DeJongh Vetoes New Proposed Film Industry Tax Breaks

Gov. John deJongh Jr. vetoed legislation that would have completely rewritten existing V.I. movie and video production tax breaks to meet film industry expectations and allow big companies to sell tax credits if the credits are larger than their tax obligation, in one of his final acts as governor Thursday. The governor also signed an array of legislation on matters from zoning to criminal law.

The vetoed measure, sponsored by Sen. Clifford Graham, would have repealed and replaced the STARS Act, which was enacted in 2011 and gave large tax breaks to encourage video and film production. [Bill 30-0417]

Introducing the measure in committee, Graham said film industry representatives had expressed a desire to have benefits that were more comparable to those offered by a number of states. The new version also ties some benefit levels directly to the employment and spending on the project, so that larger productions get more generous benefits, but always with a net benefit to the territory.

Graham’s bill would give tax credits of 10 to 17 percent of the wages and salaries of Virgin Islands residents employed on the project, which the company could then sell to any other V.I. taxpaying business, if they owe less than the credit. The credits were set up that way to give bigger incentives to bigger projects, while also ensuring the territory still benefited.

It also would give a break on the territory’s hotel occupancy tax, based on the number of rooms booked and for how many nights. And it would create a new division within the Economic Development Authority to handle the film and video industry.

DeJongh said the legislation "seems to have sacrificed our local music and audio production industry in an attempt to appeal to the worldwide film industry," in his letter to the Legislature explaining his veto.

"Although music and audio production companies are eligible for benefits through the Economic Development Commission, these smaller artists and companies cannot absorb the cost of entry or regulatory requirements to make it a viable option. This is in fact an emerging area that appeals to our younger generation and requires our careful nurturing," deJongh said.

DeJongh also objected to the fact that the bill created "an entirely separate department within the Economic Development Authority … without providing the necessary funding to support its operation."

He also vetoed a rezoning measure for Parcel No. 48C Estate Lindberg Bay, saying it incorrectly rezones the parcel to a nonexistent category and would not bring the parcel into conformity with zoning laws.

While he signed the overarching, unrelated legislation, an amendment intending to make the Career and Technical Education Board a semi-autonomous agency contains drafting errors that "nullify any effect this amendment was intended to achieve," deJongh wrote.

The governor approved most of the legislation approved by the Legislature in session Dec. 19, (see Related Links below) including a bill sponsored by Sen. Diane Capehart to expand preferential status for local contractors on government contracts by further reducing preferential bonding requirements and requiring semiautonomous government agencies to give preferred provider benefits.

Under the V.I. Preferred Provider Act of 1971, central government contracts entered into by the Department of Property and Procurement are required to go to local contractors on a list of preferred providers, even when the local bid is more expensive, as long as the local provider’s bid exceeds the lowest bid by no more than 15 percent. That law, which has been amended several times over the years, also has reduced bonding requirements for preferred providers, with bid bonds capped at 2 percent of the bid amount for up to $300,000, and 5 percent for contracts greater than $500,000. Performance bonds are capped at 25 percent of the bid for preferred providers.

Capehart’s bill expands the reach of the Preferred Provider Act to include contracts by semiautonomous agencies that do not rely on Property and Procurement. That includes the University of the Virgin Islands, the V.I. Water and Power Authority and the territory’s hospitals, among others.

It removes language in the law saying the commissioner of Property and Procurement "may accept forms of surety from preferred bidders other than bid bonds or performance bonds," replacing it with a short list of specific alternative forms of surety, including "a 20 percent cash escrow" of the performance bond cap of 25 percent of the bid.

This would mean that on a $100,000 government contract, a preferred provider could set aside $5,000 in escrow and that would suffice as surety to guarantee performance on the contract.

The governor also signed several bills:

– Appropriating $41 million in funds available from the partial settlement of the South Shore NRD litigation over environmental cleanup on St. Croix and putting all of it into the General Fund for the current fiscal year

– To allow police learning of a missing minor or dependent adult to get to work immediately tracking him or her down instead of waiting 24 hours

– Turning a block of Frederiksted’s Strand Street into a one-way street

– Making it a misdemeanor to make or sell fake driver’s licenses or identification cards

– Commending St. Thomas-born V.I. Olympic volleyball player Megan C. Hodge for her athletic achievements

– Amending an appropriation to run potable water lines to Five Corners on St. Croix, to instead replace water lines in Frederiksted and run potable water to the cruise ship pier in Frederiksted

– Setting a floor on interest rates charged by banks in the territory

– Honoring Joseph Olmeda, the owner of Colorama Home Improvement Center on St. Croix

– Honoring Celestino White, former St. Thomas senator, and naming the senior citizen’s residential facility in Estate Thomas in his honor

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