AUDIT: WEDC Cannot Be Certain of Any Jobs Created or Retained

By Senator Kathleen Vinehout   Our state spends a great deal of money on economic development. The Wisconsin Economic Development Corporation (WEDC) is responsible for overseeing much of the taxpayer money that goes to job creation.   A recently released audit by the nonpartisan Legislative Audit Bureau (LAB) found that “WEDC cannot be certain about the number of jobs actually created or retained as a result of any awards that ended.”   By law, WEDC is required to report jobs created or retained. The agency meets the requirement through reports posted on its website. However, auditors found these data inaccurate.   “We found that the on-line data in January of 2017 included 183 jobs created and 1,082 jobs retained by recipients that had sold their operations in Wisconsin, ceased their operations in Wisconsin, or had withdrawn from their contracts before the contractually specified completion dates.

  For example, WEDC claimed credit for retaining 340 jobs for a company that ceased operations in Wisconsin; claimed credit for creating 68 jobs for another company that sold its operations in Wisconsin; and claimed 485 jobs retained for a third company that withdrew from its contract years before it was to deliver the created and retained jobs.   In addition, auditors found WEDC double counted jobs created and retained. For example, one company received awards in both June 2012 and September 2012 for the same 305 jobs created and 284 jobs retained. Another company signed two different contracts in July of 2011 but the company claimed they would retain the same 110 jobs for both awards.   Auditors also looked at 192 contract awards made since July 2011 through the end of September 2016. Presumably, at the end of a contract one would know if the promised results were achieved. Upon review of the 192 awards, LAB found only 12.5% (24) even had an expected result of job creation or retention. Of those 24 with expected results, three of the contracts did not actually require the company to create or retain jobs; 13 contracts ended before their completion date (meaning the requirements were not fulfilled). Of the eight contracts completed, WEDC did not collect sufficient information to verify that promised jobs were created.   Without accurate information about WEDC program results, lawmakers and taxpayers cannot know if the investment in job creation and retention was money well spent.   WEDC authorized hundreds of millions in tax credits, grants and loans since its 2011 inception. The most recent audit is the third report that raises ongoing concerns about the lack of independent verification of jobs created or retained.   Some WEDC problems were corrected, such as establishing accounting policies and procedures for the agency (the lack of which was a finding in 2013). But other problems identified in prior audits continue. For example, in 2015 auditors found WEDC kept a reserve of state money larger than necessary. In the most recent audit, auditors found WEDC’s cash and investment reserves more than doubled over four years.   Prior problems with administering its loan program caused legislators to phase out any further loan activity by WEDC. In this most recent audit, the potentially uncollectable loan balance nearly tripled and auditors found a substantial rise in the loan delinquency rate.   Just days before the release of the audit, the Legislature’s budget writing committee voted, along partisan lines, to restart WEDC’s troubled loan program. The committee also voted along partisan lines to increase state taxpayer dollars going to WEDC.   Both of these actions should be stopped.   For nearly six years, Wisconsinites asked whether WEDC lived up to the promises made at its inception. The Legislative Audit Bureau continues to tell us that WEDC does not collect adequate information to provide lawmakers and citizens with accurate information on whether promises of job creation and retention were delivered   Most of WEDC’s money is state taxpayer dollars, a precious resource that is used to fund many other programs. A dollar spent on unverified job creation/retention programs means a dollar is not available for critical investments like transportation infrastructure, public schools or local government.   It is time for all of us to demand that the Governor and the WEDC Board step up and correct the ongoing problems documented in three separate audits of WEDC over the last six years. Job creation is important, but so is the most effective and efficient investment of state taxpayer dollars.  

 

  Should Tax Dollars Go to Companies Just to “Create Jobs”? By Senator Kathleen Vinehout   Imagine how private firms do business with the State of Wisconsin. The companies provide something of value for taxpayers and, in return, receive state money.   This happens all the time in state government: private companies build roads, computer systems, pay Medicaid bills, and even educate children.   What if the sole reason tax dollars went to a company was to create jobs?   Recognizing that taxpayers would want to know companies were actually creating jobs, lawmakers wrote state law requiring verification of information sent by businesses applying for tax dollars. Not really a whole lot different than making sure road builders actually poured the required amount of concrete on our roads.   But the public accountability is a lot less when it comes to job creation.   In 2011, Governor Walker established the Wisconsin Economic Development Corporation (WEDC), which administers 29 economic development programs funded almost entirely with state money.   WEDC’s name is misleading – it is not a corporation. It is a state ‘authority’ and is – or should be – accountable to taxpayers for dollars it spends. That’s why the nonpartisan Legislative Audit Bureau (LAB) has been auditing WEDC since its creation.   Findings from the LAB May 2015 audit revealed that WEDC awarded grants and loans to companies to create or retain jobs, but WEDC staff did not require those companies to submit payroll or other records showing that jobs were actually created or retained.   WEDC staff wrote off some loans not collected, deferred payments due and forgave loans. Program reports did not contain clear, accurate or complete information on outcomes. In some cases, the WEDC Board actually created policies in direct conflict with state law. Evidence in several audits show WEDC broke state and federal laws. Illegal action in approving Community Development Block Grants led to fines that are still being paid by taxpayers.   During its first three and one half years, WEDC staff didn’t independently verify the job creation or retention information by annually reviewing a sample of grant and loan recipients, as required by state law. They allocated tax credits to projects that started before the company actually contracted with WEDC to start the project. WEDC staff did not consistently collect companies’ verified financial statements for recipients of certain grants and loans.   So, what is the answer to questions about job creation or if the 29 programs were successful? The answer is “We don’t know.” Early in WEDC’s existence, zero jobs were independently verified – which was in direct conflict with state law.   The May 2015 audit is the fourth in two years reporting similar findings.   If a program in any other part of state government failed to follow state laws and failed to deliver goods and services bought with state tax dollars, the public and the press would hound lawmakers until they shut down the program or made massive changes.   It is not so with WEDC. Only recently, after pressure from legislators did the Joint Legislative Audit Committee Co-Chairs schedule a public hearing on the May audit. During this public hearing, scheduled for September 2nd, I expect WEDC officials to try to discredit the stellar work of the nonpartisan LAB.   Two concepts are important to remember in reading any news account of the upcoming hearing.  What does it mean to verify or make sure jobs were actually created? Is WEDC required to follow state law on when and how to award state tax dollars?   WEDC officials claim that asking a company to sign a “progress report” form is measure enough the company has created the jobs. They also argue laws were not broken even though auditors reported numerous instances when contracts were written or amended and even board policies were created in violation of state law.   In any other part of state government executives would be fired and programs eliminated with the type of negative results found in just one audit – not four audits in two years.   WEDC officials claim they created a ‘business friendly’ environment and placing too many restrictions on businesses receiving state money might discourage the business from applying for grants or tax credits in the first place.   But, if we can’t ensure taxpayer dollars are well spent, why do we have these programs?