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Pandemic Economics: How bad Is It?

(Shutterstock image)
(Shutterstock image)

April 15, the traditional tax day, came and went a week ago; a day the V.I. government would normally see a rush of tax payments along with income tax filings. But the date has been pushed to July 15, dozens of cruise ship visits are canceled, hotels and tourism are off limits in our tourism-centered economy and Virgin Islanders are hunkering down at home, spending little in restaurants and bars and nothing in art galleries, theaters, cinemas, jewelry shops and more. So what is the damage?

Mostly, it’s too soon to tell. But it isn’t good.

When asked recently to estimate the impact on the V.I. government’s revenues, Bureau of Internal Revenue Director Joel Lee said they could not give a firm projection “because this has never happened before.”

“We have projected various conservative assumptions. All those assumptions are guesses and cannot be relied upon,” because they have “too many variables,” Lee said.

Many people did file their taxes on or before April 15, despite the extension.

Asked whether the volume of people coming in person to file on April 15 was as high as most years, a clerk at the St. Thomas Bureau of Internal Revenue office said, “emphatically yes. You wouldn’t want to be here on the 15th.”

Official numbers were not available yet. But Lee did say that the postponed deadline and the economic restrictions due to the pandemic have impacted revenues.

A cruise ship docks at the WICO dock on St. Thomas. During the ongoing Coronavirus pandemic the sight of cruise ships at the pier has become a memory. (Shutterstock)
A cruise ship docks at the WICO dock on St. Thomas. During the ongoing coronavirus pandemic the sight of cruise ships at the pier has become a memory. (Shutterstock)

The territory began losing tourism at the end of the second week of March, when V.I. ports turned away a Royal Caribbean cruise ship.

Within days, cruise ships stopped throughout the region, the governor hit pause on hotel reservations and started cancelling crowd events like St. Patrick’s Day and St. Thomas Carnival.

Now it looks as if the islands won’t really be open for tourism again until at least mid-July; traditionally a slow period.

The V.I. Port Authority’s aviation division was already operating at a loss before this new crisis. In the first five months of the fiscal year, the Port Authority collected $701,908 in marine terminal fees. Those numbers will fall sharply, though Port Authority board members said recently that cargo ships are still coming in and generating revenue.

The USVI has lost all cruise ships from mid-March through July. That amounts to 122 ships, nearly all destined to St. Thomas. The Florida Caribbean Cruise Association estimates a single cruise ship call generates around $675,000 in spending.

By that measure, the loss of 122 ships represents a drop of $82 million in spending in the USVI. The relationship between spending and gross receipts is complicated, but at a minimum, that should represent more than $4 million in lost gross receipts taxes, just from direct spending, so long as it isn’t spent at entities receiving local Economic Development Authority tax breaks. And there is a multiplier effect, where each new dollar brought into the territory is spent several times. For example, if a cruise passenger spends $100 at a restaurant, that generates $5 in gross receipts tax at the restaurant. Then the restaurant spends that $100 to buy food or a waiter spends tips on groceries, that means more gross receipts tax from the store or distributor. Plus, employees paid from those revenues pay income tax.

New air arrival, hotel occupancy and employment numbers are not available yet. But with hotels barred from taking non-emergency reservations, it is safe to assume air arrivals and hotel reservations have both dropped off a cliff for the time being.

In 2019, April, May and June saw a combined 161,519 air arrivals. This year, with more rooms back online, the numbers would have been a bit higher. Those numbers will now be a tiny fraction of the 2019 numbers.

Hotel room tax revenues for March through June of 2019 totaled $5.85 million. That will be cut drastically now.

Not all the news is glum. Tourism may return in the fall, though possibly still reduced. Tourism is not the only sector of the economy. The territory’s two rum distilleries are still churning out rum, generating federal tax revenues at least.

And there is federal aid. Congress has passed several aid bills, including two big spending packages that include payments of $1,200 per adult taxpayer and smaller sums for dependent children. Stateside taxpayers are getting those right now, but there will be a bit more waiting for people in the Virgin Islands.

Acting Finance Commission Kirk Callwood and Acting Budget Director Jenifer O'Neal discuss plans for a budgetary windfall at Tuesday's Finance Committee hearing. (Photo by Barry Leerdam, V.I. Legislature)
Finance Commission Kirk Callwood and Budget Director Jenifer O’Neal testify at a Senate committee in May 2019. (File photo by Barry Leerdam, V.I. Legislature)

“We are currently awaiting funding from the Internal Revenue Service and have prepared a plan from disbursement of the checks per the direction of BIR as soon as that funding is received,” Finance Commissioner Kirk Callwood said in an email. The money had not arrived as of April 24, however.

Budget Director Jenifer O’Neal said the V.I. government will soon receive about $75 million to aid the territory in fighting COVID-19. The request was submitted to the U.S. Treasury. She said there are also a number of smaller grants that the territory is eligible for, including about $7.9 million from the Department of Interior, $3 million awarded to the Law Enforcement Planning Commission, which distributes federal grants for several anti-crime programs, and some as yet undetermined sums for the Departments of Education, Health, Human Services, Labor and both hospitals. The bulk of that money should arrive quickly, according to O’Neal.

The government is tight for cash.

“At this time, we are able to meet current payroll obligations,” Callwood said on April 17.

“As of the beginning of the week, we calculated [two] days of cash on hand in the territory. Keep in mind however, that the days’ cash estimate is dependent on the amount of revenues we receive, and expenditures disbursed so it fluctuates daily,” he said.

But the government is working on a temporary borrowing measure, allowing the government to borrow up to $80 million in anticipation of the federal grants.

“We are currently in negotiations with Banco Popular and FirstBank,” O’Neal said.

Asked if the government will have to resort to any extraordinary austerity measures while awaiting funding, O’Neal said they have “implemented significant budget cuts to most departments and agencies, and have asked the Legislature and the courts to also take a reduction, as well as reducing disbursements and holding off on bringing in new hires, in an attempt to manage the liquidity of the government of the Virgin Islands.”

For the private sector, there are Small Business Administration loans and Payroll Protection Program loans and grants. Congress recently approved new funding for some of those programs and reportedly Congress is working on yet another spending package.

Time will tell how much these measures blunt the economic impact of the pandemic and who will be hurt.

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