MILWAUKEE — The Wisconsin Economic Development Corp. is reviewing its job-related tax credit programs because of possible discrepancies between the number of jobs created and the amount of tax credits claimed — nearly $66 million since 2007.
WEDC officials said Thursday they are still trying to understand the scope and magnitude of the problem.
But officials acknowledged they have identified inaccuracies in how the agency counts the number of jobs a company creates that qualify for reductions in taxes.
The agency review comes on the heels of a State Journal investigation into a questionable $500,000 loan.
WEDC chief executive officer Mark Hogan made the disclosure at an agency board meeting Thursday. But there were few details discussed in public before the board moved into closed session to talk further about the issue, citing an exemption in the state’s open meetings law to discuss potential litigation.
It’s unclear if the discrepancies will prompt the agency to seek to recoup money from companies excessively awarded tax credits.
Under the program, the state reduces the taxes of companies that create and retain a certain number of jobs. The tax credits are based on a formula that takes into account the number of jobs created or retained and how much they pay. Companies can claim the credits after WEDC verifies they have fulfilled the job requirements.
WEDC records show that since July 2007 the agency has made 305 job-related tax credit awards totaling $170.6 million.
Of that amount, companies have so far qualified for $65.8 million in credits for meeting job-creation goals, according to agency records, while the remaining nearly $105 million has not yet been earned.
But Hogan told the WEDC board that the tax credits issued have been based on faulty calculations.
The agency gave out almost $90 million more in awards, but the total number of related jobs fell by nearly 6,000.
WEDC figures show that the credits are based on the creation of 13,797 jobs and the retention of another 44,114. It’s unclear how inaccurate those numbers are.
“We expect to see adjustments,” Hogan said.
He added the agency will provide a more detailed report at an open meeting next month.
Hogan declined to comment further after the meeting.
The tax credit program began in 2007 under the old Commerce Department.
WEDC discovered problem
Agency spokesman Steven Michels said the discrepancies were discovered as part of a compliance review process that the agency put in place in 2013, in the wake of Legislative Audit Bureau reports that found several agency shortcomings. The basis for the review is not related to any fraud, he said, but he would not elaborate on what specific finding triggered the review.
“Finding errors and checking our work is a part of WEDC’s mission to continuously improve as stewards of taxpayer dollars,” Michels said. “Our goal will be to identify any errors and areas where process can improve moving forward.”
It’s unclear how many of the agency’s tax credits will be reviewed or how many include errors.
The Legislature ended the state’s jobs tax credit and economic development tax credit programs in December, but many of the awards remain open with job-creation and retention milestones set over the next several years.
WEDC has been under close scrutiny after a series of scathing reports by the Legislative Audit Bureau and news reports about failed loans and tax credits that didn’t result in promised jobs.
The nonpartisan Legislative Fiscal Bureau raised the issue in August, but DOJ and DOA lawyers disagree there's a problem.
An internal review last year prompted by a Wisconsin State Journal report on a failed $500,000 loan given in 2011 without proper underwriting found there were 28 awards totaling $126 million for which the agency couldn’t locate a staff underwriting report.
Hogan, the agency’s third CEO since 2011, also told the board on Thursday that he and chief financial officer Brian Nowicki will continue to take on the responsibilities previously handled by the vice president of credit and risk. The agency had been seeking a replacement for Jake Kuester, who left for a private-sector job in Minnesota last fall. That search will be postponed indefinitely, Hogan said.
The board also approved an amendment to its budget doubling the amount of reserves for writing off loans from $3.5 million to $7 million. The reserves cover both forgivable loans and defaulted loans that won’t be recovered.Earlier this week a judge issued an arrest warrant for a De Pere businessman whose company Green Box NA Green Bay owes WEDC more than $2.1 million in unpaid loans.
The Green Box loan was one of several bad loans from WEDC’s early days when the agency was under pressure to help Gov. Scott Walker create more than 250,000 jobs. The agency’s default rate has declined, but several of the defaulted loans, including Green Box, are still on the books as money the agency hopes to recoup.
Walker and the Legislature ended the agency’s loan programs in the latest state budget.