Gov. John deJongh Jr. and his financial team met with Senate President Ronald Russell and the Legislature Wednesday to seek common ground on how to resolve the financial crisis and prevent many more government layoffs, according to a joint statement from deJongh and Russell. Delegate Donna Christensen also attended. While both sides reported progress, no new legislative proposals were unveiled in the statement, and there was no mention of revisiting past proposals as of yet.
“Today’s meeting was the latest in a continuing dialogue between the Senate and my Administration on means by which we can secure the financial footing of the Virgin Islands," deJongh said in the statement Wednesday evening. "Senate President Russell and I believe that today’s meeting was a very productive discussion of the options available. This was a joint effort to see whether we can avoid further termination of government employees this month,” deJongh added.
Various proposals were discussed at the meeting to both provide additional revenue and further reduce the budget deficit.
“My primary motivation in asking the Governor to meet with us today was to see if, together, we can find a way to avoid additional terminations," Russell said. "All of my colleagues in the Legislature, and I accept that the terminations, so far, have been necessary to reduce the cost of government, but we are all concerned that further dismissals will have an increasingly detrimental effect on our community and that is what we are working diligently to minimize.” Russell continued.
The territory has been in the grip of a fiscal crisis all year. In the wake of a deadlock between the office of Gov. John deJongh Jr. and the Legislature over the governor’s proposals for raising revenue and closing a $67 million 2012 budget deficit, deJongh announced last week the government was running on empty, down to $15 million in cash in the bank, and would begin laying off government employees.
Some 143 temporary, per diem, and part-time employees were dismissed Dec. 30, and are to be paid an additional two weeks as severance. Thursday, an additional 350 employees will be dismissed, and if nothing happens to improve the fiscal situation, there will be additional layoffs affecting 1,000 or more government employees by the end of January, according to Government House.
DeJongh said he believes that the members of the Senate will continue to discuss the options available, and will soon take action on those measures that they believe can reduce the deficit and provide additional revenue for the government.
What to do next is controversial.
Early in 2011, deJongh proposed increasing gross receipts taxes from 4 percent to 5 percent, adding new cell phone fees, freezing pay and hiring, and eliminating nine paid holidays, among other measures. 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, the Legislature passed a broad budget stabilization package that imposed an unpopular 8 percent government pay cut and offered cash incentives for senior employees to retire. These actions helped, but did not eliminate the deficit.
In a special session of the Legislature deJongh called in December, he proposed increasing gross receipts tax from 4.5 percent to 5 percent, and authorizing billing 2010 property taxes at the same level the court authorized for 2009 taxes; two measures that would bring in new revenue quickly. He also asked the Legislature to authorize the V.I. Public Finance Authority to borrow up to $90 million to fund regular government operations. The Legislature voted down each of the measures, but senators said afterwards they anticipated meeting soon with the governor to discuss the way forward.
Few good options remain to bring in significant new revenues right away. While the administration proposes increasing gross receipts taxes, both the St. Croix and the St. Thomas Chambers of Commerce remain implacably opposed to any such increase, arguing businesses are already struggling with the recession and high utility bills.
In a Jan. 2 statement, the St. Thomas Chamber reiterated its opposition to any increase in gross receipts taxes, stating businesses were already struggling to make ends meet, and had already been forced to make layoffs and cut back because of the recession. Instead, the St. Thomas Chamber argued the government should first go after businesses that are not paying their taxes before increasing taxes on those who obey the rules.
"We understand that to balance the budget this year simply by reducing costs would require drastic and economically damaging cuts, and accordingly we are supportive of efforts to increase revenues, and encourage the administration to accelerate the collection of back-due property taxes and to make good on its longstanding commitment to go after tax avoidance, tax collection and tax discovery," St. Thomas Chamber members wrote.
The administration has increased collections of back-due taxes of all kinds, but the low hanging fruit has already been plucked and those efforts cannot be counted on to fill the government’s coffers, members of deJongh’s financial team testified at several senate hearings last fall.
The Chamber also proposed making this year’s 8 percent government pay cut permanent; a measure that would bring in considerable revenue, but not until after the pay cuts would have otherwise expired in mid-2013.
Asked earlier this week why the Chamber remained opposed to any tax increase, if it agreed revenues needed to be on the table, St. Thomas Chamber of Commerce President Richard Berry said the private sector "has paid their fair share." "We have already taken the 12.5 percent tax increase," Berry said, referring to the Legislature increasing Gross Receipts Tax from 4 percent to 4.5 percent of gross business receipts.
"I understand the cuts hurt, but the private sector has already had to cut back. Look at Hovensa and its contractors. Look at what is happening with tourism in the territory. It is not just big business. It is small businesses, coffee shops, mom and pop stores, a lot of small businesses are struggling with what we are going through," Berry concluded.