Here’s One VEGI That’s Bad For You

State Auditor Doug Hoffer has issued a damning indictment of the Vermont Employment Growth Incentive, or VEGI for short. He has, in the past, pointed out the fundamental flaws in the program: the “but for” test at its foundation is impossible to prove and routinely ignored, employers who get these “job creation” grants often fail to actually create jobs, grantees sometimes cut operations or even leave the area despite getting the grants. And while the incentives are big money for the state, they’re peanuts for big employers and they really don’t incentivize anything.

We know that. What we didn’t know — or shall I say, I didn’t know — is that the program is run completely independently by an appointed board. There is no provision in state law for any oversight or review of granting decisions. You can’t take it to court, either. And that board often flouts its own standards. It’s the Wild West.

Funny, this is exactly why Gov. Phil Scott vetoes bill after bill — he decries decision-making by state entities without any legislative or executive review. One would think he’d be leading the charge for VEGI reform. But he’s not, because he’s just fine with giving bags of money to businesses with no strings attached.

Just imagine if a welfare program worked that way: a recipient claims a need but doesn’t have to provide evidence or seek employment. They just get the money.

That wouldn’t fly, would it now?

Hoffer issued a letter this past week recapping his past work on VEGI and his observations. This letter got exactly zero coverage in the media. I guess I shouldn’t be surprised given their customary attitude toward Hoffer’s work, but he did accuse a state entity of ignoring its own rules and acting without any oversight. That might have been worth a note.

The governing board for VEGI is the 11-member Vermont Economic Progress Council (VEPC). Nine members are appointed by the governor and two by the Legislature. It is charged with applying a set of standards to each VEGI application and deciding whether or not to approve. Hoffer asserts that VEPC routinely ignores those standards and pretty squarely puts its thumb on the scale in applicants’ favor.

And he cites examples. The most egregious concerns Marvell Technology Inc., which bought GlobalFoundries’ Essex Junction facility in 2018. Marvell never uttered a peep about closing the plant, but VEPC treated its application as though the new owner was ready to bolt. Hoffer:

VEPC rationalized the award by doing something very unusual: it directed the analyst at the Agency of Commerce to assume that Marvell would shut down [the Vermont facility] entirely, laying off all employees, and calculate the size of the VEGI award as if all of the existing jobs were brand new.

“Very unusual” is one way to put it. So is “completely at odds with the legal framework of the VEGI program,” but you know, po-TAY-to, po-TAH-to. VEGI is supposed to help employers expand their operations, not preserve existing jobs. Which assumes that Marvell did, in fact, plan to shut down. There’s no evidence of that.

But VEPC’s decisions are exempt from any kind of oversight. Hell, you can’t even file suit against VEPC. It’s an island unto itself. Its decisions can’t be challenged in any venue.

Why the hell did the Legislature write the law like this? I don’t know, but I suspect it has something to do with the tremendous appetite for this kind of incentive program among Democrats and Republicans alike. Incentives are seen as cost-free, but in reality they are not.

VEGI grants are supposed to be paid for by the economic benefits resulting from business expansion. But, as noted above, the employer doesn’t have to provide any evidence they they will actually add jobs or that they would only do so if their application is approved. It’s essentially a giveaway.

Besides, as noted above, VEPC has no taste for holding applicants’ feet to the fire. In fact, Hoffer cites three examples where VEPC went out of its way (and outside the bounds of its legal remit) to give applicants every possible break. Even if it meant knowingly using false or misleading information.

In short, VEPC is in the tank for the businesses seeking incentives. It’s not like the fox guarding the henhouse; it’s more like a hen who’s in the tank for the foxes.

VEPC’s past decisions are set in stone. The only recourse is to change the law to provide for oversight of future decisions. But I’d be lying if I claimed to be optimistic that the Legislature and administration will have any desire whatsoever to make that happen.

____________________________

The text of Hoffer’s letter:

Dear Vermonter,

Four years ago, the State of Vermont awarded $4.5 million in taxpayer funds to Marvell Technology, Inc., a company with $4.46 billion in revenue. The stated reason for the award was to prevent Marvell from moving the Global Foundries division it had just purchased for $600 million. In fact, Marvell never said it intended to move the division, known as Avera. This curious affair was the work of the Vermont Economic Progress Council (VEPC – sounds like Pepsi), which administers the Vermont Employment Growth Incentive (VEGI – pronounced “veggie”).

VEGI is the State’s flagship business grant program. As the name suggests, it is intended to reward job growth that would not occur without the “incentive.”  In this case, the facts didn’t support the Council’s decision.
 
Most troubling, Marvell announced it had actually eliminated 78 jobs right after it bought the business, but VEPC nonetheless offered them a huge award for supposedly creating new jobs. How did this happen?

VEPC rationalized the award by doing something very unusual: it directed the analyst at the Agency of Commerce to assume that Marvell would shut down Avera entirely, laying off all employees, and calculate the size of the VEGI award as if all of the existing jobs were brand new.
 
VEPC’s decision to treat the situation like a plant closing is problematic. The Legislature was very clear as to the purpose of the VEGI program: it meant to reward new job creation. Nowhere in statute is VEPC empowered to authorize awards for job retention. But hypothesizing a plant shut down and counting the pre-existing jobs as new allowed VEPC to justify the $4.5 million award.

 
In summary, VEPC awarded $4.5 million to create jobs that already existed, on the basis of a theoretical company closure for which there was no evidence, and in conflict with state law.

So, can anything be done to reverse what appears to have been an unnecessary and unauthorized grant of public dollars? If the decision by the Council was beyond its authority (ultra vires), a person might reasonably believe that a court could rule it wasn’t legal in the first place. According to statute, however,decisions by VEPC are not subject to administrative or judicial review, so the Council is immune from such a finding. This raises very serious questions about VEPC as presently constituted.
 
Although somewhat extreme, VEPC’s decision in the Marvell case is not unique. A review of VEPC’s due diligence in administering the VEGI program found real problems.

 
VEPC claims there is no cost to taxpayers for the VEGI program because the incentives are paid from tax revenues arising from economic activity incentivized by the program that would not have occurred “but for” the awards.
 
The “but for” criterion is the touchstone of the program. In theory, it protects taxpayers. But, in practice, VEGI’s effectiveness depends on VEPC’s rigorous assessment of an applicant’s “but for” attestations. Unfortunately, applicants are not required to submit documentation in support of their “but for” claims.

The lack of supporting documentation characteristic of the VEGI program contrasts sharply with that required of low-income families applying for public assistance. The table below compares corresponding application requirements for programs administered by the VT Department for Children and Families (DCF) with those of VEGI. Ask yourself: Is it appropriate to subject people trying to meet their basic human needs with far more burdensome eligibility and paperwork requirements than a large multi-state corporation seeking millions of taxpayer dollars?

VEPC’s failure to perform sufficient due diligence was evident when we reviewed several applications that resulted in large financial awards. Here are two examples.

  1. 1. One applicant noted that it had previously received a substantial incentive to expand operations in another state. However, in response to a standard question, the applicant reported that it was not seeking incentives from any other state for the proposed expansion.

    The VEPC staff write-up submitted to the Council referred to “competition” from the state where the company had received an earlier incentive. But since the company admitted it was not seeking an incentive from that or any other state, it is unclear why VEPC staff accepted the applicant’s insinuation and mischaracterized the facts. The application was approved.

2. Another applicant described three options for a planned expansion, assigned risk levels to each, and stated that the Vermont option required financial assistance to make it work. There is no evidence that the state requested information to support the company’s characterization of the costs and risks of the three options. VEPC never verified the assertion that the firm needed financial assistance at all. In fact, the company had already been quoted in the media discussing their intention to grow in Vermont. The application was approved.

The VEGI program in its current and earlier form has cost almost $100 million since 1997. So, can anything be done to hold VEPC accountable?

The idea that a group of unelected officials can make costly decisions about the use of public dollars with absolutely no accountability is antithetical to Vermont’s representative form of government and to the expectations of Vermonters. In fact, these unelected VEPC officials are making larger appropriations of taxpayer funds than most legislators do!

I am hopeful that the Legislature will reconsider the enabling statute, but for now we’re left with the fact that public officials appear to have misused their authority at great cost to Vermonters. The Council and staff may act with good intentions, but they have an obligation to function as fiduciaries for Vermont taxpayers. In these cases, the evidence suggests that they didn’t fulfill their responsibility.



 

1 thought on “Here’s One VEGI That’s Bad For You

  1. Walter Carpenter

    “But I’d be lying if I claimed to be optimistic that the Legislature and administration will have any desire whatsoever to make that happen.”

    We’re always told that a decent health care system in this state is too expensive, yet they can burn our money on these little give-aways that might come back as campaign donations.

    Reply

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