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Old 01-30-2010, 05:50 PM   #1
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Default Proposed legislation would limit ability of US Caribbean territories to finance econo

Source: Caribbean Net News

Published on Saturday, January 30, 2010

WASHINGTON, USA -- A Congressional Research Service (CRS) analysis of the rum excise tax cover over program, from which Puerto Rico receives about $400 million annually and the US Virgin Islands about $90 million annually, finds that proposed legislation by the Puerto Rico Resident Commissioner would be detrimental to economic development in the US Caribbean territories if it is passed, said Virgin Islands Delegate to Congress Donna Christensen.

The report issued last week said that “passage of HR 2122 would result in severe limits on Puerto Rico’s and the USVI’s ability to finance economic development projects with this revenue source.”

USVI Delegate to Congress Donna Christensen
“This undermines the intent of the Congress when they designed the program for the territories,” said Christensen. “As the report clearly states, Congress did not outline specific uses for cover over revenue, but it recommends that it be used to stimulate and increase business activity.”

The CRS Report gives a history of the rum cover over program and how Congress intended for it to be used. It points out that the US Senate report language accompanying the Revised Organic Act of 1954 “expressed a desire that the USVI use the covered-over revenue to loosen the dependence of the USVI on periodic appropriations from the US government,” giving “the people of the Virgin Islands…a far greater degree of control over their finances.”

HR 2122 would limit the territories from using more than 10% of their covered over revenue to subsidize the rum industry on their shores. It would be retroactive, affecting already inked agreements with Diageo and Fortune Brands and it would penalize the territory providing more than 10% by giving the excess to the other territory. The report states that “the restriction seems intended to make it more costly for the Virgin Islands to provide incentives to (Puerto Rico rum producers) to relocate to the United States Virgin Islands.”

Christensen reiterated that the US Virgin Islands government entered into agreement with Diageo only after it had decided to leave Puerto Rico and relocate elsewhere. At that point, she said it was only fair that the US Virgin Islands compete with other potential sites in the Caribbean region for the company to locate its operations. “The Diageo agreement and that with Fortune Brands ensures that jobs remain on US soil in these recessionary times,” said Congresswoman Christensen.

The CRS Report outlines how the US Virgin Islands uses its cover over proceeds, to secure tax exempt bonds to finance public infrastructure funding for projects such as schools and roads. It also outlines the “statutory incentives” and others given to Diageo and Fortune Brands. It also points out that Puerto Rico uses its cover over revenue “to finance marketing and promotional activities for the rum industries,” but “the exact amounts and extent of these activities is unclear as there is not separate publicly available budget accounting.” It also cites the claims of Puerto Rico officials that only “about 6%” go to promote Puerto Rican rums.

Christensen pointed out that ten or even six percent of the $400 million in revenue to Puerto Rico is far more than 10% of the $90 million annually to the Virgin Islands. “This legislation would devastate the economy of our small territory,” she stated. “It would unfairly tie our hands in a time when we have to compete in a global economy. One territory does not and should not have the right to limit another.”

Christensen refuted another claim of backers of HR 2122 that US tax dollars are being used to subsidize business. “It is an unfair claim as no individual taxpayer dollars are used in the program, but rather the producers are taxed and that is the revenue that is returned to the treasuries of Puerto Rico and the US Virgin Islands,” she said.

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