Public Policy Detail
I. Introduction
With the demise of the bull market, the tragedy of terrorist attacks and the collapse of some big name national companies in a cloud of questionable business ethics, the state of Vermont is facing new challenges as we consider economic development in our state.
Despite the immediate economic challenges of state budget deficits and several high profile job losses at large Vermont employers, we must not lose sight of the bigger picture. Our economic development effort should remain focused on increasing the wealth of Vermont's workers and communities, while preserving our assets over the long-term. We must guard against implementing short-term "quick fixes" that may interfere with sustained economic growth.
To compound the difficult task ahead, some say Vermont is not well positioned to attract and build new jobs and feel that our state is not "business friendly." But Vermont's economy is not independent of the economies of other states and countries. Many of the recent layoffs were from companies whose ownership is out of state. Factors such as overproduction, global competition, consolidation and lower manufacturing costs in other parts of the world were more a cause than the real or perceived business climate in Vermont.
The Solution is in Our Own Backyard
The majority of businesses in Vermont are classified as "small business," and many are owned and operated by Vermonters. Every day new businesses are born out of the ideas and sweat equity of entrepreneurs in our state.
VBSR strongly believes that Vermont should focus its resources on supporting the growth of existing businesses while working to attract businesses that have a commitment to the state in order to fuel Vermont's engine for economic growth.
Vermont entrepreneurs who create jobs in Vermont are most likely to remain in the state. Our friends and neighbors have investments, commitments and roots in our communities and are less likely to be lured by cheaper labor, lax environmental laws or better government business subsidies. These businesses and their employees are engaged in our state and are active in their communities' civic, cultural, and social affairs. Our home-grown businesses invest in Vermont, and a greater share of their profits remain in our state.
Many businesses are currently prospering in the Green Mountains. They are building upon the economic strengths of Vermont, including:
- An extraordinary workforce with strong work ethics and skills
- A high quality of life built on open space and environmental protection
- Access to leadership-Vermont's legislators and executive branch are among the most accessible in the nation
- A value-added image of purity and quality
- A rural location with few of the problems of urban locations, yet proximity to Canadian, Boston and New York markets
- An abundance of natural resources
Economic development policy for Vermont must continue to market these advantages, while responding to business needs and concerns that respect and preserve these advantages.
II. A Blueprint for Success
There are several initiatives that the state can take to foster the success of existing businesses and attract businesses that have a commitment to our state. Specifically, the State should: (a) address the high cost of healthcare, (b) improve the permit process and (c) build on its successful model of supporting growth in targeted business segments.
A. Addressing the High Cost of Healthcare
As we talk about economic development and jobs, increasingly the single most challenging expense for business is health care. Thirty million Americans in working families lack health care coverage, according to a 4-year study by the Center for Studying Health System Change. An additional 16 million Americans (mostly low-income workers) decline health insurance coverage because they cannot afford the out-of-pocket premium cost.
Companies and employees in Vermont pay for health care costs through insurance premiums and taxes. These costs, particularly the cost of administrative bureaucracy and prescription drugs, are rising rapidly and pose a challenge to employers in Vermont. Uninsured employees are twice as likely to forego care as those who are insured. Productivity losses due to employee absence increases with uninsured employees.
VBSR has been a proponent of universal health care for nearly a decade. We have proposed that Vermont establish a program to cover all Vermonters with comprehensive medical care, including preventive, primary, rehabilitative and long-term care. Due to its size and wealth of medical expertise, Vermont has a unique opportunity to provide a universal health care system that covers all of its citizens. The current health care system is flawed. Multiple bureaucracies process medical claims with varied rules in a system of duplication and confusion that forces health care providers to spend overhead on process rather than care. According to the Bureau of Labor Statistics, in the past thirty years the number of administrators grew by 2500%, while the number of physicians grew by only 159%. Health care administration, overhead, paperwork and bureaucracy consume 24% of the health care dollar.
Businesses pay for this waste and increased cost through taxes and premiums. The cost of health care is a significant barrier to economic growth. Coverage for an employee and family can run in excess of $12,000 per year. Employers are faced with annual insurance premium increases of 10-20%, sometimes more.
VBSR believes that a system of universal health care will help to control escalating costs and provide businesses with healthier employees.
B. Improving the Permit Process
Keep Standards High
Vermont's high quality environment is essential to economic vitality. Our regulatory standards-for example, those setting limitations on concentrations of pollutants allowed, or degree of adverse effect to be tolerated-have preserved the quality of our environment and our quality of life. They must not be relaxed. Reform should be directed at making standards more uniform (and therefore more predictably applied in permitting processes) without sacrificing substantive protection.
In the area of land use, better planning can help make standards clearer. Unclear or conflicting town and regional plans cause problems in the permitting process. Greater investment in front-end planning is needed; it will yield clearer standards, more predictability, and smoother permitting.
Make Careful Process Improvements
Like any process, regulatory permitting can be improved. Those improvements should promote consistency and predictability and improve processing times. Examples include: (1) better use of technology, to improve information-handling by regulators within and across agencies, (2) standardization and consolidation of permit processes-where prudent-to improve efficiency, and (3) elimination of duplicate review. Process improvements such as these should be chosen carefully and implemented with adequate resources to ensure that their success can be measured and evaluated.
Approach Wholesale Reform Cautiously
By and large, Vermont's permitting system works as it was intended: to protect Vermont's natural and economic resources. The vast majority of applications are granted, and in a timely fashion. The system has helped Vermont avoid some of the environmental degradation experienced in other states, and it promotes community involvement by being open to citizens. Any kind of revision to the existing system should be carefully targeted, not wholesale. If drastic revision of our permitting system is contemplated, it should be approached cautiously, with very careful evaluation of the risks and benefits.
C. Building on Vermont's Successful Model of Supporting Growth in Targeted Business Segments
The Model: Captive Insurance
In the mid-1980's Vermont undertook a highly successful effort to create favorable conditions for a specific business segment, the captive insurance industry. Legislation was passed to create a favorable regulatory environment for this industry, with the result that Vermont has become the largest domicile for captive insurance companies in the United States.
According to the Department of Economic Development, Vermont's captive insurance industry generates more than $14.5 million in fiscal benefits to the State, accounts for 1,164 direct and indirect jobs (full and part-time), and costs the State less than $0.6 million to regulate.
State government fosters an unmatched cooperation with the business community to ensure the success of this industry. The state legislature and other key officials listen to the needs of the captive insurance industry and regularly adjust state policy and infrastructure to create a climate that is up-to-date and friendly. This same model can be used to attract and retain other industries that meet the goal of increasing sustainable wealth for Vermont's workers and communities while preserving their assets.
Applying the Model Elsewhere
One example of a business segment with similar potential is the renewable energy and energy conservation industry. Vermont already has a national reputation for its abundance of intellectual capital in the sustainable energy field. Several of the country's oldest and most competitive businesses in this industry are based in Vermont. As this field grows at an unprecedented rate, these companies are providing an increasing number of well paying jobs, expanding the economic base, and exporting technology developed in Vermont all over the world.
Unfortunately, most of these companies are forced to do business out of state, where policy makers have a greater commitment to renewable energy. Vermont should create a package of incentives for these companies to expand through mechanisms such as the Vermont Economic Progress Council, state purchase contracts and changes in the regulatory process.
VBSR believes that Vermont could greatly benefit from applying the successful model used in nurturing the captive insurance industry for fields like renewable energy and energy conservation.
III. Conclusion
Vermont has many successful businesses and many economic strengths. There are some critical actions, however, that the state should take to increase sustainable wealth for Vermont's workers and communities, while preserving its assets. The state should focus its resources on supporting and growing existing businesses and attracting businesses that have a commitment to the state to ensure a strong economy.
