[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]




 
  H.R. 3589, TO CREATE THE OFFICE OF CHIEF FINANCIAL OFFICER OF THE 
                   GOVERNMENT OF THE VIRGIN ISLANDS.

=======================================================================

                          LEGISLATIVE HEARING

                               before the

                         COMMITTEE ON RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                        Wednesday, June 16, 2004

                               __________

                           Serial No. 108-97

                               __________

           Printed for the use of the Committee on Resources



 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house
                                   or
         Committee address: http://resourcescommittee.house.gov


                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
94-226                      WASHINGTON : 2004
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

                         COMMITTEE ON RESOURCES

                 RICHARD W. POMBO, California, Chairman
       NICK J. RAHALL II, West Virginia, Ranking Democrat Member

Don Young, Alaska                    Dale E. Kildee, Michigan
W.J. ``Billy'' Tauzin, Louisiana     Eni F.H. Faleomavaega, American 
Jim Saxton, New Jersey                   Samoa
Elton Gallegly, California           Neil Abercrombie, Hawaii
John J. Duncan, Jr., Tennessee       Solomon P. Ortiz, Texas
Wayne T. Gilchrest, Maryland         Frank Pallone, Jr., New Jersey
Ken Calvert, California              Calvin M. Dooley, California
Scott McInnis, Colorado              Donna M. Christensen, Virgin 
Barbara Cubin, Wyoming                   Islands
George Radanovich, California        Ron Kind, Wisconsin
Walter B. Jones, Jr., North          Jay Inslee, Washington
    Carolina                         Grace F. Napolitano, California
Chris Cannon, Utah                   Tom Udall, New Mexico
John E. Peterson, Pennsylvania       Mark Udall, Colorado
Jim Gibbons, Nevada,                 Anibal Acevedo-Vila, Puerto Rico
  Vice Chairman                      Brad Carson, Oklahoma
Mark E. Souder, Indiana              Raul M. Grijalva, Arizona
Greg Walden, Oregon                  Dennis A. Cardoza, California
Thomas G. Tancredo, Colorado         Madeleine Z. Bordallo, Guam
J.D. Hayworth, Arizona               Stephanie Herseth, South Dakota
Tom Osborne, Nebraska                George Miller, California
Jeff Flake, Arizona                  Edward J. Markey, Massachusetts
Dennis R. Rehberg, Montana           Ruben Hinojosa, Texas
Rick Renzi, Arizona                  Ciro D. Rodriguez, Texas
Tom Cole, Oklahoma                   Joe Baca, California
Stevan Pearce, New Mexico
Rob Bishop, Utah
Devin Nunes, California
Randy Neugebauer, Texas

                     Steven J. Ding, Chief of Staff
                      Lisa Pittman, Chief Counsel
                 James H. Zoia, Democrat Staff Director
               Jeffrey P. Petrich, Democrat Chief Counsel


                                 ------                                

                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on Wednesday, June 16, 2004.........................     1

Statement of Members:
    Christensen, Hon. Donna M., a Delegate in Congress from the 
      Virgin Islands.............................................     3
        Prepared statement of....................................     6
    Flake, Hon. Jeff, a Representative in Congress from the State 
      of Arizona.................................................     1
    Pombo, Hon. Richard W., a Representative in Congress from the 
      State of California, Prepared statement of.................     3

Statement of Witnesses:
    Jones, Hon. David S., Senate President, 25th Legislature of 
      the Virgin Islands, U.S. Virgin Islands....................    45
        Prepared statement of....................................    48
    Norton, Hon. Eleanor Holmes, a Delegate in Congress from the 
      District of Columbia.......................................    19
        Organizational chart submitted for the record............    22
    Pula, Nikolao, Acting Assistant Secretary of the Interior for 
      Insular Affairs, U.S. Department of the Interior...........    27
        Prepared statement of....................................    29
    Redfield, Holland L., II, National Committeeman, Republican 
      Party of the Virgin Islands................................    61
        Prepared statement of....................................    64
    Russell, Hon. Ronald E., Senator, 25th Legislature of the 
      United States Virgin Islands...............................    57
        Prepared statement of....................................    59
    Turnbull, Hon. Charles W., Governor, United States Virgin 
      Islands....................................................    38
        Prepared statement of....................................    40

Additional materials supplied:
    Dawson, Eric E., Virgin Islander, Statement submitted for the 
      record.....................................................     7
    Golden, Violet Anne, Former Member of the 23rd Legislature of 
      the U.S. Virgin Islands, St. Croix, Virgin Islands, Letter 
      submitted for the record...................................     9
    Hodge, Derek M., National Committeeman of the Democratic 
      Party, U.S. Virgin Islands, Statement submitted for the 
      record.....................................................    11
    Morales, Luis A. ``Tito,'' Central Labor Council of the AFL-
      CIO/CLC St. Thomas, Virgin Islands, Statement submitted for 
      the record.................................................    12
    Richards, Hon. Vargrave A., Lieutenant Governor, U.S. Virgin 
      Islands, Statement submitted for the record................    15
    Scott-Williams, Stephanie, Former Virgin Islands Senator, 
      Letter submitted for the record............................    17


    LEGISLATIVE HEARING ON H.R. 3589, TO CREATE THE OFFICE OF CHIEF 
       FINANCIAL OFFICER OF THE GOVERNMENT OF THE VIRGIN ISLANDS.

                              ----------                              


                        Wednesday, June 16, 2004

                     U.S. House of Representatives

                         Committee on Resources

                            Washington, D.C.

                              ----------                              

    The Committee met, pursuant to notice, at 10:00 a.m., in 
Room 1324, Longworth House Office Building, Hon. Jeff Flake 
presiding.
    Present: Representatives Flake, Rehberg, Renzi, Pearce, 
Faleomavaega, Christensen, Inslee, Udall of New Mexico, and 
Bordallo.

STATEMENT OF HON. JEFF FLAKE, A REPRESENTATIVE IN CONGRESS FROM 
                      THE STATE OF ARIZONA

    Mr. Flake. The Committee on Resources will come to order. 
The Committee is meeting today to hear testimony on H.R. 3589, 
a bill to create the office of Chief Financial Officer of the 
Government of the Virgin Islands.
    Mr. Flake. Under Rule 4(g) of the Committee Rules, any oral 
opening statements at hearings are limited to the Chairman and 
Ranking Minority Member. This will allow us to hear from our 
witnesses sooner and help Members maintain their schedules. 
Therefore, any other Members, if they have statements, they can 
be included in the hearing record under unanimous consent.
    On behalf of the full Committee, I want to welcome everyone 
here. I particularly want to welcome those who have traveled 
from the Virgin Islands to give testimony and to listen. We are 
fortunate to have you here today. Thank you for coming.
    Our full Committee hearing today will focus on the 
legislation introduced by my colleague from the Virgin Islands, 
Mrs. Christensen. It is my hope that we will be able to address 
both the reasons for the current troubling financial or fiscal 
situation that exists in the U.S. Virgin Islands as well as the 
various options to remedy the situation.
    Beginning with the original Organic Act of 1936 which 
established the extent of local control in the Virgin Islands, 
the Federal Government has recognized the importance of self-
governance in the Islands. Still, the strong role of the 
Federal Government and the monetary assistance it provides 
directly connect us to both applauding its successes and 
addressing its struggles.
    Specifically, H.R. 3589 will provide for a Chief Financial 
Officer and the staff necessary to assist this person in the 
very serious work of thoroughly analyzing all programs that 
involve spending by the Government of the Virgin Islands. 
Clearly, Mrs. Christensen intends to take a proactive approach 
in addressing repeated deficits that have plagued her district. 
While these deficits are not addressed and are simply 
contributions to a larger--when these deficits are not 
addressed and are simply contributions to a larger debt, 
serious actions must be considered.
    The current debt that continues to rise in the Virgin 
Islands is really not a recent problem, though it surely 
continues to worsen. In fact, former Secretary of the Interior 
Bruce Babbitt signed a Memorandum of Understanding with the 
Government of the Virgin Islands, placing vital Federal monies 
and technical assistance as contingent upon following the 
defined standards for fiscal accountability in 1999.
    But the current lack of any economic recovery remains. 
Contributing factors include a gradually declining tourist 
industry as well as the devastation that has resulted from 
multiple hurricanes in the Virgin Islands. This cannot be 
ignored.
    Still, current spending practices have led to increased 
debt. Still, this problem is not entirely attributable to those 
factors mentioned above that are particularly acute in a 
tourism-based economy. For this reason, my colleague, Mrs. 
Christensen, has introduced H.R. 3589, tackling what is 
politically and practically a very challenging issue.
    Our hearing today should highlight the ways in which we can 
truly bring the Federal Government together with the Government 
of the Virgin Islands to ensure that taxpayer dollars are spent 
efficiently. This should be pursued in a manner that does not 
directly hinder the largely positive relationship the Federal 
Government has had with the Virgin Islands since their transfer 
to the United States in 1917.
    The Delegate from the Virgin Islands should be lauded for 
her efforts to address this issue in a very public manner. She 
has already conducted town hall meetings seeking the input of 
local residents, and it is my hope that she will continue to do 
so.
    Ideally, our hearings today will provide a thorough 
examination of H.R. 3589 and raise points of continued 
discussion for this Committee and for the Government of the 
Virgin Islands. Much like the debate in Congress surrounding 
balancing our Federal budget, the intent of H.R. 3589 in 
reining in spending has gone on for years. This hearing should 
allow for tangible steps to be taken to reach that goal, 
resulting in the physical stability and eventual economic 
growth necessary to the successful future of the Government of 
the Virgin Islands and its residents.
    I thank the witnesses again for being here today and 
particularly those who have joined us from the Virgin Islands.
    The Chairman now recognizes the Ranking Minority Member for 
any statement she might have.
    [A statement submitted for the record by Chairman Richard 
Pombo follows:]

        Statement of The Honorable Richard W. Pombo, Chairman, 
                         Committee on Resources

    Good morning. On behalf of the full Committee, I would like to 
welcome everyone in attendance today and specifically our witnesses. We 
are fortunate to have with us today multiple individuals who have 
traveled from the United States Virgin Islands.
    Our full Committee hearing today will focus on the legislation 
introduced by my colleague from the Virgin Islands, Mrs. Christensen. 
It is my hope that we will be able to address both the reasons for the 
current troubling fiscal situation that exists in the U.S. Virgin 
Islands as well as the various options to remedy the situation.
    Beginning with the original Organic Act of 1936, which established 
the extent of local control in the Virgin Islands, the Federal 
government has recognized the importance of the self-governance in 
these islands. Still, the strong role that the Federal government and 
the monetary assistance it provides directly connect us to both 
applauding its successes and addressing its struggles.
    Specifically, H.R. 3589 will provide for a Chief Financial Officer 
and the staff necessary to assist this person in the very serious work 
of thoroughly analyzing all programs that involve spending by the 
Government of the Virgin Islands.
    Clearly, Mrs. Christensen intends to take a proactive approach in 
addressing repeated deficits that have plagued her district. When these 
deficits are not addressed and are simply contributions to a larger 
debt, serious actions must be considered.
    The current debt that continues to rise in the Virgin Islands is 
really not a recent problem, though it surely continues to worsen. In 
fact, former Secretary of Interior, Bruce Babbitt, signed a Memorandum 
of Understanding with the Government of the Virgin Islands placing 
vital Federal monies and technical assistance as contingent upon 
following the defined standards of fiscal accountability in 1999.
    But the current lack of an economic recovery remains. Contributing 
factors including a gradually declining tourist industry as well as the 
devastation that has resulted from multiple hurricanes in the Virgin 
Islands cannot be ignored. Still, current spending practices have led 
to increased debt. Still this problem is not entirely attributable to 
these factors mentioned above that are particularly acute in a tourism-
based economy.
    For this reason, my colleague Mrs. Christiansen has introduced H.R. 
3589, tackling what is politically and practically a very challenging 
issue.
    Our hearing today should highlight the ways in which we can truly 
bring the Federal government together with the Government of the Virgin 
Islands to ensure that taxpayer dollars are spent effectively. This 
should be pursued in a manner that does not directly hinder the largely 
positive relationship the Federal government has had with the Virgin 
Islands since their transfer to the United States in 1917.
    The Delegate from the Virgin Islands should be lauded for her 
efforts to address this issue in a very public manner. She has already 
conducted town hall meetings seeking the input of local residents and 
it is my hope that she will continue to do so. Ideally, our hearing 
today will provide a thorough examination of H.R. 3589 and raise points 
of continued discussion for both this Committee and the Government of 
the Virgin Islands.
    Much like the debate in Congress surrounding balancing our Federal 
budget, the intent of H.R. 3589 in reigning in spending has gone on for 
years. This hearing should allow for tangible steps to be taken to 
reach that goal, resulting in the fiscal stability and eventual 
economic growth necessary to the successful future of the Government of 
the Virgin Islands and its residents.
    I thank the witnesses again for being here today and particularly 
those who have joined us from the Virgin Islands.
                                 ______
                                 

STATEMENT OF HON. DONNA M. CHRISTENSEN, A DELEGATE IN CONGRESS 
                    FROM THE VIRGIN ISLANDS

    Mrs. Christensen. Thank you, Mr. Chairman. I want to begin 
by thanking the Chairman for scheduling this hearing today and 
thanking you, Mr. Flake, for so ably sitting in for him and I 
appreciate both your and the Chairman's willingness to address 
and respond to the concerns of the offshore insular areas.
    Let me welcome our colleague, Congresswoman Eleanor Holmes 
Norton; the Governor of the Virgin Islands, The Honorable 
Charles Turnbull; Senate President Jones; Senator Russell; 
former Senator Redfield; my fellow Virgin Islanders who have 
submitted written testimony and those who have come to observe 
the hearing today, and our Interior witness, Mr. Nick Pula.
    Mr. Chairman and colleagues, today is a day of great 
challenge for me because by virtue of introducing the bill 
before us, I am highlighting the shortcomings of my home 
district and addressing the serious fiscal problems that we are 
facing. Further, I am being opposed by the members of my local 
party, which passed a resolution opposing my action, by members 
of the 25th Legislature of the Virgin Islands, which went 
further, passing a resolution condemning my taking this action, 
and by the Governor of the Virgin Islands, who is with us here 
today.
    Since 1997, there have been at least three fiscal crises in 
the Virgin Islands which threatened the sovereignty of the 
government. During the administration of Governor Roy 
Schneider, at his request, Congress passed legislation to make 
it possible for the territory to issue parity bonds instead of 
priority bonds. This allowed the territory to refinance the rum 
fund bonds and secure $250 million, which the Government of the 
Virgin Islands then used to balance its budget.
    Governor Turnbull, in his first State of the Territory 
Address, announced that the state of the government's finances 
was very grave and that the territory faced a projected 
shortfall of $246 million. He also announced then the 
possibility that there could be payless pay days for government 
employees and a curtailment of essential basic services.
    Thus, at the beginning of his administration, I sponsored 
legislation on his behalf to allow the territory to issue 
short-term notes. We used this authority to then borrow $300 
million to balance the budget as well as pay overdue tax 
refunds and vendor payments.
    Governor Turnbull and his team of financial advisors did a 
remarkable and commendable job in averting disaster in 1999 and 
should be commended for their effort. Indeed, under Governor 
Turnbull's watch, the Virgin Islands became the first offshore 
insular area to complete the governmentwide single audits for 
Fiscal Year 2000 and 2001, as required by all States and local 
governments by the Federal Audit Act.
    Even with all of this in place, last April, Governor 
Turnbull was forced once again to declare that the territory 
was facing a financial crisis, which led the administration to 
borrow another $235 million to balance the budget.
    It has been said that my bill would erode the gains the 
territory has made to a greater self-governance and be a step 
backwards toward colonialism. As a proud daughter of the Virgin 
Islands, I am deeply offended by this charge. What would indeed 
be more colonialist than the Virgin Islands having to lose all 
ability to govern ourselves as we would if we were to become 
bankrupt?
    To me, the imperative is that we act now to avoid eventual 
fiscal catastrophe by putting in place a mechanism whereby the 
pressures to spend more than we have, no matter how worthy the 
effort, will be tempered by the reality that the budget must be 
balanced. Our people deserve no less.
    Since the mid-1990's, successive administrations and 
legislatures have, and for very good reasons, not been able to 
maintain sound fiscal management and financial policies. While 
some of the reasons for this condition have been recurrent 
catastrophic hurricanes and the tax cuts and credits passed by 
the Congress, much of the blame for this condition can be 
traced to the unfortunate reality that the territory's managers 
and law makers have not substantively addressed the imbalance 
between the needs and the demands of the community and its 
revenues.
    To further elucidate, I would quote the Governor's first 
financial advisor when he said of the former administration and 
legislatures that, and I am quoting here, ``a factor 
contributing to the structural deficit of the U.S. Virgin 
Islands is the use of questionable anticipated revenues that 
may never be realized to offset expenditures.'' This practice, 
not uncommon in many other jurisdictions, continues to be a 
factor today.
    I also want to quote another current official, this time 
the Federal Inspector General, who wrote after recounting 
recurring deficiencies in audits over the years that, and here 
I am quoting again, ``although the government may implement 
recommendations that address the specific deficiencies and 
transactions noted in audit reports, it often does not 
implement recommendations that call for substantive systemic 
changes in operating policies and procedures to ensure that 
similar problems do not occur in the future.''
    It is definitely not my intention in introducing H.R. 3589 
to cast aspersions on the fiscal policies of the Turnbull 
administration or the 25th Legislature, nor do I want to call 
undue attention to our problems. However, I feel very strongly 
that I could not sit idly by in the face of fiscal crisis after 
fiscal crisis and the absence of an effective local structural 
remedy without offering some solution to temper or soften the 
difficult decisions that have to be made by us ourselves, not 
the Federal Government, to get us out of this roller coaster 
crisis-by-crisis approach to managing our affairs.
    Mr. Chairman and colleagues, the purpose and intent of my 
bill is simple. The CFO will, for a limited time of 5 years, 
oversee the Office of Management and Budget, thereby enhancing 
an already existing division within government. His or her 
specific duties are outlined in the base bill but may be more 
clearly delineated pending recommendations coming from this 
hearing.
    Very important to the optimal functioning of the Chief 
Financial Officer is that they cannot be removed for political 
considerations but only for cause.
    Contrary to the assertions of opponents, my bill will not 
take away any authority currently enjoyed by the elected 
leadership of the Virgin Islands except the authority to 
overspend.
    In closing, let me say that I share the view of former 
four-term Virgin Islands Senator and Commissioner of Economic 
Development Eric Dawson, who points out in a written statement 
on the bill that this bill is far from taking the territory 
back to colonial times, but that it is about, and I am quoting 
here, ``that it is about the future and future generations, 
that it is about education, public health, public safety, and 
it is about providing for those who cannot take care of 
themselves. Further,'' he goes on to say, ``that it is about 
preventing the territory from having to go hat in hand to the 
Federal Government for a bailout with the true and complete 
loss of autonomy that that would involve when we are unable to 
meet our fundamental obligations to the people of the Virgin 
Islands.''
    [The prepared statement of Mrs. Christensen follows:]

Statement of The Honorable Donna M. Christensen, a Delegate in Congress 
                        from the Virgin Islands

    I want to begin by thanking you Mr. Chairman for scheduling this 
hearing today. As a member of this committee for some years now, and 
now chair, you have demonstrated your willingness to respond to the 
concerns of the offshore insular areas, and we applaud you for that.
    I welcome our colleague Congresswoman Norton, the Governor of the 
Virgin Islands, The Honorable Charles Turnbull, Senate President David 
Jones, Senator Russell, former Senator Redfield, my fellow Virgin 
Islanders who have submitted written testimony and who have come to 
observe and the Interior Witness, Nick Pula
    Mr. Chairman and colleagues, today is a day of great challenge for 
me because by virtue of introducing the bill before us, I am 
highlighting the shortcomings of my home district in addressing the 
serious fiscal problems that we are facing.
    Furthermore, I am being opposed by the members of my local Party 
which passed a resolution opposing my action; by the Members of the 
25th Legislature of the Virgin Islands which went further, passing a 
Resolution ``condemning'' my taking this action; and by the Governor of 
the Virgin Islands who is here to testify today.
    Since 1997, there have been at least three fiscal crises in the 
Virgin Islands, which threatened the solvency of the government. During 
the Administration of Governor Roy Schneider, at his request, I 
sponsored and Congress passed legislation to make it possible for the 
territory to issue ``parity bonds'' instead of ``priority bonds''. This 
allowed the Territory to refinance the ``Rum Fund'' bonds and secure 
$250 million, which the Government of the Virgin Islands used to 
balance its budget.
    Governor Turnbull in his first State of the Territory's address, 
announced that the state of the government's finances was ``very 
grave'' and that the territory faced a projected shortfall of $246 
million.
    He also announced the possibility that there could be payless 
paydays for government employees and a curtailment of essential basic 
services.
    Thus, at the beginning of his Administration I sponsored 
legislation on his behalf to allow the Territory to issue ``short 
term'' notes. We used this authority to then borrow $300 million to 
balance the budget as well as pay overdue tax refunds and vendor 
payments.
    Governor Turnbull and his team of financial advisors did a 
remarkable and commendable job in averting disaster in 1999 and should 
be commended for their effort.
    Indeed, under Governor Turnbull's watch, the Virgin Islands became 
the first offshore Insular Area to complete government wide Single 
Audits for Fiscal years 2000 and 2001 as required by all states and 
local governments by the Federal Single Audit Act.
    Even with all this in place, last April, Governor Turnbull was 
forced once again to declare that the territory was facing a financial 
crisis which led the Administration to borrow another $235 million to 
balance the budget.
    It has been said that my bill would erode the gains the territory 
has made towards greater self-governance and be a step backwards 
towards colonialism. As proud daughter of the Virgin Islands I am 
deeply offended by this charge.
    What would indeed be more colonialist than the Virgin Islands 
having to lose all ability to govern ourselves as we would if we were 
to become bankrupt?
    To me, the imperative is that we act now to avoid eventual fiscal 
catastrophe by putting in place a mechanism whereby the pressures to 
spend more than you have, no matter how worthy the effort, will be 
tempered by the reality that the budget must be balanced. Our people 
deserve no less.
    Since the mid-1990's, successive administrations and Legislatures 
have--for good reasons--not been able to maintain sound fiscal 
management and financial policies. While some of the reasons for this 
condition have been recurrent catastrophic hurricanes and the tax cuts 
and credits passed by Congress, much of the blame for this condition 
can be traced to the unfortunate reality that the Territory's managers 
and lawmakers have not substantively addressed the imbalance between 
the needs and demands of the community and its revenues.
    To further elucidate, I would quote the governor's first financial 
advisor when he said of the former administration and legislature that;
        ``A factor contributing to the structural deficit of the USVI 
        is the use of questionable anticipated revenues that might 
        never be realized to offset expenditures.''
    This practice, not uncommon in many other jurisdictions continues 
to be a factor to this day.
    I also want to quote a current official, this time the Federal 
Inspector General who wrote after recounting recurring deficiencies in 
audits over the years, that:
        ``Although the government may implement recommendations that 
        address the specific deficiencies and transactions noted in 
        audit reports, it often does not implement recommendations that 
        call for substantive, systemic changes in operating policies 
        and procedures to ensure that similar problems do not occur in 
        the future.''
    It is definitely not my intention introducing H.R. 3589, to cast 
aspersions on the fiscal policies of the Turnbull Administration or the 
25th Legislature nor do I want to call undue attention to our problems. 
However, I feel very strongly, that I could not sit idly by in the face 
of fiscal crises after fiscal crises, in the absence of an effective 
local structural remedy, without offering some solution to temper or 
soften the difficult decisions that have to be made by us, ourselves--
not the federal government--to get us out of this roller coaster 
crisis-by-crisis approach to managing our affairs.
    Mr. Chairman and colleagues the purpose and intention of my bill is 
simple: The CFO will, for a limited term of 5 ears oversee the Office 
of Management and Budget, thereby enhancing an already existing 
division within the government. His or her specific duties are outlined 
in the base bill but may be more clearly delineated pending 
recommendations coming from this hearing. Very important to the optimal 
functioning of the Chief financial Officer is that they cannot be 
removed for political considerations, but only for ``cause.''
    Contrary, to the assertions of opponents, my bill will not take 
away any authority currently enjoyed by the elected leadership of the 
Virgin Islands except the authority to overspend.
    In closing, let me say that I share the view of former four-term 
Virgin Islands Senator and Commissioner of Economic Development, Eric 
Dawson, who points out in a written statement on the bill: That H.R. 
3589 is far from taking the territory back to colonial times, but 
``that it is about the future and future generations; that it is about 
education, public health, public safety and it is about providing for 
those who cannot take care of themselves.'' Further that it is about 
preventing the territory from having to go hat in hand to the federal 
government for a bail out--with the true and complete loss of autonomy 
that would involve--when we are unable to meet our fundamental 
obligations to the people of the Virgin Islands. ``
    It has not been easy for me to watch the fiscal health of the 
territory steadily decline since I have been in office. However, as I 
reflect on what led me to this point today, and the discomfort of my 
situation, I am reminded of a quote by Dr. Martin Luther King, Jr. in 
which he said: ``The ultimate measure of a man is not where he (or she) 
stands in moments of comfort and convenience, but where they stand in 
times of challenge and controversy.''
    Mr. Chairman, we are indeed facing challenging and controversial 
times in the Virgin Islands. The action or inaction of those of us in 
leadership today will have a profound impact on our future.
    Thank you again Mr. Chairman, and welcome to the panels. I look 
forward to your testimony.
                                 ______
                                 
    Mrs. Christensen. Mr. Chairman, I will be submitting for 
the record testimony taken from our hearings as well as several 
written testimonies that have already been submitted and I 
thank you again, Mr. Chairman, welcome the panels, and I look 
forward to the testimony.
    Mr. Flake. I thank the Delegate from the Virgin Islands.

    [The letters and statements submitted for the record 
follow:]

    [A statement submitted for the record by Eric E. Dawson, 
Virgin Islander, follows:]

          Statement submitted for the record by Eric E. Dawson

    Members of the distinguished Committee on Resources:
    I am Eric E. Dawson a Virgin Islander who currently resides in the 
Commonwealth of Virginia, but has retained a keen interest in the 
governance of my home, the U.S. Virgin Islands. I served in various 
capacities within the Government of the Virgin Islands over a period of 
thirty years (1965-1995). First, as the executive secretary to the 
Legislature of the Virgin Islands, as the Chief Legal Counsel to the 
Legislature, eight years as an elected member of the Legislature and 
lastly, as the Commissioner of Economic Development. This includes 
serving as the Chairman of the Industrial Development Commission and 
the Virgin Islands Port Authority for eight years.
    I believe that the services, which I performed in the various 
capacities in the Government of the Virgin Islands, qualify me to 
express a few words on behalf of the subject matter before this 
Honorable Committee on Resources.
    The major part of the financial resources of the Government of the 
Virgin Islands is generated from tourism, which accounts for 
approximately 60% of the operating budget. HOVENSA and other ancillary 
industries account for the remaining 40%. Internal Revenue Matching 
Funds, which are generated from the sale of rum, is used for the most 
part to retire bond indebtedness. A portion of the gross receipts taxes 
is also used to retire bond indebtedness. The government's payroll 
absorbs approximately 80% of the operating budget and the remainder is 
used for miscellaneous local projects. As a consequence of the tight 
financial situation, there have been times when the government's 
financial officers were uncertain about the ability to discharge the 
government's obligation to meet the bi-weekly payroll. In recent times 
it has been suggested that the workweek be reduced from 5 to 4 days, 
which is in itself drastic, but that just shows the nature of the 
problem. This does not portray a healthy financial picture for the 
territory.
    The Government of the Virgin Islands is in dire financial straits 
as it stands today. While tourism is generating the major part of the 
revenue, it is a fickle industry where travel could be curtailed for 
one reason or another. The outlook for travel this year could depend 
largely on the cost of jet fuel. Ticket prices are being raised to 
compensate for the higher energy cost, which could consequently 
discourage travel to the territory by air. Air passengers spend more 
money in the territory when compared to cruise ship passengers; they 
stay longer and purchase premier goods and services. The projections 
for gross receipts and other taxes may have to be revised downward, and 
if spending cuts do not reflect the reality of the economy, a hefty 
deficit will be incurred for the fiscal year which will be added to 
other previous deficits.
    The management of the revenues and expenditures of the Virgin 
Islands require a neutrally empowered person who will have veto power 
to curtail expenditures that the territory cannot afford. That person 
should be the Chief Financial Officer.
    Currently, when the Governor vetoes a financial measure, the 
Legislature invariably moves to override the veto whether not the funds 
are available. This creates a crisis in credibility and creates false 
hopes among the constituents. In all probability, such actions serve to 
exacerbate the financial problem of the territory. There has to be a 
doorstopper, and that person will be the Chief Financial Officer.
    While one governor may have the courage to say no to unsupported 
legislated spending, this might not be the case for a succeeding 
governor, therefore, there is a need for a neutral party to say no when 
the answer is no.
    As a result of the introduction of this measure to create the 
position of Chief Financial Officer, it has been suggested that this 
takes the territory back to colonial times. I opine that this not true; 
this measure seeks to prevent the territory from going back to the 
Federal Government seeking loans for a bail-out when we are unable to 
meet our fundamental obligations to the people of the territory.
    H.R. 3589 is about the future; it is about future generations; it 
is about education, public health, public safety and it is about 
providing for those who cannot take care of themselves. It is about 
preserving something for future generations of Virgin Islanders.
    I support H.R. 3589 and respectfully recommend its approval by the 
committee.
                                 ______
                                 
    [A letter submitted for the record by Violet Anne Golden, 
Former Member of the 23rd Legislature of the U.S. Virgin 
Islands, St. Croix, Virgin Islands, follows:]

                           Violet Anne Golden

                             P.O. Box 2340

                        Kingshill, VI 00851-2340

                        Telephone: 340-719-4759

                   E-mail: [email protected]

VIA FAX & E-MAIL: [email protected]

June 17, 2004

The Honorable Richard Pombo, (R-CA)
Chairman
Committee on Resources
1324 Longworth House Office Building
Washington, DC 20515

RE:  Legislative Hearing on H.R. 3589, to create the Office of Chief 
Financial Officer of the Government of the Virgin Islands

Dear Congressman Pombo:

    Today, your Committee will receive testimony on H.R. 3589 to create 
the Office of Chief Financial Officer of the Government of the Virgin 
Islands. Congressman Pombo, this bill is extremely important to us here 
in the U.S. Virgin Islands, and to survival of our fragile economy. In 
my humble opinion, a complete takeover of the Government of the Virgin 
Islands would be the ultimate step towards economic prosperity, but 
this legislation, drafted by our dear Congresswoman Christensen, who I 
consider a fair representative and a personal friend, is a good start 
toward resolving our serious economic problems. Our Congresswoman is 
courageous, and has gone against her own Democrat Party colleagues to 
promote one of the most controversial pieces of legislation in our 
history.
    Kindly add my name to the list of citizens, and taxpayers who 
support H.R. 3589, which I view as the first acknowledgment by the 
ruling ``Democrat'' party that their years of big spending, and big 
government have bankrupted this territory, and we are at the end of our 
rope. There is uncertainty in the air here at home; citizens are scared 
to death of losing their government jobs, and the private sector is 
shrinking daily, and no one dares to voice their discontent lest you 
face the swift wrath of the Turnbull administration. The government of 
the Virgin Islands is, regrettably, the ``largest' ' employer, and 
still growing. That is the politics of island life.
    Unfortunately, there is no positive sign of economic recovery in 
sight, and the recent regressive tax policies of the administration, 
and the reckless spendthrift ways of our Legislature are not 
engendering support from the taxpayers or creating a positive 
investment environment for the Virgin Islands.
    I am a resident of the island of St. Croix, and a former Republican 
member of the Twenty-Third Legislature of the U.S. Virgin Islands. My 
family has lived in these Virgin Islands for more than 400 years, and I 
love my home and my country dearly. I have lived in these islands most 
of my life, and today is not a proud moment in our history. My great 
uncle Arnold M. Golden testified before the Congress of the United 
States in the 1930's for passage of what we now call the Organic Act 
(our Constitution). He would be embarrassed at the state of affairs of 
our territory today. We are a proud people with a proud history, which 
is now threatened by a group of reckless public officials who have 
either forgotten our rich history, or do not know our rich history.
    I had the distinct opportunity to serve on the Economic Recovery 
Task Force representing the Legislature. The Task Force was charged 
with developing a draft plan of action to address the short-range and 
long-range financial challenges facing the Government of the Virgin 
Islands back in 1999. The Department of Interior invested $500,000 to 
this effort, and its investment was all for naught. Our undisciplined 
public officials praised the efforts of the Task Force, bragged about 
the Five Year Plan, and left the plan to collect dust on a lonely 
shelf. On April 27, 2000 in the Message from the Governor contained in 
the Five Year Operating and Strategic Financial Plan Governor Turnbull 
said ``This Government faces a financial crisis of a great magnitude, 
and we cannot continue to use band-aid approaches to solving it. This, 
after evaluating the options such as: (1) increasing taxes and fees (2) 
cutting Government services (3) cutting the costs of Government and (4) 
growing and strengthening the private sector, it was concluded, from 
economic, financial and social point of view, it is not prudent to 
raise taxes at this time.'' He further stated: ``The Five Year Plan, 
therefore, selects and promotes the only logical choice left for the 
people of the U.S. Virgin Islands to cut the cost of Government 
services and improve their delivery and strengthen the private sector 
base to further growth opportunities. The Five Year Plan proposes a 
complete restructuring of the way the business of Government is handled 
on a day-to-day basis, and it estimates that this restructuring will 
eliminate the structural deficit by generating a total of more than 
$280.0 million in savings over the next five years. The steps outlined 
in the Five Year Plan bring the Government's budget into balance 
starting in FY 2004.'' The Plan was never implemented as recommended. 
The Administration and Legislature chose to implement some sections of 
the Five Year Plan depending on their re-election bid potential. In 
spite of the Federal investment of $500,000 precious taxpayer dollars, 
the Interior Department did not attach any penalties against the 
Government for their failure to implement this proposal as outlined in 
the plan, or adhere to the MOU between Interior and the Government of 
the Virgin Islands.
    The past four fiscal years have been challenges for the V.I. 
Government as they continued to borrow more money to meet their 
payroll, and to balance their budget. This borrowing continues today, 
without end. Fraud and corruption in government have also been rampant, 
which adds significantly to the cost of government.
    Mr. Pombo, what we have here in the Virgin Islands is an 
undisciplined government. It can be best described in one world 
``dysfunctional.'' It needs your help. Please do not listen to the 
voices of some politicians who will scream that this bill reeks of 
``colonialism.'' This is their ``red herring'' to make you feel 
uncomfortable about making a tough decision for our community. It is 
nothing more than ``false pride'' and they need to get out of this 
``victim village.'' They need to face the fact that they have 
mismanaged taxpayer's dollars, and must be held to account for their 
actions.
    Mr. Pombo, we are on the verge of economic collapse here in the 
Virgin Islands. Crime is rampant; Inspector General Audits (federal and 
local) has shown a consistent trend in misuse of federal and local 
dollars; the Government cannot meet its vendor payments to businesses, 
and tax refunds to its citizens; the Government owes the Water and 
Power Authority more than $15 million and growing; bondholders are owed 
millions in interest payments; borrowing has now exceeded $700 million 
dollars and growing; unemployment on St. Croix alone is now over 12%. 
More than 50 businesses have closed over the last year, and our tax 
base has eroded significantly with the departure of not only businesses 
but professionals who have moved the mainland for better opportunities; 
the Government has recently threatened to cut off payments to the two 
only semi-autonomous hospitals in the Virgin Islands; our second-
largest employer, HOVENSA recently threatened to cut-off fuel to our 
Government-owned Water and Power Authority which has cash-flow 
problems; we have no cruise ship visits to St. Croix, in spite of the 
construction of a multi-million dollar port in the town of 
Frederiksted; air arrivals to St. Croix are limited to two major 
airlines with two flights to the mainland daily, and about four 10 
passenger airlines which offer the bulk of flights either inter-island 
or to Puerto Rico; sewage seeps into our pristine waters daily, and the 
illegal landfill is now threatening air arrivals to St. Croix; our 
Housing Authority recently went into receivership and the Education 
Department oversees no accredited public schools in the Virgin Islands, 
and is under federal watch; the Legislature has spent a record $16 
million for its operation and the figure keeps growing for 15 elected 
members of that body; Is this the life our people deserve? Is this the 
government our forefathers fought so hard to achieve?
    Our Governor is in complete denial, and the Legislature (a majority 
are members of the Democrat Party) are complicit in the mismanagement, 
since none has made the administration accountable for its spending of 
precious, hard-earned taxpayer dollars. None have shown true leadership 
and oversight of our precious resources.
    Mr. Pombo, it is against this backdrop that our Honorable 
Congresswoman has proposed this necessary legislation. She deserves 
support and should be commended for our ``courage under fire.''
    I urge you and your colleagues to visit the Virgin Islands, drive 
through our pothole-ridden streets, visit our unsanitary landfill that 
the FAA has deemed a threat to air travel, visit our beaches where raw 
sewage seeps daily and are under Federal Court sanctions, visit our 
unaccredited schools, visit our empty ports, and drive by our unkempt 
litter-strewn streets, talk to our citizens and members of the business 
community, and you make up your own mind.
    Please do not view the divisions over this legislation in your 
committee as the only source of information from which to make your 
ultimate judgment. Review the single audits and look at the factual 
trends since 1999; look at the level of questioned costs and the 
consistent decrease in federal dollars since 1998. Please compile all 
the facts necessary before this legislation is put to a vote, and I can 
assure you that you will be in a better position to make a true 
judgment of our financial state once you see and read the facts.
    Your support of this legislation is important to the future of the 
Virgin Islands.

                           Sincerest Regards,

                           Violet Anne Golden

CC: Resource Committee Members
                                 ______
                                 
    [A statement submitted for the record by Derek M. Hodge, 
National Committeeman of the Democratic Party, U.S. Virgin 
Islands, follows:]

       Statement of Derek M. Hodge, National Committeeman of the 
              Democratic Party of the U.S. Virgin Islands

    I am the National Committeeman of the Democratic Party of the 
Virgin Islands and I am disappointed that I was not invited to offer my 
opinion of H.R. 3589 which seeks to impose a Chief Financial Officer on 
the Government and the people of the Virgin Islands. I also am 
disappointed that your Committee, and particularly our Delegate, did 
not think it important enough to hold these hearings in the Virgin 
Islands.
    I am unalterably opposed to the imposition of a Chief Financial 
Officer (``CFO'') for the Virgin Islands because it is an insult to the 
people of the Virgin Islands. It is unnecessary. It is a step backward 
in our political progress, and it will not work. I am also as offended 
by this unilateralism on the part of the Delegate to Congress of the 
Virgin Islands as I was when then Governor Roy Schneider, without the 
approval of the people of the Territory, sought to have Congress amend 
the Revised Organic Act to alter the power of the Lt. Governor in our 
political hierarchy. The time is long past when Congress can amend our 
constitution, or impose changes to our political system, without the 
input of the people of the Virgin Islands. Unlike the District of 
Columbia where the City Council cannot sneeze without your approval, we 
are not a fiefdom of the Congress.
    The constitutional way to change our political system is to have a 
referendum in which the people of the Virgin Islands affirmatively 
approve the proposed change. We have not had the benefit of a 
referendum to do that, and while our Delegate avers that she has 
anecdotal evidence that ``the people'' support this bill, I am aware of 
as many, if not more, people who oppose it. I repeat, any attempt to 
change our political system must be approved by the voters of the 
Virgin Islands before Congress acts for it to have any legitimacy in 
these times. The elected leaders of the Virgin Islands oppose this 
bill, and their opinions must be respected. And it is the opinion of 
the Governor and the Legislature to which Congress should look for 
guidance today.
    Many years ago, Alexander Hamilton, who grew up on St. Croix, was a 
part of a revolutionary change in the governance of nations. The 
founding fathers of the United States believed that the fundamental 
essence of democracy is that government must be of the people, by the 
people and for the people. In short, no one person has the authority to 
impose his/her will on the polity, and political change can only occur 
through the electoral process. This is the lesson, I believe, we are 
trying to teach in Iraq where the blood of our young people, and those 
of our allies, is being shed to ensure that democracy takes root. So 
why should it be any different in the United States Virgin Islands 
which has been a territory of the United States since 1917?
    We have come a long way from the days when the Congress imposed a 
Naval Governor on our Islands, when Congress imposed a Government 
Secretary on the Territory whose only claim to fame was that he had 
been a butler in the White House, when Congress imposed a Controller on 
the Territory. The last Controller we had was Peter Bove and I remember 
my uncle, Walter I. M. Hodge, former President of the Legislature of 
the Virgin Islands, telling me the story of the time when then Governor 
Ralph Paiewonsky reminded Bove that he was not the Governor of the 
Virgin Islands. Indeed, over the last 50 years, Congress has granted 
the people of the Virgin Islands more and more self-government, 
including amending the Revised Organic Act to eliminate the position of 
Controller and permitting the direct election of the Governor and Lt. 
Governor.
    The bill is a retrogression from the steady march to more self-
government which we have experienced. The CFO, as it is conceived, will 
be chosen by a committee which will recommend the persons from which 
the Governor will appoint one, subject to confirmation by the 
Legislature. If there is opposition by the Governor or the Legislature, 
the Secretary of Interior will choose the CFO. Doesn't all this fly in 
the face of constitutional government which the United States is 
seeking for the rest of the world? And if the CFO takes office, he/she 
will determine which projects will benefit the people and which will 
not. Why does Congress think his/her decisions will be any more 
palatable to a greater number of people than not. This CFO will do 
exactly what the Director of OMB now does. If the Legislature over 
appropriates the budget, the CFO decides what projects will be funded, 
but he/she will not be accountable to the people of the Virgin Islands. 
This is tyranny, not democracy and King George must be smiling in his 
grave!
    This bill before the Committee is the antithesis of democracy. It 
would deny the people of the Virgin Islands the right to decide if this 
is a policy decision they wish to make. If passed, it would install a 
non-elected person at one of the highest levels of government in the 
Territory with the authority to determine the public policy for the 
Territory. It deserves to be placed in the trash bin.
                                 ______
                                 
    [A statement submitted for the record by Luis A. Morales, 
``Tito,'' Central Labor Council of the AFL-CIO/CLC, St. Thomas, 
Virgin Islands, follows:]

    Statement submitted for the record by Luis A. ``Tito'' Morales, 
President, Central Labor Council, AFL-CIO/CLC, St. Thomas, U.S. Virgin 
                                Islands

    Mr. Chairman and Members of the House Committee on Resources:
    On behalf of the Central Labor Council, I submit this statement in 
opposition to the Amendment In The Nature Of A Substitute to H.R. 3589 
(Amendment) offered by Mrs. Donna Christiansen, the Delegate to 
Congress from the U.S. Virgin Islands. The Amendment proposes to create 
a position of Chief Financial Officer of the U.S. Virgin Islands (CFO) 
with no accountability to the Governor of the Virgin Islands or the 
Legislature of the Virgin Islands, thereby resulting in one Supreme 
Commander with dictatorial control over the financial affairs of the 
Territorial Government of the U.S. Virgin Islands.
    At the outset, let me state that such a substantial transfer of 
power from both the Executive and Legislative branches of government to 
a single individual should first be discussed with the V.I. Governor 
and the V.I. Senators before it is proposed in Congress. This was not 
done. Moreover, no public referendum was sought by the Delegate to 
determine whether the majority of Virgin Islanders agreed with such a 
drastic change in their political status. Any attempts at informal 
polls are after the fact, are unscientific, are unreliable, and 
therefore cannot be substituted for a referendum.
    Following are some of the other reasons why this colonialistic 
Amendment should be rejected:
    1.  The existence of a deficit or a debt is no basis for a colonial 
takeover by a CFO where, as here, 1* the deficit is within reasonable 
limits, 2. where the V.I. Government has not even approached its debt 
ceiling, and 3, where specific steps have been taken to reduce the 
deficit, limit the debt, and increase revenues.
    Moreover, other options exist that would avoid the need for this 
extraordinary Congressional withdrawal of autonomy from a Territorial 
Government in such a routine manner. Indeed, the effect of this 
legislation is to reduce local autonomy that was granted by the Revised 
Organic Act. Those Organic Act provisions are so fundamental to the 
political status of the Virgin Islands that the Organic Act is known as 
``the Virgin Islands Constitution.'' No constitution, not even our 
Organic Act, should be amended as if it is a routine and non-
controversial piece of legislation.
    In addressing the financial affairs of any government, whether 
federal, state, city or territory, both the revenue side and the 
expenditure side must be considered. The CFO bill deals only with the 
expenditure side, and as stated in Section I(c)(3) the CFO must:
        ``each year certify spending limits of the annual budget and 
        whether or not the annual budget is balanced.''
    The United States government is now facing annual deficits in the 
billions of dollars. If there were an attempt to impose a CFO on the 
President and the Congress because of such a huge deficit I am sure 
that your committee would not authorize that CFO to certify your 
spending limits or to regulate your annual budget. Similarly, the 
attempt by this Amendment to impose a CFO on the V.I. Governor and 
Legislature should be rejected by your committee, especially since 
other available options have not been exhausted, and since this causes 
such a substantial change in our basic charter.
    2.  The effort and energy being used by the V.I. Delegate in 
struggling with this amendment should also be applied in addressing the 
revenue side of the financial picture, since the increase in revenues 
will help in the elimination of the deficit and the debt, and avoid the 
need for a CFO.
    One area of revenue that should be considered is the federal excise 
taxes on gasoline, which by federal legislative amendment could be 
treated similar to the federal excise taxes on rum. Such revenues, 
based on Virgin Islands production, would be recurring sting the need 
for a CFO.
    Other areas of revenue enhancement and debt reduction include (1) 
federal legislation limiting tax exempt extensions of certain benefits, 
(2) federal compliance with the ``matching fund'' provision of the 
Revised Organic Act and (3) federal forgiveness of FEMA debts directly 
related to hurricane destruction suffered by the Virgin Islands. 
Efforts at these and other available options must be attempted and 
exhausted before the need for this revolutionary Amendment becomes 
justifiable.
    3.  This Amendment, if enacted, would destroy the local autonomy 
which was vested in the Government of the Virgin Islands by the Revised 
Organic Act of 1954, as amended. This autonomy was reinforced by the 
creation of three co-equal branches of government, pursuant to Sections 
5, 11, and 21 of the Revised Organic Act, and was judicially confirmed 
as such by the case law of the U.S. Court of Appeals for the Third 
Circuit, in which the Virgin Islands is included.
    Once appropriations are made by the Legislature and the Governor to 
each of the three coordinate and co-equal branches, each one determines 
its own allotments or apportionments of those appropriations. Thus, the 
OMB Director only controls the allotments or apportionments for the 
Executive Branch, ninety-three percent (93%) of the total budget. The 
Senate President controls the allotment or apportionments for the 
Legislative Branch which utilizes only about three percent (3%) of the 
total budget. Likewise, the Presiding Judge of the Territorial Court 
controls the allotments or apportionments for the Judicial Branch, 
which utilizes only about four percent (4%) of the total budget.
    Since Section 1(c)(1) of the Amendment states that the first duty 
of the CFO is to ``assume the functions and authority of the Office of 
Management and Budget established under the laws of the Virgin 
Islands...'', he could not control the allotments or apportionments of 
the other two branches since the OMB Director has no such control. 
Thus, any attempt by the CFO to control the allotments or 
apportionments of the Legislature and the Courts would be challengeable 
as violative of our constitutional Separation of Powers, and would make 
the CFO subject to removal for cause. Such disruption, political 
conflict, and potential court litigation must be avoided by your 
committee by the rejection of this untimely and unfortunate CFO 
legislation.
    4.  This Amendment creates another burdensome financial bureaucracy 
which, through the CFO, allows the Secretary of Interior to control 
local financial affairs, contrary to the powers granted by the Revised 
Organic Act.
    Since Section 1 (d) of the Amendment converts the OMB Director into 
the Deputy CFO ``to assist the CFO in carrying out the duties of the 
Chief Financial Officer'', we will be adding to the deficit by paying 
two officials (not less than ``the rate of pay for a cabinet officer'') 
to do the same job. In addition, payment will have to be made by the V. 
I. Government for the cost of other technicians, staff, consultants, 
facilities, and other needs of this duplicate office. This is much more 
costly than the mere addition of one financial officer.
    Moreover, no cost projections of this amendment have been submitted 
by the V.I. Delegate so that its impact on the deficit could be 
determined. However, even without those projections it is clear that 
this proposed bureaucracy, though falsely presented in the guise of a 
single additional employee, will only aggravate our financial problems. 
Why couldn't the existing OMB Director be legislatively vested with the 
independence of the CFO? He would then be able to do his job without 
charges of politics and without the duplicate imposition of a CFO 
bureaucracy, which will only serve as a surrogate for the Secretary of 
Interior to control the finances of the V.I. Government by proxy.
    Such control by the Secretary of Interior, through the CFO, turns 
back the clock to the dark days of colonialism when Interior was in 
charge of local affairs. This Amendment scheme, appearing to be simple 
and non-controversial, may lead to unintended political confrontations, 
which may result in unnecessary embarrassment to the United Stares for 
violating its obligations to its non-self-governing territories. As the 
United State struggles to win United Nations support in the War on 
Terror, now is the time for us to do anything that might be used 
against our country. Thus, since even the timing of amendment is 
inappropriate, it should be rejected.
    5.  In addition to the offensive withdrawal of autonomy granted to 
the Virgin Islands by the Revised Organic Act,. this Bill in Section 1 
(b)(2) also vests extraordinary power in the CFO by requiring the heads 
of both the VI Department of Finance and the VI Bureau of Internal 
Revenue to:
        ``...provide all documents and information under the 
        jurisdiction of that head, that the Chief Financial Officer 
        considers required to carry out his other functions, to the 
        Chief Financial Officer.''
    This provision gives the CFO unprecedented access to tax records, 
personal financial information, and other matters citizen privacy. Such 
intrusive access must be rejected by your committee.
    6.  Even the composition of the CFO Search Commission is 
objectionable. Section 2 of the Amendment provides for an eight-member 
commission composed of a cross-section of Virgin Islanders to be 
appointed by eight different leaders in business education, labor, and 
government, including the heads of the Executive, Legislative, and 
Judicial branches of the V.I. Government.
    Despite this effort of pluralism, Section 2(c) (5) insults the 
members providing that:
        ``the Chairperson of the Commission shall be the Secretary of 
        Interior or his or her designee and shall serve as an ex-
        officio member of the Commission and shall vote only in the 
        case of a tie.''
    We do not need an even-numbered Commission. We also do not need the 
Secretary of Interior or her designee to be the Chairperson of such a 
Commission. This is blatant colonial control and is a giant step to the 
rear for the Virgin Islands, the United States, and the Decolonization 
Committee of the United Nations.
    It also exposes the insensitivity of the V.I. Delegate to the 
impact of such an offensive provision. This is especially true because 
the Amendment also provides in Section 2(b) for the qualifications of 
the CFO candidates, and requires that the appointment be made by the 
top community leaders listed in Section 2(c) (1). With such specific 
controls listed in the Amendment, it is insulting to Virgin Islanders 
to put this additional obstacle to our autonomy by suggesting that we 
are not qualified to select our own chairperson. Accordingly, this 
provision should also be rejected by your committee.
CONCLUSION
    The foregoing objections to this CFO legislation do not reflect all 
the opposition or all the options to the passage of this bill. Indeed, 
one local legislative option proposed by Senator Lorraine Berry is 
known as the II financial review board bill'' which will also negate 
any need for H.R. 3589.
    I call on your committee to take note of the voluntary financial 
restraint imposed by the administration of Gov Charles W. Turnbull. 
These include the denial of salary increases, the imposition of a 
moratorium on contract negotiations, and the reduction of the overall 
government budget. While we have our differences with the 
administration, we do not believe that these differences should blind 
us from the heavy-handed and unilateral approach of the V.I. Delegate 
to alter the political status of the Virgin Islands by such an 
offensive piece of legislation, and in such an unprecedented manner.
    The local autonomy, including financial control, which has been 
granted to the Virgin Islands is a committed obligation of the United 
States under agreement with the United Nations. Such a legal commitment 
of the United States cannot be withdrawn by such routine legislation. 
The exercise of that grant of autonomy by the Virgin Islands Government 
does not mean that it must be free from error or deficit.
    Indeed, an error or deficit does not justify reversion to 
colonialism. As with everyone else, we are subject to make mistakes, 
and we are also entitled to correct our own mistakes. Thus, this 
attempt by the VI Delegate to impose such a substantial reduction in 
Executive and Legislative authority, under the guise of a temporary 
measure, is totally inappropriate and untimely.
    Although it is with reluctance that I find it necessary to oppose 
Delegate Christiansen, I must do so due to her failure to understand 
the consequences of her actions. It is unfortunate that she has not 
only disregarded our objections, but also has made public statements 
claiming the support of Committee Chairman Richard W. Pombo, whom she 
quotes as saying that he ``has gone out on a limb for members before.'' 
She also seems to have no concern for the potential disruption of 
domestic tranquility, as reflected in a recent Newspaper headline 
stating ``CFO Changes Fuel Political Fire''. (Attached are pages 1 and 
2 of the Virgin Islands Daily News for Tuesday, June 8, 2004.)
    It is dearly objectionable for the Delegate to be claiming 
committee support for her Amendment when the arguments of the 
opposition have not yet been presented. Moreover, she has been 
attempting to block our testimony and that of Democratic National 
Committeeman Derek Hodge while facilitating the testimony of her 
supporters, including nonVirgin Islanders. If this bill is given a fair 
hearing, there should be no need for the committee chairman to have to 
go ``out on a limb.'' Any objective review of the consequences of H.R. 
3589 should result in its rejection.
    Accordingly, on behalf of the members of the Central Labor Council, 
I close by respectfully calling on your committee to defeat this 
Amendment In The Nature of a Substitute to H.R. 3589, and thereby 
maintain the previously vested autonomy of all three branches of the 
Government of the U.S. Virgin Islands.
    NOTE: An attachment to Mr. Morales' statement has been retained in 
the Committee's official files.
                                 ______
                                 
    [A statement submitted for the record by Hon. Vargrave A. 
Richards, Lieutenant Governor, U.S. Virgin Islands, follows:]

           Statement of The Honorable Vargrave A. Richards, 
           Lieutenant Governor, United States Virgin Islands

    Mr. Chairman and members of the House Committee on Resources, I 
respectfully submit the following written testimony to be read into the 
record on behalf of the Government of the Virgin Islands and Governor 
Charles W. Turnbull, Ph.D., on the proposal for the establishment of an 
unelected Chief Financial Officer for the Government of the United 
States Virgin Islands
INTRODUCTION
    It was the intent of the framers of the Organic Act, first in 1936, 
then Revised in 1954 that the Territory would become fully self-
governing. This has been reflected in several provisions of the Act, 
including the right of the Territory to elect its own Governor and 
establish its own local courts.
    Mr. Chairman and other distinguished members, H.R. 3589, represents 
a negative departure from the original intent of the Organic Act and 
thus conflicts with the principles of self-government that Virgin 
Islanders have fought for over many generations.
    Given the critical nature of the proposed position of a CFO, who 
has the potential to impact the overall financial operations of the 
government and the very lives of Virgin Islanders, it severely hampers 
and impedes the democratic process of allowing the people of the Virgin 
Islands to participate in the choice of such an important position as 
CFO.
    The selection of a CFO has the very real potential to create a 
constitutional crisis in the Territory. It is the function of the 
Governor to set all of the priorities of the government. This includes 
the financial priorities. The possibility exists that the Governor 
could set one priority and the CFO could set another priority. Who then 
would have the overriding authority to resolve the conflict? Should the 
Secretary 'of Interior be required to intervene? '
    Pursuant to the provisions of H.R. 3589, the statutory authority of 
the Governor of the Virgin Islands would be eroded, which directly 
contradicts the express intent of the Revised Act as amended.
    Mr. Chairman, and Honorable members, over the years we have 
undoubtedly suffered as a result of both natural and manmade 
calamities, in addition negative global forces. Nonetheless, for the 
first time our Administration has taken the necessary steps to impose 
fiscal and financial discipline on the operations of the government.
    This bill, however, retards the very process that we have embarked 
upon. Therefore, Mr. Chairman and Honorable members, I strongly urge 
this Committee to reject the provisions of H.R. 3589 in their entirety.
The Bill
    H.R. 3589 submitted by Delegate to Congress Donna Christensen 
eliminates for five years the position of the Director of the Office of 
Management and Budget and substitutes a Chief Financial Officer (CFO).
    The Governor appoints the CFO, with the advice and consent of the 
Legislature from the names from a list provided by a Commission. If the 
Legislature does not confirm the person appointed by the Governor, the 
Governor can name an acting CFO, but if the Legislature does not 
confirm someone within 180 days from the date of the Act, the Secretary 
of the Interior appoints the CFO.
    The CFO performs all the functions of the OMB Director, and the 
Department of Finance and Bureau of Internal Revenue must fully 
cooperate and provide all documents requested. In addition to the usual 
functions of the OMB, the CFO must also produce quarterly financial 
reports for the public, certify annual spending limits of the annual 
budget and whether it is balanced, and develop standards for financial 
management for each agency.
    During this five year period, the OMB director serves as Deputy CFO 
at the pleasure of the CFO. Under the bill, the CFO may only be removed 
for cause, but the bill does not state by whom.
    The Commission which nominates three candidates for the CFO 
position consists of eight members: one appointed by the Governor, one 
by the President of the Legislature; one Government employee by the 
Central Labor Council; one by the St. Thomas/St. John Chamber of 
Commerce; one by the St. Croix Chamber of Commerce; one by the 
President of the University of the Virgin Islands; one by the Chief 
Judge of the Territorial Court; one resident of St. John appointed by 
the at large Senator from St. John. The Secretary of the Interior is 
the Chairperson of the Committee, but only votes in case of a tie. 
Members cannot be Government employees or have served in an 
unclassified, exempt or policy-making position for the past ten years.
    If the Commission does not report its recommendations within 60 
days, the Secretary of the Interior makes the recommendations to the 
Governor.
    In addition, within one year, the Secretary of the Interior must 
provide a financial management system, including hardware and soft ware 
to the Virgin Islands Government. No funding source is identified.
Self-Governance and Democratic Principles
    With all due respect to the good intentions of the sponsor, as 
stated before, I must respectfully and vigorously oppose the provisions 
of H.R. 3589 presently the Committee. For reasons detailed below, the 
bill addresses neither the causes for the financial challenges of the 
Territory nor the solution. I urge the committee to vote against the 
bill.
Undemocratic
    The bill runs afoul of the most fundamental principles of our 
democracy. The Governor of the Virgin Islands is elected directly by 
all of the people in the Territory. The Virgin Islands Senators are 
also elected directly by the people. The Governor appoints his cabinet, 
including the Director of the Office of Management and Budget, with the 
advice and consent of the Senate. Thus, the OMB director can be said to 
reflect the will of the people.
    H.R. 3589 proposes to replace the OMB director with one appointed 
by a committee some of whom are not elected to office, but merely 
representatives of certain groups. In addition, the Secretary of the 
Interior has the tie-breaking vote on the Committee.
A Step Backwards
    H.R. 3589 represents a step backward in the relations between the 
United States Government and the Territory. Since 1917 when the 
Territory was acquired from Denmark, the Territory has been given 
increasing responsibility for its own functions and the federal 
government has. retained less oversight. Through amendments to the 
Organic Act, the Territory has progressed from oversight from the 
Department of the Navy, and Governors appointed by the Secretary of the 
Interior, to Governors elected by Virgin Islanders.
    The movement toward self-government has been a slow and hard fought 
struggle for the people of the Virgin Islands. It has been a movement 
in the right direction with more responsibility for the Territory and 
less for the federal government. The bill before the committee reverses 
that trend, and is an affront to all those who have worked hard to 
achieve the current status.
    It bears noting that the people of the Virgin Islands elected their 
own Governor for the first time in 1970, a mere 34 years ago. Prior to 
that time, Governors were appointed by the federal government. In 
historical terms, this is a very young government.
Presumptions
    The bill is founded on several assumptions that place the 
government of the Virgin Islands in a precarious position and at a 
decided regressive disadvantage. By taking away from the Governor and 
Senate the duty to appoint the OMB Director, H.R. 3589 presumes that 
the Virgin Islands is unwilling and incapable of managing its financial 
affairs, and that the financial condition is so egregious that such a 
draconian step is warranted. It also presumes that the financial 
challenges will be addressed by merely substituting the OMB director, 
without tackling the other institutions in which changes are needed.
Willingness and Capability
    The Territory is not, as H.R. 3589, the bill presumes, unwilling to 
address its financial challenges. The Territory has entered into a 
Memorandum of Understanding with the Secretary of the Interior and has 
charted the course to fiscal responsibility. Additional evidence of 
progress is the decrease in the number of Government employees.
Financial Condition
    H.R. 3589 presumes that the financial condition of the Territory is 
so precarious that only a new method of appointing the OMB director can 
address the problem.
    The Territory is not bankrupt. It meets its obligations as they 
come due. It pays its employees and vendors. Certainly, it carries an 
enormous debt, but this is not unusual for federal or local 
governments. Debt can be managed as has been demonstrated by other 
governments, as well as the government of the Virgin Islands.
      Forty-eight states are facing declining revenues.
      Kentucky had a $365 million shortfall for 2003-2004.
      California faced a $36 billion dollar deficit.
      Indiana will spend $1 billion dollars more than income 
this year.
    The Virgin Islands financial condition is far less severe than many 
states, and not one has replaced its state's budget director with a 
nonelected, non-appointed financial officer
    H.R. 3589 appears to be an extreme measure in light of the 
circumstances.
Senate Election
    The Territory finds itself in its present financial condition in 
part because of the structure of the election system of the Virgin 
Islands requires meaningful legislative change by way of a referendum 
of the people. Another significant avenue for change can be 
orchestrated through Congressional support of sub-districting.
    Currently, the seven highest vote getters are elected to the senate 
from St. Croix, seven from St. Thomas, and one is elected by the voters 
of all four islands but must be a resident of St. John. As a result, 
the Senators owe allegiance to their island, but not to any specific 
area or district within it, like U.S. Congressman. As a result, there 
is constant pressure from special interest groups and votes for 
appropriations for which there is no identifiable funding source. There 
is a structural impediment to the sound finances of the Territory and 
meaningful change will not occur until this issue is addressed.
Unique Challenges for Territory
    The Territory's financial condition must be viewed in the context 
of its unique challenges. All public services must be performed for a 
relatively small population spread over four islands in varying 
proximity. The public health challenge is enormous.
    Nowhere in the states would a county of 45,000 people be expected 
to provide public health for all of its population in one health center 
for emergency and long-term health care. Or to provide power and water 
and Government services on four islands, as well as comply with federal 
mandates and provide state and municipal government.
Summary
    H.R. 3589 as submitted does not address the fundamental 
institutional challenges facing the Territory. It is a step in the 
wrong direction, toward more federal intervention and less self 
determination. The Virgin Islands can and will meet its financial 
challenges without H.R. 3589.
    [NOTE: Attachments to Governor Richards' statement have been 
retained in the Committee's official files.]
                                 ______
                                 
    [A letter submitted for the record by Stephanie Scott-
Williams, Former Virgin Islands Senator, follows:]

                             June 14, 2004

Richard W. Pombo, Chairman
House Resources Committee
1324 Longworth House Office Building
Washington, D. C. 20515

Chairman Pombo:

    I am Stephanie Scott-Williams, former Virgin Islands Senator, a 
grandmother of 8, and a Virgin Islander by commitment. I submit the 
following in testimony regarding Virgin Islands Fiscal Responsibility 
Act, H.R. 3589.
    The following questions must be answered honestly in order for the 
People of the Virgin Islands to begin to HEAL, they are:
    1. What is the total debt of the VI Government;
    2. What is owed to whom, what taxes are committed to which debts;
    3. What is the VI's average daily, weekly, monthly, annual revenue;
    4. What is the VI's average daily, weekly, monthly, annual 
expenditure;
    5. What are the consequences if the VI fails to institute a CFO;
    6. Will or are present and future federal monies affected?
    Although we all agree that we want fiscal responsibility, we are 
divided on how to achieve that goal. The People of the VI are divided 
on the issue of a CFO be it imposed federally through the Dept. of the 
Interior or a CFO created by the VI Government. Some see a federally 
imposed CFO as colonial. How colonial can we get, we are taking the 
federal money. A CFO and a commission created by the governor and the 
legislature is only creating another level of bureaucracy, problems and 
conditions that got us where we are today. We have no faith in what the 
governor tells us. In one of the state of the territory addresses he 
stated that he saved the VI from a federal take over? When was this? 
Why didn't we know? What concessions were made in our absence?
    We need HELP in getting the truth from our governor and the 
senators as to the real debt of the VI. How many great grand children 
must I have in order to pay these debts? We're forever floating bonds 
for this and for that. In fact it seems as if we're floating bonds for 
the same thing over and over again. There is NO trickle down to the 
PEOPLE.
    The roads are worse, the school books are still obsolete, police, 
teachers and most government employees must work a second job in order 
to survive in this tourist economy. The senators continue to propose 
and pass more taxation. We do not have much faith in the present, 
electronic method of voting. We do not get answers to questions. 
``They'' make it virtually impossible to peruse your right to know. The 
elected representatives do not respect the electorate. We are 
frustrated!
    We really do not want to have ``outsiders'' come in and clean up 
our house but we have procrastinated and failed to put things in order. 
The senators and the governor play table tennis with legislation and 
appropriations, by their vetoes and overrides. Both branches of 
government are flirting with fiscal responsibility.
    A CFO must be appointed by the Dept. of Interior. The qualified 
candidate could or preferably be from the VI. We have qualified people 
in and from the VI who should and could do the job of a CFO if allowed 
to do the job honestly. A federally appointed CFO allows the CFO to 
function without intimidation or fear of being fired by the governor.
    The CFO must replace the Director of OMB. The CFO reports to the 
Dept. of Interior, the Governor, Legislature and the People. The CFO 
works directly with the commissioner of finance and the agencies; 
determining priorities, needs, revenue generating ability (if any), 
developing a working plan setting specific goals to bring each agency 
into fiscal compliance and responsibility. The Virgin Islands will be 
well on its way to fiscal recovery and healing of broken communities.
    First, we MUST know how much money is needed to operate this 
government efficiently. Conduct a tax study to determine if the present 
taxes are sufficient or necessary, is there duplication? Once this is 
established, agencies develop an immediate, short term and long-term 
plans and through legislation create laws for continued economic growth 
and development of the Virgin Islands.
    It is critically important that we have honest people, willing to 
do public service who will work towards Improving the Quality, 
Productivity and Delivery of Government Services.

                             Respectfully,

                        Stephanie Scott-Williams

                                 ______
                                 
    Mr. Flake. Does the member from New Mexico have an opening 
statement?
    Mr. Tom Udall. No, I don't. Thank you.
    Mr. Flake. Thank you. With that, I would like to welcome 
our first witness to today's hearing, the Delegate from the 
District of Columbia, Ms. Eleanor Holmes Norton. Ms. Norton has 
had a lot of experience, obviously, in working through the 
District's financial hardships and I am sure she will offer 
some good insight today on this legislation. Welcome today, and 
please proceed.

 STATEMENT OF HON. ELEANOR HOLMES NORTON, A REPRESENTATIVE IN 
             CONGRESS FROM THE DISTRICT OF COLUMBIA

    Ms. Norton. Thank you very much, Mr. Chairman, 
Congresswoman Christensen, members of the Committee. I have 
come at your invitation to discuss the experience of the 
District of Columbia with a Chief Financial Officer and I would 
like to submit for the record the CFO organizational chart 
simply so that you will have some sense in your record of how 
the office is organized.
    H.R. 3589 is entirely the idea of my good colleagues, the 
territory's Congresswoman. I recognize that every jurisdiction 
has vast differences and many nuances. While we have spoken, I 
believe that the effect of the District of Columbia on her has 
simply been that she was here when the District of Columbia 
went into insolvency and she saw that the Congresswoman for the 
District of Columbia had to call not for a CFO, because we had 
passed that point, but the Congresswoman had to get up in the 
Congress and call for a Control Board that would be appointed 
by the President of the United States.
    If you think that what the Congresswoman has offered has 
any pain attached to it, I cannot emphasize enough the pain I 
had when it became my responsibility to stand in the well of 
the House before any of my colleagues, because it was my 
responsibility, when the District of Columbia could no longer 
borrow because investment houses had declared it to have junk 
bond status. I believe somebody had to do it, and I did it. Far 
from having Mayor Barry and the Chair of the Council fight me, 
ultimately, they were with me so that we--because we all 
understood what insolvency meant. They no more wanted a Control 
Board than they wanted to jump off the dome of the Capitol. 
They had no choice.
    What the Congresswoman has offered, I wish we could have 
had instead of a Control Board. I think what she is trying to 
do is keep the Virgin Islands from going the way that the 
District went in 1993 when it became officially insolvent.
    Now, the real question is, is the Virgin Islands insolvent? 
I am not in a position to say whether it is insolvent or not. I 
have read some of what its own officials have said, and if you 
get to be a billion dollars in debt, if you have to balance 
your budget by borrowing, if you use one-time spending 
remedies, there does come a point in time when people will not 
lend to you anymore.
    If you are not--if you are--the Virgin Islands is like the 
District in this respect. The Virgin Islands doesn't have a 
State, so the only place for the Virgin Islands to come would 
be to the Congress of the United States. That is where we had 
to come. The Control Board was appointed by the President of 
the United States. Fortunately, he took my recommendations. He 
did not take the recommendations of the Mayor and the City 
Council. But he did take my recommendations. They were District 
residents.
    If we had had the model that is before the Committee today, 
we would have breathed a sigh of relief and embraced it. But 
there was no such model at the time in the Federal sector for 
us to pursue. The model is almost exactly, as I understand it, 
except for one big difference then, the Mayor appointed the 
CFO, but the Control Board had to ratify that appointment, and 
he appointed the CFO with the advice and consent of the 
legislature.
    The sovereignty of the District of Columbia was compromised 
by the fact that the Control Board, unelected officials, had 
to, in fact, ratify the Mayor's appointment. They did, in fact, 
ratify his appointment. But as I understand the Congresswoman's 
legislation, that is not what has to happen here. The 
sovereignty of the District of Columbia and their sovereign 
officials are left exactly as they are today. They appoint the 
CFO. They get to do something that we didn't get to do. They 
get to have all three branches of government involved in a 
search committee so that everybody locally has a say in who 
that CFO shall be.
    Their CFO is temporary. Our CFO has been so successful that 
the Council of the District of Columbia, which guards its home 
rule and guards its self-government like life dependent on it, 
has passed a law saying that the CFO shall have a term. There 
was no term in the CFO law. The CFO could be dismissed for 
cause with two-thirds of the Council. Now the Council wants the 
CFO, and it has passed a law to that effect, to have a term not 
concomitant with the term of the Mayor.
    The great difference in what I understand our government to 
have had and the Virgin Islands to have today is that there is 
no--there was no central figure for management accountability 
in our system. That is what a CFO is. In States, that figure is 
often an elected person. In New York, for example, he is the 
Controller and he gets to say and do things on finances that no 
other elected officials can do. Now, that is a truly strong 
figure, because that person isn't appointed by the executive. 
That person comes from the people. This is, of course, not 
nearly as severe as that.
    You do not have a financial management system if there is 
not a central figure who runs that system, all you have is a 
bunch of folks who run around. In our system, there was the 
Office of Finance and Revenue. There was the Budget Director. 
There was the Treasurer. All of those people are now under the 
office of the CFO, appointed by the CFO. Of course, the CFO is 
appointed by the Mayor. So obviously, the CFO is not going to 
appoint a Treasurer or a Finance and Revenue Director without 
the Mayor himself essentially ratifying that appointment. 
Again, what the CFO does is directly accountable to the elected 
Mayor, as I understand the Congresswoman's bill would have for 
the Virgin Islands, as well.
    The most important thing that the CFO has done is to keep 
bills and actions that require over-spending from moving 
forward, and how does he do it? He doesn't have policy 
authority. What he does is to analyze bills and analyze actions 
and then come back to the elected officials and say that, under 
the law, you would be overspending if you were to enact this 
bill. And people will put all kinds of bills in without 
thinking a thing about what it will cost. And he will come back 
and say, if you do this, there is not the revenue to cover it. 
That sends people back to deciding either not to do it or to 
reduce the cost of it. Any action that is taken, he must look 
at to see if there is revenue to cover it.
    Let me just quickly go down and indicate the kinds of 
things he actually does. It is he that has control over 
accounting for the $5 billion budget we have here, collecting 
and controlling that budget. One of the most important things 
he does, the fiscal year will not be 2 months old before the 
CFO will say, there is some overspending in the police 
department, in X department, in Y department. That is no cause 
for panic. It just tells you even before the first quarter is 
out that various departments are spending beyond their budget. 
That is the kind of fair warning they want so that they can 
reel themselves back in before they get to the end of the 
fiscal year and have a crisis on their hands.
    He monitors the budget performance throughout the fiscal 
year, meeting and talking with people to help them keep their 
budget intact. He collects the receipts and payments. He 
develops the fiscal impact statements so that we understand the 
fiscal responsibility we take on when we do any action, whether 
or not it is labeled a financial action. And, of course, he 
hires the person who does the comprehensive annual audit. 
Again, an outside auditor is absolutely necessary for any 
system, whether it is a business or a bill.
    What has been the effect of having a CFO? Seven consecutive 
balanced budgets. This is from a city that was insolvent, 
bankrupt, unable to borrow, had to come to the Congress of the 
United States if it wanted to borrow in order to go through the 
Treasurer of the United States. Our bond rating is A-2. This is 
the first time in the home rule history of the District--we got 
home rule in 1974--that we have received an A rating from all 
three major rating agencies.
    The District has accomplished a $1.4 billion turnaround in 
its general fund balance. It maintains $254 million in cash, 
emergency and contingency reserves, and $50 million in 
operating cash reserves, and that is the largest cash reserve 
as a percentage of budget nationwide in the United States and 
you do not hear our Council or our Mayor screaming about it. It 
is what got us the AA rating, the A-2 rating, and let me say 
what that gets you. It means when you borrow money, you don't 
have to pay the kind of interest that obviously the Virgin 
Islands and people with bond ratings that are not the best have 
to pay, and that comes from the taxpayers, as well.
    Finally, Mr. Chairman, let me say many States and cities do 
in a much more stringent manner what a CFO does. I indicated 
that he can be independently elected. He is almost always 
independent. Even without a financial crisis, any operation, 
public or private, must have a CFO. There is no business, even 
a small business if it has as many as, let us say, ten 
employees, that does not have a CFO today.
    The CFO is as necessary as the CEO. No corporation would 
think of organizing without having a CFO at its center. If you 
do not have a CFO, you do not have a financial management 
system. You simply have a lot of folks running around trying to 
manage whatever they can. I think we would all agree, if that 
is no way to run a business, it is certainly no way to run a 
government.
    Thank you very much, Mr. Chairman.
    [The organizational chart submitted for the record by Ms. 
Norton follows:]

[GRAPHIC] [TIFF OMITTED] T4226.001


    Mr. Flake. I thank the Congresswoman from the District. Any 
questions from the Republican side?
    Mr. Rehberg. Yes, Mr. Chairman. Is the Control Board still 
in charge of the finances?
    Ms. Norton. No. Indeed, the Control Board went out of 
existence more than 7 years ago now, largely because the 
Council and the Mayor, working with the CFO, got the District 
back on track.
    Mr. Rehberg. Was there a sunset provision in the 
legislation that Congress passed to create the Control Board, 
or--
    Ms. Norton. Yes. There was--
    Mr. Rehberg. OK. So it didn't take a second action of 
Congress to--
    Ms. Norton. There was a sunset provision, but the Congress 
was quite ready to spring into action if the District had not 
become solvent.
    Mr. Rehberg. And how long was the Control Board in place?
    Ms. Norton. About 6 years.
    Mr. Rehberg. I didn't have the benefit of being here 
watching the local press. What was the debate that occurred 
about the self-determination? I mean, there obviously were 
problems. I would assume that the elected officials said, 
``Hey, why even be an elected official if you are just going to 
have somebody else oversee you?'' Were there conflicts in 
philosophy of how the Control Board was acting and how the 
Mayor and the City Councilperson would have liked to have had 
the budget managed?
    Ms. Norton. The second Control Board, as I call it, had 
Alice Rivlin, the founding chair of the CBO here, a high-level 
financial official herself who happens to be a D.C. resident. 
The Control Board worked very well with her. The first Control 
Board was under Andrew Brimmer, a very distinguished economist.
    The Mayor--I was able, working with Mayor Barry, to get the 
District's sovereignty left in place even with a Control Board. 
Essentially, he was able to continue to run the government and 
if--but they did have the power to step in if, in fact, there 
was overspending.
    The Mayor made a huge mistake. Mayor Barry made a huge 
mistake. He got into public fights with Andrew Brimmer. This is 
after working with Tom Davis, my good colleague. Mr. Flake and 
I serve on the same committee. He and I worked so that the 
District's sovereignty was left in place. Then the Mayor, who 
is a consummate politician, had open fights with Mr. Brimmer, a 
very strong Chairman. The District's budget, unlike the budget 
of the Virgin Islands, has to come here even though it is all 
raised, or virtually all raised in the District of Columbia. 
When the appropriators saw that Barry was fighting with 
Brimmer, they gradually took much of the District's 
sovereignty, not through the authorization process but through 
appropriation riders.
    Mr. Rehberg. One last quick question, and I apologize for 
not knowing your budget, but do you have a balanced budget 
requirement? Is there within your charter or whatever you--
    Ms. Norton. You bet.
    Mr. Rehberg. It is a balanced budget requirement?
    Ms. Norton. And it was then, but like the Virgin Islands, 
with whatever you do to pass budgets, they were, in fact, 
unbalanced budgets all along and you can't have an unbalanced 
budget in the District of Columbia now, not--
    Mr. Rehberg. So there wasn't adequate enforcement, which is 
what some--
    Ms. Norton. And what is happening very often in the States 
today is you see people overspending and then carrying over 
into the next year what amount to unbalanced budgets. So there 
was a balanced budget just as every State is required to have a 
balanced budget, but with smoke and mirrors, clearly the budget 
wasn't balanced, and when it went down, it went down very 
quickly.
    By the way, the investment houses won't come and say, you 
know, we want to give you a year's notice. All of a sudden, 
they will say, you can't borrow anymore.
    Mr. Rehberg. Thank you. Questions from this side? Mr. 
Faleomavaega?
    Mr. Faleomavaega. Thank you, Mr. Chairman. I offer my 
personal welcome to Congressman Norton to our Committee. It is 
always an absolute privilege for me to work with Congresswoman 
Norton over a series of issues, not only affecting her District 
as well as the insular areas. I want to thank you for your 
insights about this proposed legislation that our colleague has 
presented before the Committee, Congresswoman Christensen.
    Congresswoman Norton, I think you probably are very aware 
and quite sensitive to the concept of having elected government 
and we are creating an office who is not an elected official. 
The question that comes to my mind always is how do you 
establish a balance of where a non-elected person has too much 
authority over the privileges as given to executive authority, 
that which in particular would be the Governor. I remember this 
was always the issue among the insular areas in dealing also 
with the Department of the Interior, whether or not the 
Comptroller of the Interior Department should have oversight 
responsibility once a Governor is elected among the insular 
areas, whether it be Guam, American Samoa, and I suppose here 
the Virgin Islands.
    You did make a very excellent point here, the fact that 
insular areas do have financial problems, but will this be a 
cure to solve the financial problems, whether it be the Virgin 
Islands or in American Samoa?
    I wanted to ask again, and my apologies if I did not get a 
clear picture of what you are trying to share with us this 
morning, does the Chief Financial Officer as proposed in our 
colleague's bill, does it complement the concerns that you have 
as you have had to deal with the financial problems also with 
the District of Columbia?
    I remember the former reserve Member of the Board Brimmer, 
Mr. Brimmer, who was an excellent--I think this is probably one 
of the reasons that has helped a lot to the Control Board, that 
you had people of tremendous caliber and expertise in dealing 
with finances, which I think has been a real help for the 
District.
    I wanted to ask you if establishing a Chief Financial 
Officer, will it help the Virgin Islands in resolving some of 
the serious financial problems as it is true with other insular 
areas?
    Ms. Norton. I hope I haven't confused anybody by talking 
about the Control Board because I do want you to know that--I 
want to emphasize, and I appreciate your question because it 
allows me to clarify this. I want to emphasize the difference 
between the original CFO we had and the CFO we have now.
    The original CFO was, in fact, appointed by the Mayor, and 
as I indicated, he had considerable sovereignty that he 
frittered away even then. But it was appointed by the Mayor 
with the advice of the legislature. The CFO we have now is 
appointed by the Mayor with the advice of the legislature, 
which is to say our Council, even though there is no longer a 
Control Board and nobody on our Council would think of 
operating without a CFO now.
    I don't mean to say that there aren't jurisdictions that do 
financial accountability in other ways. I am saying that most 
jurisdictions have a central figure who is in charge of making 
sure that the budget does not go out of control and that there 
is not overspending.
    The CFO does not have policy, and I emphasize this, he does 
not have policy jurisdiction, so that if you overspend, for 
example, because you put in a bill for which there is no 
revenue, all the CFO can do is to go back and say, we don't 
have the revenue for that. Then the policymakers, the Council 
members and the Mayor get together and decide what to do. He is 
the monitor. He is who lets you know whether or not 
overspending will take place.
    I want to emphasize this right away. We wish we had had 
this opportunity. What the Congresswoman's bill says is that 
you, we in the Congress, have absolutely nothing to do with 
this official. The Governor appoints the official. The 
legislature has to approve the official. The Congress doesn't 
have anything to say about that. Would that that were the case 
for the District, the Congress didn't have anything to say 
about it, just the Control Board that the Congress appointed 
had everything to say about it.
    So this official is no different from the other officials 
they appoint except that this is somebody who can keep them 
from overspending.
    Now, you raise an important point. Does he, therefore, have 
more power than an elected official? No, because he can't 
change the policy. Let me tell you a dirty little secret. There 
have been control boards where they have put similar kinds of 
figures in place in New York, in Philadelphia, in Bridgeport. 
The dirty little secret is that the elected officials welcome 
the fact that somebody else could say no to overspending. When 
you have all of these people running at you saying, ``We want 
money,'' it is very hard for an elected official to say no. And 
so what elected officials do is drive themselves into 
bankruptcy, and that may be happening here.
    I can tell you that nobody in the District of Columbia 
would think of operating without a financial management system, 
and there is no such thing as a financial management system 
without a CFO, and as long as that CFO is appointed by the 
elected officials, there is no case to be made that their 
sovereignty is infringed.
    And if I may add, nobody would feel that more than the 
Congresswoman from the District of Columbia. We wish we had 
what you have, Mr. Delegate, and what the Virgin Islands has. 
Your budgets do not come here. We raise $5 billion in the 
District of Columbia and we have to come to the Congress of the 
United States before we can spend a dime.
    So if you want to talk about sovereignty, you are talking 
to a lady who knows how to speak up for sovereignty.
    Mr. Faleomavaega. Thank you, Mr. Chairman, and I thank 
Congresswoman Norton for her comments.
    Mrs. Christensen. Thank you. I was going to forego 
questioning. I just have one question. How important, 
Congresswoman Norton, is the independence of that person and 
the fact that the Mayor and the City Council made a concerted 
decision to keep that person independent and removal only for 
cause? How important is that to the functioning of that office?
    Ms. Norton. His independence goes largely to his truth 
telling capacity. The fact is that he is the only official, 
unlike the old treasurer or the person who was head of Finance 
and Revenue, who essentially isn't inclined to tell the elected 
officials what they want to hear. His independence is very 
important if you want to have any credibility with your bond 
markets, if you want to stop overspending, if you want somebody 
who is believable, and frankly, if you want somebody who is not 
threatening, because he can't do anything. He can only say, you 
can't spend more than this, and then you can go back and decide 
what you want to do.
    If that is threatening, it may be if you are borrowing at 
the rate that the Virgin Islands is borrowing, that that is the 
threat you would rather have than a control board who makes it 
impossible for you to make decisions as well as to overspend.
    Mr. Renzi. [Presiding.] I thank the lady.
    The gentlelady from Guam?
    Ms. Bordallo. Thank you, Mr. Chairman. Good morning. If I 
could just make a few opening statements. I really don't have a 
question, but very quickly.
    I want to state my support for my colleague, Mrs. 
Christensen, and her efforts to place the Virgin Islands on 
sound financial footing for the foreseeable future. I commend 
her for her leadership and her responsible willingness and 
commitment to tackle the challenges that jeopardize the fiscal 
health of the government of the Virgin Islands. And I might 
add, the Virgin Islands are not the only group of islands that 
are facing financial problems. As a freshman, I look to her for 
guidance, and likewise, I also hold a great deal of respect for 
our colleague from the District of Columbia, Ms. Norton.
    As delegates, we share many of the same frustrations and 
challenges in representing our constituencies here in Congress. 
Our governments share similar challenges. Guam, like the Virgin 
Islands, continues to struggle with difficult financial 
conditions, many of which are not of our own making or 
choosing. In many respects, our territories face unique 
challenges that are more difficult to resolve than other 
jurisdictions in the country due to our isolation from the 
mainland, our non-State status, the lack of resources and tools 
to manage our finances, and the disproportionate and adverse 
impact of certain Federal policies.
    This latter point, Mr. Chairman, is of major concern to me. 
Mr. Chairman, by way of just one example, Mrs. Christensen and 
myself are currently engaged in an all-out effort to secure a 
long-sought solution to the problems experienced in effectively 
implementing the Earned Income Tax Credit by our governments. 
We are hopeful the FSC/ETI bill that is slated to hit the floor 
sometime, I think this week, will provide an opportunity to 
resolve this particular matter, which currently stands as an 
unfunded Federal mandate costing our treasuries millions of 
dollars each year.
    And last, I do want to welcome the leadership of the 
Government of the Virgin Islands, Governor Turnbull, members of 
the Legislature who have traveled many miles to be here in the 
nation's capital to testify, and I look forward to their 
testimonies. Thank you, Mr. Chairman.
    Mr. Renzi. I thank the gentlelady.
    Any other questions?
    [No response.]
    Mr. Renzi. Hearing none, we thank you so very much for your 
insights.
    Mrs. Christensen. Thank you, Congresswoman.
    Mr. Renzi. Yes, thank you very much.
    We call the next panel. Our second panel consists of a 
witness representing the current administration. I would like 
to welcome Nick Pula, the Director of the Office of Insular 
Affairs at the Department of the Interior. Given Mr. Pula's 
daily interaction and close connection with the Department, and 
he has with all the territories over the years, his input 
should prove valuable.
    Mr. Pula, before you sit down, if you don't mind, we will 
continue with the customary practice of swearing in all 
witnesses provided under Rule 4(f), so if you would please 
stand and raise your right hand and repeat after me.
    Do you solemnly swear or affirm under the penalty of 
perjury that the statements made and responses given will be 
the whole truth and nothing but the truth, so help you, God?
    Mr. Pula. I do.
    Mr. Renzi. Thank you. Let the record show the witness 
answered in the affirmative, and you may begin your testimony. 
Thank you, sir.

 STATEMENT OF NIKOLAO PULA, ACTING DEPUTY ASSISTANT SECRETARY, 
   OFFICE OF INSULAR AFFAIRS, U.S. DEPARTMENT OF THE INTERIOR

    Mr. Pula. Thank you, Mr. Chairman. I respectfully request 
that my full statement be submitted for the record while I 
summarize my comments.
    Mr. Chairman and members of the Committee on Resources, I 
am pleased to be here to discuss H.R. 3589, a bill to create 
the Office of Chief Financial Officer for the Government of the 
Virgin Islands.
    To begin with, compliments are in order for Congresswoman 
Donna Christensen for the courage she has shown in bringing 
this issue into focus. The fiscal problems faced by the Virgin 
Islands are significant, but we all must decide among 
priorities and make difficult choices. As a self-governing 
entity, the Government of the Virgin Islands should take action 
to resolve its fiscal problems.
    The issue of self-government is of great concern to the 
people of the Virgin Islands, but equally so to the Department 
of the Interior. For many decades, Interior officials have 
sought to continually increase self-governance for the United 
States territories. We believe it important that self-
government be preserved and that all challenges, including 
fiscal problems, be fully considered within the local 
territorial government before turning to outside for help.
    H.R. 3589 would establish the Chief Financial Officer, who 
would take over the duties of the Director of the Virgin 
Islands Office of Management and Budget. Additionally, the bill 
would require the Interior Department to purchase for the 
Virgin Islands a new financial management system, including 
computer hardware and software.
    Congresswoman Christensen states that the CFO will be 
empowered to oversee and approve all spending and be authorized 
by law to disapprove items of spending which would send the 
government into a financial deficit.
    Regarding the mandate for Interior to purchase a financial 
management system, the Department has concerns. As a self-
government entity, it is the responsibility of the Virgin 
Islands to develop its priorities as it knows best and fund its 
own financial management system. Of course, the Department 
could assist as it always has done in the past.
    With more specific regard to the CFO provisions of the 
bill, the revised Organic Act established a government with 
three branches. Elected by the voters of the Virgin Islands, 
the Governor heads the executive branch. Virgin Islands law 
provides that the Director of the Virgin Islands OMB serves at 
the pleasure of the Governor. This provision ensures that the 
Director carries out the policies of the Governor.
    By giving the duties of the Director to the CFO and setting 
a 5-year term office, the CFO, no longer beholden to the 
Governor, will likely have priorities that are not consistent 
with the Governor's policies. Thus, a CFO will likely conflict 
with the goals of the system of government established in the 
revised Organic Act.
    Only under extraordinary circumstances would the Department 
of the Interior suggest that institution of self-government be 
bypassed to address fiscal concerns. If, however, the Congress 
determines that the fiscal problems are beyond internal 
solution by the Government of the Virgin Islands, options are 
available that have been successfully utilized by others. These 
options should be analyzed with an eye toward preserving the 
integrity of the revised Organic Act and to minimize intrusion 
into local self-government.
    One option is to place a balanced budget provision in the 
government's foundation document, a constitution in the case of 
a State, or the revised Organic Act in the case of the Virgin 
Islands. Maryland and Hawaii are examples of jurisdictions that 
have balanced budget provisions in their respective 
constitutions. The benefit of a constitutional requirement for 
a balanced budget is that all decisions are made by the 
government in question. Self-government remains intact. 
However, the constitutional requirement must also be enforced.
    American Samoa also has a constitutional provision 
requiring a balanced budget, together with an anti-deficiency 
statute. However, American Samoa has lacked enforcement with 
the result that its debt has ballooned for years. Recently, 
however, that debt was paid down due to the Federal tobacco 
loan settlement and hurricane insurance payments. Long-term, 
however, governments can't be run on hope for a windfall. The 
management culture of State government is as important as the 
legal requirement. Enforcement is the key.
    Still another option is a control board, as was used in 
Washington, D.C., as eloquently stated by Congresswoman Norton. 
Under the complex 57-page act, the President appointed a five-
member Control Board. The Washington, D.C. Control Board was 
very successful in achieving balanced budgets. There was a 
great cost, however, in that self-government was virtually 
suspended. Nearly every decision of elected city officials 
could be overridden by the Control Board.
    Finally, a third approach proved successful in turning back 
deficit financing in Palau. Each category of revenue, for 
example, income taxes, corporate taxes, license fees, et 
cetera, was analyzed to make sure that it was within the 
historic 3-year trend line and a total revenue figure was 
confirmed. Spending was then capped at the confirmed total 
revenue figure. All decisions and spending priorities remained 
with the local government and there was virtually no 
administrative cost.
    Congresswoman Donna Christensen said, ``History informs 
that the necessary political resolve to put measures in place 
to address these problems is best found and sustained outside 
of the political process,'' close quote. If it is determined 
that that is a problem that can't be remedied within the 
existing parameters of local government, then solutions are 
available that can minimize interference with territorial self-
government.
    In noting these options, we have endeavored to be helpful, 
to stimulate the discussion. Mr. Chairman, while we laud the 
proposed legislation's focus on solving the Virgin Islands's 
fiscal problems, we favor solutions that are developed 
internally by the Government of the Virgin Islands. Thank you.
    Mr. Renzi. I thank the gentleman for your testimony.
    [The prepared statement of Mr. Pula follows:]

  Statement of Nikolao Pula, Acting Deputy Assistant Secretary of the 
     Interior for Insular Affairs, U.S. Department of the Interior

    Mr. Chairman and Members of the Committee on Resources, I am 
pleased to appear before you today to discuss H.R. 3589, a bill ``to 
create the Office of Chief Financial Officer of the Government of the 
Virgin Islands.'' I am Nikolao Pula, Acting Deputy Assistant Secretary 
of the Interior for Insular Affairs.
    To begin with, compliments are in order for Congresswoman Donna 
Christensen for the great courage she has shown in bringing into focus 
the need for a solution to the periodic fiscal crises faced by the 
Virgin Islands.
    The fiscal problems faced by the Virgin Islands are significant. It 
is difficult for any government to labor under heavy debt. But we all 
must decide among priorities and make difficult choices. As a self-
governing entity, the Government of the Virgin Islands should take 
action to resolve its fiscal problems.
    The issue of self-government is of great concern to the people of 
the Virgin Islands, but equally so for the Department of the Interior 
(Department). For many decades, Interior officials has sought to 
continually increase self-government for the United States territories. 
We believe it important that self-government be preserved, and that all 
problems, including fiscal problems, be fully considered within the 
local territorial government before turning to the outside for help.
    H.R. 3589 would establish a Chief Financial Officer (CFO) who would 
take over the duties of the Director of the Virgin Islands Office of 
Management and Budget. A seven-member CFO search commission would be 
appointed, one each, by the following Virgin Islands persons or 
entities: the Governor, the President of the Legislature, the Central 
Labor Council, the Chambers of Commerce of St. Thomas-St. John and St. 
Croix, the President of the University, the Chief Judge of the 
Territorial Court, and the At-Large Member of the Legislature. Within 
60 days, the commission would provide the Governor with three nominees 
from which he would appoint the CFO with the advice and consent of the 
Virgin Islands Legislature. If the commission does not provide the 
requisite list of nominees within 60 days, the Secretary of the 
Interior would be obligated to do so within a subsequent 30 days. Also, 
if a CFO has not been appointed and confirmed within 180 days, the 
Secretary of the Interior would be obligated to appoint an acting CFO. 
Additionally, the bill would require Interior to purchase for the 
Virgin Islands a new financial management system, including computer 
hardware and software.
    In accompanying comments on introduction of the H.R. 3589, 
Congresswoman Christensen states that the ``CFO will be empowered to 
oversee and approve all spending of the government of the Virgin 
Islands and be authorized by law to disapprove items of spending which 
would send the government into financial deficit.''
    Regarding the mandate for Interior to purchase a financial 
management system in section 3, the Department has concerns. First, the 
cost of such a system could be considerable and has not been assumed in 
current budget estimates. Second, the timeline of providing a system 
within a year appears unrealistic. Third, and most importantly, as a 
self-government entity, it is the responsibility of the Virgin Islands 
to develop and fund its own financial management system.
    With more specific regard to the CFO provisions of the bill, the 
Revised Organic Act of the Virgin Islands established a republican form 
of government with three branches: legislative, executive and judicial. 
Elected by the voters of the Virgin Islands, the Governor heads the 
executive branch. Virgin Islands law provides that the Director of the 
Virgin Islands OMB serves at the pleasure to the Governor. This 
provision ensures that the Director carries out the policies of the 
Governor.
    By giving the duties of the Director of the Virgin Islands OMB to 
the CFO and setting a five-year term of office, the CFO, no longer 
beholden to the Governor, will likely have priorities that are not 
consistent with the Governor's policies. Thus, appointment of a CFO 
under the provisions of H.R. 3589 will likely conflict with the goals 
of the system of government established in the Revised Organic Act. 
Only under extraordinary circumstances, would the Department of the 
Interior suggest that institutions of self-government be bypassed to 
address fiscal concerns.
    If, however, the Congress determines that the fiscal problems are 
beyond internal solution by the Government of the Virgin Islands, 
options are available that have been successfully utilized by others. 
These options should be analyzed with an eye toward preserving the 
integrity of the Revised Organic Act and to minimize intrusion into 
local self-government. Before we discuss other possible options, I wish 
to repeat: the Department of the Interior favors the Virgin Islands' 
exercise of its self-government prerogatives to solve, internally, any 
fiscal problems it may have.
    One option is to place a balanced budget provision in the 
government's foundation document: a constitution, in the case of a 
state; the Revised Organic Act, in the case of the Virgin Islands. 
There is an important difference between amending a constitution and an 
organic act. A constitutional amendment for any jurisdiction is given 
effect by the people of that jurisdiction; an amendment to the Virgin 
Islands Revised Organic Act would have to be effected by the U.S. 
Congress, which includes no voting member from the U.S. Virgin Islands.
    Maryland and Hawaii are examples of jurisdictions that have 
balanced budget provisions in their respective constitutions. The 
benefit of a constitutional requirement for a balanced budget is that 
all decisions are made by the government in question. Self-government 
remains intact. However, the constitutional requirement must also be 
enforced.
    American Samoa also has a constitutional provision requiring a 
balanced budget, together with an antideficiency statute. However, 
American Samoa has lacked enforcement, with the result that its debt 
has ballooned for years. Recently, however, the debt was paid down by 
utilizing the Federal tobacco settlement loan and hurricane insurance 
payments. Long-term, however, governments cannot be run on a hope for a 
windfall.
    The management culture of a state government is as important as the 
legal requirement. In examining the experiences of Maryland, Hawaii and 
American Samoa, we see that a constitutional provision can be either 
effective or ineffective in dealing with budget issues, depending on 
whether it is enforced.
    Still another option is a control board, as was used in Washington, 
D.C. to pull it out of its fiscal crisis in the 1990's. To assist 
Washington, Congress passed Public Law 104-8, the District of Columbia 
Financial Responsibility and Management Assistance Act of 1995. Under 
the complex 57-page act, the President appointed the five-member 
control board. The control board was granted virtually total authority 
over municipal finances and city government, concentrating on reducing 
the municipal workforce, paring services and programs, stimulating the 
economy, taking over of the school system and ordering the new school 
board of trustees to carry out specific school policies.
    The Washington, D.C. control board was very successful in achieving 
balanced budgets. The city is still financially stable. There was great 
cost, however, in that self-government was virtually suspended. Nearly 
every decision of elected city officials could be over-ridden by the 
control board.
    Finally, a third approach proved successful in turning back deficit 
financing in Palau. An uncomplicated system was implemented through 
which each category of revenue (e.g., income taxes, corporate taxes, 
license fees, etc.) was analyzed by an outside entity to make sure that 
it was within its historic three-year trend line, and a total revenue 
figure was confirmed by that entity. Spending was then capped at the 
confirmed total revenue figure. All decisions on spending priorities 
remained with the local government and there was virtually no 
administrative cost in implementing this procedure..
    Congresswoman Donna Christensen said in a statement accompanying 
the introduction of H.R. 3589, ``... (H)istory informs that the 
necessary political resolve to put measures in place to address these 
problems ... is best found and sustained outside of the political 
process.'' If it is determined that debt is a problem that cannot be 
remedied within the existing parameters of local government, then 
uncomplicated, tested, and realistic solutions are available that can 
minimize interference with territorial self-government. In noting these 
options, we have endeavored to be helpful and stimulate discussion.
    Mr. Chairman, while we laud the proposed legislation's focus on 
solving the Virgin Islands' fiscal management problems, we favor 
solutions to fiscal problems that are developed internally by the 
Government of the Virgin Islands.
                                 ______
                                 
    Mr. Renzi. I just have one question and we will move to 
other questions. The Memorandum of Understanding that was 
signed by the Department of the Interior in 1999 talked about 
some of the economic struggles that the Virgin Islands were 
going through, some of the needs for change and reform that 
needed to take place. Have there been any kind of penalties or 
any sort of monies that have been held back as a result of 
accountability issues? Are you aware of any of that, sir?
    Mr. Pula. We have not yet held back any penalties toward 
the Government of the Virgin Islands. We have worked with the 
Government of the Virgin Islands regarding this MOU that began 
in 1999. However, it basically was overtaken by events, which 
was time. A lot of the stuff will focus on, like, budget for 
2001, because it began in 1999, and, of course, 9/11 happened 
and revenue streams didn't come in.
    But some things were accomplished, both by the Virgin 
Islands as well as the Department of the Interior in moving 
forward. But just to answer your question, no penalties were 
withheld and I would be happy to provide the Committee with 
some of these accomplishments that were taken regarding this.
    Mr. Renzi. Thank you very much.
    Mr. Pula. And just to make another point, this new 
administration is working currently with the Governor at this 
time on another MOU because--to basically bring things up to 
date and to make it current.
    Mr. Renzi. Thank you, sir.
    Mrs. Christensen?
    Mrs. Christensen. Thank you. Mr. Pula, could you begin by 
just telling me what the mandate of the Office of Insular 
Affairs is?
    Mr. Pula. We basically deal with Federal relations with the 
U.S. territories.
    Mrs. Christensen. OK. I noted in your statement that you 
say that, on the financial management system, third and most 
importantly, it is a self-government agency. It is the 
responsibility of the Virgin Islands to develop and fund its 
own financial management system. The fact that the Congress can 
appropriate funds and direct its use notwithstanding, is that 
your--I know that the Governor is also requesting financial 
assistance from the Office of Insular Affairs for the 
implementation of the financial management system. Is that your 
position?
    Mr. Pula. That is correct, Congresswoman. Part of our 
mandate basically assists all the territories, and as a matter 
of fact, in particular with the Virgin Islands, we have 
discussed helping them with a financial management system. I 
have been informed by staff that the government is not yet 
ready. They are going through the process of the current 
financial systems they have. We have offered to assist and we 
will remain so. When they are ready, then we can assist them 
with it.
    Mrs. Christensen. Are you aware of issues like the 
compliance agreement from the Department of Education? You were 
asked if funds had been withheld and so forth. Are you aware of 
the problems in accounting for finances that the Government of 
the Virgin Islands has had with other Federal agencies that 
have, in some cases, either temporarily or permanently resulted 
in the withholding of funds?
    Mr. Pula. Yes, Congresswoman. As a matter of fact, other 
Inspector Generals of the Department of Education as well as 
HHS and various other Federal agencies that have programs have 
met with our Inspector General about 2 years ago and have 
discussed some of these issues, not only the Virgin Islands, 
but other territories, as well, because they were--basically, 
you were going to hold them high-risk for the way they were 
handling some of the funds.
    We have been helping the Government of the Virgin Islands, 
discussing it with their administration officials, ways to sort 
of, like, help the situation. And one of the big things that we 
have done on that front is to bring to current, to make current 
all the single audits that have been backlogged in the Virgin 
Islands and that is tied to their financial management system.
    Yes, so we are aware and we work with the other Federal 
officials.
    Mrs. Christensen. And we applaud, as I did in my opening 
statement, the fact that the government has complied with the 
single audit. But the Inspector General has said, and I quote 
it also, that while some of the technical changes have been 
made, the substantive systemic changes that would prevent these 
issues from recurring are not being significantly addressed.
    Let me just say, I agree completely--I probably go beyond 
some of my colleagues at home in supporting self-governance. 
Are you aware that many Federal agencies are seeking--some have 
sought already and some more are seeking to take the management 
of Federal grants outside of the government and place them with 
a private fiduciary because of the difficulties?
    I see what I am doing as trying to keep the government in 
control of their finances in the face of these kind of assaults 
on that. The U.S. Department of Health and Human Services has 
used private fiduciaries. The Department of Education is trying 
to push it. And I don't support that. Are you aware that the 
financial management has reached to that point?
    Mr. Pula. I am aware that some of these agencies have 
contacted our office and we have worked with them. One of the 
things, and I thank the Congresswoman for raising this issue, 
we have worked--a lot of times when single audits are made, 
there are a lot of recommendations, a lot of findings that 
remain outstanding in all the territories. One of the things 
that we are working on with the USDA in their help with their 
expertise is to bring all the territorial financial officers as 
well as auditors and have meetings and tell them how to help 
internal controls, improve internal controls in each area so 
that they don't have these continued, recurring--
    Mrs. Christensen. Has that been done before?
    Mr. Pula. It has been done before, but not very successful 
and not very concentrated. What we are doing now is really 
bringing everybody together, share success stories--as a matter 
of fact, this week in Milwaukee, all the Chief Financial 
Officers of the territories will be there with our staff and 
USDA to go over these things. We have even talked to--hoping 
that people who make audits, like Deloitte Touche, you know, 
for these areas, before they put down these findings would sit 
down with the Chief Financial Officers or the people in the 
territory to make sure that whatever findings and 
recommendations it makes are relevant, comparable, so that they 
don't remain outstanding or do not get fixed.
    Mrs. Christensen. My time is up for the round, but I have 
another question. I just want to say that in the course of 
audits, there is an opportunity before the final report is 
issued for governments or whoever is being audited to respond 
and show in which ways they have met what has been termed a 
deficiency. So that already exists.
    I just wanted to ask you another question, because you 
focus a lot on the fact that the CFO takes away some of the 
authority of the Governor and the Legislature. Under my bill, 
it is the Governor and not the CFO that submits the annual 
budget of the Government of the Virgin Islands to the 
Legislature for approval, and nothing in my bill changes that.
    All the CFO does in my bill is certifies that the revenue--
certifies the level of revenue that is available for that 
budget and works with the Governor and the rest of the 
financial team in preparing and developing the budget, but it 
is the Governor's budget. Their only priority is to ensure that 
the budget is balanced, that there are financial management 
systems in place, that every spending is done within the budget 
and within the law. So in what way will the CFO likely have 
duties or have priorities that would be in conflict with that 
of the Governor or the Legislature?
    Mr. Pula. If I understand part of the responsibilities of 
the Governor could be deeded to the OMB Director would be 
allocation of funds to different--he has that authority. Now, 
if the CFO would inherit those authorities for allocation and 
would allocate something that would be conflicting with what 
maybe the Governor's policy is, that was sort of like the 
reason why we said that there may be a conflicting there.
    Mrs. Christensen. The OMB Director really continues to work 
with the Governor. The CFO basically certifies that the money 
is there, that the revenue that has been projected is 
certifiable, and they lay their job on the line for that, not 
for any political considerations. So within--I would urge you 
to just reread it. Within the way my bill is structured, the 
CFO does not set priorities. They just ensure, certify, that 
that is within the spending limits.
    Mr. Pula. OK.
    Mr. Renzi. I thank the gentlelady.
    The gentleman from American Samoa?
    Mr. Faleomavaega. Thank you, Mr. Chairman, and I want to 
welcome Mr. Pula before the Committee and certainly thank him 
for his testimony.
    I just wanted to ask just one question of Mr. Pula in terms 
of the administration's position on the proposed bill. You did 
express some concerns about the provisions of the bill, but 
overall, I just wanted to ask Mr. Pula, will the administration 
support this proposed bill with taking care of some of the 
concerns that you raised?
    Now, I notice the bill does propose that the Interior 
Department should provide the logistical software and I don't 
see any problem with that. Do you see any problem with the 
administration supporting that effort?
    Mr. Pula. In providing--in assisting--
    Mr. Faleomavaega. Yes, software, the computers and--
    Mr. Pula. Not necessarily. We have always had a tradition 
of assisting the territories.
    Mr. Faleomavaega. Yes. You said you expressed concerns with 
the bottom line. Does the administration support the proposed 
bill with whatever other things that we can probably work out 
and the provisions as outlined in the bill?
    Mr. Pula. I would say that the administration at this point 
does not support the bill as written, and we have stated the 
concern. One of the things is the Secretary of the Interior 
would not like to be the one to appoint a CFO. The Secretary or 
the Department would prefer that the Virgin Islands deal with 
that themselves. And basically, with the careful notion and 
idea that we don't know better, the Department does, than the 
people of the Virgin Islands themselves.
    Mr. Faleomavaega. Well, the bill is quite clear. The 
Secretary of the Interior will not appoint the CFO--
    Mr. Pula. If--
    Mr. Faleomavaega. This is the Governor's nomination, 
subject to legislative approval and for a 5-year term. So I 
think the intent of the legislation is that this person is a 
non-political person. All it is is just a certifying officer 
saying, this is how much money we have and want to make sure 
the Governor, the Legislature, and the Government of the Virgin 
Islands know about this and that is it.
    But I think what the bill suggests, if possible, if the 
Department of the Interior could be the facilitator in 
assisting the Government of the Virgin Islands with the CFO's 
working to set up a financial management system, overall just 
to simply provide a more effective mechanism so that the 
certification and knowing exactly what the finances are of the 
government and then proceed accordingly.
    Mr. Pula. Thank you, Congressman. I think the bill does say 
that the Governor should appoint, but in the event that nothing 
happens, then the Secretary of the Interior.
    Mr. Faleomavaega. Right.
    Mr. Pula. Well, you know, if the Committee and the Congress 
decides to have the Secretary do this, then the Secretary will 
follow through.
    Mr. Faleomavaega. But you would say that the administration 
is willing to help the effort? I think this is simply the 
thrust of what Congresswoman Christensen is trying to do, is to 
be of help, not as a hindrance, in resolving some of the 
serious financial problems that the Virgin Islands is going 
through right now.
    Mr. Pula. The administration is always willing to work with 
our territories as well as Congress in looking for ways to 
improve their situations.
    Mr. Faleomavaega. Thank you, Mr. Chairman. Thank you.
    Mr. Renzi. I thank the gentleman.
    The gentlelady from Guam?
    Ms. Bordallo. Thank you, Mr. Chairman. Good morning, Mr. 
Pula.
    Mr. Pula. Good morning, ma'am.
    Ms. Bordallo. It is nice to see you again. In your 
testimony, Mr. Pula, you stated that only under extraordinary 
circumstances would the Department of the Interior endorse--let 
me see here, how did it read--the Department of the Interior 
suggests that only under extraordinary circumstances would the 
Department of the Interior suggest that institutions of self-
government be bypassed to address fiscal concerns. While I am 
not sure that I share the view that this bypasses self-
government, rather, I see it as a needed complement or a 
supplement.
    But I wanted to hear from you, Mr. Pula, on what may rise 
to the level of an extraordinary circumstance. When do 
conditions evolve to the point where you decide to act or where 
you would be in a position to support Mrs. Christensen's bill?
    Mr. Pula. Thank you. I would like to say, Congresswoman, 
that the Department of the Interior is always willing to listen 
and work with our leaders in our territories. So it is not a 
matter of our Department waiting until the situation in the 
Virgin Islands gets to a point that it collapses. We have been 
working, we continue to work, and we will continue to listen 
and work. But with the caveat that we don't want to infringe 
too much of what we want to say, but we listen to what the 
territories' leaders say.
    Now, I do not venture to be an expert in waiting until 
certain things are so bad that we react. And like I said, we 
have always been right there talking to them. I guess if the 
Governor comes to me and says, ``Well, Nick, I throw my hands 
up. We are done. Maybe see what you can do to help.'' Well, 
then I will say, Governor, we will continue to help as we have 
in the past.
    Ms. Bordallo. Then I have a follow-up question. Is it the 
Department's position, then, that a cumulative deficit in 
excess of $250 million and a cumulative debt obligation in 
excess of $1 billion is not extraordinary? Wouldn't this be the 
time?
    Mr. Pula. The Government of the Virgin Islands is working 
on a local way to try to do this. Like I said, we listen to 
what their leaders say. The Governor has not come up to us and 
say, Interior, we can't go any further. We continue to work 
with them to see what kinds of solutions there are to be able 
to assist the territory, and the same things happen. In the 
case of American Samoa as an example, they were fortunate to 
have tobacco loan settlement which helped bring down their debt 
and some of the things that they have done. So we look for 
avenues and ways to help the territories.
    Ms. Bordallo. Thank you very much, but I just want to say 
for the record that I feel this is an extraordinary 
circumstance. Thank you, Mr. Chairman.
    Mr. Renzi. I thank the gentlelady.
    The gentleman from Washington, Mr. Inslee?
    Mr. Inslee. I just want to thank the sponsor of the 
legislation and yield to her if she had some additional 
comments.
    Mrs. Christensen. Thank you. I thank my colleague for 
yielding. I am basically just going to ask one other question 
because I am interested in some of the examples that you cited.
    In the case of American Samoa, they were able to use some 
one-time funding, is that correct?
    Mr. Pula. Yes, that is correct.
    Mrs. Christensen. Has the Department assisted them in any 
structural or systemic changes that would prevent this from 
recurring?
    Mr. Pula. Yes. As a matter of fact, we have an MOU as well 
with American Samoa and we will continue to work with them to 
make sure. They have, in 2003, their budget was in the black 
and we hope that they will continue to do so.
    Mrs. Christensen. Thank you. I am not completely familiar 
with the approach taken by Palau that you cite, but it sounds 
very similar to ours except for the fact that Palau is a Freely 
Associated State and they don't--Congress doesn't have the 
opportunity to create legislation for them. Do you think that 
that was a good approach, an approach where they have an entity 
that certifies their revenue and that prevents them from 
spending beyond that certifiable revenue level?
    Mr. Pula. Yes, Congresswoman. That approach worked for 
Palau because all the Department of the Interior was doing at 
the time was look at the revenues of Palau and look at the 
trends of the 3-year trend of Palau revenues. And basically, 
they certify. And all the decisions in the expenditures and 
what not is totally up to the Palauan people. And so all the 
Department did was to certify that if they go beyond the trend, 
then they would say no.
    Mrs. Christensen. So you are saying that an outside entity 
in the case of Palau was who certified their budget level and 
who determined whether they were spending above their spending 
level? Tell me where you see this being significantly different 
from what we are trying to institute.
    Mr. Pula. The difference with Palau at the time, they were 
a trust territory. They didn't have an Organic Act where right 
now there are delineated--
    Mrs. Christensen. Just in how that entity functions.
    Mr. Pula. What do--
    Mrs. Christensen. As I see it, whatever this outside entity 
is that looks at the revenue, certifies the revenue, and caps 
the spending at the level that they can certify, and all of the 
priority setting is with the local government.
    Mr. Pula. That is right.
    Mrs. Christensen. That is what my CFO would also do, so I 
don't--you support that, but you don't support the CFO?
    Mr. Pula. I don't support the CFO to the extent if it 
conflicts with the Governor.
    Mrs. Christensen. The CFO--
    Mr. Pula. If it doesn't, then--
    Mrs. Christensen.--does not set priorities, they just 
assist, really, the Government of the Virgin Islands by 
certifying revenue that can reasonably be accounted for. It 
prevents us from doing the smoke and mirrors type thing that 
Congresswoman Norton spoke about that many jurisdictions do 
because they have to have a balanced budget. We, by Virgin 
Islands law, must have a balanced budget.
    Mr. Pula. Right. Now, just to clarify your question, 
Congresswoman, if the CFO that is proposed just certifies the 
amounts, that is fine. In other words, you are saying that the 
CFO does not have any bearing on making any decision at all?
    Mrs. Christensen. About going beyond the spending limits, 
going beyond the spending limits, spending outside of the 
confines of the law, yes. But in terms of setting the 
priorities within those budget limits, that is left to the 
Governor and the Legislature.
    Mr. Pula. Perhaps then I was not clear in terms of--because 
it was not listed in the bill, the responsibilities, particular 
responsibilities of--
    Mrs. Christensen. Right. The base bill does not. We intend 
to submit an amendment in the nature of a substitute and we 
have circulated that at home, with some of the changes we 
intend to make.
    Mr. Faleomavaega. To follow up Congresswoman Christensen's 
question, could you explain what the Interior Department is 
doing right now in setting up this office in Honolulu? There is 
some kind of a monitoring system of financial situation dealing 
with FSM and also Palau and also the Marshalls, because I think 
we are in a very similar kind of a situation and I was 
wondering, because this is a concern that I raised with the 
Interior Department. Aren't you overreaching in telling these 
Federated States of Micronesia in how to run their financial 
system? Now, maybe I am wrong, but I would appreciate if you 
could clarify that.
    Exactly what is the Interior Department's intention, this 
office that we are setting up in Honolulu? As an oversight? Is 
it similar to the CFO type of operation that we are discussing 
here this morning?
    Mr. Pula. Sure. Congressman, the office in Honolulu is set 
up through the legislation, the compact legislation for FSM and 
the Marshalls, which also include Palau. Basically, it is to 
monitor, based on the fiscal procedures agreement that was in 
the bill agreed upon by the countries as well as the Federal 
Government. So basically, their monitoring and compliance and 
accountability is all laid out in the fiscal procedures 
agreement included in the legislation.
    Mr. Faleomavaega. But this was proposed by the 
administration. It was not something initiated by FSM or the 
Marshalls or Palau, am I correct on that?
    Mr. Pula. And the reason--
    Mr. Renzi. Last question. Go ahead and answer this and we 
will finish up.
    Mr. Pula. OK. The reasoning for this, Congressman, was in 
the first compact, there was a lot of concern about a lot of 
millions of dollars going to these countries without any 
accountability and the Interior Department didn't have the 
teeth, so to speak, to monitor because of sovereignty. In the 
second agreement that was passed, these accountability 
procedures were put in place and they were agreed upon by these 
countries.
    Mr. Renzi. Thank you, Mr. Pula, and I appreciate your 
testimony and your insights.
    Mr. Pula. Thank you.
    Mr. Renzi. We will go ahead and move to the third panel, 
which consists of representatives of the Government of the 
Virgin Islands. I would ask The Honorable Charles Turnbull and 
Senator David Jones to please approach and stand, please. Good 
morning. Stay standing, please, and raise your right hands.
    Please repeat after me, do you solemnly swear or affirm 
under the penalty of perjury that the statements made and the 
responses given will be the whole truth and nothing but the 
truth, so help you, God?
    Governor Turnbull. I do.
    Mr. Jones. I do.
    Mr. Renzi. Thank you. Let the record show both witnesses 
responded in the affirmative.
    Statements will be limited to 5 minutes. Any other 
statements that you may have will be included in the record for 
submittal. I would go ahead and turn now to Governor Turnbull.

       STATEMENT OF HON. CHARLES W. TURNBULL, GOVERNOR, 
                  UNITED STATES VIRGIN ISLANDS

    Governor Turnbull. Mr. Chairman and members of the 
Committee on Resources of the U.S. House of Representatives, I 
would like to thank you for the opportunity to appear before 
you and to testify on the proposal for establishment of an 
unelected Chief Financial Officer for the Government of the 
United States Virgin Islands. At the outset, I wish to 
acknowledge the role played by this distinguished Committee and 
its immediate predecessor, the Committee on Interior and 
Insular Affairs, in promoting and furthering local self-
government in the Virgin Islands.
    The evolution of self-government in the Virgin Islands has 
not come without struggle or sacrifice. With the delegation of 
increasing authority by the Congress pursuant to the 
Territorial Clause of the United States Constitution, the 
Government of the Virgin Islands has evolved over the years 
into an institution of powers and responsibilities comparable 
to those of any State in the union. As a result of this 
evolution and the far-sighted policies of the Federal 
Government and particularly the progressive policies of the 
Congress, citizens in the Virgin Islands enjoy a level of 
liberty and prosperity that is unrivaled anywhere in the 
Caribbean or the rest of the hemisphere.
    Mr. Chairman, this bill which is the subject of this 
hearing unfortunately is not worthy of the great tradition of 
this Committee in promoting the highest ideals of 
representative self-government in the offshore territories of 
the United States. In an unprecedented effort to reverse 
course, H.R. 3589 would severely impair the authority of the 
elected territorial officials and place excessive powers in the 
hands of a single unelected person who would remain 
unaccountable to the people and their elected officials in the 
Virgin Islands for the full 5-year tenure of his or her office.
    Mr. Chairman, to put it bluntly, the essence of H.R. 3589, 
indeed, the bill's fundamental purpose, is to usurp the 
authority of the Director of the Virgin Islands Office of 
Management and Budget under the local law. This is how a 
drastic change would be implemented under the terms of the 
bill. The CFO would be given the responsibilities of the 
Director of the Virgin Islands Office of Management and Budget. 
Among other powers, he or she would assume the powers of 
program execution, including the power to withhold appropriated 
funds and to revise departmental priorities.
    If the CFO would impose his own priorities, the Governor 
would be left with two unworkable choices, either to defer to 
the CFO's judgment or to attempt to create an impasse with the 
complicity of the Legislature. There would be no practical way 
to remove the offending CFO under the terms of H.R. 3589.
    If, on the other hand, the CFO were to defer to the 
Governor on all the policy and programmatic decisions, there 
would be no reason for having created this office in the first 
place. Under such circumstances, the bill's only practical 
effect would be to deny the Governor's right to name his own 
person to the office, subject to the advice and consent of the 
Legislature. The undemocratic process for selecting the CFO 
under the bill undermines the prerogatives and authority of the 
Governor. More compelling, the exercise of unchecked powers by 
the unelected CFO accountable to no one would threaten the very 
existence of the republican form of government bestowed upon us 
by the revised Organic Act.
    After two difficult years following 9/11 and the national 
recession, we have resumed our march toward fiscal balance and 
economic stability. Revenues are growing. Spending is coming 
under control. And the total debt service is manageable.
    Two-and-a-half weeks ago, I submitted to the Legislature a 
balanced budget for Fiscal Year 2005 calling for spending of 
$565 million, a reduction of some $25 million, or approximately 
5 percent below spending levels of Fiscal Year 2004. This 
balanced budget has been accomplished by painstaking review and 
careful consideration of difficult alternatives by my financial 
team. The balanced budget now pending before the Legislature 
restores the Virgin Islands to the path of fiscal 
responsibility and stability, as we started when I first 
assumed office in 1999. My administration has completed eight 
audits, audits for Fiscal Years 1995 through 2002 and we are 
now in full compliance with this Act.
    As a result of all progress in achieving compliance with 
the Single Audit Act and improving our financial 
accountability, Wall Street rating agencies have issued 
investment grade ratings when the Government of the Virgin 
Islands in recent years sought access to capital markets.
    Notwithstanding the difficulties that we have had, we are 
committed to making tough decisions to bring our budget into 
balance. We are committed to making the tough decisions to 
increase the efficiency of our government and to improve the 
delivery of essential public services to our people. But 
because progress requires privatization in the face of 
increasing competition for scarce resources, our Founding 
Fathers, including Alexander Hamilton who grew up on St. Croix, 
had faith that these tough decisions would best be made through 
the political process by the elected leaders of the people whom 
they serve.
    This bill, however, goes in the opposite direction. It 
would remove the authority to make tough budgetary decisions 
from the Governor and the Legislature and the elected 
representatives of the people and place it in the hands of an 
unelected official accountable to no one.
    We are not facing fiscal insolvency or collapse. There is 
no fiscal reason to support the abrogation of the Governor's 
authority under this bill.
    In sum, as I stated in my 2004 State of the Territory 
Address, it is the duty of the elected officials of the 
Government of the Virgin Islands to exercise appropriate fiscal 
discipline. We can, we must, and we shall do what has to be 
done ourselves. Accordingly, in the best and honored traditions 
of this distinguished Committee, I strongly urge you to reject 
this bill and the undemocratic premises on which it is based.
    Thank you, Mr. Chairman.
    Mr. Renzi. Thank you, Governor.
    [The prepared statement of Governor Turnbull follows:]

            Statement of The Honorable Charles W. Turnbull, 
              Governor of the United States Virgin Islands

    Mr. Chairman and Members of the Committee on Resources of the U.S. 
House of Representatives, I would like to thank you for the opportunity 
to appear before you and to testify on the proposal for the 
establishment of an unelected Chief Financial Officer for the 
Government of the United States Virgin Islands.
Introduction: The Long Path Toward Democratic Governance
    At the outset, I wish to acknowledge the role played by this 
distinguished Committee and its immediate predecessor, the Committee on 
Interior and Insular Affairs, in promoting and furthering local self-
government in the Virgin Islands over the course of our proud history 
under the American flag since the transfer from Danish sovereignty in 
1917. We note the successful effort by this Committee to establish the 
first Territorial government, independent of Naval Department rule, 
that came with the enactment of the Virgin Islands Organic Act of 1936. 
We recognize the work of your forebears in developing the Revised 
Organic Act of 1954, which reorganized and modernized the Territorial 
government, created a unicameral legislature to replace the colonial-
era municipal councils, and provided for its Constitutional status by 
abrogating all laws of the United States then in effect that were 
inconsistent with the Act or its subsequent amendment. The Act 
intended, in the words of its Congressional authors, to confer ``a 
greater degree of autonomy, economic as well as political, to the 
people of the Virgin Islands.'' Effectively, the Revised Organic Act of 
1954, as it has been amended from time to time, serves as our local 
constitution, specifying the powers of the executive, legislative and 
judicial branches in a republican form of government.
    Indeed, the Revised Organic Act has been amended by Congress on 
several occasions since 1954, each time with the objective of expanding 
further the autonomy of the Virgin Islands and its powers of local 
self-government. In 1958, Congress expanded the legislative charter of 
the Virgin Islands government expressly to include ``all rightful 
subjects of legislation not inconsistent with ... the laws of the 
United States made applicable to the Virgin Islands.'' As interpreted 
by the federal courts, the 1958 amendment ``broaden[ed] the legislative 
power of the Virgin Islands to cover the ``ordinary area of sovereign 
legislative power'' limited only by the provisions of the Revised 
Organic Act and the laws of the United States made applicable to the 
Virgin Islands.'' Virgo Corp. v. Paiewonsky, 384 F.2d 569, 579 (3d Cir. 
1967).
    In 1968, this Committee reported, and Congress enacted, the 
Elective Governor Act of 1968, authorizing for the first time the 
popular election of the governor of the Virgin Islands and perfecting 
the authority of the executive branch within the established framework 
of our democratic system of government. At the same time, the 1968 
statute eliminated the authority of the President of the United States 
to veto local legislation, thus adding to the representative power of 
the legislative branch of our government. Similarly, in 1984, Congress 
set in motion the restructuring of the Virgin Islands judicial system 
by limiting the jurisdiction of the Federal District Court in the 
Virgin Islands to ``general original jurisdiction in all causes in the 
Virgin Islands the jurisdiction over which is not then vested by local 
law in the local courts of the Virgin Islands.'' 48 U.S.C. 
Sec. 1612(b). Completing the empowerment of the third branch of the 
Virgin Islands Government, the 1984 statute conferred upon the 
Legislature of the Virgin Islands, ``the power to vest jurisdiction 
over local actions exclusively in the local courts.'' Callwood v. Enos, 
230 F.3d 627, 631 (3 Cir. 2000).
    The evolution of self-government in the Virgin Islands has not come 
without struggle or sacrifice. With the delegation of increasing 
authority by Congress pursuant to the Territorial Clause of the United 
States Constitution, the Government of the Virgin Islands has evolved 
over the years into an institution of powers and responsibilities 
comparable to those of any State in the Union. As a result of this 
evolution and the far-sighted policies of the federal government, and 
particularly the progressive policies of the Congress, citizens in the 
United States Virgin Islands enjoy a level of liberty and prosperity 
that is unrivaled anywhere in the Caribbean or the rest of this 
hemisphere. There are many heroes to be recognized who fought valiantly 
on our behalf in this struggle and who helped create the conditions of 
liberty and prosperity, both in the Territory as well as here in 
Washington, D.C. Indeed, many of them served on this distinguished 
Committee, and for that I express the gratitude of all Virgin 
Islanders.
    Mr. Chairman, the bill, which is the subject of this hearing, 
unfortunately is not worthy of the great tradition of this Committee in 
promoting the highest ideals of representative self-government in the 
off-shore territories of the United States.
An Overview of H.R. 3589
    Mr. Chairman and members of this distinguished Committee, the U.S. 
Constitution, in Article IV, Section 4, requires the United States to 
``guarantee to every State in the Union a Republican Form of 
Government. ...'' Under the leadership of this Committee and its 
predecessors, Congress, as earlier discussed, has sought to guarantee 
to the U.S. Virgin Islands a republican form of government, following 
the model established for the several States. Our achievements on the 
path to self-governance have been accomplished through the wise 
exercise of Congress's plenary powers over unincorporated Territories 
under the Territorial Clause, as set forth in Article IV, Section 3, 
paragraph 2 of the Constitution of the United States, and through 
legislation implemented at the local level pursuant to such delegated 
powers.
    In an ill-considered effort--unprecedented in Virgin Islands 
history--to reverse course, H.R. 3589, the bill before you today, would 
severely impair the authority of elected Territorial officials, and 
place excessive power in the hands of a single unelected person who 
would remain unaccountable to the people and their elected officials in 
the Virgin Islands for the full five-year tenure of his or her term of 
office. If a republican form of government places limited powers in the 
hands of elected officials acting on behalf of the electorate, the form 
of government prescribed by the terms of H.R. 3589 would create 
conditions leading to the opposite result. Under the bill, a single 
newly established official, the so-called Chief Financial Officer, or 
CFO, would seize operational control over the executive branch of the 
Government of the Virgin Islands. Unelected and unaccountable to 
anyone, this official could be removed from office only for cause--a 
term usually associated with malfeasance in office.
    Under the plain terms of H.R. 3589, the CFO of the Virgin Islands 
would be accorded extraordinary power for a five-year period without 
the checks and balances traditionally provided in a republican form of 
government. Given this fact, this Committee, as well as the electorate 
of the Virgin Islands, will be most interested to learn about the 
precise nature of the extraordinary powers that would be removed from 
representative government and transferred to the independent CFO. With 
your permission, I will now discuss those powers, and demonstrate how 
abuse of office could easily occur, without any recourse or remedy 
available to the Territory's elected officials, or to the people.
The CFO's Unprecedented Powers
    Under the terms of H.R. 3589, the CFO would assume the authority 
and duties of the Director of the Virgin Islands Office of Management 
and Budget (VIOMB), a person who, under current law, is nominated by 
the Governor and approved by the Legislature. The Director of VIOMB has 
substantial power, not only to develop Territorial policies through the 
budget process, but to control spending and to modify legislative 
appropriations through the allotment process. In this respect, the 
Director of VIOMB has power that Congress has denied the President 
under the Congressional Budget Act. The CFO would also prepare certain 
financial reports, certify certain financial performance standards, and 
monitor certain financial operations. These latter functions are either 
currently being competently performed, or could be easily implemented, 
preferably with technical assistance from the Office of Insular Affairs 
of the U.S. Department of the Interior (OIA), whose statutory mandate 
already includes assistance for such functions--assistance which we 
have previously requested from OIA. Indeed, H.R. 3589 would require the 
Secretary of the Interior to ``provide a financial management system, 
including appropriate computer hardware and software, to the Government 
of the Virgin Islands.'' On this point, we can agree: our financial 
management technology needs to be updated; but it does not follow that 
the unrequested imposition of an unaccountable CFO should be a 
precondition to such assistance.
    Mr. Chairman, to put it bluntly, the essence of H.R. 3589--indeed, 
the bill's fundamental purpose--is to usurp the authority of the 
Director of the VIOMB under local law, and to place such authority, 
under Federal law, in the hands of an official who is neither 
accountable to the Governor, the Legislature, nor to the people of the 
Virgin Islands. This is how such drastic changes would be implemented 
under the terms of the bill. The CFO would be given the 
responsibilities of the Director of the VIOMB, as set forth in Section 
22 of Title 2, Virgin Islands Code. Among other powers, he or she would 
assume the powers of program execution, as set forth in section 26(c) 
of Title 2, Virgin Islands Code, including the power to withhold 
appropriated funds and to revise departmental priorities. In short, the 
CFO would assume overall responsibility for the functions of the Virgin 
Islands Office of Management and Budget, as described in Section 4 of 
Title 3, Virgin Islands Code. Once having assumed such powers, the CFO 
would exercise them for five full years, without oversight and without 
fear of removal from office, except for cause.
    Under the Virgin Islands Code, the Director of the Office of 
Management and Budget has responsibilities similar to, but in some 
respects greater than, the Director of the U.S. Office of Management 
and Budget. The Director prepares the executive budget; the Director 
resolves competing demands among departmental and agency heads for 
limited resources; the Director provides guidance to departments and 
agencies on the allocation and management of their financial resources, 
their physical resources, and their human resources.
    Under our law, the Director of VIOMB has the authority to direct 
program managers to revise their operational plans in whole or in part. 
The Director may modify or withhold planned expenditures of 
appropriated funds at any time during the appropriation period if he or 
she finds that such expenditures are greater than those necessary to 
execute the programs as authorized by law, or if he or she finds that 
receipts and surpluses will be insufficient to meet authorized 
expenditure levels. The Director, under current law, reports quarterly 
to the Governor and the Legislature on the operations of each 
department and agency, relating actual accomplishments to those 
planned, and modifying, if necessary, the operations plan of any 
department or agency for the balance of the fiscal year. In short, the 
Director of the Office of Management and Budget directs expenditures to 
ensure that essential functions are preserved, and that program 
priorities are maintained and missions are accomplished; but he also 
exercises the powers of apportionment and allotment of available funds 
similar to the impoundment authority once, but no longer, wielded by 
the President of the United States.
    There is one major distinction, however, between the powers of the 
Director of the VIOMB under current law, and the functions of the CFO 
under the terms of H.R. 3589, and that distinction makes all the 
difference in the world. Under current law, the Director is accountable 
to the Governor, and through him, to the people of the Virgin Islands. 
Under H.R. 3589, however, the CFO is not accountable to either the 
Governor or to the people. Specifically, the Director, in the exercise 
of all functions, must ensure that his decisions are ``consistent with 
the policy decisions of the Governor. ...'' See, e.g., Section 26(c)(1) 
of Title 2, Virgin Islands Code. In carrying out his duties, the 
Director serves at the pleasure of the Governor. If the Director fails 
to carry out the policy directives of the elected Governor, he or she 
can be removed from office. In contrast, if the proposed CFO were to 
disregard the Governor's policy directives, there would be no practical 
remedy. Neither the elected Governor nor the electorate would have an 
effective way to restore power to the people.
    If the CFO were to impose his or her own priorities, the Governor 
would be left with two unworkable choices: either to defer to the CFO's 
judgment, or to attempt to create an impasse with the complicity of the 
Legislature. There would be no practical way to remove the offending 
CFO; the terms of H.R. 3589 would not permit it. If on the other hand, 
the CFO were to defer to the Governor on all policy and programmatic 
decisions, there would be no reason for having created the office in 
the first place. Under such circumstances, the bill's only practical 
effect would be to deny the Governor's right to name his own person to 
the office, subject to the advice and consent of the Legislature.
The CFO Selection Process
    Under the terms of H.R. 3589, the three candidates for CFO would be 
selected by a commission under the chairmanship of the Secretary of the 
Interior, or her designee, presumably The Honorable David Cohen, Deputy 
Assistant Secretary of the Interior for Insular Affairs. If the 
Governor refused to nominate one of the anointed three, the Secretary 
of the Interior would step in to name an Acting CFO.
    Mr. Chairman, one can hardly imagine a more undemocratic process 
for selecting a local official to serve in an essential governmental 
office. The Governor, in the first place, is denied any real discretion 
in nominating one of his most important appointive officials. Once 
forced to choose from among three candidates produced under a process 
organized by a cabinet-level Federal officer, the Governor would be 
forced either to accommodate the dictates of the CFO, or to create an 
impasse in governance in concert with the legislative branch.
    The selection process for the CFO under the bill undermines the 
prerogatives and authority of the Governor. More compellingly, the 
exercise of unchecked powers by an unelected CFO, accountable to no 
one, could threaten the very existence of the republican form of 
government bestowed upon us by the Revised Organic Act, and which 
Congress and the people of the Virgin Islands have steadfastly sought 
to perfect over the last half century. Together, these provisions of 
H.R. 3589 are a prescription for a dysfunctional government in the 
Virgin Islands, a most unwelcome outcome for the members of this 
distinguished Committee, for the Congress as a whole, and for the 
United States citizens in the United States Virgin Islands.
Fiscal Progress of the Government of the Virgin Islands
    Quite apart from the Constitutional infirmities of this bill, it is 
simply the wrong remedy, for the wrong ailment, at the wrong time. In 
point of fact, notwithstanding the economic setbacks occasioned by 9/11 
and the ensuing national recession, the Government of the Virgin 
Islands has made enormous progress in stabilizing its fiscal condition 
over the course of the last six years. After two difficult years, we 
have resumed our march towards fiscal balance and economic stability. 
Revenues are growing, spending is coming under control, total debt 
service is manageable. We are not facing fiscal insolvency or collapse. 
In short, there is no fiscal reason to support the abrogation of the 
Governor's authority under this bill.
    Two-and-a-half weeks ago, I transmitted to the Legislature a 
balanced budget for Fiscal Year 2005, calling for spending of $565 
million, a reduction of some $25 million, or approximately 5 percent 
below spending levels in Fiscal Year 2004. This balanced budget has 
been accomplished after painstaking review and careful consideration of 
difficult alternatives by my financial team--including the Director of 
the Office of Management and Budget--through a combination of spending 
reductions and revenue enhancements. While we were forced, like most of 
the States of the Union, to balance last year's budget with short-term 
borrowing and non-recurring revenues, we were able to do this on our 
own, without instruction by others and without massive layoffs or 
debilitating reductions in essential public services.
    The balanced budget now pending before the Legislature restores the 
Virgin Islands to the path of fiscal responsibility and stability we 
started on when I first assumed office in January 1999. Indeed, at that 
time, the Virgin Islands was still suffering from the effects of two of 
the most destructive hurricanes to hit our shores in the last century, 
disasters which left in their wake billions of dollars of property 
losses, decimation of much of the tourism infrastructure on St. Croix, 
and erosion of our tax base. We survived the worst of these disasters 
through the hard work and resourcefulness of our people, but also 
through the generosity of the Federal government, including the Federal 
Emergency Management Agency (FEMA). While total Federal disaster 
assistance totaled several hundreds of millions of dollars, much of it 
was also in the form of federal loans. Even today, absent debt 
forgiveness under the terms of the Stafford Act or other law, we will 
be obligated to repay FEMA over $180 million for Federal emergency 
disaster assistance that kept the government operating in the immediate 
aftermath of the hurricane's path of destruction.
    For these and other reasons, the economy in the Virgin Islands 
never fully recovered from the disasters of the 1990's. As a 
consequence, when I assumed office in 1999, revenues were falling, 
spending was climbing, tax refunds and vendor payments were unpaid and 
negotiated salary increases for hardworking but underpaid government 
workers were ignored. Moreover, the exact state of the finances was 
unknown, because the Government had no current audited financial 
statements for the central Government. Indeed, the Government had at 
that time completed only one Single Audit of the comprehensive 
functions of the Virgin Islands Government, as required by the federal 
Single Audit Act of 1984, as amended, over the previous 14-year period.
    One must recognize that the responsibilities of the Territorial 
government are not just to provide a balanced budget, but also to 
deliver essential services to the people. Our public schools required 
badly needed repairs and hurricane-destroyed schools needed to be 
completely rebuilt. Our solid waste landfills and antiquated wastewater 
treatment facilities violated federal standards. Our road fund was 
depleted, leaving potholes unrepaired and our roads unsafe to drive. 
And our Economic Development Program was largely moribund, starving the 
Territory of urgently needed private investment.
    Faced with these cold realities, we went to work. Under my 
administration, I imposed a hiring freeze on government agencies. I 
instructed my Office of Management and Budget to cut spending in my 
first year in office and to prepare a revised budget for my second year 
slashing departmental spending by 10 percent. I directed the 
preparation of a five-year economic and fiscal recovery plan for long-
term financial stability. And I developed a partnership with the 
Secretary of the Interior to assist in addressing our problems with a 
commitment to return the budget of the Virgin Islands Government to 
structural balance by the end of Fiscal Year 2003.
    While it was not always easy and not always smooth--it never is in 
a democratic system--over the first three years of my first term in 
office, we did restore fiscal discipline; we did earn the respect of 
the federal government; we did generate record new revenues; we did pay 
long delinquent tax refunds and overdue vendor bills; we did reduce our 
debt; we did pay our government workers their long denied salary 
increases; and we did lay the foundation for a broad-based economic and 
financial recovery. We did this in a compressed period of time, which 
many thought was impossible, through the hard work of my fiscal team. 
Indeed, we exceeded our goals and achieved our first budget surplus by 
the end of Fiscal Year 2001. And we made a concerted effort to produce 
timely audited financial statements in compliance with the Single Audit 
Act for the first time in our history. The comprehensive financial 
audits required under this Federal law are among the most valuable 
tools available for effective financial management and provide the most 
accurate picture of a government's financial condition, as well as the 
roadmap, where appropriate, for fiscal reform. Mr. Chairman, I am proud 
to state that, while only one such audit had been completed prior to my 
tenure in office, my administration has completed eight such audits for 
the Fiscal Years 1995-2002 and is now in full compliance with the Act. 
As a result of our progress in achieving compliance with the Single 
Audit Act and improving our financial accountability, Wall Street 
rating agencies have issued investments grade ratings when the 
Government has in recent years sought to access the capital markets.
    No local government official, in the Virgin Islands or anywhere 
else, however, could have predicted 9/11 and the significant damage it 
would cause to our national and Territorial economies. Indeed, since 9/
11, virtually every State in the Union and every Territory of the 
United States has fallen into recession and into deficit. The Virgin 
Islands was no different. And while many of the same economic forces 
are at play in the Virgin Islands as in the United States, we also face 
additional challenges. For example, the policy prescription chosen by 
the President and the Congress to cure our economic ills--significant 
tax reduction--has had the unintended but automatic consequence of 
reducing Territorial revenues under our Congressionally-mandated mirror 
income tax system. Indeed, our Bureau of Internal Revenue has estimated 
that the Virgin Islands will lose more than $57 million in the current 
tax year alone as a result of Congress' enactment of income tax rate 
reductions and its expansion of refundable tax credits. In addition, 
the Territory is losing more than $7 million in corporate tax revenues 
each year as a result of the recent World Trade Organization (WTO) 
ruling against the U.S. foreign sales corporation law. The Virgin 
Islands Government is also under federal consent decree requiring the 
Government to significantly increase expenditures for the improvement 
of our wastewater and solid waste systems in the Territory at the same 
time it must commit scarce local resources to meet other unfunded 
federal mandates. And healthcare costs continue to increase in the 
Territory as on the mainland, with the Government forced to pick up a 
disproportionate share of the costs for the poor and the uninsured as a 
result of the continuing discriminatory cap on Medicaid reimbursement.
    Notwithstanding these difficulties, as well as issues of purely 
local concern, we are committed to making the tough decisions to bring 
our budget into balance. We are committed to making the tough decisions 
to increase the efficiency of our government and to improve the 
delivery of essential public services to our people. But because 
progress requires prioritization in the face of increasing competition 
for scare resources, our Founding Fathers--including Alexander Hamilton 
who grew up on St. Croix--had faith that these tough decisions could 
best be made through the political process by the elected leaders of 
the people whom they serve.
    This bill, however, goes in the opposite direction. It would remove 
the authority to make tough budgetary decisions from the Governor and 
the Legislature--the elected representatives of the people--and place 
it in the hands of an unelected official accountable to no one.
    In sum, as I stated in my 2004 State of the Territory Address, it 
is the duty of the elected officials of the Government of the Virgin 
Islands to exercise the appropriate fiscal discipline. We can, we must, 
and we shall do what has to be done ourselves. Accordingly, in the best 
and honored traditions of this distinguished Committee, I strongly urge 
you to reject this bill and the undemocratic premises on which it is 
based.
    Thank you, Mr. Chairman.
                                 ______
                                 
    Mr. Renzi. The Chair now recognizes Senator David Jones, 
the President of the U.S. Virgin Islands Legislature. Mr. 
Jones?

   STATEMENT OF HON. DAVID A. JONES, SENATE PRESIDENT, 25TH 
     LEGISLATURE OF THE VIRGIN ISLANDS, U.S. VIRGIN ISLANDS

    Mr. Jones. Good morning, Mr. Chairman, Mrs. Christensen, 
and other members of the House Resources Committee.
    Mr. Chairman, I reviewed the amendment in the nature of a 
substitute to H.R. 3589 and for the reasons I am about to 
express, as an officer of the Government of the Virgin Islands 
and a representative of the people of the Virgin Islands, I am 
diametrically opposed to the passage of H.R. 3589.
    H.R. 3589, as proposed, infringes on the powers that 
Congress has delegated to the Government of the Virgin Islands 
and denigrates all progress in self-determination while at the 
same time imposing unnecessary, inefficacious, and cumbersome 
additional layer of bureaucracy. The legislation proposed by 
our Delegate to Congress, Mrs. Christensen, does not adequately 
address the problems plaguing the Virgin Islands. Rather, the 
proposed legislation fatally obstructs our problem solving 
tactics and will have the effect of delaying the resolution of 
the fiscal progress and halting advancements already in 
progress.
    H.R. 3589 is primarily concerned with the exercise of 
control by the Secretary of the Interior over the selection of 
an individual who would perform the same duties and have the 
same powers as those currently held by the Director of the 
Office of Management and Budget. Under existing law, the 
Director of the Budget has much broader powers and 
responsibilities than those enumerated for the proposed Chief 
Financial Officer set forth in Section 1(b) of H.R. 3589.
    The only discernable impacts of the proposed legislation 
are the change in position title and three-tiered instead of a 
two-tiered appointment process. The powers enumerated in 
Section 2 of H.R. 3589 are but a modicum of the powers that 
have been statutorily conferred upon the Director of the Office 
of Management and Budget, which he already has.
    Under existing laws of the Virgin Islands, the Director of 
the Office of Management and Budget has the power and duty to, 
one, assist the Governor in the preparation and explanation of 
the proposed comprehensive program and financial plan, 
including the coordination and analysis of department and 
agency program goals, objectives, program plans, and program 
budget requests.
    Two, develop information, communication, and data 
processing systems needed for effective policy decisionmaking.
    Three, assist departments and agencies in their statement 
of goals and objectives, preparation of program plans, program 
budget requests, and reporting of program performance. Their 
assistance may include technical assistance, organizational 
materials, standards, and guidelines for formulation, and 
population and other required data.
    Four, administer his responsibilities under the program 
execution provisions of the Executive Budget Act so the policy 
decisions and budget determinations of the Governor and the 
Legislature are implemented to the fullest extent possible 
within the concepts of proper management.
    Five, provide the Legislature with any budget information 
it may request.
    Six, review options--operations plans, excuse me, to 
determine that they are consistent with the policy decisions of 
the Governor and appropriations made by the Legislature, that 
they reflect the proper planning and efficient management 
methods, that appropriations have been made for the planned 
purpose and will not be exhausted before the end of the fiscal 
year.
    Seven, modify or withhold the planned expenditures at any 
time during the appropriation period if the Director of the 
Budget finds that such expenditures are greater than those 
necessary to execute the programs at the level authorized by 
the Governor and the Legislature, or that the receipts and 
surpluses will be inefficient--I am sorry, insufficient to meet 
the authorized expenditure levels.
    Eight, report quarterly to the Governor and the Legislature 
on the operations of each department and agency, relating 
actual accomplishments to those planned, and modifying, if 
necessary, the operations plan of any department or agency for 
the balance of the fiscal year.
    Moreover, Title 3, Section 4, which establishes the Office 
of Management and Budget, establishes in Subsections (c) 
through (k) a comprehensive regime for the accomplishment of 
the mutual goals of the Government of the Virgin Islands and a 
Delegate to Congress to develop and implement fiscal plans and 
measures calculated to establish fiscal integrity and provide 
technical tools for eliminating budget deficits and 
establishing fiscal stability and contains the following 
provisions.
    Under these provisions, with a view of securing greater 
economy and efficiency in the conduct of public service, the 
Office of Management and Budget is mandated to make a detailed 
study of the departments, agencies, and commission of the 
Government of the Virgin Islands for the purposes of enabling 
the Governor to determine what changes should be made in, one, 
the existing organization, activities, and methods of business 
of said departments, agencies, and commissions; two, the 
appropriations therefore; three, the assignment of particular 
activities to particular services; or four, the regrouping of 
services.
    The results of the study required under Section 4 must be 
embodied in a report to the Governor, who is in turn mandated 
to transmit the report to the Legislature with his 
recommendations on the matters covered. Moreover, under Section 
4, the Director of the Office of Management and Budget is 
mandated to evaluate and develop improved plans for the 
organization, coordination, and management of the executive 
branch of the government with a view to efficient and 
economical service.
    The Director of the Office of Management and Budget is also 
mandated to develop programs and to issue regulations and 
orders for the improved gathering, compiling, analyzing, 
publishing, and disseminating of statistical information for 
any purpose by the various agencies in the executive branch of 
the Government of the Virgin Islands, and the agencies must 
adhere to regulations and orders.
    Further, Section 4 directs the head of each executive 
department, agency, and commission, in consultation with the 
Director of the Office of Management and Budget, to take 
whatever actions that may be necessary to achieve consistency 
in accounting, budget classifications, organizational 
structure, and support of the budget justifications by 
information such as performance and program costs by 
organizational units.
    The Office of Management and Budget is mandated at the 
request of the Legislature's Committee on Finance to furnish 
the committee such aid and information as may be requested.
    The 25th Legislature, Mr. Chairman, of the Virgin Islands 
has pending before a standing Committee on Government 
Operations Bill No. 25-0150, entitled to amend Title 33 of the 
Virgin Islands Code to establish the Virgin Islands Review 
Board. Our pending legislation establishes a body corporate and 
politic to be known as the Virgin Islands Financial Review 
Board. Unlike the Delegate's proposal for the appointment of a 
Chief Financial Officer, the Virgin Islands Review Board will 
be an autonomous instrumentality.
    This bill is intended to provide the Government of the 
Virgin Islands with the technical tools to eliminate budget 
deficits, to establish sound budgetary and managerial 
practices, and impose stringent control on appropriations and 
spending. The Virgin Islands Review Board will be a tenacious 
watchdog over government spending. The Virgin Islands Financial 
Review Board will constitute the audit, evaluation, and 
investigative independent instrumentality of the government.
    Mr. Renzi. Sir--
    Mr. Jones. Mr. Chairman, the Federal Government, as I 
conclude, into the local affairs of the government and people 
of the Virgin Islands through H.R. 3589 will create more 
problems than it would solve and supplant a superior and more 
effective fiscal regulatory scheme with one that would have a 
retrogressive impact on the Virgin Islands' progress toward 
financial stability and economic independence.
    In conclusion, I am convinced that by working together, we 
can begin to turn the Virgin Islands economy around. It is 
understood that political leadership demands long-term vision, 
strategic planning, constructive dialog, and the courage to 
address present fiscal issues. H.R. 3589 is a step in the wrong 
direction.
    I thank you, Mr. Chairman.
    Mr. Renzi. Thank you, Mr. Senator.
    [The prepared statement of Mr. Jones follows:]

     Statement of The Honorable David S. Jones, Senate President, 
      25th Legislature of the Virgin Islands, U.S. Virgin Islands

INTRODUCTION:
    Good morning Mr. Chairman and members of the House Resources 
Committee. I am David S. Jones; President of the 25th Legislature of 
the United States Virgin Islands. I am currently serving my 5th term as 
a Senator in the U.S.V.I. It is my pleasure to appear before you today 
to give my views on H.R. 3589, legislation to establish a Chief 
Financial Officer for the United States Virgin Islands.
    Today marks the first opportunity to present testimony in Congress, 
in my capacity as President of the 25th Legislature of the U.S. Virgin 
Islands. I consider it an honor to be here as a representative of the 
Legislative Branch and of our constituents, the people of the U.S. 
Virgin Islands.
    On behalf of our constituents, I wish to take this opportunity to 
thank you for your kind attention to the matters of our territory. We 
anticipate that your consideration of the 25th Legislature's Resolution 
to condemn the action of Delegate to Congress for introducing H.R. 3589 
without first seeking their approval, or sense of the people of the 
Virgin Islands will result positively for all of us.
    Mr. Chairman, this testimony is not intended to grapple with all 
aspects of the challenges in the Virgin Islands, but to point to a 
number of concrete steps we have taken to improve opportunity, maximize 
the great potential of our growing population and accelerate our 
journey to building a United States Virgin Islands of economic 
prosperity.
TESTIMONY:
    I have reviewed the Amendment in the Nature of a Substitution to 
H.R. 3589 and for the reasons I am about to express, as an officer of 
the Government of the Virgin Islands and a representative of the people 
of the Virgin Islands, I am diametrically opposed to the passage of 
H.R. 3589.
    H.R. 3589, as proposed infringes on the powers that Congress has 
delegated to the Government of the Virgin Islands and denigrates all 
our progress in self determination, while at the same time imposing an 
unnecessary, inefficacious and cumbersome additional layer of 
bureaucracy. The legislation proposed by our Delegate to Congress, Mrs. 
Christensen, does not adequately address the problems plaguing the 
Virgin Islands. Rather, the proposed legislation fatally obstructs our 
problem-solving tactics and will have the effect of delaying resolution 
of the fiscal progress and halting advancements already in progress.
    H.R. 3589 is primarily concerned with the exercise of control by 
the Secretary of the Interior over the selection of an individual who 
will perform the same duties and have the same powers as those 
currently held by the Director of the Office of Management and Budget. 
Under existing law, the Director of the Budget has much broader powers 
and responsibilities than those enumerated for the proposed Chief 
Financial Officer set forth in Section 1 (b) of H.R. 3589. The only 
discernable impacts of the proposed legislation are the change in 
position title and a three-tiered, instead of a two-tiered, appointment 
process. The powers enumerated in section 2 of H.R. 3589 are but a 
modicum of the powers that have been statutorily conferred upon the 
Director of the Office of Management and Budget already.
    Under existing laws of the Virgin Islands, the Director of the 
Office of Management and Budget has the power and duty to:
    (1)  Assist the Governor in the preparation and explanation of the 
proposed comprehensive program and financial plan, including the 
coordination and analysis of Department and Agency program goals, 
objectives, program plans, and program budget requests.
    (2)  Develop information, communication and data processing systems 
needed for effective policy decision-making.
    (3)  Assist Departments and Agencies in their statement of goals 
and objectives, preparation of program plans, program budget requests 
and reporting of program performance. Their assistance may include 
technical assistance; organization of materials; centrally collected 
accounting, budgeting and personal information; standards and 
guidelines formulation; population and other required data.
    (4)  administer his responsibilities under the program execution 
provisions of Executive Budget Act so that the policy decisions and 
budget determinations of the Governor and the Legislature are 
implemented to the fullest extent possible within the concepts of 
proper management.
    (5)  Provide the Legislature with any budget information it may 
request.
    (6)  Review operations plans to determine that they are consistent 
with the policy decisions of the Governor and appropriations by the 
Legislature, that they reflect proper planning and efficient management 
methods that appropriations have been made for the planned purpose and 
will not be exhausted before the end of the fiscal year.
    (7)  Modify or withhold the planned expenditures at any time during 
the appropriation period if the Director of the Budget finds that such 
expenditures are greater than those necessary to execute the programs 
at the level authorized by the Governor and the Legislature, or that 
the receipts and surpluses will be insufficient to meet the authorized 
expenditure levels.
    (8)  Report quarterly to the Governor and the Legislature on the 
operations of each Department and Agency, relating actual 
accomplishments to those planned, and modifying, if necessary, the 
operations plan of any Department or Agency for the balance of the 
fiscal year.
    Moreover, Title 3, Section 4, which establishes the Office of 
Management and Budget, establishes in Subsections (c) through (k) a 
comprehensive regime for the accomplishment of the mutual goals of the 
Government of Virgin Islands and the Delegate to Congress to develop 
and implement fiscal plans and measures calculated to establish fiscal 
integrity and provide technical tools for eliminating budget deficits 
and establishing fiscal stability, and contains the following 
provisions:
    Under these provisions, with a view of securing greater economy and 
efficiency in the conduct of the public service, the Office of 
Management and Budget is mandated to make a detailed study of the 
Departments, Agencies and Commissions of the Government of the United 
States Virgin Islands for the purposes of enabling the Governor to 
determine what changes, should be made in;
    (1)  The existing organization, activities, and methods of business 
of such Departments, Agencies and Commissions,
    (2)  The appropriations therefore,
    (3)  The assignment of particular activities to particular 
services, or
    (4)  the regrouping of services.
    The results of the study required under section 4 must be embodied 
in a report to the Governor, who is in turn mandated to transmit the 
report to the Legislature with his recommendations on the matters 
covered.
    Moreover, under Section 4, the Director of the Office of Management 
and Budget is mandated to evaluate and develop improved plans for the 
organization, coordination and management of the executive branch of 
the Government with a view to efficient and economical service. The 
Director of the Office of Management and Budget is also mandated to 
develop programs and to issue regulations and orders for the improved 
gathering, compiling, analyzing, publishing and disseminating of 
statistical information for any purpose by the various agencies in the 
executive branch of the Government, and the agencies must adhere to the 
regulations and orders.
    Further, Section 4 directs the head of each Executive Department, 
Agency and Commission in consultation with the Director of the Office 
of Management and Budget, to take whatever actions that may be 
necessary to achieve consistency in accounting, budget classifications, 
organizational structure, and support of the budget justifications by 
information such as performance and program costs by organizational 
units.
    The Office of Management and Budget is mandated at the request of 
the Legislature's Committee on Finance, to furnish the Committee such 
aid and information as it may request.
    H.R. 3589 does not confer on the Chief Financial Officer any more 
authority than the Director of the Office of Management and budget 
already has, neither does the proposed legislation impose any greater 
qualifications or other criteria of selection than the current Director 
of the Office of Management and Budget possesses.
    The Virgin Islands does not lack effective legislation to govern 
fiscal accountability. On the contrary, the problem is one of 
enforcement. The appointment of a Chief Financial Officer who has 
basically the same regulatory powers as the Director of the Office of 
Management and Budget constitutes an exercise in futility if such a 
measure is intended to enforce the statutorily declared policies and to 
resolve our fiscal problems. To solve the Virgin Islands' fiscal 
problems and to establish fiscal stability, the Government of the 
Virgin Islands needs technical resources from the Department of 
Interior and other Federal Executive Departments and Agencies and a 
mechanism for monitoring and review of the fiscal operations of the 
Government.
    The Twenty-Fifth Legislature of the Virgin Islands has pending 
before its standing Committee on Government Operations Bill 25-0150, 
entitled to amend title 33 of the Virgin Islands Code to establish the 
Virgin Islands Review Board. Our pending legislation establishes a body 
corporate and politic to be known as the Virgin Islands Financial 
Review Board. Unlike the Delegate's proposal for the appointment of a 
Chief Financial Officer, the Virgin Islands Review Board will be an 
autonomous instrumentality.
    Bill No. 25-0150 is intended to provide the Government of the 
Virgin Islands with the technical tools to eliminate budget deficits, 
to establish sound budgetary and managerial practices and impose 
stringent control on appropriations and spending. The Virgin Islands 
Review Board will be a tenacious watch dog over government spending. 
The Virgin Islands Financial Review Board will constitute the audit, 
evaluation, and investigative independent instrumentality of the 
Government.
    The powers and duties of the Review Board will be exercised by a 
board of seven members. Bill No. 25-0150 commands that all of the 
Review Board members must have experience in finance or management.
    Our pending legislation gives the seven-member Review Board much 
broader authority to monitor, investigate and impact the fiscal affairs 
of the Government than does H.R. 3589. Our proposed legislation grants 
the Review Board authority to contract for professional services and 
resources to assist it in carrying its mandate.
    Our proposed legislation commands the Governor to submit for the 
Review Board's review and approval a five-year financial plan. The bill 
establishes standards for formulation and approval of the five-year 
plan, and establishes clear standards, principles and policies for the 
attainment of fiscal stability; whereas, H.R. 3589 solely imposes 
federal involvement in the selection of an individual to head the 
Office of the Management of the Budget, and if enacted, it could 
adversely impact the progress the Government of the Virgin Islands has 
recently made toward the resolution of its fiscal problems.
    H.R. 3589 grants the Secretary of the Interior a default position, 
if the Commission or the Legislature fails to act with respect to the 
appointment of a Chief Financial Officer. If the candidates are 
unacceptable to the Legislature or the Governor, the Secretary of the 
Interior may unilaterally appoint a successor to our Director of the 
Office of Management and Budget. Moreover, even more draconian is the 
provision in H.R. 3589 which divests the Director of the Office of 
Management and Budget of his office and demotes him to a deputy. This 
provision attests to a demonstrable disregard and lack respect for the 
Governor's rights conferred by the Revised Organic Act of the Virgin 
Islands to organize and exercise control over all the Departments and 
Agencies of the Executive Branch of the Government of the Virgin 
Islands.
    The federal involvement into the local affairs of the Government 
and people of the Virgin Islands through H.R. 3589 will create more 
problems than it would solve and supplant a superior and more effective 
fiscal regulatory scheme with one that would have a retrogressive 
impact on the Virgin Islands' progress toward financial stability and 
economic independence.
    Section 3 of the H.R. 3589 provides that not later than one year 
after its enactment the Secretary of the Interior shall provide a 
financial management system to the Chief Financial Officer and five 
years later the system will be available to the Director of the Office 
of Management and Budget. The financial management system is needed now 
to assist the Governments in its efforts to improve our financial 
system. I am confident that with technical resources and effective 
enforcement of the fiscal policies established by the Legislature, the 
Virgin Islands will achieve financial stability and economic 
independence and realize its advancement of self determination.
    The Legislature of the Virgin Islands has been undertaking diligent 
efforts to legislate measures to improve the economy, increase our 
markets and productivity, increase efficiency and improve the delivery 
of government services. Our current efforts are intended to ensure the 
Government's accountability to well-established principles of fiscal 
integrity and accountability to the people of the Virgin Islands. If 
given the opportunity without interference by intrusions, such as H.R. 
3589, the Government of the Virgin Islands will soon realize it goals 
towards economic stability. The Revised Organic Act a half a century 
ago conferred on the people of the Virgin Islands the right of self-
determination, and to freely pursue social, political cultural and 
economic development. H.R. 3589 unreasonably abridges our right to self 
determination, and therefore, must not be enacted.
CONCLUSION:
    I am convinced that by working together we can begin to turn the 
Virgin Islands' economy around. It is understood that political 
leadership demands long-term vision, strategic planning, constructive 
dialogue and the courage to address present fiscal issues.
    Obviously a brief presentation such as the one I have made today 
cannot convey adequately the measures needed to implement effective 
fiscal measures.
    I will be happy to answer any questions you may have.
    Thank you for your time and consideration.
                                 ______
                                 
    Mr. Renzi. I have no questions. I am going to turn to Mrs. 
Christensen. Mrs. Christensen?
    Mrs. Christensen. Thank you, Mr. Chairman. Thank you for 
your testimony. I just want to address the issue of the Office 
of the Director of Office of Management and Budget, because I 
really cannot deny that the powers of the Director of the 
Office of Management and Budget would be superceded by the CFO 
in many instances, or at least that they would serve within 
that Office of the Chief Financial Officer. Just as the bill 
does not in any way intend to cast any aspersions on any 
Legislature or Governor that has served or is serving, it does 
not intend to do that on the Director of OMB, with whom I have 
worked and who I have a great deal of respect for.
    However, we are not in ordinary times, as I see it and has 
been substantiated by several pronouncements and the recurrent 
borrowing. Indeed, the system under which the Budget Director 
has made the function and the lack of independence from 
political pressures, I think, do not empower the person who 
would be serving in that office to address the current fiscal 
crisis and the recurring deficits and I think that is evident 
by the fact that we have had recurring deficits over the years. 
So I wanted to just say that for the record.
    Governor, I am not going to ask you many questions. You 
have been very clear in your testimony, your position on the 
bill. I think there are some areas where I think that the bill 
is misinterpreted, but let me just say, one of the premises on 
which I crafted my bill is the belief of many in the community 
that both the administration and the Legislature, as well as 
the people of the Virgin Islands, would greatly benefit from 
independent and realistic budget revenue projections.
    In fact, a former League of Women Voters President and 
former Office of Management and Budget employee, Irma Denham, 
had asked the question in an August 2002 op-ed, wouldn't it be 
nice if just once the Government of the Virgin Islands 
presented an annual executive budget proposal with realistic 
revenue estimates rather than overly optimistic and inflated 
revenue estimates, and we are not the only jurisdiction that 
does that. This is common practice where there is not someone 
in place or an office in place to enforce realistic revenue 
projections.
    Why would you not benefit, why wouldn't the Government of 
the Virgin Islands benefit from an independent, realistic 
budget revenue projection, which is what the Chief Financial 
Officer would do--not set priorities for government, not 
interfere with your setting of the priorities or the 
Legislature's setting of priorities, but certify a budget based 
on reasonable, certifiable revenue projections?
    Governor Turnbull. Madam Delegate, as you know, this is the 
first major issue on which we differ. The matter is a matter of 
self-governance. We in the territories are entitled to solve 
our own problems, and indeed, to correct our own mistakes just 
like any other State. I am saying that we are able to do that. 
As you know, I oppose this bill as much in principle as 
anything else, that we can learn from our own mistakes.
    We are on our way to recovery. The system of checks and 
balances is working in the Virgin Islands. The Legislature 
passed a budget. I vetoed it, and just like any other State or 
territory. And I feel that we can manage our own affairs, and 
we are not insolvent. We have not reached any crisis point and 
we are going in the right direction to solve our problems. If 
we are going in the wrong direction, then we would reach that 
point when it would be a catastrophe, as the gentlelady from 
Guam mentioned. But we are not insolvent and we are moving away 
from insolvency. We are moving into the direction of correcting 
our problems.
    Mrs. Christensen. I can't say for this here Governor, but 
the Virgin Islands Bureau of Economic Research is forecasting a 
projected deficit of $92.4 million for Fiscal Year 2005. What 
would be the cause of such a sizable shortfall? What is being 
put in place to avoid that, and was that factored into the 2005 
budget?
    Governor Turnbull. Yes. We have reduced spending and the 
Director of the Office of Management and Budget has cut 
allotments and so forth all along the way and we will continue 
to cut. The main thing is that we must know what our 
priorities. My priorities, as you know, are education, health 
care, public safety, and human services. So when we cut, we 
take that in mind. I am not sure that a CFO would move in that 
direction, and that CFO would not be accountable to the people.
    Mrs. Christensen. Would you consider that--
    Governor Turnbull. And I have just read a note, we are not 
projecting a deficit for 2004. I just got it from the Budget 
Director. We are not projecting a deficit for 2004.
    Mrs. Christensen. OK, no. I was referring to 2005. I 
realize that at this point in time, we are not projecting a 
budget deficit for 2004, but--
    Governor Turnbull. Our budget for 2005 is balanced.
    Mrs. Christensen. Would you not agree that the fact that 
the Chief Financial Officer, by virtue of the bill, is required 
to give a financial report within 6 months of being put in 
office and quarterly thereafter be an evidence of 
accountability?
    Governor Turnbull. Yes, but our own Director can do that, 
Madam Delegate. We can do this ourselves and we are aware of 
the problem. Even this exercise here today will make people 
more aware of the problem and reinforce the fact that we have 
to continue to move in the right direction and to be fiscally 
responsible. That is the one good thing I think will come from 
all of this hearing and the publicity, is that we have got to 
move in the right direction and continue to move in the right 
direction and be fiscally responsible.
    Mrs. Christensen. Would you not agree, though, Governor, 
that even when you set in place policies and budgets that are 
fiscally responsible, that it is not totally within just the 
executive branch of government, and has it not been the case 
that the Legislature often sends back a budget that is over 
with revenue projections and a budget that is set at a level 
higher than what you have set, and that I think you are facing 
an override at the present time, that it would be helpful to 
have a Chief Financial Officer to work along with you to not 
permit that to happen?
    Governor Turnbull. Madam Delegate, again, I say we have to 
learn from our own experiences. The Legislature will learn that 
they are not to override vetoes when there is no money, and I 
think they are learning that lesson. There is a great hesitancy 
to override a veto. I can't speak for what is going to really 
happen, but they are learning the lesson, too. I mean, I don't 
want to be condescending in that statement, and that is what it 
is all about, growing, becoming mature, politically mature, and 
the territories ought to be given the permission and the 
ability to mature and learn from their own mistakes.
    Mrs. Christensen. The Chairman has graciously yielded me 
his time.
    Senate President Jones, a couple of years ago, the members 
of the Majority Caucus, I believe, walked off of the floor 
because the Governor did not allow his financial people to give 
the majority information, financial information that was badly 
needed for you to make an informed decision on the bond issue. 
Given that the Chief Financial Officer is to report quarterly 
on the financial status of the government and has an obligation 
to report, wouldn't having an independent CFO whose 
responsibility is to provide impartial financial information 
have made that a different situation or a better situation? 
Would you not agree that having a person such as this would be 
more helpful rather than obstruction to your doing your work?
    Mr. Jones. Clearly, Congresswoman, the issue that you 
describe had more to do with the politics of the involvement of 
the minority caucus at the time in making a decision, a major 
policy decision to pay unionized employees their long-awaited 
raises, and we wanted to participate in that, but since we 
didn't have the information that was granted to or shared with 
the majority caucus outside of the Legislature, we felt that we 
wanted to make that statement. However, the Director--
    Mrs. Christensen. Independence would have allowed them to--
and their responsibility to report to the public or to the 
Legislature, whatever made it possible for you to have that 
information.
    Mr. Jones. Well, Congresswoman, under the present regime, 
the Office of Management and Budget, the Commission on Finance, 
and the Director of the Bureau of Internal Revenue do provide 
regular reporting to the Legislature. As a matter of fact, that 
is done on a quarterly basis and we have in our code that 
requirement. So we do get the information that we require on a 
monthly basis, the revenue projections. We do receive that 
information.
    Mr. Renzi. Thank you, Senator. Thank you both very much.
    We are going to move--I think we have one question, two 
questions? The gentleman from American Samoa?
    Mr. Faleomavaega. Just for clarification, Governor 
Turnbull, welcome again to the Committee and for your 
testimony. Who among the financial officials in the Virgin 
Islands will certify this is exactly the status of the revenue 
or the financial status of the Virgin Islands each year? Do you 
do it on a yearly basis, or I guess you have an annual audit 
that takes place every year, or how--I am just trying to follow 
up on what Congresswoman Christensen is concerned about. You do 
have a certifying financial officer that says, this is how much 
revenue we have, in fact, and no projections, no guesses. Who 
does that for you?
    Governor Turnbull. Really two, the Commissioner of Finance 
and the Director of the Office of Management and Budget. Those 
two officials are the ones who let us know exactly what is 
there and when we have overstepped the bounds and whatever. So 
we do have such persons.
    Mr. Faleomavaega. Thank you.
    Mr. Renzi. I thank the gentleman.
    Governor Turnbull. Thank you very much.
    Mr. Renzi. The gentlelady--do you want to yield your time? 
The gentleman from American Samoa, would you yield time?
    Mr. Faleomavaega. I would be glad to yield.
    Mrs. Christensen. Thank you, just for one question to the 
Senate President. You mentioned the legislation that Senator 
Berry has, I believe, introduced or is preparing to introduce. 
What authority does that Review Board have to ensure, not 
recommend, but ensure a balanced budget?
    Mr. Jones. Again, the issue of balanced budget is ensured 
by the revised Organic Act of 1954. It states clearly the 
Governor of the Virgin Islands cannot submit to the Legislature 
an unbalanced budget.
    Mrs. Christensen. Yet we have had budgets that have been 
out of balance. We have had deficits at the end of many fiscal 
years. When was the last time that we had a budget that was in 
balance?
    Mr. Jones. Congresswoman, you must appreciate how it works. 
When the Legislature appropriates monies, the Governor has the 
authority to spend up to that level of appropriation. However, 
there are times when the revenue projections or assumptions 
that are made by the Legislature don't pan out throughout the 
term of the fiscal year. And when revenues are short, then it 
is the authority of the Director of Management and Budget to 
determine the spending priorities within the context of the 
revenue that is collected. That is done through the allotment 
process.
    Mrs. Christensen. Would you agree that the fact that we 
have had budget deficit recurring, that that process has not 
worked as well as it should?
    Mr. Jones. Well, I have a different point of view, Madam 
Congresswoman, and that is the real budget is the money that is 
collected and the money that is allocated, not what is 
appropriated. And what happens within the reporting mechanism, 
we carry appropriations or we report budgets based on levels of 
appropriation and if there are shortfalls within the 
appropriated budget that was passed by the Legislature, we 
claim that as a deficit, but it is not. It is a shortfall.
    Mr. Renzi. Thank you both.
    Mr. Jones. Thank you.
    Mr. Renzi. Thank you. One more question, I think. I 
recognize the gentlelady from Guam.
    Ms. Bordallo. Thank you very much, Mr. Chairman. Governor, 
it is nice to see you again. I noticed you mentioned several 
times, and I agree with you when you speak of self-government 
and you must learn through making your own mistakes. I think 
all of the insular areas have gone through that. In your 
testimony, you very eloquently described how the appointment of 
a CFO as proposed in this bill runs counter to the principles 
of self-government.
    I believe such an argument was also expressed during 
Congress's decision to gain more control over the management of 
D.C.'s finances. It was a hard pill to swallow for them. But 
since the creation of D.C.'s CFO, seven balanced budgets have 
been passed. Moody's Investor Services upgraded their bond 
rating to A-2. The general fund has gone from a negative 
balance of $518 million in 1996 to a positive balance of $897 
million in 2003, and they maintain an emergency account 
totaling more than $250 million.
    Can you give us your reaction and perspective on D.C.'s 
success and give the Committee a rationale of why you wouldn't 
want to look at D.C.'s success to forecast what could be a 
turnaround for your island?
    Governor Turnbull. Madam Delegate, I am aware of what 
happened in D.C. in two ways. My sister lives in the area, and 
as a history professor, I keep in touch with what is happening 
in the country.
    First of all, we are not in the same position or not even 
near the same position that D.C. was when they had their 
Control Board. And second, we are heading away from that 
situation. In other words, we are running in the right 
direction, away from insolvency, and we are headed toward 
balanced budgets, which I submitted to the Legislature.
    Ms. Bordallo. Yes.
    Governor Turnbull. And that is why I am saying, at this 
time, we don't need a CFO. We are our own CFO and we are 
learning more and more the importance of being fiscally 
responsible. Under my watch, I said I will not overspend, and I 
mean it.
    Ms. Bordallo. So what you are telling the Committee, then, 
is things are improving financially?
    Governor Turnbull. Things are improving and we don't need--
we don't need to head toward a hospital because we are feeling 
better.
    Ms. Bordallo. Then I am wondering, this question--thank 
you, Governor. This question is to you, Senator Jones. Why are 
you now--you have introduced Bill 25-0150, which calls for an 
independent review board. What is the status of that bill?
    Mr. Jones. Madam Congresswoman, the bill is currently in 
the Committee on Government Operations and is going to be 
considered. Hopefully, it will be enacted before the end of 
this term.
    Ms. Bordallo. When was it introduced?
    Mr. Jones. I can't remember the exact date, but this 
particular version has been around for the last, I would say, 
seven to 8 years.
    Ms. Bordallo. So then you do realize that there is a need 
for such a review board, is that what you are saying?
    Mr. Jones. Well--
    Ms. Bordallo. In spite of the fact that the Governor has 
just said that the financial situation is improving?
    Mr. Jones. Well, I personally do not support the bill. It 
is before the Committee, but I personally don't support the 
bill in its current form because I believe that we already have 
the mechanisms in place to take care of the challenges that we 
are experiencing, so--
    Ms. Bordallo. You feel, then, as President of the Senate, 
that the bill will fail, is that correct?
    Mr. Jones. Well, I can't speak to that as yet. I don't know 
how many votes the Senator has on this particular bill. But if 
it passes, it would not be a hurtful thing because it would be 
organic. It would come from the Virgin Islands. You would have 
people who have expertise in finance and management to analyze 
the financial condition of the Government of the Virgin 
Islands.
    Let me just make this one last point. The financial 
management system is a critical element in order for us to get 
a handle on the finances. The problem is we do not have a good 
and effective financial reporting mechanism in place at this 
time. We have been trying to get Interior to come on board the 
financial team. As a matter of fact, I have had discussions 
with the Governor and the members in the Department of the 
Interior to enable us to get a financial management system that 
we will be able to finance and they will probably guarantee if 
they don't have the resources immediately available, and that 
is something that we need. We do not need a CFO at this time. 
It is premature.
    Ms. Bordallo. So, Governor, then if this bill passes, you 
will sign it?
    Governor Turnbull. I cannot commit to that, Senator. But at 
least it is something internal and it shows that there are 
people within the Virgin Islands who have different views on 
this matter and that we can manage our own affairs. So we have 
conservative people and we have more liberal-minded people and 
so forth, but at least this would be something within the 
Virgin Islands that we would deal with. My premise is, let us 
deal with our own problems. We can.
    Ms. Bordallo. Thank you very much, Governor and Senate 
President Jones. Thank you very much.
    Mr. Jones. Thank you very much.
    Governor Turnbull. Thank you very much.
    Mr. Renzi. I thank the gentlelady from Guam and thank you 
both very much for your testimony.
    Mr. Jones. Thank you, Mr. Chairman.
    Governor Turnbull. An honor to be here.
    Mr. Renzi. We are grateful, very grateful.
    Our final panel are also residents of the U.S. Virgin 
Islands. We are calling up now The Honorable Ronald Russell, 
Senator, United States Virgin Islands Legislature; and Mr. 
Holland Redfield, II, Republican National Committeeman. Would 
you both join us and please stand.
    Raise your right hand and repeat after me, do you solemnly 
swear or affirm under the penalty of perjury that the 
statements made and the responses given will be the whole truth 
and nothing but the truth, so help you, God?
    Senator Russell. I do.
    Mr. Redfield. I do.
    Mr. Renzi. Thank you. Let the record show both witnesses 
stated in the affirmative.
    Honorable Ronald Russell, Senator, we will begin with you, 
sir. Thank you.

         STATEMENT OF HON. RONALD E. RUSSELL, SENATOR, 
            UNITED STATES VIRGIN ISLANDS LEGISLATURE

    Senator Russell. Yes. Thank you very much, Mr. Chairman, 
and good day. Mr. Chairman, members of the Committee, other 
distinguished members of Congress, Governor Turnbull, David 
Jones, President of the 25th Legislature, members of the public 
present, those listening and viewing, my name is Ronald Russell 
and I am the Chair of the Education and Youth Committee of the 
25th Legislature of the United States Virgin Islands. It is 
indeed an honor and pleasure for me to be offered the 
opportunity to testify on this very important proposal, H.R. 
3589, submitted by our Delegate.
    I am here to offer testimony in support of the Delegate and 
I want to digress from my written statement. The written 
statement is actually 12 pages long, and in consideration of 
how the Chairman has been handling this meeting and time 
constraints, I want to address particularly concerns that were 
raised by the questions. The written statement is here and I 
would ask the Committee members to read it.
    First, the question was asked whether that bill, 25-150, 
would be passed. That is highly unlikely, and I will tell you, 
I am a signator on that bill. This is the same Legislature that 
condemned Delegate Christensen's bill. The Legislature of the 
Virgin Islands will not, I believe, support a control board. So 
when you ask the question, just let me state that I have a very 
different opinion from Mr. President.
    Second, there were questions asked about this bill, whether 
it usurps the authority of the Legislature or the Governor. My 
reading of H.R. 3589 is that it temporarily replaces the 
Director of Office of Management and Budget. That is the only 
thing that it is really doing. And what that does, it takes the 
supervisory authority away from the Governor and puts it in the 
hands of an independent financial officer.
    Let me state what the problems have been as I have seen it 
from in the Legislature. The Legislature, as any political 
body, over-appropriates money, even after a balanced budget is 
passed. They appropriate money because they have constituents 
that we have to address. When the money is appropriated, it 
then gives under the Virgin Islands law the Office of 
Management and Budget to dictate the priorities, and that gives 
the Governor, I think, an imbalance of power as opposed to the 
Legislature because then, even if the law says that the money 
is appropriated for a particular provision or policy or for a 
particular purpose, when the over-appropriations are done, the 
Office of Management and Budget then takes over the 
prioritizing of money and that is dictated by the Governor.
    Second, the structure, the systemic problems that we have 
in the Legislature creates another imbalance in power because 
we run for Senate every 2 years. Running for Senate every 2 
years cripples the Senate in the second year because everybody 
is campaigning. And when everybody is campaigning, you then 
have an imbalance, a shift of power over to the executive 
branch and the executive branch through the Office of 
Management and Budget determines priorities that are not in 
concert with the elected officials, which is the Senate.
    And what we have had, and there are some alarming 
statistics and I am going to read it. The U.S. Virgin Islands 
Kids Count Data Book 2003 provides statistical data and 
information about children in the Virgin Islands. According to 
the data, 12,600 of our children live in poverty. The 
government is created to distribute wealth. While the Governor 
and the Senate President sits here and states that we are 
managing our financial affairs and we are moving out of debt. 
That should not be seen as in a vacuum.
    The Kids Count data information that I provided to this 
Committee shows that the disparity in wealth between us as 
elected leaders and those holding big jobs in the government 
and the general population that we are elected to govern is 
widening. When we could have this amount of children in poverty 
and a disproportionate of wealth between the island of St. 
Croix and St. Thomas, we need help, and I have provided the 
information that I think supports why we need this help. The 
prolonged conditions in our community have led a lot of 
community members to support Federal help.
    In closing, and I notice the time is up, I would like to 
state that I do not see this bill as taking away any duties or 
responsibilities of our elected leaders or what I have been 
elected to do. Indeed, it is in harmony with what I believe 
every household, community, and government should follow, and 
that is to have spending limits that are within their means. By 
giving the Legislature spending limits, we can avoid Senators 
making appropriations and deals with other Senators that are 
fiscally irresponsible.
    Additionally, the opponents of the bill--you know, it is 
easy to get steeped in emotionalism and to speak about self-
governance, but important policy decisions need to change on 
how we make these decisions in these islands so that the 
residents of our islands who are suffering, who are in economic 
depression, can sort of realize part of this American dream. We 
are an American territory. And while the leaders can stand and 
say, we are trying to solve some of the economic problems, the 
debts continue to rise.
    In closing, let me briefly state that my analysis, as 
written, because I have excerpted my analysis, indicate that 
the territory is in need of immediate assistance to avoid any 
further economic and social deterioration. Clearly, this bill 
is meant to directly address the prevailing notion that our 
problems are a result of misplaced priorities and chronic 
mismanagement of available funds.
    Nonetheless, I believe we need more than the bill and I 
have asked the U.S. Congress, in its wisdom, to consider along 
with H.R. 3589 to put provisions in its budget to resolve and 
alleviate some of the unmanageable debt we are now experiencing 
in the Virgin Islands. When the measure is adopted, consider 
appropriating funds to the Virgin Islands to alleviate child 
poverty, giving us more assistance in the areas of basic 
governmental services.
    I want to thank you for this opportunity and I really 
appreciate any questions that you may have. The written 
testimony and the attachments are available for the Committee 
members to review. Thank you.
    Mr. Renzi. Senator Russell, thank you for articulation.
    [The prepared statement of Senator Russell follows:]

        Statement of The Honorable Ronald E. Russell, Senator, 
                 25th Legislature of the Virgin Islands

    Good Day Mr. Chairman, members of the committee, other 
distinguished members of Congress, Governor Charles W. Turnbull, David 
S. Jones, President of the 25th Legislature of the United States Virgin 
Islands, members of the public present, those listening or viewing. My 
name is Ronald E. Russell and I am chair of the Education and Youth 
Committee of the 25th Legislature of the U.S. Virgin Islands. It is 
indeed an honor and a pleasure to be offered the opportunity to testify 
on this very important proposal, H.R. 3589, submitted by our Delegate 
to Create the Office of Chief Financial Officer of the Government of 
the Virgin Islands. I am here to offer testimony in support of Delegate 
to Congress Donna M. Christensen's proposed legislation. I will try to 
make my presentation as clear and as simple as possible. First what 
does the bill do? Second, do we in the Virgin Islands need this bill 
now? Third, does this temporary supervision address the long-term 
problems faced by this community? Fourth, how does the bill affect the 
responsibilities and duties of elected officials?
    H.R. 3589, as I read it, is designed to temporarily replace the 
Director of the Office of Management and Budget, as established under 
Virgin Islands law, with a Chief Financial Officer [CFO] selected by a 
special commission. The selection commission is designed, as best 
possible, to represent the entire Virgin Islands community. Under 
section (c), the CFO shall certify spending limits of an annual budget 
and report to the public on a quarterly basis after an initial six 
month period. H.R. 3589 is actually designed to provide the territory 
with fiscal accountability, transparency, and proper management. As 
drafted, the bill does not usurp the powers and functions of the Virgin 
Islands Legislative nor does it usurp the functions of the Governor. 
Instead, the bill attempts to address community concerns regarding 
Government expenditures. It temporarily relieves the Governor of the 
power to direct the Office of Management and Budget at his pleasure. As 
proposed, the CFO would have the authority to limit expenditures 
through allocations, certify spending limits for an annual budget, and 
monitor the operations of the budget for compliance with spending 
limits, appropriations, and laws, and oversee all aspects of 
implementation of a new financial management system approved by the 
Dept of the Interior. Besides these well defined and fiscally 
responsible goals, the bill provides for the Secretary of the Interior 
to provide a fully automated financial management system to the Virgin 
Islands Government.
    The next question is whether we need the bill now. The answer is an 
absolute ``Yes''. The past and current practices of our government have 
resulted in unequal distribution of wealth and resources within the 
territory. There is an unequal and unfair allocation of our financial 
resources. Government payroll continues to increase while necessary 
services and functions of government continue decrease. Instead of 
attempting to reduce government debt, we have increased our debts to an 
alarming rate. The number of children living in poverty is 
unacceptable. Education, Health and Public Safety all suffer from a 
lack of financial resources. The financial priorities identified and 
implemented by our executive branch of government are in conflict with 
the needs of our residents. Therefore, I believe the territory needs 
outside help as proposed by our delegate, which is professional, 
objective and fair.
    Government is charged with providing adequate health, education, 
food, and shelter for all its residents. For the most part, these 
functions and resources should be distributed fairly among all 
residents. Prolonged imbalances lead to poverty, crime, poor education, 
poor health care and dissatisfaction within the community. St. Croix is 
especially problematic because it is in economic depression. History 
tells us that economic depression can lead to social chaos which can 
produce false leaders, demagogues and misplaced community values. We 
need to avoid and prevent the social chaos that can emerge if we fail 
to act now. Our socio-economic situation is on a path to disaster. The 
U.S. Virgin Islands Kids Count Data Book 2000 states our decline 
started in 1995 (i.e. Governor Schneider's administration). Since then 
we lost accreditation for our public high schools, the Government is 
currently subject to compliance agreements with Federal Agencies 
regarding use of federal funds, our local housing department is in 
receivership with the federal government, our financial management 
system is dated and there are a host of other concerns that have led to 
the proposal before this committee. Our decline is reflected in the 
institutions that provide basic functions for a civilized democratic 
society.
    The U.S. Virgin Islands Kids Count Data Book 2003 provides 
statistical data and information about children in the Virgin Islands. 
According to the data, ``12,600 of our children live in poverty. This 
means four children out of every 10 in the territory.'' The book 
continues, ``children living on St. Croix, with a poverty rate of 45% 
are significantly worse off economically compared to St. Thomas where 
the poverty rate is 31%. This 14% difference (in rates of poverty) 
translates to 3,350 more children living in poverty on St. Croix than 
on St. Thomas.'' See attached page 18, VI Kids Count 2003. The 2000 
Kids Count book defined poverty as a four member family with two 
children living on less than $17,463 annual income. More alarming is 
the single parent families data and statistics of the last three 
publications. Single mothers make up almost fifty percent of the Virgin 
Islands households. The concept of family is practically non-existent. 
These statistics are unacceptable. They are directly related to the 
priorities of government expenditure currently under the control of the 
Governor through the Office of Management and Budget.
    As an elected leader of our beautiful islands, these statistics are 
alarming and quite disturbing. I am elected from St. Croix to represent 
the people of the territory. I am charged to carefully review 
information and seek public input to formulate laws, policies and make 
decisions. The information available indicates government services and 
the resultant standard of living expected; especially on St. Croix are 
completely out of proportion to the revenue generated and the available 
resources. I note that the frustration level and tension on St. Croix 
is very high. It appears that the middle class (i.e. police, teachers, 
nurses, social workers, HOVENSA workers, WAPA workers, VIPA workers) 
pay high taxes to help support the entire government; however, the 
requisite services that should be basic governmental functions are not 
being provided to these residents. Roads are in need of repair; street 
lights in many residential communities are not working or non existent; 
sewer and waste management are out of control; public safety is 
challenged due to a lack of financial resources and man-power; health 
care lacks adequate finances; union workers are not being paid their 
negotiated wages; and electricity and telephone service needs 
improvement. The less fortunate government workers, making less than 
$20,000 annually, are forced to pay high prices for food, light, water, 
household items, gasoline, cable T.V., and telephone,. The cost of 
living in the Virgin Islands is very high. Moreover, the unemployment 
rate is over 11% as reported but probably over 20% actually.
    These prolonged conditions have led many in our community to 
support federal help. But one may ask how a CFO helps these seemly 
complex and long standing problems in the territory. Moreover, some 
believe we can solve our own problems and we do not need federal help. 
My response is that the CFO bill is not designed to solve all our 
social and economic problems. It is designed to help us through 
difficult financial times because our government structure is flawed 
and at this time unable to address the immediate needs of our people.
    Now that I'm a politician, I can say that politically we have 
deteriorated even further than our socio-economic condition. Our 
downward spiral was not created by nor is it going to be immediately 
solved by the 25th Legislature, the CFO bill, the Governor or by an 
individual Senator. A big part of our problem is with the political 
structure and the resultant expectations of a flawed system. Senators 
are elected district at-large and must compete against each other every 
two years. This structure does not lead to nor can it generate the 
collective leadership needed to address our major and pressing 
problems. Indeed, it is a design that has failed and it will continue 
to fail unless changed. Although the last two elections saw radical 
swings in the legislative leadership, the institution continues to 
fail. The current minority in the 25th Legislature was the majority in 
the 24th Legislature. Moreover, I believe the 24th Legislature and the 
Governor severely damaged the public's confidence in elected officials 
by giving large executive pay raises without addressing some of the 
systemic problems that plagued government services. That unwise 
decision was followed by the Governor's decision to propose comparable 
pay raises for himself, the lieutenant governor and senators in a lame 
duck session of the Legislature. These acts of self aggrandizement, 
while union workers and other lower paid government employees were not 
being considered for raises, further eroded public confidence in local 
elected leaders. I also note that several senates (i.e., 18th 
Legislature through the 24th Legislature) and the corresponding 
governors failed to address structural problems, financial management 
system and the growing failures of basic institutions in the 
government.
    The 25th Legislature was elected to set our ship (the territory) on 
the right course. As a collective group we have tried by passing a 2004 
budget that was realistic and fiscally responsible. However, due to the 
structural issues stated above we failed to override the Governor's 
veto of the 2004 Budget. Nonetheless, revenues are up over 30% from 
last year but we are still in deep fiscal crisis. This is an election 
year for senators. As it is with Congress, no collective elected body 
is willing to make major changes in election reform or other revisions 
to government structure during an election year. Moreover, to expect 
the institution (USVI senate) to assume control of our finances through 
the 2005 budget by making reductions in spending or reductions in 
personnel or to make changes in how the government negotiates or 
interacts with the unions, is unrealistic. Consider that, at this time, 
it would be asking too much from the USVI senate to take over the purse 
strings of our government, through the post audit division of the 
Legislature working with the OMB. Two year senate terms skew the 
balance of power needed between the three branches of our government to 
make our system work. Senators are crippled during every other year 
when faced with the task of campaigning. Therefore, the delegate's 
focus on the executive branch in her bill rightfully takes into account 
this imbalance and proposes a viable solution without completely 
disrupting the existing structure.
    I hope it is clear why at this time I support the delegate. I do 
not believe we are positioned politically to help ourselves. Moreover, 
I do not see this bill as taking away any of the duties and 
responsibilities of our elected leaders or that which I was elected to 
do. Indeed, it is in harmony with what I believe every household, 
community and government should follow and that is to have spending 
limits that are within your means. By giving the Legislature spending 
limits we can avoid senators making appropriations and deals with other 
senators that are fiscally irresponsible. At this time I must refer to 
articles that I have published that relate to the bill. Since becoming 
a senator I have used the pen to express ideas and opinions on issues 
of public concern. See attached Russell Reports. Additionally, I attach 
a copy of a drafting request I made in the 25th Legislature in an 
effort to have an independent entity assume temporary control of 
government fiscal management.
    Before I conclude, I must address my view of the opposition to the 
CFO bill. The opposition appears to be steeped more in emotionalism and 
the need for an identity rather than the practical reality of where we 
are politically and how mature we are as a territory. Important policy 
decisions that affect the territory are adopted without any research, 
public hearings or legislative debate. Sometimes the need for the 
territory to call something its own and the emotionalism attendant to 
such thing is blinding.
    Similarly, opponents may be attached to the notion of self control, 
despite its obvious failures and the fallacy of such an idea. Our 
problems are systemic. Our problems existed for several years before 
the residents objected. Now after several years of failure and the 
continued festering of these problems, the Delegate proposes a 
temporary solution for fiscal management that is workable and 
necessary.
    In closing let me state that the brief analysis above, along with 
the supporting documents attached, indicate that our territory is in 
need of immediate assistance to avoid any further economic and social 
deterioration. Clearly, this bill is meant to directly address the 
prevailing notion that our problems are a result of misplaced 
priorities and chronic mismanagement of available funds. Nonetheless, 
we need more. I believe that this U.S. Congress in its wisdom should 
consider, along with H.R. 3589, provisions in its budget providing 
resources to alleviate the unmanageable debt now experienced by the 
Virgin Islands government. When the measure is adopted, consider 
appropriating funds to the Virgin Islands to alleviate the child 
poverty identified. Consider aid for infrastructure upgrade, 
maintenance and repair through federal agencies and available federal 
resources which could transform our Virgin Islands into an exemplary 
community. Thank you for this opportunity and may god bless us all.

    [NOTE: Attachments to Senator Russell's statement have been 
retained in the Committee's official files.]
                                 ______
                                 
    Mr. Renzi. Mr. Redfield?

 STATEMENT OF HOLLAND L. REDFIELD, II, NATIONAL COMMITTEEMAN, 
         UNITED STATES VIRGIN ISLANDS REPUBLICAN PARTY

    Mr. Redfield. Thank you, Mr. Chairman. On page two in the 
first graph, I just for the record want to change a number. You 
have a figure of 108,000 is per capita. It is instead of 
$1,058.81, it is $9,200, because you did swear me in and I 
certainly don't want you to find me in contempt.
    [Laughter.]
    Mr. Renzi. Thank you, sir. We will change that.
    Mr. Redfield. My name is Holland Redfield, National 
Committeeman of the Republican Party of the Virgin Islands and 
six-term Senator in the Virgin Islands Legislature. On behalf 
of the Republican Party of the Virgin Islands and thousands of 
Virgin Islanders who could not be here, I want to thank this 
Committee for the opportunity to place on record the position 
of the Republican Party on H.R. 3589, sponsored by Delegate 
Donna Christensen. And let me add that I would like to thank 
the Delegate for her political courage in sponsoring this 
vitally needed legislation.
    Mr. Chairman, I had mixed feelings in stepping into the 
middle of this issue as it has become a very contentious and 
emotional proposal. There appears to be a lack of reasoning 
amongst those who are in opposition of this legislation. It is 
ironic that the greatest debate is taking within the Democratic 
Party of the Virgin Islands.
    There is no question when anybody looks at this issue that 
this government is on the brink of bankruptcy. The institutions 
that are charged with the responsibility of sound fiscal 
management clearly have failed.
    Mr. Chairman, this is not a partisan issue. Finger pointing 
will not make it go away. The financial survival of the 
territory is at stake. Currently, our deficit is between $80 
and $100 million per year. Our accumulated debt is $1 billion. 
Our unfunded liability to the government retirement system is 
approaching $1 billion. Our per capita debt based on a 
population of 108,000 is approximately $9,200 per person, 
giving the Virgin Islands the distinction of one of the highest 
per capita debts in the nation.
    Just last Friday, the Water and Power Authority had to 
borrow $5 million to pay fuel costs to avoid interruption of 
service, and on the same day, our hospitals in St. Thomas 
threatened to close their doors if a dispute with the central 
government for millions of dollars was not resolved.
    Clearly, the Government of the Virgin Islands is in denial. 
One cannot correct a problem unless there is a political will 
and intestinal fortitude to make hard decisions. It is 
unfortunate that those within their means, the constitutional 
authority to correct these problems, have merely compounded 
these problems over a period of years by putting their heads in 
the sand.
    There has been a strategy of borrowing ourselves back to 
prosperity, which is contrary to any logical economic theory. 
To underscore this, on two separate occasions, we have had to 
borrow millions of dollars for our operating budget just to 
meet payroll.
    Here is what the politicians are faced with. There are 
three solutions. You increase revenue by taxation, which has 
become politically unacceptable and economically impractical, 
or you cut expenditures. With a budget of over 90 percent 
dedicated to personal services, clearly, that means layoffs. Or 
the third, option, which I believe is the most acceptable, that 
of growing our way out of this problem. That has become 
difficult in a community that has historically great difficulty 
at arriving at a consensus and accepting change. We just say no 
to change.
    The leadership has not in the past been able to balance 
these three options, and without H.R. 3589, clearly, our 
staggering deficit will continue. There are those that are 
going to testify that they are adamantly opposed to this 
legislation. Their underlying argument is, we can solve our 
problem ourselves, that outside interference in the internal 
affairs of the Government of the Virgin Islands is unwelcome. 
Let there be no mistake. This legislation will be fought to the 
death by its detractors.
    Clearly, this legislation is not a new idea. Other 
communities have had to face fiscal problems, such as 
Washington, D.C. and New York City. The same resistance and the 
same arguments that you are going to hear today will echo in 
these halls.
    The Republican Party in the Virgin Islands is in support of 
this legislation on principle. However, we feel the legislation 
has not gone far enough. We feel the Secretary of the Interior 
should select the CFO. It is our strong belief that the 
traditional advice and consent verbiage should be left out of 
this legislation. The independence of the CFO would be largely 
left at the mercy of the same local politicians who have gotten 
us to this point and created the problem through their 
inaction.
    As a former legislator, I understand that good politics is 
the art of compromise, and further, for this legislation to 
work, all stakeholders must be on board. I want to make it 
clear that there is enough blame to go around, including myself 
as a former Senator. Previous and current administrations have 
made significant efforts to address these problems. Governor 
Turnbull has made extraordinary efforts to have expenditures 
more in line with revenues. The Legislature, when confronted 
with the chief executive acting responsibly, the Legislature 
has overridden the Governor. Unfortunately, the Legislature in 
the past and present, because of limited insulation, have made 
easy choices based on their electability.
    In that light, I propose for your consideration an 
amendment that could lead to a compromise. After this proposed 
legislation has been fine tuned, there should be an amendment 
to create a provision that will encompass a sunrise and sunset 
provision, that would give the executive and legislative 
branches of government an opportunity with 180 days to 
bilaterally balance the budget and institute corrective 
legislation to address the economic crisis.
    Mr. Chairman, it is my recommendation within the context of 
this legislation that the Virgin Islands Government and the 
U.S. Government enter into a Memorandum of Understanding that 
will set forth these thresholds and targets to be considered 
acceptable. If the Virgin Islands Government meets these 
requirements within 180 days, the legislation would not take 
effect. If they fail to meet these requirements, the 
legislation would automatically be triggered.
    I strongly believe that this should satisfy all parties 
regarding this legislation. Those that are convinced that we 
don't need this legislation will have an opportunity to act 
responsibly and prove it. For those that are in support of this 
legislation and want it to go into effect immediately, they 
will know that if the legislative and executive branches of 
government cannot meet these requirements, that the bill will 
have its full force and effect after 180 days. I believe this 
is a win-win situation for all the stakeholders in the Virgin 
Islands.
    In closing, Mr. Chairman, the Virgin Islands people are a 
very proud, hard-working people. We have suffered two decades 
of natural disasters in the form of hurricanes and Stateside 
recessions that have hit our tourism industry hard. With the 
help of this Congress, our best days are yet to come. Thank you 
very much.
    Mr. Renzi. Mr. Redfield, thank you for your statement and 
your passion.
    [The prepared statement of Mr. Redfield follows:]

     Statement of Holland L. Redfield, II, National Committeeman, 
                 Republican Party of the Virgin Islands

    My name is Holland L. Redfield, II, National Committeeman of the 
Republican Party of the Virgin Islands and a former 6-term senator in 
the Virgin Islands Legislature. On behalf of the Republican Party of 
the Virgin Islands and thousands of Virgin Islanders who could not be 
here, I want to thank the committee for this opportunity to place on 
record the position of the Republican Party on Bill No. H.R. 3589 
sponsored by Delegate Donna Christian Christiansen, and let me add that 
I would like to thank the delegate for her political courage in 
sponsoring this vitally needed legislation.
    Mr. Chairman, I had mixed feelings in stepping into the middle of 
this issue as it has become a very contentious and emotional proposal. 
There appears to be a lack of reasoning among those who are in 
opposition to this legislation. It is ironic that the greatest debate 
is taking place within the Democratic Party. There is no question when 
anyone looks at this issue that this Government is on the brink of 
bankruptcy. The institutions that are charged with the responsibilities 
of sound fiscal management clearly have failed.
    Mr. Chairman, this clearly is not a partisan issue. Finger pointing 
will not make it go away. The financial survival of this territory is 
at stake. Currently, our deficit is between 80-100 million dollars. Our 
accumulated debt is around 1 billion dollars. Our unfunded liability to 
the Government Employees Retirement System is approaching one billion. 
Our per capita debt based on a population of 108,000 is $9,200 per 
person, giving the Virgin Islands the distinction of the highest per 
capita debt in the nation. Just last Friday, our Water and Power 
Authority had to borrow 5 million dollars to pay fuel cost to avoid 
interruption of services and on the same day, our hospital on St. 
Thomas threatened to close their doors if a dispute with the central 
Government for millions of dollars was not resolved.
    Clearly, the Government of the Virgin Islands is in denial. One 
cannot correct this problem unless there is political will and 
intestinal fortitude to make the hard decision. It is unfortunate that 
those that have within their means the constitutional authority to 
correct these problems have merely compounded this problem over a 
period of years, by putting their heads into the sand. There has been a 
strategy of borrowing ourselves back to prosperity, which is contrary 
to any logical economic theory. To underscore this, on two separate 
occasions we had to borrowed millions of dollars for our operating 
budget, just to meet payroll.
    Here is what our politicians are faced with. There are three 
solutions. You increase revenues by taxation, which has become 
politically unacceptable and economically impracticable; or cut 
expenditures, with a budget of over 90% dedicated to personal services. 
Clearly that means layoffs, or the third option which I believe is most 
acceptable, that of growing our economic base.
    That has become difficult in a community that has historically 
great difficulty at arriving at a consensus and to accept change. We 
just say no to change. The leadership has not in the past, been able to 
balance these three options and without H.R. 3589, clearly our 
staggering deficit will continue. Their are those that are going to be 
testifying that they are adamantly opposed to this legislation. There 
underlying argument is that we can solve this problem ourselves. That 
outside interference in the internal affairs of this Government is not 
welcomed. Let there be no mistake, this legislation will be fought to 
the death by its detractors.
    Clearly, this legislation is not a new idea. Other communities have 
had to face similar fiscal problems such as Washington D.C. and the 
City of New York. The same resistance and the same arguments that you 
are going to hear today will echo in these halls.
    The Republican Party of the Virgin Islands is in support of this 
legislation in principle. However, we felt that this legislation has 
not gone far enough. We feel that the Secretary of the Interior should 
select the CFO. It is our strong belief that the traditional advice and 
consent verbiage should be left out of this Legislation. The 
independence of the CFO would be largely left to the mercy of the same 
local politicians who have gotten us to this point and have created 
this problem through inaction.
    As a former legislator, I understand that good politics is the art 
of compromise and further, for this legislation to work, all 
stakeholders must be on board. I want to make it clear that there is 
enough blame to go around, including myself as former legislature. 
Previous and current administrations have made significant efforts to 
address these problems. Governor Turnbull has made extraordinary 
efforts to have expenditures more in line with revenues. The 
legislature, when confronted with the Chief Executive, acting 
responsibly, the legislature has overridden the Governor's veto. 
Unfortunately, the Legislatures, past and present, because of limited 
political insulation, have made the easy choices based on their 
electability. In that light, I propose for your consideration, an 
amendment that could lead to a compromise.
    After this proposed legislation has been fine tuned, there should 
be am amendment to create a provision that will encompass a sunrise and 
sunset provision. This would give the executive and legislative 
branches of the Government an opportunity within 180 days to bi-
laterally balance the budget, and institute corrective legislation to 
address this economic crisis.
    Mr. Chairman, it is my recommendation that within the context of 
this legislation that the Government of the Virgin Islands and the U.S. 
Government enter into a Memorandum of Understanding that will set forth 
the threshold and targets that would be considered acceptable.
    If the Virgin Islands Government met these agreed upon 
requirements, within 180 days the legislation would not take effect. If 
the Government failed to meet these requirements, the legislation would 
automatically be triggered.
    I strongly believe that this should satisfy all parties regarding 
this legislation. Those that are convinced that we don't need this 
legislation will have the opportunity to act responsibly and prove it. 
For those that are in support of this legislation and wanted to go into 
effect immediately, they will know that if the Executive and 
Legislative Branches of the Government cannot meet these requirements 
that the bill will have its full force and effect after 180 days.
    I believe that this is a win-win situation for all the stakeholders 
in the Virgin Islands. In closing, Mr. Chairman, the Virgin Islands 
people are hard working and proud. We have suffered two decades of 
natural disasters in the form of hurricanes and a stateside recession 
that has hit our tourism industry hard. With the help of this congress, 
our best days are yet to come.
                                 ______
                                 
    Mr. Renzi. I move to Mrs. Christensen for questioning.
    Mrs. Christensen. Thank you for your testimony. Thank you, 
Mr. Chairman.
    Senator Russell, I am going to go to you first.
    Senator Russell. Yes.
    Mrs. Christensen. As a member of the 25th Legislature, do 
you feel that you have an adequate and accurate picture of the 
finances of the Virgin Islands, enough to make sound decisions?
    Senator Russell. The answer is no, and I believe that your 
bill attempts to solve some of that problem. I am part of the 
Financial Committee, Finance Committee of the Legislature, and 
part of the problem we have had is getting accurate information 
from the executive branch in a timely manner. We have had to 
postpone meetings. We have had to wait on a lot of information. 
And sometimes when we are having committee meetings, it appears 
that the information is not readily available for us to make 
our analysis and evaluation.
    I think what your bill does, and I disagree with my 
colleague, Senator Redfield, former Senator Redfield, because I 
don't believe that the bill should go farther. I think you have 
taken into consideration the balance that needs to be done to 
get a CFO in place and still recognize the need for self-
governance and policies to be made by elected officials.
    But I think your bill addresses that. That is why a CFO is 
needed at this time, because that imbalance of power that I 
mentioned earlier is precisely how the executive branch has 
been able to stymie the efforts of the legislative branch in 
trying to formulate fiscal policies and dealing with fiscal 
responsibility.
    Mrs. Christensen. And you understand, I am sure--a lot of 
times, the question comes up, what is cause, but if the CFO is 
mandated in the bill to report in 6 months and then quarterly, 
if they don't report to you, if the Legislature were to call on 
them and say, where is your quarterly report, that that would 
be cause for that person to--
    Senator Russell. Exactly, and I think your bill takes into 
account the fact that accountability and transparency is part 
of what the people of the Virgin Islands really want with the 
management of the money. The reporting aspect of the bill 
quarterly is cause, because a failure to comply with the 
statute is cause for removal. So I don't see it as setting up a 
fiefdom for a financial officer to control the policies of the 
government. I see it as having the necessary mechanisms to 
remove that person if they don't comply with the measure as 
drafted.
    And let me just state that the Chief Financial Officer as I 
see it works in conjunction with the structure that we have in 
place. I don't see the superceding. I see it as working in 
conjunction, and the only real, I would consider, strong effort 
in dealing with our fiscal management is to set spending 
limits. That is serious. But I think we need that right now.
    Mrs. Christensen. I wanted to ask you another question in 
your capacity as Chair of the Committee on Education for the 
25th Legislature, because you have had an opportunity to come 
up and meet with the U.S. Department of Education officials 
here and I am sure you have heard as I have heard that, 
basically, the issues that they have with the Department are 
being resolved pretty well, but that financial issues remain 
outstanding.
    We are under a compliance agreement. We are a little more 
than halfway, maybe, into that agreement. Do you believe that 
without a bill such as this that we will meet the requirements 
of that compliance agreement, and if not, what do you think the 
impact would be on the education of our children?
    Senator Russell. Well, let me begin. Why I stated the Kids 
Count information, that is data that is going in the opposite 
direction to what maybe the Governor and the President of the 
Legislature stated.
    Second, the Education Department is having problems with 
its fiscal management and its fiscal management system of the 
territory, and some of the problems that we are having is the 
Federal monies are coming down. They are not being tracked 
properly because of the financial management system. But more 
importantly, there is some, I would consider, effort by the 
U.S. Department of Education to really assist. But because we 
don't have a system in place, a financial management system, it 
is sort of beating a dead horse.
    And I don't believe that under the current structure that 
we are going to comply with everything of the compliance 
agreement. I think we have problems with it. So I see this as 
aiding us in meeting some of the requirements of the compliance 
agreement, especially for education. And if we don't meet the 
requirements, our education system will continue on a downward 
spiral because of lack of resources and lack of actually funds 
to promote what the education system is set to promote.
    So I see your bill, Congresswoman, as helping not only in 
the financial area, but in education, health, and a lot of 
other areas that we need financial resources and the proper 
management of those resources. Thank you very much.
    Mrs. Christensen. The Chairman has yielded to me a minute 
of his 5-minute time to ask former Senator Redfield a question.
    Senator, you make a recommendation that H.R. 3589 should be 
amended to give the executive and legislative branches of 
government of the Virgin Islands an opportunity to bilaterally 
balance the budget and institute corrective legislation to 
address this economic crisis. I would ask you, in your 
experience as a former six-term member of the V.I. Legislature, 
what would be the result, do you think, if the Committee 
adopted your recommendation, and I would like you to go beyond 
180 days to maybe project for 5 years into the future. What--
    Mr. Redfield. Congresswoman, let me just say, if I was to 
bet on it, they wouldn't do anything. However, maybe with this 
hanging over the folks that have to make these decisions it is 
basically putting them in a position where you either do it or 
you are going to get this legislation. And I say that because, 
you know, this is a first step, and as I have put on record, I 
don't think it went far enough.
    I anguish myself personally over the issue of self-
determination. But if you take that imbalance of the 
consequences that we are facing and the tremendous pain in the 
community, the helplessness and hopelessness amongst the 
community, I think the political system, the executive and 
legislative branches of government are totally out of step with 
what the people are thinking. They have lost their confidence 
in the government, clearly, because time after time we end up 
in the same position that we have before and it is distressing.
    What will happen if this goes into effect? I think it is a 
step in the right direction. I think you are going to get a 
tremendous amount of attention in this process, but I will tell 
you one thing. If I was a political leader elected today, I 
would welcome this because there are so many things in here 
that are so difficult to do, and I mention in my testimony 
insulation, that you could feel relieved that somebody is going 
to come in here, because the choices that our leaders have 
today are just--I mean, they are staggering.
    You don't get elected by cutting a budget to the point when 
you have 90 percent of it and you have people that are working 
for you and they are affected in their jobs. You don't tax a 
community that is taxed to the point where they can't even see 
straight.
    And again, as I say, the third option, because of the 
dynamic of the Virgin Islands, it has been very difficult to 
develop consensus when we are dealing with economic growth in 
the Virgin Islands. Congresswoman, you know that. So what do 
they have? Their options are limited.
    And I am speaking from the outside looking in, but, of 
course, having six terms of being in there confronted with 
these problems, the Christmas tree effect every time you get to 
the Legislature. This Legislature is going to veto the 
Governor's holding in control, holding this $9 million, they 
are going to veto this. If you were to ask me, is the Pope 
Catholic? Yes, he is. We are going to veto this. We are right 
back to the same situation.
    Senator Russell. You mean override.
    Mr. Redfield. Override it, I am sorry.
    Mr. Renzi. Do you have a closing?
    Mr. Redfield. Going to override the veto.
    Mr. Renzi. Thank you. Do you have a closing?
    Mrs. Christensen. Basically, I just wanted to thank those 
who came a fairly long distance, maybe not as far away as Guam, 
to testify both on behalf of the bill and in opposition to the 
bill. It has not really been easy for me to bring the bill, nor 
has it really been easy for me to watch the fiscal health of 
the territory decline and go through crisis after crisis since 
I have been in office.
    But as I reflect on what led me to the point today and the 
discomfort of my personal situation with regard to what is 
before us today, I am reminded of a quote by Dr. Martin Luther 
King in which he said the ultimate measure of a man, and, I 
might add, a woman, is not where he or she stands in moments of 
comfort and convenience but where they stand in times of 
challenge and controversy.
    Mr. Chairman, we are indeed facing some challenging and 
controversial times as you have well heard this morning in the 
Virgin Islands. Indeed, the action or inaction of those of us 
in leadership today will have a profound impact for the future.
    I thank you for holding this hearing and giving us the 
opportunity--
    Mr. Renzi. We are grateful for your insights.
    Ms. Bordallo. Mr. Chairman, I just want to thank Senator 
Russell and former Senator Redfield for their very excellent 
testimonies this morning. Thank you.
    Senator Russell. Thank you.
    Mr. Redfield. Thank you.
    Mr. Renzi. Thank you all very much. You are both dismissed, 
and again, thank you very much.
    Senator Russell. Thank you.
    Mr. Redfield. Thank you.
    Mr. Renzi. Without any further business before the 
Committee, the Committee stands adjourned.
    [Whereupon, at 12:14 p.m., the Committee was adjourned.]

                                 
