First of two parts
April 28, 2003 – In August of 1999, Gov. Charles W. Turnbull appointed a 25-member Economic Recovery Task Force to develop a Five Year Operating and Strategic Financial Plan to guide the territory into fiscal solvency.
In April of 2003, the 500-page plan appears to have been a waste of paper. Although a few of its recommendations have been implemented, the great majority have been ignored, sometimes blatantly.
The plan states, and the governor in 2000 agreed, that increasing taxes was not the way to attract private investment. The plan states, and the governor agreed, that the answer to the government's fiscal woes was "clear and straightforward," if not so simple.
"We have for too long spent above our financial means, especially when you consider that we are not attracting the private investment to create the jobs to build a diversified revenue base. The approach of increasing fees and taxes only takes more from those that remain, and will hopefully continue to invest," the task force chair, John de Jongh, said in presenting the plan to the Senate Finance Committee in May of 2000.
De Jongh concluded: "The answer lies in reducing government costs while growing the private sector — clear and straightforward, but not so simple without a commitment by all stakeholders."
Turnbull, in addressing the public then on the plan, said: "It is time for us to improve the financial viability of the territory by reinventing governmental processes, streamlining the size of the public sector, and growing the private sector to provide the necessary revenues to pay for the critical needs of our island communities."
Further, he said then, "The government faces a financial crisis of great magnitude … Thus, after evaluating the options such as 1) increasing taxes and fees, 2) cutting government services, 3) cutting the costs of government and 4) growing and strengthening the private sector, it was concluded, from an economic, financial and social point of view, it is not prudent to raise taxes at this time."
Taxation seen as salvation
In Turnbull's "U.S. Virgin Islands Financial Condition" report issued last Wednesday, he states under long-term recommendations and projected annual revenues:
– Increase "sin" taxes by 10 percent on liquor and cigarettes — $261,000.
– Increase gross receipts tax by 0.5 percent (to 4.5 percent) — $12 million.
– Implement $2 tax on car rentals — $3 million.
– Apply excise tax to imported personal items costing more than $1,000 — $4 million.
– Increase hotel room tax by 2 percent (to 10 percent) — about $3 million.
– Increase vehicle registration fee by $10 — $500,000.
– Extend road tax to taxi vehicles and dedicate tax for road maintenance and repairs — $120,000.
– Obtain legislative authorization for long-term financing.
On Friday, Turnbull and the Senate created a 25-person task force dubbed "Operation Cash-strapped" to find solutions to the fiscal crisis. The task force has no private sector representation. It is divided into two subcommittees:
A Revenue Subcommittee comprising: Sens. Adlah "Foncie" Donastorg, Carlton Dowe, Louis Hill, Norman Jn Baptiste, David Jones and Luther Renee; Lt. Gov. Vargrave Richards; Alric Simmonds, the governor's deputy chief of staff; Nathan Simmonds, Office of Fiscal and Economic Recovery Implementation director; Louis Willis, Internal Revenue Bureau director; and Kent Bernier, assistant to the governor for economic affairs.
An Expenditure and Government Operations Subcommittee comprising: Sens. Lorraine Berry, Douglas Canton, Emmett Hansen II, Almando "Rocky" Liburd, Shawn-Michael Malone, Raymond "Usie" Richards and Ronald Russell; Territorial Presiding Judge Maria Cabret; Bernice Turnbull, Finance commissioner; Karen Andrews, chief government negotiator; and Joanne Barry, personnel director.
Not one member of either committee has a strong business background (if any), which the five-year plan called for in the formation of its recommended task force which has never been created.
Business sector begs to differ
Several senators — Donastorg, Hill and Malone — as well as business and civic associations have already said they do not approve of the tax increases. Cassan Pancham, St. Thomas-St. John Chamber of Commerce president, said Monday that "raising taxes is not the way to go. In any situation, it is the last resort"
"Everyone should be invited to the table to come up with solutions," Pancham said. A banker, he said he would favor "some sort of short-term financing to try and relieve the crisis and allow us to make decisions, long- and short-term, in an atmosphere where we don't have this pressure."
After the terrorist attacks of Sept. 11, 2001, Pancham recalled, "We had a successful private-public sector task force where we worked on creating economic initiatives." He continued: "Many of us now would be willing to participate in the process. The chamber has indicated we are willing to participate." Pancham added that the chamber "wasn't rejected … They may well want to see what they can come up with."
He also said the proposed 36-hour work week "is not a good idea." Rather, he said, "We need targeted measure in terms of focus on new revenues."
David Yamada, president of the St. Thomas-St. John Hotel and Tourism Association, agreed with Pancham about increasing taxes. "Raising taxes is not the right solution," he said Monday. "We have seen the effects of raising fees — like the Port Authority's fees, and we have seen the fallout from that." VIPA increased its airport landing and passenger fees by 25 percent on Feb. 1, and several airlines, notably American, which provides the most service to the territory, have since announced cutbacks in operations and service.
"I think raising taxes would probably have a negative effect on the economy," Yamada continued. "Most businesses would probably look at their biggest expense, typically wages, and look at lessening hours. Those are the decision no body wants to make."
He suggested a greater focus on productivity. "When you look at productivity, it shows what positions are producing, that will raise revenues, and [you] look to removing the less-essential positions."
Yamada, general manager of Renaissance Grand Beach Resort, the territory's second-largest hotel complex, also said: "We had a very good season, compared to last year, but the down side is last year wasn't very good at all.
"There hasn't been a dramatic loss; there's some, but not as dramatic, perhaps because we are a U.S. territory."
Both of the government subcommittees were scheduled to meet with the governor Monday to come up with initiatives. No word regarding either came out of the Legislature or Government House as of late Monday.
The fact that the task force which the five-year plan recommended was never formed also has meant that many of the plan's recommendations have never come about. There were more than 96 private-sector recommendations and more than 250 public-sector recommendations.
Next: A review of those recommendations and a look at those that have been implemented, the lack of an economic development plan, and the government's burgeoning work force which consistently eats up most of the territory's budget.
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