1. 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

2. 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

3. Old order falling apart. A time of opportunity?

4. 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.

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

6. 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 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 Wildly popular.
Perception: Property rights vs. mandatory charity

7. Alaska Model: Alaska Permanent Fund
(sub-surface minerals public property) $
2007 $
2006
2005
845.76
2004
919.84
2003
2002
2001
2000
1999
1998
1997
1996
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
Weak sustainability-Locke

8. Alaska Model: Alaska Permanent Fund

11. SOVEREIGN WEALTH FUNDS

12. SOVEREIGN WEALTH FUNDS

13. COMMONS-NATURE

14. COMMONS-SOCIAL

15. 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

16. 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?

17. Vermont Resources
Cows
Maple Syrup

18. 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

19. 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?

20. 2

21. 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

23. 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

25. 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””

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

27. Fish and Wildlife Rent
Ross Saxton

28. Fish and Wildlife Rent

29. 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

30. 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

31. 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

32. 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

33. Management of Vermont’s Forest Revenue
Mark Kolonoski

34. 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

35. 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.

36. 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 = ???

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

38. Groundwater in Vermont
Colin McClung

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

40. 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”

41. 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)

42. 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
$1.3M/ACRE-FOOT
$135.7 Million x 70% = $107.9 Million

43. Internet as a Common Asset
Ida Kubiszewski

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

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

46. 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

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

48. Land Rent in Vermont
Conor Casey

49. 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 figure

50. 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

51. 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.

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

53. Who Owns Vermont’s Rocks?
Ian Raphael

54. 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

55. 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

56. Time to make changes
National Mining Act of 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

57. Spectrum in Vermont
William Murray

58. “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

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

60. Commons Management Per Capita Value of Spectrum : $1002.12
In Vermont (x629,908) : $ 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

61. Scratching the Surface (Water)
Elliot Wilkinson-Ray

62. 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

63. Thermoelectric Withdrawals (Vt Yankee nuclear)

64. 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

65. 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): $ ,000
Other uses: $.05/1,000 gallon
(24 million gallons/day) = $ ,000
Total surface water rent: $ 31.2 Million

66. Public Revenue from Wind Farms
Susan Skalka

67. 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
$ in fiscal year 2009
$ in fiscal year 2010
$0.003 in fiscal year 2011 and thereafter 67

68. 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

69. 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

70. Estimates for Discussion
2002 Study*: VT could produce 10% of electric energy from 6 wind-farms,with about 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

71. 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.

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

73. 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

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

75. 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 %
Vermont Revenue $268,891,964
Source:
Taxing Financial Speculation: Shifting the Tax Burden From Wages to Wagers
by Dean Baker. February Ctre for Economic & Policy Research

76. 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%

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

79. COMMON ASSET DIVIDENDS