By Joy Blackburn From Virgin Islands Daily News

ST. CROIX – The territory’s economy shrunk significantly in 2011 and 2012, driven primarily by the HOVENSA shutdown and, to a lesser extent, by diminished government spending.

The U.S. Bureau of Economic Analysis on Monday released estimates for the territory’s gross domestic product, or GDP for 2011 and 2012, along with accompanying data.

The gross domestic product is a broad measure of economic activity that reflects the value of all the goods and services produced in a given year.

The report shows that the territory’s GDP declined by 6.6 percent in 2011 from the previous year, then plunged 13.2 percent in 2012.

The two major drivers in that decline were HOVENSA shuttering its refining operations and the territorial government reining in spending, according to Brian Moyer, deputy director of the U.S. Bureau of Economic Analysis. Moyer and project manager Aya Hamano were in the territory Monday for the release of the data, to detail the GDP results with government officials and the public.

The territory’s total estimated GDP for 2011, adjusted for inflation, is $4.351 billion, down 6.6 percent from the $4.66 billion GDP in 2010, according to the bureau’s report.

For 2012, the territory’s total estimated GDP spiraled even lower, to $3.778 billion. That figure, too, is adjusted for inflation.

In contrast, the GDP adjusted for inflation for the United States, excluding the territories, grew by 1.8 percent in 2011 and grew by 2.8 percent in 2012, according to a statement the Bureau of Economic Analysis released Monday.

The territory’s $3.778 billion 2012 GDP is by far the smallest GDP for the territory in the years included in the report, which contains figures going back to 2005. The GDP estimates range from $4.4 billion to $4.8 billion each year since 2005, until the drop to $4.3 billion in 2011 and the descent to $3.778 billion in 2012, according the report

The No. 1 factor driving the decline in the local economy was the decline in the petroleum refining industry in the territory, which had dominated the Virgin Islands economy for years, Moyer said.

In January 2011, HOVENSA announced it would reduce its production capacity by shutting down a number of processing units on the west side of the refinery in a move to improve financial performance. That reduced petroleum distilling capacity from 500,000 barrels per day to 350,000 barrels per day.

That move also is reflected in the data released Monday, which shows a 17.9 percent drop in exported goods for 2011, Moyer said.

In early 2012, HOVENSA shuttered its refining operation entirely, ending oil refining activity in the territory.

That move is reflected in a precipitous 84.6 percent drop in exported goods from the territory for 2012.

“This is basically the HOVENSA story,” Moyer said. “That was the No. 1 driver.”

The second factor spurring the economic decline was the government tightening its belt.

“There were a couple of things going on in territorial government,” Moyer said.

Those factors included a decline in government spending on construction for both years, as well as the layoffs of government workers and the 8 percent salary reductions.

Territorial government spending declined by 4.1 percent in 2011, and then declined by another 10.5 percent in 2012, according to the report.

The federal government also lowered its spending both years.

The data show that in 2010, the territory’s estimated GDP had recovered slightly from a 5.5 percent drop in 2009. In 2010, the GDP grew slightly, by 1.7 percent, before the sharp declines that 2011 and 2012 brought.

Moyer said analysts also took a look at the data, removing the petroleum industry’s impact from the equation entirely.

“That’s the other thing that we thought was interesting in this story,” he said. “If you took out the impact of the petroleum refining industry from the Virgin Islands economy, there would actually have been positive growth in 2012.”

Analysts removed petroleum imports, exports and change in petroleum inventories entirely from the data for that analysis.

It showed that without the impact of HOVENSA in 2012, the territory’s economy would have grown slightly, by 2.6 percent, he said.

“That primarily reflects exports of rum to the U.S. mainland, which increased over $120 million in 2012,” Moyer said.

In early 2012, Diageo began shipping the first rum distilled in the territory to the U.S. mainland for sale.

The tourism sector also showed a decline of 3.4 percent in 2011 and of 2.8 percent in 2012, according to Moyer.

Overall, air and cruise ship passenger arrivals increased over the 2011 to 2012 period, but that was offset by a drop in the average spending per passenger, he said.

The new data include revised estimates for the territory’s 2008 to 2010 GDPs, extrapolated from improved source data.

The estimates are developed under the Statistical Improvement Program funded by the Office of Insular Affairs of the U.S. Department of the Interior. The U.S. Bureau of Economic Analyis is part of the U.S. Commerce Department.

The release of the 2011 and 2012 statistics this year reflects a one-year acceleration in the availability of the GDP estimates for the U.S. Virgin Islands, the statement said.

For more on this story go to:

http://virginislandsdailynews.com/news/virgin-islands-economy-rapidly-shrinking-1.1535378

Related story:

Senate Rejects Hovensa Deal

By John Baur From St. Croix Source

Voting no were Sens. Alicia “Chucky” Hansen, Terrence “Positive” Nelson, Nereida “Nellie” Rivera-O’Reilly, Kenneth Gittens, Clifford Graham, Tregenza Roach, Myron Jackson, Diane Capehart, Shawn-Michael Malone, Janet Millin Young and Clarence Payne III.

Only Sens. Donald Cole, Judi Buckley and Sammuel Sanes voted yes on the proposal. Sen. Craig Barshinger was off island.

In a statement from Government House, deJongh expressed disappointment and said he will now take action to enforce the terms of the existing Concession Agreement.

Wednesday’s vote came at the end of a daylong session in which tempers sometimes flared, where temperatures rose while the air conditioning was being repaired, while protesters stood outside drumming and chanting – and one senator sang. Honestly.

Nelson, who had used almost all his time during earlier discussions on other issues to lambast the Hovensa agreement, opened the debate on the amendment by likening the relationship with the oil company to the Gloria Gaynor song, “I Will Survive.”

“Once I was alone, I was petrified,” Nelson crooned. “Kept thinkin’ I could never live without you by my side,” he continued.

But like the jilted woman in the song, Nelson said, the Virgin Islands are strong enough to tell Hovensa “Walk out that door.”

Nelson ran through a litany of demands the company has made over the years and the environmental and health problems he laid at Hovensa’s door, and he listed how much the territory has given. Then the company shut down with virtually no warning, Nelson said. The agreement is like a former husband who wants to negotiate the prenuptial after the marriage already ended.

“You did us wrong when we treated you right,” he said, urging his fellow senators to say, “not just no, but hell no!”

O’Reilly said the corporation believes it will get what it wants because it always has.

“The simple fact is that we are facing a corporation that believes it can get away with what it wants because it has always gotten away with it. We have to stand up and really show some muscularity,” she said.

The U.S. Virgin Islands, in general, and St. Croix specifically need to diversify their economies and not rely on a single large employer, O’Reilly said. The Hovensa property, once cleaned up, could be used for a variety of manufacturing uses, she said, even suggesting contacting the Department of Defense to see if it would like to build a Navy base.

Roach said the amendment wasn’t a good deal, and said he wasn’t moved by the prospect of long, expensive litigation.

“I am not afraid,” he said. “The courts exists for us to avail ourselves if our rights are violated … St. Croix needs jobs and it needs opportunity and we all need hope. But our hope need not be based on a fear of asserting our rights.”

Hansen urged her colleagues not to forget 400 years of history.

“We ought to live as our ancestors did … and not to humble ourselves towards money. We learned from our ancestors. We can survive without being pushed out of our own homes.”

During a long afternoon and evening, Hansen provided the most heat.

“When they left they didn’t give a damn how they destroyed the United States Virgin Islands. They didn’t give a damn that our men and women have lost their homes because they no longer could make payments. They didn’t give a damn,” she said.

Senate President Malone picked through what he called flaws in the agreement, saying deJongh was overly optimistic in thinking someone could refurbish and restart the refinery for “a reasonable cost,” saying he assumed it would require “major capital investments to open the shuttered and maintenance-challenged refinery.”

Malone called the governor naive for not making sure the deferred payments in lieu of taxes would be guaranteed by Hess instead of left vulnerable if Hovensa filed for bankruptcy.

Buckley elicited “chupps” from the audience when she said that, despite her misgiving, she was going to vote in favor of the amendment.

“I am not afraid to be a lone voice and I don’t succumb to threats,” she said. “I don’t operate by fear, but by faith and reality.”

The reality, she said, is that the local economy isn’t getting better or even holding stable – the bad news keeps coming and nothing has changed. She pointed to a report from the Department of Licensing and Consumer Affairs that St. Croix has lost almost 5,000 businesses since the announcement that Hovensa would cease operating, and that the government is finding it harder and harder to make ends meet, with unfunded liability for the retirement system, huge debts by the hospital, and prices and energy costs rising. She likened the agreement to a divorce settlement.

“Neither party walks out completely happy, but we don’t risk going to court with expensive attorneys and run the risk of a judge settling it. Hovensa needs to sell and leave the territory, as they now want to do, but they need this agreement signed by us,” she said.

By the time it was his turn to speak, Sanes said the writing was already on the wall, it was already clear the measure would fail. He said he had been receiving text messages advising him to let it go, “to go with the flow.” But he said that wasn’t his way.

“I’m doing what my conscience tells me to do,” he said, speaking about the people he sees every day on St. Croix with no jobs and no hope.

When Hovensa closed, he said, the skilled laborers, engineers and executives packed up and moved on to other oil jobs around the world.

“But thousands had to stay behind, hoping that something would happen … What has happened? Not a thing … Who’s to blame? All of us are to blame,” Sanes said, later adding, “We can talk a good talk, but every two weeks we get a nice paycheck and our kids get benefits. What about the thousands who get nothing?”

Sanes challenged his colleagues, who were poised to defeat the measure, to come up with an up with an alternative.

“My question is, you guys got a plan B? I expect to hear that Plan B coming up soon,” he said, promising, “If it’s feasible, I’ll work for it. But I really would like to hear what Plan B is. I hope it’s not a lot of talk.”

The Senate presented a “plan B” late in the meeting. After taking the vote, while some senators had already left, a resolution was rushed through urging Hovensa to find a buyer and sell the facility to someone who would operate it as a refinery, suggesting a series of conditions to the sale that the company has already rejected.

In his Government House statement, the governor expressed “great disappointment” in the vote.

DeJongh said he believed the Fourth Amendment Agreement was the best way to bridge the parties’ differences and was vastly superior to a lengthy and costly legal dispute he says threaten to delay the restart of the refinery and the economic recovery of St. Croix. Now that the Legislature has spoken, it appears that the dispute cannot be avoided, deJongh said.

At the same time, he also thanked the many members of the community who participated in the legislative process and who vocally supported the agreement.

Sen. Alicia ‘Chucky’ Hansen said Hovensa “didn’t give a damn how they destroyed the United States Virgin Islands” at a heated Senate meeting Wednesday.

The Virgin Islands Senate sent the territory back to square one Wednesday, rejecting a proposed agreement with Hovensa that Gov. John deJongh Jr. said opened the door to sell the shuttered St. Croix refinery and to its possible reopening.

Sen. Nereida ‘Nellie’ Rivera-O’Reilly said the government has “to stand up and really show some muscularity” to corporations like Hovensa

For more on this story go to:

http://stcroixsource.com/content/news/local-news/2013/08/08/senate-rejects-hovensa-deal