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HomeNewsArchivesGovernor's Financial Team Forecasts $46.5 Million Budget Shortfall

Governor's Financial Team Forecasts $46.5 Million Budget Shortfall

March 6, 2007 — There was good news and bad news Tuesday during a Finance Committee meeting at Ottley Legislative Hall: While the governor’s financial team told senators that the territory's overall economic outlook should continue to be positive, members also predicted a $46.5 million budget shortfall due to lower-than-expected revenue collections for the first part of fiscal year 2007.
In an attempt to address some of the long-standing issues that have confronted previous administrations, a panel led by Nathan Simmonds, director of the Governor’s Office of Fiscal and Economic Recovery Implementation, made a detailed presentation and answered questions in the first day of a two-day meeting on the government’s fiscal affairs.
The meeting, chaired by Sen. Terrence “Positive” Nelson, began promptly at 10 a.m. with a prepared statement by Simmonds, who indicated that while there was a current cash-flow problem, the overall economic outlook should continue to be positive. He pointed to cash reserves that have yielded significant interest earnings — projected to be $7 million in fiscal year 2007 and $11.7 million in FY 2008. He reported that the current cash balance, as of March 1, is just over $280 million.
However, his analysis of the revenue collections through the first four months of 2007 showed a significant cash-flow shortfall. Tax and other revenue collections are down 17 percent below the same period last fiscal year. Based upon the budget appropriations, $850 million for 2007, there will be a projected shortfall of $46.5 million.
The major reductions in revenue came from lower-than-anticipated corporate income taxes (down from a projected $212 million to $175 million) and from a lack of property taxes — due to the fact that property tax bills for 2005 and 2006 have not been sent out as of yet. The 2005 bills are being sent out now, and the 2006 bills will not be sent until late summer.
There was much concern expressed by the senators about residents receiving two tax bills in one year, but according to the panel, there was no way around it. It would either be this year or next. This failure to get the bills out in a timely manner reduced the projected revenues from $78 million to $58 million and, in part, resulted in the current cash-flow shortage.
An additional factor in decreased revenues was the drop in stamp taxes from almost $20 million in 2006 to $17 million in 2007, due to a change in the residency and requirements as enacted by the federal American Jobs Creation Act and the projected impact on the Economic Development Commission program. Also contributing to another $5 million decline in revenues was the lack of available funds to transfer to the General Fund from the Union Arbitration Award and Government Employees Fund.
In a related matter, senators expressed outrage that the Department of Education would not be fully reimbursed by the federal government due to insufficient and incomplete documentation on the department's part. Current projections are that the department will only be eligible for $18 million in reimbursement — instead of the $29.2 million that was expended using local funds.
Further, in 2006, no monies were transferred to the General Fund from the Insurance Guaranty Fund, as required when the fund exceeds $50 million. However, the transfers will take place this year, and revenue projections were adjusted upward for 2007 from $10 million to $25 million.
The projected budget for 2007 will address the shortfall by reducing allotments for several funding initiatives that cannot be supported or afforded. The 2007 expenditure budget was increased substantially with salary increases and personnel costs by over $50 million and by non-personnel expenditures, which increased by $110 million, mostly in the miscellaneous section of the budget.
Throughout the meeting, Nelson and others advocated for a renewed openness and accountability along with the desire to work cooperatively with the deJongh administration. Nelson said that the territory was tired of the perception of ineptitude. “If we are honest, we can meet all our needs,” he said.
Sen. Ronald Russell called for an end to “backbiting and bad blood” between Government House and the Legislature. The need to prioritize the use of the people’s money was called for by one and all, who noted that financial prudence and fiscal competence were crucial to the territory's future.
Included in the panel were Austin Nibbs, acting commissioner of Finance; Debra Gottlieb, acting director of the Office of Management and Budget; Gizette Canegata-Thomas, acting director of the Bureau of Internal Revenue; Jessica Gallivan, chief labor negotiator designee; Lauritz Mills, director of the Bureau of Economic Research; Cherrie Wallace-Cole, acting director of Finance and Administration for the Public Finance Authority; and Bernadette Williams, assistant tax assessor.
All panel members will return Wednesday for another day of questioning.
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