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Hanging by a thread?

The future of the WEDC, the state’s economic development agency, is murky at best.

(page 1 of 2)

From the pages of In Business magazine.

Most four-year-olds lead a privileged life. Few expectations, fewer responsibilities, and even when they screw up someone tends to find it cute. However, in the four years since the Wisconsin Economic Development Corp. (WEDC) was born, its successes have often been overshadowed by its well-publicized missteps.

Created in 2011 by Gov. Scott Walker and the Republican-controlled Legislature, WEDC was set up as a public-private agency designed to help fulfill Walker’s campaign promise to create 250,000 jobs during his first term. WEDC replaced the state Department of Commerce and set out to provide economic assistance through loans and grants to companies seeking to grow and employ more workers here in Wisconsin.

Almost from its start WEDC came under fire. Among its highly publicized failures:

  • A $686,000 taxpayer loan to Sheboygan-based Morgan Aircraft to build a helicopter-jet hybrid and create 340 jobs, despite the company not having a background in aircraft manufacturing. Those jobs weren’t created, Morgan failed to make its promised investments, and the loan hasn’t been repaid.
  • At the urging of former Department of Administration Secretary Mike Huebsch, a $500,000 loan to Milwaukee-based Building Committee Inc. (BCI) whose owner made the maximum $10,000 contribution to Walker’s 2010 gubernatorial campaign.

The owner, William Minahan, submitted false information on his loan application, which wasn’t formally reviewed by WEDC staff. That loan also hasn’t been repaid and U.S. Sen. Tammy Baldwin has written a letter to U.S. Attorney General Loretta Lynch requesting an investigation.

An audit from the Legislative Audit Bureau this spring showed continued problems under the agency’s second CEO, Reed Hall. Hall has since left WEDC and been replaced by new CEO/Secretary Mark Hogan.

As part of the most recent state budget proposal, Walker asked that he be removed as WEDC board chairman and other elected officials also be taken off the agency’s board. Lawmakers granted Walker’s wish and removed him as chairman, but their fellow legislators remain on the board.

Now, lawmakers from both sides of the aisle are proposing serious changes to WEDC. Can the embattled agency survive? What will it look like going forward as it attempts to regain trust?

Focusing on the positives

“We help companies start up, relocate, and grow their operations in the state in cases where a projected positive impact on the state’s economy would not be achieved if it were not for our assistance,” says Tricia Braun, WEDC deputy secretary and chief operating officer.

“In WEDC’s foundational documents, we stated that our goal was to positively impact businesses, communities, and the state as a whole through the attraction of private investment and job creation and/or retention,” Braun notes. “We have not only remained true to our original goals, we have also sought additional ways to improve the state’s overall economic landscape and enhance the quality of life of Wisconsin’s citizens.”

That’s a rosy picture compared to the criticism WEDC has received, but it’s not without merit.

Projects that involve the attraction of new companies investing in development projects with the state get a lot of attention and rightly so, says Braun. Among its notable successes, WEDC helped attract Amazon to Kenosha, a project that includes two facilities measuring more than 1.5 million square feet and representing a nearly $250 million investment. According to the company, Braun says, the project has already created more than 2,000 jobs.

In September, WEDC announced the successful attraction of another major distribution center to the state. Operating 12,000 stores in 43 states and employing 109,000 people nationwide, Dollar General plans to build its 14th distribution center in Janesville. That project is expected to involve $75 million in capital investment and the creation of 552 full-time jobs by 2019. Using industry-standard ROI calculations, WEDC projects that the additional state income taxes paid as a result of the increase in employment from these projects will be twice the original investment within five years of their completion.

“While projects of this nature rightly grab headlines, our investment portfolio also includes many native Wisconsin companies taking advantage of our state’s strong business climate to expand their operations and add new, high-quality jobs,” explains Braun. “As a demonstration of the strength of WEDC’s project portfolio, the top 100 investments designed to produce new jobs in the state are projected to create 14,483 new jobs over the course of their contracts, with capital investment totals of more than $1.75 billion. To date, these contracts have created 76% of their anticipated new jobs and achieved 83% of their capital investment goals, despite there being, in some cases, years remaining in the individual contract terms.”

In response to audits from the Legislative Audit Bureau, WEDC has also put in place more than 100 new policies since 2013 intended to prevent a repeat of its past miscues.

Some of those measures include:

  • Hiring a vice president of credit and risk to improve WEDC’s financial management
  • Reorganizing compliance functions and expanding staff to concentrate on compliance with state statutes and organization policies
  • Establishing and receiving board approval on 101 policies to provide clarity on organizational practices
  • Adopting process improvements to strengthen WEDC’s financial award process, reporting, and collections
  • Replacing what Braun refers to as an outdated financial management software system, inherited from Department of Commerce, with sophisticated technology to meet WEDC’s tracking, reporting, and collections objectives
  • Forming new board committees with public members to be more involved in awards, policies, contracts, and audits.

“By enhancing our performance reporting tracking procedures and formalizing our collections process, we have achieved dramatic reductions in our payment delinquency, principal delinquency, and late performance reports metrics,” says Braun. “We have made tremendous progress since our inception and will continue to evolve our operations to ensure that we are adapting to the very best practices of our industry.”

Toward this end, the WEDC has engaged the internationally recognized Center for Regional Economic Competitiveness (CREC) to help identify areas of greatest strength as well as opportunities to improve efficiencies and future economic impact. Although CREC’s recommendations will not be formally presented to the WEDC board until December, ongoing conversations have already identified some recommended changes, which may be implemented prior to the report being issued, Braun adds.

(Continued)

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