This commentary is by Hayden Dublois who lives in Manchester, and is a political commentator and strategist who writes a biweekly op-ed column for the Manchester Journal. He is an economics student at Middlebury College. He was the Bennington County coordinator for Scott Milne’s campaign for governor in 2014.
[H]idden beneath the low unemployment numbers frequently cited by Gov. Shumlin is a set of indicators that suggest a less-rosy economic climate in Vermont. While the standard unemployment rate is 4 percent, the U-6 unemployment rate (which includes the total unemployed, those forced to accept only part-time positions, and those who have given up looking for work) is about 8 percent.
The number of full-time employees in Vermont is 10,000 persons smaller than it was a decade ago, and the number of those looking for work is 2,000 persons greater over the same time period. Meanwhile, the Vermont workforce has continued to shrink every year since 2010. Democrats, Republicans, and Progressives recognize that we need comprehensive economic development reform in this state.
Below is a proposal designed to address the concerns of both workers and small businesses by: encouraging investments in labor, R&D, and human capital; reforming the complicated permitting appeals process; assisting first-time homebuyers; ensuring that the wealthiest Vermonters pay an equitable amount to support our state’s investments; and supporting local economic development projects.
Millennial Enterprise Tax Credit
The Millennial Enterprise Tax Credit, championed by Sen. Becca Balint, D-Windham, would provide tax credits to businesses that invest in physical, economic and human capital in the information technology and similar sectors. To be eligible for the tax credit, an employer would have to create new, full-time jobs in Vermont, and pay wages and benefits at least 150 percent greater than the minimum wage. The tax credits would be provided in the amount of 5 percent of the gross wages and benefits of new, full-time Vermont jobs (for a 12-month period), 50 percent of the value of capital investment by the business, and 10 percent of the value of the businesses’ investment in R&D.
While this provision was proposed during the most recent legislative session, it was tossed aside before it made it out of the Senate Finance Committee. If this incentive program were to be enacted, employers would be encouraged to create high-paying, full-time jobs for Vermonters, and would be rewarded for investing in our state’s workers.
Restructure the Development Permit Appeals Process
Vermont’s development permitting process encourages community awareness and involvement, and rightly so. The process includes numerous opportunities for appeals of both municipal and Act 250 permits. While many of these appeals are well intentioned and justified, others are of a nature that could be characterized as “frivolous” or “competition-based.”
The appeals process has yielded unintended consequences that often forces small business owners to incur substantial delays and financial burdens that could be avoided with an improved structure to the appeal system. As the system exists, there is virtually no barrier to initiating a malicious appeal, where the intent is to delay or block the project simply to protect the appellant’s self or business interests. While the state statutes require that appellants have legal standing (generally defined as participating in the relevant hearings, owning property in the immediate neighborhood of the proposed development, and proving environmental or physical harm by the proposed project), the issue of standing is not dealt with until months – or even years – after the appeal has been filed. As a result, a disgruntled party can maliciously appeal a permit knowing full well that he or she does not have legal standing, thereby forcing the permit applicant to delay the project, incur legal fees, and even become dis-incentivized from pursuing the project to completion. Eventually, the relevant court would get around to addressing the case, during which they would typically dismiss the appeal as frivolous. But by that point, the damage is done: the permit applicant has incurred thousands of dollars in legal fees, delayed his or her development by a substantial time period, and perhaps even lost potential tenants. The mal-intentioned appellant has lost nothing but the small fee to file the frivolous appeal.
Several actions can be taken to expedite and improve the process, all while ensuring that interested parties have the right to express their concerns about development projects.
Several actions can be taken to expedite and improve the process, all while ensuring that interested parties have the right to express their concerns about development projects.
First, the state could specifically define the distance in what constitutes “immediate neighborhood” when referring to the legal standing of appellants, in order to reduce the vagueness associated with the relevant statutes. Second, while the courts have explicitly expressed that competition-motivated appeals are frivolous, the state could more clearly include this in the statutes. Third, permits of a minor nature can be exempt from appeals, such as minor sign or design-based permits. Finally, the state could require the appellant to pay the permitting applicant’s attorney’s fees if the court determines the appeal to be frivolous, in an effort to discourage malicious appeals.
These reforms would have the effect of reducing pocketbook-motivated and malicious appeals — while ensuring that genuine concerns are heard) — in order to avoid excessive economic losses due to attorneys’ fees and delayed (or even abandoned) development projects.
Expand the First-Time Homebuyer Tax Credit
To further affordable housing assistance, the Legislature recently created a down-payment assistance program for first-time Vermont homebuyers. The program provides a $5,000 interest-free loan for qualified first-time homebuyers to be repaid at the time of the property resale or refinancing. The new tax credit allows the awarding of up to $125,000 in down-payment assistance for FY16.
While approximately 100 first-time homebuyers will be eligible to take advantage of this program each year, there are several constraints on the program that could be made flexible. For example, the original bill called for a total amount of $625,000 in down-payment assistance over five years ($125,000 per year). The final bill reduced this to $375,000 in assistance over three years. The timeline of the program should be extended to five years (through FY 2020), the total amount should be expanded to at least $625,000, and the state should consider raising the total and annual cap to extend down-payment support to even more Vermonters.
Similarly, the state should consider creating a provision that automatically transforms the loan into a grant after the applicant has lived in Vermont for a certain number of years. By expanding this program, we’ll be assisting young adults in making the important investment of purchasing a home while encouraging key demographic groups to stay in Vermont for the long-term.
Minimum State Income Tax on High Earners
Vermont’s state income tax system is filled with loopholes that are taken advantage of by high-income earners, often to the point where many don’t pay a dime in state income taxes. For example, in 2013, 139 Vermonters with at least six-digit incomes paid no state income taxes whatsoever. Furthermore, a handful of Vermonters making over a million dollars a year paid no state income tax that year.
This past legislative session, Sen. Anthony Pollina, P/D-Washington, introduced legislation that would have set a very reasonable minimum state-income tax rate of 3 percent on individuals making over $125,000 per year. Given that the average effective income tax is 3.35 percent, the minimum rate of 3 percent for high income-earners is by no means burdensome. It merely ensures that wealthy Vermonters aren’t able to avoid contributing to our state’s income tax pool by taking advantage of tax loopholes. The plan would yield millions in revenue while affecting only a small number of folks who would otherwise pay nothing in state income taxes. It is inequitable by any standard to ask Vermonters to pay an average of 3.35 percent in state income taxes while a handful of the wealthiest Vermonters pay 0 percent.
Angel Investor Tax Credit
This past legislative session, the entire Senate Economic Development Committee sponsored the Angel Investor Tax Credit. This incentive program would have given a credit to “angel-investor” who make venture capital investments in small-sized Vermont businesses. The credit amount would be equal to 40 percent of the value of each investment. These investments would have to support business expenditures on plants, equipment, R&D, and working capital. The credits would target manufacturing, technology, export-focused, capital-drawing, and media-based small businesses. Unfortunately, this proposal also died in the Senate Finance Committee. If this bill where to pass in the future, investors would be encouraged to support local Vermont businesses, and those businesses would be able to utilize these investments to build capital.
The above economic reforms would encourage investments in Vermont small businesses, expand economic development, and ensure equitable investments in our state. Not pursuing these solutions would have the effect of maintaining the status-quo, thereby ignoring the long list of concerning economic indicators. Vermont needs economic development reform, and it starts with common-sense changes that help our small businesses and workers.
