ARTICLE

Revenues, rightsizing and structural deficit

February 7, 2017 – Justin Moorhead

On the matter of revenues, rightsizing and the structural deficit, we wade through a plethora of commentary in our effort to reach what we hope is an informed opinion. Individuals with greater access to information and a better understanding of the subject matter can best assist us in that effort, assuming they are willing to share their knowledge.

That information sharing is not always done altruistically. Nevertheless, through their insight we are better informed. Their opinions help to challenge, correct or validate our own perspectives and expand our understanding.

Government policies, decisions and actions should only move forward based on hard data. Opinion and best judgment are just that and we all have those. Data, however, is a valuable product as it buttresses decision-making.

Determining the most effective approach to dealing with the V.I. Government’s structural deficit requires evaluating available information and reaching logical conclusions from that analysis. This requires we look to those with more insight to help us better understand how successful any set of actions might be.

The deficit and resulting liquidity issue threaten government payroll, quality of services and soon, retirement benefits. We are unable to invest in our economic growth and competitiveness. Our tourism product is vulnerable because of an inability to refresh the product through adequate investment. Financial resources are insufficient to underwrite the manpower training and investment in strategies that can help broaden and diversify our economy.

Do we now raise additional revenues to address the structural deficit or do we right size government spending? And, if we do either or both, how much needs to be done?
There are no easy answers to these questions but we do need to seriously weigh the judgment of those in a better position to parse alternatives and explain the ramifications of available options.

Much of the conversation around what can be done has focused on increasing revenue. Those new revenue proposals are quantified. There is disagreement on how much new revenue these measures will generate and the impact on out tourism product.

Rightsizing, however, has received less attention. There are no specific as to the what, how and when of this option. Given the political forces aligned to forestall any reduction in government spending that threatens special interest, it is no wonder details are few, at best.

Rightsizing requires aligning spending with available revenues. Most importantly, it suggests spending in a manner consistent with the essential role of government and consistent with the greater good.

Similar to sound budgeting practice, rightsizing does not necessarily step off from past practices but deconstructs government operations and services to ensure when resources are committed, essential services are addressed, first. Past practices are not a predictor of future spending.

Unless it can be conclusively demonstrated that new revenues will be sufficient to allow underwriting a higher level of spending, and that those new revenue measures can be imposed without destabilizing the economy, there is no viable alternative than to match spending to existing revenue generating measures.

The superstition that government operations are at a bare bones spending level and cannot be reduced further is invalid. The discussion must focus on what government should be doing versus what it is doing. As long as a funding gap exists, expenses must equal revenue. To advocate otherwise sows confusion. Reality does not bend to our wishes. The interest of those seeking leadership out of this quagmire, which is of our own making, is not best served.

Our business communities are on record that the proposed revenue increases will not achieve the desired outcome. In fact, they suggest these increases will reduce revenues, as new taxes will stifle an already vulnerable tourist demand for certain goods and services.

Our community operates in a competitive environment where the informed consumer has choices and chooses to exercise that choice by purchasing goods, and services wherever dollar savings is greater and the return on investment more advantageous. The cost of product and services offered in our community are not inelastic– the higher the cost, the lower the demand.

Increasing fees and taxes also drives the cost of living higher. At times this is unavoidable, as we may require additional revenues to underwrite services when a consensus exists that new or expanded services are in our collective best interest and not affordable on existing revenues. Waste management, public health, infrastructure maintenance and basic utilities services spring to mind.

The most mobile and advantaged members of the community have options for lowering what they pay for goods and services. The most vulnerable have fewer options and routinely bear the burden of improperly targeted, higher taxes and fees.

To date, what has driven the discussion of higher revenues and rightsizing of spending is an effort to convince the banking and investor community that we have the political will to manage our internal financial affairs. However, when an envisioned solution runs the real risk of not achieving its stated objective, it is not a viable solution.

Those who make the livelihood from the sale of the items that the proposed new revenue measures will impact tell us so. They have the data. It is not simply their opinion. Undoubtedly the audiences we are seeking to convince that we have taken decisive measures to reduce our structural deficit will also see it that way. We should not dismiss the messenger because the message communicated complicates arriving at a solution.

Dodging the difficult decision today exponentially increases the problem tomorrow. The longer the delay in making the hard decisions the more impactful is that delay on the community, the economy and the government.

Compromise is neither a solution nor a virtue when the details of the matter pursued for compromise is flawed. Suggesting that business interest does not align with community interest is also disingenuous. Personalizing differences of perspective and seeking to divide the community along economic lines panders to populism. We see that increasingly played out on the national stage. In a small community it is particularly problematic.

Government produces no revenues. The commercial sector generates revenue. Government spending redistributes monies whereas commerce is the lifeblood of the community. It underwrites government’s consumption and redistribution.

We are all self-serving when evaluating increased tax and fee proposals, but when hard data support informed opinions, and we can benefit from available data, it is important that we give that data and those opinions the credence they deserves. We lose sight of that reality to our detriment.

John Kennedy penned “Profiles in Courage” in the wake of the McCarthy scandal. McCarthy’s purported purpose was to expose how communists living in the United States were undermining American society. The thesis of Kennedy’s book was to hold up for recognition individuals who at critical points in our nation’s history stood firm and provided leadership regardless of the opprobrium of those around them.

It is important that those working to guide us through this challenging period do likewise and reach decisions based on experience and data no matter of how unpopular those decisions may be to some of us.