This diary is going to have more questions than answers. If you're knowledgeable about federal tax law or regulation of public-private "authorities," please chime-in in the comments! Jake formerly of the LP and others are already beating this drum, but I wanted to get a discussion going exploring what particular strategies could possibly be employed to rein in the thinly-veiled slush fund that is Scott Walker's Wisconsin Economic Development Corporation (WEDC)…
Yesterday's Audit (and this one and this one before it) make clear that WEDC has been repeatedly violating a whole boatload of state statutes. Unfortunately, our Attorney General and State Supreme Court are wholly-owned subsidiaries of Koch Industries and WI Manufacturers and Commerce, so the chances of an investigation at the state-level are nil. WEDC's practices under Chairman Scott Walker have been so egregiously corrupt and sloppy, however, that it's easy to imagine that they may have also run afoul of some federal regulations along the way.
The first question is what exactly is the WEDC in the eyes of the IRS and other federal agencies? Although we know it as simply the WEDC, it appears to actually be (at least) two separate entities:
1) WEDC itself - State Statutes created the WEDC as "an authority, which is a public body corporate and politic," and NOT a state agency. WEDC generally calls itself a "public-private corporation."
- This is an entity which receives and hands out a lot of money, and it is not strictly an agency or "instrumentality" of state government, and it has a tax ID#. So, at some point, the IRS must have made some kind of determination as to what kind of entity it is, and what part of the tax code applies to it. Does anyone know what this determination was?
- Would WEDC's well-documented accounting sloppiness be cause for an IRS investigation?
- One of WEDC's core functions is making loans. Does this make it a "financial institution?" Would the SEC, CFPB, or SBA have any jurisdiction over it?
2) Showcase Wisconsin, Inc. - A 501(c)(3) nonprofit, created by WEDC to support WEDC.
- This page is really the only place to find any info on Showcase WI.
- WEDC is the sole "member" of Showcase WI, and there is a Services Agreement wherein WEDC agrees to provide staff time and services to Showcase for compensation. Does this mean that one is "owned" by or a subsidiary of the other?
- Does Showcase have any responsibility for the actions of WEDC?
- Does WEDC's being the sole member of Showcase and providing staff and services to Showcase mean that any requirements of a 501(c)(3) apply to WEDC?
- Is supporting a clearly incompetent and politically-motivated "economic development corporation" that more or less functions as a slush fund really a charitable purpose?
More below the orange thing…
Also, per state statutes, the WEDC Board, chaired by Scott Walker, can "sue and be sued." Could a WI resident bring civil suit against WEDC for failing to comply with its statutory obligations? I suppose this would run into a buzz-saw at the State Supreme Court level, but maybe it could be an interesting way to do some further discovery into the shady goings on at WEDC, and put Chairman Walker and others under oath?
Similarly, could a third-party intervene to challenge or claw-back grants, loans, or tax credits that were awarded in violation of state statutes or WEDC policies? Ch. 238.06 says that the state is not "liable for any debt, obligation, act, or omission of the corporation," so one would think that DOR would be under no obligation to honor tax credits that were issued outside the bounds of WEDC's statutory authority, right?
Again, if you have any ideas about how the IRS or another federal agency might bring an investigation into WEDC and Chairman Walker and how we might get that started, please have at it in the comments. There's got to be a Kossack or two who work at DOJ, right?
For your reference, here are some of WEDC's "greatest hits:"
(It's a looong list, so go ahead and skip to the comments if you're already up to speed on the dumpster fire that is WEDC…)
From the 2013 Audit:
- In May 2012, HUD indicated to DOA that WEDC had spent $9.6 million in federal Community Development Block Grant program funds without the legal authority to do so. WEDC’s governing board was not informed about HUD’s concerns until September 2012.
- In March 2012, WEDC had offered to provide one of the bidders on a state IT contract with tax credits if the firm was awarded the contract.
- WEDC was not collecting overdue amounts on loans --or tracking any loans at all-- that had been made by Commerce through June 2011 and by WEDC from July 2011 onward. In October 2012, WEDC officials told the governing board they became aware one week earlier that WEDC had never monitored repayment of the loans, including those that were past due.
- A $250k contract executed through the Jobs Tax Credit program did not require a business to create any jobs.
- WEDC had no policies for determining how to handle delinquent loan amounts.
- WEDC did not consistently follow statutes or its existing policies when making awards.
- WEDC made awards to ineligible recipients, for ineligible projects, and for amounts that exceeded limits specified in its policies.
- WEDC lacked invoices or other contractually required documentation showing that authorized costs were incurred
- Allocated four businesses a total of $906k in tax credits for job creation and employee training that had occurred before the contracts were executed. (free-ridership)
- From July 2011 through December 2012, WEDC conducted no performance verification efforts on grant and loan recipients.
- In FY 2011-12, WEDC did not monitor the amounts spent on each of its programs, and did not establish accounting or procurement policies and procedures.
- The purpose of 56.0 percent of the 141 purchasing card transactions reviewed by LAB was not specified, including Badger football tickets and alcohol purchases.
- WEDC had no policies for tracking and handling gifts received by its staff.
From the 2014 Audit:
- Documentation provided by WEDC was not adequate to demonstrate that expenditures were incurred, were reasonable, and were approved
- No reconciliations between WEDC’s loan and grant tracking system and accounting system were completed before November 2012
- Loan delinquency was reduced by by $7.7M in late 2013, largely due to write-offs, deferred payments, loan forgiveness, and correcting a nearly $800k "data entry error."
- WEDC did not have a policy in place regarding loan forgiveness.
- Information on the number and extent of loan contract amendments was not readily available because of limitations with WEDC’s loan and grant tracking system
- Despite all of the above, in FY 2012-13, WEDC employees received merit and recognition awards totaling $78,225
From the 2015 Audit:
- WEDC did not establish statutorily required policies or consistently evaluate whether businesses met all eligibility requirements for tax credit programs, and did not require award recipients to submit information showing that contractually required jobs were actually created or retained.
- 85.7% of audited contracts from 2013-14 allowed recipients to earn tax credits for projects that began before WEDC executed the contracts; in 7 cases, credits totaling $2.1M were awarded for projects that had been underway for over 12 months prior to execution of the contract.
- LAB found no documentation that WEDC attempted to verify job creation information before awarding tax credits.
- In March 2014, WEDC executed an Enterprise Zone contract that allocated $10.3 million in tax credits to a business but permits WEDC to revoke the allocation for leaving or ceasing operations in the Zone during only the first 5 years of the 11-year contract. As a result, the business could leave the enterprise zone after five years, not be required to repay previously claimed tax credits, and continue to claim additional tax credits previously awarded for the full 11 years.
- Only 47% of required job creation progress reports were submitted on time in 2014. When WEDC sent past-due notices, it typically did not do so in a timely manner. For example, it sent eleven 30-day past-due notices an average of 134 days after the progress reports were due.
- In FY 2013-14, WEDC awarded one business $517,000 in tax credits for retaining jobs, even though it determined that the business employed 307 fewer eligible employees in the Enterprise Zone than it did in the year before the Enterprise Zone took effect.
- WEDC’s Oct 2014 report did not contain clear, accurate, and complete information on program outcomes, including the numbers of jobs created and retained.
- In August 2013, WEDC awarded a $1.5 million forgivable loan after determining that the business would likely be unable to create jobs in which employees work at least 2,080 hours annually, which was a statutory requirement.
- WEDC waived origination fees totaling $114k for 5 contracts when they did not have authority to make such waivers.
- Although Business Opportunity Loan Fund program policies did not list debt repayment as an allowable use of awarded amounts, in May 2014 WEDC executed a $4.0 million loan contract that allowed a business to use $1.6 million of the awarded amount in this manner.
- Records for one of the WEDC-awarded loans written-off indicated that the recipient’s initial loan application had been rejected in February 2011. Although WEDC’s underwriters determined in July 2011 that the recipient’s financial condition had deteriorated, WEDC awarded the loan in October 2011.
- WEDC staff reviews of 7 of 18 recent projects for the Economic Development Tax Credit program did not evaluate the applications to determine whether the proposed projects would occur without the tax credits; and reviews of 8 of the 18 projects did not determine the 3-year projected Wisconsin income tax liability, even though policies limited the maximum amount of tax credits to 125.0 percent of a business’s projected 3-year income tax liability.
- WEDC did not have procedures for recovering previously awarded tax credits from recipients that did not meet contractual obligations, and it did not consistently act in a timely manner to recover tax credits.
- Because WEDC has not consistently collected either the statutorily required verified financial statements or schedules of expenditures since it became fully operational in July 2011, any determination of whether grant and loan funds have been spent appropriately is limited.
- WEDC did not assess the wages paid to or hours worked by employees for whom recipients received awards. Without an assessment of wages paid and hours worked, WEDC has a limited ability to determine whether award recipients actually complied with contractual provisions.
- Rather than reviewing invoices and payroll records or verifying that jobs were created and retained, WEDC staff interviewed its contact individuals and, at times, toured facilities during site visits.