A Vt. program rewards businesses for growth. But with unemployment low, lawmakers question its value
Since Vermont is facing a critical shortage of workers, should the state be incentivizing companies to create new jobs? That’s the question at the heart of a bill before the Legislature this session. The measure, known as H.10, would make major changes to the state’s only business incentive program, called the Vermont Employment Growth Incentive (VEGI).
VEGI has been criticized for its lack of transparency, and some awards approved by the state in recent years have been controversial. The new bill aims to shed more light on how money from VEGI is used, but it could also significantly limit how often the program can give out money in the first place.
For more on this bill, Vermont Public’s Jenn Jarecki spoke with business and economy reporter Henry Epp, who’s been reporting on VEGI for several years. Their conversation below has been edited for clarity.
Jenn Jarecki: First, can you explain how VEGI currently works?
Henry Epp: Yes, but fair warning, it's a complicated program, so I’ll do my best.
Basically, VEGI is intended to incentivize companies to invest in Vermont and create new, good-paying jobs. Companies apply for a VEGI award by laying out how many new jobs they intend to create over several years, and whether they also plan to make capital investments, like expanding a factory. They have to attest that these expansions and jobs would not happen without the VEGI award. And remember that point, it'll come back later.
So if they're approved, they don't get any money upfront. They first have to go do the things they said they would do: Create the jobs, etc. They then have to come back to the state board that oversees the program each year and prove they created those jobs or made the investments. They're then paid a portion of their award by the state if they meet their targets each year.
If they miss any of those targets, they don't get the money. The money they get is theoretically offset by the new tax revenue to the state that's generated by these new jobs that they created, though critics of the program are skeptical of that point.
Some context here: Many states have some form of business incentive or tax credit program, and most of them are much larger than VEGI and some of them have fewer strings attached.
Why do lawmakers want to reform the VEGI program?
One of the longstanding complaints about the program comes from State Auditor Doug Hoffer, and he says the thing that companies have to attest to, that their expansion would not happen without the award, is impossible to prove. And in many cases, he argues those companies would have expanded anyway, without this award.
“You'll be surprised if you could find any business that would make a substantial decision of that nature based on a little incentive from the state of Vermont,” Hoffer said. “That's not the way the economy works.”
Hoffer argues it's impossible to audit whether a company would expand with or without the award. He also takes issue with the lack of transparency. A lot of the information that businesses give to the board that oversees VEGI can't be released publicly. Proponents of the program say that's because this information is proprietary, and it could put businesses at a competitive disadvantage if it’s released.
So the information that's available to the public is really limited. VEGI issues a report every year with the total amount that it pays out. But they don't actually list how much is paid to each individual business, or even how many jobs each business promises to create.
“Some of our fears are that we're using taxpayer dollars to help Vermont companies go out and try to hire people away from other Vermont companies."Rep. Michael Marcotte, Republican from Newport
Some of the awards that have been given out have been controversial. Here's one recent example: This company called MTX announced plans to open an office in Waterbury a few years ago. It was approved for over $6 million from VEGI, even though the CEO said in an interview that he would have located in Vermont with or without this money. Then last fall, we reported that MTX quietly canceled its plans before setting up its office here. Now, because of that, it's unlikely that they received any of their VEGI awards. But we can't know that for sure, because that information is not public.
More from Vermont Public: MTX, a tech company that said it would bring 250 jobs to Vermont, has quietly canceled its plans
The sponsors of this bill are concerned about transparency, but they're also bringing up this larger question, centered around the state's current economic picture. We have really low unemployment right now, and there are significantly more job openings than there are people who are actively looking for work. So they're questioning why we have this program that's meant to create new jobs when we can't fill all the jobs that are already open.
“Some of our fears are that we're using taxpayer dollars to help Vermont companies go out and try to hire people away from other Vermont companies," said Rep. Michael Marcotte, a Republican from Newport who co-sponsored the bill.
So Henry, how does the current bill under consideration aim to address these issues?
It aims to increase transparency by opening more company documents to inspection by the auditor and the Joint Fiscal Office, and it would make more of those documents publicly available via public records requests.
It would also change the oversight of the program. Right now, VEGI is overseen by the Agency of Commerce and Community Development, which also promotes VEGI to businesses who are looking to potentially move to Vermont. Sponsors say this is a problem. So they want to put VEGI under the Department of Financial Regulation to separate who's administering the program and who's promoting it.
Then there's the most drastic change in this bill, which is to address that question of why we have a job creation program when we don't have enough workers to fill the existing jobs in the state. This bill proposes putting the program completely on pause anytime the unemployment rate in the state is below 5%.
So some context here, with the exception of just a couple months in 2020, the unemployment rate in Vermont has been under 5% since the beginning of 2012. Had this measure been in effect, VEGI would not have operated for most of the last 11 years. So given that, I asked the bill’s other co-sponsor, Democratic Rep. Emilie Kornheiser, why not just propose killing the program altogether?
More from Vermont Public: Can you prove that Vermont’s main business incentive creates jobs? It’s debatable
She said with this bill, she's “setting the table.”
“If the conversation from this bill leads to, ‘wait a minute, maybe we shouldn't have this program after all,’ I think that would be, you know, something that that committee would decide,” Kornheiser said.
And just a note: This bill is still in committee, so it could change a lot in the coming weeks, if it moves forward at all.
Got it. So how is the Scott administration reacting to this bill?
The administration is amenable to some of the proposed changes, but it's against some of the others. They say turning on and off the program with the unemployment rate would be really hard to administer. They're very against that.
“I don't even know how we would do this, like administratively,” Economic Development Commissioner Joan Goldstein told lawmakers. “I don't know what pause does, and I think there's a lot at risk.”
Goldstein argues the state could miss out on businesses expanding to Vermont by putting VEGI on pause. They're also against releasing more information from businesses to the public.
But they say they are open to releasing some data that is not currently available. Specifically, they'd like to release the exact amount that each business is actually paid each year, and how many jobs each business created. That would be a significant change.
“I don't even know how we would do this, like administratively. I don't know what pause does, and I think there's a lot at risk.”Joan Goldstein, Economic Development Commissioner
They also want to change the way that VEGI awards are calculated. Right now, applications are put through this complex formula that determines the exact dollar amount that companies can get. The administration wants to change that to just a flat award of at least $5,000 per new job, and up to $7,500 per job in certain areas of the state that are more economically distressed. That would also be a big change.
So Henry, what comes next? Does this actually have a chance of passing?
Lawmakers in the House commerce committee heard several hours of testimony on the bill this week, so it's up to them to move it forward. Similar bills like this were filed in the past two sessions. Neither of them passed. But there's a pretty lively debate around this bill this year. So we'll have to see if lawmakers have the appetite to move it forward.
And then whether or not these proposals actually pass, the VEGI program is currently scheduled to be phased out in January 2024. So there's also pressure for lawmakers to reauthorize the program and potentially make some changes as they do.
Have questions, comments or tips? Send us a message or get in touch with reporter Henry Epp @TheHenryEpp: