Blog – Public Assets Institute http://publicassets.org forward thinking for Vermont’s common good Fri, 24 Feb 2017 20:54:23 +0000 en-US hourly 1 Spending caps undermine the state budget’s purpose http://publicassets.org/blog/spending-caps-undermine-the-state-budgets-purpose/ http://publicassets.org/blog/spending-caps-undermine-the-state-budgets-purpose/#respond Fri, 24 Feb 2017 20:54:23 +0000 http://publicassets.org/?p=11235 Tying public spending to any measure of economic growth is a double whammy for Vermonters in bad times: When the economy slows, it takes state spending down with it. So Vermonters not only have to deal with job and income losses during a recession, they also get hurt by a reduction in state services just when they need them most. Read more

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Tying public spending to any measure of economic growth is a double whammy for Vermonters in bad times: When the economy slows, it takes state spending down with it. So Vermonters not only have to deal with job and income losses during a recession, they also get hurt by a reduction in state services just when they need them most.

Nevertheless, the governor has proposed restricting state General Fund spending growth to the average growth rate of wages over the prior six years.

Given the countercyclical nature of public investment—spend more when the economy is slow, reduce spending and save when the economy picks up-  concerns that the state budget is growing too fast are overblown. It’s true that for the past few years state General Fund spending has grown faster than the economy. But there was a lot of lost ground to make up following the Great Recession. Over the last 20 years state spending has in fact grown more slowly than the economy, and wage growth has been even slower.

According to Vermont statute, the purpose of the state budget is to “address the needs of the people of Vermont in a way that advances human dignity and equity.” This applies in good times and bad. And that’s why public spending should buck the economic trends. There’s greater demand for food stamps and housing assistance, for example, when the economy slows. The administration’s proposal to tie General Fund spending growth to wage growth undermines the fundamental purpose of the state budget.

But there are other problems with this approach to budgeting.

Cutting back on public investment aggravates a slowing economy. The Center on Budget and Policy Priorities found that Vermont was one of many states that reduced services in the midst of the Great Recession.  These cuts “not only harm vulnerable residents but also worsen the recession—and dampen the recovery—by reducing overall economic activity.”

Another problem with a General Fund-only spending cap is that it reduces the budget debate in Montpelier to one question: How do we keep General Fund spending under the cap? The governor’s fiscal 2018 budget recommendation shows just how easy it is to keep General Fund spending growth low by moving expenses to other funds, like the Education Fund, without paying for them. A cap on General Fund spending, which is only a quarter of the state budget, encourages more of this cost shifting.

None of this is to say that Vermont should have unlimited state spending. Budgeting is a balancing act that requires thoughtful consideration of needs and resources.  In times of greater need, spending should go up.  When the economy is good, Vermont should plan ahead and save for leaner times, so that temporary revenue losses in bad times don’t lead to abrupt cuts to state services we all need.

Instead of working to meet an arbitrary cap, the budget debate in Montpelier should focus on how to make consistent smart investments that meet the state’s needs and build its future. That would be a better approach for the state’s economy and for Vermonters.

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General fund budget gap? What gap? http://publicassets.org/blog/general-fund-budget-gap-what-gap/ http://publicassets.org/blog/general-fund-budget-gap-what-gap/#respond Wed, 15 Feb 2017 19:23:46 +0000 http://publicassets.org/?p=11230 On one level, Gov. Phil Scott’s first budget proposal provides a useful lesson. He showed it’s relatively easy to reduce or eliminate a state budget “gap,” at least on paper. You just move the problem into a different account. But it also could be a useful service if it shifts the budget conversation in Montpelier away from “the gap” and more toward to the purpose of raising and spending public money. Read more

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On one level, Gov. Phil Scott’s first budget proposal provides a useful lesson. He showed it’s relatively easy to reduce or eliminate a state budget “gap,” at least on paper. You just move the problem into a different account. But it also could be a useful service if it shifts the budget conversation in Montpelier away from “the gap” and more toward to the purpose of raising and spending public money. We should be talking about how the budget can improve the lives of Vermonters and help them achieve their potential.

For at least 10 years now, as each annual session of the Legislature approaches, all eyes in Montpelier focus on the size of the budget gap projected for the following fiscal year. The gap is the difference between the estimate of taxes and other revenue flowing into the state in a given year and the projected cost of various public programs and services that year.

The gap that generates all the anxiety is the one in the state’s General Fund. Admittedly, this is the account the covers the operation of much of state government—human services, corrections, the state police, environmental protection, economic development, the courts, the Legislature, and so forth. And it’s funded with taxes many Vermonters are familiar with—the personal income tax, sales tax, rooms and meals tax, and corporate taxes are the big ones.

While the General Fund might be considered the state’s main account, it represents only about a quarter of all the money Vermont state government spends every year. The Education Fund is roughly the same size as the General Fund. And federal funds, about $2 billion a year, make up the biggest single account.

The drama in Montpelier each year is usually about closing the gap and balancing the General Fund. And this year Governor Scott has proposed another twist: He wants to set a limit on how much General Fund spending can grow in any given year.

But as the governor showed with his proposed budget, one way to make the numbers come out right is to move expenditures out of the General Fund into other accounts or move revenue from other accounts into the General Fund.

What the governor proposed for next year was to move a lot of expenditures that normally would be paid out of the General Fund—about $136 million—and pay for them out of the Education Fund. He also shifted some revenue from the General Fund into the Education Fund, but not enough to cover the additional obligations. This left the Education Fund with a $50 million gap. To close the Education Fund gap, the governor asked local school boards to cut their budgets.

This isn’t new. Administrations and legislatures have moved money around like this for decades. In this case, the shift makes the General Fund increase look smaller than it normally would be. It also gives local school boards the task of making the cuts. But the take-away in all of this is that we shouldn’t get too hung up on what’s happening with the General Fund in any given year.

That’s not to say the state doesn’t need to balance its budget. It does. And it’s important to track how money is being spent to insure taxpayers are getting the results they expect and deserve. But Vermonters would be better served if the budget discussion each winter in Montpelier focused less on whether the General Fund is growing faster or slower than it did the year before. The change may be due to spending, or it could be the accounting.

A better discussion would concentrate on whether the plan is meeting the purpose of the state budget. Will it move us toward the state we want to have five or 10 or 20 years from now? Will it improve the lives of average Vermonters, especially families who struggle the hardest to make ends meet?

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No homeowner tax relief in governor’s school budget cuts http://publicassets.org/blog/no-homeowner-tax-relief-in-governors-school-budget-cuts/ http://publicassets.org/blog/no-homeowner-tax-relief-in-governors-school-budget-cuts/#comments Fri, 27 Jan 2017 22:31:16 +0000 http://publicassets.org/?p=11204 Gov. Phil Scott said this week that property taxes were one of the biggest contributors to what he calls the state’s “affordability crisis,” and he called on local school boards to cut more than $50 million from the budgets they’ve prepared for next year. Read more

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Gov. Phil Scott said this week that property taxes were one of the biggest contributors to what he calls the state’s “affordability crisis,” and he called on local school boards to cut more than $50 million from the budgets they’ve prepared for next year. But if schools make the cuts the governor has asked for, Vermont homeowners won’t see lower taxes. Instead, school budget savings will be used to cover new obligations the governor wants to pay for out of the education funding pot.

The governor’s plan is to transfer some existing expenditures—for higher education and a portion of teachers’ retirement—from the General Fund to the Education Fund. He also wants to add new spending—additional money for early education and education “innovation”—to the Education Fund. While he is proposing to move additional General Fund revenue to the Education Fund, it is not enough to cover the additional expenditures.

Here’s the math:

EdBlog

At first glance, this appears to be a simple case of paying for public services out of a different pocket. But the taxes that go into the General Fund and the Education Fund aren’t the same. Most of the money in the General Fund comes from broad-based taxes: income, sales, rooms and meals, and business taxes. Property taxes supply the bulk of the money in the Education Fund.

So while the governor says property taxes are making Vermont unaffordable, his plan shifts $50 million in new costs onto the property tax. To avoid having to raise property taxes, the governor wants to cut the other expenditures covered by the Education Fund—payments to public schools.

Most school districts have completed work on the fiscal 2018 budgets, and the Agency of Education estimates spending will increase around $38 million next year. The governor said he was only asking local schools to level fund their budgets for the next school year. But his budget recommendation would require them to cut $55 million from what they determined they need next year.

And even if they did make those cuts, it wouldn’t reduce property taxes. The bottom line is that by shifting costs to the Education Fund, the governor’s plan will use 6 cents on the average homestead property tax rate to cover what have been historically General Fund obligations.

The governor’s new spending initiatives are laudable. Vermont does need to put more resources into higher education and early education. But instead of shifting costs onto homeowners or reducing opportunities for Vermont schoolchildren, the governor should look to those who have prospered the most during the recent economic recovery to help insure that others have the same chance.

 

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Statement on Gov. Phil Scott’s Jan. 24, 2017, Budget Address http://publicassets.org/blog/statement-on-gov-phil-scotts-jan-24-2017-budget-address/ http://publicassets.org/blog/statement-on-gov-phil-scotts-jan-24-2017-budget-address/#respond Tue, 24 Jan 2017 23:50:59 +0000 http://publicassets.org/?p=11199 In his first budget speech today, Gov. Phil Scott proposed to address what he calls Vermont’s affordability crisis by curbing state spending. But he didn’t have much to say about the main reason many Vermont families are having trouble making ends meet: While the economy is growing, most Vermonters aren’t benefitting. Read more

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In his first budget speech today, Gov. Phil Scott proposed to address what he calls Vermont’s affordability crisis by curbing state spending. But he didn’t have much to say about the main reason many Vermont families are having trouble making ends meet: While the economy is growing, most Vermonters aren’t benefitting. Their incomes have been stagnant since at least 2000. Vermont is experiencing the same growing gap between the rich and everyone else that we see nationally.

We agree with the governor taking a more expansive view of education. We think public education should include pre-kindergarten and at least two years of college. And this will require an additional state investment. But there are better ways to fund it than to add these obligations to the Education Fund without adequate General Fund support to cover them. The governor’s proposal leaves school districts with the choice of cutting $50 million from K-12 education or increasing property taxes.

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The budget gap solution http://publicassets.org/library/publications/the-budget-gap-solution/ http://publicassets.org/library/publications/the-budget-gap-solution/#respond Wed, 30 Nov 2016 15:05:39 +0000 http://publicassets.org/?p=11147 “Vermonters need to smoke more.”

That was the eye-catching headline to a recent column by Jon Margolis on vtdigger.org. It was a great way to explain Vermont’s chronic budget gaps without putting everyone to sleep talking about “structural revenue problems.”

Margolis was right. Part of Vermont’s budget problems are due to the state’s reliance on revenue that is tied to an ever-shrinking tax base.

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“Vermonters need to smoke more.”

That was the eye-catching headline to a recent column by Jon Margolis on vtdigger.org. It was a great way to explain Vermont’s chronic budget gaps without putting everyone to sleep talking about “structural revenue problems.”

Margolis was right. Part of Vermont’s budget problems are due to the state’s reliance on revenue that is tied to an ever-shrinking tax base.

There are fewer cigarette smokers. It’s a good thing. We want people to quit. But because cigarettes are taxed by the pack, we take in less money unless we keep raising the tax rate. It’s the same with gasoline. A portion of the gas tax is levied by the gallon. As vehicles get more efficient, or are powered by something other than gasoline, the state takes in less money to repair roads and bridges. Driving more was another of Jon’s prescriptions.

A few years back, a commission appointed to study Vermont’s tax structure found that the state’s sales tax base, if not shrinking, certainly wasn’t keeping up with consumers’ changing buying habits. The commission recommended the sales tax be levied on most services and on online Internet purchases. By broadening the sales tax base, the commission said, Vermont could lower the sales tax rate.

Modernizing Vermont’s revenue system would help to address the state’s recurring budget gaps. Policy makers and elected officials also need to do a better job managing the ups and downs of the economic cycles— build up adequate reserves and be willing to use them.

We heard a lot this fall about matching state budget growth to the economy as a way to deal with budget gaps. While the two generally need to be in sync over the long term, budget growth and economic growth aren’t going to move together every year, nor should they.

The late Gov. Richard Snelling understood the idea of countercyclical budgeting—and was known to lecture reporters on the subject during news conferences. When the economy tanks, as it did most recently at the end of 2007, state revenues fall at the same time that there is greater demand for public services: food stamps, home heating assistance, unemployment compensation, welfare, housing for the homeless, and the other things families need when people lose their jobs. That’s exactly when government needs to step in, not pull back.

To be sure, Snelling advocated for “sustainable” budget growth. But in 1991, when Vermont was in the throes of another recession, he and the Legislature spent money the state didn’t have—Vermont ran a budget deficit—rather than slash critical services trying to match budget growth and economic growth in the short term. They also raised tax rates to pay off the deficit, and later rolled back the tax rates after the economy recovered.

In today’s political climate, it is unlikely we’ll see the state run temporary deficits again. But Vermont can further develop another fiscal tool: reserves. Revenue volatility, which some economists warn has gotten worse in recent decades, could be mitigated if the state had larger reserves to manage through an inevitable downturn. The Center on Budget and Policy Priorities recommends reserves equal to at least 15 percent of the budget.

Long-term budget sustainability is an important goal. So is fiscal stability. State government will function better and Vermonters will be better served by a combination of revenue modernization and sound, steady fiscal management than by erratic, unpredictable funding of state services driven by annual cash flow.

The purpose of the state budget, according to the statute adopted in 2012, is to “address the needs of the people of Vermont in a way that advances human dignity and equity” and “[s]pending and revenue policies will … recognize every person’s need for health, housing, dignified work, education, food, social security, and a healthy environment.” Those are the criteria our elected officials should use in determining spending in the state budget.

 

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Tapping Vermont’s entrepreneurial talent http://publicassets.org/blog/tapping-vermonts-entrepreneurial-talent/ http://publicassets.org/blog/tapping-vermonts-entrepreneurial-talent/#respond Thu, 03 Nov 2016 20:23:13 +0000 http://publicassets.org/?p=11126 Vermont needs to reduce gender disparities in the labor force, and the state needs more jobs. More women-owned businesses could help on both fronts.

A new report by Change the Story VT shows the potential of female business ownership. According to the report, there’s already a strong entrepreneurial spirit among Vermont women. Read more

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Vermont needs to reduce gender disparities in the labor force, and the state needs more jobs. More women-owned businesses could help on both fronts.

A new report by Change the Story VT shows the potential of female business ownership. According to the report, there’s already a strong entrepreneurial spirit among Vermont women. The percentage of working age women whose own businesses are their primary occupation is double the national average. Women are opening new businesses in Vermont at a faster pace than men, and revenue from their businesses is growing faster than that of men.

While the trends are encouraging, the report found there is still a way to go before male- and female-owned businesses are on a par. Women-owned businesses are outnumbered 2 to 1 by businesses owned by men, and businesses owned by women generate only 19 cents of revenue for every $1 produced by businesses owned by men. Nearly 90 percent of the businesses women own are sole proprietorships with no additional employees. For male-owned businesses, it’s 77 percent.

The Change the Story VT report says that more data are needed to better understand the differences between male-and female-owned businesses:

  • Why do women have proportionally more sole proprietorships?
  • Why do their revenues lag so far behind male-owned businesses?
  • Why are women-owned businesses underrepresented in industry sectors that typically generate high revenues?

The answers to those questions could be helpful, especially if they lead to more employment. There are about 10,000 fewer people working in Vermont today—either self-employed or on someone’s payroll—than there were 10 years ago.

As Change the Story VT points out, understanding the obstacles that hamper women from owning or expanding their own businesses will help the state “make the most of Vermont’s entrepreneurial talent.”

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Stephanie Yu is UVM Fellow http://publicassets.org/blog/stephanie-yu-is-uvm-fellow/ http://publicassets.org/blog/stephanie-yu-is-uvm-fellow/#respond Thu, 27 Oct 2016 19:59:22 +0000 http://publicassets.org/?p=11117 Public Assets Institute is pleased to be making a new connection with the University of Vermont. Policy analyst Stephanie Yu has joined the UVM faculty as a Public Policy and Community Research Fellow at the university’s Center for Research on Vermont. Read more

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Public Assets Institute is pleased to be making a new connection with the University of Vermont. Policy analyst Stephanie Yu has joined the UVM faculty as a Public Policy and Community Research Fellow at the university’s Center for Research on Vermont.

According to the Center’s recent press release, its mission is “to support, foster and make accessible research in the Vermont ‘laboratory’—research that provides original knowledge to the world and research that adds to understanding of the state’s social, economic, cultural and physical environment.”

Steph is one of five Fellows this academic year who will collaborate with UVM faculty on research of mutual interest, appear as guest lecturers in relevant classes, and mentor and advise students.

At Public Assets, Steph researches and writes about a variety of Vermont tax, budget, and economic issues that affect the lives of Vermonters, especially low- and moderate-income residents. As a UVM Fellow, Steph will provide an important link between Public Assets’ fiscal research and analysis and UVM students, staff, and faculty.

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Make Vermont family friendly http://publicassets.org/blog/make-vermont-family-friendly/ http://publicassets.org/blog/make-vermont-family-friendly/#respond Wed, 19 Oct 2016 18:53:02 +0000 http://publicassets.org/?p=11085 We all need time off to care for a child, a parent, or ourselves from time to time, and we need to do it without losing income.

Times have changed. Increasingly, working parents are the norm, not a rarity. According to 2015 U.S. Census data, 3 out of 4 Vermont children live in families where all parents work. And workers without children get sick or need to take care of elderly parents. However, school schedules, employment policies, and cultural expectations are still based on the past, when most workers (men) had stay-at-home spouses (women). This is no longer reality. State policy needs to change to address the needs of today’s families.

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This January, Vermont will have all new leadership at the State House. It’s the perfect time to zero in on three initiatives that are fundamental to Vermonters’ lives:

  1. Ensure that work pays and families meet their basic needs
  2. Make smart evidence-based investments
  3. Restore public confidence in state government

These are the recommendations in Public Assets’ recently released report, A Framework for Progress: Investing in Vermont’s people, infrastructure, and good government.

To help advance the first of the three, Public Assets joined a group of Vermont organizations this week to launch a campaign for paid family and medical leave for workers throughout the state.

We all need time off to care for a child, a parent, or ourselves from time to time, and we need to do it without losing income.

Times have changed. Increasingly, working parents are the norm, not a rarity. According to 2015 U.S. Census data, 3 out of 4 Vermont children live in families where all parents work. And workers without children get sick or need to take care of elderly parents. However, school schedules, employment policies, and cultural expectations are still based on the past, when most workers (men) had stay-at-home spouses (women). This is no longer reality. State policy needs to change to address the needs of today’s families.

The state has already taken steps to support working families.  This year the Legislature passed and the governor signed paid sick leave into law, guaranteeing thousands of workers access to short-term leave for medical reasons. But there’s a long way to go to ensure the economic security of all of Vermont’s working families.

Public Assets’ recommendations would improve these families’ economic security and ensure that people working full-time can make ends meet. Taken together, these proposals begin to address the needs of working families.

Families whose incomes have been stagnant while their costs have gone up need a livable wage and a boost in the state’s Earned Income Tax Credit. Working parents, especially single mothers, can’t support their families without available, affordable child care. And workers who now fall over the “benefit cliffs,” where earning more makes them ineligible for critical public benefits, need to be able to bring their increased earnings home.

For these families, many of whom live paycheck to paycheck, the ability to take care of themselves or a family member currently depends too much on luck. Vermont can be a family-friendly state by enacting policies that help working families. Paid family and medical leave is a good step in that direction.

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Child nutrition key to achievement http://publicassets.org/blog/child-nutrition-key-to-achievement/ http://publicassets.org/blog/child-nutrition-key-to-achievement/#respond Thu, 13 Oct 2016 18:10:02 +0000 http://publicassets.org/?p=11077 Poverty and hunger hinder children’s opportunities to succeed in school. A new report from the Center on Budget and Policy Priorities (CBPP) in Washington, D.C., highlights the role of the country’s largest child nutrition program in improving educational outcomes for kids from low-income households, including nearly 32,000 children in Vermont.

The federal Supplemental Nutrition Assistance Program, or SNAP, goes by the name 3SquaresVT in Vermont. The federally funded program is available to low-income households that meet certain eligibility requirements. Benefits vary with income and family size, with the maximum benefit going to households with no net income. One out of every four children in Vermont receives benefits under 3SquaresVT, which is about the same as the national average.

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Poverty and hunger hinder children’s opportunities to succeed in school. A new report from the Center on Budget and Policy Priorities (CBPP) in Washington, D.C., highlights the role of the country’s largest child nutrition program in improving educational outcomes for kids from low-income households, including nearly 32,000 children in Vermont.

The federal Supplemental Nutrition Assistance Program, or SNAP, goes by the name 3SquaresVT in Vermont. The federally funded program is available to low-income households that meet certain eligibility requirements. Benefits vary with income and family size, with the maximum benefit going to households with no net income. One out of every four children in Vermont receives benefits under 3SquaresVT, which is about the same as the national average.

According to the CBPP report: “Research suggests that SNAP participation can lead to improvements in reading and mathematics skills among elementary children, especially young girls, and increase the chances of graduating from high school by as much as 18 percentage points.”

The report also points out the long-term health benefits and economic implications of ensuring that children get adequate, nutritious food. It cites research showing “that disadvantaged children who had access to food stamps in early childhood and whose mothers had access during their pregnancy had better health and economic outcomes as adults than children who didn’t have access to food stamps.”

The CBPP report shows that Vermont’s average benefit is lower than most other states. The average benefit for all eligible households was $342 a month in 2014, which placed Vermont 48th when the states were ranked high to low.

Many 3SquaresVT participants have jobs, and eligibility for Vermont’s program extends to families with incomes of up to 185 percent of the federal poverty guidelines, which is higher than many other states. These two factors increase the average income for Vermont participants, which in turn reduces the average benefit.

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Better retirement security http://publicassets.org/blog/better-retirement-security/ http://publicassets.org/blog/better-retirement-security/#respond Tue, 04 Oct 2016 19:22:23 +0000 http://publicassets.org/?p=11071 The state’s economy would be stronger, and Vermonters would feel more secure financially if we all had retirement nest eggs. According to a 2012 report by the National Institute for Retirement Security, “[l]ess than half of Vermont workers participate in a retirement plan at work.” And those who have defined contribution accounts, the Institute found, the average balance is the lowest in the country—just $19,768.

Creating a publicly administered retirement program for all Vermont residents is just one of the recommendations in A Framework for Progress: Investing in Vermont’s people, infrastructure, and good government, the latest Public Assets report. In the last two years, Illinois, Oregon, Maryland, Connecticut, and California have created publicly managed retirement plans for private sector workers, and half of the states of exploring similar plans.

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The state’s economy would be stronger, and Vermonters would feel more secure financially if we all had retirement nest eggs. According to a 2012 report by the National Institute for Retirement Security, “[l]ess than half of Vermont workers participate in a retirement plan at work.” And those who have defined contribution accounts, the Institute found, the average balance is the lowest in the country—just $19,768.

Creating a publicly administered retirement program for all Vermont residents is just one of the recommendations in A Framework for Progress: Investing in Vermont’s people, infrastructure, and good government, the latest Public Assets report. In the last two years, Illinois, Oregon, Maryland, Connecticut, and California have created publicly managed retirement plans for private sector workers, and half of the states of exploring similar plans.

Contributions to a public retirement fund would be voluntary. But the fund and its investments would be managed by the state, like the state employees’ or retired teachers’ pension funds. Any Vermont resident could join and make deposits through regular payroll deductions. Employers would be allowed—but not required—to match some or all of their employees’ contributions.

People often need outside help to get them to save for the future, and experts have different opinions whether carrots or sticks are better inducements. If Vermonters had an easy and convenient system that encouraged savings for retirement, individuals will be more likely to succeed than if they were left to their own initiative. And large, professionally managed public pension funds generally produce better returns, thanks in part to substantially lower fees, than average workers get from managing their own retirement accounts.

A state-managed Vermont retirement system also would benefit the economy. Another report recently release by the National Institute for Retirement Security, Pensionomics 2016, quantified the economic impact of certain pensions. The study looked at defined benefit pensions, which guarantee a level of regular payments to retirees as long as they live and are now more common among public employees. In Vermont alone, retirees spending their pension benefits resulted in thousands of jobs and hundreds of millions in direct and indirect economic activity, according to the report.

A voluntary, state-managed retirement plan would not provide defined benefits—retirement benefits would depend on the contributions made each individual. But if more Vermonters had adequate retirement savings to spend in their later years, it would add more jobs and help local businesses. And the returns on all of these state-managed investments would be new money coming into Vermont. According to the Pensionomics report, almost two-thirds of the money going into state and local pensions funds between 1993 and 2014 were investment earnings, with the remaining third coming from employee and employer contributions.

 

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