WEDC to discuss audit, bad loan

Gov. Scott Walker, left, and Reed Hall have led the Wisconsin Economic Development Corp. since 2013.

Associated Press archives

OSHKOSH — Gov. Scott Walker said Monday that the state should pursue every avenue to recover an unpaid $500,000 loan to a struggling Milwaukee construction company owned by a millionaire campaign donor, though he wouldn’t say whether there should be a criminal investigation.

A State Journal investigation reported on the questionable loan in May, including that the company received the loan without a formal staff review of its application, which stated that the company had not been sued in the past five years, even though it faced three such lawsuits.

“Any case that involves WEDC where someone misrepresented themselves … we should use any legal means necessary to (collect on behalf of taxpayers),” Walker told reporters.

Walker made the comments before the Wisconsin Economic Development Corp. board received a presentation about and discussed the questionable 2011 loan to Building Committee Inc. and an internal report that found the agency failed to properly review 28 awards totaling $126 million in its first 15 months.

Walker, who was recently removed as chairman of the WEDC board at his own suggestion, was present at the meeting but didn’t take part in the discussion about the loan.

The discussion came two months after the State Journal report also found that Walker’s top Cabinet secretary, Mike Huebsch, pressed multiple times for awarding BCI more than $4 million.

The agency later sought more federal bonding authority for the company, even after learning that owner William Minahan owed more than $220,000 to a luxury car company, including for a Maserati and Corvette. WEDC eventually took the now-defunct company to court, but has yet to recoup the lost taxpayer money.

Walker has denied any prior knowledge of Huebsch’s involvement or the loan itself.

Dan Ariens, whom the board elected Monday to replace Walker as chairman, said the agency has learned many lessons since its inception in July 2011.

“Staff is acknowledging we made some mistakes here very early in the tenure and today we’re a very different organization,” Ariens told the board, though he later declined to identify those mistakes for reporters and said they weren’t specific to BCI.

External review

In addition to electing new officers and hearing a staff presentation on the BCI loan, the board agreed to hire the Center for Regional Economic Competitiveness to review WEDC’s operations and procedures and present recommendations for improvement.

Democratic lawmakers on the board, who have called for a federal investigation into the BCI loan and for WEDC CEO Reed Hall to resign, called for immediate policy changes to protect taxpayer resources. They included requiring staff to report any observed fraud to the district attorney and ensuring companies aren’t facing legal action prior to executing contracts.

Hall agreed that WEDC should do background checks on companies right before awarding contracts, in addition to at the beginning of the review process, which can take months to complete. But he agreed with other board members who had concerns about what staff would consider fraudulent.

“I agree we should do a final check,” Hall said. “Whether we report fraud is a very delicate matter.”

The two Republican lawmakers on WEDC’s board have withheld commenting about the BCI loan until Monday’s meeting. During the meeting, both Sen. Rick Gudex, R-Fond du Lac, and Rep. Rob Hutton, R-Brookfield, stayed mostly silent, other than to encourage taking up any policy changes introduced by the board’s two Democrats at future committee meetings.

Gudex defended the agency for creating jobs across the state, which he said was more important than one loan that didn’t work out.

The board — which includes two Democratic and two Republican legislators, eight private-sector members and two non-voting Cabinet members — voted to refer the policy changes to a sub-committee of the board for review.

‘Giant red flag’

Rep. Peter Barca, D-Kenosha, and Sen. Julie Lassa, D-Stevens Point, pressed WEDC staff about why they continued to seek taxpayer assistance for BCI for a year after staff learned in April 2012 that Minahan had told an official at the luxury car company that he would repay the debt with money he expected to receive from a taxpayer-funded WEDC grant.

“Why at that point wasn’t there a sort of giant red flag, cease-and-desist all activities?” Barca asked.

WEDC attorney Hannah Renfro emphasized that the company never received additional funding because it couldn’t line up private financial backing, but otherwise had no explanation for why former chief operating officer Ryan Murray, a former Walker aide, continued to press for more money for the company.

Lassa asked if WEDC had reported BCI or Minahan to law enforcement. Renfro said she couldn’t answer that question in open session.

“We would cooperate with any efforts by law enforcement,” Renfro said.

To start the discussion, Renfro gave a presentation about the BCI loan and the review that found 28 awards before July 2013 hadn’t received a formal written review of their financial viability. The agency originally reported 27 awards but confirmed Monday there was a second $2 million loan to Kestrel Aircraft that also didn’t have a staff review.

Renfro reported that formal staff reviews were not required at the former Commerce Department or WEDC prior to July 2013. She said a 2006 audit found only half of company progress reports were submitted on time, but today 95 percent are reported on time.

The board didn’t discuss in detail an audit of WEDC’s operations and finances in 2013 released in May by the nonpartisan Legislative Audit Bureau, which found the agency failed to follow state law and its own policies, didn’t track loans and failed to verify that businesses receiving state assistance had created the promised number of jobs.

Renfro noted that the agency has put in place more than 100 policies that address many of the problems raised in the audit and by the BCI loan.

Raymond Dreger, a WEDC board member and chairman of its audit committee, downplayed the LAB audit because it covers a period from two years ago.

“The LAB audit tends to be an exercise in futility, because as you look at the report, many of the things the LAB pointed out to us we’ve already changed,” Dreger said.

After the audit was released, Walker scrapped a proposed merger of his flagship job-creation agency with the Wisconsin Housing and Economic Development Authority. He later called for an end to the agency’s loan program just days before the State Journal published its investigation on BCI.

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