Imagine relying on a 19th-century steam engine to power a 21st-century factory. That’s essentially what Vermont taxpayers are doing every day as their dollars churn through an outdated and inefficient system. Between administrative overhead, fraud, and costly mismanagement, too much of our money vanishes before reaching its intended destination. A case in point? The now-infamous EB-5 scandal, which left Vermont taxpayers footing a $16.5 million bill.

The Cost of Mismanagement: Vermont’s EB-5 Scandal

The EB-5 immigrant investor program was supposed to bring economic revitalization to Vermont’s Northeast Kingdom. Instead, it became a cautionary tale of government oversight failure. Developers Ariel Quiros and William Stenger funneled millions of dollars from investors into fraudulent schemes tied to Jay Peak and Burke Mountain resorts.

When the fraud unraveled, investors sued the state, alleging Vermont officials failed to properly oversee the program. By July 2023, Vermont had agreed to settle these claims for up to $16.5 million. By January 2024, it was determined that Vermont taxpayers would bear the cost of the settlement. Governor Phil Scott proposed allocating $9.5 million in state funding for the first payout. Efforts to secure coverage from the state’s insurance carrier were unsuccessful, leading to the reliance on taxpayer funds.

An audit released earlier this year painted a bleak picture of systemic failures. Misplaced trust, inadequate oversight, and poor decision-making enabled the fraud to flourish. The settlement serves as a stark reminder: inefficiency and oversight failures have real financial consequences.

Wasted Dollars, Nationwide Problem

Vermont isn’t alone in grappling with inefficiency. Across the U.S., government programs frequently hemorrhage money through fraud and waste. In 2022 and 2023, the federal government reported $483 billion in payment errors—overpayments, underpayments, and funds sent to ineligible recipients.

Pandemic-era relief programs highlight the scale of the problem:

• The Paycheck Protection Program (PPP) aimed to support small businesses, but $1.4 billion in fraudulent claims have been prosecuted so far, with an estimated $76 billion in potentially fraudulent loans overall.
• Unemployment insurance fraud surged during the pandemic, though the full extent remains under investigation.

Closer to home, welfare programs often struggle with fraud and inefficiency. In 2015, improper payments across state and federal assistance programs amounted to $136.7 billion, much of it lost due to fraud or errors.

Where Does the Money Go?

Government inefficiency mirrors an outdated mechanical system, where friction and resistance sap energy before it can do useful work. Tax dollars face similar “frictional losses”:

1. Collection Costs: The infrastructure for collecting taxes—staff, technology, enforcement—is expensive. Every dollar collected incurs costs just to sustain the system.
2. Administrative Overhead: Once collected, funds pass through a complex web of agencies and departments. Redundancies and inefficiencies eat up a significant portion before any services are delivered.
3. Redistribution Losses: Programs like disaster relief often spend heavily on administration, leaving less for recipients. For example, delays and high administrative costs are common in FEMA disaster relief efforts.
4. Fraud and Abuse: Without modernized oversight, fraud drains resources meant for those in need. The PPP fraud numbers are a glaring example of how unchecked systems fail taxpayers.

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Time for a 21st-Century Solution

Vermont’s tax system—and government spending in general—needs a complete overhaul to operate efficiently in today’s world. Here’s how modernization could make a difference:

• Streamlined Processes: Investing in automation and technology for tax collection and fund distribution would reduce redundancies and errors, cutting costs significantly.
• Fraud Detection Systems: Adopting real-time monitoring tools could prevent fraud before it happens. Pandemic relief programs revealed glaring weaknesses in this area.
• Transparency: Implementing public dashboards where taxpayers can see how their money is spent would build accountability and deter misuse.
• Consolidation of Agencies: Merging overlapping programs, such as the dozens of federal programs for safe water or early childhood development, would reduce administrative costs.
• Direct Transfers: Programs like the Earned Income Tax Credit (EITC) or expanded child tax credits show how direct payments to recipients can effectively reduce poverty and deliver benefits with minimal overhead. These models bypass layers of bureaucracy typically associated with assistance programs, demonstrating that direct transfers can provide meaningful support while cutting down on administrative costs.

Conclusion: Efficiency as Accountability

Every dollar wasted in inefficiency is a dollar that could go to Vermont’s schools, healthcare, or infrastructure. Taxpayers should not be expected to power a modern state with a machine that runs on steam-era technology.

The EB-5 scandal is a microcosm of the larger issue. Vermont taxpayers have already paid the price for systemic failures, and the state owes them an effort to modernize. By adopting proven strategies for efficiency and fraud prevention, Vermont could not only restore public trust but also ensure every tax dollar does the work it’s meant to do.

Dave Soulia | FYIVT

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