Cover-Over Battle Threatens VI Revenues
In recent months, Gov. John P. deJongh Jr. has described Puerto Rico’s objections to the Diageo rum deal as those of a sore loser who lost the rum producer’s business to the Virgin Islands.
But a bill on being considered in the US House of Representatives (HR 2122) that would modify the use of the revenues, as well as the spike in global attention resulting from provisions in the Diageo and Cruzan Rum deals, may diminish the Puerto Rico factor to the least of the problems. Recent developments in this issue were highlighted on the Mario Moorehead radio program on Saturday and the recent spike in attention to this situation is worth another look.
The larger controversy revolves around use of the “rum cover over” a program that began in 1917, when the U.S. government decided to tax Puerto Rican rum-makers on rum sold within the United States. After the money was collected, most of it was passed along to Puerto Rico for economic development and infrastructure needs. In 1954, the same benefit was extended to the Virgin Islands.
The Diageo deal will return 45% of the cover over revenues to the rum producer; the recent Cruzan deal will return 46% of the revenues to Cruzan. Puerto Rico caps the amount of the revenues it returns to producers at 10% – and there is the heart of the controversy.
The rum excise tax was set at $13.50 per proof gallon. Historically, the government has passed along $10.50 per gallon to the two territories. In 1991, the government began passing along even more — $13.25 per gallon — but that extra $2.75 must be approved periodically by Congress. It has done so without fail, most recently through the bailout legislation. That extra $2.75 is up for approval at the end of this year.
The use of bailout funds in the Diageo deal focused the attention of stateside legislators even further as the deal will send some $2.7 billion of the cover over to the British based producer – thereby raising questions as to why funds designed to assist the US economy are going to a non-US company.
The Governor sent the attached letter to House Ways and Means Committee Chairman Charles Rangel last week, outlining his defense of the deals as critical to the future financial health of the Virgin Islands. But as the series of attached articles will show, these deals are being subjected to a much higher level of scrutiny as the mainland struggles with its own financial crisis.
The controversy once again highlights the danger in the borrow-and-spend pattern set by this Administration. Consider for a moment the impact if the extra $2.75 of the cover over is not approved. What happens if a law is passed that caps the use of the cover over revenues? Would that put the Diageo and Cruzan deals in jeopardy? And what of the impact on the already strapped financial resources of the Virgin Islands if maintaining those contracts would require that their share be paid out of a reduced revenue return?
At this point, the whole world really is watching.
(Note: Thanks to CIF bloggers for providing the rumbailout.org summary website)
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Check this website. Capitol is trying to put a cap on the revenue the VI would collect on rum sold from Diageo!
http://thehill.com/business-a-lobbying/71073-dla-piper-clients-at-odds-in-rum-battle