While the Lolo Administration is proposing an 8% decrease in the total FY 2014 budget compared to the current fiscal year — due in part to federal sequestration — the government is projecting a huge 23% increase in local revenues, mainly from tax collections, according to the FY 2014 budget summary. Further, the government work force is shown to increase by 238 positions, or 3.78%.

Gov. Lolo Matalasi Moliga’s final FY 2014 budget was received yesterday in the Fono. According to the 26-page cover letter, the final budget is $456,304,506, which is $39,265,500 (or 8%) lower than the previous FY2013 budget of $495,570,000.

“The major contributing factors in the reduction are the efforts of federal sequestration, the winding down of the 2009 tsunami disaster-related federal programs, the run-off of ARRA funding and a change in ASPA’s business model.”

The cover letter says an encouraging sign is that ASG is assuming greater responsibility with regards to financing its own planned expenditures and this bodes well for the territory’s attempt to achieve greater self-sufficiency and self-reliance. Also the ASG FY 2014 is financing 75% of its planned expenditures for services to meet the needs of the people, which is a favorable trend and one that will be followed in the future, notes the cover letter.

Of the total local revenues, $72.3 million or 66% goes to the Executive Branch, $6.7 million or 6% goes to Legislative Branch, $2.8 million or 3% to the Judicial Branch and $26.9 million or 25% goes to Special Programs.

Governor Lolo in the cover letter stated that, as promised in his state of the Territory Address, he would change the revenue forecasting process. The governor said he established a group, comprising directors from DOC, Budget Office, Treasury and a representative from his office and charged them with the responsibility of forecasting the government’s revenues.

Lolo said he’s confident the revenues projected by this group are credible based on the economic outlook and bolstered by the efforts as outlined in this budget to create a better business climate.

According to the letter, the total projected local revenues for FY 2014 are $108,799,000, which is $20,461,500 or 23.2% higher than FY 2013. The major contributing factor is a 36.2% forecasted increase in taxes between the current and next fiscal years.

The largest tax revenue comes from Individual Income Taxes of $25.1 million, Excise Taxes $25.0 million, Corporate Taxes $17.7 million, Soda Tax $2.5 million and Cover-Over tax of $1.5 million.

Governor Lolo explained in his cover letter that the overall goal of the financial plan is to aggressively advance the move toward self-sufficiency and self-reliance by forcefully expanding the economy, with the underlying intention that jobs will be created and these jobs will provide economic and financial empowerment to the people thus allowing them to realize their dreams and aspirations.

“For 113 years since joining the American family, we have placed too much stock on expecting the Federal Government to do for us what we should be doing for ourselves. This change of mindset is reflected in the forceful posture in which FY 2014’s financial plan has been developed,” the governor stated.

Of interest in the governor’s cover letter, aside from revenue projections is the increase of the government force for 2014. The total number of ASG positions for FY 2014 of 6,533, is in contrast to 6,205 in FY 2013 and this reflects an increase of 238 positions, or 3.78%.

The change results from an increase in the number of contract positions by 198 and an increase in career service positions of 40, according to Lolo.

H explains that the increase in contract positions reflects the commitment to place political positions on contracts to avoid necessary growth in budget, as career service positions are protected by the career service system.

SUMMARY OF REVENUE PROJECTIONS

Corporate Taxes

The projected revenue increase of $11.7 million —or 195% —in fiscal years 2014 over 2013 in corporate taxes is based largely on the restoration of lost tax revenues connected with ASPA being a fuel supplier. The cover letter said it is estimated from past experience that $5 to $8 million of corporate tax revenues were lost when ASPA became a fuel supplier. ASPA is scheduled to exit the fuel supply business by November at the latest so the administration is looking forward to an enhanced revenue stream from a private sector supplier.

Another factor for the projection increase is “a more forceful attitude by the Department of Treasury (DOT) in the performance of corporate tax audits gives us confidence in greater revenues across the remainder of the corporate tax sector.” The cover letter notes that the Treasury has "made it clear they will aggressively enforce all tax laws" including ensuring that all tax payers have filed their taxes.

The treasury budget includes funding for additional tax audit staff and the trend over the last five years based on the flat tax study conducted in 2012 revealed that only 27% of businesses pay any taxes.

This gives the administration the reason to believe that more aggressive enforcement, coupled with an expected increase in profitability spurred by increased economic activity will increase taxable income, which translates to higher corporate tax collections.

Individual Income Tax Revenues

According to the cover letter the estimated $861,500 or a 3.6% increase between the new and current fiscal years is caused by a forecasted increase in the total amount of payroll paid during the year, which will be triggered by the addition of new jobs and increases in salaries and wages.

Also DOT's aggressive enforcement of tax laws and wages ensures that all eligible taxpayers will file income tax returns.

Excise Tax Revenues

Increased economic activity spurred by the government’s investment in infrastructure development will raise the level of imports of dutiable items and this accounts for the estimated $7.0 million or 39.2% increase of excise tax revenue collections for FY 2014.

With more disposable income in the community “we expect personal consumption of consumer goods to grow" resulting in a further increase on excise tax collections and with more economic activity it's expected to increase business importation of capital goods, the cover letter optimistically forecasts.

Soda Tax Revenues

According to the cover letter, it's predicted that $500,000 or 25% additional revenues will be collected through the application of the soda tax statute and while the government remains concerned over the health care challenges facing the territory, the government does expect the consumption of soda to increase as a result of there being more disposable income.

The administration notes “the ongoing transformation of social habits, caused by parents spending less time to prepare meals for their children increase the probability of consuming fast foods with soda included in the meal package.”

Cover-Over Revenues

The government’s forecast that cover-over revenues will decline by $1 million or 40% in FY 2014 is due mainly to the winding down of the US military presence in the Middle East, coupled with reductions in the Pentagon budget.

The cover letter notes that to offset these developments, the newly reconstituted office of Veterans Affairs’ goals is to increase number of Samoan service men and women designating American Samoa as their place of residence. However, the government does not expect to see the fruits of this effort immediately.

Capital Improvement Projects

The CIP budget for FY2014 is $10.0 million, a slight increase of $93,000 or 1% over 2013. The cover letter says “an aggressive posture is being taken to accelerate work on our capital improvement projects to demonstrate to the Department of Interior and the Congress of the US that ASG has the capacity to spend appropriations quickly and prudently.” In turn, according to the administration, this will improve the chances of receiving more federal assistance for the financing of major infrastructure needs.

ENTERPRISE FUNDS

There is a substantial change in the overall budget for the Enterprise funds and this is largely due to ASPA terminating its fuel supplier function, which resulted in over $50,000,000 in annual sales. The completion of tsunami disaster related projects adds to the shrinking of enterprise fund operations, partially offset by expanded activities at the Marine Railway Facility, the cover letter notes.

Samoa News will report on other areas of the cover letter in later editions.