Governor's financial team says V.I. is staring down barrel of $70M budget deficit in 2014


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ST. THOMAS - Gov. John deJongh Jr.'s financial team reported Thursday that the territory is heading toward a $70.5 million budget deficit by the end of Fiscal Year 2014.

In a teleconference Thursday, the financial team gave an update on the FY 2014 first quarter's revenues and expenditures.

Debra Gottlieb, director of the Office of Management and Budget, said the revenue collected at the end of the first quarter totalled about $107.7 million.

That total is $13.8 million less than was collected in the first quarter of FY 2013, she said.

Expenditures for the first quarter of FY 2014 total about $195.4 million, resulting in an $87.7 million deficit, according to Gottlieb. The government was able to use $25 million, the last of a 2013 working capital bond.

The government has also used $20 million from the government's $40 million line of credit, Gottlieb said. However, that is money that must be repaid by the end of the fiscal year and is used only to help manage cash flow shortages, she said.

While revenues are down, expenditures are up.

"It's trending higher. Our payroll costs are higher because of the 8 percent, and our health insurance costs are higher," Gottlieb said.

The 8 percent that had been taken from all government employees' salaries in 2011 was restored in July 2013, adding to the government's payroll costs for 2014.

With the first quarter numbers and revenue projections for the remainder of the year, Gottlieb said the fiscal year will end with a $70.5 million budget shortfall.

Eyes on the Legislature

The financial team said it is up to the Legislature to close the budget gap.

Government House has submitted a number of revenue-generating and cost-cutting measures to help balance the budget in the last few years, but the V.I. Legislature has rejected or ignored many of them.

"Most of the measures we have under consideration will require legislative input and ultimate legislative approval," Finance Commissioner Angel Dawson Jr. said.

"We'll leave it up to the Legislature," Gottlieb said. "They are the ones responsible for balancing the budget."

Senate President Shawn-Michael Malone said the Legislature has passed some revenue-generating measures, but it will take time for the territory to see results from them. He said the governor started off the budget cycle by submitting an unbalanced budget, so to place the blame on the Legislature is unfair.

"We're not saying they didn't attempt to close the gap, but they didn't close it," Gottlieb said.

Cutting agency funding

To avoid overdrawing the government's bank accounts, Gottlieb said she will have to severely limit the allotments made to government agencies.

"Based on our projections, if allotments are not decreased, we will end up with a cash-flow shortage, and we won't allow government accounts to become overdrawn, so we'll have to make adjustments to allotments," Dawson said.

Rum cover-over

About half of the projected $70.5 million shortfall could be made up if the rum cover-over, the excise tax rebate on rum produced in the territory, is extended by Congress.

The tax-extender legislation that includes the cover-over provision currently is pending in Congress, with no guarantee of when or whether it will pass.

The territory used to get $10.50 per proof-gallon of rum produced in the Virgin Islands, but in 1999, Congress passed legislation that temporarily increased the rebate to $13.25. That increase is an extension that must be renewed every year or two, and it expired Dec. 31.

It is not unusual for the extension to be renewed after the higher rate has already expired, and Congress historically has made the renewal retroactive.

Rum tax worries

The territory typically requests and receives an advance payment of the cover-over from the U.S. Department of Interior, and V.I. officials have said that the Interior Department has provided the advance at the $13.25 rate even if the extender was set to expire during the year.

However, this fiscal year, Interior provided the territory's advance assuming the $13.25 rate through Dec. 31, and the $10.50 rate for the remainder of the fiscal year.

Gottlieb said the advance was approximately $190 million, although they had requested $263 million.

Interior said it would process a second payment if Congress renews the higher rate, but no one knows when that might happen - or whether it will happen at all.

"Because of the advance process, these are revenues that we would have had by now," Gottlieb said. "Now we're into the fourth month of the fiscal year and that difference isn't here yet."

If it does come, the entire amount does not go to the government's coffers, and some must go to the rum producers for their subsidies, she said. The government's portion would be about $35 million to $40 million, she said.

Last month, Senate Finance Committee chairman Clifford Graham told The Daily News that if the extension is not passed by April or May, the territory would be facing serious cash-flow problems.

Graham could not be reached for comment by presstime Thursday.

- Contact reporter Aldeth Lewin at 714-9111 or email alewin@dailynews.vi.

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