It’s impossible to independently measure whether Vermont’s economic development programs are working, according to a new report from the state auditor.
The state pours about $14 million each year into programs that offer businesses financial incentives to expand, tax incentives to boost downtown development and marketing to out-of-state visitors.
But in a wide-ranging report compiling peer-reviewed research from across the country, the state auditor says he can’t verify whether these programs — and programs like them in other states — are helping to drive economic development.
One program mentioned in the report, the Vermont Employment Growth Incentive, or VEGI, gives Vermont businesses cash incentives to create jobs and expand operations. The state estimates that the program has directly or indirectly created close to 8,000 jobs, and returned more than 26 million in net revenue to the state. The incentives cost the state about $3.6 million per year, according to the report.
Many businesses say that without the incentives, they wouldn’t have been able to expand and create additional jobs. But the state’s auditor says it’s impossible to prove whether that’s true.
“Those numbers are actual, but are they the result of the incentive?” State Auditor Doug Hoffer said Wednesday. “I think it’s reasonable to doubt that.”
Hoffer added, “I have no doubt that in some cases that’s probably true. But it’s not about some cases, it’s about every case.”
The report says that some research suggests that 80 to 90 percent of “incentivized jobs” would have been created without incentives.
It adds that there is “no consensus” about whether the public benefits seen by tax incentive programs exceed the cost of such programs.
“There is growing evidence that such incentives are not as effective as claimed. Recent research finds no strong correlation between incentives and state’s economic outcomes,” the report says.
In the report, Hoffer offers a similar opinion on the state’s tax increment finance program, writing that towns seeking the benefit are put in a position where they have to state that the development would not happen without the incentive, in order to receive it.
“This is impossible to prove,” Hoffer wrote of the causal impact of the incentives.
Hoffer added that it’s also difficult to gauge the efficacy of the Vermont Training Program, which gives businesses grants to offer trainings.
“VTP’s main performance measure is the increase in wages for trainees, but the methodology is flawed so the data is unreliable,” he said.
Vermont’s Secretary of Commerce Michael Schirling said that state programs that play a “modest role” in helping Vermont businesses grow are important.
“Not everything that you do can be measured with the granularity you would like,” he said.
Schirling said state’s economic development programs are particularly well-structured compared to programs in other states.
In the VEGI program for example, businesses don’t receive all of the financial benefits on the table unless they meet expansion targets.
“They don’t actually see those tax benefits unless the job comes to fruition. So it’s not front loaded,” he said. “It’s not uncommon for folks to miss their targets and they don’t get the full benefit as a result.”
The auditor’s report listed a series of sectors in which increased state investment would likely spur economic development — energy efficiency and housing among them.
“They are quantifiable investments whereas some of the other ones are not,” Hoffer said.
