When the Virgin Islands made a deal with liquor giant Diageo to move its Puerto Rican rum production to St. Croix, Puerto Rico wasn’t happy.
When Gov. John deJongh Jr. made a similar deal with Cruzan Rum to solidify the St. Croix-based distillery in the territory for the next 30 years, Puerto Rico cried foul.
The territory’s island neighbor has launched a campaign in Congress to prohibit that kind of deal, arguing that they are an inappropriate use of federal rum funds returned to the territories – the so-called rum cover-over – and give a windfall of government money to private business.
Puerto Rico Resident Commissioner Pedro Pierluisi introduced a bill in Congress, HR 2122, that would limit the amount of rum funds that could be used directly for such projects, and congressional friends of Puerto Rico have been pressing House officials to act on the measure.
Now deJongh is firing back, sending a letter to Rep. Charles Rangel, the chairman of the House Ways & Means Committee, which has jurisdiction over the bill, seeking to "set the record straight" regarding Puerto Rico’s campaign and Diageo’s plan to develop its distillery on St. Croix. The Nov. 13 letter challenges as "misinformation" the story being told in the nation’s capital about the Diageo deal.
“The USVI did not lure Diageo away from Puerto Rico," deJongh’s letter to Rangel says. "Puerto Rico was unable to renew a contract with Diageo.”
At issue is the tax deal by which bonds – backed by a portion of the territory’s rum cover-over funds – are providing the monies to build the new Diageo plant now under construction on St. Croix.
Puerto Rico claims the deal amounts to the promise of billions of dollars in subsidies to the liquor company paid from U.S. rum taxes, possibly as much as 50 percent of the islands’ share of the funds.
Similarly, the Cruzan deal will allow the St. Croix distillery to use bonds backed by the rum funds to build its long-needed wastewater treatment facility and expand its production. Both deals require a commitment on the part of the company to remain in the Virgin Islands for 30 years.
HR 2122 would cap the amount of the funds that could be directly used on the liquor industry at 10 percent.
The governor called HR 2122 a terrible idea and emphasized the negative impact such legislation would have on the territories. The Puerto Rico legislation, if adopted, would radically transform the nature of the cover-over statute, which forms one of the foundations of the tax relationship between the U.S. and its territories, for the first time in nearly 100 years, the governor claimed.
DeJongh wrote to Rangel that the campaign to curtail the Virgin Islands’ economic development initiatives sets a dangerous precedent for federal involvement in matters of local and state governments and companies.
“I am not aware of Congress interjecting itself to forbid one state’s economic development initiative or to require offsetting subsidies as compensation,” he wrote.
DeJongh noted that Diageo itself does not produce rum in Puerto Rico. It contracts with a distiller on that island to produce rum, but has been unable to make a long-term arrangement with the company. Before settling on the Virgin Islands, Diageo looked at locating in Guatemala, Jamaica and Guyana, any of which would have meant the loss of jobs to U.S. territories.
So rather than taking jobs from Puerto Rico, he said, the V.I. deals with Diageo and Cruzan have saved and will create more jobs for the U.S. economy.
Thousands of bills are introduced in the House of Representatives each year, and only a small fraction are ever acted on. HR 2122 is one of hundreds currently awaiting action at Ways & Means, according to the website www.govtrack.us, which tracks measures pending before Congress. According to the site, a small number of bills actually receive hearings before the committees, fewer are passed on to the full House or Senate for a vote, and fewer still actually pass.
Pierluisi and his eight co-sponsors have written to Rangel and House Speaker Nancy Pelosi urging action on the bill, but so far it has not been scheduled for a hearing.
The governor said he will continue to "shed light on the misinformation that has been spread by Puerto Rico and its allies."
"These efforts will continue to ensure that Congress understands that this successful public-private partnership will strengthen the Virgin Islands’ economy, put our fiscal house in order, grow a historic rum industry and keep the production of Captain Morgan rum within the United States for at least the next 30 years," the governor wrote.
