Questions raised about Douglas’ economic stimulus package

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(Host) Governor Jim Douglas’s economic proposal is aimed at boosting construction and making it easier for people to buy homes.

But as lawmakers study the plan before the end of the legislative session, there are questions about how much economic growth will actually result.

VPR’s John Dillon has more:

(Dillon) The governor says his plan will yield $214 million in direct net economic benefits over five years.

Tom Kavet, an economist who consults for the legislature, doubts that prediction is accurate.

(Kavet) "If you just looked at direct economic impacts, it’s probably $40 to $60 million, although that could move around $10 or $15 million."

(Dillon) Kavet said the governor’s proposal to borrow $10 million more for transportation projects will have the most tangible impact. Spending more money on roads will stimulate construction and have a multiplier effect on the economy, he says.

But Kavet has doubts about the centerpiece of the administration plan – a proposal to relax Act 250 environmental regulations for housing projects near downtowns.

The administration projects this will spur new housing starts, and generate $96 million dollars in economic growth over five years. Kavet disagrees.

(Kavet) "That actually would have very little impact in this market. What’s happening in the housing cycle is much larger than any of the minor permit changes. I don’t think you get anywhere near a 33 percent increase in housing output in a market like this. This is not something that will likely represent any incremental economic activity."

(Dillon) Kavet said environmental laws don’t actually have much effect on housing starts.

(Kavet) "Regulation works around the edges of it. It’s basically a free market, and there are times of excess supply and times of excess demand and the market reaches equilibrium."

(Dillon) But Douglas has said that when times are tough, environmental regulations should be relaxed to prime the economic pump. The governor said any new growth is good now that the state is in a recession.

(Douglas) "You know, legislators can quibble a lot about the details of the stimulus package, they can talk about whether this number is right or this number is wrong. But Vermonters know we’ve got an economy that is jeopardy, that we need to do something, we need to get people employed, building roads, building homes."

(Dillon) Douglas also wants to invest state employee retirement funds in the Vermont Housing Finance Agency. The governor says that should make more money available for the agency to lend to home buyers.

But State Treasurer Jeb Spaulding questions that part of the plan.

(Spaulding) "I think it would be very unwise for the Legislature to insert the state in lieu of the trustees of the pension funds in making investment decisions. The requirement that we make an investment at what we would consider below market rates returns I think could violate federal law. But more importantly, it’s just a terrible public policy."

(Dillon) But Douglas, who is a former state treasurer, says the proposal is both legal, and makes sound economic sense.

(Douglas) "It’s been done before. The retirement systems have purchased VHFA bonds. They have also purchased individual mortgages actually 30-40 years ago. But more recently, during my tenure as treasurer, VHFA bonds to help that important agency and provide home ownership opportunities to Vermont families."

(Dillon) A special legislative committee hopes to wrap up work on the governor’s proposal early this week.

For VPR News, I’m John Dillon in Montpelier.

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