Good, if not unexpected, news from Congress, where legislation extending the V.I. rum cover-over from $10.50 to $13.25 passed the U.S. House of Representatives again this week, according to Delegate Donna Christensen.
The extension passed Friday as part of the American Jobs and Closing Tax Loopholes Act, which covers everything from extending unemployment and funding summer jobs to tax cuts for small businesses and infrastructure improvement. It still has to go back to the Senate once more before final approval.
“There are a number of good things for the Virgin Islands in this bill,” said Christensen in a statement. “The Senate adjourned for Memorial Day before they could approve it, but we are all hopeful that action will be taken once they get back from recess.”
The “cover-over” program is an economic development tool which returns to the U.S. territories the excise taxes on rum brought into and sold in the United States—rum largely but not entirely produced in those same territories.
The money is a large and growing portion of the V.I. government’s revenues. The territory received $91 million in such revenues in 2008, based on sales of Cruzan Rum in the states and Cruzan’s parent company, Fortune Brands, expects that number is expected to grow to $200 million by 2013. The Diageo refinery under construction on St. Croix is expected to bring in another $100 million per year to local government coffers. If those numbers are accurate, then about $300 million in annual revenues will come from this source in the next few years. Not extending the cover-over from $10.50 to $13.25 would mean a roughly 20 percent reduction in those revenues.
The excise tax revenue stream is dedicated largely to serving territorial government bonds. As of October 2009, the V.I. government, through its Public Finance Authority, had $727 million in special revenue bonds supported by rum excise tax “cover-over” revenues and, with $250 million more in bonds due to be sold, those debts will soon exceed $1 billion. Gov. John deJongh Jr. has proposed using anticipated increases to secure $600 million in pension bonds to shore up the V.I. Government Employee Retirement System’s massive $1 billion-plus unfunded liability.
According to Christensen’s office, the same bill addressing the rum cover-over will also:
— provide tax relief to businesses and state and local governments to help them invest and create jobs;
— provide important tax cuts to put money back in the pockets of working families;
— help restore the flow of credit to enable small businesses to expand and hire new workers by extending small business loan programs;
— expand career training programs for Americans who are looking for work;
— extend eligibility for unemployment insurance benefits for workers who have lost their jobs through no fault of their own;
— ensure that seniors, military service members and Americans with disabilities continue to have access to doctors they know and trust; and
–close tax loopholes for wealthy investment fund managers and foreign operations of multi-national companies.
