Valuing Common Assets for Public Revenue in Vermont

Prepared for Blue Ribbon Tax CommissionDecember 8, 2009

Gary Flomenhoft, UVM

COMMON ASSETS

DEFINITIONS

COMMONS: Things produced by Nature, government, or society as a whole that we all share such as air, water, roads, parks, libraries, music, etc.

COMMON ASSETS: Parts of the commons with market valueSuch as spectrum, minerals, water, land, internet, forests, wildlife, seigniorage. Often privatized.

Alaska Model: Alaska Permanent Fund

12-15% Royalties

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

+$1200!

2000 Gini by State

0.000

0.100

0.200

0.300

0.400

0.500

0.600

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DC

Question 1

Fund Endowments Oct. 2009

$253,620,162

$33,995,800,000

$549,000,000,000

$100,000,000

$1,000,000,000

$10,000,000,000

$100,000,000,000

$1,000,000,000,000

UVM Alaska Norway

(80% Royalties)

SOVEREIGN WEALTH FUNDS

Vermont Resources-Sovereign wealth?

No oil

No natural gas

No coal

No precious metals

No gemstones

Not much sun

A little wind

Vermont Resources

Cows Maple Syrup

Privatized Common AssetsVT is an Economic Colony-Banana Republic• Minerals-Omya-Swiss• Hydropower-Transcanada • Groundwater-out of state bottlers• Surfacewater-82% by Entergy-Texas • Spectrum-giveaway to media Corps.

New Order-claiming sovereignty of resources Ecuador, Bolivia, nationalization of banks

ASSET CURRENT REVENUE

NEW REVENUE

INCREASE

MILLION $ MILLION $ MILLION $ SOURCE Air/transport 209 7-153 7-153 carbon permits

Air/heating 17 4-93.6 4-93.6 carbon permits

Air (total) 25.9 25.9 carbon permits Fish and wildlife

14.7 10.4 10.4 fees

Forests Net loss 3.2 3.2 depletion fees Ground water ~0 107.9 107.9 bottlers Internet ~0 30 30 ISPs & domains Spectrum ~0 375 375 Auction Minerals 3.7 9.7 6 Royalties

Surface Wa ter ~0 31.2 31.2 user fee

Land 741 1071 330 land rent

Wind 0.75 5.5 4.75 progressive rent

Speculation * (capital gains?)

269 269 .25% To bin tax

Seignorage * ~0 35.7 35.7 1% of loans Total new revenue

$1.229 billion/year

Per capita Dividend

$1973 each/year

WHAT IS ECONOMIC RENT?COST OF OIL (economic rent in green)

AfterInterestWagesProfits

Remainder is Rent=Value of the Resource

Source categories emissions

(MMtCO2e)

2005 2030 (high)

2030 (low)

electricity consumption 0.64 4.12 0.97

residential, commercial, industrial fuel use 2.71 2.72 2.72 transportation 4.02 3.64 3.64 fossil fuel industry 0.02 0.03 0.03 industrial processes 0.44 1.24 1.24 waste management 0.29 0.23 0.23 agriculture 0.96 0.9 0.9 emissions total 9.08 12.88 9.73 Minus electricity 8.44 Statewide data from Vermont Governors Commission on Climate Change, available at:

http://www.uvm.edu/~vtcc/?Page=governor.html

Total Co2 Emissions in Vermont

Sept. 2008 Auction price: 3.07 x 8.44 = $25.9 millionDec. 2008 Auction price: 3.38 x 8.44= $28.52 million

Fish and Wildlife Rent

Total Revenue FY06

$7,880,00054%

$6,822,88446%

Tax

Economic RentTotal: $14,702,884

Figure 1a.

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

-Increases price for developers to develop, especially on land that holds high habitat value

-Reduce rural development…increase viable habitats and other ecosystem services

-Funds go to Fish and Wildlife Trust Fund

ForestsPublic Revenue vs. Private Revenue

Public-State Forests

$3.2 millionState Parks

$6.58 millionFish and Wildlife

$180,486 (logging)Current Use Program

$17 million

Private-Forest-based manufacturing

$207.4 millionRecreation/tourism

$485 millionForestry and logging

$32 millionPaper and Pulp

$50 million

Current Use Program

Withdrawal Penalty20% 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- $489,540 in penalties.2007-$39 million in savings!

Revenue Generating Suggestions• Leave public lands alone• Current Use withdrawal penalty

• Depletion of Ecosystem Services (DES) taxEstimated $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

Public Trust Resource-2009

• “Held by the people in their character as sovereign in trust for public uses for which they are adapted”

Ground Water in Vermont:

Current Revenue: $0• Vermont has no structure in place to glean

economic rent for this asset, so it goes without saying that Vermont’s rent payment on groundwater equals zero at the present time.

Oil Costs

raw materials46%

distribution and marketing

9%

taxes26%

processing and packaging

19%

Source: H2O for Maine http://www.waterdividendtrust.com/

Bottled Water Costs

distribution and marketing

97%

processing and packaging

3%taxes

raw materials

Source: H2O for Maine http://www.waterdividendtrust.com/

VT Permits

>50K gallons

Nestle (19)

San Pellegrino

Icelandic

Spring Realty

Absopure

Advanced H20 (2)

Premium

Roaring Spring

Ice River

Gasoline and Water Comparison

Item Cost Rent (royalty) 15%

Gasoline= $2.79/gallon

Oil $78.11/barrel = $1.86/gallon# $.27

Water(Dasani) $1.79/liter = $6.78/gallon* $1.02 (0)

#1 barrel = 42 gallons

*1 gallon [US, liquid] = 3.785 411 784 liter

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

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 Current ManagementStructure

• 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.

Internet Rent PotentialSource 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

Land Rent 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

Current Revenue

• Current Use 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

Current State Revenue from Land Taxes

State Property Tax

94%

Speculative Gains

1%

Property Transfer

5%

Current Use

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 trillion, an amount comparable to the entire state budget

• 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 3.457% applied to the $21.42 billion in

assessed land values would capture what the 4 combined taxes currently do.

Changes to Management Structure

• A single tax on land values could effectively capture the same amount of revenue as the 4 major property taxes already do.

• This shift could have the effect of curbing sprawl while providing more affordable housing by removing disincentives to provide such housing.

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 Revenue2005

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

“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

• Allocation

• Value– 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% economic rent = $250 million/yr

• Spectrum Trust Management– Annual Auction– Market Determines Price– Renewable Licensing

*Gaffney, Losses of Nations, 1996

93% (roughly 445 million gallons per day) = private profit

Current Revenue: • Public Supply: $ 35,000,000• Wastewater Permits: $ 1,692,350

• Hydroelectric: $ 164,775,527 • Thermoelectric: $ 316,000,000 • Recreation: $ 109,096,309 • Total: $ 626,564,186

Thermoelectric Withdrawals

QuickTime™ and aTIFF (Uncompressed) decompressor

are needed to see this picture.

Rent

• Hydro:10% of revenue ($164,775,527) $ 16,477,553

• Local hydro subsidy: $ 6,000,000

• Vermont Yankee 10% profit: $ 19,680,000

• Public Consumption 5% (over 40,000): $ 639,000

• Other uses: $.05/1,000 gallon (24 million gallons/day) = $438,000

• Total surface water rent: $ 43,234,553

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

Potential Public Revenue • Capture economic rent on resource use

• Different fiscal structures could be used– Economic analysis by energy economist would

be needed to determine which would work best– Would need to not 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

Proposed Wind 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

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 = $172,462,500http://www.revermont.org/windfarm_benefits.pdf*http://sciencepolicy.colorado.edu/moveabletype/mt-comments.cgi?entry_id=850**

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 billionGovernment Bonds $41.6 trillion $27.7 trillion 0.1% $27.7 billionCorporate Bonds $22.1 trillion $14.7 trillion 0.1% $14.7 billionFutures Contracts $100 trillion $66.7 trillion 0.02% $13.3 billionCurrency $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 billionOptions Not available NA 0.01% NA

Total US Revenue (.25% RATE) $128.4 billionx .21%

Vermont Revenue $268,891,964

Source: Taxing Financial Speculation: Shifting the Tax Burden From Wages to Wagersby Dean Baker. February 2000. Ctre for Economic & Policy Research

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!

WHO CREATES MONEY? (SEIGNORAGE)

GOVT

(CURRENCY)

$600 BILLION 7%

BANKS

(LOANS)

$8 TRILLION 93%

TOTAL $8.6 TRILLION

100%

2004 VT MONEY CREATION

VT BANKS

(LOANS-2004)

$3,574,450,000

1% RATE $35,744,500

VT SOVEREIGN BANK

MODELED ON BANK OF NORTH DAKOTA

DEPOSIT ALL TAX MONIES TO STATE BANK

Prepare to issue bills of credit as USD falls

COMMON ASSET DIVIDENDS

Cutting Wasteful & Environmentally Harmful Spending

Subsidy Reform

Green Scissors 2004

Delaware River project-$175 million

Market access program-$550million

Section 29 (drilling credit)-$2.8 billion

SUV tax credit-$1.26 billion

Timber road subsidies-$170 million

1 Gallon of gasoline-$3-$15 in subsidies