Vermont: From Banana Republic to Owner State, by Gary Flomenhoft (COMMENTARY)

I believe Vermont should be an “owner” state. You might say that Vermont was founded in a battle over ownership rights, as Vermonters led by Ethan Allen enforced their New Hampshire land grants against competing claims by absentee NY landlords with titles from New York state. Ethan and the Green Mountain Boys ran the New York claimants out of town multiple times at gunpoint and occasionally torched their property between 1771-1774.

Ethan won the battle, but we’ve lost the war for ownership over our property to out-of-state owners. They’re not taking our land this time, just everything else. Maybe you didn’t notice or maybe you’ve succumbed to the prevailing dogma of market fundamentalism that says the market should decide everything. If Ethan did that we’d be living in New York. Recall that the courts ruled consistently in favor of New York’s claims, and Vermont even had to pay compensation to New York when it became a state. Some say the Vermont Republic joined the union to settle New York land claims, and get the New York landlords off their backs. New York is not called “The Empire State” for nothing. Nowadays empires are formed not by invasion, but through legal and economic means. While you weren’t looking Vermont became a colony to out-of-state corporations, a banana republic without the bananas. To prove it, let me lay out the facts and define an owner state:

Outside Ownership of Vermont’s Assets

The prevailing economic pattern in Vermont has been likened to a “leaky bucket.” Out-of-state companies, primarily from Canada, own most of the profitable resources of the state (listed below), which is more typical of an underdeveloped colony than a modern state. Vermont prides itself on its “buy local” culture, but banking and other out-of-state industries extract profit from the state on a massive scale. This does not seem to be compatible with the self-reliant ethic of the state.

• Gaz Metro (Quebec) owns 100% of Vermont’s natural gas company-Vermont Gas
• Gaz Metro (Quebec) owns Green Mountain Power (GMP) and Central Vermont Public Service, Co (CVPS): 70% of VT electrical utilities, which gives
• Gaz Metro (Quebec) majority control of VELCO transmission lines
• Trans Canada (Ontario) owns the vast majority of hydropower in Vermont: 580MW on the CT and Deerfield Rivers. All power generated is sent to Massachusetts, none to VT, as there is no major electrical connection within the state
• OMYA (Swiss) owns most of the mineral rights in VT
• Ice River Springs’ (Ontario) plant in Pittsfield, MA bottles over 90% of bottled water produced from Vermont’s water
• More than $1 billion dollars leaves the state annually to pay for energy like motor fuel & heating oil
• TD Bank (Ontario) has 22% market share of deposits in Vermont and
• TD Bank (Ontario) receives 2/3 of Vermont state cash funds as deposits ($236 million), which it can use to leverage credit globally
• Out-of-state headquartered banks (led by People’s United and TD Bank) have a 64% market share of deposits in Vermont[1], compared with 23% share for out-of-state banks in North Dakota, which has its own state bank

Paraphrasing Ross Perot, “Do you hear that big sucking sound of our money flowing out of state?”

Alaska was once confronted by this situation. Maybe it was more obvious, as outside fishing interests, especially huge factory ships from Japan and other countries liquidated fish stocks leaving local fishers impoverished. Here’s what former governor Wally Hickel said in 2009 at the age of 90, to a conference in Durban, South Africa.

“In Alaska we live on the commons. We benefit from the commons. We care for the commons. From common ownership of our land and our resources, has emerged a new model for modern society. We call ourselves the Owner State. And what we own is the commons. We believe our model surpasses both capitalism and socialism. When this approach is understood, worldwide, there will be no legitimate reason for poverty; especially in Africa, a continent so rich in resources. This year [2009], Alaska marks its 50^th anniversary as one of the 50 United States. But we are different from all the others. Prior to statehood, we were a colony, and a helpless victim of mining, fishing, and shipping monopolies. They plundered our resources, and left our people ignorant and in poverty. Just as multinationals today plunder South America, Asia, and Africa, sucking the wealth from the resource-rich wealth commons, leaving the rightful owners hungry and destitute… I urge you to study the building blocks of the Owner State. We are far from perfect but our experience can be helpful as you reclaim your commons.”

It was the experience of foreign factory ships liquidating fish stocks such as salmon in Bristol Bay, that led Republican Governor Jay Hammond to create the Permanent Fund and dividend when the oil industry came in.   After huge oil reserves were discovered on the North Slope, he wanted to avoid a repeat of the fishing debacle, where better-financed foreign companies dominated an industry and left the locals destitute. Alaska created the owner state, where citizens own the oil, not oil companies. The state collects 12-15% royalties for oil extraction, some of which is placed in a trust fund; a sovereign wealth fund called the Alaska Permanent Fund. Residents receive a dividend check every year from interest on the fund. By contrast, Vermont collects nothing for use of any of its natural resources, one of only 11 states who don’t[2]. By the way that includes use of the atmosphere as a dump for pollution, including CO2 and other greenhouse gasses. Emission fees are very low for toxics to non-existent for carbon.

The closest comparison to Alaskan oil in the Vermont energy sector, are the major dams in Vermont and on the Connecticut River bordering New Hampshire, 580 Megawatts worth. Consider the peak load in the entire state is around 1100MW.  Local towns such as Bellows Falls and Rockingham tried to buy their dams, but were out bid by the better-financed TransCanada Corporation.   The dams came up for sale during the Douglas administration, but Douglas opposed acquisition by the state, or offering any assistance to towns or local firms. Let the market decide he said.

Look at nearly any valuable resource in Vermont, and you will find it has out of state owners. This does not just apply to natural resources, it extends to other assets such as broadcast spectrum, Internet service providers, banks, real estate, and the list goes on. When government revenue is not collected on common wealth, then government turns to taxing private wealth and income, which is a greater violation of property rights. Note that Alaska has no income or sales tax, and receives over 80% of its revenue from natural resources, on top of having the Permanent Fund and oil dividend. The discussion of taxes in Vermont usually revolves around how much or how little to tax income and sales, rather than other options like rent on natural resources and other common assets.

What should Vermont do to become an owner state? Start by collecting rent for use of common wealth, and then gradually take back ownership of assets within the state from foreign corporations. We calculated total rent from common wealth could generate as much as $10,000 per person in Vermont[3]. What are these assets? Minerals, water, land, broadcast spectrum, hydropower, fish and wildlife, air emissions, forests, bank seigniorage, stock speculation, wind, etc. Cut taxes on productive enterprise, but not on speculation in stocks, bonds, and real estate. Create a sovereign wealth fund to protect our commonwealth for the future. Put our state and local revenue in public banks for investment in Vermont. Pay dividends to citizens to alleviate poverty. In this manner Vermont can become an owner state, instead of a resource colony of Canada, which it is now.

Gary Flomenhoft is an Affiliate Research Fellow at the Gund Institute at the University of Vermont, and currently a Post Graduate Researcher and PhD candidate at the University of Queensland, Australia, Sustainable Mining Institute. He has previously completed reports on Common Assets, Green Taxes, Subsidy Reform, and Public Banking for Vermont.

[1] FDIC Share of Deposit (SOD) Report for Vermont, June 30, 2013

[2] http://www.ncsl.org/research/fiscal-policy/state-energy-revenues-update.aspx

[3] Exporting the Alaska Model: Adapting the Permanent Fund Dividend for Reform around the World. Eds. Karl Widerquist and Michael Howard. Palgrave-Macmillan, St. Martin’s Press, NY, NY 2012. Pages 85-107)