How Much Does That Aquifer Cost?

The Gund Institute at the University of Vermont, long a leader in progressive economic analysis, has published a new report that aims to let the commoners reap greater economic value from the natural resources that they own. “Valuing Common Assets for Public Finance in Vermont” takes a cue from the Peter Barnes’ book, Capitalism 3.0, and proposes ways in which the State of Vermont might reap greater public benefit from the private use of shared assets such as groundwater, mineral reserves, forests, fish and wildlife and even the Internet.

The report consists of a series of short studies prepared by eleven students under the supervision of Professor Gary Flomenhoft and graduate student Amos Baehr. The studies estimate the value of important common assets in Vermont, and analyze current and future management of natural and social resources.

The conclusion: The State of Vermont could reap about $1.2 billion in new revenue ??” nearly half of the state’s instate revenue of $2.84 billion in 2008 ??” if it were to charge economic rent from use of the state’s common assets.

“By recovering economic rent currently privatized,” the report states, “we can begin to shift our public revenue system from taxing value added to charging rent for use of common assets. This allows us to ‘tax bads, not goods,” as many economists from all sides of the political spectrum have urged in recent years.”

“Valuing Common Assets” is brimming with provocative new proposals that seek to preserve natural resources while generating more money for public purposes. For example, Mark Kolonowki in his study of Vermont’s forest resources notes that loggers should pay a “Depletion of Ecosystem Services fee” to generate new revenues. The money could restore forests and contribute to a trust fund that would benefit the public.

Colin McClung and Gary Flomenhoft calculate that bottled water companies extracted some 34 million gallons of water in 2007. This enabled them to reap total revenues of $154.2 million and profits of nearly $136 million. If bottlers were limited to an 18% profit margin, that would leave 70% of the total revenue, or $107.9 million, for the people of Vermont. The authors also propose a preservation fee of 2% on profit per acre-foot of water sold.

Why should mining companies pay the equivalent of only 1.6% for the nearly $100 million in minerals that they extract from Vermont lands every year? Ian Raphael proposes a royalty system of 10% on the value of minerals extracted, which would generate nearly $10 million a year for a mineral trust fund. This fund would help offset the costs of a non-renewable resource and provide for current and future revenue flows for citizens.

One of the more fascinating studies in the report explores “renting” the wind. Susan Skalka questions whether landowners should be the only beneficiaries of wind power. Instead of the “liberal theory of rent” that now prevails, in which private companies gain control over public assets and privatize the profits, Shalka proposes a “democratic theory of rent” in which governments maximize the collection of rent to benefit the public. The state should certainly promote wind power, she says, but it should also be wary of landowners charging monopoly rents for wind power in the future. Why shouldn’t the public reap some ongoing revenue stream from the wind?

The idea of collecting rents from common assets should have broad political appeal, the report notes:

“Economists insist that collection of unearned economic rent does not distort the productive economy or discourage investment. This should appeal to all sides of the political spectrum. Less taxation of earned income should appeal to conservatives, charges for depletion, land use and pollution should appeal to greens; and more equitable distribution of revenue should appeal to liberals.”

A pdf file of “Valuing Common Assets…” report can be downloaded here. An executive summary can be downloaded here. More on the Gund Institute’s Common Assets project can be found here.