Watchdog groups have long warned against WEDC practices

05/18/2015

By Mike Ivey May 19, 2015

While a questionable loan to a Walker campaign donor that recently came to light has Democrats calling for a federal investigation, watchdog groups have long noted problems with quasi-private economic development agencies like the Wisconsin Economic Development Corporation.

On Monday, two top Democrats who serve on the WEDC board said they were asking the U.S. Attorney General if laws were broken when a $500,000 loan was made to a failing Milwaukee construction company, Building Committee Inc. The loan, which was pushed by top aides to the governor over concerns from agency staff, was never paid back and records associated with the deal have since gone missing.

“We are deeply troubled by the ongoing inconsistencies at WEDC, the disappearance of loan documents and the appearance of taxpayer dollars being funneled to political donors by government officials,” said Rep. Peter Barca (D-Kenosha) during a Capitol news conference.

Hours after his office released documents related to the BCI loan to the Wisconsin State Journal, Gov. Scott Walker on Friday called for an end to the WEDC loan program and said the agency should instead focus on issuing tax credits to qualified businesses seeking financial assistance.

But a Washington, D.C. advocacy group that tracks government subsidies had warned four years ago that Wisconsin was setting itself up for problems with Walker’s plan to create a public-private partnership or “PPP” to oversee economic development programs.

“It’s a pattern we’ve seen with public-private agencies,” said Good Jobs First Executive Director Greg LeRoy. "What you have is a donor class that is treating these PPPs like their own piggy bank. It’s the definition of crony capitalism."

Walker made WEDC a centerpiece of his 2010 campaign promise to add 250,000 new private sector jobs created during his first term. But Wisconsin still hasn’t hit that figure and has lagged other states in job growth coming out of the Great Recession.

In a 2011 report," Good Jobs First cited problems in other states that had instituted a PPP model for delivering business subsidies. They included misuse of taxpayer funds (Rhode Island, Florida and Wyoming); excessive executive bonuses (Virginia, Florida, Michigan and Wyoming); conflicts of interest in subsidy awards (Florida, Utah and Texas); questionable claims by the PPP about its effectiveness (Wyoming, Florida, Utah and Indiana); and resistance to accountability (Florida and Michigan).

Watchdog groups in Wisconsin were also sounding alarm bells over WEDC before a scathing state audit on May 8 and new reports that implicate top Walker aides — including former Department of Administration Secretary Mike Huebsch and Walker's former chief of staff at the time Keith Gilkes — in steering an unsecured loan to businessman William Minahan, owner of BCI.

Last year, a report from the liberal advocacy group One Wisconsin Now cited figures showing that nearly 60 percent of some $975 million in assistance distributed by WEDC went to firms that had contributed to Walker or the Republican Governor’s Association.

That report reviewed public campaign finance records and found that 192 donors were associated with companies that got WEDC awards. The report says Walker received more than $1 million in direct campaign funds and another $1 million via the RGA from WEDC aid recipients.

A separate report from Citizen Action Wisconsin tracked WEDC awards by geographic location and found that of the $80 million in WEDC incentives in fiscal 2012, the vast majority went to companies in Republican-controlled districts.

Citizen Action director Robert Kraig said the latest developments again show the need to scrap WEDC entirely and find a new way to create jobs in a state that has lagged the rest of the nation.

“The only permanent solution to the stunning failure of Governor Walker’s jobs agency is to disband it and create a fully accountable public department with a mission and a real strategy to create family supporting jobs,” Kraig said in a statement.

The audit released on May 8 said that Walker's job-creating entity failed to follow statutes or its own policies when making financial awards. It also said WEDC failed to meet all statutory requirements related to program oversight and that staff "did not consistently comply with policies established by WEDC’s own governing board" which is chaired by Gov. Walker.

The Legislative Audit Bureau looked at more than 100 grants, loans and tax credits WEDC handled in the year that ended July 1. Auditors said that award recipients weren't required to submit any information to WEDC showing they actually added or saved jobs. The audit also said tax credit recipients generally submitted information to WEDC but found no evidence the agency ever checked the data before awarding the credits.

"This is a problem with the PPPs," said LeRoy. "They don't let the staff do their job and properly vet the deals and use their professional judgement."

In the case of the $500,000 loan to BCI, company owner Minahan said on his WEDC application the firm hadn't been involved in any lawsuits in the previous five years. But court records found three such lawsuits filed in 2010.

“Anyone could have checked CCAP and found those records,” said Rep. Barca, referring to the state’s free public records database.

Minahan was one of 32 donors who gave Walker the maximum $10,000 donation in his first gubernatorial campaign in 2010, according to Barca.

Barca and state Sen. Julie Lassa (D-Stevens Point) stopped short of saying WEDC should be scrapped but said they were sending a letter to new U.S. Attorney General Loretta Lynch and U.S. Attorneys John Vaudreuil and James Santelle asking whether any taxpayer dollars were misused.

Lassa said the fact that Walker is suddenly calling for an end to the WEDC loan program and has called off merging the troubled agency with the Wisconsin Housing and Economic Development Authority shows it’s all about politics.

“Wisconsin is 40th in the nation on job growth and 42nd on wage growth,” she said. “It should be clear now that the governor is simply reacting to events as he is focused on running for president and is not focused on helping Wisconsin entrepreneurs or creating jobs for the people of our state.”

Senate Majority Leader Scott Fitzgerald declined to comment on the Democrats' plea for a federal investigation but did issue a statement saying he supports Walker’s call to shift funding for loan programs into performance-based tax incentives with a funding priority on education and worker training.

“I am pleased to see that in light of the concerns raised by the recent legislative audit of the WEDC, the Governor is taking steps to ensure that the agency focuses on its most successful development tools,” said Fitzgerald (R-Juneau). “WEDC continues to provide a valuable service to Wisconsinites and this move provides additional certainty for businesses and taxpayers that the agency will operate efficiently and accountably moving forward."

Previous reports have questioned state support for Kestrel Aircraft, which had received a $2 million from WEDC but has been slow to open a new factory in Superior.

 

Barca and Lassa mentioned Kestrel during their press conference as another example of a WEDC effort that failed to deliver promised jobs.