Editor's note: The following position paper, identified as "Economic Recovery Plan 2003" for the territory in general and the island of St. Croix in particular, was submitted by Frank J. Fox, president of the St. Croix Chamber of Commerce, on behalf of the chamber, to the governor and his financial advisers at a Government House meeting on May 12 where other business and hospitality groups also presented their recommendations. As of Aug. 19, when it was posted on the Source newspapers, Fox said he had received no response from government officials.
Dear Governor Turnbull:
The St. Croix Chamber of Commerce appreciates the opportunity to work with you and your advisers to find solutions to our current money problems. I am sure that all branches of government and the private sector by working together can solve the problems, both current and systemic. The chamber wants to play a meaningful role, and you can count on the chamber to do all it can to help.
Intuitively, the approach to the revenue shortfall has to be multifaceted. There must be a reduction in the government's expenditures and increases in the current revenues received without being Draconian in either pursuit. It appears very likely that some interim borrowing will be needed and possibly some assistance from Washington, D.C.
For ease of discussion and review, I have separated the three main approaches to the problem. These sections are: "Increasing Revenue," "Expense Reductions" and "Tax Increases." In this manner, hopefully the ideas and suggestions of the St. Croix Chamber of Commerce can easily be combined or merged with those from other constituencies.
Increasing revenue

Captive insurance companies
To create new jobs and increase government revenue as quickly as possible, the immediate emphasis should focus on licensing captive insurance companies and captive management companies. In my opinion, there is nothing that will contribute more money to the government's coffers, in the shortest amount of time, than captives. The U.S.V.I. has the best captive laws in the world and, with the new Internal Revenue Service guidelines that require payment of the excise tax on reinsurance purchased from foreign firms, the U.S.V.I. stands poised to reap a windfall.
(

Editor's note: A captive insurance company is defined in Appendix A below as an entity "set up by one or more multinational companies to manage risk in-house and to reinsure risk directly with the market, bypassing agents' commissions and insurers' profits, and taking advantage of tax benefits enjoyed by insurance companies.")
Jurisdictions such as Bermuda and the British Virgin Islands get a substantial portion of their income through the activities of captive insurance companies and captive management companies. That is one reason that the B.V.I. courts them so aggressively. (They have a wonderful information portfolio that they send out via Federal Express to anyone who inquires about forming a captive in the B.V.I.) More importantly, they advertise that a new captive can be licensed in two to three weeks. Other major captive locations generally take four to as long as six weeks. Here, one U.S.V.I. captive insurance company waited for 19 months to receive its license.
As you can see from the attached articles, Exhibit A, captives can and do mean revenue and employment. They are a logical replacement for the foreign sales corporations that continue to dissolve daily.
Captive companies do not:
– Imperil the insurance guarantee fund.
– Put residents' coverage at risk (captives cannot sell to residents).
– Pollute our environment.
– Tax the infrastructure .
On the other hand, captive companies do:
– Pay an annual license fee.
– Pay an annual franchise tax.
– Pay excise tax on premiums paid to foreign insurers and reinsurers.
– Hire Virgin Islanders.
– Purchase goods and services locally.
– Contribute to local charities and community associations.
Furthermore, like a magnet, they attract other financial services companies that supply services and assist the captives — e.g., mutual funds, hedge funds and money managers. In addition, they utilize the services of accountants, lawyers, bankers etc. They also attract risk managers and their attorneys and accountants who visit the territory frequently for reinsurance audits, due diligence reviews and underwriting consultations.
Private sector growth
This is the only long-term, sane, practical way out of the present dilemma. As the private sector expands, there will be increasing governments revenue, not only from the obvious sources — i.e., license fees, income taxes, gross receipts taxes, franchise, excise, customs duties, etc. — but also from unexpected sources. For example, visits from suppliers, investors, potential and existing clients, advisers etc. In addition, many companies hold training sessions, product introductions, and market development meetings in their home office. In addition, many mainland businesses would reward customers, employees and vendors with trips to their Virgin Islands branch or subsidiary.
At the present time, however, it takes too long to open a business on St. Croix.
The time to obtain a business license can often take three to six months. "We're waiting for a ''tax clearance letter'" and "The file has been lost; please mail it in again" are heard frequently. (Specific examples are attached as Exhibit B.) There is no sense of urgency and no interest in speeding up the procedures or helping the applicant comply with the rules and requirements.
The greatest contribution that the government can make to improve the business climate in the territory is to get out of the way and stop prohibiting economic growth. Stop requiring needless documents, and make it easy for the necessary documents to be provided. Specific actions that should be taken include:
– Funds should be provided to the Department of Licensing and Consumer Affairs to rapidly complete its modernization and computerization so that much, if not all, of the required information can be collected, filed, referenced and used electronically. (I have heard at a Senate hearing that there is money unspent from the Y2K federal funds specifically to be used for modernizing the computer systems of the Virgin Islands. These monies should be spent at once, and the licensing system [should be made] as automated as is physically possible.
– Should a "tax-clearance letter" still be deemed important and relevant to the issuance of a business license, then it should be possible to proceed in the licensing procedure while the requisite review is under way. For example, one could complete an affidavit that states no taxes are due IRB and then proceed to get a license. If subsequently taxes were found to be due, the taxes could be collected, plus the normal penalty, if any, plus interest, plus a fine or fee for the incorrect statements in the affidavit. Since very few businesses fail to get a tax-clearance letter, this should speed up the licensing procedure a great deal.
– Names of existing businesses in the territory should be entered into a database so that checking to see if a company name has been taken or reserved takes minutes, not days.
There is no reason — none — why it should take months to issue a business license.
There is no reason why government workers cannot be helpful and friendly to business. If there is a legitimate problem, it can and should be brought to the applicant's attention promptly so that it can be resolved. At all times the "status" of the license application should be readily available so that when an inquiry is made — "What is the status of my application?" — it can be cheerfully answered immediately.
The role of government, everyone agrees, is to serve the people. However, when business is involved, this premise seems to disappear. T
he "we don't care" philosophy is too prevalent, and it stops economic growth and prosperity dead it its tracks. The government's leaders should keep reminding themselves and their subordinates that there is worldwide competition for jobs and investment capital. There are literally hundreds of jurisdictions that want, and are seeking, new investments, jobs, tax revenue, etc. These jurisdictions make starting a business easy, and throughout the licensing process they work with and assist the applicant.
Improving the licensing procedure will help all companies and ultimately result in higher employment and greater government revenue.
Motor Vehicle Bureau
To increase revenue, I recommend changes at the Motor Vehicle Bureau. First, increase the fee for those who want to pay more to save time. (See Exhibit C.) If people are willing to pay the airfare to St. Thomas rather than make three (or more) trips to get a license, then they will gladly spend less money and get their driver's license without leaving St. Croix.
Business and individuals employed in the private sector place a high value on time. Time truly is money, and the government workers need to accept this fact as "the gospel." Currently on St. Croix it takes three visits to the Motor Vehicles Bureau to obtain a V.I. driver's license. (This can be verified by calling the bureau and asking what the procedure is.) They will tell you to come to the bureau and buy an Eye Test Form, then bring it back and buy a Rule Book, then come back on your "appointment day" and take the test. If you pass, you may get a license that day if their camera isn't broken, the camera operator is present, the computer isn't ''down,'' etc. Why can a driver's license be obtained on St. Thomas without an appointment, but one is required on St. Croix?
Expense reductions
There have been many recommendations and proposals on reducing the government's monthly expenses. Some of these recommendations are unrealistic and have been proposed by people who have not carefully thought through the ramifications of their suggestions. On the other hand, there have been suggestions that make a lot of sense and should be implemented immediately.
First, from the recommendations presented by the Senate Minority leadership, the following recommendations are meritorious and should be implemented at once:
1. All Virgin Island senators, Territorial Court judges, the lieutenant governor and the governor shall receive a 10 percent pay cut.
2. All branches of the government shall be required to consolidate offices wherever possible and to utilize existing government-owned buildings in order to reduce rental costs.
3. All branches of the government shall immediately implement a hiring freeze with the exception of the Bureau of Corrections; the Departments of Education, Health, Human Services and Police; the Fire Service; and the territory's hospitals.
4. The executive branch shall consolidate and reorganize certain government departments and/or services to increase efficiency of operation and reduce costs.
5. The utilization of teleconferencing facilities to conduct meetings shall be mandatory in order to reduce the cost of air travel.
6. The Legislature shall repeal Act No. 6571, Section 17, that allows for the re-hiring of retired civil service employees who can concurrently collect government retirement benefits in any branch of government.
7. The immediate suspension of all professional and personal service contracts in the executive, legislative and judicial branches issued for the purpose of hiring persons to fill exempt and non-classified positions since November 2002, but not to include those contracts entered into to fulfill the requirements of federally funded programs.
8. All branches of government shall immediately cease the issuance of per diem payments to their employees.
In addition to saving money and reducing the cash shortage, there are additional benefits to adopting these recommendations:
A. They have a consensus-building, unifying and cooperative appearance.
B. They display not only a practical approach but one that looks ecumenical and broadly supported.
C. They show that the crisis is not a political crisis but a fiscal crisis.
D. It will make the implementation of "employee sacrifices" easier to stomach.
There are, of course, other ways that the government can reduce its monthly expenses.
Several of these ways are:
1. Increase the deductible on employees' and retirees' medical insurance to $250 per person per year with a family cap of $750. I am aware of no [other] medical plan (public or private) that has a deductible of $50 in this day and age. After the 2004 fiscal year ends, the deductible should be increased in $50 dollar increments each year until the per-person deductible is $500 with a family cap of $1,500. Thus, by 2009 the government medical plan will be closer to the plans in the private sector. This will result in a substantial cost reduction.
2. Combine the purchases of prescription drugs from the three islands' hospitals and clinics and the Department of Health. By purchasing in greater quantity, it is likely that a substantial cost saving can be realized.
3. Reduce the fleet of Senate SUV's to 16, eight on St. Thomas and eight on St. Croix. The senators who are visiting should have use of a vehicle when traveling on Senate business while the senators who are "home" can drive their personal cars, just like they did before they were senators.
4. Immediately reduce the number of paid holidays to eight for the balance of this fiscal year. (Memorial Day Monday, May 26; Emancipation Day and Independence Day, July 3-4; Labor Day, Sept. 1; Thanksgiving and the day after, Nov. 26-27; and Christmas and Boxing Day, Dec. 25-26. Then, for calendar year 2004 the total number of paid holidays should be no more than 14.
5. A review of the tables of organization for all departments should be conducted, and all instances of "one over one" management should be eliminated. If a commissioner or a department head cannot supervise more than one person, than the wrong person is in that position. A span of control of three to six people should be the norm.
6. The V.I. Lottery should be discontinued at once. Although it is unique in its ability to lose money, the territory can no longer subsidize its existence.
7. The number of the Port Authority's reserved parking spaces at the Henry E. Rohlsen Airport needs to be reduced substantially and, if there is interest, leased to the rental car companies. The person in charge of the airport and the head of security certainly need reserved parking spaces. However, the other Port Authority workers should be assigned parking in the back of the lot, and the current "prime" parking spots should be leased for additional revenue or left available for the general public.
8. There needs to be a systematic but realistic reduction in the number of government workers. As we all know, one person on payroll costs the taxpayers not only that person's current wages but also the person's:
– Government-paid medical insurance.
– Government-paid pension contribution.
– Government-paid holidays.
– Government-paid sick leave.
– Government-paid vacation days.
– Future retirement medical insurance.
Of course wholesale terminations would be counter productive, because income taxes would not be paid while unemployment payments would escalate. Instead, I recommend the following actions:
Each government department/agency, excepting only police, fire and hospitals, would be required to reduce its "head count" by 4 percent per year for the next five years and its total salary budget by 6 percent per year. (The reduction can and should comprise attrition and terminations.) This approach accomplishes two worthwhile goals simultaneously:
First, the total number of government workers would decrease in a manner that would no
t overburden the unemployment insurance coffers. A reduction of only 4 percent of the workers over a 12-month period, when normal retirements and resignations are counted, would not strain the ability of the labor market to absorb the displaced workers.
Second, by using this approach of "head count" and total salary reduction, it is insured that more top-level people are terminated than the lower-paid employees. If only a "head count" reduction is used by a department, then it has to terminate 6 percent of its workers. However, if higher-paid employees are terminated, then the total payroll reduction of 6 percent is achieved by only terminating 4 percent of the employees.
With a growing, thriving private sector, the terminated employees will be able to find non-government jobs, since there will not be any massive terminations that would flood the unemployment rolls and overpower the ability of the private sector to absorb them.

Tax increases
The "Tax Commission" should be retained and encouraged to expedite its recommendations. Speaking of the St. Croix representatives, I can think of no one more
qualified than Mr. O'Neill and Mr. Depusoir [St. Croix CPA's Pablo O'Neill and Francisco Depusoir], and I am very glad they are on the team.
The gross receipts is a terrible tax in operation. The tax rate, ultimately borne by the consumer, is a function not of the item, its cost or its content, but rather the distribution system that brought the item to the consumer. Because of the "add-on" nature of the tax; one person may purchase an item with an embedded gross receipts tax of 4 percent while [the purchaser of] the identical item from another vendor with a different import structure would have to pay 8 percent or even 12 percent. I hope that the Tax Commission can find a different way to collect money, one that is more equitable and easy to administer.
However, at the present time, it makes no sense to reward people for buying merchandise "off-island," as is currently the case. Specifically, an "on-island" purchase must cost 4 percent more than an "off-island" purchase solely because of the gross receipts tax. Therefore, to levy a 4 percent tax on consumer-imported items makes a lot of sense and should raise money. On the other hand, I can see no reason to raise the gross receipts tax by 12 and one-half percent when we haven't made the effort to collect the current 4 percent tax on all items brought into the territory.
In addition, to further increase government revenue, the annual fee that captive insurance companies pay could be incrementally increased after they have been business for five years. (The five-year period at the current rate encourages new captive formation and only increases after the captive is successful and has amortized its startup costs and investment.) For example, for those captive insurance companies that have been in business for five years or more, the annual fee should be increased from $6,000 per year to $10,000 per year over a four-year "phase-in" period. Perhaps in a captive's sixth year the fee would be increased to $7,000, in the seventh year to $8,000, in the eighth year to $9,000 and then in the ninth year and thereafter [be] $10,000 per year. This has the potential to generate substantial additional revenue if the government is successful in attracting a significant number of captive companies to the territory.
On the other hand, increasing of "tourist taxes" at a time of decreasing tourism is intuitively counterproductive. These "tourist taxes" will make a visit to the territory more expensive and ultimately reduce the government's revenue. Specifically, hotel occupancy [is] down throughout the territory, and a 25 percent tax increase in the occupancy tax is not going to help attract the tourists we need to patronize our merchants, ride in our taxis, eat in our restaurants etc.
Increasing "sin taxes" will not raise the amount of money that will be lost by reducing the visitor's purchases of cigarettes and liquor.
Furthermore, the current anticipated income of $542,300,000 (approximately $5,500 per person) does not suggest or imply too little revenue but rather too much spending. By implementing all of the revenue-generating ideas put forward here along with significant expense reductions I believe that the economic problems can be solved without significantly increasing the tax burden on the residents and visitors.
In conclusion, I hope the ideas, recommendations and suggestions presented in this paper will lead to not only further discussion and consultation but, more importantly, to action. I am willing to participate in any way or help in any way I can to see the territory, and particularly St. Croix, come out of these challenging times in better financial shape than ever before. Please give me a call if you have any questions of feel additional clarifications or explanation would be helpful.
Respectfully,
Frank J. Fox
President, St. Croix Chamber of Commerce
Cc: Lt. Gov. Vargrave Richards
Appendix A — reprints of articles
[from a tax and insurance news Web site]
Chief Minister Enthuses Over B.V.I. Financial Sector's Performance
25 March 2003 — The British Virgin Islands' key financial services sector performed well last year despite the increasing attentions of global regulatory bodies on offshore jurisdictions, according to Chief Minister and Finance Minister Ralph T. O'Neal.
Outlining the performance of the economy in his 2003 budget, O'Neal gave many examples which showed that business confidence in the jurisdiction was high.
Of particular strength was the captive insurance sector, where 50 new licenses were granted by the government. This brings the total number of captive insurers actively managed in the territory to 282, the chief minister announced. O'Neal asserted that this makes the B.V.I. the world's fifth-largest center for the captive insurance industry. He also noted that international business company (IBC) incorporations were up on last year.
The jurisdiction continues to be a magnet for mutual funds, the chief minister went on to reveal. The total number of approved mutual funds now stands at 2,677, and 331 more Certificates of Recognition and Registration of Mutual Funds had been issued by the end of the year. This compares with a similar figure for the previous year. The government also issued 99 fund management and administration licenses in 2002.
Underscoring the importance of the financial sector for the B.V.I. economy, the chief minister pointed out that the government received revenues of almost $100 million from the industry in 2002, which will be augmented by a further $100 million paid by the Financial Services Commission to a government trust fund this year.
Turning his attentions to the ever-increasing regulatory scrutiny of offshore centers, O'Neal said that while the B.V.I. has fared well last year, there is still potential for measures such as the EU [European Union] Savings and Tax Directive to have a harmful impact on the B.V.I. economy. However, he was insistent that he would not be party to any regulations which would blunt the nation's competitive edge in the financial services field, and announced that he would continue to work with the OECD [the European Organization for Economic Cooperation and Development] and UK Treasury for "a level playing field."
On the issue of the B.V.I.'s international competitiveness, the chief minister confirmed that a range of legislative measures were under way. These include an Insolvency Bill, the Banks and Trustees Companies Act, The Insurance Act, The Mutual Funds Act and an amendment to the Trustee Act.
Bermuda's Insurance Sector Boosted By 94 In 2002, BMA Reveals
14 January 2003 — The Bermuda Monetary Authority announced last week that 94 new insurance companies were established in Bermuda last year, bringing the total
established in the jurisdiction since the Sept. 11 terrorist attacks to 151.
According to a Bermuda Sun report, this figure is slightly lower than that for 2001, during which 108 such companies were incorporated. The newspaper went on to reveal that "Of these, 11 are either now big players or set to become players in the world's insurance and reinsurance markets. They are classified as Class 4 insurers — which have to have capital of at least $100 million and are usually large property catastrophe and excess liability carriers."
The BMA figures revealed that in 2002, 52 of the 94 insurers which incorporated in Bermuda were captives which are owned or established by a specific parent company to insure its loss exposures.
Offshore Insurance Jurisdictions Powering Ahead
27 November 2002 — 2002 has been a good year so far for those offshore jurisdictions specializing in insurance, with sharp increases in premium levels leading to a major influx of new capital and a rush of startups taking advantage of the improved condition.
Prominent among the countries to be experiencing significant increases in business are Ireland and Bermuda. Ireland in particular has seen rapid expansion of the market for captives (a captive insurance company is one set up by one or more multinational companies to manage risk in-house and to reinsure risk directly with the market, bypassing agents' commissions, insurers' profits, and taking advantage of tax benefits enjoyed by insurance companies).
Dublin's International Financial Services Centre, which offers existing companies a 10 percent corporation tax rate (new formations have to pay 12.5 percent) had already attracted 180 captives, but 50 new ones have been formed this year. Commercial insurance premium rates have increased by up to 50 percent this year, making it highly profitable for a company with good risk management structures to take over its own insurance business. Dublin, with an established insurance sector, has an advantage over other "offshore" jurisdictions since Ireland's EU membership allows an Irish insurer to write business throughout the Union under the "passporting" directive.
Still, Bermuda has also experienced boom conditions in its insurance sector lately, with more than a hundred new insurers setting up shop in 2001, and the influx is continuing in 2002. At least US$12 billion in new capital is said to have been added to the already substantial Bermudian insurance sector in the last year, more than replacing the US$5 billion lost in the immediate aftermath of 9/11 last year. The increase in available insurance capital has been particularly impressive when judged against bombed-out equity markets which have almost dried up as a source of capital.
All told, Bermuda now houses more than 1,600 insurers, of which the great majority are captives, and rather putting Dublin in the shade despite its advantages. But the capital influx is mostly accounted for by major international commercial insurers: Ace, XL, Everest Re and Partner Re, all Bermuda-based, are said to have raised more than $3 billion between them, while startups brought $7 billion to the island in 2001 alone.
Appendix B — delays in getting business licenses
Not every business license application takes many months, and I am sure most do not.
However, the businesses that go smoothly do not call the chamber office and complain.
The companies that I've recently heard "delay stories" about are [citing first the date the company started seeking the license and then the date on which it was issued]:
Broadband, V.I. — Oct. 4, 2002 — April 22, 2003.
Rewco LLC — Oct. 21, 2002 — Feb. 3, 2003.
Granymede LLC — Nov. 22, 2002 — April 9, 2003.
Egret LLC — Jan. 14, 2003 — May 6, 2003.
Appendix C — V.I. driver's license procedure
Consider John [and] Mary Doe, residents of a U.S. state, who are over 21, have a valid driver's license in their home state and come to the U.S.V.I. for a vacation. On their vacation they rent a car to tour the countryside and see the beautiful scenery.
The V.I. government is happy they are spending money, and this is good. Should they decide to extend their stay for an additional week or two, everyone is even happier.
Even though they may have never been in a place where the cars are driven on the left, they are welcome to rent a car (or van) and tour the island(s). But…
If they like the islands and decide to relocate and live here, look out!
First, they will have go to the Motor Vehicle Bureau and buy an "Eye-Test Form."
Second, after they get their eyes tested, they have to go back to Motor Vehicles and then buy a book of the "Rules of the Road.."
Third, they need to get two "passport photos."
Fourth, they need to study the "Rules" and memorize answers that are often laughable. (The "rules" book was obviously written before the majority of cars had fuel injection and when wearing a necktie was a common occurrence. (Remember to throw dirt on the carburetor — hard to locate on a fuel-injected engine, and, of course, apply a tourniquet with a tie.) Plus the text book refers to "read" taillights — it creates a great impression of the literacy of the U.S.V.I.
Fifth, they have to go back to Motor Vehicles again (this is the third trip), take a test, wait while it is graded, wait for a picture to be taken, and then wait to pay their fee for their license.
I propose that for drivers relocating to the Virgin Islands who are over 21 and have a valid driver's license from one of the United States or Puerto Rico, a fee of $75 (or even $100) be paid and the stateside license be surrendered and a Virgin Islands license issued.
Government benefits:
There would be a reduction in the amount of labor required to issue drivers' licenses and so would free up workers to work on more important problems than drivers' examinations.
There would be an increase in revenue several ways:
First, the dollar amount is increased.
Second, the labor required to issue the license would be substantially less.
Third, many residents who should have applied for a license but haven't due to the time and aggravation required would go and get a license if the procedure was quick and easy and could be done in one place at one time — thus bringing in income due but not collected.
Caveats: I do not advocate eliminating the examination for those who:
– Wish to obtain a driver's license for the first time.
– Have a driver's license from other than the U.S. states or Puerto Rico
– Are under the age of 21.
Neither do I recommend that the vision test be eliminated in its entirety.
For those drivers who are in fact ''converting'' their U.S. driver's license, I want them to have their vision tested at renewal time.
Summary:
– Reduce the examining of driver's license applicants to only those who are under 21 years old and [those who] do not have a valid U.S. driver's license.
– Increase the fee for the "non-examination" driver's license to $75.
– Do not increase the fee for "examination" drivers' licenses or license renewals.
– Do not require "physical" (eye examination) for "non-examination" driver's license
applicants until their license is renewed.
[Additional thoughts:]
Since there would be a significant reduction in the number of people taking a driver's license examination, consider having them only one or two days per month — one day between the hours of 9 a.m. and 5 p.m. and one day between the hours of 6 p.m. and midnight.
Consider conducting the "physical" — i.e., eye test — at the Motor Vehicle Bureau using the existing staff. (Charge a fee of $10-$15 for additional revenue to the government.)
Consider rewriting the "Rules" book to bring it up to date. Also consider making it available by mail, by reque
st, upon receipt of $15. (The additional $5 will cover "shipping and handling.")

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