St. John Tradewinds News



On Friday, Governor John P. de Jongh, Jr., received notification from the Office of Insular Areas of the Department of the Interior that the Government of the Virgin Islands would shortly receive $165 million for estimated rum excise tax cover-over for fiscal year 2015.  The payment was approved by Interior Assistant Secretary for Insular Areas Esther Kia’aina, based on the Governor’s submittal that 2015 excise tax collections would amount to approximately $166.95 million.  A previous advance over-payment of $1.7 million made to the Government in fiscal year 2014 was deducted from the 2015 estimate. 

 The Governor expressed his pleasure at the news. “We annually advise the Department of the Interior on the estimated amount of rum excise tax cover-over revenue to be earned in the ensuing fiscal year based on estimates provided by our rum producers.  I wish to thank Assistant Secretary Kia’aina for her prompt approval of our estimates so that the funds can be expeditiously remitted to the territory,” he stated. According to a media release issued by the Office of Insular Affairs, Assistant Secretary Kia’aina stated, “Taking the steps necessary to provide these funds to the local government in a timely manner represents the federal government’s commitment to the people of the U.S. Virgin Islands.  We are pleased to support Governor John P. de Jongh and the USVI Office of Management and Budget in this revenue generating process.” 

The estimate of 2015 collections was based on a per proof gallon rate of $10.50.

The Governor noted that the majority of these funds are already budgeted to provide debt service payments on a significant amount of the Government’s outstanding bonds, which were issued to provide funding for a myriad of capital and infrastructure projects, as well as to keep the Government afloat during the worst economic recession since the Great Depression, the loss of Economic Development beneficiaries due to federal legislation and regulatory actions, and the closure of the Territory’s largest employer, HOVENSA, LLC. 

These funds are also budgeted to provide funding for the operations of the Virgin Islands Public Finance Authority, as well contributions to the St. Croix Capital Improvement Fund and the Crisis Intervention Fund, and to support to the rum producer partners that enables them to continue their production of Virgin Islands rum.

Since 2007, the volume of Virgin Islands rum sold in the U.S. market and generating rum excise taxes paid over to the Territory has more than doubled, from 6.5 million proof gallons to an estimated 14.3 million proof gallons. With these increasing sales from the Virgin Islands rum partners have come a 50% increase in the net revenues available for the Government, from $68 million to over $100 million annually.

Over the past eight years, the revenues to the Government, after accounting for industry support payments, have approximated $800 million. This year, $82 million of the annual revenues received by the Government will pay debt service on Government bonds issued for capital projects across the territory, and to stabilize the territorial economy and keep Government working during the worst years following the Great Recession.

The Governor added that his administration will continue efforts to educate members of the U.S. House and Senate on the importance of the rum cover-over revenues to the Government of the Virgin Islands and the need for extenders to be approved permanently at a higher rate of $13.25.

“I remain optimistic that the Virgin Islands will achieve the ultimate goal — a permanent lifting of the cap on rum revenues and a return of the full $13.25 rate to the treasury of the Virgin Islands,” he declared. “Our reliance on these receipts to support bonded debt, which has enabled us to mitigate the impact of the worst economic conditions experienced in recent times, cannot be overstated.  We have utilized this resource to enable us not only to maintain essential operations in healthcare, education and law enforcement, but also to make critical investments in our current infrastructure, inclusive of our broadband investment, to lay the foundation for future growth opportunities.”

The Department of Interior media release also stated that the $165 million payment would be processed “without delay. Transfer of these federal taxes to the USVI provides a stable revenue stream that helps support local government programs, projects and activities.” 

Current federal law requires that any excise tax collected on rum manufactured in the territory and imported into the United States be returned or “covered-over” to the Virgin Islands.  The Government submits an annual estimate of excise tax collections to the Office of Insular Affairs, and generally payments are made in September of each fiscal year.