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FEDERAL LOANS FOR THE VIRGIN ISLANDS
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"1" r-t 
HEARING
k:ANSAS STATE. UNIVEA611
BEFORE THE
COMMITTEE ON
INTERIOR AND INSULAR AFFAIRS
UNITED STATES SENATE
Ir
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 r-q 
A BILL TO AUTHORIZE LOAN FUNDS FOR THE GOV-
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ERNMENT OF THE VIRGIN ISLANDS, AND FOR OTHER
PURPOSES
NINETY-FOURTH CONGRESS
SECOND SESSION
ON
S. 3357
MAY 10, 1976
Printed for the use of the
Committee on Interior and Insular Affairs
U.S. GOVERNMENT PRINTING OFFICE
72-7470 
WASHINGTON : 1976
COMMITTEE ON INTERIOR AND INSULAR AFFAIRS
HENRY M. JACKSON, Washington, Chairman
FRANK CHURCH, 
Idaho
LEE METCALF, Montana
J. BENNETT JOHNSTON, Louisiana
JAMES ABOUREZK, South Dakota
FLOYD K. HASKELL, Colorado
JOHN GLENN, Ohio
RICHARD STONE, Florida
DALE BUMPERS, Arkansas
GRENVILLE GARSIDE, Special Counsel and Staff Director
DANIEL A. DREYFUS, Deputy Staff Director for Legislation
WILLIAM J. VAN NESS, Chief Counsel
D. MICHAEL HARVEY, Deputy Chief Counsel
OvvioN J. MALONE, Senior Counsel
JAMES P. BEIRNE, Counsel
W. 0. (FRED) CRAFT, Jr., Minority Counsel
PAUL J. FANNIN, Arizona
CLIFFORD P. HANSEN, Wyoming
MARK 0. HATFIELD, Oregon
JAMES A. McCLURE, Idaho
DEWEY F. BARTLETT, Oklahoma
CONTENTS
Page
S. 3357 
4
Department of the Interior report 
2
STATEMENTS
Johnston, Hon. J. Bennett, a U.S. Senator from the State of Louisiana 
1
King, Hon. Cyril E., Governor of the Virgin Islands, accompanied by
Justin L. Moorhead, Budget Director; and Auguste Rimpel, Commis-
sioner of Commerce 
de Lugo, Hon. Ron, a Delegate from the Virgin Islands 
13,21
8
Rice, Emmett, Acting Director of Territorial Affairs, Department of the
Interior; accompanied by Stephen Sander, staff assistant 
24
ADDITIONAL MATERIAL
Jackson, Hon. Henry M., a U.S. Senator from the State of Washington
Letter to Secretary Kleppe, May 4, 1976 
 8
Letters received from Robert V. Vaughn, St. Croix, V.I., May 16
and 17, 1976 
 43
FEDERAL LOANS FOR THE VIRGIN ISLANDS
MONDAY, MAY 10, 1976
U.S. SENATE,
COMMITTEE ON INTERIOR AND INSULAR AFFAIRS,
TV a8hington, D.0 
.
The committee met, pursuant to notice, at 10:30 a.m., in room 3110
Dirksen Office Building, Hon. J. Bennett Johnston presiding.
Present: Senators Johnston and Hansen.
Also present: James P. Beirne, counsel.
OPENING STATEMENT OF HON. I. BENNETT JOHNSTON, A. U.S.
SENATOR FROM THE STATE OF LOUISIANA
Senator JOHNSTON. The hearing will come to order. In opening these
hearings on S. 3357, a bill I introduced at the request of the Virgin
Islands delegate, Ron de Lugo, I would like the record to show these
hearings came very close to not being held at all, at least not before
May 15, as most of the administration bill was introduced on April
26.
I checked with the committee staff about setting up hearings on
the Long proposal. I was informed the committee was already booked
up until June in the committee rooms. Further, after contacting some
of my colleagues on this matter, it was expressed to me in no uncertain
terms that rushing legislation like this was not the proper way for the
Senate to conduct its business. Rightfully, I agree with them.
I believe the legislative process, at least in the Senate, requires more
than just rubberstamping administration proposals. The Congress
after all is a coequal branch of Government. I strongly believe requests
for the democratic process requires more than sending a bill up here at
the last minute and expecting Congress to act immediately without
even first acknowledging that such a bill might be forthcoming.
I am concerned with the entire way this loan program has been
handled and I would like to place in the record a letter the chairman
of the committee has written to the Secretary of the Interior regard-
ing these concerns.
I would also like to point out the reason we are here this morning is
the persistent efforts of Virgin Islands Delegate, Don de Lugo. Con-
gressman de Lugo spoke to me about this on Thursday, April 29, and
T strongly urged at that time that hearings be held before May 15, the
congressional budget deadline.
I told him at that time our committee schedule was such that I did
not think it was possible. However, I agreed to check again and, on
Friday, April 30, with the chairman's permission, I ordered the staff
to change the schedule so hearings could be arranged. I frankly do not
believe this is the appropriate way to legislate, but at least my willing-
(1)
2
ness to be here this morning is, in part, a testament to the persuasive-
ness of Ron de Lugo.
I believe the people of the Virgin Islands should be commended for
sending someone of his ability and persistence up here to get things
done for the Virgin Islands.
At this point I will place in the record the executive communication,
the text of S. 3357, and the chairman's letter to the Secretary of the
Interior.
[The material referred to above follows:]
U.S. DEPARTMENT OF THE INTERIOR,
OFFICE OF THE SECRETARY,
Washington, D.C., April 7, 1976.
Hon. NELSON A. ROCKEFELLER,
President of the Senate,
-Washington, D.C.
DEAR MR. PRESIDENT: Enclosed is a draft bill "To authorize loan funds for
the Government of the Virgin Islands and for other purposes."
We recommend that the bill be referred to the appropriate Committee for con-
sideration and that it be enacted.
'At present there is a fiscal crisis confronting the territorial Government of the
Virgin Islands. This crisis is due to the state of the economy and government
revenue collection capability. Tourism—the largest industry and major contrib-
utor to the gross domestic product of the Virgin Islands—has declined over the
past three years. This decline was caused by the worldwide recession, local dis-
turbances, and the reduced attraction of the islands' freeport status. The latter
was the result of the devaluation of the U.S. dollar and the lowering of tariff
barriers on the mainland United States. The decline in tourism precipitated the
reduction of public revenues from this industry.
In addition to this revenue decline, the Tax Reduction Act of 1975 (and the
amendment which extended it) with its rebate provisions, negative income tax,
liberalized investment credits, and other tax reduction features, further reduced
the revenues available to the Virgin Islands Government.
The purpose of the Tax Reduction Acts was to stimulate the economy. While
this was achieved in the continental United States, the Acts had the opposite
result in the Virgin Islands.
In practice, under the Tax Reduction Acts, people would have more money to
spend, which would improve the demand for goods and services. This would have
a multiplier effect on the economy, and thus it would improve. Such was true in
the United States. However, most of the goods and services in the Virgin Islands
come from the continental United States. The new money in the Virgin Islands
quickly went to the mainland without improving the Virgin Islands economy.
Estimated losses of Virgin Islands Government revenues as a result of these Acts
approximate $15 million.
The loss of government revenues meant a corresponding reduction in expendi-
tures. Since the taxing authority and public indebtedness of the Virgin Islands
is, by law, far more restricted than that of the U.S. Government or many States,
the Virgin Islands cannot compensate for the loss of revenues.
'At the beginning of fiscal year 1976 the revenues projected for the the Govern-
ment of the Virgin Islands exceeded $132 million. Proposed expenditures for
government operating costs were equal to that amount. That revenue amount
included $20 million in anticipated receipts from custom duties on petroleum
products imported into the United States from the Virgin Islands. However, the
Department of Justice has ruled that there is no legal 'authority in the U.S. to
make these payments, and thus, they are not available. Actual receipts for the
first half of fiscal year 1976 suggest maximum receipts of $92.5 million from all
taxes, fees and fines, including moneys collected from hospital operations. Execu-
tive action such as reducing expenditures and increasing revenues yielded a
balanced budget of $117.1 million.
This included the transfer into the operating budget of capital improvement
funds in excess of $25 million, a severe curtailing of government services, and a
personnel reduction of 346 employees. The government is the primary employer
in the Virgin Islands and the rate of unemployment prior to the government lay-
off already exceeded 9% of the work force.
In the areas of health and education these reductions have been most pro-
nounced. The reductions in health personnel required reducing the number of
3
hospital beds and limited the service capability of the Virgin Islands' two
hospitals.
The schools are understaffed and over crowded. In 1970 the school system ad-
mitted all non-citizen (alien) school-age children legally residing in the Virgin
Islands. The enrollment increase since then has been 58.3%, with a serious impact
on education services.
To meet its service responsibilities to its citizens, the Government of the Vir-
gin Islands has, from 1971 through 1975, deferred $31 million worth of capital
improvement projects to make these moneys available for operating expenses.
Without financial relief, an additional $30 million in capital projects will have
to be deferred in fiscal years 1976 and 1977. This is a total of $61 million for the
period fiscal years 1971 through 1977.
The Government of the Virgin Islands needs legislation and Federal assistance
through loans to stimulate the economy. Such assistance will allow the terri-
tory to 'balance the operating budget at an acceptable level of services by fiscal
year 1979.
The attached draft bill would deal with the effects of the Tax Reducation Acts
and the deferred capital improvements projects. Section 1 would amend the Act
of July 14, 1921, to authorize the Government of the Virgin Islands to levy a sur-
tax, not to exceed 10%, on the future income taxes payable to the Government
of the Virgin Islands. The 1921 Act provides that the income tax laws in force in
the United States shall be likewise in force in the U.S. Virgin Islands, except
that the proceeds of Virgin Islands taxes shall be paid into the Virgin Islands
Treasury. This ambendment would enable the Government of the Virgin Islands
to respond to changes in the income tax laws of the United States. Along with
the present estimated $15 million loss in revenues, the Virgin Islands expects to
lose $5 million annually in future revenues under the Tax Reducation Acts.
Section 2 would authorize loans up to $15 million to supplement the operations
budgets of the Government of the Virgin Islands for their fiscal years 1977 and
1978. Their operating expenditures for fiscal year 1975 amounted to $117 mil-
lion; fiscal year 1976 expenditures are projected at $117.1 million. The Gov-
ernment of the Virgin Islands has proposed an austerity budget of $118.6 mil-
lion for fiscal year 1977 but estimates revenues at only $110.1 million. There is a
shortfall of $8.5 million. Given the effects of inflation and past cuts in expendi-
tures, government services are already at unacceptability low levels. A loan of
$15 million would allow the balancing of local 1977 and 1978 budgets at acceptable
levels of services. These loans for operations taken together with the economic
recovery stimulated by the capital improvement program loans proposed in sec-
tion 3 would result in increased revenue collections by the government. It would
then he capable of 'balancing its fiscal year 1979 budget without further assistance.
Section 3 would authorize $61 million in loans to bring the Virgin Islands
long-delayed capital improvement program up-to-date. How quickly these funds
are requested for appropriation will depend upon review of proposals by the
Government of the Virgin Islands, however the legislation would allow the fund-
ing to be spread out over five years. The Virgin Islands cannot borrow for non-
revenue producing purposes under the Revised Organic Act of the Virgin Islands.
Thus, if the capital improvement program is to be implemented at this time, the
Virgin Islands will need a Federal loan.
Section 4 would provide the conditions and repayment provisions for the
loans authorized pursuant to sections 2 and 3. Amortization of the loans would
begin July 1, 1982 and be paid back over 10 years, with interest equal to the
average yield of outstanding marketable obligations of the United States of
comparable maturities. In our judgment, since funds will become available to
the Virgin Islands through the expiration of certain industrial tax exemptions
in 1978 and 7981, the government will be readily able to amortize any debt
Incurred through this provision. It is anticipated that after 1981 the Govern-
ment of the Virgin Islands will benefit from up to $100 million annually in addi-
tional revenues due to the expiration of these exemptions.
Under section 5 of the draft bill, the Secretary would be able to place any
stipulations he deems appropriate on the loans to the U.S. Virgin Islands.
The Office of Management and Budget has advised that there is no objection
to the presentation of this legislative proposal from the standpoint of the
Administration's program.
Sincerely yours,
JOHN Km,
Assistant Secretary of the Interior.
z;telosure.
I1)4m CONGRESS
2D SESSION
4
S. 3357
IN THE SENATE OF T.HE UNITED STATES
APRIL 29,1976
Mr. JOHNSTON (by request) introduced the following bill; which as read
twice and referred to the Committee on Interior and Insular Affairs
A BILL
To authorize loan funds for thezovernment of the Virgin Islands,
and for other purposes.
1 
Be it enacted by the Senate and House of Representa-
2 tives of the United States of America in Congress assembled,
3 That chapter 44, section 1, of the Act of July 12, 1921 (42
4 Stat. 123; 48 -U.S.C. 1397) is hereby amended by striking
5 the period at the end thereof and inserting in lieu thereof the
6
7
8
9
10
11
following language: ": Provided further, That, notwith-
standing any other provision of law, the Legislature of the
Virgin Islands is authorized to levy a surtax on all taxpayers
in an amount not to exceed 10 per bent= of their annual
income tax obligation to the government of the 'Virgin Ts-
lands.".
II
5
2
SEC. 2. There is hereby authorized to be appropriated
2 to the Secretary of the Interior $15,000,000 to be paid as
3 loans to the goveynnutint,pf Ole Virgin IslandsT to be used
0:-
4 for operating expenses-.--
SEC. 3. (a) The purpose of this section is to provide
6 the Virgin Islands with funds for the construction of neces-
)
7 sary public works, including the acquisition of real prop-
8 ertY•
9 
(b) There is authorized to be appropriated to the See-
l() retary of the Interior not to exceed $61,000,000 to carry
11 out the purposes of this section, to be paid to the govern-
. . 
.
12 ment of the Virgin Islands in such sums as may be requested
f
)
13 by the Governor of the Virgin Islands with the concurrence
4 of the, tcrritoriql legislature and approved by the Secretary
of the • Interior, and , such moneys as may be appropriated
shell be available until June 30, 1980. Funds appropriated
,17 jursaant rto this section shall also be available for use by
the government of the Virgin Islands to permit the Virgin
) 
•
Islands 0 
qualify for participation in Federal programs
241 , relating to pubiic works and community development for
2L.whiph the Virgin Islands is otherwise eligible.
.Spc; 4. Repayment of the loans under sections 2 and 3
22Df this Act shall commence, no later than June 30, 1982,
7r 
;I 
) 
,
24 in such amounts as the Secretary of the Interior estimates
25 will reimburse the United States, with interest as set forth
72-747 0 
- 76 - 2
10
6
13
below, over a period of ten 'years. These repayments may
be made in the form of withholdings by the Secretary of the
Treithury from sums collected pursuant to ,section 7652 (b)
4- of Public Law 83-591 (68A Stat. 907; 26 u.s,c. 7652
5 (h) ) 
as amended, before such sums are transferred, to the
6 govermnent of the Virgin Islands. The foregoing amounts,
7 until reimbursed to 'the United States, shall bear interest
8 beginning on the; date when the moneys are advanced, at a
9 rate determined • by the secretary of the Treasury, taking
into consideration the average yield on outstanding market-
11b1e obligations of the United States of comparable maturi-
!
12 Iles as of the last day of the month preceding the advance,
.„„,4
13: 
adjusted to tilt 'nearest one eighth of 1 per centum. All
14 sums so withheld shall be deposited in the Treasury of the
15 United States as miscellaneous receipts.
16 
SEc. 5. The Secretary shall place such stipulations as he
17 deems appropriate on any loans to the Virgin Islands pur-
18 suant to sections 2 and 3 of this Act.
19 
SEC. 6. No portion of the sums to be repaid by the
20 government of the Virgin Islands to the United States, as
21 provided for in sections 2 and 3 of this Act, shall be con-
22 sidered to be public indebtedness of the Virgin Islands with-
23 in the meaning of section 8 
(b) of the Revised Organic Act
24 of the Virgin Islands (68 Stat. 500; 48 U.S.C. 1574 (b) ).
25 
SEC. 7. Before concurring in any request for a loan pro-
7
4
1 posed by the 'Governor 'under -this At, the Legislature of the
9 Virgin Islands may initiate, by majolity vote if the members,
3 a referendum Tote to approve or 'disapprove (1) the amount
4 of any such loan, (2) any item of expenditure for which
5 ,any 'such / 3an is requested, (3) the aggregate amount „of
IG 'such 
mequested by the (iONOMOT for any fiscal year, or
7 44) nay eanibivation of the foregoing.
8
MAY 4, 1976.
Hon. THOMAS S. KLEPPE,
Secretary of the Interior, U.S. Department of the Interior, Washington, D.C.
MY DEAR MR. SECRETARY: I am writing in response to the April 27, 1976, letter
from Emmett M. Rice, Deputy Director of Territorial Affairs requesting that draft
legislation to authorize loan funds for the Government of the Virgin Islands be
introduced and the hearings be scheduled to meet the May 15th deadline imposed
by the Congressional Budget Act.
I am deeply disturbed by the cavalier manner in which the Department is
handling this legislation. The draft bill was introduced promptly upon receipt as
well as a similar measure introduced by Senator J. Bennett Johnston at the re-
quest of Congressman de Lugo.
I am well aware of the May 15th deadline of the Budget Act. I am concerned
that the Department would submit this legislation just prior to the Easter recess
leaving the Congress barely three weeks to consider it. There have obviously
been discussions between the Department and the Virgin Islands Government for
some time with full knowledge of the Budget Act requirements yet no notice was
given to the Congress. I have also noticed that the loan program does not appear
in the President's 'budget submission and have been informed by the Appropria-
tions Committee that no request for appropriations have been initiated with
them.
The entire history of this legislation leads me to question the Department's
sincerity in urging Congressional action.
In the assumption, however, that the Department is interested in this legis-
lation, I have altered the Committee schedule to permit a hearing on the legisla-
tion introduced by Senator Johnston, S. 3357, on Monday, May 10, at 10:30 AM,
in room 3110 of the Dirksen Building.
The Full Committee will meet in markup session later that week to consider
measures pending before the Committee. If the Committee is to report legisla-
tion prior to May 15, it will be necessary for the hearing record to be complete. I
would, therefore, except the Department to be ready to answer all questions rele-
vant to the economic condition of the Virgin Islands, the need for this loan pro-
gram, available bonding authority for the Virgin Islands and other related areas
at the hearing. In view of the reordering of the Committee schedule necessitated
by the late submittal of the draft legislation, the Department's witness will be
requested to file his statement and supporting materials for the record so the
Committee will be able to better utilize the bearing time in questioning.
I would appreciate receiving 10 copies of the witnesses' prepared statement at
least 24 hours in advance and 50 copies at the time of the appearance.
Sincerely yours,
HENRY M. JACKSON, Chairman.
Senator JOHNSTON. Congressman de Lugo.
STATEMENT OF HON. RON de LUGO, A DELEGATE FROM THE
VIRGIN ISLANDS
Congressman DE LUGO. Thank you very much, Mr. Chairman. I
want to thank you very much for presiding at the hearing this morn-
ing. I know exactly how busy you are and the U.S. Senate is, and the
conflicts in meetings, and I would like to say before I begin my testi-
mony that I hope you will excuse me; after I testify, I have to go back
to the House; we have conflicts, too.
I have the Subcommittee on Territories bill on the compact of
Puerto Rico, and at the same time, I have another subcommittee
meeting on the New River legislation. Again, I want to thank you
on behalf of the people of the Virgin Islands for really putting your-
self out the way you have.
We have recognized, and as you have told me publicly and in pri-
vate a number of times, the Virgin Islands does have great financial
difficulties, and we would like to respond to those in a way consistent
with reasonable ability of the Congress to do so.
9
Mr. Chairman, my statement will be very brief. The Governor of
the Virgin Islands is with us, accompanied by the Director of the
Budget and also by the Commissioner of the Commerce. The Gov-
ernor has a very detailed statement, and also the statement of the
Interior Department that accompanied the legislation is quite specific.
Mr. Chairman and honorable members of the Senate Committee on
Interior and Insular Affairs, I am grateful for this opportunity to
testify in support of S. 3357, a bill which you graciously introduced
at my request, which authorizes $76 million in Federal loans to the
Virgin Islands government to meet its operating deficts and for capital
construction projects.
This bill is identical to H.R. 13359, which was reported by the House
Interior Committee by unanimous consent on Friday, April 30 and
passed by the House on Monday, May 3, under suspension of the rules.
I would like to point out that these unusual procedures in the House,
including the bypassing of the Subcommittee on Territories, was made
necessary by the impending May 15 deadline mandated by the new
Congressional Budget Act for all money bills.
I would also like to thank the chairman for his personal efforts
which have resulted in the scheduling of these hearings. I fully realize
that without your personal intercession, the present committee sched-
ule would have prevented consideration of this legislation until after
the May 15 deadline.
Mr. Chairman, the loan proposal is the product of negotiations be-
tween the Department of the Interior, the Office of Management and
Budget, and the Virgin Islands government. It is designed to meet
the territory's present fiscal situation, and it enjoys official adminis-
tration support.
Originally, I had serious reservations about certain provisions in
the draft bill negotiated by the administration, and I had planned to
offer in the House Interior Committee a series of amendments
designed to protect the interests of present and future generations of
Virgin Islanders who would be charged with paying back these loans
in full.
However, because of the lateness of the administration in sending
up the bill, and the impending May 15 deadline, this was not possible
under the unanimous consent procedures which were made necessary
under the circumstances. As you know, it only takes one Member to
object under these procedures, and if that had happened, we would
have lost the bill.
Instead, on Wednesday, April 28, I introduced in the House a sub-
stitute bill, H.R. 13359, which is virtually identical to the administra-
tion bill, with the single addition of a provision empowering the
Virgin Islands Legislature to call a referendum on all or any part of
the loan.
While I still have serious concerns about the terms of the loan agree-
ment, and I should like to point out that I have received a substantial
number of letters from my constituents in opposition to any indebted-
ness at all, I believe that under the circumstances these concerns are
best allayed by the referendum provision.
In my judgment, this provision puts the decisionmaking power on
the loan question back where it belongs, back to the people themselves.
According to a survey by the Congressional Research Service, over
10
75 percent of the American people live in States which require refer-
endums or constitutional amendments before borrowing of this nature
can be undertaken.
I strongly believe that the Virgin Islands should be no exception
to this well-established practice. More importantly, I believe this pro-
vision is in accordance with the best tradition of the Congress estab-
lished over the last decade in granting ever-greater self-determination
for the people of the Virgin Islands: the people who will be charged
with paying back these loans should have a voice in deciding whether
and how much debt they wish to undertake.
Agreeing with this approach, a clear majority of the members of
the House Subcommittee on Territories cosponsored my substitute bill,
including the chairman of the. subcommittee, Phillip Burton, and the
ranking Republican member, Don Clausen.
Given the constraints of the May 15 deadline, I endorse S. 3357, the
companion bill to H.R. 13359, which allows the people of the Virgin
Islands to have a say in this matter which is so consequential to their
future.
Mr. Chairman, at this time, I would like to bring to your attention
two technical amendments which have been suggested by the House
legislative counsel and which I hope the. members of this committee
will consider when this legislation is finally acted upon. For the rec-
ord, I have attached copies of the two amendments at the end of my
statement.
The first amendment merely restates what the committee report to
H.R. 13359 makes clear, that the Legislature of the Virgin Islands may
specify whether the results of any referendum which is called shall be
advisory or binding.
The second amendment merely spells out the procedures under which
loans for operating expenses are drawn, procedures which, through a
drafting oversight, were left out entirely. This amendment would
make these procedures conform to those already specified in the bill
for capital loans.
Thank you very much.
[The amendments to S. 3357 by Congressman de Lugo follow:]
Amendment No. 1.—Page 4, line 7, after the period insert the following: "In
initiating such referendum, the Legislature may specify whether the results
thereof shall be advisory or binding."
Amendment No. 2.—Page 2, line 4, after the period insert the following: "Such
amount may be paid to the Government of the Virgin Islands in such sums as
may be requested by the Governor of the Virgin Islands with the concurrereT
of the territorial Legislature."
Senator JOHNSTON. Thank you very much, Congressman de Lugo.
First, let me say. I very much agree that people in the Virgin Islands
should approve the funding of any indebtedness. I think this is a basic
operating procedure, that people in the States have a right to par-
ticipate in, and I have no reason to withhold that.
Second, and I am just giving my own views now, and they are. not
final views, but they are things I would like you to be thinking about
because we will soon get into markup of provisions of this bill, that
we should have no loan for operating expenses.
I think that is a very bad precedent. I think it violates virtually
every financial rule in the books, to borrow money for operating ex-
penses. The capital improvements are quite different, and I think
should be authorized. It is my feeling rather than borrow money di-
rectly from the Federal Government and get the Federal Government
put into the creditor-debtor situation, it is my view we ought to allow
the Virgin Islands to borrow money directly in the capital markets
and to do so with a pledge of the revenues that would be coming from
the United States in terms of the rum tax and the other revenues that
are collected and remitted to the Virgin Islands.
These are funds coming to the Virgin Islands anyway. If we pass
legislation permitting the Virgin Islands to pledge that revenue, it
will, in effect, amount to the same thing as a loan from the United
States. It would put the Virgin Islands in the capital market and get
the money from elsewhere rather than from the United States.
Finally, I would feel it might be appropriate for the United States
to give full faith and credit to these bonds and reinforce them with the
full faith and credit of the United States. This would allow the bor-
rowing of money; it would obviate the necessity of a budget resolu-
tion; it would get the very best interest rates available.
There is no better security than the full faith and credit of the
United States, and it would be subject to approval by the people of
the Virgin Islands. My good colleague, Senator Hansen from Wyo-
ming, is here. I would like to ask if Senator Hansen has a comment.
Senator HANSEN. I do not, Mr. Chairman.
Senator JOHNSTON. Thank you very much, Congressman de Lugo.
Did you want to respond to those ideas?
Congressman DE LUGO. I would like to give it some thought. I am
supporting this legislation. Certainly the ideas you have put forth, it
is, I think, the type of thinking that we would have been considering
had we been given this matter in a timely fashion.
Our problem is we are so late with this legislation on the House side,
we have to take it as they gave it to us with the referendum provision.
I don't want to see us lose the bill. I will support the bill, but I do have
some difficulties with the bill.
Senator 'JOHNSTON. I don't see how we can act on this thing by
May 15; that is out of the question, I mean, in its present form. We
would have to wait and have some modification of it, if I may say, for
the benefit of my colleague here. We have two bills here, the adminis-
tration bill and the de Lugo bill. The two bills are very similar except
the de Lugo bill provides for a referendum of the people for the Virgin
Islands to contract the debt.
The administration bill allows the Virgin Islands to place a 10-
percent surtax on future income taxes payable to the Virgin Islands.
It authorizes the Government of the United States to loan to the Vir-
oin Islands $15 million for operating expenses.
Third, it authorizes the U.S. Government to loan to the Virgin Is-
lands $61 million in capital improvements. Basically, that is it. The
de Lugo bill is similar except it provides for a referendum of the
people before the next contract. I was telling Congressman de Lugo
it was my view, first, that we should have no loan for operating ex-
penses as opposed to capital improvements.
I don't know if any State in the Nation, other than maybe New
York
Senator HANSEN. New York City certainly got into trouble follow-
ing that type of action.
12
Senator JOHNSTON. The Virgin Islands is in a very difficult situa-
tion and it ought to be by grant rather than loan, a loan for operating
expenses simply gets you in deeper and deeper.
Second, it is my view that rather than the United States lend the
money to the Virgin Islands, we should authorize them to contract
that debt for themselves. Let them pledge the Federal revenues that
would otherwise be coming to them, in other words, if a State has a
tax it can pledge that tax—so, we can give them authority to pledge
that revenue and then upon meeting certain minimum standards, like,
showing it can be repaid, then give them the full faith and credit of
the Federal Government.
What it would amount to is giving them the ability to borrow them-
selves, after a vote of the -people with the full faith and credit of the
United States which would give them the best credit rate available
and the best interest rate available. Then, they would be repaying the
third party, to the public, not to the United States.
Congressman DE LUGO. May I respond to your thinking, Senator?
If we had the bonding authority backed by the full faith and credit of
the U.S. Government, I think we would be in very good shape. You
also used a word there that is the key to this thing. Borrowing or
going into debt to meet an operating deficit would be an unfortunate
thing unless there would be some other way to do it.
You said a grant—the deficit we face in the Virgin Islands, the last
I heard, was $8.2 million for fiscal 1977 was brought on by the reces-
sion here in the United States, and certain peculiar and unique situa-
tions that developed in the Virgin Islands that no longer exist.
They were coming out of the recession, we are enjoying the best
tourist season in the Virgin Islands that we have had in 2 years,
whereas we have gone through a downturn 
Senator JOHNSTON. By the way, has that plane crash hurt things
very much?
Congressman DE LUGO. It certainly didn't help. Senator. It is one
of the things that the Governor is pushing for up here, that we get a
safe jet airport.
Senator JOHNSTON. Have you had a decline in people coming in
airplanes?
Congressman DE LUGO. There has been a decline. but I don't know
if that is whether we are Past the peak of our tourist season. I went
in their only direct flight Friday and it was not full, we have finished
with the carnival, so there is that downturn. I'm certain there are a
number of persons who would cancel out because of the concern with
the runway.
However, the FAA assures us, with the equipment they are flying
in there, and with the restraints that they are flying in under, the
airport is safe.
Now, you mentioned grants. Mr. Chairman. This was originally
what I believe the Legislature and the administration had hoped, it
would be a combination grant-loan. A grant to meet the deficit, but,
this did not materialize.
As I understand it, the administration did not accept it. The second
thing, regarding my provision for a referendum, the reason I feel that
we have to have that referendum, the Virgin Islands has never gone
into debt before. The Organic Act has prevented this in the past.
13
We may have come to that point where we may have to borrow or
float bonds, if the Senate gives us that authority, but certainly, as we
go into debt, it is something you have to discuss with the taxpayers,
when it is the first time it has been done.
In the past, bonds were floated for the port authority or for a proj-
ect that was self-liquidating. If the bond didn't stand up, that was
your tough luck, but it was not an indebtedness of the taxpayer.
Here we are saying. we may be putting this on the taxpayers, but, so,
T believe the provision for referendum is a wise one.
First, it will call for public debate and thought and a full under-
standing of where we are going. At the same time, I recognize the
fact the Governor is faced with this fiscal crisis, and we do have to do
something immediately to help the Government of the Virgin Islands
with this deficit and move forward. So, I think the thoughts of the
chairman are certainly very interesting.
Senator JOHNSTON. Thank you very much, Congressman de Lugo.
Do you have any questions?
Senator HANSEN. I don't think I do.
Congressman DE LUGO. I want to thank you too, Senator Hansen
for being here this morning.
Senator JOHNSTON. Thank you.
We are honored this morning to have the Honorable Cyril E. King,
the Governor of the Virgin Islands. We are pleased to have him and
his testimony before this Committee.
STATEMENT OF HON. CYRIL E. KING, GOVERNOR OF THE VIRGIN
ISLANDS, ACCOMPANIED BY JUSTIN L. MOORHEAD, BUDGET
DIRECTOR; AND AUGUSTE RIMPEL, COMMISSIONER OF COM-
MERCE
Governor KING. Thank you very much, Mr. Chairman, members of
the committee. It is a pleasure to be here today as Governor of the
U.S. Virigin Islands, to address you on a matter of extreme im-
portance to the well-being of the residents of the territory. Please
accept my thanks on behalf of all Virgin Islanders for the early
scheduling of hearings on this measure.
The Government of the Virgin Islands has serious financial dif-
ficulties. The level of essential services provided in areas of health,
education, and public safety, and the concurrent infrastructure devel-
opment of the territory has been curtailed severely as a result of an
economic recession that has reduced local government revenues which
are necessary to meet the operating expenses of the government.
Hospital beds have been closed, civil servants furloughed, payment
of legitimate obligations deferred, construction of school, hospital, and
public safety facilities canceled, and acquisition of waterline expan-
sion, road improvements, and emergency equipment postponed.
Over the years the necessity of borrowing from all government
funds to meet the needs of the operating budget has resulted in the
depletion of surplus moneys in these accounts. The most critical ex-
ample of this is the Internal Revenue Matching Fund.
This is the source of capital improvement moneys for the territory.
In fiscal year 1976, less than $1 million existed for initiating any new
projects.
72-747 0 
- 76 - 3
14
Over the past year, my administration has worked with the Depart-
ment of the Interior and the Office of Management and Budget to
clarify our financial needs. Immediate loan assistance will assist the
Government of the Virgin Islands in turning around this critical
situation and allow restoration of a satisfactory level of essential gov-
ernment service.
The revenue shortfall that has occurred in the U.S. Virgin Islands
represents a combination of economic decline worldwide and Federal
manipulation of the income tax system, with its resulting impact on
government collections due to the special operation of the Internal
Revenue laws within the Virgin Islands.
As the members of the committee are aware, tourism is the most
important contributor to the Virgin Islands gross domestic product.
Over the past few years, there has occurred a precipitous decline in
the amount of revenues derived from this industry.
The major attractions of the territory are its weather, its beaches,
and its freeport status, but demand for tropical vacations is low as a
result of the recent recession. Our freeport status was severely affected
by the devaluation of the U.S. dollar.
The prices of imported commodities and merchandise have increased
over those prevailing in 1972. This has seriously eroded the competi-
tive advantage of our tourist-related Virgin Islands businesses, es-
pecially those within the retail industry.
Furthermore, recent nenegotiations of international tariffs have re-
duced sales by commercial enterprises'
 
capitalizing on freeport status.
A competitive edge can only be maintained over major stateside mar-
kets by insuring minimum overhead and low tax burdens. The losses
in tax reveneus are, as a result, significant.
Our efforts to diversify our economy have yielded some success.
However, numerous factors exist to limit our capabilities in this area.
Most prominent is the lack of affordable resources needed by most in-
dustries; easy access to major markets, cheap power and water, inex-
pensive or skilled labor.
Our small island settings preclude many of these desired features,
and our ties to the U.S. wage scale places our labor market at a dis-
advantage, vis-a-vis, other Caribbean islands.
We have attempted to capitalize on certain preferred status exemp-
tions offered by Congress over the years. However, increasingly these
are being threatened by groupings on the mainland who believe these
to be unfair advantage. The mosrecent example of this is the proposal
to eliminate the Jones Act exemption on oil transport between the
territory and the mainland.
Unilateral actions on the part of the Federal Government have also
complicated our situation. The changes to the income tax rates with
its liberalized exemptions, and negative income provision, have fur-
ther eroded the revenue base of the local government.
The provisions of the U.S. law which tie the income tax of the Vir-
gin Islands government to the Internal Revenue Laws of the United
States preclude adjusting tax assessments to compensate for reductions
in revenue receipts.
It was hoped that moneys due to the territory from the Federal
Government could be obtained and thereby eliminate the need for a
significant increase in the tax burden.
15
The U.S. Department of Justice's decision to disallow refunding
some $46 million of gasoline taxes and $20 million of custom dues, the
annual proceeds of levies imposed on petroleum products imported
into the United States from the Virgin Islands, has set back the time
period in which these moneys might be realized.
However, through the kind intervention of Senator Henry Jackson,
legislation is being considered by Congress to return these Virgin
Islands moneys to the territory for the use of its residents.
The economic condition is exacerbated by the population growth
and the resulting demand for services that the territory has experi-
enced within the past 10 years.
In 1965 the population of the three major islands of the Virgin
Islands was estimated at some 49,742. In 1975, this figure had in-
creased to 99,981. This represents •a 100-percent increase within a
10-year period.
•The negative impact of rapid population growth on government
services has been aggravated and intensified by two recent legal de-
velopments. Public Law 91-225, passed by Congress in 1969, admitted
spouses and children of non-immigrant-alien workers into the U.S.
Virgin Islands and, a Federal district court ruling, Hosier et al. 8
V.I. 27, District Court of the Virgin Islands admitted all noncitizen
school age children legally residing in the *Virgin Islands to public
school.
The result is that an already strained public school system experi-
enced a 53.5-percent enrollment increase in the 5 years since the court
ruling.
In addition, this substantial population growth during the latter
half of the sixties, a period characterized by stable economic growth,
has translated into present unemployment levels exceeding 10 per-
cent during the current period of fiscal recession.
When I took office a little more than a year ago, the fiscal crisis was
already upon the territory. The immediate causes were grossly over-
inflated revenue projections and an economic environment buffeted
by the worldwide recession.
These problems overshadowed the overall slowdown occurring in
local economic growth brought about by an eroding position in our
major industry, tourism,
In December a joint task force of members of the administration
and the legislature of the territory submitted to the Government of
the United States of America, through the Office of Territories, De-
partment of the Interior, a petition to render financial assistance to
alleviate the financial crisis in the U.S. Virgin Islands.
Fully aware that the determinant of success lies in our commitment
to achieve it, the territory has taken several decisive steps to stabilize
and revitalize the economy and thereby increase revenues available
for essential services.
Further, to meet requirements of the fiscal year 1976 budget, sig-
nificant cutbacks were made in operating expenses. These included the
severance of some 346 employees from the government payroll, the
suspension of government salary increments, hiring and promotion
freezes, the curtailment of nonessential services, eliminating funds
available for program diversification, and curtailing operating moneys
for essential program execution. New capital projects have been vir-
16
tually eliminated with the exception of on-going repairs and comple-
tion of already commenced projects.
Our budget submission for fiscal year 1977, represents veritably
little increase over the amount spent in 1975 and anticipated for ex-
penditure in 1976.
Discounting for inflation, the decline in expenditure represents a
substantial reduction in purchasing power. Essential to a balanced
budget submission for The next 2 years is successful passage of the
Federal loan authorization bill. To insure a balanced budget sub-
mission by fiscal year 1979i the Government must restrict its expendi-
ture growth to less than 5 percent annually.
This self-imposed restriction on Government outlays will combine
with more intensive activity in furthering goals established by my
administration to close the present reality of expenditure outstripping
revenues.
Throughout this period of high unemployment, the government has
been cautious in its consideration of raising property taxes and serv-
ice fees, the only revenue generating area over which the territorial
Government has control for these impose regressive tax burdens on
the population.
Despite this concern, however, the situation requires our recommend-
ing a $16 million tax package to lend balance to our fiscal year 1977
budget submission.
We believe our request for a loan warrants special consideration for
the following reasons:
One, we seek assistance to revitalize an economy and a deteriorating
government fiscal situation brought about by factors beyond the con-
trol of the territory.
Two, our status as a U.S. territory place us in the unique position
vis-a-vis, the Caribbean as being a major port of entry for immigrants
seeking a betterment of living conditions. However, our insularity
from the mainland does not allow for diffusing this population con-
centration and distributing the cost of providing vital services among
neighboring areas.
Three, territorial status limits the internal controls available for
manipulating income taxes and incurring debt.
iSee page 21 for Governor King's prepared statement.]
Senator JOHNSTON. Governor, let me cut you off at this point. I
have read your statement as has Senator Hansen, and your statement
will be incorporated in full in the record.
You had a 53.5 percent enrollment increase in the last 5 years in
your schools, that is really amazing. Tell me why these immigrants
have come and how they get there and what they do when they get
there.
Governor KING. Senator, the Government of the Virgin Islands has
absolutely no jurisdiction, has absolutely no input into immigration
policies as administered in the Virgin Islands. These are prepared,
determined, administered by the Federal Government.
As such, we are in no position to influence, to advise, to have any
input into this at all. Therefore, this is a question which properly must
rest with the Federal Government.
Senator JOHNSTON. They come in to work. What do they come in
for?
17
Governor KING. I think it started essentially in the early 1950's
when the economy started to expand, when tourism started to
bloom. There was a shortage of available labor within the Virgin
Islands and this served to attract the people from the neighboring
islands to the Virgin Islands who were seeking employment that they
could not get in their respective islands.
I think the present policy may well have had its genesis at that
point.
Senator JOHNSTON. What is their status now? They have not be-
come citizens, they are still resident aliens?
Governor KING. Some have become citizens. People are becoming
naturalized on a continuing basis as they become eligible for naturali-
zation.
Senator JOHNSTON. Is the stream of people still continuing into the
Virgin Islands?
Governor KING. To the best of my knowledge, this has been at a
virtual standstill over the last few years.
Senator JouNgroN. If you could write the Federal law with re-
spect to immigration, what would you do, or, what you have us do?
Governor KING. If I could write the Federal law, I would recommend
very strongly that an appraisal be made of the present economic
situation in the Virgin Islands in terms of its ability to accommodate
additional immigration into the territory in terms of the needs of
the territory for people with special skills and special training.
I would like to have a position to provide input. I would like to have
people better evaluate the situation to meet the needs peculiar to the
Virgin Islands.
Heretofore we have been living under rules and regulations put up
by the Federal Government based on experiences and situations within
the continental United States. A large portion of which has no rela-
tionship to the situation that exists in the Virgin Islands.
Senator JOHNSTON. I very strongly believe we ought to have a
special immigration policy with respect to our territories. I know
Puerto Rico has had a little different problem, but still, of the same
genus, still the same kind of situation they cannot control their immi-
gration and they have too much influx at different times. The same
is true of Guam. It seems we ought to have a comprehensive study
to determine whether we ought to reexamine that question.
I would be in favor of giving the Virgin Islands power to control
up to a certain limit, immigration into your island. I don't think any
island ought to be able to open up the floodgates and say this is a
.place through which you can come to get to the United States.
On the other land, if you want to restrict down, the number of im-
migrants who can come, I think you ought to be able to. I will ask
staff to work with mniority staff to determine what the proper vehicle
would be to undertake that kind of a study.
Maybe a resolution—of course, Interior, I think, would be the proper
studying group. I would like to hear from Interior in a minute on
that.
GOVERNOR KING. I think there is a bill on the House side, I think
there are two bills, and I think one of the two bills does provide for the
establishment of a commission to undertake essentially this kind of
study.
18
Senator JOHNSTON. For just the Virgin Islands, or for all of the
Territories?
GOVERNOR KING. If my memory serves me correctly, one is restricted
to the Virgin Islands, the other would mandate a study of all the
territories.
Senator JOHNSTON. We will check that out. I think it ought to be
studied.
Governor KING. I have read the bill which would study the immi-
gration situation in all the territories and my inclination is to be in
favor of the bill. My only reservation is the bill, as presently written,
provides for a commission to make a study, but a commission that is
weighted in favor of membership from the United States.
If the balance is weighted at all, it ought to be weighted in favor
of the territory.
Senator JOHNSTON. I think one of the problems is, people stateside
have not really focused on the problem. I don't think there is any desire
of the people stateside to flood the Virgin Islands with so many people
you cannot take care of them, resulting in a 53.5 percent increase in
these public schools the last 5 years, I don't think people are aware of
it.
We will undertake to get the proper study done if it has not been
done so far. Now, you are requesting bonds for capital improvements
of $61 million. Do you have a capital budget showing what you want
to build and when?
Governor KING. We can make that a part of the record. We have
some material on that.
Senator JOHNSTON. We would like a copy of that for the committee
files, and if it is not too cumbersome, we will make it a part of the
record.
Governor KING. I would say to the chairman, the list we present is
not what we consider to be an all-inclusive list. It is a matter, there are
certain dollar limits that must be set, and we have tried to identify the
items. They are priority.
Senator JOHNSTON. Governor, you mentioned in your statement
that approval by the legislature is protection enough. We had this kind
of argument, I know, in my home State for a long time. Without ref-
erence to whether it is protection enough, would you have any serious
objection to having a vote of the people?
Governor KING. Mr. Chairman, given the choice, I would prefer
that section 7 be stricken from the bill. I think that section (b) pro-
vides sufficient safeguards—money would be paid to the government of
the Virgin Islands in such sums as may be requested by the Governor
of the Virgin Islands with the concurrence of the territorial legisla-
ture and approved by the Secretary of the Interior, and such moneys
as may be appropriated shall be available until June 30, 1980.
Funds appropriated pursuant to this section shall also be available
for use by the government of the Virgin Islands to permit the Virgin
Islands to qualify for participation in Federal programs relating to
public works and community development for which the Virgin
Islands is otherwise eligible.
With the concurrence of the territorial legislature, I think it would
be well to add, members of the territorial legislature are, in fact,
elected by the people of the Virgin Islands every 2 years.
19
It is also useful to point out that members of the legislature were
selected by the president of the legislature to work with the executive
branch of the government of the Virgin Islands in preparation of the
petition which was subsequently considered to the Federal Govern-
ment for consideration.
I think it is fair to say the people of the Virgin Islands, through
their elected representatives, did, in fact, participate in the decision-
making process which went into this whole thing.
The other thing is to suggest the referendum is also to delay the
time period when the government would have available this money
which it urgently needs and needed last year to provide these neces-
sary services.
We are at the level of services now, Mr. Chairman, which is by any
standard considered unacceptably low. What we're trying to do is im-
prove the situation. We're not asking for any thing to live beyond our
means, we are asking for assistance to enable us to survive; not to
get this money within the time period stated, and the time period is the
first of October because the government of the Virgin Islands cannot
engage in deficit spending. We have to come up with a balanced budget.
To not get the money means we have to do one of two things; get
new revenues by way of new taxes, and we have already sent a tax
package down for $16 million on an already heavily taxed people,
or we have to cut services below the present level means one thing,
the government of the Virign Islands would have to admit it is incom-
petent and incapable of providing services. There are now a number
of functions being performed by the government that cannot be re-
duced further.
Senator JOHNSTON. What is your total operating budget?
Governor KING. The budget for the current fiscal year will wind
up with about $117 million by June 30. We estimate a budget for the
next fiscal year of $121 million.
Senator JOHNSTON. None of that is capital?
Governor KING. None of it, sir.
Senator HANSEN. Governor, I read your statement and I thought
it was either your—only those projects that were in the process of
construction are being continued, did you not say that?
Governor KING. That is correct.
Senator HANSEN. Wouldn't some of the $117 million be capital con-
struction?
Governor KING. No, sir. That is the operating budget. There is an
operating budget and a capital improvement budget.
Senator JOHNSTON. What is the capital improvement budget?
Governor KING. We are only spending, for capital improvements,
slightly over $1 million, not more than $2 million for the current fiscal
year.
Senator HANSEN. Then your total budget would be around $118 mil-
lion, $117 million is operating 
Governor KING. A little over $118 million, let me say we are going
to be spending a little over $1 million for capital improvement seems
to me is not really stating the urgency of the problem in the sense that
we are faced with a situation where schools are on double sessions
because of insufficient classroom space.
20
We are faced with a problem where hospital beds have to be closed
up, where we need to expand rather than contract. We're faced with
a problem, and this was unfortunately emphasized last week with a
need for funding to improve the airport facilities on the island of St.
Croix and St. Thomas.
What we are talking about is the need for moneys to provide a level
of services so the people of the Virgin Islands could feel they are, in
fact, a part of the United States, and are, in fact, deriving benefits of
citizens under a free democratic society anywhere they live.
Senator HANSEN. As I understand your statement, I think you said
they were barely under 50,000 residents in 1965 and in excess of 99,000
in 1975, reflecting a 100-percent increase in population. What portion
of that increase would have resulted from immigration?
Governor KING. I would say a substantial number would have re-
sulted from immigration, but we have to take into account the fact
that even though at that time the numbers conributed would have been
considered non-U.S. citizens, that in the interim a substantial number
of these people have achieved citizenship through the immigration
process.
So, while at the time of admission they were not -U.S. citizens, now
they are citizens.
Senator HANSEN. You make the point very well. I was recalling;
your observation that this is a very significant factor in the exacerba-
tion of your problems and resulted from the laws or lack of laws
beyond your control. I wonder if you could give us an indication, a
percentage figure, or whatever, that would indicate the dimension of
the problem in order to address the point that Senator Johnston was
making.
I'm trying to be helpful. I am saying this, you say a significant pro-
portion of the increase in the population which has resulted in this
53:5-percent increase in the school system in a 5-year period of time,
results from immigration. Then I would think you might find the
Congress even more receptive to an emergency situation than would
otherwise be the case.
Governor KING. I don't know what the exact percentage figure
would be. These figures we will try to get from Immigration.
Senator HANSEN. Would you want to hazard a guess? Would it be
within 25 to 40—I'm not trying to put words in your mouth, but just
any idea?
Governor KING. I would guess about half of the increase may well
stem from this. I would like the record to show this is a guess.
Senator HANSEN. I appreciate that, Governor. We will not hold you
to that any more than having made a guess.
iSubsequent to the hearing, the Interior Department supplied the
following. information:]
On May 11 the Department responded to a number of questions raised by the
committee in its May 10 hearings on S. 3357, a bill to provide loan assistance to
the Virgin Islands. At that time, we did not have sufficient information to answer
the committee's question as to the percentage of school enrollment increase which
is attributable to the influx of aliens into the U.S. Virgin Islands. There has been
an increase of 53.5 percent in school enrollment since the 1970 decision in Hosier
v. Evans which required admission of all school-aged alien children to the public
schools of the Virgin Islands. The Virgin Islands Department of Education esti-
mates that 77.4 percent of the increase is attributable to such noncitizen enroll-
ment.
21
Senator JOHNSTON. Thank you very much, Governor. You have
made us aware of things I think really need attention. This immigra-
tion problem is first on that list, and we appreciate very much your
testimony.
[The prepared statement of Governor King follows:]
STATEMENT OF HON. CYRIL E. KING, GOVERNOR OF THE VIRGIN ISLANDS
Mr. Chairman, honorable members of the Senate committee and distinguished
guests:
It is my privilege to be here today as Governor of the United States Virgin
Islands to address you on a matter of extreme importance to the well-being of
residents of the territory. Please accept my thanks on behalf of all Virgin
Islanders for the early scheduling of hearings on this measure.
INTRODUCTION
The Government of the Virgin Islands has serious financial difficulties. The
level of essential services provided in areas of health, education, and public
safety, and the concurrent infrastructure development of the territory has been
curtailed severely as a result of an economic recession that has reduced local
government revenues. To meet the operating expenses of the government, hospital
beds have been closed; civil servants furloughed; payment of legitimate obliga-
tions deferred; construction of school, hospital, and public safety facilities
cancelled; and acquisition of water line expansion, road improvement and
emergency equipment postponed. Over the years the necessity of borrowing from
all government funds to meet the needs of the operating budget has resulted
in the depletion of surplus monies in these accounts. The most critical example
of this is the internal revenue matching fund. This is the source of capital
improvement monies for the territory. In fiscal year 1976 less than $1 million
existed for initiating any new projects.
Over the past year, my administration has worked with the Department of
the Interior and the Office of Management and Budget to clarify our financial
needs. Immediate loan assistance will assist the Government of the Virgin
Islands in turning around this critical situation and allow restoration of a
satisfactory level of essential government service.
ECONOMIC SITUATION
The revenue shortfall that has occurred in the United States Virgin Islands
represents a combination of economic decline worldwide and Federal manipula-
tion of the income tax system, with its resulting impact on government collections
due to the special operation of the internal revenue laws within the Virgin
Islands.
As the members of the committee are aware, tourism is the most important
contributor to the Virgin Islands gross domestic product. Over the past few
years, there has occurred a precipitous decline in the amount of revenues
derived from this industry.
The major attractions of the territory are its weather, its beaches, and its
freeport status, but demand for tropical vacations is low as a result of the.
recent recession. Our freeport status was severely affected by the de-evaluation
of the U.S. dollar. The prices of imported commodities and merchandise have
increased over those prevailing in 1972. This has seriously eroded the competi-
tive advantage of our tourist-related Virgin Islands businesses, especially those
within the retail industry. Furthermore, recent renegotiations of international
tariffs have reduced sales by commercial enterprises, capitalizing on freeport
status. A competitive edge can only be maintained over major stateside markets
by insuring minimum overhead and low tax burdens. The losses in tax revenues
are, as a result, significant.
Our efforts to diversify our economy, have yielded some success. However,
numerous factors exist to limit our capabilities in this area. Most prominent
is the lack of affordable resources needed by most industries: easy access to
major markets, cheap power and water, inexpensive or skilled labor. Our small
island settings preclude many of these desired features, and our ties to the
22
U.S. wage scale places our labor market at a disadvantage vis-a-vis other
Caribbean islands.
We have attempted to capitalize on certain preferred status exemptions
offered by Congress over the years. However, increasingly these are being
threatened by groupings on the mainland who believe these to be unfair ad-
vantage. The most recent example of this is the proposal to eliminate the
Jones Act exemption on oil transport between the territory and the mainland.
IMPACT OF FEDERAL ACTION
Unilateral actions on the part of the Federal Government have also complicated
our situation. The changes to the income tax rates with its liberalized exemp-
tions, and negative income provision, have further eroded the revenue base of
the local government. The provisions of the U.S. law which tie the income tax
of the Virgin Islands Government to the internal revenue laws of the U.S.
preclude adjusting tax assessments to compensate for reductions in revenue
receipts.
It was hoped that monies due to the territory from the Federal Government
could be obtained and thereby eliminate the need for a significant increase in
the tax burden. The U.S. Department of Justice's decision to disallow refunding
some $46 million of gasoline taxes and $20 million of custom dues—the annual
proceeds of levies imposed on petroleum products imported into the United
States from the Virgin Islands—has set back the time period in which these
monies might be realized. However, through the kind intervention of Senator
Henry Jackson, legislation is being considered by Congress to return these Virgin
Islands' monies to the territory for the use of its residents.
The economic condition is exacerbated by the population growth and the
resulting demand for services that the territory has experienced within the past
ten years. In 1965 the population of the three major islands of the Virgin Islands
was estimated at some 49,742. In 1975 this figure had increased to 99,981. This
represents a 100% increase within a ten-year period. The negative impact of
rapid population growth on government services has been aggravated and
intensified by two recent legal developments. Public Law 91-225, passed by
Congress in 1969 admitted spouses and children of non-immigrant alien workers
into the U.S. Virgin Islands and, a Federal district court ruling (Hosier et. al.
8 V.I. 27, District Court of the Virgin Islands) admitted all non-citizen school
age children legally residing in the Virgin Islands to public school.
The result is that an already strained public school system experienced a 58.3%
enrollment increase in the five years since the court ruling. In addition, this
substantial population growth during the latter half of the sixties—a period
characterized by stable economic growth—has translated into present unemploy-
ment levels exceeding 10% during the current period of fiscal recession.
TERRITORIAL RESPONSE
When I took office a little more than a year ago, the fiscal crisis was already
upon the territory. The immediate causes were grossly over-inflated revenue
projections and an economic environment buffeted by the worldwide recession.
These problems overshadowed the overall slowdown occurring in local economic
growth brought about by an eroding position in our major industry—tourism.
In December a joint task force of members of the administration and the
legislature of the territory submitted to the Government of the United States of
America, through the Office of Territories, Department of the Interior, a petition
to render financial assistance to alleviate the financial crisis in the United
States Virgin Islands.
Fully aware that the determinant of success lies in our commitment to achieve
it, the territory has taken several decisive steps to stabilize and revitalize the
economy and thereby increase revenues available for essential services.
Further, to meet requirements of the fiscal year 1976 budget significant cut-
backs were made in operating expenses. These included the severance of some
346 employees from the government payroll, the suspension of government salary
increments, hiring and promotion freezes, the curtailment of non-essential serv-
ices, eliminating funds available for program diversification, and curtailing
operating monies for essential program execution. New capital projects have
been virtually eliminated with the exception of on-going repairs and completion
of already commenced projects.
23
Our budget submission for fiscal year 1977 represents veritably little increase
over the amount spent in 1975, and anticipated for expenditure in 1976. Discount-
ing for inflation, the decline in expenditure represents a substantial reduction
in purchasing power. Essential to a balanced budget submission for the next
two years is successful passage of the Federal loan authorization bill. To
insure a balanced budget submission by fiscal year 1979, the government must
restrict its expenditure growth to less than 5% annually.
This self-imposed restriction on government outlays will combine with more
intensive activity in furthering goals established by my administration to close
the present reality of expenditure outstripping revenues. This I have termed
operation recovery and diversification.
Throughout this period of high unemployment the government has been
cautious in its consideration of raising property taxes and service fees—the only
revenue generating area over which the territorial government has control—for
these impose regressive tax burdens on the population. Despite this concern,
however, the situation requires our recommending a sixteen million dollar tax
package to lend balance to our fiscal year 1977 budget submission.
JUSTIFICATION FOR LOAN AUTHORIZATION
We believe our request for a loan warrants special consideration for the
following reasons:
1. We seek assistance to revitalize an economy and a deteriorating govern-
ment fiscal situation brought about by factors beyond the control of the territory.
2. Our status as a U.S. territory places us in the unique position vis-a-vis the
Caribbean as being a major port of entry for immigrants seeking a betterment
of living conditions. However, our insularity from the mainland does not allow
for diffusing this population concentration and distributing the cost of pro-
viding vital services among neighboring areas.
3. Territorial status limits the internal controls available for manipulating
income taxes and incurring debt.
4. The territory will be able to repay the loan. The Office of Management
and Budget supports us in this belief. The expiration of certain tax exemptions
should afford us by 1982 additional revenues estimated to be in excess of $100
million annually.
The Federal loan authorization bill, as submitted to the Congress of the United
States by the Department of the Interior with the Sanction of the Office of Man-
agement and Budget, requests loans of $15 million for operating expenses and $61
million for capital improvements. These monies will be repaid over a ten-year
period starting in 1982, at an interest rate to be calculated in accordance with
established procedures of the Treasury of the United States. It is the same sense
of pride in our many past accomplishments as a people that allows us to approach
this loan arrangement with the Federal Government, confident of our future
capability to repay it.
The submitted bill has as its end the enabling of the Government of the Virgin
Islands to balance expenses and revenues for the fiscal years 1977 and 1978 and
to allow a return to a balanced budget submission without outside assistance by
fiscal year 1979.
An immediate infusion of capital monies into the territorial economy is in-
tended to significantly stimulate over-all growth. Growth will result from in-
creased expenditures in the construction of essential projects, particularly in
the areas of health and education facilities and infrastructure development,
which in turn will stimulate local consumption in various sectors of the economy.
The tax measures proposed for balancing revenues and expenditures in 1977 will
combine with a restriction of Government program expansion to permit bal-
ancing revenues and expenditures at $129 million by 1979. We are confident that
this is achievable as the Government is the major purchaser of services, par-
ticularly in the vital area of construction in the islands.
Also requested is approval to allow imposition of a tax surcharge thereby giving
the legislature the flexibility to respond to subsequent changes of the federal
income tax laws.
Offered the preference between bills 8-3357 and S-3327 we prefer the latter.
This measure introduced by Senator Metcalf for Sena tors Jackson and Fannin,
excludes the provisions for initiating a referendum prior to receiving any portion
of the loan.
24
Section 3B of S-3327 provides that monies authorized to carry out the pro-
visions of this bill can only be paid to the Government of the Virgin Islands as
requested by the Governor of the Virgin Islands "with the concurrence of the
territorial legislature." The referendum provision, therefore, affords no added
protection to the people of the Virgin Islands, but serves to delay the govern-
ment's ability to utilize these funds.
CONCLUSION
In concluding, I would like to respectfully request that members of this com-
mittee lend support to efforts to enact this legislation and thereby afford citizens
of these United States, separated from the continent by some 1,700 miles, services
and facilities which the Federal Government has made possible for other citizens
of this great country.
To fail to enact this piece of legislation is to force a further entrenchment and
termination of Virgin Islands Government services with the resulting loss in
employment. Our efforts to restore economic stability will be seriously impaired
and the impact on the society, as well as upon the image of the United States in
the Caribbean, will perforce be severe.
I pledge the dedication of my administration to continue working towards
improvement in the area of fiscal responsibility; to take such steps as required
to resolve our overall economic problem through a program stressing economic
recovery, diversification and fiscal responsibility. Those of us from the territory
know that this bill is not in itself a solution to our difficulties. It does, however,
afford us the opportunity to start working towards rectifying existing problems
and insuring a better future for the residents of our islands.
Senator JOHNSTON. Our next and final witness will be Emmett Rice,
Deputy Director from the Department of the Interior.
STATEMENT OF EMMETT RICE, ACTING DIRECTOR OF TERRITORIAL
AFFAIRS, DEPARTMENT OF THE INTERIOR; ACCOMPANIED BY
STEPHEN SANDER, STAFF ASSISTANT
Mr. RICE. We have already submitted a statement for the record, and
I would like to make a few comments.
First and foremost, I would like to apologize for any delay there
might have been by the administration in transmitting this proposal to
the Congress. We certainly recognize Congress is a coequal branch of
Government, at least be advised we have done our best to work this
proposal out within the administration, and we have tried to get the
matter to the Hill as expeditiously as possible. Unfortunately, some
of the information did not come in in sufficiently, timely fashion.
I would also respectfully submit that copies of our proposal were
sent to the President of the Senate and to the Interior Committee
simultaneously on April 7. On that date, Mr. Beirne of your staff was
notified orally of the notice, and several weeks prior to that, Mr.
Beirne had called our office and asked what funds would be necessary
for funding for fiscal year 1977, and he was at that time informed of
the possibility we would be requesting funds for the Virgin Islands.
[The prepared statement of Mr. Rice follows:]
STATEMENT OF EMMETT M. RICE, ACTING DIRECTOR OF TERRITORIAL AFFAIRS,
DEPARTMENT OF THE INTERIOR
Mr. Chairman, I appreciate the opportunity to appear before the Committee
today to testify on S. 3357, a bill that would authorize the Virgin Islands Legis-
lature to levy a surtax and also authorize loan funds for the Government of the
Virgin Islands.
As you know, the first six sections of the bill were proposed by the Administra-
tion, and we strongly support those provisions and urge that they be enacted.
25
At present there is a fiscal crisis confronting the territorial Government of the
Virgin Islands. This crisis is due to the state of the economy and government
revenue collection capability. Tourism—the largest industry and major con-
tributor to the gross domestic product of the Virgin Islands—has declined over
the past three years. This decline was caused by the worldwide recession, local
disturbances, and the reduced attraction of the islands' freeport status. The latter
was the result of the devaluation of the U.S. dollar and the lowering of tariff
barriers on the mainland United States. The decline in tourism precipitated the
reduction V public revenues from this industry.
In addition to this revenue decline, the Tax Reduction Act of 1975 with its
rebate provisions, negative income tax, liberalized investment credits, and other
tax reduction features, further reduced the revenues available to the Virgin
Islands Government.
The purpose of the Tax Reduction Acts was to stimulate the economy. While
this was achieved in the continental United States, the Acts had the opposite
result in the Virgin Islands.
In practice, under the Tax Reduction Acts, people would have more money to
spend, which would improve the demand for goods and services. This would have
a multiplier effect on the economy, and thus it would improve. Such was true in
the United States. However, most of the goods and services in the Virgin Islands
come from the continental United States. The new money in the Virgin Islands
quickly went to the mainland without improving the Virgin Islands economy.
Estimated losses of Virgin Islands Government revenues as a result of these Acts
approximate $15 million.
The loss of government revenues meant a corresponding reduction in expendi-
tures. Since the taxing authority and public indebtedness of the Virgin Islands is,
far more restricted than that of the U.S. Government or many States, the Virgin
Islands cannot compensate for the loss of revenues.
'At the beginning of fiscal year 1976 the revenues projected for the Government
of the Virgin Islands exceeded $132 million. Proposed expenditures for government
operating costs were equal to that amount. That revenue amount included $20
million in anticipated receipts from custom duties on petroleum products imported
into the United States from the Virgin Islands. However, the Department of
Justice has ruled that there is no legal authority in the U.S. to make these pay-
ments, and thus, they are not available. Actual receipts for the first half of fiscal
year 1976 suggest maximum receipts of $92.5 million from all taxes, fees and fines,
including moneys collected from hospital operations. Executive action such as
reducing expenditures and incrasing revenues yielded a balanced budget of
$117.1 million.
This included the transfer into the operating budget of capital improvement
funds in excess of $25 million, a severe curtailing of government services, and a
personnel reduction of 346 employees. The government is the primary employer in
the Virgin Islands and the rate of unemployment prior to the government layoff
already exceeded 9% of the work force.
In the areas of health and education these reductions have been most
pronounced. The reductions in health personnel required reducing the number of
hospital beds and limited the service capability of the Virgin Islands' two
hospitals.
The schools are understaffed and over crowded. In 1970 the school system
admitted all non-citizen (alien) school-age children legally residing in the Virgin
Islands. The enrollment increase since then has been 58.3%, with a serious impact
on education services.
To meet its service responsibilities to its citizens, the Government of the Virgin
Islands has, from 1971 through 1975, deferred $31 million worth of capital im-
provement projects to make these moneys available for operating expenses.
Without financial relief, an additional $30 million in capital projects will have
to be deferred in fiscal years 1976 and 1977. This is a total of $61 million for the
period fiscal years 1971 through 1977.
The Government of the Virgin Islands needs legislation and Federal assist-
ance through loans to stimulate the economy. Such assistance will allow the
territory to balance the operating budget at an acceptable level of services by
fiscal year 1979. S. 3357 would deal with the effects of the Tax Reduction Acts
and the deferred improvement projects.
Section 1 would amend the Act of July 14, 1921, to authorize the Government
of the Virgin Islands to levy a surtax, not to exceed 10%, on the future income
taxes payable to the Government of the Virgin Islands. The 1921 Act provides
26
that the income tax laws in force in the United States shall be likewise in force
in the U.S. Virgin Islands, except that the proceeds of Virgin Islands taxes shall
be paid into the Virgin Islands Treasury. This amendment would enable the Gov-
ernment of the Virgin Islands to respond to changes in the income tax laws of
the United States. Along with the present estimated $15 million loss in revenues,
the Virgin Islands expects to lose $5 million annually in future revenues under
the Tax Reduction Acts.
Section 2 would authorize loans of up to $15 million to supplement the opera-
tions budgets of the Government of the Virgin Islands for their fiscal years 1977
and 1978. Their operating expenditures for fiscal year 1975 amounted to $117
million; fiscal year 1976 expenditures are projected at $117.1 million. The Govern-
ment of the Virgin Islands has proposed an austerity budget of $118.6 million for
fiscal year 1977 but estimates revenues at only $110.0 million. There is a shortfall
of $8.5 million. Given the effects of inflation and past cuts in expenditures, gov-
ernment services are already at unacceptably low levels. A loan of $15 million
would allow the balancing of local 1977 and 1978 budgets at acceptable levels of
services. These loans for operations taken together with the economic recovery
stimulated by the capital improvement program loans proposed in section 3 would
result in increased revenue collections by the government. It would then be
capable of balancing its fiscal year 1979 budget without further assistance.
Section 3 would authorize $61 million in loans to bring the Virgin Islands long-
delayed capital improvement program up to date. How quickly these funds are
requested for appropriation will depend upon review of proposals by the Govern-
ment of the Virgin Islands, however the legislation would allow the funding to
be spread out over five years. The Virgin Islands cannot borrow for non-revenue
producing purposes under the Revised Organic Act of the Virgin Islands. Thus,
if the capital improvement program is to be implemented at this time, the
Virgin Islands will need a Federal loan.
Sections 4 through 6 provide for the conditions of repayment of the $76 million
loans.
Section 7 of the bill provides that before the Legislature of the Virgin Islands
concurs in any request for a proposed loan by the Governor under the bill, it may
initiate a refendum vote to approve or disapprove: The amount of the loan; any
item of expenditure for which the loan is requested, and the aggregate amount of
the loans requested by the Governor for any fiscal year. Section 3 of the bill
( 
which authorizes $61 million in loans for the Virgin Islands capital improve-
ment program) requires that the Governor of the Virgin Islands must have the
concurrence of the Legislature in requesting such loans. We believe that section 7
is an unnecessary extension of the concurrence process already provided for in
section 3. We thus recommend that section 7 be deleted.
This concludes my prepared testimony. I will be pleased to respond to any
questions that you might have.
Mr. RICE. Again, I hope that in the future we can be more timely in
making these requests. I would like to point out and thoroughly en-
dorse the chairman's statement, in many instances I think we do not
focus on the effect of Federal laws and Federal procedures to our terri-
torial possessions.
Senator HANSEN. Would you repeat that?
Mr. RICE. I think in many instances we do not properly focus upon
the adverse effects that many of our Federal procedures, Federal deci-
sions, and laws may have on our territories as the Chair has pointed
out. I think the immigration situation is a very good example of that.
The Tax Reform Act is another very good example of an adverse
effect upon a territory that was, perhaps, not thoroughly considered at
the time it was passed and implemented.
I would also like to point out, territories are different from States,
due to the fact that territories do not always have control over their
own affairs, such as occurs in the areas of immigration and taxation.
The impact is so great that perhaps we should seriously consider treat-
ina them in a very unique way.
This, I think, would relate itself to the chairman's problem with a
loan for operating expenses in the Virgin Islands. I would estimate—
I have no exact figures at this point in time—but I would estimate a
great deal of the current deficit has been brought about by the Tax
Reform Act.
I would like to respectfully point out and submit the Virgin Islands
is here with dignity, not with hat-in-hand asking for grants, but
simply asking for a loan from the Federal Government to help solve
some of the problems that have been created, perhaps, by Federal
action.
Senator JOHNSTON. Don't you think it would be better to let them go
into the capital markets themselves rather than borrow from the
United States? To borrow from us creates this kind of situation that
x-years hence, we will be back to review, and if they're behind in the
payments, we're not going to sue them, they don't lose anything by not
paying us back, wouldn't it be much better to give them the right to go
into the capital markets themselves?
Mr. RICE. I'm mindful of the Chair's concern, but I have some con-
cern of my own. No. 1 would be the time lag that would be occasioned;
No. 2 would be the interest rate that might be obtainable by the Virgin
Islands going out into the capital market 
Senator JOHNSTON. If you gave them full faith and credit, wouldn't
they get the same interest rate they would under this bill?
Mr. RICE. I think the interest rate would be lower from the Federal
Government than it would be in the capital market.
Senator JOHNSTON. Interest on the loan would equal average yield of
outstanding marketable applications of the United States of com-
parable maturity dates.
Now, how would a full faith and credit bond have any interest rate
that would be above the average yield of outstanding marketable ap-
plications? Full faith and credit is full faith and credit.
Mr. RICE. It would be a guaranteed application of the Federal Gov-
ernment, but I still think, depending upon other terms, the private
sector might not be willing to buy these bonds at that particular rate.
It would have to do with time of repayment, whatever the particular
bond market was at the time. We have the same problem with Guam
financing.
There is also the question of interest on idle money. They are not
fully able to implement all of these capital improvements and get them
started at the same time. They would not be paying interest on the
funds that would be idle for a period of time.
Senator JOHNSTON. They would not have to sell all of the bonds all
at once.
Mr. RICE. They could sell them in series, yes, they could do that.
Senator JOHNSTON. What they do is nut them to the extent they
have idle funds, they put them into a fund to get interest.
Mr. RICE. There was another large problem of the concept of im-
mediate repayment. The Virgin Islands won't be ready to begin
repayment of these until 1982. I'm not altogether certain a bond mar-
ket would permit deferred payment until 1982, which for salability,
might require some type of payment, if only interest.
Senator JOHNSTON. I think you can structure your bonds for the
bond market in any way you want to. It just seems to me it puts a
discipline on the financial structure of the Virgin Islands to go out
into the bond market, that they would not have borrowing from the
U.S. Government.
28
I, frankly, cannot bring myself to feel it is a good idea to borrow
for current operating expenses. I don't know any State or municipal
subdivision that borrows for current operating expenses.
Senator HANSEN. I'll add a footnote to that without getting into
trouble.
Senator JOHNSTON. Yes; without getting into trouble. To the
extent there is an emergency situation, I think the administration
ought to come in forthrightly and say, let's make a grant. But, to
borrow money is to postpone misery, it seems to me.
Mr. RICE. I think, Senator, the Virgin Islands certainly has a finan-
cial forecast and outlook with increased taxation revenues, that it has
no need to ask for a grant, it can repay this indebtedness and is simply
asking for a loan to tide it over during this period of recession.
Senator JOHNSTON. In 1982, this property comes on the tax roles.
Mr. RICE. And the Hess Oil situation, some of the exemptions af-
forded to Hess, will not be afforded in 1982.
Senator JOHNSTON. How much revenue will that be?
Mr. RICE. Up to $200 million, I beg your pardon, $100 million.
Senator JOHNSTON. $100 million a year?
Mr. RICE. Yes, sir. Up to that figure. The entire $100 million may
not materialize, but up to that amount is my understanding.
Senator JOHNSTON. That is for ad valorem taxes?
Mr. RICE. This for the tax exemptions now available to Hess Oil
from the Virgin Islands. I will defer to the Governor on that, if I
might.
Governor KING. The estimate on that, Mr. Chairman is approxi-
mately $100 million a year, assuming a level of production as they
are now enjoying, and this would be essentially custom dues, gross
receipts, and property taxes.
Senator JOHNSTON. Is this assuming you win your lawsuit, or that
Congress passes that legislation? What is the source of the $100
million?
Governor KING. The bill to be passed by the Congress, I doubt
very much, would have any bearing on that. These are exemptions
which were extended to Hess as an inducement to begin operation in
the Virgin Islands and these automatically will expire in 1981.
Senator JOHNSTON. I know that, but where does the $100 million
come from, income tax, ad valorem tax?
Governor KING. The most part would come from customs dues,
that is, taxes imposed on goods produced in the Virgin Islands and
shipped to the United States.
Senator JOHNSTON. In either, to be able to impose those, you have
to win your lawsuit or get this legislation passed, is that correct?
Governor KING. No, sir.
Senator JOHNSTON. What customs duties—that bill involves
gasoline?
Governor KING. There is another point, Mr. Chairman. Once this
oil comes in to the Virgin Islands, there is a 6 percent tax imposed.
This is the expiration of, the tax exempt period—would result to the
Treasury of the Virgin Islands, by the use of the Virgin Islands
Government, and this would be the bulk of it.
Senator JOHNSTON. What I would like to get for the committee
to put in the record is more or less a pro forma on the $100 million.
29
Where is it going to come from? How do you calculate it, all of those
things? What basis for assumptions are there?
For example, you would assume a level of production that is similar
to what it is right now, or assume you will be making, fuel oil instead
of gasoline. Whatever your assumptions are, we would like to have
that, and when do you expect this revenue to come onstream ?
Governor KING. Mr. Chairman, may I impose on your time by say-
ing the Government of the Virgin Islands may not borrow under ex-
isting law for the operating budget. We can go to the market to borrow
for capital improvements, but even under that, there is the limitation
that we cannot borrow more than 10 percent of the total property
assessed value of the Virgin Islands, but that is only for capital
improvement
We cannot borrow under existing organic law for the operating
budget of the Virgin Islands.
Senator JOHNSTON. That is a usual provision that is in almost every
State constitution, but borrowing is not committed for operating ex-
penses. The 10 percent limitation that would be changed by this legis-
lation, obviously, we are not going to give you authority to borrow and
then have another provision of Federal law that would prevent that,
so we could certainly take care of that.
Governor KING. May I also point out the time factor. Assuming it is
possible for us to go to the bond market and achieve some measure of
success, this is in my opinion, questionable at the moment. There is a
time factor which, for us, is crucial.
Senator JOHNSTON. I understand that, but we didn't get this legisla-
tion until April 7. With the press of legislation we have to consider in
this committee, it is an election year, we just do not have time to get it
out by mid-June or whatever it is. This is very far-reaching legislation,
to talk about a grant for operating expenses or a loan for operating
expenses.
I don't know if the committee feels inclined to go along with that.
I would have serious doubt about it. I don't know how we could do it
in the next 30 days.
Governor KING. The tax rebate provided taxpayers in the Virgin Is-
lands would have been refunded by the Federal Government x number
of dollars from their Federal income taxes. This meant a shot in the
arm in the respective States from the Federal Treasury.
In the case of the Virgin Islands, to which this also applied, it
worked in the reverse in the sense that the Government of the Virgin
Islands had to dip into an almost already bare treasury to refund this
money to the people of the Virgin Islands and thereby give up moneys
that it needed—that it had planned on using in its operating budget.
Senator JOHNSTON. That money came from your treasury for the
refunding?
Governor KING. Yes. In the case of the Federal Government, it was
the other way around.
Senator JOHNSTON. Can you give us details on that?
Governor KING. We will be happy to make that available to you.
This is how we arrived at the $15 million figure.
'Senator HANSEN. I'm on the Finance Committee, Governor. Are
you talking about the individual increase in the exemption that was
authorized? What sort of refund are you talking about?
30
Governor KING. We were talking about a rebate which went into
effect last year which refunded to taxpayers x percentage of the amount
of income tax they paid.
Senator HANSEN. In the Virgin Islands, the government of the Vir-
gin Islands was charged or assessed, or had to rebate to the Federal
Treasury that proportion of moneys that was given to all Americans,
that went to people in the Virgin Islands. Is this the amount you are
talking about?
Governor KING. We rebated directly to the taxpayer.
Senator HANSEN. In the Virgin Islands?
Mr. RICE. Senator, in the Virgin Islands, the Virgin Islands keeps
all taxes produced in the Virgin Islands.
Senator HANSEN. As we increased the exemption and put this rebate
through, then you had to pay for the amount that went to the people
of the Virgin Islands?
Mr. RICE. Yes, sir.
Senator HANSEN. That is the part of the Tax Reform Act that was
so burdensome to you?
Mr. RICE. It is the same sense as having to dig into State coffers
and have the State remit those to State citizens.
Senator HANSEN. This is a unique situation contrasting your situa-
tion with the 50 States. It is unique because this income tax payment,
the 50 States, does not go to State government directly, it goes into the
Federal Treasury, and maybe a portion of that later.
But, you have a unique problem because you had to repay whatever
was mandated to be payed by virtue of the Tax Reform Act, if I
understand.
Mr. RICE. Yes.
Governor KING. We also continue to lose money because the base of
taxation has been reduced, and again, these are factors which we have
no control over.
Senator JOHNSTON. It is very important that you get that informa-
tion to us. It is one fact that could throw a little different light on this
for operating expenses. We can have a loan for operating expenses
for the recessions, but where the Federal Government comes along and
takes some action which depletes your treasury as it did, I think that
is something that may justify different treatment.
If you will get that to us, and if Interior will so certify your figures
as well, I think that would be very helpful.
[Subsequent to the hearing, the Interior Department supplied the
following:]
31
United States Department of the Interior
OFFICE OF THE SECRETARY
WASHINGTON, D.C. 20240
MAY 11 1976
Dear Mr. Chairman:
Yesterday, in hearings on S. 3357, a bill to provide loan assistance
to the Virgin Islands, the Committee raised questions and indicated
concern with regard to several issues. The following are answers
to those questions and concerns.
1. The Committee indicated that it might favor the Virgin
Islands entering the private bond market, with a United States
guarantee for its needed funds, rather than securing its loans
directly from the Federal Government. The major concern with this
alternative is that the Virgin Islands cannot afford to repay either
principal or interest until 1982. Our belief is that the direct
Federal loan approach is the most expeditious means for getting the
needed funds to the territory. We are confident of the Virgin
Islands ability to repay in light of the imminent expiration of a
number of local tax exemptions. In any event, the Internal
Revenue Matching Fund -- moneys owing the Government of the Virgin
Islands by the Federal Government -- would be used to amortize the
debt.
2. The Committee was concerned about the Virgin Islands
Government borrowing funds for operating purposes. As outlined in
testimony the Governor has instituted a number of cost cutting
measures and recommended 
new tax legislation to increase revenues.
He has indicated that essential services have been severely reduced.
To cut cost further would be to provide such services at an
unacceptable level as evaluated by nearly any standard. We do not
foresee such a loan as a bad precedent leading to ever increasing
Government of the Virgin Islands borrowing for operational purposes.
On the contrary, it is projected that of the $15 million loan
authorization for operations approximately $10 million would be used
in fiscal year 1977 with a decrease to approximately $5 million in
fiscal year 1978. By 1979, if S. 3357 is enacted and funded as planned,
it is anticipated that the Government of the Virgin Islands will have a
balanced operations budget.
3. The Committee requested information on the effects of the Tax
Reduction Act of 1975 and its extension. As the Committee knows,
32
the United States tax obligation of Virgin Islands residents is satisfied
when such residents pay their income taxes into the local treasury as
provided by Federal law. When the Tax Reduction Act was enacted the loss
of tax revenue came directly from the Virgin Islands treasury rather than
from the Federal treasury as occurred with regard to the 50 States. The
following tax figures were supplied by the Government of the Virgin Islands.
It is estimated that $15 million of the decrease in tax revenues is attri-
butable to the Tax Reduction Act of 1975 and its extension.
1975
1976 est.
1977 est.
Individual
52,474,177
43,206,849
47,000,000
Corporate
14,990,943
10,609,489
9,900,000
Total
67,465,120
53,816,338
56,900,000
Rebates
-0-
(2,500,000)
Refunds
(5,065,465)
(9,000,000)
(8,000,000)
Adjustment
62,399,655
41,816,338
48,900,000
4. The Committee requested information on the Hess Oil tax exemption
which will expire in 1981. The following data shows the amount of tax
exemption for fiscal years 1973 and 1974 together with the amount of
production on which the exemption is based. In estimating that the
Government of the Virgin Islands will receive up to $100 million in tax
revenues when the exemption expires in 1981, we are assuming an amount of
production equivalent to that of 1973 and 1974.
Exemption moneys returned from the Government of the Virgin Islands to
Hess Oil:
1974 
1973
Income tax 
11.4 Mil. 
16.5 Mil.
Gross receipts tax 
41.4 Mil. 
53.1 Mil.
Customs duties 
45.6 Mil. 
30.8 Mil.
Property * 
N/A 
N/A 
Total 
98.4 Mil. 
100.4 Mil.
Production in barrels per day:
Product sales/Day
Refinery rums/Day
591,000
530,000
2
* Insufficient information precludes estimation
615,000
492,000
I
33
5. The Committee requested a list of the capital improvement
projects and operations program on which the loan moneys would be
expended. Please find attached the Virgin Islands proposed list of
capital improvement projects totaling $61 million and its proposal for
fiscal year 1977 operations funding in the amount of $10 million.
Should the Committee have additional questions, we will be glad to
provide the answers.
Since ely yours,
Legislative Counsel
Hon. Henry M. Jackson
Chairman, Committee on Interior
and Insular Affairs
United States Senate
Washington, D.C. 20510
Enclosure
34
FY 1977 Funding Request 
1. operations, Loans. In order to balance the FY 1977 Virgin Islands
operations budget $10 million of the $15 million authorized is requested.
This will eliminate the forecaster FY 1977 deficit and will provide a
balanced budget as required by Virgin Islands law, thus allowing the
Virgin Islanes Government to provide at an already reduced level the
necessary government services for the people of the Virgin Islands.
Ine following operational areas of the Government of the Virgin islands
will be funded under this request:
a) Education 
 $2,981,900
b) Health 
 4,988,700
c) Social Services 
 1,277,100
e.) Public Works 
752,300 
Total Operations 
$10,000,000
a) Education 
 $2 981 900
Activity 
Amounl
(1) Special Education 
 $1,262,900
(2) Pupil Personnel Services 
 309,400
(3) School naintenance 
 927,600
(4) Pre-Vocational Institutional 
 482,000
(1) Soecial Education 
$1,262,900 
Program Description 
Territory-wide, pre-school, elementary, and Secondary services to severely.
handicapped children. Through the implementation cf pre and post testing,
maintain data on education needs, to enable teachers and diagnostic clinic
staff to implement educational programs to meet the needs of approximately
300 handicapped children. Works with the Departments of Health and
Social Services to improve handicapped child research methods. Funding
for this program would provide for 121 positions and related expenres.
(2) Pupil. Personnel Services  $309,400
Program DescrtaLL11
Provide leadership in coordinating programs of special services, guidance,
psyr,,elogical assistance, school health, school social work--will facilitate
35
the growth and development of pupils grades k through 12 in the two
school districts. Funding for this program will provide for four positions
in order to design comprehensive programs addressing identified student
needs ie the above areas. Insure responsiveness on the part of Departmental
personnel through training. Provide information and insure subscription
to outside services that address needs of the students
(3) School Mainsenance 
$927,6C0 
Program Description 
Territory-wide maintenance program to protect the large capital investment
in school plants by improving by detailed planning the comprehensive pre-
ventative program thereby minimizing emergency repairs. Maintain approxi-
mately 155 separate buildings at 34 different sites. Improve the Summer
Work Programs. Funding would provide for 72 positions to make a physicnI
inventory of all buildings and equipment to assess maintenance needs,
allocate resources to address these needs on a priority basis. Design
and implement a record-keeping system designed to trigger inspection at
periodic intervals; provide training for maintenance personnel, and to
include more children in the Summer Work Program.
(4) Pre-Vocational Institutional Level  $482,000
Program Description 
Territory-wide school program benefiting students at the elementary and
junior high levels. Provides a cluster of courses that stimulate interest
in and create sensitivity to work ethic; expand experimental "career
awareness" to elementary grades; enhance the students knowledge cf
machines, tools, devices, and techniques through "hands on" experiences
in pre-vocational courses.
Funding for this program will provide for 35 positions to operationalize
a core course affording exposure to various skills; expose 600 elementary
school children to an innovative career development program; niford homo-
geneous and heterogeneous student groups participation in oore courses
in varied institutions.
b) Health 
 L4228122.90
Activity 
Amount
(1) Diagnostic and Treatment Services 
 $?98,400
(2) In-patient fervicer 
4,090,300
(1) Diagnostic ald Treatment Service  4898,400
36
Program Dtscription 
Knud-Hansen Memorial Hospital, St. Thomas.
Provide a wide range of diagnostic and therapeutic services requisite to
good medical care within an institute and activity. Plan for additionally
needed services; to expand hemodialysis services. Increase diagnostic
X-ray services in the area of tomograms and mamograms.
Fuming for this program would provide for 67 positions, and to relocate
hemodialysis unit to second floor thereby expanding the area from a
capacity of six to twelve beds; plan and develop staffing space and
facilities for a nuclear medical department as required by joint commission
on Accreditation of Hospitals; replace obsolete diagnostic X-ray unit
thereby reducing number of patients traveling off-Island for this service.
(2) In-Patient Services 
 090 300
Program Description 
For entire Virgin Islands Community, provide a high standard of medieal
and nursing services in the following areas: Medical, surgical, pediatrics,
obstetrics, and psychiatry. Provide in-patient care on a 24-hour basis;
provide staff with necessary material and equipment in order to render
high quality care; coordinate in-patient services by medical'and nursing
staff with those rendered by the paramedical personnel. Funding for this
program will provide for 339 positions to ensure that standards of im-
patient care practiced ore not below those of nationally recognized
licensing and accrediting bodies. The main vehicle of accomplishment will
be through the recruitment of sufficient physicians in the major special-
ities and assignment of qualified professional nurses in quantities
adequate to staff the special care areas. Assign qt lified professional
nurses to provide 24-hour supervision and care of patient;; conduct
evaluation of quality and quantity of nursing care through the use of
Nursing Audit Committee and Utilization Review Committee.
c) Social Services 
S1,277,100
Activity 
Amount 
(1)
Day Care 
$518,400
(2)
Foster Care 
516,700
(3)
Youth Commission 
242,000
(1)
Day Care 
$518,400
37
LEaa12171 Description
To operate the Day Care Program !rt the Virgin Islands. To provide coordina-
tion and related services tc both the government owned and privately
operated centers. Funding for this program will provAe for 83 positions
to inoorporate a licensing unit which uill be responsible for screening
and evaluation of applicants for day care licenses. Maintain a high quality
of substitute care for 290 children in 8 F,overnment operated day care centers
and 12 licensed centers.
(2) Foster Caro 
 $516 700
Program Description
To operate the Foster Care Program which involves temporary substitute
car,, far children. Funding. for this program will provide for ten positions.
The sinit will purchase care from the Queen Louise Home for Children for
33 youngsters; purchase group care for ten predelinquent boys in St. John;
provide roster Care for the elderly. Develop and implement a "Croup Home
Model" vhIch is family style settings for ten or twelve youngsters funded
by a special Law Enforcement Grant. The "Group Home MOdel" will replace
the Insular :training School Program.
(3) Youth CommiFF.ion (Social Services)  flit/,000
Program Description 
Develop and provide support services for nine youth groups by utilizing
the "Social Goal Model" approach. Bring youth population in contact with
available services, such as health, education, employment, and job training.
Expand existing Inter-neighborhood Recreation Program by adding new
competitive dimensions. Funding for this program will provide for eight
positions to engage youth in "Social Goal Model" aimed at encouraging
yooth enrollment in activities directed towards development and fostering
their involvement in the solution of neighborhood problems. Select from
a target population of 250 youths community workers who will become
advocates in the development of nine neighborhood youth groups throughout
the Virgin Islands.
d) Public Works 
 $752,300
Activity 
Amount 
(1) Waste Water Cysten 
 
$752,300
(3) Vaf.te Wa!•cr
Program 1),..cris-t.La
Upgrade rain rratment 
7slicten.:,1ce ,f ,lub-mqns and trun swwer;,.
Ian 
c Li. . 
to 
;:I vrovid, s,r 
porition,J. Compre,sors,
pun 
,Sic; 
;'ia 
s ::11 I be purcl , 
•ed
SO! sli , 1 t, rt 
. 
ss: in, I eve' . 
ii 
rOe
of s 
ins a. trussi. 
.,r, 
s 
„iodic r,••••,....:.] of
dehr:,.
38
The following is.a list of Government of the Virgin Islands proposed
capital improvement projects which should be funded out of the $61 million
loan authorization proposed by the Department of the Interior on April 7,
1976 and embodied in S. 3357, S. 3327, H.R. 13359 and H.R. 13360.
I. Education Capital Projects 
Total dollars 12.3 million
A. New school construction
Construction of school
facilities to reduce the
double session incidence
throughout the territory.
B. Repair and renovation of
existing schools
Upgrading laboratory and
adding gymnasium facilities,
improving kitchen and lunch
rooms, improving security and
repairing damages at schools on
both islands
C. Renovations at the College of the
Virgin Islands
Improving classroom and office
facilities in old Army buildings,
improving ventilation in
laboratories and dormitories.
3.0 million
8.7 million
.6 million
II. Health Capital Projects 
2.7 million
Renovations and construction of
minor additions to the existing
health facilities on St. Thomas
and St. Croix to allow
maintaining accrrlditation and
afford compliance to occupational
safety and health regulations.
Construction of expanded clinic
facilities for St. John.
III. Public Works Capital Projects 
34.8 million
A. Potable water storage
Add 200 million gallons to
existing storage, giving one
month of stored capacity, rather
than 10 day maximum capacity, on
both islands.
12.3 million
B. Water main from central St. Croix
to Christiansted 
3.0 million.
39
C. Distribution system, Tutu,
St. Thomas
Construction of feeder lines
to new 24 inches main bringing
potable water system to residents
of east end of St. Thomas.
D. Distribution system, Central St.
Croix
Construction of feeder system
for communities in center of
island now using cisterns or
trucked water.
1.5 million
1.0 million
E. Improve existing roads 
12.5 million
Improve grades, surface and
drainage for two-thirds of the
roads in the Virgin Islands
F. Storm drainage improvements 
2.5 million
Rebuild existing storm drainage
and add new drainage in
St. Croix to increase ability to
cope with tropical storm run-off.
G. Repairs and improvements to Government 
2.0 million
Buildings designed to extend the life
and serviceability of existing
structures presently in use as offices.
IV. Public Safety Capital Projects 
8.6 million
A. Criminal justice complex
Construction of a new
facility in St. Thomas
combining the Departments of
Law, Public Safety, and the Courts
B. Expansion of adult correction
facility
Increase number of cells and expand
common areas at Golden Grove
Correctional Facility
C. Motor vehicle repair facility
Construction of enclosed garage
and workshop in St. Croix motor pool
7.4 million
1.0 million
.2 million
40
V 
Social Welfare Capital Projects 
2.6 million
A. Nursing care building
Build a nursing care wing on the
Herbert Grigg Home, to provide
the only certified nursing care
facility in the Virgin Islands
B. Reconstruction of Corneiro Home
Completely rebuild abandoned
facility to provide housing,
day care and recreational
facilities for low and moderate
income elderly in St. Thomas
C. Renovation of existing facilities
for elderly
Improve kitchen facilities and
common areas, and remove
architectural barriers in elderly
housing facilities in St. Thomas
and St. Croix
D. Renovation of Youth care facilities
Moving youth care facilities from
downtown Charlotte Amalie to
government-owned facilities at
Calabash Boom, St. John.
Renovation of buidings there.
1.0 millio
1.0 million
.1 million
.5 million
TOTAL ALL CAPITAL PROJECTS 
61.0 million
41
Senator HANSEN. If I could ask one further question, Mr. Chair-
man? Mr. Rice, on page 4 of your prepared remarks, that first para-
graph, you say without financial relief, an additional $30 million in
capital projects will have to be deferred in fiscal years 1976 and 1977.
This is a total of $61 million for the period fiscal year 1976 through
1977.
My question is, the Governor has testified their budget for this com-
ing year is about $117 or $119 million, and maybe $1.8 million addi-
tional would be needed for those ongoing capital projects that are in
construction now. How much, or could you be more concise are you
saying that $30 million of the overall budget down there will be spent,
or would have been spent with financial relief if things were going
before they were earlier going, before the recession and before the re-
bate occurred, that $30 million would have been spent in these two fiscal
years, 1976-77?
Mr. RICE. If I may, I'll defer to Mr. Sander of our office. He will
give you a specific answer.
Mr. SANDER. I think, Senator, the Governor was talking about $1.8
million in small capital improvements and possibly some repairs.
What is projected in their overall capital improvement program is
$30 million for 1976-77 if they have the money. That is what this bill
is about.
Senator HANSEN. We are talking about a finanial crisis and specifi-
cally focusing in on the need for additional funds for operating ex-
penses. I assume by that the Governor has in mind the payment for
salaries of policemen and firemen and city workers all of the things
that are done normally as well as schools. Would I be right in making
that assumption, Governor?
Governor KING. That is right, Mr. Chairman. We anticipate for the
next fiscal year, the 1976-77 fiscal year, that that figure will amount
to roughly $9.8 or $9.9 million 
Senator HANSEN. You mean $9.8 or $9.9 million is what?
Governor KING. The shortfall.
Senator HANSEN. Of operating money?
Governor KING. Yes: for the coming fiscal year, and for the next
fiscal year we estimate that figure would drop to $5 million.
Senator HANSEN. My next question would be, I don't know how these
capital projects—are they all being funded out of the budget that
derives largely from the payment of income taxes? Is that historically
the way these projects have been funded, or do you have revenue bonds
you have sold or constructed with or not?
Governor KING. With your permission, I will ask the budget direc-
tor to respond to that question.
Mr. MOORHEAD. There are four or five sources of capital moneys the
Government has available. One is the internal revenue matching fund
which is the moneys returned from the excise tax assessed on the rum
shipments to the 'United States.
There is $39 million worth of outstanding general obligation bonds
that the government of the Virgin Islands, an indebtedness of the
Virgin Islands presently outstanding 
Senator HANSEN. Some of that general obligation fund money has
been used to finance capital projects?
42
Mr. MOORHEAD. All of it is used to finance capital projects. What we
were forced to do this year to meet the expenditures of the operating
budget was to transfer moneys from these set-asides. The money set
aside usually just for capital projects.
We have been forced to transfer moneys from these accounts into
the general fund which is the operating budget of the Virgin Islands.
Senator HANSEN. I can anticipate, of course, if you have ongoing
capital construction projects, if you shut them down, one of the im-
mediate things would be the unemployed would go up, your welfare
costs would go up, but I would assume also, some of the projects
may also be revenue producing. Am I right about that or is that not
right?
Mr. MOORHEAD. These are all facilities, sir. Education, expansion of
schools, expansion and improvements to hospitals, that type of thing.
It is not a revenue-generating project.
Senator HANSEN. It would go more deeply than simply a revenue-
producing thing. While a hospital does, of course, produce some rev-
enue, there are far greater social consequences of not finishing it up,
and you could exacerbate a health situation.
Mr. MOORHEAD. It is to this point, Senator, as the Governor men-
tioned, that total revenue matching fund, which is one portion of our
project, matching moneys we receive back from the Federal Govern-
ment, some $18 million. The Government of the Virgin Islands is only
utilizing 1 million of those dollars for capital improvement projects
primarily because of the need for making some loan repayments, and
the needs of the general fund budget or the operating budget.
Senator JOHNSTON. Gentlemen, thank you very much for your testi-
mony. We look forward to receiving additional information. We are
aware of your serious problem, and we would like to do something not
only to solve your capital improvement fund, but your operating prob-
lems.
The latter problem will be much more difficult from our standpoint.
Senator HANSEN. I know some of the people who are interested in
the resort hotel business in the Virgin Islands. Has the increasing
incidence of crime, if it is true, if there has been an increased incidence
of crime, been a factor that has militated against occupancy in the
resort hotels?
Governor KING. I feel this was true at the time of the incident which
was some years ago. I think it is true, however, that essentially tour-
ism certainly has been much better this year than it has been in the
past 3 or 4 years.
There is every indication that we have passed that point, that we
would all like to forget an incident that was 'blown out of all propor-
tions by the press within the continental limits of the United States.
Senator HANSEN. I gather you said that with a touch of irony in
your voice.
Governor KING. I resent the attitude of the press with regard to this
matter. They were reporting one incident and made it appear as if it
were a daily occurrence. They were trying to do worse than that, they
were trying to make it appear that the racial situation in the Virgin
Islands was such that it was intolerable, when it was essentially eco-
nomic and not racial at all.
43
They were doing this within a time in the United States where you
had far worse incidents in terms of numbers, not only occasionally, but
every day, and nothing was said about it. Every opportunity was taken
to put it on the front page and tie up with every single story, whether
it had anything to do with it or not. I feel very strongly about it.
Senator HANSEN. I don't know about your situation, Governor. Let
me say your remarks have not fallen on deaf ears. I come from Wy-
oming, and I notice the New York Times loves to send the reporters
out to our State to find out how bad things are in Gillette, Wyo., or
Rock Springs.
Senator JOHNSTON. Gentlemen, thank you very much.
[Whereupon, at 11:58 a.m., the hearing was adjourned.]
[ 
Subsequent to the hearing, the following communications were
received by the committee:]
Senator HENRY M. JACKSON,
Chairman, Interior and Insular Affairs,
Senate of the United States,
Washington, D.C.
Dear SENATOR. Please do not vote affirmatively for funds for the Federal Avia-
tion Administration which include funds for a completely new airport St.
Thomas, U.S. Virgin Islands. The minimum cost of this proposed project is $50
million to $75 million of Federal funds and from $13 million to $25 million of
local funds from an already quasi-bankrupt Virgin Islands Government which is
requesting the Federal Government to bail it out.
We already have an adequate international airport in St. Croix, Virgin Islands,
which is 7,600 feet and capable of handling all current aircraft to the Virgin
Island, including the Boeing 747.
We do not need another new international airport in the Virgin Islands in St.
Thomas. The United States does not need it: The United States cannot afford
this waste of funds: The Virgin Islands cannot afford it either.
Please insist that unnecessary funds for the Federal Aviation Administration
for an Airport in St. Thomas be deducted to save the expense to the Federal
Government and to the Virgin Islands Government, accordingly.
Your assistance will be appreciated.
Sincerely
ST. CROIX, V.I., May 16, 1976.
ROBERT V. VAUGHN.
ST. CROIX, V.I., May 17, 1976.
Senator HENRY M. JACKSON,
Chairman, Interior and Insular Affairs,
Senate of the United States,
Washington, D.C.
Dear SENATOR JACKSON: Please vote in the negative concerning legislation to
loan the Virgin Islands government $76 million or any other amount. We cannot
afford to saddle our future generations for the extravagances of the present and
the past Virgin Islands government.
Do not loan us any more funds. Let us in the Virgin Islands learn to live
within our income. Do not reward political inefficiency by loans or appropria-
tions which cover shortages, mistakes and extravagances. Please do not en-
courage fiscal irresponsibility and recklessness.
Just as we cannot afford a new $50 to $100 million dollar airport in St. Thomas,
so too we cannot afford to borrow $76 million from the U.S. Government. Please
do not vote for the V.I. loan, or deficit financing.
Your assistance will be appreciated by the majority of Virgin Islanders.
Sincerely,
ROBERT V. VAUGHN.
P.S. Any special concession to permit federal or private loans to the Virgin
Islands Government, involving deficit financing, should have to have the approval
of the people of the Virgin Islands, and such approval should be mandated by
the Federal Government—through a referendum—not left up to the vote of local
legislators.