A marathon hearing Monday before the Senate’s Committee of the Whole laid bare the complex and interwoven factors driving the territory’s sharply rising cost of living, underscoring the urgent need for comprehensive solutions. Testimonies from government officials, academics, and business leaders, coupled with pointed questions from senators, painted a stark picture of the economic pressures impacting every facet of life in the USVI.
Licensing and Consumer Affairs Commissioner H. Nathalie Hodge directly addressed the territory’s heavy reliance on imported goods. “This is further compounded by limited wholesale competition, resulting in higher retail markups and reduced consumer choice,” she warned, highlighting the impact of high shipping costs, import duties, and freight surcharges on everyday prices. Adding significantly to the burden are the high costs of utilities, particularly from the Virgin Islands Water and Power Authority, which, as Hodge noted, “significantly impacts businesses’ operational costs and are ultimately passed onto consumers.” This already challenging situation is exacerbated by global inflation, ongoing supply chain disruptions, and volatile fuel prices.
The DLCA, Hodge explained, is actively implementing several strategies to address these concerns. These include a monthly “Shopping Basket” report providing real-time price comparisons, rigorous enforcement of consumer protection laws, initiatives to diversify the local economy and foster local food production, and a comprehensive cost-of-living study currently underway. The agency recommended the creation of a Consumer Price Monitoring Dashboard and the implementation of policies designed to both boost market competition and support local production. However, Hodge emphasized the need for a collaborative approach, declaring that “tackling this issue requires a collaborative effort involving all levels of government and every individual consumer.”
Sen. Alma Francis Heyliger’s response underscored the critical need to reduce reliance on imports and invest in local agriculture, although she acknowledged the substantial challenge of incentivizing such investment among residents.
Adding further dimension to the discussion, University of the Virgin Islands Economics Professor Mark Wenner identified key drivers of the high cost of living, including the territory’s geographic isolation and the resulting high shipping costs; the small market size which restricts competition; high utility costs, particularly for electricity; housing market pressures stemming from limited land and high demand; the territory’s tax structure; and the lack of economic diversification.
Wenner’s testimony highlighted the serious economic and social consequences of this imbalance, warning that “When this latter type of imbalance exists and persists for a long time, it generates social and economic tensions. Namely, it undermines economic competitiveness and growth.”
Echoing sentiments from Sen. Kurt Vialet about the volatility of the territory’s power grid and infrastructure being a main theme throughout the testimonies, Wenner directly advocated for significant policy changes, including the elimination or privatization of WAPA, describing it as a major impediment to economic progress. He also spoke about promoting renewable energy sources, bolstering local agriculture, and revising the territory’s tax structure while cautioning against overly generous tax incentives, citing the example of Puerto Rico, where such policies have shown a poor return on investment. Wenner emphasized that, unlike Hawaii, which faces a similar high cost of living, the USVI lacks the mitigating factor of higher average incomes. The concentration of market power, Wenner noted, “tends to result in limited or no price competition and downwardly sticky prices.”
Senate President Milton Potter reinforced the urgent need for a thorough cost-benefit analysis of tax incentives, advocating for a reevaluation of the territory’s high tax abatement policies. He also expressed concern over the lack of an updated cost-of-living study, with the last one dating back to 2015, highlighting the impediment this poses to effective policymaking.
V.I. Economic Development Authority Chief Executive Officer Wayne Biggs Jr. corroborated many of the concerns raised, highlighting the significant impact of imports and high shipping costs on consumer goods pricing.
“Imports can affect consumer goods pricing by directly influencing the cost of goods brought into a country,” Biggs stated, pointing to the added expense of tariffs and duties, as well as fluctuations in fuel prices. He further emphasized the impact of the limited market size, high cost of electricity, and the inherent challenges posed by the territory’s gross receipts tax structure, which often gets passed directly to consumers.
While acknowledging many challenges, Biggs defended the current tax incentive programs, attributing their success to attracting businesses and generating jobs in the territory. Sen. Novelle Francis echoed the concerns raised earlier by Potter, advocating for a more in-depth analysis of the territory’s economic circumstances. He also highlighted the decrease in government employment and the territory’s overall population and suggested exploring public-private partnerships as a potential pathway to improvement. The significant influx of federal funds into the territory and the lack of a commensurate improvement in the cost of living was also a significant area of concern, Francis said.
The perspective of small business owners was represented by Scott Barber of Universal Business Supplies, who detailed the substantial impact of high costs across all aspects of business operations. High rents and land costs, high utility costs, high fuel costs, high import and tax costs, skilled labor shortages, the high cost of living, high insurance premiums (especially given the risk of hurricanes), the limited market size, increased competition for employees from government hiring, and the disruption caused by the lengthy Main Street and Waterfront projects on St. Thomas all severely impacted the ability of small businesses to not only thrive, but to simply survive, he said.
Barber emphasized that small businesses are the “lifeblood” of the Virgin Islands community, and urged collaborative efforts between the government and the business sector to create solutions that foster economic sustainability. He specifically called for the government to improve its timely payment practices for businesses, while also suggesting the possibility of extending business license renewal periods.
Adding to the discussion, the Virgin Islands Energy Office Director, Kyle Fleming, highlighted the significant challenges inherent in generating electricity on a remote island and outlined a plan to lower energy costs. He advocated for a transition toward renewable energy sources. Fleming highlighted the potential benefits of a Virtual Power Plant, citing a study that projected that this initiative could save WAPA “$22.5 million annually.” He stressed the importance of legislative support to encourage the adoption of home battery systems, crucial for the successful implementation of a VPP.
Meanwhile, V.I. Housing Finance Authority Strategic Advisor Rick Grant addressed the territory’s housing affordability crisis, citing dramatic increases in construction costs and property prices, exacerbated by the lingering effects of Hurricanes Irma and Maria. “This escalation in expenses has made it increasingly challenging to build homes that are affordable,” Grant stated. VIHFA, he said, is pursuing a multipronged strategy involving increased funding, advocacy for legislative changes, collaboration with developers on innovative housing projects, exploration of alternative building methods, and the administration of emergency assistance programs.
The Committee of the Whole picks up again Tuesday with additional testimony.
