Wisconsin Economic Development Corp. gave taxpayer funds to businesses that created jobs in other states, audit finds
MADISON - The state's economic development agency gave nearly half a million dollars to a company that cut more jobs than it created and handed out taxpayer funds to others for jobs in other states, according to a bruising audit released Friday.
In addition, the Wisconsin Economic Development Corp. didn't recover more than $400,000 in tax credits and more than $4 million in loans it could have when employers didn't meet the terms of their taxpayer-funded deals, auditors concluded.
The report by the nonpartisan Legislative Audit Bureau comes as the economic development corporation is tasked with overseeing up to $3 billion in state subsidies for Foxconn Technology Group. The Taiwanese electronics maker is eligible for about $1 billion in local incentives as well.
Skeptics for years have criticized the economic development corporation for not staying on top of its duties.
“The inability of WEDC to comply with state statutes and guidelines has put taxpayer funds at risk," said a statement from Sen. Rob Cowles, an Allouez Republican and co-chairman of the Legislature's Joint Audit Committee.
"This isn’t just an issue of unaccountability, but shows the desired outcomes of these programs have not been consistently achieved."
The economic development corporation in recent years gave $61,000 to one business for creating 261 jobs that were filled by people in 36 other states, none of them bordering Wisconsin, according to the review.
In another case, WEDC gave $462,000 in tax credits to an employer that lost 17 jobs, even though it was supposed to create employment under its deal with the state. Auditors did not name the company or others they mentioned in their report.
Mark Hogan, the CEO of WEDC, said it took his agency longer to review that situation than he would have liked but it will try to recover the money.
"It's our full intent to pursue the revocation of those tax credits," he said.
He said he supported allowing companies to continue to receive subsidies for some jobs in other states. Businesses are drawn to investing in Wisconsin in part because the state's incentives packages provide them flexibility, he said.
"I would not be for legislation that would restrict that," he said.
WEDC failed to determine how many jobs were created by companies that got state funds and tax credits, the audit found.
"Verifying this information is intended to allow WEDC to determine, for example, the extent to which recipients actually created or retained jobs," the auditors wrote. "We found that WEDC did not comply with statutes because it completed only one verification effort over the two-year period from January 2017 through December 2018."
Underscoring that point, the audit noted a WEDC consultant could not verify that 14 employers that received state incentives actually created the jobs they said they had.
The audit looked at 436 awards worth more than $130 million that WEDC closed out from 2011 to 2018. The value of those awards to taxpayers and the state's economy remains unknown.
"WEDC cannot know how many jobs were actually created or retained as a result of the awards that ended, in part, because it did not collect sufficient jobs-related information from recipients," the auditors noted.
Employers receiving WEDC funds have created far fewer jobs than best-case scenarios, the audit found.
Sixty-eight recipients from 2011 to 2018 were required to create up to 5,970 jobs but created only 2,084. That's 35% of the maximum number they said they could create.
Some of those companies received tax credits and some received loans. Hogan noted the companies receiving tax credits were able to claim just 12% of the maximum available because they had not created as many jobs as hoped.
Others missed the mark on retaining jobs. Sixty recipients held onto 59% of the jobs they were supposed to retain — 7,806 out of 13,272.
WEDC could have recovered $414,000 in tax credits and $4 million in forgivable loans for those projects but didn't initially do so, the audit found. About $1.2 million has since been recovered, according to WEDC.
Hogan said he disagreed with auditors and did not believe all of the=e funds could have been recovered because of the way those deals were structured. Hogan noted the loan program is no longer being offered to companies.
He noted auditors found WEDC had corrected some problems that had been turned up in past reviews.
Critics were unpersuaded. Rep. Melissa Sargent, a Madison Democrat who sits on the audit committee, called the latest report "dreaded déjà vu for the people of Wisconsin."
Republican lawmakers and GOP Gov. Scott Walker in 2011 dissolved the state Commerce Department and created WEDC, saying it would be a more nimble agency better able to respond to the state's needs.
It had a raft of problems from the start, including failing to track loans, giving aid to businesses before fully vetting them and seeking funds for a business that was trying to pay off leases on luxury cars. Officials have said the worst of the problems are behind them.
Democratic Gov. Tony Evers, who defeated Walker last year, campaigned on getting rid of WEDC and reinstating the Commerce Department. After he won election, he shelved those plans.
Just before Evers was sworn in, Walker and GOP lawmakers in December approved legislation restricting Evers' power in numerous ways, including by limiting his control of WEDC. For now, Evers cannot replace Hogan and Republicans have control of WEDC's board.
That will change in September when Evers will gain the power to replace Hogan if he wants. Republicans and Democrats will have an equal number of seats on the board at that point.
Evers has spoken favorably of Hogan and his aides did not say what the governor thought of Friday's audit. Hogan said he had a good relationship with the governor's top aides but declined to say how long he wanted to remain with WEDC.
"My goal is to run through tape wherever the tape is," he said.
Molly Beck of the Milwaukee Journal Sentinel contributed to this report.
Contact Patrick Marley at email@example.com. Follow him on Twitter at @patrickdmarley.