Saying the government will be unable to meet payroll in early 2012 if action is not taken now, Gov. John deJongh Jr. called a special session of the Legislature for Friday, and released a list of legislative proposals he said "must be approved on Friday."
DeJongh is asking the Legislature to increase gross receipts tax from 4.5 percent to 5 percent, and authorize billing 2010 property taxes at the same level the court authorized for 2009 taxes; two measures that would bring in some new revenue quickly. He is also asking the Legislature to authorize the V.I. Public Finance Authority to borrow up to $90 million to fund regular government operations.
In a statement released Wednesday, deJongh also insisted the Legislature reverse its decisions to forgive what he said was "more than $90 million dollars in debt owed the government by the territory’s two hospitals, and to expand gross receipts tax exemptions for farmers and fishermen. DeJongh vetoed both of these measures this fall and the Legislature voted to override both vetoes.
DeJongh also wants the Legislature to change V.I. Law to reduce the amount held in the Insurance Guaranty Fund from $50 million to $5 million, and to eliminate the automated "sunset" or end date of June 2013, for the already enacted gross receipts tax increase from 4 to 4.5 percent and his proposal to increase it to 5 percent.
The Insurance Guaranty Fund is a government fund to insure insurance companies, so residents do not pay insurance premiums, and then find themselves without a net if the insurance company folds. Each year, five percent of gross receipts tax paid on every insurance policy in the Virgin Islands is deposited into the fund; roughly $15 million to $20 million per year, until it reaches $50 million.
Reducing the Insurance Guaranty Fund par to $5 million would add between $10 and $15 million to the government’s coffers every year. As a practical matter, however, the government already regularly taps this fund.
In 2010, the government pulled out $45 million from the fund to pay a portion of long-overdue retroactive salary increases to government employees. On Dec. 15, the Legislature passed a bill appropriating $35 million from the fund – every penny expected in the fund by year’s end – to help pay salaries and hospital utility bills.
Eliminating the sunset provisions to the gross receipts tax increases will bring in extra revenue after the sunset date of June 2013.
"There are many, including me, who wish we did not have to implement such measures, but every member in the Legislature knew they would have to eventually face this stark reality, and until now they have chosen to duck, or delay, dealing with the reality and duty that they knew confronted them," deJongh said.
He was highly critical of the Legislature, accusing it of neglecting the territory’s business in favor of short-sighted political interests.
"Indeed, if our territory’s politics were not so broken, if the level of self interest and disregard for the facts and reality had not risen so high and been so broadly accepted as a legitimate way to deal with the public’s affairs, I would not be making this statement as it would have been made unnecessary by responsible actions on the part of the senators," deJongh said.
Reached at his office Wednesday afternoon, Senate President Ronald Russell said the Legislature would convene, but would likely not act on deJongh’s proposals.
"The agenda includes several matters we have already deliberated, taken testimony and acted on, and I am not sure why we would change our minds at this time, but we will follow the law," Russell said.
Russell dismissed deJongh’s warnings of an impending fiscal crisis.
"We have heard that cry before, and to address that cry we did the stability act, which provided eight percent pay reduction across the board, some early retirement incentives," and other measures, he said. "I think it is a management issue at this point, and I am not inclined to respond to the threats. We have made our policy decisions, and now it is time for the executive branch to manage and implement those policies."
DeJongh has been issuing dire warnings about the budget since the 2011 state of the territory address, nearly a year ago, when he said the government was facing a projected shortfall of $75.1 million for 2011 and $131.5 million for 2012. Since then, his administration has made a series of cost-cutting and revenue raising proposals, including increasing the gross receipts tax from four percent to five percent, creating new cell phone fees, and eliminating nine paid government holidays.
The Legislature implemented some, but not all of deJongh’s proposals, increasing gross receipts tax to 4.5 percent, not 5 percent, and declining to eliminate paid holidays. In June, it passed a broad budget stabilization package that imposed an unpopular 8 percent government pay cut and offered cash incentives for senior employees to retire.
All these measures reduced, but did not eliminate, the projected shortfalls. In October, Management and Budget Director Debra Gottlieb told the Legislature the government faced a $27.1 million shortfall in 2012, and in November, Gottlieb testified the shortfall was growing because revenues were coming in at lower levels than the year before.
For a transcript of the governor’s address click here: Governor’s Address in .pdf