As the debate over Vermont’s energy future moves ahead, it is imperative that the public debate – and the resulting decisions – be based on a full analysis of the most current information available. The recent paper issued by Vermont Public Interest Research Group (VPIRG) sets out an ambitious vision, but fails that most basic of tests and threatens to create unrealistic expectations and promises. VPIRG would like Vermonters to believe that Vermont Yankee power can be replaced with renewable energy at a lower price, but while this may sound appealing, it is simply not true.

Most significantly, VPIRG’s estimates of the cost of renewable energy are not supportable. For example, VPIRG indicates that Vermont Yankee could be replaced with renewable energy costing 7.3 cents per kWh. Market prices for renewable energy projects are significantly above 7.3 cents per kWh, even when looking at the least expensive, large-scale renewable projects. VPIRG, along with multiple other organizations across the state and the legislature, recognized that most new renewable energy sources cost more than market power when it supported the standard offer passed during this legislative session, which sets rates for smaller renewable resources that range from 12 to 30 cents per kWh.

VPIRG also claims investing in renewable resources will result in electricity “delivered at 1-3 cents per kWh because they have no fuel costs.” While it is true that renewable projects can be priced stably over the long term because the fuel is free, renewable energy technologies are very costly to build – in fact, up-front capital accounts for the bulk of the cost of most renewable projects. These large capital costs need to be accounted for when comparing costs of Vermont Yankee and alternatives. The all-in price of most renewable resources will, in fact, be much closer to 10 cents per kWh or higher.

Because Entergy and the utilities have not reached agreement on future pricing of Vermont Yankee power, it is impossible for VPIRG to estimate what may be future VY prices. And, it is academic, because an accurate analysis of renewable energy costs shows that renewables are more expensive than even the highest estimates of what Vermont Yankee might cost. VPIRG’s conclusions about replacing Vermont Yankee with renewables are just not based on facts but are, frankly, simply wrong.

To be clear, every frugal Vermonter understands that cost-effective energy efficiency programs should be the first response in our attempts to keep electric costs down, and pretty much everyone wants to see more renewable energy in Vermont’s mix. But it will take time to build new renewable generation in the state. Keeping Vermont Yankee running can offer a cost-effective, low-carbon power source while renewables are built, assuming Entergy offers utilities value in a new contract.

The Roundtable supports a diverse electric energy supply that is clean, reliable and competitively priced;and this includes renewables as well as nuclear sources. Today, thanks to clean energy development, namely, Hydro-Quebec and Vermont Yankee, Vermont boasts arguably the most carbon-free power portfolio in the country, and with rates that are the envy of the region. In recent years, our electric rates have become the lowest in the Northeast, while our power production produces a fraction of the greenhouse gases of other states. At the end of the day, it is important that the state’s decisions about future electricity supplies be based on an informed, accurate and complete analysis that takes into account the real costs and characteristics of power available to the state. Vermonters deserve nothing less than that.

Economic development comes in all shapes and sizes, and sometimes it’s disguised as a preschooler wearing a baseball cap, an outsized glove, and singing ‘Take me out to the ballgame!” That’s right; Vermont’s Lake Monsters, the farm team for the Nationals, is an economic engine. The team is also a community builder, a family therapist, a source of good clean fun, and a ladder to the big leagues for the likes of Red Sox standout Jason Bay and others who have had the privilege of playing on our various teams over the years. Vermonters and our visitors love our minor league baseball; its traditions, players, and memory-making games.

Now, however, there is a threat lurking that could eliminate such a treasure from our midst. I am speaking, of course, about Centennial Field and the concerns raised by the league itself: namely, the substandard condition of the park; the dimensions of the ball field; and the amenities for the players and coaches themselves, which do not meet with league requirements. Significant investments need to be made to improve these deficiencies or else risk losing the team.

As I write this, I am vacationing in Maine with extended family and we, naturally, took in a Portland Sea Dogs home game. Why? Because we are all fans of baseball and the Sea Dogs have 12 alums currently on the Boston Red Sox 25-man roster, including the American League’s MVP Dustin Pedroia. The energy at Hadlock Field, we discovered, is akin to that at Fenway two hours south, and the pride of Portland generates regular sell-out games at its home stadium. A look at their website also reveals a very well-developed and enviable infrastructure to support the team.

In Vermont we have an historic and charming Centennial Field, which dates to 1906 and was adequate for collegiate ball. According to the league, recent improvements to the pitching mound and warning track still leave this 100 year old facility lacking. Even so, Vermont knows how to grow pros. Since 1994, 56 former players from the Vermont Expos and Lake Monsters teams have gone on to play professional ball; including 18 in the 2009 season alone. And there are more stars coming up behind them. Just go to any game and you can see their passion, talent and potential.

Fans of Lake Monsters baseball need to put on our rally caps and generate the kind of support that is strong enough to keep the franchise here; to demonstrate that we appreciate the team, its host UVM, and its owners, and encourage the collaborative public-private solutions to the deficiencies that have been identified by the league. The presence of the Lake Monsters, and before them the Expos, represents a real jewel in the region’s crown. They are as valuable an asset as our other tourist attractions in the region and have the potential to be more so. We must ensure their continued vitality for generations of Vermonters and our visitors yet to hold a baseball glove.

The symbiotic relationship between the University of Vermont’s Centennial Field and the Lake Monsters to date now has the potential to write a new chapter in the history of minor league baseball. We have already lost UVM baseball for reasons beyond our control. Let’s not be accused of losing Lake Monsters baseball because we didn’t do enough to keep them. So, get your rally caps out, get ‘the wave’ going around our community, and make sure we keep it going until we find a solution to this challenge. We want the Lake Monsters to stay in Burlington.

Many of today’s visitors to Smugglers’ Notch Resort are too young to remember when Gov. Phil Hoff’s administration launched their enormously successful “beckoning country” campaign in the 1960s. Their actions threw open the state’s doors to down-country people yearning for fresh air, open space and a slower pace of life. They came in droves back then, and they still do today. This influx of visitors generates an economic bonanza, bringing in over $1.5 billion per year to this state and supporting over 33,000 jobs.

Vermont’s landscape of compact villages, farms, fields, forests and mountains is a tremendous economic asset, and an asset we need to take care of. Visitors at Smuggs come for the amenities and experiences we offer, but being in Vermont is definitely part of the draw. Our rural landscape supports a wide range of businesses — skiing, hiking, bicycling, boating, hunting, fishing, bird watching and sightseeing all grow out of this. And don’t forget the economic punch of foliage season.

Agriculture and forestry also employ many people in rural locations, and contributes more than $300 million to the Vermont economy. Beyond the basics of milk and wood, our farms and working forests spin off countless business innovations — in specialty foods, biofuels, hospitality and green-certified furniture manufacturing, to name a few. The demand for locally produced food is growing here, and through the Internet, local Vermont businesses also have access to a global marketing platform. A maple sugar maker near us in Johnson has regular customers from Europe and Asia.

Vermont’s quality of life is a competitive advantage, one that inspires entrepreneurs to start businesses here and helps us to attract and retain a solid labor force. To cite a classic example, this is how IBM wound up in Essex Junction. With a few variations, this is my personal story, too.

To protect the landscape that defines Vermont, our General Assembly created the Housing and Conservation Board in 1987. Every legislature since then has continued this initiative, conserving hundreds of farms, miles of hiking trails, town beaches, swimming holes, parks, and natural areas for people and wildlife. VHCB has proven to be one of the best public investments we could make in this state’s communities, in its economy and in our way of life. Can you imagine Vermont without this crucial investment that helped to create 9,400 permanently affordable homes and apartments, to conserve more than 490 and protect 250,000 acres of forestland and important natural areas over the last 20 years?

Recognizing the value of our intact landscape and livable communities, legislators in the Vermont House worked very hard to reverse drastic funding cuts to the VHCB program that were proposed in the administration’s budget. Now the chance to protect what we value about Vermont passes into the capable hands of the conference committee.

Let’s recognize the value of our conserved landscape, applaud the development of affordable homes, and take responsibility for our own future. Now is the time to focus on

our strengths and not neglect one of the best and most lasting investments we can make in Vermont.

Paul Cillo may be correct in his recent article (School Funding Far from “Broken”) whenhe describes the Education Fund as “it ain’t broke.” But, I would suggest that the General andTransportation Funds are just about on life support due in large part to our high level ofmandatory educational-related expenditures.

For openers the Transportation Fund currently sends around $33 million to the General Fund and$26 million to the Education Fund. If these amounts remained where they belong, then there would be no need for the proposed 5 cents-per-gallon tax.

The General Fund is currently responsible for the Teachers Pension and Other Post Employment Benefits (OPEB). This is despite the fact that the salaries and wages are negotiated at the local school district level; the bill is paid by the state. These are lifetime, guaranteed benefits the state must pay to the teachers. Another problem is that these generous benefits (which most private sector workers do not receive) are not being funded at the required level. If they were, then the General Fund would be in much worse shape than it currently is….if that is possible.

For instance, at December 31, 2008 the estimated unfunded liability for just the Teachers Pension Fund is $653.6 million. The unfunded liability for OPEB at June 30, 2008 was $863.6 million. Together they would require every working Vermonter, today, to make a one-time payment of just about $5,000. If one combined the same obligations for the state workers, it would require a one-time payment, today, of over $8,500 for every working Vermonter.

Unfortunately, these obligations will continue to grow as the General Fund does not have the revenues to pay the required contributions to make these plans fiscally sound. For example, the OPEB alone will be underfunded another $300 million by 2015 and, if you really like numbers, by $3.1 billion in 2039.

The sad part is that these unsustainable legacy costs are all being shifted to our children and grandchildren!

Back to the Education Fund. The most recent Joint Fiscal Office (JFO) projection shows that by 2010 the General Fund required transfer to the Education Fund will be up to $297.8 million; an increase of $48.5 million since 2005, or a compounded rate of nearly 4 percent. Meanwhile the income sensitivity portion (the rebate to residential property owners) has compounded at just under 10 percent. Under current rules, rebates can be as high as $8,000. The only requirement is to meet an income test, which has no relationship to the value of the residence. For example in 2008, 39 residents received rebates of over $6000 each with homes valued between $500 thousand and over $1 million. Eliminating rebates on homes valued over $500 thousand would save the state at least $6 million per year.

Another interesting fact about the Education Fund is that the income sensitivity provision actually reduces only the residential portion of the statewide education tax….at the expense of the non-residential group, which includes our businesses and second home owners; both important elements of our economic engine. In other words, they end up paying substantially more as a result of this cost shift.

Finally on the expense side of the Education Fund, one could say it is performing pretty much like a fixed annuity. The Fund has been pumping into our educational system, on average, five percent per year. Who wouldn’t like a steady stream of income like that? So, no wonder “it ain’t broke.” But, for the working Vermonters paying into the system it is a much different story, especially in these tough economic times. And they certainly are not “celebrating” as the article suggests.

Rising mandatory expenditures in the state of Vermont mean that there are less discretionary dollars to support important programs to serve needy Vermonters. And in these difficult economic times, that is unfortunate news indeed. Yet, these “promises” made to certain constituencies must be kept. At issue, however, between debt service, retirement plans for state employees and teachers, and other post-employment benefits, is that those promises have become unsustainable. It is time to recognize the nature and severity of the problem and begin talking about how to change from the path we’re on.

The state is responsible for two significant retirement benefits: a defined benefit pension plan and other post retirement benefits (i.e. medical insurance). The pension plan includes three major constituencies – state workers, teachers, and municipal workers, though the latter has no state liability since these are all funded at the municipal level, but may have some of the same risks as the other two. The private sector and most not-for-profit institutions have essentially done away with these benefit plans because they are expensive to maintain and the risk/liability will forever remain with the employer or, in our case, the state or municipality.

There are essentially two types of pension plans….a defined contribution, which is similar to a 401 (K) plan, and a defined benefit plan where the retiree is basically guaranteed a certain benefit at the time of retirement for his or her life. As of June 30, 2008 the state employees defined pension plan covered 94 percent of the state’s 8442 workers. Prior to July 1, the workers contributed 3.35 percent of their pay; this changed to 5.1 percent as of July 1. The state is responsible for the balance necessary to fund the benefits paid to retirees for their life. In 2008 the state paid approximately $23 million (this is projected to increase to $40 million in 2015) from the general fund into the retirement fund. The state workers can retire after 30 years of service or age 62 and receive a lifetime benefit of 50 percent, based on the highest three consecutive years pay. For workers employed after June 30, 2008 the retirement age is 65 (or ”Rule of 87”) and they receive a lifetime benefit of 60 percent of their highest three consecutive years.

Although the wages for the teachers are determined at the local level, the state is required to pay their pension plan costs. As of June 30, there were 10,685 teachers in the plan. The teachers pay 3.5 percent of their pay annually and the state is responsible for the balance necessary to fund the benefits paid to retirees for their life. In 2008 the state paid approximately $40 million (this is projected to increase to $52 million in 2015). Teachers

can retire after 30 years of service or age 62 and receive a lifetime benefit of 50 percent of their highest three consecutive years pay. Over the years the state has not been fully funding the teachers plan.

As a result of the recent decline in the investment markets and the under-funding of the teachers plan, the state has unfunded pension liabilities, as computed by the state actuary, of over $466 million as of June 30. This is just about a three-fold increase in just five years. With further market declines since June, these liabilities are certain to be much higher. This will require the state to pay even more to assure the financial integrity of the plans.

When it comes to the other post-retirement benefits (i.e. medical insurance) the situation is more alarming.

Retired state workers pay 20 percent of the cost of the premiums, which covers the retiree and all dependents. The teachers pay 20 percent as well, but their coverage is not extended to dependents; to cover them they must pay the full cost. The state has adopted a “pay as you go” policy that essentially means they pay in only the current benefits and do not fund for future liabilities, as is recommended for a sound fiscal plan.

In 2008 the state paid in about $17 million for the state workers, but nothing for the teachers. This left a liability, for just 2008, of $29 million for the state workers and $60 million for the teachers. The state actuary has calculated the unfunded liability for both plans at June 30, 2008 to be $1.6 billion. This is projected to increase to over $4 billion in thirty years, if we continue to fund these plans as we have in the past. That’s “b” for billion.

By now, I think you get the picture…Vermont is currently on a path that is not financially sustainable. So, what are the alternatives we have so that we do not go bankrupt? There are several options: Fully fund the pension and benefits, but where do we get this money? Reduce the work force; cut the benefits to more closely align to those in the private and not-for-profit sectors; freeze or eliminate some or all of the plans; or, require the local governments to fund the costs for the teachers.

There are certainly other options and these are put on the table to show just how significant the magnitude of the problem is that we all face today in our state. Not addressing the issues now will only require future generations of Vermonters (our children) to pay for the promises we have made but failed to fund.

We need the leadership of the legislature, the administration and the unions to come together and identify a common solution to these vexing issues now. The current economic climate is precisely the motivation for changing current practice toward a more sustainable system.

In late 2003, Governor Douglas appointed seven private citizens to undertake an independent review of Vermont’s largest employer – state government. As a result, the Vermont Institute on Government Effectiveness was created as a non-profit organization with private funding. Its mission was to recommend ways to improve state government’s overall effectiveness, understanding that this complex organization represented (in 2005) 9,800 employees with 62 business units and annual expenditures in excess of $3.6 billion.

After more than 18 months of program review and interviewing managers of numerous programs within state government, as well as the state employee labor union, the Institute issued its report in September 2005. The fundamental conclusion reached by the Institute was: “The greatest operational opportunities for meeting Vermont’s growing resource needs for providing services are principally through the adoption of a contemporary technology infrastructure and enterprise wide management model.”

This recommendation encompassed a fundamental transformation of how state government works by embracing and deploying new technologies and empowering state employees. To finance this effort, the Institute highlighted a once-in-a-lifetime opportunity: “Over the next 10 years nearly half of the state workforce will become eligible for retirement.”

The report noted that leveraging this upcoming retirement bubble by investing in new technologies and implementing new ways of providing services was an opportunity of a generation. Three primary areas were highlighted:

1. Reorganize the state’s fragmented information technology functions into a contemporary enterprise-managed framework to improve quality and availability of service, reduce inefficiencies and duplication, and create future capacity for change and innovation. This effort alone was estimated to provide from $20 to $30 million in annual savings.

2. Further develop “e-government” to allow Vermonters’ access to significantly more information and services via the Internet as a means to expand and improve service and reduce costs.

3. Given an average cost per employee exceeding $60,000, incorporate the “retirement bubble’s” historic opportunity to transform the state workforce. This should be done through reengineering how services are provided and by flattening the managerial, processing and bureaucratic layers of state government by incorporating workforce attrition, departmental reorganizations, and smarter technology.

So where are we today – three years later? As a member of the Institute, I know that the executive branch was very open to our ideas as we conducted our research and drafted the report. It moved ahead on several of the recommendations, especially some of the “low hanging fruit” in the information technology areas. And while the Institute’s report received an audience in front of various legislative committees, I am unaware of any follow-up by the legislature or actions taken.

Change is difficult in all bureaucracies and especially so in government. Will the economic climate and backdrop of looming deficits and hard economic times finally create an environment where we can seize this opportunity? The opportunities highlighted in the Institute’s report remain, but this effort cannot be accomplished by the executive branch alone. It will require a major buy-in and commitment by the legislature, one that will transcend the current fiscal crisis.

So the real question in my mind is this: Can there ever be agreement to really restructure state government in the manner envisioned by the Institute? Can the executive and legislative leadership forge a partnership to bring the level

of cooperation and commitment needed to plan, design and then implement a new structure for the 21st century? On the other hand, how can we afford not to?

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Douglas J Wacek served as Vermont’s commissioner of finance, first appointed by Governor Richard Snelling in 1991 and subsequently by Howard Dean, until 1994 when he left following the retirement of the 1990/1991 state deficits. Wacek has served as a director and officer of the Vermont Business Roundtable since 2002. The Vermont Institute on Government Effectiveness report is available through the Vermont Business Roundtable at www.vermontinstitute.org/static/vermontinstitute/index.php