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Senate to Act on Captain Morgan Deal in Special Session

June 27, 2008 — The Legislature has been called into special session at 10 a.m. July 8 to take action on a 30-year agreement between the government and Diageo PLC that would bring a new multi-million dollar Captain Morgan rum distillery to St. Croix.
A bill to ratify the agreement, which was drawn up earlier this month and made public by Gov. John deJongh Jr. in a radio and television address Monday evening, was submitted to the Legislature late this week. According to the bill, the agreement will "promote a greater measure of economic self-sufficiency and autonomy" for the territory by creating a new stream of excise-tax revenues that would help alleviate old government debts — including a more than $1.2 billion unfunded liability plaguing the Government Employees' Retirement System.
The federal government currently collects $13.50 in excise taxes on each proof gallon of V.I. produced rum sold throughout the mainland. Of that amount, $13.25 is remitted to the V.I. government.
However, most of the excise-tax revenues currently garnered from Cruzan Rum sales are either pledged against government bonds or have been put toward capital improvement efforts, leaving only about $18 million for the General Fund each year, deJongh explained in his public address.
The agreement with Diageo — which hinges upon the government's ability to float $250 million in tax-exempt bonds to help finance the project — will bring about $2.9 billion in new excise tax revenues into the government's coffers throughout the life of the agreement, deJongh wrote in a recent letter to Senate President Usie R. Richards calling for the special session.
"The new cover-over revenues will service this bond debt," the governor said in the letter. "This project is fully self-supporting from the revenues it will generate and does not require the commitment of any government resources.”
In return, the company will receive certain local incentives, such as Molasses Subsidy funds used to assist distillers processing rum in the Virgin Islands, along with statutory exemptions on property, excise, gross receipts and income taxes, according to the agreement. Thirty-five percent of the excise tax revenues will also be turned over to Diageo for marketing efforts.
Another 8 percent of the rebate revenues would be given to Diageo annually as a production incentive, starting in 2012, after the company's first year of production in the territory. The incentive payments will increase to 9.5 percent for each year that excise-tax revenues exceed $200 million.
The plant will be able to make up to 20 million gallons of rum annually, supplying every drop of Captain Morgan rum produced. The company will also sell some rum to other labels.
The St. Croix facility will take the place of Diageo operations in Puerto Rico.
Captain Morgan is the number two rum in the world, with sales of more than 7.5 million cases a year. Diageo, headquartered in the UK, owns Guinness, Johnny Walker, J & B, Smirnoff, Tanqueray and Jose Cuervo in addition to Captain Morgan.
"In reaching this agreement, the Virgin Islands has attracted a major international business concern that had looked throughout the Caribbean and beyond for a site to locate this crucial part of its business operations," deJongh wrote in his letter to Richards. "We have demonstrated that the Virgin Islands is a viable business locale, and we all should be proud of this accomplishment."
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