Leaving Taxpayers in the Dark

The Urgent Need to Improve Transparency and Accountability in Wisconsin's Economic Development Subsidy Programs
Released by: WISPIRG Foundation

Despite legislative efforts at improvement since 2007, Wisconsin’s economic development subsidies lack transparency and accountability. According to the most recent data on the state website, over $414 million in business subsidies were dispensed in calendar years 2009 and 2010: a mixture of grants, loans, tax credits, and revenue bonds. But very little information is available about the goals of these subsidy programs, the outcomes at companies who receive them, or the benefit to the Wisconsin taxpayers who pay for them.

In 2006 an audit found a lack of public disclosure and other problems with Wisconsin’s economic development programs. State leaders responded in 2007 by passing Act 125, a law to improve transparency and accountability. Since then, we’ve seen minor improvements, including the creation of a searchable website with limited information and commitments to reclaim some subsidies when companies fail to deliver promised benefits. But, another audit this year found many of the same problems persist. Some shortcomings seem to be getting worse. Taxpayers deserve much better.

The problems are particularly concerning given that the state functions of dispensing economic development were transferred to a semi-private entity, which is subject to less of the normal checks and balances of government and the civil service. At just the time that Wisconsin needs greater accountability for its subsidy programs, it appears to be getting less.

Reporting requirements for the companies who receive economic development subsidies are inconsistent, unclear and inadequate. There is little evidence that state agencies enforce whatever reporting requirements do exist. As a result, state leaders and taxpayers can glean very little from the minimal reporting that is provided. What’s worse, few companies are held accountable for fulfilling the goals outlined in their subsidy contracts. When asked how much subsidy money has been recaptured from companies who did not fulfill their contractual goals since 2007, the staff of the Wisconsin Economic Development Corporation (WEDC), the newly formed agency responsible for economic development in Wisconsin, responded that it would take tremendous staff resources to compile this information. If they aren’t compiling this information, it seems unlikely they are acting on it.

This lack of transparency and accountability in Wisconsin’s economic development subsidy programs means that taxpayers are left with little to no information about what they are getting for the hundreds of millions of state and federal tax dollars in these subsidy programs administered by the state. There is little guarantee that those tax dollars are getting taxpayers any “bang for the buck.”

The shortcomings are evident even by examining the projects that are included in WEDC’s searchable database of economic development subsidies. Among the 251 companies identified as receiving subsidies in 2009 and 2010 and which report that they have completed their contracts, quantifiable information about the economic development outcomes delivered is available for only 2 recipients.1 The 249 completed subsidy projects for which performance information remains unavailable received roughly $8 million in taxpayer-funded economic development subsidies.

This lack of transparency is even worse than during 2007 and 2008, when quantifiable online performance information was publicly available for 8 percent of the 248 subsidy awards that were completed.

The state’s past performance in administering these programs suggests that public subsidy dollars may in some cases be squandered or wasted. The Legislative Audit Bureau, in a June 2012 report, examined the extent to which recipients of a sample of 89 completed subsidy contracts fulfilled the public benefits specified in their contracts. The Audit Bureau found that even among the best available information in a sample that had been reported as completed, 20 of the recipients under-performed or completely failed to deliver the public benefits specified in their contracts2. We formally requested more complete information from the WEDC, but they failed to fulfill our requests, making it impossible to know whether the lack of information might be even worse outside this sample3.

With the creation of the WEDC, a public-private partnership, state leaders promised to enhance transparency and accountability along with streamlining these programs. But, transparency appears to be getting worse, and taxpayers have access to almost no online information to judge the outcomes of subsidies from the past four years. The semi-privatization of these functions by creating a public-private partnership risks further diluting transparency and accountability. While public officials are ultimately democratically accountable to voters, the same is not true of private WEDC directors. And, while information is at least in theory public under the old Department of Commerce arrangement, it is not clear whether the public has any legal right to obtain this information under WEDC. If our efforts at accessing information for this report are any indication, taxpayers are being left in the dark. Recent federal findings criticizing the lack of openness in Wisconsin’s distribution of federal economic development funds highlights the need for a serious effort by state leaders to ensure these subsidy programs are transparent and accountable.

The following recommendations would enable strong public scrutiny and ensure recipient accountability for Wisconsin’s economic development programs.

For Transparency:
■■ Clarify which programs meet the statutory definition of “economic development programs,” and must be included in future economic development reports. The current lack of clarity means that agencies claim to be unaware of the need to report on performance outcomes.
■■ Standardize and statutorily define the information which economic development subsidy recipients must include in every progress report, which must be submitted at least annually. Benchmarking is not possible unless consistent information is collected in ways that are comparable.
■■ Make all economic development subsidy contracts and related progress reports available online. In the 21st century, information is not truly publicly accessible unless it is searchable online.
■■ Make the current online website one-stop, userfriendly and easily accessible for taxpayers. Taxpayers and budget watchdogs should be able to scrutinize subsidy expenditures without knowing beforehand what they are looking to find. The state of Illinois with their online subsidy website has demonstrated that making this information easily accessible online is not asking for the moon.
■■ Include a “Top Performers” section on the online disclosure site. The public has a right to know which recipients underperformed on goals, but also which recipients best benefitted the public. Transparency appears to be getting worse, and taxpayers have access to almost no online information to judge the outcomes of subsidies from the past four years.
■■ Companies failing to meet performance goalsshould be required to report on executive bonuses and compensation, dividends or stock/debt buyback expenditures. If recipients of public subsidies fail to deliver on promised public goals, taxpayers have a right to know whether money has been invested or used for private enrichment.

For Accountability:
■■ Impose automatic penalties on recipients who fail to submit progress reports as required. The public should not need to chase down recipients of taxpayer subsidies to find out what was done with public largesse.
■■ Impose mandatory “clawback” provisions, requiring recipients to repay subsidies if they fail in part of whole to deliver on their promises. Such taxpayer guarantees will ensure that subsidy recipients take seriously the responsibility to deliver on promised results.
■■ Agencies should be required to report on their enforcement activity online including the names of recipients found to be non-compliant and the penalties levied on recipients for non-performance. Incorporating these recommendations into state statute will enhance the effectiveness of state economic development programs by holding recipients accountable for achieving agreed upon goals. Taxpayers will be able to readily determine who receives subsidies and how effective recipients have delivered on agreed upon public goals. Noncompliant and underperforming subsidy recipients will be exposed, and top performing recipients will receive due recognition.

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