ST. THOMAS- Members of the Committee on Finance, led by Senator Kurt Vialet convened in a meeting at the Earle B. Ottley Legislative Hall.
The Committee on Finance received testimony from the GovernorÃ¢â‚¬â„¢s Financial Team on the proposed Fiscal Year 2023 Executive Budget for the Government of the Virgin Islands of the United States.Ã‚Â
Jennifer OÃ¢â‚¬â„¢Neal, the Director of the Office of Management and Budget, delivered testimony on behalf of the GovernorÃ¢â‚¬â„¢s Financial Team. According to OÃ¢â‚¬â„¢NealÃ¢â‚¬â„¢s testimony, the COVID-19 Pandemic has tremendously impacted the economy of the US Virgin Islands. She stated that the Government had effectively managed the pandemic through swift policy measures and federal stimulus funding, which have supported the economy through the crisis. The GDP of the US Virgin Islands showed a healthy economy, even though the pandemic drove a 2.8% contraction in economic growth in 2020, compared to the national economyÃ¢â‚¬â„¢s real GDP decline of 3.5% in 2020. 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.Ã‚Â Ã‚Â
The monthly job reports from the Department of Labor has shown that the economy is recovering from the pandemic recession. More than 94 percent of jobs that were lost between February and April 2020 have been recovered by April 2022, and unemployment claims dropped to 122 in April 2022, down sharply from a high of 2,727 in March of 2020. However, even with this improvement, the territory had approximately 3,000 less jobs than it did in April 2022. The unemployment rate in the US Virgin Islands was 6.7% in April 2022, compared to 12.3% at its highest in May 2020. It is expected that employment growth will continue in 2022, though very slowly. The loss of approximately 20,000 residents per the 2020 census has also presented challenges for the Government of the Virgin Islands. Tourism has also been a strong driver for the territory. Approximately 1,072,981 visitors traveled to the territory in 2021, representing 12 months of growth from 2020, when 861,274 visitors traveled to the territory. First quarter visitor arrivals surged by 153%, compared to the same period in 2021 or 452,764 visitors from January to March 2022, which was more than double that for the same period in 2021, which was 273,418 visitors. It is expected that tourism will grow in the territory in 2022, aided by a revival of cruise travel visitors, which is expected to allow the territory to return to pre-pandemic visitor levels.Ã‚Â Ã‚Â
The amount of construction building permit values have also indicated strong building construction activity in the territory. Building permit values were higher year over year for private residential, commercial, and government buildings. The value of issued building permits totaled almost $457.3 million in 2021, surpassing the 2020 values of $234.7 million. The volume of issued permits in 2021 has suggested that this construction activity will continue. $206.2 million of the construction value came from the residential sector, which was an increase from $162.9 million. Government construction permit values were $188.2 million in 2021, an increase from $34.5 million in 2020. Over $53 Million was paid to return the 8% payroll reduction from two administrations ago, as well the payment of 2020 tax refunds. $234.7 million in tax refunds have been budgeted to become current, with a goal of having all calendar 2021 tax refunds paid by September 2022. The Office of Collective Bargaining has also completed negotiations of 6 collective bargaining agreements and wage agreements so far in Fiscal Year 2022 for a total of 13 collective bargaining agreements and wage agreements over the last three years.Ã‚Â Ã‚Â
According to OÃ¢â‚¬â„¢NealÃ¢â‚¬â„¢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. Total operating revenue has increased approximately 14%. 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 of individual taxpayers. The Office of Disaster Recovery has continued to monitor at least 237 projects with an expected spend value of about $813 million in the current fiscal year 2022. This hasÃ‚Â increased to 274 projects with an expected spend value of $1.63 Billion in Fiscal Year 2023. The submitted budget includes over 1200 vacancies in all departments for Fiscal Year 2023. Wage adjustments of 3% for 2023 and 3% of 2024 and made provisions of outstanding obligations. The major change in revenue projections is that excise tax revenue collections have been in the GovernmentÃ¢â‚¬â„¢s favor. Although revenues have increased, operating expenditures have also increased.Ã‚Â
An increase for all five of the major revenue categories is expected for the Fiscal Year 2023. An increase of 5% is expected for Personal Income Tax for FY 2023. Currently, the unemployment rate is 7.2%, which was a decrease of about 3%, at its highest point in 2021. Corporate Income Tax is expected to increase by 3%. Real Property Tax is expected to increase by 5%. This was particularly volatile, as it increased significantly in FY 2020 by 44%, but decreased 40% in 2021. It is expected that this will stabilize, with FY 2022 projections expected to reach a 62% increase compared to FY 2021 actuals, which is expected to stabilize to a 5% increase in 2023. Gross Receipts Tax is expected to increase by 2.5% in Fiscal Year 2023, which is related to tourism and visitor spending. Current collections are expected to increase in Fiscal Year 2022. Excise Tax is expected to increase by 11%, which is attributed to the resumption of excise tax collections from the second quarter of Fiscal Year 2021. These taxes will continue to be collected for the entire Fiscal Year 2022 and is expected to continue.Ã‚Â Ã‚Â
Though the General Fund has increased revenue collections, overall revenue projections have dropped by 2%. Key reductions for Fiscal Year 2023 include a 100% reduction of the Anti-Litter and Beautification Fund as it is unable to sustain the appropriation due to inadequate revenue collections. The Business and Commercial Fund has been reduced by 51% due to inadequate revenue collections. There has been a 100% reduction of transfers in the Internal Revenue Matching Fund. The projected cost of operations has decreased by 1% in Fiscal Year 2023, with a total cost of $1.31 billion in Fiscal Year 2023. Many agencies have had small reductions in overall expenditure ceilings and will accommodate the expenses using federal funding. All items that were previously funded by the Internal Revenue Matching Fund have been accounted for in the General Fund budget. The GovernmentÃ¢â‚¬â„¢s mandatory costs have been provided for in the presented budget for Fiscal Year 2023 and included both appropriated and non-appropriated funds. The total budget is approximately $1.3 billion.Ã‚Â Ã‚Â
Senator Vialet voiced concern about premium pay for frontline workers. Director OÃ¢â‚¬â„¢Neal stated that this group was placed on priority to be paid.Ã‚Â Ã‚Â
Director OÃ¢â‚¬â„¢Neal urged the body to be prudent, stating that the budget should not be increased from what was submitted, and encouraged them to submit supplemental budgets as necessary. She further reminded the body that even though there is a Ã¢â‚¬Å“finalÃ¢â‚¬Â budget appropriation bill, the dollar value of appropriations increase every year, stating that Ã¢â‚¬Å“final values are never truly final.Ã¢â‚¬Â OÃ¢â‚¬â„¢Neal urged strategic planning while being conservative and effective with budgeting. She cautioned that Ã¢â‚¬Å“it is better to have and not need, than to need and not have.Ã¢â‚¬ÂÃ‚Â Ã‚Â
Senators present at todayÃ¢â‚¬â„¢s committee hearing included Kurt Vialet, Donna A. Frett-Gregory, Marvin A. Blyden, Samuel CarriÃƒÂ³n, Dwayne M. DeGraff, Novelle E. Francis Jr., Kenneth L. Gittens, Javan E. James, Carla Joseph, and Janelle K. Sarauw.