October 3, 2012
Recent actions suggest trouble at the Wisconsin Economic Development Corporation (WEDC). WEDC was created as a ‘nimble corporation’ that would streamline the process of investing public money in businesses for job creation.
It turns out federal officials say oversight was too loose; perhaps as much as $9.6 million in Community Block Grant Funds were given away without proper legal authority.
WEDC is responsible for coordinating all of the state’s economic development programs. As such, WEDC oversees hundreds of millions of dollars in grants, loans and tax credits given to companies for job creation.
In concerns stretching back over a year and half, the United States Department of Housing and Urban Development (HUD) raised serious questions about WEDC’s legal authority to give out funds. Despite federal concerns, WEDC continued to award job creation grants.
The federal inquiry was withheld by state officials from WEDC board members and was only recently made public.
The apparent cover-up of the HUD inquiry raised the ire of WEDC board members, one of who threatened to resign in a letter to the governor.
“It is unconscionable that the WEDC staff would consider this issue not important enough to share with the board at the June meeting, let alone last week’s meeting,” wrote board member Paul Radspinner, president of FluGen, Inc. in a letter made public by the Wisconsin State Journal.
Mr Radspinner continued, “If the WEDC leadership is not held accountable to proactively keep the board informed in a timely manner on issues affecting the future of this corporation and its reputation, then I cannot fulfill my fiduciary responsibilities nor can I continue to serve as a member of the board.”
At the same time, in apparently separate actions, WEDC Executive Director resigned effective November 1st. And, board members refused to accept the WEDC annual report detailing the state’s economic development programs. This extensive report is a requirement of the Legislature to be delivered to the Joint Committee on Audit, which I Co-Chair.
All this activity comes on the heels of a Legislative Audit Bureau report that showed taxpayers invested in over 100 separate economic development programs. But not all state agencies were tracking the accomplishments of all companies that received grants, loans and tax credits. Part of the delayed report was to demonstrate sufficient state oversight of these programs.
A serious lack of oversight exists. This administration inherited a system in which almost 90% of the state’s 139 economic development programs did not report both the expected and the actual number of jobs created.
The Governor promised a nimble response to businesses seeking state assistance. Legislators and the public expected WEDC to improve oversight and compliance with federal and state law.
One concern raised by both the audit and HUD was whether companies that received job creation money actually created jobs. An example raised by HUD was a printing company given half a million dollars to create jobs and nine weeks later laid-off 20 employees. The company eventually declared bankruptcy and the state never recovered the money.
In other cases, companies were not properly evaluated or ‘underwritten’ to determine their financial soundness and to verify the project details. WEDC officials did not follow standard rules related to cost per job created and the ‘forgiveness’ of loans.
Not following established rules raises questions of one company receiving special treatment over another similarly well-deserving company. The HUD letter stated, “The inconsistent application of established guidelines is a questionable practice”. If rules are not consistently followed this “can lead to accusations of preferential treatment and potential legal action.”
Poor accounting practices and internal controls were other problems cited by HUD. Specifically on the last business day of 2011 an unnamed financial controller, on his last day on the job, removed $8.6 million from an account without proper authority. The feds say was allowed to happen because the state did not provide proper oversight of WEDC.
I and other Audit Committee members will investigate these questions in a special hearing of the Joint Committee on Audit scheduled for 10 a.m. on October 17th. The Madison hearing is open to the public and broadcast by Wisconsin Eye.