Nikolao Pula, acting U.S. Interior assistant secretary for insular areas, has approved an adjustment payment of $18.17 million to the V.I. government for fiscal year 2016 actual rum excise taxes. The adjustment reflects a difference between projected federal excise tax payments advanced by the federal government and the actual federal excise taxes collected from rum produced in the U.S. Virgin Islands.
The amount has been certified by the U.S. Department of the Treasury and represents the final rum excise tax payment owed to the U.S. Virgin Islands for the 2016 fiscal year, according to a statement from the Interior Department.
“We recognize these funds are critical to government operations in the USVI and are working closely with Governor Kenneth Mapp and his staff to ensure the funds are transferred as quickly as possible,” Pula said in a statement.
According to the Interior Department, the initial 2016 advance of $213,325,000 was paid in September 2015. The actual taxes certified for 2016 totaled $231,498,711, which the adjustment brings V.I. revenues up to. An advance payment of $202,725,000 to the USVI was made in September 2016 for 2017 rum excise taxes.
The extra funds are sorely needed as the territory is facing a severe cash crisis and a budget shortfall of more than $100 million for FY16. While extremely valuable to the territory, not all of the new $18.7 million will go toward the government’s coffers.
The territory gives cash subsidies to the two rum producers based on levels of production. The cash subsidies are categorized as a “molasses subsidy,” calculated based on how much molasses – the root stock used to make rum – the companies buy. They also get cash categorized as marketing and advertising subsidies.
The amounts have not been itemized in recent V.I. executive budgets. But in recent years, since new agreements were inked with Diageo and Cruzan Rum, those combined subsidies have ranged between 27 and 29 percent of total excise tax revenues, based on figures provided in the loan documents.
If 28 percent of revenues – a figure between the two levels – goes to subsidies for FY16, then about $5 million of the new revenues and about $64 million in total will go as cash payments to the distillery conglomerates. That would still leave about $13 million to help shore up the government’s finances.
While the territory received $231.5 million in rum revenues, only $12.8 million of that made it to the General Fund to pay for ongoing government expenses in the executive budget.
Reducing the amount available for use are the aforementioned cash subsidies.
Growing levels of V.I. debt secured by the revenues take a larger piece. For 2016, the government budgeted $86.28 million in rum revenues for payments on V.I. government debts and paid another $23.2 million off-budget for loans on behalf of Diageo and Cruzan Rum, or around $109.5 million in total for debt secured with the federal tax revenue stream. The government also had to put money aside for debt service reserves for both its own and the distillery debt.
A portion of the funds also goes to a special St. Croix capital improvement fund.
The government’s agreement with Diageo provides that after all other payments are made, between 49.5 percent and 57 percent of the federal tax revenues levied on Diageo’s V.I. production will be transferred to the V.I. government.
These funds are separate and distinct from possible rum revenues Delegate to Congress Stacey Plaskett recently said may be due the territory. Plaskett announced recently her office had looked at excise taxes due from other nation’s excise taxes and, based on the increased V.I. production, determined Treasury may owe the territory a substantial amount. Those funds generated from taxes on non-U.S. producers are given to the USVI through the Caribbean Basin Initiative Fund and not the matching funds discussed here.
Caribbean Basin Initiative funds came to $8.9 million for FY16. Plaskett has communicated with Treasury and asked the V.I. government to ask the department to recalculate the sums, saying they should be substantially higher than they have been.