In a recent appearance before the Senate Finance Committee, the financial team of new Governor Kenneth Mapp shared that the Government of the Virgin Islands, with projected revenues falling well short of the $737.6 million appropriated this year, has found itself with a $133 million budget shortfall for the current fiscal year. With just under $3 million currently in the bank, the Government is “nearing the brink of financial collapse,” as Mapp put it in his first State of the Territory Address.
There are essentially two ways of dealing with the massive shortfall: through additional budget cuts and looking at more ways to generate revenue. The likelihood of needing to implement both approaches is high.
Cutting costs at this stage typically involves making some combination of large, complex cuts and smaller, simpler ones. While many of these possible cuts are likely to cause headaches and frustration, they do present real ways of trying to handle the shortfall. For example, among Governor Mapp’s financial team’s suggestions were imposing greater restrictions on travel, cutting down on telecommunication and rental expenses, reprioritizing the hiring of various General Fund positions and improving the drawdown of federal funds. One factor that will also help save money is the V.I. Water and Power Authority’s upcoming shift from oil to propane, which is expected to help curb energy costs.
Meanwhile, because the funds required cannot be made up exclusively through reductions, the financial team also offered some recommendations for generating additional revenue. For example, taxes on vehicle mileage and Internet transactions, imposing a 10 percent graduated income tax surcharge, shifting some of the burden of paying health insurance premiums away from the Government and increasing customs duties were all suggested options. Not surprisingly, there was hesitation among members of the Legislature of the Virgin Islands regarding the prospect of raising taxes.
Not all of the financial news in the Territory is grim. Although projected revenues are far short of where they need to be, they are nevertheless up 26% over last year. Individual and corporate income taxes, real property tax, gross receipts tax and trade and excise taxes are all poised to see increases. This signifies encouraging levels of economic growth in the Territory, albeit not enough to offset the current shortfall.
The task now before the legislative and executive branches is to agreement as to where cuts might be made, as well as where additional revenues may be generated.
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