Last week, after yet another in a series of meetings with the senators of the 30th Legislature, I informed Senate President Malone that I would be delaying my submission of the budget for the upcoming 2014 fiscal year that begins on Oct. 1, 2013, for two weeks.
I would like to take a few minutes to explain why this action is being taken, what problems we face between now and the end of this fiscal year on Sept. 30 and what we must do before we can have a new budget in place.
Before getting into the details, however, I would like to say that I began this year with high hopes that the 30th Legislature, which had many new senators serving for the first time, would recognize the challenges we face and work collectively with me to confront these challenges.
I commend Senate President Malone for his genuine efforts at cooperation and communication. But I am disappointed that our efforts have not led to more constructive action and legislation by the 30th Legislature. As of today, very little progress has been made by the Senate to help chart a realistic financial path forward, despite the many meetings I have held with the senators – that included our lieutenant governor and the delegate – to outline our Fiscal Year 2013 shortfalls. In addition, my financial team has met with the Committee on Finance, either individually or collectively, to highlight our financial issues without any proactive results.
Under our Organic Act, it is the duty of the governor to propose a budget, along with suggestions as to the revenues needed to support that budget to the Legislature for action. The rules by which we live are very clear. Every dollar that we spend must be authorized by the Legislature.
Within the parameters of this bedrock legal obligation and the mandate provided by the budget which is authorized by the Legislature, it is my responsibility to manage the daily affairs of the government in a manner that provides for stability and equity across our community. It is my responsibility to make decisions and take actions that will ensure that the government is able to provide the critical public services that our community requires. I do not have the luxury of ignoring or delaying tough decisions, nor can I choose to only make the easy ones, while leaving the harder challenges for another day or another person.
Last year, in approving the Fiscal Year 2013 budget, the Senate chose to ignore the fact that our revenues were not as robust as they once were. Given the continuing effect of the Great Recession and impact of the HOVENSA closure, the simple truth is that we do not have as much money as we did a few years ago. The implications of this are really quite simple. We must have a plan, and like many of you sitting around your kitchen table at home, if there is less money coming in, you have to reduce your spending to what you can afford.
Two years ago – even before HOVENSA’s closure announcement – when the Senate received my proposals to reduce the size and cost of government, the Legislature proposed and chose, instead, to reduce spending by cutting 8 percent from the salaries of government employees. This was not in and of itself an unreasonable choice. Instead of seeing many employees lose their jobs, the Legislature chose a path that would share the pain across the entire government workforce, thereby allowing many who could have lost their jobs to retain employment and health insurance coverage for themselves and their families.
But the action at that time was not a permanent solution, but rather a temporary one, since the Legislature provided that as of July 3 of this year, the pay cut would end and pay levels would be restored. This meant that unless revenues increased substantially to cover the cost of the 8 percent pay cut, we would be right back where we were two years ago. I think we can all agree that revenues have not substantially increased, and therefore the hard choices that we faced back then are with us again.
Since the 30th Legislature took office, I have met many times and spoken frequently with the senators to ensure lines of communications are open and that they are each aware of the problems with this current year’s budget. I have repeatedly shared financial information, suggested they do their own projections, while emphasizing that we try to act collectively – especially in these most difficult of times as a sign of unity among the leadership. At these meetings and in these conversations, I have made it clear that our budgetary shortfall for this fiscal year is approximately $19 million. I have made it clear that we would not have the cash to pay salaries – let alone increased salaries – or to make our health insurance premium payments due to that shortfall, and that this situation is worsened by the fact that our revenues are seasonal and this shortfall comes at a point in the year when our revenue collections and cash position are at their lowest.
At our meetings, I have asked for their ideas, suggestions and proposals. But, sadly, no substantive suggestions were offered beyond their recommendation that we take bond proceeds, being held by the Virgin Islands Public Finance Authority for capital projects previously approved by the Legislature, and use this money during the balance of this fiscal year. A proposal that is not permissible by law and one that would be a violation of our agreements with our bondholders.
I have repeatedly emphasized emphatically the urgency of confronting this problem, and taking the difficult but necessary steps of implementing solutions that will bring our spending in line with our revenues. This is the duty that each of us as elected officials must undertake, and failure to do so will result in far-reaching consequences. We know that if we continue to avoid taking the steps we must take, we are only deferring the moment of reckoning. And by failing to act, we risk losing our bond ratings and the access to the capital needed over the coming years to meet our critical investment requirements.
I have suggested to the Senate, that if we were to extend the salary rollback beyond its July expiration date through the end of this fiscal year – for three months – we might be able to borrow from a bank to cover the cash flow problem, provided that we make a provision in the next year’s budget to pay the money back. But borrowing this money would require action by the Legislature. The restoration of the 8 percent rollback is automatic, and according to the law, the 8 percent is scheduled to be restored on July 3. The Legislature made this law and only the Legislature can change this law. I cannot.
In Friday’s paper, the Senate president is quoted as saying that it is unlikely that any member of the Senate would introduce legislation to extend the 8 percent cut. While I found this conclusion to be dismaying, it explained why no action has been taken by the body.
Quite frankly, our budget challenges are not that complex. A budget has two sides, revenue and spending, and they must balance – just as it is with your household budget. There are only two essential skills or abilities needed to deal with our budget problems: basic arithmetic skills to balance revenues with spending and the courage to act and make choices; similar to what each of us do to meet our daily household needs. The math is straightforward.
We all know the numbers, they change over time given economic cycles, and adjustments have to be made along the way but the systems for solution are still the same – revenue and spending – must balance. The revenues and spending numbers are shared regularly, and the Senators know what the numbers are at any given time –well enough to know what they must do. When the revenue numbers improve, we all know, and that lets us breathe more easily. But when revenue collections remain down, we also know that we must increase our efforts at restraint and frugality.
But restraint and frugality require courage, and now is the time for that to be put to the test. Now is the time for us to deal with the immediate problem of what we are to do between now and Sept. 30. I know our employees want their 8 percent restored and I want us to have it; but, we cannot afford it right now. I know that employees do not want to put their health insurance coverage or that of their families at risk; and neither do I. Yet, what we do now will set the foundation for the development of the next year’s budget.
I am delivering today to the Senate president proposed legislation to do the following: First, it will authorize bank funding that will bridge our spending needs for the balance of this fiscal year. Second, it will extend the 8 percent salary rollback through the end of this fiscal year. This is a critical step that will reduce our cash outflow, and is necessary if we are to secure the bank funding. And finally, it will authorize the funding of health insurance premiums for the balance of this fiscal year. This is my approach, and these are my proposals, and I am calling upon the senators to support me and pass these measures.
If they choose not to pass this proposed legislation, then I call on them to pass any measure of their choice that will deliver the combination of increased revenues and reduced spending in time to make payroll and pay health insurance premiums from now until Sept. 30.
But if the Senate simply refuses to act, I do not want anyone to doubt what steps will be required. First, I cannot leave our employees and their families, and our retirees, without health insurance. Therefore, I will take the actions that I must take to pay the health insurance premiums, and this will require that I act immediately to reduce spending across the government. And the only source of such reductions available in the magnitude necessary would be to reduce payroll.
But this action can be avoided if the Legislature chooses to act.
This will not be the end of the difficult steps that we must take together, and no one should be under any illusions in this regard. With respect to the coming year’s budget, I would like to make an observation that I feel is in order. We all know the underlying sources of our budget problems and our economic difficulties, but knowing this does not release us from our obligations to act. The Great Recession and the HOVENSA closure are, indeed, explanations for why we are where we are today. But knowing that those are the causes does not give us, as elected officials, excuses or release from our duty. We have to address the fact that our spending is out of balance with our revenues. And therefore, the challenges that we face as we address the shortfalls for the remainder of this fiscal year will be upon us again as we deal with next year’s budget.
As I indicated at the outset of my remarks, in two weeks, I will be sending to the Legislature a budget proposal for the fiscal year beginning Oct. 1 of this year that cuts programs and positions and projects as far as I think they can be cut consistent with the best interests of the territory. It will be the obligation of the Legislature to take the necessary budgetary actions to support this proposed level of spending, or to make their own judgments and take additional action.
Our projected revenues from the taxes and fees presently in place – which includes personal and corporate income taxes, gross receipts taxes, property taxes, and the like – will not be sufficient to meet what I anticipate will be our proposed expenditure budget for the next fiscal year. In past years – almost every time that I submitted a budget with proposed increases in revenues or cuts in certain expenditures designed to balance the budget – the Senate declined to act on my proposals.
Accordingly, this year I will not repeat what has failed to succeed in the past. Rather, I will suggest revenue sources to support the proposed expenditures by category, estimating how much one can anticipate that each revenue measure would raise. I will not tell the Legislature what they should do, but rather lay out the choices available to them, and offer to work with them.
And so, it will be left to the Legislature to act, even as we continue to discuss the best course of action. They can approve a budget by selecting the revenue measures that they are prepared to support, or by cutting personnel or programs further to fit within the revenues that are already in place. But like every one of you at home, they must deal with real numbers– and they know what the real numbers are.
Thank you for listening. May God bless you and the Virgin Islands.