary. In full session, the Senate can vote; the Committee of the Whole only hears testimony.
The governor in his public statement on Thursday said "reduction in personnel services including a possible 36-hour work week" were under discussion.
Donastorg said he told the governor at Thursday's meeting that "in no way will I support" any initiative that would place a financial burden "on the shoulders of the hard-working government men and women." He said the governor had mentioned a 14 percent across-the-board cut in salaries.
"We need to lead by example," Donastorg said, citing the huge raises the governor approved for his cabinet members and hundreds of other non-classified employees last May. (For itemized listings of those increases, go to the Community/Data: section and do a search using the word "Exempt.")
Turnbull raised commissioners' salaries to $85,000 from $65,000, with a $97,000 ceiling. He raised the salary of a chauffeur, Haran Penn, to $58,000 from $28,500 and that of his confidential assistant, Horace Brooks, to $58,000 from $45,000, and then later to $65,000.
In anticipation of hearings on the FY 2004 budget, Donastorg said he is sending letters to department heads before scheduling Finance Committee sessions. "I'm waiting to see what they're going to do," he said, "and I am encouraging the majority to come up with ideas of their own. It appears to me each department is going to experience a deep cut." By law,
the administration is to submit its 2004 budget by May 30.
Donastorg also expressed concern about the governor's proposal to increase the 4-percent gross receipts tax to 4.5 percent. "It's the most unfair tax you can find," he said. "We need to fully exhaust other means first."
He said many companies that do business with the V.I. government on a contractual basis are paid more than $30,000, and so the government should be collecting the tax from them. "That is not being done," he said, but he plans to ask that collection be implemented.
"If the government fails to respond to my request for implementing this, I'll go to court," Donastorg said. Noting that the Hovensa refinery, the territory's largest private-sector employer, has a number of subcontractors, he said: "You'll find that Hess [Hovensa] signed affidavits saying they are not responsible because they are independent contractors. You can't be independent in one respect and a subcontractor in another."
Donastorg also said that the global giant Honeywell is the parent company of some of Hovensa's stateside-based contractors. "I'll recommend that Honeywell, a billion-dollar company, pay [gross receipts] retroactively for the companies operating down here," he said.
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