Roundtable: Candid Advice for the Gov.-Elect

photo by Eric Tadsen

On election night, Gov.-elect Scott Walker said, "Wisconsin is open for business," raising hopes that a more business friendly state government would take power in January. Walker has pledged to create 250,000 new jobs by 2015. What must he do to create an environment where that can take place? To get an idea, IB has convened a panel of experts representing taxpayers, small businesses, energy, manufacturing, commercial development, and agriculture.

Panelists are Larry Swalheim, CEO of Landmark Services Cooperative; Todd Berry, president, Wisconsin Taxpayers Alliance; Terrence Wall, president/CEO, T. Wall Properties; Bill Smith, state director, National Federation of Independent Businesses; Todd Stuart, executive director, Wisconsin Industrial Energy Group; and James Buchen, vice president-government relations/membership, Wisconsin Manufacturers & Commerce.

The roundtable discussion was moderated by Jody Glynn Patrick, publisher of In Business magazine.

GLYNN PATRICK: The key question: What is the single most important thing that Gov. Walker should do to encourage business activity in job creation? Larry, we'll start with you.

SWALHEIM: One of the things that is really important on the worldwide scene is that in the next 20 years, the need for food is going to double in the world. Wisconsin, in itself, has a huge opportunity and the obligation to help solve that world food crisis. And so I would advise Gov. Walker, as we move forward with the government in Wisconsin, to take a leading role in providing the solution for the next 20 years. There's so many opportunities in Wisconsin that we have, from an agriculture-related standpoint, such as this: if we're going to have 250,000 new jobs by 2015, for every new agricultural job we had, that's 1.3 jobs in related businesses. That's extremely important.

GLYNN PATRICK: Bill?

SMITH: The Governor has indicated that he understands that it's the small business sector that really drives economic growth. He's addressed that several times during his campaign, where he wants to hold a special session on jobs, which, we think, is certainly on the right track. Specifically, he wants to target our small businesses, the job creators, with tax cuts. Those firms with fewer than 50 employees would get a tax cut under the Governor's plan to get this economy jump-started. He also is addressing the cost of health care by removing the tax on health savings accounts, a real anchor on the economy of the state, and a real problem for small business owners.

The third thing that he's really identified is regulations, and the cost of regulations, and the cost of not just the regulation but the compliance cost. It's like a hidden tax on small business. SBA says it amounts to, for federal regulations, $8,000 per employee. So, clearly, if we can get his arms around a more efficient regulatory system, that would be a huge step in the right direction.

So those are three things we'd like addressed.

Also, the litigation climate in Wisconsin. We tend to forget that lawsuit abuse is a capital drainer. It takes revenue away from small businesses and directs it into another economic area. Growing the legal profession shouldn't be the top priority of our state in terms of economic growth. So those are four issue areas we think the Governor needs to address, and the Legislature needs to address, and we're optimistic that it will be the top of their agenda.

GLYNN PATRICK: Todd?

STUART: Bill touched on a lot of the points that I probably would've. I think the budget and fiscal situation is probably job number one, to get that straightened out and get things back on track. But Wisconsin is a manufacturing state. We're number one or number two per capita in the country, and as part of that, I'm very concerned on the energy front — making us competitive once again, given the energy situation.

There are a number of things we can do on the regulatory reform front that I think will be part of the jobs package going forward; maybe not number one, as is the budget, but I think regulatory reform is one of the first things you'll see out of the box. And one of the things we'll be looking for is cost containment, cost off-ramps.

Some of the best appointments or the most important appointments that the Governor can make is in the Public Service Commission chairman, or the DNR secretary, and then a number of regulatory reforms aimed at cost containment beyond that. So that's where I would start — not only the budget, but also a lot of that reform.

GLYNN PATRICK: Todd, when you use the term, "cost off-ramp," what does that refer to?

STUART: There are couple of different areas, but there's one area under state law, current state Energy Law Act 141, that you could trigger. If costs are getting out of line, you could help slow or shut some areas down. That may be something you could get at, either from a legal front or regulatory front or even possibly legislation.

GLYNN PATRICK: Terrence, your thoughts?

WALL: For the past decade, I've made an observation that our state tends to — and our government and our Governor tend to — throw incentives ad hoc at individual businesses that tend to threaten to leave the state: Mercury Marine, Harley-Davidson. It's always an ad hoc approach. It's always reactionary.

What I'd love to do is challenge this group to say, "What, instead of individual little pieces, what's the overall policy statement, or how do we create an environment that's conducive to conducting business in this state, to attracting and retaining businesses? How do we create that environment?"

That means looking at tax policy, regulatory policy, repealing combined reporting, available capital. But, to me, it's about the overall big picture of creating this environment. Instead of being reactionary, let's be proactive. Let's plan ahead, and let's set up Wisconsin to make it the number one state in the country for conducting business.

 

GLYNN PATRICK: "Combined reporting?" Can you explain?

WALL: Combined reporting was passed by the Democrats and Gov. Doyle. It is basically a tax on all of our out-of-state operations. And I won't go into all the details, but it's a huge disincentive to have your business headquarters located in Wisconsin. So, basically, we're punishing those companies that have chosen Wisconsin, have been loyal to Wisconsin, and we're singling them out for additional punishment and taxation. In fact, there's a company that is located just a few blocks across the Illinois border that told me if it moved four blocks, it would save $8 million in new taxes. So why not move out of state and take all of its employment taxes out of state, too? We've got to repeal combined reporting because that will not only force states not to come to Wisconsin, but it's going to drive companies like Harley-Davidson and others out of Wisconsin. It's really important that the number one thing on the agenda, as an overall policy issue, is to create an environment conducive to conducting business.

GLYNN PATRICK: Thank you for that explanation, Terrence. Now we will turn to Todd Berry for his observations.

BERRY: I don't want to dwell on this, but we aren't going to be able to do much of anything if the state doesn't solve its fiscal dysfunction. And my own view is if the Governor even waits until the budget, the window of opportunity's going to close.

But what I really wanted to focus on was some work that we have done over the last six months on job creation, particularly new firms.

A lot of the people who are looking at entrepreneurial activity are finding that most of the new jobs in this country are created by not only small firms, but pretty new firms — firms that are less than five years old.

I'm not sure that the collective political class in Wisconsin gets that. And we aren't going to create vast new numbers of jobs by subsidizing existing companies, although we certainly want them here.

This mantra of luring companies from elsewhere… I think there's a downside to that. If they're willing to be lured, they're willing to be lured away as well, and so I think the focus should really be on new-firm creation even more than job creation, because the new firm creation will take care of itself. If that's the case, I think one of the things we have to do is change the culture of this state so that it is one that is interested in risk-taking and championing people who will do that. And that means we've got to be willing to be proud of people who are successful and accumulate wealth, and we have this very mixed attitude toward that.

Along with that, of course, you don't want to do anything in terms of regulation, licensing, permitting, and taxation that in any way provides a hurdle to somebody who's trying to start a business in a garage or a basement or whatever. Yes, a lot of these are going to fail, but we want to champion the folks that are sticking their neck out and taking the risk.

GLYNN PATRICK: James?

BUCHEN: We are all pretty much in agreement that the issue, primarily, is one of the business climate. It's not so much the little individual programs that we have for economic development as much as it is that the overall business climate in the state needs to be reformed and improved dramatically. There are people that rank business climates; ours, relative to the rest of the nation, ranks, generally, very poorly, usually in the bottom 10.

As was suggested, we want to really move ourselves into the top 10. And what is it going to take to do that? Many of the things that people talked about here already. I'd focus on the great challenge of trying to change the bureaucracy, because we talk about regulatory reform, and that involves a lot of laws and regulations that have the effect of law. But as much as anything, it involves the attitude of the people that administer those laws, and that's something that really sets Wisconsin apart from other states. We hear this all the time from people who do business in multiple states, and the challenge of trying to change the attitude in the administrative agencies about their role, vis-a-vis business expansion, is really one of the greatest challenges that the Governor will face.

I think he understands that, and intends to try to affect that kind of change by putting people at the top of these agencies, and as many others in the agencies as he can that will move in that direction. But that's a great challenge and something I think we're going to be working on for a long time to improve our state.

BERRY: That's a lot more important point than I think people realize. The cabinet secretary has a dual responsibility, and I say this as somebody who was in the leadership team at the Department of Revenue many years ago. Yes, you have to run an agency, and you have to enforce laws, but you also, to some degree, have to be the balancing act in balancing the public interest and the agency interest and not do things that are bureaucratic and stupid.

My concern, and I've seen it in every administration going way back, is they come off the campaign, they're euphoric. It's very much of a sort of a little club of campaign insiders. And the danger is that you put people in agencies because you feel they're loyal, and you trust them and so forth, but they may not necessarily be the people who can grasp what's going on in that agency. We've seen a lot of that in the last 5, 10, 15, 20 years.

And it's interesting that in every administration, you'll see, in the first year or two, a number of cabinet secretaries go — because in some ways they're embarrassing, or they don't know what they're doing. I just would suggest that these jobs are important. You should step back and think about what that particular agency needs in terms of a knowledge base.

GLYNN PATRICK: How does the Governor know what they need?

BERRY: The Governor doesn't necessarily know, but this Governor-Elect has put together a transition team of people that have been in government and in politics and in business. They are not really career politicians, nor are they bureaucrats. They're very well linked to a lot of different kinds of groups and so forth.

BUCHEN: I think the point isn't so much that he understands the inner workings of every agency, but that he has enough leaders. I think he does have a broad sense of what needs to be done.

We've got to change the culture in these agencies. So you need to put somebody in charge of the Revenue Department, for example, who really understands tax policy, so he doesn't get circles run around him by the folks inside the agency, the career civil servants.

They have to be able to understand complex tax policy and be able to say no to stuff and yes to other things, and here's the direction we're going to go in. And that just requires, as Todd [Berry] suggested, a level of expertise in a particular issue area that you don't always see in these appointments. Hopefully we're going to see that in this go-round, because that's what it will take to make these changes.

WALL: Look at the difference in culture. Look at Doyle: many of his first appointments, the vast majority, were lawyers. And if lawyers are running all the agencies, think of the culture that it's developed, versus businesspeople running those agencies.

SMITH: I think some of us were victims of that, actually. Focus in on just one department, the Commerce Department, a really important department. When you talk about the culture within government, remember the importance of bringing people to leadership positions within the government that understand where the business community is at, and also where the workforce needs to go.

There's a Small Business Regulatory Review Board that was created a few years ago, and it's attached to the Department of Commerce. But that board hasn't met in over a year, so they kind of have dropped the ball, if you will.

The regulations have continued, but unfortunately they're not being reviewed as required under the law. So the priority of that department has changed over the last six or seven years. At one point, when the law was enacted, there was a priority in simplifying regulations for small business and then understanding that these regulations have a negative impact on small business.

That philosophy was abandoned, probably because there's been several secretaries of the department, which also kind of unsettles their goals and their policies within the department. I think that shows how the emphasis and the importance of carrying out that law and doing something about regulations has changed. It simply has not been a priority.

WALL: So can I challenge you, Bill. Why not just completely eliminate the Department of Commerce? What do we need it for?

SMITH: I think it still has a role to play. As much as we'd like to combine some of the grants and loans, and I think we have too much of that in the Department of Commerce, government shouldn't be a bank. But I think there's a role for the Commerce Department to play in several areas. I just identified the Regulatory Review Board. There are some other areas that Commerce has to be out there kind of as a cheerleader for the state. I know we have other agencies, Forward Wisconsin, and others that perform that function, but …

GLYNN PATRICK: Trade missions.

SMITH: Trade missions. But I think that Commerce still has an important role to play, if it is restructured. I think under its current structure, absolutely, it's not doing what I think it could do.

 

WALL: We don't need grants and incentives and all these targeted things if we just create this environment of lower regulation, lower taxation. We don't need all that stuff. I'm just throwing out a challenge as a small business owner and a member.

SMITH: Well, we might want to eliminate the Revenue Department, too. [Laughs]

SWALHEIM: I'd like to mention that I think one very important appointment that Governor Walker's challenged with is the new Secretary of Agriculture. From my perspective, it's huge. Ten percent of all the income in Wisconsin comes from agriculture, and dairy itself is over a $20 billion business. When you think dairy, you think Wisconsin, and so Wisconsin should be a magnet for new dairy expansion.

And the regulations and permitting processes have been a bit of a problem for this whole thing. There's been a disconnect with the organizations that control that. So we could do a much better job bringing dairy into the state, and then marketing it, and then providing a risk management program so we can provide economic stability to the dairy market because the last couple years, the dairymen have really struggled just to try to pay their bills.

BUCHEN: This is sort of an illustration of what Todd was talking about. The attitude we have about things that get too big, or people making too much money, because I think in the dairy industry, larger dairy farms are more efficient, better for the environment, and much more productive. It's really the future of dairy farming in Wisconsin, yet, we've thrown regulations at them. We've had a lot of hostility toward that concept, and that's a real disconnect. We really need to encourage this development, this kind of direction in dairy farming, and yet the government and a lot of the citizenry, frankly, have been resistant to that. That's a cultural problem as well as an administrative and bureaucratic problem.

WALL: Related to that is the DNR, because I know the DNR is out there trying to go after larger dairy farms, basically saying we're not going to waste our time with the small dairy farms. We're going to target the big ones. Would anyone here be in favor of splitting the DNR in half, with one half being regulatory or enforcement, and the other half being all the other things — the hunting and all of that? It seems to me the DNR is the single biggest problem in terms of any department, in terms of expansion of business, because they're always the ones standing in the way. We always run into them. They always sort of block us. They blocked Ashley Furniture from expanding.

BUCHEN: There is, the way it's set up now, the two sort of broad responsibilities, one being fish and wildlife, the forestry, and so on, and the other being environmental-regulatory. It does confuse the mission and the focus of the DNR Board, and the Oversight Board. There is, I think, a good argument to be made for separating the two.

It's the environmental-regulatory side that needs to be closely monitored. There are changes that need to be made in the regulations, themselves, and certainly in the way that they're administered. And it is the DNR that provides the example that sort of sets us apart from the other states, where a manufacturer who is proposing a Greenfield Plant will tell you I can open the doors, and I can propose this and have the doors open in six months; in Wisconsin, you can't even get a permit in six months, much less commence construction or have completed construction, and that's largely a result of environmental permitting.

And it's just a very slow process, a very adversarial process, whereas in other states you can show up and say you want to build a plant, and the folks in charge of the regulation, they're not scrimping, but their job as they see is to get you your permits, to help you understand what you need to do, and to make it very clear to you and move the thing along. And I think that really is the difference between us and other states, and makes us a less attractive business climate.

BERRY: But I don't think it's important whether they're separate agency or together. It really depends on the quality of the appointments to govern the board. I tend to think it would be fine if we separated, but not if you don't have really strong people.

I wanted to go back to something Larry said because I thought it was really important. And he was talking about, in the context of dairy, but thinking about the last six to nine months in the context of the Wisconsin political campaign, what we heard, and this goes back to culture again, is that we don't want trade. We don't want free trade. We'd rather sort of live with what we've got rather than compete on the global frontier, and although this is not a state issue, I do think that a Governor can make the argument that, as a manufacturing state that exports, as an agricultural state that exports, to suggest that we want high trade barriers and protectionism and tariffs, which is what we heard through the whole political campaign, is really bad for the state.

STUART: You're exactly right. And it gets back to, again, the cultural arguments that we've been making. I mean, we are a manufacturing state. We're number one for paper, we're right up there per capita, number one or number two for manufacturing. We're right up there for food processing, and we didn't talk about it for dairy earlier, but food processing is really like manufacturing, and that's a $6 billion industry. I think people don't even think about it, but it's huge.

And when you get back to culture, these boards and agencies and agency heads and the staffs set the direction. We were talking about DNR before. I spent the last four or five years of my life fighting global warming, global warming and how that was supposed to be a job creator for this state. The Governor helps set the tone, but some of the people at the top, these boards, commissions, and staff make a huge difference as to the direction of the state and the future of our economy.

SWALHEIM: Coming back to that, your comments on the international scene, we really need to connect our farmers to the international markets. Grain is so important to our state for, just for an example, corn, soybeans, and wheat. It's just mandatory that we connect them to the markets, whether it be processors in Mexico or China or wherever. But right now, our infrastructure is not where it needs to be.

And in the future, as we start tending toward producing 300 bushels per acre of corn, we don't have the infrastructure in the state. For example, the storage is way inadequate. We need to do something about the storage in Wisconsin, because in Evansville, as we speak, there's a pile of corn sitting there that's over two million bushels, and in Cottage Grove there's another one that's two million bushels on the ground.

There needs to be more infrastructure as our farmers get to be producing more and more, which reduces global warming, and so we need to do some things to help us connect the farmers in a better way. Our grains run on tires and rail, and we need to improve our freight lines and our infrastructure so that we can export out of the state of Wisconsin.

GLYNN PATRICK: We're going to continue with spending priorities with a projected $2.5 to $3 billion deficit. Jim, your comments?

BUCHEN: I hesitate to say cut spending because I don't think that's going to be the approach. It's going to be to figure out ways to do a better job with less money, and I think it's going to be something that is going to be driven throughout state government. As important, it's going to have to be something that we help local governments and school districts deal with as well, because 60% of the General Purpose Revenue budget goes back to schools and local governments to spend. They need to be partners in figuring out ways to do a better job with less money.

The state needs to be a partner with them, freeing them up, reducing the amount of regulation they live under, helping them, and perhaps create incentives for them to actually consolidate their entities, at least consolidate the purchase of services and so on.

Privatization will be a feature of that, I think, in very significant ways, but there are lots of other things that need to be done — shared purchasing, consolidating certain services like the multiplicity of police departments that some communities have. Madison's an example of that. I think there are nine separate police department entities that operate in the City of Madison.

GLYNN PATRICK: Any comments around the table?

BERRY: Yeah. This is sort of where I started by saying that you can't do much else if you don't get this problem behind us because we have been through three Governors, multiple legislatures, both parties. We've been passing along this budget deficit, and we haven't been addressing it.

So the time really has come to be transparent and to actually solve the problem rather than just put it off. People don't understand this, but it's very simple in some ways because all the money goes to about five places: aids to local governments and school districts, the University, prisons, Medicaid. So if you're going to have to constrain spending in those areas, and you're going to have to, we're going to just have to suck it up for a year or two. It's not going to be fun, but the better way to do it is to not just reduce but to re-engineer, and that means rethinking the way the University is funded and governed. That means rethinking the same for technical colleges.

For local governments and school districts, they're not going to get a lot of new money, but we can help them on the cost side by thinking about the various mandates and requirements that we put on local governments and school districts. And the big one that is always off the table is the whole state mandate in the area of labor negotiations, which is mediation arbitration. Providing local governments and school districts a little more flexibility to manage their costs would enable them to also live through what's going to be a painful period.

WALL: I'm going to throw out a setup there, and that is that if you look at the deficit, it's actually four times larger per capita than California. So we are broke. This state is bankrupt, and it's not just a question of cutting 10%. I think they've got to go into the departments and look at programs that aren't useful anymore.

With technology having changed, what things can we eliminate that aren't needed so we can focus resources on things that are needed to grow the economy? We're not going to do it just by cutting. We have to grow the economy.

For the complete Roundtable transcript, download the PDF.

Sign up for the free IB Update — your weekly resource for local business news, analysis, voices and the names you need to know. Click here.