In a statement Monday night, Gov. Kenneth Mapp asked V.I. business leaders to support his revenue enhancing proposals, arguing they are needed to maintain basic human services, including programs for vulnerable children and the elderly as well as school bus and school lunch services.
The V.I. government is in the midst of a fiscal crisis, with a roughly $100 million deficit and no one willing to lend after ratings agencies downgraded V.I. bonds to highly speculative status. The V.I. government has been in an ever deepening fiscal hole since the combined impact of the 2008 worldwide financial crisis and the 2012 closure of the Hovensa refinery dealt major, lasting blows to tax revenues.
“This government is wrestling with a structural imbalance that we inherited,” Mapp said. “To be fair, the previous administration had challenges from the abrupt departure of Hovensa and the crippling worldwide economic recession and borrowed more than $800 million to close the gap.”
The Legislature considered and tabled some of the proposals in December. Conditions dramatically worsened in the time since, and ratings agencies cited the lack of action on the deficit – and specifically the tax proposals – in their explanations of their decisions to downgrade the territory’s debt in January.
On Feb. 1, the Senate Finance Committee sent the proposals out of committee after weakening them to lessen the tax increases, reducing the projected revenue they are likely to generate. (See Related Links below)
Some argued the vote was void because the committee hearing was not publicized far enough in advance. This would not seem to be a legal obstacle to approving the measures as the Legislature routinely introduces legislation during session, bypassing committees altogether, and can and periodically does waive its own rules at will.
The Finance Committee has since scheduled another hearing on the bills for Wednesday and Finance Committee Chairman Kurt Vialet has said the committee will consider amendments to the proposals. If the committee amends the bill, it will vote again on whether to send it out of committee.
Addressing concerns about whether the government was taking on its share of the pain, Mapp said, “We need to size our budgets appropriately by cutting expenses, growing the economy and enacting new revenues in order to win the confidence of local and international financiers as well as restore fiscal health. We took over a financial situation that was perilous from the very beginning of our tenure, and we kept our heads above water for the first two years, but we have to plot a longer course.”
“We cannot ricochet from reef to reef because of the cries of special interests … this will not benefit the vast majority of the people of our community,” Mapp said.
According to Mapp, the new measures would raise $25 million and help maintain public services, generate employment, eliminate the structural deficit, balance the budget, protect the environment and support public health.
“The bills under consideration positively impact our territory but also safeguard the future of Virgin Islanders and the stable prosperity of the businesses we depend on. I agree with the majority of the amendments voted on in the Committee of Finance. With few exceptions, I believe the changes are a reasonable compromise,” he said.
Mapp said his and other administrations have been supportive of the business community and should be, but that severe budget cuts at a time like this would be harmful.
“I received a number of recommendations from the combined Chambers of Commerce of both districts. A number of these recommendations for cutting costs are good; however, others call for imposing serious harm on our people and our economy. For example, the chambers are asking that we slash the salaries of all government workers by 30 percent; that we increase property taxes on residential and commercial property; and that we impose an income tax surcharge on the salaries of all workers in the territory.”
“These are the draconian recommendations of the Chambers of Commerce to avoid the imposition of a 25 cents tax on a bottle of beer or a 50 cents tax on a bottle of rum. It’s now time to put our people – the people of the Virgin Islands – first,” Mapp said. He emphasized that he felt Virgin Islanders should continue to enjoy tax-free food, medicine and clothing as it puts his proposed five-year plan of budget cuts and revenue generating mechanisms in place.
Earlier in February, the Office of Management and Budget requested that each department or agency reduce projected expenditures for the rest of the year by 10 percent as some outside financial analysts are projecting the territory will ultimately be forced to restructure its debt because the alternative would be to drastically cut major government services such as public schools and the V.I. Police Department.