Vermont Must Reconsider VEGI Application Process

posted by   Ian Wyatt   |    February 8, 2010

Posted in   Economy   |   Comments

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:

• Part 1: Is Vermont Committed to Job Creation?
  
• Part 2: Inside a Vermont Employment Growth Incentive (VEGI) Application
  
• Part 3: Vermont Rejects 15 New Jobs

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