Gov. John deJongh Jr.’s speech before the V.I. Hotel and Tourism Association Friday morning left many in the audience concerned about how they are going to shoulder some of the tax hikes planned for the territory over the next two years.
DeJongh spoke in front of a packed room at the Ritz Carlton Hotel and explained his vision for the next two years, which includes mass government layoffs, tax increases and other austerity measures that he said are expected to get the territory through its $75 million deficit this year, and $135 million deficit during the next fiscal year.
"We’re now at the point where we are coming out of the recession and depending so much on the US economy, and the question now is how to get it — how do we get to where we want to be within the next 24 months," the governor said as he presented his plans.
HTA members were most concerned about the layoffs and how they will be impacted by a proposed 1 percent increase in gross receipts taxes.
The government’s full-time workforce has already been reduced by approximately four percent through the existing attrition program — where positions left vacant are eliminated or remain unfilled — and deJongh said, as he said in this year’s State of the Territory Address, that the upcoming layoffs would extend totemporary employees, and those on 75-day contracts.
"I will be signing letters soon with respect to layoffs," he said. "We will be cutting back in terms of certain services, and those numbers will increase if we don’t get the revenues we expect from the General Fund. I have met with the Legislature to talk to them, and I’ve told them, ‘if you don’t accept my plan, give me an alternative.’"
The same has been said in meetings with various unions and community groups, deJongh said, adding that trying to fix the economy is truly a combined public/private sector effort.
DeJongh told HTA members that he understands the burden a proposed 1 percent increase in gross receipts taxes would have on the business community, but asked for their cooperation over the next 24 months so the territory could get through its present "rough patch."
"I’m asking your faith for the next two years, while we navigate what we think will be a very difficult time," he said to the HTA members.
After the 24 months, deJongh said he will look at rolling the increase back, or transitioning to a sales tax if it makes more sense. He also said later that there has been "a lot of lobbying" against the increase, so if it does not pass through the Senate, the other option would be more layoffs.
"These are items we can address together," he said. "It will be painful in the short term, but I think if we work together and try to figure out how to address it in a way that’s only temporary, with some tax increases but at the same time so that we’re streamlining our services, I think there’s light at the end of the tunnel within the next 24 months."
The consolidation of government services, such as management of the territory’s ports, was also at the top of deJongh’s list for improving efficiency and cutting costs. The governor also talked about two other tax increases — an increase in the hotel occupancy tax and the implementation of a $1 cell phone fee — that he said would help fund two critical areas in government.
DeJongh said he is working with the Legislature to make sure that revenues coming in from the proposed 2 percent increase in hotel room tax goes into the Tourism Revolving Fund to cover marketing efforts as the territory hopes to "maintain visibility" among its competitors, while the cell phone tax will go toward emergency management.
"When we look at what’s happened in Haiti and now in Japan, it’s not a matter of if we’re going to have a disaster, it’s a matter of when that disaster is going to happen, and we need to be prepared," he said. DeJongh said the government is shifting its focus to deal with natural disasters other than hurricanes and will be having a tsunami preparedness drill next week.
The government is also going to be aggressive about collecting delinquent taxes and old debts, deJongh said. He said the government is also trying to stimulate new revenue through two changes in the procurement process. First, any government tenant making improvements to government property will have to "pay property taxes like anyone else," while any off-island company wanting to do business with the government will have to pay a fee comparable to gross receipts taxes, he said.
Talking about the territory’s Economic Development Commission tax program, deJongh said the government is in the mode of "stabilizing" the industry, which has been hit by federal changes to source income and residency requirements. While the government continues to make its case to the federal government, there is no expectation there will be a stream of companies coming in during the short term, he said.
Touching on a perennially sore subject, the Levelized Energy Adjustment Clause (LEAC) rates, deJongh said both the LEAC and retail gas prices will increase over a certain period of time, but the government is trying to look at the competition within the St. Thomas market and see what the differential is with St. Croix, where much of the oil is shipped from.
Asked what happens when the fuel increases are passed onto the consumer in the supermarkets and retail stores, deJongh said the government will go back to putting out food and gas surveys so residents can do comparison shopping, while the V.I. Water and Power Authority looks into alternate energy sources that will cut the territory’s dependence on fossil fuel.
Approximately $10 million in federal stimulus funds have gone into an "energy alliance," in which energy service companies are looking at reducing costs for consumers, while an agreement has been signed with Energy Systems Group to help local schools reduce their energy costs, he said. Helping large suppliers with their consumption is next on the list.
There are several solutions, some which are contained within the bill instead:
1. unpaid holidays
2. change holidays to regular days and observances
3. convert Three Kings day to the first Friday in Jan
4. Cut salaries by 5% across the board for all employees, including DeJongh and his commissioners, all unions. Lead by example. If deJongh would cut these exempt salaries, he would have some authority in asking the union for concessions.
5. Cut some government hours, maybe half hour daily or one hour daily.
6. Evoke true austerity measures: no private cars except for public safety, and first responsders, social workers etc. Pool travel for commissioners and others when they are on the opposite island. No first class tickets, etc, video conferencing.
7. a sales tax would catch all those people who evade taxes and are working on the underground economy.
8. increase enforcement of paternity violations, abandoned cars payments, payment for abandoned property clean up, fines for loud music, trash
9. if we can use a law to violate union contracts to pay them less, we can use the law to violate the contract we have with Diageo to have them pay more.
10. send home the first lady’s $90k/yr hair dresser and close her lottery slush fund to go to Rawanda.