SocioEconomic Issues April 3, 2006 John H. MarshallVermont Business Roundtable

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Socio-Economic IssuesApril 3, 2006 John H.
Marshall/Vermont Business Roundtable
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Scope

• VBR Socio-Economic Goals and Objectives
• Impact of Energy Costs on Businesses
• Positive/Multiplier Effects
• Adverse Effects

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• 120 CEOs from private and non-profit employers
• Employ approximately 49,000 employees
• Diverse membership
• Operates through collaboration, research and
  analysis, and communication and advocacy

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Socio-Economic IssuesBackground

• Anecdotal survey of CEOs in 2002-03 electricity
  costs were their second greatest concern after
  health-care costs
• VBR formed a Utility Working Group (now the
  Infrastructure Working Group) to research the
  issue and develop action plan focused (at the
  time) on lowering rates to competitive level
• Group recommended and VBR adopted a Statement of
  Principles related to Energy Policy

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Some of the Results

• Chief among concerns for consumers of the states
  electrical supply is that Vermonts electric
  rates are not competitive with many other states
• Consulting with all stakeholders, the Department
  of Public Service must take the lead beginning
  now and on an on-going basis to plan for the
  selection of resources that will result in
  competitive rates
• Our overarching focus must be on electric rates
  because of rates central role in the
  site-selection and decision-making process of new
  and expanding businesses in Vermont and around
  the country.

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More results

• High electric rates adversely affect Vermonts
  ability to retain and attract business to its
  borders and must be addressed
• Loss of businesses because of high rates will
  shift fixed costs onto the consumption sector and
  erode jobs and income
• VBR statement made various policy recommendations
  (later workshop)

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Dilemma

• Long-term power contracts (viewed as disadvantage
  then, now advantageous) limit opportunities
  short-term for rate reductions
• Vermont rates are competitive in Northeast
• Vermont rates are not competitive with most of
  the rest of the nation and will not be until
  coal-generation emissions are regulated
  differently

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Monthly Electric Bill Comparisons Large
Commercial Industrial
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Monthly Electric Bill ComparisonsSmall
Commercial Industrial
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How do we think about electric-energy costs and
their socio-economic impacts?

• At the margin, all costs matter
• That said, electric-power costs may have a
  greater import for businesses wherever
  electricity represents a high percentage of the
  cost of production
• Similarly, businesses with exceptionally tight
  margins are affected by electric-power costs

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High Margins
Low of Production Costs
High of Production Costs
Low Margins
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Implications of High Rates

• Recruitment
• Retention
• Multiplier effects

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Example The economic impact of Middlebury
College

• 1254 employees
• Spending by college employees, students and the
  institution create another 736 jobs
• Direct revenue, fundraising, sponsored research
  and other enterprises bring 120 million into the
  greater Middlebury community
• Capital investment of 153 million between
  1992-2002
• Total spending by college, students and parents
  is 24 million each year
• Source VBR Study Becoming The Knowledge State
  (2004)

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Example Elimination of Californias 5 sales tax
on manufacturing equipment (assume 5 reduction
in energy costs)

• An increase of 50,000 new jobs a year of which
  14,000 are created in the manufacturing sector
  over 10 years
• Total output increases by 10.9 billion after 5
  years of which manufacturing output ncreases by
  7.4 billion
• Gross state product rises by 5.7 billion,
  personal income by 3.9 billion and population by
  54,300
• Increased state tax revenues offset loss of sales
  tax by 114 million by the 5th year
• Milken Institute, The Economic Impact of a
  Sales Tax Reduction on Manufacturing Equipment
  (2002)

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Implications Rural Areas

• Location theory departs from mainstream economic
  theory by explicitly according spatial
  relationships a primary role. Its focus is on
  the factors that influence the location of
  individual production units, on a glomerations
  economies (which encourage individual units to
  choose a common location), and on urban and
  regional spatial structures. While urban
  structure deals with intra-urban land use
  patterns, one variant of regional spatial
  structurecentral place theoryattempts to
  provide an economic-based explanation for the
  size, spacing and functional specialization of
  groups of communities within a regions trade
  centre system. Central place theory focuses on
  the commercial relationships among communities.
• Stabler, Economics and Multi-Community
  Partnerships (date unknown).

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TABLE 2 Community Characteristics, 1990, and
Change in Trade, Service, and Manufacturing
Outlets, Saskatchewan,1961-1990
Note 1. Levels refer to standard central place
classifications Minimum and Full Convenience
Centres (MCC and FCC) Partial and Complete
Shopping Centres (PSC and CSC) Secondary and
Primary Wholesale-Retail Centres (SWR and PWR).
Source University of Saskatchewan, Department
of Agriculture Economics. Community Data Base.
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TABLE 3 Saskatchewan Community Characteristics,
1991
Note1. With a road network constructed on a
rectangular grid, commuting distances could be up
to 1.41 times the radius. Source University of
Saskatchewan, Department of Agriculture
Economics. Community Data Base.
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Implications Imports New Money Comparing What
Each Enterprise Brings to the State
Source UW Geography Professor Bill Byers and
Dick Conway Associates. All figures are for 1995
except for the UW and the Seattle Mariners, which
are 1993 figures, and Non-Profit Arts, which are
1992 numbers. Arts agencies are members of
Corporate Council for the Arts.
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Energy-Supply Economic Effects

• Importing fuel drains millions from local
  economies. In Nebraska 80 cents of each dollar
  spent for energy leaves the state only 34 cents
  of other consumer spending is exported.
• Potential for Green Technology/Industry (E.g.,
  wind manufacturing)
• Nebraska Energy Office

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Multiplier Effects Impact on Natural Resources
and Ecosystems

• Air pollution caused from cars and coaches by
  increased vehicular traffic
• Noise pollution from tourist activities and
  vehicles
• Water pollution from improper waste management of
  sewage and solid waste systems of hotels and
  other tourist facilities
• Environmental hazards such as erosion, land
  slippage, flooding, etc., and land use conflicts
  resulting from poor planning, siting and
  inappropriate construction of tourist facilities
• Loss of biodiversity and impacts on ecological
  equilibrium due to intense pressure from tourist
  development in some overbuilt destinations

University of the Aegean, Defining, Measuring
and Evaluating Carrying Capacity in European
Tourism Destinations (2002).
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Multiplier Effects Impact on Landscape and
Cultural Heritage

• Loss of landscape attractiveness due to
  uncontrolled development
• Damage of the natural and cultural heritage by
  overuse and misuse by tourists and inappropriate
  tourism development
• Building alterations

University of the Aegean, Defining, Measuring
and Evaluating Carrying Capacity in European
Tourism Destinations (2002).
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Conclusion

• Vermont needs to have competitive energy costs,
  not just in Northeast but nation/worldwide
• Vermont/we need(s) to evaluate the states
  ability to retain and attract low-margin/high-elec
  tricity-consumption businesses
• Economic benefits and multiplier effects are real
• Implications of an aging (declining?) population
• How to manage the trade-offs