The U.S. Census Bureau recently released the 2020 Census population and housing unit counts for the U.S. Virgin Islands. The data indicates a sharp decline in population from the 2010 Census — from 106,405 to 87,146, a drop of 18.1%.

The population drop occurred because many external setbacks contributed to high-net migration in the last decade. In 2012, the HOVENSA Oil Refinery, a major employer on St. Croix, closed. Many skilled refinery workers and their families relocated to the Houston, Baytown areas in Texas. The 2017 twin Category 5 hurricanes, Irma and Maria, wreaked some $10 billion in damages, and prompted many other families to relocate. Then, in 2020 the coronavirus pandemic struck, creating an unemployment spike primarily in the hospitality, entertainment, and retail sectors. This likely prompted another exodus.

What does the sharp drop in population mean?

The lower population spells bigger challenges for restoring fiscal stability, growing and diversifying the economy, and poverty reduction. It should be a wake-up call for every public policymaker and business owner.

The V.I., however, is not alone in its struggles with high out-migration, slowness in diversifying its economic base, accelerating economic growth, and reducing poverty. All other U.S. insular territories face similar economic, political, and social challenges.

But while all experienced population losses compared to 2010 — Guam -3.5%; American Samoa -7.7%; Puerto Rico -11.8%; and Commonwealth of the Northern Mariana Islands -11.1% — the V.I. experienced the sharpest drop at 18.1%. Thus, public sector authorities should be the most concerned.

What are the implications?

First, the V.I. is a “welfare state” heavily dependent on federal assistance. The reduced population will likely mean a smaller volume of such aid. According to the usaspending.gov website, the U.S. federal government obligated $3.1 billion in 2021, which comes to $28,999 per capita federal spending in the territory via a combination of grants, direct payments, contracts, and loans. Compared to the other insular territories, the USVI is surpassed only by the Commonwealth of the Northern Marianas on a per capita federal spending amount ($40,065). Guam ($23,246), American Samoa ($22,700), and Puerto Rico ($18,059) are all below the V.I.

For years, the federal assistance portion of the V.I.’s territorial budget has been high. Much is allocated using per capita formulas and demographic statistics: the numbers of school-aged children, seniors, disabled, medically uninsured, single female-headed households with young children and households below the poverty line. A smaller population means that the volume of federal aid will likely be less in the future. The budgets of Health, Education, and Human Services programs — SNAP-Food Stamps, childcare subsidies, school lunch programs, Head Start, Medicaid/CHIP, etc. — will be dramatically affected by the change in population figures.

Second, the smaller population means a shrinking labor force. As of August 2021, the V.I. Department of Labor estimated the territory’s non-farm civilian employed workforce to be 34,963. According to the agency, the peak size of the labor force occurred in 2008 at about 54,977. Thus, the steady decline in the labor force and employment foretold the population loss now documented in the decennial census.

Third, a smaller population means a smaller tax base. The V.I. depends on Personal Income Tax (PIT), Gross receipt Tax (GRT), and Corporate Income Tax (CIT) as its principal sources of revenue — in that rank order. Obviously, the smaller the population, the fewer people gainfully employed, the less income tax collection.

There is an often-repeated “urban legend” that some 89 people pay most of the income tax — and it used to be 125. If true, this is nothing to celebrate as this means gross income inequality and a very narrow tax base. It means that if the super-rich taxpayers divorce, die, or move away for whatever reason, income tax revenue collection will plummet.

Thus, the goal should be to have a very broad tax base, have as many people and firms contributing their fair share as possible. Without tax reform, the V.I. will remains in a nosedive.

Fourth, the smaller population means a smaller consumer market. From a businessperson’s perspective, it will not be attractive to open a business focused on domestic consumers.

The smaller population makes it more likely to see even more of a consolidation and shrinking of the existing businesses. Those owners, fearing less of a threat of new entrants into their sector/industry will have the temptation to raise prices, not innovate, and provide poor service. Without a dynamic, vibrant private sector, we will remain in a nosedive.

Fifth, structural budget deficits are likely to balloon. A structural budget deficit is defined as the excess of public spending over tax revenues which will persist if an economy were to grow steadily at its highest sustainable employment rate. During previous administrations, the structural deficits were calculated in the range of $95 million to $110 million per year. During 2018 and 2019, economic recovery started. The structural deficits probably diminished because the economy was moving toward full employment (estimated by economists to be when unemployment is between 4% to 5% and capital is fully utilized).

Since the second quarter of 2020, the V.I. economy has been slumping mainly due to the dramatic drop off in tourist arrivals and their associated expenditures. The smaller taxpaying population, plus stagnant or low labor productivity, plus shrinking number of businesses combined with a large public sector wage bill (10,978 employees) makes it difficult to eliminate budget deficits.

The key to reducing structural deficits is accelerating private investment, job creation, and revenue collection and making sure government expenditures are efficient and effective, and tax policies are equitable. Increasing indirect taxes and granting generous tax holidays without checking cost-benefit ratios alone will not suffice.

Request a recount

In the short-term, the V.I. government should immediately ask for a Count Question Resolution. Although the standards for granting a recount are high and most often deal with processing, geo-coding and boundary issues, the stakes for the Virgin Islands are high a request should be made, given its great dependency on federal funds, a large immigrant community, and the Trump administration refusing to extend the 2020 Census count period.

Even if the V.I. government successfully obtained a recount, policymakers have to realize we are in secular demographic and economic decline, and policy revisions and actions have to occur to counteract and check this decline. A recount is likely to show a population in the 90,000 range.

Mark Wenner, St. Thomas, can be reached at markwenner79@gmail.com.