Welfare for the Well-Off

Say, have I told you about my can’t-miss economic development plan for Vermont?

It’s called “The Vermont Open Redistribution of Resources Program (VORRP),” a.k.a. throwing money around. All you do is send state vehicles around Vermont, tossing handfuls of cash out the windows.

Just think. It cuts out all the bureaucracy and red tape that bedevil most government programs. It gets money into the hands of Vermonters as quickly as possible. And unlike many such programs, this one is tried and tested. The multiplier effect, a well-established idea in the world of economics, shows that when the government increases spending, it generates far more economic activity than the original investment.

Trust me. It works.

Well, it probably works at least as well as Vermont’s renowned worker grant programs. They reimburse relocation expenses to people who move to Vermont or move to economically distressed areas in Vermont. Their actual effect is completely unproven, as State Auditor Doug Hoffer has repeatedly shown.

And it remains unproven in spite of a relentlessly sunny study of the programs ordered by the Legislature and released on December 15 by the Department of Financial Regulation. VTDigger posted a story yesterday that reports the study’s findings and Hoffer’s criticism of them. (Which is remarkable in itself. Digger has a habit of ignoring Hoffer’s work.) From my point of view, not only is Hoffer right, but I thought he was a little too easy on the report.

The study concludes that in their first two years, the programs created over 100 new jobs and almost paid for themselves in increased tax revenue. And those increases will continue to accrue as long as the workers are still working in Vermont, so the program more than pays for itself.

I beg to differ. Study authors put every available thumb on the scale to inflate the benefits of the relocation program. They make unprovable assumptions. They are relentlessly optimistic in their revenue estimates. The report itself says that for half of those who received grants, the program itself did not influence their decision to move — and yet it credits all the alleged benefits to the program. And, crucially, it compares the program to a zero base. It assumes that in the absence of the grant program, none of the economic activity and none of the tax revenue would have happened.

For example, if a recipient buys a house in Vermont, their property tax payments are credited to the program. Which assumes that in the absence of that recipient, the house would have been vacant forevermore.

Besides all of that, the study concludes that Vermont’s “modest” grant programs are far too small to have any real effect on our economy. That would take broad improvements in, for instance, housing, child care, and broadband. Or, as the authors put it, “Incentives are most effective when they are part of a holistic economic development strategy, not just standalone initiatives.” Those broad improvements would benefit all Vermonters, not just a select few.

A select few, may I remind you, who are active in the workforce and affluent enough to move first and get reimbursed later. In other words, it’s welfare for the well-off.

A cover letter from DFR Commissioner Michael Pieciak openly acknowledges the faults and limitations of the study. He writes that you can’t quantify how many people would have moved to Vermont anyway. He admits that you can’t quantify the “net” benefit — for example, if a worker moved to Vermont and bought a house, that house might have been sold to someone else if the worker didn’t move. If so, then there’s no net property tax benefit from the sale. And yet the report assumes otherwise.

Despite these acknowledged limitations, Pieciak concludes that the study is “significant and important.”

As noted in the study, there’s no real way to parse out the reasons that someone makes a move. The authors’ solution to this was a survey of program beneficiaries. That’s where we find out that for roughly half of all recipients, the grant program made no difference in their decision to relocate.

Well, if that’s the case, why shouldn’t we assume that half of the job creation, economic activity and tax revenue would have happened without the grant program? In fact, any grant given to someone who would have moved anyway is wasted money. It’d be just as well spent by, say, tossing it out a window.

The authors also have to admit that these grant programs are too new to get serious attention. “Few formal studies of worker incentive programs have been completed, and evidence of the benefits is often anecdotal,” they write.

Oh. Well then. Anecdotal, you say?

There’s more, much more, but I want to get to the report’s conclusions. Which are, basically, that Vermont should double down on this questionable investment. We should expand it. We should raise the limit on individual grants. We should turn it into a straight cash payment instead of a reimbursement for documented expenses.

Also, the authors note, many other states and cities are copying this model. Which, in their view, means competition is increasing, which means we have to offer more on better terms than other jurisdictions.

Yes, as with other economic incentive programs, we’re invited to engage in a race to the bottom, a contest for who can be most generous with government largesse.

I’d put it the other way. As more locales adopt the model, it becomes less effective in any one place. Vermont was first in the nation to do this, and enjoyed a lot of free publicity as a result. It’s not a novelty any more. We’re not going to get another PR boost by continuing the program.

These kinds of incentive programs are popular. They make it seem like we’re doing something even though the actual benefits are marginal at best. I suspect that the Scott administration and legislative leadership (these programs are popular among Democrats too) will glom onto this report as proof that the grant program is a success.

It’s easy to reach that conclusion, but only if you abstain from actually reading the report.

1 thought on “Welfare for the Well-Off

  1. Walter Carpenter

    “These kinds of incentive programs are popular. They make it seem like we’re doing something”

    Ahh, so typical, so usual, always make it seem like you’re they’re doing something when it’s just dollars for the rich….

    Reply

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s