May 22, 2003 – In a rarely seen mood of conviviality and solidarity, all 15 members of the 25th Legislature voted Thursday night to move six bills submitted to the body Wednesday by Gov. Charles W. Turnbull to the Finance Committee for consideration.
The last-minute bills, which include borrowing $100 million and floating bonds for an additional $135 million, were designed, in the short term, to avert a $29 million cash flow shortage expected by the end of June.
However, short of finding a "magician in the house," jokingly called for by Sen. Roosevelt David, no one came up with any other big plans to cover the bills in June.
Raising the stakes even higher, Nathan Simmonds, director of the governor's Office of Fiscal and Economic Recovery Implementation, told the senators in his prepared statement that the projected deficit of $115 million by the end of this fiscal year has grown to $144 million due to the loss of property tax revenues. District Judge Thomas K. Moore on May 12 ordered a half to the collection of property taxes because of problems with the tax assessment system.
One senator was particularly interested in how the administration suddenly realized a few weeks ago that there would be a deficit of such magnitude after painting rosy pictures of the government's fiscal state prior to the general election last November.
Sen. Celestino White said he thought part of the problem was "lies … lies … lies" on the part of the administration. After he quoted, with his usual dramatic flair, from two State of the Territory addresses touting an economic upswing and attributing a positive cash flow to Turnbull's initiatives and guidance, White shouted at the administration team: "Speak the truth!"
However, White twice commended, Finance Commissioner Bernice Turnbull for her honesty when she had said in January at the swearing-in of the new Legislature that the government was facing a serious financial crisis. "We don't need a magician," he said. "We need more Bernice Turnbulls."
In 1999, when Turnbull took office, he used the financial mess left by the previous administration as the wedge eventually to convince the 23rd Legislature to agree to the issuance of $300 million in bonds to be used in part to pay overdue tax returns and implement long-awaited salary step increases to government employees.
The governor, after more than four years in office, and after many times claiming credit for the financial recovery of the territory under his watch, this week asked for approval to borrow another $235 million, along with the enactment of a 19 percent increase in the gross receipts tax, an excise tax on food imports, surcharges on car rentals and hotel room charges, fees for containers shipped to the territory, an "environmental excise tax" based on weight on nearly all goods coming into the territory and a per-barrel tax on crude oil refined in the territory and imported motor fuel.
Addressing Simmonds, the point person for what the administration referred to as its recovery package, Sen. Norman Jn Baptiste laid out a scenario under the plan wherein a bottle of cranberry juice coming into the territory from South America would be taxed four times before it got to the consumer. Simmonds agreed in theory to Baptiste's example.
"I am just concerned about the average person," Baptiste said.
Sen. Louis P. Hill concurred, saying that for high-ranking government officials "living an affluent lifestyle … wearing ties and driving SUVs," it was easy to lose track of the average working person who was paying the bills.
"My mother works for about $14,000 a year," he said, and pays taxes "so we can spend it. Because that's what we do; we spend the money."
Hill said he didn't see anything in the governor's package that says "we'll have to give up the perks, like the SUVs." Hill, a freshman senator, said he is drafting legislation that would put a debt policy in place that "says what we should be allowed to borrow for."
Legal questions and concerns
Along with concerns about the absence of measures to curb spending in the administration plan, senators also questioned the legality of at least one proposal. The bill to create an "environmental excise tax" to meet the immediate costs of federally mandated improvements to the territory's solid waste and wastewater treatment infrastructure calls for a tax of 20 cents per barrel on "all crude oil refined in and all refined petroleum products imported into the Virgin Islands."
Constance E. Krieger, legislative legal counsel, wrote in her memorandum review of the bills dated May 21: "In light of the fact that this legislation was received by the Legislature today, the determination of the legal sufficiency of this subsection and the impact it will have on the contract and extension agreements between the government and Hovensa has not been determined."
Since 1965, when the St. Croix refinery opened, the V.I. government has had an agreement granting Hess Oil Virgin Islands Corp., now Hovensa, complete exemption from "all taxes, excises, duties" imposed locally. The refinery today is the largest in the Western Hemisphere.
Peter N. Heibert, attorney and lobbyist for the Virgin Islands in Washington, D.C., served as counsel to the financial team that drafted the legislation. Under questioning by several senators, Heibert said the implications of the agreement regarding the governor's proposed legislation were "unclear."
Heibert said there might be a difference between what could be considered a fee as opposed to a tax. He said the government had to make a decision, which was that the environmental impact costs "had to be borne by all sectors of the community." The bill containing the crude-oil assessment also includes a fee on containers coming into the territory, based on length, and excise taxes on almost all imported goods based on weight.
Sen. Emmett Hansen II said he wasn't going to be involved in passing legislation that was "unclear."
Rene L. Sagebien, president of Hovensa, was quite clear, however. In a letter to Turnbull dated May 21, he said that any move to "impose an environmental excise tax on crude oil and refined petroleum products imported for use at Hovensa" would lead the company to "withhold payment and take legal action to enforce its exemption under the agreement."
Defense of salaries, rejection of layoffs
Even under intense goading by senators about recent salary increases given to cabinet- level officials, not one of the governor's team members budged on the issue of voluntary salary cuts.
Simmonds sought in his statement to justify the increases. Noting suggestions that top officials' salaries be reduced as a sign of the administration's commitment to implementing austerity measures, he asked: "A sign to whom? Are we suggesting to our youth that they should prepare themselves to assume the leadership roles in this government, but once they get to the top they will be subject to financial sanctions?"
From that point Simmonds moved to the impropriety of a "unionized police captain" making $89,000 a year while his commissioner makes less — $80,000 at this point.
But, Hansen said, "You can't tell people they have to go to a 36-hour work week and then hire three people at a cost of a quarter of a million dollars."
Reduction of the work week and/or lay-offs are not on the governor's agenda, either. Instead, the plan calls for natural attrition in the number of government workers of 2 percent per year for five years; enforcement of a hiring freeze; sanctions for violation of the governor's directives limiting overtime, travel and use of cellular phones; and restrictions on unauthorized use of government vehicles through seizure and impoundment.
Simmonds said those me
asures are expected to save $5 million.
With a few senators questioning their sanity in submitting the proposed package, members of the governor's financial team said repeatedly that time was of the essence in finding a quick fix — or else the government would be facing a $29 million shortfall as of June 30.
But Baptiste cited a need to appropriate money for psychiatric treatment, and Sen. Adlah "Foncie" Donastorg, Finance Committee chair, said the administration representatives were "stone crazy" if they thought he was going to sign off on the bills as proposed.
Seeking short-term alternatives
Senate President David Jones questioned the team, specifically Bernice Turnbull, about interim measures to avoid the impending shortfall. He asked her if there any money in special funds could be borrowed short-term. The Finance commissioner answered that all but the Insurance Guarantee Fund are "restricted funds," meaning they are federal money and untouchable except for use as they were intended — not to meet the V.I. government payroll of approximately $28 million for the two June pay periods.
Jones persisted, asking about the Insurance Guarantee Fund. "We've dipped into that before," he said. Or "why not pursue a line of credit?" possibly guaranteed by the U.S. government, he asked.
Kenneth Mapp, Public Finance Authority director of finance and administration, said the proposed $100 million short-term loan from a local bank would later be rolled into the bond issue to secure better terms. He said his estimate is that it would take two to three weeks for such a loan to be processed locally.
Jones also brought up the excise taxes paid to the U.S. coffers from oil and gasoline shipped from Hovensa to the mainland — a long-standing issue — saying maybe Congress with support from the Interior Department would be willing finally to consider returning some of the excise revenues to the V.I. treasury.
Anneta Adams Heyliger, post auditor, had more immediate concerns. She said she had not been able to access the Finance's Department's financial management system and therefore had only conflicting financial reports to work with in trying to analyze the governor's bills.
Since the V.I. Code provides for the post auditor to have complete entree to the system, Jones asked Bernice Turnbull when Heyliger could have access to the data.
Turnbull replied: "I have always tried to work within the law." Jones interpreted that to mean "tomorrow, then."
But the governor's financial team won't be getting answers to the borrowing and taxing pleas anywhere near that soon.
Sen. Douglas Canton's motion to move the bills to the Finance Committee and calling for the committee to meet on June 5 passed unanimously with all senators in attendance.
Representing the governor at Thursday's special session were: Karen M. Andrews, chief negotiator; Kent Bernier, assistant to the governor for economic affairs; Mapp; Roy Martin, tax assessor; Ira Mills, Office of Management and Budget director; Lauritz Mills, Bureau of Economic Research director; Keith Richards, assistant to the governor for capital projects; Alric Simmonds, deputy chief of staff; and Louis M. Willis, Internal Revenue Bureau director.
The 11-hour special session, turned Committee of the Whole meeting, was held at the Earl B. Ottley Legislative Chambers on St. Thomas.
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