Gap between rich and poor widens at dramatic rate
State second in income disparity growth
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Sen. Doug Racine, co-chairman of legislative study on the poor, says: "It's getting harder for people to work their way out of poverty." File photo |
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By Louis Porter Vermont Press Bureau - Published: September 30, 2007
MONTPELIER — The spread between the rich and the poor in Vermont remains narrower than in much of the country. But, according to a new study by Professor Ross Gittell and graduate student Jason Rudokas of the University of New Hampshire, the gap between wealthy and low-income Vermonters is growing at an alarming rate.
According to the study, published in Communities and Banking, a journal of the Federal Reserve Bank of Boston, Vermont saw the second-greatest jump in income disparity in recent years in the United States. Only Connecticut saw adjusted incomes for the highest-earning residents rise so precipitously in comparison to the buying power of its neediest residents.
So while Vermonters who believe that their communities work best when there isn't a wide income spread among neighbors can be glad Vermont is still 31st out of the 50 states in one common measure of income disparity, they may be surprised that the tiny state was 47th as recently as 1989.
"Vermont actually significantly increased in income disparity relative to the nation," Gittell said last week. "Normally you don't think of Vermont as being like that."
"Over a 15-year period that is a pretty pronounced change," he added. "It does go against the grain, the character, the tradition of Vermont."
There appear to be two main reasons, said Gittell, who works at the University of New Hampshire.
One is the loss of manufacturing jobs — which could once be counted on to raise New England's workers out of poverty, or at least ensure they could make a living wage. That causes what Gittell calls the "hollowing out of the middle class."
Secondly there seems to be some spillover of wealthy folks — including many with "unearned income" or investments — from New York, Massachusetts and Connecticut. If a relatively small number of residents of larger states are attracted to Vermont's reputation as a place with a high quality of life, clean environment and low crime rate it can make a big difference on a relatively a small population.
"You have a lot of high-income people who like Vermont and move in," Gittell said. "You don't need that much movement in relatively large states."
"The only group in the region and in Vermont that experienced a real growth in income was the top quintile," Gittell said. That "top quintile" is the one-fifth of residents who earn the highest salaries.
New England as a region has seen many of the same changes as Vermont has, Gittell said. Of the five states which have seen the greatest increase in income disparity, three are in New England. Connecticut is No. 1; Vermont is No. 2 and Massachusetts, New Jersey and California round out the top five.
Overall median household incomes in Vermont are on the rise, however, said David Mace of the Agency of Commerce and Community Development.
"We think it is more important to look at how the whole population is moving, not just the tails of the bell curve," he said.
One reason for the trend may be demographic changes caused by Vermonters in their 20s leaving the state, Mace said. Another may be that Vermont has a relatively high proportion of residents who rely on investment income among its higher-income population. In recent years, the stock market has performed well.
"That would mean those households would have seen a greater than average increase in their average income," he said. The study "is interesting, but it doesn't necessarily paint a picture of a Vermont where you are not seeing a distribution of income growth."
But Doug Hoffer, an analyst and consultant who sometimes works with the Legislature or progressive business groups, said a rising median household income and low poverty rate compared to national figures doesn't say much about the spread of income across economic classes.
"The fact that New England has a comparatively high per capita income and relatively low poverty rates doesn't tell you a thing about how income is distributed," he said. "Any per capita measures on income or wealth are very, very misleading."
In part that is because the cost of living can vary greatly from one city or region in the country to another.
Vermont has a relatively high proportion of unearned income, he agreed. Such income accounts for roughly 14 percent of all adjusted gross income — and 58 percent of it goes to the top 2 percent of tax-return filers.
The increasing disparity in incomes is one reason the state should consider looking to those who earn more to pay for state needs like roads, schools and public safety, Hoffer said.
"If you refuse to look to those with money to fund those things you really put yourself in a bind," he said. "Many problems require money. You can't fix bridges with good intentions."
But it is also why the cost of living should be kept down in the state, and why efforts like the recent workforce development bill which was signed into law by Gov. James Douglas are important, Mace said.
"We are doing everything we can to make sure Vermont becomes a stronger and more innovative economy where more households can see a rising income," he said.
Avoiding a large gap between high- and low-wage earners ensures that those who earn less live and work and recreate in the same places and restaurants and neighborhoods where those who earn more do, Gittell said. That can, in turn, ensure fair education and job opportunities for those residents, he said.
Sen. Doug Racine, the co-chairman of an ambitious legislative study of poverty in the state, said the challenges facing poor, working Vermonters who want to move up to higher income levels seem to be larger than when he was growing up in the state.
"We are talking about people who are out there working very hard," he said. "It is getting harder for people to work their way out of poverty."
"It has been going on for 15 or 20 years and it is happening in Vermont as well," Racine said. "It is a result of a changing economy and a changing tax policy."
While not discounting the study, the growth in income disparity hasn't been terribly obvious to him, said Michael Smith, the state's Secretary of Administration.
"It doesn't pop out at me," said Smith, although he also pointed out such a change might not be apparent to someone who grew up, as he did, not very well off in Woodstock, one of the wealthier communities in Vermont.
"If there is a disparity this report underscores what the governor has been saying … we have an affordability crisis in Vermont," Smith said.
In addition, he said that the increase in retirees has not been balanced by a commensurate number of young professionals staying in the state, and this factor could have a significant impact on the study's results.
"We have an older population that is retiring here with significant assets and that may be driving the data here," Smith said.
Steve Dale, head of the Department for Children and Families, said he has not made an in-depth review of the report.
But, Dale said, "my assumption would be that is largely a factor of the people moving to the state."
"Vermont has, I think, more people who have more income," now than in past years, he added.
And that factor may be driving up the cost of living.
Erhard Mahnke of the advocacy group the Vermont Affordable Housing Coalition, said the influx of people from out of state buying property in Vermont may be pushing up house prices.
"I suspect this may be at least in part the result of folks from out of state who have greater buying power buying primary or second homes in Vermont," he said.
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