Disappointing revenues put US Virgin Islands in bind

Sharply lower than expected revenues for the U.S. Virgin Islands government have put it into difficult financial straits in the final weeks of its fiscal year.

USVI Director of the Office of Management and Budget Julio Rhymer, Jr. told the territorial Senate Committee on Budget, Appropriations and Finance he expects revenues to come in 9.4% below forecast through the end of the fiscal year, which is on Sept. 30. This would be a $104 million revenue deficit compared to original estimates. 

Rhymer on Thursday predicted a $59 million deficit for the fiscal year and noted as of Aug. 7 the government had $34.5 million of operating cash.

Beyond the operating cash, the government has a budget stabilization fund of $11.6 million and $25.2 million still available from a $150 million line of credit, he said.

To address the government's immediate cash needs, Rhymer said the Senate should approve of the use of Epstein and Leon Black legal settlements. Rhyner said the former currently has a balance between $74 million and $79 million. 

In November 2022 the territory's government reached a deal with the Jeffrey Epstein estate for $133 million to come to the government, with some of it to be held by the government for whatever purposes it chose. Young women and children were trafficked, raped, sexually assaulted, and held captive in the Virgin Islands at Epstein's private island, Little St. James, the territory's Department of Justice said in announcing the settlement.

Epstein lived in the U.S. Virgin Islands for many years before committing suicide in 2019.

In July 2023 the private equity investor Leon Black agreed to pay $62.5 million to the territory to be released from claims arising out of the territory's investigation into Epstein's sex trafficking operations. Black has maintained that any payments he made over the years to Epstein were for financial advice and services.

Rhymer and his department team urged the senators to take action about open-ended spending allocations. In the general fund and special fund, $157.5 million in appropriations from fiscal 2021 through fiscal 2026 were designated as "available until expended." As of the present there is $73.2 million remaining unexpended overall and $21.3 million unexpended specifically from the general fund. 

Rhymer's team urged the legislature to limit open-ended appropriations, force unspent money to return to the budget after a set deadline and review all old unspent money before approving new bills.

"Mr. Rhymer's presentation is concerning, but not entirely surprising," Senate President Novelle Francis told The Bond Buyer.

"An unexpected revenue shortfall this late in the fiscal year underscores the need for more conservative revenue forecasting, tighter fiscal discipline, and greater transparency in how the government is monitoring its financial position," he said.

"For the remainder of the current fiscal year, the government should immediately move into a disciplined expenditure-management mode," said Francis, who is vice chair of the committee. "That means identifying nonessential spending, deferring expenditures that are not critical to core services, tightening procurement and travel and establishing monthly revenue and expenditure targets. At the same time, the government should aggressively pursue all outstanding federal reimbursements, tax collections and other revenues that are legitimately available.

"For the coming fiscal year ... the budget should be built on realistic, conservative revenue assumptions rather than optimistic projections," Francis continued. The government needs to address the structural deficits within several semi-autonomous agencies that continue to place pressure on the general fund. We also need a serious effort to improve tax compliance and collections, diversify the economy and grow the private-sector tax base."

A revenue shortfall "should force the government to distinguish between essential services, productive investments and expenditures that can no longer be sustained," Francis said.

Rhymer presented Gov. Albert Bryan, Jr.'s proposed fiscal 2027 $958 million general fund and $1.64 billion executive budget to the senators on the committee. The former figure would be a $21.6 million increase on this year's approved general fund budget and the latter figure would be unchanged from this year's figure.