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State slammed over handling of federal money for economic development grants

MADISON, Wis. (AP) – Two Wisconsin state agencies have failed to follow federal law and their own policies in issuing economic development grants, the U.S. government said in a strongly worded letter sent to Gov. Scott Walker’s administration.

The Wisconsin State Journal reported Wednesday that the U.S. Department of Housing and Urban Development’s Aug. 12 letter ordered Walker’s administration to improve the distribution of economic development money.

Department of Administration spokeswoman Stephanie Marquis said the agency for the most part agrees with the conclusions and the corrective actions ordered by HUD.

The HUD letter points to numerous problems resulting from what it called the “hasty” transfer of duties from the former Department of Commerce to the new quasi-private Wisconsin Economic Development Corp.

Wisconsin apparently drew HUD’s attention with a February announcement by Walker that four communities had received $9.6 million in Community Development Block Grant funding.

“At the time these awards were made WEDC had no legal authority under the CDBG program to award or administer the CDBG funds,” HUD said in a monitoring report obtained by the State Journal.

The federal agency ordered Wisconsin to hire a high-level administrator for monitoring, oversight and compliance, saying DOA currently lacks “adequate staff or experience to adequately oversee … the new activities that are being undertaken by the WEDC.”

Among the most serious findings are that the state failed to perform required underwriting – the process of determining the financial soundness of a company – before giving $390,000 to Gilman USA LLC, a machining company in Grafton, and $1 million to Morgan Aircraft in Sheboygan.

In the case of Gilman, HUD said that WEDC staff indicated “the underwriting process was skipped in order to accommodate the business’ timeline.”

In the case of Morgan Aircraft, HUD said WEDC staff indicated that underwriting was done but not placed in the file. However, HUD requested a copy but none was provided.

Marquis, the state DOA spokeswoman, said underwriting should be done prior to issuing a grant and new policies have been implemented in response to the HUD report.

Marquis said the agency is also “carefully reviewing” records of the withdrawal of $8.6 million in CDBG funds by a former WEDC controller on Dec. 27 reportedly to pay for projects in 2011.

HUD said the transfer was made “without any approval from DOA” by an unnamed controller “on the last day of employment as the WEDC controller.”

Marquis said once the records are compiled, the state will notify HUD so it can review them to ensure the funds were spent properly.

Information from: Wisconsin State Journal, http://www.madison.com/wsj

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