Statement of

the Honorable Donna M. Christensen

hearing on the economies and fiscal affairs in the Territories of Guam, American Samoa, the Commonwealth of the Northern Mariana Islands,

and the United States Virgin Islands

Energy and Natural Resources Committee

U.S. Senate

March 1, 2006

Thank you Mr. Chairman and Ranking Member for the opportunity to make an opening statement at this important hearing on the financial challenges facing the governments of the U.S. Insular Areas.

Whether, one is looking at the CNMI and the possible loss of their garment industry or American Samoa and potential loss of Section 936 benefits or the tax changes in my own territory of the Virgin Islands, we are all facing challenges to our local economies which could have a catastrophic effect on government and the revenues they receive. 

In the case of the Virgin Islands, I want to begin my remarks by asking for the committee’s help in repealing section of the 1936 regulating property tax in the Virgin Islands and reversing certain changes that were made by the USA JOBS Act, P.L. 108 which has the potential of crippling our very successful Economic Development Commission program.  This a program which grants certain tax benefits to persons who make investments in our territory. 

Because both the federal and our own local government was not as vigilant they should have been in weeding out those who sought to use our successful program, which Congress provided to us to help us become more self-sufficient and to grow our economy, to avoid paying their fair share of taxes, Congress tightened the requirements for being considered a Virgin Islands resident as well as what type of income can qualify for reduction under the program.

We believe Congress went farther than was needed in its attempt to deal with abuses in the program and as a consequence the entire program, which accounts for 20% of government revenues, is at serious risk.  Because we are not fortunate to have representation in this body, we have looked to you, Mr. Chairman and the members of this committee to be our champions in the Senate, as has been your historic role.

We have been working with a number of your colleagues on the Finance Committee to restore the language that was in the original Senate passed version of the JOBS Act which our EDC beneficiaries tell us is the absolute minimum requirement in terms of the number of days they would be required to be on the island in order to qualify as a Virgin Islands resident. 

Governor Turnbull in his remarks will elaborate on this issue in greater detail but I will conclude by simply saying that this is the number one issue for us in terms of our economic prosperity going forward.

Now to another issue that is equally important to me as well as to a majority of my constituents!  You have pending before your committee, Mr. Chairman, legislation which I sponsored and which twice passed the House of Representatives that would create an office of  Chief Financial Office for the Virgin Islands.  The bill, H.R. 62, last passed the House a year ago this month, and has been pending before this committee ever since. 

Because there hasn’t been a hearing scheduled on this bill in all this time, I want to take this opportunity Mr. Chairman to urge you and your colleagues to pass H.R. 62, because of the critical role I believe it can play in strengthening the Virgin Islands ability to better manage its scarce resources. 

We live in a time when no one can afford to waste one single penny.   I believe – as strongly as I did when I first introduced this bill almost three years ago -- that a Chief Financial Officer for the Virgin Islands can serve as an immeasurable resource tool for first rate financial management of our scarce territorial resources, freed from the constraints of day-to-day political pressures.  We -- all of us in this body know all to well – how financial decisions made within a political context often does not yield the wisest results. 

I want to say at the outset, Mr. Chairman that my support for and introduction of, legislation to create a Chief Financial Office for the Virgin Islands is in no way an indictment of the job that Governor Charles W. Turnbull and his financial management team has done in managing the finances of the Territory. 

In fact, I want to publicly applaud the governor for the job he has done in stewarding the territory through very perilous fiscal times.

When Governor Turnbull assumed the office of Governor of the Virgin Islands nearly eight years ago, the territory was “technically insolvent” and on the brink of fiscal collapse.  

He inherited a government that was “swamped with debt with total liabilities exceeding $1.12 billion, including a cumulative General Fund deficit in excess of $250 million and an annual deficit approaching $100 million. 

As the Governor stated in his final “State of the Territory” address this past January, he and his team “rolled up their sleeves, went to work.” And with the assistance of Congress, particularly this committee, as well as “windfalls” from the EDC companies and revenues realized from increased oil prices, he and his team were able to restore budget surpluses, and strengthened the territory’s financial position.”

But as commendable a job as the Governor has done all is not as it could and should be with regard to our fiscal ship and we can and should do better!

Opponents of my bill, including the governor, argue that having a Chief Financial Officer, who is appointed by the Governor but does not serve at his pleasure, will be a step-backward in our political development and would be an act of overt colonialism.  Nothing could be further from the truth! 

While my bill would be an act of Congress, it sets up a process that is entirely within the hands of Virgin Islanders.  And most importantly, it creates a position that sunsets in five years. 

When I first introduced my CFO bill as it is known, I did so because I believed that something had to be done to prevent the Virgin Islands from fiscal collapse. 

Even with all of the work that Governor Turnbull has done, as recent as six years ago, our economy was not performing as it is today.

After carefully looking at the path that the District of Columbia took to pull itself out of its fiscal nightmare and consulting with District officials including the current DC Chief Financial Officer, as well as my friend and colleague, Eleanor Holmes Norton – who testified in support of my bill in the House –

I came to the conclusion that what we needed was an expert impartial financial manager, whose charge was to simultaneously foster sound financial management while preventing “over-spending.” 

We have come along way since I first introduced my bill thanks in large part to a tremendous upswing in nearly all segments of our local economy.   However, the practices that led us to the brink of fiscal collapse during down times still remain. 

Mr. Chairman, I want to repeat that my proposal is not an indictment of Governor Turnbull or any member of his team. 

The lax financial practices which have led many of our local agencies to be put under severe grant restrictions by agencies of the federal government existed long before the Turnbull Administration came into being and will continue to exist long after it is gone unless we institute new practices.

I know, because I served as an official of Virgin Islands Health Department some years ago and the practices that we are being criticized for by a number of our federal grant managers existed then and continue to exist today. 

Mr. Chairman some have said that if Congress were to pass my bill you would be interjecting yourselves in our local affairs; a specious charge if I ever heard one.   

It was not the Congress that conceived of this proposal and sought to impose it on us, but the elected representative of the people of the Virgin Islands in Congress who has been calling for this proposal, buffeted from all indications, by the strong support of my constituents as I seek to return fiscal credibility back to the V.I. government, especially as it relates to federal agencies and their funding of projects and services in the territory.

Mr. Chairman it has not been easy for me to watch the fiscal health of the territory steadily decline since I have been in office.  Since the middle 1990s, successive administrations and Legislatures have – for good reasons -- not been able to maintain sound fiscal management and financial policies. 

While some of the reasons for this condition have been outside of our control, such as recurrent catastrophic hurricanes and the tax cuts and credits passed by Congress, much of the blame for this condition can be traced to the unfortunate reality that the Territory’s managers and lawmakers have not substantively addressed the imbalance between the needs and demands of the community and its revenues. 

While our economic future looks bright at the moment, if we continue the ways of the past our bright future can turn to dark days in a blink of an eye. 

While, my bill is not a panacea, I believe that it will help chart a course for fiscal management that will keep us in good stead during good times as the present and help us prepare for darker days which are sure to be visited upon us in the future.  I urge you to support passage of H.R. 62