Progressive Thinking

Sen. Kathleen Vinehout writes about the latest audit of the Wisconsin Economic Development Corporation (WEDC). The Legislative Audit Bureau reports again on the failure of WEDC to follow state law and its own policies when awarding grants, loans and tax credits to businesses and to verify whether or not promised jobs were actually created.

MADISON - “When do we return the economic development initiative and the checkbook to the control of a state agency” John Dunn of Mauston asked in a letter to Legislators. “The WEDC has again failed to follow state law and its own policies in awarding taxpayer-funded incentives to state companies. We need accountability to taxpayers.”

Not following the law, and not acting in a transparent and accountable way is a frequent criticism of the state’s economic development operations.

The Wisconsin Economic Development Corporation (WEDC), created in 2011 as an independent authority, fell under criticism again with the recent release of another audit showing that WEDC failed to follow state laws and its own policies when awarding grants, loans and tax credits to businesses and failed to independently verify whether or not promised jobs were actually created.

In 2013, the Legislative Audit Bureau (LAB) found WEDC did not have policies to oversee, for example, the multi-million-dollar economic development grant and loan programs. In October 2013, WEDC officials reported to our Legislative Audit Committee they had addressed the problem.

But two years later, the new audit found while WEDC established policies, they weren’t following the grant and loan policies. For example, loans can be “forgivable” – meaning they aren’t paid back – only in “extraordinary circumstances”. But the audit found in FY 2013-14 two-thirds of the loans in one program were determined to be “forgivable”. In another case a taxpayer-subsidized loan was “forgiven” to a company unlikely to create full-time jobs – a requirement of the loan program.

Similar circumstances existed in the state’s business tax credit programs. Credits are awarded to companies to offset taxes owed to the state. In some cases tax credits are “refundable” meaning if the company owes less in taxes than the credit, the state “refunds” or sends taxpayer money to the company.

Auditors found examples of officials not following established rules for tax credits, like not determining if the project would happen without the tax credit; awarding credits without determining if the company’s tax liability fell within the law limiting credits to 125% of the companies tax liability; and instances of awards made without required financial information.

State law also requires that a portion of tax credits must go to rural and small businesses. In July 2014, the WEDC board revised its own policies to eliminate this requirement – in direct conflict with the state law.

Several of these problems were a repeat of a previous audit.

In another case WEDC awarded tax credits to an Illinois company under the Jobs Tax Credit program in conflict with state law that required activities funded by this program to occur in Wisconsin. Auditors wrote, “The business would be awarded tax credits in amounts based on the wages they paid to their employees while working in Illinois, and such amount would increase the longer the jobs remained in Illinois.” As of December, Wisconsin awarded two Illinois businesses $53,678 in tax credits.

Enterprise Zone and Jobs Tax Credits are refundable and they cost us a lot. The nonpartisan Legislative Fiscal Bureau reported the cost of just these two programs was $42 million last year. In another report, the LFB noted that Wisconsin contracted with companies for $352.5 million in tax credits over three years.

Does the substantial state money given to these companies result in any economic activity that would not already exist? This question remains unanswered with the most recent audit.

State law requires WEDC to verify jobs created, retained, and if contractually specified wage requirements are met. A previous audit found WEDC did not conduct verification. This recent audit found that even during site visits to companies, officials failed to review payroll records to independently verify jobs. Without information on wages and jobs, it’s impossible to know if the hundreds of millions in state dollars going to companies accomplished anything.

All of this adds up to one inescapable conclusion: WEDC is a failure. With Wisconsin job growth in the lower third among all states, it is time we reevaluate our state economic development policies. The first step must be putting hundreds of millions in state economic development expenses once again under the accountability and transparency rules of the rest of state government.

It can be difficult for legislators to know the full effect of cuts without the critical input of citizens. Senator Kathleen Vinehout writes about how citizen input provided her with details about the effect of cuts in the DNR budget.

MADISON - “Why is it I keep hearing more about what’s in the governor’s budget?” the woman asked me. “Don’t you see it all at once and then decide what to do?”

It can be difficult for legislators to know the full effect of cuts without the critical input of citizens.

For example, news of cuts to the Department of Natural Resources (DNR) made its way to western Wisconsin. Constituents communicated back to me the effect of these cuts. Through emails, phone calls and office visits I was able to piece together the real effect of a few lines of DNR budget cuts.

County conservation staff assists locals in protecting water resources and rehabilitating lost habitat. For example, last summer I was delighted to attend the “opening” of a rehabilitated trout stream in Buffalo County. While only Mother Nature can create a trout stream, a hard-working coalition of people made possible the restoration of habitat to bring spawning trout back to Buffalo County.

There are dozens of best practices farmers can use to protect waterways and keep nutrients where they belong – on the crops. Investing in the assistance farmers need to be good land and water stewards is an investment that will pay off for future generations.

One way to accomplish change in the quality of our waterways is to engage groups of farmers through a process known as farmer-led councils. This water quality enhancement process focuses energy of many community members in a transparent and democratic process. But to be successful, projects need a dedicated coordinator. This role falls to UW Extension staff funded in part through a line in the DNR budget called nonpoint source contracts.

When I first saw this budget line, I imagined contracts to private industry. Only through emails, phone calls, office visits and more phone calls did I realize the full extent of the decision to eliminate these funds. Further, I began to understand the value of farmer-led watershed councils and the important role conservation and extension staff play in coordinating the work of many community groups and levels of government.

Residents of Dunn and Barron Counties are working hard to restore Lake Menomin and Tainter Lake. Restoration efforts are enhanced by the Red Cedar River Water Quality Partnership, made up of 14 different groups including businesses, Wisconsin Farmers Union, nonprofits and local residents through their lake association. But without the coordination of UW extension staff, the partnership would not be effective.

I received a letter and office visits from Dunn County Board Chair Steve Rasmussen who told me about the work to “mitigate the pollution of the watershed and algae blooms” in the lakes.

Chair Rasmussen wrote, “Elimination of these two positions would be a major setback in a multi-county/multi-municipality effort to improve the health of the Red Cedar River Watershed…The health of the Red Cedar River is of critical importance to the citizens of Dunn County.”

Later I spoke with Mr. Rasmussen who told me 68% of all pollution in the Red Cedar came from agriculture. Farmer-led initiatives were an effective way to address nonpoint source pollution. Farmers talk with each other. They learn from each other. Sometimes folks will more readily accept new practices if they see their neighbors doing it.

Cutting conservation and extension staff comes at a critical time for the Red Cedar and watersheds across the state. I spoke to a man with intimate knowledge of land and water conservation, Jim VandenBrook, the executive director of Wisconsin Land and Water Conservation Association. He said “The facts are clear: water quality has progressively gotten worse since the 1990s; Great Lakes Initiative money is disappearing; DNR does not have the staff to do education. We are the educators for DNR.”

In our discussion about the work of the conservation and extension staff Jim noted the watershed partners “are all worried all our work is going by the wayside.”

Indeed. The partners know why we work so hard to protect land and water.

Thank you to all who wrote or called. Your input is critical for Wisconsin’s future. In the words of the ancient proverb, “We do not inherit the earth from our ancestors; we borrow it from our children”.

Why doesn’t the press cover what’s happening with refundable tax credits? This week Sen. Kathleen Vinehout writes about tax credits – the difference between non-refundable and refundable tax credits, the impact on the budget and Wisconsin taxpayers.

MADISON - “Why doesn’t the press cover what’s happening with refundable tax credits?” I asked the journalist. We were chatting about what I found in the state budget.

“Because the press doesn’t understand them,” she told me.

“Doesn’t understand them?” I thought. “There has to be an easy way to describe what’s happening...”

Imagine if you had no state tax taken out of your paycheck. You filed your tax return but you owed nothing. Now imagine the state sent you a refund check. Wow!

This is like a refundable tax credit. A company owes little to nothing in taxes but gets a check back from the state - cash from the taxpayers of Wisconsin.

Tax credits are different than deductions on your income tax form. The credit is subtracted dollar for dollar from the tax you owe - simple subtraction. You owe $1,000. You have a $500 credit. You now owe $500.

But what if your credit was $10,300,000? Under a refundable tax credit you would end up with a check for $10,299,000.

According to the nonpartisan Legislative Fiscal Bureau (LFB) Wisconsin has two refundable tax credit programs: “Enterprise Zone Tax Credits” and “Jobs Tax Credits.” The “Enterprise Zone” used to refer to a designated place in which eligible businesses received tax credits for economic activity. In recent years it morphed into a credit to designated companies for jobs created and retained, training, capital expenditures and purchases from Wisconsin vendors.

A recent publication from the LFB details the 18 recent recipients of “Enterprise Zone Awards”. The table below is in millions of dollars:

Mercury Marine $65.0

Kohl’s Corporation $62.5

Quad/Graphics $46.0

Oshkosh Corporation $35.0

W Solar Group $28.0

Fincantieri Marine Group $28.0

Bucyrus $20.0

Uline $18.6

Kestrel Aircraft Company $18.0

Plexus $15.0

Northstar Medical Radioisotopes $14.0

Amazon.com.dedc LLC $10.3

Weather Shield Manufacturing $8.0

The report also details five other designated “Enterprise Zones”: 1) Insinkerator; 2) Ashley Furniture; 3) Medline Industries, Inc.; 4) Trane; and 5) Exact Science. The LFB reported in January that Wisconsin Economic Development Corporation (WEDC) had not yet entered into contracts with these five companies to finalize the amount awarded.

WEDC is authorized to designate up to 20 “Zones” and the Governor designates an additional ten “Zones” in the budget. The Administration estimates this action would have a ten-year price tag of $168.8 million for Wisconsin taxpayers.

The Governor also wants to take a nonrefundable tax credit (economic development tax credits) and convert it into a refundable tax credit. WEDC is currently authorized to spend $164.2 million on the “economic development tax credits”.

Why rush to create NEW refundable tax credits? Perhaps the Manufacturing and Ag Tax Credit has something to do with the rush. A late budget amendment in 2011 created this credit targeted at manufacturing companies. The tax credit takes tax rates for manufacturing and ag corporations down to .04% by 2016.

What happens if you owe less than 1% on your profits? Pretty soon your tax obligation is so small another tax credit isn’t help much. Step in the refundable tax credit. You owe nothing? You still get a check.

How much might these companies have paid if not for the tax credits slipped into the budget in 2011? The LFB estimated the fiscal impact of just the Manufacturing and Ag credit at $509 million in the coming budget.

So what’s lost to Wisconsin taxpayers when the companies owing little to nothing in taxes cash their refundable tax credit checks?

School funding reform for one – the manufacturing tax credit money would more than cover changes in the school funding formula and hold harmless the wealthier suburban schools. The University of Wisconsin System for another – the credits awarded in the table above would more than cover the Governor’s proposed university system cuts.

Fixing things like the state parks, Wisconsin Public TV and Radio, Family Care and IRIS could be done with the money given in credits to just Plexus. Dollars headed to Uline could instead fund SeniorCare and the School Violence Prevention Program.

Decisions made to give dollars away to profitable corporations have a big impact on future choices.

Senator Kathleen Vinehout writes about some of the myths that are circulating about the Wisconsin state budget. A popular myth is Governor Walker has spending under control, but did you know the state owes $600 million more than when Governor Doyle left office or that the 2015-17 state budget spends $4.76 billion more than the last?

MADISON - “I’m okay with the cuts,” the man wrote me. “It’s shameful to pass debt on to our children.” In the man’s message, he implies a common misconception about Wisconsin – there is no state debt.

Wisconsin owes a lot of money. The state budget proposes that we borrow even more money. The nonpartisan Legislative Fiscal Bureau (LFB) reported in January that the state owed about $13.8 billion. This is slightly less than the previous year, but almost $600 million more than when Governor Doyle left office.

The conservative Tax Foundation reported in 2011 Wisconsin ranked 18th of 50 states in terms of the worst state debt per person ($4,013). In 2013, Wisconsin ranked 16th of 50 states ($4,044 per person). Wisconsin is headed the wrong direction in paying off the debt.

The Governor is proposing a great deal more borrowing in the new budget. Of greatest concern is the borrowing to pay for roads and bridges. The LFB estimates by the end of the coming budget almost a quarter of every dollar in transportation will be spent on debt payments.

Adding to future debt is the Governor’s proposal to build a stadium for the Bucks. The LFB estimates the interest alone on this proposal exceeds $400 million using the plan proposed by the Governor. Final payments are estimated to be in fiscal year 2046-47.

I’d say that’s passing debt on to our grandchildren.

Another common budget myth is the Governor paid all the debt bills coming due. To answer that myth – the Governor is not paying about $108 million in debt payments coming due this year.

In order to free up cash, governors of both political stripes did not make debt payments. Governors Doyle and McCallum did not make debt payments during downturns in the economy. The largest delayed debt payments were under Governor Walker in the 2011-13 legislative session in which over $550 million were delayed.

I imagine the reason the Governor delayed making debt payment this year was to free up cash to cover a deficit in the current budget; which brings us to another budget myth.

A popular myth is Governor Walker has spending under control. But spending in the current budget outpaced revenue.

In February of this year the Wisconsin Taxpayers Alliance analyzed three factors leading to an imbalance between revenue and spending.

“Tax cuts, the technical college aid jump, and soft tax collections led to revenues once again falling short of expenditures. The shortfall was $261 million last year and could grow to as large as $800 million this year, which would be the largest gap in over 20 years.”

These problems continue going forward. Using estimates released by the LFB last month, spending is estimated to outpace revenue in the next budget by over a billion in the first year and nearly $700 million in the second year.

The Legislature is required by the state Constitution to submit a balanced budget to the Governor. Therefore, when the budget passes in June, spending will be trimmed or revenues enhanced to deal with this imbalance.

Another common myth related to spending is that the Governor is spending less money in this new budget than in prior budgets.

The truth is the 2015-17 state budget spends $4.76 billion more than the last.

At $74.7 billion this budget is the largest in state history. That said, because of inflation, nearly every new budget is larger than the previous one.

But to say this budget is smaller than the last is false.

One reason the myth of a smaller budget exists is because some estimates of the size of the coming budget did not include all University of Wisconsin spending. Of course, to make an apples-to-apples comparison we need to include all the spending from the UW as we have in the past.

I hope this clears up a few of the common budget myths. If you want to learn more, please come to one of my budget town hall meetings. Check my website for dates, times and locations of upcoming town hall meetings

This week, Senator Kathleen Vinehout writes about a recent Eau Claire listening session held regarding the State Budget proposal.

EAU CLAIRE, WI - “This is not my cup of tea,” the farmer said quietly as he moved up to the microphone at the Eau Claire budget hearing.

“I’m a UW grad. I’m a farmer. I’m a tech college grad. My kids went to public school. There’s a lot I could talk about today. But I’m here today for Craig, my son. He loves where he lives.”

“I don’t want to lose that,” said Craig sitting between his parents. Craig had surgery to remove brain tumors at 3 years old. His mind is quick and his words are heartfelt.

“IRIS gives Craig the opportunity to be as independent as he can be, to do the things he enjoys” said his dad. “It helps allow my wife and me to work and be taxpayers.” IRIS is a self-directed option under Medicaid.

Many others spoke about the long-term consequences of changing the health programs for the elderly and disabled.

“People like Judy cannot support themselves,” said Mort, of his disabled 41-year-old daughter, “cannot lobby and cannot speak for themselves…they certainly do not need their programs to be seriously damaged.”

“We take care of others. We take care of people less fortunate,” Glory told listening legislators. “That’s who we are.”

A Menomonie School Board member shared his concerns about cuts to local schools.

“I wasn’t going to speak... But I can’t stand by with what I see happening. Our teachers pay a lot for their health insurance. We’ve been using our ‘budget tools’ all along. The current proposal will cost the Menomonie School District $1 million. Can’t the governor figure out schools’ costs go up but we don’t get any additional money? No increase in the first year? Some back in the second year but it doesn’t make any sense to put it all in school levy credit. That doesn’t go to schools. How do we keep young people in Wisconsin if we keep cutting?”

He continued, “We need good news sources. WPR (Wisconsin Public Radio) offers people a choice they can’t get anywhere else. News is less balanced these days. We need a balanced source of news. And efficiencies? I’m all for that. But to put banking and credit unions into an agency that regulates tattoo parlors? I have nothing against tattoo parlors. It just doesn’t make sense. There’s a reason why we have careful regulations over banks and credit unions.”

During the presentation before the public testimony, I talked about refundable tax credits - state checks given to large businesses that owed nothing in taxes. “It’s like no state taxes taken out of your paycheck, but when you file taxes you get a check in the mail,” I told the group.

Chris, of the Eau Claire school board, did some quick math before she came forward. “You know those refundable tax credits you talked about?” she asked me. “They are the same dollar amount as the cuts to the Eau Claire School District over the last 16 years.” She handed me a three-page, double-sided list of 210 separate items reflecting the cuts made by the district.

“Even if the revenue limit is increased to $150 per student,” she continued. “We will still have a $3 million hole. Now it’s about $5 million.”

Many people spoke about the long-term consequences of cuts to the UW. One Eau Claire City Councilman said the city calculated the cuts would take $7.6 million out of Eau Claire’s economy. He talked about the budget process in Eau Claire and encouraged legislators to look at a more open, deliberative process at the state level to reflect the views of all the people.

“One of our goals on the City Council is to create a community that is enticing for people to come to Eau Claire.”

“Take the policy out of the budget. There is no way these things could ever be done on their own. No legislator would put their name on these proposals…. This is an entire state’s budget. It affects all the people… people need to have a bigger say.”

Thanks to all who came and shared concerns. Your advocacy is making a real difference.