Senators, Administrators Look to Cushion Economic Impact of Quarantine

Budget Director Jenifer O’Neal testifies Tuesday before the Senate Finance Committee. (Photo by Barry Leerdam, Legislature of the Virgin Islands)

The territory’s economy is in such a shape that at a meeting of the Senate Finance Committee Tuesday Sen. Athneil Thomas asked the governor’s financial team which of a pair of choices would be less devastating, not which might be good, and whether dropping capital projects could mitigate devastation.

Jenifer O’Neal, director of the Office of Management and Budget, answered that a payless payday for the 5,920 government employee would be economically devastating , while the dramatic reduction of annuities from the Government Employees Retirement Service for 8,000 retirees would be “devastating, but less devastating.”

Sen. Kenneth Gittens then asked whether diverting money from capital projects to either GERS or the general fund would hurt the territory much. O’Neal said most of the money for capital projects was designated for capital projects and had to be spent there.

The $1.2 billion proposed budget is composed of $742.7 million from the General Fund and $290.9 million in federal money. In total, however, the territory has access to more than $5 billion in federal funds to continue to address disaster-related projects.

The budget calls for no vacant positions in the government to be filled unless the position can be funded completely by federal dollars. O’Neal did say a department head could appeal to the governor to fill a “critical position.”

As the number of government employees is expected to drop by another 130 in the next year, the question was asked whether shrinking the government and the number of government employees was the answer. The administration team said the number of government employees per capita in the Virgin Islands was much higher than most states.

Finance Committee Chairman Kurt A. Vialet said the territory was different from states in many ways. He said the territory is comprised of three islands meaning that many services had to be in “triplication.” As an example, he said seniors on St. John needed services on St. John and just having services on St. Thomas would not work.

Sen. Novelle Francis said a smaller number of government employees would accelerate the decline of GERS. Gittens said it more bluntly. He said cutting the number of government employees would kill GERS. He added that at one time the government had 10,000 employees.

Vialet went on to defend how much money the territory gets from the federal government.

“The Virgin Islands deserve every cent it gets,” he said. “If we received the money the federal government sends to Israel each year, we could fund GERS.”

O’Neal said in her opening, “The fiscal year 2021 proposed budget, while very conservative and streamlined, includes many capital projects and operating resources as well as the outline of the territory’s overall financial condition, including priorities and major initiatives.”

Several senators tied getting the capital projects going to the territory’s economic recovery.

Adrienne Williams-Octalien, director of the Office of Disaster Recovery, said there were 236 projects concerning disaster recovery. She said 160 were already in the construction phase. Sen. Donna Frett-Gregory asked if there were procurement problems in getting the work initiated. Octalien said there were occasional “roadblocks.”

Sen. Marvin Blyden said the capital projects could “cushion and lessen the impact” of the economic shock of the shutdown due to COVID-19.

The rebuilding of the St. Croix hospital alone would be a $300 million project, but according to Octalien, it might not be started this year.

Vialet questioned what austerity measures were being taken to curb the use of government vehicles. He said he still saw government vehicles being used on the weekends, after work hours and at the beaches

In her introduction, O’Neal pointed to the impact the COVID pandemic has had on the islands.

“The tourism industry has taken an undeniable hit with a potential loss of approximately $202 million in tourist expenditures in the second quarter of FY 2020. The social distancing measures, mandated by COVID-19 and enabled by the governor’s declaration of a state of emergency and stay at home order, saved lives but will have lasting effects on the overall economy.”

“The pandemic might also delay the reopening of the Limetree Bay oil refinery, scheduled for July 2020, following a $2 billion overhaul,” she continued. “Once it comes online, the renovated plant should provide economic diversification and additional jobs at the refinery. Those jobs at the refinery, however, are countered by the end of employment for a significant portion of the approximately 3,000 people involved with its construction.”

According to her testimony, the refinery was originally predicted to begin operation at the beginning of this calendar year; the date for opening was then set at July 1; and, now she suspects it will not begin full operation until Oct. 1.

She also made the following predictions:
– Individual Income Tax – A decline of 16.2 percent
– Corporate Income Tax – A decline of 18.7 percent
– Real Property Tax – A decline of 30.3 percent
– Gross Receipts Tax – A decline of 28.8 percent
– Licenses, Fee, Permits – A decline of 3.72 percent