Reduced revenues have ballooned the budget deficit expected for Fiscal Year 2014 to $70.5 million, so without tax increases or budget cuts, the government will run short of cash late in the year, Gov. John deJongh Jr.’s financial team said in a conference call with reporters Thursday.
"Our cash position remains precarious and current projections indicate that there will be a probable cash shortfall in the fourth quarter," Director of Management and Budget Debra Gottlieb told reporters.
Gottlieb and Finance Director Angel Dawson both said that legislative action would be needed to either raise revenues through taxes or cut costs, or else the government would be forced to cut allotments to avoid an abrupt crisis.
For the first quarter of FY14, government revenues from taxes and other sources came to $107.7 million, 11 percent or $13.8 million less than was collected for the same period in the prior fiscal year, Gottlieb said. Meanwhile, expenditures in the first quarter were $195.4, leaving an operating deficit of $95.6 million, she said.
This operating deficit was reduced to $50.6 million by applying $20 million from a cash flow line of credit approved by the Legislature in 2013, combined with $25 million from 2013 bond proceeds.
Projections for January suggest the government’s cash flow will improve slightly thanks to receipt of $45 million in Internal Revenue Matching Funds, which are federal excise taxes on rum produced in the territory that the federal government remits back to the territory.
All told, it adds up to an operating deficit of $70.5 million, she said.
The government already expected a shortfall and has urged the Legislature to address the revenue and expenditure gap on several occasions since the FY14 budget was passed last fall, Gottlieb said.
"Before the budget was submitted in June and since, the government has advised the Legislature of the need to reduce expenditures and raise revenues, including providing several proposed measures, if you recall, at the beginning of our Fiscal Year 2014 budget," Gottlieb said.
Dawson said if there is no legislative action soon, OMB will have to reduce allotments.
"Our projections are that without a reduction in allotments, we will have a cash flow shortfall and clearly we will not allow the government to be overdrawn," Dawson said. "So we will have to make the necessary adjustments in expenditures," he said.
Asked what the worst case scenario would be, if the Legislature did not act, Gottlieb said she would have to drastically tighten allotments.
"We probably would get to the point where the allotment reductions will be quite strict. And that will force other things to happen. Agencies will have to decide what services will have to be further reduced … and that will trigger certain things too," Gottlieb said.
When asked if there was room to fill part of the gap by working harder to collect taxes, Gottlieb and V.I. Internal Revenue Bureau Director Claudette Watson-Anderson both said no.
"The bureau has always gone after delinquent accounts receivable," Watson-Anderson said, adding that the government collects about 90 percent of revenues due in a given year. IRB has been pushing hard to collect delinquent taxes and has been successful, she said. "Those efforts have brought in significant dollars over the past year," but there is not enough still out there to fix the territory’s budget, she said.
Several senators have suggested there may be up to $20 million annually in uncollected hotel taxes that could be recovered, if IRB devoted enough effort to get it. Unfortunately, IRB says that isn’t so.
"Our analysis has proved that number is not anywhere near the reality of the situation," Watson-Anderson said. "They are in fact saying we are only collecting 50 percent of hotel taxes. IRB’s analysis shows that is not the case. The last time I testified before the Legislature I presented a list of 50 states and territories from which we receive hotel taxes from outside the territory," she said. That list includes revenues from villas and other rentals whose owners reside outside the territory, she said.
When prodded for specific tax increases or revenue generating measures the administration would like to see enacted by the Legislature, the governor’s financial team declined to give examples, saying it was up to the Legislature. However Gottlieb did outline several proposals in her budget overview, submitted along with the FY14 budget in June of 2013.
Some of those proposals, like refinancing existing bonds, have already been done. Gottlieb’s budget overview in 2013 also suggested:
– reducing the cost of the government’s health insurance premium by changing the cost share, which she projected could save up to $7.2 million;
– implementing an income tax surcharge, with a projected increase in revenue of up to $24 million;
– implementing a combination of unpaid holidays and/or furlough days, potentially saving up to $16 million;
– re-instating unpopular 8 percent government salary cuts, possibly saving up to $29.5 million;
– implementing a vehicle mileage tax, raising up to $10 million;
– reducing the gross receipts tax exemption to the previous level, raising up to $3 million;
– eliminating the exemption of excise taxes on certain products;
– and increasing real property and other existing taxes or reducing other fringe benefits offered to government employees.
