The Malone Amendment to the RTPark Law has significant economic and social ramifications for the entire territory, which the St. Thomas-St. John Chamber of Commerce wishes to bring to the attention of the community.
First, the Malone Amendment is not merely "technical" – it is substantive. It is not a mere correction of some oversight in the original Research and Technology Park legislation. Second, the Amendment attempts to make legal the tax breaks already given to Innovative, Choice and Broadband VI. These exemptions, which go back as far as 2006, significantly impact the general operations of the government and inhibit competition. Third, the Amendment eliminates the requirement of being located at the Research and Technology Park on the St. Croix Campus of the University, undermining the intent of the original legislation to stimulate the St. Croix economy.
As to the first point, the Malone Amendment is an attempt to deflect questions raised by the Attorney General as to the eligibility of Innovative, Choice and Broadband VI for tax exemptions. It represents an outright effort to amend the definitions of the law to include these companies, and expand this benefit to an even wider group. The Amendment greatly expands the types of businesses which could receive tax benefits to include telecommunications and Internet service providers, and even their lobbyists and consultants. Clearly this is not a technical amendment but a major policy shift that merits impact analysis and public hearings.
By tacking an amendment onto another bill, Senator Malone bypassed the Senate’s Committee on Economic Development, Agriculture & Planning as well as the Rules Committee. By characterizing it as merely technical, sweeping changes to the law went through without opportunity for a full legislative investigation or public comment on their economic impact. The Chamber’s EDC/RT Park Committee, which has worked with the EDA and RT Park board and staff for over a year to update the EDA law, would have provided testimony on the legislation had it been afforded an opportunity to be heard.
The economic impact of the Malone Amendment is enormous. Starting in 2006, (and without public hearings such as those conducted by EDA, WAPA and PFA), the Research and Technology Park handed out tax breaks to three existing local companies, Broadband VI, Choice and Innovative. With the stroke of a pen, three companies which produce significant revenues in the Territory were removed from the tax rolls.
It is obvious that the loss of gross receipts and corporate income tax from three large revenue generators reduced the general operations of the government and contributed to the deficit we now face. Let us not forget what we have all experienced since 2011: we saw an increase in the gross receipts tax from 4% to 4.5%, and the rate was then increased to 5%. Government workers suffered an 8% pay cut. Budget shortfalls have precluded adequate levels of funding to pensions, hospitals, schools and roads. All of this has a tremendous negative impact on our economy and standard of living, without a demonstrable benefit.
Over the past few days, we have been hearing that the program has generated 200 or 250 jobs. Clearly the employee rosters of the three existing companies (“Choice, Broadband VI, and Innovative”) taken off the tax rolls make up the bulk of these jobs, which leaves only 45 or so new jobs, with few if any actually located on St. Croix or at the University, and there is no public listing of what these jobs are or whether they represent local hires.
Another detrimental effect of awarding tax exemptions to Innovative, Choice and Broadband VI is the negative impact on competition. The Chamber believes in free and fair competition in the marketplace, which leads to lower prices, better quality and greater choice. We are concerned that three existing local companies, which collectively dominate the market for Internet service in the Territory, have cooperated with the Research and Technology Park to obtain tax exemptions as "tenants" of the Park. Their tax free status creates an unlevel playing field and serves as a barrier to entry to other Internet providers, thus stifling competition which could bring faster download speeds and lower prices.
According to statistics maintained by the National Telecommunications and Information Administration and the Federal Communication Commission at www.broadbandmap.gov, the Virgin Islands ranks last in the nation in Internet speed. The key to building our 21st century economy is to expand the availability of affordable high speed Internet throughout the Territory by fostering robust competition that will lower prices and increase speeds.
The original mission and purpose of the Research and Technology Park seems to have gone by the wayside since the Park was established in 2002. The concept was to build on the connectivity of the Global Crossing/Level3 cable landing by using tax incentives to attract new businesses to the Territory that would be located on the St. Croix Campus of the University, where they would create a synergy by engaging in research and development to expand the educational opportunities for our youth in science and technology, and would provide internships and high level tech jobs to students and graduates of the program.
As implemented by Executive Director David Zumwalt and the RT Park board, after twelve years and $13 million of taxpayer funds to build a new building, we have yet to see a high tech business located on the St. Croix Campus and engaged in research, development, or educational activities and providing students with meaningful opportunities for internships or high level tech jobs. Instead of generating a trained workforce ready to assume high tech jobs, the Research and Technology Park granted tax benefits to "tenants" not actually located at the University. The Malone Amendment seeks to make virtual or make believe "tenants" legitimate by vastly expanding the definition of "Research and Technology Park" to even include the data cloud, which is about the broadest definition imaginable.
The Malone Amendment’s expansion of the definition of the Park to include computer "servers . . . which constitute the data cloud of the Park" is so broad that it doesn’t even require the Park itself to be located in the Virgin Islands, let alone on St. Croix. We cannot believe anyone intended this result or possibility. By going from an existing definition that clearly states that "’Research and Technology Park’ means real property" to an amended definition which makes the Park and its Tenants "operating and residing in the Park for all purposes" as long as they pass points of light though a server leased by the Park, the Amendment makes a sweeping change to the nature of the Research and Technology Park and the requirements to qualify for a tax exemption that widely expands the types of companies and activities that can obtain tax breaks through the auspices of the Park. A strong St. Croix means a stronger economy for the Territory, and removing the requirement for tenants to locate at the University’s St. Croix Campus has significant ramifications for the St. Croix economy.
The Malone Amendment represents a profound lapse of the democratic process which has deprived the community of the opportunity to evaluate its effects and implications. The Research and Technology Park has demonstrated an inability to administer the original law as written, and has weakened the integrity of our tax incentive programs by allowing companies that do not clearly meet statutory definitions to receive tax exemptions.
We urge the Governor to veto the law. We propose that the EDC assume control over the tax benefits portion of the Park, and the University resume the responsibility for development of a meaningful research and development initiative that fosters education and job opportunities in the research and technology fields. Additionally, the Chamber has no issue with the territory aggressively attracting new e-commerce companies which create jobs and we stand ready to join with those committed to achieving those ends.
Editor’s note: Sebastiano Paiewonsky Cassinelli is the president of the St. Thomas-St. John Chamber of Commerce, and Adriane Dudley is the chair of the Legislative Committee of the St. Thomas-St. John Chamber of Commerce.