Island Hopping with Rum

Amendment favors Puerto Rico in fight over rum excise tax

By Jay Heflin – 03/08/10 07:19 PM ET

A lobbying fight over Caribbean rum subsidies could come to a head this week if Sen. George LeMieux (R-Fla.) offers an amendment to jobs legislation that benefits Puerto Rico and rum producers like Bacardi at the expense of the U.S. Virgin Islands and a rival rum maker.

The Virgin Islands and Puerto Rico receive subsidies from the United States based on excise taxes paid by rum producers. Payouts are based on where the liquor is produced, and often benefit the companies themselves.

But LeMieux wants to base the payments on population, a change that would give Puerto Rico a greater share of the subsidy and potentially derail efforts by the Virgin Islands to attract a Bacardi competitor to relocate there.

Roughly 4 million people live in Puerto Rico, versus the 100,000 who live on the Virgin Islands. More than 90 percent of the $500 million in annual payments would go to Puerto Rico if the LeMieux amendment is successful. The split now is closer to 80-20. The Virgin Islands’ share would increase under the current subsidy payment system, however, as more distillers move there.

An aide to Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee, said that it was not certain the LeMieux amendment would get a vote.

The National Puerto Rican Coalition (NPRC), a lobbying organization that has urged lawmakers to block the British multinational company Diageo from moving from Puerto Rico to the Virgin Islands, praised the proposed change.

“By basing distribution on population instead of production, Sen. LeMieux’s amendment ensures that the money is distributed in an even-handed way to those who need it most,” NPRC Chairman Miguel Lausell said in the statement.

Lobbyists for the Virgin Islands contend the amendment isn’t about equity but about stopping Diageo from relocating there.

Bonds that rely on the excise-tax subsidy and other financing could default under the senator’s proposal.

“Sen. LeMieux’s plan could cause us to default on hundreds of millions of dollars in bonds, which would stop progress on infrastructure projects and environmental improvements, and would force the government of the U.S. Virgin Islands to the brink of receivership,” said Virgin Islands Gov. John deJongh Jr.Roughly $1 billion in bonds hang in the balance, according to sources close to the matter.

The NPRC argues that Diageo, which produces Captain Morgan Rum, and another distiller, Cruzan, would benefit because the Virgin Islands is offering them a piece of the subsidy.

Under LeMieux’s proposal, Puerto Rico’s share of the subsidy jumps from its current 80 percent to 97.

“[The] amendment looks like it was developed alongside Puerto Rican lobbyists,” deJongh said in prepared remarks.

LeMieux’s office did not respond to inquiries about the amendment.

Senate Majority Leader Harry Reid (D-Nev.) looks to advance from his chamber as early as Tuesday legislation costing $140 billion that extends several expired tax breaks. The measure, open to amendment, is an obvious vehicle for LeMieux’s proposal.


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