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Officials Predict Modest Economic Improvement, Increased Revenues

June 24, 2008 — With the U.S. economy sagging and a $23.5 million budget shortfall expected for fiscal year 2008, government officials say revenue projections for FY 2009 reflect a more optimistic economic outlook, which will get the territory though stagnant consumer-spending levels and rising fuel costs.
Budget hearings kicked off in the Senate Tuesday with a comprehensive overview presented by members of the governor's financial team. The proposed General Fund budget for FY 2009 is $867.3 million, while the government's overall spending plan — which includes federal funds, other appropriated and non-appropriated funds, and non-governmental funds — tops $1.2 billion.
The miscellaneous section of the budget totals $132.9 million. For the first time, recommended budgets have been sent down for the Legislature ($20.2 million), the V.I. Supreme and Superior courts ($5.5 million for the Supreme Court and $30.3 million for Superior Court), the Judicial Council (nearly $327,000), and the Office of the Public Defender (about $3 million). In previous years, these entities have split a lump-sum budget appropriation sent down by the executive branch. (See "Governor's $867.3 Million Budget Accounts for Slowing Economy.")
Higher revenue projections take into account a resurgence of cruise-ship activity on St. Croix, increased tourism and marketing efforts (particularly those to combat the reduction in flights offered by American Airlines), the acceleration of a number of previously funded capital projects, the floating of another $100 million in new government bonds, and the implementation of more than $28 million in negotiated and pending salary increases, according to financial-team members.
Projected revenues — including $950.6 million in tax collections — have increased steadily over the past four years, and are expected to continue in FY 2009, said Nathan Simmonds, the governor's senior policy advisor. A projected spike in gross-receipts taxes also reflects an increase in consumer spending, stemming from the issuance of economic-stimulus and tax-refund checks in the last two quarters of FY 2008, he explained.
"We're not painting a rosy picture here, but given what we see and the information we have at the moment, economic activity next year should be at a higher level, reflecting a moderate two-percent growth," said Lauritz Mills, chief researcher for the Bureau of Economic Research.
Real-property taxes are also expected to jump to $103.3 million, once two sets of bills are issued during FY 2009. The figure includes $36 million from each billing cycle (for a total of $72 million), a $14 million payment in lieu of taxes from Hovensa and $17 million in delinquent property-tax payments, according to Tax Assessor Roy L. Martin. It is too early to tell how much extra the property-tax amnesty program currently in effect is going to yield, Martin added after Tuesday's meeting.
The government's inability to sustain this year's budget is based on a lack of property-tax collections, senators said Tuesday. However, many also said the government's revised FY 2008 revenue projections of $824 million doesn't take into account an increase in tax collections during the last three months of the fiscal year, along with a large amount of savings incurred from unfilled vacant positions. Financial team members disagreed.
So far, about $513 million out of the more than $570 million allotted to departments and agencies during FY 2008 has been spent, according to Finance Commissioner Claudette Watson-Anderson. As of last week, the cash balance of the General Fund totaled some $237 million, while special and other funds in the bank total about $133.5 million, she added. Though the government has recently put into place various cost-saving measures — including a two-percent budget cut for government departments and agencies and a switch from quarterly to monthly allotments — officials said there are some big-ticket items to pay for as FY 2008 comes to a close.
This includes $20 million in salary increases, a $10.5 million employer contribution to GERS and millions more in appropriations recently included in a reprogramming bill sent down by Gov. John deJongh Jr. Though the governor's bill shifts around money already appropriated in previous years toward road repairs, a subsidy for WAPA and other critical needs, money to fund the appropriations still has to come from FY 2008 revenues, according to Debra Gottlieb, director of the Office of Management and Budget.
"With all this, we expect to allot the full $824 million," she added.
Looking ahead to the FY 2009 budget season — and the markup process that will round out the next two months of hearings — senators said that avoiding a shortfall in the future means taking a hard look at government expenditures and eliminating any unnecessary costs.
"We can, in fact, cut the budget and tighten our belts," said Sen. Terrence "Positive" Nelson, Finance Committee chairman.
"Well, the control is in the hands of the Senate," Gottlieb responded. "You could appropriate less if you like."
Present during Tuesday's meeting were Sens. Carlton "Ital" Dowe, Hill, Neville James, Nelson, Ronald E. Russell and James A. Weber III.
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