Some government revenue streams are improving and the economy may be heading upward, but the territory has structural deficits to address and far to go to erase the budget hole created by the recession, the governor’s financial team said during budget wrap-up hearings Friday.
"Uncertainties," relating to the refinery and the economy "will undoubtedly impact economic conditions," Management and Budget Director Debra Gottlieb told the Finance Committee. The economy is likely to get a boost as the V.I. Water and Power Authority switches to lower-cost propane next year and the V.I. Next Generation Network expands online opportunities. But the economy will be tight and the territory’s unemployment rate "will remain elevated in FY 2014, before giving way to some improvement in FY 2015," she said.
Sens. Clifford Graham and Nereida Rivera-O’Reilly both highlighted increases in year-to-date individual income tax, corporate income tax, hotel tax and the stamp tax on real estate transactions revenues as compared to the same time last year.
"What we are seeing in revenues does not seem to align with what we are seeing in the economy," O’Reilly said, asking for an explanation.
Internal Revenue Bureau Director Claudette Watson Anderson said some of the increase was due to aggressive collection efforts, and some to improvement in the economy. Delbert Hewitt, director of operations in the Office of the Lieutenant Governor, said stamp tax collections increased "due to an increase in property sales."
Growth in the national and world economy is benefiting the territory, despite its local woes with Hovensa and other problems, Bureau of Economic Research Executive Director Wharton Berger said.
"The U.S. economy is growing a lot faster than we anticipated, and we are seeing more tourism," Berger said.
Finance Commissioner Angel Dawson agreed that revenues are improving, but said much of the improved revenue outlook was a one-time $24 million or so boost due to restructuring government bonds. Counting that, revenues are up about eight percent this year, he said. But looking at core revenues, like individual and corporate income taxes, "paints a clearer picture," he said. Those are up about two percent, which is good news, he said. "But even though we are up this year and maybe the prior year too, we are still in a hole," Dawson said. "In 2008, we experienced something like a 30-percent reduction in revenues in one year – almost $400 million in lost revenue," he said. At two-percent improvement per year, "it would take several years, at least, to make up the loss, he said.
The government blunted the impact of this drop by borrowing heavily for operating capital, but that approach can only help temporarily, he said. In the long run "there are structural deficits that will eventually have to be addressed by this body," he said.
The Office of the Lieutenant Governor is in the process of re-valuating all properties and intends to issue and collect the calendar year 2013 property tax bill in February 2014, Gottlieb said. The 2014 bills are to be sent out in July 2014, she said.
Gottlieb said FY 2014 core revenue projections remain unchanged from when the executive budget was submitted June 14. The Fiscal Year 2014 budget totals $1.1 billion with $743.8 million from the General Fund; $167.7 million in federal operating grants, $50,000 in federal stimulus dollars; $150.9 million in other appropriated funds; $63.2 million in other non-appropriated funds and $108 million of non-governmental funds, like the revolving funds generated by the territory’s hospitals.
At the time, Government House projected a FY 2013 cash shortfall of $23.6 million. Friday, Gottlieb said the shortfall was now projected to be $6.1 million. The FY 2014 budget is balanced, however, she said.
Gottlieb requested several changes to the FY 2014 budget on behalf of Government House. Those changes include several internal transfers and some new spending, including:
— $9.1 million for the government of the Virgin Islands’ unemployment insurance contribution;
— $1 million in new funding for employer pension contributions for government employees who retired after the last day of 2012;
— $150,000 to VITEMA for a UNESCO convention on St. Thomas;
— $311,000 to the Division of Licensing and Consumer Affairs for new vehicles for its enforcement division;
— $760,000 in matching funds for U.S. Department of Justice paternity and child support grants;
— and $234,000 for the V.I. National Guard’s Office of the Adjutant General for a new territorial post exchange on St. Croix.
No votes were taken during the information-gathering hearing.
