Politics

New bill would require more transparency around Vermont’s corporate incentives

Rep. Emilie Kornheiser, D-Brattleboro, on the first day of the legislative biennium at the Statehouse in Montpelier on Wednesday, Jan. 4. Photo by Glenn Russell/VTDigger

Since 2007, Vermont has awarded more than $33 million in incentives to companies that are opening or expanding in the state — a program that supporters say brings in far more in tax revenue and economic value than it costs.

But little information is publicly available about the businesses that have received grants through the Vermont Employment Growth Incentive program, including whether they actually lived up to the promises they put in their applications. This year, some lawmakers are hoping to change that.

A new bill, H.10, would create new requirements for the incentive program to report on previously “proprietary” data — including on how much money businesses have gotten each year from the state, how many jobs they’ve created and how much revenue they’ve put in state coffers thanks to corporate incentives.

It would also change the administration of the program, eliminate additional incentives and pause incentives entirely when the state’s unemployment rate is low, like it is right now.

This is not the first time the bill’s co-sponsor, Rep. Emilie Kornheiser, D-Brattleboro, has tried to overhaul the state’s 15-year-old incentive program, which is administered by the 11-member Vermont Economic Progress Council. A similar bill introduced in 2021 died in committee after just two meetings to discuss it. 

But the renewed effort this biennium comes with the weight of Kornheiser’s new status as chair of the House Committee on Ways and Means. The bill’s other co-sponsor, Rep. Michael Marcotte, R-Coventry, is chair of the House Committee on Commerce and Economic Development, where H.10 will begin. 

The bill also comes on the heels of recent high-profile failures and complications for recipients of state incentives. In September, MTX Group canceled its plans to open an office in Waterbury that it advertised would create 250 Vermont jobs, according to Vermont Public.

The group had been “considered” for more than $6 million in incentives that would be distributed annually from 2021 to 2025, according to the incentive program’s most recent annual report. It’s unclear how much the company actually received, because that information is part of what the program considers proprietary information.

Each award is portioned out over a nine-year period based on five years of data on award targets, and companies have to file a claim with the Vermont Department of Taxes for each year in order to prove they have fulfilled their plans, according to Abbie Sherman, executive director of the Vermont Economic Progress Council, which administers the program. 

If a recipient did not meet the requirements for a given year, it can ask for an extension of the award period in order to meet them, Sherman said.

And in December, Williston-based insurance company Polly laid off 47 employees, including 17 Vermont-based employees, despite being awarded up to $360,000 in state incentives that are partially intended for job growth.

Again, it’s unclear how much money Polly actually received. According to spokesperson Ben Jastatt, the company applied for the incentive only through 2019 and got $60,000 in incentives. 

Sherman said she couldn’t confirm the amount Polly has received, nor could Tax Commissioner Craig Bolio, because of the program’s rules on proprietary information. 

Kornheiser said even the Legislature’s Joint Fiscal Office is not able to get the information it needs “to even do an analysis on whether or not the program is effective, or even operating according to statute.”

To State Auditor Doug Hoffer, a longtime critic of the program, the lack of information makes it hard to evaluate how well the program is able to generate revenue for the state.

“Taxpayers are giving up millions of dollars, and it doesn't seem appropriate to me for the agency and VEGI to say, ‘This is what you got for your money,’” without providing the receipts, he said.

He believes the state’s protection of company details is unnecessarily restrictive, given how many of those details are accessible elsewhere.

“If you were a widget manufacturer, and one of your competitors, another widget manufacturer, was going to (the state) for a VEGI application ... if you're worth your salt, you know exactly how many employees they have and you know what their plans are,” he said.

Sherman said it would not be appropriate for her to comment on the bill at this time.

Gov. Phil Scott has long been a supporter of the incentive program. In 2018, he pushed for an expansion of the program that would have opened it up to small businesses. That legislation, too, died in committee. 

In a statement via spokesperson Jason Maulucci, Scott indicated that it was “too early” to weigh in on H.10 — but said that he is “open to a conversation on improving VEGI, which is the State’s only business incentive program, with an eye towards making it simpler and more transparent.”

Kornheiser said Vermont has long prided itself on the fact that its incentive system has more accountability because money is paid out only if the company’s goals are actually met, and awards are tested against a “but for” clause — meaning that companies get the award only if they would not have developed in Vermont “but for” the grant.

“But I think we saw that play out with MTX this summer, that there isn't much integrity in how those attestations take place or how they're asked for,” she said. “That's a really challenging part of the disconnect between the intent of the program and how it's being carried out.”

Creating jobs in the post-pandemic labor market

In November 2022, the unemployment rate in Vermont hit 2.5%, according to the Department of Labor. That’s close to the 20-year low of 2.1% the state reached over the summer.

Vermont employers have complained about the difficulty in finding workers in sectors as varied as health care, education, food service and construction. It’s against this backdrop that Kornheiser questioned the need for the state to give money to companies for hiring Vermonters.

“Every business in the state” has been talking about the need for state investments into “training new workers, creating programs to help people find work that works for them, and building out social infrastructure so that folks can work,” she said. “And so why, in the face of that, would we be spending money creating jobs rather than ensuring that folks can get to the jobs that already exist?”

The new bill would limit the incentive program to award grants only if the state unemployment rate is above 5.0%. Besides the early months of the Covid pandemic, the last time that rate exceeded 5% was during the Great Recession, from about 2008 to 2011.

Kornheiser said she’d like the program to focus more on providing high-quality jobs that pay a living wage and provide decent benefits. The program said in its annual report its average wage for recipients was $58,350, but it did not break down those wages by company.

“I think as the years have gone by, both the quality of those jobs has gone down, and the council has gotten … freer with how the statute and the intent behind the statute is interpreted,” she said.

One example, Kornheiser said, concerns the program’s Labor Market Area enhancements, which provide additional funding to companies that open up shop in economically disadvantaged areas.

For most award recipients, the amount they receive is calculated as a portion of the revenue the state expects to gain back from them. Under the enhancement, the state gives the full amount of that calculation to the company, Kornheiser said.

The original statute said that companies can receive a labor market enhancement for opening in a place with “higher than average unemployment or lower than average wages.” But Hoffer said the unemployment rate is reported by the Bureau of Labor Statistics at the county level, regardless of where the company is based within that county.

Some of the locations where companies have received the enhancements, like Springfield and Lyndonville, have higher-than-average poverty rates and lower-than-average incomes, according to Census data.

But other recipients have gotten the enhancements in towns like Waterbury and Waitsfield, which have household incomes close to or higher than the state average, according to the Census.

Hoffer said of the Bureau of Labor Statistics, “They do the best they can with what they have. But the (data) is not made for something like this.” 

New watchdogs?

Along with changing what’s given out to companies in Vermont, H.10 aims to change who in state government has the authority for giving it.

The bill curtails the governor’s appointment of members of the Economic Progress Council from nine to five of its 11 members. The rest of the appointments would be split between the House and Senate.

It would also change the administration of the program, moving it from the Agency of Commerce and Community Development — which is tasked with encouraging business growth in Vermont — to the Department of Financial Regulation, which plays more of a watchdog role.

“This isn't the first time people have scratched their heads a little bit about, ‘Well, should the same entity both promote and regulate state-funded activity?’ The answer, of course, is no,” Hoffer said.

Asked about the program’s ability to regulate companies like MTX or Polly, Sherman said “guardrails” were in place to prevent companies from manipulating the program, such as the ability to recapture funds from companies that have a 90% or more reduction in their payroll.

But Hoffer said the requirement for recapture is “excessive,” because it’s not that often that companies cut jobs in large numbers. 

If a company starts with 100 jobs, asks for an incentive to add 30 more, then “hits a bad streak,” unless the company goes down to just 10 jobs, “VEGI can’t claw back one penny of what they gave you,” he said.

Six of the program's 73 recipients have had their awards canceled or terminated, then had their incentives recaptured, according to program data. About 45 recipients failed to meet their performance requirements under their application, but did not have funds recaptured. It’s unclear how much in incentives went to those companies because of the way the program reports that data.

Hoffer has other ideas for how to overhaul the program even further — including instituting an equity share for companies to pay back the state if they hit it big. “Nobody’s quite willing to put it into a bill,” he said.

He gave the example of Green Mountain Coffee, which was sold for $13 billion in 2015 after receiving about $7 million in state incentives. 

“That company has come to VEGI on three or four occasions and said, ‘We can't grow without your help,’” he said. “OK, if that's true, then how come when you got sold for $13 billion, you didn't turn in the money back to the state? … Where's our share? Where's the love?”

Hoffer predicted that, as the bill is considered in committee, businesses will come in and testify that they were able to get off the ground only because of this program. “Well, how do they prove that?” he said.

Kornheiser said the bill “sat on the wall” during the previous session in part due to Covid, which took priority during the last legislative session. 

For this session, she’s had some “really good conversations” with regional development corporations about what accountability looks like for this program. 

Marcotte said that, at least in the House, he believes they will be able to “do something” about the program, even if it’s not the exact language that’s in the bill.

He plans to start taking it up after the committee has settled in for the session, and expects to hear testimony from the Agency of Commerce, the Joint Fiscal Office and the Vermont Chamber of Commerce.

“We’ll be listening to everybody and seeing if the administration has some suggestions on how we can accomplish what we want to get accomplished,” he said. “And that's more transparency and making sure that we're using VEGI and the VEGI board in the correct way.”

Correction: An earlier version of this story misstated details about the program's award payment period and average wage for recipients. Due to an error in the program's annual report, the story reflected inaccurate information about the location of a Labor Market Area enhancement recipient. The story has also been updated to clarify the status of "concluded" awards.

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Erin Petenko

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