July 22, 2008 — New federal regulations have put a damper on the number of businesses coming into the territory, but a long-awaited strategic and marketing plan would show the Economic Development Authority how to reverse the trend and tap into key national and international markets, officials said Tuesday.
Earlier this year the Internal Revenue Service imposed source-income requirements, EDA representatives said during the second round of budget hearings on St. Thomas. The requirements only make benefits offered under the Economic Development Commission's tax-incentive program applicable to businesses that operate "wholly" in the Virgin Islands and ship their commodities — hard manufactured goods — to places outside the mainland. In addition to driving away long-established or new businesses in the territory, the requirement has forced the authority to hit international markets to spur economic development, they said.
The requirements fall under the federal Jobs Creation Act, which, since its passage four years ago, has caused 31 EDC beneficiaries to pull out of the territory and 28 beneficiaries to petition the EDC board for modifications to their existing agreements, according to Percival Clouden, EDA's chief executive officer. The marketing plan would focus on recruiting high profit-margin — and high tax-paying — companies in Europe, such as smaller high-tech manufacturers, software developers and investment bankers, he added.
There is one catch: While the authority has the money to finance the drafting of the plan, it doesn't have enough funds to implement the recommended strategies, Clouden said. The authority already set aside $360,000 in fiscal year 2008 to start the process, and has contracted with Urban Solutions to provide temporary marketing services until the plan has been drafted, Clouden explained after the meeting. However, another $500,000 is needed to hire a company that could actually put the plan into effect, he said.
The $500,000 is also not included in the authority's recommended FY 2009 budget, which totals about $4.5 million. Instead, it came as part of a supplemental budget presented to senators during Tuesday's meeting, which also includes another $368,810 to help the authority carry out the mandates of a tax increment financing bill recently signed into law by Gov. John deJongh Jr. Projected revenues of $695,511 for FY 2009 would take EDA's budget — if the supplemental is approved — up to about $6.1 million, Clouden said.
The authority's personnel-services costs for next year are estimated to total around $2.6 million, along with $714,082 in associated fringe benefits for 46 employees. Capital-outlay costs are expected to hit $50,000, while supplies are pegged at $84,000. Utility costs take up another $105,000 of the authority's budget, leaving about $2.5 million for services and charges — a category that covers everything from telephone expenses to professional-services contracts.
No federal funds or local grants are expected during FY 2009, Clouden said.
Concerns raised by senators throughout the meeting ranged from the need to bring more businesses to the territory to the recent negotiation of EDC benefits for Diageo PLC in an agreement that provides for the construction of a new Captain Morgan Rum distillery on St. Croix.
"I don't see the authority functioning in the same way that it has over the years," said Sen. Ronald E. Russell. "The Diageo deal makes you obsolete, to the extent that the governor can contract into an agreement with a major company and include these benefits without consulting or using the authority."
An argument between Sens. Louis P. Hill and Terrence "Positive" Nelson — centering on the status of EDC benefits for J. Epstein Foundation principal Jeffrey Epstein and support for economic-development opportunities on St. Croix — was also woven into the discussion.
Present during Tuesday's meeting were Sens. Liston Davis, Juan Figueroa-Serville, Hill, Neville James, Nelson, Russell and James Weber III.
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