Hovensa, the giant south shore refinery, has had a profound impact on St. Croix since its creation more than 40 years ago, touching the daily lives of every Crucian, pouring money into the government’s coffers, employing more than any entity other than the V.I. Government. What will its departure mean to the territory?
Everywhere one can see Hovensa’s direct effects on the island, and more subtly its indirect effects. The 8th largest refinery in the world, and the 2nd largest in the Western Hemisphere, at its peak, Hovensa could refine 495,000 barrels of oil a day, and could produce 175,000 barrels of gasoline. It employs upward of 1,200 directly, and 950 more through its subcontractors.
Those 2,150 or so men and women will be taking the biggest brunt of the closing, being suddenly forced to reenter the job market and find another livelihood. This flood of newly unemployed, relatively high wage workers will have a noticeable impact on unemployment.
As of November, the territory had 4,307 officially counted as unemployed by the Department of Labor out of a labor force of 50,842, for an unemployment rate of 8.5 percent. St. Croix saw an even worse rate of 9.2 percent, with 2,036 out of a 22,046-person workforce unemployed. Adding 2,150 people to the rolls of the unemployed would bring territorial unemployment to a gruesome 12.7 percent, assuming nothing else changed, and none were immediately able to find new work. That would give the territory a slightly better rate than Puerto Rico’s 12.8 percent, and place us just ahead of Nevada, which has the highest unemployment rate of any state at 13 percent.
Looking at St. Croix alone, the picture is proportionally worse, with the big island looking at a potential for 19 percent unemployment, assuming all other factors remain the same.
Gauging the actual impact is more complex than simply determining the additional number of unemployed, as some will find jobs; other intervening economic factors will affect the final numbers, and actual losses could be higher, once the impact of the lost revenues from Hovensa’s payroll trickles through the economy, forcing other businesses to cut back, Labor Commissioner Albert Bryan cautioned, when reached Thursday evening.
"But that’s about right – it will come out to around that," Bryan said, confirming the broad outlines of the employment math. "We will see unemployment become extremely high. St. Croix will definitely be in the teens by summer."
At the same time, the employment impact will not happen right away, Bryan said. First, the V.I. Plant Closing Law requires large companies like Hovensa and its subcontractors to give employees 90 days notice before commencing large scale layoffs, giving the workers some time to look for other work. That clock is ticking, and layoffs may officially start around April 21, Bryan said. The plant closing law also requires one week of severance pay for each year of employment. "The average severance is about $22,000, with a total payout of $22 million or so," he said. On top of that, Hovensa announced yesterday it will be offering some unspecified additional amount of severance for each employee.
As the employees begin to be laid off, Labor will be working with them, offering help with information about unemployment insurance options, retraining and development of new skills, emergency assistance, housing assistance, resume preparation, child support, healthcare, extending employer health insurance with COBRA, and veteran assistance, the same as the department is currently doing with recently laid-off government employees.
"We were already gearing up for government layoffs, so we are already ready to respond to this too and make sure their transition is as smooth as possible," Bryan said.
Once the layoffs begin, unemployment will rise. The territory has already been borrowing about $1 million per month from the National Unemployment Insurance Trust Fund to pay current unemployment benefits, and already owes about $30 million, according to Bryan.
"If we were to absorb all of it now, and all 2,000 signed up for unemployment today, that would be another $3.5 million to $4 million in additional payments per month," he said. But that will begin to hit toward the end of the fiscal year – around September or so, he said.
Some will likely seek employment at refineries elsewhere, but the overwhelming majority, "about 85 percent or so are long term residents, of 10, 15, 20 years or more," and will not find it easy to move, he said, a point Human Service Commissioner Chris Finch also emphasized.
"For so many families (moving) is much harder to do than it sounds, because of all the family and community connections," Finch said earlier this week. "Some small percentage may find it easy to pick up and move, but for most families, that is a huge and difficult decision."
Human Services probably will not be dramatically affected right away by the closure, Finch said. Instead, he said, it may see Food Stamps and possibly Temporary Assistance for Needy Families increase after unemployment benefits run out, and some people, such as mothers, relying upon child support from former Hovensa employees start to fall through the cracks.
Nonprofit agencies and charities are likely to feel the impact of Hovensa’s departure too, Finch said, echoing concerns raised by both deJongh and Delegate Donna Christensen in separate press conferences Thursday.
"Hovensa has been a very generous company, especially on St. Croix, supporting a lot of nonprofits, which may lead to greater demand for the government to pick up the slack," Finch said. "We will all have to pull together and see how St. Croix will be like without Hovensa."
St. Croix Women’s Coalition Co-director Mary Mingus emphatically agreed with Finch, the governor, and delegate Thursday. "All the nonprofits will have a problem," she said.
For many years, Hovensa has helped fund Christmas Festival and Fourth of July fireworks displays, sponsored scholarships, and given generously to a wide array of local charities. In the past year alone, it has pledged $125,000 for maintenance and upkeep on a planned St. Croix bike path, given $25,000 to the St. Croix Lions Club, $3,500 to support Elena Christian Junior High’s rocketry club, and many other donations. Go to the Source search engine and type in "Hovensa donation" and dozens of charitable contributions will pop up. But no more…
Tax revenues will take a hit too. The refinery fills government coffers with millions of dollars from fuel taxes, property taxes, income taxes, and gross receipts taxes. Wednesday, Gov. John deJongh Jr. put that figure at roughly $60 million per year, even in times such as these when the refinery has been losing money and paying little by way of corporate income taxes. In good years, Hovensa’s contribution to the government’s coffers has been much more dramatic. Hovensa’s poor bottom line "alone has cost us $100 million in annual corporate income tax receipts," Finance Commissioner Angel Dawson said during senate hearings in December.
The ripples will flow throughout the economy too, not only across the territory, but locally as Hovensa workers cease spending their paychecks on groceries, rent, gas, eating out in restaurants, and so forth.
"That’s a lot of money being taken out of the economy," said Brian Mika, owner of Angry Nate’s Restaurant on the Christiansted Boardwalk. "I’m sure everyone’s reaction is we are scared. We all have some Hovensa workers who come dine out or come for a drink regularly. With my business, I don’t think this will make us fail, but I will feel a hard core impact."
Without the refinery, gas prices will increase on St. Croix to at least match St. Thomas prices, as St. Croix gas stations are forced to pay to have it shipped to the territory, and utility bills will increase as the V.I. Water and Power Authority is forced to pay more for fuel oil on the open market.
Are there any upsides to the closure? In a limited way, yes, although few would consider them enough to outweigh the downsides.
Environmentally, neighboring residents have been complaining for years about sulfurous fumes and other emissions from Hovensa, linking the refinery anecdotally to high asthma and cancer rates.
In the past two to three years, there have been several incidents where the refinery accidentally sprayed an aerosol of partly refined crude into the air, contaminating household drinking water cisterns. That will cease.
Even without accidental releases, Hovensa accounts for the largest share of permitted air pollution discharges in the territory, as St. Croix Environmental Association Director Paul Chakroff recently testified to the Legislature. The closure of Hovensa will greatly reduce, if not completely eliminate, those emissions.
While not the best way to improve the labor force, the layoffs will put more skilled labor into the available workforce, Bryan said.
"I think there is an opportunity for us in that we now have this tremendous talent base," Bryan said. "All of a sudden, there is a multitude of qualified electricians, plumbers, managers, you name it, so there is an opportunity for new companies to come in. That is about the only silver lining on this cloud," he said.