The Senate is considering reducing the territory’s customs duties to zero, because U.S. Customs and Border Protection confiscates nearly 100 percent of the local duties to pay for its operations in the territory.
The Revised Organic Act, the federal law that defines the territory’s powers, gives the territory authority to charge up to 6 percent duties on goods brought into the territory. The duties generate around $12 million per year.
For years, Customs and Border Protection collected the duties, taking a portion for its costs. But after the creation of the Department of Homeland Security in 2003, it began keeping nearly all the funds.
Former Gov. John deJongh Jr.’s administration negotiated and signed a memorandum of agreement in December 2014 that aimed to resolve the problem. Customs and Border Protection agreed to fund air passenger pre-departure clearance with federal funds and to otherwise limit reimbursements from local customs duties to only the specific costs of collecting those duties. But since then, Customs has only remitted $1 million and apparently plans to remit less in the future.
"We do not receive the funds now, so nothing is being lost here," said Sen. Nereida "Nellie" Rivera-O’Reilly introducing the measure.
She said it could stimulate the economy and "breathe new life into" the territory’s tax-break program by making it less expensive to bring goods into the territory.
Finance Commissioner Valdamier Collens proposed eliminating the duties back in 2015 (See Related Link below) and testified in support of the bill on Tuesday. He urged senators to amend the bill so it would not take effect until 180 days after the V.I. government notifies Customs that it is rescinding the 2014 MOU, saying that would help the government meet its obligations under the MOU and help it work on an alternative federal legislative solution to the problem.
"A federal legislative solution that returns Virgin Islands customs duty revenue to the Virgin Islands would avoid the necessity of rescinding the customs duties. That would be an economically desirable outcome, and therefore remains worth pursuing during the period before the memorandum of agreement terminates," Collens said.
In a written statement, St. Croix Chamber of Commerce President Kimberly McCollum testified against the proposed change to V.I. Customs duties. "It stands to reason that the federal government could easily refuse to fund these services and remove the convenience of local custom clearance that we have enjoyed for decades," she said.
"This would mean that all travelers that travel to/from the USVI would be subject to more worrisome, time consuming travel procedures by having to clear customs at their destination or point of entry into the mainland,” McCollum said. “Further this could mean that we might have to bear the cost of clearing more visitors here locally than we currently do, due to new security concerns.”
“This in turn would mean more costs to our local resources for such service. Could the federal government remove the requirement that we can travel to/from the U.S. mainland with only a valid ID, such as a driver’s license?" she continued.
Senators voted to hold the bill until Thursday’s Finance Committee hearing.
The committee also considered three bills affecting payments to the V.I. Water and Power Authority, ultimately holding them for amendment and more testimony. Both were requested by Gov. Kenneth Mapp.
One would eliminate the current District Street Lighting fund, which allocates 4 percent of property taxes to pay WAPA for streetlights, and change the law to allow WAPA to charge more reconnection and administrative fees to customers who have their service disconnected for lack of payment.
Another would create a surcharge on WAPA electric bills to pay for the streetlights. It would also eliminate a special fund created to help WAPA pay for new power generation.
In 2012, the Legislature increased the gasoline tax from 7 cents to 14 cents per gallon and dedicated the new funds to be used by WAPA for new power generating equipment. The fund now has about $17.4 million, WAPA Executive Director Julio Rhymer told the committee Tuesday. This is not enough to fully fund new generators.
Rhymer testified in support of creating the new surcharge, saying it would come much closer to covering the actual cost of providing streetlights than the property tax allocation.
He said the government underfunds streetlights by around $5.8 million per year. The government as a whole had about $41.7 million in outstanding utility bills, as of Sept. 30, with $9.3 million past due for streetlights and $17.1 million for the territory’s hospitals.
These shortfalls reduce funding for maintenance and paying vendors and played a role in WAPA having its bond rating reduced this year, according to Rhymer.
He and Public Services Commission Executive Director Donald Cole testified against eliminating the special power generating infrastructure fund. Cole and Rhymer both said new generating equipment could quickly pay for itself and save money for ratepayers, and would take longer to acquire without this source of funding.
Voting to hold both measures for amendment were Sens. Kurt Vialet, Marvin Blyden, Positive Nelson, Tregenza Roach and Clifford Graham. Sens. Myron Jackson and Sammuel Sanes were absent at the time of the vote but were present earlier in the hearing.