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."
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?
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!
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4 comments:
The virgin Islands just re-elected the same reps so I guess we get what we deserves most people still have their blinders on, so keep on pusshing ma boy. Mabey it needs the a diffrient crisis since the hurricanes only wake's us up for a very short time then we hybo again.
Good points.
You're right there. Seems that all we do is recycle the same politicians year in and year out. And, we wonder why there's no change in the state of affairs.
The beautiful thing about Democracy and a Republican form of Government is that "we the people" can control our destiny. The ugly thing about the American system is that apathy breeds tyranny. And, we are run a muck because of our own neglect!
But, the time has come to chart a new course. For as Barack Obama has said: CHANGE comes from the bottom up! We cannot expect those in power to change things and thus relinquish their power. We all must get involved and Answer the Call....
Virgin Islands for the Virgin Islanders...those at home and those abroad!
Gross receipts taxes are taxes that the government imposes on all sales that a business makes. In the USVI, businesses pay them every month. For example, let's say somebody lost their mind and started a chicken farm in Prosperity or La Grange. Let's say that it cost them $15 to raise, slaughter and market each chicken. Let's finally say that every month, the farm could only sell 2000 chickens at cost of $10 per chicken. The farm would make $20,000 in revenues monthly and be forced to pay $800 or a 4% gross receipts tax on that revenue. Notice that the farm would be losing $10,000 per month but still have the gross receipts tax liability. If the farm didn't sell any chickens one month, it wouldn't pay any gross receipts taxes.
But, with the economy in such disarray should the Virgin Islands rely on an assumed gross-receipts tax value?
Yes. The PFA board is authorizing the PFA to float the bonds. I believe that authorization from the legislature is still necessary for this to become a reality. There is no guarantee that all of this money will be raised. This is only for authorization to float bonds.
No it is not tantamount to printing money out of thin air. The deJongh administration is doing this because it expects that economic activity will severely contract next for the next few years. The administration plans to use the money generated from the bonds to generate economic activity. There is no shortfall as the administration sends a balanced budget to the legislature every year; it did so in 07 and 08.
Governments float bonds for the same reason that people and businesses use credit. For example, I need a car to get to work but I don't have $15k in cash to buy one. Or, the chicken farm needs a $100k to build out a more efficient slaughter house so it can lower costs by $5 per chicken.
Yes, I could lose my job and not be able to pay off my car loan and yes the chicken farm could go under. But would it make more sense for me to not finance a car because I don't want to take on debt?
I agree with you on WAPA bills being unpaid to the degree that they are. I don't know who to blame for that.
Ciao from Italy
:)
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