Puerto Rico, Virgin Islands go head to head on rum, fueling tensions in Congress

By Dan Eggen
Washington Post Staff Writer
Tuesday, June 22, 2010

It's the preferred drink of Caribbean tourists and swashbuckling pirates alike, and now it's at the heart of a nasty political dispute: The rum wars have come to Washington.

A fight over federal rum taxes pits Puerto Rico against the U.S. Virgin Islands and is sparking rare public tensions among Hispanic and African American lawmakers in Congress.

Put simply, the argument involves whether tax dollars can be used to lure a Captain Morgan Rum distillery from Puerto Rico to the Virgin Islands, a project highly coveted for the tax revenue it promises.

The Virgin Islands, a relatively poor, majority-black territory of about 120,000 people, has promised nearly $3 billion in tax subsidies to the owner of Captain Morgan if it moves the rum-making operation to St. Croix, the largest of its three main islands. The money will come from rum taxes the U.S. government gives back to the territories; the Virgin Islands will use the rebates to help build a distillery for the company and provide it cash payments for the next 30 years.

Virgin Islands officials say the deal, along with a similar agreement benefiting the Cruzan rum brand, is an economic development coup that will deliver several hundred jobs and millions of dollars in new rum-tax revenue for roads, schools and other projects. "We are keeping companies in America . . . and strengthening our economy," said John P. deJongh Jr., governor of the Virgin Islands.

But Puerto Rico, which stands to lose $120 million in annual rum-tax revenue, is pushing Congress to step in. That side portrays the Captain Morgan deal as a U.S. taxpayer bailout for Diageo, the London-based spirits conglomerate that also owns Dom Perignon, Johnnie Walker and other prominent brands.

The conflict has become so bitter that the organizers of this month's National Puerto Rican Day Parade in New York dropped Diageo as a sponsor after decades of brand support.

"We have never disputed they have the right to leave," said Rafael Fantauzzi, president of the National Puerto Rico Coalition, which helps organize the parade and advocates on behalf of the island territory in Washington. "The problem is that the U.S. Virgin Islands has created a very bad precedent with federal funds. It's supposed to be going to the territories, not to a large, foreign-owned corporation."

Looming over the debate is the issue of race: On Puerto Rico's side are several prominent lawmakers with ties to the territory or to the Congressional Hispanic Caucus, including Rep. Jose E. Serrano (D-N.Y.) and Sen. Robert Menendez (D-N.J.), the lead sponsor of a Senate amendment aimed at quashing the rum deal.

Lawmakers on the side of the Virgin Islands include 18 members of the Congressional Black Caucus, who signed a letter last month opposing Puerto Rico's attempts to undo the agreement.

Donna M. Christensen (D), the Virgin Islands' non-voting member of Congress and a CBC member, said that "it's not necessarily a black-against-Hispanic issue, though I know some people see it that way." Instead, she said, it's a David vs. Goliath tale, noting that Puerto Rico has 4 million residents and a similar number with ties to the island who live on the U.S. mainland.

"The advantage that Puerto Rico has over the Virgin Islands is tremendous, in terms of the money they can raise for campaigns and lobbyists and everything else," Christensen said. "We can never compete with them on that level."

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