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BOOK REVIEW: Secrets to Investing in Vermont Review of ‘Vermont Dollars, Vermont Sense’


by Carl EtnierVermont-dollars-Vermont-sense-300

Four years ago, Michael Shuman spoke at the State House on economic development based on small, locally owned businesses. He asked the audience members in the House chamber to raise their hands if they shopped at the farmers market. Of course, most people raised their hands. Then he asked for a show of hands from those who spent their money at locally owned businesses. Again, most raised their hands. Finally, he asked who had their retirement savings in local businesses. Almost no hands went up.

The problem, he explained, is that regulations and other structural barriers make it very difficult to find ways to invest in the local economy. He was speaking just ahead of the publication of his book about what local investing is possible in the current legal system: “Local Dollars, Local Sense.”

It turns out that many models of local investing are also local, or at least state-specific. Some investment regulations vary from state to state. And some local investment opportunities are easier to find in certain states.

With that in mind, Montpelier-based sustainability champion Gwendolyn Hallsmith pitched to Shuman the idea of adapting “Local Dollars, Local Sense” to the state level, and starting with (where else?) Vermont. The result is their “Vermont Dollars, Vermont Sense,” a print publication from the Post Carbon Institute; it is also available as a free, downloadable e-book.

The potential amount of money available for local investing is mind boggling. According to the book, U.S. households and non-profits hold $30 trillion in long-term securities — investment vehicles like stocks, bonds, mutual funds, pension funds and insurance funds. The book claims, “If the U.S. capital markets were functioning efficiently, at least half of this sum, $15 trillion, would move from Wall Street to Main Street.” Even 10 percent would have a huge effect on capital available to local businesses.

It’s not just businesses that could benefit, its families, too. One example in the book is from a Vermont family who wished to remain anonymous. The parents had retirement savings, and the kids needed financing for their homes. The parents cashed in some of their stocks and lent the money to their kids for their home purchases. They could set the interest rate lower than mortgages available through banks, while giving the parents a return that was secured against stock market gyrations. For the parents, the mortgage was not as liquid as their stock portfolio, but they figured that if they needed the liquidity in the future, the kids would then have more equity in the homes and would easily qualify for a conventional mortgage.

Not everyone has the luck to be born into a family where the parents amass hundreds of thousands of dollars they can afford to tie up in financing the kids’ mortgages. For those with smaller amounts to invest, or who just want basic financial services like a checking account, Shuman and Hallsmith point to credit unions. They provide personal financial services — like checking and savings accounts, mortgages  and auto loans — and are member-owned.       Members are, in effect, lending to each other. Plus, there is a greater likelihood that money invested at a credit union will stay local. Shuman and Hallsmith don’t provide figures specific to credit unions, but they say, “A dollar deposited in a local financial institution is three times more likely to provide commercial credit to local businesses than a dollar deposited in a nonlocal financial institution.”

The section on credit unions profiles Opportunities Credit Union in Burlington, which was created to provide banking opportunities to low-income Vermonters. It could also have mentioned Vermont State Employees Credit Union, which has over 57,000 members and has about $500 million in loans outstanding.

The book examines investing from the perspective of local businesses, too, showing Vermont models for attracting local capital. For example, Vermont Community Foundation gives grants — but they also invest 5 percent of their portfolio in Vermont businesses. Or customers can finance a businesses through pre-selling; the community-supported agriculture model is applicable to restaurants (like the former Claire’s in Hardwick, which sold meals before they opened) or art house cinemas (like Montpelier’s Savoy Theater, which pre-sold tickets to raise money for renovations after a flood).

Shuman and Hallsmith also describe what laws could be changed — or have recently been changed — to make it easier to invest locally. For example, Vermont’s 2014 revision to investment law makes it easier for small businesses to raise up to $2 million from up to 50 residents of the state. They note other changes being considered and recommend Vermont Businesses for Social Responsibility as the go-to organization for learning how to use the new laws.

Federal Securities and Exchange Commission regulations have long stood in the way of local investing for everyone but millionaires. However, this section of the book is already obsolete. Just last week, the Securities and Exchange Commission announced new rules for investors of modest means to put thousands of dollars a year into local    businesses through crowdfunding, in a way that gives investors long-term equity in the firms. (This is different from existing crowdfunding venues like Kickstarter. They allow donations, sometimes in exchange for things like a CD or a home-cooked dinner, but don’t allow people to purchase shares in the business.)

There are many more Vermont examples that could have been included in the book, and the local investment landscape is rapidly changing here. The project, the first of a planned series of books for all the states, could perhaps have been more robustly designed as a wiki, where crowdsourcing could provide daily updates and additions. But at least the e-book edition is free and easy to update, if the authors choose to do so.

“Vermont Dollars, Vermont Sense” is available for a free download at                              www.postcarbon.org/publications/vermont-dollars-vermont-sense

Since 2007, Carl Etnier has explored issues related to food, energy, and the local economy each week on his Goddard College Community Radio (WGDR 91. 1 FM /WGDH 91.7 FM) program “Relocalizing Vermont,” Thursdays 9 to 10:30 a.m.