Wednesday, May 17, 2017

WEDC still losing money, can't track jobs

Yeah, the headlines may indicate that things are “better” at the Wisconsin Economic Development Corporation. But it still doesn’t sound like things are all that great.
The Wisconsin Economic Development Corp. has taken strides to improve its handling of state taxpayer dollars, but it still can't pinpoint how many jobs it has created.

Also, the agency's uncollectable loan balance has grown from $1.3 million in December 2014 to $11 million as of December 2016, another sign of the poor awards management in the early years of the agency….

Those are some of the findings in the Legislative Audit Bureau's latest review of the nearly six-year-old agency.

"WEDC cannot be certain about the numbers of jobs created or retained as a result of its awards," the LAB reported Wednesday. "Additional actions need to be taken to improve the accuracy of the numbers that WEDC reports in its online data regarding jobs that were created or retained as a result of the awards it made."
Digging further into the full audit, we can see more detail on where the mess-ups are still occurring (and in fairness, where they are not). The LAB says that WEDC has improved its record-keeping and accuracy on some levels after it adopted new procedures in 2016, but prior incompetence and the GOP slush-fund nature of this organization helps to explain the large increase in uncollectible loans.
As shown in Table 5, WEDC’s two loan delinquency rates increased considerably from December 31, 2014, to December 31, 2016. The increases in the two rates occurred largely because new loans became 90 days or more past due during this two-year period. The total outstanding loan balance for WEDC’s loan portfolio was $78.5 million on December 31, 2016.On that date, the payment delinquency rate was based on $1.4 million of loan repayments that were 90 days or more past due, and the principal delinquency rate was based on an $11.0 million total balance for loans with repayments 90 days or more past due.
The LAB adds that these loans are now considered “potentially uncollectible”, meaning that these funds are likely lost, though not listed as “written off.” Written off is what another combined $3.4 million in loans for Fiscal Years 2015 and 2016. The LAB adds that another $16.4 million in loans had its contracts changed to defer payments and try to get something back from a delinquent business.

Another item of concern in the LAB audit dealt with WEDC holding onto money when they did claw back some of their handouts after it was determined the business didn’t live up to their end of the bargain, instead of refunding that money to the State Treasury. And LAB says part of that problem is due to the way WEDC was set up by the Walker Administration in 2011.
If a tax credit recipient does not comply with the terms of its contract with WEDC, it may be required to repay the State for tax credits it had previously claimed. If a recipient instead repays WEDC, then WEDC must repay these funds to the State. WEDC’s information indicates that recipients repaid $5.3 million to WEDC from July 2016 through November 2016. In response to our questions, WEDC indicated on March 16, 2017, that it had not yet deposited the $5.3 million with the State and that DOA had verbally agreed to allow it to retain the $5.3 million until DOA requested these funds. On March 23, 2017, WEDC deposited $5.3 million with DOA. (oops!)

Unless otherwise provided by law, statutes typically require state agencies to deposit into the State Treasury within one week any funds received on behalf of the State, and these funds are generally credited as GPR to the General Fund. However, this provision does not apply to WEDC because WEDC is not a state agency, and statutes do not stipulate how frequently WEDC is required to deposit repaid tax credits with the State. Therefore, the Legislature could consider modifying statutes to require WEDC to deposit all tax credits repaid to it with DOA within one week.
The audit also notes that WEDC is not updating its website on the progress of its awards after they are given, including less-than-advertised amounts of jobs created/retained.
Assessing the effectiveness of WEDC’s awards involves determining the extent to which recipients met their contractual obligations. WEDC indicated that 192 awards it had made since July 2011 ended through September 2016, including 24 awards (12.5 percent of the total) for which WEDC indicated that job creation or retention was an expected result. We found that recipients of 3 of the 24 awards were not actually contractually required to create or retain any jobs. Thirteen of the 24 awards ended before the contractually specified completion dates and, as a result, the recipients were no longer contractually required to create 183 jobs and retain 1,082 jobs. Eight of the 24 awards reached their contractually specified completion dates.

We also found that WEDC’s online data contained inaccuracies for certain awards, including 1,265 jobs associated with recipients that sold their operations in Wisconsin, ceased their operations in Wisconsin, or had withdrawn from their contracts before the contractually specified completiondates. In addition, at least 699 jobs were double-counted in the online data.
But hey, the Walker Administration got a nice headline at the time of the award, so who cares how things actually ended up, right?

The same goes for those “building expansion” announcements WEDC is so fond of sending out.
Award recipients submitted documentation showing how they spent the funds that WEDC awarded them for capital investments, but they typically did not submit documentation for the remaining capital investments that they reported to WEDC. Although WEDC did not receive documentation for the total amounts of capital investments, it included the total amounts in its online data in January 2017. For example, the online data indicated that one recipient made $23.4 million in capital investments as a result of a $3.4 million loan from WEDC. This recipient submitted documentation for $3.4 million in capital investments but submitted no documentation for $20.0 million. The online data indicated that a second recipient made $21.1 million in capital investments as a result of a $1.5 million loan from WEDC. This recipient submitted documentation for $2.5 million in capital investments but submitted no documentation for $18.6 million.
Now here’s the question- now that we see there are still deficiencies will anything more be done about it by the GOP-run State Legislature? Let’s keep in mind that the Joint Finance Committee just signed off on reinstating WEDC’s loan program last week, and the GOP donors at Johnsonville Sausage just got up to $10 million in WEDC tax breaks for an expansion project that MAY add 100 jobs over the next 5 years.

So is the money-funnel that is part and parcel of WEDC’s method of doing “business” too sweet to prevent the Legislature from stepping up and stopping these guys from wasting more tax dollars? Stay tuned.

1 comment:

  1. By the way, Dems on Joint Finance asked for WEDC to be opened up and revisited today, and JFC Republicans said "No," and didn't want to deal with it.

    I'm sure you're shocked.