University of Vermont

University Communications

Resources for Rent?

Release Date: 04-29-2009

Author: Jon C. Reidel
Phone: 802/656-8206 Fax: (802) 656-3203

Gary Flomenhoft

Research associate Gary Flomenhoft displays a check for $1,972 — the cut each Vermont citizen would get in his proposal to rent Vermont's natural resources.

Gary Flomenhoft knew he faced a tall order in trying to convince the Vermont House Committee on Ways and Means that the state should collect economic rent on its natural resources. The concept of charging corporations for the use of water, air and other common assets would be a hard sell and had already died a quiet death two years earlier as a bill that never got out of committee.

Determined to make this time different, Flomenhoft, a research associate in the Department of Community Development and Applied Economics, arrived at the State House armed with a glossy, 52-page research report titled "Valuing Common Assets for Public Finance in Vermont," compiled by 11 UVM students from the Master's of Public Administration (MPA) program, and an oversized check for $1,972 representing the amount every Vermonter would receive under the proposal. Most importantly, the study contained what the previous report and accompanying bill (S.44) introduced by Hinda Miller (D-Burlington) lacked: actual dollar values for each common asset.

Overall, students calculated that the state's common assets are worth $1.2 billion annually, accounting for the $1,972 dividend check for each Vermonter. Flomenhoft pointed out that every Alaskan (children included) received $3,200 in 2008 from oil companies who paid for the right to drill for oil. Students were charged with assigning values to each of Vermont's assets, which fall into two categories: natural assets (air, ground water, surface water, minerals, wildlife and fish, forests, etc.) and socially created assets (stock market, internet, land values and other creations of society as a whole). Legislators seemed intrigued by the potential revenue.

"This (original) bill was high on the mountaintop," said Miller, who is expected to submit a new version of the bill next session, at a press conference following Flomenhoft's testimony. "Gary and his students brought it down to earth with real numbers and by taking a conceptual idea and putting actual dollars to it. I think it has a lot of potential."

Choosing the most (politically) viable resource

Most legislators sounded positive, although some were concerned that the bill might be viewed as a tax that might deter businesses from setting up shop in the state. Flomenhoft points out that the Alaska oil revenue sharing system was set up by a conservative Republican governor and was increased by Gov. Sarah Palin. Flomenhoft, who bases his concepts on the book Capitalism 3.0 by Peter Barnes, notes that revenue isn't generated on earned income, but rather on the resource itself.

"By recovering economic rent currently privatized, we can begin to shift our public revenue system from taxing value added to charging rent for use of common assets," writes Flomenhoft in his executive summary. "This allows us to 'tax bads, not goods,' as many economists from all sides of the political spectrum have urged in recent years."

Some of the natural resources in the report seemed harder for committee members to grasp than others. For example, how exactly would the state of Vermont rent air to private corporations? MPA students Jennifer Kenyan and Beth Nolan explained in their section titled, "Renting the Air: Curbing Emissions from Transportation and Heating in Vermont," that the rent would be based on carbon emissions, with companies paying for polluting the environment — or as Flomenhoft puts it — "use of air as a sink for waste." Kenyan and Nolan conclude that if companies respond by raising rates on consumers, "the regressive effects can be mitigated as long as there is a dividend to offset the cost to the consumer. In a cap-and-divide system, we are regaining our property, reducing air emissions, putting money back into the hands of the consumers, and ultimately, continuing to stimulate our economy."

'From the moon to the center of the earth'

Flomenhoft raised a few eyebrows when he gave an example of a Canadian water bottling company that drives trucks from Canada to land it owns in Vermont where it pumps out ground water, and then drives it to its new plant in Massachusetts to be processed by the 60 employees it recently hired. What does Vermont get out of the deal other than property tax? "Nothing," says Flomenhoft. "When a company buys land in Vermont, it owns everything 'from the moon to the center of the earth.'"

"This report really makes people aware of what we're giving away," said David Zuckerman, a Progressive representative from Burlington. "In concept it's a good idea, but we have to get into the weeds and see what Vermont assets make the most sense. The fact that water is being extracted from the ground and that we receive no remuneration is absurd."

Students were charged with creating appropriate methods of revenue generation based on the unique characteristics and potential worth of each natural asset. Mark Kolonowski proposed two new sources of revenue in his section "Assessing Revenue and Regulation of Vermont Forests": a fee for depletion of ecosystem services by logging and a higher charge for conversion of current use property to non-forest users.

Ross Saxton advocated for a biodiversity and land conservation plan based on "critical habitats" and payment of rent proportional to species and habitat scarcity for use of the land areas. He supports the recent effort to redirect one-eighth of one-cent sales tax from other programs to fish and wildlife, and recommends increasing the capital funding of the Fish and Wildlife Trust Fund from $1.6 million to $12 million in order to generate more interest income to use as operating funds.

"I spent the first two years (of college) focusing on environmental sustainability," said Saxton. "This project got me thinking more about the political aspects of these issues and how viable these ideas can be. You have to have the right perspective and present them in a way that shows the social and economic benefits."