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In Letter To Editor, Governor De Jongh Seeks To Set The Record Straight

Letters / Opinion / Virgin Islands / February 23, 2017

Dear Editor:

I write in response to certain recently published comments having to do with the financial challenges facing our government and our community.  I understand as well as anyone the challenges we face.  I was there when we struggled with even deeper problems: a global recession and the loss of the major private sector employer in the territory.  I know the pressure of the obligations to meet bi-weekly payroll, pay vendors, meet the daily needs of hospitals, schools, and generally keep the economy moving and functioning.

Recently, statements have been made by the current of Commissioner of Finance — who was the Assistant Commissioner of Finance for six of my eight years as Governor — that my Administration “amassed upwards [of] $800 million in working capital.  And so all that happened is they were kicking the can down the road.  They kicked the can to the Mapp Administration…”.  Additionally, a press release was issued by Government House attributing to my successor the following statement “…to be fair, the previous Administration had challenges from the abrupt departure of Hovensa and the crippling worldwide recession and borrowed more than $800 million to close the gap…”.

I am not overly concerned with the former Assistant Commissioner’s disassociation from my Administration.  I understand that he has a new boss.  And I am appreciative of the Government House release which acknowledged the tremendous challenges we had at the time.  What does concern me is the inaccurate representation of the facts, and there are four essential facts.

Fact one.  My initial years were spent trying to find ways to both build and stabilize our revenue streams.  I met with cruise line officials to increase ship calls and passengers, I made trips to Congress to seek some relief on the measures that they had put in place that was strangling our tax incentive program and I met with the officials of the world’s second largest rum producer to interest them in the Virgin Islands.  My objectives were straight forward: to build the private sector, to increase the core revenues they generated, and to greatly increase rum receipts which were to be to dedicated to the pension system’s unfunded liability.

Fact two.  The financial crisis and its aftermath – the Great Recession – was, as my successor correctly stated, the deepest financial crisis our Territory has ever faced since we became responsible for our local governance. Our private sector was collapsing, and without the taxes generated from the private sector the government’s revenues plummeted by 36%, or $282 million in one year and remained well below earlier years thereafter.  Notwithstanding these circumstances, it was my job, and my Administration’s task, to do all that was humanly possible to keep people working, to keep the various branches of our government functioning, and to hold our economy together until the national and global crisis abated and the global economic system righted itself. There are those who at the time said that we should have right-sized government (mostly laying people off).  However, in an environment of limited private sector options, with even our tax incentive beneficiaries (whose business activity, for the most part, tracked conditions in the U.S. market) were requesting modifications to their tax benefits, this was not outcome I would have permitted during a global recession.   Where would our laid-off workers have found employment? Not here or in the States.  Who would have paid for their healthcare?  Would we have turned them away from our hospitals?  Our choices were not good, but they were clear: We needed to first weather the economic storm in order to begin to rebuild our local economy.  And, in 2011, as we were beginning to do just that, we suffered the shut-down of our largest private sector employer, HOVENSA, LLC.

Fact three.  The amount of working capital financing, or borrowing to “…close the gap”, was not, as stated, $800 million, but approximately twenty-five percent, or about $200 million, less.  Moreover, seventy percent of this borrowing was in 2009 – 2010 when things were at their worst.  Surely these are extraordinarily large numbers, but a misstatement of such a scale of such a vital number is clearly not a rounding error.  It is at once a mistake and a misrepresentation.  And of even greater significance, these working capital bonds were primarily funded by a new revenue source that my Administration identified and appropriately structured to not be an obligation of the Government of the Virgin Islands, the Virgin Islands taxpayer, nor would they divert money from the General Fund.  Through our work with the rum industry, we increased our Internal Revenue Matching Funds by enough to not only pay for these bonds, but to also have tens of millions of new dollars flowing each year into the General Fund.  What these borrowings did, however, was prevent me from proceeding with my initial approach of dedicating the increase in rum receipts to the GERS.  And all of this was achieved notwithstanding the astoundingly uninformed opposition from some who seemed unable to appreciate that these were not only revenues that we had never before received, but that these were funds that provided the means for our government, its workers and those it served in the community, to struggle through and survive the economic devastation caused by national and global events.

Here are a few numbers: in fiscal year 2007, the year when I was elected, total Matching Fund revenues (rum revenues) were $86.7 million.  After payments on all obligations, the General Fund received $21.6 million. By fiscal year 2014, my last full year in office, total Matching Fund revenues had grown to $238.0 million, with net funds available to the General Fund of $75.1 million. This is nearly a three-fold increase over the year I took office, and after paying the debt service on the working capital bonds that got us through the recession.

Fact four.  We did undertake the refinancing of approximately $850 million in outstanding debt which was issued before my taking office.  These refinancings did not provide us with any working capital, nor were they intended to.  These financings were undertaken in order to lower our future annual debt service burden and allowed us to allocate those savings to some other critical areas.  This is no different than what any of us would do with a personal loan or mortgage when we have the chance to lower our monthly payment.

Lastly, the statements and comments recently made by certain senators in recent committee hearings imply we burdened the Virgin Islands’ taxpayers with these borrowings and therefore limited their options.  This is not the case.  I understand that rum sales in the U.S. market may have dipped and therefore contributions to the General Fund may currently be lower than some past years, but the fundamental fact remains that the working capital bonds that we issued were funded by revenues that we identified, did not divert any monies from General Fund, and are still to this day contributing towards other government needs. No obligations on these borrowings were, in the words of Mr. Collens, “kicked down the road”.

My approach, during the financial crisis and following the Great Recession, was to maintain a balance between building back our core revenues and borrowing on the strength of the new revenues to keep the government functioning.  This allowed us to continue essential services as providing funding for children in daycare, for the elders at SeaView, Herbert Grigg and Queen Louise nursing facilities, to find monies to give to WAPA to cover the cash shortages on streetlights and non-payment of the utility bills by some semi-autonomous agencies, participate in the Affordable Care Act with Medicaid expansion, and take advantage of the opportunity to design and install a broadband fiber optic network.  I could not and would not walk away from these obligations that I saw as my duty.  The daily tasks of finding the revenues to make this happen may not have made headlines at the time, but this required diligent work by members of my Administration and their input and guidance, including that of then-Assistant Commissioner Collens.

The challenge today is to find ways and means to address the present situation.  The past may well assist us in meeting today’s challenges, but only if we correctly and objectively recall history and make sure that we learn its lessons.

I thank you for the opportunity to make these observations and comments.



John P. de Jongh, Jr.

Former Governor

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