A bill introduced in the U.S. Senate Thursday by New Jersey Democrat Robert Menendez would cap at 10 percent the amount of rum cover-over funds that could be used to support the industry and would apply retroactively to the agreements already in place between the U.S. Virgin Islands and the Diageo Corp. and Cruzan Rum.
The bill, S. 3208, was introduced the same day Cruzan Rum was celebrating the groundbreaking for its new wastewater treatment plant, the construction of which was financed by bonds backed by the cover-over funds it will generate. If the cap is passed into law it would endanger the agreements.
The introduction of S. 3208 drew immediate rebukes from Gov. John deJongh Jr. and Congresswoman Donna Christensen, who have been lobbying for more than a year against a campaign to invalidate the agreements.
The bill will cause “a fiscal crisis and inflict untold harm to the Virgin Islands, its economy, and its residents,” deJongh said in a statement from Government House.
“I cannot believe that this legislation has been filed after we have signed partnerships that have rescued our government’s finances from the brink of disaster in this national recession,” he said. “Construction is now well under way at the new Diageo distillery and we are moving forward with Cruzan Rum on environmental improvements. Commitments have been made and economic growth is occurring, which makes Sen. Menendez’s retroactive bill all the more disconcerting.”
The establishment of Diageo’s Captain Morgan’s Rum distillery on St. Croix and the almost doubling of Cruzan Rum’s production will triple the amount of cover-over revenue the territory receives, the governor’s statement noted, calling it “a cornerstone for the Virgin Islands’ fiscal stability and economic future.”
The governor and Christensen met with Menendez in January, and at that time the New Jersey Democrat called the cover-over issue a dispute between two territories, the U.S. Virgin islands and Puerto Rico – which he didn’t think Congress should involve itself in. But a week before introducing S. 3208 an article in The Hill quoted him as criticizing the agreement,
“Menendez opposes the deal because it won’t benefit the Virgin Islands’ economy,” reporter Jay Heflin wrote in the newspaper that covers Congress. He quoted the senator as saying, “I think that the more people know about how this rum tax is being used, the less they’ll like it."
Christensen said Thursday Menendez’s legislation is based on faulty premises.
“Senator Menendez wrongly assumes that the Virgin Islands lured Diageo away from Puerto Rico,” said Congresswoman Christensen on Thursday. “That is what is behind his proposal. The Virgin Islands’ incentives and investment is in the future of its economy, not in a company.”
Christensen emphasized that the rum cover over proceeds are not U.S. taxpayer dollars, but revenues imposed on territorial rum products so that they do not have a competitive advantage over spirits distilled in the 50 states, and are returned to the territories for use in their economic development.
“The senator also does not understand that in addition to the actual jobs created by increased rum production, thousands more are maintained in our tiny economy through our ability to float bonds and build schools, hospitals and other important parts of our infrastructure,” she said. “It is about jobs and about the Virgin Islands future.”
Officials from Puerto Rico have complained that the U.S. Virgin Islands lured Diageo away with the subsidies. In fact, Diageo never owned a distillery there, but contracted with a Puerto Rican company to make the rum it sells around the world as Captain Morgan’s. The company had already decided to build its own distillery and announced it would not renew the contract, which expires at the end of 2011. Only then did the U.S.V.I. enter the picture, persuading Diageo to build its planned facility in the territory instead of a foreign country.
“I am astounded Sen. Menendez would introduce legislation that would drive a company out of America, particularly during this devastating recession, to cater to narrow Puerto Rican political interests and their constant threats to the Virgin Islands and now Congress,” Christensen said. “The proposed legislation benefits no one, it simply attacks the Virgin Islands and its people.”
Menendez’s bill is similar to a bill introduced in the House of Representatives a year ago by Puerto Rico’s Resident Commissioner Peter Pierluisi, in that it caps direct subsidies to the spirits industry at 10 percent. However, Pierluisi’s bill, which is still bottled up in the House Ways and Means Committee, also stipulates that if the U.S.V.I. gives “unreasonable incentives” to the liquor business, Puerto Rico will get the U.S.V.I.’s share of the cover-over funds.