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Government Austerity Measures Outweighed by Insurance Premium Hikes

Several years of draconian V.I. government budget and workforce cuts have been overwhelmed by huge spikes in health insurance premiums over the same period, V.I. Management and Budget Director Debra Gottlieb told the Senate Finance Committee.

Faced with an ongoing budget and economic crisis, the V.I. government has shrunk its workforce and payroll from about 8,845 employees and $440.7 million in December 2007 to 7,075 and $344.3 million in December 2012, Gottlieb said during the hearing on St. Thomas.

"Although the size and cost of the executive branch workforce has been significantly reduced with little to no loss of critical services," Gottlieb said, “all our efforts have been quickly eroded by the increasing cost of our health insurance plan.”

From 2007 to present, the cost of the government health insurance plan increased by 62 percent or $51 million, she said. In 2007, premiums totaled $83 million, but in Fiscal Year 2013, "premiums will total closer to $134 million," Gottlieb said.

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Based on that trend, the government can expect costs to increase in FY14 by yet another 8 to 13 percent – or $10 to $17 million, she said.

In the past, the territory has mitigated the regular, extreme increases in insurance premiums by changing the plan and its benefits, Gottlieb said. But that cannot be done this time because any serious changes to the plan would take it out of grandfathered status with the federal Affordable Care Act, so that "we would incur a cost of $2.2 million," she said.

V.I. Personnel Director Kenneth Hermon said the shrinking of the government workforce has been a major driving factor in the insurance premium inflation.

Sen. Clarence Payne asked how such a large increase was attributable to losing employees.

Hermon said more individuals joined the ranks of retirees, "which is the most expensive category to cover."

Meanwhile with the closure of the Hovensa refinery and a moribund stateside economy, unemployment has shot up to 17 percent on St. Croix and 13.3 percent territorywide, Gottlieb said, adding that tax revenues are also down.

Tourism has largely held steady, with a 4 percent decline in cruise ship calls between 2011 and 2012 largely offset by increases in air visitors, she said. If tourism increases over the year, as hoped, it will help both the economic and employment situation to some degree.

Meanwhile there remains a substantial budget shortfall, Gottlieb said. "Based on our current revenue projections there is a projected budget shortfall of $26.3 million … not counting GERS," she said.

Much of that difference is being addressed through a 5 percent reduction in agency allotments and other austerity measures, Gottlieb and other members of the administration’s financial team told the committee.

Government House will soon be sending legislation to adjust some FY13 appropriations by $15 million to fund $12 million in unfunded government employees’ health insurance costs and $3 million for Bureau of Corrections debts, Gottlieb said.

Government House will also be seeking legislation to let the government obtain a line of credit to help balance out cash-flow fluctuations. She said that line of credit will not affect the overall level of indebtedness of the government, but will help smooth out cash flow problems.

Government House will also be sending down legislation to allow the government to issue 2012 real property tax bills at 1998 levels. The government already planned to issue 2011 real property tax bills, using 1998 values, by the end of February, and plans to issue the 2012 bills in July, she said. Using the 1998 values for 2012 will allow the contractor to meet the proposed timetable for completing the revaluation of the territory’s real property later in the fiscal year, she said.

"The assessment date change will prove the tax assessor with the time needed to complete the revaluation for 2013," she said.

No votes were taken during the information gathering oversight hearing. In the afternoon, the committee took testimony on two proposed government land purchases. Both were held in committee pending the completion of a legal analysis of the contract and warranties of deed.

One is for the purchase of plot 57 Cotton Valley on St. Croix from the Phyllis Saunders Trust, and the other is to purchase parcels 1-2, Estate Bovoni on St. Thomas. The St. Croix land would cost $48,000 and would house a police substation and also a base for emergency medical services. The St. Thomas parcel would allow the government to convert Bovoni Cay to a nature preserve and park.

Voting to hold the two sales contracts in committee were Payne, Committee Chairman Clifford Graham, Sens. Judi Buckley, Donald Cole, Myron Jackson and Nereida "Nellie" Rivera-O’Reilly; Sen. Terrence "Positive" Nelson was absent at the time of the vote, but was present earlier in the day.

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Several years of draconian V.I. government budget and workforce cuts have been overwhelmed by huge spikes in health insurance premiums over the same period, V.I. Management and Budget Director Debra Gottlieb told the Senate Finance Committee.

Faced with an ongoing budget and economic crisis, the V.I. government has shrunk its workforce and payroll from about 8,845 employees and $440.7 million in December 2007 to 7,075 and $344.3 million in December 2012, Gottlieb said during the hearing on St. Thomas.

"Although the size and cost of the executive branch workforce has been significantly reduced with little to no loss of critical services," Gottlieb said, “all our efforts have been quickly eroded by the increasing cost of our health insurance plan.”

From 2007 to present, the cost of the government health insurance plan increased by 62 percent or $51 million, she said. In 2007, premiums totaled $83 million, but in Fiscal Year 2013, "premiums will total closer to $134 million," Gottlieb said.

Based on that trend, the government can expect costs to increase in FY14 by yet another 8 to 13 percent – or $10 to $17 million, she said.

In the past, the territory has mitigated the regular, extreme increases in insurance premiums by changing the plan and its benefits, Gottlieb said. But that cannot be done this time because any serious changes to the plan would take it out of grandfathered status with the federal Affordable Care Act, so that "we would incur a cost of $2.2 million," she said.

V.I. Personnel Director Kenneth Hermon said the shrinking of the government workforce has been a major driving factor in the insurance premium inflation.

Sen. Clarence Payne asked how such a large increase was attributable to losing employees.

Hermon said more individuals joined the ranks of retirees, "which is the most expensive category to cover."

Meanwhile with the closure of the Hovensa refinery and a moribund stateside economy, unemployment has shot up to 17 percent on St. Croix and 13.3 percent territorywide, Gottlieb said, adding that tax revenues are also down.

Tourism has largely held steady, with a 4 percent decline in cruise ship calls between 2011 and 2012 largely offset by increases in air visitors, she said. If tourism increases over the year, as hoped, it will help both the economic and employment situation to some degree.

Meanwhile there remains a substantial budget shortfall, Gottlieb said. "Based on our current revenue projections there is a projected budget shortfall of $26.3 million ... not counting GERS," she said.

Much of that difference is being addressed through a 5 percent reduction in agency allotments and other austerity measures, Gottlieb and other members of the administration's financial team told the committee.

Government House will soon be sending legislation to adjust some FY13 appropriations by $15 million to fund $12 million in unfunded government employees' health insurance costs and $3 million for Bureau of Corrections debts, Gottlieb said.

Government House will also be seeking legislation to let the government obtain a line of credit to help balance out cash-flow fluctuations. She said that line of credit will not affect the overall level of indebtedness of the government, but will help smooth out cash flow problems.

Government House will also be sending down legislation to allow the government to issue 2012 real property tax bills at 1998 levels. The government already planned to issue 2011 real property tax bills, using 1998 values, by the end of February, and plans to issue the 2012 bills in July, she said. Using the 1998 values for 2012 will allow the contractor to meet the proposed timetable for completing the revaluation of the territory's real property later in the fiscal year, she said.

"The assessment date change will prove the tax assessor with the time needed to complete the revaluation for 2013," she said.

No votes were taken during the information gathering oversight hearing. In the afternoon, the committee took testimony on two proposed government land purchases. Both were held in committee pending the completion of a legal analysis of the contract and warranties of deed.

One is for the purchase of plot 57 Cotton Valley on St. Croix from the Phyllis Saunders Trust, and the other is to purchase parcels 1-2, Estate Bovoni on St. Thomas. The St. Croix land would cost $48,000 and would house a police substation and also a base for emergency medical services. The St. Thomas parcel would allow the government to convert Bovoni Cay to a nature preserve and park.

Voting to hold the two sales contracts in committee were Payne, Committee Chairman Clifford Graham, Sens. Judi Buckley, Donald Cole, Myron Jackson and Nereida "Nellie" Rivera-O'Reilly; Sen. Terrence "Positive" Nelson was absent at the time of the vote, but was present earlier in the day.