The part of Vermont that is called “the Northeast Kingdom” includes three counties and fewer than 70,000 people and does not really live up to its name. It is undeniably beautiful to look at but equally hard to live in. The familiar woes of New England’s small towns and farming communities—poverty, unemployment, drugs, domestic violence, and a kind of civic atrophy—are worse here than in any other part of the state.
But in 2006, it appeared that deliverance might be at hand in the form of some very substantial investor money. This cash infusion would amount to just under half a billion dollars, which might not be much in Texas or Manhattan or Silicon Valley but is still real money in Vermont. And the vision of what this money would do for the Northeast Kingdom . . . well, it was going to change everything.
A lot of the money would go into expanding and glamorizing the Jay Peak ski resort. There would be a new and very lush golf course (every ski resort needs one), a water park (likewise), and expanded trails and lodging and amenities. But this was just a start. The vision was much grander than that. The renaissance would spread from the ski mountain east to the Connecticut River and raise up a plant to manufacture windows. There would be a marina, a conference center, and, above all, a biotechnology center. This would be a state-of-the-art (of course) facility where researchers would explore the possibilities of using stem cells to grow human organs for transplants. This kind of world-class operation would, naturally, require a world-class airport, so the project would include an expansion of the little airport outside the small city of Newport. That facility would become known as the Northeast Kingdom International Airport. The global economy comes to Dogpatch.
The help would not be coming in the traditional way—in the form, that is, of investors who believed they had found opportunities with an upside that justified risking some, or all, of their money. The Kingdom, it seemed, would be rescued by EB-5 money. This is a federal program that has been around since 1990 and permits foreign nationals to “invest” at least $500,000 in job-creating ventures, in return for which they gain residency and a path to citizenship.
Patrick Leahy, Vermont’s senior senator (the junior one is running for president), has been called the “godfather” of the EB-5 program, though for the last couple of weeks, he has been busily calling for its reform if not termination. The program had long been plagued with predictable difficulties of favoritism and rule-bending and outright corruption. But nothing on the order, so far, of what has happened in—and to—the Northeast Kingdom of Vermont, where, according to the Securities and Exchange Commission, the two men behind the design for revitalization have been engaged in an “alleged fraud [that] ran the gamut from false statements to deceptive financial transactions to outright theft.”
The two men are alleged to have siphoned off some $200 million of the $350 million that had already been raised. Some of that money went to buy an apartment in Manhattan’s Trump Tower, which seems, somehow, foreordained. But that $200 million is only money and, in fact, money on which the investors most likely never expected much of a return. They were okay with the idea of a 67,000-square-foot facility doing stem cell research in the middle of nowhere as long as those green cards came in the mail.
But there is no research facility, and no international flights have arrived, or departed, from the airport. The promise of big things to come has, however, resulted in the leveling of a section of downtown Newport that was to be called “Renaissance Block.” The rubble remains where the office buildings and retail spaces were supposed to rise up, and the locals now call it “little Beirut.”
The disillusionment of people who were sold visions of thousands of new jobs and a place in the economic sun is palpable in the Northeast Kingdom. They were suckered in and maybe they should have given some consideration to that old rule that says, “When something sounds too good to be true, it probably is.” But what of the Vermont political leaders who bought in—nay, enabled—the alleged fraudsters?
Take, for instance, former Republican governor Jim Douglas, who, in 2010, embarked on a nearly two-week fundraising jaunt that included a stop at the Park Hyatt Saigon, where he pitched the biotech facility and then went on to tell his audience, “Perhaps most importantly for our discussion . . . Vermont’s EB-5 regional center is the only one in the nation that is administered by the state government. [So while] . . . the state does not guarantee an investment’s return, we do provide oversight and monitoring of the projects and the investments that are made in them.”
That worked out well. Now it appears that the investors may not see those green cards, since their money was spent on that Trump Tower apartment (among other things) and the required American jobs were not created. This is known as turning a win-win into a lose-lose.
And then there was Douglas’s successor, Peter Shumlin, former chair of the Democratic Governors Association and current lame duck governor of Vermont. Shumlin has had a bad run of late. He came into office promising to make Vermont the first state in the union to establish a single-payer health care system. After employing many experts (including the one who famously said that the “stupidity” of the American voter was instrumental in securing the passage of Obamacare), appointing several commissions, and spending millions of dollars, he abandoned the effort, saying the economics simply didn’t work. Which many had said from the beginning but . . .
Shumlin was a cheerleader for the work of the developers who were selling the dream of a renaissance in the Northeast Kingdom. He traveled, on their dime, to Asia, where he pitched potential investors. The developers also made contributions to his campaigns, and he appeared in a video that they used to lure more investors. In that video, Shumlin assures investors, “We make sure that our EB-5 program offerings are good investments for the investor and good economic development job creators for the state of Vermont.”
It now appears that there was no auditing by the state. As the website Vermont Digger, which had been warning of fraud for years, reports, one expert familiar with the program said that if the state had done its due diligence, “They would have discovered in one hour or less, the misappropriation of funds. This fraud went on almost 10 years, to me that’s unconscionable.”
When things finally fell apart, Shumlin explained that . . . well, it could have happened to anyone.
“You can quarterback this one all you want. All I can tell you is there had been no complaints about the projects—EB-5 generally, across the state, that I can recall—from any investors to any governor—me or prior ones—until the complaints that we started hearing about.”
A couple of days after Shumlin offered up this lame defense, one of his people ordered a purge of emails from some administration accounts. One of those accounts belonged to a high-ranking staffer who had left the administration to go to work for . . . wait for it . . . Jay Peak Resort.
Pure coincidence, said an administration spokesperson.
And then there was “the Godfather” of the EB-5 program, Senator Leahy, whose office had been accustomed to sending out press releases calling him “the leading champion of the EB-5 investor visa program in Congress for more than a decade.”
Leahy liked to point to the development as an example of the good that the EB-5 program could do and invited one of the developers, whom he called a friend, to appear before a congressional committee and share his story. Leahy himself boosted the project to potential overseas investors and celebrated his 50th wedding anniversary at Jay Peak.
Well, after it was revealed how badly the program had shafted both the investors he had pitched and his hopeful constituents, Leahy whistled a new tune: “Given the significant problems plaguing this program, I will continue to push for meaningful reform.” Without which, he went on, “I believe the time has come for the program to end.”
Of course. Time, now, to go forward. Things didn’t work out. Sorry about that. Who could have possibly foreseen that a state-of-the-art biotech facility might not be compatible with a poor, remote, utterly rural section of a small New England state where some people still poach deer to feed their families?
Now, instead of office parks, marinas, international airports, and biotech centers, the people of the Northeast Kingdom will be stuck with the old regime of poverty, food stamps, and heroin.
Meanwhile, Douglas, Shumlin, and Leahy will be fine. Shame they can’t be put to work clearing the rubble from “little Beirut.”
Geoffrey Norman, a writer in Vermont, is a frequent contributor to The Weekly Standard.
