• Forget economic development
    July 12,2014

    The headline expresses the overt or implied attitude of a fairly significant portion of Vermont. Some people enjoy the sparse population, homey village atmosphere and lack of the fast-paced rat race of the big cities. Some want to maintain the Mom and Pop local businesses and block the mindless mega-corporations that care nothing about the individuals or families. Some came here to get back to nature and don’t want either people or industry to despoil the landscape and environment. We also seem to have a number of like-minded politicians who make policies that often negate any economic development.

    Is there any particular motivation to have economic development? One reason might be high and rising taxes. It is paradoxical that the attraction of our sparse population is one of the major causes of the high taxes that contribute to the reason we have a sparse population of people and businesses. Statistics bear this out. The per capita tax burden in Vermont is more than 10 percent above the national average. The Anderson Economic Group ranked Vermont’s business climate at number 49.

    We can speculate how we achieve this dubious ranking while maintaining one of the lowest unemployment rates in the nation, but one indicator is that we have over 20,000 businesses with fewer than 10 employees, but only one-tenth of one percent of that number of employers with 1,000 or more employees. Most of us are working, but the jobs are in very small businesses that offer few benefits and pay relatively little in business taxes.

    The most recent battle over access to Berlin Pond might be seen as symbolic of the whole state — people who are here already don’t really want more people to come. Unfortunately, keeping the population small means that the tax burden is split among fewer people. Imagine if the residents living around Berlin Pond were charged a high tax for their exclusive access to the pond. I imagine that their resistance to others using the pond would quickly change if additional pond users contributed to, and lowered their taxes. So it is with the state.

    Our challenge is to strike a balance between safeguarding what we all like about Vermont while also increasing the tax base so that we can afford to live here. How do we do that? In simple terms, the solution is to get more income into the state without having a large population increase. The optimum solution would be to increase the number of tax-paying businesses and the average salary of the employees. To do that, we need to attract businesses like the IBM microchip facility in Essex.

    IBM employs 4,000 workers at good salaries and supports a large local economy. Unfortunately, IBM may be selling the facility and it is unknown now if the new buyer will keep it here or move it out of state. The response to this situation from the Vermont politicians is typical and misguided. There are discussions of spending $4.5 million on the IBM “campus,” improving public transportation, lowering utility costs and offering massive tax incentives. Figures as high as $15 million or more are being discussed as the total immediate investment to keep the facility operating. That is not economic development — that is simply buying jobs in an extremely inefficient manner. If successful, we will have spent a vast sum of money and given away tax revenue for years in the future in order to maintain a status quo. We could do so much better.

    “Build it and they will come” is an adage used to justify spending by politicians since the Romans. Unfortunately, most often they incorrectly define the “it.” Study after study have shown that optimizing infrastructure will improve business and tax revenue. Like planting certain kinds of seeds to produce a specific crop, we can invest in specific infrastructure improvements to achieve specific goals. If Vermont invested that $15 million wisely, we could strike that balance between growth and taxes. Specifically:

    n High-speed Internet: A study in Michigan estimated that a statewide fiber optic broadband network would increase state revenue by $440 billion over 10 years. We might not achieve that gain, but the Internet is undoubtedly the superhighway of commerce in the 21st century. North Dakota has nearly the same size population as Vermont but they have a tax revenue surplus — so much so, they recently returned $400 million to the residents. They attribute this mostly to a modern internet infrastructure that supports their massive credit card processing industry — an industry that relies entirely on that infrastructure.

    n Transportation: Big businesses thrive on easy transportation. A decent size airport for people and shipping is essential to many businesses. A state capital without a real airport shouts out that we don’t want business growth here.

    n A large technically skilled work force: No company will come here if they do not think there are enough skilled employees. If we offered education and technical training good enough to attract out-of-state students, they, in turn, would attract the high-paying technology companies.

    n Affordable housing: If we want to attract companies that will employ a lot of people, we have to be able to offer affordable housing to those workers and public transportation to and from their work sites.

    Let’s not buy jobs or bribe companies to stay here if there is a more efficient and productive way to spend the same money on goal-oriented, selective economic development.

    Tom Watkins lives in Montpelier. He can be reached at KeepItReal@21VT.US.

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