Uncertainty over the legal criteria for tax breaks through the University of the Virgin Islands Research and Technology Park is driving away prospective "tenants" at the park who are shopping the region for the most generous tax breaks, RTPark officials claimed at the annual board of trustees meeting Monday.
In May, Gov. John deJongh Jr. vetoed a bill merging two small development agencies because senators amended it in session to expand and redefine the sorts of businesses that are eligible for tax breaks, to include effectively any business that conducts any business online.
In vetoing the measure, deJongh said the amendments "are objectionable” because they radically alter the policies and procedures of both the RTPark and the government with respect to encouraging economic development through the targeted use of tax incentives.
In a separate letter about the veto, deJongh said the amendments radically change the program, putting it at greater risk of federal intervention and changes to the rules governing how and if the territory can offer tax breaks.
"The amendments seek to make permanent what may well prove to be an improper grant of benefits to Internet service providers that have cost – and will cost – our treasury dearly," deJongh said.
Granting those benefits “took tax-paying entities off the tax rolls” and “has put smaller and locally owned and managed businesses at a very unfair disadvantage in this new and developing industry by forcing them to compete against larger companies which do not have to pay the taxes the smaller businesses must pay," deJongh said in his letter.
Since then, the issue has erupted into controversy. Individuals on both sides of the argument have been purchasing radio and newspaper advertisements accusing the other side of nefarious scheming. And the V.I. Internal Revenue Bureau has notified the three affected ISPs: Innovative Communications; Broadband V.I. and Choice Communications, that their tax exempt status will expire in December.
At Monday’s meeting, RTPark Executive Director David Zumwalt claimed the controversy had scared off three large RTPark prospects, while others are looking harder at Puerto Rico and some are simply shopping for whoever will give the most benefits.
Relaying a report from marketing director Steve Rohrlick, who was not at the meeting, Zumwalt said, "The current issues with the governor and attorney general opinions has resulted in the loss of three large prospects."
"Two were involved in the energy industry and he had previously reported that these were under nondisclosure agreements with us. The third company is a biotech company involved in stem cell research. But they perceived the circumstance in the U.S. Virgin Islands is too unstable politically and they have decided to go elsewhere," Zumwalt claimed.
Rohrlick has reportedly claimed two companies have already moved some staff to the territory in hopes of being able to apply and qualify. "One in fact has been awarded two contracts that are on hold pending on how the current issues are resolved," Zumwalt claimed.
Three more companies "that are high quality and immediate prospects … are having second thoughts because of the threat of benefits being logged back and the lack of clarity on what is going to be requested or expected with respect to or towards development obligations," Zumwalt claimed.
He raised the specter of other locations luring companies away with more generous terms. "Unfortunately they are revisiting Puerto Rico as an option but they are continuing to negotiate with us while they wait to see what happens," Zumwalt said. Rohrlick reported that several other prospects are at early stages of discussion, "although one has indicated that they are comparing a variety of economic development programs in the region to see where they can get the best return on investment," Zumwalt said.
In a phone conversation after the meeting, Zumwalt said the board of trustees stood behind its original decision to grant benefits to ISPs. He said he did not want to "get ahead of the board" or speak on its behalf, when asked specifically what was incorrect in the governor’s conclusions about the law. Zumwalt also would not give the names of the alleged interested companies or those who he claimed went elsewhere.
Sen. Nereida "Nellie" Rivera-O’Reilly, who introduced the amendment that prompted deJongh’s veto, criticized the governor’s action when reached by phone last week, alleging that deJongh hopes to damage the tech park to benefit the V.I. Next Generation Network’s government-owned fiber-optic broadband network.
"I think the implications are very serious when you sent a message to the RTPark that the government can change its mind after it awards benefits. I think it violates the Constitution," O’Reilly said. However, the RTPark issued the benefits, not the government.
She disputed that it could be about tax revenues, saying 5 percent gross receipts taxes on the telecoms and ISPs would only amount to about $2.6 million annually. She suggested the veto was part of a plan to force ISPs to contract to purchase broadband from the viNGN, alluding to a Government House "action plan" to help viNGN, in part, by directing business toward the network.
When asked, O’Reilly did not say how the governor’s veto and the legal reasons behind it would force ISPs to purchase from viNGN. But she insisted there was ill intent.
"There is an objective that is very dark and scary," O’Reilly said. "Why have legal negotiations behind closed doors that ought to go before the senators?" she asked, referring to three legal opinions about the RTPark that deJongh requested from Attorney General Vincent Frazer. Those opinions articulate the same conclusions deJongh expressed in his veto letter, with additional citations to V.I. Code and legal precedent. They also conclude that RTPark tenants are legally obligated to lease space and reside at the RTPark, which is problematic because none of the park’s "tenants" have done so to date.
O’Reilly said she had not been lobbied by anyone, but introduced the amendment on behalf of Senate President Shawn-Michael Malone.
Reached Monday, Malone said he was surprised and blindsided by deJongh’s veto and thought the bill was an uncontroversial clarification of the law. "I don’t care who the companies are. I got a lot of my lead from (RTPark Board Chairman Alex) Moorhead and Zumwalt," Malone said, adding that he understood it to clarify the intent of the law and protect the contractual arrangements between companies and the park.
"We don’t want a bunch of lawsuits and people, potential investors, turned away," Malone said. Malone did not say if he was for or against revisiting the RTPark amendment. "The big thing is for us to look comprehensively at our tax benefit programs going forward," he said.
Asked Tuesday why the governor decided to challenge and cancel RTPark tax benefits several years after they were awarded, Government House spokesman Jean Greaux said the government only became fully aware of the extent of benefits fairly recently, after the Legislature gave the governor final approval over benefits in 2012.
"The RTPark does not disclose the terms of its relationships with ‘tenants’ and the information that is made available, such as that on the RTPark website, only provides limited details on the identity of beneficiaries and no particulars on the benefits they are receiving," Greaux said.
Asked about the suggestion the governor is trying to favor viNGN at the expense of the RTPark, Greaux said the two are not in competition with one another.
"Both are in very different areas of business and they do not compete; yet the success of the RTPark is beneficial to the traffic that will be generated and used by viNGN," Greaux said. "They are not competitors – and frankly could not be further from. Their operations, in fact, should complement each other, and the RTPark should welcome a territorywide high-speed, high-capacity 100 percent fiber network," he said.