Report: VI Use Of Rum Cover Over Permitted By Current Law
Report offers new insight into costs of subsidies, long term financial impact of Diageo, Cruzan deals
(Editor’s Note: CIF would like to thank Delegate to Congress Donna Christensen for providing us with a copy of this report.)
The government that receives the rum cover-over has the discretion to spend it as it pleases, and legislation brought forth by Puerto Rico limiting its use would violate the Congressional intent of the rum rebate program.
That is the conclusion of a report issued by the Congressional Research Service on January 20, 2010. The report and its conclusion have been publicized recently by the Administration to support the financial arrangements regarding the use of the cover over revenues in the Diageo and Cruzan rum deals.
The report, attached here, provides a summary of the rebate program and is a balanced review of the issues raised by the recent VI rum deals. But equally interesting is the information contained in this report regarding the current and future costs of some of the provisions in both of those deals for the Virgin Islands.
The report directly addresses the impact of Bill HR 2122, legislation proposed last year by the government of Puerto Rico that would limit the use of the rum rebate for economic development to 10% of the amount received by the Territory. Puerto Rico limits use of the rebate to 10% of the total received and advanced the issue after the Virgin Islands committed 45% and 46% of cover over revenues respectively to the Diageo and Cruzan deals.
Under current law, the excise tax collected on rum imported into the United States is returned to Puerto Rico and the Virgin Islands in the form of a rebate. According to the report, in 2008, Puerto Rico received over $371 million and the VI received close to $100 million.
The VI rum deals have been hotly debated both inside and outside the Territory. Many have questioned whether such a significant portion of the rebate should be diverted in the name of economic development and away from use in internal infrastructure improvement. The report addressed this issue as well, saying that although the current law does not restrict how the government can use the revenues, that the economic crisis could cause the US Congress to revisit the rebate program if it is determined that the VI is using the funds “unreasonably” to support rum producers.
Several other interesting aspects of the Virgin Islands deals are discussed in this report, including the cost of debt service for the Diageo $250 million bond issuance ($12.2 million in 2010; $16.7 million from 2011 to 2013; and $20.6 million from 2014 to 2038) and specific information on the cost of the molasses subsidy paid to Cruzan rum between 2003 and 2008 – subsidies are also a part of the Diageo deal and will continue for Cruzan rum.
We post this full report for your review. Whatever your opinion of the Diageo and Cruzan deals, it provides more specific information on the current and future impact of these contracts than any document we’ve seen to date and is definitely worth the time it takes to read.
I just watched News Channel 8, and a man who used to work at buildiing the Diageo plant told the reporter that there are safety issues at the site. When he voiced his concerns to his supervisors, his time was gradually reduced until he was out of the job. you can catch that story at 11:00.
CIF, maybe you can look into the story.