Business & Economy

Economist: Shumlin VEGI plan would cost $10 million to $25 million

An economist says the Shumlin administration’s plan to make more businesses eligible for a cash incentive program would cost up to $25 million per year and force workers onto public assistance.
Economist Tom Kavet. Photo by Anne Galloway/VTDigger
Economist Tom Kavet. Photo by Anne Galloway/VTDigger

Endorsed by Gov. Peter Shumlinthe provision of S.138 lowers the wage a company has to pay workers in order to qualify for the Vermont Employment Growth Incentive, or VEGI, from $14.64 per hour this year to $13 per hour, the livable wage level set by Joint Fiscal Office.

The $13 per hour figure assumes two adults living together in a two-bedroom home, who share expenses, have no children, and have employers that pay 80 percent of health insurance costs.

Tom Kavet, an economist who prepared a memo for the Joint Fiscal Office, said under the lower wage, “the job holder could qualify for thousands of dollars in annual assistance and could receive several thousand dollars per year less in income than the current standards.”

The program was launched in 2007 to replace the Economic Advancement Tax Incentive program. It awards cash incentives to companies that create jobs in Vermont. The jobs must be new and under current regulations must pay 160 percent of minimum wage plus benefits.

The Shumlin administration’s plans, Kavet said, “serve to diminish the public return on investment from this program by lowering standards, eliminating basic fiscal controls, or allowing public subsidies when they would not previously have been allowed.”

The change to VEGI that would cost taxpayers the most is the elimination of the cap on cash awards. Allocating additional money for job training would cost taxpayers $2.5 million in “theoretical” money, Kavet said.

The total expected cost to the state is between $10 million and $25 million.

The Vermont Employment Growth Incentive was designed with a variety of safeguards that have compensated for the unprovable “but for” factor, according to Kavet. A company must prove to the Agency of Commerce and Community Development that it would not be able to add jobs, or that it would only be able to add jobs “in a significantly less desirable way” without the incentive.

The VEGI program changes are built into the jobs bill, which is currently in Senate Finance but is expected to be on the Senate floor by Tuesday. Sen. Tim Ashe, D/P-Chittenden, chair of the committee, and Sen. Mark MacDonald, D-Orange, the vice chair, both oppose the VEGI changes included in S.138.

“The incentive was established to bring in high-paying jobs,” Ashe said. “The reason for the caps in the first place was the balance. If we get rid of the caps people worry that it might become kind of a floodgate.”

Pat Moulton, secretary of Commerce and Community Development, defended the change to the VEGI program on Friday. Moulton said she would rather employ a Vermonter at $13.50 per hour than let the jobs go elsewhere. Employees can move up from lower-paying jobs, she said.

“We’re competing globally for jobs. We’re competing regionally for jobs,” Moulton said. “Folks can question the ‘but-for’ all they wish, but companies do pledge and swear and sign a document that says but for these incentives those jobs wouldn’t exist.”

Moulton said the agency requires all VEGI employers to give a benefits package, in which the company usually pays 75 percent or more of health care costs. The program also has better oversight than similar job growth programs in other states, she said.

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Erin Mansfield

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  • walter moses

    Ready! Shoot! AIM! Any questions?

  • Dave Bellini

    “…cost up to $25 million per year and force workers onto public assistance…”

    Why on Earth would this be good?

  • James Mason

    If a company is going to create jobs here, its not going to be a matter of a dollar an hour-even across 100 workers working 40 hours a week 51 weeks a year, that comes out to ~200k for the company a year. For a company that’s used this credit such as GMCR, who made $518 million in net profits, that represents less than four hundredths of a percent; not even pennies on the dollar off the bottom line!

    But that extra 2,000 a year for a working Vermonter could make the difference between welfare and self sufficiency.

    I wouldn’t expect a millionaire like Shumlin to understand that sort of calculation.

  • DonPeabody

    The Shumlin team does, however, have a ready answer to the problem of increased costs of public assistance–eliminate the assistance. That’ll “get ‘er done.”

  • Don Peterson

    I wonder if anyone who writes these programs has any idea what impact a pay cut of $60 week means to someone earning minimum wage. Less than you might spend on coffee perhaps?

    I also wonder how long it will take large employers to game this program, pocket the benefits for management, and let taxpayers support their workers.

    $25 million dollars is a quarter of the budget shortfall, dropped into corporate coffers, who will swear and pledge they had to have it.

    Why would we want Vermont populated with businesses that can’t return their cost of labor without corporate welfare?

  • Janice Prindle

    Shumlin is treating our economic problem with the proverbial “hair of the dog.” He postures at addressing a depressed job market by proposing to let corporations reduce wages. The old “trickle down” aka “voodoo” economics that brought us to this point as a nation, with the wealthy raking it in while their workers need public assistance– yeah, that worked so well we should bring it to Vermont. Next I expect him to endorse Bruce Lisman for governor. Since I trust he is not so naive as to expect the folks who elected him to do it again– his Democratic/Orogressive cred is totally in the trash, by his own doing.

  • Michelle Fay

    To change behavior change what you measure. While elected officials are scored by simplistic measures such as # of jobs created/lost how can we blame them for trying to deliver unsustainable short term wins? This is the policy version of teaching to the test. What happened to Results Based Accountability, where beyond measuring the quantity of our output we also ask “is anyone better off?”