Economy

Puerto Rico, U.S. Virgin Islands face off over rum taxes

WASHINGTON — Yo, ho, ho and a lot of bottles of rum.

Florida's two senators are taking heat for taking sides in an expensive andincreasingly divisive rum war between the U.S. Virgin Islands and Puerto Rico.

At issue is a deal that would bring a rum producer -- and jobs and tax revenue -- to theU.S. Virgin Islands. But Puerto Rico is crying foul, saying the deal represents a taxpayerhandout to Diageo, the liquor giant that owns Captain Morgan, and could cost Puerto Ricoas much as $6 billion in lost rum tax revenues over the next three decades.

Florida Sen. Bill Nelson is said to be drafting legislation aimed at blocking the deal,enraging allies of the Virgin Islands, including the National Black Chamber of Commerce,which fired off a letter to Nelson saying his intervention would hurt the onlyAfrican-American majority territory in the United States The group also accuses FloridaSen. George LeMieux of joining the campaign on Puerto Rico's behalf.

"It's not their fight to begin with, they don't represent the Virgin Islands or PuertoRico, so why are they stepping in to do damage to the Virgin Islands?" said chamberpresident Harry Alford. "The Virgin Islands needs this, its been in bad shape over theyears."

He contends Diageo had already decided to leave Puerto Rico and that the Virgin Islandsmade a tempting offer.

"It's like Ohio and Indiana fighting over locating a plant, that's business," Alfordsaid.

Under the deal, the Virgin Islands will give Diageo a sizable subsidy from proceeds ofthe rum tax it collects on every gallon of rum produced on the island and shipped to theU.S. But three members of Congress of Puerto Rican descent and the island's residentcommissioner -- who have proposed legislation similar to Nelson's -- say the deal would putPuerto Rico at a competitive disadvantage. Puerto Rico now uses about 6 percent of its taxrevenues to promote its rum -- and spends the rest on economic development.

But under the Virgin Islands' deal, "Diageo will be provided with direct subsidies andother incentives that may amount to up to 50 percent of the USVI's new excise taxrevenue," the Puerto Rican representatives said.

A spokesman for Nelson said "a number of lawmakers question the wisdom of usingbillions of dollars of American taxpayers' money to build a rum plant in the VirginIslands for a foreign company."

Spokesman Dan McLaughlin said Nelson's office sent draft legislation to otherlawmakers' offices to "gather input on whether and how to address the matter'' and thatNelson's' office is continuing to review the issue.

Democratic U.S. Senate candidate Maurice Ferre, who is trailing in the polls, hassought to turn the controversy into a campaign issue, estimating there are 750,000 PuertoRicans in Florida -- a potent voting bloc. Ferre has criticized his primary rival, Rep.Kendrick Meek, for not siding with Puerto Rico.

"Congressman Meek's reluctance to lead and stand against this injustice is emblematicof his tenure in Congress'' said Ferre, who was born in Puerto Rico.

A spokesman for Meek said he was still reviewing the issue.

The tug of war over the rum distilleries has touched off a lobbying frenzy. Accordingto figures from the Center for Responsive Politics, the territorial governments each spentmore than $1 million in 2009 on lobbying efforts that included the rum spat.

Diageo, whose brands include Smirnoff, Johnnie Walker, Captain Morgan and Jose Cuervo,spent $2.25 million in 2009 on federal lobbying, with a stable of heavyweights who includeformer Senate Majority Leader Trent Lott.

Both sides have launched a public relations blitz targeting lawmakers.

The National Black Chamber of Commerce and its Florida chapter have accused Puerto Ricoof launching a "misinformation campaign'' to undermine the U.S. Virgin Islands. And itnotes that a recent Congressional Research Service report sided with the Virgin Islands,finding that the House legislation "would result in severe limits on Puerto Rico and theU.S. Virgin Island's ability to finance economic development initiatives'' with rum taxrevenue. It also found that the revenue "has never been designated for particularpurposes by Congress."

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