Sullivan: Clarifying the Vermont Employment Growth Incentive program

09 November 2018

Contact: Megan Sullivan
Executive Director Vermont Economic Progress Council
(802)798-2221
Megan.Sullivan@Vermont.gov

Vermont, like all States, continuously strives to ensure that taxpayer investments are well spent.  The Vermont Employment Growth Incentive, or VEGI as it is known, is no different.  VEGI has been recognized by Good Jobs First as a high performing growth incentive program that also protects taxpayer dollars.  A recent news report raised questions about VEGI and whether tax payers are protected from paying incentives to a company in the program if jobs are lost.  These inquiries on the use of taxpayer investments provide an opportunity to more fully illuminate the details of programs that are not in the mainstream of public consciousness.

As Executive Director of the Vermont Economic Progress Council (VEPC), the body that administers VEGI, I would like to take this opportunity to provide essential detail about how the program works and highlight the protections and checks in place.

Background

VEPC has served as an approval and authorization body for VEGI since the program was created by the legislature. VEPC is an independent board of eleven Vermonters from around the state and includes two legislators.

The VEGI program was developed to create a performance-based incentive program that promotes quality jobs, brings revenue to the State, and protect tax payers.

In the first 10 years of the program, VEGI award recipients have created over 6,200 new jobs with an average annual wage of $59,346.

How the program works

When authorizing an award for the VEGI program VEPC determines whether the company and proposed project meet statutory requirements that were set in the authorizing legislation. The value of the incentive is based on a percentage of the estimated additional tax revenue the State gains by prospective qualifying jobs, payroll creation, and capital investments made by the company.  The estimated net revenue to the state over the 10 years has been $38,866,762.

VEGI is not a grant or financing program. Companies are not paid any incentive upon approval of their VEGI application. Incentive installments are only paid after annual performance requirements are met and maintained. While tax benefits start accruing to the state as a company creates jobs and invests in capital improvements, the incentives installments are paid out to the company only after the projected activity occurs.

Protecting Tax Payer Interest

Each year every company in the program submits a claim to the Tax Department with data on employees, payroll, and capital investment. Each claim is verified individually to ensure that incentive installments are only paid to companies that have met and maintained their projected performance goals.

Not all projects meet their initial projections and taxpayers are protected when that occurs.  From 2007 to 2017 approximately 50% of projects have not fully met their growth projections and awards have been curtailed or canceled when that occurs. Over that period, $21,654,712 in authorized incentive that was not earned by meeting and maintaining growth targets was not paid out.  The program also has a recapture requirement if a company participating in the program severely cuts employment or closes.  That story unfortunately has two sides.  While the taxpayer was protected, the fact that only 50% of companies hit their growth targets may be emblematic of the challenges to growth that businesses face.

There are occasions when a company in the program far exceeds its VEGI performance requirements. In these situations, the business can only earn incentive for targets that were set in their original approval and not for additional jobs that were added above that target. In other words, while the State benefits from growth beyond the initial target in these cases, there is no additional incentive paid to the participating company.  If later in its evolution a participating company has a layoff, the incentive may still be earned if the outcome does not shrink performance below the approved VEGI target requirements.

National and international competition for business is fierce. In recent years we all saw the commercials New York State aired in Vermont offering 10 years of tax cuts to businesses that relocate there.  Companies that provide good wages with benefits (just two of the requirements to participate in the VEGI program) are sought after in every state and incentives are a primary tool to help grow these jobs. The revenue these businesses and their growing workforce provide to the state is immense. It grows Vermont’s economy and allows the State to provide critical services to our most vulnerable citizens.

To learn more about this program, participating businesses, and the VEPC board visit https://accd.vermont.gov/economic-development/programs/vepc.

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