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The Fiscal Crisis is Real

As an outside observer, I have watched the territory’s fiscal crisis with a growing sense of pessimism. That pessimism comes from a simple fact: I have seen this movie before, and, given the response of the Virgin Islands Senate, there is not going to be a happy ending.

If I understand the Senate’s response to the governor’s proposals, there are three things they don’t like. First, senators don’t agree with his facts and data. Or, more accurately, they don’t like the implications of these data, and, therefore, they want different numbers. They want numbers that will make their choices easier and less painful.

Second, their response is, “let’s wait and see.” Maybe it isn’t so bad, and we don’t have to take these tough measures.

Third, the governor was mean to us. He hurt our feelings, and didn’t show us sufficient respect.

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Let’s take these disastrous responses one at a time. The governor has no reason to present a picture that is inaccurate and more dire than the reality. How does he benefit? Do the senators read newspapers or watch the news? Do they have any understanding of the fiscal situation in cities and states on the mainland? And most of these cities and states have been far more fiscally prudent than The U.S. Virgin Islands. If the senators have more accurate numbers than the Administration, let them produce them. My guess is that the harder you look at the numbers and their implications, the worse things will look.

Second, we have the let’s wait and see theme. As the governor accurately pointed out, the clock is ticking. The longer you wait, the worse and narrower your choices. This is a bit like global warming. The deniers always have an advantage – “Look, disaster hasn’t struck yet.” – until it is too late. And then, needless to say, they are nowhere to be found. Or they have figured out how someone else must be the blame. I will come back to what happens when it is too late in a minute. There is a simple rule in these situations: time is the enemy.

Third, there is the notion that the governor hurt the Senate’s feelings. There was an old television show called Moonlighting. In it, the two main characters, Bruce Willis and Cybil Shepherd, constantly bicker. In one scene, Bruce Willis says something offensive, and Cybil Shepherd responds, “You know, you’re the most disgusting man I’ve ever met.” To which, Willis responds, “You need to get out more.”

If the senators are offended by the governor’s remarks, they need to get out more. With all due respect, in most jurisdictions the size of the Virgin Islands, their titles would be “town councilmen or councilwomen,” rather than senators. In state senates across the country, senators do not demand the deference that they do in the Virgin Islands. And they are verbally beaten up by governors in ways that make the governor’s remarks seem gentle and kindly by comparison.

Now the bad news. Americans have possibly the shortest memories of any people on the face of the earth. There is a classic case for what happens when you fail to face up to the kinds of fiscal problems that the territory faces. It is New York City in the mid-1970s. As the City’s revenues declined and its costs relentlessly increased, its responses consisted of denial, the refusal of entrenched interests to give up anything, and a let’s wait and see attitude. The prevailing attitude was, “I’ve got mine, “you” make the sacrifice.” Sound familiar?

New York City borrowed money to meet its day-to-day operating expenses, a no-no in public finance. These borrowings took the form of IOU’s called Revenue Anticipation Notes. One day, the banks got together and decided that there was no revenue to be anticipated. They didn’t believe that they would get their money back. This meant no more loans. Game over. New York City was bankrupt. A true nightmare was about to begin.

There were two consequences that the senators should think about. The first was that the City lost control of its own destiny. The elected City government was replaced by an Emergency Financial Control Board. Members of the City Council, who, like Virgin Islands senators, saw themselves as big shots, couldn’t even get their phone calls returned. It didn’t matter what they thought or who they knew. Nobody cared. They had no power. They were big shots no more.

Far worse than the lost status of politicians was the downward spiral that the City of New York entered. The primary goal of the Financial Control Board was to make sure that the banks got their money back. City services weren’t cut. They were decimated. The streets were filthy. Crime shot up. Libraries were shut. The parks were a public disgrace. The subway system, long neglected, collapsed. New York City became a place to be avoided, a city that was “dying.” And it didn’t matter what the Mayor, the City Council or the City’s citizens thought. Others were now in control, and they had very different priorities.

Eventually, the banks got their money back, the City returned to solvency and rose from the ashes after a long period of pain and suffering. New York lucked out. Its rebirth was fueled by the enormous wealth generated by Wall Street in our modern age of greed. The Virgin Islands has no such rescue mechanism.

A final note. People rarely appreciate leaders who give them bad news. But it is painful to even contemplate how this situation would have been dealt with by any of governor DeJongh’s predecessors. Each was, in his own way, a specialist in denial, in the belief that there was always one more rabbit to be pulled out of the hat, and of the quick fix that made things worse over the long run.

Every so often, people are lucky enough to have a leader who is willing to face reality, to communicate that reality to citizens and to make a choice between bad and far worse when those are the only choices. This is one of those occasions.

Frank Schneiger December 2011

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As an outside observer, I have watched the territory’s fiscal crisis with a growing sense of pessimism. That pessimism comes from a simple fact: I have seen this movie before, and, given the response of the Virgin Islands Senate, there is not going to be a happy ending.

If I understand the Senate’s response to the governor’s proposals, there are three things they don’t like. First, senators don’t agree with his facts and data. Or, more accurately, they don’t like the implications of these data, and, therefore, they want different numbers. They want numbers that will make their choices easier and less painful.

Second, their response is, “let’s wait and see.” Maybe it isn’t so bad, and we don’t have to take these tough measures.

Third, the governor was mean to us. He hurt our feelings, and didn’t show us sufficient respect.

Let’s take these disastrous responses one at a time. The governor has no reason to present a picture that is inaccurate and more dire than the reality. How does he benefit? Do the senators read newspapers or watch the news? Do they have any understanding of the fiscal situation in cities and states on the mainland? And most of these cities and states have been far more fiscally prudent than The U.S. Virgin Islands. If the senators have more accurate numbers than the Administration, let them produce them. My guess is that the harder you look at the numbers and their implications, the worse things will look.

Second, we have the let’s wait and see theme. As the governor accurately pointed out, the clock is ticking. The longer you wait, the worse and narrower your choices. This is a bit like global warming. The deniers always have an advantage – “Look, disaster hasn’t struck yet.” – until it is too late. And then, needless to say, they are nowhere to be found. Or they have figured out how someone else must be the blame. I will come back to what happens when it is too late in a minute. There is a simple rule in these situations: time is the enemy.

Third, there is the notion that the governor hurt the Senate’s feelings. There was an old television show called Moonlighting. In it, the two main characters, Bruce Willis and Cybil Shepherd, constantly bicker. In one scene, Bruce Willis says something offensive, and Cybil Shepherd responds, “You know, you’re the most disgusting man I’ve ever met.” To which, Willis responds, “You need to get out more.”

If the senators are offended by the governor's remarks, they need to get out more. With all due respect, in most jurisdictions the size of the Virgin Islands, their titles would be “town councilmen or councilwomen,” rather than senators. In state senates across the country, senators do not demand the deference that they do in the Virgin Islands. And they are verbally beaten up by governors in ways that make the governor’s remarks seem gentle and kindly by comparison.

Now the bad news. Americans have possibly the shortest memories of any people on the face of the earth. There is a classic case for what happens when you fail to face up to the kinds of fiscal problems that the territory faces. It is New York City in the mid-1970s. As the City’s revenues declined and its costs relentlessly increased, its responses consisted of denial, the refusal of entrenched interests to give up anything, and a let’s wait and see attitude. The prevailing attitude was, “I’ve got mine, “you” make the sacrifice.” Sound familiar?

New York City borrowed money to meet its day-to-day operating expenses, a no-no in public finance. These borrowings took the form of IOU’s called Revenue Anticipation Notes. One day, the banks got together and decided that there was no revenue to be anticipated. They didn’t believe that they would get their money back. This meant no more loans. Game over. New York City was bankrupt. A true nightmare was about to begin.

There were two consequences that the senators should think about. The first was that the City lost control of its own destiny. The elected City government was replaced by an Emergency Financial Control Board. Members of the City Council, who, like Virgin Islands senators, saw themselves as big shots, couldn’t even get their phone calls returned. It didn’t matter what they thought or who they knew. Nobody cared. They had no power. They were big shots no more.

Far worse than the lost status of politicians was the downward spiral that the City of New York entered. The primary goal of the Financial Control Board was to make sure that the banks got their money back. City services weren’t cut. They were decimated. The streets were filthy. Crime shot up. Libraries were shut. The parks were a public disgrace. The subway system, long neglected, collapsed. New York City became a place to be avoided, a city that was “dying.” And it didn’t matter what the Mayor, the City Council or the City’s citizens thought. Others were now in control, and they had very different priorities.

Eventually, the banks got their money back, the City returned to solvency and rose from the ashes after a long period of pain and suffering. New York lucked out. Its rebirth was fueled by the enormous wealth generated by Wall Street in our modern age of greed. The Virgin Islands has no such rescue mechanism.

A final note. People rarely appreciate leaders who give them bad news. But it is painful to even contemplate how this situation would have been dealt with by any of governor DeJongh’s predecessors. Each was, in his own way, a specialist in denial, in the belief that there was always one more rabbit to be pulled out of the hat, and of the quick fix that made things worse over the long run.

Every so often, people are lucky enough to have a leader who is willing to face reality, to communicate that reality to citizens and to make a choice between bad and far worse when those are the only choices. This is one of those occasions.

Frank Schneiger December 2011