The U.S. Virgin Islands' proposed budget may be overly optimistic in its revenue and spending assumptions, according to a Fitch Ratings analyst.
Fitch senior director Marcy Block made the comment Wednesday after reviewing Gov. Kenneth Mapp's proposed budget, as the territory attempts to address a tight fiscal situation and speculative bond ratings.
The governor is anticipating substantial revenue increases though increased enforcement actions.
According to a letter from Office of Management and Budget director Nellon Bowry to Mapp, the revenue collection initiatives are expected to yield $37.7 million. The initiatives are “1) more diligent and efficient processing and collection of current tax obligations, which is estimated to increase the annual tax take by $22 million; and 2) the aggressive efforts of the recently created joint Department of Justice – Internal Revenue Bureau Taskforce and by the Tax Assessor’s Office, to collect a significant portion of the accumulation of delinquent taxes, recently reported to be over $400 million, which is estimated to yield … $15.7 million.”
Block said the islands have expected enforcement actions to improve tax collections for past budgets but have been disappointed. She said the islands should make more conservative projections about the efforts’ yield.
She also said the islands’ projections for growth of individual and corporate income taxes and property taxes may be “robust,” and the government should scale back plans for the spending growth.
The governor’s proposed fiscal 2018 General Fund budget of $785.1 million is a 9.2% decrease from fiscal year 2017’s approved General Fund budget, Bowry said. However, the approved General Fund budget anticipated the sale of a bond for operating expenses, which hasn’t happened, Block said.
If one compares the islands’ adjusted budget without the borrowing to the proposed fiscal 2018 budget and excludes debt service, one finds spending is increasing by 3.7%, she said.
The governor-proposed budget has $90.3 million to cover the territory’s general obligation debt service.
The islands’ fiscal year 2018 budget packet indicates that the islands government owes $98.5 million in general fund debt in the fiscal year. When The Bond Buyer inquired about the apparent discrepancy, a government spokesman said the difference was due to “overlapping debt.” The bigger figure it includes other debt besides GO debt paid out of the general fund, he said.
Block said the discrepancy, if there was one, between the due debt service and the allotted debt service wasn’t a significant concern. She said the Virgin Islands Senate would make sure all due debt would be covered in its approved budget.