The U.S. Department of Interior will release about $63 million more advance rum revenues to the territory, reversing last year’s decision to withhold a portion, Gov. John deJongh Jr. and Delegate Donna Christensen announced Friday. At a stroke, the decision reduces this year’s V.I. government budget deficit by at least half.
Every year the U.S. Department of the Interior advances the territory the projected excise tax revenues for the year, based on estimates provided by the territory’s local rum producers: Beam Inc., which owns Cruzan Rum, and Diageo PLC, which produces Captain Morgan’s Rum.
For the 2013-14 Fiscal Year, the V.I. government requested an advance payment of $263.9 million, calculated at the existing cover-over rate of $13.25 per proof gallon.
But that rate depends on Congress approving "tax extender" legislation that extends the $13.25 cover-over rate for the next year. Congress extends the cover-over rate every two years.
When the cover-rate is extended, it is normally a retroactive calculation, allowing the cover-over rate to remain at the higher dollar value, thereby ensuring the Virgin Islands get the payment at $13.25.
In September, due to uncertainty over congressional budget talks, Interior reduced the amount it will advance to $193.1 million – $70.8 million less than requested.
When Congress failed to approve the tax extension by Dec. 31, the amount covered over to the territory dropped to $10.50 per proof gallon.
This change helped feed a roughly $70.5 million projected V.I. budget deficit.
DeJongh said he received word of the change Friday, while meeting with Interior Department officials.
“We met this afternoon with Acting Secretary Lorraine Faeth and Interior Insular Affairs Director Nick Pula and once again made our case for the release of the advance payment at the $13.25 extender rate," deJongh said.
At the conclusion of the meeting, the department informed him it will release about $63 million to the V.I. government, deJongh said.
On getting the word, deJongh said he notified Christensen and Senate President Shawn-Michael Malone and thanked them for their tireless lobbying efforts.
In a statement, Christensen said she spoke with U.S. Interior Department Insular Affairs Director Nick Pula as recently as Tuesday to keep pushing for the full amount. She learned Friday that Interior had reconsidered its decision and the full amount, which she said was roughly $63 million, would be released.
“Director Pula has always been supportive of getting us the money,” Christensen said. “I recognize that the Interior Department itself was under intense scrutiny and, therefore, more cautious about giving us an advance without the authorization in place. They have done that in the past, but the government shutdown and sequester in place last year also made the decision more difficult.”
DeJongh and Christensen both emphasized that the ultimate goal is a permanent lifting of the cap on rum revenues and a return of the full $13.25 rate to the treasury of the territorial government.
“We are hopeful that since the House Ways and Means Committee is working to review all of the over 100 extenders of which our rum revenues are one, and deciding which ones should become permanent, that we will achieve the goal that we set out for, a permanent lifting of the cap and the return of the full $13.25 to the Virgin Islands treasury,” Christensen said.
Getting the funds will greatly help with this year’s budget deficit. In his state of the territory address in January, deJongh highlighted a looming budget deficit of $70 million and proposed a late February summit meeting with the 30th Legislature to work out a consensus plan to chop it in half. He said at the time that the federal government would most likely eventually advance us the full cover over amount, which he said would solve the other half of the deficit.
While the news is very good, these rum revenues will not completely solve the deficit, because some of the money goes back to the rum companies, under the territory’s master agreement with them.
“Once those monies are paid, the remainder, about $30 million, will be deposited in the government’s coffers. I view today’s development as the first step in facing our budget shortfall this fiscal year but we have some ways to go to bridge the more than $70 million projected deficit by the end of September,” deJongh said.
