It’s not unusual for state economic development agencies, by whatever
name, to become political targets.
Long before the Wisconsin Economic Development Corp. was created as a
quasi-public successor to the former state Department of Commerce, state
efforts to attract and retain companies and jobs wound up in the cross hairs of
controversy.
Remember Forward Wisconsin, which was created in 1984 to serve as the
state’s arms-length marketing agency?
No matter who was governor or from what political party, Forward
Wisconsin’s efforts were viewed with suspicion by members of the opposite
party.
Read this commentary in the Milwaukee Journal Sentinel here.
There was some reason for that: The governor served as chairman of the
Forward Wisconsin board of directors, which fueled perceptions by opponents
that something fishy was going on behind the scenes.
The truth is that Forward Wisconsin never had enough money to pull off
many shenanigans because legislators kept it perpetually underfunded. And they
then wondered why the state didn’t reel in more businesses from other states
and countries.
Whether it was the old Department of Local Affairs and Development, then
Commerce and now WEDC, which absorbed Forward Wisconsin’s functions in 2012,
the pattern has been the same: Close scrutiny of state government’s
“feel-good” economic growth agency.
The latest example is a report by the Legislative Audit Bureau, which
followed up on an earlier audit of WEDC that took place not long after its
official birth in mid-2011. The latest audit made about two dozen
recommendations, all of which are being reviewed by the agency’s staff and
board of directors.
The audit acknowledged some fiscal accountability progress. However,
there were enough stern warnings that people predisposed to doubt WEDC (or
economic development efforts, in general) were quick to pounce. Once again,
critics said, the agency had failed to follow certain state laws or its own rules.
Economic development is a messy business. It requires a lot of judgment
calls about whether a certain business or program will be successful, investing
time and money into that idea, and usually waiting a long time for results.
Because WEDC is a quasi-public version of a state business bank, not all of its
deals work as planned. That’s especially true when it involves young companies,
the likes of which are often passed over by commercial banks because they lack
traditional collateral.
The latest audit showed that WEDC’s loan delinquency rate fell from 2.7%
to 0.2% in the year ending Dec. 31, 2014, that principal delinquency dropped
from 8.8% to 1.7%, and the balance on uncollectable loans decreased from $5.5
million to $1.3 million.
Also, the delinquency rate for annual performance reports by WEDC loan
and grant recipients fell from 55% in December 2012 to 5.4% in December 2014.
In some cases, legislative action has created more paperwork for
companies and other organizations that win loans or grants of $100,000 or more
from WEDC.
An example is the requirement for annual “schedule of
expenditure” reports that must be filed within 120 days of the end of the
recipient’s fiscal year. That replaced the old system of filing a verified
statement at the end of the project. Because the “schedule of
expenditure” reports must meet standards set by the American Institute of
Certified Public Accountants, they are tantamount to a “mini-audit”
that costs thousands of dollars and hours of time.
As the Wisconsin Technology Council noted in its January report,
“Investing in Next-Generation Jobs,” the schedule of expenditures
requirement “has created an extra layer of reporting for those companies
and is diluting the value of competitive loans and grants received from WEDC, which,
at present, has little choice but to carry out the law.”
Can WEDC improve its procedures and compliance checks? Of course. It got
off to a bad start because the transition from Commerce to WEDC was carried out
so quickly, and fear of a repeat may be why Gov. Scott Walker pulled from the
budget his proposal to merge WEDC with the Wisconsin Housing and Economic
Development Authority.
On Friday, Walker took the additional step of asking the Legislature to
eliminate direct state loans to businesses.
Meanwhile, WEDC is continuing to work on projects such as strengthening
industry clusters in areas such as energy, power and controls and water, both
key to the Milwaukee area.
“The Midwest Energy Research Consortium continues to see great
benefits from the role of WEDC as an enabler of economic growth for Wisconsin,
in general, and for the Energy, Power, and Controls industry cluster that our
organization supports,” said Jeff Anthony, director of M-WERC’s Energy
Innovation Center. “Their most recent grant to support our new business
start-up initiative, WERCBench Labs, is just the latest example of the
partnership we have with WEDC.”
What’s needed more than another time-consuming audit of WEDC is
reaffirmation of its basic mission, which includes a blend of business
recruitment, company retention and building homegrown companies.
Finding the right mix is what matters to Wisconsin’s economy, and a
place where policy-makers can properly focus their energies.
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