Assembly Minority Leader Peter Barca
Shortly after taking office in 2011, Gov. Scott Walker scrapped the Department of Commerce to set up the Wisconsin Economic Development Corporation (WEDC), a public-private agency that is supposed to support promising businesses that can’t get assistance from banks or other programs.
But Walker’s vision of a nimble, business-friendly WEDC hasn’t materialized—the evidence is in the state’s sluggish job growth—and the agency has been mired in scandal, thanks to audits that have shown it has made millions of dollars in bad loans and doesn’t adequately track its loans or whether the companies assisted by WEDC made good on their job-creation promises.
Republican leaders, including Assembly Speaker Robin Vos (R-Rochester), say the problems can be fixed within the current structure and WEDC merely needs to be rebranded. But Assembly Minority Leader Peter Barca (D-Kenosha), a WEDC board member since its inception, says the problems go much deeper—to WEDC’s structure as a public-private or quasi-governmental entity. That’s why he and state Sen. Julie Lassa (D-Stevens Point) are circulating a bill that would totally scrap WEDC and replace it with two agencies: the Wisconsin Department of Economic Opportunity, a fully public, cabinet-level agency that would oversee all major economic development award programs, and a public-private Badger Innovation Corporation, which would help to market Wisconsin and also raise private funds for economic development.
Barca, who served as the Midwest regional administrator of the U.S. Small Business Administration during the Clinton administration, spoke to the Shepherd last week about why he wants to repeal and replace WEDC with two agencies and work with Republicans to revive Wisconsin’s economy now, as the state is on track to lose 10,000 jobs this year.
Shepherd: Your bill would totally get rid of WEDC and rebuild it as two agencies. Why does WEDC need to be scrapped and not just reformed?
Barca: I’ve got a term that I use that hopefully Republicans will recognize and support. What I’m calling for is repealing it and replacing it. Only in this case I’m genuine about replacing it with something even more meaningful and could have even better results for the people of Wisconsin—unlike with them and the Affordable Care Act, which they want to repeal and replace with nothing that would be useful for the people of America.
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We found that WEDC has very serious problems that go beyond just branding. There’s no question the brand is suffering enormously because of the problems that have been uncovered by audits and by investigative journalists. But put that aside. We could have a much more effective economic development approach in Wisconsin than what WEDC has to offer.
What we discovered is there are unintended consequences that were not envisioned when WEDC was created. One major one, for instance, is that the federal government does not allow the entire Community Development Block Grant portfolio to rest in a quasi-governmental authority. So it’s sitting over at the Department of Administration, outside the reach of our economic development professionals who are helping out entrepreneurs. The people administering it at the DOA do not have the type of reach to work with the communities and provide the kind of assistance and key strategic decision-making about how to best utilize those funds. That represents a substantial portion, perhaps as much as half of what would be available for economic development programs. And so that’s a huge limitation with the structure that we have at WEDC.
Secondly, with a quasi-governmental authority you cannot have the Department of Justice and the attorney general collect on bad loans. Therefore, precious economic development dollars have to be utilized to hire private attorneys to exercise clawback provisions and have companies pay back when they don’t meet their contractual obligations. That’s a huge problem as well.
Third, we found that WEDC does not have the kind of transparency that’s needed for policy makers and the public to make good decisions about economic development and the needs of the state through this quasi-governmental authority. Even as a board member, there are documents that they will not turn over to me. That’s extremely troubling. The press has been extremely frustrated with this as well. So for all of those reasons the structure is not effective.
Shepherd: What about the role of Walker, who until this summer was chairman of WEDC’s board, and the top WEDC administrators? Haven’t they tried to make reforms to improve WEDC’s performance?
Barca: I haven’t even talked about all of the bad decisions made by the governor of putting people in charge who have no economic development experience whatsoever. In some cases top leaders have never worked in the private sector. It’s just been outrageous how poorly the governor has executed this plan. But that aside, the structure, I think, is not one that lends itself to effective results. The proof is in the performance. The performance has been abysmal. We’ve never been in the top half of economic development and for most of the past five years we’ve been in the bottom third of the country and either worst in the Midwest or nine out of 10. So the results have not proven to be effective.
We obviously need to make this change and now is the appropriate time because they just brought on a new CEO [Mark Hogan]. I wish we could have done it before they hired a new CEO, frankly. We also had a lot of changes at the top and a lot of turnover. Part of the goal of creating WEDC was to end the revolving door at Commerce. It’s actually not stopped it, it’s accelerated the turnover. Now’s the time to act and act decisively and move forward in a strategic direction and also provide an appropriate transition. In this period when we need to make key strategic personnel decisions and also now that they’ve lost the confidence even of Republicans in the Legislature by virtue of the fact that they didn’t fund the loan program, they took a substantial amount out of the budget, even the speaker is saying that we need a new approach.
Shepherd: Haven’t you and your fellow board members been able to make changes from within?
Barca: There’s been tension on the board at times because the governor obviously has certain people on the board that are very loyal to him that have been hesitant at times to support the kind of far-reaching reforms that we’ve brought forward over the past five years. Just go back a couple board meetings ago, when we brought forward ideas like making sure that when we see clear fraud going on that it be reported to the local district attorney. They didn’t even support that. There have been a number of motions that we’ve brought forward that did not gain board support. I think part of it is that the governor appointed the majority of the board and I think they feel they need to be cautious about how the governor is perceived as a result of how WEDC does. The governor, of course, has been totally silent on this issue ever since he left the board as chairman.
Shepherd: Is the criticism of WEDC fair? After all, it’s making a tough call when helping businesses that weren’t able to get financing or other aid traditionally, for example from banks. Isn’t there an inherent risk in WEDC’s mission?
Barca: We understand, whether it’s a public agency or a quasi-government agency, that when you make those investments that there will be a certain number of them that will not be successful. I served for nearly five years in the Clinton administration in charge of the Midwest for the Small Business Administration and we had very tight controls, very sophisticated kinds of underwriting techniques and collection techniques. And loans would go bad. Banks, which generally are more conservative in their lending practices, even they have loans go bad. Sometimes markets change overnight and businesses that had very vibrant business plans and were very successful, all of a sudden because of technology, there’s not as much demand for their products and services.
We understand that. We’re not there as an economic development arm of the state to replicate what banks are doing. So by its very nature if a bank is going to make a loan we’re not going to make a loan. We are by [WEDC’s] very nature making riskier economic decisions on the margins. Of course when you have taxpayer money you have to make sure that you are doing your due diligence so that the probabilities are at least great that these businesses will be successful because of the state providing some assistance. At the same time we certainly understand that there is a risk, but we believe the benefits far outweigh the risks.
