Approximately one-fourth of the Virgin Islands' total General Fund comes directly from federal grant money. It is the single largest source of funds after income taxes—which some might argue is also federal money since residents fulfill their federal income tax obligation by paying into the territory's mirror system.
The Departments of Education, Health and Human Services are the biggest recipients, accounting for about two-thirds of the federal grants in the territory.
Over the past five years, the local government has come to rely more and more heavily on federal grants to balance the books. In 1997 federal grants totaled $73.7 million and represented 16.7 percent of the budget. Just two years later, it was 1-1/2 times that percentage, $107.47 million and 24.9 percent of the budget.
Up to 1,700 V.I. government employees are actually paid in whole or in part with federal grant money. Procurement of goods and services for federal programs creates another 1,200 jobs in the private sector.
This kind of statistic convinced the framers of the Five Year Operating and Strategic Financial Plan to consider federal grants in a separate chapter and to make numerous recommendations about how to utilize them—and how to get even more of them.
The plan recommends the creation of a Federal Grants Management Unit to coordinate grant requests and compliance. Noting the tight fiscal constraints under which the local government is operating, it says the function should remain for now where it is, within the Office of Management and Budget, and be staffed with existing OMB employees. However, it "should be elevated to a level commensurate with the overall federal grants activity" in the territory.
The Federal Grants Management Unit also would be charged with coordinating compliance with grant requirements and the timely drawing down of funds.
Currently, there is little centralized management of federal grants and their management typically falls to the individual departments and agencies that are utilizing them. "Many of the grant recipient agencies in the government do not understand the need for submitting timely reports," the plan states. And while most develop expenditure schedules at the beginning of the grant process, "they are generally not followed."
The result is a potential loss of federal funds. In 1997, for example, the federal government awarded grants totaling $88.7 million to the Virgin Islands government. Only $73.7 million of that money was spent. "It is not clear" what portion, if any, of the unused funds could be used in subsequent years.
While increased employment is a positive side effect of federal grants, the plan cautions that care must be taken to keep the employment cost from sliding onto the local government. Often, the V.I. government has picked up the costs of fringe benefits for federally paid employees, and often the people in those jobs have sidestepped onto the local payroll once the grant monies ran out. The plan proposes that the Federal Grants Management Unit help prevent those practices.
Other recommendations in the plan include:
– Introduce a Real Time computerized cash management in the Finance Department in order to manage draw downs, vendor payments, cost monitoring and control, cost accounting and financial reporting;
– Create a separate centralized procurement system with Property and Procurement for federally funded services and programs;
– Develop a methodology for recovering the indirect costs of federal grants, such as reimbursement for the extra time it takes to process purchases under a federal program;
– Develop standardized reporting formats for departments and agencies using federal grants.
The Five Year Plan also recommends that the government create a Federal Grants Development Office within the Office of the Governor. It would be responsible for seeking out new sources of grant money, especially by working with local nonprofits. The task force that drafted the plan believed there are more opportunities in economic development studies, environmental protection, clean energy development, solid waste management and planning and other areas.
"Based on the preliminary discussions held by the task force with selected federal agencies, it is conceivable that the U.S. Virgin Islands could obtain additional federal grants in the amount of up to $55 million during the period FY 2001-FY 2004," according to the plan.