Independent Congressional Research Service Backs U.S. Virgin Islands in Battle Against Puerto Rico

Report Reaffirms Puerto Rico's Anti-USVI Legislation Runs Afoul of Congress' Rum Program, Damages Both USVI and Puerto Rico

Cover-Over Revenue Does Not Constitute Taxpayer Dollars

ST. THOMAS, Virgin Islands, Feb. 3 /PRNewswire-USNewswire/ -- A recently released report by the independent Congressional Research Service (CRS) validates the long-term economic development agreements signed by U.S. Virgin Islands Governor John P. deJongh, Jr. The study concludes that anti-USVI legislation introduced by Puerto Rico Resident Commissioner Pedro Pierluisi is counter to the original intent of Congress' rum cover-over program, which was created to generate economic growth in the territories.

Governor deJongh today commended CRS for correcting misinformation about the two rum industry public-private partnerships that strengthen the USVI's economy and secure new government revenue streams. The report, entitled The Rum Excise Tax Cover-Over: Legislative History and Current Issues, confirms that there are no restrictions on the use of revenue under the rum cover-over program and that the program's legislative history indicates revenue should be used for economic development. The USVI is investing a portion of its revenue in its partner companies for construction of clean, modern facilities (water treatment facilities and distilleries) and marketing to grow sales and thus increase cover-over revenue, using the program as Congress intended.  

"The rum cover-over is an essential economic development program for the territories. The USVI's deals with Diageo and Fortune Brands will greatly benefit the USVI and America. I strongly encourage members of Congress from both parties to read this independent report, as it validates our economic development efforts and provides a substantive counter to Puerto Rico's hyperbole and misinformation machine," said Governor deJongh.

The CRS report says Puerto Rico's legislation would be detrimental to both territories. In analyzing H.R. 2122, legislation introduced by Puerto Rico Resident Commissioner Pedro Pierluisi, the report concludes that passage of the bill "would result in severe limits on Puerto Rico's and the USVI's ability to finance economic development projects with this revenue."

The CRS study cites the legislative history of the cover-over statute, validating Congress' intent that the USVI use its cover-over revenues for "stimulating and increasing business in every possible way." It also corrects the record on the process by which Diageo, owner of Captain Morgan, chose to locate in the USVI after previously deciding to leave Puerto Rico.

"The CRS report puts to bed the false allegations from Puerto Rico about the USVI's economic development efforts, including the lie that the USVI is 'poaching' rum companies through unfair taxpayer subsidies," said Governor deJongh. "It reaffirms that Diageo was already leaving Puerto Rico when the company contacted us, and that Puerto Rico's proposed legislation -- which we know is all part of a retaliation campaign against the USVI -- would significantly harm both territories."

The report concludes that rum cover-over revenue to the territories does not constitute taxpayer dollars, contrary to Puerto Rico's assertions and extremely damaging to their arguments. Rather, the CRS report notes, under rules that govern the tax and political relationship between the United States and its territories, "[m]ost federal excise taxes do not apply" in the USVI or Puerto Rico. The exception at issue here is the "equalization tax" that is imposed on products manufactured in the USVI and Puerto Rico and shipped to the United States.

This tax is imposed on the territorial producer. It is triggered when the territorial product, in this case rum, enters commerce in the United States. It is not a sales tax imposed on U.S. consumers. It is not intended to raise revenue for the U.S. Treasury. It is intended only to protect U.S. producers of like products from territorial manufacturers who, because of the USVI and Puerto Rico's political status, are exempt from federal taxation.

As the CRS report notes, since the purpose of the equalization tax is not to raise revenue for the United States, Congress has, beginning in 1917, given, or "covered-over," the revenue back to the territories for use as their respective legislatures see fit.

The CRS report also notes that historically both the Virgin Islands and Puerto Rico have invested in -- or subsidized -- their rum industries to strengthen brand identification and to withstand foreign competition.

As the report points out, "Puerto Rico uses cover-over revenue to finance marketing and promotional activities for [its] rum industries. The exact amounts and extent of these activities is unclear as there is not separate publicly available budget accounting [in Puerto Rico]." In contrast, the USVI's public-private partnerships, and the contracts that form the foundation of these partnerships, are fully transparent and accessible to all on the USVI government's Web site.

Even more telling, the CRS report notes that H.R. 2122, Puerto Rico's anti-USVI legislation "would also seem to preclude the USVI from using [its] general revenue to subsidize [its] rum producers."

"It is an outrage that a Member of Congress would introduce federal legislation barring the legislature of another jurisdiction from using its own general revenues for any purpose duly considered and enacted by that local body," Governor deJongh said. "California does not tell Florida what its legislature can or cannot do with its own money. Virginia does not use Congressional legislation to undermine Michigan's economic development efforts. So why is Puerto Rico pressuring Congress to do so?"

"The real reason for the Pierluisi bill, as suggested by the CRS study, appears to be that Puerto Rico would be better off if Diageo had gone to a foreign country in the Caribbean or Latin America rather than the USVI," Governor deJongh said. "Puerto Rico is willing to lose a global company's jobs and economic impact to foreign countries, purely for its own self-interest, rather than keep them here in the United States. This runs counter to the spirit of the cover-over program, let alone our country's needs in a time of economic difficulty."

"This report comes straight from Congress' nonpartisan, independent research center, a source that members of Congress and their staff rely upon for credible, unbiased information," USVI Delegate to Congress Donna Christensen commented. "It reiterates the points that Governor deJongh and I have made for months: the USVI is using the rum cover-over program properly, and H.R. 2122 runs counter to the Congress' intent and would damage both the USVI and Puerto Rico."

SOURCE Office of U.S. Virgin Islands Governor John P. deJongh, Jr.