Valuing Common Assets for Public Revenue in Vermont Prepared for Basic Income Guarantee Conference February 28, 2009 Gary Flomenhoft, Lecturer, Master In Public Administration Fellow, Gund Institute, U. Vermont

There is nothing more difficult to carry out, more doubtful of success, nor more dangerous to handle, than to initiate a new order of things. For those who would institute change have enemies in all those who profit by the old order, and they have only lukewarm defenders in all those who would profit by the new order. — Nicolo Machiavelli, 1490

Old order falling apart. A time of opportunity?

Ten Point Policy Summary for Steady-State Economy: Herman Daly *1. Cap-auction-trade systems for basic resources. *2. Ecological tax reform—shift tax base on to throughput *3. Limit the range of inequality in income distribution—a minimum income and a maximum income. *4. Free up the length of the working day, week *5. Re-regulate international trade 6. Downgrade the IMF-WB-WTO *7. Move to 100% reserve requirements *8. Enclose the remaining commons of rival natural capital in public trusts, and price it, while freeing from private enclosure and prices the non rival commonwealth of knowledge and information. 9. Stabilize population. 10. Reform national accounts—separate GDP into a cost account and a benefits account.

Classical Economics Labor--->Wages Capital--->interest Land(nature and assets)----rent Entrepreneurs---->profit

Why Common Assets, not Taxes? Source of BI is of utmost importance don’t trivialize! Share of common wealth vs. Redistribution of wealth Original BI Paine’s Agrarian Justice 1796- BIEN 1996 “indemnification for loss” of natural inheritance (not charity) No reciprocity problem, something for nothing No resentment, not a taking from taxpayers, usually from corporations who privatize commons. Empirical example works-Alaska Works in Conservative state: Republican/libertarian Sarah Palin: $1200 bonus in 2008. Wildly popular. Perception: Property rights vs. mandatory charity

Alaska Model: Alaska Permanent Fund (sub-surface minerals public property) 2008 $2069.00 2007 $1654.00 2006 1106.96 2005 845.76 2004 919.84 2003 1107.56 2002 1540.76 2001 1850.28 2000 1963.86 1999 1769.84 1998 1540.88 1997 1296.54 1996 1130.68 1995 990.30 1994 983.90 1993 949.46 1992 915.84 1991 931.34 1990 952.63 1989 873.16 1988 826.93 1987 708.19 1986 556.26 1985 404.00 1984 331.29 1983 386.15 1982 1000.00 Weak sustainability-Locke

Alaska Model: Alaska Permanent Fund

SOVEREIGN WEALTH FUNDS

SOVEREIGN WEALTH FUNDS

COMMONS-NATURE

COMMONS-SOCIAL

What is economic rent? (Ricardian, Hotalling, land, scarcity, monopoly) Already paying it. Who gets it? Unearned income from asset ownership Profit above “normal profit” Wages-labor, interest-capital, profit-entrepreneurs, rent-land& resources No deadweight losses-no distortions Example $147/barrel oil, $20/barrel cost= $127/barrel economic rent “The meek shall inherit the earth, except for the mineral rights” -J. Paul Getty

Vermont Resources-Sovereign wealth? No oil No natural gas No coal No precious metals No gemstones No sun Not much wind What do have of value?

Vermont Resources Cows Maple Syrup

Privatized Common Assets VT is an Economic Colony-Banana Republic Minerals-Omya-Swiss Hydropower-Transcanada Groundwater-out of state bottlers Surfacewater-82% by nuclear plant-Texas Spectrum-giveaway to media Corps. Why govt giveaway of property rights? Cold War? Nationalization vs. privatization. Quote. New Order-claiming sovereignty of resources Ecuador, Bolivia, nationalization of banks

Vermont Senate Bill S.44 Introduced in 2007/8 session Based on Barnes Capitalism 3.0 Collect revenue on water, air, minerals, etc. 25% minimum dividend for citizens How much is it worth?

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Air as a Common Asset (carbon emissions) Thank God men cannot as yet fly and lay waste the sky as well as the earth! --Henry David Thoreau Air as a Common Asset (carbon emissions) Jennifer Kenyan and Beth Nolan

Future Management and Rent of CO2 Management is nothing more than motivating other people. -- Lee Iacocca Sector VT US Electric 5% 32% Res/Com 27% 9% Industrial 10% 19% Ag 11% 7% RGGI-electric power plants Cap and Dividend-video

So how do you change paradigms So how do you change paradigms? ...In a nutshell, you keep pointing at the anomalies and failures in the old paradigm, you keep speaking louder and with assurance from the new one, you insert people with the new paradigm in places of public visibility and power. You don’t waste time with reactionaries; rather you work with active change agents and with the vast middle ground of people who are open-minded. Donella Meadows, “Leverage Points: Places to Intervene in a System””

Sept. 2008 Auction: 3.07/tonne x 8.44 = $25.9 million Total Co2 Emissions in Vermont Sept. 2008 Auction: 3.07/tonne x 8.44 = $25.9 million Dec. 2008 Auction: 3.38/tonne x 8.44= $28.52 million

Fish and Wildlife Rent Ross Saxton

Fish and Wildlife Rent

Potential Revenue Collection Possibilities Increase the Fish and Wildlife Trust Fund -Currently: a little over $1.6 million, generating $139,000 in interest (usable funds) in FY06 {interest rate of about 8.4%} If increased to $12 million, over $1 million would be generated annually…an increase of total revenue of about 6.8% -investment will pay off in about 10 years

Potential Revenue Collection Possibilities (continued) 1/8 of 1 Cent of sales tax: This Bill needs to be passed - Redirection of tax dollars- will add $6-7 million to current total revenue, increasing total revenue by almost 50% - Fish and Wildlife related activities generate about $386 million annually - Allocate a portion to the Fish and Wildlife Trust Fund

Potential Revenue Collection Possibilities (continued) Increase boat registration fees. Currently $22 for motorboats <16 feet long* times 33,901 boats registered annually = $745,822 Increase to $35 = $1,186,535 (very conservative estimate)* *Larger boats reg. fees are more expensive, so increasing those fees will increase the revenue even more

Potential Revenue Collection Possibilities (continued) Biodiversity and Land Conservation Fund Permit system for potentially developed lands Increase price for developers to develop land with high habitat value Reduce rural development: increase habitats/ ecosystem services Funds go to Fish and Wildlife Trust Fund

Management of Vermont’s Forest Revenue Mark Kolonoski

Public Revenue vs. Private Revenue State Forests $3.2 million State Parks $6.58 million Fish and Wildlife $180,486 (logging) Current Use Program $17 million TOTAL $27 million Private- Forest-based manufacturing $207.4 million Recreation/tourism $485 million Forestry and logging $32 million Paper and Pulp $50 million TOTAL $774 million

Current Use Program 2007-$39 million in savings! Withdrawal Penalty 20% appraised value < ten years enrolled 10% appraised value > ten years enrolled Amount saved often outweighs the penalty. Large parcel owners may take advantage of the program through subdivision. 2007- only $489,540 in penalties.

Revenue Generating Suggestions Leave public lands alone Current Use withdrawal penalty Depletion of Ecosystem Services (DES) tax 10% of 32 million from logging = $3.2 million Impose auction and insurance bond regulation Vermont Public Land Bank Sale price of the property being converted -- Original purchase price (adjusted to inflation) Current Use Exit Penalty-total = ???

Changes in Management State appointed private woodland foresters DES tax managed by the Vermont Agency of Natural Resources Additional Current Use Program employees

Groundwater in Vermont Colin McClung

Ground Water in Vermont: Current Revenue: $0 (except property tax) Requirements: >50,000 gallon/day = Register <50,000 gallon/day = No registration

Current Management Structure: No overall water use program addressing surface water, groundwater, and water from springs. Correlative Rights “Doctrine” [Statute] 2008-Groundwater a “Public Trust Resource”

Oil and Water Comparison: Extremely low overhead compared to a similar institutional model 24-Oz Bottle Water Cost of Bottling = $0.10 Selling Price = $0.85 PROFIT/ ACRE FOOT =$1,300,875.50 88% profit (Source: H2O for Maine)

Future Economic Rent Revenue: Bottler Gallons/year Pristine Springs of Vermont 4,813,425/yr Vermont Natural Water 970,000/yr Clear Source Springs-Bottling 28,233,905 TOTAL 34,017,330=104.3 ACRE/FEET REVENUE@ $1.3M/ACRE-FOOT $135.7 Million x 70% = $107.9 Million

Internet as a Common Asset Ida Kubiszewski

Current Management Structure Internet Service Providers Public Private Domain Name Registration ICANN VeriSign

Current Revenue Internet Service Providers (~$70M) Individual Households Businesses Domain Name Registration (related services) (~$130M) Hosting IT Design & Development etc.

Rent Potential Source Revenue Rent > 7% of profit Public telecoms $18.5 M profit $17 Million ISPs $38.7M $6M profit $3.3 M Domain names $130 M $18.4 profit $9.3M TOTAL ~$30 MILLION

New Management Structure Trust ~$30 million Development of intellectual property Research

Land Rent in Vermont Conor Casey

Current Management Current State Property Taxes are set at ~1.05%, with municipalities adding additional rates. This ratio is based on a lumping of land & building values Money collected goes towards the state education fund Additional taxes are assessed for buying, selling, and patterns of current use Current Use Tax, Property Gains Tax, Property Transfer Tax Put total on that one page Use the 2000-2007 figure

Current Revenue Current Use Penalties Speculative Gains Penalties $489,540 Speculative Gains Penalties $5,646,165.77 Property Transfer Tax $38,315,508.89 State Property Tax $696,371,326 Total Revenue $740,822,540

Proposed Revenue Median home prices in Vermont have seen a steady rise of 5% between 1980 and 2000 A state land tax of 5% would capture most if not all of this rent, collecting $1.07 billion Median home prices between 2000 and 2007 rose from $5.4 billion to $21.4 billion a 21% increase each year Revenue neutrality is often an important selling point in the implementation of a single tax on land A tax rate of 3.5% applied to assessed land values would capture what the 4 combined taxes currently do.

Changes to Management Structure Land value tax= 4 major property taxes Curbing sprawl More affordable housing by removing disincentives to provide such housing.

Who Owns Vermont’s Rocks? Ian Raphael

Current Management Structure Who Owns Vermont’s Rocks?: A case for collecting economic rent to offset the depletion of nonrenewable mineral deposits Current Management Structure Act 250- Environmental Protection Permitting Process- Great for environmental concerns but does not address depletion of these non renewable resources nor any type of financial monitoring Property Rights Majority of mining occurs on privately owned property held by several mining corporations. They do as the please as long as the pass Act 250 regulations. There is no distinction between surface rights and subsurface rights. State Revenue- The only revenue is from property tax. List land values do not take into account the value of subsurface mining deposits or the value of what is extracted That’s it- There is very little management structure compared to other natural resources in the state

Vermont Mining Revenue 2005 Production/Extraction Value $96,800,000 Direct Mining Earnings 63,000,000 Listed Property Value 132,228,257 Property Taxes ( includes state tax of 1% and, average municipal tax of 1.79%) 3,678,990 Property taxes is just on listed property value If we add in extraction value into annual land assessment then in 2005 the state received only 1.6% in property tax Is this 1.6% enough to offset the depletion of these non renewable resources? What happens when they are gone? Loss of jobs, currently 2,600. Mining companies leave a wasteland of abandoned mines – who pays the clean up? Indirect side effects? Tourism, depletion of habitat, Vermont loses a natural resource

Time to make changes National Mining Act of 1872 - being changed to a royalty system – meant to pay for billions of environmental clean up – estimated at 35 billion Alaska Permanent Fund- money generated from the depletion of oil reserves put into trust fund to offset the impact and benefit current and future citizens of Alaska Other state and countries- are catching on to common ownership- we live in a different world– resources are limited Lets start a Vermont Permanent Fund!- if we collected 10% of the extraction value in 2005, Vermont would have $9.68 million to be put in trust fund to offset the depletion of non-renewable mineral resources and to help pay for environmental management. Bottom line - as mineral reserves get lower mining companies revenue rises because Vermont’s management is outdated Vermont needs to rethink how it manages its non-renewable resources. When they’re gone they’re gone Citizens of Vermont have a birthright to these natural resources Legislation needs to reclaim subsurface property rights on behalf of the citizens of Vermont

Spectrum in Vermont William Murray

“It is the purpose of this Act, among other things, to maintain the control of the United States over all the channels of interstate and foreign radio transmissions; and to provide for the use of such channels, but not the ownership thereof, by persons for limited periods of time, under licenses granted by federal authority, and no such license shall be construed to create any right, beyond the terms, conditions, and periods of the license.” -The Communication Act of 1934: The “public” airwaves

Allocation Value Potential Mobile Communication : 220.1 Billion Broadcasting : 79.9 Billion Fixed Communication : 1.66 Billion Total: $301.78 Billion Annual use value Potential

Commons Management Per Capita Value of Spectrum : $1002.12 In Vermont (x629,908) : $625.23 million/yr *40% normal profit = $250 million/yr Economic rent = $375 Million/yr Spectrum Trust Management Annual Auction Market Determines Price Renewable Licensing *Gaffney, Losses of Nations, 1996

Scratching the Surface (Water) Elliot Wilkinson-Ray

93% (roughly 445 million gallons per day) = private profit Surface Water 93% (roughly 445 million gallons per day) = private profit Current Private Revenue: Public Supply: $ 35,000,000 Wastewater Permits: $ 1,692,350 Hydroelectric (dams): $ 164,775,527 Thermoelectric (nuke): $ 316,000,000 Recreation: $ 109,096,309 Total: $ 626,564,186

Thermoelectric Withdrawals (Vt Yankee nuclear)

Table 1.1 Increasing Price Structure for Public Supply 1,000 gal Base Price Watershed Fee Rent Total 0-10 1.50 0.40 0.00 $ 1.90 10-40 3.00 0.50 $ 3.90 40-150 1.00 $ 4.40 150+ $ 6.40

Rent Hydro:10% of revenue ($164,775,527) $16,477,553 End Local hydro subsidy: $ 6,000,000 Vermont Yankee 5c/1000gals: $ 7,600,000 Public Consumption 5% (over 40,000): $ 639,000 Other uses: $.05/1,000 gallon (24 million gallons/day) = $ 438,000 Total surface water rent: $ 31.2 Million

Public Revenue from Wind Farms Susan Skalka

Current Public Revenues Property Taxes: Determined by municipality, no standard calculation $153,995 to Searsburg in 2001, PPM offered $240,000 for proposed expansion Sheffield will pay $520,000 annually to mitigation fund, ppty taxes H.520, Sec. 5402c: Fee based on production $0.00225 in fiscal year 2009 $0.0025 in fiscal year 2010 $0.003 in fiscal year 2011 and thereafter 67

Potential Public Revenue Capture economic rent on resource use Different fiscal structures could be used Economic analysis needed Don’t discourage production of wind energy Instead of taxing production (which is a cost), take portion of economic rent (not a cost) Revenue could go into a fund Fund management would need to be discussed Example: Cape Wind-fed/state/local payments 68

Proposed Guidelines Progressive Profit Tax Percent of royalties taken increases as profits increase Fiscal Structure should take into account age of facility: New and older facilities have smaller percentage, those in their prime have highest percent 69

Estimates for Discussion 2002 Study*: VT could produce 10% of electric energy from 6 wind-farms,with about 150 1.5 MW wind turbines = 225MW total Vermont Net generation: 7,084,344MWH/year (EIA) x 10% = 708,434.4MWH/yr =708,434,400 KWH/yr Check: 225,000 kW x 24hrs/day x 365 days=1,971,000,000 KWH/yr x .35 (capacity factor) = 689,850,000kwh/yr X * 5.6 cents per kWh est. cost * = $38,631,600 Assume 6.6 cents per kwh* selling price** x 689,850,000kwh/yr = $45,530,100 - $38,631,600 = $6,898,500.00 Assume 10.6 cents per kwh* selling price** x 689,850,000kwh/yr = $73,124,100 - $38,631,600 = $34,492,500 Assume 30.6 cents per kwh* selling price** x 689,850,000kwh/yr = $211,094,100 - $38,631,600 = $172,462,500 http://www.revermont.org/windfarm_benefits.pdf http://www.revermont.org/windfarm_benefits.pdf* http://sciencepolicy.colorado.edu/moveabletype/mt-comments.cgi?entry_id=850**

Conclusion Vermont should complete an analysis and be prepared to share profits/ economic rent with wind industry as profits from wind-produced power grow due to factors other than work put in by wind company.

False Commodities of market economy-POLANYI LAND-real estate speculation MONEY-monetary speculation LABOR-disposable

Seven Deadly Sins-Ghandi Wealth without Work Pleasure without Conscience Science without Humanity Knowledge without Character Politics without Principle Commerce without Morality Worship without Sacrifice

International Exchange Goods and Services $30 Trillion/yr Buying and selling of paper $1.5-2 Trillion/day =$500-700T/year 95% speculation in paper!

VT TRUST-US financial Speculation Current Trading Projected Tax Rate Revenue (Annual Rates) Volume AfterTax Volume (both sides) Stocks $11 trillion $7.3 trillion 0.5% $36.5 billion Government Bonds $41.6 trillion $27.7 trillion 0.1% $27.7 billion Corporate Bonds $22.1 trillion $14.7 trillion 0.1% $14.7 billion Futures Contracts $100 trillion $66.7 trillion 0.02% $13.3 billion Currency $200 trillion $133.3 trillion 0.1% $33.3 billion (worldwide) (U.S. share = 25%) Swaps $22 trillion $14.7 trillion 0.02% $2.9 billion Options Not available NA 0.01% NA Total US Revenue (.25% RATE) $128.4 billion x .21% Vermont Revenue $268,891,964 Source: Taxing Financial Speculation: Shifting the Tax Burden From Wages to Wagers by Dean Baker. February 2000. Ctre for Economic & Policy Research

GOVT (CURRENCY) $600 BILLION 7% BANKS (LOANS w/int) $8 TRILLION 93% WHO CREATES MONEY? (SEIGNORAGE) GOVT (CURRENCY) $600 BILLION 7% BANKS (LOANS w/int) $8 TRILLION 93% TOTAL $8.6 TRILLION 100%

VT BANKS (LOANS-2004) VT MONEY CREATION $3,574,450,000 1% RATE $35,744,500

COMMON ASSET DIVIDENDS