The Economic Development Authority’s Chief Executive Officer Kamal Latham on Monday told the Senate Finance Committee that the EDA’s board remained neutral to parts of proposed legislation that seeks to clarify the tax benefits offered by the Economic Development Commission and to clarify the powers of the entity.
The bill in question: Bill No. 33-0061 clarifies that language in V.I. law saying tax break applicants are “entitled to 100 percent benefits” means 100 percent of that company’s existing tax breaks. Breaks are generally capped at 90 percent breaks on income tax and 100 percent breaks on other taxes. So 100 percent of existing tax breaks would mean continuing at whatever level they already were at, probably 90 percent. It also clarifies that public hearings are mandatory before granting tax breaks and changes the way the starting date for tax breaks is determined.
Latham said while the board approved of clarity and of removing “the ambiguity that has led to two interpretations” of benefits received from the commission, it reserved its right to hold comment on section two of the proposed bill.
“Section two of the proposed legislation is being stricken in its entirety by proposed amendment number 33-281 and therefore I will reserve comment on section two,” Latham said.
When asked by Sen. Novelle Francis why the entity remained neutral and did not take a stand on the matter, Latham said it was because the board needed an additional three weeks to review and discuss.
When Sen. Kurt Vialet asked Latham the same question, he was given the same response. Vialet then asked and confirmed that the EDA board had the bill for weeks prior to the meeting and had knowledge of the bill for the better part of the year.
Sen. Donna Frett-Gregory called Latham’s responses “very disheartening” and she was “very disappointed in the responses coming from the EDA in particular as far as not having a position.”
“Right now we may have had beneficiaries who have enjoyed 20 years of benefits and they are now up for reapplication and they are looking now for 100 percent benefits,” Frett-Gregory said. “You say you don’t have an opinion but … we all came here to address a serious matter. I need to understand so I can make an informed decision, from your perspective of what you see of the impact of the numbers presented.”
The 100 percent of benefits Frett-Gregory speaks of refers to existing applicants wanting to renew and receive the same benefits they have already received. The Economic Development Commission Tax Incentive Program outlines on the agency’s website that beneficiaries receive a 90 percent reduction in personal and corporate income taxes, 100 percent exemption on gross receipts tax, 100 percent exemption on business property tax, and a 100 percent exemption on excise tax payments.
Latham said the EDA’s internal analysis identified four of the existing 71 companies within the commission’s program that would be affected by the amendments.
He said based on those company’s projections, without the changes to the law, the total aggregate taxes lost to the government of the Virgin Islands would be $5.3 million over five years, $10.7 million over 10 years and $21.4 million over 20 years, if their benefit level were increased to 100 percent of the current program benefit levels. That amounts to about $1 million per year, out of local revenues of around $700 million to $800 million per year.
But the benefit to the territory would outweigh the cost, he said.
“Although the territory would forgo this tax revenue it would yield a gain on total economic output. Based on the study, every one dollar of tax revenue gone yields two dollars in economic output. Although the program provides benefits to investors, the two dollars of real income produced outweighs the one dollar of tax revenue foregone,” Latham said.
“We are investing today to reap a larger return tomorrow,” he added. (See Editor’s Note)
The committee eventually voted without the EDA board’s input to forward the bill to the Rules and Judiciary for further discussion. Sens. Vialet, Frett-Gregory and Allison DeGazon all voted in favor of the bill, while Sens. Oakland Benta, Marvin Blyden, and Janelle Sarauw were absent.
Sen. Dwayne DeGraff voted against the measure and said he had a couple concerns with the language being used within the bill, to which Latham replied he had “no comment on that.”
(Editor’s note: That study treats every dollar spent by every EDC tax break recipient as a direct product of the amount of tax breaks the company received. EDC beneficiaries include numerous hotels, road repair, water purification and other companies that were not brought to the territory solely by the tax breaks. Most economists do not believe, and few, if any, peer reviewed studies support the assertion that cutting taxes increases output at that level. But the EDC program is predicated on the concept that the tax breaks will attract investment that would otherwise have gone elsewhere. – BK)