June 5, 2003 – Almost all of Gov. Charles W. Turnbull's ideas for shoring up the territory's ailing finances met a brick wall at Thursday's Senate Finance Committee meeting as senators and business leaders dissected his proposals preparatory to a full Senate session scheduled for Monday.
And by the time the lawmakers called it a night around 10:45 p.m., it looked as if many of Turnbull's proposals will not make it out of the Finance Committee, by Monday or ever.
The senators are developing a plan of their own, but no details were revealed Thursday. Senate President David Jones, speaking off the floor, said only that their strategy is "to wait until the governor responds to our letter before we agree to borrow any money." He said the plan was still in the draft process.
The governor's six far-ranging bills include a provision for the government to borrow another $235 million and 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.
The bills were taken up on May 22 at a special session called by the governor, 36 hours after they were delivered to the Legislature. After 11 hours of deliberation, the Senate referred them all to the Finance Committee. (See "Senators send governor's bills to committee".)
The bills have generated strong opposition, especially from the private sector but also from a number of senators, including Donastorg, who commented at the May 22 session that administration officials were "stone crazy" if they thought he was going to sign off on the measures as proposed.
The senators heard on Thursday from a gaggle of the governor's chief financial officers including Finance Commissioner Bernice Turnbull; Ira Mills, director of the Office of Management and Budget; Nathan Simmonds, director of the governor's Office of Fiscal and Economic Recovery Implementation; Attorney General Iver Stridiron; and Karen Andrews, chief labor negotiator.
Simmonds took the heat as he dodged senators' inquiries about a letter they had written to the governor on Monday calling on him to rescind the hefty pay raises he granted exempt and classified employees last year via an executive order. Simmonds said the governor had gotten the letter and "would answer," but he didn't say when, to the annoyance of the senators.
He reiterated his statement of May 22 that the projected deficit of $115 million for this fiscal year announced by the governor on April 24 has grown to $144 million with the anticipated loss of property tax revenues as a result of a federal court moratorium on collections issued last month.
Spending cuts planned, but not laid out in bills
Simmonds also said that "the governor's plan has been unfairly criticized as containing no expenditure reduction initiatives." Some of the governor's initiatives do not require legislative action, he said, "and so no bill was submitted to this body."
He continued: "We have initiated spending cuts to the tune of $50 million in Fiscal Year 2003, and we have asked for your authorization to implement an additional $10 million in expenditure reductions."
These include, he said:
– Reductions totaling $46 million in the allotments of all branches of government, including a 10 percent cut, or $1.6 million, for the Legislature.
– A reduction in the government work force by 10 percent over the next five years.
– Increasing the employee share of health insurance premiums to 40 percent from the current 27 percent, which he said will save the government about $9 million annually.
Further, Simmonds said, the governor's proposals will close the deficit over the next year "without layoffs, reduction of salaries or the elimination of essential services."
He said the administration is holding firm on the proposed tax increases. But "the suggestion that no consideration was given to the impact these tax increases would have on the various sectors of our community is absurd," he said. The conclusion was that "it was the fairest way to spread the pain throughout all the community."
Business representatives who testified Thursday were articulate and adamant in their objections to almost all of the governor's proposals.
What's proposed not what was discussed
Cassan Pancham, St. Thomas-St. John Chamber of Commerce president, said: "These measures are a complete departure from what we had discussed in meetings with the governor's financial staff. The gross receipts tax, for instance, was to be raised from 4 percent to 4.25 percent, not 4.75 percent," as the governor has proposed.
Pancham, who also is president of the V.I. Bankers Association, objected as well to the governor's proposal to "increase by 50 percent the annual fees for bank licenses in the V.I." The idea, he said, is "an inappropriate and counterproductive proposal for many reasons and should be rejected."
Along with his criticism, Pancham offered an alternative plan. He said the bankers' group has been meeting with Lt. Gov. Vargrave Richards and his Banking and Insurance Division director, Deverita Carty Sturdivant, to develop a proposed comprehensive Financial Services Act and that the legislation is undergoing final amendments. He asked that any change in the present bank fee structure be postponed pending action on the legislation.
Alexander A. Moorhead, Hovensa vice president for government affairs and community relations, challenged the governor's proposed "environmental excise tax" of 20 cents per barrel on crude oil imported to the territory. He said the tax — which he calculated at $27 million annually — would violate Hovensa's agreement with the V.I. government, a point raised earlier by lawmakers and other business leaders.
In his testimony, Moorhead stated: "It should be obvious that the imposition of this large additional tax burden on Hovensa — even if it did not violate Hovensa's exemption, which it clearly does — would undo the company's efforts to keep expenses and revenues in balance and maintain a positive cash flow." Because of its own financial setbacks, he said, "Hovensa has … implemented an expenditure reduction program which includes the cancellation of merit and contractual pay increases and the postponement of capital projects."
Moorhead offered no room for compromise. "Senators," he said, "the continued operation of the refinery, the largest private employer in the V.I. and the main private industry sustaining the economy on St. Croix, would be placed in jeopardy by this tax."
Stridiron suggested an amendment in the nature of a substitute, which he claimed would resolve the situation. In part, the amendment would scratch the tax in favor of a "transitional environmental infrastructure user fee" of 20 cents per barrel of crude oil and refined petroleum products imported into the V.I."
Moorhead, who appeared with Hovensa attorney George H.T. Dudley, said it was the same thing under a different name. Stridiron, in earlier testimony, had said the government's legal research suggested the "fee is legal and permissible."
Expenditure problem vs. revenue problem
Pancham, speaking as Chamber president, objected to most of the tax and fee increases Turnbull has proposed. "It is the chamber's position that the corrective measures submitted by Governor Turnbull … are not in the best interests of the V.I. community and will result in severe hardship for many of the territory's businesses,
especially smaller businesses, the labor force and all consumers," he said.
The chamber's opinion, he said, is that "the government has more of an expenditure problem than a revenue problem. There must be a substantial level of reduction in the public sector's expenditures." He added: "It is critical to note that government expenses have increased over $200 million in the past two years without any noticeable infrastructure improvement."
Pancham outlined a series of strategies for economic recovery that he said were developed by both of the territory's chambers of commerce and both of its hotel associations. He urged the immediate establishment of a working group with business, labor and government representation, including a member of the 25th Legislature, to develop "realistic solutions to our financial crisis."
After hearing from private- and public-sector representatives, but with no answer from the governor to the Senate's demand that he rescind raises granted exempt employees last year, the committee dismissed the administration financial officers until such time as Turnbull should respond. (See "Finance kicks administration officials out".)
The committee agreed to hear further testimony from the private sector in the afternoon.
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