June 2008

From: Glenn McRae, CFED Staff (glenn@snellingcenter.org)
Date:  June 30, 2008
 
IBM slipping as state's No. 1 employer
By Dan McLean, Burlington Free Press Staff Writer, June 29, 2008 
 
IBM Corp., long Vermont’s largest private employer, is on the verge of being eclipsed by Fletcher Allen Health Care.

After cutting 180 jobs Tuesday, IBM has about 5,400 full-time workers in Essex Junction and is losing its hold as the No.¤1 employer in the state.

Burlington-based Fletcher Allen had the equivalent of 5,384 full-time workers at the end of May — a number that has increased by 47 percent in the past dozen years, hospital spokesman Mike Noble said.

IBM is emblematic of Vermont’s waning manufacturing industry, while Fletcher Allen and the health care industry — fueled by the demands of Vermont’s aging population — are on the rise, said Chris Lafakis, an associate economist at Moody’s Economy.com, a leading independent provider of economic analysis, data and forecasting.
 
Lafakis, whose area of expertise includes Vermont, expects IBM and the state’s manufacturing sector to continue to shed jobs for decades.

IBM’s Vermont plant employed 8,500 people in 2001. Including last week’s layoffs, IBM’s work force has declined about 36 percent since that peak.

Manufacturing of goods, including semiconductors and other electrical equipment, has been waning since the tech bust in 2001, Lafakis said, noting that timeline jibes with the job cuts at IBM’s Essex Junction plant.

The jobs will be replaced by Vermont’s booming health care sector, he said, which will soon make Fletcher Allen the state’s largest private employer.

“Vermont is an old state. It’s a New England state with pretty flat population growth, poor demographic trends,” Lafakis said. “It has a lot of baby boomers, and those baby boomers are going to need health care as they get into retirement age. So, really, the future of Vermont is in health care.”

Art Woolf, editor of the Vermont Economy Newsletter and an economics professor at the University of Vermont, agreed.

“It’s probably a safe bet, if it’s not now already — it will be the larger employer,” Woolf said of Fletcher Allen.

“You can’t keep spending money on health care without it showing up in jobs,” he said. “That money just doesn’t go down a sinkhole.”

IBM might add 100 or 200 jobs in the next few years, but its days of having more than 8,000 workers in Vermont have passed, Lafakis said.

Over the next 30 years, IBM’s Essex Junction work force could fall as much as 30 percent to about 3,800 employees, he said.

The microelectronics plant, which is part of IBM’s Systems and Technology business group, is the only one of IBM’s divisions to generate less revenue in year-over-year numbers.

IBM spokesman Jeff Couture said the tech firm is not overly concerned about remaining the No. 1 private employer in Vermont. “We are focused on being the most successful at what we do, providing value to our customers ... that’s more important,” Couture said Friday.

“We are still large and will probably be large, by Vermont standards, for years to come,” he said.

Lafakis said IBM is “going to remain a pillar of the economy, but it’s going to become less important over the next two decades or so.”

IBM looks to the world

Vermont comprises a small piece of IBM’s worldwide operations. Globally, the company employs 350,000 people, the bulk of whom work abroad.

About 120,000 people work in the United States, IBM spokesman Fred McNeese said, noting that more than half of the company’s revenues come from outside the U.S.

A decade ago, IBM was confronted with “the reality of global integration,” IBM CEO Samuel Palmisano wrote in his opening letter in the company’s 2007 annual report.

The focus of the company is clearly worldwide. In the first five paragraphs, the CEO mentioned “global” or “globally” eight times.

“It was clear that we had to change. ... The fact is, if we had stayed still, the company’s competitiveness would have been at risk. So we made important decisions and got to work,” Palmisano wrote.

“We have been globally integrating IBM’s operations rapidly, locating our work and function wherever it makes the most sense, based on the right costs, the right skills and the right business environment. Today we have a truly global supply chain,” Palmisano wrote.

Couture echoed some of the CEO’s remarks Tuesday when he explained why the Essex Junction layoffs were needed: to reduce costs, improve efficiency and “to rebalance skills.”

Layoffs are not unusual for IBM in Vermont or throughout the company. The 2007 annual report, for instance, describes costs related to about 16,000 job cuts worldwide in recent years. The jobs cuts were described as a “series of restructuring actions designed to improve the company’s efficiency.”

The United States is just one of the 170 countries in which the Armonk, N.Y.-based tech giant operates, the annual report said.

The Essex Junction plant is one of about 10 major production plants in the U.S., McNeese said. IBM also has facilities in California, Colorado, Minnesota, New York, North Carolina and Texas.

“IBM has been very successful in Vermont for decades, and we hope to continue that success,” McNeese said.

Declining manufacturing

The outlook for Vermont’s manufacturing sector is dour, Lafakis said.

The labor force is “not too robust” since the number of people moving to the state is low and the work force is aging, Lafakis said.

“You have really a stagnant economy, which is what we are forecasting for Vermont for the next 30 years,” Lafakis said.

One of the bright spots of the state’s economy is the health care industry, Lafakis and Woolf said.

The work force at Fletcher Allen has grown substantially. Since 1996 the number of employees, including full- and part-time workers, increased 57 percent from about 4,300 to 6,757 at the end of May, Noble said.

When measured by “full-time equivalent” employees, to adjust for the part-time work force, the number has risen 47 percent from 3,664 in 1996 to 5,384. Fletcher Allen’s full-time employees at the end of May totaled 4,742, Noble said.

While Fletcher Allen’s employment numbers were rising rapidly, the number of manufacturing jobs in Vermont fell from 42,600 to 35,550, according to Labor Department data. That means manufacturing jobs dropped from about 19 percent of all private-sector jobs in Vermont in May 1996 to 14 percent this May.

Forecasters expect the number of manufacturing jobs to continue to fall.

Moody’s Economy.com, based in West Chester, Pa., expects Vermont manufacturing to slip to 25,300 jobs by 2038 — a 29 percent decline from last month.

The problem with health care jobs’ replacing manufacturing positions is that Vermont’s average wage for a health care job is about $35,000, compared with nearly $61,000 for the average manufacturing job, Lafakis said.

Although global and national economic forces might be hard to overcome, policymakers should try to attract manufacturers by lowering business tax rates, creating tax incentives, providing cheaper energy to encourage business expansion and providing an educated and skilled work force, Lafakis said.

Vermont has a “substantial’ advantage over other states when comparing work force education levels, Lafakis said, noting 29 percent of Vermonters older than 25 have a bachelor’s degree, compared with 24 percent of Americans.

Quality of life — although hard to quantify — also plays a positive role in attracting companies, he said.

David Mace, spokesman for the Vermont Agency of Commerce and Community Development, said the governor “is concerned about the loss of any high-paying jobs” and agrees with all of Lafakis’ policy prescriptions. He also supports building the long-discussed Circumferential Highway.

“We are competing in a global economy and we are competing with large states that can offer a lot more resources,” Mace said. “Obviously, it’s a highly competitive field to lure manufacturers to locate in your state.”
 
 
FROM:  Glenn McRae, CFED Staff (Glenn@snellingcenter.org)
DATE:  June 27, 2008
 
Vt. moves up in ranking of tech-friendly states

June 26, 2008
By ANDREW NEMETHY Times Argus Staff
SAN FRANCISCO — Vermont has moved up to 19th in a new ranking of which states are best able to innovate and cash in on technology, a jump of three places from the last survey in 2004.

The report by the Milken Institute said Massachusetts remains the "gold standard" for mining economic growth from technology and science while California is losing its luster, dropping to fourth from second in 2004.

The Milken Institute, a publicly supported, nonpartisan, independent think tank based in Santa Monica, Calif., has ranked Massachusetts as the United States' top technology incubator all three times that it has compiled the report since 2002.

But California slipped for the first time, despite being home to Silicon Valley's fount of innovation.

Vermont's neighboring state New Hampshire was ranked ninth, up from 12th in 2004. Maine was ranked 39th, dropping from its rank of 33 four years ago.

The report draws upon a complex index that analyzes a variety of factors in five categories.

Maryland moved into the second spot while Colorado held on to third, where it stood the last time the study was done in 2004. Washington, the home state of Microsoft Corp., rounded out the top five. Virginia was sixth, followed by Connecticut, Utah, New Hampshire and Rhode Island.

The Milken Institute assembles the index in an attempt to identify states that appear to be in the best position to foster innovation and, theoretically, cash in on the resulting benefits.

The State Technology and Science Index looks at 77 unique indicators that are categorized into five major components:
·  Human Capital Investment
·  Research and Development Inputs
·  Risk Capital and Entrepreneurial Infrastructure
·  Technology and Science Work Force
·  Technology Concentration and Dynamism

Vermont's jump was primarily due to a rise in the "Technology and Science Work Force Composite Index," where the state's score rose from 45 to 61 in measuring the readiness of the labor pool to foster innovation and provide workers for the high-tech industry.

Preparing Vermont's workforce for a high-tech future and "green" economy has been a focus for officials from the administration of Gov. James Douglas to the Legislature and academic institutions in the state.

North Dakota and Hawaii made the most significant strides since the Milken Institute released its last report. North Dakota moved up from 45th to 31st place while Hawaii catapulted from 39th to 28th place.

The report attributed North Dakota's rapid rise to government programs that have helped keep tech-savvy workers in the state.

Hawaii, meanwhile, appears to be benefiting from an emphasis on "clean" technology aimed at reducing the United States' reliance on fossil fuels. The island also is leveraging its splendor to attract older tech workers looking for a more laidback lifestyle. On the other hand, Mississippi has the dubious position of being ranked 50th again and West Virginia slid from 46th to 49th place.

Overall, though, more states appear to be doing a better job cultivating technology and science, said Ross DeVol, the Milken Institute's director of regional economics.

"States are starting to recognize they need to change because, as a country, we can no longer compete using the low-cost, low-skill formula of the past," DeVol said.

California's high-tech stature is diminishing largely because it's having more trouble educating and retaining future computer engineers and scientists.

New Hampshire's move up was welcomed by its governor.

"This report confirms what we already know — that New Hampshire is a great home for high-tech," Gov. John Lynch said.
 
 
From: Janice St. Onge [mailto:janice@vsjf.org]
Sent: June 26, 2008
Subject: SSTI excerpt on entrepreneurs in clean energy sector
 
FYI, I thought this would be of interest to you all – in relation to the green economy and green workforce development initiatives and discussion.  A reminder of the important role that CEOs and entrepreneurs play in workforce development in Vermont – and their need for education and training. 
 
---------------------------
From June 25, 2008 Issue of SSTI Weekly Digest:
 
New England Training Entrepreneurs to Capitalize on Clean Energy Sector
This summer, 12 former CEOs with substantial experience in raising venture capital and no particular ties to clean energy will participate in an extensive curriculum-based fellowship program designed to rapidly transition them into a leadership role, in order to help grow the cleantech cluster in the New England region.

The announcement from the New England Clean Energy Council follows a recent report identifying strategies for the region to capitalize on $1 billion in incremental investment over the next four years in clean energy and prevail as a nationally recognized cleantech cluster. Through interviews with area venture capitalists, the report finds that of the three factors that go into creating a cluster, lack of entrepreneurial talent in the field is the most significant barrier in New England.

Currently, New England holds the number two spot nationally for venture-backed cleantech companies. However, increasing competition from Silicon Valley and the Midwest threaten this position, the report suggests. New England’s share of venture-backed cleantech companies is far lower than its share of overall venture capital backed-companies -- 9.7 percent to 11.6 percent, respectively.

The Clean Energy Fellowship Program is the council’s answer to populating the region with highly qualified serial entrepreneurs, and, as the report indicates, it is not necessary or even desirable for the future leaders of these companies to have a background in clean energy. The report states that while 60 percent of cleantech companies overall are led by non-founders (outside management), the number of companies receiving their first round of investment who are led by non-founders was only slightly less (56 percent). What this means, according to the authors, is there is a powerful need to bring in outside executives at the earliest stages to get cleantech companies off the ground. A local cleantech investor advises in the report that it is more important for the executive leadership to have been successful with the entrepreneurial process than to be imbedded in the industry.

The fellowship program is being piloted this summer with funding from the Massachusetts Technology Collaborative’s John Adams Innovation Institute and the Ewing Marion Kauffman Foundation. The curriculum is divided among three areas, including seminars and lectures on the range of energy technology categories, market forces across fuels, power and transportation, and sessions on the structure, impact and status of key policy, tax and regulation factors and how they may evolve in the coming years.

Fellows also will visit laboratories at area universities and are involved in a collaborative relationship with the U.S. Department of Energy to gain exposure on research initiatives and national market perspectives. During the latter part of the program, the fellows will work on business planning projects related to research initiatives or early-stage ventures in conjunction with area venture capital firms.

To continue operating the program two times each year for at least five years, the council is relying on the passage of the Green Jobs Act of 2008 introduced in Massachusetts earlier this year by House Speaker Salvatore DiMasi. The bill directs $50 million over five years for clean energy research and business development and establishes the MassachusettsCleanEnergyTechnologyCenter and a Massachusetts Alternative and Clean Energy Investment Trust Fund to finance the activities of the center. The legislation allocates $2.5 million for the Clean Energy Fellowship program.

More information on the Clean Energy Fellowship Program is available at: http://www.necec.org/fellowship

A copy of the A Strong Clean Energy Cluster Can Bring $1 Billion in Incremental Investment to New England by 2012 can be downloaded at: http://www.toplinestrategy.com/cleantech_cluster.htm
 
 
From: Glenn McRae, CFED staff (glenn@snellingcenter.org)
Date:  June 25, 2008
 
Developing strategies for post-IBM Vermont
Burlington Free Press Editorial, June 25, 2008
 
The latest round of job cuts at IBM in Essex Junction should serve as a wake-up call to anyone who still harbors the illusion that simply holding on to ride out the current stretch of rough water can substitute for an economic policy.
 
This isn't the first time the state's largest private employer and the source of a large number of the region's better-paying jobs shed workers. This likely won't be the last. Leaning on any one employer, sector or industry to carry the state's economy magnifies the consequences of a downturn.
 
The immediate task is to help displaced workers pick up their lives. But at the same time, Vermont must figure out how to move beyond an economy in which cuts at a single employer can have such an impact on the area considered the state's economic engine.
 
The fact that the losses are at the state's premier technology company also says that Vermont's drive toward a knowledge-based economy must become either more focused on specific niches or adopt a regional approach.
 
We all want IBM to succeed, but our state faces a problem of scale. While being small is an advantage in many ways, small can mean lack of depth and breadth when it comes to the economy. The relatively small work force and even smaller number of college graduates each year make it highly unlikely that someone will possess the exact skills a company is looking for, especially in cutting-edge or quickly evolving fields.
 
Employers, too, must look beyond simply filling their own immediate openings with the most qualified candidate. By recruiting good workers to Vermont, the state develops and maintains a local talent pool that can help attract even more workers to the area.
 
Vermont can also profit by presenting itself as part of a regional economy already heavily invested in the technology sector. We have common interests with our neighbors. Even Massachusetts, where Vermont is trying to lure back young people with Vermont ties, is worried about the exodus of young college graduates to greener tech pastures in the West.
 
The regional play might grab the attention of employers who might neglect Vermont on its own and allow the state to be part of an area with more resources and options.
 
Vermont was relatively lucky Tuesday. IBM announced it cut 180 jobs from its Essex Junction plant, fewer than the direst predictions. IBM is a key player in our economy, and we hope it remains so for years to come. Yet, if there is a lesson in the anxiety that filled the days that led up to the jobs announcement, it is that Vermont must move more aggressively to reduce its massive reliance on a single employer.
 
 
FROM:  Glenn McRae, CFED Staff [glenn@snellingcenter.org]
DATE:  June 25, 2008
RE:  Outdoor Industry in VT
 
Active Recreation & Transportation Fuels VT's Economy
 
What industry supports 35,000 jobs across Vermont, generates $187 million in annual state tax revenue, and produces $2.5 billion in annual retail sales and services across Vermont? It's our active outdoor recreation economy – hiking, bicycling, skiing, hunting, fishing, etc. A state-by-state study completed by the Outdoor Industry Foundation shows the economic benefit of our state's active outdoor culture. (Click here to view)
 
Did you know that the League of American Bicyclists' magazine "American Bicyclist" is published at Lane Press in South Burlington? Did you know that branding company JDK has a large account with the world's largest bicycle manufacturer Giant Bicycles? Did you know that the athletic Darn Tough brand of socks rejuvenated the Cabot Hosiery Mills of Northfield, VT – now employing 100 people? Vermont must continue to capitalize on our active outdoor brand.
 
 
From: Doug Hoffer [mailto:drhoffer@comcast.net]
Sent: June 23, 2008
Subject: response to the June 21 Free Press article shown on the CFED web site.

The article stated that "The state's labor force has continued to drop...a source of worry for [economist Art] Woolf.  There were 352,300 people in the state's work force in May, or 1,900 fewer people than a year earlier, the Labor Department said.  The labor force is going to be declining for the next 20 years, Woolf said.  It's very hard to create jobs when there are no people."

Mr. Woolf's comment implies that there are (and will be) fewer people available to fill jobs in Vermont.  This is not accurate. 

First, the "labor force" is a term of art and is not the same as population (or even the working age population).  For the purposes of the Current Population Survey (official source of monthly unemployment data), the "labor force" consists of those who are employed (including self-employment) or are unemployed and have looked for work in the last four weeks. 

When times are tough for job seekers, many people who want and are available for work stop looking for periods of time.  They have not left the state but - according to the narrow CPS definition - move in and out of the "labor force" regularly.  As conditions improve, they will resume their search for work.

Second, Mr. Woolf's statement that the "The labor force is going to be declining for the next 20 years" is also inaccurate.  While the demographics will change, the population is expected to increase.  In addition, the percentage of those over 64 who continue to work has been growing for years so there will be no shortage of workers.

Finally, although we've heard a great deal about the loss of young people, there is a simple solution: raise wages.  The labor market is competitive and it's not surprising that some young people see more opportunity in places where wages are 20% - 40% higher.  On the other hand, the good news is that Vermont has always attracted a substantial number of people in their peak earning years who are willing to take less to enjoy our quality of life.  That argues for more attention to the things that make Vermont special.

These issues are important. Let's stick to the facts. 

 
From:  Glenn McRae (CFED staff) glenn@snellingcenter.org
Date:  June 23, 2008
RE:  state jobless rate
 
The information on unemployment rates for Vermont are noted below.  CFED held a public meeting in Hartford/WRJct. where unemployment is lowest, and will be in Newport on July 22nd where it is recorded as the highest.  Of note as well is the mention of the overall decline in the size of the labor force, a concern raised in Brattleboro at the first public session.
 
State jobless rate highest in 14 years
By Dan McLean, Free Press Staff Writer    
June 21, 2008
 
Vermont's unemployment rate reached 4.9 percent in May -- the highest it has measured since January 1994, according to Department of Labor data.  http://www.vtlmi.info/press.htm

The seasonally adjusted unemployment rate for the state increased 0.5 percent from April to May, the Labor Department announced yesterday, making it the fifth consecutive month the rate is more than 4 percent.  "This is to be expected in a national environment where unemployment is growing rapidly and the national economy continues to shed jobs," Labor Commissioner Patricia Moulton Powden said.
 
The May unemployment rate in the U.S. is 5.5 percent, also up 0.5 percent from April. New England's unemployment rate increased, as well -- up from 4.5 percent to 5.1 during the same period.
 
"We have not been insulated from the national economy for a long, long time," said Art Woolf, editor of the Vermont Economy Newsletter and economics professor at the University of Vermont.
 
"It looks like Vermont is doing exactly what the national economy is doing and that is: nothing," he said.

Woolf said he expects the state "to flounder like it is until the end of the year," but he doesn't anticipate the unemployment rate to rise much more.
 
"If it goes up again in June by a half percent that will be very worrisome," he said.

During the past 14 years, the closest Vermont's unemployment rate came to 4.9 percent was during March and April of 2003 when the unemployment rate was 4.7 percent, Labor Department records said.
 
The state's unemployment rate remained at least 4 percent during the 20-month period from July 2002 through February 2004, the data said.

During the past year, the number of jobs in Vermont increased by 250 positions, or 0.1 percent, to 308,300 jobs; that figure includes 57,100 government positions.
 
The largest job declines in the past year were in construction, which saw positions fall by 3.7 percent or 650 jobs. Manufacturing jobs also fell 1.3 percent or 450 jobs.
 
The highest number of jobs created during the past 12 months were in service-providing industries: 1,300 new positions, or a 0.5 percent increase. Educational and health services opportunities grew by 1,250 jobs, a 2.2 percent increase.
 
Vermont's unemployment rate was highest in Newport and lowest in Hartford, the state said.
 
The state's labor force has continued to drop, the department reported, a source of worry for Woolf.
 
There were 352,300 people in the state's work force in May, or 1,900 fewer people than a year earlier, the Labor Department said.  "The labor force is going to be declining for the next 20 years," Woolf said. "It's very hard to create jobs when there are no people."
 
Contact Dan McLean at 651-4877 or dmclean@bfp.burlingtonfreepress.com
 
 
From: Doug Hoffer [mailto:drhoffer@comcast.net]
Sent June 18, 2008
Subject: Report on the Vermont Employment Growth Incentive program
 
A press release was sent out recently regarding the State Auditor's Report on the Vermont Employment Growth Incentive program. A copy of the release is inserted below and the report can be viewed at: 
http://auditor.vermont.gov/uploads/1213298995.pdf

June 18, 2008
State Auditor Tom Salmon Reviews First Year of the "Vermont Employment Growth Incentive" Program
Says New Policies Could Reduce Excessive Incentive Awards

MONTPELIER – A prominent new State economic development assistance program is in general compliance with State law, says State Auditor Tom Salmon, but several policy changes to the program could save the State millions.

For the full report, go to www.auditor.vermont.gov and click on "Audits and Reports" and then click on "Special Audits."

The Legislature asked the Auditor to review the first year of the Vermont Employment Growth Incentive program – VEGI, or the "Veggie" program as it’s sometimes called – which began in January 2007.

The Vermont Economic Progress Council (VEPC) authorized $9.7 million in incentives to 13 companies in 2007. Incentive authorizations ranged from a low of $71,302 to a high of $1.9 million; the average was about $750,000. If the companies meet their job creation, payroll and investment targets for the previous calendar, they receive a cash award from the Dept. of Taxes that is paid out in installments over 5 years.

The 13 companies were projected, over the next 6 years, to create 1,310 qualifying jobs, $60 million in total new qualifying payroll, and to make $116 million worth of new capital investments. (continued below…)
_ _ _ _ _ _ _ _ _
NOTE TO EDITORS: The Vermont Economic Progress Council has agreed with some of the report’s findings, and has disagreed with others. The full response of the Council to the audit can be found in the Appendix section of the report. To speak with Council staff or Council chairman Karen Marshall, please contact Fred Kenney at VEPC:
Fred Kenney, Executive Director, VEPC fred@thinkvermont.com
National LifeBuilding, Drawer 20
Montpelier, VT05620-0501 802-828-5256
_ _ _ _ _ _ _ _ _ _ _
The report found the program in substantial compliance with rules and regulations, but noted that policies affecting how awards are calculated may result in the State subsidizing some economic activity that would normally occur at a company.

"It’s not a good use of scarce State funds to subsidize growth that is likely to happen anyway," Salmon added. The Auditor is recommending that the Council change its policy so that it can use a company’s own growth rate – rather than the "industry sector" growth rate which includes similar companies – in its incentive award calculations.
"The current approach to evaluating a proposed development is to exclude the normal business growth of a company from the award calculations because the purpose of the program is to encourage economic activity that is above and beyond the growth pattern in an industry sector," Salmon said.

Salmon noted that using the "industry sector" growth rate, instead of a company’s own historical growth rate in the calculations, is an approach that has been approved by the Legislature’s Joint Fiscal Committee. "However, the ‘industry sector’ approach is costing us money," he said. Salmon said, "We could save money by doing more to ensure we are subsidizing only ‘stretch goals’ – the jobs and investments that are above a company’s normal growth trends."

"We reviewed the applications of two companies with employment history in Vermont and found in both cases that the company’s particular growth rate was much higher than the industry sector growth rate," Salmon said. "Using the industry growth rate, a lot of the company’s typical expected growth was included in the award calculations," he noted, "and new payroll is the key factor in determining the total incentive amount."

"In one company, the payroll to be subsidized over the award period was a total of $819,148 using the industry growth rate, but only $56,138 using the applicant’s own growth rate," he said.
In another award, the projected payroll that qualified for an incentive over the award period was a total of $12 million using the industry average growth rate, but just $1.5 million using the company’s own growth rate," Salmon said. Since incentives are largely based on a project’s payroll that is above the background growth rate, the choice of growth rates is important.

The Auditor estimated that if historical growth rates were used in these two applications, the incentive authorizations could have been reduced by approximately $1.2 million.

"There seems to be strong evidence that the State is paying for significant activity that probably would have happened anyway based on a company’s history; it’s just being masked by using a combined industry sector growth rate," Salmon noted. "This is a policy that should be reviewed by the Joint Fiscal Committee," he said.

The report also found that the State’s consultants operating the cost-benefit model for the Council used an outdated industry classification code in calculating one company’s award. Using the wrong code resulted in employing a 1.6 percent growth rate in the award calculations, rather than the correct industry classification code which had a growth rate of 4.2 percent.

The effect of this error was to award $484,000 in additional incentives over what would have been awarded had the correct industry code been used. "The Council has declined to address this error, but it is an honest mistake that should be corrected," Salmon said. "The Council should quickly approve a policy which allows it to revise awards based on inadvertent errors," he urged.
Auditors also found that:
  • one company had begun making project investments before final approval by the Economic Progress Council, contrary to guidelines;
  • a checklist to guide the review of information submitted by a company about why incentives are necessary is not being used by VEPC staff;
  • of three companies reviewed that said they had to choose between Vermont and out-of-state locations offering assistance, only one provided required contact information on the agency offering incentives, making it extremely difficult to verify "but for" statements of the two other applicants;
  • there is no requirement for a company to maintain pay at 160 percent of the minimum wage if the minimum wage increases beyond the hiring year;
  • in one case, it was not evident that the individuals signing an application were authorized to sign on behalf of the company; and
  • the $10 million annual cap on incentive awards and the 80 percent ratio applied to the preliminary fiscal benefit amount are important safeguards for prudent fiscal management.

Salmon said the Employment Growth Incentive program appeared to be much simpler to administer than a previous tax credit incentive program, and focuses more directly on supporting the creation of good-paying jobs with benefits.

However, Salmon noted that a critical decision to award incentives is difficult to audit. "The nine volunteer Council members must, to the best of their judgment, vote on whether or not a proposed project would likely happen without incentives," Salmon said. "If they determine that a project is likely to occur without the incentive award, the company’s application is denied. It’s a difficult decision to make," he noted.
Salmon added that the decision becomes more important considering that the awards are not based on a company’s financial need and that companies are not required to furnish financial statements, business plans or tax returns with applications.

Salmon said the report also recommends that the Council get an assessment from an independent source to help members address the question of whether or not projects might proceed without State support. "It’s somewhat unfair to ask the staff that advertises the program and encourages companies to apply to also provide an impartial evaluation of the company’s application," Salmon noted.

 
 
From:  Will Patten willp@vbsr.org  CFED Commissioner
Date:  June 18, 2008
RE:  Continuing Correspondence with Eric Garland
 
Eric is a futurist with clients around the world.  He is also a Wallingford native and just 31 years old.  I sent him Doug Hoffer's response (June 12) to his last email that I posted (May 6) and this is his response.
 
From: <egarland@competitivefutures.com>
 Subject: Re: feedback from a Vermont economist....
 
Will - greetings from Chicago - I still have yet to get home in the last two weeks. As it so happens, I was doing econ development work in France and will be doing a short film about strategic disruptions in the field for clients there, so this is on my mind a bit. if you want, share this with your team.
 
I certainly don’t condone Tennessee’s strategy, nor do I think it’s particularly far-sighted. But it works in the short-term. What’s more, five days after the Tennessee thing when I was in Charlotte, NC to talk about the future of economic development, I mentioned my home state, and that  team took the time to mention, “Oh yeah, we have an increasing number of Vermont's former businesses here these days.”
 
I’m surprised that people aren’t a bit more curious about this story, given the defensive tone of this economist’s response. Do you think that both Tennessee and North Carolina are talking about taking Vermont businesses just for the humor value? I mean, are they really stupid for luring businesses on the cheap? Given all the strategic forces about to hit the U.S. economy, might it not be a good idea to “buy some market share” and the worry about the rest in five years? Surely there are pros and cons to every state’s policies.
 
Vermont has sure figured out what it doesn't want. And true to form, it has less of it than ever. What is completely unclear to me is what kinds of businesses it does want - and how to create, cultivate, or attract them.
 
Like you all I don’t have answers to all of Vermont’s economic issues.  But a number of questions leap to mind based on what I see going on around the world in the field:
 
  1. Do you think that cheap taxes and electricity are the only reason people would leave the state? Might it not also be the disconnection from physical infrastructure and lack of intellectual capital in the state? Or maybe – just maybe – the attitude of the legislature as well? Lots of places have stopped the taxes and cheap-o electricity for exactly your reasoning- but NONE of them act like businesses are turncoats if they relocate
  2. Urbanization is intensifying – today, 51% of humanity lives in cities, up from 6% in 1900. Today 87% of GDP is produced in cities – forecasts are for this to increase to 91% sometime in the 2010s. How does Vermont then interact with Montreal, Boston, New York – or further  abroad? What is the method of communication - physical, electronic, or both? 
  3. Specifically what types of new infrastructure is required to achieve development goals? Who might finance new infrastructure for Vermont given the inevitable pressure on the state’s budget from loss of income tax revenue and skyrocketing Medicaid obligations?
  4.  South Dakota has a really cool young entrepreneur program to get young people to start and grow businesses in the state. It’s cold up, the  people there are nice, so we’re pretty similar – couldn’t VT do the same?
  5.  Most economic development target specific industries to go with local traditions/capabilities. The Swiss went from high-precision watchmaking to nanotechnology and microelectronics. France counts on luxury goods that match their traditions. What’s Vermont’s goal? What are we trying to attract or grow?
  6.  Most every region of the world is getting ready to face an unprecedented talent crisis as the Boom Generation retires/transitions. That enormous sucking sound you will hear will be your smartest 28 year olds being lured by the highest bidders. What’s the state plan to help businesses recruit, seduce, develop and keep high-talent workers?
  7.  Most economic development these days requires an alliance with universities in order to develop the intellectual capital of the region, convert research to businesses, stock the workforce. What’s the position of  UVM and the state colleges?
  8.  When you think about 2020, what are the most positive scenarios you can imagine for Vermont’s economic development? What does the state look like? What do the numbers look like? (new businesses, GDP growth, tax base, average income, access to healthcare, etc) What about negative scenarios – what if the targets aren’t hit? Does it look like Cape Cod or West Virginia or the Bahamas?
 Just some thoughts - best of luck. 
  Eric
 
From: Dorn, Kevin [mailto:Kevin.Dorn@state.vt.us]
Sent: Thursday, June 12, 2008
Subject: RE: comment on CFED post

And again, I disagree with Doug.  Based upon his logic, I need not worry about the fact that Plattsburgh is openly recruiting an important emerging Vermont business using financial incentives because there is no data that supports the notion that they (Plattsburgh) could be successful.  I don't need to worry about the new owners of Tubbs picking up and leaving even though they told us that property taxes and energy costs are non-competitive because there is no data that indicates they should say that.  We lost Mascoma to New Hampshire but I shouldn't feel bad about that because there is no data that supports the notion that companies locate in states with lower taxes even though they told us that is exactly what they did.  I guess since there is no data I need not be concerned about any of these things. 
 
I work in the real world folks - on the front lines - and this is happening all of the time.  We can ignore reality and watch our economy and job base erode or we can do something about it.  I'm sure the folks in Tennessee and other states would prefer we did the former.
 
 

From: Doug Hoffer [mailto:drhoffer@comcast.net]
Sent: Thursday, June 12, 2008
Subject: comment on CFED post – ref to Will Patten’s prevision post of correspondence from Eric Garland

I just read the e-mail from Eric Garland that you posted on the CFED site last month. While I agree with most of what he said, I have a different view about the issues raised by the TVA development person that he quoted.

She claims to have raided VT businesses with offers of tax breaks, and cheap electricity. First, there is no public data on the interstate movement of businesses so we can't verify her assertion. The available private data shows a handful of VT businesses moving to Tennessee from 1990 to 2004 and the jobs impact was negligible (I don't have data after 2004).

Second, taxes and electricity are a very small percentage of costs so savings would not be significant. For example, on average, electricity represents only 1% of total sales in manufacturing. So saving 50% of an expense that is 1% of total revenues only saves 0.5%. In addition, while VT electric rates are higher than in TN, we have Efficiency VT which is helping businesses reduce consumption; lower usage helps mitigate the difference in rates.

While businesses must look for savings everywhere they can, one has to wonder about a business that would leave VT to save so little. If they are that mobile and have such a tenuous attachment to VT, I'm not sure it makes sense to ply them with counter offers of tax "incentives". What is to stop them once they get a better offer? And if they leave, the money spent is lost (it's not a long-term investment like energy efficiency, affordable housing, telecom, or roads & bridges).

On the other hand, wages are typically the largest business cost after the cost of materials for manufacturers. That's why so many companies have moved offshore. [Note: The data available shows that job loss from offshoring dwarfs the tiny impact of jobs lost to interstate moves.] In this case, there is a significant wage differential between VT and TN. I looked at the median annual wage for all of the occupations that are comparable (over 500) and VT wages are higher for 71% of those occupations. The median difference was 8%; not chicken feed. Is it any wonder a few footloose firms may have gone to states with cheaper labor costs?

In any case, the strategy described by the TVA rep (and, apparently supported by Eric) is both short-sighted and bound to fail when some of those companies leave TN for greener pastures. As I'm sure you agree, this is not the way to build a strong foundation.

 
CFED Posting
From: Glenn McRae [glenn@snellingcenter.org]
Date:  June 10, 2008
RE:  transportation infrastructure and economic development
 
Bridge work paves way for concern

June 9, 2008  By Peter HirschfeldVermont Press Bureau (Rutland Herald)
MIDDLESEX — Where others see cars, Liza Cain sees customers.

She and her husband relocated their bread-baking company to the well-traveled stretch of Route 2 between Waterbury and Montpelier precisely because of its heavy traffic flow.
The near-constant stream of motorists commuting between the major central Vermont hubs, Cain said, seemed a perfect venue for their upstart café.  "We're right in the middle of a big commuting area, and it's a part of the reason we were really excited to be in Middlesex," said Cain, co-owner of Red Hen Baking Co.

Her outlook dimmed last week when the Agency of Transportation shut down a Route 2 bridge just north of Exit 9. Traffic on this state highway has ebbed as drivers are forced to detour via Interstate 89, and Cain said she worries about the impact on area commerce.

It's a scenario that could easily be replicated at other sites around the state. In Rutland, the Ripley Street bridge, which provides the most direct access to College of St. Joseph, has been down to one lane since a temporary deck was installed in the wake of several closures for repairs. And last year, heavy traffic on Route 4 was diverted to allow work on the bridge just west of the village center. Businesses depending on truck traffic from the east held their collective breath that the disruption wouldn't last longer or be more severe than planned.

Neale Lunderville, secretary of the Agency of Transportation, said the Route 2 bridge was and is among the state's top priorities. At No. 28 on the prioritization list (before the closure), the Route 2 bridge, Lunderville said, was ranked in the top 1 percent of all state bridges in line to be replaced. Factors beyond the agency's purview, according to transportation officials, have delayed a replacement project in the works since at least 1991.

Lunderville said he welcomes the scrutiny that has followed the bridge closure. Though issues specific to the Route 2 structure make it a somewhat unique situation, he said, the closure serves to reinforce the "gospel" his agency has been preaching for years. "We have made it no secret here at the agency about the need to focus on existing infrastructure, including our bridges, some of which are 80 years and older," Lunderville said. "We've recognized this problem for some time, and that's why we've made this focus on maintenance and preservation the priority at the agency."

"It's very unfortunate," said Cain, whose shop is in the CampMeade compound. "We just opened a retail outlet in February, and we're still trying to build ourselves up."

The deteriorating steel truss bridge between Middlesex and Moretown was closed indefinitely after engineers uncovered structural problems during an inspection conducted last Wednesday.

Don Wexler, owner of the CampMeade complex, said he's in the midst of converting his Route 2 complex into a home for local businesses. He's among a number of businessmen, residents and town officials asking why the bridge was allowed to reach a state of near-collapse before being replaced.  "Here we are, trying to repurpose this property and get small businesses going in Vermont and now the bridge is out," Wexler said.

Last year, Wexler said, after a catastrophic bridge collapse in Minneapolis, transportation officials used the Route 2 bridge as a backdrop to highlight problems with Vermont's older bridges.  "They talked about how this bridge was the poster child for problems in Vermont," said Wexler, also chairman of the Moretown Select Board. "Well if it was the poster child bridge, why wasn't it higher up in line to be replaced?"

More than a third of the state's approximately 2,700 bridges were built between 1920 and 1939. As those structures reach the end of their useful lives, Lunderville said, the state is grappling with a host of maintenance issues that could have been avoided with proper maintenance over the decades.  "For a lot of these truss bridges, this is their 80th birthday," Lunderville said. A majority of the truss bridges were built immediately after the flood of 1927. "For decades, they haven't been given the TLC needed to extend their life beyond 80 years."

The state has 86 steel truss bridges similar to the one shut down last week. The design — conceived before the advent of salting roads — left metal components exposed to Vermont's harsh weather conditions. Of those 86 bridges, seven have a temporary bridge in place, seven have weight-restrictions imposed and eight are closed. In Middlesex, a weakness in a steel-support beam running underneath the bridge forced the closure.  "We've kept a close eye on this bridge as we have other steel truss bridges of its age," said John Zicconi, communications director for the Agency of Transportation. "It's why we've had it on an accelerated inspection schedule."

It's also why the agency had identified as early as 1991 the bridge's need for replacement. Rep. Sue Minter, a Democrat whose district includes Waterbury, said that kind of lead time ought to have provided the state enough forewarning to replace the bridge before it had to be shut down.
"While I'm glad the agency took the initiative to close the bridge, to avoid any kind of possible tragedy, I think it's unacceptable the bridge failure was not foreseen and planned for," Minter said.  Minter said, in 2006, the bridge was slated for replacement in 2008. That timeline has since been pushed back to 2010. The state hopes to install a temporary bridge by Labor Day, at a cost of $1 million. But construction on the permanent replacement still won't begin until 2010, with construction possibly finishing up in 2011. "What wears my patience thin is that the story of this bridge on Route 2 is something that's playing out in a lot of places in state," Minter said.

Zicconi attributes delays in the replacement schedule to factors beyond the agency's control. In the 1990s, he said, the Federal Highway Administration and Department of Historic Preservation identified steel truss bridges in Vermont as historically significant structures.
"In 1998, as we were moving forward with trying to replace the bridge, these federal agencies put out a list of all the truss bridges that need to be saved and which ones could be destroyed," Zicconi said. "It was decided that this Route 2 bridge was not only important enough to be saved, it also needed to remain in place."

That meant a secondary structure, next to the existing steel truss bridge, Zicconi said, a prospect that opened up its own regulatory can of worms. The Army Corp of Engineers balked at the plan, according to Zicconi.  "So now we've got a problem," he said.

In 2004, the Department of Historic Preservation agreed to let the bridge come off the protection list and allow it to be destroyed, according to Zicconi. But that same year, the Vermont Legislature passed new stormwater runoff regulations.

"Before the stormwater was going to be allowed to run into the wetlands," Zicconi said. "Now it was going to have to be treated."

And the state simultaneously identified the site as one of possible archeological importance.

It wasn't until this spring, Zicconi said, that the state was able to resolve the stormwater and archeological issues needed to acquire rights-of-way and other permits to actually construct the bridge.

"We've wanted to do the project for years," Zicconi said. "But there have just been issues up until this point that have caused the project to get pushed back."

Those delays, according to Minter, could have severe consequences in her area. Traffic congestion along Route 2 in the village of Waterbury, she said, makes it a less attractive tourist destination during key summer months. Ten-wheel garbage trucks that used to deliver trash to the Moretown Landfill via Exit 9, she said, are instead lumbering through the downtown.

"I work very hard with a group of volunteers on downtown revitalization. We've put in new planting barrels, and there's just so much great excitement around our downtown," Minter said. "Now all of a sudden we have a congestion nightmare and no one wants to go there."

Lunderville said the agency has dispatched traffic engineers to monitor the situation with respect to congestion in Waterbury. Whether traffic signals need to be readjusted, or uniformed officers need to be put in place to mitigate jams, he said, the agency will offer whatever assistance it can to affected municipalities.  "We are committed to working with all the affected communities to see how we can help ameliorate their concerns," he said.

But the problems with bridges like the one on Route 2, Lunderville said, won't be resolved unless the state continues to invest heavily in preservation. Though the $27.1 million appropriated to maintenance projects in Fiscal Year 2009 represents a three-fold increase over just two years ago, it still isn't enough to erase the backlog of projects.  "It's not something where you can just flick a switch today and all of a sudden the problems go away," Lunderville said. "These problems are decades in the making, and we know if we don't start spending more money on preventative maintenance, we're going to see more bridge closures and one-lane bridges in the future."
 
From: Rep. Bill Botzow  [bbotzow@leg.state.vt.us]
Date:  June 6, 2008
 
For your info, H.885 has been signed.
 
"The Governor has informed the House that on the second day of June, 2008, he signed a bill originating in the House of the following title:
 
 H.0885  An Act Relating To Economic Development And Workforce Development"
 
This bill provided specific instructions to guide CFED activities in the coming year.
An appropriation to support these actions is included in H.0891, the Appropriation bill, awaiting action by the governor.
 
From: Doug Hoffer [mailto:drhoffer@comcast.net]
Sent: Thursday, June 05, 2008
Subject: Re: CFED process
 
A few comments in response to Sec. Dorn's statements.
1.  There are some performance reports available but the data is not always reliable. For example:
  • VEDA reports annually on jobs "created and retained" but the information comes from the applications rather than field research after the loans are made. That doesn't mean VEDA is not useful, only that the reported data is not reliable.
  • A 2003 impact analysis of the VT Training Program reported that the program led to the creation of 538 direct & indirect jobs. In my view, the VTP is a good program, but the report did not provide any evidence to support that claim (which seems unlikely since training programs do not generally create jobs per se); nor did it explain the assumptions used in the analysis.
  • VEPC produces an annual report each year that makes claims about significant job growth as a result of the program. However, the premise of the entire program - the "but for" - is not verifiable so we have no idea how many jobs were created that would have been created anyway. Moreover, there have been several reports by different State Auditors that have raised serious questions about the program so it's an open question.
  • Sec. Dorn presented information about the Financial Services tax credit program back in 2006 at the very first CFED meeting. I subsequently submitted a memo that provided (what I think are) compelling data that suggest the state got virtually no benefit from the $10m+ spent on the program. Apparently, the Leg. agreed because the program was not renewed.
  • There have been several reports on the impacts of the tourism industry in VT but we have no idea what the ROI may be from our annual expenditures. In my view, it is impossible because there is no way to separate state expenditures from the tens of millions spent by the private sector each year for advertising & marketing. Furthermore, the number of (mostly low wage) jobs in "leisure & hospitality" is nearly identical to what it was five years ago (32,200 to 33,000) after $20 - $25 million in state expenditures. That doesn't mean tourism isn't important to the state, only that we have no idea whether the annual appropriations make a big difference, a little difference, or none at all. [Note that an effort was made several years ago by researchers at UVM to measure ROI but the report was withdrawn after Tom Kavet critiqued it and found the methodology totally unreliable.]
  • State distribution of CDBG funds from HUD are subject to federal reporting requirements but the state's Annual Summary of Program Activities offers no data on the methodology used to develop figures for jobs "created or retained" and no wage data.
2.  The legislature amended the budget statute in the early `90s to include a requirement that "The budget shall also include a strategic plan for each state agency, department, office or other entity or program. A strategic plan shall include…a statement of mission and goals [and] a description of indicators used to measure output and outcomes". [32 VSA 307(c)]
 
Unfortunately, many state agencies and departments provide little, if any, useful performance data in the budget. For example, the Governor's FY08 budget contained this statement from the Dept. of Economic Development:
 
"In 2006, DED's economic development specialists averaged 8 business visitations per week, and made contact with 95 out-of-state business owners. In 2007, it's expected the ED specialists will average over 12 business visits per week, with a similar number of contacts with out-of-state business owners." [Governor Douglas' FY08 Budget Recommendations, p.513.] 

But what was achieved? They didn't tell us.

3.  The UEDB prepared by the SnellingCenter for Fin. & Mgmt. last year included no performance data. It didn't even offer a list of performance reports.

In any case, the CFED has an obligation to review all available performance data and seek to fill the gaps. This really is the bottom line. In my opinion, this would be a much better use of Kavet & Carr's time than standard metrics on the economy. Let them each dig in and try to issue a consensus report as they do for revenues.
 
From: Dorn, Kevin [mailto:Kevin.Dorn@state.vt.us]
Sent: June 05, 2008
Subject: RE: CFED process
 
In response to Doug Hoffer’s email below
I cannot let it go without challenge.  I disagree completely and totally with the notion there are no performance measures in the various economic development related programs.  From The Vermont Training Program to the Procurement Technical Assistance Program to the VEDA to EATI/VEGI to the SBDC and beyond there are measures that are well reported for anyone who wants to view them that reflect on performance. 
 
Kevin Dorn
Secretary, Vermont Agency of Commerce and Community Development
 
From: Doug Hoffer [mailto:drhoffer@comcast.net]
Date:  June 04, 2008
Subject: CFED process
 
From today's Free Press editorial

"An informed public debate about cleaning up Lake Champlain is impossible without good information. But the state is failing to provide the basic facts about water quality when putting pollution permits for sewage plants out for public comment despite repeated notices from the federal Environmental Protection Agency."

This is common sense and should apply to public debates about economic development as well. But the CFED has been traveling the state asking for input without providing any information about the cost-effectiveness of existing state policies and programs. The Leg. has asked for this information for years but the administration has failed to provide it (and the CFED has not conducted the necessary research).

How can the CFED make recommendations without this type of information? How can the Leg. make choices without it? The commission's interest in metrics is understandable and appropriate. But what we really need are performance data on state programs.

Doug Hoffer
 
FROM:  Glenn McRae, The Snelling Center for Government [glenn@snellingcenter.org]
DATE:  June 2, 2008
 
One of the Rutland companies that was invited to the Regional outreach in Rutland on April 29th but was unable to attend was Carris Reels.
 
They were recently presented with the national 2008 ESOP Company of the Year award by the ESOP Association — the national trade association for companies with employee stock ownership plans.
The issue of employee ownership within the frame of economic development was raised in several of the forums, including the one in White River Jct. by the representative from King Arthur Flour, and in Burlington by representatives from the VermontEmployeeOwnershipCenter.
 
 
 
FROM:  Glenn McRae, The Snelling Center for Government [glenn@snellingcenter.org]
DATE:  June 2, 2008
 
 
In the regional meetings a great deal was heard about the worker shortage and the exodus of young people from
Vermont.
 
The following article from Iowa notes similar issues in their economy.  This is not a uniquely Vermont issue. 
 
Shortage of workers in Iowa makes them hot commodity
June 2, 2008 By JOHN LELAND The New York Times
 
DES MOINES, Iowa — On a recent evening here, Greg Tew, 28, considered the question: What is it like to work in a state that is creating more jobs than workers? He was sitting in the lobby of a new hotel in downtown Des Moines, part of an extensive redevelopment investment to attract workers to Iowa.

"It is noticeable," Tew, a computer programmer at EMC Insurance Cos., said of the jobs surplus. "You're a hot commodity. Salaries go up just because companies are fighting to retain the talent they have."

As rising unemployment and layoffs beset workers around the country, Iowa faces a different problem: a surplus of jobs. Or to put it another way: a shortage of workers. A survey of companies by Iowa Workforce Development, a state agency, found as many as 48,000 job vacancies, in industries ranging from financial services to health care and skilled manufacturing. One estimate projects the jobs surplus to reach 198,000 by 2014, with vacancies increasingly in professional positions.

Iowa's jobs surplus arises from colliding trends: The exodus of young college graduates, a state economy that adds 2,000 jobs a month, low immigration and birth rates, and an image problem that makes it difficult to recruit workers from out of state.

Last year, the state added nearly 13,000 nonfarm jobs, in part because of growth in ethanol and wind energy, and lost 3,300 people from the workforce. With statewide unemployment at 3.5 percent, compared to a national rate of 5 percent, nearly everyone who wants to work and can work has a job.

Remedies are not simple. Companies want to be in Iowa because wages are lower than elsewhere in the nation or region, except South Dakota. But low wages also drive young college graduates out of the state, and discourage workers from other states from moving to Iowa.

Several companies are starting to reach into the high schools, identifying students and promising to pay their community college costs, with the guarantee of a job after graduation.

But the state remains a tough sell with young Iowans. Jessamyn Thomas, 18, a high school senior, hopes to move to Chicago after she graduates from IowaStateUniversity. "There's opportunities here," she said. "But it's also the same place you've lived all your life, and it's Iowa, so it's not very exciting."

Her classmate Tucker Slauson, 17, agreed. "There's jobs here," he said, "because everybody leaves."
 
 
 
FROM:  Glenn McRae, The Snelling Center [glenn@snellingcenter.org]
DATE:  June 2, 2008
 
 
The Governor has signed S.284 (AN ACT RELATING TO THE DEPARTMENT OF BANKING, INSURANCE, SECURITIES, AND HEALTH CARE ADMINISTRATION)
 
 
As this references changes to the regulations governing captive insurance companies to continue to maintain Vermont’s status as the “world’s premier captive insurance domicile” I thought it would be of interest to the Commission.  Reference to the regulatory structure that has built the captive insurance industry in Vermont has come up regularly in the regional outreach meetings.
 
 
Douglas signs financial bill
June 2, 2008, Rutland Herald

BURLINGTON — Gov. James Douglas has signed into law a bill making changes to Vermont's banking and insurance laws, including key provisions for the state's captive insurance industry.

The bill also includes measures to protect consumers by enabling Vermont to join a national licensing system for mortgage brokers and non-bank lenders.

Changes like streamlining the process for merging captive insurance companies and enhancing the laws for "special purpose financial captives" enacted last year will help maintain Vermont's status as the world's premier captive insurance domicile by keeping its laws in step with world-wide industry developments and competitive needs.

A captive insurer is a company that is owned or controlled by its policyholders. It offers an option for many corporations and groups that want to take financial control and manage risks by underwriting their own insurance, rather than paying premiums to third-party insurers.

Captive insurance brings clean industry to Vermont that generates millions of dollars in premium taxes to the general fund, according to Banking, Insurance, and Health Care Administration Commissioner Paulette Thabault.

"Through this bill, Vermont continues to polish its 'gold standard' regulatory system to ensure the solvency of captives, while recognizing the special purposes for which they were formed," Thabault said.

For Vermonters looking to take out a home loan in the future, the bill will give added protection against lenders and mortgage brokers who have run afoul of federal or state laws.

In the wake of the subprime crisis nationwide, the new law establishes an important reform in the lending industry by authorizing Vermont to participate in a national licensing system for mortgage brokers and "licensed lenders" (the term for non-bank lenders).

The system also helps the Vermont Banking Division more efficiently administer its own licensing system.

Vermonters eligible for both Medicare and Medicaid, who enjoy the value of in-patient prepaid health plans that help coordinate the benefits of both programs will benefit from prudent changes to regulatory requirements that helps support those organizations.

The bill also cracks down on unlicensed companies or individuals selling illegal or misleading insurance products to Vermonters, it eliminates duplication in the oversight of educational loans and it brings verification of credit union member accounts in line with national standards.

 

FROM:  Glenn McRae, The Snelling Center [glenn@snellingcenter.org]
DATE:  June 2, 2008
An op-ed column in the NY Times on June 1st,

The review of state spending and economic activity and the impending cutbacks around the country should be of interest.