MADISON, Wis. (AP) — Wisconsin Gov. Scott Walker on Wednesday defended not telling the board in charge of the state's quasi-private economic development agency about a highly critical letter from the federal government.
The Aug. 12 letter from the U.S. Department of Housing and Urban Development said two state agencies failed to follow federal law and their own policies in issuing economic development grants and ordered Walker's administration to make changes.
Walker tried to downplay the letter, calling it "routine" and highlighting the fact that it cites problems going back to 2007, before he took office.
"They're raising concerns about a variety of issues as they have for years," Walker said.
The agencies named in HUD's letter were the Department of Administration and the new Wisconsin Economic Development Corp., but it also cited problems with WEDC's processor, the Department of Commerce. The letter was sent to the Department of Administration, which sent a response on Sept. 12 and largely agreed with HUD's findings. The letters were first reported on by the Wisconsin State Journal in a story published Wednesday.
While it was communicating with HUD, Walker's administration did not inform the board governing the year-old Wisconsin Economic Development Corp. about the issues raised by the federal agency.
That drew an angry response from two Democratic lawmakers who sit on the board. Sen. Julie Lassa, D-Stevens Point, called it "inexcusable" that the board wouldn't be told about the letter at its meeting last week.
"The legislators on the WEDC board are supposed to be providing oversight of taxpayer dollars, but we can't play that role if important information like this is withheld from us," Lassa said in a prepared statement.
Walker said if the HUD letter had required specific action by the board, they would be been informed.
Rep. Peter Barca, the Democratic minority leader in the state Assembly, said the problems could have been avoided if Walker and Republicans who controlled the Legislature wouldn't have moved so quickly and created WEDC without a business plan in place.
Creating the new agency was one of Walker's top priorities when he took office last year and Republicans quickly agreed with the plan. It replaced the Department of Commerce in July 2011.
The HUD letter points to numerous problems resulting from what it called the "hasty" transfer of duties.
Wisconsin apparently drew HUD's attention with a February announcement by Walker that four communities had received $9.6 million in Community Development Block Grant funding. HUD said in its monitoring report that at the time of the awards, WEDC had no legal authority to award or administer the program.
The federal agency ordered Wisconsin to hire a high-level administrator for monitoring, oversight and compliance.
"We appreciate the monitoring feedback from HUD, and we are reviewing the past practices of administering the community development block grants to ensure WEDC and the program are following appropriate measures," said Department of Administration spokeswoman Stephanie Marquis. "We will continue to work collaboratively with HUD and incorporate its feedback about the program."
HUD also said the state failed to perform required underwriting — the process of determining the financial soundness of a company — before giving $390,000 to Gilman USA LLC, a machining company in Grafton, and $1 million to Morgan Aircraft in Sheboygan.
In the case of Gilman, HUD said that WEDC staff indicated "the underwriting process was skipped in order to accommodate the business' timeline."
In the case of Morgan Aircraft, HUD said WEDC staff indicated that underwriting was done but not placed in the file. However, HUD requested a copy but none was provided.
HUD also flagged the transfer of $8.6 million in Community Development Block Grant funds by a former WEDC controller on her last day at work Dec. 27, without any approval from the Department of Administration.
Paul Jadin, the current head of WEDC, said Wednesday that the unnamed employee was trying to make sure the money was in the proper account before she left her job. Jadin said the money has all been accounted for and he does not know why the employee in question made the transfer without telling the Department of Administration.
Jadin announced last week that he was resigning in November as head of WEDC to lead a regional economic development group called Thrive. He said his leaving the agency and the departure of other top staff has nothing to do with the HUD letter.
News of the letter is just the latest blow for the agency that was created to spur job creation and help Walker meet his campaign promise to grow 250,000 private sector jobs by 2015. Only about 27,000 private sector jobs have been created through August, far from the pace needed for Walker to fulfill his promise.
Jadin and WEDC earlier this year drew fire after Jadin signed a letter to a Stevens Point-company, Skyward, offering it nearly $12 million in tax breaks contingent upon Skyward winning a contract to implement a statewide student information system.
Walker's administration suspended the process over concerns about the propriety of the tax break offer, which critics said could amount to illegal bid rigging.