Can You Prove That Vermont’s Main Business Incentive Creates Jobs? It’s Debatable

Feb 28, 2018
Originally published on February 19, 2018 9:56 am

Among the proposals Gov. Phil Scott has made this year to expand Vermont’s workforce is adding more “enhancements” to the state’s signature business incentive program. But one top state official has long questioned a core principle of that program.

The program is called the Vermont Employment Growth Incentive (VEGI). Here’s the idea behind it: The state wants to add more jobs in Vermont, and they think they can do that by promising payments to companies who commit to expanding in the state.

"Over the last decade, this program has helped generate thousands of jobs, and brought in more state revenue," Scott said of the VEGI program in his budget address earlier this year.

Audio & Full Transcript: Gov. Phil Scott's 2018 Budget Address

To get the VEGI payment, companies must promise that they would not be able to add the new jobs and investment without the state funds, or that the growth would occur in a "significantly different" and "less desirable" way, as the state puts it.

However for years, Doug Hoffer, Vermont’s state auditor, has publicly criticized this idea, which he calls the "but for."

"That reflects a decision from the corporate boardroom that I can't validate,” Hoffer says, “and that's what auditing is about, is getting information that you can validate, and I can't do that."

Casey Mock, who oversees VEGI, says it could be scrutinized. Mock is the executive director of the Vermont Economic Progress Council (VEPC), the board which determines whether applicant companies qualify for VEGI awards. Mock says Hoffer seems to be looking for something deeper than an audit.

"I'm happy to, you know, help the auditor identify resources for doing that kind of evaluation,” Mock says.

According to VEGI's latest annual report, the program created 5,523 jobs in Vermont between 2007 and 2015. That includes jobs at Logic Supply, an industrial computer manufacturer.

At their headquarters in an industrial park in South Burlington, Logic Supply makes specialty computers that are meant to withstand harsh environments. They've sold computers to the mining industry, for example.

In 2013, the company applied for a state incentive through VEGI.

"It was really, 'we need more bodies, we need more jobs,'" says Mark Heyman, Logic Supply’s general counsel. “And to the extent that we can keep all of that growth in Vermont, we really felt that was critical."

Logic Supply got the award, and hit their goal of creating 30 new jobs and expanding their building. Heyman says they reached the new jobs target within the first year. Since the state's VEGI payments are spread out over several years, Logic Supply is still receiving installments of the $352,000 award.

By the state's rules, none of that would've happened like it has but for the state incentive. So is that true?

“Absolutely,” says Heyman.

Besides, the company doesn't have to be in Vermont. They chose to be here because their co-founder grew up in Barre. Now, the company has operations in the Netherlands and Taiwan.

“Without the VEGI awards, would we be located here? Probably,” Heyman says. “Would we have created as many jobs here, would the pace of growth and the job creation really happen here in Vermont the way it has and the way we plan? Absolutely not."

Keeping good-paying jobs in the state, like those at Logic Supply, sounds good. But what’s the cost to taxpayers?

Tom Kavet, the economist for the Vermont Legislature, told VPR the state paid out $4.8 million through VEGI last year. But according to Mock, those payments don't cost the state anything. He says the new jobs create extra state revenue which pays for the program.

“Essentially, it's self-funding," Mock says.

Not surprisingly, Hoffer doesn’t buy that.

"That can only be true if their assertion that none of the activity would have occurred without the incentive is true, and we don't know that," Hoffer says. "That's an assertion. That's not a fact. It's not a demonstrable fact supported by evidence. It is absurd for them to say that. It bothers me."

Despite these criticisms, there is one outside policy group that gives the VEGI program relatively high marks. It’s called Good Jobs First. They assess  —and are generally critical of — business incentive programs in states and cities around the country.

"At least the program [VEGI] is well-disclosed, it does have good job quality and job creation requirements," says Greg LeRoy, executive director of Good Jobs First.

"The program is protected so that if companies fall short, the state has the right to claw back the money," LeRoy says.

Still, LeRoy is also critical of the "but for" claim. So what’s the solution for states? LeRoy says they should target incentive programs narrowly — entice a grocery store to open in a food desert, for example.

"If you narrowly target the programs in a way where you clearly are addressing a so-called 'market imperfection,' then who cares about 'but for'?” LeRoy asks. “You know you're fixing a problem."

Scott's proposal to expand VEGI is targeting things that he thinks are important: start-ups, mission-based companies, clean water technology and small businesses. The expansion proposal is now in committee in the Vermont House.

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