Public Policy: Economic Analysis
Old Is Gold
How Graying Populations Brings More Money to Vermont
Joe Mooney, 63, of Stowe, bought a house in Vermont in 1999 to “escape the scorching Florida summers.” Three years later, he and his family moved here full time. Mooney works as a government manager and securities consultant for Florida municipalities, and he realized that the nature of his work allowed him to live anywhere. For Mooney, that anywhere was Vermont. The reason they moved, Mooney said, was for their quality of life. “Better medical care, better air quality, better water quality, lower crime rates — that all went into it.”
This is a familiar refrain. Quality of life is one of the main attractions for people—young and old—who move to the Vermont. But for some state officials, this appeal has a few worrying consequences. Joe Mooney, like so many Vermont transplants, demonstrates Vermont’s appeal to an older and often wealthier demographic, which, accompanied by an apparent decline in school age children and early adult populations, has caused a sharp increase in average age of the state’s population. Vermont, as is often cited, is the “second-oldest” state in the country.
Gov. Jim Douglas, in 2006, quoted these statistics and suggested that Vermont’s rank as the second-oldest state in the nation indicated a looming economic crisis. The assumption is this: With more and more young people leaving the state and a rapidly aging population, Vermont faces a progressively shrinking tax base. The population figures “painted a fairly grim picture,” said David Mace, communications director for Vermont’s Agency of Commerce and Community Development. A report from the Ethan Allen Institute, a conservative policy research facility in Concord, VT, paints an equally dire scene. “It is clear that, as the number of senior citizens grows and the number of workers decline, there will be a significant reduction in the growth rate of total income earned by Vermonters,” the report says. It cites a projected rise of the “dependency ratio” — the number of working adults in relation to children and seniors— and asks, “How will state government raise the revenues needed to pay for public programs?”
Tom Kavet, a consulting economist to the Democrat–led Vermont Legislature, said that this assumption—that Vermont faces a looming economic crisis— is entirely unfounded. Recent studies have supported Kavet’s assertion. “One of the silliest ideas,” Kavet said, “ is that somehow there is a brain drain of 20-something-years-olds that we’re losing, and we have to somehow keep them. For 40 years, Vermont, and almost any small rural state that has a demographic profile like Vermont, has had losses in the age group of 20- to 35-year-olds, and in-flows from about 35 to 50.”
Research conducted recently by the New England Public Policy Center in Boston added even more nuance to these numbers. The center’s research found that the actual number of young adults in New England, including Vermont, was neither decreasing nor increasing, but rather had remained fairly stable. The perception that the population was aging, it found, was not due to a mass exodus of young adults but rather due to those adults aging out of one demographic cohort and into another. The baby-boomer generation, in short — the largest demographic bubble in US history— had entered middle-age and was, for statistical purposes, no longer counted as young adults. Seen merely through the eyes of demographer, this change might seem alarming, while on the ground the actual population shift might only represent a few, albeit statistically significant, years.
And so: Is Vermont’s population growing older? Yes. Vermont’s 65 and over population by 2030 will increase by 112 percent by 2030, according to projections from the U.S. Census. But, this is only marginally higher than the nationally projected rise of 104 percent over the same period of time. While Vermont’s is indeed growing older, so is the rest of the country. What has aided in the slightly higher rate in Vermont is both its appeal to older residents, as well as its statistically low birth rate. What all this means for the state, however, remains a bone of contention.
The Douglas administration, not convinced by the findings of Kavet and others, continues to maintain a number of policies directed at staunching the state’s loss of young adults. Keep the workers — maintain the tax-base, the administration contends. One key initiative, “Pursue VT,” under the direction of Vermont’s Department of Economic Development, plans to spend $100,000 this year alone on efforts to attract young people to Vermont. The department has also offered million of dollars in tax incentives to businesses looking to expand in or move to state. And, said Mace, it is also seeking ways to add more affordable housing.
Kevin Dorn, secretary of Vermont’s Agency of Commerce and Community Development, said there remains this telling fact: Vermont is ranked No. 1 in the country with 50- to 54-year-olds per capita, but is also ranked No. 51 with 25- to 29-year-olds.“You cannot ignore the lowest birth rate. You cannot ignore the second-oldest state,” Dorn said.
True, said Kavet, you can’t ignore the numbers, but what those numbers say is a matter for debate. To offer tax incentives to businesses, Kavet said, is playing to state weaknesses. The state, he adds, should emphasize its strengths. “Our comparative advantage in Vermont has to do with quality of life, not necessarily paying off a company more than another state is going to pay them off. The tendency is for (young) people to go to big cities and urban areas. Then, when they get a certain level of professional skill, independence and flexibility, they are looking for quality of life.”
Again, Kavet said, it is these fairly consistent losses and gains that naturally trends Vermont toward an older population. “The idea that somehow that’s bad or wrong or needs to be changed,” he said, “is almost laughable.”
Bigger Tax Base
The key question in this debate, no matter what the population statistics reveal, is if, indeed, Vermont faces an economic crisis as the state’s population grows older. The key assertion from conservatives is that as the population increasingly ages into retirement, there will be less and less workers paying taxes. This, argues Kavet, is a fallacy, and a recent report from the Public Asset Institute, a liberal think-tank in Montpelier, bolsters Kavet’s position.
The Public Asset Institute studied the average income of Vermonters leaving and entering the state in 2005. It found that the average income of those entering Vermont was almost 20 percent higher than those leaving. An approximate 16,637 people left Vermont in 2005, the report found, taking with them a cumulative, adjusted gross income of $410 million. At the same time, 16,279 people moved to Vermont, bringing in a cumulative income of $473 million. Despite a migratory loss of 358 people, Vermont added more than $60 million of personal income, which means bigger tax revenues for the state government.
“The net economic impact of having people with high skill levels, high productivity levels, and high levels of assets moving back into the state is much more beneficial than having 20-something-year-olds staying,” Kavet said. “And that’s the kind of dividend that we get from having a high quality of life.”
As for Vermont’s rapidly aging population and its impact on the state’s tax-base, Kavet also takes issue with the reasoning. “This idea that somehow wealthy old people — and if you look at the mix in Vermont, we have a lot of wealthy older people — represent a burden, and that the workers in the state are floating them, is completely wrong,” Kavet said. “The people who aren’t (working) often have savings that are substantial. They have wealth that is substantial. Sometimes, they are supporting the people who are working.”
According to Vermont tax record, Kavet is right. The average, per-capita income of Vermonters 65 and over was $33,000 in 2005, according to the Vermont Department of Taxes. And those Vermonters paid an average of $1,086 in income tax. Inversely, the average income for Vermonters under 65, during the same year, was only $25,000, with an average income-tax burden of $794.
“If they have kids and the kids are in school, that’s expensive,” Kavet said, “but none of these folks have kids. And most of the health services that are provided are (provided) at the federal level. It doesn’t look like it is a net fiscal negative at all.”
A further look into the numbers supports Kavet’s assertions. Of all state revenues in 2005, just 3 percent were obtain through corporate taxes, while 78 percent were earned through income, property and sales tax — all of which Vermont’s 65-and-over population continue to pay, even after they retire.
Mike Quinn, commissioner for the Vermont Department of Economic Development, said the state, along with other concerns, is looking to not only maintain an available tax base, but also needs to maintain the diversity of that base. It is for this reason that the department has developed the “Pursue VT” campaign, along with state tax incentives for businesses.
According to the U.S. Census, the median age in Vermont is projected to rise from 39.5 in 2005 to 43.9 in 2030 — an increase of 4.3 years. This is what has given the state the distinction as the “second-oldest state” in the country. The national median age is expected also to climb but only from 36.2 years old in 2005 to 39 years old in 2030. Based on these projections —as the New England Public Policy Center found — the majority of this shift in Vermont demographics will be due to a sharp increase in the 45 and over populations, coupled with very minor declines in the population under 45. The baby-boomers, in short, are getting older.
Another concern facing the state, however, is its slow rate of population expansion— a selling point to some; a concern for economists. Vermont’s population is projected to rise only 12 percent by 2030, representing one of the slowest growth rates in the country. Quinn contends that this will, again, put pressure on the state’s tax base, and it is for the reason that the state needs to spend what it does on tax incentives and other programs designed to attract both workers and business to Vermont.
Once more, Kavet disagrees. He estimates the statewide business tax credits will amount to $5 million to $10 million per year, with nearly $100 million distributed so far. “It is a lot for a small state,” Kavet said. “If you’re granting $100 million in tax credits, that’s a big chunk of money.
“If you believe that none of the investment would have taken place but for the subsidies,” he adds, “if you really believe that, then you could say, ‘Well, the thing pays for itself, because we wouldn’t have gotten anything without it, and with it we got some income and jobs. But, the fact is, a lot of these things would have happened anyway, and it is just sort of gravy for the companies and represents an expense for the state.”
The Vermont companies Husky and IBM are a perfect example of the type of businesses Vermont attracts, Kavet said. “It wasn’t business incentives that got them to come up here. Both of those major corporate investments, which are beneficial to the state, came because senior executives were reacting to quality of life.” Tom Watson of IBM and Robert Shad of Huskies, Kavet notes, came first to vacation in Stowe, and then later, only after they experienced and grew to appreciate the state’s “quality of life” did they decide to move their companies here. “So maybe,” Kavet joked, “what we should do is give free ski passes to CEOs, or free ski packages.”