The Failures of Privatized State Economic Development Agencies

Creating Scandals Instead of Jobs: The Failures of Privatized State Economic Development Agencies

“In 2007 we consolidated Wisconsin’s economic development efforts, including terminating a state-created private economic development entity, Forward Wisconsin, in order to reduce political favoritism and misuse of public funds,” said State Senator Mark Miller. “Unfortunately we reverted to old-style cronyism in 2011 with the creation of the Wisconsin Economic Development Corporation which has been plagued with predictable ethics improprieties and gross mismanagement.”

The report finds that:

• The Wisconsin Economic Development Corporation (WEDC) was accused of spending millions of dollars in funds from the U.S. Department of Housing and Urban Development without legal authority, failed to track past-due loans, and hired an executive who owed the state a large amount of back taxes.

Based on this persistent pattern of abuses, the report concludes that the privatization of economic development agency functions is an inherently corrupting action that states should avoid or repeal. With the “economic war among the states” already dominated by corporate interests and bargaining dynamics made worse by a long-term drop in job-creation deals, taxpayers are best served by experienced public-agency employees who are fully covered by ethics and conflicts laws, open records acts, and oversight by auditors and legislators.

Hucksterism, WEDC-Style

Jim Villa, president and chief executive officer of the Commercial Association of Realtors Wisconsin (CARW), opined, WEDC the Right Model for Job Creation and Economic Development.

[How much weight should we give the insight of Mr. Vella? I don't remember the CARW mentioning anything about the housing bubble that cost our economy $8 trillion (and this is supposedly in their area of expertise). Thus, his prognostications and policy prescriptions should be taken with a heavy dose of salt.]

If you've been paying attention, you know that the Wisconsin Economic Development Corporation (WECD) is a disaster.

Villa opens with the ludicrous claim, "Wisconsin's economy has already made significant progress." Implying that since Scott Walker turned the Commerce Department into the quasi-private WEDC, Wisconsin's economy has been humming along. Yet Lisa Kaiser recently reported, "The new data showed that Wisconsin’s private sector added just 24,305 new jobs between March 2012 and March 2013, growing 1.1%, well below the 2% national job growth during that period."

Despite this reality, Villa declares, "CARW believes that the WEDC model is the right direction for growing Wisconsin's economy and job creation." If we're following this logic, pissing into the wind is also a fantastic idea.

Mr. Villa continues on explaining why the Commerce Department needed changes. They were "unable to focus." They needed to separate economic development programs from regulatory programs. The WEDC would "better serve the needs of the private sector job creators in a more accountable, efficient and effective manner."

As we've seen, WEDC has served the private sector with untraceable corporate welfare. Although, accountable and efficient are not the adjectives I'd use to describe such malfeasance. In fact, the WEDC has been anything but accountable and efficient.

Plus, doesn't it make sense that an agency monitor it's programs (including implementation and regulation)? Doesn't separating these activities into different entities create needless bureaucracy and inefficiencies?

Villa then trots out the 'just like Indiana' right-wing mantra. It's supposedly well-known that Indiana is a booming economy. [Tumbleweeds roll past]

As I wrote, back in December 2010,

Indiana is the 16th most populous state, it ranks 37th in per capita income. The unemployment rate in Wisconsin is 8.5%, it's 10.1% in Indiana... If we look at median household income, Indiana ranks 32nd and Wisconsin 21st. GDP change between 2006-2008 was -0.6 in Indiana (ranking 41st), -1.5 in and +0.7 in Wisconsin (ranking 27th). Indiana is primarily performing worse, yet we should follow their lead?

Indiana is instituting more crack-pot right-wing policies, but that hasn't translated to an economic paradise like the proponents claim.

Villa then admits, "There have been challenges during the transition." But he continues on, using WEDC numbers, to claim large investment and job creation due to WEDC. Yet, the Wisconsin Legislative Bureau found,

Government agencies have incomplete data on the impact of economic development programs they administer. 

In the 2007-'11 period, state agencies administered 196 economic development programs, according to the report. But state auditors said it was difficult to determine how many jobs actually had resulted from the programs.

Villa thinks WEDC will lead to "business expansion within the state." Yes, by having this untraceable slush fund, Walker and his right-wing cronies can provide corporate welfare without the public's knowledge. Ah, the not-so-free-market strategy of poaching. Using the untraceable WEDC funds to bribe businesses away from other states.

Mr. Villa closes stating, "Tremendous strides have been made since the formation of WEDC." Wisconsin improved two spots (from 42nd to 40th) in the latest Tax Foundation rankings. Tremendous!

This cabal of right-wing hucksters sure does stick together. Each using their platform to support and echo talking-points. We just need to make sure and take the time to burrow through these weeds and see their claims for what they really are - self-serving bullshit.

For Further Reading:
Rewarding Failure: The Wisconsin Economic Development Corporation
WEDC Not Good Model For Deploying Scarce Resources

From The Department Of I-Told-You-So

Back in February 2011, I warned about the nefarious implications of Scott Walker's plan to turn the public Department of Commerce into the semi-private Wisconsin Economic Development Corporation.

I have been critiquing it ever since. My most recent screed, as of July 2012, Walker's Untraceable Slush Fund, pretty much called it.

As the Journal Sentinel notes, Walker promises dramatic moves to correct loan oversight problems at WEDC.

"The Milwaukee Journal Sentinel reported Wednesday that since its creation in July 2011, the Wisconsin Economic Development Corp. failed to track whether 99 businesses were repaying a total of $8 million in past-due loans - or 16% of the agency's $51 million loan portfolio."

These types of redevelopment initiatives (privatization, tax credits, subsidies, etc.) are actually studied by academics. As cities and states try these different supposed catalysts, social scientists are measuring the results. This is where the "best practices" guides come from. And, where the "things to avoid" recommendations come from. That is, if one is willing to actually read the reports.

Whether public or private investment, certain questions must be addressed and answered with any initiative. Especially when public dollars are at stake, most would ask: What's the return on investment? How many jobs have been created? What's the cost per job created? Were there noticeable income gains in the area due to the initiative? Etc.

Good Jobs First actually published The Risks of Privatizing State Economic Development Agencies in January 2011. But Wisconsin did it nonetheless.

The same was found for film industry tax credits, yet we still do those.

Similarly unimpressive results were discovered for venture capital, nevertheless we are still pursing this mirage.

It's well past time to stop buying this snakeoil.

Update:

Here comes the Journal Sentinel to Scott Walker's rescue; putting the proverbial lipstick on this Walker pig.

WEDC: A good idea, but so far, poorly executed.

This [the WEDC] is another one of these supposed game-changers where the evidence indicates it is not a good idea. But the Journal wants it to be, so it must be. We just need to accept it.

Maybe if the Journal actually did the heavy lifting before getting behind all these harebrained ideas they wouldn't have to spend so much space qualifying, contorting, and making excuses. And, heaven forbid, maybe they'd actually provide some insightful policy analysis, rather than just practicing sycophantic boosterism for Scott Walker.

Wisconsin Economic Development: Walker's Untraceable Slush Fund

What a novel idea...actually holding someone accountable for the things they claim they will do.

"Wisconsin's Legislative Audit Bureau found that stat government agencies have incomplete data on the impact of economic development programs they administer."

"In the 2007-'11 period, state agencies administered 196 economic development programs, according to the report. But state auditors said it was difficult to determine how many jobs actually had resulted from the programs."

Ah, the beauty of nepotism and cronyism. I guess this is what should be expected when private interests dominate public agencies.

The article goes on to note, "Last July, the Commerce Department was abolished and replaced with the partially privatized Wisconsin Economic Development Corp. But a new state law reduced the the information on program results the state agencies must report to the Legislature annually."

Yes, after privatizing a public agency, less information is required. We are using public dollars to fund private ventures, and we are now requiring less information on the results of those investments. How is this an improvement in any way? How can we evaluate what works if we don't monitor what's going on?

"Among information no longer required are quantifiable performance measures directly related to a programs' purpose, including the number of jobs created or retained in each industry and in each municipality in the prior fiscal year. Also, agencies aren't required to report the amount of tax benefits allocated - nor the recipients of them - under the new rules."

Sounds like certain politicians (yes, I'm looking at you Scott Walker) have set up an untraceable quasi-private slush-fund to funnel money to cronies. So much for the era of transparent government and doing  what's in the best interest of the people. So much for wisely spending public dollars.

I hope to see a lot more stories about this. I hope to see journalists questioning the Walker administration about this. It may not be corrupt, but everything on the surface seems to indicate this whole apparatus is nothing but an undetectable payback machine for well-connected political supporters.

How can Scott Walker plan to know which development policies are working if records aren't kept on the costs and the rewards (or losses)? How can we make meaningful decisions and adjustments if benchmarking isn't done? It almost seems ludicrous that such seemingly corrupt and unmeasurable practices are now codified into state operations.

For Further Reading:
Evaluation of Online Economic Development Subsidy Information
Evaluation of State Economic Development Subsidy Disclosure
Money Back Guarantees For Taxpayers
Money For Something
The Risk of Privatizing State Economic Development Agencies
Targeting Ineffective Economic Development Subsidies

Doing Wisconsin

Scott Walker has shown he is an unwavering party-line parrot in his latest Journal Sentinel op-ed. If platitudes, false economic ideas, and revisionist history are your preferred path back to the promised land, Scott Walker in your man. On the other hand, if you are part of the reality-based society, Scott Walker and the Republicans' plans for our government and society are horrible.

Walker starts by spouting off about a positive environment for job creation. He conveniently ignores the billions in investment and thousands of jobs he has lost and pushed away. He then spews the well-worn "lawsuit abuse" line of the right as yet another positive change for the business environment. Another blatant giveaway to business, since frivolous lawsuits are a minuscule to nonexistent issue.

Next, he boasts of the change of the Department of Commerce to a quasi-private organization as somehow being a catalyst for job creation. He doesn't mention that we have such organizations already. Why haven't they worked? Why will Walker's millions poured into this duplicative venture produce any different results? This is simply a less-transparent vehicle through which Republicans can funnel money to their cronies and their projects.

He then goes on to confuse and misconstrue budgeting and basic economics. He talks of "balancing the budget" "without raising taxes" and without "a drastic reduction in services." Again, why can't we raise taxes on the extremely wealthy? If the only option is to cut spending, the only outcome can be a drastic reduction in services. We all must do with less because a select few very wealthy people need more and more.

Walker also uses the tired comparison of government budgets with household budgets. He claims government is running up massive debt while expecting our kids to pay for it. This fairytale conveniently ignores the fact that Wall Street and market fundamentalists collapsed the economy. So, the government is wrong to try to clean up the mess private sector made, and the private sector and their ideology aren't at fault for destroying the economy?

Scotty's next claim is, "We strengthen public safety, reform education, provide a safety net for needy families and children, protect seniors and honor our veterans." Since his budget cuts funding for all these constituents, his claim that these services are being strengthened is an elaborate delusion. A great example of the classic Republican strategy of doing one thing (with obvious results) and claiming exactly the opposite has happened.

Near the end of his regurgitation of Republican talking-points he states that his reforms will make government work better. Just believing this will apparently make it so. Sadly, the history of Republicans policies has resulted in horrendous outcomes for the majority of citizens. The anti-tax, less-government crusade of right-wingers has made U.S. citizens lives more volatile, not less.

He closes by repeating his claim that he will create 250,000 jobs, control government spending, and reform government. And that all sounds fine and dandy, but he never specifies how he will do any of this or why he believes it will work. I guess less government and tort reform are all Wisconsin needs to turn the economy around. Again, it appears just believing it and repeating it will make it so. It's time we throw these discredited Republican "ideas" into the trash bin of history where they belong.

About Those Public Workers

The Journal Sentinel, amongst a majority of the media, and those with access to it's platform, are quick to write endless stories and go on and on about our wasteful, inefficient, worthless, do-nothing government.

After seeing a full February's worth of snow accumulation in 12 hours, our public workers (alongside citizen effort) cleaned up the city within the next day.

People believe government does nothing for us because our "watchdogs" seem to report scandal and headline-grabbers much more than they report the efficiently well-done and necessary everyday work of our government.

The timely and organized snow removal, and the lack of any thoughtful accolades, exemplifies such.

Our media blindly spews corporate talking-points regarding the economy and "what we should do" often based on dubious analysis and faulty reasoning. WPRI's methodologically flawed reports are repeatedly quoted and sold as sound analysis. A perfect recent example of this blind market faith is the quasi-privatization of the Commerce Department. Good Jobs First just released a study showing a plethora of problems and an overall ineffectiveness from such privatization initiatives. We actually have our own example of failure, Forward Wisconsin. Which, for some reason, the media is also ignoring.

If only we could honestly discuss the proper roles, actual effectiveness, and realistic impacts of our public and private sectors. History and our current recession have shown us the tax cut, deregulation, and privatization experiment is a failure. Government can do, and does, many things well. A little more positive government and labor press seems a necessary corrective to the injudicious narrative we are being fed.

Expecting Different Results

Even though, as others have pointed out, Forward Wisconsin has been largely unsuccessful at being a "game changer," under a proposal recently passed by the Legislature, Commerce Department Privatization Approved, Wisconsin plans to drudge forward (regardless of the historical ineffectiveness of such public-private partnerships here and elsewhere) privatizing the Commerce Department.

As posted previously:

A new report by Good Jobs First, The Risk In Privatizing State Economic Development Agencies, couldn't be more timely.

An excerpt of their findings:

Most of the seven states that currently make use of economic development public-private partnerships (PPPs) have experienced a variety of performance problems. These include the following:

• Misuse of taxpayer funds (Rhode Island, Florida and Wyoming)
• Excessive executive bonuses (Virginia, Florida, Michigan and Wyoming)
• Questionable subsidy awards by the subset of PPPs that have a role in that process (Michigan and Rhode Island)
• Conflicts of interest in subsidy awards (Florida, Utah and Texas, which makes limited use of PPPs)
• Questionable claims by the PPP about its effectiveness (Wyoming, Florida, Utah and Indiana)
• Resistance to accountability (Florida and Michigan)

Does it really surprise anyone that Republicans are plowing forward with an agenda immersed in cronyism (tort reform, conceal carry, public-private partnerships, tax credits, voter ID, to name a few) and completely lacking in anything resembling an effective employment initiative or job creation strategy?

Off Track

What is the Journal Sentinel editorial board smoking? On December 11 they proclaimed, Walker on right track so far on jobs. WTF?

Two days after the Feds officially strip Wisconsin of $810 million in aid, the Journal declares this to be the right track. I am flabbergasted.

How is killing $810 million in aid, the built infrastructure, the ancillary development, Talgo and its spin-offs, and the thousands of jobs at stake, "on the right track"?

In the same piece they were AGAIN promoting a report - Be Bold: The Wisconsin Prosperity Strategy- by Thomas Hefty (former CEO of Blue Cross/Blue Shield), John Torinus (of the Journal Sentinel and Serigraph Inc.), and Thomas Still (Wisconsin Technology Council). They're all about innovation and entrepreneurship. We need to prospect hard, initiate a vigorous marketing campaign. And, of course (like Scott Walker and all conservatives) they'd also like to see less regulation and and lower taxes.

I deflated this bold prospectus is a recent post (and in previous posts). Basically the supposed models (Indiana and Michigan) we should be following, the evidence behind their bold strategy, are baloney. I show, in numerous economic indicators, Indiana and Michigan perform worse than Wisconsin. Yet, we should adopt their strategies? This report and its promotion are bold specimens of snake oil.

Another bold move the editorial board loves writing about is changing the Department of Commerce into a quasi-private agency, funded by the taxpayers of course, but with less transparency (if the Indiana model is an indicator) and headed by private sector "entrepreneurs." Yes, the Department does nothing of value right now, or at least you wouldn't think so, since the Journal never actually writes about the Department's current mission, their budget, their accomplishments, etc. No, they're just part of the problem. You see, all and any government is a problem, and the more agencies we can make "more like the private sector" the better.

Truly amazing that in our current economic recession - foisted upon us by the innovators, entrepreneurs, speculators, businessmen, and all-around movers and shakers - that there are still hucksters selling this snake oil - of low taxes, no regulation, with taxpayer-funding. Now that the private sector has destroyed the economy and millions of jobs, we need to regulate them less, bring our public agencies under their leadership, yet still fund their speculative adventures with taxpayer money.

The Journal quotes Walker, "The state needs to put more energy into helping small businesses that are already here to grow and less on trying to draw large new employers to the state." On this we agree. I'd much rather see smaller, neighborhood incubators than artificially constructed, exit ramp big box developments. The sad thing is, a rail network connecting dense developments, of small businesses amidst our larger cities throughout the state, is now further off than before thanks to Walker turning down $810 million in aid. A better strategy is helping native businesses, but not to the extent it hurts other similar business, no matter their size. We must also encourage and entice outside business, big or small, to fill a niche markets or crucial economic linkages within the state. We definitely need to get away from the blackmail-saturated development such as Mercury Marine, Harley Davidson, and Miller Park, to name a few.

The editorial board also favors Walker's push for "tax relief, easing the regulatory burden, and tort reform." All ridiculous, base-riling fodder. Taxes are the lowest they've been in half a century. Our steady deregulation over the past three decades significantly contributed to our current economic woes. Tort reform is a minuscule cost; hardly the burdensome issue the right claims it to be. Three red herrings not worth mentioning in any serious discussion of policy prescriptions or cost controls. But, for the Journal, these are three more issues where Scott Walker is taking bold, courageous, and necessary positions. And they want to do all they can to help spread this [misleading and trifling] message.

More appropriately the Journal should have pronounced, Walker off track on jobs and clueless about what to do.

(Not So) Bright Lights

The Wisconsin Department of Commerce issued a report showing that film tax credits as an economic development strategy are not cost-effective. But so much for reasoned analysis, Wisconsin has maintained the incentives.

Cost Benefit Analysis of Wisconsin's Film Tax Credit Program