Progressive Thinking

MADISON - “There’s a heck of a lot of things they didn’t tell me when I signed on,” admitted the chief of the Governor’s lead jobs agency during a recent hearing before the Joint Committee on Audit.

Reed Hall, CEO of the Wisconsin Economic Development Corporation (WEDC), spent several hours grilled by Audit Committee members. He agreed troubles existed but insisted WEDC was on a new track with plans to correct problems. Later in the hearing two lawmakers with experience as business executives provided solutions.

“I voted for WEDC and thought it was a good idea,” said Senator Tim Cullen, a former insurance executive. “Taking the best practices of the private sector and using them in WEDC was a good idea.”

But what was exposed in a recent audit of WEDC was the worst, not the best, of any business. The agency was run without basic managerial processes in place, without policies, without oversight of delinquent loans or consistency in loan or grants awards, without a clear budget or consistent accounting practices.

Accounting records couldn’t be reconciled to the point that the year-end financial report of the state of Wisconsin included only an estimate of the agency’s expenses.

And there was no evidence to support claims of tens of thousands of jobs created.

State law requires jobs be independently and annually verified through a sample of records. The public must know if jobs ‘promised’ by companies are actually created. Auditors determined this never happened. In more half of the company awards made, the business never even filed required reports.

State law also lays out a process to ensure dollars go to programs whose effectiveness can be measured. Because the agency failed to follow the law auditors were unable to determine if any program was effective in creating jobs.

For example, laws require WEDC to establish goals and expected results for each program. Reports should then be compared with expectations so lawmakers can make proper future funding decisions based on actual program outcomes.

WEDC failed to even identify expected results for a third of all programs it administers; let alone whether companies achieved expected results. Without expected results or company required reports detailing compliance it was impossible to determine if any program met its intended purpose.

WEDC awarded over $60 million in loans and grants and over $100 million in tax credits. They supervised local government in the sale of almost $350 million in bonds for projects.

But they kept members of the WEDC Board in the dark about inadequacies in oversight, internal processes and compliance with the law.

“The Board is toothless,” testified Board member and Assembly Minority Leader Peter Barca. “The Governor loves to control everything.”

“The Board must make the hiring decisions,” said Barca. “I’ve never served on a Board that does not hold the CEO accountable. They [WEDC executives] are free to ignore anything the Board says.”

Lawmakers Barca and Cullen recommended the Board be restructured and empowered. Audit and Finance committees be established and meet bimonthly, committee chairs and a lead director be created; committee chairs should set their own agendas; board members should serve for fixed terms.

Barca concluded with an ominous observation, “Key staff people are still misleading this committee, even today…. To this day they go around obfuscating jobs created, what role did they play to retain them?”

The answer is unclear and not auditable. With no budget, no company reports in over half of cases reviewed and no program expectations for a third of programs, one might think lawmakers shouldn’t increase WEDC’s funding.

But that’s exactly what happened in the Joint Committee on Finance only hours after the conclusion of the Audit Committee hearing.

Law requires the co-chairs of Finance to serve on the Audit Committee to ensure audit findings are reflected in budget decisions. Neither co-chair attended the Audit hearing. None of the recommendations on board changes were included in the Finance Committee action.

Rather than rush to create the appearance of a problem solved, legislative leaders should heed the advice offered the Audit Committee and create a board that bulldogs WEDC management into complying with the law. It’s the board’s responsibility; it’s time they were given the authority.

MADISON - “In Wisconsin, we don’t make excuses, we get results,” said Governor Walker as quoted by the Associated Press. The governor was unveiling his $75 million budget initiative earlier this year to economic development professionals across the state.

While the new dollars are still being the debated, the spending of existing economic development dollars recently took center stage among Legislators.

The Legislative Audit Bureau (LAB) released a stinging indictment of mismanagement and poor oversight at the Wisconsin Economic Development Corporation (WEDC). The audit reviewed 30 economic development programs during the 2011-12 fiscal year. WEDC awarded $41.3 million in grants, $20.5 million in loans, provided $110.8 million in tax credits to businesses and individuals, and authorized local government to issue $346.4 million in bonds.

Auditors found not a single job created by this investment was verified by WEDC. More than half of the required reports had not even filed by businesses receiving assistance. Without evidence it was impossible for auditors to determine if contractually specified performance, including required job creation, ever happened.

In page after page of the 120-page report auditors outlined management failures and violations of current law.

Companies and projects that were not eligible still received awards. In violation of the law, WEDC paid for activities provided before the date of the company’s contract. Awards were given by WEDC over amounts limited by law. One company received $2.5 million in credits through a job creation program and never even promised to create jobs. Another company received $57,000 per job in clear violation of program limits on dollars given per job.

Delinquent loans were not tracked and collected. One loan was restructured six times to avoid the business making payments. Another business that failed to pay on a loan that was almost 14 years old received another loan twice as big. Some loans were forgiven; one of which was made to a company that hired the same firm WEDC hired to improve its record keeping.

Auditors documented at least seven instances where this firm, Baker Tilly, had potential conflicts of interest because the firm represented and provided consulting services to companies seeking awards with WEDC during the time Baker Tilly had access to information on WEDC’s awards and recipients.

Wisconsin’s premier metric “Job Creation” could not be verified on any of the millions of taxpayer dollars that went out the door.

The metrics for tracking job creation programs were set to law following a disturbing audit over six years ago. Senator Lassa and I along with other now retired lawmakers spent a year fixing these problems. Following systems in other states we set rules requiring goals, benchmarks and evaluation to make sure the business did what was promised and the people’s dollars were wisely invested.

In January, 2011 I wrote:

All this work is about to be thrown out the window. And to be replaced by a dark pantry with a sign on the door reading ‘Just Trust Us’.

Moving at break neck speed through the Legislature is a bill to abolish the state commerce department and create a private corporation. The bill gives this private corporation unlimited state bonding (or borrowing) privileges and makes it exempt from many state laws including employment law.

Two years later auditors found even the limited version of what remained of the law was not followed. The problems of mismanagement and the appearance of impropriety are not limited to Wisconsin.

Earlier this year, the Chicago Tribune reported the federal government is investigating the Illinois economic development agency and the state auditor warned for twenty years controls on state money are not adequate. New York Times reporters documented Governor Cuomo’s actions using New York’s economic development agency to hire friends and shore up contributions for his possible run for president.

Both Illinois and New York have Democratic governors. Regardless of party, there is no excuse for mismanagement and poor oversight.

Lawmakers must demand change. If everything doesn’t have to be made public, the temptation to break the law is much greater. Every parent knows you can’t leave kids in the pantry with the door closed.

Note: The Joint Legislative Audit Committee has scheduled a public hearing on the WEDC audit for Thursday.

MADISON - “What’s happening to the UW reserve money?” the woman asked. She was concerned about criticism of the University of Wisconsin. “It seems like they want to attack the UW,” she told attendees at the Mondovi Town Hall Meeting.

A recent memo from the Legislative Audit Bureau (LAB) and the Legislative Fiscal Bureau (LFB) revealed nearly a billion dollars in what appeared to be reserve funds carried over from the last budget year.

Legislative leaders reacted by calling for a freeze on UW tuition. Other lawmakers want to cancel the promised $181 million increase to the UW. University officials cautioned most of the money was obligated to student financial aid or support of high demand programs like business and engineering. They say unrestricted does not mean uncommitted.

Nothing was clear except the UW’s so-called “unrestricted net assets” took a big increase in the past few years.

LAB reported in January the sizable growth of UW unrestricted net assets – or dollars not restricted by the funding source. Auditors reported UW unrestricted assets at $860.2 million. These assets increased by $624.9 million over five years.

The discovery of a large sum of unrestricted net assets comes on the heels of sustained tuition increases. It also comes at a time when the Legislature gave the UW new freedoms in how to spend money.

In recent years, as state funding to the UW dropped, university officials asked for and were granted new authorities. Changes in the last budget made funds formerly directed for a specific purpose into a flexible block grant; to allow the UW to spend as it saw fit while honoring the needs of all campuses.

New authorities granted in the last budget allowed the UW to set its own travel policies. Beginning this summer the state gave the university system contracting authority for supplies and materials unique to the UW, and the UW Madison was to develop a new system-wide personnel system.

This decision was made after many problems and much expense with the last personnel system. Even with recognition of the system’s problems, officials failed to stop recent overpayment of the health insurance and retirement of some employees. This discovery led the Joint Committee on Audit to approve an investigation of the UW personnel system as its first audit of 2013.

The discovery of large sums in reserve fractured the trust building between the UW and the Legislature. Sharp words and threats came from leaders when details about the exact purpose for which the money was set aside were hard to find.

My legislative colleagues on both sides of the aisle called for a freeze in tuition. Some said planned UW budget increases should be scrapped.

The surprise in the Legislature over the discovery of these dollars may reflect the general obscurity of the financial matters of the state and not any attempt by the UW to conceal cash.

Across the country, as in Wisconsin, legislators turn to the Comprehensive Annual Financial Report (CAFR) to learn of the state’s fiscal health. Hoping to find cash to balance the budget, legislators identify what appear to be cash balances.

But few state reports are as opaque as the CAFR. Auditors examine finances according to governmental accounting standards. While this method may assist bonding agencies in comparing risk, it does not provide legislators with necessary detailed financial and management information. So in Michigan, California and Wisconsin lawmakers seek funds the universities say are already committed.

Exactly what money is in reserve and what money is already committed is unclear.

This is why my Audit Committee colleagues and I recently directed the Legislative Audit Bureau to review the dollars and their oversight.

It is right for us to ask questions and we know the questions to audit: are the unrestricted net assets commitments or reserves? They can’t be both. What is the appropriate level of reserves necessary for a $5.5 billion operation like UW? What oversight do system officials provide and is this oversight adequate?

My legislative colleagues should slow their rush to judgment until auditors complete their investigation. It’s always better to make decisions based on facts.

BLACK RIVER FALLS - “Black River Falls is grappling with high phosphorus in the water,” the woman told me at the Town Hall Meeting. “The phosphorus is coming from farms up river. Why cut funding to conservation staff that help farmers keep manure out of the river?”

Buried in the 2013-15 state budget is removal of almost $5 million or over a quarter of cost-share funding to create structures to reduce run-off and preserve topsoil. The budget proposal also cuts nearly $2 million for local county conservation staff who assist farmers in creating and monitoring these structures.

It’s been a difficult spring for farmers. Many turned to spreading on frozen and snow covered ground. Now with the melting season underway, phosphorus from the manure finds its way into waterways.

State and federal rules clamped down on phosphorus discharged by city wastewater treatment plants and cities are crying foul. They claim the state is shortchanging them by taking away money used to help farmers control run-off. The increased cost of phosphorus cleanup will fall unfairly on city ratepayers.

Local people also raised concerns about several other changes in the budget of the Department of Agriculture, Trade and Consumer Protection (DATCP). The Governor proposes getting rid of popular programs like the Buy Local, Buy Wisconsin, the Agriculture Development and Diversification, and the Grazing Lands Conservation Initiative programs.

Buy Local, Buy Wisconsin is a competitive grant program launched in 2008 to strengthen the ‘value added’ aspects of Wisconsin agriculture. If we can keep more of the food dollar in Wisconsin, the entire state benefits. Local folks used these programs to develop markets for local produce, meat, fish, and cheese. With a small investment, the program created $4 million in new food sales over three years.

The Agriculture Development and Diversification grant program was created in 1989. Since then it has funded 342 projects with an investment of $6.9 million according to its website. This program leveraged $49 million in new capital investments and over $140 million in economic returns.

For example, James Altwoes of Mazomanie wanted to reestablish hops growing and processing in Wisconsin. With grant support he developed new technology, reached out to new buyers and involved 1,000 people through workshops focused on growing hops.

I often hear from farmers who benefited from the Grazing Lands Conservation Initiative Program. Intensive rotational grazing is a technique many used to keep cattle rotating from one pasture to another to increase the consumption of high quality feed and preserve plants and topsoil. The practice is not as easy as you might think.

Technical assistance from the Grazing Program helped farmers hone their skills at recognizing noxious weeds and early signs of needed pasture maintenance. The popular local ‘pasture walks’ were part of the outreach provided by this program.

Cutting popular and effective programs was not the only part of the state budget that drew complaints from rural people. Many were concerned about the changes facing rural schools and BadgerCare. I will cover these topics in upcoming columns.

Removing the ban on foreign corporations and foreign individuals from owning large tracts of Wisconsin land has many farmers upset. Older folks express concern about the control of food by foreign companies. They remember the rationing of World War II. They see land ownership as a way to protect the security of our country.

Younger farmers, trying hard to get started in farming, are worried foreign companies will increase the competition for land and drive up prices. I have yet to find a person attending a town hall meeting who thinks changing the law on foreign companies owning large tracts of land is a good idea.

Like foreign land ownership, the change in conservation funding is an issue that cuts across city dwellers and rural residents alike. People see the connection between high costs for city ratepayers and dirty water from farm run-off. They do not see cutting conservation money as a wise decision when cities are facing higher phosphorus standards.

Especially this year the late spring snow keeps cattle on concrete pads and winter manure storage over capacity. As one rural woman said, “we all live somewhere down stream.”

MADISON - Like many others across the country, I was devastated by the news coverage of the tragic bombings at the Boston Marathon. My thoughts and prayers go out to the lives that were torn apart by this act of terror.

Finishing a marathon is not just an achievement, it is the culmination of months, if not years, of hard work a runner puts in just to get there. It is about overcoming hardship and adversity. The cowards that did this not only struck out against that American spirit of endurance and achievement, but they also struck out against a world community of runners from all 50 states and 90-plus countries across the globe.

As an avid runner who had family and friends attending and participating in the Boston Marathon, this affected me on a personal level. While my family and friends were uninjured, none of us were left untouched by this unthinkable event. My hope is that the people responsible for this horrible act of terrorism are found and brought to justice so that the those affected by this tragedy and their families are able to find peace.