When Scott Walker was elected Wisconsin governor in 2010, he came into office with a playbook he’d followed as the Milwaukee County executive: he declared an emergency.
Taxes: too high. Public benefits: too generous. Businesses: too burdened. Unions: too coddled.
One of his first acts in January 2011 was to call an emergency session of the state legislature. One of the first pieces of legislation he signed as governor, Act 7, privatized the state’s department of commerce by turning it into a public-private hybrid called the Wisconsin Economic Development Corporation. WEDC’s board of directors was to be chaired by the governor himself to help him make the state more “business friendly” by doling out grants and tax incentives to businesses, helping Walker fulfill a campaign promise to add 250,000 new jobs to the state during his first term.
Four-and-a-half years later, however, Wisconsin continues to stagger. The state has seen some of the weakest job growth in the midwest, and Walker is hitting the trail with one of the weaker economic records in the ever-growing Republican field.
What happened?
From the start there were problems. Only one year in, journalists and watchdogs began uncovering evidence of mismanagement in WEDC.
After filing open records requests in 2012 to scrutinize the agency’s first year of operations, the Milwaukee Journal Sentinel learned that WEDC had lost track of much of their initial $56 million loan portfolio. The agency was discovered to have understated, by about a third, the amount of money it had loaned out to companies who had fallen behind on repayments. And a pattern began to emerge: two loans totaling some $5 million had gone to two timber companies, Flambeau River Papers and Flambeau River Biofuels, both run by William “Butch” Johnson, a donor to Walker’s campaign. (At the time in 2012, Johnson said he planned on repaying taxpayers for the $2 million owed by the paper company and would personally vouch for $1 million of the outstanding loan to the biofuels company – neither happened.)
Moreover, the agency’s expense account turned out to be full of nuggets: WEDC had bought six season tickets to University of Wisconsin football games for the governor’s office. They expensed booze for meetings with WEDC contractors, train tickets in China and meals in India for the agency director’s family, and iTunes gift cards for agency staff.
Why iTunes cards?
Well, what good is a new iPhone without one? WEDC footed the bill for 46 of its employees to break existing cell phone contracts so it could buy them $210 phones. The agency even kicked for a $35 activation fee.
When these revelations became public in the fall of 2012, board members were surprised. They hadn’t been told about the state of the agency’s loan portfolio. “Obviously, they [the managers] had no handle whatsoever on what was going on for a year and a half,” said Peter Barca, a Democratic assembly leader and member of WEDC’s board.
After naming a new CEO and CFO (the third the agency had in 2012), Walker promised “good stewardship of the taxpayers’ dollars.”
But months later in 2013, a legislative audit gave little reason to think much had changed and put the agency’s expenses into perspective. WEDC was found to have violated the laws it was required to follow in administering almost $350 million in bond assistance, $110 million in tax credits, $40 million in grants, and $20 million in loans.
“[WEDC] had no policies for determining how to handle delinquent loan amounts,” said the report’s authors. “We reviewed files for 64 awards that WEDC made in FY 2011-12 and found that WEDC made some awards to ineligible recipients, for ineligible projects, and for amounts that exceeded limits specified in its policies.”
It turned out that WEDC hadn’t developed personnel policies until late 2012, more than a year after it had began operating. The chief operating and financial officers and the agency’s five vice presidents didn’t have to comply with state ethics laws. Delinquent loans were neglected. $1 million was given to companies to pay for on-the-job training programs that had already happened. The agency was found to have conflated the numbers of jobs it claimed had been “created” and “retained” through its programs. In one instance, WEDC had awarded a no-bid IT contract to a firm that represented companies competing for WEDC grants. The firm had access to WEDC’s databases while one of its clients pressed the agency to give it a $1 million forgivable loan. There audit also revealed minor, questionable decisions made by the agency’s managers that should have sent up more red flags: WEDC had given away $1200 in patio furniture, for example, as a prize at a biotech conference.
“The governor either needs to put his presidential aspirations aside and deal with the problems at WEDC or he should step down as WEDC’s chair,” read a statement from one Democratic state senator after the report was published.
But Walker didn’t step aside from WEDC’s board, to which he appoints six of its thirteen voting members (making his seventh vote a majority).
Ever adaptive, WEDC gradually abandoned the claim that it was directly “creating” jobs and in favor of a more flexible term: that it was “impacting” jobs. The import of that linguistic choice became more clear following revelations that some companies given awards by WEDC had outsourced jobs abroad. While WEDC claimed in 2012 and 2013 that it had “impacted” about 60,000 jobs in Wisconsin, labor statistics showed it had created around 8,000 jobs over that period and that there had been 13,000 job losses due to layoffs and closures. WEDC’s price tag for those 8,000 jobs? $200 million.
From the iPhones, to a subsequent $11,000 expense for iPads, to millions in unmonitored loans, WEDC’s expenses were never congruent with its mission and the promised jobs never seemed to appear.
But more importantly, WEDC didn’t seem to care whether the jobs materialized or not. One underwriter said that “it was almost like they couldn’t say ‘no’ to anybody.”
All of which raises an obvious question: if this agency isn’t creating jobs, what is it actually for?
Well, the list of recipients of WEDC grants and its generous taxpayer-funded forgivable loans is populated with Walker campaign donors. Five awards worth $10.5 million went to cheese manufacturers who gave $104,000 to Walker’s campaigns. Diane Hendricks, a billionaire involved in construction who gave $500,000 to Walker’s 2012 recall campaign, won a $2 million tax credit. Another smaller, $500,000 loan was given to different construction firm, also owned by a Walker donor, who met with Walker’s chief of staff and the man Walker eventually put in charge of WEDC, Mike Huebsch. Huebsch was pushing for a $4.3 million package for the donor, William Minahan, even though his company was on the verge of collapse. The $500,000 loan was extended instead – and without review.
These are just a few examples from a very long list.
Remember, too, that we don’t know the true scale of donations to Walker’s campaigns since Walker funneled dark money to his campaigns through organizations like Wisconsin Manufacturers and Commerce. As a political fundraising tool, using state economic development corporations to hand out tax credits has proven to be lucrative. It shouldn’t surprise that one way to get a WEDC-sponsored tax credit was to be a donor to Wisconsin Manufacturers and Commerce, which WEDC calls one of its “partners.”
According to a compliance officer who had been at WEDC through 2013, “I was once told by an administration higher up, ‘We have one customer, and our job is to make him look good. . . . Huebsch is the prince, Walker is the king.’”
If professional staffers’ accounts are true, it makes sense that the agency’s activities gradually shifted from 2013 to 2015 from bonding on behalf of Wisconsin firms to doling out discretionary tax credits – a classic case of crony capitalism in modern American political economy. Almost any tax credit can be justified on ideological grounds; if any non-zero tax rate on a ‘job creator’ is too high, any credit is a worthy project, and because it’s revenue that was never collected you can pretend that it didn’t cost anything.
This May, Walker had plans to merge WEDC with the state’s housing and economic development authority, creating an entirely new agency that would have been called the Forward Wisconsin Development Authority. Not surprisingly, he wanted the new agency to have a board appointed entirely by him and exclusively composed of people who hailed from the private sector. He also wanted to shield it from public records laws that had exposed excesses and mismanagement at WEDC.
But hours after another devastating audit showed that WEDC “did not consistently follow statutes” and “did not comply” with state laws and its own internal policies, Walker abandoned his plans. Within weeks, Republicans in the state legislature passed measures calling for Walker’s removal as board chairman and restricting WEDC’s activities.
Walker resigned from the board on July 12, the day before he entered the 2016 presidential race.
Yet make no mistake – even after being thrust into the spotlight WEDC is pressing on in issuing unmonitored awards. Just this past Monday – four days ago – Walker took a break from his campaign to drop in on the agency’s quarterly board meeting. While that $500,000 loan was on the public agenda and one board member openly wondered why there hadn’t been “a giant red flag to cease and desist all activities,” the agency’s staff quietly presented a different proposal: to cut the number of tax credits it the agency audits from a required 100% (which it has never managed to comply with), to just 25%.
Ed.Note: This post has been update.
Brian Murphy is a TPM contributing editor and Baruch College history professor who writes about the intersection of money and politics. He is the author of Building the Empire State: Political Economy in Early America. He can be reached at brian@talkingpointsmemo.com and you can follow him on Twitter @Burrite.
