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.
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.
A few days ago, I wrote about two performance audits conducted by Auditor Doug Hoffer concerning Vermont’s approved independent schools. His findings, in brief: they are growing and consuming more Education Fund dollars, and state oversight is lax in a number of important ways. (The two reports are available by way of the Auditor’s website, specifically this page.)
I mentioned in passing that the two audits had gotten very little coverage in the media. The second one went almost completely under the radar; the Big Three of Vermont media (VTDigger, Seven Days, VPR) didn’t cover it at all.
It’s part of a pattern; Hoffer’s audits and reports get perfunctory coverage at best. But this year it took a turn for the worse. At the same time that major media outlets were giving scant attention to Hoffer’s actual work, they were giving plenty of space to Oliver Olsen, a relentless Hoffer critic (and longtime supporter of AIS’s).
For those just joining us, in December and early January Olsen inundated the auditor’s office with requests for records and information — a total of 18 inquiries, four of them filed on Christmas Eve. At the time, Olsen hinted at a deep expose of serious flaws in Hoffer’s work. In a letter to House and Senate leadership, he wrote “My review, which is not yet complete, has identified a number of problems with the auditor’s work that I hope to bring to the Legislature’s attention in the new biennium.”
What have we gotten from Olsen since then? A wet fart. Have the breathless media covered his failure to deliver? Not on your life.
State Auditor Doug Hoffer, whose work is more honored in the breach than in the observance, has released a report that’s critical of the Vermont Economic Growth Initiative.
(Before he sends me a correction, please note that this report is not a formal “audit,” my whimsical headline notwithstanding.)
The report came out one week ago today. You might well have missed it, because it was pretty much ignored by the Vermont media. As far as I can tell, it wasn’t covered by Seven Days or VTDigger or any of our sadly diminished dailies. (The Vermont Business Journal did post Hoffer’s press release on its website without any actual reportage, but that’s about it.)
Which is kind of sad. Hoffer is the chief watchdog of state government, after all. His reports ought to be newsworthy. But the media ecosystem is so diminished that a lot of stuff falls through the cracks.
I also suspect that Hoffer has gotten a reputation as The Auditor Who Cries Wolf, especially when it comes to economic incentive programs. His skepticism runs counter to the conventional wisdom, which is that these incentives are a valuable tool in the box. And that if the state doesn’t offer incentives, it might lose out to all the other jurisdictions that offer incentives.
That conventional wisdom is treated as gospel by the executive branch and the Legislature. Hoffer always gets a polite hearing before the appropriate House and Senate committees, who then proceed to ignore whatever he has to say. And that’s a shame, because Hoffer is a smart fellow with a real dedication to making government run as efficiently as possible. His work should be taken seriously.
Hey, here’s some good news. One of Vermont’s more problematic job-creation programs is getting a policy review.
Unfortunately, that’s where the good news ends.
The program is the Vermont Employment Growth Initiative, or VEGI for short. It provides incentives to employers who grow jobs in Vermont. The most frequent VEGI beneficiary is Keurig Green Mountain, which has raised eyebrows in some quarters, (“Fascinating,” I have found myself saying with left brow cocked, “but highly illogical.”) That’s because KGM’s rapid growth was fueled, not by the state’s generosity, but by its then patent-protected K-Cup brewing system.
Since its patents expired, it has struggled to maintain market share, bungled two key product rollouts, and — VEGI grants or no VEGI grants — laid off hundreds of Vermonters.
So yeah, I’m all for a review of this program. Unfortunately, this is a fox/henhouse situation. The people doing the review are members of the Vermont Economic Progress Council, the panel that awards the VEGI grants in the first place.
Last week, Keurig Green Mountain announced 330 layoffs, including 200 in Vermont. The move came after sales and profit shortfalls hammered the company’s stock price. (Last November, KGM traded at more than $150/share. Now it’s barely over $50.) One analyst told MarketWatch.com that KGM shows “‘telling’ signs of a company struggling to turn around its business.”
The layoffs were widely reported in the Vermont media. What wasn’t mentioned is that since 2007, KGM has received approval for a whopping $7 million in job creation tax incentives through the state’s Vermont Economic Growth Initiative (VEGI). What does KGM’s contraction (and uncertain prospects) mean for its generous tax incentives?
I sought answers from Fred Kenney, Executive Director of the Vermont Economic Progress Council and head honcho of VEGI. He offered a fair bit of reassurance on the VEGI mechanism and state oversight of KGM grants, but I remain dubious on the fundamental concept of tax incentives as a means to economic growth.
In short, while VEGI is a well-designed program of its kind, the KGM experience rings some very real alarm bells about it.