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HomeNewsArchivesFinal Vote on Rum Cover-Over Extension Not Likely Before January

Final Vote on Rum Cover-Over Extension Not Likely Before January

Although the U.S. Virgin Islands will have to wait until January before the extension of the rum cover-over gets final approval, Congresswoman Donna Christensen said Thursday she is now optimistic that it will pass.
The extension is part of the rum cover-over, which last year brought about $80 million to the territory. The federal government charges a tax of $13.50 per proof gallon of rum sold in the United States. Then, in the case of rum produced in the Virgin Islands and Puerto Rico, returns the bulk of that money to the territory where the rum was produced. Under the original act, the territories receive $10.50 per proof gallon. Under a bill passed in 1986 at Puerto Rico’s request, the amount was increased to $13.25, but the extension must be reauthorized periodically or it will fall back to the original level.
The extension must be reauthorized by the end of this year. Its passage has been one of Christensen’s major goals for 2009, and until about two months ago, she was confident that it would pass. But then, Puerto Rican anger over the Virgin Island’s Diageo deal flared up in a major campaign to stop the deal, and Christensen worried the turmoil might lead to a backlash in Congress that would endanger the reauthorization.
Thursday the delegate sounded much more confident about the outcome.
The bill, called the Tax Extenders Act of 2009, contains scores of provisions like the cover-over extension. The bill passed Wednesday by a vote of 241-181, with all but two of the yes votes cast by Democrats and all but 10 of the no votes coming from Republicans. The bill now goes on to the Senate, where Christensen expects it to pass, but not before the deadline expires at the end of December.
The Senate is fully occupied with the debate over health care reform, with the Democratic leadership now hoping to get a final vote shortly before Christmas, after which the lawmakers will break for the holiday. Early January is the earliest it is likely to take up the tax extensions issue, Christensen said.
That is not necessarily a problem, she said, because bills like these routinely are enacted retroactively.
Monique Clendinen-Watson, Christensen’s chief of staff, said it’s also unlikely that the heat stirred up by Puerto Rican rum lobby would cause trouble for the extension now that it’s in the bill and passed by one house.
"If they unravel one, they might unravel a whole lot of other stuff that’s in there," she said. "They don’t like that. Generally as long as it comes out of the subcommittee intact it’s safe."
Christensen and Gov. John deJongh Jr. sat down with their Puerto Rican counterparts earlier this week to try to iron out the differences between the two territories, which are usually political allies, but did not reach any agreement.
The dispute centers on the Virgin Islands’ use of rum cover-over money, tax breaks and other incentives amounts to get Diageo to agree to build its new distillery for producing Captain Morgan’s Rum on St. Croix.
When the British liquor giant bought the Captain Morgan’s brand from Seagram’s in 2001, it inherited an arrangement in which the rum was distilled in Puerto Rico by Distileria Serrales, and sold to Diageo, which then sold it in the states as Captain Morgan’s. That deal was due to expire in 2011.
According to Dan Kirby, vice president of DiageoUSVI, the company attempted to renegotiate a long-term deal with the Puerto Rican company but was unable to reach a satisfactory agreement and decided to end the relationship when it expires. The company went looking for a new site to build its own distillery and produce the rum itself. After looking at sites in several other countries they made the arrangement with the territory.
This year the territory made a similar arrangement with Cruzan Rum to expand its production and ensure that it remains on St. Croix.
Puerto Rican officials claim the deal is an improper use of the funds, and their representative to Congress, Resident Commissioner Pedro Pierluisi, sponsored a bill earlier this year to cap the percentage of the funds that can be used as a subsidy to the business. Under his bill, HR 2122, if the Secretary of the Treasury determines that the territory’s submission is an unreasonable subsidy, the territory forfeits the funds and the other territory will receive them.
Christensen said she would be willing to consider some such cap on future use of the funds, but adamantly opposes any measure to impose the restraint retroactively, because the funds have already been committed and bonds already sold. At this point in negotiations, she said, Puerto Rican officials are holding firm on forbidding not just the kind of deal that Cruzan and Diageo got, but those deals themselves.
Meanwhile, each side in the dispute has been garnering supporters. Earlier this month the Service Employees International Union, one of the largest and fastest-growing labor unions in the United States, wrote House Speaker Nancy Pelosi calling for hearings on HR 2122 and blasting the V.I. deals with the two liquor companies as "un-American."
This week the territory picked up two important supporting voices. The Congressional Black Caucus wrote to Ways & Means Chairman Rep. Charles Rangel, whose committee has jurisdiction over HR 2122, asking him to not let the bill come up for a hearing in committee. And in its online edition, the National Journal, a leading political magazine, extolled the Diageo and Cruzan deals as wise economic investments by the territory, and titled its article, "Democrats Could Take Job Creation Tips From U.S. Virgin Islands Rum War Deal."
Puerto Rico claims the loss of the Captain Morgan’s business will cost 350 jobs in the island and threaten thousands more.
David Paul, a financial adviser to the territory, was quoted in The Hill as saying it was “inconceivable” that there are 350 jobs related to Captain Morgan’s production in Puerto Rico.
“The distillery in St. Croix will create 40 union jobs,” he said. “The agreement (between the territory) and Diageo is going to preserve union jobs in the United States.”

John Baur

The U.S. Virgin Islands will have to wait until January before the extension of the rum cover-over gets final approval, Congresswoman Donna Christensen said Thursday, but she is optimistic now that it will pass.

The extension is part of the rum cover-over, which last year brought about $80 million to the territory. The federal government charges a tax of $13.50 per proof gallon of rum sold in the United States. Then, in the case of rum produced in the Virgin Islands and Puerto Rico, returns the bulk of that money to the territory where the rum was produced. Under the original act, the territories receive $10.50 per proof gallon. Under a bill passed in 1986 at Puerto Rico’s request, the amount was increased to $13.25, but the extension must be reauthorized periodically or it will fall back to the original level.

The extension must be reauthorized by the end of this year. Its passage has been one of Christensen’s major goals for 2009, and until about two months ago, she was confident that it would pass. But then, Puerto Rican anger over the Virgin Island’s Diageo deal flared up in a major campaign to stop the deal, and Christensen worried the turmoil might lead to a backlash in Congress that would endanger the reauthorization.

Thursday the delegate sounded much more confident about the outcome.

The bill, called the Tax Extenders Act of 2009, contains scores of provisions like the cover-over extension. The bill passed Wednesday by a vote of 241-181, with all but two of the yes votes cast by Democrats and all but 10 of the no votes coming from Republicans. The bill now goes on to the Senate, where Christensen expects it to pass, but not before the deadline expires at the end of December.

The Senate is fully occupied with the debate over health care reform, with the Democratic leadership now hoping to get a final vote shortly before Christmas, after which the lawmakers will break for the holiday. Early January is the earliest it is likely to take up the tax extensions issue, Christensen said.

That is not necessarily a problem, she said, because bills like these routinely are enacted retroactively.

Monique Clendinen-Watson, Christensen’s chief of staff, said it’s also unlikely that the heat stirred up by Puerto Rican rum lobby would cause trouble for the extension now that it’s in the bill and passed by one house.

"If they unravel one, they might unravel a whole lot of other stuff that’s in there," she said. "They don’t like that. Generally as long as it comes out of the subcommittee intact it’s safe."

Christensen and Gov. John deJongh Jr. sat down with their Puerto Rican counterparts earlier this week to try to iron out the differences between the two territories, which are usually political allies, but did not reach any agreement.

The dispute centers on the Virgin Islands’ use of rum cover-over money, tax breaks and other incentives amounts to get Diageo to agree to build its new distillery for producing Captain Morgan’s Rum on St. Croix.

When the British liquor giant bought the Captain Morgan’s brand from Seagram’s in 2001, it inherited an arrangement in which the rum was distilled in Puerto Rico by Distileria Serrales, and sold to Diageo, which then sold it in the states as Captain Morgan’s. That deal was due to expire in 2011.

According to Dan Kirby, vice president of DiageoUSVI, the company attempted to renegotiate a long-term deal with the Puerto Rican company but was unable to reach a satisfactory agreement and decided to end the relationship when it expires. The company went looking for a new site to build its own distillery and produce the rum itself. After looking at sites in several other countries they made the arrangement with the territory.

This year the territory made a similar arrangement with Cruzan Rum to expand its production and ensure that it remains on St. Croix.

Puerto Rican officials claim the deal is an improper use of the funds, and their representative to Congress, Resident Commissioner Pedro Pierluisi, sponsored a bill earlier this year to cap the percentage of the funds that can be used as a subsidy to the business. Under his bill, HR 2122, if the Secretary of the Treasury determines that the territory’s submission is an unreasonable subsidy, the territory forfeits the funds and the other territory will receive them.

Christensen said she would be willing to consider some such cap on future use of the funds, but adamantly opposes any measure to impose the restraint retroactively, because the funds have already been committed and bonds already sold. At this point in negotiations, she said, Puerto Rican officials are holding firm on forbidding not just the kind of deal that Cruzan and Diageo got, but those deals themselves.

Meanwhile, each side in the dispute has been garnering supporters. Earlier this month the Service Employees International Union, one of the largest and fastest-growing labor unions in the United States, wrote House Speaker Nancy Pelosi calling for hearings on HR 2122 and blasting the V.I. deals with the two liquor companies as "un-American."

This week the territory picked up two important supporting voices. The Congressional Black Caucus wrote to Ways & Means Chairman Rep. Charles Rangel, whose committee has jurisdiction over HR 2122, asking him to not let the bill come up for a hearing in committee. And in its online edition, the National Journal, a leading political magazine, extolled the Diageo and Cruzan deals as wise economic investments by the territory, and titled its article, "Democrats Could Take Job Creation Tips From U.S. Virgin Islands Rum War Deal."

Puerto Rico claims the loss of the Captain Morgan’s business will cost 350 jobs in the island and threaten thousands more.

David Paul, a financial adviser to the USVI, was quoted in The Hill as saying it was “inconceivable” that there are 350 jobs related to Captain Morgan’s production in Puerto Rico.

“The distillery in St. Croix will create 40 union jobs,” he said. “The agreement (between the territory) and Diageo is going to preserve union jobs in the United States.”

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