VEH Road Show 0710

8/9/2019 VEH Road Show 0710

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www.vteh.org 112/09 1

Who Are VermontersWho Are VermontersFor Economic Health?For Economic Health?

VEH is a grassroots,citizen-ledorganization,founded in 2007.

OurMission is simple:

To Promote Economic Health

And Fiscal Responsibilityin Vermont

Sign our Petition: www.vteh.org


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www.vteh.org 2

Political Deficit Inertia

In the summer of 2009, Washington Post columnist FredHiatt asked President Obama how to overcome thepolitical inertia of deficit control.

President Obama suggested that events might jump-startthe politics, when lenders start to fret about thecreditworthiness even of the United States:

"I actually think that, sadly, decisions are going to be

forced upon us," he said. "I mean, I think that if we don'tshow that we're serious in some fashion, then I thinkyou're going to see a reluctance on the part of peoplewho've been snapping up Treasurys to keep doing so. . .


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www.vteh.org 3

An Overview: Why ThisRecession Is Different

Balance-sheetrecession: Deleveragingofhistoriclevels of public (government) and privatedebt

Long-term structural U.S. fiscaldeficits (entitlements)

Municipal & State (FY11/12 of $255B indeficits) finances

Housing (1 in 4 underwater) & Commercialrealestate

Uncertainty: Taxes, banking, health-care & energyregs.

Monetary crisis and competitive currencydevaluations

Global competition forcapital, trade, productivity & mfg.

Geo-politicalrisk; socialunrest; & long-term unemployed


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Employment


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www.vteh.org 5

1981 vs. 2007 Recessions: U.S.Monthly Employment Declines

Source: NBC Meetthe Press, 12/13/09

- Months into Recession -

It took 28 months for the 1981

recession to regain all itsrecession job losses

It took 27 months beforethe 2007 recession saw its first

positive monthly job gain

2007 Recession

(10.8% unemployed)

(10.2% unemployed)


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www.vteh.org 6

A (Frightening)Employment Picture

No U.S. private sector job growth this past decade

Todays roughly 130 million employment level equalsthat of1999; while working-age population has risen

some 29M

About 125,000 jobs per month are required just toaccommodate new entrants into the labor force.

There are about 5.5 applicants for every 1 jobavailable

Between 2001-2007, 40% of jobs created were tied tothe housing sector. Most arent coming back.


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JobGrowththis pastdecade:Private-Sector: 0%

FederalGovernment: 18%

www.vteh.org

24% Increase

9% Increase

U.S. Private-sector job growth 2000 - 2009 : 0% Increase

Total Federal Employees

Civilian Agencies (Ag., Justice, Treasury, Edu. etc)

Defense

2000 20102005

OMB; Bureau of LaborS

tatistics

(Govt: Full-time equivalent employees;

Excludes Postal Service & uniformed military)

(Millions)


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www.vteh.org 8

Job gains/losses sinceRecession (12/07-03/10)

119,000 Public sector job gains

732,600 Health care job gains (of15.6M or 4.7%)

26,000 State Govt job gains (of 5.1M or .5%)

63,000 Local job losses (of14.5M or .43%) 156,000 Federal job losses (of 2.8M or 5.6%)

8.32 million Private sector job losses

2.1 million Mfg. job losses (of13.7M or15.3%)

1.9 million Construction job losses (of 7.5M or 25%)

628,000 Finance job losses (of 8.2M or 7.7%)

519,900 Temporary job losses (of 2.6M or 20%)

494,000 Tourism job losses (of13.5M or3.7%) Source: U.S. Dept. of Labor, WSJ, 4/3/10


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www.vteh.org 9

Innovation, Productivity& its Job Market Impacts

U.S Manufacturing Employment

(as a % of U.S. work force)

U.S. Manufacturing Output

(as a % of GDP)

Source: Bureauof Economic Analysis;BureauofLaborStatistics.


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Source: Vt DeptofLabor

(Inthousands)

(Between 2000 2007, Vermont governmentpayroll & employee benefit costs grew 70%)

20002000--2007: Nil Vermont2007: Nil Vermont

Private Sector Job GrowthPrivate Sector Job Growth


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www.vteh.org 11

Vermonts Private vs.Public Sector Dilemma


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Demographics


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13

10,000 Boomers perdayretire!

Boomers:nearly30% of population

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1 5913

17

21

25

29

33

37

41

45

49

53

57

61

65

69

73

77

81

85

89

93

97

101

Age

Est

ate

(s

s)

Children (0-17 years)

YoungerAdults (18-41years)

BabyBoomers (42-60 years)

OlderAdults (61+years)

Source: U.S. Ce sus Bureau, Popu at on Est atesas ofJu y 1,

2006 .vte .org

(Boomers)

(Boomersparents)


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Governmentwill account formorethanhalfof all U.S.

Health-Care spending in 2011

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% Private spending

% Public (Medicare, Medicaid, Veterans, States, etc)

Source: Centers for Medicare & Medicaid

(7.2% GDP) (17.3% GDP)

(Social Security & Medicare now paying out more in benefits than tax collections)


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15

Top FiveStates by Percent

BabyBoomerPopulation: 2006

Rank State

Percentof

BabyBoomers

1 Vermont 30.1

2 Maine 29.8

3 New Hampshire 29.7

4 Montana 28.75 Connecticut 28.1

Source: U.S. Census Bureau, Population Estimates as ofJuly1, 2006

www.vteh.org


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www.vteh.org 16

VT Retirees Double In 25Years While The Work

Force Shrinks

Over 65,(Retirees)

Age 6-18,(school age)

Total Population

Age 20-65,

(working age)

Source: Center for Research on Vermont, Art Woolf. (Indexed to 2000 = 100)


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Deficits and Debts:

U.S. and Vermont


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Its the Spending, America!Growth inSpending & Income

www.vteh.org

18

Total Federal Spending

Median household Income

(In inflation-adjusted 2009 dollars)

1970 1980 1990 2000 2008

In 1970 total federal

spending was $883 billionand median household

Income was $39,403

2008: $3.02 trillion; +242%

$50,893; 29%

Sources: U.S. Census Bureau; OMB; Heritage Foundation


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Debt Growth Exceeds GDP;Living Beyond our Means

www.vteh.org 19


In 1990 total federal

debt was $5.3 trillion

and GDP was $9.5 trillion

2010 Federal Debt: $13.5 trillion; +155%

2010 GDP: $14.6 trillion; +54%

Sources: Bureau of LaborStatistics; U.S. Census Bureau

1990 2010

Est.

1995 2000 2005


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www.vteh.org 20

Triffins DilemmaChinas Foreign ExchangeReservesApprox. 75% Dollar-Denominated

($ Trillions) $2.4 Trillion

Source: Peoples Bankof

China, WSJ12/5/09

$400

Billion

"One of the challenges that we've got to addressinternationally is currency rates and how they match up tomake sure that our ... goods are not artificially inflated inprice and their goods are artificially deflated in price.

That puts us at a huge competitive disadvantage.

- President Obama, February 3, 2010


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The Presidents 2011Budget:U.S.Budget Deficits:

A NationalSecurity Threat?

www.vteh.org 21

1990 2010 2018

-$1.6T

Source: 2010 White House Office of Management & Budget; Peterson-Pew Commission;

(years 2016 2018)

(In Billions)

Despite $2 Trillion in added tax

increases, the Presidents budget

still calls for $5 Trillion in added debt

over the next 5 years (2010-2015)


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www.vteh.org 22

Federal Spending &Revenue as a % of GDP

(% of GDP)

WW II

Spending

Revenue

- Projected -

2010 Public; Total Debt to GDP = 64%; 92%

2020 = 90%; 120% (Historic Avg. +/- 40%)

Source:Officeof Mgt & Budget, May 2009; Peterson-Pew Commission, 2009

- Deficit -

($10 Trillion over10 yrs)

2010Historic avg. +/- 20%

Historic avg. +/- 18%


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Off Balance-SheetU.S. Indebtedness

$13 trillion

*Medicare becomes insolvent in approx. 6 years; Jan. 2010, S.S. now cash negative

Source:Bloomberg, 9/25/09, PeterG. Peterson Foundation

($Trillions)

$12 trillion $10 trillion

Medicare, Medicaid, & Social Security

(Excludes State, Local Govt & Fannie Mae,

Freddie Mac Liabilities)


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www.vteh.org24

Enormous Overhangs & Risks

$1.25 trillion in monetized Fannie Mae/Freddie Mac

home mortgage debt by the Federal Reserve Bank

(printing of money to purchase debt)

Realized

Fan/Fred

Losses:

Proj. Fan/Fred

Losses:

$400B

$146B

Proj.FDIC

Losses:$100B

($Trillions)

Monetized

Treasury debt:

$300B

Source: WSJ12/24/09


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Composition ofFederal Spending

Defense46%

All Else31%

SS

13%6%

4%

1968 2008

All Else

29%

Defense

21%

Med.

21

%

SS

21%

8%


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www.vteh.org 26

Mandatory vs.Discretionary Spending

1965 2008

Mandatory

34%

Discretionary

66%

Mandatory

62%

Discretionary

38%

Mandatory spending is authorized by law rather than annual appropriations.


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www.vteh.org 27

Foreign Holdings ofU.S. Debt to the Public

50%

20091990

19%

81%

50%


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U.S. Interest Rate Risk

($Billions)

(5) U.S. debt payments due within a year;

currently financed at a rate of1% or less

$40B $80B $221B

(1) Increase in borrowing costs with removal of Fed. purchases

of mortgages; equal to one-half percentage point

(2) Combined budgets of the Dept. of Education & Energy

(3) Est. addl cost of 2009 debt service with 2008 int. rates

(4) Est. debt service cost in 2019; WSJ12/16

(1) (2)

(3)

(4)

(5)

$774B $1.9T

Source: NYT, E.L Andrews 11/23/09


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www.vteh.org 29

Commercial Real EstateNext shoe to drop

100s of billions in losses

$534 billionofthe $800billion in commercialreal-estateloans maturingbetweennow & 2014 are

underwater. $1.4 trillion in (weaker)

corporatebonds & loansmaturebetweennow &2015.

RichardLefrakestimateswereonly inthe2nd

inningof a commercialreal-estate storm.

0

00

00

00

00

1000

1200

1400

1600

h

r2014

Th

r2015

Mat rinoans

"Underater"oans

($Billions)

*Capital markets

& interest rates

ill be press red


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www.vteh.org 3030

The State of VermontsThe State of VermontsIndebtednessIndebtedness

$1.6B(teacher&stateemployees)

$466M

$848M

$400M

$300M

$70M ($40M to stimulus)

(Netof

Stimulus $)

(ChamplainBridge, VT State Hosp. & otherroad/bridge costs not included)


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Its the Spending, Vermont!Growth inSpending & Income

www.vteh.org

31

Total Vermont Spending

Median household Income


In 1990 total Vermontspending was $1.77 billion

and median household

income was $47,212

2007: $4.1 billion; +131%

2007: $51,809; +9.7%

Sources: www.vttransparency.org; Bureau of LaborStatistics; U.S. Census Bureau

1990 1997 2002 2007

1997:

Act 60


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VermontGeneral Fund($848M Deficit: FY11-FY14)

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Source: VT Legislative Joint Fiscal Office, Feb. 2010

GF AvailableGF Uses @3.5% off FY10

(ARRA funds used to support GF Base:

FY09=$76M; FY10=$192M; FY11=$113; FY12=$0)

(-$154M)

(-$254)

(-$223)

(-$217)

(Millions)


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VermontGeneral Fund($313M Deficit: FY12-FY14)

www.vteh.org 33

Source: VT Legislative Joint Fiscal Office, 2010

GF AvailableGF Uses @3.5% off FY10

(Doesnt include VSH, Fed HC impact or Tobacco impact which increase

Deficits by up to $22M; assumes 3.5% budget growth rate & current 5 year

Rev. forecast;

FY12 Gap solutions

That are ongoingWill reduce out-year

Deficits)(-$122M)

(-$100M)

(-$91M)

(Millions)


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Vermont Education FundRevenue Sources

www.vteh.org 34

Homestead

Property Tax:

26%

General Fund

Transfer:

22%

Sales&Use

Tax: 9%

Misc:

5%

Source: JFO 1/8/10 (FY08 data); Crisis on the Horizon Report Feb. 2010


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Vermont Property TaxIncomeSensitivity Payments

www.vteh.org 35

$109M

$111M $118M $120M

$142

$168M

$183M

(Millions)

(Est.) (Est.)

Sources: Kavet & Rockler, Nov. 09 Eco. Rev. & Rev. Forecast Update; Crisis on the Horizon Report

+ $26M

+ $15M

+ $22M

(FY12 will show a contraction in the statewide

grand list for the 1st time since Act 60s passage)


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Vt. Education Fund Balance

www.vteh.org 36

(Est.)

(Est.)

-$59.3M

JFO Edu. Fund Outlook, 1/8/10; Crisis on the Horizon Report, 2010

$41.5M

(Millions)

$25.9M


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Student EnrollmentStudent EnrollmentDownDown -- EmploymentEmployment

andandCosts UpCosts Up

Source:

Summaryofthe AnnualStatisticalReportofSchools(SASR) FY1997 - 2008

Student s = -9.1%; Teacher and Staff Growth = +20.8%

106,341

94,11615,783

18,876

94,000

96,000

98,000

100,000

102,000

104,000

106,000

108,000

15,000

16,000

17,000

18,000

19,000

20,000

Students

Teachers

And Staff


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www.vteh.org 38

Vermonts Dangerous RelianceVermonts Dangerous RelianceOn An Ailing FederalGovernmentOn An Ailing FederalGovernment

01/10 38

Source: VT CAFR-2009

$ inBillions34%

33%

32%


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www.VermontersForEconomicHealth.org 39

Vermonts Progressive(and highly risky)

Income Tax Structure

26% of Taxes Paid,

2,113 Tax Filers;0.69% of Filers

38% Paid,6,970 Filers;

2.29%49%15,200;

4.99%

98%185,534;61%

60%27,632;9.08%

75% Paid

58,415;19.20%

91% Paid121,827;40.04%

100%304,254;

100%

Source: Vt. Comprehensive Annual Financial Report, 2007

Top 1% pay about 1/3 of taxes

Start here,move clockwise

Top 5% pays about 50%


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Losses in income andtax-revenues are accounted fromVermonts top 1% ofearners

www.vteh.org 40

(A) $598M decline in total Adjusted Gross

income by all Vermonters

(B) $36M decline in total net income taxes

paid by all Vermonters

(Millions)

2007-2008 2007-2008

(A)

(B)

(C)

(D)

(C) $614M decline in total Adjusted Gross

Income by Vermonters earning $200K+

(about 1% of all taxpayers)

(D) $37M decline in total net income taxes

paid by Vermonters earning $200K+

VT Dept. of Taxes; VT Economy Newsletter


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Current Use Program:(88% reduced assessments)

Opportunity Costs Explode

www.vteh.org 41

(Millions)

(B) $37.4M in foregone education property taxes

(C) $49M in total Vermont opportunity costs

Opportunity Costs

2008

Source: VT Dept. of Taxes (PVR)

(A)

(B)

(C)

(D) (E)

(D) 2.2M acres of enrolled land in Current Use Program

(E) 6.6M acres of total land in Vermont;

1/3 of all Vermont land is enrolled in Current Use, as it

grew 3.3% in 2009 and continues to grow. To what end?

At what cost? In lieu of what job creation?


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A World View


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www.vteh.org 43

An Explosion ofWorld Debt vs. GDP

Financial Deepening

($Trillions)

$12 $10

$195

$55

Financial Assets

Include:

119%% of GDP 356%

Source: HarvardBusiness Review, Sept. 2008

1980

2007


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www.vteh.org 44

Sovereign Debt Levels ofAdvanced Countries

1

3

1

1 3 1

Source: International Monetary Fund, WSJ12/10/09[Projected]

(% of GDP)


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www.vteh.org 45

Life Cycle of a SuperpowerCompetition:Share ofWorld GDP

33%

China 65%

Other

1820

2020 - 2025

18%

U.S.

64%

Other

1950

27%

U.S.68%

Other

2009

24%

U.S.68%

Other

U.S. = 2% China = 5%

China = 8%8%

5%

18%

China

Sources: IMF; Maddison; US Census Bureau; Financial Times 10/11/09


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The multitudes remained plunged inignorance of the simplest economic facts,and their leaders, seeking their votes, did not

dare to undeceive them.- Winston Churchill, 1940

Fora copyofthis presentation:[email protected]

SignourPetition atwww.vteh.org

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VEH Road Show 0710