Budget Woes Prominent in Mapp's First State of the Territory Address

Gov. Kenneth Mapp struck an optimistic tone for the future while nonetheless painting a bleak picture of the territory’s financial shape, during his first state of the territory address Monday evening. Mapp outlined the economic and fiscal woes of the last few years.

He echoed his predecessor, Gov. John deJongh Jr.’s calls for action to address ongoing structural budget deficits in several recent territorial addresses, saying some government services may need to be curtailed and some agencies consolidated to help make ends meet.

Budget Crisis

"Today, this new administration must begin to manage your affairs with a critical shortage of funds and obligations that far outpace revenues projected for Fiscal Year 2015," Mapp said, adding that this year’s appropriations for basic government operations alone "exceed revenues by approximately $91.2 million dollars.”

"This does not include mandates and obligations for which there are no appropriations, such as the newly imposed 3-point increase in employer contributions to the Government Employees Retirement System, estimated at $7.5 million," he said.

"In short, the current $91.2 million shortfall does not include $176 million in additional obligations," Mapp said.

He said those include:
– $10.3 million for Gov. Juan F. Luis Hospital to meet Centers for Medicaid and Medicare Services requirements;
– $26 million for the deficit of the Workers Compensation Fund;
– more than $41 million due to the Government Employees Retirement System as employer contributions;
– $40 million to pay the government’s outstanding working capital loan, due in September;
– $42 million in utility bills for both territorial hospitals;
– and $9.2 million owed in income tax refunds for the last three years.

"Our government is teetering on the brink of financial collapse," Mapp said. "To survive and recover, which we have the fortitude and ability to do, will require great courage," he said.

Mapp said some services may need to be curtailed and some agencies consolidated to make ends meet. In some cases, schools may be merged together. He said there needed to be "a major deployment of technology and customer-based systems" in government.

To meet the immediate cash crisis, he said his administration is freezing spending on projects that have not begun and can be delayed and focusing on increasing delinquent tax collections.

"We have identified over $54 million in open encumbrances within the General Fund, many of which represent last-minute purchases for which no funds exist," he said. "Vendors previously received many of these purchase orders and notices to proceed, and we have moved to halt transactions where no services have been provided or products ordered and delivered. Our commissioner of Finance has been directed to review and, in accordance with the law, liquidate these obligations," he said.

Mapp said his administration has "identified over $312 million owed" in back taxes, of which he said "$125 million of this sum is collectible in the short to medium term," and urged all Virgin Islanders to do their part to pay any back taxes.

"I personally will hasten my payments to the BIR on my payment plan, and I am asking each taxpayer with such a plan to do the same," Mapp said.

He said his administration will crack down and "collect or liquidate assets on all outstanding or delinquent tax accounts for which no payments are being received."

Each "of us must carry our piece of the burden, putting in our brick, one by one, to build a better Virgin Islands, by satisfying our tax obligations to the territory," he said.

The administration also plans to issue 2014 property tax bills in February and the 2015 tax bills in August, and then return to annual property tax bills in 2016, he said.

Attacking the deficit and economy from another direction, Mapp said he will work with Delegate Stacey Plaskett to have the U.S. Treasury Department reduce the time requirement for V.I. tax residency and definitions of V.I.-sourced income for captive insurance and other types of financial businesses seeking to have V.I. residency for its tax-break programs.

And Mapp wants to eliminate expensive federal fiduciary oversight "which continues to cost this government some $3 million annually."

He said he has hired a deputy budget director for federal grants management to help ensure the territory gets as much federal funding as possible and sends less back, and in the future, if federal grant funding for a job dries up, the job will not be funded locally.

"In short, and effective immediately, I will promptly eliminate any federally funded positions where mismanagement of grants results in loss of funding for those positions. Your jobs will follow the money," he said.

And the Mapp administration plans to collect all funds owed by Hovensa, including $43.5 million promised as part of a settlement agreement earlier this year and $14 million in deferred property taxes.

Also Mapp said he would not approve any "public-private partnerships," where the government pays for private development, until the government’s finances were in order again.

Hovensa Litigation

The Mapp administration filed suit Monday to foreclose on Hovensa and seize its assets to pay those debts, Mapp said. He announced those plans earlier this month. (See Related Links below) Mapp said he plans to request a $1 million initial appropriation to begin retaining legal counsel for the lawsuit.

Growing the Economy

"While collecting as much of the money that is owed to the treasury is important, the greater sustainable strategy is growing our economy," Mapp said. He said he would focus on developing tourism more; increasing ship calls to St. Croix, improving the visitor experience and adding hotel rooms on St. Croix.

The U.S. opening relations to Cuba could be a boon for the territory, he said. "We can look to the opening up of Cuba as a competitor, or as an ally. I believe the opening up of Cuba will spur new business and tourism-related opportunities for the territory, given the proximity of Florida, Cuba, Hispaniola, Puerto Rico and the U.S. Virgin Islands in this region," he said.

Improving the territory’s ports, roads and services is important too, and to that end Mapp wants the V.I. Port Authority and West Indian Company to work together. "To that end we are forging a stronger alliance between these two entities by adding three additional mutual members to their boards," he said.

New Spending

While raising the alarm about the territory’s budget crisis, Mapp also outlined areas he wants to see more funding, from policing to mental health care.

"During the campaign, Mr. Potter and I promised to hire an additional 250 police officers. Today I am not sure if this number is sufficient. Our Police Department is struggling with an absence of personnel. Let me repeat that – an absence of personnel; insufficient boots on the ground. What if I told you this evening that we do not have a single active police captain in the territory. Would you believe me? Well, we don’t," Mapp said.

There is also a lack of technology and the technology in place is not integrated, he said. So the administration will "conduct a full top to bottom assessment of our entire law enforcement community, so we can build a strategy for professional policing in the territory," he said.

At the Government Employee Retirement System, the government currently owes employer contributions of $2.18 million for those who have retired but cannot receive their annuity, Mapp said, asking senators to act "so we can take action to pay this amount within the next 30 to 60 days, even if we make the payment in several installments."

For Human Services, his administration "is implementing a plan to prioritize the extension of all-day service to seniors at the three existing centers, within our first year in office," he said. "Thereafter, we will renovate and reopen the Aldershville Senior Center in Frederiksted. We are currently working to secure, or even build, an additional facility to open a center east of mid-island on St. Croix," he said.

The administration plans to put in place a "fully supported family-caregiver program as a less costly alternative to providing long-term care," he said. "The caregivers program needs just a small bit of resources. The employees manning the program are great, but the department must stop asking caregivers to have bake sales to support the program," he said, adding that he is familiar with these issues because he has been a caregiver.

He pointed also to the territory’s growing need for long-term medical care beds, especially for seniors, saying 700 beds are needed, but there are only 125 beds. To address this, "my administration is dedicated to our seniors and is intent on commissioning a state of the art, Medicare certified skilled nursing facility on both St Thomas and St. Croix," he said.

Mental health care and health care generally both urgently need help in the territory, Mapp said, pointing to some $58 million in uncompensated care provided by the territory’s hospitals last year.

The government "has been unable to identify and provide the additional $10.3 million dollars so the hospital can implement the necessary CMS mandates," Mapp said, adding that his administration is going to work with the Legislature "to identify the best way to provide this funding" and funding for Schneider Regional Medical Center.

The administration hopes to help the hospitals by getting more federal Medicare reimbursements through the Tax Equity and Fiscal Responsibility Act of 1982, according to Mapp. He said the territory’s hospitals have not received any of the Medicare reimbursements available under this act, because they did not apply in time. "We believe that additional reimbursements may be recouped, retroactive to 2012, and could result in an immediate infusion into our health care system of up to $26 million," he said.

Expanding Medicaid eligibility to meet new funding in the federal Affordable Care Act should help too, by reducing bad debt in the hospitals, he said.

"My administration believes that continuing the Medicaid Expansion program, via a phased-in approach, is a reasonable short-term option to solving many aspects of our health care system crisis," Mapp said.

As he wound up his debut address to the territory, Mapp said he and Lt. Gov. Osbert Potter "are committed to staying the course and making the difficult decisions that will get the Virgin Islands to a better place."

"We are looking forward to working with each of you in this body – listening to your ideas; listening to the voices of all of our constituents, and seeking common ground upon which we can build a brighter future for our people," Mapp said.

[Kenneth Mapp State of the Territory Address]

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