Wisconsin economic development agency underperformed in last 3 fiscal years, audit finds

Wisconsin’s troubled economic development agency’s performance has slipped over the last three fiscal years after showing promising improvement, according to a review that the Legislature’s auditors released Wednesday.

Republican lawmakers created the quasi-public Wisconsin Economic Development Corporation in 2011. The agency hands out tax credits, grants and loans to businesses. State law requires the Legislative Audit Bureau to review the agency’s operations every two years. The review released Wednesday covers fiscal years 2020-21 through 2022-23.

Auditors found that the WEDC’s governing board failed to post minutes of board meetings in violation of its policies. Agency officials failed to update their policies to reflect state laws that require the agency to award tax credits to businesses for wages paid only in Wisconsin enterprise zones, which are geographic areas targeted for economic development.

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The WEDC awarded five grants totaling $50,000 to ineligible recipients. Two grants totaling $20,000 went to the University of Wisconsin System even though the money was supposed to go to small businesses and WEDC policies prohibited government entities from being awarded grants, auditors found.

The agency didn’t require eight grant recipients to repay $64,300 in grants that went to cover expenses incurred after contractually specified time periods had ended or recipients failed to verify that they had spent the money in compliance with their contracts.

Auditors also discovered that the WEDC closed about 29,000 economic development awards totaling $992 million from fiscal year 2011-12 through fiscal year 2021-22, including 338 tax credit and loan awards that required recipients to create jobs. Those recipients created just under 70% of the planned jobs and less than a third of the recipients created two-thirds of the 17,485 jobs actually created. Contracts called for the creation of a total of 26,124 jobs.

If the WEDC determined that a recipient didn’t create all the promised jobs the agency did not award that recipient all the tax credits allocated, the audit said.

The review also found that the WEDC’s online data still contains inaccurate information about jobs created and retained.

State dollars have historically supported most of the WEDC’s programs, but auditors found that federal pandemic relief funds accounted for more than 60% of the WEDC’s $106.5 million total revenue in fiscal year 2021-22, the audit noted.

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The WEDC’s secretary and CEO, Melissa Hughes, thanked the audit bureau for its work in a letter attached to the review. She noted that an independent audit of the WEDC’s fiscal year 2022 financial statements by Sikich LLP found no internal deficiencies in financial reporting and the agency received the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers’ Association of the United States and Canada for the 10th straight year.

Hughes acknowledged, though, that the audit bureau’s review identified five grants that “may need to be recaptured” and the agency plans to use a third party to evaluate its business tax credit program.

She promised that information about board meetings will be published in a timely manner. She said WEDC officials will inform legislators by Dec. 6 about other efforts to follow auditors’ recommendations.

The WEDC has struggled since its creation on a variety of fronts and has become a political target for Democrats. Gov. Tony Evers campaigned on a pledge to dissolve the agency but backed off after he won his first term in 2018.

The audit bureau’s last review of the agency in 2021 found performance had improved. That audit noted that the agency had largely complied with state law when administering its awards and the amount of past-due loans had decreased from $7.6 million to $6.6 million in 2019 and 2020.