A New York Times analysis of government incentives for businesses lists Vermont as the sixth highest spending state on tax breaks and subsidies for corporations per capita, with the state spending $650 per capita, or at least $407 million total per year.
The analysis takes into account a broad range of tax breaks and economic subsidies, including sales tax discounts, cash grants and loans, and corporate income tax credits, across industries as varied as manufacturing, agriculture and alternative energy.
The top 10 companies receiving the most money in state incentives include Husky Injection Molding Systems ($18.5 million from 1998 to 2010), Dealer.com ($8.64 million from 2009 to 2010), and Green Mountain Coffee Roasters ($4.37 million from 2002 to 2009).
Incentive programs listed include the state’s Economic Advancement Tax Incentive (EATI, repealed in 2006, but with credits effective until 2015), the Vermont Employment Growth Incentive (VEGI), an ongoing initiative offering cash subsidies in return for documented job creation, and workforce training programs.
Lawrence Miller, the secretary of the Agency of Commerce and Community Development, questioned the methodology behind the New York Times analysis. Of the $407 million total, he said, $320 million is for sales tax exemptions.
He said Vermont isn’t the only state that allows manufacturers to bypass sales tax on purchases of components. States like New Hampshire, Alaska and Oregon don’t have a sales tax, and so the exemption wouldn’t be counted as an incentive in the New York Times analysis.
He said a similar problem with agricultural sales tax exemptions, a standard measure in most states, also skewed Vermont’s ranking.
“I think there’s a methodology issue that’s showing up there, and it’s showing up because Vermont comprehensively looks at these things [business incentives],” said Miller. Vermont documents the subsidies and tax breaks better than other states, he said.
Miller maintains that Vermont offers business subsidies at a significantly lower level compared with larger states with more financial resources and is more careful about scrutinizing the benefits and costs of these economic development incentives.
“We are consistently faced with much higher incentive levels being granted in other states … often with no performance expectations of the company whatsoever,” Miller said. “When it comes to recruiting or being in a competitive situation with a state like South Carolina, Arkansas, Ohio or Michigan, they’ve got much bigger guns.”
Miller said incentives can be important in “select circumstances,” but an offer or retraction of minor state subsidies wouldn’t likely drive a company’s decision to stay or leave.
Former tax commissioner Tom Pelham also said the New York Times analysis was flawed. The total awards to companies in the analysis covered only the amounts authorized by the state for incentives, not the amounts actually disbursed. While the amounts authorized are an indication of how much the government is prepared to spend on these companies, he said “to leave any impression that any company [actually] got that kind of a tax break would be a gross error.”
Miller concurred on this point. The list of companies only showed amounts authorized, not actually disbursed, he said.
The Legislature received a report in January 2011 that lists all of the state’s tax exemptions and credits, technically known as tax expenditures, from the Tax Department and the Joint Fiscal Office. This includes details on the discontinued Economic Advancement Tax Incentive, a comprehensive suite of credits including credits for income investments, like investments in workforce training and research and development, along with property tax reductions and sales tax exemptions. It started in 1997 and was replaced in 2007 with the VEGI program, for technical tax collection reasons, said Miller.
According to a 2011 report by the Vermont Economic Progress Council and the tax department, there are still $9.45 million in incentives remaining through the EATI program. About $35.7 million worth of incentives were distributed between 1998-2010.
Earlier this week, the Barre-Montpelier Times Argus ran an editorial on the NYT analysis, highlighting Vermont’s role in subsidizing businesses, describing battles between states to offer the most incentives as a “a race to the bottom with companies exploiting the eagerness of state or local officials to slash taxes in order to land a big employer.”
