Vermont Lawmakers Question Job-Creating Subsidies at a Time of Low Unemployment | Politics | Seven Days | Vermont's Independent Voice

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Vermont Lawmakers Question Job-Creating Subsidies at a Time of Low Unemployment


Published February 6, 2023 at 7:34 p.m.
Updated March 7, 2023 at 4:41 p.m.

  • Tim Newcomb

South Burlington battery technology startup Resonant Link has shown an impressive capacity for raising cash to fuel its growth. The firm, founded by Dartmouth College grads in 2017, got an initial infusion from FreshTracks, a venture capital firm in Shelburne. Then, early last year, it raised $9.3 million from the Engine, a fund connected to the Massachusetts Institute of Technology.

The money has allowed the young company, which specializes in wireless battery chargers, to go on a hiring spree, nearly tripling in size last year from 18 to 45 people.

Another secret to its success: Vermont taxpayers. Resonant Link is the latest employer to tap into a state economic development program designed to reward companies for creating good jobs. Officials at the Vermont Employment Growth Incentive program agreed last year to pay Resonant Link $941,000 over the next seven years if it creates and fills 30 new jobs.

"The VEGI program has been a big incentive to focus our hiring in Vermont," said Grayson Zulauf, CEO and cofounder of Resonant Link, which employs people in other states, as well.

In light of Vermont's low 2.6 percent unemployment rate, however, some lawmakers question whether the state should be urging companies to expand when many can't fill the job openings they already have.

"Maybe this isn't actually the right time for a program like this to be operating," Rep. Emilie Kornheiser (D-Brattleboro) told colleagues last week.

Since it began in 2007, VEGI has spurred $1.1 billion in capital investments and created 8,812 new jobs that have generated $515 million in payroll, according to the program's annual report. The 48 beneficiaries have included some of the state's marquee firms, including, Seventh Generation, Beta Technologies and Lawson's Finest Liquids.

To achieve this economic growth, the state paid companies a total of $34 million. That's a phenomenal return on investment, said Frank Cioffi, president of the Greater Burlington Industrial Corporation, a regional economic development nonprofit that helps companies apply for VEGI grants.

Lawmakers and other state officials are nevertheless calling for an overhaul to make the process for awarding the incentive dollars fairer, simpler and more transparent. A bill aiming to do just that, H.10, has stirred robust debate in the Statehouse.

The bill would pause the VEGI program whenever the state unemployment rate drops below 5 percent. If December's 2.6 percent rate held and the bill passed, most new incentives would be immediately suspended.

Rep. Mike Marcotte (R-Coventry), chair of the House Committee on Commerce and Economic Development and the bill's cosponsor, said when unemployment is high, creating jobs is a public service, but in better times that justification doesn't hold.

Jobs created by the VEGI incentives are sometimes filled by people moving to Vermont. But in many cases, the positions are snapped up by Vermonters who quit another company, Marcotte said. That sets up a competitive dynamic between subsidized and unsubsidized businesses that he finds troubling.

"Is it right for us to use taxpayer dollars to cannibalize those workers from other businesses?" Marcotte said. "That's the problem."

Kornheiser, the bill's other cosponsor, said she's studied the VEGI program and thinks the competition it creates among companies is "not really something we necessarily want state government to get involved in."

Economic development officials decry Marcotte and Kornheiser's proposal, calling it shortsighted and a death knell for the state's only real tool to encourage job growth.

"If the legislature passes that, they would be saying they don't want economic incentives, essentially," Cioffi said.

Rep. Mike Marcotte - FILE: DON WHIPPLE
  • File: Don Whipple
  • Rep. Mike Marcotte

In a small state surrounded by states with larger economies and more aggressive business-attraction programs, killing VEGI would be a terrible mistake, said Joan Goldstein, commissioner of the Department of Economic Development.

"If you're going to get rid of it and you sit between New Hampshire and New York, that's, like, suicidal," Goldstein said.

It's not just competition from immediate neighbors, according to Austin Davis, government affairs manager for the Lake Champlain Chamber. Vermont is competing with states around the nation.

"To say that we shouldn't have some sort of incentive program is capitulation," he said.

Kornheiser counters that Vermont's economic incentives are so paltry that it's a fool's errand to try to match the enticements offered elsewhere.

"We're never going to beat these other states at that game," she said. "We need to play our own game."

Though not wedded to the 5 percent unemployment figure in the draft bill, Marcotte thinks some mechanism is needed to pause the program when the job market is tight. Labor officials have testified that 4 percent unemployment is healthy for Vermont, and the bill could be amended to reflect that figure, he said.

While a VEGI "pause" provision makes sense, Marcotte said, he supports continuing incentives for businesses that make capital investments, such as new machinery to make them more efficient or competitive.

Lawmakers have a raft of other concerns about the program, however.

Rep. Emma Mulvaney-Stanak (P/D-Burlington) questions whether the state should be paying incentives to firms not based in Vermont. There is plenty of evidence that locally based companies reinvest profits in their communities at a higher rate than those headquartered elsewhere, she said.

"If we're going to use tax dollars on a program like this, we have to be super strategic about it," she said.

Abbie Sherman, executive director of the Vermont Economic Progress Council, which oversees VEGI, responded that companies based elsewhere play an important role in the state's economy. The council granted an award last year of up to $230,638 to a meat processing plant in Swanton owned by Plumrose USA, which is owned by a Colorado-based conglomerate, JBS Foods.

"Those jobs are important to Vermont. Those jobs are important to Swanton," Sherman told lawmakers.

Just how many jobs the incentives create is a mystery. While the total awards to companies are made public, the details are not. This includes how much the jobs pay and whether they were ever filled and the award paid out.

Confidentiality rules prevent that information, as well as the detailed financial data that companies share to justify their incentives, from being made public. That means lawmakers and the public cannot understand the program's efficacy, Kornheiser said.

Auditor Doug Hoffer, a longtime VEGI critic, thinks the lack of transparency makes it impossible to be sure that the state isn't giving away tax dollars. He calls the idea that companies wouldn't create the jobs without the grants a "myth."

"Awarding grants to companies that would have created jobs without an incentive is a waste of precious taxpayer funds," he told lawmakers in written remarks.

In a 2020 audit, Hoffer's office slammed the program for giving a $4.5 million incentive to a Silicon Valley firm, Marvell Technology, that purchased Essex Junction-based Avera Semiconductor for $650 million and promptly laid off 78 workers. Supporters, including Cioffi, said the grant was designed to keep Marvell from leaving the state altogether, a fear Hoffer said was unjustified.

Hoffer has argued that there is no concrete way to tell whether companies need the money Vermont dangles in front of them. The program only pays cash to companies that attest they wouldn't be making the investment or creating the new jobs "but for the incentive," the law reads. It's one of the thorniest and longest-debated provisions of the program.

Sherman told lawmakers she closely scrutinizes claims that the jobs wouldn't be created without the incentive. If a company is already advertising the jobs or has signed a lease on a new property, the company likely intends to move forward regardless of the incentive, she said. Companies must also provide detailed financial information demonstrating the need.

While that proprietary information is now confidential, H.10 would allow it to be shared with lawmakers and legislative analysts but not the general public.

The bill would also reorganize the Vermont Economic Progress Council. Instead of 11 voting members appointed by the governor, the council would be comprised of nine members, five of whom would be appointed by the governor and two each by House and Senate leaders.

The council would also be shifted from the Agency of Commerce and Community Development to the Department of Financial Regulation and would get legal counsel exclusively from the attorney general. The shift is an effort to separate the management of the program from the promotion of it, Kornheiser said.

Goldstein said she welcomes a healthy debate about the structure of the program, especially since it is due to sunset next year and needs reauthorization.

She's proposing changes that attempt to address lawmakers' concerns without rendering the program ineffective, including a simpler award formula. The current one is so complicated "no one can understand it," she said.

"We have to hire an economist to run the model," she told lawmakers. "That's not really a good way to administer a program."

Under her proposed revamp, VEGI would be renamed Think Vermont Investment Program. It would offer a flat $5,000 incentive per job created and $7,500 for jobs created in areas with higher-than-average unemployment. There would be no pause button for periods of low unemployment. Financial information, including companies' tax returns, could be made available to lawmakers but not the public. Additional details, such as how many jobs each company in the program actually creates, would be made public.

Zulauf, the head of Resonant Link, said a high-tech company such as his can hire people anywhere. The company has staff in California, Massachusetts and Switzerland, and it's often easier to hire in major metropolitan areas and have people work remotely.

About half of Resonant Link's workers live in Vermont now. The company wants as many of its employees as possible to benefit from the state's quality of life and its culture of tech innovation, especially in the field of battery technology. The VEGI grant is helping make that happen, he said.

"VEGI has accelerated our growth and increased ... the number of those people that are located in Vermont," he said.

The original print version of this article was headlined "Skip the VEGIs? | Lawmakers question the value of job-creating subsidies in a time of low unemployment"