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Reporter Debrief: State Auditor Cautions Pandemic-Era Business Relief Program May Have Violated Federal Guidelines

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Peter Hirschfeld
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VPR File
Vermont's State Auditor Doug Hoffer released an audit this week of the state's largest pandemic-era business relief program. In it, he finds that some businesses received awards that fall outside the federal guidelines.

Earlier this week, State Auditor Doug Hoffer released an audit of a major grant program that distributed millions of dollars of federal funds to businesses last year.

The intent was to help businesses that faced hardships from the sudden shutdowns due to the pandemic. But Hoffer audit finds that some businesses received more money than they should have.

VPR’s Henry Epp spoke with VPR reporter and digital producer Abagael Giles about what the audit found, and how state officials are responding to it. Their conversation below has been edited and condensed for clarity.

Find VPR’s March 2021 investigation into the Economic Recovery Grants program and how it awarded funds to Vermont’s ski industry during the pandemic, here.

Abagael, you've been diving into this audit of the Economic Recovery Grant programs – or ERGs. I wanted to take a little more time to hear about what you've reported. So what are those programs? And why were they a big deal?

Yeah, so the Economic Recovery Grants were the biggest program through which the state doled out public relief dollars directly to private businesses during the pandemic. And that was on the order of hundreds of millions of dollars with awards of up to $300,000 per business. And we know from past reporting that in some cases, certain businesses were able to receive more than the program rules appeared to allow.

So back in June of 2020, the Legislature tasked the Scott administration – specifically the Department of Taxes, and the Agency of Commerce and Community Development (ACCD) – with setting up a program that would get relief fast to the businesses in the state that most needed it.

"... In many cases, the decline in revenue does not match the risk that the company is at for failure.”
- Doug Hoffer, State Auditor

The idea was that they would meet need brought on by the pandemic. And the Legislature put some loose requirements on the program, but really let the agencies set it up and implement it.

There was this precarious economic landscape, and it was kind of an unprecedented situation. We – the state – don't usually build the sorts of programs that give public aid directly to businesses as payments. And in this case, the federal government really asked Vermont to do something totally new.

More from VPR: Vt. Distributed $330 Million In Business Recovery Grants. Here's How It Worked For The Ski Industry

The funds came from our $1.25 billion Coronavirus Relief Fund allocation – and that's a really big award if you look per capita compared to other states, so Vermont did quite well.

But for this report, the auditor [just] looked at the [Economic Recovery Grant] funds doled out by ACCD. And that was about $117 million to about 2,200 businesses.

Find the full list of businesses that received Economic Recovery Grants through the Agency of Commerce and Community Development, here.

OK, and so what did the auditor's report find?

So his report really found two things. First: that in the first round of the program, which had a maximum award of $50,000 and distributed funds to 718 companies, some businesses got money that they didn't qualify for under the federal guidelines [set by Congress for the Coronavirus Relief Fund]. Specifically, 401 of them got more than they lost, which amounted to about $4.4 million. This is, of course, by Hoffer's metric.

Then in the second round, he says the way the agency calculated need may have met the federal guidelines, but it allowed for all sorts of anomalies that weren't what the Legislature intended, which was to get cash to the local businesses that were most in danger of collapsing.

Here’s Hoffer:

“Now, nobody did anything wrong. ACCD’s method or approach or the program design was approved by the feds. But as was pointed out to them by the Joint Fiscal Office and the Legislature's economist – Tom Kavet – and others, it was unlikely to allow them to target and serve those at greatest need. Because as we – as I – just explained, in many cases, the decline in revenue does not match the risk that the company is at for failure.”

– Doug Hoffer, state auditor

Giles: And Hoffer says the agency was warned in September of 2020, that their metric would yield these results by the Joint Fiscal Office, by his office, but didn't make the recommended changes.

So can you give me some examples of businesses who got this money or perhaps money that went afoul of the regulations?

So this is interesting: no. [The names of businesses who received awards are public, as are the awards they received, but their applications, which contain details about their financials that would reveal whether they qualified under the federal and state guidelines, are not public.]

To apply for funds, businesses had to share some pretty intimate details about their financials and their income. They basically had to show that they lost a lot of money. That's all proprietary and sealed from the public record by the Legislature when they set the program up.

Note: VPR filed a public records request to pursue the applications for Vermont Ski Areas who received awards through the Economic Recovery Grants program early in 2021.Those records requests were denied.

OK, well, but auditor Hoffer was able to see some of these applications. Is that right?

Yes, the auditor did get to look at them. And basically, he kind of took a [very close] look at a sample of each round of the program.

So for the first round of the Economic Recovery Grants – those were the ones capped at $50,000 per business – Hoffer looked at the awards to 11 businesses. And of those, he found only five showed revenue loss that justified their awards.

The key is that Vermont might be on the hook at the feds come to investigate that.

And if they do come, the only way to know for sure how much Vermont taxpayers might be on the hook for in total is for ACCD to do its own thorough review. That could take some time.

I asked Secretary Lindsay Kurrle if they have plans to do this, and she said yes, and that she's not concerned that they'll find awards that fell outside of the federal guidelines. She really stands by the process that ACCD used:

"And to be clear, the methodology that we used was agreed upon by both the Legislature and the Administration, and fit within the U.S. Treasury’s guidelines. So I still maintain that Vermonters should feel confidence that we deployed the program as we were asked to.”

– Lindsay Kurrle, secretary of the Agency of Commerce and Community Development

So to reiterate: Hoffer says there's no way to know right now how much could be owed. And it's also uncertain that the feds will collect there may be push back from Congress if they did.

For round two of the program, he didn't find that it was in violation of any federal regulations. But in his examination of the financials for 57 businesses who got awards, he found that ACCD gave awards based on revenue loss. Hoffer's office tried calculating the awards that they would have gotten using the metric that his office told ACCD it thought would be most equitable last year.

"And to be clear, the methodology that we used was agreed upon by both the Legislature and the Administration, and fit within the U.S. Treasury’s guidelines. So I still maintain that Vermonters should feel confidence that we deployed the program as we were asked to.”
– Lindsay Kurrle, secretary of the Agency of Commerce and Community Development

By Hoffers count, ACCD’s program overestimated the revenue loss of these 57 businesses due to COVID-19 by almost 90%. So just for those businesses alone, that's about $115 million. And that's just a fraction of all the businesses that got awards.

So, he also found that fully two-thirds of those businesses, of the 57, were more profitable in 2020 than in 2019, thanks in part to Economic Recovery Grants.

More from VPR: Vermont Auditor Questions Legality Of State Incentive Award

Wow. OK. And so this is the first of two reports that the auditor is doing, what will the second one look at?

Yeah, so the second report looks at the smaller Healthcare Provider Stabilization Grant program. It's not quite as much money as the Economic Recovery Grants. But together, these programs represent almost 40% of the $1.25 billion in federal Coronavirus Relief Fund monies that Vermont pumped out to the private sector during the pandemic. And that audit is expected next month.

Have questions, comments or tips? Send us a message or get in touch with reporter Abagael Giles @AbagaelGiles.

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