OMB Director Says Economy Rebounding, but Urges Prudence, in Budget Testimony

Jenifer O'Neal, director of the Office of Management and Budget, delivers testimony on the government's 2023 budget on Monday before the Senate Committee on Finance. (Photo by the V.I. Legislature)
Jenifer O’Neal, director of the Office of Management and Budget, delivers testimony on the government’s 2023 budget on Monday before the Senate Committee on Finance. (Photo by V.I. Legislature)

While the COVID-19 pandemic affected the USVI economy, driving a 2.8 percent contraction in growth in 2020, it is expected to rebound strongly in the coming year, members of the Senate Committee on Finance were told Monday.

Jenifer O’Neal, director of the Office of Management and Budget, delivered testimony on the governor’s $1.3 billion 2023 budget to the committee chaired by Sen. Kurt Vialet at the Earle B. Ottley Legislative Hall on St. Thomas.

“Now entering the endemic phase, the economy is proving resilient, and notably, the government has effectively managed the pandemic through swift policy measures and federal stimulus funding, which have continued to support the economy in weathering the crisis,” said O’Neal.

Joining O’Neal were her colleagues from the Finance Department, Bureau of Internal Revenue, Division of Personnel, Office of Disaster Recovery, Office of Collective Bargaining, Tax Collector, Office of the Lt. Governor, Bureau of Economic Research, and the Public Finance Authority.

The Gross Domestic Product of the U.S. Virgin Islands showed a healthy economy, even though the pandemic drove a 2.8% contraction in economic growth in 2020, compared to the national economy’s real GDP decline of 3.5% in 2020, she said. With current performance, it is expected that growth will rebound strongly in 2022 and is expected to remain above its pre-pandemic level over the next two years, according to O’Neal.

The monthly jobs report from the Department of Labor has shown that the economy is recovering from the pandemic recession, with more than 94 percent of jobs that were lost between February and April 2020 recovered by April 2022, said O’Neal. Unemployment claims dropped to 122 in April, down sharply from a high of 2,727 in March of 2020, she said.

However, even with this improvement, the territory had approximately 3,000 less jobs than it did in April 2022, said O’Neal. The territory’s unemployment rate was 6.7% in April, compared to 12.3% at its highest in May 2020. Employment growth is expected to continue in 2022, though very slowly, she told senators.

“This, in addition to the loss of approximately 20,000 residents per the 2020 Census, is indicative of the difficulties being faced in recruiting that the GVI and other entities are enduring,” said O’Neal.

“A major bright spot has been the tourism industry where approximately 1,072,981 visitors traveled to the territory in 2021, representing 12 solid months of visitation growth from 861,274 in 2020,” said O’Neal.

First-quarter visitor arrivals this year surged by 153%, compared to the same period in 2021, according to O’Neal, or 452,764 visitors from January to March, compared to 273,418 for the same period in 2021. “Tourism indicators suggest that growth will continue in 2022, underpinned by a revival of cruise travel that will allow the territory to close the gap with its pre-pandemic visitor volume level and move from recovery to expansion,” the director said.

Construction remains strong in the territory, with building permit values higher year over year for private residential, commercial, and government buildings, according to the governor’s financial team.

“Building permit values were higher year-over-year for private residential, commercial, and government buildings. In 2021, the value of issued building permits totaled almost $457.3 million, surpassing 2020 values of $234.7 million — a 94.4% increase,” said O’Neal.

“The volume of issued permits in 2021 suggests construction activity will continue to be strong, supported mainly in the near-term by the residential sector, which was $206.2 million of the construction value and showed a 26.6% increase over 2020 values of $162.9 million. Government construction permit values were $188.2 million in 2021, increasing by 444.5% from $34.5 million in 2020,” she said.

The pandemic notwithstanding, during the last year the Bryan administration has been able to compensate those who were owed more than $53 million to repay the 8% payroll reduction from two administrations ago, as promised by the governor in his State of the Territory address on Jan. 24, while also beginning the payout of calendar year 2020 tax refunds, said O’Neal.

Since 2019, the administration also has budgeted for and paid $234.7 million in tax refunds in a bid to become current with these long outstanding debts, the director said. “This is as close to current as we have been in many, many years, with a goal of being current in paying out calendar year 2021 tax refunds by September 2022,” she said.

“This aligns with the administration’s vision to improve the quality of life for residents and visitors of the Virgin Islands, and a part of meeting that vision is paying fair wages,” said O’Neal.

“The Office of Collective Bargaining completed negotiations of six collective bargaining agreements and wage agreements thus far in Fiscal Year 2022, for a total of 13 collective bargaining agreements and wage agreements over the last three years. Later this month OCB will resume negotiations with USW Masters, and over the next three months, OCB expects to negotiate with unions representing nurses, doctors, employees at the Waste Management Authority, VITEMA, and the Department of Justice,” she said.

According to O’Neal’s testimony, the Office of Management and Budget has continued to use ongoing monitoring and financial forecasting to estimate revenues and expenditures across all funds, especially the General Fund. The five-year outlook has continued to indicate a positive trend, due to federal funding that was tied to the 2017 hurricanes, as well as COVID-19 funding, she said.

Total operating revenue has increased approximately 14%, she said, and taxes collected in 2022, for tax year 2021, particularly income taxes, were extremely high due to various factors such as the expiration of filing extensions for individual taxpayers.

“From this, it is evident that all of the projects, capital and otherwise, that have been and continue to be on the books are critical to the ongoing rebound of our economy,” said O’Neal, adding that the Office of Disaster Recovery continues to monitor 237 projects with an expected spend value of $813.7 million in the current fiscal year. This increases to 274 projects with an expected spend value of $1.63 billion in FY 2023, she said.

“It should be noted that we are committed to ensuring that projects are not held up for any reason, and that plans are in place across GVI to allow for expediency in spending other federal dollars,” said O’Neal.

The submitted budget includes more than 1,200 vacancies in all departments for FY 2023, with wage adjustments of 3% for 2023 and 3% for 2024, said O’Neal.

“The most notable change in our revenue projections continues to be from the resolution of the case relative to excise tax revenue collections in the GVI’s favor,” said O’Neal, referring to a court challenge that was resolved in March 2021. “Of note as well is that while revenues have increased, and we expect that to continue, there has been a significant increase in operating expenditures, which bears watching,” she said.

An increase for all five of the major revenue categories is expected for Fiscal Year 2023, including: 5% for Personal Income Tax; 3% for Corporate Income Tax; 5% for Real Property Tax; 2.5% for Gross Receipts Tax, which is related to tourism and visitor spending; and 11% for Excise Tax, which is attributed to the resumption of excise tax collections from the second quarter of Fiscal Year 2021, said O’Neal. These taxes will continue to be collected for the entire Fiscal Year 2022 and are expected to continue, she said.

Though the General Fund has increased revenue collections, overall revenue projections have dropped by 2%, senators were told. Key reductions for Fiscal Year 2023 include: a 100% reduction in the Anti-Litter and Beautification Fund as it is unable to sustain the appropriation due to inadequate revenue collections; a 51% reduction in the Business and Commercial Fund due to inadequate revenue collections; and a 100% reduction of transfers in the Internal Revenue Matching Fund, O’Neal said.

The projected cost of operations has decreased by 1% in Fiscal Year 2023, with a total cost of $1.31 billion, said O’Neal. Many agencies have had small reductions in overall expenditure ceilings and will accommodate the expenses using federal funding, she said. All items that were previously funded by the Internal Revenue Matching Fund have been accounted for in the General Fund budget, according to O’Neal, and the government’s mandatory costs have been provided for in the presented budget and included both appropriated and non-appropriated funds.

The total budget stands at $1.3 billion.

Vialet voiced concern about premium pay for frontline workers, but O’Neal said that this group has been placed on priority to be paid.

The bonus pay program for U.S. Virgin Islanders who put their health at risk during the uncertain first year of the COVID-19 pandemic had a rocky rollout, with many unaware that they qualified for part of $40 million in aid until after the March 9 deadline to apply had passed. When a small but vocal group of these essential workers complained, the deadline was extended.

Employees in healthcare, sanitation, grocery stores, restaurants, food production and food delivery, pharmacies, dental care, home care aids, child care, mortuary, laundry services and more are eligible for the program.

As she wrapped up her testimony on Monday, O’Neal urged the body to be prudent as it begins budget deliberations.

“While I recognize that there may be great temptation to increase the budget from what was submitted, I urge this body not to do so at this time and instead allow for supplemental budgets to be submitted as we have done for the last two years and will be doing again in this fiscal year,” said O’Neal. “These supplemental requests should be based on actual need and allow for budget right-sizing of departments and agencies, once increased revenues have been identified and received,” she said.

“It is better to have and not need, than to need and not have,” O’Neal cautioned.

Senators present at Monday’s committee hearing included Vialet, Donna Frett-Gregory, Marvin Blyden, Samuel Carrión, Dwayne DeGraff, Novelle Francis Jr., Kenneth Gittens, Javan James, Carla Joseph, and Janelle Sarauw.