A bill in Congress to cap the portion of rum cover-over revenues spent to subsidize the industry "could be seen as inconsistent with the intent of the cover-over," according to a recent congressional study.
The study, performed by the Congressional Research Service (CRS), Congress's in-house research arm, also said the bill would severely limit both territories' ability to finance economic development projects with rum cover-over revenues. At the same time, the CRS study's final conclusion bears cause for concern about the future of the rum cover-over program.
The bill, submitted by Puerto Rican Commissioner Pedro Pierluisi, would prevent the U.S. Virgin Islands from using more than 10 percent of the cover-over funds to directly support the industry. It would divert the territory's cover-over money to Puerto Rico if more than 10 percent is directed to the industry.
Delegate Donna Christensen and Gov. John deJongh Jr. both heralded the study as vindication of the territory's agreements with Diageo to build a Captain Morgan rum distillery on St. Croix, and as a blow to the restrictive bill.
The bill “undermines the intent of the Congress when they designed the program for the territories,” Christensen said in a statement. “As the report clearly states, Congress did not outline specific uses for cover-over revenue, but it recommends that it be used to stimulate and increase business activity.”
Parts of the Pierluisi bill would not only limit the territory's use of cover-over revenues to invest in its rum industry, but also limit the territory’s use of its own revenues; something deJongh heatedly condemned.
“It is outrageous that a member of Congress would introduce legislation that would bar our Legislature, or any legislature for that matter, from using its own general fund revenues for any legislative purpose duly considered and enacted by that body,” deJongh said. “California does not tell Florida what its legislature can or cannot do with their own money. I find it completely unacceptable for Puerto Rico to be telling the V.I. Legislature what we can do with our funds.”
Christensen said the bill would "devastate the economy of our small territory.”
“It would unfairly tie our hands in a time when we have to compete in a global economy," she said. "One territory does not and should not have the right to limit another."
The CRS report, published Jan. 20, also confirmed Diageo was already leaving Puerto Rico when they contacted the U.S. Virgin Islands, hence the territory was not enticing it away from its neighboring territory, a fact both deJongh and Christensen highlighted in their statements.
It also helps to show why Puerto Rico is dead set against the distillery coming to the U.S. Virgin Islands. Nearly all the excise tax on rum produced in the two territories is given back over to them. But taxes on rum produced outside the United States altogether are also given over to the two territories, according to a complex formula based upon their relative shares of the U.S. rum market. If a distillery leaves Puerto Rico and goes to another country, both territories still get similar portions of the tax revenue.
But, the study concludes, "if production shifts between the two possessions, the 'losing' possession would lose all of the revenue generated by the relocated rum production." Thus, the possession losing the rum producer would be better off if the rum producer relocated outside the nation altogether.
Government House Director of Communications Jean Greaux said this was the real reason for the Pierluisi bill. “Puerto Rico would have been fine with Diageo going anywhere but the U.S. Virgin Islands,” he said.
While the CRS report may give hope to opponents of Pierluisi's bill, not all of its conclusions are rosy for the territory.
"From the perspective of U.S. taxpayers, some may question the efficacy of the rum cover-over, regardless of the historical precedent," the report says in its last paragraph. Proponents of Pierluisi's bill have "alluded to the possibility that Congress may reconsider the cover-over principle generally, possibly ending the program, if the USVI uses the revenue for 'unreasonable' subsidies."
That final note must give both Puerto Rico and the U.S. Virgin Islands pause.