Another year, another audit showing WEDC is a money-draining waste

I'd love to say this shocked me. But we've seen this out of the Scott Walker-created Wisconsin Economic Development Corporation (WEDC) for several years.

Audit says WEDC "cannot know how many jobs were actually created or retained as a result of "436 awards totaling $130.7 million" since 2011-12, in part, because it did not collect sufficient jobs-related information from recipients.

— Molly Beck (@MollyBeck) May 10, 2019

Here’s the audit on WEDC from the Legislative Audit Bureau so you can read it yourself, and there are a lot of areas to choose from when it comes to incompetence and failed policy.

As shown in Figure 1, WEDC’s information indicated that recipients of 68 tax credit and loan awards that ended from FY 2011-12 through FY 2017-18 created 2,084 of 5,970 contractually required jobs (34.9 percent). Its information indicated that 60 such recipients retained 7,806 of 13,272 contractually required jobs (58.8 percent).

When WEDC closed awards that involved job creation or retention, it could have revoked $414,400 in previously awarded tax credits, and it could have required loan recipients to repay $4.0 million. These taxpayer funds could then have been used to support other projects.

WEDC should improve how it assesses the results of its programs, including by annually determining the extent to which recipients created or retained contractually required jobs for all awards that it made and that ended. WEDC should then use this information to consider changes to its program policies and make more-informed decisions about future awards.

After reading that passage, let me remind you that WEDC is the organization charged with putting Foxconn’s feet to the fire when it comes to verifying the employment and wage numbers that are required to start handing out the $2.85 billion that WEDC holds in connection to that scam. That's reassuring, isn't it?

Another item on the audit that reiterates an ongoing WEDC failure involves its revolving loan program, which was given to certain businesses and entrepreneurs to help them invest in businesses.

As shown in Table 8, both of WEDC’s loan delinquency rates increased from December 31, 2016, to December 31, 2018. These increases occurred because even though fewer loans became 90 days or more past due during this two-year period, WEDC’s remaining balance on all loans decreased during this time period. On December 31, 2018, the payment delinquency rate was based on $1.8 million of loan repayments that were 90 days or more past due, and the principal delinquency rate was based on a $7.6 million remaining balance on those loans. We included the amounts of interest owed by recipients when we calculated both types of delinquency rates.

As shown in Table 9, the potentially uncollectible balance of loans 90 days or more past due decreased from $11.0 million on December 31, 2016, to $7.6 million on December 31, 2018. This decrease occurred largely because WEDC wrote off loans totaling $5.7 million and forgave loans totaling $2.0 million, even though new loans became 90 days or more past due during this two-year period.

As you can see, the only reason that there are fewer loans past due is because so many of them were written off to $0. That's money thrown down the drain. In addition, loans that are newly past due doubled in 2018, which means more write-offs are likely to happen in the future. And sure, the loan program was ended in the 2017-19 budget after it had received so much negative media attention, but it's still costing taxpayers money that they were counting on to come back to WEDC.

So why can't Tony Evers give WEDC $0 in the next budget and cut them off from more of these failures. Sadly, it's not that simple. Let’s go into the Informational Paper from the Legislative Fiscal Bureau to remind ourselves how WEDC gets funding.

Most of WEDC's revenue consists of segregated (SEG) funds, from the economic development fund ($24.3 million) and the environmental fund ($1.0 million). In addition, WEDC receives state general purpose revenue (GPR), revenue from the federal government, other state agencies, interest income on loans and investments, charges for services, and other sources. The GPR and SEG revenue sources account for over 88% of WEDC's total budgeted revenues, which are estimated at $47.1 million in 2018-19.

Act 59 allows WEDC to expend all SEG monies received in the economic development fund for programs and operations. However, effective 2017-18, WEDC may not expend GPR funding on operations and programs unless the balance in the economic development SEG appropriation for operations and programs is zero (that is, spending in a year exceeds the deposits of economic development surcharge revenues, interest, and penalties collected in the economic development fund after deducting amounts appropriated to DOR for administration). Specifically, the funding for operations and programs is provided in an amount of GPR equal to $41,550,700 minus the amounts expended from the economic development fund and environmental fund. Further, beginning in 2018- 19, GPR programs and operations spending in any year is capped at $16,512,500.

This means that much of the money that WEDC gets for these handouts comes from a surcharge that corporations and larger businesses in Wisconsin pay on top of their tax liability. But don't cry too many tears for them, the max charge is $9,800 a year for businesses that have gotten numerous tax cuts and the state and federal level in the 2010s, and often that money is kicked back to them many times over in these handouts for "jobs" and other development.

In looking at what the Evers budget does to WEDC for the next two years, it does cut about $5 million in general tax support by moving that to the money that comes from the Economic Development fund, but there's still $25 million we are slated to shell out for WEDC's day-to-day operations. And that's before we tax about any tax write-offs that come from current and prior handouts. Going back to the WEDC audit, it looks like there's plenty of cash that WEDC is sitting on to continue it's operations for a while without needing the help of us taxpayers.

The cash and investments held by WEDC represent its total resources available. The total resources available at any point are the accumulated amount that WEDC has received but not yet paid out. WEDC received state funding during FY 2017-18 through quarterly payments from DOA that averaged $8.8 million each quarter. In total, WEDC received $41.9 million in state funding for the year, including an additional $6.8 million provided under 2017 Wisconsin Act 318 for a talent attraction and retention initiative. In addition, WEDC received other amounts, such as loan repayments, throughout the year. These other amounts averaged $16.0 million each quarter and totaled $63.9 million for FY 2017-18. Additionally, WEDC liquidated investments to increase cash when necessary...

In report 17-9, we reported that total resources available to WEDC exceeded total payments made by WEDC for each quarter from July 1, 2011, when WEDC became fully operational, through June 30, 2016. As shown in Figure 3, total resources available to WEDC continued to exceed total payments made by WEDC for each quarter from July 1, 2016, through June 30, 2018. As a result, WEDC’s cash and investments balance also increased from $69.9 million as of June 30, 2016, to $77.0 million as of June 30, 2018, or by $7.1 million (10.2 percent). This increase was, in part, due to the process through which state funding was provided to WEDC quarterly.

Well if WEDC is sitting on all this money, they sure don't need any more thrown down the drain by us taxpayers in the next 2 years. Seems like an easy place for Evers to put a big $0 on state tax funds going to WEDC, and tell them to make it on the money they have lying around and coming in from that Econ Development surcharge.

It seems there may even be some appetite from Republicans in tightening things up at WEDC, if these comments from Audit Co-Chair Rob Cowles are any indication of what a few others in his party think of this 8-year experiment gone wrong.

This isn’t just an issue of unaccountability, but shows the desired outcomes of these programs have not been consistently achieved. It’s my hope that, through the Audit Committee process and possibly the Legislative process, we will be able to address these issues. pic.twitter.com/p5rXd2N5Ey

— Rob Cowles (@SenRobCowles) May 10, 2019

But then again, Cowles likely doesn't get the kickbacks that Assembly Speaker Robbin' Vos and Senate GOP Leader Scott Fitzgerald get for their campaign committees from WEDC recipients, so don't expect them to do too much to stop WEDC from being the tax=-backed GOP slush fund that it has basically served as since it went into existence. And it seems telling that as part of the major omnibus that turned down Medicaid expansion and a number of other Evers changes to the budget, all 11 GOPs on Joint Finance turned down Evers' proposals to improve transparency and reporting requirements at WEDC and stop the GOP from controlling WEDC's Board of Directors.

However, the GOP doesn't have 2/3 control of either house of the Legislature, and one thing Tony Evers can certainly do is defund WEDC and remove positions to this failing organization. And he gets the ability to get a new person in charge of the organization in 4 months to replace GOP hack Mark Hogan, who has supported Foxconn every step of the way and last month was arguing against Evers' proposals to reverse a corporate tax cut and end a wage suppression measure last month.

So while it's likely not possible for Governor Evers to abolish WEDC this year, due to its funding structure and the fact that too many GOPs will try to keep it afloat to keep their pay-to-play scheme going. But this audit gives Evers the opening to call out and redirect where those funds might go to, as well as change who is in charge of handing out those funds.

And WEDC's failures need to be hung around every so-called "free-market, small government conservative" for the next 2 years, demanding why these GOPs are willing to cut off everyday poor people from food stamps and medical care, but never close off the faucet to these wasteful handouts to lazy corporates.