The Vermont Economic Progress Council (VEPC) is a citizen board including two legislators. When it authorizes incentives to businesses through the Vermont Employment Growth Incentive program (VEGI), no taxpayer dollars go to the company. VEPC determines whether the company and project meet statutory criteria and, if approved, the company is authorized to earn incentives. Incentives are paid only if and when performance requirements are met and maintained. The state receives incremental tax revenues from the project before any incentive is paid.
The VEGI program was developed keeping in mind the lessons learned from the predecessor incentive program. Economic development officials worked closely with the General Assembly to design a program that offers an incentive for good job growth and protects the taxpayers.
The VEGI program annual performance requirements include maintaining base payroll and employment, creating incremental, qualifying payroll and jobs and making qualified capital investments. These are not subjective targets; they are the payroll, employment and capital investment levels the company projected in their application. The annual performance requirements must be met 100 percent. There is no partial payment of incentives if the company gets partway there.
If the company meets annual performance requirements, the incentive is earned for that year, which means two things: First, good jobs were created for Vermonters and the company invested in facilities and machinery in Vermont; second, that economic activity generated new tax revenues for Vermont that would not have been generated if the incentives were not approved. The tax benefits accrue to the state immediately and the incentives are paid out to the company over five years, only after the activity occurs.
Once earned, the activity that allowed the incentive to be earned, and the base payroll and employment, must be maintained. If a company does not maintain their base, or does not meet performance requirements, the incentive installments never start, nothing is paid out. If a company meets performance requirements, but during the installment period falls below the level of performance that allowed the incentive to be earned, the installments are stopped. On the other hand, if a company maintains base employment and far exceeds performance requirements, and then has a layoff, the incentives may still be earned and paid out if the extent of the layoff does not impact performance requirements.
The program’s stringent performance requirements avoid having to recapture incentives, which can be difficult. Instead, the incentive installments are stopped or are never paid. The program also has a recapture requirement if a company severely cuts employment or closes. Since the program started in 2007, VEPC has authorized 83 projects for VEGI incentives totaling $54.6 million. Of those projects, 38 (almost 50 percent) have been terminated because the program’s performance requirements were enforced. That represents $17.2 million in authorized incentives that were never paid out.
From 2007 to 2013, the $10.4 million earned by the 45 remaining active projects leveraged 3,897 new qualifying jobs with an average compensation of $55,000, over $240 million in new qualifying payroll, and investments in facilities and machinery and equipment in Vermont totaling over $623 million. These companies also invested over $150 million each year in business-to-business interactions with other Vermont companies. These projects generated over $36.6 million in new tax revenues to Vermont, after the cost of the incentives. These are jobs, investments, and net tax revenues that would not have occurred except for the authorization of the incentives.
The VEGI performance requirement and installment payment structure are the primary reasons that Good Jobs First, a national policy resource center for grassroots groups and public officials that promotes corporate and government accountability in economic development, rated the program as the best in the country for enforcement, safeguarding the taxpayer, and ensuring good job creation.