There seems to be substantial momentum toward reform of the Vermont Economic Growth Incentive (VEGI) program. Two committee chairs, Democrat Emilie Kornheiser and Republican Michael Marcotte, worked together to craft H.10, which would require much greater transparency in the program among many other things.
That in itself is pretty unusual — leaders of the two major parties cooperating on a big piece of legislation. But what clinches the deal for me is that the Scott administration actually wrote its own version of H.10. It doesn’t usually bother to do that. I take it as a sign that Team Scott thinks some type of reform is inevitable, and they want to influence the process as much as they can. (Both versions of the bill can be accessed via the House Commerce and Economic Development Committee webpage. Archived hearings are on the committee’s YouTube channel.
VEGI is administered by the Vermont Economic Progress Council, a nine-member body including seven gubernatorial appointees. The administration’s version of H.10 was presented by VEPC Executive Director Abbie Sherman, whose interest was clearly in maintaining the current process as much as possible while making pleasant noises about reform. .
Let’s start with the fact that the administration bill would drop the VEGI name and replace it with the decidedly uncatchy Think Vermont Investment Program, or TVIP for short. (Tee-vip? Tuh-vip? Tveep?) When you propose changing the name of an established program, you’re acknowledging that the current name has a bit of stink about it.
Auditor Doug Hoffer, who’s a consistent critic of VEGI because of its lack of transparency and the lack of evidence that it works, is scheduled to testify before House Commerce at 1:00 Wednesday. I’m sure his view will be more comprehensive than mine, but let’s go ahead and take a closer look at VEPC’s version of H.10.
The bill not only softens the reforms of The One True H.10. It also slips in a couple of ideas to make the program more accommodating to those poor, longsuffering business applicants.
First, it would allow grants for capital investments in addition to job creation. C’mon now, capital investments are part of doing business. They don’t necessarily create jobs or any new economic activity. In fact, many a capital investment reduces headcount. Businesses shouldn’t need a public sector reward for doing what they ought to do anyway. They certainly shouldn’t be rewarded for doing something that’s in their own interest but doesn’t necessarily benefit the public purse.
Second, VEPC would no longer have to perform econometric analysis to determine the proper size of a grant. Instead, its version of H.10 would create standard amounts: $5,000 per job created ($7,500 per job in “economically disadvantaged areas”), and either 20% or $1 million for capital investments. This would make VEPC’s job easier, but would also untether the grants from any measurement of their potential economic impact.
The legislative version of H.10 would increase the number of legislative appointees on the nine-member VEPC from two (one each for House and Senate) to four. Would it surprise you to learn that the administration doesn’t like the idea? Its H.10 would add increase council membership to 11 while keeping those pesky legislative appointees at two. Sherman’s stated rationale had nothing to do with the actual reason — enhancing administration control — but rather a “potential problem with [achieving a] quorum.” Because if the House and Senate were to appoint lawmakers to the board, those members might be too busy to attend VEPC meetings.
That’s ridiculous. All VEPC members are accomplished professionals with many demands on their time. There’s no reason to single out legislative appointees as potential truants.
The legislative H.10 would move oversight of the grant program from the Agency of Commerce and Community Development to the Department of Financial regulation. The rationale is (1) ACCD has an inherent conflict as the program’s promoter and regulator and we all know how that turned out with EB-5, and (2) the DFR’s mission is, well, financial regulation. Seems a natural fit.
Sherman objected, although again her grounds seemed a little flimsy. She couldn’t very well admit the real reason is fear that DFR would be more objective than ACCD. Instead, she argued that ACCD “is a great resource to us for information and feedback,” while DFR has no existing structure to do the same.
Well, first, ACCD could continue to be a resource even if it’s no longer the regulator. And second, if authority is moved, DFR would obviously have to develop administrative structure and expertise. I think they’re capable of that. They got some smart people over there.
The legislative H.10 would pause the program whenever the unemployment rate is below 5%, on the grounds that job incentives are only needed when we have a jobs shortage. Of course, given the fact that our unemployment rate hasn’t been under 5% since December of 2011 (except for a very brief peak at the onset of the COVID pandemic), such a requirement could sideline the program for the foreseeable future.
Which, honestly, makes sense. Our number-one economic challenge right now is workforce. We don’t have enough workers for the available jobs. So why do we need to incentivize job creation? Put the money into job training or higher education, for Pete’s sake.
The administration, obviously, wants nothing to do with that provision. Sherman’s argument: it would be “hard to implement” because we might go back and forth over the 5% mark. I can see the logic, but it doesn’t fit the real situation of Vermont’s economy.
On the transparency issue, Sherman argued that the administration’s H.10 opens up the process quite a bit. But VEPC would still do its evaluation process behind closed doors in order to protect applicants’ proprietary information. The bill would give the state auditor access to information needed to audit the program, which is an improvement, but the auditor would be barred form disclosing any of the received information. In that case, it’s hard to see how the auditor’s work could effectively be done. An audit of VEGI incentives would have to be largely shielded from public view.
The grant program would also be exempt from the state’s public records law, which already has an appalling number of exemptions. We need fewer of them, not more.
Council member John Russell testified that VEPC’s executive sessions are dominated by evaluation of the “but for” requirement — would a business expansion take place with or without incentives, or would it only exist with incentives? That sounds like VEPC is doing its job with impressive diligence, except that Doug Hoffer has slammed the “but for” provision as essentially unprovable. No matter how experienced VEPC members might be, I doubt they’re more skilled than Hoffer at evaluating the true impact of an incentive.
Which brings me to a fundamental problem with the whole idea of business incentives. In order to make the programs attractive to businesses, the programs have to accommodate their interests — and place them above the public interest.
Businesses have obvious reasons to guard proprietary information, and doing so within their own sphere is perfectly fine. But when they enter the public sphere and seek public funds, they ought to accommodate legitimate public interest. As it’s currently structured, VEGI bows its head to the altar of business at the expense of taxpayers.
Is there a way to protect business interests and the public interest at the same time? I’m not sure that there is. But to me, that’s an argument against the very existence of business incentive programs. If they can’t be carried out with enough transparency to guard the public interest, then maybe they shouldn’t exist at all.
Kornheiser was recently asked if our incentive programs were competitive with those of neighboring states. She acknowledged that they were not, but added that Vermont is too small to offer incentives on the scale of a New York or Massachusetts, let alone a Texas or California. She said we’d be better off playing to our strengths instead of trying to compete on a playing field full of giants.
Sadly, the value of business incentives is an established tenet of faith among politicians and state officials. They believe, despite the lack of evidence. They can’t imagine a successful growth strategy that doesn’t involve the universally-accepted incentive idea.
The legislative version of H.10 wouldn’t kill VEGI, but it would make the program play by a set of rules that protect the public interest. The administration’s response amounts to an acknowledgment that business interests are more important than the public’s. That should be unacceptable to our political leaders.