Whether the V.I. Community Bank's Industrial Development Commission tax breaks will extend to the local assets of Chase Manhattan Bank remains one of the biggest questions surrounding the buyout since it was announced last week.
V.I. Community Bank chairman Michael Dow told the V.I. Independent last week he believes the benefits will carry over. IDC Executive Director Frandelle Gerard, however, said the extension of the incentives could not be determined until the purchase is finalized and the government can review all the documents.
And outspoken Central Labor Council President Luis "Tito" Morales said he believes VICB's benefits apply only to its St. Croix property.
"They only gave benefits to that bank; he has to go back to (the IDC)– that's my understanding," Morales said Friday.
"What they got exemptions for doesn't mean any other bank he acquires. The agreement would have said that," he said. "If the government doesn't put up this argument, I will have to come as a private citizen, on behalf of myself as a taxpayer, and file a class-action suit."
A top official from the Farrelly administration said last week the IDC benefits were extended to VICB in order to assure that people would not lose their jobs when Banco Popular bought out Core States Bank. The St. Croix branches of Core States were exempted from the purchase.
Sue Krasnove, vice president and Eastern Caribbean region manager for Chase, was quoted as saying Wednesday when the sale was announced, "We are very pleased that as part of the sale to the Virgin Islands Community Bank and its affiliates, all employees will be given the opportunity to continue their employment."
VICB's 1995 IDC certificate, while giving the bank vast tax breaks until 2004, doesn't mention future acquisitions. The only mention of the future in the agreement is a sentence which reads: "The grant of benefits hereinafter described is for the beneficiary or any successors approved by the Commission to conduct the business of owning and operating a full service territorial community bank."
Under the IDC agreement, VICB is exempted from paying 100 percent of its property taxes, gross receipts taxes and excise taxes on raw materials, equipment and machinery, and 90 percent of income taxes.
VICB was also granted dividend and interest withholding-tax exemptions.
VICB is owned by Jeffrey Prosser, who also owns Vitelco, Vitelcom, VitelCellular, V.I. PowerNet, St. Croix Cable TV, St. Thomas-St. John Cable TV, and the Daily News Publishing Co., which publishes the Island Trader, Focus, the Virgin Islander and Island Delights as well as the Virgin Islands Daily News, plus prints several other publications.
Dow did not return phone messages left last week.
Morales said the government should examine the matter carefully because it can't afford to lose the tax revenues it collects from Chase.
"This government, in its financial position, cannot afford these exemptions," Morales said. "Isn't it a revenue loss? Can we afford to have revenue losses? These exemptions are good until 2004 and I have a problem with that. I think we need to study this."
According to a source inside Chase, the bank paid $6 million in income tax in 1996, $7.5 million in 1997 and about $6.5 million in 1998.
Under its benefit agreement, VICB agreed to invest $3 million in the territory and employ at least 47 persons, 80 percent of whom had to be V.I. residents.
The agreement's special conditions require VICB to provide venture capital, advice and support to local businesses, work with the Small Business Development Administration and other programs designed to assist locally owned businesses, and establish a corporately funded "Employee Stock Ownership Plan."
The special conditions also obligate VICB to make scholarship contributions of $5,000 a year for four years for Virgin Islands student majoring in finance, and create internships for college and high school students.
Morales said he doesn't believe any banks should be given IDC tax breaks.
"How can a banking institution be given exemptions when they're making money? And they make a hell of a lot of money," he said. "How can the IDC give a bank these types of tax breaks? This is ludicrous."
The Community Bank's purchase of Chase sheds some light on the land-for-tax-breaks deal Prosser offered the government earlier this year. Under his proposal, his Innovative Communications Corp. would have given the territory 1,000 acres of Carambola land and built several capital projects in exchange for 30-year tax breaks for all its companies except the Daily News.
"I am not against Mr. Prosser," Morales said. "Mr. Prosser is a businessman who wants to do business, and he's doing well. The problem I have is whether the government can afford to have its taxes reduced by his purchases. So, you can see what that 30-year deal would've done to this territory and to this government."
