Democrats don't trust WEDC to handle Foxconn deal: "We've seen a pattern"

MADISON — Democrats on the Legislature's audit committee questioned Tuesday how anyone can trust Gov. Scott Walker's troubled job creation agency to handle $3 billion in incentives for Foxconn Technology Group in the face a state report that shows problems continue to plague the agency.

The Wisconsin Economic Development Corporation has been a political punching bag for Democrats since Walker and GOP legislators founded it in 2011. The Legislative Audit Bureau handed Democrats more ammunition when it released a report in May that found the agency is still struggling, failing to accurately track jobs its awards are supposed to create and retain, handing out nearly $10 million in bad loans over the last two years and failing to turn over millions in tax credit repayments to the state.

WEDC officials are currently trying to negotiate a contract with Foxconn to execute a $3 billion state incentives package for a flat-screen plant in Mount Pleasant. The audit committee's Democrats grilled WEDC Chief Executive Officer Mark Hogan about the agency's ability to administer the contract during a public hearing on the May report.

"Can this agency be trusted to oversee a $3 billion deal with Foxconn?" Sen. Kathleen Vinehout of Alma said. Echoed Rep Melissa Sargent of Madison: "We've seen a pattern about concerns of accountability, transparency and accuracy. There's an awful lot on the line here with this (Foxconn) project."

Hogan insisted WEDC has improved its operations. He noted the agency is trying to implement auditors' recommendations to track award applicants' job numbers using unemployment insurance data from the state Department of Workforce Development.

"(We have) great confidence ... that WEDC has made significant progress in addressing administrative issues," Hogan said.

Vinehout continued to press him, asking how the Foxconn contract will be any different than an agreement WEDC reached with aviation start-up Kestrel Aircraft. The Wisconsin State Journal reported this week that WEDC handed the company a $20 million loan in 2012 amid promises it would create 665 jobs. The company has defaulted on its loan payments after creating only 25 jobs and still owes the state $3.4 million, the newspaper reported.

Hogan replied that WEDC's board adopted guidelines last week for administering the Foxconn deal that call for a third-party accountant to verify Foxconn's job creation numbers but he refused to supply the audit committee with a copy of the Foxconn contract because it hasn't been approved yet.

Committee Republicans defended the agency.

Rep. Samantha Kerkman of Salem said it's difficult to track how many ancillary jobs might have been created due to WEDC's awards. Sen. Alberta Darling of River Hills said administration has improved and lawmakers should focus on the positives, saying whenever WEDC comes up "we often get smoke in the room and pants on fire."

WEDC is a quasi-government agency that hands out grants, loans and tax credits to businesses, local governments and other organizations. Walker and GOP lawmakers created it in July 2011 to replace the state Department of Commerce.

WEDC has been under fire almost since its inception for failing to recover loans to troubled companies and handing out $126 million without a formal review. The agency's top ranks have been plagued with turnover as well.

The May report found award administration had improved but the agency didn't contractually require recipients to supply enough detailed information to allow it to determine how many jobs were actually created or retained as a result of the awards.

The agency failed to collect enough information from applications about existing employees and failed to follow state laws requiring it to annually verify jobs-related information that tax credit recipients submitted. Therefore the jobs-related information on WEDC's website is suspect.

Auditors also reviewed 24 awards handed out from July 2011 through September 2016 that WEDC said were supposed to crate or retain jobs. Three of the awards didn't require job creation or retention, 13 ended before the contract expired, meaning recipients were no longer required to create 183 jobs and retain 1,082 jobs.

Delinquent loans ballooned from $1.3 million at the end of 2014 to $11 million at the end of 2016, the report said. WEDC officials are currently considering legal action against Kestrel Aircraft after it defaulted on loan payments. It owes the state more than $3.4 million, the Wisconsin State Journal has reported.

The agency also spent nearly $41,000 on chauffeurs during fiscal years 2014-15 and 2015-16, the report said.