San Francisco Chronicle July 25, 2010 04:00 AM Sunday, July 25, 2010
Lacy Atkins / The Chronicle
Rums made from fresh sugarcane will be featured at Bar Agricole, a SoMa bar and restaurant scheduled to open Aug. 15.
San Francisco Chronicle July 25, 2010 04:00 AM Sunday, July 25, 2010
Lacy Atkins / The Chronicle
Rums made from fresh sugarcane will be featured at Bar Agricole, a SoMa bar and restaurant scheduled to open Aug. 15.
(AP) – 15 hours ago
NEW YORK — Captain Morgan rum is no longer welcome as a sponsor of the National Puerto Rican Day parade in New York City.
Parade organizers say they’ve ended their relationship with the rum maker and U.K.-based parent company Diageo (dee-AH’-gee-oh) PLC over plans to move production of Captain Morgan out of Puerto Rico, a U.S. territory in the Caribbean.
Parade chairwoman Madelyn Lugo on Sunday said the parade is about “pride and respect” and Captain Morgan has shown neither.
Diageo’s other brands include Johnnie Walker and Jose Cuervo. The liquor company has a deal to build a Captain Morgan distillery in the U.S. Virgin Islands for a share in an obscure tax on rum sales.
It hasn’t responded to an e-mailed request for comment about the parade decision.
This year’s parade is scheduled for June 13.
Copyright © 2010 The Associated Press. All rights reserved.
The National Black Chamber of Commerce is urging Congress not to interfere with a battle over a Caribbean rum distillery.
In a Feb. 16 letter sent to Senate Majority Leader Harry Reid (D-Nev.), the Black Chamber — along with the Florida Black Chamber of Commerce — said the partnerships formed between brand-name liquor companies and the U.S. Virgin Islands (USVI) would greatly benefit many black residents.
“These agreements with Diageo and Fortune Brands significantly help the economy of this African-American-majority U.S. territory at a time of great need, while simultaneously keeping these companies on American soil and preserving their jobs and economic impact,” says the letter, which was signed by Harry Alford, president and CEO of the Black Chamber, and Eugene Franklin, president and CEO of the group’s Florida chapter.
What is at stake is an agreement between the Virgin Islands and Diageo that has the rum company moving a rum plant there in return for substantial tax subsidies — up to 50 percent of USVI’s rum tax revenue will be spent on the deal, estimated to be worth about $2.7 billion over 30 years to Diageo.
But Puerto Rico, where the Diageo plant has been based, is up in arms over the proposed move. Puerto Rican officials say the move to the Virgin Islands would result in big job losses as well as lost business revenue for the island.
It has set off a lobbying battle with several prominent lawmakers of Puerto Rican descent, such as Reps. Luis Gutierrez (D-Ill.) and Nydia Velázquez (D-N.Y.), arguing against the deal. Further, Puerto Rico Resident Commissioner Pedro Pierluisi (D) has offered legislation that would cap the rum tax money that can be spent on the liquor industry by any U.S. territory at ten percent.
Sarah Echols, a spokeswoman for Puerto Rico Gov. Luis Fortuño (R), said the Virgin Islands agreement with Diageo was not “fair competition” or in line with congressional intent for the rum tax.
“This is a slippery slope that could lead to most of the money Congress intended to support government budgets for health, education and other services in the two territories ending up on the balance books of individual rum companies,” Echols said.
In their letter to Reid, Alford and Franklin say “attacks” by Puerto Rico’s leaders against the Virgin Islands-Diageo deal have become “vitriolic” and “reprehensible.” Further, they are firmly against the Pierluisi bill.
“Should the proposed anti-USVI legislation be enacted, any state with no stake in the business decisions of another U.S. jurisdiction could attempt to bring any public-private partnership under federal scrutiny,” The letter says. “This type of intervention creates uncertainty and risk in operating in the United States, a troubling possibility as we try to keep Americans at work and strengthen the health of our businesses.”
This is actually more about the political system in Washington than rum. Interesting headline – would the deal have been acceptable if this were a domestic rum company?
Feb. 3: This post has been corrected .
A transfer of billions of dollars in federal aid from public projects in Puerto Rico to one of the world’s largest liquor conglomerates over the next 30 years continues to move forward without any objection from Congress.
As a result, money that’s now being used to build schools and restore tropical forests in a U.S. territory is being turned into what is essentially a $3 billion tax break for London-based Diageo, whose $20 billion in sales last year were powered by Dom Pérignon, Captain Morgan and other popular brands.
Diageo’s windfall at Puerto Rico’s expense wouldn’t be possible were it not for pricey lobbyists, the complexity of the nation’s tax laws and Congress’s ability to approve politically embarrassing deals with a sleight of hand that leaves little trace.
On K Street, Diageo has an in-house team of lobbyists that was paid $2.25 million last year. Diageo also has the help of DLA Piper, one of the world’s largest legal and lobbying firms, which has an office seven blocks from the U.S. Capitol. Last year, Diageo paid DLA Piper $770,000 to lobby on this and other issues.
Recently, Diageo hired the Breaux-Lott Leadership Group, a lobbying firm whose principals, former Senators John Breaux and Trent Lott, are now making money in the Washington influence bazaars.
Lobbyists are known for targeting the House and Senate Appropriations committees, which draft all spending bills and have been famously referred to as “favor factories” by disgraced lobbyist Jack Abramoff. But the tax-writing House Ways and Means and Senate Finance committees — which tacitly approved the Diageo deal by letting it go through — actually dole out bigger favors with less notice.
The excise tax on rum is a prime example.
A $13.50 tax is collected on every proof gallon of rum produced off the U.S. mainland and sold in the United States. Most of the rum is made in Puerto Rico and the Virgin Islands, and Congress passes along almost all of the tax — $13.25 — to the two territories as economic aid, based on the amount of rum each produces. That generally means about $400 million for Puerto Rico, where industry leaders Diageo and Bacardi make their rum, and $80 million for the Virgin Islands, home of the world’s fifth-largest rum maker, Cruzan.
In 2008, the Virgin Islands found a way to even up this lopsided margin. It offered to give Diageo half of the Virgin Islands’ rum-tax money if Diageo would move its rum production — 9 million proof gallons a year — to the Virgin Islands and stay there for 30 years. That’s 10 times what Puerto Rico now gives Diageo.
The Virgin Islands also will give Diageo a 90 percent income-tax break, a complete exemption from property taxes and a state-of-the-art $165 million rum distillery, which is now under construction. Under the deal, which ProPublica wrote about in October 2008 , Diageo will begin producing its rum there in 2012.
Puerto Rico, which expects to lose $6 billion directly and indirectly over the next 30 years because of the loss of Diageo, was caught off guard by the deal. It couldn’t match the Virgin Islands’ incentives because, unlike the Virgin Islands, it has a law capping the percentage of the rum-tax rebate it can give to its rum makers at 10 percent, not to exceed a total of $25 million in any single year. (It says it gives less than that — 6 percent.)
Puerto Rico’s resident commissioner Pedro Pierluisi
Puerto Rico’s resident commissioner Pedro Pierluisi
Puerto Rico’s resident commissioner, Pedro Pierluisi, a nonvoting member of the U.S. House, is trying to quash the deal with a bill  (PDF) he introduced last year. It would make the Virgin Islands subject to a 10 percent cap, too.
But the bill hasn’t made it out of the starting gate.
It was referred to the Ways and Means Committee, where its chairman, Rep. Charles Rangel, D-N.Y., apparently has no plans to move it. Rangel has raised campaign money in both territories.
Puerto Rico Gov. Luis Fortuño did not initially lobby aggressively for the bill because his top priority in Washington has been health care reform, which could mean $10 billion in extra Medicaid money for the territories over the next 10 years.
But now, with the health care bill facing longer odds, Fortuño is stepping up his lobbying efforts, sending  written  appeals  to members of Congress.
Roberto Serrallés, vice president of the Puerto Rican distillery that currently makes Captain Morgan rum for Diageo, recently traveled to Washington, where he appealed to the Hispanic Caucus to ask Rangel to hold hearings on Pierluisi’s bill.
“This is about the common sense use of federal funds,” Serrallés said in an interview before the meeting. “It’s about putting some rules in place for a federal program that’s gone astray.”
Serrallés said the deal, as it stands now, will give Diageo a subsidy that is greater than the cost of the rum itself.
“It’s going to be extremely hard for us to continue,” said Serrallés, whose family has been making rum at its plant, Destilería Serrallés, since 1865. “How can I compete against someone who has a negative cost?”
A spokesman for Diageo, without elaborating, issued a terse statement denying that the tax subsidy it receives will be greater than the cost of the rum.
Like all Washington fights, this one has been a boon to lobbyists.
Last year, Diageo used its in-house lobbyists ($2.25 million), plus lobbyists at DLA Piper ($770,000) and Breaux-Lott ($10,000). The Virgin Islands used Callwood Associates ($270,000).
Puerto Rico is relying on its own internal lobbying arm in Washington, the Puerto Rico Federal Affairs Administration. The Conservation Trust of Puerto Rico, which will lose millions of dollars in annual funding for its land acquisitions if the Diageo deal stands, has hired Policy Impact Communications ($120,000) and, most recently, Quinn Gillespie & Associates ($40,000).
The Virgin Islands defends the deal by stressing the huge favorable impact it will have there. That argument was bolstered recently by a report  (PDF) issued by the Congressional Research Service that said the Pierluisi bill “would result in severe limits on Puerto Rico’s and the USVI’s ability to finance economic development projects with this revenue source.”
The Virgin Islands insists that Diageo would have moved its operations elsewhere if the Virgin Islands hadn’t offered the $3 billion rum-tax break and other incentives.
And the Virgin Islands argues that it’s too late to undo the Diageo deal, because the Virgin Islands already has used the anticipated revenue to back $200 million in bonds to pay for Diageo’s new distillery.
Puerto Rico’s supporters point out that Puerto Rico has its own bonds backed by anticipated rum-tax money. The governor has laid off 17,000 public employees because of the sagging economy, and they say the loss of the rum-tax money will mean more layoffs.
Serrallés says transferring so much of the rum-tax rebate as a subsidy to Diageo and other rum makers will undermine congressional support for a vital assistance program that dates to 1917.
“These guys (the Virgin Islands) are prepared to give $3 billion, $4 billion to rum makers over the next 30 years,” he said. “Congress is going to say, ‘These people (the territories) can’t control this program. It’s all ending up in the hands of the rum makers.'”
But if members of Congress are worried about that perception, it’s not evident yet.
Most of the rum-tax rebate is renewed automatically each year, without any action by Congress. But a small portion — less than 8 percent — must be approved by Congress.
Last month, that portion came up for a vote before the House, buried inside a much larger tax bill. If any lawmaker had concerns about the Diageo deal, that was a good time to speak up. Nobody did.
Now the tax bill goes to the Senate, where there is speculation it will be attached to the politically popular jobs bill. Buried inside such attractive legislation, the rum tax is likely to again slip through without debate.
Correction: This post originally said Puerto Rico Resident Commissioner Pedro Pierluisi was stepping up his lobbying efforts. It should have said that Puerto Rico Gov. Luis Fortuño was stepping up his lobbying efforts.
Write to Marcus Stern at Marcus.Stern@propublica.org .
Here is a dispassionate and accurate summary of the great Cap’n Morgan hijack. Rumpundit has consistently suggested other Caribbean islands should get dibs on this cash, and in these times of stress, it’s worth pointing out that $13-50 a gallon excise duty on spirits is minimal compared with other countries’ duties – almost as much a joke as Federal cigarette taxes. Budget balancers are amazingly quiet about them… which is usually equivalent to a big sign saying “Beware, lobbies at work!”
Dec 30th 2009 | PONCE, PUERTO RICO
From The Economist print edition
A dispute over Caribbean distillation has tempers flaring in Washington, DC
SHREWD dealmaking or modern Caribbean piracy? That is the question surrounding a contract between Diageo, the world’s largest drinks company, and the government of the United States Virgin Islands (USVI). The deal, signed in June 2008, provides Diageo with nearly $3 billion in tax breaks over the next 30 years—including marketing subsidies, a 90% reduction in corporate-income taxes, exemption from property taxes and a new distillery and warehouses to be paid for by government bonds, all to produce Captain Morgan, a swiftly growing brand of spiced rum currently made by the Serralles distillery in Ponce, Puerto Rico.
The money for this exceptionally generous deal comes from excise-tax rebates. The federal government in Washington, DC, returns $13.25 of every $13.50 it collects per proof-gallon of rum to Puerto Rico and the USVI. Puerto Rico uses most of those funds for infrastructure, land conservation and to boost its general fund; it returns no more than 10% of its rebate to its rum industry. The USVI is proposing to return nearly half of its rebate to Diageo alone. Puerto Rico is now crying foul, pitting two American insular possessions against each other.
Donna Christensen and Pedro Pierluisi, the (non-voting) congressional representatives from the USVI and Puerto Rico respectively, introduced warring bills on Capitol Hill last year. Ms Christensen’s bill would make permanent the territories’ remittance from the federal rum tax—as things stand, Congress must vote every two years to keep it at $13.25 a gallon, otherwise it falls to $10.50. Mr Pierluisi’s bill would cap the proportion of funds that can be returned to rum producers at 10%.
Members of the congressional black caucus are backing the USVI and representatives of Puerto Rican descent have taken Puerto Rico’s side. In December Diageo engaged a prominent firm of lobbyists and John deJongh, the governor of the USVI, made the rounds in Washington, DC, to explain his position.
Mr deJongh says Puerto Rico’s bill would “set a dangerous precedent for federal involvement in matters between local and state governments and companies”. He and Diageo also point out that the company was considering moving production out of the United States altogether; this keeps it in the country, though at the cost of many jobs at Serralles in Puerto Rico, 85% of whose rum is used for Captain Morgan. But Puerto Rico has another worry: if the rebates are simply seen as corporate subsidies, they could now prove a tempting target for a cash-strapped federal government.
November 21, 2009
Reporting from El Consejo, Venezuela – Power outages are hitting Henrique Vollmer’s rum distillery several times a week, interrupting production, damaging equipment and jeopardizing the jobs of his 375 workers.
President Hugo Chavez blames the inadequate power production by Venezuela’s hydroelectric plants on low rainfall. But Vollmer says the problem has deeper roots.
“The blackouts have gotten more frequent over the last couple of years,” said Vollmer, whose family-owned Santa Teresa distillery 50 miles southwest of Caracas, the capital, is the nation’s second-largest rum producer. “It’s not just us — glass, paper and oil companies are suffering too.”
Power outages in this sugar-growing region now last from a few minutes to four hours and are just one symptom of deteriorating conditions in an oil-rich but politically unsettled country. Others are regular cutoffs of running water, even in Caracas hospitals. So are double-digit inflation, rising crime and a sinking economy.
And the government’s failure to pay its employees — be they healthcare workers in San Cristobal in the west or professors in Caracas — has become another rallying point for unrest, with numerous groups taking their complaints to the streets this week.
Several crises have appeared to converge recently in Venezuela, highlighting the effect of declining oil revenue and what Chavez’s critics say is a failure to invest adequately in public works since he took office in 1999.
Chavez, on the other hand, blames Mother Nature, the news media and excessive consumption by upper classes for the nation’s growing problems.
Owing partly to the decline in public services, the public’s confidence in Chavez is flagging, according to a new public opinion survey released this week by pollster Alfredo Keller. Only 35% of those polled said they would vote for Chavez-aligned candidates in September’s legislative elections, compared with 46% saying they favor opposition candidates.
The number of respondents pointing to public services as the biggest problems they face grew to 19% this month from 5% in August, Keller said.
On a more ominous note, two-thirds of 1,200 poll respondents believe that a popular uprising against Chavez is a possibility in this deeply polarized nation, Keller said.
“The public thinks the government isn’t doing its job,” Keller said, adding that rampant crime is the biggest public preoccupation. Caracas police reported 40 slayings over a 36-hour period last weekend.
The controversy over public services swirls as new data show Venezuela’s economy is dropping deeper into recession, even as other countries in Latin America are emerging from the global crisis, said economist Francisco Monaldi at IESA, a Caracas graduate school and think tank.
Venezuela’s central bank reported that the nation’s total output of goods and services declined 4.5% over the quarter ended Sept. 30 when compared with the gross domestic product of the previous three months. Unemployment in October rose to 8.1%, according to official figures, a 1.4-percentage-point bump from a year ago.
“The worsening trend is clear and contrasts with most of the region. The . . . economic decline was worse than anyone expected,” Monaldi said.
Chavez responded to the economic news by saying that the measurement being used is an old capitalist method and that new forms should be used to measure economies in socialist transition. He didn’t offer any specifics, however.
Any way you measure it, Venezuela is in the midst of classic stagflation, a shrinking economy combined with rampant inflation, currently exceeding 30% annually, the highest in Latin America, one multinational bank economist in Washington said.
Much of the economic decline can be pegged to the falling price of oil, which accounts for 90% of the nation’s exports and more than half the government’s budget. For the first six months of the year, oil revenue plummeted to $32.5 billion, a 52% drop from the same period last year, the state-controlled oil company PDVSA reported this week, tracking the slide in global crude prices. As has happened before, Venezuela’s oil-fueled boom economy is suffering a severe hangover with plunging prices.
Some economists say Venezuela’s decline is exacerbated by price controls and the inefficiencies that have resulted from the nationalization of dozens of energy, telecom and manufacturing companies.
Peasant takeovers of 6 million acres of cattle and farm land have also cut food production, said Ismael Perez Vigil, director of the country’s largest manufacturers’ trade group, Conindustria.
The result has been periodic scarcities of chicken, cooking oil, milk and other items. Increasingly, Chavez has had to import food because domestic producers can’t meet the artificially low prices set by his government.
And the Keller poll results were released as Chavez also finds himself at the center of a divisive foreign-relations controversy. This month, Chavez told the nation to prepare for war over the Pentagon’s use of seven Colombian bases to fight drug and guerrilla operations — an idea that, according to a different poll, four-fifths of Venezuelans oppose.
On Wednesday, army units in Venezuela blew up the moorings on its end of two footbridges connecting the two countries, a move Colombia’s defense minister described as an “act of aggression against civil society.”
As for the power shortages, an industry group this week urged the Chavez government to invest $15 billion to upgrade the national grid and transmission lines. Chavez has responded by ordering companies to share excess electricity.
At Vollmer’s rum company, which has been in his family since 1885, the fifth-generation distiller has been able to keep his head above water by pushing exports to Spain, Italy and Britain. But Venezuela’s business environment is increasingly “detrimental” to domestic manufacturers, Vollmer said.
“It would be easier to produce outside the country and import [products] here,” he said.
“Not being able to rely on electricity . . . well, it’s no way to operate a business.”
Kraul is a special correspondent.
Rum Rescue Calls Out to Captain Morgan
TITAN Salvage’s and Crowley Maritime’s Herculean Efforts get Shipment to Safety
PENNSAUKEN, N.J., Nov. 20 /PRNewswire/ — Captain Morgan abandoned rehearsals for a very a special music awards event on the west coast to welcome to safety a barge containing 90,000 gallons of his finest rum that is to be used in his latest line extension, Captain Morgan Lime Bite Rum. Crowley Maritime’s 580-foot-long barge La Princesa had fallen victim to last week’s Nor’easter and remnants of Hurricane Ida, which raced up the coast and combined to generate over 25-foot seas and 45+-mile-per-hour winds. The vessel became stranded on the shores of Sandbridge, Virginia Beach when both of its tow wires parted from the 136-foot ocean-going tugboat, Sentry, which had been traveling up the East Coast and was approximately 140 miles from its destination. Any excessive delay or damage to the Captain Morgan rum inventory may have significantly impacted the rollout of this new product.
The TITAN Salvage crew of Crowley Maritime successfully re-floated the barge La Princesa off Sandbridge beach at 7:48 a.m. Wednesday morning. The crews used two tugs pulling together on the bow and stern of the barge at high tide to free it. The barge, which broke free from the Sentry on the evening of November 12th, grounded on the beach near Little Island Pier Friday morning, November 13th. The Crowley and TITAN Salvage personnel worked together to remove the barge from the beach while ensuring the safety of the public and environment. The American Bureau of Shipping and all necessary government response teams surveyed the vessel to ensure it was safe before heading to its destination port in Pennsauken, N.J. under the direction of Sentry’s 32-year veteran Capt. Elijah Seals.
“I knew that the best crew in the world would be made available to salvage this battle of wills against Mother Nature,” said Captain Morgan. “90,000 gallons? That is 425,000 bottles of Captain Morgan Lime Bite that would have never made it to the store shelves over the holidays and enjoyed with a mixer or to liven up a domestic beer. Whether it is the Nor’easter of the decade or the storm of the century, Captain Morgan is there to battle, support and guard over the world’s most popular spiced rum so that all my friends of legal drinking age can appreciate its joys like I do, in a very responsible manner.”
“The quick resolution of this situation was a testament to the professionalism and teamwork displayed by TITAN, Crowley, the Coast Guard, and all the first responders in Virginia Beach,” said Rob Grune, Crowley’s senior vice president and general manager of Puerto Rico and Caribbean services. “After ensuring the safety of the public, the environment, the vessel and its cargo, our priority was to get our customers’ cargoes to their destinations as quickly as possible – including Captain Morgan’s rum. Communication with all our customers was constant to ensure they knew what was happening with the operation every step of the way.”
The Captain Morgan Rum is now situated at Crowley’s Petty’s Island Terminal located in the Delaware River directly across from Philadelphia and is getting ready to be shipped to its plant in Relay, Maryland. The oak aged rum is transported across the Atlantic Ocean to its final bottling destination in 20-foot and 40-foot tanks with 6,800 gallons or more capacity.
“Some diligent commitment by all parties brought forth a success story for everybody, especially for my bottling team in Relay, Maryland who were greatly anticipating this important shipment to meet our supplier deadlines,” said Diageo-Relay Plant Manager Rick Robinson. “We are very thankful to all the Crowley Maritime team for their world class professionalism and seamanship in getting this shipment to its destination in the safest manner possible.”
Unconfirmed stories about Petty’s Island go back to Elizabeth Kinsey, a Quaker, who acquired the island from Lenni-Lenape Indians in the late 17th century and later transferred the property to William Penn. Petty’s Island has had a long and colorful history; indeed it’s been home to a slave depot and possibly even pirates. The island takes its name from John Petty who owned it around the time of the American Revolution. During the 19th century schooners were built here and a summer resort flourished before industrial operations took root in the early 1900s.
According to documents kept by the Camden Historical Society, it was the property of the Lenape Indians until 1678, when a Quaker woman bought it for $240 and annual payments of 16 barrels of gunpowder and 16 barrels of rum. It was later owned by William Penn, and it received Benjamin Franklin on his first trip to Philadelphia. At times, Petty’s Island was a place for parties, duels, slave ships and, on at least one occasion, a lynching.
Whether you’re saving a marooned barge or simply marooned at the bar, Captain Morgan reminds consumers to drink responsibly. Captain’s Orders!
Diageo (Dee-AH-Gee-O) is the world’s leading premium drinks business with an outstanding collection of beverage alcohol brands across spirits, wines, and beer categories. These brands include Johnnie Walker, Guinness, Smirnoff, J&B, Baileys, Jose Cuervo, Tanqueray, Captain Morgan, Crown Royal, Beaulieu Vineyard and Sterling Vineyards wines.
Diageo is a global company, trading in more than 180 countries around the world. The company is listed on both the New York Stock Exchange (DEO) and the London Stock Exchange (DGE). For more information about Diageo, its people, brands, and performance, visit us at www.diageo.com. Celebrating life, every day, everywhere, responsibly.
Jacksonville-based Crowley Holdings Inc., a holding company of the 117-year-old Crowley Maritime Corporation, is a privately held family and employee-owned company. The company provides diversified transportation and logistics services in domestic and international markets by means of six operating lines of business: Puerto Rico/Caribbean Liner Services, Latin America Liner Services, Logistics Services, Petroleum Services, Marine Services and Technical Services. Offered within these operating lines of business are the following services: liner container shipping, logistics, contract towing and transportation; ship assist and escort; energy support; salvage and emergency response through its TITAN Salvage subsidiary; vessel management; vessel construction and naval architecture through its Jensen Maritime subsidiary; government services, and petroleum and chemical transportation, distribution and sales. Additional information about Crowley, its subsidiaries and business units may be found on the Internet at www.crowley.com
Monday, November 16, 2009
Congressional Rum Fight Escalates
By Rich Edson, Washington Correspondent
With tax revenue and local pride at stake, the U.S. Virgin Islands escalated its multibillion-dollar rum fight Monday, harshly responding to charges of “unreasonable and excessive” corporate subsidizing leveled by the Puerto Rico congressional delegation last week.
“These disturbing attacks were launched solely because of displeasure over a company’s market driven decision not to renew a supply relationship with a Puerto Rican company, when continuing a relationship with that company represented an unfavorable business proposition,” said U.S. Virgin Islands Governor John P. deJongh, Jr, in a letter to House Ways and Means Committee Chairman Charlie Rangel (D-NY).
* Scroll down to read the letter
British liquor-producer Diageo, which makes Captain Morgan, is allowing an agreement with a Puerto Rican subcontractor to expire, and is planning to build a production facility in the U.S. Virgin Islands.
Through its share of federal rum tax money, the Virgin Islands has offered to finance a water treatment center and distillery and market Captain Morgan in exchange for a 30-year commitment to produce its rum there. U.S. Virgin Islands representatives said the new Diageo distillery and waste-water treatment facility will be paid for by local government bonds. Those bonds, they said, will be paid off by Diageo from its share of the rum tax rebate.
Also, Diageo’s relocation gives the U.S. Virgin Islands a higher percentage of the federal rum tax, at the expense of Puerto Rico.
Puerto Rico’s congressional delegation claims the deal would provide more than 2.7 billion federal tax dollars over 30 years to Diageo meant for economic development and infrastructure improvements.
“What makes the Diageo deal deeply troubling to any objective observer is what Diageo was promised in exchange for moving to the USVI (U.S. Virgin Islands), and how these promises will be paid for,” said four members of the Puerto Rico congressional delegation last week in a letter to Chairman Rangel.
The letter claims Puerto Rico uses 6% of its federal rum tax revenue to promote “Puerto Rican rums in general.” The Virgin Islands will use up to half its revenue to subsidize Diageo, said the letter.
The U.S. Virgin Islands governor shot back Monday, saying “Puerto Rico’s own intricate system of tax breaks and benefits has provided significant subsidies and incentives for decades to business.” Governor deJongh Jr. added that the U.S. Virgin Islands initiatives are “true to the letter and spirit” of the legal uses of the rum tax.
The Puerto Rican delegation is pushing the House Ways and Means Committee to pass a bill that would limit the uses of federal rum tax money. The Virgin Islands is requesting Congress permanently extend the rum-tax rebates.
“We plan to continue our education efforts to shed light on the misinformation spread by Puerto Rican allies, including the false notion that the USVI lured Diageo from Puerto Rico,” said Louis Penn, deJongh, Jr.’s chief of staff. “We will ensure Congress understands that this successful public-private partnership will strengthen the USVI’s economy, put our fiscal house in order, grow a historic industry and keep production of Captain Morgan rum in the United States for 30 years.”
Lawmakers lean on Pelosi and Rangel as rum squabble mounts
By Susan Crabtree – 11/12/09 The Hill
The tug-of-war between Puerto Rico and the U.S. Virgin Islands over rum taxes has grown more intense in the wake of House passage of the healthcare bill.
Puerto Rico’s top supporters in the lower chamber this week fired off letters to Speaker Nancy Pelosi (D-Calif.) and Ways and Means Committee Chairman Charles Rangel (D-N.Y.) imploring them to turn their attention to the dispute between the two island territories.
The members who signed the letter to Rangel were Puerto Rico Resident Commissioner Pedro Pierluisi (D), as well as Democratic Reps. José Serrano (N.Y.), Luis Gutierrez (Ill.) and Nydia Velázquez (N.Y.). The same legislators, minus Pierluisi, sent a similar letter to Pelosi.
At issue is an unusual tax deal that lured rum producer Captain Morgan from its longtime home in Puerto Rico to a new facility in the Virgin Islands — with the promise of billions of dollars in subsidies to the liquor company paid from U.S. rum taxes.
Puerto Rican legislators are outraged that Diageo, the British-owned liquor giant that produces Captain Morgan, is receiving tax dollars the U.S. government intended for the territories’ economic development and infrastructure needs. Pierluisi has written a bill that would cap the amount of U.S. rum-tax money the islands can spend directly on the liquor industry at 10 percent.
Virgin Islands officials, including Del. Donna Christensen (D), have countered that Diageo was planning on leaving Puerto Rico anyway and likely would have set up rum operations in South America, costing U.S.-territory jobs.
What makes the Diageo move so troubling for Puerto Rico is that the company will be provided with direct subsidies and other incentives that could amount to up to 50 percent of the Virgin Islands’ rum tax revenue. Puerto Rican policymakers worry that the Virgin Islands will give similar deals to other companies, which could offer their rums at reduced prices, making it impossible for other rum producers to compete. In fact, the Virgin Islands recently announced a similar deal with rum-maker Cruzan, which was already operating in the territory.
Conservative estimates place the Diageo gain from this enticement at more than $2.7 billion over 30 years, according to Pierluisi and other critics of the arrangement, who also argue that it will cost Puerto Rico $6 billion over 30 years and 320 rum production jobs.
The lawmakers asked Rangel to provide time on the Ways and Means Committee schedule to consider their bill and for the opportunity to brief members of the panel about it.
“[The bill] would ensure cover-over funds are used by territories in a responsible manner and to benefit the general public in both jurisdictions,” they wrote in the letter, which was obtained by The Hill. “The bill will help preserve strong bipartisan support in Congress for the cover-over [tax] program. Absent the adoption of [the bill] or something similar, we fear that the program will be vulnerable to the charge that it is mere corporate welfare.”
They wrote a similar letter to Pelosi asking for a meeting to discuss the matter at her “earliest convenience.”
“We are writing to express concern regarding a federal tax program, which, if left unchanged, will end up providing corporate largesse at the expense of the taxpayer,” they said in the letter.
Rangel has not scheduled any time on the Ways and Means calendar for consideration of the Pierluisi tax bill.
The bill has seven co-sponsors who hail from both sides of the aisle: Reps. Gutierrez, Serrano, Velázquez, Joseph Crowley (D-N.Y.), Darrell Issa (R-Calif.), Walter Jones (R-N.C.) and Dan Burton (R-Ind.).
The rum-tax controversy has taken a backseat recently as Democratic leaders focused on passing healthcare reform. Pierluisi and other members of the Congressional Hispanic Caucus lobbied this fall to secure higher Medicaid reimbursement rates in the House measure that passed last weekend. Pierluisi cited the Medicaid provisions in backing the bill, saying it “addresses unprincipled funding disparities that the territories have always faced under Medicaid.”
Rangel, meanwhile, has attracted criticism in recent weeks for lining his campaign coffers with donations from those on both sides of the contentious rum-tax issue.
Contributions to Rangel from the Virgin Islands totaled more than $167,000 between 1999 and 2008, and more than half of that — $84,800 — was given during the 2007-08 election cycle, just as the islands were finalizing the deal to relocate Diageo’s rum operations.
Since Puerto Ricans found out about the deal, their giving to Rangel also has shot up. Puerto Rico now ranks second only to New York this cycle in places from which Rangel has collected contributions, according to CQMoneyLine and a report in The Washington Times. Donors in Puerto Rico have written $36,600 in checks to Rangel this cycle.
Rangel, who is under investigation by the ethics committee for unrelated charges of financial violations, has denied taking sides in the rum-tax dispute and has not indicated whether he will consider moving Pierluisi’s bill.
Rangel’s office did not respond to a request for comment for this article.