Keep Talking, Part 1: Property Tax Misrepresentation

We have been studying the best way to address the property tax issue due to its voluminous nature and we finally have our answer. It appears the District Court’s opinion (9/15/08 District Court Memorandum Opinion) was so comprehensive that the Administration has had difficulty understanding what they read.

However, in light of what appears to be the continuing misrepresentation of the District Court’s order by members of this Administration, we now have an avenue by which to present the stinging ruling issued by the court. We have reviewed the court’s opinions and, while we cannot have a direct conversation with the judge, we will be presenting the court’s findings to you in a conversational form. The comments in parentheses refer to the attachments at the end of this article for those who would like to review the Court order in its entirety.

We start with comments from members of the Administration’s financial team (OMB Director Debra Gottlieb, Finance Commissioner Angel Dawson, PFA Director Julito Francis) on a recent talk show. Our conversation will reveal that there is either a blatant attempt to mislead the public or a lack of understanding by those sworn to execute the law.

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Your honor, what seems to be the problem?

The Court held a status conference with the parties on September 3, 2008. At that status conference, the Defendants indicated that the 2006 property tax bills were issued at rates not based on the 1998 assessments. Given the Defendants’ apparent indication at the status conference that tax bills had been issued in violation of the May 12, 2003 Decree, the Court issued an order requiring the Defendants to show cause why they should not be held in contempt. (Pg. 5)

A show-cause hearing was held on September 8, 2008. At that hearing, the Plaintiffs presented the testimony of Roy Martin (“Martin”) and Lucille Kirschbaum (“Kirschbaum”), the property manager of the one of the named plaintiffs. (Pg. 5)

So how did our government respond?

The Defendants offered no evidence. (Pg. 6)

Say what?

…the Defendants concede that they had knowledge of the May 12, 2003 Decree and that they have violated that injunction by issuing tax bills at the 2006 rate.

But wait a minute. The Administration insists they could not collect taxes at the 1998 level.

The Court…held that the Government could issue bills based on the assessment values for the 1998 calendar year reflected in the 1999 tax bills if it provided a mechanism to adjust the assessments and bills retroactively. Thereafter, the Legislature of the Virgin Islands passed Act No. 6586 (“Act 6586”), which provided for such a mechanism. That act was signed into law on July 14, 2003. (Pg. 4)

What did the court do?

On August 13, 2003, on the Defendants’ motion, the Court modified the May 12, 2003 Decree. The Court found that, in light of Act 6586, the Government had “acted sufficiently to provide relief for the Territory’s taxpayers and . . . that the Government is entitled to collect revenue from property taxes.” (Pg. 4)

Therefore, the Court modified the May 12, 2003, decree with respect to “all non-plaintiff taxpayers to allow the Government to issue tax bills based on the 1998 assessments reflected in the 1999 tax bills.” The Court noted that the decree “shall remain unmodified and in full effect for all parties to this litigation.” (Pg. 4)

The Administration says they could no longer collect taxes at the 1998 level.

Aside from the August 13, 2003, modification, the May 12, 2003 Decree remains in full force and effect. (Pg. 4)

So your honor, are you saying the Virgin Islands Government knowingly violated an order of a federal court?

Here, as in Halderman, all the earmarks of contemptuous conduct appear to be present. There is a valid Order of this Court. The Defendants had knowledge of the Order. In spite of that knowledge, the Defendants elected to violate the Order. (Pg. 16)

Nonetheless, the Defendants argue that their conduct is not contemptuous because compliance with the May 12, 2003 Decree is impossible. In essence, the Defendants argue that they cannot be held in contempt for issuing tax bills in compliance with a legislative directive –- Act 6991 [new property tax bill]. That argument in [sic] unconvincing for several reasons. (Pg. 17)

Unconvincing? Please elaborate.

…the impossibility to which the Government refers is a condition of its own making and is singularly unconvincing. Indeed, it is precisely the type of legal impossibility defense that is disfavored and proscribed by Halderman. (Pg. 17)

Your honor, are you saying the Administration created its own problem?

The legislative history of Act 6991 clearly indicates that Act 6991 was a creation of the executive. In a transmittal letter from the Governor to the Senate President, the Governor not only explained the need and effect of the proposed legislation, but called the legislature into special session to ensure urgent passage of the executive proposal. The Governor directed that, “[g]iven the importance of real property taxes to the budget of the Government, and the significance to the Government of properly administering its own real property tax system, this matter is of the utmost priority.” (Letter of John P DeJongh, Governor of the Virgin Islands 1, Feb. 5, 2008.) The consequent bill introduced by the Senate President bears the telltale indicator of its origin: “RECOMMENDED BY: THE GOVERNOR.” (Bill No. 27-165 at 1.) (Pg. 17)

From the show-cause hearing, the Court has before it clear and convincing evidence that the Government was aware of the May 12, 2003 Decree and understood its reach. Accordingly, to the extent the Defendants caused Act 6991’s promulgation with full knowledge of the May 12, 2003 Decree, the Court finds the Defendants’ impossibility argument wanting. (Pg. 18)

So the Administration can’t blame this mess on the Legislature?

…Act 6991 does not speak in mandatory terms. That is, the plain language of that act nowhere compels the Defendants to issue 2006 tax bills. Rather, Act 6991 requires that real property in the Virgin Islands be assessed at 100 percent of its fair market value. At most, Act 6991 provides that the Tax Assessor “may issue real property tax bills for the year 2006 during the Fiscal Year 2008.” That language is permissive. Indeed, operating within similar language, the Tax Assessor has in the past not issued tax bills in certain years. In sum, there is simply no requirement in Act 6991 that the Defendants issue the 2006 tax bills. The decision to issue such bills was solely within the discretion of the executive. Accordingly, the executive bears sole responsibility for that decision. (Pg. 18)

Has the Administration shown any efforts to comply with the court’s order?

…the Defendants have adduced absolutely no evidence to show that they have made any effort, let alone all reasonable efforts, to comply with the May 12, 2003 Decree, at least since the passage of Act 6991. (Pg. 19)

But your honor, the Administration continues to insist they can’t collect taxes at the 1998 levels.

Indeed, the Defendants’ claim that their hands are tied by that act is belied by the Defendants’ previous conduct in these proceedings. As noted earlier, little more than one month after the issuance of the May 12, 2003, decree, the Legislature of the Virgin Islands passed Act 6586. That act acknowledged that “[t]he Virgin Islands is experiencing a severe fiscal crisis that threatens the financial stability of the Government and its institutions,” and therefore provided a stopgap mechanism to allow the territory to collect property taxes pending resolution of these proceedings.

Now, again, the Defendants assert their need to collect such taxes but furnish no explanation why a similar, or any other, stopgap measure is not now available. In sum, the Defendants have fallen far short of their burden of establishing impossibility of compliance with the May 12, 2003 Decree. (Pg. 20)

Your honor, are you saying that the branch of government entrusted with enforcing our laws is guilty of violating the same laws?!?

Indeed, the Government appropriately expects its citizens to comply with all of its laws, including the payment of taxes, failing which they risk severe legal consequences.

The obligation to abide by the rule of law is not limited to the citizenry, however. That obligation is shared with the Government. Neither the governed nor those who govern may decide when and if the rule of law is applicable. If that were the case, the rule of law would be meaningless as the decision to obey a court order would be subject to the whims of one party to litigation – here, an officer of a governmental entity. (Pg. 22)

What does the Supreme Court say about such behavior?

The Supreme Court has never countenanced such an arrangement. (See Contempt Pg. 22). Where that circumstance has occurred, the Supreme Court has also recognized the need to sanction such conduct.

The ability to punish disobedience to judicial orders is regarded as essential to ensuring that the Judiciary has a means to vindicate its own authority without complete dependence on other Branches. (Pg. 23)

Your honor, it seems this court has been disrespected by the Executive branch of the Virgin Islands Government!?!

That is precisely the unfortunate circumstance that presents itself here. The facts surrounding the Government’s issuance of the 2006 tax bills provide this Court with clear and convincing evidence that the Defendants have violated the May 12, 2003 Decree and are therefore in contempt. The Court finds that a sanction that will coerce the Government into compliance with this Court’s Order and compensate the Plaintiffs losses sustained as a result of the Government’s conduct is appropriate. (Pg. 23)

But this government is experiencing a budget deficit. Are you really going to issue penalties?

The remedy which the Court prescribes is not entered lightly. The Court is cognizant of the fiscal concerns of the Government. At the same time, however, the Court is mindful that the legislative Gordian knot about which the executive complains and which it argues ties its hands and compels issuance of tax bills was made possible by the rope and knot-tying instructions supplied by the executive. In essence, the Government has created a situation of peril and now seeks to benefit from it. In the face of a standing court order, both the Government’s conduct and the argument advanced to support it are not only unfortunate, but also troubling. (Pg. 23)

It hurts, but we understand. So what does this cost us?

The Court finds that an appropriate sanction for that contempt is: (1) rescission of all 2006 tax bills issued at a rate other than that prescribed in the May 12, 2003 Decree; (2)payment of a per diem fine of $5,000 from the date of this Order until the Defendants demonstrate to this Court that they have made significant efforts to comply with the terms of this Order; (3) reimbursement for reasonable attorneys’ fees and costs incurred by the Plaintiffs in litigating the contempt issue; and (4) creation of a fund into which property tax revenue shall be paid to be used to satisfy the payment obligations imposed by this Court. (Pg. 24)

Your honor, we appreciate this opportunity to set the record straight.

Court Order (Highlighted Version)

Court Order (No Highlights)

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