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 nn sy lva So nia ut hC ar oli na Ok lah om a Illi no Rh is od eI sla nd Ar ka ns as Ne w Je rse Ne y w Me xic o Ge Ma or gia ss ac hu se tts Te nn es se e Ke nt uc We ky st Vir gin i Te xa 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 ut e hD ak ota Ma ry lan d Ma ine Ha wa ii Ka ns as Ne va da Mo nt an Wa a sh ing ton Or eg on Co l or ad o 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