Feds Slam Wisconsin Public-Private Partnership for Economic Development

Transferring control of Wisconsin's economic development efforts from a state agency to a new public-private partnership was a focus of Governor Scott Walker's campaign and one of the first things he accomplished when he took office.

The public-private Wisconsin Economic Development Corporation has now been up and running for more than a year, and the administration touts it as the successful transformation of a bureaucratic maze into a nimble job-creating enterprise that leverages private sector expertise.

But the corporation has had a rough couple of weeks: Critical correspondence from the U.S. Department of Housing and Urban Development surfaced in the media and its director announced plans to return to the private sector by Nov. 1.

The letters, first reported by the Wisconsin State Journal, say the state misspent federal Community Development Block Grant money and disregarded state and federal policies about how such funds should be spent and accounted for.

The state was faulted for granting “forgivable” loans to a range of companies and giving $20,000 per job created to a manufacturing company called Kapco, twice as much as allowed under its own policies, the Journal reported. Two companies receiving $1.4 million were not properly assessed for financial soundness, the paper said.

HUD was critical of the structure of the new public-private partnership and the “hasty” handoff of activities traditionally undertaken by traditional state agency employees at the now-extinct Department of Commerce. HUD ordered the state to hire a high-level administrator to monitor and oversee the new group's activities and ensure proper compliance with state and federal laws.

The state has been pushing back on the idea that it needs additional internal capacity, but is working with HUD to overhaul its processes to meet the program's goals. State Department of Administration spokeswoman Stephanie Marquis says the state has been collaborating with HUD throughout the transition to a public-private partnership structure and is on the same page about many of their findings.

“We believe that we've got a model that will work and we've been working I think successfully with HUD over a period of many months,” she says. “It was a complicated transition, but it wasn't something that was done hastily.”

Other states have been experimenting with similar public-private structures for their lead economic development agencies, as Stateline has reported.

One of the most prominent examples is JobsOhio, a new partnership that is one of Republican Governor John Kasich's top priorities. There too, however, the model has run into its share of challenges. The organization has been mired in litigation since its creation challenging whether its structure in permissible under the state's constitution or is an improper use of public funds for private purposes. A case is now pending before the Ohio Supreme Court.

“It's up and running, just running with one hand tied behind its back,” says Rob Nichols, a spokesman for Kasich. “It's limited in comparison to what we will ultimately become. Once we're fully operational, we'll have quite a story to tell … Once that suit is settled, they're going to have tools at their disposal that no other state in the nation has.”

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