More than the Minimum: Why a Wage Hike Alone Can’t Make the Virgin Islands Livable 

One of the most pressing issues we face is the unnecessarily high cost of living in the Virgin Islands. Recently, I spoke with several mothers who shared how they spend hours driving from store to store across the island, searching for reasonable prices on essential household goods. They told me how they have become experts at navigating constantly rising prices, yet even their best efforts barely dent their household budgets. The rising costs, coupled with other factors such as frequent power outages and pothole-lined roads have given new traction to an adjective that describes the state of our beloved territory: “unlivable.” This stark description reflects the growing burden of rising costs on our residents and our overall quality of life. 

In response to inflation, Governor Bryan has lobbied for an increase in the minimum wage, sparking a much-needed conversation about fair wages, cost of living, and economic equity. While I fully agree that the minimum wage must be raised to support our workers better, addressing the high cost of living requires a comprehensive approach. Simply increasing wages is not enough if the prices of goods, services, and utilities continue to spiral out of control. We must address the root causes that drive these costs, from the inefficiencies and corruption in our utility system to the regressive tax structures that disproportionately affect small businesses and consumers. Raising wages is an important step, but if we do not tackle these systemic issues, the benefits of an increased minimum wage will be short-lived, and the Virgin Islands will continue to be “unlivable” for too many of our citizens. 

Table 1– Minimum Wages of Selected States 

One of the first things proponents of a higher minimum wage will do is point to the higher minimum wages in wealthier jurisdictions like California or Florida and ignore that the federal minimum wage is $7.25, 30% less than the Virgin Islands. However, we must first recognize and accept that our economy does not compare well with that of more affluent states like California, which is the world’s seventh-largest economy. California can support a higher minimum wage with its superior public education system, robust workforce, and diverse economic base. In contrast, the Virgin Islands must be realistic about its financial limitations and consider its true peers: regions like Guam or the Northern Mariana Islands, where economies are more similar in scale and scope. We must account for our unique circumstances and not blindly adopt policies from larger states. Many factors contribute to these high costs, but the cost of energy and routine household goods stands out as particularly burdensome. We need more than raising the minimum wage in isolation to solve our broader economic challenges. Instead, we must simultaneously undertake broader efforts like reducing energy costs, rethinking the regressive gross receipts tax, and expanding our economy. 

Table 2 – Highest Electricity Costs in the United States

The cost of energy in the Virgin Islands is unacceptable, putting immense financial pressure on households and strangling our economy. Our exorbitant energy costs are not simply the result of outdated infrastructure; they are driven by years of inefficiency and corruption that have plagued our utility. For instance, the utility suffers from an electric line loss of 20% and a water line loss of 50%, meaning a significant portion of the energy and water produced never even reaches consumers. Put simply, we buy two gallons of water to sell one gallon, and 20% of the fuel we struggle to afford benefits customers who never pay us. This inefficiency forces everyone to pay for a substantial amount of waste. 

Coupled with bloated contracts, mismanagement, and corruption, these losses create a perfect storm that drives utility rates. Every kilowatt-hour lost, or gallon of water wasted adds to the financial burden of Virgin Islanders, who are already struggling with the high cost of living. Without addressing the root causes – inefficiency, mismanagement, and corruption – rising utility bills will quickly offset any wage increases.  

Table 3 – Top 10 Countries with the Highest Electricity Costs

While investing in renewable energy is often suggested as a solution to high energy costs, it is crucial to note that merely implementing renewables alone will not solve our problems. We need to implement these solutions at a fair price. Repeatedly overpaying for our public sector projects does us no good. This phenomenon was on full display for the worst project in Virgin Islands history – the Vitol project, which was at least $113 million over budget. $113 million that could have been used on other energy-related projects, like tree trimming. Strategic capital projects should reduce costs, not burden us with unnecessary expenses. 

If we are to build a sustainable and affordable energy future for the Virgin Islands, we must prioritize efficiency, transparency, and competent management—starting with privatizing our utility and addressing the structural failures that have led us to this crisis.  I am tired of saying that we need meaningful change at WAPA. We cannot keep doing the same thing while expecting different results – that is the definition of insanity. Furthermore, new equipment alone will not fix WAPA’s deep-rooted problems.  If we cannot pay the last solar vendor, how will we pay the next one? 

Structural change is essential, and that means privatization.  According to the National Renewable Energy Laboratory’s US Virgin Islands 2023 Energy Baseline Report , “The USVI has a once-in-a-generation opportunity to build a significantly more robust power and water system with federal funds but is struggling to capitalize on the full breadth of the opportunity due to capacity constraints in terms of the number of staff available as well as the technical complexity of the needs.”  We must privatize the utility and leave energy production, distribution, and planning to best-in-class professionals. Privatization would allow for more efficient management and investment, free from political interference that often leads to short-sighted decision-making and inflated costs. A separately managed utility could focus on delivering reliable, affordable energy, aligning with the best interests of consumers and businesses alike. Following $1.8 billion in federally funded upgrades to our utility (approximately $32,000 per household), no one can predict when Virgin Islanders will see a penny of rate relief. Surely, we do not want to remain among the leaders of electricity costs in the world forever. We cannot afford it. 

The gross receipts tax is another significant factor inflating the cost of living. This tax functions as a sales tax paid by businesses, effectively increasing the cost of all goods and services sold in the territory. Because this tax is applied at every transaction level, it is additive and disproportionately affects small businesses and consumers, who ultimately bear the cost through higher prices. This tax’s regressive nature means it hits lower-income residents the hardest, further exacerbating economic inequality. 

Gross Receipts Tax Simplified 

To better illustrate the impact of the gross receipts tax and the overall cost of living, I have proposed the concept of the “KFC Bucket Index”. This index uses the price of a simple, everyday item—a bucket of chicken from KFC—as a relatable measure of economic stress. In the Virgin Islands, a meal for a family of four costs $64.99, which is 58% more than neighboring Puerto Rico. This stark difference highlights the daily economic pressures that Virgin Islanders face. 

When you consider that many households struggle with stagnant wages, the increased cost of basic items like food becomes even more burdensome. The KFC Bucket Index serves as a clear reminder that small increases in everyday expenses—driven by factors like WAPA and the gross receipts tax—can have an outsized impact on people’s lives.  

Table 4 – KFC Bucket Across Various US Markets 

To better understand the gross receipts tax, consider the journey of a bucket of chicken, assuming KFC sources all its products locally: 

1. Local Spice Salesman Sells Seasonings: A local spice salesman sells seasonings to KFC for $5. The spice salesman has already paid the gross receipts tax on selling these spices, which increases their cost. A 5% gross receipts tax adds $0.25 to the price, making the total cost $5.25. 

2. Local Supermarket Sells Chicken: KFC buys chicken from a local supermarket for $10. The supermarket, which has already paid the gross receipts tax on its purchase and sale of chicken, includes this tax in its price to KFC. A 5% gross receipts tax on the $10 chicken adds $0.50, making the total cost $10.50. 

3. KFC Prepares the Chicken: KFC uses these ingredients to prepare its signature bucket of chicken. To cover its costs, including labor, rent, utilities, and the gross receipts tax it must pay on its sales, it marks up the price. After accounting for all these expenses and the accumulated taxes, KFC sets the sale price of the bucket of chicken at $30. A 5% gross receipts tax on the $30 sale adds $1.50, making the total sale price $31.50. 

4. Consumer Buys the Bucket of Chicken: The consumer purchases the bucket of chicken at KFC for $31.50. By this point, the price has been marked up multiple times, with each markup including the gross receipts tax applied at every stage of the supply chain—from the initial sale of seasonings and chicken to the final sale of the cooked product. 

Total Gross Receipts Taxes Paid: 

Effective Tax Rate – 7.14% 

The gross receipts tax is applied at every step, resulting in a compounding effect. Each time the ingredients or the prepared food change hands, the gross receipts tax is applied, effectively inflating the price further. This “additive” nature of the tax means that by the time the bucket of chicken reaches the consumer, the price includes multiple layers of the tax, significantly bloating the cost. This example illustrates how the gross receipts tax is not a single tax applied once but a cumulative burden passed along through each transaction in the supply chain, ultimately paid by the consumer. 

In contrast, most other jurisdictions levy a tax at the point of final sale, which would eliminate the additive nature of the tax. This approach would ensure that consumers are only taxed once on the final purchase rather than multiple times, which would help lower consumer costs and create a fairer, more transparent tax system. 

Beyond addressing immediate cost concerns, we must focus on growing and diversifying our economy. As I noted in a previous article, the Virgin Islands’ economy peaked in 2007. Since then, its stagnation has been masked by seemingly positive indicators such as low unemployment and high tourism arrivals. However, the unemployment rate is an insufficient measure of economic health because it only includes those actively seeking employment. Our record-low unemployment rate does not signal a thriving economy. Instead, it reflects a massive population decline, where many job-seeking and employed individuals have left the territory in search of better opportunities elsewhere. 

This exodus of productive workers creates a distorted picture. The unemployment rate appears low, not because of economic strength, but because fewer people are left actively seeking jobs. Compounding this issue is our low labor force participation rate, meaning a smaller proportion of our working-age population is engaged in the labor market. Alarmingly, the USVI’s labor force participation rate is even lower than that of Mississippi, which has the lowest rate in the United States. Janet Yellen, former Chair of the Federal Reserve once said “the labor force participation rate is the single most important measure of economic activity and potential productivity within a country. It shows how many people are actively engaged in the workforce, and how many are not.”  

Figure 1 – Labor Force Participation Rates

A low participation rate can indicate several underlying problems: 

• Discouraged Workers: Many potential workers may have given up looking for jobs because they believe no opportunities match their skills. This situation is often exacerbated when an economy needs more diversity and is overly dependent on a few key sectors. 

• Structural Unemployment: A mismatch between the skills of the workforce and the needs of employers can lead to structural unemployment. This often reflects that the economy is not evolving to meet the demands of a changing global market. 

• Demographic and Social Factors: An aging population or social factors such as caregiving responsibilities can also contribute to a lower participation rate. However, these issues are often worsened by a lack of economic opportunities, leading to a further decline in the active workforce.

While raising the minimum wage is necessary to support workers in the short term, it is not “the johnnycake in the sky” for the Virgin Islands’ economic challenges. We risk perpetuating economic stagnation without addressing the underlying issues, such as the low labor force participation rate and the lack of diverse job opportunities. To create a sustainable and equitable economic environment, we must invest in growing and diversifying our economy. This means fostering an environment that attracts new industries, encourages innovation, and provides all residents a wide range of employment opportunities. 

In conclusion, we need a holistic approach to address the root causes of our high cost of living, which goes beyond raising the minimum wage. Yes, wages should be higher, but we must simultaneously lower the cost of living in the Virgin Islands. This means growing the economy, privatizing WAPA, rethinking the additive gross receipts tax, and eradicating public corruption. Let’s not just raise wages; let’s also work to lower costs, improve our quality of life, and make the Virgin Islands more affordable for everyone. In other words, living in paradise should not be this hard, let’s Make the Virgin Islands Livable Again.