Wednesday, April 21, 2021

WEDC audit - not as awful as before! And COVID aid is getting out

I wanted to give a few highlights from today's report by the LAB on the Wisconsin Economic Development Corportation (WEDC). This annual audit was a source of gallows humor in the Walker years as numerous handouts from WEDC were either not documented, or loans had to be written off after companies failed to reach their jobs goals.

By comparison, this report was relatively boring if you were looking for screwups, as WEDC has gotten better at not having to take losses on its subsidies.
WEDC wrote off eight loans that were 90 days or more past due on December 31, 2018, and three loans that were 90 days or more past due on December 31, 2019. These 11 loans had a total remaining balance of $3.5 million on the December 31 before the year in which they were written off. The 11 loans included a $50,000 loan that the former Department of Commerce had awarded and 10 loans totaling $3.6 million that WEDC had awarded. WEDC turns over loans awarded by Commerce that it considers uncollectible to DOA, which works with the Department of Justice to pursue collection. Because any amounts collected are retained by DOA, WEDC writes off loans turned over to DOA. Before determining that a loan it had awarded is uncollectible, WEDC may hire a private collection agency. Amounts collected are remitted to WEDC, which pays the collection agency for its services.
The audit also says that while many fewer loans were written off or forgiven, many more became past due in 2020 (3.7 million vs $1.0 million in 2019). But that shouldn’t be surprising given the COVID breakout and related recession, which also likely explains why the loan delinquency rate also rose last year.

On the flip side, the COVID crises also led to PPP grants and loans at the federal level, and the Evers Administration also gave out large amounts of grants through WEDC in 2020. This may be the more interesting part of this year's LAB audit, to see what happened with the new programs that WEDC is overseeing, and LAB said things had been relatively clean so far.
We reviewed summary information for the 26,122 grants awarded under the We’re All In program through September 2020 and found that WEDC awarded two businesses duplicate grants, even though the program was intended to award only 1 grant to a given business. WEDC awarded these two businesses a total of $10,000. Because available program funds exceeded the total amount awarded, no business was denied a grant as a result of these two businesses having received duplicate grants. WEDC indicated it planned to contact these businesses to recoup the funds erroneously awarded.

From October 2020 through December 2020, WEDC’s information indicated that WEDC awarded approximately $177.7 million on the basis of the public health emergency. During this three-month period of time, WEDC collaborated with DOR to award $174.7 million to an estimated 28,000 Wisconsin businesses under the We’re All In program. Individual grants ranged from $5,000 to $20,000. In addition, WEDC collaborated with the Wisconsin Technology Council to administer a contest to support the efforts of small businesses and start-up businesses to develop innovative responses to the public health emergency. As a result of this contest, WEDC awarded grants totaling $3.0 million to 231 businesses. As of mid-December 2020, WEDC had awarded public health emergency–related grants to recipients in every county.

Through December 2020, WEDC awarded a total of $250.3 million on the basis of the public health emergency, and it may award additional such funds in the coming months, including funds it may receive as a result of the American Rescue Plan Act of 2021. To ensure transparency and accountability for the considerable amount of taxpayer funds spent to help mitigate the effects of the public health emergency, WEDC should separately report information on how it awarded all such funds through FY 2020-21. Such information should at a minimum include the number, amount, location, and industry classification of awards made under each public health emergency–related program.
I would imagine that next year’s WEDC audit will have a lot written about what happened with these All In grants and related COVID aid (including the next round of stimulus aid that will go out in 2021), and that’s where we’ll get a better assessment at how well this worked at keeping businesses afloat.

There also was an update about how many of the WEDC awards from the Walker era worked out. And no surprise, but the number of jobs created from these giveaways were nowhere near what was advertised at the time.
As shown in Table 13, WEDC’s information indicated that recipients of 151 tax credit and loan awards that ended through FY 2019-20 created 36.2 percent of the planned number of jobs. If WEDC determined that a given recipient did not create all contractually required jobs, WEDC did not award that recipient all of the tax credits that it had allocated to that recipient….

We found that 28 of the 151 awards did not end early, but the recipients of these awards were not paid for creating any jobs. WEDC did not pay the recipients because either the contracts did not contain provisions for it to pay the recipients for creating jobs or the recipients did not create any contractually specified jobs.

Job retention packages seem to be more likely to work out with WEDC.
As shown in Table 15, WEDC’s information indicated that recipients of 131 tax credit and loan awards that ended through FY 2019-20 retained 59.3 percent of contractually required jobs. We found that WEDC determined the numbers of existing jobs that recipients were contractually required to retain only after it had executed contracts for 85 of these 131 awards. If WEDC determined that a given recipient did not retain all contractually required jobs associated with a tax credit allocation, WEDC did not award that recipient all of the tax credits that it had allocated to that recipient. We also found that WEDC amended eight contracts to reduce the numbers of jobs that recipients were required to retain. It did so after it obtained more-accurate information about the numbers of jobs that the recipients actually had at the time of contract execution.

This indicates to me that WEDC should spend more effort on preserving Wisconsin's current businesses and improving opportunities for its work force than in trying the Walker-era PR BS strategy of spending lots of time and money to lure businesses from other states.

This audit also indicates that WEDC's role has changed a lot since Tony Evers became governor 27 months ago, and especially after COVID-19 broke out last year. And while I still find it to be a flawed structure with not enough oversight when it comes to handing out taxpayer-funded "incentives", it also doesn't seem to be the thoroughly corrupt, unaccountable mess that it was in the Walker years.

1 comment:

  1. Looks like you can add something else to the 2022 LAB audit on WEDC, as Gov Evers announces that $420 million in stimulus funds will be set aside in 84,000 grants to 5,000 small businesses.

    And it might be a good reason to cut funds for the wasteful "job creation grants" that often don't result in jobs. Win-win!