Wisconsin’s troubled economic development agency improved its performance over the past fiscal year but it still must sharpen its oversight of tax credit contracts, policies on closing contracts and the accuracy of online data, according to an audit released Wednesday.
The Legislative Audit Bureau’s biennial review found the quasi-public Wisconsin Economic Development Corporation largely complied with state law and its contracts when administering tax credits, loans and grants to businesses in fiscal year 2019-20. By December, the agency had awarded about $250 million to businesses to help them through the pandemic.
The amount of past-due loans decreased from $7.6 million to $6.6 million in 2019 and 2020. The audit attributed the decline to WEDC’s writing off loans and amending contracts to defer repayments.
The agency’s largest tax credit awards, meanwhile, mostly went to historic redevelopment projects in the last fiscal year.
The top 20 tax credit awards the agency gave out totaled $44.5 million, of which $32.4 million went to projects through the state’s Historic Preservation Tax Credit program. Nine of WEDC’s 10 largest tax credit awards in the past fiscal year supported historic redevelopment projects. The Madison startup Capio Biosciences received the fourth-largest tax credit award for a $3 million incentive it received as part of the state’s qualified new business venture program, which supports investments in early-stage businesses.
Meanwhile, entities associated with the Milwaukee developer J. Jeffers & Co. received the agency’s three largest tax credits — for $3.5 million each — to support the company’s redevelopment of the former Milwaukee Journal Sentinel building and a project to overhaul Racine’s former Horlick Malted Milk campus.
Other large historic tax credit awards went to the Alexander Company’s redevelopment of the Milwaukee’s Soldiers Home complex, which drew $3.3 million in historic tax credits for its conversion of six vacant buildings into 101 housing units for veterans.
Auditors noted various shortcomings, however.
The agency’s written policies didn’t require, as mandated by state law, that tax credits be rewarded only for wages paid in enterprise zones, which are special regions designated for economic growth.
The agency also at times waited more than a year to revoke tax credits from businesses that had failed to meet their contractual obligations. Such companies are charged interest by the state Department of Revenue on unpaid taxes starting from the date the firm claims tax credits and the date WEDC revokes them. So lengthy revocation delays cause businesses to pay additional interest, the audit noted.
WEDC’s policies for closing awards are incomplete. For example, the procedures don’t require WEDC to reclaim previously awarded tax credits if the recipients don’t retain jobs created to earn the credits, the audit said. The agency’s online data didn’t accurately record the number of contractually required jobs that companies had created and retained as a result of WEDC awards and double-counted the number of jobs retained as a result of some awards.
Since WEDC was created in 2011, award recipients have created only about a third of the jobs they planned, according to the audit. Nearly half of 282 awards since then ended before their contracted completion dates because the recipients withdrew from the deals, didn’t comply with contract requirements or stopped operating in Wisconsin.
All in all, the recipients of the 282 awards created about 20,000 jobs. They had planned about 37,000 jobs.
In the quarter that ended June 30, WEDC had $67.2 million more than its total payments. Nearly 90% of its funding came from the state in 2019-20. Auditors found the state Department of Administration provided WEDC with money without considering the agency’s existing resources or spending. DOA officials told auditors that it had handed over the money because WEDC isn’t a state agency and DOA had no lawful authority to force WEDC to demonstrate need.
WEDC officials maintained that only $6.2 million had no purpose as of June 30.
WEDC CEO Melissa Hughes wrote in a three-page response to the audit that her staff has been working on ways to administer and track enterprise-zone wages and plans to close tax credit awards in a more timely manner and is working to make online data “more robust and digestible.” She said she will present an action plan to the Legislature’s audit committee within the next few months.
Republican state Sen. Robert Cowles, a committee co-chair, said in a statement that he thinks WEDC is improving but he still has “ongoing concerns” with the agency.
WEDC has struggled on a number of fronts, including recovering loans made to companies that don’t meet contractual requirements. It has been in the political crosshairs for years. Democratic Gov. Tony Evers campaigned on a pledge to dissolve the agency but backed off after he won office in 2018. The Republican-controlled Legislature sought to protect WEDC from changes by passing a law in a lame-duck legislative session before Evers took office preventing him from replacing the WEDC CEO until September.
– The Associated Press contributed to this storyFollow @natebeck9