The state’s Republican-led budget committee Thursday retained legislative oversight of Gov. Scott Walker’s troubled job-creation agency, removed the governor from its board and pledged further changes later this fall in the wake of a recent critical audit and a State Journal investigation.

The Legislature’s Joint Finance Committee voted along party lines for the changes to the Wisconsin Economic Development Corp., but only after rejecting a series of Democratic ideas to reform the agency and more than an hour of debate during which even Republicans conceded that the agency needs fixing.

“We know that it’s time to reform this,” said Rep. Dean Knudson, R-Hudson. “We can’t do it in the middle of the budget.”

Knudson even made the sobering admission that he didn’t believe in the mission of the agency — to leverage state tax dollars to help create jobs.

Walker made WEDC a focal point of his administration, working with lawmakers to quickly create it to replace the former Commerce Department months after taking office in 2011.

Earlier Thursday, Rep. John Nygren, R-Marinette, budget committee co-chairman, said the audit and the newspaper’s investigation into a questionable 2011 loan to a struggling Milwaukee construction company have prompted “concerns” among GOP legislators.

The newspaper found that top Walker aides were pressing for the loan even as the company was collapsing, and that the Wisconsin Economic Development Corp. could not find a record of the underwriting that supported the loan.

The investigation also found that the company had been sued at least three times in 2010 — including once by the state — but that the company’s application stated it had not been sued in the previous five years.

Nygren, speaking with reporters Thursday before the budget committee took up Walker’s proposed changes for WEDC in the 2015-17 budget, said he plans to raise his concerns when the Legislature’s Joint Audit Committee meets to discuss a recent audit of Walker’s troubled job-creation agency.

“The WEDC model can be effective, but obviously we’ve got some work to do to make improvements,” Nygren said.

Nygren’s comments were the first from Republican legislative leadership since Sunday to the State Journal’s investigation into the $500,000 loan to Building Committee Inc., owned by William Minahan, who gave Walker’s campaign a $10,000 donation on Election Day 2010.

The newspaper’s investigation loomed large over the debate Thursday. Rep. Gordon Hintz, D-Oshkosh, said the report raised questions about “the roles of the governor’s top advisers,” “serious open records concerns” and “potentially fraudulent actions on the part of a businessowner.”

“If we had someone at WEDC who had Google, we could have found these things,” Hintz said.

Sen. Jon Erpenbach, D-Middleton, said he believes the Senate wouldn’t have approved appointing former Administration Secretary Mike Huebsch, who pushed for a larger $4.3 million loan to Building Committee Inc., to a $129,000-a-year job with the Public Service Commission if details from the “damning story” were known sooner.

The Joint Audit Committee has not yet set a date for its next meeting.

Co-chairman Sen. Rob Cowles, R-Green Bay, said in a statement the committee “will review the findings and recommendations from the Legislative Audit Bureau on grant and loan programs administered by WEDC when the committee next meets.” He declined to comment on the specifics of the $500,000 loan to Building Committee Inc.

Audit Committee co-chairwoman Rep. Samantha Kerkman, R-Powers Lake, issued a statement saying “in addition to discussing audit content, Legislators will no doubt have questions for WEDC regarding specific loans.”

The budget committee stripped Walker’s proposed merger of WEDC with the Wisconsin Housing and Economic Development Authority, eliminated a proposed $55 million revolving loan fund for the agency, retained current requirements for the agency under the state’s open records law and also removed Walker from the board — all proposals Walkersupported.

The committee bucked the governor’s proposal to also remove legislators from the WEDC board, leaving on two Democrats and two Republicans.

The board would elect its own chairman.

Democrats tried unsuccessfully to make additional changes, including making WEDC employees subject to misconduct in public office laws, requiring WEDC to retain all documents and report jobs created since its inception, and banning awards for prior expenditures and to companies that outsource jobs for five years after they outsource.

On May 8, after the Legislative Audit Bureau reported that the agency hadn’t properly tracked whether companies receiving loans were creating promised jobs, Walker announced he was abandoning plans for a merger.

Last week, Walker called for a phase out of WEDC’s entire loan program, a move that Nygren said Republican lawmakers support, but didn’t adopt Thursday.

Walker’s announcement came within hours of his office releasing records to the State Journal related to the newspaper’s investigation.

Walker, who is expected to announce his candidacy for the 2016 GOP presidential nomination after the state budget wraps up next month, created WEDC in 2011 to help meet his promise of creating 250,000 jobs in his first term.

According to the Bureau of Labor Statistics, Walker fell about 120,000 jobs short of that goal.

Earlier this week, Democrats called for state and federal investigations into the loan, citing the State Journal’s investigation. On Thursday, Rep. Peter Barca, D-Kenosha, and Sen. Julie Lassa, D-Stevens Point, the Democratic members of the WEDC board, formally requested a federal inquiry.

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Matthew DeFour covers state government and politics for the Wisconsin State Journal.