“The same State entity should not both promote and regulate a program. Such a setup creates an inherent conflict of interest…”
“The Commissioner of Economic Development advised that one general lesson learned is that the same State entity should not both promote and regulate a program.”– Legislature’s Government Accountability Committee,
Annual Report, January 2018
by Vermont Auditor of Accounts Doug Hoffer The quotes above were responses to State oversight failure in the EB-5 case. For too long, the Agency of Commerce and Community Development was responsible for both promoting and regulating EB-5 projects. When the Department of Financial Regulation assumed regulatory oversight, the State’s scrutiny of the projects increased significantly. (See our recent audit, Jay Peak, Burke Mountain, and AnC Bio Vermont EB-5 Fraud: As Assessment of the State’s Role, to learn more.)
The Legislature’s Government Accountability Committee and the Commissioner of Economic Development were right – it’s risky to allow the same officials to both promote and regulate a program. It’s highly unlikely (though not impossible) that such a conflict of interest would result in financial corruption on the part of state employees. There’s no question, though, that an agency might be less likely to exercise its enforcement powers over a business if the same agency encouraged the business to participate in a program in the first place and provided technical support along the way.
The Legislature and Executive branches’ joint admonition that “the same State entity should not both promote and regulate a program” applies across state government, not just to EB-5, and in the closing weeks of the Legislative session, the Legislature has two immediate opportunities to improve government performance by decoupling promotion and regulation.
Here’s how:
- For decades, the Tax Increment Financing (TIF) program has allowed municipalities to use Education Fund dollars to support town and city infrastructure projects in special districts. The Vermont Economic Progress Council (VEPC) promotes and approves these districts and provides assistance to municipal officials. VEPC is housed within the Agency of Commerce and Community Development (ACCD). Who is responsible for enforcement decisions? VEPC itself, with a final decision from the Secretary of ACCD, if necessary. As we noted in a recent memo to legislators: “TIF’s complexity results in frequent legal ambiguities which make enforcement of statutes and rules difficult. The problem is compounded because TIF administration is subject to internal conflicts as VEPC (along with DED and ACCD) is expected to promote TIF while also enforcing the rules.” VEPC has referred to officials in TIF municipalities as partners, which does not convey the arm’s-length relationship that is appropriate for an agency charged with enforcing state laws and rules if the municipalities violate them. It is a particularly opportune moment to transfer the regulatory enforcement duties to a different agency since the Legislature is currently considering creating the so-called CHIP development program, which would be a significant expansion of TIF.
- On September 6, 2024, the Environmental Protection Agency issued a letter to Vermont officials stating that “the current division of responsibilities between ANR [Agency of Natural Resources] and AAFM [Agency of Agriculture, Food, and Markets] is interfering with the regulation of Vermont’s CAFOs and preventing Vermont from adequately addressing agricultural water quality.” CAFOs are farms with a large number of confined animals and/or that have been determined to be significant contributors of pollutants to waterways. While not explicitly stating it, the EPA’s conclusions and orders infer that the Agency of Ag’s conflicting responsibilities to both promote and regulate farms is contributing to Vermont’s failure to comply with its Clean Water Act obligations. Legislation is currently being considered to more clearly grant ANR enforcement authority over these activities, and we encourage the Legislature to pass it.
Looking ahead, the Legislature can address a third government program for which a single agency plays the role of both promoter and regulator. Like TIF, the Vermont Employment Growth Incentive program (VEGI) is administered and approved by VEPC, with promotional and organizational support from ACCD. VEGI makes substantial cash awards to Vermont businesses if VEPC concludes the businesses’ growth would not occur without the taxpayer funds. Our work has found numerous instances in which VEPC has made problematic decisions to approve grants to businesses. However, per state law, after promoting VEGI and aiding applicants through the process, no other agency is authorized to verify VEPC’s grant decisions, and those decisions are “not subject to judicial review.” In other words, even if a Vermonter had knowledge that a VEGI award was issued based upon incorrect or insufficient information, there is nowhere for them to turn to. It may be too late to address this conflict so late in the Legislative session, but we recommend the Legislature put this on their agenda for January 2026.
We are blessed to have so many talented, hard-working State employees who strive to make Vermont a better place to live and work. That includes staff in the agencies described above. The issue of separating promotion and regulation is not about individuals, though, it is about the best way to organize state government. By making the two changes above, the Legislature can better protect taxpayers and the environment, and we urge them to do so.
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