Valuing Common Assets for
Public Revenue in Vermont
Prepared for Blue Ribbon Tax Commission
December 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 value
Such as spectrum, minerals, water, land, internet, forests,
wildlife, seigniorage. Often privatized.
+$1200!
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
Alaska Model: Alaska Permanent Fund
12-15% Royalties
DC
Oh
io
Mi
ss
ou
ri
Vir
gin
ia
Ar
izo
No
na
rth
Ca
ro
Pe
lin
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sy
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So
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ut
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ar
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lah
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a
Illi
no
Rh
is
od
eI
sla
nd
Ar
ka
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as
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rse
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y
w
Me
xic
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Ma
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uc
We
ky
st
Vir
gin
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s
Flo
rid
a
Ca
lifo
rn
ia
Ala
ba
ma
Co
nn
ec
tic
ut
Mi
ss
iss
ipp
i
Lo
uis
ian
a
Ne
w
Yo
rk
ka
Ut
ah
Wi
sc
Ne
on
w
sin
Ha
mp
sh
ire
Io
wa
Ve
rm
on
t
In
dia
na
Ne
br
as
ka
Mi
nn
es
ota
Id
ah
o
Wy
om
No
ing
rth
Da
ko
ta0
De
law
So
ar
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e
hD
ak
ota
Ma
ry
lan
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Ma
ine
Ha
wa
ii
Ka
ns
as
Ne
va
da
Mo
nt
an
Wa
a
sh
ing
ton
Or
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on
Co
l or
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Mi
ch
iga
n
Ala
s
2000 Gini by State
0.600
0.500
0.400
0.300
0.200
0.100
0.000
Fund Endowments Oct. 2009
$1,000,000,000,000
$549,000,000,000
$100,000,000,000
$33,995,800,000
$10,000,000,000
Question 1
$1,000,000,000
$253,620,162
$100,000,000
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 Assets
VT 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 NEW
REVENUE REVENUE
INCREASE
MILLION $ MILLION $ MILLION $ SOURCE
Air/transport
209
7-153
7-153 carbon permits
17
4-93.6
4-93.6 carbon permits
14.7
25.9
10.4
Forests
Ground water
Internet
Spectrum
Minerals
Net loss
~0
~0
~0
3.7
3.2
107.9
30
375
9.7
Surface Water
~0
31.2
31.2 user fee
Land
741
1071
330 land rent
Wind
0.75
5.5
4.75 pro gressive rent
(capital
gains?)
~0
269
269 .25% To bin tax
35.7
35.7 1% of loans
Air/heating
Air ( total)
Fish and
wildlife
Speculation *
Seignorage *
Total new
revenue
Per capita
Dividend
25.9 carbon permits
10.4 fees
3.2
107.9
30
375
6
$1.229
billion/year
$1973
each/year
depletion fees
bottlers
ISPs & domains
Auction
Royalties
WHAT IS ECONOMIC RENT?
COST OF OIL (economic rent in green)
After
Interest
Wages
Profits
Remainder is
Rent=
Value of the
Resource
Total Co2 Emissions in Vermont
electricity consumption
emissions
(MMtCO2e)
2030 2030
2005 (high) (low)
0.64 4.12 0.97
residential, commercial, industrial fuel use
transportation
fossil fuel industry
industrial processes
waste management
agriculture
2.71
4.02
0.02
0.44
0.29
0.96
emissions total
Minus electricity
Statewide data from Vermont Governors
Commission on Climate Change, available at:
9.08 12.88 9.73
8.44
Source categories
2.72
3.64
0.03
1.24
0.23
0.9
2.72
3.64
0.03
1.24
0.23
0.9
http://www.uvm.edu/~vtcc/?Page=governor.html
Sept. 2008 Auction price: 3.07 x 8.44 = $25.9 million
Dec. 2008 Auction price: 3.38 x 8.44= $28.52 million
Fish and Wildlife Rent
Ross Saxton
Fish and Wildlife Rent
Figure 1a.
Total Revenue FY06
$6,822,884
46%
$7,880,000
54%
Tax
Total: $14,702,884
Economic 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
-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
Management of Vermont’s
Forest Revenue
Mark Kolonoski
Public Revenue vs. Private Revenue
PublicState Forests
$3.2 million
State Parks
$6.58 million
Fish and Wildlife
$180,486 (logging)
Current Use Program
$17 million
PrivateForest-based manufacturing
$207.4 million
Recreation/tourism
$485 million
Forestry and logging
$32 million
Paper and Pulp
$50 million
Current Use Program
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- $489,540 in penalties.
2007-$39 million in savings!
Revenue Generating Suggestions
• Leave public lands alone
• Current Use withdrawal penalty
Sale price of the property being converted
-- Original purchase price (adjusted to inflation)
Current Use Exit Penalty
• Depletion of Ecosystem Services (DES) tax
Estimated $3.2 million
• Impose auction and insurance bond regulation
• Vermont Public Land Bank
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
processing and
packaging
19%
raw materials
46%
taxes
26%
distribution
and marketing
9%
Source: H2O for Maine http://www.waterdividendtrust.com/
Bottled Water Costs
processing and
packaging
3%
tax
es
raw
materials
distribution and
marketing
97%
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
Gasoline=
$2.79/gallon
Rent (royalty) 15%
Oil
$78.11/barrel = $1.86/gallon#
Water(Dasani)
$1.79/liter =
#1
$6.78/gallon*
barrel = 42 gallons
*1 gallon [US, liquid] = 3.785 411 784 liter
$.27
$1.02 (0)
Future Economic Rent Revenue:
Bottler
Gallons/year
Pristine Springs of
Vermont
Vermont Natural Water
4,813,425/yr
Clear Source SpringsBottling
TOTAL
28,233,905
REVENUE@
$1.3M/ACRE-FOOT
970,000/yr
34,017,330=104.3
ACRE/FEET
$135.7 Million x 70% =
$107.9 Million
Future Economic Rent Revenue:
Bottler
Gallons/year
Pristine Springs of
Vermont
Vermont Natural Water
4,813,425/yr
Clear Source SpringsBottling
TOTAL
28,233,905
REVENUE@
$1.3M/ACRE-FOOT
970,000/yr
34,017,330=104.3
ACRE/FEET
$135.7 Million x 70% =
$107.9 Million
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.
Internet Rent Potential
Source
Revenue
Public
telecoms
$18.5 M profit
ISPs
$38.7M
$6M profit
$130 M
$18.4 profit
Domain
names
TOTAL
Rent > 7% of
profit
$17 Million
$3.3 M
$9.3M
~$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
Current State Revenue from Land Taxes
– $489,540
• Speculative Gains Penalties
– $5,646,165.77
Current
Use
Property
Transfer
5%
• Property Transfer Tax
– $38,315,508.89
• State Property Tax
– $696,371,326
• Total Revenue
– $740,822,540
Speculativ
e Gains
1%
State Property
Tax
94%
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 Revenue
2005
Production/Extraction Value
96,800,000
Direct Mining Earnings
63,000,000
Listed Property Value
Property Taxes
•
•
•
•
•
•
•
( includes state tax of 1% and, average municipal tax of 1.79%)
132,228,257
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
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 a
TIFF (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 = $172,462,500
http://www.revermont.org/windfarm_benefits.pdf*
http://sciencepolicy.colorado.edu/moveabletype/mt-comments.cgi?entry_id=850**
VT TRUST-US financial Speculation
Current Trading
(Annual Rates)
Volume AfterTax
Stocks
$11 trillion
Government Bonds $41.6 trillion
Corporate Bonds $22.1 trillion
Futures Contracts $100 trillion
Currency
$200 trillion
(worldwide)
Swaps
$22 trillion
Options
Not available
Total US Revenue
Vermont Revenue
Projected
Tax Rate Revenue
Volume (both sides)
$7.3 trillion
0.5%
$36.5 billion
$27.7 trillion
0.1%
$27.7 billion
$14.7 trillion
0.1%
$14.7 billion
$66.7 trillion
0.02%
$13.3 billion
$133.3 trillion
0.1%
$33.3 billion
(U.S. share = 25%)
$14.7 trillion
0.02%
$2.9 billion
NA
0.01%
NA
(.25% RATE)
$128.4 billion
x .21%
$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
International Exchange
Goods and
Services
Buying and
selling of paper
$30 Trillion/yr
$1.5-2 Trillion/day
=$500-700T/year
95% speculation in paper!
WHO CREATES MONEY?
(SEIGNORAGE)
GOVT
$600 BILLION 7%
(CURRENCY)
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
Subsidy Reform
Cutting Wasteful & Environmentally Harmful Spending
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