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Friday, August 19, 2022
HomeNewsArchivesSenate Looks at Fiscal Planning and Captive Insurance

Senate Looks at Fiscal Planning and Captive Insurance

The Office of Management and Budget will have to submit a "fiscal management plan" to the Legislature that includes limits on borrowing, setting aside 2 percent of the government’s General Fund revenues, and an array of audits, reconciliations and reports, if a bill approved in committee Friday becomes law. [30-0157]

Sen. Nereida "Nellie" Rivera-O’Reilly said she had been extremely frustrated with getting information from the Gov. John deJongh Jr. administration. She said the goal of the legislation is to improve transparency, to give more tools for the Legislature to use when working on the budget, and to help the government plan ahead and prepare budgets more accurately and effectively.

"It is not unusual and a number of states and the federal government have mechanisms like this," O’Reilly said. "It also seeks to put in place short-term and long-term strategies to better respond and better react to changes in the economy," she said.

It "seeks only to establish a framework" for the executive branch and "tries to get the executive branch to look at all the pieces of the puzzle for planning for long-term goals," O’Reilly said.

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OMB Director Debra Gottlieb submitted written testimony and was out of the territory for the meeting. Sens. Clifford Graham, Myron Jackson and others expressed irritation that Gottlieb did not send a deputy or high ranking staff member to testify and answer questions in her stead.

"I am a little disturbed a member of the financial team will be invited to testify to this body and they may be off-island, but no provision is made for another person … to testify," Graham said, recalling that a hearing Monday morning was postponed due to the absence of members of the governor’s financial team.

In her written testimony, Gottlieb opposed the bill, arguing that most of its provisions simply duplicate the existing budget process, while the rest are either already addressed in V.I. law or already part of the administration’s processes.

A measure requiring the government to publish a quarterly audit of government revenues and expenditures and the reconciliation of bank accounts, starting by Dec. 31, this year is "unrealistic and the Department of Finance does not have the manpower or the financial resources to conduct and publish quarterly audits by an independent auditor in addition to conducting the annual financial audit and single audit that the V.I. Government is less than a year away from becoming current," Gottlieb wrote."It will be extremely difficult if not impossible to implement (the bill) within the limited timeframe, other competing priorities and the limited resources available to OMB and the members of the governor’s financial team in Fiscal Year 2014," she wrote.

There were no questions, due to the absence of testifiers.

Sen. Donald Cole suggested amending the timeframe. O’Reilly said she was happy to postpone the start of reports and make audit reports less frequent in a later amendment. No amendments were proposed Friday.

Voting to send the bill on for further consideration in the Rules and Judiciary Committee were O’Reilly, Graham, Cole and Jackson. Sens. Judi Buckley, Terrence "Positive" Nelson and Clarence Payne were absent.

The Finance Committee also sent on a bill restructuring the territory’s captive insurance industry licensing, regulation, fees and tax incentives.

Captive insurance is when a large company insures itself by setting up its own insurance subsidiary. Rather than insuring through a separate company, it insures itself and doesn’t have to pay premiums. The territory has had a law allowing tax benefits to bring in captive insurance companies, but has not had much growth, while other jurisdictions have been more successful in attracting this business.

The territory would generate some revenues from annual licensing fees, but, like the finance companies attracted to the territory by its Economic Development Authority’s tax benefit program, the captive insurance companies would pay no local taxes on the potentially billions of dollars in insurance company funds flowing through the territory.

The bill [30-0049] was requested by deJongh. The committee took testimony a week ago but held the bill due to a lack of a quorum. Division of Banking and Insurance Director John McDonald testified in support, as did attorney David Bornn, who helped draft the bill.

According to Bornn and McDonald, the territory has allowed captive insurance since 1984, and revised the rules in 1993 and again in 2008 and 2010. At its high point, the territory had a dozen captive insurers and now it has five, Bornn said. Meanwhile, the British Virgin Islands, which began its program in the 1990s, has around 153.

The 2008 revision (see related links below) "created an effectively unworkable set of provisions that brought captive generation activity to a halt," Bornn testified.

Senators were broadly supportive of the measure.

"I do believe it is an economic tool for the territory and I don’t see a problem putting it on the books," Cole said.

It is important and vital to our economic development and our neighbors are doing it so why shouldn’t we?" asked Jackson.

The committee approved two amendments to the bill [30-714] [30-727] and then sent the bill as amended on for consideration by the Rules and Judiciary Committee.

Voting to send the bill on were O’Reilly, Graham, Cole and Jackson. Sens. Judi Buckley, Terrence "Positive" Nelson and Clarence Payne were absent.

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The Office of Management and Budget will have to submit a "fiscal management plan" to the Legislature that includes limits on borrowing, setting aside 2 percent of the government's General Fund revenues, and an array of audits, reconciliations and reports, if a bill approved in committee Friday becomes law. [30-0157]

Sen. Nereida "Nellie" Rivera-O'Reilly said she had been extremely frustrated with getting information from the Gov. John deJongh Jr. administration. She said the goal of the legislation is to improve transparency, to give more tools for the Legislature to use when working on the budget, and to help the government plan ahead and prepare budgets more accurately and effectively.

"It is not unusual and a number of states and the federal government have mechanisms like this," O'Reilly said. "It also seeks to put in place short-term and long-term strategies to better respond and better react to changes in the economy," she said.

It "seeks only to establish a framework" for the executive branch and "tries to get the executive branch to look at all the pieces of the puzzle for planning for long-term goals," O'Reilly said.

OMB Director Debra Gottlieb submitted written testimony and was out of the territory for the meeting. Sens. Clifford Graham, Myron Jackson and others expressed irritation that Gottlieb did not send a deputy or high ranking staff member to testify and answer questions in her stead.

"I am a little disturbed a member of the financial team will be invited to testify to this body and they may be off-island, but no provision is made for another person ... to testify," Graham said, recalling that a hearing Monday morning was postponed due to the absence of members of the governor's financial team.

In her written testimony, Gottlieb opposed the bill, arguing that most of its provisions simply duplicate the existing budget process, while the rest are either already addressed in V.I. law or already part of the administration's processes.

A measure requiring the government to publish a quarterly audit of government revenues and expenditures and the reconciliation of bank accounts, starting by Dec. 31, this year is "unrealistic and the Department of Finance does not have the manpower or the financial resources to conduct and publish quarterly audits by an independent auditor in addition to conducting the annual financial audit and single audit that the V.I. Government is less than a year away from becoming current," Gottlieb wrote."It will be extremely difficult if not impossible to implement (the bill) within the limited timeframe, other competing priorities and the limited resources available to OMB and the members of the governor’s financial team in Fiscal Year 2014," she wrote.

There were no questions, due to the absence of testifiers.

Sen. Donald Cole suggested amending the timeframe. O'Reilly said she was happy to postpone the start of reports and make audit reports less frequent in a later amendment. No amendments were proposed Friday.

Voting to send the bill on for further consideration in the Rules and Judiciary Committee were O'Reilly, Graham, Cole and Jackson. Sens. Judi Buckley, Terrence "Positive" Nelson and Clarence Payne were absent.

The Finance Committee also sent on a bill restructuring the territory's captive insurance industry licensing, regulation, fees and tax incentives.

Captive insurance is when a large company insures itself by setting up its own insurance subsidiary. Rather than insuring through a separate company, it insures itself and doesn't have to pay premiums. The territory has had a law allowing tax benefits to bring in captive insurance companies, but has not had much growth, while other jurisdictions have been more successful in attracting this business.

The territory would generate some revenues from annual licensing fees, but, like the finance companies attracted to the territory by its Economic Development Authority's tax benefit program, the captive insurance companies would pay no local taxes on the potentially billions of dollars in insurance company funds flowing through the territory.

The bill [30-0049] was requested by deJongh. The committee took testimony a week ago but held the bill due to a lack of a quorum. Division of Banking and Insurance Director John McDonald testified in support, as did attorney David Bornn, who helped draft the bill.

According to Bornn and McDonald, the territory has allowed captive insurance since 1984, and revised the rules in 1993 and again in 2008 and 2010. At its high point, the territory had a dozen captive insurers and now it has five, Bornn said. Meanwhile, the British Virgin Islands, which began its program in the 1990s, has around 153.

The 2008 revision (see related links below) "created an effectively unworkable set of provisions that brought captive generation activity to a halt," Bornn testified.

Senators were broadly supportive of the measure.

"I do believe it is an economic tool for the territory and I don't see a problem putting it on the books," Cole said.

It is important and vital to our economic development and our neighbors are doing it so why shouldn't we?" asked Jackson.

The committee approved two amendments to the bill [30-714] [30-727] and then sent the bill as amended on for consideration by the Rules and Judiciary Committee.

Voting to send the bill on were O'Reilly, Graham, Cole and Jackson. Sens. Judi Buckley, Terrence "Positive" Nelson and Clarence Payne were absent.