Diageo USVI. Photo: VIC

The move has been hailed as a lifeline for the economic stability of both territories, which rely heavily on these funds to support critical public services and foster job creation. The rum cover-over program, established in 1917 for Puerto Rico and 1954 for the U.S. Virgin Islands, transfers federal excise taxes collected on rum produced in or imported into the United States to the territories’ governments. Under current law, the excise tax on rum is $13.50 per proof gallon, with $10.50 permanently allocated to the territories and an additional $2.75 requiring periodic congressional reauthorization. The new law, effective December 31, 2025, amends Section 7652 of the Internal Revenue Code of 1986 to make the full $13.25 rate permanent, eliminating the need for temporary extensions that have long created fiscal uncertainty.

“This marks an important step toward greater economic certainty and fiscal stability for the Virgin Islands,” said Governor Albert A. Bryan Jr. in a statement on June 28, when the Senate first included the provision in its draft. “It will ensure the necessary revenues that support our pension system, public services, and economic development over the next decade.”

Bryan’s optimism was echoed by Puerto Rico Governor Jenniffer González-Colón, who called the signing “a transformative moment for our islands, ensuring that the economic benefits of our rum industry stay where they belong—with our people.”

The newly permanent $13.25 per proof-gallon rum cover-over rate is expected to deliver a substantial boost to territorial budgets. 

Bill critical to USVI & PR

These funds are critical to both territories, helping to finance essential public services including healthcare, education, public safety, and infrastructure. In Puerto Rico, a portion of the cover-over revenue is directed to the Puerto Rico Conservation Trust, supporting initiatives like sustainable agriculture, reforestation, and environmental education.

For the U.S. Virgin Islands, the permanent $13.25 rate brings fiscal stability to key programs, particularly the Government Employees’ Retirement System (GERS). In 2022, the Bryan administration finalized a landmark 30-year bond deal, projected to inject $3.8 billion into GERS over the life of the agreement. This deal was enabled through the creation of a specialized corporate entity—the Matching Fund Special Purpose Securitization Corporation—authorized by the Legislature to issue bonds backed by rum excise taxes. Without the higher rate locked in, the Virgin Islands stood to lose $59.2 million in funding that had already been earmarked for GERS. With President Trump’s signature on July 4th, making the $13.25 rate permanent, that uncertainty has now been eliminated.

The road to permanency was driven by bipartisan and bicameral efforts spanning years.

Critics, including the Beer Institute and fiscal conservatives, have long questioned the cover-over program, arguing it disproportionately benefits large rum producers like Bacardi and Diageo, which receive subsidies from the territories. A 2017 report by the San Juan-based Center for Investigative Journalism highlighted that up to 40% of cover-over funds are redirected to rum companies as incentives, prompting accusations of corporate welfare. 

The signing of H.R. 1 into law resolves a long-standing fiscal cliff, ensuring that Puerto Rico and the U.S. Virgin Islands can plan for the future without the threat of a rollback to the $10.50 rate, which would have cut revenues by over 20%. For residents and leaders of the territories, the permanent $13.25 rate represents not just economic security but a recognition of their vital role in America’s rum industry. As González-Colón put it, “Puerto Ricans and Virgin Islanders are proud of the products they produce on their respective islands that are enjoyed by people across the world.”