Could the Virgin Islands be Embarking on the Course to Financial Disaster?

Now, I'll admit I'm no economist.  So, if someone can talk me down on this it would be refreshing.  I've actually spent the past few days trying to decipher this...

In The Source on Monday, there was an article about the Virgin Islands Public Finance Authority (PFA) being authorized to float up to $341 Million in gross-receipts tax bonds.  Who knows exactly what gross-receipts tax bonds are?  If so, please chime in on this point.

A gross-receipts tax is "a tax on the total gross revenues of a company, regardless of their source."  The bond market is a financial market where traders "buy and sell debt securities."  Here's where things get interesting.

You'd have to be in a coma to not know about the nationwide housing crisis.  The housing crisis came about because of an assumption of continued increases in housing prices and a reliance on mortgage backed securities.  But, when housing prices stopped rising the economy came crashing down.

Now maybe this is naive, but I seem to see parallels.  As a mortgage backed security relies on an assumed increase in housing values, a gross-receipts tax bond relies on an increase (or at least stability) in gross-receipts taxes collected.  But, with the economy in such disarray should the Virgin Islands rely on an assumed gross-receipts tax value?

The PFA head (Mr. Julito Francis) did not disclose a specific project for the money but said their list includes "money for territory-wide education, waste management, transportation and recreation projects."  Ok, that sounds good.  But, am I crazy to ask: shouldn't those matters have been addressed in the original budget?  Could there really be a $341 Million shortfall in the budget?  And if there is - somehow - a shortfall, should that not be addressed by a supplemental budget?

For what purpose does the Virgin Islands need to float bonds?

It is tantamount to the Federal Reserve Bank arbitrary printing of money "out of thin air." 

By floating bonds, it seems as if the Virgin Islands PFA is
essentially injecting money into the Virgin Islands economy and giving it to the Virgin Islands Government with the
hopes that the businesses in the Territory will continue to perform (even in tough economic times) according to their projections.

This round of bonds is in addition to the $250 Million in bonds floated to pay for the Diageo deal.  These particular bonds aren't secured by general gross-receipts taxes, but rather assume claim to revenues from the rum that should begin flowing four years from now (2012).  It is also in addition to another $392 Million in gross-receipts tax bonds.

That's a whoping $983 Million in speculative bonds - speculative because if any of the future numbers miss, the Virgin Islands economy could take and the recession could be worse than that to be experienced on the National-level.

All of this money literally floating around, but the Constitutional Convention couldn't be allotted any real money to do its "work."  (Do Virgin Islanders Deserve a Constitution?)  All of this money being created but WAPA bills remain unpaid.  Does any of this make sense to any of you?

None of the articles I've seen on this issue have addressed the economics of this authorization.  So, we'll talk about it here.  There must be a reason why everyone else is not up in arms about this.  Can someone explain it to me?  I need your help making sense of this...

Answer the Call before it's too late: Virgin Islands for the Virgin Islanders...those at home and those abroad!

Virgin Islands, Economic Crisis

If Government Capital Must Be Invested...Make it for Infrastructure Development!

In these tight economic times, we're witnessing something tremendously ironic: those who have been against "hand-outs" for individuals facing hard times are demanding similar-type "hand-outs" for corporations. In the name of Economic Development or Economic Stimulus, corporations are lining up for money to either prop up their businesses or salvage them.

Personally, I am for tax-cuts for all (corporations and individuals). I prefer tax-cuts to appropriations or allotments. Let me keep my money. Do not take my money and feign benevolence by giving it back to me or to someone else.

But, in this time it has become expected that the government will intervene. And because our economy has been so deathly mismanaged, it seems necessary to seek government intervention. So the question remains: where should the government intervene?

Former Clinton Labor Secretary, Robert Reich called the government the "spender of last resort." He laid out his plan in an article on Talking Points Memo. And, if the government is going to spend, should our tax dollars be spent with those who may hoard that money? Or, would it be better to spend that money (the people's money) in ways that directly improve the quality of life for the people?

Now, I'm not advocating any permanent New Deal-style programs, but we know the Virgin Islands Legislature is itching to spend YOUR money. If they're going to give away your money in the name of economic development/stimulus, why not give it in a way that will directly benefit you?

We reported on the poor state of affairs at WAPA. And, we recently told you about the lackluster performance at VITELCO. Wouldn't it be nice to improve these services? Moreover, wouldn't everyone benefit from such an investment?

Of course, Virgin Islanders will benefit from reliable electricity and modern phone/broadband service. But, businesses will also business from reliable electricity and modern communications services. Moreover, more people might be inclined to start a business in the Virgin Islands if they can count on reliable utilities.

I spoke with Dr. Jeffrey Eisenach, Chriaman & Managing Partner at Empiris, LLC. He was mentioned in Saturday's posting on Vitelco's dilapidated infrastructure. His firm assisted in the study of Vitelco's infrastucture. Here's what he said to VI Watch:

The situation in the USVI is pretty unique in many ways, but perhaps most notably the sorry state of the telecom network there following years of neglect by the prior owners.

...The study upon which my estimates of economic benefits are based – by Connect Kentucky – indicates that the increase in broadband penetration that occurred there as a result of a variety of efforts was accomplished for very little in the way of incremental cost.

You remember that it was reported: a 14% increase in broadband capacity will provide the Virgin Islands with 1700 additional jobs. I did some research on cost to improve broadband capacity. And based on research from the National Exchange Carrier Association (the study refered to by Dr. Eisenach), for the 66K access lines in the Virgin Islands it would take (rough estimate) $72 Million to close that gap. That sum is about twice the amount requested for the fish farm. But, it would yield almost six times as many jobs as the fish farm. If the Virgin Islands Legislature only wanted to spend the $34 Million, they could commit to a 7% increase in broadband capacity and still bring about almost three times as many jobs as the fish farm.

Don't think I'm beating up on the fish farm! I'm not...

I'm just looking at the Virgin Islands Senators and other government officials who promoted the fish farm to Virgin Islanders as something in the best interests of the Territory as a whole. That is the crux of the problem: government leaders telling us that things are in our best interest because those things are in their personal interest.

(Remember returning Senator Adlah "Foncie" Donastorg served as a Consultant for Crucian Holdings, LLC. Again, that's not a slight at the integrity of the business - businesses do what's in their interests. And, having a former/returning Senator in your corner is definitely in Crucian Holdings' best interests. However, public officials are to serve the public interest. And, those who've left office should be required to obey ethical rules to protect against the "revolving door.")

Again, I would personally prefer keeping my money. But, there are limited need for taxes. Yet, those tax dollars should not be used forIf government capital must be invested, make it for infrastructure development! If we are going to spend taxpayer dollars, shouldn't those dollars be spent to directly impact the lives of taxpayers? What are your thoughts? If the government is going to spend your money, where should it go: to initiatives that may indirectly benefit you, or initiatives that would directly benefit you? Why?

Answer the Call: Virgin Islands for the Virgin Islanders...those at home and those abroad!

Dilapidated Infrastructure and Ignored Issues

I read in The Source about the "grim picture of Vitelco's infrastructure." According to the article, two-thirds of Vitelco's facilities throughout the Territory are in poor condition and one-third are in fair condition.

What?!

There are software packages so out of date that the manufacturer no longer supports them. The consultant who inspected the facilities also said things are so bad that Vitelco has "even failed to do routing maintenance like clearing bush from around telephone poles."

Here's a telling section of the article:

Another consultant, Jeffrey Eisenach of the Washington, D.C.-based Empiris LLC, later added that the inability to offer more advanced services like broadband to all its customers has a big economic impact. He said that only 36 percent of people in the Virgin Islands have broadband accessibility compared to 62 percent on the mainland.

"If you closed the gap by 14 percent, you'd get 1,700 new jobs," Eisenach.

So here we are arguing about $34 Million for fish farms, and our public utilities are horrible! WAPA cannot pay its bills. Its facilities are run down. And, now we know that the telephone facilities are also in disrepair. Why not use that $34 Million to improve the quality of telephone services?

As Jeffrey Eisenach said, a close in the gap of 14% would provide 1700 jobs. That's WAY more jobs than the 300 provided by the fish farm. I emailed Dr. Eisenach at Empiris LLC to determine how much it would cost to close the broadband gap by the projected 14%. We'll see if he responds.

We cannot allow them to continue milking us for the few resources that remain. We must assert ourselves in defense of our liberty. Join or Die...

Answer the Call: Virgin Islands for the Virgin Islanders...those at home and those abroad!

The Obama Phenomenon and the Virgin Islands

Today we are living in a historic time.  Barack Obama was elected the 44th President of the United States of America.  In this posting, I would like to explore the meaning of the "Obama Phenomenon" to the Virgin Islands. 

President-Elect Barack Obama stated that he "was never the likeliest candidate for this office. (Presidency)"  His journey was one that was enormously difficult.  His victory was something that no one thought possible.  And, the reality of his coming presidency gives us all hope that the American Dream is still alive - and available to us all.  This is the "Obama Phenomenon."

Virgin Islanders are not the likeliest candidate for full citizenship rights.  The journey ahead is enormously difficult.  And when we succeed, it will be a victory that no one thought possible.  The American Dream is still alive and available to Virgin Islanders.  It may be difficult - so if you get discouraged, remind yourself as President-Elect Barack Obama reminded us:

Yes We Can!

We will have to develop a coalition of people who are committed to securing and protecting the inalienable rights of Virgin Islanders.  We will have to battle both locals and foreigners who are against this change.  At times it will be difficult, but we must remember the refrain:

Yes We Can!

President-Elect Barack Obama said:

The road ahead will be long. Our climb will be steep. We may not get there in one year or even in one term. But, America, I have never been more hopeful than I am tonight that we will get there.

The same is true for the Virgin Islands and the Virgin Islanders: the road ahead will be long.  Our climb will be steep.  We may not get there in one year.  But, Virgin Islanders, I have never been more hopeful than I am as I reflect on all that President-Elect Barack Obama accomplished in his run for the Presidency.

So, when we begin to doubt, we only need to shout:

Yes We Can!

We have no reason to think that we cannot make it.  We should now know that with an effective and efficient organization, we can defeat great odds.  With the strength of an effective and well-organized campaign, President-Elect Barack Obama was able to defeat great odds.  The same is possible for us.

Now is the time for us - Virgin Islanders - to reach out for CHANGE.  Now is the time for us to demand CHANGE.  Now is the time for Virgin Islanders at home and abroad to fight for CHANGE and the full blessings of Liberty for our people.

Yes We Can!

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Answer the Call: Virgin Islands for the Virgin Islanders...those at home and those abroad!

Virgin Islands, President-Elect Barack Obama, Barack Obama