Vermont Must Reconsider VEGI Application Process

posted by Ian Wyatt | February 8, 2010

The goal of the Vermont Employment Growth Incentive (VEGI) is a good one – to provide financial incentives for businesses to create new jobs in the state.

This is good for businesses because they must meet hiring and payroll goals in order to receive the financial rewards. This is good for the state because the added jobs generate payroll taxes, have a net positive effect on state revenues and have a positive economic impact on the overall community. And this is good for the people of Vermont, because more jobs means a stronger economy with lower unemployment, fewer people depending upon social services from the state and a healthy real estate market, among many other things.

But the key problem with the VEGI is the “But For” standard that the Vermont Economic Council must uphold. The council is required to determine “whether the proposed economic activity would not occur or would occur in a significantly different and significantly less desirable manner except for an incentive (But For).”

It has become clear to me that the “But For” essentially requires applicants to seek out competing tax incentive offers from other states. The three VEGI applicants who were approved at the January 2010 meeting each presented at least one tax incentive plan from another state. And I suspect that this is the case for most companies that are successful in receiving VEGI awards.

I disagree with the relevance of the “But For” requirement. But if the council looks to competing bids from other states as a key to determining whether an applicant meets the “But For” requirement, than the application should simply require competing incentive offers from other states (rater than making this optional).

For a smaller company such as mine, the time and cost of traveling around the country and filing multiple applications to different states would be extremely time consuming and expensive. And given the relatively small size of the potential incentive, it wouldn’t have been worth shopping around for a good deal from another state.

But the council has made clear through their votes that in order to meet the “But For” requirement, a VEGI applicant should present a tax incentive plan from another state. By doing so, it shows the council that the applicant is seriously considering options other than Vermont. And it makes it easy to justify their favorable vote if questioned by taxpayers – the council can simply point to the money offered by New York or California, and show that the company might have moved if not for the VEGI award.

I question whether this part of the VEGI program is good for Vermont. This part of the application process encourages companies to explore options to leave Vermont, when instead the state should be finding ways to encourage them to stay.

It also creates roadblocks and makes the application process more onerous on the small business owner by forcing them to go through the lengthy VEGI application and a similar process in another state. Larger companies have the resources to do so, but for companies with ten or twenty employees, this presents challenges and undue expenses.

There is simply no need for the “But For” standard as currently applied. The VEGI should be expanded to provide incentives to businesses looking to create jobs in the state regardless of any competing offers. The council shouldn’t force business owners to consider options other than Vermont, or encourage them to shop around for a better deal somewhere else.

As their name suggests, the Vermont Economic Progress Council should be focused on job creation by companies that want to do business in the state and create high quality jobs. I support the diligence and thorough review of applicants to be assured that the jobs are desirable for the state. The VEGI has the right goals, however, the “But For” requirement places an undue burden on companies and is contrary to the ultimate goal of the program – which is to create jobs in Vermont.

The VEGI should be changed to provide financial incentives to companies that are expanding within Vermont and creating new jobs. The VEGI is only flawed because of the “But For” requirement. The council should instead remove this requirement, and simply provide tax incentives to companies that are creating new jobs in the state, regardless of whether or not they threaten to leave.

More jobs are good for Vermonters, and they’re good for the state. Let’s work to give incentives to businesses that are creating jobs in our state.

I love living in Vermont and think this could be a great place to transition my company. The negative ruling from the Vermont Economic Progress Council won’t necessarily dissuade me from considering Vermont as a future location of my company. At the same time, the lack of tax incentives from the state means that I’m equally inclined to hire someone in outside of our state.

The council could have taken action that would have greatly encouraged me to hire all new employees in Vermont. Instead, they chose to deny my VEGI application. As a business owner, I’ll continue to make decisions that are in the best interest of my company and personal financial situation.

Just last week, President Barack Obama proposed a job creation plan to help jump start hiring in the country. He’s asking Congress to approve a $5,000 tax credit for every new hire in 2010. The tax credit doesn’t even require an application. And I’m pretty sure that companies won’t have to meet with economic development officials in Canada or Mexico in order to get the credit.

Let’s follow Obama’s lead and work to make Vermont a more desirable place for businesses by giving tax incentives to growing companies that are hiring new employees and want to be located in Vermont. We can simplify the VEGI program to make it more accessible to smaller companies and encourage Vermont entrepreneurs to keep their companies here, rather than encouraging them to seek options that include leaving the state.

You can read part one, part two, and part three of this blog series about the Vermont Employment Growth Incentive using the following links:

Vermont Rejects 15 New Jobs

posted by Ian Wyatt | February 5, 2010

Posted in Economy | Comments

With my application in good shape, last Thursday I headed to Montpelier for the Vermont Economic Growth Incentive (VEGI) meeting with the Vermont Economic Progress Council, expecting to be awarded tax incentives for the relocation of Business Financial Publishing to Vermont and creation of 15 new jobs in the state.

After all, my company was currently located outside of the state with no Vermont-based employees. We met the standards for the types of jobs and benefits that the state seeks under the program. And we are a high-growth, profitable business in the expanding Internet information sector.

During my presentation I discussed that my company was based in Washington, DC, and that while my wife and I were full-time Vermont residents, we had not made a decision regarding the potential relocation of my company’s operations to Vermont. I made it clear that my company could be based anywhere, including Washington, DC or Vermont, and that approval by the council was a determining factor in my decision-making process.

Unfortunately, the council found that my application didn’t meet the “But For” requirements of the VEGI program. The “But For” is a judgment that the council must make to determine “whether the proposed economic activity would not occur or would occur in a significantly different and significantly less desirable manner except for an incentive.”

In an eight-to-one vote against my application, the council judged that I would relocate Business Financial Publishing to Vermont regardless of their decision to give me incentives, and therefore I did not meet the “But For” requirement in their opinion.

Earlier in the month, it appeared that Vermont was committed to continuing to encourage job creation. The Burlington Free Press reported that “Gov. Jim Douglas and the heads of the Legislature's four money committees -- who make up the Emergency Board -- voted unanimously to raise the cap on the employment growth incentives that the Vermont Economic Progress Council could award this year from $10 million to $23 million.” Half of the 2010 incentives had already been awarded and four applicants slated for the January meeting were requesting a total of $12.7 million in incentives.

The three other applicants at the VEGI meeting included Dealer.com, Hayward Tyler and Skypoint Solar. Combined, these companies were approved for $12.5 million in incentives for the creation of 815 jobs. I certainly congratulate these other applicants for their success, and hope that these VEGI incentives help to bring many much needed jobs to Vermont.

However, the council’s decision to reject my application – which was by far the smallest of the proposed job creation initiatives – led me to question their decision and examine the key factors and differences that may have contributed to the rejection of my application.

Like the other applicants, I was personally located in Vermont as a resident. But unlike the winning applicants, my company is also the only one that is not currently headquartered in Vermont.

Unfortunately, state politics played a role in the rejection of my application. There is currently increased pressure on the council to closely scrutinize VEGI applicants. With the current tax revenue shortfalls, the council (including two state legislators) doesn’t want to appear to be simply rubber stamping applications for approval.

By rejecting my small application for incentives to create 15 new jobs in Vermont, the council demonstrated that they closely examine applications and aren’t simply handing out taxpayer money to anyone who applies. This resonates well with most Vermont residents who are skeptical of the incentives in the first place, because they assume every company should want to be based in Vermont, and will create jobs here regardless of any incentives from the state.

But at the same time, by approving the incentives for the three largest applicants, there were news headlines like “Three Firms Get Preliminary OK for $12.5 Million In Job Creation Incentives.” After all, just think of the backlash that would have occurred had the headlines read “Vermont Council Rejects 830 New Jobs.” If the council wanted to show that they were thorough and diligent, but also pro-jobs, my application was clearly the easy one to reject.

Based on my discussions with the other applicants, there was one key difference between my company’s VEGI application and those companies’ that were approved. And that one difference was that every one of the companies that was approved by the council at the January meeting had received competing incentive offers from at least one other state.

The other applicants pled their cases to the council for the job creation incentives, and presented competing offers from California, New York or Oregon. They then told the council that if they didn’t get the appropriate financial incentives from the state of Vermont, they would seriously consider defecting to other place that would reward them for economic progress and job creation. This appears to be what the council wants to hear, because these incentive packages from other states can be used to justify their decision to issue tax incentives.

My company had not met with economic development officials from other states, since our consideration was either to stay in Washington, DC or relocate to Vermont. I didn’t feel the need to shop around for a deal from other states, since my consideration was simply a continuation of our current business in Washington (for which I assumed the DC government would be unwilling to grant incentives) or relocation to Vermont.

After the voting, during which my application was shot down, one friendly council members thanked me for my time and explained that the council thought that I would relocate Business Financial Publishing to Vermont regardless of any incentive from the state – and that any incentive would therefore be a waste of taxpayer dollars.

While the council members may think that their decision will have no impact on my decision, I think it’s important to point out what would have happened if I was approved, and what will happen since I was rejected.

If I was approved, I would have:

•    Started hiring for four vacant jobs exclusively in Vermont
•    Looked for ways to further grow our Vermont presence with additional employees
•    Planned for meeting the goal of 15 new employees within three years
•    Searched for suitable office space expansion with growth options in Chittenden County

But since my application was not approved, I have no incentive to do any of these things. Will I hire employees in Vermont at some time? Yes. Will I begin aggressively hiring employee immediately? Perhaps not. And will I work to assure that I add 15 new employees in Vermont to my staff in the next three years – certainly not.

The VEGI program is designed to encourage companies to develop an aggressive and achievable hiring plan focused on job creation. The incentives would have encouraged me to grow my business in Vermont by hiring employees locally.

However, without a VEGI from the state, I have no incentive to hire people in Vermont. I’m equally inclined to hire someone in Washington, DC, Boston, Chicago or San Francisco.

It is unfortunate that the council voted against my application, since their approval would have created four new jobs in Chittenden Country within the next month, and added at least 15 new jobs over the next three years. Compared with the incentives that were passed to create 815 jobs, my plans were tiny. But for unemployed individuals in greater Burlington with experience in advertising, marketing or writing, these jobs would have meant full-time employment with many benefits right now.

Thanks to the ruling of the Vermont Economic Progress Council, these jobs may not be created in Vermont. They may be created elsewhere, or given to contractors or freelancers who can do their job from home without the benefits of full-time employment.

While the council may feel that my relocation to Vermont was certain, I can assure you that their decision will guide my business decisions in the coming years as I consider my options for expanding Business Financial Publishing.

When I moved to Vermont, I thought that this was a forwarding thinking state that supported the small business owner. While my plans didn’t involve hundreds of jobs, I assumed that the state would welcome a small business with 15 new jobs to the state, and proactively take actions to encourage that relocation. I was apparently mistaken.

You can read part one and part two of this blog series about the Vermont Employment Growth Incentive using the following links:

Inside a Vermont Employment Growth Incentive (VEGI) Application

posted by Ian Wyatt | February 4, 2010

Posted in Economy | Comments

With unemployment in Vermont at 6.9 percent, the people and government in our state recognize that job creation is at the top of a list of concerns about our economy. And like many states, Vermont has a program in place to give tax incentives to companies that create new jobs within the state. The program is the Vermont Employment Growth Incentive (VEGI), and aims to give payroll tax credits to companies that expand within the state and create jobs.

Today I’ll give you a quick overview of the program and my application.

The Vermont Employment Growth Incentive (VEGI)

The VEGI program provides a tax rebate to companies that apply with a job creation plan and are approved by the Vermont Economic Progress Council. An applicant to the program must meet a defined standard to evaluate whether the jobs and business would be “good” for Vermont. If these standards are met (which my company did) than the next step is to present to the council comprised of seven local business owners and two members of the state legislature. The primary focus of the council is to determine the “But For” component of the application is met, and whether the economic activity would happen regardless of the incentive.

The program isn’t simply a hand out to businesses (which is a good thing). Rather, it is more like a rebate based upon a company achieving its payroll and hiring goals, whereby Vermont gives back a portion of what the company pays in to the state for its portion employee state payroll tax.

Incentive programs like this are important. Speaking from my own personal experience as a business owner, I’ll say that tax and incentive programs do impact decisions. If a state wants to encourage economic activity such as job creation, than creating programs that reward business owners who create jobs is a very positive thing – it’s good for residents and businesses.

This is that the Vermont Department of Economic Development says about the VEGI program:

The VEGI program and the property tax programs are intended to provide incentives from the State of Vermont to businesses to encourage prospective economic activity in Vermont that is beyond the applicant’s “organic” or background growth and that would not occur, would not occur in Vermont, or would occur in a significantly different and less desirable manner, except for the incentive provided. The economic activity can be generated by a Vermont company or a Vermont division which plans to grow and expand, a company that is considering Vermont to locate a new business or division, or start-up business activity. Once authorized, the incentives can only be earned and installments paid if targets are met and maintained. Authorization for any of these programs occurs through application to the Vermont Economic Progress Council, who must determine if the company and project meet statutory requirements, including:

•    Whether the proposed economic activity would not occur or would occur in a significantly different and significantly less desirable manner except for an incentive (But For).
•    Whether the proposed economic activity will generate more incremental revenue for the state than is paid out by the incentive (cost-benefit modeling).
•    Whether the company and economic activity meet a set of “quality control” guidelines.

Business Financial Publishing: VEGI Applicant

My wife and I are full-time Vermont residents, having moved here a year ago from Washington, DC. I was born in Vermont, and have family ties to the state. After living in a big city for nearly a decade, we decided to relocate to Vermont.

Since I am “self-employed,” the move was fairly easy. My company, Business Financial Publishing, is based in Washington, DC where we employ six full-time employees. I travel down to Washington, DC regularly to connect with my staff and otherwise direct our operations from my home office.

Business Financial Publishing is an Internet company that publishes investment newsletters and generates revenues from the sale of advertising and paid subscriptions. Given the nature of our business, my company could be located anywhere in the world or operate virtually. In the past we have operated a core office and also employed freelance contractors throughout the United States. At the height of our business before the recent recession, we employed 18 full-time employees in Washington, DC and another 20 freelance contractors that were the equivalent of five additional full-time employees.

Last year I became aware of the VEGI program and was encouraged by several local business owners to consider relocating Business Financial Publishing to Vermont and to seek out incentives. After a positive meeting with the Greater Burlington Industrial Corporate (GBIC), the local economic development organization for Chittenden County, I decided to apply to VEGI.

My VEGI application was for the relocation of my company’s headquarters and core operations from Washington, DC to Burlington, Vermont and requested the incentives in order to help pay for recruitment, relocation and training of new employees in Vermont. Over a period of three years, I planned to create 15 new jobs in Vermont through the creation of new positions. My company currently has four job openings and plans to hire additional employees in the coming years as we emerge from the economic downturn.

I believe our company is a good employer and would be beneficial to the state. We pay our employees nationally competitive salaries, and offer a host of benefits including health insurance, dental insurance, paid vacation, a company sponsored 401k plan, profit sharing and cash bonuses. I know that our employees are the most valuable asset, and share generously with them when the company is successful.

The VEGI program administrator who reviewed our application felt that everything was in order, and that our company would be a positive contributor to the state by creating new, high quality jobs. After completing the extensive online application, I was slated to present my case for the VEGI program and field questions from the board at a hearing on January 28.

My company was seeking approximately $160,000 in tax incentives from the state, which calculated that the net benefit to the state from our job creation plan would be about $70,000 after paying the incentive. The tax benefit would be paid out over a period of five years only if the payroll tax goals were achieved.

While this may not seem like a significant amount of money, it is relevant to a small company like mine. In my next blog post, I’ll discuss the decision of the council to reject my application to the VEGI program on the grounds that we didn’t meet the “But For” standard. Plus, I’ll share my thoughts on their decision, what could have happened if we were approved, and what will happen because we were declined.

Is Vermont Committed to Job Creation?

posted by Ian Wyatt | February 3, 2010

Posted in Economy | Comments

Losing is never fun. Especially if you lose when you think you should have won.

Last Thursday, I presented my company’s application to the Vermont Employment Growth Incentive Program (VEGI) in Montpelier, Vermont. Despite my plans for the creation of 15 new well-paid jobs in Vermont, the Vermont Economic Progress Council ruled against my application.

As an entrepreneur and small business owner, I can honestly say that I’m used to having my way. And I thought that my application to VEGI far exceeded the criteria of the program and would result in a positive ruling by the council, approval of my application and tax incentives to create jobs in Vermont.

While I’m disappointed by the council's decision, I’m more concerned about what anti-job growth rulings such as this mean for the state of Vermont and our ability to recover from the current economic recession that has left thousands in this state unemployed. I hope that the feedback I provide proves helpful to other entrepreneurs considering relocation to Vermont and application to the VEGI program, and shares my unique prospective on this program with residents, business owners and government leaders in Vermont.

In my next several blog posts, I’ll share my thoughts on the application process, the Vermont Economic Progress Council’s decision against my application, discuss my criticisms of VEGI, and the role of this program in creating jobs in Vermont. Please stay tuned…

Record Unemployment Hits Small Businesses

posted by Ian Wyatt | November 10, 2008

Posted in Economy | Comments

The U.S. economy continues to show signs of prolonged weakness with a report last week from the U.S. Labor Department that 240,000 jobs were lost during the month of October, bringing unemployment to a 14-year high of 6.5%. The negative report for October follows worse than expected job losses of 284,000 in September (versus an estimate of 159,000).

Small businesses have long been considered a driving force in the creation of new jobs fueling economic growth. However, along with the thousands of jobs being eliminated at major corporations throughout the country, small businesses are also holding back on new hires and looking for positions to be eliminated.

Small businesses such as my company, Business Financial Publishing, haven't been immune to the suffering economy. Many small businesses, while entrepreneurial and high growth during the good times, have had to cut back as a result of the economic slowdown and collapse of the financial markets. Unfortunately, many small businesses have been impacted by reduced spending and tightening budgets at larger companies. While we may not be directly impacted by the tightening credit markets, our customers are. And the consequence of this is less spending on all things ranging from R&D to advertising and marketing.

In a 2008 survey of companies included in the Inc. 500 by Inc. Magazine, all of the companies indicated that they planned on increasing their employee headcount in the next year. I suspect like us, many of these great growth companies have put the brakes on their growth plans.

While we included ourselves among those Inc. 500 companies that had ambitious growth plans for 2008, we are now in the unfortunate position of being forced to eliminate three full time positions in the last few weeks in an attempt to reduce our costs and bring expenses in line with our declining revenues. While these decisions have been difficult, our need to sustain a healthy business have forced us to proactively confront issues related to our cost structure.

I'm hopeful that 2009 will bring renewed interest and recovery for the financial markets. 2008 has proven a more challenging year than expected, but I'm confident that we have a great team in place to help get us back on the path of growth and prosperity.

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