In an acrimonious session Friday, the V.I. Legislature rejected administration proposals to slightly increase gross receipts taxes, reinstate $90 million in hospital debt, authorize more government borrowing and other measures Gov. John deJongh Jr. said "must be approved," to avoid mass layoffs early next year.

After warning of impending fiscal doom for most of the year, deJongh called the special session of the Legislature earlier this week, saying the government will be unable to meet payroll in early 2012 if action is not taken now. In his statement, deJongh was harshly critical of the Legislature, which seemed to stoke the ire of senators.

"If our territory’s politics were not so broken, if the level of self-interest and disregard for the facts and reality had not risen so high and been so broadly accepted as a legitimate way to deal with the public’s affairs, I would not be making this statement as it would have been made unnecessary by responsible actions on the part of the senators," deJongh said in his letter explaining the purpose of the special session.

Finance Commissioner Angel Dawson outlined the latest budget numbers and the trends for the past three years, to make the case that the government really needs new revenues.

Since the economic collapse of 2008, tax revenues declined dramatically, causing the "evaporation of some $700 million in core revenues between fiscal years 2008 and 2011," Dawson said. Revenues have begun to climb again, but "have not recovered to anywhere near pre-recession levels," he said.

Core revenues from income taxes and gross receipts taxes plummeted by $283 million or 37 percent in 2009 and remain lower than in 2008, he said. Several big companies receiving Economic Development Commission tax breaks have left, costing $50 million in income tax, and Hovensa has ceased to be profitable for now, he said. "This alone has cost us $100 million in annual corporate income tax receipts," Dawson said.

As a result of all of this, and lower than anticipated revenues through November, "we have reduced even further our revenue estimates for fiscal year 2012, resulting in a projected budget shortfall of $67.5 million," Dawson said. Without action, shortfalls will begin in February and will exceed $80 million by August, he said.

He recounted the governor’s past proposals, including increasing the gross receipts tax from 4 percent to 5 percent, creating new cell phone fees, and eliminating nine paid government holidays.

The Legislature implemented some, but not all of deJongh’s proposals, increasing gross receipts tax to 4.5 percent, not 5 percent, and declining to eliminate paid holidays. In June, it passed a broad budget stabilization package that imposed an unpopular 8 percent government pay cut and offered cash incentives for senior employees to retire.

"While these measures were substantial, the simple fact is that they were not enough," Dawson said.

DeJongh called the special session of the Legislature, saying there is no more time to wait to act. He is asking the Legislature to increase gross receipts tax from 4.5 percent to 5 percent, and authorize billing 2010 property taxes at the same level the court authorized for 2009 taxes; two measures that would bring in some new revenue quickly. He is also asking the Legislature to authorize the V.I. Public Finance Authority to borrow up to $90 million to fund regular government operations.

The bill before the Legislature Friday would also have reversed its decisions to forgive all debt owed the government by the territory’s two hospitals, which administration officials said is more than $90 million. And it would have undone legislation to expand gross receipts tax exemptions for farmers and fishermen.

DeJongh vetoed both of these measures this fall and the Legislature voted to override both vetoes.

The governor also wants the Legislature to change V.I. law to reduce the amount held in the Insurance Guaranty Fund from $50 million to $5 million, and to eliminate the automated "sunset" or end date of June 2013, for the already enacted gross receipts tax increase from 4 to 4.5 percent and his proposal to increase it to 5 percent.

Many of the senators questioned the administration’s figures, pointing to differences in figures between reports done by auditors and figures presented in budget documents, with some suggesting the administration is hiding money and fabricating a crisis.

"How can we know there are no other PFA (V.I. Public Finance Authority) funds we can have access to?" Sen. Nereida "Nellie" Rivera-O’Reilly said.

"There is no reason for us to hide money," Dawson said. "If we had the money, we would not be coming here. The various commissioners and agency heads that came to testify don’t get a penny by hiding money."

Other senators said they believed something needed to be done, but were concerned about accurate figures and took umbrage at the governor’s approach to the Senate.

"We are willing to sit down and talk but figures have to be accurate and threats taken back," Sen. Sammuel Sanes said.

Sen. Usie Richards also took offense at deJongh’s tone, describing the governor’s statement calling the special session as a "temper tantrum" and like "a two-year-old that needs a time out."

Sen. Neville James derided the government’s contract with the Diageo distillery on St. Croix, arguing there would not be a budget crisis if those deals had been more lucrative in the short run for the territory.

Sen. Janette Millin-Young asked how it would help the government’s finances to reinstate the territory’s hospital’s debts, as Gov. Juan F. Luis Hospital in particular is in the midst of its own fiscal crisis and unlikely to be able to pay anytime soon. Dawson said forgiving the debt required the government to take a $90 million loss on its books all at once, with consequences for budgeting and the ability to borrow money. Management and Budget Director Debra Gottlieb reinforced Dawson, saying "The point is, there is a process you have to follow."

Many of the senators questioned whether the crisis was so dire a special session was needed immediately, and could not wait until after the holidays. Along those lines, James asked whether a bill passed by the Legislature last week, taking $35 million from the Insurance Guaranty Fund, helped the situation.

"Couldn’t that tide us over so we could have dealt with this post season?" James said.

Dawson said the administration had not been able to get a definitive answer from the bank whether it would extend a letter of credit that was being used to replace the funds in the account, so it was not clear any of the money would be available. For that reason, the administration was proposing to lower the par for the Insurance Guaranty Fund to $5 million, eliminating the need for a letter of credit, he said. Of the $35 million in the fund, $20 million was already in the budget, and the Legislature allocated $3 million to the hospitals, leaving at most $12 million to supplement the budget, he said.

Senate President Ronald Russell pressed the governor’s financial team for a drop-dead date for acting. "If we were not to act on these measures today and started with a fresh look in 2012 .. if nothing is done today when would you start dismissing people?" Russell said.

"That is a question we would defer at this time," Dawson said.

Voting nay on deJongh’s package of budget fixing items were James, Millin-Young, Richards, Rivera-O’Reilly, Russell, Sanes, Sens. Carlton "Ital" Dowe, Alicia "Chucky" Hansen, Terrence "Positive" Nelson, Patrick Sprauve and Alvin Williams. Sen. Celestino White cast the single yea vote and Sens. Craig Barshinger, Louis Hill and Shawn-Michael Malone voted nay.

Afterward, when asked whether the Legislature would take any action and what would be the next step, Russell said the Legislature was ready to meet with the governor and talk more, but he needed more information before getting behind any of the proposals.

"They didn’t answer our questions about the timeline of when we would be forced to start laying off, and when we asked questions, the answers were ambiguous and unclear," Russell said.

Asked what came next, Russell and other senators said they hoped for a more informal meeting between all the senators and the governor and his financial team early in the new year.

"The governor needs to reschedule a meeting with all 15 senators and hash out all these things," Richards said after the hearing. Russell echoed the same point, saying a meeting should happen very soon. "But he can’t just have it his way, there has to be a give and take," Russell said.

Upon hearing of the Legislature’s vote, deJongh issued an acerbic response.

"The continued lack of appreciation of the depth of the present financial and cash crisis and the effect that their continued failure to act will have both on government employees and their families and provision of government operations, is troubling," deJongh said, "as it leaves us with an ever-narrowing range of options all of which will cause great hardship on many now employed by our government and on our private sector as well. We will be back to work next week to do what must be done given the Legislature’s continued failure to act."