Democrats Could Take Job Creation Tips From U.S. Virgin Islands Rum War Deal

Congress should learn from but stay out of the battle.

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By Doug Heye, Thomas Jefferson Street blog

When he became governor of the U.S. Virgin Islands, John deJongh inherited an economy in tatters and a government facing record deficits (where have we heard that before?). Economic growth was practically nonexistent in the territory and the pension system faced a nearly $1 billion liability.

Using his experience in the private sector and in helping draft and implement successful economic plans for municipal governments, including Philadelphia and the District of Columbia, deJongh created two public-private partnerships to stem the Virgin Islands' fiscal challenges and create the long-term stability necessary for economic growth. Taking advantage of a decades-old congressional program that returns federal excise taxes paid by rum manufacturers to rum-producing U.S. territories for job-creating incentives, deJongh signed agreements with two rum industry behemoths, Diageo and Fortune Brands. The deals locked in exclusive production of the second-best-selling rum in the United States (Captain Morgan), fourth (Cruzan), and fifth (Ronrico) that will provide quality jobs for local residents and will generate billions in revenue for the USVI government.

It was an innovative move and one that came just in the nick of time. With a subcontractor relationship ending in 2011, Diageo was preparing to move production of its popular Captain Morgan rum from Puerto Rico to a foreign country like Guatemala, Honduras, or Jamaica, where production costs are cheaper and environmental and labor laws are practically nonexistent.

The Virgin Islands' success has created one enemy: Puerto Rico. The dominant U.S. rum player for decades, Puerto Rico had little competition from the Virgin Islands, a long-standing but much smaller rum-industry player. Indeed, when people thought of rum, they thought of Puerto Rico. But Puerto Rico was asleep at the wheel and the subcontractor did not offer market prices to Diageo during contract extension talks. Now, having lost Diageo's business to the Virgin Islands, Puerto Rico is protesting after the fact, going on the attack and seeking to change the rules by pushing legislation that would stop deJongh's economic development agreements and seek a legislative solution to a commercial dispute.

So far, Congress has shown little inclination to insert itself into a fight between two U.S. territories that can, and should, be able to sort out such issues on their own. While the Virgin Islands, the "little brother" in the situation, has gotten the better of its "big brother," Puerto Rico, complaining to Mom and Dad (i.e., Congress) is unwise. More than simply setting a bad precedent, overturning the Virgin Islands' deal would effectively ship Diageo's jobs to a foreign country. At a time when jobs are the No. 1 issue facing Congress, retroactively picking winners and losers is not a desirable option.

If anything, Congress should applaud deJongh's efforts to create economic development agreements that keep multinational companies in the United States for at least three decades. Not only has he created a model for other states to follow, but he's shown that a Democrat can grow jobs and revenue without growing government.

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