Revenue Cuts Mean Sharp Government Spending Constraints This Year and Next

(Shutterstock image)
Money. (Shutterstock image)

Most U.S. Virgin Islands government agencies face cuts of between 5 and 17 percent in the coming fiscal year in Gov. Albert Bryan Jr.’s Fiscal Year 2021 Executive Budget proposal, which he presented to the Legislature Friday.

The reductions  in the budget proposal, which was announced by Government House Wednesday, are mostly due to the economic impact of the worldwide coronavirus pandemic.

In reality, though, the current fiscal year’s revenues have already been hit hard, so actual spending is well below the appropriation level. At a revenue-estimating conference this week, Budget Director Jenifer O’Neal said revenue projections for the current, FY 2020 budget year, have been reduced by $150 million, down to $718.3 million. So the painful cuts have already begun.

According to Government House, Bryan’s overall FY 2021 budget proposal totals $1.225 billion, which is around $210 million or 17 percent less than the current year’s appropriation. That includes $742.78 million for the General Fund, the main pool of money that covers payroll and regular expense for all the executive branch agencies, such as schools, police, fire, Human Services, and so forth. It has $33.1 million for other appropriated funds and $290.9 million for non-disaster related federal funds, such as regular federal grants to the school system, Public Works and other agencies.

Bryan said Friday that despite the challenges presented by the COVID-19 pandemic and significant shortfalls in revenue collections, the administration has prepared a balanced budget the administration described as realistic.

“With our projected revenues significantly reduced by $126 million when compared to the Fiscal Year 2020 budget, we have to find ways to streamline government operations while maintaining an acceptable level of service,” Bryan said in a news release.

For FY 2021, the budget proposal would appropriate $783.28 million in local appropriations for department expenditures, not counting cash transfers, contingencies and un-appropriated balances.

The FY 2021 budget proposal assumes decreases, as measured from the FY 2020 adopted budget, in the local revenue streams of Personal Income Tax; Corporate Income Tax; Real Property Tax; and Gross Receipts Tax.

Gov. Albert Bryan Jr. declares Sunday, March 30, a day of prayer in the U.S. Virgin Islands. (Source photo by James Gardner)
In March, Gov. Albert Bryan Jr. declares during the COVID-19 pandemic. (Source photo by James Gardner)

As always, the Education Department is by far the largest single item. Bryan’s budget proposes $167.8 million in V.I. government appropriation and $196.5 million in total funding, down from $180 million in local appropriations and $209 million in total funding approved last September for this current fiscal year. But again, 2020 spending will have to be below the original budget. A year earlier, in FY 2019, the Education Department had $161.5 million appropriated and $192.4 million in total funding, so projected spending will actually be slightly more for 2021 than 2019.

The Human Services Department is the next largest item, at $55.2 million, down sharply from $74.4 million in the FY 2020 budget, but up from $47.3 million in FY 2019. Overall though, that department has seen years of cuts, and had a larger budget back in 2016 than is proposed for 2021.

VIPD patrol car. (Linda Morland photo)
VIPD patrol car. (Linda Morland photo)

Next is the V.I. Police Department, budgeted at Police Department: $60.8 million; down more than $4 million from the current year and more than $12 million below the FY 2019 budget. The FY 2018 police department budget was $60.8 million, before substantial pay raises were enacted for police and other government employees shortly before the 2018 elections.

Gov. Juan F. Luis Hospital is budgeted at $21.15 million and Schneider Regional Medical Center at $22.5 million for FY 2021. Both appropriations are down around $2.5 million from the current year’s appropriation level but up slightly from the year before. While appropriations for the hospitals have been stagnant or shrinking for many years –

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– since the 2017 storms, Congress has ramped up Medicaid funding for the territory, which has brought as much as $6 million per year in new money to each hospital.

The Waste Management Authority, at $21.6 million, is seeing a $2.4 million reduction from the current year’s appropriation and $3.75 million less than the FY 2019 funding level. Significantly, Waste Management owes tens of millions of dollars to its vendors, including for wastewater treatment, and unpaid trash haulers are threatening to stop trash collection and shut down both the territory’s landfills on June 8.

Funding for the Bureau of Corrections is proposed at $29.7 million, down by $9 million from the current year.

The Health Department is proposed for $32.6 million, down from $37.4 million lat year, but up from $29.9 million for FY 2019.

University of the Virgin Islands (File photo)
University of the Virgin Islands (File photo)

Bryan is proposing $28.8 million for the University of the Virgin Islands. That is about $5 million below the current year’s appropriation and $8 million below the FY 2019 funding level. Any impact that might have on plans for UVI to be tuition-free for Virgin Islanders may become more clear during Senate budget hearings this summer.

The V.I. court system is funded at $31.7 million, down by $4.5 million from the current year’s budget.

Funding for Fire Services, at $23.1 million, is almost unchanged from the past two years.

Despite substantially reduced revenue projections, Bryan’s proposed FY 2021 budget includes $5 million for the Stabilization Fund. O’Neal has previously described that as a “rainy day” fund. $1.5 million in scholarships for local students; $5 million set aside to fill critical vacancies; $1.475 million for Department of Education General Fund capital projects like school renovations; $7.2 million for mental health services in the Department of Health. It has $42.7 million for highway projects paid for with bonds secured by anticipated federal grants. And it devotes $270 million in federal funds to battle the effects of the COVID-19 pandemic, which is to be expended by the end of the first quarter, or roughly by the end of this calendar year.

Budget Director Jenifer O’Neal (Photo by Barry Leerdam, V.I. Legislature)

In a release, Office of Management and Budget Director Jenifer O’Neal said the administration’s FY 2021 budget reflects the territory’s cash shortage and the reduction of revenues as a result of COVID-19. She said the budget still meets the Government’s mandatory obligations despite those reductions.

“The budget maintains the governor’s and the administration’s commitment to the payment of mandatory costs, although we are forecasting the continued reduction of revenues coming into the territory,” O’Neal said. “While the budget does not require layoffs or reduction in the workforce, all agencies and departments must be mindful of their expenditures and scale back on all expenses as much as possible.”

According to Government House, OMB’s budget expectations reflect a $202 million loss of revenue from the tourism sector in the second quarter of 2020. And the overall budget takes into account the loss of tourism revenues caused by the COVID-19 pandemic. The pandemic also affected the territory’s recovery efforts from the 2017 hurricanes, hitting the leisure and hospitality sector hard. That sector had recovered less than half the jobs lost from Hurricanes Irma and Maria in 2017. The pandemic further set back that recovery as hotels, restaurants and attractions temporarily had to close.

The pandemic might also delay the reopening of the Limetree Bay refinery, which had been planning to open in July after a $2 billion overhaul, O’Neal said. The refinery’s reliance on demand from the cruise ships could also result in a near-term vulnerability if the industry is unable to quickly rebound following the pandemic, she said.

“Prior to the pandemic, the territory’s economy was recovering and regained nearly all the jobs lost in the 2017 hurricane season, with construction and leisure/hospitality accounting for the majority of recent gains,” O’Neal said.

“With reduced revenues forecasted and major cuts necessary, we present a budget for FY 2021 that has removed all vacancies in all departments, eliminated all costs that are not mandatory, and sends a clear mandate that departments must be managed as efficiently and effectively with minimal resources as possible,” the director said. “We can no longer continue business as usual,” she said.