In July 2013, Detroit became the largest city in U.S. history to file for bankruptcy. The once-thriving industrial hub faced years of financial mismanagement, economic decline, and population loss. While Vermont is not in the same immediate danger as Detroit, several warning signs suggest the state could face economic challenges if underlying issues remain unaddressed.

Rising Costs and Economic Pressure

Vermont, renowned for its scenic landscapes and high quality of life, is also a state grappling with rising living costs. This includes surging housing prices, healthcare expenses, and energy costs, all of which strain both residents and businesses. The state’s cost per student in public education is estimated to be around $25,000—significantly higher than the national average of $14,347. While this level of investment supports small class sizes and rural schools, it also contributes to the state’s broader fiscal pressures.

As costs rise faster than income, Vermont could see a shrinking tax base. If residents find it increasingly unaffordable to live in the state, they may relocate to more affordable regions, further diminishing the state’s revenue streams. A shrinking population and rising expenses could lead to budget deficits, much like what happened in Detroit.

Vermont’s Aging Population

Another looming challenge for Vermont is its aging population. With one of the oldest populations in the U.S., the state faces increased healthcare and social service costs. At the same time, fewer working-age residents are available to support the tax base. As the population ages and retires, demand for services rises, while the workforce shrinks, leading to a double-edged financial strain. Detroit faced a similar issue with a dwindling population and growing expenses, eventually leading to financial collapse.

Dependency on Service Industries

Vermont’s economy is heavily reliant on tourism, hospitality, and government jobs. These sectors are vulnerable to economic downturns or changes in federal funding, making the state’s economy less resilient to shocks. Vermont lacks the kind of industrial diversity that could buffer it against economic instability. While tourism booms during peak seasons, it can also be volatile, especially in an era of climate change and fluctuating travel patterns. Additionally, government jobs are often dependent on federal budgets, which can change with political shifts, leaving the state’s economy exposed to external risks.

In Detroit, the decline of the automotive industry led to a massive loss of jobs and tax revenue, leaving the city unable to fund its pensions, healthcare, and public services. Vermont’s reliance on a few key sectors, combined with an aging population, creates similar vulnerabilities.

Pension Liabilities and Debt

One of the driving forces behind Detroit’s financial downfall was its ballooning pension obligations, which it could no longer sustain. Vermont’s pension liabilities, while not yet at a critical level, are growing and could become a financial burden if not properly managed. As the state’s workforce shrinks and pension costs rise, this could create long-term fiscal strain. In states with high unfunded pension liabilities, financial stress can rapidly escalate, potentially leading to budget cuts, higher taxes, or both.

Population Decline

Population stagnation or decline is another risk factor Vermont shares with Detroit. While Vermont has not experienced the same population loss as Detroit, it is not experiencing significant population growth either. Fewer residents mean a smaller tax base to fund public services. If Vermont does not attract new residents or retain its younger population, this slow population growth could lead to a financial squeeze as demand for services remains high, but fewer people contribute to the state’s revenues.

The Way Forward

Vermont ‘s economic sustainability depends on addressing these challenges. Proactive steps such as economic diversification, attracting younger residents, and managing public spending will be key. Vermont must balance its high-quality public services with maintaining fiscal responsibility to avoid falling into financial distress. Investments in new industries and thoughtful management of state liabilities can ensure the state remains vibrant and resilient in the long term.

Conclusion

The lessons from Detroit’s bankruptcy offer Vermont a clear warning: no state or city is immune to financial trouble if critical issues are left unchecked. While Vermont’s situation is far less dire, it faces similar pressures. To secure its future, Vermont will need to diversify its economy, manage rising costs, and find innovative ways to attract and retain a younger workforce. Addressing these concerns now could help Vermont avoid the kind of financial collapse that Detroit endured.

Part Two follows tomorrow.