July 27,2006 — Economic Development Authority officials are cautiously optimistic about the future of their tax incentive program and plan to move ahead with various marketing efforts geared toward bringing more businesses into the territory, according to EDA Executive Director Frank Schulterbrandt.
During the second round of budget hearings Thursday, Schulterbrandt painted senators a vivid picture of how the territory's economy is shifting, what steps are being taken to mitigate the impact of federal regulations, and how the Economic Development Commission–an entity designed to develop and diversify the local economy–is attracting a new set of clientele.
He said the decline in the territory's manufacturing industry, due to lower labor costs overseas and on the mainland, has forced the EDA to turn more attention to "service-designated companies," such as hedge funds or asset management groups which remain outside the Virgin Islands.
Additionally, the EDA has begun to recruit–through advertisements, seminars, magazine articles and conferences with potential investors–businesses that would be able to develop the local marine, agriculture, aquaculture and hotel industries, along with telecommunications and e-commerce companies. "The marine industry is something that we're really focusing on," he said. "Things like the Yacht Haven Grande project or the development of the Crown Bay Marina could mean big things for our economy."
After the meeting, Schulterbrandt said the Yacht Haven Grande development has already been granted tax benefits through the EDC program.
"We must now adjust our economic development strategy to compete for service-oriented companies, which require a college degree, and highly skilled individuals who are technologically trained for an innovation-based economy, a knowledge-based economy and an information-based economy," he added during the meeting.
Despite these positive efforts, Schulterbrandt said the federal Jobs Creation Act could still impact the economy, since the U.S. Treasury Department has yet to make a determination on regulations relating to source income requirements — which cast doubt upon whether revenues generated by U.S. companies that have businesses within the territory can be counted as local revenues.
"Most of the people who plan on investing in the territory are OK with the new residency laws and are aware that the source income requirements are subject to change," he said after the meeting. "However, it's the people who already have businesses here that are worried, because it's not as if they've been grandfathered or anything like that."
During the meeting Schulterbrandt said the EDC has approved 80 tax benefit applications. However, "due to a number of variables"–including Treasury's pending determination on the remainder of the Jobs Creation Act–those companies have not yet activated their EDC certificates. "Some of them are just waiting to see what's going to happen," he said.
In the interim, the EDC will continue with its marketing campaign and work on offering as many tax benefit opportunities as possible, Schulterbrandt said. He explained small businesses within the territory are still able to take out loans from the Government Development Bank and the Small Business Development Agency, and are also able to earn tax credits through the authority's enterprise zone program–which awards credits to companies investing in the towns of Fredericksted and Christiansted on St. Croix, and the Savan, upstreet and downstreet areas on St. Thomas.
Schulterbrandt added that more companies would participate in the program if additional funds to subsidize the tax credits were provided by the local government.
Schulterbrandt also urged senators to approve the authority's fiscal year 2007 budget, which is comprised of approximately $3.6 million from the General Fund and nearly $600,000 from revenues generated by entities within the EDA.
He said the General Fund budget includes, among other things, $250,000 to continue various marketing efforts and $1.9 million for personnel services, which would fund eight new "critical" positions, along with 26 filled positions. "These funds would help us to compete on an international level for new investments and the jobs that we need," Schulterbrandt explained.
Bernard Adrien, EDA's director of administration and finance, added that the authority would be able to function more efficiently once $500,000 appropriated by the Legislature in a recent supplemental budget is released by the Office of Management and Budget.
Present during Thursday's meeting were Sens. Roosevelt C. David, Liston Davis, Pedro "Pete" Encarnacion, Juan Figueroa-Serville, Louis P. Hill, Neville James, Norman Jn Baptiste, and Usie R. Richards.
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