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Economic Development Bank Enterprise Zone Commission Economic Development Park Corporation Economic Development Commission Wayne Biggs, Jr. Chief Executive Officer TESTIMONY BEFORE THE 36TH LEGISLATURE OF THE VIRGIN ISLANDS ST. THOMAS, VIRGIN ISLANDS Honorable Milton E. Potter, Senate President Committee of the Whole MONDAY, MARCH 3, 2025 Economic Development Bank Enterprise Zone Commission Economic Development Park Corporation Economic Development Commission Good Day Honorable Senate President Milton Potter, distinguished members of the 36th 1 Legislature, other testifiers, the legislative staff, the Virgin Islands Economic Development 2 Authority team, ladies and gentlemen in the viewing and listening audience. I am Wayne 3 Biggs Jr., Chief Executive Officer of the Virgin Islands Economic Development Authority 4 (“USVIEDA”). Thank you for the opportunity to provide testimony on behalf of the 5 USVIEDA regarding consumer goods pricing and the economic pressures affecting the cost 6 of living in the Virgin Islands. 7 8 U.S. Virgin Islands Economic Development Authority (USVIEDA) 9 The USVIEDA is the umbrella organization which assumes, integrates, and unifies the 10 functions of the following subsidiary entities: the Economic Development Bank (“EDB”), 11 the Economic Development Commission (“EDC”), the Enterprise Zone Commission (“EZC”), 12 and the Economic Development Park Corporation (“EDPC”). It is a semi-autonomous 13 governmental instrumentality responsible for the development, promotion and 14 enhancement of the economy of the U.S. Virgin Islands. 15 16 The USVIEDA operates under one seven-member Governing Board (“Board”) in order to 17 achieve maximum efficiency of operation; to avoid duplication of services, positions, and 18 Testimony before Committee of the Whole March3, 2025 responsibilities; to reduce expenses of personnel, physical plant and operations; and to 19 develop comprehensive programs for the economic development of the U.S. Virgin Islands. 20 The USVIEDA has not done any studies on the cost of living in the Territory, nor has it done 21 any study on the pricing structures of consumer goods in the Territory. As such, I will defer 22 to Economist Dr. Mark Wenner and the Bureau of Economic Research (“BER”) who may 23 present actual data points. My testimony will be based on empirical evidence. 24 25 In my opinion several factors contribute to the high cost of living and the higher cost of 26 consumer goods in the Territory. Some of the factors are as follows: (1) we live on islands 27 and since we produce little and manufacture very little we have to import most of our 28 consumer items, (2) cost of shipping and freight, (3) cost of fuel, (4) cost of electricity, (5) 29 tax structure, (6) small size of the market, (7) lack of economies of scale (due to consumer 30 population size), and (8) online competitors. 31 32 Imports 33 Imports can affect consumer goods pricing by directly influencing the cost of goods 34 brought into a country, often leading to higher prices for consumers when import cost 35 (excise taxes and/or custom duties) or other import costs such as tariffs are added to the 36 Testimony before Committee of the Whole March3, 2025 final price of the imported product; essentially, the cost of importing a good is passed on 37 to the consumer in the form of a higher price at retail. 38 39 Cost of Shipping and Freight 40 The cost of shipping and freight directly impacts consumer goods pricing by being factored 41 into the overall cost of a product, meaning that higher shipping costs often lead to higher 42 prices for consumers as businesses pass on these additional expenses to recoup their 43 losses; this is especially noticeable when there are significant fluctuations in freight rates 44 due to market conditions, fuel costs, or global events. 45 46 Cost of Fuel 47 The cost of fuel directly impacts consumer goods pricing by increasing transportation costs 48 for businesses, which are then passed on to consumers in the form of higher prices for 49 products, essentially meaning that when fuel prices rise, the price of goods that need to 50 be transported also tends to rise as well; this can contribute to overall inflation. 51 52 Cost of Electricity 53 Testimony before Committee of the Whole March3, 2025 The cost of electricity directly impacts consumer goods pricing by increasing the 54 production costs of manufactured goods, as electricity is a key input in many 55 manufacturing processes, leading companies to raise the final price of products to offset 56 these higher energy expenses; essentially, when electricity prices rise, so too can the price 57 of the goods produced using that electricity. Additionally, the current high cost of 58 electricity in the Territory increases the cost of doing business here, that cost is 59 incorporated into and passed onto the consumer by the business through the pricing of 60 the goods. 61 62 Taxes 63 Taxes directly impact consumer goods pricing by adding an additional cost to the 64 production and distribution of goods, which is typically passed on to consumers in the form 65 of higher prices at the retail level; essentially, when a company is taxed on its products, 66 they usually raise the price of those products to recoup the cost of the tax, leading to higher 67 prices for consumers. While levied on the business, the cost of the gross receipts tax is still 68 mostly if not entirely passed on to the consumer in a higher retail price. Gross receipts 69 taxes and other taxes levied on business inputs have been shown to result in “forward 70 shifting” of costs on to final consumers. Though gross receipts taxes are business taxes and 71 Testimony before Committee of the Whole March3, 2025 as such are sometimes viewed as progressive, in reality, they have potential to be more 72 regressive than sales taxes as they pyramid and are passed on to consumers. 73 74 Small Size of the Market 75 A small market size typically leads to higher consumer goods prices because there is less 76 competition among sellers, allowing them to charge higher prices with less pressure to 77 lower costs due to lower sales volume, resulting in potentially less price sensitivity from 78 consumers in a limited pool of buyers. 79 80 Lack of Economies of Scale 81 When a business lacks economies of scale, it means they cannot sell goods at a lower cost 82 per unit due to a smaller sales volume, which often results in higher prices for 83 consumers as the business has to charge more to cover their higher costs per 84 item; essentially, smaller consumer base leads to higher prices for consumers. 85 86 Online Competition 87 Some local businesses may choose to strategically price certain items slightly higher to 88 offset potential losses from customers shopping online for cheaper options. Online 89 Testimony before Committee of the Whole March3, 2025 shopping can make it easier for customers to compare prices and purchase from online 90 competitors at lower prices due to economies of scale and reduced overhead, potentially 91 taking business away from local stores. In addition, if a customer can buy a product online 92 without leaving their home, they will be less likely to visit a local store – negatively 93 impacting foot traffic and sales volume. 94 95 There are many factors that affect consumer goods pricing and the high cost of living in 96 the U.S. Virgin Islands, I’ve highlighted a few factors that are glaring to me in my testimony. 97 98 Thank you for the opportunity to provide testimony on consumer goods pricing and the 99 economic pressures affecting the cost of living in the U.S. Virgin Islands to the Committee 100 of the Whole. I am available to answer any questions you may have related to my 101 testimony. 102 103