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HomeNewsArchivesEconomic Slump Leads to Belt-Tightening in 2010 Budget

Economic Slump Leads to Belt-Tightening in 2010 Budget

June 26, 2009 — It was only a matter of time before the worldwide economic slowdown reached the territory, and every effort was made to tailor the fiscal year 2010 budget to fit the "grim realities" of the new financial landscape, Gov. John deJongh Jr. wrote in a letter sent to Senate President Louis P. Hill Friday along with the budget.
The government’s overall spending plan is about $1.2 billion — including $108.9 million in other appropriated funds, $175.6 million in federal funds, $91.5 million in non-governmental funds and $27.9 million in other non-appropriated funds.
The FY 2010 General Fund budget is based on a projected $854.4 million in revenues — down from the initial $867.3 budget submitted for FY 2009, which was eventually pared down to $843.5 million as the territory started to feel the effects of the global recession. Fiscal year 2010 is no different.
Personal income tax collections are expected to drop by 14.3 percent when compared to FY 2008, while corporate income taxes tumbled by 67 percent. Gross receipts taxes — what deJongh described as the territory’s "best performing tax" — is estimated to be down 5.5 percent from FY 2008 levels. Of course, shrinking revenues have been compounded by the government’s inability to collect real property taxes, which had an "immediate" impact on FY 2009 collections, deJongh wrote.
Local law requires the governor to submit a balanced budget to the Legislature, and the Office of Management and Budget has developed a "budget contingency and economic stabilization plan" to make sure that’s done, according to a letter from OMB head Debra Gottlieb. The FY 2010 budget was realigned to stave off what Gottlieb called "stringent expenditure reductions," such as employee layoffs, reduced work weeks and the cutting of government programs.
Along with extending the government’s hiring freeze, an "unpaid holiday initiative" will be implemented across the board.
"We have proposed that eight holidays in FY 2010 will be unpaid," Gottlieb said Friday. "We’re trying to spread it out so that there’s not more than one a month."
The initiative is expected to cut the government’s personnel expenditures by three percent. Meanwhile, the government will cut back on filling vacant positions — an "attrition initiative" that’s projected to cut another two-percent in personnel costs, according to Gottlieb. Departments and agencies within the executive branch will also see their budget slashed by five percent, while all other departments and agencies will see a three percent cut.
Moving ahead with capital improvement projects, capitalizing on available federal economic stimulus funds and cutting negotiations of expired and expiring collective bargaining agreements are also part of the contingency plan, she wrote.
The budget also relies "heavily" on a $200 million short-term financing proposal recently approved by the Senate and signed into law by the governor. Money will be borrowed from various public fund accounts, and government officials have said they anticipate borrowing another $150 million from a bank or financial institution.
"This is an indication of the extraordinary steps that we are taking to mitigate the impact of the recession on our communities," DeJongh wrote in his letter to Hill. "But these are extraordinary times and it is our hope that, working together, we can move forward and weather this time of economic stress."
If the economy doesn’t turn around soon, "we are all aware that harder choices, and harsher measures, loom," the governor said.
But the government has already pinpointed several funds that can be tapped into, and has issued a request for proposals to lending institutions for a loan or other form of short-term financing. Meanwhile, talks continue with the U.S. Education Department on spending guidelines for the anticipated $71 million in State Fiscal Stabilization Funds made available through the American Recovery and Reinvestment Act, deJongh said.
The government’s biggest expense is its personnel services costs — estimated at $365.2 million for FY 2010. Another $165.4 million in General Fund revenues is slated for fringe benefits, while $2.4 million would go toward capital outlays. The government’s supplies budget is $15.8 million, while $150.3 million would go toward the "other services and charges" category, which includes everything from professional services contracts to travel expenses. Utility costs are projected at $22.7 million.
The "all expenses" category includes $62.9 million for the legislative and judicial branches, $34.5 million for the University of the Virgin Islands, $4.8 million for WTJX Public Television, $30.4 million for the V.I. Waste Management Authority and a $114.4 million miscellaneous budget.
Money has been included for new and restructured government agencies, including the creation of a stand-alone Bureau of Corrections and a more consolidated V.I. Territorial Emergency Management Agency, along with funding to help the Police Department retrofit interrogation and evidence rooms.
The budget also includes: $19.6 million for retirees’ health insurance; $14.5 million for the Cruzan Rum molasses subsidy; $7.5 million for previously negotiated union contracts; $7.2 million for insurance on government buildings; $5 million for the Economic Development Authority; $3.4 million to the Health Department for outstanding obligations; $3.3 million for the third-party fiduciary; and $3 million owed by Corrections to prisons in Virginia currently housing local inmates.
On a more positive note, DeJongh said efforts to mitigate the impacts of the recession are "starting to bear fruit." The government is now almost current with its financial reporting, while the construction of the new Captain Morgan Rum distillery on St. Croix has helped keep employee layoffs and work-week reductions out of the picture, the governor wrote in his letter to Hill.
New hotel and resort developments approved by the Coastal Zone Management Commission, along with projects such as the Island Crossing Shopping Center on St. Croix, also provide "reasons for optimism," deJongh said. Meanwhile, the government still has to focus on its priority areas, including education and public safety, he added.
"Notwithstanding the revenue pressures we face, through this budget, our administration has worked diligently to continue the improvements that we have made to assure the provision of superior public services in the territory," the governor wrote in his letter to Hill.

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