ST THOMAS, USVI -- Government House responded on Saturday to US Virgin Islands Senator Shawn Malone's news release in which he stated that the "Senate awaits accurate financial data from the Administration" by noting that the Senate is regularly updated on the financial situation.
“The numbers speak for themselves and no one in the Legislature can claim to be surprised that we are facing a budget deficit of over $70 million dollars,” said Government House director of communications, Jean P. Greaux, Jr.
“In addressing this crisis, every dollar matters, but one can only wonder why so much of the Senator’s focus seems to be on minor matters, items that even when all added up would be but a drop in the budget bucket. Not only does this approach direct attention away from the magnitude of the problem, but it seems also to conveniently direct attention away from the recent purchase by the Legislature of a new fleet of sleek Ford sports utility vehicles in both island districts. One hopes that this political smoke will soon be blown away and all elected officials will settle down to the serious work of resolving the budget shortfall. It is time to declare peace over the budget,” Greaux concluded.
Members of the Administration’s Financial Team said on Thursday that, at the conclusion of the first quarter of Fiscal Year 2014, the government’s projected deficit is now closer to $70.5 million. The projected increase in the budget shortfall follows on the heels of reduced revenues and inaction on proposed revenue generating measures advanced to the Senate when the annual budget was submitted last June.
The report was made public on Thursday when Director of Office of Management and Budget Debra Gottlieb, Finance Commissioner Angel Dawson, Jr. and Bureau of Internal Revenue Director Claudette Watson-Anderson hosted a teleconference call with news reporters.
"Our cash position remains precarious and current projections indicate that there will be a probable cash shortfall in the fourth quarter," Gottlieb said.
Both Gottlieb and Dawson noted 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 a cash flow crisis in August and September, the last two months of the current fiscal year.
For the first quarter of FY 2014, 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 explained.
Expenditures in the first quarter were $195.4 million, 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 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. It adds up to an operating deficit of $70.5 million.
The shortfall was projected from the day the FY 2014 budget was submitted and repeatedly the administration has asked the Legislature to address the shortfall with a goal towards bringing spending more in line with anticipated revenues.
"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.
Both the budget director and Dawson predicted that OMB would have to further reduce allotments to agencies and departments. "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, so we will have to make the necessary adjustments in expenditures."
Gottlieb said that, short of meaningful action by the Senate on previously proposed revenue generating measures, 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.
Both Gottlieb and Watson-Anderson discounted suggestions made by some lawmakers that the BIR was not doing enough to collect taxes.
"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. Every year the amount we collect from delinquent taxpayers increases. The tax collections task force is making contact with delinquent taxpayers and many are entering into agreements to pay the amounts owed. However, despite our best collection efforts, there will not be sufficient additional delinquent collections this year to fix the territory’s budget.”
And the BIR Director dismissed suggestions by some lawmakers that up to $20 million annually in uncollected hotel taxes could be recovered, if the bureau devoted enough effort to get it.
"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. Our 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, Anderson said.
Gottlieb wrapped up Thursday’s conference by outlining several proposals in her budget overview, submitted along with the FY14 budget in June of last year. Among them:
• 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;
• Increasing real property and other existing taxes or reducing other fringe benefits offered to government employees.