Virgin-Islands-On-Line's Coconut Telegraph

Officials seek ways to soften impact of new EDC rules on V.I.

 By MEGAN POINSKI
Friday, October 15th 2004

ST. THOMAS - Gov. Charles Turnbull said Thursday that he is working with other government and business officials to soften the blow that legislation the U.S. Congress passed this week will have on the territory's economic development tax-incentive program.

The new rules strengthening and further defining who qualifies as a "bona fide" resident of the territory and what can be considered as V.I. source income could have a chilling effect on the Economic Development Commission program that offers tax breaks to companies locating in the Virgin Islands.

Turnbull assured residents that the government is working hard to ease the burden the new law could be to the economy at a press conference Thursday.

Currently, about 100 businesses are beneficiaries of the EDC program, which brings an estimated $100 million annually to the territory.

"The bottom line is that this bill will become a law, and it will impact the territory," Turnbull said. "We - the government, the Senate, the Delegate to Congress and the business leaders - are working together to make sure the impact is mitigated to its lowest extent."

The strict new residency and income requirements that could cripple the EDC tax-incentive program were added in a last-minute amendment to the American Jobs Creation Act in a conference committee early this month. The bill passed the U.S. House of Representatives on Oct. 7, and the U.S. Senate passed it Monday. President Bush is expected to sign the legislation.

At this point, the territory can only lobby for the president's understanding and try to ensure that the new federal rules and regulations as they apply to the program are written in a way that is the least harmful to the territory, Turnbull said.

On Wednesday, Washington, D.C., legal counsel to the territory Peter Heibert and V.I. Republican National Committeeman Holland Redfield II spoke about the issue with Reuben Barales, Bush's assistant for intergovernmental affairs. Two deputy secretaries from the U.S. Interior Department also passed along the territory's concerns to the White House.

Turnbull said he believes Bush does not want to hurt the V.I. economy and would like to preserve the EDC program. The governor has been invited to travel to Washington and discuss possible solutions with White House officials very soon, he said.

Because the language affecting the EDC program was introduced less than two weeks ago, Turnbull said, the potential damage has not been assessed. Accounting firm PricewaterhouseCoopers is analyzing the socioeconomic impact of the changes on the territory's economy.

Turnbull said preliminary results of that assessment should be available in two weeks, with a final report expected at the end of the year. Turnbull and Office of Fiscal and Economic Recovery Director Nathan Simmonds would not estimate the economic impact on Thursday.

Revenues expected from the EDC program constitute "a substantial portion" of the budgetary projections used to put together the Fiscal Year 2005 budget, Turnbull said. The V.I. Senate passed a $607 million budget on Oct. 4.

Turnbull said that the budget proposals have not made it to Government House for his signature but that the changes in the law will affect the fiscal year's revenue. Turnbull plans to meet with senators early next week.

Economic Development Authority Chief Executive Officer Frank Schulterbrandt said that though the program's future is uncertain, no companies have withdrawn. Lt. Gov. Vargrave Richards said he has received some inquiries and met with some EDC beneficiaries but knows of none who have decided to take their business elsewhere.

Schulterbrandt said Wednesday that the changes' impact will vary depending on the beneficiaries.

"Their CPAs and tax attorneys first have to assess the situation and find out what the impact to the individual company would be," Schulterbrandt said Wednesday. "Over time, they will see if they can fit in the program with the new changes in the law."

Richards' office will post updates on the EDC program online at http://www.revitalizestcroix.com.

The new proposal makes two major changes - one in residency requirements and one in income eligible for tax breaks. According to the bill, EDC beneficiaries must live in the territory for six months out of the year starting in 2005. Current law requires EDC company owners to live in the territory but has no set amount of time they need to be here.

Only income made in the territory would be eligible for tax breaks, according to the new proposal. Money that an EDC company makes on the U.S. mainland could not be counted as earnings made in the territory.

Recent developments have come after months of negotiating between the territory and the federal government to find ways to curb abuses of the program while preserving the territory's efforts to improve its economy.

Accusations of abuse in the program prompted investigations into at least two EDC beneficiaries.

Posted by afinta at October 16, 2004 12:49 PM