An act authorizing $120 million in new borrowing and allowing the government to bill 2009-2011 property tax at the 1998 rate became law Friday with Gov. John deJongh’s signature. This latest economic stabilization measure, approved Jan. 24 by the Legislature, temporarily decreases the threshold for the territory’s Insurance Guaranty Fund from $50 million down to $10 million until 2015.
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.
That pool of money can normally be tapped into only if an insurance company registered to do business in the territory becomes insolvent and cannot pay its claims. Since that is a very rare occurrence, the government has periodically tapped into the funds, replacing them with a letter of credit. The government already has a letter of credit in place for much of the funds. Temporarily decreasing the threshold allows the government to both retire that letter of credit and tap the fund for more money right now.
In his letter to the Legislature accompanying the signed bill, deJongh praised the Legislature for its action earlier this week to increase the Gross Receipts Tax from 4.5 to 5 percent. That measure replaced an automatic sunset date with a sunset provision ending the increase when $185 million in revenues has been raised.
"The action just taken by the Legislature to increase the gross receipts tax to five percent, as I requested almost a year ago, indicates a seriousness of purpose in dealing with our present economic crisis — a positive and welcome sign that we can do what it takes to address our financial challenges," deJongh wrote to the Legislature.
DeJongh line-item vetoed a section of the act that repealed legislation devoting four percent of Gross Matching Fund revenues tied to Diageo and Cruzan agreements to paying off government debts.
Once the Legislature passed that act, the administration entered in to contractual obligations as the Legislature mandated and cannot break those contractual obligations now, deJongh said.
He also line-item vetoed a section that would have given a 10 percent gross receipts tax discount for early payment, saying while "perhaps it was an unintended consequence … its effect is to violate the government’s financing documents which secure the government’s Gross Receipts Tax bonds." he said. To assure bond purchasers that gross receipts tax revenues which form the security for the bonds are not improperly forgiven or diminished, the government “covenanted not to take any action that would result in a reduction in the rate," he said.
Finally, deJongh vetoed a section giving employees a right to return to their former positions for up to two years. "Stripping the management authority of the executive branch, whose role it is to decide whether a position can be vacated for up to two years by placing that decision solely in the hands of the employee would jeopardize and hinder government operations, especially during these difficult economic times when employees are being called upon to do more," he said.
The governor acknowledged two resolutions: one that asks Delegate Donna Christensen to petition federal agencies for money to retrofit schools and hospitals with solar panels and one requesting an economic summit "held over the period of four consecutive weeks" with a $5,000 budget, after which the president of the Legislature would convene the legislature in committee of the whole, to consider short term measures developed from it.
While praising the concern over the state of the economy, deJongh said he was "doubtful whether another economic summit, as proposed, is sensible or practical at this point," suggesting the summit may "only serve to delay," making the difficult decisions that need to be made.
