Challenges 2: Vermont’s economic development programs under the knife

Kevin Dorn, Secretary of the Agency of Commerce and Community Development

The state’s regional and nonprofit economic development organizations were granted a reprieve of sorts when the Vermont House took a wait-and-see approach in the first round of Challenges for Change reductions. But now that the legislation has gone to the Vermont Senate, funding for many economic development groups has been significantly reduced.

The Senate Economic Development Committee, with a few notable exceptions, has adopted most of the Douglas administration’s proposals to cut $3.4 million from the state’s economic development programs and to impose a new contract-based funding mechanism for nonprofits the state funds. Sen. Vince Illuzzi, chair of the Committee, has also included changes that will cut funding to legislative activities by more than $300,000, limit the number of bills lawmakers can introduce and fund master plumber and electrician training programs.

A few of the programs that will be affected by the Challenges reductions include microbusiness training for needy Vermonters, the Vermont Sustainable Jobs Fund, regional development corporations, Workforce Investment Boards, adult education programs and regional planning commissions.

The Agency of Commerce and Community Development plans to meet $700,000 of its Challenge through a revenue-generation scheme: The state agency plans to buy and then resell refurbished brownfield properties to developers.

The state agency plans to buy and then resell refurbished brownfield properties to developers.

The committee, which is the first in the Senate to come up with concrete proposals, will present its draft legislation to the Senate Appropriations Committee on Monday; the changes, at this point, are on the fast track, with legislative adjournment scheduled for Saturday.

Reorg redux

So, why would the state cut $2.7 million from economic development programs as Vermonters are struggling to find jobs and start businesses in the recession? Desperation.

The Challenges reorganization effort comes in the wake of ongoing state deficits caused by large tax revenue shortfalls in the wake of the Great Recession. Most economists describe the drop in state income as equivalent to returning to 2006 levels. The cost of running Vermont’s government programs outstrips revenues by $167 million in fiscal year 2011 and $250 million in fiscal year 2012, in General Fund dollars.

Nothing has been easy about the restructuring process, though, in no small part because of ideological differences between parties.

The Democratic leadership and the Douglas administration embarked on the Challenges in order to make $38 million in permanent reductions in state spending in fiscal year 2011 that reflect the new budget realities. Next year, the reductions total $72 million.

Nothing has been easy about the restructuring process, though, in no small part because of ideological differences between parties. The Democratic Legislature has been working with the Republican Douglas administration to develop the structure of the Challenges, and trust has been a major issue among rank-and-file lawmakers (of both stripes) who say the reorg is a glorified system of cuts to essential programs that resemble earlier attempts by administration officials to make sweeping policy changes.

Administration officials and the Democratic leadership, however, have gone to great pains to work together on the Challenges and to explain the necessity of moving forward on the reorganization.

The legislation comes in two parts: Challenges 1, which was enacted in February, requiring the administration to find $38 million worth of efficiencies through a restructuring effort; and Challenges 2, in which lawmakers will change state laws that are impediments to the reorg plan.

The House passed its version of Challenges 2, H.792, a few weeks ago, and identified $20 million worth of statutory changes it could live with from a menu of suggestions from the administration, which had come up with $31 million in reductions to programs. A few of the proposals the House rejected included 5 percent reductions to funding for developmentally disabled adults, community mental health programs and the elimination of a number of popular economic development programs.

Among the proposals they didn’t accept were cutting funding by 22 percent for regional planning commissions and regional development corporations and eliminating grants for nonprofits like the Vermont Sustainable Jobs Fund and microbusiness training programs for low-income Vermonters. House lawmakers also had a tepid response to the administration’s plan to forcibly merge regional development corporations and regional planning commissions – the House legislation requires the entities to collaborate with the agency on a plan for how best to enhance economic development in the state.

They also rejected $3.03 million in reductions posed by the Agency of Commerce and Community Development.

Illuzzi gets ahead of the game

Illuzzi, R-Essex-Orleans last week proposed draft Challenges 2 language that combines traditional “cuts” with restructuring, along the lines of the administration’s suggestions. In committee, there was less jargon about outcomes, and more talk about getting from A to B – from zero to $3.4 million in three days of discussion.

In committee, there was less jargon about outcomes, and more talk about getting from A to B – from zero to $3.4 million in three days of discussion.

On Friday afternoon, the senators found $2.7 million in reductions and accepted the Agency of Commerce and Community Development’s proposal to resell brownfields at a profit of $700,000.

Under the committee’s plan, the regional planning commissions and regional development corporations will take a 15 percent reduction in state funding, and in order to qualify for that state funding, the separate organizations will be required to merge their operations and submit joint bids for performance contracts.

Senators softened the blow somewhat for statewide economic development programs: Partial grants would be awarded this year to the Vermont Council on Rural Development, the Sustainable Jobs Fund, microbusiness programs and the Vermont Employee Ownership Center. Only one group would be zeroed out entirely this year: the Vermont Women’s Business Center. Next year, funding for all of the groups would be eliminated.

Sen. Tim Ashe and Sen. Hinda Miller objected to Illuzzi’s original proposal to eliminate the microbusiness services for economically disadvantaged Vermonters offered by regional community action programs.

Miller and Ashe argued that microbusiness programs help Vermont’s poorest citizens, including immigrants and people who are often functionally or financially illiterate, start money-making enterprises.

The agency said the Small Business Development Centers could offer the same services. Jim Saudade, a deputy secretary for the agency, said the SBDCs can do the same work for low- and moderate-income Vermonters.

“Our intent was to eliminate duplicative services to Vermonters,” said Kevin Dorn, secretary for the agency.

Miller and Ashe argued that microbusiness programs help Vermont’s poorest citizens, including immigrants and people who are often functionally or financially illiterate, start money-making enterprises.

Often, Miller said, it gets “people off welfare.”

“I do believe they need a different approach and more hand-holding,” Miller said. “People should be trained for that.”

The organization, however, needs to come up with a plan for weaning itself off state funding, in her view. Miller advocated cutting the original grant to the programs by more than half.

The committee’s plan would also cut the Vermont training program by $700,000 and require employers to contribute 50 percent of the cost for employee education. In addition, the proposal calls for the elimination of the workforce investment boards and distributes money to adult technical education programs through performance-based contracts.

The senator also proposes to limit printing of legislative calendars, journals and bills.

Illuzzi has also introduced a number of tack-on items that were accepted by the committee Friday. He wants to start new training programs for aspiring master plumbers and electricians, eliminate the 15 cent deposit for liquor bottles (in order to save $180,000 in transportation costs to the state), introduce a $5,000 to $25,000 penalty for slaughterhouse cruelty and make 3 percent budget cuts to the Joint Fiscal Office and Legislative Council.

The senator also proposes to limit printing of legislative calendars, journals and bills. Lawmakers would receive copies of the calendar every day, but bills and journals would only be available on request or online.

Everyone else in the building – citizens, reporters, advocates and lobbyists — would have to go to the legislative Web site for the information.

Curbing lawmakers’ bill-drafting power

Potentially the most controversial item in the draft language for H.792 is a radical curtailment in the number of bills any one lawmaker can propose.

In the first year of the biennium, a legislator can write two bills; in the second year, one. That doesn’t mean a lawmaker can’t sign onto a bill as a sponsor, Illuzzi said, it merely curbs the number he or she can author. (Ashe pointed out that Illuzzi has sponsored nearly 100 bills in the last two years, though it’s hard to tell how many he wrote himself –that irony wasn’t lost on the chair.)

An analysis of the Committee’s plan

The regional planning commissions have objected to the administration’s Economic Development Challenges. The forced merger with the regional development corporations, planners say, will be a difficult marriage of entities with two very different missions: The development groups provide support for businesses, while the commissions provide municipalities with transportation, environmental, town and emergency planning.

The groups would be required to submit performance contract bids, which must include plans for the consolidation of the regional organizations, in order to receive funding as of Jan. 1.

“The Agency has complete discretion to negotiate with bidders and to determine what service areas are appropriate,” Gregory said. “Whoever curried favor with the secretary could be funded and those who didn’t would be left out.”

The cuts, $161,470 for the development corporations and $394,804 for planners, amount to 15 percent of their budgets.

Peter Gregory, of the Two-Rivers Ottauquechee Planning Commission, said who decides what bid proposals are appropriate is a major sticking point.

“The Agency has complete discretion to negotiate with bidders and to determine what service areas are appropriate,” Gregory said. “Whoever curried favor with the secretary could be funded and those who didn’t would be left out.”

Gregory said the agency’s plan to have the regional organizations “flip” brownfield properties is totally unrealistic. The regional planning commissions merely fund assessments and remediations, he said. The agency came up with the revenue generating idea at the 11th hour, he said in order meet its $3 million target. “I don’t think there are RDCs that can take on that kind of risk, and RPCs don’t have statutory authority,” Gregory said.

The brownfield concept isn’t Gregory’s chief worry at this point, however.

“The destruction of infrastructure we currently have is more of an immediate concern,” Gregory said. “I have yet to see any evidence that forced mergers would introduce better savings and outcomes. The administration hasn’t been able to prove that to anyone’s satisfaction. That doesn’t mean we can’t find efficiencies, but blowing up the system and hoping it’ll fall back into place doesn’t seem like a direction we should be taking as we try to get out of a recession.”

Letter to legislators on Challenges 5-1-10

ACCD RFP, part 1
ACCD RFP, part 2

RPC Challenges for Change Senate response 4-27

Gregory said the planners stand by the proposal they submitted to the Committee last week, which moves the groups “more aggressively toward co-locations and toward aggressive outcomes.” “We think we have met the challenges for change, whereas the agency has failed to do so,” Gregory said.

Under Illuzzi’s plan, the agency would see a $300,000 reduction in direct marketing, $43,000 in economic development research and possibly a $75,000 position cut.

Here is a rundown on the proposed cuts to outside organizations:
* Vermont Sustainable Jobs Fund, from $233,890 to $150,000
* Vermont Council on Rural Development, from $47,500 to $23,750
* Vermont microbusiness programs, from $328,000 to $150,000
* Vermont women’s business center, from $19,000 to zero
* Vermont training program, a $700,000 cut
* Workforce investment boards, from $145,000 to zero
* Workforce development council executive director, from $97,317 to zero
* Next generation fund for adult technical education, from $430,000 to $19,500
* Liquor control board for liquor deposit, from $180,000 to zero
* Legislative Council, a $72,000 cut
* Joint Fiscal Office, a $40,649 cut
* Legislature, a $212,618 cut