Gov. John deJongh Jr. on Friday vetoed a bill he requested, authorizing creating a public corporation to receive and hold the assets of Lonesome Dove Petroleum Company, Inc., saying the Legislature’s substitute bill is poorly thought out and puts tens of millions of dollars in tax revenue at risk.
The territory was awarded the leases, which generate around $1 million annually, as settlement in a tax case. The company owes roughly $30 million. In committee hearings, Attorney General Vincent Frazer said the government needed a vehicle to oversee the assets so the court will turn them over and out of receivership.
The bill from Government House placed the new entity under the control of the Public Finance Authority. The entity would turn over revenues to the government. The first million dollars each year would go to early childhood education and healthcare, and if there is any amount in excess of $1 million, it would be deposited in the General Fund.
Sen. Myron Jackson proposed an amendment, which was approved, placing the new entity under the Government Employee Retirement System and devoting its revenues to shoring up the ailing pension plan.
In justifying his veto, deJongh said the version the Legislature passed fails to provide an acceptable mechanism for the company to continue to pay its outstanding tax obligation of approximately $30 million to the Virgin Islands Bureau of Internal Revenue.
“Had anyone sought to discuss the amendment of my proposal before it was approved on the floor of the Legislature, we would have been eager to explain again that this corporation has been held for many years by an officer of the District Court of the Virgin Islands for the purpose of marshaling and conserving its assets to pay off a tax obligation owed by the company to the Treasury of the Virgin Islands," deJongh said in his statement.
The territory has to keep the company in existence to keep paying its tax obligation to the government, according to deJongh. And so long as revenues go through the Internal Revenue Bureau to the V.I. Treasury, all those revenues are "as a repayment of a tax debt, free from federal taxation," he said.
But if the assets are instead transferred to GERS, any federal tax exemption would no longer apply, according to Government House. As a result, diverting all the proceeds to GERS would cost the territory millions of dollars in lost revenue, according to deJongh.
"The assets must be transferred to a Virgin Islands entity which, under the auspices of the (PFA), would hold Lonesome Dove and continue to receive its delinquent tax judgment payments. Only when those tax payments are received and entered into the official records of the Bureau is the territory free to direct those funds to any appropriate public purpose without federal tax implication,” deJongh wrote in his letter to the senate president.
DeJongh also said GERS had not sought the role assigned it and was not suited to the job, while PFA is.
“Having the company within the PFA is consistent with statutory purposes and will appropriately enable the territory to continue to receive long-owed taxes. Additionally, any and all actions of the PFA are done with the approval of the Legislature and are subjected to your annual reviews,” he said.
DeJongh also objected that his bill would help fund early childhood education, while the amended version would not.
In his letter the governor urged the Senate to set aside what he called its "normal route of a veto override" and encouraged the lawmakers to take up the original legislation he submitted.
“To achieve the desired outcome in the vetoed measure, I propose that we work together on an acceptable mechanism that would allow for an eventual transfer of the assets to GERS when they are at their highest value, then to be monetized and applied toward the unfunded liability when we can mitigate the federal tax impact. I believe such an approach would achieve all of these most worthy objectives and serve multiple groups in our community,” he said.
Acting on other legislation Friday, deJongh approved a Coastal Zone Management permit to dredge off St. Thomas for cruise ships, and legislation letting the V.I. Port Authority refinance bonds to save interest and fund V.I. port improvements. (See Related Links below)
