Three days after being sworn in as Wisconsin governor in 2011, Scott Walker announced an ambitious plan to turn the state’s commerce department into a semi-private corporation laser-focused on economic growth and job creation.
“Transforming the Department of Commerce will align state government with our most important mission: creating jobs,” Walker said in a statement announcing the Wisconsin Economic Development Corporation (WEDC), whose major role would be to make loans to private companies.
Four years later, as Walker lays the groundwork for a presidential run, WEDC appears rudderless and deeply troubled. Government and press reports have raised serious questions about the agency's transparency, effectiveness, political independence and compliance with the law. Walker, who serves as chair of the WEDC board, has twice in recent months announced major shifts to the agency’s structure and mission—and this week he has been forced to deny that he knew about a questionable loan to a political contributor’s company.
Democrats are calling for a federal investigation. Meanwhile, Wisconsin's job growth continues to lag far behind the nation’s—taking a toll on the governor's popularity at home.
In recent months, Walker’s plans for WEDC have caused whiplash. First, he said he wanted to merge it with a different agency. Then, after a damning report on the agency’s procedures, he shelved that idea. Now he says he wants to change its core mission entirely.
"There has been a lot of chaos."'
"There has been a lot of chaos," State Sen. Julie Lassa, a Democrat and Walker critic who serves on WEDC's board, said in an interview. "I think that one of the reasons we are lurching from one thing to the next is that the governor is running for president. And he does not have a plan for job creation or economic development."
In his budget, unveiled in February, Walker called for the agency to be merged with the Wisconsin Housing and Economic Development Authority (WHEDA), which offers low-interest housing loans. He framed the move as an effort to streamline government services.
It also fit perfectly with the small-government ideology he has made a centerpiece of his anticipated presidential run.
“This is central to understanding Scott Walker,” said Andrew Reschovsky, a professor emeritus of public affairs at the University of Wisconsin-Madison. “He really believes as a core, central premise, in less government and lower taxes, and in faith-based arguments that lower taxes will generate economic development.”
But some saw the move as an effort to draw a line under WEDC’s problems as Walker sets his sights on the Republican presidential nomination.
"I think it was a way for him to kind of close the chapter on WEDC and develop something else," said Lassa.
It’s not hard to see why Walker would want to do that. Earlier this month, a non-partisan audit board run by the state legislature released a scathing report on WEDC. It found that the agency failed to require loan recipients to document the jobs they created and ignored certain requirements of state law in awarding tax credits, among other issues. The assessment followed a separate 2013 audit that found similar problems.
Hours after the new audit appeared, Walker released a statement saying the merger plan—which already had stirred criticism from WEDC board members, who say they weren’t consulted—was placed on hold.
Last Friday, a day after returning from a political trip to Israel, Walker changed course again. WEDC’s $74 million loan program—until now its core mission—would be phased out, his office said, and those resources directed instead to tax incentives, education, and workforce training measures. Just a few days earlier, Walker had defended WEDC’s record on making loans, telling reporters at a South Carolina forum for likely GOP presidential candidates that it had a good rate of collecting.
The announcement of the agency's shift in mission came hours after Walker’s office released records about WEDC to the Wisconsin State Journal, which was working on an investigative report. On Sunday, the paper revealed that top Walker aides had pushed for WEDC to make a $500,000 loan to a struggling construction company whose owner, William Minahan, had made a last-minute Election Day contribution of $10,000 to Walker’s 2010 gubernatorial campaign. The loan created no jobs and was not repaid.
Walker’s office told the State Journal that the governor wasn’t involved in the decision to provide the loan, and didn’t know about Minahan’s campaign contribution. But on Tuesday, the Milwaukee Journal Sentinel called that claim into question, reporting that Walker was copied on a letter from WEDC pledging the loan. Walker’s office told the Journal Sentinel that the letter was never delivered to the governor’s office.
On Monday, Lassa and Rep. Peter Barca, another Democratic state lawmaker on WEDC’s board, called for a Justice Department investigation into whether the loan violated federal anti-corruption laws.
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Myra Longfield, a spokeswoman for the U.S. attorney’s office in Madison, declined to confirm or deny that a probe had been launched.
Asked to comment on WEDC’s travails, a spokesman for Our American Revival, Walker’s political action committee, referred msnbc to the governor’s office. In response, Laurel Patrick, Walker’s press secretary, emailed a press statement sent last week announcing the phase-out of the loan program.
“After reviewing the [legislative] audit over the last week, we feel it is vital to move forward with meaningful WEDC reforms to help maintain the focus of the organization on the most impactful economic development tools,” Walker spokeswoman Jocelyn Webster said in the statement.
Underlying the controversy over WEDC is Wisconsin’s weak economic performance under Walker, by many key measures.
The governor has asked to be judged by his ability to create jobs, and when running for governor in 2010, he pledged to create 250,000 of them in his first term. But to date he’s managed only around 150,000, and the state ranks 40th in the country in job growth—as well as 42nd in wage growth. Meanwhile, though Walker justified his famous 2011 battle with labor unions by citing budget concerns, the state’s two-year budget deficit has been forecast at $2.2 billion.
And as Democrats like to point out, the state’s similarly sized next door neighbor, Minnesota, is enjoying an economic boom and budget surplus under Gov. Mark Dayton, a Democrat.
A poll last month found Walker’s approval rating among Wisconsinites at 41%, down from 49% in October.
Wisconsin isn’t the only state that has created a partially private agency to give loans to businesses. But economists tend to be skeptical of the idea, in part because, as venture capitalists know, it can be difficult to pick winner and losers.
But Wisconsin’s effort appears to have been particularly poorly planned. Lassa said there’s been high staff turnover from the start, and, as the audit bureau has twice found, inadequate procedures to track loans.
Part of the problem for Walker is that the audit bureau, like many government oversight agencies in the state, has a stellar reputation for independence, making it hard for Walker to dismiss the audits as politically motivated.
“These agencies really have a good nonpartisan record,” said Reschovsky. “So when they come out with a critical report, it’s hard for the Walker administration, or any administration, to ignore it with the standard ‘oh, its all politics’ response.”
So far, WEDC’s struggles haven’t spilled over into the presidential race. And Walker apparently hopes that continues.
“Our bold conservative reforms have created jobs, unleashed opportunity, and restored hope to Wisconsin,” he wrote in an email to conservatives Tuesday.