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WI: Economic development failure is a bipartisan problem

By   /   December 19, 2012  /   3 Comments

By Ryan Ekvall | Wisconsin Reporter

MADISON — The Democratic Party of Wisconsin pounced, labeling it Scott Walker’s “scandal,” a “$19 million failure.”

What these partisans forgot to mention in their news releases and press conferences is that of the $19 million in uncollectable business loans reported to have been made by Walker’s troubled Wisconsin Economic Development Corp., some $14 million of that “bad debt” was held over from WEDC’s predecessor, the state Department of Commerce — the agency WEDC replaced.

Party chairman Mike Tate relied on misinformation reported by the Wisconsin State Journal, which lumped all of the loans together under the auspices of WEDC.

In a press release titled, “$19 Million Failure: Audit Reveals Scott Walker WEDC Scandal,” Democratic Party Chairman Mike Tate picked at Gov. Scott Walker’s “failure” to create 250,000 jobs. He’s right. Walker is a long way from hitting his ambitious – some say delusional – goal of creating 250,000 jobs in his first term.

Here’s where he’s wrong:

“Now we find his pet agency to create jobs is a $19 million failure, complete with bid-rigging and allegations of outright corruption,” Tate said.

The party website linked to the State Journal story about an audit conducted by Green Bay-based Schenck SC detailing WEDC problems, exhorting viewers to read the “shocking story.” Democratic Party spokesman Graeme Zielinski tweeted repeatedly about Walker’s WEDC “scandal.”

“The report by Schenck SC detailed troubles including a failure to track the agency’s more than $50 million in loans, including about $12 million in overdue loans,” the story notes.

WEDC: Accountability and management problems didn’t begin with WEDC, but they sure don’t seem to be improving, according to an audit

Auditors also estimate the agency will not collect about $19 million of its $51 million in loans. That includes about $15 million in forgivable loans — loans made with the understanding that repayment will not be required if the borrowers meet certain requirements, as well as about $4 million that are uncollectible, such as overdue loans to companies that have gone bankrupt and cannot repay them, lead auditor Mike Konecny of Schenck told the audit committee members.

What the State Journal failed to report, and what the Democratic Party didn’t bother to explain, is that some $14 million of the $19.57 million “bad debt” was carried over from the Department of Commerce, the governmental agency Walker replaced with WEDC.

“The bulk was carryover from Commerce,” Tom Thieding, WEDC communications director, confirmed in an email to Wisconsin Reporter, something WEDC Chief Operating Officer Ryan Murray had stated the day before.

Regardless, WEDC faces some serious problems in accountability and management of taxpayer money.

Walker led the effort to replace the Commerce department, the state’s economic development agency that Republicans, developers and businesses, among others, claimed was mired in inefficiencies and red tape. A report, Be Bold Wisconsin: The Wisconsin Competitiveness Study, released in 2010, concluded that Wisconsin had over the past decades “yielded its competitive advantage by neglecting to seed, nurture and cultivate new economic opportunities.”

WEDC, its proponents said, would focus on job and business creation using a private-sector approach and leaving regulation oversight to other state agencies. Critics, chief among them minority Democrats in the Legislature, blasted the change, claiming making a state agency quasi-public would diminish oversight and reward Walker cronies.

The Republican-led Legislature passed the bill replacing Commerce with WEDC, and Walker signed it into law in 2011.

At the time, the quasi-public organization’s CEO Paul Jadin predicted great things.

“In a difficult budget climate, this commitment to economic development will spur job creation and raise household and individual income for Wisconsin workers,” Jadin said in a statement in June 2011. “It will increase the local property tax base and state revenue collections that will help government fund its core services from education to health care, even while reducing the tax burden on families and businesses.”

Jadin is now gone, but plenty of questions remain about WEDC’s stewardship of taxpayer dollars and some of the programs and initiatives it runs – many of those a carryover of the way the state has conducted economic development for years, through Republican and Democratic administrations.

Case in point: forgivable loans.

Murray said WEDC is moving away from forgivable loans and refining and consolidating Commerce-initiated programs such as:

  • Direct Loans — Loan for working capital, equipment, training, building construction and improvements, land acquisition, private infrastructure improvements, asset acquisition, and lease payment reduction for property owners.
  • Technology Development Loans — Loans to facilitate research and development and commercialization of innovative technology products.

The goal, Thieding says, is to make WEDC more nimble than the old Commerce model. He cites WEDC’s more responsive customer service and moving more quickly from a business’s query to completion. The organization, according to the audit, however, has missed the mark, and the question remains: Are the loans or incentive program by any other name subject to the same problems and criticisms encountered by Commerce?

“In terms of the structure of what the loan is, there’s really not any difference. A loan is a loan,” Thieding said. “The only difference is we’re halting the forgivable loan option. The only difference between us and Commerce at this point is in the types of loans we offer.”

Thieding defends the losses, asserting WEDC was designed to take on more risk to spur development.

Companies, in general, would not solicit WEDC if they could get funding through traditional methods, Thieding has told Wisconsin Reporter.

“And it’s not really (Commerce) to blame there either because they were making loans off of the legislative intent of the programs. Just because we’re not going to collect, is this a bad loan that Commerce did?” Thieding asked, underscoring the philosophical debate of government playing banker with taxpayer deposits.

“That’s where discussion will be in future meetings,” he said.

Unlike banks, however, WEDC, like its predecessor, doesn’t have a concrete guide for risk tolerance, Thieding acknowledged.

“What is the expectation of these programs, knowing they may not be able to repay them? The state may see the money repaid, but it may take a lot longer than the original agreement may have been,” Thieding previously told Wisconsin Reporter.

“From a policy perspective, it may be up for the Legislature to say ‘this is what we’re willing to accept as a loss,’” he said. Just weeks later, Thieding said the Board may instead develop a “credit committee” to assess the same problem: “How do we really define and decide ‘this loan shouldn’t go’?”

Contact Ryan Ekvall at rekvall@wisconsinreporter.com

— Edited by John Trump at jtrump@watchdog.org

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  • Tom_B_Sr

    Interesting links regarding government actions:
    ‘Government gone wild”:
    http://www.staged.com/video?v=Klmb

    and:

    There ought to be a federal law against this!!!!! (My thought)

    The (New York) Times analyzed more than 150,000 awards and created a
    searchable database of incentive spending.  

    Here is the actual web address of the database:
    http://www.nytimes.com/interactive/2012/12/01/us/government-incentives.html
    $80.4 billion in incentives each year
    1,874 No. of programs

  • Jack Lohman

    Give me a break. “Privatization” was 100% a Walker thingy. Remember, private companies can give campaign bribes and public entities cannot. He’s quite a guy.

  • MaryOK

    This comment makes no sense. There are so many reasons for privatization that most governments are doing it. One reason is employee benefits. Government employees are too expensive, pension benefits and such. Why do you think the City If Chicago leased their parking meters, their tollways, etc. To move employee management somewhere else and then hold the management company accountable.