Doug Hoffer is the state auditor of accounts, the elected official whose job it is to make sure taxpayer money is being used efficiently and effectively. With a staff of 15, including Hoffer, the office audits the state’s financial statements for compliance with the rules, and issues reports on the outcome of state programs in all areas of government, looking for ways to reduce waste and fraud.
Hoffer grew up in Fairfield, Connecticut, and in Florida, and took a circuitous path to the professional world, working in several dozen jobs in the 1970’s before starting at Williams College at 30 and earning a bachelor’s degree in political science. He earned a law degree at the State University of New York in Buffalo and moved to Vermont in 1988 to work in Burlington’s Community and Economic Development Office under then-Mayor Bernie Sanders. Hoffer later worked as a self-employed policy analyst for 19 years before being elected state auditor in 2012.
Hoffer considers himself both a Democrat and a Progressive, although he notes that the work of the auditor’s office is non-partisan.
Long before he became auditor, Hoffer was questioning the use of financial incentives for companies planning to move to Vermont or expand in Vermont. Offering such incentives became popular nationally in the Reagan years, and now an estimated 30 states do it in some form. Municipalities and other entities also try to attract and retain businesses with lures such as grants, tax rebates or infrastructure work.
In Vermont, the statewide version of this practice is called VEGI, the Vermont Employment Growth Incentive, which lists the incentive approvals in its annual reports but does not release information about how much money companies eventually received, citing Tax Commission privacy rules. According to Hoffer, VEGI steered $18.75 million from the Tax Department to private companies in the five years leading up to 2017. VEGI is administered by Vermont Economic Progress Council, an independent body that falls under the state Department of Commerce and Community Development.
Hoffer thinks VEGI grants are a waste of taxpayer money — money that could be spent on economic development measures with more proven effectiveness for economic development, like affordable housing. Last year, Hoffer’s office released an extensive report outlining research on state incentive programs. It said it is impossible to substantiate VEPC’s claims that the grants create jobs.
VEGI grants are intended for companies that wouldn’t have carried out an expansion in Vermont without the money. As Hoffer sees it, that’s impossible to prove.
The auditor’s office is focused now on issues like the Green Mountain Care Board and education funding; he doesn’t have any new audits or investigations planned involving VEGI or other incentives. But he hopes to renew interest in the coming year in his 2018 report, and as lawmakers prepare to convene for the 2020 session, Hoffer’s gearing up for another year of conversations about moving away from those subsidies.
Hoffer spent some time talking to VTDigger about economic development incentives. The conversation has been edited for length and clarity.
VTDigger: You said you’ve been talking to lawmakers about the lack of accountability in incentive programs for 20 years. How is this information generally received?
Doug Hoffer: I remain frustrated. The legislative process, which admittedly is challenged in many ways — money, staff and so forth, they put out fires and so forth – they rarely have the time or resources to step back or say, “let’s stop for a minute, let’s think about what we have done.”
They don’t think about what is in process, whether it is successful, what the alternatives are, or have a serious long-term plan with a strategy we can all buy into. They just pretty much fund the same programs over and over.
I have informed them that four or five of their biggest economic development programs can’t be audited to answer the question of how effective they are; we gave them information about alternatives. That was in 2018, and my hope was that they would use that as a tool to shift from business as usual.
I’m not criticizing them; I wouldn’t want to be in their shoes. It’s hard to pivot when you have so many imbedded constituencies benefiting from the existing programs. But it’s fair when you have someone outside asking, “What are we getting for this money?”
VEGI is a good example. My view is that at least 75% of the economic activity supposedly incentivized by these programs would have occurred anyway. It might be as much as 98%.
If I were chair of one of those committees, I’d say maybe we should consider reallocating this money to something else that we know produces something long-term.
VTD: Who are VEGI’s supporters?
DH: In a state as small as Vermont, the voice that is typically the loudest is from the business community. Unlike the environmental issues and housing issues and so forth, where there are non-governmental organizations that advocate a different position from the establishment, with economic development in Vermont there is no real counterpart to the Chamber (of Commerce) and the other entities that represent the business interests.
There are some business folks who have very progressive ideas about what can and should be done. But other voices are very consistent and have the ear of legislators, and if you say something often enough, it’s repeated. So if they say Vermont is anti-business, why? Because Forbes said so and the Tax Foundation said so? This story comes from the people the legislators respect. Even people who agree there is a question about the value of our investments in economic development — they don’t want to appear anti-business.
We all want the same thing: We want more and better jobs, for goodness sake. If you say some of the things I’ve said over the years, you are characterized as anti-business. It’s absurd. I have suggested some of the things we do are not supported by the evidence, and we should do better things, things that empower the workers.
VTD: So many states offer incentives. Is this just an arms race where everyone is competing for the same companies?
DH: The story of incentives has been told all over the country, and now the word is that we’re in competition. Actually, I have been looking at the applications from a number of businesses to VEPC for VEGI incentives. Some are asked, “have you pursued incentives from other states?” Some say “No.” It’s enough just to know they could.
Here’s something important none of these guys would acknowledge: It’s almost received wisdom we are chasing people out, not inviting people in. The assumption is that a lot of jobs are related to businesses moving interstate. There is no evidence for that. The Bureau of Labor Statistics – here is a scary thought – and the Census Bureau don’t track the movement of businesses interstate. It is twisted, because that’s so important, and so much money is spent because there is a belief that a lot of jobs are related to that.
VTD: Do other states have the same “but for” clause?
DH: Some do; some have no shame and don’t even care.
VTD: Could a company ever prove to your satisfaction that it wouldn’t have expanded or stayed in Vermont but for the VEGI grant?
DH: No. The “but for” is based on a decision made in a corporate board room. I can’t access evidence to support their assertion; it is a self-attestation that can’t be validated. I can get access to all the public records in the world, but not the private ones.
Business people say, “It’s time to expand, and we can do it somewhere else.” Here’s an example: I can’t mention the name of the company, but one of the firms that has received money over time said in their application, “our employees are our biggest asset.” Then a couple of paragraphs later, they said, “But we sure could pay them less in Texas.”
Or I was looking at one business that got an award from VEPC a few years back, and on their website were stories from the media. I read back a couple of years, and I found comments or quotes from the owners and founders saying that things had been going pretty well two years prior. They said, “We think if we follow the path we’re on, we’re going to have this many employees in whatever the year was. And here they are two years later saying to VEPC that without this incentive they can’t possibly grow. They had planned on it.
VTD: The Agency of Commerce says these incentives don’t cost taxpayers.
DH: The Tax Department put out $18.75 million in the five years leading up to 2017. The Agency of Commerce would have you believe that the cost of VEGI is zero, because in their view — this is the core dogma — none of that economic activity would have occurred but for those incentives.
I don’t believe it; it’s ludicrous. Business people aren’t stupid. If people like your product and you’re bursting at the seams, but you think you can sell more and you need more machines and a bigger facility, you have no choice. The status quo is fine, but most people like growth.
It’s not the guys who are treading water who go to VEPC for an incentive; it’s the guys who believe they are going to create jobs. The point is, would they have created the jobs without the incentive?
You can’t have it both ways. You know they’re going to expand.
VTD: Are the companies culpable here?
DH: Michael Bloomberg said many years ago that any company that bases its future and current decisions on business incentives won’t be in business very long. Smart business people make decisions for the right reasons. They’re not stupid. They know a program exists and they’re likely to get some money, so they’re going to take advantage of it. I don’t blame the companies.
I don’t blame businesses for taking advantage of the program. The point is, we could have spent the money on other things that have a demonstrable return, like affordable housing, which creates jobs almost immediately and you also get a 100-year asset and address a problem that everyone agrees is absolutely critical.
We know that works.
VTD: So what are you going to do this session?
DH: I’m going to remind them of the report, and I’ll present them with my findings from the work I’m doing on VEPC right now. I’ll take it to Commerce and Community Development, and probably Ways and Means, because I know the chair is very interested in VEPC.
I know there are a lot of people who, if you were just having a beer with them, would say, “You’re right, we could probably do something more productive with this money.” But there doesn’t seem to be the political will to call the question.
VTD: Should the amount of the final VEGI award be available to the public?
DH: Each year, the company that was awarded the funds has to report to the Tax Department and VEPC on whether they did in fact reach the goals they set out. The Tax Department has the ability to determine whether the company did add new jobs. We can see how much they got in the aggregate.
And we can see what VEPC characterizes as the maximum award the company could get if they meet their obligations.
There will be a bill this year on transparency in this program. There’s some interest for a number of reasons. Some peoples’ heads were turned when VEPC announced an award to Marvell for $4.5 million after they bought the spinoff from GlobalFoundries for over $600 million. That got some peoples’ attention. They announced they were laying off 78 people.
VEGI’s purpose is to award the money for the creation of jobs. In this case, the workers were already there. They all acknowledge it’s about retention.
Statutes are written to create programs that have rules and parameters. And as I read the statute, there is no explicit authority to reward job retention. If there were, where would it stop? How many companies would come forward and say, “If you don’t give us money, we’ll leave?”
The real issue is: What are we getting for the money? Tracking the money is the beginning of the conversation, not the end.
