Negative Local Fund Balances Alarm Senators

Sen. Kurt Vialet presides over Thursday’s budget hearing. (Legislature photo)

The Department of Finance, the entity overseeing V.I. government bank accounts and funds, reported three local funds in the red as much as $26 million during Thursday’s budget hearing.

The three local funds drew committee concern from the beginning of the hearing, prompting Senate Committee on Finance members to question how often the department balances the government’s accounts.

“I’m extremely concerned about the $11 million red, negative balance that is in the Caribbean Basin Initiative Fund,” Sen. Donna Frett-Gregory said. Along with the negative balance in the Caribbean Basin Initiative Fund, the Internal Revenue Matching Fund had a negative balance of nearly $27 million and the Union Arbitration Government Employee Award Fund was negative nearly $800,000. The Caribbean Basin Initiative and the much larger Internal Revenue Matching funds both deal with federal alcohol excise taxes Congress gives to the territory. The Union Arbitration fund is primarily fed by casino taxes.

“The last time, as of May, the report said a negative $2.6 million, and the information we are getting today says $11 million plus,” Frett-Gregory said about the Caribbean Basin Initiative Fund. “I need to understand clearly how that is occurring. Why is that occurring? Why are we pushing out funding from an account that has a red balance … how are we balancing these local funds?”

Director of Accounting Operations and Financial Reporting Ebony Serrano said the 30 separate accounts managed by the department are reconciled on a quarterly basis, but there are various levels of complexity.

“There are a lot of factors that factor into a fund balance,” Serrano said. “Such as transfer-ins, appropriations against the funds. And in many cases, what I have found in the past, is that we make appropriations against funds that are already in the red, and it just continues to push the fund further in the red.”

But that explanation did not suffice for Frett-Gregory.

“Why would we have transfers out of an account that is in the red? Because where is the money? That’s not real money,” Frett- Gregory said. “So, who are we transferring it out to? We continue to transfer money out … in this fiscal year we transferred out about $9 million of a red balance. I am having a really difficult time understanding this. This is exactly why we continue to be challenged with getting our house in order as it relates to going to market.”

Sen. Kurt Vialet was just as concerned with the Internal Revenue Matching Fund that boasted the largest negative amount of the three. “Based on the amount we are getting in the Internal Revenue Matching Fund, I just continue to be lost as to the reconciliation and how we’re in the red.”

Vialet highlighted other discrepancies as well, like a “certain instance where we paid the obligation twice in this fiscal year.”

“When I got a report from OMB Director O’Neal I saw where they had paid into the St. Croix Capital Improvement Fund twice … Why is it twice this year? We need to look at that amount because when we were looking at the fund balance we had never received such a large negative number for the Internal Revenue Matching Fund,” Vialet told the department officials.

He added: “We make an appropriation based on what we think is in the account. When we think the account is in the black, and it’s not, then this has an impact. The next cycle, if we have a $24 million deficit, then the next cycle we receive money, then we will have to settle out that deficit – where’s that money coming from?”

To avoid local funds from dropping into the red, Sen. Carla Joseph suggested the department reconcile the accounts more frequently like “most people when they do their reconciliations, they do it on a monthly basis whenever they get their bank statement.”

Serrano suggested not appropriating from accounts with negative balances, saying, “I believe that at some point we all have to get together and decide that we will no longer push a fund into the red and no longer appropriate from specific funds until the fund can sustain itself.”

Department of Finance Commissioner nominee Bosede Bruce shared her plan with the Finance Committee to correct the accounts.

“My perspective on this is we might, not might, we need to do a reconciliation of all the funds to go back to the beginning to see if each posting that was made to the fund was accurate, that there was no typo or something like human error where something was just posted to the wrong fund,” Bruce said. “To do a reconciliation of all of them and have a meeting of the minds with everyone on my financial team, in-house and at the executive level, and of course to include the Legislature. So that we can move forward in the right direction. So, in the places where we end up with negative funds, we can see what we need to do to rectify it.”

The governor has recommended a General Fund appropriation of nearly $21 million for fiscal year 2022 to the Department of Finance, a 31% decrease from last fiscal year.

Separately, the committee also received testimony on the Casino Control Commission
proposed fiscal year budget with a General Fund request of over $800,000.

Sens. Marvin Blyden, Samuel Carrion, Dwayne DeGraff, Kurt Vialet, Donna Frett-Gregory, and Javan James Sr. were present for the hearing. Sen. Janelle Sarauw was absent. Additional non-committee members also attended the hearing.