A useless program gets a little better

Raise a glass, boys, to Janet Ancel, hardworking chair of the House Ways and Means Committee. For it was she who ignored the express wishes of the Shumlin administration and added some oversight to a program that sorely needs it.

I’m talking Vermont Employment Growth Incentive (VEGI), the slush fund economic development program that gives public funds to private employers promising to grow their workforce. VEGI was up for renewal this year, and the administration wanted a permanent extension (or at least five years) with no strings attached.

What it got instead, thanks largely to Rep. Ancel, was a three-year extension with legislative oversight added. She also inserted a mandated “cost-benefit analysis” to determine whether VEGI is actually accomplishing what it’s supposed to. And yesterday, the full House approved an omnibus economic-development bill including her VEGI provisions. A noteworthy accomplishment, given the administration’s active resistance.

After the jump: the unprovable merit of VEGI. 

Patricia Moulton, chief of the cabinet’s Rotten Borough — the Agency of Commerce and Community Development — had resisted Ancel’s reforms, claiming that VEGI is “a proven program… that’s working well,” and doesn’t need any more oversight, thank you very much:

“The program’s been audited four times already in its seven-year history,” Moulton said.

Yeah, well, about that. I don’t know when those audits happened or who did them, but here’s what State Auditor Doug Hoffer had to say about VEGI less than one year ago

The very heart of the program is a subjective assertion by applicants that cannot be independently confirmed (the “but for”). Therefore, when called upon to audit the program, it is impossible for us to say whether it is performing well or not. VEGI is characterized by some as having no fiscal costs, but that assumes a foolproof “but for” which cannot be verified. With this in mind, I would urge caution in expanding the program.

“But for” is the evanescent claim that an employer’s expansion would never have happened “but for” the VEGI grant. That’s the fundamental justification for VEGI’s existence, and here’s our Auditor saying it “cannot be verified.”

The “audits” claimed by Moulton, I think, focused on whether VEGI was operating within its statutory authority. Those audits prove nothing about the quality of the law itself, and even less about the efficacy of VEGI. 

For instance: the leading recipient of VEGI, by far, is Keurig Green Mountain. It’s received four VEGI grants in the past seven years. Now, KGM has enjoyed rapid growth — but that’s because of its single-brew technology, not because of a state tax incentive. I can’t prove anything, but I seriously doubt that KGM wouldn’t have grown to a dominant position “but for” the VEGI funds.

And its future prospects, clouded by encroaching competitors and managerial missteps, will have nothing to do with VEGI.

This isn’t a KGM-specific issue. There are legitimate, serious doubts about VEGI-style programs. University of Massachusetts economist Jeffrey Thompson did a study of such programs across New England, and determined that…

“… their impacts are modest at best. As much as 96% of the jobs and most of the investments used to claim these tax credits would have been created without the incentives.”

“The real harm,” Thompson says, is that the incentives divert money from “real public investments.”

“For example, one analysis finds that a long-term $875 million annual incentive program in New England would produce just 9,000 jobs, compared to over 130,000 jobs if that same amount of money was invested instead in high-quality universal preschool in the region.”

VEGI is a sugar pill. Tastes good, gives you a shot of energy. Makes a nice headline, lets the governor look like a job creator. But its actual effects are unproven at best. Legitimate, direct public investments, on the other hand, are proven economic stimulators.

Thanks to Janet Ancel, the House has strengthened the VEGI program. That’s a good thing. Given the political climate around VEGI, it’s the best we could hope for.

Now it goes to the Senate, where Shumlin will prevail on his former colleagues to strip away Ancel’s reforms.

Which is to say nothing of the fundamental reality: VEGI is a distraction, and a detraction, from real economic reforms that do good for business and for the people.

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4 thoughts on “A useless program gets a little better

  1. Ken Horseman

    I retired after 16 years as Senior Economic Development Specialist spending most of my time meeting face to face with Vermont companies to help them stay here and grow here. VEGI is not perfect, but not only has it created net jobs for Vermont. It sends a vital signal to businesses that have choices every day about investing here or elsewhere. It’s important to understand that VEGI is a model incentive that requires a recipient to perform on what it promised BEFORE it gets any money. New York just announced that it will spend over $100 million to attract a company that will create 400 jobs. You do the math. And they get the money whether they stay a month a decade. It’s also important to understand that the money VEGI pays out comes from economic activity generated by the company investment that Vermont would not have had otherwise — at least in part. The “but for” is stupid policy. It was created by the legislature, and if it is of concern let the legislature deal with it. Hoffer’s criticisms were directed at legislatively created issues — not with what and how the program is being administered. Perception matters. We wonder why we struggle to find the revenue to fund badly needed programs. Our economic engine is on two cylinders, and beating up on programs like VEGI misses the fundamental objective and working to improve Vermont as a place to do business.

    Reply
  2. walter h moses

    The Agency of Commerce and Community Development is the “Rotten Borough” ? Jeez, VT Digger would censor you for ten years for that one. I gotta agree with you after looking at the mess at Q Newport , Q Burke, Q JayPeak and Q International Airport ( NOX? ) or (NQX)?
    Different program though, but the results could be kind of goosey.

    Reply
    1. John S. Walters Post author

      ACCD does have a fundamental conflict of interest: it’s supposed to be business-friendly AND a gatekeeper. That’s why Stenger & Co. have had a rougher time of it since the Department of Financial Regulation stepped in.

      Reply
  3. walter h moses

    You are right. I never thought of Dept. of Financial Regulation and of course thats why Stenger’s got to have a business ledger. I gave Moulton more credit than I should have. Thanks

    Reply

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