WASHINGTON –Leaders of Puerto Rico and the Virgin Islands are feuding over new legislation that has the potential to change how both US territories function economically.
About a year ago, the world’s leading beverage distributor, Diageo, moved from Puerto Rico to the U.S. Virgin Island of St. Croix. The company signed a 30-year contract with the territory to build a distillery on the island. The Virgin Islands government agreed to fund the construction of the plant, and in return would receive about 50 percent of the rum-maker’s revenue during its stay there.
The Virgin Islands is funding the new plant with tax revenue it receives from the rum cover over program, which was established by Congress to support economic development in U.S. territories. The revenue comes from a tax that is imposed on locally produced rum sold in the states, which is intended to equalize the cost of alcohol produced in the territories versus alcohol produced in the states. The U.S. government then returns that money to the territories to use for the general welfare of the economy and people.
Historically, a large portion of this tax money goes toward rum manufacturers in the territories, since they provide a great deal of revenue for these islands.
But Diageo’s move sent Puerto Rico’s leadership into an uproar. Puerto Rican officials have since claimed that the Virgin Islands lured Diageo away by offering this new deal.
Puerto Rico’s delegate to Congress Rep. Pedro Pierluisi recently introduced a bill that would place a hard cap on the territories’ ability to use rum excise tax revenue to fund rum distributors. The bill would limit the amount rewarded to these private companies to 10 percent, while currently there is no restriction on how this tax revenue can be used by each territory’s government.
“Based on certain events that took place during the 110th Congress,” Rep. Pierluisi said, “it seems clear that political support in Congress for the cover over program is likely to dissolve should it become known that a territory is using an unreasonable amount of its cover over funds to subsidize wealthy, foreign rum producers, rather than using the lion’s share of its cover-over funds to promote the general welfare of its citizens.”
Pierluisi’s bill directly objects to the Virgin Islands’ agreement with Diageo, while Virgin Islands leaders claim this deal will create economic sustainability for the territory.
Virgin Islands Rep. Donna Christensen said the territory will use the money it brings in from Diageo to boost its economy, which will include the modernization of century-old school buildings.
“[Diageo] will bring significant revenues to the territory,” said Christensen. “[Puerto Rico] can object, but they cannot intervene in another territory’s business, or in the way we decide to use our rum subsidies. It can be used for any purpose our government decides.”
Christensen said she and Virgin Islands Gov. John de Jongh, Jr. are working hard to stop Pierluisi’s legislation that would change the rum cover over program.
Leaders of both governments recently met to reach an agreement that would work for both territories, but so far they have come to no conclusion.