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.

STATEWIDE - After the release of yet another devastating state audit showing that the Wisconsin Economic Development Corporation (WEDC) has failed to document that companies receiving grants, tax credits, and loans are actually creating jobs, Governor Walker abruptly announced that he is pulling the plug on his controversial plan to merge the troubled agency with the Wisconsin Housing and Economic Development Authority (WHEDA).

While the cancellation of the proposed merger is welcome news for economic opportunity advocates, it fails to address the fundamental problem. WEDC is not just badly mismanaged, it is a flawed model. The notion that our scarce job creation resources should be doled out to business without real accountability is one of the worst ideas in modern Wisconsin legislative history.

The failure to close loopholes that allow companies receiving WEDC support to outsource Wisconsin jobs is only the tip of the iceberg. Wisconsin job growth has lagged behind the rest of the nation, and even worse the majority of jobs generated have been in low income occupations where poverty wages predominate.

The structure of WEDC itself, which by design has less accountability and transparency than a traditional public agency, raises questions about undue influence, further undermining public’s trust in their own government. In an environment where massive corporate election expenditures have been legalized, the public deserves ironclad guarantees that the process of handing out public economic development dollars is above politics.

The only permanent solution that can restore public confidence is to disband WEDC, and create a fully accountable department. The new department should focus its resources on creating the maximum number of family supporting jobs, not poverty jobs, and should place a special emphasis on areas with the greatest shortage of good jobs. There should be clear publicly known benchmarks for any company receiving assistance, a transparent process fully insulated from political considerations, and clawbacks from companies that fail to create the family supporting jobs that were promised. It should adopt Senator Hansen’s proposal to stop providing funds to companies engaged in outsourcing of jobs. It should also cease WEDC’s failed strategy of wasting money on poaching jobs from neighboring states, rather than investing in new economic opportunity.

Given recent research that shows the WIsconsin middle class has contracted more than any state in the country, it is critical that Wisconsin create an effective public agency that can make real progress on opening opportunity to more Wisconsin families.

“What is good for CEOs is not necessarily good for workers. Handing over our state’s economic policies to multinational corporations engaged in outsourcing and converting middle class jobs into poverty wage jobs is driving Wisconsin’s economy into the ground,” said Robert Kraig, Executive Director of Citizen Action of Wisconsin. “The only way we can halt the decline of the middle class, and expand opportunity to all those who are currently shut out, is to make creating good family supporting jobs the singular purpose of Wisconsin economic policy. No large corporation or CEO has any rightful claim on public dollars, unless they are in turn expanding real economic opportunity for Wisconsin workers.”

Audit reveals additional problems at persistently troubled agency. Can Walker continue to evade responsibility?

MADISON – A new audit of Governor Scott Walker’s persistently troubled Wisconsin Economic Development Corporation (WEDC) released this month revealed another round of critical shortcomings.

Statutes require WEDC to develop and implement economic programs that provide support, expertise, and financial assistance to businesses that are investing and creating jobs in Wisconsin, as well as programs that support new business start-ups and business expansion and growth in the state.

Walker has held out the WEDC as the main tool of his administration to promote job development in Wisconsin. He claimed he could grow jobs by 250,000 in his first term. Instead, despite heavy outflows of taxpayer dollars to corporate friends and a huge income tax cut for the wealthy, Wisconsin continues to lag behind neighboring states as the nationwide economic recovery continues.

The Governor continues to claim "Good news for all of us in Wisconsin" with campaign style sunshine columns spread on the opinion pages of local newspapers. But the real record of the WEDC's failure is plain to see.

Can Walker continue to evade responsibility? In response to the WEDC audit, Senate Democratic Leader Jennifer Shilling (D-La Crosse) said:

“How many more years of failure do we have to put up with before Gov. Walker and legislative Republicans get serious about fixing the deep-rooted issues with this horribly mismanaged agency? As Chairman of the WEDC, Gov. Walker must accept responsibility for the ongoing financial mismanagement issues and troubling news of tax breaks going to companies who outsource Wisconsin jobs. Instead of dealing with these serious issues, Gov. Walker continues to shirk his responsibilities as he jets around the nation in pursuit of his presidential campaign ambitions.”

The WEDC Audit findings show continued problems with the agency. In summary, they were:

• WEDC did not consistently follow statutes or its policies when making financial awards.
• WEDC did not comply with all statutory requirements related to program oversight.
• Staff did not consistently comply with policies established by WEDC’s governing board.
• Additional efforts are needed to help ensure that WEDC administers its state-funded programs effectively.

The Governor’s 2015-17 Biennial Budget Proposal would combine WEDC and the Wisconsin Housing and Economic Development Authority (WHEDA) into the Forward Wisconsin Development Authority, a newly created organization that would begin operation on January 1, 2016, and administer economic development programs. That would provide the show of a reorganization, but little change to the underlining problems Walker faces in job development.

A copy of the audit report may be found here.

MADISON - The nonpartisan Legislative Fiscal Bureau reported this week that the state is on track for 3.7 percent growth this year as predicted in January, with no changes expected in the forecast for the next two years. That means the windfall revenue growth Gov. Scott Walker predicted in his re-election campaign last fall will not materialize to offset the $2.2 billion deficit he ran up in his first term.

The disappointing forecast forces the Republican-controlled Legislature to consider alternatives to reduce Walker's proposed budget cuts this year, including accounting moves, increasing borrowing, making other reductions or raising taxes and fees.

According to Assembly Democratic Leader Peter Barca (D-Kenosha), who responded to the latest numbers that predict zero additional state revenue on Wednesday, “These weak revenue projections are another indication of the harm that three rounds of Republican budgeting, as well as their anemic economic development efforts, has done to our state".

While our neighboring states take advantage of an improving national economy and are experiencing large budget surpluses, Wisconsin continues to lag behind due to Republicans’ irresponsible budget choices and their poor economic development policies that have left Wisconsin 40th in the country in job growth. We can do better for the people of Wisconsin to ensure long-term economic prosperity.

Our community schools are hurting from Republicans’ actions and schools will continue to struggle even if Republicans restore their own proposed cuts. Time and again, Republicans have sold out Wisconsin schools and instead chosen massive tax giveaways for the corporate special interests and donors who fund Gov. Walker’s campaigns.

And then there is the politically motivated decision by Walker not to accept $345 million in federal Medicaid money. According to Sen. Dave Hansen (D - Green Bay), “The recent revenue numbers from the non-partisan Legislative Fiscal Bureau confirm what many of us have been saying for some time now. It is time to put partisan politics and ambitions aside and reclaim $345 million of our federal tax dollars to strengthen BadgerCare and avoid unnecessary cuts to our schools and UW campuses.”

Perhaps Sen. Barca has the best conclusion, “The sad truth is that Gov. Walker’s presidential ambitions – which are being carried out by Republicans in the legislature – will harm Wisconsin communities for years to come.”

STATEWIDE - Now that the new revenue estimates released earlier this week have failed to produce any budget saving unicorns, attention should shift to the $345 million Governor Walker is leaving on the table by rejecting enhanced federal funding for BadgerCare.

The map at right provided by the Center on Budget and Policy priorities shows just how isolated Wisconsin is in rejecting this money.  Wisconsin is the only state in the entire Great Lakes region to turn down these critically important federal dollars.

As Citizen Action of Wisconsin explained earlier this week, because Governor’s Walker’s economic policies is generating mostly poverty-wage jobs, the cost of rejecting the BadgerCare money is increasing. One of the reasons that revenue estimates are slightly down is that the Governor’s policies are driving down wages in both the public and the private sector.

“This week’s revenue numbers should be a wake up call to Legislators to revisit Governor Walker’s damaging decision to rejected enhanced federal dollars for BadgerCare,” said Robert Kraig, Executive Director of Citizen Action of Wisconsin. “Wisconsin cannot afford to needlessly leave tens of thousands of citizens without affordable health care, and in the process force massive cuts to critical investments in economic opportunity such as funding for our schools, technical colleges, and universities.”