Vermont Auditor Doug Hoffer says the state paid out too much in federal business recovery grants last year, helping some businesses make more money in 2020 than they did pre-pandemic in 2019.
In a report released Wednesday, Hoffer said the Agency of Commerce and Community Development paid $117 million in federal money to 2,278 businesses in the first year of the pandemic.
The agency processed most general business applications, as well as applications for women- and minority-owned businesses with no employees.
Private businesses received up to $300,000 through the program, part of a $600 million COVID-19 relief package that Gov. Phil Scott signed into law in early 2020 using funds from the $2 trillion federal emergency stimulus measure. (Hoffer's report doesn’t cover grants from a separate program administered by the state Tax Department, which processed applications for businesses such as restaurants, bars, lodging, retail and entertainment.)
Lawmakers put together rules for the grant program in the spring of 2020, and the agency started accepting applications in July. Hoffer said the agency paid 401 businesses $4.4 million more than they lost as a result of COVID in 2020 — a possible breach of the federal rules governing the funds.
Hoffer said agency was alerted to a design flaw in the program and didn’t address it.
“We reviewed detailed records for a sample of businesses and found that less than half demonstrated revenue losses that justified the award amount,” he said. “More than a year after being informed of this flaw, [the agency] has not provided any evidence that they have taken steps to address the issue.”
Commerce Secretary Lindsay Kurrle said the money was delivered in accordance with federal and state rules.
“We stand by the work that was done to keep Vermont’s economy afloat during a once-in-a-century crisis,” said Kurrle in a letter responding to the report. She didn't address Hoffer’s specific concerns.
Kurrle noted that 86 percent of the grant recipients were small businesses with revenues of less than $1.5 million. Women- and minority-owned businesses received 34 percent.
About two-thirds of the businesses that Hoffer’s office examined were more profitable in 2020 than in 2019, he said. The report also said a company that was in Chapter 7 bankruptcy received $6,000, a violation of the program’s rules, and 49 businesses that had past due taxes received about $2.7 million.
One hundred and forty-eight businesses that hadn’t registered with the Secretary of State’s Office, or that had inactive registrations, received a collective $3.8 million.
Hoffer said one business his office reviewed decided to return its award, saying that it didn’t experience a net loss in 2020.
When lawmakers were crafting the grant program in the early months of the pandemic, one of their top priorities was to pass on the funds quickly to prevent desperate businesses from closing.
In its second round of grant applications, in September 2020, the agency introduced new questions to the application, requiring businesses to list other sources of COVID-19 assistance, such as federal Paycheck Protection Program loans or grants. Six of the businesses the auditor’s office examined didn’t reveal all of the money they had gotten from other sources, and received higher awards than they should have, Hoffer said.
State and federal business grants flooded Vermont in 2020, raising state revenues far beyond expectations. Many business owners have said the money not only helped them survive the first year of the pandemic but positioned them to thrive in its wake.
Danforth Pewter in Middlebury received $150,000 through the state grants program, along with a $600,000 Paycheck Protection Program grant and $150,000 through the U.S. Small Business Administration's COVID-19 Economic Injury Disaster Loan program. Sales at the company, which employs about 70 people, dropped nearly to zero for a few months after it closed its stores, said CEO Bram Kleppner. He thinks the programs prevented Danforth from going out of business.
“I was impressed with Congress and the Vermont legislature in understanding how urgent things were, marshaling a lot of resources, putting together programs quickly, and getting them out there, though I think they knew it was imperfect,” Kleppner said. “They said, ‘We have to get this out there; we can fix it as we go.’”
Correction, September 28, 2021: An earlier version of this story misstated methodology used in the audit report. Further, that earlier version also misstated the number of companies lacking current registration with the Secretary of State's Office that received relief funds. The story has been updated accordingly.