Virgin Islands tackles government reform. New Governor Farrelly pushes plan to remedy financial disarray

The US Virgin Islands' government is going through a shake-up. When he took office on Jan. 5, Gov. Alexander Farrelly inherited a government that had been left in financial disarray by the nine-year administration of his predecessor, former Gov. Juan Luis. Governor Farrelly has submitted a government reorganization plan to the territory's 17th Legislature. The proposal includes a new cabinet structure and a framework for legislation implementing the reforms.

Last year, as the seemingly smooth-running Luis administration was nearing an end, island voters received their first rude awakening to the territory's dire financial and political situation. Two territorial government agencies ran out of operating funds, and federal agencies announced they would withhold funds from the territorial government because of local noncompliance with federal guidelines for the use of those funds.

The full extent of the problem, however, was not determined until Farrelly, soon after his inauguration, began meetings with federal officials and undertook a government budget audit.

Federal officials informed Farrelly that $15 million in federal funds were being withheld and that further sanctions were being recommended by the inspectors general of eight federal departments. The Virgin Islands government was ``in a shambles,'' Farrelly said later in his State of the Territory address, ``bankrupt in its legal meaning and often in violation of the law. ... Compliance with federal law begins now,'' he said.

The problem, according to the governor, stemmed from the previous administration's overstating revenues and understating expenses.

For example, companies that fell into a nontaxable Internal Revenue Service category on the federal level and also slipped through tax loopholes on the local level were ordered by a federal court to pay taxes to the Virgin Islands government. The Luis administration projected $50 million in revenues from these companies, but income was only $7.8 million.

To improve government performance, Farrelly's reorganization plan targets the administrative overhead in what he calls ``a great spoiling bureaucracy.'' By reducing the cabinet from 28 to 15 members, the governor expects to streamline the local agencies' operations, benefits, and services. He also hopes to turn certain public services over to private-sector contractors.

Farrelly has already strengthened relations between the federal and territorial governments and has impressed federal officials with his desire to work for solutions to the territory's problems, says Larry Morgan, a spokesman for the US Department of the Interior.

In a recent visit to the islands, Interior officials ``accomplished more in four days with Farrelly than they had in four years'' with former Governor Luis, says Mr. Morgan. He adds that Assistant Secretary of Interior Richard Montoya was ``so impressed ... that he committed $500,000 in technical assistance funds for implementation of the reorganization plan, economic development, and privatization.''

The question now facing the governor is what the territory's unicameral Legislature will do with the proposed plan, especially since two senators in March switched their loyalties to a different leader, thereby forming a new legislative majority. The new president's rhetoric is not as supportive of Farrelly's plan as his predecessor's was.

Ousted Senate president Ruby Rouss, who had promised that her majority would work ``hand-in-glove'' with Farrelly, worries that the governor's plan will be amended past recognition. But current Senate president Iver Stridiron, claiming his majority is ``on parallel tracks with'' the governor, insists there will only ``be some cosmetic changes.''

Minority Sen. Allan Paul Shatkin agreed with Senator Rouss, saying, ``According to the hearings I've attended, I think that right now the bill is in trouble and would suffer major amendments.'' Senator Shatkin added that the new majority will prove increasingly difficult for the governor to work with, because some of them ``have obvious aspirations for higher office.''

Farrelly nonetheless feels confident that his plan will pass. He admits to having no alternative strategies if his plan is turned down, but he says, ``I frankly don't see alternatives that are both effective and politically acceptable. So we're holding firm.''

``We have a good opportunity to turn these islands around,'' Farrelly says, ``and the federal government is sympathetic to our [position] that we're not waiting for a handout. ... And with that help, we will pull our own caboose.''

The US Virgin Islands

The Virgin Islands are governed as an unincorporated territory of the United States and administered by the US Department of the Interior. In 1917, the US purchased the islands from Denmark, and in 1927, residents received US citizenship. Under the Revised Organic Act of 1954, which provided for a 15-member Senate, the US granted limited legislative powers.

Under the New Organic Act of 1968, the executive authority of the islands was given to a governor and lieutenant governor. These positions were appointed by the US president until 1970, when they became elected offices, with the governor serving a four-year term. Since 1973, the territory has sent a nonvoting delegate to the US House of Representatives. Now the US Department of the Interior appoints a federal comptroller of government revenue and expenditure.

The three main islands are St. Thomas, St. Croix, and St. John. The territory's relatively prosperous economy is based on a flourishing tourist industry and some manufacturing of textiles, pharmaceuticals, and fragrances.