Jon Margolis is VTDigger’s political columnist.
Some Vermonters are getting downright peevish over “economic development.
”As dry and dreary a subject as humankind has created. People commonly get crabby over the weather, their noisy neighbors, or (especially this year around here) how poorly their favorite team is doing.
But over TIF?
And what, you ask, is TIF?
Don’t ask. Details are public and on-line. For now it’s enough to know that TIF is part of “economic development.”
And what, you ask, is “economic development?”
Maybe you don’t want to ask that either. Just as plain “development” at a university or a charity is a euphemism for “raising money,” in government, “economic development” is a euphemism for “giving money away.”
Your money, you taxpayers. And it is being given away (sometimes indirectly) to private companies owned by people richer than most of you to entice them to move their business into, keep their business in, or expand their business here rather than there.
Taking from the poorer and giving to the richer is always touchy. No wonder some folks get irritable when the subject comes up.
Sometimes, to be sure, the factory, hotel, parking garage or store built with that public subsidy creates so many jobs and so much profit that the tax revenue from the company and its workers is more than the company got from the taxpayers.
Now, just as Vermont officials squabble over the details of one government-subsidized project, comes a study examining how often the taxpayers benefit from “economic development.”
Rarely, say researchers at the North Carolina State University in a new report called “You Don’t Always Get What You want: The Effect of Financial Incentives on State Fiscal Health.”
Those effects, the study found, are usually harmful. The subsidies “draw resources away from the state … and negatively affect the overall fiscal health of a state.”
In other words, the extra revenue a state gets from the taxes paid by the business and the workers it hires is rarely as much as the amount the state loses in the process.
Though the North Carolina State study is nationwide in scope, it only used data from 32 states, and not surprisingly, tiny Vermont is not one of them.
But the chief researcher, associate professor of budgeting and finance Bruce D. McDonald III, said in an interview that it was “fairly likely that Vermont would fall within parameters (of the study) and that subsidies would have the same negative effect.”
A project can still be a good idea even if it doesn’t pay for itself. If the cash grant or tax break goes to a business moving into a poor area, stimulating the economy there could be considered good policy even if it adds to the burden of taxpayers statewide.
As a report from the Legislature’s Joint Fiscal Office noted, subsidized projects “may bring indirect benefits … such as productivity growth, environmental improvements, and more efficient provision of public services.”
But that’s not always the case, and at any rate, the net impact on the state’s fiscal health is certainly one measure of a policy’s wisdom. That same JFO report found that “the extent to which TIF has and will provide the expected economic benefits to the State is unclear.”
The same would appear to apply to Vermont’s other major economic development mechanism, VEGI (again, look it up). VEGI makes direct cash grants to companies. McDonald said those grants and tax preferences were least likely to pay for themselves. Most likely, he said, were job-training grants, “providing money to companies to train people.”
Vermont does that, too, but in smaller amounts than the cash grants or tax preferences.
McDonald noted that some states impose stricter rules to limit the fiscal “negative effect” of subsidies. Megan Sullivan, the executive director of the Vermont Economic Progress Council (VEPC) says Vermont is one of those states.
“VEGI is a performance-based incentive that only pays participants if and after they meet and maintain targets set for payroll and job growth and capital investments,” she said.
And Vermont’s TIF program, she said,“ is very different than TIF other places (because of ) our unique state education fund structure,”
That’s true, just as it’s true that in Vermont TIF benefits can’t go directly to a private developer. But the JFO report concluded that precisely because of TIF’s connection with school financing, it “represents a negative cost to the Education Fund of between $3 million and $7 million annually from 2017 to 2030.”
A lot of money over 13 years, but less than a penny on the annual state school property tax rate.
The complex if not downright mysterious subject of publicly subsidized economic expansion re-entered the public square last month when VEPC determined that State Auditor Doug Hoffer was wrong when he found that St. Albans officials had not followed all the rules in connection with a TIF-aided parking garage project.
A grateful city manager, Dominic Cloud, said his reaction to the auditor’s report had been “very personal.”
A “very personal” reaction to an auditor’s report? One that did not mention Cloud’s name?
Well, people get touchy, and in fairness to Cloud, it’s hard to dismiss his assertion that Hoffer’s judgment in the St. Albans matter may have been influenced by his general dislike of TIF and other subsidies. The auditor often cites studies showing that very few government-subsidized projects pass the “but-for” test to determine whether they would have been built without the subsidy.
But it wasn’t as though Hoffer sought out the opportunity to find fault with a TIF project. The Legislature years ago ordered his office “to conduct ongoing audits of TIF districts” to see if they were complying with all rules and laws, and he concluded that St. Albans had not.
After VEPC effectively overruled him, Hoffer was the one who got miffed.
“Why the heck are we spending so much time and effort” preparing these reports if they’re going to be ignored, he said, adding that VEPC describes itself as a “partner” with TIF towns, meaning that it is effectively regulating its own projects.
Not so, said Sullivan of VEPC, arguing that the nine members of the council are “independent community leaders that base decisions on statutory language and as a body act within their statutory authority.”
But the Legislature’s Joint Fiscal Committee seemed unconvinced. In an Aug. 1 letter to Sullivan, the committee’s chair, Sen. Ann Cummings, D-Washington, wrote that “the Committee is deeply concerned both by the findings of the State Auditor’s report and VEPC’s decision to move forward with these interpretations of statute and rule.”
“Deeply concerned” is legislativese for “we don’t like this at all.” The lawmakers, it appears, are also peeved.
As, perhaps, was Sullivan, who dismissed the Cummings letter as one written “after about six minutes of testimony” (by Hoffer), during which “the committee could not have gotten a full detailed account” of VEPC’s work.
Sullivan said she will attend the next committee meeting Sept. 16 to provide “information that they didn’t receive.”
Expect more peevishness.
